Financial Section

Contents
Management’s Discussion
and Analysis

40

Business Risks

46

12-year Summary

48

Consolidated Balance Sheets

50

Consolidated Statements ofIncome52

Consolidated Statements of
Changes in Net Assets

53

Consolidated Statements ofCash Flows

54

Notes to Consolidated
Financial Statements

55

Independent Auditors’ Report

66

Consolidated Subsidiaries andEquity-method Affiliates

67

Investor Information

68

Financial Data and Graphs
For purposes of presentation in this annual report, all amounts less than one billion yen or one
million yen, and hundredths of a percentage point, have been rounded to the nearest whole
number. In addition, all graphs represent fiscal years ended March 31 of the respective years.

39

Management’s Discussion and Analysis
Summary

Business results by segment (¥ million)n Consolidated gas sales volume increased by 6.8% year on year to 14,215 million m3. Gas sales volume was firm in all sectors,
particularly in the industrial and wholesale sectors.
n Although sales increased by 8.0% to ¥1,487.5 billion, operating income decreased by 56.8% to ¥70.0 billion, and net income
decreased by 57.8% to ¥42.5 billion. One reason for these results was the increase in operating expenses. The gas resource cost was
higher due to higher sales volumes and the steep rise in the price of LNG, and there were higher personnel costs caused by a greater
burden from the actuarial differential on retirement benefits and higher depreciation costs due to the impact of the tax revision.

Sales
2008

2007

2006

1,087,045

999,521910,321

Gas Appliance Sales

132,327

135,407

130,826

Related Construction

57,32659,23059,747

Real Estate Rental

35,16934,03534,187

Years ended March 31

Gas Sales

Other Business
Total

Sales Trends in the Core Gas Business

Sales Volume Increases in All Sectors
n Residential Sector
In the first half of fiscal 2007, temperatures were 0.6ºC higher on
average than in the previous fiscal year, resulting in decreased
demand for hot water. In the second half, however, when gas
demand is seasonally higher, the average temperature was 1.1ºC
lower than in the previous year, resulting in increased demand for
hot water and heating. As a result, sales volume increased by 77
million m , or 2.3%, to 3,529 million m .
33

Gas sales volume by sector(million m3/45MJ)

15,00012,000
9,000
6,000
3,000
0

’04

’05

’06

’07

’08

WholesaleCommercial sector,
public and medical
Industrial sector
Residential sectorn Commercial Sector, Public and Medical
Temperatures were higher year on year in the first half and lower
in the second. Air conditioning demand grew, with the result thatgas sales volume increased by 154 million m 3, or 5.2% to 3,126
million m3.

320,361

285,407

252,596

1,632,228

1,513,600

1,387,677

Elimination or corporate(144,731)(136,642)(121,175)

Consolidation

1,487,497

1,376,958

1,266,502

Operating income
2008

2007

2006

111,664

203,566

160,020

Gas Appliance Sales

2,909

1,169

4,617

Related Construction

828

1,751

2,976

Years ended March 31

Gas Sales

Real Estate Rental

7,963

6,731

5,459

Other Business

12,76913,8489,647

n Industrial Sector
Gas sales increased by 396 million m3, or 7.4%, to 5,732 million m3.

Total

136,133

227,065

182,719

Elimination or corporate(66,084)(64,750)(70,373)

This was mainly attributable to steady growth in the operations of
new and existing customers.

Consolidation

70,049162,315

112,346n Wholesaling to Other Gas Companies
Sales increased by 274 million m3, or 17.6%, year on year to 1,828
million m3. This was attributable to steady growth in the operationsof new and existing customers in the service areas of the purchasing suppliers of 27 companies and also to increased demand forheating and hot water due to lower temperatures in the second half,when gas demand is seasonally higher.
Total gas sales volume increased in all sectors and overall it
increased by 900 million m 3, or 6.8%, to 14,215 million m 3. Sales
exceeded the forecast for the current year by 330 million m3, or 2.4%.

Note: Segment sales and operating income include intra-group transactions.

¥2.8 billion negative impact from other factors, leaving a total pricerelated contribution of ¥43.4 billion.
The contribution of gas sales to total sales increased from
66.1% in the previous year to 66.6%.
Factors that included a steep rise in prices for LNG and higher
gas sales volumes led to an increase in gas resource costs and as aresult operating expenses increased by ¥179.4 billion, or 22.5%,
despite our efforts to reduce existing expenditure items.
Operating income decreased by ¥91.9 billion, or 45.1%, to¥111.7 billion.
n Gas Appliance Sales
Lower Sales and Higher Income as Sales in Value Terms
and Expenses Decline

Analysis of Income

Sales of highly efficient water heaters, bathroom heater-dryers with

Income Substantially Lower Due to Higher Gas
Resource Costs, Higher Personnel Costs Resulting
from a Greater Burden from the Actuarial Differential
on Retirement Benefits, and Higher Depreciation Costs
Due to the Impact of the Tax Revision
Gas sales increased by 8.8% in the year ended March 31, 2008.
Contributing factors included growth in gas sales, and higher unit
prices under the gas rate adjustment system. Results from othersegments included an increase in sales from the energy services
business. Total net sales increased by ¥110.5 billion, or 8.0%, overthe previous year’s figure to ¥1,487.5 billion.
Operating income fell by ¥92.3 billion, or 56.8% year-on-year,to ¥70.0 billion. Reasons for the fall included higher gas resource
costs resulting from higher gas sales volumes and a steep rise in
the price of LNG, an increase in personnel costs resulting from an
40

actuarial differential on retirement benefits, and an increase indepreciation costs due to the tax revision.
n Gas Sales
Higher Sales and Lower Income as the Increase in Gas
Resource Costs Partially Cancels Out High Unit Prices
under the Gas Rate Adjustment System
There was a 6.8% volume increase in total gas sales and unit prices
also rose under the Gas Rate Adjustment System, so in value terms
gas sales increased by ¥87.5 billion, or 8.8%, to ¥1,087.0 billion. At
the non-consolidated level, sales increased by ¥85.0 billion; sales
volumes had positive impacts of ¥41.6 billion, including ¥10.2 billion
by temperature-related factors, while higher unit prices under thegas rate adjustment system used to adjust for gas resource costs
made a positive contribution of ¥46.2 billion. This was offset by amist sauna functions, cooktops, etc., were firm; however, the switch
to highly efficient water heaters led to declining sales of kitchenwater heaters. Sales of gas appliances decreased by ¥3.1 billion, or
2.3%, to ¥132.3 billion, while operating expenses also decreased by¥4.8 billion, or 3.6%. As a result, operating income increased by¥1.7 billion, or 148.8% to ¥2.9 billion.
The contribution made by gas appliance sales to total net sales
declined from 8.9% to 8.1%.
n Related Construction
Reduced Installation Numbers Reflected in Lower Sales
and Income
Sales decreased by ¥1.9 billion, or 3.2%, year on year to ¥57.3 billion, reflecting a reduction in the number of new installations.
Operating expenses also decreased by ¥1.0 billion, or 1.7%, to¥56.5 billion, while operating income decreased ¥0.9 billion, or
52.7%, to ¥0.8 billion.
This segment’s contribution to total net sales declined from
3.9% to 3.5%.
n Real Estate Rental
Sales increased by ¥1.1 billion, or 3.3% to ¥35.2 billion mainly due toincreased revenue from facilities management and operating
expenses were ¥27.2 billion, about the same level as in the previous
fiscal year. As a result, operating income increased ¥1.2 billion, or
18.3%, to ¥8.0 billion.
This segment’s contribution to total net sales was 2.2%, thesame as last year.
n Other Business
Energy Service and LPG Businesses Expanding
Sales of other business segments increased by ¥35.0 billion, or
12.2%, year on year to ¥320.4 billion. Reasons for the higher result
include the expansion of the on-site energy service business, andthe increase in sales in the LPG division due to higher prices for LPG
and higher sales volumes. Operating expenses rose by ¥36.0 billion,or 13.3% due to the impact of the increased initial depreciation burden associated with the on-site energy service business. Operating
income decreased by ¥1.1 billion, or 7.8%, to ¥12.8 billion.
This segment’s contribution to total net sales increased from
18.9% to 19.6%.
n Other Revenues and Income/Net Income
Total other income increased by ¥0.6 billion to ¥20.6 billion. Althoughforeign exchange profits increased to ¥4.4 billion (¥0.2 billion expenses in the previous fiscal year) and return on investment accounted forunder the equity method increased ¥2.4 billion to ¥3.8 billion, gains
from sales of fixed assets decreased by ¥6.1 billion to ¥1.8 billion andgains from sales of investment securities decreased by ¥2.5 billion to¥3.4 billion.
Other expenses increased overall by ¥1.2 billion to ¥21.0 billion. Contributing factors included a ¥2.7 billion increase in the balance on commissioned construction to ¥3.7 billion, and a ¥2.3 billion
increase in environmental development expenses arising from soil

Net income and net income per share(¥ billion)

(¥)

100

45

80
30

60
40

15

20
0

’04

’05

’06

’07

’08

0

Net income
Net income per share41

improvements on land owned by Tokyo Gas to ¥2.7 billion, but theseeffects were offset by factors such as a ¥6.5 billion decrease inlosses on reduction of fixed assets to ¥0.7 billion.
As a result of the above, other income (expenses) worsened
from the previous year’s result of ¥0.2 billion income to ¥0.4 billion
net expenses. Net income for the current fiscal year decreased by
57.8%, to ¥42.5 billion.

n ROE at 5.4%
Net income decreased 57.8% to ¥42.5 billion and as a result ROE fell to
5.4% from 13.2% in the previous fiscal year. Because of a reduction inretained earnings resulting from dividend payments and share
repurchasing and retiring, equity fell by ¥26.0 billion year on year to¥769.1 billion. In future, we will continue to aim to build an optimal capital
structure and maintain continuous improvement in the level of ROE.

n Decrease in Net Income—ROA at 2.5%
Net income fell by ¥58.2 billion from the previous year’s level, in part
because of under-recovery of some portion of higher gas resource
costs, caused by the upwardly sliding time lag under the gas rateadjustment system. As a result, ROA fell to 2.5%, from 5.9% in theprevious fiscal year. Total assets increased by ¥11.1 billion year on
year to ¥1,703.7 billion. As a result of ongoing depreciation, the tangible fixed asset portion of this amounted to ¥1,124.1 billion.
Investments and other assets increased by ¥12.0 billion to ¥229.0 billion, in part because of increased subsidiaries and affiliates investment. Despite a ¥8.2 billion reduction in other current assets, current
assets rose by ¥6.2 billion to ¥327.3 billion. This reflects increases of¥6.5 billion in notes and accounts receivable-trade and ¥3.5 billion in
cash and cash equivalents.
In future, we will continue to combine aggressive investment
activities in order to build a foundation for future profitability paying
careful attention to the efficiency in order to improve the level of ROA.

n Fiscal 2008 Projection
Higher Revenues and Income Predicted for Fiscal YearEnding March 31, 2009

ROA and ROE
(%)

16

12

8

4

0

’04

’05

’06

’07

’08

ROE = net income/equity(average of positions at start and end of fiscal year)

ROE
ROA

In fiscal 2008 (the year ending March 31, 2009), we expect net sales
to increase by ¥224.5 billion, or 15.1%, to ¥1,712.0 billion, based on
an assumption of $95 per barrel and an exchange rate of ¥105 to thedollar for the year. Operating income is also expected to increase by¥5.0 billion, or 7.1%, to ¥75.0 billion and net income by ¥7.5 billion,
or 17.7%, to ¥50.0 billion.
Forecast of an increase in income compared with the fiscal
2007 results are analyzed below on the basis of non-consolidated
ordinary income.
In fiscal 2007, non-consolidated ordinary income amounted to¥44.4 billion. The result for fiscal 2008 is expected to be higher, witha year-on-year increase of ¥7.6 billion, or 17.2%, to ¥52.0 billion. An
improvement in the gross margin on gas accounts for ¥19.5 billion ofthis projected increase, offset by an increase in fixed costs andother factors of ¥11.9 billion.
The gross margin on gas accounts is expected to increase by¥19.5 billion from fiscal 2007 due to an increased volume of gas
sales, the impact of the revision in gas rates, and the time-lag in thegas rate adjustment system. Regarding gas sales in volume terms, if
it is assumed that fiscal 2008 temperatures are the same as thosein an average year, residential, commercial, and other demand will
decline, mainly due to lower than average temperatures in the previous year, while industrial and wholesale demand will continue toincrease. As a result, we forecast that gas sales volumes will
increase by a slight 0.1% year-on-year but there will be a ¥1.6 billion
worsening of the gross margin due to changes in the sector structure—decreases in the residential sector, increases in the industrial sector—of each type of gas use. We expect the downward revision in gas rates for small-volume customers that we implemented
on April 15, 2008 will drive down the gross margin by ¥9.7 billion.
But in fiscal 2008, the overall gross margin on gas will improve by

Tax Revision-related to Depreciation in Fiscal 2007
Revisions to the taxation system in fiscal 2007 had the effect of abolishing the upper limit on the depreciation ceiling (95% of acquisitioncost). There is a post-revision change in the method of calculating depreciation under Corporation Tax Law for tangible fixed assets
acquired on or after April 1, 2007. For assets acquired on March 31, 2007 or earlier, the effect on the amount of depreciation will mainly beseen between fiscal 2007 and fiscal 2011 because the residual amount will be subject to straight line depreciation for the five years fromthe accounting year after the year in which the residual value reached 5% of the cost of acquisition. The above effect resulted in an
increase of ¥13.0 billion in depreciation at the consolidated level. However, we expect the long-term effects of this change to be positive
because depreciation costs are an expense without cash outflow and will reduce our expenses in later fiscal years.

42¥19.5 billion, because we will maintain a fixed gas resource priceand a fixed exchange rate throughout the fiscal year. Thus, theshortfall in recovery from the time lag will decrease by ¥30.8 billion
compared with fiscal 2007.
The rise in fixed costs was the result of a ¥7.4 billion increase in
the actuarial differential on retirement benefits caused by worsening
performance of pension assets with the downturn in the stock market
in fiscal 2007, and investment in and strengthening of new measures
such as the establishment of the new regional energy company.
n Challenges in Fiscal 2008
Fiscal 2008 is the third year of the current 2006–2010 medium-term
management plan, and we will continue to build a foundation for sustainable growth in the 2010s. We will focus on the following key priorities.
l Steadily promote the measures in the current medium-term
management planl Strengthen our strategies to resist electrification and develop demandl Launch our new regional energy company, LIFEVALl Respond to the privatization of the government-owned gas
operatorsl Further build the sense of security, safety and reliability customers feel toward Tokyo Gas
Rising global crude oil and LNG prices and changes to thecompetitive environment in the energy market are having a big impact
on Tokyo Gas, and social demands for global environmental
preservation and safer gas appliances are increasing. Therefore, we will
review these change of management environment, aim for the“deepening and development of our integrated energy business” aimed
at realizing sustainable growth, and the “strengthening of a corporate
foundation” to carry out our business strategies, and formulate andannounce a new management plan in the fiscal year 2008.

Tokyo Gas Original Indicator: TEP
Our goal is to generate profit in excess of capital costs. This isreflected in our adoption of Tokyo Gas Economic Profit (TEP—Net
ordinary income after tax prior to interest payments minus the costof capital), as our main management indicator. TEP is also being
used as a management indicator for group companies, and as abenchmark for business restructuring and integration.
In fiscal 2007 Net Ordinary Profit After Tax Prior to Interest
Payments (NOPAT) declined ¥53.6 billion year-on-year to ¥49.8 billion. The main reasons for this decline were under-recovery of gas
resource costs due to a time lag in the gas rate adjustment system,
the increase in the actuarial differential on retirement benefit
reserves, and the increase in depreciation. However, the Weighted
Average Cost of Capital (WACC) fell from 3.8% to 3.6% with theresult that the cost of capital declined by ¥1.5 billion to ¥48.1 billion.
As a result, TEP declined by ¥52.1 billion to ¥1.7 billion.

TEP(¥ billion)

60
50
40
30
20
10
0

’06

’07

’08

TEP: NOPAT – cost of capital (Invested capital x WACC)NOPAT: Net ordinary income after tax prior to interest payments

Cash Flows and Financial Positionn Cash Flows from Operating Activities
Net cash and cash equivalents from operating activities decreasedby ¥8.4 billion from the previous year to ¥182.2 billion. Although
there was a ¥37.9 billion increase in retirement benefit reserves anda ¥50.0 billion increase in trade, income before income taxes andminority interest declined by ¥92.8 billion.
n Cash Flows from Investing Activities
Net cash and cash equivalents used in investment activities amounted to ¥155.4 billion, an increase of ¥24.5 billion compared with theprevious year’s figure. This total consists mainly of an increase of¥9.0 billion in payments resulting from the loaning of long-term loan
receivables and an increase in payments of ¥6.5 billion due to theacquisition of investment securities.

n Cash Flows from Financing Activities
Net cash and cash equivalents used in financing activities decreasedby ¥40.6 billion year on year to ¥25.2 billion. Although there was adecrease of ¥16.4 billion due to repayment of long-term debt and adecrease of ¥12.0 billion in commercial paper, income from longterm loans increased by ¥44.7 billion and income from the issuanceof corporate bonds increased by ¥30.0 billion.
Years ended March 31(unit : million yen)

2008

2007

2006

Net cash provided byoperating activities

182,204

190,597

181,529

Net cash used ininvesting activities(155,366)(130,922)(116,071)

Net cash used infinancing activities(25,190)(65,844)(83,041)

43

n Operating Cash Flow
Tokyo Gas has made operating cash flow a major management indicator in its medium-term management plan for fiscal 2006–2010.
Free cash flow is calculated by subtracting the capital expendituresof our major businesses so in the current medium-term management
plan, which is aiming to aggressively invest in the gas business, wehave stipulated operating cash flow, which is calculated by adding
depreciation to net income, as our key indicator.
Operating cash flow for the fiscal year ended March 31, 2008,
amounted to ¥184.9 billion, a year-on-year decrease of ¥48.9 billion.
The lower figure reflects a decrease of ¥58.2 billion in net income,and an increase of ¥9.3 billion in depreciation.
n Interest-bearing Debt
In fiscal 2007 interest-bearing debt increased by ¥33.2 billion to¥558.7 billion, because of the increase in the demand for funds, particularly for capital investments and investment and financing activities. As a result the D/E ratio rose 0.07 percentage points to 0.73.

Interest-bearing debt and D/E ratio(¥ billion)(times)

1,000

2.0

800

1.6

600

1.2

400

0.8

200

0.4

0

’04

’05

’06

’07

’08

0.0

Interest-bearing debt
D/E ratio

Interest-bearing debt = long-term debt due after one year +long-term debt due within one year + bank loans
D/E ratio = interest-bearing debt / total equity(as of end of fiscal year)

Total equity and equity ratio(¥ billion)

(%)

800

60

600

45

400

30

200

15

0

’04

’05

’06

’07

’08

0
Total equity
Equity ration Equity Ratio
In fiscal 2007 the equity ratio fell 1.9 points to 45.1%. This result
reflected a ¥25.6 billion decrease in net assets, despite an ¥11.1
billion increase in total assets. The decrease in net assets wascaused by dividends of ¥22.8 billion and acquisition of own stock
worth ¥39.6 billion, despite posting net income of ¥58.2 billion.
Another factor was that net unrealized holding gains on securities
were ¥17.8 billion lower this year.
n Total Payout Ratio
In its current medium-term management plan, Tokyo Gas has introduced the concept of a 60% total payout ratio as an indicator of its
commitment to shareholder returns. We define this new indicator as
the ratio of the sum of the income distributed as dividends funded by
net income in FY n and share repurchasing in FY n+1 to the net
income in FY n. We aim to maintain a total payout ratio of 60% while
maintaining a balance between dividends and stock repurchases.
We will maintain the dividend for fiscal 2007 at ¥ 8.0 per
share. We also finished repurchase 25 million shares worth ¥10.0
billion yen in fiscal 2008. Result in a total payout ratio of 74.0% infiscal 2007.
Our repurchasing programs are based on the cancellation of
the shares and in fiscal 2007 we cancelled all of our repurchased
shares, 68.6 million shares worth ¥34.5 billion, in October 2007. As aresult, the number of issued shares declined by the same amount, to
2,741,571 thousand shares.

External Risks Affecting Business Activities
n Gas Resource Fluctuation Risk
City gas supplied by Tokyo Gas is produced mainly from imported
LNG. Since contracts are denominated in U.S. dollars, earnings are
at risk from fluctuations in the yen-dollar exchange rate. Also, thedollar-denominated LNG prices are linked to crude oil prices on asliding scale, which exposes the Company to risk from changes in
the international market price for crude oil.
The provisional calculation of the extent to which these fluctuations affected gas resource costs in the year ending March 31, 2009is as follows.
Approx. ¥ 6.7 billion for each ¥1 movement in the
yen-dollar exchange rate
Approx. ¥ 4.9 billion for each $1 movement in the
per-barrel price of crude oil
Fluctuations in the cost of gas resources are passed on togas rates after at most six months under the “gas rate adjustment” system. Under this system, although earnings may be subject to temporary increases and decreases in a given fiscal year,
the effect on operating income in fiscal 2008, after considerationof the time lag in the gas rate adjustment system, will be approximately ¥2.3 billion with an exchange rate fluctuation of ¥1/dollar
and approximately ¥1.8 billion with a fluctuation in crude oil priceof $1/barrel.
In fiscal 2007, the crude oil price averaged $78.67 per barrel,
and the average exchange rate was ¥114.44 to one dollar. Forecasts
for fiscal 2008 are based on an average crude oil price of $95 perbarrel and an exchange rate of ¥105 to one dollar.
n Temperature Fluctuation Risk
Temperatures affect the volume of city gas sales, which account foraround 70% of consolidated sales and more than 80% of operating
income. In the residential sector gas is used mainly for water heating and space heating. Mild winter weather can erode revenues andincome by reducing the volume of gas sold. On the other hand, in thecommercial sector gas is mainly used for air conditioning systems so
if temperatures are high in the summer or low in the winter the gas
sales volume increases.
The average temperatures in fiscal 2007 were 22.6ºC in thefirst half of the year, 10.6ºC in the second half, and 16.6ºC over thewhole year. Forecasts for fiscal 2008 are based on an average of
17.0ºC over the whole year.
Impact of 1ºC temperature rise on whole gas sales volume
Rate of change

44

Summer (June – September)+0.1%

Winter (December – March)–2.0%

Intervening months (April, May, October, November)–1.5%

Annual–1.2%

Monthly gas sales volumes for fiscal 2007 (Non-consolidated)(million m3/45MJ)

1,500

1,000

WholesaleCommercial sector,
public and medical
Industrial sector
Residential sector

500

0’07.4 5

6

7

8

9

10 11 12 ’08.1 2

3n Gas Rate Decline Risk
Progress in deregulation has caused competition to intensify
among energy suppliers. In order to offer better services to ourcustomers while also maintaining competitive energy prices, Tokyo
Gas is aggressively cutting fixed costs and returning the benefitsof more efficient management to our customers in the form oflower gas rates.
In April 2008 Tokyo Gas implemented a reduction in our tariffs
averaging 1.51% across the entire small-volume segment. We have
reduced gas rates four times full rate reduction since 1999, by 12%
in total. Against the background of rising energy prices in recent
times the unit price of gas has also been rising under the gas rateadjustment system but Tokyo Gas will continue to monitor the situation and study a strategic rates policy with a view to maintaining andimproving our competitiveness.
n Interest Rate Fluctuation Risk
Tokyo Gas mostly procures both short-term and long-term interestbearing debt at fixed interest rates so there is only a very small risk ofinterest rate fluctuation during the term of an obligation. However,there may be risk of fluctuation when loans are refinanced.
n Stock Price Fluctuation Risk
Tokyo Gas primarily holds equities to become good partners with thecompanies in order to grow together and conduct its business operations. Equity of publicly listed companies is subject to market risk.
Tokyo Gas has established management policies and rules and regularly reviews the necessity of equity holdings and their asset valuations for handling of such equities.

45

Business Risks

Described below are aspects of the information provided in the financial statements concerning the business and financial
situation that could have a significant influence on investor decisions. Forward-looking statements are based on judgments
as of the end of the current consolidated accounting year (March 31, 2008).

1. Accident and Disaster Risks
1

Disruption of production and supply

The business operations of Tokyo Gas are based on the production
and supply of city gas. A major gas leak, explosion relating to the production or supply of gas or disruption of supply could result not only
in direct damages, but also tangible and intangible losses, including asocial liability.
2 	Ensuring the safety of gas and quality problems

affecting gas equipment

Tokyo Gas has a responsibility to ensure the safe supply of gas. Tokyo
Gas sells gas appliances and other equipment under the Tokyo Gas
brand through consolidated subsidiaries and related companies, etc.
Costs accompanying responses to accidents caused by supply, gasappliances and other equipment could affect future earnings, andthere could also be other tangible and intangible losses.
3 	Damage to reputation resulting from gas acci-

dents caused by other gas companies

Accidents involving gas supply by other gas companies could have aserious effect on the reputation of the city gas industry as a whole.
This could result in tangible and intangible losses.

2. Market Risks
1

Market risk

Tokyo Gas might incur losses in the event of changes in the market
price of company-owned real estate, financial assets, pension assets orother assets and fluctuation of gas resource costs and interest rates.

3. Business Strategy Risks
1

Risk faced by existing business

A. R
 isks arising from the establishment andcommencement of operations of the new regionalenergy company
Starting April 2008, the Tokyo Gas Group will gradually restructure andintegrate its residential sector service operations to establish a new
regional energy company, Tokyo Gas LIFEVAL, which will execute allthese operations in an integrated manner. The new company will develop regional demand for gas, primarily among residential customers.
We made careful preparations to ensure that the launch of the company went smoothly without operational errors. However, this change
constitutes a fundamental revision of our regional marketing structure;
thus, if unforeseen changes to the situation were to occur, they could
affect the smooth commencement of the business.
B. Competitive risk

4

Natural disaster risk

Tokyo Gas engages in facility-dependent businesses because city gas
production and supply facilities are the foundation of its business.
Accordingly, earthquakes, typhoons or other major natural disasters
may cause damage to LNG terminals and other production facilities
or pipelines and other supply facilities and disrupt the supply of citygas. Costs accompanying recovery efforts could affect revenues.
5

Resource procurement supply interruption risk

Because Tokyo Gas relies on imports for the majority of its natural
gas and other city gas resources, supplier country risk, accidents
at gas fields or LNG liquefaction plants, accidents to LNG vessels intransit or other situations preventing the smooth procurement of gas
resources may disrupt the supply of natural gas.

Increasing competition with electric utilities and companies entering
into the gas business, as well as possible loss of LNG competitivenessagainst other energy sources due to crude oil price fluctuation, may
have a greater impact on Tokyo Gas business performance.
C. R
 isk of under-recovery or over-recovery of gas
resource costs
Under the gas rate adjustment system, changes in the gas resource
costs are in principle reflected in gas rates, but the fluctuation isreflected in the rates as much as six months later. If this occurs over
the accounting year, revenues for a single fiscal year may be affected
due to under-recovery or over-recovery of gas resource costs. In
particular, if crude oil prices or the exchange rate fluctuate suddenlyor to an extreme degree, this effect on revenues for a single fiscal
year may be large.
D. Changes to the gas resource procurement environment
If demand increases more than the amount procured through LNG
projects based on long-term contracts, or trouble occurs at a shipping
terminal or during transportation, or there are delays of LNG supply
by new projects, etc., revenues may be affected by increases in gas
resource costs due to our procurement of spot LNG.

46

E. Weather risk
Abnormal weather conditions, particularly summer heat waves andwarm winters, reduce gas sales volume in the residential sector,
where gas is mainly used to supply hot water and heating, thereby
affecting revenues.
F. Demand risk
Advancement of energy conservation activities, changes in lifestyles
and industry structure, economic recession or other factors may resultin a partial decrease in existing demand.
G. Technology development risk

4. Information Risks
1

Risk of information leaks

Improper disclosure of customers’ personal information gathered
and managed in the conduct of business as a public utility may
result not only in direct costs required to remedy the situation, butalso in tangible and intangible loss, including damage to the trustof customers and others, with more serious consequences than forother companies.
2

Risk of failure or malfunctioningof IT backbone systems

If we are unable to develop or commercialize in a timely manner the
new products and new technologies necessary for the performanceof our business, we may lose competitiveness with other forms ofenergy and this may affect business performance.

The failure or malfunctioning of IT backbone systems connected withthe manufacture and supply of gas or the calculation of gas rates may
result not only in a disruption in gas supply and delays in customer
service, but also in tangible and intangible loss including damage of
the Tokyo Gas Group’s brand image.

H. Legal and regulatory risk

3

Tokyo Gas manages its operations in compliance with the Gas Utility Industry Law, the Japanese Corporate Law, and the Financial
Instruments and Exchange Law and other laws, regulations andinstitutions. Any revisions to these laws, regulations or institutions
that prove detrimental to the Tokyo Gas Group may affect businessperformance.
2

ROI risk

Tokyo Gas continues to make large investments in keeping with thegoal of “establishing a total energy business” as expressed in themedium-term management plan. Doing so involves investments channeled into the electric power business, energy service business, andgas field and other development projects, the LNG transportation
business and other new businesses, as well as large investments
into the foundations or to expand existing businesses such as longdistance transmission line construction and IT. Such investments run
the risk of not bringing in appropriate returns or not producing the
expected results due to changes in the economic situation, which
could affect revenues.

Interruption of communication
with call centers

Most communication with customers takes place via call centers.
Interruptions to telephone service to call centers would not only
disrupt service to customers over wide areas, but may also incur
serious tangible and intangible loss, including damage of the Tokyo
Gas Group’s brand image.

5. Social Responsibility Risks and Others
1

Environmental risks

The need to comply with new environmental laws or additional obligations to improve the environment might have an effect on the business operation of the Tokyo Gas Group, and it could affect revenues.
2Compliance risks

Any violations of laws, rules and regulations or inappropriate responses to information disclosure that contravene corporate ethics may
result not only in direct costs required to remedy the situation, but also
in tangible and intangible loss, including receiving social sanctions.
3

Risks associated with corporate
responsibility and customer service

Inadequate responses to customer needs or inappropriate customer services may result in declining corporate competitivenessand in tangible and intangible loss, including damage of the Tokyo
Gas Group’s brand image.

47

12-year SummaryTokyo Gas Co., Ltd. and Consolidated Subsidiaries

Millions of yen, except per share amounts

For the years ended March 31

Net sales2008		 ¥1,487,497

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

¥ 1,376,958¥ 1,266,502¥ 1,190,783¥ 1,151,825¥ 1,127,634¥ 1,097,589¥ 1,086,771¥ 992,255¥ 997,767¥ 1,009,155¥ 988,077

Gas sales		 1,087,045

		

999,521		

910,321

		

834,658		

831,115

		

792,454		

750,439		

740,731		

672,069		

674,997		

686,649

		

663,066

Gas appliance sales		

132,237

		

135,407		

130,826

		

135,109		

133,873		

142,636

		

149,203		

146,517

		

127,916

		

133,925

		

127,880		

135,057

Related construction		57,326

		59,230		

59,747

		

64,795

		

68,034

		

70,568

		

71,338

		

71,908

		

68,651

		68,817

		

71,060		

74,767

Real estate rental

		35,169		

34,035

		

34,187

		

34,701

		

35,444

		

36,346

		

37,551

		

37,601

		

37,841

		

37,616

		38,978

		

40,916

Other business		

320,361		

285,407		

252,596		

234,721

		

172,160

		

158,327

		

156,011

		

159,578		

158,819		

155,045

		

154,602		

144,032

Operating income		

70,049		

162,315

		

112,346		

145,349

		

152,287		

123,294		

110,608		

103,659

		

69,233

		

72,303

		

76,485

		

62,163

Net income		

42,487

		

100,700		

62,115

		

84,047

		

44,787

		

59,201

		

51,912

		

27,595

		

26,698

		

17,764

		

17,241

		

15,432

Depreciation*

		

142,422

		

133,142

		

136,377		

140,271		

146,895

		

141,027

		

145,564		

150,374		

140,306		

143,009

		

—

		

—

Capital expenditures**		

138,006

		

124,557

		

119,435

		

107,529

		

107,441

		

111,988		

105,296		

111,397		

124,975		

151,126

		

—

		

—

Free cash flow		

46,903

		

109,285		

79,057

		

116,789

		

84,241

		88,240		

92,178

		

66,572

		

42,029

		

9,647

		

—

		

—

Net income		¥ 15.94		

¥ 37.50

		

¥ 23.48

		¥ 31.47

		¥ 16.44		¥ 21.18		

¥ 18.47		¥ 9.82

		¥ 9.50		¥ 6.32

		¥ 6.14		¥ 5.49Diluted net income

		

15.50

		

35.69

		

21.70

		

28.24

		

14.98

		

19.11

		

16.66

		

9.13

		

8.84

		

5.94

		

5.76

		

5.37

Net assets		

289.49		

293.11

		

270.48		

244.73

		

221.53		

208.65		

200.75		

196.72

		

172.33

		

149.98		

148.67

		

147.65

Cash dividends applicable to the year 		

8.00

		

8.00

		

7.00

		

7.00

		

7.00

		

6.00

		

6.00

		

6.00

		

5.00

		

5.00

		

5.00

		

5.00

Amounts per share ofcommon stock (yen)At year-end (March 31)¥ 1,703,651

Total assets¥ 1,692,635¥ 1,693,899¥ 1,668,734¥ 1,666,828¥ 1,676,064¥ 1,702,713¥ 1,797,669¥ 1,805,086¥ 1,707,446¥ 1,720,684¥ 1,772,132

Long-term debt due after one year		

487,138		

465,896		

496,740

		

547,139		

545,845		

598,322		

680,887		

708,329

		

843,634

		

820,753		

765,304		

878,674

Total net assets

		780,455		

806,046

		

—

		

—

		

—

		

—

		

—

		

—

		

—

		

—

		

—

		

—

Total shareholders’ equity

		

—

		

—

		

728,232		

648,766		

598,453		

579,706

		

564,078		

552,790		

484,239		

421,442		

417,755		

414,906

Operating income to net sales

		

4.7%

		

11.8%

		

8.9%

		

12.2%

		

13.2%

		

10.9%

		

10.1%

		

9.5%

		

7.0%

		

7.2%

		

7.6%

		

6.3%

Net income to net sales

		

2.9%

		

7.3%

		

4.9%

		

7.1%

		

3.9%

		

5.3%

		

4.7%

		

2.5%

		

2.7%

		

1.8%

		

1.7%

		

1.6%

ROE

		

5.4%

		

13.2%

		

9.0%

		

13.5%

		

7.6%

		

10.4%

		

9.3%

		

5.3%

		

5.9%

		

4.2%

		

4.1%

		

3.7%

ROA

		

2.5%

		

5.9%

		

3.7%

		

5.0%

		

2.7%

		

3.5%

		

3.0%

		

1.5%

		

1.5%

		

1.0%

		

1.0%

		

0.9%

Equity ratio

		

45.1%

		

47.0%

		

43.0%

		

38.9%

		

35.9%

		

34.6%

		

33.1%

		

30.8%

		

26.8%

		

24.7%

		

24.3%

		

23.4%

Ratios

Notes: 1. Segment sales include intra-group transactions.
2. Free cash flow = net income + depreciation* – capital expenditures**		 *including amortization of long-term prepayments
		 **purchases of tangible fixed assets + purchases of intangible fixed assets + long-term prepayments (accounting basis)
3. Effective from the year ended March 31, 2007, the Company and its consolidated subsidaries adopted the new accounting standard
		 for presentation of net assets (“Accounting Standard for Presentation of Net Assets in the Balance Sheet and its Implementation Guidance”
		 issued by the Business Accounting Deliberation Council on December 9, 2005.)

48

49

Consolidated Balance Sheets
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
March 31, 2008 and 2007

Millions of yen

ASSETS

Property, plant and equipment (Note 3):
Production facilities
Distribution facilities (Note 4)Service and maintenance facilities (Note 4)
Other facilities (Notes 4 and 16)
Shutdown facilities
Construction in progress

2008

¥

719,708		 2,257,852
		

167,754		

730,135

		

2,240

		

72,419		 3,950,108

Accumulated depreciation
		 Total property, plant and equipment
Intangible assets:
Goodwill
Other intangible assets (Note 16)
		 Total intangible assets
Investments and other assets:
Investment securities (Notes 4 and 5)
Long-term loan receivables (Note 4)
Deferred tax assets (Note 11)
Prepaid pension costs (Note 10)
Other investments and non-current assets
Allowance for doubtful accounts
		 Total investments and other assets
Current assets:
Cash and cash equivalents (Note 4)
Marketable securities (Notes 4 and 5)
Notes and accounts receivable		 Trade (Note 6)
		 Other		 Allowance for doubtful accounts
Inventories (Note 7)
Deferred tax assets (Note 11)
Other current assets (Note 4)
		 Total current assets
Total assets
Accompanying notes are an integral part of these financial statements.

50

Thousands of U.S. dollars (Note 1)		(2,825,986)
		 1,124,122

		

1,834

		

21,386

		

23,220		

131,444

		

18,485

		

31,636

		

9,028

		

39,045

		

(615)

		

229,023

		

43,706		

6

		

172,890

		

13,797

		

(517)

		

38,526

		

13,704

		

45,174

		

327,286¥ 1,703,651¥ 713,984
		 2,196,766
		 170,539
		 707,259
		
2,798
		
52,791
		 3,844,137
		 (2,713,656)
		 1,130,481

		
		
		

1,396
22,672
24,068$ 7,197,077
		 22,578,523
		 1,677,543
		 7,301,345
		22,402

		

724,196

		 39,501,086

Non-current liabilities
Long-term debt due after one year (Notes 4 and 8)
Deferred tax liabilities (Note 11)
Reserve for retirement benefits (Note 10)
Reserve for gas holder repairs
Reserve for safety measures
Other non-current liabilities
		 Total non-current liabilities

2008

Thousands of U.S. dollars (Note 1)

2008

2007

¥

487,138

		

3,066

		

93,558		

3,559$ 4,871,380

		

2,957

		

26,347

		616,625¥ 465,896
		
4,716
		
92,948
		
3,438
		
5,427
		
29,029
		 601,454

		

63,200		

42,617

		

632,000		

99,352

59,72840,454
10,95543,854107
87,420285,135

993,523

37,283

		
		
		
		
		
		
		

		

		

		

372,829

141,8442,066
644,652

		 1,418,444

		

30,663

		

935,577		

35,585

		

29,575

		

263,469

		 6,166,249

		(28,259,862)
		 11,241,224

		

18,338		

213,859

		

232,197

		
		
		
		
		
		
		

144,667
3,779
28,044
12
41,277(752)
217,027

		 1,314,438

				

40,2323

		

437,065

		

63

		 166,382
		
13,818
		(930)
		
36,132
		
11,989		
53,433
		 321,059¥ 1,692,635

Millions of yen

LIABILITIES AND NET ASSETS

2008

2007

		

184,853		

316,360

		

90,276

		

390,444		

(6,142)

		 2,290,229

		 1,728,898
		

137,968		

(5,170)		

385,263		

137,041		

451,734

		 3,272,862$ 17,036,512

Current liabilities:
Long-term debt due within one year (Notes 4 and 8)
Notes and accounts payable:
		 Trade (Note 6)
		 OtherBank loan payable (Notes 4 and 8)
Income taxes payable
Deferred tax liabilities (Note 11)
Other current liabilities (Note 4)
		 Total current liabilities

		

8,379

		

25,150		

83,787

		

251,506

		

2

		

73,205

		

306,571		

141,844

		

2,066

		

634,116

		
		
		

		

(42,774)		

(44,565)		

(427,741)

		

31,917

		

4,241

		

1,479

49,7071,095
302

319,172

424

		
		
		

		

		

		

14,792

Minority interests		11,383

		

10,945

		

113,829

Total net assets
Total liabilities and net assets

		780,455

		 806,046¥ 1,692,635

		

16

		

732,049

		 3,065,710

Commitments and contingent liabilities (Note 17)
Net assets (Note 13):
Shareholders’ equity:
		 Common stock:
			 Authorized: 6,500,000,000 shares
			 Issued: 2,741,571,295 shares as of 2008
					2,810,171,295 shares as of 2007
		 Capital surplus
		 Retained earnings
		 Treasury stock, at cost				 84,937,500 shares as of 2008				 97,537,522 shares as of 2007
Valuation and translation adjustments
Net unrealized holding gains on securities
Deferred gains on hedge, net of taxes
Foreign currency translation adjustments¥ 1,703,651

		

20,655

		 6,341,161

		 7,804,553$ 17,036,512

51

Consolidated Statements of Income

Consolidated Statements of Changes in Net Assets

Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2008 and 2007

Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2008 and 2007

Millions of yen

Net sales (Note 15)
Costs and expenses (Note 15):
Costs of sales
Selling, general and administrative expenses

Operating income (Note 15)

2007

2008

¥ 1,487,497¥ 1,376,958$ 14,874,970

		974,111

		

9,741,110

		

4,433,375

		 1,417,448

		 799,468
		 415,175
		 1,214,643

		443,337

		

		

		

Other income (expenses):
Interest and dividend income		Interest expenses
		
Gains (losses) from weather derivatives
		Gains from sales of fixed assets		
Losses on reduction of fixed assets		Impairment losses (Note 12)		Gains from sales of investment securities (Note 5)		
Losses on valuation of investment securities
		Adjustments of charges for construction of distribution facilities 		Environment maintenance expenses
		
Foreign exchange gains (losses)
		Equity in net income of affiliated companies
		
Other, net
		Income before income taxes and minority interests
Income taxes:
Current
Deferred
Minority interests
Net income

Thousands of U.S. dollars (Note 1)

2008

70,049162,315

1,960

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Net unrealized
holding gains
on securities

2,810,171¥141,844¥2,066¥572,600¥(44,840)¥56,510(9,424)(9,424)

Cash dividends paid (¥3.5 per share)(9,350)(9,350)

(67)

(67)

100,700

100,700		

(17,549)

Disposal of treasury stock(8,403)

		

18,497

Decrease due to addition of consolidated subsidiaries(1,404)

		(7,102)

Net changes in net assets other than shareholders’ equity(6,803)

1,095

250

690

(4,768)

		

(5,679)Net changes during the year

—

—

—

72,052275(6,803)

1,095

250

690

67,559		

33,560

Balance at March 31, 2007

2,810,171

141,8442,066

644,652(44,565)

49,707

1,095

302

10,945806,046		

(10,784)

Cash dividends paid (¥8.5 per share)(22,832)

		

(37,233)

Net income

42,487

		(27,222)

Acquisition of treasury stock		

44,426

Disposal of treasury stock		

37,753Retirement of treasury stock		

52,677

Increase due to addition of consolidated subsidiaries

114

114

		

(3,665)

Increase due to addition of affiliated companies
accounted for by equity method

6,332

6,332

162,533

		

696,820

		

22,749		
49,335
		
11,711
		
61,046
		(787)¥ 100,700

		

227,487(1,078)(3,723)(2,722)
4,442
3,775
5,267

		

3,238

		

25,987

		

(1,208)¥42,487		¥15.94

		

15.50

		

8.00

		

32,381

		

259,868		

(12,077)$

424,875

U.S. dollars (Note 1)

2008

2007

		
		
		

¥738,487

Acquisition of treasury stock

		

(568)
3,356

¥10,255(104,604)

69,682(710)

52

Cash dividends paid (appropriation of retained
earnings approved at general shareholders’meeting in June 2006) (¥3.5 per share)

		

		

1,849

¥

Total

19,595(367)(1,755)—

Minority
interests				

(10,460)

DeferredForeign
gains oncurrency
hedge,
translation
net of taxes adjustments

2,051(10,370)
1,621
7,870
(7,228)
—
5,851
(595)
(1,022)
(394)
(188)
1,347
1,275
218

		
		
		
		
		
		
		
		
		
		
		
		
		
		

yen

Accompanying notes are an integral part of these financial statements.

700,485

Balance at March 31, 2006

Valuation and translation adjustments

Number ofissued shares ofcommon stock(Thousands)

Bonuses paid to directors (appropriation ofretained earnings approved at generalshareholders’ meeting in June 2006)

2008

Amounts per share of common stock:
Net income
Diluted net income
Cash dividends applicable to the year		 14,174,485

Millions of yen
Shareholders’ equity¥ 37.50
35.69
8.00

Net income(68,600)(34,658)(34,658)

34,933

26,530(1,404)(22,832)
42,487(39,572)(39,572)(2,098)

6,824

4,726

(34,539)

34,539—Net changes in net assets other thanshareholders’ equity(17,790)

(671)

1,177

438

(16,846)

Net changes during the year

(68,600)——(10,536)

1,791(17,790)

(671)

1,177

438

(25,591)

Balance at March 31, 2008

2,741,571¥141,844¥2,066¥634,116¥(42,774)¥31,917¥ 424¥1,479¥11,383¥780,455

Total

Thousands of U.S. dollars (Note 1)
Shareholders’ equity
Retainedearnings

Treasurystock

Net unrealized
holding gains
on securities

DeferredForeign
gains oncurrency
hedge,
translation
net of taxes adjustments

Minority
interests$1,418,444 $20,655 $6,446,522$(445,649)$497,066$10,952$109,447 $8,060,457

Commonstock

Balance at March 31, 2007

Valuation and translation adjustments

Capitalsurplus$ 3,020

Cash dividends paid ($0.09 per share)(228,319)(228,319)

Net income

424,875

424,875

		$0.16

Acquisition of treasury stock(395,722)(395,722)

		

0.16

Disposal of treasury stock(20,985)

68,23647,251		

0.08

Retirement of treasury stock(345,394)

345,394

Increase due to addition of consolidated subsidiaries

1,137

Increase due to addition of affiliated companies accounted forby equity method

63,32563,325

Net changes in net assets other than shareholders’ equity(177,894)——(6,711)

11,772(105,361)

17,908(177,894)(6,711)

11,772$1,418,444 $20,655 $6,341,161$(427,741)$319,172$ 4,241$14,792

Net changes during the year
Balance at March 31, 2008

—
1,137

4,382

(168,451)

4,382(255,904)$113,829 $7,804,553

Accompanying notes are an integral part of these financial statements.

52

53

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2008 and 2007

Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2008 and 2007

Millions of yen

Cash flows from operating activities:
Income before income taxes and minority interests
Adjustments to reconcile income before income taxes andminority interests to net cash provided by operating activities:
		 Depreciation
		 Impairment losses
		 Amortization of goodwill
		 Amortization of long-term prepayments
		 Losses on disposal of property, plant and equipment
		 Net gains and losses from sales of fixed assets
		 Losses on reduction of fixed assets
		 Gains from sales of investment securities
		 Losses on valuation of investment securities
		 Increase (decrease) in allowance for doubtful accounts
		 Increase (decrease) in reserve for retirement benefits
		 Decrease (increase) in prepaid pension costs
		 Increase (decrease) in reserve for safety measures
		 Interest and dividend income
		 Interest expenses
		 Equity in net income of affiliated companies
		 Changes in operating assets and liabilities:
			 Increase in trade notes and accounts receivable
			 Increase in inventories
			 Increase (decrease) in trade notes and accounts payable
		 Increase (decrease) in consumption taxes payable
		 Increase in other accounts receivable
		 Other – net
		 Cash received for interest and dividends
		 Cash paid for interest
		 Cash paid for income taxes
			 Net cash provided by operating activities¥

Thousands of U.S. dollars (Note 1)

2008

2007

2008

69,682¥ 162,533$ 696,820

		
		
		
		
		
		
		
		
		
		
		
		
		
		
		
		

138,133
568
685
4,289
1,569
(1,644)710(3,356)
1,078
(550)
621
(9,016)(2,470)(1,960)10,460(3,775)

		 128,998
		
—
		
305
		 4,144
		 3,157
		 (7,904)
		 7,228		 (5,851)
		
595
		
109
		 (37,274)
		
128
		 5,427
		 (2,051)
		 10,370
		 (1,347)

		 1,381,326
		
5,679
		
6,845
		
42,887
		
15,685
		 (16,441)		
7,102
		 (33,560)
		
10,784
		
(5,495)
		
6,212
		 (90,159)
		 (24,697)
		 (19,595)
		 104,604
		 (37,753)

		
		
		
		
		
		
		
		
		
		
		

(3,004)(2,542)35,883(4,574)(560)
1,885
232,112
2,784(10,196)(42,496)
182,204

		 (17,369)
		 (1,535)
		 (14,076)
		 4,451		(271)
		 (1,610)
		 238,157
		 2,011
		 (10,244)
		 (39,327)
		 190,597

		 (30,043)
		 (25,421)
		 358,833
		 (45,736)
		(5,601)
		
18,845
		 2,321,121
		
27,846
		 (101,964)
		 (424,961)
		 1,822,042

		(5,467)		
5,466
		 (19,111)		
9,631
		 (128,972)
		
(6,787)
		(3,023)
		
1,496
		
(9,835)
		
1,185
		
51
		 (155,366)

		 (5,517)
		 6,616		 (12,625)
		 9,912
		 (124,174)
		 (8,611)
		 (2,472)
		 5,986
		
(840)
		
135
		
668
		 (130,922)

		 (54,672)
		
54,660		 (191,110)
		
96,307
		(1,289,720)
		 (67,867)
		 (30,233)
		
14,965
		 (98,349)
		11,847		513
		(1,553,659)

Cash flows from financing activities:
Net decrease of short-term bank loan payable
Net increase (decrease) in commercial paper
Proceeds from long-term debt
Repayments of long-term debt
Cash dividends paid
Cash dividends paid for minority shareholders
Proceeds from sales of treasury stock
Purchases of treasury stock
Other – net
			 Net cash used in financing activities

		
		
		
		
		
		
		
		
		
		

(3,235)(6,000)89,579(43,162)(22,824)(278)
302(39,572)—(25,190)		 (6,523)
		 6,000		 14,935
		 (26,986)
		 (18,781)
		
(93)
		
323
		 (34,658)		(61)
		 (65,844)

		 (32,353)
		 (60,000)
		 895,795
		 (431,623)
		 (228,236)
		
(2,782)
		
3,022
		 (395,722)		—		 (251,899)

Effect of exchange rate changes on cash and cash equivalents		
Net increase (decrease) in cash and cash equivalents		Cash and cash equivalents at beginning of year		
Increase in cash and cash equivalents due to addition of		
consolidated subsidiaries
Decrease in cash and cash equivalents due to exclusion of subsidiaries
from consolidation		
Cash and cash equivalents at end of year
¥

525
2,173
40,232		10
		 (6,159)
		 45,634

		
		
		

5,250
21,734402,318

1,301

		

		

13,013

54

Basis of presenting consolidated financial statements

Tokyo Gas Co., Ltd. (the “Company”) and its consolidated subsidiaries

The accompanying consolidated financial statements have been

maintain their accounts and records in accordance with the provisions set

restructured and translated into English from the consolidated financial

forth in the Japanese Financial Instruments and Exchange Law (formerlystatements of the Company prepared in accordance with Japanese GAAP

Securities and Exchange Law) and its related accounting regulations, andand filed with the appropriate Local Finance Bureau of the Ministry ofin conformity with accounting principles generally accepted in Japan

Finance as required by the Financial Instruments and Exchange Law. Some(“Japanese GAAP”), which are different in certain respects as tosupplementary information included in the statutory Japanese language

application and disclosure requirements from International Financial

consolidated financial statements, but not required for fair presentation, is

Reporting Standards. The Company, as a regulated company, also

not presented in the accompanying consolidated financial statements.

follows the Gas Business Law related accounting regulations for

The translation of the Japanese yen amounts into U.S. dollars is

preparing such financial statements. The accounts of the Company’s

included solely for the convenience of readers outside Japan, using theoverseas subsidiaries are based on their accounting records maintained

prevailing exchange rate at March 31, 2008, which was ¥100 to US$1. The

in conformity with generally accepted accounting principles prevailing inconvenience translations should not be construed as representations thatthe respective countries of domicile.

the Japanese yen amounts have been, could have been, or could in the
future be, converted into U.S. dollars at this or any other rate of exchange.

2

Significant accounting policies(1) Consolidation — The consolidated financial statements include the(2) Equity method — Significant investments in unconsolidated subsidiar-accounts of the Company and all of its significant subsidiaries. For the years

ies and affiliates over which the Company has the ability to exercise signifi-

ended March 31, 2008 and 2007, 55 and 52 subsidiaries, respectively, werecant influence with regard to operating and financial policies of the investees,

consolidated. All significant inter-company transactions and account balanc-

are accounted for by the equity method. For the years ended March 31, 2008

es are eliminated in consolidation.

and 2007, 4 and 1 affiliated companies, respectively, were accounted for by

In the elimination of investments in subsidiaries, the assets and liabili-

Cash flows from investing activities:
Purchase of time deposits
Proceeds from redemption of time deposits
Purchases of investment securities
Proceeds from sales of investment securities
Purchases of property, plant and equipment
Purchases of intangible fixed assets
Long-term prepayments
Proceeds from sales of fixed assets
Expenditure of long-term loan receivables
Collection of long-term loan receivables
Other – net
			 Net cash used in investing activities

Accompanying notes are an integral part of these financial statements.

1799

ties of the subsidiaries, including the portion attributable to minority share-

The unconsolidated subsidiaries and affiliates not accounted for by theholders, are recorded based on their fair value at the time the Company

equity method were excluded from the scope of application of equity meth-acquired control of the respective subsidiary.

ods, due to the immaterial effect of Company’s total interest on their net

The following five subsidiaries were newly included in the scope of consolidation from the current fiscal year due to those increased significance ofsubsidiaries in the year ended March 31, 2008.
		

Tokyo Gas International Holdings B.V.

		

Tokyo Gas Bajio B.V.

		TOKYO GAS-MITSUI&CO. HOLDINGS SDN. BHD.

		TK Customer Service Co., Ltd.

		Tokyo Gas Pluto Pty Ltd

The Company’s percentage of shareholders’ voting rights in the East
Japan Housing Evaluation Center Co., Ltd. fell, and TG IT Service Co., Ltd. wasdissolved, since it was merged with a consolidated subsidiary TG Information
Network Co., Ltd. Thus, these two companies were excluded from the scopeof the consolidation.
The Company’s major unconsolidated subsidiaries include Ohgishima
Power Co., Ltd.

		(42)
¥ 40,232

		
—$ 437,065

income and retained earnings to the consolidated financial statement andtotally insignificance.
(3) Accounting period of consolidated subsidiaries — Though theCompany’s fiscal year ends on March 31, the following companies end theiryear on December 31:
		TOKYO GAS AUSTRALIA LTD

		Tokyo Gas International Holdings B.V.

		

Tokyo Gas Bajio B.V.

		

Tokyo Gas Darwin LNG Pty Ltd		TOKYO GAS–MITSUI&CO. HOLDINGS SDN. BHD.

		Tokyo Gas Pluto Pty Ltd

All significant adjustments considered necessary during the period
from December 31 to the consolidated fiscal year end have been made on
consolidation.

Unconsolidated subsidiaries were not included in the scope of the con-

(4) Property, plant and equipment — Property, plant and equipment

solidation because total assets, sales and the amount of net income/loss

is generally stated at cost. Depreciation is determined mainly by the declin-equivalent to the portion of the Company's interests or the amount of

ing-balance method based on estimated useful life, except that certain build-retained earnings, etc. equivalent to the portion of the Company's interests is

ings are depreciated using the straight-line method.

small, and lacking in qualitative significance, and therefore they do not have a—
43,706equity method.

significant impact on the consolidated financial statements.

As a result of the revision of the Corporation Tax Law, as of the year
under review, the Company and its domestic consolidated subsidiaries havechanged the depreciation method for property, plant and equipment acquired55

on or after April 1, 2007, to the depreciation method prescribed by the

securities, declines significantly, and the decline is not considered recov-(14) Reserve for gas holder repairs — The Company and certain con-(18) Enterprise tax — In the case of companies engaged in gas business-revised Corporation Tax Law. In consequence, operating income and income

erable, such securities are stated at fair value and the difference

solidated subsidiaries provide for periodic repairs of gas holders by estimat-es, enterprise tax which is levied, not on taxable income but on net sales, isbefore income taxes and minority interests each declined by ¥1,335 million

between fair value and the carrying amount is recognized as loss in theing future expenditures and charging them to income in equal annual

accounted for in “Selling, general and administrative expenses”. Enterprise(US$13,352 thousand).

period of the decline.

amounts. The difference between the actual expenditure and the amount pro-taxes based on “amount of added value” and “amount of capital” are also

vided is charged to income in the year repairs are completed.

included in “Selling, general and administrative expenses”.

In addition, as to property, plant and equipment acquired on or before
March 31, 2007, as of the fiscal year following that in which assets reach 5%of their acquisition cost pursuant to the depreciation method prescribed by
the Corporation Tax Law prior to its revision, the difference between an
amount equal to 5% of the acquisition cost and the memorandum value isdepreciated uniformly over five years and included in depreciation expenses.
In consequence, operating income and income before income taxes andminority interests were each stated at ¥11,651 million (US$116,514 thousand) lower than under the previous method.
The effect of these accounting changes on segment information isshown in Note 15. Segment Information.
Accumulated impairment losses on property, plant and equipment are
deducted directly from the balances of corresponding assets.
(5) Software costs — The Company and its consolidated subsidiaries(10) Derivative financial instruments — The Company and its consolidated subsidiaries use currency swap contracts, interest rate swap con-(15) Reserve for safety measures — The Company provides for expens-

tracts, foreign exchange forward contracts, commodity swap contracts andes necessary to secure safety for gas consumers by estimating total amount ofweather derivatives only for the purpose of mitigating the risk of fluctuations

such expenses which are expected to incur after the year-end date.

in foreign exchange rates, interest rates, market prices of raw materials andfinished products, and affects of changes in temperature.
The Company and its consolidated subsidiaries do not use derivative
financial instruments for speculative trading purposes. The derivative financial
instruments are executed with creditworthy financial institutions, and theCompany’s and its consolidated subsidiaries’ management believes there is little risk of default by counterparties. The derivative financial instruments areused based on internal policies and procedures on risk control.
Derivatives are stated at fair market value at the year-end. The
Company and its consolidated subsidiaries use hedging accounting, provided

include software in intangible assets and depreciate it using the straight-linethat the conditions of the accounting were applicable to the rules. Regarding

method over the estimated useful life.

forward exchange contracts and foreign currency swap contracts that fulfilled(6) Accounting for certain lease transactions — Finance leases

certain conditions, the hedged foreign currency receivable and payable are

In the accompanying consolidated statements of income, enterprise tax
included in “Selling, general and administrative expenses” amounted to¥15,267 million (US$152,666 thousand) and ¥13,933 million for the years
ended March 31, 2008 and 2007, respectively.

(16) Translation of financial statements denominated in foreign
currency — Receivables and payables denominated in foreign currencies(19) Amounts per share of common stock — Basic net income pershare is computed based on the net income available for distribution to

are translated into Japanese yen at the year-end rates, and the resulting

common shareholders and the weighted-average number of common

translation gains or losses are charged to current income/expense. Assets

shares outstanding for the period. Diluted net income per share reflects

and liabilities of the foreign subsidiaries are translated into Japanese yen at

the potential dilution that could occur if convertible bonds were converted

the exchange rates prevailing at the consolidated year-end date. Profit andinto common stocks.

loss accounts for the year are translated into Japanese yen at the exchange

At the current conversion prices, 2,754,495 thousand shares of common

rates prevailing at the consolidated year-end date as well. Differences in yen

stock were issuable at March 31, 2008 upon full conversion of the outstand-amounts arising from the use of different rates are presented as “Foreign

ing convertible bonds.

currency translation adjustments” and “Minority interests” in net assets.
(17) Income taxes — Income taxes comprise corporation tax, inhabitants’ taxes and enterprise tax (excluding enterprise taxes based on

Cash dividends per share have been presented on an accrual basis andinclude dividends approved or to be approved after the balance sheet dates,
but applicable to the year then ended.

recorded using the Japanese yen amount of the contracted forward rate or“amount of added value” and “amount of capital”). The Company and its

swap rate. Regarding interest rate swap contracts that fulfilled certain con-(20) Reclassifications — Certain prior year amounts have been reclassi-

consolidated subsidiaries recognize tax effects of temporary differences

ditions, the net amount to be paid or received under the interest rate swap

fied to conform to 2008 presentation. These changes had no impact on previ-(7) Goodwill — Goodwill and negative goodwill are amortized on a

between the financial statement basis and the tax basis of assets and lia-

contract is added to or deducted from the interest on the liabilities for which

ously reported results of operations.

straight-line basis within 20 years (mainly 10 years).

bilities. The Company and its consolidated subsidiaries do not recognize

the swap contract was executed.

deferred tax assets which are not expected to reduce future income taxes.

(8) Cash and cash equivalents — Cash and cash equivalents include(11) Inventories — Inventories are stated at cost, being determined bywhich do not transfer ownership to lessees are accounted for in the samemanner as operating leases.

cash on hand, readily-available deposits and short-term highly-liquid invest-

the moving-average method.

ments with maturities not exceeding three months at the time of purchase,

Property, plant and equipment

which are readily convertible to known amounts of cash that they present(12) Allowance for doubtful accounts — For normal receivables, an3insignificant risk of change.

allowance for doubtful accounts is provided using the historical experienced

Property, plant and equipment is generally recorded at cost. However, in

accounting”). Such accumulated reduction of fixed assets recorded at

default ratio. For specific receivables such as bankruptcy/rehabilitation

cases where the Company and its consolidated subsidiaries receive

March 31, 2008 and 2007 were ¥273,657 million (US$2,736,569 thousand)claims, an allowance for doubtful accounts is provided for the estimatedgovernment grants toward the cost of acquisition, such amounts areand ¥262,818 million, respectively.

amounts considered to be uncollectible after reviewing individual collectability.

offset against the acquisition cost of the related asset (“reduction entry(9) Securities — The Company and its consolidated subsidiaries classify
their securities in one of the following three categories, in accordance with
the Japanese Accounting Standard for Financial Instruments.
(a) Debt securities intended to be held to maturity (hereafter, “held-tomaturity debt securities”) are stated at amortized cost.

dated subsidiaries provide an unfunded lump-sum payment plan and a funded(b) Equity securities issued by unconsolidated subsidiaries and affiliatedpension plan as retirement benefit schemes. The Company and certain consol-

companies that are not accounted for using the equity method are

idated subsidiaries provide defined benefit plan and defined contribution plan.

stated at moving-average cost.

Retirement benefits under these plans are determined based on the level of(c) Other securities with fair value, which are defined as securities

wages and salaries, length of service and certain other factors.

other than held-to-maturity debt securities, equity securities issued

The Company and its consolidated subsidiaries determine benefit obli-

by unconsolidated subsidiaries and affiliated companies, and securi-

gation and expenses for reserve for retirement benefits based on theties held for trading purposes, are stated at fair value at the year-

amounts actuarially calculated using certain assumptions.

end, if their fair values are readily available. The difference

Reserve for retirement benefits is provided based on the estimatedbetween acquisition costs and book values of these securities areamounts of projected benefit obligation and the fair value of the plan assets.

reported, net of applicable taxes, as a separate component of net

The estimated amount of all retirement benefits to be paid at the future

assets. Other securities with no fair values are stated at moving-

retirement date is assumed as generating equally to each service year using

average cost.

the estimated number of total service years. Past service costs are mainly

If the fair value of held-to-maturity debt securities, equity securities
issued by unconsolidated subsidiaries and affiliated companies, and other56(13) Reserve for retirement benefits — The Company and its consoli-charged to income when incurred, and actuarial gains and losses are charged
to income mainly in the fiscal year following the year when they arise.

4

Pledged assets

Pledged assets at March 31, 2008 and 2007 were as follows:
Millions of yen

2008

2007

Distribution facilities¥ 6,493¥ 6,779
Service andmaintenance facilities 		83
93 		
Other facilities		 13,792 		18,034
Investment securities 		3631 		
Long-term loan receivables 		39
38 		
Cash and cash equivalents 		 1,736 		 —Marketable securities 		25 		
Other current assets
—
		
1 		
¥ 24,687¥ 22,475

Liabilities secured by the above assets at March 31, 2008 and 2007
Thousands of
U.S. dollars

2008$ 67,795
		
933
		 137,920
		
309
		
374
		 17,361
		
50
		
6
$ 224,748

were as follows:
Millions of yen

2008

2007

Thousands of
U.S. dollars

2008Long-term debt(including current
portion)¥ 13,537 $ 113,255¥ 11,326
Bank loan payables
584 		
		— 		—Other current liabilities 		
61 		
59 		
594
¥ 14,182 $ 113,849¥ 11,38557

5Securities

8

Acquisition costs, book values and fair values of securities with available
fair values at March 31, 2008 and 2007 were as follows:

2008(a) Held-to-maturity debt securities
Thousands of
U.S. dollars

Millions of yen

2008

2008

2007

Securities with fair value exceeding book value:Book value		 ¥ 27		 ¥ 45
Fair value
		
27
		
46
Difference		¥0		 ¥ 1

		 $ 449
		

2007

2008

Securities with fair values not exceeding acquisition cost:
Equity securities
Acquisition cost
¥ 2,324¥ 3,473$ 34,732
Fair value		 2,960 		 2,230
		 29,595
Difference¥ (94)¥ (513)$ (5,137)460

		 $ 11

Thousands of
U.S. dollars

Millions of yen

Other securities sold amounted to ¥3,715 million (US$37,146
thousand) and ¥9,449 million for the years ended March 31, 2008 and2007, respectively. Gains on sale of other securities amounted to ¥3,356

Thousands of
U.S. dollars

Millions of yen

2008

2008

2007

Securities with fair value not exceeding book value:Book value
¥ 220
¥ 200
$ 1,998
Fair value
		 220		 200		 1,997
Difference
¥ 0
¥ 0
$
(1)

million (US$33,560 thousand) and ¥5,851 million for the years ended
March 31, 2008 and 2007, respectively.
Other securities with no available fair value, which were stated atmoving-average cost, amounted to ¥21,030 million (US$210,296
thousand) and ¥16,964 million at March 31, 2008 and 2007, respectively.
Investments in unconsolidated subsidiaries and affiliated companies
amounted to ¥33,959 million (US$339,595 thousand) and ¥27,089 million
for the years ended March 31, 2008 and 2007, respectively.

(b) Other securities with fair value
Thousands of
U.S. dollars

Millions of yen

2008

2008

2007

Securities with fair values exceeding acquisition cost:
Equity securities
Acquisition cost ¥ 22,142¥ 19,196$ 221,423
Fair value
		 73,250 		 98,132 		 732,505
Difference¥ 78,936¥ 51,108$ 511,082

Bank loan payables and long-term debt

The average annual interest rates of short-term bank loan payables at March 31, 2008 and 2007 were 0.9% and 0.7%, respectively.
Long-term debt at March 31, 2008 and 2007 were as follows:

2008

Domestic unsecured bonds
Due in 2016 at a rate of 4.0%
Due in 2018 at a rate of 2.625%
Due in 2009 at a rate of 1.68%
Due in 2009 at a rate of 1.73%
Due in 2010 at a rate of 2.01%
Due in 2011 at a rate of 1.39%
Due in 2012 at a rate of 1.35%
Due in 2023 at a rate of 1.01%
Due in 2013 at a rate of 1.41%
Due in 2014 at a rate of 1.59%
Due in 2024 at a rate of 2.29%
Due in 2025 at a rate of 2.14%
Due in 2015 at a rate of 4.1%
Due in 2009 at a rate of 1.18%
Due in 2027 at a rate of 2.29%
Due in 2015 at a rate of 1.4%
Domestic unsecured convertible bonds
5th issue due in 2009 at a rate of 1.2%

Effect of the Bank Holiday

As financial institutions in Japan were closed on March 31, 2007, ¥700

payable maturing on March 31, 2007 were settled on the following

million of trade notes receivable and ¥1,049 million of trade notes

business day and accounted for accordingly.

The indentures covering fifth domestic convertible bonds provide,
among other conditions, for (1) conversion into shares of common stock at
the conversion prices per share of ¥339.00 (US$3.39) (subject to adjustment
in certain circumstances), (2) conversion periods through March 30, 2009.

7

As is customary in Japan, a lending bank has the right to offset cash

Inventories

deposited with it against any debt or obligation that becomes due and, inthe case of default or certain other specified events, against all debt

Inventories at March 31, 2008 and 2007 were as follows:
Thousands of
U.S. dollars

Millions of yen

2008

Finished products
Raw materials
Supplies
Work in process¥ 3,730
		 24,997
		 9,722
		77¥ 38,526

58¥ 27,700
		

40,000		

30,000		

30,000		

20,000		

30,000		

20,000		

20,000		

30,000		

20,000		

10,000		

10,000		

13,8002008

2007¥ 4,341
		 22,357
		 9,227
		
207¥ 36,132$ 37,306

payable to the bank. To date no such offset request has been made to
the Company and its consolidated subsidiaries.
The annual maturities of long-term debt at March 31, 2008 were as follows:

¥
		
		
		

		
		

		

4,000

		

19,996

		

9,993

		

28,195		

		 550,338
		 63,200¥ 487,138

Year ending March 31

2009
2010
2011
2012
2013
2014 and thereafter

2008

2007

		
		
		
		
		
		
		

Loans from banks, insurance companies and government agencies
due through 2020 at rates of 0.31% to 5.50%:
Secured		 11,326
Unsecured		 175,328
Less-Amounts due within one year

6

Thousands of
U.S. dollars

Millions of yen

27,70040,00030,00030,00020,00030,00020,00020,00030,00020,00010,00010,00013,8004,000——
32,618

		 13,537
		 156,858
		 508,513
		 42,617¥ 465,896$

277,000		

400,000		

300,000		

300,000		

200,000		

300,000		

200,000		

200,000		

300,000		

200,000		

100,000		

100,000		

138,000

		

40,000		

199,961		

99,933

		

281,950

		 113,255
		 1,753,281
		 5,503,380
		 632,000$ 4,871,380

Millions of yen

Thousands of
U.S. dollars¥ 63,200
		 88,011
		 53,119
		 47,759
		 41,057
		257,192¥ 550,338$ 632,000
		 880,113
		 531,193
		 477,591
		 410,570
		2,571,913$ 5,503,380

Note: The Company has the specific commitment line contract with the main correspondent financial institution, at ¥30,000 million ($300,000 thousand) in total.

		 249,967
		

97,223

		

767$ 385,263

59

9

Derivative transactions

Certain domestic consolidated subsidiaries obtained approval from the(US$41,675 thousand). If payment of this transferred amount (minimum

Minister of Health, Labour and Welfare on April 10, 2007 for exemption

actuarial liability) had been carried out on March 31, 2008 and ParagraphContract amounts, fair values and recognized gains on the commodity

Fair value of commodity derivatives contracts was calculated based onfrom the obligation of benefits related to future employee services under

44-2 of “Practical Guidelines for Accounting for Retirement Benefits

derivatives except those accounted for using hedge accounting andthe information presented by financial institution. Contract amounts ofthe substitutional portion of the welfare pension fund.

(Interim Report)” (The Japanese Institute of Certified Public Accountants,

weather derivatives at March 31, 2008 and 2007 were as follows:

the commodity derivatives are solely nominal values, and not indicative ofRegarding the transfer to the Japanese government of the substitutional

Accounting System Committee Report No. 13) had been applied, theMillions of yen

the magnitude of market risk or credit risk concerning derivatives

portion of the welfare pension fund, the transferred amount (minimum

expected loss would have been ¥1,560 million (US$15,599 thousand).

At March 31, 2008transactions. Contract amounts of weather derivatives were stated at

actuarial liability) measured as of March 31, 2008 was ¥4,168 million

Contract amounts

Total

Commodity derivatives ¥ 765
Weather derivatives 1,100

Beyondone year

Fair value

Recognized
gains (losses)

¥

—

¥ 815

¥ 815

—

—

—

—

—

¥ 815

—

the maximum receivable or payable amounts under the contracts. Fairvalues of weather derivatives were not stated because the calculation of
the fair values was impossible.
Thousands of U.S. dollars
Contract amounts

Millions of yen

Total

At March 31, 2007

Commodity derivatives $ 7,648
Weather derivatives 11,000

Contract amounts

Total

Beyondone year

Fair value

Recognized
gains (losses)

Commodity derivatives ¥1,538
Weather derivatives
3,600
—

¥ —
1,000
—

¥ (61)——¥ (61)—¥ (61)

10

11

At March 31, 2008—

Beyondone year

Fair value

Recognized
gains (losses)$—$8,154$8,154

—

—

—

—

—

$8,154

Reserve for retirement benefits included in the liabilities section of the consolidated balance sheets as of March 31, 2008 and 2007 were as follows:
Millions of yen

2008¥ 363,729
		¥ 364,288
		 1,778		 (16,791)
		 (256,339)
		12¥ 92,948

2,220

		 (25,244)
		 (256,175)
		

Thousands of U.S. dollars

2008

2007

9,028

¥ 93,558$ 3,637,288
		the effective tax rate for financial statement purposes for the years

in the aggregate, indicate a statutory rate in the Company of approximately

ended March 31, 2008 and 2007 are not presented as they are negligible.

36.2% for the years ended March 31, 2008 and 2007.

Significant components of deferred tax assets and liabilities as ofReconciliation of the difference between the statutory tax rate andMarch 31, 2008 and 2007 were as follows:
Millions of yen¥ 9,848
		 6,500
		 (5,168)
		 13,393
		

(166)

		 4,828¥ 29,235¥ 34,277
		 42,582
		 (7,094)
		 69,765
		 18,642
		¥ 42,272

2008¥ 33,954
		 39,752
		 (5,228)
		 68,478
		 29,093
		 4,175		 33,268¥ 35,210$ 342,775
		 425,818
		(70,943)

		 697,650
		 186,415
		

88,513

		 274,928$ 422,722

22,200		(2,561,749)
		90,276$ 935,577

Thousands of U.S. dollars

2008

2007

¥ 9,657
		 6,876
		 (4,623)
		(13,095)
		 (332)
		 6,669¥ 5,1528,851

		 27,493

12

Impairment losses

In the fiscal year ended March 31, 2008, the Company recorded losses on
impairment of fixed assets in the following asset group.

Millions of yen

2008

Deferred tax assets:
Reserve for retirement benefits
Other
Less valuation allowance
Subtotal
Deferred tax liabilities:
Net unrealized holding gains on securities
Other
Subtotal
Deferred tax assets – net

Thousands of U.S. dollars

2007

		 (252,438)

Net periodic retirement benefit expenses for the years ended March 31, 2008 and 2007 were as follows:

Service costs – benefits earned during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of actuarial differences
Amortization of prior service costs
Other
Net periodic retirement benefit expenses

The Company is subject to multiple taxes based on taxable income, which,

2008

Reserve for retirement benefits

Projected benefit obligation
Unrecognized prior service costs
Unrecognized actuarial differences
Less fair value of pension assets
Prepaid pension costs
Reserve for retirement benefits

Income taxes$ 98,476
		 65,001
		 (51,684)
		 133,932
		(1,658)

		 48,285$ 292,352

Location

Negishi LNG
Terminal (Isogo Ward,
Yokohama City,
Kanagawa Prefecture)

PurposeType

In the current consolidated fiscal year a decision was made toabandon the development of diagnostic agents. As it was judged thatAmount(million yen)

13C
558
methaneShutdown(US$5,579
production facility
thousand)facility

this business would not be profitable in future, the book value of theasset group for the 13C methane production facility manufacturing
these raw materials was reduced to its recoverable value. As a result,
impairment losses of ¥558 million (US$5,579 thousand) was recorded
under other expenses. This amount mainly includes ¥33 million (US$330
thousand) related to buildings, ¥13 million (US$127 thousand) related to

For measurement of the losses on impairment of fixed assets, theCompany group assets by the smallest unit which generates cash flows
largely independent of the cash flows of other assets or asset groups.
The 13C methane production facility was established for the

structures, and ¥512 million (US$5,117 thousand) related to machineryand equipment.
The recoverable value of this asset group is measured by theusable value.

purpose of sales of raw materials for diagnostic agents; however, its
The discount rate and the rate of expected return on plan assets used by the Company and its consolidated subsidiaries are mainly 1.8% and 2.0%,

production has been temporarily stopped.

respectively, at March 31, 2008, and mainly 1.8% and 2.0%, respectively, at March 31, 2007.

60

61

13

Net assets(a) Distribution to the shareholders

15

Segment information

At the general meeting of shareholders held on June 27, 2008, the

The Company’s and its consolidated subsidiaries’ primary business activities

A summary of net sales, costs and expenses, operating income,

Under the Japanese Corporate Law (“the Law”), dividends can be paid at

Company’s shareholders approved payment of year-end cash dividends ofinclude (1) gas sales, (2) gas appliance sales, (3) related construction, (4) real

identifiable assets, depreciation, impairment losses, and capital

any time during the fiscal year in addition to the year-end dividend upon

¥4.0 (US$0.04) per share aggregating ¥10,627 million (US$106,265

estate rental, and (5) other business.

expenditures by business segments for the years ended March 31, 2008

resolution at the shareholders’ meeting. Interim dividends may also be

thousand) to the shareholders of record as of March 31, 2008.

paid upon resolution by the Directors’ meeting provided that the articles

Such appropriations have not been accrued in the consolidatedof incorporation of the company so stipulate, and that the company meetsfinancial statements for the year ended March 31, 2008. Suchcertain criteria.

appropriations are recognized in the period in which they are approved by

The Law provides certain limitations on the amounts available for

it is calculated mainly based on other capital surplus, other retained

Millions of yen

Gas sales(b) I ncreases/decreases and transfer of common stock,reserve and surplus

earnings and treasury stock, but the amount of net assets after dividends

Under the Law, the entire amount paid for new shares is required to bemust be maintained at no less than ¥3 million.

designated as common stock. However, a company may, by a resolution

Outside customers¥ 1,056,101

Intra group		

30,944

Consolidation¥ 12,361¥ 236,263¥¥ 1,487,497

		 129,418 		 56,498

		27,206 		 307,592 		 (78,647) 		 1,417,448¥

Identifiable assets¥

993,803¥ 43,551—

Capital expenditures		94,405

retained earnings in the accompanying consolidated balance sheets.
Under the Law, legal retained earnings and legal capital surplus

time during the fiscal year in addition to the year-end dividend upon resolution

could be used to eliminate or reduce a deficit, or could be capitalized

at the shareholders’ meeting. Interim dividends may also be paid upongenerally by a resolution of the shareholders’ meeting.
Legal capital surplus and legal retained earnings may not be
distributed as dividends. Under the Law, however, all legal capital

The Law provides certain limitations on the amounts available forsurplus and all legal retained earnings may be transferred to otherdividends and/or the purchase of treasury stock. The limitation isdefined as the amount available for distribution to the shareholders, and

2,909

¥

828

¥

¥ 18,891

7,963¥ 12,769¥ (66,084)¥¥ 179,857¥ 256,632¥ 210,917¥ 1,703,651

		606 		

122

		

		

— 		

—

		

		

649 		

35

		9,908 		22,245 		— 		

(2,061) 		

568 		

4,301 		70,04937,701 		

138,133— 		

568(2,108) 		

134,983

Millions of yen

Gas appliancesales

Gas sales

surplus and legal retained earnings must be set aside as legal capitalsurplus or legal retained earnings. Legal retained earnings is included in—

111,664
107,313excess, if any, of 25% of common stock over the total of legal capital—

84,098 		 (144,731) 		

975,381		

made, the smaller of an amount equal to 10% of the dividend or the

22,808 		¥		

¥4.0 (US$0.04) per share aggregating ¥10,627 million (US$106,265

				Impairment losses

Company’s shareholders approved payment of year-end cash dividends of

3,756

Operating income
Depreciation

Under the Law, in cases where a dividend distribution of surplus is

3,125 		Costs and expenses

capital surplus.

At the general meeting of shareholders held on June 27, 2008, the		35,169 		 320,361 		 (144,731) 		 1,487,497

the price of the new shares as legal capital surplus, which is included inof the company so stipulate, and that the company meets certain criteria.

Elimination or
corporate		Company in accordance with Japanese laws and regulations.

resolution by the Directors’ meeting provided that the articles of incorporation¥ 53,570

Other business		 132,327 		 57,326

is calculated based on the non-consolidated financial statements of theUnder the Japanese Corporate Law (“the Law”), dividends can be paid at any¥ 129,202

Real estate
rental		 1,087,045

of the Board of Directors, designate an amount not exceeding one-half of(a) Distribution to the shareholders

Relatedconstruction

Total

The maximum amount that the Company can distribute as dividends

thousand) to the shareholders of record as of March 31, 2008.

Gas appliancesales

For 2008
Sales:

the shareholders.

dividends and/or the purchase of treasury stock. The limitation isdefined as the amount available for distribution to the shareholders, andand 2007 was as follows:

Relatedconstruction

Real estate
rentalElimination or
corporate

Other business

Consolidation

For 2007Sales:¥ 976,358

Outside customers¥ 132,742¥ 11,933¥ 200,398

3,703

		 22,102

		 85,009

		 (136,642) 		

		 135,407

		 59,230

		 34,035

		 285,407

		 (136,642) 		 1,376,958

		 27,304

		 271,559

		 (71,892) 		 1,214,643

		

23,163

		

Total

		

999,521

Costs and expenses

		Intra group

2,665¥ 55,527		¥—¥ 1,376,958—

795,955

		 134,238

		 57,479

Operating income¥ 203,566¥ 1,169¥ 1,751¥

6,731¥ 13,848¥ (64,750)¥ 162,315

Identifiable assets¥ 1,009,880¥ 46,187¥ 20,619¥ 185,909¥ 248,139¥ 181,901¥ 1,692,635

Depreciation

		97,969

		

544

		

165

		 10,400

		 21,951

		

capital surplus and other retained earnings, respectively, which are

Impairment losses

		

—

		

—

		

—

		

—

		

—

		

potentially available for dividends.

Capital expenditures		83,449

		

576

		

64

		

3,332

		 37,496

		(2,031) 		
—128,998		

—(2,832) 		

122,085

it is calculated mainly based on other capital surplus, other retained
earnings and treasury stock, but the amount of net assets after dividends(c) Treasury stock

must be maintained at no less than ¥3 million.

The Law provides for companies to purchase treasury stock and dispose ofThousands of U.S. dollars

The maximum amount that the Company can distribute as dividends

such treasury stock by resolution of the Directors’ meetings. The amount ofis calculated based on the non-consolidated financial statements of thetreasury stock purchased cannot exceed the amount available forCompany in accordance with Japanese laws and regulations.

distribution to the shareholders which is determined by specific formula.

14

Additional information for cash flows

Significant non-cash transactions for the years ended March 31, 2008 and 2007 were as follows:
Millions of yen

2008

Decrease in treasury stock due to the conversion of
convertible bonds¥ 6,543
Losses on disposal of treasury stock due to the conversionof convertible bonds
		 (2,120)
Decrease in convertible bonds¥ 4,423

62

Thousands of U.S. dollars

2007

2008

¥ 34,697$ 65,430

		 (8,490)¥ 26,207

Gas sales

Gas appliance
sales

Relatedconstruction$ 535,699

Real estate
rentalOther businessElimination or
corporate$ 2,362,637$

Consolidation

For 2008
Sales:
Outside customers$10,561,009$ 1,292,016

Intra group				

309,437

31,252 		

$123,60937,560		

228,086 		—$ 14,874,970

840,976 		 (1,447,311) 		

—

Total

		 10,870,446

		 1,323,268 		 573,259

		351,695 		 3,203,613 		 (1,447,311) 		 14,874,970

Costs and expenses

		 9,753,811

		 1,294,176 		 564,977

		

272,061 		 3,075,926 		 (786,466) 		 14,174,485

Operating income$ 1,116,635$

29,092$$

79,634

Identifiable assets$ 9,938,025$

435,512$ 188,915

Depreciation

		 1,073,128

		

6,055 		

1,222

		

99,078 		

222,449 		

(20,606) 		

Impairment losses

		

—

		

— 		

—

		

— 		

5,679 		

— 		

5,679

Capital expenditures		944,047		

6,489 		354		43,010 		

377,014 		

(21,083) 		

1,349,831

8,282$ 1,798,572$

127,687$ 2,566,319$ (660,845) $$ 2,109,169

700,485$ 17,036,512
1,381,326

Costs and expenses under Elimination or corporate that cannot be

Assets under Elimination or corporate mainly comprise cash andallocated to business segments are related mainly to generalbank deposits, investment securities and deferred tax assets of the		 (21,200)

administrative expenses of the Company, amounted to ¥67,096 million

Company and its consolidated subsidiaries, and they amounted to$ 44,230(US$670,963 thousand) and ¥65,392 million at March 31, 2008 and¥243,678 million (US$2,436,782 thousand) and ¥223,419 million at March

2007, respectively.

31, 2008 and 2007, respectively.

63

As described in Note 2. Significant accounting policies (4) Property,

prescribed by the Corporate Tax Law prior to its revision, the difference

plant and equipment, as a result of the revision of the Corporation Tax Law,

between an amount equal to 5% of the acquisition cost and theAcquisition cost, accumulated depreciation and net book value forOperating leases

as of the year under review, the Company and its domestic consolidated

memorandum value is depreciated uniformly over five years and included

property held under finance leases which do not transfer ownership ofInformation as lessee

subsidiaries have changed the depreciation method for property, plant andin depreciation expenses. As a result of this change, compared with thethe leased property to the lessee for the years ended March 31, 2008 and

Future lease payments at March 31, 2008 and 2007 were as follows:

equipment acquired on or after April 1, 2007, to the depreciation method

figures under the previous method, operating expenses in the fiscal year

2007 were as follows:

prescribed by the revised Corporation Tax Law. As a result of this change,

under review were up by ¥10,996 million (US$109,960 thousand) in gas

compared with the figures under the previous method, operating expenses

operations, by ¥48 million (US$485 thousand) in gas appliancesin the fiscal year under review were up by ¥1,107 million (US$11,071

operations, by ¥4 million (US$40 thousand) in contracted construction

thousand) in gas operations, by ¥22 million (US$224 thousand)in gas

work, by ¥238 million (US$2,382 thousand) in building leasing operations,appliances operations, by ¥1 million (US$7 thousand) in contracted

and by ¥365 million (US$3,647 thousand) in other operations, andconstruction work, by ¥11 million (US$111 thousand) in building leasing

operating income declined by an identical amount.

operations, and by ¥194 million (US$1,939 thousand) in other operations,and operating income declined by an identical amount.

Geographic segment information is not shown since more than 90%

In addition, as to property, plant and equipment acquired on orof both consolidated net sales and total assets are generated in Japan.

before March 31, 2007, as of the fiscal year following that in which assets

Information for overseas sales is not disclosed due to overseas sales

reach 5% of their acquisition cost pursuant to the depreciation method

being immaterial compared to consolidated net sales.

Millions of yen

Acquisition cost2008

Accumulated
depreciation

Net book value

For 2008

Other facilities¥ 26,241¥ 14,375¥11,866
Other intangible assets 		 1,091 		
755 		
336
¥ 27,332¥ 15,130¥12,202For 2007
Other facilities¥ 24,029
Other intangible assets 		 1,030¥ 25,059¥ 14,709
		674¥ 15,383¥ 9,320
		 356¥ 9,676

Acquisition cost

Lease payments and the amount corresponding to depreciation expenses in

Accumulated
depreciation

For 2008

payments inclusive of interest at March 31, 2008 and 2007 were as follows:

Other facilities$ 53,112 $ 17,150 $ 35,962
Other intangible assets 		 2,009 		
950 		 1,059

Thousands of
U.S. dollars

Lease payments¥
Depreciation expenses 		

2007

¥ 552
547
547 		 552

Future lease payments inclusive of interest:
Current¥ 501¥ 556
Non-current
		 3,146 		 2,130¥ 2,631¥ 3,702$ 55,1212008$ 5,475
		 5,475$ 18,100$ 37,021

Information as lessor
Lease income, depreciation expenses and the amount corresponding tointerest income in the years ended March 31, 2008 and 2007, and future$ 5,559
		 31,462$ 37,021

The Company and its consolidated subsidiaries use certain otherfacilities and other intangibles under lease arrangements. Acquisitionlease payments to be received at March 31, 2008 and 2007 were as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2007

Lease income¥ 4,609¥ 4,720
Depreciation expenses 		 1,636 		 1,680
Interest income		 1,408 		 1,274

2008

property to the lessee on an “as if capitalized“ basis for the years ended
March 31, 2008 and 2007 were as follows:
Millions of yen

Acquisition cost

Accumulated
depreciation

Net book value

For 2008

Other facilities¥ 5,311¥ 1,715¥ 3,596
Other intangible assets 		 201 		
95 		
106
¥ 5,512For 2007
Other facilities¥ 4,174
Other intangible assets 		 314
¥ 4,488¥ 1,810¥ 1,688
		 169¥ 1,857¥ 3,702¥ 2,486
		 145¥ 2,631

Future lease payments to be received:
Current¥ 5,134¥ 5,518
Non-current
		 19,880 		 15,502¥ 20,636¥ 25,398

as follows:

Net book value

Thousands of
U.S. dollars

Millions of yen

Future lease payments:
Current¥ 327
Non-current
		 457
¥ 784

2008

2007

¥ 444
		 632¥ 1,076$ 3,265
		 4,572$ 7,837

17

Commitment and contingent liabilities

At March 31, 2008, the Company and its consolidated subsidiaries were

At March 31, 2008, the Company had several long-term purchasecontingently liable for (1) debt guarantees in the amount of ¥6,471 million

contracts for the supply of LNG. The purchase price determinable under(US$64,714 thousand) for financial institution loans to companies othersuch contracts is contingent upon fluctuations in the market price ofthan consolidated subsidiaries, (2) ¥38,700 million (US$387,000

crude oil.

thousand) as guarantors for domestic unsecured bonds issued by the

Adjustment of the cost for raw materials is subject to movements

Company, and assigned to certain banks under the debt assumption

on trading contract renewals or price negotiations thereof with gas

agreements made in the years ended March 31, 2004, 2003 and 2002.

resource suppliers.

$ 47,199
		 16,365
		 14,077

cost, accumulated depreciation and net book value for property held
under finance leases which do not transfer ownership of the leased$ 330
		 1,254$ 1,584$ 273,324 $ 151,302 $ 122,022

Net book value

the years ended March 31, 2008 and 2007, and future minimum lease
Millions of yen

¥1
		 2
¥3

Future lease payments to be received at March 31, 2008 and 2007 were

Other facilities$ 262,416 $ 143,753 $ 118,663
Other intangible assets 		 10,908 		
7,549 		 3,359

Thousands of U.S. dollars

2008

Accumulated
depreciation

For 2008

Information for certain leases

Information as lessee

¥ 158

2008

2007

2008

Acquisition cost

Finance leases

Future lease payments:
Current¥ 33
Non-current
		 125

Information as lessor

Thousands of U.S. dollars

16

Thousands of
U.S. dollars

Millions of yen

18$ 55,177
		 198,802$ 253,979

Subsequent events(1) Resolution on acquisition of treasury stock(3) Bond Issuance

The Directors’ meeting held on April 25, 2008 resolved the acquisition oftreasury stock.

The Company issued the 30th unsecured bond based on a resolution ofboard of directors held on March 27, 2008 as follows:

Number of shares: Limited to 25,000 thousand shares	Cost of shares acquisitions: Limited to ¥10,000 million(US$100,000 thousand)
Period of acquisitions: From April 28, 2008 to October 28, 2008

Total amount issued: ¥20,000 million (US$200,000 thousand)Annual interest rate: 1.658%
	Issue price: ¥100 (US$1.00) of the denomination of each¥100 (US$1.00) bondPayment date: May 29, 2008

(2) Acquisitions of treasury stock

Maturity date: May 29, 2015

The following acquisition of treasury stock was carried out based upon aresolution at the Directors’ meeting as in (1).

Term: 7 years

Number of shares purchased: 23,984 thousand shares	Cost of shares acquisitions: ¥10,000 million(US$99,997 thousand)

Redemption method: Bullet repayment
Interest payment date: May 29 and November 29 of each year
Application of funds: Repayment of commercial paper

Period of acquisitions: June 4 to June 13, 2008 (commitment basis)

64

65Independent Auditors’ Report

To the Board of Directors of Tokyo Gas Co., Ltd.:We have audited the accompanying consolidated balance sheets of Tokyo Gas Co., Ltd. (a Japanese corporation) andconsolidated subsidiaries as of March 31, 2008 and 2007, and the related consolidated statements of income, changes in
net assets and cash flows for the years then ended, expressed in Japanese yen. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to independently express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are freeof material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, theconsolidated financial position of Tokyo Gas Co., Ltd. and consolidated subsidiaries as of March 31, 2008 and 2007, andthe consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting
principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to the following:(1) As discussed in Note 2(4) to the consolidated financial statements, as a result of the revision of the Corporation
Tax Law, as of the year under review, Tokyo Gas Co., Ltd. has changed the depreciation method for property,
plant and equipment acquired on or after April 1, 2007, to the depreciation method prescribed by the revised
Corporation Tax Law.
(2) As discussed in Note 2(4) to the consolidated financial statements, as a result of the revision of the Corporation
Tax Law, as of the year under review, as to assets acquired on or before March 31, 2007, as of the fiscal year
following that in which assets reach 5% of their acquisition cost pursuant to the depreciation method prescribedby the Corporation Tax Law prior to its revision, Tokyo Gas Co., Ltd. writes off the difference between an amountequal to 5% of the acquisition cost and the memorandum value uniformly over five years and records as
depreciation expenses.
(3) As discussed in Note 18(1) to the consolidated financial statements, subsequent to March 31, 2008, Tokyo Gas
Co., Ltd. decided to acquire the treasury stock on April 25, 2008.
(4) As discussed in Note 18(2) to the consolidated financial statements, subsequent to March 31, 2008, Tokyo Gas
Co., Ltd. effectuated acquisition of treasury stock based upon the resolution noted in (3).
(5) As discussed in Note 18(3) to the consolidated financial statements, subsequent to March 31, 2008, Tokyo Gas
Co., Ltd. published the 30th unsecured bond that should be paid by May 29, 2008.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March
31, 2008 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar
amounts and, in our opinion, such translation has been made on the basis described in Note 1 to the consolidated
financial statements.

Tokyo, Japan
June 27, 200866