Going
the DistanceTokyo Gas Co., Ltd.
Annual Report 2007

Tokyo Gas is Japan’s biggest city gas distributor, with over 9.9 million customers. Its area of
operations encompasses the Tokyo metropolitan area and the Kanto region, which surrounds
it—a prosperous market of huge potential demand. Since April 2006, the Tokyo Gas Grouphas followed a medium-term management plan for fiscal 2006–2010. The plan seeks to
exploit business opportunities arising from current trends in the energy industry, including
advancing deregulation and intensifying inter-company competition. Tokyo Gas Group isdetermined to achieve sustainable growth and development as a leading player in the integrated energy business centering on natural gas.

120

-year history

Since its founding in 1885, Tokyo Gas has consistently contributed to a more comfortable
life for its customers and industrial advancement through supply of city gas in Tokyo andthe surrounding areas. Our aim is to realize sustainable growth based on customer trust
and the engineering expertise accumulated as the largest gas company in Japan.

40% of Japan’s GDP

Tokyo Gas serves the Kanto region, responsible for around 40% of Japan’s
total GDP. With pride and sense of responsibility, we fulfill our mission toassure the stable supply of energy, so essential for the quality of urban life.

10

million customers

The number of customers served by Tokyo Gas throughout its supply area,
extending over Tokyo and eight prefectures, is expected to exceed 10 million
in 2007. We will continue to enhance customer comfort and peace of mind
through the values inherent our company.

more than

50,000km

Our gas pipeline network covers our service area like a finely woven net,
which if stretched out, would extend approximately 50,000 km, a distancegreater than the circumference of the Earth. As Japan is an earthquakeprone country, we will ensure urban safety through the most advanced disaster-prevention measures across our network.

Our Mission
going the distance for vigorous customers

1Our Goal
going the distance for all stakeholders

2

As a “corporate group on the energy frontier” centered on natural gas, Tokyo Gas has amanagement philosophy to contribute to creation of comfortable living and environmentallyfriendly cities, as well as ensuring continued development while consistently earning thetrust of customers, shareholders and society. Every single corporate activity we undertake isbased on this firm philosophy. We will create new value together with all stakeholders.

The Earth
We will actively promote local and global environmental preservation andcontribute to sustainable development in society by respecting the sanctity ofnature and utilizing resources and energy in harmony with the environment.

Society
Aiming to realize a society in which people can live comfortable andaffluent lives, we will join with customers and local communities inplanning for safety and security while fostering the future generation.

Shareholders
We aim to maintain a high standard of management transparency
and maximize our corporate value through dialogue with all market
participants, including shareholders and investors.

Customers
With passion and pride, we offer the best quality products and services, whicheven exceed customer expectations while maintaining good communication
with customers.

• • • and more3

Our Performance
Financial Highlights

Millions of yen
except per share amounts

For the Years ended March 31

Thousands of U.S. dollars except
per share amounts

2007

2006

2005

2007

1,376,958

1,266,502

1,190,783

11,669,137

Operating income

162,315

112,346

145,349

1,375,551

Net income

100,700

62,11584,047853,389

Net income

37.50

23.48

31.47

0.32

Net income (Diluted)

35.69

21.70

28.24

0.30

Net assets

293.11

270.46244.73

2.48

8.00

7.00

7.00

0.07

1,692,635

1,693,899

1,668,734

14,344,367

Long-term debt due after one year

465,896496,740

547,139

3,948,272

Net assets

806,046728,232

648,766

6,830,896

233,842

198,492

224,319

1,981,713

Operating income to net sales

11.8%

8.9%

12.2%

11.8%

Net income to net sales

7.3%

4.9%

7.1%

7.3%

ROE

13.2%

9.0%

13.5%

13.2%

ROA

5.9%

3.7%

5.0%

5.9%

Equity Ratio

47.0%

43.0%

38.9%

47.0%

0.66

0.77

0.96

0.66

Net sales

Amounts per share of common stock

Cash dividends applicable to the year

At Year-end (March 31)

Total assets

RatiosOperating cash flow

D/E ratio

Notes: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥118=U.S.$1, the Tokyo foreign exchange market rate as of March 31, 2007.
2. Operating cash flow = net income + depreciation**including amortization of long-term prepayments

3. ROE = net income/total shareholders’ equity (average of positions at start and end of fiscal year)
4. ROA = net income/total assets (average of positions at start and end of fiscal year)
5. D/E ratio = interest-bearing debt (year-end)/total shareholders’ equity (year-end)

4

Contents
Track Record—12-year Summary

Profile & Our Mission

44% up
2.4 times up

I.F.C.

Our Goal

2

Our Performance4

Operating income

Our Vision

6

Net income

Our Mid-term Plan

12

Procurement

14

Storage and Supply

16

Business Partner Solutions

18

Residential Customers

20

Technology Research andDevelopment

22

Frequently Asked Questions

24

Corporate Governance

28

Board of Directors andCorporate Auditors

30

Initiatives for Environmental
Protection and Safety

35

Financial Section

37

Net sales

6.0 times up

’96

’97

’98

’99

’00

’01

’02

’03

’04

’05

’06

’07

Total assets

same level

95% upInterest-bearing debt

Net assets

’96

’97

39% down
’98

’99

’00

’01

’02

’03

’04

’05

’06

’07

Segment Information
Net sales

3.9%
66.1%

8.9%

Operating income

2.2%
18.9%

0.5%
89.6%

3.0%
6.1%

0.8%
Gas

Gas Appliances

Related Construction

Real Estate Rental

Other Business5

An Interview with the President

Our Vision
going the distance withtotal energy solutions

Mitsunori Torihara
6

PresidentQ: You launched a new medium-term management plan in fiscal 2006.
How would you assess initial progress under the plan?
Torihara: Fiscal 2006 was the first year of our medium-term management plan covering theperiod from fiscal 2006 to fiscal 2010. Various aspects of the business environment changed
more than we anticipated when we first announced the plan in January 2006.
First of all, the price trend of crude oil remains in the high range. Though natural gas is
becoming more price-competitive relative to other fuels, this factor eroded the ability of gas
cogeneration systems to compete with grid-connected electric power systems on price.
Another change was an extreme acceleration of the trend toward the use of electricity
instead of gas. Rising consumer awareness of the all-electric concept was reflected inincreased competition from electricity. There were also some unfortunate situations, including cases of carbon monoxide poisoning caused by water heaters. These had the effect oferoding public confidence in the safety of gas.
We responded to these changes by totally reviewing our policies in the summer of2006. While making additional investment to reinforce our strategies to counter competition
from electricity and achieve strengthened safety measures, we endeavored to reduce costs
and continued to respond flexibly to changing conditions.
As a result, I believe that we generally made a good start in terms of our management
performance. We set new records for net sales, operating income and net income. The
increase in sales resulted mainly from volume growth driven by marketing efforts, combined with higher unit prices under the gas rate adjustment system, which adjusts gas rates
according to gas resource costs. Despite dramatically higher gas resource costs andincreased expenditure on safety, we were able to keep operating expenses under control
through savings in other areas, including reductions in labor costs resulting from further
work force downsizing and an actuarial differential on retirement benefits*. Operating
income increased by 44.5% to ¥162.3 billion over the previous year.
There was continuing growth in gas sales volumes, especially for industrial use. This
reflects the important environmental advantages of natural gas, as well as its price advantage
relative to crude oil. Sales to residential and commercial customers stagnated due to mild
winter temperatures, but overall there was a 1.7% year-on-year increase to 13.3 billion m3.
We also achieved encouraging sales of strategic products that we see as important to ourefforts to counter competition from companies offering all-electric systems. These include
our “Pipitto Konro” gas cooktops, our highly efficient “Eco-JOES” water heaters, and mist
saunas. Sales units of these items were substantially higher than the previous year’s results.
In the industrial segment, we have started to make steady progress toward our establishment into an integrated energy company, as envisioned in our medium-term management plan. In June 2006, Tokyo Gas Yokosuka Power Co., Ltd. started operation as our second power plant, with power generation capacity of 240 MW, and in April 2008, an 800-MW
facility operated by Kawasaki Natural Gas Power Generation will come on line.
* Tokyo Gas calculates its retirement benefit liabilities using actuarial computations based on specific assumptions.
Actuarial differentials are all shown as cost items in the accounts for the following year.

Q: Your forecasts for fiscal 2007, the fiscal year ending March 31,
2008, appear pessimistic. What are the reasons for this?
Torihara: While we expect net sales for fiscal 2007 to exceed the excellent result for fiscal
2006, we are predicting a sharp decline in income. The three main factors for this forecast
are a heavier cost burden resulting from sharply higher gas resource costs, higher personnel

7expenses resulting from an actuarial differential on retirement benefits, and aggressive
investment in demand development to counter competition from all-electric systems.
One reason for the rise in gas resource costs is higher LNG prices. This reflects risingworld demand for LNG, as well as the instability of crude oil prices, which have started tomove higher again after a period of relative calm.
The actuarial differential on retirement benefits has occurred despite cost savings resulting
from decreasing our employee numbers and is attributable to external factors. These include a
relatively lower yield on pension assets in fiscal 2006, compared with the excellent results
achieved in fiscal 2005, and another factor was the effect of a three-yearly actuarial review. In
addition, the discount rate has fallen from 2.0% to 1.8%.
Investment in demand development is essential to counter the effects of competition
from all-electric systems. We will focus in particular on the expansion of sales of in-house
power generation systems, which combine our ECOWILL and LIFUEL systems. We regard
these as strategic products. Our target for fiscal 2007 is to install 3,950 units, which is overthree times higher than the fiscal 2006 result of 1,304 units sold. In addition to our investment in home power generation products, we are also steadily implementing initiatives
that are expected to yield sales growth in the future. These include increased efforts toovercome recent consumer concerns about using gas and appeal the safety and comfort
features of gas.
In fiscal 2007, we are also structuring a regionally focused marketing approach as statedin our medium-term management plan for fiscal 2006 to fiscal 2010. Specifically, we plan toestablish new regional energy companies to integrate the functions of safety inspections,meter reading and the collection of gas charges, as well as sales and maintenance of gas
appliances, that was formerly undertaken by Enesta. These services will be fine-tuned toreflect the diverse lifestyles of our customers. Trial operation of the new scheme has
already started in some regions. We are confident that this shift from a function-based marketing structure to a regionally based one will yield sustained benefits through the clear
grasping of customer needs while regularly carrying out day-to-day gas-related operations.

Major Management Targets
TEP

Operating Cash Flow

ROA

ROE

(¥ billion)(¥ billion)

(%)

(%)

53.8

1,120.0

51.0

5.9

5.5

13.2
10.9

4.3
9.1
22.0
233.8
FY ’06’07’10

OutlookTargetTEP (Tokyo Gas Economic Profit)= net operating profit after tax prior tointerest payments – cost of capital
WACC

8

FY06 Results: 3.8%
FY07 Outlook: 3.8%
FY10 Target: 3.8%

FY ’06217.9’07’06–’10

Outlook

Total

Operating cash flow
= net income + depreciation

FY ’06’07’10

OutlookTarget

ROA = net income/total
assets (average of positions at start and end of
fiscal year)

FY ’06’07’10

OutlookTargetROE = net income/total
shareholders’ equity (averageof positions at start and endof fiscal year)

Q: How will changes in the business environment affect the current
medium-term plan?
Torihara: In fiscal 2006, many aspects of the business environment changed conspicuously compared with the assumptions on which the medium-term plan was based.
However, we took a positive, forward-looking stance in response to these changes andquickly convened internal discussions. Our entire organization is now working to makethe necessary adjustments.
One of the issues that has affected us is public concern over carbon monoxide poisoning. We have responded by implementing special inspections of gas appliances. In fiscal
2007 we will deploy an additional 100 service staff and fulfill the scope of our safety inspections. We have also allocated a budget of ¥10 billion for measures to encourage consumers
to replace their appliances with safer models. In addition, customer contacts in the course of our business
operations provide opportunities to remind customers
about the importance of appliance safety. Through theinitiatives mentioned here and elsewhere, we doeverything possible to restore public confidence in gas
as quickly as possible.
LNG prices have climbed in step with rising crude
oil prices and are now above the level that we projected
when formulating the plan. Our forecast of lower
income in fiscal 2007 reflects sharply higher gas resource costs resulting from tight LNG
supply and demand balance in the global market, and the high level of crude oil prices.
However, we believe that this situation will improve as LNG is delivered from new projects,
including SakhalinⅡ in 2008, and Gorgon and Pluto after 2010. In future, we will continually
modify our LNG procurements according to prevailing conditions, including the use of flexible
contract terms.
Under our medium-term group management plan for fiscal 2006–2010, we aim toincrease our presence in the LNG value chain while building Tokyo Gas into an integrated
energy company. Though income in fiscal 2007 will be substantially below the fiscal 2006
level, if we exclude external factors, such as the actuarial differential on retirement benefits
and an increase in depreciation due to tax revision, our estimates for fiscal 2007 would be inline with the initial forecasts in our medium-term management plan. Our goals remainunchanged. We will work even harder to maintain our reputation as a trusted and preferredenergy supplier, by maintaining the reliability of our supply services, competitive pricing, andstrong commitment to continual improvement in safety and service quality.

Q: There has been widespread public interest in M&A activities andother events affecting the energy sector in Europe and North
America. Do you foresee similar development in Japan? What are yourviews on M&A?
Torihara: We are closely monitoring energy sector developments in Europe and North
America. Of particular interest is a flurry of M&A activity in the European electric powerindustry, which appears to have resulted from total deregulation of the industry. Moreover,the energy situation in the EU is such that they have developed electric power and gas distribution infrastructure across the region. Investors ask me if a similar situation is likely todevelop in Japan. While we cannot rule this out entirely, conditions here are different, andwe need to consider the situation calmly.
9While the scope of deregulation is expanding in Japan, nationwide electric power andgas distribution has yet to develop sufficiently. The debate over full deregulation, including
the residential sector, is only just beginning. Unlike the telecommunications and aviationindustries, there are no restrictions on share ownership by foreigners in electric power andgas. However, if a foreign corporation wishes to acquire 10% or more of the shares in a
power or gas company in Japan, it is required under the Foreign Exchange and Foreign
Trade Law to notify the Ministry of Economy, Trade and Industry to obtain permission.
There are other restrictions under the Gas Utility Industry Law and the Antimonopoly Law.
For such reasons, it seems unlikely that our industry will undergo rapid restructuring as aresult of M&A and similar activities.
I firmly believe that the priorities for Tokyo Gas are to achieve continual improvement inour corporate value, and to maintain dialogue with the markets as the basis for an appropriate valuation. For this reason, we have not established specific defensive measures against
takeover bids. However, we are prepared to takeappropriate decisions if there is a risk that largescale buying of our shares will jeopardize our ability
to implement our management philosophy or damage our corporate value. In such an event, we will
evaluate the TOB proposal with outside experts, aswell as holding a dialogue with the investors. If weconclude that the activity would have a negative
effect on our corporate value or the common interests of our shareholders, we will disclose details of the situation to our shareholders and make prompt decisions about theneed for specific countermeasures and the content of such measures, so as to be ready tointroduce and implement them.
Another question that I am asked is whether Tokyo Gas plans to merge with or absorb
other city gas companies. Tokyo Gas is currently a wholesale supplier to 24 city gas companies in its service area. In volume terms, sales to these companies account for over
10% of our total sales, and we anticipate a high growth rate averaging 4.4% over the next
five years. We are aggressively developing our wholesale supply business, which allows
us to earn income without increasing our assets. We have no plan to engage in hostile
M&A activities that might have a negative impact on the business. However, we havetaken over the business operations of a government-owned gas business when it was privatized. If there were an optimal M&A deal that would enhance our corporate value andimprove customer convenience, we would positively consider it while taking the wishes ofthe other party into account.

Q: What are your views on shareholder benefits and financial strategies?
Torihara: In our medium-term management plan, we have set targets for operating cash
flows and defined our allocation policy. Specifically, we aim to generate operating cash
flows of ¥1,120 billion and other cash flows of ¥70 billion, making a total of ¥1,190 billion.
Of this, we intend to invest ¥860 billion in the development of our integrated energy business. This medium-term management plan is seen as an important step toward the realization of our long-term strategy for the period beyond 2010, and, consequently, we intend toconcentrate our management resources and invest aggressively in our core business.

10Basic Policy on Cash Flow Allocation (5 years)

Operating Cash Flow
Other Cash Flow¥995 billion¥(122 billion)

Operating Cash Flow
Other Cash Flow

Five-year total:¥1,190 billion
60

Five-year total:¥873 billion

Reduction of Interest-bearing Debt: ¥60 billion
Shareholder Benefits: ¥270 billion
Investment and Financing: ¥860 billion

270

100
181

Breakdown of Investment and
Financing in Total Energy Business

860
592

FY2003–2007¥1,120 billion¥70 billion

12% 17%
12%
20%
39%

FY2006–2010

Upstream/Overseas
Infrastructure
Demand development
Business Facilities
Others

I see our business strategy and financial strategy as two halves of a whole. Together
with our integrated energy business, which constitutes the foundation stone of our business strategy, our financial strategy and shareholder benefits are the most important
issues for management.
In our medium-term management plan, we have set a 60% target for the total payout
ratio*. We have also declared our intention to distribute income to shareholders through dividends and stock repurchases. Based on this total payout ratio concept, we have increased
the dividend for fiscal 2006 and beyond by ¥1.0 to ¥8.0 per share, and we have allocatedfunds to repurchase stocks worth ¥39 billion (60 million shares). As a result of these measures, the total payout ratio for fiscal 2006 is expected to be 60.1%. While maintaining dividend stability, we aim to raise the dividend gradually. We have almost completed our stock
repurchases for fiscal 2006, which we implemented to prevent dilution caused by the conversion of convertible bonds. Our priority from now on will be to enhance shareholder value
by repurchasing stock primarily with a view to cancellation.
Another management priority is to maintain an appropriate capital structure and capitalcosts. Our main indicators in this area are ROE and Tokyo Gas Economic Profit (TEP), whichis the Tokyo Gas version of Economic Value Added (EVA®). We aim to achieve sustained
improvement in all of these indicators.
As president, I am determined to steadily implement the medium-term management
plan while also ensuring that Tokyo Gas remains a trusted name and a company of choice
for shareholders, investors, customers and the public. This unswerving commitment willcontinue to guide our activities in a changing business environment as we work to createand develop new markets for natural gas and build a broad-based profit structure for 2010
and beyond. We will go the distance.
*Total payout ratio of year n =[(dividends from unappropriated profit in year n) +(amount of treasury stocks acquired in year n + 1)] /(consolidated net income in year n)

Mitsunori Torihara, President

11

Our
Mid-term Plan
Creation and Cultivation of
new natural gas market

12

1999

2002

2006

Medium-term management
plan (FY2000–2004)“New Utility Company”

Medium-term management
plan (FY2003–2007)“Energy Frontier
Corporate Group”

Medium-term management
plan (FY2006–2010)“Creation and Cultivation of
New Natural Gas Markets”

Our Gas Value Chain
There have been significant changes in the environment in which Tokyo Gas operates,
including deregulation of the gas and electric power sectors, shifts in demand patterns, andgrowing public concern about corporate social responsibility. At the same time, customer
needs have become increasingly diverse and sophisticated. We have been adapting to thisenvironment through initiatives based on our medium-term plans. Under the plan that started
in 2000, we worked to develop Tokyo Gas as a new kind of utility company, while our goal
under the plan started in 2003 was evolution as an energy frontier business group. In April
2006, we launched a medium-term management plan covering the period from fiscal 2006 to
fiscal 2010. This plan reflects our vision for Tokyo Gas in the decade after 2010. We aim toincrease our presence in the LNG value chain, which encompasses all stages from upstream
to downstream, and we will focus on the development of energy services based on our abilities as a multi-energy supplier including gas and power. We also intend to tap the enormous
latent demand in the Kanto region by expanding our integrated energy business within a 200
km radius from Tokyo.

Value Chain

Storage andSupplyProcurement

Business Partner
Solutions

Residential
Customers

R&D

Business Strategy

Greater Potential Value to Customers

Optimal one-stop multi-energy solutions including city gas,
LNG, LPG and electricity

Broad-based profit
structure built throughthe creation andcultivation of newmarkets for natural gas

Current profit
structure

Service Area Expansion
Marketing scheme covering 200 km radius around Tokyo in the Kanto region,and creation of wide-area infrastructure13Procurement
Tokyo Gas is the largest importer of LNG among city gas distributors in Japan, which buys around 40% of world
LNG supplies. Currently we source a total of 10 million tons of LNG from 10 projects in six countries, including
locations in Southeast Asia,
Australia, the United States
and the Middle East. We are determined to secure our ability to supply our customers with high-quality naturalgas. To achieve this goal, we plan to ensure reliable and competitive access to resources by enhancing our presence in the LNG value chain through participation in upstream development and transportation.

Capturing Upstream Value

14

Energy Progress, one of the carriers in the Tokyo Gas Fleet, loads
LNG from the Darwin project in Australia.

LNG—A Precious Natural Resource
Liquefied natural gas (LNG) is produced by transforming natural gas from its natural gaseous state into aliquid by lowering its temperature to around minus 160ºC. This precious natural resource is brought toJapan across thousands of kilometers of ocean aboard specially designed carriers. Tokyo Gas firstimported LNG from Alaska in 1969. In the four decades since then, we have made this environmentallyfriendly fuel the core of our business operations.
LNG is a environmentally superior to other fossil fuels. Unlike crude oil, which is found only in limitedareas, such as the Middle East, LNG can be sourced from many locations. Another important advantage
is the ability of natural gas to be used with increasing efficiency because of advances in utilization technologies, such as fuel cells and cogeneration systems. These and other advantages are reflected in consistently high levels of customer satisfaction.

Reliable, Competitive Access to ResourcesTokyo Gas is continually working to maintain reliable and competitive access to LNG sources by expanding its LNG value chain through the effective linkage of its business activities—from upstream operations
and transportation to the operation of import facilities and gas supply systems. This includes overseas
activities, and we are implementing the following policies to achieve this goal.
First, we enhance the reliability and competitiveness of our LNG procurement by diversifying our
supply sources. In 2008, Russia will become our seventh source country when we begin to procure LNG
from the Sakhalin Ⅱ project. From 2010 onwards we will also source LNG from the Gorgon and Pluto
Projects in Western Australia.
In recent years we have strengthened our competitiveness by enhancing our ability to adjust to fluctuations in customer demand. We have achieved this by negotiating contracts that provide increased
flexibility. For example, with some of our projects we are now able to adjust volumes or change the destinations to which LNG is shipped.
Second, we are already involved in the Darwin Project in Australia, and currently we are negotiating overparticipation in the Pluto and Gorgon Projects, which are also in Australia. In addition to reducing LNG pricefluctuation risk and ensuring business profits, another advantage of this involvement in upstream interests isthe potential to develop new business opportunities, including trading operations. Furthermore, we aim toestablish an LNG value chain through involvement in LNG receiving terminal and gas supply business.
Third, we currently operate a fleet of five vessels, including Energy Progress, which went into service inNovember 2006. We plan to expand our fleet to seven vessels by fiscal 2010, by which time we will carryapproximately 50% of our total LNG cargos in our own vessels. By increasing the volumes carried, we aim
to achieve further reductions in our transportation costs. The use of our fleet for short-term and spot procurement as well as procurement under long-term contracts will provide increased flexibility, thereby helping to reduce gas resource costs and improve reliability. We also intend to expand the scope of our business activities by carrying LNG for the third parties or chartering out our vessels.
Tokyo Gas LNG Long-term Imports
AlaskaSakhalinTokyo
New LNG ProjectExisiting LNG Project

Qatar
BruneiMalaysia
Indonesia
Pluto
GorgonDarwinNWS

15

Storage and Supply
The three LNG receiving terminals operated by Tokyo Gas in the Tokyo Bay area are the biggest in Japan. LNG
is transported across the world by carriers to these facilities, where it is processed into city gas. The gas is thensupplied safely to customers through a pipeline network covering a total distance of 50,000 km—more than thecircumference of the Earth. Our supply infrastructure in
the Kanto region, including LNG receiving terminals,
pipelines and regulators, serves a market that produces around 40% of Japan’s GDP. Our success depends on
our ability to make effective use of this infrastructure, and we actively invest in the development of our pipeline
network as part of our strategy to capture new demand. We plan to expand our network in the Kanto region
across a 200 km radius from Tokyo. Tokyo Gas continues to accept the challenge of sustainable growth.

Moving Outward

16

Now operated jointly with Tokyo Electric Power Company, the Negishi Terminal was
opened in November 1969 as Japan’s first LNG terminal.

Exploiting the Full Potential of Supply Infrastructure
Tokyo Gas imports LNG from various parts of the world through its Negishi, Sodegaura and Ohgishima
Terminals in the Tokyo Bay area. To maximize shipping efficiency, the gas is cryogenically liquefied at the
point of production to reduce its volume about 600 times. On arrival in Japan LNG is transferred to storage tanks, a process that takes approximately half a day. LNG is regasified by passing it through aluminum tubes that are exposed to seawater. LPG is added to adjust the caloric value, and finally odorized,
so that customers will be aware of the presence of the gas. It is then sent out through pipelines.
Two of our three terminals, the Negishi and Sodegaura facilities, are jointly operated with Tokyo ElectricPower Company. The benefits of this arrangement include reduced capital investment and operating costs,
and higher operating rates made possible by load leveling based on differences between peak demand patterns for power and gas. These advantages are reflected in lower gas production costs.
Computerized central control systems allow efficient operation of the terminals by a small team, andday-to-day operations require only 5–10 workers. Safety is of paramount importance. Most of the LNG
tanks, which hold up to 200,000 kiloliters, are located underground. This increases their ability to withstand earthquakes, and even if a tank is damaged the risk of above-ground LNG leaks can be minimized.

Expansion across a 200 km Radius around Tokyo—The Kanto Region
In the medium-term management plan for fiscal 2006–2010, the Tokyo Gas Group announced that it
would expand its pipeline network in the Kanto region across a radius of 200 km from Tokyo. This
expansion will enhance supply reliability and allow us to develop the enormous potential demand thatexists in the region.
Expansion work was already in progress before the announcement of the plan. In November 2005
we completed the 69-km “Tochigi Line” linking Sano and Utsunomiya across the northern part of the
Kanto region and commenced natural gas sales to large-volume customers in the area. This pipeline wasconstructed to meet the needs of customers, especially in local industrial estates, and to provide
enhanced reliability of supply. Its contribution to demand development has exceeded our initial target,
and to date we have been able to secure approximately 300 million m3 of new demand.
We have also decided to build the new “Chiba–Kashima Line” to capture energy demand at industrial
complexes in Ibaraki Prefecture. When completed in 2010, this 73-km pipeline is expected to attract
approximately 500 million m3 of new demand.
Tokyo Gas uses a variety of methods to supply natural gas to customers in locations that are remote fromour pipelines. The Sodegaura and Negishi Terminals also serve as loading depots for tanker trucks, which forma mobile link in our infrastructure for day-to-day gas sales in the Kanto region across a 200-km radius from
Tokyo. Coastal carriers are used to supply natural gas to customers in more remote locations. This flexibility
and mobility allow us to provide optimized energy solutions that meet the needs of our customers.
Tokyo Gas Group Supply Area
Tochigi

Gunma“Tochigi–Line”

IbarakiNaganoSaitama“Chiba–Kashima Line”

Yamanashi

Tokyo■ Tokyo Gas Group Service Area
■ Service Areas of Wholesale Customers

Kanagawa
Chiba
Shizuoka

Tokyo Gas High-Pressure Pipelines
High-Pressure Pipelines of Other Companies
Tokyo Gas Pipelines Under Construction
Pipeline jointly owned with Shizuoka Gas andTeikoku Oil Co., Ltd.
● Tokyo Gas LNG Receiving Terminal

17

Business Partner Solutions
Buoyant business performance has driven a surge in the development of new production facilities in theTokyo metropolitan area. There has also been an accelerating shift to natural gas, both as a means of reducing CO2 emissions, and also because of aprice advantage relative to persistently
high crude oil prices. Despite escalating competition in the energy market, Tokyo Gas has built an overwhelming advantage on a foundation of engineering expertise. As a reliable business partner in all segmentsof the energy market, we will continue to work with our customers to create new value.

Greater Energy Choice18

The Tokyo Gas Baypower plant (100 MW) is locatedalongside the Sodegaura LNG Terminal.

Sophisticated Energy Solutions
There is escalating competition among different types of energy, and among suppliers of the same typeof energy. However, Tokyo Gas has maintained an overwhelming advantage backed by decades of accumulated experience and knowledge. Our city gas network is the core infrastructure through which we
respond to the changing and increasingly sophisticated energy needs of industrial and commercial customers. As a multi-energy supplier and provider of energy services, we offer one-stop access to city gas,
LPG, electric power and other forms of energy. We will continue to provide advanced energy solutions
that surpass the expectations of our customers.
Our power business is one of the core elements in the multi-energy supply structure, through which
Tokyo Gas provides its customers with one-stop solutions to their energy needs. Our aim is to supply
the optimal mix of facilities, including cogeneration systems. We are able to supply electric power competitively by combining a range of strategies, including the construction of power plants close to demandareas, the use of existing infrastructure at LNG terminals and other facilities, and the introduction ofAdvanced Combined Cycle (ACC) technology. There are also important synergy benefits between ourelectric power and gas operations, including higher utilization rates for LNG terminals. Tokyo Gas and its
allied companies currently have 2,340 MW of generating capacity at four sites, either already in operation
or at the construction or planning stages.

Integrated Utility Services for Diversified Needs
We are expanding our collaboration with ENERGY ADVANCE Co., Ltd. (ENAC), which was separated
from Tokyo Gas as an independent company in 2002. This relationship is crucial to the full-scale development of our multi-energy supply business.
The knowledge and technical expertise accumulated through construction and operation of thesefacilities are the foundation for a wide range of energy services. ENAC’s professional engineers select,design and install systems that precisely match customer needs, providing benefits that include energy
conservation and reduced CO2 emissions and costs. With a cumulative total of 175 orders by the end of
March 2007, ENAC is the industry leader.
The services provided by ENAC are not limited to energy. It is evolving into an integrated utility service company offering one-stop solutions for a wide range of customer needs, including utility services,such as the supply of pure water and compressed air, and contracting services in such areas as biomass
utilization and facility operation and management.

Building Markets for Integrated Energy Solutions
Businesses are establishing an increasing number of factories and large-scale commercial facilities on theoutskirts of Tokyo. Our strategies for the development of potential demand in the Kanto area aroundTokyo include the development of wide-area pipeline networks and construction of LNG satellite terminals
in areas where gas pipelines have not been installed. We see the Kanto area within a 200-km radius ofTokyo as a single market for natural gas, and we believe that we can achieve further demand growth bystrengthening our alliances with local energy suppliers, and by offering one-stop service packages that
include LNG sales and other energy services, such as power and heat.
Cogeneration Stock (MW)
2,000

1,500

1,000

500

0
Year ended ’98
March 31’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12
Industrial Use
Commercial Use

Estimated

19

Residential Customers
The mission of Tokyo Gas is to help residential customers experience the lifestyle enhancements made possibleby city gas, including the enjoyment of delicious food cooked over real flames, and the convenience of being
able to produce just the required amount of
hot water whenever it is needed. We offer ourcustomers new value by developing products and services that reflect their needs, including environmental
and health needs. We are also determined to enhance our ability to communicate with customers by building
a marketing structure based on the development of even stronger links with regional communities.

One Stop for Service

20Tokyo Gas offers a variety of lifestyle ideas to enhance and enrich
today’s increasingly diverse home environments.

Maximizing the Value of Customer Contacts
In the residential sector, Tokyo Gas aims to maintain and expand gas sales volumes per customer
through in-depth marketing. All Tokyo Gas companies have numerous opportunities for customer contacts, and we are determined to maximize these opportunities. We also work to expand our gas sales
volumes through dynamic marketing activities targeted toward expansion of our customer base.
In recent years, it has become increasingly difficult to prevent declines in gas sales per customer
because of structural factors, including Japan’s falling birthrate, and an increase in the number of houses
with effective draft-proofing and thermal insulation. There is also escalating competition from all-electrichouses, a concept that is being promoted primarily by electric power companies.
Our strategy in this market environment is to maintain and expand gas sales in the residential sector
by offering enhanced lifestyle features and comfort to as many customers as possible. We will achieve
this by strategically introducing attractive gas appliances that anticipate changing lifestyles, such as floorheating systems and mist saunas. We are also encouraging customers to use these appliances by developing and promoting an attractive range of gas charging options.
We are promoting these strategic appliances aggressively. In addition to the use of mass-advertising
media, such as television, newspapers, magazines and the Internet, we are also creating opportunities
for consumers to experience the advantages of gas at our showrooms, and through outside events andcondominium and housing displays.
In addition to aggressive product development and marketing strategies, we also work to strengthen
our marketing organization in each market segment. In April 2007, we created the Residential Sales
Promotion Division, which is responsible primarily for end-user services and marketing through regionallyfocused marketing approaches coordinated by five branch offices. We also established the Housing
Development Division, which markets our products and services primarily to sub-users.
We will soon commence full-scale preparations for the implementation of the new regional energy
company concept as the next stage in the evolution of our regionally based marketing organization. Thischange will involve the restructuring and integration of sales and service functions, including appliancesales, repair services and safety inspections, in order to provide one-stop access to products and services with the potential to add value to customer lifestyles.
The aim of these initiatives is to create a framework for sustainable growth in the residential gas market by strengthening the integrated marketing potential of the Tokyo Gas Group, and by providing onestop access to products and services needed by our customers.

Capturing Residential Electric Power Demand—Home Power Generation
Tokyo Gas promotes home power generation systems as a way of expanding residential gas demandand countering competition from all-electric systems. Our flagship products in this area, the ECOWILL
gas engine cogeneration system and the LIFUEL fuel cell cogeneration system, are being marketed primarily to customers living in detached houses.
We use home power generation to develop a new residential electric power market. These strategic
products have the potential to drive future growth in gas sales. Until now, we marketed these systems
mainly for new houses, but in early fiscal 2007, we
expanded the scope of the market by launching a

Flow of residential cogeneration system

major effort focusing on installation in existing houses. By fiscal 2010, we aim to sell a cumulative total
Electricity

of approximately 43,000 units as a foundation forlarge-scale adoption of this technology.
Tokyo Gas is studying strategies for entry into themarket for energy systems for condominium hous-

Lighting

Electric
appliances

ShowerFloor heatinging. In this area, we will provide one-stop solutions,the energy needs of condominium residents.

Heat

Hot water/Space heating

nance of cogeneration systems designed to meet

City
gas

Power
generation

including the installation, ownership and mainte-

Hot
water

Space heating

21

Technology Research and Development
Tokyo Gas places a high value on technology and accepts the challenge of creating new technology as thedriving force for business development and growth. Particularly important are technologies relating to the gas
business, such as combustion technology and pipeline technology. Asa leading company in the Japanese energy sector, we aim to achieve sustainable growth in partnership withsociety by actively contributing to the development of new technologies for the energy society of the future.

Making Our Own Future

22

The pilot biomass gasification plant is located at the Nakagawa Water
Recycling Center in Misato city, Saitama Prefecture.

R&D Focusing on both Strategy and Platform
Our research and development activities are broadly divided into strategic technology development that
contributes to the development of an integrated energy business centering on natural gas, and platform
technology development that helps to enhance our competitiveness while also ensuring that we canmeet society’s needs in terms of reliability, safety and environmental considerations.
Our strategic technology development has two major goals. First, we aim to diversify and improve
the performance of our products, including mist saunas and floor-heating systems, so that residential
customers can enjoy the full benefits of gas. Second, we work to develop new technologies to drive
sustainable growth in the future.
One of the goals of our platform technology development is to improve the technologies used tobuild, and maintain our natural gas infrastructure, especially our pipeline network, so that we can safely
deliver natural gas and ensure that it is safely used by our customers. Another focus is the developmentof technology to improve our competitiveness by reducing costs. Our platform activities also play a crucial role in increasing depth and passing on our platform technologies, including gas quality management
and combustion engineering.

Creating the Energy of the Future
Tokyo Gas has made the development of technologies for the energy society of the future a priority
theme for its technology development activities. We are developing a variety of highly efficient equipment with major energy-saving benefits. One of these is the LIFUEL home power generation system,
which is now at the performance verification stage. Another is the Solid Oxide Fuel Cell (SOFC), a nextgeneration fuel cell system capable of generating electricity with high efficiency.
We are also developing technology for the use of biomass as a renewable energy resource capable ofmaking a major contribution to the reduction of CO2 emissions. A feature of our biomass power generation
technology is the use of mixtures of biogas and city gas. This approach allows us to stabilize seasonal andtime variations in the output and caloric value of biogas so that cogeneration facilities can be operated continuously. We will market this technology to industrial and public sector customers, such as sewage treatment and waste processing plants.
Our technology development goals also include the development of holonic energy systems. By
effectively combining highly efficient devices and renewable energy resources, these systems allow
major reductions in energy consumption and CO2 emissions while also improving supply stability. In
June 2006 we built a pilot facility at the Yokohama Research Center and commenced testing. The facility
is designed to provide optimized control by combining various distributed power sources and grid power.
Technology Development Strategies
Strategic Technology
Platform Technology
Business infrastructure
Production

PEFC
Commercial(Polymer Electrolyte Fueluel Cell)equipment,Home
industrial
equipment, appliances andnew services new services

SOFC

Pipelines(Solid Oxide Fuel Cell)

Cogeneration systems/
systems
air conditioners

Natural gas vehicles
Na

Holonic Energy System

HydrogenHydrog

Greenn energyener

New usage ofnatural gas

Gas meter
Understanding customers, disseminating lifestyle culture
Helping to create future visions through the exploration of new technologies

Technology infrastructure
Platform technology

Actuarial assumption

Energy information

23

Frequently Asked Questions

1

Q:

What are the characteristics of the city gas business in Japan?

Japan has many mountainous regions, and there are few

Over 90% of the city gas sold in Japan is sourced fromconcentrations of population and industrial activity where

natural gas. Most of the gas is imported in the form of LNG.

city gas suppliers can achieve an advantage. For this rea-

It takes 10 to 40 days to transport LNG to Japan in carriers.

son, the availability of city gas is limited to just 5% of

In Japan, gas suppliers are responsible for ensuring safe

Japan’s territory. Though there are around 210 city gas

use of gas at the customer’s site. Hence, gas rates also

companies in Japan, the three biggest (Tokyo Gas, Osaka

include the cost of periodic inspections and accident pre-Gas and Toho Gas) together account for approximately 80%

vention measures. For this reason, prices tend to be higherof nationwide city gas sales in volume terms. In addition tothan in Europe or North America. Unlike Europe and Norththese city gas companies, there are around 1,700 communi-

America, Japan has no nationwide pipeline networks. Eachty gas utilities and about 26,000 LPG suppliers. Most ofcity gas supplier supplies and sells city gas through athese companies are small- or medium-sized operators.

pipeline network developed for its own service area.
.

2

Q:

How does Tokyo Gas structure its rates?

Service Agreement

production and supply facilities. These agreements have to

In cases where Tokyo Gas supplies gas through thebe reported to the Minister and the selection of this option

pipelines to meet general demand, the rate schedule “regu-

is up to the customer.

lated” under the service agreement used to require an

Large-volume Supply

approval from the Minister of Economy, Trade and Industry.

Under the Gas Utility Industry Law, the conditions for gas

Under the amendments to the Gas Utility Industry Law inrate setting and market entry for service providers in the

1999, however, it became possible to change these rates

large-volume market are gradually deregulated. Effective

simply by notifying the Minister, provided that thesefrom April 2004, customers who used 500,000 m3 or morechanges do not adversely affect any customers.

qualified as large-volume customers. Moreover, from April

Optional Agreement

2007, the designation point for large-volume customers

Tokyo Gas is permitted to offer rates and service terms

shifts to 100,000 m3 or more.

other than those outlined in the above service agreement.

“Regulated” rates are calculated using a rate-base sys-

This enables the Company to make efficient use of its gas

tem. A simplified version of this calculation is shown below:

Operating cost, etc.
• Cost of gas resources• Personnel expenses• Overhead• Depreciation• Non-operating expenses• Income taxes+

Fair return

Calculated using the rate-basesystem, which involves multiplying fixed-asset investments, etc. by the appropriate
ratio of fair return–

Deductions, etc.

• Profit from gas appliancesales, etc.
• Profit from real estatebusiness, etc.

=

Total fair cost

Represents an appropriate
profit added to an appropriate cost under efficient management* Price fluctuations in the foreign exchange rates and/or crude oil prices are reflected in the meter rate gas unit price every three months in accordance with the gas resource
cost adjustment system. Consequently, the impact of such price fluctuations on revenue and expenditure is neutral in the medium or longer term.

24

3

Q:

What are transportation service rates?

Transportation service is a process whereby Tokyo Gas

gas is sent out and delivered to the customer’s site, while

receives gas from another supplier (the transportation sup-under the linked agreement, it is sent out and sold to cus-plier) into its pipelines and at the same time supplies an

tomers through other general gas companies or pipeline

identical volume of gas via its pipelines in another location,

operators. Before the revision of the Gas Utility Industry

while ensuring fair competitive conditions between exist-

Law in April 2004, implementation of transportation service

ing operators and new participants to expand customer

was limited to retail supply agreements, however, after

choice in a deregulated gas market. All companies thatthat date, transportation service was expanded to whole-own or operate gas supply pipelines are required to provide

sale supply. To ensure transparency and fairness, balancestransportation services. In principle they are required toare published together with peak flow charts and trans-

prepare, make notification and publish agreements. Thereportation capacities for trunk pipelines.

are two types: retail and linked. With retail, the transported

4

Q:

What is your relationship with Tokyo Electric Power
Company (TEPCO)?

Tokyo Gas and Tokyo Electric Power Company (TEPCO)

peting supplier of gas, especially for commercial and indus-

source about 70% of the total volume of their LNG purchas-trial use. We have always competed with electric power in

es from joint LNG projects and are joint participants in proj-

the residential market, but in recent years this competitionects based on upstream interests. Joint purchasing

has intensified with the advent of all-electric systems. In fis-strengthens our bargaining power, since we can contract

cal 2006 we successfully implemented a range of strate-

for large volumes.

gies, including market promotions for gas appliances, andTwo of our three LNG terminals, the Negishi andin-depth demand development focusing on major sub-Sodegaura Terminals, are operated jointly with TEPCO. This

users. As a result of these initiatives, we are able to holdallows us to reduce capital investment and operating costs,

the percentage of newly built houses with all-electric sys-

and we can also improve operating rates through load level-tems in our service area to 8.0%.

ing based on differences between peak demand patterns forTokyo Gas responds to various forms of competition byelectric power and gas. These advantages are reflected ingoing beyond the supply of individual energy products, such

lower production costs per unit of gas.

as gas and electric power. Our ultimate goal is to provide

At the marketing level, however, we are competitors.
TEPCO has moved into the gas market and is now a com-our customers with optimal value by responding to theirreal needs, including their energy service needs.

25

5

Q:

What is the definition of the “energy service business”?

Energy service providers build facilities to provide one-stop

subsidiary, ENERGY ADVANCE Co., Ltd. The company

sources of energy services, such as cogeneration systems

operates very efficiently by capitalizing on the LNG procure-that produce both electricity and heat. This type of service

ment systems and advanced engineering capabilities of thehas major advantages for customers, including reduced

Tokyo Gas Group, making the most of the high added valueenergy costs and ease of implementation, as there is nothat can be achieved with cogeneration systems. It targets

need for a large initial investment. There are also significant

environmentally concerned customers, especially in theenvironmental benefits. Efficiency improvements have

Kanto region, where demand is high.

turned the energy service business into a high growth area
characterized by rapidly improving profitability.
In 2002, Tokyo Gas moved to expand its involvement in

By March 2007, it had signed a cumulative total of 175
contracts for 274 MW, and it had received subsidies for 80
schemes totaling 185 MW.

the energy service business by establishing a wholly owned

6Q:

How has the Kyoto Protocol affected Tokyo Gas?

The targets set down in the Kyoto Protocol for the reduc-

The needs and expectations of gas customers and socie-tion of Japanese greenhouse gas emissions will requirety in general toward natural gas are expected to expand still

urgent action to strengthen energy conservation, which is afurther in the future. The natural gas business is the core

key component of countermeasures against global warm-

segment for the Tokyo Gas Group, and this trend is seen as

ing. Natural gas is expected to play an increasingly impor-an opportunity to achieve further growth and development.

tant role in this context. For example, the “Kyoto Protocol

Under the Keidanren Voluntary Action Plan, the gas

Target Achievement Plan” adopted by the government inindustry is expected to reduce its CO2 emissions per unit

April 2005 acknowledges that natural gas produces the low-

and in terms of total outputs. Tokyo Gas has made steady

est CO2 emissions of any fossil fuel during combustion andprogress toward the achievement of these targets throughidentifies the increased use of highly efficient natural gas

measures that include a conversion to high-caloric gas andequipment and systems as an important way to combat

the implementation of various energy-saving initiatives at its

global warming.

city gas production plants.

26

7

Q:

What processes are used by Tokyo Gas when making
investment decisions?

Since fiscal 2003, Tokyo Gas has based decisions on new

deliberations are reflected in decisions at management

investments, the continuation of investments and exits

meetings or meetings of the Board of Directors. Derivativefrom investments on Tokyo Gas Economic Profit (TEP),

transactions are subject to market risk management rules.

which is our version of Economic Value Added (EVA ®),Management meetings are held each week and aretogether with Net Present Value (NPV) and Internal Rate ofattended by executives at the senior executive officer level

Return (IRR). These three indicators are used as common

and above, as well as the two corporate auditors. Final deci-standards throughout the Tokyo Gas Group.

sions on important management issues are made after in-

The Investment Evaluation Committee assesses plans

depth discussion, including deliberations by the Investmentthat involve investment, equity participation or debt guaran-

Evaluation Committee in the case of investment decisions.

tees on the basis of risks and returns. The results of these8

Q:

What is your policy on the utilization of real estate owned by
Tokyo Gas?

Our core business is the integrated energy business, anda priority, and our strategies in this area include joint devel-

we see the real estate business as a support segment for

opment with outside partners.

this. Earnings from the real estate business are used in core

The Tokyo Gas Group has numerous business sites inbusiness activities. If there are opportunities to improve thethe Tokyo metropolitan area. We see effective real estate

asset value of large sites, we undertake appropriate devel-

management as an important way of strengthening theopment projects that allow us to maximize the potential andcompetitiveness of our integrated energy business byvalue of those sites while also minimizing risk.

improving efficiency and reducing costs. For this reason,

In principle, development projects are funded from the

we are also actively targeting improvements in the efficien-

proceeds of land sales, and care is taken to avoid any

cy of our real estate activities and centralizing our facilities

impact on our integrated energy business. Risk limitation isto achieve an optimal distribution of sites.

27

Corporate Governance

Our Fundamental Concept of Corporate Governance
The Tokyo Gas Group aims to achieve a continuous

Our emphasis on shareholder interests is not incompati-increase in its corporate value to ensure management

ble with the continuing fulfillment of our responsibilities assoundness and transparency. To this end, we are strength-a utility company. In recent years, public interest in corpo-

ening our corporate governance with clear targets.

rate social responsibility has become so intense that theEnergy supply systems are vital to the social infrastruc-economic and social values of a company are now inextrica-

ture. The profound awareness of our special role as a sup-bly linked. By responding to the expectations of our cus-plier of energy has been reflected in a continuing commit-

tomers, employees, business partners, and local communi-

ment to the safe, reliable supply of city gas, as well as

ties, ultimately we also fulfill the needs of our shareholders.

offering fair services. We are keenly aware of the need to

Our corporate value is the overall sum of the value that wegive priority to shareholder interests, in keeping with ourprovide to all stakeholders.

role as a joint stock company. This renewed awareness

For Tokyo Gas, the purpose of corporate governancereflects increased inter-company competition following theis the continual refinement of internal systems designed

deregulation of the energy sector, as well as the globaliza-

to maintain continual growth in corporate value by moni-tion of the capital market.

toring corporate activities so that any issues can bedetected and remedied.

Corporate Governance Structure

Customers

Local Community

Shareholders/Investors

General Shareholders’ Meeting
Report Submission

Appointment
Appointment

ReportInquiry

Advisory
Committee

Board of Directors
AnswerReport Submission

Audit

Collaboration

Financial
Audit

ReportManagement Ethics
Committee

President(Management Report Meeting)
PolicyReportReportReportMonitor

In-House Meeting*
Investment Evaluation Committee(Company-wide Committee)

ReportSupportReportStrategic Business Units
Promotion / Support

Internal
Audit

Collaboration* Safety Committee, Customer Satisfaction Promotion Committee, CSR Promotion Meeting, Environmental Meeting and others.

28

Internal Audit Dept.

Audit

Compliance Dept.

Independent Auditors

Board ofCorporate Auditors

ReportManagement StructureManagement Structure

objectively. We believe that we have created a structure

There is frequent debate over the relative merits of thethat supports prompt, effective decision-making while main-committee-based system and auditor system as suitable

taining proper management transparency.

structures to reinforce corporate governance. Tokyo Gas
currently adopts the auditor system, since we see this as

Reforming the Remuneration System

the optimal structure for attaining our corporate governanceIn 2005, Tokyo Gas restructured its officer remuneration sys-

objectives, which are to maintain sound and transparent

tem and published details of the new system with the aim ofmanagement while achieving sustainable growth in corpo-

further enhancing management objectivity and transparency

rate value. To maximize the advantages of our status as a

as well as clarifying the management responsibility toward

company with auditors, we have appointed two corporate

business performance. The main features of the new system

auditors and three outside auditors. Their role is to audit theare as follows:legality and appropriateness of our business operations

1. Abolition of Retirement Benefits

from a position of complete independence from the Board

Retirement benefits for directors have been abolished. Yearlyof Directors. The auditors actively make recommendations

retirement benefits have been integrated into monthly pay-at management and directors’ meetings. They also work toments to officers.

enhance the effectiveness of monitoring.
Tokyo Gas has adopted an executive officer system. Thissystem separates management and executive functions while
also providing clearly defined accountability. By delegating
substantial authority to the executive officers, the system supports speedy execution regarding operational matters.
Currently (as of July 1, 2007), there are 22 executive

2. Introduction of a Performance-linked
Remuneration Scheme
Performance-linked remuneration scheme that reflects thecompany-wide and divisional performance of the previous
term, has been introduced for the monthly payment of
Directors who double as executive officers.

officers. To ensure clear accountability, executive officers

3. Share Purchasing Guidelines

are appointed for terms of one year. All officers at corporate

All Directors, excluding outside directors, will acquire Tokyo

officer level and above, as well as two corporate auditors,

Gas shares each month through the Employee

participate in weekly management meetings. After in-depth

Shareholding Association. The amount purchased is deter-

discussion, the President makes decisions on important

mined according to our newly introduced share purchasing

management issues at these meetings.

guidelines. The ownership of those shares will be retained

When the executive officer system was introduced, we

during their terms of office.

reduced widely the number of directors and shortened thePrior to implementing the reform of the officer remunera-term of office for directors to one year. The purpose oftion scheme, we have established an advisory committee tothese moves was to speed up decision-making and estab-discuss matters relating to the officer remuneration system.

lish clear lines of management accountability. In addition to

In February 2005, this committee is comprised of Outside

12 directors we invited three outside directors, all of whom

Directors and Outside Corporate Auditors, Chairman, Vice

have extensive expert knowledge and are able to monitor

Chairman and President to makes an important contribution

the appropriateness of management activities flexibly andto the soundness and transparency of board activities.

Compensation for Directors and Corporate Auditors (Fiscal 2006)
Millions of yen

Thousands of U.S. $Compensation for 12 directors

545

Compensation for 5 corporate auditors

103

873

648

5,492

Total

4,619

Compensation for independent public accountant (Fiscal 2006)
Millions of yen

Thousands of U.S. $Compensation for auditing services

174

1,475

Compensation for other services

81

686

255

2,161

Total

29

Board of Directors and Corporate Auditors

Director, Chairman

Place of Birth
Date of BirthMarch 1964
April 1964
July 1990
July 1991
June 1993
June 1996
June 1998
June 2000
June 2001
June 2002

June 2003
April 2006
April 2007

Norio Ichino

Hiroshima Prefecture
January 1, 1941
Degree in law, Waseda University
Joined Tokyo Gas Co., Ltd.
Manager, Sales Planning Division
Deputy Chief Executive, Northern Business Division
Director responsible for Government Relations
Department
Director, General Manager, Corporate Planning
Department, Strategic Planning Division
Managing Director, Chief Executive, Business
Development Division
Senior Managing Director, Chief Executive, Business
Development Division
Senior Managing Director
Representative Director, Executive Vice President,
Executive Officer, Chief Executive, Corporate
Communication Division
Representative Director, President and Chief Executive
Officer, Executive Officer
Director, Vice Chairman
Director, Chairman

Senior Executive Officer

Place of Birth
Date of BirthMarch 1972
July 1972
July 1997
June 2000
June 2002
April 2004
April 2006
April 2007
June 2007

Shigeru Muraki

Fukuoka Prefecture
August 29, 1949
Degree in engineering, University of Tokyo
Joined Tokyo Gas Co., Ltd.
Manager, Gas Resources Research and Development
Group, Gas Resources Department
Manager, Gas Resources Department
Executive Officer, General Manager, Gas Resources
Department, Planning Division
Senior Executive Officer, Chief Executive, R&D Division
Senior Executive Officer, Chief Executive, Technology
Development Division
Senior Executive Officer, Chief Executive, Energy
Solutions Division
Director, Senior Executive Officer, Chief Executive,
Energy Solutions Division

Representative Director,
President

Place of Birth
Date of BirthMarch 1967
April 1967
July 1992
August 1993
June 1994
June 1996
June 1998
June 2000
June 2002
June 2003
April 2004

April 2006

Tokyo
March 12, 1943
Degree in economics, University of Tokyo
Joined Tokyo Gas Co., Ltd.
Manager, Management Planning Group, Corporate
Planning Department
General Manager, Planning Department, Kanagawa
Business Division
Vice Chief Executive, Kanagawa Business Division
General Manager, Gas Resources Department
Director, General Manager, Gas Resources Department
Managing Director
Director, Senior Executive Officer, Chief Executive,
Strategic Planning Division
Representative Director, Executive Vice-President, Chief
Executive, Strategic Planning Division
Representative Director, Executive Vice-President, Chief
Executive, Corporate Communication Division, responsible for Compliance Department
President and Chief Executive Officer

Senior Executive Officer

Place of Birth
Date of BirthMarch 1972
April 1972
July 1997
June 1999
June 2001
June 2003
April 2004
April 2006
April 2007
June 2007

Mitsunori Torihara

Toshiyuki Kanisawa

Kanagawa Prefecture
November 23, 1948
Degree in economics, Keio University
Joined Tokyo Gas Co., Ltd.
General Manager, Residential Sales Department,
Kanagawa Business Division
Business Planning Department, Business Development
Division
Related Business Department, Related Business Division
Executive Officer, General Manager, Service Planning
Department, Customer Service Division
Executive Officer, Manager, Corporate Planning
Department, Planning Division
Senior Executive Officer, Chief Executive, Residential
Sales Division
Senior Executive Officer, Chief Executive, Residential
Sales Promotion Division
Director, Senior Executive Officer, Chief Executive,
Residential Sales Promotion Division

Representative Director,
Executive Vice President

Place of Birth Tokyo
Date of Birth February 11, 1946
March 1970 Completed masters degree in engineering,
University of Tokyo
April 1970 Joined Tokyo Gas Co., Ltd.
July 1992 Acting Manager, Corporate Planning Department
July 1993 Acting Manager, Technology Planning Group, Manager,
Research Planning Group
July 1994 General Manager, Planning Department, Western
Business Division
June 1996 Deputy Chief Executive, Western Business Division
June 1997 General Manager, Product Development Department
June 2000 Director, General Manager, Energy Sales and Service
Planning Department, Energy Sales Division
June 2002 Senior Executive Officer, Chief Executive, R&D Division
April 2004 Senior Executive Officer, Chief Executive, Energy
Resources Division, Internal Audit Department
June 2004 Director, Senior Executive Officer, Chief Executive,
Energy Resources Division, Internal Audit Department
April 2006 Representative Director, Executive Vice President,
Executive Officer, Chief Executive, Strategic
Planning Division
April 2007 Representative Director, Executive Vice President,
Executive Officer, Chief Executive, Energy Production
Division, responsible for Environmental Affairs Department

Outside Director Kazumoto Yamamoto
Current position
Place of Birth
Date of BirthMarch 1957
April 1957
August 1971
April 1976
June 1982
June 1983
June 1987
June 1990
June 1992
June 1993
June 1995
June 1997
January 2001
April 2003
June 2003
June 2005

30

Tadaaki Maeda

Advisor, Asahi Kasei Corporation
Yamaguchi Prefecture
July 22, 1933
Degree in engineering, Kyushu Institute of Technology
Joined Asahi Chemical Industry Co., Ltd.
General Manager, Chikushino Factory
General Manager, Housing Construction Department,
Housing Division
General Manager, Housing Division
Director
Managing Director
Senior Managing Director
General Manager, Housing Division
Representative Senior Managing Director
Vice-President and Representative Director
President Representative Director
Company name changed to Asahi Kasei Corporation(January 1)
Director, Vice-Chairman
AdvisorDirector, Tokyo Gas Co., Ltd.

Representative Director,
Executive Vice President

Place of Birth
Date of BirthMarch 1990
April 1970
July 1994
June 1996
June 1997
June 1998
June 1999
June 2002
April 2004
June 2004
April 2006

April 2007

Tsuyoshi Okamoto

Kyoto
September 23, 1947
Degree in economics, Hitotsubashi University
Joined Tokyo Gas Co., Ltd.
Acting Manager, Gas Resources Department, Manager,
Gas Resource Research and Development Group
General Manager, Planning Department, Northern
Business Division
Deputy Chief Executive, Northern Business Division
General Manager, Government Relations Department
General Manager, Japan Gas Association
Executive Officer, General Manager, Strategic Planning
Division
Senior Executive Officer, Chief Executive, Strategic
Planning Division,
Director, Senior Executive Officer, Chief Executive,
Corporate Planning Department
Director, Senior Executive Officer, Chief Executive,
Corporate Communication Division, ComplianceDepartment, Internal Audit Department
Representative Director, Executive Vice President,
Executive Officer responsible for Personnel Department,
Secretary Department, General Administration
Department, Compliance Department, Internal Audit
Department

Director, Senior Executive Officer

Place of Birth
Date of BirthMarch 1970
April 1970
July 1995
June 1996
June 2000
June 2002
April 2004
June 2006
April 2007

Masaki Sugiyama

Hokkaido
September 14, 1947
Degree in engineering, Hokkaido University
Joined Tokyo Gas Co., Ltd.
Manager, Production Group, Production Division
Business Planning Department, Business Development
Division
General Manager, Production Department, Production
Division
Executive Officer, Manager, Pipeline Department,
Pipeline and Safety Management Division
Senior Executive Officer, Chief Executive, Pipeline
Network Division
Director, Senior Executive Officer, Chief Executive,
Pipeline Network Division, Pipeline Planning Department
Director, Senior Executive Officer, Chief Executive,
Technology Development Division

Senior Executive Officer

Place of Birth
Date of BirthMarch 1970
April 1970
July 1995
June 1999
June 2001

June 2002

June 2003

April 2004
April 2007
June 2007

Toshio Tezuka

Tokyo
December 13, 1946
Degree in engineering, Tokyo Institute of Technology,
Joined Tokyo Gas Co., Ltd.
Business Planning Department, Business Development
DivisionGroup Manager, Technology Planning Group, Corporate
Planning Department, Strategic Planning Division
General Manager, Commercial Customer Development &Service Department, Energy Sales and Service Division,
Acting Manager, Volume Sales Department, Energy
Sales and Service Division
Executive Officer, General Manager, Commercial
Customer Development & Service Department, Energy
Sales and Service Division
Executive Officer, Manager, Commercial Customer
Development & Service Department, Energy Sales andService Division, Acting Manager, Volume Sales
Department
Senior Executive Officer, Chief Executive, Regional
Development Marketing Division
Senior Executive Officer, Chief Executive, Housing
Development Division
Director, Senior Executive Officer, Chief Executive,
Housing Development Division

AuditorTsunenori Tokumoto

AuditorYasunori Takakuwa

Outside Auditor

Masayoshi Hanabusa(Former Chairman, Hitachi Capital Corporation)

Outside Director
Current position
Place of Birth
Date of BirthMarch 1965
April 1965
June 1992
June 1994
June 1996
June 1998
June 2000
June 2006
June 2007

Katsuhiko Honda

Director, Advisor, Japan Tobacco Inc.
Kagoshima Prefecture
March 12, 1942
Completed law degree, University of TokyoJapan Tobacco and Salt Public Corporation
Director, Japan Tobacco Inc.
Managing Director, Japan Tobacco Inc.
Senior Director, Japan Tobacco Inc.
Deputy President, Japan Tobacco Inc.
President, Japan Tobacco Inc.
Director, Advisor, Japan Tobacco Inc.
Director, Tokyo Gas Co., Ltd.

Outside Director Sanae Inada
Current occupation
Place of Birth
Date of BirthMarch 1967
1967
March 1970

AttorneyTokyo
April 3, 1944
Degree in law, Keio University
Passed bar examination
Completed training at Judicial Research andTraining Institute
April 1970 Registered as attorney (Daiichi Tokyo Bar Association)
June 2007 Director, Tokyo Gas Co., Ltd.

Outside Auditor

Toshimitsu Shimizu(President, Yokohama Industrial
Development Corporation)

Outside Auditor

Shoji Mori
(Vice Chairman, Institute for International
Socio-Economics Studies)31Internal GovernanceConstruction of Risk Management Systems

Promoting Compliance

Under our risk management system, the Board of Directors

Compliance with laws, regulations and high ethical stan-is responsible for corporate management, and the execu-

dards are the foundation on which the Tokyo Gas Group istive officers for the management of operations, policies andcontinually building the value of its brand, “security, safety

budgets. The performance of the directors’ duties is super-

and reliability.” This perception is reflected in three basic

vised by two corporate auditors and three outside auditors.

policies calling for the fostering of compliance awareness,

In addition, the Internal Audit Department, which reports

engaging both policies in the whole Group and practice indirectly to the President, conducts internal audits based oneach workplace, and the establishment of compliancethe risk approach.

PDCA cycles.

The Internal Audit Department consists of four groups

We established the Management Ethics Committee,

with responsibility for financial audits, operational audits,chaired by the President, this committee formulates basic

information system audits and compliance audits. In 2002

compliance policies, monitors the implementation of com-the number of staff was doubled from 18 to 36, and in 2007

pliance-related measures, and confirms activity programs

the staff was further increased to 41. Internal audits coverfrom the following year and thereafter.

Tokyo Gas Co., Ltd. and all consolidated subsidiaries. Audits

We have also established the Compliance Department,

are carried out objectively aiming to ensure that all activities

a specialized unit to provide leadership of activities, includ-

are being conducted appropriately, efficiently, as well as

ing the development of compliance promotion systems foraccording to business policies and plans, and complying withunits, education about the code of conduct, compliance risklaws and regulations. Audit results are reported to the

reduction measures, the maintenance of advisory systems,

President, the Management Meeting and the auditors, chief

and the distribution of information within and beyond theexecutives of relevant divisions, and the presidents and audi-

Tokyo Gas Group companies.

tors of group companies.

In addition to continuous education about “Our Code of

In fiscal 2003, we established the Enterprise Risk

Conduct” activities, we are going forward with a casebook

Management system, which includes risk management reg-

designed for applying the code of conduct to various prob-

ulations and documented rules concerning major risks thatlems in the workplace to build the permutation of compliance.

require management intervention. A Risk Management

Compliance risk countermeasures include internal andPromotion Section has been created within the Internal

external advisory systems. By operating these systems

Audit Department to coordinate risk management. Each year

effectively, we ensure that compliance-related problems are

it monitors and assesses risks and countermeasures within

discovered and resolved quickly, thereby strengthening our

the group and reports its findings to the Management

corporate self-regulatory processes.

Meeting. The Management Meeting and the Board of
Directors confirm and revise the list of major risks annually.
In April 2006, Tokyo Gas prepared for the introduction of
new rules concerning the Evaluation and Audit of Internal

We monitor the effectiveness of compliance promotion
activities by conducting compliance awareness surveys. The
results of these surveys are reflected in initiatives for the following year.

Control over Financial Reporting by establishing the Internal
Control Promotion Committee as a company-wide unit.

Major Risks Requiring Management Intervention
Disaster and accident risks

Disruption of production and supply, quality problems with gas appliances and other products*, reputation damage resulting
from other companies’ gas-related accidents*, natural disasters, disruptions to gas resource procurement

Market risksMarket price fluctuations affecting real estate and financial assets, etc., weather changes, etc.

Business strategy risks

Risks to existing businesses (increased competition, changes in the gas resource procurement environment*, declines inexisting demand, changes of laws and regulations and regimes), ROI risks

Information risks

Information leaks, failures or malfunctions in backbone systems, loss of telephone services to call centers

Social responsibility risks and other risks

Environmental risks, compliance risks, customer satisfaction and customer service risks* New major risks added in the current year32Compliance Structure

Board of Directors
President

ReportCorporate Auditors

Management Ethics Committee
ReportChairman: President
Members: Head of divisions/departments

ReportInternal Audit Dept.

Compliance Dept.
Instruction/report

Support/report

Each division/business unit

Compliance committees
Consultation/notification

Compliance audit(risk understanding)

Each department ofTokyo Gas

Subsidiaries & affiliates

Report/consultation

Report/consultation

Employees

Disclosure Policy
Information disclosure ranks alongside the reinforcement ofance and progress towards goals. As part of our disclosurerisk management and compliance systems as one of theactivities, we have continually improved and expanded themost important ways to ensure management soundness

content of our annual report, investors’ guide, IR Website,

and transparency and earn the understanding and confi-

and shareholder newsletter. Information disclosure should

dence of all stakeholders, including shareholders andnot be a one-way process, however, and we are working toinvestors. There is an inevitable gap between corporate val-build closer communication with shareholders and investors

ues as seen by management and as assessed by the mar-through an active program of presentations, seminars andket. This perception gap has grown bigger in recent years

other events.

because of the increasing diversity of investors in the

Our awareness of the importance of communication isJapanese stock market, including foreign investors and indi-reflected in the direct involvement of our senior management

vidual investors. We believe active information disclosurein IR activities. They have continuously held meetings withand interactive communication with shareholders andanalysts in Japan since July 1999 and overseas since June

investors will close the gap in perceived corporate value.

2001. Twice each year, our top executives present IR road-

The Tokyo Gas Group has always provided full disclo-shows in Japan and overseas. They also use briefings andsure of its short-, medium- and long-term management tar-

individual meetings as opportunities for wide-ranging discus-

gets, and the specific management strategies and action

sions. These efforts reflect our commitment to management

plans adopted to achieve the set targets. We have also

to respond to the trust of shareholders and investors.

actively disclosed information about our business perform-

Major IR Activities
Media

Sell-side analysts, domestic institutional
investors and shareholders

Various explanatory meetings, domestic IR roadshows, one-on-one meetings, and facility excursions

Overseas institutional investors andshareholders

Overseas IR roadshows, one-on-one meetings

Individual investors and shareholders

IR seminars for Japanese individual investors and Tokyo Gas Tsuushin
facility excursions(Japanese report for individual shareholders)

WebsitePrincipal Activities

Annual Report
Investors
Guide

Target33

Group Management Structure
The Tokyo Gas Group currently consists of Tokyo Gas Co.,

Gas corporate divisions are linked with group companies toLtd., together with 52 subsidiaries and one affiliated company.

form business units in each business area. The divisions andWith the deregulation of the energy sector, Tokyo Gas now

companies work closely together on tasks ranging from thefaces escalating competition from both inside and outside

formulation of business strategies to the allocation of man-the industry. In April 2004 we introduced a new group struc-agement resources and the management of operations, allture known as the “Strategic Business Unit” (SBU) system,

under the responsibility of unit managers. The aim of thiswhich is designed to focus the entire resources of the Tokyo

cooperative approach is to maximize our group potential and

Gas Group toward the task of surviving and succeeding infurther strengthen our competitiveness.

the competitive environment. Under this structure, Tokyo

Group Management Structure
Corporate
Auditors’ Office

Auditors

Top Management

Strategic Business Units

Supporting Function• Corporate Planning Dept.

• Major Site
Development Dept.

Residential Sales Promotion Div.

Energy Production Div.

Housing Development Div.

Energy Resources Div.

• Financial & Managerial
Accounting Dept.

• General Administration Dept.

Energy Solution Div.

Fundamental Function• Accounting Dept.

• Corporate Communications
Dept.

• Personal Dept.

• Environmental Affairs Dept.

• Purchasing Dept.

• Affiliated Companies Dept.

• Infrastructure Project Dept.

Regional Development Div.

Technology Development Div.
Information Technology Div.

Pipeline Network Div.

• Real EstateManagement Dept.

• Secretary Dept.

• Compliance Dept.
• Internal Audit Dept.

Executive Officers
President

Senior Executive Officers

Executive Officers

Mitsunori Torihara

Masaki Sugiyama

Kazuo Yoshino

Chief Executive, Technology Development Div.

General Manager, Finance & Managerial Accounting Dept.

Toshio Tezuka

Hisao Watanabe

Chief Executive, Housing Development Div.

General Manager, Technology Planning Dept.,
Technology Development Div.

Executive Vice President

Shigeru Muraki

Tadaaki Maeda

Chief Executive, Energy Solution Div., General Manager,
Volume Sales Dept.

Akio Maekawa

Chief Executive, Energy Production Dept.,
Environmental Affairs Dept.

Toshiyuki Kanisawa

Manabu Fukumoto

Chief Executive, Residential Sales Promotion Div.

General Manager, General Administration Dept.

Tadashi Kaburagi

Matsuhiko Hataba

Chief Executive, IT Division

General Manager, Corporate Planning Dept.

Tsutomu Oya

Yuji Akiyama

Chief Executive, Energy Resources Div.

General Manager, Kanagawa Service Branch,
Residential Sales Promotion Div.

Tsuyoshi Okamoto
Chief Executive, Personnel Dept., Secretary Div.,
General Administration Div.
Compliance Dept., Internal Audit Div.

Norikazu Hoshino
Chief Executive, Purchasing Dept., Real Estate Management Dept.,
Major Site Development Dept., Corporate Communication Dept.

Kunihiro Mori

Koichi Aonuma
General Manager, Sales Marking Ⅱ Dept.,
Housing Development Div.

Dispatched to the Japan Gas Association

Yutaka Kunigo

Yasuhiro Hiruma

General Manager, Gas Resources Dept., Energy Resources Div.

Chief Executive, Regional Development Marketing Div.

Mikio Itazawa
Chief Executive, Pipeline Network Division

Michiaki Hirose
Chief Executive, Corporate Planning Div., Infrastructure Project
Dept., Financial & Managerial Accounting Dept.,
Accounting Dept., Affiliated Companies Dept.

34

Coordinator, Energy Solution Div.

Initiatives for Environmental Protection and Safety

Environmental Contribution from Increased
Use of Natural Gas

eral-purpose fossil fuel. It emits almost no sulfur oxide

Tokyo Gas recognizes the vital importance of the natural

CO2 emissions are around 40% and 80% respectively ofenvironment and is determined to make a positive contribu-

the level for coal and oil.

(SOx) during combustion, while nitrogen oxide (NOx) andtion to global environmental conservation and sustainable

We aim to fully exploit the advantages of natural gas insocial development by promoting the use of environmental-

our business activities by developing highly efficient equip-

ly sound resources and energy technologies. This philoso-

ment and systems, such as cogeneration systems, thatphy is reflected in four policies that are making Tokyo Gas a

minimize the environmental load. We see this as an excel-

leader in environmental management and an active partici-

lent strategy for reducing global warming and atmosphericpant in efforts to solve global environmental problems.

pollution. Another priority is making natural gas available toFirst, we are working to reduce the environmental load

as many customers as possible.

resulting from the use of energy by our customers; second,Tokyo Gas has developed its own environmental protec-

we are working to reduce the total environmental load result-tion guidelines to ensure that the environmental advantages

ing from our own business activities; third, we are strengthening our environmental partnerships with local and interna-

Comparison of Emission Levels (Coal=100)

tional communities; and fourth, we are promoting researchand development relating to environmental technologies.
Our core business activity is to supply city gas.

SOx

NOx

Natural Gas

However, the main resource for city gas is natural gas,
which has the smallest environmental footprint of any gen-GlobalWarmingPrevention
Measures

Resource
Recycling
Promotion
Guidelines

0

1. In its city gas business, the Tokyo Gas Group aims to reduce CO2 emissions
from customers’ facilities by 8 million tons by fiscal 2010, by promoting theuse of natural gas, and by improving the efficiency of equipment and systems used with city gas.

Oil

Coal

70

100

40

Natural Gas

Oil

Coal

70

100

60

Oil

Coal

80

100

3. From a global perspective, the Tokyo Gas Group will contribute to the prevention of global warming by identifying greenhouse gas reduction orabsorption projects in other countries, and by providing technical support for
those projects.

2. The Tokyo Gas Group aims to reduce unit energy consumption in its business
operations by an average of at least 1% per year over the medium-term future.
1. Industrial waste field
There are major differences in the ways in which industrial waste is produced in manufacturing plants (production sites) and through other activities,
such as construction. These categories will therefore have separate targets.
Tokyo Gas will achieve zero emission status at all manufacturing plants
by fiscal 2010.
Tokyo Gas will increase its recycling ratio for other waste, including
construction waste, to at least 91% by fiscal 2010.
2. Waste paper (paper recycling)
Tokyo Gas will reduce by 10% the amount of wastepaper from its offices

Green
Purchasing
Guidelines

CO2

Natural Gas

1. The green purchasing ratio for items purchased from electronic catalogs
will be increased to at least 70% by fiscal 2010.

by fiscal 2010, compared with fiscal 2005.Tokyo Gas will increase therecycling ratio for waste paper from its offices to at least 85% by
fiscal 2010.
The amount of copier paper used will be reduced to 5,000 sheets perperson per year by fiscal 2010.
3. Excavation spoil
The amount of excavation spoil from road excavations ordered by Tokyo
Gas will be reduced to 15% by fiscal 2010, through volume reductions,reuse and recycling.

3. Tokyo Gas Group will promote green purchasing within the Tokyo Gas
Group in accordance with the green purchasing promotion guidelines.

2. Tokyo Gas will encourage all group companies included in the consolidated
accounts to introduce the electronic catalog purchasing system and implement green purchasing systems by 2010.

Results for Fiscal 2006 and Targets for Fiscal 2010

Global Warming

Reduction of CO2 emissions from customers’ facilities
Unit energy use in gas production facilities (Per unit of gas production)
Unit energy use in district cooling/heating systems (Per heat sales volume unit)
Unit energy use in Tokyo Gas business offices (Per city gas sales volume unit)

Resource Circulation

Industrial waste (manufacturing plants)
Recycling of industrial waste (other sites)
Reduction ratio of waste paper
Recycling of waste paper
Sheets of copy paper used per person per year
Excavation spoil ratio

Green
Purchasing

Green procurement ratio
Number of affiliated companies that have already introduced an electronic
catalog purchasing system

Target for FY2006

Result for FY2006

Target for FY2010

6.60 million tons
1% or more reduction
1% or more reduction
1% or more reduction
4 sites/10 sites
More than 91%
2% reductionMore than 85%
7,400
19%
60%

6.61 million tons
2.4% reduction*
0.6% reduction*
6.3% reduction*
5 sites/11 sites
87%
3.9% reduction
87%
7,180
19.3%
60%

8.00 million tons
1% or more reduction
1% or more reduction
1% or more reduction
10 sites/10 sites
More than 91%
10% reduction from fiscal 2005
More than 85%
5,000
15%
More than 70%

35 companies

38 companies

48 companies* Annual average reduction ratio (Unit energy use reduction ratio at power plants will be evaluated from fiscal 2007.)35

of its city gas business are fully exploited. These guidelines
call for the reduction of CO2 emissions resulting from gas use
by Tokyo Gas customers by eight million tons by fiscal 2010.

Advanced Disaster Prevention Measures
The supply of energy is vital to the continuation of economic activity and modern life. Throughout its history, TokyoGas has remained keenly aware of its responsibilities as a

Gaslight 24

supplier of energy, including the responsibility to ensure
safety. We continue to fulfill that responsibility through awide range of measures.
Japan is an earthquake-prone country. Tokyo Gas maintains a high standard of safety by ensuring that key gas production and supply facilities are able to withstand major
earthquakes on the scale of the disaster that struck the
Hanshin-Awaji area in 1995. When seismic motion with anintensity of five or higher on the Japanese scale is detected,

Safety Inspections

computerized meters shut off the supply of gas to customers’ sites. At the same time, our Super-Dense Real-timeThis includes the implementation of restoration support sys-

Monitoring of Earthquakes (SUPREME) system instantly

tems, development of equipment and training of personnel.

monitors data from a network of approximately 4,000 seis-

Our day-to-day safety organization including themometers located throughout our service area. In order to“Gaslight 24” team, is ready to respond to gas leaks andprevent secondary disasters, our highly effective safety

other safety-related problems on a 24/7 basis.

measures include automatic shut-off valves linked to seismometers and systems that allow remote shut-off of gas

Elimination of Carbon Monoxide Poisoning

supply if an earthquake with the potential to cause major

In fiscal 2006 Tokyo Gas announced the expansion of its

damage is detected. In addition to this ability to suspend gas

measures to prevent CO poisoning. We will spend up to

supplies for safety reasons, we have also developed systems¥10 billion on a campaign to encourage customers in thethat allow supplies to be resumed quickly once the situation

Tokyo Gas service area to replace kitchen and bathroom

has returned to normal. We have strengthened our collabora-

water heaters with imperfect oxygen depletion safety shut-tion with group companies and suppliers and taken every

off devices with new units that incorporate this importantpossible measure to minimize inconvenience to customers

safety feature. The campaign will continue for approximate-by ensuring restoration of services as quickly as possible.

ly three years from January 2007.
Starting in April 2007, we will progressively increase
our safety inspection work force by around 100 to support extensive inspection programs. We will also enhance
our communication activities in order to foster customer
confidence in the safety of gas by responding to safetyrelated questions and concerns.
Customer safety is the fundamental mission and themost important responsibility of a gas supplier. The entire

Current

Tokyo Gas organization has worked to fulfill its responsibility

Control Room

under the leadership exercised by the top management. In
addition to our efforts to expand safety inspections and promote the replacement of unsafe appliances, we are also
actively developing new technologies that will help toenhance safety.

Center for Supply Control
and Disaster Management

SUPREME Seismic Sensors
Red points are sensor locations (Approximately 4,000)

36

Financial
SectionContents
Management’s Discussion and Analysis

38

Consolidated Statements of Cash Flows53

Principal Management Risks

44

Notes to Consolidated Financial Statements

54

12-year Summary

46

Independent Auditors’ Report

66

Consolidated Balance Sheets48

Consolidated Statements of Income

50

Consolidated Subsidiaries andEquity-method Affiliates

67

Consolidated Statements ofShareholders’ Equity

Investor Information

68

51

Consolidated Statements of
Change in Net Asset

52

37

Management’s Discussion and Analysis

Summary■ Consolidated gas sales volume increased by 1.7% year-on-year. Residential and commercial sales were lower due
to temperature-related factors, but this was offset by higher industrial sales.
■ Net sales increased by 8.7% to ¥1,377.0 billion year-on-year, operating income by 44.5% to ¥162.3 billion and net
income by 62.1% to ¥100.7 billion. One reason for these large increases was a rise in crude oil prices in the second
half of fiscal 2005 and in the first half of fiscal 2006, which triggered increases in unit prices under the gas rateadjustment system according to gas resource costs. Other contributing factors included a reduction in personnel
costs resulting from an actuarial differential on retirement benefits.

Sales Trends in the Core Gas Business

Gas Sales Volume Growth Led
by Industrial Sector

Sales volume declined by 95 million m3, or 2.7%, to 3,452
million m3.

■ Residential Sector
In the first half of fiscal 2006, temperatures were 0.4ºC■ Commercial Sector, Public and Medical

lower on average than in the previous fiscal year, resulting

Temperatures were lower year-on-year in the first half andin increased demand for hot water. In the second half, how-higher in the second. Air conditioning demand declined,

ever, when gas demand is seasonally higher, the averagewith the result that gas sales were 113 million m3, or 3.7%,

temperature was 1.6ºC higher than in the previous year,

below the previous year's level at 2,972 million m3.

resulting in reduced demand for hot water and heating.
■ Industrial Sector
Gas sales increased by 293 million m3, or 5.8%, to 5,336 mil-Gas sales volume by sector

lion m3. This growth reflects the start-up of new facilities by(Million m3/45MJ)
15,000

customers using gas solely for power generation, and steady
growth in the operations of new and existing customers.

12,000■ Wholesaling to Other Gas Companies
9,000

Sales increased by 132 million m3, or 9.3%, year-on-year to
1,554 million m3. This was mainly attributable to steady

6,000

growth in the operations of new and existing customers in

3,000

0

’03

’04

’05

’06

’07

■ Wholesale■ Commercial sector,
Public and Medical■ Industrial sector■ Residential sector

the service areas of the purchasing suppliers.
Total sales increased by 217 million m3, or 1.7%, over theprevious year's level to 13,315 million m3, with the industrial
sector contributing most of the growth. Sales exceeded theforecast for the current year by 137 million m3, or 1.0%.

Analysis of Income

Operating Income Substantially Higher Due toHigher Unit Prices Under the Gas Rate Adjustment
System and Lower Personnel Costs Resulting froman Actuarial Differential on Retirement Benefits

Operating income rose by ¥50.0 billion, or 44.5%, yearon-year to ¥162.3 billion. This increase was achieved
despite a 14.4% rise in gas resource costs resulting fromgrowth in gas sales, higher crude oil prices and other fac-

Net sales increased by 9.8% in the year ended March 31,

tors, and higher expenditure on safety measures and2007. Contributing factors included growth in gas sales, anddemand development. Reasons for the increase included

higher unit prices under the gas rate adjustment system.

cost reductions achieved through ongoing efficiency

Results from other segments included an increase in sales

efforts, and cost savings resulting from an actuarial differ-from the energy services business. Total net sales increased

ential on retirement benefits.

by ¥110.5 billion, or 8.7%, over the previous year’s figure toa new record of ¥1,377.0 billion.
38

Business results by segment (¥ million)■ Related Construction

Sales

Reduced Installation Numbers Reflected in Lower
Sales and Income

2007

2006

2005

Gas Sales

999,521910,321834,658

Gas Appliance Sales

135,407

130,826

135,109

Related Construction

59,23059,74764,795

Real Estate Rental

34,03534,187

34,701Other Business

285,407

252,596234,721

Years ended March 31

Sales decreased by ¥0.5 billion, or 0.9%, year-on-year to¥59.2 billion, reflecting a reduction in the number of new
installations. Operating expenses increased by ¥0.7 billion,
or 1.2%, to ¥57.5 billion, while operating income decreased¥1.2 billion, or 41.2%, to ¥1.8 billion. This segment’s contribution to total net sales declined from 4.3% to 3.9%.

Operating income
Years ended March 31

Gas Sales

2007

2006

2005

203,566

160,020

182,685

1,169

4,617

7,054

Gas Appliance Sales
Related Construction

1,751

2,976

3,575

Real Estate Rental

6,731

5,459

6,503

Other Business

13,848

9,647

13,415

Note: Segment sales include intra-group transactions.

■ Real Estate Rental

Reduced Depreciation Reflected in Higher Income
Despite Lower Revenues
Sales were similar to the previous year’s result at ¥34.0 billion. Operating income decreased by ¥1.4 billion, or 5.0%,
due to reduced depreciation and other factors, with theresult that operating income increased by ¥1.3 billion, or■ Gas Sales

23.3%, to ¥6.7 billion. This segment’s contribution to total

Higher Sales and Income Resulting from High Unit
Prices Under the Gas Rate Adjustment System

net sales was reduced from 2.5% to 2.2%.

Though there was a 1.7% volume increase in total gas sales,■ Other Businessresidential and commercial sector sales were lower due toEnergy Service Business Expanding

temperature-related factors. In value terms, however, gas

Sales of other business segments increased by ¥32.8 bil-sales increased by ¥89.2 billion, or 9.8%, to ¥999.5 billion, in

lion, or 13.0%, year-on-year to ¥285.4 billion. Reasons forpart because of higher unit prices under the gas rate adjust-the higher result include the sustained expansion of the on-ment system. At the non-consolidated level, sales increased

site energy service business, and increased operations byby ¥84.3 billion, or 9.4%. Sales volumes and temperature-

the Tokyo Gas LNG tanker fleet. Operating expenses rose

related factors had negative impacts of ¥6.0 billion and ¥23.4

by ¥28.6 billion, or 11.8%. This reflects the increased initial

billion respectively, while higher unit prices under the gas

depreciation burden associated with the on-site energy

rate adjustment system used to adjust for gas resource

service business. Operating income increased by ¥4.2 bil-costs made a positive contribution of ¥93.5 billion. This waslion, or 43.5%, to ¥13.8 billion. This segment’s contribution

offset by a ¥3.2 billion negative impact from other factors,

to total net sales increased from 18.2% to 18.9%.

leaving a total price-related contribution of ¥90.3 billion. The
contribution of gas sales to total sales increased from 65.6%■ Other Revenues and Income/Net Incomein the previous year to 66.1%.

Total other income increased by¥8.3 billion to ¥26.9 billion.

Operating expenses were affected by a 14.4% increasein gas resource costs resulting from higher gas sales vol-There were no gains on commodity derivatives, which con-umes and rising crude oil prices. There was also additional

tributed ¥2.4 billion to the increase recorded in the previous

expenditure on safety measures and demand development.

year. However, there was a ¥1.6 billion gain on weather

Despite efforts to minimize existing expenditure items, total

derivatives, reflecting higher-than-anticipated tempera-

operating expenses increased by ¥45.7 billion, or 6.1%.

tures. There were also extraordinary income, including ¥5.9

Operating income increased by ¥43.5 billion, or 27.2%,
to ¥203.6 billion.
■ Gas Appliances Sales

Net income and net income per share(¥ billion)
100

(¥)
45

Higher Sales, Higher Costs, Lower Income
Firm sales trends continued, especially for gas floor-heating

80

systems using hot water supplied by the Tokyo Gas Eco
System (TES), bathroom heater-dryers with mist sauna func-

30
60

tions and built-in cooktops. Sales of gas appliances increasedby ¥4.6 billion, or 3.5%, to ¥135.4 billion, while operating
expenses were ¥8.0 billion, or 6.4%, higher at ¥134.2 billion.
As a result, operating income declined by ¥3.4 billion, or
74.7%, to ¥1.2 billion. The contribution made by gas appliance sales to total net sales declined from 9.4% to 8.9%.

40
15
20

0

’03

’04

’05

’06

’07

0

■ Net income● Net income per share

39billion from sales of investment securities, and ¥7.9 billion
from sales of fixed assets.

In volume terms, gas sales are expected to increase by
4.1% year-on-year. However, a time-lag in the gas rate

Total other expenses amounted to ¥26.6 billion, a year-

adjustment system will delay the recovery of some gas

on-year decline of ¥3.3 billion. There was no loss on weather

resource costs, leading to a ¥20.2 billion year-on-year

derivatives, which amounted to ¥5.7 billion and ¥3.0 billion

reduction in the gross margin. Depreciation will increase inrespectively in the previous year. The reduction of interest-

fiscal 2007 due to changes to tax revision. We also antici-

bearing debt was reflected in a ¥0.6 billion reduction inpate substantial increases in fixed costs resulting frominterest payments. In the previous year there was also a ¥5.1

external factors, such as the taxation system, trends in gov-

billion loss resulting from the abandon of system develop-

ernment bond interest rates and the capital market. These

ment. In the current year there was an extraordinary

include an increase in the actuarial differential on retire-

expense of ¥7.2 billion relating to the advanced depreciation

ment benefits, resulting in part from differences in the dis-of fixed assets.

count rate and investment yield.

Other income, net improved by ¥0.2 billion form theAnother reason for our forecast of higher sales andprevious year’s result of other expenses, net amounting tolower income than fiscal 2007 is our plan for additional¥11.5 billion. Net income increased by ¥38.6 billion, or

expenditure on measures to counter competition from all-

62.1%, to ¥100.7 billion.

electric systems. The ¥20.2 billion negative impact of thetime lag in the gas rate adjustment system is the result of■ Operating Cash Flowcomposite factors, including a difference in the economic

In the current fiscal year Tokyo Gas launched a new medium-

frame compared with the previous year.

term management plan covering the period to FY2010. One

The consolidated operating income forecast for fiscalof the target indicators used in the previous medium-term

2007 can be analyzed by comparing it with the plan for fis-plan, “Frontier 2007,” was free cash flow, which is calculated

cal 2007 in the medium-term management plan. We predictby adding depreciation to net income and subtracting capital

operating income of ¥113.0 billion. If we adjust this for tran-

expenditures. Under the new plan, we have published asient factors, including the ¥13.0 billion negative impact ofresource allocation policy based on the use of our resources

the time lag in the gas rate adjustment system, the ¥9.7 bil-

to support our evolution from a gas business to an integrated

lion negative impact from the recalculation of pension

energy business. This is also reflected in the adoption ofassets, and a ¥4.7 billion decline resulting from a difference

operating cash flow, which is calculated by adding deprecia-

in the discount rate, together with ¥2.5 billion in surplus

tion to net income, as a key target indicator. (See Page 11.)

income resulting from the expected return on pension

Operating cash flow for the fiscal year ended March 31,

assets, we are left with a figure of ¥137.9 billion, which is2007 amounted to ¥233.8 billion, a year-on-year increase of¥300 million below the ¥138.2 billion figure projected for¥35.4 billion, or 17.8%. The higher figure reflects an increase

the medium-term management plan.

of ¥38.6 billion, or 62.1%, in net income, and a reduction of

These forecasts include a negative impact of ¥13.1 bil-

¥3.2 billion, or 2.4%, in depreciation. Capital expenditurelion resulting from tax revision. Based on conditions in a

increased by ¥5.1 billion, or 4.3%, over the previous year’s

normal year, there would be a ¥12.8 billion net improvementlevel to ¥124.6 billion.

in income.

■ Fiscal 2007 Projection

ment plan will fall short of the target on an income basis, it

Higher Revenues and Lower Income Predicted for
Fiscal Year Ending March 31, 2008

will almost match the target in terms of operating cash

In fiscal 2007 (the year ending March 31, 2008), we expect

in terms of the generation and investment of cash flow.

Although progress under the medium-term manage-

flow. We believe that we are advancing at the required pace

net sales to increase by ¥42.0 billion, or 3.1%, to ¥1,419.0
billion. However, operating income is expected to declineby ¥49.3 billion, or 30.4%, to ¥113.0 billion and net incomeby ¥27.7 billion, or 27.5%, to ¥73.0 billion.

Tax Revision in Fiscal 2007

The reasons for this forecast of a substantial decline inChanges to the taxation system in fiscal 2007 will have theincome compared with the fiscal 2006 results are analyzed

effect of raising the depreciation limit from 95% to 100%. An

below on the basis of non-consolidated operating income.
In fiscal 2006, non-consolidated operating income

amount equivalent to 5% of the residual book value of existing assets will be subject to straight line depreciation over
five years. When the effect on assets newly acquired in fiscal

amounted to ¥136.8 billion. The result for fiscal 2007 is2007 is included, the total impact at the consolidated level

expected to be sharply lower, with a year-on-year decline ofwill be a ¥13.1 billion increase in depreciation.

¥45.8 billion, or 33.5%, to ¥91.0 billion. A reduction in the

The effects of this change will continue for the next fivegross margin on gas accounts for ¥5.5 billion of this pro-years. However, we expect the long-term effect to be positive

jected decline, and an increase in fixed costs and other factors for ¥40.3 billion.
40

because of the resulting increase in cash flow, as well as taxrelated advantages.

Fiscal 2007 will be an important year for our efforts to● We will strengthen our safety measures at all stages,

build a foundation for sustainable growth in the 2010s. We

including production, transportation and consump-

will focus on the following priorities.

tion. In particular, we will work to improve safety● We will develop a regionally-focused marketing sys-

services for customers.

tem, restructure our customer service organization,

These key policies will be targeted for prioritized

and implement the new regional energy company

investment, funded where possible through theconcept, with the aim of building closer customer

scrapping of existing expenditure items.

relationships and strengthening our ability to compete with all-electric systems.
● We will build a one-stop service capacity by developing upstream, transportation, power and energy serv-

As far as cash flow utilization is concerned, weare investing steadily in areas that will generate
income streams in the future, as provided in our
medium-term management plan.

ice businesses to increase our presence in the LNG
value chain.

Tokyo Gas Original Indicator : TEP

TEP (EVA® Tokyo Gas Version)

Our goal is to generate profit in excess of capital costs. This is(¥ billion)
60

reflected in our adoption of Tokyo Gas Economic Profit (TEP),
which is Tokyo Gas version of Economic Value Added (EVA®), as
our main management indicator. In fiscal 2006, Net Ordinary

50

Profit After Tax (NOPAT) increased by ¥33.4 billion year-on-yearto ¥103.4 billion, in part because of unit price increases under40

the gas rate adjustment system, and an actuarial differential on
retirement benefits. However, the Weighted Average Cost of
Capital (WACC) rose from 3.7% to 3.8%, with the result that thecost of capital increased by ¥2.6 billion to ¥49.6 billion.
On this basis, TEP increased by ¥30.9 billion over the previ-

30
20
10

ous year’s level to ¥53.8 billion. TEP is also being used as a management indicator for group companies, and as a benchmark for0business restructuring and integration. We will continue to use’05

fiscal 2010, which is the final year of the plan.

’07

’11

Target in fiscal 2010of new medium-teammanagement plan

TEP as a key management indicator under the new medium-term
management plan. Our aim is to generate TEP of ¥50.0 billion in’06

TEP: NOPAT – cost of capital
NOPAT: Net ordinary income after tax prior to interest payments

Cash Flows and Financial Position■ Cash Flows from Financing Activities

Increased Net Income Reflected in Higher Cash
Flows from Operating Activities

Net cash and cash equivalents used in financing activities■ Cash Flows from Operating Activities

decreased by ¥17.2 billion year-on-year to ¥65.8 billion. The

Net cash and cash equivalents from operating activities

main sources of this increase were ¥6.0 billion from com-increased by ¥9.1 billion to ¥190.6 billion over the previous

mercial paper and ¥14.9 billion from long-term loans.

year. Despite a ¥37.3 billion reduction in retirement benefit

Outflows included expenditure of ¥34.7 billion on sharereserves and a ¥17.4 billion increase in notes and accounts

repurchasing and ¥26.8 billion on long-term debt repay-

receivable, income before income taxes and minority inter-

ment, and ¥18.9 billion for dividend payments.

est in net income increased by ¥61.7 billion year-on-year to¥162.5 billion. Depreciation of fixed assets declined by ¥3.3

As a result of the above factors, cash and cash equiva-

billion year-on-year to ¥129.0 billion.

lents at the end of the term amounted to ¥40.2 billion, a■ Cash Flows from Investing Activities

Years ended March 31(unit : million yen)

Net cash and cash equivalents used in investment activities
amounted to ¥130.9 billion, a increase of ¥14.9 billion compared with the previous year’s figure. This total consists
mainly of expenditure of ¥124.2 billion on the acquisition of
fixed assets, including gas distibution facilities.

2007

2006

2005

Net cash provided byoperating activities

190,597

181,529

215,038

Net cash used ininvesting activities(130,922)(116,071)(107,376)

Net cash used infinancing activities(65,844)(83,041)(108,160)

41

decline of ¥5.4 billion from the previous year’s year-end
total of ¥45.6 billion.

ROA and ROE(%)
16■ Interest-Bearing Debt Reduced — D/E Ratio at 0.66
Interest-bearing debt was reduced by ¥34.4 billion to ¥525.5

12billion, in part because of the maturation of the 6th issue of
convertible bonds in March 2007. This is reflected in a D/E
ratio of 0.66, which indicates that Tokyo Gas is maintaining

8

financial soundness. From the perspective of debt leverage,
we believe that we have passed the stage of aggressive

4

reduction of interest-bearing debt. However, we place con● ROA● ROE

siderable importance on a balanced approach that also takes
into account the need to maintain and improve our ability to
procure finance, and we see a D/E ratio of around 0.6 as areasonable target in this context.

’03

’04

’05

’06

’07

ROE = net income/shareholders’ equity(average of positions at start and end of fiscal year)■ ROE at 13.2%

Interest-bearing debt and D/E ratio(¥ billion)
1,000

0

(times)2.0

A year-on-year increase of ¥38.6 billion, or 62.1%, in net
income lifted ROE by 4.2 points to 13.2%. Despite a reduction in retained earnings resulting from the dividend, net

800

1.6

600

1.2

400

0.8

200

0.4

income of ¥100.7 billion helped to raise shareholders’ equity by ¥66.9 billion year-on-year to ¥795.1 billion. One of thegoals of the medium-term management plan is to build an
optimal capital structure. This is reflected in a ROE target of
10.9% by fiscal 2010. While there may be fluctuation in individual years, we aim to maintain continuous improvement■ Interest-bearing

0

0
’03

’04

’05

’06

’07

debt
● D/E Ratioin this indicator.
■ Dividend Increases and Stock Repurchases —60% Target for Total Payout Ratio

Interest-bearing debt = long-term debt due after one year +long-term debt due within one year + bank loans

In its new medium-term management plan, Tokyo Gas has

D/E ratio = interest-bearing debt / total shareholders’ equity(as of end of fiscal year)

introduced the concept of a 60% total payout ratio as anindicator of its commitment to shareholder returns. We■ Increase in Net Income — ROA at 5.9%

define this new indicator as a portion of net income in FY n

Net income rose by ¥38.6 billion, or 62.1%, over the previ-

equivalent to the sum of the income distributed as divi-

ous year’s level, in part because of higher unit prices under

dends in FY n and share repurchasing in FY n+1 funded by

the gas rate adjustment system according to gas resource

net income from FY n. We aim to maintain a total payout

costs. As a result, ROA improved by 2.2 points to 5.9% atratio of 60% while maintaining a balance between divi-

the end of the accounting period.

dends and stock repurchases.

Total assets declined by ¥1.3 billion year-on-year to

In line with this concept, we will raise the dividend for¥1,692.6 billion. As a result of ongoing depreciation, thefiscal 2006 by 1 yen to ¥8.0 per share. We also plan totangible fixed asset portion of this amounted to ¥1,130.5
billion. Investments and other assets declined by ¥10.9 bil-

Total Shareholders’ equity and equity ratio

lion to ¥217.0 billion, in part because of an ¥8.3 billion(¥ billion)
800

(%)
60

600

45

400

30

200

15

reduction in deferred tax assets. Despite a ¥6.5 billion
reduction in cash and bank deposits, current assets rose by¥19.0 billion to ¥321.1 billion. This reflects increases of¥19.3 billion in notes and accounts receivable and ¥5.5 billion in other current assets.
In the medium-term management plan the target for an
ROA is set at 5.5% in fiscal 2010. Though there may be rises
and falls in individual years, we aim to achieve continual■ Total Shareholders’improvement by combining aggressive investment in thelaying of foundations for future profitability with carefulattention to efficiency.
42

equity

0

0
’03

’04

’05

’06

’07

● Equity ratiorepurchase 60 million shares worth ¥39.0 billion yen in fis-tion caused by the conversion of convertible bonds. Thiscal 2007. This is expected to result in a total payout ratio ofprocess was largely completed in fiscal 2006, and future

60.1% in fiscal 2006.

repurchasing programs will be designed to enhance share-

We have previously repurchased shares to prevent dilu-

holder value primarily through the cancellation of shares.

External Risks Affecting Business Activities■ Gas Rate Decline Risk
Progress in deregulation has caused competition to intensify
among energy suppliers. There is a risk that the price of gas
will need to be reduced to attract and retain customers in
the face of price reductions by the Tokyo Electric Power
Company (TEPCO), which is the greatest competitor ofTokyo Gas.

Monthly gas sales volumes for fiscal 2006
(Non-consolidated)(million m3/45MJ)
1,400
1,200
1,000

Tokyo Gas has reduced gas rates three times full rate

800

reduction since 1999, by about 10% in total. TEPCO also

600

reduced its electricity rates five times, by about 25% in total,
during the same period. Tokyo Gas will continue to implement
strategic rate menu as necessary to prevail over competition.

and Medical■ Industrial sector■ Residential sector

2000■ Temperature Fluctuation Risk

■ Wholesale■ Commercial, Public

400’06.4 5 6 7 8 9 10 11 12 ’07.1 2 3Temperatures affect the volume of city gas sales, which
account for around 70% of consolidated sales and 90% of

Fluctuations in the cost of gas resources are reflected inincome. Gas is used mainly for water heating and spacegas rates after approximately six months under the “gasheating, especially in residential use. Mild winter weather

rate adjustment” system*. Under this system, although

can erode revenues and income by reducing the volume ofearnings may be subject to temporary increases andgas sold.

decreases, crude oil prices and currency exchange rates

The average temperatures in fiscal 2006 were 22.0ºC in
the first half of the year, 11.7ºC in the second half, and16.8ºC over the whole year. Forecasts for fiscal 2007 arehave no significant impact on results over the medium- tolong-term perspective.
In fiscal 2007, the crude oil price averaged $63.45 perbarrel, and the average exchange rate was ¥116.97 to one

based on an average of 16.8ºC over the whole year.

dollar. Forecasts for fiscal 2006 are based on an average

Impact of 1ºC temperature rise on gas sales volume
Rate of change

Summer (June – September)

0.3%

Winter (December – March)–3.7%

Intervening months (April, May, October, November)–3.1%

Annual–2.4%■ Gas Resource Fluctuation Risk

crude oil price of $55 per barrel and an exchange rate of¥120 to one dollar.
* Depending on the contract, changes may be reflected within a sixmonth time lag. Adjustment has an upper limit (please refer to page 5of the accompanying Investors’ Guide 2007).

■ Interest Rate Fluctuation Risk
Tokyo Gas negotiates fixed interest rates for both short-

City gas supplied by Tokyo Gas is produced mainly fromterm and long-term interest-bearing debt, which precludes

imported LNG. Since contracts are denominated in U.S.

risk of interest rate fluctuation during the term of an obliga-

dollars, earnings are at risk from fluctuations in the yen-dol-tion. However, there may be risk of fluctuation when loans

lar exchange rate. Also, the dollar-denominated LNG prices

are refinanced.

are linked to crude oil prices on a sliding scale, which
exposes the Company to risk from changes in the interna-■ Stock Price Fluctuation Risk

tional market price for crude oil.

Tokyo Gas primarily holds equities to maintain corporate

The extent to which these fluctuations affect gas resource

relationships essential to the conduct of its business opera-

costs over in the year ended March 31, 2007 is as follows.

tions. Equity of publicly listed companies is subject to mar-Approx. ¥3.7 billion for each ¥1 movement in the yen-dollar

ket risk. Tokyo Gas has established management policies

exchange rate

and rules for handling of such equities.

Approx. ¥4.4 billion for each $1 movement in the per-barrel
price of crude oil
43Principal Management Risks

Described below are aspects of the information provided in the financial statements concerning thebusiness and financial situation that could have a significant influence on investor decisions.
Forward-looking statements are based on judgments as of the end of current consolidated accounting year (March 31, 2007).

accidents at gas fields or LNG liquefaction plants, accidents to1

Disruption of Production and Supply

LNG vessels in transit or other situations preventing thesmooth procurement of gas resources may disrupt the supply

The business operations of Tokyo Gas are based on the pro-of natural gas.

duction and supply of city gas. A major gas leak or explosion
relating to the production or supply of gas could result not
only in direct damages, but also tangible and intangible loss-

6

Market risk

es, including a social liability.
Tokyo Gas might incur losses in the event of changes in themarket price of company-owned real estate, financial assets,

2

Quality Problems Affecting
Gas Equipment

pension assets or other assets. Additionally, fluctuations in
the price of gas resources take about six months to show up
in gas rates. This factor may affect revenues by breaking up a

Tokyo Gas sells gas appliances and other equipment under the

fiscal year, which could cause over- or under-collection of gas

Tokyo Gas brand through consolidated subsidiaries and allied

rates.

companies. Costs resulting from accidents caused by gas
appliances and other equipment could affect future earnings,
and there could also be other tangible and intangible losses.

7

Weather risk

Abnormal weather conditions, particularly summer heat3

Damage to Reputation Resulting
from Gas Accidents Causedby Other Companies

waves and warm winters, reduce gas sales volume in the residential sector, where gas is mainly used to supply hot waterand heating, thereby affecting revenues.

Accidents involving gas appliances and other products supplied by other companies could have a serious effect on the8

Risk faced by existing business

reputation of the city gas industry as a whole. This could
result in tangible and intangible losses.

A. Competitive risk
As industry deregulation progresses, competition with electric power companies and new firms entering the gas busi-

4

Natural disaster risk

ness is increasingly fierce. Competition may have a greater
impact on Tokyo Gas business performance. Specifically,

Tokyo Gas engages in facility-dependent businesses because

demand might decrease or rates may fall. Tokyo Gas may

city gas production and supply facilities are the foundation oflose a portion of existing demand should LNG lose competi-

its business. Accordingly, earthquakes, typhoons or othertiveness compared to other forms of energy, or should it

major natural disasters may cause damage to plants andbecome unable to purchase LNG at competitive prices.

other production facilities or pipelines and other supply facilities and disrupt the supply of city gas.

B. Changes to the Resource Procurement Environment
Earnings could be affected if it becomes necessary to procure
LNG on the spot market, such as if the amount of gas avail-5

Resource procurement supply
interruption riskable from existing LNG projects is reduced due to demand
growth resulting from temperature fluctuations and other factors or the aforementioned disruptions to resource procure-

Because Tokyo Gas relies on imports for the majority of its

ment, or if there are major delays in the start of supply fromnatural gas and other city gas resources, supplier country risk,

new LNG projects.

44

C. Demand risktion in gas supply and delays in customer service, but also

Changes in industry structure, economic recession, advance-

in tangible and intangible loss including the need to bear

ment of energy conservation activities or other factors may

public responsibility.

result in a partial decrease in existing demand, particularly
from large-volume customers.

12
D. Legal and regulatory risk

Interruption of communication
with call centers

Tokyo Gas manages its operations in compliance with the
Gas Utility Industry Law and other laws, regulations and insti-

Most communication with customers takes place via call cen-tutions. Any revisions to these laws, regulations or institu-

ters. Interruptions to telephone service to call centers would

tions that prove detrimental to the Tokyo Gas Group may

not only disrupt service to customers over wide areas, but

affect business performance.

may also incur serious tangible and intangible loss, including
the need to bear public responsibility.

9

ROI risk
13

Environmental and compliance risks

Tokyo Gas continues to make large investments in keepingwith the goal of “establishing a total energy business” as

The need to comply with new environmental laws or addi-

expressed in the medium-term management plan. Doing so

tional obligations to improve the environment might increase

involves investments channeled into the electric power busi-

costs. Also, any violations of laws, rules and regulations or

ness, energy service business, and gas field and other devel-

actions that contravene corporate ethics may result not only

opment projects, the LNG transportation business and otherin direct costs required to remedy the situation, but also in

new businesses, as well as large investments into the founda-tangible and intangible loss including the need to bear public

tions or to expand existing businesses such as wide-area

responsibility.

pipeline construction and IT. Such investments run the risk ofnot bringing in appropriate returns or not producing the
expected results due to changes in the economic situation.

10

Risk of information leaks

14

Risks associated with corporate
responsibility and customer service

Inadequate responses to customer needs or inappropriate
customer services may result in declining corporate competi-

Improper disclosure of customers’ personal information gath-tiveness and in tangible and intangible loss, including theered and managed in the conduct of business as a public utili-need to bear public responsibility. Moreover, because Tokyoty may result not only in direct costs required to remedy theGas regards the enhancement of customer satisfaction as ansituation, but also in tangible and intangible loss, including

important means of fortifying corporate competitiveness, andthe need to bear public responsibility more serious than thatthe importance of customer satisfaction is increasing, Tokyorequired of other companies.

Gas recognizes it as a business risk should the Company beunable to increase customer satisfaction or fail to meet thelevel of satisfaction required by customers.

11

Risk of failure or malfunctioningof backbone systems

The failure or malfunctioning of backbone computer systems connected with the manufacture and supply of gas or
the calculation of gas rates may result not only in a disrup-45

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

For the years ended March 31

2007

2006

2005

2004

2003

¥ 1,376,958¥ 1,266,502¥ 1,190,783¥ 1,151,825¥ 1,127,634

Gas sales

999,521910,321834,658

831,115

792,454

Gas appliance sales

135,407

130,826

135,109

133,873

142,636

Related construction

59,23059,74764,79568,03470,568

Real estate rental

34,03534,187

34,70135,44436,346

Other business

285,407

252,596234,721

172,160

158,327

Operating income

162,315

112,346

145,349

152,287

123,294

Net income

100,700

62,11584,04744,78759,201

Depreciation*

133,142

136,377

140,271

146,895

141,027

Capital expenditures**124,557

119,435

107,529

107,441

111,988

Free cash flow

109,285

79,057116,789

84,241

88,240Net sales

Amounts per share ofcommon stock (yen)Net income

¥

37.50

¥

23.48

¥

31.47

¥

16.44

¥

21.18

Diluted net income

35.69

21.70

28.24

14.98

19.11

Net assets

293.11

270.48244.73221.53208.65

8.00

7.00

7.00

7.00

6.00

¥ 1,692,635¥ 1,693,899¥ 1,668,734¥ 1,666,828¥ 1,676,064

Long-term debt due after one year

465,896496,740

547,139545,845598,322

Total net assets

806,046

—

—

—

—

—

728,232

648,766

598,453

579,706

Operating income to net sales

11.8%

8.9%

12.2%

13.2%

10.9%

Net income to net sales

7.3%

4.9%

7.1%

3.9%

5.3%

ROE

13.2%

9.0%

13.5%

7.6%

10.4%

ROA

5.9%

3.7%

5.0%

2.7%

3.5%

Equity ratio

47.0%

43.0%

38.9%

35.9%

34.6%

Cash dividends applicable to the year

At year-end (March 31)
Total assets

Total shareholders’ equity

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 ending 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.)

46

Millions of yen, except per share amounts

2002

2001

¥ 1,097,589¥ 1,086,771

750,439

740,731

149,203

¥

1999

1998

997,767¥ 1,009,155

672,069

674,997

686,649

663,066

633,253

146,517

127,916

133,925

127,880

135,057

136,344

71,33871,90868,651

68,81771,06074,76773,78437,55137,60137,841

37,61638,97840,91640,568156,011

159,578

158,819

155,045

154,602

144,032

143,931

110,608

103,659

69,23372,30376,48562,163

67,10951,912

27,595

26,69817,764

17,241

15,432

16,762

145,564

150,374

140,306

143,009———105,296111,397

124,975

151,126———

92,17866,57242,029

9,647

—

—

—

18.47

¥

9.82

2000

¥

¥

992,255

9.50

¥

¥

6.32

¥

6.14

1997

¥

¥

988,077

5.49

1996

¥

¥

958,662

5.97

16.66

9.13

8.84

5.94

5.76

5.37

—

200.75

196.72172.33149.98148.67147.65147.23

6.00

6.00

5.00

5.00

5.00

5.00

5.00

¥ 1,702,713¥ 1,797,669¥ 1,805,086¥ 1,707,446¥ 1,720,684¥ 1,772,132¥ 1,657,176

680,887

708,329

843,634

820,753765,304

878,674

743,177

—

—

—

—

—

—

—

564,078

552,790484,239

421,442

417,755

414,906

413,725

10.1%

9.5%

7.0%

7.2%

7.6%

6.3%

7.0%

4.7%

2.5%

2.7%

1.8%

1.7%

1.6%

1.7%

9.3%

5.3%

5.9%

4.2%

4.1%

3.7%

4.1%

3.0%

1.5%

1.5%

1.0%

1.0%

0.9%

1.0%

33.1%

30.8%

26.8%

24.7%

24.3%

23.4%

25.0%

47

Consolidated Balance Sheets
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
March 31, 2007 and 2006

Thousands of
U.S. dollars (Note 1)

Millions of yen

Assets

2007

2006

2007

Property, plant and equipment (Note 3):
Production facilities¥

713,984¥

710,890$ 6,050,711

2,196,766

2,141,478

18,616,665

Service and maintenance facilities (Note 4)

170,539

181,065

1,445,243

Other facilities (Notes 4 and 15)

707,259

687,170

5,993,723

2,798

2,798

23,710Distribution facilities (Note 4)

Shutdown facilities
Construction in progress
Accumulated depreciation

52,79150,068447,380

3,844,137

3,773,469

32,577,432(2,713,656)(2,633,167)(22,997,088)

1,130,481

1,140,302

9,580,344

Intangibles:
Goodwill

1,396

2,505

11,832Other intangibles (Note 15)

22,672

21,144

192,135

24,06823,649203,967

144,667

145,048

1,225,988

Investments and other non-current assets:
Investment securities (Notes 4 and 5)
Long-term loan receivables (Note 4)

3,779

3,554

32,025

Deferred tax assets (Note 11)

28,04436,386237,658

Other investments and non-current assets

41,28943,668349,911

(752)

(725)

(6,364)217,027

227,931

1,839,218

40,232

45,634340,947

3

2

28

Trade (Note 6)

166,382

147,060

1,410,018

Other

13,81813,457

117,103

Allowance for doubtful accounts

Current assets:
Cash and cash equivalents
Marketable securities (Notes 4 and 5)
Notes and accounts receivable

(930)

(848)

(7,880)Inventories (Note 7)

36,132

34,597306,204

Deferred tax assets (Note 11)11,98912,765

101,602

Other current assets

53,43349,350452,816

Allowance for doubtful accounts

Total current assets
Total assets
Accompanying notes are an integral part of these financial statements.

48

321,059

302,0172,720,838¥ 1,692,635¥ 1,693,899$ 14,344,367

Liabilities, Minority Interests andShareholders’ Equity / Net Assets
Long-term debt due after one year (Notes 4 and 8)
Deferred tax liabilities (Note 11)
Reserve for retirement benefits (Note 10)
Allowance for repairs of gas holders
Reserve for safety measures
Other non-current liabilities

Thousands of
U.S. dollars (Note 1)

Millions of yen

2007

2006

$ 3,948,272
39,969787,692
29,13345,993
246,012
5,097,071

42,61745,501

361,159

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

76,92633,905
17,67033,528178
85,759293,467

506,173
342,832
92,837
371,647906
740,846
2,416,400—

10,255

—

—
—
—
—
—
—

141,8442,066
572,600
56,51052
773,072

—
—
—
—
—
—

—
—
—

(44,840)
728,232¥ 1,693,899———

141,8442,066
644,652———$ 1,202,071
17,5055,463,154

Treasury stock, at cost
97,537,522 shares in 2007

(44,565)—(377,669)

Net unrealized holding gains on securities
Deferred gains on hedge transactions
Foreign currency translation adjustments

49,707
1,095
302

—
—
—

421,242
9,282
2,560

Minority interest

10,945—92,751

806,046¥ 1,692,635——

6,830,896$ 14,344,367

Current liabilities:
Long-term debt (Notes 4 and 8)
Notes and accounts payable:
Trade (Note 6)
Other
Bank loan payable (Notes 4 and 8)
Income taxes payable
Deferred tax liabilities (Note 11)
Other current liabilities (Note 4)
Total current liabilities
Minority interests

465,896
4,716
92,9483,438
5,427
29,029601,454¥2007

496,740
5,329
130,2223,229—
26,425661,945¥

Commitments and contingent liabilities (Note 16)
Shareholders’ equity: (Note 12)
Common stock:
Authorized: 6,500,000,000 shares
Issued: 2,810,171,295 shares
Capital surplus
Retained earnings
Net unrealized holding gains on securities
Foreign currency translation adjustments
Treasury stock, at cost
117,825,346 shares in 2006
Total shareholders’ equity
Total liabilities and shareholders’ equity
Net assets: (Note 12)
Common stock:
Authorized: 6,500,000,000 shares
Issued: 2,810,171,295 shares
Capital surplus
Retained earnings

Total net assets
Total liabilities and net assets¥

49Consolidated Statements of Income
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2007 and 2006

Thousands of
U.S. dollars (Note 1)

Millions of yen

2007

2006

2007

¥ 1,376,958¥ 1,266,502$ 11,669,137

Costs of sales

799,468

724,5036,775,157

Selling, general and administrative expenses

415,175

429,653

3,518,429

1,214,643

1,154,156

10,293,586

162,315

112,346

1,375,551

Interest and dividend income

2,051

1,449

17,378

Gains (losses) from weather derivatives

1,621(5,666)

13,734

Rental income

1,501

944

12,718

Exclusive facilities income

1,489

166

12,618

Gains from sales of fixed assets

7,870

2,240

66,696

Losses on compression of fixed assets(7,228)(298)(61,253)

Gains from sales of investment securities (Note 5)

5,851

4,930

49,588(10,370)(11,014)(87,878)—(5,128)—Foreign exchange losses

(188)

(552)

(1,594)Equity in net income of an affiliated company

1,347

693

11,416

Other, net(3,726)

737(31,572)

218(11,499)

1,851

162,533

100,847

1,377,402

Current

49,33535,704

418,097

Deferred

11,711

2,498

99,24961,04638,202

517,346

Net sales (Note 14)
Costs and expenses (Note 14):

Operating income (Note 14)
Other income (expenses):

Interest expense
Losses on cancellation of system development

Income before income taxes and minority interestin net income of consolidated subsidiaries
Income taxes:

Net income

(530)

(787)

Minority interest¥¥

100,700

62,115yen(6,667)$853,389

U.S. dollars (Note 1)

2007

2006

2007

Amounts per share of common stock:
Net income

¥

37.50

¥

23.48

$

0.32

Diluted net income

35.69

21.70

0.30

Cash dividends applicable to the year

8.00

7.00

0.07

Accompanying notes are an integral part of these financial statements.

50

Consolidated Statements of Shareholders’ Equity
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Year ended March 31, 2006

Millions of yen
Number of sharesof common stock(Thousands)

Balance at March 31, 2005 2,810,171

Net unrealized Foreign currencytranslation
holding gains
adjustmentson securities

Commonstock

CapitalsurplusRetainedearnings¥ 141,844¥ 2,067¥ 532,810¥ 31,501¥ (311)¥ (59,145)

62,115

Net income
Increase due to addition of
consolidated subsidiaries

5

Net unrealized holding
gains on securities

25,009Foreign currencytranslation adjustments

363
(1)

Treasury stock
Cash dividends paid(¥7.0 per share)(3,768)14,305(18,496)(66)

Bonuses paid to directors
Balance at March 31, 2006 2,810,171

Treasurystock¥ 141,844¥ 2,066¥ 572,600¥ 56,510¥52¥ (44,840)

Accompanying notes are an integral part of these financial statements.

51

Consolidated Statements of Change in Net Asset
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Year ended March 31, 2007

Millions of yen

Shareholders’ equity at
March 31, 2006 aspreviously reported

Number of sharesof common stock(Thousands)

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

2,810,171¥141,844¥2,066¥572,600¥(44,840)

Net unrealized Deferred gains Foreign currency
holding gains
on hedgetranslation
on securities
transactions
adjustments¥56,510—¥ 52

Reclassification due to adoption of new accounting standards forpresentation of net assets in the balance sheet at April 1, 2006

Balance at April 1, 2006

2,810,171¥141,844¥2,066¥572,600

Net income¥(44,840)¥56,510—¥ 52

Minority
interests—¥728,232

10,255

10,255¥10,255¥738,487

100,700

Increase due to additionof consolidated subsidiaries(1,404)

Treasury stock(8,403)

100,700(1,404)275

Net unrealized holding
gains on securities(8,128)(6,803)

Deferred gains
on hedge transactions(6,803)
1,095

Foreign currency translation
adjustments

1,095
250

Minority interests

250
690

Cash dividends paid(¥7.0 per share)690(18,774)(18,774)

(67)

(67)

Bonuses paid to directors
Net changes
during the year

total

—

—

—

72,052275(6,803)

1,095

250

690

67,559Balance at March 31, 2007 2,810,171¥141,844¥2,066¥644,652¥(44,565)¥49,707¥1,095¥302¥10,945¥806,046

Minority
interests

total

Thousands of U.S. dollars (Note 1)
Number of sharesof common stock(Thousands)

Shareholders’ equity at
March 31, 2006 aspreviously reported

Commonstock

Capitalsurplus2,810,171 $1,202,071$17,505

Retainedearnings

Treasurystock

Net unrealized Deferred gains Foreign currency
holding gains (losses) on hedgetranslation
on securities
transactions
adjustments$4,852,539 $(380,001) $478,902

—

$ 440

Reclassification due to adoption of new accounting standards forpresentation of net assets in the balance sheet at April 1, 2006

Balance at April 1, 2006

2,810,171 $1,202,071$17,505

86,911$4,852,539 $(380,001) $478,902

Net income

853,389

Increase due to additionof consolidated subsidiaries(11,898)

Treasury stock(71,213)—$ 440(11,898)(68,881)(57,660)(57,660)
9,282

Foreign currency translation
adjustments

9,282
2,120

2,120
5,840

Minority interests——

Balance at March 31, 2007 2,810,171 $1,202,071—$17,505

5,840(159,093)(159,093)

(570)

(570)

Bonuses paid to directors(57,660)

9,282

2,120

$5,463,154 $(377,669) $421,242

610,615$9,282$2,560Accompanying notes are an integral part of these financial statements.

52$86,911 $6,258,367

2,332

Deferred gains
on hedge transactions

Cash dividends paid
(US$0.07 per share)

86,911

853,389

Net unrealized holding
gains on securities

Net changes
during the year

— $6,171,456

2,332

5,840

572,529$92,751 $6,830,896

Consolidated Statements of Cash Flows
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2007 and 2006

Thousands of
U.S. dollars (Note 1)

Millions of yen

Cash flows from operating activities:
Income before income taxes and minority interestin net income of consolidated subsidiaries
Adjustments to reconcile income before income
taxes and minority interest to net cash provided
by operating activities:
Depreciation (Note 14)
Amortization of long-term prepayments
Losses on disposal of property, plant and equipment
Gains from sales of fixed assets
Losses on reduction of acquisition costs of property,
plant and equipment for tax purposes
Gains from sales of securities
Decrease in employees’ severance and retirement benefits
Increase in reserve for safety measures
Interest and dividend income
Interest expense
Return on investment accounted by equity method
Changes in operating assets and liabilities:
Increase in major notes and accounts receivable
Increase in inventories
Increase (decrease) in major notes and accounts payable
Increase (decrease) in consumption taxes payable
Losses on cancellation of system development
Other – net

2007

2006

2007

¥ 162,533¥ 100,847$ 1,377,402

128,998
4,144
3,157(7,904)132,300
4,077
3,251(2,221)

1,093,205
35,11926,752(66,979)

7,228(5,851)(37,274)
5,427(2,051)
10,3701,347

298(4,930)(11,189)—(1,449)11,014693

61,253(49,588)(315,885)
45,993(17,378)
87,878
11,416(17,369)(1,535)(14,076)
4,451—(3,438)238,157
2,011(10,244)(39,327)
190,597(7,102)(9,170)23,122(2,081)
4,518(5,942)
236,036
1,446(11,410)(44,543)
181,529(147,197)(13,009)(119,286)
37,719—(29,138)
2,018,277
17,038(86,810)(333,276)
1,615,229(5,517)
6,616(12,625)
9,912
595(124,174)(8,611)(2,472)
5,986(7,367)
6,466(7,564)5,220—(110,993)(4,950)(2,503)
6,599(46,756)
56,068(106,995)
84,0005,044(1,052,318)(72,978)(20,945)
50,729—(840)
208(130,922)

678(1,573)(84)(116,071)—(7,121)
1,763(1,109,509)(6,523)6,000
14,935(26,986)(18,874)(34,658)262(65,844)(8,685)—
16,998(52,434)(18,591)(20,355)
26(83,041)(55,276)
50,847
126,566(228,697)(159,944)(293,712)
2,218(557,998)

10(6,159)45,634

4(17,579)
50,66580(52,198)
386,725799

12,548

6,776

Cash received for interest and dividends
Cash paid for interest
Cash paid for income taxes
Net cash provided by operating activities
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
Losses on revaluation of investment securities
Purchases of property, plant and equipment
Purchases of intangible fixed assets
Long-term prepayments
Proceeds from sales of tangible and intangible fixed assets
Proceeds from sales of investments in a consolidated
subsidiary accompanied by change in the scope of consolidation
Expenditure of long-term loan receivable
Other – net
Net cash used in investing activities
Cash flows from financing activities:
Net decrease of short-term bank loan payable
Proceeds from commercial paper
Proceeds from long-term debt
Repayments of long-term debt
Cash dividends paid
Payments for acquiring treasury stock
Other – net
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net 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 ofsubsidiaries from scope of consolidation
Cash and cash equivalents at end of year¥(42)
40,232¥—
45,634$(356)
340,947

Accompanying notes are an integral part of these financial statements.

53

Notes to Consolidated Financial Statements
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2007 and 2006

1

Basis of presenting consolidated financial statements

Tokyo Gas Co., Ltd. (the “Company”) and its consolidated
subsidiaries maintain their accounts and records in accordance with the provisions set forth in the Japanese
Securities and Exchange Law and its related accounting
regulations, and in conformity with accounting principles
generally accepted in Japan (“Japanese GAAP”), which are
different in certain respects as to application and disclosure
requirements from International Financial ReportingStandards. The Company, as a regulated company, also follows the Gas Business Law related accounting regulations
for preparing such financial statements.
The accounts of the Company’s overseas subsidiaries
are based on their accounting records maintained in conformity with generally accepted accounting principles prevailing in the respective countries of domicile.
The accompanying consolidated financial statements
have been restructured and translated into English from theconsolidated financial statements of the Company preparedin accordance with Japanese GAAP and filed with theappropriate Local Finance Bureau of the Ministry of Financeas required by the Securities and Exchange Law. Some supplementary information included in the statutory Japanese
language consolidated financial statements, but notrequired for fair presentation, is not presented in the2

Significant accounting policies(1) Consolidation — The consolidated financial statements include the accounts of the Company and all of its
significant subsidiaries. For the years ended March 31, 2007
and 2006, 52 and 54 subsidiaries, respectively, were consolidated. All significant inter-company transactions andaccount balances are eliminated in consolidation.
In the elimination of investments in subsidiaries, theassets and liabilities of the subsidiaries, including the portion attributable to minority shareholders, are recorded
based on their fair value at the time the Company acquired
control of the respective subsidiary.
For the year ended March 31, 2007, three subsidiaries
were newly included in the scope of consolidation due tothose subsidiaries' increased significance. On the other hand,
one subsidiary was excluded from the scope of consolidation
as it was dissolved during the fiscal year. Besides, the number of consolidated subsidiaries decreased by four due tobusiness combinations among consolidated subsidiaries.
(2) Equity method — Significant investments in unconsolidated subsidiaries and affiliates over which the Company
has the ability to exercise significant influence with regard
to operating and financial policies of the investees, areaccounted for by the equity method. For the years ended
March 31, 2007 and 2006, one affiliated company was
accounted for by equity method.
(3) Accounting period of consolidated subsidiaries —Though the Company’s fiscal year ends on March 31, the54

accompanying consolidated financial statements.
The consolidated balance sheet as of March 31, 2007,
which has been prepared in accordance with the new
accounting standard as discussed in Note2(19) Significant
accounting policies, is presented with the consolidated balance sheet as of March 31, 2006 prepared in accordancewith the previous presentation rules.
Also, as discussed in Note2(20) Significant accounting
policies, the consolidated statement of changes in net
assets for the year ended March 31, 2007 has been prepared in accordance with the new accounting standard. The
accompanying consolidated statement of shareholders'equity for the year ended March 31, 2006 was voluntarily
prepared for the purpose of inclusion in the consolidated
financial statements although such statements were notrequired to be filed with the Local Finance Bureau.
The translation of the Japanese yen amounts into U.S.
dollars is included solely for the convenience of readers
outside Japan, using the prevailing exchange rate at March
31, 2007, which was ¥118 to US $1. The convenience translations should not be construed as representations that theJapanese 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.

following companies end their year on December 31:
TOKYO GAS AUSTRALIA LTD.
Tokyo Gas Darwin LNG Pty Ltd.
All significant adjustments considered necessary during
the period from December 31 to the consolidated fiscal
year end have been made on consolidation.
(4) Property, plant and equipment — Property, plantand equipment is generally stated at cost. Depreciation isdetermined mainly by the declining-balance method basedon estimated useful life, except that certain buildings are
depreciated using the straight-line method.
(5) Software costs — The Company and its consolidated
subsidiaries include software in intangible assets anddepreciate it using the straight-line method over the estimated useful life.
(6) Accounting for certain lease transactions —Finance leases which do not transfer ownership to lessees
are accounted for in the same manner as operating leases.
(7) Goodwill — Goodwill and negative goodwill are amortized on a straight-line basis within 20 years (mainly 10 years).
(8) Cash and cash equivalents — Cash and cash equivalents include cash on hand, readily-available deposits andshort-term highly liquid investments with maturities notexceeding three months at the time of purchase, which arereadily convertible to known amounts of cash that theypresent insignificant risk of change.

(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-to-maturity debt securities”) are stated
at amortized cost.
(b) Equity securities issued by unconsolidated subsidiaries and affiliated companies that are notaccounted for using the equity method are stated atmoving-average cost.
(c) Other securities with fair value, which are defined as
securities other than held-to-maturity debt securities,
equity securities issued by unconsolidated subsidiaries and affiliated companies, and securities
held for trading purposes, are stated at fair value atthe year-end, if their fair values are readily available.
The difference between acquisition costs and bookvalues of these securities are reported, net of applicable taxes, as a separate component of net assets.
Other securities with no fair value are stated at moving-average cost.
If the fair value of held-to-maturity debt securities, equity
securities issued by unconsolidated subsidiaries and affiliated companies, and other securities with fair value, declines
significantly, and the decline is not considered recoverable,
such securities are stated at fair value and the difference
between fair value and the carrying amount is recognized asloss in the period of the decline.
(10) Derivative financial instruments — The Company
and its consolidated subsidiaries use currency swap contracts, interest rate swap contracts, foreign exchange forward contracts, commodity swap contracts and weather
derivatives only for the purpose of mitigating the risk offluctuations in foreign exchange rates, interest rates, market prices of raw materials and finished products andaffects of changes in temperature.
The Company and its consolidated subsidiaries do notuse derivative financial instruments for speculative trading
purposes. The derivative financial instruments are executedwith creditworthy financial institutions, and the Company’s
and its consolidated subsidiaries’ management believes
there is little risk of default by counterparties. The derivative financial instruments are used 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 that the conditions of the accounting were applicable to the rules. Regarding forward exchange
contracts and foreign currency swap contracts fulfilled certain
conditions, the hedged foreign currency receivable andpayable are recorded using the Japanese yen amount of thecontracted forward rate or swap rate. Regarding interest rate
swap contracts fulfilled certain conditions, the net amount tobe paid or received under the interest rate swap contract is
added to or deducted from the interest on the liabilities forwhich the swap contract was executed.

(11) Inventories — Inventories are stated at cost, cost
being determined by the moving-average method.
(12) Allowance for doubtful accounts — For normal
receivables, an allowance for doubtful accounts is provided
using the historical experienced default ratio.
For specific receivables such as bankruptcy/rehabilitation claims, an allowance for doubtful accounts is provided
for the estimated amounts considered to be uncollectible
after reviewing individual collectability.
(13) Reserve for and retirement benefits —The Company and its consolidated subsidiaries provide postemployment benefit plans, an unfunded lump-sum payment
plan and a funded pension plan. The Company and certain
consolidated subsidiaries provide defined benefit plan anddefined contribution pension plan. Under which reserve forretirement benefits are based on the level of wages andsalaries, length of service and certain other factors.
The Company and its consolidated subsidiaries determine benefit obligation and expenses for reserve for retirement benefits based on the amounts actuarially calculatedusing certain assumptions.
The liability for reserve for retirement benefits is provided based on the estimated amounts of projected benefit
obligation and the fair value of the plan assets.
The estimated amount of all retirement benefits to be
paid at the future retirement date is assumed as generating
equally to each service year using the estimated number of
total service years. Past service costs are mainly charged toincome when incurred, and actuarial gains and losses arecharged to income mainly in the fiscal year following theyear when they arise.
(14) Allowance for repairs of gas holders —The Company and certain consolidated subsidiaries provide
for periodic repairs of gas holders by estimating future
expenditures and charging them to income in equal annual
amounts. The difference between the actual expenditureand the amount provided is charged to income in the year
repairs are completed.
(15) Reserve for safety measures — The Company provide for expenses necessary to secure safety of gas consumers by estimating total amount of such expenses which
are expected to incur after the year-end date.
(16) Translation of financial statements denominatedin foreign currency — Receivables and payables denominated in foreign currencies are translated into Japanese yenat the year-end rates, and the resulting translation gains orlosses are charged to income currently. Assets and liabilities of the foreign subsidiaries are translated into Japanese
yen at the exchange rates prevailing at the balance sheet
date. Profit and loss accounts for the year are translated
into Japanese yen at the exchange rates prevailing at thebalance sheet date as well. Differences in yen amounts arising from the use of different rates presented as “Foreign
currency translation adjustment” in net assets.
(17) Income taxes — Income taxes comprise corporation
tax, inhabitants’ taxes and enterprise tax (excluding enterprise taxes based on “amount of added value” and “amountof capital”). The Company and its consolidated subsidiaries

55

recognize tax effects of temporary differences between thefinancial statement basis and the tax basis of assets and liabilities. The Company and its consolidated subsidiaries do
not recognize deferred tax assets which are not expected toreduce future income taxes.
(18) Enterprise tax — In the case of companies engaged ingas businesses, enterprise tax which is levied, not on taxable
income, but on net sales, is accounted for in “Selling, generaland administrative expenses”. Enterprise taxes based on“amount of added value” and “amount of capital” are also
included in “Selling, general and administrative expenses”.
In the accompanying consolidated statements ofincome, enterprise tax, included in “Selling, general andadministrative expenses” amounted to ¥13,933 million(US$118,078 thousand) and $12,626 million for the years
ended March 31, 2007 and 2006, respectively.
(19) Presentation of net assets — From the fiscal year
ended March 31, 2007, “Accounting Standard for Presentationof Net Assets in the Balance Sheet” (Statement No.5 issued
by the Accounting Standards Board of Japan on December
9, 2005) and “Guidance on Accounting Standard for
Presentation of Net Assets in the Balance Sheet” (theFinancial Accounting Standard Implementation Guidance
No.8 issued by Accounting Standards Board of Japan on
December 9, 2005) are adopted. These new accounting standards require that the balance sheet be divided into sectionsof assets, liabilities and that net assets be divided into sections of shareholders’ equity, valuation and translation
adjustments, stock acquisition rights and minority interest.
Under the New Accounting Standards, the following items
are presented differently at March 31, 2007 compared toMarch 31, 2006. The net assets section includes unrealized
gains/losses on hedging derivatives, net of taxes. Under theprevious presentation rules, unrealized gains/losses on
hedging derivatives were included in the assets or liabilities
section without considering the related income tax effects.
Minority interests is included in the net assets section atMarch 31, 2007. Under the previous presentation rules, companies were required to present minority interests in the liabilities section and between the non-current liabilities andthe shareholders’ equity sections. There was no impact on
operating results as a result of this new adoption.
If the New Accounting Standards had not been adopted
at March 31, 2007, the shareholders’ equity amounting to¥794,006 million would have been presented.
(20) Accounting Standard for Statement of Changes
in Net Assets — Effective from the year ended March 31,
2007, the Company and its consolidated subsidiaries adopted the new accounting standard, “Accounting Standard forStatement of Changes in Net Assets” (Statement No.6
issued by the Accounting Standards Board of Japan on
December 27, 2005), and the implementation guidance forthe accounting standard for statement of changes in net
assets (the Financial Accounting Standard Implementation
Guidance No. 9 issued by the Accounting Standards Boardof Japan on December 27, 2005), (collectively, “theAdditional New Accounting Standards”).

56

The Company prepared the accompanying consolidated
statement of changes in net assets for the year ended
March 31, 2007 in accordance with the Additional New
Accounting Standards. The accompanying consolidated
statement of shareholders’ equity for the year ended March
31, 2006, which was voluntarily prepared for inclusion in
the consolidated financial statements, has not been adapted to the new presentation rules of 2007.
(21) Business combinations and business divestitures— From the fiscal year ended March 31, 2007, “Accounting forbusiness combinations” (Business Accounting Council on
October 31, 2003), “Accounting Standard for Business
Divestitures” (Statement No.7 issued by the AccountingStandards Board of Japan on December 27, 2005), and“Guidance on Accounting Standard for Business Combinations
and Accounting Standard for Business Divestitures” (theFinancial Accounting Standard Implementation Guidance No.
10 issued by the Accounting Standards Board of Japan on
December 27, 2005) are adopted.
(22) Bonuses to directors — From the fiscal year ended
March 31, 2007, “Accounting Standard for Directors' Bonus”(Statement No.4 issued by the Accounting Standards Boardof Japan on November 29, 2005) is adopted. This new
accounting standard requires companies to charge bonuses
to directors to income on an accrual basis, while suchbonuses were previously accounted for as appropriation ofretained earnings in the fiscal year of shareholders' resolution. As a result of this new adoption, operating income andincome before income taxes and minority interest in net
income of consolidated subsidiaries decreased by ¥67 million (US$568 thousand), respectively, compared with what
would have been under the previous accounting method.
“Bonuses paid to directors” shown in the accompanying
consolidated statements of changes in net assets as a reduction item of retained earnings in the fiscal year ended March
31, 2007 is appropriation of retained earnings resolved at
the general shareholders’ meeting held in June, 2006.
(23) Amounts per share of common stock — Basic net
income per share is computed based on the net income
available for distribution to common shareholders and theweighted-average number of common shares outstanding
for the period. Diluted net income per share reflects thepotential dilution that could occur if convertible bonds wereconverted into common stocks.
At the current conversion prices, 2,830,171 thousand
shares of common stock were issuable at March 31, 2007
upon full conversion of the outstanding convertible bonds.
Cash dividends per share have been presented on an
accrual basis and include dividends approved or to beapproved after the balance sheet dates, but applicable tothe year then ended.
(24) Reclassifications — Certain prior year amounts havebeen reclassified to conform to 2007 presentation. Thesechanges had no impact on previously reported results ofoperations.

3

Property, plant and equipment

Property, plant and equipment is generally recorded at cost. However, in cases where the Company and its consolidated
subsidiaries receive government grants toward the cost of acquisition, such amounts are offset against the acquisition costof the related asset (“reduction entry accounting”). Such offsets recorded at March 31, 2007 and 2006 were ¥262,818 million(US$2,227,273 thousand) and ¥263,665 million, respectively.

4

Pledged assets

Pledged assets at March 31, 2007 and 2006 were as follows:
Thousands of
U.S. dollars

Millions of Yen

Distribution facilities

2007

2006

2007

¥ 6,493¥ 5,472$ 55,022

Service andmaintenance facilities
Other facilities

83

84

705

7,762

152,833

36

Long-termloan receivable

39

Marketable securities

5

38

305

39

2007

2006

2007

Long-term debt(including current
portion)¥13,537¥4,941$114,721

Bank loan payable

584

30

4,949

Other current liabilities

61

60

521

¥14,182¥5,031$120,191

330

2

1

17

¥24,687¥13,396$209,212

Securities

Acquisition costs, book values and fair values of securities
with available fair values at March 31, 2007 and 2006 wereas follows:(b) Other securities with fair value

Thousands of
U.S. dollars

Millions of Yen
2006

2007

Securities with fair value
exceeding book value:Book value

¥27

¥11

27

11

232

¥ 0

¥ 0

$

¥19,196¥ 14,442

98,132

104,118

831,633¥78,936¥ 89,676$668,952

$228

2006

2006

2007

$19,696

Securities with fair values
not exceeding acquisition cost:
Equity securities

2007

Securities with fair value
not exceeding book value:Book value

¥220

¥236

$1,868Fair value

220

235

1,865

¥

¥ (1)

$

Thousands of
U.S. dollars

Millions of Yen

4

Thousands of
U.S. dollars

Millions of Yen

0$162,681

acquisition cost
Fair value

2007

2007

2007

Equity securities

Difference

Fair value
Difference

2006

Securities with fair values
exceeding acquisition cost:(a) Held-to-maturity debt securities

2007

Thousands of
U.S. dollars

Millions of Yen
2007

Difference

Thousands of
U.S. dollars

Millions of Yen

18,034

Investment securities

Liabilities secured by the above assets at March 31, 2007
and 2006 were as follows:

acquisition cost

¥2,324¥1,060Fair value

2,230

974

Difference

¥

(94)

¥

(86)

18,897
$

(799)

(3)

Other securities sold amounted to ¥9,449 million (US$80,078
thousand) and ¥5,194 million for the years ended March 31,
2007 and 2006, respectively. Gains on sale of other securities amounted to ¥5,851 million (US$49,588 thousand) and¥4,954 million and losses on sale of other securities amounted ¥24 million for the years ended March 31, 2006.
Other securities with no fair value, which were stated atmoving-average cost, amounted to ¥16,964 million(US$143,766 thousand) and ¥12,062 million at March 31,
2007 and 2006, respectively. Investments in unconsolidated
subsidiaries and affiliated companies amounted to ¥27,089
million (US$229,567 thousand) and ¥27,639 million for theyears ended March 31, 2007 and 2006, respectively.

57

6

Effect of the Bank Holiday

As financial institutions in Japan were closed on March 31, 2007, ¥700 million (US$5,932 thousand) of trade notes receivableand ¥1,049 million (US$8,890 thousand) of trade notes payable maturing on March 31, 2007 were settled on the following
business day and accounted for accordingly.

7

Inventories

Inventories at March 31, 2007 and 2006 were as follows:
Thousands of
U.S. dollars

Millions of Yen
2007

2006

2007

Finished products¥ 4,341¥ 3,670$ 36,783

Raw materials

22,357

22,148

189,469

Supplies

9,227

8,656

78,195

207

123

1,757

¥36,132¥34,597$306,204Work in process

8Bank loan payables and long-term debt

The average annual interest rates of short-term bank loan payables at March 31, 2007 and 2006 were 0.7% and 0.3%, respectively.
Long-term debt at March 31, 2007 and 2006 were as follows:
Thousands of
U.S. dollars

Millions of Yen
2007

2006

2007

Due in 2016 at a rate of 4.0%

¥ 27,700¥ 27,700$ 234,746

Due in 2018 at a rate of 2.625%

40,00040,000338,983

Due in 2009 at a rate of 1.68%

30,00030,000254,237

Due in 2009 at a rate of 1.73%

30,00030,000254,237

Due in 2010 at a rate of 2.01%

20,00020,000169,492

Due in 2011 at a rate of 1.39%

30,00030,000254,237

Due in 2012 at a rate of 1.35%

20,00020,000169,492

Due in 2023 at a rate of 1.01%

20,00020,000169,492

Due in 2013 at a rate of 1.41%

30,00030,000254,237

Due in 2014 at a rate of 1.59%

20,00020,000169,492

Due in 2024 at a rate of 2.29%

10,00010,00084,746Due in 2025 at a rate of 2.14%

10,00010,00084,746Due in 2015 at a rate of 4.1%

13,80013,800116,949

Due in 2009 at a rate of 1.18%

4,000

4,000

33,898

5th issue due in 2009 at a rate of 1.2%

32,61839,700276,424

6th issue due in 2007 at a rate of 1.1%—

19,321—

Domestic unsecured bonds

Domestic unsecured convertible bonds

Loans from banks, insurance companies andgovernment agencies due through 2020 at rates of 0.31% to 5.60%:
Secured13,537

4,941

114,720

Unsecured

156,858

172,779

1,329,303

508,513542,241

4,309,431

42,61745,501

361,159¥465,896¥496,740$3,948,272

Less-Amounts due within one year

58

The indentures covering fifth domestic convertible bonds
provide, among other conditions, for (1) conversion intoshares of common stock at the conversion prices per shareof ¥339.00 (US$2.87) (subject to adjustment in certain circumstances), (2) conversion periods through March 30, 2009.
As is customary in Japan, a lending bank has the rightto offset cash deposited with it against any debt or obligation that becomes due and, in the case of default or certain
other specified events, against all debt payable to the bank.
To date no such offset request has been made to theCompany and its consolidated subsidiaries.

The annual maturities of long-term debt at March 31, 2007
were as follows:Year ending March 31

Millions of Yen

Thousands of
U.S. dollars

2008
2009
2010
2011
2012
2013 and thereafter¥ 42,617
67,56887,95744,93847,565
217,868¥508,513$ 361,159
572,607745,395
380,827
403,096
1,846,348$4,309,432

Note: The Company has the specific commitment line contract with the maincorrespondent financial institution, at 30 billion yen in total.

9

Derivative transactions

Contract amounts, fair values and recognized gains on the commodity derivatives except those accounted for using hedge
accounting and weather derivatives at March 31, 2007 and 2006 were as follows:
Millions of Yen

Thousands of U.S. dollars

At March 31, 2007

At March 31, 2007

Contract amounts

Contract amounts

Total

RecognizedBeyondone year Fair value gains(losses)

Commodity derivatives¥1,538

¥

—

¥(61)

¥(61)

Weather derivatives

3,600

1,000

—

—

—

—

—

¥(61)

Millions of Yen
At March 31, 2006
Contract amounts
Total

RecognizedBeyondone year Fair value gains(losses)

Commodity derivatives

¥ 700

¥

—

¥483

Weather derivatives

8,000

1,400

—

—

—

—

—

¥483

¥483

Total

RecognizedBeyondone year Fair value gains(losses)

Commodity derivatives$13,032$—$(516)

Weather derivatives

30,5088,475—$(516)————$(516)

Fair value of commodity derivatives contracts was calculated based on the information presented by financial institution. Contract amounts of the commodity derivatives is notindicative of the magnitude of market risk or credit risk concerning derivatives transactions.
Contract amounts of weather derivatives were stated at
the maximum receivable or payable amount under the contracts. Fair value of weather derivatives were not statedbecause the calculation of the fair value was impossible.

59

10

Reserve for retirement benefits

Reserve for retirement benefits included in the liability section of the consolidated balance sheets as ofMarch 31, 2007 and 2006 were as follows:
Thousands of
U.S. dollars

Millions of Yen
2007

2006

2007

¥ 364,288¥ 348,820$ 3,087,187

Unrecognized prior service costs

1,778

2,165

15,064

Unrecognized actuarial differences(16,791)

8,698(142,295)

Less fair value of pension assets(256,339)(229,601)(2,172,363)

12

140

¥ 92,948¥ 130,222

Projected benefit obligation

Prepaid pension costs
Employees’ severance and retirement benefits

99$

787,692

Reserve for retirement benefit expenses for the years ended March 31, 2007 and 2006 were as follows:
Thousands of
U.S. dollars

Millions of Yen

Service costs – benefits earned during the year

2007

2006

2007

¥ 9,657¥ 9,586$ 81,842

Interest cost on projected benefit obligation

6,876

7,180

58,273

Expected return on plan assets(4,623)(3,808)(39,176)

Amortization of actuarial differences(13,095)

10,569(110,972)

Amortization of prior service costs

(332)

(92)

(2,815)

Other

6,669

3,009

56,520¥ 5,152¥26,444$ 43,672

Severance and retirement benefit expenses

The discount rate and the rate of expected return on plan assets used by the Company and its consolidated subsidiaries are approximately 1.8% and 2.0%, respectively, at March 31, 2007, and approximately
2.0% and 2.0%, respectively, at March 31, 2006.

11

Income taxes

The Company is subject to multiple taxes based on taxable income, which, in the aggregate, indicate astatutory rate in the Company of approximately 36.2% for the years ended March 31, 2007 and 2006.
Reconciliation of the difference between the statutory tax rate and the effective tax rate for financial
statement purposes for the years ended March 31, 2007 and 2006 are not presented as they are negligible.
Significant components of deferred tax assets and liabilities as of March 31, 2007 and 2006 wereas follows:
Thousands of
U.S. dollars

Millions of Yen
2007

2006

2007

Liabilities for severance and retirement benefits¥33,954¥47,082$287,748

Other – net

39,752

41,395

336,875

Less valuation allowance(5,228)(2,850)(44,301)

Subtotal

68,47885,627580,322

Net unrealized holding gains on securities

29,09333,016

246,547

Other – net

4,175

8,967

35,390Subtotal

33,26841,983281,937¥35,210¥43,644$298,385

Deferred tax assets:

Deferred tax liabilities:

Deferred tax assets – net

60

12

Net assets

The Japanese Corporate Law (“the Law”) became effective
on May 1, 2006, replacing the Japanese Commercial Code(“the Code”). The Law is generally applicable to events andtransactions occurring after April 30, 2006 and for fiscal
years ending after that date.
(a) Distribution to the shareholders
Under the Corporate Law, dividends can be paid at any time
during the fiscal year in addition to the year-end dividend
upon resolution at the shareholders’ meeting. Semiannualinterim dividends may also be paid once a year upon resolution by the Directors’ meeting if the articles of incorporation of
the company so stipulate, if companies meet certain criteria.
The Corporate Law provides certain limitations on theamounts available for dividends and/or the purchase oftreasury stock. The limitation is defined as the amountavailable for distribution to the shareholders, and it is calculated mainly based on capital surplus other than other capital surplus, other retained earnings and treasury stock, but
the amount of net assets after dividends must be maintained at no less than ¥3 million.
The maximum amount that the Company can distributeas dividends is calculated based on the non-consolidated
financial statements of the Company in accordance withJapanese laws and regulations.
At the general meeting of shareholders held on June
28, 2007, the Company’s shareholders approved paymentof year-end cash dividends of ¥4.5 (US$0.04) per share
aggregating ¥12,207 million (US$103,448 thousand) to theshareholders of record as of March 31, 2007.
Such appropriations have not been accrued in the consolidated financial statements as of March 31, 2007. Suchappropriations are recognized in the period in which they
are approved by the shareholders.
(b) Increase/decrease and transfer of common stock, reserveand surplus
Under Japanese laws and regulations, the entire amount
paid for new shares is required to be designated as common stock.
However, a company may, by a resolution of the Board

13

of Directors, designate an amount not exceeding one-halfof the price of the new shares as additional paid-in capital,
which is included in capital surplus.
Under the Law, in cases where a dividend distributionof surplus is made, the smaller of an amount equal to 10%of the dividend or the excess, if any, of 25% of common
stock over the total of additional paid-in-capital and legal
earnings reserve must be set aside as additional paid-incapital or legal earnings reserve. Legal earnings reserve is
included in retained earnings in the accompanying consolidated balance sheets.
Under the Code, companies were required to set aside
an amount equal to at least 10% of the aggregate amount ofcash dividends and other cash appropriations as legal earnings reserve until the total of legal earnings reserve andadditional paid-in capital equaled 25% of common stock.
Under the Code, legal earnings reserve and additional
paid-in capital could be used to eliminate or reduce a deficit
by a resolution of the shareholders’ meeting or could becapitalized by a resolution of the Board of Directors. Under
the Law, both of these appropriations generally require aresolution of the shareholders' meeting.
Additional paid-in capital and legal earnings reserve
may not be distributed as dividends. Under the Code, however, on condition that the total amount of legal earnings
reserve and additional paid in capital remained equal to or
exceeded 25% of common stock, they were available for
distribution by resolution of the shareholders’ meeting.
Under the Law, all additional paid-in-capital and all legal
earnings reserve may be transferred to other capital surplus
and retained earnings, respectively, which are potentiallyavailable for dividends.
(c) Treasury stock
The Corporate Law provides for companies to purchasetreasury stock and dispose of such treasury stock by resolution of the Directors’ meetings. The amount of treasury
stock purchased cannot exceed the amount available for
distribution to the shareholders which is determined by
specific formula.

Additional Information for Cash Flows

Significant non-cash transactions at March 31, 2007 and 2006 were as follows:

Decrease in treasury stock due to the conversion of convertible bonds
Loss on disposal of treasury stock due to the conversion of convertible bonds
Decrease in convertible bonds

Millions of Yen

Thousands of
U.S. dollars¥34,697(8,490)¥26,207$294,040(71,947)$222,093

61

14

Segment information

The Company’s and its consolidated subsidiaries’ primarybusiness activities include (1) gas sales, (2) gas appliancesales, (3) related construction, (4) real estate rental and (5)other business.

A summary of net sales, costs and expenses, operating
income, identifiable assets, depreciation, losses on impairment of fixed assets and capital expenditures by businesssegments for the years ended March 31, 2007 and 2006 was
as follows:
Millions of yen

For 2007Sales:
Outside customers
Intra group
Total
Costs and expenses
Operating income
Identifiable assets
Depreciation
Losses on impairmentof fixed assets
Capital expenditures

Gas sales

Gas appliance
sales

Relatedconstruction

Real estate
rentalOther business¥ 976,358
23,163
999,521795,955¥ 203,566¥1,009,880
97,969¥132,742
2,665
135,407134,238¥ 1,169¥ 46,187
544¥55,527
3,703
59,23057,479¥ 1,751¥20,619165¥ 11,933
22,102
34,03527,304¥ 6,731¥185,909
10,400¥200,398
85,009285,407271,559¥ 13,848¥248,139
21,951—
83,449

—
576

—
64

—
3,332

Gas sales

Gas appliance
sales

Relatedconstruction¥ 898,553
11,768910,321750,301¥ 160,020¥1,013,054
100,788¥128,376
2,450
130,826
126,209¥ 4,617¥ 43,075
485—
88,216

Elimination or
corporate¥

Consolidation—(136,642)(136,642)(71,892)¥ (64,750)¥ 181,901(2,031)¥1,376,958—
1,376,958
1,214,643¥ 162,315¥1,692,635
128,998—
37,496—(2,832)—122,085

Real estate
rentalOther businessElimination or
corporate

Consolidation¥55,772
3,975
59,74756,771¥ 2,976¥19,719184¥ 11,055
23,132
34,18728,728¥ 5,459¥193,712
11,340¥172,746
79,850252,596
242,949¥ 9,647¥228,086
21,421¥—(121,175)(121,175)(50,802)¥ (70,373)¥ 196,253(1,918)¥1,266,502—
1,266,502
1,154,156¥ 112,346¥1,693,899
132,300

—
805

—
37

—
2,850

—
6,596

—
(1,572)—
116,932

Gas sales

Gas appliance
sales

Relatedconstruction

Real estate
rentalOther businessElimination or
corporate

Consolidation$8,274,225
196,292
8,470,517
6,745,380$1,725,137$8,558,307
830,249$1,124,930
22,589
1,147,519
1,137,610$
9,909$ 391,412
4,610$470,568
31,378501,946
487,107$ 14,839$174,736
1,397$ 101,128
187,304
288,432
231,387$ 57,045$1,575,505
88,134$1,698,286
720,418
2,418,704
2,301,352$ 117,352$2,102,873
186,027$—(1,157,981)(1,157,981)(609,250)$ (548,731)$ 1,541,534(17,212)$11,669,137—
11,669,137
10,293,586$ 1,375,551$14,344,367
1,093,205—
707,197

—
4,880

—
544

—
28,235—
317,759—(23,998)—
1,034,617

Millions of yen

For 2006
Sales:
Outside customers
Intra group
Total
Costs and expenses
Operating income
Identifiable assets
Depreciation
Losses on impairmentof fixed assets
Capital expenditures

Thousands of U.S. dollars

For 2007Sales:
Outside customers
Intra group
Total
Costs and expenses
Operating income
Identifiable assets
Depreciation
Losses on impairmentof fixed assets
Capital expenditures

Costs and expenses under Elimination or corporate that cannot be allocated to business segments are related mainly togeneral administrative expenses of the Company, amounted
to ¥65,392 million (US$554,170 thousand) and ¥71,570 million at March 31, 2007 and 2006, respectively.
Assets under Elimination or corporate mainly comprise
cash and cash equivalents, current and non-current securities and deferred tax assets of the Company and its consoli62

dated subsidiaries, and they amounted to ¥223,419 million(US$1,893,380 thousand) and ¥239,031 million at March 31,
2007 and 2006, respectively.
Geographic segment information is not shown due to theCompany having no overseas consolidated subsidiaries.
Information for overseas sales is not disclosed due to overseas
sales being immaterial compared to consolidated net sales.

15

Information for certain leases

Finance leases
Information as lessee
Lease payments in the years ended March 31, 2007 and 2006,
and future minimum lease payments inclusive of interest at
March 31, 2007 and 2006 were as follows:
Thousands of
U.S. dollars

Millions of Yen

Lease payments

Information as lessor
Lease income in the years ended March 31, 2007 and 2006,
and future lease payments to be received at March 31, 2007
and 2006 were as follows:

2007

2006

2007

¥ 552

¥ 569

$ 4,679

Future lease payments
inclusive of interest:

Thousands of
U.S. dollars

Millions of Yen

Lease income

2007

2006

2007

¥ 4,609¥ 4,261$ 39,056$ 43,510

Future lease payments
to be received:

Current

¥ 501

¥ 479

$ 4,248

Current¥ 5,134¥ 4,222

Non-current

2,130

1,485

18,048Non-current

15,502

13,241

131,371¥2,631¥1,964$22,296¥20,636¥17,463$174,881

The Company and its consolidated subsidiaries use certain
other facilities and other intangibles under lease arrangements. Acquisition cost, accumulated depreciation and net
book value for property held under finance leases which do
not transfer ownership of the leased property to the lessee
on an “as if capitalized” basis for the years ended March
31, 2007 and 2006 were as follows:
Millions of Yen
Acquisition
cost

Accumulated
depreciation

Net

Other facilities¥4,174¥1,688¥2,486

Other intangibles

314

169

145

¥4,488¥1,857¥2,631For 2007

Acquisition cost, accumulated depreciation and net bookvalue for property held under finance leases which do nottransfer ownership of the leased property to the lessee forthe years ended March 31, 2007 and 2006 were as follows:
Millions of Yen
For 2007

Acquisition
cost

Accumulated
depreciation

Net

Other facilities¥24,029¥14,709¥9,320

Other intangibles

1,030

674

356

¥25,059¥15,383¥9,676

Other facilities¥23,218¥15,828¥7,390

Other intangibles

2,147

1,333

814

¥25,365¥17,161¥8,204

For 2006

For 2006

Other facilities¥3,942¥2,053

Other intangibles

183

109

¥1,88974¥4,125¥2,162¥1,963Thousands of U.S. dollars
For 2007

Acquisition
cost

Accumulated
depreciation

Net

Other facilities$35,375$14,310$21,065

Other intangibles

2,660

1,429

1,231

$38,035$15,739$22,296

Thousands of U.S. dollars
For 2007

Acquisition
cost

Accumulated
depreciation

Net

Other facilities$203,636$124,653$78,983

8,725

5,713

3,012

$212,361$130,366$81,995

Other intangibles

Operating leases
Information as lessor
Future lease payments to be received at March 31, 2007 and2006 were as follows:
Thousands of
U.S. dollars

Millions of Yen
2007

2006

2007

¥ 444

¥ 491

$3,762

632

792

5,353

¥1,076¥1,283$9,115

Future lease payments:
Current
Non-current

63

16

Commitment and contingent liabilities

At March 31, 2007, the Company and its consolidated subsidiaries were contingently liable for (1) debt guarantees in
the amount of ¥6,858 million (US$58,116 thousand) for financial institution loans to companies other than consolidated
subsidiaries, (2) ¥41 million (US$348 thousand) with respect
to joint and several liabilities upon default of the otherdebtors and (3) ¥38,700 million (US$327,966 thousand) as
guarantors for domestic unsecured bonds issued by the17

Subsequent events(1) Resolution of acquisitions of treasury stock
The Directors’ meeting held on April 26, 2007 approved theacquisition of treasury stock based upon the approval of thegeneral meeting of shareholders (on June 29, 2006).
Number of shares: Limited to 60,000,000 shares
Cost of shares acquisitions:
Limited to ¥39,000 million (US$330,508 thousand)
Period of acquisitions:
From April 27, 2007 to March 31, 2008
(2) Implementation of acquisitions of treasury stock
The Directors’ meeting held on April 26, 2007 approved theacquisition of treasury stock based upon the approval of thegeneral meeting of shareholders.
Number of shares purchased : 31,000,000 shares
Cost of shares acquisitions : ¥18,688 million (US$158,364
thousand)
Period of acquisition : April 27 to May 23, 2007 (commitment basis)

64

Company, and assigned to certain banks under the debt
assumption agreements made in the years ended March 31,
2004, 2003 and 2002.
At March 31, 2007, the Company had several long-term
purchase contracts for the supply of LNG. The purchaseprice determinable under such contracts is contingent upon
fluctuations in the market price of crude oil.

(3) Issue of bond
The company published the 28th unsecured bond based on
the resolution of board of directors held on March 27, 2007
as follows.
Total amount of issue : ¥20,000 million
Interest rate : 2.29% per annum
Amount-paid frame : ¥99.98 per face value of ¥100
Term : 20 years
Maturity date : June 15 , 2027 (Bullet maturity)
Interest payment day : June 15 and December 15 (Every year)
Subscriber’s yield : 2.291%
Offering period : June 1, 2007
Payment date : June 15, 2007

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) and consolidated subsidiaries as of March 31, 2007 and 2006, the related consolidated statements of income for the years then ended, the consolidated statement of changes in net assets for theyear ended March 31, 2007, the consolidated statement of shareholders’ equity for the year ended March
31, 2006, and the consolidated statements of cash flows for the years ended March 31, 2007 and 2006,
expressed in Japanese yen. These consolidated financial statements are the responsibility of theCompany’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. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Tokyo Gas Co., Ltd. and consolidated subsidiaries as ofMarch 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for theyears 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(19) to the consolidated financial statements, effective April 1, 2006, Tokyo
Gas Co., Ltd. and consolidated domestic subsidiaries adopted new accounting standards for thepresentation of net assets in the balance sheet.
(2) As discussed in Note 17(1) to the consolidated financial statements, subsequent to March 31,
2007, Tokyo Gas Co., Ltd. decided to acquire treasury stock.
(3) As discussed in Note 17(2) to the consolidated financial statements, subsequent to March 31,
2007, Tokyo Gas Co., Ltd. effectuated acquisition of treasury stock.
(4) As discussed in Note 17(3) to the consolidated financial statements, subsequent to March 31,
2007, Tokyo Gas Co., Ltd. published the 28th unsecured bond.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended March 31, 2007 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 28, 200765

Consolidated Subsidiaries and Equity-method Affiliates
As of March 31, 2007

Main Consolidated Subsidiaries
Company

Capital(¥ million)

Business

Equity owned FY2006 Net sales
by Tokyo Gas(¥ million)(%)[% of outside sales]

Operatingincome(¥ million)

Tokyo Gas Urban Development
Co., Ltd.

Real estate leasing, management andbrokerage, etc.

11,440100

31,941 [34.0]

5,900Tokyo Gas Toyosu Development
Co., Ltd.

Real estate leasing and management

5,000

100

564 [72.7]

140

Nagano Toshi Gas Co., Ltd.

Gas Supply in Nagano

3,800

89.2

9,100 [99.9](245)

ENERGY ADVANCE Co., Ltd.

Energy service, district heating and cooling,cogeneration orders and maintenance businesses

3,000

100

46,247 [92.3]

3,322

Gastar Co., Ltd.

Production, sales and maintenance ofgas appliances

2,450

66.7

29,446 [42.8]

1,380Tokyo LNG Tanker Co., Ltd.

LNG and LPG transportation andchartering of carriers

1,200

100

11,837 [18.6]

2,142

Tokyo Gas Energy Co., Ltd.

Sales of liquefied petroleum gas (LPG)

1,000

100

25,462 [82.1]

77

Capty Co., Ltd.

Installation of gas supply lines, water supply andlines and air conditioning systems, new construction, construction of gas mains and branch lines

1,000

100

61,994 [38.9]

714

Tokyo Gas Chemicals Co., Ltd.

Sales of gas for industry and chemicals and development of LNG cryogenetic utilization technology

1,000

100

17,139 [68.7]

319Park Tower Hotel Co., Ltd.

Management of Hotel “Park Hyatt Tokyo” andrestaurants

1,000

100

10,234 [97.5]

185

Chiba Gas Co., Ltd.

Supply of gas to Yachiyo City, Narita City andsurrounding cities

480

100

14,724 [99.3]

816

TG Credit Services Co., Ltd.

Leasing of information equipment, gas appliancesand office equipment, and credit administration
connected with installations

450

100

9,088 [61.1]

341

Tokyo Oxygen and NitrogenCo., Ltd.

Production and sales of liquefied oxygen, nitrogenand gas for medical use

400

54

2,022 [42.4]

180

TG Information Network Co., Ltd.

Information processing services, software development and sales of computer equipment, etc.

400

100

11,422 [26.3]

506

Tsukuba Gakuen Gas Co., Ltd.

Supply of gas in Tsukuba City

280

100

6,781 [97.4]

496

TG Enterprise Co., Ltd.

Financial administration for Tokyo Gas andrelated companies

200

100

740 [39.1]

342

Tokyo Gas Engineering Co., Ltd.

Comprehensive engineering services with aparticular focus on energy-related work

100

100

31,900 [68.5]

972

Tokyo Gas Customer Service
Co., Ltd.

Periodic safety checks, meter and billing services

50

100

7,606

[1.4]

340

TG IT Service Co., Ltd.

Operation of Tokyo Gas systems, network
operations, end-user support

50

100

7,770

[1.3]

356

Capty-Livelic Co., Ltd.

Gas facilities construction and gas appliance sales

50

100

8,045 [70.4]

92

GAS MALAYSIA SDN. BHD.

Supply of gas in Malaysia

RM 42.8 million

20

—

—

Notes: 1. Gas Malaysia Sdn. Bhd. is an equity-method affiliate.
2. Consolidated subsidaries comprise 52 companies as of the end of March 2007.
3. 1 RM nearly equals ¥33.75

Other Subsidiaries
Miho Gas Co., Ltd., Shoei Gas Co., Ltd., Washimiya Gas Co., Ltd.,
Tochigi Gas Co., Ltd.,Tokyo Kiko Co., Ltd., Tokyo Gas Yokosuka Power Co., Ltd.,
Living Design Center Co., Ltd., Tokyo Gas Baypower Co., Ltd.,TG Showa Co., Ltd.,
East Japan Housing Evaluation Center Co., Ltd.,Tokyo Carbonic Co., Ltd., Japan Super Freeze Co., Ltd.,TG Telemarketing Co., Ltd.,Tokyo Gas Auto Service Co., Ltd., Tokyo Gas Remodeling Co., Ltd.,Urban Communications, Inc., Tokyo Gas Techno-Service Co., Ltd.,

66

Tokyo Gas Building Service Co., Ltd., Showa Bussan Co., Ltd.,
Tosetz Co., Ltd., Capty Customer Service Co., Ltd.,
Enelife Carieer Co., Ltd., Showa Unyu Co., Ltd.,Tokyo Gas Plant Tech Co., Ltd., Tokyo Rare Gases Co., Ltd.,Tokyo Auto Gas Co., Ltd., Capty Tech Co., Ltd.,
Tachikawa Urban Center Co., Ltd.,Tokyo Gas LPG Terminal Co., Ltd.,TOKYO GAS AUSTRALIA PTY LTD.,Tokyo Gas Darwin LNG Pty Ltd., Kawasaki Gas Pipeline Co., Ltd.

Investor Information
As of March 31, 2007

Stock listings

Tokyo Gas Co., Ltd.
Head office
1-5-20 Kaigan, Minato-ku, Tokyo 105-8527, Japan
URL: http://www.tokyo-gas.co.jp

Overseas Offices

Tokyo stock exchange,
Osaka securities exchange andNagoya stock exchange (Trade code: 9531)

Independent Auditors

Agent to Manage Shareholders Registry

New York Office
The Chrysler Building, 405 Lexington Avenue, 33rd Floor
New York, NY 10174, U.S.A.
Tel: +1-646-865-0577 Fax: +1-646-865-0592

The Chuo Mitsui Trust & Banking Co., Ltd. 3-33-1 Shiba, Minatoku, Tokyo 105-8574, Japan

Number of Employees

16,451 (Consolidated basis, excluding
part-time workers)

Paris Office
102, Avenue des Champs-Elysées, 75008 Paris, France
Tel: +33-1-45-62-00-59 Fax: +33-1-42-25-96-85

Principal Shareholders

Asia Pacific Regional OfficeName

Level 30, Menara Standard CharteredNo. 30 Jalan Sultan lsmail, 50250 Kuala Lumpur, Malaysia
Tel: +60-3-2144-2928 Fax: +60-3-2144-2930

Date of Establishment
Paid-in Capital

KPMG AZSA & Co.

October 1, 1885

¥141,844,398,888

Aggregate number of shares issuable
6,500,000,000 shares

Issued Number of Shares

2,810,171,295 shares

Number of Shareholders

165,484

Number ofshares held(Thousands)

Percentage of
total shares
outstanding(%)

Nippon Life Insurance Company
163,000
The Dai-ichi Mutual Life
Insurance Company
155,962
The Master Trust Bank of Japan, Ltd.
(Trust Account)
130,342
Japan Trustee Services Bank, Ltd.
(Trust Account)
103,272
The Chase Manhattan Bank N.A. London
70,685
Fukoku Mutual Life Insurance Company
68,504
State Street Bank and Trust Company
42,747
State Street Bank and Trust Company (505103) 42,665
Employees Shareholding Association
36,717
Mizuho Corporate Bank, Ltd.
33,000

5.80
5.55
4.64
3.67
2.52
2.44
1.52
1.52
1.31
1.17

Monthly Stock Price Range (Tokyo Stock Exchange)
(¥)
800
700
600
Stock Price

500
400

(Thousands of shares)
300,000

300
Monthly Trading Volume200

200,000

100

100,000

0

0
’02/
’03/
’04/
’05/
’06/
’07/
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3

FURTHER INFORMATION

Forward-Looking Statements

Please direct comments regarding the content of this report orrequests for other publications to:Statements made in this annual report with respect to Tokyo Gas plans, strategies andbeliefs, and other statements that are not expressions of fact are forward-looking statements
about the future performance of the company. As such, they are based on management’s assumptions and opinions stemming from currently available information, andtherefore involve risks and uncertainties. These risks and uncertainties include, without limitation, general economic conditions in Japan, the exchange rate between the yen and the
U.S. dollar, and Tokyo Gas ability to continue to adapt to rapid technological developments
and deregulation.

Investor Relations Section, Corporate Planning Dept.
Tel: +81-3-5400-3888 Fax: +81-3-3437-2668
E-mail: tgir@tokyo-gas.co.jp

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 thenearest whole number. In addition, all graphs represent fiscal years ended March 31 of therespective years.

671-5-20 Kaigan, Minato-ku, Tokyo 105-8527, Japan
http://www.tokyo-gas.co.jp

This brochure is printed on the recycled paper from Tokyo Gas offices.
Printed in Japan