Winning
Value Challenge

theTokyo Gas Co., Ltd. Annual Report 2005

Contents

01

Face-to-Face with Customer Value
How our customers perceive products
and services that we offer and why we

06

To Our Shareholders

07

Financial Highlights

08

Segment Information10

adopted them.

An Interview with the President
President Ichino talks about the exciting circumstances of theGroup’s current situation and high potential for future growth.

15

Enhancing Value Every Day
Managers describe specific strategies
and measures to fortify and enhance
our value for customers.

24

Our Basis for Solidifying Value

Our stance and principles, the basis for the value we create,

31

Financial Section

60

Consolidated Subsidiaries andEquity-method Affiliates

61

Investor Information

including the spheres of corporate governance, compliance andsocial activities.

Every day, Tokyo Gas rewards the trust placed in it by existing customers by
exceeding their expectations through the exceptional value of its “total energy
solutions.” At the same time, we are reaching out to prospective customers
through the appealing benefits of our value proposition. Through these efforts
we are opening up a new and more rewarding “energy frontier.”

Face-to-Face with Customer Value

Tokyo Gas Annual Report 200501

Dynamic
Growth strategy for a new era: leveraging built-in
strengths to enhance our potential

02 Tokyo Gas Annual Report 2005

During the 120 years since its foundation, Tokyo Gas has supplied customers in the Tokyo metropolitan area andthe greater Kanto region with city gas, an energy source that has become an essential part of people’s lives andbusiness activities.
Tokyo Gas has built a solid business base in this service area, the thriving economic center of Japan that generates
more than 40% of the nation’s gross domestic product within an area 100 kilometers in diameter. Our business structure is solidly grounded in natural gas. This low environmental-load energy source is finding increased use owing to
low emissions of NOx and CO2 and zero emissions of SOx, gases that cause atmospheric pollution and global warming.
Tokyo Gas offers experience and technologies in the use of natural gas that it has honed over many years. At a timeof progressive deregulation that is stimulating competition with suppliers of electricity and oil, as well as with newentrants in the natural gas business, Tokyo Gas has taken stock of the strengths it has cultivated over the years andbegun to implement an aggressive growth strategy.
Even as it solidifies its position as a leader and trendsetter of Japan’s gas industry, Tokyo Gas is undergoing a major
structural transformation to remake itself into a corporate group that can serve as a “one-stop” supplier of heat,electric power, air conditioning and other forms of energy customers require.

Increasing Added Value and Promoting the Use of Natural Gas
Tokyo Gas is implementing policies aimed
at further expansion of its gas business.
These include enlargement of the supply
area in the Kanto region, where latentdemand is great, the supply of comprehensive energy services centered onnatural gas and wholesale distribution togas companies outside its service area.
Over the years, Tokyo Gas has laid anextensive network of gas pipelines,
exceeding 50,000 kilometers in total
length, primarily in the greater Tokyo
area. However, the advance of manufacturing plants and major commercial
facility construction has reached the
periphery of the Tokyo metropolitan area,
and we are carefully gauging energy
demand and providing energy solutions
tailored to the needs of customers inoutlying areas. With full consideration
given to investment returns, Tokyo Gas istaking effective measures to extend
pipelines, construct satellite stations andlink facilities expansion to increased
sales of city gas.
Tokyo Gas is also actively proposing
comprehensive energy services involving

gas cogeneration systems, which offer
excellent energy efficiency and low environmental load. Tokyo Gas is increasing
added value and promoting wider use ofnatural gas by serving as a comprehensive
source for the supply of heat, electric
power and air conditioning that customers
require, as well as the technical services
to ensure their stable supply.
At the same time, Tokyo Gas
leverages its engineering capabilities in
the wholesale distribution of gas to othergas suppliers, implementing a strategy
that promotes mutual growth by actively
participating in the sales activities ofwholesale gas customers.

Tokyo Gas Annual Report 2005

03

Reliable
Tireless pursuit of the safety, security and comfort
that underpin customer trust

04 Tokyo Gas Annual Report 2005

By nature of their position as proprietors of infrastructure essential to customers’ lives and business activities, city
gas companies are entrusted with the public mission of providing a stable and secure supply of gas.
With regard to securing the gas resources essential for stable supply, Tokyo Gas was the first company in Japan toimport LNG and has perfected a means for the stable, low-cost procurement of this resource. We engage in theimport of LNG from nine projects in six countries and has moved into upstream development and LNG transport
using company-owned vessels, in further pursuit of this objective.
Tokyo Gas has implemented initiatives to put safety first in the process of producing city gas from LNG and delivering it to customers. We design production and supply facilities to withstand earthquakes of magnitude 7.2, the equivalent of the Great Hanshin Earthquake. Moreover, Tokyo Gas operates SUPREME, the world’s most extensive superdense real-time seismic motion monitoring and disaster mitigation system, which remotely monitors some 3,800 locations and shuts off gas supply in times of natural disaster. We work to ensure safety in residential use through suchmeans as promoting the introduction of microchip-controlled gas meters with automatic shut-off functions and theenhancement of Gaslight 24, a system for round-the-clock emergency mobilization to respond to gas leaks andother problems.

Proposing More Comfortable, Satisfying Lifestyles through
New Ways of Using Gas
Tokyo Gas enjoys a bond of trust basedon safety and security with 9.6 million
households who have long appreciatedthe flavor of food cooked over an open
flame and the convenience of water
heated with gas. We are working todevelop new appliances and propose newlifestyles to enable people to more fully
experience the comfortable, satisfying
living made possible by city gas.
Tokyo Gas has brought the comfort ofcity gas to every room in the home with
the TES system for using hot water toenhance overall home comfort. TES
system customers enjoy the benefits ofexpanded applications for gas such as thefloor heating systems now included as
standard equipment in about 80%* of condominiums newly constructed in theTokyo metropolitan area, bathroom
heaters, clothes dryers and a new hotwater mist sauna. Launched in fiscal 2004,
the TES Remote PLUS service has madepossible a higher level of conveniencethrough the use of mobile phones andpersonal computers for the remote
operation of gas appliances.
The TES system is already in use in
more than a million residences. To
express its appreciation to customers, in2005 Tokyo Gas will conduct a largescale campaign in celebration of its
selling of one million systems. Anotheraim of the campaign is to ascertain
customer needs and wants and to apply
the information obtained to futurebusiness activities that will meet expectations and reward customer trust.

*About 80% of all newly-built private condominiums in The Tokyo Gas’ service area have floor-heating systems.
Tokyo Gas Annual Report 200505

To Our Shareholders

Hideharu Uehara

Kunio Anzai

Norio Ichino

Vice Chairman

ChairmanPresident

In fiscal 2004, a number of factors combined to suppress

achieved in fiscal 2005—two years ahead of the scheduleearnings, including the impact of rate reductions imple-

laid out in Frontier 2007.

mented in January 2005 and higher gas resource costs

At the same time, the business environment iscaused by a sharp rise in crude oil prices. However,changing on a daily basis. For instance, competition

expansion of gas sales and group-wide cost reductions

among energy sources is more intense than when

mitigated the impact of these factors. As a result ofFrontier 2007 was established. We are now preparing

these developments, operating income decreased 4.6%

the next medium-term management plan scheduled tofrom the previous term to ¥145.3 billion. Net income

be announced in January 2006. This plan will define

increased 87.7% to ¥84.0 billion in the absence of thepolicy issues that need to be addressed in order to real-

one-time loss, which was booked in the previous period

ize sustainable growth for the Tokyo Gas Group in thisto alleviate the future cost burden from the retirementbusiness environment.

benefit obligations.

As we move forward into the next plan, the Tokyo

In October 2002, the Tokyo Gas Group formulated

Gas Group remains committed to increasing corporate

Frontier 2007, a medium-term management plan forvalue and meeting the expectations of all stakeholders,Group growth and development in energy-related areas,

including our shareholders and investors.

our core business. During the course of the plan wehave steadily implemented various measures to achieve

Kunio Anzai, Chairman

business model innovation, business expansion into
energy-related fields and enhancement of the Group’s
corporate value. Through the success of these meas-

Hideharu Uehara, Vice Chairman

ures, we expect management targets to be mostly

Norio Ichino, President

06 Tokyo Gas Annual Report 2005

Financial Highlights

Thousands of U.S. dollars except per shareamounts

Millions of yen
except per share amounts

For the Years ended March 31
Net sales
Operating income
Net income
Free cash flow
Amounts per share of common stock (Yen and U.S. dollars):
Net income (Basic)
Net income (Diluted)
Shareholders’ equity
Cash dividends applicable to the year

2005

2004

2003

2005

¥1,190,783
145,349
84,047116,789¥1,151,825
152,287
44,787
84,241¥1,127,634
123,294
59,201
88,240$11,128,814
1,358,405
785,489
1,091,477

31.47
28.24
244.73
7.00

16.44
14.98
221.53
7.00

21.18
19.11
208.65
6.00

0.29
0.26
2.29
0.07

¥1,668,734
547,139648,766¥1,666,828
545,845598,453¥1,676,064
598,322579,706$15,595,646
5,113,446
6,063,236

12.2%
7.1%
13.5%
5.0%
38.9%

13.2%
3.9%
7.6%
2.7%
35.9%

10.9%
5.3%
10.4%
3.5%
34.6%

At Year-end (March 31)
Total assets
Long-term debt due after one year
Total shareholders’ equity
RatiosOperating income to net sales
Net income to net sales
ROE
ROA
Equity ratio

12.2%
7.1%
13.5%
5.0%
38.9%

Notes: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥107=U.S.$1, the approximate Tokyo foreign exchange market
rate as of March 31, 2005.
2. Free cash flow = net income + depreciation* – capital expenditures***including amortization of long-term prepaid expenses**purchases of tangible fixed assets + purchases of intangible fixed assets + long-term prepaid expenses (accounting basis)
3. ROE = net income/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)

Net Sales

Operating Income/Ratio to Net Sales

ROE/ROA(¥ billion)(¥ billion/%)

(%)

1,200

200

15

1,000

15

12
150
ROE

800
9
12

100

600

6
400
ROA

50
3

200

0

0

’02

’03

’04

’05

9

’02

’03

’04

’05

0

’02

’03

’04

’05

All graph data for years ended March 31

Tokyo Gas Annual Report 200507

Segment Information

Gas Sales
Tokyo Gas produces city gas at three facilities, using LNG as the main
resource, supplying it to 9.6 million customers primarily in the Kanto region
through a 50,000-km pipeline network.
We have Japan’s largest gas supply capability, and we are proactively
extending pipelines to expand the customer base, focusing on the northern
Kanto region, which offers strong potential for demand growth. In October
2004, a new pipeline to Tochigi Prefecture (Kumagaya-Sano Line) wascompleted, and the Tochigi Line is scheduled to begin operation in
November 2005.
[Sales excluding intra-group transactions constitute 99.0% of this segment’s sales.]Share of Total Net Sales
63.9%

Sales (¥ billion)
792.4

831.1

Operating Income (¥ billion)

834.6

189.3

182.6

• Gas sales volume grew 6.5%, to 11,952 million m3.

160.2• Increased gas sales in the commercial and industrial sectors and wholesale to other gas companies offset lower demand from residential customers caused by an extremely hot summer.
• In spite of a drop in unit price caused by a rate reduction and other factors, segment sales rose 0.4%, to ¥834.6 billion.
• Operating income declined 3.5%, to ¥182.6 billion, owing to increased
resource costs caused by a sharp price rise in crude oil.

Share of Operating
Income
85.7%

’03

’04

’05

’03

’04

’05

Gas Appliance Sales
This segment is involved in thesales of gas appliances bought

10.4%
3.3%

Sales (¥ billion)

Operating Income (¥ billion)

142.6

133.8

135.1

7.8

’04

’05

’03

7.9
7.0

from manufacturers, including
gas cooktops, water heaters andTES systems (using hot water
heated by gas to provide spaceheating and other home comforts), through 320 outlets ofEnesta and Enefit, service networks of Tokyo Gas.
[Sales excluding intra-group transactions constitute 98.0% of thissegment’s sales.]Notes: 1) Segment sales include intra-group transactions.
2) All graph data for years ended March 31.

08 Tokyo Gas Annual Report 2005

’03

’04

’05

• Sales increased 0.9%, to ¥135.1 billion due to increased unit prices
resulting from the introduction of high-value-added appliances andaccounting for the expanded scope of consolidation.
• Investment in demand development to counter the “all electric” promotion
pushed up costs, resulting in a 10.8% decrease in operating income to¥7.0 billion.

Related Construction
Tokyo Gas installs service pipes
and gas cocks on the properties

5.0%
1.7%

Sales (¥ billion)
70.5

68.0

of new customers, as well as

64.7

Operating Income (¥ billion)
4.1

4.4
3.5

adding gas cocks and otherequipment at buildings of existingcustomer sites.
[Sales excluding intra-group transactions constitute 93.9% of thissegment’s sales.]

’03

’04

’05

’03

’04

’05

• As the number of installations decreased, sales dropped 4.8%, to¥64.7 billion, accompanied by an operating income decline of 19.8%,
to ¥3.5 billion.

Real Estate Rental
A subsidiary, Tokyo Gas Urban
Development Co., Ltd., is primarily

2.7%
3.0%

Sales (¥ billion)

Operating Income (¥ billion)

36.3

7.6

35.4

34.7

7.8

responsible for activities in this

6.5

segment. The company leases
and manages office buildings,
including the Shinjuku Park Tower.
’03[Sales excluding intra-group transactions constitute 40.4% of thissegment’s sales.]

’04

’05

’03

’04

’05

• Rent reductions caused sales to decline 2.1%, to ¥34.7 billion. Operating
income decreased 17.5%, to ¥6.5 billion

Other BusinessBusiness activities in this segment include district

18.0%
6.3%

Sales (¥ billion)

Operating Income (¥ billion)

234.7

13.4
11.2

heating/cooling, energy services,
158.3

172.1

’03

’04

9.6

LPG sales, industrial gas sales,credit leases, system integrationand general engineering.
[Sales excluding intra-grouptransactions constitute 66.9% of
this segment’s sales.]

’05

’03

’04

’05

• Sales showed a large increase of 36.3%, to ¥234.7 billion, largely attributable to the expansion of consolidation.
• Operating income rose 19.0%, to ¥13.4 billion.

Tokyo Gas Annual Report 200509

An Interview with the President

Norio Ichino, President

Q

Fiscal 2004 was the second year of the medium-term management plan,
Frontier 2007. What progress has been made with the plan?
As set forth in Frontier 2007, we are engaged in four areas of prime focus: business model innovation, business expansion into energy-related areas, construction of a group management
system and strengthening of the corporate structure.
Our aim is to transform ourselves into a company on the energy frontier whose corebusiness is natural gas by aggressively expanding our city gas business as well as our electric
power, heat and energy service operations. It is also essential to raise operating efficiency toaddress the risk of demand loss and revenue loss that may be brought on by liberalization.
In fiscal 2004, the second year of the plan, although record-breaking summer heatdampened growth in gas sales volume in the residential sector, in the commercial sector air
conditioning demand increased 7.5% year on year due to high summer temperatures and low
winter temperatures. In the industrial sector, demand increased 10.2% year on year due to thedevelopment of new demand and increased operation at existing customer facilities. In otheroperations, aggressive marketing activities resulted in unit sales of our high-efficiency gas
water heaters of more than double the planned level. The overall operating environment infiscal 2004 was adverse because of the high summer temperatures and higher resource costs,
due to a sharp increase in crude oil prices. In addition, we reduced rates in January 2005, in

10 Tokyo Gas Annual Report 2005

We carried out company-wide cost cutting that enabled Tokyo Gas to overcome
adverse factors in the business environment: record-breaking summer heat andhigher gas resource costs caused by a sharp increase in crude oil prices.
Furthermore, in January 2005, we introduced a strategic 5.8% average rate reduction.

accordance with Frontier 2007, to maintain our competitiveness. We implemented companywide cost reductions that offset the impact of the rate reduction and negative business environment. These initiatives generated solid cash flows that funded an annual dividend of seven yen
per share, an additional share repurchase, and steady reduction of interest-bearing debt.
On the basis of this solid footing, in fiscal 2005 we expect to achieve nearly all of the four
primary management targets of Frontier 2007 (see graphs on page 13). We have also steadily
expanded our move into energy-related fields, notably upstream and transport operations andenergy services.
At the same time, we have begun preparations for establishing a new management plan necessary to achieve further growth in the increasingly harsh competitive environment in which
we operate. We plan to announce in January 2006 the next medium-term management plan forthe period from fiscal 2006 to fiscal 2010.

Q

What was the purpose and impact of the gas rate reduction implemented
in January 2005?
There are two purposes for the rate reduction: to return to customers benefits obtained
through increased efficiency and to increase competitiveness amid advancing liberalization.
The important consideration behind this rate reduction was the focused allocation of resourcesin business areas where intensified competition is expected. To that end, we gathered ideas fora rate strategy from salespeople working on the front lines.
In the commercial and industrial sectors, where price elasticity is high, we sought to both
lower rates and institute a rate structure suited to the needs of customers. This involved simplifying the rate structure for medium-volume customers and changing the structure forcomparatively high-volume customers to closely tailor it to individual corporate needs. We
have also ensured ample competitiveness in the area of cogeneration, where competition
with electric power companies is fierce.
In the residential sector, we have boosted marketing competitiveness by adding rate
options that make using home gas clothes dryers and floor heaters, which have become a defacto standard feature in new condominiums, more economical.
Although the impact of the rate reduction on sales was about ¥8.0 billion in fiscal 2004 andwill be ¥30.0 billion in fiscal 2005 from regulated customers alone, we plan, as far as possible, tocounterbalance this effect through cost reductions and further expansion of gas sales.

Tokyo Gas Annual Report 2005

11

Q

What is the expected impact of the increased scope of liberalization of electric power implemented in April 2005, and what are the possible measures
to be taken as a result?
With increased liberalization, competition in the electric power market might intensify owing to
the elimination of transfer supply fees charged for the supply of electricity across different supply
areas. We are aware that competition in the gas business might someday mirror the increased
struggle in the electric power market. However, at this time, our technological capabilities andrelationship of trust with customers that we have fostered over the years are great strengths, andwe have felt no major impact. We do expect competition to eventually intensify in the gas market
and are devising measures to strengthen our solutions capabilities and selling power.
At the same time, increased liberalization in the electric power market has provided more
opportunities for us to enter the electric power business. A subsidiary, Tokyo Gas Bay Power,
already operates with a generating capacity of 100 MW, and we have achieved competitive electricity prices by constructing the plant within the premises of our LNG terminal. We plan tocarefully observe the electric power market and respond flexibly.

To achieve further growth in an increasingly competitive businessenvironment, Tokyo Gas is formulating the next medium-term management plan, to be announced in January 2006.

Q

What will be the areas of prime focus in the next medium-term
management plan?
We believe that sustainable growth is the starting point for increasing corporate value, andthere will be no change in the baseline of increasing the corporate value of Tokyo Gas over timewith natural gas as the core business. I am confident that we can prevail no matter how thecompetitive environment changes provided that we continue to hone the products, services,maintenance and solutions capabilities in our main business.
Tokyo Gas supplies gas to 9.6 million customers and enjoys a bond of trust with customers
that makes it possible for us to directly ascertain customer needs at the point of use. These onsite capabilities are a great strength of Tokyo Gas. During the past few years we have implemented a policy of transferring customer contact opportunities to affiliated companies and business
partners in the interest of increasing operating efficiency and specialization. To boost competitiveness it is essential that Tokyo Gas, affiliated companies and business partners mount a united“All Tokyo Gas” effort to enhance our on-site capability to grasp customer needs and appropriately reflect that information in business strategy and management.

12 Tokyo Gas Annual Report 2005

Meeting Management Targets Ahead of Schedule
TEP

Free Cash Flow

ROA

Interest-bearing Debt(¥ Billion)(¥ Billion)(%)(¥ Billion)

46.5

116.7
28.9

FY ’04

’05

105.0

624.1

5.0
4.1

3.9

’05

’07

600.0

627.0

76.0
24.2

’07

FY ’04

TEP (Tokyo Gas Economic Profit)= net operating profit after tax prior to interest
payments – cost of capital

’05

’07

Free cash flow = net income + depreciation– capital expenditures

FY ’04

FY ’04

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

’05

’07

Frontier 2007 Target

Figures for fiscal 2005 are projections as of April 28, 2005.

Management is resolved to further sharpen our competitive edge by strengthening our comprehensive energy business strategy, in which we offer one-stop energy solutions to customers.
In this age of high environmental awareness, having clean natural gas at the core of ourbusiness gives us an advantage over other types of energy providers. We intend to extend thislead through ongoing pursuit of advanced energy conservation solutions.

Q

What is the policy on profit sharing with shareholders?
As liberalization progresses, so does the degree of freedom management has to distributeprofits. Nonetheless, we are a public utility, whose charges to customers are still largely regulated. We believe that the balance between the return to shareholders and our responsibilities to serve the customers’ interests should be considered.
Management believes it is important to continuously pay stable dividends, and the one-yen
increase in the dividend implemented in the previous term was in line with that thinking. The
board and I would like to continue to decide on dividend increases and other matters in connection with profit distribution on the basis of continuity.
Dividends are not the only way management returns profit to shareholders. Share repurchases are another measure. The payout ratio in fiscal 2004 was 22.1%, but if share repurchases aretaken into account, the proportion of profits actually returned to shareholders was 45.9%.
To date, we have used ¥57.8 billion of the ¥100.0 billion allocation called for in Frontier 2007
and bought back 156 million shares. These repurchases were made mainly to prevent stock dilu-

Tokyo Gas Annual Report 2005

13

tion (when outstanding convertible bonds become eligible for conversion into shares at the endof fiscal 2006 and 2008). Management plans in the future to include share repurchases among
our options to increase the value per share through the retirement of treasury stock.
Strategic allocation of free cash flow and definition of capital policy, including profit sharing
with shareholders, will be clarified in the next medium-term management plan.

Q

What corporate governance initiatives have been implemented?
Although Tokyo Gas hasn’t adopted the committee system, the Board of Auditors performs themonitoring function and I am confident that our management is sufficiently transparent.
By reducing the number of directors from the previous 28 (maximum of 30) to 12 (maximum of 15), we have increased the sense of urgency and motivated discussion at board meetings. We now have three outside directors, all enthusiastic people who actively contribute theiropinions. By introducing the corporate executive officer system and delegating substantial
authority to the divisions, we have increased the speed of decision making as well as operational efficiency. For fiscal 2005, we have decided to conduct a review of the officers’ remuneration system to focus on the abolition of retirement benefits and the introduction of a performance-linked compensation scheme. I have been particularly eager to proceed with this reformas I think the introduction of this system will further clarify management responsibility forbusiness performance and ensure objectivity and transparency in officer remuneration.
The corporate governance problems that have arisen at so many companies ultimately
stem from a lack of internal communication. Tokyo Gas is emphasizing open and aboveboard communication throughout the Group, and this initiative is certain to contribute tostrengthened governance.

14 Tokyo Gas Annual Report 2005

To ensure optimal business activities through close collaboration among Group
companies, in fiscal 2004 Tokyo Gas introduced the strategic business unit
system, dividing operations into functional categories such as gas resource
procurement, gas production, transmission, residential sales and industrial andcommercial sales. In the current era of full-scale competition in energy, eachbusiness unit takes advantage of the power of the Group and their own independent maneuverability to create value that exceeds customer expectations.

Enhancing Value Every Day

Tokyo Gas Annual Report 200515

For Residential Customers

Offering Comfortable, Satisfying
Lifestyles Made Possible by Gas
Tokyo Gas enhances many aspects of people’s lives. We work to promote theuse of gas in the home by offering the kinds of comfortable, satisfying lifestyles
only gas can provide.

“Tokyo Gas is enhancing
rate menu and the range ofits gas appliances in orderto remain a company people choose for their homeenergy needs.”

Takashi Kunitomi (center)
Chief Executive, Residential Sales Div.

16 Tokyo Gas Annual Report 2005

Countering the “All Electric” Offensive
As typified by electric power company sales campaigns extolling “all-electric homes,” competition between companies in the energy industry has increased in the past few years,
even in the residential sector. To cope with the changing business environment, we havereinforced our sales activities to target both end-users and companies such as housingdevelopers. We have also stepped up the development of appealing products and worked
to renew people’s appreciation of the convenience and comfort that can only be achieved
with gas. As a result of these efforts, we have managed to minimize the impact of the “allelectric” campaign in our service area.

Attractive
offerings

Introducing New Rate Menu while Promoting Gas Appliance Development
and Advertising
There is no question, however, that the residential energy market is becoming more andmore competitive. Therefore, the Residential Sales Division has actively implemented
measures that include new rate menu, developing attractive products and holding events
to improve market communication.
With regard to rates, in January 2005 Tokyo Gas put into effect an average rate reduction of 5.18% for customers under regulated tariffs to promote the use of gas. From May

Total number of TES systems sold
(Unit = 10 thousand)2005, we also simplified the pricing of the Danran plan, which applies to customers with

106
100

floor heating systems, installed as standard equipment in many condominiums. This change

89

aims to attract customers with discounts that increase with the amount of gas used.
In the area of product development, Tokyo Gas has enhanced the performance of the

79
68

highly energy-efficient latent-heat recovery water heaters and its renowned gas cooktops,
which are popular for their design, safety and ease of use. We have introduced one
innovative product after another, including an innovative mist sauna, which has proved
highly popular among women, and the remote operation service for gas appliances. In
February 2005, Tokyo Gas released LIFUEL, the world’s first commercialized residen-(FY) ’00

’01

’02

’03

’04

tial fuel cell cogeneration system.
To link the new rate menu and strengthened appliance development capabilities to thepromotion of gas usage, we will actively hold joint events with housing manufacturers andengage in advertising and publicity activities on television and in other media.
Further Strengthening the Bond of Trust with Customers
In 2006, the population of Japan will begin to decrease. To maintain its position of strength
in the residential sector, we must make certain to understand and meet customers’ needs
and propose ideas for fulfilling lifestyles. Building on the solid business base constructed
over the years, we will engage in close communication with customers to learn what they
truly desire and create added value to deliver it. Tokyo Gas will further solidify the bond oftrust it enjoys with customers by developing highly efficient, environmentally friendly gas
appliances and providing new creative services, such as home security monitoring and fire
insurance for household effects, in order to become appreciated as an all-around advisor on
residential matters. On the basis of these initiatives, Tokyo Gas will strive to continue to be
a company people choose for their home energy needs.

New services

Tokyo Gas Annual Report 200517

For Industrial and Commercial Customers

Pursuing Customer Benefits ThroughHigh Value-added Services
Relying on the most environmentally friendly fossil fuel, natural gas, as the main gas source,
our energy services provide customers with a one-stop source of essential energy by fully
exercising advanced technology and the ability to offer integrated solutions. Tokyo Gas supports its customers’ energy requirements with these high value-added services.

“Tokyo Gas is upgrading
its technological andsolutions capabilities tomeet the varied energy
needs of customers.”

Shigero Kusano (far right)
Chief Executive, Energy Sales andService Div.

18 Tokyo Gas Annual Report 2005

Advanced Technological Capabilities Unrivaled in the Industrial Sector
In 2004, the scope of liberalization of the gas business was expanded to include retail sales
to customers that consume 500,000 m3 or more per year. The effect on the energy industry has been all-out competition pitting gas companies against one another as well as
against oil companies and electric power companies. In another development, the Kyoto
Protocol went into effect in February 2005, resulting in greatly heightened environmental
awareness among the public.
In this business environment, Tokyo Gas has taken full advantage of the high energy
efficiency and environmental benefits of natural gas cogeneration systems and steadily
promoted conversion from oil to gas. Our sophisticated gas utilization technologies, per-Competitivetechnology

fected through long years of experience, have demonstrated competitiveness against new
entrants into the gas business. In the coming years we aim to expand our trade area anddevelop demand within a 200 km-wide area centered on Tokyo. One way will be to capitalize on our unshakeable strengths in cogeneration and combustion technologies for heating
furnaces, drying furnaces and other applications to build relationships of trust with customers and expand sales.
Strengthening Sales Capability to Commercial and Public Facilities
Although commercial power rates were long considered to be high in comparison with gas

Cogeneration equipment capacity(thousands of kW)
859
760

rates, the gap has decreased owing to rate reductions by electric power companies. For
this reason, for sales activities directed at commercial and public facilities it has become

652
571

605

increasingly important to strengthen the ability to offer integrated solutions.
In response to this development, in April 2005 the Energy Sales and Service Division
implemented a major reorganization. Abandoning a geographical based organization, it
adopted a new structure organized by major customer categories: for instance, hotels,
hospitals, schools and restaurants. This structure enables the sales force to develop andrefine industry specializations, strengthen relationships with customers and propose high-

285
194

(FY) ’00

312

337

’03

’04

208

’01
Commercial use’02

Industrial use

er-level solutions.
In addition, office-building renovation is a field in which demand is expected to grow.
To capture demand for air conditioning in this market, we will approach sales throughsolution proposals based on accurate assessment of customer needs.
Energy Services—A Business in the Spotlight
Collaboration with ENERGY ADVANCE Co., Ltd., a Group company that provides energy services, is an important element of sales activities in the industrial, commercial andpublic sectors.
In the Group’s energy services business scheme, ENERGY ADVANCE constructs andretains ownership of gas cogeneration systems and other energy facilities as company
assets and provides with a one-stop source of air conditioning, electricity, hot watersupply, lighting and other energy customers require. The offer of this “asset-free” and“personnel-free” energy supply is drawing increased attention from customers, andthrough March 31, 2005, ENERGY ADVANCE had signed 67 contracts for cogeneration
systems delivering a total of 140 MW. The company is utilizing the rock-solid engineering
capabilities of the Tokyo Gas Group to expand its energy services beyond cogeneration
systems into gas-absorption air-conditioning systems, gas boilers and other facilities.

Flexible
response

In the coming years, we aim to further leverage this type of flexible response tocustomer needs for increased gas sales.
Tokyo Gas Annual Report 2005

19

Gas Resource Procurement

Constructing a Value Chain to Lower
LNG Procurement Costs
Tokyo Gas participates in gas field development projects and engages in the transportbusiness using company-owned LNG carriers. By participating in upstream operations
and constructing a natural-gas value chain, we seek to ensure competitive advantage in
gas resource procurement.

“Tokyo Gas is pursuing greater
sophistication in its gas
resource procurement andtransport operations in orderto provide customers with astable supply of city gas atcompetitive prices.”

Tadaaki Maeda (right)
Chief Executive, Energy Resources Div.

20 Tokyo Gas Annual Report 2005

Tireless Efforts to Ensure Competitive Gas Resources Procurement
Because Tokyo Gas relies on imports for nearly all the natural gas source used for its core gas
operations, stable, low-cost resource procurement is extremely important to our business.
For this reason, Tokyo Gas has continuously worked to ensure stability and low cost in gasresource procurement since becoming the first company in Japan to import LNG in 1969.
Tokyo Gas currently imports LNG from nine projects in six countries. Unlike oil, which
is found in only certain parts of the world, natural gas is produced widely in the world. This
makes it possible to spread the risk and ensure stable procurement by trading with geographically diverse producers in the Middle East, Southeast Asia, Australia, Alaska andother locations with competitive contract terms and conditions.
Yet another factor that promotes stable procurement is that long-term sales contracts arecommonplace owing to the fact that the natural gas business requires enormous investment

Cost
advantagein launching a greenfield project. While the contracts are based on a long-term commitment,
we have built into them flexible adjustment of offtake volume to cope with demand fluctuation. On the other hand, on the occasion of signing a new long-term contract or renewing an
existing long-term contract, there are opportunities to negotiate price reductions. Tokyo Gas
takes advantage of these opportunities to reduce procurement costs.
Although LNG market prices are linked to oil prices, the price formula produces
smaller fluctuations, and we hold down prices by negotiating contracts that allow controlof the oil price increase curve.

LNG imports by country in FY 2004
Indonesia 8.7%
Qatar 4.7%
Alaska 3.4%

Tokyo Gas Acquires Its Second LNG Vessel
In recent years, Tokyo Gas has actively participated in transportation, upstream
resource development and liquefaction business with the aim of further reducing
resource procurement costs. In March 2005, Tokyo Gas put into service the Energy
Advance, its second company-owned LNG carrier. The operation of a second vessel

Malaysia
BruneiTotal
14.4% 8.9 million 44.6%
tons
Australia
24.5%

marked progress in the establishment of a structure to reduce ocean freight charges,
taking advantage of FOB contracts. The industry trend is toward more flexible LNG contracts, including looser destination clauses. This trend creates opportunities that we will
pursue to maximize the benefits of vessel ownership through expanding transportation
business by providing transportation and charter service for the other buyers.
A third vessel will be chartered from December 2006, and a fourth one will enter
service in March 2008.
Constructing a Natural Gas Value Chain by Participating in
Upstream Development
In 2003, Tokyo Gas formally decided to participate in the Bayu-Undan gas field development project (off Australia and East Timor), in which Tokyo Electric Power Co. andTokyo Gas jointly own a 10% interest (in a ratio of two to one). Tokyo Gas has decided topurchase one million tons of LNG per year over a 17-year period beginning in 2006 fromthis source, for the purpose of stabilizing gas resource procurement and reducing costs.
In the Sakhalin II Project, Tokyo Gas has entered into an agreement to purchase up to
1.1 million tons of LNG per year over a 24-year period beginning in 2007. In addition to
obtaining terms that make us more competitive from the standpoint of price and flexibility, we expect substantial transport cost reductions owing to the geographical proximity of
the field to Japan and the use of company-owned carriers.

Enhancedsecurity

Research and Development

Pursuing Advances in Gas-Related
Technologies to Become More Competitive
Japan is the world’s most advanced country in the use of natural gas. As the leader
in Japan’s gas industry, Tokyo Gas continues to develop new technologies that open
the way to the future of natural gas.

“Tokyo Gas is further refining
its world-class gas infrastructure technologies anddeveloping gas utilization
technologies centered oncogeneration.”

Shigeru Muraki (far right)
Chief Executive, R&D Div.

22 Tokyo Gas Annual Report 2005

Besting Competitors with Our R&D Edge
As the Tokyo Gas Group seeks to develop and grow a comprehensive energy business withnatural gas at its core, it is critical to provide timely and sophisticated technology as anadvantage over competitors. The R&D Division engages in research and development witha sense of great urgency.
Specifically, we focus on “strategic technology,” which aims at increasing our competitive edge through total energy services, and on “platform technology,” which addresses
the risks associated with gas supply, such as accidents and disruptions, with the goal of
reducing costs.
In the area of strategic technology, cogeneration technologies involving gas engines
and fuel cells are a key priority and, thanks to our R&D, we now market fuel cell cogeneration systems. Today, it is important to propose both systems as well as appliances tailored

Technology
innovation

to customer requirements for industrial and commercial use, which the R&D Division
promotes and researches in the area of systems development. The division maintains a
special focus on “holonic energy systems” and has begun a demonstration test program,
while also promoting research by sponsoring a course at the University of Tokyo. Holonicenergy systems involve the balanced deployment and supply of energy from distributed
power, such as cogeneration, solar-power and wind-power generation systems in a given
area. The national government has indicated interest in the holonic energy concept as ameans of saving energy and reducing CO2 emissions.

Distribution of R&D expenses(Total: ¥8,335 million)
Utilization of intellectual
property rights/others 10%
Hydrogen business 2%

Revitalizing R&D through the Sponsor System and Reform of theCompensation System

Platform
technology
40%

Concentrating its 350 researchers in the R&D Division rather than attaching them tooperating divisions enables Tokyo Gas to flexibly shift personnel to projects as needed. Since
1997 we have applied the Sponsor System, by which the R&D Division undertakes researchand development on the basis of commissions from corporate divisions and strategic business

Onsite power
generation
business
31%
Countermeasures for “all-electric”
campaign 17%

units. Because R&D costs are borne by the commissioning party, solid results are required
and a sense of urgency is maintained that leads to actual accomplishments.
In 2004, Tokyo Gas reformed the compensation system applied to research and development, effectively abolishing the upper limit on compensation. By adopting a rational
procedure for evaluating annual income generated by the discoveries and inventions, andpaying out about 5% as compensation with the intention to revitalize the research anddevelopment activities.
Active Acquisition and Utilization of Patents and Trademark Registrations
In addition to concrete research and development activities, the R&D Division is
focusing on the management and utilization of intellectual property rights. Tokyo Gas
owns about 1,700 patents, not all of which have been fully utilized. We are currently
reviewing our intellectual property, and the Intellectual Property Office will take thelead in systematically acquiring and strategically utilizing rights, while minimizing therisk of rights infringement.
Tokyo Gas has nearly 900 trademark registrations, which it regards as both a source ofroyalty revenues and a precious asset for increasing the value of the Tokyo Gas brand.
Trademark registrations are another resource we plan to take full advantage of.
For further information, please visit the website at http://www.tokyo-gas.co.jp/techno/index_e.html

Robustinfrastructure

The mission of Tokyo Gas is to make our customers’ lives more comfortable
and rewarding by providing a safe and constant supply of environmentallyfriendly natural gas. Our business is firmly rooted in the communities we serve.
The Tokyo Gas Group wholeheartedly engages in environmental preservation,social support and strict compliance with the law, remaining a company that
customers, shareholders and local communities choose on the basis of respect.

Our Basis for Solidifying ValueSRI indexes that include Tokyo Gas• Dow Jones Sustainability Index (DJSI) • Ethibel Sustainability Index• MS-SRI• FTSE4Good

24 Tokyo Gas Annual Report 2005

are now in an advantageous position that enables us to con-Environmental Initiatives

tribute to the preservation of the global environment by simply expanding our own business activities. To concretely

One way Tokyo Gas contributes to environmental preservation is by encouraging people to use clean, eco-friendly natural gas.

express our commitment to environmental conservation, we
have established “global warming prevention guidelines,”
which set forth targets for reducing CO2 emissions by city

Promoting the Use of Natural Gas Helps Protect thegas customers. Our goal is to reduce CO2 emissions in fiscal

Natural Environment

2005 to a level that is five million tons below the 1990 levels,

Natural gas, the main source of city gas, is a clean energy

and seven million tons lower in fiscal 2010, by substituting

source that has the lowest environmental load of any fossil

gas for other energy sources and by achieving greater gas

fuel in widespread use. Natural gas combustion emits noappliance and systems efficiency.

atmosphere-polluting sulfur oxides (SOx). Compared to oil
Comparison of Emission Levels (Coal=100)

or coal, emissions of nitrogen oxides (NOx), another atmospheric pollutant, and carbon dioxide (CO2), a cause of global
warming, are from 40% to 80% lower.

SOx

The core business of the Tokyo Gas Group is to extend

Oil
70

0

the use of natural gas to as many people as possible, and we

CO2

NOx

Natural Gas

Natural Gas

Natural Gas

Coal

Oil

Coal

100

20-40 70

100

60

Oil

Coal

80

100

Source: IEA Natural Gas Prospects (1986), Natural Gas Prospects and Policies (1991)

Environmental Protection Costs and Economic Benefits (Fiscal 2004)
Data scope: Tokyo Gas Co., Ltd., Energy Advance Co., Ltd., Tokyo Gas Customer Service Co., Ltd.
Investment
FY2003 FY2004

Customer
LocationsCompany Business

Environmental Protection Cost Items
Major Content (Examples)(¥ Million)
Cost
FY2003 FY2004

Pollution Prevention

Amount of capital investment, maintenance expenses, depreciation costs, personnel expenses, etc., forprevention of air pollution, water pollution, noise pollution, etc.

8

35

182

155

Global Environmental
Protection

Amount of capital investment, maintenance expenses, depreciation costs, personnel expenses, etc., forenergy conservation, effective use of energy, protection of the ozone layer, etc.

551

144

1,019

884

Resource Recycling

Amount of capital investment, maintenance expenses, depreciation costs, personnel expenses, etc., for
reduction/recycling of residual soil, waste control, etc.

306

204

1,827

1,293

Environmental Management

Costs of green purchasing, environmental education, EMS construction, environmental organizations, etc.

10

15

476

474

Other

Costs related to greening of plants and remediation of soil in accordance with plant siting laws andordinances.

160

1,911

1,704

1,064

Environmental R&D

Costs for R&D of burden-mitigating technology, high-efficiency appliances and systems, etc.

325

585

1,991

1,661

Recycling of Discarded Gas
Appliances

Costs for recovery and recycling of gas appliance, packaging, etc.

—

—

6

7

61

75

667

808

1,420

2,969

7,872

6,346

Community Contribution Activities
Total*Depreciation costs included in figures for cost of ¥808 million in FY2004 and ¥658 million in FY2003.
*In regards to the R&D figures, since we have extracted the portion related to environmental protection, the data may differ from that disclosed in the financial section.
*Data are extracted from the environmental accounts of the Corporate Social Responsibility Report.
Economic Benefits

Cost Reduction due to Operation of Energy-saving Facilities
Cost Reduction due to Reduction of Residual Soil Generation
Sale of Valuables
Other
Total

FY2003(¥ Million)
FY2004

811
6,587
347
268
8,013

833
6,036
272
0
7,141

FY 2004
Total Capital Investment
Environmental Capital Investment
FY2004
Total Sales
Environmental Costs¥75,236 million
16%¥1,013,993 million
0.8%

A Whole New Approach to Food Preparation that Reduces Waste byConserving Food and Energy and Helps Keep Water Clean
Over the years, Tokyo Gas has proposed to customers a rich and varied diet consisting of delicious dishes
prepared using gas. In 1995, we began to advocate and promote the adoption of Eco-cooking ®, an environmentally conscious approach to meal preparation that delivers maximum benefit from the close relationshipbetween gas and cooking.
Daily meals are an integral part of people’s lives and a topic everyone can relate to, and the Eco-cooking
concept is all about considering environmental issues in an experiential and enjoyable way. By promoting Ecocooking, Tokyo Gas encourages people to develop environmentally friendly dietary habits: that is, to becomeaware of the environmental consequences of the choices they make during
Eco-cooking Classes
shopping, cooking and cleanup. In addition to holding Eco-cooking classes at
FY2000FY2001
FY2002
FY2003
FY2004our cooking classrooms and showrooms, we dispatch instructors to elementary
Sessions
200
251
407
488
616
and junior high schools and run sessions at various environmental events.
Participants
3,500
4,750
10,15015,40019,100For details concerning corporate social responsibility at Tokyo Gas, please refer tothe Corporate Social Responsibility Report at http://www.tokyo-gas.co.jp/csr/index_e.html/

Tokyo Gas Annual Report 2005

25

Contributing to Peace of Mind and the Enrichment ofSocial Activities andSafety Measures

People’s Lives Through Business Activities
Our business contributes to society through the conviction

Firmly rooted in local communities, theTokyo Gas Group actively contributes tosociety, as well as working on safety measures and disaster prevention.

that Tokyo Gas can help create a more livable society bycarrying out its core business. This includes environmental
conservation through the popularization of eco-friendly
natural gas, safety and disaster prevention measures toensure that people can use gas with peace of mind, the devel-

Social Contribution on the Theme of “Life

opment of equipment that promotes healthy, comfortable

Communication”

living and research into living environments.

Since our establishment, Tokyo Gas has always carried out

In addition to visiting customers at least once every three

the gas business in close touch with local communities.

years to conduct safety inspections of gas appliances, ourLeveraging the unique experience and human resources

safety initiatives include enhancing the Gaslight 24 system

accumulated through this relationship, we engage in various

with a round-the-clock emergency dispatch to respond to gas

social initiatives, including offering ideas for enrichedleaks and other problems. Tokyo Gas disaster prevention

lifestyles and education for children, who will develop into

efforts include honing our capabilities for prevention, emer-

tomorrow’s leaders. To ensure that these activities reflect

gency response and restoration. When the Niigata Chuetsu

the desires of society and the needs of customers, we place

Earthquake struck in October 2004, at the request of The

deep importance on communication with society.

Japan Gas Association, we mounted an “all Tokyo Gas” disas-

One of the many actions is the Acorn Project, an envi-

ter response, dispatching 750 employees from Tokyo Gas,

ronmental education program in collaboration with an NPO.

affiliates and business partners to help restore lifelines.

Begun in 1993, the project has attracted many participants,
who learn hands-on about nature’s growth cycle bygathering acorns, nurturing their growth into seedlings andtransplanting them in the countryside, while participating in

Note: Earthquake measures are a focus of the Japan Gas Association,
including emergency repair action in the case of earthquakes. The
association established a policy under which emergency repair costs
are to be paid by the damaged entity, excluding the personnel
expenses of the assisting companies.

other nature activities. In July 2005, we begun to use the“Tokyo Gas Forest” in Nagano Prefecture, as the main site
Use of Support Programs for Pleasant Work Environment(Fiscal 2004)

for the project.

Human resources are a source of value at the Tokyo Gas Group. We
promote personal freedom and fulfillment by granting employees leave
for childrearing and care for aging parents.
Programs

0

Leave for childcare

57

Leave for volunteer work/holidays

43

Acorn Project

Support for School Education
Teaching about the Environment and Energy
To increase knowledge of the environment and energy among the leaders of tomorrow, Tokyo Gas
engages in educational support activities targeting elementary and junior high school students.
Activities include the distribution of textbooks for use in fun learning about environmental andenergy issues. In the children’s section of the Tokyo Gas website we provide answers to children’s
simple and natural questions about the environment, energy, city gas, living and other matters. We
also post links to related websites.
School Visits
FY2002

Classes
Participants

FY2003

FY2004

In addition, we conduct a school-visit pro-

915

1,986

3,194

gram in which Tokyo Gas employees teach classes on topics related

27,45059,58095,820to energy, the environment and public welfare using a fun andinstructive experiential learning approach.

26 Tokyo Gas Annual Report 2005

Number of Employees Participating

Leave for parental care

Our Code of Conduct to include guidelines for compliance-

Complianceoriented decision making and action, and distributed it to all
Group employees. The review involved seeking the opinions

Tokyo Gas continues to foster awareness of
the importance of compliance among Group
employees to maintain our position as a corporate group that is trusted and chosen by
our stakeholders.

of various parties in the Group over a period of about six
months and culminated in the formulation of a Code of
Conduct based on a framework of “Seven Pledges.”
To ensure that Our Code of Conduct continues to serve
as a vital guide to conduct, we actively hold briefing sessions

Enhancing the Compliance Structure

for all employees (the participation rate was 91.4% as of theTokyo Gas recognizes that compliance with laws and regula-end of fiscal 2004) and continuously engage in awarenesstions and engaging in corporate activities grounded in a

activities using the Tokyo Gas Intranet and video programs.

sense of ethics are critical conditions for sustaining safety,
Reducing Compliance Risk

reliability and trust—brand values that are the source of our

The Compliance Department serves as the secretariat for thecompetitive advantage. Accordingly, we are working tohandling of compliance issues in the Tokyo Gas Group dis-establish a comprehensive compliance culture by fostering acovered in compliance audits or by other means. The depart-

spirit of compliance, engaging in compliance as both ament deliberates on compliance matters and implements

group-wide policy and a practice in each workplace andconcrete improvement activities by means of working groups

establishing a compliance PDCA cycle.

comprising representatives from involved departments. For

Specifically, in fiscal 2002 Tokyo Gas put in place a robust

instance, in fiscal 2004 the department established a working

compliance structure. We established the Management Ethics

group on the Temporary Staffing Services Law to reduce

Committee, chaired by the president, to determine basic

compliance risk by identifying issues, preparing a compliancepolicies and monitor the level of compliance to laws and regu-

manual and holding a workshop for about 400 participants

lations in regular meetings. Compliance committees installed

who manage temporary workers at Tokyo Gas and its affili-

at each of the ten divisions execute the basic policies, taking

ates. The Compliance Department reports to theactual circumstances into account. We also established theManagement Ethics Committee on risk matters affecting theCompliance Department, a specialty organization thatTokyo Gas Group.

promotes group-wide compliance actions, including instituting
a compliance promotion system and code of conduct, conducting training and awareness activities, reducing compliance

Compliance Counseling in Fiscal 2004

risk, furnishing counseling contacts and disseminating inforTopicmation internally and externally.

Number of sessions

Laws and regulations

14

Internal company rules

15

Human relationships in the workplace

15

essential to provide something to serve as a guide to proper

Employment/employment management

4

behavior. For this reason, in 2004 we reviewed and revised

Others5

Revising Our Code of Conduct and Continuously
Raising AwarenessTo ensure compliance by each and every employee, it isCompliance Structure
Board of Directors
ReportPresident

Corporate Auditors

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

Internal Audit Dept.

ReportCompliance Dept.
Instruction/report

Support/report

Each division/business unit

Compliance committees
Consultation/reportCompliance audit(risk understanding)

Each department of Tokyo Gas

Group companies

Report/consultation

Report/consultation

Employees

Tokyo Gas Annual Report 200527

Corporate Governanceintroduced the strategic business unit (SBU) system by which
affiliated companies involved with business divisions are inte-

To ensure open and transparent management, Tokyo Gas implements corporate
governance that goes beyond merely
establishing a governance structure.

grated into SBUs. On the basis of the management policies
decided by the Board of Directors, the executive officers(division chief executives) engage in consolidated unit management with the aim of maximizing Group value.
To clearly define business performance responsibilities,

Board of Directors: Enhancing Transparency andEnsuring Surveillance as well as Enabling Quick andTokyo Gas has established a one-year term of office forboard directors and executive officers.

Rational Decision-making
With the aim of further increasing corporate value, in recent
years Tokyo Gas has implemented numerous measures tomake the Board of Directors more effective, clarify management responsibility and speed up decision-making. In 2002,
Tokyo Gas greatly reduced the maximum number of board
directors from thirty to fifteen. The Board currently consistsof 12 directors, including three outside directors, and functions as a highly open and transparent management board
where opinions are actively exchanged. Outside directors
were also introduced in 2002. Tokyo Gas believes that tomaximize board functions, it is essential to offer all board
members and corporate auditors accurate and sufficient
information about subjects under discussion. The outside
directors and auditors receive timely information about management measures and market.
In February 2005, an advisory committee, comprised ofoutside directors and auditors as well as internal directors,
was established to discuss the executive compensation system and related matters.

Strengthening Monitoring by Corporate Auditors andthe Internal Audit Department
Tokyo Gas has put in place a system by which four corporate
auditors, including two external auditors, attend meetings ofthe Board of Directors to monitor the performance of thedirectors. The standing auditors regularly attend management meetings and work to strengthen the audit function
across the gamut of business operations.
As well as confirming the effectiveness of internal
controls, the Internal Audit Department fairly and objectively reviews and assesses whether the activities of business
units and departments are carried out appropriately andefficiently in line with management policies and plans and incompliance with the law.
In fiscal 2003, Tokyo Gas established an integrated risk
management system. We clearly stipulate and disclose to
stakeholders the risks with which management should be
involved (see pp. 38–39).
Compensation for Directors and Corporate Auditors (Fiscal 2004)

Increasing Maneuverability through Introduction of an
Executive Officer System

Millions ofyen

Thousands ofU.S.$

Compensation for 15 directors (4 resigned during the term)¥324$3,028Retirement benefits for directors

270

2,523

of an executive officer system, a first for the city gas industry

Compensation for 5 corporate auditors (1 resigned during the term)

75

700

in Japan. Tokyo Gas has delegated substantial authority to

Retirement benefits for corporate auditors

8

74

¥677

$6,325Another important development in 2002 was the introduction

the executive officers (division chief executives), empower-

Total

ing them to exercise independence and responsibility in decision-making and rapidly execute business.
Previously, we had followed the division system as its

Compensation for independent public accountant (Fiscal 2005)(By Tokyo Gas and its subsidiaries)

organizational structure. To further develop the system andCompensation for auditing services

strengthen group-level management, in April 2004 Tokyo Gas

Compensation for other services
Total

Millions ofyen

Thousands of
U.S.$

¥131

$1,224

18

168

¥149

$1,392

Reforming the Officer Remuneration System to Increase Objectivity and Transparency
Effective in fiscal 2005, Tokyo Gas restructured its officer remuneration system, abolishing retirement benefits and introducing a performance-linked remuneration scheme.
Tokyo Gas believes that the role required of corporate officers is to enhance corporate value over the short, medium and long terms and that executive
compensation should effectively function as an incentive to that end. Accordingly, we have abolished the retirement benefit system for directors and corporate
auditors and consolidated benefits into monthly compensation. At the same time, in the monthly compensation plan for directors who also serve as executive
officers, Tokyo Gas has introduced performance-linked remuneration that reflects the business performance of Tokyo Gas and the individual directors’ divisionin the previous fiscal year. Based on a new guideline, directors, excluding outside directors, are to buy Tokyo Gas shares every month through the Employees
Shareholding Association and hold them until their term of office expires.

28 Tokyo Gas Annual Report 2005

Board of Directors and Auditors (As of June 29, 2005)(From left)

KUNIO ANZAI
ChairmanHIDEHARU UEHARA
Vice Chairman

NORIO ICHINO
President

MITSUNORI TORIHARA
Executive Vice President

SHIGERO KUSANO
Executive Vice President

KOUYA KOBAYASHI
Executive Vice President

TADAAKI MAEDA
Senior Executive Officer

TAKASHI KUNITOMI
Senior Executive Officer

TSUYOSHI OKAMOTO
Senior Executive Officer

YUZABURO MOGI
Outside Director

YURI KONNO
Outside Director

KAZUMOTO YAMAMOTO
Outside Director

Corporate Auditors

HIROSHI HIRAITSUNENORI TOKUMOTO

MASAYOSHI HANABUSA (Outside Auditor)
TOSHIMITSU SHIMIZU (Outside Auditor)

Corporate Governance Structure
General Shareholders’ Meeting
Appointment/discharge

Appointment/discharge

Board of Directors (12 directors including 3 outside directors)
Consignment/
supervision

Board of Corporate Auditors (4 auditors including 2 outside auditors)
Monitor/check[Executive organization]
President
Company-wide Committees (Investment Evaluation Comittee, etc.)
ReportManagement meetings by senior executive officers
ReportInternal Audit Dept.

ReportAppointment/discharge

Internal audit

Business units

Independent Auditors
Financial audit

Tokyo Gas Annual Report 2005

29

Management Structure
Top Management

Strategic Business Units
Residential Sales Div.

Customer Relationship Dept.
Residential Sales Planning Dept.
Area Development Dept.
● Residential Sales Promotion Dept.
● Residential Market Development Dept.
● Remodeling Sales Dept.
● Residential Facility Sales Dept.
● Energy Conservation and Renewable
Project Dept.
● 3 Regional Residential Sales Dept.
● 37 group companies●●●

Corporate
Strategic Planning Div.

Corporate Planning Dept.
Finance & Managerial
Accounting Dept.
● Personnel Dept.
● Business Development Dept.
● Affiliated Companies Dept.
● Environmental Affairs Dept.
● 17 group companies●●

Corporate
Communications Div.

Shared Service / R&D
R&D Div.

Energy Sales andService Div.

●

Wide Area Marketing Div.

●

11 offices● Corporate Communications Dept.
● General Administration Dept.
● Secretary Dept.
● 1 group company●

Energy Sales and Service Planning Dept.
Air-conditioning and Commercial Customer
Development and Service Dept.
● Industrial Gas Sales Dept.
● Energy Solution Business Dept.
● Natural Gas Vehicle Dept.
● Volume Sales Dept.
● 5 group companies●

R&D Planning Dept.
Research Dept.
● Technology Development Dept.
●●

Corporate Service Div.

Wide Area Development Planning Dept.
Wholesale and Regional Service Dept.
● 7 service branches● 13 group companies●

Service Integration andPromotion Dept.
● Personnel Support Dept.
● Accounting Dept.
● Purchasing Dept.
● Information andCommunication Systems Dept.
● Real Estate Management Dept.
● 7 group companies

Pipeline Network Div.

Strategy Planning Dept.
Pipeline Dept.
3 pipeline regional offices● Emergency Management Dept.
● Supply Control andDisaster Management Dept.
● 2 group companies
●
●

●

●

Energy Production Div.

●

Energy Resources Div.

Compliance Dept.

Energy Production Dept.
3 LNG terminals● 1 group company●●●

Gas Resources Dept.
3 group companies

Internal Audit Dept.
(As of April 1, 2005)

Auditors●

Corporate Auditors’ Office

Executive Officers (As of April 1, 2005)
President

Masaki Sugiyama

Tsutomu Oya

Norio Ichino

Chief Executive, Pipeline Network Div.

General Manager, Air-conditioning and Commercial Customer
Development and Service Dept.

Executive Vice Presidents

Mitsunori Torihara
Chief Executive, Corporate Communication Div.; Compliance Dept.

Shigeru Muraki
Chief Executive, R&D Div.

Seiichi Nakanishi

Shigero Kusano

Corporate Communication Div.
Dispatched to the Japan Gas Association

Chief Executive, Energy Sales and Service Div.;
General Manager, Volume Sales Dept.

Executive Officers

Kouya Kobayashi

Tokio Imazawa

Chief Executive, Energy Production Div.

Coordinator, Energy Sales and Service Div.

Masahiro Ishiguro

Norikazu Hoshino

Chief Executive, Corporate Service Div.

Deputy Chief Executive, Residential Sales Planning Dept.
General Manager, Customer Relationship Dept.

Senior Executive Officers

Tadashi Kaburagi

Tadaaki Maeda

General Manager, Industrial Gas Sales Dept.

Chief Executive, Energy Resources Div.; Internal Audit Dept.

Takashi Kunitomi
Chief Executive, Residential Sales Div.

Tsuyoshi Okamoto
Chief Executive, Strategic Planning Div.

Toshio Tezuka
Chief Executive, Wide Area Marketing Div.

30 Tokyo Gas Annual Report 2005

Toshiyuki Kanisawa
General Manager, Corporate Planning Dept.

Kunihiro Mori
General Manager, Energy Production Dept.

Yasuhiro Hiruma
General Manager, Corporate Communications Dept.

Mikio Itazawa
General Manager, Pipeline Dept.

Michiaki Hirose
Corporate Communication Div.
Dispatched to the Japan Gas Association

Kazuo Yoshino
General Manager, Finance & Managerial Accounting Dept.

Hisao Watanabe
General Manager, Research Dept.

Financial Section

Contents

32

Management’s Discussion
and Analysis of Operations
and Financial Position38

Principal Management Risks

40

Frequently Asked Questions

42

11-year Summary

44

Consolidated Balance Sheets46

Consolidated Statements ofIncome47

Consolidated Statements ofShareholders’ Equity

48

Consolidated Statements ofCash Flows49

Notes to Consolidated
Financial Statements

Tokyo Gas Annual Report 2005

31

Management’s Discussion and Analysis of Operations and Financial Position
Summary■ Consolidated sales increased steadily, reflecting stepped-up sales efforts and the expanded scope of consolidation.
■ Operating income decreased owing to the impact of higher gas resource costs caused by a steep rise in crude oil prices
and the gas rate reduction implemented in January 2005.
■ Net income increased sharply in the absence of the one-time loss booked the previous period to alleviate the future costburden from retirement benefit obligations.

SALES TRENDS IN THE CORE GAS BUSINESSSales Volume Increased Steadily Except in the
Residential Sector■ Residential Sector
Although the number of customers increased steadily, gassales volume per household decreased. Overall sales volume
declined 50 million m3, or 1.5%, to 3,242 million m3 year on
year. Although low temperatures brought higher demand for
hot water and heating in winter, this was not sufficient tooffset a decrease in demand for hot water during a summerof record-breaking heat. The net decline in temperaturerelated demand was 84 million m3. A positive factor in residential sales was a year-on-year rise in demand of 51 million
m3 due to growth of the customer base.
■ Commercial Sector
Demand for air conditioning increased due to high summer
temperatures, and low winter temperatures brought
increased demand for heating. Sales also rose due tocustomer-base expansion and increased operation atcustomers’ existing facilities. In all, gas sales in this sectorrose 207 million m3, or 7.7%, to 2,902 million m3 year on year.
Temperature-related factors accounted for 100 million m3 ofthis increase, and growth in the number of customers
accounted for 56 million m3.

■ Industrial Sector
In fiscal 2004, demand for gas used specifically for power
generation continued to surge. Non-generation use atexisting facilities also grew, as did demand due to customer
acquisitions. As a result, gas sales in this sector increased
favorably by 436 million m3, or 10.4%, over the previous
year’s level to 4,637 million m3. Sales of gas to electric powercompanies and independent power producers (IPPs)
accounted for 206 million m3 of the increase.
■ Wholesaling to Other Gas Companies
Sales expanded 141 million m3, or 13.8%, to 1,171 million
m3 with increases both in the volume taken by the gas
companies to which gas is supplied as well as the numberof gas companies.
Total sales amounted to 11,952 million m3, an increase of 734
million m3, or 6.5%, over the previous year’s level.

Gas sales volume by sector

Gas sales volume for power generation

12,000 (Million m3)

3,500 (Million m3)

10,000

3,000
2,500

8,000
2,000
6,000
1,500
4,000
■ Wholesale■ Industrial sector

2,000■ Commercial sector■ Residential sector

0
’01

’02

’03

’04

’05

All graph data for years ended March 31

32 Tokyo Gas Annual Report 2005

1,000
■ Power generation only500

■ Cogeneration (Industrial sector)■ Cogeneration (Commercial sector)

0
’01

’02

’03

’04

’05

ANALYSIS OF INCOME

Despite a Sales Increase, Operating Income
Declined on Rising Gas Resource Costs andCustomer Rate Reductions■ Gas Sales

Although sales in some segments, including related construction and real estate rental business, decreased, higher gas
sales and expansion of the scope of consolidation brought anincrease in overall sales of ¥38.9 billion, or 3.4%, to a newrecord of ¥1,190.7 billion. The impact of the change in thescope of consolidation was ¥43.1 billion.
Operating income fell ¥6.9 billion, or 4.6%, to ¥145.3
billion, affected by significant negative factors, including
higher gas resource costs, pegged to the sharp rise in crude
oil prices, and rate reductions implemented in January
2005. The Company succeeded in offsetting much of thedecline through efforts to increase operating efficiency andreduce costs.

There was a 6.5% increase in gas sales volume, led by strong
demand from commercial and industrial customers. The
higher volume compensated for lower unit prices due tofactors such as the rate reduction. As a result, sales in thissegment increased ¥3.5 billion, or 0.4%, to ¥834.6 billion.
Nonconsolidated sales increased ¥1.8 billion, or 0.2%. Risingsales volume contributed ¥20.4 billion, and lower unit prices
had an adverse effect amounting to ¥18.6 billion, including¥3.5 billion due to price adjustments under the “sliding rate”
system, ¥8.2 billion due to the impact of the rate revision,and ¥6.9 billion due to other factors. The segment’s contribution to total sales decreased from 66.9% to 63.9%.
Operating expenses rose slightly by 1.6%, to ¥651.9
billion as cost reduction efforts and lower depreciation
partially offset an increase in gas resource costs tied to a
sharp rise in crude oil prices. Operating income fell ¥6.7
billion, or 3.5%, to ¥182.6 billion.

Business results by segment (¥ million)

Sales

Higher Gas Resource Costs and Rate Reductions
Bring Lower Income on Higher Sales

2003

2004

2005

Gas Sales

792,454

831,115834,658

Gas Appliance Sales

142,636

133,873

135,108

Rate Revision

Related Construction

70,56868,03464,795In January 2005 the Company implemented a reduction in gas rates

Real Estate Rental

36,34635,44434,701Other Business

158,327

172,160

234,721

2003

2004

2005

to promote the use of gas. The Company also reviewed its third-

160,224

189,366

182,685

party access agreements, reducing charges for third-party use for

Gas Appliance Sales

7,842

7,904

7,054

the purpose of direct sales by 6.04% and charges for third-party sale

Related Construction

4,175

4,456

3,575

to other gas suppliers by 6.01%. The impact of the rate reduction on

Real Estate Rental

7,623

7,883

6,503

sales will be a decrease of about ¥30.0 billion annually from sales to

Other Business

9,626

11,27013,415regulated customers.

Years ended March 31

Operating income

and expanded its rate options. Specifically, in Tokyo and neighboringareas, the Company lowered its rates an average of 5.18% fromprevious levels for customers under regulated tariffs (using less than
500,000 m3 annually), while at the same time expanding rate options

Years ended March 31

Gas Sales

Tokyo Gas had two objectives in lowering gas rates: to return toNote: Segment sales include intra-group transactions.

customers profits earned through corporate efforts and to increase
competitiveness. In Frontier 2007, the Company allocated ¥180
billion in capital resources over a five-year period for rate reductions
and, as implementation of the plan was progressing well, had alreadyExpansion of the Scope of Consolidation

announced that it would implement a rate revision during fiscal 2004.

The construction of the group management system is one of theprime areas of focus set forth in Frontier 2007, the current mediumterm management plan. On April 1, 2004 Tokyo Gas introduced thestrategic business unit system as a foundation to integrate thebusiness operations of the Company and its affiliates. On thisoccasion, the Company also expanded its scope of consolidation forfiscal 2004, increasing the number of consolidated subsidiaries from18 in the previous period to 52. The impact of the expansion of thescope of consolidation is as follows.

Impact (¥ billion)

Net Sales

Operating Income

Net Income

43.1

2.5

(0.4)

■ Gas Appliance Sales

Sales Up Due to New High-performance Products
and Investment in Demand Development, but
Income Down
Tokyo Gas increased unit sales value by introducing highvalue-added appliances, including built-in home gas
cooktops with greatly enhanced features and bathroom
heater-dryers with a mist sauna function. This and the contribution from newly consolidated companies helped com-

Tokyo Gas Annual Report 200533

pensate for a decrease in sales volumes. These developments brought a slight year-on-year increase in segment
sales. However, an increase in selling expenses to counterthe “all electric” promotion of electric power companies led
to lower operating income.
Segment sales increased ¥1.2 billion, or 0.9%, to ¥135.1
billion, while operating expenses also increased ¥2.1 billion,
or 1.7%, to ¥128.0 billion. Operating income decreased ¥0.9
billion, or 10.8%, to ¥7.0 billion. The segment’s contribution
to total sales declined marginally from 10.8% to 10.4%.

■ Related Construction

Drop in the Number of Installations Leads to Lower
Sales and Income
There were declines in the number of new installations andsafety upgrades, and segment sales fell ¥3.3 billion, or 4.8%,
year on year, to ¥64.7 billion. Operating expenses decreased¥2.3 billion, or 3.7%, to ¥61.2 billion, and operating income
decreased ¥0.9 billion, or 19.8%, to ¥3.5 billion. The
segment’s contribution to total sales was lower at 5.0%,
compared with 5.5% in the previous year.

■ Real Estate Rental

Lower Rents Bring Lower Sales and Income
Segment sales declined, in part because of rent reductions toreflect the state of the real estate market, falling ¥0.7 billion,
or 2.1%, to ¥34.7 billion. Operating expenses increased ¥0.6
billion, or 2.3%, and operating income decreased ¥1.3 billion,
or 17.5%, to ¥6.5 billion. The segment’s contribution to total
sales dropped from 2.9% to 2.7%.

from 13.9% in the previous year.
Operating expenses increased ¥60.5 billion, or 37.6%, to¥221.3 billion, and operating income increased ¥2.2 billion, or
19.0%, to ¥13.4 billion.

Net Income Increases Sharply in the Absenceof Extraordinary Losses Recorded in thePrevious Year
Other income totaled ¥17.8 billion, a year-on-year increase of¥0.3 billion. No gain was recorded during the year underreview from the liquidation of excess allowances for retirement benefits resulting from reform of the pension plan, amajor component of other income the previous year.
However, a ¥2.7 billion gain on weather derivatives and a ¥5.2
billion gain from the sale of securities were recorded.
Total other expenses decreased ¥66.8 billion to ¥29.8
billion. The principal reason for this was the absence of
extraordinary factors including a ¥58.9 billion lump-sum
write-off of actuarial differences in retirement benefits takenin the previous year in connection with the reform of thecorporate pension plan. Interest expenses were reduced ¥1.6
billion through aggressive repayment of interest-bearing
debt, and losses on the redemption of convertible bonds
decreased ¥3.6 billion. On the other hand, premiums onretirement benefits of ¥3.4 billion were booked at consolidated subsidiaries.
As a consequence, other expenses, net amounted to ¥12.0
billion, compared with ¥79.1 billion in the previous year. Net
income surged ¥39.3 billion, or 87.7%, to ¥84.0 billion.

■ Other Business

Expanding the Scope of Consolidation Raises Sales
and Income

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

45 (¥)

Nearly 80% of the impact from expansion of the scope of
consolidation, which boosted total sales, occurred in thissegment. Segment sales increased ¥62.6 billion, or 36.3%, to¥234.7 billion. The breakdown of sales by category was ¥32.8
billion from district heating and cooling systems, ¥31.8 billion
from the industrial gas business, and ¥18.3 billion from LPG
sales. The segment’s contribution to total sales rose to 18.0%

60

30

30

15
■ Net income● Net income per share

Interest coverage ratio00

12 (Times)

’01

’02

’03

’04

’05

Free Cash Flow of ¥116.7 Billion Greatly Exceeds
the Average Annual Target

84Interest coverage ratio=(operating income +interest and dividend income)/
interest expense

0
’01

’02

’03

’04

34 Tokyo Gas Annual Report 2005

’05

Tokyo Gas has made free cash flow a key management
indicator, which is calculated by adding depreciation* to net
income and subtracting capital expenditures**. One of thegoals set down in Frontier 2007 is the achievement of free
cash flow averaging ¥96 billion per annum and totaling ¥480
billion over a five-year period. During the year under review,

free cash flow increased ¥32.5 billion, or 38.6%, from theprevious year to ¥116.7 billion, greatly exceeding the annual
target. Depreciation decreased 4.5% to ¥140.2 billion, while
capital expenditures increased 0.1% to ¥107.5 billion.
*including amortization of long-term prepayments**purchases of tangible fixed assets + purchases of intangible fixed assets +long-term prepayments (accounting basis)

Free cash flow
120 (¥ billion)

90

60

30

0
’01

’02

’03

’04

’05

Increased Sales and Decreased Profits Projected
for Fiscal 2005
Gas sales volume in the year ending March 31, 2006 is
expected to increase 1.0% to 12.0 billion m3. Sales to the resi-

dential sector and commercial sector are expected toincrease 2.4% and 1.7% respectively, a projection based on
the assumptions of the leveling of temperatures and theacquisition of new demand. Sales to the industrial sector are
estimated to decrease 0.7% owing to projected leveling of
demand for use in electric power generation, which has
grown dramatically for two consecutive years. However,wholesale gas sales are projected to rise 2.6%, reflecting an
increase in the volume taken by gas companies to which gas
was supplied.
In addition to an increase in gas sales volume, anotherpositive factor is the anticipated improvement in revenue due
to a unit price adjustment under the “sliding rate” system.
However, lower unit prices are anticipated due to the rate
reductions. Accordingly, the Company forecasts a slightincrease in sales from the core gas business. Although management projects slightly lower sales from the gas appliance,
related construction, and real estate rental businesses, it
expects continued strong expansion from the other businesssegment, which showed dramatic growth during fiscal 2004.
In line with these projections, the Company forecasts a 1.1%
increase in total sales to ¥1,204.0 billion. Operating income is
projected to fall 21.6% to ¥114.0 billion, due to factors
including the impact of the rate reduction and an increase indepreciation on acquired facilities due to an increase inorders for energy services (other businesses segment), andnet income is expected to decrease 19.1% to ¥68.0 billion.

CASH FLOWS AND FINANCIAL POSITION

Expansion of the Scope of Consolidation
Increases Net Cash
■ Cash Flows from Operating Activities
Income before income taxes and minority interests in net
income increased dramatically due to the absence of onetime losses recorded in the previous period, and there was an
inflow of ¥136.4 billion from the ongoing depreciation ofproperty, plant, and equipment. On the other hand, areduction in employees’ severance and retirement benefits
and an increase in notes and accounts receivable resulted in
cash outflows. Subsequently, net cash provided by operating
activities decreased ¥2.6 billion year on year to ¥215.0 billion.
■ Cash Flows from Investing Activities
Net cash used in investing activities decreased ¥18.7 billion
to ¥107.3 billion from the previous year’s level of ¥126.0
billion. The principal investment item was ¥94.0 billion for
acquisitions of gas supply facilities and other property, plant,
and equipment.

■ Cash Flows from Financing Activities
Net cash used in financing activities increased ¥8.4 billion,
from ¥99.7 billion in the previous year to ¥108.1 billion.
Though bond issues raised ¥40.0 billion, there was an overall
reduction in cash and cash equivalents because of outflows of¥98.7 billion for bond redemptions, ¥20.4 billion for the
repurchase of common stock and ¥20.1 billion in cash
dividend payments.
(¥ million)
Years ended March 31

Net cash provided byoperating activities
Net cash used ininvesting activities
Net cash used infinancing activities

2003

2004

2005

213,533

217,608

215,038(110,144)(126,038)(107,376)(78,517)(99,744)(108,160)

The year-end balance of cash and cash equivalents
increased ¥6.7 billion from the previous year to ¥50.6
billion, in part due to a ¥7.2 billion increase attributable toexpansion of the scope of consolidation.

Tokyo Gas Annual Report 2005

35

Tokyo Gas’ Original Indicator: TEP
With the aim of generating profits that exceed the cost ofcapital, Tokyo Gas formulated Tokyo Gas Economic Profit(TEP)*, a key business performance indicator. TEP is a Tokyo
Gas-specific variation of Economic Value Added (EVA).
In fiscal 2004, NOPAT** increased by ¥37.4 billion to ¥92.6
billion owing to the absence of factors that suppressed earnings
the previous period, including an extraordinary loss (¥58.9
billion) from a lump-sum write-off of pension liabilities and an
extraordinary gain (¥5.7 billion) attendant on the switch to acash balance pension plan. Furthermore, the cost of capitaldecreased by ¥2.2 billion to ¥46.1 billion due to a lower
weighted average cost of capital, resulting in a year-on-yearincrease in TEP of ¥39.6 billion to ¥46.5 billion.
Tokyo Gas uses TEP as a performance indicator for Group
companies and as a gauge for decisions on business restructuring and integration.

TEP
50 (¥ billion)

40

30

20

10

■ Target of Frontier 2007

0’04

* TEP: NOPAT - cost of capital** NOPAT: Net operating profit after tax prior to interest payments

Substantial Improvement in ROA
Total assets at the end of the year under review amounted to¥1,668.7 billion, an increase of ¥1.9 billion from the previous
year’s level. Property, plant and equipment decreased ¥10.9
billion year on year to ¥1,159.5 billion through ongoing
depreciation. Investments and other non-current assets
decreased ¥18.7 billion to ¥199.7 billion. There was a
reduction in investment securities and long-term loans
resulting from internal eliminations due to expansion of thescope of consolidation. Increases in cash and cash equivalents and receivables raised current assets by ¥27.6 billion to¥286.6 billion.
Return on assets (ROA*), one of the management policies
defined in Frontier 2007, was 5.0% for the year under review.
This marked a substantial improvement from 2.7% in theprevious year, when net income was low due to transient
factors.

’05

’06

’08

Projection asof April 28, 2005

Target for Reduction of Interest-bearing Debt
Achieved Ahead of Schedule
A reduction in interest-bearing debt to ¥627.0 billion by theend of fiscal 2007 is one target of Frontier 2007. This target
was achieved ahead of schedule, and the balance of interestbearing debt at the end of the year under review was ¥624.1
billion, a reduction of ¥58.6 billion from the previous year. A
major factor in this success was the redemption andretirement of convertible bonds. The year-end ratio ofinterest-bearing debt to total assets improved from 41.0% to37.4%. The debt to equity ratio fell below 1.0, improving from
1.14 to 0.96.

Interest-bearing debt and ratio to total assets
1,000 (¥ billion)

60 (%)

800

55

600

50

400

45

200

40

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

ROA and ROE
16 (%)

120■ Interest-bearing debt
● Ratio of interest-bearing■ debt to total assets

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

35
’01

’02

’03

’04

’05

8

Continued Repurchases of Common Stock

4
■ ROA
■ ROE

0
’01

’02

’03

’04

’05

36 Tokyo Gas Annual Report 2005

Shareholders’ equity at the year-end totaled ¥648.7 billion, an
increase of ¥50.3 billion over the previous year. Whileretained earnings increased ¥74.9 billion as a result of the
sharp increase in net income, stock repurchases amounted to¥20.3 billion. Frontier 2007 calls for the allocation of ¥100.0
billion, about 20% of free cash flow generated during the fiveyear period of the plan, for the repurchase of stock toprevent dilution caused by the conversion of convertible
bonds into shares. During fiscal 2003, the first year of theplan, 76.6 million shares were repurchased for ¥27.8 billion.
During the year under review the Company repurchased 49.6
million shares during August and September of 2004 for ¥20.0
billion. Accordingly, a total of 126.2 million shares wererepurchased at a cost of ¥47.8 billion during the two-year
period.
The shareholders’ equity ratio improved from 35.9% to38.9%, and return on equity (ROE*) increased from 7.6% in
the previous year to 13.5%.

Shareholders’ equity and equity ratio
750 (¥ billion)

60 (%)

625

50

500

40

375

30

250

20

125

10

0
*ROE=net income/shareholders’ equity (average of positions at start and end of fiscal year)■ Shareholders’ equity● Equity ratio

0
’01

’02

’03

’04

’05

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 theface of price reductions by the Tokyo Electric Power Company(TEPCO), which is the greatest competitor of Tokyo Gas.
Tokyo Gas has reduced gas rates three times since 1999,
by about 10% in total. TEPCO also reduced its electricity
rates three times, by about 17% in total, during the same
period. Tokyo Gas will continue to implement strategic rate
reduction as necessary to prevail over competition.

■ Gas Resource Cost Fluctuation Risk
City gas supplied by Tokyo Gas is produced mainly fromimported LNG. Since contracts are denominated in U.S.
dollars, earnings are at risk from fluctuations in the yendollar exchange rate. Also, the dollar-denominated LNG
prices are linked to crude oil prices on a sliding scale, which
exposes the Company to risk from changes in the international market price for crude oil.
The extent to which these fluctuations affect gas
resource costs over a year is as follows.

■ Temperature Fluctuation Risk
Temperatures affect the volume of city gas sales, which
account for around 70% of consolidated sales and 80% ofincome. Gas is used mainly for water heating and spaceheating, especially in residential use. Mild winter weather
can erode revenues and income by reducing the volume ofgas sold.
The average temperatures in fiscal 2004 were 23.4ºC in
the first half of the year, 10.7ºC in the second half, and 17.1ºC
over the whole year. Forecasts for fiscal 2005 are based on anaverage of 17.0ºC over the whole year.

Approx. ¥4.0 billion for each $1 movement in the per-barrel price of crude oil

Impact of 1˚C temperature rise on gas sales volume
Rate of change

Summer (June–September)
Winter (December–March)
Intervening months (April, May, October, November)
Annual

0.2%
-2.3%
-1.8%
-1.4%

Monthly gas sales volumes for fiscal 2004 (nonconsolidated)
1,500 (Million m3)

Approx. ¥2.5 billion for each ¥1 movement in the yen-dollar exchange rate

Fluctuations in the cost of gas resources are reflected ingas rates after approximately six months under the “slidingrate” system*. Under this system, although earnings may besubject to temporary increases and decreases, crude oil
prices and currency exchange rates have no net effect on
results over the medium- to long-term perspective.
In fiscal 2004, the crude oil price averaged $38.82 perbarrel, and the average exchange rate was ¥107.55 to one
dollar. Forecasts for fiscal 2005 are based on an average
crude oil price of $38 per barrel and an exchange rate of¥105 to one dollar.
* Depending on the contract, changes may be reflected without a six-month time lag.
Adjustment has an upper limit (please refer to the accompanying Investors’ Guide
2005, P. 4).

■ Interest Rate Fluctuation Risk
Tokyo Gas negotiates fixed interest rates for both shortterm and long-term interest-bearing debt, which precludes
risk of interest rate fluctuation during the term of an obligation. However, there may be risk of fluctuation whenloans are refinanced.

1,200

900

600
■ Wholesale■ Commercial sector■ Industrial sector■ Residential sector

300■ Share Price Fluctuation Risk
Tokyo Gas primarily holds equities to maintain corporate
relationships essential to the conduct of its business operations. Equity of publicly listed companies is subject to market
risk. Tokyo Gas has established management policies andrules for handling of such equities.

0’04/4 5 6 7 8 9 10 11 12 ’05/1 2 3Tokyo Gas Annual Report 2005

37

Principal Management Risks

The level of business risk facing Tokyo Gas is expected to3) Resource procurement supply interruption riskincrease due to growing competition under industry deregulation and the Company’s entry into new business fields.
For this reason, in fiscal 2003 Tokyo Gas established an
integrated risk management system and stipulated theprincipal forms of risk with which management should be
involved. This makes it possible to systematically ascertain
important risks and to disclose appropriate information on
the risks to stakeholders. The important risks are recon-

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

firmed and revised each year in meetings of management
and the Board of Directors.
Details of the principal risks with which management
should be involved are described below. Forward-looking

Tokyo Gas might incur losses in the event of changes in themarket price of company-owned real estate, financial
assets, pension assets or other assets.

statements contained herein are based on assessments ofTokyo Gas as of March 31, 2004.
1) Production and supply interruption risk5) Weather risk
Abnormal weather conditions, particularly summer heatwaves and warm winters, reduce gas sales volume in the resi-

The production and supply of city gas are the foundation ofdential sector and affect revenues.

Tokyo Gas’ business, so a major gas leak or explosion
attendant on the production or supply of gas or a major gas6) Risk faced by existing businessleak or explosion at a customer site might result not only indirect damages, but also in tangible and intangible damages
such as the need to bear public responsibility.
2) Natural disaster risk

A. Competitive risk
As industry deregulation progresses, competition withelectric power companies and new firms entering the gas
business is becoming fierce. Competition might have anTokyo Gas engages in facility-dependent businesses

increased impact on Tokyo Gas’ business performance.

because city gas production and supply facilities are theSpecifically, demand might decrease or rates might fall

foundation of its business. Accordingly, earthquakes,

owing to marketing offensives by electric power companies

typhoons or other major natural disasters might cause

to promote electrification, electric power rate reductions or

damage to plants and other production facilities orcompetition from new market entrants.

pipelines and other supply facilities and disrupt the supplyof city gas.

Amid ongoing market liberalization and intensified competition between energy sources, Tokyo Gas might lose aportion of existing demand should it become unable topurchase LNG at competitive prices due to problems concluding new resource procurement contracts or revisingexisting contracts or maintaining alliances for resource
procurement, should competitors commence the supply of

38 Tokyo Gas Annual Report 2005

more competitive LNG than the Tokyo Gas Group in theGroup’s existing markets, or should LNG lose competitiveness compared to other forms of energy.

9) Risk of failure or malfunctioning of
backbone systems
The failure or malfunctioning of backbone computer
systems connected with the manufacture and supply of gas

B. Demand risk
Economic recession, changes in industry structure,
progress with energy conservation activities or otherfactors might result in a partial decrease in existingor the calculation of gas rates might result not only in a disruption in gas supply and delays in customer service, butalso in tangible and intangible damages such as the need tobear public responsibility.

demand.
10) Environmental and compliance risks
C. Regulatory risk
Tokyo Gas manages its operations in compliance with the

The need to comply with new environmental laws or addi-

Gas Utility Industry Law and other laws, regulations andtional obligations to improve the environment might

institutions. As deregulation progresses, any revisions toincrease costs. Also, any violations of laws, rules and regu-

these laws, regulations or institutions that prove

lations or actions that contravene corporate ethics might

detrimental to the Tokyo Gas Group might affectresult not only in direct costs required to remedy thebusiness performance.

situation, but also in tangible and intangible damages suchas the need to bear public responsibility.

7) New-market risk
Industry deregulation entails increases in business opportu-

11) Risks associated with corporate responsibility andcustomer service

nities such as the emergence of new markets in the future
brought about by the fusion of energy-related markets. The

Inadequate responses to customer needs or inappropriateTokyo Gas Group sees this situation as a growing opportu-

customer services might result in lowering corporatenity to enter into new businesses and is working to expand

competitiveness and in tangible and intangible damages

its business in energy-related fields, including gas-fieldsuch as the need to bear public responsibility. Moreover,development and other upstream development, LNG

because Tokyo Gas regards the enhancement of customertransport, city gas-related businesses overseas and newsatisfaction as an important means of fortifying corporate

services for residential customers. Entry into these newcompetitiveness, and the importance of customer satisfac-

businesses might involve new risks different from thosetion is increasing, Tokyo Gas recognizes it as a business risk

Tokyo Gas has faced in the established gas business.

should the Company be unable to increase customer
satisfaction or fail to meet the level of satisfaction required8) Risk of information leaks

by customers.

Improper disclosure of customers’ personal information
gathered and managed in the conduct of business as apublic utility might result not only in direct costs required
to remedy the situation, but also in tangible and intangible
damages, such as the need to bear public responsibility
more serious than that required of other companies.

Tokyo Gas Annual Report 2005

39

Frequently Asked Questions

Q1 What are some of the characteristics of city gas business in Japan?
Japan’s mountainous terrain means there are few areas

suppliers and 30,000 liquefied petroleum gas (LPG)

where the population and industry are concentrated insuppliers, most of which are small or medium-sized firms.

such a way as to be advantageous to gas suppliers. For thisThe resource for approximately 90 percent of the city gas

reason, only about 5% of Japan’s land area currently has ain Japan is natural gas, almost all of which is imported inready supply of city gas.

the form of liquefied natural gas (LNG). Only a few

Although about 220 city gas companies compete in thiscompanies import and regasify LNG to supply city gas.

limited geographical area, three large companies accountUnlike the United States and Europe, Japan does not havefor about 80% of the total gas sales volume: Tokyo Gas,a nationwide pipeline network; each city gas company

Osaka Gas Co., Ltd., and Toho Gas Co., Ltd. In addition tomaintains a network of pipelines in its service area throughcity gas suppliers, there are about 1,700 specific-area gas

which it supplies and markets gas.

Q2 Does Tokyo Gas plan to acquire neighboring gas companies?
Tokyo Gas currently wholesales gas to 19 city gas

On the other hand, Tokyo Gas purchased the municipal

companies around its service area. Wholesale volumes

gas operation of Konosu City in Saitama Prefecture, when it

currently account for approximately 10% of total gas sales,

was privatized in April 2002. It was also selected by Nagano

and are expected to increase by an annual average of 3.2%

Prefecture to be the new owner of the gas operation previ-

over the next five years. The wholesale supply businessously owned by the prefectural government, following theallows Tokyo Gas to earn income without increasing assets,

privatization in September 2004. Should there arise an

so its basic policy calls for an active development of thisoptimal M&A opportunity with the potential to increase ourmarket. As hostile takeovers could have an adverse effectcorporate value and benefit our customers, Tokyo Gas willon the Company’s wholesale business, it has no intention toconsider acting on the opportunity in accordance with theaggressively pursue M&A.

wishes of the other party.

Q3 How does Tokyo Gas set its rates?
Tokyo Gas’ rates are divided into the following three

Optional agreements

categories:

rates and service terms other than those outlined in theTokyo Gas is permitted to offer

above service agreement. This enables the Company toService agreement

Tokyo Gas uses “regulated” rates

make efficient use of its gas production and supply facili-

approved by the Minister of Economy, Trade and Industry

ties. These agreements have to be reported to METI and(METI) to bill customers for gas supplied through pipelines

the selection of this option is up to the customer.

to meet general demand. Under a May 1999 amendment toJapan’s Gas Utility Industry Law, it became possible toLarge-volume supply

reduce these rates simply by notifying METI, provided theGas Utility Industry Law deregulated tariffs and area ofchange does not adversely affect any customers.

supply for customers with contract volumes of two billion

A March 1995 amendment to them3 or more. Rates and other supply terms can be determined by agreement between gas suppliers and customers.

40

Tokyo Gas Annual Report 2005

Since April 2004, large-volume customers have been

“Regulated” rates are calculated using a rate-basedefined as customers with yearly contract volumes ofsystem. A simplified version of this calculation is shown

500,000 m3 or more.

in the following equation:

Operating cost, etc.

41• CostTokyo
Gas resources
Annual Report 2005of gas• Personnel expenses• Overheads• Depreciation• Non-operating expenses• Income taxes+

Fair return—

Deductions, etc.

Calculated using the rate-basesystem, which involves multiplying fixed-asset investments,
etc. by the appropriate ratio offair return=• 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

Q4 What is the definition of “energy service business”?
It is a business in which energy service providers offer one-takes advantage of the Tokyo Gas Group’s LNG procure-stop energy solutions that include the provision of electrici-

ment capabilities and advanced engineering to maximize

ty and heat through gas cogeneration systems and otherthe added-value potential of gas cogeneration. It uses aenergy facilities they build, own and operate on customer

highly effective marketing strategy, which targets environ-sites. The system offers benefits that are attracting an

mentally conscious customers primarily in the Kanto

increasing number of potential customers, benefits that

region, where there is significant untapped demand.

include virtually no initial investment (allowing swift instal-

ENERGY ADVANCE is now the leader in the cogenera-

lation), environmental friendliness and energy cost savings.

tion field. By March 31, 2005 the company had signed 67

This is a business that offers tremendous growth potential

contracts for systems that have a total capacity of approxi-

because increases in system efficiency have dramaticallymately 140 MW. It has been selected for 32 projects subsi-

improved profitability.

dized by the New Energy and Industrial Technology

In 2002, Tokyo Gas established a wholly owned subsidiary called ENERGY ADVANCE Co., Ltd. with the aim ofDevelopment Organization (NEDO), with a total capacity of
approximately 120 MW.

expanding the energy services business. This company

Q5 What advantages does Tokyo Gas have in the electric power generation business?
Tokyo Gas has several strengths in the electric power gen-petitive fuel procurement, resulting from the Company’s

eration business.

involvement in the electric power business, which raises
LNG transaction volumes.

1) Competitive fuel procurement that takes advantage ofstrong bargaining power.
2) Power plant sites adjacent to demand areas that leverage
existing infrastructure such as LNG terminals.
3) Potentially lower fixed costs per m3 and even more com-

At the business decision stage, Tokyo Gas will use aflexible approach, based on careful consideration of market
trends, to determine project scales and approaches tomarketing.

Tokyo Gas Annual Report 200541

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

For the years ended March 31

2005

2004

2003

2002

¥1,190,783¥1,151,825¥1,127,634¥1,097,589

Gas sales

834,658

831,115

792,454

750,439

Gas appliance sales

135,109

133,873

142,636

149,203

Related construction

64,79568,03470,56871,338

Real estate rental

34,70135,44436,34637,551Other business

234,721

172,160

158,327

156,011

Operating income

145,349

152,287

123,294

110,608

Net income

84,04744,78759,201

51,912

Depreciation*

140,271

146,895

141,027

145,564

Capital expenditures**107,529

107,441

111,988

105,296

Free cash flow

116,789

84,241

88,24092,178Net income (Basic)¥31.47¥16.44¥21.18¥18.47

Net income (Diluted)

28.24

14.98

19.11

16.66

Shareholders’ equity

244.73221.53208.65200.75

7.00

7.00

6.00

6.00

¥1,668,734¥1,666,828¥1,676,064¥1,702,713

Long-term debt due after one year

547,139545,845598,322680,887

Total shareholders’ equity

648,766

598,453

579,706

564,078

Operating income to net sales

12.2%

13.2%

10.9%

10.1%

Net income to net sales

7.1%

3.9%

5.3%

4.7%

ROE

13.5%

7.6%

10.4%

9.3%

ROA

5.0%

2.7%

3.5%

3.0%

Equity ratio

38.9%

35.9%

34.6%

33.1%

Net sales

Per share (yen)Cash dividends applicable for the year

At year-end (March 31)
Total assets

Ratios

Notes: 1. Segment sales include intra-group transactions.
2. Free cash flow = net income + depreciation* - capital expenditures***including amortization of long-term prepayments

42 Tokyo Gas Annual Report 2005**purchases of tangible fixed assets + purchases of intangible fixed assets + long-term prepayments (accounting basis)

Millions of yen, except per share amounts
2001

2000

1999

1998

1997

1996

1995

¥1,086,771¥992,255¥997,767¥1,009,155¥988,077¥958,662¥915,862

740,731

672,069

674,997

686,649

663,066

633,253

601,989

146,517

127,916

133,925

127,880

135,057

136,344

138,557

71,90868,651

68,81771,06074,76773,78475,12137,60137,841

37,61638,97840,91640,568—

159,578

158,819

155,045

154,602

144,032

143,931

167,206

103,659

69,23372,30376,48562,163

67,10960,10527,595

26,69817,764

17,241

15,432

16,762

11,072

150,374

140,306

143,009

—

—

—

—

111,397

124,975

151,126

—

—

—

—

66,57242,029

9,647

—

—

—

—

¥9.82

¥9.50

¥6.32

¥6.14

¥5.49

¥5.97

¥3.94

9.13

8.84

5.94

5.76

5.37

—

—

196.72172.33149.98148.67147.65147.23146.32

6.00

5.00

5.00

5.00

5.00

5.00

5.00

¥1,797,669¥1,805,086¥1,707,446¥1,720,684¥1,772,132¥1,657,176¥1,608,244

708,329

843,634

820,753765,304

878,674

743,177

724,523552,790484,239

421,442

417,755

414,906

413,725

411,164

9.5%

7.0%

7.2%

7.6%

6.3%

7.0%

6.6%

2.5%

2.7%

1.8%

1.7%

1.6%

1.7%

1.2%

5.3%

5.9%

4.2%

4.1%

3.7%

4.1%

2.7%

1.5%

1.5%

1.0%

1.0%

0.9%

1.0%

0.7%

30.8%

26.8%

24.7%

24.3%

23.4%

25.0%

25.6%

Tokyo Gas Annual Report 200543

Consolidated Balance Sheets
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2005 and 2004
Thousands of
U.S. dollars (Note 1)

Millions of yen

ASSETS
Property, plant and equipment (Notes 3 and 4):
Production facilities
Distribution facilities
Service and maintenance facilities
Other
Construction in progress
Accumulated depreciation

Intangibles:
Consolidation difference
Other intangibles

Investments and other non-current assets:
Investment securities (Notes 4 and 5)
Long-term loans
Deferred tax assets (Note 10)
Other investments and non-current assets
Allowance for doubtful accounts

Current assets:
Cash and cash equivalents
Marketable securities (Note 5)
Notes and accounts receivables:
Trade
Allowance for doubtful accounts
Inventories (Note 6)
Deferred tax assets (Note 10)
Other current assets
Total current assets

See accompanying notes.

44 Tokyo Gas Annual Report 2005

2005

2004

2005

713,9102,018,459
182,075
611,749
38,4963,564,689(2,394,260)
1,170,429$ 6,677,822
19,339,487
1,701,894
6,292,774
451,505
34,463,482(23,626,874)
10,836,608

2,903
19,87722,780—18,856
18,85627,127
185,769
212,896

100,601
4,047
51,33045,503(1,711)
199,770

108,486
13,23051,252
47,131(1,659)218,440

940,196
37,826
479,715425,263(15,993)
1,867,007

50,665
8

43,961
1

473,501
77

139,723(963)
25,436
12,07559,723
286,667¥ 1,668,734

125,244(1,215)22,827
11,58856,697259,103¥ 1,666,828

1,305,822(8,996)
237,721112,851
558,159
2,679,135$ 15,595,646¥

714,527
2,069,325
182,103
673,327
48,311
3,687,593(2,528,076)
1,159,517¥

Thousands of
U.S. dollars (Note 1)

Millions of yen

LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY

2005

2004

2005

Long-term debt due after one year (Note 7)
Deferred tax liability (Note 10)
Employees’ severance and retirement benefits (Note 9)
Allowance for repairs of gas holders
Other non-current liabilities¥ 547,139
2,599
141,480
3,464
24,196¥ 545,845
2,396
157,808
3,445
24,853$ 5,113,446
24,294
1,322,243
32,372
226,135

51,843

106,870

484,516

60,56429,06525,124
41,69032,616167
51,390292,459

35,74736,90230,02932,80844,958—42,456
329,770

566,015
271,631234,800
389,630
304,8251,563
480,280
2,733,260

8,631

4,258

80,660141,844
2,067
532,81031,501(311)
707,911

141,8442,065
457,924
35,655(227)
637,261

1,325,649
19,3204,979,533
294,401(2,908)6,615,995(59,145)648,766¥1,668,734(38,808)
598,453¥1,666,828(552,759)
6,063,236$15,595,646

Current liabilities:
Long-term debt due within one year (Note 7)
Notes and accounts payable:
Trade
Other
Bank loans (Note 7)
Income taxes payable (Note 10)
Accrued expenses
Deferred tax liability (Note 10)
Other current liabilities
Total current liabilities
Commitments and contingent liabilities (Note 14)
Minority interest
Shareholders’ equity (Note 11):
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
159,437,083 shares in 2005
109,205,944 shares in 2004
Total shareholders’ equity

Tokyo Gas Annual Report 200545

Consolidated Statements of Income
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2005 and 2004
Thousands of
U.S. dollars (Note 1)

Millions of yen

Net sales (Note 12)
Costs and expenses (Note 12):
Cost of sales
Selling, general and administrative

2005

2004

2005

¥1,190,783¥1,151,825$11,128,814

624,722420,712
1,045,434

578,530
421,008
999,538

5,838,525
3,931,884
9,770,409

145,349

152,287

1,358,405

1,086
2,741
1,507
—
5,262
(13,134)(4,043)(2,879)—(1,198)—(3,487)
(52)
258
1,913
(12,026)

1,399
—
374
1,650
589
(14,823)(4,145)(6,575)
5,665(3,322)(58,956)—(15)
236(1,233)(79,156)

10,146
25,617
14,087—49,182(122,748)(37,783)(26,907)—(11,200)—(32,587)
(490)
2,412
17,874(112,397)

133,323

73,131

1,246,008

45,074
3,534
84,715(668)¥ 84,047

44,266(16,367)
45,232(445)
44,787421,248
33,030791,730(6,241)$ 785,489

Operating income (Note 12)
Other income (expenses):
Interest and dividend income
Gains from settlement of weather derivatives
Exclusive facilities income
Reversal of environmental conditioning costs
Gains from sale of securities (Note 5)
Interest expense
Adjustments of charges for construction of distribution facilities
Losses on unsecured notes redemption
Gains resulting from changes to pension system (Note 2)
Losses on impairment of fixed assets (Note 12)
Write-off of unrecognized actuarial differences of pension plans (Note 2)
Special severance payment
Foreign exchange losses
Equity in net income of an affiliated company
Other, net

Income before income taxes and minority interestin net income of consolidated subsidiaries
Income taxes (Note 10):
Current
Deferred
Minority interest in net income of consolidated subsidiaries
Net income¥

YenAmounts per share of common stock (Note 2):
Net income
Diluted net income
Cash dividends applicable to the year
See accompanying notes.

46 Tokyo Gas Annual Report 2005

U.S. dollars (Note 1)

2005

2004

¥31.4728.24
7.00¥16.44
14.98
7.00

2005

$0.29
0.26
0.07

Consolidated Statements of Shareholders’ Equity
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2005 and 2004
Millions of yen
Number of sharesof common stock(Thousands)

Balance at March 31, 2003
2,810,171
Net income
Net unrealized holding gains
on securities
Foreign currency translation
adjustments
Treasury stock
Cash dividends paid(¥6.00 per share)
Bonuses to directors
Balance at March 31, 2004
2,810,171
Net income
Increase due to addition of
consolidated subsidiaries
Net unrealized holding gains
on securities
Foreign currency translation
adjustments
Treasury stock
Cash dividends paid(¥7.50 per share)
Bonuses to directors
Balance at March 31, 2005
2,810,171

Commonstock

CapitalsurplusRetainedearnings¥141,844¥2,065¥429,653
44,787Net unrealized Foreign currency
holding gains
translation
on securities
adjustments¥ 17,003¥

4

Treasurystock¥(10,863)

18,652(231)(1)¥141,844¥2,065(16,438)(77)¥457,924
84,047(27,945)¥ 35,655¥(227)¥(38,808)

10,988(4,154)(84)
2¥141,844¥2,067(20,337)(20,084)(65)¥532,810¥ 31,501¥(311)¥(59,145)

Thousands of U.S. dollars (Note 1)

Balance at March 31, 2004
Net income
Increase due to addition of
consolidated subsidiaries
Net unrealized holding gains
on securities
Foreign currency translation
adjustments
Treasury stock
Cash dividends paid($0.07 per share)
Bonuses to directors
Balance at March 31, 2005

Commonstock

CapitalsurplusRetainedearnings

1,325,649$19,303$4,279,664
785,489

Net unrealized Foreign currency
holding gains
translation
on securities
adjustments$333,222$(2,125)

Treasurystock$(362,691)

102,692(38,821)(783)
171,325,649$19,320(190,068)(187,702)(610)$4,979,533$294,401$(2,908)$(552,759)

See accompanying notes.

Tokyo Gas Annual Report 200547

Consolidated Statements of Cash Flows
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2005 and 2004
Thousands of
U.S. dollars (Note 1)

Millions of yen

2005

Cash flows from operating activities:
Income before income taxes and minority interest in net incomeof consolidated subsidiaries¥ 133,323
Adjustments to reconcile income before income taxes and minority
interest in net income of consolidated subsidiaries to net cash provided
by operating activities:
Depreciation (Note 12)136,421
Amortization of long-term prepayments
3,851
Losses on impairment of fixed assets (Note 12)
1,198
Loss on disposal of property, plant and equipment
3,388
Gains from sale of securities(5,262)
Loss on unsecured notes redemption
2,879
Increase (decrease) in allowance for doubtful accounts(1,293)
Increase (decrease) in employees’ severance and retirement benefits (17,456)
Interest and dividend income(1,086)
Interest expense
13,134
Changes in operating assets and liabilities:
Decrease (increase) in notes and accounts receivable(7,597)
Decrease (increase) in inventories(778)
Increase (decrease) in notes and accounts payable
6,057
Increase (decrease) in consumption taxes payable(1,140)Bonuses paid to directors(65)
Other—net
5,011
270,585
Cash received for interest and dividends
1,057
Cash paid for interest(13,003)
Cash paid for income taxes(43,601)
Net cash provided by operating activities
215,038
Cash flows from investing activities:
Purchase of time deposits(6,667)
Proceeds from redemption of time deposits
9,123
Purchases of investment securities(14,119)
Proceeds from sales of securities
6,263
Purchases of property, plant and equipment(94,084)
Purchases of intangible fixed assets(12,787)
Long-term prepayments(2,332)
Proceeds from sale of tangible and intangible fixed assets
4,029
Expenditure of long-term loans receivable(1,610)
Proceeds from long-term loans
4,428
Other—net
380
Net cash used in investing activities(107,376)
Cash flows from financing activities:
Net increase (decrease) repayments of short-term bank loans(2,691)
Proceeds from long-term debt
60,566
Repayments of long-term debt
(125,703)
Cash dividends paid
(20,144)
Payments for acquiring treasury stock(20,442)
Other—net
254
Net cash used in financing activities(108,160)
Effect of exchange rate changes on cash and cash equivalents(2)
Net increase (decrease) in cash and cash equivalents(500)
Cash and cash equivalents at beginning of year
43,961
Increase in cash and cash equivalents due to addition of
consolidated subsidiaries
7,204
Cash and cash equivalents at end of year
¥ 50,665
See accompanying notes.

48 Tokyo Gas Annual Report 2005

2004

2005

¥ 73,131$ 1,246,008

143,129
3,766
3,322
3,790
(589)
6,575
(193)
36,912(1,399)14,823

1,274,959
35,989
11,20031,667(49,182)
26,907(12,083)(163,139)(10,145)
122,748

5,157(1,701)274(1,552)(77)(7,571)
277,797
1,381(15,053)(46,517)217,608(70,999)(7,273)56,610(10,653)(610)
46,8302,528,834
9,879(121,528)(407,478)
2,009,698(12,581)
11,629(15,371)
7,683(101,012)(12,211)(2,103)
1,235(3,886)894(315)(126,038)(62,309)85,262(131,950)
58,535(879,288)(119,503)(21,797)
37,650(15,048)
41,381
3,556(1,003,511)(11,871)
87,790(131,042)(16,482)(28,038)(101)(99,744)5(8,169)52,130(25,145)566,033(1,174,790)(188,263)(191,050)
2,370(1,010,845)(19)(4,677)
410,848—¥ 43,961$

67,330473,501

Notes to Consolidated Financial Statements
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2005 and 2004

1. Basis of presenting consolidated financial statements
Tokyo Gas Co., Ltd. (the “Company”) and its consolidated
domestic subsidiaries maintain their accounts and records inaccordance 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 toapplication and disclosure requirements of International Financial
Reporting Standards. The Company, as a regulated company, also
follows the Gas Business Law related accounting regulations for
preparing such financial statements.
The accompanying consolidated financial statements havebeen restructured and translated into English (with some
expanded descriptions and inclusion of consolidated statements ofshareholders’ equity) from the consolidated financial statements of

the Company prepared in accordance with Japanese GAAP and
filed with the appropriate Local Finance Bureau of the Ministry of
Finance as required by the Securities and Exchange Law. Some
supplementary information included in the statutory Japaneselanguage consolidated financial statements, but not required forfair presentation, is not presented in the accompanying
consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars
are included solely for the convenience of readers outside Japan,
using the prevailing exchange rate at March 31, 2005, which was¥107 to US$1. The convenience translations should not be
construed as representations that the Japanese yen amounts havebeen, could have been, or could in the future be, converted into
U.S. dollars at this or any other rate of exchange.

2. Significant accounting policies
Consolidation The consolidated financial statements include theaccounts of the Company and all of its significant subsidiaries. For
the years ended March 31, 2005 and 2004, 52 subsidiaries and 18
subsidiaries, respectively, were consolidated. All significant intercompany transactions and account balances are eliminated inconsolidation.
In the elimination of investments in subsidiaries, the assets andliabilities of the subsidiaries, including the portion attributable tominority shareholders, are recorded based on their fair value at thetime the Company acquired control of the respective subsidiary.
Consolidation differences are amortized on a straight-line basis
over 10 years, except for minor amounts that are charged toincome in the period of acquisition.
The Company implemented the strategic business unit system
on April 1, 2004, based on its medium-term management plan
“Frontier 2007,” developed in October 2002, where the Company
has set the establishment of a group management system as one ofits major goals. Upon implementation of the new system, theCompany has expanded its scope of consolidation, resulting in an
increase in the number of consolidated subsidiaries from 18
companies in the year ended March 31, 2004, to 52 companies inthe year ended March 31, 2005. As a result, the result figures forthe year ended March 31, 2005 have been calculated based on the
new scope of consolidation. The effects of expansion of the scopeof consolidation are summarized as follows.
Increase (Decrease)

Sales
Operating income
Net income

Millions of yen

Thousands of
U.S. dollars¥43,157
2,567
(457)

$403,336
23,991(4,271)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, are accounted for by the equity method.
For the years ended March 31, 2005 and 2004, one affiliatedcompany was accounted for by the equity method.
Property, plant and equipment Property, plant and equipment
is generally stated at cost. Depreciation is determined mainly by
the declining-balance method based on estimated useful life,
except that buildings (excluding building equipment) acquired
after March 31, 1998 are depreciated using the straight-line
method.
As the accounting standard for impairment of fixed assets(“Opinion on Setting Accounting Standard for Impairment of Fixed
Assets,” issued by the Business Accounting Deliberation Council
on August 9, 2002), and its implementation guidance (Financial
Standards Implementation Guidance No. 6, “Implementation
Guidance for Accounting Standard for Impairment of Fixed
Assets,” issued by the Accounting Standards Board of Japan on
October 31, 2003) can be adopted in the year ended March 31,
2004, the Company adopted the standard and its implementation
guidance commencing in the year ended March 31, 2004. As aresult, income before income taxes and minority interest in net
income of consolidated subsidiaries decreased by ¥3,322 million.
The amounts of accumulated impairment losses are directlydeducted from the acquisition costs of related fixed assets.
Software costs The Company and its consolidated subsidiaries
include software in intangible assets and depreciate it using thestraight-line method over the estimated useful life.

Tokyo Gas Annual Report 200549

Cash and cash equivalents Cash and cash equivalents include
cash on hand, readily-available deposits and short-term highly
liquid investments with maturities not exceeding three months at
the time of purchase, which are readily convertible to known
amounts of cash that they present insignificant risk of change.
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 andaffiliated companies that are not accounted for using the equity
method are stated at moving-average cost.
(c) Available-for-sale securities, 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 fairmarket value at the year-end, if their fair market values arereadily available. The difference between acquisition costs andbook values of these securities are reported, net of applicable
income taxes, as a separate component of shareholders’ equity.
Available-for-sale securities with no available fair market values
are stated at moving-average cost.
If the fair market value of held-to-maturity debt securities,
equity securities issued by unconsolidated subsidiaries and affiliated companies, and available-for-sale securities, declines
significantly, unless the decline is considered recoverable, suchsecurities are stated at fair market value and the difference
between fair market value and the carrying amount is recognized
as loss in the period of the decline.
Derivative financial instruments The Company and its consolidated subsidiaries use currency swap contracts, interest rate
swaps, foreign exchange forward contracts, commodity swaps andweather derivatives only for the purpose of mitigating the risk offluctuations in foreign exchange rates, interest rates, market pricesof raw materials and finished products and affects of changes intemperature. The Company and its consolidated subsidiaries do
not use derivative financial instruments for speculative trading
purposes. The derivative financial instruments are executed withcreditworthy financial institutions, and the Company’s and its
consolidated subsidiaries’ management believes there is little riskof 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.

50 Tokyo Gas Annual Report 2005

Inventories Inventories are stated at cost, cost being determinedby the moving-average method.
Allowance for doubtful accounts The Company and its consolidated subsidiaries provide for doubtful accounts at an estimatedamount of probable bad debts.
Employees’ severance and retirement benefits The Company
and its consolidated subsidiaries provide post-employment benefit
plans, an unfunded lump-sum payment plan and a funded pension
plan, under which employees’ severance and retirement benefits
are based on the level of wages and salaries at the time of retirement or termination, length of service and certain other factors.
The Company and its consolidated subsidiaries determine benefit
obligation and expenses for employees’ severance and retirement
benefits based on the amounts actuarially calculated using certain
assumptions.
The liability for employees’ severance and 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 toeach service year using the estimated number of total service
years. Past service costs are charged to income when incurred, andactuarial gains and losses are charged to income in the fiscal year
following the year when they arise.
With enactment of the Defined Benefit Corporate Pension Plan
Law in Japan, the Company carried out a revision in its pension
plans during the year ended March 31, 2004, including a shift fromthe tax-qualified pension plan to the contract-type funded pension
plan as well as introduction of a cash balance pension plan. As aresult, the overall benefit ratio was lowered and, therefore, ¥5,665
million gain resulting from changes to pension system has beenrecorded as other income. In addition, upon this plan revision, theCompany changed its accounting for unrecognized actuarial differences from amortizing them over ten years to writing them off in
one year, resulting in write-off of ¥58,956 million in actuarial
differences incurred in previous years. The purpose of this change
is not only to timely reflect the funded status of the benefit obligation in the consolidated financial statements, but also to secure
financial strength of the Company. As a result of the changes
described above, income before income taxes and minority interestin net income of consolidated subsidiaries decreased by ¥52,640
thousand, compared with what would have been recorded under
the previous plans and accounting method.
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 toincome in equal annual amounts. The difference between theactual expenditure and the amount provided is charged to incomein the year repairs are completed.
Accounting for certain lease transactions Finance leases
which do not transfer ownership to lessees are accounted for in thesame manner as operating leases under accounting principles
generally accepted in Japan.
Income taxes Income taxes comprise corporation tax, inhabitants’ taxes and enterprise tax (excluding enterprise taxes based
on “amount of added value” and “amount of capital”). The
Company and its consolidated subsidiaries recognize tax effects of
temporary differences between the financial statement basis andthe tax basis of assets and liabilities.
Enterprise tax In the case of companies engaged in gas business,enterprise tax which is levied, not on taxable income, but on net
sales, is accounted for in “Selling, general and administrative”
expenses. With the promulgation of the “Revision of the Local Tax
Law” (Legislation No. 9, 2003) on March 31, 2003, the tax bases forassessing enterprise taxes comprise “amount of income,” “amountof added value” and “amount of capital” commencing April 1, 2004.
Enterprise taxes based on “amount of added value” and “amount of
capital” are included in “Selling, general and administrative
expenses” commencing this fiscal year pursuant to “Practical
Solutions on Presentation for Size-Based Components of Corporate
Enterprise Tax on the Income Statement” (Accounting Standards

Board, Practical Solution Report No. 12 issued on February 13,2004). The effect of the change was not significant.
In the accompanying consolidated statements of income,enterprise tax is accounted for in “Selling, general and administrative” expenses in the amount of ¥11,607 million (US$108,474
thousand) and ¥11,145 million for the years ended March 31, 2005
and 2004, respectively.
Foreign currency translation Receivables and payables denominated in foreign currencies are translated into Japanese yen at the
year-end rates, and the resulting translation gains or losses arecharged to income currently.
Amounts per share of common stock Basic net income pershare is computed based on the net income available for distribution to common shareholders and the weighted-average number ofcommon shares outstanding for the period. Diluted net income pershare reflects the potential dilution that could occur if convertible
bonds were converted into common stocks.
Cash dividends per share have been presented on an accrualbasis and include dividends approved or to be approved after thebalance sheet dates, but applicable to the year then ended.
Reclassifications Certain prior year amounts have been reclassified to conform to 2005 presentation. These changes had no
impact on previously reported results of operations.

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 cost of the related

asset. Such offsets recorded at March 31, 2005 and 2004 were¥259,241 million (US$2,422,814 thousand) and ¥238,700 million,
respectively.

4. Pledged assets
Pledged assets at March 31, 2005 and 2004 were as follows:
Thousands of
U.S. dollars

Millions of yen

Distribution facilities
Service andmaintenance facilities
Other
Investment securities

2005

2004

2005

¥ 5,658¥ 5,742$ 52,876

Pledged as collateral for long-term debt and other liabilities at
March 31, 2005 and 2004 were as follows:

2005

2004

2005

¥5,299¥9,073$49,519—

6—

Bank loans

—

300

—

Other current liabilities

60

53

561

¥5,359¥9,432$50,080

Long-term debt
141

142

1,322

10,807

7,865

100,996

75

37

700

¥16,681¥13,786$155,894

Thousands of
U.S. dollars

Millions of yen

Accounts payable

Tokyo Gas Annual Report 2005

51

5. Securities
Millions of yen

Acquisition costs, book values and fair values of securities withavailable fair market values at March 31, 2005 and 2004 were as
follows:

For 2004

Acquisition cost

Equity securities(a) Held-to-maturity debt securities

Bonds

2005

SubtotalThousands of
U.S. dollars

Millions of yen
2004

¥45

2005

$416

Fair value

47

36

435

Difference

¥ 2

¥ 1

$ 19

¥ 9,908¥66,363¥56,455

6

6

—

9,914

66,36956,455

615

583

(32)

Total

¥10,529¥66,952¥56,423

For 2005

Acquisition cost

Equity securities¥35

Difference

Securities with book values not exceeding acquisition cost:

Securities with fair value exceeding book value:Book value

Book value

Securities with book values exceeding acquisition cost:Thousands of U.S. dollars
Book value

Difference

Securities with book values exceeding acquisition cost:Thousands of
U.S. dollars

Millions of yen

2005

2004

Equity securities

¥—

Total

Fair value

—

10

—

Difference

¥—

¥—

$—

Millions of yen
Acquisition cost

Book value

Difference

Securities with book values exceeding acquisition cost:
Equity securities¥12,454¥62,578¥50,124

Securities with book values not exceeding acquisition cost:
Equity securities
Total

2,324

2,126

(198)

¥14,778¥64,704¥49,926

21,715

19,865(1,850)$138,108$604,709$466,601

Available for sale securities sold amounted to ¥6,040 million(US$56,447 thousand) and ¥2,613 million for the years ended March
31, 2005 and 2004, respectively. Gains on available-for-sale securities
amounted to ¥5,398 million (US$50,449 thousand) and ¥597 million
and losses on available-for-sale securities amounted to ¥136 million(US$1,267 thousand) and ¥7 million for the years ended March 31,
2005 and 2004, respectively.
Available-for-sale securities with no available fair values, whichwere stated at moving-average cost, amounted to ¥12,008 million(US$112,223 thousand) and ¥11,732 million at March 31, 2005 and2004, respectively. Investments in unconsolidated subsidiaries andaffiliated companies amounted to ¥23,832 million (US$222,726 thousand) and ¥29,715 million for the years ended March 31, 2005 and2004, respectively.

(b) Available-for-sale securities
For 2005

6. Inventories
Inventories at March 31, 2005 and 2004 were as follows:
Thousands of
U.S. dollars

Millions of yen

Finished products
Raw materials
Supplies
Work in process

52

Tokyo Gas Annual Report 2005

$468,451$—

Equity securities¥10$584,844

Securities with book values not exceeding acquisition cost:

Securities with fair value not exceeding book value:Book value$116,393

2005

2005

2004

2005

¥ 3,173
13,5708,604
89¥25,436¥ 1,949
11,372
8,177
1,329¥22,827$ 29,658
126,823
80,409831$237,721

7. Bank loans and long-term debt
At March 31, 2005 and 2004, bank loans consisted of short-term
notes, bearing interest at an average annual rate of 0.29%.
Long-term debt at March 31, 2005 and 2004 was as follows:
Thousands of
U.S. dollars

Millions of yen

Domestic unsecured notes

Domestic unsecured convertible bonds

Due 2016 at a rate of 4.0%
Due 2018 at a rate of 2.625%
Due 2009 at a rate of 1.68%
Due 2009 at a rate of 1.73%
Due 2010 at a rate of 2.01%
Due 2011 at a rate of 1.39%
Due 2012 at a rate of 1.35%
Due 2023 at a rate of 1.01%
Due 2013 at a rate of 1.41%
Due 2014 at a rate of 1.59%
Due 2024 at a rate of 2.29%
Due 2025 at a rate of 2.14%
Due 2015 at a rate of 4.1%
Due 2004 at a rate of 1.03%
Due 2009 at a rate of 1.18%
3rd issue due 2005 at a rate of 1.5%
5th issue due 2009 at a rate of 1.2%
6th issue due 2007 at a rate of 1.1%

DM bearer bonds due 2005 at a rate of 7.0%
Loans from banks, insurance companies and government agencies due
through 2019 at rates of 0.174% to 6.40%
SecuredUnsecured
Less—Amounts due within one year

The indentures covering the fifth and sixth domestic convertible
bonds provide, among other conditions, for (1) conversion intoshares of common stock at the conversion prices per share of¥339.00 (US$3.17) and ¥339.00 (US$3.17), respectively (subject toadjustment in certain circumstances), (2) conversion periods
through March 30, 2009 and March 29, 2007, respectively.
As is customary in Japan, a lending bank has the right to offset
cash deposited with it against any debt or obligation that becomesdue 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 the Company and its consolidated subsidiaries.
Certain loan agreements provide, among other things, that, uponrequest, the Company and its consolidated subsidiaries submit to thelenders for approval of their proposed appropriation of retained
earnings (including dividends) before such appropriation is submitted to the shareholders. Neither the Company nor any of its
consolidated subsidiaries has ever received any such request.

2005

2004

2005

¥ 27,700
40,00030,00030,00020,00030,00020,00020,00030,00020,00010,00010,00013,800—4,000—
39,92949,956
18,333¥ 27,700
40,00030,00030,00020,00030,00020,00020,00030,000———13,8003,000
4,000
82,87749,96349,965
18,333$ 258,879
373,832
280,374
280,374
186,916
280,374
186,916
186,916
280,374
186,916
93,45893,458
128,972—
37,383—373,168
466,879
171,340

5,299
179,965598,982
51,843¥547,139

9,074
174,003652,715
106,870¥545,845

49,5191,681,914
5,597,962
484,516$5,113,446

The annual maturities of long-term debt at March 31, 2005 were as
follows:
Year ending March 31

Millions of yen

Thousands of
U.S. dollars

2006¥ 51,843$484,516

2007

75,987710,162

2008

40,613

379,557

2009

71,756670,618

2010

81,807

764,552

2011 and thereafter

276,976

2,588,557¥598,982$5,597,962

Tokyo Gas Annual Report 2005

53

8. Derivative transactions
Contract amounts, market values and recognized gains on the currency swap contracts, except those accounted for using hedge
accounting, and weather derivatives at March 31, 2005 and 2004
were as follows:

Thousands of U.S. dollars
At March 31, 2005
Contract
amounts

At March 31, 2005
Beyondone yearMarketvalue

Recognized
gains (losses)

¥ 105

¥—

¥32

¥32

5,625

—

—

—

¥—

¥—

¥ 32

¥

—

983

$ —

$302

52,570

—

—

—

$ —

$ —

$302

—

Market value of currency swap contracts were calculated based on
the information presented by financial institution. Contract
amounts of weather derivatives were stated at the maximum
receivable amount under the contracts. Market value of weather
derivatives were not stated because the calculation of the fair value
was impossible.

Millions of yen
At March 31, 2004
Contract
amounts$302$

Weather derivatives:

Currency swap contracts:

Weather derivatives:

Recognized
gains (losses)

Receive Euro, pay
Japanese yen$

Receive Euro, pay
Japanese yen

Marketvalue

Currency swap contracts:

Millions of yen
Contract
amounts

Beyondone yearBeyondone yearMarketvalue

Recognized
gains (losses)¥—

Currency swap contracts:
Receive Euro, pay
Japanese yen

¥—

¥—

¥—

Weather derivatives:

—

—

—

—

¥—

¥—

¥—

¥—

9.Employees’ severance and retirement benefits
Employees’ severance and retirement benefits included in the liability section of the consolidated balance sheets
as of March 31, 2005 and 2004 were as follows:
Thousands of
U.S. dollars

Millions of yen

Projected benefit obligation
Unrecognized prior service costs
Unrecognized actuarial differences
Less fair value of pension assets
Prepaid pension costs
Employees’ severance and retirement benefits

2005

2004

2005

¥345,322
2,275(16,351)(190,056)
290¥141,480¥ 328,518
1,148(8,579)(163,350)71¥ 157,808$ 3,227,308
21,258(152,812)(1,776,224)
2,713$ 1,322,243

Included in the consolidated statements of income for the years ended March 31, 2005 and 2004 were severance
and retirement benefit expenses comprised of the following:Thousands of
U.S. dollars

Millions of yen

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

2005

2004

2005

¥ 9,7117,475(3,402)
(155)
3,049
1,038
¥17,716¥ 9,659
8,182(3,057)(3,761)59,446
101¥70,570$ 90,759
69,861(31,797)(1,446)28,495
9,697$165,569

The discount rate and the rate of expected return on plan assets used by the Company and its consolidated subsidiaries are approximately 2.1% and 2.0%, respectively, at March 31, 2005, and approximately 2.3% and 2.0%,
respectively, at March 31, 2004.

54 Tokyo Gas Annual Report 2005

10. Income taxes
The Company is subject to a number of taxes based on taxable
income, which, in the aggregate, indicate a statutory rate in Japan ofapproximately 36.2% for the years ended March 31, 2005 and 2004.
It is not shown due to the difference between the statutory tax
rate and the effective tax rate for financial statement purposes forthe year ended March 31, 2005 being not significant. The significant differences between the statutory tax rate and the effective
tax rate for financial statement purposes for the year ended March
31, 2004 was as follows.

2004

36.21%

Statutory tax rate
Tax credit for R&D expenses(1.43)

Unrecognized net operating loss of
consolidated subsidiary

1.04

Items for which tax planning strategies have notbeen determined (for impairment of fixed assets)

0.93

Other—net

1.40

Effective tax rate

38.15%

Significant components of deferred tax assets and liabilities as ofMarch 31, 2005 and 2004 were as follows:
Thousands of
U.S. dollars

Millions of yen

2005

2004

2005

Liabilities for retirement benefits¥49,043¥52,847$458,347

Other—net

37,99933,731

355,128

Less valuation allowance(1,227)(2,030)(11,465)

Subtotal

85,81584,548802,010

Net unrealized holding gains on securities

18,396

20,734

171,925

Reserve for tax purposes cost reduction of certain pipelines

1,110

1,462

10,370

Deferred tax assets:

Deferred tax liabilities:

Other—net

5,672

1,908

53,010Subtotal

25,178

24,104

235,305¥60,637¥60,444$566,705

Deferred tax assets—net

11. Shareholders’ equity
At the current conversion prices, 365,512 thousand shares ofcommon stock were issuable at March 31, 2005 upon fullconversion of the outstanding convertible bonds (see Note 7).
Under the Commercial Code of Japan (the “Code”), the entire
amount of the issue price of new shares is required to be designated as common stock, although a company may, by a resolution ofits Board of Directors, designate an amount not exceeding one-halfof the issue price of the new shares as additional paid-in capital.
The Code provides that an amount equivalent to at least 10%of cash dividends paid and other cash outlays shall be appropriatedand set aside as legal reserve until the total amount of legal reserve
and additional paid-in capital equals 25% of the stated capital. Asof March 31, 2005, the total amount of legal reserve and additional
paid-in capital has already exceeded 25% of the stated capital and,
therefore, no additional provision is required.
And under the Code, the excess of the total additional paid-in
capital and legal reserve over 25% of common stock is available fordividends by resolution of the general meeting of shareholders.
Additional paid-in capital is included in capital surplus and legal

earnings reserve is included in retained earnings in the accompanying consolidated balance sheets.
The maximum amount that the Company can distribute as
dividends is calculated based on the unconsolidated financial
statements of the Company in accordance with the JapaneseCommercial Code.
The Code provides that cash dividends may be approve semiannually by the resolution of the annual general shareholders’ meeting
after the end of each fiscal year or by the declaration of the Boardof Directors after the end of each interim semi-annual period. Such
dividends are payable to shareholders of record at the end of eachfiscal year or semi-annual period. Appropriations are not accrued in
the financial statements for the period to which they relate, but arerecorded in the subsequent accounting period when the shareholders’ approval has been obtained. Retained earnings at March 31,
2005 include amounts representing the year-end cash dividends
and bonuses to directors and approved at the shareholders’ meeting
held on June 29, 2005 as discussed in Note 15 (2).

Tokyo Gas Annual Report 2005

55

12. Segment information
The Company’s and its consolidated subsidiaries’ primary businessactivities include (1) gas sales, (2) gas appliance sales, (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 business segments for the years
ended March 31, 2005 and 2004 was as follows:

Millions of yen
Gas sales

Gas appliance
sales

Relatedconstruction

Real estate
rentalOtherbusiness

Elimination or
corporate

Consolidation¥ 826,583¥132,374¥60,831¥ 14,004¥156,991¥¥1,190,783

8,075

2,735

3,964

20,697

77,730(113,201)—

834,658

135,109

64,79534,701

234,721(113,201)

1,190,783

For 2005

Sales:
Outside customers
Intra group
Total
Costs and expenses

651,973

128,055

61,220Operating income¥ 182,685

¥

7,054

¥ 3,575¥

Identifiable assets¥1,006,673¥ 42,681

107,082515—
74,980Depreciation
Losses on impairment of fixed assets
Capital expenditures—

28,198221,306(45,318)

1,045,434

6,503¥ 13,415¥ (67,883)¥ 145,349¥21,426¥205,079¥222,241¥ 170,634¥1,668,734

185

12,35818,142(1,861)

136,421

—

—

—

1,198

—

1,198

534

297

3,218

29,621(3,453)

105,197

Gas sales

Gas appliance
sales

Relatedconstruction

Real estate
rentalOtherbusiness

Elimination or
corporate

Consolidation¥ 826,567¥132,254¥64,944¥ 14,151¥113,909¥¥1,151,825

4,548

1,619

3,090

21,29358,251(88,801)—

831,115

133,873

68,03435,444

172,160(88,801)

1,151,825

Millions of yen

For 2004

Sales:
Outside customers
Intra group
Total
Costs and expenses

641,749

125,969

63,578Operating income¥ 189,366

¥

7,904

¥ 4,456¥

Identifiable assets¥1,027,776¥ 45,445

117,150

506

Losses on impairment of fixed assets

1,652

Capital expenditures

85,873

Depreciation—

27,561

160,890(20,209)

999,538

7,883¥ 11,270¥ (68,592)¥ 152,287¥23,137¥208,213¥184,816¥177,441¥1,666,828

136

13,37013,516(1,549)143,129

—

—

1,667

3

—

3,322

550

303

2,833

18,066(2,287)

105,338

Gas sales

Gas appliance
sales

Relatedconstruction

Real estate
rentalOtherbusiness

Elimination or
corporate

Consolidation$7,725,079$1,237,138$568,511$ 130,881$1,467,205—$11,128,814

75,46625,55937,049193,429

726,446(1,057,949)—

7,800,545

1,262,697

605,560

324,310

2,193,651(1,057,949)

11,128,814

Thousands of U.S. dollars

For 2005

Sales:
Outside customers
Intra group
Total
Costs and expenses

6,093,207

1,196,775

572,152

Operating income$1,707,338$

65,922$ 33,408$

Identifiable assets$9,408,159$ 398,889

Depreciation

1,000,766

4,811—
700,747

Losses on impairment of fixed assets
Capital expenditures

56 Tokyo Gas Annual Report 2005$

263,532

2,068,276(423,533)

9,770,409

60,778$ 125,375$ (634,416)$ 1,358,405$200,240$1,916,626$2,077,018$ 1,594,714$15,595,646

1,726

115,498

169,552(17,394)

1,274,959———

11,200—

11,200

4,991

2,778

30,072276,833(32,267)

983,154

Costs and expenses under Elimination or corporate that cannot
be allocated to business segments are related mainly to generaladministrative expenses of the Company, amounted to ¥66,945
million (US$625,651 thousand) and ¥69,466 million at March 31,
2005 and 2004, respectively.
Assets under Elimination or corporate mainly comprise cash
and cash equivalents, current and noncurrent securities anddeferred tax assets of the Company, amounted to ¥218,385 million(US$2,040,985 thousand) and ¥225,856 million at March 31, 2005
and 2004, 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.

13. Information for certain leases
Finance leases
Information as lessee
Lease payments in the years ended March 31, 2005 and 2004, andfuture minimum lease payments at March 31, 2005 and 2004 were

Information as lessor
Lease income in the years ended March 31, 2005 and 2004, andfuture minimum lease payments to be received at March 31, 2005
and 2004 were as follows:

as follows:
Thousands of
U.S. dollars

Millions of yen
2005

Lease payments

Thousands of
U.S. dollars

Millions of yen

2004

2005

¥ 958

¥ 613

$ 5,728

Future minimum lease payments to be received:
Current

¥ 561

¥ 840

$ 5,243

Noncurrent

1,324

1,683

12,374¥1,885¥2,523$17,617

The Company and its consolidated subsidiaries use certain production facilities, distribution facilities, service and maintenancefacilities and other assets under lease arrangements. Acquisition
cost, accumulated depreciation and net book value for property
held under finance leases which do not transfer ownership of theleased property to the lessee on an “as if capitalized” basis for theyears ended March 31, 2005 and 2004 were as follows:

Lease income

2005

2004

2005

¥ 4,221¥ 4,473$ 39,450

Future minimum lease payments to be received:
Current¥ 4,117¥ 4,553$ 38,478

Noncurrent

12,37912,989115,692¥16,496¥17,542$154,170

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, 2005 and 2004 were as follows:
Millions of yen
Acquisition
cost

Accumulated
depreciation

Net book
value¥23,988¥16,156¥7,832¥25,214¥15,470¥9,744

For 2005

Other

Millions of yen
Acquisition
cost

Accumulated
depreciation

Net book
value¥3,994¥2,109¥1,885¥3,994¥2,109¥1,885

For 2004

Other

For 2005

Other

Thousands of U.S. dollars
Acquisition
cost

Accumulated
depreciation

Net bookvalue$224,183$150,991$73,192

For 2005
For 2004

Other

Production facilities¥ 115

Distribution facilities

890

385

505

Service and maintenancefacilities

370

109

261

3,643

1,952

1,691

¥5,018¥2,495¥2,523

Other

¥

49

¥

66

Operating leases
Information as lessor
Future minimum lease payments to be received at March 31, 2005
and 2004 were as follows:
Thousands of
U.S. dollars

Millions of yen
Thousands of U.S. dollars
Acquisition
cost

Accumulated
depreciation2005
Net book
value

2004

2005

Future minimum lease payments inclusive of interest:
Current¥ 544¥—

Noncurrent

1,049

—

9,806

¥1,593¥—$14,888$ 5,082

For 2005

Other$37,323$37,323$19,706$19,706$17,617$17,617

Tokyo Gas Annual Report 200557

14. Commitment and contingent liabilities
The Company and its consolidated subsidiaries were contingently
liable (1) for debt guarantees in the amount of ¥10,751 million(US$100,481 thousand) at March 31, 2005 for financial institutionloans to affiliated companies, other than consolidated subsidiaries(2) in the amount of ¥242 million (US$2,261 thousand) at March
31, 2005 with respect to joint and several liabilities upon default ofother debtors and (3) as guarantors for domestic unsecured notesin the amount of ¥38,700 million (US$361,682 thousand) issued by

the Company, which were assigned to certain banks under the debt
assumption agreements made in the years ended March 31, 2004,
2003 and 2002.
At March 31, 2005, the Company had several long-term
purchase contracts for the supply of LNG. The purchase pricedeterminable under such contracts is contingent upon fluctuationsin the market price of crude oil.

15. Subsequent events(1) Acquisitions of treasury stock
The Board of Directors held on May 23, 2005, and the general
meeting of shareholders held on June 29, 2005 approved theacquisition of treasury stock based upon the approval of thegeneral meeting of shareholders.
Kind of shares: Common stock
Number of shares: Limited to 50,000,000 shares
Cost of shares acquisitions: Limited to ¥20,000 million($186,916 thousand)58 Tokyo Gas Annual Report 2005

(2) Appropriation of retained earnings
At the general meeting of shareholders held on June 29, 2005,
the Company’s shareholders approved (i) payment of year-end
cash dividends of ¥3.5 (US$0.03) per share aggregating ¥9,278
million (US$86,706 thousand) to the shareholders of record asof March 31, 2005, and (ii) payment of bonuses to directors
totaling ¥65 million (US$607 thousand).

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 subsidiaries as of March 31, 2005 and 2004, and the related consolidated statements ofincome, stockholders’ equity and cash flows for the years then ended, expressed in Japanese yen. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to independently express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. 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 reasonable basis forour 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 subsidiaries as of March 31, 2005 and 2004,
and the consolidated results of their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to the following.
(1) As discussed in Note 2 to the consolidated financial statements, effective for the year ended March 31, 2004,
TOKYO GAS CO., LTD. changed the method of accounting for actuarial differences of pension plans and,TOKYO GAS CO., LTD. and consolidated subsidiaries prospectively adopted new accounting standards for
impairment of fixed assets.
(2) As discussed in Note 15 (1) to the consolidated financial statements, subsequent to March 31, 2005, TOKYOGAS CO., LTD. decided to acquire treasury stock.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to theyear ended March 31, 2005 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 29, 2005

Tokyo Gas Annual Report 2005

59

Consolidated Subsidiaries and Equity-method Affiliates
As of March 31, 2005

Main Consolidated Subsidiaries
Company

Business

Capital(¥ million)

Equity owned
by Tokyo Gas(%)

FY2004 Net sales(¥ million)[% of outside sales]

Operatingincome(¥ million)

Tokyo Gas Urban Development Co., Ltd.

Real estate leasing, management andbrokerage

11,440100

32,405 [40.2]

5,632

Tokyo Gas Toyosu Development Co., Ltd.

Real estate leasing and management

5,000

100

784 [32.7]

220

ENERGY ADVANCE Co., Ltd.

Energy service, district heating andcooling

3,000

100

28,903 [92.0]

4,952

Gastar Co., Ltd.

Production and sale of gas appliances

2,450

66.7

25,840 [47.1]

1,872

KANPAI Co., Ltd.

Gas facilities construction and gas
appliance sales

1,300

100

43,055 [36.5]

271

Tokyo LNG Tanker Co., Ltd.

LNG and LPG transportation and chartering of carriers

1,200

100

6,141 [27.8]

593

Tokyo Gas Energy Co., Ltd.

Sales of LPG

1,000

100

19,544 [75.3]

183

Tokyo Gas Chemicals Co., Ltd.

Sales of gas for industry and chemicals

1,000

100

17,217 [70.8]

605Park Tower Hotel Co., Ltd.

Hotel “Park Hyatt Tokyo” management

1,000

100

8,963 [99.5]

400

Chiba Gas Co., Ltd.

Supply of gas in Yachiyo City, Narita Cityand surrounding cities

480

100

11,072 [99.6]

633

TG Credit Services Co., Ltd.

Financing and leasing related to gas
equipment and construction

450

100

9,314 [55.2]

605

Tokyo Oxygen and Nitrogen Co., Ltd.

Production and sale of liquefied oxygenand nitrogen

400

54

2,203 [44.3]

173

TG Information Network Co., Ltd.

Information processing services, softwaredevelopment and sales of computerequipment

400

100

13,469 [24.7]

890

Toyoko Engineering Co., Ltd.

Gas facilities construction and gas
appliance sales

300

100

21,741 [48.5]

239

Tsukuba Gakuen Gas Co., Ltd.

Supply of gas in Tsukuba City

280

100

5,469 [97.9]

517

TG Enterprise Co., Ltd.

Group financial administration business

200

100

682 [38.7]

175

Tokyo Gas Engineering Co., Ltd.

Comprehensive engineering services witha particular focus on energy-related work

100

100

27,081 [70.5]

601

Tokyo Gas Customer Service Co., Ltd.

Periodic safety checks, meter and billing
services

50

100

7,857

[1.8]

785

TG IT Service Co., Ltd.

Operation of Tokyo Gas systems andnetworks

50

100

9,991

[0.0]

183

KANPAI LIVING SERVICE Co., Ltd.

Sales, installation and repair of gas appliances, expansion and reconstruction
work

50

100

5,824 [62.9]

163

GAS MALAYSIA SDN. BHD.

Supply of gas in Malaysia

RM42.8 million

20

—

—

Notes: 1. Gas Malaysia Sdn. Bhd. is an equity-method affiliate.
2. The scope of consolidation was expanded to include 52 companies in April 2004.
3. 1RM nearly equals ¥27.42.

Other Subsidiaries
Miho Gas Co., Ltd., Shoei Gas Co., Ltd., Washimiya Gas Co., Ltd.,
Tochigi Gas Co., Ltd., Toyoko Living Co., Ltd.,Tokyo Kiko Co., Ltd., Tokyo Gas Yokosuka Power Co., Ltd.,
Dining Art Systems Co., Ltd., Living Design Center Co., Ltd.,Tokyo Gas Bay Power 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., Green Tech Tokyo Co., Ltd.,Tokyo Gas Sports Co., Ltd., TG Auto Service Co., Ltd.,

60 Tokyo Gas Annual Report 2005

Tokyo Gas Remodeling Co., Ltd., Urban Communications, Inc.,Tokyo Gas Techno-Service Co., Ltd.,Tokyo Gas Building Service Co., Ltd., Toeki Service Center Co., Ltd.,Showa Bussan Co., Ltd., Tosetz Co., Ltd.,
Kanpai Customer Service Co., Ltd., Toyoko Customer Service Co., Ltd.,Showa Unyu Co., Ltd., Tokyo Plant Service Co., Ltd.,Tokyo Rare Gases Co., Ltd., Tokyo Auto Gas Co., Ltd.,
Kanpai Tech Co., Ltd.

Investor Information
As of March 31, 2005

Securities Traded

Tokyo Gas Co., Ltd.
Head office

Common stock: Tokyo, Osaka and Nagoyastock exchanges (Trade code: 9531)

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

Independent Auditors KPMG AZSA & Co.
Transfer Agent The Chuo Mitsui Trust & Banking Co., Ltd.

Overseas Offices

Number of Employees

3-33-1 Shiba, Minato-ku, Tokyo 105-8574, JapanNew York Office8,447 (Nonconsolidated basis, excluding
part-time workers)

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

Principal Shareholders
Number of Percentage ofshares held total shares(Thousands) outstanding

Paris OfficeName102, Avenue des Champs-Elysées, 75008 Paris, France
Tel: +33-1-45-62-00-59 Fax: +33-1-42-25-96-85

Nippon Life Insurance Company

160,238

5.70

Tokyo Gas Co., Ltd.

159,437

5.67

Asia Pacific Regional Office

The Dai-ichi Mutual Life
Insurance Company

155,962

5.55

The Master Trust Bank of Japan, Ltd.
(Trust Account)

138,220

4.92

State Street Bank and Trust Company

100,769

3.59

Japan Trustee Services Bank, Ltd.
(Trust Account)

94,872

3.38

Fukoku Mutual Life Insurance Company

78,504

2.79

Employees Shareholding Association

40,4001.44

Mellon Bank, NA as agent for its client Mellon
Omnibus US Pension

35,084

1.25

Mizuho Corporate Bank, Ltd.

33,0001.17

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

October 1, 1885

¥141,844,398,888

Authorized Number of Shares 6,500,000,000 shares
Issued Number of Shares

2,810,171,295 shares

Number of Shareholders

130,985

Monthly Share Price Range (Tokyo Stock Exchange)(¥)
500

Share Price

400(Thousands of shares)
300

300,000

Monthly Trading Volume200

200,000

100

100,000

0

0

’00/
’01/
’02/
’03/
’04/
’05/
4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3

FURTHER INFORMATION

Forward-Looking Statements

Please direct comments regarding the content of this report or requests for other publications to:Statements made in this annual report with respect to Tokyo Gas’ plans, strategies and beliefs, and other statements that are not expressions of fact are forward-looking statements about the future performance of thecompany. As such, they are based on management’s assumptions and opinions stemming from currently available
information, and therefore 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
International Business Coordination Section,
Business Development Dept.
Tel: +81-3-5400-7561 Fax: +81-3-5472-5385

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

Tokyo Gas Annual Report 2005

61