FINANCIAL SECTION

Contents
46

TWELVE-YEAR SUMMARY

48

MANAGEMENT’S DISCUSSION AND ANALYSIS

54

BUSINESS RISKS56

CONSOLIDATED BALANCE SHEETS

58

CONSOLIDATED STATEMENTS OF INCOME

59	CONSOLIDATED STATEMENTS OF CHANGES IN NETASSETS
60

CONSOLIDATED STATEMENTS OF CASH FLOWS

61	NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
72

INDEPENDENT AUDITORS’ REPORT73	CONSOLIDATED SUBSIDIARIESAND EQUITY-METHOD AFFILIATES74

INVESTOR INFORMATION

For purposes of presentation, in this annual report, all amounts less than one
billion yen or one million yen have been rounded down, and hundredths of apercentage point have been rounded to the nearest whole number.
In addition, all graphs and tables represent fiscal years ended March 31 of therespective years.

TOKYO GAS ANNUAL REPORT 201045

Twelve-Year SummaryYears ended March 31

Millions of yen, except per share amounts

2010

2009

2008

2007

2006

¥1,415,718¥1,660,162¥1,487,496¥1,376,958¥1,266,501

1,045,535

1,257,574

1,087,044

999,521910,320

126,088

122,363132,236

135,407

130,825

For the Years
Net sales
Gas sales
Gas appliance sales
Installation work

44,36049,09457,32559,22959,746

Real estate rental

33,71035,63735,16934,03434,187

Other business

317,819

363,783

320,361

285,407

252,595

Operating income

85,22965,20470,048

162,315

112,345

Net income

53,781

41,70842,487

100,699

62,114

Depreciation*

146,117

141,083

142,421

133,142

136,376

Capital expenditures**148,186

145,929

138,006

124,556

119,435

Free cash flow

51,71236,862

46,902

109,285

79,057

Amounts per shareof common stock (Yen)
Net income

¥

19.86

¥

15.63

¥

15.94

¥

37.50

¥

23.48

—

15.37

15.50

35.69

21.70

301.58284.72289.49293.11

270.46

9.00

8.00

8.00

8.00

7.00

¥1,840,972¥1,764,185¥1,703,651¥1,692,635¥1,693,898

Interest-bearing debt

555,919593,230

558,716

525,467

559,911

Total net assets

826,291

784,616

780,455

806,045

—

—

—

—

—

728,231

Operating income to net sales

6.0%

3.9%

4.7%

11.8%

8.9%

Net income to net sales

3.8%

2.5%

2.9%

7.3%

4.9%

ROE

6.8%

5.4%

5.4%

13.2%

9.0%

Diluted net income
Net assets
Cash dividends applicable	  to the year

At Year-End
Total assets

Total shareholders’ equity

Ratios

ROA

3.0%

2.4%

2.5%

5.9%

3.7%

Equity ratio

44.2%

43.8%

45.1%

47.0%

43.0%

Notes: 1 Segment sales include intra-group transactions.
		
2 Free cash flow = net income + depreciation* – capital expenditures**			 * including amortization of long-term prepayments
			 ** purchases of tangible fixed assets + purchases of intangible fixed assets + long-term prepayments		3	Effective from the year ended March 31, 2007, the Company and its consolidated subsidiaries adopted the new accounting standard for presentationof net assets (“Accounting Standard for Presentation of Net Assets in the Balance Sheet and its Implementation Guidance” issued
by the Business Accounting Deliberation Council on December 9, 2005).
		
4	From the year ended March 31, 2010, diluted net income per share is not presented in the above table because there are no residual securities fromthe beginning of the fiscal year.

46

FINANCIAL SECTION

2005

2004

2003

2002

2001

2000

1999

¥1,190,783¥1,151,824¥1,127,633¥1,097,589¥1,086,770¥ 992,255¥ 997,766

834,658

831,114

792,453

750,438

740,731

672,069

674,996

135,108

133,873

142,635

149,203

146,516

127,916

133,925

64,794

68,03370,56871,337

71,90768,651

68,817

34,70135,44336,34637,55137,60137,841

37,616

234,720

172,160

158,326

156,011

159,577

158,819

155,044

145,349

152,287

123,294

110,607

103,659

69,23372,302¥

84,04744,78759,201

51,911

27,595

26,69817,764140,271

146,895

141,027

145,564

150,374

140,306

143,009107,529

107,441

111,988

105,296111,397

124,975

151,126

116,789

84,241

88,24092,17866,57242,029

9,647

31.47

¥

16.44

¥

21.18

¥

18.47

¥

9.82

¥

9.50

¥

6.32

28.24

14.98

19.11

16.66

9.13

8.84

5.94

244.73221.53208.65200.75

196.72172.33149.98

7.00

7.00

6.00

6.00

6.00

5.00

5.00

¥1,668,734¥1,666,828¥1,676,064¥1,702,712¥1,797,669¥1,805,086¥1,707,446

624,105

682,744731,301

775,894

870,347

957,085

911,901

—

—

—

—

—

—

—

648,766

598,453

579,706

564,077552,790484,239

421,443

12.2%

13.2%

10.9%

10.1%

9.5%

7.0%

7.2%

7.1%

3.9%

5.3%

4.7%

2.5%

2.7%

1.8%

13.5%

7.6%

10.4%

9.3%

5.3%

5.9%

4.2%

5.0%

2.7%

3.5%

3.0%

1.5%

1.5%

1.0%

38.9%

35.9%

34.6%

33.1%

30.8%

26.8%

24.7%

TOKYO GAS ANNUAL REPORT 2010

47

MANAGEMENT’S DISCUSSION AND ANALYSIS

Summary
In the fiscal year ended March 31, 2010, gas sales volume was down 2.0%, to 13,666 million m3, due in part tothe extended business recession.
The gas sales volume was down, and as a result of a decline in LNG prices, gas unit prices decreased under the gas rateadjustment system. Consequently, net sales were down 14.7%, to ¥1,415.7 billion. However, operating expenses also decreased,leading to a 30.7% rise in operating income, to ¥85.2 billion. Moreover, due to such factors as foreign exchange gains fromoverseas subsidiaries, ordinary income rose 43.2%, to ¥83.5 billion. Net income was up 28.9%, to ¥53.7 billion, the firstincrease in net income in three years.
In regard to the provision of dividends to shareholders, there is no change to our policy of a total payout ratioof 60%. From the fiscal year ended March 31, 2010, we decided to increase the per share dividend by ¥1.00,
resulting in dividends of ¥9.00 for the year.
Operating Environment in the Year Under Review
Influence of Economic Conditions
In the fiscal year ended March 31, 2010, there were signs
that the global economic downturn—which was triggeredby the financial market crisis in the United States—was
improving. Nonetheless, the Japanese economy was affectedby ongoing adverse factors, such as sluggish consumer
spending and stagnant capital expenditures, and the future
course of business conditions remained difficult to predict.
In this setting, energy demand was sluggish under the
influence of restrained consumption and contracting corporate activity, and consequently city gas, the Group’s corebusiness, was adversely affected. In the second half of the
fiscal year, gas sales recovered in nearly all areas of theindustrial sector, but sales did not return to the levels seenprior to the financial crisis. Other sectors, such as residential
and commercial, were also influenced by the sluggish
business environment.
Influence of Fluctuating Oil Prices and Foreign Exchange Rates on
the Company’s Operations
The purchase price of LNG, which accounts for the majority of
the resources used in the Group’s core city gas business, islinked to the Japan Customs-cleared Crude price (hereafterJCC). Under the gas rate adjustment system, the Company’s
gas resource costs are reflected in sales, and the Company’s
revenues and operating expenses are significantly influenced
by fluctuations in crude oil prices.
In the second half of the year under review, the JCC wasat a high level, in the US$70 to US$80 per barrel range, but
for the full fiscal year, it was US$69.38 per barrel, down
US$21.13 year on year. In foreign exchange rates, the yen
remained at a high level, and for the full fiscal year the average yen–dollar exchange rate was ¥92.89, reflecting yen appreciation of ¥7.82 compared with the previous fiscal year.
As a result, the year’s trends in crude oil prices and foreign exchange rates had the effect of reducing the Company’s LNG purchase price and contributing to declines insales and gas resource costs.

Prices of Crude Oil and LNG
US$/MMBtu

US$/barrel

15

100

12

80

9

60

6

40

3

20

0

0

09/4 5

6

7

8

9

10 11

12 10/1 2

All Japan LNG prices (Trade statistics) (left)
JCC prices (Trade statistics) (right)

48

FINANCIAL SECTION

3

Yen–Dollar Exchange Rate
Yen/US$
100

95

90

85

80

09/4 5

6

7

8

9

10 11

12 10/1 2

3

Analysis of the City Gas Business
Sales down in residential, commercial, and industrial
sectors. Slight increase in wholesale sector.
Residential Sector
Due to the growing use of high-efficiency equipment and to
an increase in multiple dwelling units with high levels of
air-tightness and heat insulation, demand for hot water andindoor heating declined. In addition, due to an expanding
focus on energy saving and economizing, residential demand
was down 0.9%, or 31 million m3, to 3,437 million m3.
Commercial and Other Sectors
On account of the recession, building occupancy rates were
down and customers implemented energy-saving initiatives,
leading to lower utilization of existing facilities. As a result,commercial demand declined 4.5%, or 92 million m3.
However, public and medical-related demand was up 2.4%,
or 23 million m3, due to new customers. As a result, commercial demand overall was down 2.3%, or 68 million m3,
to 2,943 million m3.
Industrial Sector
In the second half of the fiscal year, there were signs ofimproving business conditions in some industries, but due
to decreased utilization of existing facilities in the first half,industrial demand was down 3.1%, or 177 million m3, year
on year, to 5,446 million m3. Through November 2009, gassales volume in industrial sector was down year on year for
14 consecutive months, but from December demand once
again began to increase.
Wholesale Sector
Wholesale supplies to other gas utilities were basicallyunchanged from the previous year, at 1,841 million m3,
up 1 million m3.
Consequently, overall gas sales volume was down 2.0%,
or 276 million m3, to 13,666 million m3.

Analysis of Segments

Gas Sales Volume by Sector

Gas Sales Segment
Gas sales declined 16.9%, or ¥212.0 billion, to ¥1,045.5
billion, due to a decline in gas sales volume and to lower
gas unit prices under the gas rate adjustment system.
However, accompanying lower crude oil prices and theappreciation of the yen, gas resource costs decreased, andconsequently operating income rose 14.9%, or ¥16.5 billion,to ¥127.3 billion. As a result, we recorded lower sales andhigher profits in this segment.

Million m3, 45MJ/m3
16,00012,000

8,000

4,000

Gas Appliance Sales Segment
New housing starts were sluggish, and demand for
consumer durables was weak. Nonetheless, due to suchfactors as increased sales from three newly consolidated
LIFEVAL companies and the move to mandatory installationof alarms, sales increased 3.0%, or ¥3.7 billion, year on
year, to ¥126.0 billion. Operating income was up 12.0%,
or ¥0.3 billion, year on year, to ¥2.3 billion.

0

06/3

07/3

Residential
Industrial

08/3

09/3

10/3

Commercial and others
Wholesale

Analysis of Income and expenses
Tokyo Gas recorded lower sales and higher profits forthe first time in 10 years.
In the fiscal year ended March 31, 2010, gas sales decreased 16.9%, or ¥212.0 billion, to ¥1,045.5 billion, due tolower gas unit prices under the gas rate adjustment
system and to a 2.0% decline in gas sales volume. As aresult, total net sales decreased 14.7%, or ¥244.4 billion,
from the previous year, to ¥1,415.7 billion.
The retirement benefits accounting actuarial difference
burden increased in the year under review, and miscellaneous salaries of ¥32.0 billion were recorded. Nonetheless,with contributions from lower crude oil prices and theappreciation of the yen, gas resource costs were down
¥255.0 billion. Consequently, operating expenses declined
16.6%, or ¥264.5 billion, to ¥1,330.4 billion. As a result,operating income increased 30.7%, or ¥20.0 billion, year on
year, to ¥85.2 billion.
Ordinary income was up 43.2%, or ¥25.2 billion,to ¥83.5 billion, due in part to foreign exchange gains fromoverseas subsidiaries.
There were no extraordinary items in the year underreview, and net income posted a year-on-year gain of
28.9%, or ¥12.0 billion, to ¥53.7 billion.

Net Income and Net Income per Share

Installation Work Segment
Sales declined 9.6%, or ¥4.7 billion, year on year, to ¥44.3
billion, due to a decline in the number of new constructions.
Operating expenses decreased due to the application of thepercentage of completion method to construction works
from the fiscal year ended March 31, 2010 and to cost
reductions. As a result, operating loss was ¥0.6 billion, an
improvement of ¥0.4 billion year on year.
Real Estate Rental Segment
Due in part to a decline in lease income from Shinjuku Park
Tower, sales declined 5.4%, or ¥1.9 billion, to ¥33.7 billion.
Consequently, operating income was also down 2.0%,
or ¥0.2 billion, to ¥7.2 billion.
Other Business Segment
Sales in other business decreased 12.6%, or ¥45.9 billion,to ¥317.8 billion. This decrease was attributable to declines
in sales prices accompanying lower fuel expenses andresources costs in energy services, LPG/industry gas sales,and electric power operations. However, due in part to thedecline in fuel expenses and resources costs, operating
income rose 12.8%, or ¥1.8 billion, to ¥15.2 billion.
Business Results by Segment (¥ million)¥ billion

¥

120

40

90

30

Sales
2010

2009

2008

1,045,535

1,257,574

1,087,044

Gas Appliance Sales

126,088

122,363

132,326

Installation Work44,36049,09457,325

Real Estate Rental

33,71035,63735,169Other Business

317,819

363,783

320,361
1,632,228

Years ended March 31

60

20

30

10

0

0

06/3

07/3

Net income (left)

08/3

09/3

Gas Sales

1,567,513

1,828,452

Elimination or Corporate(151,795)(168,290)(144,731)

Consolidation

1,415,718

1,660,162

1,487,496

Total

10/3

Net income per share (right)

TOKYO GAS ANNUAL REPORT 201049

Operating Income (Loss)
Years ended March 31

2010

2009

2008

127,352

110,857

111,663

Gas Appliance Sales

2,335

2,086

2,909

Installation Work(650)

(1,099)828

Real Estate Rental

7,292

7,442

7,963

Gas Sales

15,21013,482

12,768151,539

132,768

136,133

Elimination or Corporate(66,310)(67,563)(66,084)

Consolidation

85,22965,20470,048Other Business
Total

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

Contribution to Net Sales by Segment
2010

2009

Gas Sales

66.7%

68.8%

–2.1 point

Gas Appliance Sales

8.0%

6.7%

+1.3 point

Installation Work

2.8%

2.7%

+0.1 point

Real Estate Rental

2.2%

1.9%

+0.3 point

Other Business

20.3%

19.9%

+0.4 point

ChangeFinancial Position and Liquidity
AssetsTotal assets increased ¥76.8 billion, or 4.4%, year on year,to ¥1,840.9 billion. Total property, plant and equipment
declined ¥2.0 billion, to ¥1,108.8 billion. Total intangible
assets amounted to ¥27.9 billion, an increase of ¥1.9 billion.
In investments and other assets, investment securities increased ¥29.9 billion, to ¥139.0 billion, due to higher stock
prices stemming from a rebound in the stock market andfrom new purchases of securities. Overall, total investments
and other assets rose ¥53.2 billion, to ¥268.3 billion.
Total current assets were up ¥23.6 billion, to ¥435.7
billion. Raw materials and supplies decreased ¥19.5 billion,
but cash and deposits increased ¥40.4 billion.
Liabilities
Total liabilities rose ¥35.1 billion, to ¥1,014.6 billion.
Long-term loans payable declined ¥21.1 billion, but provision
for retirement benefits increased ¥30.2 billion. Total
non-current liabilities rose ¥21.1 billion, to ¥654.3 billion.
Total current liabilities rose ¥14.0 billion, to ¥360.3 billion,
due to an increase of ¥31.6 billion in notes and accounts
payable–trade.
Net Assets
Total net assets increased ¥41.6 billion, to ¥826.2 billion.
Total shareholders’ equity was up ¥26.8 billion, to ¥799.3
billion, due to net income of ¥53.7 billion, which exceededcash dividends paid of ¥21.7 billion. In valuation and translation adjustments, valuation difference on available-for-salesecurities was up ¥8.7 billion. Consequently, total valuationand translation adjustments rose ¥14.7 billion, to ¥14.5 billion.
Minority interests were up ¥0.2 billion, to ¥12.4 billion.
Changes in Treasury Stock
In the fiscal year ended March 31, 2010, the Company
made open market purchases of treasury stock totaling¥4.9 billion (13.81 million shares), all of which were cancelled during the fiscal year. Consequently, treasury stock
declined ¥0.4 billion, to ¥1.9 billion.

Equity Ratio
Retained earnings increased due to the recording of net
income, and valuation difference on available-for-sale securities rose. Consequently, total shareholders’ equity was up¥41.5 billion, to ¥813.8 billion. Total assets increased ¥76.8
billion, to ¥1,840.9 billion, and as a result, the equity ratio increased 0.4 point, to 44.2%.
Interest-Bearing Debt
In the fiscal year ended March 31, 2010, due to the redemption of bonds payable at maturity and to the repayment oflong-term loans payable, interest-bearing debt declined
6.3%, or ¥37.3 billion, to ¥555.9 billion. As a result, the D/E
ratio declined 0.09, to 0.68.
Credit Ratings
To secure financial flexibility in regard to liquidity on handand capital policy, and to secure access to financial resources through the capital markets, the Company believes that
it is necessary to maintain its credit rating at a certain level.
Tokyo Gas has acquired ratings from Standard & Poor’s(S&P), Moody’s, and Rating and Investment Information Inc.
(R&I), a rating agency in Japan. As of March 31, 2010, theratings were as follows.
S&P
AA	(Very strong capacity to meet obligations.
Difference from the highest rating,AAA, is small.)
Moody’s Aa1	(High creditworthiness and very low credit
risk. One of the higher rankings forlong-term obligations.)
R&I
AA+	(Very high creditworthiness, excellent
factors.)
Capital Expenditures and Depreciation
Capital expenditures rose 1.5%, or ¥2.2 billion, to ¥148.1
billion. This increase was principally attributable to higher
investment in manufacturing facilities, such as for LNG
tanks, and in administrative facilities, such as in IT systemdevelopment. Depreciation rose 3.6%, or ¥5.1 billion,to ¥146.1 billion.

Total Equity and Equity Ratio¥ billion

%

1,000

50

800

40

600

30

400

20

200

10

0

0

06/3

07/3

Total equity (left)

08/3

09/3

10/3

Equity ratio (right)

Interest-bearing Debt and D/E Ratio¥ billion

Times

600

1.2

500

1.0

400

0.8

300

0.6

200

0.4

100

0.2

0

0

06/3

07/3

08/3

Interest-bearing debt (left)

50

FINANCIAL SECTION

09/3

10/3

D/E ratio (right)

Cash Flows
Cash Flows from Operating Activities
Net cash provided by operating activities increased ¥134.6
billion from the previous year, to ¥294.1 billion. In addition
to income before income taxes of ¥83.5 billion, up ¥15.5
billion from the previous fiscal year; increase in provision
for retirement benefits was ¥30.1 billion, up ¥23.0 billion;
decrease in notes and accounts receivable–trade was¥15.4 billion, up ¥12.9 billion; and increase in notes andaccounts payable–trade was ¥29.4 billion, up ¥23.4 billion.
These were the major factors contributing to the increasein cash flows from operating activities.
Cash Flows from Investment Activities
Net cash used in investment activities in the fiscal year under review was ¥177.2 billion, compared with ¥163.5 billion
in the previous fiscal year. This change was attributable tothe following factors. The total of purchase of property,
plant and equipment and purchase of intangible assets rose
¥4.7 billion, to ¥145.4 billion, and payments of long-termloans receivable rose ¥8.9 billion, to ¥17.8 billion.
Cash Flows from Financing Activities
Net cash used in financing activities in the fiscal year underreview was ¥69.3 billion, compared with net cash provided
by financing activities of ¥30.9 billion in the previous year.
Proceeds from issuance of bonds was ¥30.0 billion, andproceeds from long-term loans payable was ¥13.0 billion.
However, redemption of bonds was ¥60.2 billion, repaymentof long-term loans payable was ¥29.2 billion, and cash
dividends paid was ¥21.6 billion.
Operating Cash Flow
Aiming to aggressively invest in the gas business to prepare
for future demand growth, Tokyo Gas has made operating
cash flow a key management indicator and has disclosed its
allocation policy. Operating cash flow is calculated by adding
depreciation to net income. Operating cash flow for the
fiscal year ended March 31, 2010 amounted to ¥199.8
billion, a year-on-year increase of ¥17.1 billion. The higher
figure reflects an increase of ¥12.0 billion in net income,and an increase of ¥5.1 billion in depreciation.
Total Payout Ratio
Tokyo Gas has set an objective of a 60% total payout ratio
as an indicator of its commitment to shareholder returns.
We define this new indicator as the ratio of the sum of theincome distributed as dividends funded by net income in FY
n and share repurchasing in FY n+1 to the net income in FY n.
The Company plans dividends of ¥9.0 per share for the
fiscal year ended March 31, 2010, and share repurchases of¥8.0 billion in the fiscal year ending March 31, 2011. As aresult, the total payout ratio for the fiscal year ended March
31, 2010 was 60.1%.
In regard to dividends, from the fiscal year ended March
31, 2010, we increased dividends by ¥1.0 per share, to¥9.0 per share. In the future, our priority is to maintainstable dividends, with consideration for gradual increases
over the long term and without reducing dividends.
In regard to share repurchases, our basic principle is tocancel the shares. In the fiscal year ended March 31, 2010,
the 13.81 million shares acquired were cancelled in January
2010. The 19,568 thousand shares repurchased in the fiscal
year ending March 31, 2011 were cancelled in June 2010,
and consequently, the number of shares after thecancellation was 2,684,193,295 shares.

Millions of yen

2010

2009

2008

Net cash provided byoperating activities

294,110

159,561

182,204

Net cash used in investment
activities(177,290)(163,575)(155,365)

Net cash provided by(used in) financing activities(69,375)

30,932(25,189)

Key Management Indicators
ROA and ROE improve due to higher net income
ROA
The average balance of total assets increased, but net
income rose 28.9%, to ¥53.7 billion, and as a result ROA
improved 0.6 point, to 3.0%.
ROE
The average balance of total equity increased, but net
income rose 28.9%, to ¥53.7 billion, and as a result ROE
improved 1.4 point, to 6.8%.
TEP
Our goal is to generate profit in excess of capital costs.
This is reflected in our adoption of Tokyo Gas Economic
Profit (TEP: Net operating profit after tax prior to interest
payments minus the cost of capital) as one of our main
management indicators.
In the fiscal year ended March 31, 2010, improvement ingross profits on gas due to the influence of improvement in
the slide time lag was higher than the increase in miscellaneous expenses, such as amortization of retirement benefits accounting actuarial differences, and Net Operating
Profit After Tax Prior to Interest Payments (NOPAT) increased ¥21.5 billion year on year, to ¥62.7 billion. However,the Weighted Average Cost of Capital (WACC) fell from
3.4% to 3.2%, and as a result the cost of capital declined¥1.9 billion, to ¥44.1 billion. Consequently, TEP improved¥23.4 billion, to ¥18.6 billion.

ROA and ROE
%
16

12

8

4

0

06/3
ROA

07/3

08/3

09/3

10/3

ROE

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

TOKYO GAS ANNUAL REPORT 2010

51

TEP
¥ billion
60
50
40
30
20
10
0
–10

06/3

07/3

08/3

09/3

10/3

TEP = NOPAT – cost of capital (Invested capital x WACC)NOPAT: Net operating profit after tax prior to interest payments

Forecast
Forecasting higher sales and profits in the fiscal year
ending March 31, 2011
In the fiscal year ending March 31, 2011, we expect consolidated sales to increase ¥135.3 billion, or 9.6%, to ¥1,551.0
billion; operating income to increase ¥22.8 billion, or 26.7%,
to ¥108.0 billion; and net income to increase ¥11.3 billion, or
20.9%, to ¥65.0 billion.
In the fiscal year ended March 31, 2010, ordinary income
amounted to ¥83.5 billion, but in the fiscal year ending
March 31, 2011, we are forecasting a year-on-year increaseof ¥18.5 billion, or 22.1%, to ¥102.0 billion. Principal factors
include the non-consolidated ordinary income of Tokyo Gas(+¥26.1 billion), the ordinary income of consolidated subsidiaries (–¥3.6 billion), and internal offset, etc. (–¥4.0 billion).
On a non-consolidated basis, Tokyo Gas is expected torecord an increase of ¥26.1 billion in ordinary income incomparison with the fiscal year ended March 31, 2010.

Gas sales volume and sales revenues are both projected toincrease, but we expect the gross profits on gas to declineby ¥23.0 billion because the increase in gas resource costs
is expected to exceed the increase in sales revenues.
Among the principal factors, we project that the increase ingas sales volume and differences in customer composition
will increase profits by ¥5.3 billion, while under-recovery ofgas resource costs due to the slide time lag under the gas
rate adjustment system is expected to decrease profitsby ¥30.4 billion. Investment to steadily implement theCompany’s key policies under the medium-term management plan will increase operating expenses by ¥9.0 billion,
but due to retirement benefits accounting actuarial
differences and other salary expenses, fixed expenses areprojected to decrease ¥42.2 billion.
The ordinary income for consolidated subsidiaries is
projected to decline by ¥3.6 billion due primarily to lower
foreign exchange gain of overseas subsidiaries.

External Risks Affecting Business Activities
Gas Resource Purchase Price 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 yen–dollar 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 theinternational market price for crude oil.
Fluctuations in the cost of gas resources are passed on togas rates after at most five months under the “gas rateadjustment system.” Accordingly, in a single fiscal year there
can be under-recovery or over-recovery. However, over the
medium to long term, the effect on income is minimal.
The extent to which fluctuations in exchange rates andcrude oil prices will affect gross profit in the fiscal year
ending March 31, 2011 is as follows.

Ordinary Income Plan for Fiscal Year Ending March 31, 2011: Analysis of Factors (Year on Year)
Results in Fiscal Year
Ended March 31, 2010
¥83.5 billion

Forecast for Fiscal YearEnding March 31, 2011
¥102.0 billion

Difference+¥18.5 billion

Decline in gross profits on gas: –¥23.0 billion• Higher gas sales volume / Customer composition:+¥5.3 billion (of which, atmospheric temperature effect: –¥1.1 billion)• Slide time lag: –¥30.4 billion (of which, special gas rate measures:–¥4.1 billion; gas rate adjustment change: –¥12.5 billion)• Other: +¥2.1 billion

Tokyo Gas
(non-consolidated)+¥26.1 billion

Consolidated subsidiaries–¥3.6 billion
Internal offset, etc.
–¥4.0 billion

52

FINANCIAL SECTION

Lower operating expenses: +¥42.2 billion• Higher general expenses: –¥9.0 billion(of which, consignment expenses: –¥3.7 billion; demand
development expenses: –¥3.2 billion, etc.)• Lower personnel expense: +¥53.9 billion(of which, improvement in pension actuarial difference:+¥51.8 billion; workforce reduction: +¥2.1 billion, etc.)
Miscellaneous operating income / Incidental income /Non-operating income: +¥6.9 billion• Miscellaneous operating income: +¥1.0 billion(higher terminal usage fees, etc.)• Incidental income: +¥0.8 billion(higher income from LNG sales: +¥0.9 billion, etc.)• Non-operating: +¥5.1 billion (lower expenses for environmental
consideration: +¥3.0 billion; increase in dividends received fromaffiliated companies: +¥2.7 billion, etc.)
Affiliated company dividends-received eliminations:–¥3.5 billion, etc.

Exchange rate	Approximately ¥0.9 billion down (up) withdepreciation (appreciation) of ¥1/dollar
Crude oil price	Approximately ¥0.9 billion down (up) withan increase (decrease) in crude oil priceof US$1/barrel
In the fiscal year ended March 31, 2010, the average exchange rate was ¥92.89 to one dollar, and the crude oil priceaveraged US$69.38 per barrel. Forecasts for the fiscal year
ending March 31, 2011 are based on an exchange rate of¥95 to one dollar and an average crude oil price of US$80
per barrel.
In regard to the risk of fluctuations in the gas resource
purchase price, although there can be under-recovery orover-recovery in a single fiscal year under the gas rate adjustment system, the Company hedges a certain portion ofthis risk through LNG swaps. In regard to foreign exchange
rate fluctuations, meanwhile, the Company hedges a certain
portion of the risk through forward exchange contracts.
Temperature Fluctuation Risk
Temperatures affect the volume of city gas sales, which account for around 70% of consolidated sales. In the residential sector, gas is used mainly for water heating and indoor
heating. Mild winter weather can erode revenues andincome by reducing the volume of gas sold. In the commercial sector, gas is mainly used for air conditioning systems,
so if temperatures are low in the summer or high in thewinter, the gas sales volume will likely decrease.
The average temperatures in the fiscal year ended March
31, 2010 were 22.4˚C in the first half of the year, 10.7˚C in
the second half, and 16.5˚C for the whole year. Forecasts
for the fiscal year ending March 31, 2011 are based on anaverage of 16.8˚C for the whole year.
To control the risk of temperature-related fluctuations inearnings, the Company hedges a certain portion of that risk
through weather derivatives.

Stock Price Fluctuation Risk
The equities held by Tokyo Gas are primarily those of its
necessary business partners, which are held with the objective of fostering mutual growth. Among them, equities ofpublicly listed companies are subject to market risk. TokyoGas has established management policies and rules andregularly reviews the necessity of equity holdings and theirasset valuations for handling of such equities.

Monthly Gas Sales Volume for the Fiscal Year Ended
March 31, 2010 (non-consolidated)
Million m3, 45MJ/m3
1,500
1,200
900
600
300
0

09/4 5

6

7

Residential
Industrial

8

9

10 11

12 10/1 2

3

Commercial and others
Wholesale

Impact of 1°C Temperature Rise on Overall Gas Sales Volume

Rate of change

Summer (June–September)

0.0%

Winter (December–March)–2.2%

Intervening months (April, May, October, November)–1.7%

Annual–1.4%

Interest Rate Fluctuation Risk
The Company’s interest-bearing liabilities mostly carry longterm, fixed interest rates, so there is only a very small interest rate fluctuation risk during the term of an obligation.
However, there may be fluctuation risk when loans are refinanced.

TOKYO GAS ANNUAL REPORT 201053

Business Risks

Described below are items in the annual Yuho securities report concerning the Company‘s business results
and financial condition that could have a significant influence on investor decisions. Forward-looking
statements are based on the judgments of the Group as of the end of the fiscal year (March 31, 2010).

1. Accidents and Disasters(1) Resource procurement supply interruption risk
Because Tokyo Gas relies on imports for the majority of its
natural gas and other city gas resources, supplier country
risk, accidents at fields or LNG liquefaction plants, accidents
involving LNG vessels in transit, or other situations preventing the procurement of gas resources may disrupt the supplyof natural gas. The Company strives to disperse procurement risks, thereby ensuring its ability to procure LNG in astable and flexible manner, through supply diversification.
These efforts include importing LNG from six countries andthrough 10 projects and flexibly allocating its own LNG ships.
(2) Natural disaster risk
Tokyo Gas engages in facility-dependent businesses
because city gas production and supply facilities are thefoundation of its business. The Company therefore enforces
measures to minimize the aftermath of natural disasters.
Some such measures include provisions to produce andsupply city gas even in the event of large-scale earthquakesof a magnitude equivalent to the Great Hanshin-Awaji
Earthquake, preparation of a business continuity plan (BCP)
that takes into account large-scale earthquakes such as are
assumed by Japan’s Cabinet Office, the improvement ofcontingency plans, and regular drills for natural disasters
including earthquakes and typhoons. Despite such measures, major natural disasters may cause damage to LNG
terminals and other production facilities or pipelines andother supply facilities and disrupt the supply of city gas.
Costs accompanying recovery efforts could affect revenues.
(3) C ity gas and electricity production / supply accidents or supply
disruption
The production and supply of city gas and electricity that isessential to the life of customers and industry is core to theCompany’s business activities. For this reason, Tokyo Gas is
implementing measures to prevent accidents and supplyside impairments through the systematic implementationof various security measures, preparation of a BCP, andexecution of regular drills. However, large-scale leakage,
explosions, or supply difficulties in the process of city gas
production or supply could result not only in direct damages
but also in tangible and intangible losses, including social
responsibility. Remedying power supply impairments may
result in additional losses.
(4) E nsuring the safety of city gas and quality problems affecting
gas equipment
Tokyo Gas has a responsibility to ensure the safe supply ofcity gas. Accordingly, the Company has in place safetymeasures that include reinforcing periodic customer safety
checks, increasing the number of categories included inchecks, and encouraging upgrades to safer appliances.
Tokyo Gas sells gas appliances and other equipment under
the Tokyo Gas brand through consolidated subsidiaries andrelated companies and promotes the development of gas
appliances with enhanced safety features. Nevertheless,costs accompanying responses to accidents caused by city gas
supply, appliances, or other equipment could affect future
earnings, and other direct and indirect losses could result.

54

FINANCIAL SECTION(5) Damage to reputation resulting from city gas accidents causedby other gas companies
Accidents involving city gas supply by other gas companies
could have a serious effect on the reputation of the city gas
industry as a whole. This could result in tangible andintangible losses.

2. Market Risks(1) Market price and interest rate fluctuation risks
Tokyo Gas might incur losses in the event of fluctuations inmarket prices of Company-owned real estate, stocks,
pension assets, or other assets. In addition, interest rate
fluctuations could raise the Company’s interest burden.
However, as most of its interest-bearing debts are
long-term, fixed-rate debts, Tokyo Gas expects the impact
of interest rate fluctuations to be minimal.

3. Risks Accompanying Business Execution(1) Risks faced by existing business
A. Changes in procurement costs

Changes in terms of contracts and negotiations with
suppliers of LNG, from which city gas is produced, may
affect profitability. Also, as LNG and crude oil prices arelinked, and as crude oil sales contracts are denominated in
U.S. dollars, changes in crude oil prices and fluctuations inyen–dollar exchange rates can impact profitability.
Furthermore, if demand increases more than the amountprocured through LNG projects based on long-term contracts, or trouble occurs at a shipping terminal or duringtransportation, or there are delays of LNG supply by new
projects, revenues may be affected by the cost of procuring
spot LNG.
On the other hand, under the provisions for adjusting gas
rates to reflect resource costs, fluctuations in gas resource
prices are reflected in rates within five months at maximum.
However, if such fluctuations exceed 160% of the standard
resource price, the excess amount cannot be collected.
In the event that such changes are reflected in gas rates
beyond the fiscal term, the bottom line may be affectedduring the following fiscal term as a result of the underrecovery or over-recovery of gas resource costs.
B. Decline in gas sales volume due to weather fluctuations

As sales of city gas accounts for approximately 70% ofGroup sales, particularly hot summer and unseasonably
warm winter weather can reduce residential sales of gas
used to supply hot water and heating, as well as commercial sales of gas to air condition buildings, thereby affecting
revenues.
C. Decline in demand due to intensified competition

Tokyo Gas strives aggressively to enhance its sales activities through such measures as introducing gas appliancesthat are environmentally conscious, efficient and convenient. Nevertheless, the Company may face falling demandowing to increasing competition with electric utilities andmajor companies entering into the gas business, as well as
possible loss of LNG competitiveness against other energy
sources due to crude oil price fluctuation. Such factors may
affect revenues.

D. Decline in existing demand

Decreased facility utilization due to economic recession,
advancement of energy conservation activities, changes inindustry structure, or other factors may result in a partial
decrease in existing gas demand in the industrial and commercial sectors. Also, smaller families, changes in lifestyles,
the penetration of energy-saving appliances, and otherfactors may reduce demand from the residential sector.
E. Delay in the development of new technology

Although the Group is developing new products andtechnologies with enhanced environmental designs and ahigh level of safety, it may not be able to develop anddeliver these products and technologies in a timely manner.
This situation could cause competitiveness to fall incomparison with other forms of energy, and affect theGroup’s execution of business.
F. Changes in laws, regulatory systems, or energy policies of
the national governments or local governments

Tokyo Gas manages its operations in compliance with the
Gas Utility Industry Law, the Companies Act, the Financial
Instruments and Exchange Act, and other laws, regulations,and institutions, as well as the energy policies of thenational and local governments. Any revisions to theselaws, regulations, institutions, or policies that prove
detrimental to the Tokyo Gas Group may affect businessperformance.
(2) Delayed cultivation of new markets
As described in its medium-term management plan, theCompany is cultivating new markets by promoting the
adoption of the “ENE-FARM” residential fuel cell and newenergy systems incorporating solar light and heat. However,subsequent changes in the operating environment, including changes in energy policy by national or local governments, could delay this cultivation, compel a change inbusiness strategy and prevent the recovery of investment.
(3) Inability to recover investments
Tokyo Gas makes large ongoing investments in keepingwith the goal of “advancing and developing the integrated
energy business strategy” expressed in its medium-term
management plan. The Company evaluates profitability andrisks of all investments, capital contributions, loans, anddebt guarantees at the Investment Evaluation Committee,
and makes investment decisions based on a conclusionfrom the committee while consulting with the management
council and the Board of Directors’ meeting, if necessary,from a standpoint of comprehensive management judgment. The targets of these investments include construction of pipelines and reinforcement of foundations for stablesupply through the construction of LNG terminals and otherfacilities, the electric power and energy service businesses,
development of gas fields overseas, the LNG transportbusiness, and IT and other elements required for ongoing
business, as well as investment related to the use ofowned real estate. Changes in the economic situation could
render it impossible to recover these investments or tobenefit from their intended effects, consequently affecting
the Company’s balance of payments.

4. Risks Related to Information Management andSystem Operation(1) Outflows of personal information
To conduct its business as a public utility, Tokyo Gas collects
and manages personal information on its customers. The
Company has implemented measures to prevent leakage of
personal information by constructing a groupwide information security system, conducting training on information
security, and voluntarily monitoring such information. The
Group also performs internal audits to ensure proper
construction and operational status. Outflows of customers’
personal information despite these efforts may result in
direct costs to remedy the situation, as well as tangible andintangible losses, including damage to the trust of customers and other parties, with more serious consequences thanfor other companies.
(2) Failure or malfunctioning of IT backbone systems
Because the Group relies on IT systems for customer
service and the calculation of gas rates, it has implemented
measures to minimize the impact on operations of unexpected events. Tokyo Gas employs a robust data centerwith superior fault resilience and disaster tolerance. The
Company also prepares and implements various security
measures and regular drills to ensure stable operation of thesystems. The shutdown or malfunction of these systems
could delay customer response, as well as cause tangible
and intangible losses, such as reputational loss.
However, such IT system malfunctions are unlikely tohave any serious impact on the production and supply ofcity gas because the IT system for adjusting the production
and supply of city gas has its independent security measures in place. These include a backup system and wirelessnetwork operated by the Group.
(3) Interruption of communication with call centers
Most communications between Tokyo Gas and its customers take place via call centers. Interruptions to telephoneservice to call centers would disrupt service to customers
over wide areas, and could incur serious tangible and intangible losses, including damage to the Tokyo Gas Group’s
brand image.

5. Risks Related to Corporate Social Responsibility(1) Response to new environmental regulations
The need to comply with new environmental laws oradditional obligations to improve the environment might
affect business operations, and it could affect revenues.
(2) Compliance violations
As compliance is fundamental to its operations, the Grouphas established the Management Ethics Committee,
chaired by the president. This committee sets out the basic
policies under which the Group executes actions to improve
compliance, and internal audits confirm the Group’s compliance with laws and regulations and corporate ethics. Any
violations of laws, rules, and regulations or inappropriate
responses to information disclosure that contravene corporate ethics that occur despite these efforts may result in
direct costs to remedy the situation, as well as in tangible
and intangible losses, including social sanctions.
(3) Inadequate customer satisfaction or responses to customer needs
The Group considers customer satisfaction a key management priority. Accordingly, the Group is pursuing a CS improvement program under the basic policies set out by a
CS improvement committee chaired by the president.
Inadequate customer satisfaction or inappropriate customer
service may result in declining corporate competitivenessand in tangible and intangible losses, including damage to
the Tokyo Gas Group’s brand image.
TOKYO GAS ANNUAL REPORT 201055

Consolidated Balance Sheets
March 31, 2010 and 2009ASSETS

Millions of yen

Thousands of
U.S. dollars (Note 1)

2010

2009

2010

¥ 186,467¥ 193,613$ 2,005,021

475,932

490,809

5,117,548

Noncurrent assets
Property, plant and equipment (Note 10)
		 Production facilities
		 Distribution facilities (Note 3)
		 Service and maintenance facilities (Note 3)

59,16960,510636,225

		 Other facilities (Notes 3 and 14)

295,494

297,643

3,177,354

		 Inactive facilities
		 Construction in progress			 Total property, plant and equipment

742

316

7,978

91,037

67,957

978,892

1,108,843

1,110,852

11,923,043

Intangible assets
		 Goodwill

1,460

1,233

15,698		 Other (Note 14)

26,517

24,816285,129

			 Total intangible assets

27,97726,049300,827

		 Investment securities (Notes 3, 4 and 5)

139,052

109,173

1,495,182

		 Long-term loans receivable (Note 3)

40,996

24,839440,817

		 Deferred tax assets (Note 9)

53,087

46,212570,827

		 Other

36,35035,847

390,860

		 Allowance for doubtful accounts(1,130)(906)(12,150)

Investments and other assets

268,357

215,166

2,885,559

1,405,178

1,352,068

15,109,440

Cash and deposits (Notes 3, 4 and 12)

107,391

66,905

1,154,741

Notes and accounts receivable – trade (Note 4)

156,398

166,542

1,681,698

Lease receivables and lease investment assets (Note 14)25,88825,594

278,365

Merchandise and finished goods

3,291

3,807

35,387Work in process

16,38843

176,215

Raw materials and supplies

37,412

56,905402,279

Deferred tax assets (Note 9)

16,606

13,461

178,559

Other (Note 3)

73,03479,431

785,311

(619)

(574)

(6,655)

			 Total investments and other assets
			 Total noncurrent assets
Current assets

Allowance for doubtful accounts
		 Total current assets
Total assets
Accompanying notes are an integral part of these financial statements.

56

FINANCIAL SECTION

435,794

412,117

4,685,956¥1,840,972¥1,764,185$19,795,397

Millions of yen

Thousands of
U.S. dollars (Note 1)

2010

2009

2010

¥ 301,491¥ 291,490$ 3,241,838

186,681

207,741

2,007,322

4,448

3,654

47,827130,903

100,734

1,407,559

3,597

3,555

38,677

LIABILITIES AND NET ASSETS
Noncurrent liabilities
Bonds payable (Notes 4 and 6)
Long-term loans payable (Notes 3, 4 and 6)
Deferred tax liabilities (Note 9)
Provision for retirement benefits (Note 8)
Provision for gas holder repairs

184

1,450

1,978

27,012

24,597

290,451

654,319

633,223

7,035,688

Current portion of noncurrent liabilities (Notes 3, 4 and 6)

53,456

88,169574,795

Notes and accounts payable – trade (Note 4)

134,946

103,319

1,451,032

Short-term loans payable (Note 6)

11,3485,910

122,021

Income taxes payable

34,94534,894

375,752

Provision for safety measures
Other
		 Total noncurrent liabilities
Current liabilities

Deferred tax liabilities (Note 9)
Other (Note 3)

2

86

114,048

1,351,139

360,362

346,3453,874,860

1,014,681

979,568

10,910,548

141,844

141,844

1,525,204

		 Total current liabilities
		 Total liabilities

8
125,656

Net assets (Note 11)
Shareholders’ equity
		 Capital stock*
		 Legal capital surplus

2,065

2,065

22,204

		 Retained earnings

657,387

631,045

7,068,677

		 Treasury stock**		 Total shareholders’ equity(1,986)(2,361)(21,354)799,310772,594

8,594,731

20,175

11,466

216,935

Valuation and translation adjustments
		 Valuation difference on available-for-sale securities
		 Deferred gains or losses on hedges

1,690

920

18,172

		 Foreign currency translation adjustment(7,290)(12,615)(78,387)

		 Total valuation and translation adjustments

14,575(228)

156,720

12,404

12,250133,376

Minority interests

826,291

784,616

8,884,849¥1,840,972¥1,764,185$19,795,397

		 Total net assets
Total liabilities and net assets* C apital stock
Common stock
Authorized: 6,500,000,000 shares
Issued: 2,703,761,295 shares as of March 31, 2010 / 2,717,571,295 shares as of March 31, 2009** Treasury stock: 5,062,893 shares as of March 31, 2010 / 4,884,659 shares as of March 31, 2009TOKYO GAS ANNUAL REPORT 201057

Consolidated Statements of Income
Years ended March 31, 2010 and 2009

Millions of yen

Thousands of
U.S. dollars (Note 1)

2010

2009

2010

¥1,415,718¥1,660,162$15,222,774

Cost of sales

854,231

1,139,791

9,185,279

Gross profit

561,487

520,371

6,037,494

403,671

381,177

4,340,548

Net sales (Note 13)

Selling, general and administrative expenses
Supply and sales expenses

72,58673,989780,494

		 Total selling, general and administrative expenses

476,257

455,166

5,121,043

Operating income

85,22965,204916,440

Interest income

1,112

1,089

11,956

Dividends income

1,091

1,675

11,731Equity in earnings of affiliates

3,796

5,529

40,817

Foreign exchange gains

6,175

1,380

66,397

Miscellaneous income

8,450

6,000

90,86020,626

15,675

221,784

General and administrative expenses

Non-operating income

		 Total non-operating income
Non-operating expenses
Interest expenses

10,303

10,869110,784

Adjustments of charges for construction of distribution facilities

3,186

3,257

34,258

Expenses for environmental consideration

3,097

991

33,301

Miscellaneous expenses

5,747

7,423

61,795

		 Total non-operating expenses

22,33622,542

240,172

Ordinary income

83,51958,337

898,053

—

7,846

—

—

1,570

—

Gain on transfer of business

—

1,359

—

		 Total extraordinary income—

10,775——Extraordinary income
Gain on adjustment for changes of “Accounting Standard
for Lease Transactions”
	Gain on transfer of benefit obligation relating to employees’
pension fund

Extraordinary losses

—

1,076

		 Total extraordinary losses

—

1,076

—

Income before income taxes

83,51968,037

898,053

Loss on valuation of investment securities

Income taxes – current

43,41927,630466,870

Income taxes – deferred(14,552)(2,366)(156,473)

		 Total income taxes

28,86625,264

310,387

871

1,064

9,365

Minority interests in income
Net income¥

53,781¥

41,708$578,290

Yen

U.S. dollars

2010

2009

2010

¥19.86¥15.63

$0.21

—

15.37

—

9.00

8.00

0.09

Amounts per share of common stock
Net income
Diluted net income
Cash dividends applicable to the year
Accompanying notes are an integral part of these financial statements.

58

FINANCIAL SECTION

Consolidated Statements of Changes in Net Assets
Years ended March 31, 2010 and 2009

Shareholders’ equity
Capital stock		 Balance at the end of previous period
		 Changes of items during the period				 Total changes of items during the period
		 Balance at the end of period
Legal capital surplus
		 Balance at the end of previous period
		 Changes of items during the period				 Total changes of items during the period
		 Balance at the end of period
Retained earnings
		 Balance at the end of previous period
		 Changes at the beginning of current year due to application of PITF No.18
		 Changes of items during the period
			 Dividends from surplus
			 Net income
			 Disposal of treasury stock			 Retirement of treasury stock
			 Change of scope of consolidation				 Total changes of items during the period
		 Balance at the end of period
Treasury stock		 Balance at the end of previous period
		 Changes of items during the period
			 Purchase of treasury stock			 Disposal of treasury stock			 Retirement of treasury stock				 Total changes of items during the period
		 Balance at the end of period
Total shareholders’ equity
		 Balance at the end of previous period
		 Changes at the beginning of current year due to application of PITF No.18
		 Changes of items during the period
			 Dividends from surplus
			 Net income
			 Purchase of treasury stock			 Disposal of treasury stock			 Retirement of treasury stock
			 Change of scope of consolidation				 Total changes of items during the period
		 Balance at the end of period
Valuation and translation adjustments
Valuation difference on available-for-sale securities
		 Balance at the end of previous period
		 Changes of items during the period
			 Net changes of items other than shareholders’ equity				 Total changes of items during the period
		 Balance at the end of period
Deferred gains or losses on hedges
		 Balance at the end of previous period
		 Changes of items during the period
			 Net changes of items other than shareholders’ equity				 Total changes of items during the period
		 Balance at the end of period
Foreign currency translation adjustment
		 Balance at the end of previous period
		 Changes of items during the period
			 Net changes of items other than shareholders’ equity				 Total changes of items during the period
		 Balance at the end of period
Total valuation and translation adjustments
		 Balance at the end of previous period
		 Changes of items during the period
			 Net changes of items other than shareholders’ equity				 Total changes of items during the period
		 Balance at the end of period
Minority interests
		 Balance at the end of previous period
		 Changes of items during the period
			 Net changes of items other than shareholders’ equity				 Total changes of items during the period
		 Balance at the end of period
Total net assets
		 Balance at the end of previous period
		 Changes at the beginning of current year due to application of PITF No.18
		 Changes of items during the period
			 Dividends from surplus
			 Net income
			 Purchase of treasury stock			 Disposal of treasury stock
			 Change of scope of consolidation
			 Net changes of items other than shareholders’ equity				 Total changes of items during the period
		 Balance at the end of period

Millions of yen

Thousands of
U.S. dollars (Note 1)

2010

2009

2010

¥141,844¥141,844$1,525,204—
141,844—
141,844—
1,525,204

2,065

2,065

22,204

—
2,065

—
2,065

—
22,204

631,045—

634,116
94

6,785,430—(21,701)53,781(21)(5,418)(298)
26,342
657,387(21,200)
41,708(11,710)(11,622)(340)(3,165)631,045(233,344)
578,290(225)(58,258)(3,204)(283,247)
7,068,677(2,361)(42,774)(25,387)(5,149)
105
5,418
374
(1,986)(10,462)
39,252
11,62240,413(2,361)(55,365)
1,129
58,258
4,021(21,354)772,594—735,25194

8,307,462—(21,701)53,781(5,149)84—(298)
26,716
799,310(21,200)
41,708(10,462)
27,542—(340)
37,247
772,594(233,344)
578,290(55,365)903—(3,204)287,268
8,594,731

11,466

31,917

123,290

8,709
8,709
20,175(20,451)(20,451)
11,466

93,64593,645
216,935

920

424

9,892

769
769
1,690

496
496
920

8,268
8,268
18,172(12,615)

1,479(135,645)

5,324
5,324
(7,290)(14,094)(14,094)(12,615)

57,24757,247(78,387)(228)

33,820(2,451)14,80314,803
14,575(34,048)(34,048)(228)

159,172
159,172
156,720

12,25011,382

131,720

154
154
12,404867
867
12,2501,655
1,655
133,376784,616—

780,45594

8,436,731—(21,701)53,781(5,149)84(298)
14,957
41,674¥826,291(21,200)
41,708(10,462)
27,542(340)(33,180)
4,066¥784,616(233,344)
578,290(55,365)903(3,204)
160,827
448,107$8,884,849

Accompanying notes are an integral part of these financial statements.

TOKYO GAS ANNUAL REPORT 201059

Consolidated Statements of Cash Flows
Years ended March 31, 2010 and 2009

Net cash provided by (used in) operating activities
Income before income taxes
Depreciation and amortization
Amortization of goodwill
Amortization of long-term prepaid expenses
Loss on retirement of property, plant and equipment
Increase (decrease) in provision for retirement benefits
Decrease (increase) in prepaid pension costs
Increase (decrease) in provision for safety measures
Interest and dividends income
Interest expenses
Equity in (earnings) losses of affiliates
Decrease (increase) in notes and accounts receivable – trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable – trade
Increase (decrease) in accrued consumption taxes
Decrease (increase) in accounts receivable – other
Loss (gain) on transfer of business
Gain on adjustment for changes of “Accounting Standard
for Lease Transactions”
Other, net
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes paid
		 Net cash provided by (used in) operating activities
Net cash provided by (used in) investment activities
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of investment securities
Proceeds from sales and redemption of securities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from transfer of business
Purchase of long-term prepaid expenses
Proceeds from sales of noncurrent assets
Payments of long-term loans receivableCollection of long-term loans receivable
Net decrease (increase) in short-term loans receivable
Other, net
		 Net cash provided by (used in) investment activities
Net cash provided by (used in) financing activities
Net increase (decrease) in short-term loans payable
Repayments of lease obligations
Proceeds from long-term loans payable
Repayment of long-term loans payable
Proceeds from issuance of bonds
Redemption of bonds
Procceds from stock issuance to minority shareholders
Repayments to minority shareholders
Proceeds from sales of treasury stock
Purchase of treasury stock
Cash dividends paid
Cash dividends paid to minority shareholders
		 Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash and cash equivalents from newly consolidated subsidiary
Decrease in cash and cash equivalents resulting from exclusionof subsidiaries from consolidation
Cash and cash equivalents at end of year (Note 12)
Accompanying notes are an integral part of these financial statements.

60

FINANCIAL SECTION

Millions of yen

Thousands of
U.S. dollars (Note 1)

2010

2009

2010

¥ 83,519
142,110
573
4,007
3,239
30,168—(1,266)(2,204)
10,303(3,796)
15,41919,74029,482
5,106(6,830)—¥ 68,037
136,899
610
4,184
3,561
7,177
9,027
(1,507)(2,764)
10,869(5,529)2,585(21,111)6,005
233(12,186)(1,359)$898,053
1,528,064
6,161
43,08634,827324,387—(13,612)(23,698)
110,784(40,817)
165,795
212,258
317,01054,903(73,440)——(7,846)—

9,807
339,380
6,249(10,755)(40,763)
294,110(10,823)
186,0633,421(10,850)(19,073)
159,561

105,451
3,649,247
67,193(115,645)(438,311)
3,162,473(8,181)
6,625(13,462)794(136,511)(8,964)
1,680(1,599)735(17,814)
1,712
1,168
(3,471)(177,290)(6,085)
5,575(15,091)
1,388(133,629)(7,120)382(1,479)828(8,996)
1,505(1,031)
176(163,575)(87,967)
71,236(144,752)
8,537(1,467,860)(96,387)
18,064(17,193)
7,903(191,548)
18,40812,559(37,322)(1,906,344)

4,931
(640)
13,066(29,279)
30,000(60,200)
758
(907)
84
(5,149)(21,695)(345)(69,375)
1,064
48,50964,009349(2,468)(5)
81,185(31,249)
20,000(4,888)——235(10,462)(21,208)(205)
30,932(6,570)20,34743,706
1

53,021(6,881)
140,494(314,827)
322,580(647,311)
8,150(9,752)
903(55,365)(233,279)(3,709)(745,967)
11,440521,602688,268
3,752

—

(45)

—

¥ 112,868¥ 64,009$ 1,213,634

Notes to Consolidated Financial Statements
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2010 and 2009

1. Basis of Presenting Consolidated Financial
Statements
Tokyo Gas Co., Ltd. (the “Company”) and its consolidated
subsidiaries maintain their accounts and records in accordance with the provisions set forth in the Japanese
Financial Instruments and Exchange Act (formerly, theSecurities and Exchange Law) and its related accounting
regulations, and in conformity with accounting principles
generally accepted in Japan (“Japanese GAAP”), which are
different in certain respects as to application and disclosure
requirements from International Financial ReportingStandards. The Company, as a regulated company, also
follows the Ordinance for Accounting of Gas Business for
preparing such financial statements.
The accompanying consolidated financial statements
were prepared in accordance with the above-mentioned
principles, and a translation was prepared of these consolidated financial statements as filed with the appropriate
Local Finance Bureau of the Ministry of Finance and as
required by the Financial Instruments and Exchange Act.
However, the financial statements, excluding the notes toconsolidated financial statements, are not restructured.
Furthermore, the information presented herein does notnecessarily constitute all of the information included in theJapanese version of the consolidated financial statements
filed as per the Financial Instruments and Exchange Act.
Equivalent U.S. dollar amounts are included for the convenience of readers outside Japan, and are converted at a
rate of ¥93 per U.S. dollar, the prevailing exchange rate on
March 31, 2010. These conversions should not be construed as representations that the Japanese yen amounts
have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

2. Significant Accounting Policies(1) Consolidation — The consolidated financial statements
include the accounts of the Company and all of its significant subsidiaries. For the years ended March 31, 2010 and2009, 61 and 57 subsidiaries, respectively, were consolidated. All significant inter-company transactions andaccount balances are eliminated in consolidation.
In the elimination of investments in subsidiaries, the assets
and liabilities of the subsidiaries, including the portion attributable to minority shareholders, are recorded based on theirfair value at the time the Company acquired control of therespective subsidiary.
The following six companies were newly establishedand added to the scope of consolidation from the current
fiscal year:
			 Tokyo Gas Lifeval Chiba Co., Ltd.
			 Tokyo Gas Gorgon Pty Ltd
			 Tokyo Gas Pipeline Co., Ltd.
			 Tokyo Gas Lifeval Minami-Setagaya Co., Ltd.
			 Tokyo Gas Lifeval Higashi-Ohta Co., Ltd.
			 TGE (SHANGHAI) LNG ENGINEERING CO., LTD.
In addition, Tokyo Gas Techno-Service Co., Ltd., andTokyo Gas Plant Tech Co., Ltd., were removed from thescope of consolidation, owing to their respective absorption
mergers into Tokyo Gas Building Service Co., Ltd. (whichchanged its name to Tokyo Gas Facility Service Co., Ltd.,
following the merger) and Tokyo Gas Engineering Co., Ltd.
The Company’s major unconsolidated subsidiaries
include Ohgishima Power Co., Ltd.

Unconsolidated subsidiaries were not included in thescope of the consolidation because total assets, net sales,
the amount of net income/loss equivalent to the portion of
the Company’s interests, and the amount of retained earnings, etc., equivalent to the portion of the Company’s
interests were small and lacking in qualitative significance,
and therefore they do not have a significant impact on the
consolidated financial statements.
(2) Equity method — Significant investments in unconsolidated subsidiaries and affiliates over which the Company
has the ability to exercise significant influence with regardto ­operating and financial policies of the investees areaccounted for by the equity method. Four affiliated companies were accounted for using the equity method for thetwo years ended March 31, 2010 and 2009.
The unconsolidated subsidiaries and affiliates not accounted
for by the equity method were excluded from the scope of
application of equity methods, due to the immaterial effectof the Company’s total interest on their net income/loss andretained earnings on the consolidated financial statements
and were totally insignificant.
(3) Accounting period of consolidated subsidiaries —Although the Company’s fiscal year ends on March 31, thefollowing companies end their year on December 31:
			 TOKYO GAS AUSTRALIA PTY LTD
			 Tokyo Gas International Holdings B.V.
			 Tokyo Gas Bajio B.V.
			 Tokyo Gas Darwin LNG Pty Ltd
			 TOKYO GAS–MITSUI & CO. HOLDINGS SDN. BHD.
			 Tokyo Gas Pluto Pty Ltd
			 Tokyo Gas Gorgon Pty Ltd
			 TGE (SHANGHAI) LNG ENGINEERING CO., LTD.
All significant adjustments considered necessary during
the period from December 31 to the consolidated fiscal
year-end have been made with consolidation.
(4) Property, plant and equipment — For property, plantand equipment, the acquisition cost is shown. However, inthe case of acquisition expenses of the Company and its
consolidated subsidiaries that have been subsidized by thenational government, etc., the amount of such subsidiaries
are offset against the acquisition cost of the corresponding
asset (reduction entry).
Primarily, the declining-balance method of depreciation isapplied, based on the estimated useful life of the asset.
However, the straight-line method is applied for certain
buildings (excluding ancillary equipment). Accumulated
depreciation on property, plant and equipment is deducted
directly from the balances of the corresponding assets.
In the accompanying consolidated financial statements,
accumulated depreciation on property, plant and equipment
amounted to ¥3,028,281 million (US$32,562,161 thousand)and ¥2,915,715 million as of March 31, 2010 and 2009,
respectively.
The total amount of impairment loss is directly deductedfrom the amount shown for the respective asset.
(5) Intangible fixed assets — the straight-line method isapplied. For software used by the Company and its consolidated subsidiaries, the straight-line method is applied basedon the period of useful life within the Company and its
consolidated subsidiaries.

TOKYO GAS ANNUAL REPORT 201061

(6) Accounting for certain lease transactions — Financeleases that do not involve transfer of ownership were previously accounted for based on standards for ordinary rental
transactions. From the preceding fiscal year, however, the“Accounting Standard for Lease Transactions” is applied,
and the accounting method is as per ordinary sale and purchase transactions.
When the Company is the lessee, those finance leasetransactions that do not transfer ownership and commenced on or before March 31, 2008 are accounted forbased on standards for ordinary rental transactions.
(7) Goodwill — Goodwill and negative goodwill are amortized on a straight-line basis within 20 years (mainly 10 years).
(8) Cash and cash equivalents — Cash and cash equivalents include cash on hand, readily-available deposits andshort-term highly-liquid investments with maturities notexceeding three months at the time of purchase, which arereadily convertible to known amounts of cash such thatthey present insignificant risk of change.
(9) Securities — The Company and its consolidated subsidiaries classify their securities under the following three
categories, in accordance with the Japanese AccountingStandard for Financial Instruments.
(a) Debt securities intended to be held to maturity (hereafter, “held-to-maturity debt securities”) are stated atamortized cost.
(b) Equity securities issued by unconsolidated subsidiaries
and affiliated companies that are not accounted forusing the equity method are stated at moving-averagecost.
(c) Other securities with fair value, which are defined as
securities other than held-to-maturity debt securities,
equity securities issued by unconsolidated subsidiaries and affiliated companies, and securities held for
trading purposes, are stated at fair value at the yearend, if their fair values are readily available. The
difference between acquisition costs and book valuesof these securities are reported, net of applicabletaxes, as a separate component of net assets. The
cost of securities sold is determined based on themoving average method. Other securities with no fairvalues are stated at moving-average cost.
If the fair value of held-to-maturity debt securities, equity
securities issued by unconsolidated subsidiaries and affiliated companies, and other securities declines significantly,
and the decline is not considered recoverable, such securities are stated at fair value and the difference between fairvalue and the carrying amount is recognized as loss in the
period of the decline.
(10) Financial instruments — The Company and its consolidated subsidiaries raise funds as necessary, reflecting theirplans for facility investment in their mainstay gas business,and invest temporary surpluses in highly stable financial
assets. The Company may procure funds through short-termbond issuance and other measures. The Company and its
consolidated subsidiaries use derivative financial instruments
to hedge the below-mentioned risks, but do not use derivative
financial instruments for speculative trading purposes.

62

FINANCIAL SECTION

Trade notes and accounts receivable, which are operatingreceivables, entail credit risks on the part of customers.
A control system is in place to check periodically the outstanding balances for each transaction partner. Investment
securities are subject to market price fluctuation risk, so theCompany regularly monitors market prices and issuers’
financial conditions. Certain borrowings bear floating rates
of interest and are therefore subject to interest rate fluctuation risk. Derivative transactions (interest rate swaps) areused to hedge this risk on a portion of these borrowings.
The Company and its consolidated subsidiaries execute
various derivative financial transactions to hedge risks offoreign exchange rate fluctuations, fluctuations in prices ofraw materials, interest rate fluctuations and the effects ofchanges in temperature. The Company and its consolidated
subsidiaries manage the credit risk inherent in such transactions by executing them with creditworthy financial
institu­tions. Also, the use of derivative financial instruments
is based on internal policies and procedures for risk control.
For information on methods of accounting for derivativetransactions, please refer to Note 2. (11) Derivatives.
(11) Derivatives — Derivatives are stated at fair value atthe year-end. The Company and its consolidated subsidiaries use hedging accounting, provided that the conditions of
the accounting were applicable to the rules.
Regarding forward exchange contracts and foreign
currency swap contracts that fulfilled certain conditions,the hedged foreign currencies receivable and payable arerecorded using the Japanese yen amount of the contracted
forward rate or swap rate. Regarding interest rate swap
contracts that fulfilled certain conditions, the net amount tobe paid or received under the interest rate swap contract is
added to or deducted from the interest on the liabilities forwhich the swap contract was executed.
(12) Inventories — Inventory values are based on themoving-average cost method. Balance sheet values arecalculated using the book value reduction method based on
declining profitability.
(13) Revenue from completed works, cost ofcompleted works and partly finished works — With
regard to accounting standards for subcontracted works
and partly finished works, effective from the fiscal year
under review the Company has adopted the “AccountingStandards Con­cerning Construction Contracts” and the“Application Guidelines for Accounting Standards
Concerning Construc­tion Contracts.” Accordingly, beginning with construction contracts initiated during the fiscal
year under review, the percentage of completion method isapplied to construction works for which substantial progress toward certain results is recognizable by the end of the
fiscal year under review. The completed contract method isapplied to other construction works. The impact of thischange on the income or losses was minimal.
In the past, partly finished works were posted as othercurrent assets in accordance with the provisions of theOrdinance for Accounting of Gas Business. However, as aresult of the change in the nature of that accounting, in linewith the adoption of the above-mentioned standards, partly
finished works are now posted as work in process.
Partly finished works included in other current assets asof the end of the preceding fiscal year was ¥15,984 million.

(14) Allowance for doubtful accounts — For normal
receivables, an allowance for doubtful accounts is provided
using the historical experienced default ratio. For specificreceivables such as bankruptcy/rehabilitation claims, anallowance for doubtful accounts is provided for the estimatedamounts considered to be uncollectible after reviewing
individual collectability.
(15) Provision for retirement benefits — The Company
and its consolidated subsidiaries provide an unfunded lumpsum payment plan and a funded pension plan as retirement
benefit schemes. The Company and certain consolidated
subsidiaries provide defined benefit plans and defined
contribution plans. Retirement benefits under these plans
are determined based on the level of wages and salaries,
length of service and certain other factors.
The Company and its consolidated subsidiaries determine benefit obligations and expenses for reserve forretirement benefits based on the amounts actuariallycalculated using certain assumptions.
Provision for retirement benefits is provided based on theestimated amounts of projected benefit obligations and thefair value of the plan assets.
The estimated amount of all retirement benefits to be
paid at the future retirement date is assumed as generating
equally to each service year using the estimated number of
total service years. Past service costs are mainly charged toincome when incurred, and actuarial gains and losses arecharged to income mainly in the fiscal year following theyear in which they arise.
“Partial Amendments to Accounting Standard for Retire­
ment Benefits (Part 3)” is applied from the fiscal year underreview. However, this application had no effect on operating income, ordinary income and income before income
taxes. The balance of actuarial differences arising from theapplication of this accounting standard that is to be amortized stands at a negative ¥8,344 million (a decrease inretirement benefit expenses in the following fiscal year).
(16) Provision for gas holder repairs — The Company
and certain consolidated subsidiaries provide for periodic
repairs of gas holders by estimating future expendituresand charging them to income in equal annual amounts. The
difference between the actual expenditure and the amountprovided is charged to income in the year repairs are completed.
(17) Provision for safety measures — The Company provides for expenses necessary to secure safety for gas
consumers by estimating the total amount of such expenses
that are expected to be incurred after the year-end date.

(19) Income taxes — Income taxes comprise corporation
tax, inhabitants’ taxes and enterprise tax (excluding enterprise taxes based on “amount of net sales,” “amount ofadded value” and “amount of capital”). The Company andits consolidated subsidiaries recognize tax effects of temporary differences between the financial statement basis
and the tax basis of assets and liabilities. The Company andits consolidated subsidiaries do not recognize deferred tax
assets that are not expected to reduce future income taxes.
(20) Enterprise tax — In the case of companies engaged
in gas businesses, enterprise tax that is levied, not on taxable income but on net sales, is accounted for in “Selling,
general and administrative expenses.” Enterprise taxes
based on “amount of added value” and “amount of capital”
are also included in “Selling, general and administrative
expenses.”In the accompanying consolidated statements of income,enterprise tax included in “Selling, general and administrative expenses” amounted to ¥14,539 million (US$156,333
thousand) and ¥17,447 million for the years ended March
31, 2010 and 2009, respectively.
(21) Research and development expenses — Research anddevelopment expenses are charged to income as incurred. In
the accompanying consolidated statements of income, researchand development expenses included in “Selling, general andadministrative expenses” and “Cost of sales” amounted to¥9,232 million (US$99,268 thousand) and ¥9,164 million forthe years ended March 31, 2010 and 2009, respectively.
(22) Amounts per share of common stock — Basic net
income per share is computed based on the net income
available for distribution to common shareholders and theweighted-average number of common shares outstanding
for the period. Diluted net income per share reflects thepotential dilution that could occur if convertible bonds wereconverted into common stocks. However, from the year
ended March 31, 2010, as the Company has no residual
securities, this calculation has been omitted.
Cash dividends per share have been presented on an
accrual basis and include dividends approved or to beapproved after the balance sheet dates, but they areapplicable to the year then ended.
(23) Reclassifications — Certain prior year amounts havebeen reclassified to conform to the fiscal year ended March
31, 2010 presentation. These changes had no impact onpreviously reported results of operations.

3. Pledged Assets(18) Translation of financial statements denominated inforeign currency — The Company’s receivables and payables denominated in foreign currencies are translated into
Japanese yen at the year-end rates, and foreign exchange
gains or losses are charged to current income/expense.
Assets and liabilities of the foreign subsidiaries are translated
into Japanese yen at the exchange rates prevailing at theiryear-end date. Profit and loss accounts for the year are translated into Japanese yen at the exchange rates prevailingat their year-end date as well. Differences in yen amounts
arising from the use of different rates are presented as“Foreign currency translation adjustment” and “Minority
interests” in net assets.

Pledged assets at March 31, 2010 and 2009 were as follows:
Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

Distribution facilities
Service andmaintenance facilities
Other facilities¥ 6,535¥ 6,494$ 70,268

13

13

139

10,37011,794

111,505

Investment securities
Long-term loans
receivable
Cash and deposits

350

355

3,763

35

36

376

1,760

1,907

18,924

Other current assets

5

—

53

¥19,071¥20,603$205,064

TOKYO GAS ANNUAL REPORT 201063

Liabilities secured by the above assets at March 31, 2010
and 2009 were as follows:

Long-term loans
payable (including
current portion of
noncurrent liabilities)
Other current liabilities

Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

¥8,071
56¥8,127¥9,58456¥9,641$86,784602$87,387

5. Securities
Acquisition costs, book values and fair values of securities
with available fair values at March 31, 2010 and 2009 were as
follows:(A) Held-to-maturity debt securities

4. Financial Instruments

Millions of yen

Thousands of
U.S. dollars

2009

2010

Securities with fair value exceeding book value:¥45¥34
Book value

$483

2010

35

494

¥—

$ 10

Millions of yen

Thousands of
U.S. dollars

2009

2010

Securities with fair value not exceeding book value:¥—¥10
Book value

$—

46
¥ 1

Fair value

Effective from the fiscal year under review, the Company andits consolidated subsidiaries have adopted the “AccountingStandard for Financial Instruments” and the “Guidance on
Disclosures about Fair Value of Financial Instruments.” Thetable below shows the book values of financial instruments
as listed in the consolidated balance sheets dated March 31,
2010, along with the fair values of these instruments andthe differences between their fair values and book values.

Difference

2010

Fair value

—

9

—

Difference

¥—

¥—

$—

Millions of yen

At March 31, 2010

Book value

Fair value

Difference(1) Bonds payable(2) Long-term loans payable¥321,491
220,060¥336,354
224,155¥(14,862)(4,094)

Thousands of U.S. dollars

At March 31, 2010

(1) Bonds payable(2) Long-term loans payable

Book value

Fair value

Difference$3,456,892 $3,616,709 $(159,806)
2,366,236 2,410,268(44,021)

Note: including items due within one year(B) Available-for-sale securities with fair value
Millions of yen

2009

Securities with book value exceeding acquisition cost:¥ 9,148
Acquisition cost
31,386

Book value¥22,237

Difference

Millions of yen

Method of calculating the fair value of financial instruments,
and items related to securities and derivative transactions(1) Bonds payable—the fair value is calculated by discounting to their present value the total amount of principal
and interest on bonds issued by the Company and consolidated subsidiaries by an interest rate that takes into
account the period remaining and credit risk.
(2) Long-term loans payable—the fair value is calculated bydiscounting to their present value the total amount ofprincipal and interest by the assumed interest rate on
new borrowings of the same type.
The items of which estimated fair value was deemed to be
extremely difficult are not included in the above table. Also, theitems described below are not included in the above table.
As the terms for cash and deposits (consolidated balance
sheet book value of ¥107,391 million (US$1,154,741 thousand)),notes and accounts receivable–trade (consolidated balance
sheet book value of ¥156,398 million (US$1,681,698 thousand)) and notes and accounts payable–trade (consolidatedbalance sheet book value of ¥134,946 million (US$1,451,032
thousand)) are settled in a short time, their fair values andbook values are nearly identical. For information about invest­
ment securities (consolidated balance sheet book value of¥69,423 million (US$746,483 thousand)) and derivative transac­
tions (consolidated balance sheet book value of ¥3,254 million(US$34,989 thousand) (receivables)), please refer to Note
5. Securities and Note 7. Derivative Transactions, respectively.
Most financial receivables and securities with maturities
are redeemed in a short period (within one year).
The maturity amounts of bonds payable, long-term loans
and other interest-bearing debt maturating after the balance
sheet date are indicated in Note 6. Short-Term Loans
Payable, Bonds Payable and Long-Term Loans Payable.
64

FINANCIAL SECTION

2009

Securities with book value not exceedingacquisition cost:¥16,581
Acquisition cost
12,660Book value¥ (3,921)

Difference(C) Available-for-sale securities
Millions of yen

Thousands of
U.S. dollars

2010

2010

Securities with book value exceeding acquisition cost:¥23,571 $253,451
Acquisition cost
57,438617,612¥33,867$364,161

Millions of yen

Thousands of
U.S. dollars

2010

2010

Book value
Difference

Securities with book value not exceedingacquisition cost:¥12,218 $131,376
Acquisition cost
Book value
Difference

11,939128,376¥$ (2,989)(278)

Available-for-sale securities not included in the abovetable amounted to ¥35,368 million (US$380,301 thousand)and ¥24,742 million at March 31, 2010 and 2009, respectively. Investments in unconsolidated subsidiaries andaffiliated companies amounted to ¥44,267 million(US$475,989 thousand) and ¥40,324 million for the years
ended March 31, 2010 and 2009, respectively. These items
do not have market value and determining their estimatedfair value was deemed to be extremely difficult and therefore, they are not included in the above table.

6. Short-Term Loans Payable, Bonds Payable and Long-Term Loans Payable
The average annual interest rates for short-term loans payable at March 31, 2010 and 2009 were 0.6% and 0.7%,
respectively.
Bonds payable and long-term loans payable at March 31, 2010 and 2009 were as follows:
Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

Due in 2016 at a rate of 4.0%

¥ 27,700¥ 27,700$ 297,849

Due in 2018 at a rate of 2.625%

40,00040,000430,107

Due in 2009 at a rate of 1.68%—

30,000—Due in 2009 at a rate of 1.73%—

30,000—Due in 2010 at a rate of 2.01%

20,00020,000215,053

Due in 2011 at a rate of 1.39%

30,00030,000322,580

Due in 2012 at a rate of 1.35%

20,00020,000215,053

Due in 2023 at a rate of 1.01%

20,00020,000215,053

Due in 2013 at a rate of 1.41%

30,00030,000322,580

Due in 2014 at a rate of 1.59%

20,00020,000215,053

Due in 2024 at a rate of 2.29%

10,00010,000107,526

Due in 2025 at a rate of 2.14%

10,00010,000107,526

Due in 2015 at a rate of 4.1%

13,80013,800148,387

Due in 2027 at a rate of 2.29%

19,99619,996215,010Due in 2015 at a rate of 1.4%

9,995

9,994

107,473

Due in 2015 at a rate of 1.658%

20,00020,000215,053

30,000—322,580

8,071

9,584

86,784211,989

226,2442,279,451

541,552

587,320

5,823,139

Domestic unsecured bonds

Due in 2019 at a rate of 1.405%
Loans from banks, insurance companies and government agencies
due through 2020 at rates of 0.53% to 5.35%:
SecuredUnsecured

Less: amounts due within one year

53,37988,087573,967¥488,173¥499,232$5,249,172

The annual maturities of bonds payable and long-termloans payable at March 31, 2010 were as follows:
Millions of yen

Thousands of
U.S. dollars

2011¥ 53,379$ 573,967

2012

47,964

515,7412013

42,996462,322

2014

38,320412,0432015

45,938493,956

2016 and thereafter

312,960

3,365,161¥541,560$5,823,225

Note: T he Company has a specific commitment line contract with themain correspondent financial institution of ¥30,000 million(US$322,580 thousand) in total.

TOKYO GAS ANNUAL REPORT 201065

7. Derivative Transactions
Contract amounts, fair values and recognized gains on the commodity derivatives except those accounted for using hedge
accounting and weather derivatives at March 31, 2010 and 2009 were as follows:
Millions of yen
Contract amounts
Of which,longer thanTotal
one year

At March 31, 2010

Commodity derivatives
Weather derivatives¥4,438600¥5,038¥——¥—Fair value

Recognized
gains(losses)

¥745
—
¥745

¥745
—
¥745

Thousands of U.S. dollars
Contract amounts
Of which,longer thanTotal
one year

At March 31, 2010

Commodity derivatives
Weather derivatives$47,720
6,451$54,172

Fair value

Recognized
gains(losses)$8,010—$8,010$8,010—$8,010$——$—Millions of yen

At March 31, 2009

Commodity derivatives
Weather derivatives

Contract amounts
Of which,longer thanTotal
one year¥8,876600¥9,476¥8,876—¥8,876

Fair value

Recognized
gains(losses)¥(1,279) ¥(1,279)——¥(1,279) ¥(1,279)

The table below indicates hedge accounting methods, main items hedged, contract amounts and fair values as of March
31, 2010, on derivatives transactions to which hedge accounting is applied.
Millions of yen

At March 31, 2010

Contract amounts

Hedge accounting method

Main items hedged

Exchange forward contracts
Deferral hedge accounting	Deferral hedge accounting on exchange
forward contracts, others

Accounts payable–trade
Accounts payable–trade

Total

Of which, longer than
one year

Fair value¥ 1,007

¥

921

¥

(67)

15,790¥16,798¥—
921(Note 2)
¥ —Commodity derivatives
Deferral hedge accounting

Accounts payable–trade¥23,643¥23,643¥¥——¥1,651¥1,651

Interest rate swaps
Deferral hedge accounting
Exceptional accounting

Bonds and long-term loans payable
Long-term loans payable¥10,512
10,472¥20,984¥10,5128,414¥18,926¥ 959(Note 2)¥ —Thousands of U.S. dollars

At March 31, 2010

Contract amounts

Hedge accounting method

Main items hedged

Exchange forward contracts
Deferral hedge accounting	Deferral hedge accounting on exchange
forward contracts, others

Accounts payable–trade
Accounts payable–trade

Total

Of which, longer than
one year

Fair value$ 10,827

$

9,903

$

169,784$180,623

$
$

—
9,903

$

(720)

(Note 2)—

Commodity derivatives
Deferral hedge accounting

Accounts payable–trade$254,225$254,225$$——$17,752$17,752

Interest rate swaps
Deferral hedge accounting
Exceptional accounting

Bonds and long-term loans payable
Long-term loans payable$113,032
112,602$225,634$113,032
90,473$203,505$10,311(Note 2)$—

(Note 1) F air values of exchange forward contracts, commodity derivatives and interest rate swaps are calculated at the rates indicated by the financial
institutions handling these transactions for the Company. Contract amounts of commodity derivatives are solely nominal values, and are not indicative of
the magnitude of market risk or credit risk concerning derivatives transactions. Contract amounts of weather derivatives are stated at the maximum
receivable or payable amounts under the contracts. Fair values of weather derivatives are not stated, as their fair values cannot be calculated.
(Note 2) A s the accounting for exchange forward contracts employing deferral hedge accounting and interest rate swaps employing exceptional accounting are
included in the fair values of the hedged items (accounts payable–trade and long-term loans payable).

66

FINANCIAL SECTION

8. Provision for Retirement Benefits
Provision for retirement benefits included in the liabilities section of the consolidated balance sheets as of March 31, 2010
and 2009 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
Provision for retirement benefits

2010

2009

2010

¥ 340,792
1,723
16,832(228,447)—¥ 130,903¥ 352,690
1,915(35,211)(218,660)—¥ 100,734$ 3,664,430
18,526
180,989(2,456,419)—$ 1,407,559

Net periodic retirement benefit expenses for the years ended March 31, 2010 and 2009 were as follows:
Thousands of
U.S. dollars

Millions of yen

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

2010

2009

2010

¥ 9,199
6,405(4,359)32,284(192)
4,313
47,651¥ 9,402
6,359(5,028)20,735(192)
4,608
35,885$ 98,913
68,870(46,870)
347,139(2,064)
46,376
512,376—(1,570)—¥47,651¥34,315$ 512,376

The discount rate and the rate of expected return on plan assets used by the Company and its consolidated subsidiaries
are mainly 2.1% and 2.0% for the year ended March 31, 2010, and 1.8% and 2.0% for the year ended March 31, 2009.
Certain domestic consolidated subsidiaries obtained approval from the Minister of Health, Labour and Welfare on April 1,
2008, for the return of the past services portion of the substitutional portion of the welfare pension fund.

9. Income Taxes
The Company is subject to multiple taxes based on taxable
income, which, in the aggregate, indicate a statutory tax
rate in the Company of approximately 36.2% for the years
ended March 31, 2010 and 2009.
Reconciliation of the difference between the statutory

Deferred tax assets:
Provision for retirement benefits
Other
Less: Valuation allowance
		 Subtotal
Deferred tax liabilities:
	Valuation difference on available-for-sale securities
Other
		 Subtotal
Deferred tax assets–net

tax rate and the effective tax rate for financial statement
purposes for the years ended March 31, 2010 and 2009 are
not presented as they are negligible.
Significant components of deferred tax assets and liabilities as of March 31, 2010 and 2009 were as follows:
Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

¥47,778
50,889(8,469)90,198¥36,847
44,724(8,471)
73,101$ 513,741
547,193(91,064)
969,870

11,74813,21324,961¥65,236

6,793
10,28917,083¥56,017

126,322
142,075
268,397$ 701,462

10. Investment and Rental Properties
From the year under review, the Company and its consolidated subsidiaries have adopted the “Accounting Standard
for Disclosures about Fair Value of Investment and Rental
Property” and the “Guidance on Accounting Standard forDisclosures about Fair Value of Investment and Rental
Property.” Book values in the consolidated balance sheets
and the fair values of investment and rental properties ownedby the Company and some of its consolidated subsidiaries
are indicated below. Book value is determined by subtracting accumulated depreciation from the acquisition cost. Fairvalue as of March 31, 2010 is based primarily on the realestate appraisal value determined by a real estate appraiser.

Millions of yen
Book value

2009

Change during
the year2010¥98,150¥(3,916)¥94,233

Fair value as ofMarch 31, 2010

¥378,103

Thousands of U.S. dollars
Book value

2009

Change during
the year2010$1,055,376$(42,107)$1,013,258

Fair value as ofMarch 31, 2010

$4,065,623

TOKYO GAS ANNUAL REPORT 201067

11. Net Assets(A) Distribution to shareholders
Under the Japanese Companies Act (“the Act”), dividends
can be paid at any time during the fiscal year in addition to
the year-end dividend upon resolution at a shareholders’meeting. Interim dividends may also be paid upon a resolution of the Directors’ meeting provided that the articles ofincorporation of the company so stipulate, and that thecompany meets certain criteria.
The Act provides certain limitations on the amounts available for dividends and/or the purchase of treasury stock.
The limitation is defined as the amount available for distribution to the shareholders, and it is calculated mainly basedon other capital surplus, other retained earnings and treasury stock.
The maximum amount that the Company can distributeas dividends is calculated based on the non-consolidated
financial statements of the Company in accordance withJapanese laws and regulations.
At the general meeting of shareholders held on June 29,
2010, the Company’s shareholders approved payment ofyear-end cash dividends of ¥5.0 (US$0.05) per share aggregating ¥13,493 million (US$145,086 thousand) to theshareholders of record as of March 31, 2010.
Such appropriations have not been accrued in the consolidated financial statements for the year ended March 31,
2010. Such appropriations are recognized in the period inwhich they are approved by the shareholders.

(B) Increases/decreases and transfer of capital stock,reserve and surplus
Under the Act, the entire amount paid for new shares isrequired to be designated as capital stock. However, a company may, through a resolution of the Board of Directors,
designate an amount not exceeding one-half of the price ofthe new shares as legal capital surplus, which is included incapital surplus.
Under the Act, in cases in which a dividend distribution of
surplus is made, the smaller of an amount equal to 10% of
the dividend or the excess, if any, of 25% of capital stockover the total of legal capital surplus and legal retained earnings must be set aside as legal capital surplus or legal retained
earnings. Legal retained earnings are included in retained
earnings in the accompanying consolidated balance sheets.
Under the Act, legal retained earnings and legal capitalsurplus could be used to eliminate or reduce a deficit, or could
be capitalized generally by a resolution of the shareholders’meeting.
Legal capital surplus and legal retained earnings may not
be distributed as dividends. Under the Act, however, all legal
capital surplus and all legal retained earnings may be transferred to other capital surplus and other retained earnings,
respectively, which are potentially available for dividends.
(C) Treasury stock
The Act provides for companies to purchase treasury stockand dispose of such treasury stock by resolution of the
Directors’ meetings. The amount of treasury stock purchased
cannot exceed the amount available for distribution to theshareholders which is determined by a specific formula.

12. Additional Information for Cash Flows
Reconciliation of cash and deposits shown in the consolidated balance sheets and cash and cash equivalents shown in the
consolidated statements of cash flows as of March 31, 2010 and 2009 were as follows:
Millions of yen

Cash and deposits
Less: Time deposits with maturities over three months, etc.
Negotiable certificates of deposit included in other current assets
Cash and cash equivalents

Thousands of
U.S. dollars

2010

2009

2010

¥107,391¥66,905$1,154,741(4,522)(2,896)(48,623)

10,000—107,526¥112,868¥64,009$1,213,634

Significant non-cash transactions for the years ended March 31, 2010 and 2009 were as follows:

68

Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

Decrease in treasury stock due to the conversion of convertible bonds¥—¥ 38,978$—

Losses on disposal of treasury stock due to the conversionof convertible bonds—(11,671)—

Decrease in convertible bonds¥—¥ 27,306$—

FINANCIAL SECTION

13. Segment Information
The Company’s and its consolidated subsidiaries’ primary business activities include (1) gas sales, (2) gas appliance sales, (3)installation work, (4) real estate rental, and (5) other business.

A summary of net sales, operating expenses, operating
income, assets, depreciation, impairment losses, andcapital expenditures by business segments for the years
ended March 31, 2010 and 2009 is as follows:
Millions of yen

For 2010

Gas sales

Gas appliancesales

Installation
work

Real estate
rentalOther businessElimination or
corporate¥1,017,299¥118,592¥41,353¥ 12,397¥226,073

28,236

7,495

3,006

21,312

91,745(151,795)—

1,045,535

126,088

44,36033,710317,819(151,795)

1,415,718

Consolidated

Net sales:
Outside customers
Intra group
Total
Operating expenses

918,183

123,752

302,609(85,484)¥ 15,210¥ (66,310)¥¥16,121¥169,034¥272,050¥ 332,558¥1,840,972

93

9,352

21,046(2,239)142,110

—

—

—

—

—

—

113,697

553

161

3,078

31,807(2,712)

146,586

Gas sales

Gas appliancesales

Installation
work

Real estate
rentalOther businessElimination or
corporate

Consolidated¥1,220,023¥117,256¥45,834¥ 13,132¥263,915¥    —¥1,660,162

37,551

5,106

3,259

22,50599,867(168,290)—

1,257,574

122,363

49,09435,637363,783(168,290)

1,660,162
1,594,957¥

Assets¥1,009,021¥ 42,187

113,217638—

Impairment losses
Capital expenditures¥1,415,718

7,292¥ 127,352

Depreciation—

26,417

Operating income (loss)

2,335

45,011

¥

¥

(650)

¥

1,330,488
85,229Millions of yen

For 2009

Net sales:
Outside customers
Intra group
Total
Operating expenses

1,146,717

120,276

50,194

Operating income (loss)¥ 110,857¥    2,086¥ (1,099)¥

28,194350,301(100,726)

7,442¥ 13,482¥ (67,563) ¥   65,204

Assets¥1,037,149¥ 40,097

109,247733¥17,548¥175,539¥267,562¥ 226,286¥1,764,185

101

9,637

19,347(2,168)—136,899

—

—

—

—

—

—

110,653

917

54

5,769

29,562(2,507)

144,450

Gas sales

Gas appliancesales

Installation
work

Real estate
rentalOther businessElimination or
corporate$10,938,698$1,275,182$444,655$ 133,301$2,430,892

303,61280,59132,322

229,161

986,505(1,632,204)

—

Total

11,242,311

1,355,784

476,989

362,473

3,417,408(1,632,204)

15,222,774

Operating expenses

9,872,935

Depreciation
Impairment losses
Capital expenditures

Thousands of U.S. dollars

For 2010

Consolidated

Net sales:
Outside customers
Intra group

1,330,666

483,989$

25,107$ (6,989)$$10,849,688$ 453,623

1,217,387

6,860—
1,222,548

Operating income (loss) $ 1,369,376
AssetsDepreciation
Impairment losses
Capital expenditures$— $15,222,774

284,053

3,253,860(919,182)

14,306,322

78,408$ 163,548$ (713,010) $916,440$173,344$1,817,569$2,925,268$3,575,892 $19,795,397

1,000

100,559

226,301(24,075)

—

—

—

—

—

—

5,946

1,731

33,096

342,010(29,161)

1,576,193

Operating expenses under Elimination or corporate thatcannot be allocated to business segments are related
mainly to general administrative expenses of the Company,
amounting to ¥67,302 million (US$723,677 thousand) and¥68,664 million for the years ended March 31, 2010 and2009, respectively.
Assets under Elimination or corporate mainly comprise cash
and deposits, investment securities and deferred tax assets of

1,528,064

the Company and its consolidated subsidiaries, and amounted
to ¥368,107 million (US$3,958,139 thousand) and ¥259,494
million at March 31, 2010 and 2009, respectively.
Geographic segment information is not shown sincemore than 90% of both consolidated net sales and total
assets are generated in Japan. Information on overseas
sales is not disclosed due to overseas sales being immaterial compared to consolidated net sales.

TOKYO GAS ANNUAL REPORT 201069

14. Information for Certain Leases
Finance leases
Information as lessee
The Company and its consolidated subsidiaries use certain
other facilities and other intangible assets under lease contracts. Finance lease transactions beginning on or before
March 31, 2008 that do not transfer ownership are accounted
for based on standards for ordinary rental transactions.
Lease payments and amounts equivalent to depreciation
for the finance lease transactions shown above that do nottransfer ownership for the years ended March 31, 2010 and2009, and future lease payments including interest as ofMarch 31, 2010 and 2009, are shown below.
Millions of yen

Lease payments
Depreciation expenses

Thousands of
U.S. dollars

Noncurrent

Millions of yen

Claims for lease fees
Estimated residual value
Equivalent interest
received
Lease investment
assetsAcquisition cost, accumulated depreciation and net bookvalue for property held under the above-mentioned financeleases that do not transfer ownership of the leased property
to the lessee on an “as if capitalized“ basis as of March 31,
2010 and 2009 were as follows:

Other facilities
Other intangible assets

Acquisition cost

Accumulated
depreciation

Net book value¥4,080¥1,534¥2,546

163

131

32

¥4,244¥1,665¥2,578For 2009
Other facilities
Other intangible assets¥4,415¥1,341¥3,074

178

110

68

¥4,593¥1,451¥3,142Thousands of U.S. dollars

For 2010

Other facilities
Other intangible assets

70

FINANCIAL SECTION

Acquisition cost

Accumulated
depreciation

Net book value$43,870$16,494$27,376

1,752

1,408

344

$45,634$17,903$27,720¥18,368¥18,539$197,505

1,044

12,666	More than 2 years
but within 3 years

1,134

1,038

12,193	More than 3 years
but within 4 years

1,029

1,000

11,064	More than 4 years
but within 5 years

959

883

10,311More than 5 years

3,007

2,988

32,333

Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

¥4,933¥4,954$ 53,043

	More than 1 year
but within 2 years

4,246

4,305

45,655	More than 2 years
but within 3 years

3,568

3,605

38,365	More than 3 years
but within 4 years

2,882

2,922

30,989	More than 4 years
but within 5 years

2,266

2,242

24,365More than 5 years

3,899

4,167

41,924

Millions of yen

For 2010(38,118)

1,178

Within 1 year

$27,720(3,724)$12,655	More than 1 year
but within 2 years¥3,142(3,545)¥1,050

Lease receivables¥2,578

1,247¥1,177

4,741

4,526

64

2010

550

23,193

116

Thousands of
U.S. dollars

441

472

2010

$234,376

2009

2010

$ 4,741

2,670

2009

¥22,198

Millions of yen

2009

¥ 550

421

2010

¥21,797

2010

2010

2,157

Thousands of
U.S. dollars

Scheduled recovery amounts of claims for lease fees
related to lease receivables and investment assets as ofMarch 31, 2010 and 2009 are as follows:¥ 441

Future lease payments inclusive of interest:
Current

Information as lessor
The breakdown of lease investment assets as of March
31, 2010 and 2009 were as follows:

Lease investment assets
Within 1 year

Operating leases
Information as lessee
Future lease payments at March 31, 2010 and 2009 wereas follows:
Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

¥238

¥110

$ 2,559

Future lease payments:
Within 1 year
Over 1 year

720

331

7,741

¥959

¥441

$10,311

Information as lessor
Future lease payments to be received at March 31, 2010
and 2009 were as follows:

Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

¥ 1,622¥ 1,952$ 17,440

Future lease payments:
Within 1 year
Over 1 year

10,38011,087

111,612¥12,003¥13,040$129,064

15. Commitment and Contingent Liabilities
At March 31, 2010, the Company and its consolidated
subsidiaries were contingently liable for (1) debt guarantees
in the amount of ¥5,327 million (US$57,279 thousand) for
financial institution loans to companies other than consolidated subsidiaries and (2) ¥38,700 million (US$416,129
thousand) as guarantors for domestic unsecured bonds
issued by the Company, and assigned to certain banks
under debt assumption agreements made in the years
ended March 31, 2002, 2003 and 2004.
At March 31, 2010, the Company held several long-term
purchase contracts for the supply of LNG. The purchaseprice determinable under such contracts is contingent upon
fluctuations in the market price of crude oil.
Adjustment of the cost for raw materials is subject tomovements on trading contract renewals or price negotiations thereof with gas resource suppliers.

16. Subsequent Events(1) Repurchase of treasury stock
The Company acquired TG Enterprise Co., Ltd., in anabsorption-type merger employing simplified merger
procedures, effective April 1, 2010. As there were requests
from opposing shareholders that the Company repurchasetheir holdings in accordance with the provisions of theCompanies Act, the Company repurchased treasury stock
as described below.
No. of opposing shareholders: 9
	Period in which requests to purchase shares were accepted:
From March 29, 2010, to March 31, 2010
	No. of shares requested to be repurchased:
16,537 thousand shares
No. of shares repurchased: 14,037 thousand shares
Note: The reason for the 2,500 thousand sharesdifference between the number of shares requested to be
repurchased and the number of shares repurchased is thatrequests to repurchase shares were withdrawn by the
opposing shareholders.
	Value of shares repurchased:¥5,783 million (US$62,182 thousand)	Period of acquisition:
From April 16, 2010, to April 21, 2010
Method of acquisition: Off-market transaction(2) Resolution on acquisition of treasury stock
At a meeting on April 28, 2010, the Board of Directors resolved
for the Company to acquire treasury stock, as follows.
No. of shares to be acquired: Limited to 6 million shares	Total value of shares to be acquired:
Limited to ¥2,200 million (US$23,655 thousand)	Period of acquisition:
From April 30, 2010 to March 31, 2011
In accordance with this resolution, the Company purchased
treasury stock, as follows.
	Period of acquisition: From May 7, 2010 to May 13, 2010
(commitment basis)
No. of shares acquired: 5,531 thousand shares	Total value of shares acquired:¥2,199 million (US$23,645 thousand)
Method of acquisition: Market acquisition through a specified
fund trust on the Tokyo Stock Exchange(3) Cancellation of treasury stock
At a meeting on May 21, 2010, the Company’s Board of
Directors resolved the cancellation of treasury stock, as
follows.
	Type of shares to be cancelled:
Common stock in the Company
Number of shares to be cancelled: 19,568 thousand shares
Cancellation date: June 7, 2010TOKYO GAS ANNUAL REPORT 201071

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. (the “Company”) and consolidated
subsidiaries as of March 31, 2010 and 2009, and the related consolidated statements of income, changes in net assets andcash flows for the years then ended, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to independently express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Tokyo Gas Co., Ltd. and subsidiaries as of March 31, 2010 and 2009, and the 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:	As discussed in Note 2(6) to the Consolidated Financial Statements, effective April 1, 2008, Tokyo Gas Co., Ltd. has been
applying the “Accounting Standard for Lease Transactions”.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31,
2010 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, 201072

FINANCIAL SECTION