ANNUAL REPORT 2003
For the year ended March 31, 2003

Competitive Transformation

Tokyo Gas Co., Ltd. is based in metropolitan Tokyo and the Kanto region, where demand for energy is
growing strongly. As Japan’s largest gas company, Tokyo Gas serves approximately 9.2 million customers in a service area
covering 3,155 km2.
Progress in energy industry deregulation and expanding gas demand in metropolitan Tokyo are creating business
opportunities. With the aim of generating growth, the Tokyo Gas Group implemented a new medium-term management
plan, Frontier 2007, in April 2003. Under this plan, Tokyo Gas will work to meet the expectations of its customers andshareholders and increase corporate value as an “Energy Frontier Corporate Group” that achieves sustained growth throughbusinesses that supply energy and energy-related value-added products and services, centered on natural gas.

Financial Highlights
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31

Thousands of
U.S. dollars except
per share amounts

Millions of yen
except per share amounts

2003

2002

2001

2003

¥1,127,634
123,294
59,201
137,300¥1,097,589
110,608
51,912
141,646¥1,086,771
103,659
27,595
146,420$9,396,950
1,027,453
493,343
1,144,165

110,188
107,164

104,291
112,675

109,899
111,208

918,233
893,033

21.18
19.11
70.4

18.47
16.66
68.9

9.82
9.13
61.9

0.18
0.16
0.59

At Year-End:Total assets ...............................................................................
Long-term debt due after one year.........................................
Total stockholders’ equity........................................................

¥1,676,064
598,322579,706¥1,702,713
680,887
564,078¥1,797,669
708,329552,790$13,967,204
4,986,017
4,830,886

Ratios:
Net income/Net sales................................................................
ROE ...........................................................................................
ROA ..........................................................................................
Equity ratio...............................................................................

5.3%
10.4%
3.5%
34.6%

4.7%
9.3%
3.0%
33.1%

2.5%
5.3%
1.5%
30.8%

For the Year:Net sales....................................................................................
Operating income ....................................................................
Net income ...............................................................................
Depreciation.............................................................................
Capital expenditures:
Accounting basis.................................................................
Payment basis .....................................................................
Amounts per share of common stock (Yen and U.S. dollars):
Net income (Basic) ..............................................................
Net income (Diluted) ..........................................................
Net income and depreciation.............................................

Note: U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥120=U.S.$1, the approximate Tokyo foreign exchange market rate as ofMarch 31, 2003.

Table of Contents
To Our Shareholders................................................................................ 1
An Interview with the President.............................................................. 2
The Right Place, The Right Time, The Right Plan..................................... 6
Research & Development: A Key to the Future ....................................... 20
Competitive Feedstock, Stable Supply and Safety Measures................... 21
Earth-Oriented Environmental Activities and Social Contribution ........... 22

Management........................................................................................... 24
Management’s Discussion and Analysis of Operations ........................... 25
11-Year Summary ................................................................................... 30
Consolidated Financial Statements ......................................................... 32
Organization ........................................................................................... 47
Investor Information ............................................................................... 48

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

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

To Our Shareholders
Moving to the Next Stage of Growth

Kunio Anzai
Chairman

Hideharu Uehara
Vice Chairman

Norio Ichino
President

Annual Report 2003

July 2003

1.

In fiscal 2002, the year ended March 31, 2003, Tokyo Gas
put intense emphasis on its marketing efforts to expand theuse of natural gas, an environmentally friendly energy source.
We also made progress in further improving efficiency andcontrolling operating expenses under our medium-term plan.
As a result, gas sales increased a solid 5.6 percent year-onyear, supported by factors such as a lower averagetemperature than in the previous fiscal year. Consolidated net
sales increased 2.7 percent year-on-year to a record ¥1,127.6
billion. Operating income increased 11.5 percent to ¥123.3
billion. Supplemented by factors such as gains from thedisposal of fixed and intangible assets totaling ¥5.5 billion andgains from the disposal of securities totaling ¥3.1 billion, net
income increased 14.0 percent to ¥59.2 billion. Consequently,
Tokyo Gas achieved the second highest levels of operating
income and net income in its history.
With unstable and uncertain conditions both domesticallyand overseas, the remainder of 2003 has the potential to be a
Seated: Kunio Anzai, Chairman
turning point for Japan’s energy industry. The regulatory
Standing, from left: Hideharu Uehara, Vice Chairman; Norio Ichino, President
reforms that will set the framework for future competition in
the energy market have been determined, along with the revision of the laws that govern both the electricity and the gas
sectors. The scope of liberalization will broaden in stages and competition among the energy sectors will intensify. Thus, a
new phase has begun in the Japanese energy markets.
Progress in regulatory reform and expansion in the scope of liberalization will affect every aspect of Tokyo Gas’s
operations. The Company has therefore initiated Frontier 2007, its latest medium-term management plan, to clarify thenecessary strategies and policies for the Tokyo Gas Group. While the feature section of Annual Report 2003 covers
Frontier 2007 in greater detail, essentially the plan is designed to allow Tokyo Gas to achieve sustained growth as an
Energy Frontier Corporate Group by transforming the Company from a natural gas supplier into an integrated energy
company providing value added energy services with natural gas as its core energy source.
Fiscal 2003 is the first year of Frontier 2007, and is the crucial first stage in achieving our objectives. The newpresident of Tokyo Gas, Norio Ichino, will lead Tokyo Gas’s new organization in aggressively implementing Frontier 2007
and will diligently work toward the Company’s goal of maximizing corporate value. We will be counting on the continued
understanding and support of our shareholders and investors as we work to achieve our objectives.

An Interview with
the President

Tokyo Gas Co., Ltd.

2
Annual Report 2003

Japan’s energy markets are undergoing rapid and dramatic changes. Tokyo Gas sees the intensifying
competition that is resulting from deregulation as a business opportunity. Frontier 2007 is themedium-term management plan covering the fiscal years from 2003 to 2007 that will help the entire
Tokyo Gas Group respond accurately to change. In the following interview, Norio Ichino, whobecame President of Tokyo Gas in June 2003, reports to shareholders on how Tokyo Gas is taking acomprehensive approach to transforming itself into an Energy Frontier Corporate Group.

Q

Tokyo Gas achieved the objectives of the medium-term plan, covering the five years to
the end of fiscal 2004, two years ahead of schedule. How did this recently concluded
plan benefit shareholders?

The overall thrust of the medium-term plan covering the five years through March 2005 was totransform Tokyo Gas into a public utility that serves the interests of not only our customers, but also ourshareholders, by increasing our corporate value. The concept of satisfying both our customers and ourshareholders has now become an accepted standard for Japanese public utilities. We are proud to saythat Tokyo Gas was the first to recognize and pioneer this concept.
The most important components of the medium-term plan were increasing free cash flow, raising
corporate value by deploying resources more efficiently and improving asset efficiency as measured byreturn on assets (ROA). Free cash flow and ROA are closely related to the earnings available to common
stock. Greater free cash flow enables stable dividend payments while still allowing investment in new
businesses with good potential. Moreover, the city gas business requires substantial infrastructure
investment and is therefore asset intensive. Consequently, increasing asset efficiency through effective
asset deployment is essential for improved performance.
Another key objective was reducing interest expenses by reducing interest-bearing debt. Tokyo Gas
reduced its interest-bearing debt to ¥731.3 billion, as of March 31, 2003. As such, we have already met
our target for March 31, 2005, set in November 1999, which was the reduction of interest-bearing debt to¥786.0 billion. At the same time, we increased free cash flow to ¥88.2 billion and ROA to 3.5 percent,both substantially exceeding our objectives.

Tokyo Gas made outstanding progress in creating the foundation for future growth by achieving theobjectives of the medium-term plan ahead of schedule. The most significant results have been that wehave created a lean corporate organization that can respond accurately to changing market conditions,and have increased our corporate value as expressed by returns to shareholders through higher dividends
and stock price increases.

Q

Deregulation has progressed through revisions of the Electricity Utility Industry Law and theGas Utility Industry Law. How do you evaluate these changes, and how does Tokyo Gas plan torespond to them?

Deregulation will generate
major business opportunities.

Primary Objectives of Frontier 2007
TEP*
ROAFree cash flow
Interest-bearing debt

FY2002

FY2007¥3.0 billion
2.8 percent¥61.0 billion¥775.0 billion¥10.0 billion
3.9 percent¥105.0 billion¥627.0 billion*TEP: Tokyo Gas Economic Profit, Tokyo Gas’s version of EVA. (EVA is a registeredtrademark of Stern Stewart & Co.)
Figures for fiscal 2002 are projections made when the medium-term management plan
was finalized in October 2002, not the actual results.

Tokyo Gas has determined the objectives of
Frontier 2007, outlined in the accompanying
table, according to four management
indicators: Tokyo Gas Economic Profit (TEP),
which is a profitability metric that takes cost ofcapital into account; free cash flow; ROA; andthe volume of interest-bearing debt. To achieve
our objectives, we must succeed at four key
tasks, which are business model innovation,

3
Annual Report 2003

Q

Tokyo Gas finalized Frontier 2007 in October 2002 and implemented it in April 2003,
for the period through March 2008. What are the primary objectives of this new
medium-term plan?

Tokyo Gas Co., Ltd.

A key element of the recent reforms was expansion in the scope of liberalization. Presently, 30 to 40
percent of total sales volume in the gas and electricity markets has been liberalized. The recent legal
revisions will also result in a staged expansion in the scope of the gas and electricity market
liberalization. In 2007, 50 percent of the gas market, specifically customers using over 100,000 m3
annually, will be liberalized.
Deregulation presents both risks and opportunities. Among the risks, electricity companies and otherfirms are now able to enter the gas business.
Appropriate risk management, based on a clear
understanding of the potential impact of therisks we face, is therefore essential. Frontier
2007 has been designed to accommodate various risks with the potential to impact cash flow. The effects
that new entrants in the gas business will have on demand and the potential for new competition to resultin lower rates are both addressed. Yet, these issues do not obscure a key result of deregulation: Tokyo Gas
will also be able to take advantage of the many opportunities that deregulation presents, foremost among
them being our ability to participate in the electricity and other businesses.
Tokyo Gas has been competing with other forms of energy, including electricity, oil and liquefied
petroleum gas (LPG), since the Company’s foundation more than a century ago. Our powerfulcompetitiveness in the gas business is a core competency. Our strengths include ample free cash flow
derived from cash generated by returns on our investment in gas business assets, a solid ability togenerate sales proposals that meet customer needs, and leading-edge technologies for efficiently utilizing
gas that will expand gas usage. These capabilities are producing business opportunities that we expect
will allow us to benefit fully from deregulation. We intend to deploy the experience we have acquired
over many years to create new corporate value that translates into shareholder returns.

business expansion into energy-related areas, construction of a Group management system, andstrengthening our corporate structure.
Frontier 2007 will help Tokyo Gas to prevail in these times of intensifying competition. It will make thenext five years a period of innovating our Group structure, business areas and operating framework, inorder to achieve growth. We will develop as a corporate group and will make Tokyo Gas the energy
supplier of choice among customers. Frontier 2007 will also help Tokyo Gas increase its profitability overthe next five years.
Tokyo Gas will increase the pace at which it moves toward its objective of transforming the Tokyo Gas
Group into a public utility with emphasis on both its customers and its shareholders, as envisioned in the
recently conducted medium-term plan. We intend to focus all of our resources on becoming a corporationthat supplies energy and value-added energy-related products and services, with an emphasis onenvironmentally friendly natural gas, while continually working to be the company customers choose for
their energy needs. The following feature section covers the contents of Frontier 2007 and the initiatives
that Tokyo Gas is now implementing in greater detail.

Q

Your determination to achieve the objectives of Frontier 2007 is readily apparent.

Tokyo Gas Co., Ltd.

4
Annual Report 2003

We’re not resting on our laurels after achieving the objectives of our previous medium-term plan two
years ahead of schedule. Frontier 2007 is an aggressive plan with high but attainable goals, and it
incorporates a clear understanding of the risks that we will face. My mission under Frontier 2007 is tofacilitate the achievement of our objectives, preferably ahead of schedule, just as was the case of theprevious medium-term plan.
One reason for my confidence in theattainability of these goals is that the energetic
participation of Tokyo Gas’s employees was
key to creating Frontier 2007. This is not a topdown management plan. Frontier 2007 wascreated through the input, and was designed
to use the combined strengths, of theemployees who will implement it. The role of senior management in this process was to thoroughly consider
what the employees had created and to finalize the details. Employee participation in the creation of Frontier
2007 was particularly important because many issues, such as the changes in corporate organization,
embodied in the plan will require the understanding and participation of each and every employee of theTokyo Gas Group.
Another reason for my confidence is that we created Frontier 2007 through exhaustive discussions of
the risks and opportunities presented by deregulation. A fact worth noting is that in creating Frontier
2007, we assumed a level of risk that exceeds the speed and scope of deregulation that the recent
regulatory reforms will engender. Because we will be able to implement Frontier 2007 with a high level ofrisk tolerance, I have every confidence that our goals are attainable.

Frontier 2007 is an aggressiveplan that incorporates risk
factors associated withmarket changes.

Q

The Tokyo Gas brand stands for safety and reliability, which makes the issue ofcompliance critical. How is Tokyo Gas ensuring appropriate compliance?

Since Tokyo Gas is a public utility, our efforts to ensure compliance are not something we started
yesterday. Both management and employees are held to rigorous standards of behavior, and are bothaware of and comply with all relevant laws. Compliance is, in fact, a foundation of corporate activities, forwithout it, a company can neither continue to exist nor develop. Moreover, Tokyo Gas intends to raisecompliance to an even higher level as part of the drive to strengthen the Company’s organization, whichis a core theme of Frontier 2007. In 2002, Tokyo Gas formulated abasic policy for compliance, establishing an organization with overall
responsibility for compliance. The Management Ethics Committee,
chaired by the president, and compliance committees within eachdivision were also established. In March 2003, Tokyo Gas alsoestablished two Compliance Hot Lines, one in-house and the other toan outside law firm, to assist Tokyo Gas in managing its risk and toincrease employee awareness of compliance-related issues. Tokyo
Gas’s reputation for quality and trustworthiness is an invaluable asset
that we will protect through a complete commitment to compliance.

Q

Tokyo Gas takes an active approach to corporate governance that responds to theinterests of shareholders. How did Tokyo Gas strengthen corporate governance during
the past fiscal year?

Q

How will Tokyo Gas increase shareholder value?
Tokyo Gas recognizes that increased earnings per share and stable dividend distributions are essential
to maintaining the trust and confidence of shareholders. A sound financial structure is crucial tomaintaining stable dividends, and Frontier 2007 will continue to address this issue through measures suchas emphasis on reducing interest-bearing debt.
Tokyo Gas is also implementing a share buyback program to compensate for and thus preclude thedilutive effect of the projected conversion of currently outstanding convertible bonds to common shares.
Moreover, during the next five years, we will use the free cash flow we generate to maximize shareholder
value, while balancing the Company’s need to make new investments.
Tokyo Gas begins Frontier 2007 with high hopes and enthusiasm. We are grateful for the trust andsupport we have received from our shareholders, and intend to devote every effort to achieving our
objectives.

5
Annual Report 2003

Establishing a reputation
as a trustworthy company
that acts in the interest ofshareholders and investors

Tokyo Gas Co., Ltd.

Tokyo Gas has the highest ratio of foreign shareholders among listed companies in Japan’s electricity
and gas industries. Consequently, establishing a reputation among global capital markets, as a trustworthy
company that acts in the interest of shareholders and investors, is extremely important for us. To do so, we
strive to provide fair and timely disclosure of information to all investors, inside and outside Japan, and tomaintain a high level of management transparency.
During the past fiscal year, Tokyo Gas
implemented a number of measures to further
strengthen corporate governance. We
substantially reduced the number of board
members, from 28 to 12 at present. This includes
three board members from outside Tokyo Gas’s
senior management. We feel that this strengthens
the checks and balances to which the board is subject and improves management transparency. We also
implemented an executive officer system and have appointed 23 executive officers that include myself andbusiness division chief executives, thus creating a system focused on business execution. We expect thissystem to accelerate decision-making and to raise the efficiency of business execution.
We plan to pay close attention to this area, so that these systemic initiatives will substantively
improve our system of corporate governance.

Rising Demand for Natural Gas in JapanTokyo Gas Co., Ltd.

*Cogeneration: An ecologically and economically sound form of
distributed generation in which electricity is generated while the waste
heat generated in the process is recovered and used as energy, instead ofbeing wasted (as is the usual case in thermal power plants).

Tokyo Gas: Industry Leader

6
Annual Report 2003

Tokyo Gas is Japan’s largest city gas company, with aservice area of 3,155 km2, covering the Tokyo
metropolitan area and the Kanto region. The Kanto region
is Japan’s most densely populated area, with more thanforty million residents. Tokyo is the center of the Japanese
economy, and the location of many companies’
headquarters. In addition, the Kanto region contains
Japan’s largest industrial area, which produces 40 percentof the country’s gross domestic product (GDP). Tokyo Gas,
which is based in this area, expects growth to result not
only from rising gas demand, but also from the expansionof its energy-related businesses.
■ Gas Sales Volume in Japan andTokyo Gas by Sector(Year ended March 31, 2003)

high-growth business that will play an even greater rolein Japan’s energy market of the future.

■ Share of Natural Gas in Primary Energy Supply
in Japan and Overseas

26.2%

24.3%

23.6%

Japan
13.7%

Source: BP Statistical Review of World Energy 2003

■ Growth in Tokyo Gas Sales Volume by Sector(Million m3, 46.05MJ/m3)

14,00012,00010,000
8,000
6,000
4,000
2,000

0
(3/31) 98 99 00 01 02 03 04 05 06 07 08
Residential
WholesaleCommercial

Industrial

Note: 2004 to 2008 are projected figures.

■ Number of Gas Customers in Japan and Tokyo
Gas Customers(Million m3, 46.05MJ/m3)(As of March 31, 2003)(Customers)

Residential
3,254

Residential
8,637,347

Commercial
2,504

Commercial
582,084

Industrial
3,599

Industrial
24,945Wholesale
1,107
Japan
Tokyo Gas

U.S.A.

WorldEU

24,937
10,464* The above three graphs represent non-consolidated data.

Wholesale
17
Japan
Tokyo Gas

26,737,527
9,244,393

RIGHT

Natural gas is the most environmentally sound of thefossil fuels. While roughly 60 percent of the world’s oil
reserves are concentrated in the Middle East, natural gas
reserves are scattered throughout the world. Natural gas
reserves are also expected to last longer than oil, making
it the energy source for the future. In addition, demand
for natural gas is increasing not only for its existing
applications as an energy source for city gas supply andlarge-scale power plants, but also as a result of the rapid
spread of cogeneration* systems over the past decade.
Demand is also expected to rise further as we enter theage of distributed energy, such as the use of compact
residential fuel cells to enable small-scale cogeneration.
The share of natural gas in Japan’s primary energy supply
is relatively low — about half that of Europe and theUnited States. However, in its report on Japan’s long-term
energy demand outlook, the Japanese government has
identified natural gas as the only fossil fuel for which
demand is expected to grow. As such, natural gas is a

An Expanding Supply Area and Pipeline Network

Utsunomiya

Gunma

Tochigi

Moka

HitachiTochigi Line (2006)
Sano
Kumagaya-Sano Line (2004)

Kumagaya

IbarakiTokyo Gas Co., Ltd.

SaitamaTokyo
Head Office

Kanagawa

Central TrunkLine (2009)

High-pressure transmission pipelines
High-pressure transmission pipelines (under construction)
Medium-pressure pipelines

Sodegaura
LNG Terminal

NegishiLNG Terminal( ) Proposed year of completion
Tokyo Gas’s service area
Tokyo Gas’s direct and indirect wholesale area

Total Pipeline Length: 49,431km(As of March 31, 2003)■ Breakdown of GDP of Japanby Major Areas■ Percentage of Tokyo, Osaka and Nagoya
Areas in Total Population of Japan(Year ended March 31, 2000)(As of October 2002)

Japan

7

Tokyo Bay

Ohgishima
LNG Terminal

Minamiashigara

Chiba¥509.7 trillionJapan

127,435 thousand

Tokyo Area
39.9%

Tokyo Area
34.5%

Osaka Area
16.9%

Osaka Area
16.4%

Nagoya Area
8.0%

Nagoya Area
8.7%

Source: Cabinet Office, Government of Japan

Source: Bureau of Statistics, Ministry of Public Management,
Source: Home Affairs, Posts and Telecommunications

Notes: 1. The Tokyo area includes Tokyo, plus Kanagawa, Saitama, Chiba, Ibaraki, Tochigi, Gunma, Yamanashi and Nagano prefectures.
The Osaka area includes Osaka, as well as Hyogo, Kyoto, Shiga, Nara and Wakayama prefectures.
The Nagoya area includes Aichi, Gifu and Mie prefectures.
2. GDP of each area is the total of GDPs for the area’s major city and its surrounding prefectures, listed above.

Yokohama-Shonan Line andSecond Joso Trunk Line Completed
In May 2002, Tokyo Gas completed the
Yokohama-Shonan line, which was constructedto accommodate rising demand in the Seisho
district of Kanagawa Prefecture, as well aslarge-scale demand from gas utilities such as
Odawara Gas and those in the MinamiAshigara district. In addition, the Second Joso
Trunk Line, which extends through northern
Chiba Prefecture and southern Ibaraki
Prefecture, was completed in October. The
purpose of the Second Joso Trunk Line is toensure a stable supply by strengthening thetransmission of city gas. Actively responding toincreases in gas demand, Tokyo Gas iscontinuing to expand its supply infrastructurewith projects such as the Tochigi Trunk Line,scheduled for completion in 2006.

Annual Report 2003

PLACE

Tokyo Gas, which supplies city gas to 9.2 million customers in the Tokyo metropolitan area and the Kanto region,
where demand in Japan is the greatest, has pipeline extending a total of 49,431 km. In order to ensure the long-term,
stable supply of natural gas and to accommodate this demand, Tokyo Gas has built a 300-km natural gas supply loop
encircling the Tokyo metropolitan area, incorporating three LNG receiving terminals (one of which, the Sodegaura LNG
Terminal, is the world’s largest).
In addition, Tokyo Gas is moving aggressively into locations where demand for city gas is expected to grow, working
to build and expand supply infrastructure based on an assessment of return on investment. Furthermore, the Company isactively cultivating demand in response to the liberalization of supply areas for large-volume customers following the
deregulation of the gas industry.

As of April 2003, Japan had approximately 230 city gas companies. While this number may seem large, three major
companies account for approximately 80 percent of total gas sales volume. In addition to these city gas companies,
there are about 1,800 specific area gas suppliers and roughly 30,000 liquefied petroleum gas (LPG) companies, most ofwhich are small or medium-sized firms. The industry is thus clearly divided into two well-defined segments — the threelarge participants and many small and medium-sized firms.
The raw material for approximately 90 percent of city gas used in Japan is natural gas, almost all of which isimported in the form of liquefied natural gas (LNG). Only a limited number of companies take delivery of LNG imports aswell as produce and supply city gas. Unlike the United States and Europe, Japan does not have a nationwide pipeline
network. Each gas company owns pipelines and supplies and markets gas within its own respective service area.

Continuing Progress in Deregulation

Tokyo Gas Co., Ltd.

8

In Japan’s energy markets, retail sales of gas to large-scale customers was liberalized in 1995, along with thegeneration component of the electric power business. Factors such as the partial liberalization of the retail electricity
market starting in March 2000 and the shift to the reporting system for rate reductions have increased management
autonomy in both industries.
In February 2003, the schedule for regulatory reform through 2007 was determined. In 2007, customers using
100,000 m3 or more annually will be able to freely select their gas supplier. In the electric power business, the scope ofliberalization will expand in 2005 to include customers with a demand capacity of 50 kW or more, and a study of full
liberalization, including residential electric power, is slated to begin in 2007.
■ Deregulation Schedule

Annual Report 2003

Gas:
• Annual usage ≥ 1,000,000 m3 • Annual usage thresholddecreases to ≥500,000 m3• Liberalization of approximately
30% of total sales volume• Liberalization of approximately
40% of total sales volume

30%• Annual usage thresholddecreases to ≥100,000 m3• Liberalization of approximately
50% of total sales volume

40%

50%

Projected

2003

2004

Projected

2005

2007

Projected
Projected

Study of full liberalization
60%
30%

40%

Electricity:• Demand capacity threshold• Demand capacity threshold• Demand capacity ≥ 2 MW
decreases to ≥ 50 kW
decreases to ≥ 500 kW• Liberalization of approximately• Liberalization of approximately • Liberalization of approximately
30% of total sales volume
60% of total sales volume
40% of total sales volume

RIGHT

Overview of the City Gas Business in Japan

Major New Business Opportunities

Tokyo Gas Co., Ltd.

9

Ample Free Cash Flow Supports Growth
While emphasizing revenue growth, Tokyo Gas exceeded internal capital resources in investing to construct thecomprehensive production and supply infrastructure needed to respond to deregulation and meet expanding demand forenergy, particularly natural gas, in the Kanto region. As a result, interest-bearing debt on the balance sheets increased.
However, this period of massive capital expenditures has given way to a period of return on investment, and Tokyo Gas
is now able to restrain capital expenditures within the scope of depreciation. In addition, under the management plan
covering the five years from fiscal 2000 to fiscal 2004, Tokyo Gas reduced total assets, raised asset efficiency and madeparticular efforts to reduce its large volume of interest-bearing debt. In fact, the Company achieved its target for fiscal
2004 of reducing interest-bearing debt to ¥786.0 billion two years ahead of schedule. Tokyo Gas is therefore able tocapitalize effectively on the opportunities for growth presented by deregulation, and has the ample cash flow required toaggressively invest in new areas.
■ Cash Flow and Capital Expenditures (Non-consolidated)(¥ Billion)

200
160
120
80
40
0
(3/31)

70

72

74

Depreciation

76

78

Net income

80

82

84

86

Capital expenditures

Cash flow = Net income + depreciation

88

90

92

94

96

98

00

02

04

06
Planned08

Annual Report 2003

TIME

Progress in deregulation is bringing about an era of “mega-competition.” On one hand, competition among gas
companies will intensify. On the other, heightened competition in the commercial and residential markets resulting fromlower electric power rates will add to the intensity of competition between gas and electric power companies. However,while overall energy demand in Japan is not projected to grow strongly, the share of environmentally friendly natural gas
is projected to expand.
As the largest city gas company in Japan, Tokyo Gas is implementing a number of initiatives to benefit from theopportunities presented by deregulation. In the gas business, Tokyo Gas has concentrated on expanding its supply
network to capture new demand outside of its previous supply area. We have begun marketing natural gas to newentrants in the electric power business, and have initiated a pipeline business for third parties. Moving away from the
supply of gas alone, Tokyo Gas is building its energy services business, which entails high value-added energy use
proposals. In aggressively entering the electric power business, Tokyo Gas will implement initiatives that include
working alone and in alliances to develop its businesses in power generation and electricity retailing, as well as on-site
electricity and heat generation in specified areas. Tokyo Gas is also vigorously reducing costs in areas such as procuring
LNG, a field in which the Company has a strong competitive advantage.
Tokyo Gas has many strengths. Amid increasing emphasis on environmental protection, its business centers on
environmentally friendly natural gas. Leading-edge technologies for using natural gas with optimum efficiency haveadded to our superiority in this area, and Tokyo Gas has an established foundation of sales branches and natural gas
infrastructure in the Tokyo metropolitan area and the Kanto region, where demand for energy continues to expand.
Moreover, Tokyo Gas’s marketing capabilities are based on customer trust acquired over many years, and this will be asignificant advantage in making comprehensive energy proposals to industrial and commercial customers. Armed withthese strengths, Tokyo Gas is raising its management efficiency, countering the potential risks of reduced demand andlower revenues due to liberalization, and aggressively expanding the businesses of supplying electricity, heat andservices with an emphasis on its core city gas business. Tokyo Gas aims to transform itself into an Energy Frontier
Corporate Group with natural gas as its core energy source.

In November 1999, Tokyo Gas formulated a five-year medium-term management plan to respond to changes in
its operating environment, including the advent of greater competition due to deregulation and the globalization of
the economy. This plan covered the five years beginning with fiscal 2000, and the entire Tokyo Gas Group
implemented it in concert. As a result, Tokyo Gas achieved the objectives of the plan by the end of fiscal 2002, twoyears ahead of schedule.
While Tokyo Gas was implementing the recently concluded management plan, further deregulation of Japan’s
energy markets resulted in increased competition. Although the operating environment has become more challenging,it also presents significant opportunities for growth for companies able to respond appropriately. In the midst of awhirlwind of change, the Tokyo Gas Group created a new Group management plan, Frontier 2007, in response to thechanging operating environment with the aim of generating continued growth and development in energy-relatedareas, the Group’s core business domain. Announced in October 2002, Frontier 2007 covers the period from fiscal 2003
to fiscal 2007, and the Group began implementing it in April 2003. Frontier 2007 revolves around the concepts oftransformation and innovation. Its aim is to lead the Tokyo Gas Group to the next stage in its development.

Frontier 2007
Group Medium-Term Management Plan
for Fiscal 2003 to Fiscal 2007
Tokyo Gas Co., Ltd.

Deregulation as a Business Opportunity

10
Annual Report 2003

Business Model
Innovation
Construction of the GroupManagement System

Strengthening
the Corporate Structure

Business Expansion into
Energy-Related Areas

Growth and Development as an Energy Frontier Corporate Group
that Continues to Earn the Trust of Customers, Shareholders and Society
Under Frontier 2007, Tokyo Gas will expand its participation throughout the natural gas value chain, adding
upstream gas field development and LNG transportation to its existing business of gas distribution. We will also
expand into new energy-related businesses, including the electric power business, energy services, and new residential
services. Our objective is to continue to grow and develop with the trust of customers, shareholders and society bytransforming ourselves into an Energy Frontier Corporate Group that supplies energy and value-added energy-related
products and services.
Frontier 2007 has four pillars. Two are business model innovation and business expansion into energy-related areas.
The other two, construction of the Group management system and strengthening the corporate structure, support thefirst two. These specific measures are the key to the sweeping transformation of the Group’s business domains andstructure necessary to achieve the broader objectives of Frontier 2007.

RIGHT

Frontier 2007: The Medium-Term Management Planfor the Tokyo Gas GroupPrimary Management Objectives (Consolidated)

Net sales (¥ billion)

TEP

Free Cash Flow(¥ Billion)(¥ Billion)

6.0

97.0
61.0

3.0
FY2002Average for
FY2003 – FY2007

FY2002Average for
FY2003 – FY2007(FY2007: ¥10.0 billion)

ROA(FY2007: ¥105.0 billion)

Interest-Bearing Debt(¥ Billion)

3.4%

775.0

Average for
FY2003 – FY2007

FY20022.8%
FY2002627.0
End of FY2007(FY2007: 3.9%)

FY2002

FY2007

Average for
FY2002 – FY2007
1,156.0

1,121.0

1,165.0

ROE (%)

8.5

9.2

9.1

Stockholders’ equity/Total assets (%)

34.2

42.4

38.4

Capital expenditures (¥ billion)

128.0

92.0

102.0

Total assets (year-end, ¥ billion)

1,739.0

1,707.0—

TEP: Tokyo Gas Economic Profit
TEP = Net operating profit after tax prior to interest
payments - Cost of capital
Cost of capital = Cost of debt + Cost of equity
Assumptions: Average cost of debt: 2.23% (after tax);
Cost of equity: 6.5%
Free cash flow = Net income + Depreciation - Capital
expenditures
Figures for fiscal 2002 are projections made when themedium-term management plan was finalized in October
2002, not the actual results.

Generating Free Cash Flow and Using It Effectively■ Deployment of Free Cash Flow (¥ Billion)
2%
3%

Frontier 2007
Five-Year Total: ¥480 billion

Others

17%

43%

35%

New residential services
Overseas
Upstream development and
LNG transportation
Electric power business16%
Others21%

Reduction ofinterest-bearing debt

12%

52%

21%
Acquisition oftreasury shares

26%

17%
Dividends

10%

25%
New financing investments

FY2000 – FY2004 Medium-Term
Management Plan
Five-Year Total: ¥307.5 billion

11
Annual Report 2003

Under Frontier 2007, Tokyo Gas has set a target for free cash flow of ¥480 billion, approximately 1.5 times theamount generated under the previous management plan. We intend to use this free cash flow effectively to maximize
the value of the Tokyo Gas Group in ways such as investing in new business areas, as well as reducing liabilities andcapital employed. The chart below details specific plans for deploying free cash flow. Primary uses of free cash flow willbe ¥120 billion for business expansion investments in new energy-related areas, ¥100 billion for share buybacks and¥100 billion for reducing interest-bearing debt.

Tokyo Gas Co., Ltd.

PLANTokyo Gas will work to broaden its earnings base,aggressively develop demand, and expand into energyrelated businesses through steady progress in
implementing the four pillars of Frontier 2007.
Moreover, the Company intends to achieve positive
Tokyo Gas Economic Profit (TEP) by fiscal 2005 forGroup companies by implementing structural reform of
the business of affiliates. We also intend to reduce fixed
costs (per cubic meter of sales volume) by 24 percent
from their fiscal 2002 level by reducing the number of
employees and controlling overhead expenses. Other
points of emphasis include reducing total assets, raisingasset efficiency and strengthening the Group’s financial
structure. These initiatives are geared to achieving themanagement objectives in the table below.

Tokyo Gas Co., Ltd.

12
Annual Report 2003

INNOVATE

Business Model Innovation
Business model innovation is central among the four pillars of Frontier 2007. Until now, Tokyo
Gas used a business model that entailed the supply of gas alone, which involved the
production of city gas from LNG, its supply and marketing. Under Frontier 2007, Tokyo Gas will
expand participation throughout the natural gas value chain in upstream development and
LNG transportation, in addition to its existing downstream gas business. We will also expand
into new areas such as electricity, energy-related services and new residential services. Thus,
Tokyo Gas will transform its business model into one in which we supply energy and valueadded energy-related services throughout the entire value chain of the Tokyo Gas Group.

Natural Gas Procurement
Innovating toward a business model that advances into upstream development and LNG
transportation to maximize the benefits of participation throughout the LNG value chain
By expanding its participation in the LNG value chain, Tokyo Gas is advancing into upstream development and LNG
transportation to build synergies with raw material procurement. Tokyo Gas is participating in the Darwin LNG Project,
and the construction of two Tokyo Gas-owned LNG carriers is under way. These initiatives will raise the Company’scompetitiveness and flexibility.

■ Business Flow and Business Model Innovation
Natural Gas Field

LNG Liquefaction Plant

LNG Carrier

LNG Receiving Terminal

LNG Receiving Terminals
Innovating cost centers into a terminal infrastructure business
Until now, Tokyo Gas viewed LNG terminals as cost centers that focused on producing
gas and ensuring safety. Looking forward, Tokyo Gas’s objective is to convert its LNG
terminals into profit centers. We aim to achieve this objective by increasing revenue fromallowing third parties to use our terminals, and to raise terminal efficiency by increasing
capacity utilization rates, lengthening the service life of LNG facilities through preventive
maintenance, and reducing production costs.

The Right Plan
Commercial and Industrial Sales
Innovating our business model to encompass one-stop supply of optimal energy solutions by fully
utilizing our network of customers and companies
Tokyo Gas is moving from its previous business model of supplying gas alone to a comprehensive business model of supplying
energy-related services that encompass electric power and heat in addition to gas, as well as maintenance and engineering. Tokyo
Gas’s aim is to transform itself into a one-stop supplier of optimal energy solutions for its customers.

Inter-Regional Sales
Innovating to expand business areas based on the best mix of diverse commercial resources
and new management techniques, with a focus on direct supply, wholesaling, energy
services, LPG and LNG sales, and alliances with other companies
Key Issues• Aggressively acquire additional customers on the peripheryof pipelines scheduled for construction.
• Strengthen gas wholesale marketing capabilities through steps
including strategic rates, stronger sales and technical support,
and the provision of energy services in addition to gas.
• Aggressively expand the liquefied petroleum gas (LPG)
business as a Group, and cooperate and form alliances withLPG enterprises in response to deregulation.

• Expand into the energy services business.
• Expand LNG sales deliveries with LNG tank lorries and vessels.
• Develop efficient infrastructure through methods such asalliances with other companies.

Expand energy services.
Prepare an integrated electric power sales organization.

Pipeline Network

Primary Business Areas

Expand one-stop energy service capabilities.

City Gas Business

Inter-Regional Sales

13

Residential Sales
家庭用エネルギー

Annual Report 2003

Electricity Business

Energy-Related Business

Develop residential services including remodeling, insurance, and home security.

Pipelines

Counter the shift from gas to electrical appliances.
Commercialize and widely distribute compact fuel cells for residential use.

Innovating our pipeline business from a costcenter into a profit center
Until now, Tokyo Gas viewed pipelines the same way itviewed LNG receiving terminals: as cost centers that focus on
stable gas supply and safety assurance. We have adopted
more rigorous return on investment criteria, however, and areworking to reduce the cost of necessary investments andstrengthen their security level. The development of thewheeling business is an effort to raise capacity utilization rates
and distribute costs over the added wheeling capacity, thereby
lowering the effective cost of gas sold to our customers.

Residential Sales
Innovating our business model to provide customers withcomprehensive value encompassing energy, products and services
Tokyo Gas has built a strong relationship of trust over the years with the 8.6 million
households it serves. This will serve as the base for developing a residential services
business. In addition to remodeling, insurance, home security and other services, we willcommercialize and promote the spread of compact fuel cells for residential use, as well
as home appliances that use gas instead of electricity, a product area where the pace ofgrowth has been accelerating in recent years.

Technology Development
Innovating technology development into a tool for business model innovation and creation,with an emphasis on fuel cell development
Key Issues• Popularize residential fuel cells and expand sales channels
through continuous technological development. Tokyo Gas isfield testing residential fuel cell production prototypes it hasdeveloped and expects to commercialize them in fiscal 2004.
• Develop technologies that contribute to the creation of new
businesses such as the supply of hydrogen.

Tokyo Gas Co., Ltd.

Commercial and Industrial Sales• Develop highly efficient cogeneration systems to increase
competitiveness.
• Develop and apply trenchless pipe repair methods toimprove customer service, mitigate environmental impact
and reduce costs.

Tokyo Gas Co., Ltd.

14
Annual Report 2003

EXPANDBusiness Expansion into Energy-Related Areas
Expanding our business into energy-related areas will be a major part of business model
innovation. Tokyo Gas plans to take full advantage of the business opportunity represented
by the growth in energy-related markets as a result of deregulation, and will expand into
new value-added energy business fields in natural gas and related businesses. As a result, weare targeting net sales from new business areas of ¥50 billion in fiscal 2007 and ¥150 billion
in fiscal 2010. We will further enhance our competitive edge through the construction of avalue chain extending from upstream to downstream areas, consisting of the upstream
development and LNG transportation business, the electric power business, energy services,
overseas business, and new residential services such as insurance and home security.
(¥ Billion)

150■ Targets for Expansion into Energy-Related Areas

Electric Power
Energy Services
Overseas
New Residential Services
Total

Net Sales (¥ Billion)
FY2007FY2010
11
75
10
30
11
15
18
30
50
150

30
120

15

90

30

60
30
0

18

75

11
10
11
FY2007FY2010(1) Electric PowerWe are building power plants fueled with our natural gas to provide the foundation for expansion into the electric
power business. In accordance with the progress of deregulation as well as power supply and demand trends, generating
capacity will be expanded in stages, with an estimated scale of 3,000 mW in the future.

Developing a Power Generation BusinessTokyo Gas has begun working to build its power generation business, a key elementof our plan to expand into energy-related areas. We have established subsidiary Tokyo
Gas Bay Power Co., Ltd., and built a 100 mW power plant at the Sodegaura Terminal,
where final testing is underway and full operations are scheduled to begin in October
2003. In addition to keeping installation costs and operating costs to a minimum bybuilding the plant on our own LNG terminal site, we will use the latest high-efficiency
combined-cycle generators to stay fully competitive.
We are also planning to construct a 900 mW power plant jointly with Nippon Oil
Corporation (scheduled to begin operations in 2008) and a 1,200 mW power plant with
the Shell Group (scheduled to begin operations in 2009).

Power plant of Tokyo Gas Bay Power Co., Ltd.

(2) Energy Services
Business development in this area will be led by ENERGY ADVANCE Co., Ltd., which will provide onsite one-stop
services covering everything from energy services, gas and electric power supply, and engineering to maintenance.
Establishment of ENERGY ADVANCE Co., Ltd.
In July 2002, Tokyo Gas established ENERGY ADVANCE Co., Ltd., with paid-in
capital of ¥3.0 billion, to function as a total energy service provider for thebuildings, factories and urban development projects of companies and local
governments. The company will concentrate its operations in three business areas:
on-site energy services, district energy services, and installation and maintenanceof cogeneration systems. It also aims to provide one-stop services that meet
diverse customer needs from consulting on energy-saving measures toconstruction, operation management, maintenance, and financing of projects.

On-site energy
servicebusiness

District energy
services

Installation andmaintenance ofcogeneration
systems

The Right Plan
(3) Upstream Development and LNG Transportation
Tokyo Gas is branching out into the areas of upper and midstream LNG businesses, including
overseas development of gas fields and liquefaction plants as well as LNG transportation.
By participation in the entire LNG value chain, we will gain synergy, ensure our competitiveness,and obtain better terms in feedstock procurement.

Dili
East Timor

Bayu-Undan Gas Field

Gas Pipeline

Investment in the Darwin LNG Project
In June 2003, Tokyo Gas officially agreed to participate in the Darwin LNG
Project, located in the Bayu-Undan Gas Field in the Joint Petroleum Development
Area (JPDA) shared by Australia and East Timor. Tokyo Gas and Tokyo ElectricPower Co., Inc. have signed a long-term contract for the purchase of the entire
yearly production of LNG (3 million tons) projected for the project. This has enabledTokyo Gas to participate in the entire LNG chain, from gas production andliquefaction to sales and transport using our own LNG carriers and marketing, thus
allowing the Company to maximize the total value of its natural gas business.

DarwinAustralia

The Bayu-Undan Gas Field
Location: The Joint Petroleum Development Area (JPDA) of
Australia and East Timor 250 kilometers off the south
coast of East Timor 500 kilometers offshore from
Darwin, Australia
Reserves: Approximately 3.4 trillion cubic feet of natural gas
Approximately 400 million barrels of condensate and LPG

Building Our Own Fleet of LNG Carriers(4) Overseas
Tokyo Gas is moving into gas distribution, power generation and other energy-related areas overseas, increasing earnings throughmanagement that leverages our technology and know-how.

The Tokyo Gas Group has had numerous successful overseas projects over its long history, including involvement in building and managing gas supply
infrastructures. The establishment of Malaysia’s first natural gas distribution business and gas-fired district cooling business was the first full-fledged
international project by a Japanese energy utility, and has been regarded as a model for other Asian countries.
Tokyo Gas will continue to identify and develop investment opportunities in overseas energy-related businesses such as gas supply and electric power,
while focusing closely on profitability.

(5) New Residential Services
In the residential segment, Tokyo Gas is developing businesses for electricity (residential fuel cells) and other utilities besides gas, aswell as providing home-related services including remodeling, installation and maintenance of facilities and equipment, insurance,
financing, and home security.
Establishment of Tokyo Gas Customer Service Co., Ltd.
Tokyo Gas established Tokyo Gas Customer Service Co., Ltd. in April 2002, and began outsourcing its
customer service operations – such as periodic safety checks, meter reading and bill collection – in parts of Tokyo
Gas’s service area in July 2002. Operations were transferred in all 67 sectors of our service area by July 2003 toprovide high-quality service at a lower cost. Support for this outsourcing will come from Enesta*, a group of
franchised, community-based outlets for gas-related operations. Enesta companies will acquire equity stakes in a
new company that will be established in April 2004, to which some outsourced services will be transferred.

Entering the Non-Life Insurance Business
Aiming to become a company that provides a variety of energy solutions, products and services used in daily life, Tokyo Gas entered the non-life
insurance business in January 2003. Tokyo Gas and Enesta became agents of Sompo Japan Insurance Inc. in order to sell a product that insures household
effects against fire, which was jointly developed with Sompo Japan. The first step toward business model innovation will be leveraging the power of ourbrand, which means reliability, safety and trust to our base of loyal customers.
* Enesta: A group of companies that are part of the Tokyo Gas service network, whose customer service outlets already handle home services such as the connection and disconnection of gas service, thesale, installation and repair of gas appliances, and the remodeling of surrounding areas where equipment is installed.

15
Annual Report 2003

Overseas Activities

Tokyo Gas Co., Ltd.

Tokyo Gas is currently building two LNG carriers, which it will own and operate. The first will be completed infall 2003 and the second in 2005. The Company will use its new carriers to expand free-on-board (FOB)
transactions in order to procure competitive LNG by reducing the freight costs. Furthermore, these two carriers
will be used not only for LNG transport under long-term contracts, but also in a new LNG procurement programthat includes short-term contracts and spot trading, which will result in further reduction of import prices andgreater flexibility in contract terms.

Construction of the Group Management System

Tokyo Gas Co., Ltd.

16
Annual Report 2003

CREATE

In order to move forward with business model innovation and expand our business into
energy-related markets, we must build a consolidated operating structure that integrates the
management of Tokyo Gas and its Group companies. These Group companies havepreviously operated independently, but must now work together to maximize the earningsof the Tokyo Gas Group.
Frontier 2007 is a plan for shifting from a business model that revolves exclusively around the supply of gas
to one that repositions the Company as a total provider of energy and value-added energy-related services.
This new model will improve the competitiveness of the entire Tokyo Gas Group and generate stronger
consolidated earnings.
To achieve this objective, we are building a consolidated management system that will centralize theformerly separate and independent business operations of Tokyo Gas and its Group companies. We aim todevelop a business strategy reflecting the goals of the entire Tokyo Gas Group, including our affiliates, andestablish an organizational structure and a management framework to support it. In centralizing business
management functions, it will be particularly important to invest management resources strategically and work
toward optimization of the Group as a whole. We will also work to enhance corporate functions to ensure thatstrategic business units (SBUs) have the freedom and flexibility to develop their operations. This will create astronger market orientation and deepen our relationship of trust with our base of more than 9.2 million
customers, our greatest asset.
Changes to the current management organization are in still in the planning stage, with the new structurescheduled to take effect in April 2004.
■ Organization of the Strategic Business Unit System●Present●April 2004
Strategic Business Unit

Strategic Planning
Division A

Division

Strategic Planning
Division B

Executive Officers

Affiliate A
Strategic Planning
Division Z

Company A
Company B

Affiliate B

Corporate Division

Affiliated Companies
Division
SeniorManagement

Company Z

Division

Affiliate Z

Executive Officers

Shared Services
and R&D Divisions

The Right Plan
Building a Group Management Structure
The core element of the Group management structure is the SBU. The existing divisions, currently organized in terms offunction and business area, will be restructured and consolidated into SBUs with a strong customer-centric focus. The businessareas of affiliates, which are closely related to Tokyo Gas’s operations, will be incorporated into various strategic business units,
thereby consolidating the management of the parent company and affiliates. This will encourage mutual cooperation among
members of the Tokyo Gas Group that will result in improved competitiveness against and differentiation from our competitors.
In addition, we will clarify functions and roles by dividing Group management into three areas: the corporate division; theSBUs; and divisions for shared services and R&D. Specifically, the corporate division, which is responsible for the managementof the entire Group, will define the framework for optimization of the Group as a whole and will formulate and execute Groupstrategy. Each SBU will work to develop the respective business it is associated with. The shared service divisions and the R&D
division will be in charge of providing services and technical support for the entire Group. By ensuring that these three areas
function smoothly together in an organic fashion, Tokyo Gas will maximize the power of the Group.

Strengthening the Group Management Structure(¥ Million)

Company

Business

Capital

FY2002 Net Sales(% of Outside Sales)

Operating
Income (Loss)

Tokyo Gas Urban Development Co., Ltd.

Real estate leasing, management, brokerage

8,779

35,539(39.6)

7,125

ENERGY ADVANCE Co., Ltd.

Energy service business

3,000

17,837(89.8)

3,708

Gaster Co., Ltd.

Gas appliances production and sales

2,450

29,032(55.0)

2,539

KANPAI Co., Ltd.

Design and construction of gas pipelines, waste water and air conditioning facilities

1,300

47,202(32.5)

1,077

Tokyo LNG Tanker Co., Ltd.

LNG and LPG chartering, transport of carriers

1,200

1,711

(0.1)

586

Tokyo Gas Energy Co., Ltd.

Sales of energy LPG and coke

1,000

20,731(91.7)

275

Tokyo Gas Chemicals Co., Ltd.

Sales of gas for industry and chemicals, R&D of LNG cooling applications

1,000

20,313(91.3)

641

Park Tower Hotel Co., Ltd.

Hotel (Park Hyatt Tokyo) management

1,000

8,988

(99.9)

764

Tokyo Oxygen and Nitrogen Co., Ltd.

Production and wholesale of liquefied oxygen and nitrogen

800

2,296

(44.9)

258

Chiba Gas Co., Ltd.

Gas business

480

11,174(99.6)

699

TG Credit Services Co., Ltd.

Financing and leasing related to gas equipment and construction

450

10,940(47.4)

263

TG Information Network Co., Ltd.

System integration business

400

14,706(24.8)(121)

Tsukuba Gakuen Gas Co., Ltd.

Gas business

280

5,025

(98.8)

375

TG Enterprise Co., Ltd.

Group financial administration business

200

817

(52.8)(27)

Tokyo Gas Engineering Co., Ltd.

Comprehensive engineering services centered on energy

100

31,068(70.8)

458

TG•IT Service Co., Ltd.

Tokyo Gas systems, network operations

50

8,394

(0.2)

282

Tokyo Gas Customer Service Co., Ltd.

Provision of periodic gas safety checks, meter reading and billing services

50

1,365

(0)

240

KANPAI LIVING SERVICE Co., Ltd.

Sales of gas appliances

50

3,584

(82.8)(120)
As of March 31, 2003

17
Annual Report 2003

Tokyo Gas Group Companies

Tokyo Gas Co., Ltd.

As changes in the business environment accelerate, the functions and framework associated with optimizing the Tokyo Gas
Group will become increasingly important. As a result, we are focusing on developing stronger business management capabilities.
The corporate division will clearly set forth the direction of the Group, with the responsibility and authority to makeadjustments as circumstances demand. SBUs will be given the freedom to carry out plans such as reorganizing or consolidating
businesses within units. In addition, we will consolidate all Group management functions under the Strategic Planning Division.
This move will replace the current parallel structure where the corporate division is overseen by the Strategic Planning Divisionand the Affiliated Companies Division is responsible for all Tokyo Gas affiliates. This reorganization will ensure the smoothplanning, implementation and management of the Group’s strategies.
Under this management structure, we will achieve a dynamic management that uses a process of selection andconcentration to focus management resources in highly profitable and competitive areas.

Strengthening the Corporate Structure
To succeed in this period of “mega-competition” in the energy industry, it is essential tocreate a stronger and more streamlined corporate organization. To this end, Frontier 2007
will focus on establishing corporate governance, strengthening our financial position,clarifying evaluation standards, and pursuing cost reductions across the board.

Tokyo Gas Co., Ltd.

18
Annual Report 2003

VITALIZE

Establishing Corporate Governance
The underlying foundation of our business activities is delivering value to our customers. All our activities focus
on our customers, as we strive to become a corporate group that is trusted by customers, shareholders, and society
as a whole. With this in mind, we are working to further improve compliance while promoting active disclosure of
information and stronger corporate governance.
In November 2002, Tokyo Gas established a Compliance Department and a supporting organization to bolster
the Company’s compliance promotion system. Under the basic guidelines formulated by the Management Ethics
Committee, which is chaired by the President, Compliance Committees established in each division are eachconducting their own ongoing compliance-related measures, while the Compliance Department is responsible forcompany-wide educational programs. Through these efforts, we are working to create a corporate culture thatencourages all executives and employees to emphasize compliance in their decisions and behavior, thereby
continually improving our brand value.
■ Compliance Organization
In March 2003, Tokyo Gas set up two Compliance Hot Lines to accept
Board of Directors
Auditors
employee questions. Employees are able to consult directly on compliancerelated issues through either an in-house or external hotline. This new
system enables employees to quickly resolve problems and has
President
strengthened the Company’s ability to carry out compliance automatically(Reports to)and independently.
The Audit and Operational Enhancement Department also performs
compliance
audits to ensure compliance with governmental regulations.
Management Ethics
Committee Secretariat
To strengthen corporate governance, Tokyo Gas reorganized its
governance system in June 2002. Changes included substantially reducing(Secretariat)
the number of directors, shortening their terms of service, and appointing
outside directors to the board. At the same time, Tokyo Gas was the first inCompliance Department
the industry to introduce a corporate executive officer system, which has
improved the management of day-to-day operations. In the future, we willcontinue working to revitalize the board of directors while increasing
Compliance Committees
in each division
management transparency.
■ Management Philosophy
As a total energy industry, the Tokyo Gas Group shall make an active contribution to pleasant living and thedevelopment of environmentally friendly cities, and also pursue ongoing advancement together with the rest ofsociety, as a corporate group that earns and maintains the trust of its customers, shareholders and communities
through its various activities.
1. Tokyo Gas shall strive to evolve into a new utility that simultaneously satisfies the goals of contribution to customers andcommunities as a public-minded enterprise and increases its corporate value as a joint-stock corporation.
2. Tokyo Gas shall observe the letter and spirit of laws and regulations, and work for socio-economic advancement throughbusiness activities that are both fair and transparent.
3. Tokyo Gas shall contribute to the alleviation of global environmental problems as a leading practitioner of environmental
management.
4. Tokyo Gas shall remain keenly aware of its obligations to be a good corporate citizen and assist the emergence of a more
fulfilling society through contributing to community activities.
5. Tokyo Gas shall pursue innovation on an ongoing basis to promote a cost effective business approach and a flexible but resilient
disposition.
6. Tokyo Gas shall aspire to build organizations that are brimming with vitality based on the full exercise of and respect for thetalents, desires, and creativity of each and every employee.

The Right Plan
■ Interest-Bearing Debt (Consolidated)

Strengthening Our Financial Position and Clarifying
Evaluation Standards(¥ Billion)

1,000Continued from our previous medium-term management plan, one of the goals ofFrontier 2007 is to improve asset efficiency by reducing fixed, financial and other assets.
We are aiming to lower the amount of interest-bearing debt by about ¥150 billion, on aconsolidated basis (approximately ¥100 billion compared with actual results for fiscal
2002), in order to improve our financial position by minimizing interest-rate risk. In
addition, we are establishing uniform standards for entering, maintaining, andwithdrawing from businesses, as well as for investment decision-making, in order todevelop more efficient and effective operations.
These evaluation standards are Tokyo Gas Economic Profit (TEP), Net Present Value(NPV) and Internal Rate of Return (IRR). TEP is Tokyo Gas’s version of Economic Value
Added (EVA®), allowing us to meet the expectations of shareholders while looking forways to generate added value, determining the future direction of our business andoptimizing the allocation of management resources.

800

775.0
627.0

600
400
200
0

FY2002

FY2007

Note: Figures for fiscal 2002 are projections made when themedium-term management plan was finalized in
October 2002, not the actual results.

12,000Tokyo Gas is reducing costs through measures such as making administrative divisions
more efficient, which enables increasing cash flow for investment in new businesses.
The introduction of shared services for the Group as a whole will improve theefficiency of administrative operations while reducing staffing requirements and costs at
the Tokyo Gas head office. In addition, any increase in fixed costs due to an increase in
new customers will be absorbed through our cost cutting efforts, and overhead in fiscal
2007 should be back to fiscal 2002 levels.
Because business model innovation will require improvement in the quality of humanresources and a more dynamic organization, we are focusing harder than ever on humanresources development and management. At the same time, through reorganization of all
businesses, Tokyo Gas will reduce personnel by about 1,700, or 16 percent, comparedwith the end of fiscal 2002, resulting in a total staff of no more than 8,800 by the end of
fiscal 2007. In addition, expanding the merit-based system of annually salary negotiations
for managers and other measures will bring compensation more closely in line withperformance.

10,00010,450
8,750

8,000
6,000
4,000
2,000
0

FY2002

FY2007

Note: Figures for fiscal 2002 are projections made when themedium-term management plan was finalized in
October 2002, not the actual results.

■ Fixed Expenses per m3 of Gas Sales(Non-consolidated)(2003 = 100)

100

100

80

76

60
40
20
0

FY2002

FY2007

Fixed expenses = Wages + Overhead + Depreciation andAmortization + Non-operating expenses

19
Annual Report 2003

Pursuing Cost Reductions

Tokyo Gas Co., Ltd.

■ Personnel (Non-consolidated)Research & Development: A Key to the Future
Tokyo Gas has consistently emphasized technology development and the harnessing of newtechnology to develop business. As deregulation intensifies competition, we will focus ondeveloping technologies that raise the speed and profitability of our operations, differentiate us
from other companies, and contribute to business model innovation.

Key R&D Objectives and Development Themes
Tokyo Gas is concentrating on the following three key R&D objectives.
■ R&D Expenses By Objective
Total R&D Expenditures (Consolidated): ¥11.7 billion(Year ended March 31, 2003)

3. Creating profitable new businesses and improving
customer satisfaction
Deploy proprietary technologies to create profitable new
businesses, and develop technologies to expand the ability tosupply high-value-added services that meet customers’ needs.
Tokyo Gas Co., Ltd.

20

1. Encouraging natural gas use

25%
40%

Improve the safety and dependability of gas appliancesand further raise the superiority of city gas by developing
technologies that increase efficiency while reducing
space requirements and costs.

35%

2. Strengthening the natural gas business base
Improve existing production and distribution infrastructure and lower thecost of maintenance. Develop technologies required to create a more
efficient production, storage, transmission and supply system in order toexpand the Company’s natural gas business base.

Annual Report 2003

Business Model Innovation through Technology Development
Tokyo Gas is working to commercialize hydrogen energy and fuel cells, with the expected launch of a residential fuel cell cogeneration system in fiscal
2004. In addition, Tokyo Gas is deploying its technologies to contribute to the expansion of the hydrogen infrastructure in ways such as leveraging its city gas
infrastructure in the Tokyo metropolitan area. Using its experience in natural gas vehicles and its highly efficient technology to produce hydrogen from citygas, Tokyo Gas is also working to develop a new business model focused on these efforts.

Hydrogen Filling Station

Cogeneration System for Residential Use

The Senju Hydrogen Station,
the first fixed hydrogen filling
station in the metropolitan
Tokyo area, was constructed
as a joint venture between
Tokyo Gas and Nippon Sanso
Corporation as part of theJapan Hydrogen & Fuel Cell
Demonstration (JHFC) Project.
Once operations begin, thestation will conduct demonstrations of hydrogen production and supply
technology and its operating know-how. It will also collect data on factors
such as environmental impact, energy efficiency, safety and economic
feasibility. This data will support the establishment of standards andregulations, validate the social suitability of hydrogen energy and fuel cells,
and provide feedback that Tokyo Gas can use in developing technology andcreating a new businessmodel. Fuel cell vehicles andhydrogen filling stations werealso the focus of attention at
the 22nd World Gas
Conference held in Tokyo.

The polymer electrolyte fuel cell (PEFC)
stationary cogeneration system for residential
use features highly efficient power generation,
minimal environmental impact and high overall
energy efficiency. Using its proprietary
technology, Tokyo Gas is pushing ahead withthe development of a fuel processor for the
PEFC system. Our initiatives, such as
conducting field tests at actual homes, will
promote the widespread use of this system.

Methane Hydrate
The seabeds around Japan are estimated to hold reserves ofmethane hydrate – methane and water frozen into asherbet-like consistency under high pressure – equivalent toJapan’s natural gas consumption for a hundred years. For acountry like Japan, which is almost totally reliant on
imported energy resources, this is an extremely attractive
source of energy. Tokyo Gas is continuing research into
options for using methane hydrate as a future source of
natural gas.

Competitive Feedstock, Stable Supply and Safety Measures
Tokyo Gas stably procures cost-competitive feedstock, while its diversified disasterprevention system covering every aspect of operations from the production and supplyof city gas to its use fully assures safety.

New LNG Contracts Will Improve Competitivenessand Enhance Flexibility

Piltun-Astokhskoye(Oil field with some associated gas)

RussiaTokyo Gas currently imports a total of 7.5 million tons of LNG annually from six countries, andcontinues to study sourcing of additional supply to respond to future increases in gas demand.
Supply from the Malaysia III Project, the NWS Expansion Project in Australia, and the Darwin LNG
Project should come online in sequence from 2004. Moreover, in May 2003, Tokyo Gas concluded aheads of agreement covering the purchase and sale of LNG produced by the Sakhalin II Project. The
Sakhalin II Project is the first Russian project to supply natural gas to Northeast Asia, and its
abundant reserves and proximity to the market are significant advantages. Contract terms of these
new agreements and the use of Company-owned LNG carriers will add to competitiveness andflexibility in procuring LNG.

Lunskoye(Natural gas field)
Nysh

Sakhalin Island
Pipeline
Yuzhno-Sakhalinsk

Prigorodnoye(LNG/oil terminal)

Tokyo Gas Co., Ltd.

■ Tokyo Gas LNG Imports

Nogliki
DeKastri

Japan
AlaskaSakhalin

Tokyo

21

Tokyo

Annual Report 2003

Qatar
BruneiMalaysia
Indonesia

Australia

Annual LNG Imports(March 31, 2003)

Milliontons% of total
imports

Malaysia
Australia
BruneiIndonesia
Qatar
Alaska

3.41
1.34
1.24
0.84
0.36
0.32

(45.5%)(17.8%)(16.5%)(11.1%)(4.8%)(4.3%)

Total

7.51

(100.0%)

Maintaining Stable Supply
In tandem with the objective of a stable and economical feedstock procurement system, Tokyo Gas works toensure stable supply by employing a thorough array of disaster-prevention facilities covering production,
distribution and consumption to guarantee safety. The Center for Supply Control and Disaster Management
conducts 24-hour monitoring and control of gas production and supply using the Total Gas Control System (TGCS).
This supply control system is designed to assure a stable supply and to take necessary measures quickly and safely
in the event of a disaster such as a major earthquake.

Thorough Safety Measures
Disasters caused by earthquakes can threaten the safety of the city gas supply system. Prevention, response
and restoration are the three pillars of the Company’s comprehensive earthquake countermeasures. Prevention
includes the incorporation of the latest earthquake-proof technology in the design of our production and supply
facilities to prevent damage. In addition, we have constructed the world’s most extensive ultra-high density realtime seismic motion monitoring and disaster mitigation system, which remotely shuts off the supply of gas shoulda gas leak emergency occur, thus substantially minimizing the threat of secondary damage. We have also
developed and are now refining a restoration support system to determine the most efficient plan for safely andquickly restoring service in the event of an interruption in the supply of gas.

The signing of the heads ofagreement covering the purchaseand sale of LNG produced by the
Sakhalin II ProjectEarth-Oriented Environmental Activities and Social Contribution
As a leader in environmental management, Tokyo Gas has established a policy that promotes
the use of resources and energy in harmony with the environment. The Company actively
works to develop technologies that reduce environmental impact, promotes the efficient useof energy, and discloses environmental data. In addition, Tokyo Gas contributes to society asa good corporate citizen.

Environmental Conservation
Natural Gas: A Clean Energy Source
Natural gas, the main feedstock for city gas, is a very clean energy source. Compared to other fossil fuels,
natural gas combustion emits less carbon dioxide (CO2), which is the main cause of global warming, and less nitricoxide (NOx), a source of air pollution. It also emits no sulfur oxide (SOx). The Tokyo Gas Group has positioned
natural gas as the core element in its corporate growth.
■ Composition of Emission Levels (Coal = 100)

Measures to Prevent Global Warming

Tokyo Gas Co., Ltd.

NOxNatural Gas
20〜40

Oil

Coal

70

100

Tokyo Gas has established its own Global Warming Prevention
Guidelines, and is promoting energy conservation in its businessactivities. We also undertake activities to reduce CO2 emissions by city
gas customers. Cogeneration systems using natural gas can play animportant role in curtailing CO2 emissions. These systems feature
overall energy efficiency of 70-80 percent, which effectively suppresses
CO2 emissions.

22
Annual Report 2003

Reducing Waste and Promoting Recycling
Natural Gas

Oil

Coal

Natural Gas

Oil

Coal

0

70

100

60

80

100

Our “Reduce, Reuse, Recycle” promotion guidelines contribute to
the creation of a recycling-oriented society, and promote reduction in theamount of waste produced in the course of our operations. In addition to
reducing the amount of waste paper generated, which accounts for mostof the trash produced in our offices, we have set targets for the final
disposal rate of industrial waste and are energetically working toSOx
CO2
Source: IEA Natural Gas Prospects (1986), Natural Gas Prospects and Policies (1991)
achieve them. Moreover, Tokyo Gas is working to reduce the amount ofresidual soil derived from operations such as gas pipeline installation.
We are also vigorously promoting reduction, reuse and recycling of waste among customers. Tokyo Gas wasquick to incorporate environmental protection into the design of its products, working to limit emissions from thedesign phase. The Company also developed and now uses the Saving Recycling Innovative Model System (SRIMS),
a proprietary system for the efficient recovery, recycling and disposal of gas appliances, pipeline materials andother industrial waste. Furthermore, Tokyo Gas began collecting and properly disposing of discarded residential
gas air conditioners and other appliances in response to the Home Appliance Recycling Law, which went into
effect in April 2001.

Head Office Obtains ISO14001 Certification

Disclosure of Environment Information

Tokyo Gas is working to acquire ISO14001 certification, aninternational standard for environmental management systems. The
Company’s three LNG terminals, and the Shinjuku and Makuhari
District Heating and Cooling Centers*, have received ISO14001
certification, and the head office received this certification in
October 2002. Tokyo Gas is aiming to achieve certificationcompanywide by the end of fiscal 2004.

Tokyo Gas publishes an annual Environmental Report and discloses
environmental information on its website. In addition, we introduced
environmental accounting in fiscal 2000 to monitor the benefit ofenvironmental protection by calculating the total investment andexpenses allocated to it. The Company also publishes and distributes
booklets that feature helpful information on conserving energy, such as
the Ultra Energy-Saving Reader.
http://www.tokyo-gas.co.jp/env/index_e.html* These centers were spun off as ENERGY ADVANCE Co., Ltd. in July 2002.

Preventing Air Pollution
Tokyo Gas has formulated NOx Reduction Guidelines to encourage the use of natural gas, which
produces low emissions of NOx, a cause of air pollution, as well as the development of low-NOx
combustion technology and the popularization of more efficient water heaters and cogeneration systems.
In particular, there is growing interest in natural gas vehicles (NGV), an environmentally friendly vehicle
that not only produces significantly less NOx emissions compared to diesel engines, but also does not emit
any suspended particulate matter (SPM) or SOx. Promoting the spread of NGVs is an important part of ourenvironmental protection activities. At present, there are approximately 6,700 NGVs, including city buses,in the Tokyo Gas service area.

Natural gas vehicles, which produce reduced NOx
emissions, include this city bus.

Contributing to Society
Committed to social harmony, Tokyo Gas contributes to society in a numberof ways under the three types of communication outlined below.

Lifestyle and Culture Communication

Recognizing that the global environment closely affects daily life, Tokyo Gas sponsors avariety of activities to provide a chance for people to play a part in its protection, such as the“EARTH VISION Global Environmental Film Festival,” acorn-planting and “green” fundraising. Acorn-planting aims to increase environmental awareness through the activities ofgathering acorns, raising them into seedlings, and then transporting them to the mountains
for planting. Tokyo Gas has been carrying out this activity since its start in 1993 with the helpof an environmental non-profit organization.

Eco-Cooking Book
Since 1995, Tokyo Gas has held approximately
700 Eco-Cooking sessions, attracting more than
30,000 participants. The Company continues todevelop the program, publishing a collection ofrecipes in March 2003 and launching a
dedicated website.
(Eco-Cooking is a registered trademark ofTokyo Gas.)

Children’s Educational Communication
For children, Tokyo Gas provides an opportunity to learn and explore by utilizing its knowhow, technology and facilities. The Company has been holding pottery contests and a soccer
training school for elementary and junior-high school students. It also operates the Gas
Science Center, the Energy and Earth Exploratorium and other facilities. As part of an
initiative to support education on energy and the environment, since 2002 Tokyo Gas
employees have been visiting elementary schools to distribute supplementary materials andconduct hands-on activities.

Volunteer Activities
In addition to the above communication activities, Tokyo Gas provides its employees with
useful information and support for activities to promote volunteerism and a sense of social
responsibility. The Company has established the Tokyo Gas Volunteer Network, an employee
network for volunteer-related information and support, and also offers leaves of absence forvolunteer activities.

School Visits
Thirty Tokyo Gas employees responsible forsupporting education visit schools to teach classes
on eight different topics including cryogenic
energy, Eco-Cooking and natural gas vehicles.

23
Annual Report 2003

Environmental Communication

Tokyo Gas Co., Ltd.

Tokyo Gas offers a range of participatory activities centered on food and home that aredesigned to enrich people’s lives. Examples include co-sponsoring the “Mini-University,” aseries of seminars for housewives, and promoting “Eco-Cooking.” Eco-Cooking is based on
the concept of using familiar items to learn about environmental issues. Tokyo Gas
promotes environmentally friendly ways of shopping, cooking and tidying up after meals.

Management
Board of Directors and Corporate Auditors
Chairman

Kunio Anzai
Vice Chairman

Hideharu Uehara
President

Kunio Anzai

Hideharu Uehara

Norio Ichino

Norio Ichino
Executive Vice Presidents

Fumio Ohori
Chief Executive, Production Div.;
Chief Executive, Corporate Communications Div.

Mitsunori Torihara
Chief Executive, Strategic Planning Div.;Internal Audit Dept.; Compliance Dept.

Shigero Kusano
Tokyo Gas Co., Ltd.

Fumio Ohori

Mitsunori Torihara

Shigero Kusano

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

Senior Executive Officers

Kouya Kobayashi
Chief Executive, Pipeline and Safety Management Div.

Masahiro Ishiguro
Chief Executive, Affiliated Companies Div.

Minoru Yokouchi

24

Chief Executive, Inter-Regional Sales and Service Div.

Annual Report 2003

Directors (outside)

Kouya Kobayashi

Masahiro Ishiguro

Minoru Yokouchi

Yuzaburo Mogi
Yuri Konno
Yukio Sato
Standing Corporate Auditors

Soichiro Akimoto
Hiroshi Hirai
Corporate Auditors

Shoh Nasu
Yuzaburo Mogi

Yuri Konno

Yukio Sato

Kazuo Nemoto

Senior Executive Officers

Executive Officers

Takeo Kuno

Tsunenori Tokumoto

Tsuyoshi Okamoto

Chief Executive, Customer Service Div.

General Manager, Research Dept., R&D Div.

General Manager, Corporate Planning Dept., Strategic Planning Div.

Tadashi Zemba

Tokio Imazawa

Taiichi Okuzawa

Chief Executive, Corporate Service Div.

Coordinator, Energy Sales and Service Div.

General Manager, Kanagawa Service Branch, Customer Service Div.

Tadaaki Maeda

Akira Habu

Shigeru Muraki

Chief Executive, R&D Div.

Corporate Communications Div.;Managing Director, The Japan Gas Association

General Manager, Gas Resources Dept., Strategic Planning Div.

Toshio Tezuka

General Manager, Personnel Dept., Strategic Planning Div.

Takashi Kunitomi
Chief Executive, Residential Sales and Service Div.

(As of July 1, 2003)

Norikazu Hoshino

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

Tadashi Kaburagi

Seiichi Nakanishi

General Manager, Industrial Gas Sales Dept.; Deputy General
Manager, Volume Sales Dept., Energy Sales and Service Div.

General Manager, Residential Sales Promotion Dept., Residential
Sales and Service Div.

Toshiyuki Kanisawa

Masaki Sugiyama
General Manager, Pipeline Dept., Pipeline and Safety Management Div.

General Manager, Service Planning Dept., Customer Service Div.

Management’s Discussion and Analysis of Operations
Tokyo Gas Co., Ltd. and its 18 consolidated
subsidiaries operate in five segments: gas sales,
gas appliance sales, related construction, realestate rental, and other.

including an increase in supply contract volume. As a result, total
gas sales volume for the fiscal year increased 13.5% year-on-year to
10,471 million m3.

Net Sales

Gas Sales Volume

Consolidated net sales increased 2.7% year-on-year to ¥1,127.6
billion. Gas sales increased 5.6% year-on-year, supported by theincrease in gas sales volume and other factors including gas rateadjustments based on the “sliding rate system.” Sales of gas
appliances and sales from related construction, however, decreased
from the previous fiscal year.

For the year ended March 31, 2003, gas sales volume in theresidential sector increased 5.9% year-on-year to 3,302 million m3.
Factors in the increase included a lower average temperature thanin the previous fiscal year, which increased demand for hot waterand heating. An increase in the number of both gas customers andgas appliances in use also supported the gain. Gas sales volume inthe commercial and other business user sector, which consists ofcommercial, public and medical customers, increased 9.7% to 2,592
million m3. Factors supporting the increase included additional
consumption from new customers and the favorable effect of thelower average temperature on demand for hot water and heating.
Gas sales volume in the industrial sector increased 23.4% to 3,632
million m3. Factors in the increase included higher demand in the
power generation market and additional consumption from newcustomers. Gas sales volume in wholesale supply to other gas
companies increased 17.6% to 944 million m3 due to factors

1,100
1,000
900

(Years ended March 31)

6,000

Rate of Change

Summer (June – September)

0.1%

Winter (December – March)-2.7%

Intervening months(April, May, October, November)-1.9%

Annual

-1.6%

2000

2001

2002

2003

Costs and expenses, the sum of cost of sales and selling,
general and administrative (SG&A) expenses, increased 1.8% yearon-year to ¥1,004.3 billion. While raw material expenses rose intandem with the increase in sales volume, costs and expenses
increased at a rate below that of net sales due to efforts to further
raise efficiency and control overhead, personnel and other expenses.
Cost of sales increased 1.8% to ¥571.9 billion, while SG&A
expenses increased 1.7% to ¥432.4 billion. Consequently, operating
income increased 11.5% year-on-year to ¥123.3 billion.

8,000

Effect of 1ºC Temperature Increase on
Gas Sales Volume

1999

Operating Expenses and Operating Income

10,000

2000

0

2001

2002

2003

Monthly Gas Sales Volume by Sector for Fiscal 2002 (Non-consolidated)(Million m3, 46.05MJ/m3)
1,200
1,000
800
600
400
Residential
Commercial/Other
Industrial
Wholesale

200
0

4/02

5

6

7

8

9

10

11

12

1/03

2

3

25
Annual Report 2003

(Million m3, 46.05MJ/m3)
12,0004,000
Residential
Commercial/Other
2,000
Industrial
Wholesale0(Years ended March 31)
1999(¥ Billion)
1,200Tokyo Gas Co., Ltd.

Gas Sales Volume
by Sector

Net Sales

Operating Income

income increased 14.0% year-on-year to ¥59.2 billion. The ratio of
net income to net sales was 5.3%, a year-on-year improvement of
60 basis points from 4.7% for the previous fiscal year. Net income
per share increased to ¥21.18 from ¥18.47 for the previous fiscal
year. Fully diluted net income per share increased to ¥19.11 from
¥16.66 for the previous fiscal year.

(¥ Billion)
150
120
90
60

Net Income and
Net Income per Share30(Years ended March 31)

0

1999

2000

2001

2002

2003

Other Income (Expenses)

Tokyo Gas Co., Ltd.

26
Annual Report 2003

Other expenses, net totaled ¥27.4 billion, compared to ¥27.7
billion for the previous fiscal year. Other income totaled ¥5.2 billion,
compared to ¥4.9 billion for the previous fiscal year, primarily
because Tokyo Gas recorded an exchange gain, as opposed to theexchange loss of the previous fiscal year. Other expenses totaled¥32.7 billion, compared to ¥32.6 billion for the previous fiscal year.
Interest expense decreased 9.4% to ¥17.5 billion, reflecting
progress in reducing interest-bearing debt. The interest coverage
ratio, which is the sum of operating income and interest anddividend income divided by interest expense, was 7.1 times,
compared to 5.8 times for the previous fiscal year. The decrease ininterest expense, however, was offset by factors including a yearon-year increase of ¥1.7 billion in loss on unsecured noteredemption to ¥6.3 billion, and environmental conditioning costs of¥5.7 billion, which is included in other, net.
Interest Coverage Ratio

(¥)
30

50

25

40

20

30

15

20

10

10
Net income
Net income per share
0
1999(Years ended March 31)

5
2000

2001

2002

2003

0

Dividends
Tokyo Gas’s basic policy is to distribute to shareholders
approximately 20% of free cash flow generated under Frontier 2007
from fiscal 2003 to fiscal 2007. In addition, Tokyo Gas plans togenerate another 20% from free cash flow for the repurchase of its
common shares outstanding to counter the dilutive effect of theconversion of convertible bonds into shares. Based on these
considerations, the Company declared cash dividends for the fiscal
year totaling ¥6.00 per share, the same as in the previous fiscal year.

Segment Information(Times)8

In this section, segment sales refers to sales to outside
customers, excluding inside Group sales. Operating expenses aretotal expenses associated with sales to outside customers and inside
Group sales. Operating income is calculated as the total of sales tooutside customers and inside Group sales less operating expenses.

642Interest coverage ratio =(Operating income + Interest anddividend income)/ Interest expense
0(March 31)
1999(¥ Billion)
60

Gas
2000

2001

2002

2003

Income before Income Taxes, Income Taxes
and Net Income
Improved operating profitability supported a year-on-yearincrease of 15.7% in income before income taxes and minority
interest in net income of consolidated subsidiaries to ¥95.9 billion.
Income taxes increased 18.2% to ¥36.4 billion. As a result, net

Gas sales volume increased 13.5% year-on-year. Segment sales
increased 5.2% year-on-year, or ¥39.2 billion, to ¥789.7 billion, andaccounted for 70.0% of total net sales, compared to 68.4% in theprevious fiscal year. Higher gas sales volume and gas rateadjustments based on the “sliding rate system” were primaryfactors in the increase. Segment operating expenses increased 5.2%
to ¥632.2 billion as higher sales volume resulted in higher raw
material costs. Segment operating income therefore increased 7.4%,
or ¥11.0 billion, to ¥160.2 billion.

Gas Appliances

Financial Strategy

Segment sales decreased 4.8% year-on-year, or ¥7.0 billion, to¥141.2 billion, and accounted for 12.5% of total net sales,
compared to 13.5% in the previous fiscal year. Segment operating
expenses decreased 5.0%, or ¥7.2 billion, to ¥134.8 billion.
Segment operating income therefore increased 8.3%, or ¥0.6 billion,to ¥7.8 billion.

Tokyo Gas is emphasizing reducing interest-bearing debt andraising asset efficiency. The Company is working to increase overall
return on assets (ROA) by rigorously evaluating new capital
investments on the basis of projected profitability, while
restructuring its existing portfolio of assets and investments for
greater profitability.

Related Construction
Segment sales decreased 0.9% year-on-year, or ¥0.6 billion, to¥67.0 billion, and accounted for 5.9% of total net sales, compared
to 6.2% in the previous fiscal year. Segment operating expenses
decreased 1.9%, or ¥1.3 billion, to ¥66.4 billion. Segment operating
income therefore increased 14.4%, or ¥0.5 billion, to ¥4.2 billion.

Real Estate Rental

This segment consists of businesses including district heating
and cooling systems, sales of liquefied petroleum gas (LPG),
industrial gases, system engineering and comprehensive
engineering. Segment sales increased 0.7% year-on-year, or ¥0.8
billion, to ¥114.7 billion, and accounted for 10.2% of total net sales,
compared to 10.5% in the previous fiscal year. The gain in segment
sales was supported by factors such as higher sales of LPG. Segment
operating expenses increased 2.4%, or ¥3.5 billion, to ¥148.7
billion. Segment operating income therefore decreased 10.9%, or¥1.2 billion, to ¥9.6 billion.
Net Sales by Segment(¥ Billion)

Year ended March 31
Net cash provided byoperating activities
Net cash used ininvesting activities
Net cash used infinancing activities

2003

2002

2001

213.5

191.7

187.5

(110.1)(111.8)(115.8)(78.5)(117.2)(104.4)

Cash Flows from Operating Activities
Net cash provided by operating activities increased ¥21.9 billion
from the previous fiscal year to ¥213.5 billion. The increase inincome before income taxes and minority interest was a primaryfactor in the improvement in net cash provided by operations.
Changes in operating assets and liabilities, including a reduction of
inventory totaling ¥7.6 billion, used a net ¥1.1 billion of net cash
provided by operations, compared to net ¥2.5 billion used in theprevious fiscal year. These factors offset a decrease in depreciation
to ¥137.3 billion resulting from selection and concentration in
deploying capital.
Net Cash Provided byOperating Activities(¥ Billion)
250
200(¥ Billion)
1,200

150
1,000
100

800

50

600
Gas sales400
Gas appliance sales
Related construction
200
Real estate rental business
Other
0(Years ended March 31)(Years ended March 31)

1999

2000

2001

2002

2003

0

1999

2000

2001

2002

2003

Cash Flows from Investing Activities
Net cash used in investing activities totaled ¥110.1 billion,
compared to ¥111.8 billion in the previous fiscal year. Capital
expenditures, the sum of purchases of property, plant and equipment
and purchases of intangible fixed assets, decreased 4.9%, or ¥5.5

27
Annual Report 2003

Other

Cash Flows

Tokyo Gas Co., Ltd.

Segment sales decreased 4.7%, or ¥0.7 billion, to ¥14.9 billion,
and accounted for 1.3% of total net sales, compared to 1.4% in theprevious fiscal year. Segment operating expenses decreased 8.7%,
or ¥2.7 billion, to ¥28.7 billion. Segment operating income therefore
increased 25.2%, or ¥1.5 billion, to ¥7.6 billion.

Liquidity and Capital Resourcesbillion, to ¥107.2 billion. Principal capital expenditures included
underground liquefied natural gas (LNG) tanks at the Ogishima
Terminal and gas pipelines. Proceeds from sale of tangible andintangible fixed assets more than doubled to ¥6.9 billion.
Free cash flow, calculated by subtracting net cash used ininvesting activities from net cash provided by operating activities,
increased 29.5%, or ¥23.5 billion, to ¥103.4 billion.
Capital Expenditures
and Depreciation(¥ Billion)
150

As of March 31, 2003, current liabilities totaled ¥340.7 billion,
an increase of 14.4% from a year earlier, or ¥42.9 billion. The
increase was primarily the result of the shift of ¥50.8 billion fromlong-term debt to long-term debt due within one year. Income taxes
payable increased ¥7.1 billion from a year earlier, while othercurrent liabilities decreased ¥16.9 billion. Working capital deficit
totaled ¥76.2 billion, compared to ¥46.0 billion a year earlier. The
current ratio was .78 to 1, compared to .85 to 1 a year earlier.

90
60Tokyo Gas Co., Ltd.

28

Current assets increased 5.0% from a year earlier, or ¥12.7
billion, to ¥264.6 billion. Cash and cash equivalents increased ¥24.9
billion from a year earlier, and trade receivables increased ¥3.7
billion from a year earlier. Tokyo Gas reduced inventories by 26.5%
from a year earlier, or ¥7.6 billion, to ¥21.1 billion. Other current
assets also decreased ¥9.2 billion from a year earlier to ¥49.0 billion.

Current Liabilities

120

30
Capital expenditures(payment basis)
Depreciation
0(Years ended March 31)
1999

Current Assets

2000

2001

2002

2003

Current Ratio

Cash Flows from Financing Activities

Annual Report 2003

Net cash used in financing activities totaled ¥78.5 billion,
compared to ¥117.2 billion for the previous fiscal year. Repaymentsof long-term debt totaled ¥75.5 billion, compared to ¥159.1 billion
for the previous fiscal year, and Tokyo Gas redeemed commercial
paper totaling ¥12.0 billion. At the same time, proceeds from longterm debt decreased ¥8.1 billion to ¥37.3 billion, which included anissue of unsecured notes due 2012 totaling ¥20.0 billion.
Consequently, cash and cash equivalents at the end of the year
nearly doubled year-on-year to ¥52.1 billion.

(Times)
1.0
0.8
0.6
0.4
0.2

(March 31)

0

1999

2000

2001

2002

2003

Assets, Liabilities and Stockholders’ Equity

Interest-Bearing Debt

As of March 31, 2003, total assets amounted to ¥1,676.1
billion, a decrease of 1.6%, or ¥26.6 billion, from a year earlier.
Return on average total assets increased to 3.5% from 3.0% for theprevious fiscal year.

One of the basic policies of the Company’s medium-term
management plan is continuous improvement to strengthen the
Company’s financial structure. As of March 2003, interest-bearing
debt decreased 5.7% from a year earlier, or ¥44.6 billion, to ¥731.3

Property, Plant and Equipment

Interest-Bearing Debt (¥ Billion)

Property, plant and equipment decreased 2.6% from a year
earlier, or ¥32.5 billion, to ¥1,217.5 billion as a result ofdepreciation. Prior to adjustment for depreciation, production
facilities increased 0.2% from a year earlier, or ¥1.3 billion, to¥688.3 billion. Distribution facilities increased 3.3% from a year
earlier, or ¥63.1 billion, to ¥1,952.2 billion, reflecting the Company’s
pipeline expansion and maintenance program. Construction inprogress increased 27.4% from a year earlier, or ¥16.2 billion, to¥75.4 billion as a result of projects including LNG carrier
construction.

1,000

(%)
100

800

80

600

60

Interest-bearing debt
400
Ratio of interest-bearing
debt to total assets
Interest-bearing debt =200
Long-term debt due after one
year + Long-term debt due within
one year + Bank loans
0(March 31)
1999

40
20

2000

2001

2002

2003

0

billion. The figure for the previous fiscal year includes ¥12.0 billion
in commercial paper accounted for in other liabilities. The rate ofdependence on interest-bearing debt, which is defined as interestbearing debt as a percentage of total assets, improved to 43.6%
from 45.6% a year earlier.

Stockholders’ Equity(¥ Billion)
Total Capital and
Ratio of Stockholders’ 1,500
Equity to Total Capital

(%)
100

1,200

80

Long-term debt due after
one year
Bank loans
600
Long-term debt due within
one year300
Stockholders’ equity
Ratio of stockholders’ equity
to total capital0(March 31)
1999

ROE and ROA

60
40

Progress in deregulation will cause competition to intensify
among energy suppliers. Tokyo Gas is subject to gas rate decreaserisk that may result in order to acquire and retain customers if theCompany’s primary competitor, Tokyo Electric Power Co., Inc.,
reduces its rates.
Tokyo Gas has taken rate decrease risk into account in thecurrent medium-term plan in planning a resource reduction fromrate decreases totaling ¥180.0 billion.

Foreign Exchange Risk
The primary raw material for the city gas that Tokyo Gas
supplies is LNG from overseas. LNG purchase contracts aredenominated in U.S. dollars, which exposes the Company to foreign
currency exchange rate risk. In addition, dollar-denominated LNG
prices are linked to crude oil prices using a sliding scale, which
exposes the Company to risk from changes in the market price ofraw materials. The effect of such changes on annual raw material
costs are as follows:• Approximately ¥2.0 billion for every ¥1 movement in the yendollar exchange rate
• Approximately ¥4.3 billion for every US$1 movement in the perbarrel price of crude oil

20

2000

2001

2002

2003

(%)
12

0

Due to the application of the “sliding rate system,” any change
in the cost of raw materials is reflected in gas rates after
approximately six months. While earnings may be subject totemporary increases or decreases, crude oil prices and exchange
rates have no net effect on results over the long term.

Interest Rate Risk
9

Tokyo Gas has both long-term and short-term fixed-rateinterest-bearing debt, which precludes interest rate risk during theterm of an obligation. However, Tokyo Gas may be subject tointerest rate risk when refinancing and in other instances.

6

3

Stock Price Risk

ROE
ROA
(March 31)

0

1999

2000

2001

2002

2003

Tokyo Gas primarily holds equities to maintain corporate
relationships needed to conduct business operations. Equities ofpublicly listed companies are subject to market risk. Tokyo Gas has
formulated a management policy and rules for the handling of such
equities.

29
Annual Report 2003

900

Gas Rate Decrease Risk

Tokyo Gas Co., Ltd.

Stockholders’ equity increased 2.8% from a year earlier, or¥15.6 billion, to ¥579.7 billion. Retained earnings increased ¥42.3
billion, which was offset by a decrease of ¥15.8 billion in net
unrealized holding gains on securities. Total capital, defined as thesum of bank loans, long-term debt due within one year, long-term
debt due after one year, and stockholders’ equity, totaled ¥1,311.0
billion, of which stockholders’ equity accounted for 44.2%. The ratioof stockholders’ equity to total assets was 34.6%, compared to33.1% a year earlier. Return on average total stockholders’ equity
improved to 10.4%, compared to 9.3% for the previous fiscal year.

Market Risk Exposure11-Year SummaryTokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31

2003

2002

2001

2000

Net sales.....................................................................................

¥1,127,634¥1,097,589¥1,086,771¥992,255

Gas sales................................................................................

789,688

750,439

740,731

672,070

Gas appliance sales ..............................................................

141,225

148,271

145,435

126,747

Related construction............................................................

67,04567,63367,611

63,949Real estate rental business ..................................................

14,944

15,685

15,602

14,959Other.....................................................................................

114,732

115,561

117,392

114,530

Operating income.....................................................................

123,294

110,608

103,659

69,233

Net income ................................................................................

59,201

51,912

27,595

26,698Depreciation..............................................................................

137,300

141,646

146,420

136,214

Accounting basis ..................................................................

110,188

104,291

109,899

121,806

Payment basis.......................................................................

107,164

112,675

111,208

120,501

Net income (Basic)................................................................

¥21.18¥18.47

¥9.82

¥9.50

Net income (Diluted) ...........................................................

19.11

16.66

9.13

8.84

Net income and depreciation .............................................

70.4

68.9

61.9

58.0

Cash dividends applicable to the year ...............................

6.00

6.00

6.00

5.00

Total assets ................................................................................

¥1,676,064¥1,702,713¥1,797,669¥1,805,086

Long-term debt due after one year ........................................

598,322680,887

708,329

843,634

Total stockholders’ equity........................................................

579,706

564,078

552,790484,239

Net income/Net sales ................................................................

5.3%

4.7%

2.5%

2.7%

ROE ..........................................................................................

10.4%

9.3%

5.3%

5.9%

ROA ..........................................................................................

3.5%

3.0%

1.5%

1.5%

Equity ratio................................................................................

34.6%

33.1%

30.8%

26.8%

For the Year:

Capital expenditures
Tokyo Gas Co., Ltd.

30

Per share (Yen):

Annual Report 2003

At Year-End:

Ratios:Note: Capital expenditures (accounting basis) represents the amount of payments for fixed assets in the relevant fiscal year. Capital expenditures (payment basis) represents
the net amount of “Purchases of property, plant and equipment” and “Purchases of intangible fixed assets” on the Consolidated Statements of Cash Flows for the
relevant fiscal year.

Millions of yen except per share amounts

1997

1996

1995

1994

1993

¥997,767¥1,009,155¥988,077¥958,662¥915,862¥909,673¥844,443

674,997

686,649

663,066

633,253

601,990622,632

599,820

132,749

126,840

134,174

135,669

137,209

115,158

103,869

63,63066,69569,966

68,82570,03473,15870,92815,617

16,495

18,423

18,468–––110,774

112,476

102,448

102,447

106,629

98,72569,82672,30376,48562,163

67,10960,10559,26356,082

17,764

17,241

15,432

16,762

11,072

16,173

16,368132,568

114,893

123,569

120,569–––

142,030

159,433

162,282

180,080–––

150,202

154,143

–

–

–

–

–

¥6.32

¥6.14

¥5.49

¥5.97

¥3.94

¥5.76

¥5.82

5.94

5.76

5.37

–

–

–

–

53.5

47.0

49.5

–

–

–

–

5.00

5.00

5.00

5.00

5.00

5.00

5.00

¥1,707,446¥1,720,684¥1,772,132¥1,657,176¥1,608,244¥1,513,038¥1,436,450

820,753765,304

878,674

743,177

724,523

721,980

623,979

421,442

417,755

414,906

413,725

411,164

409,713404,848

1.8%

1.7%

1.6%

1.7%

1.2%

1.8%

1.9%

4.2%

4.1%

3.7%

4.1%

2.7%

4.0%

4.1%

1.0%

1.0%

0.9%

1.0%

0.7%

1.1%

1.2%

24.7%

24.3%

23.4%

25.0%

25.6%

27.1%

28.2%

31
Annual Report 2003

1998

Tokyo Gas Co., Ltd.

1999

Consolidated Balance Sheets
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
March 31, 2003 and 2002

Thousands of
U.S. dollars (Note 1)

Millions of yen

ASSETS

2003

2002

2003

Property, plant and equipment (Notes 3 and 6):
Production facilities.....................................................................................
Distribution facilities ...................................................................................

688,339
1,952,210¥

686,997$ 5,736,161

1,889,145

16,268,415

Service and maintenance facilities.............................................................

194,047

197,532

1,617,060

Other ............................................................................................................

591,542588,0714,929,520

Construction in progress .............................................................................

75,44359,200628,689

3,501,581

3,420,945

29,179,845(2,284,116)(2,171,009)(19,034,302)

1,217,465

1,249,936

10,145,543

20,61019,197

171,750

and affiliated companies .........................................................................

20,271

17,867

168,927

Investment securities (Notes 4 and 6) ........................................................

51,274

74,846427,280

Deferred income taxes (Note 9) .................................................................

44,30730,083369,224

Other investments and non-current assets ...............................................

59,83060,546

498,584

Allowance for doubtful accounts ..............................................................

(2,244)(1,660)(18,697)

173,438

181,682

1,445,318

Cash and cash equivalents ..........................................................................

52,13027,261

434,416

Marketable securities (Note 4) ...................................................................

1

21

11

132,235

128,550

1,101,960

Accumulated depreciation .........................................................................

Intangibles ........................................................................................................
Tokyo Gas Co., Ltd.

32¥

Investments and other non-current assets:
Investments in unconsolidated subsidiaries

Annual Report 2003

Current assets:

Notes and accounts receivables:
Trade........................................................................................................
Allowance for doubtful accounts..........................................................

(1,448)(932)(12,067)

Inventories (Note 5).....................................................................................

21,12528,759176,045

Deferred income taxes (Note 9) .................................................................

11,481

10,04995,673

Other current assets ....................................................................................

49,02758,190408,555

Total current assets.................................................................................

264,551

251,898

2,204,593¥ 1,676,064¥1,702,713$13,967,204

Note: See accompanying notes.

Thousands of
U.S. dollars (Note 1)

Millions of yen

LIABILITIES AND STOCKHOLDERS’ EQUITY

2003

2002

2003

Long-term debt due after one year (Note 6).................................................

¥ 598,322¥ 680,887$ 4,986,017

Employees’ severance and retirement benefits (Note 8)..............................

120,896

125,554

1,007,467

Allowance for repairs of gas holders..............................................................

3,457

3,520

28,808Other non-current liabilities............................................................................

28,89727,016

240,808

Bank loans (Note 6) .....................................................................................

41,90042,709349,167

Long-term debt due within one year (Note 6) .........................................

91,07940,298758,992

Trade........................................................................................................

37,67738,055313,971

Other........................................................................................................

43,486

40,216362,382

Income taxes payable (Note 9) ...................................................................

35,05827,941

292,153

Accrued expenses ........................................................................................

45,12245,276

376,020

Other current liabilities...............................................................................

46,42563,366

386,873

Total current liabilities ...........................................................................

340,747

297,8612,839,558

Current liabilities:

Notes and accounts payable:

4,039

3,797

33,660Issued – 2,810,165,397 shares in 2002 ...................................................

141,844

141,843

1,182,037

Capital surplus .............................................................................................

2,065

2,064

17,208Retained earnings .......................................................................................

429,653

387,315

3,580,438

Net unrealized holding gains on securities...............................................

17,003

32,836

141,692

Foreign currency translation adjustments.................................................

4

115

36

590,569

564,173

4,921,411

Treasury stock, at cost .................................................................................

(10,863)(95)(90,525)

Total stockholders’ equity......................................................................

579,706

564,078

4,830,886¥1,676,064¥1,702,713$13,967,204

Stockholders’ equity (Note 10):
Common stock:
Authorized – 6,500,000,000 shares
Issued – 2,810,171,295 shares in 2003

Annual Report 2003

Minority interest ..............................................................................................

Tokyo Gas Co., Ltd.

33

Commitment and contingent liabilities (Note 13)

Consolidated Statements of Income
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2003 and 2002

Thousands of
U.S. dollars (Note 1)

Millions of yen

2003

2002

2003

¥1,127,634¥1,097,589$9,396,950

Cost of sales..................................................................................................

571,930

561,989

4,766,082

Selling, general and administrative ...........................................................

432,410

424,992

3,603,415

1,004,340

986,9818,369,497

123,294

110,608

1,027,453

Net sales (Note 11) ...........................................................................................
Costs and expenses (Notes 8 and 11):

Operating income (Note 11) ...........................................................................
Other income (expenses):

Tokyo Gas Co., Ltd.

34
Annual Report 2003

Interest and dividend income.....................................................................

1,089

1,021

9,071

Interest expense...........................................................................................

(17,472)(19,275)(145,603)

of distribution facilities............................................................................

(4,649)(6,827)(38,740)

Losses on unsecured notes redemption ....................................................

(6,328)(4,618)(52,732)

Gains from disposal of securities................................................................

3,196

3,455

26,634

Exchange gains (losses) ...............................................................................

737

(615)

6,139

Equity in net income of an affiliated company ........................................

220

311

1,835

Losses on compensation for malfunctioned finished goods ...................

–(1,300)–

Other, net.....................................................................................................

(4,204)101(35,033)(27,411)(27,747)(228,429)

95,88382,861

799,024

43,62231,507363,514

Adjustments of charges for construction

Income before income taxes and minority interest in net incomeof consolidated subsidiaries .........................................................................
Income taxes (Note 9):
Current .........................................................................................................
Deferred .......................................................................................................
Minority interest in net income of consolidated subsidiaries ......................
Net income........................................................................................................

¥(7,245)(742)(60,371)

59,50652,096495,881

(305)

(184)

(2,538)59,201¥ 51,912$ 493,343

Yen

U.S. dollars (Note 1)

2003

2002

2003

Net income...................................................................................................

¥21.18¥18.47$0.18

Diluted net income......................................................................................

19.11

16.66

0.16

Cash dividends applicable to the year .......................................................

6.00

6.00

0.05

Amounts per share of common stock (Note 2):

Note: See accompanying notes.

Consolidated Statements of Stockholders’ Equity
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2003 and 2002

Millions of yen

Balance at March 31, 2001 .................................

Number of sharesof common stock Common(Thousands)
stock

CapitalsurplusRetainedearnings

2,810,012¥2,038¥353,794¥141,817

Net income .....................................................

Foreign
Net unrealized currency
holding gains translation
on securities adjustments¥ 55,140¥

Treasury
stock

4

¥ (3)

51,912Net unrealized holding losses
on securities.................................................

(22,304)

Foreign currencytranslation adjustments..............................

111

Treasury stock.................................................

(92)

Cash dividends paid (¥6.50 per share)..........

(18,265)

Bonuses to directors ......................................

(126)

Shares issued upon conversion
153

26

26

Balance at March 31, 2002 .................................

2,810,165¥141,843¥2,064

Net income .....................................................

¥387,315¥ 32,836

¥115

¥(95)

59,201

Net unrealized holding losses
on securities.................................................

(15,833)

Foreign currency

35

(111)

Treasury stock.................................................

(10,768)

Cash dividends paid (¥6.00 per share)..........

(16,768)

Bonuses to directors ......................................

(95)

Shares issued upon conversionof convertible bonds...................................

6

1

1

Balance at March 31, 2003 .................................

2,810,171¥141,844¥2,065¥429,653¥ 17,003¥

4¥(10,863)

Foreign
Net unrealized currency
holding gains translation
on securities adjustments

Treasurystock

Thousands of U.S. dollars (Note 1)

Commonstock

Balance at March 31, 2002....................................................

$1,182,029

CapitalsurplusRetainedearnings$17,200 $3,227,624 $ 273,637

Net income........................................................................

$ 957

$

(794)

493,343

Net unrealized holding losses on securities ...................

(131,945)

Foreign currency translation adjustments......................

(921)

Treasury stock ...................................................................

(89,731)

Cash dividends paid ($0.05 per share) ............................

(139,736)

Bonuses to directors .........................................................

(793)

Shares issued upon conversion of convertible bonds....

8

Balance at March 31, 2003....................................................

$1,182,037

8$17,208 $3,580,438 $ 141,692$ 36$(90,525)

Annual Report 2003

translation adjustments..............................

Note: See accompanying notes.

Tokyo Gas Co., Ltd.

of convertible bonds...................................

Consolidated Statements of Cash Flows
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2003 and 2002

Thousands of
U.S. dollars (Note 1)

Millions of yen

2003

Tokyo Gas Co., Ltd.

36
Annual Report 2003

Cash flows from operating activities:
Income before income taxes and minority interest in net income of
consolidated subsidiaries...........................................................................
Adjustments to reconcile income before income taxes and minority
interest in net income of consolidated subsidiaries to net cash
provided by operating activities:
Depreciation (Note 11) ..........................................................................
Amortization of long-term prepayments ............................................
Loss on disposal of property, plant and equipment............................
Gains from disposal of property, plant and equipment .....................
Loss on reduction of acquisition costs of property, plant andequipment for tax purposes...............................................................
Gains from sales of securities ................................................................
Loss on bond redemption .....................................................................
Decrease in employees’ severance and retirement benefits ..............
Interest and dividend income ...............................................................
Interest expense .....................................................................................
Changes in operating assets and liabilities:
Increase in notes and accounts receivable ......................................
Decrease (Increase) in inventories....................................................
Decrease in notes and accounts payable.........................................
Increase (Decrease) in consumption taxes payable ........................
Bonuses paid to directors ......................................................................
Other.......................................................................................................

¥

2002

2003

95,883¥ 82,861

137,300
3,728
2,482(5,380)141,646
3,918
3,577
(491)

1,144,165
31,065
20,682(44,831)

4,416(3,196)
6,328(4,658)(1,089)17,472424(3,457)
4,618(8,661)(1,021)
19,27536,799(26,633)
52,733(38,818)(9,071)
145,603(6,777)
7,634(1,785)(219)(95)
14,897(217)(1,340)(3,674)
2,748(127)(4,592)(56,478)
63,617(14,872)(1,826)(795)
124,143

266,941
1,166(18,069)(36,505)

235,487
1,089(19,325)(25,575)

2,224,507
9,718(150,578)(304,205)

Net cash provided by operating activities .......................................
Cash flows from investing activities:
Purchases of investment securities...............................................................
Proceeds from sales of securities..................................................................
Purchases of property, plant and equipment .............................................
Purchases of intangible fixed assets ............................................................
Expenditure of long-term prepayment .......................................................
Proceeds from sale of tangible and intangible fixed assets ......................
Expenditure of long-term loans receivable.................................................
Increase in other investments andother non-current assets — net ................................................................

213,533

191,676

1,779,442(7,297)
5,861(98,149)(9,015)(1,800)
6,888(4,256)(3,712)
5,005(104,884)(7,791)(1,006)
2,528(1,694)(60,811)
48,843(817,905)(75,123)(14,999)
57,401(35,470)(2,376)(267)(19,800)

Net cash used in investing activities .....................................................
Cash flows from financing activities:
Proceeds from (Repayments of) short-term bank loans.............................
Proceeds from (Repayments of) commercial paper....................................
Proceeds from long-term debt.....................................................................
Repayments of long-term debt....................................................................
Cash dividends paid ......................................................................................
Other ..............................................................................................................

(110,144)(111,821)(917,864)(809)(12,000)
37,341(75,450)(16,831)(10,768)

2,788
12,00045,486(159,070)(18,288)(92)(6,743)(100,000)
311,172(628,754)(140,256)(89,731)

Net cash used in financing activities.....................................................
Effect of exchange rate changes on cash and cash equivalents.....................

(78,517)(3)(117,176)
7(654,312)(22)

Net increase (decrease) in cash and cash equivalents .....................................
Cash and cash equivalents at beginning of year .............................................

24,86927,261(37,314)64,575207,244
227,172

52,130¥ 27,261

Cash received for interest and dividends .............................................
Cash paid for interest ............................................................................
Cash paid for income taxes ...................................................................

Cash and cash equivalents at end of year........................................................
Note: See accompanying notes.

¥

$

$

799,024

434,416

Notes to Consolidated Financial Statements
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2003 and 2002

1. Basis of consolidated financial statements

Property, plant and equipment – Property, plant and equipment isTokyo Gas Co., Ltd. (the “Company”) and its consolidated domestic

generally stated at cost. Depreciation is determined mainly by thesubsidiaries maintain their accounts and records in accordance withdeclining-balance method based on estimated useful lives, except

the provisions set forth in the Japanese Commercial Code and thethat buildings acquired after March 31, 1998 are depreciated using

Securities and Exchange Law and in conformity with accounting prin-

the straight-line method.

ciples and practices generally accepted in Japan (“Japanese GAAP”).

Software costs – The Company and its consolidated subsidiaries

The Company, as a regulated company, also follows Gas Business Law

include software in intangible assets and depreciate it using theand other related accounting regulations for preparing such financial

straight-line method over the estimated useful lives.

statements.

Cash and cash equivalents – Cash and cash equivalents include cash

Certain accounting principles and practices generally accepted inon hand, readily-available deposits and short-term highly liquidJapan are different from International Accounting Standards andinvestments with maturities not exceeding three months at the timestandards in other countries in certain respects as to application andof purchase.

disclosure requirements. Accordingly, the accompanying consolidated

Securities – The Company and its consolidated subsidiaries classify

financial statements are intended for use by those who are informed

their debt and equity securities in one of the following threeabout Japanese accounting principles and practices.

categories, in accordance with the Japanese Accounting Standard for

The accompanying consolidated financial statements are a

Financial Instruments.
(a) Debt securities intended to be held to maturity (hereafter, “held-

Company which were prepared in accordance with Japanese GAAP

to-maturity debt securities”) are stated at amortized cost.

from the accounts and records maintained by the Company and its(b) Equity securities issued by unconsolidated subsidiaries andconsolidated subsidiaries and were filed with the appropriate Local

affiliated companies which are not accounted for using the equity

Finance Bureau of the Ministry of Finance as required by themethod are stated at moving-average cost.

Securities and Exchange Law.

(c) Available-for-sale securities, which are defined as securities otherIn preparing the accompanying consolidated financial statements,

than held-to-maturity debt securities, equity securities issued byunconsolidated subsidiaries and affiliated companies, and securities

statements issued domestically in order to present them in a form

held for trading purposes, are stated at fair market value, if their fairwhich is more familiar to readers outside Japan. The consolidated

market values are readily available. Unrealized gains and unrealizedstatements of stockholders’ equity have been prepared for thelosses on these securities are reported, net of applicable income

purpose of inclusion in the accompanying consolidated financial

taxes, as a separate component of stockholders’ equity. Available-for-statements, although such statements are not customarily prepared insale securities with no available fair market values are stated at

Japan and are not required to be filed with the regulatory authorities.

moving-average cost.

The financial statements are stated in Japanese yen. The

If the market value of held-to-maturity debt securities, equity

translation of the Japanese yen amounts into U.S. dollars are

securities issued by unconsolidated subsidiaries and affiliatedincluded solely for the convenience of the reader, using thecompanies, and available-for-sale securities, declines significantly,

prevailing exchange rate at March 31, 2003, which was ¥120 to U.S.

such securities are stated at fair market value and the difference$1. The convenience translations should not be construed as

between fair market value and the carrying amount is recognized as

representations that the Japanese yen amounts have been, could

loss in the period of the decline.

have been, or could in the future be, converted into U.S. dollars at

Derivative financial instruments – The Company and its consolidated

this or any other rate of exchange.

subsidiaries use interest rate swap and foreign exchange forward
contracts only for the purpose of mitigating the risk of fluctuations

2. Significant accounting policies

in interest rates and foreign exchange rates. The Company and its

Consolidation – The consolidated financial statements include theconsolidated subsidiaries do not use derivative financial instruments

accounts of the Company and all of its significant subsidiaries. Allfor speculative trading purposes. The derivative financial instruments

significant intercompany transactions and account balances areare executed with creditworthy financial institutions, and theeliminated in consolidation.

Company’s management believes there is little risk of default by

Equity method – Investments in unconsolidated subsidiaries andcounterparties.

affiliates over which the Company has the ability to exercise

Inventories – Inventories are stated at cost, cost being determined bysignificant influence over operating and financial policies of thethe moving-average method.

investees, are accounted for by the equity method.

37
Annual Report 2003

certain reclassifications have been made in the consolidated financial

Tokyo Gas Co., Ltd.

translation of the audited consolidated financial statements of theAllowance for doubtful accounts – The Company and its

the financial statement basis and the tax basis of assets and liabilities.

consolidated subsidiaries provide for doubtful accounts at an

Enterprise tax – Enterprise tax normally constitutes income taxes.

estimated amount of probable bad debts.

However, in the case of companies engaged in gas businesses,

Employees’ severance and retirement benefits – The Company andenterprise tax is levied on net sales. In the accompanying

its consolidated subsidiaries provide two post-employment benefit

consolidated statements of income, enterprise tax levied on net sales

plans, an unfunded lump-sum payment plan and a funded non-is accounted for in “Selling, general and administrative” expenses incontributory pension plan, under which all eligible employees are

the amount of ¥10,633 million ($88,612 thousand) and ¥10,070

entitled to benefits based on the level of wages and salaries at themillion for the years ended March 31, 2003 and 2002, respectively.

time of retirement or termination, length of service and certain

Enterprise taxes calculated based on taxable income of the Company

other factors.

and certain consolidated subsidiaries are included in income taxes.

The Company and its consolidated subsidiaries determine

Foreign currency translation – Short-term receivables and payables

allowance and expenses for employees’ severance and retirement

denominated in foreign currencies are translated into Japanese yen

benefits based on the amounts actuarially calculated using certain

at the year-end rates.

assumptions.

Amounts per share of common stock – Effective April 1, 2002, theAllowance for employees’ severance and retirement benefits are

Company and its consolidated subsidiaries adopted the newprovided based on the estimated amounts of projected benefit

accounting standard for earnings per share and related guidance

obligation and the fair value of the plan assets.

(Accounting Standards Board Statement No. 2, “Accounting Standard

The estimated amount of all retirement benefits to be paid at thefor Earnings Per Share” and Financial Standards Implementation

Tokyo Gas Co., Ltd.

future retirement date is allocated equally to each service year using

Guidance No. 4, “Implementation Guidance for Accounting Standard

the estimated number of total service years. Past service costs arefor Earnings Per Share”, issued by the Accounting Standards Board of

charged to income when incurred, and actuarial gains and losses are

Japan on September 25, 2002). Earnings per share for the year ended

recognized as income and expense using the straight-line method

March 31, 2002 would have been ¥18.44, if this new accounting

over approximately 10 years commencing with the next year.

standard were applied retroactively.

Allowance for repairs of gas holders – The Company and certain

Cash dividends per share have been presented on an accrual basis

38

number of its consolidated subsidiaries provide for future repairs ofand include dividends approved or to be approved after the balance

Annual Report 2003

gas holders, which occur approximately once every ten years, by

sheet dates, but applicable to the year then ended.

estimating future expenditures and charging them to income inequal annual amounts. The difference between the actual

3. Property, plant and equipment

expenditure and the amount provided is charged to income in theProperty, plant and equipment is generally recorded at cost.

year repairs are completed.

However, in cases where the Company receives contributions toward

Accounting for certain lease transactions – Finance leases which do

the cost of construction from customers, such contributed amount is

not transfer ownership to lessees are accounted for in the sameoffset against the acquisition cost of the subject asset. Such offset

manner as operating leases under accounting principles generally

recorded in the years ended March 31, 2003 and 2002 were ¥236,141

accepted in Japan.

million ($1,967,842 thousand) and ¥228,023 million, respectively.

Income taxes – Income taxes comprise corporation tax, inhabitants’taxes and enterprise tax. The Company and its consolidated
subsidiaries recognize tax effects of temporary differences between

4. Securities
The following tables summarize acquisition costs, book values and fair values of securities with fair value as of March 31, 2003 and 2002:(a) Held-to-maturity debt securities:
Thousands of
U.S. dollars

Millions of yen

2003

2002

2003

Book value.....................................................................................................................................

¥34

¥29

$283

Fair value .......................................................................................................................................

37

31

308

Difference......................................................................................................................................

¥ 3

¥ 2

$ 25

Securities with fair value exceeding book value:(b) Available-for-sale securities:
Millions of yen

For 2003:

Acquisition cost

Book value

Difference¥10,692¥37,910¥27,218

Securities with fair value exceeding book value:
Equity securities ............................................................................................................................
Bonds .............................................................................................................................................

5

6

1

Subtotal .........................................................................................................................................

10,69737,91627,219Equity securities ............................................................................................................................

1,523

1,151

(372)

Total ....................................................................................................................................................

¥12,220¥39,067¥26,847

Other securities:

Millions of yen

For 2002:

Acquisition cost

Book value

Difference

Equity securities ............................................................................................................................

¥12,706¥64,868¥52,162

Bonds .............................................................................................................................................

5

6

1

Subtotal .........................................................................................................................................

12,71164,874

52,163

Securities with fair value exceeding book value:

Other securities:
1,376

1,107

(269)

¥14,087¥65,981¥51,894

Thousands of U.S. dollars

Acquisition cost

Book value

Difference$ 89,100$315,917$226,817

39
Annual Report 2003

For 2003:

Tokyo Gas Co., Ltd.

Equity securities ............................................................................................................................
Total ....................................................................................................................................................

Securities with fair value exceeding book value:
Equity securities ............................................................................................................................
Bonds .............................................................................................................................................

42

50

8

Subtotal .........................................................................................................................................

89,142315,967

226,825

Equity securities ............................................................................................................................

12,692

9,592(3,100)Total ....................................................................................................................................................

$101,834$325,559$223,725

Other securities:

Available-for-sale securities with no available fair values, which were stated at moving-average costs, amounted to ¥11,840 million ($98,667
thousand) and ¥8,503 million at March 31, 2003 and 2002, respectively.

5. Inventories
Inventories at March 31, 2003 and 2002 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2003

2002

2003

Finished products ...............................................................................................................................

¥ 2,391¥ 2,584$ 19,924

Raw materials .....................................................................................................................................

9,762

18,51381,354

Supplies ...............................................................................................................................................

7,745

7,489

64,543Work in process ..................................................................................................................................

1,227

173

10,224¥21,125¥28,759$176,045

6. Bank loans and long-term debt
At March 31, 2003 and 2002, bank loans consisted of short-term notes, bearing interest at an average annual rate of 0.33% and 0.36%,
respectively.
Long-term debt at March 31, 2003 and 2002 comprised the following:Thousands of
U.S. dollars

Millions of yen

2003

2002

Domestic unsecured notes due 2014 at a rate of 5.1%...................................................................

¥ 10,000¥ 20,000

Domestic unsecured notes due 2015 at a rate of 4.1%...................................................................

23,30027,9002003$

83,333
194,167

Domestic unsecured notes due 2016 at a rate of 4.0%...................................................................

29,00030,000241,667

Domestic unsecured notes due 2018 at a rate of 2.625%...............................................................

40,00040,000333,333

Domestic unsecured notes due 2009 at a rate of 1.68%.................................................................

30,00030,000250,000

Domestic unsecured notes due 2009 at a rate of 1.73%.................................................................

30,00030,000250,000

Domestic unsecured notes due 2010 at a rate of 2.01%.................................................................

20,00020,000166,667

Domestic unsecured notes due 2011 at a rate of 1.39%.................................................................

30,00030,000250,000

Domestic unsecured notes due 2012 at a rate of 1.35%.................................................................

20,000–166,667

Domestic unsecured notes due 2004 at a rate of 1.03%.................................................................

3,000

3,000

25,000

Domestic unsecured notes due 2009 at a rate of 1.18%.................................................................

4,000

4,000

33,333

Domestic unsecured convertible bonds:
51,43951,439428,658

82,87784,315

690,642

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

49,96949,971

416,408

6th issue due 2007 at a rate of 1.1%...........................................................................................

49,96849,968416,400

Swiss franc notes due 2002 at a rate of 4.5% ..................................................................................

–

14,810–40

DM bearer bonds due 2005 at a rate of 7.0% .................................................................................

18,333

18,333

152,775

Annual Report 2003

Tokyo Gas Co., Ltd.

1st issue due 2003 at a rate of 1.5% ...........................................................................................
3rd issue due 2005 at a rate of 1.5%...........................................................................................

Domestic secured notes due 2003 at a rate of 2.0% .......................................................................

–

800

–

6,373

6,884

53,108Loans from banks, insurance companies and government agencies due
through 2028 at rates of 0.35% to 6.40%:
Secured ..........................................................................................................................................
Unsecured......................................................................................................................................
Less – Amounts due within one year ................................................................................................

191,142

209,765

1,592,851

689,401

721,185

5,745,009

91,07940,298758,992¥598,322¥680,887$4,986,017

The indentures covering the first, third, fifth and sixth domestic

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

convertible bonds provide, among other conditions, for (1) conversion

cash deposited with it against any debt or obligation that becomes

into shares of common stock at the current conversion prices per sharedue and, in the case of default or certain other specified events,of ¥1,267.90 ($10.57), ¥1,105.70 ($9.21), ¥339.00 ($2.83) and ¥339.00

against all debt payable to the bank. To date no such offset request($2.83), respectively (subject to adjustment in certain circumstances), (2)has been made to the Company and its consolidated subsidiaries.

conversion periods through September 2003, March 2005, March 2009

Certain number of the loan agreements provide, among otherand March 2007, respectively, and (3) redemption at the option of thethings, that, upon request, the Company and domestic subsidiaries

Company, commencing in October 1996 for the 1st issue and April 1998

submit to the lenders for approval of their proposed appropriation

for the 3rd issue, at prices ranging from 106% to 100% of the principalof income (including dividends) before such appropriation isamount.

submitted to the stockholders. Neither the Company nor any of its

At March 31, 2003, investment securities and property, plant andequipment at book value amounting to ¥15,042 million ($125,350
thousand) were pledged as collateral for secured loans and notes
issued by consolidated subsidiaries.

consolidated subsidiaries has ever received any such request.

The annual maturities of long-term debt at March 31, 2003 were as follows:
Millions of yen

Thousands of
U.S. dollars

2004 ....................................................................................................................................................................

¥ 91,079$ 758,992

2005 ....................................................................................................................................................................

106,758

889,650

2006 ....................................................................................................................................................................

45,730381,083

2007 ....................................................................................................................................................................

69,034575,283

2008 ....................................................................................................................................................................

21,747

181,225

2009 and thereafter ..........................................................................................................................................

355,053

2,958,776¥689,401$5,745,009

Year ending March 31

7. Derivative transactions
The Company and its consolidated subsidiaries use interest rate swap and foreign exchange forward contracts only for the purpose of mitigating
the risk of fluctuations in interest rates and foreign exchange rates.
Contract amounts, market values and recognized gains on the interest rate swap contracts, except those accounted for using hedge
accounting, at March 31, 2003 and 2002 were as follows:
Millions of yen
At March 31, 2003
Contract amounts Beyond one year

Recognized gains

Purchased cap option...............................................................................................

¥3,000¥0¥0¥0Millions of yen

At March 31, 2002
Contract amounts Beyond one year

Recognized gains

Purchased cap option...............................................................................................

¥3,000¥0¥0¥3,000Thousands of U.S. dollars
At March 31, 2003
Contract amounts Beyond one year

Market value

Recognized gains$0$0

Currency option contracts:
Purchased cap option...............................................................................................

$25,000$0

8. Employees’ severance and retirement benefits
Allowance for severance and retirement benefits included in the liability section of the consolidated balance sheets as of March 31, 2003 and2002 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2003

2002

2003

Projected benefit obligation ............................................................................................................. ¥ 331,622¥ 306,912$ 2,763,517

Unrecognized prior service cost ........................................................................................................

178

193

1,483

Unrecognized actuarial differences ..................................................................................................

(64,194)(27,503)(534,950)

Less fair value of pension assets........................................................................................................

(146,710)(154,048)(1,222,583)

Employees’ severance and retirement benefits ............................................................................... ¥ 120,896¥ 125,554$ 1,007,467

41
Annual Report 2003

Market value

Currency option contracts:

Tokyo Gas Co., Ltd.

Market value

Currency option contracts:

Included in the consolidated statements of income for the years ended March 31, 2003 and 2002 were severance and retirement benefit
expenses comprised of the following:Thousands of
U.S. dollars

Millions of yen

2003

2002

2003

Service costs – benefits earned during the year...............................................................................

¥ 10,132¥ 9,292$ 84,433

Interest cost on projected benefit obligation ..................................................................................

9,093

9,049

75,775

Expected return on plan assets .........................................................................................................

(4,662)(4,612)(38,850)

Amortization of prior service costs ...................................................................................................

(13)

–

(108)

Amortization of actuarial differences ..............................................................................................

2,825

1,628

23,542

Severance and retirement benefit expenses ....................................................................................

¥17,375¥15,357$144,792

The discount rate and the rate of expected return on plan assets used by the Company and its consolidated subsidiaries are approximately
2.5% and 3%, respectively, at March 31, 2003, and approximately 3.0% and 3%, respectively, at March 31, 2002.

9. Income taxes
The Company is subject to a number of taxes based on income, which, in the aggregate, indicate statutory rate in Japan of approximately 36.2%
for the years ended March 31, 2003 and 2002, respectively.
The differences between the statutory tax rate and the Company’s effective tax rate for financial statement purposes for the years ended
Tokyo Gas Co., Ltd.

42

March 31, 2003 and 2002 were not significant.
Effective for years commencing on April 1, 2004 or later, according to the revised local tax law, income tax rates for enterprise taxes will be
reduced as a result of introducing the assessment by estimation on the basis of the size of business. Due to the change of income tax rates, atMarch 31, 2003, certain consolidated subsidiaries changed the tax rates for calculation of deferred taxes assets and liabilities. The effect on net
income of the change of effective tax rates is not significant.
Significant components of deferred tax assets and liabilities as of March 31, 2003 and 2002 were as follows:

Annual Report 2003

Millions of yen

Thousands of
U.S. dollars

2003

2002

2003

Liabilities for retirement benefits................................................................................................

¥36,530¥35,151$304,417

Other – net ....................................................................................................................................

33,781

28,512

281,508

Subtotal .........................................................................................................................................

70,311

63,663585,925

Net unrealized holding gains on securities.................................................................................

9,830

19,04081,917

Reserve for tax-purpose cost reduction of certain pipelines .....................................................

1,883

2,309

15,692Other – net ....................................................................................................................................

3,617

3,852

30,142

Subtotal .........................................................................................................................................

15,33025,201

127,751

Net-total ........................................................................................................................................

¥54,981¥38,462$458,174

Deferred tax assets:

Deferred tax liabilities:

10. Stockholders’ equity
At the current conversion prices, 410,981 thousand shares of common stock were issuable at March 31, 2003 upon full conversion of theoutstanding convertible bonds (see Note 6).
Under the Japanese Commercial Code, excess of total of additional paid-in capital and legal reserve over 25% of common stock is available fordividends by resolution of the general meeting of shareholders. Additional paid-in capital is included in capital surplus and legal earnings reserve
is included in retained earnings in the accompanying consolidated balance sheets.
The maximum amount that the Company can distribute as dividends is calculated based on the unconsolidated financial statements of theCompany in accordance with the Japanese Commercial Code.
Effective April 1, 2002, the Company and its consolidated subsidiaries adopted the new accounting standard for treasury stock and reversal ofstatutory reserves (Accounting Standards Board Statement No. 1, “Accounting Standard for Treasury Stock and Reduction of Statutory Reserves”,
issued by the Accounting Standards Board of Japan on February 21, 2002). The effect on net income of adopting the new standard is not significant.

11. Segment information
The Company’s primary business activities include (1) gas sales, (2) gas appliance sales, (3) related construction, (4) real estate rental and (5) otherbusiness.
A summary of net sales, costs and expenses, operating income, identifiable assets, depreciation and capital expenditures by business segments
is as follows:
Millions of yen
Gas appliance
sales

Relatedconstruction

Real estate
rentalOther

For 2003:
Sales:
Outside customers................................. ¥ 789,688
Inside group...........................................
2,766
792,454
Costs and expenses .....................................
632,230
Operating income....................................... ¥ 160,224¥141,225
1,411
142,636
134,794¥ 7,842¥67,045
3,523
70,56866,393¥ 4,175¥ 14,944
21,402
36,34628,723¥ 7,623¥114,732
43,595
158,327
148,701¥ 9,626¥–(72,697)(72,697)(6,501)¥ (66,196)¥1,127,634–
1,127,634
1,004,340¥ 123,294

Identifiable assets ....................................... ¥1,067,439
Depreciation................................................
111,343
Capital expenditures ..................................
88,573¥ 52,532
502
538¥23,058141
276¥215,197
14,5901,408¥185,981
12,216
21,287¥131,857(1,492)(1,894)¥1,676,064
137,300
110,188

For 2002:
Sales:
Outside customers................................. ¥ 750,439
Inside group...........................................
–
750,439
Costs and expenses .....................................
601,229
Operating income....................................... ¥ 149,210¥148,271
932
149,203
141,960¥ 7,243¥67,633
3,705
71,33867,688¥ 3,650¥ 15,685
21,86637,551
31,460¥ 6,091¥115,561
40,450156,011145,212¥ 10,799¥–(66,953)(66,953)(568)¥ (66,385)¥1,097,589–
1,097,589
986,981¥ 110,608

Identifiable assets ....................................... ¥1,105,280
Depreciation................................................
113,158
Capital expenditures ..................................
91,501¥ 56,547
608
314¥22,932
127
204¥226,981
16,0002,190¥184,473
13,214
11,940¥ 106,500(1,461)(1,858)¥1,702,713
141,646
104,291

Elimination or
corporate

Consolidated

Gas sales

Elimination or
corporate

Consolidated

Tokyo Gas Co., Ltd.

43

Gas appliance
sales

Relatedconstruction

Real estate
rentalOther

For 2003:
Sales:
Outside customers................................. $6,580,733
Inside group...........................................
23,0506,603,783
Costs and expenses ..................................... 5,268,583
Operating income....................................... $1,335,200$1,176,875
11,758
1,188,633
1,123,283$ 65,350$558,708
29,358588,066
553,275$ 34,791$ 124,533
178,350
302,883
239,358$ 63,525$ 956,101
363,292
1,319,393
1,239,173$ 80,220$–(605,808)(605,808)(54,175)$ (551,633)$ 9,396,950–
9,396,950
8,369,497$ 1,027,453

Identifiable assets ....................................... $8,895,325
Depreciation................................................
927,858
Capital expenditures ..................................
738,108$ 437,767
4,183
4,483

$192,150
1,175
2,300

$1,793,309
121,583
11,733$1,549,845
101,799
177,392$1,098,808(12,433)(15,783)$13,967,204
1,144,165
918,233

Gas sales

Assets in the corporate column mainly comprise current and noncurrent securities and deferred tax assets of the Company.
Geographic segment information is not shown due to the Company having no overseas consolidated subsidiaries. Information for overseas
sales is not disclosed due to overseas sales being immaterial compared to consolidated net sales.

Annual Report 2003

Thousands of U.S. dollars

12. Information for certain leases
Finance leases which do not transfer ownership to lessees are accounted for in the same manner as operating leases.
Information as lessee:
Lease payments in the years ended March 31, 2003 and 2002, and future minimum lease payments at March 31, 2003 and 2002 are as follows:
Thousands of
U.S. dollars

Millions of yen

2003

2002

2003

¥ 972

¥ 816

$ 8,100

Current...........................................................................................................................................

¥ 808

¥ 752

$ 6,733

Non-current ...................................................................................................................................

1,685

1,674

14,042¥2,493¥2,426$20,775

Lease payments ..................................................................................................................................
Future minimum lease payments inclusive of interest:

The Company uses certain production facilities, distribution facilities, service and maintenance facilities and other assets under leasearrangements. An analysis of equivalent amounts of leased assets under non-capitalized finance leases is as follows:
Millions of yen

Acquisition
cost
Tokyo Gas Co., Ltd.

44

Accumulated
depreciation

Net bookvalue

For 2003:
Production facilities ......................................................................................................................

¥

Distribution facilities.....................................................................................................................

98

¥

841

25

¥

397

73
444

Annual Report 2003

Service and maintenance facilities...............................................................................................

189

83

106

Other..............................................................................................................................................

3,655

1,785

1,870

¥4,783¥2,290¥2,493¥¥¥

For 2002:
Production facilities ......................................................................................................................
Distribution facilities.....................................................................................................................

72
698

50
321

22
377

Service and maintenance facilities...............................................................................................

212

127

85

Other..............................................................................................................................................

3,592

1,650

1,942

¥4,574¥2,148¥2,426

Thousands of U.S. dollars

Acquisition
cost

Accumulated
depreciation

Net bookvalue

For 2003:
Production facilities ......................................................................................................................
Distribution facilities.....................................................................................................................

$

817

$

7,008

208
3,308

$

609
3,700

Service and maintenance facilities...............................................................................................

1,575

692

883

Other..............................................................................................................................................

30,45814,875

15,583$39,858$19,083$20,775

Information as lessor:
Lease income in the years ended March 31, 2003 and 2002, and future lease payments to be received at March 31, 2003 and 2002 are as follows:
Millions of yen

Thousands of
U.S. dollars

2003

2002

2003

¥ 4,477¥ 4,400$ 37,308

Current...........................................................................................................................................

¥ 4,343¥ 4,035$ 36,192

Non-current ...................................................................................................................................

13,00812,306

108,400¥17,351¥16,341$144,592

Lease income ......................................................................................................................................
Future lease payments to be received:

Some of the consolidated subsidiaries lease other assets under direct financing leases as lessors. An analysis of leased assets under direct
financing lease is as follows:
Millions of yen

Acquisition
cost

Accumulated
depreciation

Net book
value¥24,007¥16,359¥7,648¥23,654¥13,993¥9,661For 2003:
Other assets ...................................................................................................................................
For 2002:
Other assets ...................................................................................................................................

Thousands of U.S. dollars

Acquisition
cost

Accumulated
depreciation

Net book
value$200,058$136,325$63,733

For 2003:
Other assets ...................................................................................................................................

Period of acquisitions: May 1, 2003 to May 30, 2003

The Company and its consolidated subsidiaries were contingently

Method for acquisitions: Market buying

liable (1) to debt guarantee in the amount of ¥2,000 million ($16,667

According to the resolution of the Board of Directors Meeting, thethousand) at March 31, 2003 for bank loans that affiliated companies

Company acquired 26,578,000 shares at the total price of ¥10,000

other than consolidated subsidiaries born (2) to banks in the amountmillion ($83,333 thousand).

of ¥560 million ($4,667 thousand) at March 31, 2003 with respect to(b) On May 26, 2003, the Board of Directors resolved the acquisition

guarantors for the in-substance defeasance of domestic unsecuredof treasury stock based upon the approval of the General Meeting ofnotes in the amount of ¥50,000 million ($416,667 thousand) issued by

Shareholders.

the Company, which were assigned to certain banks under the debt

Number of shares: With a limit of 50,000,000 sharesassumption agreements made in the years ended March 31, 2003,

Total value of acquisitions: With a limit of ¥20,000 million ($166,667

2002 and 1999.

thousand)At March 31, 2003, the Company had several long-term purchase
contracts for the supply of LNG. The purchase price determinable(2) Issuance of domestic unsecured notes

under such contracts is contingent upon fluctuations in the market

On June 10, 2003, the Company issued domestic unsecured notes inprice of crude oil.

the amount of ¥20,000 million ($166,667 thousand) due 2023 at a
rate of 1.01%.

14. Subsequent events(1) Acquisitions for treasury stock(3) Appropriation of retained earnings(a) On April 23, 2003, the Board of Directors resolved the acquisition

At the annual meeting held on June 27, 2003, the Company’sof treasury stock based on the approval of the General Meeting ofshareholders approved (i) payment of year-end cash dividends of ¥3.0

Shareholders.

($0.03) per share aggregating ¥8,334 million ($69,449 thousand) to

Number of shares: With a limit of 30,267,000 shares

the shareholders of record as of March 31, 2003, and (ii) payment of

Total value of acquisitions: With a limit of ¥10,000 million ($83,333

bonuses to directors totaling ¥61 million ($508 thousand).

thousand)45
Annual Report 2003

joint and several liabilities upon default of debtors and (3) as

Tokyo Gas Co., Ltd.

13. Commitment and contingent liabilities

Report of Independent Public Accountants
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries

To the Stockholders and the Board of Directors of TOKYO GAS CO., LTD.
We have audited the accompanying consolidated balance sheets of TOKYO GAS CO., LTD. (aJapanese corporation) and subsidiaries as of March 31, 2003 and 2002, and the related consolidated
statements of income, stockholders’ equity and cash flows for the years then ended, expressed inJapanese yen. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
Tokyo Gas Co., Ltd.

46

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

Annual Report 2003

respects, the consolidated financial position of TOKYO GAS CO., LTD. and subsidiaries as of March
31, 2003 and 2002, and the consolidated results of their operations and their cash flows for theyears then ended, in conformity with accounting principles generally accepted in Japan as describedin Note 1 to the consolidated financial statements.
Without qualifying our opinion, we draw attention to Note 14 (1) to the consolidated financial
statements. Subsequent to March 31, 2003, the Company decided the acquisition of treasury stock.
The consolidated financial statements as of and for the year ended March 31, 2003 have beentranslated into United States dollars solely for the convenience of the reader. We have recomputed
the translation and, in our opinion, the consolidated financial statements expressed in Japanese yen
have been translated into United States dollars on the basis set forth in Note 1 to the consolidated
financial statements.

Tokyo, Japan
June 27, 2003

Organization
Service Planning Dept.

Executive Management

Customer Service Division

Service Promotion Dept.

11 Service Branches

Strategic Planning DivisionMarketing Dept.
Corporate Planning Dept.
Finance & Managerial
Accounting Dept.

Residential Sales Promotion Dept.

Residential Sales andService Division

Residential Market Development Dept.
Condominium Remodeling Dept.

Personnel Dept.

Residential Facility Sales Dept.

Gas Resources Dept.
Environmental Affairs Dept.

Energy Sales and Service Planning Dept.

International Affairs Dept.

Air-conditioning and Commercial Customer
Development and Service Dept.

Corporate Communications
Division

Energy Sales
and Service Division

Industrial Gas Sales Dept.
Energy Solution Business Dept.

Volume Sales Dept.

Corporate Communications Dept.
General Administration Dept.

Inter-Regional Planning Dept.

Secretary Dept.

Inter-Regional Sales
and Service DivisionInter-Regional Marketing & Sales Dept.
7 Service Branches

Pipeline Dept.

Internal Audit Dept.

Pipeline and Safety
Management Division

Center for Supply Control
and Disaster Management
5 Pipeline Regional Offices

Negishi LNG Terminal

Corporate Auditors

Corporate Auditors’ Office

Production Division

Sodegaura LNG Terminal
Ohgishima LNG Terminal
Production Dept.

Affiliated Companies Dept.

Affiliated Companies Division(Affiliated Companies)

R&D Planning Dept.

R&D Division

Research Dept.
Technology Development Dept.

Service Integration and Promotion Dept.
Personnel Support Dept.

Corporate Service Division

Accounting Dept.
Purchasing Dept.
Information and Communication Systems Dept.

(As of July 1, 2003)

Real Estate Management Dept.

47
Annual Report 2003

Compliance Dept.

Tokyo Gas Co., Ltd.

Natural Gas Vehicle Dept.

Investor Information
Securities Traded
Common stock: Tokyo, Osaka and Nagoya stock exchanges(Trade Code: 9531)

Tokyo Gas Co., Ltd.
Head Office
1-5-20, Kaigan, Minato-ku, Tokyo 105-8527, Japan
Tel: +81-3-5400-7561 Fax: +81-3-5472-5385
URL: http://tokyo-gas.co.jp/index_e.html

Independent Auditors
Asahi & Co.

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

Transfer AgentJapan Securities Agents, Ltd.
1-2-4, Nihonbashi, Kayabacho, Chuo-ku, Tokyo 103-8202, Japan
Number of Employees
11,338Paris Office
102, Avenue des Champs-Elysées, 75008 Paris, France
Tel: +33-1-45-62-00-59 Fax: +33-1-42-25-96-85

Principal Shareholders

Asia Pacific Regional Office
Level 30, Menara Shahzan lnsas
No. 30 Jalan Sultan lsmail, 50250 Kuala Lumpur, Malaysia
Tel: +60-3-2144-2928 Fax: +60-3-2144-2930

Name

Number of Percentage ofShares Held Total Shares(Thousands) Outstanding

Japan Trustee Services Bank, Ltd. (Trust Account)

159,278

5.67

Tokyo Gas Co., Ltd.

The Master Trust Bank of Japan, Ltd. (Trust Account) 159,246

5.67

Date of Establishment
October 1, 1885

Nippon Life Insurance Company

151,518

5.39

The Dai-Ichi Mutual Life Insurance Company

135,964

4.84

Paid-in Capital¥141,844,398,888

Fukoku Mutual Life Insurance Company

78,504

2.79

State Street Bank and Trust Company

46,316

1.65

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

Employees Shareholding Association

43,073

1.53

Mizuho Corporate Bank, Ltd.

43,0001.53

Issued Number of Shares
2,810,171,295 shares

Mitsubishi Corporation

42,959

1.53

Boston Safe Deposit BSDT Treaty Clients Omnibus

40,925

1.46

48
Annual Report 2003

(As of March 31, 2003)

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

450

400

350

Share Price
300(Thousandsof Shares)

250

300,000

200

200,000

Monthly Trading Volume
150

100

100,000

4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3

FY1998FY1999FY2000Note: Fiscal years begin in April and end in March of the following calendar year.

FY2001

FY20020

FURTHER INFORMATION
Please direct comments regarding the content of thisreport or requests for other publications to:

IR Section, General Administration Dept.
Planning Section, International Affairs Dept.
Tel: +81-3-5400-3888
Fax: +81-3-3437-2668
E-mail: tgir@tokyo-gas.co.jp

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

Printed in Japan on Recycled Paper