Enhancing Value for Tomorrow

Tokyo Gas Co., Ltd.
Annual Report 2008

Profile and Steps

Face-to-Face with Change, Every Day
In more than 120 years since its founding in 1885, Tokyo Gas has grown from an initial 343 customers tomore than 10 million customers in 2007, and it is now Japan’s biggest city gas supplier. Its area of operations is the prosperous Kanto region, in which energy demand is concentrated and the urban population
continues to increase. We deliver gas to our customers through more than 50,000 kilometers of pipeline.
We imported LNG (liquefied natural gas) for the first time from Alaska in 1969 and its environmental advantages have been highly appreciated. Currently, nearly 100% of our city gas is sourced from LNG. Whileestablishing this clean natural gas as its core business, the Tokyo Gas Group is determined to achieve sustainable growth and development as a leading player in the integrated energy business.

1989: 7 million
1980: 6 million

Number of Customers
1938: 1 million

1971: 4 million

1962: 2 million

Contents

I.F.C Profile and Steps
2

Operating Base

4

Features of Japan’s City Gas Companies

67

Financial Highlights
Overview by Segment

8 An Interview with		 the President

12 Medium-term Management

		 Plan and Value Chain

2007: Achieved

10 million

2002: 9 million

1995: 8 million

14
16
18
20
22

		

Resource Procurement
City Gas Production and Supply
Business Partner Solutions
Residential Customers
Technology Research
Development

24 Environmental				Technology Development
and Activities

27
28

Safety Initiatives
Frequently Asked Questions

32 Corporate Governance36
		

Board of Directors andCorporate Auditors

38

Group Company Management Structure

39 Financial Section
1

Operating Base

Evolving Ever-better Ways to Serve Our Customers
Tokyo Gas is Japan’s biggest city gas supplier, with approximately 10 million customers. Its area of operations
encompasses the Tokyo metropolitan area and the surrounding Kanto region, a prosperous market of huge potential demand.
Even though Japan overall faces population decline, growth in the Kanto region is expected to continue
due to economic migration. We can maximize many advantages arising from our Kanto Plain service area,
since it is easy to extend pipelines, even to outlying industrial zones. As stated in our medium-term management plan for fiscal 2006–2010, we will capture new demand by expanding to a wider area extending for aradius of 200 km from Tokyo.

40%

日本のGDPの日本のGDPの約 40％を生み出す関東圏。旺盛なエネルギー需要に、安定的に、そして効率的にお応えするとともに、
サスティナブルな都市づくりに貢献していきます。

Gunma

Tochigi
Tokyo Gas Group Supply Area

Tochigi Line

Gunma Line

IbarakiNaganoSaitama
Chiba-Kashima Line
Chuo Line

YamanashiTokyo
Yokohama LineⅡ

Kanagawa

New Negishi Line

Minami Fuji Line

Shizuoka
2

Kisarazu Rinkai Line

Chiba

Tokyo Gas Group service area
Service areas of wholesale customers
Tokyo Gas high-pressure transmission pipelines, etc.
Tokyo Gas high-pressure transmission pipelines underconstruction
Pipeline jointly owned with Shizuoka
Gas Company and Teikoku Oil Co., Ltd.
High-pressure transmission pipelines ofother companies
Tokyo Gas LNG receiving terminals

1,000

万件のお客さま2007年9月13日、お客さま件数が1,000万件を越えました。
これからも多くのお客さまに快適な生活を送っていただくために、サービスの向上と万全の保安体制を確保

します。

総延長

50,000km 以上のパイプライン

明治以来、連綿と築きあげてきた50,000ｋｍを越えるガス導管

パイプライン。網の目のように張り巡らされたその総延長は地球1周分以上。最新の防災システムで都市の安全を守ります。

The Japanese Gas Industry
Gas Sales Volume of Tokyo Gas by Sector (Consolidated) and in Japan3
3(Fiscal Year Ended March 31, 2008) (Million m , 45 MJ/m )■ 3,529■ 3,126■ 5,732■ 1,828

Japan
Tokyo Gas

Residential
Commercial
Industrial
Wholesale
33,391 (100%)
14,215 (42.6%)

Source: The Japan Gas Association HP (Gas Sales Volume JGA Newsletter)

In Japan, which has many mountainous regions, there are few concentrations of population and industrial activity
that are highly economical for city gas businesses delivering natural gas to customers through pipelines. For thisreason, the availability of city gas is limited to about 5% of Japan’s territory. Though there are around 210 city gas
suppliers in Japan, the three biggest (Tokyo Gas, Osaka Gas and Toho Gas) together account for approximately
80% of nationwide city gas sales in volume terms. In addition to these city gas suppliers, there are around 1,600
community gas suppliers and about 24,600 LPG suppliers, most of which are small- or medium-sized operators.

3

Features of Japan’s City Gas Companies

Stable Business Structure and Customer Orientation
Mountainous terrain and lack of resources have had a major impact on the gas rate system and developmentof gas infrastructure in Japan. Most natural gas, the main resource for city gas, must be imported as liquid
natural gas (LNG), and gas rates must cover the cost of liquefaction and regasification. Furthermore gas suppliers are responsible for ensuring safe use of gas at the customer’s site, so rates must also include the costof periodic inspections and safety measures at customers’ premises—making prices generally higher than inEurope or North America. Deregulation of the electric power and gas industries in Japan has progressed sincethe 1990s to the point where annual contracted volumes of 100,000 m3 or more are now unregulated.

Deregulation Schedule

2004

Before 2004
Tokyo Gas

Major users

3

30% 1 million m or more

500,000 m3 or more

Large-scale factories(Manufacturing) Medium-sized factories(Chemicals and Metal)/
hotels/large-sized hospitals
and commercial complexes

Electricity Industry

4

53%

2007

26% 2,000 kW or more

40% 500 kW or more

65%

100,000 m3 or more● Deregulation extended to customers
using more than 2 million m3 in 1995,
and in 1999, 1 million m3.

Small-scale factories(Textiles and Machinery)/hospitals/business hotels
50 kW or more63%

● I n 2000, deregulation extended tocustomers using more than 2,000 kW.

Deregulated Areas and Regulated Areas
In Japan’s gas market, suppliers are limited to either city gas suppliers or community gas suppliers for a given district.
Japan’s city gas market is divided into regulated areas, such as small-volume customers, in which rates are set under
the Gas Utility Industry Law, and deregulated areas, such as large-volume customers, in which consumers can freely
choose their supplier.
Regulated Areas: In order to avoid overlapping investment in pipelines and the like, monopolistic supply is permitted
for specified city gas companies within their supply districts. At the same time, supply obligations are imposed on thosecompanies, and small-volume customers are protected by gas-rate and maintenance regulations.
3
Deregulated Areas: Only consumers with annual contracts for 100,000 m of gas or more are eligible to take part.
Business entry into these areas is open to new entrants, such as large-volume gas suppliers or city gas suppliers outside
their supply districts.
Unlike Europe and North America, Japan has no nationwide pipeline network. Each city gas supplier delivers andsells city gas through a pipeline network developed for its own service area.
Features of the Rate Structure
Many city gas companies import LNG as their source of natural gas, and gas resource costs can be influenced dramatically by trends in crude oil prices and exchange rates. To adjust gas rates automatically in line with fluctuations with gas
resource costs, the gas rate adjustment system has been introduced. The system is intended to increase the transparency of gas companies’ efforts to achieve more efficiency and to quickly reflect economic conditions in their rates. Under
this system, the meter rate gas unit price is readjusted every three months based on the three-month average of the gas
resource price from customer clearance statistics. Thanks to this system, the impact of fluctuations in crude oil prices
and exchange rates on the revenue and expenditure of gas companies is neutral over the long term.

Gas Rate Adjustment System
6 months later

Fluctuation of average gas resource cost

Maximum (¥/t)
86,100Adjustment of specific unit price+2,690Standard averagegas resource costs +¥53,810/ton – 0

10

11

12

1

2

3

4

5

6

7

8

9

10

11

12

1

2

month

–2,690The scheme provides for adjustment of the specific unit price component of gas rates
at three-month intervals in correspondence with fluctuation in gas resource costs
owing to factors such as exchange rates and crude oil prices.

Nonadjustment band5

Financial Highlights

Millions of yen
except per share amounts

For the Years ended March 31

Net sales
Operating income
Net income

2008

2007

2006

2008

1,487,497

1,376,958
162,315
100,700

1,266,502
112,346
62,115

14,874,970

37.50
35.69
293.11
8.00

23.48
21.70
270.467.00

0.16

1,692,635
465,896806,046

1,693,899
496,740
728,232

17,036,512

233,842
11.8%
7.3%
13.2%
5.9%
47.0%
0.66

198,492
8.9%
4.9%
9.0%
3.7%
43.0%
0.77

1,849,088

70,04942,487

Amounts per share of common stock
Net income
Net income (Diluted)
Net assets
Cash dividends applicable to the year

Thousands of U.S. dollars except
per share amounts

15.94
15.50
289.498.00

700,485
424,875

0.16
2.89
0.08

At Year-end (March 31)
Total assets
Long-term debt due after one year
Net assets

1,703,651
487,138
780,455

4,871,380
7,804,553

RatiosOperating cash flow
Operating income to net sales
Net income to net sales
ROE
ROA
Equity Ratio
D/E ratio

184,909
4.7%
2.9%
5.4%
2.5%
45.1%
0.73

4.7%
2.9%
5.4%
2.5%
45.1%
0.73

Notes: 1.	U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥100=U.S.$1, the Tokyo foreign exchange market rate as of March 31, 2008.
2. Operating cash flow = net income + depreciation**including amortization of long-term prepayments
3. ROE = net income/total equity (average of positions at start and end of fiscal year)
4. ROA = net income/total assets (average of positions at start and end of fiscal year)
5. D/E ratio = interest-bearing debt (year-end)/total equity (year-end)

Net Sales(¥billion)

1,500
1,200

Operating Income/Operating
Income to Net Sales (¥billion)

1,487.5 200
1,377.0
1,266.5
1,190.8
1,151.8
150

40
162.3

152.3
145.3

30

Net Income/Net Income to Net
Sales (¥billion)

ROE／ROA

150

20

20

120

16

16

12

12

8

8

(%)

13.5

100.7
900

90

112.3
100

600

13.2

12.2
8.9

50

300

84.0

20
11.8

60

70.0
4.7

10

30

7.1
44.8
3.9

62.1
4.9

7.3
42.5
2.9

7.6

9.0
5.0

4

4

0

0

13.2

2.7

5.9
3.7

5.4
2.5

0

’04 ’05 ’06 ’07 ’08

0’04 ’05 ’06 ’07 ’08

All graph data for the year ended March 31, 2008

6

0

0

’04 ’05 ’06 ’07 ’08’04 ’05 ’06 ’07 ’08
ROE
ROAOverview by Segment

Gas Sales
Tokyo Gas uses its three LNG terminals along the shores of Tokyo Bay to gasify LNG, its
main gas resource. It sells city gas to more than 10 million customers, primarily in the Kanto region, through a pipeline network of more than 50,000 km. In future, we will continue
to ensure the reliability of supply and aim to capture new demand by extending our pipeline
effectively with a strong focus on achieving a good return from our investment.
(External sales ratio: 97.2%)

Sales Ratio
66.6%

Gas Appliance Sales
We sell gas cooktops, water heaters, the TES system (a gas air conditioning system using
hot water) and other products that we procure from gas appliance manufacturers. The sales
are mainly handled by the service network of Tokyo Gas, LIFEVAL, Enesta and Enefit.
(External sales ratio: 97.6%)

Operating Income Ratio
82.0%

8.1%
2.1%

0

3.5%
0.6%

2.2%
5.8%

n Sales increased by 3.3% over the previous fiscal year to ¥35.2 billion due to the growth in revenues
from facility management. Operating expenses were at about the same level as in the previous period, so operating income grew by 18.3% to ¥8.0 billion.

19.6%
9.4%

’07

0

’08

16

150

12

100

8

50

4

’06

’07

’08

0

120

12

90

9

60

6

30

3

’06

’07

’08

0

60

16

45

12

30

8

15

4

0

Other Business

’06

200

0

Real Estate Rental

Segment sales include intra-group transactions.
All graph data for the year ended March 31, 2008

100

300

0

n Sales in this segment increased by 12.2% over the previous fiscal year to ¥320.4 billion. Reasons forthe higher results include the sustained expansion of the on-site energy service business and the higher
sales in the LPG division, caused by a combination of rising LPG prices and a higher LPG sales volume.
n Operating income declined by 7.8% to ¥12.8 billion due to a number of factors, including the increased
initial depreciation burden characteristic of the on-site energy service business and rising LPG prices.

200

600

n There was a reduction in the number of new installations. Sales fell by 3.2% over the previous fiscal
year to ¥57.3 billion and operating income declined by ¥900 million to ¥800 million.

This segment includes district heating and cooling, energy services, LPG sales, industry gas
sales, credit and leases, system integration services and comprehensive engineering services.
(External sales ratio: 73.7%)

300

900

Related Construction

This segment is mainly involved in leasing, management and the like for the Shinjuku
Park Tower and other office buildings conducted by our consolidated subsidiary, Tokyo
Gas Urban Development Co., Ltd. In addition, it owns land mainly in Toyosu, Tamachi,
Ginza and Gofukubashi.
(External sales ratio: 35.1%)

Operating Income■

1,200

n Although sales of high value-added products were firm, overall sales declined by 2.3% to ¥132.3 billion due to the impact of lower sales of kitchen water heaters, caused by our switch to more efficientwater heaters.
n Operating income increased by 148.8% to ¥2.9 billion due to the decline in operating expenses andother factors.

This segment carries out new construction (e.g., the installation of gas pipes/valves on thesites of customers who use gas within our service area) and expansion work in existingbuildings, for example, to increase the number of gas valves.
(External sales ratio: 93.4%)(¥billion)■ Share3n The gas sales volume increased by 6.8% over the previous fiscal year to 14,215 million m .
n Gas sales volume increased in all sectors, with 2.3% growth in the residential sector, 7.4% in theindustrial sector, 5.2% in the commercial, public and medical sectors, and 17.6% in wholesaling toother gas companies.
n Due to higher unit prices under the gas rate adjustment system and the increase in the sales volume,
sales increased by 8.8% over the previous fiscal year to ¥1,087.0 billion.
n Operating income declined by 45.1% to ¥111.7 billion due to a large rise in gas resource costs resulting from the rise in crude oil prices.

Share/Operating Income

’06

’07

’08

0

30

400
300

20

200
10

100
0

’06

’07

’08

0

7

An Interview with the President

Q	Looking back, what kind of year was fiscal 2007? In particular, what was the impact ofrising crude oil prices on revenue and expenditure?
TORIHARA Fiscal 2007 was the second year of the medium-term management plan for fiscal 2006–2010.
Crude oil prices reached all-time highs, so the business environment for Tokyo Gas continued to be severe,because natural gas is at the core of our business.
Reflecting this situation, net sales in fiscal 2007 reached an all-time high of ¥1,487.5 billion as a result of an increased gas sales volume and higher unit gas rates under the gas rate adjustment system.
However, operating income declined by ¥92.3 billion from the previous fiscal year to ¥70.0 billion and net
income declined by ¥58.2 billion to ¥42.5 billion. The major factors behind these declines were: rising gas
resource costs resulting from the recent rise in crude oil prices; rising labor costs due to an actuarial
differential on retirement benefits*; and an increase in depreciation due to a tax revision. Despite theselarge declines, we maintained a total payout ratio of 74% by allocating dividends of ¥8 per share to ourshareholders and carrying out stock repurchases of ¥10.0 billion in fiscal 2008. We intend to continue thepolicy of returning the benefits to our shareholders through more efficient management, as promised in
the medium-term management plan.
Tokyo Gas imports liquefied natural gas (LNG), a major source of city gas, from overseas. The pricesof LNG imported by Japan are generally linked to crude oil prices, which have been continuously rising inrecent times. Under the gas rate adjustment system, fluctuations in gas resource costs are reflected in
the gas rates after six months at most. However, crude oil prices rose on and off throughout fiscal 2007,
so we were not able to completely pass on the gas resource costs, which had already increased dramatically, via sales price throughout the year. As a result, we ended up with large excess expenditures forwhich we were unable to compensate through our management efforts to cut costs.
Trends in crude oil prices are still uncertain, but Tokyo Gas intends to continue its efforts to keep down
the procurement cost of the gas resources. Furthermore, during the current fiscal year we expect to commence importing LNG from Sakhalin II project. Its transportation distance is shorter than that of any otherproject. We hope that this economic advantage will contribute to reductions in gas resource costs.

8

As for our business environment, demand for air conditioning in the commercial sector as well
as for heating and hot water in the residential sector increased due to high temperatures in summer
and cold weather in winter. Moreover, due to the price competitiveness and environmental advantages of natural gas relative to petroleum products, both industrial demand and wholesale supply saw
an increase in sales volume, resulting in a healthy overall gas sales volume of 14.22 billion m3—6.8%
higher than the previous fiscal year. The number of our customers exceeded 10 million on September
13, 2007, 122 years after our founding, reflecting the influx of population into major urban areas. We
will continue to endeavor to be a company that continuously achieves sustainable growth and development based on the long-term trust that we have built up with our customers.
* Tokyo Gas calculates its retirement benefit liabilities and expenditures using actuarial computations based on specific assumptions. Actuarial differentials are all shown and depreciated as cost items in the accounts for the following year.

Meeting Management Targets Ahead of Schedule
Meeting Management Targets Ahead of Schedule
TEP

Operating Cash Flow(¥billion)(¥billion)

ROE

ROA

(%)

(%)

5.9

53.8

13.2

233.8
184.9 191.0
2.5

FY ’06

1.7

3.0

FY ’07

FY ’08

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

FY ’06

FY ’07

FY ’08Operating cash flow=net income + depreciation

FY ’06

FY ’072.9
5.4

FY ’08

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

FY ’06

FY ’07

6.3

FY ’08ROE = net income/total equity(average of positions at start and end of fiscal year)

WACC FY06 Results : 3.8%
WACC FY07 Results : 3.6%
WACC FY08 Outlook : 3.4%Q	Please tell us your plans for restoring business performance in fiscal 2008. Will there
be any changes to the promotion or execution of the medium-term management plangoing forward?
TORIHARA We are assuming that in fiscal 2008 crude oil prices will remain high and the environment
surrounding Tokyo Gas will continue to be severe. Furthermore, the aggressive sales efforts by electric
power companies to promote the all-electric concept will continue to have an impact, so we must remain
extremely vigilant regarding our competitors. Based on this situation, Tokyo Gas announced its fiscal 2008
earnings estimates on April 25. Net sales in the current fiscal year are expected to be ¥1,712.0 billion—
a 15.1% year-on-year increase. Both operating income and ordinary income are expected to recoversomewhat, relative to the previous fiscal year, and to reach ¥75.0 billion and ¥68.0 billion, respectively. To
achieve these figures in the face of all obstacles, we set priorities for the current fiscal year as follows.
Firstly, we must steadily promote the various measures laid out in the current medium-term management plan. Tokyo Gas is currently operating an “integrated energy business” in an area extending fora radius of 200 km from Tokyo. While developing the strong latent demand for natural gas in the Kanto
region, we are providing utility services, including electric power, to customers in an optimal format as9

energy services. In April 2008, Kawasaki Natural Gas Power Generation Co., Ltd., which is 49% owned
by Tokyo Gas, began operation of an 800-MW facility. This enables us to further deepen our integrated
energy business, using the weapon of the greenness of natural gas and high efficiency of the combinedcycle generator.
Secondly, we must strengthen our strategy against the all-electric systems for homes and develop
further demand. For this reason, in April 2008 Tokyo Gas launched Tokyo Gas LIFEVAL, a new regionalenergy company. The purpose is to let the new company lead our future efforts to compete with electricity. By integrating Tokyo Gas Customer Service Co., Ltd., which previously provided customer services
such as meter reading and safety inspections, etc., and Enesta, which carried out maintenance and salesof gas appliances, we are aiming for more meticulous one-stop services to increase contact points withcustomers and identify customer needs more appropriately.
Thirdly, we must respond to the recent privatization of a variety of government-owned gas businesses. To strengthen our response to this trend, Tokyo Gas launched the Gas Business Privatization
Department in April 2008. Of course, when participating in such businesses, we carry out sufficient business value evaluations and carefully verify the maintenance conditions of facilities and a given project’s
potential to enhance our corporate value. Through these initiatives, we are aiming to expand the scale ofour business and intend to build a solid business foundation in an area extending for a radius of 200 km
from Tokyo.
Finally, as the business environment surrounding Tokyo Gas undergoes rapid changes, we will formulate a new medium-term management plan during fiscal 2008. We are aware that the current businessenvironment is extremely severe due to higher LNG prices resulting from the global rise in crude oil
prices. In order to achieve sustainable growth, Tokyo Gas will aim for the deepening and development of
our integrated energy business and further reinforce our business platform.
In April 2008, we established a new IR Department. We have continued to monitor the expectationsof the capital market through dialogues with investors. These expectations will be more clearly reflectedin the various measures of the management.

Q	In April 2008, you revised the gas rates downward by an average of 1.5%.
Why did you carry out the revision at that time?
TORIHARA I believe that our customers are important stakeholders, just like our shareholders. In ourcurrent medium-term management plan, we promised a total payout ratio of 60% to our shareholders. At
the same time, we promised our customers that we would carry out rate reductions during the period of
the plan in order to return some of the benefits of reducing our fixed costs through more efficient management. The rate revision is a part of that policy.
Currently, Tokyo Gas is operating in a severe business environment marked by rising gas resource
costs and intensifying competition among different forms of energy. However, due to the sharp increasein global energy prices in recent times, gas rates continue to move upward, based on the gas rate adjustment system. Therefore, we carried out this gas rate revision by returning some of the benefits of the
reduced fixed costs, in order to alleviate the burden on our customers as quickly as possible.
The change resulting from this revision is a reduction averaging 1.51% in our tariffs for the entire
small-volume segment encompassing both service and optional agreement tariffs in Tokyo and in other
districts that have the greatest numbers of customers. The financial impact on Tokyo Gas caused by thisrate reduction is expected to be approximately ¥10.0 billion per annum.

10Q	Is a restructuring of the gas industry possible in Japan?
Also, please tell us your views on M&A involving Tokyo Gas.
TORIHARA In Japan, there are currently over 200 city gas suppliers, with nearly 60 of those suppliers
concentrated in the Kanto region alone. Furthermore, in addition to these city gas suppliers, there areapproximately 1,600 community gas suppliers and approximately 24,600 LPG gas businesses nationwide,
all of which provide energy supplies for their respective customers. In Europe and North America, therealignment of the energy industry is occurring rapidly, and investors often ask me if industry realignment is likely to happen in Japan, which has so many energy companies. Although I cannot rule out thatpossibility, I think that the development of infrastructure is a precondition for such realignment in Japan,
where the electricity and gas infrastructure connecting different regions is not as developed as it is in
Europe and North America.
Tokyo Gas is already supplying wholesale gas to 26 gas suppliers in its service area. The sales volume to these companies accounts for approximately 13% of our total sales volume. Unlike M&A transactions, the wholesale supply business earns income with high capital efficiency. That is why we are aggressively developing this business. We do not intend to propose any purchases of stakes in other companies.
However, if a company approaches us with such a proposal, we may consider entering into a capital
partnership after evaluating the corporate value of the company. In April 2008, we launched the new Gas
Business Privatization Project Department to respond to government-owned gas suppliers’ privatization
projects. Tokyo Gas will participate in this kind of project utilizing our previous experience of purchasing
government-owned gas suppliers, including the Konosu City and Nagano City gas businesses, if we areconvinced that this business will enhance our corporate value and increase benefits to our customers
through the promotion of sound due diligence.

Mitsunori Torihara, president

11Medium-term Management Plan and Value Chain

New Market Development
Our operating conditions have changed significantly with ongoing deregulation of gas and electric power, shifting demand and growing public concern
about social and environmental issues. At the same time, customer needs
have diversified. To adapt to this environment, in April 2006 the Tokyo Gas
group announced a medium-term management plan covering the period tofiscal 2010 and reflecting our vision for the decade beyond. The focus is on
being an integrated energy business that optimally supplies utility services including city gas, electric power, LNG and LPG. We will create and develop newmarkets for natural gas and establish a business structure with a broad profit
base in the energy sector. Furthermore, strategically centered on the stillgrowing Kanto region, we will develop the enormous potential demand fornatural gas, and expand our service area substantially.

Business Strategy

Greater Potential Value to Customers

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

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

Current profit
structure

Service Area Expansion
Marketing scheme covering 200-km radius around Tokyo in the
Kanto region, and creation of wide-area infrastructure

12Creating New Value at Every Step
Tokyo Gas Group possesses a value chain in the gas business, in other words,
we have a value-creating management foundation for the development of acompetitive integrated energy business from upstream to downstream (fromnatural gas field development, transportation, LNG terminals to power plants,
pipeline network, marketing and customer sales). By integrating and optimizing these elements, we will utilize the strengths of our value chain to develop
multi-energy supply with the provision of one-stop energy solutions such as
gas and electric power, and energy services on one hand, and solutions basedon our technical and marketing capabilities, on the other, and expand our areaof business. In future, we will strive to achieve sustained growth through competitive resource procurement and an expanded profit structure.

Value Chain

Procurement &Transportation of LNG

Supply of City Gas&
Transportation by
Pipeline and Tanker
Truck

City Gas Production&
Power plants

Multi-energy Supply &Energy Service

R&D

Maintenance and improvement of core technologies, development of challenging newtechnologies and the utilization of information technology form the backbone of today’s gas business. We will use these technologies to increase value to our customers
by enhancing and expanding our value chain. This includes enhancing our resource
procurement, LNG terminal and pipeline networks and our energy marketing.

13

Resource Procurement

Locking In Long-term Stability and Security
Liquefied natural gas (LNG) is produced by transforming natural gas from its natural gaseous state into a liquid by lowering its temperature to around minus 160ºC. This precious natural resource is brought to Japan
across thousands of kilometers of ocean with specially designed carriers. LNG is environmentally superior toother fossil fuels and enjoys a good reputation among our many customers. Tokyo Gas first imported LNG from
Alaska in 1969. In the four decades since then, we have switched our city gas resources to LNG.

Energy Navigator started operation in June 2008

Reliable, Competitive Access to ResourcesTokyo Gas is continually working to maintain reliable and competitive access to LNG sources by expanding its LNG value
chain through the organic linkage of domestic and international business activities. Specifically, we are involved with development, production and liquefaction in gas fields, transport with LNG tankers, regasification at terminals, and supply
to customers. We are also implementing diversification of resource procurement destinations.
Reliable Procurement
In order to deal with steadily increasing gas demand, Tokyo Gas has smoothly expanded its LNG imports over the past
four decades, mainly focusing on politically stable source countries located relatively near Japan. Tokyo Gas is currently
procuring more than ten million tons of LNG per annum, mainly from ten projects in six countries in the Asia-Pacific region, including Malaysia, Australia, Brunei and Indonesia, under long-term contracts. In fiscal 2008, supply is scheduled
to commence from Sakhalin II in Russia, which will become our seventh source country. We are also planning long-term
procurement of 1.75 million tons annually from the Pluto project in Australia from 2010 onwards. We promote diversi14

fication of LNG sources in order to undertake reliable resource procurement. In addition, wherever possible, we areswitching our contract format to FOB, which enables us to reduce transportation costs using our LNG tankers and allows
us freedom to change destination points or to conclude flexible contracts based on contract volume. We believe these efforts will help ensure adaptable and competitive gas resource procurement in line with customer demand.
Participation in Upstream BusinessTokyo Gas is increasing its participation in upstream business by building its own LNG value chain that extends from upstream business through to downstream business. In this way, we can achieve long-term, reliable and competitive gas
resource procurement and expand the possibilities of our LNG business. Tokyo Gas holds an upstream interest of 3% in
the Darwin project in Australia. In addition, we have obtained an interest of 5% in the Pluto project, which will commence
production in 2010. In future, we are considering investment in other new projects in Australia, including Gorgon. Participation in upstream business allows natural hedging of price fluctuation risks; therefore, this approach is also useful forstabilizing profits.
Fleet Expansion
We currently operate a fleet of six vessels, including Energy Navigator , which went into service in June 2008. We plan to
add one new vessel in 2009 and another in 2011, at which time we will be carrying approximately 50% of our total LNG
cargos in our own vessels. By increasing the volumes carried, we aim to achieve further reductions in our transportation
costs. The use of our fleet for short-term and spot procurement as well as procurement under long-term contracts will
provide increased mobility. We also intend to expand the scope of our transportation business by carrying LNG for third
parties and chartering out our vessels.
Tokyo Gas LNG-term Imports
AlaskaSakhalinTokyo
New LNG ProjectExisiting LNG Project

Qatar
BruneiMalaysia
Indonesia
Pluto
GorgonDarwinNWS

Pluto Gas Field Agreements
Tokyo Gas reached a final agreement with Woodside Energy Limited for a five percent interest
participation in and purchase of LNG from the Pluto LNG project in Australia. The Pluto projectacquired environmental approval from the Australian government in October 2007, and in November 2007, this agreement officially came into effect, marked the start of construction.
Also in October 2007, Tokyo Gas acquired a five percent interest in the Cazadores blocks,
adjacent to the Pluto project. The blocks are likely to be tied into Pluto as development continues, assuring additional gas resources. These agreements hold the promise of an expanding
profit foundation.

Participating at the signing ceremony: Mr. Mitsunori Torihara, President of Tokyo Gas (far left),
former Australian Prime Minister Mr. John Howard (center left), Mr. Shosuke Mori, President of
Kansai Electric Power (center right) and Mr. Don
Voelte, CEO and Managing Director of Woodside
Energy (far right).

15

City Gas Production and Supply

Reaching More Customers for Increasingly Lower Cost
Delivering clean and safe city gas to more than 10 million customers in a stable manner is one of the mostimportant missions for Tokyo Gas. We strive for efficient and safe management, taking advantage of know-how
acquired as Japan’s biggest gas company.

Negishi LNG terminal, which has operated since 1969.

Aiming for Efficient and Safe Operation of LNG Terminals
Tokyo Gas imports liquefied natural gas (LNG) from various parts of the world at its Negishi, Sodegaura and Ohgishima
LNG Terminals in the Tokyo Bay area. The LNG is transported to the three terminals by LNG vessels, from which it istransferred to storage tanks, taking approximately half a day. To maximize shipping efficiency, the gas is cryogenicallyliquefied at the point of production to reduce its volume about 600 times. In the LNG receiving facilities, the LNG is regasified using vaporizers, and then LPG is added to adjust the caloric value. Finally, the so-called city gas mixture is odorized,
so that customers will be aware of the presence of gas. It is then sent out through pipelines.
Two of our three LNG terminals, Negishi and Sodegaura, are jointly operated with Tokyo Electric Power Company. The
benefits of this arrangement include lower capital investment and operating costs as well as higher operating rates, andload leveling based on the differences between peak demand patterns for electric power and gas. Because of these factors, both companies can efficiently conduct terminal management.
The LNG terminals of Tokyo Gas are among the largest in the world. Despite the scale, all processes—from the unloading of LNG to the delivery of the city gas through pipelines—are automatically controlled by computers. As a result,16

our day-to-day operations require only 5–10 workers. Safety is of paramount importance. Our world’s-largest underground tank can store enough LNG to meet the needs of around 280,000 households for one year. Tokyo Gas adopted buried underground LNG tanks to minimize the risk of above-ground LNG leaks—even in the event of tank damage. Throughthese efforts, we have realized both the maintenance of advanced safety levels and low running costs.
A Strong Pipeline Network
Tokyo Gas has constructed the largest city gas supply network in Japan. It is supported by reliable safety systems andbased on the engineering and maintenance technologies we have accumulated over many years. The high-pressure trunk
pipelines circling the Tokyo metropolitan area and the three LNG terminals complement each other to realize a more reliable supply system.
We have also constructed pipelines that not only enhance supply reliability, but also meet the enormous potential
demand that exists in the Kanto region. We completed the Tochigi Line in 2005 to develop natural gas demand across thenorthern part of the Kanto region, specifically Tochigi Prefecture, and further improve supply reliability. Continuing, weplan to complete the Gunma Line, designed to meet the strong demand in the Gunma area, in March 2010, and to invest
approximately ¥26.0 billion to complete the 73-km Chiba-Kashima Line designed to develop the latent industrial demand in
the Kashima industrial area in Ibaraki Prefecture, by December of the same year.
Furthermore, in order to meet the long-term increase in demand for natural gas, we plan to complete the Chuo
Trunk Line I in 2009 to further enhance the supply capacity and reliability of the high-pressure trunk lines circling Tokyo. (The Chuo Trunk Line II will commence operation in 2010.)

Service Area Facility Map
Gunma

Tochigi
Tochigi Line

Gunma Line

IbarakiNaganoSaitama
Chiba-Kashima Line
Chuo Line

YamanashiTokyo
Yokohama LineⅡ

Kanagawa

New Negishi Line

Minami Fuji Line

Shizuoka

Kisarazu Rinkai Line

Chiba

Tokyo Gas Group service area
Service areas of wholesale customers
Tokyo Gas high-pressure transmission pipelines, etc.
Tokyo Gas high-pressure transmission pipelines
under construction
Pipeline jointly owned with Shizuoka Gas Company
and Teikoku Oil Co., Ltd.
High-pressure transmission pipelines ofother companies
Tokyo Gas LNG receiving terminals

Shield Tunnel Technology
Shield tunneling involves rotating the drill at the tip of a tunnel-boring machine, known as ashield machine, to excavate the tunnel. It can produce longer tunnels at greater speed, andmuch of the process is now automated. Tokyo Gas has employed this technology in the construction of high-pressure pipelines traveling under urban areas, in particular, in the first phaseof construction of the Chuo Trunk Line I, scheduled for completion in 2009. It will connect thedensely populated area that lies between Edogawa Ward in Tokyo and Soka City in Saitama
Prefecture via a 23.1-km shield tunnel. This approach improves the speed and reliability of theoverall project because the shield machine will excavate a tunnel 40 to 50 meters below thesurface, where the ground is geologically stable, and we will need to access the tunnel underground at only two points. The Japan Society of Civil Engineers gave Tokyo Gas a technicalaward in May 2008, commending the Company’s construction project management for being
well adapted to an era in which speed is required.

Shield Machine17

Business Partner Solutions

Staying at the Forefront with Advanced Energy Solutions
The outlook for Japan’s economy is increasingly uncertain due to the instability of stock and foreign exchange
markets originating in the so-called sub-prime loan problem, and the rise in international crude oil prices,among other factors. However, there has also been an accelerating switch to the use of natural gas as a fuel inthe industrial sector due to its price advantage relative to increasingly expensive crude oil and also becauseof its being environmentally friendly. In the commercial sector, which is seeing escalating competition in theenergy market, Tokyo Gas is building its competitiveness by offering outstanding solutions that meet the needsof a wide range of customers. We will continue to create new value along with our customers as a business
partner that is trusted regarding all aspects of energy.
Kawasaki Natural Gas-fired Power Plant commenced first unit
operation in April 2008 (first and second unit total: 847.4 MW)

Aiming for Establishment of an Integrated Energy Business
There is escalating competition among different types of energy and among suppliers of the same type of energy. Tokyo
Gas is responding to the changing and increasingly sophisticated energy needs of industrial and commercial customers
by aiming to establish itself as an integrated energy business. This offers diverse solutions and value to customers. The
concept includes being a multi-energy supplier that provides one-stop access to gas, heat and electric power, and offering energy services that make optimal use of the strengths of each energy system. Furthermore, companies are establishing an increasing number of factories and large-scale commercial facilities on the outskirts of the Tokyo metropolitanarea, which enables us to develop as an integrated energy business over a wider area. Our strategies for the development of potential demand in the Kanto region surrounding Tokyo include the building of wide-area pipeline networks andconstruction of LNG satellite terminals in areas where gas pipelines have not been installed. We believe that we canachieve further demand growth within a 200-km radius surrounding Tokyo by strengthening our alliances with local energy suppliers to supply multiple forms of energy, including gas, LNG, heat and electric power, and by offering one-stopenergy services.
18

Working to Provide Sophisticated Energy Solutions
In order to be a multi-energy supplier that provides one-stop solutions to all of the energy needs of our customers, Tokyo
Gas is developing its power generation business while seeking to maximize synergies with its gas business. We supply
electric power competitively by combining a range of strategies, including the construction of power plants close to demand areas, the use of existing infrastructure already available at our LNG terminals and other facilities, as well as theintroduction of the latest Gas Combined Cycle technology, which is highly efficient and promotes energy conservation.
Tokyo Gas Bay Power and Tokyo Gas Yokosuka Power are already fully operational. In April 2008, Kawasaki Natural Gas
Power Generation Co., Ltd. (Tokyo Gas: 49%, Nippon Oil Corporation: 51%) commenced operations, and construction of
Ohgishima Power Station (Tokyo Gas: 75%, Showa Shell Sekiyu: 25%) is proceeding smoothly.
Integrated Utility Services for Diversified Needs
We are expanding our collaboration with ENERGY ADVANCE Co., Ltd. (ENAC), which separated from Tokyo Gas as an independent company in 2002. This relationship is crucial to the full-scale development of an energy services business which
provides the optimal mix of energy systems.
The knowledge and technical expertise accumulated through construction and operation of these facilities are thefoundation for a wide range of energy services. ENAC’s professional engineers select, design and install systems that precisely match customer needs, providing benefits that include energy conservation and reduced CO2 emissions and costs.
ENAC is the industry leader and is currently providing these services to 208 customers (as of the end of March 2008).
The services provided by ENAC are not limited to energy. The company has been able to evolve into an integrated utility service company offering one-stop solutions for a wide range of customer needs by expanding its business to include
utility services, such as the supply of pure water and compressed air, and contracting services in areas such as biomass
utilization and facility operation and management.

Demand Outlook and Capital Investment Plan (non-consolidated)
Annual Sales Volume(million m3)
15,500Chuo LineⅡ
Chiba-Kashima Line
15,400Chuo Line
Gunma Line
Kisarazu RinkaiLine

15,00014,50014,00014,00013,500

FY’07

FY’08

FY’09

FY’10

FY’11

FY’12

計画値

Initiatives on the Front Line of Sales: Commercial Kitchens
Design of Cool Kitchen Appliances1
Air heatinsulating
structure

Gas is ideal for cooking delicious food. In terms of economics too, gas kitchen appliances have a huge advantage over electric units. In recent years, however, thecompetitive environment on the sales front has been severe due to consumers’
perception that kitchens become too hot when gas is used. Now Tokyo Gas offers
our customers an optimized “cool kitchen.” By providing the four elements necessary for a kitchen plan “economy,” “ecology,” “deliciousness” and “cleanliness”,
this kitchen achieves an ideal mix of energy to meet each customer’s needs.

2&3 Concentrated Discharge of Air
This prevents combustion fumes from spreading
inside the kitchen.

 Low Heat Radiation
Due to the air heat-insulating structure, appliancesurface temperature is low and there are no
exposed flames. Thus, the user does not feel theradiation of heat.

Easy Cleaning
Cool air

Combustion
exhaust heat

When something boils over, it can easily be cleaned
up, because it does not stick to the surface of theappliance, thanks to the low surface temperature.

19

Residential Customers

LIFEVAL Realizes More Pleasant and Satisfying Lifestyles for Customers
The mission of Tokyo Gas is to help residential customers experience the lifestyle enhancements made possible by city gas, including the enjoyment of delicious food cooked over a real flame and the convenienceof being able to produce just the required amount of hot water whenever it is needed. We actively propose
new value for living by developing products and services that reflect customer needs, including environmental and health needs. We are also determined to enhance our ability to communicate with each customer by developing a marketing structure based on even stronger links with regional communities.

Maximizing the Value of Customer Contacts
In recent years, it has become increasingly difficult to prevent declines in gas sales per residential customer becauseof Japan’s falling birthrate and an increase in the number of houses with effective draft-proofing and thermal insulation. There is also escalating competition from all-electric houses, a concept that is being promoted primarily by electric
power companies.
Our market strategy in the residential sector is to maintain and expand gas sales volumes per customer through indepth marketing. All Tokyo Gas companies have numerous opportunities for customer contacts, and we are determined
to maximize these opportunities. We also work to expand our gas sales volumes through dynamic marketing activities
targeted toward expansion of our customer base.
To address customer needs and services, we have created regionally focused marketing approaches coordinated bybranch offices and are working to expand gas sales volume. With a view to further strengthening our marketing organization, we are moving ahead with the establishment of Tokyo Gas LIFEVAL, a new regional energy company that restructures and integrates sales and service functions, including appliance sales, repair services and safety inspections. This20

new company is aiming to increase our contacts with customers and create a structure to provide one-stop access to
products and services with the potential to add value to customer lifestyles. In April 2008, the new company commenced
operations in 12 districts (service blocks), with approximately 60 districts (blocks) to be added by the end of fiscal 2009.
To market our products to sub-users, we have created a marketing structure that allows gas development in different markets for developers, house manufacturers, contractors/design offices, electronics retail stores and others.
We are encouraging households to use gas in a wide variety of ways by strategically introducing attractive gas appliances, such as floor-heating systems and mist saunas, which anticipate changing lifestyles. Through these efforts, we areoffering enhanced lifestyle features and comfort to as many customers as possible. We are promoting these strategic
appliances aggressively to communicate to our customers the attractiveness of gas. In addition to mass-media advertising, such as via television, newspapers, magazines and the Internet, we are increasing the number of opportunities for
consumers to experience gas appliances at our showrooms, through third-party events and in condominium and housing
displays. We are also encouraging customers to use these gas appliances by developing and promoting an attractive
range of gas charging options.
By promoting these various initiatives, Tokyo Gas intends to achieve sustainable growth in the residential sector.
Capturing Residential Electric Power Demand—Home Power Generation
Tokyo Gas promotes home power generation systems as a way of expanding residential gas demand and countering
competition from all-electric systems. Our flagship products in this area, the ECOWILL gas engine cogeneration systemand the ENE.FARM fuel cell cogeneration system, are being marketed primarily to customers living in detached houses.
We are using home power generation to develop a new residential electric power market. These strategic products
have the potential to drive future growth in gas sales. By fiscal 2010, we aim to sell a cumulative total of approximately
43,000 units as a foundation for large-scale adoption of this technology.
		 Tokyo Gas is studying strategies for enHome Power Generation System
try into the market for energy systems forcondominium housing. In this area, we will
provide one-stop solutions, including theElectricity
installation, ownership and maintenance ofcogeneration systems designed to meet theenergy needs of condominium residents.

Heat

Hot water/Space heatingPowergeneration

City
gas

Lighting

Electric
appliances

ShowerFloor heating

Hot
water

Space heating*The name of our residential fuel cell changed from
“LIFUEL” to “ENE•FARM” in June 2008.

Tokyo Gas LIFEVAL
Enesta, Tokyo Gas Customer Service and Tokyo Gas were previously responsible for different aspects of customer services, such as sales and repairs of gas appliances, meterreading and safety inspections of gas facilities. We have combined these entities to create
the new Tokyo Gas LIFEVAL company, which provides one-stop services to meet the diverse
needs of regional customers. It plays a central role in our regionally focused marketing approach, contributing to the realization of comfortable lifestyles using gas. We have divided
our supply area* in Tokyo, Kanagawa, Chiba and Saitama prefectures into approximately
60 districts (service blocks). We have integrated all gas-related services in each of these
districts under the new company, which is carrying out sales and offering services as the
new customer interface for Tokyo Gas in each of these regions. Tokyo Gas has invested
more than one-third of the equity in Tokyo Gas LIFEVAL, and it is aiming to create a structure that will result in closer relationships with its customers. *excluding some parts of Saitama

Business Outline of Tokyo Gas LIFEVAL

Commencing
and stopping
gas service(for housemoving, etc.)

Gas facility
safetyinspections

Meter
readingGas
appliancesales

Gas applianceinstallationGas
appliance
repairs

Gas service
relatedconstruction

Eventsand cooking
classesPublichearings andinformation
responding togovernment
needs

Telephone
receptionStoreshowroom/
customerinquiry
centers

21

Technology Research Development

Giving Ourselves the Tools We Need to Thrive
Tokyo Gas places a high value on technology and accepts the challenge of creating new technology as thedriving force for business development and growth. Particularly important are technologies relating to thegas business, such as combustion technology and pipeline technology. As a leading company in the Japaneseenergy sector, we aim to achieve sustainable growth in partnership with society by actively contributing to thedevelopment of new technologies for the energy society of the future.

Pilot sewage biomass power generation system

Developing both “strategic” and “platform” technologies
Our research and development activities are broadly divided into two areas. Strategic technology development contributes to the sustainable growth of our integrated energy business, with an emphasis on natural gas. Platform technology development helps to enhance our competitiveness while also fulfilling society’s needs in terms of reliability,
safety and environmental considerations. By developing both forms of technology, we achieve reliable and efficientuse of natural gas in each phase of the value chain—production, supply and sales. We seek to create new gas
demand while contributing to sustainable growth and supporting a platform for an environmentally friendly and competitive energy supply business.
Our strategic technology development includes development of appliances through insightful exploration of theneeds of customers. We work to create concepts that resonate with our customers and to provide energy conservation and comfort features. As for residential use products, we promote the advanced “Pipitto Konro + do” cooktop,
which features the strengths of gas. In addition, we continuously enhance hot water heater systems such as floorheating systems and mist saunas, with an emphasis on our highly efficient “Eco-JOES” water heaters. As for com22

mercial equipment, we have created “cool kitchens” equipped with gas kitchen appliances featuring low radiation
heat. In addition, as support for in-house power generation businesses such as ECOWILL and ENE.FARM, and as proactive initiatives to achieve a low-carbon society, we have been working on the development of holonic energy systems. Technologies utilizing renewable energy sources such as biomass, solar heat and sunlight are being developed
as well, along with hydrogen and CO2 management technologies.
Our platform technology development plays a crucial role in promoting not only advancement of technologies forlaying and maintaining natural gas infrastructures with a focus on pipeline networks but also development for cost
reduction. These technologies help us deliver natural gas safely to our customers and thus give them security.
Furthermore, we are aiming to improve, pass on and utilize platform technologies that will support the business platform of Tokyo Gas in the long term. These include technologies related to infrastructure-related technology, combustion engineering technology and gas quality management technology.
Technology Development Strategies

Platform Technology
Business infrastructure[Production]n�Long-term facility
maintenancen�Qualitative improvement ofterminal operations
and others

Strategic Technology[Commercial
equipment,
industrial
equipment, newservices]n�Development ofkitchen and water
heating equipmentn�Development of
new energy
servicecontent, etc.

[Homeapplianceand new
services]n�Development ofenhancements,
expansion ofline-upn�New productplanning anddevelopment,
etc.

[Cogeneration systems/[Natural gas
air conditioners]
vehicles]n�Development of highn�Further
efficiency gas enginesdevelopment/enhancing existingn�Development oflineups
technologies thatutilize exhaust heat

Holonic Energy Systemn�Expansion of microgridn�Realization of Holonic Energy Society[Hydrogen][Green energy][SOFC (Solidn�Development of
Oxide Fuel Cell)] n�Development ofefficient biomass
high-efficiencyn�Development ofutilizationhydrogenhigh-efficiency fueltechnologies
production systemcell systems andimprovement of
durability[Pipelines]n�Maintenance of security
level and optimization of
security investment[Gas Meter]n�Development of services
based on new technologies,
such as ultrasound gas
flow meters[PEFC (Polymer Electrolyte
Fuel Cell)]n�Development of ENE・FARM
enhancements (improvements infunctions and efficiency, etc.)[New usage]n�Development of
diagnostic
medicinesthat use stable
isotopes

Understanding customers, disseminating lifestyle culture
Gathering accurate data about changing consumer needs, generating new needs next line
through the dissemination of cultural ideas
Helping to create future visions through the exploration of new technologies

Technology[Platform technology]n�Maintaining and enhancing the Tokyo Gas brand through the use of platform technology,
including infrastructure-related technology, combustion engineering technology and gas quality
management technology.

[Actuarial assumption and energy information]n�Marketing and management support through data analysis, system analysis andmodeling methods

Holonic Energy Systems
Holonic energy systems involve networks over wide area, such as between buildings or between regions, and allow the flexible
exchange and joint use of energy within such networks. This enables energy conservation and CO2 reductions for the overall zone thatcannot be achieved for individual buildings. We are working to maximize energy conservation and CO2 reduction through effective
use of the heat expelled from natural gas cogeneration systems, efficient operation during times of day when energy demand is low,
priority use of renewable energy and other means. We can also build energy supply systems that remain strong in times of disasterbecause they employ dispersed power systems. Tokyo Gas has established a sponsored course at the University of Tokyo on “holonicenergy systems” aimed at the realization of this kind of wide-area, networked energy use, and is collaborating with the university on
research and development.

23

Environmental Technology Development and Activities

Giving Ourselves the Tools We Need to Thrive
As we work toward the realization of a low-carbon society, use of natural gas is destined to grow due to its
outstanding environmental properties, and city gas will become the core of a comfortable and environmentallyfriendly lifestyle. We will propose highly efficient equipment suited to use in homes, buildings and service areas. Seeking further energy conservation and reduction of CO2 emissions, we will take initiatives for the more
effective use of energy, including the creation of energy networks and dispersed energy systems based onnatural gas systems that give priority to the use of renewable energy.

Environmental Technology Development in the Energy Sectors
Now more than ever, it is necessary to take care of limited natural resources and the environment, create added value
through technology and contribute to the sustainable development of society.
Tokyo Gas so far has been promoting a switch to clean natural gas fuel through the introduction of LNG. In addition,
we have been working on improving the efficiency of energy use and wider use of highly efficient appliances and systems. For example, we have increased the use of gas air conditioning and cogeneration systems that utilize natural gas.
In the future, Tokyo Gas will continue to promote expanded use of environmentally friendly natural gas. It will also
work toward the realization of a low-carbon society that utilizes hydrogen and dispersed energy systems that prioritize
the use of renewable energy, based on advanced energy use technology and energy conservation technology.

City gas energy contributes to a wide range of energy conservation andCO2 emission reduction measures
First
commitment
periodPost-Kyoto

Initiatives to reduce carbon further
 Promote wider use of natural gas, a low-carbon
energy source Development and dissemination of highly efficient
appliances and systems
Reduction effectPromotion of appropriate energy use
Local production for local consumption systems
utilizing renewable energy
Network-based energy use in urban areas andcommunities
Construction of a local hydrogen network

2010

2020

2030

Emissions

CO2 emissions (conceptualization)

2040

2050

Expansion of Sophisticated Uses for Natural Gas
Tokyo Gas has developed technologies to realize higher consumer acceptance of and a lower environmental burden forgas appliances by improving their safety, making them more efficient and more compact and reducing their nitrogen oxide (NOx) emissions.
In the residential sector, we will further advance these technologies to provide for a lifestyle that enables users to enjoy both energy conservation and comfort features. In the commercial and industrial sectors, we will increase the demandfor city gas, which will contribute to improving the global environment through the use of optimal energy solutions.
Residential-use Fuel Cell ENE•FARM
ENE-FARM fuel cells are economical and ecological since they generate electricity to be used on the spot and their
exhaust heat can be used for hot water. Therefore, they make it possible for people to conserve energy while enjoying
comfortable lives with floor-heating systems, mist saunas and the like. Current Polymer Electrolyte Fuel Cell (PEFC) appliances realize an electricity generation efficiency of 37% (LHV standard), an energy conservation rate of 31%, and a CO2
reduction rate of 45%. Since their introduction to the market in 2005, a total of over 500 units have gone into operation.
24

Hydrogen filling station

High-efficiency burner for industrial furnaces

We are aiming to make their use much more widespread through further development efforts that will make them evenmore compact and affordable. We are also focusing our efforts on development of the Solid Oxide Fuel Cell (SOFC), which
offers greatly improved electricity generation efficiency. The SOFC is expected to become the next-generation fuel cell.
Commercial and Industrial Sectors
To achieve significant CO2 reductions, we are promoting the use of natural gas, which emits less CO2 than any other fossil fuel, as a fuel. We are also introducing highly efficient appliances. Insert a pattern diagram of gasification of natural
gas in an industrial furnace.
Reduce CO2 emissions by converting energy sources of industrial furnaces to natural gas<CO2 emission ratio>
Benefits of conversion to natural gas
Switch from oil, coal, etc. to natural gas

CO2 emissions cut
approximately 25%(compared to oil)A-type heavy oil + previous burners

100 %Natural gas + previous burners

75

Benefits of greater efficiency
Introduction of highly efficient
appliance at time of fuel conversion%

Further CO2 reductions
Natural gas + highly efficient burners

45%

In order to realize energy conservation and CO2 reductions, it is important not only to introduce highly efficient appliances but also to select appropriate appliances in accordance with the energy use pattern of the consumer. In the residential sector, Tokyo Gas offers highly efficient appliances tailored to family structures and lifestyles; in the commercial
and industrial sectors, we promote the most appropriate high-efficiency facilities and cogeneration plants for different
heat and electricity ratios of different applications and industry types.
Moving Closer to the Low-carbon Society of the Future
In order to move toward the realization of a low-carbon society, Tokyo Gas is promoting the utilization of renewable energy that has a strong CO2 reduction effect.
We have positioned the use of biomass as one item on the menu of our one-stop energy services. Our aim is to expand its use among industrial customers such as breweries and among public-sector customers, including sewage treatment and waste processing plants. The output and caloric value of biomass-derived gas (biogas) varies depending on
the season and time; therefore, we mix and combust it with caloric-stable city gas so that cogeneration facilities can be
operated continuously. This leads to the use of more efficient, high value-added renewable energy.
We are also working on increasing the use of hydrogen, a future energy source that has the potential to reduce CO2
emissions even further. We are aiming to develop a compact hydrogen-separating reformer, which produces high-purity
hydrogen from natural gas at an efficiency of over 80%, for deployment in hydrogen filling stations.
Tokyo Gas is realizing suitable uses of energy for a low-carbon society by managing energy use from a variety ofangles. Such perspectives include “concentration and diffusion,” “large scale and small scale,” “energy conversion anduse” and “utilization of renewable energy and unused energy.”
25

Biotope on the roof of the Energy & Earth Exploratorium

Environmental Activities of Tokyo Gas Group“Tokyo Gas group recognizes the vital importance of the natural environment and is determined to make a positive contribution to global environmental conservation and sustainable social development by promoting the use of environmentally sound resources and energy technologies.” This philosophy is reflected in four policies that are making Tokyo Gas
group a leader in environmental management and an active participant in efforts to solve global environmental problems.
1. Reducing the environmental load resulting from the use of energy by our customers.

3. Strengthening our environmental partnerships with local andinternational communities.

2. Reducing the total environmental load resulting from our own
business activities.

4. Promoting research and development relating to environmental
technologies.

Our core business activity is to supply city gas, and the main resource for city gas is natural gas, which has thesmallest environmental footprint of any general-purpose fossil fuel. It emits almost no sulfur oxide (SOx) during combustion, while nitrogen oxide (NOx) and CO2 emissions are lower than those of oil or coal.
Comparison of Emission Lives (Coal=100)
SOx

NOx

Natural Gas

0

CO2Natural Gas
Oil
70

Coal
100

40

Natural Gas

Oil

Coal

70

100

60

Oil

Coal

80

100

We aim to fully exploit the advantages of natural gas in our business activities by developing highly efficient equipment and systems, such as cogeneration systems, that minimize the environmental load. We see this as an excellent
strategy for reducing global warming and atmospheric pollution. Another priority is making natural gas available to as
many customers as possible.
Tokyo Gas has developed its own environmental protection guidelines to ensure that the environmental advantagesof its city gas business are fully exploited. These guidelines call for the reduction of CO2 emissions resulting from gas use
by Tokyo Gas customers by 8 million tons-CO2 by fiscal 2010.
Results for Fiscal 2007 and Targets for Fiscal 2010
Global Warming
Global Warming
Green
Purchasing

Target for FY2007
7.00 million tons
1% or more reduction
1% or more reduction
1% or more reduction
1% or more reduction
4 sites/10 sites
More than 91%

Result for FY2007
7.24 million tons
2.5% reduction*
0.8% reduction*
1.3% reduction*
4.1% reduction*
6 sites/10 sites
91%

Reduction ratio of waste paper

4% reduction

10% reduction

Recycling of waste paper
Sheets of copy paper used per person per year
Excavation spoil ratio
Green procurement ratio
Number of affiliated companies that have already introduced an electronic catalog
purchasing system

More than 85%
6,800
19%
More than 62%

90%
7,244
18%
61%

Target for FY2010
8.00 million tons
1% or more reduction
1% or more reduction
1% or more reduction
1% or more reduction
10 sites/10 sites
More than 91%
10% reduction
from fiscal 2005
More than 85%
5,000
16%
More than 70%

40 companies

41 companies

48 companies

Reduction of CO2 emissions from customers facilities
Unit energy use in gas production facilities (Per unit of gas production)
Unit energy use in district cooling/heating systems (Per heat sales volume unit)
Unit energy use at power plants (Per power transmitted)
Unit energy use in Tokyo Gas business offices (Per city gas sales volume unit)
Production waste
Other waste (Construction waste, etc.)* Annual average reduction ratio

26

Safety Initiatives

Taking All Steps to Assure Trust and Safety
The supply of energy is vital to the continuation of economic activity and modern life. Throughout its history,
Tokyo Gas has remained keenly aware of its responsibilities as a supplier of energy, including the responsibility to ensure safety. We continue to fulfill these responsibilities through a wide range of measures.

Advanced Disaster Prevention Measures
Tokyo Gas is working on three levels of safety and disaster prevention, namely, Prevention Countermeasures, Emergency Response Countermeasures, and Restoration Countermeasures. We have positioned these as the key measures for maintaining a reliable gas supply.
First, it is essential for Prevention Countermeasures to include preparations for the possibility ofa major earthquake, as Japan is an earthquake-prone country. Tokyo Gas maintains a high standardof safety by adopting measures to ensure that key gas production and supply facilities are sufficiently
able to withstand major earthquakes on the similar scale of the disaster that struck the Hanshin-Awaji
area in 1995 (seismic motion with an intensity of seven on the Japanese scale). We are promoting the
adoption of polyethylene gas pipes (which account for 90% of our pipelines) when laying new lowpressure pipelines, because they absorb the impact of ground movements and minimize the damage
from earthquakes.
Looking at Emergency Response Countermeasures, when an earthquake with an intensity of fiveor higher on the Japanese scale occurs, the computerized meters in each household detect the seismic motion and shut off the supply of gas automatically. Moreover, in order to prevent secondary disasters such as fireand explosions, our Super-dense Real-time Monitoring of Earthquakes (SUPREME) system instantly monitors information from earthquake sensors deployed at the high concentration of one every square kilometer. This makes it possible
to divide a disaster-stricken region into blocks and shut off the gas automatically. These technologies have reduced theestimated time required to stop the gas supply from 40 hours to just 15 minutes. In addition, our emergency mobilizationteam Gaslight 24, staffed with specialist personnel around the clock, is able to handle emergency situations such as gas
leaks and is ready to respond immediately on a 24/7 basis.
Looking at our Restoration Countermeasures, in order to restore the supply of gas as rapidly as possible, we utilize
our Restoration Support System to carry out the required work quickly.
In addition, we have adopted safety measures across a wide range of applications. For example, we promote the development of gas cooktops with high-level safety functions for residential use as well as for underground shopping areasand skyscrapers containing numerous gas kitchens.

Control room

Gaslight 24

Elimination of Carbon Monoxide Poisoning
Tokyo Gas, which always prioritizes customer safety and security as its first concern, has been encouraging customers in the Tokyo Gas service area to replace kitchen and bathroom water heaters that are not equipped with imperfect-oxygen-depletion safety shutoff devices with new units that incorporate this important safety feature. The newunits prevent accidents in which incomplete combustion leads to carbon monoxide poisoning. In particular, in fiscal
2006, Tokyo Gas announced enhanced safety measures to prevent carbon monoxide poisoning accidents, which havebeen occurring frequently.
Since January 2007, the “switchover promotion campaign” has been implemented as well. There are around
11,450,000 kitchen and bathroom water heaters in operation in the Tokyo Gas service area, and 298,000 of these are notequipped with imperfect-oxygen-depletion safety shutoff devices. Through the campaign, we encourage the owners ofthese devices to switch to safe units that are equipped with imperfect-oxygen-depletion safety shutoff devices as soon
as possible. The campaign has made a steady contribution to improving safety, with the number of units not equippedwith this safety device declining from 298,000 before the campaign began to 217,000 by the end of March 2008.

27

Frequently Asked Questions

Q:1 How does Tokyo Gas structure its rates?
Service Agreement
In cases where Tokyo Gas supplies gas through the pipelines tomeet general demand, the rate schedule “regulated” under theservice agreement used to require an approval from the Ministerof Economy, Trade and Industry. Under the amendments to the
Gas Utility Industry Law in 1999, however, it became possible
to change these rates simply by notifying the Minister, provided
that these changes do not adversely affect any customers.
Optional Agreement
Tokyo Gas is permitted to offer rates and service terms otherthan those outlined in the above service agreement. This enables
the Company to make efficient use of its gas production andOperating cost, etc.
• Cost of gas resources• Personnel expenses• Overhead• Depreciation• Non-operating expenses• Income taxes＋

Fair return

Calculated using the rate-basesystem, which involves multiplying fixed-asset investments,
etc. by the appropriate ratio offair returnsupply facilities. These agreements have to be reported to the
Minister and the selection of this option is up to the customer.
Large-volume Supply
Under the Gas Utility Industry Law, the conditions for gas ratesetting and market entry for service providers in the largevolume market are gradually deregulated. Effective from April
2004, customers who used 500,000 m 3 or more qualified aslarge-volume customers. Moreover, from April 2007, the designation point for large-volume customers shifts to 100,000 m3
or more.
“Regulated” rates are calculated using a rate-base system.
A simplified version of this calculation is shown below:−

Deductions, etc.

• P rofit from gas appliancesales, etc.
• P rofit from real estatebusiness, etc.

＝

Total fair costR epresents an appropriate profit
added to an appropriate cost
under efficient management* Price fluctuations in the foreign exchange rates and/or crude oil prices are reflected in the meter rate gas unit price every three months in accordance with thegas resource cost adjustment system (refer to page 5). Consequently, the impact of such price fluctuations on revenue and expenditure is neutral in the medium
or longer term.

Q:2 How are the rate adjustments carried out?
Tokyo Gas believes that our customers are important stakeholders, just like our shareholders. In the medium-term
management plan for fiscal 2006–2010 that we are currently
executing, we planned rate reductions with the objective of returning some of the savings from more efficient management
to our customers. In April 2008, we implemented the first rate
reductions since we started our current medium-term manage-

28

ment plan. We determine the frequency and timing of rate revisions in light of the business and competitive environments atthe time, the progress of management streamlining and otherfactors. As for the particulars of the revisions, in order to maximize the benefits of the rate reductions, we invest resources
primarily in highly competitive sectors and for customers who
use large volumes of gas.

is your relationship with Tokyo Electric
Q:3 What
Power Company (TEPCO)?
Tokyo Gas and Tokyo Electric Power Company (TEPCO) source
about 70% of the total volume of their LNG purchases from joint
LNG projects and are joint participants in projects based on upstream interests. Joint purchasing strengthens our bargaining
power, since we can contract for large volumes.
Two of our three LNG terminals, the Negishi and Sodegaura
Terminals, are operated jointly with TEPCO. This allows us toreduce capital investment and operating costs, and we can also
improve operating rates through load leveling based on differences between peak demand patterns for electric power andgas. These advantages are reflected in lower production costs
per unit of gas.
At the marketing level, however, we are competitors. TEPCO
has moved into the gas market and is now a competing supplierof gas, especially for commercial and industrial use. We havealways competed with electric power in the residential market,
but in recent years this competition has intensified with theadvent of all-electric systems. In fiscal 2006 we successfully
implemented a range of strategies, including market promotions
for gas appliances, and in-depth demand development focusing
on major subusers. As a result of these initiatives, we are able
to hold the percentage of newly built houses with all-electric
systems in our service area to a minimum.
Tokyo Gas responds to various forms of competition by going beyond the supply of individual energy products, such as gas
and electric power. Our ultimate goal is to provide our customers
with optimal value by responding to their real needs, including
their energy service needs.

processes are used by Tokyo Gas when making
Q:4 Whatinvestment decisions?
Since fiscal 2003, Tokyo Gas has based decisions on newinvestments, the continuation of investments and exits frominvestments on Tokyo Gas Economic Profit (TEP), together
with Net Present Value (NPV) and Internal Rate of Return(IRR). These three indicators are used as common standards
throughout the Tokyo Gas Group. TEP is an evaluation method
to ensure that the amount of profit exceeds the cost of capital.
The Investment Evaluation Committee assesses plans thatinvolve investment, equity participation or debt guarantees on
the basis of risks and returns. The results of these deliberations
are reflected in decisions at management meetings or meetingsof the Board of Directors. Derivative transactions are subject tomarket risk management rules.

Management meetings are held each week and are attended by executives at the senior executive officer level andabove, as well as the two corporate auditors. Final decisions
on important management issues are made after in-depth discussion, including deliberations by the Investment Evaluation
Committee in the case of investment decisions. To follow theresults and monitor the invested projects, Tokyo Gas evaluatesthem regularly in the Investment Evaluation Committee andreports findings at the Management Report Meeting.

29

Q:5

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

Energy service providers build facilities to provide one-stopsources of energy services, such as cogeneration systems that
produce both electricity and heat. This type of service has major advantages for customers, including reduced energy costs
and ease of implementation, as there is no need for a large
initial investment. There are also significant environmental
benefits. Efficiency improvements have turned the energy service business into a high growth area characterized by rapidly
improving profitability.
In 2002, Tokyo Gas moved to expand its involvement in theenergy service business by establishing a wholly owned sub-Q:6

sidiary, ENERGY ADVANCE Co., Ltd. The company operates very
efficiently by capitalizing on the LNG procurement systems
and advanced engineering capabilities of the Tokyo Gas Group,
making the most of the high added value that can be achieved
with cogeneration systems. It targets environmentally concerned customers, especially in the Kanto region, where demand is high.
It is the top company in its field, with a cumulative total of
208 contracts as of March 2008.

What do you see as the role of the power generation business within
the integrated energy business?

Tokyo Gas has established its power generation business asa multi-energy supply measure to provide all forms of energy
customers require in a one-stop service. We intend to achieve an
optimal mix with facilities such as cogeneration systems.
Furthermore, we believe our power generation business has
a number of strengths.
1 I t allows for competitive fuel procurement backed by ourbargaining power.

2 P ower plants are located close to demand areas utilizing
existing infrastructure such as LNG terminals.
3 S ynergy effects with the gas business are possible, such as
improved terminal utilization rates and one-stop services.
Currently, we have four power plants in operation, underconstruction or planned (refer to the table below), with a combined generating capacity of 2,400 MW.

Tokyo Gas Bay Power Co. Ltd.

100 MW

In operation since October 2003

Tokyo Gas Yokosuka Power Co. Ltd.

240 MW

In operation since June 2006

Kawasaki Natural Gas Power Generation Co., Ltd.

840 MW

In operation since April 2008

Ohgishima Power Co., Ltd.

1,220 MW

Commencing in March 201030

is your policy on the utilization of real estate
Q:7 Whatowned by Tokyo Gas?
Our core business is the integrated energy business, and we see
the real estate business as a support segment for this. Earnings
from the real estate business are used in core business activities. If there are opportunities to improve the asset value oflarge sites, we undertake appropriate development projects thatallow us to maximize the potential and value of those sites while
also minimizing risk.
In principle, development projects are funded from theproceeds of land sales, and care is taken to avoid any impact
on our integrated energy business. Risk limitation is a priority,

Q:8

and our strategies in this area include joint development withoutside partners.
The Tokyo Gas Group has numerous business sites in theTokyo metropolitan area. We see effective real estate management as an important means of strengthening the competitiveness of our integrated energy business by improving efficiency
and reducing costs. For this reason, we are also actively targeting improvements in the efficiency of our real estate activities
and centralizing our facilities to achieve an optimal distributionof sites.

How have the Kyoto Protocol and emissions trading affected Tokyo
Gas? What are the target CO2 reductions for the industry and how
are they allocated to each company?

The targets set down in the Kyoto Protocol for the reduction ofJapanese greenhouse gas emissions will require urgent action
to strengthen energy conservation, which is a key componentof countermeasures against global warming. Natural gas is
expected to play an increasingly important role in this context.
For example, the “Kyoto Protocol Target Achievement Plan” formulated by the government in April 2005 and revised in March
2008 acknowledges that natural gas produces the lowest CO2
emissions of any fossil fuel during combustion and identifies theincreased use of highly efficient natural gas equipment and systems as an important way to combat global warming.

The needs and expectations of gas customers and society ingeneral toward natural gas are expected to expand still further
in the future. The natural gas business is the core segment for
the Tokyo Gas Group, and this trend is seen as an opportunity toachieve further growth and development.
Under the Keidanren Voluntary Action Plan, the gas industry
is expected to reduce its CO2 emissions per unit and in terms of
total outputs. Tokyo Gas has made steady progress toward theachievement of these targets through measures that include a
conversion to high-caloric gas and the implementation of various
energy-saving initiatives at its city gas production plants.

31

Corporate Governance
Our Fundamental Concept of Corporate Governance
As an “energy frontier corporate group” centered on naturalgas, Tokyo Gas has a management philosophy that aims at therealization of comfortable lifestyles and environmentally friendly
cities. We work to ensure continued development while consistently earning the trust of customers, shareholders and society.
Based on this philosophy, our fundamental concept of enhancing corporate governance is intended to achieve a continuous
increase in our corporate value by maximizing the value provided
to all of our stakeholders.

Corporate Governance Structure

We are also endeavoring to develop systems and measures to further augment corporate governance, and we are
implementing them with a commitment to management legality,
soundness and transparency. Tokyo Gas continues to emphasize
the importance of accurate decision-making, clear separation ofmanagement functions and executive functions, efficient business operations, strengthening of auditing and monitoring functions, clarification of management and executive responsibilities.

Stakeholder

Customers

General Shareholders’ Meeting

Tokyo Gas Co., Ltd.

Local Community

Business operations

Shareholders/Investors

General Shareholders’ Meeting
Appointment
Appointment Report
ReportAudit

Collaboration
Financial audit

ReportInquiry

President (Management Report
Meeting (Note 4))
Approval

Monitor and decide

Audit

Enhancement of IR Activities
IR activities rank alongside internal control, risk management andthe promotion of compliance as some of the most important ways
to ensure management soundness and transparency and earn
the understanding and confidence of all stakeholders, including
shareholders and investors. As distinctive characteristics of the
IR activities of Tokyo Gas, our top management diligently participates in our IR activities, and we not only disclose a wide range
of information, but also engage in interactive communication withinvestors. We believe that through these activities, we can put the
expectations and the opinions of the stock markets to good use in
the management of the company and enhance discussion of thethinking of our management with all of our investors. In so doing,
we eliminate the gap between our true corporate value and themarket assessment of the company. Based on this belief, in Japan,
we launched a specialist IR unit in 1998 and it has maintained ongoing dialogue with investors and analysts since then. Currently,
primarily in the period after the announcement of our financial
results, we are engaged in IR activities including visits by top

ReportIn-House Meeting(Note 5)

Management Ethics
Committee

ReportRisk report

Decision Add toRisk
agendamonitoring
Report submission
Strategic Business Units(each unit, subsidiaries & affiliates)

Note 1:	Board of Directors: 11 directors (3 outside directors, and 8internal directors)
Note 2:	Advisory Committee: 2 outside directors, and 1 outside auditor, Chairman,
and President
Note 3:	Board of Corporate Auditors: 5 corporate auditors(3 outside auditors, and 2 internal auditors)

32

ReportBoard of Directors(Note 1)
Monitor Report submission

IR Dept.
Risk reportCompliance Dept.

Collaboration
Collaboration

Internal Audit Dept.

Independent Auditors

Board of Corporate
Auditors (Note 3)

Appointment

AnswerAdvisory Committee(Note 2)

Report submission

Promotion/support

Note 4:	Management Report Meeting: President, 2 Executive Vice Presidents, 9senior executive officers (Three of the representative directors also serve
as President and Executive Vice Presidents.)
Note 5:	In-House Meeting: Management Ethics Committee, Safety Committee,
Customer Satisfaction Promotion Committee, CSR Promotion Meeting,
Environmental Meeting, and others

management to institutional investors in Japan and overseas.
They also use briefings and individual meetings as opportunities
for wide-ranging discussions.
Tokyo Gas has always disclosed its short-, medium- and longterm management targets as well as the specific management
strategies and action plans adopted to achieve these targets. We
have also actively shared information about our business performance and progress towards goals. As part of our disclosure
activities, we will continue to improve and expand the content
of our annual report, investors’ guide, IR website and JapaneseBusiness Report.
In April 2008, we newly launched an IR Department, comprising the Investor Relations Section split off from the Corporate
Planning Department. As a result, our IR activities have been
greatly strengthened. The IR Department has combined andenhanced risk management functions that had been dispersed
throughout various departments. We intend to continue increasing
corporate value while also considering risk management.

Internal Governance System
Under our internal control system, the Board of Directors, which
includes three independent outside directors, determines thebasic policies for the development of the important business operations plans and the internal control systems and monitors theperformance of the directors. In accordance with the basic policies determined by the Board, the executive officers act to carryout business operations as well as to develop and operate theinternal control system. We have established the Management
Report Meeting as a deliberative body to assist the Board. Thisbody undertakes prior discussions on the agenda for upcoming
meetings of the Board and deliberates on important matters related to management.
The five corporate auditors, three of which are outside auditors, monitor the performance of the directors’ duties. In addition, the Internal Audit Department, which reports directly to the
President, monitors the business activities in each segment ofTokyo Gas and its consolidated subsidiaries, as well as the stateof the development and operation of internal control and risk
management. To implement specialized audits efficiently, the Internal Audit Department, with its 43 staff members (as of April 1,
2008), has developed a structure of four groups, specializing in
financial, operational, information system and compliance audits.
In order to meet the requirements of the Internal Control
Reporting System based on the Financial Instruments andExchange Law, we established the Internal Control Promotion
Committee and a project team, which takes charge of actual operations in April 2006. Documentation and evaluation of the stateof development and operation were completed in March 2008,
and Tokyo Gas is ready for the initiation of the Internal Control
Reporting System.
Establishment of the Enterprise
Risk Management System
In fiscal 2003, we established the Enterprise Risk Management(ERM) system, which includes risk management regulations anddocumented rules concerning major risks that require management intervention. To promote ERM, the IR Department’s Risk
Management Group runs the Risk Management Promotion Section, and approximately 100 Risk Management Promotion Officers have been deployed in Tokyo Gas and all of its consolidated
subsidiaries. The Risk Management Group and its Promotion
Section exchange information regularly to promote ERM. The
Promotion Section, which reviews risks, evaluates fluctuations of
the risk importance, assesses the implementation status of thecountermeasures and the like and reports to the Management
Report Meeting every year. Moreover, the results of the risk revisions are reported to the Board of Directors for approval.
The Risk Management Group is also in charge of development of the internal control system. We have built a system under which ERM and internal control are executed together in an
integrated manner.
In the case that a disaster, an accident or another such
incident actually occurs, the Emergency Response Organization
immediately deals with the situation in accordance with theEmergency Response Organization Regulations.

Major Risks Requiring Management Intervention

Disaster and accident risks

Disruption of production and supply, maintenance problems of gas safety, product quality
problems of gas appliances, etc., reputation damage resulting from other companies’ gasrelated accidents, natural disasters, disruptions to gas resource procurement

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

Business strategy risks

Risks to existing businesses (risks arising from the establishment and commencement ofoperation of new regional energy companies, increased competition, risks of under- orover-recovery of gas resource costs, changes in the gas resource procurement environment, weather changes, declines in existing demand, technology development risks,changes of laws/regulations and regimes), ROI risks

Information risks

Information leaks, failures or malfunctions in mission-critical IT systems, loss of telephoneservices to call centers

Social responsibility risks and other risks

Environmental risks, compliance risks, customer satisfaction and customer service risks

33Compliance
Promoting Compliance
Compliance with laws and regulations based on high ethical standards is the foundation on which the Tokyo Gas Group continuallybuilds the value of its brand. “Security, safety and reliability”
are the sources of our competitiveness. Our stance is reflectedin three basic policies calling for the fostering of complianceawareness, the cooperation of each workplace with complianceefforts based on the Group policy and the establishment of compliance PDCA cycles.
We have established the Management Ethics Committee,
chaired by the President. This committee at the managementlevel discusses basic compliance policies and all aspects of compliance initiatives by the Group, monitors the implementation ofcompliance-related measures and confirms activity programsfrom the following year and thereafter.
We have also established the Compliance Department, a
specialized unit that provides leadership in compliance-related
activities. These include development of compliance promotion
systems for each unit, awareness and educational campaigns
about the code of conduct, compliance risk reduction measures,
maintenance of advisory systems and the distribution of information within and beyond the Tokyo Gas Group companies.

In addition to continuous education about activities related
to “Our Code of Conduct” (revised in 2004), we are moving forward with a compliance casebook designed for applying the codeof conduct to various problems in the workplace, so as to achieve
the permeation of compliance.
Compliance risk countermeasures include internal and external advisory systems. By operating these systems effectively,
we are endeavoring to ensure that compliance-related problems
are discovered and resolved quickly so that our corporate selfregulatory processes will continue to function effectively.
Dedicated to auditing the observance of laws, regulations
and corporate ethics, the Compliance Audit Group has also been
established within the Internal Audit Department. It has beensteadily working to mitigate risks by implementing follow-up audits
to verify progress in tackling concerns identified at first auditing.
We monitor the effectiveness of group compliance promotion activities by conducting regular compliance awareness surveys of all employees. The results of these surveys are reflected
in initiatives for the following years.

Compliance Structure
Board of Directors
President

ReportCorporate Auditors

ReportManagement Ethics Committee
Chairman: President
Members: Head of divisions/departments
Directors in charge

ReportCompliance Dept.

Internal Audit Dept.
Instruction/report

Support/report

Each division/business unit

Consultation/
notification

Compliance committee

Compliance audit(risk understanding)

Each department of Tokyo Gas

Subsidiaries & affiliates

Report/consultation

Report /consultation
Employee

34

Management Structure
In June 2002, we reduced the number of directors dramatically(from a maximum of 30 to a maximum of 15) so as to streamline
and speed up management decision-making. In order to clarify
the separation between management and executive functions
and to strengthen the decision-making and management functions of the Board of Directors, we invited three outside directors, all of whom have extensive expert knowledge, to join theboard. The outside directors monitor the appropriateness ofmanagement activities flexibly and objectively. We have created astructure that supports prompt, effective decision-making while
maintaining proper management transparency. We have alsoestablished an advisory committee to discuss matters relating tocandidates for director positions, officer remuneration and othersimilar issues. This committee is comprised of outside directors,
outside auditors and Tokyo Gas directors. As of the end of June
2008, there are 11 directors.
Tokyo Gas has adopted an executive officer system that provides clearly defined accountability. By delegating substantial authority to the executive officers, the system also supports speedy
execution by the executive officers of operational matters, basedon major business operation plans and the like determined by
the Board of Directors. As of the end of June 2008, there are 23
executive officers.
In addition, to assist the Board of Directors, we have set
up the Management Report Meeting as a deliberative body. It
comprises the President, the Executive Vice Presidents and thesenior executive officers. It deliberates in advance on agenda
items for upcoming meetings of the Board of Directors and on
important matters related to management. After in-depth discussion at these weekly meetings, the President makes final decisions on such management issues. In order to establish clear
lines with regard to the directors’ management accountability
and the executive officers’ operational accountability, we have
set their respective terms of office at one year.

The three outside auditors and two corporate auditors strictly
audit the legality and appropriateness of the performance of duties by the directors from a position of complete independence.
Further, they actively make recommendations at the Management Report Meetings and Directors’ Meeting to enhance theeffectiveness of monitoring.
Reforming the Remuneration System
In 2005, Tokyo Gas restructured its officer remuneration systemand published details of the new system with the aim of further
enhancing management objectivity and transparency as well as
clarifying the management responsibility toward business performance. The main features of the new system are as follows:
1. Abolition of Retirement Benefits
Retirement benefits for directors have been abolished. Yearly
retirement benefits have been integrated into monthly payments
to officers.
2. Introduction of a Performance-linked
Remuneration Scheme
Performance-linked remuneration scheme that reflects thecompany-wide and divisional performance of the previous term
has been introduced for the monthly payment of directors who
double as executive officers.
3. Share Purchasing Guidelines
All directors, excluding outside directors, will acquire Tokyo Gas
shares each month through the Employee Shareholding Association. The amount purchased is determined according to our newly
introduced share purchasing guidelines. The ownership of thoseshares will be retained during their terms of office.

Total Remuneration for Directors and Corporate Auditors (Fiscal 2007)
Millions of yen

Thousands of dollars

Remuneration for 11 directors

427

4,272

Remuneration for 5 corporate auditors

96

962

Total

523

5,234

Compensation for Independent Auditors (Fiscal 2007)
Millions of yen

Thousands of dollars

Remuneration for auditing services

245

2,445

Remuneration for other services

46

465

Total

291

2,910

35

Board of Directors and Corporate Auditors

Director, Chairman Norio Ichino

Representative Director, President Mitsunori Torihara

Year of Birth 1941
March 1964 Degree in law, Waseda University
April 1964 Joined Tokyo Gas Co., Ltd.
July 1990 Manager, Sales Planning Division
July 1991 Deputy Chief Executive, Northern Business Division
June 1993 	Director responsible for Government Relations
Department
June 1996 	Director, General Manager, Corporate Planning
Department, Strategic Planning Division
June 1998 	Managing Director, Chief Executive, Business
Development Division
June 2000 	Senior Managing Director, Chief Executive, Business
Development Division
June 2001 Senior Managing Director
June 2002 	Representative Director, Executive Vice President,
Executive Officer, Chief Executive, Corporate
Communication Division, Internal Audit Department
June 2003	Representative Director, President and Chief Executive
Officer, Executive Officer
April 2006 Director, Vice Chairman
April 2007 Director, Chairman

Year of Birth 1943
March 1967 Degree in economics, University of Tokyo
April 1967 Joined Tokyo Gas Co., Ltd.
July 1992 	Manager, Management Planning Group, Corporate
Planning Department
August 1993 	General Manager, Planning Department, Kanagawa
Business Division
June 1994 Vice Chief Executive, Kanagawa Business Division
June 1996 General Manager, Gas Resources Department
June 1998 Director, General Manager, Gas Resources Department
June 2000 Managing Director
June 2002 	Director, Senior Executive Officer, Chief Executive,
Strategic Planning Division, Internal Audit Department,
Compliance Department
June 2003 	Representative Director, Executive Vice-President, Chief
Executive, Strategic Planning Division
April 2004 	Representative Director, Executive Vice-President, Chief
Executive, Corporate Communication Division, responsible for Compliance Department
April 2006 President and Chief Executive Officer

Senior Executive Officer

Shigeru Muraki

Year of Birth 1949
March 1972 Degree in engineering, University of Tokyo
July 1972 Joined Tokyo Gas Co., Ltd.
July 1997 	Manager, Gas Resources Research and Development
Group, Gas Resources Department
June 2000 Manager, Gas Resources Department
June 2002 	Executive Officer, General Manager, Gas Resources
Department, Planning Division
April 2004 Senior Executive Officer, Chief Executive, R&D Division
April 2006 	Senior Executive Officer, Chief Executive, Technology
Development Division
April 2007	Senior Executive Officer, Chief Executive, Energy
Solutions Division
June 2007	Director, Senior Executive Officer, Chief Executive, Energy
Solutions Division36

Senior Executive Officer

Toshiyuki Kanisawa

Year of Birth 1948
March 1972 Degree in economics, Keio University
April 1972 Joined Tokyo Gas Co., Ltd.
July 1997 	General Manager, Residential Sales Department,
Kanagawa Business Division
June 1999 	Business Planning Department, Business Development
Division
June 2001 Related Business Department, Related Business Division
June 2003 	Executive Officer, General Manager, Service Planning
Department, Customer Service Division
April 2004 	Executive Officer, Manager, Corporate Planning
Department, Planning Division
April 2006 	Senior Executive Officer, Chief Executive, Residential
Sales Division
April 2007	Senior Executive Officer, Chief Executive, Residential
Sales Promotion Division
June 2007	Director, Senior Executive Officer, Chief Executive,
Residential Sales Promotion Division

Representative Director, Executive Vice President

Tadaaki Maeda

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

Outside Director Kazumoto Yamamoto
Current position Advisor, Asahi Kasei Corporation
Year of Birth 1933
March 1957 Degree in engineering, Kyushu Institute of Technology
April 1957 Joined Asahi Chemical Industry Co., Ltd.
August 1971	General Manager, Chikushino Factory
April 1976 	General Manager, Housing Construction Department,
Housing Division
June 1982 	General Manager, Housing Division
June 1983 Director
June 1987 Managing Director
June 1990 	Senior Managing Director
June 1992 	General Manager, Housing Division
June 1993 	Representative Senior Managing Director
June 1995 	Vice-President and Representative Director
June 1997 	President Representative Director
January 2001 	Company name changed to Asahi Kasei Corporation(January 1)
April 2003 Director, Vice-Chairman
June 2003 Advisor
June 2005 Director, Tokyo Gas Co., Ltd.

Representative Director, Executive Vice President

Tsuyoshi Okamoto

Year of Birth 1947
March 1990 Degree in economics, Hitotsubashi University
April 1970 Joined Tokyo Gas Co., Ltd.
July 1994 	Acting Manager, Gas Resources Department, Manager,
Gas Resource Research and Development Group
June 1996 	General Manager, Planning Department, Northern
Business Division
June 1997 Deputy Chief Executive, Northern Business Division
June 1998 General Manager, Government Relations Department
June 1999 General Manager, Japan Gas Association
June 2002 	Executive Officer, General Manager, Strategic Planning
Division
April 2004 	Senior Executive Officer, Chief Executive, Strategic
Planning Division
June 2004 	Director, Senior Executive Officer, Chief Executive,
Corporate Planning Department
April 2006 	Director, Senior Executive Officer, Chief Executive,
Corporate Communication Division, ComplianceDepartment, Internal Audit Department
April 2007	Representative Director, Executive Vice President,
Executive Officer responsible for Personnel Department,
Secretary Department, General Administration
Department, Compliance Department, Internal Audit
Department

Director, Senior Executive Officer

Masaki Sugiyama

Year of Birth 1947
March 1970 Degree in engineering, Hokkaido University
April 1970 Joined Tokyo Gas Co., Ltd.
July 1995 Manager, Production Group, Production Division
June 1996 	Business Planning Department, Business Development
Division
June 2000 	General Manager, Production Department, Production
Division
June 2002 	Executive Officer, Manager, Pipeline Department, Pipeline
and Safety Management Division
April 2004 	Senior Executive Officer, Chief Executive, Pipeline
Network Division
June 2006 	Director, Senior Executive Officer, Chief Executive,
Pipeline Network Division, Pipeline Planning Department
April 2007 	Director, Senior Executive Officer, Chief Executive,
Technology Development Division
April 2008 	Director, Senior Executive Officer, Chief Executive,
Technology Development Division, IT DivisionSenior Executive Officer

Toshio Tezuka

Year of Birth 1946
March 1970 Degree in engineering, Tokyo Institute of Technology,
April 1970 Joined Tokyo Gas Co., Ltd.
July 1995 	Business Planning Department, Business Development
Division
June 1999 	Group Manager, Technology Planning Group, Corporate
Planning Department, Strategic Planning Division
June 2001 	General Manager, Commercial Customer Development &Service Department, Energy Sales and Service Division,
Acting Manager, Volume Sales Department, Energy Sales
and Service Division
June 2002 	Executive Officer, General Manager, Commercial
Customer Development & Service Department, Energy
Sales and Service Division
June 2003 	Executive Officer, Manager, Commercial Customer
Development & Service Department, Energy Sales andService Division, Acting Manager, Volume Sales
Department
April 2004	Senior Executive Officer, Chief Executive, Regional
Development Marketing Division
April 2007 	Senior Executive Officer, Chief Executive, Housing
Development Division
June 2007 	Director, Senior Executive Officer, Chief Executive,
Housing Development Division

AuditorTsunenori Tokumoto

AuditorYasunori Takakuwa

Outside Auditor

Toshimitsu Shimizu(President, Yokohama Industrial
Development Corporation)

Outside Auditor

Shoji Mori
(Vice Chairman, Institute for International
Socio-Economics Studies)

Outside Director

Katsuhiko Honda

Outside Director Sanae Inada

Current position
Year of BirthMarch 1965
April 1965
June 1992
June 1994
June 1996
June 1998
		June 2000
June 2006
June 2007

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

Current occupation Attorney
Year of Birth 1944
March 1967 Degree in law, Keio University
1967 Passed bar examination
March 1970	Completed training at Judicial Research andTraining Institute
April 1970	Registered as attorney(Daiichi Tokyo Bar Association)
June 2007	Director, Tokyo Gas Co., Ltd.

Outside Auditor

Yukio Masuda(Standing Consultant, Mitsubishi Corporation)

37

Group Company Management StructureGroup Management Structure
The Tokyo Gas Group currently consists of Tokyo Gas Co., Ltd.,
together with 55 subsidiaries and four equity-method affiliatedcompanies. With the deregulation of the energy sector, Tokyo
Gas now faces escalating competition from both inside andoutside the industry. In April 2004, we introduced a new groupstructure known as the “Strategic Business Unit” (SBU) system, which is designed to focus all of the resources of the Tokyo Gas Group toward the task of surviving and succeeding in

the increasingly competitive environment. Under this structure,
Tokyo Gas corporate divisions are linked with group companies
to form business units in each business area. The divisions andcompanies work closely together on tasks ranging from theformulation of business strategies to the allocation of management resources and the management of operations, all under
the responsibility of unit managers. The aim of this cooperative approach is to maximize our group potential and further
strengthen our competitiveness.

Group Management Structure

Corporate
Auditors’ Office

Auditors
Top Management

戦略本部

Strategic Business Units

基盤本部

Strategic Division
Residential Sales Promotion Div.

Energy Production Div.

Housing Development Div.

Energy Resources Div.

Energy Solution Div.

Fundamental Function

Regional Development
Marketing Div.

Technology Development Div.

Pipeline Network Div.

Information Technology Div.

Supporting Functions Corporate Planning Dept.
s Investor Relations Dept.
s Gas Industry Privatization
Research Project Dept.
s Finance & Managerial
Accounting Dept.
s Accounting Dept.
s Personnel Dept.
s Purchasing Dept.
s Real EstateManagement Dept.

s Major Site
Development Dept.
s Secretary Dept.
s General Administration Dept.
s Corporate Communications
Dept.
s Environmental Affairs Dept.
s Affiliated Companies Dept.
s Compliance Dept.
s Internal Audit Dept.

Executive Officers
President

Senior Executive Officers

Executive Officers

Mitsunori Torihara

Masaki Sugiyama

Kazuo Yoshino

Toshio Tezuka

Hisao Watanabe

Executive Vice President

Chief Executive, Technology Development Div.,
Chief Executive, IT Div.
Chief Executive, Housing Development Div.

General Manager, IR Dept. and Manager,
Enterprise Risk Management Sect.
General Manager, Technology Planning Dept.,
Technology Development Div.

Tadaaki Maeda

Shigeru Muraki

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

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

Akio Maekawa

Tsuyoshi Okamoto

Toshiyuki Kanisawa

Manabu Fukumoto

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

Chief Executive, Residential Sales Promotion Div.

Tsutomu Oya

Chief Executive, Energy Resources Div.

Norikazu Hoshino

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

Kunihiro Mori

Dispatched to the Japan Gas Association

Mikio Itazawa

Chief Executive, Pipeline Network Div.

Michiaki Hirose

Chief Executive, Corporate Planning Div., IR Dept., Gas Industry
Privatization Research Project Dept., Financial & Managerial
Accounting Dept., Accounting Dept., Affiliated Companies Dept.

Hirokazu Hayashi

Chief Executive, Regional Development Marketing Div.

38

Coordinator, Energy Solution Div.
General Manager, Regional Development Planning Dept.,
Regional Development Marketing Div.

Matsuhiko Hataba

General Manager, Corporate Planning Dept.

Yuji Akiyama

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

Koichi Aonuma

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

Yutaka Kunigo

General Manager, Industrial Gas Sales Dept.,
Energy Solutions Div.

Masahiro Mikami

General Manager, General Administration Dept.

Hiroaki Kubota

General Manager, Energy Production Dept.,
Energy Production Div.

Financial Section

Contents
Management’s Discussion
and Analysis

40

Business Risks

46

12-year Summary

48

Consolidated Balance Sheets

50

Consolidated Statements ofIncome52

Consolidated Statements of
Changes in Net Assets

53

Consolidated Statements ofCash Flows

54

Notes to Consolidated
Financial Statements

55

Independent Auditors’ Report

66

Consolidated Subsidiaries andEquity-method Affiliates

67

Investor Information

68

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

39

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

Sales Trends in the Core Gas Business

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

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

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

’04

’05

’06

’07

n Industrial Sector
Gas sales increased by 396 million m3, or 7.4%, to 5,732 million m3.
This was mainly attributable to steady growth in the operations of
new and existing customers.

million m3, or 2.3%, to 3,529 million m3.

0

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

’08

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

Analysis of Income

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

actuarial differential on retirement benefits, and an increase indepreciation costs due to the tax revision.
n Gas Sales
Higher Sales and Lower Income as the Increase in Gas
Resource Costs Partially Cancels Out High Unit Prices
under the Gas Rate Adjustment System
There was a 6.8% volume increase in total gas sales and unit prices
also rose under the Gas Rate Adjustment System, so in value terms
gas sales increased by ¥87.5 billion, or 8.8%, to ¥1,087.0 billion. At
the non-consolidated level, sales increased by ¥85.0 billion; sales
volumes had positive impacts of ¥41.6 billion, including ¥10.2 billion
by temperature-related factors, while higher unit prices under thegas rate adjustment system used to adjust for gas resource costs
made a positive contribution of ¥46.2 billion. This was offset by aBusiness results by segment (¥ million)

Sales
2008

2007

2006

1,087,045

999,521910,321

Gas Appliance Sales

132,327

135,407

130,826

Related Construction

57,32659,23059,747

Real Estate Rental

35,16934,03534,187

Years ended March 31

Gas Sales

Other Business
Total

320,361

285,407

252,596

1,632,228

1,513,600

1,387,677

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

Consolidation

1,487,497

1,376,958

1,266,502

Operating income
2008

2007

2006

111,664

203,566

160,020

Gas Appliance Sales

2,909

1,169

4,617

Related Construction

828

1,751

2,976

Years ended March 31

Gas Sales

Real Estate Rental

7,963

6,731

5,459

Other Business

12,76913,848

9,647

Total

136,133

227,065

182,719

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

Consolidation

70,049162,315

112,346

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

¥2.8 billion negative impact from other factors, leaving a total pricerelated contribution of ¥43.4 billion.
The contribution of gas sales to total sales increased from
66.1% in the previous year to 66.6%.
Factors that included a steep rise in prices for LNG and higher
gas sales volumes led to an increase in gas resource costs and as aresult operating expenses increased by ¥179.4 billion, or 22.5%,
despite our efforts to reduce existing expenditure items.
Operating income decreased by ¥91.9 billion, or 45.1%, to¥111.7 billion.
n Gas Appliance Sales
Lower Sales and Higher Income as Sales in Value Terms
and Expenses Decline
Sales of highly efficient water heaters, bathroom heater-dryers withmist sauna functions, cooktops, etc., were firm; however, the switch
to highly efficient water heaters led to declining sales of kitchenwater heaters. Sales of gas appliances decreased by ¥3.1 billion, or
2.3%, to ¥132.3 billion, while operating expenses also decreased by¥4.8 billion, or 3.6%. As a result, operating income increased by¥1.7 billion, or 148.8% to ¥2.9 billion.
The contribution made by gas appliance sales to total net sales
declined from 8.9% to 8.1%.
n Related Construction
Reduced Installation Numbers Reflected in Lower Sales
and Income
Sales decreased by ¥1.9 billion, or 3.2%, year on year to ¥57.3 billion, reflecting a reduction in the number of new installations.
Operating expenses also decreased by ¥1.0 billion, or 1.7%, to¥56.5 billion, while operating income decreased ¥0.9 billion, or
52.7%, to ¥0.8 billion.
This segment’s contribution to total net sales declined from
3.9% to 3.5%.
n Real Estate Rental
Sales increased by ¥1.1 billion, or 3.3% to ¥35.2 billion mainly due toincreased revenue from facilities management and operating
expenses were ¥27.2 billion, about the same level as in the previous
fiscal year. As a result, operating income increased ¥1.2 billion, or
18.3%, to ¥8.0 billion.
This segment’s contribution to total net sales was 2.2%, thesame as last year.
n Other Business
Energy Service and LPG Businesses Expanding
Sales of other business segments increased by ¥35.0 billion, or
12.2%, year on year to ¥320.4 billion. Reasons for the higher result
include the expansion of the on-site energy service business, andthe increase in sales in the LPG division due to higher prices for LPG
and higher sales volumes. Operating expenses rose by ¥36.0 billion,or 13.3% due to the impact of the increased initial depreciation burden associated with the on-site energy service business. Operating
income decreased by ¥1.1 billion, or 7.8%, to ¥12.8 billion.
This segment’s contribution to total net sales increased from
18.9% to 19.6%.
n Other Revenues and Income/Net Income
Total other income increased by ¥0.6 billion to ¥20.6 billion. Althoughforeign exchange profits increased to ¥4.4 billion (¥0.2 billion expenses in the previous fiscal year) and return on investment accounted forunder the equity method increased ¥2.4 billion to ¥3.8 billion, gains
from sales of fixed assets decreased by ¥6.1 billion to ¥1.8 billion andgains from sales of investment securities decreased by ¥2.5 billion to¥3.4 billion.
Other expenses increased overall by ¥1.2 billion to ¥21.0 billion. Contributing factors included a ¥2.7 billion increase in the balance on commissioned construction to ¥3.7 billion, and a ¥2.3 billion
increase in environmental development expenses arising from soil

Net income and net income per share(¥ billion)

(¥)

100

45

80
30

60
40

15

20
0

’04

’05

’06

’07

’08

0

Net income
Net income per share41

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

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

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

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

ROA and ROE
(%)

16

12

8

4

0

’04

’05

’06

’07

’08

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

ROE
ROA

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

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

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

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

TEP(¥ billion)

60
50
40
30
20
10
0

’06

’07

’08

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

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

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

2008

2007

2006

Net cash provided byoperating activities

182,204

190,597

181,529

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

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

43

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

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

1,000

2.0

800

1.6

600

1.2

400

0.8

200

0.4

0

’04

’05

’06

’07

’08

0.0

Interest-bearing debt
D/E ratio

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

44

Total equity and equity ratio(¥ billion)

(%)

800

60

600

45

400

30

200

15

0

’04

’05

’06

’07

’08

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

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

Summer (June – September)+0.1%

Winter (December – March)–2.0%

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

Annual–1.2%

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

1,500

1,000

WholesaleCommercial sector,
public and medical
Industrial sector
Residential sector

500

0’07.4 5

6

7

8

9

10 11 12 ’08.1 2

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

45

Business Risks

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

1. Accident and Disaster Risks
1

Disruption of production and supply

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

affecting gas equipment

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

dents caused by other gas companies

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

2. Market Risks
1

Market risk

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

3. Business Strategy Risks
1

Risk faced by existing business

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

4

Natural disaster risk

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

Resource procurement supply interruption risk

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

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

46

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

4. Information Risks
1

Risk of information leaks

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

Risk of failure or malfunctioningof IT backbone systems

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

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

H. Legal and regulatory risk

3

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

ROI risk

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

Interruption of communication
with call centers

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

5. Social Responsibility Risks and Others
1

Environmental risks

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

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

Risks associated with corporate
responsibility and customer service

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

47

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

For the years ended March 31

Net sales2008		 ¥1,487,497

2007

2006

2005

2004

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

Gas sales		 1,087,045

		

999,521		

910,321

		

834,658		

831,115

Gas appliance sales		

132,237

		

135,407		

130,826

		

135,109		

133,873

Related construction		57,326

		59,230		

59,747

		

64,795

		

68,034

Real estate rental

		35,169		

34,035

		

34,187

		

34,701

		

35,444

Other business		

320,361		

285,407		

252,596		

234,721

		

172,160

Operating income		

70,049		

162,315

		

112,346		

145,349

		

152,287

Net income		

42,487

		

100,700		

62,115

		

84,047

		

44,787

Depreciation*

		

142,422

		

133,142

		

136,377		

140,271		

146,895

Capital expenditures**		

138,006

		

124,557

		

119,435

		

107,529

		

107,441

Free cash flow		

46,903

		

109,285		

79,057

		

116,789

		

84,241

Net income		¥ 15.94		

¥ 37.50

		

¥ 23.48

		¥ 31.47

		¥ 16.44

Diluted net income

		

15.50

		

35.69

		

21.70

		

28.24

		

14.98

Net assets		

289.49		

293.11

		

270.48		

244.73

		

221.53

Cash dividends applicable to the year 		

8.00

		

8.00

		

7.00

		

7.00

		

7.00

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

Total assets¥ 1,692,635¥ 1,693,899¥ 1,668,734¥ 1,666,828

Long-term debt due after one year		

487,138		

465,896		

496,740

		

547,139		

545,845

Total net assets

		780,455		

806,046

		

—

		

—

		

—

Total shareholders’ equity

		

—

		

—

		

728,232		

648,766		

598,453

Operating income to net sales

		

4.7%

		

11.8%

		

8.9%

		

12.2%

		

13.2%

Net income to net sales

		

2.9%

		

7.3%

		

4.9%

		

7.1%

		

3.9%

ROE

		

5.4%

		

13.2%

		

9.0%

		

13.5%

		

7.6%

ROA

		

2.5%

		

5.9%

		

3.7%

		

5.0%

		

2.7%

Equity ratio

		

45.1%

		

47.0%

		

43.0%

		

38.9%

		

35.9%

Ratios

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

48

Millions of yen, except per share amounts

2003

2002

2001

2000

1999

1998

1997

¥ 1,127,634¥ 1,097,589¥ 1,086,771¥ 992,255¥ 997,767¥ 1,009,155¥ 988,077

		792,454		

750,439		

740,731		

672,069		

674,997		

686,649

		

663,066

		

142,636

		

149,203		

146,517

		

127,916

		

133,925

		

127,880		

135,057

		

70,568

		

71,338

		

71,908

		

68,651

		68,817

		

71,060		

74,767

		

36,346

		

37,551

		

37,601

		

37,841

		

37,616

		38,978

		

40,916

		

158,327

		

156,011

		

159,578		

158,819		

155,045

		

154,602		

144,032		

123,294		

110,608		

103,659

		

69,233

		

72,303

		

76,485

		

62,163

		59,201

		

51,912

		

27,595

		

26,698

		

17,764

		

17,241

		

15,432

		

141,027

		

145,564		

150,374		

140,306		

143,009

		

—

		

—

		

111,988		

105,296		

111,397		

124,975		

151,126

		

—

		

—

		

88,240		

92,178

		

66,572

		

42,029

		

9,647

		

—

		

—

		

¥ 21.18		

¥ 18.47		¥ 9.82

		¥ 9.50		¥ 6.32

		¥ 6.14		¥ 5.49

		

19.11

		

16.66

		

9.13

		

8.84

		

5.94

		

5.76

		

5.37

		

208.65		

200.75		

196.72

		

172.33

		

149.98		

148.67

		

147.65

		

6.00

		

6.00

		

6.00

		

5.00

		

5.00

		

5.00

		

5.00

¥ 1,676,064¥ 1,702,713¥ 1,797,669¥ 1,805,086¥ 1,707,446¥ 1,720,684¥ 1,772,132

		

598,322		

680,887		

708,329

		

843,634

		

820,753		

765,304		

878,674

		

—

		

—

		

—

		

—

		

—

		

—

		

—

		

579,706

		

564,078		

552,790		

484,239		

421,442		

417,755		

414,906

		

10.9%

		

10.1%

		

9.5%

		

7.0%

		

7.2%

		

7.6%

		

6.3%

		

5.3%

		

4.7%

		

2.5%

		

2.7%

		

1.8%

		

1.7%

		

1.6%

		

10.4%

		

9.3%

		

5.3%

		

5.9%

		

4.2%

		

4.1%

		

3.7%

		

3.5%

		

3.0%

		

1.5%

		

1.5%

		

1.0%

		

1.0%

		

0.9%

		

34.6%

		

33.1%

		

30.8%

		

26.8%

		

24.7%

		

24.3%

		

23.4%

49

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

Millions of yen

ASSETS

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

2008

¥

719,708		 2,257,852
		

167,754		

730,135

		

2,240

		

72,419		 3,950,108

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

50

Thousands of U.S. dollars (Note 1)

2008

2007

		(2,825,986)
		 1,124,122

		

1,834

		

21,386

		

23,220		

131,444

		

18,485

		

31,636

		

9,028

		

39,045

		

(615)

		

229,023

		

43,706		

6

		

172,890

		

13,797

		

(517)

		

38,526

		

13,704

		

45,174

		

327,286¥ 1,703,651¥ 713,984
		 2,196,766
		 170,539
		 707,259
		
2,798
		
52,791
		 3,844,137
		 (2,713,656)
		 1,130,481$ 7,197,077
		 22,578,523
		 1,677,543
		 7,301,345
		22,402

		

724,196

		 39,501,086
		(28,259,862)
		 11,241,224

		
		
		

1,396
22,672
24,068

		

18,338		

213,859

		

232,197

		
		
		
		
		
		
		

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

		 1,314,438

				

40,2323

		

437,065

		

63

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

		

184,853		

316,360

		

90,276

		

390,444		

(6,142)

		 2,290,229

		 1,728,898
		

137,968		

(5,170)		

385,263		

137,041		

451,734

		 3,272,862$ 17,036,512

Millions of yen

LIABILITIES AND NET ASSETS

Non-current liabilities
Long-term debt due after one year (Notes 4 and 8)
Deferred tax liabilities (Note 11)
Reserve for retirement benefits (Note 10)
Reserve for gas holder repairs
Reserve for safety measures
Other non-current liabilities
		 Total non-current liabilities
Current liabilities:
Long-term debt due within one year (Notes 4 and 8)
Notes and accounts payable:
		 Trade (Note 6)
		 OtherBank loan payable (Notes 4 and 8)
Income taxes payable
Deferred tax liabilities (Note 11)
Other current liabilities (Note 4)
		 Total current liabilities

2008

Thousands of U.S. dollars (Note 1)

2008

2007

¥

487,138

		

3,066

		

93,558		

3,559$ 4,871,380

		

2,957

		

26,347

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

		

63,200		

42,617

		

632,000		

99,352

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

993,523

37,283

		
		
		
		
		
		
		

		

		

		

372,829

141,8442,066
644,652

		 1,418,444

		

8,379

		

25,150		

30,663

		

935,577		

35,585

		

29,575

		

263,469

		 6,166,249

		

83,787

		

251,506

		

2

		

73,205

		

306,571		

141,844

		

2,066

		

634,116

		
		
		

		

(42,774)		

(44,565)		

(427,741)

		

31,917

		

4,241

		

1,479

49,7071,095
302

319,172

424

		
		
		

		

		

		

14,792

Minority interests		11,383

		

10,945

		

113,829

Total net assets
Total liabilities and net assets

		780,455

		 806,046¥ 1,692,635

		

16

		

732,049

		 3,065,710

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

		

20,655

		 6,341,161

		 7,804,553$ 17,036,512

51

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

Millions of yen

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

Operating income (Note 15)

2007

2008

¥ 1,487,497¥ 1,376,958$ 14,874,970

		974,111

		

9,741,110

		

4,433,375

		 1,417,448

		 799,468
		 415,175
		 1,214,643

		443,337

		

70,049		

162,315

		

700,485

1,960

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

		

19,595

		(104,604)

		

(17,549)

		

18,497

		(7,102)Other income (expenses):
Interest and dividend income		Interest expenses
		
Gains (losses) from weather derivatives
		Gains from sales of fixed assets		
Losses on reduction of fixed assets		Impairment losses (Note 12)		Gains from sales of investment securities (Note 5)		
Losses on valuation of investment securities
		Adjustments of charges for construction of distribution facilities 		Environment maintenance expenses
		
Foreign exchange gains (losses)
		Equity in net income of affiliated companies
		
Other, net
		Income before income taxes and minority interests
Income taxes:
Current
Deferred
Minority interests
Net income

Thousands of U.S. dollars (Note 1)

2008

		

(367)

		
		
		
		
		
		
		
		
		
		
		
		
		
		

		

69,682

		

162,533

		

696,820

		

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

		

227,487(10,460)(1,755)
1,849
(710)
(568)
3,356
(1,078)(3,723)(2,722)
4,442
3,775
5,267

		

3,238

		

25,987

		

(1,208)¥42,487yen

2008

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

52

		 14,174,485		

¥15.94

		

15.50

		

8.00

		

(5,679)		

33,560		

(10,784)		

(37,233)

		(27,222)

		

44,426

		

37,753

		

52,677

		

(3,665)

		

32,381

		

259,868		

(12,077)$

424,875

U.S. dollars (Note 1)

2008

2007

		
		
		

¥ 37.50
35.69
8.00

		

$0.16

		

0.16

		

0.08

Consolidated Statements of Changes in Net Assets
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2008 and 2007

Millions of yen

Balance at March 31, 2006

Shareholders’ equity

Valuation and translation adjustments

Number ofissued shares ofcommon stock(Thousands)

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Net unrealized
holding gains
on securities

2,810,171¥141,844¥2,066¥572,600¥(44,840)¥56,510DeferredForeign
gains oncurrency
hedge,
translation
net of taxes adjustments

—

¥

52

Minority
interests

Total¥10,255¥738,487

Cash dividends paid (appropriation of retained
earnings approved at general shareholders’meeting in June 2006) (¥3.5 per share)(9,424)(9,424)

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

(67)

(67)

100,700

100,700

Bonuses paid to directors (appropriation ofretained earnings approved at generalshareholders’ meeting in June 2006)
Net income
Acquisition of treasury stock
Disposal of treasury stock(8,403)

Decrease due to addition of consolidated subsidiaries(1,404)(34,658)(34,658)

34,933

26,530(1,404)(6,803)

1,095

250

690

(4,768)Net changes during the year

Net changes in net assets other than shareholders’ equity———

72,052275(6,803)

1,095

250

690

67,559Balance at March 31, 2007

2,810,171

141,8442,066

644,652(44,565)

49,707

1,095

302

10,945806,046

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

Net income

42,487

Acquisition of treasury stock
Disposal of treasury stock
Retirement of treasury stock(68,600)(22,832)
42,487(39,572)(39,572)(2,098)

6,824

4,726

(34,539)

34,539—

Increase due to addition of consolidated subsidiaries

114

114

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

6,332

6,332

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

(671)

1,177

438

(16,846)

Net changes during the year

(68,600)——(10,536)

1,791(17,790)

(671)

1,177

438

(25,591)

Balance at March 31, 2008

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

Total

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

Treasurystock

Net unrealized
holding gains
on securities

DeferredForeign
gains oncurrency
hedge,
translation
net of taxes adjustments

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

Commonstock

Balance at March 31, 2007

Valuation and translation adjustments

Capitalsurplus$ 3,020

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

Net income

424,875

424,875

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

Disposal of treasury stock(20,985)

68,23647,251Retirement of treasury stock(345,394)

345,394

Increase due to addition of consolidated subsidiaries

1,137

Increase due to addition of affiliated companies accounted forby equity method

63,32563,325

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

11,772(105,361)

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

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

Net changes during the year
Balance at March 31, 2008

—
1,137

4,382

(168,451)

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

Accompanying notes are an integral part of these financial statements.

53

Consolidated Statements of Cash Flows
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2008 and 2007

Millions of yen

Thousands of U.S. dollars (Note 1)

2008

2007

2008

¥

69,682¥ 162,533$ 696,820

		
		
		
		
		
		
		
		
		
		
		
		
		
		
		
		

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

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

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

		 Cash received for interest and dividends
		 Cash paid for interest
		 Cash paid for income taxes
			 Net cash provided by operating activities

		
		
		
		
		
		
		
		
		
		
		

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

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

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

Cash flows from investing activities:
Purchase of time deposits
Proceeds from redemption of time deposits
Purchases of investment securities
Proceeds from sales of investment securities
Purchases of property, plant and equipment
Purchases of intangible fixed assets
Long-term prepayments
Proceeds from sales of fixed assets
Expenditure of long-term loan receivables
Collection of long-term loan receivables
Other – net
			 Net cash used in investing activities		
(5,467)		
5,466
		 (19,111)		
9,631
		 (128,972)
		
(6,787)
		(3,023)
		
1,496
		
(9,835)
		
1,185
		
51
		 (155,366)

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

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

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

		
		
		
		
		
		
		
		
		
		

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

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

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

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

		
		
		

5,250
21,734402,318

1,301

		

		

13,013—43,706

		(42)¥ 40,232

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

Accompanying notes are an integral part of these financial statements.

54

799

		
—
$ 437,065

Notes to Consolidated Financial Statements
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2008 and 2007

1

Basis of presenting consolidated financial statements

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

The accompanying consolidated financial statements have been

maintain their accounts and records in accordance with the provisions set

restructured and translated into English from the consolidated financial

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

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

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

application and disclosure requirements from International Financial

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

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

not presented in the accompanying consolidated financial statements.

follows the Gas Business Law related accounting regulations for

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

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

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

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

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

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

2

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

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

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

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

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

es are eliminated in consolidation.

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

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

equity method.

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

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

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

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

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

Tokyo Gas International Holdings B.V.

		

Tokyo Gas Bajio B.V.

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

		TK Customer Service Co., Ltd.

		Tokyo Gas Pluto Pty Ltd

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

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

		Tokyo Gas International Holdings B.V.

		

Tokyo Gas Bajio B.V.

		

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

		Tokyo Gas Pluto Pty Ltd

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

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

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

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

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

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

ings are depreciated using the straight-line method.

small, and lacking in qualitative significance, and therefore they do not have asignificant impact on the consolidated financial statements.

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

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

securities, declines significantly, and the decline is not considered recov-

revised Corporation Tax Law. In consequence, operating income and income

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

before income taxes and minority interests each declined by ¥1,335 million

between fair value and the carrying amount is recognized as loss in the(US$13,352 thousand).

period of the decline.

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

(10) Derivative financial instruments — The Company and its consolidated subsidiaries use currency swap contracts, interest rate swap contracts, foreign exchange forward contracts, commodity swap contracts andweather derivatives only for the purpose of mitigating the risk of fluctuations
in foreign exchange rates, interest rates, market prices of raw materials andfinished products, and affects of changes in temperature.
The Company and its consolidated subsidiaries do not use derivative
financial instruments for speculative trading purposes. The derivative financial
instruments are executed with creditworthy financial institutions, and theCompany’s and its consolidated subsidiaries’ management believes there is little risk of default by counterparties. The derivative financial instruments areused based on internal policies and procedures on risk control.
Derivatives are stated at fair market value at the year-end. The(5) Software costs — The Company and its consolidated subsidiaries

Company and its consolidated subsidiaries use hedging accounting, provided

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

method over the estimated useful life.

forward exchange contracts and foreign currency swap contracts that fulfilled(6) Accounting for certain lease transactions — Finance leases
which do not transfer ownership to lessees are accounted for in the samemanner as operating leases.

certain conditions, the hedged foreign currency receivable and payable arerecorded using the Japanese yen amount of the contracted forward rate or
swap rate. Regarding interest rate swap contracts that fulfilled certain conditions, the net amount to be paid or received under the interest rate swap(7) Goodwill — Goodwill and negative goodwill are amortized on acontract is added to or deducted from the interest on the liabilities for which

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

the swap contract was executed.

(8) Cash and cash equivalents — Cash and cash equivalents include(11) Inventories — Inventories are stated at cost, being determined bycash on hand, readily-available deposits and short-term highly-liquid invest-

the moving-average method.

ments with maturities not exceeding three months at the time of purchase,
which are readily convertible to known amounts of cash that they present(12) Allowance for doubtful accounts — For normal receivables, aninsignificant risk of change.

allowance for doubtful accounts is provided using the historical experienced(9) Securities — The Company and its consolidated subsidiaries classify
their securities in one of the following three categories, in accordance with
the Japanese Accounting Standard for Financial Instruments.
(a) Debt securities intended to be held to maturity (hereafter, “held-tomaturity debt securities”) are stated at amortized cost.

claims, an allowance for doubtful accounts is provided for the estimatedamounts considered to be uncollectible after reviewing individual collectability.
(13) Reserve for retirement benefits — The Company and its consolidated subsidiaries provide an unfunded lump-sum payment plan and a funded(b) Equity securities issued by unconsolidated subsidiaries and affiliatedpension plan as retirement benefit schemes. The Company and certain consol-

companies that are not accounted for using the equity method are

idated subsidiaries provide defined benefit plan and defined contribution plan.

stated at moving-average cost.

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

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

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

The Company and its consolidated subsidiaries determine benefit obli-

by unconsolidated subsidiaries and affiliated companies, and securi-

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

amounts actuarially calculated using certain assumptions.

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

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

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

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

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

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

average cost.

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

If the fair value of held-to-maturity debt securities, equity securities
issued by unconsolidated subsidiaries and affiliated companies, and other56

default ratio. For specific receivables such as bankruptcy/rehabilitation

charged to income when incurred, and actuarial gains and losses are charged
to income mainly in the fiscal year following the year when they arise.

(14) Reserve for gas holder repairs — The Company and certain con-(18) Enterprise tax — In the case of companies engaged in gas business-solidated subsidiaries provide for periodic repairs of gas holders by estimat-es, enterprise tax which is levied, not on taxable income but on net sales, is

ing future expenditures and charging them to income in equal annual

accounted for in “Selling, general and administrative expenses”. Enterpriseamounts. The difference between the actual expenditure and the amount pro-taxes based on “amount of added value” and “amount of capital” are also

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

included in “Selling, general and administrative expenses”.

(15) Reserve for safety measures — The Company provides for expenses necessary to secure safety for gas consumers by estimating total amount ofsuch expenses which are expected to incur after the year-end date.

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

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

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

common shareholders and the weighted-average number of common

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

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

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

the potential dilution that could occur if convertible bonds were converted

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

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

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

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

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

ing convertible bonds.

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

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

“amount of added value” and “amount of capital”). The Company and its(20) Reclassifications — Certain prior year amounts have been reclassi-

consolidated subsidiaries recognize tax effects of temporary differences

fied to conform to 2008 presentation. These changes had no impact on previ-between the financial statement basis and the tax basis of assets and lia-

ously reported results of operations.

bilities. The Company and its consolidated subsidiaries do not recognize
deferred tax assets which are not expected to reduce future income taxes.

3

Property, plant and equipment

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

accounting”). Such accumulated reduction of fixed assets recorded atcases where the Company and its consolidated subsidiaries receive

March 31, 2008 and 2007 were ¥273,657 million (US$2,736,569 thousand)government grants toward the cost of acquisition, such amounts areand ¥262,818 million, respectively.

offset against the acquisition cost of the related asset (“reduction entry

4

Pledged assets

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

2008

2007

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

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

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

were as follows:
Millions of yen

2008

2007

Thousands of
U.S. dollars

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

5Securities

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

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

Millions of yen

2008

2008

2007

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

		 $ 449
		

2007

2008

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

		 $ 11

Thousands of
U.S. dollars

Millions of yen

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

Thousands of
U.S. dollars

Millions of yen

2008

2008

2007

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

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

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

Millions of yen

2008

2008

2007

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

6

Effect of the Bank Holiday

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

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

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

business day and accounted for accordingly.

7

Inventories

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

Millions of yen

2008

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

58

2008

2007

¥ 4,341
		 22,357
		 9,227
		
207¥ 36,132$ 37,306
		 249,967
		

97,223

		

767$ 385,263

8Bank loan payables and long-term debt

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

Millions of yen

2008

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

¥ 27,700
		

40,000		

30,000		

30,000		

20,000		

30,000		

20,000		

20,000		

30,000		

20,000		

10,000		

10,000		

13,800Less-Amounts due within one year

The indentures covering fifth domestic convertible bonds provide,
among other conditions, for (1) conversion into shares of common stock at
the conversion prices per share of ¥339.00 (US$3.39) (subject to adjustment
in certain circumstances), (2) conversion periods through March 30, 2009.
As is customary in Japan, a lending bank has the right to offset cash
deposited with it against any debt or obligation that becomes due and, inthe case of default or certain other specified events, against all debt
payable to the bank. To date no such offset request has been made to
the Company and its consolidated subsidiaries.
The annual maturities of long-term debt at March 31, 2008 were as follows:

¥
		
		
		

		
		

		

4,000

		

19,996

		

9,993

		
		
		
		
		
		
		

		

28,195

		

Loans from banks, insurance companies and government agencies
due through 2020 at rates of 0.31% to 5.50%:
Secured		 11,326
Unsecured		 175,328
		 550,338
		 63,200¥ 487,138

Year ending March 31

2009
2010
2011
2012
2013
2014 and thereafter

2008

2007

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

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

277,000		

400,000		

300,000		

300,000		

200,000		

300,000		

200,000		

200,000		

300,000		

200,000		

100,000		

100,000		

138,000

		

40,000		

199,961		

99,933

		

281,950

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

Millions of yen

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

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

59

9

Derivative transactions

Contract amounts, fair values and recognized gains on the commodity

Fair value of commodity derivatives contracts was calculated based onderivatives except those accounted for using hedge accounting andthe information presented by financial institution. Contract amounts ofweather derivatives at March 31, 2008 and 2007 were as follows:

the commodity derivatives are solely nominal values, and not indicative ofMillions of yen

the magnitude of market risk or credit risk concerning derivatives

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

Contract amounts

Total

Commodity derivatives ¥ 765
Weather derivatives 1,100

Beyondone year

Fair value

Recognized
gains (losses)

¥

—

¥ 815

¥ 815

—

—

—

—

—

¥ 815

—

the maximum receivable or payable amounts under the contracts. Fairvalues of weather derivatives were not stated because the calculation of
the fair values was impossible.
Thousands of U.S. dollars
At March 31, 2008
Contract amounts

Millions of yen

Total

At March 31, 2007

Commodity derivatives $ 7,648
Weather derivatives 11,000

Contract amounts

Total

Beyondone year

Fair value

Recognized
gains (losses)

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

¥ —
1,000
—

¥ (61)——¥ (61)—¥ (61)

10—

Beyondone year

Fair value

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

—

—

—

—

—

$8,154

Reserve for retirement benefits

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

2008

Projected benefit obligation
Unrecognized prior service costs
Unrecognized actuarial differences
Less fair value of pension assets
Prepaid pension costs
Reserve for retirement benefits¥ 363,729
		¥ 364,288
		 1,778		 (16,791)
		 (256,339)
		12¥ 92,948

2,220

		 (25,244)
		 (256,175)
		

Thousands of U.S. dollars

2008

2007

9,028

¥ 93,558$ 3,637,288
		

22,200		 (252,438)
		(2,561,749)
		90,276$ 935,577

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

2008

Service costs – benefits earned during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of actuarial differences
Amortization of prior service costs
Other
Net periodic retirement benefit expenses¥ 9,848
		 6,500
		 (5,168)
		 13,393
		

(166)

		 4,828¥ 29,235

Thousands of U.S. dollars

2008

2007

¥ 9,657
		 6,876
		 (4,623)
		(13,095)
		 (332)
		 6,669¥ 5,152$ 98,476
		 65,001
		 (51,684)
		 133,932
		(1,658)

		 48,285$ 292,352

The discount rate and the rate of expected return on plan assets used by the Company and its consolidated subsidiaries are mainly 1.8% and 2.0%,
respectively, at March 31, 2008, and mainly 1.8% and 2.0%, respectively, at March 31, 2007.

60

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

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

actuarial liability) had been carried out on March 31, 2008 and Paragraphfrom the obligation of benefits related to future employee services under

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

the substitutional portion of the welfare pension fund.

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

Regarding the transfer to the Japanese government of the substitutional

Accounting System Committee Report No. 13) had been applied, theportion of the welfare pension fund, the transferred amount (minimum

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

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

11

Income taxes

The Company is subject to multiple taxes based on taxable income, which,the effective tax rate for financial statement purposes for the years

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

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

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

Significant components of deferred tax assets and liabilities as ofReconciliation of the difference between the statutory tax rate andMarch 31, 2008 and 2007 were as follows:
Millions of yen

2008

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

12¥ 34,277
		 42,582
		 (7,094)
		 69,765
		 18,642
		

8,851

		 27,493¥ 42,272

Thousands of U.S. dollars

2008

2007

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

		 697,650
		 186,415
		

88,513

		 274,928$ 422,722

Impairment losses

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

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

PurposeType

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

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

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

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

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

purpose of sales of raw materials for diagnostic agents; however, its
production has been temporarily stopped.

61

13

Net assets(a) Distribution to the shareholders

At the general meeting of shareholders held on June 27, 2008, theUnder the Japanese Corporate Law (“the Law”), dividends can be paid at

Company’s shareholders approved payment of year-end cash dividends ofany time during the fiscal year in addition to the year-end dividend upon

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

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

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

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

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

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

The Law provides certain limitations on the amounts available forthe shareholders.

dividends and/or the purchase of treasury stock. The limitation isdefined as the amount available for distribution to the shareholders, and
it is calculated mainly based on other capital surplus, other retained(b) I ncreases/decreases and transfer of common stock,reserve and surplus

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

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

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

The maximum amount that the Company can distribute as dividendsof the Board of Directors, designate an amount not exceeding one-half ofis calculated based on the non-consolidated financial statements of thethe price of the new shares as legal capital surplus, which is included inCompany in accordance with Japanese laws and regulations.

capital surplus.

At the general meeting of shareholders held on June 27, 2008, theUnder the Law, in cases where a dividend distribution of surplus isCompany’s shareholders approved payment of year-end cash dividends of

made, the smaller of an amount equal to 10% of the dividend or the¥4.0 (US$0.04) per share aggregating ¥10,627 million (US$106,265

excess, if any, of 25% of common stock over the total of legal capital

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

surplus and legal retained earnings must be set aside as legal capitalsurplus or legal retained earnings. Legal retained earnings is included in(a) Distribution to the shareholders

retained earnings in the accompanying consolidated balance sheets.

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

Under the Law, legal retained earnings and legal capital surplus

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

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

at the shareholders’ meeting. Interim dividends may also be paid upongenerally by a resolution of the shareholders’ meeting.

resolution by the Directors’ meeting provided that the articles of incorporationof the company so stipulate, and that the company meets certain criteria.

Legal capital surplus and legal retained earnings may not be
distributed as dividends. Under the Law, however, all legal capital

The Law provides certain limitations on the amounts available forsurplus and all legal retained earnings may be transferred to otherdividends and/or the purchase of treasury stock. The limitation iscapital surplus and other retained earnings, respectively, which aredefined as the amount available for distribution to the shareholders, andpotentially available for dividends.

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

must be maintained at no less than ¥3 million.

The Law provides for companies to purchase treasury stock and dispose of

The maximum amount that the Company can distribute as dividends

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

distribution to the shareholders which is determined by specific formula.

14

Additional information for cash flows

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

2008

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

62

Thousands of U.S. dollars

2007

2008

¥ 34,697$ 65,430

		 (8,490)¥ 26,207		 (21,200)$ 44,230

15

Segment information

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

A summary of net sales, costs and expenses, operating income,include (1) gas sales, (2) gas appliance sales, (3) related construction, (4) real

identifiable assets, depreciation, impairment losses, and capitalestate rental, and (5) other business.

expenditures by business segments for the years ended March 31, 2008
and 2007 was as follows:
Millions of yen

Gas sales

Gas appliance
sales

Relatedconstruction¥ 129,202¥ 53,570

Real estate
rentalOther businessElimination or
corporate

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

For 2008
Sales:
Outside customers¥ 1,056,101

Intra group		

30,944

		

3,125 		

3,756

		

22,808 		

—

84,098 		 (144,731) 		

—

Total

		 1,087,045

		 132,327 		 57,326

		35,169 		 320,361 		 (144,731) 		 1,487,497

Costs and expenses

		975,381		 129,418 		 56,498

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

Operating income¥

111,664¥

Identifiable assets¥

993,803¥ 43,551

Depreciation		

107,313

Impairment losses		—Capital expenditures		94,405

2,909

¥

828

¥

¥ 18,891

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

		606 		

122

		

		

— 		

—

		

		

649 		

35

		9,908 		22,245 		— 		

(2,061) 		

568 		

4,301 		70,04937,701 		

138,133— 		

568(2,108) 		

134,983

Millions of yen

Gas appliancesales

Gas sales

Relatedconstruction

Real estate
rentalElimination or
corporate

Other business

Consolidation

For 2007Sales:¥ 976,358

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

3,703

		 22,102

		 85,009

		 (136,642) 		

		 135,407

		 59,230

		 34,035

		 285,407

		 (136,642) 		 1,376,958

		 27,304

		 271,559

		 (71,892) 		 1,214,643

		

23,163

		

Total

		

999,521

Costs and expenses

		Intra group

2,665¥ 55,527		¥—¥ 1,376,958—

795,955

		 134,238

		 57,479

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

6,731¥ 13,848¥ (64,750)¥ 162,315

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

Depreciation

		97,969

		

544

		

165

		 10,400

		 21,951

		Impairment losses

		

—

		

—

		

—

		

—

		

—

		

Capital expenditures		83,449

		

576

		

64

		

3,332

		 37,496

		(2,031) 		
—128,998		

—(2,832) 		

122,085

Thousands of U.S. dollars

Gas sales

Gas appliance
sales

Relatedconstruction$ 535,699

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

Consolidation

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

Intra group				

309,437

31,252 		

$123,60937,560		

228,086 		—$ 14,874,970

840,976 		 (1,447,311) 		

—

Total

		 10,870,446

		 1,323,268 		 573,259

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

Costs and expenses

		 9,753,811

		 1,294,176 		 564,977

		

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

Operating income$ 1,116,635$

29,092$$

79,634

Identifiable assets$ 9,938,025$

435,512$ 188,915

Depreciation

		 1,073,128

		

6,055 		

1,222

		

99,078 		

222,449 		

(20,606) 		

Impairment losses

		

—

		

— 		

—

		

— 		

5,679 		

— 		

5,679

Capital expenditures		944,047		

6,489 		354		43,010 		

377,014 		

(21,083) 		

1,349,831

8,282$ 1,798,572$

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

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

Costs and expenses under Elimination or corporate that cannot be

Assets under Elimination or corporate mainly comprise cash andallocated to business segments are related mainly to generalbank deposits, investment securities and deferred tax assets of theadministrative expenses of the Company, amounted to ¥67,096 million

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

2007, respectively.

31, 2008 and 2007, respectively.

63

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

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

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

between an amount equal to 5% of the acquisition cost and theas of the year under review, the Company and its domestic consolidated

memorandum value is depreciated uniformly over five years and included

subsidiaries have changed the depreciation method for property, plant andin depreciation expenses. As a result of this change, compared with theequipment acquired on or after April 1, 2007, to the depreciation method

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

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

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

compared with the figures under the previous method, operating expenses

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

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

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

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

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

operating income declined by an identical amount.

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

Geographic segment information is not shown since more than 90%

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

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

Information for overseas sales is not disclosed due to overseas sales

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

being immaterial compared to consolidated net sales.

16

Information for certain leases

Finance leases

Thousands of U.S. dollars

Information as lessee

Acquisition cost

Lease payments and the amount corresponding to depreciation expenses in

Accumulated
depreciation

Net book value

the years ended March 31, 2008 and 2007, and future minimum leaseFor 2008

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

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

Thousands of
U.S. dollars

Millions of yen

2008

Lease payments¥
Depreciation expenses 		

2007

¥ 552
547
547 		 552

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

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

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

Millions of yen

2008

2007

2008

Lease income¥ 4,609¥ 4,720
Depreciation expenses 		 1,636 		 1,680
Interest income		 1,408 		 1,274$ 47,199
		 16,365
		 14,077

Future lease payments to be received:
Current¥ 5,134¥ 5,518
Non-current
		 19,880 		 15,502¥ 20,636¥ 25,398$ 55,177
		 198,802$ 253,979

cost, accumulated depreciation and net book value for property held
under finance leases which do not transfer ownership of the leased
property to the lessee on an “as if capitalized“ basis for the years ended
March 31, 2008 and 2007 were as follows:
Millions of yen

Acquisition cost

Accumulated
depreciation

Net book value

For 2008

Other facilities¥ 5,311¥ 1,715¥ 3,596
Other intangible assets 		 201 		
95 		
106
¥ 5,512¥ 1,810¥ 3,702For 2007
Other facilities¥ 4,174
Other intangible assets 		 314
¥ 4,488¥ 1,688
		 169¥ 1,857¥ 2,486
		 145¥ 2,63164

Acquisition cost, accumulated depreciation and net book value forOperating leases

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

the leased property to the lessee for the years ended March 31, 2008 and

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

Thousands of
U.S. dollars

Millions of yen
Millions of yen

Acquisition cost2008

Accumulated
depreciation

Net book value

For 2008

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

Future lease payments:
Current¥ 33
Non-current
		 125
¥ 158

2008

2007

¥1
		 2
¥3

$ 330
		 1,254$ 1,584

Information as lessor
Future lease payments to be received at March 31, 2008 and 2007 wereas follows:

2008
Thousands of U.S. dollars

Acquisition cost

Accumulated
depreciation

Net book value

For 2008

Thousands of
U.S. dollars

Millions of yen

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

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

2008

2007

¥ 444
		 632¥ 1,076$ 3,265
		 4,572$ 7,837$ 273,324 $ 151,302 $ 122,022

17

Commitment and contingent liabilities

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

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

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

crude oil.

thousand) as guarantors for domestic unsecured bonds issued by the

Adjustment of the cost for raw materials is subject to movements

Company, and assigned to certain banks under the debt assumption

on trading contract renewals or price negotiations thereof with gas

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

resource suppliers.

18

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

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

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

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

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

(2) Acquisitions of treasury stock

Maturity date: May 29, 2015

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

Term: 7 years

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

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

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

65

Independent Auditors’ Report

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

Tokyo, Japan
June 27, 200866

Consolidated Subsidiaries and Equity-method Affiliates
As of March 31, 2008

Main Consolidated Subsidiaries
Company

Capital(¥ million)

Business(%)

FY2007 Net sales(¥ million)[% of outside sales]

Operatingincome(¥ million)

Equity owned
by Tokyo Gas

Tokyo Gas Urban Development Co., Ltd. Real estate leasing, management and brokerage, etc.

11,530100.033,013 [33.5]

7,043

Tokyo Gas Toyosu Development Co., Ltd. Real estate leasing and management

5,000

100.0

657 [97.2]

204

Nagano Toshi Gas Co., Ltd.

Gas Supply in Nagano

3,800

89.2

11,909 [100.0]

586

ENERGY ADVANCE Co., Ltd.

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

3,000

100.0

52,872 [94.5]

1,501

Gastar Co., Ltd.

Production, sales and maintenance of gas appliances

2,450

66.7

29,655 [43.7]

1,146Tokyo LNG Tanker Co., Ltd.

LNG and LPG transportation and chartering of carriers

1,200

100.0

11,549 [20.6]

1,606

Tokyo Gas Energy Co., Ltd.

Sales of liquefied petroleum gas (LPG)

1,000

100.0

36,531 [81.7]

21

Capty Co., Ltd.

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

1,000

100.0

58,130 [36.0]

1,376Tokyo Gas Chemicals Co., Ltd.

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

1,000

100.0

20,226 [73.2]

609

Park Tower Hotel Co., Ltd.

Management of Hotel “Park Hyatt Tokyo” and restaurants

1,000

100.0

9,589 [96.6]–41

Chiba Gas Co., Ltd.

Supply of gas to Yachiyo City, Narita City andsurrounding cities

480

100.0

16,332 [97.4]

1,116

TG Credit Services Co., Ltd.

Leasing of information equipment, gas appliances and officeequipment, and credit administration connected with installations

450

100.0

9,188 [65.7]

723

Tokyo Oxygen and Nitrogen Co., Ltd.

Production and sales of liquefied oxygen, nitrogen andgas for medical use

400

54.0

2,135 [43.2]

224

TG Information Network Co., Ltd.

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

400

100.0

18,977 [14.2]

605

Tsukuba Gakuen Gas Co., Ltd.

Supply of gas in Tsukuba City

280

100.0

7,681 [97.8]

456

TG Enterprise Co., Ltd.

Financial administration and building leasing for Tokyo
Gas and related companies

200

100.0

723 [41.7]

341

Tokyo Gas Engineering Co., Ltd.

Comprehensive engineering services with a particularfocus on energy-related work

100

100.0

33,678 [76.3]

928

Tokyo Gas Customer Service Co., Ltd. Periodic safety checks, meter and billing services

50

100.0

6,677

[2.1]

366

Gas facilities construction, gas appliance sales andmaintenance

50

100.0

7,833 [72.7]

112

Capty-Livelic Co., Ltd.

Notes: Consolidated subsidaries comprise 55 companies as of the end of March 2008.

Other Subsidiaries

TOKYO GAS AUSTRALIA PTY LTD, Tokyo Gas International Holdings B. V.,
Tokyo Gas Bajio B. V., Tokyo Gas Darwin LNG Pty Ltd,Tokyo Gas Yokosuka Power Co., Ltd., Tachikawa Urban Center Co., Ltd.,
Living Design Center Co., Ltd., Tokyo Gas Baypower Co., Ltd.,TOKYO GAS-MITSUI&CO. HOLDINGS SDN. BHD., TG Showa Co., Ltd.,Tokyo Carbonic Co., Ltd., Tokyo Gas Pluto Pty Ltd,
Japan Super Freeze Co., Ltd., Miho Gas Co., Ltd., Shoei Gas Co., Ltd.,Tokyo Gas Auto Service Co., Ltd., TG Telemarketing Co., Ltd.,Tokyo Gas LPG Terminal Co., Ltd., Kawasaki Gas Pipeline Co., Ltd.,Tokyo Gas Remodeling Co., Ltd., Washimiya Gas Co., Ltd.,Urban Communications, Inc., Tochigi Gas Co., Ltd.,Tokyo Gas Techno-Service Co., Ltd., Tokyo Gas Building Service Co., Ltd.,Showa Bussan Co., Ltd., Tosetz Co., Ltd., Tokyo Kiko Co., Ltd.,
Capty Customer Service Co., Ltd., TK Customer Service Co., Ltd.,
Enelife Carieer Co., Ltd., Showa Unyu Co., Ltd.,Tokyo Gas Plant Tech Co., Ltd., Tokyo Rare Gases Co., Ltd.,Tokyo Auto Gas Co., Ltd., Capty Tech Co., Ltd.

Equity-method Affiliates

TOKYO TIMOR SEA RESOURCES INC.
GAS MALAYSIA SDN. BHD.

Bajio Generating VOF
East Japan Housing Evaluation Center Co., Ltd.

67

Investor Information
As of March 31, 2008

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

Number of Shareholders 162,457
Stock listings Tokyo Stock Exchange,
Osaka Securities Exchange andNagoya Stock Exchange (Trade code: 9531)

Overseas Offices
New York Representative 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

Independent Auditors KPMG AZSA & Co.
Agent to Manage Shareholders Registry
The Chuo Mitsui Trust & Banking Co., Ltd. 3-33-1 Shiba, Minato-ku, Tokyo
105-8574, Japan

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

Number of Employees 15,900 (Consolidated basis, excluding part-time workers)
Principal Shareholders

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

Name

Nippon Life Insurance Company
The Dai-ichi Mutual Life Insurance Company

Date of Establishment October 1, 1885

Japan Trustee Services Bank, Ltd. (Trust Account)

Paid-in Capital ¥141,844,398,888

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

Aggregate Number of Shares Issuable 6,500,000,000 shares

JPMorgan Chase Bank, N.A. (380055)

Fukoku Mutual Life Insurance Company
State Street Bank and Trust Company

Issued Number of Shares 2,741,571,295 shares

Employees Shareholding Association
State Street Bank and Trust Company (505103)
JPMorgan Chase Bank, N.A. (385067)

Number ofshares held(Thousands)

Percentage of
total shares
outstanding (%)

163,000
155,962
115,998
103,378
68,50458,71047,02137,08233,03029,644

5.95
5.69
4.23
3.77
2.50
2.14
1.72
1.35
1.20
1.08

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

500
400

(Thousandsof shares)
400,000300

300,000
Monthly Trading Volume200

200,000

100

100,000

0

0
’03/
’04/
’05/
’06/
’07/
’08/
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3

FURTHER INFORMATION
Please direct comments regarding the content of this report orrequests for other publications to:Investor Relations Section, Corporate Planning
Dept.
Tel: +81-3-5400-3888
Fax: +81-3-3437-2668
E-mail: tgir@tokyo-gas.co.jp

68

Forward-Looking Statements
Statements made in this annual report with respect to Tokyo Gas plans, strategies and beliefs, andother 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 and uncertainties. Theserisks and uncertainties include, without limitation, general economic conditions in Japan, the exchange
rate between the yen and the U.S. dollar, and Tokyo Gas ability to continue to adapt to rapid
technological developments and deregulation.
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.

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

Tokyo Gas Co., Ltd.
Annual Report 2008

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

Printed in Japan