FINANCIAL SECTION

Contents
42

TWELVE-YEAR SUMMARY

44

MANAGEMENT’S DISCUSSION AND ANALYSIS

50

BUSINESS RISKS

52

CONSOLIDATED BALANCE SHEETS

54

CONSOLIDATED STATEMENTS OF INCOME

55

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

56

CONSOLIDATED STATEMENTS OF CASH FLOWS

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

68

INDEPENDENT AUDITORS’ REPORT69

CONSOLIDATED SUBSIDIARIES AND EQUITY-METHOD AFFILIATES

70

INVESTOR INFORMATION

For purposes of presentation, from this annual report, all amounts lessthan one billion yen or one million yen have been rounded down, andhundredths of a percentage point have been rounded to the nearest whole
number. Therefore, the figures presented in this report may differ fromthose presented in the annual reports in past years. In addition, all graphs
and tables represent fiscal years ended March 31 of the respective years.

41

TWELVE-YEAR SUMMARY
Years ended March 31

Millions of yen, except per share amounts

2009

2008

2007

2006

2005

¥1,660,162¥1,487,496¥1,376,958¥1,266,501¥1,190,783

1,257,574

1,087,044

999,521910,320834,658

Gas appliance sales

122,363132,236

135,407

130,825

135,108

Installation work

49,09457,32559,22959,74664,794

For the Years
Net sales
Gas sales

Real estate rental

35,63735,16934,03434,187

34,701Other business

363,783

320,361

285,407

252,595

234,720

Operating income

65,20470,048

162,315

112,345

145,349

Net income

41,70842,487

100,699

62,114

84,047

Depreciation*

141,083

142,421

133,142

136,376

140,271

Capital expenditures**145,929

138,006

124,556

119,435

107,529

Free cash flow

36,862

46,902

109,285

79,057116,789

Amounts per share ofcommon stock (Yen)
Net income

¥

15.63

¥

15.94

¥

37.50

¥

23.48

¥

31.47

Diluted net income

15.37

15.50

35.69

21.70

28.24

Net assets

284.72289.49293.11

270.46244.73

8.00

8.00

8.00

7.00

7.00

¥1,764,185¥1,703,651¥1,692,635¥1,693,898¥1,668,734

Interest-bearing debt

593,230

558,716

525,467

559,911624,105

Total net assets

784,616

780,455

806,045

—

—

—

—

—

728,231648,766

Operating income to net sales

3.9%

4.7%

11.8%

8.9%

12.2%

Net income to net sales

2.5%

2.9%

7.3%

4.9%

7.1%

ROE

5.4%

5.4%

13.2%

9.0%

13.5%

Cash dividends applicableto the year

At Year-End
Total assets

Total shareholders’ equity

Ratios

ROA

2.4%

2.5%

5.9%

3.7%

5.0%

Equity ratio

43.8%

45.1%

47.0%

43.0%

38.9%

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

42

2004

2003

2002

2001

2000

1999

1998

¥1,151,824¥1,127,633¥1,097,589¥1,086,770¥ 992,255¥ 997,766¥1,009,154

831,114

792,453

750,438

740,731

672,069

674,996686,648

133,873

142,635

149,203

146,516

127,916

133,925

127,880

68,03370,56871,337

71,90768,651

68,81771,060¥35,44336,34637,55137,60137,841

37,61638,978172,160

158,326

156,011

159,577

158,819

155,044

154,601

152,287

123,294

110,607

103,659

69,23372,302

76,48444,78759,201

51,911

27,595

26,69817,764

17,240146,895

141,027

145,564

150,374

140,306

143,009—

107,441

111,988

105,296111,397

124,975

151,126—

84,241

88,24092,17866,57242,029

9,647

—

16.44

¥

21.18

¥

18.47

¥

9.82

¥

9.50

¥

6.32

¥

6.14

14.98

19.11

16.66

9.13

8.84

5.94

5.76

221.53208.65200.75

196.72172.33149.98148.67

7.00

6.00

6.00

6.00

5.00

5.00

5.00

¥1,666,828¥1,676,064¥1,702,712¥1,797,669¥1,805,086¥1,707,446¥1,720,683

682,744731,301

775,894

870,347

957,085

911,901

911,000

—

—

—

—

—

—

—

598,453

579,706

564,077552,790484,239

421,443

417,755

13.2%

10.9%

10.1%

9.5%

7.0%

7.2%

7.6%

3.9%

5.3%

4.7%

2.5%

2.7%

1.8%

1.7%

7.6%

10.4%

9.3%

5.3%

5.9%

4.2%

4.1%

2.7%

3.5%

3.0%

1.5%

1.5%

1.0%

1.0%

35.9%

34.6%

33.1%

30.8%

26.8%

24.7%

24.3%

43

MANAGEMENT’S DISCUSSION AND ANALYSIS

Summary
Due to such factors as a decline in demand due to a warm winter and an economic slowdown,gas sales volume was down 1.9%, to 13,942 million m3.
With higher unit prices under the gas rate adjustment system, gas sales increased, and net sales
were up 11.6%, to ¥1,660.1 billion. On the other hand, operating expenses increased due to suchfactors as higher gas resource costs accompanying higher LNG prices and an increase in amortization of the actuarial differential on retirement benefits. Operating income was down 6.9% year
on year, to ¥65.2 billion, and net income declined 1.8%, to ¥41.7 billion.

The Company’s Operating Environment in
the Year Under Review
In the fiscal year ended March 31, 2009, the following threefactors had a major influence on the operations of Tokyo Gas(hereafter “the Company”).
Economic Slowdown Resulting from the Global Recessionthat Began with the U.S. Financial Crisis
Through the first half of the fiscal year, conditions were favorable worldwide. Japan’s manufacturing industry enjoyed good
operating conditions, and in terms of industrial gas sales volume, existing customers increased their utilization and wemade progress with new customer development. Overall, gassales volume was on a growth track. However, the global
financial crisis stemming from the subprime loan problem in
the United States marked a turning point, and from September,the global economic recession became serious, resulting in a
sharp downturn for the Japanese economy. Consequently,
there was a major slowdown in Japanese industrial activity,
centered on export industries, and our gas sales volume forindustrial use began to decline from October.

fiscal year, the average temperature was 0.5ºC lower than in
the previous fiscal year, and the lower temperature resulted inincreased demand for hot water in the residential sector but
lower demand for air conditioning in the commercial sector.
In the second half, the average temperature was 0.5ºC higher
than in the previous year, and the higher temperature resulted
in decreased demand for heating and hot water in the residential sector and for air conditioning in the commercial sector.
Prices of Crude Oil and LNG(US$/MMBtu)
25(US$/barrel)
150

20

120

15

90

10

60

5

30

0

08/4 567

8

9

10 11 12 09/1 2

All Japan LNG prices (Trade statistics) (left)

30

JCC prices (Trade statistics) (right)

Yen–Dollar Exchange Rate
(Yen/US$)115

Dramatic Fluctuations in the Prices of LNG Due to Changes
in the Price of Crude Oil and Exchange Rates
In the first half of the fiscal year, due to strong demand and an
influx of speculative funds, the price of WTI crude oil posted arecord high of $147.27 per barrel in July. Nevertheless, due tothe global economic recession following the subprime shock,crude oil demand rapidly declined, and the price fell to $49.66
at the end of March, after reaching the $30 dollar level at one
point during the year. LNG, which accounts for the majority of
our resources, is linked to the Japan Customs-cleared Crude(JCC) price, so dramatic fluctuations in the crude oil price havea major effect on the Company’s revenues and expenditures.
The yen–dollar exchange rate moved in the ¥100 range
through October, and subsequently the yen appreciated from
November, reaching the ¥90 level in January and February. The
trend toward yen appreciation in the second half of the fiscal
year reduced LNG import prices, and worked to lower gas
resource costs.
Influence of Temperature Changes on Gas Sales Volume
For residential heating and hot water demand and for commercial air conditioning demand, the volume of gas sales issignificantly affected by temperature. In the first half of the

44

110

105

100

95

90

08/4 567

8

9

10 11 12 09/1 2

3

Sales Trends in the Core Gas Business
Down 1.9% year on year
Residential Sector
In the first half of the fiscal year, low temperatures resulted inincreased demand for hot water. In the second half, however,when gas demand is seasonally higher, high temperatures
resulted in decreased demand for hot water and heating. As aresult, sales volume decreased by 61 million m3, or 1.8%, to
3,468 million m3.

Commercial and Other Sectors
Gas sales volume was down 115 million m3, or 3.7%, to 3,011
million m3. Temperatures were lower year on year in the firsthalf of the fiscal year and higher in the second half.
Consequently, air conditioning demand declined. In addition,
the economic recession had a partial effect.
Industrial Sector
In the first half of the fiscal year, existing customers increased
their utilization and we made progress with new customer
development. As a result, sales volume recorded favorable
growth. However, from October, under the influence of theeconomic recession stemming from the subprime loan problem, there was an increase in customers who reduced theirplant utilization rates, with a focus on the steel, machinery,and chemical industries. Consequently, for power generationuse, gas sales volume rose 227 million m3, or 10.9%, to 2,303
million m3. However, for general industrial use, gas sales volume was down 335 million m3, or 9.1%, to 3,320 million m3.
Overall, gas sales volume in the industrial sector was down 109
million m3, or 1.9% year on year, to 5,623 million m3.
Wholesale Sector
Starting from the fiscal year ended March 31, 2009, twowholesale gas suppliers made a contribution to gas sales volume for the full fiscal year. (Supply to Noda Gas was started inAugust 2007, and to Tatebayashi Gas in November 2007.) As aresult, on a consolidated basis, there were a total of 26 wholesale gas suppliers. In addition, new demand by wholesale gas
suppliers was developed, and the utilization by existing customers was increased. As a result, gas sales increased by 12
million m3, or 0.7%, to 1,840 million m3.
Consequently, overall gas sales volume was down 273 million
m3, or 1.9%, to 13,942 million m3.

10,0005,000

05■■ Residential■■ Industrial

06

07

Gas Sales Segment
Higher sales and lower income resulting from increasein gas resource costs partially canceled out higher unit
prices under the gas rate adjustment system
The gas sales volume in the fiscal year under review was down
1.9%. However unit prices were increased under the gas rateadjustment system, and gas sales were up ¥170.5 billion, or
15.7%, to ¥1,257.5 billion. Factors such as a steep rise in prices
for LNG and higher gas sales volumes led to an increase in gas
resource costs. As a result, operating expenses increased by¥171.3 billion, or 17.6%, despite our efforts to reduce overhead
expenses. Operating income decreased by ¥0.8 billion, or
0.7%, to ¥110.8 billion.
Gas Appliance Sales Segment
Sales and expenses down, lower sales and profits
Due to a decline in the number of new installations in our service area and to the reluctance of existing customers topurchase gas appliances, sales declined by ¥9.9 billion, or
7.5%, year on year, to ¥122.3 billion. Operating expenses were
down ¥9.1 billion, or 7.1%, and operating income fell ¥0.8 billion, or 28.3%, to ¥2.0 billion.
Installation Work Segment
Decline in number of projects, lower sales and profits
The number of new construction projects declined due to sluggish conditions in construction and to a decrease in starts andbuilding permits, and sales were down by ¥8.2 billion, or 14.4%
year on year, to ¥49.0 billion. Operating expenses decreasedby ¥6.3 billion, or 11.2%, to ¥50.1 billion, and operating
income declined by ¥1.8 billion, or 232.7%, to –¥1.0 billion.
Real Estate Rental Segment
Decline in profit due to higher operating expenses
Sales increased by ¥0.4 billion, or 1.3%, to ¥35.6 billion.
A particular factor here was the contribution made by increased
lease income due in part to the GINZA gCUBE building, which
was opened in September. Operating expenses rose ¥0.9 billion, or 3.6%, to ¥28.1 billion. As a result, operating income
decreased ¥0.5 billion, or 6.5%, to ¥7.4 billion.

Gas Sales Volume by Sector(Million m3, 45MJ/m3)
15,0000Years ended
March 31

resource costs resulting from higher gas sales volumes and asteep rise in the price of LNG as well as an increase in amortization of the actuarial differential on retirement benefits.

08

09■■ Commercial and others■■ Wholesale

Analysis of Income
Income continued to decline under the influence of
higher gas resource costs, lower gas sales volumes, andan increase in amortization of the actuarial differential
on retirement benefits.
Gas sales increased by 15.7% in the fiscal year ended March 31,
2009, due to higher unit prices under the gas rate adjustment system. Results from other segments included an increase in sales inthe energy services business. Total net sales increased by ¥172.7
billion, or 11.6%, from the previous year, to ¥1,660.1 billion.
Operating income fell by ¥4.8 billion, or 6.9% year on year,to ¥65.2 billion. Reasons for the decline included increased gas

Other Business Segment
Energy service and shipping businesses expanding
Sales of other business segment increased by ¥43.4 billion, or
13.6%, to ¥363.7 billion, due to the expansion of the energy
service business, to higher sales in the power generation business accompanying the operational start of the Kawasaki
Natural Gas Power Generation Co., Ltd., and to a rise in shipping revenue as a result of an increase in the number of vessels.
Operating expenses rose by ¥42.8 billion, or 13.9%, due to suchfactors as higher fuel prices in the power generation business.
As a result, operating income was up ¥0.7 billion, or 5.6%, to¥13.4 billion.
Non-Operating Income and Expenses, Extraordinary
Income and Losses, and Net Income
Total non-operating income was down ¥3.2 billion, to ¥15.6
billion. Accompanying higher crude oil prices, overseas LNG
development operations recorded increased profits, and as aresult equity in earnings of affiliates increased. Nonetheless, other45

income declined due to the influence of the appreciation of the
yen and to lower miscellaneous income. Total non-operating
expenses were up ¥0.4 billion, to ¥22.5 billion.
In terms of extraordinary income, we recorded gain on
adjustment for changes of “Accounting Standard for Lease
Transactions,” gain on transfer of benefit obligation relating toemployees’ pension fund, and gain on transfer of business,due in part to the dissolution of a joint venture in the industrial
gas business. As a result, total extraordinary income was up¥5.5 billion, to ¥10.7 billion.
Total extraordinary losses were down ¥1.2 billion, to ¥1.0
billion, due in part to a decline in loss on reduction of noncurrent assets.
As a result, net income was down ¥0.7 billion, or 1.8%, to¥41.7 billion.
Business Results by Segment (¥ million)
Sales
Years ended March 31

2009

2008

2007

1,257,574

1,087,044

999,521

Gas Appliance Sales

122,363

132,326

135,407

Installation Work49,09457,32559,229Real Estate Rental

35,63735,16934,034

Other Businesses

363,783

320,361

285,407

Gas Sales

1,828,452

1,632,228

1,513,599

Elimination or Corporate

Total(168,290)(144,731)(136,641)

Consolidation

1,660,162

1,487,496

1,376,958

Operating income
Years ended March 31

2009

2008

2007

Gas Sales

110,857

111,663

203,566

Gas Appliance Sales

2,086

2,909

1,169

Installation Work

(1,099)

828

1,750

Real Estate Rental

7,442

7,963

6,731

Other Businesses

13,482

12,768

13,847227,065

132,768

136,133

Elimination or Corporate

Total(67,563)(66,084)(64,750)

Consolidation

65,20470,048

162,315

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

Contribution to Net Sales by Segment
Years ended March 31

2009

2008

Gas Sales

68.8%

66.6%

+2.2 point

Gas Appliance Sales

6.7%

8.1%

-1.4 point

Installation Work

2.7%

3.5%

-0.8 point

Real Estate Rental

1.9%

2.2%

-0.3 point

Other Businesses

19.9%

19.6%

+0.3 point

ChangeNet Income and Net Income Per Share(¥ billion)
120

(Yen)
40

90

30

60

20

30

10

0
Years ended
March 3105■■ Net income (left)

46

06

07

08

Net income per share (right)

09

0

Financial Position and Liquidity
AssetsTotal assets increased by ¥60.5 billion, or 3.6% year on year, to¥1,764.1 billion. Total property, plant and equipment declined¥13.2 billion, to ¥1,110.8 billion. Due to an increase in otherintangible assets, total intangible assets amounted to ¥26.0
billion. Investments and other assets decreased by ¥13.8 billion, to ¥215.1 billion. A major factor in this decline was adecrease of ¥22.2 billion in investment securities, to ¥109.1
billion, due to the sluggish stock market.
Total current assets were up ¥84.8 billion, to ¥412.1 billion.
This was attributable to the following factors. In response to
global financial uncertainty, cash and deposits were up ¥20.8
billion from a year earlier. Due to the influence of the economic
slump from October, gas sales volume declined rapidly, andconsequently, the LNG inventories that had been prepared forthe winter season, when gas demand generally increases, did
not decline in line with expectations. As a result, raw materials
and supplies increased ¥22.1 billion. Moreover, other current
assets rose ¥22.8 billion.
Liabilities
Total liabilities rose ¥56.3 billion, to ¥979.5 billion. Total noncurrent liabilities rose ¥16.5 billion, to ¥633.2 billion due to anincrease in long-term loans payable caused by new fundingneeds, such as for overseas investment, offset by a decrease inbonds payable. Total current liabilities rose ¥39.7 billion, to¥346.3 billion. Principal factors in this increase included a riseof ¥24.8 billion in current portion of noncurrent liabilities, due
in part to the shift of the status of bonds from the category of
noncurrent liabilities to that of current liabilities.
Net Assets
Total net assets rose ¥4.1 billion, to ¥784.6 billion. Treasury
stock declined ¥40.4 billion, from ¥42.7 billion to ¥2.3 billion.
As a result, total shareholders’ equity was up ¥37.3 billion, to¥772.5 billion. In valuation and translation adjustments, valuation difference on available-for-sale securities was down due
to sluggish stock market conditions, and foreign currencytranslation adjustment was down due to a decline in assets ofoverseas consolidated subsidiaries and equity-method affiliates
due to the appreciation of the yen. Consequently, total valuationand translation adjustments were down ¥34.0 billion, to –¥0.2
billion. Minority interests were up ¥0.8 billion, to ¥12.2 billion.
Changes in Treasury Stock
The policy for shareholder return highlighted in the mediumterm management plan entailed the following: To achieve a“60% total payout ratio,” in conjunction with dividends, wewill acquire treasury stock, and the acquired stock will subsequently be canceled.
Treasury stock declined ¥40.4 billion, to ¥2.3 billion. Open
market purchases of treasury stock of ¥9.9 billion (23.98 million shares) were offset by the cancellation of treasury stock
totaling ¥11.6 billion (24.00 million shares). The fifth unsecured
convertible bonds (conversion price: ¥339) were scheduled forredemption at the end of March 2009, and requests for conversion to shares of common stock reduced treasury stock by¥38.9 billion (80.55 million shares).

Equity Ratio
Minority interests did not change significantly, and as a result,in the same way as net assets, total shareholders’ equity* wasup slightly, rising ¥3.2 billion, or 0.4%, to ¥772.3 billion. On
the other hand, total assets increased 3.6%, and as a result,the equity ratio declined 1.3 percentage points, to 43.8%.
* Total shareholders’ equity = Net assets – Minority interests

Interest-Bearing Debt
In the fiscal year ended March 31, 2009, interest-bearing debt
increased by ¥34.5 billion, or 6.2%, to ¥593.2 billion, becauseof the increase in the demand for funds, particularly for newcapital investments and for gas resource costs. As a result, theD/E ratio rose 0.04 point, to 0.77.
Credit Ratings
To secure financial flexibility in regard to liquidity on hand andcapital policy, and to secure access to financial resources
through the capital markets, the Company believes that it isnecessary to maintain its credit rating at a certain level. In
order to smoothly raise funds from capital markets, Tokyo Gas
Co., Ltd. has acquired ratings from Standard & Poor’s, Moody’s,
and Rating and Investment Information Inc. (R&I), a rating
agency in Japan. As of July 2008, the ratings were as follows.
S&P
AA (stable)
Moody’sAa1 (stable)
R&I
AA+ (stable)
Capital Expenditures and Depreciation
Capital expenditures rose ¥7.9 billion, or 5.7%, to ¥145.9 billion. This increase was principally attributable to higher
investment in new trunk lines for the purpose of stable supply
and to an increase in pipeline investment for the purpose of
demand development. Depreciation declined ¥1.3 billion, or
0.9%, to ¥141.0 billion. In the future, the Company will continue to make capital expenditures, in a systematic manner, forthe purposes of supply stability and demand development.
Total Equity and Equity Ratio(¥ billion)
1,000

(%)
50

800

40

600

30

400

20

200

10

0
Years ended
March 3105

06■■ Total equity (left)

07

08

09

Interest-Bearing Debt and D/E Ratio(Times)
1.2

600

0.9

400

0.6

200

0.3

0
Years ended
March 31

05

06■■ Interest-bearing debt (left)

07

08

D/E ratio (right)

09

Cash Flows from Operating Activities
Cash flows from operating activities decreased by ¥22.6 billion
from the previous year, to ¥159.5 billion. In addition to income
before income taxes of ¥68.0 billion, decrease (increase) in
prepaid pension costs amounted to ¥9.0 billion, an increase of¥18.0 billion from the previous fiscal year. However, increase(decrease) in notes and accounts payable–trade was ¥6.0 billion, a decline of ¥29.8 billion from the previous fiscal year, anddecrease (increase) in inventories was –¥21.1 billion, a declineof ¥18.5 billion from the previous fiscal year. These were themajor factors contributing to the decline in cash flows.
Cash Flows from Investment Activities
Cash flows from investment activities in the fiscal year underreview were –¥163.5 billion, compared with –¥155.3 billion in
the previous year. Proceeds from sales and redemption of
securities were down by ¥8.2 billion, to ¥1.3 billion. The totalof purchase of property, plant and equipment and purchase ofintangible assets was up by ¥4.9 billion from the previous year,to ¥140.7 billion. Major outflows in the fiscal year under review
were related to gas pipeline construction. Purchase of investment securities was down by ¥4.0 billion from the previous
year, to ¥15.0 billion.
Cash Flows from Financing Activities
Cash flows from financing activities in the fiscal year underreview were ¥30.9 billion, compared with –¥25.1 billion in theprevious year. Purchase of treasury stock declined ¥29.1 billion
from the previous year, to ¥10.4 billion. In addition, proceedsfrom long-term loans payable were ¥81.1 billion, comparedwith ¥59.5 billion in the previous year.
As a result, the balance of cash and cash equivalents at theend of the fiscal year was up ¥20.3 billion from the end of theprevious year, to ¥64.0 billion.
Operating Cash Flow
In both the previous and current medium-term management
plans, Tokyo Gas, aiming to aggressively invest in the gas business, made operating cash flow a key management indicator.
Operating cash flow is calculated by adding depreciation to
net income.
Operating cash flow for the fiscal year ended March 31,
2009 amounted to ¥182.7 billion, a year-on-year decrease of¥2.1 billion. The lower figure reflects a decrease of ¥0.7 billion
in net income, and a decrease of ¥1.3 billion in depreciation.

0

Equity ratio (right)(¥ billion)
800

Cash Flows0

Total Payout Ratio to be 63%
In both previous and current medium-term management plans,Tokyo Gas has included 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 theincome distributed as dividends funded by net income in FY n
and share repurchasing in FY n+1 to the net income in FY n.
We aim to maintain a total payout ratio of 60% while preserving a balance between dividends and stock repurchases.
In accordance with this “total payout ratio” concept, theCompany plans dividends of ¥8.0 per share for the fiscal year
ended March 31, 2009 and share repurchases of ¥5.0 billion(15 million shares) in the fiscal year ending March 31, 2010. As
a result, the total payout ratio for the fiscal year ended March
31, 2009 is expected to be 63%.

47

In regard to dividends, our priority is to maintain stable dividends, as well as gradual increases over the long term, without
reducing dividends based on income level.
In regard to share repurchases, our basic principle is to cancel
the shares. In July 2008, we cancelled 24 million shares, morethan the number of shares repurchased during the fiscal year
ended March 31, 2009. Consequently, the number of sharesissued declined by the same number, to 2,717,571,295 shares.
Millions of yen
Years ended March 31

2009

2008

2007

Net cash provided byoperating activities

159,561

182,204

190,597

Net cash used in investing
activities(163,575)(155,365)(130,922)

Net cash provided by(used in) financing activities

30,932(25,189)(65,843)

Key Management Indicators

ROE
Average shareholders’ equity declined, but net income decreased
1.8%, to ¥41.7 billion, and as a result, ROE was 5.4%, or thesame as that of the previous fiscal year.
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 thecost of capital) as our main management indicator. TEP is also
being used as a management indicator for group companies
and as a benchmark for business restructuring and integration.
In the fiscal year ended March 2009, Net Ordinary Profit
After Tax Prior to Interest Payments (NOPAT) declined ¥8.6 billion year-on-year, to ¥41.2 billion, due in part to an increase inamortization of the actuarial differential on retirement benefits
and higher overhead expenses. On the other hand, theWeighted Average Cost of Capital (WACC) fell from 3.6% to
3.4%, with the result that the cost of capital declined by ¥2.1
billion, to ¥46.0 billion. As a result, TEP declined by ¥6.5 billion,
to –¥4.8 billion.

ROA and ROE about the same as those of the previous
fiscal year
ROA
Net income decreased ¥0.7 billion, to ¥41.7 billion, and average total assets increased. As a result, ROA fell to 2.4% from
2.5% in the previous fiscal year.

ROA and ROE

TEP(¥ billion)
60

(%)
15

50
12
40
9

30
20

6

10
3

0
Years ended
March 31

0

05

06

07

08

09

ROA
ROE
ROE = Net income/Equity (average of positions at start and end of fiscal year)–10
Years ended
March 31

06

07

08

09

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

Analysis of Ordinary Income in the Fiscal Year Ending March 31, 2010 (vs. the Fiscal Year Ended March 31, 2009)
Gas gross margin: +¥38.4 billion

Year ended March 31, 2009
results: ¥58.3 billion

Year ending March 31, 2010
projection: ¥64.0 billion

Operating expenses increase: –¥28.8 billion

Tokyo Gas non-consolidated:+¥10.2 billion

Strategic investment
Acceleration of safety measures: –¥3.2 billion
Enhanced residential sales: (LIFEVAL: –¥1.5 billion;“ENE-FARM”: –¥1.9 billion; all-electric-housecountermeasures: –¥2.1 billion
Personnel expense (amortization of the actuarial
differential on retirement benefits): –¥9.4 billion
Depreciation increase accompanying
new infrastructure: –¥2.3 billion

Other: +¥0.7 billion
Change: +¥5.7 billion

Consolidated subsidiaries:–¥0.5 billion
Internal offset:–¥4.0 billion

48

Increased depreciation accompanying large-scale
capital investment: (LNG vessel, onsite energy plants, etc.)
Decreased profit, due to lower oil price,at equity-method affiliate (upstream business)

Forecast (as of April 28, 2009)
Forecasting higher sales and profits in the year ending
March 2010
In the fiscal year ending March 31, 2010, we expect consolidated sales to decline ¥279.1 billion, or 16.8%, to ¥1,381.0
billion; operating income to increase ¥7.8 billion, or 12.0%, to¥73.0 billion; and net income to increase ¥0.3 billion, or 0.7%,
to ¥42.0 billion.
In the fiscal year ended March 31, 2009, ordinary income
amounted to ¥58.3 billion, but in the fiscal year ending March
31, 2010, we are forecasting a year-on-year increase of ¥5.7
billion, or 9.7%, to ¥64.0 billion. Principal factors include thenon-consolidated ordinary income of Tokyo Gas (+¥10.2 billion), the ordinary income of consolidated subsidiaries (–¥0.5
billion), and internal offset (–¥4.0 billion).
On a non-consolidated basis, Tokyo Gas is expected to record
an increase of ¥10.2 billion in ordinary income in comparison
with the fiscal year ended March 31, 2009. Gas sales volume
and sales revenues are both projected to decrease, but we
expect the gross profits on gas to improve by ¥38.4 billion
because declines in gas resource costs are expected to exceed
declines in sales revenues. Among the principal factors, we project that the drop in gas sales volume will reduce profits by ¥12.4
billion, while improvement in under-recovery of gas resource
costs due to the time lag under the gas rate adjustment systemshould increase profits by ¥37.0 billion. Due to investment tosteadily implement the key policies under the new medium-term
management plan and to increases in retirement benefits
accounting actuarial differences and other salary expenses, fixed
expenses are projected to increase ¥28.8 billion.
The ordinary income for consolidated subsidiaries is projected to basically remain at the previous year’s level, with aslight decline of ¥0.5 billion due to increased depreciation
stemming from large-scale capital investment.
For further information, please refer to the previous page.

External Risks Affecting Business Activities
Gas Resource Purchase Price 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, the dollar-denominated LNG prices are linked to crude oil
prices on a sliding scale, which exposes the Company to risk
from changes in the international market price for crude oil.
The provisional calculation of the extent to which thesefluctuations will affect gas resource costs in the year ending
March 31, 2010 is as follows.
Approximately ¥3.7 billion with an exchange rate fluctuation of ¥1/dollar
Approximately ¥4.4 billion with a fluctuation in crude oil
price of $1/barrel
Fluctuations in the cost of gas resources are passed on togas rates after at most five months under the “gas rate adjustment” system. Accordingly, in a single fiscal year, there can beunder-recovery or over-recovery. Under this system, althoughearnings may be subject to temporary increases and decreases
in a given fiscal year, the effect on operating income in theyear ending March 2010, after consideration of the time lag in
the gas rate adjustment system, will be as follows.

Approximately ¥0.8 billion with an exchange rate fluctuation of ¥1/dollar
Approximately ¥1.1 billion with a fluctuation in crude oil
price of $1/barrel
In fiscal year ended March 2009, the crude oil price averaged$90.51 per barrel, and the average exchange rate was ¥100.71
to one dollar. Forecasts for fiscal year ending March 2010 are
based on an average crude oil price of $50 per barrel and an
exchange rate of ¥100 to one dollar.
Temperature Fluctuation Risk
Temperatures affect the volume of city gas sales, which
account for around 70% of consolidated sales. In the residential sector, gas is used mainly for water heating and spaceheating. Mild winter weather can erode revenues and income
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 thewinter the gas sales volume increases.
The average temperatures in fiscal year ended March 2009were 22.1ºC in the first half of the year, 11.1ºC in the second
half, and 16.6ºC over the whole year. Forecasts for fiscal year
ending March 2010 are based on an average of 16.9ºC over
the whole year.
Impact of 1ºC Temperature Rise on Overall Gas Sales
VolumeRate of change

Summer (June–September)–0.6%

Winter (December–March)–2.5%

Intervening months (April, May, October, November)–2.2%

Annual–1.9%Interest Rate Fluctuation Risk
Tokyo Gas mostly procures both short-term and long-term
interest-bearing debt at fixed interest rates so there is only avery small interest rate fluctuation risk during the term of an
obligation. However, there may be fluctuation risk when loans
are refinanced.
Stock Price Fluctuation Risk
The equities held by Tokyo Gas are primarily those of its goodbusiness partners, which are held with the objective of fostering
mutual growth. Equities of publicly listed companies are 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.
Monthly Gas Sales Volumes
for the Fiscal Year Ended March 31, 2009 (Non-Consolidated)(Million m3, 45MJ/m3)
1,600

1,200

800

400

0

08/4 5■■ Residential■■ Industrial

6

7

8

9

10 11 12 09/1 2

3■■ Commercial and others■■ Wholesale49

BUSINESS RISKS

Described below are items in the annual Yuho securities report concerning the Company‘s business andfinancial situation that could have a significant influence on investor decisions. Forward-looking statements are based on the judgments of the Group as of the end of the fiscal year (March 31, 2009).

1. Accidents and Disasters

3. Risks Accompanying Business Execution(1) Resource procurement supply interruption risk
Because Tokyo Gas relies on imports for the majority of its natural gas and other city gas resources, supplier country risk,
accidents at gas fields or LNG liquefaction plants, accidents to
LNG vessels in transit, or other situations preventing the procurement of gas resources may disrupt the supply of natural gas.

(1) Risks faced by existing business
A. 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 aredelays of LNG supply by new projects, etc., revenues may beaffected by increases in gas resource costs due to our procurement of spot LNG.

(2) Natural disaster risk
Tokyo Gas engages in facility-dependent businesses because
city gas production and supply facilities are the foundation ofits business. Accordingly, earthquakes, typhoons, or othermajor natural disasters may cause damage to LNG terminals
and other production facilities or pipelines and other supply
facilities and disrupt the supply of city gas. Costs accompanying recovery efforts could affect revenues.
(3) Gas production / supply accidents or supply disruption
The business operations of Tokyo Gas are based on the production and supply of city gas. A major gas leak or explosion relating
to the production or supply of gas, or a disruption of supply,
could result not only in direct damages but also in tangible andintangible losses, including social liability.
(4) 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 relatedcompanies, etc. Costs accompanying responses to accidents
caused by supply, gas appliances, and other equipment could
affect future earnings, and there could also be other direct andindirect losses.
(5) Damage to reputation resulting from gas accidents
caused by other gas companies
Accidents involving gas supply by other gas companies could
have a serious effect on the reputation of the city gas industry
as a whole. This could result in tangible and intangible losses.

2. Market Fluctuation Risks
Tokyo Gas might incur losses in the event of changes in themarket price of Company-owned real estate, stocks, pension
assets, or other assets and fluctuation of interest rates.

50

B. 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 thefluctuation is reflected in the rates as much as five months
later. If this occurs over the accounting year, revenues for asingle fiscal year may be affected due to under-recovery orover-recovery of gas resource costs. In particular, if crude oil
prices or the exchange rate fluctuate suddenly or to an
extreme degree, the effect on revenues for a single fiscal year
may be large.
C. Decline in gas sales volume due to weather fluctuations
Abnormal weather conditions, particularly summer heat waves
and warm winters, reduce gas sales volume in the residential
sector, where gas is mainly used to supply hot water and heating, thereby affecting revenues.
D. Demand risk
Decreased facility utilization due to economic recession,
advancement of energy conservation activities, changes inindustry structure, or other factors may result in a partial
decrease in existing gas demand in the industrial and commercial sectors. Also, changes in lifestyles, the penetration ofenergy-saving appliances, or other factors may result in a partial decrease in existing demand in the residential sector.
E. Decline in demand due to intensified competition
Increasing competition with electric utilities and companies
entering into the gas business, as well as possible loss of LNG
competitiveness against other energy sources due to crude oil
price fluctuation, may result in lower demand and may affectrevenues.

F. Delay in the establishment and commencement ofoperations of the new regional energy company
For April 2008 to October 2009, the Tokyo Gas Group will
gradually restructure and integrate its residential sector service
operations to establish a new regional energy company, Tokyo
Gas LIFEVAL, which will execute all these operations in an integrated manner. The new company will develop regional
demand for gas, primarily among residential customers. We
have made careful preparations to ensure that the Company
has a smooth launch and does not have operational errors.
However, this initiative constitutes a fundamental revision of
our regional marketing structure, and if unforeseen changes tothe situation were to occur, they could affect the smooth commencement of the business.

the expected results due to changes in the economic situation,
which could affect revenues.

G. Technology development failure
If we are unable to develop or commercialize in a timely manner the new products and new technologies necessary for the
performance of our business, we may lose competitivenesswith other forms of energy and this may affect businessperformance.

(2) Risk of failure or malfunctioning of IT backbone
systems
The failure or malfunctioning of IT backbone systems related
to the manufacture and supply of gas, to customer contact
operations, or to 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
to the Tokyo Gas Group’s brand image.

H. Changes in laws, regulatory systems, or energy policiesof the national governments or local governments
Tokyo Gas manages its operations in compliance with the Gas
Utility Industry Law, the Japanese Corporate Law, the Financial
Instruments and Exchange Act, and other laws, regulations
and institutions, as well as the energy policies of the national
government and local governments. Any revisions to theselaws, regulations, institutions, or policies that prove detrimental to the Tokyo Gas Group may affect business performance.

4. Risks Related to Information Management
and System Operation(1) Personal 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, but also in tangible and intangible loss, including
damage to the trust of customers and others, with more serious consequences than for other companies.

(3) 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 to the Tokyo Gas Group’s brand image.

(2) Delays in opening up new markets
As stated in the medium-term management plan, the Company
is working to develop new markets by promoting the adoptionof the “ENE-FARM” residential-use fuel cell and new energy
systems incorporating solar light and heat. Subsequent changes
in the Group’s internal or external environment could lead todelays in the development of new markets, changes in business strategies, and failure to recover investment.

5. Risks Related to Corporate Social
Responsibility(3) ROITokyo Gas continues to make large investments in keepingwith the goal of “advancing and developing the total energy
business strategy” as expressed in the medium-term management plan. Doing so involves investments in strengthening thefoundation for stable supply, including the expansion of widearea infrastructure, such as pipeline construction over a widearea, and LNG tank construction. It also involves investments
channeled into the electric power business, energy service
business, gas field and other development projects, the LNG
transportation business, and investments in enhancing thefoundation in existing businesses such as IT, as well as the utilization of Company-owned real estate. Such investments run
the risk of not bringing in appropriate returns or not producing(2) Compliance violations
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.

(1) Response to new environmental regulations, etc.
The need to comply with new environmental laws or additional
obligations to improve the environment might have an effecton the business operation of the Tokyo Gas Group, and it could
affect revenues.

(3) Inadequate customer satisfaction or responses tocustomer needs
Inadequate customer satisfaction or inappropriate customer
service may result in declining corporate competitiveness andin tangible and intangible loss, including damage to the Tokyo
Gas Group’s brand image.

51

CONSOLIDATED BALANCE SHEETSMarch 31, 2009 and 2008

Thousands of
U.S. dollars(Note 1)Millions of yen

ASSETS

2009

2008

2009

¥ 193,613¥ 200,585$ 1,975,642

490,809486,845

5,008,255

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

60,51060,765

617,448

Other facilities (Note 3 and 12)

297,643

303,189

3,037,173

316

316

3,224

Inactive facilities

67,95772,419693,438

1,110,852

1,124,122

11,335,224

Goodwill

1,233

1,833

12,581Other (Note 12)

24,816

21,385

253,224

26,04923,219265,806

Investment securities (Note 3 and 4)

109,173

131,443

1,114,010

Long-term loans receivable (Note 3)

24,83918,485

253,459

Construction in progress
Total property, plant and equipment

Intangible assets

Total intangible assets

Investments and other assets

Deferred tax assets (Note 8)

46,212

31,635471,551

Other

35,84748,072

365,785

(906)

(614)

(9,244)215,166

229,022

2,195,571

1,352,068

1,376,365

13,796,612

Cash and deposits (Note 3)

66,90546,092682,704

Notes and accounts receivable – trade

166,542

172,889

1,699,408

Lease receivables and lease investment assets

25,594—

261,163

Merchandise and finished goods

3,807

3,742

38,846

Allowance for doubtful accounts
Total investments and other assets
Total noncurrent assets

Current assets

43

64

438

Raw materials and supplies

56,90534,718580,663

Deferred tax assets (Note 8)

13,461

13,704

137,357

Other (Note 3)

79,431

56,590810,520Work in process

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

52

(574)

(516)

(5,857)412,117327,286

4,205,275¥1,764,185¥1,703,651$18,001,887

Thousands of
U.S. dollars(Note 1)Millions of yen

LIABILITIES AND NET ASSETS

2009

2008

2009

¥ 291,490¥ 331,489$ 2,974,387

207,741

155,648

2,119,806

3,654

3,066

37,285

Noncurrent liabilities
Bonds payable (Note 5)Long-term loans payable (Note 3 and 5)
Deferred tax liabilities (Note 8)

100,734

93,557

1,027,897

Provision for gas holder repairs

3,555

3,558

36,275

Provision for safety measures

1,450

2,957

14,795

Provision for retirement benefits (Note 7)

24,597

26,346250,989

633,223

616,624

6,461,459

Current portion of noncurrent liabilities (Note 3 and 5)

88,16963,359899,683

Notes and accounts payable – trade103,319

99,352

1,054,275

Other
Total noncurrent liabilities

Current liabilities

Short-term loans payable (Note 5)

5,910

8,378

60,306

Income taxes payable

34,89425,150356,0612

1

20

114,048

110,327

1,163,755

Total current liabilities

346,345306,570

3,534,132

Total liabilities

979,568

923,195

9,995,591

Deferred tax liabilities (Note 8)
Other (Note 3)

Net assets (Note 9)
Shareholders’ equity
Capital stock*141,844

141,8441,447,387

Legal capital surplus

2,065

2,065

21,071Retained earnings

631,045

634,116

6,439,234

Treasury stock**(2,361)(42,774)(24,091)

772,594735,251

7,883,612

11,466

31,917

117,000

920

424

9,387

(12,615)

1,479(128,724)(228)

33,820(2,326)

Minority interests

12,25011,382125,000

Total net assets

784,616

780,455

8,006,285¥1,764,185¥1,703,651$18,001,887

Total shareholders’ equity

Valuation and translation adjustments
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Total valuation and translation adjustments

Total liabilities and net assets* Capital stock
Common stock
Authorized: 6,500,000,000 shares
Issued: 2,717,571,295 shares as of March 31, 2009 / 2,741,571,295 shares as of March 31, 2008** Treasury stock: 4,884,659 shares as of March 31, 2009 / 84,937,500 shares as of March 31, 2008

53

CONSOLIDATED STATEMENTS OF INCOME
Years ended March 31, 2009 and 2008

Thousands of
U.S. dollars(Note 1)Millions of yen

2009

2008

2009

Net sales (Note 11)¥1,660,162¥1,487,496$16,940,428

Cost of sales

1,139,791

974,110

11,630,520

Gross profit

520,371

513,386

5,309,908

381,177

370,795

3,889,561

Selling, general and administrative expenses
Supply and sales expenses

73,98972,541

754,989

455,166

443,337

4,644,551

65,20470,048665,346

Interest income

1,089

446

11,112

Dividends income

1,675

1,513

17,091Equity in earnings of affiliates

5,529

3,775

56,418

Miscellaneous income

7,381

13,16275,316

15,67518,898

159,948

Interest expenses

10,86910,460110,908

Adjustments of charges for construction of distribution facilities

3,257

3,723

33,234

Miscellaneous expenses

8,415

7,930

85,86722,542

22,114230,020

58,337

66,832595,275

Gain on sales of noncurrent assets

—

1,849

—

Gain on sales of investment securities

—

3,355

—

Gain on adjustment for changes of “Accounting Standard
for Lease Transactions”

7,846

—

80,061Gain on transfer of benefit obligation relating to employees’
pension fund

1,570

—

16,020Gain on transfer of business

1,359

—

13,867

Total extraordinary income

10,775

5,205

109,948—

567—

General and administrative expenses
Total selling, general and administrative expenses
Operating income
Non-operating income

Total non-operating income
Non-operating expenses

Total non-operating expenses
Ordinary income
Extraordinary income

Extraordinary losses
Impairment loss

—

710

—

1,076

1,078

10,979Loss on reduction of noncurrent assets
Loss on valuation of investment securities

1,076

2,356

10,979

Income before income taxes

68,037

69,681

694,255

Income taxes – current

27,63022,748281,938

Total extraordinary losses

Income taxes – deferred(2,366)

3,238(24,142)

Total income taxes

25,26425,986

257,795

1,064

Minority interests in income
Net income

¥

1,207

41,708¥42,487

Yen

10,857$425,591

U.S. dollars

2009

2008

2009

Amounts per share of common stock
Net income¥15.63¥15.94$0.15

Diluted net income

15.37

15.50

0.15

Cash dividends applicable to the year

8.00

8.00

0.08

Accompanying notes are an integral part of these financial statements.

54

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Years ended March 31, 2009 and 2008

Thousands of
U.S. dollars(Note 1)Millions of yen

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

2009

2008

2009

¥141,844¥141,844$1,447,387—
141,844—
141,844—1,447,387

2,065

2,065

21,071

—
2,065

—
2,065

—
21,071

634,11694

644,652—

6,470,571
959(21,200)
41,708(11,710)(11,622)(340)—(3,165)631,045(22,831)
42,487(2,098)(34,539)
113
6,332(10,536)
634,116(216,326)
425,591(119,489)(118,591)(3,469)—(32,295)
6,439,234(42,774)(44,564)(436,469)(10,462)
39,252
11,62240,413(2,361)(39,572)
6,823
34,5391,790(42,774)(106,755)
400,530
118,591
412,377(24,091)735,25194

743,997—

7,502,561
959(21,200)
41,708(10,462)
27,542—(340)—
37,247
772,594(22,831)
42,487(39,572)
4,725
—
113
6,332
(8,745)735,251(216,326)
425,591(106,755)
281,040—(3,469)—380,071
7,883,612

31,91749,706

325,683(20,451)(20,451)
11,466(17,789)(17,789)
31,917(208,683)(208,683)
117,000

424

1,095

4,326

496
496
920

(671)
(671)
424

5,061
5,061
9,387

1,479

302

15,091(14,094)(14,094)(12,615)

1,177
1,177
1,479

(143,816)(143,816)(128,724)

33,82051,103345,102(34,048)(34,048)(228)(17,283)(17,283)
33,820(347,428)(347,428)(2,326)

11,382

10,944

116,142867
867
12,250438
438
11,3828,846
8,846
125,000

780,45594

806,045—

7,963,826
959(21,200)
41,708(10,462)
27,542(340)—(33,180)
4,066¥784,616(22,831)
42,487(39,572)
4,725
113
6,332
(16,845)(25,590)¥780,455(216,326)
425,591(106,755)
281,040(3,469)—(338,571)
41,489$8,006,285

Accompanying notes are an integral part of these financial statements.

55

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, 2009 and 2008

Thousands of
U.S. dollars(Note 1)Millions of yen

2009

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

56

¥

¥

2008

68,037
136,899
—
610
4,184
3,561
—
1,076
7,177
9,027
(1,507)(2,764)
10,869(5,529)2,585(21,111)
6,005(12,186)(4,042)(1,359)¥2009

69,681138,132
567
684
4,288
1,568
710
1,078
621
(9,015)(2,469)(1,959)10,460(3,775)(3,004)(2,542)35,883
(560)
—
—

$

694,255
1,396,928—
6,224
42,69336,336—
10,97973,234
92,112(15,377)(28,204)
110,908(56,418)
26,377(215,418)
61,275(124,346)(41,244)(13,867)(7,846)—(80,061)(7,623)
186,0633,421(10,850)(19,073)
159,561(8,237)232,112
2,784(10,196)(42,496)
182,204(77,785)
1,898,602
34,908(110,714)(194,622)
1,628,173(6,085)
5,575(15,091)
1,388(133,629)(7,120)(1,479)828(8,996)
1,505(1,031)
558(163,575)(5,467)
5,466(19,111)
9,630(128,972)(6,786)(3,023)
1,496(9,834)
1,184—
51(155,365)(62,091)
56,887(153,989)
14,163(1,363,561)(72,653)(15,091)
8,448(91,795)
15,357(10,520)
5,693(1,669,132)(2,468)—(5)
81,185(31,249)
20,000(4,888)235(10,462)(21,208)(205)
30,932(6,570)20,34743,706
1(3,235)(6,000)—59,590(43,162)
29,989—302(39,572)(22,823)(278)(25,189)524
2,173
40,231
1,301(25,183)—(51)
828,418(318,867)
204,081(49,877)
2,397(106,755)(216,408)(2,091)
315,632(67,040)
207,622445,979
10

(45)

—

(459)

64,009¥43,706$653,153

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2009 and 2008

1. Basis of Presenting Consolidated Financial
Statements
Tokyo Gas Co., Ltd. (the “Company”) and its consolidated subsidiaries maintain their accounts and records in accordance withthe provisions set forth in the Japanese Financial Instruments
and Exchange Law (formerly Securities and Exchange Law) and
its related accounting regulations, and in conformity withaccounting principles generally accepted in Japan (“Japanese
GAAP”), which are different in certain respects as to application and disclosure requirements from International Financial
Reporting Standards. The Company, as a regulated company,
also follows the Gas Business Law related accounting regulations for preparing such financial statements.
Previously, the accompanying consolidated financial statements were produced by restructuring (reorganizing, changing
notes) and translating into English the consolidated financial
statements of the Company prepared in accordance withJapanese GAAP and filed with the appropriate Local Finance
Bureau of the Ministry of Finance as required by the Financial
Instruments and Exchange Act. From the fiscal year ended
March 31, 2009, however, the financial statements, including
the financial statements for previous years but excluding notes
to consolidated financial statements, are not being restructured.
In addition, the accompanying consolidated financial statements do not necessarily include all of the information includedin the Japanese version of the consolidated financial statements
filed as per the Financial Instruments and Exchange Act.
Equivalent U.S. dollar amounts are included for the convenience of readers outside Japan, and are converted at a rate of¥98 per U.S. dollar, the prevailing exchange rate on March 31,
2009. These conversions should not be construed as representations that the Japanese yen amounts have been, could havebeen, or could in the future be, converted into U.S. dollars at
this or any other rate of exchange.

2. Significant Accounting Policies(1) Consolidation — The consolidated financial statements
include the accounts of the Company and all of its significant
subsidiaries. For the years ended March 31, 2009 and 2008, 57
and 55 subsidiaries, respectively, were consolidated. All significant inter-company transactions and account balances are
eliminated in consolidation.
In the elimination of investments in subsidiaries, the assets andliabilities of the subsidiaries, including the portion attributable tominority shareholders, are recorded based on their fair value at thetime the Company acquired control of the respective subsidiary.
The following two companies were newly established andadded to the scope of consolidation from the current fiscal year:
Tokyo Gas Lifeval Kazusa Co., Ltd.
TGI Financial Solutions Co., Ltd.
The following company was added to the scope of consolidation from the current fiscal year to reflect the increased
significance of the subsidiary:
Nijio Co.,Ltd.

In addition, TK Customer Service Co., Ltd. was liquidated
and removed from the scope of consolidation from the current
fiscal year.
The Company’s major unconsolidated subsidiaries include
Ohgishima Power Co., Ltd.
Unconsolidated subsidiaries were not included in the scopeof the consolidation because total assets, net sales and theamount of net income/loss equivalent to the portion of theCompany’s interests, or the amount of retained earnings, etc.,
equivalent to the portion of the Company’s interests was small
and lacking in qualitative significance, and therefore they do
not have a significant impact on the consolidated financial
statements.
(2) Equity method — Significant investments in unconsolidated subsidiaries and affiliates over which the Company has
the ability to exercise significant influence with regard tooperating and financial policies of the investees are accounted
for by the equity method. Four affiliated companies were accounted for using the equity method for the two years ended
March 31, 2009 and 2008.
The unconsolidated subsidiaries and affiliates not accounted
for by the equity method were excluded from the scope of
application of equity methods, due to the immaterial effect of
the Company’s total interest on their net income/loss andretained earnings to the consolidated financial statements andtotally insignificance.
(3) Accounting period of consolidated subsidiaries —Although the Company’s fiscal year ends on March 31, thefollowing companies end their year on December 31:
TOKYO GAS AUSTRALIA PTY LTD
Tokyo Gas International Holdings B.V.
Tokyo Gas Bajio B.V.
Tokyo Gas Darwin LNG Pty Ltd
TOKYO GAS–MITSUI & CO. HOLDINGS SDN. BHD.
Tokyo Gas Pluto Pty Ltd
All significant adjustments considered necessary during theperiod from December 31 to the consolidated fiscal year-end
have been made with consolidation.
(4) Property, plant and equipment — For property, plantand equipment, the acquisition cost is shown. However, in thecase of acquisition expenses of the Company and its consolidated subsidiaries that have been subsidized by the national
government, etc., the amount of such subsidiaries are offset
against the acquisition cost of the corresponding asset (reduction entry).
Primarily, the declining-balance method of depreciation isapplied, based on the estimated useful life of the asset.
However, the straight-line method is applied for certain buildings (excluding ancillary equipment). Accumulated depreciation
on property, plant and equipment is deducted directly fromthe balances of the corresponding assets.
In the accompanying consolidated financial statements, accumulated depreciation on property, plant and equipment
amounted to ¥2,915,715 million (US$29,752,193 thousand) and57

¥2,825,986 million for the years ended March 31, 2009 and2008, respectively.
As a result of the revision of the Corporation Tax Law, as of
the year ended March 31, 2008, the Company and its domestic
consolidated subsidiaries have changed the depreciation
method for property, plant and equipment acquired on orafter April 1, 2007, to the depreciation method prescribed by
the revised Corporation Tax Law.
In addition, as of the fiscal year ended March 31, 2008, as toproperty, 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 theacquisition cost and the memorandum value is depreciated uniformly over five years and included in depreciation expenses.
The effect of these accounting changes on segment information is shown in Note 11. Segment Information.
The total amount of impairment loss is directly deductedfrom the amount shown for the respective asset.
(5) Intangible fixed assets — the straight-line method isapplied. For software used by the Company, the straight-line
method is applied based on the period of useful life within the
Company.
(6) Accounting for certain lease transactions — Financeleases that do not involve transfer of ownership were previously
accounted for based on standards for ordinary rental transactions. From the current fiscal year, however, the AccountingStandard for Lease Transactions is applied, and the accounting
method is as per ordinary sale and purchase transactions.
When the Company is the lessee, those finance lease transactions that do not transfer ownership and commenced on or
before March 31, 2008, are accounted for based on standards
for ordinary rental transactions.
The effects from the change on profit and loss when the
Company is the lessee are negligible. When the Company is
the lessor, the effects of the change on operating income andrecurring income are negligible, but income before income
taxes is increased by ¥7,715 million (US$78,724 thousand).
(7) Goodwill — Goodwill and negative goodwill are amortized on a straight-line basis within 20 years (mainly 10 years).
(8) Cash and cash equivalents — Cash and cash equivalents
include cash on hand, readily-available deposits and short-term
highly-liquid investments with maturities not exceeding threemonths at the time of purchase, which are readily convertible
to known amounts of cash such that they present insignificant
risk of change.
(9) Securities — The Company and its consolidated subsidiaries classify their securities under the following three categories,
in accordance with the Japanese Accounting Standard for
Financial Instruments.

58(a) Debt securities intended to be held to maturity (hereafter,“held-to-maturity debt securities”) are stated at amortized cost.
(b) Equity securities issued by unconsolidated subsidiaries
and affiliated companies that are not accounted for using
the equity method are stated at moving-average cost.
(c) Other securities with fair value, which are defined as
securities other than held-to-maturity debt securities,
equity securities issued by unconsolidated subsidiaries
and affiliated companies, and securities held for trading
purposes, are stated at fair value at the year-end, if theirfair values are readily available. The difference between
acquisition costs and book values of these securities arereported, net of applicable taxes, as a separate component of net assets. Other securities with no fair values arestated at moving-average cost.
If the fair value of held-to-maturity debt securities, equity
securities issued by unconsolidated subsidiaries and affiliatedcompanies, and other securities, declines significantly, and thedecline is not considered recoverable, such securities are stated
at fair value and the difference between fair value and the carrying amount is recognized as loss in the period of the decline.
(10) Derivative financial instruments — The Company andits consolidated subsidiaries use currency swap contracts,
interest rate swap contracts, foreign exchange forward contracts, commodity swap contracts, and weather derivatives
only for the purpose of mitigating the risk of fluctuations inforeign exchange rates, interest rates, market prices of raw
materials and finished products, and affects of changes intemperature.
The Company and its consolidated subsidiaries do not use
derivative financial instruments for speculative trading purposes. The derivative financial instruments are executed withcreditworthy financial institutions, and the Company’s and its
consolidated subsidiaries’ management believes there is little
risk of default by counterparties. The derivative financial instruments are used based on internal policies and procedures forrisk control.
Derivatives are stated at fair market value at the year-end.
The Company and its consolidated subsidiaries use hedging
accounting, provided that the conditions of the accounting
were applicable to the rules. Regarding forward exchange
contracts and foreign currency swap contracts that fulfilledcertain conditions, the hedged foreign currencies receivableand payable are recorded 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
contract is added to or deducted from the interest on the liabilities for which the swap contract was executed.
(11) Inventories — Inventory values are based on the movingaverage cost method. Balance sheet values are calculated using thebook value reduction method based on declining profitability.

(12) Allowance for doubtful accounts — For normal receivables, an allowance for doubtful accounts is provided using thehistorical experienced default ratio. For specific receivables suchas bankruptcy/rehabilitation claims, an allowance for doubtful
accounts is provided for the estimated amounts considered to
be uncollectible after reviewing individual collectability.
(13) Provision for retirement benefits — The Company andits consolidated subsidiaries provide an unfunded lump-sum
payment plan and a funded pension plan as retirement benefit
schemes. The Company and certain consolidated subsidiaries
provide defined benefit plans and defined contribution plans.
Retirement benefits under these plans are determined basedon the level of wages and salaries, length of service, and certain other factors.
The Company and its consolidated subsidiaries determine
benefit obligations and expenses for reserve for retirement
benefits based on the amounts actuarially calculated using
certain assumptions.
Provision for retirement benefits is provided based on theestimated amounts of projected benefit obligations and thefair value of the plan assets.
The estimated amount of all retirement benefits to be paid
at the future retirement date is assumed as generating equally
to each service year using the estimated number of total service
years. Past service costs are mainly charged to income whenincurred, and actuarial gains and losses are charged to income
mainly in the fiscal year following the year in which they arise.
(14) Provision for gas holder repairs — The Company andcertain consolidated subsidiaries provide for periodic repairs ofgas holders by estimating future expenditures and charging
them to income in equal annual amounts. The difference
between the actual expenditure and the amount provided ischarged to income in the year repairs are completed.
(15) Provision for safety measures — The Company provides
for expenses necessary to secure safety for gas consumers by
estimating the total amount of such expenses that are expected
to be incurred after the year-end date.
(16) Translation of financial statements denominated inforeign currency — Receivables and payables denominatedin foreign currencies are translated into Japanese yen at the
year-end rates, and foreign exchange gains or losses arecharged to current income/expense. Assets and liabilities ofthe foreign subsidiaries are translated into Japanese yen at theexchange rates prevailing at the consolidated year-end date.
Profit and loss accounts for the year are translated into Japanese
yen at the exchange rates prevailing at the consolidated yearend date as well. Differences in yen amounts arising from theuse of different rates are presented as “Foreign currency translation adjustment” and “Minority interests” in net assets.

(17) Income taxes — Income taxes comprise corporation tax,
inhabitants’ taxes and enterprise tax (excluding enterprisetaxes based on “amount of added value” and “amount of capital”). The Company and its consolidated subsidiaries recognize
tax effects of temporary differences between the financial
statement basis and the tax basis of assets and liabilities. The
Company and its consolidated subsidiaries do not recognize
deferred tax assets that are not expected to reduce future
income taxes.
(18) Enterprise tax — In the case of companies engaged ingas businesses, enterprise tax that is levied, not on taxable
income but on net sales, is accounted for in “Selling, generaland administrative expenses.” Enterprise taxes based on“amount of added value” and “amount of capital” are also
included in “Selling, general and administrative expenses.”In the accompanying consolidated statements of income,enterprise tax included in “Selling, general and administrative
expenses” amounted to ¥17,447 million (US$178,030 thousand) and ¥15,226 million for the years ended March 31, 2009
and 2008, respectively.
(19) Research and development expenses — Research anddevelopment expenses are charged to income as incurred. In
the accompanying consolidated statements of income, researchand development expenses included in “Selling, general andadministrative expenses” and “Cost of sales” amounted to¥9,164 million (US$93,510 thousand) and ¥9,950 million forthe years ended March 31, 2009 and 2008, respectively.
(20) Amounts per share of common stock — Basic net
income per share is computed based on the net income available for distribution to common shareholders and theweighted-average number of common shares outstanding forthe period. Diluted net income per share reflects the potential
dilution that could occur if convertible bonds were converted
into common stocks.
Convertible bonds had reached redemption by March 31,
2009, and there are no convertible bonds outstanding.
Cash dividends per share have been presented on an accrualbasis and include dividends approved or to be approved after
the balance sheet dates, but they are applicable to the year
then ended.
(21) Reclassifications — Certain prior year amounts havebeen reclassified to conform to the fiscal year ended March 31,
2009 presentation. These changes had no impact on previously reported results of operations.

59

3. Pledged Assets

4. Securities

Pledged assets at March 31, 2009 and 2008 were as follows:

Acquisition costs, book values and fair values of securities withavailable fair values at March 31, 2009 and 2008 were as follows:

Thousands of
U.S. dollars

Millions of yen

Distribution facilities
Service andmaintenance facilities
Other facilities
Investment securities
Long-term loans
receivable
Cash and deposits
Other current assets

2009

2008

2009

¥ 6,494¥ 6,779$ 66,265

13

93

132

11,794355

13,791
30

120,346
3,622

36

37

367

Book value

¥34

¥44

$346

19,459—$210,234

Fair value

35

45

357

¥ 0

¥ 1

$

1,907
—
¥20,603

1,736
4¥22,474

Liabilities secured by the above assets at March 31, 2009
and 2008 were as follows:
Millions of yen(a) Held-to-maturity debt securities
Thousands of
U.S. dollars

Millions of yen

2009

2008

2009

Securities with fair value exceeding book value:

Difference

Thousands of
U.S. dollars

Millions of yen

2009

0

2008

2009

Securities with fair value not exceeding book value:

Thousands of
U.S. dollars

Book value

¥10

¥199

$102

Fair value

9

199

91

2009

2008

2009

Long-term loans
payable (including
current portion of
noncurrent liabilities)¥9,584¥11,325$97,795

Other current liabilities

¥

¥

$

Difference

¥ 0

¥

0

$

0

(b) Other securities with fair value
56

59

571
Thousands of
U.S. dollars

Millions of yen

2009

2008

2009

Securities with fair values exceeding acquisition cost:
Equity securities
Acquisition cost

¥ 9,148¥22,142$ 93,346

Fair value

31,38673,250320,265¥22,237¥51,108$226,908

Difference

Thousands of
U.S. dollars

Millions of yen

2009

2008

2009

Securities with fair values not exceeding acquisition cost:
Equity securities
Acquisition cost
Fair value
Difference¥16,581¥3,473$169,193

12,6602,959

129,183¥ (3,921)¥ (513) $ (40,010)

Other securities sold amounted to ¥40 million (US$408
thousand) and ¥3,714 million for the years ended March 31,
2009 and 2008, respectively. Gain on sales of other securities
amounted to ¥33 million (US$336 thousand) and ¥3,355
million for the years ended March 31, 2009 and 2008,
respectively.
Other securities with no available fair value, which werestated at moving-average cost, amounted to ¥24,742 million(US$252,469 thousand) and ¥20,964 million at March 31,
2009 and 2008, respectively. Investments in unconsolidated
subsidiaries and affiliated companies amounted to ¥40,324
million (US$411,469 thousand) and ¥33,959 million for theyears ended March 31, 2009 and 2008, respectively.

60

5. Short-Term Loans Payable, Bonds Payable and Long-Term Loans Payable
The average annual interest rates for short-term loans payable at March 31, 2009 and 2008 were 0.7% and 0.9%,
respectively.
Bonds payable and long-term loans payable at March 31, 2009 and 2008 were as follows:
Millions of yen

Thousands of U.S. dollars

2009

2008

2009

Due in 2016 at a rate of 4.0%

¥ 27,700¥ 27,700$ 282,653

Due in 2018 at a rate of 2.625%

40,00040,000408,163Due in 2009 at a rate of 1.68%

30,00030,000306,122

Due in 2009 at a rate of 1.73%

30,00030,000306,122

Due in 2010 at a rate of 2.01%

20,00020,000204,081Due in 2011 at a rate of 1.39%

30,00030,000306,122

Due in 2012 at a rate of 1.35%

20,00020,000204,081

Domestic unsecured bonds

Due in 2023 at a rate of 1.01%

20,00020,000204,081Due in 2013 at a rate of 1.41%

30,00030,000306,122

Due in 2014 at a rate of 1.59%

20,00020,000204,081Due in 2024 at a rate of 2.29%

10,00010,000102,040

Due in 2025 at a rate of 2.14%

10,00010,000102,040

Due in 2015 at a rate of 4.1%

13,80013,800140,816

Due in 2009 at a rate of 1.18%

—

4,000

—

Due in 2027 at a rate of 2.29%

19,99619,996

204,040

Due in 2015 at a rate of 1.4%

9,994

9,993

101,979

Due in 2015 at a rate of 1.658%

20,000—204,081—

28,195—

Secured

9,584

11,325

97,795

Unsecured

226,244

175,328

2,308,612

587,320550,338

5,993,061

88,087

63,200898,846¥499,232¥487,138$5,094,204

Domestic unsecured convertible bonds
5th issue due in 2009 at a rate of 1.2%
Loans from banks, insurance companies and government agencies
due through 2020 at rates of 0.53% to 5.35%:

Less: amounts due within one year

The annual maturities of bonds payable and long-termloans payable at March 31, 2009 were as follows:

Millions of yen

Thousands of
U.S. dollars

2010¥ 88,087$ 898,846

2011

53,767548,6422012

48,353493,3972013

43,569444,5812014

36,681

374,2952015 and thereafter

316,860

3,233,265¥587,320$5,993,061

Note: The Company has a specific commitment line contract with the maincorrespondent financial institution of ¥30,000 million ($306,122 thousand)in total.

61

6. Derivative Transactions
Contract amounts, fair values and recognized gains on thecommodity derivatives except those accounted for using hedge
accounting and weather derivatives at March 31, 2009 and2008 were as follows:

Thousands of U.S. dollars
At March 31, 2009
Contract amounts
Beyondone year

Total

Fair value

Recognized
gains (losses)

Commodity derivatives $90,571 $90,571 $(13,051) $(13,051)
Millions of yen

Weather derivatives

At March 31, 2009

6,122

—

—

—

—

— $(13,051)

Contract amounts
Total

Beyondone yearCommodity derivatives¥8,876¥8,876

Weather derivatives

600

—

—

—

—

—

—

¥(1,279)

Recognized
gains (losses)

Fair value¥(1,279) ¥(1,279)

Millions of yen
At March 31, 2008
Contract amounts
Total

—

Beyondone year

Fair value

Recognized
gains (losses)

Commodity derivatives

¥ 764

¥—

¥815

¥815

Weather derivatives

1,100

—

—

—

—

—

—

¥815

Fair value of commodity derivatives contracts was calculated
based on the information presented by financial institutions.
Contract amounts of commodity derivatives are solely nominal
values, and not indicative of the magnitude of market risk or
credit risk concerning derivatives transactions. Contract amounts
of weather derivatives were stated at the maximum receivableor payable amounts under the contracts. Fair values of weather
derivatives were not stated because the calculation of the fairvalues was impossible.

7. Provision for Retirement Benefits
Provision for retirement benefits included in the liabilities section of the consolidated balance sheets as of March 31, 2009 and2008 were as follows:
Thousands of
U.S. dollars

Millions of yen

Projected benefit obligation

2008

2009

¥ 363,728$3,598,877

Unrecognized prior service costs

1,915

2,220

19,540

Unrecognized actuarial differences(35,211)(25,243)(359,295)

Less: Fair value of pension assets(218,660)(256,174)(2,231,224)

—

9,027

—

¥100,734¥ 93,557$1,027,897

Prepaid pension costs
Provision for retirement benefits

62

2009

¥352,690

Net periodic retirement benefit expenses for the years ended March 31, 2009 and 2008 were as follows:
Thousands of
U.S. dollars

Millions of yen

2009

2008

2009

Service costs – benefits earned during the year

¥ 9,402¥ 9,847$95,938

Interest cost on projected benefit obligation

6,359

6,500

64,887

Expected return on plan assets(5,028)(5,168)(51,306)

Amortization of actuarial differences

20,735

13,393

211,581

Amortization of prior service costs

(192)

(165)

(1,959)

Other

4,608

4,828

47,020Net periodic retirement benefit expenses

35,88529,235366,173

Gain on transfer of benefit obligation relating toemployees’ pension fund

(1,570)—(16,020)¥34,315¥29,235$350,153

Net

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% for the years ended March 31, 2009 and 2008, respectively.
Certain domestic consolidated subsidiaries obtained approval from the Minister of Health, Labour and Welfare on April
1, 2008 for the return of the past services portion of the substitutional portion of the welfare pension fund.

8. Income Taxes
The Company is subject to multiple taxes based on taxable
income, which, in the aggregate, indicate a statutory rate in
the Company of approximately 36.2% for the years ended
March 31, 2009 and 2008.
Reconciliation of the difference between the statutory tax

rate and the effective tax rate for financial statement purposes
for the years ended March 31, 2009 and 2008 are not presented as they are negligible.
Significant components of deferred tax assets and liabilities
as of March 31, 2009 and 2008 were as follows:
Thousands of
U.S. dollars

Millions of yen

2009

2008

2009

Provision for retirement benefits¥36,847¥34,277$375,989

Other

44,724

42,581

456,367

Deferred tax assets:

Less: Valuation allowance(8,471)(7,094)(86,438)

73,101

69,764745,928

Valuation difference on available-for-sale securities

6,793

18,641

69,316

Other

10,2898,851

104,989

17,08327,492

174,316¥56,017¥42,272$571,602

Subtotal
Deferred tax liabilities:

Subtotal
Deferred tax assets – net

639. Net Assets(a) Distribution to the shareholders
Under the Japanese Corporate Law (“the Law”), dividends canbe paid at any time during the fiscal year in addition to theyear-end dividend upon resolution at a shareholders’ meeting.
Interim dividends may also be paid upon a resolution of the
Directors’ meeting provided that the articles of incorporationof the company so stipulate, and that the company meets certain criteria.
The Law provides certain limitations on the amounts available for dividends and/or the purchase of treasury stock. The
limitation is defined as the amount available for distribution to
the shareholders, and it is calculated mainly based on othercapital surplus, other retained earnings and treasury stock, but
the amount of net assets after dividends must be maintained
at no less than ¥3 million.
The maximum amount that the Company can distribute as
dividends is calculated based on the non-consolidated financial
statements of the Company in accordance with Japanese laws
and regulations.
At the general meeting of shareholders held on June 26,
2009, the Company’s shareholders approved payment of yearend cash dividends of ¥4.0 (US$0.04) per share aggregating¥10,850 million (US$110,714 thousand) to the shareholders ofrecord as of March 31, 2009.
Such appropriations have not been accrued in the consolidated financial statements for the year ended March 31, 2009.
Such appropriations are recognized in the period in which they
are approved by the shareholders.

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

10. Additional Information for Cash Flows
Reconciliation of cash and deposits shown in the consolidated balance sheets and cash and cash equivalents shown in the consolidated statements of cash flows as of March 31, 2009 and 2008 were as follows:
Thousands of
U.S. dollars

Millions of yen

Cash and deposits
Less: Time deposits with maturities over three months, etc.
Cash and cash equivalents

2009

2008

2009

¥66,905¥46,092$682,704(2,896)(2,385)(29,551)¥64,009¥43,706$653,153

Significant non-cash transactions for the years ended March 31, 2009 and 2008 were as follows:
Thousands of
U.S. dollars

Millions of yen

64

2009

2008

Decrease in treasury stock due to the conversion of convertible bonds¥ 38,978¥ 6,542$ 397,734

2009

Losses on disposal of treasury stock due to the conversionof convertible bonds(11,671)(2,119)(119,091)

Decrease in convertible bonds¥ 27,306¥ 4,422$ 278,632

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

A summary of net sales, operating expenses, operating
income, assets, depreciation, impairment losses, and capital
expenditures by business segments for the years ended March
31, 2009 and 2008 is as follows:
Millions of yen

For 2009

Gas sales

Gas appliancesales

Installation
work

Real estate
rentalOther businessElimination or
corporate

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

37,551

5,106

3,259

22,50599,867(168,290)—

1,257,574

122,363

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

1,660,162

Net sales:
Outside customers
Intra group
Total
Operating expenses

1,146,717

Operating income (loss)¥ 110,857¥

AssetsDepreciation

120,276

50,1942,086¥ (1,099)¥¥1,037,149¥ 40,097

109,247733—
110,653

Impairment losses
Capital expenditures—

28,194350,301(100,726)

7,442¥ 13,482¥ (67,563)¥

1,594,957¥17,548¥175,539¥267,562¥ 226,286¥1,764,185

101

9,637

19,347(2,168)136,899

—

—

—

—

—

—

917

54

5,769

29,562(2,507)

144,450

65,204

Millions of yen

For 2008

Gas sales

Gas appliancesales

Installation
work

Real estate
rentalOther businessElimination or
corporate

Consolidated¥1,056,100¥129,201¥ 53,569¥ 12,360¥236,263¥—¥1,487,496

30,943

3,125

3,755

22,80884,097(144,731)—

1,087,044

132,326

57,32535,169320,361(144,731)

1,487,496

975,381

129,41756,497

27,206

307,592(78,646)

7,963¥ 12,768¥ (66,084)¥

Net sales:
Outside customers
Intra group
Total
Operating expenses¥ 111,663¥

Assets¥ 993,802¥ 43,551¥ 18,891¥179,857¥256,631¥210,917¥1,703,651

107,312

605

122

9,907

22,244(2,060)138,132

—

—

—

—

567

—

567

94,404

648

35

4,300

37,701(2,108)

134,983

Depreciation
Impairment losses
Capital expenditures

2,909

¥

828

¥

1,417,448

Operating income (loss)

70,048

Thousands of U.S. dollars
Gas sales

Gas appliancesales

Installation
work

Real estate
rentalOther business$12,449,214$1,196,489$467,693$ 134,000$2,693,010

383,173

52,10233,255

229,642

1,019,051(1,717,244)

—

Total

12,832,387

1,248,602

500,959

363,6423,712,071(1,717,244)

16,940,428

Operating expenses

16,275,071

For 2009

Elimination or
corporate

Consolidated

Net sales:
Outside customers
Intra group

11,701,193

1,277,306

512,183

Operating income (loss) $ 1,131,193$21,285$ (11,214)$

Assets$10,583,153$409,153

1,114,765

7,479—
1,129,112

Depreciation
Impairment losses
Capital expenditures$—$16,940,428

287,693

3,574,500(1,027,816)

75,938$ 137,571$ (689,418) $$179,061$1,791,214$2,730,224$ 2,309,040$18,001,887

1,030

98,336

197,418(22,122)

1,396,928

—

—

—

—

—

—

9,357

551

58,867

301,653(25,581)

1,473,979

Operating expenses under Elimination or Corporate that cannot be allocated to business segments are related mainly togeneral administrative expenses of the Company, amounting to¥68,664 million (US$700,653 thousand) and ¥67,096 million forthe years ended March 31, 2009 and 2008, respectively.

665,346

Assets under Elimination or Corporate mainly comprise cash
and deposits, investment securities, and deferred tax assets of theCompany and its consolidated subsidiaries, and they amounted to¥259,494 million (US$2,647,897 thousand) and ¥243,678 million
at March 31, 2009 and 2008, respectively.

65

As described in Note 2. Significant accounting policies (4)Property, plant and equipment, as a result of the revision of the
Corporation Tax Law, from the year ended March 31, 2008,
the Company and its domestic consolidated subsidiaries havechanged the depreciation method for property, plant andequipment acquired on or after April 1, 2007, to the depreciation method prescribed by the revised Corporation Tax Law.
In addition, from the year ended March 31, 2008, 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 Corporate Tax Law prior to its revision, the difference between an amount equal to 5% of theacquisition cost and the memorandum value is depreciated uniformly over five years and included in depreciation expenses.
Geographic segment information is not shown since morethan 90% of both consolidated net sales and total assets are
generated in Japan. Information on overseas sales is not disclosed due to overseas sales being immaterial compared toconsolidated net sales.

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

Millions of yen

Lease payments
Depreciation expenses

2009

2008

2009

¥ 550

¥ 547

$ 5,612

550

547

5,612

Future lease payments inclusive of interest:
Current
Noncurrent

472

555

4,816

2,670

3,146

27,244¥3,142¥3,702$32,061

Acquisition cost, accumulated depreciation and net bookvalue for property held under finance leases that do not transfer
ownership of the leased property to the lessee on an “as if capitalized“ basis as of March 31, 2009 and 2008 were as follows:
Millions of yen

For 2009

Other facilities
Other intangible assets

Acquisition cost

Accumulated
depreciation

Net book value¥4,415¥1,341¥3,074

178

110

68

¥4,593¥1,451¥3,142¥5,311¥1,715¥3,596

For 2008

Other facilities
Other intangible assets

200

94

105

¥5,512¥1,810¥3,702Thousands of U.S. dollars

For 2009

Other facilities
Other intangible assets

66

Acquisition cost

Accumulated
depreciation

Net book value$45,051$13,683$31,367

1,816

1,122

693

$46,867$14,806$32,061

Information as lessor
In the fiscal year ended March 31, 2008, finance lease transactions that do not transfer ownership were accounted for basedon standards for ordinary rental transactions. Lease income,depreciation expenses and the amount corresponding to interest
income in the year ended March 31, 2008, and the future lease
payments to be received at March 31, 2008, were as follows.

Operating leases
Information as lessee
Future lease payments at March 31, 2009 and 2008 were as
follows:
Thousands of
U.S. dollars

Millions of yen

2009

2008

2009

Future lease payments:
For 2008

Millions of yen

Lease income¥ 4,719

Depreciation expenses

1,636Interest income

1,407

Current

¥110

¥ 32

$1,122

Non-current

331

125

3,377

¥441

¥158

$4,500Future lease payments to be received:
Current¥ 5,517

Noncurrent

19,880Information as lessor
Future lease payments to be received at March 31, 2009 and2008 were as follows:¥25,397
Acquisition cost, accumulated depreciation and net bookvalue for property held under finance leases which do nottransfer ownership of the leased property to the lessee for theyear ended March 31, 2008 were as follows:

For 2008

Acquisition cost

Accumulated
depreciation

Net book value¥26,241¥14,375$11,866

1,090

754

335

¥27,332¥15,130$12,202

Other facilities
Other intangible assets

The breakdown of lease investment assets as of March 31,
2009, is as follows:
Millions of yen

Thousands of
U.S. dollars¥22,198$226,510

64

653

For 2009

Claims for lease fees
Estimated residual value
Equivalent interest received
Lease investment assets

2009(3,724)(38,000)¥18,539$189,173

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

For 2009

Millions of yen
Lease
Lease
investment
obligations
assetsThousands of U.S. dollars
Lease
Lease
investment
receivables
assetsWithin 1 year

¥1,050¥4,954$10,714 $50,551

More than 1 year
but within 2 years

1,044

4,305

10,65343,928More than 2 years
but within 3 years

1,038

3,605

10,59136,785More than 3 years
but within 4 years

1,000

2,922

10,20429,816More than 4 years
but within 5 years

883

2,242

9,010

22,877More than 5 years¥2,988¥4,167$30,489 $42,520

2008

2009

Future lease payments:
Current
Non-current

Millions of yen

Thousands of
U.S. dollars

Millions of yen¥ 1,952¥326$ 19,918

11,087457

113,132¥13,040¥783$133,061

13. Commitment and Contingent Liabilities
At March 31, 2009, the Company and its consolidated
subsidiaries were contingently liable for (1) debt guarantees in
the amount of ¥6,050 million (US$61,734 thousand) for
financial institution loans to companies other than consolidated
subsidiaries and (2) ¥38,700 million (US$394,897 thousand) as
guarantors for domestic unsecured bonds issued by theCompany, and assigned to certain banks under debt assumption
agreements made in the years ended March 31, 2002, 2003,
and 2004.
At March 31, 2009, the Company held several long-term
purchase contracts for the supply of LNG. The purchase pricedeterminable under such contracts is contingent upon
fluctuations in the market price of crude oil.
Adjustment of the cost for raw materials is subject tomovements on trading contract renewals or price negotiations
thereof with gas resource suppliers.

14. Subsequent Events
Resolution on acquisition of treasury stock
The Directors’ meeting held on April 28, 2009 resolved toacquire treasury stock.
Number of shares: Limited to 15,000 thousand shares
Cost of shares acquisitions: Limited to ¥5,000 million(US$51,020 thousand)
Period of acquisitions: From April 30, 2009 to
October 30, 200967

INDEPENDENT AUDITORS’ REPORTTo the Board of Directors of Tokyo Gas Co., Ltd.:We have audited the accompanying consolidated balance sheets of Tokyo Gas Co., Ltd. (the “Company”) and consolidated subsidiaries as of March 31, 2009 and 2008, 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 theCompany’s management. Our responsibility is to independently express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tokyo Gas Co., Ltd. and subsidiaries as of March 31, 2009 and 2008, and the results of their operations and their cash
flows for the years then ended, in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to the following:(1) As discussed in Note 2(4) to the consolidated financial statements, as a result of the revision of the Corporation Tax Law,effective April 1, 2007, 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,effective April 1, 2007, 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 prescribed by the Corporation Tax Law prior to its
revision, Tokyo Gas Co., Ltd. writes off the difference between an amount equal to 5% of the acquisition cost and the memorandum value uniformly over five years and records as depreciation expenses.
(3) As discussed in Note 2(6) to the Consolidated Financial Statements, effective April 1, 2008, Tokyo Gas Co., Ltd. has been
applying the “Accounting Standard for Lease Transactions”.
(4) As described in Note 14 to the consolidated financial statements, Tokyo Gas Co., Ltd. decided to acquire the treasury stock
on April 28, 2009.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2009are 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 26, 200968