Ar2005e PDF

ANNUAL REPORT
2005
For the year ended March 31, 2005
Osaka Gas Co., Ltd.

Profile
Value Creation Management

—Doing business for the next 100 years
The Osaka Gas Group established VISION 2010 in October 1999 as the Group’s management vision and set the
management philosophy of value creation to maximize the corporate value for our customers, shareholders, and
the society. Based upon the successful results of the GATE PLAN, our business plan for FY 2001–FY 2003, which
had been formulated as the first phase of VISION 2010, we established INNOVATION CENTENNIAL, our next
three-year business plan for FY 2004–FY 2006, as the second phase of VISION 2010.
In FY 2004 and FY 2005, the first two years of INNOVATION CENTENNIAL, we delivered satisfactory outcomes
toward achieving the goals in the final year. In January 2005, in consideration of changes in business environment
after the release of VISION 2010, we reviewed it expansively to newly establish the Value Creation Management
in New Business Millennium. In FY 2006, we exerted an effort to achieve the final goals of INNOVATION
CENTENNIAL and to develop the new medium-term business plan for FY 2007 and the succeeding years.
Exploring business opportunities in the rapidly changing energy market, the Osaka Gas Group is determined
to shift our focus from the energy business centered on gas operations in the Kansai area to a new broadband
and multi-faceted energy business. We aim to further evolve our group by challenging business reforms flexibly
and speedily and by implementing continuous innovations, while we, led by the group’s core companies, bolster
competitiveness and improve profitability of our non-energy businesses.
Value for Value for Value for

Customers Shareholders Society
Value for Employees
Design 2008
From fiscal 2007
Group Management
Principles
INNOVATION 100
2005
Fiscal 2004 to 2006
Vision 2010
GATE PLAN
1999 Fiscal 2001 to 2003
Cover: Birds-eye view of the Osaka Gas’s service area

Contents
2 Outline of Business Segments
4 Consolidated Financial Highlights
5 Message from the Management

Producing results with concerted efforts
of the whole group to celebrate its 100th anniversary
11 Organization
12 Directors and Auditors
13 Efforts to Fulfill CSR

Corporate Governance, Compliance, Environmental Activities,
Community Activities and Value for Employees
16 Summary of Business Segments
16 1 Natural Gas Segment
23 2 LPG, Electricity and other Energy Segments
25 3 Gas Appliances and House-Pipe Installation Segment
4 Real Estate Segment
26 5 Other Segments
28 Intellectual Properties
30 Technology Management
33 Financial Section
34 Management’s Discussion and Analysis
40 Financial Statements and Notes
Forward-Looking Statements
Statements contained in this report with respect to the Osaka Gas Group’s plans, strategies and beliefs that are not historical facts are
forward-looking statements about the future performance of the Osaka Gas Group which are based on management’s assumptions and
beliefs in light of the information currently available to it. These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the Osaka Gas Group’s actual results, performance or achievements to differ materially
from the expectations expressed herein.
OSAKA GAS ANNUAL REPORT 1

At a Glance
The Osaka Gas Group divides its operations into five business segments: (1) Natural Gas, (2) LPG,
Electricity and Other Energies, (3) Gas Appliances and House-Pipe Installation, (4) Real Estate, and (5)
Others. The Group also classifies its companies under two business groups: a growth-oriented group that
seeks to maximize synergies with the energy businesses, and a group of contributors to consolidated
profits that independently pursues cash-in from outside the Group mainly through non-energy businesses,
to improve the corporate value of the Group by expanding growth businesses through selection and
concentration, and by quickly realizing and accelerating positive SVA* at affiliated companies.
SVA = NOPAT - (interest-bearing liabilities + shareholders’ equity) x WACC
*NOPAT (Net operating profit after taxes) = Before-tax income before deduction of interest paid x (1- effective tax rate)
SVA (Shareholder’s Value Added) = Current net income before interest and taxes – Corporate tax etc. – Cost of capital
Others
Real Estate 10.6%
1.6% ¥103.1
billion
¥15.6billion
Gas Appliances and

14.0% FY2005.3
House-Pipe Installation ¥136.4 Consolidated
Operating Revenues
billion
¥975.3billion Natural Gas
Component
15.9% ratio 57.9%
LPG, Electricity, and ¥155.4 ¥564.6billion
Other Energies billion
Others Natural Gas
Real Estate
8.9%
Gas Appliances and 8.1% ¥8.3
House-Pipe Installation billion
¥7.6
1.0% billion
FY2005.3
¥0.9billion Consolidated
Operating Income
LPG, Electricity, and 14.8%
Other Energies ¥13.9billion ¥ 95.9billion
Component
ratio 67.2%
¥63.5billion
Component ratio of operating income does not include elimination
of internal transactions or transactions involving all companies
2 OSAKA GAS ANNUAL REPORT

Natural Gas Sumnary of Business Segments refer P.16
(Millions of Yen, %)
Osaka Gas Co., Ltd., Nabari Kintetsu Gas Co., Ltd., ’04.3 ’05.3 Rate of
change
Sasayama City Gas Co., Ltd., and Toyooka Energy Co., Operating Revenues ¥568,047 ¥564,678 –0.6%
Ltd., supply natural gas. They procure, transport, store,
and supply natural gas through pipelines to customers in a Operating Income 58,044 63,523 9.4%
vertically integrated manner. Total assets
at end of year 676,781 674,312 –0.4%
Return on Assets
(ROA) (%) (Note 2) 8.3% 9.4% ––
Operating Income Margin 10.2% 11.3% ––
LPG, Electricity, and Other Energies Sumnary of Business Segments refer P.23
The Liquid Gas Group and the Nissho Petroleum Gas ’04.3 ’05.3 Rate of
change
Corporation Group are in charge of the industrial and fuel gas Operating Revenues
business. Gas and Power Co., Ltd., Nakayama Joint Power ¥130,670 ¥155,424 18.9%
Generation Co., Ltd., and Nakayama Nagoya Joint Power Operating Income 15,740 13,976 –11.2%
Generation Co., Ltd., are engaged in the wholesaling business Total assets
at end of year 172,638 178,561 3.4%
of electricity generation. Gas and Power Investment Co., Ltd.,
Return on Assets
handles district heating and cooling operations. Cogen Techno (ROA) (%) (Note 2) 9.5% 7.9% ––
Service Co., Ltd., designs, installs, sells, and provides Operating Income Margin 12.1% 9.0% ––
commission services for cogeneration systems.
Gas Appliances and Sumnary of Business Segments refer P.25

House-Pipe Installation (Millions of Yen, %)
Osaka Gas Co., Ltd., Enetech Kyoto Co., Ltd., Hearts ’04.3 ’05.3 Rate of
change
Co., Ltd., and other companies sell gas appliances. Operating Revenues
Osaka Gas performs the installation of indoor gas pipes at ¥143,164 ¥136,434 –4.4%
customers’ expense. Kinpai Co., Ltd., performs the Operating Income 2,231 959 –57.0%
installation of indoor and outdoor gas pipes under Total assets
contract with Osaka Gas. at end of year 69,144 66,332 –4.1%
Return on Assets
(ROA) (%) (Note 2) 3.0% 1.4% ––
Operating Income Margin 1.6% 0.7% ––
Real Estate Sumnary of Business Segments refer P.25

Urbanex Inc. OG Capital Co., Ltd., and other companies are ’04.3 ’05.3 Rate of
change
engaged in real estate development, management, and Operating Revenues
personnel services (engaged in the leasing, management and ¥13,744 ¥15,614 13.6%
other services mainly for real estate owned by the Group). Operating Income 7,077 7,655 8.2%
Kyoto Research Park Co., Ltd., manages the research park, Total assets
at end of year 102,526 107,870 5.2%
promotes exchange between the industrial academic fields,
Return on Assets
and fosters the development of venture companies. OSC (ROA) (%) (Note 2) 6.9% 7.2% ––
Engineering Co., Ltd., provides building maintenance and Operating Income Margin 51.5% 49.0% ––
other services.
Others Sumnary of Business Segments refer P.26

Kinrei Co., Ltd., operates restaurant chains and other food ’04.3 ’05.3 Rate of
change
service businesses and manufactures and sells frozen foods. Operating Revenues
OGIS Research Institute Co., Ltd., and other companies ¥95,697 ¥103,188 7.8%
provide a wide spectrum of information processing services Operating Income 7,485 8,389 12.1%
using computers. Osaka Gas Chemicals Co., Ltd., manufactures Total assets
at end of year 115,157 125,826 9.3%
and sells carbon materials and fine materials and sells chemical
Return on Assets
products. The Osaka Gas Group’s other subsidiaries are (ROA) (%) (Note 2) 6.1% 6.9% ––
engaged in engineering, sale of housing equipment, security Operating Income Margin 7.8% 8.1% ––
and disaster prevention services and other businesses.
ROA is defined as “operating income /total assets (average)” in this page only.

Consolidated Financial Highlights
2002 2003 2004 2005 2005

Financial Data Thousands of U.S. Dollars
Operating revenues ¥ 973,565 ¥ 947,977 ¥ 951,324 ¥ 975,340 $ 9,082,227

Operating income 96,676 85,974 92,096 95,992 893,864
Net income 39,418 29,685 47,065 50,683 471,955
Capital expenditures 89,938 67,107 69,779 65,517 610,085
Depreciation 88,793 82,805 89,564 86,858 808,817
Total assets 1,243,520 1,209,627 1,199,228 1,217,463 11,336,841
Total shareholders’ equity 468,706 453,284 495,635 530,862 4,943,312
Number of shares issued and outstanding (thousands) 2,369,011 2,369,011 2,369,011 2,369,011 —
Per Share Data U.S. Dollars
Net income (yen and U.S. dollars) 16.33 12.56 20.56 22.69 0.211
Shareholders’ equity (yen and U.S. dollars) 197.85 197.28 222.15 238.15 2.218
Key Ratios
Equity ratio (%) (Note 4) 37.7% 37.5% 41.3% 43.6% —
Debt ratio (%) (Note 5) 37.4% 40.9% 38.0% 36.8% —
Interest coverage ratio (times) (Note 6) 13.2 14.2 12.9 16.1 —
Return on assets (ROA) (%) (Note 7) 3.1% 2.4% 3.9% 4.2% —
Return on equity (ROE) (%) (Note 8) 8.4% 6.4% 9.9% 9.9% —
Gas sales by volume (million m3) 7,479 7,701 7,779 8,072 —

Number of meters installed (thousands) 6,484 6,579 6,650 6,725 —
Number of employees 14,878 15,020 15,276 15,992 —
Gas Sales by Volume (Millions of m3) Operating Revenues (Millions of Yen)
’01.3 7,580 ’01.3 951,926

’02.3 7,479 ’02.3 973,565
’03.3 7,701 ’03.3 947,977
’04.3 7,779 ’04.3 951,324
’05.3 8,072 ’05.3 975,340
0 2,000 4,000 6,000 8,000 0 2,000 4,000 6,000 8,000 10,000
Net Income Per Share (EPS) and Shareholders’ Equity Per Share (BPS) Notes:
1. The conversion of Japanese yen into US dollars is based on the exchange rate of 1 USD =
0 50 100 150 200 250 (Yen)
107.39 JPY (approximate rate quoted on the Tokyo Foreign Exchange Market as of March
’01.3 14.72 195.52 31, 2005).
2. The number of consolidated subsidiaries amounted to 43 for fiscal 2002, 56 for fiscal 2003,
77 for fiscal 2004 and 118 for fiscal 2005.
’02.3 16.33 197.85 3. Equity ratio = shareholders’ equity/total assets (as of the end of the fiscal year)
4. Debt ratio = interest-bearing debt/total assets (as of the end of the fiscal year)
’03.3 12.56 197.28 5. Interest coverage ratio = (operating income + interest and dividends received)/interest
expenses
’04.3 20.56 222.15 6. Return on assets (ROA) = net income/total assets (average)
7. Return on equity (ROE) = net income/shareholders’ assets (average)
’05.3 22.69 238.15 8. Figures in the financial data are rounded down. (Figures are rounded off from page 42.)
9. All gas sales volume shown is at the calorific value of 45 MJ per cubic meter.
0 5 10 15 20 25 10. Gas sales by volume and number of gas meters installed for fiscal 2001 and 2002 are
Net Income Per Share (EPS) Shareholders’ Equity Per Share (BPS) shown on a non-consolidated basis.
(Calculated based on the average number of shares outstanding, excluding treasury stock, during the term.)

Message from the Managemant
Producing results with concerted efforts

of the whole group to celebrate its 100th anniversary
Consolidated gas sales volume in the fiscal year ended March 31, 2005, increased 3.7% over
the previous year to 8,072 million cubic meters.
Consolidated operating income rose 4.2% to 95.9 billion yen.
Consolidated net income per share increased 10.4% compared to the previous year to 22.7 yen.
Akio Hirofumi
Nomura Shibano
Chairman President

Message from the Management
operating income by slashing costs across all

Consolidated Results for businesses, while focusing on labor costs. In addition,
the performance of consolidated subsidiaries was
Fiscal 2005 favorable, leading to an increase of 3.8 billion yen in
Fiscal 2005, ended March 31, 2005, was the second operating income to 95.9 billion yen compared to the
year of the Innovation Centennial, our new three-year previous fiscal year. Asset-impairment accounting was
medium-term business plan that picks up where the adopted in fiscal 2005, and thus the cost caused by
Gate Plan (business plan for fiscal 2001–2003) left off on application of this accounting system was reported as
the path toward realizing Vision 2010. The year served as extraordinary loss. With the gain on sale of marketable
a test determining whether we are able to ensure the securities reported, however, non-operating profit and
achievement of the profit target for the last year (fiscal loss was improved from the previous year. As a result,
2006) at a high level. As for the consolidated gas sales net income amounted to 50.6 billion yen, an increase of
volume, residential gas sales showed a decrease, 3.6 billion yen from the previous year.
affected by the high air and water temperatures The earnings of consolidated subsidiaries were
throughout the year. The Group, however, made favorable in general, and the ratio of consolidated to
aggressive efforts to stimulate demand by proposing the non-consolidated operating income improved to 1.39.
introduction of its ECOWILL gas cogeneration system for
homes, hot water floor heating systems, cogeneration
systems for industrial and commercial use, and
air-conditioning systems. As a result, gas sales volume Outcome of SVA Management
reached 8,072 million cubic meters, an increase of 287
million from the previous fiscal year. This was the first time
through Selection and Concentration
when the Group exceeded eight billion cubic meters. In the Osaka Gas Group, shareholders’ value added
Net sales on a non-consolidated basis showed a 4.6 (SVA) is used as a profitability benchmark for evaluating
billion-yen decrease to 567.4 billion yen compared to the the performance of each internal division and Group
previous fiscal year, reflecting the lower material prices companies. Osaka Gas makes concerted efforts to
applied to the gas price compared to the ones in fiscal maximize SVA by taking an aggressive investment
2004. Increased number of consolidated subsidiaries
and increased revenue in these companies, however,
resulted in consolidated net sales of 975.3 billion yen, an Results of FY05.3 (Millions of yen, %)
increase of 24 billion yen from the previous year. (Consolidated) ’04.3 ’05.3 Differences
In fiscal 2005, the price of LNG soared in pace with Operating
the increase in the crude oil price. For this reason, the revenues 951,324 975,340 +24,016
cost of raw materials rocketed compared to the previous Operating
income 92,096 95,992 +3,896
year, while net sales decreased causing reduced
operating income. On the other hand, Osaka Gas on a Ordinary profit 81,446 97,480 +16,034
non-consolidated basis endeavored to improve Net income 47,065 50,683 +3,618
ROA 3.9% 4.2% +0.3%
ROE 9.9% 9.9% 0.0%
FCF 73,242 57,701 –15,541
EPS 20.6 22.7 +2.1
Consolidated SVA (Billions of yen)

0 10 20 30 40
’02.3 13.1
’03.3 3.1
’04.3 24.8
’05.3 27.3
’06.3 35.0
Planned

Market Growth and Earnings Potential by Business Field
Ratio of ordinary profit to sales
16.0%
Figures are the total of affiliated companies, excluding Osaka Gas Co.,
FY05.3 Ltd., and companies that were removed from consolidation consisting
FY04.3 of Harman Co., Ltd., Harman Precision Co., Ltd., and OG Royal Co.,
14.0% Ltd. These figures do not correspond to segment classifications, as
they include non-consolidated affiliated companies and are combined
Real Estate (Urbanex Group) to closely resemble the group classifications used in accounting for the
Osaka Gas Group. The size of the bubble shows the scale of sales.
12.0%
FY03.3
Others (Kinrei, OGIS-RI Group, Osaka Gas
Chemicals Group, and OG Capital Group)
10.0%
FY05.3
FY04.3
8.0%
FY05.3 Gas, Electricity and Energy Service

FY04.3 (under the Osaka Gas Business Units)
6.0%
FY03.3 FY04.3
FY05.3
4.0%
FY03.3
FY03.3
2.0%
LPG (Liquid Gas Group and NIPG Group)

0.0%
0.90 1.00 1.10 1.20 1.30 1.40 1.50
Change in Sales (’02.3 results = 1)
approach to business fields that enhance SVA. In businesses contributed approximately one billion yen to
addition, affiliated companies with negative SVA become SVA annually.
the focus of restructuring measures, including
withdrawal, except under special circumstances, such as
a brief operational period after business launch.
In fiscal 2004 and 2005, the Company did not
undertake any large-scale business restructuring Business Portfolio
projects. Osaka Gas did, however, simultaneously
streamline negative SVA businesses until fiscal 2003, The Osaka Gas Group’s business portfolio strategy
including portions of the gas equipment production and concentrates management resources on the energy
sales business, portions of real estate operations and the business sector, which is able to take advantage of our
home improvement center business. These measures to strength and its peripheral business areas, as well as the
streamline negative SVA businesses have improved SVA non-energy business sector that is advantageous and
by approximately 2.1 billion yen annually. Moreover, still competitive in the open market. To be specific, we
Osaka Gas has used net present value (NPV) as a aim at growth in the LPG and real estate business areas,
common standard for evaluating investment across the pursuing maximum synergy with the energy business
Group. Following strict guidelines, the Company is sector. For the business areas of restaurants and food,
aggressively investing in growing businesses. Up until IT, chemical products and carbon products, we treat
fiscal 2003, Osaka Gas has acquired the Nissho them as independent and pursue cash-in from outside
Petroleum Gas Corporation (NIPG) group, Nakayama the Group, resulting in contribution to the consolidated
Joint Power Generation Co., Ltd. and Nakayama profit.
Nagoya Joint Power Generation Co., Ltd. In fiscal 2004, The above figure shows market growth potential and
Osaka Gas acquired Daiya Nensho Co., Ltd., an LPG earnings potential on an annual basis by business field.
provider in Mie Prefecture. In fiscal 2005, the Company Sales and profitability continue to steadily improve in
finalized a plan to make an equity investment in IPP’s in each business field. In the gas, electricity, and heat
the U.S.A. and Spain and to acquire the life environment supply field in particular, sales are growing significantly
material business of Takeda Pharmaceutical Company from acquisitions of wholesale power businesses and the
Group. These acquisitions and investments in growth expansion of energy services outside our operating area.

Progress of Innovation Centennial Corporate Governance and

Medium-Term Business Plan and Compliance
Management Targets for Fiscal 2006 To continue sound business activities with the full trust
In October 1999, the Osaka Gas Group formulated the and support of equity markets and society at large,
Vision 2010 as the Group’s management vision for the Osaka Gas is obligated to establish a management
21st century. The medium-term management plan Gate structure (corporate governance) that pursues
Plan extending from fiscal 2001 to fiscal 2003 was maximization of its corporate value. It should be based
created as the first phase of Vision 2010. We achieved on ethics and a good sense of management and will be
the final year targets of the Gate Plan one year ahead of realized by improving the mechanism to secure
schedule. In January 2003, the Company formulated maneuverability, legality, and appropriateness in
Innovation Centennial as the new medium-term decision-making and business execution.
management plan beginning in fiscal 2004 and ending in Osaka Gas has expanded the authority of business
fiscal 2006 for the second phase of Vision 2010. Under and division managers by reducing the number of
Innovation Centennial, we have set three targets for directors and through reorganization in order to improve
increasing corporate value, namely the creation of value maneuverability in business execution. To verify the
for shareholders, value for customers, and value for legality and appropriateness of its decision-making and
society. Our targets for value for shareholders aim to business execution, the Company reviews and rigorously
achieve consolidated SVA of 35.0 billion yen, ordinary applies its internal rules and regulations and promotes
profit of 100 billion yen, and net income of 57.5 billion discussion at the board of directors and management
yen in fiscal 2006. Actually, the estimate for consolidated meetings. Each investment must fulfill the group’s
ordinary profit is 100 billion yen and consolidated net common investment criteria and be examined by the
income is 59 billion yen. Thus, the final target for investment appraisal committee, which is held
Innovation Centennial is expected to be achieved. independently from the management meetings. The
To achieve the target for consolidated operating Company also appointed external auditors and
income in fiscal 2006, an additional 2.5 billion yen in established and holds a management advisory
operating income is required in excess of the fiscal 2005 committee to check legality and appropriateness from an
actual of 97.4 billion. For this additional amount, Osaka external point of view.
Gas expects to obtain this additional income with In compliance, Osaka Gas formulated the Osaka Gas
increases in gas sales, etc. Group Code of Conduct in February 2000 and is making
Osaka Gas believes it offers competitive gas rates every effort to apply the code in every facet of its
compared with the prices of rival energy types and does business activities to instill a law-abiding mindset among
not plan to revise its gas rate at this time. employees. The Company established a compliance
committee and appointed compliance officers to various
offices. Moreover, the Company set up a compliance
Aims of INNOVATION CENTENNIAL
department for providing dedicated support to
Shift from a gas-based business to a multi energy
business that includes the electricity business Principal Management Targets and Results (Consolidated)
Shift from local to national operations ’03.3 ’06.3
— wide-area energy business development Result Forecast Original target
by INV100
Shift to a value-chain-based business model SVA (Billions of Yen) 3.1 35.0 35.0
Engage in Group SVA management focused on Operating revenues
each business division and core Group company (Billions of Yen) 947.9 1,005.0 1,090.0
Operating income 85.9 104.0 113.0
(Billions of Yen)
Ordinary profit 65.0 100.0 100.0
Ratio of consolidated to non-consolidated results (Billions of Yen)
’03.3 ’04.3 ’05.3 Net income 29.6 59.0 57.5

(Billions of Yen)
Operating revenues 1.31 1.30 1.35 FCF (Billions of Yen) 23.7 55.2 85.0
Operating income 1.29 1.37 1.39 ROE (%) 6.4 10.8 10.0
Ordinary profit 1.20 1.27 1.30 ROA (%) 2.4 4.6 4.1
Net income 1.17 1.19 1.23 EPS (yen/share) 12.6 26.4 25.0

Principal Management Targets and Results (Consolidated) Operating Data (Consolidated)
0 200 400 600 800 1,000 1,200 (Billions ’03.3 ’06.3
of Yen) Original target
Result Forecast by INV100
947.9
’03.3 9.1 Non-consolidated gas sales (Million m3) 76.8 82.5 83.3
85.9 6.9
Result
65.0 Equity ratio (%) 37.5 43.6 42.1
1,005 Total assets (Billions of Yen) 1209.6 1,081.9 1,416.5
’06.3 104 10.0 10.3
Planned 100 Interest-bearing debt (Billions of Yen) 494.5 427.2 575.0
’06.3 Capital expenditure (Billions of Yen) 67.1 106.1 85.5

Original 1,090
target 113 9.2 10.4 Number of employees 15,020 16,460 14,580
by 100
INV100 Number of consolidated companies 56 119 102
0 5.0 10.0 15.0 (%)
Crude oil price ($/bbl) 26.9 40.0 25.0
Operating revenues Operating income Ordinary profit
Ratio of operating income to sales Ratio of ordinary profit to sales Exchange rates (yen/$) 122.0 108 125.0
The number of employees is from the financial report (including employees on a short-term contract but
excluding loaned employees)
compliance activities and a compliance desk as a way caused by internal factors including compliance; and risks
for handling internal reports and consultations. involved with trades with external parties. Only after
identifying risk categories and determining a responsible
organization for each category do we determine risk
levels and take appropriate countermeasures.
Risk Management
The Osaka Gas Group established the Group’s Risk
Management Basic Rules and Regulations to be Capital and Dividend Policies
prepared for the risks associated with its business
activities. Based on these, the Group classified risks into Osaka Gas increased cash dividends by 1 yen per share
three categories: risks caused by external factors in fiscal 2002, and has maintained annual dividends of 6
including natural disaster and market fluctuation; risks yen per share since then. The Company plans to provide
annual dividends of 7 yen per share for fiscal 2006,
including the commemorative dividend of 1 yen to
celebrate its 100th anniversary. Historically, it has
emphasized stability and sustainability in its dividend
policy. Recently, however, investor demands have
become more complex. Under these circumstances,
Osaka Gas will take a varied approach to determining the
optimal dividend policy based on operating conditions at
that time. In answering the question of how the Company
intends to improve shareholder value with retained
earnings, Osaka Gas will flexibly adopt measures that
emphasize sustainable and stable cash dividends,
increase growth potential through investment in business
expected to provide high returns, and increase profits per
share through the acquisition of treasury stock. It should
be noted that the company declared the policy at least to
maintain 20% of a dividend payout ratio as the lower limit
in the company’s managerial philosophy set up in
January 2005.
Compared with other companies in the same industry,
Osaka Gas has a large number of outstanding shares

Application of Consolidated Free Cash Flows (Billion of yen)
Free cash flows of ¥72.1 billion External funds
FY05 ¥13.4 ¥17.3 Special investment budget of ¥50 billion

Planned billion billion
Planned growth investment
Dividends (on the basis of payment)
Free cash flows of ¥57.7 billion
Carried over to the next year as an increase
of year-end cash and cash equivalent
FY05 ¥13.3 ¥5.9 ¥7.1
Actual billion billion billion Payment for fiscal 2006 of Spain’s IPP and life environment material business
Acquisition of IPP in the U.S. and Spain. Investment to the Hayama Wind Power Station.
¥5.2 billion to the Shiga Line, etc. Planned investment to the Senboku Plant is carried over to the next year.
Dividends (on the basis of payment)
Free cash flows of ¥55.2 billion Cash and deposit on hand External funds
FY06 ¥14.4 Planned growth investment of Special investment budget of ¥88.5 billion
Planned billion yen ¥44.9 billion
Dividends (on the basis of payment including commemorative dividends)
0 20 40 60 80 100 120 140 160
FCF = cash flow by sales activities – expenditure by capital investment. Capital investment does not include growth investment. Planned growth investment includes both capital
investment and loan and investment.
relative to its market capitalization. Accordingly, we

believe that reducing the number of outstanding shares
and improving profits per share will contribute to In Closing
increasing shareholder value and have positioned the
acquisition of treasury stock as an important measure for Osaka Gas will celebrate its 100th anniversary in October
improving shareholder value. Our cash flow strategy 2005. Based on the new managerial philosophy, the
prioritizes investment in new businesses such as electric Group is committed to adequately responding to the
power generation over the medium term. However, there changes in business environment and continuing
are cases where excessive cash is generated during a consistent efforts to achieve sustainable development
fiscal year, and this cash is earmarked for the acquisition through fair and transparent business activities under the
of treasury stock after investment in new businesses. slogan “Design Your Energy for a Brighter Future.”
We ask for your continued support and understanding as
we pursue these endeavors.
Akio Nomura, Chairman
Hirofumi Shibano, President

Organization (As of July1, 2005)
In order to maximize the Group’ s overall capabilities to On top of this, OG Capital Co., Ltd., an ex-core
increase value for our customers and shareholders, we company, came under the Strategy & Finance Division of
implemented reforms in the Group management structure Group headquarters. OG Capital Co., Ltd., further selects
in July 2005. and concentrates affiliated companies cooperatively with
Based on the new structure, we classified the core Group headquarters.
companies into two categories: core business-related In order to integrate and enhance work for gas
companies and strategic business companies. Under this customers, we integrated periodic security patrols, billing
classification, growth-oriented core companies seeking services, and call center operations to Osaka Gas
maximal synergies with the energy businesses, such as Customer Relations Co., Ltd., a group company of the
the Liquid Gas Group, the Nissho Petroleum Gas Residential Energy Business Unit, which conducts
Corporation Group, and Urbanex Inc. fall under the core meter-reading and billing activities. We also integrated
business-related companies, while core companies staffing and placement services provided by three
aiming to contribute to consolidated profits in companies intended to integrate and strengthen business
independent pursuit of cash-in from outside the Group support operations.
mainly through the non-energy businesses, such as Kinrei
Co., Ltd., OGIS Research Institute Co., Ltd., and Osaka
Gas Chemicals Co., Ltd., are classified as strategic
business companies.
Energy Resources Business Unit Core Companies
LNG Terminal & Power Generation Business Unit
Pipeline Business Unit Core Companies
Residential Energy Business Unit Core Companies
Chairman/ Commercial & Industrial Energy Business Unit Core Companies

President/
Board of Directors
Executive Vice
Presidents Liquid Gas Co., Ltd. Core Companies
Nissho Petroleum Gas Corporation Core Companies
Urbanex Inc. Core Companies
Executive Board Kinrei Co., Ltd.
OGIS Research Institute Co., Ltd. Core Companies
Osaka Gas Chemicals Co., Ltd. Core Companies
Strategy & Finance Division

Corporate Auditors/ Corporate Strategy Dept./Accounting & Planning Dept.
Corporate Finance Dept./Accounting & Tax Services Center/ IR Office
Board of Corporate
Auditors’ Office
Auditors
OG Capital Co., Ltd. Core Companies
Communication & HR Division

Secretariat/Corporate Communication Dept. Human Resources Dept. /
Research Institute for Culture, Energy and Life Health Services Center
Administration & General Affairs Division

General Affairs Dept. /Compliance Dept. Legal Dept. /Auditing Dept./
Environment Dept. Purchasing Services Center
Technology Division
Technology Planning Dept./Energy Technology Laboratories/
Engineering Dept./Information & Communication Systems Dept./
Advanced Material Business Promotion Dept./
Residential Cogeneration Development Dept.
Tokyo Division
Note: Organizations other than those having corporate names are part of Tokyo Branch
Osaka Gas Co., Ltd.

Directors and Auditors
(As of June 29, 2005)
(From left)
Hidetoshi Nakatani, Zenzo Ideta, Akio Nomura, Yukihiro Endo, Hirofumi Shibano, Hiroshi Yokokawa, Seishiro Yoshioka
Chairman Executive Vice Presidents Directors Corporate Auditors
Akio Nomura Hidetoshi Nakatani Hiroshi Nishiura Tamotsu Okajima

Seishiro Yoshioka Tsuneo Mitsuda Akio Wada
President Masashi Kuroda
Hirofumi Shibano Senior Managing Directors Yuichi Funahashi Auditors
Yukihiro Endo Akira Narumiya Reisuke Shimada

Zenzo Ideta Akio Ukai Michitoshi Inoue
Hiroshi Yokokawa Shigeki Hirano
Takashi Sakai
Managing Directors
Takashi Nabari
Hideaki Nagata
Katsumi Makino
Yoichi Higuchi
Hiroshi Ozaki

Efforts to Fulfill CSR Corporate Governance, Compliance, Environment and Social Contribution
Realizing sustainable growth

and maximizing social value
To realize sustainable growth of the economy, corporations are expected more and more to fulfill their social
responsibilities in contributing to the improvement of the environment and society, respecting human rights
and managing occupational health. The Osaka Gas Group aims to maximize its social value on various fronts
ranging from information disclosure and compliance to environmental activities and social contributions.
Osaka Gas Group Code of Conduct Osaka Gas Group

Environmental and Social Action
1. Code of Conduct as a Good Corporate Citizen: Philosophy
Respect human rights, and do not discriminate against our Environmental conservation at both local and global levels
customers and employees based on race, religious beliefs, is an extremely important mission for Osaka Gas Group.
sex, social status or family lineage Bearing in mind that all of its business activities are closely
Consider environmental preservation by preventing related to the environment, the Osaka Gas Group pursues
emissions of harmful substances and recycling waste harmony with the environment and realizes the efficient use
of energy and resources through its business activities. In
2. Code of Conduct in Gas Production and Supply: this way, Osaka Gas Group will contribute to the
Carry out business activities in good faith by adhering to sustainable development of society.
laws and ordinances related to the gas business and
placing customer satisfaction first
Ensure the safety of customers in the production and sale Osaka Gas Group
of products as well as construction work. In the event of an Environmental Action Guidelines
accident, quickly find the cause and make every effort to
prevent a reoccurrence by taking appropriate measures 1. Reducing Environmental Impacts
such as recalling products and issuing warnings. Business Activities
We aim to reduce the environmental impacts from our
3. Code of Conduct for Business Transactions: business activities.
Conduct business transactions in a proactive and fair To this end, Osaka Gas Group will strengthen its
manner in accordance with antimonopoly law environmental management system and promote internal
Conduct fair transactions, and do not take advantage of activities aimed at saving energy and natural resources.
superior position over transaction partners if one exists
Build a relationship of trust with customers in good faith 2. Contributing to Environmental Impact
Socialization with partners and suppliers should be Our Products and Services
conducted with moderation and common sense in By offering environmentally-friendly natural gas, and our
compliance with the law products and services which contribute to reduce
environmental impact, we are making our efforts in
4. Code of Conduct for Information Management: partnership with our customers to achieve environmental
Manage information so that customer information is not impact reduction. To this end, we will strive to develop
leaked. Disclose management information in a timelyand energy-saving systems which contribute to environmental
appropriate manner conservation.
Manage our intellectual property and do not infringe on the
intellectual property of others 3. Contributing to Environmental
Nationally and Overseas
5. Code of Conduct in the Workplace: Osaka Gas Group aims to take an active part in
Strive to create a workplace where employees work environmental conservation activities in areas wherever we
comfortably with mutual respect conduct business, both in and outside Japan.
(Revised in March 2004)
Do not discriminate against or treat unfairly employees in
their wages and benefits regardless of a type of employment
6. Code of Conduct in Society:

Prohibit transactions and sharing profits with groups that
show antisocial behavior
Pay taxes fairly Please refer to the Message from the Management for a
description of our basic policies on corporate
governance and compliance. In addition, our
Environmental and Social Action Report contains
detailed information about compliance, environmental
activities and contributions to society.

Efforts to Fulfill CSR Corporate Governance, Compliance, Environment and Social Contribution
section within a unit, into the Compliance Department,

an independent unit. The Code of Corporate Conduct
Corporate Governance defines the standards that should be observed by all
Group members. It is ensured that all Group members
are well informed about it.
While adhering to our principle of Value Creation
Management, to maximize value for our customers,
value for our shareholders, and value for society, we are
implementing reforms in our management structure to
promptly cope with the changing business environment, Environmental Activities
strengthen corporate competitiveness, and ensure
sound business management. At Osaka Gas, our
directors participate in management meetings to share Based on the fundamental concept that environmental
their professional views on strategic matters in line with activities are the basis of business activities of an energy
specific internal rules, and decisions are made on those utility company, Osaka Gas established the
matters through in-depth deliberations at the Board of Environmental Philosophy and three Environmental
Directors meetings. The Board of Directors reviews Action Guidelines in 1992. The Company has formulated
important matters that affect the entire Group, including the 2010 Environmental Goals and 2005 Medium-Term
its subsidiaries and affiliates, and is responsible for Environmental Goals as a guide for Group-wide efforts to
making correct and quick decisions and strengthening preserve the environment.
oversight functions. We have set 34 medium-term environmental targets,
In June 2003, a new internal auditor system was including 24 quantitative targets, which follow three
adopted at the annual general meeting of shareholders action guidelines, and aim to ensure their
to satisfy the revised requirement that at least half of the implementation. From fiscal 2004, we are introduced
corporate auditors should be non-employee auditors, in Environmental Management Indicators to effectively
accordance with the Law Revising the Law Concerning promote environmental activities based on a quantitative
Special Measures to the Commercial Code with Respect understanding of progress in environmental
to Audit, etc. of Corporations (Kabushiki Kaisha) (2001, management. For Environmental Management Efficiency,
Law 149). The inclusion of non-employee auditors, we have set a target of making a 43% improvement in
independent from the control of the Board of Directors, fiscal 2006 compared with fiscal 2002.
has strengthened the ability of Osaka Gas to oversee the Osaka Gas aims to reduce green house gas
appropriateness and legality of the directors’ emissions by 25% to 19 g-CO2/m3 (per cubic meters of
performance. In addition, an Auditors’ Office composed gas sold) compared with fiscal 1999 as its target for
of fulltime staff members not under the direct control of fiscal 2010. In fiscal 2005, the Company attained 17.8
the directors has been established to support the g-CO2/m3 a decrease of 30% from fiscal 1999, which
auditors and thus to improve the audit system. The two proves its good performance toward achieving the goal.
non-employee auditors appointed in the shareholders’ Our plants have sustained zero emission of industrial
general meeting do not have any special personal, waste since its achievement in fiscal 2003. We also have
capital, or business relationship with Osaka Gas, nor do reduced final disposal volume of non-industrial waste
they have any other interest in the Company, thus and have improved the recycling ratio year by year.
preserving their impartiality. In addition, we are making efforts to improve the
environment on several fronts, such as promoting energy
service company (ESCO) operations in Japan, spreading
environmental technology overseas including China and
Indonesia, introducing Tri-generation technology for
Compliance effectively using CO2 in exhaust gas, and developing
storage and supply technology for hydrogen as a
next-generation energy source.
The Osaka Gas Group Code of Corporate Conduct was As a means for effectively advancing environmental
established to achieve strict compliance with all activities at the Group companies, we plan to introduce
applicable legal requirements by all the members of the environmental management systems including the
Osaka Gas Group, including the directors and acquisition of ISO 14001 certification by fiscal 2011.
employees of Osaka Gas and its subsidiaries. To Group companies have been acting on their own accord,
enhance the ability of the Group to ensure that its and 10 companies have already acquired ISO 14001
business activities comply with applicable laws, in 2003, certification for their environmental management systems.
we established the Compliance Committee, whose For those Group companies that have not acquired
membership includes outside specialists, and also certification yet, Osaka Gas aims to promote its acquisition
reorganized the compliance office, which had been a depending on business scale and type by fiscal 2011.

Cultural Exchange provides educational support to
elementary, junior high schools, high schools, and
Community activities universities in natural gas producing nations in Southeast
Asia by supplying educational materials, providing
assistance for research in natural gas-related
The Osaka Gas Group believes contributing to society technologies and environmental technologies, awarding
and deepening its connection with customers is its scholarships to high school students and university
corporate mission and crucial to future development. In students, and assisting in the training of technicians and
line with this belief, we are contributing to society researchers.
through the establishment of foundations that encourage
our employees to make contributions to local
communities as a corporate citizen as well as to
promote welfare and international exchange. Efforts for improving value
Since 1991, Osaka Gas has backed the volunteer for employees
activities of its employees by providing information and
putting in place support systems in terms of time,
money, and facilities. For example, the community leave The Osaka Gas Group includes in its basic management
system was created to allow employees to take time off principle promotion of corporate management focusing
to participate in community events and support local on people’s growth that makes the most of the
sports and cultural exchange activities. Over the past 10 personality and self-motivation of employees as well as
years, the community leave system has been used on trustful cooperation between employees and
about 150 different occasions. The community gift management with a sense of tension to support the
system was started to provide financial support for company’s sound growth. According to the
events as well as the purchase of equipment and management principle and the Osaka Gas Group’s
materials for groups and individuals that contribute to the Code of Conduct in the Workplace, the Group
betterment of the welfare of local communities, such as endeavors to establish a working environment where
supporting handicapped people and the elderly, taking everybody is able to work comfortably and a system
care of infants and children, and cleaning activities. It has where accomplishments are fairly evaluated, regardless
contributed on about 180 different occasions over the of sex or type of employment.
past 10 years. Established in 1985, the Osaka Gas (For the basic policy concerning corporate governance
Group Welfare Foundation has worked closely with local and compliance, see the Management Message in this
communities in promoting welfare activities for the report. For the details of compliance and contribution to
elderly, assistance for research and surveys, and the environment and society, refer to the Environmental
activities to improve the health of the elderly. Founded in and Social Action Reports issued by Osaka Gas.)
1992, the Osaka Gas Foundation of International
Promotion of technology transfer of a wastewater An elementary school in Indonesia Osaka Gas Gas Science Museum for understanding
treatment system using the catalytic wet oxidation contributed educational tools to of energy and environmental issues while
(CWO) process (photo: presentation ceremony of the enjoying the exhibition
International Chemical Engineer Award by Yunnan
Province, China in October 2003)

Summary of Business Segments
1 Natural Gas Segment
Toyooka Energy
Fukui Pref.
Gifu Pref.
Pipeline connected
to Chubu Electric Power (TBD) Aichi Pref.
Shiga Pref.
Kyoto Pref. Otsu Gas Shiga Line
Sasayama City Gas
Hyogo Pref.
Kinki Trunk Line
Nishiwaki Gas —No.2 West Line Yokkaichi Thermal Power
Plant of Chubu Electric Power
Kinki Trunk Line Mie Pref.
—No. 3 West Line Kinki Trunk Line
Kyoto-Shiga Line Nagoya Power Plant
Kinki Trunk Line
of Nakayama Nagoya
—No.2 West Line
Joint Power Generation
Himeji LNG Kinki Trunk Line

Terminal —No.1 East Line Legend
Osaka Pref. Trunk line (installed)
Nara Pref. Trunk line
Torishima Energy Bay Line
(planned or under construction)
Center of Gas and Nabari Kintetsu Gas
Funamachi Power Plant Major pipeline (installed)
Power Investment
of Nakayama Joint Major pipeline
Kinki Trunk Line Sakurai Gas
Power Generation (planned or under construction)
—No. 2 East Line
Senboku LNG Terminal l Daiwa Gas Headquarters, office, branch, etc.
Senboku LNG Terminal ll
Kawachinagano Gas Research institute
Sumoto Gas Terminal

Gojo Gas Terminal + plant
Generation Plant
Service area of gas

companies outside
the Osaka Gas Group
Wakayama Pref. in the Kansai region
Gas Sales by Volume (Million m3 · 45MJ/ m3)

Service Area of the Gas Segment (Non-consolidated, including Toyooka area)
0 2,000 4,000 6,000 8,000
550 168
With its gas sales volume of 8.05 billion cubic meters, ’03.3 2,298 966 3,686 7,687
Osaka Gas accounts for approximately 30% of total sales 559 182
volume in Japan. Osaka Gas supplies gas to 6.6 million ’04.3 2,304 985 3,734 7,766
customers, which is approximately 25% of the nation’s total. 605 305
While steadily expanding its service area, the Company ’05.3 2,238 1,039 3,865 8,053
currently supplies natural gas to customers residing in 72 594 336
cities and 38 towns in six prefectures of the Kansai region ’06.3
Planned 2,327 1,058 3,938 8,252
spread over approximately 3,136 square kilometers with Compound Annual Growth Rate from ’03.3 to ’06.3: 2.4%
gas pipelines extending about 55,800 kilometers as of Residential Commercial Industrial Public and Medical Wholesale
March 31, 2005.

Osaka Gas in Japanese Gas Market
Characteristics of the Japanese
Gas Industry
Osaka Gas
While there are more than 200 gas companies in 27.6%
Japan, the market is dominated by a few major gas
suppliers, such as Osaka Gas, which by itself
accounts for approximately 30% of total gas sales
volume in Japan.
Supply of LNG, one of the main raw materials of gas,
is mostly dependent upon import from overseas. Sales volume from April 2004 to March 2005
In contrast to other countries, Japan does not have Source: The Japan Gas Association Web site
any gas pipelines interlinked nationally or Reserve-Production Ratio of Natural Gas and Oil
internationally.
The gas business is carried out in an integrated
manner, from procurement and import to Natural 65
gas
transmission/distribution to downstream gas supply
and marketing. Oil 51
Source: Oil and Gas Journal 2003/12, 2004/3
Special Qualities of Natural Gas Emissions of Combustion Product by Fossil Fuel (Coal = 100)
CO2 SOx NOx
Compared to other fossil fuels, natural gas has a less Coal 100 100 100
adverse impact on the environment. Oil 80 68 71
Natural gas reserves are more abundant than those of
crude oil and, unlike crude oil, are not concentrated in Natural gas 57 0 20-37
specific geographical locations. Source: Field test on technology for measuring air pollution caused by
thermal power plants Report (1990.3 The Institute of Applied Energy)
From this standpoint, demand for natural gas is expected IEA (International Energy Agency) Natural Gas Prospects (1986)
to increase in the future as the preferred fuel for the 21st
century. The Osaka Gas Group mainly handles energy 150MW power plant at
Torishima Energy Center (Osaka)
resources that are friendlier to the environment, giving it that uses natural gas as fuel
an advantage in business development. This trend is
more and more accelerated in pace with the
development of people’s environmental awareness
encouraged by the effectuation of the Kyoto Protocol.
Deregulation in the Electricity and Gas Sectors

Background to Deregulation and Future Direction
Electricity Sector Gas Sector

Scope of Share of national Scope of Share of national
Liberalization Main points Liberalization Main points
sales volume sales volume
Introduction of independent power More than Introduction of third party access
1996 producer (IPP) and fuel cost 36% to pipelines and fuel cost
2,000,000 m3 per year
adjustment system adjustment system
Creation of power generation and More than Third party access to pipelines made
2000 More than 2MW 26% supply business 1,000,000 m3 per year
40%
mandatory (major four companies)
More than Third party access to pipelines
2004 More than 0.5MW 40% Abolishment of pancake tariff 500,000 m3 per year 44%
made mandatory
2005 More than 0.05MW 63% Creation of wholesale power market
More than
2007 100,000 m3 per year
50%
Source: Denki Shimbun’s “Description of Electric Power Liberalization and New Systems” and 2002 Urban Thermal Energy Committee materials

Being able to use energy as effectively as possible is important for the

environment and economy. We will maintain our competitive edge against
other types of energy by providing an optimal energy solutions from the
customers’ viewpoint.
Sales Projection for ECOWILL (Thousands of Units)
Residential Gas Marketing
’04.3 3.2
’05.3 8.0 The residential gas engine cogeneration system

ECOWILL is a revolutionary new product that generates
electricity while supplying hot water. The fiscal 2005 was
’06.3 10.0
Planned the second year after the substantial sales took off.
Annual sales for fiscal 2005 totaled 8,000 units and a
0 2.0 4.0 6.0 8.0 10.0
cumulative total for the two years run up 11,000 units, as
customers embraced ECOWILL for its high efficiency
Sales Volume of Residential Gas Appliances (Thousands of Units) and convenience in controlling overall energy costs.
’01.3 72 94 177 The Osaka Gas Group concentrated its efforts on
expanding sales of fan heaters and hot water floor
’02.3 81 124 172 heating systems, which contributed considerably to
higher residential gas sales. Unlike oil heaters that require
’03.3 90 166 188 refueling, fan heaters are used in more than 30% of the
households in our service area. Replacement demand is
’04.3 93 173 197 increasing from customers who have already purchased
fan heaters, and new demand is rising as customers
’05.3 94 206 215
switch from heating equipment that uses other types of
’06.3 fuel. To meet this increasing demand and to supply
Planned
93 200 233
products at competitive prices, the Group is further
0 50 100 150 200 250 expanding the sales network to reach volume retailers of
Bathroom heater-driers Gas floor heaters Fan heaters
electric home appliances.
Sales are steadily expanding for our hot water floor
heating systems, which are popular for providing heat
from a person’s feet upward and keeping room air clean.
Hot water floor heating systems have become so
popular that they are often included as standard features
in newly constructed housing complexes such as
condominiums. More recently, in addition to the new
housing market, the Osaka Gas Group is encouraging
the further proliferation of hot water floor heating systems
by proposing their introduction along with other
remodeling plans to the approximately 6.3 million homes
in the Kansai region.
Gas power generation and hot water

floor heating system “ECOWILL”

Non-Residential Regulated Gas
Marketing
Natural gas plays a crucial role as a principal energy Regeneburners enable reductions in
energy consumption of 35-50% using
source for a wide variety of industry, including steel, the accumulated heat burning method
metals, chemicals, and machinery. Demand for natural
gas is increasing as it compares favorably to other
primary energies in terms of energy conservation, space
conservation, and cleanliness, and Osaka Gas promotes Customers both large and small deploy cogeneration
detailed solution marketing activities based on a firm systems, ranging from major commercial facilities to
grasp of customer needs and its strong technologies. hospitals, hotels, and retail stores. Our Gene-Light Series
For industrial use, natural gas is increasingly used for of compact 9.8 kW cogeneration systems for small and
such cooling purposes as cooling processes and clean medium-sized office buildings and shops has been very
rooms, in addition to thermal energy for furnaces and popular since its launch in fiscal 1999. To date, more than
boilers. Able to generate both heat and electricity 1,400 customers have installed the Gene-Light Series.
simultaneously, cogeneration systems realize substantial
energy savings in factory operations, and their utilization Total Installed Air-Conditioning Capacity (Thousand RTs, Million m3)
is increasing as needs grow for distributed power 0 1,000 2,000 3,000 (Thousand RTs)
sources in society.
Gas sales to the commercial, public and medical
’01.3 2,582 620
sectors are increasing due mainly to the use of gas air
’02.3 2,765 664
conditioners and cogeneration systems. Gas absorption
air-conditioning systems have become the dominant 706
’03.3 2,941 Conversion
technology for air conditioning in large buildings, while to gas sales
gas heat pump air-conditioning systems are becoming ’04.3 3,082 740
increasingly popular in small and medium-sized buildings
because of their convenience. The air-conditioning ’05.3 3,232 776
system Quick Multi, released in fiscal 2003, can be
’06.3
installed using existing cooling ducts, which acquired a Planned
3,396 815
good reputation. Sales are increasing, taking the
0 300 600 900 (Million m3)
opportunity of upgrading of air-conditioning systems in
Total installed capacity (Thousand RTs) Gas sales (Million m3)
old office buildings.
General View of Natural Gas Cogeneration

Power Generation System (Traditional) Cogeneration System
Thermal power generation
Electric power plant Gas plant Cogeneration
Pipeline
40 Electric
Primary energy Primary energy 25 40 energy
(petroleum oil, natural gas, coal) (natural gas)
Electric
100 energy 100
4 35 50 Efficiently
usable
Lost energy waste heat
56
20 30
Waste heat
Energy Use Energy Use Waste heat
40%
70 80%
Note: Power generation efficiency is calculated using fiscal 1999 results (LHV standard).
Source: The Japan Gas Association “Gas Cogeneration System”

Our energy consulting capability, backed by technological know-how,

is one of the greatest strengths of Osaka Gas to stimulate customer
demand and provide an optimal combination of products and systems
developed to solve a specific problem.
Cogeneration Systems
Installed at the customer’s location, cogeneration

systems recover heat emitted from power generation and
use it for air conditioning and thermal applications. Energy
usage efficiency improves approximately 70%–80% with
the use of cogeneration systems, as exhaust heat can be
effectively utilized, and there is minimal transmission loss
because electricity is generated at the customer’s location.
Strengths of Osaka Gas

Cogeneration Systems
1) High efficiency in power generation
Compared with the average efficiency of approximately
40% at existing thermal power plants, our advanced
cogeneration systems achieve power generation
efficiency of around 43%. As a result, there are an
increasing number of customers that enjoy the cost
benefits of introducing Osaka Gas cogeneration
systems.
2) Secured service and maintenance quality
Our maintenance system, which includes the remote
observation system Echo Line, leads the industry in
service and maintenance quality.
Featuring cutting-edge technology, this 1 MW class high-efficiency 3) A variety of financing schemes
engine boasts power generation efficiency of approximately 41%. Osaka Gas offers various financing schemes that
answer customer needs such as for not wanting to
Total Installed Cogeneration Systems (MW, Million m3) own capital assets, and wanting to preset rate
0 300 600 900 1,200 1,500 1,800 (MW) fluctuations to changes in fuel costs.
’01.3 956 1,274 4) Services outside the area
For franchise chain owners with stores located outside
’02.3 1,052 1,057 1,402 our service area, we meet customer needs through our
subsidiary Cogen Techno Service Co., Ltd., which is in
’03.3 1,121 1,176 1,495 charge of cogeneration operations outside our service
area.
’04.3 1,213 1,366 1,619 5) A variety of products
In addition to natural gas as a fuel, Osaka Gas also
’05.3 1,290 1,495 1,719 provides a wide variety of cogeneration systems,
including engines that use biogas as fuel as well as
’06.3
Planned 1,403 1,703 1,852 agricultural systems that supply CO2 to plants. Through
these strengths, the Osaka Gas Group has delivered
0 500 1,000 1,500 2,000 (Million m3) cogeneration systems with a total generation capacity
Stock capacity(MW) : Osaka Gas Cogen Techno Service of approximately 1,500 MW.
Conversion to gas sales (million m3)
Note: 1. Installed capacity conversion is 1kW = about 1,320 cubic meters

2. Includes steam turbines and in-house facilities, and excludes IPP
and other independent power sources
3. Gas development volume conversion excludes Cogen Techno Service Co., Ltd.

Osaka Gas is extending natural gas infrastructure to meet future growth in
demand in its service area while strengthening ties with local natural gas
providers in Western Japan.
Extending Natural Gas Strengthening Ties with

Infrastructure Local Natural Gas Providers
Osaka Gas is able to provide stable supply of natural gas The Osaka Gas Group engages in the wholesale supply
through existing LNG tanks, vaporizers and other basic of natural gas to four gas companies in the Kansai region.
infrastructure. The Osaka Gas Group plans to construct From April 2004, we started the wholesale supply of
the following two high-pressure gas pipelines in areas of natural gas to Itami Sangyo Co., Ltd., in Nishiwaki City.
growing demand and to improve the stability of supply. On occasion, gas providers in the Kansai region have
1) Shiga Line approached Osaka Gas with a request to take over their
To expand demand and stably supply natural gas in operations. The Company obliges when it deems it will
southern Shiga Prefecture, Osaka Gas is constructing receive a sufficient return on its investment. Osaka Gas
the Shiga Line stretching for approximately 46 has taken over the operations of Miki Gas, Tenri Gas,
kilometers between Kusatsu City and Taga Town in this Nabari Kintetsu Gas Co., Ltd., Sasayama Gas, and
prefecture. The region is expected to have demand for Kinosaki Gas in recent years.
approximately 200 million cubic meters of gas. For gas providers unable to purchase natural gas from
2) Mie-Shiga Line our LNG bases and pipelines in regions spanning from
Osaka Gas finalized the plan to construct an Chugoku to Kansai and Hokuriku, we are actively
approximately 56-kilometer pipeline connecting the engaged in LNG wholesale operations supplying gas by
Taga Regulator Station on our Shiga Line to the trucks. Furthermore, the Osaka Gas Group established
Yokkaichi Thermal Power Plant of Chubu Electric Cogen Techno Service in 2000 to promote the
Power Co., Inc., in an aim to improve supply capacity proliferation of cogeneration systems along with regional
and stability between Kyoto and Shiga. gas providers. The total generation capacity at the
customers’ sites exceeded 200 MW at the end of March
Shiga Line
Mie-Shiga Line
2005, and thus it has enjoyed favorable growth.
To be completed in 2007
D/600mm, L/46km Construction planned
D/600 mm, L/56 km
Himeji Line
Completed in Sep.03
Diameter 600mm,
Pipeline length 5km
Chubu EP
Kawagoe generation plant
Yokka-ichi LNG center
High pressure Keiji Line
pipelines over 4MPa Completed in Oct.03
D/750mm, L/46km
Himeji#8 LNG tank

Completed in Sep.03
Capacity: 180 thousand kl
Expanded Infrastructure for Natural Gas Business
Ujigawa Pipeline Bridge
LNG and Gas Wholesale Customers Note: indicates wholesale supplies

of LNG and gas through pipeline.

We are actively promoting natural gas upstream operations along with new concepts in
the LNG trading and transportation business and the natural resource
development business.
contracts mainly for transporting LNG from the Western

Material Procurement/Natural Gas Australia Expansion Project as well as for Qalhat LNG are
Development/Transportation Business measures to realize this policy.
For the expansion of the resource development
business, it focuses on the following three categories:
For the procurement of natural gas, Osaka Gas 1) Participation in the gas field development, aiming at
endeavors to secure price competitiveness in the energy upgrading it to an LNG project
business by reviewing the price structure for existing 2) Participation in the project from which Osaka Gas
contracts and shifting to new contracts that are relatively purchases LNG as one of the minority shareholders
inexpensive. In addition, the Company is branching out to (including participation in the liquefaction project only)
LNG transportation and resource development 3) Acquisition of the rights of oil and gas fields in
businesses to expand its business toward the upstream production operation
of the natural gas value chain. Currently operating businesses include participation in the
The transportation business is designed to increase the Northern Australia Gas Venture and investment to the gas
transparency of transportation costs and then reduce field concessions in operation in Indonesia.
them by owning, through Osaka Gas International
Transport, LNG carriers for the transportation of LNG we
purchased under an FOB contract. It also aims at
bringing profit by transporting LNG for other companies Greater Sunrise Gas Field
through utilization of vacant space that we tend to have at Evans-Shoal Gas Field
the start-up period of the LNG contract. Transportation
The Northern Australia

Gas Venture (NAGV)
LNG tanker Jamal
World’s major nations with natural gas reserves and suppliers to Osaka Gas
The former Soviet Union Canada

55.3 1.6
Qatar China
25.8 1.5
U.S.A.
World’s proven 5.4
Algeria Iran
4.5 26.6
Saudi Arabia
natural gas reserves:
Abu Dhabi
6.6 5.6 171 Mexico
Nigeria
5.0
Oman
0.8
trillion cubic meters 0.4
Malaysia Brunei Major nations with natural gas reserves
2.1 0.4 Venezuela
Indonesia Suppliers to Osaka Gas 4.3
2.6
Australia Source: Oil & Gas Journal
0.8 (December 20, 2004)

2 LPG, Electricity and Other Energies Segment
IPP facilities in Spain Osaka Gas financed in 2005
The lower barriers of market entry provide Osaka Gas with an opportunity to expand
its energy business. Osaka Gas remains proactive in turning challenges resulting from
deregulation into business opportunities based on its strategy of shifting to multiple
energy services and geographically expanding operations.
power generation costs by using cutting-edge

Making Advances into combined cycle gas turbines.
the Electricity Sector 3) Targeting customers that already use gas cogeneration
systems, Osaka Gas is able to provide one-stop
energy solutions for both electricity and gas.
The electric power sector is an area where the Osaka
Gas Group can leverage its strengths in the natural gas
business, namely its upstream infrastructure, solution
marketing capabilities and customer networks. Grasping
deregulation in the electric power sector as a business
opportunity, the Osaka Gas Group is making inroads into Development of Electricity Business (MW)
the electricity business based on the following strengths.
Marketing of electricity Dual-fuel offer to Geographical expansion
1) The Osaka Gas Group generation capacity for to specific customers specific customers in electricity business
wholesaling of electricity to power utilities from three
Ownership of power plants
150 MW IPP. Based on long-term contracts, we 3,500
expect these three power plants to provide a stable 3,000
source of revenues of approximately 18 billion yen Customer’s surplus electricity

2,500
from cogeneration plants
annually. In fiscal 2005, Osaka Gas finalized the plan 2,000
OG’s power plants
to acquire a 700 MW portion of IPP plants in Texas, 1,500
(at Senboku, Himeji)
U.S.A., and Spain.
1,000
2) In Senboku, we plan to construct a power plant with a Overseas IPP
500
capacity of 1,100 MW within one of our LNG receiving Domestic IPP
0
terminals, making efficient use of existing land and ’03.3 ’04.3 ’05.3 ’06.3 ’07.3 ’08.3 ’09.3 ’10.3 ’11.3
natural gas line facilities. Osaka Gas will minimize

2 LPG, Electricity and Other Energies Segment
Combining Gas and Electricity

Businesses LPG Business
Osaka Gas aims to combine the gas and electricity The Liquid Gas Group, comprising Liquid Gas Co., Ltd.,
businesses through surplus electricity from customer’s and 14 other companies, together with the Nissho
cogeneration plants schemes, which are cogeneration Petroleum Gas (NIPG) Group, made up of Nissho
systems designed to sell excess electricity in addition to Petroleum Gas Corporation and 18 other companies,
providing electricity for on-site use. Excess electricity is develop the LPG business. LPG sales volume increased
generated by using thermal load as a basis for 2.6% year on year to 743,000 tons in fiscal 2005, as the
determining cogeneration scale and balancing it with the number of retail customers rose by 3,000 to 166,000 (as of
customer’s electricity requirements. The Osaka Gas the end of March 2005).
Group purchases this excess electricity and uses it in the We aim to further increase sales volume and the number
retail electricity business as a power source. of retail customers in fiscal 2006 through the sale of
Customers, whose primary energy source is heat, strategic equipment such as ECOWILL and floor heating
generate excessive electricity from exhaust heat, systems as well as acquiring sales outlets. The Osaka Gas
supplying relatively inexpensive electricity. Group aims to raise profits through efforts to reduce costs,
streamline distribution and transmission, and engage in
Example of a Business Scheme
one-lot purchases of LPG in necessary volumes.
Company A Premises
Used on company A premises Osaka Gas Group CGS
Electricity LPG Sales (1,000 tons)
Energy supply service 0 200 400 600 800
Steam
’03.3 695
Wholesale of electricity Gas supply
’04.3 723
Retail sales of electricity ENNET Osaka Gas
’05.3 743
’06.3
Planned
749
LPG Business Network
Nissho Propane Sekiyu

Nissey Number of LPG Retail Customers (Thousands)
0 50 100 150 200
Homma Fuel
Nissho Gas Energy
Nichigetsu Gas Facilities ’03.3 140
Liquid Gas Kyoto
Jonan Autogas
Nissho Petroleum Gas ’04.3 163
Osaka Branch
Liquid Gas Shiga
Konan-Yasu Gas
Sanshin Gas Engineering ’05.3 166
Nagano Propane Gas
Liquid Gas Hyogo ’06.3
Planned
173
Nissho Gas Kanto
Nissho Petroleum
Hirosima Branch Nissho Gas Supply
Nissho Petroleum Gas
Nissho Gas Service Hirosima Head office/Tokyo Branch
Home Gas Ebihara
Tokai Nissho Gas

Nissho Petroleum Gas
Nagoya Branch
Ehime Nissho Propane

Enes Carry Daiya Nensho
Mie Nissho Gas
Kochi Nissho Propane
Liquid Gas Nanbu
Liquid Gas LPG Recharging Station

Nissho Petroleum Gas Group Liquid Gas Group
Liquid Gas Osaka

3 Gas Appliances and House-Pipe Installation Segment
The Group expands business to increase gas users and to contribute to gas sales.
The Osaka Gas Group engages in the sale of gas appliances For a glass-top stove, safety, usability, and design were
and house-pipe installation with the ultimate aim of further pursued and the new product, Class S Premier,
contributing to the expansion of natural gas sales volume. was put on the market. In the field of industrial gas
We endeavor to develop inexpensive, easy-to-use, appliances, the Group promotes the sales expansion of a
high-quality gas appliances and promote the wider use of gas heat pump style air conditioner, Gas Heat Pump,
gas equipment in order to increase sales of natural gas. and gas cogeneration systems.
For home gas appliances, the Group exerts efforts to It also succeeded in developing a gas micro
expand the sales of the residential gas engine cogeneration cogeneration system (cogeneration system less than 100
system ECOWILL, which generates both electricity and kW) of 25 kW, which boasts power generation efficiency
heat required for households efficiently. at the world’s highest level of 33% and started sales.
It also promotes development of fuel cells for home use In house pipe installation, we install pipes in a
and succeeded in installing fuel cells in housing complexes customer’s house at an affordable price in order to
in March 2005. A mist sauna function was added to a increase the number of customers and gas fixtures
bathroom heater/drier as the new product MIST KAWACK. inside homes.
4 Real Estate Segment

The Group enhances liaison with the energy business in terms of pervasion of utilization
of gas, based on the group’s real estate management business.
Consolidated subsidiaries involved in the real estate

business consist of Urbanex Inc. Urbanex Development
Inc., Urbanex Service Co., Ltd., OSC Engineering Co., Ltd.,
Kyoto Research Park Co., Ltd., and six other companies.
Urbanex Development Inc., and Takara Enterprise Co.,
Ltd., became subject to consolidated accounting this
fiscal year. Urbanex Inc., and Urbanex Development Inc.,
develop and manage office buildings and homes to
effectively utilize the real estate holdings primarily of the
Osaka Gas Group. Urbanex Service Co., Ltd., OSC
Engineering Co., Ltd., and Takara Enterpise Co., Ltd.,
provide office building and maintenance services.
In the fiscal year under review, the Urbanex Group Large-scale urban development project raising people’s expectations as the base
posted an increase in sales due to an increase in the sales for new business creation in Kyoto < Kyoto Research Park Co., Ltd.>
of houses as well as growth in the office building
management business.
We are focusing efforts on expanding the rental and
sale of real estate and the facility management operations,
as well as strengthening the liaison with the Company’s
energy business to maximize the synergy effects.

5 Other Segment
Each independent business segment adds to the overall capabilities of the Osaka Gas
Group through synergies and mutually beneficial relationships.
Information-Related Service
Restaurant and Food-Related
Operations: OGIS Research
Business Operations: Kinrei Co., Ltd.
Institute Group
Consolidated subsidiary Kinrei Co., Ltd., operates The OGIS Research Institute Group comprises four
restaurant chains, mainly the Kagono-ya chain of consolidated subsidiaries: OGIS Research Institute Co.,
Japanese-style restaurants. Kinrei also produces and Ltd., OGIS International, Inc., Ube Information Systems,
sells frozen foods, such as frozen noodles, using Inc., and System Answer Co., Ltd. OGIS International
refrigeration know-how derived from cryogenic was added to the scope of consolidation in fiscal 2005.
technology employed in Osaka Gas’s LNG operations. Established as offspring of the Information System
There are a total of 47 Kagono-ya restaurants in the Department of Osaka Gas, OGIS Research Institute
Kansai region as of March 31, 2005. Kinrei Co., Ltd., is a provides a wide spectrum of information-related services,
consolidated subsidiary of Osaka Gas. including system installation, consulting, development,
In fiscal 2005, Kinrei revenues and profits increased administration, and maintenance. The company’s
both in restaurant operations due to the increased object-oriented programming technology, which is
number of restaurants and in the frozen food field thanks essential to the efficient development of advanced
to the increased sales of frozen prepared noodle systems, is among the most advanced in Japan.
products. Kinrei plans to increase the pace of restaurant In fiscal 2005, revenues of the OGIS Research Institute
openings with a particular concentration of management Group declined slightly despite efforts to expand orders
resources in Kagono-ya restaurant operations. for system development from customers outside the
Plans call for the opening of 10 restaurants in fiscal Group, as a result of reviewing product line-ups from the
2006 to build a more robust foundation in the Kansai area viewpoint of profit margins. In October 2004, the Group
while making advances into the Kanto region. In the food transferred shares of Canyon Blue, Inc., which develops
sector, Kinrei aims to increase sales by strengthening the computer software design tools in the U.S.A.
line-up through new product introductions, improved OGIS Research Institute plans to further promote its
brand authority, and diversification of sales channels. system development services to customers outside the
Group, mainly in areas of core competence;
Number of Restaurants Operated by Kinrei object-oriented programming, and UML. In addition,
’97.3 12 OGIS Research Institute will accelerate the formation of a
more solid group foundation by considering conclusion of
’98.3 16
strategic alliance including merger and acquisition
’99.3 20 activities and by utilizing its strength.
’00.3 24
’01.3 30
’02.3 35
’03.3 38
’04.3 44
’05.3 47
’06.3
Planned
57
0 10 20 30 40 50 60
Kagono-ya < Kinrei Co., Ltd.>

Carbon Materials and Chemical
Products: Osaka Gas Chemicals Other Operations: OG Capital
Group Group
The Osaka Gas Chemicals Group comprises four The OG Capital Group consists of 18 consolidated
consolidated subsidiaries: Osaka Gas Chemicals Co., subsidiaries that engage in a wide array of activities
Ltd., Taiyo Kasei, Ltd., Donnac Co., Ltd., and Shanghai related to engineering, housing, security, sports, services
Dongdao Carbon Chemical Industry. The group draws on for the elderly, and other services. Five companies
the accumulated carbon-related technology of the Osaka including Homepro Co. Ltd. and OUD Co., Ltd., were
Gas Group to promote sales of various industrial added to the scope of consolidation in fiscal 2005. Osaka
products. In the chemical product field, the Group Gas Security Service Co., Ltd., provides security-related
provides a variety of products derived from coal tar and services such as the Internet home security system Irusu.
crude benzene, which are primary ingredients in the OG Sports Co., Ltd., manages sports facilities including
chemical industry. In the carbon material field, the Group the COSPA fitness centers. Homepro Co., Ltd., mediates
manufactures and sells electrode materials for lithium-ion home renovation via the Internet and OUD Co., Ltd., runs
batteries used in cellular phones, activated carbon fiber a deluxe sento (public baths).
cartridges for household water, and air purifiers, as well In fiscal 2005, the amount of sales increased due to
as activated carbon itself, and lightweight heat-resistant the increase in sales housing equipment and devices
materials for aircraft and trains. In the fine material field, (Osaka Gas Housing Equipment Co., Ltd.), growth in the
the Group produces and sells high-performance materials fitness business, and expansion of the automobile leasing
for optical equipment. business (OG Autoservice Co., Ltd.).
In fiscal 2005, sales increased in the Osaka Gas While advancing selection and concentration of various
Chemicals Group on account of the rocketing market group operations, the OG Capital Group aims to expand
price of coke and benzene and expansion of the fine earnings by investing management resources in
material business. businesses with growth potential, such as athletic and
In April 2005, the Group acquired shares of its security businesses.
subsidiaries and affiliate companies, including Japan
EnviroChemicals, Ltd., one of the leading manufacturers
dealing in the activated carbon business and the
preservative business including wood protective coating
materials. In the same month, it also merged Osaka Gas
Chemicals, Taiyo Kasei, and Donnac to further enhance
the liaison between processes from production to sales.
Hereafter, the Group aims at expanding the carbon
material business including activated carbon by bringing
together the technological ability and know-how owned
by Osaka Gas Chemicals and Japan EnviroChemicals
and focuses on the growing businesses including
electrode materials and fine materials to extend the scale
of the operation.
COSPA Goido fitness facility in Kashiba City, Health Spa Banpaku Oyuba <OUD Co., Ltd.>
Nara Prefecture, directly operated by OG Sports
Shuri Castle in Okinawa Prefecture using A plant of Full Fine Co., Ltd located in Okayama
high-performance wood protective coating Prefecture began operations in August 2003
from Japan EnviroChemicals

Intellectual Property Activities of the Osaka Gas Group
Our Intellectual Property Strategies
The Osaka Gas Group has been actively (1) Development of Strong Patent
patents and for development of new
committed to intellectual property activities Network by Patent Portfolio
business based on a review of our existing
from the viewpoint of technology Management (PPM)
patents.
management, acquiring intellectual property
rights on our technological development We develop a portfolio of strong patent
results and patents on business models for network including basic and fringe patents (3) Reinforcement of Risk Management
information technology business promotion. for each major product or business in order for Intellectual Property Activities
We currently implement our intellectual to secure competitive advantages in our
property activities strategically based on the business. We implement risk management at a high
following three basic policies: level for protecting our own intellectual
(2) Revenue Increase by Optimum property, scaling with the intellectual property
Use of Intellectual Property Rights rights of other companies.
We endeavor to increase revenue by

optimum use of our intellectual property
value for active licensing activities of open
Intellectual Property Applications
The number of patent applications by Osaka as on consolidation of our intellectual

Patent Applications for
Cogeneration Systems Gas Group for the term ended March 31, property rights. Specifically, we develop a
2005, was 491. Based on the strategy of strong patent network for fuel reforming
’99.3 19 72
selection and concentration, we recently equipment, which is one of our competitive
’00.3 22 94 focused on the patent applications that are edges, by the Patent Portfolio Management.
considered to be critical for our business During this term, we also applied 25
’01.3 56 68
strategies. Particularly, we have actively business model patents for customer
’02.3 72 76 applied patents for cogeneration systems services and electricity retail systems in line
that contribute to solutions of energy and with liberalization of electric power. Aside
’03.3 91 37 environment issues and for industrial-use from these, we applied 68 design patents
’04.3 80 52 gas equipment where the market is being and 83 trademark patents.
liberalized.
’05.3 60 32 At present, we also focus on the Number of Patent Applications
development of residential cogeneration ’99.3 ’00.3 ’01.3 ’02.3 ’03.3 ’04.3 ’05.3
0 30 60 90 120 150
systems by applying our cogeneration
For Household Use For Industrial Use
988 1,095 979 904 759 635 491
technologies, one of our specialties, as well
Patent Applications for Residential Cogeneration Technologies
Patent Applications for In our residential cogeneration system maximize energy-saving functions by
Self-Learning Control business, we have been preparing for patent projecting daily customer demand of
We have acquired patents by the PPM acquisition and development of self-learning electricity and heat based on the historical
(Patent Portfolio Management) to
control systems for the fuel-cell method data and by activating, stopping, and
protect the intellectual property rights of
our development results for self-learning currently under development, in addition to adjusting the power operation of
control systems. our existing gas-engine method ECOWILL. cogeneration systems automatically.
This is intended for improvement of the As in the said business, we have applied
energy-saving functions and further many patents for fuel reforming equipment
Other reduction of carbon dioxide. that produces hydrogen out of natural gas
Companies
Osaka The self-learning control system is an by use of our own catalyst technologies.
Gas optimal operation control system to
Number of Patent Applications

for self-Learning Control Systems
(Comparison with Other Companies)

Our Patent Ownership and Licensing Activities
The number of patent rights owned by information technologies, all of which are
License Fee Revenue (Millions of yen)
Osaka Gas Group is 1,339. expected to grow significantly.
We own (1) patents for a Non-excavation In order to increase the revenue of our ’99.3
Construction Method and Underground own business by effective use of intellectual
property rights, we implement patent ’00.3
Facility Inspection Technology that contribute
to cost reductions and security in the gas assessment of industrial use value as well as ’01.3
supply business; (2) environmental research on qualitative methods for
protection technology patents for assessment of industrial use effects. ’02.3
Wastewater Processing Technology, which Meanwhile, we contribute to increase the ’03.3

has already been launched in the Chinese business earnings by recent active licensing
market in the industrial-use energy business; activities for the rights available for external ’04.3
(3) patents for Floor Heating Systems and use. The license fee revenue for the term
’05.3
Bathroom Heating and Drying Equipment, ended March 2005 totaled about 0.25 billion
which are spreading rapidly in the residential yen as a result of our technology information 0 50 100 150 200 250 300
energy business; and (4) many patents in the disclosure concerning cogeneration systems
non-energy market segments such as and fuel cells and of our active licensing
material technologies (the core technologies activities in the materials business.
of Osaka Gas Group), environment and
Number of Patents Owned by Osaka Gas Group (as of March 31, 2005): 1,339
Other
164 254
Production, Transport and Supply Business: 394 Industrial-Use Energy Business: 254
1,339
• LNG plant facilities (e.g. invar piping) • Cogeneration
394 FY2005.3 • Fuel cells
• Pipeline construction method
(e.g. non-excavation construction method) 348 • Environmental protection technologies
• Pipeline maintenance (e.g. wastewater processing technology), etc.
(e.g. underground facility inspection technology), etc
179
Household-Use
Material Technology Business: 179 Energy Business: 348
• Lithium rechargeable battery materials • Residential cogeneration systems
• Activated carbon fibers for desulfurization and denitration • Floor heating systems
• Fluorene • Bathroom heating and drying equipment, etc.
• Carbon nanotubes, etc
Revision of Employee Invention Rule
The Osaka Gas Group pays compensation In addition to contributions by internal use reward standards and abolishment of the
for patent applications and registrations and of domestic patents and licensing upper limit. Furthermore, we newly
performance bonuses to internal inventors activities, earnings from foreign patents established a presidential award system for
as compensation for employee inventions. and cross licensing activities are to be inventors who have delivered successful
In the term ended March 2005, we rewarded as an invention effect. results in intellectual property activities that
revised the intellectual property rule that The board of review, which consists of the contribute to business earnings. These are
regulates compensation and performance Technology Division, the Corporate intended to cultivate incentives for income
bonuses, aiming for enhancement of Strategy Department, the Legal realization by use of intellectual property
competitiveness to meet the demands of a Department, and the Human Resources rights and for achievement of outstanding
liberalized energy market and for incentives Department, reviews the amount of the inventions.
to unique inventions leading to the creation reward and bonus. The review results are We also give proper attention to employee
of new markets. to be disclosed across the board and invention litigation risks by revising the
<Revised Points> re-examined in case there is any objection. relevant rules after communications with all
The compensation level is raised to 2–5 As stated above, the rule has been revised the employees based on the revision draft
times the current level, and the to be more transparent based on recent and reflecting the response to the new rules
compensation is to be paid according to precedents and in line with expansion of the and by establishing a system of criticism by
the profit without any upper limit. reward range as well as the rise in the inventors for the reward.

Osaka Gas Group Technology Management
1. Advances in Household-Use Gas Equipment
In our household-use gas equipment gas reforming technology (the technology to

business, we address day-to-day challenges produce hydrogen out of natural gas as a fuel
of product development leveraging the for fuel cells), which is one of our specialties.
advantages of gas based on the theme of The household SOFC cogeneration
providing safe, secure, and comfortable living system realizes power generation efficiency
environments for our customers. as high as 45% (LHV standard) and is
expected to provide high energy-saving
Development of Residential effects for customers who consume a small
Cogeneration Systems amount of heat. We aim to launch it early
Subsequent to ECOWILL, the 1 kW-class after the market tests to be started in FY
gas-engine cogeneration system that we 2006, leveraging advantages in the recycling
launched in 2003, we work on development technology of exhaust heat, self-learning
Residential cogeneration systems of polymer electrolyte fuel cells (PEFC) control technology, and natural gas
and solid oxide fuel cells (SOFC) to enrich desulfurization and reforming technology that
our product lineup of residential cogeneration we have cultivated in the development of
systems. We aim to provide greater benefits ECOWILL and PEFC.
for our customers by delivering the
best-suited cogeneration systems according Technologies for Creating
to the demand scales that depend on Comfortable Living Spaces
whether customers use heat for hot water We have widely disseminated KAWACK
and heaters or electricity for lights and since 1982 when we launched the bathroom
outlets. heating and drying equipment. To satisfy the
As in the development of the recent growing demand for health and
household-use PEFC cogeneration beauty, we launched the new MIST
system, we have participated in the KAWACK (ceiling-installment type)
large-scale demonstration experiment embedded with a mist generator in October
business of stationary fuel cells hosted by the 2004.
New Energy Development Foundation since From now on, we develop products on a
FY 2006 when we started operations in a real timely basis by taking advantage of our
bathroom heater/dryer with a mist sauna living space. We continue to accelerate our constant close communications with
fanctionality “MIST KAWACK” product development by improving natural customers to know their needs.
2. Sophisticated Technologies for Energy Solutions
In our industrial-use gas equipment enhancement of total energy efficiency. In

business, we have successfully grown sales April 2005, we successfully developed a
by improving our cogeneration technologies high-efficiency gas-engine cogeneration
as well as realizing customer benefits system that achieved 41.5% (LHV standard)
through our engineering capabilities. We power generation efficiency, the
continue to further bolster our world-highest in the 300 kW generation
competitiveness of cogeneration systems capacity class. We enhanced the efficiency of
and to improve our solution capacity to meet long-stroke miller-cycle gas engines with
customer demands. longer piston strokes than traditional
miller-cycle gas engines by improving
Launch of High-Efficiency combustion efficiency and reducing heat
Cogeneration Systems loss.
As the demand for economically efficient and One of our important tasks is to bolster the
eco-friendly cogeneration systems is growing competitiveness of our micro-cogeneration
Long-stroke Miller-cycle gas engine boasting a as the years roll on, we implement systems in the under 50 kW class in order
generation efficiency of 42%
technology development for the enrichment to expand the market for gas cogeneration
of our lineup of products with high systems. Although the power generation
generation capacity as well as for the efficiency of traditional engines in these

classes remained between 20% and 30%, Combustion Technologies Exploring
we achieved 33% (LHV standard) power the Heat Market
generation efficiency, the world’s highest in By leveraging the combustion technologies
the 25 kW generation capacity class, owing that we have accumulated mainly in the
to the application of the miller-cycle development of industrial-use burners, we
combustion technologies that we cultivated continue to explore the market for
in the development of large engines and to industrial-use heat.
the enhancement of conversion efficiency of For melting furnaces of non-ferrous metals
power generation machines and inverters. such as aluminum, we developed
We intend to expand the market to regenerative burners with high energy-saving
small-scale business such as restaurants effects embedded with thermal-storage
and public bathhouses by development of mediums. The sales of the energy-saving
energy-saving type furnace for non-ferrous metals
these engines. type furnace for non-ferrous metals “ECOMELTER”
ECOMELTER are now steadily growing.
3. Technologies as the Backbone of the Safety and Comfort of Gas (Stable Supply, Safety, and Security)
Evolution of Safety Technologies Sophisticated Safety Functions of

We strive to ensure security by a daily Gas Equipment
patrol of all the routes of high-pressure gas We successfully developed the Class-S
transmission pipelines which are the Premier, a more convenient, advanced,
essential part of natural gas supply. and safer gas stove than ever before, as
The main purpose of the daily patrol is to the top-class product for glass-top
prevent damage to high-pressure pipes built-in gas stoves with a top board
from road excavations by third parties for made of heat-resistant ceramic glass.
which construction has not been A burn-without-pan sensing function is built
acknowledged. in the frequently-used left and right
Class-S Premier
By use of mobile phones and GPS burners. This function was developed for
locators, we started to operate the the first time in the industry.
high-pressure pipeline patrol support The over-heating prevention system for
system, which indicates the areas of cooking deep-fried food, which has been
acknowledged construction work by other built into only one burner before, is
parties and the current position on an equipped for all the burners for safer
electronic map, in order to discover cooking.
unacknowledged construction work. We To PIKO PIKO, a gas alarm system
intend to improve the quality of our daily that senses gas concentration in the room
patrol and maintain the uninterrupted caused by gas leaks and incomplete
supply of gas by using this system. combustion in an emergency, we added a
high-level self-checking function that issues
a warning to customers about any problems
in the gas alarm system itself. This is so our
customers can use gas more safely.
4. Technologies to Discover New Business
From Carbon Materials to Photon and production of activated carbon powder.

Electronic Materials We aim to expand our business by taking
Since the days of gas manufaccturing from advantage of the synergy effects that are
coal, we have actively expanded our generated from the collaboration between
business with a focus on carbon material the acquired company and Osaka Gas
technologies and in other areas of Chemicals Co., Ltd., involved in the
activated carbon, electrode materials, and production and sales of activated carbon
fine materials. fibers.
In March 2005, we acquired the stock of In our photon and electronic materials
Japan EnviroChemicals, Ltd., engaged in business, we have focused our attention
Lenses (Same as the one in the previous
living environments business such as on the fluorene contained in coal tar and year’s annual report)

Osaka Gas Group Technology Management
developed an industrial method for Hydrogen Production Technologies

producing dozens of fluorene conductors For hydrogen stations for industrial use and
and marketing them as materials. fuel-cell vehicles, we produce the compact
The features of fluorene conductors, hydrogen production unit HYSERVE
high refraction rates and heat resistance, using natural gas reforming technologies.
are highly valued to push up sales mainly The hydrogen production capacity of our
for lenses of camera-equipped mobile product lineup ranges from 30 Nm3/h to
phones and liquid-crystal-related materials. 100 Nm3/h. By leveraging natural gas
Consequently, sales amounted to about reforming technologies as one of our
2.7 billion yen (up 35% on a year-on-year specialties, we reduced the reforming cost
HYSERVE hydrogen production unit basis) in FY 2005. and the size to the half that of our
using city gas reforming technology
traditional type.
The first model of 100 Nm3/h was
installed for the hydrogen station at the
Exposition of Global Harmony in March
2005 in Aichi.
5. For Early Outcomes of Technologies (Our Thorough Technology Management)
We have invested our resources utilizing our core technologies or not well as our exhaust heat recovery
strategically in technology development, after we fully understand the important technology.
positioning it as the most effective technology issues for the development To consistently promote technology
differentiator to bolster our technological theme. development in consideration of market
competitiveness. As the early outcomes of We continue to explore the potential of needs, each division in charge of
technology development are expected new product development using our household and industrial customers
more under circumstances where core technologies with the aim of adopts a sponsorship system to relegate
customer needs turn constantly and creating a chain of technology development themes to the Technology
competitive climates change rapidly, we development results based on the Division at our headquarters where
intend to complete thorough technology advancement of core technologies. technical skills are accumulated.
management to satisfy such demands. For example, the natural gas reforming Our divisions reflect constantly
technologies, in which catalyst changing customer needs to our
(1) Chain of Technology technologies are maximized, are utilized technology development promptly and
Development Results in the theme of technology development flexibly, while the Technology Division
We have shifted materials for natural gas of the compact hydrogen production controls our development policies based
from coal to petroleum oil and natural gas. unit and the residential PEFC on visible needs as the occasion arises.
The technologies that we cultivated in the cogeneration system.
use of the respective materials are
accumulated and utilized as the core (2) Reduction of Development Lead
technologies inherited from age to age. Time and Thorough Market
Orientation by Reinforcement of
Carbon materials technologies External and Internal
originating in tar as a secondary product Collaboration
of coal gas We endeavor to reduce our development
Catalyst technologies in the age of lead time by the synergy effects
producing gas from petroleum oil generated through an active alliance with
Cogeneration technologies to partners with the technologies or
optimize the use of energies in the age of intellectual property rights that we do not
natural gas own. We jointly develop the SOFC
cogeneration system with an
We select themes of technology advanced fuel cell stack manufacturer by
development from the viewpoint of leveraging our reforming technology for
whether we could solve the issues by extracting hydrogen out of natural gas as

Financial Section
Consolidated Six-Year Summary

Millions of Yen
2000 2001 2002 2003 2004 2005
For The Year:

Operating revenues· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 849,225 ¥ 951,926 ¥ 973,565 ¥ 947,978 ¥ 951,324 ¥ 975,340
Costs and expenses · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 786,501 877,872 876,888 862,004 859,228 879,348
Operating income · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 62,723 74,055 96,676 85,974 92,096 95,992
Other expenses · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (16,781) (14,210) (31,313) (34,949) (13,934) (12,087)
Income before income taxes · · · · · · · · · · · · · · · · 45,943 59,845 65,364 51,025 78,162 83,905
Income taxes · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 24,069 28,090 33,491 20,086 26,870 26,027
Net income · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 27,345 36,097 39,418 29,686 47,066 50,683
At Year-End:
Total current assets ······························ 195,046 222,613 193,971 216,796 203,878 255,030
Investments and other assets · · · · · · · · · · · · · · 171,539 223,334 197,486 152,739 172,020 167,689
Property, plant and equipment,
at cost · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 842,770 850,090 837,627 822,180 795,820 766,823
Intangibles · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 10,158 14,931 14,431 17,913 27,511 27,921
Total assets · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1,219,514 1,310,976 1,243,520 1,209,628 1,199,229 1,217,463
Total current liabilities · · · · · · · · · · · · · · · · · · · · · · · · · · · · 287,099 263,501 254,374 246,343 252,712 261,826
Total non-current liabilities · · · · · · · · · · · · · · · · · · · · 499,952 565,770 513,300 501,869 442,405 414,713
Total shareholders’ equity · · · · · · · · · · · · · · · · · · · · · 428,523 475,019 468,706 453,285 495,635 530,862
Total interest-bearing deb · · · · · · · · · · · · · · · · · · · · · 491,011 510,179 465,015 494,535 455,700 448,500
Number of consolidated companies · · · · 25 35 43 56 77 118
Per Share Data (Yen):

Net income · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 10.94 ¥ 14.72 ¥ 16.33 ¥ 12.56 ¥ 20.56 ¥ 22.69
Shareholders’ equity · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 172.95 195.52 197.85 197.28 222.15 238.15
Key Ratios
Equity ratio (%) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 35.1 36.2 37.7 37.5 41.3 43.6
Debt ratio (%) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 40.3 38.9 37.4 38.9 38.0 36.8
Interest coverage ratio (Times) · · · · · · · · · · · · · 7.6 9.8 13.2 14.2 12.9 16.1
Return on average total assets (%) · · · · · · 2.3 2.9 3.1 2.4 3.9 4.2
Return on average shareholders’
equity (%) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 6.8 8.0 8.4 6.4 9.9 9.9

Management’s Discussion and Analysis
[Main points of the fiscal year ended March 31, 2005]

· Despite a decline in gas gross margin from the previous fiscal which improved to 1.35 and 1.39, respectively, contributed to
year due to a rise in crude oil prices, revenues and profits improving consolidated results.
increased for Osaka Gas through efforts to reduce costs such · After due consideration to free cash flow and other
as labor costs. conditions, Osaka Gas did not purchase any treasury stock
· The earnings of consolidated subsidiaries were favorable nor enter into debt assumption agreements with banks. The
across the board. The ratio of consolidated to non- Company retired its own shares that are susceptible to a
consolidated operating revenues and operating income, dilution of the issuer’s earnings per share.
1. Non-consolidated gas sales: Overall year-on-year growth despite the adverse affects of temperatures
In fiscal 2005, Osaka Gas supplied natural gas to 6,697,000 fiscal year. Gas sales volume to the commercial and industrial
customers (meters installed), an increase of 63,000 from the customers totaled 5,509 million cubic meters, an increased of 4.3%
end of the previous fiscal year. Sales volume of gas to residential from the previous fiscal year.
customers declined 2.8% year on year to 2,238 million cubic Sales volume to wholesale gas customers advanced 67.3% year
meters due to generally warm temperatures. on year to 305 million cubic meters, reflecting an increase in sales
In the commercial and industrial sectors, gas sales volume of the volume to industrial customers.
industrial, commercial and public offices/medical customers edged As a result, the Company’s gas sales volume increased 3.7%
up 3.5%, 5.5% and 8.1% year on year, respectively, on account of to 8,053 million cubic meters on a non-consolidated basis while
the growing gas sales to air-conditioning uses in accordance with advanced 3.8% to 8,072 million cubic meters on the Group basis
efforts to develop cogeneration and air-conditioning related demand compared with the previous fiscal year.
and warmer summer temperatures compared with the previous
Results of non-consolidated gas sales

2005/3 2004/3
A B A—B A /B
Customers Residential 6,377 6,316 61 101.0%
[meters installed] Commercial/ industrial 319 318 1 100.5%
(thousand) Total 6,697 6,634 63 100.9%
Average monthly usage Residential 33.1 34.3 (1.2) 96.5%
per customer (m3/month) Average of all customers 109.7 108.1 1.6 101.5%
Residential 2,238 2,304 (65) 97.2%
Commercial/ industrial 5,509 5,280 229 104.3%
Industrial 3,865 3,735 130 103.5%
Gas sales
Commercial 1,039 986 53 105.5%
(million m3)
Public and medical institutions 605 559 46 108.1%
Wholesale 305 182 123 167.3%
Total 8,053 7,766 287 103.7%
[Unit: 45MJ/m3]
2. Income analysis: Marked a year-on-year revenues and profits growth by offsetting higher gas material costs
reflecting crude oil prices through cost reductions.
Despite an increase in sales volume compared with the previous crude oil prices. As a result, operating income grew 4.2%, or ¥3.8
year, gas revenues declined ¥4.6 billion to ¥567.4 billion from billion, to ¥95.9 billion compared with the previous fiscal year.
the previous year, owing to lower unit costs applied to gas rates In other income and expenses, non-operating income rose ¥12.1
compared with the previous fiscal year reflecting the fuel cost billion year on year due to the absence of loss on debt assumption,
adjustment system. However, consolidated total revenues surged which was ¥3.7 billion resulting from early amortization in the
2.5%, or ¥24 billion, to ¥975.3 billion from the previous fiscal year previous fiscal year, and a ¥3.2 billion year-on-year increase in gains
owing to business expansion of existing consolidated subsidiaries on the sale of securities. Ordinary profits rose 19.7%, or ¥16 billion,
and an increase in the number of consolidated subsidiaries. to ¥97.4 billion from the previous fiscal year.
Total consolidated operating expenses decreased ¥20.1 billion In fiscal 2005, net income totaled ¥50.6 billion, an increase of
compared with the previous fiscal year on account of a ¥9.7 billion 7.7%, or ¥3.6 billion, from the previous year owing to ordinary profit
non-consolidated labor cost reductions in accordance with a increase effects despite the recording of a ¥13.9 billion impairment
revision of the retirement allowance system and efforts to reduce loss under extraordinary losses as a result of the Company’s
costs across the board, despite a ¥21.7billion increase in gas adoption of impairment accounting in fiscal 2005.
material costs from the previous fiscal year along with the rise in

(1) Gas segment (3) Gas Appliances and House-Pipe Installation
Owing to lower gas rates compared to the previous fiscal year by segment
the fuel cost adjustment system, revenues declined 0.2%, or ¥0.9 In fiscal 2005, revenues in this segment declined 4.7% year on year
billion, to ¥572.9 billion from the previous fiscal year. Operating to ¥136.8 billion due to the absence of sales of large-scale gas
income grew 9.4%, or ¥5.4 billion, to ¥63.5 billion on account of appliances recorded abundantly in fiscal 2004, and a decrease in
non-consolidated labor cost reductions of ¥9.7 billion reflecting the the number of house-pipe installations resulting from a drop in new
revision of the retirement allowance system and efforts to reduce installations.
costs across the board, despite an increase in gas material costs Operating profit declined 57.0%, or ¥1.2 billion, to ¥0.9 billion
from the previous fiscal year along with a surge in crude oil prices. compared with the previous fiscal year as a result of a decline in the
number of house-pipe installations.
(2) LPG, Electricity and Other Energies segment
The LPG segment added Daiya Nensho Co., Ltd., and Nagano (4) Real Estate segment
Propane Gas Co., Ltd., to the scope of consolidation in the fiscal Revenues from the real estate segment increased 9.5%, or
year under review. ¥3.2 billion, to ¥37.1 billion owing to an increase in new leasing
The Electricity segment began operating a 50 MW power plant properties at Urbanex Inc., one of the Company’s subsidiaries, and
constructed at the Company’s Himeji Terminal in June 2004. improved condominium sales. Operating income also rose 8.2%,
Gas and Power Investment Co., Ltd., constructed and began or ¥0.5 billion, to ¥7.6 billion from the previous fiscal year along with
operating 62 MW ‘power source cogeneration systems’ (systems an increase in revenues.
designed to sell excess electricity as well as to provide electricity
and heat that is required by customers through energy-efficient (5) Other segments
cogeneration systems), which is the largest system in Japan, in Uji Sales of other segments rose 5.3% year on year to ¥143.2 billion
city, Kyoto prefecture in October 2004. In addition, the Company, as a result of an increase in the number of consolidated subsidiaries
which took a stake in Tenaska Gateway Generating Station located and improved sales performance of Osaka Gas Chemicals’
in Texas, U.S.A., in June 2004, and decided to invest in the products. Operating income grew 12.1%, or ¥0.9 billion, to ¥8.3
Amorebieta power plant in Spain in October 2004, has participated billion along with each company’s efforts to reduce costs in addition
in overseas wholesale power generating (wholesale supply of to revenue growth effects.
electricity) businesses. Kinrei Co., Ltd., currently operates a total of 47 restaurants after
Owing to the aforementioned business expansion and an the opening of two Kagono-ya Chain of Japanese-style restaurants
increase in the number of consolidated subsidiaries for LPG and in Kashihara city, Nara prefecture, and in Kitano Hakubaicho in
electricity businesses, revenues climbed 18.9% to ¥157.1billion February 2005.
from the previous fiscal year. OG Sports Co., Ltd., which operates 17 COSPA fitness clubs, is
Expenses increased due to an increase in the number of preparing to open new facilities (Nagaokakyo, Mikage and Kongo)
consolidated subsidiaries and the rise in material prices, especially within 2005 with the goal of expanding its business.
in LP gas. As a result, operating income declined 11.2%, or ¥1.7
billion, to ¥13.9 billion from the previous fiscal year.
Consolidated results by segment for fiscal 2005 (April 1, 2004 – March 31, 2005) (¥ million)
LPG, Electricity Gas Apppliance Elimination
and Other and House-pipe Real and
Gas Energies Installation Estate Others Total Corporate Consolidated
(1) Operating revenues

Operating revenues
Outside customers 564,678 155,424 136,434 15,614 103,188 975,340 — 975,340
Inside group 8,228 1,695 377 21,504 40,061 71,866 (71,866) —
572,906 157,119 136,811 37,119 143,249 1,047,206 (71,866) 975,340
Cost and expenses 509,383 143,143 135,851 29,463 134,859 952,702 (73,354) 879,348
Operating income 63,523 13,976 959 7,655 8,389 94,503 1,488 95,992
(2) Identifiable assets, depreciation,

and capital expenditures
Identifiable assets 674,312 178,561 66,332 107,870 125,826 1,152,903 64,559 1,217,463
Depreciation 61,409 12,312 682 4,318 9,005 87,729 (870) 86,858
Loss from Impairment of fixed assets 10,771 743 513 1,745 135 13,910 — 13,910
Capital expenditure 39,951 8,130 650 3,800 13,354 65,889 (371) 65,517

3. Assets, Liabilities and Shareholders’ Equity analysis
3-1. Asset Management Policies losses are as follows.
The Osaka Gas Group views deregulation in the electricity and (million yen)
gas sectors as a business opportunity and intends to aggressively Impairment
Asset Location Type losses
expand business investment in growth fields—especially
electricity—while reducing assets in unprofitable business fields and Seika-cho and Kizu-cho,
Keihanna Land Kyoto prefecture Land 3,189
ongoing operations. In order to minimize investment risk caused by
changes in the operating environment, Osaka Gas is tightening its Kamiyama Land Kita-ku, Osaka city Land 2,842
rigorous investment decision and follow-up/evaluation procedures Adjoining land
Himeji city Land 1,607
of Himeji Terminal
based on common Group investment standards that have been
applied on individual investment proposals in the past.
After due consideration of the weighting of third-party and Recoverable value on these assets is calculated based on the
internal capital on capital costs and maintaining a sound financial net resale price. The market value is calculated based on the
position, Osaka Gas aims to maximize capital efficiency by targeting real estate appraisal value in principle. These assets, which were
a debt/equity ratio of approximately 10% and a shareholders’ equity acquired in advance to construct operational facilities or not be
ratio of more than 40%. Osaka Gas, with the current shareholders’ used as operational facilities anymore, lost their specific usage plan
equity ratio of just above 40%, intends to promote business due to the subsequent change in the economic environment. As
investment in growth fields through funding by adding new interest- the investment is unlikely to be paid off, the Company recorded
bearing debt to keep up with the increase in shareholders’ equity the decrease in value, which was calculated by reducing the book
reflecting higher profits. value to a recoverable value under impairment losses.
3-2. Capital Investment 3-5. Total Assets

In fiscal 2005, non-consolidated capital investment totaled ¥42.5 There were declining factors, such as a ¥32.9 billion decrease in
billion. Osaka Gas invested ¥6.6 billion during the fiscal year under fixed assets compared with the previous fiscal year following the
review with continuing construction on the Shiga Line of the Kinki adoption of impairment accounting and a year-on-year decline of
Trunk Line as a major construction project. The Company extended ¥10.4 billion in investment securities due to the sale of securities.
its gas pipelines by 437 kilometers for a total of 45,718 kilometers On the other hand, total assets increased ¥18.2 billion compared
by March 31, 2005. In fiscal 2005, consolidated capital investment with the previous fiscal year due to a ¥28.5 billion increase in cash
totaled ¥65.5 billion, reflecting the acquisition of assets and real reserves and a ¥12.7 billion increase in prepaid pension expenses.
estates for the leasing business at the Company’s consolidated In accordance with the postponement of investments in Spanish
subsidiaries. IPP and Japan EnvironChical Group until the fiscal year end on
31 March, 2006, cash and time deposits apparently increased
3-3. Investment Performance temporarily as of March 31, 2005.
The Osaka Gas Group aggressively involved in investments and
loans to both domestic and overseas electric businesses including 3-6. Interest-Bearing Debt
natural gas upstream operations, such as gas fields and LNG In addition to a certain amount of retained funds, there was no
tankers, and the electricity business, such as independent power significant investment for growth that exceeded the funds. As a
producer (IPP: wholesaling of electricity) as the Company’s future result, interest-bearing debt totaled ¥448.5 billion as of March 31,
growth drivers. 2005, a year-on-year decrease of ¥7.1 billion especially of short-
The Company, which decided or implemented investment in IPP term funds such as commercial papers (CP).
in the United States and Spain and in the Hayama Wind Power Interest-bearing debt consists of new long-term borrowings of
Plant in Shikoku, invested approximately ¥7.1 billion during the ¥11 billion on a non-consolidated basis and of approximately ¥27.5
fiscal year. The Company intends to invest a total of ¥21 billion in billion on a consolidated basis and repayment of approximately
the following fiscal year ended March 31, 2006, as a part of the ¥15.9 billion on a non-consolidated basis and of around ¥33.6
stake in Spanish IPP and investment in Japan EnviroChemicals billion on a consolidated basis.
Ltd., which was decided in March 2005. Osaka Gas issued ¥20 billion straight bonds in March 2005.
There was no repayment of bonds during fiscal 2005.
3-4. Adoption of Impairment Accounting (100 million yen)
Osaka Gas’s grouping policies are as follows. Increase/
(1) Fixed assets used for gas operations, which generate cash
2005/3 2004/3 decrease
flow in an integrated manner throughout manufacturing to Total Interest-Bearing
Debt at year-end 4,485 4,557 -71
sales of gas, are regarded to fall under one asset group.
(2) Business fixed assets excluding (1) are segmented in
principle by each business administration unit. 3-7. Employees’ Severance and Pension Benefits
(3) Other fixed assets are segmented in principle by individual As of March 31, 2005, projected benefit obligations had decreased
asset. by approximately ¥24.9 billion to ¥261.3 billion compared with a
In fiscal 2005, impairment losses recognized in accordance with year earlier reflecting the revision of the retirement allowance system
this grouping totaled ¥13,910 million, of which critical impairment on a non-consolidated basis implemented in December 2004. As

(¥ million)
a result, liability for severance and retirement benefits totaled ¥18.3
billion, a decrease of ¥24.5 billion. While the fair value of pension Information on Retirement Benefit Costs (for the year ended March 31, 2005)
assets increased by approximately ¥32.5 billion owing to the rise (1) Service costs 8,705
in contributions and well-performing investments, pension assets
concerning retirement benefit accounting that deduct prepaid (2) Interest expenses 5,343
pension costs increased by approximately ¥20.3 billion to ¥256 (3) Expected return on investments (4,236)
billion. Based on these factors, pension reserves, which are an
aggregation of employee’s severance and retirement benefits and (4) Actuarial difference recognized as costs 1,730
pension assets, totaled ¥274.4 billion. As a result, the unrecognized
(5) Past service liabilities recognized as costs (9,778)
actuarial difference decreased approximately ¥20.7 billion, and
there are ¥13 billion overfunded assets. (6) Retirement benefit costs (1)+(2)+(3)+(4)+(5) 1,764
Severance and retirement benefit expenses totaled ¥1.7 billion,
Note: Retirement benefit costs of consolidated subsidiaries adopting simple
a year-on-year decrease of approximately ¥13.7, in accordance computation methods are included in service costs.
with the write-off as past service liabilities of a part of a decrease in
debt following the revision of the retirement allowance system on a
non-consolidated basis and a ¥3.2 billion decrease in the actuarial Information on the basis of determining retirement
difference recognized as a cost to ¥1.7 billion from the previous
benefit liabilities and other costs
fiscal year reflecting improved pension asset investments in the Allocation of expected amount Allocation of
fiscal year ended March 31, 2003. of retirement benefits to be paid to fixed amounts to
employees relevant periods
(¥ million)
Discount rate Mainly 1.8%
Reserve for Retirement Benefits (as of March 31, 2005)
Expected return on investments Mainly 1.8%
(1) Projected benefit obligation (261,365)
Years to amortize past service liabilities Mainly 1year
(2) Plan assets as fair value 269,001
Years to amortize actuarial difference Mainly 10 years
(3) Unfunded projected benefit obligations ((1)+(2)) +7,636
(4) Unrecognized actuarial difference (13,076)
(5) Unrecognized prior service cost (Reduction in — 3-8. Shareholders’ Equity
obligation) As of March 31, 2005, shareholders’ equity increased ¥35.2 billion
year on year to ¥530.8 billion reflecting an intact increase in retained
(6) Net amount on balance sheet (3)+(4)+(5) (5,439) earnings without any acquisition of treasury stock.
(7) Prepaid pension cost 12,903
(8) Employee’s severance and retirement benefits (18,343)
((6)-(7))
Note: Some subsidiaries employ the simple computation method for
calculating retirement benefits.

4. Cash Flow Analysis
During the fiscal year ended March 31, 2005, net cash provided by sale of investment securities. Net cash used in financing activities
operating activities declined ¥15.9 billion to ¥116.9 billion due to an declined ¥52 billion to ¥23.9 billion, reflecting issuance of bonds in
increase in trade receivables and inventories, which offset the rise fiscal 2005 and repayment of bonds in the previous fiscal year. As a
in operating income. Net cash used in investing activities declined result, cash and cash equivalents totaled ¥44.2 billion as of March
¥2.1 billion to ¥65.6 billion, reflecting an increase in gains on the 31, 2005, an increase of ¥28.5 billion from a year earlier.
(100 million yen)
2005/3 2004/3 Increase/Decrease
Cash flow from operating activities 1,169 1,328 -159

Cash flow from investment activities -656 -678 +21
Cash flow from financial activities -239 -759 +520
Increase/decrease of cash and cash equivalents 273 -108 +381
Cash and cash equivalents at year-end 442 157 +285
Free cash flow ( 1) 577 (100 million yen) [Previous fiscal year:732 (100 million yen)]
*
( 1) Free cash flow = cash flow from operating activities - capital expenditures
*
5. Important facts about the group companies’ conditions turn up after fiscal year-end
5-1. Retirement of Treasury Stock in the living environmental business, such as production and sale
The Board of Directors passed a resolution on March 29, 2005, to of activated carbon, Minabe Chemical Industry (100%), Hakata
retire 133,342,000 shares of common stock acquired in line with Chemical (40%), Davao Central Chemical Corporation (80%) and
resolutions approved at the ordinary shareholders’ meetings on Century Chemical Works Sendirian Berhad (25%), which took over
June 27, 2002, and June 27, 2003, out of treasury stock and took shares of the former three companies with a total of ¥11.9 billion on
cancellation procedures on April 12, 2005. April 1, 2005.
Osaka Gas took over 30% of Japan EnviroChemicals shares
5-2. Acquisition of Japan EnviroChemicals Ltd. and from Osaka Gas Chemicals on the same date. Osaka Gas
other shares Chemicals added ¥2.02 billion by raising new capital as of April 20,
Osaka Gas Chemicals Co., Ltd., agreed to take over all shares 2005.
of Japan EnviroChemicals Ltd. (100% ownership stake), which
is owned by Takeda Pharmaceutical Company Limited engaged

6. Quantitative and Qualitative Disclosure of Risk
6-1. Business Risk 6-3. Air and Water Temperature (Weather) Risks
As an independent corporation, Osaka Gas believes it has the Gas sales volume is affected by changes in the temperature of air
management resources and business strategies to prosper amid and water. A 1°C change in average annual temperatures affects
competition for the foreseeable future based on currently available residential gas sales volume by approximately 4%–6%. For air-
information. conditioning gas sales, a 1°C change in the average summer
Profitability in the core gas business is primarily affected by the temperature affects gas sales volume by about 10%. Osaka Gas
following factors: hedges against some risks from air and water temperatures by
(1) Decline in demand and prices due to the removal of barriers using derivative and insurance instruments.
to outside companies participating in the gas business in
accordance with deregulation in Japan’s gas industry. 6-4. Foreign Exchange Rate and Oil Price Risks
(2) Fluctuations in weather and water temperatures affect gas Changes in foreign exchange rates and oil prices affects LNG
demand. prices. For the fiscal year ending March 31, 2006, for instance,
(3) Greater-than-expected fluctuations in crude oil prices and a change ¥1/US$ annually affects the cost of gas by about ¥1.7
exchange rates, which form the basis for LNG prices. LNG billion, while a change of $1/bbl in the price of oil has an impact
is the primary raw material for producing gas. of approximately ¥3.2 billion. The impact of changes in foreign
(4) Problems related to raw material procurement. exchange rates and oil prices is offset by reflecting these factors
(5) Problems related to production and supply. in gas prices through the fuel cost adjustment system, but due to
The profitability of other businesses is affected by conditions in a time lag in reflecting these items, they are occasionally carried
their respective markets. However, Osaka Gas strives to minimize forward into the next fiscal year.
the impact of other businesses on profits through a firm grasp of The Osaka Gas Group engages in forward foreign currency
and swift responses to business execution conditions in concert contracts as it procures LNG, LPG and other basic materials with
with all Group companies. U.S. dollars for foreign currency payables. Forward foreign currency
contracts for this purpose are in principle settled within a short
6-2. Market Risk Management Policy period of approximately one week, and do not substantially affect
In addition to business risks, the Osaka Gas Group is exposed to the performance of the Osaka Gas Group.
market risks, including changes in foreign exchange and interest The Osaka Gas Group engages in currency swap contracts
rates. To hedge against these risks, the Osaka Gas Group employs for principal on the issuance of applicable debt as a hedge
derivative transactions. These transactions are for the sole purpose against currency fluctuation risks on debt denominated in foreign
of hedging against risks based on actual demand conditions. currencies. These transactions are completed on the interest
The Company does not conduct derivative transactions for payment and maturity dates of the debt.
speculative purposes. The execution and management of derivative
transactions are based on internal rules and handled by the finance 6-5. Interest Rate Risks
department of each Group company, and overseen on a Group- The Osaka Gas Group sustains an appropriate level of interest rate
wide basis by the accounting and finance departments of Osaka risk for capital procurement, and to reduce capital procurement
Gas. costs over the long term, engages in interest rate swap contracts
The Osaka Gas Group constantly monitors market risks by for corporate bonds and debt. Interest rate risk is determined
periodically evaluating the market value of derivative transactions. through an assessment based on the value-at-risk (VaR) method.
The Osaka Gas Group believes that credit risk is negligible for The Company uses interest rate swap contracts as and when
the parties with which it enters into derivative transactions, as the necessary to fix appropriate interest rate levels against a specified
Company only deals with major financial institutions in accordance amount of future cash flow.
with requirements stipulated by internal rules. A 1% change in annual interest rates affects the interest
payments and bond interest on a consolidated basis by
approximately ¥1.1 billion in the fiscal year ended March 31, 2006.
Note: The VaR method estimates the amount of maximum possible losses
through a simulation of future price fluctuations on relevant assets.

Consolidated Balance Sheets
OSAKA GAS CO., LTD. AND ITS SUBSIDIARIES
As of March 31, 2004 and 2005
Millions of Yen Thousands of U.S. Dollars

(Note 1)
ASSETS 2004 2005 2005
Property, Plant and Equipment, at Cost:

Production facilities ···················································································· ¥ 493,383 ¥ 495,677 $ 4,615,672
Distribution facilities · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1,443,000 1,471,008 13,697,812
Service and maintenance facilities · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 167,821 145,835 1,357,994
Other ·········································································································· 335,363 363,727 3,386,973
Construction in progress · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 27,146 27,257 253,813
2,466,713 2,503,504 23,312,264
Less accumulated depreciation · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (1,670,893) (1,736,681) (16,171,720)
795,820 766,823 7,140,544
Intangibles and Deferred Assets · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 27,511 27,921 259,996
Investments and Other Assets:

Investments in securities:
Unconsolidated subsidiaries and affiliated companies · · · · · · · · · · · · · · · · · · · · · · · · · 14,556 8,863 82,531
Other (Note 4) ························································································ 98,329 93,587 871,469
Deferred tax assets (Note 13) ···································································· 20,195 14,440 134,463
Other investments and other assets · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 41,925 53,456 497,775
Allowance for doubtful receivables ···························································· (2,985) (2,657) (24,742)
172,020 167,689 1,561,496
Current Assets:
Cash and time deposits · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 19,998 48,513 451,746
Receivables:
Trade notes and accounts · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 108,085 114,045 1,061,971
Allowance for doubtful receivables · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (787) (760) (7,077)
107,298 113,285 1,054,894
Inventories · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 31,826 40,786 379,793

Deferred tax assets (Note 13) ···································································· 14,828 15,348 142,918
Other current assets · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 29,928 37,098 345,451
Total current assets · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 203,878 255,030 2,374,802
¥ 1,199,229 ¥ 1,217,463 $ 11,336,838
See accompanying notes

(Note 1)
LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY 2004 2005 2005
Long-Term Debt Due after One Year (Note 5) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 376,651 ¥ 367,265 $ 3,419,918
Deferred tax liabilities related to land revaluation (Note 8) · · · · · · · · · · · · · · · · · · · — 56 521
Employees’ Severance and Retirement Benefits (Note 12) · · · · · · · · · · · · · · · · · · · 42,889 18,344 170,817
Reserve for Repairs of Gas Holders · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1,531 1,610 14,992
Other Non-Current Liabilities (Note 13) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 21,335 27,438 255,499
Current Liabilities:
Short-term loans ························································································ 23,190 26,564 247,360
Long-term debt due within one year (Note 5) ··········································· 29,859 54,692 509,284
Trade notes and accounts payable ··························································· 35,779 43,827 408,111
Accrued income and enterprise taxes · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 29,767 25,815 240,385
Accrued expenses ····················································································· 63,427 52,476 488,649
Other current liabilities (Note 13) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 70,690 58,452 544,296
Total current liabilities · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 252,712 261,826 2,438,085
Contingent Liabilities (Note 7)
Minority Interests ························································································ 8,476 10,062 93,696
Shareholders' Equity (Note 6):

Common stock
Authorized-3,840,849 thousand shares in 2005
and 3,840,849 thousand shares in 2004
Issued - 2,369,012 thousand shares in 2005
and 2,369,012 thousand shares in 2004 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 132,167 132,167 1,230,720
Capital surplus · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 19,482 19,498 181,563
Retained earnings · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 346,558 384,350 3,579,011
Revaluation reserve for land (Note 8) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · — 81 754
Net unrealized gains on securities ····························································· 35,903 33,677 313,595
Foreign currency translation adjustments · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 2,931 3,145 29,286
Treasury stock, at cost:
140,284,727 shares in 2005 and 138,236,978 shares in 2004 ··········· (41,406) (42,056) (391,619)
Total shareholders’ equity · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 495,635 530,862 4,943,310
¥ 1,199,229 ¥ 1,217,463 $ 11,336,838

Consolidated Statements of Income
For the years ended March 31, 2004 and 2005

(Note 1)
2004 2005 2005
Operating Revenues (Note 14) ··································································· ¥ 951,324 ¥ 975,340 $ 9,082,224
Costs and Expenses (Note 14):

Costs · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 497,397 534,043 4,972,930
Selling, general and administrative expenses · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 361,831 345,305 3,215,430
859,228 879,348 8,188,360
Operating Income (Note 14) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 92,096 95,992 893,864
Other Income (Expenses):
Interest and dividend income · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1,205 1,143 10,643
Interest expense · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (7,238) (6,041) (56,253)
Gain on sale of investment securities · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 2,721 5,966 55,555
Loss on debt assumption ·········································································· (3,742) — —
Loss on write-down of investment securities · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (1,231) — —
Loss on write-down of investments in unconsolidated · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·
subsidiaries and affiliates · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (230) — —
Gain on sale of property, plant and equipment · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1,555 1,184 11,025
Loss on sale of property, plant and equipment ········································· (4,684) — —
Loss on offset against the acquisition cost of property,
plant and equipment · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (156) (850) (7,915)
Loss from impairment of fixed assets (Note15) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · — (13,910) (129,528)
Other, net · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (2,134) 421 3,920
(13,934) (12,087) (112,553)
Income before Income Taxes and Minority Interests · · · · · · · · · · · · · · · · · · · · · · · · · · · 78,162 83,905 781,311
Income Taxes — Current ··········································································· 26,870 26,027 242,360
— Deferred · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 3,484 6,453 60,089
Minority Interests ························································································ (742) (742) (6,909)
Net Income · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 47,066 ¥ 50,683 $ 471,953
Yen U.S. Dollars

(Note 1)
2004 2005 2005
Net Income per Share — Basic · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 20.56 ¥ 22.69 $ 0.211

Cash Dividends per Share ········································································· 6.00 6.00 0.056

Consolidated Statements of Shareholders’ Equity
Shares of Millions of Yen

Common Stock Revaluation Net Unrealized Foreign Currency
Issued Common Capital Retained reserve Gains on Translation Treasury
(Thousands) Stock Surplus Earnings for land Securities Adjustments Stock, at Cost
Balance at March 31, 2003 · · · · · · · · · · · · 2,369,012 ¥ 132,167 ¥ 19,482 ¥ 312,831 ¥ — ¥ 9,825 ¥ 85 ¥ (21,105)
Net income · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 47,066
Increase in net unrealized gains
on securities · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 26,078
Adjustments from translation
of foreign currency financial
statements · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 2,846
Cash dividends (including interim
dividends) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (13,783)
Bonuses to directors · · · · · · · · · · · · · · · · · · · · · (81)
Increase due to newly consolidated
subsidiaries · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 492
Increase due to a subsidiary
excluded from consolidation · · · · · · · · 33
Increase in treasury stock, net · · · · · · · (20,301)
Balance at March 31, 2004 · · · · · · · · · · · · 2,369,012 132,167 19,482 346,558 — 35,903 2,931 (41,406)
Net income · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 50,683
Increase in net revaluation reserve
for land · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 81
Decrease in net unrealized gains
on securities · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (2,226)
Adjustments from translation
of foreign currency financial
statements · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 214
Cash dividends (including interim
dividends) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (13,383)
Bonuses to directors · · · · · · · · · · · · · · · · · · · · · (85)
Increase due to newly consolidated
subsidiaries and equity method
companies · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 577
Increase due to sale of treasury
stock · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 16
Increase in treasury stock, net · · · · · · · (650)
Balance at March 31, 2005 · · · · · · · · · · · · 2,369,012 ¥ 132,167 ¥ 19,498 ¥ 384,350 ¥ 81 ¥ 33,677 ¥ 3,145 ¥ (42,056)
Thousands of U.S. Dollars (Note 1)

Revaluation Net Unrealized Foreign Currency
Common Capital Retained reserve Gains on Translation Treasury
Stock Surplus Earnings for land Securities Adjustments Stock, at Cost
Balance at March 31, 2004 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · $ 1,230,720 $ 181,414 $ 3,227,098 $ — $ 334,323 $ 27,293 $ (385,567)
Net income · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 471,953
Increase in net revaluation reserve for land · · · · · · · · · 754
Decrease in net unrealized gains on securities · · · · (20,728)
Adjustments from translation of foreign
currency financial statements · · · · · · · · · · · · · · · · · · · · · · · · · · 1,993
Cash dividends (including interim dividends) · · · · · · · (124,621)
Bonuses to directors · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (792)
Increase due to newly consolidated subsidiaries
and equity method companies · · · · · · · · · · · · · · · · · · · · · · · · 5,373
Increase due to sale of treasury stock · · · · · · · · · · · · · · · · 149
Increase in treasury stock, net · · · · · · · · · · · · · · · · · · · · · · · · · · (6,052)
Balance at March 31, 2005 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · $ 1,230,720 $ 181,563 $ 3,579,011 $ 754 $ 313,595 $ 29,286 $ (391,619)

Consolidated Statements of Cash Flows

(Note 1)
2004 2005 2005
Cash Flows from Operating Activities:
Income before income taxes and minority interests · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 78,162 ¥ 83,905 $ 781,311
Adjustments to reconcile net income before income taxes to net cash provided
by operating activities:
Depreciation · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 89,564 86,859 808,818
Loss from impairment of fixed assets · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · — 13,910 129,528
Decrease in employees' retirement benefits · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (27,411) (24,596) (229,034)
Decrease (increase) in prepaid pension expenses · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 568 (12,218) (113,772)
Interest and dividend income · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (1,205) (1,143) (10,643)
Interest expense · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 7,238 6,041 56,253
Loss on debt assumption · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 3,742 — —
Gain on sale of investments · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (2,721) (5,966) (55,555)
Loss on write-down of investment securities · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1,231 — —
Loss on write-down of investments in unconsolidated
subsidiaries and affilates · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 230 — —
Loss on disposal of property, plant and equipment · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 2,155 2,406 22,404
Decrease (increase) in receivables · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1,912 (4,341) (40,423)
Decrease (increase) in inventories · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (3,238) (8,583) (79,924)
Increase (decrease) in payables · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (4,178) 6,700 62,390
Increase (decrease) in accrued expenses · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 9,407 (2,361) (21,985)
Decrease in consumpution tax payable · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (428) (1,529) (14,238)
Other · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (1,003) 12,839 119,555
Total adjustments · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 75,863 68,018 633,374
Interest and dividends received· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1,230 1,336 12,441
Interest paid · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (7,809) (6,055) (56,383)
Income and enterprise taxes paid · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (14,555) (30,301) (282,159)
Net cash provided by operating activities · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 132,891 116,903 1,088,584
Cash Flows from Investing Activities:

Purchase of property, plant and equipment · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (68,116) (63,839) (594,460)
Purchase of investments in securities · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (182) (1,584) (14,750)
Proceeds from sale of investment securities · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 5,522 8,584 79,933
Purchase of investments in subsidiaries and affiliates · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (6,606) (6,995) (65,136)
Other · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1,504 (1,846) (17,190)
Net cash used in investing activities · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (67,878) (65,680) (611,603)
Cash Flows from Financing Activities:

Increase (decrease) in short-term loans · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 3,940 2,329 21,687
Net increase in commercial paper · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 2,000 (26,000) (242,108)
Proceeds from long-term debt · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 44,284 27,589 256,905
Repayment of long-term debt · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (67,256) (33,676) (313,586)
Proceeds from issuance of bonds · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · — 19,986 186,107
Repayment of bonds · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (24,743) — —
Cash dividends paid · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (13,732) (13,341) (124,229)
Cash dividends paid to minority shareholders · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (122) (165) (1,537)
Other · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (20,301) (635) (5,913)
Net cash used in financing activities · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (75,930) (23,913) (222,674)
Effect of Exchange Rate Changes on Cash and Cash Equivalents · · · · · · 71 (6) (56)
Net Increase (Decrease) in Cash and Cash Equivalents · · · · · · · · · · · · · · · · · · · · · · · · (10,846) 27,304 254,251
Cash and Cash Equivalents at Beginning of Year · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 26,094 15,744 146,606
Cash and Cash Equivalents of Newly Consolidated Subsidiaries · · · · · · · · 1,095 1,312 12,217
Decrease in Cash and Cash Equivalents by Exclusion
from Consolidation · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (599) (81) (754)
Cash and Cash Equivalents · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 15,744 ¥ 44,279 $ 412,320
Supplemental Disclosures of Cash Flow Information:

Cash and Cash Equivalents:
Cash and time deposits in the balance sheet · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 19,998 ¥ 48,513 $ 451,746
Time deposits with maturities over three months · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (4,254) (4,234) (39,426)
Cash and Cash Equivalents at End of Year · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 15,744 ¥ 44,279 $ 412,320

Notes to Consolidated Financial Statements
1. Basis of presenting consolidated financial statements

The accompanying consolidated financial statements have GAAP and filed with the appropriate Local Finance Bureau of the
been prepared in accordance with the provisions set forth in the Ministry of Finance as required by the Securities and Exchange
Japanese Gas Utility Law and related regulations, the Japanese Law. Some supplementary information included in the statutory
Securities and Exchange Law and its related accounting Japanese language consolidated financial statements, but not
regulations, and in conformity with accounting principles generally required for fair presentation, is not presented in the accompanying
accepted in Japan (“Japanese GAAP”), which are different in consolidated financial statements.
certain respects as to application and disclosure requirements of The translation of the Japanese yen amounts into U.S. dollars
International Financial Reporting Standards. are included solely for the convenience of readers outside Japan,
The accounts of overseas subsidiaries are based on their using the prevailing exchange rate at March 31, 2005, which was
accounting records maintained in conformity with generally ¥107.39 to U.S. $1.00. The convenience translations should not
accepted accounting principles prevailing in the respective be construed as representations that the Japanese yen amounts
countries of domicile. The accompanying consolidated financial have been, could have been, or could in the future be, converted
statements have been restructured and translated into English (with into U.S. dollars at this or any other rate of exchange.
some expanded descriptions and the inclusion of consolidated Certain 2004 consolidated financial statement items have been
statements of shareholders’ equity) from the consolidated financial reclassified to conform to the presentation for 2005.
statements of the Company prepared in accordance with Japanese
2. Significant accounting policies

(1) Consolidation (2) Consolidated statements of cash flows
Companies which are owned 40% or more and substantially In preparing the consolidated statements of cash flows, cash
controlled by the Parent are considered subsidiaries and included in on hand, readily-available deposits and short-term highly liquid
the consolidation. investments with maturities not exceeding three months at the time
The consolidated financial statements include the accounts of purchase are considered to be cash and cash equivalents.
of the Company and all of its 118 subsidiaries. Intercompany
transactions and accounts have been eliminated. (The consolidated (3) Inventories
financial statements include the accounts of the Company Inventories are mainly valued at moving average cost.
and its 77 significant subsidiaries in 2004. Consolidation of the
remaining subsidiaries would have had no material effect on the (4) Securities
accompanying consolidated financial statements in 2004.) Under the Japanese accounting standard for financial instruments,
The accounts of 20 consolidated subsidiaries are included on all companies are required to examine the intent of holding each
the basis of their fiscal years that end on December 31 (February security and classify those securities as 1) securities held for
28 for 3 other subsidiaries). These subsidiaries do not prepare, for trading purposes (“trading securities”), 2) debt securities intended
consolidation purposes, statements for the period that corresponds to be held to maturity (“held-to-maturity debt securities”), 3) equity
with the fiscal year of the Company. For these 23 consolidated securities issued by subsidiaries and affiliates, and 4) all other
subsidiaries, when there are significant transactions between their securities that are not classified in any of the above categories
respective fiscal year ends and the Company’s year-end, necessary (“available-for-sale securities”). The Companies have no trading
adjustments are made to reflect such transactions properly in the securities. Held-to maturity debt securities are stated at amortized
accompanying consolidated financial statements. cost. Equity securities issued by subsidiaries and affiliates that are
The difference between the cost of investments and equity in not consolidated or accounted for using the equity method are
their net assets at dates of acquisition of consolidated companies is stated at moving average cost. Available-for-sale securities whose
charged or credited to income within 20 years. If the difference isn’ fair value is readily determinable are stated at fair value as of the
t significant, it is charged or credited to income in the first year of end of the year with unrealized gains and losses, net of applicable
consolidation. deferred tax assets/liabilities and minority interests, not reflected
Two affiliates are newly accounted for by the equity method, in the in earnings but directly reported as a separate component of
current fiscal year due to becoming significant. Affiliates that have an shareholders’ equity. Realized gains or losses on sales of such
insignificant impact on consolidated net income and consolidated securities are computed using moving-average cost. Debt securities
retained earnings are not accounted for by the equity method. with no available fair market value are stated at amortized cost, net
Investments in unconsolidated subsidiaries and affiliates are not of the amount considered not collectible. Other securities with no
accounted for by the equity method in 2004, because they were available fair market value are stated at moving average cost.
insignificant.) If the market value of equity securities issued by non-
In the elimination of investments in subsidiaries, the assets and consolidated subsidiaries and affiliated companies and available-
liabilities of the subsidiaries, including the portion attributable to for-sale securities declines significantly, such securities are stated
minority shareholders, are evaluated using the fair value at the time at fair value and the difference between fair value and the carrying
the Company acquired control of the respective subsidiaries. amount is recognized as loss in the period of the decline. If the fair

value of equity securities issued by such subsidiaries and affiliated (11) Income taxes
companies is not readily available, such securities should be written Income taxes comprise corporation tax, prefectural and municipal
down to net asset value in the event net asset value declines inhabitants taxes and enterprise tax.
significantly. Unrealized losses on these securities are reported in The Companies recognize tax effects of loss carry forwards and
the income statement. temporary differences between the carrying amounts of assets
and liabilities for tax and financial reporting. The asset and liability
(5) Derivatives and hedge accounting approach is used to recognize deferred tax assets and liabilities for
Derivatives are stated at market value. See Note 2 (14). the expected future tax consequences of temporary differences
between the carrying amounts of assets and liabilities for financial
(6) Property, plant and equipment reporting purposes and the amounts used for income tax purposes.
Depreciation is provided mainly on the declining-balance method
(the straight-line method by certain consolidated subsidiaries) over (12) Translation of foreign currencies
estimated useful lives. However, the Company and its domestic Receivables and payables denominated in foreign currencies are
consolidated subsidiaries depreciate buildings acquired on or after translated into Japanese yen at the year-end rates.
April 1, 1998 on the straight-line method. Assets and liabilities of foreign subsidiaries are translated into
Repair and maintenance expenditures, excluding gas holders, Japanese yen at year-end rates. Shareholders’ equity is translated
are charged to income when incurred and major improvements are into Japanese yen at the historical rates. Income and expenses
capitalized. are translated into Japanese yen at average rates for the year. The
Certain capital gains arising from beneficiaries’ contributions translation differences arising from the use of different rates are
or expropriations of property, deferral of which is permitted for recognized in minority interests and as foreign currency translation
tax purposes, are offset against the acquisition cost of property adjustments in the consolidated balance sheets.
purchased. Cumulative capital gains offset against the acquisition
cost of property, plant and equipment at March 31, 2004 and (13) Accounting for leases
2005 were ¥281,343 million and ¥ 287,364 million ($ 2,675,892 Finance leases which do not transfer ownership are accounted for
thousand), respectively. in the same manner as operating leases under Japanese GAAP.
(7) Software costs (14) Derivative transactions and hedge accounting

The Companies include software in intangible assets and depreciate The Companies state derivative financial instruments at fair value at
it using the straight-line method over estimated useful lives. the end of the fiscal year and recognize changes in the fair value as
gains or losses unless derivative financial instruments are used for
(8) Allowance for doubtful receivables hedging purposes.
The Company and its consolidated subsidiaries (the “Companies”) If derivative financial instruments are used as hedges and meet
provide the allowance for doubtful accounts principally at an certain hedging criteria, the Companies defer recognition of gains
amount computed based on the actual ratio of bad debts in or losses resulting from changes in fair value of derivative financial
the past plus the estimated uncollectible amounts based on the instruments until the related losses or gains on the hedged items
analysis of certain individual receivables. are recognized.
However, in cases where forward foreign currency exchange
(9) Employees’ severance and retirement benefits contracts and currency swap contracts are used as hedges and
The Companies provide two types of post-employment benefit meet certain hedging criteria, forward foreign currency exchange
plans, unfunded lump-sum payment plans and funded contributory contracts and currency swap contracts and hedged items are
pension plans, under which all eligible employees are entitled to accounted for in the following manner:
benefits based on the level of wages and salaries at the time of If a forward foreign currency exchange contract or a currency
retirement or termination, length of service and certain other factors. swap contract is executed to hedge an existing foreign currency
A portion of benefits, previously paid by the defined benefits plan is receivable or payable, the difference, if any, between the Japanese
now covered by a defined contribution plan. yen amount of the hedged foreign currency receivable or payable
The Companies provide for employees’ severance and retirement translated using the spot rate at the inception date of the contract
benefits based on the estimated amounts of projected benefit and the book value of the receivable or payable is recognized in the
obligation and the fair value of the plan assets. income statement in the period which includes the inception date.
Prior service costs are recognized in expenses when they arise, If a forward foreign currency exchange contract or a currency
and actuarial gains and losses are recognized in expenses over 10 swap contract is executed to hedge a future transaction
years commencing with the following period. denominated in a foreign currency, the future transaction will be
recorded using the contracted forward rate, and no gains or losses
(10) Reserve for repairs of gas holders on the forward foreign currency exchange contract are recognized.
The Company and certain consolidated subsidiaries provide for Also, if interest rate swap contracts are used as hedges and
future repairs to gas holders by estimating future expenditures meet certain hedging criteria, the net amount to be paid or received
and charging to income in equal annual amounts. The difference under the interest rate swap contract is added to or deducted from
between the actual expenditure and the amount provided is the interest on the assets or liabilities for which the swap contract
charged to income in the year the repair is completed. was executed.

(15) Net income per share
The computations of net income per share of common stock shown Diluted net income per share of common stock for the years
on the consolidated statements of income are based on the weighted ended March 31, 2004 and 2005 is not shown since there were no
average number of shares outstanding during each fiscal year. outstanding convertible bonds or other common stock equivalents.
3. Change in accounting policy

Accounting Standards for Impairment of Fixed Assets (Statement 2004 and thereafter. Accordingly, the Company adopted these
Regarding Establishment of Accounting Standards for Impairment standards and guidelines for the current year. Due to the adoption
of Fixed Assets) (issued by the Business Accounting Deliberation of new accounting policy, net income before taxes decreased by
Council on August 9, 2002) and Guideline for Application of ¥13,906 million ($129,491 thousand). The accumulated losses
Accounting Standards for Impairment of Fixed Assets (guideline from impairment of fixed assets were directly deducted from the
No. 6 for application of business accounting standards, issued by applicable fixed assets, in accordance with the revised Rules for
the Accounting Standards Board on October 31, 2003) may be Consolidated Financial Statements. See Note 15.
adopted for financial statements for the year ending March 31,
4. Securities
(1) The following tables summarize acquisition costs, book (3) Maturities of available-for-sale securities with maturities are as
values (fair values) of available-for-sale securities with follows:
available fair values as of March 31, 2004 and 2005: Millions of Yen
Within Over One Year Over Five Years Over
but Within but Within Total
One Year Ten Years
Securities with available fair values (book values) that exceed Five Years Ten Years
acquisition cost : For 2004:

Thousands of
Millions of Yen
U.S. Dollars Government
Acquisition Cost Book Value Difference Difference Bonds · · · · · · · · · · · · · · · · · ¥ 9 ¥ 1 ¥ — ¥ — ¥ 10
For 2004: For 2005:
Equity securities · · ¥ 22,943 ¥ 80,185 ¥ 57,242 Government
Bonds · · · · · · · · · · · · · · · · 1 1 — Bonds · · · · · · · · · · · · · · · · · ¥ 1 ¥ — ¥ — ¥ — ¥ 1
Total · · · · · · · · · · · · · · · · · · · ¥ 22,944 ¥ 80,186 ¥ 57,242 Other · · · · · · · · · · · · · · · · · · 50 — — 400 450
For 2005: Total · · · · · · · · · · · · · · · · ¥ 51 ¥ — ¥ — ¥ 400 ¥ 451
Equity securities · · ¥ 21,442 ¥ 75,237 ¥ 53,795 $ 500,931
Bonds · · · · · · · · · · · · · · · · 51 51 — — Thousands of U.S. Dollars
Total · · · · · · · · · · · · · · · · · · · ¥ 21,493 ¥ 75,288 ¥ 53,795 $ 500,931 Within Over One Year
but Within
Over Five Years
but Within
Over
One Year Ten Years Total
Five Years Ten Years
Securities with available fair values (book values) that do not For 2005:
exceed acquisition cost :
Government
Millions of Yen Thousands of
U.S. Dollars Bonds · · · · · · · · · · · · · · · · · $ 9 $ — $ — $ — $ 9
Acquisition Cost Book Value Difference Difference
Other · · · · · · · · · · · · · · · · · · 466 — — 3,725 4,191
For 2004: Total · · · · · · · · · · · · · · · · $ 475 $ — $ — $ 3,725 $ 4,200
Equity securities · · ¥ 95 ¥ 75 ¥ (20)
Bonds · · · · · · · · · · · · · · · · 9 9 — (4) Total sales of available-for-sale securities in the year ended
Total · · · · · · · · · · · · · · · · · · · ¥ 104 ¥ 84 ¥ (20) March 31, 2004 and 2005 amounted to ¥5,522 million and
For 2005: ¥8,584 million ($79,933 thousand) and the related gains and
Equity securities · · ¥ 261 ¥ 244 ¥ (17) $ (158) losses amounted to ¥2,721 million and ¥5,966 million ($55,555
thousand) and ¥276 million and ¥243 million ($2,263 thousand),
(2) The following table summarizes book values of significant respectively.
available-for-sale securities with no available fair values as of
March 31, 2004 and 2005:
U.S. Dollars
2004 2005 2005
Non-listed (non quoted)
equity securities · · · · · · · · · · · · · · · · ¥ 18,059 ¥ 17,447 $ 162,464

5. Short-Term loans and Long-term debt
Short-term loans consisted of short-term notes payable, bearing due 2005 (¥33,900 million) and loans from banks (¥5,455 million
interest at an annual average rate of 0.4% and 0.4% at March 31, due through the year ended March 31, 2010).
2004 and 2005. In the year ended March 31, 2004, the Company entered into
Long-term debt at March 31, 2004 and 2005 consisted of the debt assumption agreements with banks for 5.875% notes payable
following: in Euroyen due 2012 (¥10,000 million).
Millions of Yen Thousands of However, the Company remains contingently liable on the
U.S. Dollars
2004 2005 2005 amounts assumed by the banks.
Loans principally from banks and
The annual maturities of long-term debt are as follows at March 31,
insurance companies, principally
2005:
at 0.08% -3.82%, maturing Thousands of
Years ending March 31 Millions of Yen
through 2019 · · · · · · · · · · · · · · · · · · · · · · · · · ·¥ 187,630 ¥ 182,877 $ 1,702,924 U.S. Dollars
2.95% notes payable due 2005 · · 15,000 15,000 139,678 2006 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 54,692 $ 509,284
3.4% notes payable due 2017· · · · 15,700 15,700 146,196 2007 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 68,443 637,331
2.9% notes payable due 2018· · · · 29,000 29,000 270,044 2008 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 39,064 363,758
1.47% notes payable due 2008 · · 30,000 30,000 279,356 2009 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 43,337 403,548
1.95% notes payable due 2009 · · 20,000 20,000 186,237 2010 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 34,436 320,663
1.23% notes payable due 2005 · · 20,000 20,000 186,237 2011 and thereafter · · · · · · · · · · · · · 181,985 1,694,618
1.46% notes payable due 2012 · · 20,000 20,000 186,237 Total · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 421,957 $ 3,929,202
1.47% notes payable due 2022 · · 20,000 20,000 186,237
1.83% notes payable due 2020 · · — 20,000 186,237 Assets pledged as collateral mainly for short-term loans and long-
7.125% bonds payable in U.S. term debt totaling ¥34,794 million and ¥29,232 million ($272,204
dollars due 2007 · · · · · · · · · · · · · · · · · · · · · · 48,960 48,960 455,908 thousand) at March 31, 2004 and 2005, respectively, were as
follows:
0.66% notes payable due 2008 · · — 200 1,862 Thousands of
Millions of Yen
2.06% notes payable due 2007 · · 220 220 2,049 U.S. Dollars
2004 2005 2005
406,510 421,957 3,929,202
Property, plant and
Less amounts due within one year 29,859 54,692 509,284
equipment · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 60,281 ¥ 55,901 $ 520,542
¥ 376,651 ¥ 367,265 $ 3,419,918
Cash and time deposits · · · · · · · · 2,035 2,022 18,829
In the year ended March 31, 2000, the Company entered into debt Accounts receivable · · · · · · · · · · · · · · 515 988 9,200
assumption agreements with banks for loans from banks (¥9,577 Inventories and other· · · · · · · · · · · · · 841 1,444 13,446
million due through the year ended March 31, 2010). Total · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 63,672 ¥ 60,355 $ 562,017
In the year ended March 31, 2002, the Company ended into
debt assumption agreements with banks for 2.95% notes payable
6. Shareholders’ equity
Under the Commercial Code of Japan, the entire amount of the or reduce a deficit by resolution of the stockholders’ meeting or
issue price of shares is required to be accounted for as capital, may be capitalized by resolution of the Board of Directors. On
although a company may, by resolution of its board of directors, condition that the total amount of legal earnings reserve and
account for an amount not exceeding one-half of the issue price additional paid-in capital exceeds 25% of common stock, they are
of the new shares as additional paid-in capital, which is included in available for distribution by the resolution of shareholders’ meeting.
capital surplus. Legal earnings reserve is included in retained earnings in the
The Commercial Code provides that an amount equal to at accompanying financial statements.
least 10% of cash dividends and other cash appropriations shall The maximum amount that the Company can distribute as
be appropriated and set aside as a legal earnings reserve until dividends is calculated based on the non-consolidated financial
the total amount of legal earnings reserve and additional paid- statements of the Company in accordance with the Commercial
in capital equals 25% of common stock. The legal earnings Code.
reserve and additional paid-in capital may be used to eliminate

7. Contingent liabilities
At March 31, 2004 and 2005, the Companies were contingently Millions of Yen Thousands of
U.S. Dollars
liable as follows: 2004 2005 2005
As guarantor of indebtedness of:
affiliates · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 2,926 ¥ 2,336 $ 21,753
Employees · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 157 106 987
Debt assumption agreements · · · · 82,707 58,932 548,766
Total · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 85,790 ¥ 61,374 $ 571,506
8. Land revaluation
Pursuant to the Law Concerning Land Revaluation and the prices used for the revaluation were determined based on the
Amended Land prices in the official notice published by the Commissioner of the
Revaluation Law, a consolidated subsidiary revalued their land National Tax Agency in accordance with Article 2, Paragraph 4 of
used for business activities on March 31, 2002. The difference the Enforcement Ordinance Concerning Land Revaluation, after
between the revalued amount and the book value before the making reasonable adjustments.
revaluation was recorded as “Deferred tax liabilities related to The book value of the revalued land exceeded its market value
land revaluation” in liabilities and “Revaluation reserve for land” in as of March 31, 2005 in the amount ¥1,788 million ($16,650
shareholders’ equity in the consolidated balance sheets. The land thousand).
9. Research and development expenses

The Companies charge research and development expenses to to ¥12,379 million and ¥11,404 million ($106,192 thousand) for the
selling, general and administrative expenses and manufacturing years ended March 31, 2004 and 2005.
costs as incurred. Research and development expenses amounted
10. Finance leases

Information for non-capitalized finance leases at March 31, 2004 and 2005 is as follows:
As lessee (non-capitalized) As lessor

Millions of Yen Thousands of Millions of Yen Thousands of
U.S. Dollars U.S. Dollars
2004 2005 2005 2004 2005 2005
Original lease obligations Original cost · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 13,450 ¥ 17,605 $ 163,935
(including finance charges) · · · · · · · ¥ 3,904 ¥ 3,846 $ 35,813 Less accumulated depreciation · · 8,009 8,457 78,750
Total · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 5,441 ¥ 9,148 $ 85,185
Payments remaining:
Payments due within one year · · · · ¥ 620 ¥ 577 $ 5,373 Receipts remaining:
Payments due over one year · · · · · · 1,328 1,371 12,766 Receipts due within one year · · · · · ¥ 2,694 ¥ 3,051 $ 28,411
Total · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 1,948 ¥ 1,948 $ 18,139 Receipts due over one year · · · · · · · 5,480 6,536 60,862
Total · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 8,174 ¥ 9,587 $ 89,273
Lease payments for such leases for the years ended March 31,
2004 and 2005 were ¥1,063 million and ¥733 million ($6,826 Lease receipts under such leases for the years ended March 31,
thousand), respectively. 2004 and 2005 were ¥3,023 million and ¥3,529 million ($32,862
thousand), respectively.
Depreciation for the years ended March 31, 2004 and 2005
were ¥1,857 million and ¥2,118 million ($19,723 thousand),
respectively.

11. Derivative transactions
The Companies use forward foreign currency contracts, currency The following summarizes hedging derivative financial instruments
swaps, interest rate swaps, material price swap contracts, and used by the Companies and items hedged:
options and weather derivatives as derivative financial instruments
only for the purpose of mitigating future risks of fluctuations of Hedging instruments: Hedged items:
foreign currency exchange rates with respect to foreign currency · Interest rate swap contracts · Interest on bonds and loans payable
payables for the purchase of materials and foreign currency · Currency swap contracts · Foreign currency bonds and loans
bonds and loans payable, interest rate increases with respect payable
to borrowings within the amounts of such borrowings or foreign · Forward foreign exchange · Foreign currency future purchases
currency payables, fluctuations of material prices, and fluctuations contractsand currency options
in gas sales. · Material and other price swap · Purchase cost of materials and other
These derivatives are subject to risks of foreign exchange rate contracts and options
changes, interest rate changes, material price fluctuations, and
temperature changes, respectively. The Companies evaluate hedge effectiveness by recognizing the
The Companies’ derivative transactions are executed and association of hedging instruments and hedged items.
managed by the Companies’ Finance Departments in accordance All derivative transactions as of March 31, 2004 and 2005 are
with the established policies and within the specified limit on the recorded by hedge accounting.
amounts of derivative transactions allowed.
12. Employees’ severance and pension benefits

The liabilities for severance and retirement benefits included in the Included in the consolidated statement of income for the years
liability section of the consolidated balance sheets as of March 31, ended March 31, 2004 and 2005 are severance and retirement
2004 and 2005 consist of the following: benefit expenses comprised of the following:
Millions of Yen Thousands of Millions of Yen Thousands of
U.S. Dollars U.S. Dollars
2004 2005 2005 2004 2005 2005
Projected benefit obligation · · · ¥ 286,310 ¥ 261,365 $2,433,793 Service costs – benefits earned
Prepaid pension expenses · · · · 673 12,904 120,160 during the year · · · · · · · · · · · · · · · · · · · · · ¥ 8,514 ¥ 8,706 $ 81,069
Less unrecognized actuarial Interest cost on projected
differences · · · · · · · · · · · · · · · · · · · · · · · · · (7,657) 13,076 121,762 benefit obligation · · · · · · · · · · · · · · · · · · · 4,901 5,343 49,753
Less fair value of pension Expected return on plan assets · · (2,869) (4,237) (39,454)
assets · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (236,437) (269,001) (2,504,898) Amortization of actuarial gains
Liability for severance and and losses · · · · · · · · · · · · · · · · · · · · · · · · · · · 4,941 1,730 16,109
retirement benefits · · · · · · · · · · · · · · ¥ 42,889 ¥ 18,344 $ 170,817 Prior service costs · · · · · · · · · · · · · · · · · · 71 (9,778) (91,051)
Severance and retirement
benefit expenses · · · · · · · · · · · · · · · · · · · ¥ 15,558 ¥ 1,764 $ 16,426
The discount rate and the rate of expected return on plan assets
used by the Company are mainly 1.8 % in the years ended March
31, 2004 and 2005. The estimated amount of all retirement
benefits to be paid at future retirement dates is allocated equally
to each service year using the estimated number of total service
years. Prior service costs are recognized as incurred and actuarial
gains/losses are recognized as an expense in equal amounts over
10 years.

13. Income taxes
The Company is subject to a number of taxes based on income, Net deferred tax assets are reflected in the consolidated balance
which, in the aggregate, indicate statutory rates in Japan of sheets as follows:
approximately 36.2%, in case of the Company (40.6% for certain Millions of Yen Thousands of
U.S. Dollars
consolidated subsidiaries) for the years ended March 31, 2004 and 2004 2005 2005
2005. ¥ 14,828 ¥ 15,348 $ 142,918
Current assets ·······················
The following table summarizes the significant differences
Investments and other assets · · 20,195 14,440 134,463
between the statutory tax rate and the Company’s effective tax
Other current liabilities · · · · · · · · · · · · · (12) (20) (186)
rates for financial statement purposes for the years ended March
31, 2004 and 2005: Other non-current liabilities · · · · · · (6,841) (6,536) (60,862)
2004 2005
¥ 28,170 ¥ 23,232 $ 216,333
Statutory tax rate · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 36.2% 36.2%

Non-deductible expenses · · · · · · · · · · · · · · · · · · · · · · · 1.2 1.5
Statutory tax rate difference between
the Company and certain subsidiaries · · · 1.0 0.7
Per capita inhabitant tax · · · · · · · · · · · · · · · · · · · · · · · · · 0.2 0.2
Other · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 0.2 0.1
Effective tax rate · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 38.8% 38.7%
Significant components of the Companies’ deferred tax assets and

liabilities as of March 31, 2004 and 2005 are as follows:
U.S. Dollars
2004 2005 2005
Deferred tax assets:
Retirement benefits · · · · · · · · · · · · · · · ¥ 10,381 ¥ 3,250 $ 30,264
Excess depreciation · · · · · · · · · · · · · · 11,871 11,246 104,721
Loss on cancellation of
construction plan · · · · · · · · · · · · · · · · 7,089 4,607 42,900
Loss on impairment of
fixed assets · · · · · · · · · · · · · · · · · · · · · · · · — 5,192 48,347
Write-down of securities · · · · · · · · · 5,251 3,642 33,914
Enterprise taxes · · · · · · · · · · · · · · · · · · · · 3,095 3,077 28,652
Other · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 18,636 18,906 176,050
Total deferred tax assets · · · · · · · · · · · · 56,323 49,920 464,848
Valuation allowance · · · · · · · · · · · · · · · (478) (436) (4,060)
Net deferred tax assets · · · · · · · · · · · · · 55,845 49,484 460,788
Deferred tax liabilities:

Special reserve for tax
purposes · · · · · · · · · · · · · · · · · · · · · · · · · · · (4,642) (4,764) (44,362)
Deferred gains on real
properties · · · · · · · · · · · · · · · · · · · · · · · · · · (344) (344) (3,203)
Net unrealized gains on
securities · · · · · · · · · · · · · · · · · · · · · · · · · · · (21,285) (20,059) (186,787)
Other · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · (1,404) (1,085) (10,103)
Total deferred tax liabilities · · · · · · · · · · (27,675) (26,252) (244,455)
Net deferred tax assets · · · · · · · · · · · · · ¥ 28,170 ¥ 23,232 $ 216,333

14. Segment information
The Company’s primary business activities include (1) Gas (2) LPG,
Electricity and Other Energies (3) Gas Appliance and House-pipe
Installation (4) Real Estate (5) Other Businesses.
A summary of segment information is as follows:

Millions of Yen
For 2004 Gas Energies Installation Estate Others Total Corporate Consolidated
Operating revenues
Outside customers · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 568,047 ¥ 130,671 ¥ 143,164 ¥ 13,745 ¥ 95,697 ¥ 951,324 ¥ — ¥ 951,324
Inside group · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 5,856 1,499 397 20,153 40,318 68,223 (68,223) —
573,903 132,170 143,561 33,898 136,015 1,019,547 (68,223) 951,324
Cost and expenses · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 515,860 116,429 141,330 26,820 128,529 928,968 (69,740) 859,228
Operating income · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 58,043 ¥ 15,741 ¥ 2,231 ¥ 7,078 ¥ 7,486 ¥ 90,579 ¥ 1,517 ¥ 92,096
Identifiable assets · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 676,782 ¥ 172,638 ¥ 69,145 ¥ 102,526 ¥ 115,158 ¥ 1,136,249 ¥ 62,980 ¥ 1,199,229
Depreciation· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 64,778 11,772 793 4,503 8,674 90,520 (956) 89,564
Capital expenditure · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 47,234 7,860 676 4,085 10,320 70,175 (395) 69,780
Millions of Yen
Operating revenues
Outside customers · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 564,678 ¥ 155,425 ¥ 136,434 ¥ 15,615 ¥ 103,188 ¥ 975,340 ¥ — ¥ 975,340
Inside group · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 8,229 1,695 377 21,504 40,061 71,866 (71,866) —
572,907 157,120 136,811 37,119 143,249 1,047,206 (71,866) 975,340
Cost and expenses · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 509,384 143,144 135,852 29,463 134,859 952,702 (73,354) 879,348
Operating income · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 63,523 ¥ 13,976 ¥ 959 ¥ 7,656 ¥ 8,390 ¥ 94,504 ¥ 1,488 ¥ 95,992
Identifiable assets · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ¥ 674,313 ¥ 178,561 ¥ 66,333 ¥ 107,870 ¥ 125,826 ¥ 1,152,903 ¥ 64,560 ¥ 1,217,463
Depreciation· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 61,410 12,312 682 4,319 9,006 87,729 (870) 86,859
Loss from Impairment of fixed assets · · · · 10,771 744 513 1,746 136 13,910 — 13,910
Capital expenditure · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 39,952 8,130 651 3,801 13,355 65,889 (372) 65,517
Thousands of US. Dollars

Operating revenues
Outside customers · · · · · · · · · · · · · · · · · · · · · · · · · · $ 5,258,199 $ 1,447,295 $ 1,270,453 $ 145,405 $ 960,872 $ 9,082,224 $ — $ 9,082,224
Inside group · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 76,627 15,784 3,511 200,242 373,042 669,206 (669,206) —
5,334,826 1,463,079 1,273,964 345,647 1,333,914 9,751,430 (669,206) 9,082,224
Cost and expenses · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 4,743,309 1,332,937 1,265,034 274,355 1,255,787 8,871,422 (683,062) 8,188,360
Operating income · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · $ 591,517 $ 130,142 $ 8,930 $ 71,292 $ 78,127 $ 880,008 $ 13,856 $ 893,864
Identifiable assets · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · $ 6,279,104 $ 1,662,734 $ 617,683 $ 1,004,470 $ 1,171,673 $ 10,735,664 $ 601,174 $ 11,336,838
Depreciation· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 571,841 114,648 6,351 40,218 83,862 816,920 (8,102) 808,818
Loss from Impairment of fixed assets · · · · 100,298 6,928 4,777 16,259 1,266 129,528 — 129,528
Capital expenditure · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 372,027 75,706 6,062 35,394 124,360 613,549 (3,464) 610,085
Geographic segment information is not disclosed since domestic Information for overseas sales is not disclosed since overseas sales
sales and assets exceeded 90% of all segments. are not material compared to consolidated net sales.

15. Loss from impairment of fixed assets
(1) Grouping Loss from Impairment
1. All fixed assets used in processes related to the gas business Asset Location Type (Thousands of
(million yen) U.S. Dollars)
from production to sales of gas are categorized into one asset Seika-cho and Kizu-cho,
group, because these assets generate cash flow from the gas Land in Keihanna Kyoto Prefecture Land 3,189 29,696
business as one whole asset. Land in Kamiyama Kita-ku, Osaka City Land 2,843 26,474
2. Fixed assets used for other businesses other than those
Land adjacent to
described above are generally categorized into groups based on Himeji terminal Himeji City Land 1,608 14,973
business divisions controlling such fixed assets.
3. Generally, other fixed assets are treated individually. Recoverable values of these assets are assessed based on selling
prices in the market. The market pricesare based on appraisal
(2) Specific lossed from impairment of fixed assets by real estate appraiser.These were assets acquired for future
In accordance with the grouping described in (1) above, a loss construction of facilities for operation, or operational facilities
from impairment of ¥13,910 million ($129,530 thousand) was not currently in use. It was determined that recovery of these
recognized. Significant properties included in this loss are listed in investments was difficult as there are no specific use plans for these
the table below. assets under the current economic condition. Therefore, their book
values were reduced to their recoverable values, and the differences
were recorded as losses from impairment of fixed assets.
16. Significant subsequent events

(1) Retirement of treasury (3) Acquisition of Idemitsu Snorre Oil Development
At the board of directors meeting held on March 29, 2005, it Co., Ltd
was resolved to retire 133,342,000 ordinary shares acquired in On June 7, 2005, the Company decided to acquire on July 1,
accordance with shareholders’ resolutions at the ordinary general 2005, 49.5% (149,660 common shares) equity of Idemitsu Snorre
meetings of shareholders on June 27, 2002 and June 27, 2003 on Oil Development Co., Ltd. from the national government of Japan
April 12, 2005. for ¥32,425 million ($301,937 thousand). Idemitsu Snorre Oil
Development Co.,Ltd. ,through its Norwegian subsidiary, produces
(2) Acquisition of Life-Environment Business crude oil and natural gas in the Norwegian sector of the North
companies Sea. The Company has placed a high priority on the upstream
Osaka Gas Chemicals Co., Ltd., a the subsidiary, acquired the sector as a business segment contributing to enhancing its
shares of Japan EnviroChemicals, Ltd. (owned 100%), Minabe competitiveness and profitability through an intensive deployment
Chemical Industries, Ltd. (owned 100%), Hakata Chemical of its managerial resources. It is believed that the acquisition would
Industries, Ltd. (owned 40%), Davao Central Chemical Corporation enrich the technical, managerial and upstream resources expertise
(owned 80%) and Century Chemical Works Sdn.Bhd.(owned of The Company, thereby contributing to stable and economical
25%)who operate in the life-environment business of manufacturing procurement of LNG and other energy resources in the future.
and sales of activated carbon. They were owned by Takeda
Pharmaceutical Co., Ltd. who agreed on the transfer on March 30,
2005. Osaka Gas Chemicals Co., Ltd. acquired the stock for a total
of ¥11,900 million ($110,811 thousand) on April 1, 2005.

Independent Auditors’ Report
To the Shareholders and Board of Directors of

Osaka Gas Co., Ltd.:
We have audited the accompanying consolidated balance sheets of Osaka Gas Co., Ltd. and subsidiaries as of March 31, 2004 and
2005, and the related consolidated statements of income, shareholders' equity and cash flows for the years then ended, expressed in
Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
independently express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An 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 consolidated financial
position of Osaka Gas Co., Ltd. and subsidiaries as of March 31, 2004 and 2005, and the consolidated results of their operations and
their cash flows for the years then ended, in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion in 2005, we draw attention to Notes 3 and 16 to the consolidated financial statements, which state that 1.)
the Company and consolidated domestic subsidiaries adopted the new Japanese accounting standards for impairment of fixed assets,
2.) the Company retired treasury shares on April 12, 2005, 3.) Osaka Gas Chemicals Co., a consolidated subsidiary acquired Japan
EnviroChemicals, Ltd. and others on April 1, 2005., and 4.) the Company decided to acquire 49.5% of Idemitsu Snorre Oil Development
Co., Ltd. on June 7, 2005.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2005 are
presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion,
such translation has been made on the basis described in Note 1 to the consolidated financial statements.
Osaka, Japan
June 29, 2005

List of Major Consolidated Subsidiaries (As of March 31, 2005)
Capital Osaka Gas

Name of Subsidiary (million yen) Shareholding (%)
Osaka Gas Customer Relations Co., Ltd. 50 100
• Checking gas meters, clerical administration concerning gas rates, and collection of gas charges
Sasayama City Gas Co.,Ltd 100 66.7
• Gas business, piping work, and sale and repair of housing equipment
Gas
Toyooka Enegy Co., Ltd. 100 100

• Gas business, piping work, and sale and repair of housing equipment
Nabari Kintetsu Gas Co., Ltd. 100 85
• Sales of natural gas, simplified gas, LPG, auto gas and gas appliances, and design and installation of piping
Osaka Gas International Transport Inc. 3,190 100
• Vessel leasing
Gas and Power Co., Ltd. 450 100
• Electric power supply • Prospecting, development, production and supply of petroleum and natural gas
• Investment in energy infrastructure • Energy environmental service
• Research and planning relating to the above-mentioned businesses
Gas and Power Investment Co., Ltd. 2,100 100
• Domestic and overseas energy businesses, and research, planning, development and investment relating to these businesses
Cogen Techno Service Co., Ltd. 400 56
LPG, Electricity and Other Energies
• Design, installation and sale of cogeneration systems and service by contract

• Processing of electric power and cold/hot air by contract
Liquid Gas Co., Ltd. 1,030 100
• Manufacture, sale and transport of LNG and high-pressure gases
• Sale of cold air generated from LNG production and sale of LPG
Nakayama Joint Power Generation Co.,Ltd. 300 95
• Electric power supply
Nakayama Nagoya Joint Power Generation Co., Ltd. 450 95
• Electric power supply
Nissho Petroleum Gas Corporation 1,726 70
• Import and sale of LPG
Nissho Propane Sekiyu Co., Ltd. 60 100
• Sale of LPG, gas appliances and petroleum
Osaka Gas Australia Pty. Ltd. A$157 million 100
• Mining of crude oil, natural gas and other mineral resources and their development, production and sales
Osaka Gas Energy America Corporation US$1 100
• Investigation, planning, development, and investment concerning the energy supply business in the U.S.A.
Osaka Gas Rusk Power, LLC. US$1 100
• Investment in Tenaska Gateway Generating Station, U.S.A.
48 other companies
Enetech Kyoto Co., Ltd. 30 100
Gas Appliances andHouse-
• Design, installation, operation, maintenance and sale of air-conditioning, water supply • Drainage, hot water supply, ventilation
and kitchen facilities and equipment • Design and performance of piping work and electric work
Pipe Installation
Enetech Osaka Co., Ltd. 20 100

• Design, installation, operation, maintenance and sale of air-conditioning, water supply
• Drainage, hot water supply, ventilation and kitchen facilities and equipment
OG Road Co., Ltd. 50 100
• Investigation and design concerning recycling of excavated soil and the manufacturing and sales of road construction materials
Hearts Co., Ltd. 85 98.8
• Sales and repair of gas appliances, gas works, piping works and house refurbishment

Capital Capital
Name of Subsidiary (million yen) (million yen)
Gas Appliances
andHouse-Pipe
Kinpai Co., Ltd. 300 100

Installation
• Gas piping works • Construction work and road paving • Sales and installation of housing equipment • Piping renewal work
Kinpai Corporation 112 100
• Business administration, accounting, personnel, and general affairs of the Kinpai Group
10 other companies
OSC Engineering Co., Ltd. 50 67.3
• Maintenance, security service, and cleaning of buildings and facility designing and construction
Urbanex Inc. 1,570 100
• Management, maintenance and leasing of real estate • Surveys and research on urban development
Real Estate Leasing
Urbanex Development Inc. 500 100

• Management, operation, lease, sale, and purchase of real estate
OG Capital Co., Ltd. 3,000 100
• Management control of affiliated companies • Management, maintenance and leasing of real estate
Serendi Co., Ltd. 100 100
• Management of real estate and operation and management of parking lots
• Sale of office automation equipment and related products • Domestic tourist bureau, travel agency
• Staffing and placement services • Office service and business service • Billing service
Kyoto Research Park Co., Ltd. 100 100
• Management of the Research Park, interchange between the industrial and academic societies, development of venture businesses
5 other companies
Osaka Gas Engineering Co., Ltd. 100 100
• Investigation, design, installation and technical consulting for gas facilities, facilities using cold air and facilities for
environmental protection • Investigation, purchase and sale of industrial properties
Osaka Gas Chemicals Co., Ltd. 480 100
• Manufacture and sale of coke, chemical products and carbon products
Osaka Gas Housing Equipment Co., Ltd. 450 100
• Sale of housing equipment • Design and performance of installation work of housing equipment • Sale of kitchen utensils
• Construction of new housing and renovation of housing
Osaka Gas Security Service Co., Ltd. 100 100
• Provision of security and disaster protection services • Maintenance and inspection of gas facilities and equipment
• Sale, lease, installation, maintenance and inspection of security and disaster protection equipment • Sale of home security systems
OG Autoservice Co., Ltd. 100 100
• Lease, servicing, and sales of automobiles and non-life insurance agency
Others
Active Life Inc. 900 76.7

• Operation and management of nursing homes for the aged • Provision of home healthcare services
• Health consulting service • Consulting on the operation of housing for the aged and nursing facilities
OG Sports, Co., Ltd. 100 100
• Management, construction and operation of sports facilities and resort facilities • Sale of sports goods
OGIS Research Institute Co., Ltd. 400 100
• Computer data processing services • Sale of computer-related equipment and software • Software development
• Provision of computer education
OGIC Co., Ltd. 600 100
• Leasing • Consumer credit • Telemarketing • Life and property insurance agency • Automatic collection service
• Land and building dealer
Kinrei Co., Ltd. 966 74.8
• Operation of restaurants • Manufacture and sale of frozen foods
17 other companies

Directory (As of June 29, 2005)
Head Office Tokyo Office
4-1-2, Hiranomachi, Chuo-ku, Osaka 541-0046 Japan Shin-Otemachi Building 6F
Tel: (06) 6205-4715 IR office 2-2-1, Otemachi, Chiyoda-ku, Tokyo 100-0004 Japan
Tel: (03) 3211-2551
Investor Information
Date of Establishment: Independent Certified Public Accountants:
April 10, 1897 KPMG AZSA & Co.
Regular General Meeting: Transfer Agent:
The regular general meeting of shareholders is held in June each year. The Sumitomo Trust & Banking Co., Ltd.
The 2005 Regular General Meeting was held on June 29. 1-10, Nikko-cho, Fuchu-City, Tokyo 183-8701, Japan
Tel: (06) 6833-4700
Common Stock:
(0423) 51-2211
Authorized: 3,840,849 thousand shares
Issued: 2,369,012 thousand shares
The Osaka Gas Co., Ltd. Internet Web site contains information
Listing of Shares: provided for all investors and is constantly updated.
Osaka Gas’s shares are listed for trading on the following stock
The address of the Osaka Gas Co., Ltd. Web site is:
exchanges in Japan:
http://www.osakagas.co.jp
Tokyo, Osaka, Nagoya
Number of Shareholders: For inquiries about this report or requests for other materials,
202,076 please refer to the contacts listed below:
Stock Transaction Units: Osaka Gas Co., Ltd.
The Company’s stock is traded in units of 1,000 shares. IR office
Common Stock Price Range (Yen) TEL: (06) 6205-4715
(Tokyo Stock Exchange) FAX: (06) 6202-4637
E-mail: keiri@osakagas.co.jp
FY2004 FY2005 Please note that we do not accept files attached to email,
High Low High Low such as image files.
First quarter 346 297 294 309
Second quarter 325 291 292 306
Third quarter 308 281 298 320
Fourth quarter 316 292 309 330
Unit Conversion List

Weight Volume (Gas)
kg Metric ton Imperial (short) ton U.S. (long) ton m3(n) m3(s) SCF
-3 -3 -3
1 1×10 0.984 × 10 1.102 × 10 1 1.055 37.33
1,000 1 0.9842 1.1023 0.9476 1 35.37
1,016.0 1.0160 1 1.1200 0.0268 0.0283 1
907.19 0.9072 0.8927 1 n:0°C, S: 15°C, SCF:101.33kPa, 15.5°C (60°F)
Length
m ft yard mile Energy
-3 kcal Btu MJ kWh
1 3.2808 1.0936 0.622 × 10
-3
0.3048 1 0.333 0.189 × 10-3 1 3.969 4.186 × 10 1.162 × 10-3
0.9144 3 1 0.568 × 10-3 0.2520 1 1.055 × 10-3 0.2929 × 10-3
1,609 5,280 1,760 1 238.9 948.2 1 0.2778
860.1 3,414 3.600 1
Volume (Liquid)
m3 (kl) ft Imperial gallon U.S. gallon Heating Value (Gas)
kcal/m3(n) Btu/SCF MJ/m3(s)
1 35.315 219.97 264.17
28.32 × 10-3 1 6.288 7.481 1 0.1063 3.97 × 10-3
4.55 × 10-3 0.1606 1 1.2011 9.406 1 3.73 × 10-3
3.78 × 10-3 0.1337 0.8327 1 252.1 26.81 1
1kl = 6.29 barrel; 1 barrel (42 U.S. gallons) = 0.159kl 1 ton of LNG = 13 × 106 kcal = 52 × 106 Btu

Osaka Gas Co., Ltd.
IR office
4-1-2, Hiranomachi, Chuo-ku, Osaka 541-0046, Japan
Tel: (06) 6205-4715
Fax: (06) 6202-4637
Homepage: http://www.osakagas.co.jp
Printed in Japan

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ANNUAL REPORT

Osaka Gas Co., Ltd.

Value Creation Management

Value for Value for Value for

Value for Employees

Cover: Birds-eye view of the Osaka Gas’s service area

4 Consolidated Financial Highlights

5 Message from the Management

12 Directors and Auditors

13 Efforts to Fulfill CSR

16 Summary of Business Segments

16 1 Natural Gas Segment

23 2 LPG, Electricity and other Energy Segments

25 3 Gas Appliances and House-Pipe Installation Segment

4 Real Estate Segment

34 Management’s Discussion and Analysis

40 Financial Statements and Notes

OSAKA GAS ANNUAL REPORT 1

Gas Appliances and

Others Natural Gas

2 OSAKA GAS ANNUAL REPORT

Gas Appliances and Sumnary of Business Segments refer P.25

Real Estate Sumnary of Business Segments refer P.25

Others Sumnary of Business Segments refer P.26

OSAKA GAS ANNUAL REPORT 3

2002 2003 2004 2005 2005

Operating revenues ¥ 973,565 ¥ 947,977 ¥ 951,324 ¥ 975,340 $ 9,082,227

Per Share Data U.S. Dollars

Gas sales by volume (million m3) 7,479 7,701 7,779 8,072 —

Gas Sales by Volume (Millions of m3) Operating Revenues (Millions of Yen)

’01.3 7,580 ’01.3 951,926

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Producing results with concerted efforts

OSAKA GAS ANNUAL REPORT 5

operating income by slashing costs across all

Consolidated SVA (Billions of yen)

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Ratio of ordinary profit to sales

FY05.3 Gas, Electricity and Energy Service

LPG (Liquid Gas Group and NIPG Group)

OSAKA GAS ANNUAL REPORT 7

Progress of Innovation Centennial Corporate Governance and

’03.3 ’04.3 ’05.3 Net income 29.6 59.0 57.5

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’06.3 Capital expenditure (Billions of Yen) 67.1 106.1 85.5

OSAKA GAS ANNUAL REPORT 9

Application of Consolidated Free Cash Flows (Billion of yen)

Free cash flows of ¥72.1 billion External funds

FY05 ¥13.4 ¥17.3 Special investment budget of ¥50 billion

0 20 40 60 80 100 120 140 160

relative to its market capitalization. Accordingly, we

Akio Nomura, Chairman

Hirofumi Shibano, President

10 OSAKA GAS ANNUAL REPORT

Energy Resources Business Unit Core Companies

LNG Terminal & Power Generation Business Unit

Pipeline Business Unit Core Companies

Residential Energy Business Unit Core Companies

Chairman/ Commercial & Industrial Energy Business Unit Core Companies