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
(Millions of Yen, %)
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

(Millions of Yen, %)
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

(Millions of Yen, %)
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.

OSAKA GAS ANNUAL REPORT 3

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.)

4 OSAKA GAS ANNUAL REPORT

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

OSAKA GAS ANNUAL REPORT 5

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

6 OSAKA GAS ANNUAL REPORT

 Market Growth and Earnings Potential by Business Field
Ratio of ordinary profit to sales
16.0%
FY05.3
FY04.3
14.0%
Real Estate (Urbanex Group)
12.0%
FY03.3
Others (Kinrei, OGIS-RI Group, Osaka Gas
Chemicals Group, and OG Capital Group)
10.0%
FY04.3
8.0%
FY05.3
FY04.3
6.0%
FY03.3
4.0%
FY03.3
FY03.3
2.0%
LPG (Liquid Gas Group and NIPG Group)
0.0%
0.90 1.00 1.10
approach to business fields that enhance SVA. In
addition, affiliated companies with negative SVA become
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
projects. Osaka Gas did, however, simultaneously
streamline negative SVA businesses until fiscal 2003,
including portions of the gas equipment production and
sales business, portions of real estate operations and the
home improvement center business. These measures to
streamline negative SVA businesses have improved SVA
by approximately 2.1 billion yen annually. Moreover,
Osaka Gas has used net present value (NPV) as a
common standard for evaluating investment across the
Group. Following strict guidelines, the Company is
aggressively investing in growing businesses. Up until
fiscal 2003, Osaka Gas has acquired the Nissho
Petroleum Gas Corporation (NIPG) group, Nakayama
Joint Power Generation Co., Ltd. and Nakayama
Nagoya Joint Power Generation Co., Ltd. In fiscal 2004,
Osaka Gas acquired Daiya Nensho Co., Ltd., an LPG
provider in Mie Prefecture. In fiscal 2005, the Company
finalized a plan to make an equity investment in IPP’s in
the U.S.A. and Spain and to acquire the life environment
material business of Takeda Pharmaceutical Company
Group. These acquisitions and investments in growth
Figures are the total of affiliated companies, excluding Osaka Gas Co.,
Ltd., and companies that were removed from consolidation consisting
of Harman Co., Ltd., Harman Precision Co., Ltd., and OG Royal Co.,
Ltd. These figures do not correspond to segment classifications, as
they include non-consolidated affiliated companies and are combined
to closely resemble the group classifications used in accounting for the
Osaka Gas Group. The size of the bubble shows the scale of sales.
FY05.3
Gas, Electricity and Energy Service
(under the Osaka Gas Business Units)
FY04.3
FY05.3
1.20 1.30 1.40 1.50
Change in Sales (’02.3 results = 1)
businesses contributed approximately one billion yen to
SVA annually.
Business Portfolio
The Osaka Gas Group’s business portfolio strategy
concentrates management resources on the energy
business sector, which is able to take advantage of our
strength and its peripheral business areas, as well as the
non-energy business sector that is advantageous and
still competitive in the open market. To be specific, we
aim at growth in the LPG and real estate business areas,
pursuing maximum synergy with the energy business
sector. For the business areas of restaurants and food,
IT, chemical products and carbon products, we treat
them as independent and pursue cash-in from outside
the Group, resulting in contribution to the consolidated
profit.
The above figure shows market growth potential and
earnings potential on an annual basis by business field.
Sales and profitability continue to steadily improve in
each business field. In the gas, electricity, and heat
supply field in particular, sales are growing significantly
from acquisitions of wholesale power businesses and the
expansion of energy services outside our operating area.
OSAKA GAS ANNUAL REPORT 7
Message from the Management

Progress of Innovation Centennial Corporate Governance and

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

8 OSAKA GAS ANNUAL REPORT

 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
for handling internal reports and consultations.
caused by internal factors including compliance; and risks
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
prepared for the risks associated with its business
activities. Based on these, the Group classified risks into
three categories: risks caused by external factors
including natural disaster and market fluctuation; risks
Capital and Dividend Policies
Osaka Gas increased cash dividends by 1 yen per share
in fiscal 2002, and has maintained annual dividends of 6
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

OSAKA GAS ANNUAL REPORT 9

Message from the Management

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
increasing shareholder value and have positioned the
acquisition of treasury stock as an important measure for
improving shareholder value. Our cash flow strategy
prioritizes investment in new businesses such as electric
power generation over the medium term. However, there
are cases where excessive cash is generated during a
fiscal year, and this cash is earmarked for the acquisition
of treasury stock after investment in new businesses.
In Closing
Osaka Gas will celebrate its 100th anniversary in October
2005. Based on the new managerial philosophy, the
Group is committed to adequately responding to the
changes in business environment and continuing
consistent efforts to achieve sustainable development
through fair and transparent business activities under the
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

10 OSAKA GAS ANNUAL REPORT

Organization (As of July1, 2005)

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

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.

OSAKA GAS ANNUAL REPORT 11

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

12 OSAKA GAS ANNUAL REPORT

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
1. Code of Conduct as a Good Corporate Citizen:
Respect human rights, and do not discriminate against our
customers and employees based on race, religious beliefs,
sex, social status or family lineage
Consider environmental preservation by preventing
emissions of harmful substances and recycling waste
2. Code of Conduct in Gas Production and Supply:
Carry out business activities in good faith by adhering to
laws and ordinances related to the gas business and
placing customer satisfaction first
Ensure the safety of customers in the production and sale
of products as well as construction work. In the event of an
accident, quickly find the cause and make every effort to
prevent a reoccurrence by taking appropriate measures
such as recalling products and issuing warnings.
3. Code of Conduct for Business Transactions:
Conduct business transactions in a proactive and fair
manner in accordance with antimonopoly law
Conduct fair transactions, and do not take advantage of
superior position over transaction partners if one exists
Build a relationship of trust with customers in good faith
Socialization with partners and suppliers should be
conducted with moderation and common sense in
compliance with the law
4. Code of Conduct for Information Management:
Manage information so that customer information is not
leaked. Disclose management information in a timelyand
appropriate manner
Manage our intellectual property and do not infringe on the
intellectual property of others
5. Code of Conduct in the Workplace:
Strive to create a workplace where employees work
comfortably with mutual respect
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
Osaka Gas Group
Environmental and Social Action
Philosophy
Environmental conservation at both local and global levels
is an extremely important mission for Osaka Gas Group.
Bearing in mind that all of its business activities are closely
related to the environment, the Osaka Gas Group pursues
harmony with the environment and realizes the efficient use
of energy and resources through its business activities. In
this way, Osaka Gas Group will contribute to the
sustainable development of society.
Osaka Gas Group
Environmental Action Guidelines
1. Reducing Environmental Impacts
Business Activities
We aim to reduce the environmental impacts from our
business activities.
To this end, Osaka Gas Group will strengthen its
environmental management system and promote internal
activities aimed at saving energy and natural resources.
2. Contributing to Environmental Impact
Our Products and Services
By offering environmentally-friendly natural gas, and our
products and services which contribute to reduce
environmental impact, we are making our efforts in
partnership with our customers to achieve environmental
impact reduction. To this end, we will strive to develop
energy-saving systems which contribute to environmental
conservation.
3. Contributing to Environmental
Nationally and Overseas
Osaka Gas Group aims to take an active part in
environmental conservation activities in areas wherever we
conduct business, both in and outside Japan.
(Revised in March 2004)
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.
OSAKA GAS ANNUAL REPORT 13
Efforts to Fulfill CSR Corporate Governance, Compliance, Environment and Social Contribution
Corporate Governance
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,
strengthen corporate competitiveness, and ensure
sound business management. At Osaka Gas, our
directors participate in management meetings to share
their professional views on strategic matters in line with
specific internal rules, and decisions are made on those
matters through in-depth deliberations at the Board of
Directors meetings. The Board of Directors reviews
important matters that affect the entire Group, including
its subsidiaries and affiliates, and is responsible for
making correct and quick decisions and strengthening
oversight functions.
In June 2003, a new internal auditor system was
adopted at the annual general meeting of shareholders
to satisfy the revised requirement that at least half of the
corporate auditors should be non-employee auditors, in
accordance with the Law Revising the Law Concerning
Special Measures to the Commercial Code with Respect
to Audit, etc. of Corporations (Kabushiki Kaisha) (2001,
Law 149). The inclusion of non-employee auditors,
independent from the control of the Board of Directors,
has strengthened the ability of Osaka Gas to oversee the
appropriateness and legality of the directors’
performance. In addition, an Auditors’ Office composed
of fulltime staff members not under the direct control of
the directors has been established to support the
auditors and thus to improve the audit system. The two
non-employee auditors appointed in the shareholders’
general meeting do not have any special personal,
capital, or business relationship with Osaka Gas, nor do
they have any other interest in the Company, thus
preserving their impartiality.
Compliance
The Osaka Gas Group Code of Corporate Conduct was
established to achieve strict compliance with all
applicable legal requirements by all the members of the
Osaka Gas Group, including the directors and
employees of Osaka Gas and its subsidiaries. To
enhance the ability of the Group to ensure that its
business activities comply with applicable laws, in 2003,
we established the Compliance Committee, whose
membership includes outside specialists, and also
reorganized the compliance office, which had been a
14 OSAKA GAS ANNUAL REPORT
section within a unit, into the Compliance Department,
an independent unit. The Code of Corporate Conduct
defines the standards that should be observed by all
Group members. It is ensured that all Group members
are well informed about it.
Environmental Activities
Based on the fundamental concept that environmental
activities are the basis of business activities of an energy
utility company, Osaka Gas established the
Environmental Philosophy and three Environmental
Action Guidelines in 1992. The Company has formulated
the 2010 Environmental Goals and 2005 Medium-Term
Environmental Goals as a guide for Group-wide efforts to
preserve the environment.
We have set 34 medium-term environmental targets,
including 24 quantitative targets, which follow three
action guidelines, and aim to ensure their
implementation. From fiscal 2004, we are introduced
Environmental Management Indicators to effectively
promote environmental activities based on a quantitative
understanding of progress in environmental
management. For Environmental Management Efficiency,
we have set a target of making a 43% improvement in
fiscal 2006 compared with fiscal 2002.
Osaka Gas aims to reduce green house gas
emissions by 25% to 19 g-CO2/m3 (per cubic meters of
gas sold) compared with fiscal 1999 as its target for
fiscal 2010. In fiscal 2005, the Company attained 17.8
g-CO2/m3 a decrease of 30% from fiscal 1999, which
proves its good performance toward achieving the goal.
Our plants have sustained zero emission of industrial
waste since its achievement in fiscal 2003. We also have
reduced final disposal volume of non-industrial waste
and have improved the recycling ratio year by year.
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
effectively using CO2 in exhaust gas, and developing
storage and supply technology for hydrogen as a
next-generation energy source.
As a means for effectively advancing environmental
activities at the Group companies, we plan to introduce
environmental management systems including the
acquisition of ISO 14001 certification by fiscal 2011.
Group companies have been acting on their own accord,
and 10 companies have already acquired ISO 14001
certification for their environmental management systems.
For those Group companies that have not acquired
certification yet, Osaka Gas aims to promote its acquisition
depending on business scale and type by fiscal 2011.

Community activities
The Osaka Gas Group believes contributing to society
and deepening its connection with customers is its
corporate mission and crucial to future development. In
line with this belief, we are contributing to society
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.
Since 1991, Osaka Gas has backed the volunteer
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
system was created to allow employees to take time off
to participate in community events and support local
sports and cultural exchange activities. Over the past 10
years, the community leave system has been used on
about 150 different occasions. The community gift
system was started to provide financial support for
events as well as the purchase of equipment and
materials for groups and individuals that contribute to the
betterment of the welfare of local communities, such as
supporting handicapped people and the elderly, taking
care of infants and children, and cleaning activities. It has
contributed on about 180 different occasions over the
past 10 years. Established in 1985, the Osaka Gas
Group Welfare Foundation has worked closely with local
communities in promoting welfare activities for the
elderly, assistance for research and surveys, and
activities to improve the health of the elderly. Founded in
1992, the Osaka Gas Foundation of International
Promotion of technology transfer of a wastewater An elementary school in Indonesia Osaka Gas
treatment system using the catalytic wet oxidation contributed educational tools to
(CWO) process (photo: presentation ceremony of the
International Chemical Engineer Award by Yunnan
Province, China in October 2003)
Cultural Exchange provides educational support to
elementary, junior high schools, high schools, and
universities in natural gas producing nations in Southeast
Asia by supplying educational materials, providing
assistance for research in natural gas-related
technologies and environmental technologies, awarding
scholarships to high school students and university
students, and assisting in the training of technicians and
researchers.
Efforts for improving value
for employees
The Osaka Gas Group includes in its basic management
principle promotion of corporate management focusing
on people’s growth that makes the most of the
personality and self-motivation of employees as well as
trustful cooperation between employees and
management with a sense of tension to support the
company’s sound growth. According to the
management principle and the Osaka Gas Group’s
Code of Conduct in the Workplace, the Group
endeavors to establish a working environment where
everybody is able to work comfortably and a system
where accomplishments are fairly evaluated, regardless
of sex or type of employment.
(For the basic policy concerning corporate governance
and compliance, see the Management Message in this
report. For the details of compliance and contribution to
the environment and society, refer to the Environmental
and Social Action Reports issued by Osaka Gas.)
Gas Science Museum for understanding
of energy and environmental issues while
enjoying the exhibition
OSAKA GAS ANNUAL REPORT 15
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.

16 OSAKA GAS ANNUAL REPORT

 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

OSAKA GAS ANNUAL REPORT 17

Summary of Business Segments

1 Natural Gas Segment

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”

18 OSAKA GAS ANNUAL REPORT

 Non-Residential Regulated Gas
Marketing

Natural gas plays a crucial role as a principal energy
source for a wide variety of industry, including steel,
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
detailed solution marketing activities based on a firm
grasp of customer needs and its strong technologies.
For industrial use, natural gas is increasingly used for
such cooling purposes as cooling processes and clean
rooms, in addition to thermal energy for furnaces and
boilers. Able to generate both heat and electricity
simultaneously, cogeneration systems realize substantial
energy savings in factory operations, and their utilization
is increasing as needs grow for distributed power
Regeneburners enable reductions in
energy consumption of 35-50% using
the accumulated heat burning method
Customers both large and small deploy cogeneration
systems, ranging from major commercial facilities to
hospitals, hotels, and retail stores. Our Gene-Light Series
of compact 9.8 kW cogeneration systems for small and
medium-sized office buildings and shops has been very
popular since its launch in fiscal 1999. To date, more than
1,400 customers have installed the Gene-Light Series.
Total Installed Air-Conditioning Capacity (Thousand RTs, Million m3)
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”

OSAKA GAS ANNUAL REPORT 19

Summary of Business Segments

1 Natural Gas Segment

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.

20 OSAKA GAS ANNUAL REPORT

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

Himeji Line
Completed in Sep.03
Diameter 600mm,
Pipeline length 5km
High pressure
pipelines over 4MPa
Chubu EP
Kawagoe generation plant
Yokka-ichi LNG center
Keiji Line
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.

OSAKA GAS ANNUAL REPORT 21

Summary of Business Segments

1 Natural Gas Segment

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

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)

22 OSAKA GAS ANNUAL REPORT

 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

OSAKA GAS ANNUAL REPORT 23

 Summary of Business Segments

2 LPG, Electricity and Other Energies Segment

Combining Gas and Electricity

Businesses LPG Business

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

24 OSAKA GAS ANNUAL REPORT

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

OSAKA GAS ANNUAL REPORT 25

Summary of Business Segments

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

0 10 20 30 40 50 60

Kagono-ya < Kinrei Co., Ltd.>

26 OSAKA GAS ANNUAL REPORT

 Carbon Materials and Chemical
Products: Osaka Gas Chemicals
Group
The Osaka Gas Chemicals Group comprises four
consolidated subsidiaries: Osaka Gas Chemicals Co.,
Ltd., Taiyo Kasei, Ltd., Donnac Co., Ltd., and Shanghai
Dongdao Carbon Chemical Industry. The group draws on
the accumulated carbon-related technology of the Osaka
Gas Group to promote sales of various industrial
products. In the chemical product field, the Group
provides a variety of products derived from coal tar and
crude benzene, which are primary ingredients in the
chemical industry. In the carbon material field, the Group
manufactures and sells electrode materials for lithium-ion
batteries used in cellular phones, activated carbon fiber
cartridges for household water, and air purifiers, as well
as activated carbon itself, and lightweight heat-resistant
materials for aircraft and trains. In the fine material field,
the Group produces and sells high-performance materials
for optical equipment.
In fiscal 2005, sales increased in the Osaka Gas
Chemicals Group on account of the rocketing market
price of coke and benzene and expansion of the fine
material business.
In April 2005, the Group acquired shares of its
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.
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
Other Operations: OG Capital
Group
The OG Capital Group consists of 18 consolidated
subsidiaries that engage in a wide array of activities
related to engineering, housing, security, sports, services
for the elderly, and other services. Five companies
including Homepro Co. Ltd. and OUD Co., Ltd., were
added to the scope of consolidation in fiscal 2005. Osaka
Gas Security Service Co., Ltd., provides security-related
services such as the Internet home security system Irusu.
OG Sports Co., Ltd., manages sports facilities including
the COSPA fitness centers. Homepro Co., Ltd., mediates
home renovation via the Internet and OUD Co., Ltd., runs
a deluxe sento (public baths).
In fiscal 2005, the amount of sales increased due to
the increase in sales housing equipment and devices
(Osaka Gas Housing Equipment Co., Ltd.), growth in the
fitness business, and expansion of the automobile leasing
business (OG Autoservice Co., Ltd.).
While advancing selection and concentration of various
group operations, the OG Capital Group aims to expand
earnings by investing management resources in
businesses with growth potential, such as athletic and
security businesses.
COSPA Goido fitness facility in Kashiba City, Health Spa Banpaku Oyuba <OUD Co., Ltd.>
Nara Prefecture, directly operated by OG Sports
OSAKA GAS ANNUAL REPORT 27
Intellectual Property Activities of the Osaka Gas Group

Our Intellectual Property Strategies

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

28 OSAKA GAS ANNUAL REPORT

Our Patent Ownership and Licensing Activities
The number of patent rights owned by
Osaka Gas Group is 1,339.
We own (1) patents for a Non-excavation
Construction Method and Underground
Facility Inspection Technology that contribute
to cost reductions and security in the gas
supply business; (2) environmental
protection technology patents for
Wastewater Processing Technology, which
has already been launched in the Chinese
market in the industrial-use energy business;
(3) patents for Floor Heating Systems and
Bathroom Heating and Drying Equipment,
which are spreading rapidly in the residential
energy business; and (4) many patents in the
non-energy market segments such as
material technologies (the core technologies
of Osaka Gas Group), environment and
Number of Patents Owned by Osaka Gas Group (as of March 31, 2005): 1,339
Production, Transport and Supply Business: 394
• LNG plant facilities (e.g. invar piping)
• Pipeline construction method
(e.g. non-excavation construction method)
• Pipeline maintenance
(e.g. underground facility inspection technology), etc
Material Technology Business: 179
• Lithium rechargeable battery materials
• Activated carbon fibers for desulfurization and denitration
• Fluorene
• Carbon nanotubes, etc
Revision of Employee Invention Rule
The Osaka Gas Group pays compensation
for patent applications and registrations and
performance bonuses to internal inventors
as compensation for employee inventions.
In the term ended March 2005, we
revised the intellectual property rule that
regulates compensation and performance
bonuses, aiming for enhancement of
competitiveness to meet the demands of a
liberalized energy market and for incentives
to unique inventions leading to the creation
of new markets.
<Revised Points>
The compensation level is raised to 2–5
times the current level, and the
compensation is to be paid according to
the profit without any upper limit.
information technologies, all of which are
License Fee Revenue (Millions of yen)
expected to grow significantly.
In order to increase the revenue of our ’99.3
own business by effective use of intellectual
property rights, we implement patent ’00.3
assessment of industrial use value as well as ’01.3
research on qualitative methods for
assessment of industrial use effects. ’02.3
Meanwhile, we contribute to increase the ’03.3
business earnings by recent active licensing
activities for the rights available for external ’04.3
use. The license fee revenue for the term
’05.3
ended March 2005 totaled about 0.25 billion
yen as a result of our technology information 0 50 100 150 200 250 300
disclosure concerning cogeneration systems
and fuel cells and of our active licensing
activities in the materials business.
Other
164 254
Industrial-Use Energy Business: 254
1,339
• Cogeneration
394 FY2005.3 • Fuel cells
348 • Environmental protection technologies
(e.g. wastewater processing technology), etc.
179
Household-Use
Energy Business: 348
• Residential cogeneration systems
• Floor heating systems
• Bathroom heating and drying equipment, etc.
In addition to contributions by internal use reward standards and abolishment of the
of domestic patents and licensing upper limit. Furthermore, we newly
activities, earnings from foreign patents established a presidential award system for
and cross licensing activities are to be inventors who have delivered successful
rewarded as an invention effect. results in intellectual property activities that
The board of review, which consists of the contribute to business earnings. These are
Technology Division, the Corporate intended to cultivate incentives for income
Strategy Department, the Legal realization by use of intellectual property
Department, and the Human Resources rights and for achievement of outstanding
Department, reviews the amount of the inventions.
reward and bonus. The review results are We also give proper attention to employee
to be disclosed across the board and invention litigation risks by revising the
re-examined in case there is any objection. relevant rules after communications with all
As stated above, the rule has been revised the employees based on the revision draft
to be more transparent based on recent and reflecting the response to the new rules
precedents and in line with expansion of the and by establishing a system of criticism by
reward range as well as the rise in the inventors for the reward.
OSAKA GAS ANNUAL REPORT 29
Osaka Gas Group Technology Management
1. Advances in Household-Use Gas Equipment
Residential cogeneration systems
bathroom heater/dryer with a mist sauna
fanctionality “MIST KAWACK”
2. Sophisticated Technologies for Energy Solutions
Long-stroke Miller-cycle gas engine boasting a
generation efficiency of 42%
30 OSAKA GAS ANNUAL REPORT
In our household-use gas equipment
business, we address day-to-day challenges
of product development leveraging the
advantages of gas based on the theme of
providing safe, secure, and comfortable living
environments for our customers.
Development of Residential
Cogeneration Systems
Subsequent to ECOWILL, the 1 kW-class
gas-engine cogeneration system that we
launched in 2003, we work on development
of polymer electrolyte fuel cells (PEFC)
and solid oxide fuel cells (SOFC) to enrich
our product lineup of residential cogeneration
systems. We aim to provide greater benefits
for our customers by delivering the
best-suited cogeneration systems according
to the demand scales that depend on
whether customers use heat for hot water
and heaters or electricity for lights and
outlets.
As in the development of the
household-use PEFC cogeneration
system, we have participated in the
large-scale demonstration experiment
business of stationary fuel cells hosted by the
New Energy Development Foundation since
FY 2006 when we started operations in a real
living space. We continue to accelerate our
product development by improving natural
In our industrial-use gas equipment
business, we have successfully grown sales
by improving our cogeneration technologies
as well as realizing customer benefits
through our engineering capabilities. We
continue to further bolster our
competitiveness of cogeneration systems
and to improve our solution capacity to meet
customer demands.
Launch of High-Efficiency
Cogeneration Systems
As the demand for economically efficient and
eco-friendly cogeneration systems is growing
as the years roll on, we implement
technology development for the enrichment
of our lineup of products with high
generation capacity as well as for the
gas reforming technology (the technology to
produce hydrogen out of natural gas as a fuel
for fuel cells), which is one of our specialties.
The household SOFC cogeneration
system realizes power generation efficiency
as high as 45% (LHV standard) and is
expected to provide high energy-saving
effects for customers who consume a small
amount of heat. We aim to launch it early
after the market tests to be started in FY
2006, leveraging advantages in the recycling
technology of exhaust heat, self-learning
control technology, and natural gas
desulfurization and reforming technology that
we have cultivated in the development of
ECOWILL and PEFC.
Technologies for Creating
Comfortable Living Spaces
We have widely disseminated KAWACK
since 1982 when we launched the bathroom
heating and drying equipment. To satisfy the
recent growing demand for health and
beauty, we launched the new MIST
KAWACK (ceiling-installment type)
embedded with a mist generator in October
2004.
From now on, we develop products on a
timely basis by taking advantage of our
constant close communications with
customers to know their needs.
enhancement of total energy efficiency. In
April 2005, we successfully developed a
high-efficiency gas-engine cogeneration
system that achieved 41.5% (LHV standard)
power generation efficiency, the
world-highest in the 300 kW generation
capacity class. We enhanced the efficiency of
long-stroke miller-cycle gas engines with
longer piston strokes than traditional
miller-cycle gas engines by improving
combustion efficiency and reducing heat
loss.
One of our important tasks is to bolster the
competitiveness of our micro-cogeneration
systems in the under 50 kW class in order
to expand the market for gas cogeneration
systems. Although the power generation
efficiency of traditional engines in these
classes remained between 20% and 30%,
we achieved 33% (LHV standard) power
generation efficiency, the world’s highest in
the 25 kW generation capacity class, owing
to the application of the miller-cycle
combustion technologies that we cultivated
in the development of large engines and to
the enhancement of conversion efficiency of
power generation machines and inverters.
We intend to expand the market to
small-scale business such as restaurants
and public bathhouses by development of
these engines.
3. Technologies as the Backbone of the Safety and Comfort of Gas (Stable Supply, Safety, and Security)
Evolution of Safety Technologies
We strive to ensure security by a daily
patrol of all the routes of high-pressure gas
transmission pipelines which are the
essential part of natural gas supply.
The main purpose of the daily patrol is to
prevent damage to high-pressure pipes
from road excavations by third parties for
which construction has not been
acknowledged.
By use of mobile phones and GPS
locators, we started to operate the
high-pressure pipeline patrol support
system, which indicates the areas of
acknowledged construction work by other
parties and the current position on an
electronic map, in order to discover
unacknowledged construction work. We
intend to improve the quality of our daily
patrol and maintain the uninterrupted
supply of gas by using this system.
4. Technologies to Discover New Business
From Carbon Materials to Photon and
Electronic Materials
Since the days of gas manufaccturing from
coal, we have actively expanded our
business with a focus on carbon material
technologies and in other areas of
activated carbon, electrode materials, and
fine materials.
In March 2005, we acquired the stock of
Japan EnviroChemicals, Ltd., engaged in
living environments business such as
Combustion Technologies Exploring
the Heat Market
By leveraging the combustion technologies
that we have accumulated mainly in the
development of industrial-use burners, we
continue to explore the market for
industrial-use heat.
For melting furnaces of non-ferrous metals
such as aluminum, we developed
regenerative burners with high energy-saving
effects embedded with thermal-storage
mediums. The sales of the energy-saving
energy-saving type furnace for non-ferrous metals
type furnace for non-ferrous metals “ECOMELTER”
ECOMELTER are now steadily growing.
Sophisticated Safety Functions of
Gas Equipment
We successfully developed the Class-S
Premier, a more convenient, advanced,
and safer gas stove than ever before, as
the top-class product for glass-top
built-in gas stoves with a top board
made of heat-resistant ceramic glass.
A burn-without-pan sensing function is built
in the frequently-used left and right
Class-S Premier
burners. This function was developed for
the first time in the industry.
The over-heating prevention system for
cooking deep-fried food, which has been
built into only one burner before, is
equipped for all the burners for safer
cooking.
To PIKO PIKO, a gas alarm system
that senses gas concentration in the room
caused by gas leaks and incomplete
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.
production of activated carbon powder.
We aim to expand our business by taking
advantage of the synergy effects that are
generated from the collaboration between
the acquired company and Osaka Gas
Chemicals Co., Ltd., involved in the
production and sales of activated carbon
fibers.
In our photon and electronic materials
business, we have focused our attention
Lenses (Same as the one in the previous
on the fluorene contained in coal tar and year’s annual report)
OSAKA GAS ANNUAL REPORT 31
Osaka Gas Group Technology Management
HYSERVE hydrogen production unit
using city gas reforming technology
5. For Early Outcomes of Technologies (Our Thorough Technology Management)
We have invested our resources
strategically in technology development,
positioning it as the most effective
differentiator to bolster our technological
competitiveness. As the early outcomes of
technology development are expected
more under circumstances where
customer needs turn constantly and
competitive climates change rapidly, we
intend to complete thorough technology
management to satisfy such demands.
(1) Chain of Technology
Development Results
We have shifted materials for natural gas
from coal to petroleum oil and natural gas.
The technologies that we cultivated in the
use of the respective materials are
accumulated and utilized as the core
technologies inherited from age to age.
Carbon materials technologies
originating in tar as a secondary product
of coal gas
Catalyst technologies in the age of
producing gas from petroleum oil
Cogeneration technologies to
optimize the use of energies in the age of
natural gas
We select themes of technology
development from the viewpoint of
whether we could solve the issues by
32 OSAKA GAS ANNUAL REPORT
developed an industrial method for
producing dozens of fluorene conductors
and marketing them as materials.
The features of fluorene conductors,
high refraction rates and heat resistance,
are highly valued to push up sales mainly
for lenses of camera-equipped mobile
phones and liquid-crystal-related materials.
Consequently, sales amounted to about
2.7 billion yen (up 35% on a year-on-year
basis) in FY 2005.
utilizing our core technologies or not
after we fully understand the important
technology issues for the development
theme.
We continue to explore the potential of
new product development using our
core technologies with the aim of
creating a chain of technology
development results based on the
advancement of core technologies.
For example, the natural gas reforming
technologies, in which catalyst
technologies are maximized, are utilized
in the theme of technology development
of the compact hydrogen production
unit and the residential PEFC
cogeneration system.
(2) Reduction of Development Lead
Time and Thorough Market
Orientation by Reinforcement of
External and Internal
Collaboration
We endeavor to reduce our development
lead time by the synergy effects
generated through an active alliance with
partners with the technologies or
intellectual property rights that we do not
own. We jointly develop the SOFC
cogeneration system with an
advanced fuel cell stack manufacturer by
leveraging our reforming technology for
extracting hydrogen out of natural gas as
Hydrogen Production Technologies
For hydrogen stations for industrial use and
fuel-cell vehicles, we produce the compact
hydrogen production unit HYSERVE
using natural gas reforming technologies.
The hydrogen production capacity of our
product lineup ranges from 30 Nm3/h to
100 Nm3/h. By leveraging natural gas
reforming technologies as one of our
specialties, we reduced the reforming cost
and the size to the half that of our
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.
well as our exhaust heat recovery
technology.
To consistently promote technology
development in consideration of market
needs, each division in charge of
household and industrial customers
adopts a sponsorship system to relegate
development themes to the Technology
Division at our headquarters where
technical skills are accumulated.
Our divisions reflect constantly
changing customer needs to our
technology development promptly and
flexibly, while the Technology Division
controls our development policies based
on visible needs as the occasion arises.
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

OSAKA GAS ANNUAL REPORT 33

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

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

34 OSAKA GAS ANNUAL REPORT

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

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

OSAKA GAS ANNUAL REPORT 35

 3. Assets, Liabilities and Shareholders’ Equity analysis
3-1. Asset Management Policies
The Osaka Gas Group views deregulation in the electricity and
gas sectors as a business opportunity and intends to aggressively
expand business investment in growth fields—especially
electricity—while reducing assets in unprofitable business fields and
ongoing operations. In order to minimize investment risk caused by
changes in the operating environment, Osaka Gas is tightening its
rigorous investment decision and follow-up/evaluation procedures
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
internal capital on capital costs and maintaining a sound financial
position, Osaka Gas aims to maximize capital efficiency by targeting
a debt/equity ratio of approximately 10% and a shareholders’ equity
ratio of more than 40%. Osaka Gas, with the current shareholders’
equity ratio of just above 40%, intends to promote business
investment in growth fields through funding by adding new interest-
bearing debt to keep up with the increase in shareholders’ equity
reflecting higher profits.
3-2. Capital Investment
In fiscal 2005, non-consolidated capital investment totaled ¥42.5
billion. Osaka Gas invested ¥6.6 billion during the fiscal year under
review with continuing construction on the Shiga Line of the Kinki
Trunk Line as a major construction project. The Company extended
its gas pipelines by 437 kilometers for a total of 45,718 kilometers
by March 31, 2005. In fiscal 2005, consolidated capital investment
totaled ¥65.5 billion, reflecting the acquisition of assets and real
estates for the leasing business at the Company’s consolidated
subsidiaries.
3-3. Investment Performance
The Osaka Gas Group aggressively involved in investments and
loans to both domestic and overseas electric businesses including
natural gas upstream operations, such as gas fields and LNG
tankers, and the electricity business, such as independent power
producer (IPP: wholesaling of electricity) as the Company’s future
growth drivers.
The Company, which decided or implemented investment in IPP
in the United States and Spain and in the Hayama Wind Power
Plant in Shikoku, invested approximately ¥7.1 billion during the
fiscal year. The Company intends to invest a total of ¥21 billion in
the following fiscal year ended March 31, 2006, as a part of the
stake in Spanish IPP and investment in Japan EnviroChemicals
Ltd., which was decided in March 2005.
3-4. Adoption of Impairment Accounting
Osaka Gas’s grouping policies are as follows.
(1) Fixed assets used for gas operations, which generate cash
flow in an integrated manner throughout manufacturing to
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) Other fixed assets are segmented in principle by individual
asset.
In fiscal 2005, impairment losses recognized in accordance with
this grouping totaled ¥13,910 million, of which critical impairment
36 OSAKA GAS ANNUAL REPORT
losses are as follows.
(million yen)
Impairment
Asset Location Type losses
Seika-cho and Kizu-cho,
Keihanna Land Kyoto prefecture Land 3,189
Kamiyama Land Kita-ku, Osaka city Land 2,842
Adjoining land
Himeji city Land 1,607
of Himeji Terminal
Recoverable value on these assets is calculated based on the
net resale price. The market value is calculated based on the
real estate appraisal value in principle. These assets, which were
acquired in advance to construct operational facilities or not be
used as operational facilities anymore, lost their specific usage plan
due to the subsequent change in the economic environment. As
the investment is unlikely to be paid off, the Company recorded
the decrease in value, which was calculated by reducing the book
value to a recoverable value under impairment losses.
3-5. Total Assets
There were declining factors, such as a ¥32.9 billion decrease in
fixed assets compared with the previous fiscal year following the
adoption of impairment accounting and a year-on-year decline of
¥10.4 billion in investment securities due to the sale of securities.
On the other hand, total assets increased ¥18.2 billion compared
with the previous fiscal year due to a ¥28.5 billion increase in cash
reserves and a ¥12.7 billion increase in prepaid pension expenses.
In accordance with the postponement of investments in Spanish
IPP and Japan EnvironChical Group until the fiscal year end on
31 March, 2006, cash and time deposits apparently increased
temporarily as of March 31, 2005.
3-6. Interest-Bearing Debt
In addition to a certain amount of retained funds, there was no
significant investment for growth that exceeded the funds. As a
result, interest-bearing debt totaled ¥448.5 billion as of March 31,
2005, a year-on-year decrease of ¥7.1 billion especially of short-
term funds such as commercial papers (CP).
Interest-bearing debt consists of new long-term borrowings of
¥11 billion on a non-consolidated basis and of approximately ¥27.5
billion on a consolidated basis and repayment of approximately
¥15.9 billion on a non-consolidated basis and of around ¥33.6
billion on a consolidated basis.
Osaka Gas issued ¥20 billion straight bonds in March 2005.
There was no repayment of bonds during fiscal 2005.
(100 million yen)
Increase/
2005/3 2004/3 decrease
Total Interest-Bearing
Debt at year-end 4,485 4,557 -71
3-7. Employees’ Severance and Pension Benefits
As of March 31, 2005, projected benefit obligations had decreased
by approximately ¥24.9 billion to ¥261.3 billion compared with a
year earlier reflecting the revision of the retirement allowance system
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.

OSAKA GAS ANNUAL REPORT 37

 4. Cash Flow Analysis
During the fiscal year ended March 31, 2005, net cash provided by
operating activities declined ¥15.9 billion to ¥116.9 billion due to an
increase in trade receivables and inventories, which offset the rise
in operating income. Net cash used in investing activities declined
¥2.1 billion to ¥65.6 billion, reflecting an increase in gains on the
sale of investment securities. Net cash used in financing activities
declined ¥52 billion to ¥23.9 billion, reflecting issuance of bonds in
fiscal 2005 and repayment of bonds in the previous fiscal year. As a
result, cash and cash equivalents totaled ¥44.2 billion as of March
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
The Board of Directors passed a resolution on March 29, 2005, to
retire 133,342,000 shares of common stock acquired in line with
resolutions approved at the ordinary shareholders’ meetings on
June 27, 2002, and June 27, 2003, out of treasury stock and took
cancellation procedures on April 12, 2005.
5-2. Acquisition of Japan EnviroChemicals Ltd. and
other shares
Osaka Gas Chemicals Co., Ltd., agreed to take over all shares
of Japan EnviroChemicals Ltd. (100% ownership stake), which
is owned by Takeda Pharmaceutical Company Limited engaged
in the living environmental business, such as production and sale
of activated carbon, Minabe Chemical Industry (100%), Hakata
Chemical (40%), Davao Central Chemical Corporation (80%) and
Century Chemical Works Sendirian Berhad (25%), which took over
shares of the former three companies with a total of ¥11.9 billion on
April 1, 2005.
Osaka Gas took over 30% of Japan EnviroChemicals shares
from Osaka Gas Chemicals on the same date. Osaka Gas
Chemicals added ¥2.02 billion by raising new capital as of April 20,
2005.

38 OSAKA GAS ANNUAL REPORT

 6. Quantitative and Qualitative Disclosure of Risk
6-1. Business Risk
As an independent corporation, Osaka Gas believes it has the
management resources and business strategies to prosper amid
competition for the foreseeable future based on currently available
information.
Profitability in the core gas business is primarily affected by the
following factors:
(1) Decline in demand and prices due to the removal of barriers
to outside companies participating in the gas business in
accordance with deregulation in Japan’s gas industry.
(2) Fluctuations in weather and water temperatures affect gas
demand.
(3) Greater-than-expected fluctuations in crude oil prices and
exchange rates, which form the basis for LNG prices. LNG
is the primary raw material for producing gas.
(4) Problems related to raw material procurement.
(5) Problems related to production and supply.
The profitability of other businesses is affected by conditions in
their respective markets. However, Osaka Gas strives to minimize
the impact of other businesses on profits through a firm grasp of
and swift responses to business execution conditions in concert
with all Group companies.
6-2. Market Risk Management Policy
In addition to business risks, the Osaka Gas Group is exposed to
market risks, including changes in foreign exchange and interest
rates. To hedge against these risks, the Osaka Gas Group employs
derivative transactions. These transactions are for the sole purpose
of hedging against risks based on actual demand conditions.
The Company does not conduct derivative transactions for
speculative purposes. The execution and management of derivative
transactions are based on internal rules and handled by the finance
department of each Group company, and overseen on a Group-
wide basis by the accounting and finance departments of Osaka
Gas.
The Osaka Gas Group constantly monitors market risks by
periodically evaluating the market value of derivative transactions.
The Osaka Gas Group believes that credit risk is negligible for
the parties with which it enters into derivative transactions, as the
Company only deals with major financial institutions in accordance
with requirements stipulated by internal rules.
6-3. Air and Water Temperature (Weather) Risks
Gas sales volume is affected by changes in the temperature of air
and water. A 1°C change in average annual temperatures affects
residential gas sales volume by approximately 4%–6%. For air-
conditioning gas sales, a 1°C change in the average summer
temperature affects gas sales volume by about 10%. Osaka Gas
hedges against some risks from air and water temperatures by
using derivative and insurance instruments.
6-4. Foreign Exchange Rate and Oil Price Risks
Changes in foreign exchange rates and oil prices affects LNG
prices. For the fiscal year ending March 31, 2006, for instance,
a change ¥1/US$ annually affects the cost of gas by about ¥1.7
billion, while a change of $1/bbl in the price of oil has an impact
of approximately ¥3.2 billion. The impact of changes in foreign
exchange rates and oil prices is offset by reflecting these factors
in gas prices through the fuel cost adjustment system, but due to
a time lag in reflecting these items, they are occasionally carried
forward into the next fiscal year.
The Osaka Gas Group engages in forward foreign currency
contracts as it procures LNG, LPG and other basic materials with
U.S. dollars for foreign currency payables. Forward foreign currency
contracts for this purpose are in principle settled within a short
period of approximately one week, and do not substantially affect
the performance of the Osaka Gas Group.
The Osaka Gas Group engages in currency swap contracts
for principal on the issuance of applicable debt as a hedge
against currency fluctuation risks on debt denominated in foreign
currencies. These transactions are completed on the interest
payment and maturity dates of the debt.
6-5. Interest Rate Risks
The Osaka Gas Group sustains an appropriate level of interest rate
risk for capital procurement, and to reduce capital procurement
costs over the long term, engages in interest rate swap contracts
for corporate bonds and debt. Interest rate risk is determined
through an assessment based on the value-at-risk (VaR) method.
The Company uses interest rate swap contracts as and when
necessary to fix appropriate interest rate levels against a specified
amount of future cash flow.
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.
OSAKA GAS ANNUAL REPORT 39
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

40 OSAKA GAS ANNUAL REPORT

 Millions of Yen Thousands of U.S. Dollars
(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

OSAKA GAS ANNUAL REPORT 41

Consolidated Statements of Income
OSAKA GAS CO., LTD. AND ITS SUBSIDIARIES
For the years ended March 31, 2004 and 2005

Millions of Yen Thousands of U.S. Dollars

(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
See accompanying notes

42 OSAKA GAS ANNUAL REPORT

Consolidated Statements of Shareholders’ Equity
OSAKA GAS CO., LTD. AND ITS SUBSIDIARIES
For the years ended March 31, 2004 and 2005

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)
See accompanying notes

OSAKA GAS ANNUAL REPORT 43

Consolidated Statements of Cash Flows
OSAKA GAS CO., LTD. AND ITS SUBSIDIARIES
For the years ended March 31, 2004 and 2005

Millions of Yen Thousands of U.S. Dollars

(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
See accompanying notes

44 OSAKA GAS ANNUAL REPORT

Notes to Consolidated Financial Statements
OSAKA GAS CO., LTD. AND ITS SUBSIDIARIES
For the years ended March 31, 2004 and 2005
1. Basis of presenting consolidated financial statements
The accompanying consolidated financial statements have
been prepared in accordance with the provisions set forth in the
Japanese Gas Utility Law and related regulations, the Japanese
Securities and Exchange Law and its related accounting
regulations, and in conformity with accounting principles generally
accepted in Japan (“Japanese GAAP”), which are different in
certain respects as to application and disclosure requirements of
International Financial Reporting Standards.
The accounts of overseas subsidiaries are based on their
accounting records maintained in conformity with generally
accepted accounting principles prevailing in the respective
countries of domicile. The accompanying consolidated financial
statements have been restructured and translated into English (with
some expanded descriptions and the inclusion of consolidated
statements of shareholders’ equity) from the consolidated financial
statements of the Company prepared in accordance with Japanese
2. Significant accounting policies
(1) Consolidation
Companies which are owned 40% or more and substantially
controlled by the Parent are considered subsidiaries and included in
the consolidation.
The consolidated financial statements include the accounts
of the Company and all of its 118 subsidiaries. Intercompany
transactions and accounts have been eliminated. (The consolidated
financial statements include the accounts of the Company
and its 77 significant subsidiaries in 2004. Consolidation of the
remaining subsidiaries would have had no material effect on the
accompanying consolidated financial statements in 2004.)
The accounts of 20 consolidated subsidiaries are included on
the basis of their fiscal years that end on December 31 (February
28 for 3 other subsidiaries). These subsidiaries do not prepare, for
consolidation purposes, statements for the period that corresponds
with the fiscal year of the Company. For these 23 consolidated
subsidiaries, when there are significant transactions between their
respective fiscal year ends and the Company’s year-end, necessary
adjustments are made to reflect such transactions properly in the
accompanying consolidated financial statements.
The difference between the cost of investments and equity in
their net assets at dates of acquisition of consolidated companies is
charged or credited to income within 20 years. If the difference isn’
t significant, it is charged or credited to income in the first year of
consolidation.
Two affiliates are newly accounted for by the equity method, in the
current fiscal year due to becoming significant. Affiliates that have an
insignificant impact on consolidated net income and consolidated
retained earnings are not accounted for by the equity method.
Investments in unconsolidated subsidiaries and affiliates are not
accounted for by the equity method in 2004, because they were
insignificant.)
In the elimination of investments in subsidiaries, the assets and
liabilities of the subsidiaries, including the portion attributable to
minority shareholders, are evaluated using the fair value at the time
the Company acquired control of the respective subsidiaries.
GAAP and filed with the appropriate Local Finance Bureau of the
Ministry of Finance as required by the Securities and Exchange
Law. Some supplementary information included in the statutory
Japanese language consolidated financial statements, but not
required for fair presentation, is not presented in the accompanying
consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars
are included solely for the convenience of readers outside Japan,
using the prevailing exchange rate at March 31, 2005, which was
¥107.39 to U.S. $1.00. The convenience translations should not
be construed as representations that the Japanese yen amounts
have been, could have been, or could in the future be, converted
into U.S. dollars at this or any other rate of exchange.
Certain 2004 consolidated financial statement items have been
reclassified to conform to the presentation for 2005.
(2) Consolidated statements of cash flows
In preparing the consolidated statements of cash flows, cash
on hand, readily-available deposits and short-term highly liquid
investments with maturities not exceeding three months at the time
of purchase are considered to be cash and cash equivalents.
(3) Inventories
Inventories are mainly valued at moving average cost.
(4) Securities
Under the Japanese accounting standard for financial instruments,
all companies are required to examine the intent of holding each
security and classify those securities as 1) securities held for
trading purposes (“trading securities”), 2) debt securities intended
to be held to maturity (“held-to-maturity debt securities”), 3) equity
securities issued by subsidiaries and affiliates, and 4) all other
securities that are not classified in any of the above categories
(“available-for-sale securities”). The Companies have no trading
securities. Held-to maturity debt securities are stated at amortized
cost. Equity securities issued by subsidiaries and affiliates that are
not consolidated or accounted for using the equity method are
stated at moving average cost. Available-for-sale securities whose
fair value is readily determinable are stated at fair value as of the
end of the year with unrealized gains and losses, net of applicable
deferred tax assets/liabilities and minority interests, not reflected
in earnings but directly reported as a separate component of
shareholders’ equity. Realized gains or losses on sales of such
securities are computed using moving-average cost. Debt securities
with no available fair market value are stated at amortized cost, net
of the amount considered not collectible. Other securities with no
available fair market value are stated at moving average cost.
If the market value of equity securities issued by non-
consolidated subsidiaries and affiliated companies and available-
for-sale securities declines significantly, such securities are stated
at fair value and the difference between fair value and the carrying
amount is recognized as loss in the period of the decline. If the fair
OSAKA GAS ANNUAL REPORT 45
value of equity securities issued by such subsidiaries and affiliated
companies is not readily available, such securities should be written
down to net asset value in the event net asset value declines
significantly. Unrealized losses on these securities are reported in
the income statement.
(5) Derivatives and hedge accounting
Derivatives are stated at market value. See Note 2 (14).
(6) Property, plant and equipment
Depreciation is provided mainly on the declining-balance method
(the straight-line method by certain consolidated subsidiaries) over
estimated useful lives. However, the Company and its domestic
consolidated subsidiaries depreciate buildings acquired on or after
April 1, 1998 on the straight-line method.
Repair and maintenance expenditures, excluding gas holders,
are charged to income when incurred and major improvements are
capitalized.
Certain capital gains arising from beneficiaries’ contributions
or expropriations of property, deferral of which is permitted for
tax purposes, are offset against the acquisition cost of property
purchased. Cumulative capital gains offset against the acquisition
cost of property, plant and equipment at March 31, 2004 and
2005 were ¥281,343 million and ¥ 287,364 million ($ 2,675,892
thousand), respectively.
(7) Software costs
The Companies include software in intangible assets and depreciate
it using the straight-line method over estimated useful lives.
(8) Allowance for doubtful receivables
The Company and its consolidated subsidiaries (the “Companies”)
provide the allowance for doubtful accounts principally at an
amount computed based on the actual ratio of bad debts in
the past plus the estimated uncollectible amounts based on the
analysis of certain individual receivables.
(9) Employees’ severance and retirement benefits
The Companies provide two types of post-employment benefit
plans, unfunded lump-sum payment plans and funded contributory
pension plans, under which all eligible employees are entitled to
benefits based on the level of wages and salaries at the time of
retirement or termination, length of service and certain other factors.
A portion of benefits, previously paid by the defined benefits plan is
now covered by a defined contribution plan.
The Companies provide for employees’ severance and retirement
benefits based on the estimated amounts of projected benefit
obligation and the fair value of the plan assets.
Prior service costs are recognized in expenses when they arise,
and actuarial gains and losses are recognized in expenses over 10
years commencing with the following period.
(10) Reserve for repairs of gas holders
The Company and certain consolidated subsidiaries provide for
future repairs to gas holders by estimating future expenditures
and charging to income in equal annual amounts. The difference
between the actual expenditure and the amount provided is
charged to income in the year the repair is completed.
46 OSAKA GAS ANNUAL REPORT
(11) Income taxes
Income taxes comprise corporation tax, prefectural and municipal
inhabitants taxes and enterprise tax.
The Companies recognize tax effects of loss carry forwards and
temporary differences between the carrying amounts of assets
and liabilities for tax and financial reporting. The asset and liability
approach is used to recognize deferred tax assets and liabilities for
the expected future tax consequences of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
(12) Translation of foreign currencies
Receivables and payables denominated in foreign currencies are
translated into Japanese yen at the year-end rates.
Assets and liabilities of foreign subsidiaries are translated into
Japanese yen at year-end rates. Shareholders’ equity is translated
into Japanese yen at the historical rates. Income and expenses
are translated into Japanese yen at average rates for the year. The
translation differences arising from the use of different rates are
recognized in minority interests and as foreign currency translation
adjustments in the consolidated balance sheets.
(13) Accounting for leases
Finance leases which do not transfer ownership are accounted for
in the same manner as operating leases under Japanese GAAP.
(14) Derivative transactions and hedge accounting
The Companies state derivative financial instruments at fair value at
the end of the fiscal year and recognize changes in the fair value as
gains or losses unless derivative financial instruments are used for
hedging purposes.
If derivative financial instruments are used as hedges and meet
certain hedging criteria, the Companies defer recognition of gains
or losses resulting from changes in fair value of derivative financial
instruments until the related losses or gains on the hedged items
are recognized.
However, in cases where forward foreign currency exchange
contracts and currency swap contracts are used as hedges and
meet certain hedging criteria, forward foreign currency exchange
contracts and currency swap contracts and hedged items are
accounted for in the following manner:
If a forward foreign currency exchange contract or a currency
swap contract is executed to hedge an existing foreign currency
receivable or payable, the difference, if any, between the Japanese
yen amount of the hedged foreign currency receivable or payable
translated using the spot rate at the inception date of the contract
and the book value of the receivable or payable is recognized in the
income statement in the period which includes the inception date.
If a forward foreign currency exchange contract or a currency
swap contract is executed to hedge a future transaction
denominated in a foreign currency, the future transaction will be
recorded using the contracted forward rate, and no gains or losses
on the forward foreign currency exchange contract are recognized.
Also, if interest rate swap contracts are used as hedges and
meet certain hedging criteria, the net amount to be paid or received
under the interest rate swap contract is added to or deducted from
the interest on the assets or liabilities for which the swap contract
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
Regarding Establishment of Accounting Standards for Impairment
of Fixed Assets) (issued by the Business Accounting Deliberation
Council on August 9, 2002) and Guideline for Application of
Accounting Standards for Impairment of Fixed Assets (guideline
No. 6 for application of business accounting standards, issued by
the Accounting Standards Board on October 31, 2003) may be
adopted for financial statements for the year ending March 31,
2004 and thereafter. Accordingly, the Company adopted these
standards and guidelines for the current year. Due to the adoption
of new accounting policy, net income before taxes decreased by
¥13,906 million ($129,491 thousand). The accumulated losses
from impairment of fixed assets were directly deducted from the
applicable fixed assets, in accordance with the revised Rules for
Consolidated Financial Statements. See Note 15.

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:
Millions of Yen Thousands of
U.S. Dollars
2004 2005 2005
Non-listed (non quoted)
equity securities · · · · · · · · · · · · · · · · ¥ 18,059 ¥ 17,447 $ 162,464

OSAKA GAS ANNUAL REPORT 47

 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
issue price of shares is required to be accounted for as capital,
although a company may, by resolution of its board of directors,
account for an amount not exceeding one-half of the issue price
of the new shares as additional paid-in capital, which is included in
capital surplus.
The Commercial Code provides that an amount equal to at
least 10% of cash dividends and other cash appropriations shall
be appropriated and set aside as a legal earnings reserve until
the total amount of legal earnings reserve and additional paid-
in capital equals 25% of common stock. The legal earnings
reserve and additional paid-in capital may be used to eliminate
or reduce a deficit by resolution of the stockholders’ meeting or
may be capitalized by resolution of the Board of Directors. On
condition that the total amount of legal earnings reserve and
additional paid-in capital exceeds 25% of common stock, they are
available for distribution by the resolution of shareholders’ meeting.
Legal earnings reserve is included in retained earnings in the
accompanying financial statements.
The maximum amount that the Company can distribute as
dividends is calculated based on the non-consolidated financial
statements of the Company in accordance with the Commercial
Code.

48 OSAKA GAS ANNUAL REPORT

 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.

OSAKA GAS ANNUAL REPORT 49

 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.

50 OSAKA GAS ANNUAL REPORT

 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:
Millions of Yen Thousands of
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

OSAKA GAS ANNUAL REPORT 51

 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
LPG, Electricity Gas Apppliance Elimination
and Other and House-pipe Real and
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
LPG, Electricity Gas Apppliance Elimination
and Other and House-pipe Real and
For 2005 Gas Energies Installation Estate Others Total Corporate Consolidated

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

LPG, Electricity Gas Apppliance Elimination
and Other and House-pipe Real and
For 2005 Gas Energies Installation Estate Others Total Corporate Consolidated

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.

52 OSAKA GAS ANNUAL REPORT

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

OSAKA GAS ANNUAL REPORT 53

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

54 OSAKA GAS ANNUAL REPORT

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

OSAKA GAS ANNUAL REPORT 55

 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

56 OSAKA GAS ANNUAL REPORT

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 ANNUAL REPORT 57

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