IR Report & Message vol.5
Fiscal Year from January 1, 2007 to December 31, 2007

To Our Shareholders
Overview of Operations
Energy consumption in China and India shows no sign ofslowing, and oil prices have risen consistently since thebeginning of the year, to close to 100 dollars per barrel.
Amid rising demand for energy production, oil companies
are investing aggressively in offshore exploration anddevelopment, particularly in deepwater areas, and this iscreating a favorable business environment for MODEC.
MODEC received orders for the following two projects in2007:

Kenji YamadaPresident & CEOMODEC, Inc.

We are pleased to report to our shareholders thefinancial results and business activities ofMODEC, Inc. for fiscal year 2007 (from January 1,2007 to December 31, 2007).

- TSJOC Song Doc FPSO Project
In May 2007 MODEC signed a contract with Truong Song
Joint Operating Company (TSJOC) for the supply, charterand operation of an FPSO to be located in Vietnam’s SongDoc field. The FPSO will be installed in 55 meters water
depth approximately 170 kilometers offshore Vietnam. TheFPSO is expected to begin production in the second half of2008. The charter contract of the FPSO is five years withan additional five one-year options.
- BHP Pyrenees FPSO Project
In June 2007 MODEC signed a contract with BHP Billiton
for the supply and operation of an FPSO to be located inAustralia’s Pyrenees field. The FPSO will be installed in 200
meters water depth approximately 45 kilometers
northwest of Exmouth, Western Australia. The FPSO is
expected to begin production in the first half of 2010. The
operation contract of the FPSO is 15 years with possible
extensions.
As a result, orders received totaled 126,792 million yen(down 29.3% year on year). Sales were 144,040 million
yen (a rise of 45.3%), reflecting progress in FPSO
construction and the provision of charter and operationservices. Operating profit surged to 6,959 million yen (up99.2%) while ordinary income climbed to 7,828 million
yen (a 67.9% increase).

Outlook for 2008
In the Langsa oilfield, where the MODEC Group provides
an FPSO charter service, MEDCO MOECO Langsa Ltd. took
over the interests of Matrix Oil (Langsa) Ltd. after the latter
entered bankruptcy. MODEC Production (Langsa) Pte Ltd.,a subsidiary of MODEC, Inc. became an investment partnerof MEDCO MOECO Langsa Ltd., owning a part interest,and continued its production activities. Meanwhile,MEDCO MOECO Langsa Ltd. drilled a new well to increase
the production of crude oil in the Langsa field, but failed
to raise output to the anticipated level. There isconsequently some uncertainty about the potential for
future production expansion. Given these circumstances,
MODEC Production (Langsa) Pte Ltd. posted an asset
impairment charge, and the Group recorded anextraordinary loss of 2,064 million yen in relation to thatcharge in the fiscal year under review.

Demand for primary energy shows no sign of receding. As
a consequence, oil prices look set to remain high. The
business environment surrounding floating production
systems will remain favorable, as oil companies have alarge number of deepwater oil and gas fields underdevelopment and production facilities are growing in size.
The Company forecasts sales of 140,000 million yen,operating profit of 5,200 million yen, ordinary income of
6,500 million yen and net income of 4,600 million yen on
a consolidated basis for 2008. For these financial forecasts,
the Company assumes an exchange rate of 105 yen per
US dollar at the time of book closing (114.16 yen per US
dollar for actual results in fiscal 2007).

As a result, net income amounted to 4,499 million yen (a36.1% year-on-year increase).
For fiscal 2007, MODEC, Inc. paid an interim dividend of
7.50 yen per share and a year-end dividend of 7.50 yen
per share, resulting in the total annual dividend of 15.00yen.

Sales

Ordinary Income
Millions of Japanese yen

160,000

144,040

10,00099,14980,000

7,828

6,000

71,6144,000

51,89140,000

5,408

2005

2006

2007

0

4,499

4,000
3,000

4,664

3,213

3,305

2005

2006

2,230

3,701

2,000

2,000
2004

Millions of Japanese yen

5,000

8,000

120,000

0

Net Income
Millions of Japanese yen

1,000
2004

2005

2006

2007

02004

2007

Review of Operations
Highlights in Consolidated Results for Fiscal Year 2007
Millions of Japanese yen

2004

2005

2006

2007

Orders50,141

166,538

179,353

126,792

Sales

51,891

71,614

99,149144,040

Ordinary Income

3,701

5,408

4,664

7,828

Net Income

2,230

3,213

3,305

4,499

Net Income per Share (Japanese yen)

72.77

93.4688.37

120.28Net Assets

22,28537,84342,22248,031

Total Assets

66,521

104,698

123,350

133,734

Orders by service types

Sales by service types

Millions of Japanese yen

200,000

150,000

144,040
121,892

150,000

179,353
166,538 126,864
109,084

120,000
126,792
73,96390,00071,61460,00050,141
24,71755,04451,45951,923

2004

2005

2006

2007

0

2004

100,000
14,16615,154

2005

2006

21,262
2007• Other• EPCI services• Lease, Charter and O&M services• MODEC Group’s share in the “Lease, Charter and O&M services” of the affiliates accounted for by the equity method377,997
133,792

338,42182,689231,031
99,413113,040
77,74454,97430,0009,148

400,000

200,000

39,422

22,935051,891Millions of Japanese yen

300,000

99,14983,016

100,000

50,000Order backlogs by service types

Millions of Japanese yen

156,238
48,894
114,055
131,031
21,481
104,315
36,44056,042

0

2004

2005

2006

2007

Review by Service
EPCI Services

Lease, Charter and O&M Services

As well as the two new project orders in 2007, work onFPSO Cidade de Niteroi MV18, JVPC Rang Dong FSO andShenzi TLP progressed steadily. Meanwhile, work on FSO
Rong Doi MV12, FPSO Cidade do Rio de Janeiro MV14,
FSO Cidade de Macae MV15 and FPSO Stybarrow Venture
MV16 was completed.

Sales from Lease, Charter and O&M services reached 21,262
million yen, up by 40.3% compared with 2006, as thefollowing projects offered operation services.

As a result, sales from EPCI services were 121,892 millionyen, up by 46.8% compared with 2006.

• FSO Ta’Kuntah (Mexico)• FPSO Cuulong MV9 (Vietnam)• FPSO MV8 Langsa Venture (Indonesia)• FPSO MODEC Venture 11 (Australia)• FPSO Baobab Ivoirien MV10 (Cote d’Ivoire)• FPSO Jasmine MV7 (Thailand)• FSO Rong Doi MV12 (Vietnam)• FPSO Cidade do Rio de Janeiro MV14 (Brazil)• FSO Cidade de Macae MV15 (Brazil)• FPSO Stybarrow Venture MV16 (Australia)

FPSO/FSOs operation services owned by the MODEC Group:• F PSO MODEC Venture 1 (East Timor/Australia)  The time charter contract terminated in July 2007.

Operation services of an FPSO that the oil company owns:• FPSO Fluminense (Brazil)

Other Services

FSO Cidade de Macae MV15

As after-sales services, the Company supplied spare parts andprovided engineering support for FPSOs and other facilities
the MODEC Group had constructed and delivered to oilcompanies. Consequently, sales from other services totaled
886 million yen.

Financial Statements
Consolidated balance sheet
December 31, 2007

Liabilities and Shareholders’ equity

AssetsThousands ofJapanese yen
CURRENT ASSETS:
Cash and time deposits
Accounts receivable - trade
Inventories
Short-term loans receivable
Other current assets
Less-Allowance for bad debts
Total current assets
PROPERTY AND EQUIPMENT:
Buildings and equipment
OtherINTANGIBLE ASSETSOTHER ASSETS:
Investment securities
Long-term loans receivable
Other investments
Less-Allowance for bad debts

Total assets¥21,499,163
23,226,559
2,809,596
31,234,140
6,066,203(9,726)84,825,936

3,085,531
1,652,117
4,737,648
13,134,794

15,517,685
12,242,617
3,277,867(2,400)31,035,771¥133,734,152

Thousands ofJapanese yen
CURRENT LIABILITIES:
Accounts payable - trade
Short-term loans payable
Current portion of long-term loans payable
Accrued expenses
Income taxes payable
Other current liabilities
Total current liabilities
LONG-TERM LIABILITIES:Long-term loans payable
Severance and retirement benefits
For employees
For directors and corporate auditors
Deferred tax liabilities
Other long-term liabilities
Total long-term liabilities
NET ASSETSSHAREHOLDERS' EQUITY:
Common stock;authorized - 102,868,000 shares
outstanding - 37,408,000 shares
Capital surplus
Retained earnings
Less-Treasury stock at cost
Total shareholders' equity
DISCREPANCIES IN APPRAISALS and CONVERSION:Net unrealized holding gains on securities
Deferred Hedge Reserves
Foreign currency translation adjustments
Total discrepancies in appraisals and Conversions
MINORITY INTERESTS IN CONSOLIDATEDSUBSIDIARIES:
Total net assets
Total liabilities, net assets

¥25,899,016
19,152,987
13,565,629
3,653,131
2,342,699
3,875,545
68,489,008
14,092,281
310,224265,684
1,903,333
641,784
17,213,307

12,391,600
13,121,672
17,421,014(922)
42,933,364
12,519(114,483)
314,348
212,384
4,886,087
48,031,835¥133,734,152

Consolidated statement of income
For year ended December 31, 2007SALESCOST OF SALES
Gross profit

Thousands ofJapanese yen¥144,040,900
127,132,992
16,907,907

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating profit

9,947,983
6,959,924

OTHER INCOME (EXPENSES):Interest income and dividend income
Interest expense
Foreign exchange gain (loss), net
Equity in earnings of affiliates
Other, net
Total other income (expenses)

3,579,807(3,679,818)(652,060)
1,877,634(1,692,637)(567,074)

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS

6,392,851

INCOME TAXES:
Current
Deferred

3,814,186(1,964,093)

INCOME BEFORE MINORITY INTERESTS

4,542,758

MINORITY INTERESTSNET INCOME

43,429¥4,499,328

Financial Statements
Consolidated statement of cash flow
For year ended December 31, 2007

Thousands ofJapanese yen
CASH FLOW FROM OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments to reconcile income before income
taxes and minority interests to net cash
provided by operating activities:
Depreciation and amortization
Amortization of consolidated differences
Provision for (reversal of) allowance for bad debts
Provision for severance and retirement benefits for
employees
Provision for severance and retirement benefits for
directors and corporate auditors
Provision for bonus to directors
Provision for product warrantyInterest income and dividend income
Interest expense
Foreign exchange (gain) loss
Equity in earnings of affiliates
Impairment loss from intangible asset
Gain from sale of available for sale securities
Changes in assets and liabilities:
Decrease (Increase) in– Accounts receivable - trade– Inventories
Increase (Decrease) in– Accounts payable - trade
Other, net

Interest and dividend received
Interest paid
Income taxes paid
Other, net
Net cash provided by operating activities

¥6,392,851

1,656,995
26,485
6,318
184,630
76,013
6,000
661,398(3,579,807)
3,679,818
20,129(1,877,634)
2,064,544(781,002)(9,312,149)(692,137)
8,215,368
279,238
7,027,059
3,756,457(3,720,049)(3,251,471)
0
3,811,995

Thousands ofJapanese yen
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment andintangible assets
Purchases of investments in affiliates
Increase in short-term loans receivable
Disbursement of long-term loans receivableCollection of long-term loans receivable
Purchases of investments in subsidiaries
Proceeds from disposal of stock in subsidiaries
Proceeds from sale of available for sale securities
Other, net
Net cash used in investing activities
CASH FLOW FROM FINANCING ACTIVITIES:
Decrease in short-term loans payable
Proceeds from long-term loans payable
Repayment of long-term loans payable
Cash dividends paid to minority interests
Cash dividends paid
Other, net
Net cash used in financing activities
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OFYEAR
CASH AND CASH EQUIVALENTS AT ENDING OF YEAR¥(3,091,452)(4,739,027)(2,165,521)(27,914,524)
24,553,356(942,733)
3,538,960
909,490(35,929)(9,887,380)(12,325,661)
18,135,929(5,663,979)(130,142)(514,844)(209)(498,908)(809,511)(7,383,804)
28,827,361¥21,443,557

Consolidated statement of changes in shareholders’ equity
For year ended December 31, 2007

Thousands of Japanese yen

Shareholders' equity

Balance at December 31, 2006

Common stock

Capital surplus

Retainedearnings

12,391,600

13,121,672

13,319,510

Treasury stock

Total
shareholders'equity(712)

38,832,070

Change of items
Cash dividends paid

(514,356)(514,356)

4,499,328

4,499,328

116,532

116,532

Bonuses paid to directors—

Net income
Increase due to changes in accounting
principles adopted for overseas subsidiaries
Other—

Purchases of treasury stock

(209)

(209)

Change in items other thanShareholders' Equity
Total change of items
Balance at December 31, 2007———

4,101,504—

4,101,294

12,391,600

13,121,672

17,421,014(922)

42,933,364

Discrepancies in appraisals and conversions
Net unrealized
Foreign currency Total discrepancies
Deferred Hedge
holding gains ontranslationin appraisals andReserve
securities
adjustments
conversions
Balance at December 31, 2006

780,351

1,237,041

2,017,392

Minority
Interests
1,373,012

Total net assets
42,222,475

Change of items
Cash dividends paid—

Bonuses paid to directors——Net income—

4,499,328

Increase due to changes in accounting
principles adopted for overseas subsidiaries—

116,532

Other——

Purchases of treasury stock

—

(209)

Change in items other thanShareholders' Equity
Total change of items
Balance at December 31, 2007

(514,356)(767,832)(114,483)(922,693)(1,805,008)

3,513,074

1,708,065(767,832)(114,483)(922,693)(1,805,008)

3,513,074

5,809,360

12,518(114,483)

314,348

212,384

4,886,086

48,031,835

Information
As of December 31, 2007

General Information

Main Group Companies

Company name

MODEC, Inc.

MODEC International L.L.C. Turn-key EPCI contractor of FPSO, FSO,FoundedJune 1, 1987

Head office

Kasumigaseki Common Gate West Tower
2-1, Kasumigaseki 3-chome Chiyoda-ku,
Tokyo 100-0013 Japan
TEL: +81.3.6203.0200
FAX: +81.3.5512.1600

Paid-in capital

TLP and CP-Semi

SOFEC, INC.

Supplier of SOFEC® turrets, mooring

NATCO Japan Co., Ltd.

Supplier of machinery and equipment forsystems and marine terminals
separation and production of oil and gas

12,391,600,000 Japanese yen

Number of employees 138

[non-consolidated, including temporary employees]

1,645 [consolidated, including temporary employees]

Management
As of April 1, 2008

Directors

Executive Officers
President & Chief Executive Officer

Kenji Yamada*President & Chief Executive Officer

Nobuhiro Yaji

Managing Director & Chief Operating Officer

Nobuhiro Yaji*

Managing Director & Chief Operating Officer

Shashank Karve

Director

Mitsuhiro Mokumoto

Chief Financial Officer

Toshihiro Soejima

External Director

Masaki Kawase

Executive Officer

Tamiyoshi Iwasaki

External Director

Naomasa Kosaka

Executive Officer

Toshiro Miyazaki

External Director

Yoshihide Shimamura

Executive Officer

Masaki Habu

Executive Officer

Corporate Auditors*Corporate officer also serving as a director.

Kenji Yamada

Yasuhiro Iwanami

Corporate Auditor

Yoshihiro Takizawa

External Corporate Auditor

Makoto Yamazaki

External Corporate Auditor

Manabu Kawai

External Corporate Auditor

Stock Information
Number of Authorized Shares

102,868,000

Number of Issued Shares

37,408,000

Number of Shareholders

4,849

Major Shareholders
Number ofShares Held

Ratio ofShareholding (%)

Mitsui Engineering & Shipbuilding Co., Ltd.

18,742,000

50.10

Mitsui & Co., Ltd.

2,466,500

6.59

Lehman Brothers Inc., for the Exclusive Benefit of Customers

2,056,799

5.49

DNB NOR BANK ASA

Name

1,623,633

4.34

JPM Chase Oppenheimer Funds Inc. Jasdec A/C

750,000

2.00

Goldman Sachs International

679,183

1.81

Japan Trustee Services Bank, Ltd. (Trust Account)

591,800

1.58

The Master Trust Bank of Japan, Ltd. (Trust Account)453,600

1.21

Bear Stearns Securities Corp.

441,300

1.17

Sojitz Corporation

400,000

1.06

Shareholders Breakdown
Number of shareholders
4237

Number of shares
382,662
1,702,089

156
22

2,490,400

11,127,949

Individuals, others
4,592

21,704,900

Financial institutions
Other Japanese companies
Non-Japanese
Securities companies

10Stock Information
Fiscal year end

December 31 of each year

General meeting ofshareholders

March of each year

Shareholder registration
date for year-end dividend

December 31 of each year

Shareholder registration
date for interim dividend

June 30 of each year

Shareholding unit

100 shares

Transfer agent

Chuo Mitsui Trust and Banking Co., Ltd.
33-1, Shiba 3-chome, Minato-ku,
Tokyo 105-8574, Japan

Transfer agent office

Chuo Mitsui Trust and Banking Co., Ltd.
Transfer Agent Dept.
(Transfer Agent Administration Center)
8-4, Izumi 2-chome, Suginami-ku,Tokyo 168-0063, Japan
Tel: +81.3.3323.7111

Agents huo Mitsui Trust and Banking Co., Ltd.
CBranch offices in Japan
Japan Securities Agents, Ltd.
Head office and branch offices

MODEC, Inc.
Kasumigaseki Common Gate West Tower
2-1, Kasumigaseki 3-chome
Chiyoda-ku, Tokyo 100-0013
Japan
TEL: +81.3.6203.0200
http://www.modec.com