MODEC, INC. and Its Consolidated Subsidiaries
Half-Year Consolidated Financial Statements
As of June 30, 2003

MODEC, INC. and Its Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEET
June 30, 2003

ASSETS

CURRENT ASSETS:
Cash and bank deposits
Accounts receivable – trade
Costs of uncompleted contracts (Note 1(c))
Short-term loans receivable
Other current assets
Less- Allowance for bad debts (Note 1(h))
Total current assets
PROPERTY AND EQUIPMENT (Note 1(d)):
Machinery and equipment
Other property and equipment

INTANGIBLE ASSETS (Note 1(e))
OTHER ASSETS:
Long-term lease receivable
Other investments (Note 1 (f))
Less- Allowance for bad debts (Note 1(h))

Total assets

Thousand ofJapanese yen

U.S. dollars(Note 1(a))¥ 7,987,385
7,385,021
4,042,414
9,599,413
3,103,735(186)
32,117,782$ 66,672,667
61,644,582
33,743,022
80,128,653
25,907,641(1,553)
268,095,012

6,021,480
137,612
6,159,092

50,262,775
1,148,673
51,411,448

929,5887,759,499

10,234,344
2,624,624(3,400)12,855,568

85,428,581
21,908,383(28,381)
107,308,583¥52,062,030$434,574,542

The accompanying notes are an integral part of this statement.

LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIES:
Accounts payable – trade
Short-term loans payable
Accrued expenses
Income taxes payable (Note 1(m))
Other current liabilities (Note 1(i))
Total current liabilities

Thousand ofJapanese yen

U.S. dollars(Note 1(a))¥ 9,069,471
13,963,453
1,205,481
698,223
612,975
25,549,603$ 75,705,104
116,556,369
10,062,448
5,828,235
5,116,649213,268,805

11,721,478

97,842,057

LONG-TERM LIABILITIES:Long-term loans payable
Severance and retirement benefits
For employees (Note 1(j))
For directors and statutory corporate
auditors (Note 1(k))
Deferred tax liabilities (Note 1(m) and 3)
Total long-term liabilities

86,915725,501

34,016
1,581,181
13,423,590

283,940
13,198,504
112,050,002

MINORITY INTERESTS IN CONSOLIDATEDSUBSIDIARIES

2,618,796

21,859,735

3,133,025
2,683,025
4,624,951

26,152,128
22,395,868
38,605,597

105,396(76,356)
10,470,041

879,766(637,359)
87,396,000¥52,062,030$434,574,542

SHAREHOLDERS’ EQUITY (Note 2):
Common stock;authorized – 102,868,000 shares
outstanding – 25,717,000 shares
Capital surplus
Retained earnings
Net unrealized holding gains on securities(Note 1(f))

Foreign currency translation adjustments
Total liabilities, minority interests andshareholders’ equity

MODEC, INC. and Its Consolidated Subsidiaries

CONSOLIDATED STATEMENT OF INCOME AND
RETAINED EARNINGS
For 6 months ended June 30, 2003
Thousand ofJapanese yen

U.S. dollars(Note 1(a))¥33,057,395
28,833,048
4,224,347$275,938,187
240,676,523
35,261,664

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
Operating profit

2,075,865
2,148,482

17,327,754
17,933,910

OTHER INCOME (EXPENSES):Interest income and dividend income
Interest expenses
Foreign exchange loss, net (Note 1(g))
Equity in earnings of affiliates
Depreciation of unused property and equipment
Insurance received for prior year repair costs
Other, net
Total other expenses

51,854(419,015)(160,966)
80,636(201,659)
381,818(3,622)(270,954)

432,842(3,497,622)(1,343,624)
673,086(1,683,301)
3,187,129(30,231)(2,261,721)

INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS

1,877,528

15,672,189

INCOME TAXES (Note 1(m) and 3):
Current
Deferred

1,017,810(393,796)

8,495,910(3,287,111)

INCOME BEFORE MINORITY INTERESTS

1,253,514

10,463,390

247,933

2,069,563

NET INCOME

1,005,581

8,393,827

RETAINED EARNINGS, beginning of year

3,822,247

31,905,238

CASH DIVIDENDS PAID

(192,877)(1,609,996)

PAYMENT OF DIRECTORS’ BONUSES(10,000)(83,472)¥ 4,624,951$38,605,597

YenU.S. dollars(Note 1(a))

SALES (Note 1(l))
COST OF SALES
Gross profit

MINORITY INTERESTSRETAINED EARNINGS, end of year

Net income per share (Note 2)¥39.10

The accompanying notes are an integral part of this statement.

$0.33

MODEC, INC. and Its Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING AND REPORTING POLICIES(a) Basis of Presenting Consolidated Financial Statements
MODEC, INC. (the “Company”) maintains its official accounting records in accordance withthe provisions set forth in the Japanese Commercial Code in conformity with accounting
principles and practices generally accepted in Japan (“Japanese GAAP”). The accounts of its
consolidated overseas subsidiaries are based on their accounting records maintained inconformity with generally accepted accounting principles and practices prevailing in therespective countries of domicile. Certain accounting principles and practices generallyaccepted in Japan are different from International Accounting Standards and standards in othercountries in respect as to application and disclosure requirements. Accordingly, theaccompanying consolidated financial statements are intended for use by those who are
informed about Japanese accounting principles and practices.
The accompanying consolidated financial statements have been restructured and translated into
English from the consolidated financial statements of the Company prepared in accordancewith Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry ofFinance 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 translations of the Japanese yen amounts into U.S. dollars are included solely for theconvenience of readers, using the prevailing exchange rate as of June 30, 2003, which was¥119.80 to U.S. $1. 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.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company andall material subsidiaries. Material intercompany balances, transactions and unrealized profits
and losses have been eliminated in consolidation.
In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries,
including the portion attributable to minority shareholders, were evaluated using the fair value
at the time the Company acquired the control of the respective subsidiaries.
Investments in all significant unconsolidated subsidiaries and affiliates are accounted for byusing the equity method of accounting.
(c) Inventories
Costs of uncompleted contracts are stated at cost, determined on an individual project basis.

(d) Property and Equipment
Depreciation of property and equipment of the Company is calculated by using thedeclining-balance method based on their useful lives and residual value prescribed by theJapanese corporation tax laws and regulations, except that buildings, acquired after March 31,
1998, are depreciated using the straight-line method. Depreciation of Floating Production
Storage & Offloading (“FPSO”) and Floating Storage & Offloading (“FSO”), owned by theoverseas subsidiaries are calculated by using the straight-line method based on the their leaseterm or their economic useful lives. Depreciation of property and equipment except FPSO andFSO of the overseas subsidiaries is calculated by using the straight-line method based on theiruseful lives.
(e) Intangible Assets
Amortization of intangible assets of the Company is calculated by using the straight-line
method based on their useful lives and residual value prescribed by the Japanese corporation
tax laws and regulation. Software costs are amortized using the straight-line method over theestimated useful life (5years). Goodwill of the overseas subsidiary is amortized using thestraight-line method based on the term of an agreement.
(f) Securities
Available-for-sale securities with available fair market values are stated at fair market value.
Unrealized gains or losses on these securities are reported, net of applicable income taxes, as aseparate component of shareholders’ equity. Realized gains and losses on sale of suchsecurities are computed using moving-average cost.
(g) Translation of Foreign Currency AccountsForeign currency transactions are translated into Japanese yen by using the exchange rate ineffect at the time of each transaction.
Assets and liabilities denominated in foreign currencies are translated into Japanese yen at theyear-end exchange rate, and the resulting gains or losses are included in other income(expenses) in the statement of income.
Financial statements of consolidated overseas subsidiaries are translated into Japanese yen
using the exchange rates prevailing at the end of each fiscal year, except the exchange rates in
effect at the date of transactions are used for shareholders’ equity. The Company records
foreign currency translation adjustments in the shareholders’ equity.
(h) Allowance for Bad Debts
Allowance for bad debts is provided in an amount sufficient to cover probable losses oncollection by estimating uncollectable amounts individually as to specific doubtful accounts
and on the basis of a percentage based on the actual collection ratio in the past to the remaining
accounts.

(i) Provision for Product Warranty
Provision for product warranty is provided based on the estimated amounts to cover theprobable product warranty.
(j) Severance and Retirement Benefits for Employees
The Company provides allowance for employees’ severance and retirement benefits based on
the estimated amounts of projected benefit obligation at the balance sheet date.
(k) Severance and Retirement Benefits for Directors and Statutory Corporate Auditors
The Company records severance and retirement benefits for directors and statutory corporate
auditors at the amount payable if all directors and statutory corporate auditors voluntarily
terminated their employment as of balance sheet date.
(l) Recognition of Revenues
The Company recognizes sales revenue by the completed contract method, except for thoseitems whose contract amount is over 1 billion yen and whose term of construction is over one
year, which are recorded by the percentage of completion method. The subsidiary at U.S.A.
recognizes all sales revenue by the percentage of completion method.
(m) Income Taxes
The Company provided income taxes at the amounts currently payable based on taxable
income for tax purposes that may be different from income for financial reporting purposes.
The Company recognizes tax effects of temporary differences between the carrying amounts ofassets and liabilities for tax and financial reporting purposes. The asset and liability approachis used to recognize deferred tax assets and liabilities for the expected future tax consequencesof temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
(n) Unrealized Profits or Losses
In fiscal 2003, the Company changed the accounting policy for unrealized profits or losses,
which arose when the Company sold inventories or property and equipment to affiliatedcompanies. Prior to fiscal 2003, such unrealized profits or losses were presented in equity inearnings of affiliates. In fiscal 2003, such unrealized profits or losses are presented in cost ofsales. This change is made due to the increase of the amount of such unrealized profits orlosses.
As a result of this change, gross profit and operating profit increased by ¥492,436 thousand($4,110,484), respectively.

2. SHAREHOLDER’S EQUITY AND PER SHARE DATAThe Japanese Commercial Code provides that an amount equivalent to at least 10 percent of cash
dividends paid and other appropriations requiring actual cash outlay, such as directors’ bonuses, beappropriated as a legal reserve until the total amount of additional paid-in capital and legal reserve
equals to 25 percent of the stated capital.
Net income per share is calculated based on the weighted average number of shares of common
stock outstanding during for 6 months.

3. DEFERRED TAXESDue to a change in local tax law, effective January 1, 2005, the normal statutory tax rate will be
reduced from approximately 42% to approximately 41% and revised rate has been used in
calculating the expected tax effect in fiscal 2005 and after. As a result of this change, deferred tax
liabilities (long-term) decreased by ¥404 thousand ($3,375) and provision for deferred income
taxes and net unrealized holding gains on securities increased by ¥1,382 thousand ($11,536) and¥1,786 thousand ($14,911), respectively.

4. SUBSEQUENT EVENTOn July 2, 2003, the Company was listed on Tokyo Stock Exchange following the approval ofTokyo Stock Exchange on May 28, 2003. On May 28 and June 11, 2003, resolutions were made ata Board of Directors’ meeting that the Company issued and offered 3,300,000 new shares ofcommon stock. Payment to the Company following the public offering finished on July 1, 2003.
Apart from the above, the Company issued 975,000 additional shares to the third party through theoverallotment by an underwriter following a resolution made by a Board of Directors’ meeting on
June 11, 2003. Payment to the Company following the stock issuing finished on July 29, 2003.
As a result, on July 2, 2003, the number of stock issued by the Company and the amount ofcommon stock increased to 29,017,000 and ¥4,311,125 thousand ($35,986,018), respectively andalso on July 30, 2003, the number of stock issued by the Company and the amount of common
stock increased to 29,992,000 and ¥4,659,200 thousand ($38,891,486), respectively.