Consolidated Financial Statements
MODEC, INC. and Consolidated Subsidiaries
For the Years ended December 31,
2013 and 2012
Together with Independent
Auditor’s Report

MODEC, INC. and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETS
December 31, 2013 and 2012ASSETS

Thousands of
U.S. dollars(Note 1 (a))
2013

Millions of Japanese yen
2013
2012
CURRENT ASSETS:
Cash and time deposits (Note 1(s) and 17)
Accounts receivable – trade (Note 16, 17 and 20)
Inventories (Note 2)
Short-term loans receivable (Note 17 and 20)
Deferred tax assets (Note 13)
Other current assets
Less- Allowance for bad debts (Note 1 (j))
Total current assets¥21,786
84,695
3,667
－
3,565
7,648
(472)
120,889¥33,367
50,105
6,601
3,740
2,608
5,996
(414)
102,003$206,758
803,790
34,800－33,83072,587(4,483)
1,147,282

PROPERTY AND EQUIPMENT (Note 1(t) and 19):
Buildings and structures
Machinery and equipment (Note 12)
VesselConstruction in progress (Note 12)
Less- Accumulated depreciation
Net property and equipment

125
2,436
35,603525(21,087)
17,602

119
1,690
25,069886(15,340)
12,424

1,182
23,122337,8884,978(200,119)
167,051

7,395

6,759

70,17926,544

13,686

251,907

38,771
3,522
1,594
952
(1,594)69,789¥215,675

14,051
4,396
－
785
－
32,918¥154,104

367,954
33,423
15,130
9,036(15,130)
662,320$2,046,832

INTANGIBLE ASSETS (Note 4)
INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 3 and 17)
Long-term loans receivable from unconsolidated
subsidiaries and affiliated companies (Note 17
and 20)
Deferred tax assets (Note 13)
Bankrupt and substantially bankrupt claims
Other investments
Less- Allowance for bad debts (Note 1 (j))
Total investments and other assets
Total assets

The accompanying notes are an integral part of these consolidated financial statements.

- 1 -LIABILITIES AND NET ASSETS
Thousands of
U.S. dollars(Note 1 (a))
2013

Millions of Japanese yen
2013
2012
CURRENT LIABILITIES:
Accounts payable – trade (Note 17 and 20)
Short-term loans payable (Note 5, 7 and 17)
Current portion of long-term loans payable (Note 5,
17 and 20)
Accrued expenses
Income taxes payable (Note 13)
Provision for product warranty (Note 1 (m))
Provision for loss on construction contracts
Accrued employees’ bonuses
Accrued directors’ bonuses
Advances received
Deferred tax liabilities (Note 13)
Other provisions
Other current liabilities
Total current liabilities
LONG-TERM LIABILITIES:Long-term loans payable (Note 5, 17 and 20)
Severance and retirement benefits for employees(Note 10)Deferred tax liabilities (Note 13)
Other long-term liabilities
Total long-term liabilities¥87,782
9,483¥56,918
1,125$833,084
90,000

1,405
6,596
3,626
3,195
－
11
12
1,538
12
5
1,386
115,051

2,276
5,966
4,296
2,284
192
9
11
8,585
36
92
1,450
83,24013,33862,601
34,41230,323－101
113
14,592110
52
13,145
1,091,871

15,616

3,593

148,201

176
483
3,905
20,180

167
205
6,510
10,475

1,670
4,584
37,060191,515

20,186
20,91630,528(2)
71,62820,186
20,916
26,940(2)
68,040191,569
198,497289,729(17)
679,778(0)(4,978)4,307(15)(8,102)(5,680)(0)(47,241)
40,871

(146)

(137)

(1,384)(817)(13,934)(7,754)

9,633
80,444

6,283
60,38991,422
763,446¥215,675¥154,104$2,046,832

CONTINGENT LIABILITIES (Note 14)
NET ASSETS :SHAREHOLDERS’ EQUITY (Note 8 and 21):
Common stock;
Authorized – 102,868,000 shares
Issued – 46,408,000 shares
Capital surplus
Retained earnings
Treasury stock, at cost
Total shareholders’ equity
ACCUMULATED OTHER COMPREHENSIVE LOSSNet unrealized holding losses on securities
Unrealized losses on hedging derivatives, net of tax
Foreign currency translation adjustments
Retirement liability adjustments for foreign
consolidated subsidiaries
Total accumulated other comprehensive
loss
MINORITY INTERESTS IN CONSOLIDATEDSUBSIDIARIES
Total net assets
Total liabilities and net assets- 2 -MODEC, INC. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 2013 and 2012

SALES (Note 1 (q), 19 and 20)
COST OF SALES (Note 1(q) and 20)
Gross profit
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES(Note 1(t) and 11)
Operating profit

Millions of Japanese yen
2013
2012
¥254,402¥186,891
237,688
173,265
16,714
13,626

Thousands of U.S.
dollars(Note 1 (a))
2013
$2,414,367
2,255,747
158,620

13,0103,704

10,156
3,470

123,467
35,153

2,416
3,850

1,451
2,656

22,92436,534

5,623
(697)
(121)
－

2,383
(497)
(53)
(453)

53,360(6,610)(1,144)
－

101
(39)

－
－

959
(373)

(157)

－

(1,487)OTHER INCOME (EXPENSES) (Note 1(u)):
Interest income and dividend income
Foreign exchange gain, net
Equity in earnings of affiliates andunconsolidated subsidiaries
Interest expense
Commission fee (Note 1(u))
Loss on revaluation of derivatives
Gain on liquidations of an affiliatedcompany
Loss on sales of property and equipment
Loss on disposal of property andequipment
Impairment loss on property andequipment (Note 12)
Provision of allowance for doubtful
accounts
Others, net (Note 1(u))
Total other income (expenses)(2,311)－(21,933)(1,594)
885
7,956

－
339
5,826

(15,130)
8,404
75,504

INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS

11,6609,296

110,657

INCOME TAXES (Note 13):
Current
Deferred

4,354
578

4,724
(1,287)41,3185,485

INCOME BEFORE MINORITY
INTERESTS

6,728

5,859

63,854MINORITY INTERESTS

1,805

728

17,137NET INCOME¥4,923¥5,131$46,717

Japanese yen¥106.07¥30.00Net income per share (Note 9)
Dividends per share (Note 9)¥110.56¥27.50

The accompanying notes are an integral part of these consolidated financial statements.

- 3 -U.S. dollars
$1.01
$0.28

MODEC, INC. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2013 and 2012

Income before minority interests
Other comprehensive income (loss)
Net unrealized holding gains (losses) on
securities
Unrealized gains on hedging derivatives,
net of tax
Foreign currency translation adjustments
Retirement liability adjustments forforeign consolidated subsidiaries
Share of other comprehensive income ofassociates accounted for using equity
methodTotal
Comprehensive income

Millions of Japanese yen
2013
2012
(Note 15)
(Note 15)
¥6,728¥5,859

15

(3)

139

1
5,945

216
2,815

11
56,418

(37)

(137)

(350)

8,769
14,693¥21,421627
3,518¥9,377

83,225
139,443$203,297

Thousands of U.S.
dollars(Note 1 (a))
2013

Millions of Japanese yen
2012
2013
Comprehensive income attributable to owners of
the parent
Comprehensive income attributable to minority
interests

Thousands of U.S.
dollars(Note 1 (a))
2013(Note 15)
$63,854¥18,039¥7,970$171,200¥3,382¥1,407$32,097

The accompanying notes are an integral part of these consolidated financial statements.

- 4 -MODEC, INC. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the years ended December 31, 2013 and 2012
Millions of Japanese yen

Commonstock

Balance at January 1,
2012¥20,186

CapitalsurplusRetainedearnings¥20,916¥23,027

Net income
Cash dividends paid

Treasurystock, at costNet
unrealized
holding gains(losses) on
securities

Unrealized
gains (losses)on hedging
derivatives,
net of tax¥ (2)¥ (12)¥ (6,579)

Foreigncurrencytranslation
adjustments

Retirement
liability
adjustments
for foreign
consolidated
subsidiaries

Minority
interests inconsolidated
subsidiaries¥ (10,182)－¥4,877

5,131(1,218)(1,218)(3)(3)(1,523)(1,523)

4,502

4,502

(137)

Increase in minority
interests inconsolidated
subsidiaries¥20,186¥20,916

Net income
Cash dividends paid

¥26,940

¥ (2)

¥(15)

¥(8,102)¥(5,680)¥(137)

(137)

1,406

1,406

¥6,283¥60,389

4,923

4,923

(1,335)(1,335)

Increase (decrease)
due to changes in fairmarket values ofavailable-for-salesecurities
Unrealized gains(losses) on hedging
derivatives, net of tax
Adjustments fromtranslation of foreign
currency financial
statements
Adjustments fromretirement liability forforeign consolidated
subsidiaries
Increase in minority
interests inconsolidated
subsidiaries
Balance at December
31, 2013

15

15

3,124

3,124

9,987

9,987

(9)

¥20,186¥20,916¥52,231

5,131

Increase (decrease)
due to changes in fairmarket values ofavailable-for-salesecurities
Unrealized gains(losses) on hedging
derivatives, net of tax
Adjustments fromtranslation of foreign
currency financial
statements
Adjustments fromretirement liability forforeign consolidated
subsidiaries

Balance at January 1,
2013

Total net
assets¥30,528

¥ (2)

¥ (0)

¥(4,978)¥4,307¥(146)

The accompanying notes are an integral part of these consolidated financial statements.

- 5 -

(9)

3,350

3,350

¥9,633¥80,444

Thousands of U.S. dollars(Note 1 (a))

Balance at January 1,
2013

Commonstock

CapitalsurplusRetainedearnings$191,569$198,497$255,674

Net income
Cash dividends paid

Treasurystock, atcost

Net unrealized
holding gains(losses) on
securities

Unrealized
gains (losses)on hedging
derivatives,
net of tax

Foreigncurrencytranslation
adjustments

Retirement
liability
adjustments
for foreign
consolidated
subsidiaries

Minority
interests inconsolidated
subsidiaries$(17)$(140)$(76,893)$(53,904)$(1,300)$59,630

46,717(12,662)(12,662)140

140

29,652

29,652

94,775

94,775(84)$191,569$198,497$573,116

46,717

Increase (decrease)
due to changes in fairmarket values ofavailable-for-salesecurities
Unrealized gains(losses) on hedging
derivatives, net of tax
Adjustments fromtranslation of foreign
currency financial
statements
Adjustments fromretirement liability forforeign consolidated
subsidiaries
Increase in minority
interests inconsolidated
subsidiaries
Balance at December
31, 2013

Total net
assets$289,729

$(17)

$(0)

- 6 -

$(47,241)$40,871$(1,384)(84)

31,792

31,792$91,422$763,446

MODEC, INC. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended December 31, 2013 and 2012
Thousands of
U.S. dollars(Note 1 (a))

Millions of Japanese yen
2013
CASH FLOWS 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 (usedin) operating activities:
Depreciation and amortization
Amortization of goodwill
Increase of allowance for bad debts
Increase (decrease) of severance and retirement
benefits for employees
Increase (decrease) of accrued directors’ bonuses
Increase of provision for product warranty
Increase (decrease) of provision for loss on
construction contracts
Interest income and dividend income
Interest expense
Foreign exchange gain
Loss on revaluation of derivatives
Equity in earnings of affiliates and unconsolidated
subsidiaries
Loss on sales of property and equipment
Loss on disposal of property and equipment
Impairment loss on property and equipment
Gain on liquidations of an affiliated company
Changes in assets and liabilities:
Decrease (increase) in– Accounts receivable - trade– Inventories– Bankrupt and Substantially Bankrupt Claims
Increase (decrease) in– Accounts payable – trade– Consumption tax payable
Others, net
Interest and dividend received
Interest paid
Income taxes paid
Net cash provided by (used in) operating activities

2012

2013

¥11,660¥9,296$110,657

4,223
349
1,635

2,980
287
65

40,0803,315
15,514

9
0
437

(1)
(9)
368

88
4
4,149

(192)
(2,416)697(4,690)－192(1,451)497(1,814)453(1,821)(22,924)6,610(44,508)－(5,623)
39
157
2,311
(101)

(2,383)－－－－(53,360)
373
1,487
21,933(959)(38,897)364(1,594)

6,626(4,080)－(369,149)
3,451(15,130)

21,357(89)(1,300)(11,664)
4,632
(683)
(5,187)¥(12,902)

9,391
88
2,278
22,783
3,905(502)(3,290)¥22,896

202,684(847)(12,341)(110,694)
43,962(6,485)(49,227)$(122,444)

The accompanying notes are an integral part of these consolidated financial statements.

- 7 -Thousands of
U.S. dollars(Note 1 (a))

Millions of Japanese yen
2013
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment and intangible
assetsProceeds from sale on property and equipment andintangible assets
Purchases of investments in affiliates
Decrease in short-term loans receivable
Disbursement of long-term loans receivableCollection of long-term loans receivable
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term loans payable
Proceeds from long-term loans payable
Repayment of long-term loans payable
Cash dividends paid
Cash dividends paid to minority shareholders
Repayments of finance lease obligations
Net cash provided by (used in) financing activities
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR
DECREASE IN CASH AND CASH EQUIVALENTSRESULTING FROM CHANGE OF SCOPE OF
CONSOLIDATIONCASH AND CASH EQUIVALENTS AT END OFYEAR (Note 1 (s))

- 8 -

2012

2013

¥(8,833)¥(2,067)$(83,829)

29(5,387)5,206(50,799)
40,233(19,551)

4
(934)
3,616
(4,495)674(3,202)

272(51,125)
49,408(482,099)
381,827(185,546)

4,150
10,330(1,719)(1,333)(29)(25)
11,374(1,154)－(3,513)(1,221)－(10)(5,898)39,382
98,036(16,313)(12,651)
(275)
(235)
107,944

9,596

2,251

91,074(11,483)

16,047(108,972)

33,367

17,320316,663

(98)

－

(933)

¥21,786¥33,367$206,758

MODEC, Inc. and Consolidated Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Significant Accounting and Reporting Policies(a) Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of MODEC, Inc. (“the Company”) havebeen prepared in accordance with the provisions set forth in the Japanese Financial Instruments
and Exchange Act 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 ReportingStandards.
The accounts of the Company’s overseas subsidiaries are based on their accounting records
maintained in conformity with generally accepted accounting principles prevailing in therespective countries of domicile. The accompanying consolidated financial statements havebeen restructured and translated into English with some expanded descriptions from theconsolidated financial statements of the Company prepared in accordance with Japanese GAAP
and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by
the Financial Instruments and Exchange Act. Some supplementary information reported in thestatutory Japanese language consolidated financial statements, but not required for fairpresentation, is not presented in the accompanying consolidated financial statements.
The translations of the Japanese yen amounts into U.S. dollars are reported solely for theconvenience of readers outside Japan, using the prevailing exchange rate at December 31, 2013,
which was ¥105.37 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 and Equity Method
The accompanying consolidated financial statements include the accounts of the Company and
22 of its subsidiaries for the year ended December 31, 2013 and 23 of its subsidiaries for theyear ended December 31, 2012. Material inter-company balances, transactions and profits havebeen eliminated in consolidation.
Investments in significant unconsolidated subsidiaries and affiliates, which were 18 companies
for the year ended December 31, 2013 and 16 companies for the year ended December 31, 2012were accounted for by using the equity method.
Another 4 subsidiaries for the year ended December 31, 2013 and 3 subsidiaries for the year
ended December 31, 2012 were not consolidated or not applied equity method as they would
not have a material effect on the accompanying consolidated financial statements.
The consolidated financial statements are required to include the accounts of the Company andsignificant companies that are controlled by the Company through substantial ownership ofmore than 50% of the voting rights or through ownership of a high percentage of the voting
rights, even if it is equal to or less than 50%, and existence of certain conditions evidencing
control by the Company of decision-making bodies of such companies.
Investments in significant unconsolidated subsidiaries and affiliates, of which the Company has
ownership of 20% or more but less than or equal to 50%, and of 15% or more and less than 20%
and can exercise significant influences over operating financial policies of investees, have beenaccounted for by the equity method.

- 9 -All consolidated subsidiaries have the same balance sheet date, December 31, corresponding
with that of the Company.
(c) Valuation of Assets and Liabilities of Subsidiaries
In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries,
including the portion attributable to minority shareholders, were evaluated by using the fairvalue at the time the Company acquired the control of the respective subsidiaries.
(d) Goodwill
The excess of cost over the underlying investments in consolidated subsidiaries is recognized as
goodwill and is amortized using the straight-line method over their estimated useful lives.
The excess of cost over the underlying investments in affiliates accounted for under the equity
method is treated in the same manner.
(e) Securities
In accordance with the Japanese accounting standard for financial instruments, all companies
are required to examine the intent of holding each security and classify those securities as (a)securities held for trading purposes (“trading securities”), (b) debt securities intended to be held
to maturity (“held-to-maturity debt securities”), (c) equity securities issued by unconsolidated
subsidiaries and affiliated companies, and (d) all other securities that are not classified in any of
the above categories (“available-for-sale securities”).
Based on the examination of the intent of holding, the Company classifies its securities as
equity securities issued by unconsolidated subsidiaries and affiliated companies andavailable-for-sale securities. Available-for-sale securities maturing within one year from thebalance sheet date are recorded in current assets. Other securities are recorded in investment
securities. The Company does not have trading securities or held-to-maturity debt securities.
Equity securities issued by unconsolidated subsidiaries and affiliated companies that are notaccounted for by equity method are stated at moving-average cost. Available-for-sale securities
with available fair market values are stated at fair market value as of balance sheet dates.
Unrealized gains and losses on these securities are reported, net of applicable income taxes, as aseparate component of shareholders’ equity. Realized gains and losses on sale of such securities
are computed using moving-average cost. Available-for-sale securities without available fairmarket values are stated at moving-average cost.
(f) Inventories
Both raw materials and costs of uncompleted contracts are stated at cost, determined on an
individual project basis (Balance sheet value reflects downturn in profitability).
(g) Property and Equipment
Property and equipment are stated at cost. Depreciation of Floating Production Storage &Offloading Systems (“FPSOs”) and Floating Storage & Offloading Systems (“FSOs”), ownedby the consolidated overseas subsidiaries are calculated using the straight-line method based on
their lease term or their economic useful lives.
Depreciation of property and equipment other than FPSOs and FSOs are calculated as follows.
The Company depreciates property and equipment using the declining-balance method basedon their useful lives and residual values prescribed by the Japanese corporation tax laws andregulations, except for buildings acquired after March 31, 1998, which are depreciated using
the straight-line method. Consolidated overseas subsidiaries depreciate property andequipment using the straight-line method based on their estimated useful lives.

- 10 -

(h) Intangible Assets
The Company amortizes software costs used internally using the straight-line method over theestimated useful lives mainly of 5 years, and amortizes intangible assets using the straight-line
method based on the useful lives and residual values prescribed by the Japanese corporation tax
laws and regulations.
Intangible assets of consolidated subsidiaries located in the U.S.A., are accounted for inaccordance with U.S. GAAP.
(i) Finance Lease Transaction without Transfer of Ownership
Lessee:The method of amortization of the lease assets related to finance lease transactions withouttransfer of ownership is by the straight-line method corresponding to lease period with zero
residual value.
(j) Allowance for Bad Debts
The Company provides for a sufficient allowance for bad debts to cover probable losses oncollection by estimating uncollectable amounts individually in addition to amounts for possible
losses based on actual losses on collection in the past.
(k) Accrued Employees’ Bonuses
The Company accrues employees’ bonuses based on the estimated amounts to be paid in thesubsequent period.
(l) Accrued Directors’ Bonuses
The Company accrues directors’ bonuses based on the estimated amounts to be paid in thesubsequent period.
(m) Provision for Product Warranty
Provision for product warranty is provided based on the estimated amounts for covering theprobable product warranties.
(n) Severance and Retirement Benefits for Employees
The Company and some overseas consolidated subsidiaries have unfunded lump-sum
severance and retirement payment plans for employees. Under these plans, employees whose
employment is terminated or who retire are entitled to benefits which are, in general,
determined on the basis of length of service and basic salary at the time of termination orretirement. If the termination is involuntary, the employees are generally entitled to larger
benefits than in the case of voluntary termination or retirement.
In accordance with the Japanese accounting standard for employees’ severance and pension
benefits, a “simpler method” can be adopted to calculate severance and retirement benefits for
employees if the number of employees is less than 300. Therefore the Company adopts the“simpler method”, and records severance and retirement benefits for employees at the amounts
payable if all employees voluntarily terminated their employment at the balance sheet date.
The Company and some overseas consolidated subsidiaries also adopt defined contribution
pension plans.

- 11 -

(o) Translation of Foreign Currency Accounts
Foreign currency transactions are translated into Japanese yen using the exchange rate in effectat the time of each transaction or at the applicable exchange rates under forward exchange
contracts.
Assets and liabilities denominated in foreign currencies are translated into Japanese yen at
appropriate year-end current exchange rates, and the resulting gains or losses are recorded inother income (expenses) in the statements 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 as a component of net assets in the balance sheets.
(p) Derivative Transactions and Hedge Accounting
Derivative financial instruments of the Company are stated at fair value and gains or losses arerecognized for changes in the fair value unless derivative financial instruments are used forhedging purposes.
If derivative financial instruments are used as hedges and meet certain hedging criteria, theCompany defers 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 exchange contracts are used as hedges and meetcertain hedging criteria, forward foreign exchange contracts and hedged items are accounted forin the following manner.
1) If a forward foreign exchange contract is executed to hedge existing foreign currency
receivables or payables,a) 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, andb) the discount or premium on the contract (that is, the difference between the Japanese
yen amount of the contract translated using the contracted forward rate and thattranslated using the spot rate at the inception date of the contract) is recognized over theterm of the contract.
2) If a forward foreign exchange contract is executed to hedge a future transaction
denominated in a foreign currency, the future transaction will be recorded using thecontracted forward rate, and no gains or losses on the forward foreign exchange contract arerecognized.
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 fromthe interest on the assets or liabilities for which the swap contract was executed.
Some consolidated overseas subsidiaries adopt hedge accounting in accordance with
U.S.GAAP.
(q) Revenue Recognition
The Company applied the percentage of completion method to the construction contracts incase that the outcome of construction contracts can be reliably estimated. The percentage ofcompletion is calculated by percentage of cost method or units of work performed method
which is based on physical progress measure. The other construction contracts are recognized- 12 -

by the completed contract method. Consolidated subsidiary located in the U.S.A. recognizedrevenues on all contracts by the percentage of completion method.
(r) Income Taxes
The Company provides income taxes at the amounts currently payable based on taxable income
for tax purposes that may be different from income for the accounting purposes. The Company
recognizes tax effects of temporary differences between the carrying amounts of assets andliabilities for tax and financial reporting purposes. The asset and liability approach is used torecognize 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.
(s) Cash Flow Statements
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 timeof purchase are considered to be cash and cash equivalents.
Reconciliations of cash and time deposits shown in the consolidated balance sheets and cash
and cash equivalents in the consolidated statements of cash flows as of December 31, 2013 and2012 are as follows:
Thousands of
U.S. dollars(Note 1 (a))

Millions ofJapanese yen
2013

2012

2013

Cash and time deposits
Less : Time deposits with maturities exceeding threemonths¥21,786¥33,367$206,758－－－

Cash and cash equivalents¥21,786¥33,367$206,758

Changes of Accounting Policies:(t) Change in Accounting Estimates in Depreciation
In response to Japan’s recent corporate tax law amendments and effective from the year ended
December 31, 2012, the method which the Company uses for depreciation of property andequipment acquired on or after April 1, 2012 has been adjusted to reflect the revised corporate
tax code. This adoption had no material effect on the consolidated financial statements.
Changes in Presentation:(u) Reclassifications
The Company made certain reclassifications to the previously reported fiscal year 2012amounts to conform to fiscal year 2013 presentation. These reclassifications had no effect onpreviously reported net income or net assets.
Additional Information:
Effective from the year ended December 31, 2012, the Company and its subsidiaries haveadopted the new accounting standard, “Accounting Standard for Accounting Changes and Error
Corrections” (Statement No.24 issued by the Accounting Standards Board of Japan on
December 4, 2009) and “Guidance on Accounting Standard for Accounting Changes and Error
Corrections (Guidance No.24 issued by the Accounting Standards Board of Japan on December
4, 2009)- 13 -

2. Inventories
Inventories as of December 31, 2013 and 2012 consisted of the following:Thousands of
U.S. dollars(Note 1 (a))

Millions ofJapanese yen
2013¥1,3082,359¥3,667

Raw materials
Costs of uncompleted contracts

2012¥3,771
2,830¥6,601

2013$12,411
22,389$34,800

3. Marketable Securities and Investment Securities
The following tables summarize acquisition costs, book values (fair values) of securities withavailable fair values as of December 31, 2013 and 20122013:
Available-for-sale securities:
Securities with book values exceedingacquisition costs:
Equity securities
Securities with book values not exceedingacquisition costs:
Equity securities

Acquisition cost

Total

2012:
Available-for-sale securities:
Securities with book values exceedingacquisition costs:
Equity securities
Securities with book values not exceedingacquisition costs:
Equity securities

Difference

¥65

¥73

¥8

50
¥115

42
¥115

(8)
¥(0)

Millions of Japanese yen
Acquisition cost
Book value

Total

2013:
Available-for-sale securities:
Securities with book values exceedingacquisition costs:
Equity securities
Securities with book values not exceedingacquisition costs:
Equity securities
Total

Millions of Japanese yen
Book value

Difference

－

－

－

¥115
¥115

¥92
¥92

¥(23)
¥(23)

Thousands of U.S. dollars (Note 1 (a))
Acquisition cost
Book value
Difference

$615

$695

$80

474
$1,089394$1,089(80)$(0)

4. Goodwill
Goodwill recorded in intangible assets as of December 31, 2013 and 2012 were ¥ 3,679 million($ 34,920 thousand) and ¥ 3,310 million, respectively.

- 14 -

5. Loans Payable
Short-term loans payable represent notes payable to banks due generally in twelve months andbearing an average interest rate of 0.9% and 0.8% as of December 31, 2013 and 2012, respectively.
Long-term loans payable as of December 31, 2013 and 2012 are summarized below:
Thousands of
U.S. dollars(Note 1 (a))

Millions ofJapanese yen
2013
Loans from banks and others due through 2023
Less: Current portion included in current liabilities,
at average rate of 1.1%
Loans from banks and others,
at average rate of 2.0% due through 2023
(Excluding current portion)

2012

2013

¥17,021¥5,869$161,539(1,405)(2,276)(13,338)¥15,616¥3,593$148,201

The aggregate annual maturities of long-term loans payable are summarized below:
Millions of Japanese yen¥1,405
1,323
4,313
2,122
5,708
2,150
¥17,021

Year ending December 31,
2014
2015
2016
2017
2018
2019 and thereafterThousands of U.S. dollars(Note 1 (a))$13,338
12,55740,92920,141
54,174
20,400$161,539

6. Asset Retirement Obligation
The Company and its subsidiaries recognized the asset retirement obligation following the officerental contract. The note is not required to disclose due to total amount of this liability is immaterial.
The Company and its subsidiaries estimated the unrecoverable security deposit amount as the asset
retirement obligation. This loss is recognized as the expense instead of the liability.
7. Unexecuted Balance of Overdraft Facilities and Lending Commitment
The Company has a commitment line agreement with a syndicate of six financial institutions, an
overdraft facility agreement with one financial institution and a notes payable agreement
denominated in U.S. dollars with five financial institutions for the purpose of efficient providing
operating funds. The commitment line amount is $110,000 thousand as of December 31, 2013 and2012 without any drawdown. The overdraft facility line amount is ¥3,150 million ($29,895
thousand) without any drawdown as of December 31, 2013 and with the unexecuted balance of¥3,000 million as of December 31, 2012. The unexecuted balance of notes payable denominated in
U.S. dollars is $ 149,000 thousand as of December 31, 2013 and $ 136,000 thousand as ofDecember 31, 2012.
8. Shareholders’ Equity
Under Japanese laws and regulations, the entire amount paid for new shares is required to be
designated as common stock. However, a company may, by a resolution of the Board of Directors,
designate an amount not exceeding one-half of the prices of the new shares as additional paid-in
capital, which is recorded in capital surplus.
Under The Japanese Corporate Law (“the Law”), in cases where a dividend distribution of surplus ismade, the smaller of an amount equal to 10% of the dividend or the excess, if any, of 25% ofcommon stock over the total of additional paid-in-capital and legal earnings reserve must be set- 15 -

aside as additional paid-in-capital or legal earnings reserve. Legal earnings reserve is included inretained earnings in the accompanying consolidated balance sheets.
Under the Law, all additional paid-in-capital and all legal earnings reserve may be transferred toother capital surplus and retained earnings, respectively, which are potentially available fordividends.
The maximum amount that the Company can distribute as dividends is calculated based on theunconsolidated financial statements of the Company in accordance with the Law.
At the annual shareholders’ meeting held on March 28, 2013, the shareholders approved cash
dividends amounting to ¥638 million for the year ended December 31, 2012.
At the annual shareholders’ meeting held on March 28, 2014, the shareholders approved cash
dividends amounting to ¥697 million ($6,606 thousand). Such appropriations have not been
accrued in the consolidated financial statements as of December 31, 2013. Such appropriations arerecognized in the period in which they are approved by the shareholders.
9. Per Share Data
Net income per share is calculated based on the weighted average number of shares of common
stock outstanding during the fiscal year.
Diluted net income per share reflects the effect of potential dilution that could occur if securities orother contracts to issue common stock were exercised or converted into common stock. There is no
outstanding potential common stock for the years ended December 31, 2013 and 2012.
Cash dividends per share shown for each fiscal year in the accompanying consolidated statements
of income represent dividends declared as applicable to the respective years.
10. Severance and Retirement Benefits for Employees
The severance and retirement benefits for employees recorded in the liability section of theconsolidated balance sheets as of December 31, 2013 and 2012 consisted of the following:Thousands of
U.S. dollars(Note 1 (a))

Millions of Japanese yen
2012

2013
Projected benefit obligation
Severance and retirement benefits for employees

2013

¥176

¥167

$1,670¥176¥167$1,670

Severance and retirement benefit expenses recorded in the consolidated statements of income forthe years ended December 31, 2013 and 2012 consisted of the following:Thousands of
U.S. dollars(Note 1 (a))

Millions of Japanese yen
2012

2013
Service costs – benefits earned during the year
OthersSeverance and retirement benefit expenses

2013

¥24
41

¥24
33

$231
386

¥65

¥57

$617

11. Research and Development Expenses
Research and development expenses recorded in selling, general and administration expenses are¥709 million ($6,727 thousand) and ¥596 million for the years ended December 31, 2013 and 2012
respectively.

- 16 -

12. Impairment Losses on Property and Equipment
Impairment losses on property and equipment for the year ended December 31, 2013 consisted of
the following:(a) Overview of the impairment losses on property and equipment
Location

Use

Type of assets

Japan(Saga prefecture)

Floating wind & Current
Hybrid Power Generation

Construction in progress(Machinery and Equipment)

Millions ofJapaneseyen

Thousands of
U.S. dollars(Note 1 (a))¥2,311$21,933(b) Grouping unit
The business assets have been grouped by each company. FPSOs, FSOs, and Floating wind &Current Hybrid Power Generation have been grouped by each cash-generating unit.
(c) The recognition and the amount of the impairment losses
Floating wind & Current Hybrid Power Generation is under construction. The Company
conservatively assessed the future cash flow of the asset and realized it is below the book value
because forecast of purchase price of electricity is unpredictable.
As a result, the Company reduced the carrying amount of the asset to the recoverable amountand recognized the impairment loss ¥2,311 million ($21,933 thousand).
(d) The measurement of the impairment losses
The Company measured the recoverable amount based on a value in use and calculated it bydiscounting future cash flow at an interest rate of 2.0%.
13. Income Taxes
The normal statutory income tax rate in Japan arising out of the aggregation of corporate, enterpriseand inhabitants taxes are 38% for the years ended December 31, 2013 and 41% for the years ended
December 31, 2012.
1) The following table summarizes the significant differences between the statutory tax rate and theCompany and its consolidated subsidiaries’ effective tax rate for financial statement purposes forthe years ended December 31, 2013 and 2012.
2013

2012

Statutory income tax rates
Difference of statutory tax rate between the Company and overseas subsidiaries
Equity in earnings of affiliates and unconsolidated subsidiaries
Valuation Allowance
Income of foreign subsidiaries taxed at lower than Japanese normal rate
Income taxes for prior periods
Others38.0%(3.9)(18.3)
29.7
1.2
(0.5)
(4.0)

41.0%
(1.8)
(10.5)
5.0
1.2
0.6
1.5

Effective tax rates

42.2%

37.0%

- 17 -

2) Significant components of deferred tax assets and liabilities as of December 31, 2013 and 2012
are as follows:
Thousands of
U.S. dollars(Note 1 (a))
2013

Millions ofJapanese yen
2013
Deferred tax assets:
Current assets:
Enterprise tax payable
Accrued employees’ bonuses
Provision for product warranty
Provision for loss on construction contracts
Allowance for bad debts
Other Provisions
Others
Sub total
Valuation Allowance
Offset to deferred tax liabilities (short-term)
Total
Fixed assets:
Unrealized inter-company profit on fixed assets
Tax loss carry forward
Long-term foreign exchange losses
Severance and retirement benefits for employees
Depreciation
Long-term foreign tax credit
Temporary difference for investment in subsidiaries
Allowance for bad debts
Impairment loss
Others
Sub total
Valuation allowance
Offset to deferred tax liabilities (long-term)
Total
Total deferred tax assets- 18 -

2012

¥41
10
611
－
177
2,353
804
3,996
(4)
(427)

¥179
3
470
73
155
1,233
1,354
3,467
(661)
(198)

$394
91
5,800
－
1,679
22,333
7,627
37,924(43)(4,051)

3,565

2,608

33,830

3,132
3,527
－
63
128
1,045
978
574
832
860

3,475
2,378
282
60
406
389
978
－
－
402

29,72033,471
－
601
1,210
9,921
9,284
5,447
7,896
8,162

11,139(4,781)(2,836)
3,522¥7,0878,370(2,370)(1,604)
4,396¥7,004

105,712(45,373)(26,916)
33,423$67,253

Thousands of
U.S. dollars(Note 1 (a))
2013

Millions ofJapanese yen
2013

2012

Deferred tax liabilities:
Current liabilities:
Temporary difference of foreign exchange gain inoverseas subsidiaries
Others
Sub total
Offset to deferred tax assets (short-term)
TotalLong-term liabilities:
Depreciation
Long-term foreign exchange gain
Difference on percentage-of-completion method
Undistributed earnings of overseas subsidiaries
Others
Sub total
Offset to deferred tax assets (long-term)
Total
Total deferred tax liabilities¥(103)
(336)
(439)
427
(12)

¥(79)
(155)
(234)
198
(36)

$(972)(3,189)(4,161)
4,051
(110)

(1,033)(1,634)
(603)
(32)
(17)
(3,319)
2,836
(483)
(495)

(829)
－
(510)
(396)
(74)
(1,809)
1,604
(205)
(241)

(9,804)(15,509)(5,719)(300)(168)(31,500)
26,916(4,584)(4,694)

Net deferred tax assets¥6,592¥6,763$62,5593) The revision of the corporate income tax rate after December 31, 2013
The “Act for Partial Revision of Income Tax Act, etc.” (Act No.10 of 2014) was promulgated on
March 31, 2014 and the income tax rate is to be changed accordingly with the effect on businessterms beginning on January 1, 2015 onward.
In accordance with the revision, statutory effective tax rates used to calculate the amounts ofdeferred tax assets and liabilities have been applied as follows depending on the timing ofreversal for each temporary item. This revision had no material effect on the consolidated
financial statements.
Tax rate

Timing of reversal Tax rate
January 1, 2014 through December 31, 2014

38.0%

January 1, 2015 onward

36.0%

14. Contingent Liabilities and Commitments
As of December 31, 2013 and 2012, the Company was contingently liable for the following:Thousands of
U.S. dollars(Note 1 (a))

Millions ofJapanese yen
2013
Guarantees of bank loans and other indebtedness forunconsolidated subsidiaries and affiliates¥58,4442012¥50,9062013$554,657

For the years ended December 31, 2013 and 2012, the fair market values of swap contracts areincluded in the consolidated financial statements due to the adoption of “Practical Solution on
Unification of Accounting Policies Applied to Associates Accounted for Using the Equity Method”(PITF No.24 issued by the Accounting Standards Board of Japan on March 10, 2008).

- 19 -

15. Comprehensive Income
Each component of other comprehensive income for the years ended of December 31, 2013 and2012 was the followings:
Thousands ofMillions of

U.S. dollars

Japanese yen(Note 1 (a))

2013

2012

2013

Net unrealized holding gains / (losses) on securities:
Amount of generation at this fiscal term

¥23

¥(3)

$217

Amount of rearrangement adjustment

－

－

－

Before adjusting the tax effect

23

(3)

217

Tax effect

(8)

0

(78)

Net unrealized holding gains / (losses) on securities

15

(3)

139

Unrealized gains / (losses) on hedging derivatives, net of tax
Amount of generation at this fiscal term

169

489

1,604

Amount of rearrangement adjustment

(171)

(273)

(1,624)

Before adjusting the tax effect

(2)

216

(20)

Tax effect

3

－

31

Unrealized gains on hedging derivatives, net of tax

1

216

11

Amount of generation at this fiscal term

5,844

2,581

55,464

Amount of rearrangement adjustment

101

－

959

Before adjusting the tax effect

5,945

2,581

56,423

(0)

234

(5)

5,945

2,815

56,418Amount of generation at this fiscal term

(137)

(137)

(1,302)

Amount of rearrangement adjustment

15

－

145

Before adjusting the tax effect

(122)

(137)

(1,157)

85

－

807

(37)

(137)

(350)

Amount of generation at this fiscal term

7,531

1,046

71,476

Amount of rearrangement adjustment

1,238

(419)

11,7498,769

627

83,225¥14,693¥3,518$139,443

Foreign currency translation adjustments

Tax effectForeign currency translation adjustments
Retirement liability adjustments for foreign consolidated
subsidiaries

Tax effect
Retirement liability adjustments for foreign consolidated
subsidiaries
Share of other comprehensive income / (loss) of associates
accounted for using equity method

Share of other comprehensive income of associates
accounted for using equity method
Total- 20 -

16. Leases
Lessor:Future lease receivables related to the non-cancellable operating leases are as follows:
Thousands of
U.S. dollars(Note 1 (a))

Millions ofJapanese yen
2013

2012

2013

Due within one year

¥1,339¥1,099$12,702

Due after one year

3,795

4,218

36,018¥5,134¥5,317$48,720Total

17. Financial Instruments(a) Concerning status of financial instrumentsi) Policies for financial instruments
The Company and its consolidated subsidiaries adopt only short-term financial instruments for
operating funds.
The Company and its consolidated subsidiaries have the policy of procuring bank-loans to raise
funds.
As to derivative financial instruments, the Company and its consolidated subsidiaries utilize
them not for speculation but for hedging purpose only.
ii) Substances and risks of financial instruments and managing of financial instruments
Accounts receivable - trade are exposed to credit risks of customers. The Company and its
subsidiaries research the credit standings and select credit worthy customers, and manage thebalance of accounts receivable - trade at regular intervals to reduce credit risks.
Short-term and long-term loans receivable that are granted to cater the affiliated companies
mainly established to accomplish charter projects are exposed to credit risks of their customers.
The Company reduces the share of risks by arranging project finance or by the cooperation withgeneral trading companies and other business partners.
Majority of accounts receivable - trade and loans receivable are denominated in foreign
currencies and net of these balances with accounts payable - trade and loans payable areexposed to currency fluctuation risks. These risks are basically hedged by using forward foreignexchange contracts.
Investment securities are exposed to market fluctuation risks. The Company and its subsidiaries
have the business relationships with the issuers of most of investment securities andperiodically research the fair market value and financial position of the issuers.
Majority of accounts payable - trade are due within one year. Accounts payable - tradedenominated in foreign currencies arising from overseas procurement of materials are exposed
to currency fluctuation risks, but these accounts payable - trade are controlled not to exceed
accounts receivable - trade in the same foreign currencies.
Short-term and long-term loans payable are mainly raising funds for the affiliated companies.
Majority of loans payable are exposed to currency fluctuation risks, but these loans payable are
not exceed loans receivable in the same foreign currencies. In addition, the Company arranges
the interest rate swap transaction for some of long-term loans payable by each contract to fix theinterest expense and to reduce the interest rate fluctuation risks.

- 21 -

Derivative transactions are consisted of mainly forward foreign exchange contracts arranged
for the purpose of hedging currency fluctuation risks arising from foreign currency accounts
receivable - trade and accounts payable - trade, and interest rate swap transaction for the
purpose of interest rate fluctuation risks arising from loans payable.
Accounts payable – trade and loans payable are exposed to the liquidity risks. To manage theliquidity risks, our finance sections appropriately prepare and update the cash management
plan.
iii) Supplementary explanation about fair value of financial instruments
The fair value is based on their fair market value quoted market price, if available, or reasonably
estimated value if market price is not available. Since various assumptions and factors arereflected in estimating the fair value, different assumptions and factors could result in different
fair value. In addition, the notional amount is not indicative of the actual market risk involved inderivative transactions.
As to the contract amount of derivatives transactions, please see the following “(b) Articles
concerning fair value of financial instruments”.
(b) Concerning fair value of financial instruments
Consolidated balance sheets amounts and fair market value of financial instruments, thedifference between for the years ended December 31, 2013 and 2012 are as follows. Financial
instruments in which the fair value is considered to be extremely difficult to recognize are notincluded in the list below.
2013:
Book Value¥21,786
84,695
115(1) Cash and time deposits(2) Accounts receivable – trade(3) Investment securities(4) Long-term loans receivable fromunconsolidated subsidiaries and affiliatedcompanies(5) Bankrupt and Substantially Bankrupt
ClaimsAllowance for bad debts (*1)
Assets total(6) Accounts payable – trade(7) Short-term loans payable(8) Current portion of long-term loans payable(9) Long-term loans payable
Liabilities total(10) Derivative transactions (*2)i) Derivative transactions for which hedge
accounting has not been appliedii) Derivative transactions for which hedge
accounting has been applied
Derivative transactions total

Millions of Japanese yen
Fair Value¥21,786
84,695115

Difference－－－

38,77139,359¥588

1,594(1,594)－¥145,367－¥145,955－¥588¥87,782
9,483
1,405
15,616¥114,286¥87,782
9,483
1,405
15,616¥114,286

－
－
－
－
－

－

－

－

¥(519)¥(519)¥(519)¥(519)－－*1: Bankrupt and Substantially Bankrupt Claims are presented net of allowance for bad debts.
*2: Derivative transactions are presented net of receivables and payables, and figures within parenthesis indicate
payables.

- 22 -

2012:(1) Cash and time deposits(2) Accounts receivable – trade(3) Short-term loans receivable(4) Investment securities(5) Long-term loans receivable fromunconsolidated subsidiaries and affiliatedcompanies
Assets total(6) Accounts payable – trade(7) Short-term loans payable(8) Current portion of long-term loans payable(9) Long-term loans payable
Liabilities total(10) Derivative transactions *i) Derivative transactions for which hedge
accounting has not been appliedii) Derivative transactions for which hedge
accounting has been applied
Derivative transactions total

Book Value¥33,367
50,105
3,740
92Millions of Japanese yen
Fair Value¥33,367
50,1053,740
92

Difference－－－－

14,051¥101,355

15,494¥102,798¥1,443¥1,443¥56,918
1,125
2,276
3,593
¥63,912¥56,918
1,125
2,276
3,593
¥63,912

－
－
－
－
－

－

－

－

¥(590)¥(590)¥(590)¥(590)－－*: Derivative transactions are presented net of receivables and payables, and figures within parenthesis indicate
payables.
Thousands of U.S. dollars (Note 1 (a))
Book Value
Fair Value
Difference－$206,758$206,758－
803,790803,790
－
1,089
1,089

2013:
(1) Cash and time deposits(2) Accounts receivable – trade(3) Investment securities(4) Long-term loans receivable fromunconsolidated subsidiaries and affiliatedcompanies(5) Bankrupt and Substantially Bankrupt
ClaimsAllowance for bad debts (*1)
Assets total(6) Accounts payable – trade(7) Short-term loans payable(8) Current portion of long-term loans payable(9) Long-term loans payable
Liabilities total(10) Derivative transactions (*2)i) Derivative transactions for which hedge
accounting has not been appliedii) Derivative transactions for which hedge
accounting has been applied
Derivative transactions total

367,954

373,531$5,577

15,130(15,130)－$1,379,591－$1,385,168－$5,577$833,084
90,00013,338148,201$1,084,623$833,084
90,00013,338148,201$1,084,623

－
－
－
－
－

－

－

－

$(4,923)$(4,923)$(4,923)$(4,923)－－*1: Bankrupt and Substantially Bankrupt Claims are presented net of allowance for bad debts.
*2: Derivative transactions are presented net of receivables and payables, and figures within parenthesis indicate
payables.

- 23 -

(note 1) Articles concerning calculation method of fair value, marketable securities andderivative transaction
Assets(1) Cash and time deposits and (2) Accounts receivable – trade
Fair value of these accounts is stated at the balance sheet amounts because they are
considered to be close to the balance sheet amounts and these accounts are settled in
short-term.
(3) Investment securities
Fair value of these accounts is based on available market price. Securities held by intent
are described in the corresponding pages. (Please see Note 3. Marketable Securities andInvestment Securities.)(4) Long-term loans receivable from unconsolidated subsidiaries and affiliated companies
Fair value of these accounts is stated at the present value calculated from the future cash
flows discounted by the premium-added rate on the proper index like yield on thegovernment bonds.
(5) Bankrupt and Substantially Bankrupt Claims
Fair value of these accounts is stated at the balance sheet amounts because the estimatedamounts of bad debts are calculated based on the collectible amounts and fair value of theamounts are considered to be close to the balance sheet amounts.
Liabilities(6) Accounts payable – trade, (7) Short-term loans payable and (8) Current portion of
long-term loans payable
Fair value of these accounts is stated at the balance sheet amounts because they are
considered to be close to the balance sheet amounts and these accounts are settled in
short-term.
(9) Long-term loans payable
Fair market value of long-term loans payable with floating interest rate is stated at thebalance sheet date. Considering that floating interest rate reflects latest market conditions
and credit of the Company considered being almost same as before, fair market value of
long-term loans payable is close to the balance sheet amounts.
The exceptional treatment for interest rate swap transaction is applied to some oflong-term loans payable. These principals and interests are discounted by the practicallyestimated interest rates which are applied to when the Company arrange the same loans
payable from the outside.
Derivative Transactions
Please see Note 18. Derivative Transactions of the Company and its Consolidated
Subsidiaries.
(note 2) Financial instruments for which the fair value is considered to be extremely difficult
to recognize are as follows:

Unlisted equity securities

Millions of Japanese yen
2012
2013
¥26,429- 24 -¥13,594

Thousands of U.S. dollars(Note 1 (a))
2013
$250,818

As to these financial instruments, there is no available fair market value. So these financial
instruments are not included in (3) Investment securities because it is considered to be
extremely difficult to recognize fair market value.
(note 3) The expected redemption amount of monetary credit and securities with maturity
after December 31, 2013 and 2012 are as follows:
2013:
Within one year
Cash and time
deposits
Accounts receivable– tradeLong-term loans
receivable fromunconsolidated
subsidiaries andaffiliated companies

－

－

－

84,695－－－－26,537

3,555

8,679

Within one year

Millions of Japanese yen
Over one year but
Over five years but
within five years
within ten years

Over ten years¥33,367－－－

50,105

－

－

－

3,740

－

－

－

－

8,561

5,490

－

2013:
Within one year
Cash and time
deposits
Accounts receivable– tradeLong-term loans
receivable fromunconsolidated
subsidiaries andaffiliated companies

Over ten years¥21,786

2012:

Cash and time
deposits
Accounts receivable– tradeShort-term loans
receivable
Long-term loans
receivable fromunconsolidated
subsidiaries andaffiliated companies

Millions of Japanese yen
Over one year but
Over five years but
within five years
within ten years

Thousands of U.S. dollars (Note 1 (a))
Over one year but
Over five years but
within five years
within ten years

Over ten years$206,758－－－

803,790

－

－

－

－

251,849

33,73582,370(note 4) The aggregate annual maturities of long-term loans payable are as follows:
Millions of Japanese yen¥1,323
4,313
2,122
5,708
2,150
¥15,616

2015
2016
2017
2018
2019 and thereafter
Total- 25 -

Thousands of U.S. dollars(Note 1 (a))$12,557
40,92920,141
54,174
20,400$148,20118. Derivative Transactions of the Company and its Consolidated Subsidiaries
The Company and its consolidated subsidiaries utilize forward foreign currency contracts in orderto hedge currency fluctuation risks arising from export of products in addition to hedging throughincreases in overseas production and overseas procurement of materials.
The Company and its consolidated subsidiaries also utilize interest rate swaps as derivativetransactions in order to hedge interest rate risks of bonds and loans payable.
As the derivative transactions are made solely with leading financial institutions, the Company andits consolidated subsidiaries do not expect any credit risks.
The Company follows its internal regulations for derivatives, which stipulates the policy, objective,
scope, organization, procedures, and financial institutions to deal with, and has a reporting systemfor derivative transactions reflecting proper internal control functions.
The following summarizes hedging derivative financial instruments used and items hedged:
Hedging instruments:
Foreign exchange forward contracts
Currency swap contracts
Interest rate swap contracts

Hedged items:
Foreign currency receivables and payables
including future transactions
Foreign currency receivables and payables
Foreign currency bonds and loans payable

The Company evaluates hedge effectiveness on a quarterly basis by comparing the cumulativechanges in cash flows from or the changes in fair value of hedged items with the corresponding
changes in the hedging derivative instruments.
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 theinterest on the assets or liabilities for which the swap contract was executed.
Some consolidated overseas subsidiaries adopt hedge accounting in accordance with U.S.GAAP.
The following tables summarize market value information as of December 31, 2013 and 2012 of
derivative transactions for which hedge accounting has been applied
2013:
Currency related derivatives
Type
Forward contract(Principle method)
To buy STG pounds
To buy EuroTo buy Norwegian krone

Hedged Items
Accounts payable – tradeand others

¥418
2,559
110

2012:
Currency related derivatives
Type
Forward contract(Principle method)
To buy STG pounds
To buy EuroTo buy Norwegian krone

Millions of Japanese yen
Contract AmountDue after one
year
Total
Market Value

Hedged Items
Accounts payable – tradeand others

¥25
(41)
1
¥(15)

Millions of Japanese yen
Contract AmountDue after one
year
Total
Market Value

¥11
340
815

- 26 -–¥1,188
–

–
¥ 44
–

¥0
10
35
¥45

2013:
Currency related derivatives
Type
Forward contract(Principle method)
To buy STG pounds
To buy EuroTo buy Norwegian krone

Hedged Items
Accounts payable – tradeand others$3,971
24,2891,040

2013:
Interest related derivatives
TypeInterest rate swap
(Principle method)
To receive float, pay fix

Hedged Items
Long-term loans payable

Hedged Items
Long-term loans payable

TypeInterest rate swap
(Principle method)
To receive float, pay fix

Hedged Items
Long-term loans payable¥3,716¥(503)¥3,738¥(635)

Thousands of U.S. dollars (Note 1 (a))
Contract AmountDue after one
Total
year
Market Value$43,185- 27 -

$233
(385)
6
$(146)

Millions of Japanese yen
Contract AmountDue after one
Total
year
Market Value¥4,3892013:
Interest related derivatives–$11,274–

Millions of Japanese yen
Contract AmountDue after one
Total
Market Value
year¥4,5502012:
Interest related derivatives
TypeInterest rate swap
(Principle method)
To receive float, pay fix

Thousands of U.S. dollars (Note 1 (a))
Contract AmountDue after one
year
Total
Market Value$35,270$(4,777)19. Segment Information(1) Overview of reportable segment
The Company and its subsidiaries construct FPSOs and FSOs and operate their related services
as single business and overview of reportable segment is omitted.
(2) Information by products and services
The Company and its subsidiaries construct FPSOs and FSOs and operate their related services
as single business and information by products and services is omitted.
(3) Information by geographical area(a) Sales
2013:
Millions of Japanese yen
BrazilGhana¥184,065

Oceania¥27,532¥20,337

Asia

Other

¥13,264

Total¥9,204¥254,402

2012:
Millions of Japanese yen
BrazilAngola¥129,035

Oceania¥19,960¥13,095

Asia

Other

¥13,506

Total¥11,295¥186,891

2013:
Thousands of U.S. dollars (Note 1 (a))
BrazilGhana$1,746,847

Oceania$261,287$193,003

Asia

Other

$125,884

Total$87,346$2,414,367(Note) Sales amount is based on the place of customer and classified by country or geographical area.

(b) Property and equipment
2013:
Millions of Japanese yen
Australia

Vietnam¥10,004

Other¥5,963

Total¥1,635¥17,602

2012:
Millions of Japanese yen
Australia

Vietnam¥6,059Other¥5,426

Total¥939¥12,4242013:
Thousands of U.S. dollars (Note 1 (a))
Australia

Vietnam$94,940

Other$56,592- 28 -

Total$15,519$167,051

(4) Information by major customer
2013:
Millions of Japanese yen
Customer

Sales

Related Segment

CERNAMBI NORTE MV26 B.V.

¥70,528(note 1)

CERNAMBI SUL MV24 B.V.

54,944(note 1)

2012:
Millions of Japanese yen
Customer

Sales

Related Segment

CERNAMBI SUL MV24 B.V.

¥45,282(note 1)

OSX 3 LEASING B.V.

40,640(note 1)GUARA MV23 B.V.

25,775(note 1)

BP EXPLORATION (ANGOLA) LTD.

19,960(note 1)

2013:
Thousands of U.S. dollars (Note 1 (a))
Customer

Sales

Related Segment

CERNAMBI NORTE MV26 B.V.

$669,332(note 1)

CERNAMBI SUL MV24 B.V.

521,435(note 1)

(note 1) The Company and its subsidiaries construct FPSOs and FSOs and operate their related services as single businessand related segment is omitted.

Information about losses on impairment of property and equipment for each Reportable Segment:
Not applicable.
Information about goodwill amortization amount and year-end balance for each Reportable Segment:
Not applicable.
Information about gains on negative goodwill for each Reportable Segment:
Not applicable.

- 29 -

20. Related Party Transactions
Significant related party transactions and corresponding balances between the Company andunconsolidated subsidiaries or affiliates for the year ended December 31, 2013 are as follows:
2013:
Related party
GAS OPPORTUNITY MV20 B.V.
TUPI PILOT MV22 B.V.
GUARA MV23 B.V.
GUARA MV23 B.V.
CERNAMBI SUL MV24 B.V.
CERNAMBI SUL MV24 B.V.
CERNAMBI SUL MV24 B.V.
T.E.N. GHANA MV25 B.V.
T.E.N. GHANA MV25 B.V.
T.E.N. GHANA MV25 B.V.
T.E.N. GHANA MV25 B.V.
CERNAMBI NORTE MV26 B.V.
CERNAMBI NORTE MV26 B.V.
CERNAMBI NORTE MV26 B.V.
CERNAMBI NORTE MV26 B.V.
CARIOCA MV27 B.V.
MODEC AND TOYO OFFSHOREPRODUCTION SYSTEMS PTE. LTD.

Transactions
Disbursement of loans for capital expenditure
Disbursement of loans for capital expenditure
Disbursement of loans for capital expenditure
Collection of loans for working capital
Construction of FPSO (Sales)
Disbursement of loans for capital expenditure
Guarantees of bank Loans
Construction of FPSO (Sales)
Disbursement of loans for capital expenditure
Collection of loans for working capital
Guarantees of bank Loans
Construction of FPSO (Sales)
Disbursement of loans for capital expenditure
Collection of loans for working capital
Guarantees of bank Loans
Construction of FPSO (Sales)
Construction of FPSO (Cost of sales)

Millions ofJapanese yen¥682
775
34,95739,762
7,779
7,895
20,911
18,370
882
1,479
2,634
10,07382
3,867
29,033
3,606

Thousands of
U.S. dollars(Note 1 (a))$6,472
7,356
331,758
377,357
73,82874,929198,450
174,3428,366
14,03525,00095,593782
36,698275,531
34,222

3,525

33,455

Millions ofJapanese yen

Thousands of
U.S. dollars(Note 1 (a))¥2,119$20,109

2,269

21,531

2,276

21,6003,288

31,2003,555

33,735

5,142
9,530

48,80090,44315,156
12,790143,839
121,385

2,887
7,414
3,606

27,40070,36534,222

431

4,094

2013:
Related party
ESPADARTE MV14 B.V.

PRA-1 MV15 B.V.

OPPORTUNITY MV18 B.V.

SONG DOC MV19 B.V.

GAS OPPORTUNITY MV20 B.V.

TUPI PILOT MV22 B.V.

CERNAMBI SUL MV24 B.V.
CERNAMBI SUL MV24 B.V.

T.E.N. GHANA MV25 B.V.
T.E.N. GHANA MV25 B.V.

CERNAMBI NORTE MV26 B.V.
CARIOCA MV27 B.V.
MODEC AND TOYO OFFSHOREPRODUCTION SYSTEMS PTE. LTD.

Consolidated balance sheets accounts
Long-term loans receivable fromunconsolidated subsidiaries and affiliatedcompanies
Long-term loans receivable fromunconsolidated subsidiaries and affiliatedcompanies
Long-term loans receivable fromunconsolidated subsidiaries and affiliatedcompanies
Long-term loans receivable fromunconsolidated subsidiaries and affiliatedcompanies
Long-term loans receivable fromunconsolidated subsidiaries and affiliatedcompanies
Long-term loans receivable fromunconsolidated subsidiaries and affiliatedcompanies
Accounts receivable - tradeLong-term loans receivable fromunconsolidated subsidiaries and affiliatedcompanies
Accounts receivable - tradeLong-term loans receivable fromunconsolidated subsidiaries and affiliatedcompanies
Accounts receivable - trade
Accounts receivable - trade
Accounts payable - trade- 30 -

Significant related party transactions and corresponding balances between the consolidated
subsidiaries and the parent company or major shareholders (corporation only) for the year ended
December 31, 2013 are as follows:
2013:
Related party
MITSUI & CO., LTD.
MITSUI & CO., LTD.

Transactions
Proceeds from long-term loans payable
Repayment of long-term loans payable

Millions ofJapanese yen
¥864
315

Thousands of
U.S. dollars(Note 1 (a))$8,2002,989

Consolidated balance sheets accounts
Current portion of long-term loans payable
Long-term loans payable

Millions ofJapanese yen
¥367
2,820

Thousands of
U.S. dollars(Note 1 (a))$3,48726,7582013:
Related party
MITSUI & CO., LTD.
MITSUI & CO., LTD.

Significant related party transactions and corresponding balances between the consolidated
subsidiaries and unconsolidated subsidiaries or affiliates for the year ended December 31, 2013 are
as follows:
2013:
Related party
CERNAMBI SUL MV24 B.V.
CERNAMBI NORTE MV26 B.V.
MODEC AND TOYO OFFSHOREPRODUCTION SYSTEMS PTE. LTD.

Transactions
Construction of FPSO (Sales)
Construction of FPSO (Sales)

Millions ofJapanese yen¥46,601
60,569Thousands of
U.S. dollars(Note 1 (a))$442,256
574,820

52,979502,787

Millions ofJapanese yen¥1,092
4,396

Thousands of
U.S. dollars(Note 1 (a))$10,364
41,7206,216

58,993

Construction of FPSO (Cost of sales)

2013:
Related party
CERNAMBI SUL MV24 B.V.
CERNAMBI NORTE MV26 B.V.
MODEC AND TOYO OFFSHOREPRODUCTION SYSTEMS PTE. LTD.

Consolidated balance sheets accounts
Accounts receivable - trade
Accounts receivable - trade
Accounts payable - tradeSignificant related party transactions and corresponding balances between the Company andunconsolidated subsidiaries or affiliates for the year ended December 31, 2012 are as follows:2012 :
Related party
ESPADARTE MV14 B.V.
PRA-1 MV15 B.V.
GUARA MV23 B.V.
GUARA MV23 B.V.
GUARA MV23 B.V.
GUARA MV23 B.V.
CERNAMBI SUL MV24 B.V.
CERNAMBI SUL MV24 B.V.
CERNAMBI SUL MV24 B.V.
CERNAMBI SUL MV24 B.V.
CERNAMBI NORTE MV26 B.V.
MODEC AND TOYO OFFSHOREPRODUCTION SYSTEMS PTE. LTD.

Transactions
Collection of loans for working capital
Collection of loans for working capital
Construction of FPSO (Sales)
Disbursement of loans for capital expenditure
Collection of loans for capital expenditure
Guarantees of bank Loans
Construction of FPSO (Sales)
Disbursement of loans for capital expenditure
Collection of loans for capital expenditure
Guarantees of bank Loans
Disbursement of loans for capital expenditure
Construction of FPSO (Cost of sales)- 31 -

Millions ofJapanese yen¥424
250
22,935
17,383
18,39233,923
9,223
10,462
10,29912,495
3,098
16,653

2012 :
Related party
ESPADARTE MV14 B.V.
PRA-1 MV15 B.V.
OPPORTUNITY MV18 B.V.
SONG DOC MV19 B.V.
GAS OPPORTUNITY MV20 B.V.
TUPI PILOT MV22 B.V.
GUARA MV23 B.V.
CERNAMBI SUL MV24 B.V.
CERNAMBI SUL MV24 B.V.
CERNAMBI NORTE MV26 B.V.
MODEC AND TOYO OFFSHOREPRODUCTION SYSTEMS PTE. LTD.

Consolidated balance sheets accounts
Long-term loans receivable from unconsolidated
subsidiaries and affiliated companies
Long-term loans receivable from unconsolidated
subsidiaries and affiliated companies
Long-term loans receivable from unconsolidated
subsidiaries and affiliated companies
Long-term loans receivable from unconsolidated
subsidiaries and affiliated companies
Long-term loans receivable from unconsolidated
subsidiaries and affiliated companies
Long-term loans receivable from unconsolidated
subsidiaries and affiliated companies
Accounts receivable - trade
Accounts receivable - tradeLong-term loans receivable from unconsolidated
subsidiaries and affiliated companies
Short-term loans receivable
Accounts payable - trade

Millions ofJapanese yen¥1,741
1,864
1,870
2,701
2,314
3,532
13,080
4,598
5,500
3,307
5,554

Significant related party balances between the consolidated subsidiaries and the parent company or
major shareholders (corporation only) for the year ended December 31, 2012 are as follows:2012:
Related party
MITSUI & CO., LTD.
MITSUI & CO., LTD.

Consolidated balance sheets accounts
Current portion of long-term loans payable
Long-term loans payable

Millions ofJapanese yen
¥758
1,409

Significant related party transactions and corresponding balances between the consolidated
subsidiaries and unconsolidated subsidiaries or affiliates for the year ended December 31, 2012 are
as follows:2012 :
Related party
CERNAMBI SUL MV24 B.V.

Transactions
Construction of FPSO (Sales)

Millions ofJapanese yen¥38,422

Consolidated balance sheets accounts
Accounts receivable - trade

Millions ofJapanese yen¥5,6202012 :
Related party
CERNAMBI SUL MV24 B.V.

- 32 -

21. Subsequent Events
Issuance of new shares through public offering and third-party allotment, and sales of shares
The Board of Directors of the Company at its meeting held on April 7, 2014, resolved to issue newshares through public offering and third-party allotment and sales of shares.
1. Issuance of new shares through public offering (open to all parties)(1)(2)

Type and number of shares offered
Issue price (offer price)(3)

Total amount of issue price(4)

Amount to be paid

(5)

Total amount to be paid

(6)

Amounts of capital and capital surplus
to be increased(7)

Payment date

3,096,000 shares of the common stock¥2,017 per share$19.14 per share¥6,245 million$59,264 thousand¥1,933.8 per share$18.35 per share¥5,987 million$56,819 thousand
Amount of capital to be¥2,994 million
increased$28,410 thousand
Amount of capital surplus to¥2,994 million
be increased$28,410 thousand
April 22, 2014

(Note 1 (a))(Note 1 (a))(Note 1 (a))(Note 1 (a))(Note 1 (a))(Note 1 (a))

2. Issuance of new shares through third-party allotment with Mitsui Engineering & Shipbuilding
Co., Ltd. and Mitsui & Co., Ltd. as allottees(1)(2)

Type and number of shares offered
Amount to be paid

(3)

Total amount to be paid

(4)

Amounts of capital and capital surplus
to be increased(5)

Allottees and number of shares allotted(6)

Payment date

6,439,800 shares of the common stock¥2,017 per share$19.14 per share¥12,989 million$123,271 thousand
Amount of capital to be¥6,495 million
increased$61,636 thousand
Amount of capital surplus to¥6,495 million
be increased$61,636 thousand
Mitsui Engineering &Shipbuilding Co., Ltd.
5,010,000 shares
Mitsui & Co., Ltd.
1,429,800 shares
April 22, 2014

(Note 1 (a))(Note 1 (a))(Note 1 (a))(Note 1 (a))

3. Sales of shares (sales through over-allotment)
(1)
(2)
(3)

Type and number of shares for sale
SellerSales price(4)

Total amount of sales price(5)464,200 shares of the common stock
SMBC Nikko Securities Inc.
¥2,017 per share$19.14 per share¥936 million$8,886 thousand
April 23, 2014

Delivery date

- 33 -(Note 1 (a))(Note 1 (a))

4. Issuance of new shares through third-party allotment with SMBC Nikko Securities Inc. asallottee(1)(2)

Type and number of shares offered
Amount to be paid

(3)

Total amount to be paid

(4)

Amounts of capital and capital surplus
to be increased

(5)
(6)

Subscription date
Payment date

464,200 shares of the common stock¥1,933.8 per share$18.35 per share¥898 million$8,519 thousand
Amount of capital to be¥449 million
increased$4,260 thousand
Amount of capital surplus to¥449 million
be increased$4,260 thousand
May 20, 2014
May 21, 2014

(Note 1 (a))(Note 1 (a))(Note 1 (a))(Note 1 (a))

5. Reason of the capital increase (use of funds to be raised)
All funds estimated to be raised through the public offering and third-party allotment are planned
to be used for investments in and loans to special purpose companies established for the FPSO
charter business.

- 34 -