MODEC, INC. and Subsidiaries

CONSOLIDATED BALANCE SHEET
June 30, 2005ASSETS

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:
VesselBuildings and equipment
Construction in progress

INTANGIBLE ASSETSOTHER ASSETS:
Investments securities
Long-term lease receivable
Other investments
Less- Allowance for bad debts

Total assets

Thousand ofJapanese yen

Thousand of
U.S. dollars¥ 10,529,955
12,063,379
498,961
10,821,157
3,871,234(30,738)
37,753,948$ 95,182
109,043
4,510
97,81434,992(278)
341,263

5,256,162
440,414
1,622,122
7,318,698

47,511
3,981
14,663
66,1555,350,549

48,364

5,309,620
5,840,172
4,244,704(6,400)15,388,096

47,994
52,79038,369(58)
139,095¥65,811,291$594,877

The accompanying notes are an integral part of this balance sheet.

LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT 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

Thousand ofJapanese yen

Thousand of
U.S. dollars¥ 6,447,654
16,335,962
2,784,668
899,561
375,253
4,078,427
30,921,525$ 58,281
147,663
25,1718,131
3,392
36,866
279,504

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

7,023,124

63,483112,639
92,618
1,426,226
77,441
8,732,048

1,018
837
12,892
700
78,930MINORITY INTERESTS IN CONSOLIDATEDSUBSIDIARIES

1,699,935

15,366

7,159,000
7,675,150
8,892,161
643,245
88,612(385)
24,457,783

64,711
69,37780,377
5,814
801
(3)
221,077¥65,811,291$594,877

SHAREHOLDERS’ EQUITY :Common stock;authorized – 102,868,000 shares
outstanding – 34,008,000 shares
Capital surplus
Retained earnings
Net unrealized holding gains on securities
Foreign currency translation adjustments
Less- Treasury stock at cost
Total liabilities, minority interests andshareholders’ equity

MODEC, INC. and Subsidiaries

CONSOLIDATED STATEMENT OF INCOME
For 6 months ended June 30, 2005
Thousand ofJapanese yen

Thousand of
U.S. dollars¥21,788,053
17,614,009
4,174,044$196,945
159,215
37,730SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
Operating profit

2,075,994
2,098,050

18,765
18,965OTHER INCOME (EXPENSES):Interest income and dividend income
Interest expense
Foreign exchange gain, net
Equity in earnings of affiliates
Other, net
Total other expenses

427,710(471,953)
356,130
95,243
108,853
515,983

3,866(4,266)
3,219
861
984
4,664

INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS

2,614,033

23,629356,841
483,924

3,226
4,374

INCOME BEFORE MINORITY INTERESTS

1,773,268

16,029MINORITY INTERESTS(272,322)(2,462)¥ 1,500,946$13,567

SALES
COST OF SALES
Gross profit

INCOME TAXES:
Current
Deferred

NET INCOME

Yen
Net income per share

U.S. dollars(Note 1(a))¥44.14

The accompanying notes are an integral part of this statement.

$0.40

MODEC, INC. and Subsidiaries

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
For 6 months ended June 30, 2005
Thousand ofJapanese yen

Thousand of
U.S. dollars

COMMON STOCK
Beginning and ending balance¥7,159,000$64,711

CAPITAL SURPLUS
Beginning and ending balance¥7,675,150$69,377

RETAINED EARNINGS
Beginning balance
Net income
Cash dividends paid
Bonuses paid to directors
Ending balance¥7,531,745
1,500,946(127,530)(13,000)¥8,892,161$68,080
13,567(1,153)(117)$80,377

NET UNREALIZED HOLDING GAINS ON
SECURITIESBeginning balance
Change for the year
Ending balance¥575,834
67,411¥643,245$5,205609$5,814

FOREIGN CURRENCY TRANSLATIONADJUSTMENTS
Beginning balance
Change for the year
Ending balance¥(656,489)
745,101¥88,612$(5,934)
6,735
$801

¥(230)(155)¥(385)

$(2)
(1)
$(3)

TREASURY STOCK
Beginning balance
Purchases of treasury stock
Ending balance

The accompanying notes are an integral part of this statement.

MODEC, INC. and Subsidiaries

CONSOLIDATED STATEMENT OF CASH FLOWSFor 6 months ended June 30, 2005

CASH FLOWS FROM OPERATINGACTIVITIES:
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 allowance for bad debts
Provision for severance and retirement
benefits for employees
Provision for severance and retirement
benefits for directors and corporate auditors
Reversal of product warrantyInterest income and dividend income
Interest expense
Foreign exchange loss
Equity in earnings of affiliates
Changes in assets and liabilities:
Decrease (Increase) in– Accounts receivable - trade– Inventories– Consumption taxes refund receivable
Decrease in– Accounts payable - trade
Bonuses paid to directors
Other, net
Interest and dividend received
Interest paid
Income taxes paid
Net cash provided by operating activities

Thousand ofJapanese yen

Thousand of
U.S. dollars¥2,614,033$23,629

497,807
13,24325,346

4,500
120
229

9,530

86

(12,362)(81,352)(427,710)
471,953244,991(95,243)

(112)
(735)
(3,866)
4,266
2,215
(861)

4,693,251(333,845)
8,528

42,423(3,018)77(4,264,015)(13,000)(521,216)
2,829,939
149,386(658,123)(1,543,129)(38,543)(118)(4,712)25,5801,350(5,949)(13,948)
7,033

778,073

Thousand ofJapanese yen

Thousand of
U.S. dollars

CASH FLOWS 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
Net cash used in investing activities¥(2,129,376)(1,076,671)
507,986(1,392,177)
347,611(3,742,627)$(19,248)(9,732)
4,592(12,584)
3,142(33,830)

CASH FLOWS FROM FINANCING
ACTIVITIES:
Increase 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

2,954,352
2,094,226(6,086,641)(56,421)(127,359)(155)(1,221,998)

26,70518,930(55,018)(510)(1,151)(2)(11,046)654,580

5,917(3,531,972)(31,926)

14,061,927

127,108

EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
NET INCREASE IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
INCREASE IN CASH AND CASH
EQUIVALENTS DUE TO ADDITIONALCONSOLIDATED SUBSIDIARIESCASH AND CASH EQUIVALENTS AT
ENDING OF YEAR

¥10,529,955

The accompanying notes are an integral part of this statement.

$95,182

MODEC, INC. and 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 Securities andExchange Law and its related accounting regulations, and in conformity with accounting
principles generally accepted in Japan, which are different in certain respects as to applicationand disclosure requirements of International Financial Reporting Standards.
The accounts of overseas subsidiaries are based on their accounting records maintained inconformity with generally accepted accounting principles prevailing in the respective countriesof domicile. The accompanying consolidated financial statements have been restructured andtranslated into English (with some expanded descriptions and the inclusion of consolidated
statements of shareholders' equity) from the consolidated financial statements of the Company
prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance
Bureau of the Ministry of Finance as required by the Securities and Exchange Law. Some
supplementary information included in the statutory Japanese language consolidated financial
statements, but not required for fair presentation, is not presented in the accompanying
consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars are included solely for theconvenience of readers outside Japan, using the prevailing exchange rate at June 30, 2005,
which was ¥110.63 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
17 of its subsidiaries for the 6 months ended June 30, 2005. Material intercompany balances,transactions and unrealized profits and losses have been eliminated in consolidation.
Investments in significant affiliates, which are 5 companies for the 6 months ended June 30,
2005, are accounted for by the equity method.
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, havebeen accounted for by the equity method.
All consolidated subsidiaries have the same balance sheet date, June 30, corresponding withthat 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 using the fair value
at the time the Company acquired the control of the respective subsidiaries.
(d) Securities
In accordance with the Japanese accounting standard for financial instruments, all companies
required to examine the intent of holding each security and classify those securities as (a)securities held for trading purposes (hereafter, “trading securities”), (b) debt securities intended
to be held to maturity (hereafter, “held-to-maturity debt securities”), (c) equity securities issued
by unconsolidated subsidiaries and affiliated companies, and (d) all other securities that are notclassified in any of the above categories (hereafter, “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 included in current assets. Other securities are included in investments
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-salesecurities 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 a separate component of shareholders’ equity. Realized gains and losses on sale ofsuch securities are computed using moving-average cost. Available-for-sale securities without
available fair market values are stated at moving-average cost.
(e) Inventories
Costs of uncompleted contracts are stated at cost, determined on an individual project basis.
(f) Property and Equipment
Property and equipment are carried substantially at cost. Depreciation of vessel (Floating
Production Storage & Offloading and Floating Storage & Offloading) owned by the
consolidated overseas subsidiaries is calculated by using the straight-line method based on
their lease term or their economic useful lives.
Depreciation of buildings and equipment is calculated by using the declining-balance method
based on their useful lives and residual value prescribed by the Japanese corporation tax laws
and regulations, except that buildings, acquired after March 31, 1998, are depreciated using thestraight-line method. Consolidated overseas subsidiaries depreciate buildings and equipmentusing the straight-line method based on their useful lives.
(g) Intangible Assets
The Company amortizes intangible assets using the straight-line method based on their useful
lives and residual value prescribed by the Japanese corporation tax laws and regulation andamortizes software costs using the straight-line method over the estimated useful life (5 years).
Goodwill of a consolidated overseas subsidiary is amortized using the straight-line method
based on the terms of an agreement.
Mining rights of a consolidated overseas subsidiary is amortized using the production method
based on the amount of production forecast.
(h) Impairment of Fixed Assets
Effective January 1, 2005, the Company chooses early adoption of the new accounting
standard for impairment of fixed assets (“Opinion Concerning Establishment of AccountingStandard for Impairment of Fixed Assets” issued by the Business Accounting Deliberation
Council on August 9, 2002) and the implementation guidance for accounting standard for
impairment of fixed assets (the Financial Accounting Standard Implementation Guidance No.
6 issued by the Accounting Standards Board of Japan on October 31, 2003). There is no effectto statement of income, as a result of adopting new accounting standard for impairment of fixed
assets.
(i) 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.
(j) Accrued Employees’ Bonuses
The Company accrues employees’ bonuses based on the estimated amounts to be paid in thesubsequent period.
(k) Provision for Product Warranty
Provision for product warranty is provided based on the estimated amounts for covering theprobable product warranties.
(l) Severance and Retirement Benefits for Employees
The Company has an unfunded lump-sum severance and retirement payment plan for
employees. Under the plan, employees whose employment is terminated or who retire areentitled to benefits which are, in general, determined on the basis of length of service andcurrent basic salary at the time of termination or retirement. If the termination is involuntary,
the employees are generally entitled to larger benefits than in the case of voluntary termination
or retirement.

The Company provides allowance for employees’ severance and retirement benefits based on
the estimated amount of projected benefit obligation at the balance sheet date.
(m) Severance and Retirement Benefits for Directors and Corporate Auditors
Subject to shareholders’ approval, directors and corporate auditors customarily receive
lump-sum payments upon retirement under an unfunded retirement allowances plan.
The Company records severance and retirement benefits for directors and corporate auditors at
the amounts payable if all directors and corporate auditors voluntarily terminated theiremployment at the balance sheet date.
(n) 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 the
year-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.
(o) Finance Lease Transactions without Transfer of Ownership
Finance lease transactions, other than those that transfer ownership of the leased property to thelessee, are accounted for in the same way as operating lease transactions.
(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 ofderivative financial instruments until the related losses or gains on the hedged items arerecognized.
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
for in the following manner.
If a forward foreign exchange contract is executed to hedge existing foreign currency
receivables or payables,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 thebook value of the receivable or payable is recognized in the income statement in the period
which includes the inception date, andthe discount or premium on the contract (that is, the difference between the Japanese yenamount of the contract translated using the contracted forward rate and that translated using the
spot rate at the inception date of the contract) is recognized over the term of the contract.
If a forward foreign exchange contract is executed to hedge a future transaction denominated ina foreign currency, the future transaction will be recorded using the contracted forward rate,
and no gains or losses on the forward foreign exchange contract are recognized.
Also, if interest rate swap contracts are used as hedges and meet certain hedging criteria, the net
amount to be paid or received under the interest rate swap contract is added to or deducted 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) Recognition of Revenues
The Company recognizes revenues on contracts by the completed contract method, except for
those items whose contract amount is over 1 billion yen and whose term of construction is over
one year in which cases the percentage of completion method is used.
The U.S.A. consolidated subsidiary recognizes revenues on all contracts by the percentage ofcompletion 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 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.
(s) Cash Flow Statement
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 thetime of purchase are considered to be cash and cash equivalents.

(t) Shareholder’s Equity and Per Share Data
Under the Commercial Code of Japan, the entire amount of the issue price of shares is required
to be accounted for as capital, although a company may, by resolution of its Board of Directors,
account for an amount not exceeding one-half of the issue price of the new shares as additional
paid-in capital, which is included in capital surplus.
The Commercial Code provides that an amount equal to at least 10% of cash dividends andother cash appropriations shall be appropriated and set aside as a legal earnings reserve until
the total amount of legal earnings reserve and additional paid-in capital equals 25% of common
stock. The legal earnings reserve and additional paid-in capital may be used to eliminate or
reduce a deficit by resolution of the shareholders' meeting or may be capitalized by resolutionof the Board of Directors. On condition that the total amount of legal earnings reserve andadditional paid-in capital remains being equal to or exceeding 25% of common stock, they areavailable for distribution by the resolution of shareholders' meeting. Legal earnings reserve is
included in retained earnings in the accompanying financial statements.
The maximum amount that the Company can distribute as dividends is calculated based on the
non-consolidated financial statements of the Company in accordance with the Commercial
Code.
Net income per share is calculated based on the weighted average number of shares of common
stock outstanding during 6 months.