MODEC, INC. and Consolidated Subsidiaries

Consolidated Financial Statements
As of December 31, 2011 and 2010
Together with Independent Auditors’ Report

MODEC, INC. and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETS
December 31, 2011 and 2010ASSETS

Thousands of
U.S. dollars(Note 1 (a))
2011

Millions of Japanese yen
2011
2010
CURRENT ASSETS:
Cash and time deposits (Note 1(s) and 16)
Accounts receivable – trade (Note 16 and 20)
Inventories (Note 2)
Short-term loans receivable (Note 16 and 20)
Deferred tax assets (Note 13)
Other current assets
Less- Allowance for bad debts
Total current assets¥17,320
48,486
2,315
6,244
2,317
5,380
(345)
81,717¥12,12243,082875
31,291
2,996
7,772
(3)
98,135$222,794
623,698
29,78580,32529,804
69,199(4,443)
1,051,162

PROPERTY AND EQUIPMENT:
Buildings and structures (Note 12)
Machinery and equipment (Note 12)
VesselConstruction in progressLess- Accumulated depreciation
Net property and equipment

68
1,301
22,515－(11,921)
11,963

146
1,673
23,694
6(10,486)
15,033873
16,732289,619－(153,334)
153,890

INTANGIBLE ASSETS (Note 4 and 12)

6,429

6,821

82,702

10,902

12,356140,235

8,754
3,435
931
－
24,022¥124,131

11,564
1,406
1,317
(4)
26,639¥146,628

112,611
44,183
11,961－
308,990$1,596,744

INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 3 and 16)
Long-term loans receivable from unconsolidated
subsidiaries and affiliated companies (Note 16
and 20)
Deferred tax assets (Note 13)
Other investments
Less- Allowance for bad debts
Total investments and other assets
Total assets

LIABILITIES AND NET ASSETS
Thousands of
U.S. dollars(Note 1 (a))
2011

Millions of Japanese yen
2011
2010
CURRENT LIABILITIES:
Accounts payable – trade (Note 16 and 20)
Short-term loans payable (Note 5,7 and 16)
Current portion of long-term loans payable (Note 5
and 16)
Accrued expenses
Income taxes payable
Provision for product warranty
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 5,16 and 20)
Severance and retirement benefits for employees(Note 10)Deferred tax liabilities (Note 13)
Long-term accounts payable
Other long-term liabilities
Total long-term liabilities¥46,233
2,000¥41,562
17,194$594,711
25,727

3,460
3,878
2,746
1,889
65
20
1,526
31
74
866
62,788

6,043
2,843
2,143
2,565
43
14
767
7
706
3,930
77,81744,50549,88635,32824,300841
260
19,624397
955
11,141
807,675

5,256

8,140

67,606

168
301
－
3,387
9,112

159
710
302
1,176
10,487

2,162
3,867
－
43,570117,205

20,186
20,91623,027(2)
64,127

20,186
20,916
21,066(2)
62,166259,655
269,046
296,213(23)
824,891(12)(6,579)(10,182)(9)(123)(8,403)(148)(84,633)(130,975)(16,773)(8,535)(215,756)

4,877
52,231¥124,131

4,693
58,324¥146,628

62,729671,864$1,596,744

CONTINGENT LIABILITIES (Note 14)
NET ASSETS :SHAREHOLDERS’ EQUITY (Note 8):
Common stock;
Authorized – 102,868,000 shares
Issued – 46,408,000 shares
Capital surplus
Retained earnings
Treasury stock, at cost
Total shareholders’ equity
ACCUMULATED LOSSES FROM VALUATION
AND TRANSLATION ADJUSTMENTS
Net unrealized holding losses on securities
Unrealized losses on hedging derivatives, net of tax
Foreign currency translation adjustments
Total accumulated losses from valuationand translation adjustments
MINORITY INTERESTS IN CONSOLIDATEDSUBSIDIARIES
Total net assets
Total liabilities and net assets

The accompanying notes are an integral part of these balance sheets.

MODEC, INC. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 2011 and 2010

SALES (Note 1 (p),19 and 20)
COST OF SALES (Note 20)
Gross profit

Millions of Japanese yen
2010
2011
¥129,968¥146,661
134,595
122,352
7,616
12,066SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (Note 11)
Operating profit

Thousands of U.S.
dollars(Note 1 (a))
2011
$1,671,835
1,573,873
97,962

7,322
294

8,502
3,564

94,186
3,776

1,403
(613)
(1,001)
－
(387)

1,351
(521)
(1,467)392－

18,046(7,886)(12,872)－(4,983)

5,198

2,568

66,862

(105)
(173)
－

－
－
(639)

(1,350)(2,231)
－

－
－
－

209
34
71

－
－
－

66

－

843

(305)
160
4,243

－
269
2,267

(3,929)2,086
54,586

INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS

4,537

5,831

58,362

INCOME TAXES (Note 13):
Current
Deferred

2,966(1,716)

2,465
(129)

38,149(22,073)

INCOME BEFORE MINORITY
INTERESTS

3,287

3,495

42,286

219

759

2,823

¥3,068¥2,736$39,463

OTHER INCOME (EXPENSES):Interest income and dividend income
Interest expense
Foreign exchange loss, net
Gain on revaluation of derivatives
Loss on revaluation of derivatives
Equity in earnings of affiliates andunconsolidated subsidiaries
Impairment loss on property andequipment
Impairment loss on intangible assets
Loss on liquidation of affiliates
Gain on disposal of property andequipment
Gain on step acquisitions
Gain on liquidation of subsidiaries
Gain on sales of subsidiaries and affiliates'
stock
Provision of allowance for doubtful
accounts
Other, net
Total other income (expenses)

MINORITY INTERESTSNET INCOME

Japanese yen
Net income per share (Note 9)
Dividends per share (Note 9)¥ 66.11¥ 25.00¥ 62.09¥ 22.50

The accompanying notes are an integral part of these statements.

U.S. dollars$ 0.85$ 0.32

MODEC, INC. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2011

Income before minority interests

Millions of Japanese yen

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

2011

2011
¥3,287$42,286

Net unrealized holding losses on securities

(2)

(31)

Unrealized losses hedging derivatives, net of tax

(51)

(657)

Foreign currency translation adjustments(249)(3,206)(8,210)(105,610)(8,512)(109,504)¥ (5,225)$ (67,218)

Other comprehensive income

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

Millions of Japanese yen

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

Comprehensive income attributable to owners of the parent¥ (5,169)$ (66,497)

Comprehensive income attributable to owners of minority
interests¥ (56)$ (721)

The accompanying notes are an integral part of these statements.

MODEC, INC. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the years ended December 31, 2011 and 2010
Millions of Japanese yen

Balance at December
31, 2009

Common stock

Capital surplus¥12,392¥13,122

Retainedearnings¥19,249

Treasury stock
at costNet unrealized
holding losses
on securities

Unrealized
losses on
hedging
derivatives, netof tax

¥ (2)

¥ (7)

¥ (1,327)

Foreigncurrencytranslation
adjustments¥ (5,191)

Minority
interests inconsolidated
subsidiaries

Total net assets¥1,838¥40,074

Net income

2,736

2,736

Cash dividends paid

(896)

(896)

Issuance of newshares

7,794

7,794

15,588Purchases of treasury
stock
Decrease due tochanges in fairmarket values ofavailable-for-salesecurities
Unrealized gains on
hedging derivatives,
net of tax
Adjustments fromtranslation of foreign
currency financial
statements
Increase in minority
interests inconsolidated
subsidiaries

0

(2)

1,204

(3,212)(3,212)

2,855(23)¥20,186¥20,916

Net income
Cash dividends paid

¥21,066

¥ (2)

¥ (9)

¥ (123)¥ (8,403)¥4,693

3,068(1,102)(1,102)(3)(6,461)(6,461)(1,779)(1,779)184(5)¥20,186¥20,916¥58,324

3,068

(3)

Others2,855(23)Decrease due tochanges in fairmarket values ofavailable-for-salesecurities
Unrealized losses on
hedging derivatives,
net of tax
Adjustments fromtranslation of foreign
currency financial
statements
Increase in minority
interests inconsolidated
subsidiaries

Balance at December
31, 2011

(2)

1,204

OthersBalance at December
31, 2010

0¥23,0275¥ (2)¥ (12)¥ (6,579)

184
0¥ (10,182)¥4,877¥52,231

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

Balance at December
31, 2010

Common stock

Capital surplus$259,655$269,046

Net income
Cash dividends
paid

Retainedearnings$270,992

Treasury stock
at costNet unrealized
holding losses
on securities

Unrealized
losses on
hedging
derivatives, netof tax$ (23)$ (117)$ (1,587)$ (108,094)

Minority
interests inconsolidated
subsidiaries

Total net assets$60,371$750,243

39,46339,463(14,181)(14,181)

Decrease due tochanges in fairmarket values ofavailable-for-salesecurities
Unrealized losses
on hedging
derivatives, net oftax
Adjustments fromtranslation offoreign currency
financialstatements
Increase inminority interests
in consolidated
subsidiaries

(31)

(31)

(83,107)(83,107)(22,881)(22,881)

2,358
(61)

OthersBalance at December
31, 2011

Foreigncurrencytranslation
adjustments$259,655$269,046$296,213

61$ (23)$ (148)$ (84,633)

2,358
0

$ (130,975)

The accompanying notes are an integral part of these statements.

$62,729$671,864

MODEC, INC. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended December 31, 2011 and 2010

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

Millions of Japanese yen
2011
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
Provision for (reversal of) allowance for bad debts
Provision of (reversal of) allowance for doubtful
accounts
Provision for (reversal of) severance and retirement
benefits for employees
Accrued directors’ bonuses
Provision for (reversal of) product warrantyInterest income and dividend income
Interest expense
Foreign exchange losses (gains)
Loss (gain) on revaluation of derivatives
Equity in earnings of affiliates and unconsolidated
subsidiaries
Loss on liquidation of subsidiaries and affiliates
Gain on step acquisition
Impairment loss on property and equipment
Impairment loss on intangible assets
Gain on disposal of fixed asset
Gain on sales of subsidiaries' stocks
Changes in assets and liabilities:
Decrease (Increase) in– Accounts receivable - trade– Inventories
Increase (Decrease) in– Accounts payable - trade– Consumption tax payable– Long-term accounts payable
Other, net
Interest and dividend received
Interest paid
Income taxes paid
Net cash provided by (used in) operating activities

2010

2011

¥4,537¥5,831$58,362

2,773
258
32

958
211
(88)

35,674
3,315
415

305

－

3,929

9
7
(597)
(1,403)
613
717
387

12
－
524
(1,351)
521
939
(392)

118
87
(7,674)(18,046)
7,886
9,228
4,983

(5,198)
－
－
105
173
－
(66)

(2,568)
569
(34)
－
－
(209)
－

(66,862)
－
－
1,350
2,231
－
(843)

(4,807)(1,482)

8,270
(133)

(61,830)(19,064)

9,016
(39)
(302)
(523)
4,515
3,761
(648)
(2,836)¥4,792(8,461)
(53)
(111)
3,888
8,323
1,958
(487)
(2,291)¥7,503

115,980(507)(3,880)(6,776)
58,076
48,382(8,336)(36,478)$ 61,644

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

Millions of Japanese yen
2011
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 (Increase) in short-term loans receivable
Disbursement of long-term loans receivableCollection of long-term loans receivable
Purchases of investment in subsidiaries
Proceeds from capital reduction in affiliates
Purchase of investments in subsidiaries resulting inchange in scope of consolidation
Payments for sales of investments in subsidiaries
resulting in change in scope of consolidation
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in short-term loans payable
Repayment of long-term loans payable
Proceeds from issuance of common stock
Cash dividends paid
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 EQUIVALENTS
DUE TO RESULTING FROM CHANGE OFSCOPE OF CONSOLIDATIONCASH AND CASH EQUIVALENTS AT END OFYEAR (Note 1 (s))

2010

2011

¥ (1,364)¥ (624)$ (17,548)

0(3,347)30,794(3,344)－(1,222)－778(2,168)(20,786)(2,163)
246
(15)
1,412

2
(43,055)
396,114(43,010)－(15,725)
－

－

1,684

－

(64)
21,453－(21,636)(820)
275,958(14,412)(5,150)－(1,101)(20,663)2,594(9,617)
15,588(896)
7,669(185,385)(66,240)－(14,168)(265,793)(384)(2,971)(4,948)5,198(9,435)66,861

12,12231,505

155,933－(9,948)－¥17,320¥12,122$222,794

The accompanying notes are an integral part of these statements.

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, 2011,
which was ¥77.74 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
21 of its subsidiaries for the year ended December 31, 2011 and 23 of its subsidiaries for theyear ended December 31, 2010. Material inter-company balances, transactions and profits havebeen eliminated in consolidation.
Investments in significant unconsolidated subsidiaries and affiliates, which were 15 companies
for the year ended December 31, 2011 and 14 companies for the year ended December 31, 2010
were accounted for by using the equity method.
Another 3 subsidiaries for the year ended December 31, 2011 and for the year ended December
31, 2010 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.
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.
(h) Intangible Assets
The Company amortizes software costs used internally using the straight-line method over theestimated useful life (5 years), and amortizes intangible assets using the straight-line method
based on useful lives and residual values prescribed by the Japanese corporation tax laws andregulations.
Intangible assets of consolidated subsidiaries located in the U.S.A., are accounted for inaccordance with U.S. GAAP.
(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) Accrued Directors’ Bonuses
The Company accrues directors’ bonuses based on the estimated amounts to be paid in thesubsequent period.

(l) Provision for Product Warranty
Provision for product warranty is provided based on the estimated amounts for covering theprobable product warranties.

(m) 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.
(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 to Japanese yen at the
year-end exchange rate, and the resulting gains or losses are recorded in other income(expenses) in the statement of income.
Financial statements of consolidated overseas subsidiaries are translated to 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) 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 that

translated 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.
(p) Revenue Recognition
From the year ended December 31, 2010, the Company applied the percentage of completion
method to the construction contracts in case that the outcome of construction contracts can bereliably estimated. The percentage of completion is calculated by percentage of cost method orunits of work performed method which is based on physical progress measure.
The other construction contracts are recognized by the completed contract method.
Consolidated subsidiary located in the U.S.A. recognized revenues on all contracts by thepercentage of completion method.
(Changes of Accounting Policies)
Effective from January 1, 2010, the Company adopted the new accounting standard,“Accounting Standard for Construction Contracts” (Statement No.15 issued by AccountingStandards Board of Japan on December 27, 2007) and “Guidance on Accounting Standard forConstruction Contracts” (Guidance No.18 issued by the Accounting Standards Board of Japanon December 27, 2007).
This adoption had no effect on the financial statements.
(q) 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.
(r) Significant deferred assets
Stock issuance costs are recorded at total cost when expended.

(s) Cash Flow Statement
1) In preparing the consolidated statements of cash flows, cash on hand, readily available
deposits and short-term highly liquid investments with maturities not exceeding three months at
the time of purchase are considered to be cash and cash equivalents.

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, 2011 and2010 are as follows:
Millions ofJapanese yen

Cash and time deposits
Less : Time deposits with maturities exceeding threemonthsCash and cash equivalents

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

2011
¥17,3202010¥12,1222011$222,794－－－¥17,320¥12,122$222,794

2) For the year ended December 31, 2010, at the time of acquiring additional shares of newly
consolidated subsidiary, MODEC VENTURE 11 B.V. and RANG DONG MV17 B.V., theirassets, liabilities, the cost for the share acquisition and the net proceeds from the shareacquisition are as follows:
Millions ofJapanese yen
2010
Current Assets¥2,380Property and equipment

13,817

Goodwill

616

Current liabilities(5,312)Long-term liabilities(5,740)Minority interests in these consolidated subsidiaries
Book value of investment in these consolidated subsidiaries before theadditional acquisition(2,315)(2,221)

The cost for the share acquisition

1,225

Outstanding amount of the cost for the share acquisition(1,225)

Cash and cash equivalents of these consolidated subsidiaries

1,684

Net proceeds to acquire the share of newly consolidated subsidiaries¥1,684(Changes of Accounting Policies)(t) Accounting standards for Asset Retirement Obligations and its Implementation
Guidance
Effective from the year ended December 31, 2011, the Company and its subsidiaries adopted
the new accounting standard, “Accounting Standard for Asset Retirement Obligations”(Statement No.18 issued by the Accounting Standards Board of Japan on March 31, 2008) and“Guidance on Accounting Standard for Asset Retirement Obligations” (Guidance No.21 issued
by the Accounting Standards Board of Japan on March 31, 2008).
As a result of adopting these standards, operating profit and income before income taxes andminority interests decreased by ¥11 million ($145,173 thousand) for the year ended December
31, 2011.

(u) Accounting Standard for Equity Method of Accounting for Investments and Practical
Solution on Unification of Accounting Policies Applied to Associates Accounted for Using
the Equity Method
Effective from the year ended December 31, 2011, the Company and its subsidiaries adopted
the new accounting standard, “Accounting Standard for Equity Method of Accounting forInvestments” (Statement No. 16 issued by the Accounting Standards Board of Japan on March
10, 2008) and “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).
This adoption had no effect on the financial statements.
(v) Accounting standards for business combinations and related matters
The Company adopted the new accounting standard, “Accounting Standard for Business
Combinations” (Statement No.21 issued by Accounting Standards Board of Japan on December
26, 2008) which is applied to the business combinations after April 1, 2010.
Furthermore, the Company also adopts the new accounting standard, “Accounting Standard forBusiness Divestitures” (Statement No.7 issued by Accounting Standards Board of Japan on
December 26, 2008) and “Guidance on Accounting Standard for Business Combinations andAccounting Standard for Business Divestitures” (Guidance No.10 issued by AccountingStandards Board of Japan on December 26, 2008).
(Additional Information)
Effective from the year ended December 31, 2011, the Company and its subsidiaries adopted the new
accounting standards, “Accounting Standard for Presentation of Comprehensive Income” (Statement
No.25 issued by Accounting Standards Board of Japan on June 30, 2010) and “Revised AccountingStandard for Consolidated Financial Statements” (Statement No.22 issued by Accounting Standards
Board of Japan on June 30, 2010).
As a result of adopting these standards, the Company and its subsidiaries have presented theconsolidated statements of comprehensive income for the year ended December 31, 2011.
2. Inventories
Inventories as of December 31, 2011 and 2010 consisted of the following:Thousands of
U.S. dollars(Note 1 (a))

Millions ofJapanese yen

Raw materials
Costs of uncompleted contracts

2011
¥919
1,396
¥2,315

2010
¥32
843
¥875

2011
$11,825
17,960$29,785

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, 2011 and 2010
2011：
Available-for-sale securities:
Securities with book values exceedingacquisition costs:
Equity securities
Sub Total
Securities with book values not exceedingacquisition costs:
Equity securities
Sub Total
Total

2010：
Available-for-sale securities:
Securities with book values exceedingacquisition costs:
Equity securities
Sub Total
Securities with book values not exceedingacquisition costs:
Equity securities
Sub Total
Total

2011：
Available-for-sale securities:
Securities with book values exceedingacquisition costs:
Equity securities
Sub Total
Securities with book values not exceedingacquisition costs:
Equity securities
Sub Total
Total

Acquisition cost

Millions of Japanese yen
Book value

Differences

－
－

－
－

－
－

¥115
115
¥115

¥95
95
¥95

¥(20)
(20)
¥(20)

Acquisition cost

Millions of Japanese yen
Book value

Differences

－
－

－
－

－
－

¥115
115
¥115

¥99
99
¥99

¥(16)
(16)
¥(16)

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

－
－

－
－

－
－

$1,477
1,477$1,477$1,2251,225$1,225$(252)(252)$(252)

4. Goodwill
Goodwill recorded in intangible assets as of December 31, 2011 and 2010 were ¥4,816 million($61,956 thousand) and ¥3,657 million, respectively.
5. Loans Payable
Short-term loans payable represent notes payable to banks due generally in twelve months andbearing an average interest rate of 0.7% and 1.0% as of December 31, 2011 and 2010, respectively.
Long-term loans payable as of December 31, 2011 and 2010 are summarized below:

Millions ofJapanese yen

Loans from banks and others due through 2017
Less: Current portion included in current liabilities, ataverage rate of 1.3%
Loans from banks and others,
at average rate of 1.9% due through 2017
(Excluding current portion)

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

2011
¥8,7162010¥14,1832011$112,111(3,460)(6,043)(44,505)¥5,256¥8,140$67,606

The aggregate annual maturities of long-term loans payable are summarized below:
Year ended December 31,

Millions ofJapanese yen

2012
2013
2014
2015
2016
2017 and thereafter¥3,460
1,727
850
288
303
2,088
¥8,716

Thousands of U.S.
dollars(Note 1 (a))$44,505
22,215
10,932
3,701
3,893
26,865$112,111

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 seven financial institutions, an
overdraft facility agreement with one financial institution and a notes payable agreement
denominated in U.S. dollars with four financial institutions for the purpose of efficient providing
operating funds. The commitment line amount is $110,000 thousand as of December 31, 2011
without any drawdown. The overdraft facility line amount is ¥3,000 million ($38,590 thousand) andthe unexecuted balance of loan as of December 31, 2011 is ¥1,000 million ($12,863 thousand). The
unexecuted balance of notes payable as of December 31, 2011 is $104 thousand.
8. Net Assets
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
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 30, 2011, the shareholders approved cash
dividends amounting to ¥522 million for the year ended December 31, 2010.
At the annual shareholders’ meeting held on March 29, 2012, the shareholders approved cash
dividends amounting to ¥580 million ($7,462 thousand). Such appropriations have not been
accrued in the consolidated financial statements as of December 31, 2011. 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, 2011 and 2010.
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, 2011 and 2010 consisted of the following:
Millions of Japanese yen

2010

2011
Projected benefit obligation
Severance and retirement benefits for employees

Thousands of
U.S. dollars(Note 1 (a))
2011

¥168

¥159

$2,162¥168¥159$2,162

Severance and retirement benefit expenses recorded in the consolidated statements of income forthe years ended December 31, 2011 and 2010 consisted of the following:
Millions of Japanese yen

2010

2011
Service costs – benefits earned during the year
OthersSeverance and retirement benefit expenses

Thousands of
U.S. dollars(Note 1 (a))
2011

¥45
25

¥24
24

$578
321

¥70

¥48

$899

11. Research and Development Expenses
Research and development expenses recorded in selling, general and administration expenses were¥324 million ($4,168 thousand) and ¥814 million for the years ended December 31, 2011 and 2010
respectively.

12. Impairment losses on property, equipment and intangible assets
Impairment losses on property, equipment and intangible assets for the year ended December 31,
2011 consisted of the following:(a) Overview of the impairment losses on property, equipment and intangible assets
Location

Use

Japan
Singapore

OfficeInspection

Type of assets

Millions of Japanese yen

Buildings and structures
Machinery and Equipments
Intangible asset

¥105
¥173

Thousands of
U.S. dollars(Note 1 (a))$1,350$2,231(b) Grouping Unit
The business assets have been grouped by each company.
(c) The recognition and the amount of the impairment losses
In conjunction with the Company decision to relocate its office and to dispose the fixed assets,
the Company reduced the carrying amount of the fixed assets to the recoverable amount andrecognized the impairment loss ¥105 million ($1,350 thousand).
The subsidiary in Singapore reduced the carrying amount of the intangible asset of inspection to
its recoverable amount due to a downturn in profitability and recognized the impairment loss
¥173 million ($2,231 thousand).
(d) The measurement of the impairment losses
The Company measured the recoverable amount based on a value in use which was notdiscounted due to the remaining useful lives of the fixed assets were less than one year.
The subsidiary in Singapore measured the recoverable amount based on a value in use andcalculated by discounting future cash flow at an interest rate of 1.9%.
13. Income Taxes
The normal statutory income tax rate in Japan arising out of the aggregation of corporate, enterpriseand inhabitants taxes are 41% for the years ended December 31, 2011 and 2010.
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 year ended December 31, 2011. For the year ended December 31, 2010, reconciliation is not
required to be disclosed because the difference between the rates is less than 5%.

2011
Statutory income tax rate
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
Deferred tax assets resulted from the change of the effective corporate tax rate
Others

41.0%(10.0)(47.0)
11.9
20.5
5.0
2.5
3.6

Effective tax rate

27.5%2) Significant components of deferred tax assets and liabilities as of December 31, 2011 and 2010
are as follows:
Millions ofJapanese yen
2011
Deferred tax assets:
Current assets:
Enterprise tax payable
Accrued employees’ bonuses
Provision for product warranty
Provision for doubtful debt
Impairment loss
Foreign tax credit
Other Provisions
Tax loss carry forward
Undistributed profits in a tax haven
Foreign exchange losses
Tax effect to the investment for the liquidated
subsidiaries
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
Loss on valuation of golf membership
Severance and retirement benefits for employees
Depreciation
Long-term foreign tax credit
Long term account payable
Other Provisions
Net unrealized holding losses on securities
Others
Sub total
Valuation allowance
Offset to deferred tax liabilities (long-term)
Total
Total deferred tax assets

2010

Thousands of
U.S. dollars(Note 1 (a))
2011

¥42
26
230
139
48
191
1,553
485
135
－

－
33
431
－
－
－
307
334
135
1,279

$545
340
2,964
1,794
619
2,461
19,974
6,240
1,742
－

－
414
3,263
(741)
(205)

739
526
3,784
(391)
(397)

－
5,289
41,968(9,531)(2,633)

2,317

2,996

29,804

2,917
533
1,212
－
61
418
161
－
－
－
63

2,832
1,019
－
20
65
－
－
124
178
6
66

37,524
6,857
15,586
－
778
5,381
2,075
－
－
－
803

5,365
(288)
(1,642)
3,435

4,310
(324)
(2,580)1,406

69,004(3,703)(21,118)
44,183¥5,752¥4,402$73,987

Millions ofJapanese yen
2011

2010

Thousands of
U.S. dollars(Note 1 (a))
2011

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
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

¥(96)
(140)
(236)
205
(31)

¥(106)
(298)
(404)
397
(7)

$(1,235)(1,795)(3,030)
2,633
(397)

(755)
(241)
(947)
－
(1,943)
1,642
(301)
(332)

(1,337)(375)(1,501)(77)(3,290)
2,580
(710)
(717)

(9,716)(3,097)(12,172)－(24,985)
21,118(3,867)(4,264)

Net deferred tax assets¥5,420¥3,685$69,723

3) The revision of the corporate income tax rate after December 31, 2011:
The "Reform bill for partial revision of income tax law, etc. in response to the changing
economic structure" (Bill No.114, 2011) and "Special measure to secure the funds to realize therestoration of the damages following the Great East Japan Earthquake" (Bill No.117, 2011)were promulgated on December 2, 2011.
From the year beginning on or after January 1, 2013, the reduced corporate income tax rate andthe special surtax for the restoration of the damages following the Great East Japan Earthquake
is enacted.
38.0% is applied to the temporary differences which suppose to be eliminated from the year
beginning on or after January 1, 2013 to the year beginning on or after January 1, 2015. And
36.0% is applied to the temporary differences which suppose to be eliminated on or afterJanuary 1, 2016.
Applying this revision, the deferred tax expense increased by ¥115 million ($1,480 thousand)and the long-term deferred tax asset decreased by ¥115 million ($1,480 thousand) from the year
ended December 31, 2011.

14. Contingent Liabilities and Commitments
As of December 31, 2011 and 2010, the Company was contingently liable for the following:
Millions ofJapanese yen

Guarantees of bank loans and other indebtedness forunconsolidated subsidiaries and affiliates
Guarantees of interest rate swap contracts forunconsolidated subsidiaries and affiliates

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

2011

2010

2011

¥33,880¥51,844$435,806－¥ (6,346)－

For the year ended December 31, 2011, the fair market values of swap contracts are included 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).
15. Leases(Lessor)Future lease receivables related to the non-cancellable operating lease are as follows:
Millions ofJapanese yen

Thousands of
U.S. dollars(Note 1 (a))
2010

2011

2011

Due within one year¥990

¥1,035$12,737

Due after one year

4,775

6,045

61,422¥5,765¥7,080$74,159

Total

16. Financial Instruments(a) Articles 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.
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) Articles concerning fair value of financial instruments
Consolidated balance sheets amounts and fair market value of financial instruments, thedifference between for the year ended December 31, 2011 and 2010 are as follows. Financial
instruments in which the fair value is considered to be extremely difficult to recognize are notincluded in the list below.
2011(1) Cash and time deposits(2) Accounts receivable – trade(3) Short-term loans receivable(4) Investment securities(5) Long-term loans receivable
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¥17,320
48,486
6,244
95
8,754
¥80,899

Millions of Japanese yen
Fair Value¥17,320
48,486
6,244
95
10,015¥82,160

Difference
－
－
－
－
1,261
¥1,261¥46,233
2,000
3,460
5,256
¥56,949¥46,233
2,000
3,460
5,231
¥56,924－－－(25)¥ (25)

¥453

¥453

－

(716)

(716)

¥ (263)¥ (263)－－

2010(1) Cash and time deposits(2) Accounts receivable – trade(3) Short-term loans receivable(4) Investment securities(5) Long-term loans receivable
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
2011(1) Cash and time deposits(2) Accounts receivable – trade(3) Short-term loans receivable(4) Investment securities(5) Long-term loans receivable
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

Book Value¥12,12243,082
31,291
99
11,564¥98,158

Millions of Japanese yen
Fair Value¥12,12243,082
31,291
99
11,728¥98,322

Difference
－
－
－
－
164
¥164

¥41,562
17,1946,043
8,140¥72,939¥41,562
17,194
6,043
8,239¥73,038

－
－
－
99
¥99

¥2,564¥2,564－(685)¥1,879(685)¥1,879－－Thousands of U.S. dollars (Note 1 (a))
Book Value
Fair Value
Difference－$222,794$222,794－
623,698
623,698－
80,32580,325
－
1,225
1,225
112,611
128,831
16,220$1,056,873$16,220$1,040,653$594,711
25,72744,50567,606$732,549$594,711
25,72744,50567,282$732,225

－
－
－
(324)
$ (324)$5,824$5,824－－(9,214)(9,214)－$(3,390)$(3,390)
Derivative transactions total*Derivative transactions are presented net of receivables and payables, and figures within parenthesis indicate
payables.

(note 1) Articles concerning calculation method of fair value, marketable securities andderivative transactions
Assets(1) Cash and deposits, (2) Accounts receivable – trade and (3) Short-term loans receivable
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.
(4) 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 3. Marketable Securities andInvestment Securities.)

(5) Long-term loans receivable
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.
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 17. 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:
Millions of Japanese yen
2010

2011
Unlisted equity securities¥10,807¥12,256

Thousands of U.S. dollars(Note 1 (a))
2011
$139,010

As to these financial instruments, there is no available fair market value. So these financial
instruments are not included in (4) 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, 2011 and 2010 are as follows:
2011
Within one year
Cash and deposits
Accounts receivable– tradeShort-term loans
receivable
Long-term loans
receivable¥17,320

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

Over ten years－

48,486

－

－

－

6,244

－

－

－

－

4,221

3,173

1,360

2010
Within one year
Cash and deposits
Accounts receivable– tradeShort-term loans
receivable
Long-term loans
receivable¥12,122

Over ten years－

43,05032－－

31,291

－

－

－

－

6,057

3,327

2,180

2011
Within one year
Cash and deposits
Accounts receivable– tradeShort-term loans
receivable
Long-term loans
receivable

Millions of Japanese yen
Over one year but
Over five years but
within five years
within ten years－－$222,794

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－

623,698－－－

80,325－－－－54,30040,815

17,496(note 4) The aggregate annual maturities of long-term loans payable are as follows:
Millions of Japanese yen
2013
2014
2015
2016
2017 and thereafter
Total¥1,727
850
288
303
2,088
¥5,256

Thousands of U.S. dollars(Note 1 (a))$22,215
10,932
3,701
3,893
26,865$67,606(Additional Information)
Effective from the year ended December 31, 2010, the Company and its consolidated
subsidiaries adopted the revised accounting standard, "Accounting Standard for Financial
Instruments" (Statement No.10 issued by ASBJ on March 10, 2008) and "Implementation
Guidance on Disclosures about Fair Value of Financial Instruments" (Guidance No. 19 issued
by ASBJ on March 10, 2008).
17. 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
Currency option contracts
Interest rate swap contracts

Hedged items:
Foreign currency receivables and payables
including future transactions
Foreign currency receivables and payables
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.
(a) The following tables summarize market value information as of December 31, 2011 and2010 of derivative transactions for which hedge accounting has not been applied:
Millions of Japanese yen
Notional amountDue after one
Total
year
Market value

2011:

Unrealized
gain (loss)

Currency swaps:
Receive / JPY Floating rate
Pay / USD Fixed rate

¥2,300－¥453

Millions of Japanese yen
Notional amountDue after one
year
Total
Market value

2010:

¥453
¥453

Unrealized
gain (loss)

Currency related derivatives:
Foreign exchange forward contracts:
To buy U.S. dollars¥5,890－¥5,863To sell U.S. dollars

24,612－

22,861¥ (27)
1,751¥1,724Currency swaps:
Receive / JPY Floating rate
Pay / USD Fixed rate

¥5,000¥2,300

¥840

¥840
¥840

Thousands of U.S. dollars (Note 1 (a))
Notional amountDue after one
Total
year
Market value

2011:

Unrealized
gain (loss)

Currency swaps:
Receive / JPY Floating rate
$29,586

Pay / USD Fixed rate－

$5,824$5,824$5,824(b) The following tables summarize market value information as of December 31, 2011 and2010 of derivative transactions for which hedge accounting has been applied
2011
Currency related derivatives
Type
Forward contract(Principle method)
To buy STG pounds
To buy EuroTo buy Norwegian krone

Hedged Items
Accounts payable – tradeand others

¥80
539
1,522

2010
Currency related derivatives
Type
Forward contract(Principle method)
To buy STG pounds
To buy Euro

Hedged Items
Accounts payable – tradeand others

Hedged Items
Accounts payable – tradeand others

–
–
–

¥ (3)
(18)
(18)
¥ (39)

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

¥129
338

2011
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
Total
year
Market Value

–
–

¥129
337
¥466

Thousands of U.S. dollars (Note 1 (a))
Contract AmountDue after one
year
Total
Market Value$1,025
6,929
19,584

–
–
–

$(34)
(234)
(239)
$(507)(note 1) Effective from January 1, 2011, the amount of market value does not include the notional amount.
2011
Interest related derivatives
TypeInterest rate swap
(Principle method)
To receive float, pay fix
Interest rate swap
(Exceptional treatment)
To receive float, pay fix

Hedged Items

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

Long-term loans payable¥4,497¥3,942¥ (677)

Short-term loans payable andLong-term loans payable

2,300

－

(note 2)¥ (677)

2010
Interest related derivatives
TypeInterest rate swap
(Principle method)
To receive float, pay fix
Interest rate swap
(Exceptional treatment)
To receive float, pay fix

Hedged Items
Long-term loans payable¥5,269¥4,716¥ (682)

6,184

2,300

(116)
¥ (798)

Short-term loans payable andLong-term loans payable

2011
Interest related derivatives
TypeInterest rate swap
(Principle method)
To receive float, pay fix
Interest rate swap
(Exceptional treatment)
To receive float, pay fix

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

Hedged Items
Long-term loans payable

Thousands of U.S. dollars (Note 1 (a))
Contract AmountDue after one
year
Total
Market Value$57,845$50,702$(8,707)

29,586－(note 2)$(8,707)

Short-term loans payable andLong-term loans payable(note 2) Effective from January 1, 2011, interest rate swap evaluated by exceptional treatment is treated as a single item
and market value evaluated by exceptional treatment is included in the market value of the current portion of long-termloans payable.

18. Business Combinations
Transactions applied to purchase method during the year ended December 31, 2010.
(1) Outline of the business combination(a) Name of company acquired and its businesses
Name of company :MODEC VENTURE 11 B.V.
Line of Business:Charter of FPSO(b) Main reason for the business combination
It is expected that steady production from the charter project contribute to the mid-and-longterm expansion of profit of MODEC Group(c) Date of business combination
December 31, 2010(d) Legal form of business combination
Acquisition of shares for cash consideration(e) Name of entity after business combination
MODEC VENTURE 11 B.V.
(f) Percentage share of voting rights acquired
Before business combination
40%
Additional share acquired at the date of business combination
20%
Total
60%
(g) Main reason for deciding acquired company
It is because the Company acquired the share for cash consideration

(2) Period of business results of the acquired company included in the financial statements
Since the company was regarded as being acquired on December 31, 2010, none of its businessresults is included in the financial statements of the Company and its subsidiaries.
However, the Company includes their profits as Equity in earnings.
(3) The measurement of acquisition cost(a) Acquisition Cost of the Company and Breakdown of the Cost
Millions of Japanese yen
2010
Acquisition cost of shares

Common stock of MODECVENTURE 11 B.V.

¥1,174

Expenses directly incurred
for acquisition
Acquisition Cost - Net－¥1,174(b) Gain of step acquisition is ¥34 million(4) Goodwill, reason for recognizing goodwill, amortization method and amortization period(a) Amounts of goodwill¥51 million(b) Reason for recognizing goodwill
The acquisition cost exceeded the fair value of the company at the time of businesscombination and the variance between these amounts is recognized as goodwill.
(c) Method and period to amortize goodwill
Straight-line method over effective period(5) Amounts of assets and liabilities acquired on the day of the business combination
Millions of Japanese yen
Current assets
Property and equipment
Total assets
Current liabilities
Long-term liabilities
Total liabilities¥ 2,0218,006
10,0273,726
514¥ 4,240

19. Segment Information
Industry segment information for the year ended December 31, 2010 is not disclosed because theCompany and its consolidated subsidiaries operate a single business relevant to floating production
facilities.
Geographical segment information by area for the years ended December 31, 2010 is as follows:Millions of Japanese yen
CentralCorporate

and
North
America¥10,896961
11,857
11,578
¥279

¥859
－
859
1,044
¥ (185)¥96,317
23,072
119,389
115,682¥3,707

¥0
942
942
917
¥25

¥146,661
28,664
175,325
171,612¥3,713–(28,664)(28,664)(28,515)¥ (149)¥146,661－
146,661
143,097¥3,564¥5,102¥747¥63,779¥21,311¥196,965¥ (50,337)¥146,628

Asia

Operating profit (losses)¥38,589
3,689
42,27842,391¥ (113)

Assets¥106,026

Sales:
Outside customers
Inter segment
Total
Operating expenses

and

South
America

Japan

2010:

OthersElimination

Total

Consolidated

The overseas sales of the Company and its consolidated subsidiaries for the year ended December
31, 2010 consisted of the following:
Millions of Japanese yen

2010:
Overseas sales
Consolidated sales
The ratio ofconsolidated
sales

Asia

AfricaOceania

CentralandSouth
America

North
America

Other

Total

¥6,901¥48,292¥10,316¥80,137

¥427

¥225

¥146,298

－

－

－

－

－

－

¥146,661

4.7%

32.9%

7.0%

54.6%

0.3%

0.2%

99.7%

[Related 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.
(Additional information)
Effective from the year ended December 31, 2011, the Company and its subsidiaries adopted
the new accounting standard, "Accounting Standard for Disclosures about Segments of anEnterprise and Related information (Statement No.17 issued by the Accounting Standards
Board of Japan on March 27, 2009) and the Guidance on the Accounting Standard forDisclosures about Segments of an Enterprise and Related information (Guidance No.20 issued
by the Accounting Standards Board of Japan on March 21, 2008).
(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
Millions of Japanese yen
BrazilAngola¥76,050

Oceania¥24,464

Asia¥11,197

Other¥8,959Total¥9,298¥129,968

Thousands of U.S. dollars (Note 1 (a))
BrazilAngola$978,257

Oceania$314,691

Asia$144,035

Other$115,241

Total$119,611$1,671,835(Note) Sales amount is based on the place of customer and classified by country or geographical area.

(b) Property and equipment
Millions of Japanese yen
Australia

Vietnam¥5,985Other¥5,349

Total¥629¥11,963

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

Vietnam$76,985

Other$68,804

Total$8,101$153,890(4) Information by major customer
Millions of Japanese yen
Customer

Sales

Related Segment

GUARA MV23 B.V.

¥33,817(note 1)

BP EXPLORATION (ANGOLA) LTD.

24,464(note 1)

OSX 3 LEASING B.V.

16,044(note 1)Thousands of U.S. dollars (Note 1 (a))
Customer

Sales

Related Segment

GUARA MV23 B.V.

$435,003(note 1)

BP EXPLORATION (ANGOLA) LTD.

314,691(note 1)

OSX 3 LEASING B.V.

206,374(note 1)

(note 1) The Company and its subsidiaries construct FPSOs and FSOs and operate their related services as single business andrelated 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.

20. Related Party Transactions
Significant related party transactions and corresponding balances between the Company andunconsolidated subsidiaries or affiliates for the year ended December 31, 2011 are as follows:
2011:

Related party
JUBILEE GHANA MV21 B.V.
JUBILEE GHANA MV21 B.V.
TUPI PILOT MV22 B.V.
TUPI PILOT MV22 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.
MODEC AND TOYO OFFSHOREPRODUCTION SYSTEMS PTE.
LTD.

Millions ofJapanese yen
Transactions
Disbursement of loans for capital expenditure
Collection of loans for capital expenditure
Disbursement of loans for working capital
Collection of loans for capital expenditure
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
Construction of FPSO (Cost of sales)

2011:

Related party
MODEC VENTURE 10 B.V.
ESPADARTE MV14 B.V.
OPPORTUNITY MV18 B.V.
SONG DOC MV19 B.V.
GAS OPPORTUNITY MV20 B.V.
JUBILEE GHANA MV21 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.
MODEC AND TOYO OFFSHOREPRODUCTION SYSTEMS PTE.
LTD.

¥2,182
17,511
7,908
9,810
34,42624,36339,33929,302
1,371
4,766
21,333

Millions ofJapanese yen
Balances
Short-term loans receivable
Long-term loans receivable
Long-term loans receivable
Long-term loans receivable
Long-term loans receivable
Short-term loans receivable
Long-term loans receivable
Short-term loans receivable
Accounts receivable
Short-term loans receivable
Accounts receivable
Accounts payable¥1,555
1,796
1,679
2,425
2,078
155
3,172
861
9,684
4,668
1,367
5,490

Thousandsof U.S.
dollars(Note 1 (a))$28,072
225,245
101,721
126,193442,829
313,386
506,027
376,929
17,63461,312
274,410

Thousandsof U.S.
dollars(Note 1 (a))$20,000
23,10021,60031,20026,7352,000
40,80011,080124,569
60,04017,58770,614Significant related party balances between the consolidated subsidiaries and the parent company or
major shareholders (corporation only) for the year ended December 31, 2011 are as follows:
2011:

Related party
MITSUI & CO., LTD.

Millions ofJapanese yen
Balances
Long-term loans payable¥1,931Thousandsof U.S.
dollars(Note 1 (a))$24,835

Significant related party transactions and corresponding balances between the consolidated
subsidiaries and unconsolidated subsidiaries or affiliates for the year ended December 31, 2011 are
as follows:
2011:

Related party
JUBILEE GHANA MV21 B.V.
CERNAMBI SUL MV24 B.V.

Millions ofJapanese yen
Transactions
Construction of FPSO (Sales)
Construction of FPSO (Sales)

2011:

Related party
JUBILEE GHANA MV21 B.V.
CERNAMBI SUL MV24 B.V.

¥2,901
7,271
Millions ofJapanese yen

Balances
Accounts receivable - trade
Accounts receivable - trade¥1,556
7,228

Thousandsof U.S.
dollars(Note 1 (a))$37,323
93,528
Thousandsof U.S.
dollars(Note 1 (a))$20,018
92,974Significant related party transactions and corresponding balance between the Company and theparent company or major shareholders (corporation only) for the year ended December 31, 2010 are
as follows:2010 :
Related party
MITSUI ENGINEERING &SHIPBUILDING CO., LTD.

Transactions
Underwrite an issue

Millions ofJapanese yen¥7,809Significant related party transactions and corresponding balances between the Company andunconsolidated subsidiaries or affiliates for the year ended December 31, 2010 are as follows:2010 :
Related party
RONG DOI MV12 PTE. LTD.
GAS OPPORTUNITY MV20 B.V.
GAS OPPORTUNITY MV20 B.V.
JUBILEE GHANA MV21 B.V.
TUPI PILOT MV22 B.V.
TUPI PILOT MV22 B.V.
GUARA MV23 B.V.
GUARA MV23 B.V.
GUARA MV23 B.V.
MODEC AND TOYO OFFSHOREPRODUCTION SYSTEMS PTE.
LTD.

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

Millions ofJapanese yen¥1,335
17,536
16,043
16,376
5,352
26,165
16,352
5,722
33,38915,138

Balances
Long-term loans receivable
Long-term loans receivable
Long-term loans receivable
Long-term loans receivable
Long-term loans receivable
Short-term loans receivable
Short-term loans receivable
Accounts receivable - trade
Accounts payable - trade

Millions ofJapanese yen¥1,630
1,883
1,761
2,543
2,179
16,194
15,637
15,297
4,538

2010 :
Related party
MODEC VENTURE 10 B.V.
ESPADARTE MV14 B.V.
OPPORTUNITY MV18 B.V.
SONG DOC MV19 B.V.
GAS OPPORTUNITY MV20 B.V.
JUBILEE GHANA MV21 B.V.
GUARA MV23 B.V.
GUARA MV23 B.V.
MODEC AND TOYO OFFSHOREPRODUCTION SYSTEMS PTE.
LTD.

Significant related party transactions and corresponding balances between the consolidated
subsidiaries and unconsolidated subsidiaries or affiliates for the year ended December 31, 2010 are
as follows:2010 :
Related party
JUBILEE GHANA MV21 B.V.
TUPI PILOT MV22 B.V.

Transactions
Construction of FPSO (sales)
Construction of FPSO (sales)

Millions ofJapanese yen¥10,495
25,547

Balances
Accounts receivable - trade
Accounts receivable - trade

Millions ofJapanese yen¥2,9183,525

2010 :
Related party
JUBILEE GHANA MV21 B.V.
TUPI PILOT MV22 B.V.