TANDBERG asa (the Company) is domiciled in Norway. The consolidated financial statements of TANDBERG for the year ended 31 December 2006 comprise the Company and its subsidiaries (together referred to as the “Group”).

The financial statements were authorized for issuance by the Board of Directors on 15 February 2007.

The principal accounting policies adopted for the preparation of the 2006 consolidated financial statements are set out below:

The consolidated financial statements of TANDBERG asa and all its subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRS) approved by the European Union and Norwegian accounting act.

TANDBERG is a leading global provider of visual communication products and services. The Group provides sales, support and value-added services in more than 90 countries worldwide. The Group’s operations are organized into three theatres: Americas, EMEA and APAC, and its main logistics and R&D activities are centered in Oslo, Norway.

The financial statements are presented in United States Dollars (USD), rounded to the nearest million. They are prepared on a historical costs basis. No assets, except financial instruments, have been stated at their fair value.

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Judgments made by management in the application of IFRS that have a significant impact on the financial statements and estimates with a significant risk of material adjustments in the next year are discussed in note 18.

The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Accounting estimates employed in the financial statements to determine reported amounts include the realizability of certain assets, the useful lives of tangible and intangible assets, income taxes and others. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from these estimates.

The consolidated financial statements of TANDBERG include the financial statements of the parent company, TANDBERG asa, and its subsidiaries. Subsidiaries are those entities in which TANDBERG owns, either directly or indirectly, over 50% of the voting rights, or otherwise has the power to govern their operating and financial policies.

Acquisitions of subsidiaries are accounted for using the purchase method of accounting. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition, plus costs directly attributable to the acquisition. The excess acquisition cost over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. Subsidiaries acquired during the year are included in the consolidated financial statements from the date control is transferred to the Group, and subsidiaries sold are included in the consolidated financial statements until the date control is transferred from the Group. Where necessary, the accounting policies of subsidiaries have been adjusted to ensure consistency with the policies adopted by the Group.

All intercompany transactions, receivables, liabilities and unrealized profits, as well as intragroup profit distribution, have been eliminated.

The consolidated financial statements of TANDBERG are expressed in US dollars (“USD”). The Group began presenting its results in USD with effect from 1 January 2004.

Generally, the local currency is used as the measurement currency for the various entities. In the respective entity’s financial statements, monetary assets and liabilities denominated in foreign currencies are translated to US dollars at the rate prevailing on the balance sheet date. Transactions are recorded using the approximate exchange rate at the time of the transaction. All resulting foreign exchange transaction gains and losses are recognized in the subsidiary’s income statement.

Income, expense and cash flows of the consolidated companies have been translated to USD using average exchange rates. The balance sheets are translated using the year-end exchange rates. Translation differences arising from movements in the exchange rates used to translate equity and long-term intercompany financing transactions and net income are allocated to shareholders’ equity.

Property, plant and equipment are stated at cost, defined as acquisition cost less accumulated depreciation and impairment losses. Property, plant and equipment, having different useful lives, are accounted for as separate items of property, plant and equipment. Property, plant and equipment have been valued at cost of acquisition or production and are depreciated on a straight-line basis over the following estimated useful lives:

Machinery and equipment: 3 to 5 years
Furnishings: 3 to 5 years
Computer hardware: 1 to 3 years

Intangible assets are valued at cost and reviewed periodically for diminution in value. Any resulting impairment loss is recorded as an operating expense. For business combinations, the excess of the purchase price over the fair value of net identifiable assets acquired is recorded as goodwill in the balance sheet. At each balance sheet date, the Group evaluates the carrying value of goodwill. Impairment is recognized as a value adjustment when the expected future operating cash flows derived from the underlying business are less than the carrying value of the associated goodwill.

Intangible assets are depreciated over useful lives of 12 to 17 years on a straight-line basis.

Goodwill is not depreciated.

Research and development costs – Research costs are expensed as incurred. Development expenditures incurred on individual projects are capitalized when their future recoverability can reasonably be regarded as assured. Following the initial capitalization of the development expenditure, the resulting asset is carried at cost less any accumulated amortization and accumulated impairment losses. Any capitalized development expenditure is amortized over the period of expected future sales from the related project.

The carrying value of the development expenses is reviewed for impairment annually when the asset is not yet in use or more frequently when factors indicate that the carrying value may not be recoverable.

Subsequent expenditures on capitalized intangible assets are capitalized only when they increase the future economic benefit embodied in the specific asset to which they relate. All other expenditures are expensed as incurred.

Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises raw materials, direct labor and other direct costs (based on normal operating capacity) but excludes borrowing costs. Net realizable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses.

Trade receivables are carried at their anticipated realizable value, which is the original invoice amount less an estimated collection allowance for impairment of these receivables. A valuation allowance for impairment of trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable.

Cash and cash equivalents comprise cash on hand, deposits held with banks, and other short-term highly liquid investments with original maturities of three months or less.

The carrying amounts of the Group’s assets, other than inventories, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If such indication exists, the asset’s recoverable amount is estimated.

For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date.

An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in the income statement.

Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

Calculation of recoverable amount – The recoverable amount of other assets is the greater of their net selling price or value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

For further description of methods and assumptions on impairment tests on goodwill, see note 17.

Reversal of impairment – An impairment loss in respect to goodwill is not reversed.

An impairment loss for other assets is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Repurchase of share capital – When share capital recognized as equity is repurchased, the amount of the consideration paid is recognized as a reduction of equity. Nominal value of the repurchased shares is recognized as a separate item under equity, while the difference between the consideration paid and the nominal value of equity is recognized under Other equity.

Dividends – Dividends are recognized as a liability when declared by the General Meeting.

When implementing IFRS, cumulative unrecognized actuarial gains and losses were recognized against equity. With effect from 31 December 2005, the defined benefit scheme in TANDBERG Telecom AS was terminated, resulting in a gain which was recorded under Wages and social costs items.

From 2006 onward, the Group only has defined contribution plans for its employees.

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related services are provided.

At year-end, cash incentives are provided for as these incentives have been earned but not paid out to the employees.

The share incentive program allows Group employees to acquire shares of the Company. The fair value of the incentives granted is recognized as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and allocated over the period during which the restricted shares vest. The fair value of the shares granted is measured using a valuation method for exotic options with barrier functions, taking into account the terms and conditions upon which the restricted shares were granted. The amount recognized as an expense is adjusted to reflect the actual number of shares that vest except where forfeiture is only due to share prices not achieving the threshold for vesting. The program is defined as equity settled, while accrued social security taxes are defined as cash-settled.

Taxes paid by the employees based in the United States are deducted against Wages and social costs, as these taxes are refunded to the Company. The reduction is recognized when the refunds are received by the Group.

It is the Group’s policy that no trading in financial instruments shall be undertaken.

Short-term cash deposits are defined as financial instruments under IFRS and are measured at fair value. The short-term cash deposits are structured to limit balance sheet risk.

Receivables and debt are valued at market value which is assumed to be book value at the balance sheet date.

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of the provision to be reimbursed, the reimbursement is recognized as a separate asset, but only when the reimbursement is certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as borrowing costs.

Included in provisions are estimated future warranty costs. Warranties relate to product liability for goods sold during the year. Normal warranty period is 12 months +1 month for shipping.

Goods sold and services rendered – Revenue from the sale of goods is recognized in the income statement when the significant risks and rewards of ownership have been transferred to the buyer. Revenue from services rendered is recognized in the income statement in proportion to the stage of completion of the transaction at the financial statement date. The stage of completion is assessed by reference to the time frame of the service contacts, measured by the costs for completing the service contracts. Service revenues are recognized linearly over the lifetime of the service contract.

No revenue is recognized if there are significant uncertainties regarding recovery of the consideration due, associated costs, the possible return of goods, or continuing management involvement with the goods.

Operating lease payments – Payments made under operating leases are recognized in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognized in the income statement as an integral part of the total lease contract.

The income tax provision for the year comprises current and deferred tax. Income tax is recognized in the income statement except to the extent it relates to items recognized directly in equity, in which case it is recognized in equity.

Tax effects from the realization of treasury shares are recognized directly as a reduction against equity.

Current tax is the expected taxes payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable for previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, nor differences relating to investments in subsidiaries to the extent that they are not likely to be reversed in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

The tax effects of the elimination of intragroup transactions are recognized as a deferred tax asset or deferred tax liability.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available for utilization against the asset. Deferred tax assets are reduced to the extent it is no longer probable that the related tax benefit will be realized.

A segment is a distinguishable component of the Group that is engaged in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

The Group has identified its geographical segment as its primary segment, and business segment as its secondary segment. The Group’s geographical segments are determined by the customer’s locations.

Included as a separate segment is the business unit Products, which is responsible for product development, logistics, Information Technology and Research and Development activities in the Group. All revenues in this segment are intragroup revenues, which are eliminated at Group level.

As all sales derive from the same product group or service related to the product group, and there is a high degree of similarity of growth opportunities, risk and earnings potential for the various products within our portfolio. no defined business segments are reported.
Transfer prices between segments are set on an arm’s length basis in a manner similar to transactions with third parties.

Segment reporting is based upon management structure and internal financial reporting to the Board of Directors and the Chief Executive Officer.

Principles for calculating earnings per share are disclosed in Note 11.

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2006, and have not been applied in preparing these consolidated financial statements:

IFRS 7 Financial Instruments – Disclosures and the Amendment to IAS1 Presentation of Financial Statements: Capital Disclosures require extensive disclosures about the significance of financial instruments for an entity’s financial position and performance, and qualitative and quantitative disclosures on the nature and extent of risks. IFRS 7 and amended IAS 1, which become mandatory for the Group’s 2007 financial statements, will require extensive additional disclosures with respect to the Group’s financial instruments and share capital.

IFRIC 8 Scope of IFRS 2 Share-based Payment addresses the accounting for share-based payment transactions in which some or all of goods or services received cannot be specifically identified. IFRSI 8 will become mandatory for the Group’s 2007 financial statements, with retrospective application required. The Group has not yet determined the potential effect of the interpretation.

IFRIC 9 Reassessment of Embedded Derivatives requires that a reassessment of whether embedded derivatives should be separated from the underlying host contract should be made only when there are changes to the contract. IFRIC 9, which becomes mandatory to the Group’s 2007 financial statements, is not expected to have any impact on the consolidated financial statements.

IFRIC 10 Interim Financial Reporting and Impairment prohibits the reversal of an impairment loss in a previous interim period in respect of goodwill, investment in an equity instrument of a financial asset carried at cost. IFRIC 10 will become mandatory for the Group’s 2007 financial statements, and will apply to goodwill, investments in equity instruments, and financial assets carried at costs prospectively from the date that the Group first applied the measurement criteria of IAS 36 and IAS 39 respectively (i.e. 1 January 2004). The adoption of IFRIC 10 is not expected to have any impact on the consolidated financial statements.