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                |   TANDBERG’s operating revenues grew 21.6% to 419.7 MUSD in 2006 (345.2 MUSD)1. This revenue growth was driven by increased market momentum, combined with TANDBERG’s continuous efforts to expand the market for visual communication. Operating fundamentals continued to be strong throughout the year, and TANDBERG delivered a gross margin of 67.4% (67.5%). Operating expenses, excluding non-recurring items of 13.1 MUSD related to settlement and associated legal costs, comprised 41.0% (39.7%) of the Group’s revenues. Depreciation for the year amounted to 15.7 MUSD (10.7 MUSD). This resulted in an operating profit of 94.9 MUSD (85.4 MUSD) before non-recurring items, or 81.8 MUSD inclusive of non-recurring items. The operating profit margin of 22.6% (24.7%) before non recurring items illustrated consistent execution and a strong business model, coupled with ongoing investments for future growth. Profit before tax ended the year at 86.2 MUSD (90.8 MUSD). Income taxes were 25.1 MUSD (20.7 MUSD), and the Group’s net income was 61.1 MUSD (70.1 MUSD), generating earnings per share of 0.52 USD (0.55 USD). Cash flow from operations totaled 122.7 MUSD (91.2 MUSD). Solid cash flow conversion was driven by improved working capital management and the non-cash effects of IFRS accounting for stock compensation, depreciation of capitalized R&D costs, service revenue deferrals, and changes in provisions. Cash outflow for investments, including the capitalization of R&D costs, amounted to 34.2 MUSD (23.1 MUSD). Repurchase of TANDBERG shares and the 2005 dividend totaled 142.4 MUSD. These resulted in a net decrease in liquid assets of 53.8 MUSD from the previous year-end. As of 31 December 2006, the Company had a cash balance of 149.6 MUSD (202.8 MUSD). Days-Sales-Outstanding decreased from 86.0 in the fourth quarter of 2005 to 62.0 in the fourth quarter of 2006. The equity ratio at year-end 2006 was 59.1% (75.5%). The Company has no outstanding overdraft or interest-bearing debt. It is the Board’s opinion that the annual accounts provide a true and fair view of the Group’s activities in 2006.  2006 was a year of high growth for the videoconferencing market. Momentum built throughout the year as industry visibility rose and customers responded to improved quality and High Definition solutions, as well as video’s promise of enhanced productivity. The integration of voice, video and presence has set the stage for increased video adoption within organizations. New offerings at the high-end of videoconferencing have increased awareness in the business community and also added a new dimension to the competitive landscape. The market is expanding for both high-end systems and lower-priced desktop solutions, and TANDBERG is well-positioned to take advantage of growth in both areas. In terms of revenues from videoconferencing endpoints, the market showed an estimated growth of 19.4%, an improvement over the 2005 growth rate (10.8%). Compared to the same periods in 2005, growth in the first quarter was 10.1% (12.9%), in the second quarter, 18.1% (9.9%), in the third quarter, 19.5% (12.9%) and 28.6% (8.0%) in the fourth quarter. Market growth in terms of units sold was 22.2% (21.0%) year-over-year. The market’s Average Sales Price (ASP) decreased from $5,074 in 2005 to $4,959 in 2006. TANDBERG’s overall ASP also decreased from $7,911 to $7,622 during the same period, primarily driven by a change in product mix as organizations move to broader deployments from the boardroom all the way to the desktop. New solutions, increased accessibility and improved ease of use are driving the market to reach new customer segments in 2007.  Industry-leading product development, alliance integration and sales execution are driving growth. TANDBERG’s estimated global market share for endpoints in the fourth quarter was 39.7% (33.8%) in terms of revenue and 27.0% (21.9%) in terms of units sold. TANDBERG’s total revenue from network infrastructure products (TMS, MPS, MCU, Gateways, Gatekeeper, Content Server, and Border Controller) in 2006 continued to increase with revenues up 30.7% (29.2%) compared to last year, accounting for 13.3% (12.3%) of total revenue for the year. Total solution selling increased TANDBERG’s market share to 24.1% (17.1%) by the end of 2006. Revenue from Value-Added Services in 2006 grew at a rate of 30.1% (25.2%) and amounted to 13.9% (12.9%) of total revenue.  TANDBERG’s revenues in the Americas represented 54.6% (54.8%) of total revenues and amounted to 229.1 MUSD (189.3 MUSD), up 21.0% year-over-year. The Company’s end-to-end offering drove both endpoint and network sales. TANDBERG Americas ended the year with an operating profit of 15.7 MUSD (7.7 MUSD). After a flat 2005, the Federal group outperformed expectations and grew 30.7% year-over-year, realizing the benefits of new program initiatives, a strong and more mature team, and a sophisticated user base. America’s enterprise revenue grew 17.1% year-over-year, characterized by balanced growth among regions and linearity across quarters. In order to be closer to customers, a new mid-Atlantic sales region was formed in 2006 and a Pacific Southwest region is launching in 2007. An Executive Briefing Center opened in Reston, Virginia, showcasing TANDBERG technology for visiting customers. Focus areas for 2007 include channel development, penetration of key accounts, and increased focus on customer segmentation.  Revenues in EMEA accounted for 36.3% (36.4%) of the Company’s total revenues and amounted to 152.3 MUSD (125.8 MUSD). Under a new organizational structure in 2006, the EMEA theatre had a positive year overall. Growth in EMEA was 21.1% for 2006. TANDBERG EMEA ended the year with an operating profit of 11.5 MUSD (7.6 MUSD). All five regions in EMEA demonstrated solid, balanced growth for 2006. Northern Europe and UK & Ireland showed particularly strong growth throughout the year in both the Public and Enterprise sectors. Within the other EMEA regions, the Gulf region and Germany also demonstrated robust growth. A new EMEA Technical Assistance Center (TAC) was launched in the third quarter. The TAC is currently serving the support needs of Accredited Service Partners and moving forward will become the center for all EMEA Partner service requests. Focus areas for 2007 include strengthening the channel distribution model, total solution selling, and professionalizing technical service delivery, with an overall emphasis on the productivity benefits of the TANDBERG solution.  Revenues in APAC represented 9.1% (8.7%) of the Company’s total revenues and amounted to 38.3 MUSD (30.1 MUSD), up 27.2% year-over-year. TANDBERG APAC ended the year with an operating loss of 1.0 MUSD, compared with a loss of 2.0 MUSD last year. APAC was reorganized in 2006 into two sub-regions, one incorporating North and Southeast Asia, Australia and New Zealand, and one focused on China and Japan. With each sub-region headed by a new President, the structure allows APAC to focus on the unique characteristics of each sub-region within Asia. Focus areas for 2007 include expanding channel distribution to reflect the maturity level of the different markets, and continuously developing the APAC organization.   TANDBERG continued to focus on providing a total solution that addresses customer needs. In 2006, the Company delivered to the industry a true end-to-end High Definition (HD) videoconferencing solution consisting of HD MXP endpoints for the desktop and meeting room, a full suite of infrastructure products, and a PrecisionHD camera. The TANDBERG Content Server allows customers to archive, stream and view video content in a secure, easy to access environment. TANDBERG also set the stage for market expansion in 2007 with two major announcements of products in development, telepresence and PC video. Experia, TANDBERG’s telepresence solution, reaches the executive decision maker who prefers a true-to-life video experience while Movi, TANDBERG’s PC video solution, makes video accessible to all members of an organization, no matter where they are. The Company spent 37.6 MUSD (28.2 MUSD) on basic and applied research and product development in 2006, of which 18.8 MUSD (10.9 MUSD) was capitalized according to IFRS. In January 2007, Mr. Odd J. Winge became Executive Vice President of Products, responsible for product development, product strategy and pricing. Areas of focus for 2007 include the development of targeted products for different customer segments.  TANDBERG outsources functions such as procurement, production, transportation, and warehouse services. As of year-end, five first-tier manufacturing partners in Scandinavia and two in the United States were contracted. Gross margins remained within the 66%-68% band as a result of an extended and improved portfolio of products and services, continuous process improvements and cost reductions. The Company delivered a total of 40,118 (32,618) endpoint systems in 2006, up 23% from 2005, and shipped a record 12,744 units in the fourth quarter. The Company’s mid-range MXP systems, comprised of the TANDBERG 550, 770, 880, 990, Edge-75, -85 and -95, 2000, and 3000, represented 50% (49%) of total systems sold. High-end MXP systems, including the TANDBERG 6000, 7000, 8000, Maestro, Tactical and specialized systems for the healthcare, education, judicial, legal and public safety markets, represented 14% (15%) of all systems sold, while the personal range, the TANDBERG 150, 1000, 1500 and 1700, accounted for 36% (36%). TANDBERG Products ended the year with an operating profit of 81.4 MUSD (69.1 MUSD).  TANDBERG continues to be committed to the integration of video with voice and presence. To this end, the Company has developed new alliances and expanded relationships with its existing alliance partners. At the start of 2007, Hewlett-Packard and TANDBERG announced a development program that allows TANDBERG’s standards-based videoconferencing systems to operate on the HP Halo Video Exchange Network (HVEN). The relationship allows customers of HP’s immersive telepresence solution to connect to any standards-based videoconferencing endpoint, including room and desktop units. During 2007 the companies will begin to market each other’s solutions. Underscoring the importance of VoIP convergence as one of the elements driving future growth of the video market, TANDBERG developed relationships with IP network providers Nortel and Avaya. TANDBERG video endpoints were certified to support Nortel’s Session Initiation Protocol (SIP) and integration with the Nortel MCS 5100 Multimedia Communication Server now enables users to easily launch video calls. In addition, all TANDBERG MXP video endpoints and MPS multipoint control units were certified Avaya-compliant. At the same time, TANDBERG strengthened its integration points with providers of desktop productivity tools. IBM® Lotus® Sametime® and IBM Lotus Notes® and Domino® users will be able to schedule and launch ad hoc video calls from any TANDBERG video system. The Company’s alliance with Microsoft was expanded with Zune and Sharepoint integrations.  TANDBERG headquarters are in Oslo, Norway and New York, United States. The Company has offices and representation in Norway, United States, Australia, Belgium, Canada, China, Denmark, Finland, France, Germany, Hong Kong, India, Italy, Japan, Korea, Malaysia, Mexico, Netherlands, New Zealand, Portugal, Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand and U.K. TANDBERG provides sales, support, and value-added services in more than 90 countries worldwide. TANDBERG ended the year with 872 (772) employees, an increase of 10.9%. TANDBERG continued to strengthen its sales organization as part of the ongoing effort to expand the overall market for visual communication. The Company likewise continued to invest aggressively in R&D to further drive its technology leadership, and capitalize on changing industry dynamics to secure long-term growth. In 2006, the Company further strengthened its operations and administrative functions to keep pace with the increasing complexity of a growing business within an evolving industry. Main focus areas were in Logistics and Operations, where steady progress on responsiveness and supply management continue to be key to the Company’s long-term competitiveness. The Company continued to invest in its people. In 2006, TANDBERG strengthened its middle and senior management teams with a combination of promoting from within and attracting high caliber external talent. A holistic people development program targeted towards attracting, developing, and retaining the right people was formally implemented and will be rolled out in 2007.  At the Annual General Meeting, 23 March 2006, Jan Chr. Opsahl, Amund Skarholt, and Jørgen Ole Haslestad were re-elected to the Board of Directors, together with Barbara Thoralfsson who was elected to replace Grace Reksten Skaugen. The Board of Directors would like to thank Grace Reksten Skaugen for her term as a member of the Board. In addition, two employee-elected representatives have seats on the Board.  TANDBERG’s guidelines for Corporate Governance are in accordance with the Norwegian Code of Practice for Corporate Governance, dated 28 November 2006, as required for all listed companies on the Oslo Stock Exchange with effect from 2007. The guidelines are included in this Annual Report and are also available on TANDBERG’s website: www.tandberg.com.  TANDBERG’s mission is to change the way people communicate. This mission is integral to the Company’s corporate culture and founded on the core values that define TANDBERG. TANDBERG encourages diversity and believes it is an asset to the Company. People with diverse backgrounds and perspectives are critical to innovation, and innovation is critical to TANDBERG’s success. TANDBERG is a socially responsible company committed to equal opportunity in the workplace. Equal opportunity in the workplace is a TANDBERG policy, approved and promoted by the Board of Directors and management. TANDBERG management believes that all employees should have equal access to opportunities whatever their gender, race, religion, national origin, age, or disabilities. This applies to all aspects of employment. TANDBERG offers a working environment that is congenial, safe, productive and well-balanced. Of the Company’s 872 employees, 24% (23%) are women. TANDBERG is committed to making the Company an attractive workplace for women at all levels and in all functions. Women occupy two seats on the Board of Directors, and in 2006, the Company successfully promoted women to senior positions within the Company, including one to the Group’s Executive Management Team. The Company continues to actively seek and identify highly-qualified candidates for senior level positions at numerous locations across the company. Likewise, the Company continues to encourage and actively work on increasing the number of women within R&D and Sales. Absence due to illness in 2006 was less than 3.0%. No accidents or incidents involving personal injury or material damage occurred.  TANDBERG is committed to embracing technologies that help companies, individuals and communities creatively address environmental challenges. As a provider of visual communication solutions, TANDBERG’s technology enables organizations to reduce energy consumption and contributes to lower CO2 emissions. In addition, as a manufacturer of electrical and electronic equipment, the Company is aware of environmental legislations and common practices. TANDBERG meets its obligations under the EU Directive Waste Electrical and Electronic Equipment (WEEE – 2002/96/EC). TANDBERG Telecom AS is registered as a member of Elretur AS in Norway. Elretur AS is a nationwide take-back company for the collection, recycling and environmentally sound processing of scrapped electrical and electronic equipment (WEEE). TANDBERG has labeled all products placed on the market after 13 August 2005 according to the requirements in the WEEE Directive. Global concerns over the human health and environmental risks associated with the use of certain environmentally-sensitive materials in electronic products have led the European Union to enact the Directive on the Restriction of the use of certain Hazardous Substances (Directive 2002/95/EC). From July 2006 the Company has complied with the European Union’s RoHS Directive and restricts the use of lead, mercury, cadmium, hexavalent chromium and two bromine-containing flame retardants, PBB (polybrominated biphenyls) and PBDE (polybrominated diphenyl ethers). TANDBERG understands the environmental risks associated with these substances and complies with the RoHS Directive requirements set by the European Union.  The visual communication market is still in its early stages, and two dominant players, one of which is TANDBERG, have thus far been able to operate in the market with market shares of approximately 40% each. As the demand for videoconferencing products increases, other companies have and will continue to enter the market, increasing competition and possibly creating negative impact on margins across the entire product portfolio. The Company’s market risks include risks related to the development of new videoconferencing products that address customers’ evolving demands and are competitive to other products and technologies offering the same or similar capabilities. The market for videoconferencing products is characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. The success of TANDBERG’s new products depends on the overall product portfolio and the positioning of each product within the portfolio. The products’ cost efficiency, timeliness, and differentiating features versus those of competitors are also important. In addition, TANDBERG’s success in the visual communication market is affected by the ability to properly address complexities associated with selling total visual communication solutions, including ensuring compatibility across products, effectively training channel partners and delivering technical and sales support. The Company has low exposure to financial risks, and has no funding need or liquidity risk. Cash balance at 31 December 2006 is at 149.6 MUSD (202.8 MUSD), and the company has no interest bearing debt and an equity ratio at year-end 2006 of 59.1% (75.5%). The Company is exposed to foreign exchange risk and credit risk in its ordinary business activities, and these risks are closely monitored and limited to acceptable levels. It is the Company’s policy not to use financial instruments in order to reduce/increase the Company’s foreign exchange risks. All new customers are checked for credit rating and all customers are checked against credit limits before contracts are closed. Over the past few years, TANDBERG’s operations have expanded in some emerging markets, Latin– and South America and Asia Pacific regions. Credit terms are typically longer in these regions than for Northern Europe and North America, negatively impacting accounts receivable balances, and correspondingly the overall credit risk has grown. However, some of this risk is mitigated through credit policies such as prepayment and Letters of Credit. Loss on accounts receivable has been below 1% the last three years and there are no significant concentrations of credit risk within the Group.  In accordance with Norwegian accounting regulations, the Board confirms that the annual financial statements have been prepared on a going concern basis.  In view of the Company’s strong cash flow and cash position, the Board of Directors called an Extraordinary General Meeting on 10 November 2004 and obtained authorization for a share buyback program which opened for buyback up to 10% of TANDBERG’s shares (13,428,460 shares at 10 November 2004) in the market. The intention was to use the shares in connection with incentive schemes for employees or acquisitions, or to cancel the shares through a capital reduction. All transactions under this program were disclosed to the Oslo Stock Exchange, and on the corporate website. In accordance with the authorization, between 16 November 2004 and 1 March 2006, the Company purchased a total of 13,428,460 shares in the market. The Annual General Meeting on 23 March 2006 passed a resolution to reduce the share capital by 13,428,460 from 134,324,806 to 120,896,346 by way of cancellation of these shares, effective 1 June 2006. At the Annual General Meeting on 23 March 2006, the Board of Directors obtained a new authorization to buy back up to 10% of TANDBERG’s shares (12,089,634). In accordance with the new authorization, between 7 June 2006 and 8 November 2006, the Company purchased a total of 12,089,634 shares in the market. As of 31 December 2006, TANDBERG was holding 12,089,634 of its own shares.  As of 31 December 2006, there were 120,896,346 (134,324,806) shares outstanding. There were no shares issued during 2006. The Company had 3,395 (4,592) shareholders at year-end. At that time, 31.8% (31.1%) of the shares were held in Norway-based accounts, 40.1% (26.3%) in U.S.-based accounts, 15.9% (16.4%) in UK-based accounts, 10.1% (24.1%) in other Europe-based accounts and 2.1% (2.1%) based elsewhere around the world.  TANDBERG is aligned along a single unifying mission, “Changing the way people communicate.” The Company’s growth in 2006 across key markets and sectors, and in the area of business alliances, has further strengthened its market position as a leading company in the industry. The Board of Directors views the visual communication industry’s long-term prospects as positive. Given TANDBERG’s efficient organizational structure, consistent technology leadership, and focus on balanced growth, the Board is optimistic about the Company’s future outlook.  The net profit of the parent company, TANDBERG asa, was NOK 290,438,000. The Board recommends the following allocation of net profit for 2006, based on a dividend of NOK 0.80 per share (NOK 0.65), an increase of 23.1% (18.2%) from 2005 and equivalent to 18.0% (16.6%) of the parent Company’s cash flow from operations in 2006:
Lysaker, Norway, 15 February 2007. JAN CHR. OPSAHL, CHAIRMAN FREDRIK HALVORSEN, CEO    Jan Chr. Opsahl is a Business Administration graduate from the University of Strathclyde in Scotland and a Sloan Fellow of the London Business School and Massachusetts Institute of Technology. Opsahl was previously Director of Marketing for Dyno Industries and Unitor, as well as President of Tomra Systems. In 1988 he became the Founder and President of a new company utilizing TANDBERG as the holding company. He joined the Board of TANDBERG in 1996 and has been the Chairman since 1997. He is now Chairman of the Board of TANDBERG, TANDBERG Television and Tomra Systems. Opsahl is a member of TANDBERG’s Nomination Committee and Audit Committee.   Amund Skarholt started his professional career working for Nordenfjeldske Dampskibsselskab in accounting and finance. He then joined IBM, holding key positions including Director of Operations for IBM Europe in Paris from 1987 to 1990. From 1991 until 2003, Skarholt was Deputy Group CEO in The Securitas Group, an international company with 700 branch offices and 125,000 employees, and from 2003 until 2005 President and CEO of Bravida. He is currently President and CEO of Tomra Systems. Skarholt has been a member of the Board since June 2003 and is the Committee Chair of TANDBERG’s Compensation Committee.  Jørgen Ole Haslestad is M.Sc. Mechanical Engineer from the Norwegian University of Science and Technology. He started his professional career in Kongsberg Offshore (formerly Kongsberg Våpenfabrikk) in 1986, and from 1989 was Managing Director. He started at Siemens AG in 1994, and is today Managing Director of Siemens Industrial Solutions and Services Group. Haslestad is also a member of the Board of Yara ASA. He joined the Board of TANDBERG in April 2004.  Barbara Thoralfsson has an MBA from Columbia University. She started her professional career at Kraft General Foods in 1981 and has been Managing Director of Midelfart and President of TeliaSonera Norway (NetCom AS). Thoralfsson is currently a Director at Fleming Invest AS, and is a member of the Boards of Electrolux AB, Fleming Invest, Rieber & Søn ASA, Stokke AS, Norfolier AS, SCA AB and Storebrand ASA. She joined the Board of TANDBERG in March 2006 and is a member of TANDBERG’s Compensation Committee.  Patricia S. Auseth has a Bachelor’s degree in International Marketing and Business Administration from E.S.A.D.E. and I.C.A.D.E., Spain. She has been with TANDBERG since 1998, holding different positions within the EMEA sales organization. She is currently the Director of TANDBERG University, responsible for technical and sales competency in the EMEA and APAC partner community, as well as internal competence-building within the TANDBERG organization. Auseth has been an employee representative member of the Board since April 2003.  Carl H. Aaby has a Master’s degree in Informatics from the University of Oslo. After graduation, he worked as a consultant before joining TANDBERG in November 1999. Starting as a project manager and developer, Aaby is now working as Manager of Software Integration, leading a team responsible for TANDBERG’s third party integrations. He has been an employee representative member of the Board since April 2005. 1 The figures in parentheses are for the corresponding period in 2005.
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