TANDBERG 2003 ANNUAL REPORT

THE GROUP
The TANDBERG group comprises the parent company TANDBERG asa and its wholly owned subsidiaries as at 31.12.2003. These include the subsidiaries TANDBERG Telecom AS, TANDBERG Inc. and TANDBERG Canada Inc. TANDBERG Telecom AS has one wholly owned subsidiary, TANDBERG UK Ltd.

BASIC PRINCIPLES
The annual and group financial statements consist of the profit and loss statement, balance sheet, cash flow analysis and notes which have been prepared in accordance with the Norwegian Companies Act, Norwegian Accounting Act and generally accepted accounting principles applicable in Norway as at 31 December 2003. To make the annual and group financial statements easier to read, the statements have been prepared in summary form. The necessary details are given in the notes. The notes are thus an integral part of the annual financial statements.

The annual and group financial statements are based on fundamental principles with regard to historic cost, comparability, continued operation, congruence and prudence. Transactions are recorded at the value of the consideration on the transaction date. Income is recognized when earned and costs are expensed in the same period as the income to which they relate is recognized. The accounting principles are set out in further detail below. When actual figures are not available at the date of preparation of the accounts, generally accepted accounting principles require management to make estimates to the best of their belief for use in the profit and loss statement and balance sheet. Differences may arise between estimated and actual figures.

CONSOLIDATION PRINCIPLES
The group financial statements have been prepared as if the group was a single economic entity. All transactions, inter-company balances and internal services between group companies are eliminated. The group financial statements have been prepared on the basis of unified accounting principles in that the subsidiaries use the same accounting principles as the parent company.

Subsidiaries acquired are recognized in the group financial statements at the acquisition cost to the parent company. The acquisition cost is allocated to identifiable assets and liabilities in the subsidiary, which are shown in the group financial statements at actual value at the acquisition date. Surplus value that cannot be allocated to identifiable assets is capitalized as goodwill. Goodwill is depreciated on a straight-line basis over its expected economic life.

ELIMINATION OF SHARES IN SUBSIDIARIES
Shares in subsidiaries are eliminated in the group financial statements based on the purchase method. The difference between the cost price of the shares and the book value of net assets at the date of acquisition is analyzed and attributed to the individual balance sheet items in accordance with actual value. Any additional payment, which relates to expectations as to future earnings is capitalized as goodwill and depreciated in the profit and loss statement in line with underlying circumstances and its expected economic life.

TRANSLATION OF FOREIGN SUBSIDIARIES
In the case of foreign subsidiaries the profit and loss statement is converted to Norwegian kroner based on the average exchange rate for the year, while assets and liabilities are converted at the exchange rate on the balance sheet date. Changes in the group’s equity as a result of differences in the exchange rate on the balance sheet date as compared to the exchange rate as at the previous year-end are accounted for directly against equity.

SALES REVENUES
Income is booked to the profit and loss statement as earned. Income is normally recognized on the date of delivery for sales of goods and services. Income arising from service contracts is recognized as income over the term of the contract. Other income from services is recognized at the time the service is performed.

The leasing of videoconferencing equipment where the present value of the rental payments is equivalent to most of the item’s sales value, or where it is overwhelmingly likely that the item will be taken over by the user at the end of the contract period or later, is recorded as financial leasing. Such agreements are recognized as income on delivery of the leased item and not capitalized.

CLASSIFICATION AND VALUATION OF BALANCE SHEET ITEMS
Current assets and current liabilities include all items, which fall due for payment within one year of the date they were created, as well as items related to goods circulation. All other items are classified as fixed assets/long-term liabilities.

Current assets/liabilities are valued at the lower/higher of acquisition cost and actual value.
Fixed assets are valued at acquisition cost. If the actual value of an asset is lower than book value, and this is due to factors which are not expected to be temporary, the asset is written down to actual value. A write-down will be reversed if the reason for it ceases to apply.

Subsidiaries are valued using the cost method in the company’s accounts unless a write-down has been necessary. A write-down to actual value is made if there is a fall in value, which cannot be regarded as temporary and the write-down is considered necessary in accordance with standard accounting practice.

ACCOUNTS RECEIVABLE
Accounts receivable and other receivables are recorded at face value after a provision for any expected losses.

INVENTORIES
Inventories of raw materials and components are valued at the lower of cost and actual value. Allowance is made for estimated obsolescence.

FOREIGN CURRENCY
Current transactions denominated in foreign currency are recorded at the exchange rate on the transaction date. Liquid assets, receivables and liabilities in foreign currency are converted at the exchange rate on the balance sheet date.

TANGIBLE FIXED ASSETS
Fixed assets are recorded in the balance sheet at acquisition cost, less accumulated depreciation and write-downs. If the actual value of the asset is lower than book value, and this is due to factors which are not expected to be temporary, the asset is written down to actual value. The direct costs of maintaining fixed assets are recognized as they are incurred as operating costs, but additional costs or improvements to fixed assets are added to the asset’s cost price and depreciated with that asset.

INTANGIBLE ASSETS
Intangible assets, which are expected to produce future earnings, are recorded in the balance sheet and depreciated on a straight-line basis over their expected life.

Intangible assets include goodwill and know-how.

RESEARCH AND DEVELOPMENT
Costs related to applied and basic research and development are recorded in the profit and loss statement as they are incurred.

PENSION SCHEMES
The Norwegian companies in the group maintain a group pension plan with an insurance company. The plan provides rights to defined future benefits, which are mainly dependent on the number of contribution years, the salary level at the date of retirement and the amount of benefits expected from the State Pension Plan. These liabilities are provided for through the insurance company Storebrand Liv. Net pension expenses include the benefits accrued in the period and interest costs on pension liabilities after deducting forecast returns on the pension funds. The pension funds are valued at market value. In the event of over-funding, net pension funds are shown as a long-term receivable to the extent that future use of the funds can be demonstrated.

The assumptions used in the calculations are set out in Note 3.

Pension costs for companies, which have a short-term contribution plan are recorded in the profit and loss statement as incurred.

STOCK OPTION PLANS
The company has a stock option program, which covers all employees. Social security tax related to any increase in the value of subscription rights is accrued over the term of the option program.

TAXES
The tax charge in the profit and loss statement includes both taxes payable for the period and the change in deferred taxes. The change in deferred taxes reflects future taxes payable which arise as a result of the year’s activities. Deferred taxes are taxes which relate to accumulated profits but which will be payable in later periods. Deferred taxes are calculated using the liability method of net positive timing differences between accounting and taxation balance sheet values including tax losses carried forward. Deferred tax allowances are recognized as an asset in the balance sheet to the extent that they are considered capable of being realized.

EARNINGS PER SHARE
Earnings per share are calculated on the basis of profit after tax per time-weighted share, using the actual number of days. Earnings per share after dilution take into account the effect of subscription rights outstanding at year-end.

CASH FLOW ANALYSIS
The cash flow analysis has been prepared using the indirect method. Cash and cash equivalents consist of cash, bank deposits and other short-term, liquid investments which can immediately and without significant price risk be converted to a known cash amount and which have a maturity date less than three months from the acquisition date.

TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
For reporting periods beginning on or after 1 January 2005, the consolidated accounts of TANDBERG must comply with International Financial Reporting Standards (IFRS) endorsed by the European Union and Norway.

Impact of conversion on consolidated group financial statements
These financial statements have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting principles in Norway (N GAAP). The differences between IFRS and N GAAP identified to date as potentially having a significant effect on the consolidated financial statements are summarized below. The summary should not be taken as an exhaustive list of all the differences between IFRS and N GAAP that potentially have a significant impact upon the consolidated financial statements. No attempt has been made to identify all disclosure, presentation or classification differences that would affect the manner in which transactions or events are presented.

The group has not completed its quantification of the effects of the differences discussed below. The consolidated financial performance and financial position as disclosed in these financial statements may be significantly different if determined in accordance with IFRS.

The Norwegian Accounting Act is under revision. In addition, NorskRegnskapsStiftelse and IFRS have significant ongoing projects that could affect the differences between IFRS and N GAAP described below and the impact of these differences relative to the consolidated financial statements in the future. The potential impacts on the consolidated financial statements of the adoption of IFRS will depend on the particular circumstances prevailing on adoption of IFRS on 1 January 2005 and how TANDBERG choose to adopt IFRS.

The major differences between N GAAP and IFRS identified to date as potentially having a significant effect on the consolidated financial statements of TANDBERG are as follows:

– Accounting for employee share option program
– Research and Development costs
– Mandatory impairment testing of Goodwill, i.e. no annual amortization
– Accounting for Group pensions
– Possible effects of IAS 39 for financial instruments (IAS 39 is not yet approved)

IFRS conversion plan
TANDBERG will report after the new IFRS standard for the first time in 1Q 2005, with one year of comparison numbers, as set out in the standard.

The company follows closely the ongoing process and will comply with the new rules and recommendations and the requested time schedules as the IFRS standardization committee, Oslo Børs and our advisors lay them out. The 2004 annual report will contain more quantitative information about the implications IFRS will have on our financials.