NOTE 1
OPERATING REVENUES TANDBERG develops and sells products within the communications area Videoconferencing. The group’s business activities are so closely related that no separate business segments could be identified according to the accounting definitions of segments. All of our sales derive from the same product group or services related to this product group, and there is a high degree of similarity of growth opportunities, risk and earnings potential for the various products within our portfolio. The geographical areas we operate in also have a high degree of similarity regarding potential for future development and levels of risk. The largest geographical areas, Americas and Europe, amount to 90% of total sales, and they both have similar profiles in terms of earnings potential, growth and risk. TANDBERG’s business activities are managed on a globally integrated basis as our customers tend to be global in nature. Lack of disciplined implementation of terms and conditions globally would cause continuing deteriorating profitability and lack of perceived professionalism. As TANDBERG does want to provide as much relevant qualitative and quantitative information as possible for analytical purposes, we will present a geographic breakdown of the group’s operating revenues in the largest areas and operating revenues per product category: 
Group management and the Board of Directors receive on a regular basis group financial statements with revenues per geographic area. Information about geographic profit centres is not presented on a regular basis internally. However, additional operational and market related data are provided on a regular basis to management to support their assessment of business performance and growth opportunities.
NOTE 2 FINANCIAL MARKET RISK TANDBERG is exposed to changes in exchange rates since parts of its revenues are in EUR, GBP and NOK. Parts of the cost of goods and operating costs are also in EUR, GBP and NOK, and the foreign exchange fluctuations impact on the operating results is therefore reduced. A change in the NOK/USD rate of +/- 1.00, impacts the operating revenue with about -/+ USD 2 million and the operating profit with about +/- USD 10-12 million. TANDBERG has no interest-bearing debt. Liquid funds are invested in Money Market Funds or at floating interest rates with banks, with an average interest rate of 1.3% in 2004. FOREIGN EXCHANGE TANDBERG does not take positions in financial instruments for the purpose of hedging future cash flows or cash holdings. The group’s net foreign exchange losses were USD 0.6 million in 2004, against USD 2.5 million in foreign exchange losses in 2003 and USD 7.0 million in foreign exchange losses in 2002.
NOTE 3 PENSION SCHEMES TANDBERG has a defined benefit pension plan for its employees in the Norwegian companies through an insurance company. In valuing pension funds and measuring accrued liabilities, estimated values are used. The following assumptions have been used at December 31: 
The discount rate applied for the 2004 calculations was reduced by 1% to reflect the interest rate reduction on long term risk free (government) bonds. The calculations assume a rate of staff turnover falling from 8% for the age group 20 to 24 years down to 0% for employees over 51. On average this results in a turnover ratio of 2-3% for the entire workforce. Those active in the pension plan have an average age of 33.3 years and a remaining service period in the plan of 23 years. As of 01.01.04 the plan covered 198 employees. 
Total Benefit Obligation (TBO) for Norwegian companies is estimated as of USD 22.4 million. Estimated pension funds in the balance sheet are considerably lower than estimated TBO. TANDBERG expects that the overfunding can be utilized in the future, and net pension assets are included in the balance sheet. TANDBERG Inc. has a 401-K contribution plan for its employees. Employees are eligible upon reaching the age of 21 and after 3 months employment. Employees can defer up to 15% of their pre-tax salary up to a maximum of USD 13,000 per year. The employer must correspondingly contribute 35% of the first 8% paid in by the employees. Pension payments from TANDBERG Inc. vest to the employees at 20% a year over a 5-year period. If an employee leaves the company before the end of the 5-year period, the unvested amount belongs to TANDBERG Inc. As of 31.12.04, 139 employees participated in this pension plan. The pension costs for TANDBERG Inc. in 2004 were USD 337,016. TANDBERG Inc. had a liability of USD 40,000 as of 31.12.04 related to the 401-K plan.
NOTE 4 SALARY COSTS Salary costs represent total costs associated with the remuneration of personnel employed in the group. These costs consist of direct salaries, holiday pay, bonuses, pension costs and social security taxes. The costs can be broken down as follows: 
The average number of full-time employees during the financial year was 564. At year-end, 589 persons were employed in the group. 
Loans to employees as of 31.12.04 amount to NOK 0 million for the parent company and USD 1.2 million for the group. SHAREHOLDINGS The column shows the number of shares owned by members of the Board of Directors and Group management controlled by them and related persons. OPTIONS ALLOCATED The column shows the group management’s total allocated, but not exercised, options under the company’s 2003-2004 share option program. SALARY AND BENEFITS The CEO has an agreement for severance pay amounting to USD 1,000,000 on termination of his employment. LOANS TO MANAGEMENT The CEO has a loan of USD 1,000,000 with TANDBERG Inc. The loan is repayable by 28 February 2006, and is secured by a loan agreement after US standards. AUDITOR KPMG is the elected auditor for TANDBERG asa, including all subsidiaries. The table below shows total fees (excluding VAT) paid to the auditors for auditing and other services in 2004 and 2003. 
NOTE 5 OTHER OPERATING COSTS Other operating costs consist of all operating costs with the exception of salaries, depreciation and losses on accounts receivable. 
NOTE 6 LEASE CONTRACTS FOR PREMISES 
LEASE CONTRACTS FOR PREMISES 
TANDBERG Telecom AS signed in 2004 a new lease contract for 5 additional years for the premises at Lysaker. Total obligation related to the new contract is NOK 42.5 million. Contracts at Lysaker with the same time to maturity are added together in the table.
NOTE 7 EARNINGS PER SHARE A total of 4,229,744 options were issued at 31.12.04. When calculating diluted earnings per share, the share capital to be paid-in relating to these options is taken into consideration. The capital to be paid-in is estimated to NOK 200.2 million and converted to the number of shares at the average share price for 2004 of NOK 64.87, which translates into 3,086,731 shares. The difference of 1,143,013 shares is added to the weighted number of shares in the calculation of diluted earnings per share. 
NOTE 8 INTANGIBLE AND TANGIBLE FIXED ASSETS 
Machinery and fixtures are depreciated on a straight-line basis over an economic life for new assets of between 3 and 5 years. 
Goodwill amounting to USD 25.3 million from the purchase of CBCI (now TANDBERG Inc. and TANDBERG Canada Inc.) is amortized over 20 years, based on the fact that the acquisitions have provided TANDBERG asa with a market position in the USA which is expected to be capable of exploitation for more than 20 years. Goodwill amounting to USD 6.0 million related to TANDBERG Telecom originates from the acquisitions of Delante and Internet Technology which were merged into TANDBERG Telecom in 2002. This goodwill is amortized over an economic lifetime estimated at 10 years. The goodwill from these two acquisitions is expected to be exploited for at least 10 years. In 2002, TANDBERG purchased a number of patents from Ezenia for a total value of USD 5.3 million. The patents are amortized over the expected economic lifetime of the patents which is between 13 and 16 years. In May 2004, TANDBERG Telecom acquired the stock of Ridgeway Systems & Software Ltd for a total consideration of USD 16.4 million including transaction-related expenses. Goodwill has been estimated at USD 3.2 million in the transaction, and is expected to be exploited for at least 10 years. In November 2004, TANDBERG Telecom purchased patents from Forgent Technology Inc. for a total value of USD 3.7 million. The patents are amortized over the expected economic lifetime of the patents which is between 13 and 16 years.
NOTE 9 
All transactions between the companies in the Group are carried out using the arm-lengths principle. In 2004, TANDBERG asa provided a long-term loan to TANDBERG Inc of MUSD 22. The loan has an interest rate of LIBOR USD +1%. The loan is considered as part of the net investment in TANDBERG Inc and included in the parent company’s balance sheet at historical currency rates.
NOTE 10 LIQUIDITY Liquid assets include restricted deposits of NOK 372,633 for the parent company and USD 1,060,744 for the group. Comparable figures for 2003 were NOK 236,828 and USD 960,147 respectively.
NOTE 11 OTHER SHORT-TERM LIABILITIES Other short-term liabilities consist of provisions related to operations, accruals and other liabilities. 
NOTE 12 TAX The tax charge is calculated on the basis of the accounting result and is divided between taxes payable and deferred taxes. Deferred taxes arise from timing differences between accounting and taxation balance sheet values. This is particularly evident in the depreciation of operating assets where accounting depreciation is on a straight-line basis, whereas tax depreciation generally follows the declining balance principle. The difference between accounting and tax deductions gives rise to the deferred tax asset, as tax depreciation has been less than the corresponding accounting depreciation, something which will be reversed once both have been fully depreciated. Tax charges are divided between Norwegian and foreign tax. 
SUMMARY OF TIMING DIFFERENCES
Tax losses carried forward amounting to GBP 13,345,729 related to Ridgeway Systems & Software Ltd have not been capitalized due to uncertainty with regards to future utilization. The losses can be carried forward indefinitely. In 1998 and 1999, the company claimed a tax deduction of NOK 150 million in connection with the conversion of receivables from TANDBERG Canada Inc. to share capital in the company. The tax authorities gave notice in 2000 that this deduction would be further reviewed. The review has been concluded and the tax returns for 1998 and 1999 have been accepted. In 2004, the tax authorities gave notice that they also will review TANDBERG asa’s intragroup purchase of BTVI/Canvas (now a part of TANDBERG Inc.). The tax authorities have indicated a possible increase in taxable income for TANDBERG asa, but at a considerably lower amount than was given notice of in 2000 for the 1998 and 1999 tax returns. The company is working on finalizing this issue together with the tax authorities. RECONCILIATION OF TAX CHARGE 
Permanent differences for the group relate mainly to tax deductions for exercised share options for employees in TANDBERG Inc.
NOTE 13 
At the Extraordinary General Meeting, 10 November 2004 an authorization to buy-back 10% of outstanding shares was given to the board. During 2004, a total of 3 955 470 shares were bought back at an average price of NOK 70,81 per share. As of 31.12.04, 58,2% of the authorization given to the board had not been used. The intention is to use the shares in connection with incentive schemes for employees, acquisitions or to cancel the shares through a capital reduction. 
TANDBERG asa had 4,258 shareholders as at 31.12.04. Foreign shareholders held 63% of the shares at the year-end. All shares carry the same rights in the company. Summary of the largest shareholders as at 31.12.04: 
NOTE 14 RESEARCH AND DEVELOPMENT Costs in connection with applied and basic research and development of USD 19.2 million have been expensed as they were incurred during 2004. The corresponding figures for 2003 and 2002 were USD 13.3 million and USD 11 million, respectively.
NOTE 15 LOSSES ON RECEIVABLES The provision for losses on receivables on a group basis totals USD 2.0 million as of 31.12.04 and is netted against accounts receivable in the accompanying balance sheet. As of 31.12.03, the provision for losses on receivables was USD 2.0 million. Realized losses on accounts receivable amounted to USD 1.2 million for the group in 2004, against USD 1.3 million in 2003.
NOTE 16 
The number of shares outstanding as of 31.12.04 was 134,324,806 of NOK 1 par value. In February, May, August and November 2004, employees of the group exercised share options. In total under these issues, 2,639,663 shares were issued at prices between NOK 28 and NOK 52. Employer’s social security tax relating to the option plan is accrued and expensed on an ongoing basis. 
* The proxy of 500,000 shares allocated for the CEO has extended validation to 15.04.06 All eligible employees participate in the 2003-2004 share option program at prices which are the relevant market prices at the time the individual was included in the plan. The minimum strike price for shares earned in the 2003 program is NOK 28 per share, while the equivalent for 2004 is NOK 49.
NOTE 17 CHANGE IN RECEIVABLES/PAYABLES/INVENTORIES Cash flow effects from changes in the balance sheet accounts. 
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