##### 



EXHIBIT 10 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and shareholders of Norsk Hydro ASA
Oslo, Norway We have audited the consolidated balance sheets of Norsk Hydro ASA and
subsidiaries as of December 31, 2003 and 2002, and the related consolidated
income statements, statements of comprehensive income, and cash flows for each
of the three years in the period ended
December 31, 2003. Our audits also included the schedule to the consolidated
financial statements included at Item 19(a).As described in Note 1 to the
consolidated financial statements, these financial statements and the financial
statement schedule have been prepared on the basis of accounting principles
generally accepted in the United States of America. These financial statements
and the financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Norsk Hydro ASA and subsidiaries
as of December 31, 2003 and 2002, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, the consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein. As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for asset retirement obligations in 2003 and goodwill and
other intangible assets in 2002 to conform to newly adopted accounting
principles. Deloitte Statsautoriserte
Revisorer AS Oslo, Norway March 2, 2004, except for Notes 1 and 2, as to which the date is June 30, 2004




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##### 



Hydro Annual Report 2003
Consolidated financial statements88 Consolidated income statements Norsk Hydro ASA and subsidiaries Year ended 31 December,
    
    
    
    
    2003
    
    2003
    
    2002
    
    2001Amounts in million (except per share amounts)
    Notes
    
    NOK
    
    EUR*)
    
    NOK
    
    NOKOperating revenues
    
    
    5
    
    
    
    171,782
    
    
    
    20,468
    
    
    
    167,040
    
    
    
    152,999Raw materials and energy costs
    
    
    
    
    
    
    101,320
    
    
    
    12,072
    
    
    
    103,711
    
    
    
    94,741Payroll and related costs
    
    
    7, 20
    
    
    
    21,785
    
    
    
    2,596
    
    
    
    20,333
    
    
    
    17,237Depreciation, depletion and amortization
    
    
    5, 15, 16
    
    
    
    15,093
    
    
    
    1,798
    
    
    
    13,912
    
    
    
    12,273Other
    
    
    7, 25
    
    
    
    9,326
    
    
    
    1,111
    
    
    
    9,253
    
    
    
    6,744Restructuring costs
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    921Operating costs and expenses
    
    
    
    
    
    
    147,524
    
    
    
    17,577
    
    
    
    147,199
    
    
    
    131,916Operating income
    
    
    5
    
    
    
    24,258
    
    
    
    2,891
    
    
    
    19,841
    
    
    
    21,083Equity in net income of non-consolidated investees
    
    
    5, 13
    
    
    
    1,229
    
    
    
    146
    
    
    
    33
    
    
    
    566Financial income (expense), net
    
    
    8, 11, 24
    
    
    
    201
    
    
    
    24
    
    
    
    1,935
    
    
    
    (762
    )Other income (expense), net
    
    
    5, 9
    
    
    
    (1,212
    )
    
    
    (145
    )
    
    
    219
    
    
    
    578Income before taxes and minority interest
    
    
    
    
    
    
    24,476
    
    
    
    2,916
    
    
    
    22,028
    
    
    
    21,465Income tax expense
    
    
    10
    
    
    
    (13,937
    )
    
    
    (1,661
    )
    
    
    (13,278
    )
    
    
    (13,750
    )Minority interest
    
    
    
    
    
    
    148
    
    
    
    18
    
    
    
    15
    
    
    
    177Income before cumulative effect of change
in accounting principle
    
    
    
    
    
    
    10,687
    
    
    
    1,273
    
    
    
    8,765
    
    
    
    7,892Cumulative effect of change in accounting principle
    
    
    
    
    
    
    281
    
    
    
    34
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    10,968
    
    
    
    1,307
    
    
    
    8,765
    
    
    
    7,892Earnings per share before change in accounting principle
    
    
    3
    
    
    
    41.50
    
    
    
    4.94
    
    
    
    34.00
    
    
    
    30.50Earnings per share
    
    
    3
    
    
    
    42.60
    
    
    
    5.08
    
    
    
    34.00
    
    
    
    30.50Consolidated statements of comprehensive income**)Net income
    
    
    
    
    
    
    10,968
    
    
    
    1,307
    
    
    
    8,765
    
    
    
    7,892Net unrealized gain (loss)
on securities available-for-sale
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    (31
    )
    
    
    41Minimum pension liability adjustment
    
    
    3
    
    
    
    (113
    )
    
    
    (13
    )
    
    
    (323
    )
    
    
    (397
    )Net investment hedge
    
    
    3
    
    
    
    (333
    )
    
    
    (40
    )
    
    
    1,333
    
    
    
    89Cash flow hedges
    
    
    3
    
    
    
    35
    
    
    
    4
    
    
    
    979
    
    
    
    136Net foreign currency translation adjustments
    
    
    3
    
    
    
    4,856
    
    
    
    579
    
    
    
    (7,207
    )
    
    
    (794
    )Total other comprehensive income (loss), net of tax
    
    
    3
    
    
    
    4,445
    
    
    
    530
    
    
    
    (5,249
    )
    
    
    (925
    )Comprehensive income, net of tax
    
    
    
    
    
    
    15,413
    
    
    
    1,837
    
    
    
    3,516
    
    
    
    6,967
  *)
    
    Presentation in euro is a convenience translation based on the exchange
rate at 31.12.2003, which was 8.3928 (unaudited).**)
    
    Changes in shareholders equity include net income together with other
changes not related to investments by and distribution to shareholders. (See
Note 3).The accompanying notes are an integral part of the consolidated financial
statements.




---



##### 



Hydro Annual Report 2003
Consolidated financial statements89 Consolidated balance sheets Norsk Hydro ASA and subsidiaries  31 December,
    
    
    
    
    2003
    
    2003
    
    2002Amounts in million
    Notes
    
    NOK
    
    EUR*)
    
    NOKAssetsCash and cash equivalents
    
    
    
    
    
    
    15,249
    
    
    
    1,817
    
    
    
    5,965Other liquid assets
    
    
    11
    
    
    
    1,581
    
    
    
    188
    
    
    
    2,647Accounts receivable, less allowances of 1,484 and 1,102
    
    
    
    
    
    
    27,271
    
    
    
    3,249
    
    
    
    25,280Inventories
    
    
    12
    
    
    
    17,350
    
    
    
    2,068
    
    
    
    17,232Prepaid expenses and other current assets
    
    
    
    
    
    
    12,965
    
    
    
    1,545
    
    
    
    13,055Current deferred tax assets
    
    
    10
    
    
    
    1,267
    
    
    
    151
    
    
    
    2,218Current
assets
    
    
    5
    
    
    
    75,683
    
    
    
    9,018
    
    
    
    66,397Non-consolidated investees
    
    
    13
    
    
    
    12,711
    
    
    
    1,515
    
    
    
    11,499Property, plant and equipment, less accumulated
depreciation, depletion and amortization
    
    
    15
    
    
    
    114,998
    
    
    
    13,702
    
    
    
    112,342Prepaid pension, investments and other non-current assets
    
    
    14, 16, 20
    
    
    
    14,387
    
    
    
    1,714
    
    
    
    15,081Deferred tax assets
    
    
    10
    
    
    
    850
    
    
    
    101
    
    
    
    1,892Non-current assets
    
    
    5
    
    
    
    142,946
    
    
    
    17,032
    
    
    
    140,814Total assets
    
    
    5
    
    
    
    218,629
    
    
    
    26,050
    
    
    
    207,211Liabilities and shareholders equityBank loans and other interest-bearing short-term debt
    
    
    17
    
    
    
    5,569
    
    
    
    664
    
    
    
    7,306Current portion of long-term debt
    
    
    19
    
    
    
    1,242
    
    
    
    148
    
    
    
    1,958Other current liabilities
    
    
    18
    
    
    
    42,890
    
    
    
    5,110
    
    
    
    38,331Current deferred tax liabilities
    
    
    10
    
    
    
    638
    
    
    
    76
    
    
    
    262Current
liabilities
    
    
    
    
    
    
    50,339
    
    
    
    5,998
    
    
    
    47,857Long-term debt
    
    
    19
    
    
    
    28,568
    
    
    
    3,404
    
    
    
    30,902Accrued pension liabilities
    
    
    20
    
    
    
    9,533
    
    
    
    1,136
    
    
    
    8,385Other long-term liabilities
    
    
    21
    
    
    
    8,004
    
    
    
    954
    
    
    
    6,248Deferred tax liabilities
    
    
    10
    
    
    
    33,445
    
    
    
    3,984
    
    
    
    36,809Long-term
liabilities
    
    
    
    
    
    
    79,550
    
    
    
    9,478
    
    
    
    82,344Minority shareholders interest in consolidated subsidiaries
    
    
    
    
    
    
    660
    
    
    
    79
    
    
    
    1,143Share capital
    
    
    3
    
    
    
    5,332
    
    
    
    635
    
    
    
    5,332Additional paid-in capital
    
    
    3
    
    
    
    15,071
    
    
    
    1,796
    
    
    
    15,088Retained earnings
    
    
    3
    
    
    
    71,516
    
    
    
    8,522
    
    
    
    63,260-Treasury stock
    
    
    3
    
    
    
    (3,523
    )
    
    
    (420
    )
    
    
    (3,052
    )Accumulated other comprehensive income (loss)
    
    
    3
    
    
    
    (316
    )
    
    
    (38
    )
    
    
    (4,761
    )Shareholders equity
    
    
    3
    
    
    
    88,080
    
    
    
    10,495
    
    
    
    75,867Total liabilities and shareholders equity
    
    
    
    
    
    
    218,629
    
    
    
    26,050
    
    
    
    207,211
  *)
    
    Presentation in euro is a convenience translation based on the exchange
rate at 31.12.2003, which was 8.3928 (unaudited).The accompanying notes are an integral part of the consolidated financial
statements.




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##### 



Hydro Annual Report 2003
Consolidated financial statements90 Consolidated statements of cash flows  Year ended 31 December,
    
    
    
    
    2003
    
    2003
    
    2002
    
    2001Amounts in million
    Notes
    
    NOK
    
    EUR*)
    
    NOK
    
    NOKOperating activities:Net income
    
    
    
    
    
    
    10,968
    
    
    
    1,307
    
    
    
    8,765
    
    
    
    7,892Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation, depletion and amortization
    
    
    5
    
    
    
    15,093
    
    
    
    1,798
    
    
    
    13,912
    
    
    
    12,273Restructuring costs
    
    
    6
    
    
    
    -
    
    
    
    -
    
    
    
    (10
    )
    
    
    921Equity in net income of non-consolidated investees
    
    
    5, 13
    
    
    
    (1,229
    )
    
    
    (146
    )
    
    
    (33
    )
    
    
    (566
    )Dividends received from non-consolidated investees
    
    
    
    
    
    
    594
    
    
    
    71
    
    
    
    414
    
    
    
    472Deferred taxes
    
    
    10
    
    
    
    (1,618
    )
    
    
    (193
    )
    
    
    (619
    )
    
    
    (313
    )Loss (gain) on sale of non-current assets
    
    
    
    
    
    
    (835
    )
    
    
    (99
    )
    
    
    823
    
    
    
    (937
    )Loss (gain) on foreign currency transactions
    
    
    8
    
    
    
    (1,035
    )
    
    
    (123
    )
    
    
    (3,262
    )
    
    
    416Net sales (purchases) of trading securities
    
    
    
    
    
    
    245
    
    
    
    29
    
    
    
    616
    
    
    
    (112
    )Other
    
    
    
    
    
    
    2,222
    1)
    
    
    265
    
    
    
    450
    
    
    
    773Working capital changes that provided (used) cash:Receivables
    
    
    
    
    
    
    (1,216
    )
    
    
    (145
    )
    
    
    (1,959
    )
    
    
    3,627Inventories
    
    
    
    
    
    
    (111
    )
    
    
    (13
    )
    
    
    1,758
    
    
    
    1,894Prepaid expenses and other current assets
    
    
    
    
    
    
    1,758
    
    
    
    209
    
    
    
    (1,777
    )
    
    
    (355
    )Other current liabilities
    
    
    
    
    
    
    (258
    )
    
    
    (31
    )
    
    
    2,707
    
    
    
    187Net cash
provided by operating activities
    
    
    
    
    
    
    24,578
    
    
    
    2,928
    
    
    
    21,785
    
    
    
    26,172Investing activities:Purchases of property, plant and equipment
    
    
    
    
    
    
    (15,467
    )
    
    
    (1,843
    )
    
    
    (19,573
    )
    
    
    (14,348
    )Purchases of other long-term investments
    
    
    
    
    
    
    (1,017
    )
    
    
    (121
    )
    
    
    (18,104
    )
    
    
    (1,663
    )Net sales (purchases) of short-term investments
    
    
    
    
    
    
    1,142
    
    
    
    136
    
    
    
    (1,154
    )
    
    
    42Proceeds from sales of property, plant and equipment
    
    
    
    
    
    
    941
    
    
    
    112
    
    
    
    908
    
    
    
    629Proceeds from sales of other long-term investments
    
    
    
    
    
    
    6,561
    
    
    
    782
    
    
    
    1,477
    
    
    
    659Net cash
used in investing activities
    
    
    
    
    
    
    (7,840
    )
    
    
    (934
    )
    
    
    (36,446
    )
    
    
    (14,681
    )Financing activities:Loan proceeds
    
    
    
    
    
    
    298
    
    
    
    35
    
    
    
    707
    
    
    
    408Principal repayments
    
    
    
    
    
    
    (5,342
    )
    
    
    (636
    )
    
    
    (4,196
    )
    
    
    (2,865
    )Ordinary shares purchased
    
    
    3
    
    
    
    (555
    )
    
    
    (66
    )
    
    
    -
    
    
    
    (1,155
    )Ordinary shares issued
    
    
    
    
    
    
    77
    
    
    
    9
    
    
    
    70
    
    
    
    92Dividends paid
    
    
    3
    
    
    
    (2,711
    )
    
    
    (323
    )
    
    
    (2,576
    )
    
    
    (2,470
    )Net cash
used in financing activities
    
    
    
    
    
    
    (8,233
    )
    
    
    (981
    )
    
    
    (5,995
    )
    
    
    (5,990
    )Foreign currency effects on cash flows
    
    
    
    
    
    
    779
    
    
    
    93
    
    
    
    (527
    )
    
    
    (119
    )Net
increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    9,284
    
    
    
    1,106
    
    
    
    (21,183
    )
    
    
    5,382Cash and cash equivalents at beginning of year
    
    
    
    
    
    
    5,965
    
    
    
    711
    
    
    
    27,148
    
    
    
    21,766Cash and
cash equivalents at end of year
    
    
    
    
    
    
    15,249
    
    
    
    1,817
    
    
    
    5,965
    
    
    
    27,148Cash disbursements were made for:Interest (net of amount capitalized)
    
    
    
    
    
    
    1,135
    
    
    
    135
    
    
    
    1,363
    
    
    
    357Income taxes
    
    
    
    
    
    
    16,211
    
    
    
    1,932
    
    
    
    13,935
    
    
    
    14,006
  *)
    
    Presentation in euro is a convenience translation based on the exchange
rate at 31 December 2003, which was 8.3928 (unaudited).1)
    
    Includes non-cash charge relating to an expected state grant
pertaining to an asset removal obligation of NOK 2,207 million.The accompanying notes are an integral part of the consolidated financial statements.




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##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements93 Notes to
the consolidated financial statements Norsk Hydro ASA and subsidiaries 1. Summary of Significant Accounting Policies The consolidated financial statements of
Norsk Hydro ASA and its subsidiaries (Hydro)
prepared in accordance with accounting
principles generally accepted in the United
States of America (US GAAP) are included on
pages 88 to 90. Financial statement
preparation requires estimates and
assumptions that affect the reported amounts
of assets, liabilities, revenues and
expenses as well as disclosures of
contingencies. Actual results may differ
from estimates. The accompanying notes include
disclosures required by US GAAP and are an
integral part of the financial statements. Consolidation The consolidated financial statements
include Norsk Hydro ASA and subsidiary
companies where Hydro controls directly or
indirectly more than 50 percent of the
voting interests. In certain circumstances,
Hydro may control an entity through
contractual arrangements or other means.
Currently, Hydro does not have any
consolidated subsidiaries based on means
other than majority of voting rights. All
significant intercompany transactions and
balances have been eliminated. Investments in companies
(non-consolidated investees) in which Hydro
exercises significant influence are
accounted for using the equity method. The
equity method involves showing the
investment at Hydros share of the equity in
the investee, including any excess values or
goodwill. Hydros share of net income,
including depreciation and amortization of
excess values, is included in Equity in net
income of non-consolidated investees.
Material unrealized profits resulting from
transactions with an investee is eliminated. Significant influence normally exists
when Hydro has a substantial ownership
interest of 20 to 50 percent of voting
shares. Hydro uses the equity method for a
limited number of investees where Hydro owns
less than 20 percent of the voting rights,
based on an evaluation of the governance
structure in each investee. In corporate
joint ventures, special voting rights in
some companies give each of the partners
decision rights that exceeds what normally
follows from the ownership share. This may
be in form of a specific number of board
representatives, in the form of right of
refusal for important decisions, or by
requiring a qualified majority for all or
most of the important decisions.
Participation in joint ventures are
accounted for using the equity method,
except for jointly controlled assets where
the partners have an undivided interest.
These and other participation in joint
ventures in the upstream oil- and gas
business are accounted for using the pro
rata method. Hydro reviews non-consolidated
investees for impairment if indications of
loss in value is identified. As Hydros
non-consolidated investees generally are not
listed on a stock exchange or regularly
traded, our impairment review for such
investees can only in rare cases be based on
market prices. Impairment indications may be
operating losses, or adverse market
conditions. Fair value of the investment is
estimated based on valuation model
techniques. If it is considered probable
that the fair value of the investee is below
Hydros carrying value, the investment is
written down as impaired. Business Combinations Acquisitions are accounted for using the
purchase method. See note 2 for a
description of significant acquisitions and
disposals during the past three years. All
business combinations are accounted for as
acquisitions (purchase accounting). Purchase
accounting involves recording assets
and liabilities of the acquired company at
their fair value at the time of acquisition.
Any excess of purchase price over fair value
is recorded as goodwill. When the ownership
interest in a subsidiary is less than 100
percent, the recorded amount of assets and
liabilities acquired reflect only Hydros
relative share of excess values. Foreign Currency Translation The financial statements, including any
excess values, of foreign operations are
translated using exchange rates at year end
for the balance sheet, and average exchange
rates for the income statement. Translation
gains and losses, including effects of
exchange rate changes on transactions
designated as hedges of net foreign
investments, are included in Other
comprehensive income. Foreign Currency Transactions Realized and unrealized gains or losses on
transactions, assets and liabilities
denominated in a currency other than the
functional currency which do not qualify
for hedge accounting treatment are included
in net income. Revenue Recognition Revenue from sales of products, including
products sold in international commodity
markets, is recognized when ownership passes
to the customer. Generally, this is when
products are delivered or shipped. Certain
contracts specify price determination in a
later period. In these cases, the revenue is
recognized in the period prices are
determinable. Rebates and incentive
allowances are deferred and recognized in
income upon the realization or at the
closing of the rebate period. In
arrangements where Hydro acts as an agent,
such as commission sales, only the net
commission fee is recognized as revenue. Revenues from the production of oil and
gas are recognized on the basis of the
companys net working interest, regardless
of whether the production is sold
(entitlement method). The difference between
Hydros share of produced volumes and sold
volumes is not material. Trading of physical commodities which
are not net settled is presented on a gross
basis in the income statement. Activities
related to the trading of derivative
commodity instruments and physical
commodities where net settlement occurs, are
reported on a net basis, with the margin
included in operating revenues. Cash and Cash Equivalents Cash and cash equivalents include cash,
bank deposits and all other monetary
instruments with a maturity of less than
three months at the date of purchase.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements94 Other Liquid Assets Other liquid assets include bank deposits and all other monetary instruments with a maturity between three and twelve months at the date of purchase and Hydros current portfolio of marketable equity and debt securities. The securities in this portfolio are considered trading securities and are valued at fair value. The resulting unrealized holding gains and losses are included in financial income and expense. Investment income is recorded when earned. Inventories Inventories are valued at the lower of cost, using the first-in, first-out method (FIFO), or net realizable value. Cost includes direct materials, direct labor and the appropriate portion of production overhead or the price to purchase inventory. Investments Investments include Hydros portfolio of long-term marketable equity securities in which there is less than 20 percent ownership. The portfolio is considered available-for-sale securities and is valued at fair value. The resulting unrealized holding gains and losses, net of applicable taxes, are credited or charged to Other Comprehensive Income and accordingly do not affect net income. Other investment income is recorded when earned. Property, Plant and Equipment Property, plant and equipment is carried at historical cost less accumulated depreciation, depletion and amortization. If a legal obligation for the retirement of a tangible long-lived asset is incurred, the carrying value of the related asset is increased by the estimated fair value of the asset retirement obligation upon initial recognition of the liability. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If necessary, a write-down (impairment) to fair value is recorded based upon the criteria in Statement of Financial Accounting Standards (SFAS) 144. Periodic maintenance and repairs applicable to production facilities are accounted for on an accrual basis. Normal maintenance and repairs for all other properties are expensed as incurred. Major replacements and renewals that materially extend the life of properties are capitalized and any assets replaced are retired. Capitalized Interest Interest is capitalized as part of the historical cost of major assets constructed. Leased Assets Leases which provide Hydro with substantially all the rights and obligations of ownership are accounted for as capital leases. Such leases are valued at the present value of minimum lease payments or fair value if lower, and recorded as assets under property, plant and equipment. The liability is included in long-term debt. The assets are subsequently depreciated and the related liabilities are reduced by the amount of the lease payments less the
effective interest expense. Other leases are accounted for as operating leases with lease payments recognized as an expense over the lease term. Environmental Expenditures Environmental expenditures which increase the life, capacity, or result in improved safety or efficiency of a facility are capitalized. Expenditures that relate to an existing condition caused by past operations are expensed. Liabilities are recorded when environmental assessments or clean-ups are probable and the cost can be reasonably estimated. Exploration and Development Costs of Oil and Gas Reserves
Hydro uses the successful efforts method of accounting for oil and gas exploration and
development costs. Exploratory costs, excluding the costs of exploratory wells and acquired exploration
rights, are charged to expense as incurred. Drilling costs for exploratory wells are capitalized pending
the determination of the existence of proved reserves. If reserves are not found, the drilling costs are
charged to operating expense. For complicated offshore exploratory discoveries, it is not unusual
to have exploratory well costs remain suspended on the balance sheet for
several years while we perform additional appraisal work, evaluate the
optimum development plans and timing, and secure final regulatory approvals
for development. Once the exploration drilling demonstrates that
sufficient quantities of reserves have been discovered, continued
capitalization is dependent on project reviews, which take place
periodically and no less frequently than every quarter, to ensure that
satisfactory progress toward ultimate development of the reserves is being
achieved. Costs relating to acquired exploration rights are allocated to the relevant
areas, and charged to operating expense upon determination that proved reserves will not be found in the
area. Each block or area is assessed separately, based on exploration experience and managements
judgment. To the extent that Hydro uses future net cash flows to evaluate unproved properties for
impairment, the unproved reserves are risk adjusted before estimating future cash flows associated with
those resources. All development costs for wells, platforms, equipment and related interest are capitalized.
Preproduction costs are expensed as incurred. Depreciation, Depletion and Amortization Depreciation is determined using the straight line method with the following rates: Machinery and equipment
    
    5  25 percentBuildings
    
    2  5   percentOther
    
    10  20 percent
 Producing oil and gas properties are depreciated as proved developed reserves are produced using the unit-of-production method calculated by individual field. Depreciation and depletion expense includes accretion of discounted asset retirement obligations. Intangible Assets Intangible assets acquired
individually or as a group are recorded at fair value when acquired.
Intangible assets acquired in a business combination are recognized
at fair value separately from goodwill when they arise from contractual
or legal rights or can be separated from the acquired entity and sold
or transferred. Intangible assets with finite useful lives are amortized
on a straight line basis over their benefit period. Intangible assets determined to
have indefinite useful lives are not
amortized until a finite life can be
determined. These intangible assets are
subject to impairment testing on an annual
basis.




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##### 



Hydro Annual Report 2003 
Notes to the consolidated financial statements95 Norsk Hydro ASA and subsidiaries Goodwill When a business is acquired, purchase price
in excess of the identified fair value of
assets and liabilities is accounted for as
goodwill. Under SFAS 142, goodwill is no
longer systematically amortized, but
reviewed at least annually for impairment.
Goodwill is recorded at the reporting unit
level (for Hydro this is the sector level.
See note 5 for a description of sectors).
The impairment test requires fair value of
the sector to be compared to the carrying value
of the sector. Oil and Gas Royalty Oil and gas revenue is recorded net of royalties payable. Shipping costs Shipping and handling costs are included in
Other operating expenses. Shipping and
handling cost invoiced to customers are
included in Operating revenues. Research and Development Research and development costs are expensed as incurred. Other Income (Expense), net Transactions resulting in income or expense
which are material in nature and from
sources other than normal production and
sales operations are classified as other
income and expense. Income Taxes Deferred income tax expense is calculated
using the liability method in accordance
with SFAS 109. Under this method, deferred
tax assets and liabilities are measured
based on the differences between the
carrying values of assets and liabilities
for financial reporting and their tax basis
which are considered temporary in nature.
Deferred income tax expense represents the
change in deferred tax asset and liability
balances during the year except for deferred
tax related to items charged directly to
equity. Changes resulting from amendments
and revisions in tax laws and tax rates are
recognized when the new tax laws or rates
become effective. Hydro recognizes the effect of uplift,
a special deduction for petroleum surtax in
Norway, at the investment date. Deferred
taxes are not provided on undistributed
earnings of most subsidiaries, as such
earnings are deemed to be indefinitely
reinvested. Derivative Instruments Derivative financial instruments are marked
to their market value with the resulting
gain or loss reflected in net financial
expense, except when the instruments meet
the criteria for hedge accounting. See Note
24 for the balance sheet classification of
these instruments. Forward currency contracts and currency
options are marked to their market value at
each balance sheet date with the resulting
unrealized gain or loss recorded in
Financial income (expense), net. Interest rate and foreign
currency swaps Interest income and expense relating to
swaps are netted and recognized as income or
expense over the life of the contract.
Foreign currency swaps are translated into
Norwegian kroner at applicable exchange
rates as of the balance sheet date with the
resulting unrealized exchange gain or loss
recorded in Financial income (expense), net. Derivative Commodity
Instruments Instruments are marked-to-market with their fair value
recorded in the balance sheet as either
assets or liabilities. Adjustments for
changes in the fair value of the instruments
are reflected in the current periods
revenues and/or operating costs, unless the
instrument is designated as a hedging
instrument, and qualifies for hedge accounting. Hedge accounting is applied when
specific hedge criteria are met. The changes
in fair value of these hedging instruments
are offset in part or in whole by
corresponding changes in the fair value or
cash flows of the underlying exposures being
hedged. For cash flow hedges, gains and
losses on the hedging instruments are
deferred in Other Comprehensive Income (OCI)
until the underlying transaction is
recognized in earnings. When it is
determined that a forecasted hedged
transaction is not probable to occur, all
the corresponding gains and losses deferred
in OCI are immediately recognized in
earnings. Any amounts resulting from hedge
ineffectiveness for both fair value and cash
flow hedges are recognized in current
periods earnings. For fair value hedges,
both the changes in the fair value of the
designated derivative instrument and the
changes in the fair value of hedged item are
recognized currently in earnings. Energy contracts are accounted for
according to EITF 02-3 Energy Contracts.
This standard requires energy contracts that
meet the definition of a derivative
according to SFAS133 Accounting for
Derivative Instruments and Hedging
Activities and are held for trading, be
recorded in the balance sheet at fair value.
Changes in the fair value are recorded to
earnings for each period unless specific
hedge criteria are met. Fair values are
based on quoted market prices. Energy
contracts that do not meet the criteria of
EITF 02-3 are recorded at the lower of
historical cost and fair market value. Prior
to 2003, energy contracts were measured at
fair value in accordance EITF 98-10
Accounting for Contracts Involved in Energy
Trading and Risk Management Activities. Certain derivative commodity instruments
require daily cash settlements, principally
London Metal Exchange (LME) futures and
options, and oil futures. LME options also
involve an initial receipt or payment of a
premium and give rise to delivery of an
agreed amount of cash if the option is
exercised. Most other financial and
commodity instruments have a cash effect at
settlement date, which are included in the
Statements of Cash Flows under operating
activities when incurred. Stock-based Compensation Hydro accounts for stock based compensation
in accordance with Accounting Principles
Board (APB) Opinion 25 as interpreted by FIN
28 and provides disclosures required under
SFAS 123. For variable awards and awards
settled in cash, compensation cost is
measured at the end of each period as the
amount by which the market price of the
Companys shares exceeds the price of the
options. For




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##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements96 variable and cash settled
awards where vesting depends on achieving a
specified improvement in Hydros share
price, compensation cost is measured when it
is probable the performance criteria will be
met. Compensation is charged to expense over
the periods the employee performs the
related services. Hydro also offers treasury shares to
employees at discounted prices to encourage
share ownership. Issuance of treasury shares
at a discount to employees results in a
charge to compensation expense based on the
difference between the market value of the
share at the date of issuance and the price
paid by employees. Employee Retirement Plans Pension costs are calculated in accordance
with SFAS 87 and SFAS 88. Prior service
costs are amortized on a straight-line basis
over the average remaining service period of
active participants. Accumulated gains and
losses in excess of 10 percent of the
greater of the benefit obligation or the
fair value of assets are amortized over the
remaining service period of active plan
participants. Change in Accounting Principles Asset Retirement ObligationsEffective 1
January 2003, Hydro adopted Financial
Accounting Standards No 143 Accounting for
Asset Retirement Obligations (SFAS 143).
This Statement requires that the estimated
fair value of asset retirement obligations
be recorded in the Companys balance sheet
in the period in which it is incurred;
accordingly, obligations for oil and gas
installations are recognized at the start of
production. Related asset retirement costs
are capitalized as part of the carrying
value of the long-lived asset, while the
liability is accreted for the change in its
present value each reporting period, and the
associated asset retirement costs are
depreciated over the useful life of the
related long-lived asset. As a result of the
new accounting standard, a positive
after-tax effect of NOK 310 million was
recorded as cumulative effect of change in
accounting principles in the Companys
results of 2003. For further information see
note 21. Energy contractsEffective 1 January 2003,
Hydro adopted EITF 02-3 Recognition and
Reporting of Gains and Losses on Energy
Contracts. This standard requires only
energy contracts that meet the definition of
a derivative according to SFAS133
Accounting for Derivative Instruments and
Hedging Activities and are held for
trading, be recorded in the balance sheet at
fair value. Other energy contracts are
recorded at the lower of historical cost and
fair market value. This change applies to
contracts entered into before 25 October,
2002. For contracts entered after 25
October, 2002, the regulation applied from
initial recognition. As a result of the new
regulation, a negative after-tax effect of
NOK 29 million was recorded as cumulative
effect of change in accounting principles
in the Companys results of 2003. Exit costsEffective 1 January 2003, Hydro
adopted Financial Accounting Standards No
146 Accounting for Costs Associated with
Exit or Disposal Activities. The standard
supersedes EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a
Restructuring), and changed accounting for
costs related to closing and restructuring
an activity. SFAS 146 requires that a
liability for a cost associated with an exit
or disposal activity be recognized when the
liability is incurred, not at the date of an
entitys commitment to an exit plan.
Termination benefits for involuntary
termination of employees that are not
required to render services beyond a minimum
retention period are expensed at
communication to the employees. GuaranteesIn November 2002, FASB issued
Interpretation (FIN) 45 Guarantor ́s
Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of
Indebtedness of Others. This Interpretation
clarifies certain elements related to
measurement and disclosure of guarantees,
including product warranties. The
interpretation clarifies that a guarantor is
required to recognize, at the inception of a
guarantee, a liability for the obligations
it has undertaken in issuing the guarantee,
including its ongoing obligation to stand
ready to perform over the term of the
guarantee in the event that the specified
triggering events or conditions occur. The
recognition and measurement provisions are
applicable to guarantees issued or modified
after December 31, 2002. The adoption of FIN
45 has not materially impacted Hydros
results of operations and financial
position. Effective 1 January, 2002, Hydro
adopted the Financial Accounting Standards
No 141 Business Combinations (SFAS 141),
and Statement No 142, Goodwill and Other
Intangible Assets (SFAS 142). Under SFAS
142, goodwill is no longer systematically
amortized but reviewed at least annually for
impairment. Goodwill is allocated to
reporting units (for Hydro this is the
sector level. See note 5 for a description
of sectors). At transition, impairment tests
comparing the fair value of sectors with
goodwill to the carrying value of the net
assets of the respective sectors were
performed. SFAS 142 continues the
requirement to amortize intangible assets
over their estimated useful life. However,
if the useful life is determined to be
indefinite, no amortization is recognized
and the value of the intangible asset is
assessed for impairment similar to goodwill.
See Note 16 for further information. Effective 1 January, 2002, Hydro also
adopted the Financial Accounting Standards
No 144 Accounting for Impairment or
Disposal of Long-Lived Assets. This
standard supercedes SFAS 121 Accounting for
the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. SFAS
144 applies to all long-lived assets,
including discontinued operations. In
addition, it expands the scope for the
presentation of discontinued operations to
include all components of an entity with
operations that are distinguishable and will
be eliminated in a disposal transaction. Effective 1 January, 2001, Hydro
adopted the Financial Accounting
Standard No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS
133), as amended by SFAF 138. See further
discussion in Note 24.




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##### 



Hydro Annual Report 2003 
Notes to the consolidated financial statements97 Norsk Hydro ASA and subsidiaries Reclassifications Certain amounts in previously issued
consolidated financial statements were
reclassified to conform with the 2003
presentation. New Pronouncements Consolidation of Variable Interest Entities
Issued in January 2003 and revised in December 2003, FASB Interpretation 46 Consolidation of Variable
Interest Entities (FIN 46R) clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Final Statements, to certain entities in which equity investors
do not have the characteristics of a controlling financial interest or do not have sufficient equity
at risk for the entity to finance its activities without additional subordinated financial support
(variable interest entities or VIEs). The Interpretation provides guidance for determining
which party retains the controlling financial interest when the controlling financial interest is
achieved through arrangements other that voting interests. As Hydro does not have a controlling interest
in so called Special Purpose Entities, or VIEs created since January 31, 2003, application of the
Interpretation is required in its financial statements ending March 31, 2004. Hydro has identified one arrangement that is deemed VIE. Hydro is involved with Slovalco, an aluminium smelter in Slovakia. Hydro has a supply agreement with Slovalco providing alumina and a right and obligation to purchase approximately 60 percent of its total aluminium production at market price. Hydro owns 20 percent of the shares in the company, and 40 percent of the voting rights. A put and a call option arrangement with another shareholder entered into in 2001,
 expiring in the period 2005 to 2006, may result in Hydro owning up to 65 percent of Slovalco, and is the main reason for considering Slovalco as a variable interest entity. Hydro consolidates Slovalco as from 1 January 2004. Assets,
liabilities and the 80 percent non-controlling interests are measured based on fair values when the option arrangement was entered into in 2001, carried forward to 1 January 2004. As of 1 January 2004, total assets were NOK 2,182 million, liabilities were NOK 725 million and minority interests were NOK 1,165 million. The difference between Hydros interest in Slovalco consolidated under the regulation in FIN 46R, and Hydros interest in Slovalco accounted for under the equity method at the end of 2003 was immaterial. Classification of oil and gas mineral rights. A discussion is
currently ongoing within the oil industry regarding classification of oil and gas mineral rights. Hydro
reports these assets as part of Property, Plant and Equipment. The industrys
current practice as to proper classification of acquisition of contractual mineral interests under
SFAS 141 Business Combinations and SFAS 142 Goodwill and Intangible Assets has been questioned.
The Financial Accounting Standards Board (FASB) has issued FASB Staff Position Nos. FAS 141-1 and
FAS 142-1, addressing certain aspects of this discussion. In addition, EITF 04-2 addresses a related issue,
whether mineral rights are tangible or intangible assets, concluding that such assets are tangible assets.
Furthermore, mineral rights are required to be separately disclosed in
reporting periods beginning after 31 March, 2004. However, this statement applies only to mining entities, while oil- and gas-producing entities within the
scope of SFAS 19 are excluded. The EITF has included the topic for oil and gas-producing entities on
its agenda as Issue No. 03-S, stating that consideration of this issue will
be consistent with the approach taken with regard to mineral rights related
to mining enterprises. Thus, further authoritative guidance on the issue is expected. The majority of Hydros oil and gas producing fields and fields under development are offshore fields. Development of these fields involves installations and production facilities tailored to each development. Hydro reports acquired resources in developed fields and assets related to the development of these fields on a combined basis. Hydro has made one significant acquisition of mineral interests - in
oil and gas properties subsequent to the implementation of SFAS
141 and FAS 142 in 2001: the acquisition in May 2002 of increased interests in certain oil and gas producing
fields and fields under development on the Norwegian Continental Shelf (NCS) from the Norwegian State. The
acquired interests, including offshore production platforms, wells and equipment, were recorded as
Property, Plant and Equipment in the consolidated balance sheet, of which mineral interests in oil and gas
properties were NOK 1.5 billion, all of which was assigned to proved reserves in producing fields
and fields in development phase.
Should new accounting guidance require hydrocarbon reserves obtained in acquisitions of
oil in and gas properties to be reported separately, either as tangible or intangible assets, the maximum
amount Hydro would reclassify in accordance with such guidance is approximately NOK 1.3 billion as of
December 31, 2003, and NOK 1.4 billion as of December 31, 2002. The determination of these amounts is
based on Hydros current understanding of this issue. A reclassification would not be expected to change
Hydros results of operations or cash flows. Hydro will continue to classify these assets as
part of Property, Plant and Equipment until authoritative guidance is provided.




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##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements98  2.
    
    Demerger, business combinations and dispositions In November 2003, the board of directors of
Hydro entered into a demerger plan,  providing for the agri activities to be
transferred to a newly formed company, Yara
International ASA, which were to be listed
at the Oslo Stock Exchange. The demerger
plan was approved in the extraordinary
general meeting in Hydro on 15 January 2004,
and was completed at 24 March 2004. The
demerger had financial effect from 1 October
2004. From this date, Yara International ASA
assumed the risk of the agri activities. In
the demerger, substantial assets and
liabilities, including subsidiaries and
non-consolidated investees, were transferred
to Yara. As a result of the demerger,
Hydros share capital was reduced by 8.5
percent, equal to the estimated relative
value of the transferred agri activities
compared to the retained activity in Hydro. Hydros shareholders at the demerger
completion date received shares in Yara
International ASA equal to 80 percent of the
to total value of Yara, based on valuation
at the time of the demerger plan (November
2003). The remaining shares in Yara
International ASA were owned by Norsk Hydro
ASA. Hydro has sold its share holdings in
Yara after the demerger. The demerger was
accounted for with continuity in carrying
values. Hydro has not recognized any gain,
or received any proceeds, from the demerger.
Hydro received proceeds, and recognized a
gain of NOK 530 million, from sale of its 20
percent ownership in Yara in March 2004
based on Hydros cost, NOK 2,048 million,
from establishing the company. The table below illustrates how assets and liabilities are distributed
between Hydro and Yara as of 31 December 2003: Adjust-
    
    
    Yara after
    
    
    Hydro afterAmounts in NOK million
    
    Hydro
    
    
    ments
    
    
    demerger
    
    
    demergerCurrent assets
    
    
    75,683
    
    
    
    8,173
    
    
    
    14,161
    
    
    
    69,695Non-current assets
    
    
    142,946
    
    
    
    2,048
    
    
    
    11,778
    
    
    
    133,216Total assets
    
    
    218,629
    
    
    
    10,221
    
    
    
    25,939
    
    
    
    202,911Current liabilities
    
    
    50,339
    
    
    
    8,173
    
    
    
    13,929
    
    
    
    44,583Long-term liabilities
    
    
    79,550
    
    
    
    -
    
    
    
    3,065
    
    
    
    76,485Minority interests
    
    
    660
    
    
    
    -
    
    
    
    96
    
    
    
    564Shareholders equity
    
    
    88,080
    
    
    
    2,048
    
    
    
    8,849
    
    
    
    81,279Total liabilities and
shareholders equity
    
    
    218,629
    
    
    
    10,221
    
    
    
    25,939
    
    
    
    202,911
 Hydros net interest bearing debt as of 31
December was NOK 18.5 billion. Based on
distribution of assets and liabilities
between Hydro and Yara illustrated above,
Hydros and Yaras net interest bearing debt
after demerger would have been NOK 10.9
billion and NOK 7.6 billion, respectively. The following pro forma information
illustrates Hydro as if the demerger had
been completed at the beginning of 2002. Amounts in NOK million
    
    2003
    
    
    2002Operating revenues
    
    
    136,279
    
    
    
    136,114Operating income
    
    
    21,499
    
    
    
    17,667Income
before tax and minority interests1)
    
    
    20,890
    
    
    
    19,410Income tax expense
    
    
    12,851
    
    
    
    12,420Net income
    
    
    8,471
    
    
    
    7,016Earnings per share
    
    
    32.90
    
    
    
    27.20
  1)
    
    Income before tax and minority
interests for 2003 includes a negative
non-recurring item of NOK 2,207
million, and income tax expense for
2003 includes a positive non-recurring
item of NOK 2,380 million, both related
to changes in the tax regulation for
future costs for removal of oil and gas
installations on the Norwegian
continental shelf after completed
production. The pro forma information is based on the
following adjustments:Results, assets and
liabilities related to activities which,
according to the demerger plan have been
transferred to Yara are excluded from the
pro forma information for Hydro above. The
activities transferred are not identical
with the activities reported as the business
area Hydro Agri in Hydros segment
reporting. Pro forma information is based on
regulations from the US Securities and
Exchange Commission (SEC). Adjustments are
made for changes that are directly
attributable to the transaction, are
factually supportable, and have an ongoing
effect. Hydros general and overhead costs,
joint use of assets and similar costs previously
charged to Hydro Agri, are excluded from the
pro forma information only to the extent
such costs will be reduced as a direct
consequence of the demerger. Similarly,
interest expense is reduced only to the
extent it is related to external loans
which were transferred to Yara in the
demerger. In connection with the demerger, Hydro
acquired a receivable of NOK 8.1 billion as
of the demerger effective date (1 October,
2003), which fell due at the demerger
completion. This receivable is included in
the balance sheet information above. No pro
forma adjustments for interest income
related to this receivable have been
included, as no decision has been made with
regard to Hydros use of the proceeds.
Hydros tax expense exclusive of demerged activities has been calculated to indicate
the tax expenses related to remaining
activities. All significant effects of tax
consolidation with Yara have been
eliminated. Generally, there is a higher
degree of uncertainty for pro forma
financial information than for historical
financial information. The pro forma
information does not necessarily reflect
what the results of operations would have
been had the demerger been completed at an
earlier date.




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##### 



Hydro Annual Report 2003 
Notes to the consolidated financial statements99 Norsk Hydro ASA and subsidiaries During the three years
ended 31 December, 2003, Hydro entered into
the following significant business
combinations and dispositions. 2003 AcquisitionsNo major acquisitions were
agreed or completed during 2003. 2003 DispositionsDuring 2003, Hydro sold
non-core subsidiaries and ownership
interests for a total consideration of NOK
7.0 billion. The dispositions resulted in a
total pretax gain of NOK 995 million. In
September 2002,  A/S Korn- og Foderstof Kompagniet (KFK)
entered into agreements
to sell its Swedish feed and grain
activities for approximately NOK 450
million. The sale was completed in January
2003 after approval from competition
authorities. In December 2002, Hydro entered
into an agreement for the sale of the
Flexible Packaging unit for a total
consideration of approximately NOK 3
billion. Flexible Packaging was acquired as
part of the VAW acquisition in first quarter
2002, and is part of Other activities. The
transaction was completed in April 2003, and
did not result in any significant gain or
loss. In June, Hydro transferred its
interest in Sundsfjord Kraft ANS in exchange
for 20.2 percent of the shares of SKS
Produksjon AS resulting in a gain of NOK 326
million. In July, Hydro entered into an
agreement for the sale of Carmeda AB, for
approximately NOK 180 million, resulting in
a gain of NOK 139 million. In September,
Hydro entered into an agreement to sell its
stake in Skandinaviska Raffinaderi AB
(Scanraff) for approximately NOK 1.3
billion. The sale was completed in December,
resulting in a gain of NOK 490 million. In
December, Hydro entered into an agreement to
sell 80.1 percent of Pronova Biocare for NOK
165 million. The sale was completed in
January 2004, resulting in a gain of
approximately NOK 100 million. 2002 AcquisitionsOn March 19, 2002, Hydro
entered into an agreement with the Norwegian
State to purchase interests in eight oil and
gas licenses on the Norwegian continental
shelf. This transaction increased Hydros
interests in the Oseberg, Tune and Grane
fields, where Hydro is operator, to 34, 40
and 38 percent, respectively. The
transaction was completed and is reflected
in Hydros operating results from the
acquisition date of May 10, 2002. The
agreement was effective from January 1,
2002. However, net cash flows relating to
these operations prior to the acquisition
date have been allocated as a reduction of
the purchase price. Hydro paid NOK 3.45
billion for the license interests. In January, 2002, Hydro entered into an
agreement to purchase all the outstanding
shares of the German group VAW aluminium AG,
a leading aluminium company in Europe. The
acquisition was completed on March 15, 2002.
VAW had operations in more than 20
countries. The major part of these
activities were located in the EU in
addition to important operations located in
North America and the Pacific region. The consideration for all outstanding
shares, including direct acquisition costs
amounted to EUR 1,911 million (NOK 14,9
billion). In addition, interest bearing debt
of EUR 703 million (NOK 5,5 billion) and
pension commitments of approximately EUR 410
million (NOK 3.2 billion) was assumed. The
acquisition was financed by Hydros cash
holdings. Assets acquired and liabilities assumed
in the VAW acquisition have been recorded at
estimated fair value. Excess values are for
the most part allocated to tangible fixed
assets. The allocation did not indicate
material goodwill in the transaction.
Because VAWs inventories have been recorded
at estimated fair values as of the time of
the acquisition, cost of goods sold was
unusually high in the period after
acquisition. The effect was approximately
NOK 200 million. Amounts in NOK millionPreliminary allocation of purchase priceCash and cash equivalents
    
    
    410Other current assets
    
    
    11,597Property, plant and equipment
    
    
    16,592Other non-current assets
    
    
    6,140Short-term liabilities
    
    
    (9,517
    )Long-term liabilities
    
    
    (10,022
    )Minority interests
    
    
    (356
    )Estimated fair value of net assets of VAW
    
    
    14,844
 In November 2001, an agreement was signed
to purchase the French building systems
group Technal for a price of EUR 73 million
(NOK 580 million) and the assumption of
approximately NOK 307 million in debt. The
acquisition was completed 25 January, 2002. 2002 DispositionsDuring 2002, Hydro sold
non-core subsidiaries and ownership
interests for a total consideration of NOK
2.9 billion. The dispositions resulted in a
total pretax gain of NOK 219 million. In
September, KFK entered into agreements to
sell its Danish feed and grain activities
for a total consideration of approximately
NOK 2 billion, and its Swedish feed and
grain activities for approximately NOK 450
million. The agreements resulted in
impairment charges of approximately NOK 150
million. The sale of the Danish activities
was completed in December, while the sale of
the Swedish activities was completed in January 2003
after approval from competition authorities.
In December, Hydro entered into an agreement
for the sale of the Flexible Packaging unit
for a total consideration of approximately
NOK 3 billion. Flexible
Packaging was acquired as part of the VAW
acquisition in first quarter 2002, and is
part of Other activities. The transaction
was completed in April 2003. 2001 DispositionsHydro concluded the sale
of Hydro Seafoods activities based in UK,
Hydro Seafood GSP Ltd. The sale resulted in
a pretax gain of NOK 418 million. Hydro sold
the remainder of its electric power grid in
Norway, resulting in a pretax gain of NOK
179 million.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements100 Pro Forma Information (Unaudited)  Amounts in NOK million
    
    2002Assets
    
    
    207,211Amounts in NOK million
    
    
    2002Operating revenues
    
    
    174,630Operating income
    
    
    20,554Net income
    
    
    9,125Earnings per share in NOK
    
    
    35.30
 This pro forma information has been prepared for comparative purposes only and
does not purport to be indicative of what the results of operations would have been had the
transaction occurred on the date described above. The pro forma information is
based on Hydros results for 2002. For the period 1 January 2002 to Hydros
acquisition on 15 March 2002, this pro forma information is based on internal
management reports for VAW. For the period previous to Hydros acquisition,
some accounting principles differ from Hydros normal application. For example,
VAW used the LIFO (last in, first out) method for inventory valuation. In
general, uncertainty related to pro forma information is higher than for
historic accounts. VAWs results have been translated into Norwegian kroner at average
exchange rates. Pro forma adjustments are made for fair value adjustments for
assets and liabilities, depreciation and amortization of these adjustments,
finance cost of the acquisition price, and deferred tax related to the above
mentioned adjustments. However, no adjustment has been made for the fair
valuation of inventories. Significant sales and receivables between the
companies are eliminated. The effect of the remaining acquisitions and dispositions for 2003 and
2002 is not significant. 3. Consolidated shareholders equity Components of Accumulated Other Comprehensive Income and Related Tax Effects 31 December, 2003
    
    31 December, 2002
    
    31 December, 2001Amounts in NOK million
    
    Pretax
    
    
    Tax
    
    
    Net
    
    
    Pretax
    
    
    Tax
    
    
    Net
    
    
    Pretax
    
    
    Tax
    
    
    NetUnrealized gain (loss) on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43
    )
    
    
    12
    
    
    
    (31
    )
    
    
    58
    
    
    
    (17
    )
    
    
    41Less: Reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net unrealized gain (loss) on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43
    )
    
    
    12
    
    
    
    (31
    )
    
    
    58
    
    
    
    (17
    )
    
    
    41Net investment hedge
    
    
    (462
    )
    
    
    129
    
    
    
    (333
    )
    
    
    1,851
    
    
    
    (518
    )
    
    
    1,333
    
    
    
    124
    
    
    
    (35
    )
    
    
    89Cash flow hedge
    
    
    385
    
    
    
    (112
    )
    
    
    272
    
    
    
    1,441
    
    
    
    (405
    )
    
    
    1,036
    
    
    
    188
    
    
    
    (52
    )
    
    
    136Less: Reclassification of hedging gain
    
    
    (331
    )
    
    
    94
    
    
    
    (237
    )
    
    
    (79
    )
    
    
    22
    
    
    
    (57
    )
    
    
    
    
    
    
    
    
    
    
    Net cash flow hedge
    
    
    54
    
    
    
    (18
    )
    
    
    35
    
    
    
    1,362
    
    
    
    (383
    )
    
    
    979
    
    
    
    188
    
    
    
    (52
    )
    
    
    136Minimum pension liability adjustment
    
    
    (182
    )
    
    
    69
    
    
    
    (113
    )
    
    
    (472
    )
    
    
    149
    
    
    
    (323
    )
    
    
    (553
    )
    
    
    156
    
    
    
    (397
    )Foreign currency translation
    
    
    4,650
    
    
    
    
    
    
    
    4,650
    
    
    
    (7,215
    )
    
    
    
    
    
    
    (7,215
    )
    
    
    (671
    )
    
    
    
    
    
    
    (671
    )Loss (gain) on companies sold
    
    
    206
    
    
    
    
    
    
    
    206
    
    
    
    8
    
    
    
    
    
    
    
    8
    
    
    
    (123
    )
    
    
    
    
    
    
    (123
    )Net foreign currency translation
    
    
    4,856
    
    
    
    
    
    
    
    4,856
    
    
    
    (7,207
    )
    
    
    
    
    
    
    (7,207
    )
    
    
    (794
    )
    
    
    
    
    
    
    (794
    )Total accumulated other
comprehensive income
    
    
    4,266
    
    
    
    180
    
    
    
    4,445
    
    
    
    (4,509
    )
    
    
    (740
    )
    
    
    (5,249
    )
    
    
    (977
    )
    
    
    52
    
    
    
    (925
    )




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements101 Norsk Hydro ASA and subsidiaries Consolidated shareholders equity AccumulatedAmounts in NOK million
    
    Ordinary Shares issued
    
    Additional
    
    
    Total
    
    
    
    
    
    
    Treasury Stock
    
    other compre-
    
    
    Totalexcept number of shares
    
    Norsk Hydro ASA
    
    paid-in
    
    
    paid-in
    
    
    Retained
    
    
    Norsk Hydro ASA
    
    hensive
    
    
    shareholdersin thousands
    
    Number
    
    
    Amount
    
    
    capital
    
    
    capital
    
    
    earnings
    
    
    Number
    
    
    Amount
    
    
    income
    
    
    equityBalance 31 December, 2000
    
    
    266,597
    
    
    
    5,332
    
    
    
    15,059
    
    
    
    20,391
    
    
    
    51,647
    
    
    
    (6,610
    )
    
    
    (2,224
    )
    
    
    1,413
    
    
    
    71,227Net income 2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,892
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,892Dividend declared and paid
(NOK 9.50 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,470
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,470
    )Net unrealized gain on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    41Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (397
    )
    
    
    (397
    )Hedge of net investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89
    
    
    
    89Cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    136
    
    
    
    136Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,959
    )
    
    
    (1,155
    )
    
    
    
    
    
    
    (1,155
    )Treasury stock reissued to
employees
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    16
    
    
    
    
    
    
    
    351
    
    
    
    122
    
    
    
    
    
    
    
    138Treasury stock reissued for
acquisition
of shares in Hydro Asia Pacific
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (5
    )
    
    
    
    
    
    
    256
    
    
    
    90
    
    
    
    
    
    
    
    85Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (794
    )
    
    
    (793
    )Balance 31 December, 2001
    
    
    266,597
    
    
    
    5,332
    
    
    
    15,070
    
    
    
    20,402
    
    
    
    57,070
    
    
    
    (8,962
    )
    
    
    (3,167
    )
    
    
    488
    
    
    
    74,793Net income 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,765
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,765Dividend declared and paid
(NOK 10.00 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,576
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,576
    )Net unrealized gain on
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31
    )
    
    
    (31
    )Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (323
    )
    
    
    (323
    )Hedge of net investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,333
    
    
    
    1,333Cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    979
    
    
    
    979Treasury stock reissued to
employees
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    18
    
    
    
    
    
    
    
    326
    
    
    
    116
    
    
    
    
    
    
    
    134Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (1
    )
    
    
    (7,207
    )
    
    
    (7,207
    )Balance 31 December, 2002
    
    
    266,597
    
    
    
    5,332
    
    
    
    15,088
    
    
    
    20,420
    
    
    
    63,260
    
    
    
    (8,636
    )
    
    
    (3,052
    )
    
    
    (4,761
    )
    
    
    75,867Net income 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,968
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,968Dividend declared and paid
(NOK 10.50 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,711
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,711
    )Net unrealized gain on
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (113
    )
    
    
    (113
    )Hedge of net investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (333
    )
    
    
    (333
    )Cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    35Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,484
    )
    
    
    (555
    )
    
    
    
    
    
    
    (555
    )Treasury stock reissued to
employees
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )
    
    
    
    
    
    
    235
    
    
    
    83
    
    
    
    
    
    
    
    66Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    1
    
    
    
    4,856
    
    
    
    4,856Balance 31 December, 2003
    
    
    266,597
    
    
    
    5,332
    
    
    
    15,071
    
    
    
    20,403
    
    
    
    71,516
    
    
    
    (9,885
    )
    
    
    (3,523
    )
    
    
    (316
    )
    
    
    88,080




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements102 Norsk Hydro ASA had authorized and issued 266,596,650 ordinary shares having a
par value of NOK 20 per share for the years ended 31 December, 2003, 2002, and
2001. As of 31 December, 2003, 9,884,650 shares were treasury stock resulting
in 256,712,000 outstanding ordinary shares (for 2002 257,960,532 outstanding
ordinary shares). In 2004, an extraordinary General Meeting approved a capital
reduction by cancellation of 1,484,300 treasury shares acquired in 2003 as part
of a buyback program approved by the 2003 Annual General Meeting. These shares
were acquired for a market price of NOK 555 million. The General Meeting also
authorized the redemption of 1,157,922 shares owned by the Norwegian State. The
cancellation and redemption were completed on 17 March, 2004. In addition the
general meeting authorized the demerger of Norsk Hydro ASA, resulting in
reduction of the nominal value of each Hydro share from NOK 20 to NOK 18.30.
Each shareholder received one share in the newly established Yara International
ASA, with a par value of 1.70 for each Hydro share. The demerger was completed
on 24 March, 2004. Remaining treasury stock may be used as consideration in
connection with commercial transactions or share schemes for the employees and
representatives of the Corporate Assembly and the Board of Directors. In 2003,
Hydro sold 235,768 shares of its treasury stock to employees for a price of NOK
66 million. The weighted average number of outstanding shares for the year
ended 31 December, 2003 was 257,528,511. 4. Stock-based Compensation Hydro has four stock-based compensation plans, the Executive Share Option Plan
established in 2001, the Executive Share Option Plan established in 2002, the
Executive Share Option Plan established in 2003, all of which requires cash
settlement, and a subsidized share purchase plan for permanent employees in the
parent company and Norwegian subsidiaries owned more than 90 percent by Hydro. The Executive Share Option Plans are variable plans that relates to
options granted to approximately 30 persons in Hydros top management including
the president and CEO, persons in the corporate management board and others.
During 2003, 99,500 options were granted. The options are vesting over a
three-year performance period beginning in July 2003. During 2002, 111,000
options were granted. The options are vesting over a three-year performance
period beginning in July 2002. During 2001, 92,000 options were granted. The
options are vesting over a three-year performance period beginning in May 2001.
The options vesting schedule is based on shareholder return, as defined in the
Plan. If shareholder return is less than 12 percent, none of the options vest.
If the shareholder return achieved is between 12 percent and 20 percent the
corresponding percentage of options that vest increases linearly between 20
percent and 100 percent. The options are exercisable for two years following
the three-year performance period. If exercised, the option holder will receive
a cash bonus equal to the difference between the market price of the
shares, and the exercise price. All the options authorized for the three plans
have been granted. During 1999, 165,000 options were granted under the 1999 Plan at an
exercise price of NOK 367.50. This plan expired at the end of 2002. During
2001, in addition to the Executive Share Option Plan 2001, 3,500 options were
exercised under the 1999 plan. During 2002, a total
of 3,300 options were exercised, and 158,200 options expired. Activity for 2003
is as follows: AverageOptions
    
    Number of
    
    
    Strike priceoutstanding
    
    shares
    
    
    (in NOK)31 December, 2002
    
    
    203,000
    
    
    
    374.80Granted
    
    
    99,500
    
    
    
    351.50Exercised
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    31 December, 2003
    
    
    302,500
    
    
    
    367.14Options exercisable:31 December, 2002
    
    
    
    
    
    
    31 December, 2003
    
    
    
    
    
    
    
 As of 31 December, 2003, 99,500 options related to the Executive Share
Option plan 2003, with an exercise price of NOK 351.50 were outstanding with a
remaining contractual life of 4.5 years, none of which were exercisable. In
addition, 111,000 options related to the Executive Share Option Plan 2002, with
an exercise price of NOK 361.90 were outstanding with a remaining contractual
life of 3.5 years, none of which were exercisable. 92,000 options, related to
the Executive Share Option
Plan 2001, with an exercise price of NOK 390.40 were outstanding with a
remaining contractual life of 2.3 years, none of which were exercisable. Hydro also has a subsidized share-purchase plan for employees in Norway.
Under this plan Hydros employees in Norway receive a NOK 1,500 share-purchase
rebate to purchase shares of Norsk Hydro, which corresponds to a 20% discount
from the market price. If shareholder return, as defined by the plan, meets or
exceeds 12 percent in the period from 1 January to 31 December (the measurement
period), employees receive an additional rebate of NOK 4,500 for a total of NOK
6,000, which corresponds to a 50 percent discount from the market price. At 31
December 2003, the 12 percent performance target was met for the 1 January 2003
to 31 December 2003 measurement period, consequently the rebate for this award will be NOK 6,000 or 50 percent. Shares have been offered to the employees under this plan after completion of the demerger of Norsk Hydro ASA. Following the demerger in March 2004, the exercise price
for all existing plans has been adjusted to 91.5 percent of the original price, corresponding to the demerger ratio. In 2002, Hydro modified the measurement period for the share-purchase plan
for Norwegian employees so that the period would run from 1 January 2002 to 31
December 2002. 2002 was a transitional year, with the old scheme running from 1
June 2001 to 31 May 2002 and the new scheme running from 1 January 2002 to 31
December 2002. The performance target was not met for the 1 January 2002 to 31
December 2002 measurement period, consequently the rebate for this award was
NOK 1,500 or 20 percent. In April 2003, 235,768 shares were awarded to
employees at a per share price of NOK 223.92.
Compensation expense recognized related to this award amounted to NOK 13
million. The performance criteria was met for the 1 June 2001 to 31 May 2002
measurement period. In July 2002, 323,060 shares were awarded to employees at a
per share price of NOK 205.15. Compensation expense recognized in 2002 related
to this award amounted to NOK 73 million. The performance criteria was met for the 2000-2001 measurement period. In
June 2001, 347,474 shares were awarded to employees at a per share price of NOK
196.90. Compensation expense recognized in 2001 related to this award was
approximately NOK 68 million.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements103 Norsk Hydro ASA and subsidiaries For six individuals who were transferred to Yara in the 2004 demerger, the vesting period for their 30,000 options ended at completion of the
demerger. The options may be exercised at completion date, or over a six month
period from the demerger completion, provided that the plan performance target
is met at exercise date or, if earlier, when the ordinary performance period
expires. If exercised after the completion date, the options strike price will
be adjusted to 91.5 percent of the original price, corresponding to the
demerger ratio. 5. Operating and geographic segment information Operating segments are components of a business that are evaluated regularly by
dedicated senior management utilizing financial and operational information
prepared specifically for the segment for the purpose of assessing performance
and allocating resources. Generally, financial information is required to be
disclosed on the same basis that is used internally enabling investors to see
the Company through the eyes of management. Hydros operating segments are managed separately and each operating
segment represents a strategic business area that offers different products and
serves different markets. Hydros operating segments are the three business
areas Oil & Energy, Aluminium and Agri. The operating units reporting directly
to the business areas are called sectors. Sectors represent various businesses
within each of the business areas, and their results are reviewed by the
business area management. For reporting purposes, the business areas are
divided into sub-segments, each of which comprises one or more sectors.
Sub-segments are not operating units, but their results are presented in order
to illustrate the results of upstream and downstream activities within a value
chain of Hydros vertically integrated activities. Oil & Energy consists of
Exploration and Production, and Energy and Oil Marketing. Exploration and
Production is responsible for Hydros oil and gas exploration, field
development, and operation of production and transportation facilities. Energy
and Oil Marketing includes Hydros commercial operations in the oil, natural
gas and power sectors, the operation of Hydros power stations as well as
marketing and sale of refined petroleum products (gasoline, diesel and heating
oil) to retail customers. Energy and Oil Marketing buys and/or markets almost
all oil production from Exploration and Production, and sells the equity gas
production on a commission basis. From 2003, Hydros gas transportation
activities (as an owner of interests in the major gas transportation systems on
the Norwegian Continental Shelf) are reported as part of Energy and Oil
Marketing. Prior periods figures have been reclassified for comparative
purposes. Aluminium consists of Metals, Rolled Products and Extrusion and
Automotive. Metals activities include the production of primary aluminium and
primary magnesium, aluminium oxide, remelting of metal, and the international
trading of aluminium, aluminium products and aluminium oxide. Rolled Products
delivers foil, strip, sheet and plate for application in such sectors as
packaging, automotive and transport industries, as well as for offset printing
plates. Extrusion and Automotive is involved in the manufacture and sale of
extruded aluminium products and components for the automotive industry. Hydros
aluminium activities in North America, including trading activities, is
included in Extrusion and Automotive. Agris main activities are the production and sale of ammonia and
fertilizer products, including nitrate fertilizer, complex fertilizer and urea.
Most of the production takes place in Europe while trading is done worldwide.
In addition, Agri markets numerous products for industrial use which mainly
have their origin in Hydros ammonia and fertilizer production. Other
activities consists of Petrochemicals, Treka AS (previously A/S Korn og
Foderstof Kompagniet), VAW Flexible Packaging (sold April 2003) and certain
other activities. Petrochemicals is a producer of the plastic raw material
polyvinyl chloride (PVC) in Scandinavia and in the UK. Trekas main activity is
production and sale of fish feed, after disposing of activities related to
trading of grain, feedstuffs, fertilizers and other agricultural related
products in November 2002 and January 2003. Operating Segment Information Hydro ́s steering model referred to as value-based management, reflects
managements focus on cash flow-based performance indicators, before and after
taxes. EBITDA 1) (defined as income/loss before tax, interest expense,
depreciation, amortization, write-downs and certain other financial items) is
an approximation of cash flow from operations before taxes. EBITDA is
considered an important measure of performance for the companys operational
areas and operating segments. EBITDA, in addition to operating income includes
financial income, results from non-consolidated investee companies as well as
gains and losses on sales of activities classified as Other Income, (expense) net in
the income statement. It excludes depreciation, write-downs and amortization,
as well as amortization of excess values in non-consolidated investee
companies. Hydro also uses cash return on Gross investment (CROGI) as a measure
of annual rate of return on assets employed. CROGI is defined as gross cash
flow after taxes, divided by average gross investment 2), while gross cash flow
is defined as EBITDA less total tax
expense, gross investment is defined as total assets plus accumulated
depreciation, amortization and write-downs, minus short-term interest-free debt
3). Hydro manages long-term funding and taxes on a Group basis.
Therefore, segment debt is defined as short-term interest free liabilities
excluding corporate income taxes payable and short-term deferred tax
liabilities. Certain segment information such as EBITDA and Gross Investment are
non-GAAP measures. Therefore there is no directly corresponding figure in the
financial statements. A reconciliation to GAAP measures is included in item 5,
Operating and Financial Review and Prospects under caption Non-GAAP Measures
of Financial Performance. Intersegment sales and transfers reflect arms length prices as if sold or
transferred to third parties. Results of activities considered incidental to
Hydros main operations as well as unallocated revenues, expenses, liabilities
and assets are reported separately under the caption Corporate and
Eliminations. These amounts principally include interest income and expenses,
realized and unrealized foreign exchange gains and losses and the net effect of
pension schemes. In additions, elimination of gains and losses related to
transactions between the Areas. The accounting policies of the operating
segments reflect those described in the summary of significant accounting
policies. See Note 1.  1)
    
    EBITDA: Earnings before Interest, Tax, Depreciation and Amortization.2)
    
    Deferred tax assets are not included in gross investment.3)
    
    Deferred tax liabilities are not deducted from gross investment.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements104 External revenues
    
    Internal revenues
    
    Total operating revenuesAmounts in NOK million
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001Exploration and Production1)
    
    
    12,099
    
    
    
    10,136
    
    
    
    6,992
    
    
    
    25,805
    
    
    
    22,834
    
    
    
    25,434
    
    
    
    37,904
    
    
    
    32,970
    
    
    
    32,426Energy and Oil Marketing1)
    
    
    44,308
    
    
    
    41,929
    
    
    
    41,315
    
    
    
    5,062
    
    
    
    3,986
    
    
    
    4,509
    
    
    
    49,370
    
    
    
    45,915
    
    
    
    45,824Eliminations2)
    
    
    (1,576
    )
    
    
    (965
    )
    
    
    (846
    )
    
    
    (25,739
    )
    
    
    (22,075
    )
    
    
    (25,225
    )
    
    
    (27,315
    )
    
    
    (23,040
    )
    
    
    (26,070
    )Hydro Oil
& Energy
    
    
    54,831
    
    
    
    51,100
    
    
    
    47,461
    
    
    
    5,128
    
    
    
    4,745
    
    
    
    4,719
    
    
    
    59,959
    
    
    
    55,845
    
    
    
    52,180Metals
    
    
    26,509
    
    
    
    26,025
    
    
    
    24,961
    
    
    
    13,414
    
    
    
    13,621
    
    
    
    6,514
    
    
    
    39,923
    
    
    
    39,646
    
    
    
    31,475Rolled Products
    
    
    17,825
    
    
    
    14,135
    
    
    
    4,126
    
    
    
    552
    
    
    
    655
    
    
    
    102
    
    
    
    18,377
    
    
    
    14,790
    
    
    
    4,228Extrusion and Automotive
    
    
    24,472
    
    
    
    24,186
    
    
    
    21,854
    
    
    
    57
    
    
    
    59
    
    
    
    633
    
    
    
    24,529
    
    
    
    24,245
    
    
    
    22,487Other and eliminations3)
    
    
    190
    
    
    
    162
    
    
    
    1
    
    
    
    (13,867
    )
    
    
    (13,792
    )
    
    
    (7,108
    )
    
    
    (13,677
    )
    
    
    (13,630
    )
    
    
    (7,107
    )Hydro
Aluminium
    
    
    68,996
    
    
    
    64,508
    
    
    
    50,942
    
    
    
    156
    
    
    
    543
    
    
    
    141
    
    
    
    69,152
    
    
    
    65,051
    
    
    
    51,083Hydro Agri
    
    
    37,828
    
    
    
    32,818
    
    
    
    36,809
    
    
    
    346
    
    
    
    530
    
    
    
    598
    
    
    
    38,174
    
    
    
    33,348
    
    
    
    37,407Other activities4)
    
    
    10,206
    
    
    
    17,988
    
    
    
    17,714
    
    
    
    3,807
    
    
    
    3,781
    
    
    
    4,647
    
    
    
    14,013
    
    
    
    21,769
    
    
    
    22,361Corporate and Eliminations2)
    
    
    (79
    )
    
    
    626
    
    
    
    73
    
    
    
    (9,437
    )
    
    
    (9,599
    )
    
    
    (10,105
    )
    
    
    (9,516
    )
    
    
    (8,973
    )
    
    
    (10,032
    )Total
    
    
    171,782
    
    
    
    167,040
    
    
    
    152,999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    171,782
    
    
    
    167,040
    
    
    
    152,999
 Depreciation, depletion
    
    Other operating
    
    Operating income (loss)and amortization
    
    expenses
    
    before fin. and other incomeAmounts in NOK million
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001Exploration and Production1)
    
    
    9,052
    
    
    
    8,242
    
    
    
    7,240
    
    
    
    10,352
    
    
    
    11,591
    
    
    
    8,276
    
    
    
    18,500
    
    
    
    13,137
    
    
    
    16,910Energy and Oil Marketing1)
    
    
    591
    
    
    
    764
    
    
    
    780
    
    
    
    46,111
    
    
    
    42,367
    
    
    
    42,777
    
    
    
    2,668
    
    
    
    2,784
    
    
    
    2,267Eliminations2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,290
    )
    
    
    (23,066
    )
    
    
    (26,070
    )
    
    
    (25
    )
    
    
    26
    
    
    
    Hydro Oil
& Energy
    
    
    9,643
    
    
    
    9,006
    
    
    
    8,020
    
    
    
    29,173
    
    
    
    30,892
    
    
    
    24,983
    
    
    
    21,143
    
    
    
    15,947
    
    
    
    19,177Metals
    
    
    1,517
    
    
    
    1,117
    
    
    
    751
    
    
    
    36,113
    
    
    
    36,839
    
    
    
    30,352
    
    
    
    2,293
    
    
    
    1,690
    
    
    
    372Rolled Products
    
    
    650
    
    
    
    496
    
    
    
    104
    
    
    
    17,595
    
    
    
    14,589
    
    
    
    4,066
    
    
    
    132
    
    
    
    (295
    )
    
    
    58Extrusion and Automotive
    
    
    1,247
    
    
    
    1,010
    
    
    
    895
    
    
    
    23,184
    
    
    
    23,221
    
    
    
    21,820
    
    
    
    98
    
    
    
    14
    
    
    
    (228
    )Other and eliminations3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,610
    )
    
    
    (13,919
    )
    
    
    (7,090
    )
    
    
    (67
    )
    
    
    289
    
    
    
    (17
    )Hydro
Aluminium
    
    
    3,414
    
    
    
    2,623
    
    
    
    1,750
    
    
    
    63,282
    
    
    
    60,730
    
    
    
    49,148
    
    
    
    2,456
    
    
    
    1,698
    
    
    
    185Hydro Agri
    
    
    1,133
    
    
    
    1,172
    
    
    
    1,571
    
    
    
    34,241
    
    
    
    29,969
    
    
    
    33,722
    
    
    
    2,800
    
    
    
    2,207
    
    
    
    2,114Other activities4)
    
    
    892
    
    
    
    1,100
    
    
    
    911
    
    
    
    13,535
    
    
    
    20,656
    
    
    
    21,790
    
    
    
    (414
    )
    
    
    13
    
    
    
    (340
    )Corporate and Eliminations2) 5)
    
    
    11
    
    
    
    11
    
    
    
    21
    
    
    
    (7,800
    )
    
    
    (8,960
    )
    
    
    (10,000
    )
    
    
    (1,727
    )
    
    
    (24
    )
    
    
    (53
    )Total
    
    
    15,093
    
    
    
    13,912
    
    
    
    12,273
    
    
    
    132,431
    
    
    
    133,287
    
    
    
    119,643
    
    
    
    24,258
    
    
    
    19,841
    
    
    
    21,083
  1)
    
    From 2003, Hydros gas transportation activities are reported as part of
Energy and Oil Marketing. Prior periods have been reclassified for
comparative purposes.2)
    
    Corporate and Eliminations includes the elimination of the unrealized gains included in Hydro Energys results relating to internal sales contracts for power. These eliminations resulted in a charge to Corporate and Eliminations of NOK 141 million in 2003 and a gain of NOK 588 million in 2002.3)
    
    Other and eliminations includes unrealized gains and losses related to
LME contracts with a loss of NOK 49 million in 2003, a gain of NOK 266
million in 2002, and a loss of NOK 50 million in 2001.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements105 Norsk Hydro ASA and subsidiaries Equity in net income
    
    Other income (expense), net
    
    EBITDAnon-consolidated investeesAmounts in NOK million
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001Exploration and Production1)
    
    
    29
    
    
    
    31
    
    
    
    35
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    27,624
    
    
    
    21,593
    
    
    
    24,312Energy and Oil Marketing1)
    
    
    81
    
    
    
    148
    
    
    
    32
    
    
    
    816
    
    
    
    
    
    
    
    179
    
    
    
    4,226
    
    
    
    3,721
    
    
    
    3,292Eliminations2)
    
    
    (3
    )
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24
    )
    
    
    26
    
    
    
    Hydro Oil
& Energy
    
    
    107
    
    
    
    179
    
    
    
    65
    
    
    
    816
    
    
    
    77
    
    
    
    179
    
    
    
    31,826
    
    
    
    25,340
    
    
    
    27,604Metals
    
    
    379
    
    
    
    (275
    )
    
    
    196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,298
    
    
    
    2,703
    
    
    
    1,766Rolled Products
    
    
    (14
    )
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    835
    
    
    
    258
    
    
    
    162Extrusion and Automotive
    
    
    68
    
    
    
    49
    
    
    
    (78
    )
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    1,432
    
    
    
    1,084
    
    
    
    632Other and eliminations3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67
    )
    
    
    289
    
    
    
    (17
    )Hydro
Aluminium
    
    
    433
    
    
    
    (219
    )
    
    
    118
    
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    6,498
    
    
    
    4,334
    
    
    
    2,543Hydro Agri
    
    
    610
    
    
    
    57
    
    
    
    330
    
    
    
    
    
    
    
    166
    
    
    
    (53
    )
    
    
    4,748
    
    
    
    3,945
    
    
    
    4,402Other activities 4)
    
    
    83
    
    
    
    12
    
    
    
    51
    
    
    
    162
    
    
    
    
    
    
    
    477
    
    
    
    1,140
    
    
    
    1,044
    
    
    
    1,215Corporate and Eliminations2) 5)
    
    
    (4
    )
    
    
    4
    
    
    
    2
    
    
    
    (2,190
    )
    
    
    (24
    )
    
    
    
    
    
    
    (959
    )
    
    
    995
    
    
    
    1,993Total
    
    
    1,229
    
    
    
    33
    
    
    
    566
    
    
    
    (1,212
    )
    
    
    219
    
    
    
    578
    
    
    
    43,253
    
    
    
    35,658
    
    
    
    37,757
 Gross Cash Flow after Tax
    
    Gross Investment
    
    CROGI6)Amounts in NOK million
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001Exploration and Production1)
    
    
    16,504
    
    
    
    13,610
    
    
    
    14,097
    
    
    
    124,655
    
    
    
    115,938
    
    
    
    106,382
    
    
    
    13.7
    
    
    
    12.2
    
    
    
    13.7Energy and Oil Marketing1)
    
    
    2,436
    
    
    
    2,598
    
    
    
    2,305
    
    
    
    25,734
    
    
    
    24,128
    
    
    
    22,366
    
    
    
    9.8
    
    
    
    11.2
    
    
    
    10.6Eliminations2)
    
    
    (25
    )
    
    
    18
    
    
    
    
    
    
    
    28
    
    
    
    53
    
    
    
    (43
    )
    
    
    
    
    
    
    
    
    
    
    Hydro Oil
& Energy
    
    
    18,915
    
    
    
    16,226
    
    
    
    16,402
    
    
    
    150,417
    
    
    
    140,119
    
    
    
    128,705
    
    
    
    13.0
    
    
    
    12.1
    
    
    
    13.2Metals
    
    
    3,617
    
    
    
    2,188
    
    
    
    1,651
    
    
    
    38,896
    
    
    
    34,905
    
    
    
    26,330
    
    
    
    9.8
    
    
    
    7.1
    
    
    
    6.0Rolled Products
    
    
    792
    
    
    
    258
    
    
    
    144
    
    
    
    12,645
    
    
    
    11,937
    
    
    
    2,626
    
    
    
    6.4
    
    
    
    3.5
    
    
    
    5.8Extrusion and Automotive
    
    
    1,398
    
    
    
    1,077
    
    
    
    632
    
    
    
    18,737
    
    
    
    16,846
    
    
    
    14,011
    
    
    
    7.9
    
    
    
    7.0
    
    
    
    4.5Other and eliminations3)
    
    
    (46
    )
    
    
    289
    
    
    
    58
    
    
    
    79
    
    
    
    145
    
    
    
    (148
    )
    
    
    
    
    
    
    
    
    
    
    Hydro
Aluminium
    
    
    5,761
    
    
    
    3,812
    
    
    
    2,485
    
    
    
    70,357
    
    
    
    63,833
    
    
    
    42,819
    
    
    
    8.6
    
    
    
    7.1
    
    
    
    5.7Hydro Agri
    
    
    3,853
    
    
    
    3,174
    
    
    
    3,669
    
    
    
    35,049
    
    
    
    30,739
    
    
    
    36,513
    
    
    
    11.7
    
    
    
    9.4
    
    
    
    9.6Other activities 4)
    
    
    1,096
    
    
    
    1,045
    
    
    
    1,147
    
    
    
    15,828
    
    
    
    21,873
    
    
    
    22,529
    
    
    
    5.8
    
    
    
    4.7
    
    
    
    4.9Corporate
and Eliminations2)
    
    
    (2,516
    )
    
    
    (1,877
    )
    
    
    304
    
    
    
    15,937
    
    
    
    8,832
    
    
    
    28,273
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    27,109
    
    
    
    22,380
    
    
    
    24,007
    
    
    
    287,588
    
    
    
    265,396
    
    
    
    258,839
    
    
    
    9.8
    
    
    
    8.5
    
    
    
    9.4
  4)
    
    Other activities consist of the following: Petrochemicals, Treka AS
(previously A/S Korn- og Foderstof Kompagniet), Flexible Packaging (sold
in April 2003), Pronova, the industrial insurance company,
Industriforsikring, and Hydro Business Partner.5)
    
    Corporate and Eliminations operating income (loss) and EBITDA includes a
net periodic pension cost of NOK 1,146 million for 2003, NOK 312 million
for 2002, and a credit of NOK 421 million in 2001.6)
    
    CROGI: Cash Return on Gross Investment, is defined as Gross Cash Flow
after Tax divided by Gross Investment. CROGI is measured in percent.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements106 Current Assets1)
    
    
    Non-current Assets
    
    
    Assets1)Amounts in NOK million
    
    2003
    
    
    2002
    
    
    2003
    
    
    2002
    
    
    2003
    
    
    2002Exploration and Production4)
    
    
    9,036
    
    
    
    8,397
    
    
    
    65,191
    
    
    
    64,933
    
    
    
    74,227
    
    
    
    73,330Energy and Oil Marketing4)
    
    
    10,398
    
    
    
    15,614
    
    
    
    15,558
    
    
    
    14,456
    
    
    
    25,956
    
    
    
    30,070Eliminations
    
    
    (2,964
    )
    
    
    (2,459
    )
    
    
    21
    
    
    
    25
    
    
    
    (2,943
    )
    
    
    (2,434
    )Hydro Oil
& Energy
    
    
    16,470
    
    
    
    21,552
    
    
    
    80,770
    
    
    
    79,414
    
    
    
    97,240
    
    
    
    100,966Metals
    
    
    10,698
    
    
    
    9,517
    
    
    
    22,333
    
    
    
    19,979
    
    
    
    33,031
    
    
    
    29,496Rolled Products
    
    
    6,524
    
    
    
    6,451
    
    
    
    12,115
    
    
    
    4,464
    
    
    
    18,639
    
    
    
    10,915Extrusion and Automotive
    
    
    7,858
    
    
    
    7,852
    
    
    
    10,715
    
    
    
    9,926
    
    
    
    18,573
    
    
    
    17,778Other and eliminations
    
    
    (1,796
    )
    
    
    (1,506
    )
    
    
    3
    
    
    
    22
    
    
    
    (1,793
    )
    
    
    (1,484
    )Hydro
Aluminium
    
    
    23,284
    
    
    
    22,314
    
    
    
    45,166
    
    
    
    34,391
    
    
    
    68,450
    
    
    
    56,705Hydro Agri
    
    
    13,860
    
    
    
    11,473
    
    
    
    11,762
    
    
    
    11,248
    
    
    
    25,622
    
    
    
    22,721Other activities5)
    
    
    6,015
    
    
    
    10,286
    
    
    
    4,955
    
    
    
    7,508
    
    
    
    10,970
    
    
    
    17,794Corporate and Eliminations
    
    
    16,054
    
    
    
    772
    
    
    
    293
    
    
    
    8,253
    
    
    
    16,347
    
    
    
    9,025Total
    
    
    75,683
    
    
    
    66,397
    
    
    
    142,946
    
    
    
    140,814
    
    
    
    218,629
    
    
    
    207,211
 Non-consolidated investees,investments and advances
    
    Segment debt2)
    
    Investments3)Amounts in NOK million
    
    2003
    
    
    2002
    
    
    2003
    
    
    2002
    
    
    20036)
    
    
    2002Exploration and Production4)
    
    
    414
    
    
    
    566
    
    
    
    6,032
    
    
    
    5,046
    
    
    
    10,270
    
    
    
    14,073Energy and Oil Marketing4)
    
    
    1,971
    
    
    
    1,400
    
    
    
    8,217
    
    
    
    13,268
    
    
    
    989
    
    
    
    622Eliminations
    
    
    21
    
    
    
    25
    
    
    
    (2,965
    )
    
    
    (2,485
    )
    
    
    
    
    
    
    Hydro Oil
& Energy
    
    
    2,406
    
    
    
    1,991
    
    
    
    11,284
    
    
    
    15,829
    
    
    
    11,259
    
    
    
    14,696Metals
    
    
    3,384
    
    
    
    2,632
    
    
    
    5,596
    
    
    
    4,405
    
    
    
    3,572
    
    
    
    12,728Rolled Products
    
    
    1,576
    
    
    
    1,428
    
    
    
    2,769
    
    
    
    1,602
    
    
    
    466
    
    
    
    7,437Extrusion and Automotive
    
    
    827
    
    
    
    842
    
    
    
    4,975
    
    
    
    4,758
    
    
    
    1,543
    
    
    
    5,153Other and eliminations
    
    
    
    
    
    
    
    
    
    
    (1,914
    )
    
    
    (1,648
    )
    
    
    
    
    
    
    Hydro
Aluminium
    
    
    5,787
    
    
    
    4,902
    
    
    
    11,426
    
    
    
    9,117
    
    
    
    5,581
    
    
    
    25,318Hydro Agri
    
    
    2,498
    
    
    
    2,089
    
    
    
    6,674
    
    
    
    5,948
    
    
    
    1,127
    
    
    
    1,543Other activities5)
    
    
    957
    
    
    
    1,127
    
    
    
    2,710
    
    
    
    3,221
    
    
    
    852
    
    
    
    3,115Corporate and Eliminations
    
    
    1,063
    
    
    
    1,390
    
    
    
    2,641
    
    
    
    (4,430
    )
    
    
    81
    
    
    
    1,044Total
    
    
    12,711
    
    
    
    11,499
    
    
    
    34,735
    
    
    
    29,685
    
    
    
    18,900
    
    
    
    45,716
  1)
    
    Current assets and assets excludes internal cash accounts and accounts
receivable related to group relief.2)
    
    Segment debt is defined as short-term interest from liabilities excluding
income tax payable and short-term deferred tax liabilities.3)
    
    Additions to property, plant and equipment plus long-term securities,
intangible assets, long term advances and investments in non-consolidated
investees.4)
    
    From 2003, Hydros gas transportation activities are reported as part of
Energy and Oil Marketing. Prior periods have been reclassified for
comparative purposes.5)
    
    Other activities consists of the following: Petrochemicals, Treka AS
(previously A/S Korn- og Foderstof Kompagniet), Flexible Packaging (sold
in April 2003), Pronova, the industrial insurance company,
Industriforsikring, and Hydro Business Partner.6)
    
    Includes non-cash increase in investment from effect of change in
accounting principle (SFAS 143), of NOK 1,932 million.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements107 Norsk Hydro ASA and subsidiaries Assets
    
    Long-lived assets
    
    InvestmentsAmount in NOK million
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    20036)
    
    
    2002
    
    
    2001Norway
    
    
    128,925
    
    
    
    116,872
    
    
    
    115,838
    
    
    
    91,133
    
    
    
    88,558
    
    
    
    80,871
    
    
    
    12,734
    
    
    
    17,294
    
    
    
    8,630Germany
    
    
    20,975
    
    
    
    24,402
    
    
    
    3,028
    
    
    
    12,569
    
    
    
    13,146
    
    
    
    1,260
    
    
    
    903
    
    
    
    14,752
    
    
    
    141France
    
    
    5,685
    
    
    
    5,094
    
    
    
    6,221
    
    
    
    1,832
    
    
    
    1,617
    
    
    
    1,531
    
    
    
    334
    
    
    
    922
    
    
    
    272The Netherlands
    
    
    5,612
    
    
    
    3,241
    
    
    
    6,396
    
    
    
    1,745
    
    
    
    1,448
    
    
    
    1,126
    
    
    
    650
    
    
    
    410
    
    
    
    439Sweden
    
    
    5,488
    
    
    
    6,919
    
    
    
    7,394
    
    
    
    1,748
    
    
    
    2,079
    
    
    
    1,949
    
    
    
    296
    
    
    
    512
    
    
    
    477Denmark
    
    
    4,412
    
    
    
    6,460
    
    
    
    8,516
    
    
    
    2,113
    
    
    
    2,182
    
    
    
    3,428
    
    
    
    355
    
    
    
    438
    
    
    
    1,000Great Britain
    
    
    4,095
    
    
    
    4,142
    
    
    
    6,563
    
    
    
    1,546
    
    
    
    1,552
    
    
    
    1,826
    
    
    
    145
    
    
    
    272
    
    
    
    200Italy
    
    
    3,759
    
    
    
    3,279
    
    
    
    3,153
    
    
    
    1,222
    
    
    
    1,036
    
    
    
    749
    
    
    
    124
    
    
    
    499
    
    
    
    50Spain
    
    
    1,749
    
    
    
    1,429
    
    
    
    920
    
    
    
    658
    
    
    
    590
    
    
    
    300
    
    
    
    47
    
    
    
    381
    
    
    
    197Other
    
    
    2,825
    
    
    
    2,208
    
    
    
    4,567
    
    
    
    928
    
    
    
    819
    
    
    
    551
    
    
    
    158
    
    
    
    483
    
    
    
    110Total EU
    
    
    54,600
    
    
    
    57,174
    
    
    
    46,758
    
    
    
    24,361
    
    
    
    24,469
    
    
    
    12,720
    
    
    
    3,012
    
    
    
    18,669
    
    
    
    2,886Other Europe
    
    
    1,313
    
    
    
    1,278
    
    
    
    848
    
    
    
    946
    
    
    
    908
    
    
    
    210
    
    
    
    55
    
    
    
    642
    
    
    
    28Total Europe
    
    
    184,838
    
    
    
    175,324
    
    
    
    163,444
    
    
    
    116,440
    
    
    
    113,935
    
    
    
    93,801
    
    
    
    15,801
    
    
    
    36,605
    
    
    
    11,544USA
    
    
    5,748
    
    
    
    5,894
    
    
    
    7,681
    
    
    
    2,255
    
    
    
    2,457
    
    
    
    2,102
    
    
    
    390
    
    
    
    1,399
    
    
    
    312Asia
    
    
    5,749
    
    
    
    5,465
    
    
    
    5,012
    
    
    
    3,727
    
    
    
    3,621
    
    
    
    2,891
    
    
    
    360
    
    
    
    1,373
    
    
    
    805Other Americas
    
    
    5,934
    
    
    
    5,099
    
    
    
    6,584
    
    
    
    4,342
    
    
    
    3,792
    
    
    
    4,286
    
    
    
    366
    
    
    
    1,290
    
    
    
    770Africa
    
    
    6,087
    
    
    
    5,771
    
    
    
    6,126
    
    
    
    3,659
    
    
    
    3,506
    
    
    
    4,176
    
    
    
    831
    
    
    
    670
    
    
    
    1,874Canada
    
    
    7,492
    
    
    
    7,057
    
    
    
    8,908
    
    
    
    6,443
    
    
    
    6,173
    
    
    
    7,149
    
    
    
    868
    
    
    
    1,794
    
    
    
    987Australia
and New Zealand
    
    
    2,781
    
    
    
    2,601
    
    
    
    167
    
    
    
    2,300
    
    
    
    2,255
    
    
    
    144
    
    
    
    284
    
    
    
    2,585
    
    
    
    36Total outside Europe
    
    
    33,791
    
    
    
    31,887
    
    
    
    34,478
    
    
    
    22,726
    
    
    
    21,804
    
    
    
    20,748
    
    
    
    3,099
    
    
    
    9,111
    
    
    
    4,784Total
    
    
    218,629
    
    
    
    207,211
    
    
    
    197,922
    
    
    
    139,166
    
    
    
    135,739
    
    
    
    114,549
    
    
    
    18,900
    
    
    
    45,716
    
    
    
    16,328
 The identification of assets, long-lived assets and investments is based upon location of operation. Included in long-lived assets are investments in non-consolidated investees; property, plant and equipment (net of accumulated depreciation) and non-current financial assets. Operating revenueAmounts in NOK million
    
    2003
    
    
    2002
    
    
    2001Norway
    
    
    17,086
    
    
    
    18,888
    
    
    
    12,758Great Britain
    
    
    22,531
    
    
    
    18,435
    
    
    
    20,787Germany
    
    
    20,357
    
    
    
    19,348
    
    
    
    18,942France
    
    
    15,385
    
    
    
    14,509
    
    
    
    12,155Sweden
    
    
    10,828
    
    
    
    10,375
    
    
    
    11,425Italy
    
    
    8,854
    
    
    
    7,895
    
    
    
    6,801Spain
    
    
    6,336
    
    
    
    4,798
    
    
    
    3,757The Netherlands
    
    
    5,313
    
    
    
    5,113
    
    
    
    3,291Denmark
    
    
    2,529
    
    
    
    6,002
    
    
    
    7,262Other
    
    
    9,821
    
    
    
    10,347
    
    
    
    9,088Total EU
    
    
    101,954
    
    
    
    96,822
    
    
    
    93,508Switzerland
    
    
    5,306
    
    
    
    6,529
    
    
    
    6,063Other Europe
    
    
    6,581
    
    
    
    6,799
    
    
    
    5,529Total Europe
    
    
    130,927
    
    
    
    129,038
    
    
    
    117,858USA
    
    
    15,490
    
    
    
    14,931
    
    
    
    16,584Asia
    
    
    9,836
    
    
    
    8,978
    
    
    
    6,479Other Americas
    
    
    7,069
    
    
    
    6,198
    
    
    
    6,035Africa
    
    
    4,200
    
    
    
    4,088
    
    
    
    4,156Canada
    
    
    3,302
    
    
    
    3,193
    
    
    
    1,419Australia
and New Zealand
    
    
    958
    
    
    
    614
    
    
    
    467Total outside Europe
    
    
    40,855
    
    
    
    38,002
    
    
    
    35,141Total
    
    
    171,782
    
    
    
    167,040
    
    
    
    152,999
 Operating revenues are identified by customer location.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements108 6. Restructuring Costs In October of 2001 Hydro discontinued production of primary magnesium in
Norway. As a result, Hydro closed the Porsgrunn magnesium production facilities
in March of 2002, and started the clean up and dismantling work. Dismantling
and clean-up work is expected to be finalized in 2004. As part of the closure
of the magnesium plant facilities, restructuring costs totaling NOK 921 million
were recognized at the end of 2001; of this amount, NOK 261 million was charged
as an impairment loss on the plant facilities, the remaining NOK 660 million of
restructuring costs included termination costs for customer and supplier
agreements, work-force reduction costs, and dismantling and clean-up costs. At
the same time NOK 40 million related to write down of inventories due to
obsolences was expensed. Hydro recorded additional restructuring costs of NOK
59 million related to work-force reduction in 2002. The initial restructuring
accrual was reduced by NOK 69 million during 2002 due to the reversal of
certain accruals relating to contract termination costs that were lower than
originally anticipated. The following table summarizes the types and amounts recognized as accrued
expenses for the restructuring together with changes in the accrual for the
twelve-month period ended 31 December 2002, and the period ended 31 December,
2003. Amounts in
    
    Demolition
    
    
    Workforce
    
    
    Shutdown cost
    
    
    ContractsNOK million
    
    cost
    
    
    severance
    
    
    of operation
    
    
    termination
    
    
    Total31 December,
2001
    
    
    316
    
    
    
    130
    
    
    
    98
    
    
    
    116
    
    
    
    660Additions
(deductions)1)
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    (69
    )
    
    
    (10
    )Payments
    
    
    (41
    )
    
    
    (171
    )
    
    
    (98
    )
    
    
    (47
    )
    
    
    (357
    )31 December,
2002
    
    
    275
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    293Payments
    
    
    (131
    )
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    (149
    )31 December,
2003
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144
  1)
    
    Charged to restructuring costs in the income statement. 7. Operating costs and expenses Operating costs include research and
development, operating lease expense and
payroll and related costs as follows: Amounts in NOK million
    
    2003
    
    
    2002
    
    
    2001Research and development
expense
    
    
    850
    
    
    
    815
    
    
    
    796Operating lease expense:1)Drilling rigs, ships,
office space
    
    
    1,323
    
    
    
    1,715
    
    
    
    1,489Office space leased from Hydros
independent pension trust
    
    
    210
    
    
    
    206
    
    
    
    211Total
    
    
    1,533
    
    
    
    1,921
    
    
    
    1,700Payroll and related costs:Salaries
    
    
    15,921
    
    
    
    15,561
    
    
    
    13,306Social security costs
    
    
    2,697
    
    
    
    2,398
    
    
    
    1,927Social benefits
    
    
    687
    
    
    
    788
    
    
    
    503Net periodic pension cost
(Note 20)
    
    
    2,480
    
    
    
    1,586
    
    
    
    1,501Total
    
    
    21,785
    
    
    
    20,333
    
    
    
    17,237
  1)
    
    Total minimum future rentals of NOK
7,257 million are due under non-cancelable
operating leases as follows (in NOK
million): 2004 - 1,188; 2005 - 1,059; 2006
- 921; 2007 - 873; 2008 - 700; and
thereafter - 2,516. Estimating earnings relating to research
and development costs
incurred is considered impracticable for
the years ended 31 December, 2003, 2002,
2001. See also financial review page 82. 8. Financial income and expense Amounts in NOK million
    
    2003
    
    
    2002
    
    
    2001Interest income
    
    
    1,147
    
    
    
    1,515
    
    
    
    2,762Net gain (loss) on securities
    
    
    183
    
    
    
    (269
    )
    
    
    (113
    )Dividends received
    
    
    137
    
    
    
    172
    
    
    
    198Interest income and other
financial income
    
    
    1,467
    
    
    
    1,418
    
    
    
    2,847Interest expense
    
    
    (2,912
    )
    
    
    (3,189
    )
    
    
    (3,721
    )Capitalized interest
    
    
    715
    
    
    
    607
    
    
    
    685Net foreign exchange gain (loss)
    
    
    1,035
    
    
    
    3,262
    
    
    
    (416
    )Other, net
    
    
    (104
    )
    
    
    (163
    )
    
    
    (157
    )Interest expense and foreign
exchange gain (loss)
    
    
    (1,266
    )
    
    
    517
    
    
    
    (3,609
    )Net financial income (expense), net
    
    
    201
    
    
    
    1,935
    
    
    
    (762
    )




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements109 Norsk Hydro ASA and subsidiaries 9. Other income and expense For the year 2003, other items resulted in a loss of NOK 1,212 million. The
loss included a charge of NOK 2,207 million resulting from new Norwegian tax
regulations relating to the removal costs for oil and gas installations on the
Norwegian continental shelf. In accordance with earlier regulations, removal
costs could not be deducted when calculating taxable income. Instead, the
Norwegian state assumed a portion of the removal costs by means of a special
removal grant. The new rules permit removal costs to be deducted from taxable
income. The amendment resulted in a charge in the second quarter representing
the estimated value of expected grants. At the same time, a deferred tax asset
representing the value of the new tax deductions, was included as a reduction
to the tax provision for the second quarter in the amount of NOK 2,380 million.
Further other income consisted of a gain on the sale of Hydros share in
Skandinaviska Raffinaderi AB, the Scanraff oil refinery of NOK 490 million. The
remaining NOK 505 million consisted of a non cash gain from the transfer of the
Companys interest in the Sundsfjord power plant (NOK 326 million), gain on the
disposal of Carmeda AB (NOK 139 million) and sale of the Formates activity (NOK
40 million). Other income of NOK 219 million in 2002 consisted of a gain on the sale of
Hydros interest in the oil company Pelican AS with NOK 77 million, the
remaining NOK 142 million related primarily to earnings from the divestment of
the following activities in the Agri area: KA Rasmussen, parts of the formate
activity and the reorganizing of the Vlaardingen operations in the Netherlands
into a new joint venture company. In 2001, other income and expense of NOK 578 million consisted of: Gain on
sale of Hydro Seafood UK of NOK 418 million, gain on sale of transmission grid
assets of NOK 179 million, gain on sale of Singapore Polymer Corporation of NOK
59 million, loss on sale of Oleochemicals of NOK 53 million and charges of NOK
25 million relating to the sale of Fundo a.s. in 2000. 10. Income taxes Amounts in NOK million
    
    2003
    
    
    2002
    
    
    2001Income before taxes and
minority interest:Norway
    
    
    20,043
    
    
    
    17,876
    
    
    
    18,763Other countries
    
    
    4,433
    
    
    
    4,152
    
    
    
    2,702Total
    
    
    24,476
    
    
    
    22,028
    
    
    
    21,465Current taxes:Norway
    
    
    13,853
    
    
    
    12,766
    
    
    
    13,631Other countries
    
    
    1,702
    
    
    
    1,131
    
    
    
    432Current income tax expense
    
    
    15,555
    
    
    
    13,897
    
    
    
    14,063Deferred taxes:Norway
    
    
    (1,568
    )
    
    
    (510
    )
    
    
    (576
    )Other countries
    
    
    (50
    )
    
    
    (109
    )
    
    
    263Deferred tax expense (benefit)
    
    
    (1,618
    )
    
    
    (619
    )
    
    
    (313
    )Total income tax expense
    
    
    13,937
    
    
    
    13,278
    
    
    
    13,750
 Components of deferred income tax expense Amounts in NOK million
    
    2003
    
    
    2002
    
    
    2001Deferred tax expense (benefit),
excluding items below
    
    
    534
    
    
    
    654
    
    
    
    (230
    )Benefits of tax loss carryforwards
    
    
    57
    
    
    
    (495
    )
    
    
    2Tax expense (benefit) allocated to
other comprehensive income
    
    
    180
    
    
    
    (740
    )
    
    
    52Effect of tax law changes
    
    
    (16
    )
    
    
    125
    
    
    
    78Non-recurring effect of tax law changes
relating to the removal cost for oil
and gas installations
    
    
    (2,380
    )
    
    
    
    
    
    
    Net change in valuation allowance
    
    
    7
    
    
    
    (163
    )
    
    
    (215
    )Deferred tax expense (benefit)
    
    
    (1,618
    )
    
    
    (619
    )
    
    
    (313
    )
 Reconciliation of Norwegian nominal statutory
tax rate to effective tax rate Amounts in NOK million
    
    2003
    
    
    2002
    
    
    2001Expected income taxes at
statutory tax rate1)
    
    
    6,853
    
    
    
    6,168
    
    
    
    6,010Petroleum surtax2)
    
    
    9,980
    
    
    
    8,665
    
    
    
    9,138Uplift benefit2)
    
    
    (990
    )
    
    
    (1,034
    )
    
    
    (800
    )Hydro-electric power surtax3)
    
    
    152
    
    
    
    217
    
    
    
    190Tax law changes
    
    
    (16
    )
    
    
    125
    
    
    
    78Non-recurring effect of tax law changes
relating to the removal cost for oil
and gas installations
    
    
    (2,380
    )
    
    
    
    
    
    
    Losses and other deductions
with no tax benefit
    
    
    296
    
    
    
    517
    
    
    
    549Non-deductible expenses
    
    
    59
    
    
    
    79
    
    
    
    28Foreign tax rate differences
    
    
    249
    
    
    
    127
    
    
    
    62Tax free income
    
    
    (734
    )
    
    
    (363
    )
    
    
    (395
    )Dividend exclusion
    
    
    (7
    )
    
    
    (60
    )
    
    
    (22
    )Losses and other benefits not
previously recognized
    
    
    (180
    )
    
    
    (581
    )
    
    
    (637
    )Other, net
    
    
    655
    
    
    
    (582
    )
    
    
    (451
    )Income tax
expense
    
    
    13,937
    
    
    
    13,278
    
    
    
    13,750Effective
tax rate
    
    
    56.9%
    
    
    
    60.3%
    
    
    
    64.1%
  1)
    
    Norwegian nominal statutory tax rate is 28 percent.2)
    
    Income from oil and gas activities on
the Norwegian Continental Shelf is
taxed according to the Petroleum Tax
Law. This stipulates a surtax of 50
percent after deducting uplift, a
special deduction for surtax, in
addition to normal corporate taxation
of 28 percent.3)
    
    A surtax of 27 percent is applied to
taxable income, with certain
adjustments, for Norwegian
hydro-electric power plants. The surtax
comes in addition to the normal
corporate taxation. Tax depreciation,
including that from the upward revision
of basis under the new law, is
deductible for both corporate tax and
surtax purposes.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements110  The tax effects of temporary differences and
tax loss carryforwards giving rise to
deferred tax assets and liabilities were as
follows as of 31 December, 2003 and 2002. Deferred TaxAssets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesAmounts in NOK million
    
    2003
    
    
    2003
    
    
    2002
    
    
    2002Short-term:Marketable securities
    
    
    14
    
    
    
    
    
    
    
    93
    
    
    
    (11
    )Inventory valuation
    
    
    154
    
    
    
    (350
    )
    
    
    121
    
    
    
    (273
    )Accrued expenses
    
    
    2,059
    
    
    
    (1,551
    )
    
    
    2,700
    
    
    
    (1,127
    )Unrealized exchange
(gains) losses
    
    
    119
    
    
    
    (282
    )
    
    
    80
    
    
    
    (80
    )Uplift benefit
    
    
    795
    
    
    
    
    
    
    
    844
    
    
    
    Other
    
    
    2
    
    
    
    (207
    )
    
    
    41
    
    
    
    (298
    )Long-term:Unrealized exchange
(gains) losses
    
    
    339
    
    
    
    (1,016
    )
    
    
    156
    
    
    
    (1,435
    )Property, plant
and equipment
    
    
    7,253
    
    
    
    (37,067
    )
    
    
    4,007
    
    
    
    (31,962
    )Capitalized interest
    
    
    
    
    
    
    (3,575
    )
    
    
    
    
    
    
    (3,665
    )Exploration drilling costs
    
    
    
    
    
    
    (2,440
    )
    
    
    
    
    
    
    (2,661
    )Other non-current assets
    
    
    371
    
    
    
    (713
    )
    
    
    147
    
    
    
    (630
    )Accrued expenses
    
    
    1,358
    
    
    
    (859
    )
    
    
    703
    
    
    
    (1,047
    )Pensions
    
    
    1,606
    
    
    
    (1,535
    )
    
    
    1,543
    
    
    
    (1,486
    )Deferred (gains)
losses on sales
    
    
    229
    
    
    
    (1,734
    )
    
    
    161
    
    
    
    (1,632
    )Uplift benefit
    
    
    1,573
    
    
    
    
    
    
    
    1,545
    
    
    
    Abandonments and
decommissioning accruals
    
    
    3,598
    
    
    
    
    
    
    
    871
    
    
    
    Cash Flow Hedges
    
    
    
    
    
    
    (452
    )
    
    
    
    
    
    
    (425
    )Other
    
    
    648
    
    
    
    (1,230
    )
    
    
    554
    
    
    
    (622
    )Total tax loss
carryforwards
    
    
    2,609
    
    
    
    
    
    
    
    2,727
    
    
    
    Subtotal
    
    
    22,727
    
    
    
    (53,011
    )
    
    
    16,293
    
    
    
    (47,354
    )Total valuation
allowance
    
    
    (1,682
    )
    
    
    
    
    
    
    (1,900
    )
    
    
    Gross deferred tax
assets and liabilities
    
    
    21,045
    
    
    
    (53,011
    )
    
    
    14,393
    
    
    
    (47,354
    )
 Deferred income taxes have not been provided
for on undistributed earnings of foreign
subsidiaries, amounting to NOK 16,838
million, since those earnings are considered
to be indefinitely invested. No deferred
income taxes have been recognized on
undistributed earnings of Norwegian
subsidiaries which can be remitted tax-free as
dividends. At the end of 2003, Hydro had tax loss
carryforwards of NOK 8,181 million,
primarily in Norway, Germany, Canada, Italy,
Jamaica, United Kingdom and Malaysia. Carry
forward amounts expire as follows: Amounts in NOK million2004
    
    
    3332005
    
    
    1732006
    
    
    4742007
    
    
    2562008
    
    
    135After 2008
    
    
    2,921Without expiration
    
    
    3,889Total tax loss carryforwards
    
    
    8,181
 11. Other liquid assets Amounts in NOK million
    
    2003
    
    
    2002Bank time deposits
    
    
    32
    
    
    
    1,161Marketable equity securities
    
    
    550
    
    
    
    551Debt securities and other
    
    
    999
    
    
    
    935Total other liquid assets
    
    
    1,581
    
    
    
    2,647
 The net change in unrealized gains on
securities for the years ended 31 December
2003, 2002 and 2001 was a net gain of NOK
283 million, a net loss of NOK 259 million
and a net loss of NOK 22 million,
respectively. Total cost of marketable
equity securities and debt securities and
other was NOK 1,601 million and NOK 1,822
million as of 31 December, 2003 and 2002,
respectively. 12. Inventories Amounts in NOK million
    
    2003
    
    
    2002Finished goods
    
    
    9,055
    
    
    
    8,804Work in progress
    
    
    2,626
    
    
    
    2,734Raw materials
    
    
    5,669
    
    
    
    5,694Total inventories
    
    
    17,350
    
    
    
    17,232




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements111 Norsk Hydro ASA and subsidiaries  13. Non-Consolidated investees Hydro
    
    
    Scanraff
    
    
    Alunorf
    
    
    Alunorte
    
    
    Søral
    
    
    Alu-
    
    
    Meridian
    
    
    Qafco
    
    
    Noretyl
    
    
    Other
    
    
    TotalAmounts in NOK million
    
    Texaco
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    chemieBalance 01.01.2002
    
    
    854
    
    
    
    297
    
    
    
    
    
    
    
    1,170
    
    
    
    600
    
    
    
    29
    
    
    
    628
    
    
    
    1,266
    
    
    
    512
    
    
    
    4,331
    
    
    
    9,687Investments (sale), net
    
    
    
    
    
    
    159
    
    
    
    1,468
    
    
    
    137
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    1,207
    
    
    
    2,966Change in long-term
advances, net
    
    
    
    
    
    
    145
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    857
    
    
    
    1,109Transfers (to) from other
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109
    )
    
    
    (109
    )Hydros share of net
income (loss)
    
    
    115
    
    
    
    
    
    
    
    47
    
    
    
    (291
    )
    
    
    75
    
    
    
    2
    
    
    
    19
    
    
    
    121
    
    
    
    72
    
    
    
    109
    
    
    
    269Amortization and write-down
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (174
    )
    
    
    (235
    )Dividends and other payments
received by Hydro
    
    
    (1
    )
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    (100
    )
    
    
    (3
    )
    
    
    (5
    )
    
    
    (95
    )
    
    
    
    
    
    
    (187
    )
    
    
    (414
    )Foreign currency
translation and other
    
    
    (49
    )
    
    
    (90
    )
    
    
    (47
    )
    
    
    (459
    )
    
    
    
    
    
    
    
    
    
    
    (142
    )
    
    
    (290
    )
    
    
    
    
    
    
    (697
    )
    
    
    (1,774
    )Balance 31.12.2002
    
    
    919
    
    
    
    488
    
    
    
    1,428
    
    
    
    536
    
    
    
    575
    
    
    
    135
    
    
    
    495
    
    
    
    1,002
    
    
    
    584
    
    
    
    5,337
    
    
    
    11,499Changes in 2003:Investments (sale), net
    
    
    66
    
    
    
    (343
    )
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    496
    
    
    
    277Change in long-term
advances, net
    
    
    
    
    
    
    (330
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    323
    
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    (74
    )
    
    
    419Transfers (to) from
other investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    (7
    )Hydros share of net
income (loss)
    
    
    116
    
    
    
    
    
    
    
    41
    
    
    
    305
    
    
    
    92
    
    
    
    
    
    
    
    51
    
    
    
    290
    
    
    
    62
    
    
    
    484
    
    
    
    1,441Amortization and write-down
    
    
    (66
    )
    
    
    
    
    
    
    (55
    )
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71
    )
    
    
    (212
    )Dividends and other payments
received by Hydro
    
    
    (54
    )
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    (99
    )
    
    
    (3
    )
    
    
    (9
    )
    
    
    (121
    )
    
    
    (709
    )
    
    
    (298
    )
    
    
    (1,299
    )Foreign currency
translation and other
    
    
    76
    
    
    
    185
    
    
    
    168
    
    
    
    23
    
    
    
    
    
    
    
    5
    
    
    
    49
    
    
    
    (50
    )
    
    
    
    
    
    
    137
    
    
    
    593Balance 31.12.2003
    
    
    1,057
    
    
    
    
    
    
    
    1,576
    
    
    
    902
    
    
    
    568
    
    
    
    460
    
    
    
    586
    
    
    
    1,121
    
    
    
    437
    
    
    
    6,004
    
    
    
    12,711
 Specification of Non-consolidated Investees Hydro's currentAmounts
    
    Percentage
    
    Investments in
    
    receivableNOK million,
    
    owned
    
    and advances
    
    (payable), netexcept ownership
    
    by Hydro
    
    to investees
    
    with investees2003
    
    2003
    
    
    2002
    
    
    2003
    
    
    2002Hydro Texaco
    
    
    50.0
    %
    
    
    1,057
    
    
    
    919
    
    
    
    (61
    )
    
    
    (61
    )Scanraff
    
    
    
    
    
    
    
    
    
    
    488
    
    
    
    
    
    
    
    12Alunorte
    
    
    34.0
    %
    
    
    902
    
    
    
    536
    
    
    
    (116
    )
    
    
    (47
    )Søral
    
    
    49.9
    %
    
    
    568
    
    
    
    575
    
    
    
    (137
    )
    
    
    (103
    )Aluchemie
    
    
    21.2
    %
    
    
    460
    
    
    
    135
    
    
    
    
    
    
    
    (4
    )Meridian
    
    
    49.0
    %
    
    
    586
    
    
    
    495
    
    
    
    8
    
    
    
    62Qafco
    
    
    25.0
    %
    
    
    1,121
    
    
    
    1,002
    
    
    
    (378
    )
    
    
    (142
    )Alunorf
    
    
    50.0
    %
    
    
    1,576
    
    
    
    1,428
    
    
    
    27
    
    
    
    (115
    )Noretyl
    
    
    50.0
    %
    
    
    437
    
    
    
    584
    
    
    
    47
    
    
    
    (179
    )Others
    
    
    
    
    
    
    6,004
    
    
    
    5,337
    
    
    
    (186
    )
    
    
    (127
    )Total
    
    
    
    
    
    
    12,711
    
    
    
    11,499
    
    
    
    (796
    )
    
    
    (704
    )
 A description of significant investees business, majority owners
and the nature of related party transactions with Hydro including
amounts if material follow: Hydro Texaco a.s operates 893 gasoline stations and 162 diesel
stations in Norway, Denmark and the Baltics. Hydro and
ChevronTexaco Corp. each own 50 percent in the joint venture.
Hydro sells and purchases oil related products with the joint venture at market
prices. Sales from Hydro Texaco to Hydro amounted
to NOK 428 million, NOK 510 million and NOK 558 million in 2003,
2002 and 2001, respectively. Sales from Hydro to Hydro Texaco
amounted to NOK 1,003 million, NOK 674 million and NOK 1,194
million in 2003, 2002 and 2001, respectively. Hydro Texaco is part
of Energy and Oil Marketing. In December 2003, Hydro sold its 25 percent share and its
accompanying petroleum stocks at Skandinaviska Raffinaderi AB
(Scanraff) in Sweden to the Swedish oil company Preem Petroleum
AB. The net result from the transaction was NOK 490 million. After
the sale Hydro will meet its requirements for refined products to its
Swedish retail marketing by means of a long-term supply agreement at market
prices with Preem Petroleum AB. Aluminium Norf GmbH (Alunorf) is the world largest rolling mill
located in Germany nearby other Hydro facilities. Alunorf is jointly
owned by Hydro and Alcan (50 percent each). Hydros shares in




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements112  Alunorf were part of the VAW acquisition in
2002. Each partner supplies Alunorf with
ingots, which are transformed to flat
rolled coils and delivered to the partners.
Sales from Alunorf to Hydro amounted to NOK
1,301 million in 2003 and NOK 1,941 million
in 2002. Hydro sells alloys to Alunorf.
Operating revenues from sales to Alunorf
were not material to Hydro Aluminium.
Alunorf is part of Rolled Products. Alumina do Norte do Brasil S.A.
(Alunorte) is an alumina refinery located in
Brazil. Hydros owner share is at present 34
percent. Hydro purchased alumina from
Alunorte amounting to NOK 907 million, NOK
433 million and NOK 734 million in 2003,
2002 and 2001, respectively. Alunorte is
part of Metals. Sør-Norge Aluminium AS (Søral), part of
Metals, is a Norwegian primary aluminium
manufacturer. Søral sells 50 percent of its
production to each major owner at current
market prices. The other 50 percent owner of
Søral is an unaffiliated company. Sale of
aluminium from Søral to Hydro amounted to
NOK 949 million, NOK 847 million and NOK
1,018 million in 2003, 2002 and 2001,
respectively. Sales from Hydro to Søral
amounted to NOK 356 million, NOK 363 million
and NOK 350 million in 2003, 2002 and 2001,
respectively. Aluminium & Chemie Rotterdam B.V
(Aluchemie) is an anode producer located in
the Netherlands. Hydros share is at present
21.21 percent. Hydro purchased anodes from
Aluchemie amounting to NOK 285 million in
2003 and NOK 263 million in 2002. Sales from
Hydro to Aluchemie amounted to NOK 50
million in 2003 and NOK 47 million in 2002.
Aluchemie is part of Metals. Meridian Technologies Inc. (Meridian),
part of Extrusion and Automotive, is a
Canadian company owned 51 percent by Teksid
S.p.A. (a subsidiary of the Fiat group) and
49 percent by Hydro. Meridian provides
magnesium die-casting products to the
automobile industry. Meridian purchases
alloyed magnesium from Hydro. Sales from
Hydro to Meridian amounted to NOK 198
million, NOK 249 million and NOK 152
million in 2003, 2002 and 2001,
respectively. Qatar Fertiliser Company S.A.Q. (Qafco)
owns and operates a fertilizer complex for which Hydro provided marketing support and technical assistance. Prior to the completion of the demerger Hydro had a 25 percent ownership in Qafco. The remaining 75 percent of Qafco is owned by Qatar Petroleum, which is owned by the State of Qatar.  Qafco operates three separate lines for production of ammonia and urea, a fourth is currently under construction. The expansion is scheduled for completion in June 2004. Hydro purchased urea from Qafco amounting to NOK 1,524 million, NOK 944 million, NOK 876 million in 2003, 2002 and 2001, respectively. Hydro and Borealis own Noretyl AS as a
joint venture (50-50 percent). Noretyl is
part of Petrochemicals. Hydro paid
processing fees to Noretyl for refining NGL
of NOK 245 million, NOK 242 million and NOK
250 million in 2003, 2002 and 2001
respectively. Non-consolidated investees split by
segment can be found in Note 5. Non-consolidated investees  100 percent basis The following table sets forth summarized
unaudited financial information of Hydros
non-consolidated investees on a 100 percent
combined basis. Hydros share of these
investments, which is also specified below,
is accounted for using the equity method. Income Statement Data (unaudited) Amounts in NOK million
    
    2003
    
    
    2002
    
    
    2001Operating revenues
    
    
    33,868
    
    
    
    35,204
    
    
    
    36,772Operating income
    
    
    5,763
    
    
    
    4,534
    
    
    
    6,507Income before taxes
and minority interest
    
    
    5,538
    
    
    
    1,772
    
    
    
    3,475Net income
    
    
    4,677
    
    
    
    1,240
    
    
    
    2,771Hydros share of net income
    
    
    1,441
    
    
    
    269
    
    
    
    714
 Balance Sheet Data (unaudited) Amounts in NOK million
    
    2003
    
    
    2002
    
    
    2001Current assets
    
    
    19,647
    
    
    
    14,805
    
    
    
    17,205Non-current assets
    
    
    39,714
    
    
    
    38,218
    
    
    
    40,066Assets
    
    
    59,361
    
    
    
    53,023
    
    
    
    57,271Current liabilities
    
    
    10,850
    
    
    
    9,548
    
    
    
    11,589Non-current liabilities
    
    
    17,396
    
    
    
    16,600
    
    
    
    15,321Minority interest
    
    
    658
    
    
    
    6
    
    
    
    27Shareholders equity
    
    
    30,457
    
    
    
    26,869
    
    
    
    30,334Liabilities and
shareholders equity
    
    
    59,361
    
    
    
    53,023
    
    
    
    57,271Hydros investments
and advances
    
    
    12,711
    
    
    
    11,499
    
    
    
    9,687
 14. Prepaid pension, investments and non-current assets Amounts in NOK million
    
    2003
    
    
    2002Goodwill for consolidated subsidiaries,
less accumulated amortization
    
    
    1,133
    
    
    
    1,217Intangible assets, less accumulated
amortization
    
    
    1,799
    
    
    
    1,967Total intangible assets
    
    
    2,932
    
    
    
    3,184Prepaid pension (Note 20)
    
    
    5,080
    
    
    
    4,989Available-for-sale securities at fair value1)
    
    
    19
    
    
    
    19Other investments at cost
    
    
    2,484
    
    
    
    2,948Non-current assets
    
    
    3,872
    
    
    
    3,941Total prepaid pension, investments
and non-current assets
    
    
    11,455
    
    
    
    11,897Total1)
    
    
    14,387
    
    
    
    15,081
  1)
    
    As of 31 December, 2003 and 2002,
available-for-sale securities at cost
amounted to NOK 4 million. Unrealized
holding gain as of 31 December, 2003
and 2002, was NOK 15 million.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements113 Norsk Hydro ASA and subsidiaries  15. Property, plant and equipment Land-based ActivitiesMachinery and
    
    
    
    
    
    
    Plant underAmounts in NOK million
    
    Land
    
    
    Equipment
    
    
    Buildings
    
    
    construction
    
    
    Other
    
    
    E&P1)
    
    
    TotalCost:Cost 31.12.2002
    
    
    1,580
    
    
    
    59,169
    
    
    
    17,017
    
    
    
    6,721
    
    
    
    774
    
    
    
    126,299
    
    
    
    211,560Implementation effect SFAS 143,
Asset Retirement Obligations
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,918
    
    
    
    1,932Cost 1.1.2003 including SFAS 143
implementation
    
    
    1,580
    
    
    
    59,183
    
    
    
    17,017
    
    
    
    6,721
    
    
    
    774
    
    
    
    128,217
    
    
    
    213,492Additions at cost
    
    
    15
    
    
    
    1,877
    
    
    
    258
    
    
    
    5,180
    
    
    
    
    
    
    
    8,638
    
    
    
    15,968Retirements
    
    
    (324
    )
    
    
    (3,959
    )
    
    
    (940
    )
    
    
    (210
    )
    
    
    
    
    
    
    (2,692
    )
    
    
    (8,125
    )Transfers
    
    
    9
    
    
    
    4,703
    
    
    
    1,164
    
    
    
    (5,878
    )
    
    
    
    
    
    
    2
    
    
    
    Foreign currency translation
    
    
    174
    
    
    
    3,524
    
    
    
    736
    
    
    
    128
    
    
    
    
    
    
    
    1,036
    
    
    
    5,598Balance 31.12.2003
    
    
    1,454
    
    
    
    65,328
    
    
    
    18,235
    
    
    
    5,941
    
    
    
    774
    
    
    
    135,201
    
    
    
    226,933Depreciation:Balance 31.12.2002
    
    
    
    
    
    
    (34,935
    )
    
    
    (8,064
    )
    
    
    
    
    
    
    (302
    )
    
    
    (55,917
    )
    
    
    (99,218
    )Implementation effect SFAS 143,
Asset Retirement Obligations
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (829
    )
    
    
    (831
    )Accumulated depreciation 1.1.2003
including SFAS 143 implementation
    
    
    
    
    
    
    (34,937
    )
    
    
    (8,064
    )
    
    
    
    
    
    
    (302
    )
    
    
    (56,746
    )
    
    
    (100,049
    )Depreciation, depletion
and amortization2)
    
    
    (21
    )
    
    
    (4,323
    )
    
    
    (655
    )
    
    
    
    
    
    
    (37
    )
    
    
    (9,113
    )
    
    
    (14,149
    )Retirements
    
    
    
    
    
    
    2,186
    
    
    
    431
    
    
    
    
    
    
    
    
    
    
    
    2,237
    
    
    
    4,854Foreign currency translation
and transfers
    
    
    
    
    
    
    (1,956
    )
    
    
    (291
    )
    
    
    
    
    
    
    
    
    
    
    (344
    )
    
    
    (2,591
    )Balance 31.12.2003
    
    
    (21
    )
    
    
    (39,030
    )
    
    
    (8,579
    )
    
    
    
    
    
    
    (339
    )
    
    
    (63,966
    )
    
    
    (111,935
    )Net Book Value:Balance 31.12.2002
    
    
    1,580
    
    
    
    24,234
    
    
    
    8,953
    
    
    
    6,721
    
    
    
    472
    
    
    
    70,382
    
    
    
    112,342
    3)Balance 31.12.2003
    
    
    1,433
    
    
    
    26,298
    
    
    
    9,656
    
    
    
    5,941
    
    
    
    435
    
    
    
    71,235
    
    
    
    114,998
    3)
  1)
    
    Includes land-based activities and transportation systems for Exploration
and Production (E&P).2)
    
    Impairment losses for 2003, 2002 and 2001 were NOK 115 million, NOK 398
million and NOK 396 million, respectively. In 2001, additional impairment
losses
of NOK 261 million was recorded as restructuring cost. The fair value of
the impaired asset was generally estimated by discounting the expected future
cash flows
of the individual assets. During the three years ended 31 December 2003,
impairment was generally indicated as the result of current period cash flow
losses,
combined with a history of losses, or a significant change in the manner
in which the asset is to be used.3)
    
    Includes NOK 218 million and NOK 173 million related to capital leases
for 2003 and 2002 respectively.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements114 16. Goodwill and intangibles Intangible Assets Finite
    
    
    IndefiniteUseful
    
    
    UsefulAmounts in NOK million
    
    Life
    
    
    Life
    
    
    TotalCost:Cost 31.12.2002
    
    
    3,284
    
    
    
    5
    
    
    
    3,289Additions at cost
    
    
    111
    
    
    
    
    
    
    
    111Disposals
    
    
    (175
    )
    
    
    
    
    
    
    (175
    )Foreign currency translation
and transfers
    
    
    269
    
    
    
    
    
    
    
    269Accumulated amortization
31.12.2003
    
    
    (2,038
    )
    
    
    
    
    
    
    (2,038
    )Net book value 31.12.2003
    
    
    1,451
    
    
    
    5
    
    
    
    1,456
 Amortization of intangibles of NOK 429
million and NOK 397 million was recorded
for 2003 and 2002, respectively. In
addition, 2003 figures include impairment
loss of NOK 43 million. Estimated amortization expense, in
millions of NOK for the next five years is 2004
 403, 2005  315, 2006  271, 2007  169
and 2008  50. Pro Forma information The following table reconciles the reported
income before taxes and minority interest, reported net income, and reported
earnings per share to that which would have
resulted for the year ended December 31,
2001 assuming SFAS 142 had been adopted on
January 1, 2001. Amounts in NOK million,except per share data
    
    2003
    
    
    2002
    
    
    2001Reported income before
taxes and minority interest
    
    
    24,476
    
    
    
    22,028
    
    
    
    21,465Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    178Pro forma income before taxes and minority interest
    
    
    24,476
    
    
    
    22,028
    
    
    
    21,643Net income
    
    
    10,968
    
    
    
    8,765
    
    
    
    7,892Goodwill amortization (after tax)
    
    
    
    
    
    
    
    
    
    
    178Pro forma net income
    
    
    10,968
    
    
    
    8,765
    
    
    
    8,070Reported earnings per share
    
    
    42.60
    
    
    
    34.00
    
    
    
    30.50Goodwill amortization per share
    
    
    
    
    
    
    
    
    
    
    0.70Pro forma earnings per share
    
    
    42.60
    
    
    
    34.00
    
    
    
    31.20
 Goodwill Extrusion andAmounts in NOK million
    
    Automotive
    
    
    Other
    
    
    TotalBalance at December 31, 2002
    
    
    1,018
    
    
    
    199
    
    
    
    1,217Adjustments:Goodwill acquired
    
    
    26
    
    
    
    43
    
    
    
    69Impairment loss
    
    
    
    
    
    
    (166
    )
    
    
    (166
    )Currency translation effect
    
    
    12
    
    
    
    24
    
    
    
    36Other
    
    
    
    
    
    
    (23
    )
    
    
    (23
    )Balance at December 31, 2003
    
    
    1,056
    
    
    
    77
    
    
    
    1,133
 Original cost of goodwill
for 2003 was NOK 1,809 million. Hydro incurred in 2003 a NOK
166 million goodwill impairment charge in
Other Activities related to Treka. 17. Bank loans and other interest bearing short-term debt Weighted AverageInterest RatesAmounts in NOK million
    
    2003
    
    2002
    
    2003
    
    
    2002Bank loans and
overdraft facilities
    
    
    3.2
    %
    
    
    4.7
    %
    
    
    1,735
    
    
    
    3,011Commercial paper
    
    
    8.5
    %
    
    
    3.5
    %
    
    
    2
    
    
    
    20Other
    
    
    2.2
    %
    
    
    4.3
    %
    
    
    3,832
    
    
    
    4,275Total bank loans and
other interest-bearing
short-term debt
    
    
    
    
    
    
    
    
    
    
    5,569
    
    
    
    7,306
 As of 31 December, 2003, Norsk Hydro ASA had
unused short-term credit facilities with
various banks totalling approximately NOK
3,173 million. The interest rate for
withdrawals under these facilities is based
on the interbank interest rate for the
relevant currency plus a margin depending on
the currency.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements115 Norsk Hydro ASA and subsidiaries 18. Other current liabilities Amounts in NOK million
    
    2003
    
    
    2002Accounts payable
    
    
    17,871
    
    
    
    14,732Income taxes payable
    
    
    8,155
    
    
    
    8,646Payroll and value added taxes
    
    
    3,703
    
    
    
    3,106Accrued liabilities
    
    
    10,811
    
    
    
    8,839Other liabilities
    
    
    2,350
    
    
    
    3,008Total other current liabilities
    
    
    42,890
    
    
    
    38,331
 19. Long-term debt Substantially all unsecured debenture bonds
and unsecured bank loan agreements contain
provisions restricting the pledging of
assets to secure future borrowings without
granting a similar secured status to the
existing bondholders and lenders. Certain of
the debenture bond agreements contain
provisions allowing Hydro to call the debt
prior to its final redemption date at
certain specified premiums. Long-term debt payable in various currencies Weighted
    
    Denomi-Average
    
    nated
    
    
    BalanceInterest
    
    Amount
    
    
    in NOKAmounts in million
    
    Rates
    
    2003
    
    
    2003
    
    
    2002USD
    
    
    7.4
    %
    
    
    2,935
    
    
    
    19,558
    
    
    
    20,390NOK
    
    
    6.0
    %
    
    
    1,580
    
    
    
    1,580
    
    
    
    2,180GBP
    
    
    6.5
    %
    
    
    225
    
    
    
    2,672
    
    
    
    3,641EUR
    
    
    6.3
    %
    
    
    400
    
    
    
    3,362
    
    
    
    2,915Other
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    17Total unsecured debenture bonds:
    
    
    
    
    
    
    
    
    
    
    27,193
    
    
    
    29,143USD
    
    
    4.5
    %
    
    
    2
    
    
    
    10
    
    
    
    81SEK
    
    
    5.5
    %
    
    
    1,000
    
    
    
    926
    
    
    
    795EUR
    
    
    2.5
    %
    
    
    69
    
    
    
    585
    
    
    
    479Other
    
    
    
    
    
    
    
    
    
    
    215
    
    
    
    142Total unsecured bank loans
    
    
    
    
    
    
    
    
    
    
    1,736
    
    
    
    1,497Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    152
    
    
    
    122Mortgage loans
    
    
    
    
    
    
    
    
    
    
    42
    
    
    
    1,400Other long-term debt
    
    
    
    
    
    
    
    
    
    
    687
    
    
    
    698Outstanding debt
    
    
    
    
    
    
    
    
    
    
    29,810
    
    
    
    32,860Less: Current portion
    
    
    
    
    
    
    
    
    
    
    (1,242
    )
    
    
    (1,958
    )Total long-term debt
    
    
    
    
    
    
    
    
    
    
    28,568
    
    
    
    30,902
 As of 31 December, 2003 the fair value of
long-term debt, including the current
portion, was NOK 34,896 million and the
carrying value was NOK 29,810 million. Foreign currency swaps are not
reflected in the table above. (See Note
24). Payments on long-term debt fall due as follows Amounts in
    
    Deben-
    
    
    Bank
    
    
    Capital leaseNOK million
    
    tures
    
    
    loans
    
    
    and other
    
    
    Total2004
    
    
    1,007
    
    
    
    53
    
    
    
    181
    
    
    
    1,2412005
    
    
    505
    
    
    
    512
    
    
    
    332
    
    
    
    1,3492006
    
    
    505
    
    
    
    94
    
    
    
    182
    
    
    
    7812007
    
    
    5
    
    
    
    505
    
    
    
    72
    
    
    
    5822008
    
    
    5
    
    
    
    487
    
    
    
    33
    
    
    
    525Thereafter
    
    
    25,166
    
    
    
    85
    
    
    
    81
    
    
    
    25,332Total
    
    
    27,193
    1)
    
    
    1,736
    2)
    
    
    881
    
    
    
    29,810
  1)
    
    Of which Norsk Hydro ASA is
responsible for NOK 27,061 million.2)
    
    Of which Norsk Hydro ASA is
responsible for NOK 1,356 million. Norsk Hydro ASA has entered into long-term
committed stand-by credit facility
agreements with several international banks
for a total amount of USD 2,025 million. Of
this amount, USD 350 million expires in
2007, USD 1,450 million in 2009 and the
remainder in 2010. There are no borrowings
under these facilities as of 31 December,
2003. Average commitment fee on these
facilities is 0.15 percent. 20. Employee retirement plans Pension Benefits Norsk Hydro ASA and many of its subsidiaries
have defined benefit retirement plans that
cover substantially all of their employees.
Plan benefits are generally based on years
of service and final salary levels. Some
subsidiaries have defined contribution or
multiemployer plans.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements116 Net periodic pension costAmounts in NOK million
    
    2003
    
    
    2002
    
    
    2001Defined benefit plans:Benefits earned during the year,
net of participants contributions
    
    
    747
    
    
    
    610
    
    
    
    543Interest cost on prior period
benefit obligation
    
    
    1,526
    
    
    
    1,314
    
    
    
    1,087Expected return on plan assets
    
    
    (1,087
    )
    
    
    (1,265
    )
    
    
    (1,373
    )Recognized loss (gain)
    
    
    326
    
    
    
    58
    
    
    
    (11
    )Amortization of prior
service cost
    
    
    148
    
    
    
    145
    
    
    
    151Amortization of net
transition asset
    
    
    (5
    )
    
    
    (58
    )
    
    
    (57
    )Curtailment loss
    
    
    20
    
    
    
    119
    
    
    
    117Settlement loss (gain)
    
    
    199
    
    
    
    (4
    )
    
    
    1Net periodic pension cost
    
    
    1,874
    
    
    
    919
    
    
    
    458Defined contribution plans
    
    
    36
    
    
    
    48
    
    
    
    57Multiemployer plans
    
    
    39
    
    
    
    21
    
    
    
    8Termination benefits and other
    
    
    531
    
    
    
    598
    
    
    
    978Total net periodic pension cost
    
    
    2,480
    
    
    
    1,586
    
    
    
    1,501Change in the additional minimum
pension liability included within
other comprehensive income
    
    
    182
    
    
    
    472
    
    
    
    553
 Change in projected benefit obligation (PBO) Amounts in NOK million
    
    2003
    
    
    2002Projected benefit obligation
at beginning of year
    
    
    (23,714
    )
    
    
    (17,620
    )Benefits earned during the year
    
    
    (766
    )
    
    
    (627
    )Interest cost on prior period
benefit obligation
    
    
    (1,526
    )
    
    
    (1,314
    )Actuarial loss
    
    
    (1,776
    )
    
    
    (2,722
    )Plan amendments
    
    
    (18
    )
    
    
    49Benefits paid
    
    
    1,001
    
    
    
    912Curtailment loss
    
    
    (16
    )
    
    
    (39
    )Settlements
    
    
    445
    
    
    
    8Special termination benefits
    
    
    (73
    )
    
    
    (187
    )Business combinations
    
    
    
    
    
    
    (2,993
    )Divestments
    
    
    303
    
    
    
    6Inclusion of plans reported in line item
Termination benefits and other in prior year
    
    
    (2,131
    )
    
    
    Foreign currency translation
    
    
    (962
    )
    
    
    813Projected benefit obligation at end of year
    
    
    (29,233
    )
    
    
    (23,714
    )
 Change in pension plan assets Amounts in NOK million
    
    2003
    
    
    2002Fair value of plan assets at beginning of year
    
    
    15,122
    
    
    
    16,876Actual return on plan assets
    
    
    1,880
    
    
    
    (1,119
    )Company contributions
    
    
    1,070
    
    
    
    648Plan participants contributions
    
    
    20
    
    
    
    17Benefits paid
    
    
    (704
    )
    
    
    (686
    )Settlements
    
    
    (445
    )
    
    
    (8
    )Divestments
    
    
    
    
    
    
    (9
    )Inclusion of plans reported in line item
Termination benefits and other in prior year
    
    
    1,457
    
    
    
    Foreign currency translation
    
    
    319
    
    
    
    (597
    )Fair value of plan assets at end of year
    
    
    18,719
    
    
    
    15,122
 Status of pension plans
reconciled to balance sheet Amounts in NOK million
    
    2003
    
    
    2002Defined benefit plans:Funded status of the plans
at end of year
    
    
    (10,514
    )
    
    
    (8,592
    )Unrecognized net loss
    
    
    7,953
    
    
    
    6,854Unrecognized prior service cost
    
    
    1,344
    
    
    
    1,398Unrecognized net transition asset
    
    
    
    
    
    
    (6
    )Net prepaid (accrued) pension recognized
    
    
    (1,217
    )
    
    
    (346
    )Termination benefits and other
    
    
    (1,460
    )
    
    
    (1,516
    )Total net prepaid (accrued) pension recognized
    
    
    (2,677
    )
    
    
    (1,862
    )Amounts recognized in the balance sheet consist of:Prepaid pension
    
    
    5,080
    
    
    
    4,989Accrued pension liabilities
    
    
    (9,533
    )
    
    
    (8,385
    )Intangible asset
    
    
    343
    
    
    
    283Accumulated other
comprehensive income
    
    
    1,433
    
    
    
    1,251Net amount recognized
    
    
    (2,677
    )
    
    
    (1,862
    )
 Plans in which the accumulated benefit obligation exceeds plan
assets: Amounts in NOK million
    
    2003
    
    
    2002Projected benefit obligation
    
    
    15,876
    
    
    
    11,075Accumulated benefit obligation (ABO)
    
    
    13,658
    
    
    
    9,693Plan assets
    
    
    6,082
    
    
    
    3,380
 Weighted-average assumptions used to
determine net periodic pension cost 2003
    
    2002
    
    2001Discount rate
    
    
    6.5
    %
    
    
    6.7
    %
    
    
    7.1
    %Expected return on plan assets
    
    
    7.6
    %
    
    
    8.0
    %
    
    
    8.0
    %Rate of compensation increase
    
    
    3.4
    %
    
    
    2.9
    %
    
    
    3.0
    %




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements117 Norsk Hydro ASA and subsidiaries Weighted-average assumptions used to
determine pension obligation at end of
year 2003
    
    2002Discount rate
    
    
    5.8
    %
    
    
    6.6
    %Rate of compensation increase
    
    
    3.4
    %
    
    
    3.4
    %
 Investment profile plan assets 2003
    
    2002Asset
categoryEquity securities
    
    
    34
    %
    
    
    30
    %Debt securities
    
    
    39
    %
    
    
    39
    %Real estate
    
    
    15
    %
    
    
    19
    %Other
    
    
    12
    %
    
    
    12
    %Total
    
    
    100
    %
    
    
    100
    %
 Management of plan assets must comply with
applicable laws and regulations in the
countries where Hydro provides funded
defined benefit plans. Within constraints
imposed by laws and regulations, and given
the assumed pension obligations and future
contribution rates, the majority of assets
are managed actively to obtain a long-term
rate of return that at least reflects the
chosen investment risk. Based on the current portfolio of plan
assets the expected rate of return on plan
assets is determined to be approximately one
percentage point above the yield on a
portfolio of long-term corporate bonds that
receive one of the two highest ratings given
by a recognized rating agency. Hydro expects to contribute NOK 800
million to its pension plans in 2004. In 2003, Hydro performed SFAS 87
valuations for certain defined benefit plans
that were reported in line item Termination
benefits and other in the prior year. The
immediate impact of applying SFAS 87
provisions on these plans resulted in an
increased projected benefit obligation (PBO)
of NOK 2,131 million, and increased pension
plan assets of NOK 1,457 million. The
difference between the plans funded status
according to SFAS 87 and what was recognized
in the balance sheet, has been offset as
unrecognized net loss and unrecognized prior
service cost with NOK 537 million and NOK 65
million, respectively. Prior year financial
statements have not been restated. In 2003, Hydro incurred a settlement
loss of NOK 199 million, and in 2002, Hydro
incurred a curtailment loss of NOK 119
million. These charges include settlement
and curtailment losses resulting from an
agreement between Hydro and an external
party, to transfer Hydros operatorship of
certain licenses on the Norwegian
continental shelf to the external party,
including the transfer of employment for 535
employees, as of 1 January, 2003. In 2001, Hydros Norwegian activities
incurred termination benefit costs of NOK
654 million and a curtailment loss of NOK
116 million. These charges included costs to
improve competitiveness for certain
Norwegian operations, and curtailment loss
resulting from the termination of primary
production of magnesium in Norway. Effective 1 January, 2000, certain
Norwegian plans amended their plan benefit formulas as to provide
for indexation of pension

benefits. The resulting prior service cost
of NOK 1,654 million is being amortized on
a straight-line basis over the employees
average remaining service period. Other Retirement Benefits Hydro has unfunded retiree medical and life
insurance plans for certain of its employees
outside Norway. In 2003, the net periodic
post retirement income was NOK 12 million.
In 2002 and 2001, the net periodic post
retirement cost was NOK 19 million and NOK
46 million, respectively. The post
retirement liability was NOK 204 million and
NOK 226 million as of 31 December, 2003 and
2002, respectively. 21. Contingencies and other long-term liabilities Hydro is subject to changing environmental
laws and regulations that in the future may
require the Company to modernize technology
to meet more stringent emissions standards
or to take actions for contaminated areas.
As of 31 December, 2003 and 2002, Hydro had
accrued NOK million 461 and NOK 795 million,
respectively, for corrective environmental
measures. The corresponding expense was NOK
53 million in 2003 compared to NOK 115
million and NOK 58 million in 2002 and 2001,
respectively. Hydros future expenses for these
corrective environmental measures are
affected by a number of uncertainties
including, but not limited to, the method
and extent of corrective action. Due to
uncertainties inherent in the estimation
process, it is at least reasonably possible
that such estimates could be revised in the
near term. In addition, conditions which
could require future expenditures may be
determined to exist for various sites,
including Hydros major production
facilities and product storage terminals.
The amount of such future costs is not
determinable due to the unknown timing and
extent of corrective actions which may be
required. Hydro is involved in or threatened with
various other legal, tax and environmental
matters arising in the ordinary course of
business. Hydro is of the opinion that
resulting liabilities, if any, will not have
a material adverse effect on its
consolidated results of operations,
liquidity or financial position. Total, the
operator for the Kharyaga field, has
received from the Ministry of Taxes and
Revenues of the Russian Federation, a claim
for tax and the states share of the
revenues from oil extracted under the
Petroleum Sharing Agreement for the field.
Hydros share of the claim is approximately
30 million US dollars. Both Hydro and Total
are considering the claim unjustified, and
have taken legal actions to get this
confirmed as well as to avoid collection of
the claim. The EFTA Surveillance Authority (ESA)
has opened a formal investigation procedure
against Norway to establish whether or not
the former zero-rate electricity tax
applicable to Norwegian industry is
compatible with the state aid rules of the
European Economic Area Agreement (the EEA
Agreement). From 1 January 2004 the
zero-rate is extended to all Norwegian
business. ESA advised the Norwegian
government that the government may be
required to recover asserted state aid from the recipients should ESA find a




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements118 measure to be incompatible with the EEA Agreement. The
Norwegian government has claimed that the electricity fee system
is of a general nature and not covered by the EEA state aid rules.
Should ESA decide to order the Norwegian government to recover
the value of the zero rate tax for the relevant years, the decision
may be appealed to the EFTA Court. We will vigorously
oppose, and believe that the Norwegian government will also
oppose, any unfavorable decision related to the past. We intend to
make use of all remedies available, both at the EFTA and the
national level. Although no assurances can be provided as to the
ultimate outcome of this matter, our management does not believe
that the resolution of this matter will have a material adverse effect
on our results of operations or financial position. Other long-term liabilities Amounts in NOK million
    
    2003
    
    
    2002Insurance premiums and loss reserves
    
    
    109
    
    
    
    842Accruals abandonment costs and
decommissioning costs offshore
    
    
    
    
    
    
    2,131Asset retirement obligations (SFAS 143)
    
    
    5,162
    
    
    
    Postretirement benefits other than pensions
    
    
    204
    
    
    
    226Derivatives
    
    
    335
    
    
    
    336Other
    
    
    2,194
    
    
    
    2,713Total
    
    
    8,004
    
    
    
    6,248
 Effective 1 January, 2003, Hydro adopted SFAS 143 Accounting
for Asset Retirement Obligations. Hydros asset retirement obligations
covered by FAS 143 are associated mainly with the removal
and decommissioning of oil and gas offshore installations. The
obligations are imposed and defined by legal requirements in
Norway as well as the OSPAR convention (The Convention for the
Protection of the Marine Environment of the North-East Atlantic).
The fair value of the obligations is recognized in the balance sheet
in the period in which it is incurred, i.e. when the oil- and gas
installations are constructed and ready for production, and the obligation
amount is adjusted for accretion and estimate changes in
subsequent periods until settlement. Asset Retirement Obligations Amounts in NOK millionImplementation FAS 143 1.1.2003
    
    
    4,549Incurred this year
    
    
    463Revisions in estimates
    
    
    22Disposals
    
    
    (30
    )Settlements
    
    
    (83
    )Accretions
    
    
    306Currency translation
    
    
    22Total asset retirement obligations 31.12.2003
    
    
    5,249Of which:Short term asset retirement obligations 31.12.2003
    
    
    87Long term asset retirement obligations 31.12.2003
    
    
    5,162
 Pro Forma information According to the standard, previous years have not been restated.
The following table reconciles the reported net income, reported
earnings per share and asset retirement obligations to that which
would have resulted for the earlier years assuming SFAS 143 had been
adopted 1 January 2001. Amounts in NOK million,except per share data
    
    2003
    
    
    2002
    
    
    2001Net income
    
    
    10,968
    
    
    
    8,765
    
    
    
    7,892Depreciation change (after tax)
    
    
    
    
    
    
    (56
    )
    
    
    47Pro forma net income
    
    
    10,968
    
    
    
    8,709
    
    
    
    7,939Reported earnings per share
    
    
    42.60
    
    
    
    34.00
    
    
    
    30.50Depreciation change earnings per share
    
    
    
    
    
    
    (0.20
    )
    
    
    0.20Pro forma earnings per share
    
    
    42.60
    
    
    
    33.80
    
    
    
    30.70Pro forma Asset Retirement
Obligation, 1 January
    
    
    4,549
    
    
    
    4,268
    
    
    
    4,028




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements119 Norsk Hydro ASA and subsidiaries  22. Secured debt and guarantees Amounts in NOK million
    
    2003
    
    
    2002Amount of secured debt
    
    
    42
    
    
    
    65Assets used as security:Plant and equipment, etc.
    
    
    57
    
    
    
    134Buildings
    
    
    54
    
    
    
    280Other
    
    
    2
    
    
    
    13Total
    
    
    113
    
    
    
    427Guarantees (off-balance sheet):Non-consolidated investee debt
    
    
    54
    
    
    
    96Contingency for discounted bills
    
    
    85
    
    
    
    160Tax guarantees
    
    
    1,352
    
    
    
    936Sales guarantees
    
    
    7,900
    
    
    
    3,900Commercial guarantees
    
    
    10,545
    
    
    
    6,563Total
    
    
    19,936
    
    
    
    11,655
 The amounts in the table above represents
the maximum potential amount of future
payments related to the guarantees.
Guarantees of non-consolidated investee debt
relates to guarantees covering credit
facilities with external banks. Tax
guarantees includes guarantees to tax
authorities regarding the non-taxable
treatment on gains on internal sales of
assets. Gains on such sales could become
taxable if certain assets were sold outside
the group. Guarantees in connection with the
sale of companies, referred to as sales
guarantees in the table above, reflect the
maximum contractual amount that Hydro could
be liable for in the event of certain
defaults or the realization of specific
uncertainties. Hydro has, in addition to
what is included in the table above, certain
guarantees relating to sales of companies
that are unlimited in amount. Hydro believes
that the likelihood of any material
liability arising from guarantees relating
to sales of companies is remote. In addition
to the sales guarantees discussed above,
Hydro has, following the asset exchange
between Hydro and Petro-Canada in 1996,
guaranteed that the total recoverable
reserves attributable to Petro-Canadas
working interest in the Veslefrikk field
shall not be less than a certain quantified
amount of crude oil. If less, Hydro has an
obligation to deliver indemnity volumes to
Petro-Canada. During 2002 there was a new
evaluation of reserves in accordance with
the agreement which resulted in compensation
to Petro-Canada. The agreement was
renegotiated in 2002 and is open for the
possibility of re-evaluating the reserves in
2008, 2014 and at the end of the fields
lifetime. The guarantee does not apply in
cases of force majeure, the failure of the
operator to comply with good oil field
practices, etc. As of 31 December, 2003, the
remaining guaranteed volume was 1.2 million
Sm3 of crude oil, equivalent to
approximately NOK 1,465 million. As of 31
December, 2002, the remaining guaranteed
volume was 1.3 million Sm3 of crude oil,
equivalent to approximately NOK 1,760
million. Commercial guarantees consist of
advance payment guarantees, bid bonds,
stand-by letters of credit and payment
guarantees. Guarantees are issued in the
normal course of business. Commercial guarantees are issued mainly by
Norsk Hydro ASA on behalf of its
subsidiaries. Certain commercial guarantees
are obtained from external banks and covered
by Norsk Hydro ASA by a counter indemnity
guarantee to the external banks. A certain
portion of these guarantees are payable on
demand while the remainder is dependant upon
performance by the guaranteed
entity (i.e delivery of goods or services by
a vendor). In addition, Hydro would also
have recourse in the case of payment made on
demand in connection with non performance by
a guaranteed entity. 23. Contractual and other commitments for future investments and operations As of 31 December, 2003:
    
    
    
    
    
    InvestmentsAmounts in NOK million
    
    2004
    
    
    Thereafter
    
    
    TotalContract commitments for
investments in property,
plant and equipment:Land based
    
    
    2,596
    
    
    
    160
    
    
    
    2,756Oil and gas fields and
transport systems
    
    
    4,927
    
    
    
    8,628
    
    
    
    13,555Total
    
    
    7,523
    
    
    
    8,788
    
    
    
    16,311Additional authorized future
investments in property,
plant and equipment:Land based
    
    
    1,283
    
    
    
    625
    
    
    
    1,908Oil and gas fields and
transport systems
    
    
    754
    
    
    
    11,699
    
    
    
    12,453Total
    
    
    2,037
    
    
    
    12,324
    
    
    
    14,361Contract commitments for
other future investments:
    
    
    589
    
    
    
    840
    
    
    
    1,429
 Additional authorized future investments
include projects formally approved for
development by the Board of Directors or
management given the authority to approve
such investments. General investment
budgets are excluded from these amounts. Hydro has entered into take-and-pay and
long-term contracts providing for future
payments to secure pipeline and
transportation capacity, processing
services, raw materials and electricity and
steam. In addition, Hydro has entered into
long-term sales commitments to deliver
goods. This principally relates to
obligations to deliver gas from fields on
the Norwegian Continental Shelf for a total
amount of NOK 155.6 billion.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements120  The non-cancelable future fixed and
determinable obligation as of 31 December,
2003 is as follows Take-and-pay and Long-term contracts Transport
    
    
    Raw
    
    
    Energy
    
    
    Sale com-Amounts in NOK million
    
    and Other
    
    
    materials
    
    
    related
    
    
    mitments2004
    
    
    626
    
    
    
    4,222
    
    
    
    2,462
    
    
    
    (10,601
    )2005
    
    
    402
    
    
    
    2,973
    
    
    
    2,348
    
    
    
    (10,236
    )2006
    
    
    739
    
    
    
    2,275
    
    
    
    2,082
    
    
    
    (10,919
    )2007
    
    
    667
    
    
    
    1,223
    
    
    
    2,335
    
    
    
    (11,022
    )2008
    
    
    613
    
    
    
    877
    
    
    
    2,185
    
    
    
    (10,838
    )Thereafter
    
    
    5,141
    
    
    
    5,641
    
    
    
    18,906
    
    
    
    (120,978
    )Total
    
    
    8,188
    
    
    
    17,211
    
    
    
    30,318
    
    
    
    (174,594
    )
 Terms of certain of these agreements include
additional charges covering variable
operating expenses in addition to the fixed
and determinable component shown above,
including contracts to purchase 23.5 million
tonnes of alumina over the next 26 years
where the variable part of the prices are
normally linked to the London Metal Exchange
quoted prices. In addition, Hydro has entered into a
contract to purchase 15 million tonnes of
ammonia over the next 20 years following
commercial production with variable prices
referenced to fertilizer publications. Hydro has also entered take-and-pay
and other long terms contracts as part of
shareholders agreement in non-consolidated
investees, including contracts to purchase
17 million tonnes of alumina over the next 8
years. These commitments are not included in
the figures above. The total purchases under the
take-and-pay agreements and long-term
contracts were as follows (in NOK
million):  24. Derivative instruments and risk management Hydro is exposed to market risks from
commodity pricing, currency exchange rates
and interest rates. Market risk exposures
are evaluated based on a portfolio view in
order to take advantage of offsetting
positions and to manage risk on a net
exposure basis.
Mitigating financial and commercial risk
exposures through the use of derivative
instruments is done only to a limited
extent. Such derivative transactions are
accounted for under SFAS No. 133,
Accounting for Derivative Instruments and
Hedging Activities, as amended. All
derivative instruments are reported on the
balance sheet at fair value with changes in
the fair values of derivative instruments
recorded to earnings unless specific hedge
criteria are met. Commodity Price Risk Exposure A substantial portion of Hydros revenue is
derived from the sale of commodities such as
crude oil, aluminium, and fertilizers. Hydro
also produces, purchases and sells natural
gas, electricity and petrochemical products.
The prices of these commodities can be
volatile, creating fluctuations in Hydros
earnings. The Companys main strategy to
manage this exposure relates to maintaining
a strong financial position to be able to
meet fluctuations in prices and earnings.
Natural hedging positions are established to
the extent possible and economically viable.
Derivatives are used in special situations
to mitigate price movements and to
participate in limited speculative trading
within strict guidelines defined by
management. The following highlights Hydros
main commodity price risks. Oil Hydro produces and sells crude oil and gas
liquids. Hydro utilizes futures and swaps to
mitigate unwanted price exposure for a
portion of its crude oil portfolio
production. From time to time financial
options are used for the same purpose. At
the end of 2003 Hydro has no hedging program
in place for the purpose of protecting
against the risk of low oil prices. Natural gas Hydro is a producer, consumer, buyer and
seller of natural gas. The majority of
Hydros equity gas production is sold to
European counterparties based on long-term
gas supply contracts. Contract prices are
mainly indexed to oil prices. In order to
reduce the risk
in the natural gas portfolio against
unfavorable fluctuations in gas and oil
prices, Hydro utilizes instruments such as
forwards and swaps to mitigate unwanted
price exposures for a portion of its natural
gas portfolio. Hydro is also participating
in limited speculative trading. Electricity Hydro is a producer and consumer of
electricity. Hydros consumption of
electricity exceeds its production both in
Norway and in Continental Europe. The
deficit is principally covered through
long-term purchase contracts with other
producers and suppliers to secure
electricity in the market for Hydros own
consumption and delivery commitments. In
order to manage and hedge the risks of
unfavorable fluctuations in electricity
prices and production volume, Hydro utilizes
both physical contracts and financial
derivative instruments such as futures,
forwards and options. These are traded
either bilaterally or over electricity
exchanges such as the Nordic power exchange,
Nord Pool. Hydro also engages in third
party trading by offering power portfolio
management services and participating in
limited speculative trading. Aluminium Hydro is a producer of primary aluminium and
fabricated aluminium products. Hydro enters
future contracts with the London Metal
Exchange (LME) mainly for two purposes. The
first is to achieve an average LME price on
smelter production. Secondly, because the
Companys downstream business and the sale
of third party products are margin
businesses, Hydro hedges metal prices when
entering into customer and supplier
contracts with corresponding future contracts at fixed prices (back-to-back
hedging). The majority of these contracts mature
within one year. Hydro manages these




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements121 Norsk Hydro ASA and subsidiaries hedging
activities on a portfolio basis, taking LME
positions based upon net exposures. Accordingly, it
is difficult to meet certain hedge accounting
criteria. As a result, aluminium price volatility
can result in significant fluctuations in the
marked-to-market adjustments for LME positions
recorded to operating income. The following types of commodity derivatives
were recorded at fair value on the balance
sheet as of 31 December, 2003 and 2002.
Contracts that are designated as hedging
instruments in cash flow and fair value
hedges are not included. Amount in NOK million
    
    2003
    
    
    2002Assets:Put options, crude oil
    
    
    
    
    
    
    1Swaps and futures, crude oil
    
    
    2
    
    
    
    44Electricity contracts
    
    
    1,171
    
    
    
    1,935Natural gas contracts
    
    
    218
    
    
    
    457Futures, swaps and options, Aluminium
    
    
    286
    
    
    
    543Forwards, urea
    
    
    10
    
    
    
    Total Commodity Derivative Assets
    
    
    1,687
    
    
    
    2,980Liabilities:Swaps and futures, crude oil
    
    
    2
    
    
    
    32Electricity contracts
    
    
    620
    
    
    
    1,123Natural gas contracts
    
    
    201
    
    
    
    440Futures, swaps and options, Aluminium
    
    
    172
    
    
    
    214Total Commodity Derivative Liabilities
    
    
    995
    
    
    
    1,809
 The presentation of fair values for
electricity and natural gas contracts shown
in the table above includes the fair value
of derivative instruments such as futures,
forwards and swaps in conjunction with fair
values of physical contracts. Foreign Currency Risk Exposure Prices of many of Hydros most important
products, mainly crude oil, aluminium,
natural gas, fertilizer and magnesium, are
either denominated in US dollars or are
influenced by movements in the value of
other currencies against the US dollar. To
reduce the long-term effects of fluctuations
in the US dollar exchange rates, Hydro has
issued most of its debt in US dollars (as of
31 December, 2003, approximately two thirds
of Hydros long-term debt is denominated in
US dollars). The majority of the remaining long-term debt is
denominated in Norwegian kroner, Euro,
Swedish kroner, and British pounds. Hydro employs foreign currency swaps
and forward currency contracts to modify the
currency exposures for Hydros long-term
debt portfolio. Foreign currency swaps allow
Hydro to raise long-term borrowings in one
currency and swap them into another with
lower funding costs rather than borrowing
directly in the second currency. Forward
currency contracts are entered into to
safeguard cash flows for forecasted future
transactions or to cover short-term
liquidity needs in one currency through
excess liquidity available in another
currency. Hydro also incurs cost related to
production, distribution and marketing of
products in a number of different currencies
related to the countries of operation. As a
result, the effects of changes in currency
rates on the translation of local currencies
into Norwegian kroner for subsidiaries
outside of Norway can influence comparative
results of operations. In order to further
mitigate its exposure to foreign currency
risk, Hydro has designated a portion of its
foreign-denominated long-term debt,
including certain related balances in
currencies arising from foreign currency
swaps and forwards, as hedges of net foreign
investments in subsidiary companies. The
foreign currency effects of these hedges
reflected in the cumulative translation
section of shareholders equity produced a
NOK 333 million after-tax loss during the
year ended 31 December, 2003 and NOK 1,333
million after-tax gain during the year ended
31 December, 2002; partly offsetting a
foreign currency translation gain of NOK
4,856 million and a loss of NOK 7,207
million in shareholders equity for 2003 and
2002 respectively. The following types of financial
derivatives were recorded at fair value on
the balance sheet as of 31 December, 2003
and 2002. Currency contracts that are
designated as hedging instruments in cash
flow hedges are not included. Amount in NOK million
    
    2003
    
    
    2002Assets:Currency forwards and swaps
    
    
    980
    
    
    
    691Liabilities:Currency forwards and swaps
    
    
    123
    
    
    
    188
 The currency contracts listed below were outstanding as of 31
December, 2003. Currency
    
    Nominal
    
    
    Fair value in
    
    
    Maturity by nominalvalue in currency
    
    
    NOK
    
    
    amount in currencyWithin oneAmount in million
    
    
    
    
    
    
    
    
    
    year
    
    
    LaterBuying currencyAUD
    
    
    239
    
    
    
    1,154
    
    
    
    164
    
    
    
    75CAD
    
    
    156
    
    
    
    752
    
    
    
    38
    
    
    
    118EUR
    
    
    251
    
    
    
    2,083
    
    
    
    195
    
    
    
    56NOK
    
    
    5,622
    
    
    
    5,607
    
    
    
    5,622
    
    
    
    USD
    
    
    138
    
    
    
    793
    
    
    
    74
    
    
    
    64Other
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    Selling currencyCAD
    
    
    (150
    )
    
    
    (770
    )
    
    
    (150
    )
    
    
    DKK
    
    
    (1,070
    )
    
    
    (1,203
    )
    
    
    (1,070
    )
    
    
    GBP
    
    
    (45
    )
    
    
    (532
    )
    
    
    (45
    )
    
    
    JPY
    
    
    (6,692
    )
    
    
    (390
    )
    
    
    (5,642
    )
    
    
    (1,050
    )NOK
    
    
    (978
    )
    
    
    (977
    )
    
    
    (978
    )
    
    
    SEK
    
    
    (1,700
    )
    
    
    (1,566
    )
    
    
    (1,700
    )
    
    
    USD
    
    
    (544
    )
    
    
    (3,568
    )
    
    
    (381
    )
    
    
    (163
    )Other
    
    
    
    
    
    
    (601
    )
    
    
    
    
    
    
    




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements122  Interest Rate Exposure Hydro is exposed to changes in interest
rates primarily as a result of borrowing and
investing activities used to maintain
liquidity and fund its business operations
in different currencies. Hydro maintains a
high ratio of long-term, fixed-rate debt, as
a proportion of its total interest bearing
debt, with an even debt repayment schedule.
Hydro uses foreign exchange and interest
rate swaps from time to time and other
derivatives to optimize currency and
interest rate exposure. Fair values of
interest rate derivatives at 31 December,
2003 and 2002 were immaterial. Cash Flow Hedges The expansion project at the Sunndal metal
plant increased Hydros exposure to
commodity prices and foreign currency
exchange rates. Accordingly, Hydro has
entered into short positions using LME
future contracts and US dollar forward
contracts to secure an average aluminium
price of approximately NOK 14,000 per tonne
of a portion of the forecasted sales of
primary metal production per year for the
period 2003 to 2007. As of 31 December,
2003, Hydro had sold forward about 426,000
tonnes (480,000 tonnes in 2002) of primary
aluminium at an average price of
approximately US dollar 1,500 per tonne. In
addition Hydro has secured the exchange rate
against the US dollar at about NOK 9.3 per
US dollar for the same tonnage. Gains and
losses on these derivatives are recorded to
OCI and are to be reclassified into
operating revenues when the corresponding
forecasted sale of aluminium is recognized.
No amount of ineffectiveness was recognized
in 2003 and 2002 since the critical terms of
the derivatives and the forecasted aluminium
sales are substantially similar. A gain
after tax of NOK 261 million is expected to
be reclassified from OCI into earnings
during the period ending 31 December, 2004.
A gain after tax of NOK 172 million was
reclassified from OCI into earnings during
2003. No amount was reclassified from OCI to
earnings during 2002. As of 31 December,
2003 the maximum length of time over which
the Company is hedging its exposure to the
variability in cash flows is four years. In 2003, a major aluminium expansion
project at the Alouette plant in Canada
increased Hydros exposure to Canadian
dollar (CAD). Hydros investment in the plant is
in US dollar however approximately 78
percent of the expected payments for the
expansion project in Canada is committed in
Canadian dollar. Hydro has entered into
currency forward contracts to sell US dollar
and buy Canadian dollar as part of a cash
flow hedge of forecasted CAD payments for
the period 2003-2006. The notional amount of
the contracts is approximately CAD 158
million at year
end (CAD 206 million at inception of
project in 2003) at an average rate of 1.56
CAD per USD. Gains and losses on these
derivatives are recorded in OCI and are to
be reclassified into earnings in the same
periods during which the hedged forecasted
transaction affects earnings (that is, when
the plant is to be depreciated). No amount
of ineffectiveness was recognized in 2003
since the critical terms of the derivatives
and the forecasted payments are
substantially similar. No amount is expected
to be reclassified from OCI into earnings
during the period ending 31 December, 2004.
As of 31 December,
2003, Hydro is hedging its exposure to the
variability in cash flows until March 2006. In 2001, Hydro terminated a hedging
program that included LME future contracts
designated as cash flow hedges of primary
aluminium sales for 2001-2003. At 31
December, 2001, the after tax gains on the
LME futures of NOK 98 million (USD 13
million) were deferred in OCI. During 2002
a gain after tax of NOK 57 million (USD 7
million) was reclassified from OCI to
Operating revenues. During 2003 a gain
after tax of NOK 41 million (USD 6 million)
was reclassified from OCI to Operating
revenues. Fair Value Hedges Hydro also has a 10-year commitment with
Aluvale to purchase a fixed tonnage of
remelt ingot per year. At the end of 2002,
Hydro entered into short positions using LME
futures to hedge against the fluctuations in
the fair value of the purchase commitment
due to changes in the LME price of aluminium
over the period of 2003 -2006. Gains and
losses on these futures contracts are
recognized in Operating costs and expenses
offsetting the gain and loss recorded for
the firm commitment in the same period. The
critical terms of the LME futures and the
related purchase commitments are essentially
the same; as a result no hedge
ineffectiveness was reflected in earnings in
2003 and 2002. The following fair values were recorded on
the balance sheet for hedging instruments
as of 31 December, 2003 and 2002. Amounts in NOK million
    
    2003
    
    
    2002Assets:Fair value hedging instruments, aluminium
    
    
    2
    
    
    
    15Cash flow hedging instruments, aluminium
    
    
    
    
    
    
    380Cash flow hedging instruments, currency
    
    
    1,518
    
    
    
    1,102Total
    
    
    1,520
    
    
    
    1,497Liabilities:Cash flow hedging instruments, aluminium
    
    
    48
    
    
    
    Total
    
    
    48
    
    
    
    




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements123 Norsk Hydro ASA and subsidiaries Fair Value of Derivative Instruments Fair market values of derivative financial
instruments such as currency forwards and
swaps are based on quoted market prices.
Fair market value of aluminium futures and
option contracts are based on quoted market
prices obtained from the London Metals
Exchange. The fair values of other commodity
over-the-counter contracts and swaps are
based on quoted market prices, estimates
obtained from brokers, and other appropriate
valuation techniques. Where long-term
physical delivery commodity contracts are
recorded at fair value under the
requirements of FAS133, such fair market
values are based on quoted forward prices in
the market and assumptions of forward prices
and margins where market prices are not
available. See Note 19 for fair value
information of long-term debt. Credit Risk Management Credit risk arising from the inability of a counterparty to meet the
terms of derivative financial instrument
contracts is generally limited to amounts by
which the counterpartys obligations exceed
the obligations of Hydro. It is Hydros
policy to enter into derivative financial
instruments only with banks with
pre-approved exposure limits. Hydros policy
also requires pre-approved exposure limits
for financial institutions relating to
current accounts, deposits and other
obligations. Therefore, counter party risk
related to use of derivative financial
instruments and financial operations is
regarded as limited. Hydro also has exposure
to credit risk related to derivative
commodity instruments. However, this risk is
substantially limited since most instruments
are settled through commodity exchanges.
Hydro limits credit risks relating to
derivative commodity contracts that are not
traded on exchanges by setting policies for
credit ratings and limits for
counterparties. Concentration of credit risk is not
considerated significant since Hydro  ́s
customers represent various industries and
geographic areas. 25. External audit remuneration Deloitte Statsautoriserte Revisorer AS (Deloitte) is the principal auditor of
Norsk Hydro ASA and its Norwegian subsidiaries. Certain portions of audits are
performed by Ernst & Young and other firms. The following table shows total
audit and non-audit fees for the fiscal years 2003 and 2002. Audit
    
    
    Other2003
    
    
    
    
    
    related
    
    
    non-auditAmounts in NOK thousand
    
    Audit fees
    
    
    fees
    
    
    fees
    
    
    Tax fees
    
    
    TotalDeloitte Norway1)
    
    
    26,257
    
    
    
    1,839
    
    
    
    8,069
    
    
    
    400
    
    
    
    36,565Deloitte Abroad
    
    
    32,728
    
    
    
    2,911
    
    
    
    1,863
    
    
    
    3,828
    
    
    
    41,330Total Deloitte
    
    
    58,985
    
    
    
    4,750
    
    
    
    9,932
    
    
    
    4,228
    
    
    
    77,895Ernst & Young
    
    
    16,998
    
    
    
    1,797
    
    
    
    7,808
    
    
    
    5,198
    
    
    
    31,801Others
    
    
    11,096
    
    
    
    2,941
    
    
    
    1,296
    
    
    
    2,677
    
    
    
    18,010Total fees
    
    
    87,079
    
    
    
    9,488
    
    
    
    19,036
    
    
    
    12,103
    
    
    
    127,706
 Audit
    
    
    Other2002
    
    
    
    
    
    related
    
    
    non-auditAmounts in NOK thousand
    
    Audit fees
    
    
    fees
    
    
    fees
    
    
    Tax fees
    
    
    TotalDeloitte Norway
    
    
    19,336
    
    
    
    5,092
    
    
    
    10,157
    
    
    
    485
    
    
    
    35,100Deloitte Abroad
    
    
    27,588
    
    
    
    9,505
    
    
    
    14,419
    
    
    
    8,915
    
    
    
    60,427Total Deloitte
    
    
    46,954
    
    
    
    14,597
    
    
    
    24,576
    
    
    
    9,400
    
    
    
    95,527Ernst & Young
    
    
    15,682
    
    
    
    405
    
    
    
    4,213
    
    
    
    842
    
    
    
    21,142Others
    
    
    3,735
    
    
    
    6,812
    
    
    
    554
    
    
    
    200
    
    
    
    11,301Total fees
    
    
    66,371
    
    
    
    21,814
    
    
    
    29,343
    
    
    
    10,442
    
    
    
    127,970
  1)
    
    Approximately NOK 4 million is related to Agri-demerger




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements124  26. Related parties The Norwegian State owned as
of 31 December, 2003 116,832,770 ordinary shares, representing
43.8 percent of the total number of ordinary
shares issued, representing 45.5 percent of
the shares outstanding as of the same date.
There are no different voting rights
associated with the ordinary shares held by
the State. Transactions with related parties On March 19, 2002, Hydro entered into an
agreement with the Norwegian State to
purchase interests in eight oil and gas
licenses on the Norwegian continental shelf.
This transaction increased Hydros interests
in the Oseberg, Tune and Grane fields, where
Hydro is operator, to 34, 40 and 38 percent,
respectively. The transaction was completed
and is reflected in Hydros operating
results from the acquisition date of May 10,
2002. The agreement was effective from
January 1, 2002. However, net cash flows
relating to these operations prior to the
acquisition date have been allocated as a
reduction of the purchase price. Hydro paid
NOK 3.45 billion for the license interests. Transactions with non-consolidated
investees are described in Note 13
Non-Consolidated Investees. Members of the board of directors are
elected for two year terms. Their rights
and obligations as board members are solely
and specifically provided for in the
Companys articles of association and
Norwegian law. The Company has no
significant contracts in which a board
member has a material interest. Loans given to members of the Board
and their number of shares owned as of 31
December, 2003 are: Loans
    
    
    Number ofoutstanding1) 2)
    
    sharesEgil Myklebust
    
    
    4,565
    3)
    
    
    4,244Elisabeth Grieg
    
    
    
    
    
    
    5,460Borger A. Lenth
    
    
    
    
    
    
    144Geir Nilsen
    
    
    118
    
    
    
    27Anne Cath. Høeg Rasmussen
    
    
    
    
    
    
    1,014Odd Semstrøm
    
    
    45
    
    
    
    101Steinar Skarstein
    
    
    
    
    
    
    172
  1)
    
    Amounts in NOK thousands2)
    
    All loans to directors and executive
officers (members of the corporate
management board) were entered into
prior to 30 July 2002. Hydro has not
materially modified or renewed any of
the loans extended to or for its
directors or executive officers since
that date.3)
    
    In October 2000, an interest-only loan
of NOK 2,200,000 was given. The
interest rate as of 31 December 2003
was 3.75 percent. In addition, there is
a loan with 26.5 years remaining and
with an outstanding amount of NOK
2,115,000 as of 31 December 2003. Other
loans of NOK 250,000 carry interest
of 4.25 percent. All loans are secured. Members, observers and deputy members of
the corporate assembly owning ordinary
shares as of 31 December, 2003 are: Number of sharesFrank Andersen
    
    
    99Frank A. Bakke
    
    
    884Erna Flattum Berg
    
    
    107Sven Edin
    
    
    223Anne-Margrethe Firing
    
    
    167Odd Arne Fodnes
    
    
    144Billy Fredagsvik
    
    
    37Solveig Alne Frøynes
    
    
    81Oddny Grebstad
    
    
    97Sónia F.T. Gjesdal
    
    
    166Westye Høegh
    
    
    19,000Kjell Kvinge
    
    
    171Sylvi A. Lem
    
    
    152Stig Lima
    
    
    59Jon-Arne Mo
    
    
    23Bjørn Nedreaas
    
    
    88Anne Merete Steensland
    
    
    2,272Wolfgang Ruch
    
    
    175Sven B. Ullring
    
    
    100Morten Ødegård
    
    
    5Ingar Aas-Haug
    
    
    26Kjell Aamot
    
    
    30Svein Aaser
    
    
    1,872
 Loans to senior management as of 31
December, 2003 and their ownership of
shares and options (see Note 4, page 102)
are: Loans
    
    
    Number
    
    
    Optionsoutstanding1) 2)
    
    of sharesEivind Reiten
    
    
    
    
    
    
    7,813
    
    
    
    30,000Alexandra Bech Gjørv
    
    
    
    
    
    
    872
    
    
    
    16,000John O. Ottestad
    
    
    591
    
    
    
    8,210
    
    
    
    16,000Jon-Harald Nilsen
    
    
    195
    
    
    
    242
    
    
    
    21,000Tore Torvund
    
    
    414
    
    
    
    3,584
    
    
    
    21,000
 Outstanding loan
    
    
    
    
    
    Loansparticulars:2)
    
    Interest
    
    Repayment
    
    Amount1)John O. Ottestad
    
    
    4.25-5.00
    %
    
    3-13 years
    
    
    591Jon-Harald Nilsen
    
    
    4.25
    %
    
    8 years
    
    
    195Tore Torvund
    
    
    4.25-5.00
    %
    
    4-13 years
    
    
    414




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements125 Norsk Hydro ASA and subsidiaries 27. Supplementary oil and gas information (Unaudited) Costs Incurred on Oil and Gas Properties Exploration costs and costs related to property acquisition Norway
    
    International
    
    TotalAmounts in NOK million
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001Capitalized at beginning of year
    
    
    837
    
    
    
    977
    
    
    
    874
    
    
    
    442
    
    
    
    1,749
    
    
    
    309
    
    
    
    1,279
    
    
    
    2,726
    
    
    
    1,183Costs incurred during the year1)
    
    
    437
    
    
    
    662
    
    
    
    928
    
    
    
    1,172
    
    
    
    1,714
    
    
    
    1,090
    
    
    
    1,609
    
    
    
    2,376
    
    
    
    2,018Acquisition
cost2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    1,234
    
    
    
    
    
    
    
    35
    
    
    
    1,234Expensed
    
    
    (437
    )
    
    
    (649
    )
    
    
    (770
    )
    
    
    (1,140
    )
    
    
    (2,909
    )
    
    
    (630
    )
    
    
    (1,577
    )
    
    
    (3,558
    )
    
    
    (1,400
    )Transferred to development
    
    
    (185
    )
    
    
    (78
    )
    
    
    (52
    )
    
    
    (26
    )
    
    
    (25
    )
    
    
    (125
    )
    
    
    (211
    )
    
    
    (103
    )
    
    
    (177
    )Disposals
    
    
    (19
    )
    
    
    (75
    )
    
    
    (3
    )
    
    
    (78
    )
    
    
    (9
    )
    
    
    (124
    )
    
    
    (97
    )
    
    
    (84
    )
    
    
    (127
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    (113
    )
    
    
    (5
    )
    
    
    20
    
    
    
    (113
    )
    
    
    (5
    )Capitalized at end of year
    
    
    633
    
    
    
    837
    
    
    
    977
    
    
    
    390
    
    
    
    442
    
    
    
    1,749
    
    
    
    1,023
    
    
    
    1,279
    
    
    
    2,726
  1)
    
    Capitalized interest related to exploration cost amounted to NOK 9 million in 2003.2)
    
    2001 mainly related to Africa and USA. Costs related to Development, Transportation Systems and Other Norway
    
    International
    
    TotalAmounts in NOK million
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001Net book value at beginning of year
    
    
    61,822
    
    
    
    56,711
    
    
    
    58,472
    
    
    
    7,162
    
    
    
    8,117
    
    
    
    6,360
    
    
    
    68,984
    
    
    
    64,828
    
    
    
    64,832Implementation SFAS 143Assets Retirement Obligation
    
    
    1,021
    
    
    
    
    
    
    
    
    
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    1,089
    
    
    
    
    
    
    
    Cost
incurred during the year3)
    
    
    7,288
    
    
    
    6,923
    
    
    
    5,591
    
    
    
    1,199
    
    
    
    1,299
    
    
    
    2,172
    
    
    
    8,487
    
    
    
    8,222
    
    
    
    7,763Acquisition
cost4)
    
    
    
    
    
    
    5,460
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,460
    
    
    
    Transferred from exploration cost
    
    
    185
    
    
    
    78
    
    
    
    52
    
    
    
    26
    
    
    
    25
    
    
    
    125
    
    
    
    211
    
    
    
    103
    
    
    
    177Amortization
    
    
    (7,525
    )
    
    
    (7,278
    )
    
    
    (7,098
    )
    
    
    (1,589
    )
    
    
    (1,275
    )
    
    
    (326
    )
    
    
    (9,114
    )
    
    
    (8,553
    )
    
    
    (7,424
    )Disposals
    
    
    (119
    )
    
    
    (72
    )
    
    
    (306
    )
    
    
    (4
    )
    
    
    (2
    )
    
    
    1
    
    
    
    (123
    )
    
    
    (74
    )
    
    
    (305
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    678
    
    
    
    (1,002
    )
    
    
    (215
    )
    
    
    678
    
    
    
    (1,002
    )
    
    
    (215
    )Net book value at end of year
    
    
    62,672
    
    
    
    61,822
    
    
    
    56,711
    
    
    
    7,540
    
    
    
    7,162
    
    
    
    8,117
    
    
    
    70,212
    
    
    
    68,984
    
    
    
    64,828
  3)
    
    In 2003, NOK 686 million, NOK 281 million and NOK 239 million of development cost related to activities in Angola, Canada and Russia respectively. NOK 236 million and NOK 61 million relates to accruals in Norway and International regarding assets retirement obligations (SFAS 143). This is a result of changes in estimates and new accruals in connection with fields set in production during the year. In 2002, NOK 508 million, NOK 254 million and NOK 501 million of development cost related t
o activities in Angola, Canada and Russia respectively. In 2001, NOK 903 million, NOK 742 million and NOK 441 million of development costs related to activities in Angola, Canada and Russia respectively.4)
    
    In 2002, NOK 5,460 million relates to the aquisition of shares in SDFI.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements126  Results of Operations for Oil and Gas Producing Activities As required by SFAS 69, the revenues and expenses included in the following
table reflect only those relating to the oil and gas producing operations of
Hydro. The results of operations should not be equated to net income since no
deduction nor allocation is made for interest costs, general corporate overhead
costs, and other costs. Income tax expense is a theoretical computation based
on the statutory tax rates after giving effect to the effects of uplift and
permanent differences only. Norway
    
    International
    
    TotalAmounts in NOK million
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001Sales to unaffiliated customers
    
    
    6,672
    
    
    
    6,693
    
    
    
    5,486
    
    
    
    4,061
    
    
    
    3,520
    
    
    
    1,133
    
    
    
    10,733
    
    
    
    10,213
    
    
    
    6,619Intercompany transfers
    
    
    25,531
    
    
    
    21,532
    
    
    
    24,915
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,531
    
    
    
    21,532
    
    
    
    24,915Total revenues
    
    
    32,203
    
    
    
    28,225
    
    
    
    30,401
    
    
    
    4,061
    
    
    
    3,520
    
    
    
    1,133
    
    
    
    36,264
    
    
    
    31,745
    
    
    
    31,534Operating costs and expenses:Production costs
    
    
    3,591
    
    
    
    3,554
    
    
    
    3,494
    
    
    
    425
    
    
    
    406
    
    
    
    206
    
    
    
    4,016
    
    
    
    3,960
    
    
    
    3,700Exploration expenses
    
    
    437
    
    
    
    649
    
    
    
    770
    
    
    
    1,140
    
    
    
    2,909
    
    
    
    630
    
    
    
    1,577
    
    
    
    3,558
    
    
    
    1,400Depreciation, depletion
and amortization
    
    
    7,378
    
    
    
    6,826
    
    
    
    6,738
    
    
    
    1,597
    
    
    
    1,315
    
    
    
    360
    
    
    
    8,975
    
    
    
    8,141
    
    
    
    7,098Transportation systems
    
    
    1,257
    
    
    
    1,629
    
    
    
    1,379
    
    
    
    125
    
    
    
    139
    
    
    
    125
    
    
    
    1,382
    
    
    
    1,768
    
    
    
    1,504Total expenses
    
    
    12,663
    
    
    
    12,658
    
    
    
    12,381
    
    
    
    3,287
    
    
    
    4,769
    
    
    
    1,321
    
    
    
    15,950
    
    
    
    17,427
    
    
    
    13,702Results of operations before taxes
    
    
    19,540
    
    
    
    15,567
    
    
    
    18,020
    
    
    
    774
    
    
    
    (1,249
    )
    
    
    (188
    )
    
    
    20,314
    
    
    
    14,318
    
    
    
    17,832Current and deferred
income tax expense
    
    
    (14,802
    )
    
    
    (11,733
    )
    
    
    (13,916
    )
    
    
    (414
    )
    
    
    374
    
    
    
    (21
    )
    
    
    (15,216
    )
    
    
    (11,359
    )
    
    
    (13,937
    )Results of operations
    
    
    4,738
    
    
    
    3,834
    
    
    
    4,104
    
    
    
    360
    
    
    
    (875
    )
    
    
    (209
    )
    
    
    5,098
    
    
    
    2,959
    
    
    
    3,895
 Proved Reserves of Oil and Gas Proved reserves are the estimated quantities of crude oil, natural gas, and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed reserves can
be expected to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are expected to be recovered
from undrilled production wells on exploration licenses. Reserves are expected
to be revised as oil and gas are produced and additional data become available.
International reserves under PSA contracts (production sharing agreement) are
shown net of Royalties and Governments share of Profit Oil.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements127 Norsk Hydro ASA and subsidiaries Proved Developed and Undeveloped Reserves of Oil and Gas Norway
    
    International
    
    TotalOil
    
    
    Natural gas
    
    Oil
    
    
    Natural gas
    
    Oil
    
    
    Natural gasmmboe1)
    
    
        billion Sm**3** 2)
    
    
    billion cf2)
    
    
    mmboe1)
    
    
        billion Sm**3**
           2)
    
    
    billion cf2)
    
    
    mmboe1)
    
    
        billion Sm**3**
          2)
    
    
    billion cf2)As of 31
December, 20006)
    
    
    820
    
    
    
    169.7
    
    
    
    6,004
    
    
    
    156
    
    
    
    
    
    
    
    
    
    
    
    976
    
    
    
    169.7
    
    
    
    6,004Revisions of
previous estimates3)
    
    
    87
    
    
    
    0.3
    
    
    
    11
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    0.3
    
    
    
    11Purchase (sale)/exchange of
reserves in place4)
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    Extensions and new discoveries5)
    
    
    33
    
    
    
    4.6
    
    
    
    162
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    4.6
    
    
    
    162Production for the year
    
    
    (114
    )
    
    
    (5.4
    )
    
    
    (191
    )
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    (120
    )
    
    
    (5.4
    )
    
    
    (191
    )As of 31
December, 20016) 7)
    
    
    825
    
    
    
    169.2
    
    
    
    5,986
    
    
    
    193
    
    
    
    
    
    
    
    
    
    
    
    1,018
    
    
    
    169.2
    
    
    
    5,986Revisions of previous estimates3)
    
    
    46
    
    
    
    (0.2
    )
    
    
    (7
    )
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    (0.2
    )
    
    
    (7
    )Purchase (sale)/exchange of
reserves in place4)
    
    
    109
    
    
    
    12.1
    
    
    
    428
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    12.1
    
    
    
    428Extensions and new discoveries5)
    
    
    20
    
    
    
    12.7
    
    
    
    449
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    12.7
    
    
    
    449Production for the year
    
    
    (117
    )
    
    
    (6.4
    )
    
    
    (227
    )
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    (135
    )
    
    
    (6.4
    )
    
    
    (227
    )As of 31
December, 20026) 7)
    
    
    883
    
    
    
    187.4
    
    
    
    6,629
    
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    1,055
    
    
    
    187.4
    
    
    
    6,629Revisions of previous estimates3)
    
    
    59
    
    
    
    (8.9
    )
    
    
    (315
    )
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    (8.9
    )
    
    
    (315
    )Purchase (sale)/exchange of
reserves in place4)
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    Extensions and new discoveries5)
    
    
    22
    
    
    
    36.1
    
    
    
    1,278
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    36.1
    
    
    
    1,278Production for the year
    
    
    (123
    )
    
    
    (7.8
    )
    
    
    (275
    )
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    (144
    )
    
    
    (7.8
    )
    
    
    (275
    )As of 31 December, 20036) 7)
    
    
    839
    
    
    
    206.8
    
    
    
    7,317
    
    
    
    154
    
    
    
    
    
    
    
    
    
    
    
    993
    
    
    
    206.8
    
    
    
    7,317Proved developed reserves:As of 31 December, 2000
    
    
    555
    
    
    
    103.0
    
    
    
    3,644
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    588
    
    
    
    103.0
    
    
    
    3,644As of 31 December, 2001
    
    
    564
    
    
    
    103.7
    
    
    
    3,669
    
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    626
    
    
    
    103.7
    
    
    
    3,669As of 31 December, 2002
    
    
    559
    
    
    
    124.8
    
    
    
    4,416
    
    
    
    93
    
    
    
    
    
    
    
    
    
    
    
    652
    
    
    
    124.8
    
    
    
    4,416As of 31 December, 2003
    
    
    690
    
    
    
    124.8
    
    
    
    4,415
    
    
    
    88
    
    
    
    
    
    
    
    
    
    
    
    778
    
    
    
    124.8
    
    
    
    4,415
  1)
    
    Includes crude oil and NGL/Condensate. 1 Sm3 Oil/Condensate = 6.2898 boe.
1 tonne NGL = 11.9506 boe2)
    
    Sm3 = Standard cubic meter at 15 degrees Celsius. cf = cubic feet at 60
degrees Fahrenheit. 1 Sm3 gas at 15 degrees Celsius = 35.3826 cubic feet
gas at 60 degrees Fahrenheit.3)
    
    The revision of previous estimates relates to new information from
current year ́s drilling operations and additional data which is now
available.4)
    
    In 2003 the decrease in reserves was due to sale of shares in the Brage
and Njord fields in Norway to Offshore Engineering Resources AS. In 2002
the change in reserves was due to acquisition of SDFI assets and sale of
the small field Varg in Norway. In 2001 the decrease was due to the sale
of Glitne in Norway.5)
    
    In 2003, extensions and new discoveries for oil were related to the
Oseberg Vestflanken and Oseberg Sør fields in Norway, the Dalia field
in Angola and the Mabruk and Murzuq fields in Libya.
Extensions and new discoveries for gas were related to the Ormen Lange,
Oseberg Vestflanken and Oseberg Sør fields in Norway. In 2002, extensions
and new discoveries for oil were related to the Snøhvit and Vigdis fields
in Norway, the Hibernia and Terra Nova fields in Canada, the Murzuq field
in Libya and the Jasmim field in Angola. Extensions and new discoveries
for gas were related to the Snøhvit, Vigdis, Byggve and Skirne fields in
Norway. In 2001, extensions and new discoveries for oil were related to
the Kristin, Mikkel and Sigyn fields in Norway, Rosa/Lirio and Jasmim
fields in Angola.
Extensions and new discoveries for gas were also related to the Kristin,
Mikkel and Sigyn fields in Norway.6)
    
    Reserve estimates in Norway are made before royalties of approximately
0.8, 1.6 and 2.1 million barrels of oil equivalents for 2003, 2002 and
2001, respectively.7)
    
    In 2003, reserve estimates includes 154 million barrels of oil
equivalents (boe) outside the Norwegian Continental Shelf, in Canada,
Angola, Russia and Libya. In 2002, reserve estimates included 172 million
barrels of oil equivalents (boe) outside the Norwegian Continental Shelf,
in Canada, Angola, Russia and Libya. In 2001, reserve estimates included
193 million barrels of oil equivalents (boe) outside the Norwegian
Continental Shelf, in Canada, Angola, Russia and Libya. The increase in
2003 is dominated by the new reserves in the Dalia field in Angola.




---



##### 



Hydro Annual Report 2003
Notes to the consolidated financial statements128  US GAAP Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil and Gas Reserves The standardized measure of discounted future net cash flows of Hydros proved
reserves of oil (including natural gas liquids and condensate) and gas is
prepared in compliance with SFAS 69. Future net cash flows are based on numerous assumptions which may or may
not be realized. The management of Hydro cautions against relying on the
information presented because of the highly arbitrary nature of assumptions
involved and susceptibility of estimates to change as new and more accurate
data become available. The individual components of future net cash flows shown
below were computed using prices, production costs, development costs, royalty
levels, foreign exchange rates, statutory tax rates and estimated proved
reserve quantities at the respective year ends. Standardized Measure of Discounted Future Net Cash Flows Norway
    
    International
    
    TotalAmounts in NOK million
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001Future cash inflows
    
    
    372,800
    
    
    
    351,200
    
    
    
    308,600
    
    
    
    28,900
    
    
    
    34,800
    
    
    
    31,200
    
    
    
    401,700
    
    
    
    386,000
    
    
    
    339,800Future production costs
    
    
    (87,800
    )
    
    
    (81,000
    )
    
    
    (59,600
    )
    
    
    (7,000
    )
    
    
    (6,400
    )
    
    
    (9,400
    )
    
    
    (94,800
    )
    
    
    (87,400
    )
    
    
    (69,000
    )Future development costs
    
    
    (46,000
    )
    
    
    (27,200
    )
    
    
    (22,800
    )
    
    
    (5,300
    )
    
    
    (6,300
    )
    
    
    (7,700
    )
    
    
    (51,300
    )
    
    
    (33,500
    )
    
    
    (30,500
    )Future income tax expense
    
    
    (172,800
    )
    
    
    (175,600
    )
    
    
    (166,100
    )
    
    
    (3,200
    )
    
    
    (6,800
    )
    
    
    (3,200
    )
    
    
    (176,000
    )
    
    
    (182,400
    )
    
    
    (169,300
    )Future net cash flows
    
    
    66,200
    
    
    
    67,400
    
    
    
    60,100
    
    
    
    13,400
    
    
    
    15,300
    
    
    
    10,900
    
    
    
    79,600
    
    
    
    82,700
    
    
    
    71,000Less: 10% annual discount for
estimated timing of cash flows
    
    
    (28,300
    )
    
    
    (26,400
    )
    
    
    (27,300
    )
    
    
    (4,200
    )
    
    
    (4,900
    )
    
    
    (4,700
    )
    
    
    (32,500
    )
    
    
    (31,300
    )
    
    
    (32,000
    )Standardized measure of dis-
counted future net cash flows
    
    
    37,900
    
    
    
    41,000
    
    
    
    32,800
    
    
    
    9,200
    
    
    
    10,400
    
    
    
    6,200
    
    
    
    47,100
    
    
    
    51,400
    
    
    
    39,000
 Major Sources of Changes in the Standardized Measure of Discounted Future Net Cash Flows Amounts in NOK million
    
    2003
    
    
    2002
    
    
    2001Net changes in prices and production costs
    
    
    (800
    )
    
    
    23,700
    
    
    
    (29,900
    )Sales and transfers of oil and gas produced, net of production costs
    
    
    (30,900
    )
    
    
    (26,200
    )
    
    
    (27,300
    )Extensions, unitizations, discoveries and improved recovery,
net of related costs
    
    
    17,700
    
    
    
    5,500
    
    
    
    5,700Purchase/Exchange of interests in fields
    
    
    
    
    
    
    15,900
    
    
    
    Sale/Exchange of interests in fields
    
    
    (100
    )
    
    
    (300
    )
    
    
    (200
    )Changes in estimated development costs
    
    
    (14,300
    )
    
    
    (8,300
    )
    
    
    (7,900
    )Development costs incurred during the year
    
    
    7,400
    
    
    
    7,600
    
    
    
    7,500Net change in income taxes
    
    
    8,800
    
    
    
    (11,100
    )
    
    
    28,900Accretion of discount
    
    
    4,300
    
    
    
    3,700
    
    
    
    4,700Revisions of previous reserve quantity estimates
    
    
    3,300
    
    
    
    1,900
    
    
    
    7,000Other
    
    
    300
    
    
    
    
    
    
    
    200Total change in the standardized measure during the year
    
    
    (4,300
    )
    
    
    12,400
    
    
    
    (11,300
    )
 Development costs for the years 2004, 2005 and 2006 are estimated
to NOK 9,200
million, NOK 10,100 million and NOK 7,800 million respectively. Average Sales Price and Production Cost per Unit The following table presents the average sales price (including transfers) and
production costs per unit of crude oil and natural gas, net of reductions in
respect of royalty payments: Norway
    
    International
    
    TotalAmounts in NOK
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001Average Sales Price1)crude oil (per barrel)
    
    
    204.01
    
    
    
    194.33
    
    
    
    217.32
    
    
    
    197.08
    
    
    
    193.74
    
    
    
    215.03
    
    
    
    202.90
    
    
    
    194.24
    
    
    
    217.20natural gas (per Sm3)
    
    
    1.03
    
    
    
    0.95
    
    
    
    1.21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.03
    
    
    
    0.95
    
    
    
    1.21Average production cost
(per boe)
    
    
    20.80
    
    
    
    22.50
    
    
    
    23.60
    
    
    
    20.20
    
    
    
    23.10
    
    
    
    38.00
    
    
    
    20.70
    
    
    
    22.60
    
    
    
    24.10
  1)
    
    In the years 2003, 2002 and 2001, Hydro has not had any hedging gain or loss that has affected the realized oil and gas prices.