##### 



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 31
December 2004 and 2003, and the related consolidated income statements, statements of comprehensive
income, and cash flows for each of the three years in the period ended
31 December 2004. Our audits also included the financial statement schedule included at Item 19(a).
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 and
the financial statement schedule 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. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, 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 31 December 2004 and 2003, and the
results of their operations and their cash flows for each of the three years in the period ended 31
December 2004 in conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the 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 variable interest entities in 2004 and asset retirement obligations in 2003 to conform to newly
adopted accounting principles. Deloitte Statsautoriserte Revisorer AS Oslo, Norway
2 March 2005




---



##### 



CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statements No. 333-8110 and No.
333-10580 on Form F-3 of our report dated 2 March 2005, relating to the consolidated financial
statements and financial statement schedule of Norsk Hydro ASA and subsidiaries appearing in this
Annual Report on Form 20-F of Norsk Hydro ASA for the year ended 31 December 2004. Deloitte Statsautoriserte Revisorer AS
Oslo, Norway
18 March 2005




---



##### 



Norsk Hydro ASA and subsidiaries Consolidated income statements US GAAP Year ended 31 December
    
    
    
    
    
    2004
    
    
    2004
    
    
    2003
    
    
    2002Amounts in million (except per share amounts)
    
    Notes
    
    
    NOK
    
    
    EUR1)
    
    
    NOK
    
    
    NOKOperating revenues
    
    
    5
    
    
    
    155,425
    
    
    
    18,883
    
    
    
    133,761
    
    
    
    134,093Raw materials and energy costs
    
    
    
    
    
    
    83,011
    
    
    
    10,086
    
    
    
    74,442
    
    
    
    80,868Payroll and related costs
    
    
    7,20
    
    
    
    18,830
    
    
    
    2,288
    
    
    
    18,569
    
    
    
    17,412Depreciation, depletion and amortization
    
    
    5,15,16
    
    
    
    16,898
    
    
    
    2,053
    
    
    
    13,947
    
    
    
    12,729Other
    
    
    7,25
    
    
    
    4,861
    
    
    
    591
    
    
    
    5,178
    
    
    
    5,427Restructuring costs
    
    
    6
    
    
    
    (22
    )
    
    
    (3
    )
    
    
    
    
    
    
    (10
    )Operating costs and expenses
    
    
    
    
    
    
    123,578
    
    
    
    15,015
    
    
    
    112,136
    
    
    
    116,426Operating income
    
    
    5
    
    
    
    31,847
    
    
    
    3,868
    
    
    
    21,625
    
    
    
    17,667Equity in net income of non-consolidated investees
    
    
    5,13
    
    
    
    628
    
    
    
    76
    
    
    
    620
    
    
    
    (24
    )Financial income (expense), net
    
    
    8,11,24
    
    
    
    136
    
    
    
    17
    
    
    
    154
    
    
    
    1,806Other income, net
    
    
    5,9
    
    
    
    169
    
    
    
    21
    
    
    
    (1,253
    )
    
    
    77Income from continuing operations
before taxes and minority interest
    
    
    
    
    
    
    32,780
    
    
    
    3,982
    
    
    
    21,146
    

    
    
    19,526Income tax expense
    
    
    10
    
    
    
    (21,197
    )
    
    
    (2,575
    )
    
    
    (12,922
    )
    
    
    (12,452
    )Minority interest
    
    
    
    
    
    
    (106
    )
    
    
    (13
    )
    
    
    151
    
    
    
    26Income from continuing operations before cumulative effect
of change in accounting principle
    
    
    
    
    
    
    11,477
    
    
    
    1,394
    
    
    
    8,375
    
    
    
    7,100Income from discontinued operations
    
    
    2
    
    
    
    1,083
    
    
    
    132
    
    
    
    2,312
    
    
    
    1,665Income before cumulative effect of change in accounting
principle
    
    
    
    
    
    
    12,560
    
    
    
    1,526
    
    
    
    10,687
    
    
    
    8,765Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    281
    
    
    
    Net income
    
    
    28
    
    
    
    12,560
    
    
    
    1,526
    
    
    
    10,968
    
    
    
    8,765Basic and diluted earnings per share from continuing operations
before cumulative effect of change in accounting principle
    
    
    3
    
    
    
    45.10
    
    
    
    5.48
    
    
    
    32.50
    
    
    
    27.50Basic and diluted earnings per share
from discontinued operations
    
    
    3
    
    
    
    4.20
    
    
    
    0.51
    
    
    
    9.00
    
    
    
    6.50Basic and diluted earnings per share
before cumulative effect of change in accounting principle
    
    
    3
    
    
    
    49.40
    
    
    
    6.00
    
    
    
    41.50
    
    
    
    34.00Basic and diluted earnings per share
    
    
    3
    
    
    
    49.40
    
    
    
    6.00
    
    
    
    42.60
    
    
    
    34.00Consolidated statements of comprehensive income 2)Net income
    
    
    
    
    
    
    12,560
    
    
    
    1,526
    
    
    
    10,968
    
    
    
    8,765Net unrealized gain (loss
on securities available-for-sale)
    
    
    3
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (31
    )Minimum pension liability adjustment
    
    
    3
    
    
    
    (132
    )
    
    
    (16
    )
    
    
    (113
    )
    
    
    (323
    )Net investment hegde
    
    
    3
    
    
    
    320
    
    
    
    39
    
    
    
    (333
    )
    
    
    1,333Cash flow hedges
    
    
    3
    
    
    
    (339
    )
    
    
    (41
    )
    
    
    35
    
    
    
    979Net foreign currency translation adjustments
    
    
    3
    
    
    
    (1,628
    )
    
    
    (198
    )
    
    
    4,856
    
    
    
    (7,207
    )Total other comprehensive income (loss), net of tax
    
    
    3
    
    
    
    (1,781
    )
    
    
    (216
    )
    
    
    4,445
    
    
    
    (5,249
    )Comprehensive income, net of tax
    
    
    
    
    
    
    10,779
    
    
    
    1,310
    
    
    
    15,413
    
    
    
    3,516
   1)
    
    Presentation in euro is a convenience translation based on the exchange rate at 31.12.2004,
which was 8.2307 (unaudited)2)
    
    Comprehensive income includes net income together with other changes not related to investments
by and distribution to shareholders. (See Note 3)  10-1




---



##### 



Norsk Hydro ASA and subsidiaries Consolidated balance sheets US GAAP 31 December
    
    
    
    
    
    2004,
    
    
    2004
    
    
    2003Amounts in million
    
    Notes
    
    
    NOK
    
    
    EUR1)
    
    
    NOKAssetsCash and cash equivalents
    
    
    
    
    
    
    14,366
    
    
    
    1,745
    
    
    
    14,873Other liquid assets
    
    
    11
    
    
    
    10,970
    
    
    
    1,333

    
    
    
    1,553Accounts receivable, less allowances of 891 and 922
    
    
    
    
    
    
    20,671
    
    
    
    2,512
    
    
    
    20,550Inventories
    
    
    12
    
    
    
    12,851
    
    
    
    1,561
    
    
    
    12,024Prepaid expenses and other current assets
    
    
    12
    
    
    
    10,478
    
    
    
    1,273
    
    
    
    11,797Current deferred tax assets
    
    
    10
    
    
    
    1,070
    
    
    
    130
    
    
    
    1,097Current assets discontinued operations
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    13,789Current assets
    
    
    5
    
    
    
    70,406
    
    
    
    8,554
    
    
    
    75,683Non-consolidated investees
    
    
    13
    
    
    
    10,017
    
    
    
    1,217
    
    
    
    10,162Property, plant and equipment, less accumulated
depreciation, depletion and amortization
    
    
    15
    
    
    
    106,117
    
    
    
    12,893
    
    
    
    107,779Prepaid pension, investments and other non-current assets
    
    
    14, 16, 20
    
    
    
    13,039
    
    
    
    1,584
    
    
    
    13,114Deferred tax assets
    
    
    10
    
    
    
    664
    
    
    
    81
    
    
    
    114Non-current assets discontinued operations
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    11,777Non-current assets
    
    
    5
    
    
    
    129,837
    
    
    
    15,775
    
    
    
    142,946Total assets
    
    
    5
    
    
    
    200,243
    
    
    
    24,329
    
    
    
    218,629Liabilities and shareholders equityBank loans and other interest-bearing short-term debt
    
    
    17
    
    
    
    3,785
    
    
    
    460
    
    
    
    5,273Current portion of long-term debt
    
    
    19
    
    
    
    568
    
    
    
    69
    
    
    
    1,212Other current liabilities
    
    
    18
    
    
    
    41,340
    
    
    
    5,022
    
    
    
    37,198Current deferred tax liabilities
    
    
    10
    
    
    
    384
    
    
    
    47
    
    
    
    527Current liabilities discontinued operations
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    6,129Current liabilities
    
    
    
    
    
    
    46,077
    
    
    
    5,598
    
    
    
    50,339Long-term debt
    
    
    19
    
    
    
    19,487
    
    
    
    2,368
    
    
    
    28,403Accrued pension liabilities
    
    
    20
    
    
    
    8,569
    
    
    
    1,041
    
    
    
    7,774Other long-term liabilities
    
    
    21
    
    
    
    9,134
    
    
    
    1,110
    
    
    
    7,513Deferred tax liabilities
    
    
    10
    
    
    
    29,515
    
    
    
    3,586
    
    
    
    32,796Long-term liabilities discontinued operations
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    3,064Long-term liabilities
    
    
    
    
    
    
    66,705
    
    
    
    8,105
    
    
    
    79,550Minority interest
    
    
    
    
    
    
    1,571
    
    
    
    191
    
    
    
    564Minority interest discontinued operations
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    96Minority shareholders interest in consolidated subsidiaries
    
    
    
    
    
    
    1,571
    
    
    
    191
    
    
    
    660Share capital
    
    
    3
    
    
    
    4,739
    
    
    
    576
    
    
    
    5,332Additional paid-in capital
    
    
    3
    
    
    
    10,467
    
    
    
    1,272
    
    
    
    15,071Retained earnings
    
    
    3
    
    
    
    75,310
    
    
    
    9,149
    
    
    
    71,516-Treasury stock
    
    
    3
    
    
    
    (3,069
    )
    
    
    (373
    )
    
    
    (3,523
    )Accumulated other comprehensive income (loss)
    
    
    3
    
    
    
    (1,557
    )
    
    
    (189
    )
    
    
    (316
    )Shareholders equity
    
    
    3,28
    
    
    
    85,890
    
    
    
    10,435
    
    
    
    88,080Total liabilities and shareholders equity
    
    
    
    
    
    
    200,243
    
    
    
    24,329
    
    
    
    218,629Total number of outstanding shares.
    
    
    
    
    
    
    250,839,230
    
    
    
    250,839,230
    
    
    
    256,712,000Nominal value per share.
    
    
    
    
    
    
    18.30
    
    
    
    2.22
    
    
    
    20.00
   1)
    
    Presentation in euro is a convenience translation based on the exchange rate at
31.12.2004, which was 8.2307 (unaudited)  10-2




---



##### 



Norsk Hydro ASA and subsidiaries US GAAP
Consolidated statements of cash flows Year ended 31 December
    
    
    
    
    
    2004
    
    
    2004
    
    
    2003
    
    
    2002Amounts in NOK million
    
    Notes
    
    
    NOK
    
    
    EUR1)
    
    
    NOK
    
    
    NOKOperating activities:Net income
    
    
    
    
    
    
    12,560
    
    
    
    1,526
    
    
    
    10,968
    
    
    
    8,765Adjustments to reconcile net income to net cash
provided by operating activities:Income from discontinued operations
    
    
    2
    
    
    
    (1,083
    )
    
    
    (132
    )
    
    
    (2,312
    )
    
    
    (1,665
    )Depreciation, depletion and amortization
    
    
    5
    
    
    
    16,898
    
    
    
    2,053
    
    
    
    13,947
    
    
    
    12,729Restructuring costs
    
    
    6
    
    
    
    (22
    )
    
    
    (3
    )
    
    
    
    
    
    
    (10
    )Equity in net income of non-consolidated investees
    
    
    5,13
    
    
    
    (628
    )
    
    
    (76
    )
    
    
    (620
    )
    
    
    24Dividends received from non-consolidated investees
    
    
    
    
    
    
    326
    
    
    
    40
    
    
    
    258
    
    
    
    208Deferred taxes
    
    
    10
    
    
    
    (2,945
    )
    
    
    (358
    )
    
    
    (1,585

    )
    
    
    (616
    )Loss (gain) on sale of non-current assets
    
    
    
    
    
    
    39
    
    
    
    5
    
    
    
    (726
    )
    
    
    1,117Gain on foreign currency transactions
    
    
    8
    
    
    
    (1,350
    )
    
    
    (164
    )
    
    
    (1,035
    )
    
    
    (3,262
    )Net sales (purchases) of trading securities
    
    
    
    
    
    
    (177
    )
    
    
    (22
    )
    
    
    245
    
    
    
    616Other
    
    
    
    
    
    
    779
    
    
    
    95
    
    
    
    2,150
    4)
    
    
    394Working capital changes that provided (used) cash:Receivables
    
    
    
    
    
    
    (1,117
    )
    
    
    (136
    )
    
    
    (576
    )
    
    
    (1,088
    )Inventories
    
    
    
    
    
    
    (1,040
    )
    
    
    (126
    )
    
    
    453
    
    
    
    1,448Prepaid expenses and other current assets
    
    
    
    
    
    
    1,798
    
    
    
    218
    
    
    
    2,251
    
    
    
    (1,530
    )Other current liabilities
    
    
    
    
    
    
    3,686
    
    
    
    448
    
    
    
    (645
    )
    
    
    1,950Net cash provided by operating activities
    
    
    
    
    
    
    27,724
    
    
    
    3,368
    
    
    
    22,773
    
    
    
    19,080Investing activities:Purchases of property, plant and equipment
    
    
    
    
    
    
    (16,187
    )
    
    
    (1,967
    )
    
    
    (14,537
    )
    
    
    (18,439
    )Purchases of other long-term investments
    
    
    
    
    
    
    (858
    )
    
    
    (104
    )
    
    
    (684
    )
    
    
    (17,575
    )Purchases of short-term investments
    
    
    
    
    
    
    (9,166
    )
    
    
    (1,113
    )
    
    
    (702
    )
    
    
    (1,691
    )Proceeds from sales of property, plant and equipment
    
    
    
    
    
    
    837
    2)
    
    
    102
    
    
    
    647
    
    
    
    684Proceeds from sales of other long-term investments
    
    
    
    
    
    
    1,400
    
    
    
    170
    
    
    
    6,384
    
    
    
    971Proceeds from sales of short-term investments
    
    
    
    
    
    
    12
    
    
    
    1
    
    
    
    1,838
    
    
    
    558Net cash used in investing activities
    
    
    
    
    
    
    (23,962
    )
    
    
    (2,911
    )
    
    
    (7,054
    )
    
    
    (35,492
    )Financing activities:Loan proceeds
    
    
    
    
    
    
    143
    
    
    
    18
    
    
    
    264
    
    
    
    592Principal repayments
    
    
    
    
    
    
    (9,271
    )
    
    
    (1,126
    )
    
    
    (5,167
    )
    
    
    (4,012
    )Ordinary shares purchased
    
    
    3
    
    
    
    (1,684
    )
    
    
    (205
    )
    
    
    (555
    )
    
    
    Ordinary shares issued
    
    
    
    
    
    
    44
    
    
    
    5
    
    
    
    77
    
    
    
    70Dividends paid
    
    
    3
    
    
    
    (2,811
    )
    
    
    (342
    )
    
    
    (2,711
    )
    
    
    (2,576
    )Net cash used in financing activities
    
    
    
    
    
    
    (13,579
    )
    
    
    (1,650
    )
    
    
    (8,092
    )
    
    
    (5,926
    )Foreign currency effects on cash
    
    
    
    
    
    
    (264
    )
    
    
    (32
    )
    
    
    702
    
    
    
    (421
    )Net cash provided by discontinued operations
    
    
    2
    
    
    
    9,574
    
    
    
    1,163
    
    
    
    997
    
    
    
    2,018Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    (507
    )
    
    
    (62
    )
    
    
    9,326
    
    
    
    (20,741
    )Cash and cash equivalents at beginning of year
    
    
    
    
    
    
    14,873
    
    
    
    1,807
    
    
    
    5,547
    
    
    
    26,288Cash and cash equivalents at end of year
    
    
    
    
    
    
    14,366
    
    
    
    1,745
    
    
    
    14,873
    
    
    
    5,547Cash disbursements were made for:Interest (net of amount capitalized)
    
    
    
    
    
    
    1,701
    3)
    
    
    207
    
    
    
    1,190
    
    
    
    1,464Income taxes
    
    
    
    
    
    
    19,758
    
    
    
    2,401
    
    
    
    16,011
    
    
    
    13,758
   1)
    
    Presentation in euro is a convenience translation based on the exchange rate at 31 December
2004, which was 8.2307 (unaudited).2)
    
    In January 2005, Hydro received approximately NOK 1.1 billion relating to the sale of its 10%
ownership interest in Snøhvit in 2004, and that was reported as a short term receivable within
Other current assets as of 31 December 2004.3)
    
    Includes cash disbursements relating to early repayment of long term debt (breaking costs)
of NOK 938 million.4)
    
    Includes non-cash charge relating to an expected state grant pertaining to an asset
retirement obligation of NOK 2,207 million.The accompanying notes are an integral part of the consolidated financial statements.  10-3




---



##### 



Notes to the consolidated financial statements 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 10-1 to 10-3.
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 integral part of the financial statements. Consolidation The consolidated financial statements include Norsk
Hydro ASA and subsidiary companies. The majority of Hydros
consolidated subsidiaries are 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.
Variable Interest Entities are 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. Entities for which Hydro is
determined to retain the controlling financial interest when
such interest is achieved through arrangements other than
voting rights, are consolidated. Hydro currently consolidates
one company based on the Variable Interest Model. 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 from
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 the
estimated fair value of the investee is below Hydros carrying
value, the investment is written down as impaired. Business Combinations Terms and conditions underlying most previous
acquisitions have resulted in purchase accounting treatment
(vs. pooling). See note 2 for a description of significant
acquisitions and disposals during the past three years. All
business combinations initiated after 30 June 2001 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. However, for VIEs, the
total fair value of assets and liabilities are recognized, and
any excess value attributable to non-controlling interests
affects minority interests. Foreign Currency Translation The financial statements, including any excess values,
of foreign operations are translated using exchange rate 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. 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. 10-4




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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), and 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 that are not consolidated or
accounted for using the equity method. 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. Investments where a market value is not readily observable
are earned at cost. Investments are reviewed for impairment if
indications of loss in value as identified. Fair value of the
investment is estimated based on valuation model techniques for
non-marketable securities if the estimated fair value of the
investee is below Hydros carrying value, the investment is
written down as impaired. 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, as described in
Statement of Financial Accounting Standards (SFAS) 144. The
carrying amount is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and
disposition of the asset or group of assets working together to
create identifiable, relatively independent cash flows. If the
carrying amount is not recoverable, a write-down (impairment)
to fair value is recorded. Periodic maintenanceand 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 InterestInterest is capitalized as part of the
historical cost of major assets constructed. Leased AssetsLeases 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 ExpendituresEnvironmental 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 Costsof 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. Cost relating to acquired exploration rights
are allocated to the relevant areas and capitalized pending the
determination of the existence of proved reserves. If reserves
are not found, the acquisition costs are charged to operating
expense upon determination that proved reserved will not be
found in the area. Each block or area is assessed separately.
All development costs for wells, platforms, equipment and
related interest are capitalized. Preproduction costs are expensed as incurred. For further
information see note 27. Depreciation, Depletion and AmortizationDepreciation 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. Unit-of-production
depreciation rates are revised whenever there is an indication
of the need for revision, and at least once a year. Any
revisions in the rates are accounted for prospectively. 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. Goodwill When a business is acquired, purchase price in excess of
the identified fair value of assets and liabilities is
accounted for as goodwill. Goodwill is reviewed at least
annually for impairment. Goodwill is 10-5




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##### 



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. For this purpose fair value of the sector is
estimated by management using valuation techniques. Oil and Gas Royalty Oil and gas revenue is recorded net of royalties payable in kind. Shipping costs Shipping and handling costs are included in Other
operating expenses. Shipping and handling costs 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 tax assets are
reviewed for recoverability, and a valuation allowance is
recorded against deferred tax assets to the extent that it is
more likely than not that the asset will not be realized.
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 enacted 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 optionsare 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 swapsInterest 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. Swaption contracts are marked to their market value at
each balance sheet date with the resulting unrealized gain or
loss reflected in Financial income (expense), net. Derivative Commodity Instrumentsare 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 hedge 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 changes in the fair value
of designated derivative instrument and changes in the fair
value of hedged item are recognized currently in earnings. Energy contracts are accounted for according to EITF 02-3
Issues involved in Accounting for Derivative Contracts Held
for Trading Purposes and Contracts Involved in Energy Trading
and Risk Management Activities. This standard requires energy
contracts that meet the definition of a derivative according to
SFAS133 Accounting for Derivative Instruments and Hedging
Activities be recorded in the balance sheet at fair value,
unless those contracts qualify for normal purchase or normal
sale exemption as described in the standard. Changes in 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 with 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
cash effects 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
amounts by which the market price of the Companys shares
exceeds the price of the options. For 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. 10-6




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##### 



Pro Forma Information No stock-based employee compensation cost is reflected in
net income, as all options grated under the United Kingdom
stock option plan had an exercise price equal to the market
value of the underlying stock on the date of the grant as
described in note 4. The following table illustrates the effect
on net income and earnings per share if the company had applied
the fair value recognition provisions of FASB Statement No.
123, Accounting for Stock-Based Compensation, to stock-based
employee compensation. In NOK millions,except for earnings per share
    
    2004
    
    
    2003
    
    
    2002Net income, as reported
    
    
    12,560
    
    
    
    10,968
    
    
    
    8,765Total stock-based compensation
expense determined under fair
value method net of tax
    
    
    2
    
    
    
    4
    
    
    
    4Pro forma net income
    
    
    12,558
    
    
    
    10,964
    
    
    
    8,761Earnings per share:Basic and diluted as reported
    
    
    49.40
    
    
    
    42.60
    
    
    
    34.00Basic and diluted pro forma
    
    
    49.40
    
    
    
    42.60
    
    
    
    34.00
 Hydro uses a valuation model based on the Black-Scholes
option-pricing model. The assumptions used in the model for the
plans are: expected life of 10 years from grant date, expected
volatility of 30 percent, a risk-free interest between 3.7 -
4.8 percent and a dividend yield of about 2.5 percent. 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. Discontinued Operations When a component of the entity is sold or decided to be
sold, it is reported as a Discontinued operation in accordance
with SFAS 144 Accounting for the Impairment or Disposal of
Long-Lived Assets, provided that certain criteria are met,
including that it is probable that the sale will be completed
within one year. A component of the entity can be a reportable
segment or a smaller unit which can be clearly distinguished
and for which separate financial information is available.
Assets, liabilities, cash flows, results of operations and any
gain or loss from disposal are excluded from Continuing
operations and reported separately. Components to be disposed
of other than by sale are reclassified to Discontinued
operations as of the date of disposal. Prior periods asset,
liabilities, cash flows and results of operations are
reclassified to be comparable. Immaterial disposal groups are
not classified as discontinued operations. Changes in Accounting Principles Consolidation of Variable Interest Entities Effective 1 January 2004, Hydro adopted FASB
Interpretation 46 Consolidation of Variable Interest Entities
(FIN 46R) which clarifies the application of Accounting
Research Bulletin No. 51, Consolidated Financial Statements,
relating 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 VIEs). The
Interpretation provides guidance for determining which party
retains the controlling financial interest in VIEs when such
interest is achieved through arrangements other than voting
rights. Implementation of the new requirements depended on when
a company became involved with such entities. Because Hydro did
not become involved with any new VIEs during the period 31
January to 31 December 2003 or have any interests in Special
Purpose Entities (SPEs) as of 31 December 2003, implementation
of the Interpretation was required as of 31 March 2004. Hydro
has identified one pre-existing arrangement that meets the
requirements of FIN 46R to be classified as a VIE. Hydro has an
equity interest in Slovalco, an aluminium smelter in Slovakia.
Hydro also has an agreement to supply Slovalco with alumina and
a right and obligation to purchase approximately 60 percent of
Slovalcos total aluminium production at market based prices.
Hydro owns 20 percent of the shares of Slovalco representing 40
percent of the voting rights. In 2001, Hydro entered into a put
and call option arrangement with another
shareholder that could increase Hydros interest up to 65
percent. This arrangement, which expires in the period 2005 to
2006, is the primary reason requiring Hydro to consolidate
Slovalco in accordance with the new VIE regulations. Hydro has
consolidated Slovalco in accordance with the new requirements
effective from 1 January 2004. Related assets, liabilities and
the 80 percent non-controlling interests have been measured
based on their fair values at the time the option arrangement
was entered into in 2001 and recorded based on such values
carried forward to 1 January 2004. As of 1 January 2004, total
assets, liabilities and non-controlling interests were NOK
2,182 million, NOK 725 million and NOK 1,165 million
respectively. At the end of 2003, the difference between
Hydros interest in Slovalco consolidated based on the new
requirements compared to the equity method was immaterial. FSP FAS 142-2, Application of FASB Statement No. 142,
Goodwill and Other Intangible Assets, to Oil- and
Gas-Producing Entities FASB issued FSP FAS 142-2 on 2 September 2004 addressing
whether the scope exception within the SFAS 142 for the
accounting as prescribed in SFAS 19 extends to the balance
sheet classification and disclosures for drilling and mineral
rights of oil- and gas-producing entities. The FSP concluded
that the scope exception in SFAS 142 extends to the balance
sheet classification and disclosure provisions for such assets.
The FSP confirms Hydros current practice, and does not imply
any changes to Hydros classification or disclosures. Asset Retirement Obligations Effective 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 an asset retirement obligation 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 when the assets are constructed
and ready for 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- 10-7




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##### 



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 contracts Effective 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 into 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 costs Effective 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. Guarantees In 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 31 December 2002. The
adoption of FIN 45 has not materially impacted Hydros results
of operations and financial position. Reclassifications Certain amounts in previously issued consolidated
financial statements were reclassified to conform with the 2004
presentation. Specifically, for prior periods, assets and
liabilities related to assets held for sale, sold or demerged
business reported as discontinued operations are included in
Assets of discontinued operations and Liabilities of
discontinued operations, respectively. Similarly, results and
cash flows related to these activities are included in Income
(loss) from discontinued operations and Cash flows from
discontinued operations. Notes to the financial statements are
amended to refer to items included in continuing operations,
where relevant. New Pronouncements Share-Based payment In December 2004, FASB issued its revised Statement of
Financial Accounting Standards (SFAS) No. 123 on Share-Based
payment. The amended standard requires all share-based payment
plans to be accounted for on a fair value basis. The intrinsic
value method currently applied by Hydro will not be allowed
for interim periods after the second quarter of 2005. For
Hydros current share-based payment plans, the impact of the
revised standard is not expected to be material. Exchanges of Nonmonetary Assets In December 2004, FASB issued SFAS No. 153 Exchanges of
Nonmonetary Assets, an amendment of APB Opinion No. 29. The
statement amends APB 29 Accounting for Nonmonetary
Transactions, SFAS 19 Financial Accounting and Reporting by Oil
and Gas Producing Companies, and certain other standards. The
change eliminates exceptions from fair value measurement of
certain nonmonetary exchanges, and replaces it with an
exception for exchanges that do not have commercial substance.
The Statement specifies that a nonmonetary exchange has
commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange.
The Statement also requires certain nonmonetary exchanges of
oil and gas related assets previously accounted for without
recognizing gain or loss to be accounted for at fair value.
However, certain other nonmonetary exchanges of oil and gas
producing assets will continue to be accounted for without
recognizing gain or loss. The Standard is effective for
exchanges occurring in periods starting after 15 June 2005,
with earlier application permitted. Hydro has decided to
implement the provisions of SFAS 153 for exchanges occurring
from 1 January 2005. Inventory cost In November 2004, the FASB issued SFAS No 151 Inventory
Cost, an amendment of ARB 43, Chapter 4. The standard clarifies
that abnormal amounts of idle facility expense, freight,
handling costs, and wasted materials should be recognized as
current-period charges. The Standard is effective for periods
starting after 15 June 2005. The impact of the revised standard
is not expected to be material for Hydro. Suspended well cost In February 2005, the FASB issued a Proposed FASB Staff
Position No FAS 19-a, to provide guidance in the accounting for
exploratory well costs. Paragraph 19 of FASB Statement No. 19,
Financial Accounting and Reporting by Oil and Gas Producing
Companies (SFAS 19), requires costs of drilling exploratory
wells to be capitalized pending determination of whether the
well has found proved reserves. Questions have arisen in
practice about the application of this guidance due to changes
in oil- and gas-exploration processes and lifecycles. The issue
is whether there are circumstances that would permit the
continued capitalization of exploratory well costs if reserves
cannot be classified as proved within one year following the
completion of drilling other than when additional exploration
wells are necessary to justify major capital expenditures and
those wells are underway or firmly planned for the near future.
The FSP would amend SFAS 19 and allow suspended well costs to
remain capitalized beyond one year from drilling if certain
specific criteria are met, and certain disclosures are
provided. Should the FSP be issued as proposed, Hydro does not
expect any changes to the capitalized amounts. 10-8




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##### 



Recognition of buy/sell arrangements In February 2005, the SEC issued guidance requiring
companies to provide disclosures about their buy/sell
arrangements. A buy/sell arrangement is one in which a company
buys and sells a commodity with the same counterparty under a
single contract or separate contracts concurrently entered
into. The first issue, recently discussed by the Emerging
Issues Task Force (EITF), concerns whether such buy/sell
arrangements should be considered non-monetary exchanges
accounted for at historical cost in accordance with APB Opinion
No. 29, and, if so, when, if at all, could such arrangements be
accounted for at fair value. A second issue is whether buy/sell
arrangements should be presented gross as revenues and costs in
the income statements, or whether such arrangements should be
presented net. Hydro currently presents the trading of
derivative commodity instruments and physical commodities where
net settlement occurs on a net basis, with the margin included
in operating revenues. Trading of physical commodities, which
are not net settled, are generally presented on a gross basis
in the income statement. Hydro has two such arrangements
involving the sale and repurchase of natural gas at different
locations with the same counter-party, which were entered into
in 2003. Both of these arrangements have been presented gross
in the income statement, based on an assessment that the
company takes title to the product and that net settlement is
not possible for the contracts. Total revenues under these two
contracts were NOK 1,449 million and NOK 1,154 million for the
years 2004 and 2003 respectively. All quantities delivered
under these arrangements have been delivered to customers.
Hydro also has some buy and sell arrangements presented gross
in the income statements involving the same counterparty in the
metal business. Such arrangements involve transactions in
standard aluminium qualities. Total revenues under such
contracts were NOK 85 million, NOK 829 million and NOK 1,616
million for the years 2004, 2003 and 2002, respectively. 2. Demerger, business combinations and dispositions Discontinued Operations In November 2003, Hydros Board of Directors concluded a
plan to demerge the Companys Agri activities and transfer the
operations to a newly formed company, Yara International ASA.
The plan was approved by an Extraordinary General Meeting on 15
January 2004. The demerger was completed on 24 March 2004 and
Yara was listed on the Oslo Stock Exchange with effect from 25
March 2004. Under the demerger plan, the demerger had financial
effect from 1 October 2003. From this date, Yara International
ASA assumed the risk of the agri activities. The demerger was
reflected in the accounts as of the completion date, 24 March
2004. In the demerger process, 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,
representing the estimated relative value of the transferred
Agri activities compared to the business activity retained by
Hydro. The total equity reduction amounted to NOK 7,614
million. In accordance with the demerger plan, adjustments to
the equity reduction may occur relating to the allocation of
certain costs and liabilities where amounts are not fully
determinable. Revisions are possible through the end of 2009.
Possible related adjustments are not expected to be material. At
the completion date, Hydros shareholders received shares in
Yara International ASA equal to 80 percent of the to total
value of Yara, based on a valuation completed at the time of
the demerger plan (November 2003). The remaining shares in Yara
International ASA were owned by Norsk Hydro ASA. The Company
has subsequently sold its share holdings in Yara in connection
with the demerger transaction. The demerger was reflected in
the Companys accounts based on historical values of the
transferred assets and liabilities. Hydro did not recognize any
gain or loss, or receive any proceeds, as a result of the
demerger transaction. Hydro received proceeds of NOK 2,619
million, and recognized a pre-tax gain of NOK 533 million, from
sale of its 20 percent ownership in Yara in March 2004. The
gain is included in Income from discontinued operations. Under the Norwegian public limited companies act section
14-11, Hydro and Yara are jointly liable for liabilities
accrued before the demerger date. This statutory liability is
unlimited in time, but is limited in amount to the net value
allocated to the non-defaulting party in the demerger. Income from discontinued operations Income from discontinued operations includes
operating results from activities which, according to the
demerger plan, have been transferred to Yara International ASA.
Effects directly related to Yara activities, the demerger
process and Hydros sale of Yara shares are included. Results
from Yara activities includes net income from subsidiaries
transferred in the demerger. In addition income and expenses in
Norsk Hydro ASA and certain holding companies abroad directly
related to the Yara activities are included to the extent these
activities are transferred to Yara or are terminated as a
direct consequence of the demerger of Yara. Income from
discontinued operations also includes financial expense related
to loans in companies transferred to Yara. No financial
expenses related to loans retained in Hydro are allocated to
discontinued operations. External fees and similar expenses
related to the waiving of Yaras joint liabilities for certain
of Hydros loans, and expenses directly related to the demerger
process and Hydros sale of Yara shares are included. Hydros
gain on sale of its shares in Yara International ASA, after
direct sales expenses and tax, amounted to NOK 385 million. Tax
is allocated to the sales gain based on tax rules enacted at
the time of sale. For prior periods, assets and liabilities
transferred to Yara in the demerger process are included in
Assets of discontinued operations and Liabilities of
discontinued operations, respectively. This includes assets
and liabilities in subsidiaries transferred to Yara, assets and
liabilities in business units separated from Hydros other
activities for which separate accounts exists in addition to
other identified assets transferred to Yara. Cash flows from discontinued operations includes cash
flows from activities transferred to Yara and expenses
directly related to the demerger. In addition, cash flows
include Hydros sale of its shares in Yara immediately after
the demerger in the amount of NOK 2,619 million, and Yaras
repayment of debt to Hydro in the amount of NOK 7.1 billion. The major part of discontinued activities relates to the
Agri business area within Hydros segment reporting. Minor
amounts also relate to Pronova which is included within Other
businesses. In addition, Corporate and eliminations reflect the
transfer to Yara of certain activities previously reported as
part of Corporate, and demerger costs included in Corporate for
2003. Prior periods are restated to be presented on a
comparable basis. The following table summarizes financial
information for the discontinued operations for the periods
they are included in Hydros financial statements. 10-9




---



##### 



Summary of financial data for Discontinued Operations NOK million
    
    2004
    
    
    2003
    
    
    2002Operating revenues
    
    
    10,036
    
    
    
    38,334
    
    
    
    33,477Operating income
    
    
    936
    
    
    
    2,633
    
    
    
    2,173Non-consolidated investees
    
    
    131
    
    
    
    610
    
    
    
    57Financial income (expense), net
    
    
    (88
    )
    
    
    47
    
    
    
    130Other income, net
    
    
    
    
    
    
    40
    
    
    
    142Income before taxes
and minority interest
    
    
    979
    
    
    
    3,330
    
    
    
    2,502Income tax expense
    
    
    (307
    )
    
    
    (1,015
    )
    
    
    (826
    )Minority interest
    
    
    26
    
    
    
    (3
    )
    
    
    (11
    )Income before sale of shares
    
    
    698
    
    
    
    2,312
    
    
    
    1,665Gain from sale of shares
    
    
    533
    
    
    
    
    
    
    
    Tax on gain from sale of shares
    
    
    (148
    )
    
    
    
    
    
    
    Net income
    
    
    1,083
    
    
    
    2,312
    
    
    
    1,665
 31 DecemberNOK million
    
    2004
    
    
    2003Current assets
    
    
    
    
    
    
    13,789Non-current assets
    
    
    
    
    
    
    11,777Total assets
    
    
    
    
    
    
    25,566Current liabilities
    
    
    
    
    
    
    (6,129
    )Long-term liabilities
    
    
    
    
    
    
    (3,064
    )Minority interest
    
    
    
    
    
    
    (96
    )Discontinued operations, net
    
    
    
    
    
    
    16,277
 NOK million
    
    2004
    
    
    2003Net cash provided by operating activities
    
    
    838
    
    
    
    1,805Net cash provided by
(used in) investing activities 1)
    
    
    8,840
    
    
    
    (744
    )Net cash used in financing activities
    
    
    (109
    )
    
    
    (141
    )Foreign currency effects on cash flows
    
    
    5
    
    
    
    77Net cash provided by discontinued operations
    
    
    9,574
    
    
    
    997
   1)
    
    Includes proceeds from sale of Yara shares and loan repayments from Yara. Subsequent to and during the three years ended 31
December 2004, Hydro entered into the following significant
business combinations and dispositions. 2004 Acquisitions No major acquisitions were agreed or completed during 2004. 2004 Dispositions In June 2004, Hydro sold its German based alumina
activities consisting of the 50 percent stake in the
non-consolidated investee Aluminium Oxid Stade GmbH, the
related chemical grade alumina business and the dedicated
bauxite supply source represented by Hydros 10 percent share
in Halco (Mining) Inc. The total consideration was NOK 677
million. The dispositions resulted in a total pretax gain of
NOK 35 million. In December 2003, 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 110 million. 2003 Acquisitions No major acquisition were agreed or completed during 2003. 2003 Dispositions During 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, KFK (later renamed BioMar
Holding AS) 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 3.0 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. The agreement included the possibility of a price
adjustment depending on the development in refinery margins
during 2004 and 2005. High refinery margins during 2004 have
resulted in additional gain of NOK 59 million recognized in
2004. In December, Hydro entered into an agreement to sell 80.1
percent of Pronova Biocare which is discussed above. 2002 Acquisitions On 19 March 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 10 May
2002. The agreement was effective from 1 January 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 has agreed to pay 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 15 March 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) were
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 10-10




---



##### 



the period after
acquisition. The effect was approximately NOK 200 million. Amounts in NOK millionAllocation 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
Dispositions
During 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 (later renamed BioMar
Holding AS) 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 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 was part of Other
activities. The transaction was completed in April 2003. The effect of acquisitions and dispositions for 2004 and
2003 is not significant. 3. Consolidated shareholders equity Norsk Hydro ASA had authorized and issued 258,954,428
ordinary shares having a par value of NOK 18.30 per share as of
31 December 2004. For the years ended 31 December 2003, and
2002, Norsk Hydro ASA had authorized and issued 266,596,650
ordinary shares having a par value of NOK 20 per share. As of
31 December 2004, 8,115,198 shares were treasury stock
resulting in 250,839,230 outstanding ordinary shares (for 2003
256,712,000 outstanding ordinary shares). 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. The weighted average number of outstanding shares
for the year ended 31 December 2004 was 254,411,433. In
December 2004, an extraordinary General Meeting approved a
capital reduction by cancellation of 2,808,810 treasury shares
acquired in 2004 in a buyback program approved by the 2004
Annual General Meeting. These shares were acquired at a market
price of NOK 1,239 million. The extraordinary General Meeting
also authorized the redemption of 2,191,190 shares owned by the
Norwegian State. As compensation, the State received NOK 981
million. The cancellation and redemption were completed in
February 2005. In addition, the General Meeting authorized a
new buyback program limited to 5,617,621 shares. As part of
this program, a total of 10 million shares may be cancelled,
including shares owned by the Norwegian State. A decision to
cancel any of the shares repurchased requires approval by a
minimum of two-thirds of the shares represented at a future
General Meeting. No shares have been repurchased under this
program. In January 2004, an extraordinary General Meeting approved
a capital reduction by cancellation of 1,484,300 treasury
shares acquired in 2003 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. As compensation, the State
received NOK 445 million. The cancellation and redemption were
completed on 17 March 2004. In addition the General Meeting
approved 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. In 2004, Hydro sold 285,152 shares of its treasury stock
to employees for a fair value of NOK 121 million. 10-11




---



##### 



Consolidated shareholders equity Amounts in NOK million
    
    Ordinary Shares issued
    
    
    Additional
    
    
    Total
    
    
    
    
    
    
    Treasury Stock
    
    
    Accumulated
    
    
    Totalexcept number of shares
    
    Norsk Hydro ASA
    
    
    paid-in
    
    
    paid-in
    
    
    Retained
    
    
    Norsk Hydro ASA
    
    
    other compre-
    
    
    shareholdersin thousands
    
    Number
    
    
    Amount
    
    
    capital
    
    
    capital
    
    
    earnings
    
    
    Number
    
    
    Amount
    
    
    hensive income
    
    
    equityBalance 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
(NOK10.00 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
    )
    
    
    88,080Net income 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,560
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,560Dividend declared and paid
(NOK 11.00 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,811
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,811
    )Net unrealized gain on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (132
    )
    
    
    (132
    )Hedge of net investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    320
    
    
    
    320Cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (339
    )
    
    
    (339
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,809
    )
    
    
    (1,239
    )
    
    
    
    
    
    
    (1,239
    )Treasury stock reissued to employees
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    19
    
    
    
    
    
    
    
    285
    
    
    
    102
    
    
    
    
    
    
    
    121Cancellation treasury stock
    
    
    (4,294
    )
    
    
    (82
    )
    
    
    (1,511
    )
    
    
    (1,593
    )
    
    
    2
    
    
    
    4,294
    
    
    
    1,591
    
    
    
    
    
    
    
    (0
    )Redeemed shares, Norwegian State
    
    
    (3,349
    )
    
    
    (63
    )
    
    
    (1,363
    )
    
    
    (1,426
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,426
    )Demerger Yara International ASA
    
    
    
    
    
    
    (448
    )
    
    
    (1,749
    )
    
    
    (2,197
    )
    
    
    (5,957
    )
    
    
    
    
    
    
    
    
    
    
    540
    
    
    
    (7,614
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,628
    )
    
    
    (1,628
    )Balance 31 December 2004
    
    
    258,954
    
    
    
    4,739
    
    
    
    10,467
    
    
    
    15,206
    
    
    
    75,310
    
    
    
    (8,115
    )
    
    
    (3,069
    )
    
    
    (1,557
    )
    
    
    85,890
 Components of Total
Accumulated Other Comprehensive Income Net unrealized
    
    
    Net unrealized
    
    
    Net gain
    
    
    Minimum
    
    
    Net foreign
    
    
    Total accumulatedgain (loss)
    
    
    gain (loss)
    

    
    (loss) cash
    
    
    pension liability
    
    
    currency translation
    
    
    other comprehen-on securities
    
    
    investment hedge
    
    
    flow hedge
    
    
    adjustment
    
    
    gain (loss)
    
    
    sive income (loss)Balance 31 December 2001
    
    
    42
    
    
    
    (1,252
    )
    
    
    135
    
    
    
    (560
    )
    
    
    2,123
    
    
    
    488Balance 31 December 2002
    
    
    11
    
    
    
    81
    
    
    
    1,114
    
    
    
    (883
    )
    
    
    (5,084
    )
    
    
    (4,761
    )Balance 31 December 2003
    
    
    11
    
    
    
    (252
    )
    
    
    1,149
    
    
    
    (996
    )
    
    
    (228
    )
    
    
    (316
    )Balance 31 December 2004
    
    
    9
    
    
    
    102
    
    
    
    810
    
    
    
    (814
    )
    
    
    (1,664
    )
    
    
    (1,557
    )
 10-12




---



##### 



Changes in Other
Comprehensive Income and Related Tax Effects 31 December 20041)
    
    
    31 December 2003
    
    
    31 December 2002Amounts in NOK million
    
    Pretax
    
    
    Tax
    
    
    Net
    
    
    Pretax
    
    
    Tax
    
    
    Net
    
    
    Pretax
    
    
    Tax
    
    
    NetNet unrealized gain (loss) on securities
    
    
    (3
    )
    
    
    1
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43
    )
    
    
    12
    
    
    
    (31
    )Net investment hedge
    
    
    445
    
    
    
    (125
    )
    
    
    320
    
    
    
    (462
    )
    
    
    129
    
    
    
    (333
    )
    
    
    1,851
    
    
    
    (518
    )
    
    
    1,333Cash flow hedge gain (loss)
    
    
    (214
    )
    
    
    60
    
    
    
    (154
    )
    
    
    385
    
    
    
    (112
    )
    
    
    272
    
    
    
    1,441
    
    
    
    (405
    )
    
    
    1,036Less: Reclassification of hedging gain
    
    
    (256
    )
    
    
    71
    
    
    
    (185
    )
    
    
    (331
    )
    
    
    94
    
    
    
    (237
    )
    
    
    (79
    )
    
    
    22
    
    
    
    (57
    )Net cash flow hedge
    
    
    (470
    )
    
    
    131
    
    
    
    (339
    )
    
    
    54
    
    
    
    (18
    )
    
    
    35
    
    
    
    1,362
    
    
    
    (383
    )
    
    
    979Minimum pension liability adjustment
    
    
    (189
    )
    
    
    57
    
    
    
    (132
    )
    
    
    (182
    )
    
    
    69
    
    
    
    (113
    )
    
    
    (472
    )
    
    
    149
    
    
    
    (323
    )Foreign currency translation
    
    
    (1,625
    )
    
    
    
    
    
    
    (1,625
    )
    
    
    4,650
    
    
    
    
    
    
    
    4,650
    
    
    
    (7,215
    )
    
    
    
    
    
    
    (7,215
    )Loss (gain) on companies sold
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )
    
    
    206
    
    
    
    
    
    
    
    206
    
    
    
    8
    
    
    
    
    
    
    
    8Net foreign currency translation
    
    
    (1,628
    )
    
    
    
    
    
    
    (1,628
    )
    
    
    4,856
    
    
    
    
    
    
    
    4,856
    
    
    
    (7,207
    )
    
    
    
    
    
    
    (7,207
    )Total change in other
comprehensive income
    
    
    (1,845
    )
    
    
    64
    
    
    
    (1,781
    )
    
    
    4,266
    
    
    
    180
    
    
    
    4,445
    
    
    
    (4,509
    )
    
    
    (740
    )
    
    
    (5,249
    )
   1)
    
    Effects of the Yara demerger, NOK 540 million, are not included in the charges specified. 4. Stock-based Compensation Hydro has five main stock-based compensation plans, the Executive Share Option Plan
established in 2002, the Executive Share Option Plan established in 2003, the Executive Share
Option Plan established in 2004, all of which requires cash settlement, a stock option purchase
program for employees in the United Kingdom and a subsidized share purchase plan for permanent
employees in the parent company and Norwegian subsidiaries owned more than 90 percent by Hydro. In
addition minor share purchase plans for employees in Germany and Switzerland exist. The Executive Share Option Plans are granted to approximately 30 persons in Hydros top
management including the president and CEO, persons in the corporate management board and others.
During 2004, 125,000 options were granted. Options issued under the 2004 plan may be exercised
within a six-year period, but not before 1 July 2007, which represents the end of the vesting
period. If the Hydro share price is above NOK 476 between 1 July 2007 and 30 June 2010, all the
options are exercisable. The option holder will receive in cash the difference between the market
price at the time of exercise and the exercise price. The exercise of the options is conditional on
a commitment to a long-term investment in shareholding in the company for the received amount. The
maximum commitment to invest in shareholding is two times yearly salary for the president and CEO,
one time yearly salary for members of the corporate board and 50 percent of yearly salary for the
others. During 2003, 99,500 options were granted. The options are vesting over a three-year performance
period beginning July 2003. During 2002, 111,000 options were granted. The options are vesting
over a three-year performance period beginning July 2002. The options vesting schedules for the
2003 and 2002 plans are 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 amount 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
2002, a total of 3,300 options were exercised, and 158,200 options expired. During 2003, no
options were exercised, and no options expired. Activity for 2004 is as follows: AverageOptions
    
    Number of
    
    
    Strike priceoutstanding
    
    shares
    
    
    (in NOK)31 December 2003 1)
    
    
    272,500
    
    
    
    345.98Granted
    
    
    125,000
    
    
    
    476.00Expired
    
    
    82,500
    
    
    
    31 December 2004
    
    
    315,000
    
    
    
    385.68
   1)
    
    Six individuals who were transferred to Yara in the 2004 demerger, had a total of 30,000
options. Of these, 16,028 options with an average gain of NOK 365.25
was exercised in
connection with the demerger, while 13,972 options expired. As of 31 December 2004, 125,000 options related to the Executive Share Option plan 2004, with
an exercise price of NOK 476 were outstanding with a remaining contractual life of 5.5 years, none
of which were exercisable. In addition, 97,500 options related to the Executive Share Option Plan
2003, with an exercise price of NOK 321.62 were outstanding with a remaining contractual life of
3.5 years, none of which were exercisable. 92,500 options, related to the Executive Share Option
Plan 2002, with an exercise price of NOK 331.14 were outstanding with a remaining contractual life
of 2.5 years, none of which were exercisable. In 1988, Hydro established a stock option purchase program for employees in the United Kingdom. The
stock option purchase program is organized in an independent trust. The trust acquired shares in
the market at the time options were granted. The last options were 10-13




---



##### 



granted in July 2002 and the program will be operational until July 2012 when the last remaining
options expire. The program consists of three different schemes following amendments to the
original scheme rules. Each year the employees were given the option to acquire a limited number of
shares at a fixed price during a period from the third to the tenth year from grant date. The
exercise price of the shares equals the share price at the time the options were granted. During
2002, 46,009 options were granted, 29,310 options were exercised and a total of 3,846 options
expired. At year-end 2002, a total of 238,417 options were outstanding, while the trust had a
balance of 210,649 shares. During 2003, 34,867 options were exercised and a total of 3,653 options
expired. At year-end 2003, 199,897 options were outstanding and the trust kept a balance of 210,649
shares. The trusts balance of shares at 31 December 2004 was 122,916. Activity for 2004 is as
follows: AverageOptions
    
    Number of
    
    
    Strike priceoutstanding
    
    shares
    
    
    (in NOK)1)31 December 2003
    
    
    199,897
    
    
    
    328.55Exercised
    
    
    104,120
    
    
    
    316.07Expired
    
    
    8,274
    
    
    
    31 December 2004
    
    
    87,503
    
    
    
    345.98
   1)
    
    Presentation in NOK is based using translation from GBP on the exchange rate at 31 December
2004, which was 11,6322 (unaudited). Hydro has established subsidized share-purchase plans for employees in Norway, Germany and
Switzerland. Under the Norwegian plan Hydros employees receive a NOK 1,500 share-purchase rebate
to purchase shares of Norsk Hydro, which corresponds to a 20 percent 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. fAt 31 December 2004, the 12 percent performance target was met for the 1 January 2004 to 31
December 2004 measurement period, consequently the rebate for this award will be NOK 6,000 or 50
percent. Shares were offered to the employees under this plan in February 2005. The performance target was met for the 1 January 2003 to 31 December 2003 measurement period,
consequently the rebate for this award was NOK 6,000 or 50 percent. In May 2004, 285.152 shares
were awarded to employees at a share price of NOK 212.25. Compensation expense recognized related
to this award amounted to NOK 61 million. 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 share price of NOK 223.92. Compensation expense recognized
related to this award amounted to NOK 13 million. 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 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 share price of NOK 205.15. Compensation expense recognized in 2002 related to this award amounted to NOK 73 million. Under two different share-purchase plans Hydro employees in Germany and Switzerland have been
offered to purchase shares of Norsk Hydro at a rebated price. Compensation expenses recognized
related to these plans amounted to less than NOK 1 million for the years 2004, 2003 and 2002. 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 two business areas Oil & Energy and Aluminium. 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. Subsegments 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 and
Hydros share of natural gas transportation systems 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. 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. Other activities consists of Polymers, BioMar AS (previously Treka AS), VAW Flexible Packaging
(sold April 2003) and certain other activities. Polymers is a producer of the plastic raw material
polyvinyl chloride (PVC) in Scandinavia and in the UK. BioMars main activity is production and
sale of fish feed, after disposing of activities related to agricultural products in November 2002
and January 2003. Operating Segment Information Hydros segment reporting, presented in accordance with SFAS 131, Disclosures about Segments
of an Enterprise and related Information, 10-14




---



##### 



includes two measures of segment results, Operating Income and Adjusted EBITDA which both are
regularly reviewed by senior management. Operating Income is presented in accordance with the
Norwegian Accounting Act, and is consistent with the same measure for the Group. The segment
measure Adjusted EBITDA, is an integral part of Hydros steering model, Value Based Management.
Hydros management makes regular use of this measure to evaluate performance in its operating
segments, both in absolute terms and comparatively from period to period, and to allocate resources
among its operating segments. Management views this measure in combination with other reported
measures as providing a better understanding - for management and for
investors - of the operating
results of its business segments for the period under evaluation. Hydro defines Adjusted EBITDA as Income/(loss) before tax, interest expense, depreciation,
amortization and write-downs. Adjusted EBITDA is a measure that includes in addition to Operating
income, Interest income and other financial income, results from non-consolidated investees and
gains and losses on sales of activities classified as Other income, net in the income statement.
It excludes depreciation, write-downs and amortization, as well as amortization of excess values in
non-consolidated investees. Hydros definition of Adjusted EBITDA may differ from that of other
companies. Specifically, Hydro has chosen to include interest income in Adjusted EBITDA. Hydro manages long-term debt and taxes on a Group basis. Therefore, net income is presented
only for the Group as a whole. Intersegment sales and transfers reflect arms length prices as if sold or transferred to third
parties. Reorganization of Hydros segment structure is not considered intersegment sales, and is
reported without recognizing gains or losses. 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 addition, elimination of gains and losses related to
transactions between the Segments is included. The accounting policies of the operating segments
reflect those described in the summary of significant accounting policies in Note 1, with the
following exceptions: Certain internal commodity contracts may meet the definition of a derivative
under SFAS 133. However, Hydro considers these contracts as sourcing of raw materials or sale of
own production even though contracts for various reasons include clauses that meet the definition
of a derivative. Such internal contracts are accounted for as executory contracts. Also certain
internal contracts may qualify as containing lease arrangements that qualify as capital leases.
However, Hydro management has allocated the responsibility for assets to a segment, and this
allocation is reflected in the segment reporting even though contract clauses may indicate that
another segment leases the assets under a capital lease arrangement. External revenues
    Internal revenues
    Total operating revenuesNOK million
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Exploration and Production 1)
    
    
    13,519
    
    
    
    12,099
    
    
    
    10,136
    
    
    
    35,443
    
    
    
    25,805
    
    
    
    22,834
    
    
    
    48,962
    
    
    
    37,904
    
    
    
    32,970Energy and Oil Marketing 1)
    
    
    54,629
    
    
    
    44,308
    
    
    
    41,929
    
    
    
    6,159
    
    
    
    5,062
    
    
    
    3,986
    
    
    
    60,788
    
    
    
    49,370
    
    
    
    45,915Eliminations 2) 6)
    
    
    (1,643
    )
    
    
    (1,576
    )
    
    
    (965
    )
    
    
    (35,389
    )
    
    
    (25,739
    )
    
    
    (22,075
    )
    
    
    (37,032
    )
    
    
    (27,315
    )
    
    
    (23,040
    )Hydro Oil & Energy
    
    
    66,505
    
    
    
    54,831
    
    
    
    51,100
    
    
    
    6,213
    
    
    
    5,128
    
    
    
    4,745
    
    
    
    72,718
    
    
    
    59,959
    
    
    
    55,845Metals
    
    
    33,048
    
    
    
    26,509
    
    
    
    26,025
    
    
    
    16,111
    
    
    
    13,414
    
    
    
    13,621
    
    
    
    49,159
    
    
    
    39,923
    
    
    
    39,646Rolled Products
    
    
    18,814
    
    
    
    17,825
    
    
    
    14,135
    
    
    
    1,559
    
    
    
    552
    
    
    
    655
    
    
    
    20,373
    
    
    
    18,377
    
    
    
    14,790Extrusion and Automotive
    
    
    27,563
    
    
    
    24,472
    
    
    
    24,186
    
    
    
    37
    
    
    
    57
    
    
    
    59
    
    
    
    27,600
    
    
    
    24,529
    
    
    
    24,245Other and eliminations 3)
    
    
    51
    
    
    
    190
    
    
    
    162
    
    
    
    (17,509
    )
    
    
    (13,867
    )
    
    
    (13,792
    )
    
    
    (17,458
    )
    
    
    (13,677
    )
    
    
    (13,630
    )Hydro Aluminium
    
    
    79,476
    
    
    
    68,996
    
    
    
    64,508
    
    
    
    198
    
    
    
    156
    
    
    
    543
    
    
    
    79,674
    
    
    
    69,152
    
    
    
    65,051Other activities 4)
    
    
    9,665
    
    
    
    10,013
    
    
    
    17,859
    
    
    
    3,204
    
    
    
    3,746
    
    
    
    3,698
    
    
    
    12,869
    
    
    
    13,759
    
    
    
    21,557Corporate and eliminations 2)
    
    
    (221
    )
    
    
    (79
    )
    
    
    626
    
    
    
    (9,615
    )
    
    
    (9,030
    )
    
    
    (8,986
    )
    
    
    (9,836
    )
    
    
    (9,109
    )
    
    
    (8,360
    )Total
    
    
    155,425
    
    
    
    133,761
    
    
    
    134,093
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155,425
    
    
    
    133,761
    
    
    
    134,093
   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 elimination of unrealized gain/loss on power contracts
between Energy and other units in Hydro with a loss of NOK 235 million in 2004, a loss of NOK
141 million in 2003 and a loss of NOK 588 million in 2002. In addition, NOK 13 million, NOK 21
million and NOK 26 million is eliminated within the Oil and Energy Area in 2004, 2003 and
2002, respectively.3)
    
    Other and eliminations includes unrealized gains and losses related to LME contracts with a
gain of NOK 175 million in 2004, a loss of NOK 49 million in 2003, and a gain of NOK 266
million in 2002. 10-15




---



##### 



Depreciation, depletion
    
    
    Other operating
    
    
    Operating income (loss)and amortization
    
    
    expenses
    
    
    before fin. and other incomeNOK million
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Exploration and Production 1)
    
    
    9,751
    
    
    
    9,052
    
    
    
    8,242
    
    
    
    10,848
    
    
    
    10,352
    
    
    
    11,591
    
    
    
    28,363
    
    
    
    18,500
    
    
    
    13,137Energy and Oil Marketing 1)
    
    
    640
    
    
    
    591
    
    
    
    764
    
    
    
    57,498
    
    
    
    46,111
    
    
    
    42,367
    
    
    
    2,650
    
    
    
    2,668
    
    
    
    2,784Eliminations 2) 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,163
    )
    
    
    (27,290
    )
    
    
    (23,066
    )
    
    
    131
    
    
    
    (25
    )
    
    
    26Hydro Oil & Energy
    
    
    10,391
    
    
    
    9,643
    
    
    
    9,006
    
    
    
    31,183
    
    
    
    29,173
    
    
    
    30,892
    
    
    
    31,144
    
    
    
    21,143
    
    
    
    15,947Metals
    
    
    3,852
    
    
    
    1,517
    
    
    
    1,117
    
    
    
    44,477
    
    
    
    36,113
    
    
    
    36,839
    
    
    
    830
    
    
    
    2,293
    
    
    
    1,690Rolled Products
    
    
    687
    
    
    
    650
    
    
    
    496
    
    
    
    19,060
    
    
    
    17,595
    
    
    
    14,589
    
    
    
    626
    
    
    
    132
    
    
    
    (295
    )Extrusion and Automotive
    
    
    1,423
    
    
    
    1,247
    
    
    
    1,010
    
    
    
    25,900
    
    
    
    23,184
    
    
    
    23,221
    
    
    
    277
    
    
    
    98
    
    
    
    14Other and eliminations 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,530
    )
    
    
    (13,610
    )
    
    
    (13,919
    )
    
    
    72
    
    
    
    (67
    )
    
    
    289Hydro Aluminium
    
    
    5,962
    
    
    
    3,414
    
    
    
    2,623
    
    
    
    71,907
    
    
    
    63,282
    
    
    
    60,730
    
    
    
    1,805
    
    
    
    2,456
    
    
    
    1,698Other activities 4)
    
    
    532
    
    
    
    879
    
    
    
    1,081

    
    
    
    12,025
    
    
    
    13,284
    
    
    
    20,428
    
    
    
    312
    
    
    
    (404
    )
    
    
    48Corporate and eliminations 2) 5)
    
    
    13
    
    
    
    11
    
    
    
    19
    
    
    
    (8,435
    )
    
    
    (7,550
    )
    
    
    (8,353
    )
    
    
    (1,414
    )
    
    
    (1,570
    )
    
    
    (26
    )Total
    
    
    16,898
    
    
    
    13,947
    
    
    
    12,729
    
    
    
    106,680
    
    
    
    98,189
    
    
    
    103,697
    
    
    
    31,847
    
    
    
    21,625
    
    
    
    17,667
 Equity in net incomenon-consolidated investees
    
    
    Other income (expense), net
    
    
    Adjusted EBITDANOK million
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Exploration and Production 1)
    
    
    4
    
    
    
    29
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    38,168
    
    
    
    27,624
    
    
    
    21,593Energy and Oil Marketing 1)
    
    
    73
    
    
    
    81
    
    
    
    148
    
    
    
    59
    
    
    
    816
    
    
    
    
    
    
    
    3,478
    
    
    
    4,226
    
    
    
    3,721Eliminations 2) 6)
    
    
    (2
    )
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132
    
    
    
    (24
    )
    
    
    26Hydro Oil & Energy
    
    
    75
    
    
    
    107
    
    
    
    179
    
    
    
    59
    
    
    
    816
    
    
    
    77
    
    
    
    41,778
    
    
    
    31,826
    
    
    
    25,340Metals
    
    
    281
    
    
    
    379
    
    
    
    (275
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,396
    
    
    
    4,298
    
    
    
    2,703Rolled Products
    
    
    (13
    )
    
    
    (14
    )
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,361
    
    
    
    835
    
    
    
    258Extrusion and Automotive
    
    
    113
    
    
    
    68
    
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,827
    
    
    
    1,432
    
    
    
    1,084Other and eliminations 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72
    
    
    
    (67
    )
    
    
    289Hydro Aluminium
    
    
    381
    
    
    
    433
    
    
    
    (219
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,656
    
    
    
    6,498
    
    
    
    4,334Other activities 4)
    
    
    170
    
    
    
    83
    
    
    
    12
    
    
    
    110
    
    
    
    139
    
    
    
    
    
    
    
    1,363
    
    
    
    1,113
    
    
    
    1,061Corporate and eliminations 2) 5)
    
    
    2
    
    
    
    (3
    )
    
    
    4
    
    
    
    
    
    
    
    (2,208
    )
    
    
    
    
    
    
    (680
    )
    
    
    (809
    )
    
    
    1,014Total
    
    
    628
    
    
    
    620
    
    
    
    (24
    )
    
    
    169
    
    
    
    (1,253
    )
    
    
    77
    
    
    
    51,117
    
    
    
    38,628
    
    
    
    31,749
   4)
    
    Other activities consist of the following: Polymers, BioMar AS (previously Treka AS),
Flexible Packaging (sold in April 2003), the industrial insurance company, Industriforsikring,
and Hydro Business Partner.5)
    
    Corporate and eliminations operating income (loss) and Adjusted EBITDA includes a net
periodic pension cost of NOK 1,001 million for 2004, NOK 1,111 million for 2003, and NOK 314
million for 2002.6)
    
    Eliminations Oil & Energy includes elimination of unrealized gain on gas contracts with NOK
144 million. 10-16




---



##### 



Current Assets 1)
    
    
    Non-current Assets
    
    
    Assets 1)NOK million
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Exploration and Production
    
    
    9,072
    
    
    
    9,036
    
    
    
    61,262
    
    
    
    65,191
    
    
    
    70,334
    
    
    
    74,227Energy and Oil Marketing
    
    
    9,577
    
    
    
    10,398
    
    
    
    18,896
    
    
    
    15,558
    
    
    
    28,473
    
    
    
    25,956Eliminations
    
    
    (2,871
    )
    
    
    (2,964
    )
    
    
    18
    
    
    
    21
    
    
    
    (2,853
    )
    
    
    (2,943
    )Hydro Oil & Energy
    
    
    15,778
    
    
    
    16,470
    
    
    
    80,176
    
    
    
    80,770
    
    
    
    95,954
    
    
    
    97,240Metals
    
    
    12,335
    
    
    
    10,698
    
    
    
    21,574
    
    
    
    22,333
    
    
    
    33,909
    
    
    
    33,031Rolled Products
    
    
    6,405
    
    
    
    6,524
    
    
    
    6,782
    
    
    
    12,115
    
    
    
    13,187
    
    
    
    18,639Extrusion and Automotive
    
    
    8,381
    
    
    
    7,858
    
    
    
    10,400
    
    
    
    10,715
    
    
    
    18,781
    
    
    
    18,573Other and eliminations
    
    
    (2,288
    )
    
    
    (1,796
    )
    
    
    (297
    )
    
    
    3
    
    
    
    (2,585
    )
    
    
    (1,793
    )Hydro Aluminium
    
    
    24,833
    
    
    
    23,284
    
    
    
    38,459
    
    
    
    45,166
    
    
    
    63,292
    
    
    
    68,450Other activities 4)
    
    
    6,035
    
    
    
    6,015
    
    
    
    5,393
    
    
    
    4,955
    
    
    
    11,428
    
    
    
    10,970Corporate and eliminations
    
    
    23,760
    
    
    
    16,125
    
    
    
    5,809
    
    
    
    278
    
    
    
    29,569
    
    
    
    16,403Total continued operations
    
    
    70,406
    
    
    
    61,894
    
    
    
    129,837
    
    
    
    131,169
    
    
    
    200,243
    
    
    
    193,063Discontinued operations
    
    
    
    
    
    
    13,789
    
    
    
    
    
    
    
    11,777
    
    
    
    
    
    
    
    25,566Total
    
    
    70,406
    
    
    
    75,683
    
    
    
    129,837
    
    
    
    142,946
    
    
    
    200,243
    
    
    
    218,629
 Non-consolidated investees,investments and advances
    
    
    Segment debt 2)
    
    
    Investments 3)NOK million
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    20045)
    
    
    2003 6)Exploration and Production
    
    
    18
    
    
    
    414
    
    
    
    5,410
    
    
    
    6,032
    
    
    
    10,607
    
    
    
    10,270Energy and Oil Marketing
    
    
    2,310
    
    
    
    1,971
    
    
    
    8,137
    
    
    
    8,217
    
    
    
    1,460
    
    
    
    989Eliminations
    
    
    19
    
    
    
    21
    
    
    
    (3,026
    )
    
    
    (2,965
    )
    
    
    
    
    
    
    Hydro Oil & Energy
    
    
    2,347
    
    
    
    2,406
    
    
    
    10,521
    
    
    
    11,284
    
    
    
    12,067
    
    
    
    11,259Metals
    
    
    3,066
    
    
    
    3,384
    
    
    
    7,484
    
    
    
    5,596
    
    
    
    4,199
    
    
    
    3,572Rolled Products
    
    
    1,532
    
    
    
    1,576
    
    
    
    3,338
    
    
    
    2,769
    
    
    
    553
    
    
    
    466Extrusion and Automotive
    
    
    859
    
    
    
    827
    
    
    
    5,419
    
    
    
    4,975
    
    
    
    1,442
    
    
    
    1,543Other and eliminations
    
    
    
    
    
    
    
    
    
    
    (2,444
    )
    
    
    (1,914
    )
    
    
    
    
    
    
    Hydro Aluminium
    
    
    5,457
    
    
    
    5,787
    
    
    
    13,797
    
    
    
    11,426
    
    
    
    6,194
    
    
    
    5,581Other activities 4)
    
    
    1,095
    
    
    
    957
    
    
    
    3,067
    
    
    
    2,710
    
    
    
    1,058
    
    
    
    791Corporate and eliminations
    
    
    1,118
    
    
    
    1,012
    
    
    
    1,534
    
    
    
    3,782
    
    
    
    145
    
    
    
    81Total
    
    
    10,017
    
    
    
    10,162
    
    
    
    28,919
    
    
    
    29,202
    
    
    
    19,464
    
    
    
    17,712
   1)
    
    Current assets and assets excludes internal cash accounts and accounts receivables 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, intangibles assets,
long-term advances and investments in non-consolidated investees.4)
    
    Other activities consist of the following: Polymers, BioMar AS (previously Treka AS),
Flexible Packaging (sold in April 2003), the industrial insurance company, Industriforsikring,
and Hydro Business Partner.5)
    
    Includes non-cash increase in investment from effect of change in accounting principle (FIN
46R), of NOK 1,275 million.6)
    
    Includes non-cash increase in investment from effect of change in accounting principle (SFAS
143), of NOK 1,918 million. 10-17




---



##### 



Assets
    
    
    Long-lived assets
    
    
    InvestmentsAmounts in NOK million
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Norway
    
    
    135,005
    
    
    
    124,923
    
    
    
    113,597
    
    
    
    88,095
    
    
    
    88,687
    
    
    
    86,180
    
    
    
    11,988
    
    
    
    12,514
    
    
    
    17,198Germany
    
    
    15,974
    
    
    
    19,099
    
    
    
    22,724
    
    
    
    8,733
    
    
    
    11,895
    
    
    
    12,568
    
    
    
    1,107
    
    
    
    780
    
    
    
    14,673France
    
    
    2,483
    
    
    
    2,712
    
    
    
    2,602
    
    
    
    689
    
    
    
    729
    
    
    
    604
    
    
    
    99
    
    
    
    155
    
    
    
    806The Netherlands
    
    
    2,321
    
    
    
    3,708
    
    
    
    1,640
    
    
    
    1,308
    
    
    
    485
    
    
    
    293
    
    
    
    98
    
    
    
    372
    
    
    
    183Sweden
    
    
    4,454
    
    
    
    4,633
    
    
    
    6,174
    
    
    
    1,163
    
    
    
    1,416
    
    
    
    1,761
    
    
    
    187
    
    
    
    267
    
    
    
    438Denmark
    
    
    3,664
    
    
    
    4,189
    
    
    
    6,272
    
    
    
    1,781
    
    
    
    1,940
    
    
    
    2,030
    
    
    
    152
    
    
    
    337
    
    
    
    422Great Britain
    
    
    2,723
    
    
    
    2,628
    
    
    
    2,812
    
    
    
    1,057
    
    
    
    1,088
    
    
    
    1,078
    
    
    
    136
    
    
    
    128
    
    
    
    159Italy
    
    
    2,036
    
    
    
    1,967
    
    
    
    1,805
    
    
    
    703
    
    
    
    646
    
    
    
    550
    
    
    
    160
    
    
    
    88
    
    
    
    414Spain
    
    
    1,191
    
    
    
    1,302
    
    
    
    1,141
    
    
    
    530
    
    
    
    608
    
    
    
    562
    
    
    
    38
    
    
    
    27
    
    
    
    379Other
    
    
    4,684
    
    
    
    2,808
    
    
    
    2,551
    
    
    
    2,720
    
    
    
    1,520
    
    
    
    1,392
    
    
    
    1,720
    
    
    
    191
    
    
    
    949Total EU
    
    
    39,530
    
    
    
    43,046
    
    
    
    47,721
    
    
    
    18,684
    
    
    
    20,327
    
    
    
    20,838
    
    
    
    3,697
    
    
    
    2,345
    
    
    
    18,423Other Europe
    
    
    1,597
    
    
    
    1,728
    
    
    
    1,478
    
    
    
    1,329
    
    
    
    1,559
    
    
    
    1,298
    
    
    
    169
    
    
    
    259
    
    
    
    555Total Europe
    
    
    176,132
    
    
    
    169,697
    
    
    
    162,796
    
    
    
    108,108
    
    
    
    110,573
    
    
    
    108,316
    
    
    
    15,854
    
    
    
    15,118
    
    
    
    36,176USA
    
    
    4,429
    
    
    
    4,340
    
    
    
    4,671
    
    
    
    1,919
    
    
    
    1,983
    
    
    
    2,138
    
    
    
    484
    
    
    
    378
    
    
    
    1,301Asia
    
    
    1,880
    
    
    
    1,624
    
    
    
    1,787
    
    
    
    1,133
    
    
    
    942
    
    
    
    1,267
    
    
    
    239
    
    
    
    85
    
    
    
    800Other Americas
    
    
    3,854
    
    
    
    3,598
    
    
    
    3,075
    
    
    
    3,432
    
    
    
    3,156
    
    
    
    2,732
    
    
    
    186
    
    
    
    215
    
    
    
    907Africa
    
    
    4,614
    
    
    
    4,248
    
    
    
    3,894
    
    
    
    4,113
    
    
    
    3,464
    
    
    
    3,258
    
    
    
    1,218
    
    
    
    782
    
    
    
    603Canada
    
    
    6,745
    
    
    
    6,979
    
    
    
    6,650
    
    
    
    6,061
    
    
    
    6,120
    
    
    
    5,873
    
    
    
    1,203
    
    
    
    850
    
    
    
    1,794Australia and New Zealand
    
    
    2,589
    
    
    
    2,577
    
    
    
    2,444
    
    
    
    2,081
    
    
    
    2,127
    
    
    
    2,114
    
    
    
    280
    
    
    
    284
    
    
    
    2,585Total outside Europe
    
    
    24,111
    
    
    
    23,366
    
    
    
    22,521
    
    
    
    18,739
    
    
    
    17,792
    
    
    
    17,382
    
    
    
    3,610
    
    
    
    2,594
    
    
    
    7,990Total continued operations
    
    
    200,243
    
    
    
    193,063
    
    
    
    185,317
    
    
    
    126,847
    
    
    
    128,365
    
    
    
    125,698
    
    
    
    19,464
    
    
    
    17,712
    
    
    
    44,166Discontinued operations
    
    
    
    
    
    
    25,566
    
    
    
    21,894
    
    
    
    
    
    
    
    10,801
    
    
    
    10,041
    
    
    
    
    
    
    
    1,188
    
    
    
    1,550Total
    
    
    200,243
    
    
    
    218,629
    
    
    
    207,211
    
    
    
    126,847
    
    
    
    139,166
    
    
    
    135,739
    
    
    
    19,464
    
    
    
    18,900
    
    
    
    45,716
 Operating revenuesNOK million
    
    2004
    
    
    2003
    
    
    2002Norway
    
    
    25,012
    
    
    
    15,505
    
    
    
    17,251Great Britain
    
    
    28,579
    
    
    
    20,178
    
    
    
    16,233Germany
    
    
    19,350
    
    
    
    17,909
    
    
    
    17,050Sweden
    
    
    8,400
    
    
    
    9,828
    
    
    
    9,610Italy
    
    
    7,360
    
    
    
    6,517
    
    
    
    5,797France
    
    
    6,859
    
    
    
    11,661
    
    
    
    11,126The Netherlands
    
    
    6,649
    
    
    
    4,530
    
    
    
    4,389Spain
    
    
    6,168
    
    
    
    4,697
    
    
    
    3,562Denmark
    
    
    1,201
    
    
    
    2,031
    
    
    
    5,743Other
    
    
    12,995
    
    
    
    12,936
    
    
    
    13,621Total EU
    
    
    97,561
    
    
    
    90,287
    
    
    
    87,131Switzerland
    
    
    5,603
    
    
    
    4,659
    
    
    
    6,451Other Europe
    
    
    1,658
    
    
    
    1,726
    
    
    
    1,943Total Europe
    
    
    129,834
    
    
    
    112,177
    
    
    
    112,776USA
    
    
    10,357
    
    
    
    10,467
    
    
    
    11,552Asia
    
    
    6,000
    
    
    
    5,567
    
    
    
    4,813Other Americas
    
    
    2,526
    
    
    
    1,879
    
    
    
    1,481Africa
    
    
    548
    
    
    
    266
    
    
    
    283Canada
    
    
    5,188
    
    
    
    2,690
    
    
    
    2,742Australia and New Zealand
    
    
    972
    
    
    
    715
    
    
    
    446Total outside Europe
    
    
    25,591
    
    
    
    21,584
    
    
    
    21,317Total
    
    
    155,425
    
    
    
    133,761
    
    
    
    134,093
 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 revenues are identified by customer location. 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 was finalized in December 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. Restructuring costs resulted in a credit of NOK 22 million
in the income statement for 2004, representing the difference between the accrual relating to the
restructuring and the final cost of the program, which ended in 2004. 10-18




---



##### 



The following table summarizes the types and amounts recognized as accrued expenses for the
restructuring together with changes in the accrual for the years 2002, 2003 and 2004. 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
    )Payment
    
    
    (41
    )
    
    
    (171
    )
    
    
    (98
    )
    
    

    (47
    )
    
    
    (357
    )31 December
2002
    
    
    275
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    293Payment
    
    
    (131
    )
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    (149
    )31 December
2003
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144Payment
    
    
    (122
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (122
    )Additions/
(deductions) 1)
    
    
    (22
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22
    )31 December
2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   1)
    
    Charged to the income statement. 7. Operating costs and expenses Operating costs include research and development, operating lease expense, bad debt, shipping
and handling cost, and payroll and related costs as follows: Amounts in NOK million
    
    2004
    
    
    2003
    
    
    2002Research and development
expense
    
    
    760
    
    
    
    722
    
    
    
    639Bad debt
    
    
    269
    
    
    
    638
    
    
    
    217Shipping and handling costs
    
    
    3,151
    
    
    
    2,966
    
    
    
    3,104Operating lease expense: 1)Drilling rigs, ships, office space
    
    
    689
    
    
    
    685
    
    
    
    1,029Office space leased from Hydros
independent pension trust
    
    
    225
    
    
    
    199
    
    
    
    196Total
    
    
    914
    
    
    
    884
    
    
    
    1,225Payroll and related costs:Salaries
    
    
    13,847
    
    
    
    13,574
    
    
    
    13,308Social security costs
    
    
    2,319
    
    
    
    2,280
    
    
    
    2,072Social benefits
    
    
    543
    
    
    
    642
    
    
    
    710Net periodic pension cost
(Note 20)
    
    
    2,121
    
    
    
    2,073
    
    
    
    1,322Total
    
    
    18,830
    
    
    
    18,569
    
    
    
    17,412
   1)
    
    Total minimum future rentals of NOK 4,736 million are due under non-cancelable operating
leases as follows (in NOK million): 2005  1,171; 2006  879; 2007  682; 2008  548; 2009  463;
and thereafter  993. Estimating earnings relating to research and development costs incurred is considered
impracticable for the years ended 31 December 2004, 2003 and 2002. 8. Financial income and expense Amounts in NOK million
    
    2004
    
    
    2003
    
    
    2002Interest income
    
    
    927
    
    
    
    972
    
    
    
    1,308Net gain (loss) on securities
    
    
    72
    
    
    
    182
    
    
    
    (270
    )Dividends received
    
    
    164
    
    
    
    137
    
    
    
    135Interest income and other
financial income
    
    
    1,163
    
    
    
    1,291
    
    
    
    1,173Interest expense
    
    
    (2,077
    )
    
    
    (2,783
    )
    
    
    (3,073
    )Capitalized interest
    
    
    664
    
    
    
    715
    
    
    
    607Net foreign exchange gain (loss)
    
    
    1,350
    
    
    
    1,035
    
    
    
    3,262Other, net 1)
    
    
    (964
    )
    
    
    (104
    )
    
    
    (163
    )Interest expense and foreign
exchange gain (loss)
    
    
    (1,027
    )
    
    
    (1,137
    )
    
    
    633Net financial expense
    
    
    136
    
    
    
    154
    
    
    
    1,806
   1)
    
    Other, net includes breaking costs for early repayment of long term debt of NOK 938
million for 2004. 9. Other income and expense For the year 2004, Other income was NOK 169 million. Other income consisted of a gain on
the divestment of 80.1 percent of Pronova Biocare of NOK 110 million and a gain of NOK 59 million
related to an adjustment of the price for the 2003 sale of Hydros share in Skandinaviska
Raffinaderi AS, the Scanraff oil refinery. For the year 2003, other income and expense resulted in
a loss of NOK 1,253 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 464 million consisted of a gain from the transfer of the Companys interest in the
Sundsfjord power plant (NOK 326 million) and a gain on the disposal of Carmeda AB (NOK 138
million). Other income in 2002 consisted of a gain on the sale of Hydros interest in the oil company
Pelican AS of NOK 77 million. 10-19




---



##### 



10. Income taxes Amounts in NOK million
    
    2004
    
    
    2003
    
    
    2002Income from continuing operations
before taxes and minority interest:Norway
    
    
    29,377
    
    
    
    19,657
    
    
    
    17,827Other countries
    
    
    3,403
    
    
    
    1,489
    
    
    
    1,699Total
    
    
    32,780
    
    
    
    21,146
    
    
    
    19,526Current taxes:Norway
    
    
    22,537
    
    
    
    13,696
    
    
    
    12,556Other countries
    
    
    1,605
    
    
    
    812
    
    
    
    512Current income tax expense
    
    
    24,142
    
    
    
    14,508
    
    
    
    13,068Deferred taxes:Norway
    
    
    (2,339
    )
    
    
    (1,487
    )
    
    
    (415
    )Other countries
    
    
    (606
    )
    
    
    (99
    )
    
    
    (201
    )Deferred tax expense (benefit)
    
    
    (2,945
    )
    
    
    (1,586
    )
    
    
    (616
    )Total income tax expense
    
    
    21,197
    
    
    
    12,922
    
    
    
    12,452
   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. Components of deferred income tax expense Amounts in NOK million
    
    2004
    
    
    2003
    
    
    2002Deferred tax expense (benefit),
excluding items below
    
    
    (2,295
    )
    
    
    733
    
    
    
    766Benefits of tax loss carryforwards
    
    
    157
    
    
    
    (79
    )
    
    
    (499
    )Tax expense (benefit) allocated to
other comprehensive income
    
    
    64
    
    
    
    188
    
    
    
    (848
    )Effect of tax law changes
    
    
    (846
    )
    
    
    (70
    )
    
    
    128Non-recurring effect of tax law
changes relating to the removal
costs for oil and gas installations
    
    
    
    
    
    
    (2,380
    )
    
    
    Net change in valuation allowance
    
    
    (25
    )
    
    
    22
    
    
    
    (163
    )Deferred tax expense
(benefit)
    
    
    (2,945
    )
    
    
    (1,586
    )
    
    
    (616
    )
 Reconciliation of Norwegian nominal statutory tax rate to
effective tax rate Amounts in NOK million
    
    2004
    
    
    2003
    
    
    2002Expected income taxes at
statutory tax rate 1)
    
    
    9,179
    
    
    
    5,921
    
    
    
    5,467Petroleum surtax 2)
    
    
    13,977
    
    
    
    9,980
    
    
    
    8,665Uplift benefit 2)
    
    
    (967
    )
    
    
    (990
    )
    
    
    (1,034
    )Hydro-electric power surtax 3)
    
    
    163
    
    
    
    152
    
    
    
    217Tax law changes
    
    
    (846
    )
    
    
    (70
    )
    
    
    128Non-recurring effect of tax law
changes relating to the removal
costs for oil and gas installations
    
    
    
    
    
    
    (2,380
    )
    
    
    Losses and other deductions
with no tax benefit
    
    
    139
    
    
    
    216
    
    
    
    129Non-deductible expenses
    
    
    119
    
    
    
    43
    
    
    
    48Foreign tax rate differences
    
    
    145
    
    
    
    170
    
    
    
    275Tax free income
    
    
    (473
    )
    
    
    (619
    )
    
    
    (310
    )Dividend exclusion
    
    
    (37
    )
    
    
    (12
    )
    
    
    (33
    )Losses and other benefits not
previously recognized
    
    
    (146
    )
    
    
    (100
    )
    
    
    (407
    )Other, net
    
    
    (56
    )
    
    
    611
    
    
    
    (693
    )Income tax expense
    
    
    21,197
    
    
    
    12,922
    
    
    
    12,452Effective tax rate
    
    
    64.7
    %
    
    
    61.1
    %
    
    
    63.8
    %
   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. 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, 2004 and 2003. 10-20




---



##### 



Deferred TaxAssets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesAmounts in NOK million
    
    2004
    
    
    2004
    
    
    2003
    
    
    2003Short-term:Marketable securities
    
    
    
    
    
    
    (4
    )
    
    
    14
    
    
    
    Inventory valuation
    
    
    178
    
    
    
    (295
    )
    
    
    95
    
    
    
    (238
    )Accrued expenses
    
    
    899
    
    
    
    (558
    )
    
    
    1,425
    
    
    
    (1,154
    )Unrealized exchange
(gains) losses
    
    
    354
    
    
    
    (923
    )
    
    
    119
    
    
    
    (282
    )Uplift benefit
    
    
    766
    
    
    
    
    
    
    
    795
    
    
    
    Other
    
    
    162
    
    
    
    
    
    
    
    2
    
    
    
    (198
    )Long-term:Unrealized exchange
(gains) losses
    
    
    695
    
    
    
    (25
    )
    
    
    344
    
    
    
    (1,023
    )Property, plant
and equipment
    
    
    5,617
    
    
    
    (34,862
    )
    
    
    5,332
    
    
    
    (35,077
    )Capitalized interest
    
    
    
    
    
    
    (3,379
    )
    
    
    
    
    
    
    (3,545
    )Exploration drilling costs
    
    
    
    
    
    
    (2,323
    )
    
    
    
    
    
    
    (2,440
    )Other non-current assets
    
    
    338
    
    
    
    (629
    )
    
    
    319
    
    
    
    (693
    )Accrued expenses
    
    
    1,005
    
    
    
    (473
    )
    
    
    1,216
    
    
    
    (749
    )Pensions
    
    
    1,574
    
    
    
    (1,390
    )
    
    
    1,363
    
    
    
    (1,435
    )Deferred (gains)
losses on sales
    
    
    204
    
    
    
    (974
    )
    
    
    178
    
    
    
    (1,521
    )Uplift benefit
    
    
    1,613
    
    
    
    
    
    
    
    1,573
    
    
    
    Abandonments and
decommissioning accruals
    
    
    4,395
    
    
    
    
    
    
    
    3,598
    
    
    
    Cash Flow Hedges
    
    
    
    
    
    
    (320
    )
    
    
    
    
    
    
    (452
    )Other
    
    
    842
    
    
    
    (1,156
    )
    
    
    530
    
    
    
    (925
    )Total tax loss
carryforwards
    
    
    1,471
    
    
    
    
    
    
    
    1,764
    
    
    
    Subtotal
    
    
    20,113
    
    
    
    (47,311
    )
    
    
    18,667
    
    
    
    (49,732
    )Total valuation
allowance
    
    
    (967
    )
    
    
    
    
    
    
    (1,047
    )
    
    
    Gross deferred tax
assets and liabilities
    
    
    19,146
    
    
    
    (47,311
    )
    
    
    17,620
    
    
    
    (49,732
    )
 Deferred income taxes have not been provided for on
undistributed earnings of foreign subsidiaries,
amounting to NOK 14,709 million, since those earnings
are considered to be indefinitely invested. No deferred
income taxes have been recognized on undistributed
earnings of Norwegian subsidiary which can be remitted
tax-free as dividends. At the end of 2004, Hydro had tax loss
carryforwards of NOK 4,606 million, primarily in
Canada, Jamaica, Norway, United Kingdom, Malaysia,
Spain and Denmark. Carry forward amounts expire as
follows: Amounts in NOK million2005
    
    
    32006
    
    
    1362007
    
    
    242008
    
    
    572009
    
    
    78After 2009
    
    
    2,230Without expiration
    
    
    2,078Total tax loss carryforwards
    
    
    4,606
 11. Other liquid assets Amounts in NOK million
    
    2004
    
    
    2003Bank time deposits
    
    
    9,150
    
    
    
    4Marketable equity securities
    
    
    416
    
    
    
    550Debt securities and other
    
    
    1,404
    
    
    
    999Total other liquid assets
    
    
    10,970
    
    
    
    1,553
 The net change in unrealized gains on securities for
the years ended 31 December 2004, 2003 and 2002 was a
net gain of NOK 91 million, a net gain of NOK 283
million and a net loss of NOK 259 million,
respectively. Total cost of marketable equity
securities and debt securities and other was NOK 1,781
million and NOK 1,601 million as of 31 December 2004
and 2003, respectively. 12. Inventories and other current assets Amounts in NOK million
    
    2004
    
    
    2003Finished goods
    
    
    6,097
    
    
    
    5,756Work in progress
    
    
    2,211
    
    
    
    2,332Raw materials
    
    
    4,543
    
    
    
    3,936Total inventories
    
    
    12,851
    
    
    
    12,024Prepaid expenses
    
    
    3,653
    
    
    
    3,852Other current assets
    
    
    6,825
    
    
    
    7,945Total prepaid expenses
and other current assets
    
    
    10,478
    
    
    
    11,797
 10-21




---



##### 



13. Non-Consolidated investees Hydro
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Alu-Amounts in NOK million
    
    Texaco
    
    
    Scanraff
    
    
    Alunorf
    
    
    Alunorte
    
    
    Søral
    
    
    chemie
    
    
    Meridian
    
    
    QVC
    
    
    Noretyl
    
    
    Other
    
    
    TotalBalance 01.01.2003
    
    
    919
    
    
    
    488
    
    
    
    1,428
    
    
    
    536
    
    
    
    575
    
    
    
    135
    
    
    
    495
    
    
    
    352
    
    
    
    584
    
    
    
    3,898
    
    
    
    9,410Investments (sale), net
    
    
    66
    
    
    
    (343
    )
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    315
    
    
    
    96Change in long-term advances, net
    
    
    
    
    
    
    (330
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    323
    
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    (74
    )
    
    
    419Transfers (to) from other investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )Hydros share of net income (loss)
    
    
    116
    
    
    
    
    
    
    
    41
    
    
    
    305
    
    
    
    92
    
    
    
    
    
    
    
    51
    
    
    
    21
    
    
    
    62
    
    
    
    123
    
    
    
    811Amortization and write-down
    
    
    (66
    )
    
    
    
    
    
    
    (55
    )
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50
    )
    
    
    (191
    )Dividends and other
payments received by Hydro
    
    
    (54
    )
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    (99
    )
    
    
    (3
    )
    
    
    (9
    )
    
    
    
    
    
    
    (709
    )
    
    
    (84
    )
    
    
    (964
    )Foreign currency translation
and other
    
    
    76
    
    
    
    185
    
    
    
    168
    
    
    
    23
    
    
    
    
    
    
    
    5
    
    
    
    49
    
    
    
    (63
    )
    
    
    
    
    
    
    142
    
    
    
    585Balance 31.12.2003
    
    
    1,057
    
    
    
    
    
    
    
    1,576
    
    
    
    902
    
    
    
    568
    
    
    
    460
    
    
    
    586
    
    
    
    310
    
    
    
    437
    
    
    
    4,266
    
    
    
    10,162Changes in 2004:Investments (sale), net
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    284
    
    
    
    
    
    
    
    524
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (284
    )
    
    
    532Change in long-term advances, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (430
    )
    
    
    
    
    
    
    (54
    )
    
    
    (85
    )
    
    
    (96
    )
    
    
    (665
    )Transfers (to) from other investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64
    )
    
    
    (64
    )Hydros share of net income (loss)
    
    
    39
    
    
    
    
    
    
    
    45
    
    
    
    375
    
    
    
    175
    
    
    
    7
    
    
    
    68
    
    
    
    111
    
    
    
    53
    
    
    
    166
    
    
    
    1,039Amortization and write-down
    
    
    (8
    )
    
    
    
    
    
    
    (59
    )
    
    
    (18
    )
    
    
    (100
    )
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (216
    )
    
    
    (411
    )Dividends and other payments
received by Hydro
    
    
    (126
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    (174
    )
    
    
    (326
    )Foreign currency
translation and other
    
    
    (7
    )
    
    
    
    
    
    
    (30
    )
    
    
    1
    
    
    
    
    
    
    
    13
    
    
    
    (35
    )
    
    
    (6
    )
    
    
    
    
    
    
    (186
    )
    
    
    (250
    )Balance 31.12.2004
    
    
    963
    
    
    
    
    
    
    
    1,532
    
    
    
    1,544
    
    
    
    643
    
    
    
    564
    
    
    
    593
    
    
    
    361
    
    
    
    405
    
    
    
    3,412
    
    
    
    10,017
 Specification of Non-consolidated Investees Hydro's currentAmounts
    
    Percentage
    
    
    Investments in
    
    
    receivableNOK million,
    
    owned
    
    
    and advances
    
    
    (payable), netexcept ownership
    
    by Hydro
    
    
    to investees
    
    
    with investees2004
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Hydro Texaco
    
    
    50.0
    %
    
    
    963
    
    
    
    1,057
    
    
    
    25
    
    
    
    (61
    )Alunorf
    
    
    50.0
    %
    
    
    1,532
    
    
    
    1,576
    
    
    
    (274
    )
    
    
    27Alunorte
    
    
    34.0
    %
    
    
    1,544
    
    
    
    902
    
    
    
    (81
    )
    
    
    (116
    )Søral
    
    
    49.9
    %
    
    
    643
    
    
    
    568
    
    
    
    (110
    )
    
    
    (137
    )Aluchemie
    
    
    36.2
    %
    
    
    564
    
    
    
    460
    
    
    
    (6
    )
    
    
    Meridian
    
    
    49.0
    %
    
    
    593
    
    
    
    586
    
    
    
    (26
    )
    
    
    8QVC
    
    
    29.7
    %
    
    
    361
    
    
    
    310
    
    
    
    2
    
    
    
    2Noretyl
    
    
    50.0
    %
    
    
    405
    
    
    
    437
    
    
    
    39
    
    
    
    47Others
    
    
    
    
    
    
    3,412
    
    
    
    4,266
    
    
    
    184
    
    
    
    (331
    )Total
    
    
    
    
    
    
    10,017
    
    
    
    10,162
    
    
    
    (247
    )
    
    
    (561
    )
 A description of significant investees business,
majority owners and the nature of related party
transactions with Hydro including amounts if material
follows: Hydro Texaco a.s operates 862 gasoline stations
and 158 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 to and from the joint venture at
market prices. Sales from Hydro Texaco to Hydro amounted
to NOK 347 million, 428 million and NOK 510 million in
2004, 2003 and 2002, respectively. Sales from Hydro to
Hydro Texaco amounted to NOK 248 million, NOK 1,003
million and NOK 674 million in 2004, 2003 and 2002,
respectively. Hydro Texaco is part of Energy and Oil
Marketing. Aluminium Norf GmbH (Alunorf) is the world
largest rolling mill located in Germany nearby other
Hydro facilities. Alunorf is jointly owned by Hydro and
Novelis - part of Alcan, Inc - (50 percent each). Each
partner supplies Alunorf with raw material, which is
transformed to flat rolled coils and delivered to the
partners. Sales from Alunorf to Hydro based on this
tolling arrangement amounted to NOK 1,373 million in
2004, NOK 1,301 million in 2003 and NOK 1,941 million in
2002. Alunorf is part of Rolled Products. Alumina do Norte do Brasil S.A. (Alunorte) is an
alumina refinery located in Brazil. Hydros ownership
share is 34 percent. Hydro purchased alumina from
Alunorte amounting to NOK 1,109 million, NOK 907 million
and NOK 433 million in 2004, 2003 and 2002,
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 1,115 million, NOK 10-22




---



##### 



949 million and
NOK 847 million in 2004, 2003 and 2002, respectively.
Sale of alumina, cold metal and carbon from Hydro to
Søral amounted to NOK 671 million, NOK 356 million and
NOK 363 million in 2004, 2003 and 2002, respectively. Aluminium & Chemie Rotterdam B.V (Aluchemie) is an anode
producer located in the Netherlands. Hydro increased its
share-holding in 2004 from 21.21 percent to 36.2
percent. Hydro purchased anodes from Aluchemie amounting
to NOK 591 million in 2004, 285 million in 2003 and NOK
263 million in 2002. Sales from Hydro to Aluchemie
amounted to NOK 12 million in 2004, 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 238
million, NOK 198 million and NOK 249 million in 2004,
2003 and 2002, respectively. Hydro owns 29.7 percent of Qatar Vinyl Company Ltd
(QVC). The other owners are three unaffiliated
companies. QVC produces Caustic Soda, EDC and VCM. Hydro
and the other partners deliver technical, marketing and
support services to QVC. Hydro and Borealis own Noretyl AS a joint venture
(50-50 percent). Noretyl is part of Hydro Polymers.
Hydro paid processing fees to Noretyl for refining of
NGL of NOK 242
million, NOK 245 million and NOK 242 million in
2004, 2003 and 2002, 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 Amounts in NOK million(unaudited)
    
    2004
    
    
    2003
    
    
    2002Operating revenues
    
    
    31,454
    
    
    
    24,254
    
    
    
    24,902Operating income
    
    
    4,212
    
    
    
    3,154
    
    
    
    2,792Income before taxes
and minority interest
    
    
    3,816
    
    
    
    3,248
    
    
    
    932Net income
    
    
    3,465
    
    
    
    2,670
    
    
    
    515Hydros share of net income
    
    
    1,039
    
    
    
    811
    
    
    
    104
 Balance Sheet Data Amounts in NOK million(unaudited)
    
    2004
    
    
    2003
    
    
    2002Current assets
    
    
    15,052
    
    
    
    13,504
    
    
    
    10,434Non-current assets
    
    
    29,759
    
    
    
    30,503
    
    
    
    31,472Assets
    
    
    44,811
    
    
    
    44,007
    
    
    
    41,906Current liabilites
    
    
    8,572
    
    
    
    8,083
    
    
    
    7,300Non-current liabilities
    
    
    13,275
    
    
    
    14,049
    
    
    
    14,265Minority interest
    
    
    19
    
    
    
    
    
    
    
    Shareholders equity
    
    
    22,945
    
    
    
    21,875
    
    
    
    20,341Liabilites and shareholders equity
    
    
    44,811
    
    
    
    44,007
    
    
    
    41,906Hydros investments and advances
    
    
    10,017
    
    
    
    10,162
    
    
    
    9,410
 14. Prepaid pension,
investments and non-current assets Amounts in NOK million
    
    2004
    
    
    2003Goodwill for consolidated
subsidiaries, less accumulated
amortization
    
    
    1,028
    
    
    
    1,093Intangible assets, less accumulated
amortization (Note 16, note 20)
    
    
    1,297
    
    
    
    1,597Total intangible assets
    
    
    2,325
    
    
    
    2,690Prepaid pension (Note 20)
    
    
    4,636
    
    
    
    4,541Available-for-sale securities at fair value 1)
    
    
    16
    
    
    
    19Other investments at cost
    
    
    2,065
    
    
    
    2,435Non-current assets
    
    
    3,997
    
    
    
    3,429Subtotal
    
    
    10,714
    
    
    
    10,424Total prepaid pension, investments
and non-current assents
    
    
    13,039
    
    
    
    13,114
   1)
    
    As of 31 December, 2004 and 2003,
available-for-sale securities at cost amounted to NOK 4
million. Unrealized holding gain as of 31 December,
2004 and 2003, was NOK 12 million and NOK 15 million
respectively. 10-23




---



##### 



15. Property, plant and equipment Land-based ActivitiesMachinery and
    
    
    
    
    
    
    Plant under
    
    
    Oil and GasAmounts in NOK million
    
    Land
    
    
    Equipment
    
    
    Buildings
    
    
    construction
    
    
    activities1)
    
    
    TotalCost:Cost 31.12.2003 2)
    
    
    1,063
    
    
    
    46,993
    
    
    
    15,828
    
    
    
    5,675
    
    
    
    135,201
    
    
    
    204,760Additions at cost
    
    
    3
    
    
    
    1,305
    
    
    
    188
    
    
    
    4,093
    
    
    
    11,587
    
    
    
    17,176Retirements
    
    
    (7
    )
    
    
    (1,270
    )
    
    
    (140
    )
    
    
    (84
    )
    
    
    (5,414
    )
    
    
    (6,915
    )Transfers
    
    
    2
    
    
    
    3,589
    
    
    
    1,773
    
    
    
    (5,364
    )
    
    
    
    
    
    
    Foreign currency translation
    
    
    (29
    )
    
    
    (1,280
    )
    
    
    (369
    )
    
    
    (174
    )
    
    
    (232
    )
    
    
    (2,084
    )Balance 31.12.2004
    
    
    1,032
    
    
    
    49,337
    
    
    
    17,280
    
    
    
    4,146
    
    
    
    141,142
    
    
    
    212,937Depreciation:Accumulated depreciation 31.12.2003 2)
    
    
    
    
    
    
    (24,594
    )
    
    
    (6,749
    )
    
    
    
    
    
    
    (63,966
    )
    
    
    (95,309
    )Depreciation, depletion
and amortization 3)
    
    
    (1
    )
    
    
    (5,198
    )
    
    
    (1,121
    )
    
    
    
    
    
    
    (9,825
    )
    
    
    (16,145
    )Retirements
    
    
    
    
    
    
    1,043
    
    
    
    101
    
    
    
    
    
    
    
    2,634
    
    
    
    3,778Foreign currency translation
and transfers
    
    
    
    
    
    
    685
    
    
    
    50
    
    
    
    
    
    
    
    121
    
    
    
    856Balance 31.12.2004
    
    
    (1
    )
    
    
    (28,064
    )
    
    
    (7,719
    )
    
    
    
    
    
    
    (71,036
    )
    
    
    (106,820
    )Net Book Value:Balance 31.12.2003
    
    
    1,063
    
    
    
    22,399
    
    
    
    9,079
    
    
    
    5,675
    
    
    
    71,235
    
    
    
    09,451
    2)4)Balance 31.12.2004
    
    
    1,031
    
    
    
    21,273
    
    
    
    9,561
    
    
    
    4,146
    
    
    
    70,106
    
    
    
    106,117
    4)
   1)
    Includes land-based Oil and Gas activities and transportation systems for Oil & Energy.2)
    Includes the effect of consolidating the Variable Interest Entity (VIE) Slovalco according to
FIN 46R. See note 1. Total cost amounts to NOK 2,193 million and total accumulated
depreciation amounts to NOK 521 million.3)
    Impairment losses for 2004, 2003 and 2002 were NOK 2,176 million, NOK 88 million and NOK 351
million, respectively. The fair value of the impaired asset was generally estimated by
discounting the expected future cash flows of the individual assets. Impairment was indicated
by adverse change in market prices, 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. Impairment
losses in 2004 included a write-down of NOK 2,042 million related to German primary aluminium
plants in Hydro Aluminiums sub-segment Metals. The write-down was caused by increasing energy
costs and the strengthened Euro versus US dollar.4)
    Includes NOK 153 million and NOK 192 million related to capital leases for 2004 and 2003,
respectively. 16. Goodwill and intangibles Intangible Assets Finite
    
    
    IndefiniteUseful
    
    
    UsefulAmounts in NOK million
    
    Life
    
    
    Life
    
    
    TotalCost 31.12.2003
    
    
    3,193
    
    
    
    5
    
    
    
    3,198Additions at cost
    
    
    143
    
    
    
    
    
    
    
    143Disposals
    
    
    (113
    )
    
    
    
    
    
    
    (113
    )Foreign currency translation
and other
    
    
    (19
    )
    
    
    
    
    
    
    (19
    )Accumulated amortization
31.12.2004
    
    
    (2,131
    )
    
    
    
    
    
    
    (2,131
    )Net book value 31.12.2004
    
    
    1,073
    
    
    
    5
    
    
    
    1,078
 Amortization of intangibles of NOK 393 million and
NOK 409 million were recorded for 2004 and 2003,
respectively. In addition, figures include impairment
losses of NOK 8 million in 2004 and NOK 43 million in
2003.      Estimated amortization expense, in million NOK for
the next five years is 2005 - 379, 2006 - 314, 2007 -
94, 2008 - 54 and 2009 - 44. Goodwill Extrusion andAmounts in NOK million
    
    Automotive
    
    
    Other
    
    
    TotalBalance at 31 December 2003
    
    
    1,056
    
    
    
    37
    
    
    
    1,093Goodwill acquired
    
    
    3
    
    
    
    
    
    
    
    3Currency translation effect
    
    
    (64
    )
    
    
    (1
    )
    
    
    (65
    )Other
    
    
    (2
    )
    
    
    (1
    )
    
    
    (3
    )Balance at 31 December 2004
    
    
    993
    
    
    
    35
    
    
    
    1,028
 Hydro incurred in 2003 a NOK 166 million goodwill
impairment charge in Other Activities related to
Treka (now named BioMar). 10-24




---



##### 



17. Bank loans and other interest
bearing short-term debt Weighted AverageInterest RatesAmounts in NOK million
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Bank loans and
overdraft facilities
    
    
    2.9
    %
    
    
    2.7
    %
    
    
    482
    
    
    
    1,571Commercial paper
    
    
    8.5
    %
    
    
    8.5
    %
    
    
    3
    
    
    
    2Other
    
    
    1.6
    %
    
    
    2.0
    %
    
    
    3,300
    
    
    
    3,700Total bank loans and
other interest-bearing
short-term debt
    
    
    
    
    
    
    
    
    
    
    3,785
    
    
    
    5,273
 As of 31 December 2004, Norsk Hydro ASA had unused
short-term credit facilities with various banks
totalling approximately NOK 2,611 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. 18. Other current liabilities Amounts in NOK million
    
    2004
    
    
    2003Accounts payable
    
    
    13,352
    
    
    
    13,794Income taxes payable
    
    
    12,421
    
    
    
    7,996Payroll and value added taxes
    
    
    3,142
    
    
    
    3,163Accrued liabilities
    
    
    9,534
    
    
    
    10,139Other liabilities
    
    
    2,891
    
    
    
    2,106Total other current liabilities
    
    
    41,340
    
    
    
    37,198
 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
    
    
    2004
    
    
    2004
    
    
    2003USD
    
    
    7.3
    %
    
    
    2,618
    
    
    
    15,802
    
    
    
    19,558NOK
    
    
    5.8
    %
    
    
    527
    
    
    
    527
    
    
    
    1,580GBP
    
    
    6.5
    %
    
    
    16
    
    
    
    182
    
    
    
    2,672EUR
    
    
    6.3
    %
    
    
    300
    
    
    
    2,473
    
    
    
    3,362Total unsecured
debenture bonds
    
    
    
    
    
    
    
    
    
    
    18,984
    
    
    
    27,172USD
    
    
    4.2
    %
    
    
    27
    
    
    
    164
    
    
    
    10EUR
    
    
    5.4
    %
    
    
    15
    
    
    
    123
    
    
    
    585Other
    
    
    
    
    
    
    
    
    
    
    114
    
    
    
    1,057Total unsecured
bank loans
    
    
    
    
    
    
    
    
    
    
    401
    
    
    
    1,652Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    146Mortgage loans
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    42Other long-term debt
    
    
    
    
    
    
    
    
    
    
    534
    
    
    
    603Outstanding debt
    
    
    
    
    
    
    
    
    
    
    20,055
    
    
    
    29,615Less: Current portion
    
    
    
    
    
    
    
    
    
    
    (568
    )
    
    
    (1,212
    )Total long-term debt
    
    
    
    
    
    
    
    
    
    
    19,487
    
    
    
    28,403
 During 2004, a total of NOK 6,714 million of
long-term debt was prepaid. As of 31 December 2004 the
fair value of long-term debt, including the current
portion, was NOK 23,570 million and the carrying value
was NOK 20,055 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
    
    
    Total2005
    
    
    353
    
    
    
    17
    
    
    
    198
    
    
    
    5682006
    
    
    174
    
    
    
    222
    
    
    
    176
    
    
    
    5722007
    
    
    
    
    
    
    62
    
    
    
    193
    
    
    
    2552008
    
    
    
    
    
    
    25
    
    
    
    24
    
    
    
    492009
    
    
    1,811
    
    
    
    9
    
    
    
    7
    
    
    
    1,827Thereafter
    
    
    16,646
    
    
    
    66
    
    
    
    72
    
    
    
    16,784Total
    
    
    18,984
    1)
    
    
    401
    
    
    
    670
    
    
    
    20,055
   1)
    Of which Norsk Hydro ASA is responsible for NOK 18,887 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. Average commitment fee on these facilities is
0.15 percent. Hydro has also entered into a long-term
loan facility of EUR 300 million with European
Investment Bank (EIB). There are no borrowings under these
facilities as of 31 December 2004. 10-25




---



##### 



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 uses a 31 December
measurement date for the majority of its defined pension
benefit retirement plans. Net periodic pension cost Amounts in NOK million
    
    2004
    
    
    2003
    
    
    2002Defined benefit plans:Benefits earned during the year,
net of participants contributions
    
    
    813
    
    
    
    637
    
    
    
    526Interest cost on prior period
benefit obligation
    
    
    1,355
    
    
    
    1,259
    
    
    
    1,065Expected return on plan assets
    
    
    (1,000
    )
    
    
    (892
    )
    
    
    (1,049
    )Recognized loss
    
    
    345
    
    
    
    290
    
    
    
    47Amortization of prior
service cost
    
    
    111
    
    
    
    115
    
    
    
    112Amortization of net
transition (asset) obligation
    
    
    3
    
    
    
    (6
    )
    
    
    (41
    )Curtailment loss
    
    
    59
    
    
    
    20
    
    
    
    118Settlement (gain) loss
    
    
    30
    
    
    
    199
    
    
    
    (4
    )Net periodic pension cost
    
    
    1,716
    
    
    
    1,622
    
    
    
    774Defined contribution plans
    
    
    32
    
    
    
    28
    
    
    
    47Multiemployer plans
    
    
    35
    
    
    
    13
    
    
    
    (3
    )Termination benefits and other
    
    
    338
    
    
    
    410
    
    
    
    504Total net periodic pension cost
    
    
    2,121
    
    
    
    2,073
    
    
    
    1,322Change in the additional minimum
pension liability included within
other comprehensive income
    
    
    189
    
    
    
    216
    
    
    
    131
 Change in projected benefit obligation (PBO) Amounts in NOK million
    
    2004
    
    
    2003Projected benefit obligation
at beginning of year
    
    
    (23,456
    )
    
    
    (19,422
    )Benefits earned during the year
    
    
    (840
    )
    
    
    (646
    )Interest cost on prior period
benefit obligation
    
    
    (1,355
    )
    
    
    (1,259
    )Actuarial loss
    
    
    (864
    )
    
    
    (1,460
    )Plan amendments
    
    
    (23
    )
    
    
    (15
    )Benefits paid
    

    
    870
    
    
    
    784Curtailment loss
    
    
    (8
    )
    
    
    (16
    )Settlements
    
    
    85
    
    
    
    441Special termination benefits
    
    
    (52
    )
    
    
    (73
    )Divestments
    
    
    54
    
    
    
    303Inclusion of plans reported in line item
Termination benefits and other
in prior year
    
    
    
    
    
    
    (1,519
    )Foreign currency translation
    
    
    190
    
    
    
    (574
    )Projected benefit obligation at end of year
    
    
    (25,399
    )
    
    
    (23,456
    )
 Change in pension plan assets Amounts in NOK million
    
    2004
    
    
    2003Fair value of plan assets at beginning of year
    
    
    14,669
    
    
    
    12,116Actual return on plan assets
    
    
    1,699
    
    
    
    1,545Company contributions
    
    
    924
    
    
    
    946Plan participants contributions
    
    
    26
    
    
    
    9Benefits paid
    
    
    (605
    )
    
    
    (524
    )Settlements
    
    
    (88
    )
    
    
    (445
    )Divestments
    
    
    (33
    )
    
    
    Inclusion of plans reported in line item
Termination benefits and other in prior year
    
    
    
    
    
    
    977Foreign currency translation
    
    
    (88
    )
    
    
    45Fair value of plan assets at end of year
    
    
    16,504
    
    
    
    14,669
 Status of pension plans reconciled to balance sheet Amounts in NOK million
    
    2004
    
    
    2003Defined benefit plans:Funded status of the plans
at end of year
    
    
    (8,895
    )
    
    
    (8,787
    )Unrecognized net loss
    
    
    6,557
    
    
    
    6,825Unrecognized prior service cost
    
    
    967
    
    
    
    1,111Unrecognized net transition asset
    
    
    
    
    
    
    (1
    )Net accrued pension recognized
    
    
    (1,371
    )
    
    
    (852
    )Termination benefits and other
    
    
    (1,161
    )
    
    
    (1,184
    )Total net accrued pension recognized
    
    
    (2,532
    )
    
    
    (2,036
    )Amounts recognized in the balance sheet consist of:Prepaid pension
    
    
    4,636
    
    
    
    4,541Accrued pension liabilities
    
    
    (8,569
    )
    
    
    (7,774
    )Intangible asset
    
    
    219
    
    
    
    202Accumulated other
comprehensive income
    
    
    1,182
    
    
    
    995Net amount recognized
    
    
    (2,532
    )
    
    
    (2,036
    )
 The accumulated benefit obligation for all defined
pension benefit retirement plans was NOK 21,460
million and NOK 19,290 million at 31 December 2004 and
2003, respectively. Plans in which the accumulated benefit obligation
exceeds plan assets Amounts in NOK million
    
    2004
    
    
    2003Projected benefit obligation
    
    
    (12,581
    )
    
    
    (10,966
    )Accumulated benefit obligation (ABO)
    
    
    (10,582
    )
    
    
    (9,300
    )Plan assets
    
    
    3,477
    
    
    
    2,804
 Weighted-average assumptions used to determine net
periodic pension cost 2004
    
    
    2003
    
    
    2002Discount rate
    
    
    5.8
    %
    
    
    6.7
    %
    
    
    7.1
    %Expected return on plan assets
    
    
    7.0
    %
    
    
    7.9
    %
    
    
    8.4
    %Rate of compensation increase
    
    
    3.5
    %
    
    
    3.5
    %
    
    
    2.5
    %
 10-26




---



##### 



Weighted-average assumptions used to determine pension
obligation at end of year 2004
    
    
    2003Discount rate
    
    
    5.2
    %
    
    
    5.9
    %Rate of compensation increase
    
    
    3.1
    %
    
    
    3.5
    %
 Weighted-average
investment profile plan assets at end of year Target2004
    
    
    2003
    
    
    AllocationAsset categoryEquity securities
    
    
    36
    %
    
    
    32
    %
    
    
    26-44
    %Debt securities
    
    
    36
    %
    
    
    36
    %
    
    
    32-55
    %Real estate
    
    
    17
    %
    
    
    18
    %
    
    
    18
    %Other
    
    
    11
    %
    
    
    14
    %
    
    
    2-7
    %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. In 2003, Hydro performed SFAS 87 valuations for
certain defined benefit plans that were reported in
line item Termination benefits and other in prior
year. The immediate impact of applying SFAS 87
provisions on these plans resulted in an increased
projected benefit obligation (PBO) of NOK 1,519
million, and increased pension plan assets of NOK 977
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 552
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 118 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. Hydro expects to contribute approximately NOK 900
million to its pension plans in 2005. Total pension
benefit payments expected to be paid to participants,
which include payments funded from Hydros assets as
well as payments paid from the plans are as follows: Expected pension benefit payments Amounts in NOK million2005
    
    
    8732006
    
    
    9242007
    
    
    9732008
    
    
    1,0362009
    
    
    1,1072010-2014
    
    
    6,620
 Other Retirement
Benefits
Hydro has unfunded retiree medical and life
insurance plans for certain of its employees outside
Norway. Related net periodic postretirement cost was
NOK 19 million, NOK 2 million and NOK 14 million for
2004, 2003 and 2002, respectively. The post retirement
liability was NOK 136 million and NOK 144 million as
of 31 December 2004 and 2003, 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 2004 and 2003, Hydro had
accrued NOK million 351 and NOK 341 million,
respectively, for corrective environmental measures. The
corresponding expense was NOK 44 million in 2004
compared to NOK 31 million and NOK 90 million in 2003
and 2002, 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 for 2001 and
2002. 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. No additional claims were received during 2004
and no accruals have been recorded relating to earlier
claims. Hydro has outstanding indebtedness against
commercial counterparties in many countries with
varying legal systems. Ocasionally  problems occur in
connection with Hydros ability to pursue its legal
rights against such parties. At the end of 2004, a
dispute arose in connection with a sizable claim
against a supplier of aluminum and as a result,
arbitration proceedings have been commenced by Hydro to
protect its interests. Hydros best esti- 10-27




---



##### 



mate of the probable loss related to this dispute
have been accrued in the 2004 accounts. The EFTA (European Free Trade Association) Surveillance
Authority (ESA) completed a formal investigation procedure
against the Norwegian State to determine if the former
zero-rate electricity tax applicable to Norwegian industry was
in accordance with State aid rules included in the European
Economic Area Agreement (the EEA Agreement). ESA issued a
decision on 30 June 2004, reflecting its determination that the
exemption of certain Norwegian businesses from the electricity
tax constituted illegal State aid under the EEA Agreement. The
decision to order recovery of electricity tax from the industry
has been appealed to the EFTA Court by the Norwegian
government, the Federation of the Norwegian Processing Industry
(Prosess industriens lands forening, PIL) and several individual
member companies of PIL, including Hydro. The exact amount the
Norwegian government is to recover from Hydro according to
ESAs illegal State aid ruling depends on an interpretation of
the decision. This interpretation issue is part of the dispute
submitted to the EFTA Court, but is also part of a discussion
between the Norwegian Government and ESA as regards how the
recovery shall be implemented. Hydro estimates that the amount
will not be material for Hydro. Contingencies and other long-term liabilities Amounts in NOK million
    
    2004
    
    
    2003Insurance premiums and loss reserves
    
    
    121
    
    
    
    109Asset retirement obligations
    
    
    6,244
    
    
    
    5,148Postretirement benefits other than pensions
    
    
    135
    
    
    
    144Derivatives
    
    
    759
    
    
    
    335Other
    
    
    1,875
    
    
    
    1,777Total
    
    
    9,134
    
    
    
    7,513
 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 million
    
    2004
    
    
    2003Total asset retirement obligations 1.1
    
    
    5,235
    
    
    
    4,538Incurred this year
    
    
    106
    
    
    
    463Revisions in estimates
    
    
    818
    
    
    
    22Disposals
    
    
    
    
    
    
    (30
    )Settlements
    
    
    (219
    )
    
    
    (83
    )Accretions
    
    
    352
    
    
    
    306Currency translation
    
    
    (11
    )
    
    
    19Total asset retirement obligations 31.12
    
    
    6,281
    
    
    
    5,235Of which:Short term asset retirement obligations
    
    
    37
    
    
    
    87Long term asset retirement obligations
    
    
    6,244
    
    
    
    5,148
 According to the standard, previous years should not be
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 were adopted 1 January 2002. Pro Forma information
(Unaudited) Amounts in NOK million,except per share data
    
    2004
    
    
    2003
    
    
    2002Net income
    
    
    12,560
    
    
    
    10,968
    
    
    
    8,765Depreciation change (after tax)
    
    
    
    
    
    
    
    
    
    
    (56
    )Pro forma net income
    
    
    12,560
    
    
    
    10,968
    
    
    
    8,709Reported basic and
diluted earnings per share
    
    
    49.40
    
    
    
    42.60
    
    
    
    34.00Depreciation change
earnings per share
    
    
    
    
    
    
    
    
    
    
    (0.20
    )Pro forma basic and
diluted earnings per share
    
    
    49.40
    
    
    
    42.60
    
    
    
    33.80Pro forma Asset
Retirement Obligation, 1 January
    
    
    
    
    
    
    4,549
    
    
    
    4,268
 22. Secured debt and guarantees Amounts in NOK million
    
    2004
    
    
    2003Amount of secured debt
    
    
    33
    
    
    
    41Assets used as security:Machinery and equipment
    
    
    41
    
    
    
    41Buildings
    
    
    62
    
    
    
    54Other
    
    
    2
    
    
    
    2Total
    
    
    105
    
    
    
    97Guarantees (off-balance sheet):Non-consolidated investee debt
    
    
    86
    
    
    
    45Contingency for discounted bills
    
    
    92
    
    
    
    67Tax guarantees
    
    
    1,354
    
    
    
    1,352Sales guarantees
    
    
    8,200
    
    
    
    7,900Commercial guarantees
    
    
    9,390
    
    
    
    8,375Total
    
    
    19,122
    
    
    
    17,739
 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. Hydro controls whether 10-28




---



##### 



such assets are offered for sale 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. Sales guarantees also include liabilities
relating to the demerger of Yara. Under the Norwegian public
limited companies act section 14-11, Hydro and Yara are jointly
liable for liabilities accrued before the demerger date. This
statutory liability is unlimited in time, but is limited in
amount to the net value allocated to the non-defaulting party
in the demerger. Hydro has, in addition to what is included in
the table above, certain guarantees relating to sales of
companies that are unlimited in amount and in time. Hydros
estimate of the fair value of the guarantees related to sale of
companies is not material. 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 2004, the remaining
guaranteed volume was 1.02 million Sm3of crude oil,
equivalent to approximately NOK 1,569 million. As of 31
December 2003, the remaining guaranteed volume was 1.2 million
Sm3of crude oil, equivalent to approximately NOK
1,465 million. Commercial guarantees consist of advance payment
guarantees, bid bonds, stand-by letters of credit, performance
guarantees 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 2004:
    
    InvestmentsAmounts in NOK million
    
    2005
    
    
    Thereafter
    
    
    TotalContract commitments for
investments in property,
plant and equipment:Land based
    
    
    944
    
    
    
    42
    
    
    
    986Oil and gas fields and
transport systems
    
    
    7,310
    
    
    
    12,203
    
    
    
    19,513Total
    
    
    8,254
    
    
    
    12,245
    
    
    
    20,499Additional authorized future
investments in property,
plant and equipment:Land based
    
    
    976
    
    
    
    330
    
    
    
    1,306Oil and gas fields and
transport systems
    
    
    267
    
    
    
    59
    
    
    
    326Total
    
    
    1,243
    
    
    
    389
    
    
    
    1,632Contract commitments for
other future investments:
    
    
    325
    
    
    
    17
    
    
    
    342
 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
billion. The non-cancelable future fixed and determinable obligations as
of 31 December 2004 are as follows: Take-and-pay and Long-term
contracts Amounts in
    
    Transport
    
    
    Raw
    
    
    Energy
    
    
    Sales com-NOK million
    
    and Other
    
    
    materials
    
    
    related
    
    
    mitments2005
    
    
    603
    
    
    
    2,341
    
    
    
    2,327
    
    
    
    (13,652
    )2006
    
    
    549
    
    
    
    1,406
    
    
    
    2,041
    
    
    
    (11,738
    )2007
    
    
    764
    
    
    
    1,163
    
    
    
    2,039
    
    
    
    (11,641
    )2008
    
    
    550
    
    
    
    754
    
    
    
    1,826
    
    
    
    (11,163
    )2009
    
    
    496
    
    
    
    640
    
    
    
    1,893
    
    
    
    (11,065
    )Thereafter
    
    
    5,043
    
    
    
    6,376
    
    
    
    16,712
    
    
    
    (113,186
    )Total
    
    
    8,005
    
    
    
    12,680
    
    
    
    26,838
    
    
    
    (172,445
    )
 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 24 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. 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 22
million tonnes of alumina over the next 11 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): 2004 - 4,736; 2003  2,670; 2002  3,065 and 2001  1,924 10-29




---



##### 



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.
Certain of Hydros commodity contracts are deemed to be
derivatives under US GAAP. Derivative instruments, whether
physically or financially settled, are accounted for under SFAS
No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended. All derivative instruments are
accounted for on the balance sheet at fair value with changes
in the fair values of derivative instruments recognized in
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 and aluminium. 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s production of crude oil and gas liquids is for the most
part sold in the spot market. 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.
Hydro utilizes on a limited basis instruments such as forwards
and swaps to mitigate unwanted price exposures on the portion
of the natural gas portfolio not sold on long-term contracts.
Hydro is also participating in trading activities based on
partly own gas production and partly externally sourced gas
volumes. In addition, Hydro engages in limited energy trading
activity in derivatives as defined under EITF 02-3. Hydro
maintains a system of controls over the authorization and
monitoring of this speculative trading activity. The fair value
of these traded financial instruments is determined by
reference to various market prices or by use of other
appropriate valuation methodologies. Commodity price, foreign
exchange rate and credit exposures arising from energy trading
have not been significant. 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 is also offering
power portfolio management services to third party clients and
participates in limited speculative trading. Aluminium Hydro is a producer of primary aluminium and fabricated
aluminium products. Hydro enters into 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 hedging activities on a
portfolio basis, taking LME positions based upon net exposures.
Aluminium price volatility can result in significant
fluctuations in earnings as these LME positions are marked to
their market value with changes to market value recognized in
operating income. The following types of commodity derivatives were recorded at
fair value on the balance sheet as of 31 December 2004 and
2003. Contracts that are designated as hedging instruments in
cash flow and fair value hedges are not included. Amounts in NOK million
    
    2004
    
    
    2003Assets:Swaps and futures, crude oil
    
    
    21
    
    
    
    2Electricity contracts
    
    
    391
    
    
    
    1,171Natural gas contracts
    
    
    1,525
    
    
    
    218Agri futures, swaps and options
    
    
    
    
    
    
    10Aluminium futures, swaps and options
    
    
    177
    
    
    
    286Total
    
    
    2,114
    
    
    
    1,687Liabilities:Electricity contracts
    
    
    (197
    )
    
    
    (620
    )Natural gas contracts
    
    
    (988
    )
    
    
    (201
    )Swaps and futures, crude oil
    
    
    (62
    )
    
    
    (2
    )Aluminium futures, swaps and options
    
    
    0
    
    
    
    (172
    )Total
    
    
    (1,247
    )
    
    
    (995
    )
 The presentation of fair values for electricity and natural gas
contracts shown in the table above includes that 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 and natural gas, 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
2004, 82 percent 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, and British pounds. 10-30




---



##### 



Hydro employs foreign currency swaps and forward currency
contracts to modify the currency exposures for Hydros
long-term debt portfolio. 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 costs related to production,
distribution and marketing of products in a number of different
currencies, mainly Euro, Norwegian krone, US dollar, Canadian
dollar, Australian dollar, British Pounds and Swedish krone.
Consequently, the effects of changes in currency rates on the translation of local
currencies into Norwegian krone for subsidiaries outside of
Norway can influence comparative results of operations. 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 320 million after-tax gain during the year ended 31
December 2004 and NOK 333 million after-tax loss during the
year ended 31 December 2003; offsetting a foreign currency
translation loss of NOK 1,628 million and a foreign currency
translation gain of NOK 4,856 million in shareholders equity
for 2004 and 2003 respectively. As of 1 January 2005 Hydro no
longer designates portions of its long-term debt and forward
currency contracts as hedges of net investments in foreign
subsidiary companies. Changes to the Companys long-term debt
portfolio and to the Companys structure during the recent
years has rendered these accounting hedges less material to
Shareholders equity. The following types of financial derivatives were recorded at
fair value on the balance sheet as of 31 December 2004 and
2003. Currency contracts that are designated as hedging
instruments in cash flow hedges are not included. Amounts in NOK million
    
    2004
    
    
    2003Assets:Currency forwards and swaps
    
    
    757
    
    
    
    980Liabilities:Currency forwards and swaps
    
    
    (23
    )
    
    
    (123
    )
 The currency contracts listed below were outstanding as of 31 December 2004. Currency
    
    Nominal
    
    
    Fair value in
    
    
    Maturity by nominalvalue in currency
    
    
    NOK
    
    
    amount in currencyAmount in million
    
    
    
    
    
    
    
    
    
    Within one year
    
    
    LaterBuying currencyAUD
    
    
    85
    
    
    
    395
    
    
    
    10
    
    
    
    75CAD
    
    
    119
    
    
    
    565
    
    
    
    
    
    
    
    119DKK
    
    
    16
    
    
    
    18
    
    
    
    16
    
    
    
    EUR
    
    
    426
    
    
    
    3,499
    
    
    
    370
    
    
    
    56GBP
    
    
    20
    
    
    
    232
    
    
    
    20
    
    
    
    NOK
    
    
    6,540
    
    
    
    6,528
    
    
    
    5,754
    
    
    
    786USD
    
    
    76
    
    
    
    361
    
    
    
    12
    
    
    
    63Selling currencyCAD
    
    
    (30
    )
    
    
    (150
    )
    
    
    (30
    )
    
    
    DKK
    
    
    (930
    )
    
    
    (1,028
    )
    
    
    (930
    )
    
    
    GBP
    
    
    (15
    )
    
    
    (174
    )
    
    
    (15
    )
    
    
    JPY
    
    
    (5,642
    )
    
    
    (313
    )
    
    
    (700
    )
    
    
    (4,942
    )SEK
    
    
    (2,737
    )
    
    
    (2,490
    )
    
    
    (2,737
    )
    
    
    USD
    
    
    (1,106
    )
    
    
    (6,632
    )
    
    
    (858
    )
    
    
    (248
    )Other
    
    
    
    
    
    
    (77
    )
    
    
    
    
    
    
    
 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 2004 and 2003 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 2004, Hydro had sold forward about 315,000 tonnes
(426,000 tonnes in 2003) 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 2004 and 2003 since the
critical terms of the commodity derivatives and the forecasted
aluminium sales are substantially similar. A gain after tax of
NOK 274 million is expected to be classified from OCI into
earnings during the period ending 31 December 2005. A gain
after tax of NOK 257 million was reclassified from OCI into
earnings during 2004. A gain after tax of NOK 172 million was
reclassified from OCI into earnings during 2003. As of 31
December, 2004 the maximum length of time over which the
Company is hedging its exposure to the variability in cash
flows is three years. 10-31




---



##### 



In 2003, a major expansion project at the Alouette plant
in Canada increased Hydros exposure to foreign currency
exchange rates. 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 nominated in Canadian dollar
(CAD). 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 39.6
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 transactions affects earning (that is, when
the plant is to be depreciated). No amount of ineffectiveness
was recognized in 2004 and 2003 since the critical terms of the
derivatives and the forecasted payments are substantially
similar. A gain after tax of NOK 2 million is expected to be
reclassified from OCI into earnings during the period ending 31
December 2005. As of 31 December 2004, Hydro is hedging its
exposure to the variability in cash flows until March 2006. The following fair values were recorded on the balance sheet
for hedging instruments as of 31 December 2004 and 2003. Amounts in NOK million
    
    2004
    
    
    2003Assets:Cash flow hedging instruments, currency
    
    
    1,396
    
    
    
    1,518Liabilities:Cash flow hedging instruments, aluminium
    
    
    (497
    )
    
    
    (48
    )
 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. Pre-approval of
exposure limits is required for financial institutions relating
to current accounts, deposits and other obligations. Credit
risk related to derivative commodity instruments is
substantially limited since most instruments are settled
through commodity exchanges. Therefore, counter party risk
related to use of derivative instruments and financial
operations is regarded as limited. Setting counterparty risk limits, requiring insurance, and
establishing procedures for monitoring exposures and settlement
of accounts limits Hydros credit risk. The Companys overall
credit risk level is also reduced through a diversified
customer base representing various industries and geographic
areas. Follow-up of timely payments of accounts receivables is
given high priority in the Company. 25. External audit remuneration Deloitte statsautoriserte revisorer AS (Deloitte) is the principal auditor of Norsk Hydro ASA. 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 2004 and 2003. The figures include
fees related to discontinued operations. Audit
    
    
    Other2004
    
    
    
    
    
    related
    
    
    non-auditAmounts in NOK thousands
    
    Audit fees
    
    
    fees
    
    
    fees
    
    
    Tax fees
    
    
    TotalDeloitte Norway
    
    
    24,691
    
    
    
    2,018
    
    
    
    1,337
    
    
    
    17
    
    
    
    28,063Deloitte Abroad
    
    
    23,399
    
    
    
    4,899
    
    
    
    427
    
    
    
    7,445
    
    
    
    36,170Total Deloitte
    
    
    48,090
    
    
    
    6,917
    
    
    
    1,764
    
    
    
    7,462
    
    
    
    64,233Ernst & Young
    
    
    11,095
    
    
    
    929
    
    
    
    
    
    
    
    2,200
    
    
    
    14,224Others
    
    
    3,660
    
    
    
    1,314
    
    
    
    1,215
    
    
    
    1,774
    
    
    
    7,963Total fees
    
    
    62,845
    
    
    
    9,160
    
    
    
    2,979
    
    
    
    11,436
    
    
    
    86,420
 Audit
    
    
    Other2003
    
    
    
    
    
    related
    
    
    non-auditAmounts in NOK thousands
    
    Audit fees
    
    
    fees
    
    
    Tax fees
    
    
    Tax fees
    
    
    TotalDeloitte Norway
    
    
    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 1)
    
    
    16,998
    
    
    
    1,486
    
    
    
    1,076
    
    
    
    4,768
    
    
    
    24,328Others
    
    
    11,096
    
    
    
    2,941
    
    
    
    1,296
    
    
    
    2,677
    
    
    
    18,010Total fees
    
    
    87,079
    
    
    
    9,177
    
    
    
    12,304
    
    
    
    11,673
    
    
    
    120,233
 1)
    
    Amounts for Ernst & Young relate to Hydro subsidiaries under Ernst & Youngs audit.Ernst & Young provides non-audit services to subsidiaries that it does not audit; such fees are
not included in this table.
 10-32




---



##### 



26. Related parties The Norwegian State owned as of 31 December 2004,
113,483,658 ordinary shares representing 43.8 percent of the
total number of ordinary shares issued, representing 45.2
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 The extraordinary General Meetings in January 2004 and
December 2004 authorized the cancellation of 1,484,300 and
2,808,810 repurchased shares respectively. Based on an
agreement with the Norwegian State, Hydros largest
shareholder, a proportional share of the States shares of
1,157,922 and 2,191,190 respectively, was redeemed. As
compensation, the State received an amount equal to the market
price paid by Hydro, plus interest of NIBOR plus one percent,
for the period between the share purchases and the payment to
the State. For the transactions, the State received
compensation of NOK 445 million in 2004 and 981 million in
February 2005. A new buy back program covering up to 5,617,621 shares was
authorized at the same extraordinary General Meeting in
December 2004. An agreement with the Norwegian State allows
redemption of a proportional share of the States shares. A
total of 10 million shares may be cancelled under the new
program, including shares owned by the Norwegian State, or the
equivalent of approximately four percent of the Companys
outstanding shares. A final decision on canceling any of the
shares repurchased must be approved by a minimum of two-thirds
of the shares represented at a General Meeting of shareholders. On 19 March 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 10 May
2002. The agreement was effective from 1 January 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 has agreed to pay 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, 2004 are: Loans
    
    
    Number ofoutstanding 1) 2)
    
    
    sharesJan Reinås
    
    
    
    
    
    
    Borger A. Lenth
    
    
    
    
    
    
    144Elisabeth Grieg
    
    
    
    
    
    
    6,080Håkan Mogren
    
    
    
    
    
    
    Ingvild Myhre
    
    
    
    
    
    
    Geir Nilsen
    
    
    76
    
    
    
    55Kurt Anker Nielsen
    
    
    
    
    
    
    Odd Semstrøm
    
    
    37
    
    
    
    129Terje Friestad
    
    
    71
    
    
    
    236Egil Myklebust 4)
    
    
    4,514
    3)
    
    
    4,272
 1)
    
    Amounts in NOK thousands2)
    
    All loans to directors appointed by shareholders were
entered into prior to 30 July 2002. The Company has not
materially modified or renewed any of the loans extended
to or for its directors or executive officers since that
date. Mr. Terje Friestad, who in May 2004 joined the
Board elected by the employees in accordance with
Norwegian company law, was extended a loan in the amount
of NOK 75.000 in July under an employee benefit scheme
applicable to all employees in Norway.3)
    
    In October 2000, an interest-only loan of NOK 2,200,000
was given. The interest rate as of 31 December 2004 was
2.9 percent. In addition, there is a loan with 25.5 years
remaining and with an outstanding amount of NOK 2.063.779
as of 31 December 2004. Other loans of NOK 250,000 carry
interest of 3.25 percent. All loans are secured.4)
    
    Egil Myklebust resigned as Chairperson of the Board 31 March 2004.
 Members, observers and deputy members of the corporate
assembly owning ordinary shares as of 31 December 2004 are: Number of sharesErna Flattum Berg
    
    
    135Sven Edin
    
    
    201Anne-Margrethe Firing
    
    
    1,162Odd Arne Fodnes
    
    
    22Billy Fredagsvik
    
    
    15Solveig Alne Frøynes
    
    
    89Sónia F. T. Gjesdal
    
    
    194Oddny Grebstad
    
    
    125Westye Høegh
    
    
    16,300Kjell Kvinge
    
    
    199Astri Sylvi Lem
    
    
    150Stig Lima
    
    
    87Jon-Arne Mo
    
    
    230Bjørn Nedreaas
    
    
    116John-Arne Nilsen
    
    
    28Wolfgang Ruch
    
    
    175Anne Merete Steensland
    
    
    29,772Rune Strande
    
    
    1Svein Steen Thomassen
    
    
    100Ingar Aas-Haug
    
    
    2Svein Aaser
    
    
    1872
 10-33




---



##### 



Loans to senior management as of 31 December 2004 and their
ownership of shares and options (see Note 4) are: Loans
    
    
    NumberOutstanding 1) 2)
    
    
    of shares
    
    
    OptionsEivind Reiten
    
    
    
    
    
    
    11,641
    
    
    
    35,000Alexandra Bech Gjørv
    
    
    
    
    
    
    900
    
    
    
    21,000John O. Ottestad
    
    
    
    
    
    
    8,238
    
    
    
    24,000Jon-Harald Nilsen
    
    
    174
    
    
    
    270
    
    
    
    24,000Tore Torvund
    
    
    368
    
    
    
    3,640
    
    
    
    24,000
 Outstanding loan
    
    
    
    
    
    Loansparticulars: 2)
    
    Interest
    
    
    Repayment
    
    
    Amount 1)Jon-Harald Nilsen
    
    
    3.25
    %
    
    8 years
    
    
    174Tore Torvund
    
    
    3.25-4.00
    %
    
    3-12 years
    
    
    368
 1)
    
    Amounts in NOK thousands2)
    
    All loans to executive officers (members of the corporate
management board) were entered into prior to 30 July 2002.
The Company has not materially modified or renewed any of
the loans extended to or for its directors or executive
officers since that date.
 27. Supplementary oil and gas information (Unaudited)
 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. Once the exploration drilling demonstrates that sufficient
quantities of resources 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 for the well or group of
wells toward ultimate development of the reserves is being
achieved. Evaluation of whether commercial quantities of
hydrocarbons have been discovered is based on existing
technology and price conditions, unless Hydro expects long-term
price conditions to be less favorable. Most of Hydros exploration activities are performed in
areas requiring major capital expenditures. Such expenditures
may include different types of production platforms, sub-sea
stations, risers and flow lines, pipelines and, if existing
infrastructure is utilized, modifications of existing
production facilities to allow tie-in or tie-back solutions.
For complicated offshore exploratory discoveries, it is not unusual to have exploratory well costs remain
suspended on the balance sheet for more than one year while we
perform appraisal work, evaluate the optimal development plans
and timing, and secure final regulatory approvals for
development. Appraisal work for each project normally includes
an assessment process covering choice of the optimal technical
and economical solution taking into consideration existing
pipelines, platforms and processing facilities in the area,
regulatory issues including environmental requirements and
legal issues, and relationship to other joint ventures involved
in the area and/or utilizing the same infrastructure. When the
appraisal work is completed, the Plan for Development and
Operation (PDO), which shall contain an account of economic
aspects, resource aspects, technical, safety related,
commercial and environmental aspects as well as information as
to how a facility may be decommissioned and disposed of when
petroleum activities cease, can be prepared. Discovered reserves are classified as proved reserved
(as defined by the SECs rules) when the PDO is submitted to
the authorities for approval (Norway) or the project has
matured to a similar level (outside Norway). At the same time,
related costs are transferred to development cost. It normally
takes more than one year to complete all of the activities
that permit recognition of proved reserves under the current
SEC guidelines. 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. All development costs for
wells, platforms, equipment and related interest are
capitalized. Preproduction costs are expensed as incurred. 10-34




---



##### 



Costs Incurred on Oil and Gas Properties Exploration costs and costs related to property acquisition Norway
    
    
    International
    
    
    TotalAmounts in NOK million
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Capitalized at beginning of year
    
    
    633
    
    
    
    837
    
    
    
    977
    
    
    
    390
    
    
    
    442
    
    
    
    1,749
    
    
    
    1,023
    
    
    
    1,279
    
    
    
    2,726Costs incurred during the year
    
    
    478
    
    
    
    437
    
    
    
    662
    
    
    
    934
    
    
    
    1,172
    
    
    
    1,714
    
    
    
    1,412
    
    
    
    1,609
    
    
    
    2,376Acquisition cost 1)
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    148
    
    
    
    
    
    
    
    35
    
    
    
    213
    
    
    
    
    
    
    
    35Capitalized exploration costs
charged to expense
    
    
    (468
    )
    
    
    (437
    )
    
    
    (649
    )
    
    
    (796
    )
    
    
    (1,140
    )
    
    
    (2,909
    )
    
    
    (1,264
    )
    
    
    (1,577
    )
    
    
    (3,558
    )Transfer to development
    
    
    (125
    )
    
    
    (185
    )
    
    
    (78
    )
    
    
    5
    
    
    
    (26
    )
    
    
    (25
    )
    
    
    (120
    )
    
    
    (211
    )
    
    
    (103
    )Disposals
    
    
    
    
    
    
    (19
    )
    
    
    (75
    )
    
    
    
    
    
    
    (78
    )
    
    
    (9
    )
    
    
    
    
    
    
    (97
    )
    
    
    (84
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    20
    
    
    
    (113
    )
    
    
    (19
    )
    
    
    20
    
    
    
    (113
    )Capitalized at end of year
    
    
    583
    
    
    
    633
    
    
    
    837
    
    
    
    662
    
    
    
    390
    
    
    
    442
    
    
    
    1,245
    
    
    
    1,023
    
    
    
    1,279Wells in process of drilling at end of year
    
    
    85
    
    
    
    6
    
    
    
    1
    
    
    
    201
    
    
    
    4
    
    
    
    37
    
    
    
    286
    
    
    
    10
    
    
    
    38Wells in areas requiring major capital
expenditures where further wells are
under way or firmly planned or where
drilling program was completed
during the year
    
    
    231
    
    
    
    341
    
    
    
    592
    
    
    
    301
    
    
    
    346
    
    
    
    277
    
    
    
    532
    
    
    
    687
    
    
    
    869Wells in areas requiring major
capital expenditures where
drilling program was completed
more than one year ago
    
    
    182
    
    
    
    266
    
    
    
    184
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182
    
    
    
    266
    
    
    
    184Other cost including acquisition
of unproved property
    
    
    85
    
    
    
    20
    
    
    
    60
    
    
    
    160
    
    
    
    40
    
    
    
    128
    
    
    
    245
    
    
    
    60
    
    
    
    188Net book value
    
    
    583
    
    
    
    633
    
    
    
    837
    
    
    
    662
    
    
    
    390
    
    
    
    442
    
    
    
    1,245
    
    
    
    1,023
    
    
    
    1,279
 1)
    
    In 2004, NOK 213 million was related to the purchase of license PL 248 in Norway and licenses in Gulf of Mexico and Madagascar.
 The following table provides an aging of capitalized exploratory well costs based on the date
the drilling program for the project was completed, and the number of wells and projects for which
exploratory well costs have been capitalized for a period greater than one year since the
completion of drilling. A project is, in this context, defined as an area which is expected to be
developed as one single development solution. A project may use existing infrastructure, including
pipelines, processing facilities on existing platforms etc. There may be more than one development
solution used for one reservoir or for one license if physical and/or legal and/or economic
conditions make that viable. Specification of age of category More than1 year
    
    
    2 years
    
    
    3 years
    
    
    4 years
    
    
    5 years
    
    
    5 years
    
    
    TotalAmounts (NOK million)
    
    
    12
    
    
    
    23
    
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    79
    
    
    
    182Number of wells
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    
    

    
    
    
    
    
    
    5
    
    
    
    9Number of projects
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    6
 The following projects have been capitalized for a period
greater than one year following the completion of drilling,
including a description of activities undertaken in the
project and remaining activities to classify the associated
resources as proved reserves. One year from end of drilling program: The Ringhorne East project: The project consists of one discovery well drilled in the third
quarter of 2003. The well was assessed for commerciality, and
it was concluded early in 2004 that the well had encountered
sufficient quantities of hydrocarbons. Appraisal work is
ongoing to evaluate the most viable development concept. The
license is working on a plan for a sub sea solution with tie-in to
the Ringhorne Field (100 percent owned
and operated by Exxon Mobil). An unitisation agreement between the two licenses as well as commercial agreements are
needed for this solution. The PDO is planned for submittal to
the Norwegian Government in 2005/2006. Two years from end of drilling program: The Tyrihans project: The project consists of one discovery well drilled in 2002.
Concept selection and negotiations with other licenses have
been undertaken in the period since the find was made. The
license has agreed on a sub-sea development with a tie-in to
the Kristin field and gas injection from the Åsgard field. An
unitisation process between the two licenses is ongoing. PDO is
dependent on the finalized unitization, and is planned for
submittal to the Norwegian Government in 2005/2006. 10-35




---



##### 



Three years from end of drilling program: The Oseberg Delta project: The project consists of one discovery well drilled in 1998.
Drilling program continued with the discovery of Oseberg
Vestflanken in 2001. The initial concept selection phase
concluded that the Oseberg Vestflanken should be developed
separately, and the project was split. Oseberg Vesflanken was
transferred to development in 2003. Appraisal work on Delta has been ongoing to evaluate different
types of development concepts. The expected development
solution involves using existing processing facilities on the
Oseberg platform. The time plan for the project has been
adjusted to match production and processing plans for the
Oseberg Field, which has not had available processing capacity
until recently. PDO for Oseberg Delta is planned for submittal
to the Norwegian Government in the second quarter of 2005. More than 5 years from end of drilling program: The Volve project The project consists of one discovery well drilled in 1997. The
well has a total suspended cost of NOK 14 million. Volve has
been reviewed for development in connection with the other
licenses in the Sleipner area. Concept studies have been
ongoing to determine the optimal development solution. The
license has agreed to develop Volve as a stand-alone
development with a jack up production platform and an oil
storage tanker. PDO was submitted to the Norwegian Government
in February 2005. The Fram East project The project consists of three
discovery wells drilled from 1990-1997. The wells have a total suspended cost of NOK 53 million. The
evaluation period for the area has been lengthy as the field is
situated in an area with several other operating fields, where
tie-in could be possible. The initial development plan was a
combined development of the Fram discoveries, later divided
into Fram East and Fram West. In 2000, the license partners
decided on a separate sub-sea development with tie-in to the
Troll C platform, one of three platforms currently producing
from the Troll field. Having determined to use Troll C as a
processing facility, the Fram fields were divided into two
phases, West and East, to ensure that Troll C will have
sufficient processing capacity available. Fram West commenced
production in 2003. Studies of other possible development
concepts for Fram East, including stand-alone development, were
undertaken during 2003 and 2004. During the summer of 2004, the
license decided the development concept. PDO was submitted to
the Norwegian Government in February 2005. The Grane Outside project The project consists of one discovery well drilled in 1992 as
part of the Grane drilling program which ended in 1998. The
well has a total suspended cost of NOK 12 million. In
connection with the Grane development, the licenses were
unitized. The Grane Outside well was located outside the then
established Grane unit, and therefore has a different ownership
structure. Grane Outside is planned as a sub-sea development
with tie-in to the producing Grane Field installations. Grane Outside is
expected to be developed and start production when Grane goes
off plateau production, expected in 2008-2010. The development
of Grane Outside will require a separate PDO, and can thus not
be classified as proved reserves. Costs related to Development, Transportation Systems and Other Norway
    
    
    International
    
    
    TotalAmounts in NOK million
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Net book value at beginning of year
    
    
    62,672
    
    
    
    61,822
    
    
    
    56,711
    
    
    
    7,540
    
    
    
    7,162
    
    
    
    8,117
    
    
    
    70,212
    
    
    
    68,984
    
    
    
    64,828Implementation SFAS 143
Asset Retirement Obligation
    
    
    
    
    
    
    1,021
    
    
    
    
    
    
    
    
    
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    1,089
    
    
    
    Cost incurred during the year
    
    
    9,093
    
    
    
    7,288
    
    
    
    6,923
    
    
    
    1,585
    
    
    
    1,199
    
    
    
    1,299
    
    
    
    10,678
    
    
    
    8,487
    
    
    
    8,222Acquisition cost
    
    
    297
    
    
    
    
    
    
    
    5,460
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    297
    
    
    
    
    
    
    
    5,460Transferred from exploration cost
    
    
    125
    
    
    
    185
    
    
    
    78
    
    
    
    (5
    )
    
    
    26
    
    
    
    25
    
    
    
    120
    
    
    
    211
    
    
    
    103Amortization
    
    
    (8,259
    )
    
    
    (7,525
    )
    
    
    (7,278
    )
    
    
    (1,566
    )
    
    
    (1,589
    )
    
    
    (1,275
    )
    
    
    (9,825
    )
    
    
    (9,114
    )
    
    
    (8,553
    )Disposals
    
    
    (2,527
    )
    
    
    (119
    )
    
    
    (72
    )
    
    
    (3
    )
    
    
    (4
    )
    
    
    (2
    )
    
    
    (2,530
    )
    
    
    (123
    )
    
    
    (74
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (90
    )
    
    
    678
    
    
    
    (1,002
    )
    
    
    (90
    )
    
    
    678
    
    
    
    (1,002
    )Net book value at end of year
    
    
    61,401
    
    
    
    62,672
    
    
    
    61,822
    
    
    
    7,461
    
    
    
    7,540
    
    
    
    7,162
    
    
    
    68,862
    
    
    
    70,212
    
    
    
    68,984
 Cost incurred during 2004 included NOK 972 million, NOK 290 million and NOK 168 million of
development cost related to activities in Angola, Canada and Russia respectively. NOK 851 million
and NOK 71 million relates to accruals in Norway and International regarding asset retirement
obligations under SFAS143. This is as a result of changes in estimates and new accruals in
connection with fields ready for production during the year. Cost incurred during 2003 included 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 asset retirement
obligations under SFAS143. This is as a result of changes in estimates and new accruals in
connection with fields ready for production during the year. Cost incurred during 2002 included NOK 508 million, NOK 254 million and NOK 501 million of
development cost related to activities in Angola, Canada and Russia respectively. Acquisitions in 2004 included NOK 297 million it is related to the purchase of 2 percent of
Kristin. In 2002, NOK 5,460 million relates to the acquisition of shares in SDFI on the NCS. 10-36




---



##### 



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
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Sales to unaffiliated customers
    
    
    6,817
    
    
    
    6,672
    
    
    
    6,693
    
    
    
    5,039
    
    
    
    4,061
    
    
    
    3,520
    
    
    
    11,856
    
    
    
    10,733
    
    
    
    10,213Intercompany transfers 1)
    
    
    35,164
    
    
    
    25,531
    
    
    
    21,532
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,164
    
    
    
    25,531
    
    
    
    21,532Total revenues
    
    
    41,981
    
    
    
    32,203
    
    
    
    28,225
    
    
    
    5,039
    
    
    
    4,061
    
    
    
    3,520
    
    
    
    47,020
    
    
    
    36,264
    
    
    
    31,745Operating costs and expenses:Production costs
    
    
    3,922
    
    
    
    3,591
    
    
    
    3,554
    
    
    
    412
    
    
    
    425
    
    
    
    406
    
    
    
    4,334
    
    
    
    4,016
    
    
    
    3,960Exploration expenses
    
    
    468
    
    
    
    437
    
    
    
    649
    
    
    
    796
    
    
    
    1,140
    
    
    
    2,909
    
    
    
    1,264
    
    
    
    1,577
    
    
    
    3,558Depreciation, depletion
and amortization
    
    
    8,101
    
    
    
    7,378
    
    
    
    6,826
    
    
    
    1,578
    
    
    
    1,597
    
    
    
    1,315
    
    
    
    9,679
    
    
    
    8,975
    
    
    
    8,141Transportation systems
    
    
    1,647
    
    
    
    1,257
    
    
    
    1,629
    
    
    
    118
    
    
    
    125
    
    
    
    139
    
    
    
    1,765
    
    
    
    1,382
    
    
    
    1,768Total expenses
    
    
    14,138
    
    
    
    12,663
    
    
    
    12,658
    
    
    
    2,904
    
    
    
    3,287
    
    
    
    4,769
    
    
    
    17,042
    
    
    
    15,950
    
    
    
    17,427Results of operations before taxes
    
    
    27,843
    
    
    
    19,540
    
    
    
    15,567
    
    
    
    2,135
    
    
    
    774
    
    
    
    (1,249
    )
    
    
    29,978
    
    
    
    20,314
    
    
    
    14,318Current and deferred
income tax expense
    
    
    (21,279
    )
    
    
    (14,802
    )
    
    
    (11,733
    )
    
    
    (965
    )
    
    
    (414
    )
    
    
    374
    
    
    
    (22,244
    )
    
    
    (15,216
    )
    
    
    (11,359
    )Results of operations
    
    
    6,564
    
    
    
    4,738
    
    
    
    3,834
    
    
    
    1,170
    
    
    
    360
    
    
    
    (875
    )
    
    
    7,734
    
    
    
    5,098
    
    
    
    2,959
 1)
    
    The majority of intercompany transfers are resold from the Energy and Oil Marketing sub
segment without further processing.
 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 in kind and Governments share of profit
oil, based on prices at the balance sheet date.




---



##### 



Proved Developed and Undeveloped Reserves of Oil and Gas Norway
    
    
    
    
    
    
    International
    
    
    
    
    
    
    
    
    
    
    TotalNatural gas
    
    
    
    
    
    
    
    
    
    
    Natural gas
    
    
    
    
    
    
    Natural gasOil
    
    
    billion 2)
    
    
    billion
    
    
    Oil and gas
    
    
    Oil
    
    
    billion 2)
    
    
    billion
    
    
    Oil
    
    
    billion 2)
    
    
    billion
    
    
    Oil and gasmmboe 1)
    
    
    Sm3
    
    
    cf 2)
    
    
    mmboe 3)
    
    
    mmboe 1)
    
    
    Sm3
    
    
    cf 2)
    
    
    mmboe 1)
    
    
    Sm3
    
    
    cf 2)
    
    
    mmboe 3)As of 31 December 2001 5)
    
    
    825
    
    
    
    169.2
    
    
    
    5,986
    
    
    
    1,880
    
    
    
    193
    
    
    
    
    
    
    
    
    
    
    
    1,018
    
    
    
    169.2
    
    
    
    5,986
    
    
    
    2,073Revisions of previous estimates 4)
    
    
    46
    
    
    
    (0.2
    )
    
    
    (7
    )
    
    
    42
    
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    (0.2
    )
    
    
    (7
    )
    
    
    23Purchase (sale)/exchange of
reserves in place
    
    
    109
    
    
    
    12.1
    
    
    
    428
    
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    12.1
    
    
    
    428
    
    
    
    186Extensions and new discoveries
    
    
    20
    
    
    
    12.7
    
    
    
    449
    
    
    
    102
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    12.7
    
    
    
    449
    
    
    
    118Production for the year
    
    
    (117
    )
    
    
    (6.4
    )
    
    
    (227
    )
    
    
    (157
    )
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    (135
    )
    
    
    (6.4
    )
    
    
    (227
    )
    
    
    (175
    )As of 31 December 2002 5)
    
    
    883
    
    
    
    187.4
    
    
    
    6,629
    
    
    
    2,053
    
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    1,055
    
    
    
    187.4
    
    
    
    6,629
    
    
    
    2,225Revisions of previous estimates 4)
    
    
    59
    
    
    
    (8.9
    )
    
    
    (315
    )
    
    
    8
    
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    (8.9
    )
    
    
    (315
    )
    
    
    (6
    )Purchase (sale)/exchange of
reserves in place
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )Extensions and new discoveries
    
    
    22
    
    
    
    36.1
    
    
    
    1,278
    
    
    
    248
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    36.1
    
    
    
    1,278
    
    
    
    265Production for the year
    
    
    (123
    )
    
    
    (7.8
    )
    
    
    (275
    )
    
    
    (173
    )
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    (144
    )
    
    
    (7.8
    )
    
    
    (275
    )
    
    
    (194
    )As of 31 December 2003 5)
    
    
    839
    
    
    
    206.8
    
    
    
    7,317
    
    
    
    2,134
    
    
    
    154
    
    
    
    
    
    
    
    
    
    
    
    993
    
    
    
    206.8
    
    
    
    7,317
    
    
    
    2,288Revisions of previous estimates 4)
    
    
    43
    
    
    
    (3.0
    )
    
    
    (106
    )
    
    
    25
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    (3.0
    )
    
    
    (106
    )
    
    
    39Purchase (sale)/exchange of
reserves in place
    
    
    (6
    )
    
    
    (9.1
    )
    
    
    (324
    )
    
    
    (65
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (9.1
    )
    
    
    (324
    )
    
    
    (65
    )Extensions and new discoveries
    
    
    5
    
    
    
    1.4
    
    
    
    51
    
    
    
    14
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    1.4
    
    
    
    51
    
    
    
    23Production for the year
    
    
    (132
    )
    
    
    (8.8
    )
    
    
    (312
    )
    
    
    (188
    )
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    (153
    )
    
    
    (8.8
    )
    
    
    (312
    )
    
    
    (209
    )As of 31 December 2004 5)
    
    
    749
    
    
    
    187.3
    
    
    
    6,626
    
    
    
    1,920
    
    
    
    156
    
    
    
    
    
    
    
    
    
    
    
    905
    
    
    
    187.3
    
    
    
    6,626
    
    
    
    2,076Proved developed reserves:As of 31 December 2001
    
    
    564
    
    
    
    103.7
    
    
    
    3,669
    
    
    
    1,214
    
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    626
    
    
    
    103.7
    
    
    
    3,669
    
    
    
    1,276As of 31 December 2002
    
    
    559
    
    
    
    124.8
    
    
    
    4,416
    
    
    
    1,339
    
    
    
    93
    
    
    
    
    
    
    
    
    
    
    
    652
    
    
    
    124.8
    
    
    
    4,416
    
    
    
    1,432As of 31 December 2003
    
    
    690
    
    
    
    124.8
    
    
    
    4,415
    
    
    
    1,470
    
    
    
    88
    
    
    
    
    
    
    
    
    
    
    
    778
    
    
    
    124.8
    
    
    
    4,415
    
    
    
    1,558As of 31 December 2004
    
    
    607
    
    
    
    118.6
    
    
    
    4,197
    
    
    
    1,350
    
    
    
    97
    
    
    
    
    
    
    
    
    
    
    
    704
    
    
    
    118.6
    
    
    
    4,197
    
    
    
    1,447
 1)
    
    Includes crude oil, NGL and Condensate. 1 Sm3Oil/Condensate = 6.2898 boe. 1
tonne NGL = 11.9506 boe.2)
    
    Sm3= Standard cubic meter at 15 degrees Celcius. cf = cubic feet at 60 degrees
Fahrenheit. 1 Sm3gas at 15 degrees Celcius = 35.3826 cubic feet gas at 60 degrees
Fahrenheit.3)
    
    Includes crude oil, NGL, Condensate and natural gas. When converting natural gas into barrels
of oil equivalents adjustment for calorific value to an equivalent 40 MJ/Sm3volumes calculated, then 1000 Sm3@ 40 MJ/Sm3= 6.2898 boe.4)
    
    The revision of previous estimates relates to new information from current year  ́s drilling
operations and additional data which is now available.5)
    
    Reserve estimates in Norway are made before royalties of approximately 0.3, 0.8 and 1.6
million barrels of oil equivalents (boe) for 2004, 2003 and 2002, respectively.
 Purchase and sale of reserves during 2004 included sale
of the 10 percent share in the Snøhvit field in Norway to
Statoil ASA and purchase of an additional 2 percent share in
the Kristin field in Norway from Statoil ASA. 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. Extensions and new discoveries for oil in 2004 were
related to the Gulltopp field in Norway, the Rosa field in
Angola and the Hibernia field in Canada. Extensions and new
discoveries for gas were related to the Njord field in Norway.
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. Reserve estimates at the end of the year 2004, 2003 and
2002 includes 156 million boe, 154 million boe and 172 million
boe, respectively outside the Norwegian Continental Shelf. For all three
years, the reserves were mainly situated in Canada, Angola,
Russia and Libya. Reserve estimates on fields in Angola, Russia and Libya
are made after deduction of royalty in kind and Governments
share of profit oil of approximately 40, 31 and 35 million boe
for 2004, 2003 and 2002, respectively. 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. 10-38




---



##### 



Standardized Measure of
Discounted Future Net Cash Flows Norway
    
    
    International
    
    
    
    
    
    
    TotalAmounts in NOK million
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Future cash inflows
    
    
    382,800
    
    
    
    372,800
    
    
    
    351,200
    
    
    
    35,800
    
    
    
    28,900
    
    
    
    34,800
    
    
    
    418,600
    
    
    
    401,700
    
    
    
    386,000Future production costs
    
    
    (91,500
    )
    
    
    (92,600
    )
    
    
    (86,500
    )
    
    
    (10,600
    )
    
    
    (7,000
    )
    
    
    (6,400
    )
    
    
    (102,100
    )
    
    
    (99,600
    )
    
    
    (92,900
    )Future development costs
    
    
    (38,500
    )
    
    
    (46,000
    )
    
    
    (27,300
    )
    
    
    (5,600
    )
    
    
    (5,300
    )
    
    
    (6,300
    )
    
    
    (44,100
    )
    
    
    (51,300
    )
    
    
    (33,600
    )Future income tax expense
    
    
    (189,800
    )
    
    
    (169,100
    )
    
    
    (171,300
    )
    
    
    (5,200
    )
    
    
    (3,200
    )
    
    
    (6,800
    )
    
    
    (195,000
    )
    
    
    (172,300
    )
    
    
    (178,100
    )Future net cash flows
    
    
    63,000
    
    
    
    65,100
    
    
    
    66,100
    
    
    
    14,400
    
    
    
    13,400
    
    
    
    15,300
    
    
    
    77,400
    
    
    
    78,500
    
    
    
    81,400Less: 10% annual discount for
estimated timing of cash flows
    
    
    (26,400
    )
    
    
    (28,000
    )
    
    
    (26,000
    )
    
    
    (4,700
    )
    
    
    (4,200
    )
    
    
    (4,900
    )
    
    
    (31,100
    )
    
    
    (32,200
    )
    
    
    (30,900
    )Standardized measure of dis-
counted future net cash flows
    
    
    36,600
    
    
    
    37,100
    
    
    
    40,100
    
    
    
    9,700
    
    
    
    9,200
    
    
    
    10,400
    
    
    
    46,300
    
    
    
    46,300
    
    
    
    50,500
 Major Sources of Changes
in the Standardized Measure of Discounted Future Net Cash Flows Amounts in NOK million
    
    2004
    
    
    2003
    
    
    2002Net changes in prices and production costs
    
    
    33,200
    
    
    
    
    
    
    
    20,400Sales and transfers of oil and gas produced, net of production costs
    
    
    (40,900
    )
    
    
    (30,900
    )
    
    
    (26,200
    )Extensions, unitizations, discoveries and improved recovery,
net of related costs
    
    
    2,600
    
    
    
    17,700
    
    
    
    5,500Purchase/Exchange of interests in fields
    
    
    800
    
    
    
    
    
    
    
    15,900Sale/Exchange of interests in fields
    
    
    (3,600
    )
    
    
    (100
    )
    
    
    (300
    )Changes in estimated development costs
    
    
    (900
    )
    
    
    (14,300
    )
    
    
    (8,300
    )Development costs incurred during the year
    
    
    8,400
    
    
    
    7,400
    
    
    
    7,600Net change in income taxes
    
    
    (8,500
    )
    
    
    7,900
    
    
    
    (8,600
    )Accretion of discount
    
    
    3,100
    
    
    
    4,500
    
    
    
    3,700Revisions of previous reserve quantity estimates
    
    
    5,500
    
    
    
    3,300
    
    
    
    1,900Other
    
    
    300
    
    
    
    300
    
    
    
    (100
    )Total change in the standardized measure during the year
    
    
    
    
    
    
    (4,200
    )
    
    
    11,500
 Development costs for the years 2005, 2006 and 2007 are estimated to NOK 9,800 million, NOK
7,200 million and NOK 4,400 million respectively. Average Sales Price and
Production Cost per Unit

The following table presents the average sales price (including transfers) net of reductions
in respect of royalty payments, and production costs per unit of crude oil and natural gas. Norway
    
    
    
    
    
    
    International
    
    
    
    
    
    
    TotalAmounts in NOK
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Average Sales Price 1)crude oil (per barrel)
    
    
    251.43
    
    
    
    204.01
    
    
    
    194.33
    
    
    
    250.40
    
    
    
    197.08
    
    
    
    193.74
    
    
    
    251.27
    
    
    
    202.90
    
    
    
    194.24natural gas (per Sm3)
    
    
    1.09
    
    
    
    1.03
    
    
    
    0.95
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.09
    
    
    
    1.03
    
    
    
    0.95Average production cost
(per boe)
    
    
    20.80
    
    
    
    20.80
    
    
    
    22.50
    
    
    
    19.50
    
    
    
    20.20
    
    
    
    23.10
    
    
    
    20.70
    
    
    
    20.70
    
    
    
    22.60
 1)
    
    In the years 2004, 2003 and 2002, Hydro has not had any hedging gain or loss that has
affected the realized oil and gas prices.
 10-39