~~UNITED~~SECURITIES ~~STATESSECURITIES~~ AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER ~~Pursuant~~PURSUANT toTO ~~Rule~~ RULE 13a-16 orOR 15d-16 ofOF ~~The~~THE ~~Securities~~SECURITIES ~~Exchange~~EXCHANGE ~~Act~~ACT ofOF 1934

29 May 9, 2007

~~Norsk~~Commission ~~Hydro~~File ~~ASA (Exact~~Number ~~name of registrant as specified in its charter)~~ 001-09159

~~Drammensveien~~NORSK ~~264,~~HYDRO ~~Vakero, N-0240 Oslo, Norway~~ASA ~~(Address of principal executive offices)~~

~~001-09159~~ (~~Commission~~Translation ~~File~~of ~~Number~~registrant’s name into English)

Drammensveien 264, Vækerø
N-0240 OSLO
Norway
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F / xþ / Form 40-F ~~/ /~~ o

Indicate by check mark ~~whether~~if the registrant byis ~~furnishing~~submitting the ~~information~~ ~~contained~~Form 6-K in ~~this~~paper ~~form~~as ispermitted ~~also thereby furnishing the~~by ~~information~~Regulation S-T ~~to the Commission pursuant to~~ Rule ~~12g3-2~~ 101(b) ~~under the Securities Exchange Act of~~(1): ~~1934.~~

Yes ~~/ / No /~~ xo /No þ

OnIndicate ~~May~~by 8,check ~~2007~~mark if the ~~Registrant~~registrant ~~issued~~is asubmitting ~~press~~the ~~release,~~Form a6-K ~~copy~~in ofpaper ~~which is attached hereto~~ as ~~Exhibit~~permitted ~~99.1 and is incorporated herein~~ by Regulation S-T ~~reference.~~Rule 101(b)(7):

~~(c) Exhibit~~Yes ~~99.1. Press~~o ~~release~~No ~~dated May 8, 2007~~þ

~~Pursuant~~Indicate toby ~~the requirements~~check ofmark whether by furnishing the ~~Securities~~information ~~Act~~contained ofin ~~1934~~this Form, the registrant ~~has~~ is ~~duly~~also ~~caused~~thereby ~~this~~furnishing ~~report~~the information to bethe ~~signed~~Commission onpursuant ~~its~~to ~~behalf~~Rule 12g3-2(b) by under the Securities Exchange ~~undersigned~~Act ~~thereunto~~of ~~duly authorized.~~1934:

~~Norsk~~Yes ~~Hydro~~o ~~ASA~~No ~~(Registrant) May 9, 2007 (Date) /s/ ADA CHRISTIANE RIEKER Ada Christiane Rieker Vice President, Investor Relations~~þ

(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82 — ___)

A viable society. A need. An idea.
33,000 professionals. Energy.
Cooperation. Aluminium. Determination.
Pushing boundaries. Respect. Nature.
Courage. 100 years. Thinking ahead.

Conversion to International Financial Reporting Standards

Contents


Table of Contents

Introduction to Hydro IFRS reporting			3

Consolidated income statement 2006 IFRS			3
Consolidated balance sheets 1 January and 31 December 2006 IFRS			4
Consolidated statement of cash flows 2006 IFRS			5
Consolidated statement of changes in equity 2006 IFRS			6
Changes in shares outstanding 2006			7
Consolidated condensed income statements – 2006 quarterly presentation IFRS			8
Consolidated condensed balance sheets – 2006 quarterly presentation IFRS			9
Consolidated segment information – 2006 IFRS			10

Basis for presentation of Hydro IFRS financial statements			13

IFRS accounting policies and critical accounting estimates			14

Consolidated income statement 2006 US GAAP to IFRS			21
Consolidated condensed income statements – 2006 quarterly presentation US GAAP to IFRS			22
First quarter			22
Second quarter			23
Third quarter			24
Fourth quarter			25
Consolidated balance sheet 1 January 2006 US GAAP to IFRS			26
Consolidated balance sheet 31 December 2006 US GAAP to IFRS			28
Reconciliation of equity – 2006 quarterly presentation US GAAP to IFRS			30

US GAAP conversion to IFRS: Explanation of differences			31
Introduction			31
A – Presentation and classification			31
B – Pensions			32
C – Financial instruments			33
D – Property, plant & equipment			33
E – Other			34

Conversion to IFRS (GRAPHIC)

Introduction to Hydro IFRS reporting

As of 1 January 2007 Norsk Hydro ASA (Hydro) will prepare financial statements using International Financial Reporting Standards (IFRS). This is a conversion from US GAAP as Hydro’s primary financial reporting language.

This document presents the IFRS financial statements for the fiscal year ending 31 December 2006 and the quarters ending 31 March, 30 June, 30 September and 31 December 2006 based on the IFRS principles as adopted by Hydro. IFRS information included in this document is reconciled to the previously released US GAAP 2006 income statement (on an annual and quarterly basis) and the 1 January 2006 and 31 December 2006 balance sheets. Additionally, the IFRS transition principles adopted and the accounting principles used for Hydro’s IFRS financial statements are disclosed, as well as a discussion of the principle differences for Hydro between IFRS and US GAAP.

The document is organized with a presentation of the IFRS financial statements, followed by Hydro’s IFRS accounting principles. The 2006 income statement and balance sheet, as previously reported under US GAAP, is then converted to present Hydro’s income statement and balance sheet using the IFRS presentation, classification and measurement principles that Hydro will continue using in 2007.

This document provides a basis for understanding Hydro’s IFRS financial reporting going forward, and should be referred to for additional information in connection with our 2007 quarterly financial reports. Additional information related to our US GAAP reporting is available in Hydro’s Annual Report 2006. Additional information related to the 2007 demerger of Hydro’s oil and gas activities and the Hydro After Demerger carve-out financial statements is available in the Hydro Information Memorandum, and should be read in combination with this document. The documents are available at www.hydro.com.

Consolidated income statement 2006 IFRS (unaudited)


Year ended 31 December
Amounts in NOK million	2006


Revenue		201,283

Share of the profit (loss) in equity accounted investments		990

Other income, net		1,470

Total revenue and income		203,744


Raw material and energy expense		82,810

Employee benefits expense		19,546

Depreciation and amortization expense		17,215

Impairment of non-current assets		5,492

Other		23,670

Total expenses		148,733


Earnings before financial items and tax		55,010


Financial income		1,425

Financial expense		(43	)

Financial income (expense), net		1,382


Income before tax		56,392


Income tax expense		(38,459	)


Net income		17,933


Net income attributable to minority interests		273

Net income attributable to equity holders of the parent		17,660


Basic and diluted earnings per share attributable to equity holders of the parent		14.20

Consolidated balance sheets
1 January and 31 December 2006 IFRS (unaudited)


Amounts in NOK million	31 December			1 January


Assets
Cash and cash equivalents		6,760			10,463

Short-term investments		15,020			3,865

Accounts receivable		34,508			35,438

Inventories		16,497			14,553

Other current assets		7,980			6,955

Assets held for sale		3,691			—

Total current assets		84,457			71,275


Investments accounted for using the equity method		10,690			10,844

Property, plant and equipment		119,075			124,032

Intangible assets		11,475			10,371

Financial assets		4,914			5,452

Other non-current assets		303			96

Deferred tax assets		2,177			1,815

Total non-current assets		148,635			152,611


Total assets		233,092			223,885


Liabilities and equity
Trade and other payables		29,785			27,832

Bank loans and other interest-bearing short-term debt		3,655			5,037

Provisions		2,197			1,200

Taxes payable		18,995			13,843

Other current liabilities		7,949			9,066

Liabilities included in disposal groups		1,011			—

Total current liabilities		63,591			56,978


Long-term debt		19,619			21,387

Provisions		14,357			10,883

Pension obligation		12,605			12,921

Other financial liabilities		353			402

Other liabilities		2,702			2,750

Deferred tax liabilities		23,265			27,820

Total non-current liabilities		72,900			76,164


Total liabilities		136,491			133,142


Share capital		4,708			4,739

Additional paid-in capital		9,736			10,501

Other reserves		(1,533	)		723

Retained earnings		89,544			77,390

Treasury shares		(6,624	)		(3,589	)

Equity attributable to equity holders of the parent		95,831			89,763


Minority interest		771			980


Total equity		96,601			90,743


Total liabilities and equity		233,092			223,885

Conversion to IFRS (GRAPHIC)

Consolidated statement of cash flows 2006 IFRS (unaudited)


Year ended 31 December,
Amounts in NOK million	2006

Operating activities:
Net income		17,933


Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization and impairment losses		22,707

Share of profits in equity accounted investments		(990	)

Dividends received from equity accounted investments		417

Deferred taxes		(3,733	)

Loss on sale of non-current assets		519

Gain on foreign currency transactions		(1,011	)

Net sales of trading securities		29

Capitalized interest		(1,231	)

Other		(962	)

Working capital changes that provided (used) cash:
Receivables		203

Inventories		(2,095	)

Other current assets		543

Other current liabilities		6,055

Net cash provided by operating activities		38,384


Investing activities:
Purchases of property, plant and equipment		(15,927	)

Purchases of other long-term investments		(6,197	)

Purchases of short-term investments		(22,650	)

Proceeds from sales of property, plant and equipment		358

Proceeds from sales of other long-term investments		1,658

Proceeds from sales of short-term investments		11,550

Net cash used in investing activities		(31,208	)


Financing activities:
Loan proceeds		89

Principal repayments		(1,431	)

Ordinary shares purchased		(3,949	)

Ordinary shares issued		59

Dividends paid		(5,506	)

Net cash used in financing activities		(10,738	)

Foreign currency effects on cash and bank overdraft		319

Net decrease in cash, cash equivalents and bank overdraft		(3,243	)

Cash, cash equivalents and bank overdraft reclassified to assets held for sale		(47	)

Cash, cash equivalents and bank overdraft at beginning of year		9,964

Cash, cash equivalents and bank overdraft at end of year		6,674


Specification of cash disbursements included above in operating activities regarding:
Interest ¹⁾		853

Income taxes		37,057


	1)		Includes cash disbursements relating to early repayment of long-term debt (“breaking costs”) of NOK 15 million.

Consolidated statement of changes in equity 2006 IFRS (unaudited)


For year ended 31 December
Amounts in NOK million	2006


Ordinary shares issued
Balance at beginning of period		4,739

Cancellation treasury shares		(17	)

Redeemed shares, the Norwegian State		(13	)

Balance at end of period		4,708


Additional paid-in capital
Balance at beginning of period		10,501

Treasury stock reissued to employees		56

Cancellation treasury shares		(363	)

Redeemed shares, the Norwegian State		(458	)

Balance at end of period		9,736


Other reserves
Balance at beginning of period		723

Currency translation differences		(1,401	)

Net unrealized gain (loss) on securities		(84	)

Cash flow hedges, net of tax		(772	)

Balance at end of period		(1,533	)


Retained earnings
Balance at beginning of period		77,390

Net income		17,660

Dividend declared and paid		(5,506	)

Balance at end of period		89,544


Treasury shares issued
Balance at beginning of period		(3,589	)

Purchase of treasury shares		(3,477	)

Treasury stock reissued to employees		61

Cancellation treasury shares		380

Balance at end of period		(6,624	)


Equity interests attributable to equity holders of the parent
Balance at beginning of period		89,763

Increase (decrease) in equity interests		6,067

Balance at end of period		95,831


Minority interest
Balance at beginning of period		980

Minority’s share of net income		273

Minority’s share of dividend declared and paid		(231	)

Equity interest purchased		(184	)

Currency translation differences		(68	)

Balance at end of period		771


Total equity		96,601

Conversion to IFRS (GRAPHIC)

Changes in shares outstanding 2006 (unaudited)


For year ended 31 December
Number of shares in thousands	2006


Share information:
Ordinary shares issued
Balance at beginning of period		1,294,772

Cancellation treasury shares		(4,672	)

Redeemed shares, the Norwegian State		(3,645	)

Balance at end of period		1,286,455


Treasury shares issued
Balance at beginning of period		(44,080	)

Purchase of treasury shares		(21,627	)

Treasury stock reissued to employees		755

Cancellation treasury shares		4,672

Balance at end of period		(60,280	)

Consolidated condensed income statements
– 2006 quarterly presentation IFRS (unaudited)


	First			Second			Third			Fourth
Amounts in NOK million	quarter			quarter			quarter			quarter			2006


Revenue		53,050			49,711			50,309			48,213			201,283

Share of the profit (loss) in equity accounted investments		321			376			234			59			990

Other income, net		244			432			298			496			1,470

Revenue and income		53,615			50,519			50,841			48,768			203,744


Depreciation, amortization and impairment		4,131			4,094			6,057			8,425			22,707

Other expenses		32,613			30,593			30,622			32,198			126,026

Total expenses		36,745			34,686			36,679			40,624			148,733


Earnings before financial items and tax		16,870			15,833			14,162			8,144			55,010


Financial income (expense), net		664			792			(819	)		745			1,382

Income before tax		17,534			16,626			13,343			8,889			56,392


Income tax expense		(12,751	)		(10,693	)		(9,486	)		(5,529	)		(38,459	)


Net income		4,783			5,932			3,858			3,361			17,933


Net income attributable to minority interests		(77	)		103			238			8			273

Net income attributable to equity holders of the parent		4,859			5,829			3,619			3,353			17,660


Basic and diluted earnings per share attributable to equity holders of the parent		3.90			4.70			2.90			2.70			14.20

Conversion to IFRS (GRAPHIC)

Consolidated condensed balance sheets
– 2006 quarterly presentation IFRS (unaudited)


Amounts in NOK million	1 January		31 March		30 June		30 September		31 December


Cash and cash equivalents		10,463		20,762		7,725		16,490		6,760

Short-term investments		3,865		3,850		12,669		12,699		15,020

Receivables and other current assets		42,393		48,294		47,021		47,587		42,488

Inventories		14,553		15,230		15,985		16,310		16,497

Assets held for sale		—		—		—		—		3,691

Total current assets		71,275		88,135		83,400		93,086		84,457


Property, plant and equipment		124,032		123,349		122,106		123,298		119,075

Other non-current assets		28,579		28,159		28,348		31,044		29,561

Total non-current assets		152,611		151,508		150,454		154,341		148,635


Total assets		223,885		239,643		233,854		247,427		233,092


Bank loans and other interest-bearing short-term debt		5,037		3,855		3,545		3,346		3,655

Other current liabilities		51,941		66,068		65,381		72,418		58,925

Liabilities included in disposal groups		—		—		—		—		1,011

Total current liabilities		56,978		69,923		68,926		75,763		63,591


Long-term debt		21,387		20,814		19,942		20,653		19,619

Other long-term liabilities		26,957		27,521		27,480		27,729		30,017

Deferred tax liabilities		27,820		27,379		26,370		27,153		23,265

Total non-current liabilities		76,164		75,714		73,792		75,536		72,900


Total liabilities		133,142		145,637		142,718		151,299		136,491


Equity attributable to equity holders of the parent		89,763		93,135		90,436		95,336		95,831

Minority interest		980		871		700		792		771

Total equity		90,743		94,006		91,136		96,129		96,601


Total liabilities and equity		223,885		239,643		233,854		247,427		233,092

Consolidated segment information
– 2006 IFRS (unaudited)


Amounts in NOK million	First quarter			Second quarter			Third quarter			Fourth quarter			2006


Total revenue
Exploration and Production		20,561			17,818			19,863			19,235			77,476

Energy and Oil Marketing		22,218			20,182			20,823			20,008			83,232

Eliminations		(15,077	)		(14,267	)		(14,028	)		(13,914	)		(57,286	)

Oil & Energy		27,702			23,733			26,658			25,329			103,422

Aluminium Metal		17,933			17,906			16,182			16,239			68,259

Aluminium Products		12,967			13,538			13,263			13,819			53,588

Other activities		2,935			2,719			2,582			2,818			11,054

Corporate and eliminations		(8,486	)		(8,185	)		(8,376	)		(9,992	)		(35,040	)

Total		53,050			49,711			50,309			48,213			201,283


External revenue
Exploration and Production		6,106			4,298			5,473			5,658			21,534

Energy and Oil Marketing		20,359			18,211			19,722			16,544			74,837

Eliminations		2			(2	)		—			63			63

Oil & Energy		26,467			22,507			25,195			22,266			96,434

Aluminium Metal		11,602			11,606			9,912			10,482			43,603

Aluminium Products		12,910			13,476			13,205			13,740			53,331

Other activities		2,077			2,125			1,996			1,719			7,917

Corporate and eliminations		(5	)		(4	)		1			7			(1	)

Total		53,050			49,711			50,309			48,213			201,283


Internal revenue

Exploration and Production		14,455			13,520			14,390			13,577			55,942

Energy and Oil Marketing		1,859			1,971			1,101			3,464			8,395

Eliminations		(15,079	)		(14,265	)		(14,028	)		(13,977	)		(57,350	)

Oil & Energy		1,235			1,226			1,463			3,064			6,988

Aluminium Metal		6,331			6,299			6,270			5,757			24,657

Aluminium Products		58			62			58			80			257

Other activities		858			593			586			1,099			3,137

Corporate and eliminations		(8,482	)		(8,181	)		(8,377	)		(10,000	)		(35,039	)

Total		—			—			—			—			—


Share of the profit (loss) in equity accounted investments
Exploration and Production		2			2			2			1			7

Energy and Oil Marketing		56			73			47			42			218

Eliminations		—			—			—			—			(2	)

Oil & Energy		58			75			49			42			223

Aluminium Metal		233			249			385			(12	)		854

Aluminium Products		18			30			(224	)		9			(168	)

Other activities		13			17			22			20			73

Corporate and eliminations		—			6			2			—			8

Total		321			376			234			59			990

Conversion to IFRS (GRAPHIC)


Amounts in NOK million	First quarter		Second quarter			Third quarter			Fourth quarter			2006

Depreciation, amortization and impairment
Exploration and Production		2,886		2,757			4,813			6,543			16,999

Energy and Oil Marketing		181		174			165			311			831

Eliminations		—		—			—			—			—

Oil & Energy		3,067		2,931			4,979			6,853			17,830

Aluminium Metal		507		497			494			694			2,192

Aluminium Products		437		552			462			709			2,159

Other activities		117		115			119			167			518

Corporate and eliminations		3		(1	)		3			1			7

Total		4,131		4,094			6,057			8,425			22,707


Earnings before financial items and tax
Exploration and Production		12,927		11,675			10,860			7,246			42,707

Energy and Oil Marketing		1,157		1,178			944			1,324			4,603

Eliminations		57		344			381			539			1,321

Oil & Energy		14,140		13,196			12,186			9,109			48,632

Aluminium Metal		1,706		2,333			2,365			899			7,302

Aluminium Products		486		326			(435	)		(481	)		(104	)

Other activities		134		245			264			736			1,379

Corporate and eliminations		404		(267	)		(217	)		(2,119	)		(2,199	)

Total		16,870		15,833			14,162			8,144			55,010


Adjusted EBITDA
Exploration and Production		15,813		14,432			15,673			13,788			59,706

Energy and Oil Marketing		1,343		1,357			1,121			1,640			5,461

Eliminations		57		344			382			540			1,323

Oil & Energy		17,213		16,133			17,176			15,968			66,490

Aluminium Metal		2,223		2,841			2,868			1,603			9,536

Aluminium Products		938		892			281			242			2,353

Other activities		251		360			383			939			1,933

Corporate and eliminations		407		(274	)		(215	)		(2,118	)		(2,201	)

Total		21,033		19,952			20,493			16,635			78,112


Investments
Exploration and Production		3,463		3,540			6,598			6,789			20,390

Energy and Oil Marketing		246		533			496			757			2,032

Eliminations		—		—			—			—			—

Oil & Energy		3,709		4,073			7,093			7,546			22,421

Aluminium Metal		514		505			504			993			2,515

Aluminium Products		232		227			241			552			1,252

Other activities		107		102			232			206			647

Corporate and eliminations		12		6			12			5			35

Total		4,572		4,912			8,083			9,302			26,869

Consolidated segment information
– 2006 IFRS (unaudited)


	Current assets						Non-current assets						Total assets
Amounts in NOK million	31.12.2006			01.01.2006			31.12.2006			01.01.2006			31.12.2006			01.01.2006

Exploration and Production		30,502			38,572			90,538			90,598			121,040			129,170

Energy and Oil Marketing		26,312			31,362			20,003			20,174			46,315			51,536

Eliminations		(5,044	)		(7,419	)		17			(175	)		(5,027	)		(7,594	)

Oil & Energy		51,771			62,516			110,557			110,596			162,328			173,112

Aluminium Metal		69,871			44,237			25,368			25,267			95,239			69,504

Aluminium Products		27,527			28,997			13,094			16,456			40,621			45,453

Other activities		8,476			7,698			5,733			5,379			14,209			13,077

Corporate and eliminations		(76,879	)		(72,174	)		(6,117	)		(5,087	)		(82,996	)		(77,261	)

Total continued operations		80,766			71,275			148,635			152,611			229,401			223,885

Classified as held for sale		3,691			—			—			—			3,691			—

Total		84,457			71,275			148,635			152,611			233,092			223,885


	Investments accounted for
	using the equity method				Segment debt
Amounts in NOK million	31.12.2006		01.01.2006		31.12.2006			01.01.2006

Exploration and Production		54		52		12,537			10,061

Energy and Oil Marketing		2,042		2,597		7,431			10,527

Eliminations		16		18		(1	)		—

Oil & Energy		2,112		2,667		19,968			20,588

Aluminium Metal		4,926		3,851		9,800			7,588

Aluminium Products		1,913		2,460		5,863			5,638

Other activities		1,176		1,134		2,206			2,080

Corporate and eliminations		563		732		2,094			2,204

Total continued operations		10,690		10,844		39,930			38,098

Classified as held for sale		279		—		720			—

Total		10,969		10,844		40,650			38,098

Conversion to IFRS (GRAPHIC)

Basis for presentation of Hydro IFRS financial statements

Introduction

Hydro will use IFRS as the primary GAAP for financial reporting, with a transition date of 1 January 2006. The first IFRS reporting period will be 2007 with comparable IFRS figures presented for 2006. Hydro has implemented all IFRS standards issued as of 1 May 2007, and the 31 December 2007 annual financial statements and 2006 comparable figures will be presented using all required IFRS standards for accounting periods ending 31 December 2007.

The European Unions’s (EU) Regulation (the “regulation”) requires the use of IFRS as approved by the EU for all listed companies in the EU and European Economic Area (EEA). The regulation was incorporated into Norwegian law in December 2004, and applies to Hydro. The United States Securities and Exchange Commission (SEC) allows companies using IFRS as their primary GAAP to file their annual financial statements with the SEC using IFRS with a reconciliation to US GAAP with certain reliefs compared to companies using foreign national GAAPs. Hydro will use IFRS as approved by the IASB in the financial statements. However, the standard setting process is such that there may be a standard issued by the IASB applicable for Hydro, that has not yet been approved by the EU as of the date of Hydro’s financial statements. Therefore, it may occur that Hydro’s annual financial statements that are filed with the SEC are prepared in accordance with IFRS as approved by the EU, with a reconciliation to IFRS as approved by the IASB, that is then reconciled to US GAAP.

Transition to IFRS – IFRS 1 elected exemptions

Hydro’s transition to IFRS follows the regulation in IFRS 1 First-time Adoption of International Financial Reporting Standards (IFRS 1). IFRS 1 offers the possibility to utilize certain exemptions from retrospective implementation of IFRS as if always applied. Hydro has evaluated the options available in IFRS 1, and has elected to adopt transition implementation policies in the areas of business combinations, employee benefits, cumulative translation differences, designation of previously recognized financial instruments, share-based payment transactions and asset retirement obligations. A summary of these transition accounting policies is given below. Transition policies available in IFRS 1 that are not material for Hydro are not included in the discussion.

Business combinations

IFRS 3 Business Combinations (IFRS 3) deviates in certain respects when compared to the US GAAP standards applicable for accounting for business combinations. The implementation guidance for the current US GAAP standards gives, for certain acquisitions, a different result compared to full retrospective implementation of IFRS 3. Hydro has elected to utilize the option in IFRS 1 to not apply IFRS 3 retrospectively to past business combinations completed as of 1 January 2006. The impact of this policy decision is that all prior business combinations will continue to be accounted for as they originally were under US GAAP, including the allocation of acquisition cost. This includes the recognition of any goodwill identified in these transactions.

Employee benefits

IFRS 1 allows for all cumulative actuarial gains and losses at the date of transition to be recognized as of the date of transition as an alternative to full retrospective application of IAS 19 Employee Benefits. Hydro has chosen to adopt this transition policy, and has recognized all 1 January 2006 cumulative actuarial gains and losses at the date of transition with the effect posted directly against equity. Hydro applies the same economic and actuarial assumptions under IFRS as applied under US GAAP, and will continue to use the corridor approach when accounting for actuarial gains and losses on an ongoing basis.

Cumulative translation differences

IFRS 1 offers the first-time adopter of IFRS the option to reset the cumulative translation differences that existed at the date of adoption (i.e. the US GAAP translation differences) to zero as of the date of transition to IFRS as an alternative to establishing a cumulative translation difference as if the accounting and translation principles in IAS 21 The Effects of Changes in Foreign Exchange Rates had always been used and the measurement of assets and liabilities had been as required by currently implemented IFRS. Hydro has elected to utilize this option, and has reset the cumulative translation differences for all foreign operations to zero as of 1 January 2006. Future gains or losses on a subsequent disposal of any foreign operation will therefore exclude translation differences that arose before 1 January 2006.

Designation of previously recognized financial instruments

Marketable and non-marketable trading shares as defined under US GAAP are classified as financial assets at fair value through profit and loss under IFRS. Shares held for trading are classified as part of Short-term investments. Hydro has elected that non-marketable shares previously classified under US GAAP as not held for trading are classified as available-for-sale under IFRS with changes in fair value booked against equity. The shares are presented in the balance sheet as part of Financial Assets. Non-marketable shares in the US GAAP balance sheet were classified as Prepaid pension, investment and other non-current assets, and measured at cost.

Share-based payment transactions

Hydro adopted IFRS 2 Share-based Payment (IFRS 2) as of 1 January 2006. IFRS 1 encourages first-time adopters of IFRS to apply IFRS 2 to equity instruments granted on or before 7 November 2002. Hydro

has applied IFRS 2 to all share-based payments, including the share appreciation rights granted prior to 7 November 2002.

Asset retirement obligations

IFRS 1 allows for a simplified treatment of historic changes when estimating the asset retirement obligations between the initial inception of the liability and the adoption of IFRS. Hydro has elected to utilize this option. The asset retirement obligations have been calculated as of Hydro’s 1 January 2006 transition date in accordance with IAS 37 Provisions using the best estimate of removal cost and timing, and the risk free interest rates for the relevant currencies and expected life of the asset as of the date of estimation. The IFRS estimate resulted in an increase in recognized asset retirement obligations of NOK 3,040 million as of 1 January 2006. The estimated amount that would have been included in the historical cost of the asset, based on historical interest rates and accumulated depreciation based on that amount, have been calculated. That estimated amount is only insignificantly different from the asset value recognized under US GAAP. Hydro has therefore not recognized any difference in historical cost or carrying value of the related fixed assets in connection with the transition to IFRS.

IFRS accounting policies and critical accounting estimates

Introduction

Norsk Hydro ASA is an offshore producer of oil and gas, as well as an integrated aluminium supplier with operations in nearly 40 countries. The 2006 consolidated income statements, balance sheets, statements of cash flows and statements of changes in equity of Norsk Hydro ASA and its subsidiaries (Hydro), presented both on an annual and quarterly basis, are prepared in accordance with International Financial Reporting Standards (IFRSs) and are included on pages 3 to 12 of this document.

Prior to adoption of IFRS as of 1 January 2007, Hydro’s primary financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP). The 2006 consolidated income statements and balance sheets, reconciled from US GAAP to IFRS, are located on pages 21 to 25. An equity reconciliation from US GAAP to IFRS is found on page 30. The statement of cash flows is not reconciled from US GAAP to IFRS. See the section “US GAAP and IFRS financial statement differences” for an explanation of the Hydro accounting policy differences between US GAAP and IFRS, which includes a discussion of the statement of cash flows differences.

The financial information has been prepared on a historical cost basis except for the revaluation of certain non-current assets and liabilities and financial instruments. Preparation of the financial information requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the contingency disclosures. Actual results may differ from estimates. See the discussion at the end of this section titled “Critical accounting estimates.”

This section of the document describes the Hydro IFRS accounting policies. See the Annual Report 2006 note 1 for a comparable summary of Hydro’s US GAAP accounting policies.

Basis of consolidation

The consolidated financial statements include Norsk Hydro ASA and subsidiary companies. Hydro consolidates subsidiaries where Hydro owns, directly or indirectly, more than 50 percent of the voting power or exercises control. Hydro consolidates special purpose entities (SPEs) determined to be controlled by Hydro. Control is achieved when Hydro has the power to govern the financial and operating policies of the entity or power over more than half of the voting rights by virtue of an agreement with other investors.

All significant intercompany transactions and balances have been eliminated.

Business combinations

Business combinations are accounted for using the purchase method in accordance with IFRS 3 Business Combinations (IFRS 3). The purchase price is the sum of the fair values, as of the date of exchange, of the assets given, liabilities incurred or assumed, and equity instruments issued by Hydro in exchange for control of the acquiree, plus any costs directly attributable to the combination. The acquiree’s identifiable assets, liabilities and contingent liabilities are recognized separately at the acquisition date at their fair value irrespective of any minority interest.

Goodwill is recognized from the date of exchange and is initially measured as the excess of the purchase price over Hydro’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Goodwill is not amortized, but is reviewed for impairment annually and more frequently if indicators of possible impairment are observed, in accordance with IAS 36 Impairment of Assets. Goodwill is allocated to the groups of cash generating units expected to benefit from the synergies of the combination and that are monitored for internal management purposes. For Hydro this is the sector level in Aluminium Metal and Aluminium Products, and the sub-segment level in Oil & Energy.

Conversion to IFRS (GRAPHIC)

The interest of minority shareholders in the acquiree is initially measured as the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognized.

See the Annual Report 2006 note 2 for a description of significant acquisitions and disposals during 2006.

Investments in associates and joint ventures

Hydro accounts for associates using the equity method. The definition of an associate is based on Hydro’s ability to exercise significant influence, which is the power to participate in the financial and operating policies of the entity. Significant influence is assumed to exist if Hydro owns between 20 to 50 percent of the voting rights. However, exercise of judgment may lead to the conclusion of significant influence at ownership levels less than 20 percent or a lack of significant influence at ownership percentages greater than 20 percent. 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.

A joint venture is an entity, asset or operation that is subject to contractually established joint control. In corporate joint ventures, special voting rights in some companies give each of the partners decision rights that exceed what normally would follow from the ownership share. This may be in the form of a specified number of board representatives, in the form of a right of refusal on important decisions, or by requiring a qualified majority for all or most of the important decisions. Participation in joint ventures is accounted for using the equity method, except for jointly controlled assets or operations where the partners have a direct ownership in the assets or direct participation in operations (undivided interest). These joint ventures are accounted for by including Hydro’s share of assets, liabilities, income and expense on a line-by-line basis (the proportional method).

The equity method involves showing the investment in the associate or joint venture at Hydro’s percentage ownership of the equity in the associate or joint ventures, including any excess values or goodwill. Hydro’s share of net income, including depreciation and amortization of excess values, is included in Share of the profit or loss of associates and joint ventures. Material unrealized profits resulting from transactions with an associate or equity accounted joint venture are eliminated. The proportional method involves consolidating the income statement and balance sheet of the joint ventures based on Hydro’s percentage ownership in the joint ventures, with full elimination of inter-company transactions.

The financial statements of associates and joint ventures are prepared for the same reporting year as the group. Where necessary, adjustments are made to those financial statements to bring the accounting policies used into line with those of Hydro.

Hydro reviews investments in associates and joint ventures for impairment when indicators of a possible loss in value are identified. As Hydro’s 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 indicators include such items as operating losses or adverse market conditions. The 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 and the impairment is considered to be prolonged, the investment is written down as impaired. Impairment losses are reversed if the impairment situation is deemed to no longer exist.

Assets held for sale and discontinued operations

When an asset or a group of assets are decided to be sold, they are reported separately as Assets held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, provided that the sale is highly probable, which includes the criteria that management is committed to the sale, and that the sale will be completed within one year. Assets held for sale are not depreciated, but are measured at the lower of book value and the fair value less costs to sell. Assets meeting the criteria for presentation as an Asset held for sale are not reclassified as an Asset held for sale in prior period balance sheets. Immaterial disposal groups are not classified as assets held for sale.

A discontinued operation is a component of Hydro that can be clearly distinguished from the rest of Hydro, both operationally and for financial reporting purposes. A discontinued operation is be a separate major line of business or a geographical area of operations. Cash flows, results of operations and any gain or loss from disposal are excluded from Earnings before financial items and tax and reported separately as discontinued.

Components disposed of through a spin-off to shareholders are presented as Discontinued operations as of the date of disposal. Prior period results of operations are reclassified to be comparable.

Provisions

Provisions are recognized when Hydro has a present obligation (legal or constructive) as a result of a past event, and it is probable that Hydro will be required to settle the obligation. Hydro recognizes provisions only when a reliable estimate can be made of the amount, taking into account the risks and uncertainties. If a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of the cash flows. See also the accounting policy discussion for asset retirement obligations and share-based payments.

Restructuring costs Hydro recognizes a provision for costs associated with an exit or disposal activity upon formal commitment to an exit plan. A provision for termination benefits related to the involuntary termination of employees is recognized as of the date of employee notification.

Foreign currency translation

In individual companies, transactions in foreign currencies are initially recorded in the functional currency by applying the rate of exchange as of the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the rate of exchange ruling at the balance sheet date. The realized and unrealized currency gains or losses are included in financial expenses. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated into the functional currency using the rates of exchange as of the date of the initial transaction.

In the consolidated financial statements, the assets and liabilities of non-Norwegian krone functional currency subsidiaries, joint ventures and associates, including the related goodwill, are translated into Norwegian krone using the rate of exchange as of the balance sheet date. The results and cash flows of non-Norwegian krone functional currency subsidiaries, joint ventures and associates are translated into Norwegian krone using the average exchange rate for the period reported. Exchange adjustments arising when the opening net assets and the net income for the year retained by the non-Norwegian krone operation are translated into Norwegian kroner are taken into Other reserves and reported in the statement of changes in equity. On disposal of a non-Norwegian krone functional currency subsidiary, joint venture or associate, the deferred cumulative amount recognized in equity relating to that particular non-Norwegian krone entity is recognized in the income statement.

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 when the revenue can be measured reliably. 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.

Activities related to the trading of derivative commodity instruments, or related to the purchase or delivery of physical commodities on a widely recognized commodity exchange or delivery hub, as well as physical commodity swaps with a single counterparty, are presented on a net basis in the income statement, with the margin from trading recognized in revenues.

Cash and cash equivalents

Cash and cash equivalents includes cash, bank deposits and all other monetary instruments with a maturity of less than three months from the date of acquisition.

Cash and cash equivalents, as defined for reporting purposes in the statement of cash flows, consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts connected to cash management activities.

Short-term investments

Short-term investments 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 recognized when earned.

Accounts receivable

Accounts receivable are presented at fair value at inception in the balance sheet and reviewed for impairment on an ongoing basis. Hydro recognizes an impairment loss on individual accounts based on an assessment of delayed payments, and other indicators of financial difficulty of the customer. Excluding the account balances that have been impaired based on the individual account evaluation process, Hydro then assesses all remaining overdue accounts receivable for impairment based on prior collection experience, the customer portfolio and business and political climate.

Inventories

Inventories are valued at the lower of cost, using the first-in, first-out method (FIFO), or net realizable value. Cost includes direct materials, direct labor and the appropriate portion of production overhead or the purchase price of the inventory. Abnormal amounts of idle facility expense, freight, handling costs, and wasted materials are recognized as expense in the current period.

Non-current assets

Non-current assets 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 as available-for-sale securities and is measured at fair value with changes in fair value recognized through equity. Other investment income is recognized when earned. Investments are reviewed for impairment if indications of a loss in value are identified. Fair value of the investment is estimated based on valuation model techniques for non-marketable securities. When the estimated fair value of the investee is below Hydro’s carrying value the impairment is recognized in earnings.

Conversion to IFRS (GRAPHIC)

Property, plant and equipment

Property, plant and equipment (PP&E) is recognized based upon management’s assessment of probable future economic benefit and when the acquisition cost can be measured reliably. PP&E book value is the historical cost less accumulated depreciation and any accumulated impairment losses. 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 (decommissioning costs) upon initial recognition of the liability. See section below titled “Asset Retirement Obligations”.

Periodic maintenance Expenditures for periodic maintenance and repairs applicable to production facilities are capitalized when these costs meet the criteria in accordance with IAS 16 Property, Plant and Equipment (IAS 16). Normal maintenance and repairs for all other properties are expensed as incurred. Major replacements and renewals that materially extend the life of properties are capitalized and any assets replaced are retired.

Capitalized interest Hydro capitalizes borrowing costs on qualifying assets in accordance with IAS 23 Borrowing Costs (IAS 23).

Leased assets Leases which transfer to Hydro substantially all the risks and benefits incidental to ownership of the leased item are accounted for as finance leases in accordance with IAS 17 Leases (IAS 17) and IFRIC 4 Determining whether an Arrangement contains a lease (IFRIC 4). Finance leases are capitalized at inception at the fair value of the leased property, or, if lower, at the present value of the minimum lease payments as assets under Property, plant and equipment. The liability is included in Long-term debt. The finance leases are depreciated over the shorter of the estimated useful life of the asset or the lease term. The related liability is reduced each reporting period by the amount of the lease payment less the effective interest expense. All other leases are classified as operating leases and the lease payments are recognized as an expense over the term of the lease.

Depreciation and amortization Amortization expense is determined on a straight-line basis. Depreciation is determined using the straight-line method over the estimated useful life of the asset with the following rates:


Machinery and equipment		5-25 percent
Buildings		2-5 percent
Other		10-20 percent

Hydro depreciates separately any component of an item of property, plant and equipment when that component has a useful life and cost that is significant in relation to the total PP&E cost and PP&E useful life. At each financial year-end Hydro reviews the residual value and useful life of our assets, with any estimate changes accounted for prospectively.

Oil and gas producing properties are depreciated individually using the unit-of-production method as proved developed reserves are produced. Unit-of-production depreciation rates are reviewed and revised whenever there is an indication of the need for a change in the rates and at a minimum all producing fields are reviewed at least once a year. Any revisions in the rates are accounted for prospectively.

Asset retirement obligations

Hydro recognizes the estimated fair value of asset retirement obligations (ARO) in the period in which it is incurred. This cost includes the cost of dismantlement, removal or restoration. 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 and the liability is accreted for the change in its present value each reporting period. Accretion expense is classified as part of Financial expense. Liabilities that are conditional on a future event (e.g. the timing or method of settlement), whether under the control of Hydro or not, are recognized if the fair value of the liability can be reasonably estimated. Asset retirement costs are depreciated over the useful life of the related long-lived asset.

Exchanges of non-monetary assets

Non-monetary transactions that have commercial substance are accounted for at fair value and any resulting gain or loss on the exchange is recognized in the income statement. A non-monetary exchange has commercial substance if Hydro’s future cash flows are expected to change significantly as a result of the exchange. Hydro accounts for certain non-monetary exchanges of oil and gas related assets at fair value and accounts for certain other non-monetary exchanges of oil and gas producing assets where Hydro has substantial continuing involvement without recognizing a gain or loss on the exchange.

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 an indefinite

useful life are not amortized but are subject to impairment testing on an annual basis.

Emission rights Hydro accounts for Norwegian and EU government granted and purchased CO₂ emission allowances at nominal value (cost) as an intangible asset. The emission rights are not amortized as they are either settled on an annual basis before year-end (matched specifically against actual CO₂ emissions) or rolled over to cover the next year’s emissions; impairment testing is done on an annual basis. Actual CO₂ emissions over the 95 percent level granted by the government are recognized as a liability at the point in time when emissions exceed the 95 percent level. Any sale of government granted CO₂ emission rights is recognized at the time of sale at the transaction price.

Research and development

All expenditures on research are expensed as incurred. Development costs are capitalized as an intangible asset at cost when all of the recognition criteria in IAS 38 Intangible Assets (IAS 38) are met, it is probable that Hydro will receive a future economic benefit that is attributable to the asset, and the cost can be measured reliably.

Impairment of property, plant and equipment and intangible assets

Hydro reviews property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, in accordance with IAS 36 Impairment of Assets (IAS 36). The carrying amount is not recoverable if it exceeds the asset’s or cash generating group’s fair value less costs to sell or the value in use. If the carrying amount is not recoverable, an impairment loss is recognized in the amount that the carrying value exceeds its recoverable amount. In the event of a subsequent increase in the recoverable amount, previously recognized impairment losses are reversed.

Contingencies and guarantees

Hydro recognizes a liability for the fair value of obligations it has undertaken in issuing guarantees, including Hydro’s ongoing obligation to stand ready to perform over the term of the guarantee in the event that the specified triggering events or conditions occur. Contingencies are recognized in the financial statements when probable of occurrence and can be estimated reliably.

Financial assets

Financial assets represent a contractual right by Hydro to receive cash or another financial asset in the future. Financial assets classified as non-current include long-term financial instruments, other investments, long-term loans to employees, long-term bank accounts and restricted cash and other long-term receivables.

Financial assets are derecognized when the rights to receive cash from the asset have expired or when Hydro has transferred its rights to receive cash flows from the asset and has either transferred substantially all of the risks and rewards of the asset or has transferred control of the asset.

Financial liabilities

Financial liabilities represent a contractual obligation by Hydro to deliver cash in the future, and are classified as either short or long-term. Financial liabilities include financial instruments used for cash-flow hedges, financial derivatives and commodity derivative contracts.

Financial liabilities are derecognized when the obligation is discharged through payment or when Hydro is legally released from the primary responsibility for the liability.

Oil and gas royalty

Oil and gas revenue is recorded net of royalties payable in kind.

Exploration and development costs of oil and gas reserves

Hydro uses the successful efforts method of accounting for oil and gas exploration and development costs. In accordance with IFRS 6 Exploration for and Evaluation of Mineral Resources, Hydro accounts for oil and gas exploration in a similar manner as under our previous GAAP. Exploratory costs, excluding the cost 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. Well costs may remain capitalized beyond one year from drilling, dependent on project reviews, which take place periodically and no less frequently than every quarter.

Cost relating to acquired exploration rights are allocated to the relevant areas and capitalized, pending the determination of the existence of proved reserves. The acquired exploration rights are charged to operating expense when a determination is made that proved reserves will not be found in the area. Each block or area is assessed separately. Capitalized exploration costs are included in Intangible assets until determination that proved reserves have been found. Upon determination that proved reserves have been found and will be developed, the exploration costs for that field is transferred to Property, plant and equipment and aggregated with costs incurred to develop the field.

All development costs for wells, platforms, equipment and related interest are capitalized. Capitalized exploration and development costs are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. To the extent that Hydro uses future net cash flows to evaluate unproved properties for impairment, the unproved reserves are

Conversion to IFRS (GRAPHIC)

risk adjusted before estimating future cash flows associated with those resources. Preproduction costs are expensed as incurred. See Hydro Annual Report 2006 note 26 for additional information.

Shipping costs

Shipping and handling costs are included in Other expenses. Shipping and handling costs invoiced to customers are included in Revenues.

Other income, net

Transactions resulting in income from sources other than normal production and sales operations are classified as Other income, net. Gains and losses resulting from the sale or disposal of PP&E, investments in associates or joint ventures, and subsidiaries are included in Other income, net as well as rental income and certain other incremental income and gains.

Income taxes

Deferred income tax expense is calculated using the liability method in accordance with IAS 12 Income Taxes (IAS 12). Deferred tax assets and liabilities are classified as non-current in the balance sheet and are measured based on the difference between the carrying value of assets and liabilities for financial reporting and their tax basis when such differences are considered temporary in nature. Temporary differences related to inter-company profits are deferred using the buyer’s tax rate. Deferred tax assets are reviewed for recoverability, and the amount probable of recovery is recognized. Deferred income tax expense represents the change in deferred tax asset and liability balances during the year except for the deferred tax related to items charged directly to equity and deferred taxes related to purchase and sales of subsidiaries. Changes resulting from amendments and revisions in tax laws and tax rates are recognized when the new tax laws are substantially enacted. Uncertain tax positions are recognized in the financial statements based on management’s expectations.

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, when such earnings are assessed by management to be capable of being repatriated to Norway without tax effect.

Derivative instruments and fair value option instruments

Hydro applies IASB International Financial Reporting Standards No. 32 Financial Instruments: Presentation (IAS 32), and No. 39 Financial Instruments: Recognition and Measurement (IAS 39) when accounting for derivatives, as well as when determining whether contracts are derivatives. Derivative financial instruments are marked-to-market with the resulting gain or loss reflected in net financial expense, except when the instruments meet the criteria for cash flow hedge accounting. All derivatives and embedded derivatives are classified as short-term, including derivatives and embedded derivatives with a final maturity date that is more than twelve months after the balance sheet date, except for derivative hedging instruments that are classified as long-term provided that their final maturity date is more than twelve months after the balance sheet date. If Hydro has master netting agreements and the intention and ability to settle two or more derivatives net, the agreements are presented net on the face of the balance sheet. The ability to settle net is conditional on simultaneous cash-flows from the two contracts. Otherwise, derivative contracts are presented gross at their fair value.

Physical commodity contracts are considered on a portfolio basis. If a portfolio of contracts contain contracts of a similar nature that are settled net in cash, or the assets are not intended for own use, the entire portfolio of contracts is recognized at fair value, and classified as derivatives.

Forward currency contracts and currency options are recognized in the financial statements and measured at fair value at each balance sheet date with the resulting unrealized gain or loss recorded in financial expense.

Interest income and expense relating to swaps are netted and recognized as income or expense over the life of the contract. Foreign currency swaps are translated into Norwegian krone at applicable exchange rates as of the balance sheet date with the resulting unrealized exchange gain or loss recorded in Financial income (expense), net.

Derivative commodity instruments are marked-to-market with their fair value recorded in the balance sheet as either assets or liabilities. Adjustments for changes in the fair value of the instruments are reflected in the current period’s revenue and/or operating cost, unless the instrument is designated as a cash flow hedge instrument and qualifies for hedge accounting. The fair value option is currently not utilized by Hydro.

Hedge accounting is applied when specific hedge criteria are met. The changes in fair value of the qualifying hedging instruments are offset in part or in whole by the 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 reserves until the underlying transaction is recognized in earnings. When it is determined that a forecasted hedged transaction is no longer expected to occur, all the corresponding gains and losses deferred in Other reserves are immediately recognized in earnings. Any amounts resulting from hedge ineffectiveness for both fair value and cash flow hedges are recognized in the current period’s income statement. For fair value hedges, both the changes in the fair value of the designated derivative instrument and the changes in the fair value of the hedged item are recognized currently in earnings.

Share-based compensation

Hydro accounts for share-based compensation in accordance with IFRS 2 Share-based Payment (IFRS 2). Hydro has an executive stock option plan, with a granting of share appreciation rights (SARs) to top management on an annual basis. The SARs are cash-settled upon exercise. At each reporting period, the fair value of the outstanding SARs is remeasured using a Black-Scholes option-pricing model and compensation expense is accrued, pro-rata based on the fair value, over the service period. SARs have been granted each year from 2002 to 2006, inclusive, and all grants are accounted for under IFRS 2 as of 1 January 2006. Hydro also has an employee share purchase rebate plan, where the plan payout is based on share price performance. Compensation expense in connection with this plan is measured at fair value over the service period. All share-based compensation expense includes social security taxes that will be paid by Hydro at the settlement date. All changes in fair value are recognized in profit and loss for the period. See the Annual Report 2006 note 4 for additional information.

Employee benefits and post-employment benefits

Short-term employee benefits, such as wages, salaries, social security contributions, paid annual leave, as well as short-term bonus agreements are accrued in the period in which the associated services are rendered by the employee.

Post-employment benefits are recognized in accordance with IAS 19 Employee Benefits (IAS 19). The cost of providing pension benefits under a defined benefit plan is determined separately for each plan using the projected unit method. Past service costs are recognized in the income statement on a straight-line basis over the remaining vesting period. Net cumulative actuarial gains and losses in excess of the greater of 10 percent of the benefit obligation (before deducting plan assets) and 10% of the fair value of any plan assets are amortized in the current period’s income statement over the remaining service period of active plan participants. The funded status of a defined benefit pension plan is measured as of 31 December. Hydro recognizes the pre-paid pension asset and the accrued pension liability related to our defined benefit plans in the statement of financial position.

Contributions to defined contribution schemes are recognized in the income statement in the period in which they accrue.

Segment information

Hydro identifies its reportable segments and disclose segment information under IFRS 8 Operating Segments. This standard requires Hydro to identify its segments according to the organization and reporting structure used by management. See the Annual Report 2006 note 5 for a description of Hydro’s segments and management model. The accounting policies used for segment reporting reflect those used for the group with the following exceptions: Certain internal commodity contracts may meet the definition of a financial instrument in IAS 39 or contain embedded derivatives that are required to be bifurcated and valued at fair value under IAS 39. However, Hydro consider these contracts as sourcing of raw materials or sale of own production even though the contracts for various reasons include clauses that meet the definition of a derivative or an embedded derivative. Such internal contracts are accounted for as executory contracts. Also certain internal contracts may contain lease arrangements that qualify as capital leases. However, the segment reporting reflects the responsibility allocated by Hydro management for those assets. Costs related to certain pension schemes covering more than one segment are allocated to the operating segments based on either premium charged or estimated service cost.

IFRS 8 is currently not endorsed by the EU. The identified segments and reported performance measures and other information reported in accordance with IFRS 8 may in certain respects be different from what would have been reported had its predecessor standard, IAS 14 Reporting Financial Information by Segment been applied.

Critical accounting estimates

Inherent in many of Hydro’s accounting policies is the need for management to make estimates and judgments in the determination of certain revenues, expenses, assets and liabilities. The conversion to IFRS has not changed our evaluation in respect to the accounting policy areas where Hydro makes critical accounting estimates. The accounting policy areas are exploration costs of oil and gas reserves, proved oil and gas reserves, derivative instruments, asset retirement obligations, impairment of long-lived assets, contingencies and environmental liabilities, business combinations and goodwill, income taxes and employee retirement plans. These critical areas involve a higher degree of judgment and complexity which, in turn, could materially impact Hydro’s financial statements if various assumptions were changed significantly. See the Annual Report 2006 pages 100-105 for a discussion of Hydro’s critical accounting policies.

Conversion to IFRS (GRAPHIC)

Consolidated income statement 2006 US GAAP to IFRS (unaudited)


										Pensions
				Presentation						and other						Property,
				and classi-			US GAAP			employee			Financial			plant and
	US GAAP			fication			reclassified			benefits			instruments			equipment			Other			IFRS

Year ended 31 December 2006
Amounts in NOK million
Note reference					A						B			C			D			E


Operating revenues		196,234			(196,234	)		—

Revenue					198,862			198,862			—			2,422			—			—			201,283

Share of the profit (loss) in equity accounted investments					971			971			—			—			—			19			990

Other income, net					1,496			1,496			—			—			(43	)		17			1,470

Total revenue and income					201,329			201,329			—			2,422			(43	)		36			203,744


Raw material and energy expense		98,961			(17,994	)		80,966			—			1,844			—			—			82,810

Employee benefits expense / Payroll and related costs		19,404			706			20,110			(564	)		—			—			—			19,546

Depreciation and amortization expense		16,937			(110	)		16,826			—			—			389			—			17,215

Impairment of non-current assets/ Impairment losses		5,228			—			5,228			—			—			264			—			5,492

Other		3,481			20,804			24,285			—			—			(572	)		(43	)		23,670

Total expenses / Operating costs and expenses		144,010			3,406			147,415			(564	)		1,844			81			(43	)		148,733


Operating income		52,224			(52,224	)


Earnings before financial items and tax					53,914			53,914			564			578			(124	)		79			55,010


Financial income (expense), net		1,785			(1,785	)		—

Financial income					1,425			1,425			—			—			—			—			1,425

Financial expense					(82	)		(82	)		—			(46	)		85			—			(43	)

Financial income (expense), net		1,785			(441	)		1,343			—			(46	)		85			—			1,382


Equity in net income of non-consolidated investees		962			(962	)		—

Other income (expense), net		53			(53	)		—


Income before tax / Income from continuing operations before taxes and minority interest		55,024			233			55,257			564			532			(39	)		79			56,392


Income tax expense		(37,598	)		(66	)		(37,665	)		(189	)		(645	)		(11	)		50			(38,459	)

Mintority interest		(202	)		202			—


Income from continuing operations		17,224			(17,224	)


Income from discontinued operations		167			(167	)


Net income		17,391			202			17,593			375			(113	)		(50	)		129			17,933


Net income attributable to minority interests					202			202			—			—			71			1			273

Net income attributable to equity holders of the parent					17,391			17,391			375			(113	)		(120	)		127			17,660

Consolidated condensed income statements
– 2006 quarterly presentation US GAAP to IFRS (unaudited)


								Pensions
			Presentation					and other						Property,
			and classi-			US GAAP		employee			Financial			plant and
	US GAAP		fication			reclassified		benefits			instruments			equipment			Other			IFRS

First quarter 2006
Amounts in NOK million
Note reference				A					B			C			D			E


Operating revenues		54,504		(54,504	)		—


Revenue				54,048			54,048		—			(997	)		—			—			53,050

Share of the profit (loss) in equity accounted investments				316			316		—			—			—			5			321

Other income, net				253			253		—			—			(10	)		—			244

Revenue and income				54,617			54,617		—			(997	)		(10	)		5			53,615


Depreciation, amortization and impairment		4,056		(28	)		4,028		—			—			103			—			4,131

Other expenses / Other operating costs		32,645		(354	)		32,291		(141	)		314			(146	)		295			32,613

Total expense / Operating costs and expenses		36,701		(381	)		36,319		(141	)		314			(43	)		295			36,745


Operating income		17,804		(17,804	)


Earnings before financial items and tax				18,298			18,298		141			(1,311	)		33			(290	)		16,870


Equity in net income of non-consolidated investees		309		(309	)		—

Financial income (expense), net		760		(115	)		645		—			—			19			—			664


Income before tax / Income from continuing operations before taxes and minority interest		18,872		71			18,943		141			(1,311	)		52			(290	)		17,534

Conversion to IFRS (GRAPHIC)


								Pensions
			Presentation					and other						Property,
			and classi-			US GAAP		employee			Financial			plant and
	US GAAP		fication			reclassified		benefits			instruments			equipment			Other			IFRS

Second quarter 2006
Amounts in NOK million
Note reference				A					B			C			D			E


Operating revenues		50,409		(50,409	)		—


Revenue				49,862			49,862		—			(151	)		—			—			49,711

Share of the profit (loss) in equity accounted investments				372			372		—			—			—			4			376

Other income, net				449			449		—			—			(17	)		—			432

Revenue and income				50,683			50,683		—			(151	)		(17	)		4			50,519


Depreciation, amortization and impairment		4,004		(35	)		3,970		—			—			124			—			4,094

Other expenses / Other operating costs		31,835		(246	)		31,589		(149	)		(412	)		(125	)		(310	)		30,593

Total expense / Operating costs and expenses		35,840		(281	)		35,559		(149	)		(412	)		(1	)		(310	)		34,686


Operating income		14,570		(14,570	)


Earnings before financial items and tax				15,124			15,124		149			261			(16	)		314			15,833


Equity in net income of non-consolidated investees		368		(368	)		—

Financial income (expense), net		919		(113	)		807		—			(36	)		22			—			792


Income before tax / Income from continuing operations before taxes and minority interest		15,857		74			15,931		149			225			6			314			16,626


										Pensions
				Presentation						and other					Property,
				and classi-			US GAAP			employee			Financial		plant and
	US GAAP			fication			reclassified			benefits			instruments		equipment			Other			IFRS

Third quarter 2006
Amounts in NOK million
Note reference					A						B			C		D			E


Operating revenues		50,090			(50,090	)		—


Revenue					49,563			49,563			—			746		—			—			50,309

Share of the profit (loss) in equity accounted investments					228			228			—			—		—			6			234

Other income, net					308			308			—			—		(10	)		—			298

Revenue and income					50,100			50,100			—			746		(10	)		6			50,841


Depreciation, amortization and impairment		4,206			(31	)		4,175			—			—		1,882			—			6,057

Other expenses / Other operating costs		30,606			(308	)		30,298			(143	)		582		(136	)		21			30,622

Total expense / Operating costs and expenses		34,812			(340	)		34,472			(143	)		582		1,747			21			36,679


Operating income		15,278			(15,278	)


Earnings before financial items and tax					15,627			15,627			143			164		(1,757	)		(15	)		14,162


Equity in net income of non-consolidated investees		231			(231	)		—

Financial income (expense), net		(741	)		(111	)		(852	)		—			13		19			—			(819	)


Income before tax / Income from continuing operations before taxes and minority interest		14,769			7			14,776			143			178		(1,738	)		(15	)		13,343

Conversion to IFRS (GRAPHIC)


								Pensions
			Presentation					and other						Property,
			and classi-			US GAAP		employee			Financial			plant and
	US GAAP		fication			reclassified		benefits			instruments			equipment			Other			IFRS

Fourth quarter 2006
Amounts in NOK million
Note reference				A					B			C			D			E


Operating revenues		41,230		(41,230	)		—


Revenue				45,389			45,389		—			2,824			—			—			48,213

Share of the profit (loss) in equity accounted investments				55			55		—			—			—			4			59

Other income, net				485			485		—			—			(6	)		17			496

Revenue and income				45,929			45,929		—			2,824			(6	)		21			48,768


Depreciation, amortization and impairment		9,898		(17	)		9,882		—			—			(1,456	)		—			8,425

Other expenses / Other operating costs		26,759		4,424			31,184		(131	)		1,361			(166	)		(49	)		32,198

Total expense / Operating costs and expenses		36,657		4,408			41,065		(131	)		1,361			(1,622	)		(49	)		40,624


Operating income		4,573		(4,573	)


Earnings before financial items and tax				4,864			4,864		131			1,464			1,616			70			8,144


Equity in net income of non-consolidated investees		54		(54	)		—

Financial income (expense), net		847		(103	)		744		—			(23	)		25			—			745

Other income (expense), net		53		(53	)		—		—			—			—			—			—


Income before tax / Income from continuing operations before taxes and minority interest		5,527		81			5,607		131			1,440			1,641			70			8,889

Consolidated balance sheet 1 January 2006 US GAAP to IFRS (unaudited)


								Pensions
			Presentation					and other						Property,
			and classi-			US GAAP		employee			Financial			plant and
	US GAAP		fication			reclassified		benefits			instruments			equipment		Other		IFRS

1 January 2006
Amounts in NOK million
Note reference				A					B			C			D		E


Assets
Cash and cash equivalents		10,463		—			10,463		—			—			—		—		10,463

Short-term investments		3,865		—			3,865		—			—			—		—		3,865

Accounts receivable		23,333		12,106			35,438		—			—			—		—		35,438

Inventories		14,553		—			14,553		—			—			—		—		14,553

Other current assets / Prepaid expenses and other current assets		15,912		(12,106	)		3,806		—			3,148			—		—		6,955

Current deferred tax assets		2,166		(2,166	)		—

Total current assets		70,293		(2,166	)		68,126		—			3,148			—		—		71,275


Investments accounted for using the equity method / Non-consolidated investees		10,814		—			10,814		—			—			—		30		10,844

Property, plant and equipment		128,191		(5,443	)		122,747		—			—			1,285		—		124,032

Intangible assets		5,153		5,443			10,596		(225	)		—			—		—		10,371

Financial assets				7,175			7,175		—			(2,642	)		—		919		5,452

Other non-current assets/ Prepaid pension, investments and other non-current assets		11,910		(7,175	)		4,735		(4,639	)		—			—		—		96

Deferred tax assets		833		982			1,815		—			—			—		—		1,815

Total non-current assets		156,902		982			157,884		(4,864	)		(2,642	)		1,285		949		152,611


Total assets		227,195		(1,184	)		226,010		(4,864	)		506			1,285		949		223,885

Conversion to IFRS (GRAPHIC)


										Pensions
				Presentation						and other						Property,
				and classi-			US GAAP			employee			Financial			plant and
	US GAAP			fication			reclassified			benefits			instruments			equipment			Other			IFRS
1 January 2006
Amounts in NOK million
Note reference				A						B			C			D			E


Liabilities and equity
Trade and other payables					27,832			27,832			—			—			—			—			27,832

Bank loans and other interest-bearing short-term debt		4,658			379			5,037			—			—			—			—			5,037

Current portion of long-term debt		379			(379	)		—			—			—			—			—			—

Provisions					1,209			1,209			—			—			(10	)		—			1,200

Taxes payable					13,843			13,843			—			—			—			—			13,843

Other current liabilities		47,239			(42,885	)		4,355			—			4,711			—			—			9,066

Current deferred tax liabilities		980			(980	)		—

Total current liabilities		53,256			(980	)		52,277			—			4,711			(10	)		—			56,978


Long-term debt		21,387			—			21,387			—			—			—			—			21,387

Provisions					7,905			7,905			—			—			2,908			70			10,883

Pension obligation		9,939			(45	)		9,895			3,026			—			—			—			12,921

Other financial liabilities					2,336			2,336			—			(1,934	)		—			—			402

Other liabilities		12,424			(10,196	)		2,228			544			—			—			(22	)		2,750

Deferred tax liabilities		33,713			(205	)		33,508			(2,423	)		(1,480	)		(1,924	)		139			27,820

Total non-current liabilities		77,462			(205	)		77,258			1,148			(3,413	)		984			187			76,164


Total liabilities					129,535			129,535			1,148			1,298			975			187			133,142


Minority shareholders’ interest in consolidated subsidiaries		981			(981	)		—

Share capital		4,739			—			4,739			—			—			—			—			4,739

Additional paid-in capital		10,501			—			10,501			—			—			—			—			10,501

Other reserves /Accumulated other comprehensive income (loss)		(2,083	)		—			(2,083	)		1,306			—			—			1,500			723

Retained earnings		85,927			—			85,927			(7,317	)		(740	)		258			(738	)		77,390

Treasury shares		(3,589	)		—			(3,589	)		—			—			—			—			(3,589	)

Equity attributable to equity holders of the parent / Shareholders’ equity		95,495			—			95,495			(6,012	)		(740	)		258			762			89,763

Minority interest					981			981			—			(53	)		52			(1	)		980


Total equity					96,476			96,476			(6,012	)		(792	)		310			762			90,743


Total liabilities and equity / shareholders’ equity		227,195			(1,184	)		226,010			(4,864	)		506			1,285			949			223,885

Consolidated balance sheet 31 December 2006 US GAAP to IFRS (unaudited)


								Pensions
			Presentation					and other						Property,
			and classi-			US GAAP		employee			Financial			plant and
	US GAAP		fication			reclassified		benefits			instruments			equipment		Other		IFRS
31 December 2006
Amounts in NOK million
Note reference			A					B			C			D		E


Assets
Cash and cash equivalents		6,760		—			6,760		—			—			—		—		6,760

Short-term investments		15,020		—			15,020		—			—			—		—		15,020

Accounts receivable		25,608		8,901			34,508		—			—			—		—		34,508

Inventories		16,497		—			16,497		—			—			—		—		16,497

Other current assets / Prepaid expenses and other current assets		14,025		(8,901	)		5,124		—			2,856			—		—		7,980

Current deferred tax assets		3,099		(3,099	)		—

Assets held for sale / Current assets held for sale		1,122		2,569			3,691		—			—			—		—		3,691

Total current assets		82,131		(530	)		81,602		—			2,856			—		—		84,457


Investments accounted for using the equity method / Non-consolidated investees		10,455					10,455		—			—			—		235		10,690

Property, plant and equipment		124,976		(6,604	)		118,372		—			—			702		—		119,075

Intangible assets		4,861		6,604			11,464		—			—			—		11		11,475

Financial assets				6,464			6,464		—			(2,332	)		—		782		4,914

Other non-current assets / Prepaid pension, investments and other non-current assets		7,763		(6,464	)		1,298		(995	)		—			—		—		303

Deferred tax assets		1,239		938			2,177		—			—			—		—		2,177

Non-current assets held for sale		2,569		(2,569	)		—

Total non-current assets		151,862		(1,631	)		150,231		(995	)		(2,332	)		702		1,028		148,635


Total assets		233,993		(2,160	)		231,833		(995	)		524			702		1,028		233,092

Conversion to IFRS (GRAPHIC)


										Pensions
				Presentation						and other						Property,
				and classi-			US GAAP			employee			Financial			plant and
	US GAAP			fication			reclassified			benefits			instruments			equipment			Other			IFRS
31 December 2006
Amounts in NOK million
Note reference				A						B			C			D			E


Liabilities and equity
Trade and other payables					29,785			29,785			—			—			—			—			29,785

Bank loans and other interest-bearing short-term debt		3,213			441			3,655			—			—			—			—			3,655

Current portion of long-term debt		441			(441	)		—

Provisions					2,217			2,217			—			—			(45	)		25			2,197

Taxes payable					18,995			18,995			—			—			—			—			18,995

Other current liabilities		55,550			(51,561	)		3,989			—			3,960			—			—			7,949

Current deferred tax liabilities		1,134			(1,134	)		—			—			—			—			—			—

Liabilities included in disposal groups / Current liabilities in disposal groups		738			273			1,011			1			—			—			—			1,011

Total current liabilities		61,076			(1,425	)		59,651			1			3,960			(45	)		25			63,591


Long-term debt		19,619			—			19,619			—			—			—			—			19,619

Provisions					11,913			11,913			—			—			2,433			10			14,357

Pension obligation		12,391			522			12,913			(308	)		—			—			—			12,605

Other financial liabilities					2,047			2,047			—			(1,694	)		—			—			353

Other liabilities		16,126			(13,918	)		2,208			510			—			—			(16	)		2,702

Deferred tax liabilities		27,307			(1,027	)		26,280			(294	)		(855	)		(1,914	)		47			23,265

Long-term liabilities in disposal groups		273			(273	)		—

Total non-current liabilities		75,715			(735	)		74,980			(91	)		(2,549	)		519			41			72,900


Total liabilities					134,631			134,631			(90	)		1,411			474			66			136,491


Minority shareholders’ interest in consolidated subsidiaries		707			(707	)		—


Share capital		4,708			—			4,708			—			—			—			—			4,708

Additional paid-in capital		9,736			—			9,736			—			—			—			—			9,736

Other reserves / Accumulated other comprehensive income (loss)		(9,135	)		—			(9,135	)		6,078			—			—			1,524			(1,533	)

Retained earnings		97,811			—			97,811			(6,983	)		(835	)		112			(561	)		89,544

Treasury shares		(6,624	)		—			(6,624	)		—			—			—			—			(6,624	)

Equity attributable to equity holders of the parent / Shareholders’ equity		96,496			—			96,496			(905	)		(835	)		112			963			95,831

Minority interest					707			707			—			(53	)		117			—			771


Total equity					97,202			97,202			(905	)		(888	)		229			963			96,601


Total liabilities and equity / shareholders’ equity		233,993			(2,160	)		231,833			(995	)		524			702			1,028			233,092

Reconciliation of equity — 2006 quarterly presentation US GAAP to IFRS (unaudited)


							Pensions
			Presentation				and other						Property,
			and classi-		US GAAP		employee			Financial			plant and
	US GAAP		fication		reclassified		benefits			instruments			equipment			Other			IFRS
Amounts in NOK million
Note reference			A				B			C			D			E


1 January 2006
Equity attributable to equity holders of the parent / Shareholders’ equity		95,495		—		95,495		(6,012	)		(740	)		258			762			89,763

Minority interest/ Minority shareholders’ interest in consolidated subsidiaries		981		—		981		—			(53	)		52			(1	)		980

Total equity						96,476		(6,012	)		(792	)		310			762			90,743


31 March 2006
Equity attributable to equity holders of the parent / Shareholders’ equity		99,898		—		99,898		(5,896	)		(1,495	)		267			362			93,135

Minority interest/ Minority shareholders’ interest in consolidated subsidiaries		907		—		907		—			(104	)		68			(1	)		871

Total equity						100,805		(5,896	)		(1,599	)		334			361			94,006


30 June 2006
Equity attributable to equity holders of the parent / Shareholders’ equity		97,033		—		97,033		(6,032	)		(1,300	)		241			495			90,436

Minority interest/ Minority shareholders’ interest in consolidated subsidiaries		719		—		719		—			(103	)		85			(1	)		700

Total equity						97,752		(6,032	)		(1,404	)		326			494			91,136


30 September 2006
Equity attributable to equity holders of the parent / Shareholders’ equity		103,165		—		103,165		(5,987	)		(1,436	)		(922	)		516			95,336

Minority interest/ Minority shareholders’ interest in consolidated subsidiaries		754		—		754		—			(70	)		109			(1	)		792

Total equity						103,919		(5,987	)		(1,506	)		(813	)		515			96,129


31 December 2006
Equity attributable to equity holders of the parent / Shareholders’ equity		96,496		—		96,496		(905	)		(835	)		112			963			95,831

Minority interest/ Minority shareholders’ interest in consolidated subsidiaries		707		—		707		—			(53	)		117			—			771

Total equity						97,202		(905	)		(888	)		229			963			96,601

Conversion to IFRS (GRAPHIC)

US GAAP conversion to IFRS: Explanation of differences

Introduction

During the conversion process from US GAAP to IFRS, Hydro analyzed in detail all standards relevant for our financial statements. When comparing an IFRS to an US GAAP principle, many standards have the same reporting objective; however when comparing the details we have identified practical implementation differences for specific transactions or classes of transactions, that, while not of a material nature for Hydro in 2006, could be material for future reporting periods. These areas of possible future differences include capitalized interest, share-based payments, business combinations and financial instruments. These differences are not discussed in detail below, as the 2006 IFRS financial statements are not affected.

The following discussion corresponds to the difference columns A-E in the US GAAP to IFRS reconciliation income statements, balance sheets and reconciliation of equity presented above. The discussion covers the transition effects on the 1 January 2006 opening balance, balance sheet differences as of 31 December 2006 and income differences during 2006. The US GAAP to IFRS income statements and balance sheets give the new IFRS line name first, followed by the US GAAP line name that is being replaced. Presentation and classification changes are shown first, using US GAAP figures. The IFRS classified US GAAP figures are then adjusted in columns B-E, in respect of the IFRS measurement changes.

A — Presentation and classification

Income Statement

There are presentation and classification differences when comparing the IFRS to the US GAAP income statement. Operating revenues is now called Revenue. Under US GAAP, Operating revenues include some miscellaneous revenue items classified as Other income, net under IFRS. The line item Share of the profit (loss) from equity accounted investments moves up the income statement and is now included as part of Total revenue and income. The amount of Share of the profit (loss) from equity accounted investments is different after the presentation change as discontinued operations are included in the amount; IFRS does not have a line item Discontinued operations in the 2006 financial statements. The line item Other income, net, comprises some miscellaneous revenue items and gain or loss on sale of property, plant and equipment and investments previously reported as part of Other operating expenses.

One significant difference is that the Automotive Castings business is not considered a separate major line of business and thus not separately reported as discontinued operations. As a result, the line Discontinued operations is not part of the IFRS income statement for 2006, and the NOK 167 million US GAAP loss on discontinued operations is therefore distributed among the IFRS income statement line items (in column A) between Revenues, Other income, net, Raw materials and energy costs, Employee benefits expense, Depreciation and amortization expense, Other, and Financial income and Financial expense.

Accretion expense related to the asset retirement obligations is now classified as part of Financial expense; under US GAAP this is classified as part of Depreciation and amortization expense. The Depreciation and amortization expense NOK (110) million adjustment in column A represents NOK 332 million related to discontinued operations and NOK (442) million related to the ARO accretion expense. The line item Operating income is replaced by Earnings before financial items and tax as the primary measure of earnings in the segments. Financial items are now shown separately as Financial income, and Financial expense. Financial expense includes exchange gains and losses (no change from US GAAP) and accretion expense related to ARO and provisions (a change as compared to US GAAP). Provision accretion expense under US GAAP is classified as Other expenses.

Minority interest now is located on the IFRS income statement after the subtotal Net income. The final figure in the IFRS income statement is a new line item Net income attributable to equity holders of the parent, which is the equivalent line to the US GAAP line Net income. IFRS Net income is before Net income attributable to minority interests.

Balance sheet

Other short-term receivables that were included as part of Other current assets for US GAAP reporting are now classified for IFRS financial reporting as part of Accounts Receivable. These short-term receivables primarily relate to VAT receivable and other external prepaid items. Capitalized exploration costs, classified as part of Property, plant and equipment under US GAAP are now classified as part of Intangible assets. Non-current financial assets are now shown on the face of the balance sheet, reclassified from Other non-current assets.

Shares held for trading are classified as part of Short-term investments with a fair value of NOK 586 million in the 1 January 2006 balance sheet under both IFRS and US GAAP. Non-marketable shares previously classified under US GAAP as not held for trading are classified as available-for-sale under IFRS with changes in fair value booked against equity. The shares are presented in the balance sheet as part of Financial Assets. Non-marketable shares in the US GAAP balance sheet were classified as Prepaid pension, investment and other non-current assets, and measured at cost.

Trade and other payables, Taxes payable and Provisions (current) are reclassified from Other current liabilities and shown separately in the IFRS balance sheet. The current portion of long-term debt is not presented as a separate line item in the IFRS balance sheet, but instead is included as part of Bank loans and other interest-bearing debt. Provisions (non-current) and Other financial liabilities are re-classified from Other liabilities, non-current and shown separately as non-current liabilities. To achieve a more correct presentation under IFRS, NOK 45 million in the 1 January 2006 balance sheet relating to an accrual for long-term employee benefits has been reclassified

from accrued pension liabilities to other liabilities, non-current. The adjustment in the 31 December 2006 balance sheet was NOK 42 million.

All deferred tax assets and deferred tax liabilities are classified as non-current; under US GAAP the requirement is to show the current and non-current deferred tax assets and liabilities separately.

The elements included in the US GAAP line item Accumulated other comprehensive income are now included in the IFRS line item Other reserves.

Statement of cash flows

The 2006 IFRS statement of cash flows is very similar in presentation and format to Hydro’s 2006 US GAAP statement of cash flows, with only four presentation, classification or measurement differences related to the measurement of cash, classification of capitalized interest, presentation of capitalized capital maintenance and presentation related to Assets held for sale. These differences are discussed below. A reconciliation of the US GAAP to IFRS statement of cash flows is not presented, as it is not an IFRS requirement and our differences are not significant. See the Annual Report 2006 for the US GAAP statement of cash flows.

The IFRS statement of cash flows includes bank overdrafts in the definition of cash; bank overdrafts are excluded from the US GAAP cash definition. In the 2006 statement of cash flows, the IFRS 1 January and 31 December 2006 cash balances in the statement of cash flows are NOK 9,964 million and NOK 6,674 million, respectively. This is NOK 499 million and NOK 86 million lower than the US GAAP cash balances reported for 1 January and 31 December 2006, respectively.

Capitalized interest in the amount NOK 1,231 million is classified as an operating activity in the IFRS statement of cash flows, and is classified as an investing activity in the US GAAP statement of cash flows, included as part of Purchases of property, plant and equipment.

In the IFRS statement of cash flows, the capitalized capital maintenance for the period is presented as part of investing activities. Under US GAAP for 2006, the accrual method was used and costs related to capital maintenance are expensed in the income statement and therefore included in the US GAAP statement of cash flows as part of net income. See also the section below “D – Property, plant & equipment, Periodic maintenance.”

In the fourth quarter of 2006 the results and cash flows of the Automotive Castings business were reported as discontinued operations in US GAAP. As this is not a separate major line of business, it is not separately reported under IFRS but is included in cash flows from continuing operations.

IFRS allows the financial statement preparer the choice to classify interest and dividends paid and received as part of operating activities or interest as part of investing activities and dividends as part of financing activities. Hydro has chosen the same classification as is currently required by US GAAP, which is to classify interest and dividends paid and received as part of operating activities.

Even excluding the above specific items, there will always be overall general differences when comparing the IFRS and US GAAP cash from operating, investing and financing activities. This is unavoidable as long as there are IFRS as compared to US GAAP measurement and recognition differences in the balance sheet and income statement. These differences are discussed throughout the rest of this document, and not specifically detailed here in relation to the statement of cash flows.

B — Pensions

IFRS requires either full retrospective application of IAS 19 Employee Benefits, or recognition of all cumulative actuarial gains and losses at the date of transition to IFRS. Hydro has elected to utilize the implementation provision to recognize prior periods’ unrecognized gains and losses directly in equity as of 1 January 2006. As of 1 January 2006, the GAAP difference includes unrecognized prior service costs and unrecognized net losses of NOK 9,804 million. Both of these elements are amortized over the future service period in US GAAP. The US GAAP intangible assets and accrued liability related to the additional minimum liability of NOK 225 million and NOK 2,132, respectively, were reversed for IFRS reporting as IFRS does not allow for such an asset/liability to be recognized. Net of tax, the decrease in equity per 1 January 2006 related to pensions and other employee benefits is NOK 6,012 million.

As the funded status of the pension plans was recognized in the US GAAP balance sheet as of 31 December 2006, the impact on Hydro’s IFRS balance sheet as of the end of 2006 was limited. The IFRS to US GAAP pre-tax difference of NOK 687 million represents net unrecognized gains and losses incurred during 2006. Under Hydro’s IFRS accounting principles net cumulative actuarial gains and losses in excess of the greater of 10 percent of the benefit obligation (before deducting plan assets) and 10 percent of the fair value of any plan assets are amortized in the income statement over the remaining service period of active plan participants.

Pension costs during 2006 were NOK 564 million lower under IFRS as compared to US GAAP due to amortization differences related to past service costs and accumulated losses. Net of tax, the decrease in equity as of 31 December 2006 related to pensions and other employee benefits is NOK 905 million. Hydro applies the same economic and actuarial assumptions under IFRS as applied under US GAAP.

As of 31 December 2006, Hydro has a GAAP timing difference of NOK 78 million related to curtailments of certain defined benefit pension plans. Under IFRS, curtailment gains are recognized when curtailments occur. Under US GAAP, curtailment gains are deferred until realized.

Conversion to IFRS (GRAPHIC)

C — Financial instruments

Measurement and scoping

Some contracts that contain embedded derivatives are accounted for as derivatives under US GAAP in their entirety, while only the embedded derivatives are separated under IFRS.

Under US GAAP, where the commodity in the contract is traded in a liquid market, Hydro would have to perform extensive documentation that the assets in the contract are for “Normal Purchase and Normal Sales” (NPNS) purposes. Otherwise, the contract would, in most cases, be accounted for at fair value. For many contracts, Hydro has elected not to document NPNS. Under IFRS, all commodity contracts that are not part of a “trading” portfolio are accounted for at cost. IFRS do not have any formal “own use” documentation requirements. This creates a difference for Hydro between IFRS and US GAAP.

Hydro enters into offsetting positions in the market for physical LME-grade and physical non-LME grade aluminium contracts. IFRS require that all of these contracts be accounted for at fair value. However, only physical LME-grade aluminium contracts are accounted for at fair value under US GAAP.

Hydro has, for US GAAP reporting, separated embedded currency derivatives from some sales and purchase contracts and values the derivatives as forward contracts. These derivatives are, for the most part, not separated for IFRS reporting purposes, as the currencies in the contracts are considered to be commonly used in the country to which the products are sold / sold from.

Contracts entered into before 1 January 1999 that contained embedded derivatives are not recognized as derivatives under US GAAP according to Hydro US GAAP implementation policy. These embedded derivatives are separated under IFRS and recognized at fair value. Hydro currently has no contracts or other financial instruments to which the fair value option has been applied.

Valuation

Some embedded derivatives, previously valued as swap arrangements, are under IFRS valued as embedded forward contracts. This primarily relates to aluminium, coal and inflation price links in long-term electricity contracts.

Accounting practice has been to value contracts over the liquid horizon (typically 3-5 years) under US GAAP. Under IFRS, all commodity contracts scoped in to be accounted for at fair value are fair valued over the full contract horizon.

Classification

Under IFRS derivative contracts and financial instruments are netted only when an ability and intention to net settle exists, while under US GAAP contracts are netted based on the existence of a master netting agreement.

Under IFRS all derivatives are recognized as short-term, with the exception of derivatives held for hedging purposes, while under US GAAP contracts with a final maturity date of more than twelve months outside the balance sheet date are classified as long-term.

Effects on 1 January 2006 opening balance and quarters

The table below shows the effect in NOK million, between IFRS and US GAAP, on the 1 January 2006 opening balance and the quarters, respectively:

Negative amounts relating to balance sheet indicate a net decreased asset, increased liability under IFRS compared to US GAAP. Negative amounts in the profit and loss statement indicate a net decreased result under IFRS compared to US GAAP.

Different valuation horizons, and different scoping of contracts based on embedded derivatives under the two GAAPs, creates the majority of IFRS to US GAAP reporting differences as presented above for Hydro.

D — Property, plant & equipment

Periodic maintenance

Under US GAAP for the period prior to 1 January 2007, expenditures for periodic maintenance and repairs applicable to production facilities are accounted for on an accrual basis. Under IFRS periodic maintenance is capitalized and depreciated. In the 1 January 2006 US GAAP to IFRS balance sheet, Property, plant and equipment is increased by NOK 1,362 million related to periodic maintenance. US GAAP provisions of NOK 10 million, current and NOK 131 million, non-current, are reversed in the 1 January IFRS balance sheet. In the 2006 income statement IFRS deprecation is higher than US GAAP depreciation by NOK 436 million. Other (expenses) are lower for IFRS by NOK 522 million.

As of 1 January 2007, Hydro will use the same accounting treatment for capitalized capital maintenance for US GAAP reporting as under IFRS. Therefore, this difference ceases to exist after 31 December 2006.

(unaudited)


	Opening			First			Second			Third			Fourth
	balance			quarter			quarter			quarter			quarter
Derivatives differences, net IFRS to US GAAP:	2006			2006			2006			2006			2006

Balance sheet, pre-tax		(2,272	)		(3,582	)		(3,355	)		(3,190	)		(1,742	)

Income statement, pre-tax		—			(1,311	)		225			178			1,440

Asset Retirement Obligations

The total estimated present value of asset retirement obligations is NOK 10,733 million as of 1 January 2006 and NOK 14,633 million as of 31 December 2006, which is NOK 3,040 million and NOK 2,573 million above the estimated present value according to US GAAP as of 1 January 2006 and 31 December 2006, respectively. The majority of the obligation relates to future decommissioning of oil and gas installations on the Norwegian continental shelf and in other parts of the world where Hydro has interest in oil and gas production. The removal is expected to take place in the period 2007 to 2041, with the majority of the estimated costs related to removals expected in the period 2020 to 2030. The estimates for decommissioning costs and time are the same for IFRS and US GAAP. However, the estimates are discounted using the current risk free interest rates in the interval 3 percent to 4.5 percent for IFRS purposes, while the discount rates used for US GAAP purposes represent credit adjusted risk free interest levels at inception of the obligation and range from 5.5 percent to 7.5 percent. The interest rates used for discounting refer to the duration of the liability and the currency in the economic environment where the liability is incurred. The lower interest rate level used for IFRS purposes will result in a comparatively lower accretion expense recognized under IFRS as compared to the accretion expense recognized under US GAAP.

Classification of the accretion expense related to the ARO is different under the two GAAPs. Under IFRS, the accretion expense is classified as part of Financial expense, while it was previously classified under US GAAP as part of Depreciation, depletion and amortization.

Depreciation of the related asset will be higher under IFRS as compared to US GAAP, as the related assets are NOK 361 million higher under IFRS compared to US GAAP as of 31 December 2006. This is due to interest rate differences.

Impairment of Property, plant and equipment

The accounting principles under IFRS differ from those applied under US GAAP. The most important differences for Hydro are as follows. US GAAP requires a two-step test where the first step involves testing the asset’s carrying value against the sum of undiscounted expected cash flows from the asset. If this test implies that the asset is impaired, the asset is written down to its estimated fair value. In IFRS, there is a one-step impairment test whereby the asset’s carrying value is compared to the higher of its estimated fair value and its value in use based on discounted expected cash flows from the asset. Generally, the difference related to the impairment testing procedure implies that impairments can be expected to occur earlier under IFRS than when applying US GAAP. Additionally, under IFRS, impairment losses are reversed if the reason for the impairment is no longer present, whereas under US GAAP reversal of an impairment loss is not allowed.

As of the adoption of IFRS, Hydro recognized the reversal of previously reported NOK 174 million impairment loss related to one asset in the Oil & Energy segment. At the time of adoption of IFRS, market conditions had significantly improved and the basis for impairment of the field was no longer present. The impairment was reversed with a total of NOK 84 million, reflecting what would have been the carrying value after depreciation had the asset not been written down as impaired.

In addition, Hydro recognized impairment losses related to two plants, which both are considered cash generating units, in the Rolled Products sub-segment of the Aluminium Products segment. For both the plants, expected future cash flows exceed the carrying value of the assets when not discounted, i.e. no impairment was recognized in US GAAP. However, discounted future cash flows did not cover the carrying value of the asset. An impairment loss of NOK 60 million was recognized on the Malaysian plant. For the Hamburg operation, the impairment loss identified was NOK 102 million.

During 2006, additional impairment losses were identified. In the second quarter an impairment loss of NOK 23 million was recognized related to the Automotive Products plant in Holland, USA, which is part of Automotive Products. In the fourth quarter, a renewed evaluation of the situation in Malaysia was carried out based on continuing operating losses. An impairment loss of NOK 150 million was recognized in the fourth quarter. Also in the fourth quarter, an impairment loss of NOK 66 million was identified related to a remelt plant in Metal.

An impairment loss of NOK 5,240 million relating to Hydro’s oil and gas operations in the US Gulf of Mexico was recognized in US GAAP in the fourth quarter. When Hydro issued its third quarter interim report, the assets were evaluated for impairment as a result of continued production shortfalls, but an impairment was not recognized at this time under US GAAP as the undiscounted cash flows exceeded book value. Based on the estimates available as of the issuance of the third quarter, an IFRS impairment loss of NOK 1,804 million was recognized in the third quarter, based on the IFRS impairment test requiring the use of discounted cash flows. An additional impairment was recognized in IFRS in the fourth quarter, based on new information available at that time.

E – Other

Other effects comprises differences that have a less material impact on Hydro’s equity and net income than the differences discussed above, and are expected to not significantly change the reported equity or results in the future.

Equity accounted investees

The 2006 financial statements of Hydro’s associate and joint venture investees have been reviewed for differences between US GAAP and IFRS, and between IFRS as applied by Hydro and as applied by our investee. For Hydro’s investees there is a very limited accounting effect related to the different GAAPs. The identified US GAAP to IFRS differences of our investees are the same as for Hydro, and

Conversion to IFRS (GRAPHIC)

include defined benefit pension and other post employment schemes, capitalization and depreciation of maintenance costs, and differences related to recognition and measurement of contracts in scope of IAS 39 Financial Instruments versus the corresponding US GAAP standard, SFAS 133 Accounting for Derivative Instruments and Hedging Activities.

The previously recognized US GAAP impairment write-down related to the Naturkraft investment of NOK 85 million was reversed as of 1 January 2006 under IFRS. The reversal of the write-down reflects the fact that the partners as of 1 January 2006 had reassumed their work towards completing the planned investment after securing authority approval at acceptable terms; the reasons for impairing the asset no longer exist.

The IFRS gain on the sale of Hydro’s investment in Hydro Texaco in the fourth quarter 2006 was NOK 70 million, which is NOK 17 million higher than the gain recognized under US GAAP. The difference is primarily due to Hydro setting to zero all 1 January 2006 foreign currency translation differences in the IFRS opening balance sheet and IFRS to US GAAP differences in the Hydro Texaco financial statements.

Equity investments

Under IFRS, non-marketable equity securities are recognized at fair value in the balance sheet. Hydro has elected to recognize changes in fair value directly in equity, thus no IFRS-US GAAP difference related to non-marketable equity investments is, or will be, recognized in the income statement. The 1 January 2006 IFRS carrying value of these investments is NOK 919 million above cost. The carrying amount under US GAAP was NOK 1,138 million as of 1 January 2006 while the IFRS fair value as of 1 January 2006 is NOK 2,058 million. Net of tax, the increase in carrying value compared to US GAAP is NOK 663 million. These investments are not traded on stock exchanges or similarly regulated markets. Valuation is, for the largest investments, based on an initial external valuation combined with periodic valuations based on Hydro’s internal valuation models. For smaller investments, valuations are based on internal models. The valuations often are based on a model utilizing cash flow estimates and a market based discount rate for return on equity combined with earnings multiples.

Provisions

The recognition criteria are different in IFRS compared to US GAAP. IFRS require recognition of a provision when outflow of economic resources is “probable” defined as more likely than not, generally any probability above 50 percent. US GAAP requires recognition of a provision when the outflow of economic resources is “probable”, meaning a significantly higher probability than “more likely than not”. This is generally interpreted to mean a probability of at least 70-80 percent.

There is also a difference in measurement when the expected outflow is a range of results where no single outcome has a higher probability than any other outcome within the range. In those situations US GAAP require recognition of the lowest possible outcome within the range, while IFRS require the mid point of the range. For exit activities, including costs related to work force reductions, IFRS require recognition of a liability when management commits to a plan to incur such costs, and communicates its intent in a way that raises valid expectations among those who will receive compensation as part of that plan. US GAAP does not allow recognition of such costs based on a communicated plan alone, and generally require later recognition than IFRS.

The IFRS to US GAAP differences resulted in an increase of recognized provisions of NOK 70 million as of 1 January 2006, mainly resulting from work force reductions in the Metal operations in Neuss, Germany, which was recognized as of 1 January 2006. Certain exit costs related to the closure of the aluminium smelter in Stade, Germany, were recognized in the amount of NOK 289 million in IFRS in the first quarter of 2006, while the provision was recognized in the second quarter 2006 under US GAAP.

Development costs

Under IFRS, development costs are capitalized providing certain criteria are met. Under US GAAP, development costs are expensed unless they relate to the development of information system software or information technology systems or in certain situations related to the construction of property, plant and equipment. Only one project related to smelter technology has, in the fourth quarter 2006, reached a stage where development costs are now capitalized under IFRS, but not for US GAAP. The project will continue in 2007.

Deferred tax and tax expense

There are certain differences in how deferred tax is measured under IFRS as compared to US GAAP. The most important difference for Hydro results from subsidiaries having tax payments in a currency different from their functional currency. This relates to certain subsidiaries both within Oil & Energy and Aluminium Metal. These subsidiaries generally have the US dollar as their functional currency, while taxes are paid in the local currency in the country of incorporation or the country where the operations are conducted. Another difference relates to unrealized gains on inventory that are calculated with the buyer’s tax rate under IFRS, while US GAAP require the seller’s tax rate to be used. This difference is not material for Hydro.

Sale and leaseback contracts

Hydro has one sale and leaseback contract related to a production vessel in the Oil & Energy segment where the original gain is amortized over the lease term. As the lease contract is an operating lease, IFRS requires immediate recognition of the gain. The remaining unamortized gain in US GAAP of NOK 22 million (NOK 5 million after tax) has been recognized as reduced liabilities and increased equity as of 1 January 2006. The amortization of NOK 5 million during 2006 for US GAAP reporting purposes represents a difference in IFRS as compared to US GAAP net income.

Hydro is a Fortune 500 energy and aluminium company with 33,000 employees in nearly 40 countries. We are a leading offshore producer of oil and gas, a major aluminium supplier and a leader in the development of renewable energy sources. Our mission is to strengthen the viability of the customers and communities we serve.

Norsk Hydro ASA
N-0240 Oslo
Norway

t: +47 22 53 81 00
f: +47 22 53 85 53
e: corporate@hydro.com

www.hydro.com

Production: Hydro-3700250 Print: Kampen Grafisk

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Oslo, 29 May 2007

Norsk Hydro ASA
Registrant

/s/ John Ove Ottestad

John Ove Ottestad
Executive Vice President and Chief Financial Officer

Filing Compare · NORSK HYDRO A S A