Hydro Annual Report 2011b

F68
FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies
Research and development
Research costs are expensed as incurred. Development costs are capitalized as an intangible asset at cost if, and only if, (a) it is
probable that the future economic benefit that is attributable to the asset will flow to the enterprise; and (b) the cost of the asset
can be measured reliably. To the extent development costs are directly contributing to the construction of a fixed asset, the
development costs are capitalized as part of the asset provided all criteria for capitalization are met.
Derivative instruments
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 income, net.
Contingencies and guarantees
Norsk Hydro ASA recognizes a liability for the fair value of obligations it has undertaken in issuing guarantees. Contingencies
are recognized in the financial statements when probable of occurrence and can be estimated reliably.
Share-based compensation
Norsk Hydro ASA accounts for share-based payment in accordance with NRS 15A Share-Based Payment. NRS requires sharebased
payments to be accounted for as required by IFRS 2 Share-based Payment, see note 1 Significant accounting policies and
reporting entity to the consolidated accounts for additional information.
Risk management
For information about risk management in Norsk Hydro ASA see note 6 Financial and commercial risk management to the
consolidated financial statements.
Income taxes
Deferred income tax expense is calculated using the liability method in accordance with the NRS's preliminary standard on
Income Taxes. Under the liability method, deferred tax assets and liabilities are measured based on the differences between the
carrying values of assets and liabilities for financial reporting and their tax basis which are considered temporary in nature.
Deferred income tax expense represents the change in deferred tax assets and liability balances during the year. Changes
resulting from amendments and revisions in tax laws and tax rates are recognized when the new tax laws or rates become
effective.
The tax effect of equity transactions, such as group contribution given, is recognized as a part of the equity transaction and do
not affect the income tax expense.
Note 2 - Employee retirement plans
Norsk Hydro ASA is affiliated with the Hydro Group's Norwegian pension plans. The defined benefit plans are administered
by Norsk Hydro's independent pension trust. The defined benefit plans were closed as of March 1, 2010 for new employees
who became members of the new defined contribution plans. Employees who were members of the defined benefit plans were
given a choice to change to the defined contribution plans as of June 1, 2010, of which approximately 25 percent chose the
new plans. A settlement gain was recognized in the accounts in 2010. The defined contribution plans are administered by the
external Norwegian pension provider Storebrand. Norsk Hydro ASA's defined benefit plans covered 5,001 participants as of
December 31, 2011 and 5,212 participants as of December 31, 2010, while the defined contribution plans covered 179
participants as of December 31, 2011 and 202 participants as of December 31, 2010. The plans comply with minimum
requirements for pension plans in Norway.
Norsk Hydro ASA participates in a pension plan that entitles its employees life-long benefits in addition to other plans, starting
at the employees choice between the age of 62 and 75 years. The benefits are financed through a pooled arrangement by private
sector employers ("avtalefestet pensjon, AFP") where also The Norwegian state contributes. The plan, which came into effect
from January 1, 2011, is a defined benefit plan with limited funding and where plan assets are not segregated. The information
required to calculate a proportional share of the plan and account for the plan as a defined benefit plan is not available from the
plan administrator. Hydro therefore accounts for the plan as if it were a defined contribution plan. The employer contributions
are included in Multiemployer plans. A previous plan providing early retirement benefits from the age of 62 until the age of 67
years for the same group of employees was closed as of December 31, 2010. Estimated remaining employer contributions to
cover the plan deficit have been provided for.