KONGSBERG's consolidated accounting principles and disclosures require the calculation of fair value on financial and non-financial assets and liabilities. For both measurement and disclosure purposes, fair value has been estimated as described below in the disclosures. Where relevant, further disclosures will be provided in the notes about the assumptions used to calculate fair value on the individual assets and liabilities.

Intangible assets

In a business combination, intangible assets are recognised at fair value. The fair value of intangible assets, such as technology, software and customer relations, which have been acquired by business combination, is based on the discounted future cash flow from the asset. Brand names acquired through a business combination are based on calculating an envisaged royalty fee for using the brand name. The fair value of customer relations is based on the discounted net excess earnings on the asset. See Note 6 "Changes in Group structure" for more details.

Property, plant and equipment

In a business combination, property, plant and equipment are recognised at fair value. The fair value of property, plant and equipment is its market value. The market value of property is based on what the property could be sold for on the day of valuation between a willing buyer and a willing seller in an arm's length transaction. The market value of plant and equipment is calculated by obtaining an assessment from an independent assessor. For smaller equipment and plant, an assumption is made in a business combination that the carrying amount is an estimate of market value. See Note 6 "Changes in Group structure" for more details.

Inventories

The fair value of inventories acquired through business combinations is estimated based on the expected selling price for ordinary operations less selling costs and a reasonable profit for the sales efforts. See Note 6 "Changes in Group structure" for more information.

Investments in equity instruments

The fair value of financial assets, i.e. fair value through profit or loss and available-for-sale assets, is measured using the final price listed on the date of balance sheet recognition. Listed shares consist of those listed on the Oslo Stock Exchange and on the Norwegian Securities Dealers Association's OTC list. Where there has been no trading in shares for a longer period of time, the most recent share price will be used to estimate fair value. The alternative is to use the last traded share price and adjust it for significant events during the period from the last transaction and up to the balance sheet date. For unlisted investments, the most recent price of a share transaction or share issue will be used to estimate fair value. Where there have not been transactions, the discounted cash flow on the share is used. For investments not of significant value, acquisition cost is used to estimate fair value.

Trade receivables and other receivables

The fair value of trade receivables and other receivables is estimated as the net present value of future cash flows discounted by the market interest on the date of balance sheet recognition.

Derivatives

The fair value of forward foreign exchange contracts is based on listed market value, if available. KONGSBERG uses Reuters' prices for the different foreign exchange forwards. Reuters is based on several market players. Where no listed price is available, fair value is calculated by discounting the difference between the agreed forward contract price and the current forward contract for the remainder of the contract using the risk-free interest rate based on government bonds.

The fair values of interest swap agreements and currency options have been obtained from banks that are contracting parties.

Share-based payment

The fair value of employees' options is estimated using the Black-Scholes model. The model requires the following input data: share price on the date of balance sheet recognition, strike price, expected volatility, expected dividends and the no-risk interest rate based on government bond.