Cash Flow Statement

(NOK 1 000)

CASH FLOWS FROM OPERATING ACTIVITIES:

Profit (loss) before tax

Taxes paid

Depreciation, amortisation and write-down

Pension expense without cash effect

Profit from associated company

Compensation expense for employee options

Losses/(gains) on disposal of tangible assets

Fair value (gains)/losses on financial assets

Financial items

Interest received

Other non cash items

Change in inventories, accounts receivable and accounts payable

Change in air traffic settlement liabilities

Change in other current assets and current liabilities

Net cash flow from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Prepayments aircraft purchase

Purchase of tangible assets

Purchase of intangible assets

Payment to associated company

Net cash flow from investing activities

CASH FLOWS FROM FINANCIAL ACTIVITIES:

Proceeds from long term debt

Payment of long term debt

Proceeds from issuing new shares

Interest on borrowings

Net cash flow from financial activities

Foreign exchange effect on cash

Net change in cash and cash equivalents

Cash and cash equivalents at 1 January

Cash and cash equivalents at 31 December

The notes are an integral part of these consolidated financial statements.

Note 1

Summary of significant accounting policies

1.1 General information

Norwegian Air Shuttle ASA and its subsidiaries (henceforth referred to as ‘the Group’) are a low-cost airline incorporated in Norway and headquartered at Fornebu outside of Oslo. Norwegian Air Shuttle ASA is a public limited liability company and listed on the Oslo Stock Exchange.

The consolidated financial statements of Norwegian Air Shuttle ASA for the year ended 31 December 2010 were authorized for issue by the Board of Directors on 30 March 2011.

1.2 Basis of preparation

The consolidated financial statements of Norwegian Air Shuttle ASA have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations, as adopted by the EU. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

In order to prepare financial statements in conformity with IFRS, it is necessary to use certain critical accounting estimates. It also requires the management to exercise its judgment when applying the Group’s accounting policies. The areas which implicate a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed below. See paragraph 1.5.

The Group has a strong financial position and there are no indications that the Group is in breach with the going concern convention. The Group continues to adopt the going concern convention in preparing its consolidated financial statements.

1.2.1 Changes in accounting policies and disclosures

Standards, amendments and interpretations

The Group has incorporated the following new standards, amendments and interpretations effective from 1 January 2010;

- IFRS 3, ‘Business combinations’ (revised)

- IAS 27, ‘Consolidated and separate financial statements’ (revised)

- IAS 36, ‘Unit of accounting goodwill impairment test’

- IFRS 8, ‘Disclosure of information about segment assets’

IFRS 3 maintains the purchase method to business transactions with all transaction- related costs expensed. The revised standard has no impact on the financial position or the Group's performance. Implementation of IAS 27 and IAS 36 have no impact on the Group’s consolidated financial statements. IFRS 8 was promptly adopted in 2009 and has no impact on the Group’s consolidated financial statements as similar principles were applied in previous periods.

The following standards and interpretations are mandatory for the financial year beginning 1 January 2010, but are not relevant to the Group;

- IFRIC 17, ‘Distribution of non-cash assets to owners’

- IFRIC 18, ‘Transfers of assets from Customers’

- IFRIC 9, ‘Reassessment of embedded derivatives and IAS 39’ (amendment)

- IFRIC 16, 'Hedges of a net investment in a foreign operation’

- IAS 1, ‘Current/non current classification of convertible instruments’

- IFRS 2, ‘Group cash-settled and share-based payments transactions’ (amendment)

- IFRS 5, ‘Disclosures required in respect of non current assets’

- IAS 39, ‘Treating loan prepayment penalties as closely related derivatives’

- IAS 39, ‘Scope exemption for business combinations’

- IAS 39, ‘Cash flow hedge accounting’

- IAS 39, ‘Hedging using internal contracts’

- IAS 7, ‘Classification of expenditures on unrecognised assets’

- IAS 38, ‘Measuring the fair value of an intangible asset acquired in a business combination’

- IAS 38, ‘Intangible assets’ (amendment)

- IAS 38, ‘Additional consequential amendments arising from IFRS 3 (revised)’

The following standards, amendments and interpretations were not in effectiv at 31 December 2010 and have not been promptly adopted by the Group;

Effective for periods beginning on or after

- IFRS 9, ‘Financial instruments’

1 January 2013

- IAS 24, ‘Related party disclosures’ (revised)

1 january 2011

- IAS 32, ‘Classification of right issue’ (amendment)

1 February 2010

- IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’

1 July 2010

- IFRIC 14, ‘Prepayments of a minimum funding requirement’ (amendment)

1 January 2011

These standards, amendments and interpretations are not expected to have material impact on the financial statements.

1.3 Basis of consolidation

The Group’s consolidated financial statements comprise Norwegian Air Shuttle ASA, and its fully owned subsidiaries Norwegian Air Shuttle Polska Sp.zo.o, Norwegian Air Shuttle Sweden AB, NAS Asset Management Ireland Ltd, NAS Asset Management Norway AS and Call Norwegian AS. Additionally, the Group controls two companies in the United States, DY 1 Leasing LLC and NO 8 LLC. These are special purpose entities (SPE’s) established for aircraft financing and ownership of real estate purposes, respectively. The Group does not own the shares in DY 1 Leasing LLC, but accepts all risks and rewards related to the assets, liabilities and operations in the SPE. The Group owns all the units of membership in NO 8 LLC and has control over the company.

The financial statements of the subsidiaries and SPE’s are prepared for the same reporting period as the parent company, using consistent accounting policies.

The acquisition method is applied when accounting for business combinations. Companies which have been acquired or sold during the year, are included in the consolidated financial statements from the date when control is achieved and till the date when control is ceased.

The consideration which is transferred for the acquisition of a subsidiary consists of the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The transferred consideration includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Acquired identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at their fair values at the acquisition date. On an acquisition –by-acquisition basis, the Group recognizes any non-controlling interests of the acquiree either at fair value, or at the non-controlling interest’s proportionate share of the acquiree’s net assets. Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment. The excess of the consideration transferred and the amount of non-controlling interest over the fair value of the Group’s share of the identifiable net assets acquired are recorded as goodwill. Should this be less than the fair value of the net assets of the subsidiary acquired in the bargain purchase, the difference will be recognized directly in the statement of comprehensive income.

All intra Group balances, transactions and unrealized gains and losses on transactions between Group companies are eliminated.

The Group considers transactions with non-controlling interests as transactions with equity owners of the Group. Any difference between considerations paid and the relevant share acquired from the carrying value of net assets are recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

An associate is an entity where the Group holds a significant influence but does not control the management of its finances and operations (usually when the Group owns 20%-50% of the company). The consolidated financial statements include the Group’s share of the profits/losses from associates, accounted for using the equity method, from the date when a significant influence is achieved and till the date when such influence is ceased. The Group’s share of its associates’ post- acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dilution gains and losses arising in investments in associates are recognized in the income statement.

When the Group’s share of a loss exceeds the Group’s investment in an associate, the amount carried in the Group’s balance sheet is reduced to zero and further losses are not recognized unless the Group has an obligation to cover any such loss. Unrealized gains on transactions between the Group and its associates are eliminated in proportion to the Group’s interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

All other investments are recognized in accordance with IAS 39, Financial Instruments: Recognition and Measurement, and additional information is provided in note 20.

1.4 Foreign currency translation

The Group’s presentation currency is NOK. Norwegian Air Shuttle ASA’s functional currency is NOK. Each entity in the Group determines its own functional currency and items which are included in the entities’ financial statements are measured in that functional currency. For consolidation purposes, the results and financial position of all the Group’s entities which have a functional currency other than NOK, are translated at the closing rate at the balance sheet date. Income and expenses for each income statement are translated at the average exchange rate for the period, this being a reasonable approximation for estimating actual rate. Exchange differences are recognized in comprehensive income and specified separately in equity.

Transactions in foreign currencies are initially recorded at the functional currency rate using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency exchange rate ruling at the balance sheet date. All differences are recognized in the income statement. Non-monetary items which are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.

Foreign currency gains and losses on operating activities are recognized within operating profit. Foreign currency gains and losses on financing activities are recognized within net financial items.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

1.5 Critical accounting estimates and judgements

In preparing the consolidated financial statements, the management will be required to judgments, estimates and assumptions which affect the reported amounts of assets and liabilities, income and expenses. The critical judgments and key sources of estimation uncertainty that have been made in preparing the consolidated financial statements are detailed below. These judgments involve assumptions or estimates in light of future events which can differentiate from what is expected.

The lease contracts require the aircraft to be returned at the end of the lease in accordance with the specific redelivery conditions stated in the lease contracts. To meet this requirement, the Group conducts maintenance on these aircraft, both regularly and at the expiration of the leasing period. Provisions are made based on the estimated costs of overhaul and maintenance. In order to estimate these conditions, the management must make assumptions regarding expected future maintenance. For sensitivity analysis, see note 12.

Deferred tax assets are recognized for all unused tax losses to the extent where it is probable that taxable profit will be generated. Significant management judgment is required to determine the amount of deferred tax assets which can be recognized, based on the anticipated timing and level of future taxable profits together with future tax planning strategies. See note 9 for further details.

The cost of defined benefit pension plans is determined by using actuarial valuations. The actuarial valuation involves making assumptions on discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long term nature of these plans, such estimates are subject to a high degree of uncertainty. A sensitivity analysis is enclosed in note 18.

The Group tests annually whether goodwill and other intangible assets with indefinite lives, have suffered any impairment in accordance with the accounting policy stated in note 1.8. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates (see note 10).

Bad debt provisions for credit card receivables are based on actual historical loss percentage and actual withdrawal for payments from credit card companies.

Fair value of financial instruments is determined using fair value estimation techniques. Valuation techniques and details on financial instruments are outlined in note 20.

1.6 Tangible assets

Tangible assets are carried at historical cost, less accumulated depreciation and impairment losses. When assets are sold or disposed of, the gross carrying amount and accumulated depreciation and impairment losses are derecognized. Any gain on the sale is recognized in the income statement as other income and any loss on the sale or disposal is recognized in the income statement as other losses/(gains)-net.

The gross carrying amount of non-current assets is the purchase price, including duties/taxes and direct acquisition costs relating to making the non-current asset ready for its intended use. Subsequent costs, such as repair and maintenance costs, are normally recognized in profit or loss as incurred. When increased future economic benefits are the result of verified repair and maintenance work, these costs will be recognized in the balance sheet as additions to non-current assets. Borrowing costs are capitalized on qualifying assets.

Non-current assets are depreciated on a straight-line basis or by airborne hours and cycles over the estimated useful life of the asset beginning when the asset is ready for its intended use. Expected residual value is assessed when estimating the depreciable amount of the asset and deducted from the depreciable amount.

An aircraft is decomposed into two components for depreciation purposes to consider different useful lives of the aircraft components. The first aircraft component is defined as maintenance components. In accordance with official requirements, the aircraft must be maintained which means significant components must be changed after a specific number of takeoffs or airborne hours. These components are identified as C check and D check on aircraft body, power restoration and life limited parts for the two engines on each plane, as well as maintenance on landing gears and APU. The maintenance and overhaul on these components occur on a defined interval, and the value is depreciated based on number of takeoffs or airborne hours until the next maintenance is conducted. Completed maintenance and overhaul are capitalized and depreciated until the next relevant maintenance and overhaul. The second aircraft component is defined as the remainder of the aircraft and depreciated over the economic useful life.

Investments in leased aircraft including cabin interior modifications are depreciated over their useful lives, but not exceeding the remaining leasing period.

Rotable spare parts are carried as non current assets and depreciated over their useful lives.

Buildings are carried at acquisition cost, less accumulated depreciation.

The Group capitalizes prepayments on the purchase contract of 63 Boeing 737 aircraft. The prepayments are classified as tangible assets as presented at the face of the balance sheet. The prepayments include capitalized borrowing costs. At the delivery of the aircraft, prepayments are included in acquisition cost of the aircraft and reclassified as aircraft in the balance sheet.

Financial lease assets are initially recognized at the lowest of acquisition cost and future minimum lease payments. The assets are carried as non current assets and depreciated on a straight-line basis over their expected useful lives.

The depreciation period and method are assessed annually to ensure that they reconcile with the substance of the non-current asset. The residual value is estimated at each year end and changes to the residual value are accounted for prospectively. Additional details on tangible assets are outlined in note 11.

1.7 Intangible assets

Computer software

Acquired computer software licenses are capitalized on the basis of the costs incurred to obtain and apply the specific software. These costs are amortized over their estimated useful life.

Costs associated with developing or maintaining computer software programs are recognized as an expense as incurred. Costs which are directly associated with the development of identifiable software products controlled by the Group, and which are estimated will generate economic benefits, are recognized as intangible assets. Computer software development costs recognized as assets are amortized over their estimated useful lives. The depreciation of the software commence as each module is completed.

Goodwill and other intangible assets

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Other intangible assets are related to identifiable assets from business combinations and investments in other intangible assets.

Intangible assets which are determined as having indefinite economic lives, are not amortized, but subject for annual impairment testing. The determination of indefinite economic lives is based on the management’s assessment concerning there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.

See note 1.8 for details of impairment testing of non-financial assets and note 10 for additional details on intangible assets.

1.8 Impairment of non financial assets

Intangible assets which have an indefinite economic useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.

For the purposes of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). The allocation is made to those cash-generating units that are expected to benefit from the assets. The management has assessed the Group as one segment and the Group’s total operations as its cash generating unit. The determination of cash generating units is based on how the management operates and assesses the Group’s performance, profit and cash flow. The aircraft fleet is operated as one unit and the route portfolio is administered and diversified as one unit generating the Group's profit and cash flow; hence, goodwill and other non current assets are reallocated to the entire Group for the purpose of impairment testing.

Non current assets other than goodwill which suffered impairment are reviewed for a possible reversal of the impairment at each reporting date. Impairment losses on goodwill are not reversed.

1.9 Financial assets

Financial assets are classified in the following categories; as fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale. The Group holds financial instruments that are classified as fair value through profit or loss, available-for-sale, and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. The management determines the classification of its financial assets at initial recognition.

Financial assets which are categorized as fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if it was principally acquired for the purpose of selling on a the short-term basis. Derivatives are also categorized as held for trading unless they are designated as hedges. Assets in this category are classified as current assets.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. The Group’s loans and receivables comprise trade, other receivables, cash and cash equivalents in the balance sheet (See note 1.12 and 1.13 respectively).

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the management intends to dispose of the investments within 12 months of the balance sheet date.

Regular purchases and sales of financial assets are recognized on the trade-date; the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss, are initially recognized at fair value and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has substantially transferred all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortized cost using the effective interest method.

Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the income statement within ‘other losses/(gains) – net’ in the period in which they occur. Gains or losses which occur from changes in the fair value of the ‘available-for-sale’ category are presented in equity within ‘other reserves’ in the period in which they occur. Interests on available-for-sale securities which are calculated using the effective interest method, is recognized in the income statement as part of other income. Dividend income from financial assets at fair value through profit or loss and available- for- sale financial assets are recognized in the income statement as a part of other income when the Group’s right to receive payments is established.

1.9.1 Impairment of financial assets

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets are impaired. The fair values of quoted investments are based on current mid prices at the balance sheet date. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. The valuation hierarchy for financial assets is detailed in note 20 where the techniques are making maximum use of market inputs and relying as little as possible on entity-specific inputs.

Impairment losses of financial assets measured at amortized cost are incurred only if there is objective evidence of impairment as a result of one or more events which occur after initial recognition. Impairment losses are recognized in the consolidated income statement if the losses have had an impact on the estimated future cash flows and that the impact can be reliably estimated.

Impairment losses of available-for-sale financial assets are incurred if evidence exists of a prolonged or significant decline in the fair value of the security below its initial cost. If any such evidence exists, the cumulative loss (measured as the difference between the initial cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss) is removed from equity and comprehensive income and recognized in the income statement. If an increase in the fair value of available-for–sale financial assets occur in a subsequent period and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the statement of comprehensive income.

1.10 Derivative financial instruments and hedging activities

Derivatives are initially recognized at fair value on the transaction date and subsequently measured at their fair value. Derivatives are classified within the category ‘financial assets at fair value through profit or loss’ as long as the derivatives are not designated as hedging instruments for accounting purposes.

The Group has not designated any derivatives as hedging instruments for accounting purposes in 2010 or 2009.

1.11 Inventory

Inventory of spare parts are carried at the lower of acquisition cost and net realizable value. Cost is determined using the first in – first out (FIFO) method. Obsolete inventory have been fully recognized as impairment losses. Inventory is consumed during maintenance and overhaul of the airplanes, and is expensed when consumed.

1.12 Trade receivables

Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or deliver payments which are more than 30 days overdue, are considered as indications that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the income statement as other operating expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against other operating expenses in the income statement.

Receivables from credit card companies are classified as trade receivables in the balance sheet.

1.13 Cash and cash equivalents

Cash and cash equivalents include cash in hand and in banks, as well as short term deposits with an original maturity of three months or less. Cash and cash equivalents in the balance sheet include restricted funds from withheld employee tax, guarantees and deposits pledged as collateral for suppliers (note 24).

The Group holds investments in money market funds. These investments are classified as either cash equivalents or financial assets available-for-sale depending on the maturity of the investments.

1.14 Equity

Share capital comprises the number of shares multiplied by their nominal value, and are classified as equity.

Transaction costs relating to an equity transaction are recognized directly in equity net of tax. Only transaction costs directly attributable to the equity transaction are recognized directly in equity.

Acquisition of own shares are recognized in share capital and retained earnings. The number of shares purchased multiplied by the nominal value is deducted from outstanding share capital. The share premium paid is recognized in other equity. The sale of own shares is booked accordingly, with nominal value as increase of share capital, and share premium in other equity.

1.15 Liabilities

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortized cost; difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. For details for capitalization of borrowing costs, see note 11.

Trade payables are obligations to pay for goods or services purchased from suppliers in the ordinary course of business. Accounts payables are classified as current liabilities if payment is due within the next 12 months. Payables due after the next 12 months are classified as non-current liabilities. Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

1.16 Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

1.17 Employee benefits

The Group operates various pension schemes. The schemes are generally funded through payments to insurance companies or trustee-administered funds, determined by periodic actuarial calculations.

Defined benefit plans

The Group operates a defined benefit pension plan which requires contributions to be made to a separately administered fund. In addition, the Group participates in an early retirement plan (AFP) for all employments in Norway. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses, at the end of the previous reporting year, exceed 10% of the greater of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plans.

The past service cost is recognized as an expense on a straight-line basis over the average period until the benefits are vested. If the benefits are already vested immediately following the introduction of or changes to a pension plan, past service cost is recognized immediately.

The defined benefit obligation is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized reduced by past service costs not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.

The AFP pension plan was closed in 2010, and replaced with a new AFP pension plan. The new AFP pension plan is a multi-employer defined benefit plan. However, the plan is recognized in the income statement as a defined contribution plan as the plans administrator has not administered actuarial gains/losses to the members of the AFP pension plan as of 31 December 2010.

Defined contribution plans

In addition to the defined benefit plan described above, the Group operates a defined contribution plan. A defined contribution plan is a pension plan under which the Group pays fixed contributions to a separate entity. The Group has no legal or constructive obligations to pay further contributions should the fund not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.

Share-based payments

The Group operates a number of equity-settled, share-based compensation plans under which the entity receives services from employees as consideration for equity instruments of the Group. The fair value of the employee services received in exchange for the grants of the options is recognized as an expense over the vesting period. The total amount to be expensed is determined by referring to the fair value of the options granted.

The fair value of the options to be settled in equity instruments is estimated at the grant date The fair value is determined by an external part by applying a Black and Scholes model. The assumptions underlying the number of options expected to vest are adjusted to reflect conditions prevailing at the balance sheet date. For further details see note 17.

The social security contributions payable in connection with the grant of the share options is considered an integral part of the grant itself, and the charge will be treated as a cash–settled transaction.

Employee share purchase savings program

Bonus shares and employer’s contribution are measured at fair value using Black and Scholes option pricing model. Expenses for bonus shares are included in personnel costs. The fair value of the bonus shares and the estimated employer’s contribution are distributed as expenses over the expected period until settlement. Changes in estimates affecting employer’s contribution are expensed over the remaining expected period. For further details see note 17.

1.18 Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent when it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.

Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws which are used to compute the amount are those which are enacted or substantively enacted at the balance sheet date.

Deferred income tax

Deferred income tax is determined by using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences. Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected for the year when the asset is realized or when the liability is settled, based on tax rates (and tax laws) which have been enacted, or substantively enacted, at the balance sheet date.

Deferred income tax assets and deferred income tax liabilities are offset to the extend that:

• the Group has a legal and enforceable right to offset the recognized amounts and

• if deferred tax assets and tax liabilities relates to income tax from the same tax authorities and the same taxable entity in the Group, or if different taxable entities in the Group intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Deferred income tax is provided based on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

1.19 Contingent assets and liabilities

A contingent asset is not recognized in the annual financial statements, but disclosed in the notes where an inflow of economic benefits is probable.

Contingent liabilities are defined as possible obligations arising from past events which existence depends on future events, or it is not probable that they will lead to an outflow of resources, or cannot be measured with sufficient reliability.

Contingent liabilities are not recognized in the annual financial statements, but significant contingent liabilities are disclosed in the notes to the financial statements, with the exception of contingent liabilities where the probability of the liability occurring is remote.

1.20 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax and discounts. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group’s activities as described below.

Passenger revenue

Passenger revenue is reported as traffic revenue when the air transport has been carried out. The value of tickets sold and which are still valid but not used at the balance sheet date (amounts sold in excess of revenue recognized) is reported as air traffic settlement liability. This liability is reduced either when the Group or another airline completes the transportation or when the passenger requests a refund.

Ancillary revenue

Ancillary revenue comprises sales of ticket-related products and services, e.g; excess baggage and fees. Some of the products and services are earned at the time of the transport, and such revenue is recognized in the same manner as passenger revenue. Other products and services are earned at the time of purchase and immediately recognized in the income statement.

Amounts paid by ‘no show’ customers are recognized as revenue when the booked service is provided. ‘No show’ customers with low fare tickets are not entitled to change flights or seek refunds once a flight has departed.

Other revenue

Other revenue comprises third party revenue, such as wet-lease, cargo and revenue from business activities in subsidiaries which are not airlines.

Other airline revenue is recognized when the service has been rendered, fees are reliable measurable, collections are probable, and when other significant obligations have been fulfilled.

Revenue from sales of GSM, Broadband and Wi-Fi products and services comprises traffic fees and subscription, as well as telephone and PC products. Revenue from subscription fees are recognized over the subscription period while deliveries of other services are recognized as revenue at the time of consumption. Revenue from product sales is recognized when the equipment including related significant risks and rewards are transferred to the buyer and the entity no longer retains effective control over the products sold.

Customer loyalty program – Norwegian Reward

The Group has implemented a customer loyalty program. Customers earn cash points in the following circumstances;

• Bank Norwegian customer; 1% of the payment is earned on all purchases, except domestic flights within Norway or flights with competitive airlines within Norway. Cash points are also earned on all ‘low fare’ and ‘full flex’ tickets purchased from Norwegian Air Shuttle ASA which are paid with a Bank Norwegian credit card, with 4% and 19% of the purchase price, respectively.

• My reward customer; 2% on all low fare tickets and 10% on all full flex tickets.

• Corporate reward customer; 3% on all low fare tickets and 7% on all full flex tickets.

• Call Norwegian customer; 3% of all purchases.

Corporate customers gain cash points on all airfares. Private customers gain cash points on international flights only, as domestic flights in Norway are prohibited from cash points earning for private customers.

Customer cash points gained from purchasing airline tickets and purchases from Call Norwegian are recognized as a liability in the balance sheet and deducted from the value of the purchase at the date of purchase. The customer cash point liability is derecognized from the balance sheet and recognized as income when customers utilize their cash points.

Earned customer cash points on 1% reward from Bank Norwegian are recognized as a liability in the balance sheet and immediately expensed. When the customers utilize earned cash points, the liability is derecognized and cash payment on the Group’s services reduced.

Unutilized cash points are derecognized from the balance sheet after three years. The liability is classified as short term, as available statistics as of 31 December 2010 indicate that customer cash points are utilized within one year.

1.21 Leasing

To determine whether an arrangement is, or contains a lease, it is necessary to assess whether the fulfillment of the arrangement is dependent on the use of a specific asset and if the arrangement conveys a right to use the asset.

The lease agreements, in which, most of the risk lies with the contracting party are classified as operating leases. Operating lease payments are recognized as an expense in the income statement on a straight-line basis over the lease term. Payments for the lease and payments for other elements are recognized separately.

Deposits made at the inception of operating leases are carried at amortized cost. The difference between the nominal value of a deposit paid, carried at less than market interest and its fair value, is considered as additional rent, payable to the lessor and is expensed on a straight-line basis over the lease term.

The Group leases tangible assets where the lease agreements transfer all material risks and rewards of the asset to the lessee at the end of the lease term. Such lease agreements are classified as financial leases. Financial leases are recognized at inception to the lowest of acquisition cost and the net present value of minimum lease payments. Financial lease assets are depreciated on a linear basis over the lease period if such is shorter than the economic useful life of the financial lease asset. Financial lease assets are included in the balance sheet as tangible assets.

Each lease payment under financial leases is split between the lease liability and finance cost to amortize the financial costs related to such leases over the lease period. The lease liability is classified as borrowings, see note 22 for details.

Sale and lease back transactions are treated as financial leases and operational leases depending on the nature of the lease. The Group has completed two sale and lease back transactions during 2010 with regards to selling two aircraft and leasing back the same asset. Both of the sale and lease back transactions are defined as operating leases established at fair value and any profit or loss is recognized immediately in the income statement as other income.

1.22 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker who is responsible for allocating resources and assessing the performance of the operating segments. The chief operating decision maker has been identified as the Board of Directors and Executive Management. The Group has one operational segment, which is low cost air passenger travel. The Group has one geographical segment which is the route portfolio in Europe. See note 4 for further details.

1.23 Events after the balance sheet date

New information regarding the Group’s positions at the balance sheet date is taken into account in the preparation of the annual financial statements. Events which occur after the balance sheet date which do not affect the Group’s position at the balance sheet date, but which will affect the Group’s position in the future, are stated if significant.

Note 2

Financial Risk

The Group’s activities expose it to a variety of financial risks; market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall financial risk management program focuses on changes and fluctuations in financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain financial risk exposures.

Financial risk management is carried out by a central treasury department (Group treasury) under policies approved by the Board of Directors. Group treasury identifies, evaluates and hedges financial risk in close co-operation with the Group’s operating units. The Board provides principles for overall risk management such as foreign currency risk, interest rate risk, credit risk, use of derivative financial instruments and investment of excess liquidity.

Market risk

Market risk is the risk of changes in market prices, such as foreign exchange rates, jet-fuel prices and interest rates which will affect the Group’s income or value of its holdings of financial instruments.

Foreign Currency Risk

A substantial part of the Group’s expenses are denominated in foreign currency. The Group’s leases, aircraft borrowings, maintenance, jet-fuel and related expenses are mainly denominated in USD, and airplane operation expenses are partly denominated in EUR. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. In order to reduce currency risk, the Group has a mandate to hedge up to 100% of its currency exposure over the next 12 months. The hedging consists of forward currency contracts and flexible forwards.

The Group has included a sensitivity analysis on foreign currency risk based on two different scenarios; sensitivity in USD to NOK on financial assets and liabilities at 31 December, and actual sensitivity in USD exposure interdependent with jet-fuel. The rationale for such sensitivity is that USD exposure in the airline industry is closely related to USD exposure on jet-fuel as jet-fuel actually represents a USD exposure.

If NOK had weakened/strengthened by 1 % against USD in 2010, with all other variables held constant, post-tax profit and pre-tax equity effect for the year would have been MNOK 5.5 (2009: MNOK 4.5) lower/higher, mainly as a result of foreign exchange losses/gains on receivables, payables, derivative financial instruments, cash and cash equivalents and long term borrowings in USD at 31 December 2010.

If NOK had weakened/strengthened by 1 % against EUR with all other variables held constant, post-tax profit and post-tax equity effect for the year would have been MNOK 0.2 (2009: MNOK 0.4) higher/lower, mainly as a result of foreign exchange gains/losses on receivables, payables and derivative financial instruments.

The Group has investments in operations in Sweden and Poland, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group’s foreign operations is regarded as immaterial for the Group, and currency variances are not hedged.

Cash flow and fair value interest rate risk

If the floating interest rate in 2010 had been 1 % higher/lower with all other variables held constant, post-tax profit and post-tax equity effect for the year would have been MNOK 1.1 (2009: MNOK 1.5) lower/higher, mainly as a result of higher/lower interest income on floating rate cash and cash equivalents and borrowings.

The sensitivity analysis of interest rate risk is calculated based on nominal value of floating rate borrowings, cash and cash equivalents.

The Group measures borrowings at amortized cost. No changes in fair value of fixed rate interest rate borrowings would be accounted for. Fair value calculations of fixed interest rate borrowings are detailed in note 22.

Jet-fuel prices

Expenses for jet-fuel represents a substantial part of the Group’s operating costs, and fluctuations in the jet-fuel prices influence the projected cash flows. The objective of the jet-fuel price risk management policy is to safeguard against significant and sudden increases in jet-fuel prices whilst retaining access to price reductions. The Group manages jet-fuel price risk using fuel derivatives. The management has a mandate to hedge up to 100 % of its expected consumption over the next 12 months with forward commodity contracts.

If the jet-fuel price in 2010 had increased/decreased by 1 % with all other variables held constant, pre-tax profit for the year would have been MNOK 15.1 (2009: MNOK 12.2) lower/higher.

The sensitivity analysis is calculated based on estimated jet-fuel consumption including estimated hedged consumption over the next 12 months. As opposed to the sensitivity analysis of USD currency risk, the jet-fuel price risk analysis is not based on interdependence between jet-fuel price and USD exchange rates. The sensitivity is calculated using USD/NOK exchange rate at the balance sheet date.

The Group holds forward commodity contracts to hedge jet-fuel price risk. Such derivative contracts affect the financial statements through unrealized gains/losses from jet-fuel prices. If jet-fuel price had increased/decreased by 1% with all other variables held constant, pre-tax profit for the year would have been MNOK 3.2 (2009: MNOK 15.3) higher/lower, as a result of unrealized gains/losses on price changes on forward commodity contracts held at the balance sheet date.

Credit risk

Credit risk is managed on group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to travel agencies and commercial customers, including outstanding receivables and committed transactions. The utilization of credit limits is regularly monitored. The Group’s policy is to maintain credit sales at a minimum level. Sales to private customers are settled in cash or using major credit card companies.

For a part of the Group’s sales, customers pay at the time of booking while Norwegian receive the actual payments from the credit card companies, or acquires are received at a later point in time. Delayed payments from credit card companies vary between credit card brands. The risk arising from receivables on credit card companies or credit card acquires are monitored closely.

Credit risk related to bank defaults are closely monitored and partly offset by diversifying the Group’s deposit portfolio.

There are re-invoicing of maintenance costs on aircraft to leasing companies, and Norwegian regularly evaluates and assesses the value of these credits. See note 20 for further disclosure on credit risk.

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions.

The management monitors rolling forecasts of the Group’s liquidity reserve, cash and cash equivalents (see note 24) on the basis of expected cash flow. This is generally carried out at a local level at the operating companies of the Group in accordance with practice and limits set by the Group. In addition, the Group's liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to monitor balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.

The Group will take deliveries of 14 aircraft in 2011 and 40 aircraft between 2012 and 2016. Pre-delivery payments related to the delivery of the first 10 aircraft were secured in 2008. Of the 10 aircraft, 7 aircraft were delivered in 2009 and 2010, and the remaining 3 aircraft have a delivery date in the first quarter 2011. At the delivery of the aircraft, pre-delivery payments are replaced with other long term financing. The Group has secured the financing of 2 aircraft in 2009 and 5 aircraft in 2010 through guarantees from the Ex-Im Bank of the United States and direct loans from the Private Export Funding Corporation. 2 aircraft were delivered and financed as sale and lease back transactions during 2010. The Group is currently in the process of securing a long term financing plan for 12 deliveries in 2011 and 2012.

The table below analyses the maturity profile of the Group’s financial liabilities at the balance sheet date. The amounts disclosed are the contractual undiscounted cash flows;

At 31 December 2010 (NOK 1 000)

Less than 1 year

Between 1 and 2 years

Between 2 and 5 years

Over 5 years

Borrowings

Financial lease liability

Derivative contracts - payments

Trade and other payables

Interest on borrowings *)

Total financial liabilities

*) Calculated interests on borrowings

At 31 December 2009 (NOK 1 000)

Less than 1 year

Between 1 and 2 years

Between 2 and 5 years

Over 5 years

Borrowings

Financial lease liability

Derivative contracts - payments

Trade and other payables

Interest on borrowings *)

Total financial liabilities

*) Calculated interests on borrowings

Capital risk management

The Group’s capital management policy is to have a capital structure which meets the demands of operations, reduces cost of capital, complies with financial covenants and future investments planned by the Group. The Group will at all times adjust debt and equity to maintain and secure optimal capital structure by continuously monitoring the gearing ratio of the Group. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘current and non-current borrowings’ less cash and cash equivalents as shown in the consolidated balance sheet). Total capital is calculated as ‘equity’ as shown in the consolidated balance sheet plus net debt. Net debt and gearing ratio are important factors in financial covenants as detailed in note 22. The management monitors these externally imposed financial covenants closely as a part of the Group’s capital risk management policy.

The Board of Directors has imposed an internal liquidity target which is closely monitored by the management.

The gearing ratios at 31 December 2010 and 2009 were as follows;

NOK 1 000

Total borrowings (note 22)

Cash and cash equvalents (note 24)

Net debt

Total equity

Total capital

Gearing ratio

Note 3

Fair value estimation

Fair value estimation

Financial instruments which are measured in the balance sheet at fair value, requires disclosures of fair value measurements by the following levels of fair value measurement hierarchy:

Level 1

The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regular occurring market transactions on an arm’s length basis.

Level 2

The fair value of financial instruments which are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. Financial instruments in level 2 include forward contracts classified as derivatives. The fair values of forward foreign currency contracts and forward commodities contracts are determined using forward prices and rates at the balance sheet date, with the resulting value discounted back to present value.

Level 3

If one or more of the significant inputs are not based on observable market data, specific valuation techniques are applied. Financial instruments included in level 3, relates to investments in unlisted shares in Silver Pensjonsforsikring which is classified as available-for-sale financial assets. See note 20 for additional details on available-for-sale financial assets.

The following table presents financial assets and liabilities measured at fair value at 31 December 2010;

(NOK 1 000)

Level 2

Level 3

Total

Assets

Financial assets at fair value through profit and loss

- Derivative financial instruments

Available-for-sale financial assets

Total assets

Liabilities

- Derivative financial liabilities

Total liabilities

The following table presents financial assets and liabilities measured at fair value at 31 December 2009;

(NOK 1 000)

Level 2

Level 3

Total

Assets

Financial assets at fair value through profit and loss

- Derivative financial instruments

Available-for-sale financial assets

Total assets

Liabilities

- Derivative financial liabilities

Total liabilities

There are no fair value calculations in level 1.

Note 4

Segment information

Executive management reviews the Group’s internal reporting in order to assess performance and allocate resources. Management has determined the operating segment based on these reports. Executive management considers the business as one operational segment, which is low cost air passenger travel. The Group’s operating profit come from airline-related activities and the Group’s main revenue generating assets is its aircraft fleet, which is utilized across the Group's geographical segment.

Performance is measured by executive management based on the operating segment’s earnings before interest, tax, depreciation and amortization (EBITDA). Other information is measured in accordance with the financial statements.

The table below shows revenues from low cost air passenger travel which is split between passenger revenue, ancillary revenue and other revenues. A separation between revenue of domestic and international flights is also included;

NOK 1 000

By activity:

Passenger transport

Ancillary revenue

Other revenues

Total revenues

By geographic market:

Domestic

International

Total revenues

Other income amount to MNOK 191.3 (2009: 0) and include compensation from a SAS law suit and gains from sales of tangible assets (note 11).

Note 5

Operational expenses

NOK 1 000

Sales and distribution expenses

Aviation fuel

Aircraft leases

Airport charges

Handling charges

Technical maintenance expenses

Other operating expenses

Total

Note 5a

Other operating expenses

Other operating expenses amount to MNOK 397.7 (2009: 396.1). Other operating expenses are related to operating the systems, marketing, back office, consultants and other costs not directly attributable to the operation of the aircraft fleet and related airline specific costs.

Note 6

Payroll expenses and number of employees

NOK 1 000

Wages and salaries

Social security tax

Pension expenses

Employee stock options

Other benefits

Hired crew personnel

Total

Payroll expenses include hired crew personnel. The employees are participants in defined benefit pension oplans. See note 18 for details.

Number of man-labour years *)

Norway

Sweden

Poland

Total

*) excluding man-labour years related to hired crew personnel

Note 7

Remuneration of the Board of Directors and Executive Management

Remuneration of the Board of Directors

Total remuneration paid to the Board in 2010 was MNOK 0.7. The Chairman of the Board, Bjørn Kise, received MNOK 0.2. There were no bonuses or other forms of compensation paid to the Board members in 2010.

Directive of remuneration of the CEO and the Executive Management

The principles of leadership remuneration in Norwegian Air Shuttle ASA are to stimulate a strong and lasting profit oriented culture. The total compensation level should be competitive, however, not market leading compared to similar organizations. The Board determines the remuneration of the CEO, and the guidelines for remuneration of the Executive Management. The remuneration of the Board and the Executive Management must not have negative effects on the Group, nor damage the reputation and standing of the Group in the public eye. There have been no changes to the guidelines or principles of management remuneration during the year. The actual remuneration in 2010 was consistent with the guidelines and principles.

Compensation to the Executive Management should primarily consist of a fixed yearly salary with additional compensations such as a company car, free telephone, internet and newspapers, and a standard pension and insurance plan. Executive Management is also a part of the Group’s stock option plan.

The CEO does not receive compensation in form of performance based salary or bonuses, except for options in the stock option plan. The Executive Management can on an individual basis be awarded with a special compensation for profit enhancing projects.

The Executive Management is a part of the Group’s collective pension plan for salaries up to 12 G, which applies to all employees. The Senior Management has not been given any specific rights to terminate employment.

Total compensation year 2010

NOK 1 000

Fee

Salary

Bonus

Other benefits **)

Total Compensation

Pension expense ***)

The Board of Directors

Bjørn Kise (chairman)

Erik Gunnar Braathen (deputy chairman until 26/11/2009)

Liv Berstad

Ola Krohn-Fagervoll (deputy chairman from 5/11/2010)

Marianne Wergeland Jenssen

Thor Espen Bråthen*)

Kenneth Utsikt*)

Linda Olsen*)

Total board of directors

Executive Management

Bjørn Kjos (Chief Executive Officer)

a)

Frode Foss (Chief Financial Officer)

b)

Asgeir Nyseth (Chief Operating Officer)

c)

Hans-Petter Aanby (Chief IT Officer)

d)

Daniel Skjeldam (Chief Commercial Officer)

e)

Gunnar Martinsen (Senior Vice President HR and Organisation)

Anne-Sissel Skånvik (Senior Vice President Corporate Communications)

Total executive management

*) For the employee representatives in the Board of Directors, only their fee for serving on the Board of Directors fee is stated.

**) Other benefits include company car, telephone, internet etc.

***) Pension expense reflects paid pension premium less employee contribution

a) Bjørn Kjos exercised share options in 2010 that has been reported as additional taxable income with NOK 214,634

b) Frode Foss exercised share options in 2010 that has been reported as additional taxable income with NOK 176,569

c) Asgeir Nyseth exercised share options in 2010 that has been reported as additional taxable income with NOK 177,369

d) Hans-Petter Aanby exercised share options in 2010 that has been reported as additional taxable income with NOK 544,331

e) Daniel Skjeldam exercised share options in 2010 that has been reported as additional taxable income with NOK 80,981

Total compensation year 2009

NOK 1 000

Fee

Salary

Bonus

Other benefits **)

Total Compensation

Pension expense ***)

The Board of Directors

Bjørn Kise (chairman)

Erik Gunnar Braathen (deputy chairman until 11/26/2009)

Liv Berstad

Ola Krohn-Fagervoll

Marianne Wergeland Jenssen

Halvor Vatnar*)

Sissel Gjelstad Vårum*)

Monika Johansen*)

Total Board of directors

Executive Management

Bjørn Kjos (Chief Executive Officer)

a)

Frode Foss (Chief Financial Officer)

b)

Asgeir Nyseth (Chief Operating Officer)

c)

Hans-Petter Aanby (Chief IT Officer)

d)

Daniel Skjeldam (Chief Commercial Officer)

e)

Gunnar Martinsen (Senior Vice President HR and Organisation)

Anne-Sissel Skånvik (Senior Vice President Corporate Communications)

f)

Total executive management

*) For the employee representatives in the Board of Directors, only their fee for serving on the Board of Directors fee is stated.

**) Other benefits include company car, telephone, internet etc.

***) Pension expense reflects paid pension premium less employee contribution

a) Bjørn Kjos excercised share options in 2009 that has been reported as additional taxable income with NOK 466,830.

b) Frode Foss excercised share options in 2009 that has been reported as additional taxable income with NOK 384,039.

c) Asgeir Nyseth excercised share options in 2009 that has been reported as additional taxable income with NOK 385,894.

d) Hans-Petter Aanby excercised share options in 2009 that has been reported as additional taxable income with NOK 384,735.

e) Daniel Skjeldam excercised share options in 2009 that has been reported as additional taxable income with NOK 176,249.

f) Anne-Sissel Skånvik was appointed in 2009, replacing former Senior Vice President Corporate Communications.

Shares and options owned by Senior Managers are presented in note 15. There are no outstanding loans or guarantees made to the Board of Directors or the Executive Management.

Audit remuneration (excl VAT)

NOK 1 000

Audit fee

Other audit related services

Tax advisory

Other services

Total

Note 8

Net financial items

NOK 1 000

Interest income

Interest expense

Net foreign exchange (loss) or gain

Appreciation cash equivalents

Impairment available-for-sale financial assets

Fair value adjustment long term deposits

Other financial items

Total

Foreign exchange derivatives and fuel derivatives are categorized as financial assets or financial liabilities at fair value through profit or loss and are measured at fair value at each balance sheet date with changes in fair value recognized as other gains and losses within operating expenses.

Non interest bearing deposits for aircraft leases are initially measured at fair value and a periodic interest income is calculated using the same interest rate as for fair value calculation.

Impairment of financial assets relate to investment in Silver Pensjonsforsikring, classified as available-for-sale financial assets. An impairment loss is recognized in the income statement in 2010 as fair value of the investment is significantly below initial cost. See note 3 for fair value estimation and note 20 for further information concerning available-for–sale financial assets.

Interest expense includes amortized cost on borrowings.

Note 9

Tax

This year's tax expense consists of (NOK 1 000):

Tax payable

Tax paid in current year on current year income

Change in deferred tax

Income tax expense

Reconciliation from nominal to effective tax rate:

NOK 1 000

Profit before tax

Expected tax expense using nominal tax rate (28 %)

Tax effect of the following items:

Non deductible expenses

Adjustment from previous year

Tax rate outside Norway other than 28%

Tax expense

Effective tax rate

The following table details deferred tax assets and liabilities;

Deferred tax

Assets 2010

Liabilities 2010

Assets 2009

Liabilities 2009

Intangible assets

Tangible assets

Long term receivables and borrowings in foreign currency

Inventories

Receivables

Financial instruments

Derferred gains/losses

Other accruals

Pensions

Other temporary differences

Loss carried forward

Gross deferred tax assets and liabilities

Reconciliation of deferred tax assets and liabilities

Assets 2010

Liabilities 2010

Assets 2009

Liabilities 2009

Recognized at 1 January

Charged/credited to the income statement

Charged directly to equity

Translation differences

Recognized at 31 December

The Group has recognized MNOK 0.3 as a deferred tax asset in 2010. Deferred tax asset is based on unused tax loss carry forwards and temporary differences in assets and liabilities. The tax loss carried forward is expected to be utilized by future taxable profits. Deferred tax liability is based on allocation of purchase price of Norwegian Air Shuttle Sweden AB to fair values, as well as temporary differences in assets and liabilities.

Note 10

Intangible assets

Other intangible assets

NOK 1 000

Software

Goodwill

Indefinite life

Definite life

Total

Acquisition cost 1 January 2009

Additions

Translation differences

Acquisition cost 31 December 2009

Acquisition cost 1 January 2010

Additions

Translation differences

Acquisition cost 31 December 2010

Accumulated amortisation 1 January 2009

Amortisation

Translation differences

Accumulated amortization 31 December 2009

Accumulated amortisation 1 January 2010

Amortisation

Translation differences

Accumulated amortization 31 December 2010

Book value at 31 December 2009

Book value at 31 December 2010

Useful life

3-5 years

Indefenite

Indefenite

See below

Amortization plan

Linear

Linear

None

Linear

Capitalized software is related to external consulting fees for the development of Norwegian's own systems for booking and ticket-less travel, various sales portals, back office and new maintenance system (AMOS). These costs are amortized over their estimated useful lives (three to five years).

Other intangible assets and goodwill are related to the purchase of Norwegian Air Shuttle Sweden AB on 31 July 2007. Other intangible assets from business combinations consist of estimated fair value of Brand name, charter operations, slots and the Air Operating Certificate. Other intangible assets also consist of intellectual property rights which are related to purchases of internet domains. The Group has developed web portals in Norway, Sweden and Denmark.

Goodwill, slots and intellectual property rights are determined to have indefinite economic lives, and are not amortized. Slots and intellectual property rights do not expire over time, as long as the management has the intention to continue using the slots.

Brand name, charter operations and air operating certificate have definite lives and are amortized over their economic useful lives. Charter operations and brand name were fully depreciated in 2009. Air operating certificate was initially defined to have an indefinite life at the date of acquisition. However, due to restructuring of the Swedish operations, the air operating certificate was determined to have a definite life of 12 months from 1 March 2009. Air operating certificate was fully depreciated in 2010.

Impairment testing of goodwill and intangible assets

The Group tests goodwill and assets with indefinite useful lives annually at year end for impairment. Intangible assets with definite lives are tested for impairment if indicators of impairment are identified.

The method used to estimate the recoverable amount is value in use, based on discounted cash flow analysis. The analysis reflects the cash flow projections in the financial business plan covering the next year which is approved by the Senior Management. The calculation also includes the estimated cash flows for the next 5 years. Key assumptions used in the calculation are growth rates, operating costs, terminal value and discount rate. Cash flow beyond the 5 year period is extrapolated with a long term growth rate. Estimated cash flow and discount rate is after tax.

Discount rate

The discount rate which is used is 8.8% and based on Weighted Average Cost of Capital (WACC). The cost of the Group's debt and equity capital, weighted accordingly to reflect its capital structure, gives its weighted average cost of capital. The WACC rates which are used to discount the future cash flows are based on market risk free interest rate adjusted for inflation differential and also take into account the debt premium, market risk premium, gearing corporate tax rate and asset beta. An increase of the discount rate by 1% will not result in impairment of goodwill.

Growth rates

The basis for calculating future growth rate is next year management approved budget, and an estimated sales growth rate based on planned production increase, expansion of route portfolio and expected increase in market share.

Operating costs

The operating costs are calculated based on the budget period and on estimated future development. Committed operations efficiency programs and the planned operating expansion are taken into account. Changes in the outcome of these initiatives may affect future estimated operating costs. A permanent increase of 1% of total costs, with all other assumptions remaining equal, will not result in impairment of assets.

Terminal value

A growth rate of 2% is used in calculating cash flow beyond the 5 year period.

Sensitivity

At 31 December 2010, the Group’s value in use was significantly higher than the carrying amount of its goodwill and intangible assets. The impairment calculation is not particularly sensitive to changes in assumptions.

Note 11

Tangible assets

NOK 1 000

Buildings

Aircraft

Prepayment Boeing Contract

Equipment and fixtures

Financial lease

Total

Acquisition cost at 1 January 2009

Additions

Disposals

Acquisition cost at 31 December 2009

Acquisition cost at 1 January 2010

Additions

Disposals

Acquisition cost at 31 December 2010

Accumulated depreciation at 1 January 2009

Depreciation

Reversals

Accumulated depreciation at 31 December 2009

Accumulated depreciation at 1 January 2010

Depreciation

Reversals

Accumulated depreciation at 31 December 2010

Book value at 31 December 2009

Book value at 31 December 2010

Estimated useful life, depreciation plan and residual value is as follows:

Useful life

See below

See below

See below

3-9 years

4-20 years

Depreciation plan

See below

Linear

See below

Linear

Linear

Residual value

See below

See below

At 31 December 2010, the Group operated a total of 57 aircraft; 12 which were owned and 45 which were leased under operational leases. Operational leases are detailed in note 12.

Aircraft

The Group acquired 5 Boeing 737-800 HGW aircraft during 2010 and 2 aircraft during 2009. Aircraft is decomposed and depreciated over the economic useful life of each component on a straight-line basis. The body of the aircraft is depreciated based on economic useful years, while other components are based on airborne hours and cycles.

The residual value is MNOK 563.6 in total for all owned aircraft and deducted from the depreciable amount of the body of the aircraft. The life expectancy of the body of the aircraft is 25 years for 737 aircraft, and the economic life of the owned aircraft is 25 years less the age of the aircraft at time of purchase.

Installations on leased aircraft

The installations on the leased aircraft include cabin interior modifications and other improvements to the aircraft after lease commencement. The capitalized value is depreciated over the remainder of the aircraft lease, which is between 1-10 years. Linear depreciation is applied and residual value is NOK 0. In 2010 and 2009 several engines on the leased aircraft were in overhaul, and replacement costs for life limited parts were capitalized to the extent that the costs were improvements to the engines and therefore exceeding the requirements which were specified in the leasing contracts. These components are depreciated at a defined rate per engine cycle, limited to the remainder of the aircraft lease.

Spare parts

Spare parts consist of rotable parts for aircraft and are depreciated over their useful life. The useful life of spare parts ranges between 4-10 years. Linear depreciation is applied and 25% of the acquisition cost is calculated as residual value.

Buildings

Buildings consist of 3 apartments in Berlin, purchased in 2007 for the purpose of housing crew and trainees stationed in Berlin on a temporary basis. In 2010, the Group purchased an apartment in Seattle for the purpose of housing personnel stationed in Seattle concerning the delivery of new 737-800 HGW aircraft. Buildings are carried at acquisition cost. The residual value is estimated to equal the acquisition cost.

Prepayments on Boeing contract

In 2007 the Group entered a purchase contract with Boeing Corporation concerning 42 new 737-800 HGW aircraft, with an option of purchasing 42 additional aircraft. Two aircraft were delivered in 2009, and five aircraft were delivered in 2010. 21 purchase options have been exercised. 54 aircraft will be delivered i between 2011 and 2016. Until delivery of the aircraft, the Group will make prepayments to Boeing, following a defined prepayment schedule. The Group capitalizes borrowing costs incurred for the construction of qualifying assets during the period of time which is required to complete the aircraft. Borrowing costs of MNOK 73.9 (2009: MNOK 33.5) have been capitalized during the year. An average capitalization rate of 6.1% (2009: 7.6%) was used.

Financial lease assets

In 2009, the Group entered lease agreements concerning de-ice equipment and electronic flight bag equipment. The lease agreements are classified as financial leases as all risks and rewards are transferred to the Group after the end of the lease agreement. The financial lease assets are depreciated over their economic useful lives. De-ice equipment is depreciated over 20 years, while electronic flight bag equipment is depreciated over 4 years. Residual value of financial lease assets is 0.

Impairment of tangible assets

In 2010 and 2009 the management determined that the total operations of the Group were its cash generating unit, and as such, there is only one operational segment in the Group. Impairment testing of tangible assets are covered by impairment testing on the whole Group. See note 10 for details.

No impairment losses have been recognized in 2010.

For information regarding assets pledged as collateral for debt, see note 23.

Note 12

Operating leases

The lease agreements on the Boeing 737 aircraft last between 3 and 10 years from the date of agreement, with some extension options. From 2002 to 2008, 29 aircraft were delivered. In 2009, 8 aircraft were delivered and 8 aircraft were delivered in 2010. Renegotiations have resulted in extensions on some of the shorter leases. Contracts for 13 of the aircraft will expire in 2011, and contracts for 5 of the aircraft expire in 2012. These aircraft will be redelivered according to schedule. The remaining contracts expire in 2013 or later.

Leasing costs expensed on aircraft lease within operational expenses was MNOK 778.5 in 2010 (2009: MNOK 574). Included in leasing costs are operating lease costs on two aircraft from the sale and lease back transaction.

In addition, the Group leases 15 cars, and 11 properties in Oslo, Stavanger, Stockholm and Copenhagen. Leasing costs related to cars and properties expensed in other operating expenses in 2010 was MNOK 50.1 (2009: MNOK 21.2)

Annual minimum rent on non-cancellable operating lease agreements per 31 December 2010 is as follows:

Nominal value 2010

Nominal value 2009

NOK 1 000

Aircrafts

Cars

Property

Total

Aircrafts

Cars

Property

Total

Within one year

Between 1 and 5 years

After 5 years

The aircraft's minimum lease payments consists of ordinary lease payments, contractual payments for maintenance reserves and expensed deferred lease payments resulting from non interest bearing deposits paid at inception of lease agreement. Aircraft leases committed through letter of intent are not included in the table above.

Note 13

Trade and other Receivables

Spesification of receivables

NOK 1 000

Trade receivables

Credit card receivables

Deposits

Deferred leasing costs

Prepaid costs

Public duty debt

Reimbursements claims maintenance costs

Other claims

Prepayments to employees

Prepaid rent

Total

Due dates

NOK 1 000

Within one year

After 1 year

Total

Currency (NOK 1 000)

DKK

EUR

GBP

NOK

USD

SEK

PLN

Fair value of trade and other receivables

NOK 1 000

Due within one year

After one year *)

Total

For receivables due within one year, fair value is equal to nominal value.

*) Discount rate 4.5 % (2009:5.5 %)

Provision for bad debt

NOK 1 000

Balance 1 January

Utilized

Accruals

Reversals

Balance 31 December

Changes in provision for bad debt is recognized as other operating expenses.

Overdue accounts receivables

NOK 1 000

Overdue less than 1 month

Overdue 1-2 months

Overdue 2-3 months

Overdue over 3 months

Total

Provision for bad debt includes trade – and credit card receivables. The majority of the provision relates to fraud from credit card transactions. The remaining provision for bad debt on trade receivables relates to provision for overdue receivables that are not impaired at 31 December.

Overdue accounts receivable includes trade receivables and credit card receivables. The maturity of overdue accounts receivables relates to trade receivables. Accounts more than 3 months overdue mainly consist of receivables from customers who are also suppliers to the Group. The credit risk for such receivables is limited as the risk is offset against slow processing of payables to the same suppliers.

Maximum exposure to credit risk at 31 December 2010 is MNOK 693.5 (2009: MNOK 655.1).

Non interest bearing deposits are measured at amortized cost in the balance sheet. Deposits denominated in foreign currency are converted using the prevailing exchange rates on the balance sheet date.

Note 14

Inventories

NOK 1 000

Consumables

Parts for heavy maintenance

Other inventory

Total

In 2010 and 2009 the Group bought parts removed from aircraft engines in relation to heavy maintenance. These parts are held for sale and sold in secondary markets. Charges for obsolete product in 2010 were MNOK 4.3 (2009: MNOK 4.6).

Note 15

Equity and shareholder information

At 31 December the share capital consists of the following share classes;

Issued shares

Own shares

Net Shares

There is only one class of shares, and all shares have equal rights. Per value per share is NOK 0.1

(NOK 1 000)

Number of shares

Ordinary shares

Share premium

Total

01 January 2009

Share issue 2 November 2009

Share issue 18 November 2009

31 December 2009

Share issue 29 October 2010

31 December 2010

All issued shares are fully paid with a par value of 0.1 NOK per share (2009: 0.1 NOK per share). The share issue at 29 October 2010 was related to exercise of employee share options with an exercise price of NOK 63.8. For additional information about the employee share options, see note 17.

Description of items booked directly on shareholders equity:

Translation differences

MNOK 0.3 has been booked as comprehensive income at 31 December 2010 (2009: MNOK -5). The translation differences arise from consolidating the subsidiaries Norwegian Air Shuttle Polska SP.zo.o and Norwegian Air Shuttle Sweden AB into Group accounts.

Expenses for share issue

Expenses for share issue, net of tax, in the amount of MNOK 0 (2009: MNOK 5.4) have been booked directly in shareholder equity.

Stock option plan

Stock options are granted to the management and the employees. In 2008, the employees were granted stock options in exchange for a voluntary reduction in salary, first part of this option plan was exercised in November 2009 and second part of the plan was exercised in November 2010. Options were also granted to the management in 2009, with expiry in 2010 and 2011. The Group granted a stock options plan in 2010 similar to the grant in 2008, where employees were granted stock options in exchange for a voluntary reduction in salary. The 2010 employee stock option plan will be exercised after announcing the third quarterly results for 2011 and 2012. See note 17 for further details. Total stock option expense in 2010 was MNOK 7.1 (2009: MNOK 8.4).

Shareholder structure

The largest shareholders at 31 December 2010 were:

Owner-

Voting-

A-shares

ship

rights

HBK INVEST AS

AWILCO INVEST AS

SKAGEN KON-TIKI

FINNAIR PLC

VITAL FORSIKRING ASA

SKAGEN VEKST

JPMORGAN CHASE BANK

DNB NOR NORGE (IV)V

STATE STREET BANK AN

GOLDMAN SACHS INT.

HOLBERG NORGE

HOLBERG NORDEN

SKANDINAVISKE ENSKILDA

DANSKE INVEST NORSKE

KLP AKSJE NORGE VPF

AVANSE NORGE (II) VP

DNB NOR SMB VPF

STATE STREET BANK AN

KOMMUNAL LANDSPENSJONSKASSE

STATE STREET BANK &

Other

Total number of shares

Shareholder structure

The largest shareholders at 31 December 2009 were:

Owner-

Voting-

A-shares

ship

rights

HBK INVEST AS

AWILCO INVEST AS

FINNAIR PLC

SKAGEN KON-TIKI

SKAGEN VEKST

DNB NOR NORGE (IV) V

VITAL FORSIKRING ASA

HOLBERG NORGE

GOLDMAN SACHS INT. - EQUITY -

HOLBERG NORDEN

SEB ENKILDA ASA - EGENKAPITAL -

PENSJONSKASSEN STATOIL

STATE STREET BANK AN

STATE STREET BANK

KLP LK AKSJER

WARRENWICKLUND NORGE

SHB STOCKHOLM CLIENT

BARCLAYS CAPITAL SEC

DNB NOR SMB VPF

KLP AKSJENORGE

Other

Total number of shares

100%

100%

Shares and options directly or indirectly held by members of the Boards of Directors, Chief Executive Officer and Executive Management;

Name

Title

Shares 1)

Options

Bjørn Kise 2)

Chairman

Ola Krohn Fagervoll

Deputy chairman

Liv Berstad

Board Member

Marianne Wergeland Jenssen

Board Member

Linda Olsen

Board Member - Employee repr

Thor Espen Bråten

Board Member - Employee repr

Kenneth Utsikt

Board Member - Employee repr

Bjørn Kjos 3)

Chief Executive Officer

48 184

Frode E Foss

Chief Financial Officer

44 679

Hans-Petter Aanby

Chief IT Officer

24 760

Asgeir Nyseth

Chief Operating Officer

44 931

Daniel Skjeldam

Chief Commercial Officer

42 312

Anne-Sissel Skånvik

Senior Vice President Corporate Communications

Gunnar Martinsen

Senior Vice President HR and Organisation

21 736

1) Including shares held by related parties

2) Bjørn Kise holds 8.2 % of HBK invest AS

3) Bjørn Kjos holds 84.1 % of HBK Invest AS

Specification of other reserves

Available-for-sale financial assets

Translation differences

Total

01 January 2009

Available for sale financial assets

Translation differences

1 January 2010

Available for sale financial assets

Translation differences

31 December 2010

Other paid-in capital consists of accumulated stock option expenses.

Note 16

Earnings per share

Basic earnings per share calculations are based on the weighted average number of common shares outstanding during the period, while diluted earnings per share calculations are performed using the average number of common shares and dilutive common shares equivalents outstanding during each period.

NOK 1 000

Profit

Average number of shares outstanding

Average number of shares and options outstanding

Basic earnings per share

Basic earnings per share restated

Diluted earnings per share

Diluted earnings per share restated

Average number of shares outstanding

Dilutional effects

Stock options

Average number of shares outstanding adjusted for dilutional effects

In 2010, underwritten rights issues of 363,474 new shares were issued by the parent company at a share price of NOK 67 per share. Market share price prior to the day of issue was NOK 91.5 per share. The bonus in share price is reflected in basic earnings per share. An adjustment factor of 1.003 is used in the calculation

Note 17

Options

The Board issued 561,301 stock options to employees on 10 September 2008 in accordance with the authorization from the extraordinary general meeting on 5 August 2008. The stock options had an exercise price of NOK 32.06, equal to the 30% discounted volume weighted share price during the period 26-29 August 2008. All options were exercised in 2009 and 2010.

On 20 July 2009 the Board issued, in accordance with the authorization from the general meeting, 384,000 stock options to the management and key personnel. The stock options have an exercise price of NOK 67.00, equal to the average share price the last trading days prior to the date of issue, plus 10%. The stock options may be exercised within a period of two years and 3 months, whereas the first 50% of the stock options were vested on 20 July 2010, and the second 50% of the stock options will vest on 20 July 2011.

The Board issued 292,021 stock options to employees on 1 October 2010 in accordance with the authorization from the general meeting. The stock options have an exercise price of NOK 63.8, equal to the 30% discounted volume weighted share price during the period 20 -23 September 2010. The stock options may be exercised within a period of two years, whereas the first 50% of the stock options will vest on 1 October 2011 and the second 50% of the stock options will vest on 1 October 2012. Stock options which are not exercised within 31 October 2012 will expire.

The stock option program is expensed linear at fair value over the vesting period. The cost is offset in other paid in capital. Fair value calculations are conducted using Black & Scholes option pricing model. There are no market conditions linked to the vesting of the options.

The following estimates are used in calculating fair value;

Dividend (%)

Expected volatility (%)

Historic volatility (%)

Risk free interest (%)

Expected lifetime (year)

Share price at grant date

Expected lifetime assumes that stock options are exercised at expiration. Expected volatility is based on the historical volatility over the most recent period that corresponds with the expected life of the option. There is a cap on the options granted in 2009 limiting the proceeds from the options to three times the participants' annual base salary. Furthermore, the participants in the 2010 - program must cover the social security tax incurred for option gains where the share price exceeds NOK 127.6. These limitations are taken into account when calculating the option values.

The option program is expensed with MNOK 7.1 in 2010 and MNOK 8.4 in 2009.

Weighted avg.

Weighted avg.

Shares

exerc. Price

Shares

exerc. Price

Outstanding at the beginning of the period

50.9

77.8

Allocated

63.8

67.0

Exercised

39.2

32.1

Terminated

63.8

32.1

Forfeited

67.0

0.0

Expired

0.0

173.1

Outstanding at the end of the period

65.5

50.9

Vested options

67.0

32.1

Weighted average fair value of options allocated in the period

38.1

15.4

Outstanding options

Vested options

Strike price (NOK)

Outstanding options by 31 December 2010