Nokia in 2004
Annual Accounts 2004
Key data 2004
Review by the Board of Directors
Consolidated profit and loss accounts, IFRS
Consolidated balance sheets, IFRS
Consolidated cash flow statements, IFRS
Statements of changes in shareholders’ equity, IFRS
Notes to the consolidated financial statements
Profit and loss accounts, parent company, FAS
Cash flow statements, parent company, FAS
Balance sheets, parent company, FAS
Notes to the financial statements of the parent company
Nokia shares and shareholders
Nokia 2000– 2004, IFRS
Calculation of key ratios
Proposal by the Board of Directors
to the Annual General Meeting
Auditors’ report
Additional information
U.S. GAAP
Critical accounting policies
Group Executive Board
Board of Directors
Risk factors
Corporate governance
Investor information
General contact information
4
5
8
9
10
12
13
36
36
37
38
42
49
51
52
53
56
59
62
64
66
68
77
78
Key data 2004
Nokia
2004
2003
Change, %
Based on financial statements
according to International
Financial Reporting Standards,
IFRS
EURm
Net sales
Operating profit
Profit before taxes
Net profit
Research and development
Return on capital employed, %
Net debt to equity (gearing), %
29 267
4 330
4 709
3 207
3 733
31.6
–78
29 455
5 011
5 345
3 592
3 760
34.7
–71
EUR
Earnings per share, basic
Dividend per share
Average number of shares (1 000 shares)
0.70
0.33 *
4 593 196
0.75
0.30
4 761 121
–1
–14
–12
–11
–1
–7
10
* Board’s proposal
Business Groups
EURm
Mobile Phones
Net sales
Operating profit
Multimedia
Net sales
Operating profit/loss
Enterprise Solutions
Net sales
Operating loss
Networks
Net sales
Operating profit/loss
Personnel, Dec. 31
Mobile Phones
Multimedia
Enterprise Solutions
Networks
Common Group Functions
Nokia Group
10 major markets
Net sales, EURm
USA
China
UK
Germany
India
Brazil
Russia
United Arab Emirates
Italy
Spain
10 major countries
Personnel, Dec. 31
Finland
United States
China
Hungary
Germany
Brazil
UK
Denmark
Mexico
Singapore
2004
2003
Change, %
–12
–36
46
57
13
–7
–1
12
8
10
8
18 507
3 768
20 951
5 927
3 659
179
830
–199
6 367
878
2 558
2 738
2 234
16 595
31 380
55 505
2 504
–186
529
–141
5 620
–219
2 764
2 777
1 986
15 301
28 531
51 359
2004
2003
3 416
2 660
2 261
1 730
1 364
1 091
938
909
884
768
4 475
2 013
2 693
2 297
1 062
805
570
1 886
1 003
748
2004
2003
23 069
6 706
4 788
3 778
3 522
2 640
1 903
1 296
1 160
713
22 274
6 636
4 595
2 571
3 486
1 497
1 947
1 270
1 290
717
Main currencies,
rates at year end 2004
1 EUR = USD 1.3345
GBP 0.6885
SEK 8.9768
JPY 139.21
4 Nokia in 2004
Review by the Board of Directors 2004
Nokia’s net sales decreased by 1% to EUR 29 267 million (EUR 29 455 mil-
lion). Sales of Mobile Phones decreased by 12% to EUR 18 507 million (EUR
20 951 million). Sales of Multimedia increased by 46% to EUR 3 659 million
(EUR 2 504 million). Sales of Enterprise Solutions increased by 57% and to-
taled EUR 830 million (EUR 529 million). Sales of Networks increased by 13%
to EUR 6 367 million (EUR 5 620 million).
Operating profit decreased by 14% to EUR 4 330 million (EUR 5 011 mil-
lion), representing an operating margin of 14.8% (17.0%). Operating profit
in Mobile Phones decreased by 36% to EUR 3 768 million (EUR 5 927 mil-
lion), representing an operating margin of 20.4% (28.3%). Operating profit
in Multimedia was EUR 179 million (operating loss EUR 186 million), repre-
senting an operating margin of 4.9% (–7.4%). Enterprise Solutions reported
an operating loss of EUR 199 million (operating loss of EUR 141 million).
Operating profit in Networks increased to EUR 878 million including a neg-
ative impact from research and development impairments totaling EUR
115 million; representing an operating margin of 13.8% (–3.9%). In 2003,
operating profit included a positive adjustment of EUR 226 million related
to customer financing impairment charges (MobilCom) and charges of EUR
550 million related to restructuring costs and impairments and write-offs
of capitalized R&D expenses, as well as a goodwill impairment of EUR 151
million, with a total net impact of EUR 475 million.
Common Group expenses totaled EUR 296 million (EUR 370 million, in-
cluding the gain of EUR 56 million on the sale of the remaining shares of
Nokian Tyres Ltd) and included a one-time positive item of EUR 160 million
representing the premium return under our multi-line, multi-year insur-
ance program, which expired during 2004. The return was due to our low
claims experience during the policy period. It also included a EUR 12 mil-
lion negative impact from the divestiture of Nextrom.
In January – December, net financial income was EUR 405 million (EUR
352 million), including a one-time positive item of EUR 106 million. During
the year, Nokia sold approximately 69% of its original holdings in the
subordinated convertible perpetual bonds issued by France Telecom. As a
result, the company booked a total net gain of EUR 106 million. The bonds
had been classified as available-for-sale investments and fair valued through
shareholders’ equity.
Profit before tax and minority interests was EUR 4 709 million (EUR
5 345 million). Net profit totaled EUR 3 207 million (EUR 3 592 million). Earnings
per share decreased to EUR 0.70 (basic) and EUR 0.70 (diluted), compared
with EUR 0.75 (basic) and EUR 0.75 (diluted) in 2003.
At December 31, 2004, net debt-to-equity ratio (gearing) was –78% (–71%
at December 31, 2003). During the January – December 2004, capital expend-
iture amounted to EUR 548 million (EUR 432 million).
Global reach
In 2004, Europe/Middle East/Africa accounted for 55% of Nokia’s net sales
(56% in 2003), North America 12% (16%), Latin America 8% (6%), China 10%
(8%), and Asia-Pacific 15% (14%). The 10 largest markets were the US, China,
UK, Germany, India, Brazil, Russia, United Arab Emirates, Italy and Spain,
together representing 54% of total sales.
Research and development
As of December 31, 2004, we employed 20 722 people in research and devel-
opment in 12 countries, representing approximately 37% of Nokia’s total
workforce. R&D expenses totaled EUR 3 733 million in 2004, a decrease of
1% from 2003 (EUR 3 760 million). R&D expenses represented 12.8% of Nokia
net sales in 2004, compared with 12.8% of net sales in 2003.
If R&D impairments, write-offs and personnel-related restructuring
costs in Networks were excluded from both the 2004 (impairments of EUR
115 million) and 2003 (personnel-related restructuring costs, impairments
and write-offs totaling EUR 470 million) R&D expenses, the increase in R&D
expenses would have been 10%, and would have represented 12.4% of
Nokia net sales in 2004, compared with 11.2% of net sales in 2003.
Technology developments
During the year, Nokia continued to make advances in new technologies
for mobile devices, software platforms and developer operations. Nokia
added compelling features to its mobile devices with technologies such as
Push to Talk over Cellular, megapixel cameras and multiradio capability,
including wireless LAN and near field communications.
Nokia entered several technology development agreements with oper-
ators to jointly bring innovations to market. These included agreements
with France Telecom for rich media solutions and with T-Mobile for the de-
velopment of Series 60 Platform applications. A mobile service architec-
ture initiative led by Nokia and Vodafone was launched to simplify mobile
Java standards. Nokia also continued its work with in numerous industry
associations and initiatives to support interoperable, high-quality prod-
ucts and solutions.
Nokia strengthened its commitment to Symbian’s long-term success in
the mobile operating system market by increasing its shareholding in
Symbian from 32.2% to 47.9%. Nokia also extended its Symbian OS application
technology development abilities through an agreement with Metrowerks.
In June, Nokia introduced the Series 60 2nd Edition with support for
scalable user interfaces, high-resolution displays and multi-radio. The exter-
nal licensee base of Series 60 continued to grow during the year. Nokia
outlined plans to expand the Series 60 Platform for smartphones to a variety
of segments, such as enterprise, multimedia and consumer.
In 2004, to support advanced mobile software developers, Nokia opened
Forum Nokia PRO, a developer community, and launched the Preminet service.
People
The average number of personnel for 2004 was 53 511 (51 605 for 2003). At
the end of 2004, Nokia employed 55 505 people worldwide (51 359 at year-
end 2003). In 2004, Nokia’s personnel increased by a total of 4 146 employees
(decrease of 389 in 2003).
Corporate reorganization
On January 1, 2004, Nokia reorganized to further align the company’s over-
all structure with its strategy, to better position each business group to
meet the specific needs of diverse market segments, and to increase Nokia’s
operational efficiency and maintain the economies of scale. The structure
includes four business groups: Mobile Phones, Multimedia, Enterprise Solu-
tions and Networks. In addition, there are two horizontal groups that sup-
port the mobile device business groups: Customer and Market Operations
and Technology Platforms.
Nokia in 2004 5
R ev i ew by t h e B o a rd of D i re c to rs
Net sales by business group
Jan. 1 – Dec. 31
Mobile Phones
Multimedia
Enterprise Solutions
Networks
Inter-business
group eliminations
2004
EURm
18 507
3 659
830
6 367
%
63
12
3
22
2003
EURm
% Change
%
20 951
71
–12
2 504
529
8
2
5 620
19
–96
–
–149
–
46
57
13
–
–1
Nokia Group
29 267
100
29 455
100
Operating profit by business group, IFRS
Jan. 1 – Dec. 31
2004
% of
EURm net sales
2003
% of
EURm net sales
Mobile Phones
3 768
20.4
5 927
Multimedia
Enterprise Solutions
Networks
179
–199
878
Common Group Functions
–296
4.9
–24.0
13.8
–
–186
–141
–219
–370
28.3
–7.4
–26.7
–3.9
–
Nokia Group
4 330
14.8
5 011
17.0
Nokia in mobile devices in 2004
In 2004, the total mobile device sales volume achieved by our Mobile Phones,
Multimedia and Enterprise Solutions business groups reached a record of
207.7 million units, representing growth of 16% compared with 2003. Accord-
ing to Nokia’s preliminary estimates, the overall market for mobile devices
grew by 31% to reach 643 million units.
Of the 36 devices we announced in 2004, the majority had cameras and
nearly all had color screens. We also introduced additional designs with
ten new clamshell models, in addition to flip-open messenger devices and
the Nokia 9300 smartphone for enterprises.
We also expanded our 3G offering with shipments of two mobile devices,
the Nokia 7600 and Nokia 6630. In the smartphone segment, where we are
a clear market leader, Nokia delivered approximately 12 million Symbian
operating system-based mobile devices during 2004.
Mobile Phones in 2004
During 2004, the Mobile Phones business group continued to support the
company’s long-term strategy of expanding mobile voice in growth mar-
kets as well as identifying further opportunities in the more developed
markets. In line with this, we announced a range of competitive voice-op-
timized phones and camera phones as well as a number of new mobile
entry models.
in Western Europe – a first for a camera phone. Sales of the Nokia 6230 camera
phone were followed closely by the Nokia 6610i. The Nokia 3230 camera phone,
targeting younger audiences, was also strategically important.
During the year, we announced more than 10 new CDMA products. Of
these, the Nokia 6255, a high-end CDMA camera phone for business users,
began shipping in December, and strengthened our overall CDMA offering.
In design, the company announced an art-deco inspired Fashion Collec-
tion, presenting three distinct form factors and a sample of bold new fea-
tures: the Nokia 7260, a monoblock design; the Nokia 7270, a clamshell;
and the Nokia 7280, a slide phone with no keypad.
In our entry-level offering, initial shipments of the Nokia 2600, a color-
screen monoblock phone and the Nokia 2650, a color-screen clamshell
model, both met with a positive response from consumers.
Multimedia in 2004
Nokia continued to take advantage of digital convergence by announcing
six new smartphones and numerous products in the areas of imaging,
games and new enhancement products.
The Nokia 7610 imaging smartphone, Nokia’s first megapixel imaging
device, started sales in May and quickly became the best selling megapixel
GSM imaging smartphone globally. By the end of 2004, Nokia had four differ-
ent megapixel models in the market, making Nokia the market leader in
megapixel mobile imaging in GSM. Nokia continued to collaborate with
operators, retailers and printing partners to enable ease-of-use when
sharing, printing or storing images.
The Nokia 6630, our latest 3G WCDMA smartphone, was offered by more
than 30 operators worldwide, including in Japan, and initial market feed-
back has been very positive. Sales of Nokia’s first EDGE-enabled Series 60
smartphone, the Nokia 6620, started in the Americas in July.
Sales of the imaging devices unit were robust, while the games busi-
ness in 2004 was a disappointment.
Enterprise Solutions in 2004
Nokia began shipments of the Nokia 6820 and Nokia 6810 messaging devices
and the Nokia 9500 Communicator in 2004. These business-optimized devices
drove Enterprise Solutions’ 2004 full-year sales. During the third quarter
2004, Nokia launched the Nokia 9300 high-end, enterprise smartphone,
which is expected to ship during the first quarter 2005.
Nokia announced or reaffirmed alliances with leading IT companies that
support our new Communicator family for enterprises. The most signifi-
cant alliances were with those supporting our mobile e-mail efforts, in-
cluding Good Technology, Smartner and Visto. These provide a broad
range of e-mail options for Nokia business-optimized devices such as, the
Nokia 9500 and Nokia 9300.
Two new network security gateways, the Nokia IP2250 and Nokia
IP1220, were announced during 2004. Designed for medium-to-large enter-
prises, service providers and data sites, Nokia’s network security gateways
are designed to bring improved total cost of ownership and higher return
on investment. These new products place Nokia at the top end of perform-
ance in the firewall marketplace. The new Nokia IPSO Operating System
was also announced and is intended to lengthen the life of Nokia custom-
ers’ firewall and VPN investments.
Highlights for 2004 in Mobile Phones’ portfolio included the Nokia 6230,
a business camera phone, with a balanced feature set that sold well
throughout the year. In the fourth quarter it became the top-selling phone
The Nokia Secure Access System, an SSL-based remote access solution
with clientless virtual private network functionality, also had good success
in the market during 2004.
6 Nokia in 2004
R ev i ew b y t h e B o a rd of D i re c to rs
Networks in 2004
During 2004, Nokia announced 13 WCDMA 3G contracts, seven of which
were with new 3G customers underscoring Nokia’s strong ability to win
new business in this technology as the industry moves towards full com-
mercialization of WCDMA. By end of the year, 63 operators had launched
commercial WCDMA 3G networks, and Nokia was supplier to 28 of these.
Nokia also signed over 30 GSM, EDGE or GPRS contracts covering all mar-
kets, including contracts with 10 new GSM customers. Nokia made impor-
tant new market entries to several emerging growth markets.
Operators increasing focus on operating expenses, combined with the
increasing complexity of mobile networks, further opened the market for
services. Nokia rapidly built its position in the managed services market
and signed seven significant contracts. The multi-vendor, multi-technology
Nokia NetAct(tm) service and network management system was included
in most of the infrastructure deals during the year. Systems integration
and efficiently run deployments played a key role in the rollout of new
technology, and the year saw a rising trend in the volume of consultative
service sales to operators. Nokia strengthened its strategic focus on the
services business by creating a dedicated Services Business Unit.
Significant progress was also made in the new core networks business.
Nokia won its first commercial contracts for the IP Multimedia Subsystem
(IMS) for richer multimedia communications. Nokia also started a service
trial with Telecom Italia to explore the opportunities this offers for opera-
tors. Nokia is the number one in the market for push to talk, winning 26
commercial Push to talk over Cellular contracts with operators during
2004. Nokia was the first vendor to start delivering 3GPP Release 4 archi-
tecture to operators, winning 25 deals for the Nokia MSC Server System,
which enables significant cost savings in the delivery of voice minutes.
176 819 877 Nokia shares. The shares had an aggregate par value of EUR
10 609 192.62, representing approximately 3.79% of the share capital of
the company and the total voting rights.
The total number of shares at December 31, 2004 was 4 663 761 300. As
a result of the new share issues, Nokia received a total of EUR 84 810.60 in
additional shareholders’ equity in 2004. On December 31, 2004, Nokia’s
share capital was EUR 279 825 678.
Corporate responsibility
As market leader and a leading global brand, our impact on society comes
with responsibilities that go beyond providing products. Listening to
stakeholders is one key element in developing corporate responsibility
programs. Following are some developments made in this area during 2004.
The European Community invited Nokia, as one of two companies, to
participate in a multi-stakeholder consultation pilot, called the Integrated
Product Policy, that examines how environmental awareness works in
practice and aims to improve knowledge of the environmental perform-
ance and the sustainable use of products throughout their life-cycle.
We gained positive results from our Philippines pilot of Bridgeit, a pro-
gram using mobile technology to bring interactive, multimedia learning
materials to teachers and students who would otherwise have no access
to them. Launched by Nokia, the International Youth Foundation (IYF), the
United Nations Development Programme (UNDP) and Pearson, Bridgeit is
now being expanded to double the number of schools and will be repli-
cated in other countries.
In recognition of this work, we gained first place for the second year
running in the Dow Jones Sustainability Index European Technology and
Global Communications Technology categories.
Shares and share capital
In 2004, Nokia’s share capital increased by EUR 302.40 as a result of the issue
of 5 040 new shares upon exercise of stock options issued to key personnel
in 1999. Effective April 14, 2004, a total of 132 536 200 shares held by the
company were cancelled pursuant to the shareholders’ resolution taken at
the Annual General Meeting on March 25, 2004. As a result of the cancella-
tion, the share capital was reduced by the aggregate par value of the
shares cancelled, EUR 7 952 172, corresponding to less than 2.8% of the
share capital of the company and the total voting rights. The cancellation
did not reduce the shareholders’ equity. Neither the aforementioned issu-
ances nor the cancellation of shares had any significant effect on the rela-
tive holdings of the other shareholders of the company nor on their voting
power.
Nokia repurchased through its share repurchase plans a total of
214 057 700 shares on the Helsinki Exchanges at an aggregate price of ap-
proximately EUR 2.659 billion during the period from January 23, 2004 to
November 26, 2004. The price paid was based on the market price at the
time of repurchase. The shares were repurchased to be used for the purposes
specified in the authorizations given by the Annual General Meetings of
2003 and 2004 to the Board. The aggregate par value of the shares pur-
chased was EUR 12 843 462, representing approximately 4.59% of the share
capital of the company and the total voting rights. These new holdings did
not have any significant effect on the relative holdings of the other share-
holders of the company nor on their voting power.
On December 31, 2004, Nokia and its subsidiary companies owned
Outlook
The year 2004 was demanding for Nokia. In response, the company set five
top priorities in the areas of customer relations, product offering, R&D ef-
ficiency, demand-supply management and the company’s ability to offer
end-to-end solutions. Nokia is making good progress in these areas, and is
now better positioned to meet future challenges.
Nokia continues to expect the overall mobile device market in 2005 to
grow by approximately 10% in volume and to a lesser extent in value.
Growth is expected to continue to be driven by replacement and upgrade
sales in more developed markets and by new subscriber growth in devel-
oping mobile markets, as well as the wide-spread commercialization of 3G
devices in the second half of 2005.
In infrastructure, Nokia expects the overall market in 2005 to be up
slightly in euro terms as operators continue building coverage and expand-
ing capacity in growth markets, as well as optimizing and expanding existing
2G networks and rolling-out 3G networks in more developed markets.
Competition in both the mobile device and infrastructure markets is
expected to further intensify in 2005 as a result of anticipated slower
growth, compared with 2004. However, by upholding a clear competitive
focus, particularly in the priority areas outlined above, Nokia’s goal is to
further build on its industry-leading position.
Dividend
Nokia’s Board of Directors will propose a dividend of EUR 0.33 per share for
2004.
Nokia in 2004 7
C o n s o li d ate d f i n a n c i a l st ate m e nt s a cco rdi n g to I F R S
Consolidated profit and loss accounts, IFRS
Financial year ended Dec. 31
Notes
Net sales
Cost of sales
Research and development expenses
Selling, general and administrative
2004
EURm
2003
EURm
2002
EURm
29 267
–18 133
–3 733
29 455
–17 237
–3 760
30 016
–18 278
–3 052
expenses
7, 8
–2 975
–3 363
–3 239
Customer finance impairment charges,
net of reversals
Impairment of goodwill
Amortization of goodwill
8
8
10
Operating profit
Share of results of associated companies
Financial income and expenses
3, 4, 5, 6, 7, 8, 10
33
11
–
–
–96
4 330
–26
405
226
–151
–159
5 011
–18
352
–279
–182
–206
4 780
–19
156
Profit before tax and minority interests
Tax
Minority interests
12
4 709
–1 435
–67
5 345
–1 699
–54
4 917
–1 484
–52
Net profit
3 207
3 592
3 381
2004
EUR
0.70
0.70
2003
EUR
0.75
0.75
2002
EUR
0.71
0.71
29
2004
2003
2002
4 593 196 4 761 121 4 751 110
4 600 337 4 761 160 4 788 042
Earnings per share
29
Basic
Diluted
Average number of shares
(1 000 shares)
Basic
Diluted
See Notes to Consolidated Financial Statements.
8 Nokia in 2004
C o n s o li d ate d f i n a n c i a l st ate m e nt s a cco rdi n g to I F R S
Consolidated balance sheets, IFRS
Dec. 31
ASSETS
Fixed assets and other non-current assets
Capitalized development costs
Goodwill
Other intangible assets
Property, plant and equipment
Investments in associated companies
Available-for-sale investments
Deferred tax assets
Long-term loans receivable
Other non-current assets
Current assets
Inventories
Accounts receivable, net of allowances for doubtful
accounts (2004: EUR 361 million, 2003: EUR 367 million)
Prepaid expenses and accrued income
Other financial assets
Available-for-sale investments
Available-for-sale investments, liquid assets
Available-for-sale investments, cash equivalents
Bank and cash
Total assets
Dec. 31
SHAREHOLDERS’ EQUITY AND LIABILITIES
Shareholders’ equity
Share capital
Share issue premium
Treasury shares, at cost
Translation differences
Fair value and other reserves
Retained earnings
Minority interests
Long-term liabilities
Long-term interest-bearing liabilities
Deferred tax liabilities
Other long-term liabilities
Current liabilities
Short-term borrowings
Current portion of long-term debt
Accounts payable
Accrued expenses
Provisions
Total shareholders’ equity and liabilities
See Notes to Consolidated Financial Statements.
Notes
2004
EURm
2003
EURm
13
13
13
14
15
16
25
17
278
90
209
1 534
200
169
623
–
58
537
186
185
1 566
76
121
743
354
69
3 161
3 837
18, 20
1 305
1 169
19, 20
19
16
16
16, 35
35
Notes
22
21
23
24
25
26
27
28
4 382
1 429
595
255
9 085
1 367
1 090
19 508
22 669
2004
EURm
280
2 272
–2 022
–126
69
13 765
5 231
1 106
465
816
8 512
1 639
1 145
20 083
23 920
2003
EURm
288
2 272
–1 373
-85
93
13 953
14 238
15 148
168
164
19
179
96
294
215
–
2 669
2 606
2 479
20
241
67
328
387
84
2 919
2 468
2 422
7 969
22 669
8 280
23 920
Nokia in 2004 9
C o n s o li d ate d f i n a n c i a l st ate m e nt s a cco rdi n g to I F R S
Consolidated cash flow statements, IFRS
Financial year ended Dec. 31
Notes
Cash flow from operating activities
Net profit
Adjustments, total
34
Net profit before change in net working capital
34
Change in net working capital
Cash generated from operations
Interest received
Interest paid
Other financial income and expenses, net received
Income taxes paid
2004
EURm
2003
EURm
2002
EURm
3 207
1 986
5 193
299
5 492
204
–26
41
–1 368
3 592
2 953
6 545
–194
6 351
256
–33
118
–1 440
3 381
3 151
6 532
914
7 446
229
–94
67
–1 947
Net cash from operating activities
4 343
5 252
5 701
Cash flow from investing activities
Acquisition of Group companies, net of acquired cash
(2004: EUR 0 million, 2003: EUR 0 million, 2002: EUR 6 million)
Purchase of current available-for-sale investments,
–
–7
–10
liquid assets
Purchase of non-current available-for-sale investments
Purchase of shares in associated companies
Additions to capitalized development costs
Long-term loans made to customers
Proceeds from repayment and sale of long-term
–10 318
–388
–109
–101
–
loans receivable
Proceeds from (+) / payment of (–)
other long-term receivables
Proceeds from (+) / payment of (–)
short-term loans receivable
Capital expenditures
Proceeds from disposal of shares in Group companies,
368
2
66
–548
–11 695
–282
–61
–218
–97
315
–18
63
–432
–7 392
–99
–
–418
–563
314
–32
–85
–432
net of disposed cash
1
–
93
Proceeds from maturities and sale of current
available-for-sale investments, liquid assets
Proceeds from sale of current available-for-sale
investments
Proceeds from sale of non-current available-for-sale
investments
Proceeds from sale of fixed assets
Dividends received
9 737
8 793
4 390
587
346
6
22
–
381
19
24
–
162
177
25
Net cash used in investing activities
–329
–3 215
–3 870
Cash flow from financing activities
Proceeds from stock option exercises
Purchase of treasury shares
Capital investment by minority shareholders
Proceeds from long-term borrowings
Repayment of long-term borrowings
Repayment of short-term borrowings
Dividends paid
–
–2 648
–
1
–3
–255
–1 413
23
–1 355
–
8
–56
–22
–1 378
163
–17
26
100
–98
–406
–1 348
Net cash used in financing activities
–4 318
–2 780
–1 580
Foreign exchange adjustment
–23
–146
–135
10 Nokia in 2004
C o n s o li d ate d f i n a n c i a l st ate m e nt s a cco rdi n g to I F R S ( co nt i n u e d )
Financial year ended Dec. 31
Notes
Net increase (+) / decrease (–)
in cash and cash equivalents
Cash and cash equivalents at beginning of period
2004
EURm
–327
2 784
2003
EURm
–889
3 673
2002
EURm
116
3 557
Cash and cash equivalents at end of period
2 457
2 784
3 673
Cash and cash equivalents comprise of:
Bank and cash
Current available-for-sale investments,
1 090
1 145
1 496
cash equivalents
16, 35
1 367
1 639
2 457
2 784
2 177
3 673
See Notes to Consolidated Financial Statements.
The figures in the consolidated cash flow statement cannot be directly traced from the
balance sheet without additional information as a result of acquisitions and disposals
of subsidiaries and net foreign exchange differences arising on consolidation.
Nokia in 2004 11
C o n s o li d ate d f i n a n c i a l st ate m e nt s a cco rdi n g to I F R S
Consolidated statements of changes in shareholders’ equity, IFRS
Group, EURm
Number of
shares (1 000)
Share
capital
Share issue
premium
Treasury
shares
Translation
differences 1
Fair value
and other
reserves 1
Retained
earnings
Total
Balance at December 31, 2001
4 736 302
Stock options exercised
Stock options exercised related to
50 377
284
3
–900
983
acquisitions
Tax benefit on stock options exercised
Acquisition of treasury shares
Reissuance of treasury shares
Dividend
Translation differences
Net investment hedge gains
Cash flow hedges, net of tax
Available-for-sale investments, net of tax
Other increase, net
Net profit
2 060
–21
326
20
9 536
12 205
160
–17
22
–17
18
163
–17
22
–17
18
–1 279
–285
94
60
–87
23
3 381
–285
94
60
–87
–1 279
23
3 381
Balance at December 31, 2002
4 786 762
287
2 225
–20
135
–7
11 661
14 281
Share issue related to acquisitions
Stock options exercised
Stock options exercised related to
acquisitions
1 225
7 160
1
–95 339
460
Tax benefit on stock options exercised
Acquisition of treasury shares
Reissuance of treasury shares
Dividend
Translation differences
Net investment hedge gains
Cash flow hedges, net of tax
Available-for-sale investments, net of tax
Other increase, net
Net profit
Balance at December 31, 2003
4 700 268
Stock options exercised
Stock options exercised related to
5
acquisitions
–214 120
788
Acquisition of treasury shares
Reissuance of treasury shares
Cancellation of treasury shares
Dividend
Translation differences
Net investment hedge gains
Cash flow hedges, net of tax
Available-for-sale investments, net of tax
Other increase, net
Net profit
18
22
–6
13
–1 363
10
18
23
–6
13
–1 363
10
–1 340
–375
155
2
98
40
3 592
–375
155
2
98
–1 340
40
3 592
288
0
–8
2 272
–1 373
–85
93
13 953
15 148
0
–8
8
–2 661
14
1 998
0
–8
–2 661
14
–
–1 398
–119
78
42
–66
1
3 207
–1 998
–1 398
1
3 207
–119
78
42
–66
Balance at December 31, 2004
4 486 941
280
2 272
–2 022
–126
69
13 765
14 238
1
Accumulated other comprehensive income comprises translation differences and fair value and other reserves.
Dividends declared per share were EUR 0.33 for 2004 (EUR 0.30 for 2003 and EUR 0.28 for 2002), subject to shareholders’ approval.
See Notes to Consolidated Financial Statements.
12 Nokia in 2004
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
1. Accounting principles
Basis of presentation
The consolidated financial statements of Nokia Corporation (“Nokia” or
“the Group”), a Finnish limited liability company with domicile in Helsinki,
are prepared in accordance with International Financial Reporting Stand-
ards (IFRS). The consolidated financial statements are presented in mil-
lions of euros (EURm), except as noted, and are prepared under the histor-
ical cost convention except as disclosed in the accounting policies below.
The notes to the consolidated financial statements also conform with
Finnish Accounting legislation.
Use of estimates
The preparation of financial statements in conformity with IFRS requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual re-
sults could differ from those estimates.
Principles of consolidation
The consolidated financial statements include the accounts of Nokia’s par-
ent company (“Parent Company”), and each of those companies in which it
either owns, directly or indirectly through subsidiaries, over 50% of the
voting rights, or over which it has control of their operating and financial
policies. The Group’s share of profits and losses of associated companies
(generally 20% to 50% voting rights or over which the Group has signifi-
cant influence) is included in the consolidated profit and loss account in
accordance with the equity method of accounting.
All inter-company transactions are eliminated as part of the consolida-
tion process. Minority interests are presented separately in arriving at the
net profit. They are also shown separately from shareholders’ equity and
liabilities in the consolidated balance sheet.
Profits realized in connection with the sale of fixed assets between the
Group and associated companies are eliminated in proportion to share
ownership. Such profits are deducted from the Group’s equity and fixed
assets and released in the Group accounts over the same period as depre-
ciation is charged.
The companies acquired during the financial periods presented have
been consolidated from the date on which control of the net assets and
operations was transferred to the Group. Similarly the result of a Group
company divested during an accounting period is included in the Group
accounts only to the date of disposal.
Goodwill
Acquisitions of companies are accounted for using the purchase method of
accounting. Goodwill represents the excess of the purchase cost over the
fair value of assets less liabilities of acquired companies. Goodwill is amor-
tized on a straight-line basis over its expected useful life. Useful lives vary
between two and five years depending upon the nature of the acquisition.
Expected useful lives are reviewed at each balance sheet date and, where
these differ significantly from previous estimates, amortization periods
are changed accordingly.
amortization. Goodwill arising in business combinations completed be-
fore March 31, 2004 will continue to be amortized until the standard is fully
adopted as of January 1, 2005.
The Group assesses the carrying value of goodwill annually or, more
frequently, if events or changes in circumstances indicate that such carry-
ing value may not be recoverable. If such indication exists the recoverable
amount is determined for the cash-generating unit, to which goodwill be-
longs. This amount is then compared to the carrying amount of the cash-
generating unit and an impairment loss is recognized if the recoverable
amount is less than the carrying amount. Impairment losses are recog-
nized immediately in the profit and loss account.
Transactions in foreign currencies
Transactions in foreign currencies are recorded at the rates of exchange
prevailing at the dates of the individual transactions. For practical reasons,
a rate that approximates the actual rate at the date of the transaction is
often used. At the end of the accounting period, the unsettled balances on
foreign currency receivables and liabilities are valued at the rates of ex-
change prevailing at the year-end. Foreign exchange gains and losses relat-
ed to normal business operations are treated as adjustments to sales or to
cost of sales. Foreign exchange gains and losses associated with financing
are included as a net amount under financial income and expenses.
Foreign Group companies
In the consolidated accounts all items in the profit and loss accounts of for-
eign subsidiaries are translated into euro at the average foreign exchange
rates for the accounting period. The balance sheets of foreign Group compa-
nies are translated into euro at the year-end foreign exchange rates with
the exception of goodwill arising on the acquisition of a foreign company,
which is translated to euro at historical rates. Differences resulting from the
translation of profit and loss account items at the average rate and the bal-
ance sheet items at the closing rate are also treated as an adjustment affect-
ing consolidated shareholders’ equity. On the disposal of all or part of a for-
eign Group company by sale, liquidation, repayment of share capital or
abandonment, the cumulative amount or proportionate share of the trans-
lation difference is recognized as income or as expense in the same period
in which the gain or loss on disposal is recognized.
Fair valuing principles
Financial assets and liabilities
Under IAS 39, the Group classifies its investments in marketable debt and
equity securities and investments in unlisted equity securities into the fol-
lowing categories: held-to-maturity, trading, or available-for-sale depend-
ing on the purpose for acquiring the investments. All investments of the
Group are currently classified as available-for-sale. Available-for-sale in-
vestments are fair valued by using quoted market rates, discounted cash
flow analyses and other appropriate valuation models at the balance
sheet date. Certain unlisted equities for which fair values cannot be meas-
ured reliably are reported at cost less impairment. All purchases and sales
of investments are recorded on the trade date, which is the date that the
Group commits to purchase or sell the asset.
The Group adopted the transition provisions of IFRS 3, Business Combi-
nations, with effect from April 1, 2004. As a result, goodwill relating to pur-
chase acquisitions and acquisitions of associated companies for which the
agreement date was on or after March 31, 2004, is no longer subject to
The fair value changes of available-for-sale investments are recognized
in shareholders’ equity. When the investment is disposed of, the related
accumulated fair value changes are released from shareholders’ equity
and recognized in the profit and loss account. The accumulated fair value
Nokia in 2004 13
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
changes are calculated using a weighted average purchase price method.
An impairment is recorded when the carrying amount of an available-for-
sale investment is greater than the estimated fair value and there is objec-
tive evidence that the asset is impaired. The cumulative net loss relating
to that investment is removed from equity and recognized in the profit
and loss account for the period. If, in a subsequent period, the fair value of
the investment increases and the increase can be objectively related to an
event occurring after the loss was recognized, the loss is reversed, with
the amount of the reversal included in the profit and loss account.
The fair values of other financial assets and financial liabilities are as-
sumed to approximate their carrying values, either because of their short
maturities, or where their fair values cannot be measured reliably.
Derivatives
Fair values of forward rate agreements, interest rate options and futures
contracts are calculated based on quoted market rates at the balance
sheet date. Interest rate and currency swaps are valued by using discounted
cash flow analyses. The changes in the fair values of these contracts are
reported in the profit and loss account.
Fair values of cash settled equity derivatives are calculated by revalu-
ing the contract at year-end quoted market rates. Changes in the fair value
are reported in the profit and loss account.
Forward foreign exchange contracts are valued with the forward ex-
change rate. Changes in fair value are calculated by comparing this with the
original amount calculated by using the contract forward rate prevailing at
the beginning of the contract. Currency options are valued at the balance
sheet date by using the Garman & Kohlhagen option valuation model.
Changes in the fair value on these instruments are reported in the profit and
loss account except to the extent they qualify for hedge accounting.
Embedded derivatives are identified and monitored in the Group and
fair valued at the balance sheet date. In assessing the fair value of embed-
ded derivatives the Group uses a variety of methods, such as option pric-
ing models and discounted cash flow analysis, and makes assumptions
that are based on market conditions existing at each balance sheet date.
The fair value changes are reported in the profit and loss account.
Hedge accounting
Hedging of anticipated foreign currency
denominated sales and purchases
The Group applies hedge accounting for ‘Qualifying hedges’. Qualifying
hedges are those properly documented cash flow hedges of the foreign
exchange rate risk of future anticipated foreign currency denominated
sales and purchases that meet the requirements set out in IAS 39. The cash
flow being hedged must be ‘highly probable’ and must ultimately impact
the profit and loss account. The hedge must be highly effective both pro-
spectively and retrospectively.
The Group claims hedge accounting in respect of certain forward for-
eign exchange contracts and options, or option strategies, which have
zero net premium or a net premium paid, and where the critical terms of
the bought and sold options within a collar or zero premium structure are
the same and where the nominal amount of the sold option component is
no greater than that of the bought option.
For qualifying foreign exchange forwards the change in fair value is
deferred in shareholders’ equity to the extent that the hedge is effective.
For qualifying foreign exchange options the change in intrinsic value is
deferred in shareholders’ equity to the extent that the hedge is effective.
Changes in the time value are at all times taken directly as adjustments to
sales or to cost of sales in the profit and loss account.
Accumulated fair value changes from qualifying hedges are released
from shareholders’ equity into the profit and loss account as adjustments
to sales and cost of sales, in the period when the hedged cash flow affects
the profit and loss account. If the hedged cash flow is no longer expected
to take place, all deferred gains or losses are released into the profit and
loss account as adjustments to sales and cost of sales, immediately. If the
hedged cash flow ceases to be highly probable, but is still expected to take
place, accumulated gains and losses remain in equity until the hedged
cash flow affects the profit and loss account.
Changes in the fair value of any derivative instruments that do not qual-
ify for hedge accounting under IAS 39 are recognized immediately in the
profit and loss account. The fair value changes of derivative instruments
that directly relate to normal business operations are recognized as adjust-
ments to sales or cost of sales or treated as other operating income and
expense. The fair value changes from all other derivative instruments are
recognized in financial income and expenses.
Foreign currency hedging of net investments
The Group also applies hedge accounting for its foreign currency hedging
on net investments. Qualifying hedges are those properly documented
hedges of the foreign exchange rate risk of foreign currency-denominated
net investments that meet the requirements set out in IAS 39. The hedge
must be effective both prospectively and retrospectively.
The Group claims hedge accounting in respect of forward foreign ex-
change contracts, foreign currency-denominated loans, and options, or
option strategies, which have zero net premium or a net premium paid,
and where the terms of the bought and sold options within a collar or zero
premium structure are the same.
For qualifying foreign exchange forwards the change in fair value that
reflects the change in spot exchange rates is deferred in shareholders’ eq-
uity. The change in fair value that reflects the change in forward exchange
rates less the change in spot exchange rates is recognized in the profit and
loss account. For qualifying foreign exchange options the change in intrin-
sic value is deferred in shareholders’ equity. Changes in the time value are
at all times taken directly to the profit and loss account. If a foreign curren-
cy-denominated loan is used as a hedge, all foreign exchange gains and
losses arising from the transaction are recognized in shareholders’ equity.
Accumulated fair value changes from qualifying hedges are released
from shareholders’ equity into the profit and loss account only if the legal
entity in the given country is sold or liquidated.
Revenue recognition
Sales from the majority of the Group are recognized when persuasive evi-
dence of an arrangement exists, delivery has occurred, the fee is fixed and
determinable and collectibility is probable. An immaterial part of the revenue
from products sold through distribution channels is recognized when the
reseller or distributor sells the products to the end users.
In addition, sales and cost of sales from contracts involving solutions
achieved through modification of complex telecommunications equipment
are recognized on the percentage of completion method when the outcome
of the contract can be estimated reliably. A contract’s outcome can be esti-
mated reliably when total contract revenue and the costs to complete the
14 Nokia in 2004
N ote s to t h e co n s o l i d ate d f i n a n c i a l st ate m e nt s
contract can be estimated reliably, it is probable that the economic bene-
fits associated with the contract will flow to the Group and the stage of
contract completion can be measured reliably. When the Group is not able
to meet those conditions, the policy is to recognize revenues only equal to
costs incurred to date, to the extent that such costs are expected to be re-
covered.
Completion is measured by reference to cost incurred to date as a per-
method: the cost of providing pensions is charged to the profit and loss
account so as to spread the service cost over the service lives of employ-
ees. The pension obligation is measured as the present value of the esti-
mated future cash outflows using interest rates on government securities
that have terms to maturity approximating the terms of the related liabil-
ities. Actuarial gains and losses outside the corridor are recognized over
the average remaining service lives of employees.
centage of estimated total project costs, the cost-to-cost method.
The percentage of completion method relies on estimates of total ex-
pected contract revenue and costs, as well as dependable measurement of
the progress made towards completing a particular project. Recognized
revenues and profits are subject to revisions during the project in the
event that the assumptions regarding the overall project outcome are re-
vised. The cumulative impact of a revision in estimates is recorded in the
period such revisions become likely and estimable. Losses on projects in
progress are recognized in the period they become likely and estimable.
All the Group’s material revenue streams are recorded according to the
above policies.
Shipping and handling costs
The costs of shipping and distributing products are included in cost of sales.
Research and development
Research and development costs are expensed as they are incurred, except
for certain development costs, which are capitalized when it is probable
that a development project will be a success, and certain criteria, including
commercial and technological feasibility, have been met. Capitalized de-
velopment costs, comprising direct labor and related overhead, are amor-
tized on a systematic basis over their expected useful lives between two
and five years.
Capitalized development costs are subject to regular assessments of
recoverability based on anticipated future revenues, including the impact
of changes in technology. Unamortized capitalized development costs de-
termined to be in excess of their recoverable amounts are expensed imme-
diately.
Other intangible assets
Expenditures on acquired patents, trademarks and licenses are capitalized
and amortized using the straight-line method over their useful lives, but not
exceeding 20 years. Where an indication of impairment exists, the carrying
amount of any intangible asset is assessed and written down to its recover-
able amount. Costs of software licenses associated with internal-use soft-
ware are capitalized. These costs are included within other intangible assets
and are amortized over a period not to exceed three years.
Pensions
The Group companies have various pension schemes in accordance with the lo-
cal conditions and practices in the countries in which they operate. The
schemes are generally funded through payments to insurance companies or to
trustee-administered funds as determined by periodic actuarial calculations.
The Group’s contributions to defined contribution plans and to multi-
employer and insured plans are charged to the profit and loss account in
the period to which the contributions relate.
For defined benefit plans, principally the reserved portion of the Finnish
TEL system, pension costs are assessed using the projected unit credit
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depre-
ciation. Depreciation is recorded on a straight-line basis over the expected
useful lives of the assets as follows:
Buildings and constructions
Production machinery, measuring and test equipment
Other machinery and equipment
20–33 years
3 years
3–10 years
Land and water areas are not depreciated.
Maintenance, repairs and renewals are generally charged to expense
during the financial period in which they are incurred. However, major
renovations are capitalized and included in the carrying amount of the
asset when it is probable that future economic benefits in excess of the
originally assessed standard of performance of the existing asset will flow
to the Group. Major renovations are depreciated over the remaining useful
life of the related asset.
Gains and losses on the disposal of fixed assets are included in operat-
ing profit/loss.
Leases
The Group has entered into various operating leases, the payments under
which are treated as rentals and charged to the profit and loss account on
a straight-line basis over the lease terms.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is
determined using standard cost, which approximates actual cost, on a first
in first out (FIFO) basis. Net realizable value is the amount that can be real-
ized from the sale of the inventory in the normal course of business after
allowing for the costs of realization.
In addition to the cost of materials and direct labor, an appropriate
proportion of production overheads are included in the inventory values.
An allowance is recorded for excess inventory and obsolescence.
Cash and cash equivalents
Bank and cash consist of cash at bank and in hand. Cash equivalents con-
sist of highly liquid available-for-sale investments purchased with remain-
ing maturities at the date of acquisition of three months or less.
Short-term investments
The Group considers all highly liquid marketable securities purchased with
maturity at acquisition of more than three months as short-term invest-
ments. They are included in current available-for-sale investments, liquid
assets, in the balance sheet.
Nokia in 2004 15
N ote s to t h e co n s o l i d ate d f i n a n c i a l st ate m e nt s
Accounts receivable
Accounts receivable are carried at the original invoice amount to customers
less an estimate made for doubtful receivables based on a periodic review
of all outstanding amounts, which includes an analysis of historical bad
debt, customer concentrations, customer creditworthiness, current eco-
nomic trends and changes in our customer payment terms. Bad debts are
written off when identified.
Under the restricted share and performance share programs, Nokia
shares are delivered to employees at a future point in time. Performance
shares vest subject to the Group’s performance reaching the threshold
performance levels measured by pre-defined performance criteria. The
method by which the shares are obtained for delivery, as determined by
the Group, include the use of one or more of the following: treasury
shares, newly issued shares and shares purchased on the open market.
Borrowings
Borrowings are classified as originated loans and are recognized initially
at an amount equal to the proceeds received, net of transaction costs in-
curred. In subsequent periods, they are stated at amortized cost using the
effective yield method; any difference between proceeds (net of transac-
tion costs) and the redemption value is recognized in the profit and loss
account over the period of the borrowings.
Provisions
Provisions are recognized when the Group has a present legal or construc-
tive obligation as a result of past events, it is probable that an outflow of
resources will be required to settle the obligation and a reliable estimate
of the amount can be made. Where the Group expects a provision to be
reimbursed, the reimbursement would be recognized as an asset but only
when the reimbursement is virtually certain.
Loans to customers
Loans to customers are recorded at amortized cost. Loans are subject to
regular and thorough review as to their collectibility and as to available
collateral; in the event that any loan is deemed not fully recoverable, pro-
vision is made to reflect the shortfall between the carrying amount and
the present value of the expected cash flows. Interest income on loans to
customers is accrued monthly on the principal outstanding at the market
rate on the date of financing and is included within other operating in-
come within selling, general and administrative expenses.
Income taxes
Current taxes are based on the results of the Group companies and are cal-
culated according to local tax rules.
Deferred tax assets and liabilities are determined, using the liability
method, for all temporary differences arising between the tax basis of assets
and liabilities and their carrying values for financial reporting purposes.
Currently enacted tax rates are used in the determination of deferred in-
come tax.
Under this method the Group is required, in relation to an acquisition,
to make provision for deferred taxes on the difference between the fair
values of the net assets acquired and their tax bases.
The principal temporary differences arise from intercompany profit in
inventory, warranty and other provisions, untaxed reserves and tax losses
carried forward. Deferred tax assets relating to the carry forward of un-
used tax losses are recognized to the extent that it is probable that future
taxable profit will be available against which the unused tax losses can be
utilized.
Stock compensation
No compensation cost is recognized in respect of stock options, restricted
shares and performance shares granted to employees. The options are
granted with a fixed exercise price set on a date outlined in the plan. When
the options are exercised, the proceeds received, net of any transaction
costs, are credited to share capital (nominal value) and share premium.
Treasury shares are acquired by the Group to meet its obligations under
employee stock compensation plans in the United States. When treasury
shares are issued on exercise of stock options any gain or loss is recog-
nized in share issue premium. Tax benefits on options exercised in the
United States are credited to share issue premium.
16 Nokia in 2004
The Group recognizes the estimated liability to repair or replace products
still under warranty at the balance sheet date. The provision is calculated
based on historical experience of the level of repairs and replacements.
The Group recognizes the estimated liability for non-cancellable pur-
chase commitments for inventory in excess of forecasted requirements at
each balance sheet date.
The Group recognizes a provision for the estimated future settlements
related to asserted and unasserted Intellectual Property Rights (IPR) in-
fringements, based on the probable outcome of each case as of each bal-
ance sheet date.
The Group recognizes a provision for social security costs on unexer-
cised stock options granted to employees at the date options are granted.
The provision is measured based on the fair value of the options, and the
amount of the provision is adjusted to reflect the changes in the Nokia
share price.
The Group recognizes a provision for prior year tax contingencies
based upon the estimated future settlement amount at each balance
sheet date.
Dividends
Dividends proposed by the Board of Directors are not recorded in the fi-
nancial statements until they have been approved by the shareholders at
the Annual General Meeting.
Earnings per share
The Group calculates both basic and diluted earnings per share in accord-
ance with IAS 33, Earnings per share, (IAS 33). Under IAS 33, basic earnings
per share is computed using the weighted average number of shares out-
standing during the period. Diluted earnings per share is computed using
the weighted average number of shares outstanding during the period
plus the dilutive effect of stock options, restricted shares and performance
shares outstanding during the period.
New IFRS standards and revised IAS standards
In December 2003, International Accounting Standards (IAS) were amended
as the IASB released revised IAS 32, Financial Instruments: Disclosure and
Presentation and IAS 39, Financial Instruments: Recognition and Measure-
ment. These standards replace IAS 32 (revised 2000), and supersedes IAS 39
(revised 2000), and must be applied for annual periods beginning on or
after January 1, 2005. Under IAS 39 (revised) no cash flow hedge accounting
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
is available on forecast intragroup transactions. Any deferral of hedging
gains or losses that were included in the 2004 and 2003 consolidated finan-
cial statements needs to be reversed. The final form of the standards is still
open and given the uncertainty the Group is currently not able to estimate
the impact of adopting the revised standards on the financial statements.
fied as held for sale, or included within a disposal group that is classified
as held for sale, is not depreciated. IFRS 5 is effective for fiscal years begin-
ning on or after January 1, 2005. The Group does not expect the adoption
of this standard will have a material impact on the Group’s financial posi-
tion, results of operations or cash flows.
The revised IAS 21, The Effects of Changes in Foreign Exchange Rates,
issued by the IASB in December 2003, requires the goodwill arising on the
acquisition of a foreign operation to be expressed in the functional currency
of the foreign operation and translated at the closing rate. Currently the
Group records goodwill arising on the acquisition of a foreign entity using
the exchange rate at the date of the transaction. The revised standard is ef-
fective for fiscal years beginning on or after January 1, 2005. The Group does
not expect the adoption of the revised standard will have a material impact
on the Group’s financial position, results of operations or cash flows.
In February 2004, the IASB issued IFRS 2, Share-based Payment. The
standard requires the recognition of share-based payment transactions in
financial statements, including transactions with employees or other par-
ties to be settled in cash, other assets, or equity instruments of the Compa-
ny. Currently the Group has only share-based payment transactions with
employees to be settled in equity instruments of the Company. The servic-
es received, and the corresponding increase in equity, are measured by
reference to the fair value of the equity instruments granted. The com-
pensation is recognized as an expense in the profit and loss account over
the service period. IFRS 2 is effective for fiscal years beginning on or after
January 1, 2005 and applies to grants of shares, share options or other eq-
uity instruments that were granted after November 7, 2002 and had not yet
vested at the effective date of the standard. The Group is currently esti-
mating the impact of adopting IFRS 2 on the financial statements.
In March 2004, the IASB issued IFRS 3, Business Combinations, and the
revised standards IAS 36, Impairment of Assets, and IAS 38, Intangible Assets.
IFRS 3 is required to be applied to all business combinations for which the
agreement date is on or after March 31, 2004. The standard requires that
all business combinations be accounted for by the purchase method, pro-
vides specific criteria for recognizing intangible assets acquired in a busi-
ness combination and also prohibits the amortization of goodwill and in-
stead requires it to be tested for impairment annually, in accordance with
the revised IAS 36. Any excess of acquirer’s interest in the net fair value of
acquiree’s identifiable assets, liabilities and contingent liabilities over
cost is recognized immediately as a gain.
Goodwill related to acquisitions prior to March 31, 2004 continued to be
amortized through December 31, 2004 as required in the transition guid-
ance. Goodwill related to acquisitions subsequent to March 31, 2004 is not
amortized. Intangible assets with definite useful lives will continue to be
amortized over their respective estimated useful lives. Intangible assets
with indefinite useful lives are not amortized. Currently the Group does not
have indefinitely lived intangible assets. The revised standards IAS 36 and
IAS 38 are effective for fiscal years beginning on or after January 1, 2005. The
Group does not expect the adoption of these standards to have a material
impact on the Group’s financial position, results of operations or cash flows.
In March 2004, the IASB issued IFRS 5, Non-current Assets Held for Sale
and Discontinued Operations, which addresses financial accounting and
reporting for the disposal of non-current assets. The standard supersedes
IAS 35, Discontinuing Operations. IFRS 5 introduces the concept of a disposal
group and adopts the classification “held for sale”. IFRS 5 retains the re-
quirement to report separately discontinued operations. An asset classi-
2. Change in comparative figures
– cash equivalents
In 2003 and earlier, the Group maintained its excess cash in a single pool of
highly liquid, low risk instruments with varying maturity dates. These
pooled instruments were originally presented as cash equivalents irre-
spective of the instruments’ maturities. During 2004, cash management
practices were revised, such that this single pool was divided into two –
one of instruments with maturities of 90 days or less at the date of acqui-
sition and the other of instruments with maturities of more than 90 days
at the date of acquisition.
This change was made in order for the Group to better manage its excess
liquidity by enabling the use of longer dated instruments where appropriate
and by facilitating a wider range of benchmarks for performance measure-
ment and interest risk management purposes. Both pools remain availa-
ble to meet the Group’s cash commitments, and initially, both have similar
highly liquid and low risk profiles, with the pool of 90 day and under instru-
ments treated as cash equivalents and the pool of over 90 day instruments
treated as available-for-sale investments, liquid assets.
In the future the risk profile of the two pools may be different in line
with the revised cash management practices.
Prior year amounts in the balance sheet and the statement of cash
flows have been changed to reflect the current composition of cash equiv-
alents and available-for-sale investments, liquid assets.
Further details of the Group’s risk management principles in relation to
its excess liquidity are provided in Note 35.
Nokia in 2004 17
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
3. Segment information
Until January 1, 2004, Nokia’s organizational and reporting structure con-
sisted of three primary business segments: Nokia Mobile Phones, Nokia
Networks, and Nokia Ventures Organization. Effective January 1, 2004, Nokia’s
structure was reorganized in a move to further align the Group’s overall
structure with its strategy. Nokia’s revised structure includes four business
segments, which form the main reporting structure: Mobile Phones; Multi-
media; Enterprise Solutions; and Networks. Nokia’s reportable segments
represent the strategic business units that offer different products and
services for which monthly financial information is provided to the Board.
The comparative figures have been regrouped accordingly.
Mobile Phones currently offers mobile phones and devices based on
the three global cellular technologies: GSM/EDGE, CDMA and TDMA.
The Multimedia business group focuses on bringing connected and
mobile multimedia to consumers in the form of advanced mobile devices
and solutions.
Enterprise Solutions offers businesses solutions ranging from business-
optimized mobile devices for end users to a broad portfolio of IP network
perimeter security gateways and mobile connectivity offerings.
Networks is a leading provider of network infrastructure, communications
and networks service platforms and professional services to operators and
service providers.
In addition to the four business groups, the Group’s organization has
two horizontal units to support the mobile device business groups, in-
crease operational efficiency and competitiveness, and to take advantage
of economies of scale: Customer and Market Operations and Technology
Platforms. The horizontal groups are not separate reporting entities, but
their costs are carried mainly by the mobile device business groups, which
comprises of Mobile Phones, Multimedia and Enterprise Solutions, with
the balance included in Common Group Expenses. The costs and revenues
as well as assets and liabilities of the horizontal groups are allocated to
the mobile device business groups on a symmetrical basis; with any
amounts not so allocated included in Common Group Functions. Common
Group Functions consists of common research and general Group functions.
The accounting policies of the segments are the same as those de-
scribed in Note 1. Nokia accounts for intersegment revenues and transfers
as if the revenues or transfers were to third parties, that is, at current market
prices. Nokia evaluates the performance of its segments and allocates re-
sources to them based on operating profit.
No single customer represents 10% or more of Group revenues.
18 Nokia in 2004
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
Mobile
Phones
Multi- Enterprise
media
Solutions Networks
Common
Total
Group reportable
segments
Functions
18 429
78
306
–
3 768
–
279
3 758
–
3 636
23
77
–
179
–
67
787
–
806
24
23
–
–199
–
18
210
–
6 367
–
314
115
878
–
91
3 055
29
–29
148
11
–296
–26
93
1 142
29 267
96
868
126
4 330
–26
548
8 952
–
200
200
Elimina–
tions
–96
–12
4 114
934
271
1 574
170
7 063
–12
20 826
125
378
–
5 927
–
298
4 169
–
2 496
8
55
–
–186
–
33
604
–
502
27
10
–
–141
–
3
135
–
5 620
–
520
200
–219
–
44
4 108
11
–11
175
40
–370
–18
54
1 101
29 455
149
1 138
240
5 011
–18
432
10 117
–
76
76
–149
–22
4 532
689
180
1 628
178
7 207
–22
2004, EURm
Profit and loss information
Net sales to external customers
Net sales to other segments
Depreciation and amortization
Impairment and customer finance charges
Operating profit
Share of results of associated
companies
Balance sheet information
Capital expenditures 1
Segment assets 2
of which: Investments in
associated companies
Unallocated assets 3
Total assets
Segment liabilities 4
Unallocated liabilities 5
Total liabilities
2003, EURm
Profit and loss information
Net sales to external customers
Net sales to other segments
Depreciation and amortization
Impairment and customer finance charges
Operating profit
Share of results of associated
companies
Balance sheet information
Capital expenditures 1
Segment assets 2
of which: Investments in
associated companies
Unallocated assets 3
Total assets
Segment liabilities 4
Unallocated liabilities 5
Total liabilities
2002, EURm
Profit and loss information
Net sales to external customers
Net sales to other segments
Depreciation and amortization
Impairment and customer finance charges
Operating profit
Share of results of associated
21 417
211
501
–
5 718
1 552
3
46
–
–365
companies
–
–
1
2
Including goodwill and capitalized development costs, capital expenditures in 2004 amount to
EUR 649 million (EUR 670 million in 2003). The goodwill and capitalized development costs consist
of EUR 11 million in 2004 (EUR 17 million in 2003) for Mobile Phones, EUR 3 million in 2004 (12
million in 2003) for Multimedia, EUR 1 million in 2004 (EUR 22 million in 2003) for Enterprise
Solutions, EUR 83 million in 2004 (182 million in 2003) for Networks and EUR 3 million in 2004
(EUR 5 million in 2003) for Common Group Functions.
Comprises intangible assets, property, plant and equipment, investments, inventories and
accounts receivable as well as prepaid expenses and accrued income except those related
to interest and taxes.
469
18
28
61
–102
–
6 538
1
542
400
-49
–
40
–40
194
77
–422
–19
30 016
193
1 311
538
4 780
–19
–193
3
4
5
Unallocated assets include cash and other liquid assets, available-for-sale investments, long-
term loans receivable and other financial assets as well as interest and tax related prepaid
expenses and accrued income. Tax related prepaid expenses and accrued income, and deferred
tax assets amount to EUR 826 million in 2004 (EUR 834 million in 2003).
Comprises accounts payable, prepaid income, accrued expenses and provisions except those
related to interest and taxes.
Unallocated liabilities include long-term liabilities, short-term borrowings and current portion
of long-term debt, as well as interest and tax related prepaid income, accrued expenses and
provisions. Tax related prepaid income and accrued expenses, and deferred tax liabilities
amount to EUR 246 million in 2004 (EUR 394 million in 2003).
Nokia in 2004 19
Group
29 267
–
868
126
4 330
–26
548
8 940
200
13 729
22 669
7 051
1 212
8 263
29 455
–
1 138
240
5 011
–18
432
10 095
76
13 825
23 920
7 185
1 423
8 608
30 016
–
1 311
538
4 780
–19
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
Net sales to external customers
by geographic area
by location of customer
2004
EURm
2003
EURm
2002
EURm
5. Personnel expenses
351
3 416
2 660
2 261
1 730
18 849
347
4 475
2 013
2 693
2 297
17 630
353
4 665
2 802
3 111
1 849
17 236
Wages and salaries
Pension expenses, net
Other social expenses
Personnel expenses as per
profit and loss account
2004
EURm
2 805
253
372
2003
EURm
2 501
184
341
2002
EURm
2 531
224
385
3 430
3 026
3 140
Finland
USA
China
Great Britain
German
Other
Total
Segment assets by
geographic area
Finland
USA
China
Great Britain
Germany
Other
Total
29 267
29 455
30 016
2004
EURm
3 429
1 025
880
502
353
2 751
2003
EURm
4 215
1 563
1 011
344
387
2 575
8 940
10 095
Capital expenditures
by market area
2004
EURm
2003
EURm
2002
EURm
Finland
USA
China
Great Britain
Germany
Other
Total 1
216
80
57
5
20
170
548
160
49
53
9
17
144
432
188
71
47
27
21
78
432
1
Including goodwill and capitalized development costs, capital expenditures
amount to EUR 649 million in 2004 (EUR 670 million in 2003 and EUR 860 million
in 2002). The goodwill and capitalized development costs in 2004 consist of EUR 0
million in USA (EUR 20 million in USA in 2003 and 1 million in USA in 2002) and EUR
101 million in other areas (EUR 218 million in 2003 and EUR 427 million in 2002).
4. Percentage of completion
Contract sales recognized under the cost-to-cost method of percentage of
completion accounting were approximately EUR 5.2 billion in 2004 (EUR 4.8
billion in 2003 and EUR 5.9 billion in 2002). Billings in advance of contract
revenues, included in prepaid income, were EUR 185 million at December
31, 2004 (EUR 195 million in 2003 and 108 million in 2002). Contract revenues
recorded prior to billings, included in receivables, were EUR 80 million at
December 31, 2004 (EUR 665 million in 2003 and EUR 573 million in 2002).
Revenue recognition on initial 3G network contracts started in 2002
when Nokia Networks achieved 3G functionality for its single-mode and
dual-mode WCDMA 3G systems. Until the time 3GPP specifications required
by our customers were met, the application of the cost-to-cost input mod-
el was deferred. Upon achieving 3G functionality for WCDMA network
projects, the Group began recognizing revenue under the cost-to-cost in-
put method of percentage of completion accounting and have continued
to apply the method in 2003 and in 2004.
20 Nokia in 2004
Pension expenses, comprised of multi-employer, insured and defined con-
tribution plans were EUR 192 million in 2004 (EUR 146 million in 2003 and
EUR 167 million in 2002).
Remuneration of the Chairman and the
other members of the Board of Directors,
Group Executive Board and Presidents
and Managing Directors *
* Incentives included in remuneration
25
8
22
5
19
4
Pension commitments for the management:
The retirement age of the management of the Group companies is between
60–65 years.
For the Chief Executive Officer and the President of the Parent Company
the retirement age is 60 years. There were also three other Group Executive
Board Members whose retirement age is 60 years as of December 31, 2004.
There is also one other Member, following his arragement from a previous
employer, who has a retirement benefit of 65% of his pensionable salary
beginning at age 62 with early retirement possible at age 55 with reduc-
tion in benefits. Nokia does not offer any similar benefits to any other
members of the 2004 Group Executive Board.
Average personnel
2004
2003
2002
Mobile Phones
Multimedia
Enterprise Solutions
Networks
Common Group Functions
2 853
2 851
2 167
15 463
30 177
Nokia Group
53 511
51 605
52 714
6. Pensions
The most significant pension plans are in Finland and are comprised of the
Finnish state TEL system with benefits directly linked to employee earnings.
These benefits are financed in two distinct portions. The majority of benefits
are financed by contributions to a central pool with the majority of the
contributions being used to pay current benefits. The other part comprises
reserved benefits which are pre-funded through the trustee-administered
Nokia Pension Foundation. The pooled portion of the TEL system is accounted
for as a defined contribution plan and the reserved portion as a defined
benefit plan. The foreign plans include both defined contribution and de-
fined benefit plans.
N ote s to t h e co n s o l i d ate d f i n a n c i a l st ate m e nt s
Effective on January 1, 2005, the Finnish TEL system will undergo a reform.
The most significant change that will have an impact on Nokia’s future finan-
cial statements is that pensions accumulated after 2005 are calculated on
the earnings during the entire working career, not only on the basis of the
last few years of employment as provided by the old rules. An increase to
the rate at which pensions accrue has led to a past service cost of EUR 5
million, which will be recognized over employees’ future working life.
The amounts recognized in the balance sheet relating to single employer
defined benefit schemes are as follows:
EURm
2004
2003
Domestic
Plans
Foreign
Plans
Domestic
Plans
Foreign
Plans
Fair value of plan assets
Present value of funded
768
303
683
204
obligations
–727
Surplus/(Deficit)
Unrecognized net actuarial
(gains)/losses
Unrecognized past service cost
41
93
5
–398
–95
82
–
–666
17
140
–
–343
–139
61
–
Prepaid/(Accrued) pension
cost in balance sheet
139
–13
157
–78
The amounts recognized in the profit and loss account are as follows:
EURm
2004
2003
2002
Current service cost
Interest cost
Expected return on plan assets
Net actuarial losses (gains)
recognized in year
Past service cost gain (–) loss (+)
Curtailment
Total, included in personnel expenses
62
56
–56
–
–1
–
61
54
46
–55
3
–
–10
38
58
47
–61
2
11
–
57
Movements in prepaid pension costs recognized in the balance sheet are
as follows:
EURm
2004
2003
Prepaid pension costs at beginning of year 79
Net income (expense) recognized in
the profit and loss account
Contributions paid
–61
108
70
–38
47
Prepaid pension costs at end of year
126 *
79 *
* included within prepaid expenses and accrued income
The principal actuarial weighted average assumptions used were as
follows:
2004
2003
%
Domestic
Foreign
Domestic
Foreign
Discount rate for determining
present values
Expected long-term rate of
return on plan assets
Annual rate of increase in future
compensation levels
Pension increases
4.75
5.00
3.50
2.00
5.00
5.31
3.82
2.38
5.25
5.30
6.00
6.87
3.50
2.30
3.49
2.27
The prepaid pension cost above is made up of a prepayment of EUR 202
million (EUR 164 million in 2003) and an accrual of EUR 76 million (EUR 85
million in 2003).
The domestic pension plans’ assets include Nokia securities with fair values
of EUR 4 million in 2004 (EUR 19 million in 2003).
The foreign pension plan assets include a self investment through a loan
provided to Nokia by the Group’s German pension fund of EUR 62 million
(EUR 64 million in 2003). See Note 32.
The actual return on plan assets was EUR 83 million in 2004 (EUR 41 million
in 2003).
7. Selling and marketing expenses,
administration expenses and other operating
income and expenses
EURm
2004
2003
2002
Selling and marketing expenses
Administration expenses
Other operating expenses
Other operating income
–2 552
–604
–162
343
–2 649
–630
–384
300
–2 579
–701
–292
333
Total
–2 975
–3 363
–3 239
Other operating income for 2004 includes a gain of EUR 160 million repre-
senting the premium return under a multi-line, multi-year insurance pro-
gram, which expired during 2004. The return was due to our low claims
experience during the policy period.
Other operating income for 2003 includes a gain of EUR 56 million on the
sale of the remaining shares of Nokian Tyres Ltd. In 2003, Nokia Networks
recorded a charge of EUR 80 million for personnel expenses and other costs
in connection with the restructuring taken in light of general downturn in
market conditions, of which EUR 15 million was paid during 2003.
Other operating income for 2002 includes a gain of EUR 106 million relat-
ing to the sale of Nokia’s investment in PayPal. Other operating expenses for
2002 are composed of various items which are individually insignificant.
The Group expenses advertising and promotion costs as incurred. Adver-
tising and promotional expenses were EUR 1 144 million in 2004 (1 414 mil-
lion in 2003 and EUR 1 174 million in 2002).
Nokia in 2004 21
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
8. Impairment
2004, EURm
Impairment of available-for-sale investments
Impairment of capitalized development costs
Total, net
2003, EURm
Customer finance impairment charges,
net of reversals
Impairment of goodwill
Impairment of available-for-sale investments
Impairment of capitalized development costs
Total, net
2002, EURm
Customer finance impairment charges, net
Impairment of goodwill
Impairment of available-for-sale investments
Total, net
Mobile
Phones
Multimedia
Enterprise
Solutions
Common
Networks Group Functions
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
61
–
61
–
115
115
–226
151
–
275
200
279
121
–
400
11
–
11
–
–
27
–
27
–
–
77
77
Group
11
115
126
–226
151
27
275
227
279
182
77
538
During 2004, Nokia recorded an impairment charge of EUR 65 million of
capitalized development costs due to the abandonment of FlexiGateway
and Horizontal Technology modules. In addition, an impairment charge of
EUR 50 million was recorded on WCDMA radio access network program due
to changes in market outlook. The impairment loss was determined as the
difference between the carrying amount of the asset and its recoverable
amount. The recoverable amount for WCDMA radio access network was de-
rived from the discounted cash flow projections, which covers the estimat-
ed life of the WCDMA radio access network current technology, using a dis-
count rate of 15%. The impaired technologies were part of Networks busi-
ness group.
Relating to restructuring at Networks, Nokia recorded in 2003 EUR 206
million impairment of capitalized development costs relating to the WCDMA
3G systems. In 2003 Nokia also recorded a EUR 26 million and EUR 43 million
impairment of capitalized development costs relating to FlexiGateway and
Metrosite systems, respectively. The impairment losses were determined
as the difference between the carrying amount of the asset and its recover-
able amount. In determining the recoverable amount, the Group calculated
the present value of estimated discounted future cash flows, using a 15%
discount rate for WCDMA and FlexiGateway and 12% discount rate for Metrosite,
expected to arise from the continuing use of the asset and from its disposal
at the end of its useful life.
During 2002, Nokia recorded a net customer financing impairment
charge of EUR 279 million. Of this amount, EUR 292 million was an impairment
charge to write down the loans receivable to their estimated recoverable
amount related to MobilCom and EUR 13 million was a partial recovery re-
ceived relating to amounts written off in 2001 related to Dophin. The im-
pairment charge recorded in 2002 relating to Mobilcom was substantially
reversed in 2003 by EUR 226 million as a result of the company receiving
repayment of the MobilCom loans receivables in the form of subordinated
convertible perpetual bonds of France Telecom. See Notes 11, 16 and 21.
In 2003 and 2002 Nokia has evaluated the carrying value of goodwill
arising from certain acquisitions by determining if the carrying values of
the net assets of the cash generating unit to which the goodwill belongs
exceeds the recoverable amounts of that unit. In 2003 and 2002, in the
Nokia Networks business, Nokia recorded an impairment charge of EUR
151 million and EUR 104 million, respectively, on goodwill related to the
acquisition of Amber Networks. The recoverable amount for Amber Networks
was derived from the value in use discounted cash flow projections, which
covers the estimated life of the Amber platform technology, using a dis-
count rate of 15%. At December 31, 2004, there is EUR 0 million of Amber
goodwill (EUR 0 million in 2003). The impairment is a result of significant
declines in the market outlook for products under development.
In 2002, Nokia recognized impairment loss of EUR 36 million on goodwill
related to the acquisition of Ramp Networks. In 2002, Nokia recognized an
impairment loss of EUR 25 million, respectively, on goodwill related to the
acquisition of Network Alchemy. Both of these entities are part of Enter-
prise Solutions business segment. The remaining goodwill balances were
written off as a result of decisions to discontinue the related product devel-
opment.
Nokia recognized various minor goodwill impairment charges totaling
EUR 0 million in 2004 and 2003 and EUR 17 million in 2002.
During 2004 the Group’s investment in certain equity securities suffered
a permanent decline in fair value resulting in an impairment charge of EUR
11 million relating to non-current available-for-sale investments (EUR 27
million in 2003 and EUR 77 million in 2002).
22 Nokia in 2004
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
9. Acquisitions
In 2003, Nokia made three minor purchase acquisitions for a total consid-
eration of EUR 38 million, of which EUR 20 million was in cash and EUR 18
million in non-cash consideration.
In 2002, Nokia increased its voting percentage of 39.97% and holding
percentage of 59.97% in Nextrom Holding S.A. to a voting percentage of
86.21% and a holding percentage of 79.33%. These increases resulted from
a rights offering by Nextrom in June 2002 and by acquiring new registered
and bearer shares in an offering by Nextrom in December 2002 both total-
ling EUR 13 million. The fair value of net assets acquired was EUR 4 million
giving rise to goodwill of EUR 9 million.
10. Depreciation and amortization
Depreciation and
amortization by asset category
2004
EURm
2003
EURm
2002
EURm
Intangible assets
Capitalized development costs
Intangible rights
Goodwill
Other intangible assets
Property, plant and equipment
Buildings and constructions
Machinery and equipment
Other tangible assets
Total
244
38
96
30
32
426
2
868
Depreciation and amortization by function
Cost of sales
R&D
Selling, marketing and administration
Other operating expenses
Goodwill
196
431
137
8
96
327
51
159
21
34
545
1
233
65
206
28
37
737
5
1 138
1 311
214
537
185
43
159
314
473
211
107
206
Total
868
1 138
1 311
12. Income taxes
Income tax expense
Current tax
Deferred tax
Total
Finland
Other countries
Total
2004
EURm
2003
EURm
2002
EURm
–1 392
–43
–1 686
–13
–1 423
–61
–1 435
–1 699
–1 484
–1 117
–318
–1 118
–581
–1 102
–382
–1 435
–1 699
–1 484
The differences between income tax expense computed at statutory rates
(29% in Finland in 2004, 2003 and 2002) and income tax expense provided
on earnings are as follows at December 31:
Income tax expense at statutory rate
Amortization of goodwill
Impairment of goodwill
Provisions without income
tax benefit/expense
Taxes for prior years
Taxes on foreign subsidiaries’ profits
in excess of (lower than) income
taxes at statutory rates
Operating losses with no current
tax benefit
Net increase in provisions
Change in deferred tax rate
Deferred tax liability on undistributed
earnings
Other
2004
EURm
1 372
28
–
–
–34
2003
EURm
1 555
46
58
–
56
–130
–77
–
67
26
60
46
8
14
–
–
39
2002
EURm
1 431
59
70
–10
8
–59
6
–39
–
–
18
11. Financial income and expenses
Income tax expense
1 435
1 699
1 484
2004
EURm
2003
EURm
2002
EURm
Income from available-for-sale investments
Dividend income
Interest income
Other financial income
Exchange gains and losses
Interest expense
Other financial expenses
Total
22
299
178
8
–22
–80
405
24
323
38
32
–25
–40
352
25
230
27
–29
–43
–54
156
At December 31, 2004, the Group had loss carry forwards, primarily attributable
to foreign subsidiaries of EUR 105 million (EUR 186 million in 2003 and EUR
425 million in 2002), most of which will expire between 2005 and 2024.
In 2005, the corporate tax rate in Finland will be reduced from 29% to
26%. The change had no impact on the current tax expense in 2004. The
impact of the change on the Profit and loss account through change in
deferred taxes in 2004 was EUR 26 million.
Certain of the Group companies’ income tax returns for periods ranging
from 1998 through 2002 are under examination by tax authorities. The
Group does not believe that any significant additional taxes in excess of
those already provided for will arise as a result of the examinations.
During 2004, Nokia sold approximately 69% of its original holdings in the
subordinated convertible perpetual bonds issued by France Telecom. As a
result, the Group booked a total net gain of EUR 106 million in other financial
income, of which EUR 104 million was recycled from Fair Value and Other
Reserves. See Notes 16 and 21.
During 2004, the Group analyzed its future foreign investment plans
with respect to certain foreign investments. As a result of this analysis, the
Group concluded that it could no longer represent that all foreign earnings
may be permanently reinvested. Accordingly, the Group recorded the recog-
nition of a EUR 60 million deferred tax liability during the year.
Nokia in 2004 23
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
13. Intangible assets
Capitalized development costs
Acquisition cost Jan. 1
Additions
Impairment and write-offs
Accumulated amortization Dec. 31
Net carrying amount Dec. 31
Goodwill
Acquisition cost Jan. 1
Additions
Impairment charges (Note 8)
Accumulated amortization Dec. 31
2004
EURm
2003
EURm
1 470
101
–115
–1 178
278
1 298
–
–
–1 208
1 707
218
–455
–933
537
1 429
20
–151
–1 112
Net carrying amount Dec. 31
90
186
Other intangible assets
Acquisition cost Jan. 1
Additions
Disposals
Translation differences
Accumulated amortization Dec. 31
Net carrying amount Dec. 31
554
86
–7
–4
–420
209
524
87
–44
–13
–369
185
The amount of capitalized development cost impairment and write-offs in
2004 include an EUR 50 million impairment charge based on IFRS impairment
review and EUR 65 million of other impairments (EUR 275 million and EUR
180 million in 2003, respectively).
Machinery and equipment
Acquisition cost Jan. 1
Additions
Disposals
Translation differences
Accumulated depreciation Dec. 31
2004
EURm
3 223
438
–277
–13
–2 681
2003
EURm
3 249
336
–313
–49
–2 521
Net carrying amount Dec. 31
690
702
Other tangible assets
Acquisition cost Jan. 1
Additions
Disposals
Translation differences
Accumulated depreciation Dec. 31
Net carrying amount Dec. 31
18
1
–
2
–11
10
Advance payments and fixed assets under construction
53
Acquisition cost Jan. 1
25
Additions
Disposals
–
Transfers to:
Other intangible assets
Buildings and constructions
Machinery and equipment
Translation differences
Net carrying amount Dec. 31
–1
–8
–30
1
40
22
–
–1
–3
–6
12
60
44
–10
–4
–
–35
–2
53
Total property, plant and equipment
1 534
1 566
14. Property, plant and equipment
15. Investments in associated companies
2004
EURm
2003
EURm
108
1
–5
–
104
887
38
–10
–5
–220
690
112
–
–
–4
108
911
5
–1
–28
–196
691
Net carrying amount Jan. 1
Additions
Share of results
Translation differences
Other movements
Net carrying amount Dec. 31
2004
EURm
2003
EURm
76
150
–26
1
–1
200
49
59
–18
–2
–12
76
In 2004, Nokia increased its ownership in Symbian from 32.2% to 47.9% by
acquiring part of the shares of Symbian owned by Psion for EUR 102 million
(GBP 70 million). EUR 68 million (GBP 47 million) of the total acquisition cost
was paid in cash and the remaining purchase price is considered as contin-
gent consideration to be paid in 2005 and 2006 . Nokia also participated in
a rights issue to raise EUR 73 million (GBP 50 million) additional funding to
Symbian. The issue was pro rata to existing shareholders.
Land and water areas
Acquisition cost Jan. 1
Additions
Disposals
Translation differences
Net carrying amount Dec. 31
Buildings and constructions
Acquisition cost Jan. 1
Additions
Disposals
Translation differences
Accumulated depreciation Dec. 31
Net carrying amount Dec. 31
24 Nokia in 2004
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
In 2003, Nokia increased its ownership in Symbian from 19.0% to 32.2%
by acquiring part of the shares of Symbian owned by Motorola representing
13.2% of all the shares in Symbian, for EUR 57 million (GBP 39.6 million) in
cash.
Shareholdings in associated companies are comprised of investments
17. Long-term loans receivable
Long-term loans receivable, consisting of loans made to customers princi-
pally to support their financing of network infrastructure and services or
working capital, net of allowances and write-offs amounts (Note 8), are
repayable as follows:
in unlisted companies in all periods presented.
16. Available-for-sale investments
Fair value at Jan. 1
Additions (deductions), net
Fair value gains/losses
Impairment charges (Note 8)
2004
EURm
11 088
–221
20
–11
2003
EURm
8 093
2 911
111
–27
Under 1 year
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
18. Inventories
Fair value at Dec. 31
10 876
11 088
Non-current
Current
Current, liquid assets
Current, cash equivalents
169
255
9 085
1 367
121
816
8 512
1 639
Raw materials, supplies and other
Work in progress
Finished goods
2004
EURm
2003
EURm
–
–
–
–
–
2004
EURm
326
477
502
–
354
–
–
354
2003
EURm
346
435
388
Total
1 305
1 169
19. Receivables
Prepaid expenses and accrued income consists of VAT and other tax receiv-
ables, prepaid pension costs, accrued interest income and other accrued
income, but no amounts which are individually significant.
Accounts receivable include EUR 118 million (EUR 40 million in 2003) due
more than 12 months after the balance sheet date.
Available-for-sale investments, comprising marketable debt and equity
securities and investments in unlisted equity shares, are fair valued, except
in the case of certain unlisted equities, where the fair value cannot be
measured reliably. Such unlisted equities are carried at cost, less impair-
ment (EUR 54 million in 2004 and EUR 45 million in 2003). Fair value for equity
investments traded in active markets and for unlisted equities, where the
fair value can be measured reliably, was EUR 115 million in 2004 and EUR 77
million in 2003. Fair value for equity investments traded in active markets
is determined by using exchange quoted bid prices. For other investments,
fair value is estimated by using the current market value of similar instru-
ments or by reference to the discounted cash flows of the underlying net
assets. Gains and losses arising from the change in the fair value of available-
for-sale investments are recognized directly in fair value and other reserves.
Available-for-sale investments comprise: (1) the subordinated convertible
perpetual bonds of France Telecom (convertible at any time to ordinary
shares of France Telecom at a price of EUR 40 and with a fixed coupon of
5.75% until the end of 2009, thereafter floating rate plus a spread of 300bp,
both being subject to a maximum 50bp step down linked to France Telecom’s
long-term credit ratings), which are regarded as current available-for-sale
investments, (2) highly liquid, interest-bearing investments with maturities
at acquisition of longer than 3 months, which are regarded as current
available-for-sale investments, liquid assets and (3) similar types of invest-
ments as in category (2), but with maturities at acquisition of less than 3
months, which are regarded as current available-for-sale investments,
cash equivalents. The remaining part of the available-for-sale investments
portfolio is classified as non-current. See Note 35 for details of these in-
vestments.
Nokia in 2004 25
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
20. Valuation and qualifying accounts
Allowances on
assets to which they apply:
2004
Doubtful accounts receivable
Excess and obsolete inventory
2003
Doubtful accounts receivable
Excess and obsolete inventory
2002
Doubtful accounts receivable
Long-term loans receivable
Excess and obsolete inventory
Balance at
beginning of year
EURm
Charged to cost
and expenses
EURm
Charged to
other accounts
EURm
Deductions 1
EURm
Balance at
end of year
EURm
367
188
300
290
217
13
314
155
308
228
229
186
–
318
–
–
–
–
–
–
–
–161
–324
–161
–331
–103
–13
–342
361
172
367
188
300
–
290
1 Deductions include utilization and releases of the allowances.
21.
Fair value and other reserves
Hedging reserve, EURm
Tax
Gross
Net
Available-for-sale
investments, EURm
Gross
Net
Tax
Total, EURm
Tax
Gross
Net
Balance at Dec. 31, 2002
31
–9
22
–13
–16
–29
18
–25
–7
Cash flow hedges:
Fair value gains/(losses) in period
Available-for-sale investments:
Net fair value gains/(losses)
Transfer to profit and loss account on impairment
Transfer of fair value gains to profit and loss
account on disposal
Transfer of fair value losses to profit and loss
account on disposal
1
–
–
–
–
1
–
–
–
–
2
–
–
–
–
Balance at Dec. 31, 2003
32
–8
24
Cash flow hedges:
Fair value gains/(losses) in period
59
–16
43
Available-for-sale investments:
Net fair value gains/(losses)
Transfer to profit and loss account on impairment
Transfer of fair value gains to profit and loss
account on disposal
Transfer of fair value losses to profit and loss
account on disposal
–
–
–
–
–
–
–
–
–
–
–
–
Balance at Dec. 31, 2004
91
–24
67
–
–
110
27
–12
–
–
98
27
1
1
110
27
–12
–
2
98
27
–84
20
–64
–84
20
–64
43
83
–
18
11
–6
–14
–
–1
–
37
69
–
17
11
43
–6
115
–22
59
18
11
–16
–1
–
37
93
43
17
11
–105
10
–95
–105
10
–95
–
7
–
–5
–
2
–
–
98
–29
–
69
In order to ensure that amounts deferred in the cash flow hedging reserve
represent only the effective portion of gains and losses on properly desig-
nated hedges of future transactions that remain highly probable at the
balance sheet date, Nokia has adopted a process under which all derivative
gains and losses are initially recognized in the profit and loss account. The
appropriate reserve balance is calculated at the end of each period and
posted to equity.
Nokia continuously reviews the underlying cash flows and the hedges
allocated thereto, to ensure that the amounts transferred to the Hedging
Reserve during the year ended December 31, 2004 and 2003 do not include
gains/losses on forward exchange contracts that have been designated to
hedge forecasted sales or purchases that are no longer expected to occur.
Because of the number of transactions undertaken during each period and
26 Nokia in 2004
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
the process used to calculate the reserve balance, separate disclosure of the
transfers of gains and losses to and from the reserve would be impractical.
All of the net fair value gains or losses recorded in the Fair value and
other reserve at December 31, 2004 on open forward foreign exchange
contracts which hedge anticipated future foreign currency sales or pur-
chases are transferred from the Hedging Reserve to the profit and loss account
when the forecasted foreign currency cash flows occur, at various dates up
to 1 year from the balance sheet date.
22. The shares of the Parent Company
See Note 15 to the financial statements of the Parent Company.
23. Distributable earnings
Retained earnings
Translation differences (distributable earnings)
Treasury shares
Other non-distributable items
Portion of untaxed reserves
Distributable earnings Dec. 31
2004
EURm
13 765
–432
–2 022
12
11 323
Retained earnings under IFRS and Finnish Accounting Standards (FAS) are
substantially the same. Distributable earnings are calculated based on
Finnish legislation.
24. Long-term liabilities
EURm
Long-term loans are repayable as follows:
Loans from financial institutions
Loans from pension insurance companies
Other long-term finance loans
Other long-term liabilities
Deferred tax liabilities
Total long-term liabilities
The long-term liabilities, excluding deferred tax liabilities as of
December 31, 2004, mature as follows:
2005
2006
2007
2008
2009
Thereafter
EURm
–
–
–
–
–
115
115
Percent
of total
–
–
–
–
–
100.0%
100.0%
The currency mix of the Group long-term liabilities as at
December 31, 2004 was as follows:
EUR
97.24%
USD
2.76%
Outstanding
Dec. 31, 2004
Repayment date
beyond 5 years
Outstanding
Dec. 31, 2003
–
19
–
96
115
179
294
–
19
–
96
115
1
18
1
67
87
241
328
Nokia in 2004 27
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
25. Deferred taxes
27. Accrued expenses
Deferred tax assets:
Intercompany profit in inventory
Tax losses carried forward
Warranty provision
Other provisions
Other temporary differences
Untaxed reserves
Total deferred tax assets
Deferred tax liabilities:
Untaxed reserves
Fair value gains/losses
Undistributed earnings
Other
Total deferred tax liabilities
Net deferred tax asset
2004
EURm
2003
EURm
41
12
118
174
190
88
623
–30
–28
–60
–61
–179
444
40
36
157
179
233
98
743
–33
–22
–
–186
–241
502
The tax charged to shareholders’ equity is as follows:
Fair value and other reserves, fair value gains/losses
–7
–22
In 2005, the corporate tax rate in Finland will be reduced from 29% to 26%.
The impact of the change on the deferred tax assets in 2004 was a reduction
of EUR 28 million and on the deferred tax liabilities an increase of EUR 2
million. Accordingly, the impact of the change in the tax rate on the profit
and loss account through change in deferred taxes in 2004 was EUR 26 million
tax expense.
During 2004, the Group analyzed the majority of its future foreign in-
vestment plans with respect to foreign investments. As a result of this
analysis, the Group concluded that it could no longer represent that all foreign
earnings may be permanently reinvested. Accordingly, the Group recorded
the recognition of a EUR 60 million deferred tax liability during the year.
At December 31, 2004 the Group had loss carry forwards of EUR 67 million
(EUR 75 million in 2003) for which no deferred tax asset was recognized
due to uncertainty of utilization of these loss carry forwards. These loss
carry forwards will expire in years 2005 through 2010.
26. Short-term borrowings
Short-term borrowings consist primarily of borrowings from banks denomi-
nated in different foreign currencies. The weighted average interest rate
at December 31, 2004 and 2003 was 3.07% and 6.73%, respectively.
Social security, VAT and other taxes
Wages and salaries
Prepaid income
Other
Total
2004
EURm
450
209
293
1 654
2 606
2003
EURm
501
170
276
1 521
2 468
Other includes various amounts which are individually insignificant.
28. Provisions
EURm
Warranty
1 303
At Jan. 1, 2004
–6
Exchange differences
751
Additional provisions
Change in fair value
–
Unused amounts reversed –233
Charged to profit
and loss account
Utilized during year
518
–598
IPR
infringements
Other
Total
371
–
96
–
–74
748
–
653
–8
–187
2 422
–6
1 500
–8
–494
22
458
998
–35
–302
–935
At Dec. 31, 2004
1 217
358
904
2 479
Analysis of total provisions at December 31:
Non-current
Current
2004
EURm
726
1 753
2003
EURm
593
1 829
The IPR provision is based on estimated future settlements for asserted
and unasserted past IPR infringements. Final resolution of IPR claims gener-
ally occurs over several periods. This results in varying usage of the provi-
sion year to year.
Other provisions include tax provisions of EUR 364 million at December
31, 2004 (EUR 185 million in 2003). Other items within Other provisions include
provisions for non-cancelable purchase commitments, provision for social
security costs on stock options and provision for losses on projects in
progress.
28 Nokia in 2004
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
29. Earnings per share
Numerator/EURm
Basic/Diluted:
Net profit
Denominator/1 000 shares
Basic:
Weighted average shares
Effect of dilutive securities:
stock options, restricted shares
and performance shares
Diluted:
2004
2003
2002
3 207
3 592
3 381
4 593 196
4 761 121
4 751 110
7 141
40
36 932
Adjusted weighted average shares
and assumed conversions
4 600 337
4 761 161
4 788 042
Under IAS 33, basic earnings per share is computed using the weighted
average number of shares outstanding during the period. Diluted earnings
per share is computed using the weighted average number of shares out-
standing during the period plus the dilutive effect of stock options, restricted
shares and performance shares outstanding during the period.
30. Commitments and contingencies
2004
EURm
2003
EURm
Collateral for our own commitments
Property under mortgages
Assets pledged
18
11
Contingent liabilities on behalf of Group companies
Other guarantees
275
Collateral given on behalf of other companies
Securities pledged 1
Contingent liabilities on behalf of other companies
Guarantees for loans 1
Other guarantees
–
3
2
18
13
184
28
5
–
Financing commitments
Customer finance commitments 1
1
See also Note 35 b
56
490
The amounts above represent the maximum principal amount of commit-
ments and contingencies.
Property under mortgages given as collateral for our own commitments
include mortgages given to the Finnish National Board of Customs as a
general indemnity of EUR 18 million in 2004 (EUR 18 million in 2003).
Assets pledged for the Group’s own commitments include available-
for-sale investments of EUR 11 million in 2004 (EUR 3 million of inventories
and EUR 10 million available-for-sale investments in 2003).
Other guarantees include guarantees of Nokia’s performance of EUR
223 million in 2004 (EUR 171 million in 2003). However, EUR 175 million of
these guarantees are provided to certain Networks’ customers in the form
of bank guarantees, standby letters of credit and other similar instru-
ments. These instruments entitle the customer to claim payment as com-
pensation for non-performance by Nokia of its obligations under network
infrastructure supply agreements. Depending on the nature of the instru-
ment, compensation is payable either immediately upon request, or subject
to independent verification of nonperformance by Nokia.
Securities pledged and guarantees for loans on behalf of other compa-
nies of EUR 3 million in 2004 (EUR 33 million in 2003) represent guarantees
relating to payment by certain Networks’ customers under specified loan
facilities between such customers and their creditors. Nokia’s obligations
under such guarantees are released upon the earlier of expiration of the
guarantee or early payment by the customer.
Financing commitments of EUR 56 million in 2004 (EUR 490 million in
2003) are available under loan facilities negotiated with customers of Net-
works. Availability of the amounts is dependent upon the borrower’s con-
tinuing compliance with stated financial and operational covenants and
compliance with other administrative terms of the facility. The loan facilities
are primarily available to fund capital expenditure relating to purchases of
network infrastructure equipment and services and to fund working capital.
The Group has been named as defendant along with certain of its senior
executives in a class action complaint in the United States relating to certain
public statements about its product portfolio and related financial projec-
tions. The Group does not believe that the claim has merit and intends to
vigorously defend itself.
The Group is party to routine litigation incidental to the normal conduct
of business. In the opinion of management the outcome of and liabilities
in excess of what has been provided for related to these or other proceedings,
in the aggregate, are not likely to be material to the financial condition or
results of operations.
As of December 31, 2004, the Group had purchase commitments of EUR
1 236 million (EUR 1 051 million in 2003) relating to inventory purchase
obligations, primarily for purchases in 2005.
Nokia in 2004 29
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
31. Leasing contracts
The Group leases office, manufacturing and warehouse space under various
non-cancellable operating leases. Certain contracts contain renewal options
for various periods of time.
The future costs for non-cancellable leasing contracts are as follows:
Leasing payments, EURm
Operating
leases
175
137
94
78
70
57
611
2005
2006
2007
2008
2009
Thereafter
Total
Rental expense amounted to EUR 236 million in 2004 (285 million in 2003
and EUR 384 million in 2002).
32. Related party transactions
Nokia Pension Foundation is a separate legal entity that manages and
holds in trust the assets for the Group’s Finnish employee benefit plans;
these assets include 0.008% of Nokia’s shares.
At December 31, 2004, the Group had borrowings amounting to EUR 62
million (EUR 64 million in 2003) from Nokia Unterstützungskasse GmbH,
the Group’s German pension fund, which is a separate legal entity.
The Group recorded net rental expense of EUR 2 million in 2004 (EUR 2
million in 2003 and EUR 2 million in 2002) pertaining to a sale-leaseback
transaction with the Nokia Pension Foundation involving certain buildings
and a lease of the underlying land.
There were no loans granted to top management at December 31, 2004
or 2003. See Note 5, Personnel expenses, for officers and directors remu-
nerations.
30 Nokia in 2004
33. Associated companies
2004
EURm
2003
EURm
2002
EURm
Share of results of associated companies
Dividend income
Share of shareholders’ equity
of associated companies
Liabilities to associated companies
–26
2
37
3
–18
3
18
3
–19
1
30
7
34. Notes to cash flow statement
Adjustments for:
2004
EURm
2003
EURm
2002
EURm
Depreciation and amortization (Note 10) 868
(Profit)/loss on sale of property,
plant and equipment and
available-for-sale investments
26
1 435
Income taxes (Note 12)
Share of results of associated
companies (Note 33)
26
Minority interest
67
Financial income and expenses (Note 11) –405
129
Impairment charges (Note 8)
Premium return
–160
Customer financing impairment
charges and reversals
Other
–
–
1 138
1 311
170
1 699
18
54
–352
453
–
–226
–1
–92
1 484
19
52
–156
245
–
279
9
Adjustments, total
1 986
2 953
3 151
Change in net working capital
(Increase) Decrease in
short-term receivables
(Increase) Decrease in inventories
Increase in interest-free
short-term liabilities
Change in net working capital
Non–cash investing activities
Acquisition of:
Current available-for-sale investments
in settlement of customer loan
Company acquisitions
Total
385
–193
107
299
–
–
–
–207
–41
54
–194
676
18
694
–16
243
687
914
–
–
–
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
35. Risk management
General risk management principles
Nokia’s overall risk management concept is based on visibility of the key
risks preventing Nokia from reaching its business objectives. This covers
all risk areas; strategic, operational, financial and hazard risks. Risk man-
agement at Nokia is a systematic and pro-active way to analyze, review
and manage all opportunities, threats and risks related to Nokia’s objec-
tives rather than to solely eliminate risks.
The principles documented in Nokia’s Risk Policy and accepted by the
Audit Committee of the Board of Directors require risk management and
its elements to be integrated into business processes. One of the main
principles is that the business or function owner is also the risk owner,
however, it is everyone’s responsibility at Nokia to identify risks preventing
us from reaching our objectives.
Key risks are reported to the business and Group level management to
create assurance on business risks and to enable prioritization of risk
management implementation at Nokia. In addition to general principles
there are specific risk management policies covering, for example, treasury
and customer finance risks.
Financial risks
The key financial targets for Nokia are growth, profitability, operational
efficiency and a strong balance sheet. The objective for the Treasury function
is twofold: to guarantee cost-efficient funding for the Group at all times,
and to identify, evaluate and hedge financial risks in close co-operation
with the business groups. There is a strong focus in Nokia on creating
shareholder value. The Treasury function supports this aim by minimizing
the adverse effects caused by fluctuations in the financial markets on the
profitability of the underlying businesses and by managing the balance
sheet structure of the Group.
Nokia has Treasury Centers in Geneva, Singapore/Beijing and New York/
Sao Paolo, and a Corporate Treasury unit in Espoo. This international organ-
ization enables Nokia to provide the Group companies with financial services
according to local needs and requirements.
The Treasury function is governed by policies approved by top manage-
ment. Treasury Policy provides principles for overall financial risk management
and determines the allocation of responsibilities for financial risk man-
agement in Nokia. Operating Policies cover specific areas such as foreign
exchange risk, interest rate risk, use of derivative financial instruments, as
well as liquidity and credit risk. Nokia is risk averse in its Treasury activities.
Business Groups have detailed Standard Operating Procedures supple-
menting the Treasury Policy in financial risk management related issues.
Market risk
Foreign exchange risk
Nokia operates globally and is thus exposed to foreign exchange risk arising
from various currency combinations. Foreign currency denominated assets
and liabilities together with expected cash flows from highly probable
purchases and sales give rise to foreign exchange exposures. These trans-
action exposures are managed against various local currencies because of
Nokia’s substantial production and sales outside the Eurozone.
(GBP) and Australian dollar (AUD). In general, depreciation of another currency
relative to the euro has an adverse effect on Nokia’s sales and operating
profit, while appreciation of another currency has a positive effect, with
the exception of Japanese yen (JPY), being the only significant foreign cur-
rency in which Nokia has more purchases than sales.
The following chart shows the break-down by currency of the underlying
net foreign exchange transaction exposure as of December 31, 2004 (in
some of the currencies, especially the US dollar, Nokia has both substantial
sales as well as costs, which have been netted in the chart).
THB 4%
AUD 5%
GBP 17%
Others 17%
JPY 26%
USD 31%
According to the foreign exchange policy guidelines of the Group, mate-
rial transaction foreign exchange exposures are hedged. Exposures are
mainly hedged with derivative financial instruments such as forward foreign
exchange contracts and foreign exchange options. The majority of finan-
cial instruments hedging foreign exchange risk have a duration of less
than a year. The Group does not hedge forecasted foreign currency cash
flows beyond two years.
Nokia uses the Value-at-Risk (‘’VaR’’) methodology to assess the foreign
exchange risk related to the Treasury management of the Group expo-
sures. The VaR figure represents the potential fair value losses for a portfolio
resulting from adverse changes in market factors using a specified time
period and confidence level based on historical data. To correctly take into
account the non-linear price function of certain derivative instruments,
Nokia uses Monte Carlo simulation. Volatilities and correlations are calcu-
lated from a one-year set of daily data. The VaR figures assume that the
forecasted cash flows materialize as expected. The VaR figures for the
Group transaction foreign exchange exposure, including hedging transac-
tions and Treasury exposures for netting and risk management purposes,
with a one-week horizon and 95% confidence level, are shown in table
below.
Transaction foreign exchange position Value-at-Risk (EURm)
VaR
2004
2003
12.7
14
1.6 –26.9
16.7
9.3
5.8–16.7
Nokia in 2004 31
Due to the changes in the business environment, currency combina-
tions may also change within the financial year. The most significant non-
euro sales currencies during the year were US dollar (USD), UK pound sterling
At Dec. 31
Average for the year
Range for the year
N ote s to t h e co n s o l i d ate d f i n a n c i a l st ate m e nt s
Since Nokia has subsidiaries outside the Euro zone, the euro-denomi-
nated value of the shareholders’ equity of Nokia is also exposed to fluctu-
ations in exchange rates. Equity changes caused by movements in foreign
exchange rates are shown as a translation difference in the Group consolida-
tion. Nokia uses, from time to time, foreign exchange contracts and foreign
currency denominated loans to hedge its equity exposure arising from for-
eign net investments.
Interest rate risk
The Group is exposed to interest rate risk either through market value fluctua-
tions of balance sheet items (i.e. price risk) or through changes in interest
income or expenses (i.e. re-investment risk). Interest rate risk mainly arises
through interest-bearing liabilities and assets. Estimated future changes
in cash flows and balance sheet structure also expose the Group to interest
rate risk.
Treasury is responsible for monitoring and managing the interest rate
exposure of the Group. Due to the current balance sheet structure of Nokia,
emphasis is placed on managing the interest rate risk of investments.
Nokia uses the VaR methodology to assess and measure the interest
rate risk in the investment portfolio, which is benchmarked against a one-
year investment horizon. The VaR figure represents the potential fair value
losses for a portfolio resulting from adverse changes in market factors using
a specified time period and confidence level based on historical data. For
interest rate risk VaR, Nokia uses variance-covariance methodology. Vola-
tilities and correlations are calculated from a one-year set of daily data.
The VaR-based interest rate risk figures for an investment portfolio with a
one-week horizon and 95% confidence level are shown in table below.
Treasury investment portfolio Value-at-Risk (EURm)
VaR
At Dec. 31
Average for the year
Range for the year
2004
2003
10.4
6.3
3.6–10.8
9.8
6.7
4.7–11.9
Equity price risk
Nokia has certain strategic minority investments in publicly traded compa-
nies. These investments are classified as available-for-sale. The fair value
of the equity investments at December 31, 2004 was EUR 7 million (EUR 8
million in 2003).
There are currently no outstanding derivative financial instruments
designated as hedges of these equity investments. The VaR figures for equity
investments, shown in table, have been calculated using the same principles
as for interest rate risk.
Equity investments Value at Risk (EURm)
VaR
At Dec. 31
Average for the year
Range for the year
2004
2003
0.1
0.2
0.1–0.3
0.2
3.5
0.2–9.4
In addition to the listed equity holdings, Nokia invests in private equity
through Nokia Venture Funds. The fair value of these available-for-sale
equity investments at December 31, 2004 was USD 142 million (USD 85 million
in 2003). Nokia is exposed to equity price risk on social security costs relating
to stock compensation plans. Nokia hedges this risk by entering into cash
settled equity swap and option contracts.
Credit risk
Customer Finance Credit Risk
Network operators in some markets sometimes require their suppliers to
arrange or provide term financing in relation to infrastructure projects.
Nokia has maintained a financing policy aimed at close cooperation with
banks, financial institutions and Export Credit Agencies to support selected
customers in their financing of infrastructure investments. Nokia actively
mitigates, market conditions permitting, this exposure by arrangements
with these institutions and investors.
Credit risks related to customer financing are systematically analyzed,
monitored and managed by Nokia’s Customer Finance organization, report-
ing to the Chief Financial Officer. Credit risks are approved and monitored
by Nokia’s Credit Committee along principles defined in the Company’s
credit policy and according to the credit approval process. The Credit Com-
mittee consists of the CFO, Group Controller, Head of Group Treasury and
Head of Nokia Customer Finance.
There were no outstanding loans to customers (EUR 354 million in 2003,
net of allowances and write-offs), while financial guarantees given on behalf
of third parties totaled EUR 3 million (EUR 33 million in 2003). In addition,
we had financing commitments totaling EUR 56 million (EUR 490 million in
2003). Total customer financing (outstanding and committed) stood at EUR
59 million (EUR 877 million in 2003).
The term customer financing portfolio at December 31, 2004 was:
Outstanding
Financing
Commitments
Total Portfolio EURm
3
56
Totals
59
The term customer financing portfolio at December 31, 2004 mainly
consists of committed customer financing to wireless operator Astelit LLC
in Ukraine, of which none was outstanding.
32 Nokia in 2004
N ote s to t h e co n s o l i d ate d f i n a n c i a l st ate m e nt s
Financial credit risk
Financial instruments contain an element of risk of the counterparties being
unable to meet their obligations. This risk is measured and monitored by
the Treasury function. The Group minimizes financial credit risk by limiting
its counterparties to a sufficient number of major banks and financial insti-
tutions, as well as through entering into netting arrangements, which
gives the Company the right to offset in the case that the counterparty
would not be able to fulfill the obligations.
Direct credit risk represents the risk of loss resulting from counterparty
default in relation to on-balance sheet products. The fixed income and
money market investment decisions are based on strict creditworthiness
criteria. The outstanding investments are also constantly monitored by
the Treasury. Nokia does not expect the counterparties to default given
their high credit quality.
Current available-for-sale investments 1, 2, 3
Maturity date less than 12 months
2004, EURm
Governments
Banks
Corporates
Asset backed securities
Maturity date 12 months or more
2004, EURm
Governments
Banks
Corporates
Asset backed securities
Total
2004, EURm
Governments
Banks
Corporates
Asset backed securities
Fair Unrealized Unrealized
gains
losses
value
1 820
3 927
166
–
5 913
3 999
428
302
65
4 794
5 819
4 355
468
65
10 707
–
–
–
–
–
–14
–1
–
–
–15
–14
–1
–
–
–15
1
1
–
–
2
4
2
10
–
16
5
3
10
–
18
Maturity date less than 12 months
2003, EURm
Governments
Banks
Corporates
Asset backed securities
Maturity date 12 months or more
2003 EURm
Governments
Banks
Corporates
Asset backed securities
Total
2003 EURm
Governments
Banks
Corporates
Asset backed securities
Fair Unrealized Unrealized
gains
losses
value
1 058
5 206
2 165
–
8 430
1 109
264
1 115
50
2 538
2 167
5 470
3 280
50
10 967
–
–1
–
–
–2
–3
–
–
–
–3
–3
–1
–1
–
–5
1
2
1
–
4
6
4
128
–
137
7
6
128
–
141
1
Available-for-sale investments are carried at fair value in 2004 and 2003.
2 Weighted average interest rate for current available-for-sale investments was 3.63%
in 2004 and 3.08% in 2003.
3
Included within current available-for-sale investments is EUR 11 million and EUR 31
million of restricted cash at December 31, 2004 and 2003, respectively.
EURm
Fixed rate investments
Floating rate investments
Total
2004
2003
10 429
278
10 541
426
10 707
10 967
Nokia in 2004 33
N ote s to t h e co n s o l i d ate d f i n a n c i a l st ate m e nt s
Liquidity risk
Nokia guarantees a sufficient liquidity at all times by efficient cash man-
agement and by investing in liquid interest-bearing securities. Due to the
dynamic nature of the underlying business Treasury also aims at main-
taining flexibility in funding by keeping committed and uncommitted
credit lines available. At the end of December 31, 2004, the committed fa-
cility totaled USD 2.0 billion. The committed credit facility is intended to
be used for U.S. and Euro Commercial Paper Programs back up purposes.
The commitment fee on the facility is 0.10% per annum.
The most significant existing funding programs include:
Revolving Credit Facility of USD 2,000 million, maturing in 2008
Local commercial paper program in Finland, totaling EUR 750 million
Euro Commercial Paper (ECP) program, totaling USD 500 million
US Commercial Paper (USCP) program, totaling USD 500 million
None of the above programs have been used to a significant degree in 2004.
Nokia’s international creditworthiness facilitates the efficient use of inter-
national capital and loan markets. The ratings of Nokia from credit rating
agencies have not changed during the year. The ratings as at December 31,
2004 were:
Short-term
Long-term
Standard & Poor’s
Moody’s
Standard & Poor’s
Moody’s
A-1
P-1
A
A1
Hazard risk
Nokia strives to ensure that all financial, reputation and other losses to
the Group and our customers are minimized through preventive risk man-
agement measures or purchase of insurance. Insurance is purchased for
risks, which cannot be internally managed. Nokia’s Insurance & Risk Fi-
nance function’s objective is to ensure that Group’s hazard risks, whether
related to physical assets (e.g. buildings) or intellectual assets (e.g. Nokia
brand) or potential liabilities (e.g. product liability) are optimally insured.
Nokia purchases both annual insurance policies for specific risks as
well as multi-line and/or multi-year insurance policies, where available.
Notional amounts of derivative financial instruments 1
Foreign exchange forward contracts 2
Currency options bought 2
Currency options sold 2
Interest rate swaps
Cash settled equity options 3
Credit default swaps 4
2004
EURm
10 745
715
499
–
237
200
2003
EURm
10 271
2 924
2 478
1 500
228
–
1
2
3
4
Includes the gross amount of all notional values for contracts that have not
yet been settled or cancelled. The amount of notional value outstanding is not
necessarily a measure or indication of market risk, as the exposure of certain
contracts may be offset by that of other contracts.
As at December 31, 2004, notional amounts include contracts amounting to EUR 1.6
billion used to hedge the shareholders’ equity of foreign subsidiaries (December
31, 2003, EUR 3.3 billion).
Cash settled equity options can be used to hedge risk relating to incentive
programs and investment activities.
Credit default swaps are used to selectively hedge counterparty risks involved in
investment activities.
Fair values of derivatives
The net fair values of derivative financial instruments at the balance
sheet date were:
Derivatives with positive fair value 1:
Forward foreign exchange contracts 2
Currency options bought
Cash settled equity options
Interest rate swaps
Embedded derivatives 3
Derivatives with negative fair value 1:
Forward foreign exchange contracts 2
Currency options written
Credit default swaps
Embedded derivatives 3
2004
EURm
2003
EURm
278
14
5
–
–
–89
–11
–2
–
358
59
13
1
25
–108
–35
–
–8
1 Out of the forward foreign exchange contracts and currency options, fair value
EUR 43 million was designated for hedges of net investment in foreign subsidiaries
as at December 31, 2004 (EUR 90 million at December 31, 2003) and reported within
translation differences.
2 Out of the foreign exchange forward contracts, fair value EUR 91 million was
designated for cash flow hedges as at December 31, 2004 (EUR 33 million at
December 31, 2003) and reported in fair value and other reserves.
3
Embedded derivatives are components of contracts having the characteristics of
derivatives, and thus requiring fair valuing of such components. The change in the
fair value is reported in other financial income and expenses.
34 Nokia in 2004
N ote s to t h e co n s o li d ate d f i n a n c i a l st ate m e nt s
36. Principal Nokia Group companies
at December 31, 2004
Parent
holding %
Group
majority %
US Nokia Inc.
DE Nokia GmbH
GB Nokia UK Limited
KR Nokia TMC Limited
CN Nokia Capitel Telecommunications Ltd
NL Nokia Finance International B.V.
HU Nokia Komárom Kft
BR Nokia do Brazil Technologia Ltda
IT Nokia Italia Spa
IN Nokia India Ltd
CN Dongguan Nokia Mobile Phones Company Ltd
CN Beijing Nokia Hang Xing
–
100.00
–
100.00
–
100.00
100.00
99.99
100.00
100.00
–
100.00
100.00
100.00
100.00
52.90
100.00
100.00
100.00
100.00
100.00
70.00
Telecommunications Systems Co. Ltd
–
69.00
Shares in listed companies
Group holding more than 5%
Group holding % Group voting %
Nextrom Holding S.A.
79.33
86.21
Under a binding sale agreement signed on December 31, 2004, Nokia will
sell its entire holding in Nextrom Holding S.A. and the remaining loan
agreement to Knill Group. The transaction is expected to be completed
during the first quarter of 2005. The negative impact of EUR 12 million from
the divestiture was recognized in other operating expenses in 2004.
Associated companies
Symbian Limited
47.90
47.90
A complete list of subsidiaries and associated companies is included in
Nokia’s Statutory Accounts.
Nokia in 2004 35
P a re nt co m p a ny
Profit and loss accounts, FAS
Cash flow statements, FAS
Operating profit
2, 3
2 552
3 695
Financial year ended Dec. 31
Notes
Net sales
Cost of sales
Gross margin
Selling and marketing expenses
Research and development expenses
Administrative expenses
Other operating expenses
Other operating income
Financial income and expenses
Income from long-term investments
Dividend income from Group companies
Dividend income from other companies
Interest income from Group companies
Interest income from other companies
Other interest and financial income
Interest income from Group companies
Interest income from other companies
Other financial income from other companies
Exchange gains and losses
Interest expenses and other financial expenses
Interest expenses to Group companies
Interest expenses to other companies
Other financial expenses
Financial income and expenses, total
2004
EURm
22 888
–15 162
2003
EURm
Financial year ended Dec. 31
Notes
22 402
–13 704
Cash flow from operating activities
Net profit
Adjustments, total
7 726
8 698
–982
–3 587
–666
–63
124
–1 058
–3 496
–762
–79
392
13
13
Net profit before change in net working capital
Change in net working capital
Cash generated from operations
Interest received
Interest paid
Other financial income and expenses
Income taxes paid
Cash flow before extraordinary items
Extraordinary income and expenses
2004
EURm
2 434
539
2 973
679
3 652
175
–70
133
–928
2 962
93
2003
EURm
3 070
1 041
4 111
–660
3 451
167
–37
127
–1 095
2 613
119
418
23
6
–
169
–
21
117
–65
–2
–10
677
106
23
15
21
145
1
42
144
–26
–9
–19
443
Net cash from operating activities
3 055
2 732
Cash flow from investing activities
Investments in shares
Additions to capitalized development costs
Capital expenditures
Proceeds from sale of shares
Long-term loans made to customers
Proceeds from repayment and sale
of long term loans receivable
Proceeds from other long-term receivables
Payments of short-term receivables
Dividends received
–398
–101
–39
346
–1
365
13
–2 880
366
–235
–218
–36
1 024
–97
315
163
–1 420
123
Net cash used in investing activities
–2 329
–381
Profit before extraordinary items and taxes
3 229
4 138
Cash flow from financing activities
Extraordinary items
Group contributions
Extraordinary items, total
12
12
93
93
Proceeds from share issue
Proceeds from borrowings
Repayment of borrowings
Purchase of treasury shares
Dividends paid
Support to the Foundation of Nokia Corporation
–
3 333
–23
–2 660
–1 399
–5
23
247
–64
–1 351
–1 340
–
Profit before taxes
3 241
4 231
Income taxes
for the year
from previous years
Net profit
See Notes to the financial statements of the parent company.
Net cash used in financing activities
–754
–2 485
–826
19
–1 132
Net decrease in cash and cash equivalents
–29
Cash and cash equivalents at beginning of period
2 434
3 070
Cash and cash equivalents at end of period
–28
103
75
–134
237
103
36 Nokia in 2004
P a re nt co m p a ny
Balance sheets, FAS
Dec. 31
ASSETS
Notes
2004
EURm
2003
EURm
Dec. 31
Notes
2004
EURm
2 003
EURm
SHAREHOLDERS’ EQUITY AND LIABILITIES
Fixed assets and other non-current assets
Shareholders’ equity
8
8
9
8, 9
280
2 230
–2 012
7 729
2 434
288
2 222
–1 351
8 062
3 070
10 661
12 291
Share capital
Share issue premium
Treasury shares
Retained earnings
Net profit for the year
Liabilities
Short-term liabilities
Current finance liabilities from Group companies
Current finance liabilities from other companies
Advance payments from other companies
Trade creditors to Group companies
Trade creditors to other companies
Accrued expenses and prepaid income to Group companies
6 436
2
133
634
902
76
Accrued expenses and prepaid income to other companies 1 390
9 573
3 100
65
4
767
923
16
1 417
6 292
Intangible assets
Capitalized development costs
Intangible rights
Tangible assets
Investments
Investments in subsidiaries
Investments in associated companies
4
5
6
6
Long-term loan receivables from Group companies
Long-term loan receivables from other companies
Other non-current assets
7
328
59
387
–
3 597
5
140
38
7
619
52
671
–
3 540
4
152
394
17
3 787
4 107
Current assets
Inventories and work in progress
Raw materials and supplies
Work in progress
Finished goods
Prepaid inventories
Receivables
102
84
284
2
472
Trade debtors from Group companies
Trade debtors from other companies
Short-term loan receivables from Group companies
633
1 523
12 704
Short-term loan receivables from other companies
Prepaid expenses and accrued income from Group companies
6
71
Prepaid expenses and accrued income from other companies 576
81
80
237
7
405
1 895
1 046
9 886
13
3
454
Short-term investments
Bank and cash
15 513
13 297
–
75
31
72
See Notes to the financial statements of the parent company.
20 234
18 583
20 234
18 583
Nokia in 2004 37
N ote s to t h e f i n a n c i a l st ate m e nt s of t h e p a re nt co m p a ny
1. Accounting principles
3. Depreciation and amortization
The Parent company Financial Statements are prepared according to Finnish
Accounting Standards (FAS).
See Note 1 to Notes to the consolidated financial statements.
2. Personnel expenses
Wages and salaries
Pension expenses
Other social expenses
2004
EURm
1 172
162
80
Personnel expenses as per profit and loss account
1 414
2003
EURm
1 050
149
117
1 316
Depreciation and amortization by asset class category
Intangible assets
2004
EURm
2003
EURm
Capitalized development costs
Intangible rights
Tangible assets
Total
Depreciation and amortization by function
R&D
Production
Selling, marketing and administration
Remuneration of the members of the Board of Directors,
the Chief Executive Officer and the President *
* Salaries include incentives
6
3
5
2
Total
4. Intangible assets
Pension commitments for the management:
For the Chief Executive Officer and the President of the Parent Company
the retirement age is 60 years. There were also three other Group Executive
Board Members whose retirement age is 60 years as of December 31, 2004.
There is also one other Member, following his arragement from a previous
employer, who has a retirement benefit of 65% of his pensionable salary
beginning at age 62 with early retirement possible at age 55 with reduc-
tion in benefits. Nokia does not offer any similar benefits to any other
members of the 2004 Group Executive Board.
Personnel average
2004
2003
Capitalized development costs
Acquisition cost Jan. 1
Additions
Disposals
Accumulated amortization Dec. 31
Net carrying amount Dec. 31
5 029
1 609
12 861
3 292
4 839
1 577
12 553
3 481
Intangible rights
Acquisition cost Jan. 1
Additions
Disposals
Accumulated amortization Dec. 31
22 791
22 450
Net carrying amount Dec. 31
2004
2003
22 990
22 132
Other intangible assets
Acquisition cost Jan. 1
Additions
Disposals
Accumulated amortization Dec. 31
Net carrying amount Dec. 31
Production
Marketing
R&D
Administration
Personnel, Dec. 31
38 Nokia in 2004
290
31
–
321
298
–
23
321
327
42
–
369
332
–
37
369
2004
EURm
2003
EURm
1 416
101
–123
–1 066
328
256
40
–4
–233
59
3
–
–
–3
–
1 706
201
–491
–797
619
225
36
–5
–204
52
50
–
–47
–3
–
N ote s to t h e f i n a n c i a l st ate m e nt s of t h e p a re nt co m p a ny
5. Tangible assets
At the end of 2004 and 2003 the parent company had no tangible assets.
These assets were leased from Nokia Asset Management Oy, a company
wholly owned by Nokia Oyj.
6. Investments
Investments in subsidiaries
Acquisition cost Jan. 1
Additions
Disposals
Net carrying amount Dec. 31
Investments in associated companies
Acquisition cost Jan. 1
Additions
Disposals
Net carrying amount Dec. 31
7. Other non-current assets
Investments in other shares
Acquisition cost Jan. 1
Additions
Disposals
Net carrying amount Dec. 31
Other investments
2004
EURm
2003
EURm
3 540
68
–11
3 597
4
1
–
5
3 519
41
–20
3 540
5
–
–1
4
2004
EURm
2003
EURm
17
334
–344
7
–
7
17
231
–238
10
7
17
At the balance sheet date, the fair value of investments in listed companies
was EUR 0 million (EUR 1 million in 2003).
Nokia in 2004 39
N ote s to t h e f i n a n c i a l st ate m e nt s of t h e p a re n t co m p a ny
Total
11 870
41
–1 351
–1 339
3 070
12 291
–
–
–2 660
–1 399
–5
2 434
10 661
–
28
112
350
186
5
–
8. Shareholders’ equity
Parent Company, EURm
Balance at Dec. 31, 2002
Share issue
Acquisitions of treasury shares
Dividend
Net profit
Balance at Dec. 31, 2003
Share issue
Cancellation of treasury shares
Acquisitions of treasury shares
Dividend
Support to the Foundation of Nokia Corporation
Net profit
287
1
288
–8
Share
capital
Share issue
premium
Treasury
shares
Retained
earnings
2 182
40
–
9 401
–1 351
2 222
–1 351
8
1 999
–2 660
–1 339
3 070
11 132
–1 999
–1 399
–5
2 434
10 163
Balance at Dec. 31, 2004
280
2 230
–2 012
9. Distributable earnings
10. Commitments and contingencies
Retained earnings from previous years
Net profit for the year
Retained earnings, total
Treasury shares
2004
EURm
7 729
2 434
10 163
–2 012
2003
EURm
8 062
3 070
Collateral for own commitments
Mortgages
11 132
–1 351
Collateral given on behalf of other companies
Assets pledged
–
–
2004
EURm
2003
EURm
Distributable earnings, Dec. 31
8 151
9 781
Contingent liabilities on behalf of Group companies
Guarantees for loans
Leasing guarantees
Other guarantees
173
246
244
Contingent liabilities on behalf of other companies
Guarantees for loans
Other guarentees
3
1
11. Leasing contracts
At December 31, 2004 the leasing contracts of the Parent Company amounted
to EUR 491 million (EUR 936 million in 2003), of which EUR 454 million in
2004 relate to Group internal agreements. EUR 473 million will expire in
2005 (EUR 472 million in 2004).
12. Loans granted to top management
There were no loans granted to top management at December 31, 2004.
40 Nokia in 2004
N ote s to t h e f i n a n c i a l st ate m e nt s of t h e p a re n t co m p a ny
13. Notes to cash flow statements
Adjustments for:
Depreciation
Income taxes
Financial income and expenses
Impairment charge
Other operating income and expenses
Adjustments, total
Change in net working capital
Short-term trade receivables,
increase (–), decrease (+)
Inventories, increase (–), decrease (+)
Interest-free short-term liabilities,
increase (+), decrease (–)
Change in net working capital
Non-cash investing activities
Acquisition of:
Current available-for-sale investments
in settlement of customer loan
2004
EURm
2003
EURm
321
807
–677
102
–14
539
682
–67
64
679
339
1 161
–443
374
–390
1 041
–564
181
–277
–660
–
676
14. Principal Nokia Group companies
on December 31, 2004
See Note 36 to Notes to the consolidated financial statements.
15. Nokia shares and shareholders
See Nokia shares and shareholders p. 42–48.
Nokia in 2004 41
N o k i a s h a re s a n d s h a re h o l d e rs
Shares and share capital
Nokia has one class of shares. Each Nokia share entitles the holder to one
(1) vote at General Meetings of Nokia. With effect from April 10, 2000, the
par value of the share is EUR 0.06.
The minimum share capital stipulated in the articles of association is
EUR 170 million and the maximum share capital EUR 680 million. The share
capital may be increased or reduced within these limits without amending
the articles of association.
On December 31, 2004, the share capital of Nokia Corporation was EUR
279 825 678.00 and the total number of shares was 4 663 761 300.
On December 31, 2004, the total number of shares included 176 819 877
shares owned by the Group companies with an aggregate par value of EUR
10 609 192.62 representing approximately 3.79% of the total number of
shares and votes.
Share capital and shares, Dec. 31, 2004 1
Share capital, EURm
2004
280
2003
288
2002
287
2001
284
2000
282
Shares (1 000, par value EUR 0.06)
4 663 761
4 796 292
4 787 907
4 737 530
4 696 213
Shares owned by the Group (1 000)
176 820
96 024
1 145
1 228
4 080
Number of shares excluding shares owned
by the Group (1 000)
Average number of shares excluding shares owned
by the Group during the year (1 000), basic
Average number of shares excluding shares owned
by the Group during the year (1 000), diluted
4 486 941
4 700 268
4 786 762
4 736 302
4 692 133
4 593 196
4 761 121
4 751 110
4 702 852
4 673 162
4 600 337
4 761 160
4 788 042
4 787 219
4 792 980
Number of registered shareholders 2
142 095
133 991
129 508
116 352
94 500
1
2
Figures have been recalculated to reflect the par value of EUR 0.06 of the share.
Each account operator is included in the figure as only one registered shareholder.
Key Ratios, Dec. 31, 2004, IFRS (calculation see page 51)
2004
Earnings per share from net profit, EUR
Earnings per share, basic
Earnings per share, diluted
P/E ratio
(Nominal) dividend per share, EUR
Total dividends paid, EURm 1
Payout ratio
Dividend yield, %
Shareholders’ equity per share, EUR
Market capitalization, EURm 2
0.70
0.70
16.60
0.33 *
1 539 *
0.47
2.8
3.17
52 138
*
1
2
Board’s proposal.
Calculated for all the shares of the company as of the applicable year-end.
Shares owned by the Group companies are not included.
2003
0.75
0.75
18.28
0.30
1 439
0.40
2.2
3.22
65 757
2002
0.71
0.71
21.34
0.28
1 341
0.39
1.8
2.98
72 537
2001
0.47
0.46
61.60
0.27
1 279
0.57
0.9
2000
0.84
0.82
56.50
0.28
1 315
0.33
0.6
2.58
137 163
2.30
222 876
Splits of the par value of the Nokia share
Par value before
Split ratio
Par value after
Effective date
1986
1995
1998
1999
2000
FIM 100 (EUR 16.82)
FIM 20 (EUR 3.36)
FIM 5 (EUR 0.84)
FIM 2.5 (EUR 0.42)
EUR 0.24
5:1
4:1
2:1
2:1
4:1
FIM 20 (EUR 3.36)
FIM 5 (EUR 0.84)
FIM 2.5 (EUR 0.42)
EUR 0.24 1
EUR 0.06
December 31, 1986
April 24, 1995
April 16, 1998
April 12, 1999
April 10, 2000
1
At the same time with a bonus issue of EUR 0.03 per each share of a par value of EUR 0.24.
42 Nokia in 2004
N o k i a s h a re s a n d s h a re h o l d e r s
Authorizations
Authorization to increase the share capital
The Board of Directors had been authorized by Nokia shareholders at the
Annual General Meeting held on March 27, 2003, to decide on an increase of
the share capital by a maximum of EUR 57 000 000 offering a maximum of
950 000 000 new shares. In 2004, the Board of Directors did not increase
the share capital on the basis of this authorization. The authorization expired
on March 27, 2004.
At the Annual General Meeting held on March 25, 2004, Nokia shareholders
authorized the Board of Directors to decide on an increase of the share
capital by a maximum of EUR 55 500 000, of which a maximum of EUR 3 000 000
may result from incentive plans, within one year from the resolution of the
Annual General Meeting. The increase of the share capital may consist of
one or more issues offering a maximum of 925 000 000 new shares with a
par value of EUR 0.06. The share capital may be increased in deviation from
the shareholders’ pre-emptive rights for share subscription provided that
from the company’s perspective important financial grounds exist such as
financing or carrying out of an acquisition or another arrangement and
granting incentives to selected members of the personnel. In 2004, the
Board of Directors did not increase the share capital on the basis of this
authorization. The authorization is effective until March 25, 2005.
At the end of 2004, the Board of Directors had no other authorizations
to issue shares, convertible bonds, warrants or stock options.
Other authorizations
The Board of Directors had been authorized by Nokia shareholders at the
Annual General Meeting held on March 27, 2003 to decide to repurchase a
maximum of 225 million Nokia shares. In 2004 Nokia repurchased 38 057 700
Nokia shares on the basis of this authorization.
At the Annual General Meeting held on March 25, 2004 Nokia shareholders
authorized the Board of Directors to repurchase a maximum of 230 million
Nokia shares, representing less than 5% of total shares outstanding, and to
resolve on the disposal of a maximum of 230 million Nokia shares. In 2004,
a total of 176 000 000 Nokia shares were repurchased under the buy-back
authorization, as a result of which the unused authorization amounted to
54 000 000 shares on December 31, 2004. No shares were disposed of in
2004 under the respective authorization. The shares may be repurchased
under the buy-back authorization in order to carry out the company’s
stock repurchase plan as a means to develop the capital structure of the
company, to finance or carry out acquisitions or other arrangements, to
grant incentives to selected members of the personnel or in connection
with these, to be transferred in other ways, or to be cancelled. The authoriza-
tion to dispose of the shares may be carried out pursuant to terms deter-
mined by the Board in connection with acquisitions or other arrangements
or for incentive purposes to selected members of the personnel. The Board
may resolve to dispose the shares in another proportion than that of the
shareholders’ pre-emptive rights to the company’s shares, provided that
from the company’s perspective important financial grounds exist for such
disposal. These authorizations are effective until March 25, 2005.
Nokia’s equity based incentive plans
Stock option plans
The table “Outstanding stock option plans, Dec. 31, 2004” depicts the main
features of outstanding stock option plans, which may result in an in-
crease of our share capital. The increase in share capital resulted by these
stock options is the number of shares to be issued times the par value of
each share. The plans have been approved by the Annual General Meetings in
the year of the launch of the plan. Shares subscribed for pursuant to the
stock options will entitle to dividend for the financial year in which the
subscription occurs. Other shareholder rights will commence on the date
on which the shares subscribed for are registered with the Finnish Trade
Register.
Pursuant to the stock options issued, an aggregate maximum number of
140 379 459 new shares may be subscribed for representing EUR 8 422 767.54
of the share capital and approximately 3.0% of the total number of votes
on December 31, 2004. During 2004 the exercise of 1 260 options resulted
in the issuance of 5 040 new shares and the increase of the share capital of
Nokia Corporation with EUR 302.40.
There were no other stock options and no convertible bonds outstanding
as of December 31, 2004, the exercise of which would result in an increase
of the share capital of the parent company.
In addition to above, Nokia has minor stock option plans for Nokia
employees in the U.S. and Canada which do not result in an increase of the
share capital of Nokia Corporation and in which holders receive Nokia ADSs
(American Depositary Shares). On the basis of these stock option plans
Nokia had granted 2 577 857 stock options on December 31, 2004. Each stock
option entitles the holder to receive one Nokia ADS. The average exercise
price of stock options under these plans is USD 22.95. These stock options
are included in the table “Options outstanding by range of exercise price,
Dec. 31, 2004”.
Performance shares
In 2004, we introduced performance shares as the main element to our
broad-based equity compensation program, as approved by the Board of
Directors, to further emphasize the performance element in employees’
long-term incentives. As part of this change, the number of stock options
to be granted was significantly reduced as compared to 2003.
A total number of 3.9 million Performance Share Units were granted to
a wide number of selected employees on many levels of the organization
in 2004. Performance Share Units represent a commitment by the company
to deliver Nokia shares to employees at a future point in time, subject to
the company’s fulfillment of pre-defined performance criteria. No Perform-
ance Share Units will vest unless the company performance reaches at
least one of the threshold levels measured by two pre-defined perform-
ance criteria: the company’s Average Annual Net Sales Growth and EPS
Growth (basic) for 2004 to 2007. If the required performance level is achieved,
the first payout will take place in 2006. The second and final payout, if any,
will be in 2008.
Both the EPS and Average Annual Net Sales Growth criteria have an
equal weight of 50%. The initial threshold for the Average Annual Net
Sales Growth criteria is 4% resulting in the vesting of up to 1.95 million
performance shares. Similarly, the first threshold for the annual EPS
Growth criteria is EUR 0.84 in 2007 resulting in the vesting of up to 1.95
million performance shares. The maximum performance threshold for Aver-
age Annual Net Sales Growth criteria is 16% resulting in the vesting of up
to 7.8 million performance shares. Similarly, the maximum performance
for the annual EPS Growth criteria is EUR 1.18 in 2007 resulting in the vest-
ing of up to 7.8 million performance shares.
The maximum performance level for both criteria will result in the vest-
ing of the maximum of 15.6 million performance shares. For performance
Nokia in 2004 43
N o k i a s h a re s a n d s h a re h o l d e rs
between the threshold and maximum performance levels the payout follows a line-
ar scale. Performance exceeding the maximum criteria does not increase the
number of shares vesting.
The company will determine later the method by which the shares are ob-
tained for delivery, which may also include cash settlement. Until the shares are
transferred and delivered, the recipients will not have any shareholder rights,
such as voting or dividend rights associated with respect to the Performance
Share Units.
Restricted shares
In 2004, we granted a total of 1.9 million restricted shares to recruit,
retain, reward and motivate selected high potential employees,
who are critical to the future success of Nokia. The restricted shares
granted during 2004 will vest in October 2007, after which time the
shares will be transferred and delivered to the recipients. Until the
shares are transferred and delivered, the recipients will not have any
shareholder rights, such as voting or dividend rights associated with
these restricted shares.
Outstanding stock option plans, Dec. 31, 2004
Plan
(Year of
launch)
Total
plan
size
Number of
participants
(approx.)
Vesting status (as
% of total number
(Sub)
category
of stock options Exercise periods
outstanding)
Starting
Ending
Exercise
price
/option
Exercise
price
/share
Split
ratio
1999 1
97 693 000
16 000
1999A
1999B
1999C
Expired
Apr. 1, 2001
Dec. 31, 2004
67.55 EUR 16.89 EUR
4:1
Expired
Apr. 1, 2002
Dec. 31, 2004
225.12 EUR 56.28 EUR
4:1
Expired
Apr. 1, 2003
Dec. 31, 2004
116.48 EUR 29.12 EUR
4:1
2001 2, 3
2001A+B
81.25
Jul. 1, 2002
Dec. 31, 2006
36.75 EUR 36.75 EUR
1:1
2001C3Q/01
75.00
Oct. 1, 2002
Dec. 31, 2006
20.61 EUR 20.61 EUR
1:1
2001C4Q/01
68.75
Jan. 1, 2003
Dec. 31, 2006
26.67 EUR 26.67 EUR
1:1
2001C1Q/02
62.50
Apr. 1, 2003
Dec. 31, 2007
26.06 EUR 26.06 EUR
1:1
2001C3Q/02
50.00
Oct. 1, 2003
Dec. 31, 2007
12.99 EUR 12.99 EUR
1:1
2001C4Q/02
43.75
Jan. 1, 2004
Dec. 31, 2007
16.86 EUR 16.86 EUR
1:1
2002A+B
56.25
Jul. 1, 2003
Dec. 31, 2007
17.89 EUR 17.89 EUR
1:1
104 326 000
31 000
2003 3
2003 2Q
31.25
Jul. 1, 2004
Dec. 31, 2008
14.95 EUR 14.95 EUR
1:1
2003 3Q
25.00
Oct. 1, 2004
Dec. 31, 2008
12.71 EUR 12.71 EUR
1:1
2003 4Q
2004 2Q
2004 3Q
0.00
Jan. 3, 2005
Dec. 31, 2008
15.05 EUR 15.05 EUR
1:1
0.00
Apr. 1, 2005
Dec. 31, 2009
11.79 EUR 11.79 EUR
1:1
0.00
Oct. 3, 2005
Dec. 31, 2009
9.44 EUR
9.44 EUR
1:1
36 053 000
22 000
1
2
Figures have been recalculated to reflect the par value of EUR 0.06 of the shares.
3 Our 2001 and 2003 stock option plans have a vesting schedule with a 25%
The stock options under the 2001 plan are listed on the Helsinki Exchanges.
vesting 1 year after grant, and quarterly vesting thereafter, each representing
6.25% of the total grant. The grants vest fully in 4 years.
44 Nokia in 2004
N o k i a s h a re s a n d s h a re h o l d e r s
Information relating to stock options during 2004, 2003
and 2002
Weighted
average
exercise
price
EUR
25.71
17.96
3.61
33.51
28.81
14.94
3.97
25.23
27.90
11.88
12.85
19.55
33.99
23.29
27.92
31.88
26.18
Number
of shares
227 999 753
51 127 314
51 586 807
6 097 025
221 443 235
31 098 505
7 700 791
5 847 332
238 993 617
7 172 424
781 338
4 733 995
97 693 392
142 957 316
107 721 842
148 150 370
83 667 122
Shares under option at Dec. 31, 2001
Granted 1
Exercised
Forfeited
Shares under option at Dec. 31, 2002
Granted 1
Exercised
Forfeited
Shares under option at Dec. 31, 2003
Granted
Exercised
Forfeited
Expired
Shares under option at Dec. 31, 2004
Options exercisable at Dec. 31, 2002 (shares)
Options exercisable at Dec. 31, 2003 (shares)
Options exercisable at Dec. 31, 2004 (shares)
1
Includes options converted in acquisitions.
Options outstanding by range of exercise price, Dec. 31, 2004
Options outstanding
Vested options outstanding
Exercise
prices
EUR
0.28 – 14.72
14.95
14.97 – 17.29
17.89
18.18 – 26.67
28.87 – 36.15
36.75
38.09 – 56.28
Number of
shares
8 566 058
28 912 535
323 635
46 657 996
19 171 279
139 708
38 980 544
205 561
142 957 316
Weighted
average
remaining
contractual
life in years
3.50
2.30
2.40
1.57
1.46
5.08
1.46
3.95
Weighted
average
exercise
price
EUR
11.26
14.95
15.70
17.89
27.61
33.87
36.75
39.54
Weighted
average
exercise
price
EUR
8.72
14.95
16.58
17.89
26.49
33.87
36.75
39.54
Number of
of shares
1 524 533
9 027 050
98 242
26 387 016
14 181 913
139 613
32 103 194
205 561
83 667 122
Nokia in 2004 45
of Rooftop Communications Corporation
20.04
2 118
N o k i a s h a re s a n d s h a re h o l d e rs
Share and bonus issues 1999–2004
Year
1999
2000
2001
2002
2003
Type of Issue
Nokia Stock Option Plan 1994
Nokia Stock Option Plan 1995
Nokia Stock Option Plan 1997
Bonus Issue
Share issue to stockholders
Total
Nokia Stock Option Plan 1995
Nokia Stock Option Plan 1997
Share issue to stockholders
of Network Alchemy, Inc.
Share issue to stockholders
of DiscoveryCom, Inc.
Total
Nokia Stock Option Plan 1995
Nokia Stock Option Plan 1997
Nokia Stock Option Plan 1999
Share issue to stockholders
of Amber Networks, Inc.
Total
Nokia Stock Option Plan 1997
Nokia Stock Option Plan 1999
Total
Nokia Stock Option Plan 1997
Share issue to stockholders
of Eizel Technologies Inc.
Total
2004
Nokia Stock Option Plan 1999
Total
Reductions of share capital
Type of reduction
Cancellation of shares
Cancellation of shares
Year
2001
2004
46 Nokia in 2004
Subscription
price or amount
of bonus issue EUR
Number of
new shares
(1 000)
Date of
payment
Net
proceeds
EURm
New share
capital
EURm
0.98
1.77
3.23
0.01
12 238
18 602
33 456
66 414
22 011
10 117
6 112
3 909
42 149
1 682
20 993
382
1.77
3.23
49.91
45.98
1.77
3.23
16.89
20.77
18 329
3.23
16.89
3.23
14.76
16.89
41 386
50 357
20
50 377
7 160
1 225
8 385
5
5
1999
1999
1999
1999
1999
2000
2000
2000
2000
2001
2001
2001
2001
2002
2002
2003
2003
2004
12.03
32.85
107.97
42.45
195.30
38.87
32.65
305.06
179.75
556.33
2.97
67.81
6.46
380.72
457.96
162.50
0.33
162.83
23.11
18.08
41.19
0.09
0.09
0.73
1.12
2.01
36.05
0.13
40.04
1.32
0.61
0.37
0.23
2.53
0.10
1.26
0.02
1.10
2.48
3.02
0.00
3.02
0.43
0.07
0.50
0.00
0.00
Number
Amount of
of affected reduction of the
Amount of
Amount of
reduction of the reduction of the
share capital restricted capital retained earnings
EURm
EURm
EURm
(1 000, par value
EUR 0.06)
69
132 536
0.004
7.95
–
–
–
–
N o k i a s h a re s a n d s h a re h o l d e r s
Share turnover (all stock exchanges) 1
2004
2003
2002
2001
2000
Share turnover (1 000)
Total number of shares (1 000)
% of total number of shares
14 091 430
4 663 761
302
11 788 172
4 796 282
246
12 926 683
4 787 907
270
11 457 748
4 737 530
242
7 827 428
4 696 213
167
Share prices, EUR (Helsinki Exchanges) 1
Low/high
Average 2
Year-end
2004
2003
2002
2001
2000
8.97/18.79
12.84
11.62
11.44/16.16
14.12
13.71
11.10/29.45
18.13
15.15
14.35/46.50
24.57
28.96
35.81/64.88
51.09
47.50
Share prices, USD (New York Stock Exchange) 2
2004
2003
2002
2001
2000
ADS
Low/high
Average 2
Year-end
11.03/23.22
15.96
15.67
12.67/18.45
15.99
17.00
10.76/26.90
16.88
15.50
12.95/44.69
24.84
24.53
29.44/61.88
47.36
43.50
1
2
Figures have been recalculated to reflect the par value of EUR 0.06 of the share.
Calculated by weighing average price with daily volumes.
Shareholders, December 31, 2004
Shareholders registered in Finland represent 13.37% and shareholders
registered in the name of a nominee represent 86.63% of the total number
of shares of Nokia Corporation. The number of registered shareholders
was 142 095 on December 31, 2004. Each account operator (23) is included
in this figure as only one registered shareholder.
Nominee registered shareholders include holders of American Deposi-
tary Receipts (ADR) and Svenska Depåbevis (SDB). As of December 31, 2004
ADRs represented 24.51% and SDBs 3.39% of the total number of shares in
Nokia.
Largest shareholders registered in Finland, Dec. 31, 2004
(excluding nominee registered shares
and shares owned by Nokia Corporation 1)
Total number of shares
(1 000)
% of all the shares
and voting rights
Svenska Litteratursällskapet i Finland r f
Sigrid Jusélius Foundation
BNP Arbitrage
Ilmarinen Mutual Pension Insurance Company
Varma Mutual Pension Insurance Company
The State Pension Fund
The Local Government Pensions Institution
The Finnish Cultural Foundation
Nordea Bank Finland Plc
Finnish National Fund for Research an developement (SITRA)
1 Nokia Corporation owned 176 000 000 Nokia shares as of December 31, 2004.
20 611
15 500
15 316
10 787
8 000
7 900
7 480
6 411
5 470
4 885
0.44
0.33
0.33
0.23
0.17
0.17
0.16
0.14
0.12
0.10
Nokia in 2004 47
N o k i a s h a re s a n d s h a re h o l d e rs
Breakdown of share ownership, Dec. 31, 2004 1
By number of shares owned
Number of
shareholders
% of
shareholders
Total number
of shares
% of
share capital
Average
holding
1–100
101–1 000
1 001–10 000
10 001–100 000
100 001– 500 000
500 001–1 000 000
1 000 001–5 000 000
Over 5 000 000
Total
By nationality, %
Non-Finnish shareholders
Finnish shareholders
Total
46 652
66 122
24 629
4 282
318
41
34
17
32.83
46.53
17.33
3.01
0.22
0.03
0.02
0.01
2 863 238
26 865 209
76 491 591
111 238 749
63 734 744
29 160 236
71 629 263
4 281 778 270
0.06
0.57
1.64
2.39
1.37
0.63
1.53
91.81
0.06
0.57
1.64
2.39
1.37
0.63
1.53
91.81
142 095
100.00
4 663 761 300
100.00
100.00
By shareholder category (Finnish shareholders), %
Shares
Corporations
Households
Financial and insurance institutions
Non-profit organizations
General government
Shares
86.63
13.37
100.00
Total
4.50
4.47
0.94
2.20
1.26
13.37
1
Please note that the breakdown covers only shareholders registered in Finland,
and each account operator (23) is included in the number of shareholders as only
one registered shareholder. Due to this, the breakdown is not illustrative to the
entire shareholder base of Nokia.
Shares and stock options owned by the members
of the Board of Directors and the Group Executive Board
Members of the Board of Directors and the Group Executive Board owned on
December 31, 2004 an aggregate of 1 524 824 shares representing approxi-
mately 0.03% of the aggregate number of shares and voting rights, as well
as stock options, which, if exercised in full, would be exercisable for 7 652 500
shares representing approximately 0.16% of the total number of shares
and voting rights on December 31, 2004.
48 Nokia in 2004
N o k i a 2 0 0 0 – 2 0 0 4 , I F R S
Profit and loss account, EURm
Net sales
Cost and expenses
Operating profit
Share of results of associated companies
Financial income and expenses
Profit before tax and minority interests
Tax
Minority interests
Net profit
Balance sheet items, EURm
Fixed assets and other non-current assets
Current assets
Inventories
Accounts receivable and prepaid expenses
Available-for-sale investments
Total cash and other liquid assets
Shareholders’ equity
Minority shareholders’ interests
Long-term liabilities
Long-term interest-bearing liabilities
Deferred tax liabilities
Other long-term liabilities
Current liabilities
Short-term borrowings
Current portion of long-term loans
Accounts payable
Accrued expenses and provisions
Total assets
2004
2003
2002
2001
2000
29 267
–24 937
4 330
–26
405
4 709
–1 435
–67
3 207
3 161
19 508
1 305
6 406
255
11 542
14 238
168
294
19
179
96
7 969
215
–
2 669
5 085
22 669
29 455
–24 444
5 011
–18
352
5 345
–1 699
–54
3 592
3 837
20 083
1 169
6 802
816
11 296
15 148
164
328
20
241
67
8 280
387
84
2 919
4 890
23 920
30 016
–25 236
4 780
–19
156
4 917
–1 484
–52
3 381
5 742
17 585
1 277
6 957
–
9 351
14 281
173
461
187
207
67
8 412
377
–
2 954
5 081
23 327
31 191
–27 829
3 362
–12
125
3 475
–1 192
–83
2 200
6 912
15 515
1 788
7 602
–
6 125
12 205
196
460
207
177
76
9 566
831
–
3 074
5 661
22 427
30 376
–24 600
5 776
–16
102
5 862
–1 784
–140
3 938
6 388
13 502
2 263
7 056
–
4 183
10 808
177
311
173
69
69
8 594
1 069
47
2 814
4 664
19 890
Nokia in 2004 49
N o k i a 2 0 0 0 – 2 0 0 4 , I F R S
Key ratios and economic indicators
Net sales, EURm
Change, %
Exports and foreign subsidiaries, EURm
Salaries and social expenses, EURm
Operating profit, EURm
% of net sales
Financial income and expenses, EURm
% of net sales
Profit before tax and minority interests, EURm
% of net sales
Profit from continuing operations, EURm
% of net sales
Taxes, EURm
Dividends, EURm
Capital expenditure, EURm
% of net sales
Gross investments * *, EURm
% of net sales
R&D expenditure, EURm
% of net sales
Average personnel
Non-interest bearing liabilities, EURm
Interest-bearing liabilities, EURm
Return on capital employed, %
Return on equity, %
Equity ratio, %
Net debt to equity, %
2004
29 267
–0.6
28 916
3 430
4 330
14.8
405
1.4
4 709
16.1
3 207
11.0
1 435
1 539 *
548
1.9
1 197
4.1
3 733
12.8
53 511
8 029
234
31.6
21.8
64.4
–78
2003
29 455
–1.9
29 108
3 026
5 011
17.0
352
1.2
5 345
18.1
3 592
12.2
1 699
1 439
432
1.5
1 013
3.4
3 760
12.8
51 605
8 117
491
34.7
24.4
64.8
–71
2002
30 016
–3.8
29 663
3 140
4 780
15.9
156
0.5
4 917
16.4
3 381
11.3
1 484
1 340
432
1.4
966
3.2
3 052
10.2
52 714
8 309
564
35.3
25.5
62.5
–61
2001
31 191
2.7
30 738
3 235
3 362
10.8
125
0.4
3 475
11.1
2 200
7.1
1 192
1 279
1 041
3.3
2 149
6.9
2 985
9.6
57 716
8 988
1 038
27.9
19.1
56.0
–41
2000
30 376
53.6
29 882
2 888
5 776
19
102
0.3
5 862
19.3
3 938
13.0
1 784
1 315
1 580
5.2
3 095
10.2
2 584
8.5
58 708
7 616
1 289
58.0
43.3
55.7
–26
*
* *
Board’s proposal
Includes acquisitions, investments in shares and capitalized development costs.
Calculation of Key Ratios, see page 51.
50 Nokia in 2004
C a l c u l at i o n of key rat i o s
Key ratios under IFRS
Operating profit
Profit after depreciation
Shareholders’ equity
Share capital + reserves
Earnings per share
Net profit
Average of adjusted number of shares during the year
P/E ratio
Adjusted share price, December 31
Earnings per share
Dividend per share
Nominal dividend per share
The adjustment coefficients of the share issues that have
taken place during or after the year in question
Payout ratio
Dividend per share
Earnings per share
Dividend yield, %
Nominal dividend per share
Share price
Shareholders’ equity per share
Shareholders’ equity
Adjusted number of shares at year end
Market capitalization
Number of shares x share price per share class
Adjusted average share price
Amount traded, in EUR, during the period
Adjusted number of shares traded during the period
Share turnover, %
Number of shares traded during the period
Average number of shares during the period
Return on capital employed, %
Profit before taxes and minority interests
+ interest and other net financial expenses
Average shareholders’ equity + short-term borrowings
+ long-term interest-bearing liabilities (including the current portion thereof)
+ minority shareholders’ interests
Return on shareholders’ equity, %
Net profit
Average shareholders’ equity during the year
Equity ratio, %
Shareholders’ equity + minority shareholders’ interests
Total assets – advance payments received
Net debt to equity (gearing), %
Long-term interest-bearing liabilities (including the current portion thereof)
+ short-term borrowings – cash and other liquid assets
Shareholders’ equity + minority shareholders’ interests
Year-end currency rates 2004
USD
GBP
SEK
JPY
1 EUR =
1.3345
0.6885
8.9768
139.21
Nokia in 2004 51
P ro p o s a l b y t h e B o a rd of D i re c to rs to t h e A n n u a l G e n e ra l M e et i n g
The distributable earnings in the balance sheet of the Group amount to
EUR 11 323 million and those of the Company to EUR 8 151 million.
The Board proposes that from the funds at the disposal of the Annual
General Meeting, a dividend of EUR 0.33 per share is to be paid out on a
total of 4 663 761 300 shares, amounting to EUR 1 539 million.
Espoo, January 27, 2005
Jorma Ollila
Chairman and CEO
Paul J. Collins
Georg Ehrnrooth
Bengt Holmström
Per Karlsson
Marjorie Scardino
Vesa Vainio
Arne Wessberg
Pekka Ala-Pietilä
President
52 Nokia in 2004
A u d i to rs ’ re p o r t
To the shareholders of Nokia Corporation
We have audited the accounting records, the financial statements and the
administration of Nokia Corporation for the year ended December 31,
2004. The financial statements prepared by the Board of Directors and the
President include the report of the Board of Directors, consolidated financial
statements prepared in accordance with International Financial Reporting
Standards (IFRS), and parent company financial statements prepared in
accordance with prevailing regulations in Finland. Based on our audit we
express an opinion on the consolidated financial statements and on the
parent company’s financial statements and administration.
We conducted our audit in accordance with Finnish Generally Accepted
Auditing Standards. Those standards require that we plan and perform the
audit in order to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by the management, as well as evaluating the overall
financial statement presentation. The purpose of our audit of the adminis-
tration has been to examine that the Chairman and the other members of
the Board of Directors and the President have complied with the rules of
the Finnish Companies’ Act.
Consolidated financial statements
In our opinion, the consolidated financial statements prepared in accord-
ance with International Financial Reporting Standards give a true and fair
view of the consolidated results of operations as well as of the financial
position. The financial statements are in accordance with prevailing regu-
lations in Finland and can be adopted.
Parent company’s financial statements and administration
The financial statements have been prepared in accordance with the Finnish
Accounting Act and other rules and regulations governing the preparation
of financial statements in Finland. The financial statements give a true and
fair view, as defined in the Finnish Accounting Act, of the parent company’s
result of operations, as well as the financial position. The financial state-
ments can be adopted and the Chairman and the other members of the
Board of Directors and the President of the parent company can be dis-
charged from liability for the period audited by us. The proposal by the
Board of Directors concerning the disposition of the profit for the year is in
compliance with the Finnish Companies’ Act.
Espoo, January 27, 2005
PricewaterhouseCoopers Oy
Authorized Public Accountants
Eero Suomela
Authorized Public Accountant
Nokia in 2004 53
54 Nokia in 2004
Additional information
U.S. GAAP
Critical accounting policies
Group Executive Board
Board of Directors
Risk factors
Corporate governance
Investor information
General contact information
56
59
62
64
66
68
77
78
Nokia in 2004 55
U . S . G A A P
Differences between International Financial Reporting
Standards and U.S. Generally Accepted Accounting Principles
The Group’s consolidated financial statements are prepared in accordance
with International Financial Reporting Standards, which differ in certain
respects from accounting principles generally accepted in the United
States (U.S. GAAP). The principal differences between IFRS and U.S. GAAP are
presented below together with explanations of certain adjustments that
affect consolidated net income and total shareholders’ equity as of and for
the years ended December 31:
Reconciliation of net income
Net income reported under IFRS
U.S. GAAP adjustments:
Pension expense
Development costs
Provision for social security
cost on stock options
Stock compensation expense
Cash flow hedges
Net investment in foreign companies
Amortization of identifiable
intangible assets acquired
Impairment of identifiable intangible
assets acquired
Amortization of goodwill
Impairment of goodwill
Deferred tax effect of
U.S. GAAP adjustments
2004
EURm
2003
EURm
2002
EURm
3 207
3 592
3 381
–
42
–8
–21
89
–
–11
–47
106
–
–14
–12
322
–21
–9
9
–
–22
–
162
151
–75
–5
–66
–90
–35
6
48
–22
–
206
104
76
Net income under U.S. GAAP
3 343
4 097
3 603
Reconciliation of shareholders’ equity
Total shareholders’ equity reported under IFRS
U.S. GAAP adjustments:
Pension expense
Additional minimum liability
Development costs
Marketable securities and
unlisted investments
Provision for social security
cost on stock options
Deferred compensation
Share issue premium
Stock compensation
Acquisition purchase price
Amortization of identifiable
intangible assets acquired
Impairment of identifiable
intangible assets acquired
Amortization of goodwill
Impairment of goodwill
Translation of goodwill
Deferred tax effect of
U.S. GAAP adjustments
2004
2003
EURm EURm
14 238
15 148
–49
–
–57
–49
–
–99
35
49
6
–50
247
–197
2
14
–10
186
–176
3
–62
–51
–47
502
255
–319
–
396
255
–293
72
64
Total shareholders’ equity under U.S. GAAP
14 576
15 437
Pension expense and additional minimum liability
Under IFRS, pension assets, defined benefit pension liabilities and expense
are actuarially determined in a similar manner to U.S. GAAP. However, under
IFRS the prior service cost, transition adjustments and expense resulting
from plan amendments are generally recognized immediately. Under U.S.
GAAP, these expenses are generally recognized over a longer period. Also,
under U.S. GAAP the employer should recognize an additional minimum
pension liability charged to other comprehensive income when the accu-
mulated benefit obligation (ABO) exceeds the fair value of the plan assets
and this amount is not covered by the liability recognized in the balance
sheet. The calculation of the ABO is based on approach two as described in
EITF 88-1, Determination of Vested Benefit Obligation for a Defined Benefit
Pension Plan, under which the actuarial present value is based on the date
of separation from service.
The U.S. GAAP pension adjustment reflects the difference between the
prepaid pension asset and related pension expense as determined by apply-
ing IAS 19, Employee Benefits, and the pension asset and pension expense
determined by applying FAS 87, Employers’ Accounting for Pensions.
56 Nokia in 2004
U. S . G A A P
Development costs
Development costs have been capitalized under IFRS after the product in-
volved has reached a certain degree of technical feasibility. Capitalization
ceases and depreciation begins when the product becomes available to
customers. The depreciation period of these capitalized assets is between
two and five years.
Under U.S. GAAP, software development costs would similarly be capi-
talized after the product has reached a certain degree of technical feasibility.
However, certain non-software related development costs capitalized un-
der IFRS would not be capitalizable under U.S. GAAP and therefore would
have been expensed under U.S. GAAP.
Under IFRS, whenever there is an indication that capitalized develop-
ment costs may be impaired the recoverable amount of the asset is esti-
mated. An asset is impaired when the carrying amount of the asset exceeds
its recoverable amount. Recoverable amount is defined as the higher of an
asset’s net selling price and value in use. Value in use is the present value
of estimated discounted future cash flows expected to arise from the continu-
ing use of an asset and from its disposal at the end of its useful life.
Under US GAAP, the unamortized capitalized costs of a computer soft-
ware product is compared at each balance sheet date to the net realizable
value of that product with any excess written off. Net realizable value is
defined as the estimated future gross revenues from that product reduced
by the estimated future costs of completing and disposing of that product,
including the costs of performing maintenance and customer support re-
quired to satisfy the enterprise’s responsibility set forth at the time of sale.
The amount of unamortized capitalized computer software costs, under
U.S. GAAP, is EUR 210 million in 2004 (EUR 438 million in 2003).
Restricted shares and performance shares are accounted for as variable
award plans under U.S. GAAP where compensation is measured each period
end as the difference between the exercise price and the quoted market
value of the underlying stock. For performance shares, the Group assesses
the probability of whether the performance criteria will be met in calculating
the compensation expense. Compensation arising from stock option pro-
grams, restricted shares and performance shares is recorded as deferred
compensation within shareholders’ equity and recognized in the profit
and loss account over the vesting period of the stock.
Cash flow hedges
As a result of a specific difference in the rules under IAS 39 and FAS 133,
Accounting for Derivative Instruments and Hedging Activities, relating to
hedge accounting, certain foreign exchange gains and losses classified
within equity under IFRS are included in the income statement under U.S.
GAAP.
Net investment in foreign companies
Under IFRS, on the disposal of a foreign entity, the cumulative amount of
the exchange differences which have been deferred and which relate to
that foreign entity should be recognized as income or as expenses in the
same period in which the disposal is recognized. An enterprise may dis-
pose of its interest in a foreign entity through sale, liquidation, repayment
of share capital and permanent loans, or abandonment of all, or part of,
that entity.
Under U.S. GAAP, the cumulative translation differences are reported in
the profit and loss account only upon the sale or upon complete or sub-
stantially complete liquidation of the investment in a foreign entity.
Marketable securities and unlisted investments
All available-for-sale investments, which includes all publicly listed and
non-listed marketable securities, are measured at fair value and gains and
losses are recognized within shareholders’ equity until realized in the
profit and loss account upon sale or disposal.
Acquisition purchase price
Under IFRS, when the consideration paid in a business combination in-
cludes shares of the acquirer, the purchase price of the acquired business
is determined at the date on which the shares are exchanged.
Under U.S. GAAP, the Group’s listed marketable securities would be clas-
sified as available-for-sale and carried at aggregate fair value with gross
unrealized holding gains and losses reported as a separate component of
shareholders’ equity. Investments in equity securities that are not traded
on a public market are carried at historical cost, giving rise to an adjust-
ment between IFRS and U.S. GAAP.
Under U.S. GAAP, the measurement date for shares of the acquirer is the
date the acquisition is announced or, if the number of shares is uncertain
on such date, the first day on which both the number of acquirer shares
and the amount of other considerations become fixed. The average share
price for a few days before and a few days after the measurement date is
then used to value the shares.
Provision for social security cost on stock options
Under IFRS, the Group provides for social security costs on stock options on
the date of grant, based on the market value of the underlying stock at the
date of grant. The provision is adjusted for movements in the market value
of the underlying stock.
Under U.S. GAAP, no expense is recorded until the options are exercised.
Stock compensation
Under IFRS, no compensation expense is recorded on stock options, restricted
shares or performance shares granted. Under U.S. GAAP, the Group follows
the methodology in APB Opinion 25, Accounting for Stock Issued to Employ-
ees (APB 25), and related interpretations to measure employee stock com-
pensation. Under APB 25 intrinsic value from Nokia’s option programs arises
when the exercise price is less than the quoted market value of the under-
lying stock on the date of grant.
Amortization and impairment
of identifiable intangible assets acquired
Prior to April 1, 2004, unpatented technology acquired was not separately
recognized on acquisition under IFRS but was included within goodwill.
Under U.S. GAAP, any unpatented technology acquired in a business
combination is recorded as an identifiable intangible asset with a related
deferred tax liability. The intangible asset is amortized over its estimated
useful life. The adjustment to U.S. GAAP net income and shareholders’ equity
relates to the amortization and accumulated amortization, respectively, of
Amber Networks’ intangible asset.
During 2004 the carrying value of Amber Network upatented technology
was impaired since Nokia no longer develops nor uses the technology ac-
quired and its carrying amount is not recoverable through estimated future
cash flows. The total impact on net income in 2004 amounted to EUR 58 mil-
lion of which the write-down recognized under U.S. GAAP was EUR 47 million.
Nokia in 2004 57
U . S . G A A P
The net carrying amount of other intangible assets under U.S. GAAP is
EUR 419 million in 2004 (EUR 623 million in 2003) and consists of capitalized
development costs of EUR 210 million (EUR 438 million in 2003) and acquired
patents, trademarks and licenses of EUR 209 million (EUR 185 million). The
Group does not have any indefinite lived intangible assets. The amortization
expense under U.S. GAAP of other intangible assets subject to amortization
as of December 31, 2004, is expected to be approximately EUR 172 million
for each of the next five years.
Amortization of goodwill
The Group adopted the transition provisions of IFRS 3, Business Combina-
tions, with effect from 1 April 2004. As a result, goodwill relating to purchase
acquisitions and acquisitions of associated companies for which the
agreement date was on or after March 31, 2004, is no longer subject to
amortization. Goodwill arising in business combinations completed be-
fore March 31, 2004 will continue to be amortized over its estimated useful
life until the standard is fully adopted as of January 1, 2005.
The Group adopted the provisions of FAS 142, Goodwill and Other Intan-
gible Assets (FAS 142), on January 1, 2002 and as a result, under U.S. GAAP
goodwill relating to purchase acquisitions and acquisitions of associated
companies is no longer subject to amortization subsequent to the date of
adoption.
The U.S. GAAP adjustment reverses the amortization expense recorded
under IFRS and also reverses the movement in accumulated amortization
under IFRS during the period subsequent to the adoption of FAS 142.
Impairment of goodwill
As of January 1, 2002, the Group performed the transitional impairment
test under FAS 142 and compared the carrying value for each reporting unit
to its fair value, which was determined based on discounted cash flows.
Upon completion of the transitional impairment test, the Group deter-
mined that there was no impairment as of January 1, 2002, as the carrying
value of each reporting unit did not exceed its fair value. The Group has
also completed the annual impairment test required by FAS 142 during the
fourth quarter of 2004, 2003 and 2002, which was also performed by com-
paring the carrying value of each reporting unit to its fair value based on
discounted cash flows.
Under IFRS, goodwill is allocated to “cash generating units”, which are
the smallest group of identifiable assets which includes the goodwill under
review for impairment, and that generates cash inflows from continuing
use that are largely independent of the cash inflows from other assets.
Under IFRS, the Group recorded in 2003 and 2002 an impairment of good-
will of EUR 151 million and EUR 104 million, respectively, related to Amber
Networks as the carrying amount of the cash generating unit exceeded
the recoverable amount of the unit. Upon completion of the annual im-
pairment test, the Group determined that the impairment recorded for
Amber Networks should be reversed for U.S. GAAP purposes because, at the
Core Networks reporting unit level in 2003 and IP Mobility Network reporting
unit level in 2002, where Amber Networks resides, the fair value of the re-
porting unit exceeded the book value of the reporting unit.
The Group recorded no goodwill impairments during 2004.
Below is a roll forward of U.S. GAAP goodwill during 2004 and 2003. The
comparative figures are regrouped according to the new organizational
structure:
EURm
Balance as of Jan. 1, 2003
Goodwill acquired
Translation adjustment
Balance as of Dec. 31, 2003
Goodwill acquired
Translation adjustment
Balance as of Dec. 31, 2004
Mobile
Phones
Multimedia
Enterprise
Solutions
Common
Networks Group Functions
Group
125
–
4
129
–
–1
128
21
–
1
22
–
–
22
26
20
–6
40
–
–3
37
323
–
–52
271
–
–22
249
9
–
–
9
–
–
9
504
20
–53
471
–
–26
445
Goodwill is not deductible for tax purposes.
Translation of goodwill
Under IFRS, the Group translates goodwill arising on the acquisition of for-
eign subsidiaries at historical rates.
Under U.S. GAAP, goodwill is translated at the closing rate on the bal-
ance sheet date with gains and losses recorded as a component of share-
holders’ equity.
58 Nokia in 2004
C r i t i c a l a cco u nt i n g p o li c i e s
Our accounting policies affecting our financial condition and results of
operations are more fully described in Note 1 to our consolidated financial
statements. Certain of Nokia’s accounting policies require the application
of judgment by management in selecting appropriate assumptions for
calculating financial estimates, which inherently contain some degree of
uncertainty. Management bases its estimates on historical experience and
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments
about the reported carrying values of assets and liabilities and the reported
amounts of revenues and expenses that may not be readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Nokia believes the following are the critical accounting policies and
related judgments and estimates used in the preparation of its consolidated
financial statements. We have discussed the application of these critical
accounting estimates with our Board of Directors and Audit Committee.
Revenue recognition
Revenue from the majority of the Group is recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the fee is fixed
and determinable and collectibility is probable. The remainder of revenue
is recorded under the percentage of completion method.
For Mobile Phones, Multimedia and Enterprise Solutions, as well as certain
of Networks’ revenue is recognized when persuasive evidence of an arrange-
ment exists, delivery has occurred, the fee is fixed and determinable and
collectibility is probable. This requires us to assess at the point of delivery
whether these criteria have been met. When management determines
that such criteria have been met, revenue is recognized. Nokia records esti-
mated reductions to revenue for customer programs and incentive offerings,
including special pricing agreements, price protection and other volume
based discounts at the time of sale, mainly in the mobile device business.
Sales adjustments for volume based discount programs are estimated
based largely on historical activity under similar programs. Price protec-
tion adjustments are based on estimates of future price reductions and
certain agreed customer inventories at the date of the price adjustment.
An immaterial part of the revenue from products sold through distribution
channels is recognized when the reseller or distributor sells the product to
the end user.
Networks’ revenue from contracts involving solutions achieved through
modification of telecommunications equipment is recognized on the per-
centage of completion basis when the outcome of the contract can be esti-
mated reliably. A contract’s outcome can be estimated reliably when total
contract revenue can be estimated reliably, it is probable that economic
benefits associated with the contract will flow to the company, and the
stage of contract completion can be measured reliably. When we are not
able to meet those conditions, the policy is to recognize revenues only
equal to costs incurred to date, to the extent that such costs are expected
to be recovered. Completion is measured by reference to costs incurred to
date as a percentage of estimated total project costs.
The percentage of completion method relies on estimates of total ex-
pected contract revenue and costs, as well as the dependable measure-
ment of the progress made towards completing the particular project.
Recognized revenues and profit are subject to revisions during the project
in the event that the assumptions regarding the overall project outcome
are revised. The cumulative impact of a revision in estimates is recorded in
the period such revisions become likely and estimable. Losses on projects
in progress are recognized in the period they become likely and estimable.
Revenue recognition on initial 3G network contracts started in 2002
when Networks achieved 3G functionality for its single-mode and dual-
mode WCDMA 3G systems. Until the time the 3GPP specifications required
by our customers were met, we deferred the application of the cost-to-cost
input model. Upon achieving 3G functionality for WCDMA network projects,
we began recognizing revenue under the cost-to-cost input method of
percentage of completion accounting and have continued to apply the
method in 2003 and 2004.
Networks’ current sales and profit estimates for projects may change
due to the early stage of a long-term project, new technology, changes in
the project scope, changes in costs, changes in timing, changes in customers’
plans, realization of penalties, and other corresponding factors.
Customer financing
We have provided a limited amount of customer financing and agreed ex-
tended payment terms with selected customers in our Networks business.
In establishing credit arrangements, management must assess the credit-
worthiness of the customer and the timing of cash flows expected to be
received under the arrangement. However, should the actual financial posi-
tion of our customers or general economic conditions differ from our assump-
tions, we may be required to re-assess the ultimate collectibility of such
financings and trade credits, which could result in a write-off of these bal-
ances in future periods and thus negatively impact our profits in future
periods. Our assessment of the net recoverable value considers the collateral
and security arrangements of the receivable as well as the likelihood and
timing of estimated collections. See also Note 35(b) to our consolidated
financial statements for a further discussion of long-term customer loans.
Allowances for doubtful accounts
We maintain allowances for doubtful accounts for estimated losses resulting
from the subsequent inability of our customers to make required pay-
ments. If the financial conditions of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required in future periods. Management specifically
analyzes accounts receivables and analyzes historical bad debt, customer
concentrations, customer creditworthiness, current economic trends and
changes in our customer payment terms when evaluating the adequacy of
the allowance for doubtful accounts.
Inventory-related allowances
We periodically review our inventory for excess inventory, obsolescence
and declines in market value below cost and record an allowance against
the inventory balance for any such declines. These reviews require man-
agement to estimate future demand for our products. Possible changes in
these estimates could result in revisions to the valuation of inventory.
Warranty provisions
We provide for the estimated cost of product warranties at the time revenue
is recognized. Nokia’s products are covered by product warranty plans of
varying periods, depending on local practices and regulations. While we
engage in extensive product quality programs and processes, including
actively monitoring and evaluating the quality of our component suppli-
ers, our warranty obligations are affected by actual product failure rates
Nokia in 2004 59
C r i t i c a l a cco u nt i n g p o li c i e s
(field failure rates) and by material usage and service delivery costs in-
curred in correcting a product failure. Our warranty provision is estab-
lished based upon our best estimates of the amounts necessary to settle
future and existing claims on products sold as of the balance sheet date.
As our new products incorporate complex technologies, as we continuously
introduce new products, and as local laws, regulations and practices may
change, it will be increasingly difficult to anticipate our failure rates, the
length of warranty periods and repair costs. While we believe that our
warranty provisions are adequate and that the judgments applied are appro-
priate, the ultimate cost of product warranty could differ materially from
our estimates. When the actual cost of quality of our products is lower
than we originally anticipated, we release an appropriate proportion of
the provision, and if the cost of quality is higher than anticipated, we in-
crease the provision.
Provision for intellectual property rights, or IPR, infringements
We provide for the estimated future settlements related to asserted and
unasserted IPR infringements based on the probable outcome of each in-
fringement. The ultimate outcome or actual cost of settling an individual
infringement may vary from our estimates.
Our products and solutions include increasingly complex technologies
involving numerous patented and other proprietary technologies. Although
we proactively try to ensure that we are aware of any patents related to
our products and solutions under development and thereby avoid inadvert-
ent infringement of proprietary technologies, the nature of our business is
such that patent infringements may and do occur. Through contact with
parties claiming infringement of their patented technology, or through
our own monitoring of developments in patent cases involving our com-
petitors, we identify potential IPR infringements.
We estimate the outcome of all potential IPR infringements made
known to us through assertion by third parties, or through our own mon-
itoring of patent-related cases in the relevant legal systems. To the extent
that we determine that an identified potential infringement will more
likely than not result in an outflow of resources, we record a liability based
on our best estimate of the expenditure required to settle infringement
proceedings.
Our experience with claims of IPR infringement is that there is typically
a discussion period with the accusing party, which can last from several
months to years. In cases where a settlement is not reached, the discovery
and ensuing legal process typically lasts a minimum of one year. For this
reason, the ultimate outflow relating to IPR infringement claims can last
for varying periods of time, resulting in irregular movements in the IPR
infringement provision.
Capitalized development costs
We capitalize certain development costs when it is probable that a devel-
opment project will be a success and certain criteria, including commercial
and technological feasibility, have been met. These costs are then amor-
tized on a systematic basis over their expected useful lives, which due to
the constant development of new technologies is between two to five
years. During the development stage, management must estimate the
commercial and technological feasibility of these projects as well as their
expected useful lives. Should a product fail to substantiate its estimated
feasibility or life cycle, we may be required to write off excess develop-
ment costs in future periods.
60 Nokia in 2004
Whenever there is an indicator that development costs capitalized for
a specific project may be impaired, the recoverable amount of the asset is
estimated. An asset is impaired when the carrying amount of the asset
exceeds its recoverable amount. The recoverable amount is defined as the
higher of an asset’s net selling price and value in use. Value in use is the
present value of discounted estimated future cash flows expected to arise
from the continuing use of an asset and from its disposal at the end of its
useful life. For projects still in development, these estimates include the
future cash out flows that are expected to occur before the asset is ready
for use. See Note 8 to our consolidated financial statements.
Impairment reviews are based upon our projections of anticipated future
cash flows. The most significant variables in determining cash flows are
discount rates, terminal values, the number of years on which to base the
cash flow projections, as well as the assumptions and estimates used to
determine the cash inflows and outflows. Management determines dis-
count rates to be used based on the risk inherent in the related activity’s
current business model and industry comparisons. Terminal values are
based on the expected life of products and forecasted life cycle and fore-
casted cash flows over that period. While we believe that our assumptions
are appropriate, such amounts estimated could differ materially from
what will actually occur in the future. For IFRS, discounted estimated cash
flows are used to identify the existence of an impairment while for U.S. GAAP
undiscounted future cash flows are used. Consequently, an impairment
could be required under IFRS but not under U.S. GAAP.
Valuation of long-lived and intangible assets and goodwill
We assess the carrying value of identifiable intangible assets, long-lived
assets and goodwill annually, or more frequently if events or changes in
circumstances indicate that such carrying value may not be recoverable.
Factors we consider important, which could trigger an impairment review,
include the following:
• significant underperformance relative to historical or projected future
results;
• significant changes in the manner of our use of the acquired assets or
the strategy for our overall business; and
• significant negative industry or economic trends.
When we determine that the carrying value of intangible assets, long-
lived assets or goodwill may not be recoverable based upon the existence
of one or more of the above indicators of impairment, we measure any
impairment based on discounted projected cash flows.
This review is based upon our projections of anticipated future cash
flows. The most significant variables in determining cash flows are discount
rates, terminal values, the number of years on which to base the cash flow
projections, as well as the assumptions and estimates used to determine
the cash inflows and outflows. Management determines discount rates to
be used based on the risk inherent in the related activity’s current business
model and industry comparisons. Terminal values are based on the expected
life of products and forecasted life cycle and forecasted cash flows over
that period. While we believe that our assumptions are appropriate, such
amounts estimated could differ materially from what will actually occur in
the future. For IFRS these discounted cash flows are prepared at a cash
generating unit level, and for U.S. GAAP these cash flows are prepared at a
C r i t i c a l a cco u nt i n g p o li c i e s
reporting unit level. Consequently, an impairment could be required under
IFRS and not U.S. GAAP or vice versa.
Deferred taxes
Management judgment is required in determining our provision for income
taxes, deferred tax assets and liabilities and the extent to which deferred
tax assets can be recognized. We recognize deferred tax assets if it is prob-
able that sufficient taxable income will be available in the future against
which the temporary differences and unused tax losses can be utilized. We
have considered future taxable income and tax planning strategies in as-
sessing whether deferred tax assets should be recognized.
Pensions
The determination of our pension benefit obligation and expense for defined
benefit pension plans is dependent on our selection of certain assump-
tions used by actuaries in calculating such amounts. Those assumptions
are described in Note 6 to our consolidated financial statements and include,
among others, the discount rate, expected long-term rate of return on
plan assets and annual rate of increase in future compensation levels. A
portion of our plan assets is invested in equity securities. The equity mar-
kets have experienced volatility, which has affected the value of our pen-
sion plan assets. This volatility may make it difficult to estimate the long-
term rate of return on plan assets. Actual results that differ from our as-
sumptions are accumulated and amortized over future periods and there-
fore generally affect our recognized expense and recorded obligation in
such future periods. Our assumptions are based on actual historical expe-
rience and external data regarding compensation and discount rate
trends. While we believe that our assumptions are appropriate, significant
differences in our actual experience or significant changes in our assump-
tions may materially affect our pension obligation and our future expense.
Nokia in 2004 61
G ro u p E xe c u t i ve B o a rd
March 8, 2005
Our articles of association provide for a Group Executive Board, which is responsible for managing the operations of Nokia. The Chairman and the
members of the Group Executive Board are elected by the Board of Directors. Only the Chairman of the Group Executive Board can be a member of
both the Board of Directors and the Group Executive Board. The current members of our Group Executive Board are set forth below.
Simon Beresford-Wylie, b. 1958
Executive Vice President
and General Manager of Networks.
Group Executive Board member since
February 1, 2005.
Joined Nokia 1998.
Bachelor of Arts (Economic Geography and
History) (Australian National University).
Senior Vice President of Nokia Networks, Asia
Pacific 2003–2004, Senior Vice President, Customer
Operations of Nokia Networks 2002–2003, Vice
President, Customer Operations of Nokia Networks
2000–2002, Managing Director of Nokia Networks
in India and Area General Manager, South Asia
1999–2000, Regional Director of Business
Development, Project and Trade Finance of Nokia
Networks, Asia Pacific 1998–1999, Chief Executive
Officer of Modi Telstra, India 1995–1998, General
Manager, Banking and Finance, Corporate and
Government business unit of Telstra Corporation
1993–1995, holder of executive positions in the
Corporate and Government business units of
Telstra Corporation 1989–1993. Holder of executive,
managerial and clerical positions in the Australian
Commonwealth Public Service 1982–1989.
Olli-Pekka Kallasvuo, b. 1953
Executive Vice President and
General Manager of Mobile Phones.
Group Executive Board member since 1990.
With Nokia 1980–81, rejoined 1982.
LL.M. (University of Helsinki).
Executive Vice President, CFO of Nokia 1999–2003,
Executive Vice President of Nokia Americas and
President of Nokia Inc. 1997–1998, Executive Vice
President, CFO of Nokia 1992–1996, Senior Vice
President, Finance of Nokia 1990–1991.
Chairman of the Board of Directors of Sampo plc
and Nextrom Holding S.A., Member of the Board
of Directors of EMC Corporation.
Pertti Korhonen, b. 1961
Senior Vice President,
Chief Technology Officer.
Group Executive Board member since 2002.
Joined Nokia 1986.
Master of Science (Electronics Eng.) (University of
Oulu).
Executive Vice President of Nokia Mobile Software
2001–2003, Senior Vice President, Global Operations,
Logistics and Sourcing of Nokia Mobile Phones
1999–2001, Senior Vice President, Global Operations
and Logistics of Nokia Mobile Phones 1998–1999,
Vice President, Logistics of Nokia Mobile Phones
1996–1998, Vice President, Manufacturing Europe
of Nokia Mobile Phones 1993–1996, Project
Executive of Nokia Mobile Phones UK Ltd 1991–1993,
Vice President, R&D of Nokia Mobile Phones, Oulu
1990–1991.
Mary T. McDowell, b. 1964
Senior Vice President
and General Manager of Enterprise Solutions.
Group Executive Board member since 2004.
Joined Nokia 2004.
Bachelor of Science (Computer Science) (College
of Engineering at the University of Illinois).
Senior Vice President, Strategy and Corporate
Development of Hewlett-Packard Company 2003,
Senior Vice President & General Manager, Industry-
Standard Servers of Hewlett-Packard Company
2002–2003, Senior Vice President & General
Manager, Industry-Standard Servers of Compaq
Computer Corporation 1998–2002, Vice President,
Marketing, Server Products Division of Compaq
Computer Corporation 1996–1998. Holder of
executive, managerial and other positions at
Compaq Computer Corporation 1986–1996.
Member of the Board of Visitors for the College
of Engineering at the University of Illinois.
Chairman Jorma Ollila, b. 1950
Chairman and CEO of Nokia Corporation.
Group Executive Board member since 1986.
Chairman since 1992.
Joined Nokia 1985.
Master of Political Science (University of Helsinki),
Master of Science (Econ.) (London School of
Economics), Master of Science (Eng.) (Helsinki
University of Technology).
President and CEO, and Chairman of the Group
Executive Board of Nokia Corporation 1992–1999,
President of Nokia Mobile Phones 1990–1992,
Senior Vice President, Finance of Nokia 1986–1989.
Holder of various managerial positions at Citibank
within corporate banking 1978–1985.
Member of the Board of Directors of Ford Motor
Company and Vice Chairman of the Board of
Directors of UPM-Kymmene Corporation and Vice
Chairman of the Board of Directors of Otava
Books and Magazines Group Ltd. Chairman of the
Boards of Directors and the Supervisory Boards of
Finnish Business and Policy Forum EVA and The
Research Institute of the Finnish Economy ETLA.
Member of The European Round Table of
Industrialists.
Pekka Ala-Pietilä, b. 1957
President of Nokia Corporation and
Head of Customer and Market Operations.
Group Executive Board member since 1992.
Joined Nokia 1984.
Master of Science (Econ.) (Helsinki School
of Economics and Business Administration).
President of Nokia Corporation and Head of Nokia
Ventures Organization 1999–2003, Executive Vice
President and Deputy to the CEO of Nokia Corpo-
ration and President of Nokia Communications
Products 1998–1999, President of Nokia Mobile
Phones 1992–1998, Vice President, Product
Marketing of Nokia Mobile Phones 1991–1992,
Vice President, Strategic Planning of Nokia
Mobile Phones 1990–1991.
Member of the Supervisory Board of SAP AG.
Member of the Science and Technology Policy
Council of Finland, member of the Board of the
Finnish-American Chamber of Commerce,
member of the Board of the Economic
Information Bureau.
62 Nokia in 2004
G ro u p E xe c u t i ve B o a rd
Hallstein Moerk, b. 1953
Senior Vice President, Human Resources.
Group Executive Board member since 2004.
Joined Nokia 1999.
Diplomøkonom (Econ.) (Norwegian School of
Management).
Holder of various positions at Hewlett-Packard
Corporation 1977–1999.
Member of the Board of Directors of Flisekompaniet.
Member of the Board of Advisors for Center for HR
Strategy, Rutgers University.
Dr. Yrjö Neuvo, b. 1943
Senior Vice President, Technology Advisor.
Group Executive Board member since 1993.
Joined Nokia 1993.
Master of Science (Eng.), Licentiate of Science
(Technology) (Helsinki University of Technology),
Ph.D. (EE) (Cornell University).
Executive Vice President, CTO of Nokia Mobile
Phones 1999–2003, Senior Vice President, Product
Creation of Nokia Mobile Phones 1994–1999, Senior
Vice President, Technology of Nokia 1993–1994,
National Research Professor of The Academy of
Finland 1984–1992, Professor of Tampere University
of Technology 1976–1992, Visiting Professor of
University of California, Santa Barbara 1981–1982.
Vice Chairman of the Board of Directors of Vaisala
Corporation. Member of Finnish Academy of
Technical Sciences, The Finnish Academy of Science
and Letters, and Academiae Europae, Foreign
member of Royal Swedish Academy of Engineering
Sciences, and Fellow of the Institute of Electrical
and Electronics Engineers.
Dr. Tero Ojanperä, b. 1966
Senior Vice President, Chief Strategy Officer.
Group Executive Board member since
January 1, 2005.
Joined Nokia 1990.
Veli Sundbäck, b. 1946
Senior Vice President, Corporate Relations
and Responsibility of Nokia Corporation.
Group Executive Board member since 1996.
Joined Nokia 1996.
LL.M. (University of Helsinki).
Executive Vice President, Corporate Relations
and Trade Policy of Nokia Corporation 1996–2003.
Secretary of State at the Ministry for Foreign Affairs
1993–1995, Under-Secretary of State for External
Economic Relations at the Ministry for Foreign
Affairs 1990–1993.
Member of the Board of Directors of Finnair Oyj.
Member of the Bureau of the United Nations
Information and Communication Technologies
Task Force (UN ICT TF), Vice Chairman of the Board
of the International Chamber of Commerce, Finnish
Section, Chairman of the Board of the Finland-
China Trade Association, Member of the Board of
Directors, Confederation of Finnish Industries
(EK), Vice Chairman of the Board of Directors and
its committee, Technology Industries of Finland.
Anssi Vanjoki, b. 1956
Executive Vice President
and General Manager of Multimedia.
Group Executive Board member since 1998.
Joined Nokia 1991.
Master of Science (Econ.) (Helsinki School of
Economics and Business Administration).
Executive Vice President of Nokia Mobile Phones
1998–2003, Senior Vice President, Europe & Africa
of Nokia Mobile Phones 1994–1998, Vice President,
Sales of Nokia Mobile Phones 1991–1994, 3M
Corporation 1980–1991.
Member of the Board of Directors of Amer Group Plc.
Master of Science (University of Oulu), Ph.D.
(Delft University of Technology, The Netherlands).
Senior Vice President, Head of Nokia Research
Center 2002–2004, Vice President, Research,
Standardization and Technology of IP Mobility
Networks, Nokia Networks 1999–2001, Vice
President, Radio Access Systems Research and
General Manager of Nokia Networks in Korea,
1999, Head of Radio Access Systems Research,
Nokia Networks 1998–1999, Principal Engineer,
Nokia Research Center, 1997–1998.
Chairman of Nokia Foundation. Vice Chairman of
the Center for Wireless Communications, Oulu
University, Member of the Board of Technomedicum
Research Institute, Member of IST Advisory Group
(ISTAG) for the European Commission, Member of
the Board of the Foundation of Finnish Institute
in Japan, Member of the Industrial Advisory
Council of Center for TelelnFrastruktur (CTIF),
Aalborg University, Member of the Institute of
Electrical and Electronics Engineers, Inc. (IEEE).
Richard A. Simonson, b. 1958
Senior Vice President, Chief Financial Officer.
Group Executive Board member since 2004.
Joined Nokia 2001.
Bachelor of Science (Mining Eng.) (Colorado
School of Mines), Master of Business Administration
(Finance) (Wharton School of Business at University
of Pennsylvania).
Vice President & Head of Customer Finance of
Nokia Corporation 2001–2003, Managing Director
of Telecom & Media Group of Barclays 2001, Head
of Global Project Finance and other various
positions at Bank of America Securities 1985–2001.
Member of the Board of Directors of Nextrom
Holding S.A.
Nokia in 2003 | 63
Nokia in 2004 63
B o a rd of D i re c to rs
March 8, 2005
Pursuant to the provisions of the Finnish Companies Act and our articles of association, the control and management of Nokia is divided among
the shareholders in a general meeting, the Board of Directors and the Group Executive Board. The current members of the Board of Directors were
elected at the Annual General Meeting on March 25, 2004, in accordance with the proposal of the Corporate Governance and Nomination Committee
of the Board. On the same date, the Chairman and Vice Chairman were elected by the Board members. Certain information with respect to these
individuals is set forth below.
Jorma Ollila, b. 1950
Chairman and CEO.
Chairman of the Group Executive Board of Nokia Corporation.
Board member since 1995. Chairman since 1999.
Dr. Bengt Holmström, b. 1949
Paul A. Samuelson Professor of Economics at MIT, joint appointment
at the MIT Sloan School of Management.
Board member since 1999.
Bachelor of Science (Helsinki University), Master of Science (Stanford University),
Doctor of Philosophy (Stanford University).
Edwin J. Beinecke Professor of Management Studies at Yale University
1985–1994.
Member of the Board of Directors of Kuusakoski Oy. Member of the American
Academy of Arts and Sciences and Foreign Member of The Royal Swedish
Academy of Sciences.
Per Karlsson, b. 1955
Independent Corporate Advisor.
Board member since 2002.
Degree in Economics and Business Administration (Stockholm School of
Economics).
Executive Director, with mergers and acquisitions advisory responsibilities,
at Enskilda M&A, Enskilda Securities (London) 1986–1992, Corporate strategy
consultant at the Boston Consulting Group (London) 1979–1986.
Board member of IKANO Holdings S.A.
Dame Marjorie Scardino, b. 1947
Chief Executive and member of the Board of Directors of Pearson plc.
Board member since 2001.
BA (Baylor), JD (University of San Francisco).
Chief Executive of The Economist Group 1993–1997, President of the North
American Operations of The Economist Group 1985–1993, lawyer 1976–1985
and publisher of The Georgia Gazette newspaper 1978–1985.
Master of Political Science (University of Helsinki), Master of Science (Econ.)
(London School of Economics), Master of Science (Eng.) (Helsinki University
of Technology).
President and CEO, Chairman of the Group Executive Board of Nokia Corporation
1992–1999, President of Nokia Mobile Phones 1990–1992, Senior Vice President,
Finance of Nokia 1986–1989. Holder of various managerial positions at Citibank
within corporate banking 1978–1985.
Member of the Board of Directors of Ford Motor Company and Vice Chairman
of the Board of Directors of UPM-Kymmene Corporation and Vice Chairman of
the Board of Directors of Otava Books and Magazines Group Ltd. Chairman
of the Boards of Directors and the Supervisory Boards of Finnish Business
and Policy Forum EVA and The Research Institute of the Finnish Economy
ETLA. Member of The European Round Table of Industrialists.
Paul J. Collins, b. 1936
Board member since 1998. Vice Chairman since 2000
BBA (University of Wisconsin), MBA (Harvard Business School).
Vice Chairman of Citigroup Inc. 1998–2000, Vice Chairman and member
of the Board of Directors of Citicorp and Citibank N.A. 1988–2000. Holder
of various executive positions at Citibank within investment management,
investment banking, corporate planning as well as finance and administration
1961–1988.
Member of the Board of Directors of BG Group and The Enstar Group, Inc.
Member of the Supervisory Board of Actis Capital LLP.
Georg Ehrnrooth, b. 1940
Board member since 2000.
Master of Science (Eng.) (Helsinki University of Technology).
President and CEO of Metra Corporation 1991–2000, President and CEO
of Lohja Corporation 1979–1991. Holder of various executive positions
at Wärtsilä Corporation within production and management 1965–1979.
Chairman of the Board of Directors of Assa Abloy AB (publ) and Vice Chairman
of the Board of Directors of Rautaruukki Corporation, member of the Board
of Directors of Oy Karl Fazer Ab, Sandvik AB (publ) and Sampo plc. Vice
Chairman of the Boards of Directors of The Research Institute of the Finnish
Economy ETLA and Finnish Business and Policy Forum EVA.
64 Nokia in 2004
B o a rd of D i re c to rs
On January 27, 2005, the Corporate Governance and Nomination Committee
announced its proposal to the Annual General Meeting convening on April
7, 2005 regarding the election of the members of the Board of Directors.
The Corporate Governance and Nomination Committee will propose to the
Annual General Meeting that the number of Board members be increased
from eight to ten and that all of the present members be re-elected for a
term of one year. In addition, the Committee will propose that Mr. Daniel R.
Hesse and Mr. Edouard Michelin be elected as new members of the Board of
Directors for the same one-year term. Mr. Hesse is a member of the Board of
Directors of Terabeam Wireless, a US based telecommunications technology
and services company. Mr. Michelin is the CEO of Michelin Group, the French
world-leading tire manufacturing company.
Drs Robert Van Oordt served as a member of the Board of Directors until
the Annual General Meeting on March 25, 2004, but did not stand for re-
election as he had reached the Board of Directors’ guideline retirement
age of 68 years.
Vesa Vainio, b. 1942
Board member since 1993.
LL.M. (University of Helsinki).
Chairman 1998–1999 and 2000–2002 and Vice Chairman 1999–2000 of the
Board of Directors of Nordea AB (publ), Chairman of the Executive Board
and CEO of Merita Bank Ltd and CEO of Merita Ltd 1992–1997, President of
Kymmene Corporation 1991–1992. Holder of various other executive positions
in Finnish industry 1972–1991.
Chairman of the Board of Directors of UPM-Kymmene Corporation.
Arne Wessberg, b. 1943
Chairman of the Board of Directors and Chief Executive Officer
of Yleisradio Oy (Finnish Broadcasting Company).
Board member since 2001.
Studies in economics in the University of Tampere (1963–1966).
Chairman of the Board of Eurosport Consortium 1998–2000, member
1989–1997, Member of the Board of Trustees of IIC 1996–1998 and 1993–1995.
Holder of various positions at Yleisradio Oy (Finnish Broadcasting Company)
in different executive roles 1979–1994 and as a reporter and editor 1971–1976.
President of the European Broadcasting Union (EBU), member of the Board
of Directors of the International Academy of Television Arts & Sciences and
member of the Trilateral Commission (Europe).
Nokia in 2003 | 65
Nokia in 2004 65
R i s k fa c to rs
March 8, 2005
Set forth below is a description of factors that may affect our business,
results of operations and share price from time to time.
• Our sales and profitability depend on the continued growth of the mobile
communications industry as well as the growth of the new market seg-
ments within that industry in which we have recently invested. If the
mobile communications industry does not grow as we expect, or if the
new market segments on which we have chosen to focus and in which
we have recently invested grow less than expected, or if new faster-
growing market segments emerge in which we have not invested, our
sales and profitability may be adversely affected.
• Our results of operations, particularly our profitability, may be adversely
affected if we do not successfully manage price erosion related to our
products.
• We must develop or otherwise acquire complex, evolving technologies
to use in our business. If we fail to develop these technologies or to
successfully commercialize them as new advanced products and solu-
tions that meet customer demand, or fail to do so on a timely basis, it
may have a material adverse effect on our business, our ability to meet
our targets and our results of operations.
• We need to understand the different markets in which we operate and
meet the needs of our customers, which include mobile network oper-
ators, distributors, independent retailers and enterprise customers.
We need to have a competitive product portfolio, and to work together
with our operator customers to address their needs. Our failure to iden-
tify key market trends and to respond timely and successfully to the
needs of our customers may have a material adverse impact on our
market share, business and results of operations.
• Competition in our industry is intense. Our failure to respond success-
fully to changes in the competitive landscape may have a material
adverse impact on our business and results of operations.
• Reaching our sales, profitability, volume and market share targets de-
pends on numerous factors. These include our ability to offer products
and solutions that meet the demands of the market and to manage the
prices and costs of our products and solutions, our operational efficiency,
the pace of development and acceptance of new technologies, our suc-
cess in the business areas that we have recently entered, and general
economic conditions. Depending on those factors, some of which we
may influence and others of which are beyond our control, we may fail
to reach our targets and we may fail to provide accurate forecasts of
our sales and results of operations.
• We depend on our suppliers for the timely delivery of components and
for their compliance with our supplier requirements, such as, most nota-
bly, our and our customers’ product quality, safety and other standards.
Their failure to do so could adversely affect our ability to deliver our
products and solutions successfully and on time.
• We are developing a number of our new products and solutions to-
gether with other companies. If any of these companies were to fail to
perform, we may not be able to bring our products and solutions to
market successfully or in a timely way and this could have a material
adverse impact on our sales and profitability.
• Our operations rely on complex and highly centralized information
technology systems and networks. If any system or network disruption
occurs, this reliance could have a material adverse impact on our oper-
ations, sales and operating results.
• Our products and solutions include increasingly complex technology
involving numerous new Nokia patented and other proprietary tech-
nologies, as well as some developed or licensed to us by certain third
parties. As a consequence, evaluating the protection of the technologies
we intend to use is more and more challenging, and we expect increasing-
ly to face claims that we have infringed third parties’ intellectual prop-
erty rights. The use of increasingly complex technology may also result
in increased licensing costs for us, restrictions on our ability to use certain
technologies in our products and solution offerings, and/or costly and
time-consuming litigation. Third parties may also commence actions
seeking to establish the invalidity of intellectual property rights on
which we depend.
• If we are unable to recruit, retain and develop appropriately skilled
employees, we may not be able to implement our strategies and, con-
sequently, our results of operations may suffer.
• The global networks business relies on a limited number of customers
and large multi-year contracts. Unfavorable developments under such
a contract or in relation to a major customer may affect our sales, our
results of operations and cash flow adversely.
• Our sales derived from, and assets located in, emerging market countries
may be adversely affected by economic, regulatory and political devel-
opments in those countries. As sales from these countries represent an
increasing portion of our total sales, economic or political turmoil in
these countries could adversely affect our sales and results of operations.
Our investments in emerging market countries may also be subject to
other risks and uncertainties.
• Our sales and results of operations could be adversely affected if we fail
to efficiently manage our manufacturing and logistics without inter-
ruption, or fail to ensure that our products and solutions meet our and
our customers’ quality, safety and other requirements and are deliv-
ered in time.
• Our sales, costs and results are affected by exchange rate fluctuations,
particularly between the euro, which is our reporting currency, and the
US dollar, the UK pound sterling and the Japanese yen as well as certain
other currencies.
66 Nokia in 2004
R i s k fa c to rs
• Customer financing to network operators can be a competitive require-
ment and could affect our sales, results of operations, balance sheet
and cash flow adversely.
• Allegations of health risks from the electromagnetic fields generated
by base stations and mobile devices, and the lawsuits and publicity relat-
ing to them, regardless of merit, could affect our operations negatively
by leading consumers to reduce their use of mobile devices or by causing
us to allocate monetary and personnel resources to these issues.
• An unfavorable outcome of litigation could materially impact our busi-
ness, financial condition or results of operations.
• Changes in various types of regulation in countries around the world
could affect our business adversely.
• Our share price has been and may continue to be volatile in response to
conditions in the global securities markets generally and in the com-
munications and technology sectors in particular.
We file an annual report on Form 20-F with the US Securities and Exchange
Commission, which report also includes a description of risk factors that
may affect us. Nokia filed its Form 20-F annual report for the year ended
December 31, 2004 on March 8, 2005. For further information please refer
to our Form 20-F annual report.
Nokia in 2004 67
C o r p o ra te g o ve r n a n ce
Pursuant to the provisions of the Finnish Companies Act and our articles of
association, the control and management of Nokia is divided among the
shareholders in a general meeting, the Board of Directors and the Group
Executive Board. Our articles of association provide for a Group Executive
Board, which is responsible for managing the operations of Nokia. The
Chairman and the members of the Group Executive Board are elected by
the Board of Directors. Only the Chairman of the Group Executive Board can
be a member of both the Board of Directors and the Group Executive Board.
The Board of Directors
The operations of the company are managed under the direction of the
Board of Directors, within the framework set by the Finnish Companies Act
and our articles of association and the complementary Corporate Governance
Guidelines and related charters as adopted by the Board.
The responsibilities of the Board of Directors
The Board of Directors represents and is accountable to the shareholders of
the company. The Board’s responsibilities are active and not passive and
include the responsibility to regularly evaluate the strategic direction of
the company, management policies and the effectiveness with which man-
agement implements its policies. The Board’s responsibilities further
include overseeing the structure and composition of the company’s top
management and monitoring legal compliance and the management of
risks related to the company’s operations. In doing so the Board may set
out annual ranges and/or individual limits for capital expenditures, invest-
ments and divestitures and financial commitments not to be exceeded with-
out Board approval.
The Board has the responsibility for appointing and discharging the
Chief Executive Officer and the President and the other members of the
Group Executive Board. Subject to the requirements of Finnish law, the inde-
pendent directors of the Board will confirm the compensation and the em-
ployment conditions of the Chief Executive Officer and the President upon
the recommendation of the Personnel Committee. The compensation and
employment conditions of the other members of the Group Executive
Board are approved by the Personnel Committee.
The basic responsibility of the members of the Board is to act in good
faith and with due care so as to exercise their business judgment on an
informed basis in what they reasonably and honestly believe to be the
best interests of the company and its shareholders. In discharging that
obligation, the directors must inform themselves of all relevant informa-
tion reasonably available to them.
Election, composition and meetings of the Board of Directors
Pursuant to the articles of association, Nokia Corporation has a Board of
Directors composed of a minimum of seven and a maximum of ten members.
The members of the Board are elected for a term of one year at each Annual
General Meeting, which convenes each March or April. Since the Annual
General Meeting held on March 25, 2004, the Board has consisted of eight
members. Nokia’s CEO, Mr. Jorma Ollila, also serves as the Chairman of the
Board. The other members of the Board are all non-executive and inde-
pendent as defined in the Finnish rules and regulations. The Board con-
vened nine times during 2004, three of the meetings were held in the form
of a conference call, and the average ratio of attendance at the meetings was
100%. The non-executive directors meet without executive directors twice
a year, or more often as they deem appropriate. Such sessions are presided
over by the Vice Chairman of the Board or, in his absence, the most senior
non-executive member of the Board. In addition, the independent direc-
tors meet separately at least annually. The Board and each committee also
has the power to hire independent legal, financial or other advisors as it
deems necessary.
The Board elects a Chairman and a Vice Chairman from among its mem-
bers for one term at a time. On March 25, 2004 the Board resolved that Mr.
Jorma Ollila should continue to act as Chairman and that Mr. Paul J. Collins
should continue to act as Vice Chairman. The Board also appoints the
members and the chairmen for its committees from among its non-executive,
independent members for one term at a time.
Under Finnish law, if the roles of the Chairman and the Chief Executive
Officer are combined, the company must have a President. The responsibil-
ities of the President are defined in the Finnish Companies Act and other
relevant legislation along with any additional guidance and instructions
given from time to time by the Board and the Chief Executive Officer. The
responsibilities of the Chief Executive Officer are determined by the Board.
The Board and each of its committees conducts annual performance self-
evaluations, the results of which are discussed in the committees, respec-
tively, and in the full Board. The Corporate Governance Guidelines concerning
the directors’ responsibilities, the composition and selection of the Board,
Board committees and certain other matters relating to corporate govern-
ance are available on our website, www.nokia.com.
Committees of the Board of Directors
The Audit Committee consists of a minimum of three members of the
Board, who meet all applicable independence, financial literacy and other
requirements of Finnish law and the rules of the stock exchanges where
Nokia shares are listed, including the Helsinki Exchanges and the New York
Stock Exchange. Since March 25, 2004, the Committee has consisted of the
following three members of the Board: Messrs. Per Karlsson (Chairman),
Georg Ehrnrooth and Arne Wessberg.
The Audit Committee is established by the Board primarily for the purpose
of overseeing the accounting and financial reporting processes of the
company and audits of the financial statements of the company. The Com-
mittee is responsible for assisting the Board’s oversight of (1) the quality
and integrity of the company’s financial statements and related disclosure,
(2) the external auditor’s qualifications and independence, (3) the perform-
ance of the external auditor subject to the requirements of Finnish law, (4)
the performance of the company’s internal controls and risk management
and assurance function, and (5) the company’s compliance with legal and
regulatory requirements. The Committee also maintains procedures for
the receipt, retention and treatment of complaints received by the company
regarding accounting, internal controls, or auditing matters and for the
confidential, anonymous submission by employees of the company of con-
cerns regarding accounting or auditing matters.
Under Finnish law, our external auditor is elected by our shareholders
at the Annual General Meeting. The Committee makes a recommendation
to the shareholders in respect of the appointment of the external auditor
based upon its evaluation of the qualifications and independence of the
auditor to be proposed for election or re-election. The Committee meets at
least four times per year based upon a schedule established at the first
meeting following the appointment of the Committee. The Committee
meets separately with the representatives of the management and the
external auditor at least twice a year. The Audit Committee convened
68 Nokia in 2004
Proposal of the Corporate Governance
and Nomination Committee of the Board
On January 27, 2005, we announced the proposal of the Corporate Govern-
ance and Nomination Committee to the Annual General Meeting convening
on April 7, 2005 regarding the election of the members of the Board of Direc-
tors. The Corporate Governance and Nomination Committee will propose
to the Annual General Meeting that the number of Board members be in-
creased from eight to ten and that all of the present members be re-elected
for a term of one year. In addition, the Committee will propose that Mr. Dan
Hesse and Mr. Edouard Michelin be elected as new members of the Board
of Directors for the same one-year term. Mr. Hesse is a member of the
Board of Directors of Terabeam Wireless, a US based telecommunications
technology and services company. Mr. Michelin is the CEO of Michelin Group,
the French world-leading tire manufacturing company.
Management and corporate governance practices
We have a company Code of Conduct which is equally applicable to all of
our employees, directors and management and is accessible at our web-
site, www.nokia.com. As well, we have a Code of Ethics for the Principal
Executive Officers and the Senior Financial Officers. For more information
about our Code of Ethics, please see www.nokia.com.
Nokia’s corporate governance practices comply with the Corporate
Governance Recommendation for Listed Companies approved by the Hel-
sinki Exchanges in December 2003, effective as of July 1, 2004. The Recom-
mendation recommends a company to describe the manner in which the
internal audit function of the company is organized. As Nokia has compre-
hensive risk management and internal control processes in place, there is
no separate internal audit function at Nokia.
C o r p o ra te G ove r n a n ce
three regular meetings and one extended regular meeting in 2004.
The Personnel Committee consists of a minimum of three members
of the Board, who meet all applicable independence requirements of Finnish
law and the rules of the stock exchanges where Nokia shares are listed,
including the Helsinki Exchanges and the New York Stock Exchange. Since
March 25, 2004, the Personnel Committee has consisted of the following
three members of the Board: Mr. Paul J. Collins (Chairman), Dame Marjorie
Scardino and Mr. Vesa Vainio.
The primary purpose of the Personnel Committee is to oversee the per-
sonnel policies and practices of the company. It assists the Board in dis-
charging its responsibilities relating to all compensation, including equity
compensation, of the company’s executives and the terms of employment
of the same. The Committee has overall responsibility for evaluating, resolv-
ing and making recommendations to the Board regarding (1) compensation
of the company’s top executives and their employment conditions, (2) all
equity-based plans, (3) incentive compensation plans, policies and programs
of the company affecting executives, and (4) other significant incentive
plans. The Committee is responsible for ensuring that the above compen-
sation programs are performance-based, properly motivate management,
support overall corporate strategies and align with shareholders’ interests.
The Committee is responsible for the review of senior management develop-
ment and succession plans. The Personnel Committee convened three times
in 2004.
The Corporate Governance and Nomination Committee consists of
three to five members of the Board, who meet all applicable independence
requirements of Finnish law and the rules of the stock exchanges where
Nokia shares are listed, including the Helsinki Exchanges and the New York
Stock Exchange. Since March 25, 2004, the Corporate Governance and Nom-
ination Committee has consisted of the following three members of the
Board: Dame Marjorie Scardino (Chairman), Mr. Paul J. Collins and Mr. Vesa
Vainio.
The Corporate Governance and Nomination Committee’s purpose is (1)
to prepare the proposals for the general meetings in respect of the compo-
sition of the Board along with the director remuneration to be approved
by the shareholders, and (2) to monitor issues and practices related to corpo-
rate governance and to propose necessary actions in respect thereof.
The Committee fulfills its responsibilities by (i) actively identifying indi-
viduals qualified to become members of the Board, (ii) recommending to
the shareholders the director nominees for election at the Annual General
Meetings, (iii) monitoring significant developments in the law and practice
of corporate governance and of the duties and responsibilities of directors
of public companies, (iv) assisting the Board and each committee of the
Board in its annual performance self-evaluation, including establishing
criteria to be used in connection with such evaluation, and (v) developing
and recommending to the Board and administering the Corporate Govern-
ance Guidelines of the company. The Corporate Governance and Nomination
Committee convened five meetings in 2004.
The charters of each of the committees are available on our website,
www.nokia.com.
Nokia in 2004 69
C o r p o ra te G ove r n a n ce
Compensation of the members of the Board of Directors
and the Group Executive Board
Board of Directors
For the year ended December 31, 2004, the aggregate compensation of the
seven non-executive members of the Board of Directors was approximately
EUR 775 000. Non-executive members of the Board of Directors do not receive
stock options, bonuses or other variable compensation. The remuneration
for members of the Board of Directors for each term expiring at the close
of the next Annual General Meeting is resolved annually by the Annual
General Meeting, after being proposed by the Corporate Governance and
Nomination Committee of the Board.
Compensation of the Board of Directors 2002–2004
The following table depicts the total annual remuneration paid to the
members of the Board of Directors, as resolved by the Annual General
Meetings in the respective years. Since the fiscal period 1999, approximately
60% of each Board member’s annual retainer has been paid in cash, with
the balance in Nokia Corporation shares acquired from the market.
Chairman
Vice Chairman
Other Members
Year
2002
2003
2004
Gross annual
retainer
(EUR 1 000)
130
150
150
Shares received 1 Gross annual
retainer
Shares received 1 Gross annual
retainer
Shares received 1
(EUR 1 000)
(EUR 1 000)
2 650
4 032
4 834
100
150
150 2
2 038
4 032
4 834 2
75
100
100 3
1 529
2 688
3 223 3
1
2
3
As part of the Gross Annual Retainer for that year.
Includes a retainer of EUR 125 000 for Mr. Paul Collins’s services as Vice Chairman of the Board and EUR 25 000 for services as Chairman of the Personnel Committee. Of the
shares received by Mr. Collins in 2004, 4 028 shares were for services as Vice Chairman of the Board and 806 shares for services as Chairman of the Personnel Committee.
The 2004 retainer of Mr. Per Karlsson amounted to a total of EUR 125 000, consisting of a retainer of EUR 100 000 for services as Member of the Board and EUR 25 000 for
services as Chairman of the Audit Committee. The shares received by Mr. Karlsson amounted to a total of 4 029 shares, consisting of 3 223 shares for services as a Member
of the Board and 806 shares for services as Chairman of the Audit Committee.
tion, new product revenue, total shareholder return or other objectives of
key strategic importance, which may require a discretionary assessment
of performance by the Personnel Committee.
Subject to the requirements of Finnish law, the independent directors
of the Board will confirm the compensation and the employment condi-
tions of Messrs. Jorma Ollila and Pekka Ala-Pietilä upon the recommenda-
tion of the Personnel Committee. The compensation and employment con-
ditions of the other members of the Group Executive Board are approved
by the Personnel Committee, pursuant to its charter.
The compensation, excluding gains realized upon the exercise of stock
options and also excluding grants of Performance Share Units and restricted
shares, of our five most highly paid executive officers for 2004 is detailed
in the following table.
Group Executive Board
For the year ended December 31, 2004, Nokia had a Group Executive Board
consisting of 13 members. Of the Group Executive Board members, Dr. Matti
Alahuhta, Ms. Sari Baldauf and Dr. J.T. Bergqvist ceased employment with
Nokia and resigned as members of the Group Executive Board with effect
from December 31, 2004 for Dr. Matti Alahuhta, and January 31, 2005 for Ms.
Sari Baldauf and Dr. J.T. Bergqvist. Dr. Tero Ojanperä and Mr. Simon Beres-
ford-Wylie were named as new members of the Group Executive Board as
of January 1, 2005 and February 1, 2005, respectively.
The aggregate compensation, excluding gains realized upon the exercise
of stock options and also excluding grants of Performance Share Units and
restricted shares, of the 13 members of the Group Executive Board for
2004, including Mr. Jorma Ollila, was approximately EUR 13.6 million. Of this
amount, approximately EUR 6.0 million was paid pursuant to bonus arrange-
ments for the 2004 calendar year. The bonuses of the members of the
Group Executive Board are paid as a percentage of annual base salary
based on Nokia’s Short-Term Incentive Plan. Short-term cash incentives
are paid twice each year based on performance for each of Nokia’s short-
term plans that end on June 30 and December 31 of each year. Short-term
incentive payments are primarily determined based on a formula that
considers the company’s performance to pre-established targets for net
sales, operating profit and net working capital efficiency measures. Cer-
tain executives may have objectives related to quality, technology innova-
70 Nokia in 2004
C o r p o ra te G ove r n a n ce
Name and Principal Position in 2004
Jorma Ollila 2
Chairman and Chief Executive Officer
Pekka Ala-Pietilä
President of Nokia Corporation and
Head of Customer and Market Operations
Matti Alahuhta 3
Chief Strategy Officer
Sari Baldauf 4
President of Networks
Olli-Pekka Kallasvuo 5
President of Mobile Phones
Year
2004
2003
2002
2004
2003
2002
2004
2003
2002
2004
2003
2002
2004
2003
2002
Salary, EUR
Bonus, EUR 1
1 475 238
1 400 000
1 386 666
1 936 221
2 253 192
1 384 967
717 000
711 279
662 090
632 000
626 953
591 719
521 000
514 943
476 705
584 000
575 083
520 788
479 509
520 143
271 192
472 766
532 138
297 265
571 452
387 627
60 875
454 150
505 724
285 072
Other Annual
Compensation
Other
Compensation, EUR
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
150 000
150 000
130 000
–
–
–
–
–
–
–
31 535
–
–
–
42 142
1
2
3
4
5
*
Bonus amounts are based on the performance of the Group and the individual
for the fiscal year and were paid under Nokia’s Short Term Incentive Plan.
“Other Compensation” in 2004 for Mr. Jorma Ollila includes EUR 150 000 for his
services as Chairman of the Board, of which EUR 90 000 was paid in cash and the
balance paid in 4 834 Nokia shares.
Dr. Matti Alahuhta ceased employment with us and resigned as member of the
Group Executive Board effective December 31, 2004.
“Other Compensation” in 2003 for Ms. Sari Baldauf represents a payment for the
20 year anniversary of her employment with Nokia, consistent with a policy for
all Finnish-based employees. Ms. Sari Baldauf ceased employment with us and
resigned as member of the Group Executive Board effective January 31, 2005. In
connection with the cease of employment of Ms. Sari Baldauf, Nokia established
a fixed term consultancy relationship with her as of February 1, 2005 to capture
the needs for her services for smooth transfer of duties to her successor. The term
of the consultancy agreement will end by June 30, 2005. The compensation related
to the consultancy will be based on Ms. Sari Baldauf’s base salary for 2004 with a
potential addition of a normal management incentive for the first half of 2005.
“Other Compensation” in 2002 for Mr. Olli-Pekka Kallasvuo represents a payment
for the 20 year anniversary of his employment with Nokia, consistent with a policy
for all Finnish-based employees.
Each executive listed received benefits and perquisites not exceeding the lesser of
EUR 50 000 or 10% of the executive’s total compensation in each year.
Our executives forming the Group Executive Board in 2004 participate
in the local retirement programs applicable to all employees in the country
where they reside. Executives in Finland participate in the Finnish TEL pension
system, which provides for a retirement benefit based on years of service
and earnings according to the prescribed statutory system. Under the
Finnish TEL pension system, base pay, incentives and other taxable fringe
benefits are included in the definition of earnings, although gains realized
from stock options are not. The Finnish TEL pension scheme provides for
early retirement benefits at age 60 and full retirement benefits at age 65.
The current TEL provisions cap the total pension benefit at 60% of the pen-
sionable earnings amount.
Executives in the United States participate in Nokia’s Retirement Savings
and Investment Plan. Under this 401(k) plan, participants elect to make
voluntary pre-tax contributions that are 100% matched by the company
up to 6% of eligible earnings. The Company makes an additional annual
discretionary contribution of up to 2% of eligible earnings. In addition for
participants earning in excess of the eligible earning limit, the Company
offers an additional Restoration and Deferral Plan. This plan allows employ-
ees to defer income into a non-qualified plan. The Company also makes an
annual discretionary contribution of up to 2% of the earnings above 401(k)
eligibility limits.
For Mr. Jorma Ollila, Mr. Pekka Ala-Pietilä, and Mr. Olli-Pekka Kallasvuo,
Nokia offers a full retirement benefit at age 60. The full retirement benefit
is calculated as if the executive had continued his service with Nokia
through age 65. Mr. Hallstein Moerk, following his arrangement from a pre-
vious employer, has a retirement benefit of 65% of his pensionable salary
beginning at age 62. Early retirement is possible at age 55 with reductions
in benefits. Nokia does not offer any similar benefit to any other members
of the 2004 Group Executive Board.
Nokia in 2004 71
Group Executive Board, Dec. 31, 2004
Shares
ADSs
Pekka Ala-Pietilä
Matti Alahuhta
Sari Baldauf
J.T. Bergqvist
Olli-Pekka Kallasvuo
Pertti Korhonen
Mary McDowell
Hallstein Moerk
Yrjö Neuvo
Richard Simonson
Veli Sundbäck
Anssi Vanjoki
Total
49 600
144 200
183 200
60 000
54 000
15 300
–
14 100
74 540
–
125 000
106 000
–
–
–
–
–
–
–
–
–
20 000
–
–
825 940
20 000
On December 31, 2004, the aggregate interest of the members of the
Board of Directors and the Group Executive Board (not including the new
Group Executive Board members whose service began on or after January
1, 2005) in our outstanding share capital was 1 524 824 shares and ADSs,
representing less than 1% of the issued share capital and voting rights in
Nokia Corporation.
C o r p o ra te G ove r n a n ce
Service contracts of the Chairman and CEO and of the President
We have a service contract with each of Mr. Jorma Ollila and Mr. Pekka Ala-
Pietilä, each of an indefinite duration. The Board has also agreed with Mr. Jorma
Ollila on the continuation of his services as CEO of Nokia through 2006.
Mr. Jorma Ollila’s contract has provisions for severance payments for up
to 24 months of compensation (both base compensation and bonus) in the
event of his termination of employment for reasons other than cause, in-
cluding a change of control. As previously mentioned, Mr. Jorma Ollila is
further entitled to a full statutory pension from the date he turns 60 years
of age, instead of the statutory age of 65.
Mr. Pekka Ala-Pietilä’s contract has provisions for severance payments
for up to 18 months of compensation (both base compensation and bonus)
in the event of his termination of employment for reasons other than
cause, including a change of control. As previously mentioned, Mr. Pekka
Ala-Pietilä is entitled to a full statutory pension from the date he turns 60
years of age, instead of the statutory age of 65.
Share ownership of the members of the Board of Directors
and the Group Executive Board
The following tables set forth the number of shares and ADSs beneficially
held by members of the Board of Directors and the Group Executive Board
as of December 31, 2004 (not including the new Group Executive Board
members whose service began on or after January 1, 2005). Of the Group
Executive Board members, Dr. Matti Alahuhta, Ms. Sari Baldauf and Dr. J.T.
Bergqvist ceased employment with Nokia and resigned as members of the
Group Executive Board with effect from December 31, 2004 for Dr. Matti
Alahuhta, and January 31, 2005 for Ms. Sari Baldauf and Dr. J.T. Bergqvist.
Board of Directors, Dec. 31, 2004
Shares 1
ADSs
Jorma Ollila 2
Paul J. Collins
Georg Ehrnrooth 3
Bengt Holmström
Per Karlsson 3
Marjorie Scardino
Vesa Vainio
Arne Wessberg
Total
194 222
–
308 782
10 910
12 546
–
21 570
8 322
–
114 210
–
–
–
8 322
–
–
556 352
122 532
1
2
The number of shares includes not only shares acquired as compensation for
services as member of the Board of Directors, but also shares acquired by any
other means.
For Mr. Jorma Ollila’s holdings of stock options, see the table under “Stock Option
Ownership of the Group Executive Board, Dec. 31, 2004” below.
3 Mr. Georg Ehrnrooth’s and Mr. Per Karlsson’s holdings include both shares held
personally and shares held through a company.
72 Nokia in 2004
C o r p o ra te G ove r n a n ce
Management stock option ownership
The following tables provide certain information relating to stock options
held by members of the Group Executive Board as of December 31, 2004
(not including the new Group Executive Board members whose service
began on or after January 1, 2005). These stock options were issued pursu-
ant to our Nokia Stock Option Plans 1999, 2001 and 2003. For a description
of our stock option plans, please see the table “Outstanding stock option
plans, Dec. 31, 2004” on page 44.
Stock option ownership of the Group Executive Board, Dec. 31, 2004
Number of shares represented by exercisable options, Dec. 31, 2004 1
Exercise price per share, EUR
1999
A, B and C 2
See note 2
2001
A and B
EUR 36.75
2001 C
3Q/01
EUR 20.61
2001 C
4Q/01
EUR 26.67
2002
A and B
EUR 17.89
2003 2Q
EUR 14.95
Jorma Ollila
Pekka Ala-Pietilä
Matti Alahuhta
Sari Baldauf
J.T. Bergqvist
Olli-Pekka Kallasvuo
Pertti Korhonen
Mary McDowell
Hallstein Moerk
Yrjö Neuvo
Richard Simonson
Veli Sundbäck
Anssi Vanjoki
1 600 000
720 000
900 000
560 000
140 000
560 000
140 000
–
144 000
400 000
–
400 000
–
812 500
203 125
81 250
81 250
32 500
81 250
24 375
–
24 375
56 875
–
32 500
56 875
–
–
–
–
–
–
–
–
–
–
27 000
–
–
343 750
85 934
34 375
34 375
13 750
34 375
10 309
–
10 309
24 059
–
13 750
24 059
562 500
140 625
98 435
98 435
39 375
98 435
39 375
–
16 875
39 375
8 435
22 500
56 250
250 000
53 125
37 500
37 500
15 625
37 500
15 625
–
6 250
12 500
3 593
15 625
31 250
1
2
For information regarding the vesting and expiry of the stock option plans presented in this table, see the table “Outstanding stock option plans, Dec. 31, 2004” on page 44.
All of the 1999 stock options expired as of December 31, 2004. The column depicts the total number of allocated stock options 1999 A, B and C, the exercise prices of which were
EUR 16.89 (A), EUR 56.28 (B) and EUR 29.12 (C) per share, respectively.
Number of shares represented by unexercisable options, Dec. 31, 2004
Exercise price per share, EUR
2001 B
EUR 36.75
2001 C
3Q/01
EUR 20.61
2001 C
4Q/01
EUR 26.67
2002 B
EUR 17.89
2003 2Q
EUR 14.95
2003 4Q
EUR 15.05
2004 2Q
EUR 11.79
Jorma Ollila
Pekka Ala-Pietilä
Matti Alahuhta
Sari Baldauf
J.T. Bergqvist
Olli-Pekka Kallasvuo
Pertti Korhonen
Mary McDowell
Hallstein Moerk
Yrjö Neuvo
Richard Simonson
Veli Sundbäck
Anssi Vanjoki
187 500
46 875
18 750
18 750
7 500
18 750
5 625
0
5 625
13 125
0
7 500
13 125
–
–
–
–
–
–
–
–
–
–
9 000
–
–
156 250
39 066
15 625
15 625
6 250
15 625
4 691
–
4 691
10 941
–
6 250
10 941
437 500
109 375
76 565
76 565
30 625
76 565
30 625
–
13 125
30 625
6 565
17 500
43 750
550 000
116 875
82 500
82 500
34 375
82 500
34 375
–
13 750
27 500
7 907
34 375
68 750
–
–
–
–
–
–
–
70 000
–
–
–
–
–
400 000
80 000
60 000
60 000
30 000
60 000
50 000
50 000
30 000
20 000
50 000
30 000
60 000
On December 31, 2004, the aggregate holdings of exercisable stock options
of members of the Group Executive Board (not including the new Group Ex-
ecutive Board members whose service began on or after January 1, 2005)
called for approximately 3.9 million shares, representing less than 1% of
the issued share capital and voting rights in Nokia Corporation.
Nokia in 2004 73
C o r p o ra te G ove r n a n ce
Performance Share Unit and restricted share ownership
Performance Share Units
The following table provides certain information relating to Performance
Share Units held by members of the Group Executive Board as of December
31, 2004 (not including the new Group Executive Board members whose
service began on or after January 1, 2005). These Performance Share Units
were issued under the 2004 Nokia Equity Program. For a description of our
performance share plan, please see “Nokia’s equity based incentive plans”
on pages 43–44.
Granted Amounts of
Performance Share Units 1, 3
Maximum
number of shares 2, 3
Jorma Ollila
Pekka Ala-Pietilä
Matti Alahuhta
Sari Baldauf
J. T. Bergqvist
Olli-Pekka Kallasvuo
Pertti Korhonen
Mary McDowell
Hallstein Moerk
Yrjö Neuvo
Richard Simonson
Veli Sundbäck
Anssi Vanjoki
Total
100 000
20 000
15 000
15 000
7 500
15 000
12 500
12 500
7 500
5 000
12 500
7 500
15 000
245 000
Restricted shares
The following table provides certain information relating to restricted
shares held by members of the Group Executive Board as of December 31,
2004 (not including the new Group Executive Board member whose service
began on or after January 1, 2005). For a description of our restricted share
plans, please see “Nokia’s equity based incentive plans” on pages 43–44.
Number of restricted
shares 2004 2, 3
Number of restricted
shares 2003 1, 3
400 000
80 000
60 000
60 000
30 000
60 000
50 000
50 000
30 000
20 000
50 000
30 000
60 000
Jorma Ollila
Pekka Ala-Pietilä
Matti Alahuhta
Sari Baldauf
J. T. Bergqvist
Olli-Pekka Kallasvuo
Pertti Korhonen
Mary McDowell
Hallstein Moerk
Richard Simonson
Veli Sundbäck
Anssi Vanjoki
980 000
Total
–
–
–
–
–
–
35 000
–
26 000
33 250
–
–
94 250
100 000
35 000
35 000
35 000
10 000
35 000
25 000
20 000
20 000
25 000
20 000
35 000
395 000
1
2
3
The Grant Amount vests as Nokia shares, if threshold level performance is
met for both the EPS growth and Average Annual Net Sales growth criteria.
No Performance Share Units shall vest as Nokia shares, if the threshold level
performance is not met for any of the EPS or Average Annual Net Sales criterion.
1
2
3
The maximum number of Performance Share Units shall vest as Nokia shares
provided that the maximun performance level is achieved for both of the EPS
and Average Annual Net Sales growth criteria.
The closing market price of the Nokia share on the Helsinki Exchanges as of
December 31, 2004 was EUR 11.62.
Restriction period end date (Vesting Date) October 1, 2006.
Restriction period end date (Vesting Date) April 1, 2007.
The closing market price of the Nokia share on the Helsinki Exchanges as of
December 31, 2004 was EUR 11.62.
74 Nokia in 2004
C o r p o ra te G ove r n a n ce
Nokia’s Equity Based Compensation Programs
For a description of Nokia’s equity based compensation programs as of
December 31, 2004 to which also members of the Group Executive Board
participate, please see pages 43–44. The stock option plans have been ap-
proved by the Annual General Meetings in the year of the launch of the
plan.
Nokia’s Equity Based Compensation Program 2005
The Board of Directors announced its proposed design for the 2005 Equity
Program on January 27, 2005. The Equity Program 2005 follows the design
of the 2004 Equity Program. The primary equity elements in 2005 will be
performance shares for the wide number of employees, stock options to a
more limited population, and a continued, very limited usage of restricted
shares for high potential and critical employees. The key elements of the
proposed Equity Program 2005 are:
• The performance criteria for the 2005 Performance Share Plan, running
for a performance period of 4 years, are:
1) Average Annual Net Sales Growth: 3% (threshold) and 12%
(maximum), and
2) Annual EPS Growth: EUR 0.82 (threshold) and EUR 1.33 in 2008
(maximum).
EPS growth is calculated based on the compounded annual growth rate
over the full performance period (2005–2008) compared to 2004 EPS of 0.70.
The maximum performance level for both criteria will result in the
vesting of the maximum of 18.8 million Nokia shares. If the threshold
levels of performance are not achieved, none of the Performance Share
Units will vest. For performance between the threshold and maximum
performance levels the payout follows a linear scale.
• It is our intent to grant Performance Share Units to a similar target
group and amounting to a similar number also in 2006. We have also
reserved a pool of units, to be used for grants within the anticipated
annual grant cycle in 2006 as well as for recruiting and special reten-
tion needs for 2005 and 2006 combined. This amount may result in a
maximum payout of 31.2 million Nokia shares.
• We intend to grant 8.5 million stock options in 2005, each entitling to a
subscription of one Nokia share. Our intent is to grant a similar amount
also in 2006. We have reserved an additional pool of stock options to
be used for grants within the anticipated annual grant cycle in 2006 as
well as for recruiting and special retention needs, for 2005 and 2006
combined. The Equity Program 2005 includes a proposal by the Board
of Directors to Nokia’s Annual General Meeting 2005 for the approval of
a new two-year stock option plan amounting to a maximum of 25 million
stock options, permitting these plans.
• The maximum number of restricted shares that we intend to grant during
2005 is 3.5 million. Our intent is to grant a similar amount in 2006. We
have also reserved a pool of restricted shares to be used for special
needs in 2005 and 2006. This amount may result in a maximum payout
of 9 million Nokia shares.
Stock ownership guidelines for executive management
The goal of our long-term, equity-based incentive awards is to recognize
progress towards the achievement of our strategic objectives, and to focus
executives on building value for shareholders. In addition to stock option
grants, we encourage stock ownership by our top executives. In January
2001, we introduced a stock ownership commitment guideline with mini-
mum recommendations tied to annual fixed salaries. For the members of
the Group Executive Board, the recommended minimum investment in our
shares corresponds to two times the member’s annual base salary, to be
fulfilled by January 2006. In the case of the new Group Executive Board
members whose service began after the original 2001 guidelines were estab-
lished, this requirement is replaced by the requirement to retain after-tax
equity gains in shares until the same minimum investment level applicable
to the other Group Executive Board members is met.
Insiders’ trading in securities
The Board of Directors has established a policy in respect of insiders’ trading
in Nokia securities. Under the policy, the holdings of Nokia securities by
the primary insiders (as defined) are public information, which is available
in the Finnish Central Securities Depositary and on the company’s website.
As well, both primary insiders and secondary insiders (as defined) are subject
to a number of trading restrictions and rules, including among other
things, prohibitions on trading in Nokia securities during the three-week
“closed-window” period immediately preceding the disclosure of our
quarterly results and the four-week “closed-window” period immediately
preceding the disclosure of our annual results. In addition, the company may
set trading restrictions based on project participation. We update our in-
sider trading policy from time to time and monitor our insiders’ compli-
ance with the policy on a regular basis. Nokia’s Insider Policy is in line with
the Helsinki Exchanges Guidelines for Insiders and also sets out require-
ments beyond those guidelines.
Nokia in 2004 75
C o r p o ra te G ove r n a n ce
Auditor fees and services
PricewaterhouseCoopers Oy served as Nokia’s independent public auditor
for the fiscal year ended December 31, 2004. The auditor is elected annually
by the Annual General Meeting. The Audit Committee of the Board of Direc-
tors will propose to the Annual General Meeting convening on April 7, 2005
that PricewaterhouseCoopers Oy be elected as the auditor for 2005.
The following table presents the aggregate fees for professional services
and other services rendered by PricewaterhouseCoopers to Nokia in 2004
and 2003.
EURm
Audit Fees 1
Audit-related Fees 2
Tax Fees 3
All Other Fees 4
Total
2004
2003
4.2
1.0
5.0
0.3
4.8
0.9
6.0
0.7
10.5
12.4
1
2
3
4
Audit Fees consist of fees billed for the annual audit of the company’s consoli-
dated financial statements and the statutory financial statements of the
company’s subsidiaries. They also include fees billed for other audit services,
which are those services that only the external auditor reasonably can provide,
and include the provision of comfort letters and consents and the review of
documents filed with the SEC and other capital markets or local financial reporting
regulatory bodies.
Audit-related Fees consist of fees billed for assurance and related services that
are reasonably related to the performance of the audit or review of the company’s
financial statements or that are traditionally performed by the external auditor,
and include consultations concerning financial accounting and reporting
standards; internal control reviews; advice and assistance in connection with local
statutory accounting requirements; due diligence related to acquisitions; and
employee benefit plan audits and reviews; and miscellaneous reports in
connection with grant applications.
Tax Fees include fees billed for tax compliance services, including the preparation
of original and amended tax returns and claims for refund; tax consultations, such
as assistance and representation in connection with tax audits and appeals, tax
advice related to mergers and acquisitions, transfer pricing, and requests for
rulings or technical advice from taxing authorities; tax planning services; and
expatriate tax compliance, consultation and planning services.
All Other Fees include fees billed for forensic accounting and occasional training
services and, in 2004 only, for advisory services in connection with the outsourcing
of an operational process.
Audit Committee pre-approval policies and procedures
The Audit Committee of Nokia’s Board of Directors is responsible, among
other matters, for the oversight of the external auditor subject to the require-
ments of Finnish law. The Audit Committee has adopted a policy regarding
pre-approval of audit and permissible non-audit services provided by our
independent auditors (the “Policy”).
Under the Policy, proposed services either (i) may be pre-approved by
the Audit Committee without consideration of specific case-by-case services
(“general pre-approval”); or (ii) require the specific pre-approval of the Au-
dit Committee (“specific pre-approval”). The Audit Committee may dele-
gate either type of pre-approval authority to one or more of its members.
The appendices to the Policy set out the audit, audit-related, tax and other
services that have received the general pre-approval of the Audit Committee,
which services are subject to annual review by the Audit Committee. All
other services, including all internal control related services, must receive a
specific pre-approval from the Audit Committee.
The Audit Committee establishes budgeted fee levels annually for each
of the four categories of audit and non-audit services that are pre-approved
under the Policy, namely, audit, audit-related, tax and other services. Re-
quests or applications to provide services that require specific approval by
the Audit Committee are submitted to the Audit Committee by both the
external auditor and the Chief Financial Officer. At each regular meeting of
the Audit Committee, the external auditor provides a report in order for
the Audit Committee to review the services that the external auditor is
providing, as well as the status and cost of those services.
76 Nokia in 2004
I nve s to r i nfo r m at i o n
Information on the Internet
www.nokia.com/investor
Investor relations contacts
investor.relations@nokia.com
Available on the Internet: financial reports, Nokia management’s
presentations, conference call and other investor related material,
press releases as well as environmental and social information.
Nokia Investor Relations
P.O. Box 226
FIN-00045 NOKIA GROUP
Finland
Tel. + 358 7180 34927
Fax +358 7180 38787
Nokia Investor Relations
709 Westchester Ave.
White Plains, NY 10604
USA
Tel. +1 914 368 0555
Fax +1 914 368 0600
Annual General Meeting
Date: Thursday April 7, 2005 at 3.00 pm
Address: Hartwall Areena, Veturitie 13, Helsinki, Finland
Stock exchanges
The shares of Nokia Corporation are quoted on the following stock exchanges:
Dividend
Dividend proposed by the Board of Directors for 2004 is EUR 0.33.
The dividend record date is proposed to be April 12, 2005 and pay date
April 22, 2005
Financial reporting
Nokia’s quarterly reports in 2005 are planned for April 21, July 21, and
October 20. The 2005 results will be published in January 2006 and the
financial statements in March 2006.
HEX, Helsinki (quoted since 1915)
Stockholmsbörsen (1983)
Frankfurter Wertpapierbörse (1988)
New York Stock Exchange (1994)
List of indices
Symbol
NOK1V
NOKI
NOA3
NOK
Trading
currency
EUR
SEK
EUR
USD
NOK1V
NOKI
NOK
HEX HEX General Index
OMX Stockholm
NYA NYSE Composite
HEXTELE HEX Telecommunications GENX Swedish General
NNA NYSE Utilities
HEX 25 HEX 25 Index
GENX04 Swedish Engineer
NN NYSE Utilities
BE500 Bloomberg Europe
GENX16 Swedish SX 16 Index
CTN CSFB Technology
BETECH BBG Europe Technology
MLO Merrill Lynch Tech 10
SX5E DJ Euro STOCXX 50
SX5P DJ Europe STOXX
SX__ Various other DJ Indices
E300 FTSE Eurotop 300
It should be noted that certain statements herein which are not historical facts, including, without limitation, those regarding: A) the timing of product and solution deliveries; B) our ability to develop, implement and
commercialize new products, solutions and technologies; C) expectations regarding market growth, developments and structural changes; D) expectations and targets for our results of operations; E) the outcome of
pending and threatened litigation; and F) statements preceded by ‘’believe,’’ ‘’expect,’’ ‘’anticipate,’’ ‘’foresee’’,‘’target” or similar expressions are forward-looking statements. Because these statements involve risks and
uncertainties, actual results may differ materially from the results that we currently expect. Factors that could cause these differences include, but are not limited to: 1) the extent of the growth of the mobile communi-
cations industry and the new market segments in which we have recently invested; 2) price erosion; 3) timing and success of the introduction and roll-out of new products and solutions; 4) competitiveness of our product
portfolio; 5) our failure to identify key market trends and to respond timely and successfully to the needs of our customers; 6) the impact of changes in technology and the success of our product and solution development;
7) the intensity of competition in the mobility industry and changes in the competitive landscape; 8) our ability to control the variety of factors affecting our ability to reach our targets and give accurate forecasts; 9) the
availability of new products and services by network operators and other market participants; 10) general economic conditions globally and in our most important markets; 11) our success in maintaining efficient man-
ufacturing and logistics as well as the high quality of our products and solutions; 12) inventory management risks resulting from shifts in market demand; 13) our ability to source quality components without
interruption and at acceptable prices; 14) our success in collaboration arrangements relating to technologies, software or new products and solutions; 15) the success, financial condition, and performance of our collab-
oration partners, suppliers and customers; 16) any disruption to information technology systems and networks that our operations rely on; 17) our ability to have access to the complex technology involving patents and
other intellectual property rights included in our products and solutions at commercially acceptable terms and without infringing any protected intellectual property rights; 18) our ability to recruit, retain and develop
appropriately skilled employees; 19) developments under large, multi-year contracts or in relation to major customers; 20) exchange rate fluctuations, including, in particular, fluctuations between the euro, which is our
reporting currency, and the US dollar, the UK pound sterling and the Japanese yen; 21) the management of our customer financing exposure; and 22) the impact of changes in government policies, laws or regulations; as
well as 23) the risk factors specified on pages 12–22 of the company’s Form 20-F for the year ended December 31, 2004 under “Item 3.D Risk Factors.”
Nokia in 2004 77
G e n e ra l co nt a c t i nfo r m at i o n
Nokia Head Office
Keilalahdentie 2–4
FIN-02150 Espoo
P.O. Box 226
FIN-00045 Nokia Group
Finland
Tel. +358 (0) 7180 08000
Fax +358 (0) 7180 38226
Nokia Americas
6000 Connection Drive
Irving, Texas
75039
USA
Tel. +1 972 894 5000
Fax +1 972 894 5106
Nokia Asia-Pacific
438B Alexandra Road #07–00
Alexandra Technopark
Singapore 119968
Tel. +65 6723 2323
Fax +65 6723 2324
78 Nokia in 2004
Nokia in 2004 79
© Nokia 2005. Nokia and Nokia Connecting People are registered trademarks of Nokia Corporation.
Paper: Galerie Art Silk 115 g/m2
Cover: Galerie Art Silk 300 g/m2
Printed matter
Design: Louise Boström Oy. Sävypaino ISO 9001, 2005.
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