Nokia Corporation
Annual Report 2009

Plain-text annual report

Nokia in 2009 Review by the Board of Directors and Nokia Annual Accounts 2009 Key data ........................................................................................................................................................................... 2 Review by the Board of Directors ........................................................................................................................... 3 Annual Accounts 2009 Consolidated income statements, IFRS ................................................................................................................... 8 Consolidated statements of comprehensive income, IFRS ................................................................................ 9 Consolidated statements of financial position, IFRS ........................................................................................ 10 Consolidated statements of cash flows, IFRS ..................................................................................................... 11 Consolidated statements of changes in shareholders’ equity, IFRS ............................................................. 12 Notes to the consolidated financial statements ................................................................................................ 14 Income statements, parent company, FAS .......................................................................................................... 52 Balance sheets, parent company, FAS ................................................................................................................... 52 Statements of cash flows, parent company, FAS ............................................................................................... 53 Notes to the financial statements of the parent company ............................................................................. 54 Nokia shares and shareholders .............................................................................................................................. 58 Nokia Group 2005–2009, IFRS ................................................................................................................................. 64 Calculation of key ratios ........................................................................................................................................... 66 Proposal by the Board of Directors for distribution of profit ......................................................................... 67 Auditors’ report .......................................................................................................................................................... 68 Additional information Critical accounting policies ..................................................................................................................................... 70 Corporate governance statement Group Executive Board ......................................................................................................................................... 74 Board of Directors .................................................................................................................................................. 76 Corporate governance .......................................................................................................................................... 78 Compensation of the Board of Directors and the Group Executive Board .................................................. 81 Auditor fees and services ......................................................................................................................................... 96 Investor information ................................................................................................................................................. 97 Contact information .................................................................................................................................................. 98 Key data * Based on financial statements according to International Financial Reporting Standards, IFRS Main currencies, exchange rates at the end of 2009 1 EUR 1.4648 USD GBP 0.9006 CNY 10.0018 INR 68.3223 RUB 44.1402 130.30 JPY 2 Nokia in 2009 Nokia, EURm 2009 2008 Change, % Net sales Operating profit Profit before tax Profit attributable to equity holders’ of the parent Research and development expenses 40 984 1 197 962 891 5 909 % Return on capital employed Net debt to equity (gearing) 2009 6.7 – 25 50 710 4 966 4 970 3 988 5 968 2008 27.2 – 14 – 19 – 76 – 81 – 78 – 1 EUR Earnings per share, basic Dividend per share Average number of shares (1 000 shares) ** Board’s proposal 2009 0.24 0.40 ** 3 705 116 2008 Change, % 1.07 0.40 3 743 622 – 78 — Reportable segments, EURm 2009 2008 Change, % Devices & Services Net sales Operating profit NAVTEQ Net sales Operating profit Nokia Siemens Networks Net sales Operating profit Personnel, December 31 Devices & Services NAVTEQ Nokia Siemens Networks Corporate Common Functions Nokia Group 10 major markets, net sales; EURm China India UK Germany USA Russia Indonesia Spain Brazil Italy 27 853 3 314 670 – 344 12 574 – 1 639 2009 54 773 4 571 63 927 282 123 553 2009 5 990 2 809 1 916 1 733 1 731 1 528 1 458 1 408 1 333 1 252 10 major countries, personnel, December 31 2009 Finland India China Germany Brazil United States Hungary UK Mexico Poland 21 559 18 376 15 419 11 582 10 288 7 294 6 342 4 010 2 619 1 937 35 099 5 816 361 – 153 15 309 – 301 – 21 – 43 125 – 18 2008 Change, % – 10 13 6 – 21 – 2 61 130 4 049 60 295 355 125 829 2008 5 916 3 719 2 382 2 294 1 907 2 083 2 046 1 497 1 902 1 774 2008 23 320 15 562 14 505 12 309 8 557 8 060 7 541 4 313 3 559 1 646 * On July 10, 2008, Nokia completed the acquisition of NAVTEQ Corporation. NAVTEQ is a a separate reportable segment of Nokia starting from the third quarter 2008. Accordingly, the results of NAVTEQ are not available for the prior periods. Review by the Board of Directors 2009 In 2009, Nokia’s net sales decreased 19 % to EUR 40 984 million (EUR 50 710 million in 2008). Net sales of De- vices & Services for 2009 decreased 21 % to EUR 27 853 million (EUR 35 099 million). Net sales of NAVTEQ * were EUR 670 million in 2009 (EUR 361 million for the six months ended December 31, 2008). Net sales of Nokia Siemens Networks decreased 18 % to EUR 12 574 mil- lion (EUR 15 309 million). In 2009, Europe accounted for 36 % (37 %) of Nokia’s net sales, Asia-Pacific 22 % (22 %), Greater China 16 % (13 %), Middle East & Africa 14 % (14 %), Latin America 7 % (10 %), and North America 5 % (4 %). The 10 markets in which Nokia generated the greatest net sales in 2009 were, in descending order of magni- tude, China, India, the UK, Germany, the United States, Russia, Indonesia, Spain, Brazil and Italy, together representing approximately 52 % of total net sales in 2009. In comparison, the 10 markets in which Nokia generated the greatest net sales in 2008 were China, India, the UK, Germany, Russia, Indonesia, the United States, Brazil, Italy and Spain, together representing approximately 50 % of total net sales in 2008. Nokia’s gross margin in 2009 was 32.4 %, com- pared to 34.3 % in 2008. Nokia’s 2009 operating profit decreased 76 % to EUR 1 197million, compared with EUR 4 966 million in 2008. Nokia’s 2009 operating margin was 2.9 % (9.8 %). Nokia’s operating profit in 2009 included purchase price accounting items and other special items of net negative EUR 2 306 million (net negative EUR 2 067 million). Devices & Services operating profit decreased 43 % to EUR 3 314 million, compared with EUR 5 816 million in 2008, with a reported operating margin of 11.9 % (16.6 %). Devices & Services operating profit in 2009 included special items of negative EUR 174 million (net negative EUR 557 million). NAVTEQ’s operating loss in 2009 was EUR 344 million with a reported operating margin of – 51.3 % compared to an operating loss of EUR 153 mil- lion, for the six months ended on December 31, 2008 representing an operating margin of – 42.4 %. NAVTEQ’s operating loss in 2009 included purchase price ac- counting items and other special items of negative EUR 465 million (net negative EUR 235 million). Nokia Siemens Networks had an operating loss of EUR 1 639 million, compared with a EUR 301 million operating loss in 2008, representing an operating margin of – 13.0 % (– 2.0 %). Nokia Siemens Networks operating loss in 2009 included purchase price accounting items and other special items, including EUR 908 million impairment of goodwill, of net negative EUR 1 667 million (net negative EUR 1 058 million). In 2009, Nokia’s net sales and profitability were negatively impacted by the deteriorated global economic conditions, including weaker consumer and corporate spending, constrained credit availability and currency market volatility. The demand environment, in particular for mobile devices, improved during the latter part of the year as the global economy started showing initial signs of recovery. Reported research and development expenses were EUR 5 909 million in 2009, down 1 % from EUR 5 968 million in 2008. Research and development costs represented 14.4 % of Nokia net sales in 2009, up from 11.8 % in 2008. Research and development expenses included purchase price accounting items and other special items of EUR 564 million in 2009 (EUR 550 million in 2008). At December 31, 2009, Nokia employed 37 020 people in research and development, representing approximately 30 % of the group’s total workforce, and had a strong research and develop- ment presence in 16 countries. In 2009, Nokia’s selling and marketing expenses were EUR 3 933 million, compared with EUR 4 380 million in 2008. Selling and marketing expenses for Nokia represented 9.6 % of its net sales in 2009 (8.6 %). Selling and marketing expenses included purchase price accounting items and other special items of EUR 413 million in 2009 (EUR 341 million). Administrative and general expenses were EUR 1 145 million in 2009 compared to EUR 1 284 million in 2008. Administrative and general expenses were equal to 2.8 % of net sales in 2009 (2.5 %). Administrative and general expenses included special items of EUR 103 million in 2009 (EUR 163 million). Group Common Functions expenses totaled EUR 134 million in 2009, compared to EUR 396 million in 2008. Expenses in 2008 included a EUR 217 million loss due to transfer of Finnish pension liabilities. Net financial expense was EUR 265 million in 2009 (EUR 2 million). Profit before tax and minority interests was EUR 962 million (EUR 4 970 million in 2008). Profit was EUR 260 million (EUR 3 889 million), based on a profit of EUR 891 million (profit of EUR 3 988 million) attrib- utable to equity holders of the parent and a negative EUR 631 million (negative EUR 99 million) attributable to minority interests. Earnings per share decreased to EUR 0.24 (basic) and EUR 0.24 (diluted), compared to EUR 1.07 (basic) and EUR 1.05 (diluted) in 2008. Operating cash flow for the year ended December 31, 2009 was EUR 3 247 million (EUR 3 197 million for the year ended December 31, 2008) and total com- bined cash and other liquid assets were EUR 8 873 mil- lion (EUR 6 820 million). As of December 31, 2009, our net debt-to-equity ratio (gearing) was – 25 % (– 14 % as of December 31, 2008). In 2009, capital expenditure amounted to EUR 531 million (EUR 889 million). The key financial data, including the calculation of key ratios, for the years 2009, 2008 and 2007 are available in the Annual Accounts. * On July 10, 2008, Nokia completed the acquisition of NAVTEQ Corporation. NAVTEQ is a separate reportable segment of Nokia starting from the third quarter 2008. Accordingly, the results of NAVTEQ are not available for the prior periods. Accordingly, the results of NAVTEQ for the full year 2009 are not directly comparable to the results for the full year 2008. Main events in 2009 Nokia Group » Nokia formed Solutions, a new unit responsible for driving Nokia’s offering of solutions, with the aim of integrating the mobile device, services and content into a unique and compelling offering for the consumer. The unit formally started operating on October 1, 2009. » Nokia announced changes to its Group Executive Board, with Robert Andersson leaving Nokia’s Group Executive Board as of September 30, 2009 in connection with his transfer to new duties in Nokia’s Corporate Development unit; Alberto Torres joining Nokia’s Group Executive Board as of October 1, 2009 in connection with his appointment as head of the Solutions unit, and; Simon Beresford-Wylie leaving the Group Execu- tive Board on September 30, 2009 after stepping down as Chief Executive Officer of Nokia Siemens Networks. » Nokia announced that Rajeev Suri was appointed as Chief Executive Officer of Nokia Siemens Net- works as of October 1, 2009. » Nokia continued to take action to adjust its business operations and cost base in accordance with market demand as well as seek savings in operational expenses, looking at all areas and activities across Devices & Services and global support functions. Actions included the closure of certain Nokia facilities, the streamlining of Nokia’s research and development organization, temporary lay-offs in production, and measures to increase efficiency in certain global support functions. » Nokia was named as the world’s most sustainable technology company according to the 2009–2010 edition of the Dow Jones Sustainability Indexes. Devices & Services » Nokia strengthened its portfolio of Mobile Phones with new models such as the: Nokia 2323 clas- sic, an affordable mobile device offering an FM radio with recording and an Internet browser; Nokia 2330 classic, an affordable mobile device equipped with an integrated camera; Nokia 3720 classic, a rugged handset designed to resist water, dust and shock; Nokia 5130 XpressMusic, an affordable handset optimized for music; Nokia 6303 classic, featuring a 3.2 megapixel camera, an Internet browser and long battery life; Nokia 6700 classic, equipped with a 5 megapixel camera, assisted GPS navigation, and high speed data access and Nokia X3, an affordable music device with stereo speakers, built-in FM radio and a 3.2 megapixel camera. 3 Review by the Board of Directors » To create additional value for users of our Mobile Phones, Nokia also developed its offering of ser- vices designed to be accessed with them: In India and Indonesia, Nokia launched Nokia Life Tools, through which consumers can access timely and relevant agricultural information, as well as education and entertainment services, without requiring the use of GPRS or Internet connectivity; Nokia also continued to expand Ovi Mail, a free email service designed especially for users in emerging markets with Internet-enabled devices. » Nokia introduced Nokia Money, a new mobile financial service. The service is to be rolled out gradually to selected markets and will be operated in cooperation with Obopay, a leading developer of mobile payment solutions in which Nokia invested. » Nokia strengthened its portfolio of Smartphones with new models such as the: Nokia N97, featur- ing a tilting 3.5” touch display with a full QWERTY keyboard, a 5 megapixel camera, integrated AGPS sensors and an electronic compass, and 32 GB of onboard memory; Nokia N97 mini, a smaller companion to the Nokia N97, featuring a tilting 3.2” touch display and a fully customizable homescreen; Nokia 5230, an affordable touch smartphone that, in select markets, is available with Comes With Music; Nokia E72, a device designed especially for business use and messag- ing, featuring the latest consumer and corporate email solutions and simple Instant Messaging setup; Nokia E75, featuring a slide out QWERTY keyboard, 3.2 megapixel camera and assisted GPS and Nokia X6, a powerful, touch entertainment device with 32 GB of onboard memory that, in select markets, is available in combination with Comes With Music. Building on the functionalities of Nokia’s Smart- phones and enhancing their value for consumers, Nokia continued to develop Ovi, the Internet services brand under which it has integrated many of its individual services to simplify the user experience and differentiate it from com- petitors. For example, Nokia launched Ovi Store, a one-stop shop for applications and content for millions of Nokia device users, and made avail- able the Ovi SDK (software development kit), the Ovi Maps Player API (application programming in- terface) and the Ovi Navigation API, enabling the creation of sophisticated applications for the web as well as the Symbian and Maemo platforms. » » Nokia continued to develop Ovi Maps, a service that gives consumers access to mapping and, for those with GPSenabled Nokia mobile devices, navigation. Ovi Maps utilizes NAVTEQ’s digital maps database and is evolving from a static map to a dynamic platform upon which users can add their own content and access location-based services as well as content placed on the map by third parties, such as Lonely Planet, Michelin and 4 Nokia in 2009 WCities. During January 2010, Nokia introduced a new version of Ovi Maps for its selected smart- phones that includes navigation at no extra cost for consumers available for download on Nokia’s web site. This new version of Ovi Maps includes high-end car and pedestrian navigation features, such as turn-by-turn voice guidance for 74 coun- tries, in 46 languages, and traffic information for more than 10 countries, as well as detailed maps for more than 180 countries. » Nokia launched in Russia Ovi Music, represent- ing the first step to bring Nokia Music Store–our chain of digital music stores–into the Ovi stable of services. During 2010, we plan to migrate our existing Nokia Music Stores in different countries to Ovi Music, bringing a number of benefits such as a single account and a sleek and simple Ovi look and feel and other user experience improve- ments. The Ovi Music catalog has more than 9 million tracks available for download. NAVTEQ » NAVTEQ announced the availability of Motorway Junction Objects, which enables navigation systems to display full 3D animation of complex junctions, in Australia, Europe and North America with coverage of over 8 000 locations. » NAVTEQ announced that NAVTEQ Discover Cities™ reached a global pedestrian navigation milestone of 100 cities. » NAVTEQ announced the availability of NAVTEQ LocationPoint™, a location-based advertising service for mobile applications, in several Euro- pean countries, as well as agreements with AAA, Loopt and Nextar in North America to utilize the offering. » NAVTEQ launched real time traffic in 11 European countries and expanded NAVTEQ Traffic Patterns™ to 9 European countries. » Nokia commenced shipments of the Nokia » NAVTEQ launched maps in Chile, Venezuela, Ice- N900, a handset that delivers computer-grade performance in a compact QWERTY and touch form factor. The Nokia N900 runs on Maemo, a desktop PC-like software architecture based on the open source Linux software, and which Nokia is continuing to develop. » Nokia commenced shipments of the Nokia Book- let 3G, a new Windows 7-based mini-laptop, built for all-day mobility and connectivity. Encased in an ultra-portable aluminum chassis, the Nokia Booklet 3G runs for up to 12 hours on a single charge and has a broad range of connectivity options. » Nokia continued to partner with third party companies, operators, developers and content providers in areas that it believes could positively differentiate its Smartphones, as well as other Nokia mobile devices, from those offered by competitors. For example, partnering with opera- tors, Nokia continued to grow Nokia Messaging, its push email and instant messaging service. Nokia also continued to work together with the music industry to expand Nokia Music Store, its digital music store, and Comes With Music, its ‘all-you-can-eat’ music offering. Additionally, Nokia formed a global alliance with Microsoft to design and market a suite of productivity applica- tions for Nokia’s Smartphones, and commenced a partnership with Intel Corporation to develop a new class of Intel® Architecture-based mobile computing device and chipset architectures that will combine the performance of powerful computers with high-bandwidth mobile broad- band communications and ubiquitous Internet connectivity. Nokia also launched Ovi lifecasting, an application developed together with Facebook that enables people to publish their location and status updates directly to their Facebook account from the home screen of a mobile device. land and Croatia, along with a significant increase in major city coverage in its India map to now encompass 84 cities. » NAVTEQ announced that it signed an agreement with Samsung Electronics providing access to all countries in the NAVTEQ database as well as NAVTEQ’s Visual Content, Speed Limits, Extended Lanes and NAVTEQ Discover Cities™. » NAVTEQ announced a global technology agree- ment with Microsoft to allow the rapid deploy- ment of innovative collection capabilities, as well as accelerating the collection, creation and storage of 3D map data and visuals. » NAVTEQ announced the integration of Nokia GPS data for availability in NAVTEQ traffic products in North America and Europe. Nokia Siemens Networks » Nokia Siemens Networks won 29 new 3G contracts during 2009, confirming its industry- leading position in wireless broadband. The company secured key deals across the globe including contracts with: Softbank in Japan; Tele- nor in Denmark and Sweden; Megafon in Russia; Hutchison Telecom in Hong Kong; China Unicom and China Mobile; Nuevatel in Bolivia; and Viettel and Vinaphone in Vietnam. » Nokia Siemens Networks took significant steps forward in LTE, making the world’s first LTE call and handover on commercial software and started LTE interoperability tests with 4 leading device vendors. Nokia Siemens Networks had by year end 2009 shipped capable LTE hardware to close to all its 3G customers, demonstrating readiness to support operators all over the world in the first commercial deployments of LTE.  » Nokia Siemens Networks was selected to provide » LTE networks for Zain Bahrain and Telenor Denmark, taking commercial LTE references to six, including a deal with Verizon, the United States operator, which selected Nokia Siemens Networks as a supplier of its IP Multi-Media Subsystem (IMS) network, which will enable rich multimedia appli- cations across its networks. » Nokia Siemens Networks signed 37 new Managed Services contracts in 2009, breaking into new geographic markets across the world with land- mark agreements that included contracts with Orange in the United Kingdom and Spain, Oi in Brazil, Zain in Nigeria and East Africa and Unitech in India. » Nokia Siemens Networks extended its global services delivery capability with the inauguration of a Global Networks Solutions Centre in Noida, India. » Nokia Siemens Networks announced a number of technological advances including the launch of the Flexi Multiradio base station which allows GSM/EDGE, WCDMA/HSPA/HSPA+ and LTE standards to run concurrently in a single unit, and the Evolved Packet Core for LTE that will enable operators to efficiently offer a full range of data, voice, and high-quality and real-time multimedia services over different wireless standards using the same open platform in the core network. » Nokia Siemens Networks also launched new solutions including FlexiPacket Microwave, a next generation full packet microwave solution which combines Carrier Ethernet Transport with Microwave Radio, and charge@once unified and business solutions that allow operators to combine charging and billing. » Nokia Siemens Networks announced a reorgani- zation of its business structure to align it better to customer needs. At the same time, Nokia Siemens Networks announced a plan to improve its financial performance, which include targeted reductions of annualized operating expenses and production overheads of EUR 500 million by the end of 2011, compared to the end of 2009, on a non-IFRS basis. As part of that effort, the company is conducting a global personnel review which may lead to headcount reductions in the range of about 7 % to 9 % of its approximately 64 000 employees. Acquisitions and divestments in 2009 » In December 2009, Nokia and New Alliance, an in- vestment company which is part of the Shanghai Alliance Investment Ltd, announced plans to form a 50-50 joint venture company to offer a range of mobile services in China and support the local developer ecosystem. In December 2009, Nokia sold its minority hold- ing in Venyon, a leading trusted service manager on the mobile near field communication (NFC) market, to Giesecke & Devrient. In October, 2009, Nokia completed the sale of Symbian Professional Services to Accenture. In October 2009, Nokia Siemens Networks and Juniper Networks formed a joint venture offering a Carrier Ethernet solution for mobile backhaul, business and residential broadband networks. The joint venture company is 60 % owned by Juniper Networks and 40 % by Nokia Siemens Networks. In September 2009, Nokia acquired Dopplr, a mo- bile service provider for international travelers. In September 2009, NAVTEQ acquired Acuity Mobile, whose leading mobile location-based advertising delivery platform enables NAVTEQ to continue to differentiate its interactive advertis- ing capabilities. In September 2009, Nokia acquired certain assets of Plum Ventures, a company that develops and operates a cloud-based social media sharing and messaging service for private groups. In August 2009, Nokia acquired cellity, a mobile software company that has developed a solution for aggregating address book data. In April 2009, Nokia sold its security appliance business to Check Point Software Technologies. In February 2009, Nokia acquired bit-side, a professional services and software company. In January 2009, NAVTEQ acquired T-Traffic Systems, a leading provider of traffic services in Germany. » » » » » » » » » Personnel The average number of employees for 2009 was 123 171, (121 723 for 2008 and 100 534 for 2007). At December 31, 2009, Nokia employed a total of 123 553 people (125 829 at December 31, 2008, and 112 262 at December 31, 2007). The total amount of wages and salaries paid in 2009 was EUR 5 658 million (EUR 5 615 million in 2008 and EUR 4 664 million in 2007). Management and Board of Directors Board of Directors, Group Executive Board and President Pursuant to the Articles of Association, Nokia Corpora- tion has a Board of Directors composed of a minimum of 7 and a maximum of 12 members. The members of the Board are elected for a term of one year at each Annual General Meeting, i.e. as from the close of that Annual General Meeting until the close of the Review by the Board of Directors following Annual General Meeting, which convenes each year by June 30. A general meeting may also dismiss a member of the Board of Directors. The Board has the responsibility for appointing and discharging the Chief Executive Officer, the Chief Financial Officer and the other members of the Group Executive Board. The Chief Executive Officer, who is separated from Chairman, also acts as President and his rights and responsibilities include those allotted to the President under Finnish law. The current members of the Board of Directors were elected at the Annual General Meeting on April 23, 2009. On December 31, 2009, the Board consisted of the following members: Jorma Ollila (Chair), Marjorie Scardino (Vice Chair), Georg Ehrnrooth, Lalita D. Gupte, Bengt Holmström, Henning Kagermann, Per Karlsson, Olli-Pekka Kallasvuo, Isabel Marey-Semper, Risto Siilasmaa and Keijo Suila. Information on shares and stock options held by the members of the Board of Directors and the President and CEO as well as the other members of the Group Executive Board are available in the Annual Accounts. For more information regarding Corporate Governance, please see the Corporate Governance Statement in the Additional information section of this document or at Nokia’s website, www.nokia.com. Changes in the Group Executive Board Alberto Torres, Executive Vice President, Head of Solution Unit, was appointed as a member of the Group Executive Board as from October 1, 2009. Robert Andersson and Simon Beresford-Wylie left the Group Executive Board as from September 30, 2009. Service contracts Olli Pekka Kallasvuo’s service contract covers his current position as President and CEO and Chairman of the Group Executive Board. As at December 31, 2009, Mr. Kallasvuo’s annual total gross base salary, which is subject to an annual review by the Board of Directors and confirmation by the independent members of the Board, is EUR 1 176 000. His incentive targets under the Nokia short-term cash incentive plan are 150 % of the annual gross base salary. In case of termination by Nokia for reasons other than cause, including a change of control, Mr. Kallasvuo is entitled to a severance payment of up to 18 months of compensation (both the annual total gross base salary and target incentive). In case of termination by Mr. Kallasvuo, the notice period is six months and he is entitled to a payment for such notice period (both annual total gross base salary and target incentive for six months). Mr. Kallasvuo is subject to a 12-month non-competition obligation after termination of the contract. Unless the contract is terminated for cause, Mr. Kallasvuo may be entitled to compensation dur- ing the non-competition period or a part of it. Such compensation amounts to the annual total gross base salary and target incentive for the respective period during which no severance payment is paid. 5  Review by the Board of Directors Provisions on the amendment of articles of association Industry and Nokia outlook for full year 2010 Amendment of the Articles of Association requires a decision of the general meeting, supported by two-thirds of the votes cast and two-thirds of the shares represented at the meeting. Amendment of the provisions of Article 13 of the articles of association requires a resolution supported by three-quarters of the votes cast and three-quarters of the shares represented at the meeting. Shares and share capital Nokia has one class of shares. Each Nokia share entitles the holder to one vote at general meetings of Nokia. In 2009, Nokia issued 7 500 new shares upon exercise of stock options issued to personnel in 2004. Effective March 25, 2009, a total of 56 million shares held by the company were cancelled.The issuance of new shares and cancellation of shares did not impact the amount of share capital of the company. Neither the issuance of shares nor the cancellation of shares had any significant effect on the relative holdings of the other shareholders of the company nor on their voting power. In 2009, Nokia did not repurchase any shares. In 2009, Nokia transferred a total of 10 351 876 Nokia shares held by it under Nokia equity plans as settlement under the plans to the Plan participants, personnel of Nokia Group. The amount of shares transferred represented approximately 0.2 % of the total number of shares and the total voting rights. The transfers did not have a significant effect on the relative holdings of the other shareholders of the company nor on their voting power. On December 31, 2009, Nokia and its subsidiary companies owned 36 693 564 Nokia shares. The shares represented approximately 1.0 % of the total number of the shares of the company and the total voting rights. The total number of shares at December 31, 2009, was 3 744 956 052. On December 31, 2009, Nokia’s share capital was EUR 245 896 461.96. Information on the authorizations held by the Board in 2009 to issue shares and special rights enti- tling to shares, transfer shares and repurchase own shares as well as information on the shareholders, stock options, shareholders’ equity per share, divi- dend yield, price per earnings ratio, share prices, mar- ket capitalization, share turnover and average number of shares may be found in the Annual Accounts. 6 Nokia in 2009 » Nokia expects industry mobile device volumes to be up approximately 10 % in 2010, compared to 2009, based on the industry mobile device market definition applied by Nokia beginning in 2010. » » Nokia targets its mobile device volume market share to be flat in 2010, compared to 2009, based on the industry mobile device market definition applied by Nokia beginning in 2010. » Nokia targets to increase its mobile device value market share slightly in 2010, compared to 2009, based on the industry mobile device market definition applied by Nokia beginning in 2010. » Nokia and Nokia Siemens Networks expect a flat market in euro terms for the mobile and fixed in- frastructure and related services market in 2010, compared to 2009. » Nokia and Nokia Siemens Networks target Nokia Siemens Networks to grow faster than the market in 2010, compared to 2009. Risk factors Set forth below is a description of risk factors that could affect Nokia. There may be, however, additional risks unknown to Nokia and other risks currently believed to be immaterial that could turn out to be material. These risks, either individually or together, could adversely affect our business, sales, results of operations, financial condition and share price from time to time. » We need to have a competitive portfolio of high quality products and services and their combina- tion that are preferred, purchased and used by our current and potential customers and consum- ers. If we fail to achieve or maintain a competi- tive portfolio, our business, sales and results of operations may be materially adversely affected. » Our sales and profitability have been, and continue to be, driven to significant extent by our success in the traditional mobile device market. Increasingly, however, our sales and profitability depend on our success in the market for con- verged mobile devices. Our failure to effectively, timely and profitably adapt our business and operations to the developing requirements of the converged mobile device market could have a material adverse effect on our business, results of operations, particularly our profitability, and our financial condition. » Competition in the various markets where we do business–traditional mobile devices, converged mobile devices, digital map data and related location-based content, and mobile and fixed network infrastructure and related services–is intense. Our failure to maintain or improve our market position or respond successfully to changes in the competitive environment in those markets may have a material adverse effect on our business, sales and results of operations. Any actual or even alleged defects or other qual- ity, safety and security issues in our products and services and their combinations, including but not limited to the hardware, software and con- tent used in our products, or any loss, improper disclosure or leakage of any personal or consumer data collected by us, made available to us or stored in or through our products and services, could materially adversely affect our sales, results of operations, reputation and the value of the Nokia brand. » We are a global company and have sales in most countries of the world and, consequently, our sales and profitability are dependent on the development of the mobile and fixed communi- cations industry in numerous diverse markets, as well as on general economic conditions globally and regionally. » Our business and results of operations, particu- larly our profitability, may be materially adversely affected if we are not able to successfully manage costs related to our products and services and their combinations, and to our operations. » Our net sales, costs and results of operations, as well as the US dollar value of our dividends and market price of our ADSs, are affected by exchange rate fluctuations, particularly between the euro, which is our reporting currency, and the US dollar, the Japanese yen and the Chinese yuan, as well as certain other currencies. » We depend on a limited number of suppliers for the timely delivery of sufficient quantities of fully functional components, sub-assemblies, software, applications and content and for their compliance with our supplier requirements, such as our own and our customers’ and consum- ers’ product quality, safety, security and other standards. Their failure to deliver or meet those requirements could materially adversely affect our ability to deliver our products and services and their combinations successfully and on time. » We are developing new technologies, products and services, including applications and content, in collaboration with other companies. We believe that success in the converged mobile device mar- ket in particular requires such collaboration and partnering. If any of those companies were to fail to perform as planned or if we fail to achieve the collaboration or partnering arrangements needed to succeed, we may not be able to bring our prod- ucts and services to market successfully or in a timely way and this could have a material adverse effect on our sales and results of operations.  » Our sales and results of operations could be ma- terially adversely affected if we fail to efficiently manage our manufacturing, service creation and delivery as well as logistics without interruption or make timely and appropriate adjustments, or fail to ensure that our products and services, meet our and our customers’ and consumers’ requirements and are delivered on time and in sufficient volumes. » » » Our products and services and their combination include increasingly complex technologies, some of which have been developed by us or licensed to us by certain third parties. As a consequence, evaluating the rights related to the technologies we use or intend to use is more and more chal- lenging, and we expect increasingly to face claims that we have infringed third parties’ intellectual property rights. The use of these technologies may also result in increased licensing costs for us, restrictions on our ability to use certain technolo- gies in our products and services and/or costly and time-consuming litigation, which could have a material adverse effect on our business, results of operations and financial condition. » Our products and services and their combina- tion include numerous Nokia, NAVTEQ and Nokia Siemens Networks patented, standardized or pro- prietary technologies on which we depend. Third parties may use without a license or unlawfully infringe our intellectual property or commence actions seeking to establish the invalidity of the intellectual property rights of these technologies. This may have a material adverse effect on our business and results of operations. » Our sales derived from, and assets located in, emerging market countries may be materially adversely affected by economic, regulatory and political developments in those countries or by other countries imposing regulations against imports to such countries. As sales from those countries represent a significant portion of our total sales, economic or political turmoil in those countries could materially adversely affect our sales and results of operations. Our investments in emerging market countries may also be subject to other risks and uncertainties. » Changes in various types of regulation and trade policies in countries around the world could have a material adverse effect on our business and results of operations. » Our operations rely on the efficient and uninter- rupted operation of complex and centralized information technology systems and networks. If a system or network inefficiency, malfunction or disruption occurs, this could have a material adverse effect on our business and results of operations. » If we are unable to retain, motivate, develop and recruit appropriately skilled employees, our abil- Review by the Board of Directors undetected additional violations that may have occurred prior to the transfer or violations that may have occurred after the transfer of such assets and employees that could have a material adverse effect on Nokia Siemens Networks and our reputation, business, results of operations and financial condition. Dividend Nokia’s Board of Directors will propose a dividend of EUR 0.40 per share for 2009. ity to implement our strategies may be hampered and, consequently, could have a material adverse effect on our business and results of operations. An unfavorable outcome of litigation could have a material adverse effect on our business, results of operations and financial condition. Allegations of possible health risks from the elec- tromagnetic fields generated by base stations and mobile devices, and the lawsuits and public- ity relating to this matter, regardless of merit, could have a material adverse effect on our sales, results of operations, share price, reputation and brand value by leading consumers to reduce their use of mobile devices, by increasing difficulty in obtaining sites for base stations, or by leading regulatory bodies to set arbitrary use restrictions and exposure limits, or by causing us to allocate additional monetary and personnel resources to these issues. In addition to the risks described above and ap- plicable to whole Nokia Group, the following are risks primarily related to Nokia Siemens Networks that could affect Nokia. » » » » In response to its declined market share and de- teriorated financial performance, Nokia Siemens Networks announced in 2009 a plan to improve its financial performance by reducing operating expenses and other costs and increasing profit- ability. If Nokia Siemens Networks is unable to execute its plan effectively and timely or if the plan fails to achieve the desired results, that may have a material adverse effect on our business, results of operations and financial condition. The networks infrastructure and related services business relies on a limited number of custom- ers and large multi-year contracts. Unfavorable developments under such a contract or in relation to a major customer may have a material adverse effect on our business, results of operations and financial condition. Providing customer financing or extending payment terms to customers can be a competi- tive requirement in the network infrastructure and related services business and may have a material adverse effect on our business, results of operations and financial condition. Some of the Siemens carrier-related operations transferred to Nokia Siemens Networks have been and continue to be the subject of various criminal and other governmental investigations related to whether certain transactions and payments arranged by some former employees of Siemens were unlawful. As a result of those investigations, government authorities and others have taken and may take further actions against Siemens and/or its employees that may involve and affect the assets and employees transferred by Siemens to Nokia Siemens Networks, or there may be 7 Nokia Corporation and Subsidiaries Consolidated income statements, IFRS Financial year ended December 31 Notes Net sales Cost of sales Gross profit Research and development expenses Selling and marketing expenses Administrative and general expenses Impairment of goodwill Other income Other expenses Operating profit Share of results of associated companies Financial income and expenses Profit before tax Tax Profit 7 6 6, 7 2–9, 23 14, 30 10 11 Profit attributable to equity holders of the parent Loss attributable to minority interests Earnings per share (for profit attributable to the equity holders of the parent) 27 Basic Diluted 2009 EURm 40 984 – 27 720 13 264 – 5 909 – 3 933 – 1 145 – 908 338 – 510 1 197 30 – 265 962 – 702 2008 EURm 50 710 – 33 337 17 373 – 5 968 – 4 380 – 1 284 — 420 – 1 195 4 966 6 – 2 4 970 – 1 081 2007 EURm 51 058 – 33 781 17 277 – 5 636 – 4 379 – 1 165 — 2 312 – 424 7 985 44 239 8 268 – 1 522 260 3 889 6 746 891 – 631 260 2009 EUR 0.24 0.24 3 988 – 99 3 889 2008 EUR 1.07 1.05 7 205 – 459 6 746 2007 EUR 1.85 1.83 Average number of shares (1 000’s shares) 27 2009 2008 2007 Basic Diluted 3 705 116 3 721 072 3 743 622 3 780 363 3 885 408 3 932 008 See Notes to consolidated financial statements. 8 Nokia in 2009 Nokia Corporation and Subsidiaries Consolidated statements of comprehensive income, IFRS Financial year ended December 31 Notes Profit Other comprehensive income Translation differences Net investment hedge gains (+)/losses (–) Cash flow hedges Available-for-sale investments Other increase (+)/decrease (–), net Income tax related to components of other comprehensive income 21 21 20 20 20, 21 Other comprehensive income (+)/expense (–), net of tax 2009 EURm 260 – 563 114 25 48 – 7 – 44 –427 2008 EURm 3 889 595 – 123 – 40 – 15 28 58 503 2007 EURm 6 746 – 151 51 – 7 49 – 46 – 12 – 116 Total comprehensive income (+)/expense (–) –167 4 392 6 630 Total comprehensive income (+)/expense (–) attributable to equity holders of the parent minority interests See Notes to consolidated financial statements. 429 – 596 –167 4 577 – 185 4 392 7 073 – 443 6 630 9 Nokia Corporation and Subsidiaries Consolidated statements of financial position, IFRS December 31 ASSETS 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 (2009: EUR 391 million, 2008: EUR 415 million) Prepaid expenses and accrued income Current portion of long-term loans receivable Other financial assets Investments at fair value through profit and loss, liquid assets Available-for-sale investments, liquid assets Available-for-sale investments, cash equivalents Bank and cash Total assets SHAREHOLDERS’ EQUITY AND LIABILITIES Capital and reserves attributable to equity holders of the parent Share capital Share issue premium Treasury shares, at cost Translation differences Fair value and other reserves Reserve for invested non-restricted equity Retained earnings Minority interests Total equity Non-current liabilities Long-term interest-bearing liabilities Deferred tax liabilities Other long-term liabilities Current liabilities Current portion of long-term loans Short-term borrowings Other financial liabilities Accounts payable Accrued expenses Provisions Total shareholders’ equity and liabilities See Notes to consolidated financial statements. Notes 12 12 12 13 14 15 24 15, 33 15 17, 19 15, 19, 33 18 15, 33 15, 16, 33 15, 33 15, 33 15, 33 33 22 21 20 15, 33 24 15, 33 15, 33 15, 16, 33 15, 33 25 26 2009 EURm 143 5 171 2 762 1 867 69 554 1 507 46 6 2008 EURm 244 6 257 3 913 2 090 96 512 1 963 27 10 12 125 15 112 1 865 7 981 4 551 14 329 580 2 367 4 784 1 142 23 613 35 738 246 279 –681 –127 69 3 170 10 132 13 088 1 661 14 749 4 432 1 303 66 5 801 44 727 245 4 950 6 504 2 718 15 188 35 738 2 533 9 444 4 538 101 1 034 — 1 272 3 842 1 706 24 470 39 582 246 442 –1 881 341 62 3 306 11 692 14 208 2 302 16 510 861 1 787 69 2 717 13 3 578 924 5 225 7 023 3 592 20 355 39 582 10 Nokia in 2009 Nokia Corporation and Subsidiaries Consolidated statements of cash flows, IFRS Financial year ended December 31 Notes Cash flow from operating activities Profit attributable to equity holders of the parent Adjustments, total Change in net working capital Cash generated from operations Interest received Interest paid 31 31 Other financial income and expenses, net received Income taxes paid, net received Net cash from operating activities Cash flow from investing activities Acquisition of Group companies, net of acquired cash Purchase of current available-for-sale investments, liquid assets 2009 EURm 891 3 390 140 4 421 125 – 256 – 128 – 915 3 247 – 29 – 2 800 Purchase of investments at fair value through profit and loss, liquid assets – 695 – 95 – 30 – 27 — — 2 2 – 531 40 61 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 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 associated companies Proceeds from disposal of businesses Proceeds from maturities and sale of current available-for-sale investments, liquid assets Proceeds from maturities and sale of investments at fair value through profit and loss, liquid assets Proceeds from sale of non-current available-for-sale investments Proceeds from sale of fixed assets Dividends received Net cash used in investing activities Cash flow from financing activities Proceeds from stock option exercises Purchase of treasury shares Proceeds from long-term borrowings Repayment of long-term borrowings Proceeds from (+) /repayment of (-) short-term borrowings Dividends paid Net cash used in financing activities Foreign exchange adjustment Net increase (+) /decrease (–) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Cash and cash equivalents comprise of: Bank and cash Current available-for-sale investments, cash equivalents 15, 33 2008 EURm 3 988 3 024 – 2 546 4 466 416 – 155 250 – 1 780 3 197 – 5 962 – 669 — – 121 – 24 – 131 — 129 – 1 – 15 – 889 3 41 2007 EURm 7 205 1 159 605 8 969 362 – 59 67 – 1 457 7 882 253 – 4 798 — – 126 – 25 – 157 – 261 163 5 – 119 – 715 6 — 1 730 4 664 4 930 108 14 100 2 — 10 54 6 — 50 72 12 – 2 148 – 2 905 – 710 — — 3 901 – 209 – 2 842 – 1 546 – 696 – 25 378 5 548 5 926 1 142 4 784 5 926 53 – 3 121 714 – 34 2 891 – 2 048 – 1 545 – 49 – 1 302 6 850 5 548 1 706 3 842 5 548 987 – 3 819 115 – 16 661 – 1 760 – 3 832 – 15 3 325 3 525 6 850 2 125 4 725 6 850 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. See Notes to consolidated financial statements. 11 Nokia Corporation and Subsidiaries Consolidated statements of changes in shareholders’ equity, IFRS EURm shares (1 000’s) capital premium shares differences Number of Share Share issue Treasury Reserve for invested Fair value Translation and other non-restricted reserves Before equity earnings Retained minority Minority interests interests Total –34 –167 38 –14 — 11 123 11 968 92 12 060 –167 16 –151 Balance at December 31, 2006 3 965 730 246 2 707 –2 060 Translation differences Net investment hedge gains, net of tax Cash flow hedges, net of tax Available-for-sale investments, net of tax Other decrease, net Profit Total comprehensive income — Stock options exercised 57 269 Stock options exercised related to acquisitions Share-based compensation Excess tax benefit on share-based compensation Settlement of performance shares Acquisition of treasury shares Reissuance of treasury shares Cancellation of treasury shares 3 138 –180 590 403 — 46 –3 228 128 –104 Share premium reduction and transfer –2 358 –11 48 — –129 37 58 –3 884 7 2 733 Dividend Minority interest on formation of Nokia Siemens Networks Total of other equity movements — –2 063 –1 086 — Balance at December 31, 2007 3 845 950 246 644 –3 146 –163 Translation differences Net investment hedge gains, net of tax Cash flow hedges, net of tax Available-for-sale investments, net of tax Other increase, net Profit 595 –91 — 23 42 –3 Total comprehensive income — — — 504 39 3 547 5 622 –157 390 143 Stock options exercised Stock options exercised related to acquisitions Share-based compensation Excess tax benefit on share-based compensation Settlement of performance and restricted shares Acquisition of treasury shares Reissuance of treasury shares Cancellation of treasury shares Dividend Acquisitions and other change in minority interests Vested portion of share-based payment awards related to acquisitions Acquisition of Symbian 1 74 –117 –179 154 –44 –3 123 2 4 232 19 Total of other equity movements — –202 1 265 Balance at December 31, 2008 3 697 872 246 442 –1 881 — 341 — 62 12 Nokia in 2009 38 –11 48 –40 7 205 7 073 978 –3 228 128 –37 6 38 –5 48 –6 –46 –459 6 746 –443 6 630 978 –3 228 128 –37 –40 7 205 7 165 — 932 9 –3 884 –3 884 –2 733 2 358 7 — — 7 — — –1 685 –1 685 –75 –1 760 — 2 991 2 991 3 299 –4 418 –4 268 2 916 –1 352 3 299 13 870 14 773 2 565 17 338 46 3 988 4 034 — 51 595 –91 42 –3 46 3 988 4 577 51 1 74 595 –91 –25 –5 29 3 889 –67 –2 –17 –99 –185 4 392 51 1 74 –117 –6 –124 –69 –3 123 2 — –69 –3 123 2 — –4 232 –1 992 –1 992 –35 –2 027 –37 –37 12 19 12 19 12 7 –6 212 –5 142 –78 –5 220 3 306 11 692 14 208 2 302 16 510 Nokia Corporation and Subsidiaries Consolidated statements of changes in shareholders’ equity, IFRS (continued) EURm shares (1 000’s) capital premium shares differences Number of Share Share issue Treasury Reserve for invested Fair value Translation and other non-restricted reserves Before equity earnings Retained minority Minority interests interests Total Balance at December 31, 2008 3 697 872 246 442 –1 881 62 3 306 11 692 14 208 2 302 16 510 Translation differences Net investment hedge gains, net of tax Cash flow hedges, net of tax Available-for-sale investments, net of tax Other decrease, net Profit Total comprehensive income Stock options exercised Stock options exercised related to acquisitions Share-based compensation Excess tax benefit on share-based compensation Settlement of performance and restricted shares Acquisition of treasury shares 341 – 552 84 – 35 42 — — — –468 7 7 – 1 891 890 — — – 1 16 – 12 10 352 – 166 230 – 136 – 552 – 9 – 561 84 – 35 42 – 1 891 429 – 1 16 84 14 44 – 8 49 2 – 7 -631 –596 260 –167 — – 1 16 – 12 – 1 – 13 Reissuance of treasury shares 31 Cancellation of treasury shares Dividend 1 969 Total of other equity movements — –163 1 200 — Balance at December 31, 2009 3 708 262 246 279 –681 –127 Dividends declared per share were EUR 0.40 for 2009 (EUR 0.40 for 2008 and EUR 0.53 for 2007), subject to shareholders’ approval. – 72 — 1 — – 969 – 72 — 1 — – 1 481 – 1 481 – 44 – 1 525 –136 –2 450 –1 549 –45 –1 594 3 170 10 132 13 088 1 661 14 749 — 69 13 Notes to the consolidated financial statements 1. Accounting principles » Amendment to IAS 23, Borrowing costs, changes the treatment of borrowing costs that are directly attributable to an acquisition, construction or production of a qualifying asset. These costs will consequently form part of the cost of that asset. Other borrowing costs are recognized as an expense. » Under the amended IAS 32, Financial instru- ments: Presentation, the Group must classify puttable financial instruments or instruments or components thereof that impose an obligation to deliver to another party, a pro-rata share of net assets of the entity only on liquidation, as equity. Previously, these instruments would have been classified as financial liabilities. Amendments to IFRIC 9 and IAS 39 clarify the accounting treatment of embedded derivatives when reclassifying financial instruments. IFRIC 13, Customer Loyalty Programs addresses the accounting surrounding customer loyalty pro- grams and whether some consideration should be allocated to free goods or services provided by a company. Consideration should be allocated to award credits based on their fair value, as they are a separately identifiable component. IFRIC 15, Agreements for the Construction of Real Estate helps entities determine whether a particular construction agreement is within the scope of IAS 11, Construction Contracts or IAS 18, Revenue. At issue is whether such an agreement constitutes a construction contract under IAS 11. If so, an entity should use the percentage-of- completion method to recognize revenue. If not, the entity should account for the agreement under IAS 18, which requires that revenue be recognized upon delivery of a good or service. IFRIC 16, Hedges of a Net Investment in a Foreign Operation clarifies the accounting treatment in respect of net investment hedging. This includes the fact that net investment hedging relates to differences in functional currency not presenta- tion currency, and hedging instruments may be held anywhere in the group. IFRIC 18, Transfers of Assets from Customers clari- fies the requirements for agreements in which an entity receives an item of property, plant and equipment or cash it is required to use to con- struct or acquire an item of property, plant and equipment that must be used to provide access to a supply of goods or services. » » » » » » In addition, a number of other amendments that form part of the IASB’s annual improvement project were adopted by the Group. The adoption of each of the above mentioned stan- dards did not have a material impact to the consoli- dated financial statements. Principles of consolidation The consolidated financial statements include the accounts of Nokia’s parent company (“Parent Company”), and each of those companies over which the Group exercises control. Control over an entity is presumed to exist when the Group owns, directly or indirectly through subsidiaries, over 50% of the voting rights of the entity, the Group has the power to govern the operating and financial policies of the entity through agreement or the Group has the power to appoint or remove the majority of the members of the board of the entity. The Group’s share of profits and losses of as- sociated companies is included in the consolidated income statement in accordance with the equity method of accounting. An associated company is an entity over which the Group exercises significant influence. Significant influence is generally presumed to exist when the Group owns, directly or indirectly through subsidiaries, over 20% of the voting rights of the company. All inter-company transactions are eliminated as part of the consolidation process. Minority interests are presented separately as a component of net profit and they are shown as a component of sharehold- ers’ equity in the consolidated statement of financial position. 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 depreciation 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. Business combinations The purchase method of accounting is used to account for acquisitions of separate entities or businesses by the Group. The cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, equity instru- ments issued and costs directly attributable to the ac- quisition. Identifiable assets, liabilities and contingent liabilities acquired or assumed by the Group are mea- sured separately at their fair value as of the acquisition date. The excess of the cost of the acquisition over the Group’s interest in the fair value of the identifiable net assets acquired is recorded as goodwill. Assessment of the recoverability of long-lived and intangible assets and goodwill For the purposes of impairment testing, goodwill is al- located to cash-generating units that are expected to Basis of presentation The consolidated financial statements of Nokia Corporation (“Nokia” or “the Group”), a Finnish public limited liability company with domicile in Helsinki, in the Republic of Finland, are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”) and in conformity with IFRS as adopted by the European Union (“IFRS”). The consolidated financial statements are presented in millions of euros (“EURm”), except as noted, and are prepared under the historical cost convention, except as disclosed in the accounting policies below. The notes to the con- solidated financial statements also conform to Finnish Accounting legislation. On March 11, 2010, Nokia’s Board of Directors authorized the financial statements for 2009 for issuance and filing. The Group completed the acquisition of all of the outstanding equity of NAVTEQ on July 10, 2008 and a transaction to form Nokia Siemens Networks on April 1, 2007. The NAVTEQ and the Nokia Siemens Networks business combinations have had a material impact on the consolidated financial statements and associated notes. See Note 8. Adoption of pronouncements under IFRS In the current year, the Group has adopted all of the new and revised standards, amendments and interpre- tations to existing standards issued by the IASB that are relevant to its operations and effective for account- ing periods commencing on or after January 1, 2009. » » » » IAS 1 (revised), Presentation of financial state- ments, prompts entities to aggregate information in the financial statements on the basis of shared characteristics. All non-owner changes in equity (i.e. comprehensive income) should be presented either in one statement of comprehensive income or in a separate income statement and statement of comprehensive income. Amendments to IFRS 7 require entities to provide additional disclosures about the fair value mea- surements. The amendments clarify the existing requirements for the disclosure of liquidity risk. Amendment to IFRS 2, Share-based payment, Group and Treasury Share Transactions, clarifies the definition of different vesting conditions, treatment of all non-vesting conditions and provides further guidance on the accounting treatment of cancellations by parties other than the entity. Amendment to IAS 20, Accounting for government grants and disclosure of government assistance, requires that the benefit of a below-market rate government loan is measured as the difference between the carrying amount in accordance with IAS 39 and the proceeds received, with the benefit accounted for in accordance with IAS 20. 14 Nokia in 2009 benefit from the synergies of the acquisition in which the goodwill arose. The Group assesses the carrying amount of goodwill annually or more frequently if events or changes in circumstances indicate that such carrying amount may not be recoverable. The Group assesses the carrying amount of identifiable intangible assets and long-lived assets if events or changes in circum- stances indicate that such carrying amount may not be recoverable. Factors that trigger an impairment review include underperformance relative to historical or projected future results, significant changes in the manner of the use of the acquired assets or the strat- egy for the overall business and significant negative industry or economic trends. The Group conducts its impairment testing by determining the recoverable amount for the asset or cash-generating unit. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. The recoverable amount is then compared to its carrying amount and an impairment loss is recognized if the recoverable amount is less than the carrying amount. Impairment losses are recognized immediately in the profit and loss account. Foreign currency translation Functional and presentation currency The financial statements of all Group entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). The consolidated financial statements are presented in Euro, which is the functional and presen- tation currency of the Parent Company. 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 assets and liabilities are valued at the rates of ex- change prevailing at the year-end. Foreign exchange gains and losses arising from statement of financial position items, as well as fair value changes in the related hedging instruments, are reported in financial income and expenses. For non-monetary items, such as shares, the unrealized foreign exchange gains and losses are recognized in the other comprehensive income. Foreign Group companies In the consolidated accounts all income and expenses of foreign subsidiaries are translated into Euro at the average foreign exchange rates for the account- ing period. All assets and liabilities of foreign Group companies are translated into Euro at the year-end foreign exchange rates with the exception of goodwill arising on the acquisition of foreign companies prior to the adoption of IAS 21 (revised 2004) on January 1, 2005, which is translated to Euro at historical rates. Differences resulting from the translation of income and expenses at the average rate and assets and liabilities at the closing rate are treated as an adjust- ment affecting consolidated shareholders’ equity. On the disposal of all or part of a foreign Group company by sale, liquidation, repayment of share capital or abandonment, the cumulative amount or proportion- ate share of the translation difference is recognized as income or as expense in the same period in which the gain or loss on disposal is recognized. Revenue recognition Sales from the majority of the Group are recognized when the significant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. The Group records reductions to revenue for special pricing agreements, price protection and other volume based discounts. Service revenue is generally recognized on a straight line basis over the service pe- riod unless there is evidence that some other method better represents the stage of completion. License fees from usage are recognized in the period when they are reliably measurable which is normally when the customer reports them to the Group. The Group enters into transactions involving multiple components consisting of any combination of hardware, services and software. The commercial ef- fect of each separately identifiable component of the transaction is evaluated in order to reflect the sub- stance of the transaction. The consideration received from these transactions is allocated to each separately identifiable component based on the relative fair value of each component. The Group determines the fair value of each component by taking into consider- ation factors such as the price when the component or a similar component is sold separately by the Group or a third party. The consideration allocated to each component is recognized as revenue when the revenue recognition criteria for that component have been met. In addition, sales and cost of sales from contracts involving solutions achieved through modification of complex telecommunications equipment are rec- ognized using the percentage of completion method when the outcome of the contract can be estimated reliably. A contract’s outcome can be estimated reliably when total contract revenue and the costs to complete the contract can be estimated reliably, it is probable that the economic benefits 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 recovered. Progress towards completion is measured by reference to cost incurred to date as a percentage of estimated total project costs, the cost-to-cost method. Notes to the consolidated financial statements The percentage of completion method relies on estimates of total expected 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 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 probable and estimable. 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 generate future economic benefits, and certain criteria, including commercial and technological feasibility, have been met. Capital- ized development costs, comprising direct labor and related overhead, are amortized 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 determined to be in excess of their recoverable amounts are expensed immediately. Other intangible assets Acquired patents, trademarks, licenses, software licenses for internal use, customer relationships and developed technology are capitalized and amortized using the straight-line method over their useful lives, generally 3 to 6 years, but not exceeding 20 years. Where an indication of impairment exists, the carry- ing amount of any intangible asset is assessed and written down to its recoverable amount. Pensions The Group companies have various pension schemes in accordance with the local 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 deter- mined by periodic actuarial calculations. In a defined contribution plan, the Group has no legal or constructive obligation to make any additional contributions if the party receiving the contributions is unable to pay the pension obligations in question. The Group’s contributions to defined 15 Notes to the consolidated financial statements contribution plans, multi-employer and insured plans are recognized in the income statement in the period to which the contributions relate. All arrangements that do not fulfill these conditions are considered defined benefit plans. If a defined benefit plan is funded through an insurance contract where the Group does not retain any legal or constructive obligations, such a plan is treated as a defined contribution plan. For defined benefit plans, pension costs are assessed using the projected unit credit method: The pension cost is recognized in the income statement so as to spread the service cost over the service lives of employees. The pension obligation is measured as the present value of the estimated future cash outflows using interest rates on high quality corporate bonds with appropriate maturities. Actuarial gains and losses outside the corridor are recognized over the average remaining service lives of employees. The corridor is defined as ten percent of the greater of the value of plan assets or defined benefit obligation at the beginning of the respective year. Past service costs are recognized immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortized on a straight-line basis over the vesting period. The liability (or asset) recognized in the statement of financial position is pension obligation at the clos- ing date less the fair value of plan assets, the share of unrecognized actuarial gains and losses, and past service costs. Any net pension asset is limited to unrec- ognized actuarial losses, past service cost, the present value of available refunds from the plan and expected reductions in future contributions to the plan. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is recorded on a straight-line basis over the expected useful lives of the assets as follows: Buildings and constructions 20–33 years Production machinery, measuring and test equipment 1–3 years Other machinery and equipment 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. Leasehold improvements are depreciated over the shorter of the lease term or useful life. Gains and losses on the disposal of fixed assets are included in operating profit/loss. 16 Nokia in 2009 Leases The Group has entered into various operating leases, the payments under which are treated as rentals and recognized in the profit and loss account on a straight-line basis over the lease terms unless another systematic approach is more representative of the pattern of the user’s benefit. 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 FIFO (First- in First-out) basis. Net realizable value is the amount that can be realized 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 over- head is included in the inventory values. An allowance is recorded for excess inventory and obsolescence based on the lower of cost or net realizable value. Financial assets The Group has classified its financial assets as one of the following categories: available-for-sale invest- ments, loans and receivables, financial assets at fair value through profit or loss and bank and cash. Available-for-sale investments The Group classifies the following investments as available-for-sale based on the purpose for acquiring the investments as well as ongoing intentions: (1) highly liquid, interest-bearing investments with ma- turities at acquisition of less than 3 months, which are classified in the balance sheet as current available-for- sale investments, cash equivalents, (2) similar types of investments as in category (1), but with maturities at acquisition of longer than 3 months, classified in the balance sheet as current available-for-sale invest- ments, liquid assets, (3) investments in technology related publicly quoted equity shares, or unlisted private equity shares and unlisted funds, classified in the balance sheet as non-current available-for-sale investments. Current fixed income and money-market invest- ments are fair valued by using quoted market rates, discounted cash flow analyses and other appropriate valuation models at the balance sheet date. Invest- ments in publicly quoted equity shares are measured at fair value using exchange quoted bid prices. Other available-for-sale investments carried at fair value include holdings in unlisted shares. Fair value is estimated by using various factors, including, but not limited to: (1) the current market value of similar instruments, (2) prices established from a recent arm’s length financing transaction of the target companies, (3) analysis of market prospects and operating perfor- mance of the target companies taking into consider- ation the public market of comparable companies in similar industry sectors. The remaining available-for- sale investments are carried at cost less impairment, which are technology related investments in private equity shares and unlisted funds for which the fair value cannot be measured reliably due to non-exis- tence of public markets or reliable valuation methods against which to value these assets. The investment and disposal decisions on these investments are busi- ness driven. 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 fair value changes of available-for-sale investments are recognized in fair value and other reserves as part of shareholders’ equity, with the exception of interest calculated using effective inter- est method and foreign exchange gains and losses on monetary assets, which are recognized directly in profit and loss. Dividends on available-for-sale equity instruments are recognized in profit and loss when the Group’s right to receive payment is established. When the investment is disposed of, the related accumulated fair value changes are released from shareholders’ equity and recognized in the income statement. The weighted average method is used when determining the cost-basis of publicly listed equities being disposed of. FIFO (First-in First-out) method is used to determine the cost basis of fixed income securities being disposed of. An impairment is recorded when the carrying amount of an available- for-sale investment is greater than the estimated fair value and there is objective evidence that the asset is impaired including but not limited to counterparty default and other factors causing a reduction in value that can be considered permanent. The cumulative net loss relating to that investment is removed from equity and recognized in the income statement for the period. If, in a subsequent period, the fair value of the investment in a non-equity instrument 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 income statement. Investments at fair value through profit and loss, liquid assets The investments at fair value through profit and loss, liquid assets include highly liquid financial assets designated at fair value through profit or loss at inception. For investments designated as at fair value through profit or loss, the following criteria must be met: (1) the designation eliminates or significantly reduces the inconsistent treatment that would other- wise arise from measuring the assets or recognizing gains or losses on a different basis; or (2) the assets are part of a group of financial assets, which are man- aged and their performance evaluated on a fair value basis, in accordance with a documented risk manage- ment or investment strategy. These investments are initially recorded at fair value. Subsequent to initial recognition, these invest- ments are remeasured at fair value. Fair value adjust- ments and realized gain and loss are recognized in the income statement. Notes to the consolidated financial statements Loans receivable Loans receivable include loans to customers and suppliers and are initially measured at fair value and subsequently at amortized cost using the effective interest method less impairment. Loans are subject to regular and thorough review as to their collect- ability and as to available collateral; in the event that any loan is deemed not fully recoverable, a provision is made to reflect the shortfall between the carrying amount and the present value of the expected cash flows. Interest income on loans receivable is recog- nized by applying the effective interest rate. The long term portion of loans receivable is included on the statement of financial position under long-term loans receivable and the current portion under current por- tion of long-term loans receivable. Bank and cash Bank and cash consist of cash at bank and in hand. Accounts receivable Accounts receivable are carried at the original amount due from customers, which is considered to be fair value, less allowances for doubtful accounts based on a periodic review of all outstanding amounts including an analysis of historical bad debt, customer concentra- tions, customer creditworthiness, current economic trends and changes in our customer payment terms. Bad debts are written off when identified as uncollect- ible, and are included within other operating expenses. Financial liabilities Loans payable Loans payable are recognized initially at fair value, net of transaction costs incurred. Any difference between the fair value and the proceeds received is recog- nized in profit and loss at initial recognition. In the subsequent periods, they are stated at amortized cost using the effective interest method. The long term portion of loans payable is included on the statement of financial position under long-term interest-bearing liabilities and the current portion under current por- tion of long-term loans. Accounts payable Accounts payable are carried at the original invoiced amount, which is considered to be fair value due to the short-term nature. Derivative financial instruments All derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss varies according to whether the derivatives are designated and qualify under hedge accounting or not. Gener- ally the cash flows of a hedge are classified as cash flows from operating activities in the consolidated statement of cash flows as the underlying hedged items relate to company’s operating activities. When a derivative contract is accounted for as a hedge of an identifiable position relating to financing or investing activities, the cash flows of the contract are classified in the same manner as the cash flows of the position being hedged. 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 Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss Fair values of forward rate agreements, interest rate options, futures contracts and exchange traded options are calculated based on quoted market rates at each balance sheet date. Discounted cash flow analyses are used to value interest rate and currency swaps. Changes in the fair value of these contracts are recognized in the income statement. Fair values of cash settled equity derivatives are calculated based on quoted market rates at each bal- ance sheet date. Changes in fair value are recognized in the income statement. change in fair value that reflects the change in spot exchange rates is deferred in shareholders’ equity to the extent that the hedge is effective. For qualifying foreign exchange options, or option strategies, the change in intrinsic value is deferred in shareholders’ equity to the extent that the hedge is effective. In all cases the ineffective portion is recognized immedi- ately in the profit and loss account as financial income and expenses. Hedging costs, expressed either as the change in fair value that reflects the change in forward exchange rates less the change in spot ex- change rates for forward foreign exchange contracts, or changes in the time value for options, or options strategies, are recognized within other operating income or expenses. Forward foreign exchange contracts are valued Accumulated fair value changes from qualifying at the market forward exchange rates. Changes in fair value are measured by comparing these rates with the original contract forward rate. Currency options are valued at each balance sheet date by using the Garman & Kohlhagen option valuation model. Changes in the fair value on these instruments are recognized in the income statement. For the derivatives not designated under hedge accounting but hedging identifiable exposures such as anticipated foreign currency denominated sales and purchases, the gains and losses are recognized within other operating income or expenses. The gains and losses on all other hedges not designated under hedge accounting are recognized under financial income and expenses. Embedded derivatives are identified and moni- tored by the Group and fair valued as at each balance sheet date. In assessing the fair value of embedded derivatives, the Group employs a variety of methods including option pricing models and discounted cash flow analysis using assumptions that are based on market conditions existing at each balance sheet date. The fair value changes are recognized in the income statement. Hedge accounting Cash flow hedges: Hedging of anticipated foreign currency denominated sales and purchases The Group applies hedge accounting for “Qualifying hedges”. Qualifying hedges are those properly docu- mented cash flow hedges of the foreign exchange rate risk of future anticipated foreign currency denomi- nated sales and purchases that meet the requirements set out in IAS 39. The cash flow being hedged must be “highly probable” and must present an exposure to variations in cash flows that could ultimately affect profit or loss. The hedge must be highly effective both prospectively and retrospectively. The Group claims hedge accounting in respect of certain forward foreign exchange contracts and options, or option strategies, which have zero net pre- mium or a net premium paid, and where the critical terms of the bought and sold options within a collar or hedges are released from shareholders’ equity into the income statement as adjustments to sales and cost of sales, in the period when the hedged cash flow affects the income statement. If the hedged cash flow is no longer expected to take place, all deferred gains or losses are released immediately into the profit and loss account as adjustments to sales and cost of sales. 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 income statement. Changes in the fair value of any derivative instru- ments that do not qualify for hedge accounting under IAS 39 are recognized immediately in the income statement. The fair value changes of derivative instru- ments that directly relate to normal business opera- tions are recognized within other operating income and expenses. The fair value changes from all other derivative instruments are recognized in financial income and expenses. Cash flow hedges: Hedging of foreign currency risk of highly probable business acquisitions and other transactions The Group hedges the cash flow variability due to foreign currency risk inherent in highly probable business acquisitions and other future transactions that result in the recognition of non-financial assets. When those non-financial assets are recognized in the balance sheet the gains and losses previously deferred in equity are transferred from equity and included in the initial acquisition cost of the asset. The deferred amounts are ultimately recognized in the profit and loss as a result of goodwill assessments in case of business acquisitions and through depreciation in case of other assets. In order to apply for hedge ac- counting, the forecasted transactions must be highly probable and the hedges must be highly effective prospectively and retrospectively. The Group claims hedge accounting in respect of forward foreign exchange 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. 17 Notes to the consolidated financial statements For qualifying foreign exchange forwards, the change in fair value that reflects the change in spot exchange rates is deferred in shareholders’ equity. The change in fair value that reflects the change in for- ward exchange rates less the change in spot exchange rates is recognized in the profit and loss account within financial income and expenses. For qualify- ing foreign exchange options the change in intrinsic value is deferred in shareholders’ equity. Changes in the time value are at all times recognized directly in the profit and loss account as financial income and expenses. In all cases the ineffective portion is recognized immediately in the income statement as financial income and expenses. Cash flow hedges: Hedging of cash flow variability on variable rate liabilities The Group applies cash flow hedge accounting for hedging cash flow variability on variable rate liabili- ties. The effective portion of the gain or loss relating to interest rate swaps hedging variable rate borrow- ings is deferred in shareholders’ equity. The gain or loss relating to the ineffective portion is recognized immediately in the income statement as financial income and expenses. Fair value hedges The Group applies fair value hedge accounting with the objective to reduce the exposure to fluctuations in the fair value of interest-bearing liabilities due to changes in interest rates and foreign exchange rates. Changes in the fair value of derivatives designated and qualifying as fair value hedges, together with any changes in the fair value of the hedged liabilities attributable to the hedged risk, are recorded in the income statement within financial income and expenses. If a hedge no longer meets the criteria for hedge accounting, hedge accounting ceases and any fair value adjustments made to the carrying amount of the hedged item during the periods the hedge was effective are amortized to profit or loss based on the effective interest method. Hedges of net investments in foreign operations The Group also applies hedge accounting for its for- eign currency hedging on net investments. Qualifying hedges are those properly document- ed 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 exchange 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’ equity. The change in fair value that reflects the change in for- ward exchange rates less the change in spot exchange rates is recognized in the profit and loss account within financial income and expenses. For qualify- 18 Nokia in 2009 ing foreign exchange options the change in intrinsic value is deferred in shareholders’ equity. Changes in the time value are at all times recognized directly in the profit and loss account as financial income and expenses. If a foreign currency denominated loan is used as a hedge, all foreign exchange gains and losses arising from the transaction are recognized in share- holders’ equity. In all cases the ineffective portion is recognized immediately in the income statement as financial income and expenses. Accumulated fair value changes from qualify- ing hedges are released from shareholders’ equity into the income statement only if the legal entity in the given country is sold, liquidated, repays its share capital or is abandoned. Income taxes The tax expense comprises current tax and deferred tax. Current taxes are based on the results of the Group companies and are calculated according to local tax rules. Taxes are recognized in the income statement, except to the extent that it relates to items recognized in the other comprehensive income or di- rectly in equity, in which case the tax is recognized in other comprehensive income or equity, respectively. Deferred tax assets and liabilities are deter- mined, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the con- solidated financial statements. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the unused tax losses or deductible temporary differences can be utilized. When circumstances indicate it is no longer probable that deferred tax assets will be uti- lized they are assessed for realizability and adjusted as necessary. Deferred tax liabilities are recognized for temporary differences that arise between the fair value and tax base of identifiable net assets acquired in business combinations. Deferred tax assets and deferred tax liabilities are offset for presentation purposes when there is a legally enforceable right to set off current tax assets against current tax liabilities, and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simul- taneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. The enacted or substantially enacted tax rates as of each balance sheet date that are expected to apply in the period when the asset is realized or the liability is settled are used in the measurement of deferred tax assets and liabilities. Provisions Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reli- able estimate of the amount can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognized as an asset only when the reimbursement is virtually certain. At each bal- ance sheet date, the Group assesses the adequacy of its preexisting provisions and adjusts the amounts as necessary based on actual experience and changes in future estimates. Warranty provisions The Group provides for the estimated liability to repair or replace products under warranty at the time revenue is recognized. The provision is an estimate calculated based on historical experience of the level of repairs and replacements. Intellectual property rights (IPR) provisions The Group provides for the estimated future settle- ments related to asserted and unasserted past alleged IPR infringements based on the probable outcome of potential infringement. Tax provisions The Group recognizes a provision for tax contingen- cies based upon the estimated future settlement amount at each balance sheet date. Restructuring provisions The Group provides for the estimated cost to restruc- ture when a detailed formal plan of restructuring has been completed and the restructuring plan has been announced. Other provisions The Group recognizes the estimated liability for non- cancellable purchase commitments for inventory in excess of forecasted requirements at each balance sheet date. The Group provides for onerous contracts based on the lower of the expected cost of fulfilling the contract and the expected cost of terminating the contract. Share-based compensation The Group offers three types of global equity settled share-based compensation schemes for employees: stock options, performance shares and restricted shares. Employee services received, and the cor- responding increase in equity, are measured by reference to the fair value of the equity instruments as of the date of grant, excluding the impact of any non-market vesting conditions. Non-market vesting conditions attached to the performance shares are included in assumptions about the number of shares that the employee will ultimately receive. On a regular basis, the Group reviews the assumptions made and, where necessary, revises its estimates of the number of performance shares that are expected to be settled. Share-based compensation is recognized as an ex- pense in the income statement over the service period. A separate vesting period is defined for each quarterly lot of the stock options plans. When stock options are exercised, the proceeds received net of any transac- tion costs are credited to share issue premium and the reserve for invested non-restricted equity. Treasury shares The Group recognizes acquired treasury shares as a deduction from equity at their acquisition cost. When cancelled, the acquisition cost of treasury shares is recognized in retained earnings. Dividends Dividends proposed by the Board of Directors are not recorded in the financial 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. Basic earnings per share is computed using the weighted average number of shares outstanding during the period. Diluted earnings per share is com- puted 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. Use of estimates and critical accounting judgements The preparation of financial statements in conformity with IFRS requires 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. Set forth below are areas requiring significant judgment and estimation that may have an impact on reported results and the financial position. Revenue recognition Sales from the majority of the Group are recognized when the significant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Sales may materially change if management’s as- sessment of such criteria was determined to be inac- curate. The Group enters into transactions involving multiple components consisting of any combination of hardware, services and software. The consideration received from these transactions is allocated to each separately identifiable component based on the rela- tive fair value of each component. The consideration allocated to each component is recognized as revenue when the revenue recognition criteria for that compo- nent have been met. Determination of the fair value for each component requires the use of estimates and judgment taking into consideration factors such as the price when the component is sold separately by the Group or the price when a similar component is sold separately by the Group or a third party, which may have a significant impact on the timing and amount of revenue recognition. The Group makes price protection adjustments based on estimates of future price reductions and certain agreed customer inventories at the date of the price adjustment. Possible changes in these estimates could result in revisions to the sales in future periods. Revenue from contracts involving solutions achieved through modification of complex tele- communications equipment is recognized on the percentage of completion basis when the outcome of the contract can be estimated reliably. Recog- nized revenues and profits are subject to revisions during the project in the event that the assumptions regarding the overall project outcome are revised. Current sales and profit estimates for projects may materially 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 The Group has provided a limited number of customer financing arrangements and agreed extended pay- ment terms with selected customers. Should the actual financial position of the customers or general economic conditions differ from assumptions, the ulti- mate collectability of such financings and trade credits may be required to be re-assessed, which could result in a write-off of these balances and thus negatively impact profits in future periods. The Group endeavors to mitigate this risk through the transfer of its rights to the cash collected from these arrangements to third party financial institutions on a non-recourse basis in exchange for an upfront cash payment. Allowances for doubtful accounts The Group maintains allowances for doubtful accounts for estimated losses resulting from the subsequent in- ability of customers to make required payments. If the financial conditions of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required in future periods. Inventory-related allowances The Group periodically reviews inventory for excess amounts, obsolescence and declines in market value Notes to the consolidated financial statements below cost and records an allowance against the inventory balance for any such declines. These reviews require management to estimate future demand for products. Possible changes in these estimates could result in revisions to the valuation of inventory in future periods. Warranty provisions The Group provides for the estimated cost of product warranties at the time revenue is recognized. The Group’s warranty provision is established based upon best estimates of the amounts necessary to settle future and existing claims on products sold as of each balance sheet date. As new products incorporating complex technologies are continuously introduced, and as local laws, regulations and practices may change, changes in these estimates could result in ad- ditional allowances or changes to recorded allowances being required in future periods. Provision for intellectual property rights, or IPR, infringements The Group provides for the estimated future settle- ments related to asserted and unasserted past alleged IPR infringements based on the probable outcome of potential infringement. IPR infringement claims can last for varying periods of time, resulting in irregular movements in the IPR infringement provision. The ul- timate outcome or actual cost of settling an individual infringement may materially vary from estimates. Legal contingencies Legal proceedings covering a wide range of matters are pending or threatened in various jurisdictions against the Group. Provisions are recorded for pending litigation when it is determined that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates. Capitalized development costs The Group capitalizes certain development costs when it is probable that a development project will generate future economic benefits and certain criteria, including commercial and technological feasibility, have been met. Should a product fail to substantiate its estimated feasibility or life cycle, material development costs may be required to be written-off in future periods. Business combinations The Group applies the purchase method of accounting to account for acquisitions of businesses. The cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, li- abilities incurred, equity instruments issued and costs directly attributable to the acquisition. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date. The excess of the cost of the acquisition over our interest in the fair value of the identifiable net assets acquired is recorded as goodwill. The allocation of fair values to the identifiable assets acquired and liabilities assumed is based on 19 Notes to the consolidated financial statements various valuation assumptions requiring management judgment. Actual results may differ from the fore- casted amounts and the difference could be material. See also Note 8. tions of net sales and earnings per share. Significant differences in equity market performance, employee option activity and the Group’s projected and actual net sales and earnings per share performance, may materially affect future expense. See also Note 23. Assessment of the recoverability of long-lived assets, intangible assets and goodwill The recoverable amounts for long-lived assets, intangible assets and goodwill have been determined based on the expected future cash flows attributable to the asset or cash-generating unit discounted to present value. The key assumptions applied in the determination of recoverable amount include the discount rate, length of the explicit forecast period and estimated growth rates, profit margins and level of operational and capital investment. Amounts esti- mated could differ materially from what will actually occur in the future. See also Note 7. Fair value of derivatives and other financial instruments The fair value of financial instruments that are not traded in an active market (for example, unlisted equi- ties, currency options and embedded derivatives) are determined using various valuation techniques. The Group uses judgment to select an appropriate valua- tion methodology as well as underlying assumptions based on existing market practice and conditions. Changes in these assumptions may cause the Group to recognize impairments or losses in future periods. Income taxes Management judgment is required in determining income tax expense, tax provisions, deferred tax assets and liabilities and the extent to which deferred tax assets can be recognized. When circumstances in- dicate it is no longer probable that deferred tax assets will be utilized they are assessed for realizability and adjusted as necessary. If the final outcome of these matters differs from the amounts initially recorded, differences may impact the income tax expense in the period in which such determination is made. Pensions The determination of pension benefit obligation and expense for defined benefit pension plans is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions 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 plan assets is invested in equity securities which are subject to equity market volatility. Changes in assumptions and actuarial conditions may materi- ally affect the pension obligation and future expense. See also Note 5. Share-based compensation The Group operates various types of equity settled share-based compensation schemes for employees. Fair value of stock options is based on certain assump- tions, including, among others, expected volatility and expected life of the options. Non-market vesting con- ditions attached to performance shares are included in assumptions about the number of shares that the employee will ultimately receive relating to projec- 20 Nokia in 2009 New accounting pronouncements under IFRS The Group will adopt the following new and revised standards, amendments and interpretations to exist- ing standards issued by the IASB that are expected to be relevant to its operations: IFRS 3 (revised) Business Combinations replaces IFRS 3 (as issued in 2004). The main changes brought by IFRS 3 (revised) include clarification of the defini- tion of a business, immediate recognition of all acquisition-related costs in profit or loss, recognition of subsequent changes in the fair value of contingent consideration in accordance with other IFRSs and measurement of goodwill arising from step acquisi- tions at the acquisition date. IAS 27 (revised), “Consolidated and Separate Financial Statements” clarifies presentation of changes in parent-subsidiary ownership. Changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control must be accounted for exclusively within equity. If a parent loses control of a subsidiary it shall derecognize the consolidated assets and liabilities, and any investment retained in the former subsidiary shall be recognized at fair value at the date when control is lost. Any differences resulting from this shall be recognized in profit or loss. When losses attributed to the minority (non- controlling) interests exceed the minority’s interest in the subsidiary’s equity, these losses shall be allocated to the non-controlling interests even if this results in a deficit balance. IFRS 9 will change the classification, measurement and impairment of financial instruments based on our objectives for the related contractual cash flows. Amendments to IFRS 2 and IFRIC 11 clarify that an entity that receives goods or services in a share-based payment arrangement should account for those goods or services no matter which entity in the group settles the transaction, and no matter whether the transac- tion is settled in shares or cash. Amendment to IAS 32 requires that if rights issues offered are issued pro rata to entity’s all existing shareholders in the same class for a fixed amount of currency, they should be classified as equity regard- less of the currency in which the exercise price is denominated. Amendments to IFRIC 14 and IAS 19 address the circumstances when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover those requirements. The amendment permits such an entity to treat the ben- efit of such an early payment as an asset. IFRIC 19 clarifies the requirements when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity’s equity instruments to settle the financial liability fully or partially. The entity’s equity instruments issued to a creditor are part of the consideration paid to extin- guish the financial liability and the issued instruments should be measured at their fair value. In addition, there a number of other amendments that form part of the IASB’s annual improvement project which will be adopted by the Group on January 1, 2010. The Group will adopt IFRS 3 (revised), IAS 27 (revised) and the amendments to IFRS 2 and IFRIC 11, IFRIC 14 and IAS 19 and IAS 32 as well as the additional amendments that form part of the IASB’s annual im- provement project on January 1, 2010. IFRIC 19 will be adopted on January 1, 2011. The Group does not expect that the adoption of these new standards, interpreta- tions and amendments will have a material impact on the financial condition and results of operations. The Group is required to adopt IFRS 9 by Janu- ary 1, 2013 with earlier adoption permitted. The Group is currently evaluating the potential impact of this standard on the Group’s accounts. 2. Segment information Nokia is organized on a worldwide basis into three op- erating and reportable segments: Devices & Services, NAVTEQ, and Nokia Siemens Networks. Nokia’s report- able segments represent the strategic business units that offer different products and services for which monthly financial information is provided to the chief operating decision maker. As of January 1, 2008, the Group’s three mobile device business groups and the supporting horizontal groups have been replaced by an integrated business segment, Devices & Services. Commencing with the third quarter 2008, NAVTEQ is also a reportable seg- ment. Prior period results for Nokia and its reportable segments have been regrouped for comparability purposes according to the new reportable segments effective in 2008. Devices & Services is responsible for developing and managing the Group’s portfolio of mobile devices, services and their combinations as well as designing and developing services, applications and content. Devices & Services also manages our supply chains, sales channels, brand and marketing activities, and explores corporate strategic and future growth op- portunities for Nokia. NAVTEQ is a leading provider of comprehensive digital map information and related location-based content and services for automotive navigation sys- tems and mobile navigation devices, Internet-based mapping applications, and government and business solutions. Nokia Siemens Networks provides mobile and fixed network solutions and related services to opera- tors and service providers. Corporate Common Functions consists of com- pany wide functions. The accounting policies of the segments are the same as those described in Note 1. Nokia accounts for intersegment revenues and transfers as if the rev- enues or transfers were to third parties, that is, at cur- rent market prices. Nokia evaluates the performance of its segments and allocates resources to them based on operating profit. No single customer represents 10% or more of Group revenues. Notes to the consolidated financial statements Devices & Services NAVTEQ Nokia Siemens Networks Total reportable segments Corporate Common Functions and Corporate unallocated 4, 6 Eliminations Group 27 841 12 432 56 3 314 — 232 9 203 — 8 268 35 084 15 484 58 5 816 — 578 10 300 — 8 425 37 682 23 489 — 7 584 — 579 91 488 — –344 — 21 6 145 5 2 330 318 43 238 — –153 — 18 7 177 4 2 726 — — — — — — 12 564 40 984 10 860 919 –1 639 32 278 11 015 26 7 927 113 1 780 975 1 331 32 531 26 363 31 18 525 15 308 50 710 1 889 47 –301 –13 292 15 652 62 10 503 59 1 611 105 5 362 –13 888 33 129 66 21 654 13 376 51 058 17 714 27 –1 308 4 40 1 203 27 6 276 4 — — 4 34 –134 –2 — 12 479 38 5 568 — — 6 33 –396 19 1 9 641 30 4 606 — 41 3 36 1 709 40 –113 40 984 — 1 784 1 009 1 197 30 531 –3 104 35 738 69 –3 104 20 989 –59 50 710 — 1 617 138 4 966 6 889 –3 188 39 582 96 –3 188 23 072 –81 51 058 — 1 206 63 7 985 44 2009, EURm Profit and loss information Net sales to external customers Net sales to other segments Depreciation and amortization Impairment Operating profit/loss 1 Share of results of associated companies Balance sheet information Capital expenditures 2 Segment assets 3 of which: Investments in associated companies Segment liabilities 5 2008, EURm Profit and loss information Net sales to external customers Net sales to other segments Depreciation and amortization Impairment Operating profit/loss Share of results of associated companies Balance sheet information Capital expenditures 2 Segment assets 3 of which: Investments in associated companies Segment liabilities 5 2007, 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 /loss 1 Share of results of associated companies 1 Nokia Siemens Networks operating loss in 2009 includes a goodwill impairment loss of EUR 908 mil- lion. Corporate Common Functions operating profit in 2007 includes a non-taxable gain of EUR 1 879 million related to the formation of Nokia Siemens Networks. 4 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 for Devices & Services and Corporate Common Functions. 2 Including goodwill and capitalized development costs, capital expenditures in 2009 amount to EUR 590 million (EUR 5 502 million in 2008). The goodwill and capitalized development costs consist of EUR 7 million in 2009 (EUR 752 million in 2008) for Devices & Services, EUR 22 million in 2009 (EUR 3 673 million in 2008) for NAVTEQ, EUR 30 million in 2009 (EUR 188 million in 2008) for Nokia Siemens Networks, and EUR 0 million in 2009 (EUR 0 million in 2008) for Corporate Common Functions. 5 Comprises accounts payable, accrued expenses and provisions except those related to interest and taxes for Devices & Services and Corporate Common Functions. In addition, NAVTEQ’s and Nokia Sie- mens Networks’ liabilities include non-current liabilities and short-term borrowings as well as interest and tax related prepaid income and accrued expenses and provisions. These are directly attributable to NAVTEQ and Nokia Siemens Networks as they are separate legal entities. 3 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 for Devices & Services and Corporate Common Functions. In addition, NAVTEQ’s and Nokia Siemens Networks’ 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. These are directly attributable to NAVTEQ and Nokia Siemens Networks as they are separate legal entities. 6 Unallocated liabilities include non-current liabilities and short-term borrowings as well as interest and tax related prepaid income, accrued expenses and provisions related to Devices & Services and Corporate Common Functions. 21 Notes to the consolidated financial statements Net sales to external customers by geographic area by location of customer Finland China India UK Germany USA Russia Indonesia Other Total Segment non-current assets by geographic area 1 Finland China India UK Germany USA Other Total 2009 EURm 390 5 990 2 809 1 916 1 733 1 731 1 528 1 458 23 429 40 984 2009 EURm 1 698 358 180 228 243 5 859 1 377 9 943 2008 EURm 362 5 916 3 719 2 382 2 294 1 907 2 083 2 046 30 001 50 710 2008 EURm 1 154 434 154 668 306 7 037 2 751 12 504 1 Comprises intangible and tangible assets and property, plant and equipment. 3. Percentage of completion Contract sales recognized under percentage of completion accounting were EUR 6 868 million in 2009 (EUR 9 220 million in 2008 and EUR 8 329 million in 2007). Services revenue for managed services and network maintenance contracts were EUR 2 607 million in 2009 (EUR 2 530 million in 2008 and EUR 1 842 million in 2007). Included in accrued expenses were advances received related to construc- tion contracts of EUR 126 million at December 31, 2009 (EUR 261 million in 2008). Included in accounts receivable were contract revenues recorded prior to billings of EUR 1 396 million at December 31, 2009 (EUR 1 423 million in 2008) and billings in excess of costs incurred of EUR 451 million at December 31, 2009 (EUR 677 million in 2008). The aggregate amount of costs incurred and recognized profits (net of recog- nized losses) under open construction contracts in progress since inception (for contracts acquired inception refers to April 1, 2007) was EUR 15 351 million in 2009 (EUR 11 707 million in 2008). Retentions related to construction contracts, included in accounts receivable, were EUR 265 million at December 31, 2009 (EUR 211 million at December 31, 2008). 4. Personnel expenses EURm Wages and salaries Share-based compensation expense, total Pension expenses, net Other social expenses Personnel expenses as per profit and loss account 2009 5 658 13 427 649 2008 2007 5 615 67 478 754 4 664 236 420 618 6 747 6 914 5 938 22 Nokia in 2009 Share-based compensation expense includes pension and other social costs of EUR –3 million in 2009 (EUR –7 million in 2008 and EUR 8 million in 2007) based upon the related employee benefit charge recognized during the year. Pension expenses, comprised of multi-employer, insured and defined contribu- tion plans were EUR 377 million in 2009 (EUR 394 million in 2008 and EUR 289 million in 2007). Expenses related to defined benefit plans comprise the remainder. Average personnel 2009 2008 2007 Devices & Services NAVTEQ Nokia Siemens Networks Group Common Functions Nokia Group 56 462 4 282 62 129 298 123 171 57 443 3 969 59 965 346 121 723 49 887 — 50 336 311 100 534 2007 EURm 322 5 898 3 684 2 574 2 641 2 124 2 012 1 754 30 049 51 058 5. Pensions The Group operates a number of post-employment plans in various countries. These plans include both defined contribution and defined benefit schemes. The Group’s most significant defined benefit pension plans are in Germany and in the UK. The majority of active employees in Germany participate in a pension scheme which is designed according to the Beitragsorientierte Siemens Altersvers- orgung (BSAV). The funding vehicle for the BSAV is the NSN Pension Trust. In Ger- many, individual benefits are generally dependent on eligible compensation levels, ranking within the Group and years of service. The majority of active employees in Nokia UK participate in a pension scheme which is designed according to the Scheme Trust Deeds and Rules and is compliant with the Guidelines of the UK Pension Regulator. The funding vehicle for the pension scheme is Nokia Group (UK) Pension Scheme Ltd which is run on a Trust basis. In the UK, individual benefits are generally dependent on eligible compensation levels and years of service for the defined benefit section of the scheme and on individual investment choices for the defined contribution section of the scheme. In prior years, the Group had a significant pension plan in Finland. Prior to March 1, 2008, the reserved benefits portion of the Finnish state Employees’ Pen- sion Act (TyEL) system, that was pre-funded through a trustee-administered Nokia Pension Foundation, was accounted for as a defined benefit plan. As of March 1, 2008 the Finnish statutory pension liability and plan related assets of Nokia and Nokia Siemens Networks were transferred to two pension insurance companies. The transfer did not affect the number of employees covered by the plan nor did it affect the current employees’ entitlement to pension benefits. At the transfer date, the Group has not retained any direct or indirect obligation to pay employee benefits relating to employee service in current, prior or future periods. Thus, the Group has treated the transfer of the Finnish statutory pension liability and plan assets as a settlement of the Group’s TyEL defined benefit plan. From the date of transfer onwards, the Group has accounted for the TyEL plan as a defined contribution plan. The transfer resulted in EUR 152 million loss consisting of a EUR 217 million loss impacting Common Group Functions and a EUR 65 million gain impacting Nokia Siemens Networks operating profit. These are included in the other operating income and expense, see Note 6. Subsequent to the transfer of the Finnish statutory pension liability and plan assets, the Group retains only certain immaterial voluntary defined benefit pension liabilities in Finland. The following table sets forth the changes in the benefit obligation and fair value of plan assets during the year and the funded status of the significant defined benefit pension plans showing the amounts that are recognized in the Group’s consolidated statement of financial position at December 31: EURm Present value of defined benefit obligations at beginning of year Foreign exchange Current service cost Interest cost Plan participants’ contributions Past service cost Actuarial gain (+)/loss (–) Acquisitions Curtailment Settlements Benefits paid Present value of defined benefit obligations at end of year Plan assets at fair value at beginning of year Foreign exchange Expected return on plan assets Actuarial gain (+)/loss (–) on plan assets Employer contribution Plan participants’ contributions Benefits paid Curtailments Settlements Acquisitions Plan assets at fair value at end of year Surplus (+)/deficit (–) Unrecognized net actuarial gains (–)/losses (+) Unrecognized past service cost Amount not recognized as an asset in the balance sheet because of limit in IAS 19 paragraph 58(b) Prepaid (+)/accrued (–) pension cost in statement of financial position Notes to the consolidated financial statements 2009 2008 Movements in prepaid/accrued pension costs recognized in the statement of finan- cial position are as follows: –1 205 5 –55 –69 –12 — –139 2 — 2 60 –2 266 56 –79 –78 –10 –2 105 –2 10 1 025 36 –1 411 –1 205 1 197 –7 70 56 49 12 –44 — –2 –1 1 330 –81 –21 1 –5 2 174 –58 71 –39 141 10 –24 –5 –1 078 5 1 197 –8 –113 1 — EURm Prepaid (+)/accrued (–) pension costs at beginning of year Net income (expense) recognized in the profit and loss account Contributions paid Benefits paid Acquisitions Foreign exchange Prepaid (+)/accrued (–) pension costs at end of year * 2009 2008 –120 –36 –50 49 16 1 –2 –106 –228 141 12 3 –12 –120 * included within prepaid expenses and accrued income / accrued expenses The prepaid pension cost above is made up of a prepayment of EUR 68 million (EUR 55 million in 2008) and an accrual of EUR 174 million (EUR 175 million in 2008). EURm 2009 2008 2007 2006 2005 Present value of defined benefit obligation Plan assets at fair value Surplus (+)/deficit (–) –1 411 1 330 –81 –1 205 –2 266 2 174 1 197 –92 –8 –1 577 –1 385 1 276 1 409 –109 –168 Experience adjustments arising on plan obligations amount to a loss of EUR 12 mil- lion in 2009 (gain of EUR 50 million in 2008, a loss of EUR 31 million in 2007 and EUR 25 million in 2006). Experience adjustments arising on plan assets amount to a gain of EUR 54 million in 2009 (a loss of EUR 22 million in 2008, EUR 3 million in 2007 and EUR 11 million in 2006). The principal actuarial weighted average assumptions used were as follows: –106 –120 % 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 2009 2008 5.3 5.4 2.8 2.0 5.8 5.7 2.7 1.9 Present value of obligations include EUR 822 million (EUR 707 million in 2008) of wholly funded obligations, EUR 516 million of partly funded obligations (EUR 416 million in 2008) and EUR 73 million (EUR 82 million in 2008) of unfunded obligations. The amounts recognized in the income statement are as follows: EURm 2009 2008 2007 Current service cost Interest cost Expected return on plan assets Net actuarial (gains) losses recognized in year Impact of paragraph 58(b) limitation Past service cost gains (–)/losses (+) Curtailment Settlement Total, included in personnel expenses 55 69 –70 –9 5 — — — 50 79 78 –71 — — 2 –12 152 228 125 104 –95 10 — — –1 –12 131 The expected long-term rate of return on plan assets is based on the expected return multiplied with the respective percentage weight of the market-related value of plan assets. The expected return is defined on a uniform basis, reflecting long- term historical returns, current market conditions and strategic asset allocation. The Groups’s pension plan weighted average asset allocation as a percentage of Plan Assets at December 31, 2009, and 2008, by asset category are as follows: % Asset category: Equity securities Debt securities Insurance contracts Real estate Short-term investments Total 2009 2008 21 65 8 1 5 100 12 72 8 1 7 100 23 Notes to the consolidated financial statements The objective of the investment activities is to maximize the excess of plan assets over projected benefit obligations, within an accepted risk level, taking into account the interest rate and inflation sensitivity of the assets as well as the obligations. The Pension Committee of the Group, consisting of the Head of Treasury, Head of HR and other HR representatives, approves both the target asset allocation as well as the deviation limit. Derivative instruments can be used to change the portfolio asset allocation and risk characteristics. The foreign pension plan assets include a self investment through a loan pro- vided to Nokia by the Group’s German pension fund of EUR 69 million (EUR 69 million in 2008). See Note 30. The actual return on plan assets was EUR 126 million in 2009 (EUR 31 million in 2008). In 2010, the Group expects to make contributions of EUR 69 million to its defined benefit pension plans. 7. Impairment EURm Capitalized development costs Goodwill Other intangible assets Property, plant and equipment Inventories Investments in associated companies Available-for-sale investments Other non-current assets Total, net 2009 — 908 56 1 — 19 25 — 1 009 2008 2007 — — — 77 13 8 43 8 149 27 — — — — 7 29 — 63 6. Other operating income and expenses Capitalized development costs Other operating income for 2009 includes a gain on sale of security appliance business of EUR 68 million impacting Devices & Services operating profit and a gain on sale of real estate in Oulu, Finland, of EUR 22 million impacting Nokia Siemens Networks operating loss. In 2009, other operating expenses includes EUR 178 million of charges related to restructuring activities in Devices & Services due to measures taken to adjust the business operations and cost base according to market condi- tions. In conjunction with the decision to refocus its activities around specified core assets, Devices & Services recorded impairment charges totalling EUR 56 million for intangible assets arising from the acquisitions of Enpocket and Intellisync and the asset acquisition of Twango. In 2008, other operating expenses include EUR 152 million net loss on transfer of Finnish pension liabilities, of which a gain of EUR 65 million is included in Nokia Siemens Networks’ operating profit and a loss of EUR 217 million in Corporate Common expenses. Devices & Services recorded EUR 259 million of restructuring charges and EUR 81 million of impairment and other charges related to closure of the Bochum site in Germany. Other operating expenses also include a charge of EUR 52 million related to other restructuring activities in Devices & Services and EUR 49 million charges related to restructuring and other costs in Nokia Siemens Networks. Other operating income for 2007 includes a non-taxable gain of EUR 1 879 mil- lion relating to the formation of Nokia Siemens Networks. Other operating income also includes gain on sale of real estates in Finland of EUR 128 million, of which EUR 75 million is included in Common functions’ operating profit and EUR 53 mil- lion in Nokia Siemens Networks’ operating profit. In addition, a gain on business transfer EUR 53 million impacted Common functions’ operating profit. In 2007, other operating expenses includes EUR 58 million in charges related to restructuring costs in Nokia Siemens Networks. Devices & Services recorded a charge of EUR 17 million for personnel expenses and other costs as a result of more focused R&D. Devices & Services also recorded restructuring costs of EUR 35 million primarily related to restructuring of a subsidiary company. In all three years presented, “Other operating income and expenses” include the costs of hedging highly probable forecasted sales and purchases (forward points of cash flow hedges). As from 2009, on the same line are included also the fair value changes of derivatives hedging identifiable and probable forecasted cash flows. In 2009 and 2008, the Group did not recognize any impairment charge on capital- ized development costs. During 2007, Nokia Siemens Networks recorded an impair- ment charge on capitalized development costs of EUR 27 million. The impairment loss was determined as the full carrying amount of the capitalized development programs costs related to products that will not be included in future product portfolios. This impairment amount is included within research and development expenses in the consolidated income statement. Goodwill Goodwill is allocated to the Group’s cash-generating units (CGU) for the purpose of impairment testing. The allocation is made to those cash-generating units that are expected to benefit from the synergies of the business combination in which the goodwill arose. The Group has allocated goodwill to three cash-generating units, which correspond to the Group’s operating and reportable segments: Devices & Services CGU, Nokia Siemens Networks CGU and NAVTEQ CGU. The recoverable amounts for the Devices & Services CGU and the NAVTEQ CGU are based on value in use calculations. The cash flow projections employed in the value in use calculation are based on financial plans approved by management. These projections are consistent with external sources of information, wherever available. Cash flows beyond the explicit forecast period are extrapolated using an estimated terminal growth rate that does not exceed the long-term average growth rates for the industry and economies in which the CGU operates. The recoverable amount for the Nokia Siemens Networks CGU is based on fair value less costs to sell. A discounted cash flow calculation was used to estimate the fair value less costs to sell of the Nokia Siemens Networks CGU. The cash flow projec- tions employed in the discounted cash flow calculation have been determined by management based on the best information available to reflect the amount that an entity could obtain from the disposal of the Nokia Siemens Networks CGU in an arm’s length transaction between knowledgeable, willing parties, after deducting the estimated costs of disposal. During 2009, the conditions in the world economy have shown signs of im- provement as countries have begun to emerge from the global economic downturn. However, significant uncertainty exists regarding the speed, timing and resiliency of the global economic recovery and this uncertainty is reflected in the impairment testing for each of the Group’s CGUs. Goodwill amounting to EUR 1 227 million was allocated to the Devices & Services CGU. The impairment testing has been carried out based on management’s expectation of stable market share and normalized profit margins in the medium to long term. The goodwill impairment testing conducted for the Devices & Services CGU for the year ended December 31, 2009 did not result in any impairment charges. In the third quarter of 2009, the Group recorded an impairment loss of EUR 908 million to reduce the carrying amount of the Nokia Siemens Networks CGU to its recoverable amount. The impairment loss was allocated in its entirety to the carrying amount of goodwill arising from the formation of Nokia Siemens Networks 24 Nokia in 2009 Notes to the consolidated financial statements and from subsequent acquisitions completed by Nokia Siemens Networks. This impairment loss is presented as impairment of goodwill in the consolidated income statement. As a result of the impairment loss, the amount of goodwill allocated to the Nokia Siemens Networks CGU has been reduced to zero. The recoverability of the Nokia Siemens Networks CGU has declined as a result of a decline in forecasted profits and cash flows. The Group evaluated the historical and projected financial performance of the Nokia Siemens Networks CGU taking into consideration the challenging competitive factors and market conditions in the infrastructure and related services business. As a result of this evaluation, the Group lowered its net sales and gross margin projections for the Nokia Siemens Networks CGU. This reduction in the projected scale of the business had a negative impact on the projected profits and cash flows of the Nokia Siemens Networks CGU. Goodwill amounting to EUR 3 944 million has been allocated to the NAVTEQ CGU. The impairment testing has been carried out based on management’s assessment of the financial performance and future strategies of the NAVTEQ CGU in light of current and expected market and economic conditions. The goodwill impairment testing conducted for the NAVTEQ CGU for the year ended December 31, 2009 did not result in any impairment charges. The recoverable amount of the NAVTEQ CGU is between 5–10% higher than its carrying amount. The Group has concluded that a reasonably possible change of 1% in the valuation assumptions for long-term growth rate or discount rate would give rise to an impairment loss. The key assumptions applied in the impairment testing analysis for each CGU are presented in the table below: In 2008, Nokia Siemens Networks recognised an impairment loss amounting to EUR 35 million relating to the sale of its manufacturing site in Durach, Germany. The impairment loss was determined as the excess of the book value of transferring as- sets over the fair value less costs to sell for the transferring assets. The impairment loss was allocated to property, plant and equipment and inventories. Investments in associated companies After application of the equity method, including recognition of the associate’s losses, the Group determined that recognition of an impairment loss of EUR 19 mil- lion in 2009 (EUR 8 million in 2008, EUR 7 million in 2007) was necessary to adjust the Group’s net investment in the associate to its recoverable amount. Available-for-sale investments The Group’s investment in certain equity securities held as non-current available- for-sale suffered a permanent decline in fair value resulting in an impairment charge of EUR 25 million in 2009 (EUR 43 million in 2008, EUR 29 million in 2007). 8. Acquisitions Cash-generating unit Acquisitions completed in 2009 Terminal growth rate Post-tax discount rate Pre-tax discount rate Devices & Services Nokia Siemens Networks NAVTEQ % 2.00 8.86 11.46 % 1.00 9.95 13.24 % 5.00 10.00 12.60 The Group has applied consistent valuation methodologies for each of the Group’s CGUs for the years ended December 31, 2009, 2008 and 2007. The discount rates applied in the impairment testing for each CGU have been determined inde- pendently of capital structure reflecting current assessments of the time value of money and relevant market risk premiums. Risk premiums included in the determi- nation of the discount rate reflect risks and uncertainties for which the future cash flow estimates have not been adjusted. Overall, the discount rates applied in the 2009 impairment testing have decreased in line with declining interest rates and narrowing credit spreads. The goodwill impairment testing conducted for each of the Group’s CGUs for the years ended December 31, 2008 and 2007 did not result in any impairment charges. Other intangible assets In conjunction with the Group’s decision to refocus its activities around specified core assets, the Group recorded impairment charges in 2009 totalling EUR 56 million for intangible assets arising from the acquisitions of Enpocket and Intellisync and the asset acquisition of Twango. The impairment charge was recognised in other operating expense and is included in the Devices & Services segment. In connec- tion with the decline in the Group’s profit and cash flow projections of the Nokia Siemens Networks CGU, the Group conducted an assessment of the carrying amount of the identifiable intangible assets arising from the formation of Nokia Siemens Networks concluding that such carrying amount was recoverable. Property, plant and equipment and inventories During 2009, the Group completed five acquisitions that did not have a material impact on the consolidated financial statements. The purchase consideration paid and the total goodwill arising from these acquisitions amounted to EUR 29 million and EUR 32 million, respectively. The goodwill arising from these acquisitions is at- tributable to assembled workforce and post acquisition synergies. » » » » » Plum Ventures, Inc., based in Boston, USA, develops and operates a cloud-based social media sharing and messaging service for private groups. The Group acquired certain assets of Plum on September 11, 2009. Dopplr Oy, based in Helsinki, Finland, provides a Social Atlas that enables mem- bers to share travel plans and preferences privately with their networks. The Group acquired a 100% ownership interest in Dopplr on September 28, 2009. Huano Technology Co., Ltd, based in Changsha, China, is an infrastructure service provider with Nokia Siemens Networks as its primary customer. Nokia Siemens Networks increased its ownership interest in Huano from 49% to 100% on July 22, 2009. T-Systems Traffic GmbH is a leading German provider of dynamic mobility servic- es delivering near real-time data about traffic flow and road conditions. NAVTEQ acquired a 100% ownership interest in T-Systems Traffic on January 2, 2009. Acuity Mobile, based in Greenbelt, USA, is a leading provider of mobile market- ing content delivery solutions. NAVTEQ acquired a 100% ownership interest in Acuity Mobile on September 11, 2009. Acquisitions completed in 2008 NAVTEQ On July 10, 2008, the Group completed its acquisition of all of the outstanding com- mon stock of NAVTEQ. Based in Chicago, NAVTEQ is a leading provider of comprehen- sive digital map information for automotive systems, mobile navigation devices, Internet-based mapping applications, and government and business solutions. The Group will use NAVTEQ’s industry leading maps data to add context–time, place, people–to web services optimized for mobility. In 2008, resulting from the Group’s decision to discontinue the production of mobile devices in Germany, an impairment loss was recognised amounting to EUR 55 mil- lion. The impairment loss related to the closure and sale of production facilities at Bochum, Germany and is included in the Devices & Services segment. The total cost of the acquisition was EUR 5 342 million and consisted of cash paid of EUR 2 772 million, debt issued of EUR 2 539 million, costs directly attributable to the acquisition of EUR 12 million and consideration attributable to the vested portion of replacement share-based payment awards of EUR 19 million. 25 Notes to the consolidated financial statements The following table summarizes the estimated fair values of the assets ac- quired and liabilities assumed at the date of acquisition. EURm Goodwill Intangible assets subject to amortization: Map database Customer relationships Developed technology License to use trade name and trademark Capitalized development costs Other intangible assets Property, plant & equipment Deferred tax assets Available-for-sale investments Other non-current assets Non-current assets Inventories Accounts receivable Prepaid expenses and accrued income Available-for-sale investments, liquid assets Available-for-sale investments, cash equivalents Bank and cash Current assets Total assets acquired Deferred tax liabilities Other long-term liabilities Non-current liabilities Accounts payable Accrued expenses Provisions Current liabilities Total liabilities assumed Net assets acquired Carrying amount Fair value Useful lives 114 3 673 5 years 4 years 4 years 6 years 5 22 8 7 22 4 68 84 262 36 6 456 3 94 36 140 97 57 427 997 46 54 100 29 96 5 130 230 767 1 389 388 110 57 — 7 1 951 83 148 36 6 2 224 3 94 36 140 97 57 427 6 324 786 39 825 29 120 8 157 982 5 342 The goodwill of EUR 3 673 million has been allocated to the NAVTEQ segment. The goodwill is attributable to assembled workforce and the synergies expected to arise subsequent to the acquisition including acceleration of the Group’s internet services strategy. None of the goodwill acquired is expected to be deductible for income tax purposes. Symbian On December 2, 2008, the Group completed its acquisition of 52.1% of the outstand- ing common stock of Symbian Ltd. As a result of this acquisition, the Group’s total ownership interest has increased from 47.9% to 100% of the outstanding common stock of Symbian. A UK-based software licensing company, Symbian developed and licensed Symbian OS, the market-leading open operating system for mobile phones. The acquisition of Symbian is a fundamental step in the establishment of the Sym- bian Foundation. The Group contributed the Symbian OS and S60 software to the Symbian Foundation for the purpose of creating a unified mobile software platform with a common UI framework. The goal of the Symbian Foundation is to extend the appeal of the platform among all partners, including developers, mobile operators, content and service providers and device manufacturers. The unified platform will promote innovation and accelerate the availability of new services and experiences for consumers and business users around the world. A full platform was available for all Foundation members under a royalty-free license, from the Foundation’s first day of operations. 26 Nokia in 2009 The acquisition of Symbian was achieved in stages through successive share purchases at various times from the formation of the company. Thus, the amount of goodwill arising from the acquisition has been determined via a step-by-step comparison of the cost of the individual investments in Symbian with the acquired interest in the fair values of Symbian’s identifiable net assets at each stage. Revalu- ation of the Group’s previously held interests in Symbian’s identifiable net assets is recognised as a revaluation surplus in equity. Application of the equity method has been reversed such that the carrying amount of the Group’s previously held interests in Symbian have been adjusted to cost. The Group’s share of changes in Symbian’s equity balances after each stage is included in equity. The total cost of the acquisition was EUR 641 million consisting of cash paid of EUR 435 million, costs directly attributable to the acquisition of EUR 6 million and investments in Symbian from previous exchange transactions of EUR 200 million. The following table summarizes the estimated fair values of the assets ac- quired and liabilities assumed at the date of acquisition. EURm Goodwill Intangible assets subject to amortization: Developed technology Customer relationships License to use trade name and trademark Property, plant & equipment Deferred tax assets Non-current assets Accounts receivable Prepaid expenses and accrued income Bank and cash Current assets Total assets acquired Deferred tax liabilities Financial liabilities Accounts payable Accrued expenses Total liabilities assumed Net assets acquired Revaluation of previously held interests in Symbian Nokia share of changes in Symbian’s equity after each stage of the acquisition Cost of the business combination Carrying amount Fair value — 5 — — 5 33 7 45 20 43 147 210 255 — — 5 48 53 202 470 41 11 3 55 31 19 105 20 43 147 210 785 17 20 5 53 95 690 22 27 641 The goodwill of EUR 470 million has been allocated to the Devices & Services seg- ment. The goodwill is attributable to assembled workforce and the significant benefits that the Group expects to realise from the Symbian Foundation. None of the goodwill acquired is expected to be deductible for income tax purposes. The contribution of the Symbian OS and S60 software to the Symbian Founda- tion has been accounted for as a retirement. Thus, the Group has recognised a loss on retirement of EUR 165 million consisting of EUR 55 million book value of Symbian identifiable intangible assets and EUR 110 million book value of capitalised S60 development costs. For NAVTEQ and Symbian, the Group has included net losses of EUR 155 million and EUR 52 million, respectively, in the consolidated profit and loss. The following table depicts pro forma net sales and operating profit of the combined entity as though the acquisition of NAVTEQ and Symbian had occurred on January 1, 2008: Pro forma (unaudited), EURm Net sales Net profit 2008 51 063 4 080 During 2008, the Group completed five additional acquisitions. The total purchase consideration paid and the total goodwill arising from these acquisitions amounted to EUR 514 million and EUR 339 million, respectively. The goodwill arising from these acquisitions is attributable to assembled workforce and post acquisition synergies. » Trolltech ASA, based in Oslo, Norway, is a recognised software provider with world-class software development platforms and frameworks. The Group acquired a 100% ownership interest in Trolltech ASA on June 6, 2008. » Oz Communications Inc., headquartered in Montreal, Canada, is a leading con- sumer mobile messaging solution provider delivering access to popular instant messaging and email services on consumer mobile devices. The Group acquired a 100% ownership interest in Oz Communications Inc. on November 4, 2008. » » Atrica, based in Santa Clara, USA, is one of the leading providers of Carrier Ethernet solutions for Metropolitan Area Networks. Nokia Siemens Networks acquired a 100% ownership interest in Atrica on January 7, 2008. Apertio Ltd, based in Bristol, England is the leading independent provider of subscriber-centric networks for mobile, fixed and converged telecommunica- tions operators. Nokia Siemens Networks acquired a 100% ownership interest in Apertio Ltd on February 11, 2008. » On January 1, 2008, Nokia Siemens Networks assumed control of Vivento Tech- nical Services from Deutsche Telekom. Notes to the consolidated financial statements Acquisitions completed in 2007 The Group and Siemens AG (Siemens) completed a transaction to form Nokia Sie- mens Networks on April 1, 2007. Nokia and Siemens contributed to Nokia Siemens Networks certain tangible and intangible assets and certain business interests that comprised Nokia’s networks business and Siemens’ carrier-related operations. This transaction combined the worldwide mobile and fixed-line telecommunications network equipment businesses of Nokia and Siemens. Nokia and Siemens each own approximately 50% of Nokia Siemens Networks. Nokia has the ability to appoint key officers and the majority of the members of the Board of Directors. Accordingly, for accounting purposes, Nokia is deemed to have control and thus consolidates the results of Nokia Siemens Networks in its financial statements. The transfer of Nokia’s networks business was treated as a partial sale to the minority shareholders of Nokia Siemens Networks. Accordingly, the Group recognised a non-taxable gain on the partial sale amounting to EUR 1 879 million. The gain was determined as the Group’s ownership interest relinquished for the difference between the fair value contributed, representing the consideration received, and book value of the net assets contributed by the Group to Nokia Siemens Networks. Upon closing of the transaction, Nokia and Siemens contributed net assets with book values amounting to EUR 1 742 million and EUR 2 385 million, respectively. The Group’s contributed networks business was valued at EUR 5 500 million. In addition, the Group incurred costs directly attributable to the acquisition of EUR 51 million. The table below presents the reported results of Nokia Networks prior to the formation of Nokia Siemens Networks and the reported results of Nokia Siemens Networks since inception. EURm Net sales Nokia Networks Nokia Siemens Networks Total Operating profit Nokia Networks Nokia Siemens Networks Total 2007 2006 January–March April–December Total January–March April–December Total 1 697 * 1 697 78 * 78 * 11 696 11 696 * –1 386 –1 386 1 697 11 696 13 393 78 –1 386 –1 308 1 699 N/A 1 699 149 N/A 149 5 754 N/A 5 754 659 N/A 659 7 453 N/A 7 453 808 N/A 808 * No results presented as Nokia Siemens Networks began operations on April 1, 2007. It is not practicable to determine the results of the Siemens’ carrier-related opera- tions for the three month period of January 1, 2007 through March 31, 2007 as Siemens did not report those operations separately. As a result pro forma revenues and operating profit as if the acquisition had occurred as of January 1, 2007 have not been presented. The following table summarizes the estimated fair values of the assets ac- quired and liabilities assumed at the date of acquisition. 27 Notes to the consolidated financial statements Carrying amount EURm Fair value EURm Useful lives Years » Twango, provides a comprehensive media sharing solution for organising and sharing photos, videos and other personal media. The Group acquired substan- tially all assets of Twango on July 25, 2007. — — — 143 47 190 371 111 153 825 1 010 3 135 870 55 382 5 452 6 277 171 34 205 231 1 539 1 344 463 3 577 3 782 110 2 385 Intangible assets subject to amortization: Customer relationships Developed technology License to use trade name and trademark Capitalized development costs Other intangible assets Property, plant & equipment Deferred tax assets Other non-current assets Non-current assets Inventories Accounts receivable Prepaid expenses and accrued income Other financial assets Bank and cash Current assets Total assets acquired Deferred tax liabilities Long-term interest-bearing liabilities Non-current liabilities Short-term borrowings Accounts payable Accrued expenses Provisions Current liabilities Total liabilities assumed Minority interest Net assets acquired Cost of acquisition Goodwill Less non-controlling interest in goodwill Plus costs directly attributable to the acquisition Goodwill arising on formation of Nokia Siemens Networks 1 290 710 350 154 47 2 551 344 181 153 3 229 1 138 3 087 846 55 382 5 508 8 737 997 34 1 031 213 1 491 1 502 397 3 603 4 634 108 3 995 5 500 1 505 753 51 803 The goodwill of EUR 803 million has been allocated to the Nokia Siemens Networks segment. The goodwill is attributable to assembled workforce and the synergies expected to arise subsequent to the acquisition. None of the goodwill acquired is expected to be deductible for income tax purposes. The amount of the loss specifically attributable to the business acquired from Siemens since the acquisition date included in the Group’s profit for the period has not been disclosed as it is not practicable to do so. This is due to the ongoing inte- gration of the acquired Siemens’ carrier-related operations and Nokia’s networks business, and management’s focus on the operations and results of the combined entity, Nokia Siemens Networks. During 2007, the Group completed the acquisition of the following three com- panies. The purchase consideration paid and goodwill arising from these acquisi- tions was not material to the Group. » » Enpocket Inc., based in Boston, USA, a global leader in mobile advertising providing technology and services that allow brands to plan, create, execute, measure and optimise mobile advertising campaigns around the world. The Group acquired 100% ownership interest in Enpocket Inc. on October 5, 2007. Avvenu Inc., based in Palo Alto, USA, provides internet services that allow anyone to use their mobile devices to securely access, use and share personal computer files. The Group acquired 100% ownership interest in Avvenu Inc. on December 5, 2007. 28 Nokia in 2009 6 4 5 3 3–5 9. Depreciation and amortization EURm 2009 2008 2007 Depreciation and amortization by function Cost of sales Research and development 1 Selling and marketing 2 Administrative and general Total 266 909 424 185 1 784 297 778 368 174 1 617 303 523 232 148 1 206 1 2 In 2009, depreciation and amortization allocated to research and development included amortization of acquired intangible assets of EUR 534 million (EUR 351 million in 2008 and EUR 136 million in 2007, respectively). In 2009, depreciation and amortization allocated to selling and marketing included amortization of acquired intangible assets of EUR 401 million (EUR 343 million in 2008 and EUR 214 million in 2007, respectively). 10. Financial income and expenses EURm 2009 2008 2007 3 — 101 –243 Dividend income on available-for-sale financial investments Interest income on available-for-sale financial investments Interest income on loans receivables carried at amortised cost Interest expense on financial liabilities carried at amortised cost Net realised gains (or losses) on disposal of fixed income available-for-sale financial investments Net fair value gains (or losses) on investments at fair value through profit and loss Interest income on investments at fair value through profit and loss Net fair value gains (or losses) on hedged items under fair value hedge accounting Net fair value gains (or losses) on hedging instruments under fair value hedge accounting — 18 Other financial income Other financial expenses –29 Net foreign exchange gains (or losses) From foreign exchange derivatives 11 19 –4 2 1 357 — — 355 1 –185 –43 –4 — — — — 17 –31 –17 — — — — 43 –24 designated at fair value through profit and loss account From balance sheet items revaluation Net gains (net losses) on other derivatives designated at fair value through profit and loss account Total –358 230 –15 –265 432 –595 37 –118 6 –2 5 239 During 2008, interest expense has increased significantly due to increase in interest- bearing liabilities mainly related to NAVTEQ acquisition. Foreign exchange gains (or losses) have increased due to higher cost of hedging and increased volatility on the foreign exchange market. During 2009, interest income has decreased significantly due to lower interest rates and interest expense has increased given higher long- term funding with higher cost. 11. Income taxes 12. Intangible assets Notes to the consolidated financial statements 2009 2008 2007 EURm 2009 2008 EURm Income tax Current tax Deferred tax Total Finland Other countries Total –736 34 –702 76 –778 –702 –1 514 433 –1 081 –604 –477 –1 081 –2 209 687 –1 522 –1 323 –199 –1 522 The differences between income tax expense computed at statutory rate (in Finland 26%) and income taxes recognized in the consolidated income statement is recon- ciled as follows at December 31, 2009: EURm Income tax expense at statutory rate Permanent differences Non-taxable gain on the formation of Nokia Siemens Networks 1 Non tax deductible impairment of Nokia Siemens Networks’ goodwill 2 Taxes for prior years Taxes on foreign subsidiaries’ profits in excess of (lower than) income taxes at statutory rates Change in losses and temporary differences with no tax effect 3 Net increase (+)/decrease (–) in tax contingencies 4 Change in income tax rates Deferred tax liability on undistributed earnings 5 Other Income tax expense 1 See note 8 2 See Note 7 2009 250 –96 — 236 –17 2008 1 292 –65 2007 2 150 61 — –489 — –128 — 20 –145 –181 –138 577 –186 4 111 –32 702 — 2 –22 220 –37 1 081 15 50 –114 –37 4 1 522 3 In 2009 this item primarily relates to Nokia Siemens Networks’ losses and temporary differences for which no deferred tax was recognized. 4 See Note 26 5 In 2008 and 2007 the change in deferred tax liability on undistributed earnings mainly related to changes to tax rates applicable to profit distributions. Certain of the Group companies’ income tax returns for periods ranging from 2003 through 2009 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. Capitalized development costs Acquisition cost January 1 Additions during the period Retirements during the period Disposals during the period Accumulated acquisition cost December 31 Accumulated amortization January 1 Retirements during the period Disposals during the period Amortization for the period Accumulated amortization December 31 Net book value January 1 Net book value December 31 Goodwill Acquisition cost January 1 Translation differences Acquisitions Disposals during the period Impairments during the period Other changes Accumulated acquisition cost December 31 Net book value January 1 Net book value December 31 Other intangible assets Acquisition cost January 1 Translation differences Additions during the period Acquisitions Retirements during the period Impairments during the period Disposals during the period Accumulated acquisition cost December 31 Accumulated amortization January 1 Translation differences Retirements during the period Impairments during the period Disposals during the period Amortization for the period Accumulated amortization December 31 Net book value January 1 Net book value December 31 1 811 27 — –8 1 830 –1 567 — 8 –128 –1 687 244 143 6 257 –207 32 –3 –908 — 5 171 6 257 5 171 5 498 –142 50 3 –26 –94 –2 5 287 –1 585 56 17 38 2 –1 053 –2 525 3 913 2 762 1 817 131 –124 –13 1 811 –1 439 14 11 –153 –1 567 378 244 1 384 431 4 482 –35 — –5 6 257 1 384 6 257 3 218 265 95 2 189 –55 — –214 5 498 –860 –32 — — 48 –741 –1 585 2 358 3 913 29 Notes to the consolidated financial statements 13. Property, plant and equipment EURm 2009 2008 EURm 2009 2008 Advance payments and fixed assets under construction Net carrying amount January 1 Translation differences Additions Acquisitions Disposals Transfers to: Other intangible assets Buildings and constructions Machinery and equipment Other tangible assets Net carrying amount December 31 105 –2 29 — –1 –3 –34 –36 –13 45 154 — 67 26 –13 –12 –76 –41 — 105 Total property, plant and equipment 1 867 2 090 14. Investments in associated companies EURm 2009 2008 Net carrying amount January 1 Translation differences Additions Deductions 1 Impairment Share of results Dividends Other movements Net carrying amount December 31 96 –4 30 –50 –19 30 — –14 69 325 –19 24 –239 –8 6 –6 13 96 1 On December 2, 2008, the Group completed its acquisition of 52.1% of the outstanding common stock of Symbian Ltd, a UK based software licensing company. As a result of this acquisition, the Group’s total ownership interest has increased from 47.9% to 100% of the outstanding common stock of Symbian. See Note 8. Shareholdings in associated companies are comprised of investments in unlisted companies in all periods presented. Land and water areas Acquisition cost January 1 Translation differences Additions during the period Impairments during the period Disposals during the period Accumulated acquisition cost December 31 Net book value January 1 Net book value December 31 Buildings and constructions Acquisition cost January 1 Translation differences Additions during the period Acquisitions Impairments during the period Disposals during the period Accumulated acquisition cost December 31 Accumulated depreciation January 1 Translation differences Impairments during the period Disposals during the period Depreciation for the period Accumulated depreciation December 31 Net book value January 1 Net book value December 31 Machinery and equipment Acquisition cost January 1 Translation differences Additions during the period Acquisitions Impairments during the period Disposals during the period Accumulated acquisition cost December 31 Accumulated depreciation January 1 Translation differences Impairments during the period Disposals during the period Depreciation for the period Accumulated depreciation December 31 Net book value January 1 Net book value December 31 Other tangible assets Acquisition cost January 1 Translation differences Additions during the period Accumulated acquisition cost December 31 Accumulated depreciation January 1 Translation differences Depreciation for the period Accumulated depreciation December 31 Net book value January 1 Net book value December 31 30 Nokia in 2009 60 — 1 — –2 59 60 59 1 274 –17 132 — — –77 1 312 –350 3 — 42 –80 –385 924 927 4 183 –67 386 1 –1 –518 3 984 –3 197 50 — 489 –510 –3 168 986 816 30 –2 19 47 –15 1 –13 –27 15 20 73 –4 3 –4 –8 60 73 60 1 008 –9 382 28 –90 –45 1 274 –239 1 30 17 –159 –350 769 924 4 012 10 613 68 –21 –499 4 183 –3 107 –8 8 466 –556 –3 197 905 986 20 2 8 30 –9 — –6 –15 11 15 15. Fair value of financial instruments Carrying amounts Notes to the consolidated financial statements Current Non-current available- for-sale financial assets available- for-sale financial assets At December 31, 2009, EURm Available-for-sale investments in publicly quoted equity shares Other available-for-sale investments carried at fair value Other available-for-sale investments carried at cost less impairment Long-term loans receivable Other non-current assets Accounts receivable Current portion of long-term loans receivable Derivative assets Other current financial assets Fixed income and money-market investments carried at fair value 7 151 Investments designated at fair value through profit and loss Total financial assets Long-term interest-bearing liabilities Other long-term non-interest bearing financial liabilities Current portion of long-term loans payable 7 151 8 257 258 31 554 Short-term borrowings Derivative liabilities Accounts payable Total financial liabilities At December 31, 2008, EURm — — Available-for-sale investments in publicly quoted equity shares Other available-for-sale investments carried at fair value Other available-for-sale investments carried at cost less impairment 8 225 241 Long-term loans receivable Other non-current assets Accounts receivable Current portion of long-term loans receivable Derivative assets Other current financial assets Fixed income and money-market investments carried at fair value Total financial assets Long-term interest-bearing liabilities Other long term non-interest bearing financial liabilities Current portion of long-term loans payable Short-term borrowings Derivative liabilities Accounts payable Total financial liabilities 5 114 5 114 38 512 1 014 9 602 — — 924 924 — Financial instruments at fair value Loans and receivables Financial liabilities through measured at measured at amortised profit or cost loss amortised cost 316 580 896 245 245 1 014 Total carrying amounts Fair value 8 257 258 46 6 8 257 258 40 6 7 981 7 981 14 316 13 7 182 580 16 661 4 432 2 44 727 245 14 316 13 7 182 580 16 655 4 691 2 44 727 245 46 6 7 981 14 13 8 060 — 4 432 2 44 727 — 4 950 10 155 4 950 10 400 4 950 10 659 27 10 9 444 101 20 8 225 241 27 10 9 444 101 1 014 20 5 152 16 242 861 3 13 3 578 924 5 225 8 225 241 24 10 9 444 101 1 014 20 5 152 16 239 855 3 13 3 578 924 5 225 10 604 10 598 — 861 3 13 3 578 5 225 9 680 The current fixed income and money-market investments included available-for- sale liquid assets of EUR 2 367 million (EUR 1 272 million in 2008) and cash equiva- lents of EUR 4 784 million (EUR 3 842 million in 2008). See Note 33, section Financial Credit Risk, for details on fixed income and money-market investments. The fair value of loan receivables and payables is estimated based on the current market values of similar instruments. Fair value is estimated to be equal to the carrying amount for short-term financial assets and financial liabilities due to limited credit risk and short time to maturity. For information about the valuation of items measured at fair value see Note 1. In the tables above fair value is set to carrying amount for other available-for- sale investments carried at cost less impairment for which no reliable fair value has been possible to estimate. The amount of change in the fair value of investments designated at fair value through profit and loss attributable to changes in the credit risk of the assets was deemed inconsequential during 2009. Fair value changes that are attributable to changes in market conditions are calculated based on relevant benchmark interest rates. 31 Notes to the consolidated financial statements Note 16 includes the split of hedge accounted and non-hedge accounted derivatives. The following table presents the valuation methods used to determine fair values of financial instruments carried at fair value: At December 31, 2009, EURm Fixed income and money-market investments carried at fair value Investments at fair value through profit and loss Available-for-sale investments in publicly quoted equity shares Other available-for-sale investments carried at fair value Derivative assets Total assets Derivative liabilities Total liabilities Instruments with quoted prices in active markets (Level 1) Valuation technique using observable data (Level 2) Valuation technique using non- observable data (Level 3) 6 933 580 8 — — 7 521 — — 249 — — 15 316 580 245 245 — — — 242 — 242 — — Total 7 182 580 8 257 316 8 343 245 245 Level 1 category includes financial assets and liabilities that are measured in whole or in significant part by reference to published quotes in an active market. A finan- cial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly oc- curring market transactions on an arm’s length basis. This category includes listed bonds and other securities, listed shares and exchange traded derivatives. Level 2 category includes financial assets and liabilities measured using a valuation technique based on assumptions that are supported by prices from ob- servable current market transactions. These include assets and liabilities for which pricing is obtained via pricing services, but where prices have not been determined in an active market, financial assets with fair values based on broker quotes and assets that are valued using the Group’s own valuation models whereby the mate- rial assumptions are market observable. The majority of Group’s over-the-counter derivatives and several other instruments not traded in active markets fall within this category. Level 3 category includes financial assets and liabilities measured using valua- tion techniques based on non market observable inputs. This means that fair values are determined in whole or in part using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data. However, the fair value measurement objective remains the same, that is, to estimate an exit price from the perspective of the Group. The main asset classes in this category are unlisted equity investments as well as unlisted funds. The following table shows a reconciliation of the opening and closing recorded amount of Level 3 financial assets and liabilities which are measured at fair value: EURm Other available- for-sale investments carried at fair value Balance at December 31, 2008 Total gains/losses in income statement Total gains/losses recorded in other comprehensive income Purchases Sales Transfer from level 1 and 2 At December 31, 2009 214 –30 15 45 –2 — 242 The gains and losses from Level 3 financial instruments are included in the line other operating expenses of the profit and loss for the period. A net loss of EUR 14 million related to Level 3 financial instruments held at December 31, 2009, was included in the profit and loss during 2009. 32 Nokia in 2009 Notes to the consolidated financial statements 16. Derivative financial instruments 17. Inventories 2009, EURm Hedges of net investment in foreign subsidiaries: Assets Liabilities EURm Fair Fair value 1 Notional 2 value 1 Notional 2 Raw materials, supplies and other Work in progress Finished goods Total 2009 409 681 775 1 865 2008 519 744 1 270 2 533 Forward foreign exchange contracts 12 1 128 –42 2 317 Cash flow hedges: Forward foreign exchange contracts 25 — Interest rate swaps 8 062 — –25 –2 7 027 330 18. Prepaid expenses and accrued income Prepaid expenses and accrued income totalled EUR 4 551 million (EUR 4 538 million in 2008). In 2009, prepaid expenses and accrued income included advance payments to Qualcomm of EUR 1 264 million (1 358 million in 2008). In 2008, Nokia and Qualcomm entered into a new 15-year-agreement, under the terms of which Nokia has been granted a license to all Qualcomm’s patents for the use in Nokia mobile devices and Nokia Siemens Networks infrastructure equipment. The financial structure of the agreement included an up-front payment of EUR 1.7 billion, which is amortized over the contract period and on-going royalties payable to Qualcomm. As part of the licence agreement, Nokia also assigned ownership of a number of patents to Qual- comm. These patents were valued using the income approach based on projected cash flows, on a discounted basis, over the assigned patents’ estimated useful life. Based on the valuation and underlying assumptions Nokia determined that the fair value of these patents were not material. In addition, prepaid expenses and accrued income primarily consists of VAT and other tax receivables. Prepaid expenses and accrued income also include prepaid pension costs, accrued interest income and other accrued income, but no amounts which are individually significant. Fair value hedges Interest rate swaps 117 1 750 –10 Cash flow and fair value hedges: 4 Cross currency interest rate swaps — — –77 Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss: Forward foreign exchange contracts 147 8 Currency options bought — Currency options sold Interest rate swaps 7 Cash settled equity options bought 3 — 316 5 785 442 — 68 6 17 241 –68 — –1 –20 — –245 68 416 6 504 — 102 499 — 17 263 2008, EURm Hedges of net investment in foreign in foreign subsidiaries: Forward foreign exchange contracts 80 30 Currency options bought — Currency options sold 1 045 724 — –14 — –44 472 — 768 Cash flow hedges: Forward foreign exchange contracts 562 14 577 –445 11 792 Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss: Forward foreign exchange contracts 322 6 Currency options bought — Currency options sold 6 Interest rate futures 7 Interest rate swaps Cash settled equity options bought 3 1 Cash settled equity options sold 3 — 1 014 7 817 201 — 21 618 25 — 25 028 –416 — –5 — — — — –924 7 370 — 186 — — — –13 20 575 1 The fair value of derivative financial instruments is included on the asset side under heading Other financial assets and on the liability side under Other financial liabilities. 2 Includes the gross amount of all notional values for contracts that have not yet been settled or can- celled. 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. 3 Cash settled equity options are used to hedge risk relating to employee incentive programs and invest- ment activities. 4 These cross-currency interest rate swaps have been designated partly as fair value hedges and partly as cash flow hedges. 33 Notes to the consolidated financial statements 19. Valuation and qualifying accounts EURm Allowances on assets to which they apply: Balance at beginning of year Charged to cost and expenses Deductions 1 Acquisitions 2009 Allowance for doubtful accounts Excess and obsolete inventory 2008 Allowance for doubtful accounts Excess and obsolete inventory 2007 Allowance for doubtful accounts Excess and obsolete inventory 1 Deductions include utilization and releases of the allowances. 415 348 332 417 212 218 155 192 224 151 38 145 – 179 – 179 – 141 – 221 – 72 – 202 — — — 1 154 256 Balance at end of year 391 361 415 348 332 417 34 Nokia in 2009 Notes to the consolidated financial statements 20. Fair value and other reserves EURm Gross Tax Net Gross Tax Net Gross Tax Net Balance at December 31, 2006 69 – 19 50 – 66 2 – 64 3 – 17 – 14 Hedging reserve, Available-for-sale investments Total Cash flow hedges: Net fair value gains (+)/losses (–) Transfer of gains (–)/losses (+) to profit and loss account as adjustment to net sales Transfer of gains (–)/losses (+) to profit and loss account as adjustment to cost of sales Available-for-sale Investments: Net fair value gains (+)/losses (–) Transfer to profit and loss account on impairment Transfer of net fair value gains (–)/losses (+) to profit and loss account on disposal Movements attributable to minority interests Balance at December 31, 2007 Cash flow hedges: Net fair value gain (+)/losses (–) Transfer of gains (–)/losses (+) to profit and loss account as adjustment to net sales Transfer of gains (–)/losses (+) to profit and loss account as adjustment to cost of sales Transfer of gains (–)/losses (+) as a basis adjustment to assets and liabilities Available-for-sale Investments: Net fair value gains (+)/losses (–) Transfer to profit and loss account on impairment Transfer of net fair value gains (–)/losses (+) to profit and loss account on disposal Movements attributable to minority interests Balance at December 31, 2008 Cash flow hedges: Net fair value gains (+)/losses (–) Transfer of gains (–)/losses (+) to profit and loss account as adjustment to net sales Transfer of gains (–)/losses (+) to profit and loss account as adjustment to cost of sales Available-for-sale Investments: Net fair value gains (+)/losses (–) Transfer to profit and loss account on impairment Transfer of net fair value gains (–)/losses (+) to profit and loss account on disposal Movements attributable to minority interests Balance at December 31, 2009 103 – 27 76 – 794 214 – 580 684 – 185 499 — — — – 8 54 — — — 2 – 15 — — — – 6 39 281 – 67 214 – 631 177 – 454 186 – 62 124 124 – 32 92 — — — 87 101 — — — – 21 – 20 — — — 66 81 – 19 6 – 13 873 – 222 651 – 829 205 – 624 — — — – 65 — — — 16 61 – 15 — — — – 49 46 — — — 32 29 – 12 — – 17 — — — — – 29 1 13 3 – 29 — — — 36 14 – 2 – 2 17 — — — – 1 — — — 1 — — — — 9 — 1 – 1 10 — — — – 4 — — — 6 — — — 31 29 – 12 — – 16 — — — — – 20 1 14 2 – 19 — — — 32 14 – 2 – 2 23 103 – 27 76 – 794 214 – 580 684 – 185 499 32 29 – 12 – 8 37 – 1 — — 2 – 14 31 29 – 12 – 6 23 281 – 67 214 – 631 177 – 454 186 – 62 124 124 – 32 92 – 29 1 13 90 72 9 — 1 – 22 – 10 – 20 1 14 68 62 – 19 6 – 13 873 – 222 651 – 829 205 – 624 36 14 – 2 – 67 78 – 4 — — 16 – 9 32 14 – 2 – 51 69 The presentation of the “Fair value and other reserves” footnote has been changed to correspond with the presentation of the Statement of Comprehensive Income. es on forward exchange contracts that have been designated to hedge forecasted sales or purchases that are no longer expected to occur. In order to ensure that amounts deferred in the cash flow hedging reserve rep- resent only the effective portion of gains and losses on properly designated 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 rec- ognized in the profit and loss account. The appropriate reserve balance is calculated at the end of each period and posted to the fair value and other reserves. All of the net fair value gains or losses recorded in the fair value and other reserve at December 31, 2009 on open forward foreign exchange contracts which hedge anticipated future foreign currency sales or purchases are transferred from the Hedging Reserve to the profit and loss account when the forecasted foreign cur- rency cash flows occur, at various dates up to approximately 1 year from the balance sheet date. The Group continuously reviews the underlying cash flows and the hedges allocated thereto, to ensure that the amounts transferred to the fair value reserves during the year ended December 31, 2009, 2008 and 2007 do not include gains/loss- 35 Notes to the consolidated financial statements 21. Translation differences EURm Gross Tax Net Gross Tax Net Gross Tax Net Translation differences Net investment hedging Total Balance at December 31, 2006 Translation differences: Currency translation differences Transfer to profit and loss (financial income and expense) Net investment hedging: Net investment hedging gains (+)/losses (–) Transfer to profit and loss (financial income and expense) Movements attributable to minority interests Balance at December 31, 2007 Translation differences: Currency translation differences Transfer to profit and loss (financial income and expense) Net investment hedging: Net investment hedging gains (+)/losses (–) Transfer to profit and loss (financial income and expense) Movements attributable to minority interests Balance at December 31, 2008 Translation differences: Currency translation differences Transfer to profit and loss (financial income and expense) Net investment hedging: Net investment hedging gains (+)/losses (–) Transfer to profit and loss (financial income and expense) Movements attributable to minority interests Balance at December 31, 2009 –37 — –37 41 –38 3 4 –38 –34 –151 — — — –16 –204 595 — — — — 391 –556 –7 — — 8 –164 — — — — — — — — — — — — 2 — — — 1 3 –151 — — — –16 –204 595 — — — — 391 –554 –7 — — 9 –161 — — 51 — — 92 — — –123 — — — — –13 — — –51 — — 32 — — –31 –19 — — 114 1 — 84 — — –31 — — –50 — — 38 — — 41 — — –91 — — –50 — — 83 1 — 34 –151 — 51 — –16 — — –151 — –13 — — 38 — –16 –112 –51 –163 595 — –123 — — — — 32 — — 360 –19 595 — –91 — — 341 –556 –7 2 — –554 –7 114 1 8 –80 –31 — 1 83 1 9 –47 –127 22. The shares of the Parent Company Nokia shares and shareholders Shares and share capital Nokia has one class of shares. Each Nokia share entitles the holder to one vote at General Meetings of Nokia. On December 31, 2009, the share capital of Nokia Corporation was EUR 245 896 461.96 and the total number of shares issued was 3 744 956 052. On December 31, 2009, the total number of shares included 36 693 564 shares owned by Group companies representing approximately 1.0% of the share capital and the total voting rights. Under the Articles of Association of Nokia, Nokia Corporation does not have minimum or maximum share capital or a par value of a share. Authorizations Authorization to increase the share capital At the Annual General Meeting held on May 3, 2007, Nokia shareholders authorized the Board of Directors to issue a maximum of 800 million new shares through one or more issues of shares or special rights entitling to shares, including stock options. The Board of Directors may issue either new shares or shares held by the Company. The authorization includes the right for the Board to resolve on all the terms and conditions of such issuances of shares and special rights, including to whom the shares and the special rights may be issued. The authorization is effective until June 30, 2010. At the end of 2009, the Board of Directors had no other authorizations to issue shares, convertible bonds, warrants or stock options. Other authorizations At the Annual General Meeting held on May 8, 2008, Nokia shareholders authorized the Board of Directors to repurchase a maximum of 370 million Nokia shares by using funds in the unrestricted shareholders’ equity. Nokia repurchased 71 090  000 shares under this authorization in 2008. In 2009, Nokia did not repurchase any shares on the basis of this authorization. This authorization was effective until June 30, 2009 as per the resolution of the Annual General Meeting on May 8, 2008, but it was terminated by the resolution of the Annual General Meeting on April 23, 2009. At the Annual General Meeting held on April 23, 2009, Nokia shareholders authorized the Board of Directors to repurchase a maximum of 360 million Nokia shares by using funds in the unrestricted shareholders’ equity. The amount of shares corresponds to less than 10% of all shares of the company. The shares may be repur- chased under the buy-back authorization in order to develop the capital structure of the company. In addition, shares may be repurchased in order to finance or carry out acquisitions or other arrangements, to settle the company’s equity-based incentive plans, to be transferred for other purposes, or to be cancelled. Nokia has not pur- chased any shares based on this authorization. The authorization is effective until June 30, 2010 and the authorization terminated the authorization for repurchasing of the Company’s shares resolved at the Annual General Meeting on May 8, 2008. 36 Nokia in 2009 Notes to the consolidated financial statements Authorizations proposed to the Annual General Meeting 2010 The Board of Directors will propose to the Annual General Meeting to be held on May 6, 2010 that the Annual General Meeting authorize the Board to resolve to re- purchase a maximum of 360 million Nokia shares by using funds in the unrestricted shareholders’ equity. The proposed maximum number of shares represents less than 10% of all the shares of the Company. The shares may be repurchased in order to develop the capital structure of the Company, finance or carry out acquisitions or other arrangements, settle the Company’s equity-based incentive plans, be trans- ferred for other purposes, or be cancelled. The authorization would be effective until June 30, 2011 and terminate the current authorization granted by the Annual General Meeting on April 23, 2009. The Board of Directors will also propose to the Annual General Meeting to be held on May 6, 2010 that the Annual General Meeting authorize the Board to resolve to issue a maximum of 740 million shares through issuance of shares or special rights entitling to shares (including stock options) in one or more issues. The Board proposes that the authorization may be used to develop the Company’s capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements, settle the Company’s equity-based incentive plans, or for other purposes resolved by the Board. The proposed authorization includes the right for the Board to resolve on all the terms and conditions of the issuance of shares and special rights entitling to shares, including issuance in deviation from the shareholders’ pre-emptive rights. The authorization would be effective until June 30, 2013 and terminate the current authorization granted by the Annual General Meeting on May 3, 2007. 23. Share-based payment The Group has several equity-based incentive programs for employees. The pro- grams include performance share plans, stock option plans and restricted share plans. Both executives and employees participate in these programs. The equity-based incentive grants are generally conditional upon continued employment as well as fulfillment of such performance, service and other condi- tions, as determined in the relevant plan rules. The share-based compensation expense for all equity-based incentive awards amounted to EUR 16 million in 2009 (EUR 74 million in 2008 and EUR 228 million in 2007). Stock options Nokia’s global stock option plans in effect for 2009, including their terms and condi- tions, were approved by the Annual General Meetings in the year when each plan was launched, i.e., in 2003, 2005 and 2007. Each stock option entitles the holder to subscribe for one new Nokia share. The stock options are non-transferable. All of the stock options have a vesting schedule with 25% of the options vesting one year after grant and 6.25% each quarter there- after. The stock options granted under the plans generally have a term of five years. The exercise price of the stock options is determined at the time of grant on a quarterly basis. The exercise prices are determined in accordance with a pre-agreed schedule quarterly after the release of Nokia’s periodic financial results and are based on the trade volume weighted average price of a Nokia share on NASDAQ OMX Helsinki during the trading days of the first whole week of the second month of the respective calendar quarter (i.e., February, May, August or November). Exercise prices are determined on a one-week weighted average to mitigate any short term fluctuations in Nokia’s share price. The determination of exercise price is defined in the terms and conditions of the stock option plan, which are approved by the share- holders at the respective Annual General Meeting. The Board of Directors does not have the right to amend the above-described determination of the exercise price. The stock option exercises are settled with newly issued Nokia shares which entitle the holder to a dividend for the financial year in which the subscription occurs. Other shareholder rights commence on the date on which the shares sub- scribed for are registered with the Finnish Trade Register. Pursuant to the stock options issued under the global stock option plans, an aggregate maximum number of 22 755 509 new Nokia shares may be subscribed for, representing 0.6% of the total number of votes at December 31, 2009. During 2009, the exercise of 7 500 options resulted in the issuance of 7 500 new shares. The exercises of stock options resulted in an increase of Nokia’s share capital prior to May 3, 2007. After that date the exercises of stock options have no longer resulted in an increase of the share capital as thereafter all share subscription prices are recorded in the fund for invested non-restricted equity as per a resolution by the Annual General Meeting. There were no stock options outstanding as of December 31, 2009, which upon exercise would result in an increase of the share capital of the parent company. 37 Notes to the consolidated financial statements The table below sets forth certain information relating to the stock options out- standing at December 31, 2009. Stock Plan options (year of outstanding 2009 launch) Number of participants (approx.) Option (sub) category Vesting status (as percentage of total number of stock options outstanding) 2003 1 0 0 2005 1 12 120 029 7 000 2007 1 10 635 480 9 000 2004 2Q 2004 3Q 2004 4Q 2005 2Q 2005 3Q 2005 4Q 2006 1Q 2006 2Q 2006 3Q 2006 4Q 2007 1Q 2007 2Q 2007 3Q 2007 4Q 2008 1Q 2008 2Q 2008 3Q 2008 4Q 2009 1Q 2009 2Q 2009 3Q 2009 4Q Expired Expired Expired 100.00 100.00 93.75 87.50 81.25 75.00 68.75 62.50 56.25 50.00 43.75 37.50 31.25 25.00 — — — — — 1 The Group’s current global stock option plans have a vesting schedule with a 25% vesting one year after grant, and quarterly vesting thereafter, each of the quarterly lots representing 6.25% of the total grant. The grants vest fully in four years. Total stock options outstanding as at December 31, 2009 1 Exercise period First vest date Last vest date Expiry date July 1, 2005 July 1, 2008 December 31, 2009 October 3, 2005 October 1, 2008 December 31, 2009 January 2, 2006 January 2, 2009 December 31, 2009 July 1, 2006 July 1, 2009 December 31, 2010 October 1, 2006 October 1, 2009 December 31, 2010 January 1, 2007 January 1, 2010 December 31, 2010 April 1, 2007 April 1, 2010 December 31, 2011 July 1, 2007 July 1, 2010 December 31, 2011 October 1, 2007 October 1, 2010 December 31, 2011 January 1, 2008 January 1, 2011 December 31, 2011 April 1, 2008 April 1, 2011 December 31, 2011 July 1, 2008 July 1, 2011 December 31, 2012 October 1, 2008 October 1, 2011 December 31, 2012 January 1, 2009 January 1, 2012 December 31, 2012 April 1, 2009 April 1, 2012 December 31, 2013 July 1, 2009 July 1, 2012 December 31, 2013 October 1, 2009 October 1, 2012 December 31, 2013 January 1, 2010 January 1, 2013 December 31, 2013 April 1, 2010 April 1, 2013 December 31, 2014 July 1, 2010 July 1, 2013 December 31, 2014 October 1, 2010 October 1, 2013 December 31, 2014 January 1, 2011 January 1, 2014 December 31, 2014 Exercise price/share EUR 11.79 9.44 12.35 12.79 13.09 14.48 14.99 18.02 15.37 15.38 17.00 18.39 21.86 27.53 24.15 19.16 17.80 12.43 9.82 11.18 9.28 8.76 Number of shares Weighted average exercise price, EUR 2 Weighted average share price, EUR 2 Shares under option at January 1, 2007 Granted Exercised Forfeited Expired Shares under option at December 31, 2007 Granted Exercised Forfeited Expired Shares under option at December 31, 2008 Granted Exercised Forfeited Expired Shares under option at December 31, 2009 Options exercisable at December 31, 2006 (shares) Options exercisable at December 31, 2007 (shares) Options exercisable at December 31, 2008 (shares) Options exercisable at December 31, 2009 (shares) 93 285 229 3 211 965 57 776 205 1 992 666 1 161 096 35 567 227 3 767 163 3 657 985 783 557 11 078 983 23 813 865 4 791 232 104 172 893 943 4 567 020 23 039 962 69 721 916 21 535 000 12 895 057 13 124 925 21.75 22.15 9.52 16.28 18.48 16.99 15.13 17.83 15.28 17.44 14.21 16.31 14.96 15.89 11.15 6.18 17.01 13.55 15.39 16.65 14.66 14.77 16.09 1 Includes also stock options granted under other than global equity plans. For further information see 2 The weighted average exercise price and the weighted average share price do not incorporate the “Other equity plans for employees” below. effect of transferable stock option exercises during 2007 by option holders not employed by the Group. 38 Nokia in 2009 Notes to the consolidated financial statements The weighted average grant date fair value of stock options granted was EUR 2.34 in 2009, EUR 3.92 in 2008, and EUR 3.24 in 2007. The options outstanding by range of exercise price at December 31, 2009 are as follows: Options outstanding Weighted average remaining contractual life in years Number of shares Weighted average exercise price, EUR 215 987 10 498 214 12 202 542 123 219 23 039 962 4.27 3.06 2.61 2.03 6.07 12.10 18.28 26.63 Exercise prices, EUR 0.81–9.93 10.26–14.99 15.37–19.86 21.86–37.37 Nokia calculates the fair value of stock options using the Black-Scholes model. The fair value of the stock options is estimated at the grant date using the following assumptions: Performance shares The Group has granted performance shares under the global 2005, 2006, 2007, 2008 and 2009 plans, each of which, including its terms and conditions, has been approved by the Board of Directors. A valid authorization from the Annual General Meeting is required when the plans are to be settled by using the Nokia newly issued shares or treasury shares. The Group may also settle the plans by using cash instead of shares. The performance shares represent a commitment by the Group to deliver Nokia shares to employees at a future point in time, subject to Nokia’s fulfillment of pre-defined performance criteria. No performance shares will vest unless the Group’s performance reaches at least one of the threshold levels measured by two independent, pre-defined performance criteria: the Group’s average annual net sales growth for the performance period of the plan and earnings per share (“EPS”) at the end of the performance period. The 2005 plan had a four-year performance period with a two-year interim measurement period. The 2006, 2007, 2008 and 2009 plans have a three-year perfor- mance period with no interim payout. The shares vest after the respective interim measurement period and/or the performance period. The shares will be delivered to the participants as soon as practicable after they vest. Until the Nokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights associated with the performance shares. 2009 2008 2007 The following table summarizes our global performance share plans. Weighted average expected dividend yield Weighted average expected volatility Risk-free interest rate Weighted average risk-free interest rate Expected life (years) Weighted average share price, EUR 3.63% 3.20% 2.30% 43.46% 25.24% 1.97–2.94% 3.15–4.58% 3.79–4.19% 39.92% 2.23% 3.60 10.82 3.65% 3.55 16.97 4.09% 3.59 18.49 Expected term of stock options is estimated by observing general option holder behavior and actual historical terms of Nokia stock option plans. Performance shares out- standing pants Plan at threshold 1, 2 (approx.) Number Interim of partici- measure- ment period 1st 2nd Perform- (interim) (final) settle- settle- ment ment ance period 2005 2006 2007 2008 2009 0 0 0 2 178 538 2 892 063 11 000 2005–2006 2005–2008 N/A 2006–2008 12 000 N/A 2007–2009 5 000 N/A 2008–2010 6 000 N/A 2009–2011 6 000 2007 N/A N/A N/A N/A 2009 2009 2010 2011 2012 1 Shares under performance share plan 2007 vested on December 31, 2009 and are therefore not Expected volatility has been set by reference to the implied volatility of options included in the outstanding numbers. available on Nokia shares in the open market and in light of historical patterns of volatility. 2 Does not include 23 359 outstanding performance shares with deferred delivery due to leave of absence. The following table sets forth the performance criteria of each global performance share plan. Plan 2005 2006 2007 2008 2009 Interim measurement Performance period Performance period Performance period Performance period Performance period Threshold performance Maximum performance EPS 1,2 EUR Average annual net sales growth 1 EPS 1,2 EUR Average annual net sales growth 1 0.75 0.82 0.96 1.26 1.72 1.01 3% 8% 11% 9.5% 4% –5% 0.96 1.33 1.41 1.86 2.76 1.53 12% 17% 26% 20% 16% 10% 1 Both the EPS and average annual net sales growth criteria have an equal weight of 50%. 2 The EPS for 2005, 2006 and 2007 plans: basic reported. The EPS for 2008 plan: diluted excluding special items. The EPS for 2009 plan: diluted non-IFRS. 39 Notes to the consolidated financial statements Performance shares outstanding as at December 31, 2009 1 Number of performance shares at threshold Weighted average grant date fair value, EUR 2 Performance shares at January 1, 2007 3 Granted Forfeited Vested 4 Performance shares at December 31, 2007 5 Granted Forfeited Vested 3, 4, 6 Performance shares at December 31, 2008 Granted Forfeited Vested 5, 7 Performance shares at December 31, 2009 12 614 389 2 163 901 1 001 332 222 400 13 554 558 2 463 033 690 909 7 291 463 8 035 219 2 960 110 691 325 5 210 044 5 093 960 19.96 13.35 9.57 1 Includes also performance shares granted under other than global equity plans. For further informa- 4 Includes also performance shares vested under other than global equity plans. tion see “Other equity plans for employees” below. 2 The fair value of performance shares is estimated based on the grant date market price of the Com- pany’s share less the present value of dividends expected to be paid during the vesting period. 3 Based on the performance of the Group during the Interim Measurement Period 2004–2005, under the 2004 Performance Share Plan, both performance criteria were met. Hence, 3 595 339 Nokia shares equaling the threshold number were delivered in 2006. The performance shares related to the interim settlement of the 2004 Performance Share Plan are included in the number of performance shares out- standing at January 1, 2007 as these performance shares were outstanding until the final settlement in 2008. The final payout, in 2008, was adjusted by the shares delivered based on the Interim Measure- ment Period. There will be no settlement under the Performance Share Plan 2007 as neither of the threshold performance criteria of EPS and Average Annual Net Sales Growth of this plan was met. Restricted shares 5 Based on the performance of the Group during the Interim Measurement Period 2005–2006, under the 2005 Performance Share Plan, both performance criteria were met. Hence, 3 980 572 Nokia shares equaling the threshold number were delivered in 2007. The performance shares related to the interim settlement of the 2005 Performance Share Plan are included in the number of performance shares outstanding at December 31, 2007 as these performance shares were outstanding until the final settlement in 2009. The final payout, in 2009, was adjusted by the shares delivered based on the Interim Measurement Period. 6 Includes performance shares under Performance Share Plan 2006 that vested on December 31, 2008. 7 Includes performance shares under Performance Share Plan 2007 that vested on December 31, 2009. The Group has granted restricted shares under global plans to recruit, retain, reward and motivate selected high potential employees, who are critical to the future suc- cess of Nokia. It is Nokia’s philosophy that restricted shares will be used only for key management positions and other critical talent. The outstanding global restricted share plans, including their terms and conditions, have been approved by the Board of Directors. A valid authorization from the Annual General Meeting is required when the plans are to be settled by using Nokia newly issued shares or treasury shares. The Group may also settle the plans by using cash instead of shares. All of our restricted share plans have a restriction period of three years after grant, after which period the granted shares will vest. Once the shares vest, they will be delivered to the participants. Until the Nokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights, associated with the restricted shares. Restricted shares outstanding as at December 31, 2009 1 Number of restricted shares Weighted average grant date fair value, EUR 2 Restricted shares at January 1, 2007 Granted Forfeited Vested Restricted shares at December 31, 2007 Granted 3 Forfeited Vested Restricted shares at December 31, 2008 Granted Forfeited Vested Restricted shares at December 31, 2009 1 Includes also restricted shares granted under other than global equity plans. For further information see “Other equity plans for employees” below. 2 The fair value of restricted shares is estimated based on the grant date market price of the Company’s share less the present value of dividends, if any, expected to be paid during the vesting period. 3 Includes grants assumed under “NAVTEQ Plan” (as defined below). 40 Nokia in 2009 6 064 876 1 749 433 297 900 1 521 080 5 995 329 4 799 543 358 747 2 386 728 8 049 397 4 288 600 446 695 2 510 300 9 381 002 24.37 13.89 7.59 Notes to the consolidated financial statements At December 31, 2009 the Group had loss carry forwards, primarily attributable to foreign subsidiaries of EUR 1 150 million (EUR 1 013 million in 2008), most of which will expire within 20 years. At December 31, 2009 the Group had loss carry forwards and temporary differ- ences of EUR 2 532 million (EUR 102 million in 2008) for which no deferred tax asset was recognized due to uncertainty of utilization of these items. Most of these items do not have an expiry date. At December 31, 2009 the Group had undistributed earnings of EUR 322 million (EUR 274 million in 2008), for which no deferred tax liability was recognized as these earnings are considered to be permanently invested. 25. Accrued expenses EURm Social security, VAT and other taxes Wages and salaries Advance payments Other Total 2009 2008 1 808 474 546 3 676 6 504 1 700 665 532 4 126 7 023 Other operating expense accruals include deferred service revenue, accrued discounts, royalties and marketing expenses as well as various amounts which are individually insignificant. Other equity plans for employees In addition to the global equity plans described above, the Group sponsors immate- rial equity plans for Nokia-acquired businesses or employees in the United States or Canada that do not result in an increase in the share capital of Nokia. These plans are settled by using Nokia shares or ADSs acquired from the market. When treasury shares are issued on exercise of stock options any gain or loss is recognized in share issue premium. On basis of these plans the Group had 0.3 million stock options outstanding on December 31, 2009. The weighted average exercise price is USD 16.13. In connection with our July 10, 2008 acquisition of NAVTEQ, the Group assumed NAVTEQ’s 2001 Stock Incentive Plan (“NAVTEQ Plan”). All unvested NAVTEQ restricted stock units under the NAVTEQ Plan were converted to an equivalent number of restricted stock units entitling their holders to Nokia shares. The maximum number of Nokia shares to be delivered to NAVTEQ employees during the years 2008–2012 is approximately 3 million, of which approximately 1 million shares have already been delivered by December 31, 2009. The Group does not intend to make further awards under the NAVTEQ Plan. 24. Deferred taxes EURm 2009 2008 Deferred tax assets: Intercompany profit in inventory Tax losses carried forward Warranty provision Other provisions Depreciation differences and untaxed reserves Share-based compensation Other temporary differences Reclassification due to netting of deferred taxes Total deferred tax assets Deferred tax liabilities: Depreciation differences and untaxed reserves Fair value gains/losses Undistributed earnings Other temporary differences 1 Reclassification due to netting of deferred taxes Total deferred tax liabilities Net deferred tax asset Tax charged to equity 77 263 73 315 796 15 320 –352 1 507 –469 –67 –345 –774 352 –1 303 144 293 117 371 1 059 68 282 –371 1 963 –654 –62 –242 –1 200 371 –1 787 204 176 – 13 –128 1 In 2009 other temporary differences include a deferred tax liability of EUR 744 million (EUR 1 140 mil- lion in 2008) arising from purchase price allocation related to Nokia Siemens Networks and NAVTEQ. 41 Notes to the consolidated financial statements 26. Provisions EURm Warranty Restructuring IPR infringements Project losses Tax Other Total At January 1, 2008 Exchange differences Acquisitions Additional provisions Change in fair value Changes in estimates Charged to profit and loss account Utilized during year At December 31, 2008 At January 1, 2009 Exchange differences Additional provisions Change in fair value Changes in estimates Charged to profit and loss account Utilized during year At December 31, 2009 1 489 – 16 1 1 211 — – 240 971 – 1 070 1 375 1 375 – 13 793 — – 178 615 – 1 006 971 617 — — 533 — – 211 322 – 583 356 356 — 268 — – 62 206 – 378 184 545 — 3 266 — – 92 174 – 379 343 343 — 73 — – 9 64 – 17 390 116 — — 389 — – 42 347 – 218 245 245 — 269 — – 63 206 – 254 197 452 — 6 47 — – 45 2 — 460 460 — 139 — – 325 – 186 — 274 498 — 2 747 – 7 – 143 597 – 284 813 813 — 344 – 1 – 174 169 – 280 702 3 717 – 16 12 3 193 – 7 – 773 2 413 – 2 534 3 592 3 592 – 13 1 886 – 1 – 811 1 074 – 1 935 2 718 EURm 2009 2008 Other provisions include provisions for non-cancelable purchase commitments, Analysis of total provisions at December 31: Non-current Current 841 1 877 978 2 614 product portfolio provisions for the alignment of the product portfolio and related replacement of discontinued products in customer sites and provision for pension and other social security costs on share-based awards. Outflows for the warranty provision are generally expected to occur within the next 18 months. In 2009, warranty provision decreased compared to 2008 primarily due to lower sales volumes in Devices & Services. Timing of outflows related to tax provisions is inherently uncertain. In 2009, tax provisions decreased due to the posi- tive development and outcome of various prior year items. The restructuring provision is mainly related to restructuring activities in Devices & Services and Nokia Siemens Networks segments. The majority of outflows related to the restructuring is expected to occur during 2010. In 2009, Devices & Services recognized restructuring provisions of EUR 208 million mainly related to measures taken to adjust our business operations and cost base according to market conditions. In 2008, resulting from the Group’s decision to discontinue the production of mobile devices in Germany, a restructuring provision of EUR 259 million was recognized. Devices & Services also recognized EUR 52 million related to other restructuring activities. Restructuring and other associated expenses incurred in Nokia Siemens Networks in 2009 totaled EUR 310 million (EUR 646 million in 2008) including mainly personnel related expenses as well as expenses arising from the elimina- tion of overlapping functions, and the realignment of product portfolio and related replacement of discontinued products in customer sites. These expenses included EUR 151 million (EUR 402 million in 2008) impacting gross profit, EUR 30 million (EUR 46 million in 2008) research and development expenses, EUR 12 million (rever- sal of provision EUR 14 million in 2008) in selling and marketing expenses, EUR 103 million (EUR 163 million in 2008) administrative expenses and EUR 14 million (EUR 49 million in 2008) other operating expenses. EUR 514 million was paid during 2009 (EUR 790 million during 2008). Provisions for losses on projects in progress are related to Nokia Siemens Networks’ onerous contracts. The IPR provision is based on estimated future settlements for asserted and unasserted past IPR infringements. Final resolution of IPR claims generally occurs over several periods. In 2008, EUR 379 million usage of the provisions mainly relates to the settlements with Qualcomm, Eastman Kodak, Intertrust Technologies and ContentGuard. 42 Nokia in 2009 27. Earnings per share Numerator/EURm Basic/Diluted: Profit attributable to equity holders of the parent Denominator/1 000 shares Basic: Weighted average shares Effect of dilutive securities: Performance shares Restricted shares Stock options 2009 2008 2007 891 3 988 7 205 3 705 116 3 743 622 3 885 408 9 614 6 341 1 15 956 25 997 6 543 4 201 36 741 26 304 3 693 16 603 46 600 Diluted: Adjusted weighted average shares and assumed conversions 3 721 072 3 780 363 3 932 008 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 com- puted 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. In 2009, stock options equivalent to 12 million shares (11 million in 2008) were excluded from the calculation of diluted earnings per share because they were determined to be anti-dilutive. Notes to the consolidated financial statements 28. Commitments and contingencies EURm Collateral for our own commitments Property under mortgages Assets pledged 2009 2008 18 13 18 11 Contingent liabilities on behalf of Group companies Other guarantees 1 350 2 896 Contingent liabilities on behalf of other companies Financial guarantees on behalf of third parties 1 Other guarantees Financing commitments Customer finance commitments 1 Venture fund commitments 2 1 See also note 33 b). 2 See also note 33 a). — 3 99 293 2 1 197 467 on April 9, 2007. The parties entered into negotiations for a new license agreement with the intention of reaching a mutually acceptable agreement on a timely basis. Prior to the commencement of negotiations and as negotiations proceeded, Nokia and Qualcomm were engaged in numerous legal disputes in the United States, Europe and China. On July 24, 2008 Nokia and Qualcomm entered into a new license agreement covering various current and future standards and other technologies, and resulting in a settlement of all litigation between the companies. Under the terms of the 15 year agreement covering various standards and other technologies, Nokia has been granted a license under all Qualcomm’s patents for use in Nokia’s mobile devices and Nokia Siemens Networks infrastructure equipment, and Nokia has agreed not to use any of its patents directly against Qualcomm. The financial terms included a one-time lump-sum cash payment of EUR 1.7 billion made by Nokia to Qualcomm in the fourth quarter of 2008 and on-going royalty payments to Qualcomm. The lump-sum payment made to Qualcomm will be expensed over the term of the agreement. Nokia also agreed to assign ownership of a number of patents to Qualcomm. As of December 31, 2009, the Group had purchase commitments of EUR 2 765 million (EUR 2 351 million in 2008) relating to inventory purchase obligations, ser- vice agreements and outsourcing arrangements, primarily for purchases in 2010. The amounts above represent the maximum principal amount of commitments and contingencies. 29. Leasing contracts 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 2009 (EUR 18 million in 2008). Assets pledged for the Group’s own commitments include available-for-sale investments of EUR 10 million in 2009 (EUR 10 million of available-for-sale invest- ments in 2008). Other guarantees include guarantees of EUR 1 013 million in 2009 (EUR 2 682 million in 2008) provided to certain Nokia Siemens Networks’ customers in the form of bank guarantees or corporate guarantees issued by Nokia Siemens Networks’ Group entity. These instruments entitle the customer to claim payment as compen- sation for non-performance by Nokia of its obligations under network infrastruc- ture supply agreements. Depending on the nature of the guarantee, compensation is payable on demand or subject to verification of non-performance. Volume of Other guarantees has decreased due to release of certain commercial guarantees and due to exclusion of those guarantees where possibility for claim is considered as remote. Contingent liabilities on behalf of other companies were EUR 3 million in 2009 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 2010 2011 2012 2013 2014 Thereafter Total 348 254 180 131 99 210 1 222 (EUR 3 million in 2008). Rental expense amounted to EUR 436 million in 2009 (EUR 418 million in 2008 Financing commitments of EUR 99 million in 2009 (EUR 197 million in 2008) are available under loan facilities negotiated mainly with Nokia Siemens Networks’ cus- tomers. Availability of the amounts is dependent upon the borrower’s continuing 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 equip- ment and services. Venture fund commitments of EUR 293 million in 2009 (EUR 467 million in 2008) are financing commitments to a number of funds making technology related invest- ments. As a limited partner in these funds Nokia is committed to capital contribu- tions and also entitled to cash distributions according to respective partnership agreements. and EUR 328 million in 2007). 30. Related party transactions At December 31, 2009, the Group had borrowings amounting to EUR 69 million (EUR 69 million in 2008 and EUR 69 million in 2007) from Nokia Unterstützungskasse GmbH, the Group’s German pension fund, which is a separate legal entity. The loan bears interest at 6% annum and its duration is pending until further notice by the loan counterparts who have the right to terminate the loan with a 90 day notice period. The Group is party of routine litigation incidental to the normal conduct of There were no loans made to the members of the Group Executive Board and business, including, but not limited to, several claims, suits and actions both initi- ated by third parties and initiated by Nokia relating to infringements of patents, violations of licensing arrangements and other intellectual property related mat- ters, as well as actions with respect to products, contracts and securities. In the opinion of the management 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 result of operations. Nokia’s payment obligations under the subscriber unit cross-license agree- ments signed in 1992 and 2001 with Qualcomm Incorporated (“Qualcomm”) expired Board of Directors at December 31, 2009, 2008 or 2007. 43 Notes to the consolidated financial statements EURm 2009 2008 2007 Transactions with associated companies Share of results of associated companies Dividend income Share of shareholders’ equity of associated companies Sales to associated companies Purchases from associated companies Receivables from associated companies Liabilities to associated companies 30 — 35 8 211 2 31 6 6 21 59 162 29 8 44 12 158 82 125 61 69 Management compensation The following table sets forth the salary and cash incentive information awarded and paid or payable by the company to the Chief Executive Officer and President of Nokia Corporation for fiscal years 2007–2009 as well as the share-based compensa- tion expense relating to equity-based awards, expensed by the company. 2009 2008 2007 EUR Olli-Pekka Kallasvuo President and CEO Base salary Cash Share-based incentive compensation payments expense Base salary Cash Share-based incentive compensation payments expense Base salary Cash Share-based incentive compensation payments expense 1 176 000 1 288 144 2 840 777 1 144 800 721 733 1 286 370 1 037 619 2 348 877 4 805 722 Total remuneration of the Group Executive Board awarded for the fiscal years 2007– 2009 was EUR 10 723 777 in 2009 (EUR 8 859 567 in 2008 and EUR 13 634 791 in 2007), which consisted of base salaries and cash incentive payments. Total share-based compensation expense relating to equity-based awards expensed by the company was EUR 9 668 484 in 2009 (EUR 4 850 204 in 2008 and EUR 19 837 583 in 2007). Board of Directors The following table depicts the annual remuneration structure paid to the members of our Board of Directors, as resolved by the Annual General Meetings in the respec- tive years. Board of Directors Gross annual fee EUR 1 Shares received Gross annual fee EUR 1 Shares received Gross annual fee EUR 1 Shares received 2009 2008 2007 Jorma Ollila, Chairman 2 440 000 16 575 Dame Marjorie Scardino, Vice Chairman 3 150 000 Georg Ehrnrooth 4 Lalita D. Gupte 5 Bengt Holmström Henning Kagermann Olli-Pekka Kallasvuo 6 Per Karlsson 7 Isabel Marey-Semper 8 Risto Siilasmaa 9 Keijo Suila 10 Vesa Vainio 11 155 000 140 000 130 000 130 000 130 000 155 000 140 000 140 000 130 000 — 5 649 5 838 5 273 4 896 4 896 4 896 5 838 5 273 5 273 4 896 — 440 000 150 000 155 000 140 000 130 000 130 000 130 000 155 000 — 140 000 140 000 — 9 499 3 238 3 346 3 022 2 806 2 806 2 806 3 346 — 3 022 3 022 — 375 000 150 000 155 000 140 000 130 000 130 000 130 000 155 000 — — 140 000 140 000 8 110 3 245 3 351 3 027 2 810 2 810 2 810 3 351 — — 3 027 3 027 1 Approximately 60% of the gross annual fee is paid in cash and the remaining 40% in Nokia shares pur- chased from the market and included in the table under “Shares Received.” Further, it is Nokia policy that the directors retain all company stock received as director compensation until the end of their board membership, subject to the need to finance any costs including taxes relating to the acquisition of the shares. 2 This table includes fees paid for Mr. Ollila, Chairman, for his services as Chairman of the Board, only. 3 The 2009, 2008 and 2007 fees of Ms. Scardino amounted to EUR 150 000 for services as Vice Chairman. 4 The 2009, 2008 and 2007 fees of Mr. Ehrnrooth amounted to a total of EUR 155 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 25 000 for services as Chairman of the Audit Committee. 44 Nokia in 2009 5 The 2009, 2008 and 2007 fees of Ms. Gupte amounted to a total of EUR 140 000, consisting of fee of 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 6 This table includes fees paid to Mr. Kallasvuo, President and CEO, for his services as a member of the Board, only. 7 The 2009, 2008 and 2007 fees of Mr. Karlsson amounted to a total of EUR 155 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 25 000 for services as Chairman of the Personnel Committee. 8 The 2009 fee paid to Ms. Marey-Semper amounted to a total of EUR 140 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 9 The 2009 and 2008 fee of Mr. Siilasmaa amounted to a total of EUR 140 000, consisting of fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 10 The 2008 and 2007 fees of Mr. Suila amounted to a total of EUR 140 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 11 Mr. Vainio was a member of the Board of Directors and the Audit Committee until the end of the Annual General Meeting on May 8, 2008. Mr. Vainio received his fees for services as a member of the Board and as a member of the Audit Committee, as resolved by the shareholders at the Annual General Meeting on May 3, 2007, already in 2007 and thus no fees were paid to him for the services rendered during 2008. The 2007 fee of Mr. Vainio amounted to a total of EUR 140 000 consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. Pension arrangements of certain Group Executive Board Members Olli-Pekka Kallasvuo can, as part of his service contract, retire at the age of 60 with full retirement benefit should he be employed by Nokia at the time. The full retire- ment benefit is calculated as if Mr. Kallasvuo had continued his service with Nokia through the retirement age of 65. Hallstein Moerk, following his arrangement with a previous employer, and continuing in his current position at Nokia, has a retirement benefit of 65% of his pensionable salary beginning at the age of 62 and early retire- ment is possible at the age of 55 with reduced benefits. Mr. Moerk will retire at the end of September 2010 at the age of 57. 31. Notes to cash flow statements EURm Adjustments for: 2 009 2 008 2 007 Depreciation and amortization (Note 9) 1 784 1 617 1 206 Profit (–)/loss (+) on sale of property, plant and equipment and available-for-sale investments Income taxes (Note 11) Share of results of associated companies (Note 14) Minority interest Financial income and expenses (Note 10) Transfer from hedging reserve to sales and cost of sales (Note 20) Impairment charges (Note 7) Asset retirements (Note 8, 12) Share-based compensation (Note 23) Restructuring charges Finnish pension settlement (Note 5) Other income and expenses Adjustments, total Change in net working capital Decrease (+)/increase (–) in short-term receivables Decrease (+)/increase (–) in inventories Decrease (–)/increase (+) in interest-free short-term borrowings Loans made to customers Change in net working capital – 111 702 – 30 – 631 265 44 1 009 35 16 307 — — 3 390 – 11 – 1 864 1 081 1 522 – 6 – 99 2 – 44 – 459 – 239 – 445 – 110 149 186 74 448 152 – 124 3 024 63 — 228 856 — — 1 159 1 145 640 – 534 321 – 2 146 – 245 – 1 698 – 2 333 2 996 53 140 — – 2 546 — 605 Notes to the consolidated financial statements The Transfer from hedging reserve to sales and cost of sales for 2008 and 2007 have been reclassified for comparability purposes from Other financial income and ex- penses to Adjustments to profit attributable to equity holders of the parent within Net cash from operating activities on the Consolidated Statements of Cash Flows. The Group did not engage in any material non-cash investing activities in 2009 and 2008. In 2007 the formation of Nokia Siemens Networks was completed through the contribution of certain tangible and intangible assets and certain business interests that comprised Nokia’s networks business and Siemens’ carrier- related operations. See Note 8. 32. Principal Nokia Group companies at December 31, 2009 % US DE GB KR CN NL HU IN IT ES RO BR RU US NL FI DE IN Nokia Inc.  Nokia GmbH Nokia UK Limited Nokia TMC Limited Nokia Telecommunications Ltd Nokia Finance International B.V Nokia Komárom Kft Nokia India Pvt Ltd Nokia Italia S.p.A Nokia Spain S.A.U Nokia Romania SRL Nokia do Brazil Technologia Ltda OOO Nokia NAVTEQ Corp Nokia Siemens Networks B.V Nokia Siemens Networks Oy Nokia Siemens Networks GmbH & Co KG Nokia Siemens Networks Pvt. Ltd.  Parent Group holding majority — 100.0 — 100.0 4.5 100.0 100.0 99.9 100.0 100.0 100.0 99.9 100.0 — — — — — 100.0 100.0 100.0 100.0 83.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 50.0 1 50.0 50.0 50.0 1 Nokia Siemens Networks B.V., the ultimate parent of the Nokia Siemens Network group, is owned ap- proximately 50% by each of Nokia and Siemens and consolidated by Nokia. Nokia effectively controls Nokia Siemens Networks as it has the ability to appoint key officers and the majority of the members of its Board of Directors, and accordingly, Nokia consolidated Nokia Siemens Networks. 33. Risk management General risk management principles Nokia has a common and systematic approach to risk management across business operations and processes. Material risks and opportunities are identified, analyzed, managed and monitored as part of business performance management. Relevant key risks are identified against business targets either in business operations or as an integral part of long and short term planning. Nokia’s overall risk management concept is based on visibility of the key risks preventing Nokia from reaching its business objectives rather than solely focusing on eliminating 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, function or category owner is also the risk owner, but it is everyone’s responsibility at Nokia to identify risks, which prevent Nokia to reach the objectives. Risk management covers strategic, operational, financial and hazard risks. Key risks are reported to the Group level management to create assurance on business risks as well as to enable prioritization of risk management activities at Nokia. In addition to general principles there are specific risk management policies covering, for example treasury and customer related credit risks. 45 Notes to the consolidated financial statements Financial risks 2008, EURm USD JPY GBP INR The objective for Treasury activities in Nokia is twofold: to guarantee cost-efficient funding for the Group at all times, and to identify, evaluate and hedge financial risks. There is a strong focus in Nokia on creating shareholder value. Treasury activi- ties support this aim by: i) mitigating the adverse effects caused by fluctuations in the financial markets on the profitability of the underlying businesses; and ii) managing the capital structure of the Group by prudently balancing the levels of liquid assets and financial borrowings. Treasury activities are governed by policies approved by the CEO. Treasury Policy provides principles for overall financial risk management and determines the allocation of responsibilities for financial risk management in Nokia. Operating Procedures 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. a) Market risk Foreign exchange risk Nokia operates globally and is thus exposed to foreign exchange risk arising from various currencies. Foreign currency denominated assets and liabilities together with expected cash flows from highly probable purchases and sales contribute to foreign exchange exposure. These transaction exposures are managed against various local currencies because of Nokia’s substantial production and sales outside the Euro zone. According to the foreign exchange policy guidelines of the Group, which remain the same as in the previous year, material transaction foreign exchange exposures are hedged unless hedging would be uneconomical due to market liquidity and/or hedging cost. Exposures are mainly hedged with derivative financial instruments such as forward foreign exchange contracts and foreign exchange options. The majority of financial instruments hedging foreign exchange risk have duration of less than a year. The Group does not hedge forecasted foreign currency cash flows beyond two years. Since Nokia has subsidiaries outside the Euro zone, the euro-denominated value of the shareholders’ equity of Nokia is also exposed to fluctuations in ex- change rates. Equity changes resulting from movements in foreign exchange rates are shown as a translation difference in the Group consolidation. Nokia uses, from time to time, foreign exchange contracts and foreign currency denominated loans to hedge its equity exposure arising from foreign net invest- ments. At the end of year 2009 and 2008, following currencies represent significant FX derivatives used as cashflow hedges (net amount) 1 – 3 359 2 674 — – 122 FX derivatives used as net investment hedges (net amount) 2 – 232 — – 699 – 179 FX exposure from balance sheet items (net amount) 3 FX derivatives not designated in a hedge relationship and carried at fair value through profit and loss (net amount) 3 729 -494 – 579 236 – 615 480 527 – 443 1 The FX derivatives are used to hedge the foreign exchange risk from forecasted highly probable cash flows related to sales, purchases and business acquisition activities. In some of the currencies, espe- cially in US Dollar, Nokia has substantial foreign exchange risks in both estimated cash inflows and outflows, which have been netted in the table. See Note 20 for more details on hedge accounting. The underlying exposures for which these hedges are entered into are not presented in the table, as they are not financial instruments as defined under IFRS 7. 2 The FX derivatives are used to hedge the Group’s net investment exposure. The underlying exposures for which these hedges are entered into are not presented in the table, as they are not financial instru- ments as defined under IFRS 7. 3 The balance sheet items which are denominated in the foreign currencies are hedged by a portion of FX derivatives not designated in a hedge relationship and carried at fair value through profit and loss resulting in offsetting FX gains or losses in the financial income and expenses. Interest rate risk The Group is exposed to interest rate risk either through market value fluctuations of balance sheet items (i.e. price risk) or through changes in interest income or expenses (i.e. re-financing or 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. The objective of interest rate risk management is to optimize the balance between minimizing uncertainty caused by fluctuations in interest rates and maxi- mizing the consolidated net interest income and expenses. The interest rate exposure of the Group is monitored and managed centrally. Nokia uses the Value-at-Risk (VaR) methodology to assess and measure the interest rate risk of the net investments (cash and investments less outstanding debt) and related derivatives. As at the reporting date, the interest rate profile of the Group’s interest-bearing assets and liabilities is presented in the table below: portion of the currency mix in the outstanding financial instruments: EURm 2009, EURm USD JPY CNY INR FX derivatives used as cashflow hedges (net amount) 1 – 1 767 663 — – 78 FX derivatives used as net investment hedges (net amount) 2 – 969 – 6 – 983 – 208 Assets Liabilities Assets and liabilities before derivatives Interest rate derivatives Assets and liabilities after derivatives 2009 2008 Fixed rate Floating rate Fixed rate Floating rate 5 712 – 3 771 3 241 – 1 403 2 946 – 3 604 1 941 1 628 1 838 – 1 693 – 658 — 4 007 -785 3 222 — 3 569 145 – 658 3 222 FX exposure from balance sheet items net amount) 3 FX derivatives not designated in a hedge relationship and carried at fair value through profit and loss (net amount) 3 Cross currency/interest rate hedges 46 Nokia in 2009 – 464 – 421 – 1 358 80 Equity price risk – 328 578 1 633 – 164 375 — — — Nokia is exposed to equity price risk as the result of market price fluctuations in the listed equity instruments held mainly for strategic business reasons. Nokia has certain strategic minority investments in publicly listed equity shares. The fair value of the equity investments which are subject to equity price risk at December 31, 2009 was EUR 8 million (EUR 8 million in 2008). In addition, Nokia invests in private equity through venture funds, which, from time to time, may have holdings in equity instruments which are listed in stock exchanges. These Notes to the consolidated financial statements investments are classified as available-for-sale carried at fair value. See Note 15 for more details on available-for-sale investments. Interest rate risk Due to the insignificant amount of exposure to equity price risk, there are currently no outstanding derivative financial instruments designated as hedges for these equity investments. The VaR for the Group interest rate exposure in the investment and debt portfolios is presented in Table 2 below. Sensitivities to credit spreads are not reflected in the below numbers. Nokia is exposed to equity price risk on social security costs relating to its equity compensation plans. Nokia mitigates this risk by entering into cash settled equity option contracts. The sizeable difference between the 2009 and 2008 numbers is mainly due the fact that Nokia issued bonds with long maturities during the first half of 2009, which resulted in a significant increase in the Group’s exposure to long-term inter- est rates. Value-at-Risk Table 2 Treasury investment and debt portfolios Value-at-Risk Nokia uses the Value-at-Risk (VaR) methodology to assess the Group exposures to foreign exchange (FX), interest rate, and equity risks. The VaR gives estimates of potential fair value losses in market risk sensitive instruments as a result of adverse changes in specified market factors, at a specified confidence level over a defined holding period. In Nokia the FX VaR is calculated with the Monte Carlo method which simulates random values for exchange rates in which the Group has exposures and takes the non-linear price function of certain FX derivative instruments into account. The variance-covariance methodology is used to assess and measure the interest rate risk and equity price risk. The VaR is determined by using volatilities and correlations of rates and prices estimated from a one-year sample of historical market data, at 95% confidence level, using a one-month holding period. To put more weight on recent market conditions, an exponentially weighted moving average is performed on the data with an appropriate decay factor. This model implies that within a one-month period, the potential loss will not exceed the VaR estimate in 95% of possible outcomes. In the remaining 5% of pos- sible outcomes, the potential loss will be at minimum equal to the VaR figure, and on average substantially higher. The VaR methodology relies on a number of assumptions, such as, a) risks are measured under average market conditions, assuming that market risk factors follow normal distributions; b) future movements in market risk factors follow estimated historical movements; c) the assessed exposures do not change during the holding period. Thus it is possible that, for any given month, the potential losses at 95% confidence level are different and could be substantially higher than the estimated VaR. FX Risk The VaR figures for the Group’s financial instruments which are sensitive to foreign exchange risks are presented in Table 1 below. As defined under IFRS 7, the financial instruments included in the VaR calculation are: » » FX exposures from outstanding balance sheet items and other FX derivatives carried at fair value through profit and loss which are not in a hedge relation- ship and are mostly used for hedging balance sheet FX exposure. FX derivatives designated as forecasted cash flow hedges and net investment hedges. Most of the VaR is caused by these derivatives as forecasted cash flow and net investment exposures are not financial instruments as defined under IFRS 7 and thus not included in the VaR calculation. Table 1 Foreign exchange positions Value-at-Risk EURm At December 31 Average for the year Range for the year VaR from financial instruments 2009 190 291 160–520 2008 442 337 191–730 EURm At December 31 Average for the year Range for the year Equity price risk 2009 41 33 4–52 2008 6 10 4–25 The VaR for the Group equity investment in publicly traded companies is insignificant. b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obli- gations resulting in financial loss to the Group. Credit risk arises from bank and cash, fixed income and money-market investments, derivative financial instruments, loans receivable as well as credit exposures to customers, including outstanding re- ceivables, financial guarantees and committed transactions. Credit risk is managed separately for business related- and financial-credit exposures. Except as detailed in the following table, the maximum exposure to credit risk is limited to the book value of the financial assets as included in Group’s balance sheet: EURm Financial guarantees given on behalf of customers and other third parties Loan commitments given but not used 2009 2008 — 99 99 2 197 199 Business related credit risk The Company aims to ensure highest possible quality in accounts receivable and loans due from customers and other third parties. The Group Credit Policy, approved by Group Executive Board, lays out the framework for the management of the busi- ness related credit risks in all Nokia group companies. Credit exposure is measured as the total of accounts receivable and loans out- standing due from customers and other third parties, and committed credits. Group Credit Policy provides that credit decisions are based on credit evalua- tion including credit rating for larger exposures. Nokia & Nokia Siemens Networks Rating Policy defines the rating principles. Ratings are approved by Nokia & Nokia Siemens Networks Rating Committee. Credit risks are approved and monitored according to the credit policy of each business entity. These policies are based on the Group Credit Policy. Concentrations of customer or country risks are monitored at the Nokia Group level. When appropriate, assumed credit risks are mitigated with 47 Notes to the consolidated financial statements the use of approved instruments, such as collateral or insurance and sale of selected receivables. The Group has provided impairment allowances as needed including on ac- counts receivable and loans due from customers and other third parties not past due, based on the analysis of debtors’ credit quality and credit history. The Group establishes an allowance for impairment that represents an estimate of incurred losses. All receivables and loans due from customers and other third parties are considered on an individual basis for impairment testing. Top three customers account for approximately 2.2%, 2.2% and 1.9% (2008: 4.0%, 3.8% and 3.5%) of Group accounts receivable and loans due from customers and other third parties as at December 31, 2009, while the top three credit expo- sures by country amounted to 7.2%, 6.5% and 5.6% (2008: 8.5%, 7.2% and 7.2%), respectively. As at December 31, 2009, the carrying amount before deducting any impair- ment allowance of accounts receivable relating to customers for which an impair- ment was provided amounted to EUR 2 528 million (2008: EUR 3 042 million). The amount of provision taken against that portion of these receivables considered to be impaired was EUR 391 million (2008: EUR 415 million) (see also note 19 Valuation and qualifying accounts). An amount of EUR 679 million (2008: EUR 729 million) relates to past due receiv- ables from customers for which no impairment loss was recognized. The aging of these receivables is as follows: EURm Past due 1–30 days Past due 31–180 days More than 180 days 2009 2008 393 170 116 679 453 240 36 729 Fixed income and money-market investments 1, 2, 3 EURm The carrying amount of accounts receivable that would otherwise be past due or impaired but whose terms have been renegotiated was EUR 36 million (EUR 0 million in 2008). As at December 31, 2009, the carrying amount before deducting any impair- ment allowance of loans due from customers and other third parties for which im- pairment was provided amounted to EUR 4 million (2008: EUR 4 million). The amount of provision taken for these loans was EUR 4 million (2008: EUR 4 million). There were no past due loans from customers and other third parties. Financial credit risk Financial instruments contain an element of risk of loss resulting from counterpar- ties being unable to meet their obligations. This risk is measured and monitored centrally by Treasury. Nokia manages financial credit risk actively by limiting its counterparties to a sufficient number of major banks and financial institutions and monitoring the credit worthiness and exposure sizes continuously as well as through entering into netting arrangements (which gives Nokia the right to offset in the event that the counterparty would not be able to fulfill the obligations) with all major counterparties and collateral agreements (which require counterparties to post collateral against derivative receivables) with certain counterparties. Nokia’s investment decisions are based on strict creditworthiness and maturity criteria as defined in the Treasury Policy and Operating Procedure. Due to global banking crisis and the freezing of the credit markets in 2008, Nokia applied an even more defensive approach than usual within Treasury Policy towards investments and counterparty quality and maturities, focusing on capital preservation and liquidity. As result of this investment policy approach and active management of outstanding investment exposures, Nokia has not been subject to any material credit losses in its financial investments. The table below presents the breakdown of the outstanding available-for-sale fixed income and money market investments by sector and credit rating grades ranked as per Moody’s rating categories. 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 0 Ba1–B3 Baa1–Baa3 A1–A3 Aa1–Aa3 Aaa 2008 2009 2008 2009 2008 2009 2008 2009 Banks Corporates Governments ABS 1 Fixed income and money-market investments include term deposits, investments in liquidity funds and investments in fixed income instruments classified as available-for-sale investments and invest- ments at fair value though profit and loss. Liquidity funds invested solely in government securities are included under Governments. Other liquidity funds are included under Banks. 2 Included within fixed income and money-market investments is EUR 48 million of restricted invest- ment at December 31, 2009 (EUR 114 million at December 31, 2008). They are restricted financial assets under various contractual or legal obligations. 3 Bank parent company ratings used here for bank groups. In some emerging markets countries actual bank subsidiary ratings may differ from parent company rating. 84% of Nokia’s cash is held with banks of investment grade credit rating (89% for 2008). 48 Nokia in 2009 c) Liquidity risk Liquidity risk is defined as financial distress or extraordinary high financing costs arising due to a shortage of liquid funds in a situation where business conditions unexpectedly deteriorate and require financing. Transactional liquidity risk is de- fined as the risk of executing a financial transaction below fair market value, or not being able to execute the transaction at all, within a specific period of time. The objective of liquidity risk management is to maintain sufficient liquidity, and to ensure that it is available fast enough without endangering its value, in order to avoid uncertainty related to financial distress at all times. Nokia guarantees a sufficient liquidity at all times by efficient cash manage- ment and by investing in liquid interest bearing securities. The transactional liquid- ity risk is minimized by only entering transactions where proper two-way quotes can be obtained from the market. Due to the dynamic nature of the underlying business, Nokia and Nokia Siemens Networks aim at maintaining flexibility in funding by keeping commit- ted and uncommitted credit lines available. Nokia and Nokia Siemens Networks manage their respective credit facilities independently and facilities do not include cross-default clauses between Nokia and Nokia Siemens Networks or any forms of guarantees from either party. At the end of December 31, 2009 the committed facili- ties totaled EUR 4 113 million. The most significant existing Committed Facilities include: Borrower(s): Nokia Corporation: Nokia Siemens Networks Finance B.V. and Nokia Siemens Networks Oy: USD 1 923 million Revolving Credit Facility, maturing 2012 EUR 2 000 million Revolving Credit Facility, maturing 2012 Nokia Siemens Networks Finance B.V.: EUR 750 million Credit Facility, maturing 2013 USD 1 923 million Revolving Credit Facility of Nokia Corporation is used primarily for US and Euro Commercial Paper Programs back up purposes. As at year end 2009, this facility was fully undrawn. EUR 2 000 million Revolving Credit Facility of Nokia Siemens Networks Finance B.V. and Nokia Siemens Networks Oy is used for general corporate purposes. The Fa- cility includes financial covenants related to gearing test, leverage test and interest coverage test of Nokia Siemens Networks. As of December 31, 2009 EUR 49 million of the facility was utilized and all financial covenants were satisfied. The EUR 750 million Credit Facility of Nokia Siemens Networks Finance B.V. was fully utilized for general funding purposes. As of December 31, 2009 the weighted average commitment fee on the com- mitted credit facilities was 0.70% per annum. The most significant existing funding programs include: Issuer(s): Nokia Corporation: Nokia Corporation: Nokia Corporation: Nokia Corporation: Nokia Corporation and Nokia International Finance B.V.: Medium Term Note (EMTN) program, totaling EUR 5 000 million Shelf registration statement on file with the US Securities and Exchange Commission Local commercial paper program in Finland, totaling EUR 750 million US Commercial Paper (USCP) program, totaling USD 4 000 million Euro Commercial Paper (ECP) program, totaling USD 4 000 million Notes to the consolidated financial statements Of the above funding programs, EMTN, Shelf registration and US Commer- cial Paper program have been utilized in 2009. On December 31, 2009 a total of EUR 1 750 million, USD 1 500 million and USD 693 million were outstanding under these programs, respectively. Local commercial paper program and ECP program have not been used to a material degree in 2009. Nokia’s international creditworthiness facilitates the efficient use of interna- tional capital and loan markets. The ratings as of December 31, 2009 were: Short-term: Long-term: Standard & Poor’s Moody’s Standard & Poor’s Moody’s A–1 P–1 A A2 The following table below is an undiscounted cash flow analysis for both financial liabilities and financial assets that are presented on the balance sheet, and off-balance sheet instruments such as loan commitments according to their remain- ing contractual maturity. Line-by-line reconciliation with the balance sheet is not possible. 49 Notes to the consolidated financial statements At December 31, 2009, EURm Non-current financial assets Long-term loans receivable Other non-current assets Current financial assets Current portion of long-term loans receivable Short-term loans receivable Investments at fair value through profit and loss Available-for-sale investment Cash Cash flows related to derivative financial assets net settled: Derivative contracts–receipts Cash flows related to derivative financial assets gross settled: Derivative contracts–receipts Derivative contracts–payments Accounts receivable 1, 2 Non-current financial liabilities Long-term liabilities Current financial liabilities Current portion of long-term loans Short-term liabilities Cash flows related to derivative financial liabilities net settled: Derivative contracts–payments Cash flows related to derivative financial liabilities gross settled: Derivative contracts–receipts Derivative contracts–payments Accounts payable Contingent financial assets and liabilities Loan commitments given undrawn 2 Loan commitments obtained undrawn 3 Due within 3 months Due between 3 and 12 months Due between 1 and 3 years Due between 3 and 5 years Due beyond 5 years — — 4 1 3 6 417 1 142 88 14 350 – 14 201 5 903 – 124 – 3 – 628 – 6 14 528 – 14 646 -4 873 – 59 — — — 11 1 22 322 — –47 1 067 – 1 037 1 002 – 96 – 41 – 100 6 1 422 – 1 443 – 74 – 40 — 36 3 — — 29 290 — 80 — — 73 6 1 — — 515 110 — 110 — — — 4 1 — — 139 116 — 27 — — — – 594 – 2 973 – 2 596 — — – 2 — — – 3 — 2 841 — — 10 — — — — — — — 52 — — — — — 50 Nokia in 2009 Notes to the consolidated financial statements Due within 3 months Due between 3 and 12 months Due between 1 and 3 years Due between 3 and 5 years Due beyond 5 years At December 31, 2008, EURm Non-current financial assets Long-term loans receivable Other non-current assets Current financial assets Current portion of long-term loans receivable Short-term loans receivable Available-for-sale investment Cash Cash flows related to derivative financial assets net settled : Derivative contracts–receipts Cash flows related to derivative financial assets gross settled: Derivative contracts– receipts Derivative contracts–payments Accounts receivable 1 Non-current financial liabilities Long-term liabilities Current financial liabilities Current portion of long-term loans Short-term liabilities Cash flows related to derivative financial liabilities gross settled: Derivative contracts–receipts Derivative contracts–payments Accounts payable Contingent financial assets and liabilities Loan commitments given undrawn 2 Financial guarantee given uncalled 2 Loan commitments obtained undrawn 3 — 1 5 8 3 932 1 706 5 19 180 – 18 322 6 702 – 1 — – 3 207 15 729 – 16 599 – 5 152 – 197 – 2 — — 1 101 2 483 — 3 5 184 – 5 090 1 144 – 46 – 14 – 388 4 859 – 4 931 – 67 — — — 1 Accounts receivable maturity analysis does not include accrued receivables and receivables accounted based on the percentage of completion method of EUR 1 004 million (2008: EUR 1 528 million). 2 Loan commitments given undrawn and financial guarantees given uncalled have been included in the earliest period in which they could be drawn or called. 3 Loan commitments obtained undrawn have been included based on the period in which they expire. Hazard risk Nokia strives to ensure that all financial, reputation and other losses to the Group and our customers are minimized through preventive risk management measures. Insurance is purchased for risks, which cannot be efficiently internally managed and where insurance markets offer acceptable terms and conditions. The objective is to ensure that hazard risks, whether related to physical assets (e.g. buildings) or intel- lectual assets (e.g. Nokia) or potential liabilities (e.g. product liability) are optimally insured taking into account both cost and retention levels. Nokia purchases both annual insurance policies for specific risks as well as multi-line and/or multi-year insurance policies, where available. 19 3 — — 583 — 1 — — 70 6 — — — 120 — — — — — 8 1 — — 254 — — — — — – 741 – 64 – 159 — — — — – 5 — — 50 — — — — — — — 362 — — — — — — — 51 Parent company financial statements according to Finnish Accounting Standards Income statements, parent company, FAS Balance sheets, parent company, FAS Financial year ended December 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 2009 EURm 2008 EURm 20 167 26 940 – 14 666 – 18 712 5 501 8 228 – 1 403 – 3 097 – 396 – 70 106 – 1 393 – 3 147 – 769 – 340 120 Operating profit 2, 3 641 2 699 Financial income and expenses Income from long-term investments Dividend income from Group companies Dividend income from other companies Interest income from Group companies Other interest and financial income Interest income from Group companies Interest income from other companies Other financial income from other companies 290 2 — 84 2 9 31 3 4 398 12 — December 31 A S S E T S Fixed assets and other non-current assets Intangible assets Capitalized development costs Intangible rights Other intangible assets Tangible assets Investments Investments in subsidiaries Investments in associated companies Long-term loan receivables from Group companies Other non-current assets Current assets Inventories and work in progress Exchange gains and losses 106 – 478 Raw materials and supplies Interest expenses and other financial expenses Interest expenses to Group companies Interest expenses to other companies Other financial expenses Financial income and expenses, total – 80 – 161 – 10 242 – 338 -63 – 6 – 437 Profit before extraordinary items and taxes 883 2 262 Work in progress Finished goods Receivables Deferred tax assets Trade debtors from Group companies Trade debtors from other companies Extraordinary items Group contributions Extraordinary items, total Profit before taxes Income taxes for the year from previous years Net profit 10 10 40 40 893 2 302 Short-term loan receivables from Group companies Short-term loan receivables from other companies Prepaid expenses and accrued income from Group companies Prepaid expenses and accrued income from other companies Short-term investments 18 – 127 1 767 – 539 – 14 1 749 Bank and cash Total See Notes to the financial statements of the parent company. See Notes to the financial statements of the parent company. 52 Nokia in 2009 Notes 2009 EURm 2008 EURm 4 5 6 6 6 13 46 418 477 — 21 52 155 228 — 12 109 12 084 30 10 74 10 8 41 12 223 12 143 45 86 86 217 1 1 080 713 3 472 — 15 84 100 70 254 — 899 913 12 039 1 65 1 858 7 139 2 179 16 096 35 2 70 20 161 197 28 920 December 31 Notes 2009 EURm 2008 EURm Financial year ended December 31 Notes S H A R E H O L D E R S ’ E Q U I T Y A N D L I A B I L I T I E S Shareholders’ equity Share capital Treasury shares Reserve for invested non-restricted equity Retained earnings Net profit for the year 7 7 7, 8 7, 8 7, 8 246 – 685 3 154 3 788 767 7 270 246 – 1 885 3 291 4 489 1 749 7 890 Liabilities Long-term liabilities Long-term finance liabilities to other companies 9 3 255 — Short-term liabilities Current finance liabilities from Group companies 3 380 13 345 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 Accrued expenses and prepaid income to other companies Total liabilities 473 217 3 280 531 2 598 182 2 377 695 1 682 9 636 1 616 21 030 12 891 21 030 Parent company Statements of cash flows, parent company, FAS 13 13 Cash flow from operating activities Net profit Adjustments, total Cash flow 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 Net cash from operating activities 1 938 2 179 2009 EURm 2008 EURm 767 99 866 881 1 747 88 – 140 157 46 1 898 40 1 749 1 357 3 106 543 3 649 418 – 399 – 469 – 1 020 2 179 — – 93 – 1 – 461 30 – 3 – 1 128 8 356 292 – 4 026 – 53 – 211 106 — — — – 3 750 34 Net cash from / used in investing activities 8 247 – 7 900 Cash flow from financing activities Proceeds from stock option exercises Proceeds from borrowings Repayment of borrowings Purchase of treasury shares Dividends paid — 51 3 287 10 777 – 12 085 — – 1 481 – 5 – 3 123 – 1 992 Net cash used in / from financing activities – 10 279 5 708 Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period – 94 199 – 13 212 Cash flow from investing activities Investments in shares Additions to capitalized development costs Capital expenditures Proceeds from sale of shares Proceeds from sale of other intangible assets Long-term loans made to customers 73 217 Proceeds from other long-term receivables Proceeds from short-term receivables Dividends received Total 20 161 28 920 Cash and cash equivalents at end of period 105 199 See Notes to the financial statements of the parent company. See Notes to the financial statements of the parent company. 53 Notes to the financial statements of the parent company 1. Accounting principles 2. Personnel expenses The Parent company Financial Statements are prepared according to Finnish Ac- counting Standards (FAS). EURm See also Note 1 to Notes to the consolidated financial statements. Wages and salaries Pension expenses Other social expenses Personnel expenses as per profit and loss account 2009 1 096 146 42 1 284 2008 1 115 160 63 1 338 Management compensation The following table sets forth the salary and cash incentive information awarded and paid or payable by the company to the Chief Executive Officer and President of Nokia Corporation for fiscal years 2007–2009 as well as the share-based compensa- tion expense relating to equity-based awards, expensed by the company. 2009 2008 2007 EUR Olli-Pekka Kallasvuo President and CEO Base salary Cash Share-based incentive compensation payments expense Base salary Cash Share-based incentive compensation payments expense Base salary Cash Share-based incentive compensation payments expense 1 176 000 1 288 144 2 840 777 1 144 800 721 733 1 286 370 1 037 619 2 348 877 4 805 722 Total remuneration of the Group Executive Board awarded for the fiscal years 2007– 2009 was EUR 10 723 777 in 2009 (EUR 8 859 567 in 2008 and EUR 13 634 791 in 2007), which consisted of base salaries and cash incentive payments. Total share-based compensation expense relating to equity-based awards expensed by the company was EUR 9 668 484 in 2009 (EUR 4 850 204 in 2008 and EUR 19 837 583 in 2007). Board of Directors The following table depicts the annual remuneration structure paid to the members of our Board of Directors, as resolved by the Annual General Meetings in the respec- tive years Board of Directors Gross annual fee EUR 1 Shares received Gross annual fee EUR 1 Shares received Gross annual fee EUR 1 Shares received 2009 2008 2007 Jorma Ollila, Chairman 2 440 000 16 575 Dame Marjorie Scardino, Vice Chairman 3 150 000 Georg Ehrnrooth 4 Lalita D. Gupte 5 Bengt Holmström Henning Kagermann Olli-Pekka Kallasvuo 6 Per Karlsson 7 Isabel Marey-Semper 8 Risto Siilasmaa 9 Keijo Suila 10 Vesa Vainio 11 155 000 140 000 130 000 130 000 130 000 155 000 140 000 140 000 130 000 — 5 649 5 838 5 273 4 896 4 896 4 896 5 838 5 273 5 273 4 896 — 440 000 150 000 155 000 140 000 130 000 130 000 130 000 155 000 — 140 000 140 000 — 9 499 3 238 3 346 3 022 2 806 2 806 2 806 3 346 — 3 022 3 022 — 375 000 150 000 155 000 140 000 130 000 130 000 130 000 155 000 — — 140 000 140 000 8 110 3 245 3 351 3 027 2 810 2 810 2 810 3 351 — — 3 027 3 027 1 Approximately 60% of the gross annual fee is paid in cash and the remaining 40% in Nokia shares pur- chased from the market and included in the table under “Shares Received.” Further, it is Nokia policy that the directors retain all company stock received as director compensation until the end of their board membership, subject to the need to finance any costs including taxes relating to the acquisition of the shares. 2 This table includes fees paid for Mr. Ollila, Chairman, for his services as Chairman of the Board, only. 3 The 2009, 2008 and 2007 fees of Ms. Scardino amounted to EUR 150 000 for services as Vice Chairman. 4 The 2009, 2008 and 2007 fees of Mr. Ehrnrooth amounted to a total of EUR 155 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 25 000 for services as Chairman of the Audit Committee. 5 The 2009, 2008 and 2007 fees of Ms. Gupte amounted to a total of EUR 140 000, consisting of fee of 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 6 This table includes fees paid to Mr. Kallasvuo, President and CEO, for his services as a member of the Board, only. 7 The 2009, 2008 and 2007 fees of Mr. Karlsson amounted to a total of EUR 155 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 25 000 for services as Chairman of the Personnel Committee. 8 The 2009 fee paid to Ms. Marey-Semper amounted to a total of EUR 140 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 54 Nokia in 2009 9 The 2009 and 2008 fee of Mr. Siilasmaa amounted to a total of EUR 140 000, consisting of fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 10 The 2008 and 2007 fees of Mr. Suila amounted to a total of EUR 140 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 11 Mr. Vainio was a member of the Board of Directors and the Audit Committee until the end of the Annual General Meeting on May 8, 2008. Mr. Vainio received his fees for services as a member of the Board and as a member of the Audit Committee, as resolved by the shareholders at the Annual General Meeting on May 3, 2007, already in 2007 and thus no fees were paid to him for the services rendered during 2008. The 2007 fee of Mr. Vainio amounted to a total of EUR 140 000 consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. Pension arrangements of certain Group Executive Board Members Olli-Pekka Kallasvuo can, as part of his service contract, retire at the age of 60 with full retirement benefit should he be employed by Nokia at the time. The full retire- ment benefit is calculated as if Mr. Kallasvuo had continued his service with Nokia through the retirement age of 65. Hallstein Moerk, following his arrangement with a previous employer, and continuing in his current position at Nokia, has a retirement benefit of 65% of his pensionable salary beginning at the age of 62 and early retire- ment is possible at the age of 55 with reduced benefits. Mr. Moerk will retire at the end of September 2010 at the age of 57. Personnel average Production Marketing R&D Administration 2009 2008 3 091 1 225 8 431 2 408 15 155 3 481 1 226 8 717 2 552 15 976 Personnel, December 31 14 133 16 262 3. Depreciation and amortization EURm 2009 2008 Depreciation and amortization by asset class category Intangible assets Capitalized development costs Intangible rights Other intangible assets Tangible assets Total Depreciation and amortization by function R&D Production Selling, marketing and administration Total 9 23 170 — 202 177 — 25 202 28 28 28 — 84 54 1 29 84 Notes to the financial statements of the parent company 4. Intangible assets EURm 2009 2008 Capitalized development costs Acquisition cost January 1 Additions during the period Disposals during the period Accumulated acquisition cost December 31 Accumulated amortization January 1 Disposals during the period Amortization during the period Accumulated amortization December 31 Net book value January 1 Net book value December 31 Intangible rights Acquisition cost January 1 Additions during the period Disposals during the period Accumulated acquisition cost December 31 Accumulated amortization January 1 Disposals during the period Amortization during the period Accumulated amortization December 31 Net book value January 1 Net book value December 31 Other intangible assets Acquisition cost January 1 Additions during the period Disposals during the period Accumulated acquisition cost December 31 Accumulated amortization January 1 Disposals during the period Amortization during the period Accumulated amortization December 31 Net book value January 1 Net book value December 31 287 1 — 288 – 266 — – 9 – 275 21 13 286 34 – 16 304 – 234 – 1 – 23 – 258 52 46 185 437 – 3 619 – 30 – 1 – 170 – 201 155 418 358 53 – 124 287 – 252 14 – 28 – 266 106 21 259 32 – 5 286 – 211 5 – 28 – 234 48 52 6 179 — 185 – 2 — – 28 – 30 4 155 5. Tangible assets At the end of 2009 and 2008 the parent company had no tangible assets. These assets were leased from Nokia Asset Management Oy, a company wholly owned by Nokia Corporation. 55 2009 2008 12 084 108 – 83 12 109 6 564 5 624 – 104 12 084 10 27 – 7 30 41 33 — 74 9 1 — 10 4 37 — 41 Share capital 246 Share issue premium 2 312 46 – 2 358 Notes to the financial statements of the parent company 6. Investments EURm Investments in subsidiaries Acquisition cost January 1 Additions Disposals Net carrying amount December 31 Investments in associated companies Acquisition cost January 1 Additions Disposals Net carrying amount December 31 Investments in other shares Acquisition cost January 1 Additions Disposals Net carrying amount December 31 7. Shareholders' equity Parent company, EURm Balance at December 31, 2006 Share issue Cancellation of treasury shares Acquisitions of treasury shares Settlement of performance and restricted shares Reserve for invested non-restricted equity Dividend Net profit Balance at December 31, 2007 Stock options exercised Cancellation of treasury shares Acquisitions of treasury shares Settlement of performance and restricted shares Dividend Net profit Balance at December 31, 2008 Cancellation of treasury shares Settlement of performance and restricted shares Dividend Net profit Reserve for invested non- restricted equity Treasury shares Retained earnings – 2 054 — 8 773 2 733 – 3 884 58 246 — – 3 147 4 231 – 3 123 154 3 299 3 299 51 -59 246 — – 1 885 3 291 969 231 – 137 Total 9 277 46 — – 3 884 58 941 – 1 686 6 358 11 110 51 — – 3 123 95 – 1 992 1 749 7 890 — 94 – 1 481 767 7 270 – 2 733 – 1 686 6 358 10 712 – 4 231 – 1 992 1 749 6 238 – 969 – 1 481 767 4 555 Balance at December 31, 2009 246 — – 685 3 154 56 Nokia in 2009 Notes to the financial statements of the parent company 8. Distributable earnings 13. Notes to cash flow statements EURm 2009 2008 EURm 2009 2008 Reserve for invested non-restricted equity Retained earnings from previous years Net profit for the year Retained earnings, total Treasury shares Distributable earnings, December 31 9. Long-term liabilities 3 154 3 788 767 7 709 –685 7 024 3 291 4 489 1 749 9 529 –1 885 7 644 Adjustments for: Depreciation Income taxes Financial income and expenses Impairment of intangible assets Impairment of non-current available-for-sale investments Other operating income and expenses Adjustments, total EURm 2009 2008 Long-term financial liabilities Bonds Loans from financial institutions Long-term liabilities, total Long-term liabilities repayable after 5 years Bonds Loans from financial institutions Long-term liabilities, total Bonds 2009–2014 2009–2019 2009–2019 2009–2039 Total Milj. Interest 1 250 EUR 1 000 USD 500 EUR 500 USD 5,534 5,572 6,792 6,775 2 755 500 3 255 1 483 500 1 983 1 272 653 508 322 2 755 — — — — — — — — — — — 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 14. Principal Nokia Group companies on December 31, 2009 See note 32 to Notes to the consolidated financial statements. 15. Nokia shares and shareholders See Nokia shares and shareholders p. 58– 62. 16. Accrued income 10. Commitments and contingencies EURm Contingent liabilities on behalf of Group companies Guarantees for loans Leasing guarantees Other guarantees Contingent liabilities on behalf of other companies Guarantees for loans 2009 2008 1 157 162 — 8 171 128 2 11. Leasing contracts At December 31, 2009 the leasing contracts of the Parent Company amounted to EUR 35 million (EUR 106 million in 2008). EUR 21 million will expire in 2010 (EUR 29 million in 2009). 12. Loans granted to the management of the company There were no loans granted to the members of the Group Executive Board and Board of Directors at December 31, 2009. EURm Taxes Other Total 17. Accrued expenses EURm Personnel expenses Taxes Other Total 18. Income tax EURm Income tax from operations Other income tax Total 202 126 – 242 – 7 7 13 99 364 37 480 881 84 553 437 109 — 174 1 357 1 402 184 – 1 043 543 2009 — 1 873 1 873 2008 129 2 117 2 246 2009 226 48 1 481 1 755 2008 236 — 1 597 1 833 2009 2008 124 3 127 528 11 539 Income taxes are shown separately in the Notes to the financial statements as they have been shown as a one-line item on the face of the profit and loss statement. 57 Nokia shares and shareholders Shares and share capital Nokia has one class of shares. Each Nokia share entitles the holder to one vote at General Meetings of Nokia. On December 31, 2009, the share capital of Nokia Corporation was EUR 245 896 461.96 and the total number of shares issued was 3 744 956 052. Share capital and shares December 31, 2009 Share capital, EURm Shares (1 000) On December 31, 2009, the total number of shares Under the Articles of Association of Nokia, Nokia included 36 693 564 shares owned by Group compa- nies representing approximately 1.0 % of the share capital and the total voting rights. Corporation does not have minimum or maximum share capital or a par value of a share. 2009 246 2008 246 2007 246 2006 246 2005 266 3 744 956 3 800 949 3 982 812 4 095 043 4 433 887 Shares owned by the Group (1 000) 36 694 103 076 136 862 129 312 261 511 Number of shares excluding shares owned by the Group (1 000) 3 708 262 3 697 872 3 845 950 3 965 730 4 172 376 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 Number of registered shareholders 1 1 Each account operator is included in the figure as only one registered shareholder 3 705 116 3 743 622 3 885 408 4 062 833 4 365 547 3 721 072 3 780 363 3 932 008 4 086 529 4 371 239 156 081 122 713 103 226 119 143 126 352 Key ratios December 31, 2009, IFRS (calculation see page 66) 2009 2008 2007 2006 2005 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 2 Payout ratio Dividend yield, % Shareholders’ equity per share, EUR 3 Market capitalization, EURm 3 0.24 0.24 37.17 0.40 1 1 498 1 1.67 1 4.48 1 3.53 1.07 1.05 10.37 0.40 1 520 0.37 3.60 3.84 1.85 1.83 14.34 0.53 2 111 0.29 2.0 3.84 1.06 1.05 14.60 0.43 1 761 0.41 2.80 3.02 0.83 0.83 18.61 0.37 1 641 0.45 2.4 2.95 33 078 41 046 101 995 61 390 64 463 1 2009 Dividend to be proposed by the Board of Directors for shareholders’ approval at the Annual General Meeting convening on May 6, 2010. 2 Calculated for all the shares of the company as of the applicable year-end. 3 Shares owned by the Group companies are not included. Authorizations Authorization to increase the share capital At the Annual General Meeting held on May 3, 2007, Nokia shareholders authorized the Board of Directors to issue a maximum of 800 million shares through one or more issues of shares or special rights entitling to shares, including stock options. The Board of Directors may issue either new shares or shares held by the Company. The authorization includes the right for the Board to resolve on all the terms and conditions of such issuances of shares and special rights, including to whom the shares and the special rights may be issued. The authorization is effective until June 30, 2010. At the end of 2009, the Board of Directors had no other authorizations to issue shares, convertible bonds, warrants or stock options. Other authorizations At the Annual General Meeting held on May 8, 2008, Nokia shareholders authorized the Board of Directors to repurchase a maximum of 370 million Nokia shares by using funds in the unrestricted shareholders’ equity. Nokia repurchased 71 090  000 shares under this authorization in 2008. In 2009, Nokia did not re- purchase any shares on the basis of this authorization. This authorization was effective until June 30, 2009 as per the resolution of the Annual General Meeting on May 8, 2008, but it was terminated by the resolution of the Annual General Meeting on April 23, 2009. At the Annual General Meeting held on April 23, 2009, Nokia shareholders authorized the Board of Di- rectors to repurchase a maximum of 360 million Nokia shares by using funds in the unrestricted sharehold- ers’ equity. The amount of shares corresponds to less than 10% of all shares of the company. The shares may be repurchased under the buy-back authorization in order to develop the capital structure of the company. In addition, shares may be repurchased in order to finance or carry out acquisitions or other arrange- ments, to settle the company’s equity-based incentive plans, to be transferred for other purposes, or to be cancelled. Nokia has not purchased any shares based on this authorization. The authorization is effective until June 30, 2010 and the authorization terminated the authorization for repurchasing of the Company’s shares resolved at the Annual General Meeting on May 8, 2008. Authorizations proposed to the Annual General Meeting 2010 The Board of Directors will propose to the Annual General Meeting to be held on May 6, 2010 that the An- nual General Meeting authorize the Board to resolve to 58 Nokia in 2009 Nokia shares and shareholders repurchase a maximum of 360 million Nokia shares by using funds in the unrestricted shareholders’ equity. The proposed maximum number of shares represents less than 10% of all the shares of the Company. The shares may be repurchased in order to develop the capital structure of the Company, finance or carry out acquisitions or other arrangements, settle the Com- pany’s equity-based incentive plans, be transferred for other purposes, or be cancelled. The authorization would be effective until June 30, 2011 and terminate the current authorization granted by the Annual General Meeting on April 23, 2009. The Board of Directors will also propose to the Annual General Meeting to be held on May 6, 2010 that the Annual General Meeting authorize the Board to resolve to issue a maximum of 740 million shares through issuance of shares or special rights entitling to shares (including stock options) in one or more issues. The Board proposes that the authorization may be used to develop the Company’s capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements, settle the Com- pany’s equity-based incentive plans, or for other pur- poses resolved by the Board. The proposed authoriza- tion includes the right for the Board to resolve on all the terms and conditions of the issuance of shares and special rights entitling to shares, including issuance in deviation from the shareholders’ pre-emptive rights. The authorization would be effective until June 30, 2013 and terminate the current authorization granted by the Annual General Meeting on May 3, 2007. Share issues 2005–2009 Year Type of issue 2005 Nokia Stock Option Plan 2003 2Q Nokia Stock Option Plan 2003 3Q Nokia Stock Option Plan 2004 2Q Nokia Stock Option Plan 2004 3Q Total 2006 Nokia Stock Option Plan 2003 2Q Nokia Stock Option Plan 2003 3Q Nokia Stock Option Plan 2003 4Q Nokia Stock Option Plan 2004 2Q Nokia Stock Option Plan 2004 3Q Nokia Stock Option Plan 2004 4Q Nokia Stock Option Plan 2005 2Q Nokia Stock Option Plan 2005 3Q Total 2007 Nokia Stock Option Plan 2002 A/B Nokia Stock Option Plan 2001C 1Q/02 Nokia Stock Option Plan 2001C 3Q/02 Nokia Stock Option Plan 2001C 4Q/02 Nokia Stock Option Plan 2003 2Q Nokia Stock Option Plan 2003 3Q Nokia Stock Option Plan 2003 4Q Nokia Stock Option Plan 2004 2Q Nokia Stock Option Plan 2004 3Q Nokia Stock Option Plan 2004 4Q Nokia Stock Option Plan 2005 2Q Nokia Stock Option Plan 2005 3Q Nokia Stock Option Plan 2005 4Q Nokia Stock Option Plan 2006 1Q Nokia Stock Option Plan 2006 2Q Nokia Stock Option Plan 2006 3Q Total Subscription price EUR Number of new shares (1 000) Date of payment Net proceeds EURm New share capital EURm 14.95 12.71 11.79 9.44 14.95 12.71 15.05 11.79 9.44 12.35 12.79 13.09 17.89 26.06 12.99 16.86 14.95 12.71 15.05 11.79 9.44 12.35 12.79 13.09 14.48 14.99 18.02 15.37 61 6 55 3 125 2 287 32 3 523 9 17 174 2 3 047 43 513 17 243 49 9 683 53 48 1 569 30 25 1 350 4 13 13 631 7 57 248 2005 2005 2005 2005 2006 2006 2006 2006 2006 2006 2006 2006 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 0.00 0.00 0.00 0.00 0.01 0.14 0.00 0.00 0.03 0.00 0.00 0.01 0.00 0.18 0.91 0.08 0.65 0.02 1.66 34.19 0.41 0.05 6.16 0.08 0.21 2.22 0.03 43.34 778.00 0.44 3.00 0.83 145.00 0.15 0.67 0.72 18.00 0.29 0.30 17.00 0.06 0.19 0.19 11.00 0.12 975.81 0.03 0.02 0.20 59 Nokia shares and shareholders Share issues 2005–2009 (continued) Year Type of issue 2008 Nokia Stock Option Plan 2003 2Q Nokia Stock Option Plan 2003 3Q Nokia Stock Option Plan 2003 4Q Nokia Stock Option Plan 2004 2Q Nokia Stock Option Plan 2004 3Q Nokia Stock Option Plan 2004 4Q Nokia Stock Option Plan 2005 2Q Nokia Stock Option Plan 2005 3Q Nokia Stock Option Plan 2005 4Q Nokia Stock Option Plan 2006 1Q Nokia Stock Option Plan 2006 2Q Nokia Stock Option Plan 2006 3Q Nokia Stock Option Plan 2006 4Q Nokia Stock Option Plan 2007 1Q Nokia Stock Option Plan 2007 2Q Nokia Stock Option Plan 2007 3Q Total 2009 Nokia Stock Option Plan 2004 2Q Nokia Stock Option Plan 2004 3Q Nokia Stock Option Plan 2004 4Q Nokia Stock Option Plan 2005 2Q Nokia Stock Option Plan 2005 3Q Nokia Stock Option Plan 2005 4Q Nokia Stock Option Plan 2006 1Q Nokia Stock Option Plan 2006 2Q Nokia Stock Option Plan 2006 3Q Nokia Stock Option Plan 2006 4Q Nokia Stock Option Plan 2007 1Q Nokia Stock Option Plan 2007 2Q Nokia Stock Option Plan 2007 3Q Nokia Stock Option Plan 2007 4Q Nokia Stock Option Plan 2008 1Q Nokia Stock Option Plan 2008 2Q Nokia Stock Option Plan 2008 3Q Total 60 Nokia in 2009 Subscription price EUR Number of new shares (1 000) Date of payment Net proceeds EURm New share capital EURm 14.95 12.71 15.05 11.79 9.44 12.35 12.79 13.09 14.48 14.99 18.02 15.37 15.38 17.00 18.39 21.86 11.79 9.44 12.35 12.79 13.09 14.48 14.99 18.02 15.37 15.38 17.00 18.39 21.86 27.53 24.15 19.16 17.80 2 444 11 82 415 5 13 361 5 0 1 192 11 6 0 0 0 3 546 0 8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 8 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 36.53 0.15 1.24 4.90 0.05 0.16 4.62 0.07 0.00 0.01 3.46 0.17 0.09 0.00 0.00 0.00 51.45 0.00 0.07 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.07 Nokia shares and shareholders Reductions of share capital Type of reduction Cancellation of shares Cancellation of shares Cancellation of shares Cancellation of shares Cancellation of shares Share turnover Number of shares (1 000) 230 000 341 890 169 500 185 410 56 000 Amount of reduction of the share capital EURm Amount of reduction of the restricted capital EURm Amount of reduction of the retained earnings EURm 13.80 20.51 — — — — — — — — — — — — — Year 2005 2006 2007 2008 2009 2009 1 2008 2 2007 2 2006 2 2005 2 Share turnover (1 000) Total number of shares (1 000) % of total number of shares 11 025 092 3 744 956 294 12 962 489 3 800 949 341 12 695 999 3 982 812 319 12 480 730 4 095 043 305 12 977 232 4 433 887 293 1 2 Includes share turnover in NASDAQ OMX Helsinki, New York Stock Exchange and Frankfurter Wertpapierbörse. Includes share turnover in all exchanges. Share prices, EUR (NASDAQ OMX Helsinki) 2009 2008 2007 2006 2005 Low/high Average 1 Year-end 6.67/12.25 9.95/25.78 14.63/28.60 14.61/18.65 10.75/15.75 9.64 8.92 17.35 11.10 20.82 26.52 15.97 15.48 13.20 15.45 1 Calculated by weighting average price with daily volumes. Share prices, USD (New York Stock Exchange) ADS Low/high Average 1 Year-end 2009 2008 2007 2006 2005 8.47/16.58 12.35/38.25 19.08/41.10 17.72/23.10 13.92/18.62 13.36 12.85 24.88 15.60 29.28 38.39 19.98 20.32 16.39 18.30 1 Calculated by weighting average price with daily volumes. Nokia share prices on NASDAQ OMX Helsinki (EUR) Nokia ADS prices on the New York Stock Exchange (USD) 35 30 25 20 15 10 5 0 | 01/05 | 01/06 | 01/07 | 01/08 | 01/09 45 40 35 30 25 20 15 10 5 0 | 01/05 | | 01/06 | 01/07 | 01/08 | 01/09 | 61 Nokia shares and shareholders Shareholders, December 31, 2009 Shareholders registered in Finland represented 12,17 % and shareholders registered in the name of a nominee represented 87,83 % of the total number of shares of Nokia Corporation. The number of registered shareholders was 156 081 on December 31, 2009. Each account operator (23) is included in this figure as only one registered shareholder. Nominee registered shareholders include holders of American Depositary Receipts (ADR). As of Decem- ber 31, 2009, ADRs represented 19,38 % of the total number of shares in Nokia. Largest shareholders registered in Finland, December 31, 2009 (excluding nominee registered shares and shares owned by Nokia Corporation 1) Ilmarinen Mutual Pension Insurance Company Svenska Litteratursällskapet i Finland rf Folketrygfondet The State Pension Fund Sigrid Jusélius Foundation Varma Mutual Pension Insurance Company OP-Delta-Sijoitusrahasto BNP Paribas Arbitrage Nordea Nordenfonden Etera 1 Nokia Corporation owned 36 693 564 shares as of December 31, 2009. Breakdown of share ownership, December 31, 2009 1 Total number of shares ( 1 000 ) % of all shares % of all voting rights 30 876 14 226 11 700 10 700 9 400 8 700 6 821 5 127 4 627 4 350 0.82 0.38 0.31 0.29 0.25 0.23 0.18 0.14 0.12 0.12 0.83 0.38 0.32 0.29 0.25 0.23 0.18 0.14 0.12 0.12 By number of shares owned Number of shareholders % of shareholders Total number of shares % of share capital 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 45 228 78 088 28 773 3 676 229 36 36 15 28.98 50.03 18.43 2.36 0.15 0.02 0.02 0.01 156 081 100.00 2 748 905 32 635 554 83 185 330 93 395 576 48 563 675 24 629 194 77 972 171 3 381 825 647 3 744 956 052 0.07 0.87 2.22 2.49 1.30 0.66 2.08 90.30 100.00 By nationality, % Non-Finnish shareholders Finnish shareholders Total Shares 87.83 12.17 100.00 By shareholder category (Finnish shareholders), % Corporations Households Financial and insurance institutions Non-profit organizations General government Total Shares 1.76 5.35 1.35 1.70 2.02 12.17 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, 2009, an aggregate of 2 421 968 shares which represented ap- proximately 0.06 % of the aggregate number of shares and voting rights. They also owned stock options which, if exercised in full, including both exercisable and unexercisable stock options, would be exercisable for additional 4 232 410 shares representing approxi- mately 0.11 % of the total number of shares and voting rights on December 31, 2009. 62 Nokia in 2009 63 Nokia Group 2005 –2009, IFRS * 2009 2008 2007 2006 2005 50 710 – 45 744 4 966 6 – 2 4 970 – 1 081 3 889 99 3 988 15 112 24 470 2 533 15 117 6 820 16 510 14 208 2 302 2 717 861 1 787 69 20 355 13 3 578 924 5 225 7 023 3 592 51 058 – 43 073 7 985 44 239 8 268 – 1 522 6 746 459 7 205 8 305 29 294 2 876 14 665 11 753 17 338 14 773 2 565 1 285 203 963 119 41 121 – 35 633 5 488 28 207 5 723 – 1 357 4 366 – 60 4 306 4 031 18 586 1 554 8 495 8 537 12 060 11 968 92 396 69 205 122 18 976 10 161 173 714 184 7 074 7 114 3 717 — 180 67 3 732 3 796 2 386 22 617 34 191 – 29 552 4 639 10 322 4 971 – 1 281 3 690 – 74 3 616 3 501 18 951 1 668 7 373 9 910 12 514 12 309 205 268 21 151 96 9 670 — 279 98 3 494 3 320 2 479 22 452 39 582 37 599 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 Tax Profit before minority interests Minority interests Profit attributable to equity holders of the parent Balance sheet items, EURm Fixed assets and other non-current assets Current assets Inventories Accounts receivable and prepaid expenses Total cash and other liquid assets Total equity Capital and reserves attributable to the Company’s equity holders Minority interests Long-term liabilities Long-term interest-bearing liabilities Deferred tax liabilities Other long-term liabilities Current liabilities Current portion of long-term loans Short-term borrowings Other financial liabilities Accounts payable Accrued expenses Provisions Total assets 40 984 – 39 787 1 197 30 – 265 962 – 702 260 631 891 12 125 23 613 1 865 12 875 8 873 14 749 13 088 1 661 5 801 4 432 1 303 66 15 188 44 727 245 4 950 6 504 2 718 35 738 * As of April 1, 2007, Nokia results include those of Nokia Siemens Networks on a fully consolidated Nokia’s former Networks business group and Siemens’ carrier-related operations for fixed and mobile networks. Accordingly, the results of the Nokia Group and Nokia Siemens Networks for the full years 2008–2009 are not directly comparable to the results for the full years 2005–2007. Nokia’s first quarter 2007 and full years 2005–2006 results included the Nokia’s former Networks business group only. On July 10, 2008, Nokia completed the acquisition of NAVTEQ Corporation. NAVTEQ ia a separate reportable segment of Nokia starting from the third quarter 2008. Accordingly, the results of NAVTEQ are not available for the prior periods. 64 Nokia in 2009 Nokia Group 2005–2009, IFRS Key ratios and economic indicators 1 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, EURm % of net sales Profit from continuing operations, EURm % of net sales Taxes, EURm Dividends, EURm Capital expenditure, EURm % of net sales Gross investments 3, 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, % 2009 40 984 – 19.2 40 594 6 734 1 197 2.9 – 265 0.6 962 2.3 891 2.2 702 1 498 2 531 1.3 683 1.7 5 909 14.4 123 171 14 483 5 203 6.7 6.5 41.9 – 25 2008 50 710 – 0.7 50 348 6 847 4 966 9.8 – 2 — 4 970 9.8 3 988 7.9 1 081 1 520 889 1.8 1 166 2.3 5 968 11.8 2007 51 058 24.2 50 736 5 702 7 985 15.6 239 0.5 8 268 16.2 7 205 14.1 1 522 2 111 715 1.4 1 017 2.0 5 647 11.1 121 723 100 534 16 833 4 452 27.2 27.5 42.3 – 14 18 208 1 090 54.8 53.9 46.7 – 62 2006 41 121 20.3 40 734 4 206 5 488 13.3 207 0.5 5 723 13.9 4 306 10.5 1 357 1 761 650 1.6 897 2.2 3 897 9.5 65 324 10 103 249 46.1 35.5 54.0 – 69 1 As of April 1, 2007, Nokia results include those of Nokia Siemens Networks on a fully consolidated basis. Nokia Siemens Networks, a company jointly owned by Nokia and Siemens, is comprised of Nokia’s former Networks business group and Siemens’ carrier-related operations for fixed and mobile networks. Accordingly, the results of the Nokia Group and Nokia Siemens Networks for the full years 2008–2009 are not directly comparable to the results for the full years 2005–2007. Nokia’s first quarter 2007 and full years 2005–2007 results included Nokia’s former Networks business group only. On July 10, 2008, Nokia completed the acquisition of NAVTEQ Corporation. NAVTEQ is a separate report- able segment of Nokia starting from the third quarter 2008. Accordingly, the results of NAVTEQ are not available for the prior periods. 2 Board’s proposal 3 Includes acquisition0s, investments in shares and capitalized development costs. Calculation of key ratios, see page 66. 2005 34 191 16.4 33 860 3 773 4 639 13.6 322 0.9 4 971 14.5 3 616 10.6 1 281 1 641 607 1.8 870 3.1 3 825 11.2 56 896 9 487 300 36.5 27.1 56.4 – 77 65 Equity ratio, % Capital and reserves attributable to the Company’s equity holders + 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 Capital and reserves attributable to the equity holders of the parent + minority shareholders’ interests Year-end exchange rates 2009 USD GBP JPY CNY INR 1 EUR = 1.4648 0.9006 130.30 10.0018 68.3223 Calculation of key ratios Key ratios under IFRS Operating profit Profit after depreciation Shareholders’ equity Share capital + reserves attributable to the Company’s equity holders Earnings per share (basic) Profit attributable to equity holders of the parent 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 Capital and reserves attributable to the Company’s equity holders 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 + interest and other net financial expenses Average capital and reserves attributable to the Company’s equity holders + short-term borrowings + long-term interest-bearing liabilities (including the current portion thereof) + minority shareholders’ interests Return on shareholders’ equity, % Profit attributable to the equity holders of the parent Average capital and reserves attributable to the Company’s equity holders during the year 66 Nokia in 2009 Proposal by the Board of Directors for distribution of profit The distributable funds in the balance sheet of the Company as per December 31, 2009 amount to EUR 7 024 million. The Board proposes that from the retained earnings a dividend of EUR 0.40 per share is to be paid out on the shares of the Company. As per December 31, 2009, the number of shares of the Company amounted to 3 744 956 052, based on which the maximum amount to be distributed as dividend is EUR 1 498 million. The proposed dividend is in line with the Company’s distribution policy and it significantly exceeds the minority dividend required by law. Espoo, March 11, 2010 Jorma Ollila Chairman Marjorie Scardino Georg Ehrnrooth Lalita D. Gupte Bengt Holmström Henning Kagermann Per Karlsson Isabel Marey-Semper Risto Siilasmaa Keijo Suila Olli-Pekka Kallasvuo President and CEO 67 Auditors’ report To the Annual General Meeting of Nokia Corporation We have audited the accounting records, the financial statements, the review by the Board of Directors and the administration of Nokia Corporation for the year ended 31 December 2009. The financial statements comprise the consolidated statement of financial position, income statement, statement of comprehensive income, cash flow state- ment, statement of changes in shareholders’ equity and notes to the consolidated financial statements, as well as the parent company’s balance sheet, income statement, cash flow statement and notes to the financial statements. Responsibility of the Board of Directors and the Managing Director The Board of Directors and the Managing Director are responsible for the preparation of the financial statements and the review by the Board of Directors and for the fair presentation of the consolidated financial statements in accor- dance with International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the fair presenta- tion of the financial statements and the review by the Board of Directors in accordance with laws and regulations governing the preparation of the financial statements and the review by the Board of Directors in Finland. The Board of Directors is responsible for the appropriate arrangement of the control of the company’s accounts and finances, and the Managing Director shall see to it that the accounts of the company are in compliance with the law and that its financial affairs have been arranged in a reliable manner. Auditor’s responsibility Our responsibility is to perform an audit in accordance with good auditing practice in Finland, and to express an opin- ion on the parent company’s financial statements, on the consolidated financial statements and on the review by the Board of Directors based on our audit. Good auditing practice requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements and the review by the Board of Directors are free from material misstatement and whether the members of the Board of Directors of the parent company and the Managing Director have complied with the Limited Liability Companies Act. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the review by the Board of Directors. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements and of the review by the Board of Directors, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements and the review by the Board of Directors in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and the review by the Board of Directors. The audit was performed in accordance with good auditing practice in Finland. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion on the consolidated financial statements In our opinion, the consolidated financial statements give a true and fair view of the financial position, financial performance, and cash flows of the group in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. Opinion on the company’s financial statements and the review by the Board of Directors In our opinion, the financial statements and the review by the Board of Directors give a true and fair view of both the consolidated and the parent company’s financial performance and financial position in accordance with the laws and regulations governing the preparation of the financial statements and the review by the Board of Directors in Finland. The information in the review by the Board of Directors is consistent with the information in the financial statements. Other opinions We support that the financial statements should be adopted. The proposal by the Board of Directors regarding the distribution of the profit shown in the balance sheet is in compliance with the Limited Liability Companies Act. We support that the Members of the Board of Directors and the Managing Director should be discharged from liability for the financial period audited by us. Helsinki, March 11, 2010 PricewaterhouseCoopers Oy Authorised Public Accountants Merja Lindh Authorised Public Account 68 Nokia in 2009 Additional information Critical accounting policies ................................................................................................................ 70 Corporate governance statement Group Executive Board .................................................................................................................... 74 Board of Directors ............................................................................................................................. 76 Corporate governance ..................................................................................................................... 78 Compensation of the Board of Directors and the Group Executive Board ............................. 81 Auditor fees and services .................................................................................................................... 96 Investor information ............................................................................................................................ 97 Contact information ............................................................................................................................. 98 69 Critical accounting policies Our accounting policies affecting our financial condi- tion and results of operations are more fully described in Note 1 to our consolidated financial statements. Certain of our accounting policies require the applica- tion of judgment by management in selecting appro- priate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. Management bases its estimates on historical experi- ence 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. The estimates affect all our segments equally unless otherwise indicated. We believe the following are the critical account- ing policies and related judgments and estimates used in the preparation of our consolidated financial statements. We have discussed the application of these critical accounting estimates with our Board of Directors and Audit Committee. Revenue recognition Sales from the majority of the Group are recognized when the significant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Group, and the costs incurred or to be incurred in respect of the transaction can be measured reliably. The remainder of revenue is recorded under the percentage of completion method. Devices & Services and certain NAVTEQ and Nokia Siemens Networks revenues are generally recognized when the significant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. This requires us to assess at the point of delivery whether these criteria have been met. When man- agement determines that such criteria have been met, revenue is recognized. We record estimated reductions to revenue for special pricing agreements, price protection and other volume based discounts at the time of sale, mainly in the mobile device busi- ness. Sales adjustments for volume based discount programs are estimated based largely on historical activity under similar programs. Price protection adjustments are based on estimates of future price reductions and certain agreed customer inventories at the date of the price adjustment. Devices & Services 70 Nokia in 2009 and certain Nokia Siemens Networks service revenue is generally recognized on a straight line basis over the service period unless there is evidence that some other method better represents the stage of comple- tion. Devices & Services and NAVTEQ license fees from usage are recognized in the period when they are reli- ably measurable which is normally when the customer reports them to the Group. Devices & Services, NAVTEQ and Nokia Siemens Networks may enter into multiple component transac- tions consisting of any combination of hardware, services and software. The commercial effect of each separately identifiable element of the transaction is evaluated in order to reflect the substance of the transaction. The consideration from these transac- tions is allocated to each separately identifiable component based on the relative fair value of each component. The consideration allocated to each component is recognized as revenue when the revenue recognition criteria for that element have been met. The Group determines the fair value of each component by taking into consideration factors such as the price when the component is sold separately by the Group, the price when a similar component is sold separately by the Group or a third party and cost plus a reasonable margin. Nokia Siemens Networks revenue and cost of sales from contracts involving solutions achieved through modification of complex telecommunica- tions equipment is recognized on the percentage of completion basis when the outcome of the contract can be estimated reliably. This occurs when total con- tract revenue and the cost to complete the contract can be estimated reliably, it is probable that economic benefits associated with the contract will flow to the Group, and the stage of contract completion can be measured. When we are not able to meet those condi- tions, 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 using the cost-to-cost method. The percentage of completion method relies on estimates of total expected contract revenue and costs, as well as the dependable measurement 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. Nokia Siemens 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 number of customer financing arrangements and agreed extended pay- ment terms with selected customers. In establishing credit arrangements, management must assess the creditworthiness of the customer and the timing of cash flows expected to be received under the arrange- ment. However, should the actual financial position of our customers or general economic conditions differ from our assumptions, we may be required to re-assess the ultimate collectability of such financings and trade credits, which could result in a write-off of these balances 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. The Group endeavors to mitigate this risk through the transfer of its rights to the cash collected from these arrangements to third-party financial institutions on a non-recourse basis in exchange for an upfront cash payment. During the past three fiscal years the Group has not had any write-offs or impairments regarding customer financing. The financial impact of the customer financing related assumptions mainly affects the Nokia Siemens Networks segment. See also Note 33 b) to our consolidated financial statements for a further discussion of long-term loans to customers and other parties. Allowances for doubtful accounts We maintain allowances for doubtful accounts for estimated losses resulting from the subsequent in- ability of our customers to make required payments. 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 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. Based on these estimates and assumptions the allowance for doubtful accounts was EUR 391 million in 2009 (EUR 415 million in 2008). Inventory-related allowances We periodically review our inventory for excess, obso- lescence and declines in market value below cost and record an allowance against the inventory balance for any such declines. These reviews require management to estimate future demand for our products. Possible changes in these estimates could result in revisions to the valuation of inventory in future periods. Based on these estimates and assumptions the allowance for excess and obsolete inventory was EUR 361 million in 2009 (EUR 348 million in 2008). The financial impact of the assumptions regarding this allowance affects mainly the cost of sales of the Devices & Services and Nokia Siemens Networks segments. parties claiming infringement of their patented or otherwise exclusive technology, or through our own monitoring of developments in patent and other intel- lectual property right cases involving our competitors, we identify potential IPR infringements. Critical accounting policies development costs in future periods. Whenever there is an indicator that develop- ment 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 outflows that are expected to occur before the asset is ready for use. See Note 7 to our consolidated financial statements. Impairment reviews are based upon our projec- tions of anticipated discounted 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 de- termine 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 appropri- ate, such amounts estimated could differ materially from what will actually occur in the future. We estimate the outcome of all potential IPR infringements made known to us through assertion by third parties, or through our own monitoring of patent- and other IPR-related cases in the relevant legal systems. To the extent that we determine that an identified potential infringement will result in a probable outflow of resources, we record a liabil- ity based on our best estimate of the expenditure required to settle infringement proceedings. Based on these estimates and assumptions the provision for IPR infringements was EUR 390 million in 2009 (EUR 343 million in 2008). The financial impact of the assumptions regarding this provision mainly affects Devices & Services segment. 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, IPR infringe- ment claims can last for varying periods of time, resulting in irregular movements in the IPR infringe- ment provision. In addition, the ultimate outcome or actual cost of settling an individual infringement may materially vary from our estimates. Legal contingencies Business combinations As discussed in Note 28 to the consolidated financial statements, legal proceedings covering a wide range of matters are pending or threatened in various jurisdictions against the Group. We record provisions for pending litigation when we determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates. Capitalized development costs We capitalize certain development costs primarily in the Nokia Siemens Networks segment when it is probable that a development project will be a success and certain criteria, including commercial and techni- cal feasibility, have been met. These costs are then amortized 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 technical 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 We apply the purchase method of accounting to account for acquisitions of businesses. The cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, li- abilities incurred, equity instruments issued, and costs directly attributable to the acquisition. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date. The excess of the cost of the acquisition over our interest in the fair value of the identifiable net assets acquired is recorded as goodwill. The determination and allocation of fair values to the identifiable assets acquired and liabilities as- sumed is based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations 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. Although we believe that the 71 Warranty provisions We provide for the estimated cost of product warran- ties at the time revenue is recognized. Our products are covered by product warranty plans of varying periods, depending on local practices and regula- tions. While we engage in extensive product quality programs and processes, including actively monitor- ing and evaluating the quality of our component suppliers, our warranty obligations are affected by actual product failure rates (field failure rates) and by material usage and service delivery costs incurred in correcting a product failure. Our warranty provi- sion is established 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 we continuously introduce new products which incorporate complex technology, 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 appropriate, 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 increase the provision. Based on these estimates and assumptions the warranty provision decreased to EUR 971 million primarily due to lower sales volumes in Devices & Services in 2009 (EUR 1 375 million in 2008). The financial impact of the assump- tions regarding this provision mainly affects the cost of sales of Devices & Services segment. Provision for intellectual property rights, or IPR, infringements We provide for the estimated future settlements related to asserted and unasserted past alleged IPR infringements based on the probable outcome of each potential infringement. 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 and other intellectual property rights related to our products and solutions under development and thereby avoid inadvertent infringement of proprietary technologies, the nature of our business is such that patent and other intellectual property right infringe- ments may and do occur. Through contact with  Critical accounting policies assumptions applied in the determination are reason- able based on information available at the date of ac- quisition, actual results may differ from the forecasted amounts and the difference could be material. Valuation of long-lived and intangible assets and goodwill We assess the carrying amount of identifiable intan- gible assets, long-lived assets if events or changes in circumstances indicate that such carrying amount may not be recoverable. We assess the carrying amount of our goodwill at least annually, or more frequently based on these same indicators. Factors we consider important, which could trigger an impair- ment review, include the following: » » » significant underperformance relative to histori- cal or projected future results; significant changes in the manner of our use of these assets or the strategy for our overall busi- ness; and significantly negative industry or economic trends. When we determine that the carrying amount 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 discounted 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. In assessing goodwill, these discounted cash flows are prepared at a cash generating unit level. Amounts estimated could differ materially from what will actually occur in the future. Goodwill is allocated to the Group’s cash-generat- ing units (CGU) and discounted cash flows are prepared at CGU level for the purpose of impairment testing. The allocation of goodwill to our CGUs is made in a manner that is consistent with the level at which manage- ment monitors operations and the CGUs expected to benefit from the synergies arising from each of our acquisitions. Accordingly, (i) goodwill arising from the acquisitions completed by the Devices & Services segment has been allocated to the Devices & Services CGU, (ii) goodwill arising from the acquisition of and 72 Nokia in 2009 acquisitions completed by NAVTEQ has been allocated to the NAVTEQ CGU and (iii) goodwill arising from the formation of and acquisitions completed by Nokia Siemens Networks has been allocated to the Nokia Siemens Networks CGU. The recoverable amounts for the Devices & Services CGU and NAVTEQ CGU are determined based on a value in use calculation. The cash flow projections employed in the value in use calculation are based on financial plans approved by management. These projections are consistent with external sources of information, whenever available. Cash flows beyond the explicit forecast period are extrapolated using an estimated terminal growth rate that does not exceed the long-term average growth rates for the industry and economies in which the CGU operates. In prior years we used a value in use calculation to determine the recoverable amount of the Nokia Siemens Networks CGU. In 2009 the value in use calculation resulted in a recoverable amount that was lower than the carrying amount for the Nokia Siemens Networks CGU. As a result, we performed an analysis to determine the fair value less costs to sell of the Nokia Siemens Networks CGU. The fair value less costs to sell of the Nokia Siemens Networks CGU exceeded its value in use. IFRS requires that recoverable amount is based on the higher of the value in use and fair value less costs to sell and accordingly the current year goodwill assessment is based on a discounted cash flow calculation to estimate the fair value less costs to sell. The cash flow projections employed in the discounted cash flow calculation have been determined by management based on the best information available to reflect the amount that an entity could obtain from the disposal of the Nokia Siemens Networks CGU in an arm’s length transaction between knowledgeable, willing parties, after deducting the estimated costs of disposal. The discount rates applied in the value in use calculation for each CGU have been determined independently of capital structure reflecting current assessments of the time value of money and relevant market risk premiums. Risk premiums included in the determination of the discount rate reflect risks and uncertainties for which the future cash flow estimates have not been adjusted. Overall, the discount rates ap- plied in the 2009 impairment testing have decreased in line with declining interest rates and narrowing credit spreads. In case there are reasonably possible changes in estimates or underlying assumptions applied in our goodwill impairment testing, such as growth rates and discount rates, which could have a material im- pact on the carrying amount of the goodwill or result in an impairment loss, those are disclosed below in connection with the relevant CGU. The Group recorded an impairment loss of EUR 908 million in the third quarter of 2009 to reduce the carrying amount of the Nokia Siemens Networks CGU to its recoverable amount. The impairment loss was allocated in its entirety to the carrying amount of goodwill arising from the formation of Nokia Siemens Networks and from subsequent acquisitions completed by Nokia Siemens Networks. The impair- ment loss is presented as impairment of goodwill in the consolidated income statement. As a result of the impairment loss, the amount of goodwill allocated to the Nokia Siemens Networks CGU has been reduced to zero. The recoverability of the Nokia Siemens Networks CGU has declined as a result of a decline in forecasted profits and cash flows. The Group evaluated the historical and projected financial performance of the Nokia Siemens Networks CGU taking into consider- ation the challenging competitive factors and market conditions in the infrastructure and related service business. As a result of this evaluation, the Group lowered its net sales and gross margin projections for the Nokia Siemens Networks CGU. The reduction in the projected scale of the business had a negative impact on the projected profits and cash flows of the Nokia Siemens Networks CGU. We have performed our annual goodwill impair- ment testing during the fourth quarter of 2009 on the opening fourth quarter balances. During 2009, the conditions in the world economy have shown signs of improvement as countries have begun to emerge from the global economic downturn. However, significant uncertainty exists regarding the speed, timing and resiliency of the global economic recovery and this uncertainty is reflected in the impairment testing for each of the Group’s CGUs. Goodwill amounting to EUR 1 227 million has been allocated to the Devices & Services CGU for the purpose of impairment testing. The impairment testing has been carried out based on management’s expectation of stable market share and normalized profit margins in the medium to long-term. The good- will impairment testing conducted for the Devices & Services CGU for the year ended December 31, 2009 did not result in any impairment charges. Goodwill amounting to EUR 3 944 million has been allocated to the NAVTEQ CGU. The impairment testing has been carried out based on management’s expectations and assessment of the financial perfor- mance and future strategies of the NAVTEQ CGU in light of current and expected market and economic condi- tions. The goodwill impairment testing conducted for the NAVTEQ CGU for the year ended December 31, 2009 did not result in any impairment charges. The recoverable amount of the NAVTEQ CGU is between 5 to 10% higher than its carrying amount. The Group ex- pects that a reasonably possible change of 1% in the valuation assumptions for long-term growth rate or discount rate would give rise to an impairment loss. The key assumptions applied in the impairment testing for each CGU in the annual goodwill impair- ment testing for each year indicated are presented in the table below: Cash-generating unit, % 2009 2008 2009 2008 2009 2008 Devices & Services 1 Nokia Siemens Networks NAVTEQ 1 Terminal growth rate Pre-tax discount rate 2.00 2.28 11.46 12.35 1.00 1.00 13.24 15.60 5.00 5.00 12.60 12.42 1 Subsequent to the acquisition of NAVTEQ on July 10, 2008, we have had three operating and reportable segments: Devices & Services, NAVTEQ and Nokia Siemens Networks. The organizational changes fundamentally altered our reporting structure, the information reported to management as well as the way in which management monitors and runs operations and accordingly no directly comparable informa- tion for the Devices & Services CGU and NAVTEQ CGU is available for the year ended December 31, 2007. The annual goodwill impairment testing conducted for each of the Group’s CGUs for the years ended December 31, 2008 and 2007 have not resulted in any impairment charges. The goodwill impairment testing for the year ended December 31, 2009 resulted in the aforementioned impairment charge for the Nokia Siemens Networks CGU. The Group has applied consistent valuation methodologies for each of the Group’s CGUs for the years ended December 31, 2009, 2008 and 2007. We periodically update the assumptions applied in our impairment testing to reflect management’s best estimates of future cash flows and the conditions that are expected to prevail during the forecast period. See Note 7 to our consolidated financial state- ments for further information regarding “Valuation of long-lived and intangible assets and goodwill.” Fair value of derivatives and other financial instruments The fair value of financial instruments that are not traded in an active market (for example, unlisted equi- ties, currency options and embedded derivatives) are determined using valuation techniques. We use judg- ment to select an appropriate valuation methodology and underlying assumptions based principally on existing market conditions. If quoted market prices are not available for unlisted shares, fair value is estimated by using various factors, including, but not limited to: (1) the current market value of similar instruments, (2) prices established from a recent arm’s length fi- nancing transaction of the target companies, (3) analy- sis of market prospects and operating performance of the target companies taking into consideration of pub- lic market comparable companies in similar industry sectors. Changes in these assumptions may cause the Group to recognize impairments or losses in the future periods. The financial impact of these assumptions mainly affects Devices & Services segment. Income taxes The Group is subject to income taxes both in Finland and in numerous other jurisdictions. Significant judg- ment is required in determining income tax expense, tax provisions, deferred tax assets and liabilities rec- ognized in the consolidated financial statements. We recognize deferred tax assets to the extent that it is probable that sufficient taxable income will be avail- able in the future against which the temporary differ- ences and unused tax losses can be utilized. We have considered future taxable income and tax planning strategies in making this assessment. If circumstances indicate it is no longer probable that deferred tax as- sets will be utilized they are assessed for realizability and adjusted as necessary. At December 31, 2009, the Group had loss carry forwards and temporary differ- ences of EUR 2 532 million (EUR 102 million in 2008) for which no deferred tax assets were recognized in the consolidated financial statements due to loss history and current year loss in certain jurisdictions. We recognize tax provisions based on estimates and assumptions when, despite our belief that tax return positions are supportable, it is more likely than not that certain positions will be challenged and may not be fully sustained upon review by tax authori- ties. In 2009, Nokia benefited EUR 203 million from the positive net effect from the development and outcome of various prior year taxes and changes in tax contingencies impacting Nokia taxes. If the final outcome of these matters differs from the amounts initially recorded, differences may positively or negatively impact the income tax and deferred tax provisions in the period in which such determination is made. Pensions The determination of our pension benefit obligation and expense for defined benefit pension plans is dependent on our selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 5 to our consolidat- ed 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 markets have experienced volatility, which has affected the value of our pension 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 therefore generally affect our recognized expense and recorded obligation in such future peri- ods. Our assumptions are based on actual historical experience and external data regarding compensation and discount rate trends. While we believe that our Critical accounting policies assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our pension obli- gation and our future expense. The financial impact of the pension assumptions affects mainly the Devices & Services and Nokia Siemens Networks segments. Share-based compensation We have various types of equity settled share-based compensation schemes for employees. Employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments as at the date of grant, excluding the impact of any non-market vesting conditions. Fair value of stock options is estimated by using the Black-Scholes model on the date of grant based on certain assumptions. Those assumptions are described in Note 23 to our consolidated financial statements and include, among others, the dividend yield, expected volatility and expected life of stock op- tions. The expected life of stock options is estimated by observing general option holder behavior and ac- tual historical terms of Nokia stock option programs, whereas the assumption of the expected volatility has been set by reference to the implied volatility of stock options available on Nokia shares in the open market and in light of historical patterns of volatility. These variables make estimation of fair value of stock options difficult. Non-market vesting conditions attached to the performance shares are included in assumptions about the number of shares that the employee will ultimately receive relating to projections of sales and earnings per share. On a regular basis, we review the assumptions made and revise the estimates of the number of performance shares that are expected to be settled, where necessary. At the date of grant, the number of performance shares granted that are expected to be settled is assumed to be two times the amount at threshold. Any subsequent revisions to the estimates of the number of performance shares expected to be settled may increase or decrease total compensation expense. Such increase or decrease adjusts the prior period compensation expense in the period of the review on a cumulative basis for unvested performance shares for which compensation expense has already been recognized in the profit and loss account, and in subsequent periods for unvested performance shares for which the expense has not yet been recognized in the profit and loss account. Significant differences in employee option activity, equity market performance, and our projected and actual net sales and earnings per share performance may materially affect future expense. In addition, the value, if any, an employee ultimately receives from share-based payment awards may not correspond to the expense amounts recorded by the Group. 73 Corporate governance statement * Group Executive Board The current members of Nokia’s Group Executive Board are set forth below. According to Nokia’s Articles of Association, Nokia has a Group Executive Board that is responsible for the operative management of the Group. The Board has the responsibility for appointing and discharging the President and Chief Executive Officer, Chief Financial Officer and the other members of the Group Executive Board. The Chief Executive Officer, who is separate from Chairman, also acts as President, and his rights and respon- sibilities include those allotted to the President under Finnish law. * This Corporate Governance Statement is issued separately from the Review by the Board of Directors. The review by the Board of Directors 2009 starts on page 3 of this publication. 74 Nokia in 2009 Olli-Pekka Kallasvuo, b. 1953 President and CEO of Nokia Corporation. Member of the Board of Directors of Nokia Corporation. Group Executive Board member since 1990, Chairman since 2006. With Nokia 1980 –1981, rejoined 1982. LL.M. (University of Helsinki). President and COO of Nokia Corporation 2005–2006, Executive Vice President and General Manager of Nokia Mobile Phones 2004–2005, 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 NAVTEQ Corpora- tion and Nokia Siemens Networks B.V. Member of the Board of the Confederation of Finnish Industries EK. Member of The European Round Table of Industrialists. Esko Aho, b. 1954 Executive Vice President, Corporate Relations and Responsibility. Group Executive Board member since 2009. Joined Nokia 2008. Master of Social Sciences (University of Helsinki). President of the Finnish Innovation Fund, Sitra 2004– 2008. Private consultant 2003–2004. Lecturer, Harvard University 2000–2001. Prime Minister of Finland 1991–1995. Chairman of the Centre Party 1990–2002. Member of the Finnish Parliament 1983–2003. Elector in the presidential elections of 1978, 1982 and 1988. Member of the Board of Directors of Fortum Corpora- tion and Russian Venture Company. Vice Chairman of the Board, Technology Industries of Finland. Member of the Club de Madrid, the InterAction Council and the Science and Technology in Society Forum (STS). Timo Ihamuotila, b. 1966 Executive Vice President, Chief Financial Officer. Group Executive Board member since 2007. With Nokia 1993–1996, rejoined 1999. Master of Science (Economics) (Helsinki School of Economics), Licentiate of Science (Finance) (Helsinki School of Economics). Executive Vice President, Sales, Markets 2008–2009, Executive Vice President, Sales and Portfolio Manage- ment, Mobile Phones 2007, Senior Vice President, CDMA Business Unit, Mobile Phones 2004–2007, Vice Presi- dent, Finance, Corporate Treasurer 2000–2004, Direc- tor, Corporate Finance, Nokia Corporation 1999–2000. Vice President of Nordic Derivates Sales, Citibank plc 1996–1999. Manager, Dealing & Risk Management, Nokia 1993–1996. Analyst, Assets and Liability Management, Kansallis Bank 1990–1993. Member of the Board of Directors of NAVTEQ Corporation and Nokia Siemens Networks B.V. Mary T. McDowell, b. 1964 Executive Vice President, Chief Development Officer. Group Executive Board member since 2004. Joined Nokia 2004. Bachelor of Science (Computer Science) (College of Engineering at the University of Illinois). Executive Vice President and General Manager of Enterprise Solutions 2004–2007. Senior Vice President, Strategy and Corporate Development of Hewlett-Pack- ard 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 Presi- dent, 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 Directors of NAVTEQ Corporation. Hallstein Moerk, b. 1953 Executive 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 Cor- poration 1977–1999. HR Manager for Europe, Middle East and Africa and Managing Director for European Multicountry Area were the last positions. Member of the Board of Advisors of Center for HR Strategy, Rutgers University. Fellow of Academy of Human Resources, Class of 2007. Dr. Tero Ojanperä, b. 1966 Executive Vice President, Services. Group Executive Board member since 2005. Joined Nokia 1990. Master of Science (University of Oulu), Ph.D. (Delft University of Technology, The Netherlands). Executive Vice President, Chief Technology Officer 2006–2007. Executive Vice President & Chief Strategy Officer 2005–2006, Senior Vice President, Head of Nokia Research Center 2003–2004. Vice President, Re- search, Standardization and Technology of IP Mobility Networks, Nokia Networks 1999–2002. 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, Princi- pal Engineer, Nokia Research Center, 1997–1998. Member of Young Global Leaders. Niklas Savander, b. 1962 Executive Vice President, Services. Group Executive Board Member 2006. Joined Nokia 1997. Master of Science (Eng.) (Helsinki University of Tech- nology), Master of Science (Economics and Business Administration) (Swedish School of Economics and Business Administration, Helsinki). Executive Vice President, Technology Platforms 2006–2007. Senior Vice President and General Manager of Nokia Enterprise Solutions, Mobile Devices Busi- ness Unit 2003–2006, Senior Vice President, Nokia Mobile Software, Market Operations 2002–2003, Vice President, Nokia Mobile Software, Strategy, Market- ing & Sales 2001–2002, Vice President and General Manager of Nokia Networks, Mobile Internet Applica- tions 2000–2001, Vice President of Nokia Networks, Systems Marketing 1997–1998. Holder of executive and managerial positions at Hewlett-Packard Company 1987–1997. Member of the Board of Directors of NAVTEQ Corpora- tion and Nokia Siemens Networks B.V. Member of the Board of Directors and secretary of Waldemar von Frenckells Stiftelse. Richard A. Simonson, b. 1958 Executive Vice President, Head of Mobile Phones and Strategic Sourcing, Devices. 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). Executive Vice President & Chief Financial Officer of Nokia Corporation 2003–2009, 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 Nokia Siemens Networks B.V. Member of the Board of Directors of Electronic Arts, Inc., and Silver Spring Networks. Mem- ber of the Board of Trustees of International House –New York. Member of US Treasury Advisory Commit- tee on the Auditing Profession. Alberto Torres, b. 1965 Executive Vice President, Solutions. Group Executive member since October 1, 2009. Joined Nokia 2004. Ph.D. in Computer Science (Stanford University), Bachelor and Master of Science (Universidad Simón Bolívar). Senior Vice President, Head of Devices Category Management 2009, Senior Vice President, Focused Businesses 2008–2009, President, Vertu 2005–2009, Vice President, Corporate Strategy, Nokia 2004–2005, Principal, McKinsey & Company, 1994–2003, President, Gnosis 1988–1989. Anssi Vanjoki, b. 1956 Executive Vice President, Markets. Group Executive Board member since 1998. Joined Nokia 1991. Master of Science (Econ.) (Helsinki School of Economics and Business Administration). Executive Vice President and General Manager of Multimedia 2004–2007. 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. Chairman of the Board of Directors of Amer Sports Corporation. Member of the Board of Directors of Sonova Holding AG. Dr. Kai Öistämö, b. 1964 Executive Vice President, Devices. Group Executive Board Member since 2005. Joined Nokia in 1991. Doctor of Technology (Signal Processing), Master of Science (Engineering) (Tampere University of Technology). Executive Vice President and General Manager of Mobile Phones 2005–2007. Senior Vice President, Business Line Management, Mobile Phones 2004–2005, Senior Vice President, Mobile Phones Business Unit, Nokia Mobile Phones 2002–2003, Vice President, TDMA/GSM 1900 Product Line, Nokia Mobile Phones 1999–2002, Vice President, TDMA Product Line 1997–1999. Various technical and managerial posi- tions in Nokia Consumer Electronics and Nokia Mobile Phones 1991–1997. Member of Board of Directors of Nokian Tyres plc. Corporate governance statement Alberto Torres, Executive Vice President, Head of Solu- tion Unit, was appointed as a member of the Group Ex- ecutive Board as of October 1, 2009. Robert Andersson left the Group Executive Board as from September 30, 2009 to head Nokia Corporate Alliances and Business Development. Simon Beresford-Wylie, left the Group Executive Board and the position of Chief Executive Officer of Nokia Siemens Networks as from September 30, 2009 and left the company on November 1, 2009. Juha Äkräs has been appointed Executive Vice Presi- dent of Human Resources as from April 1, 2010. At the same time, he will become a member of the Group Executive Board. Mr. Äkräs is currently Senior Vice President, co-heading Human Resources with Mr. Moerk, the current Executive Vice President of Human Resources. Mr. Moerk will leave the Group Executive Board as from March 31, 2010 and will act as Executive Advisor in Nokia until his retirement at the end of September 2010. 75 Corporate governance statement Board of Directors The current members of the Board of Directors were elected at the Annual General Meeting on April 23, 2009, based on the proposal of the Cor- porate Governance and Nomination Committee of the Board of Directors. On the same date, the Chairman and Vice Chairman of the Board of Di- rectors, as well as the Chairmen and members of the committees of the Board, were elected among the Board members and among the independent directors of the Board, respectively. The members of the Board of Directors are an- nually elected by a simple majority of the share- holders’ votes represented at the Annual General Meeting for a one-year term ending at close of the next Annual General Meeting. 76 Nokia in 2009 The current members of the Board of Directors and its committees are set forth below. Chairman Jorma Ollila, b. 1950 Chairman of the Board of Directors of Nokia Corporation. Chairman of the Board of Directors of Royal Dutch Shell Plc. Board member since 1995. Chairman since 1999. Master of Political Science (University of Helsinki), Master of Science (Econ.) (London School of Economics), Master of Science (Eng.) (Helsinki University of Technology). Chairman and CEO, Chairman of the Group Executive Board of Nokia Corporation 1999–2006, 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 posi- tions at Citibank within corporate banking 1978–1985. Vice Chairman of the Board of Directors of Otava Books and Magazines Group Ltd and member of the Board of Directors of Fruugo Inc. Chairman of the Boards of Directors and the Supervisory Boards of The Research Institute of the Finnish Economy ETLA and Finnish Business and Policy Forum EVA. Member of the Board of Directors of the University of Helsinki. Chairman of the World Business Council for Sustain- able Development. Vice Chairman of the Independent Reflection Group of the Council of the European Union considering the future of the European Union. Member of The European Round Table of Industrialists. Member of the Board of Directors of Ford Motor Company 2000–2008. Vice Chairman of UPM-Kymmene Corporation 2004–2008. Vice Chairman Dame Marjorie Scardino, b. 1947 Chief Executive and member of the Board of Directors of Pearson plc. Board member since 2001. Vice Chairman since 2007. Chairman of the Corporate Governance and Nomination Committee and member of the Personnel Committee. Bachelor of Arts (Baylor University), Juris Doctor (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. Georg Ehrnrooth, b. 1940 Board member since 2000. Chairman of the Audit Committee and member of the Corporate Governance and Nomination Committee. 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. Member of the Board of Directors of Sandvik AB (publ). Vice Chairman of the Boards of Directors of The Research Institute of the Finnish Economy ETLA and Finnish Business and Policy Forum EVA. Member of the Board of Directors of Sampo plc. 1992–2009 and Chairman 2006–2009. Chairman of the Board of Direc- tors of Assa Abloy AB (publ) 1994–2006. Vice Chairman of the Board of Directors of Rautaruukki Corporation 2001–2007. Lalita D. Gupte, b. 1948 Non-executive Chairman of the ICICI Venture Funds Management Co Ltd. Board member since 2007. Member of the Audit Committee. B.A. in Economics (Hons) (University of Delhi) and Mas- ter of Management Studies (University of Bombay). Joint Managing Director and member of the Board of Directors of ICICI Bank Ltd 2002–2006, Joint Managing Director and member of the Board of Directors of ICICI Ltd 1999–2002 (ICICI Ltd merged with ICICI Bank Ltd in 2002), Deputy Managing Director of ICICI Ltd 1996– 1999, Executive Director on the Board of Directors of ICICI Ltd 1994–1996. Various leadership positions in Corporate and Retail Banking, Strategy and Resources, and International Banking in ICICI Ltd since 1971. Member of the Boards of Directors of ICICI Venture Funds Management Co Ltd (non-executive Chairman), Bharat Forge Ltd, Kirloskar Brothers Ltd, FirstSource Solutions Ltd, Godrej Properties Ltd, HPCL-Mittal Ener- gy Ltd and Swadhaar FinServe Pvt Ltd. (non-executive Chairman). Also member of Board of Governors of edu- cational institutions. Member of the Board of Directors (executive director) of ICICI Bank Ltd 2002–2006, Mem- ber of the Board of Directors (non-executive director) of ICICI Bank Ltd 1994–2002, Member of the Board of Directors (executive director) of ICICI Ltd 1994–2002. Member of the Board of Directors of ICICI Securities Ltd 1993–2006, ICICI Prudential Life Insurance Co Ltd 2000–2006, ICICI Lombard General Insurance Co Ltd 2000–2006, ICICI Bank UK Ltd 2003–2006, ICICI Bank Canada 2003–2006, ICICI Bank Eurasia Limited Liability Company 2005–2006. 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 American Academy of Arts and Sciences and Foreign Member of The Royal Swedish Academy of Sciences. Member of the Boards of Directors of The Research Institute of the Finnish Economy ETLA and Finnish Business and Policy Forum EVA. Member of Aalto University Foundation Board. Prof. Dr. Henning Kagermann, b. 1947 Board member since 2007. Member of the Personnel Committee. Ph.D. in Theoretical Physics (Technical University of Brunswick). Per Karlsson, b. 1955 Independent Corporate Advisor. Board member since 2002. Chairman of the Personnel Committee and member of the Corporate Governance and Nomination Committee. 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. Member of the Board of Directors of IKANO Holdings S.A. Isabel Marey-Semper, b. 1967 L’Oréal Group, Director Shared Services R&D. Board member since 2009. Member of the Audit Committee. Ph.D. in NeuroPharmacology (Université Paris Pierre et Marie Curie–Collège de France), MBA (Collège des Ingénieurs, Paris). Co-CEO and Chairman of the Executive Board of SAP AG 2008–2009. CEO of SAP 2003–2008. Co-chairman of the Executive Board of SAP 1998–2003. A number of leadership positions in SAP since 1982. Member of SAP Executive Board 1991–2009. Taught physics and com- puter science at the Technical University of Brunswick and the University of Mannheim 1980–1992, became professor in 1985. Chief Financial Officer, EVP in charge of strategy of PSA Peugeot Citroën 2007–2009. COO, Intellectual Property and Licensing Business Unit of Thomson 2006–2007. Vice President Corporate Planning at Saint-Gobain 2004–2005. Director of Corporate Planning, High Performance Materials at Saint-Gobain 2002–2004. Principal, A.T. Kearney (Telesis, prior to acquisition by A.T. Kearney) 1997–2002. Member of the Board of Directors of Faurecia S.A. 2007–2009. Risto Siilasmaa, b. 1966 Board member since 2008. Member of the Audit Committee. Master of Science (Eng) (Helsinki University of Technology). President and CEO of F-Secure Corporation 1988–2006. Chairman of the Board of Directors of F-Secure Cor- poration, Elisa Corporation and Fruugo Inc. Member of the Board of Directors of Blyk Ltd, Ekahau Inc. and Efecte Corporation. Vice Chairman of the Board of Directors of The Federation of Finnish Technology In- dustries and Finnish-American Chamber of Commerce, member of the Board of Directors of Confederation of Finnish Industries EK. Member of the supervisory boards of Deutsche Bank AG, Deutsche Post AG and Münchener Rückver- sicherungs-Gesellschaft AG (Munich Re). Member of the Board of Directors of Wipro Ltd. President of Deutsche Akademie der Technikwissenschaften. Member of the Honorary Senate of the Foundation Lindau Nobel- prizewinners. Olli-Pekka Kallasvuo, b. 1953 President and CEO of Nokia Corporation. Board member since 2007. LL.M. (University of Helsinki). President and COO of Nokia Corporation 2005–2006, Executive Vice President and General Manager of Nokia Mobile Phones 2004–2005, 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 Nokia Siemens Networks B.V. and NAVTEQ Corporation. Member of the Board of the Confederation of Finnish Industries EK. Member of The European Round Table of Industrialists. Member of the Board of Directors of EMC Corporation 2004–2009. Chairman of the Board of Directors of Sampo Plc 2001–2006. Corporate governance statement Keijo Suila, b. 1945 Board member since 2006. Member of the Personnel Committee. B.Sc. (Economics and Business Administration) (Helsinki University of Economics and Business Administration). President and CEO of Finnair Plc 1999–2005. Chairman of oneworld airline alliance 2003–2004 and member of various international aviation and air transportation associations 1999–2005. Holder of various executive positions, including Vice Chairman and Executive Vice President, at Huhtamäki Oyj, Leaf Group and Leaf Europe 1985–1998. Chairman of the Board of Directors of Solidium Oy and The Finnish Fair Corporation. Member of the Board of Directors of Kesko Corporation 2001–2009 and Vice Chairman 2006–2009. Proposal of the Corporate Governance and Nomination Committee for Composition of the Board of Directors in 2010 On January 28, 2010, the Corporate Governance and Nomination Committee announced its proposal to the Annual General Meeting convening on May 6, 2010 regarding the composition of the Board of Direc- tors for a one-year term as from the Annual General Meeting in 2010 until the close of the Annual General Meeting 2011. The Committee proposes to the Annual General Meeting that the number of Board members be ten and that the following current Board members be re-elected: Lalita D. Gupte, Dr. Bengt Holmström, Prof. Dr. Henning Kagermann, Olli-Pekka Kallasvuo, Per Karlsson, Isabel Marey-Semper, Jorma Ollila, Dame Marjorie Scardino, Risto Siilasmaa and Keijo Suila. Nokia’s Board leadership structure consists of a Chair- man and Vice Chairman, annually elected by the Board and confirmed by the independent directors of the Board from among the Board members upon the recommendation of the Corporate Governance and Nomination Committee. The independent directors of the Board also confirm the election of the members and Chairmen for the Board’s committees from among the Board’s independent directors upon the recom- mendation of the Corporate Governance and Nomina- tion Committee and based on each committee’s member qualification standards. These elections will take place at the Board’s assembly meeting following the Annual General Meeting. On January 28, 2010, the Corporate Governance and Nomination Committee announced that it will propose at the assembly meeting of the new Board of Directors after the Annual General Meeting on May 6, 2010 that Jorma Ollila be elected as Chairman of the Board and Dame Marjorie Scardino as Vice Chairman of the Board. 77 Corporate governance statement Corporate governance Pursuant to the provisions of the Finnish Companies Act and Nokia’s Articles of Association, the control and management of Nokia is divided among the share- holders at a general meeting, the Board of Directors (or the “Board”), the President and the Group Execu- tive Board chaired by the Chief Executive Officer. Under its Articles of Association, in addition to the Board of Directors, Nokia has a Group Executive Board, which is responsible for the operative management of the Group. The Chairman and members of the Group Executive Board are appointed by the Board of Direc- tors. 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 Nokia’s Articles of Association as well as any comple- mentary rules of procedure as defined by the Board, such as the Corporate Governance Guidelines and related Board Committee charters. The responsibilities of the Board of Directors The Board represents and is accountable to the share- holders of the company. The Board’s responsibilities are active, not passive, and include the responsibility regularly to evaluate the strategic direction of the company, management policies and the effective- ness with which management implements them. The Board’s responsibilities also 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 op- erations. In doing so, the Board may set annual ranges and/or individual limits for capital expenditures, investments and divestitures and financial commit- ments not to be exceeded without Board approval. Nokia has a Risk Policy which outlines Nokia’s risk management policies and processes and is approved by the Audit Committee. The Board’s role in risk oversight includes risk analysis and assess- ment in connection with each financial and business review, update and decision-making proposal and is an integral part of all Board deliberations. The Audit Committee is responsible for, among other matters, risk management relating to the financial reporting process and assisting the Board’s oversight of the risk management function. Nokia applies a common and systematic approach to risk management across all business operations and processes based on a strategy approved by the Board. Accordingly, risk management at Nokia is not a separate process but a normal daily business and management practice. The Board has the responsibility for appointing 78 Nokia in 2009 and discharging the President and the Chief Executive Officer, the Chief Financial Executive Officer and the other members of the Group Executive Board. The Chief Executive Officer, who is separate from Chairman, also acts as President, and his rights and responsibilities include those allotted to the President under Finnish law. Subject to the requirements of Finnish law, the independent directors of the Board confirm the com- pensation and the employment conditions of the Chief Executive Officer upon the recommendation of the Per- sonnel Committee. The compensation and employment conditions of the other members of the Group Executive Board are approved by the Personnel Committee upon the recommendation of the Chief Executive Officer. 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 in the best interests of the company and its shareholders. In discharging that obligation, the directors must in- form themselves of all relevant information reasonably available to them. The Board and each Board Com- mittee also have the power to hire independent legal, financial or other advisors as they deem necessary. The Board conducts annual performance self- evaluations, which also include evaluations of the Board Committees’ work, the results of which are discussed by the Board. In 2009, the self-evaluation process consist- ed of a questionnaire, a one-to-one discussion between the Chairman and each director, and a discussion by the entire Board of the outcome of the evaluation, possible measures to be taken, as well as measures taken based on the Board’s self-evaluation of the previous year. In addition, performance of the Board Chairman was evaluated in a process led by the Vice Chairman. Election, composition and meetings of the Board of Directors Pursuant to the Articles of Association, Nokia Corpora- tion has a Board of Directors composed of a minimum of seven and a maximum of 12 members. The mem- bers of the Board are elected for a term of one year at each Annual General Meeting, i.e., as from the close of that Annual General Meeting until the close of the following Annual General Meeting, which convenes each year by June 30. The Annual General Meeting held on April 23, 2009 elected 11 members to the Board of Directors. The members of the Board of Directors elected by the Annual General Meeting in 2009 are Georg Ehrnrooth, Lalita D. Gupte, Dr. Bengt Holmström, Dr. Henning Kagermann, Olli-Pekka Kallasvuo, Per Karlsson, Jorma Ollila, Dame Marjorie Scardino, Isabel Marey-Semper, Risto Siilasmaa and Keijo Suila. Nokia’s Board leadership structure consists of a Chairman and Vice Chairman, annually elected by the Board and confirmed by the independent directors of the Board from among the Board members upon the recommendation of the Corporate Governance and Nomination Committee. On April 23, 2009, the indepen- dent directors of the Board elected Jorma Ollila to con- tinue to act as Chairman and Dame Marjorie Scardino to continue to act as Vice Chairman of the Board. The Chairman has certain specific duties as defined by Finnish standards and the Nokia Corporate Governance Guidelines. The Board has determined that Nokia Board Chairman, Mr. Ollila, is independent as defined by Finnish standards, and also under the New York Stock Exchange rules since June 1, 2009. The Vice Chairman of the Board shall assume the duties of the Chairman in case the Chairman is prevented from performing his duties. The Board has determined that Nokia Board Vice Chairman, Dame Marjorie Scardino, is also independent as defined by Finnish standards and relevant stock exchange rules and has been independent since being appointed Vice Chairman in 2007. The Chief Execu- tive Officer is currently a member of the Board. Nokia does not have a policy concerning the combination or separation of the roles of Chairman and Chief Executive Officer, but the leadership structure is dependent on the company needs, shareholder value and other relevant factors applicable from time to time, and respecting the highest corporate governance standards. The current members of the Board are all non-executive, except the President and CEO who is an executive member of the Board. The Board has determined that all ten non-executive Board members are independent as defined by Finnish standards. Also, the Board has determined that nine of the Board’s ten non-executive members are independent directors as defined by the rules of the New York Stock Exchange. Dr. Bengt Holmström was determined not to be indepen- dent under the rules of the New York Stock Exchange due to a family relationship with an executive officer of a Nokia supplier of whose consolidated gross revenue from Nokia accounts for an amount that exceeds the limit provided in the New York Stock Exchange rules, but that is less than 8%. The executive member of the Board, President and CEO Olli-Pekka Kallasvuo, was determined not to be independent under both Finnish standards and the New York Stock Exchange rules. The Board held 13 meetings during 2009, of which seven were regularly scheduled meetings held in person and six were meetings held in writing. The at- tendance at all meetings was 100%. The non-executive directors meet without management at regularly scheduled sessions twice a year and at such other times as they deem appropriate, in practice in connection with each regularly scheduled meeting in 2009. Such sessions were chaired by the non-executive Chairman of the Board or, in his absence, the non-executive Vice Chairman of the Board. In addition, the independent directors meet separately at least once annually, and did so in 2009. All the directors attended Nokia’s Annual General Meeting held on April 23, 2009. The Finnish Corporate Governance Code recommends attendance by the Board Chairman and a sufficient number of direc- tors to allow the shareholders to exercise their right to present questions to the Board and management. The independent directors of the Board also confirm the election of the members and Chairmen for the Board’s committees from among the Board’s independent directors upon the recommendation of the Corporate Governance and Nomination Committee and based on each committee’s member qualification standards. The Corporate Governance Guidelines concerning the directors’ responsibilities, the composition and selection of the Board, Board Committees and certain other matters relating to corporate governance are available on Nokia’s website, www.nokia.com. According to Finnish law, the shareholders have the right to submit director recommendations or other agenda items or proposals to the agenda of a general meeting provided that the item or proposal belongs to the scope of the general meeting of the shareholders and the request is made to the Board in writing well in advance to be included in the notice of the meeting, which time may not be deemed to be earlier than four weeks before the notice of the meeting. Committees of the Board of Directors The Audit Committee consists of a minimum of three members of the Board who meet all applicable indepen- dence, financial literacy and other requirements of Finn- ish law and the rules of the stock exchanges where Nokia shares are listed, including NASDAQ OMX Helsinki and the New York Stock Exchange. Since April 23, 2009, the Audit Committee consists of the following four members of the Board: Georg Ehrnrooth (Chairman), Lalita D. Gupte, Isabel Marey-Semper and Risto Siilasmaa. 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 Committee is responsible for assisting the Board’s oversight of (1) the quality and integrity of the com- pany’s financial statements and related disclosure, (2) the statutory audit of the company’s financial statements, (3) the external auditor’s qualifications and independence, (4) the performance of the external auditor subject to the requirements of Finnish law, (5) the performance of the company’s internal controls and risk management and assurance function, (6) the performance of the internal audit function, and (7) the company’s compliance with legal and regulatory re- quirements. 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 con- fidential, anonymous submission by employees of the company of concerns regarding accounting or auditing matters. Nokia’s disclosure controls and procedures, which are reviewed by the Audit Committee and approved by the Chief Executive Officer and the Chief Financial Officer, as well as Nokia’s internal controls over financial reporting, are designed to provide rea- sonable assurance regarding the quality and integrity of the company’s financial statements and related disclosures. The Disclosure Committee chaired by the Chief Financial Officer is responsible for preparation of the quarterly and annual results announcements, and the process includes involvement by business manag- ers, business controllers and other functions, like internal audit, as well as a final review and confirma- tion by the Audit Committee and the Board. Under Finnish law, Nokia’s external auditor is elected by the shareholders by a simple majority vote at the Annual General Meeting for one fiscal year at a time. The Audit Committee makes a proposal 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. Also under Finn- ish law, the fees of the external auditor are approved by Nokia’s shareholders by a simple majority vote at the Annual General Meeting. The Committee makes a proposal to the shareholders in respect of the fees of the external auditor, and approves the external auditor’s annual audit fees under the guidance given by the shareholders at the Annual General Meeting. For information about the fees paid to Nokia’s external auditor, PricewaterhouseCoopers, during 2009 see “Auditor fees and services” on page 96. In discharging its oversight role, the Committee has full access to all company books, records, facilities and personnel. The Committee may retain counsel, auditors or other advisors in its sole discretion, and must receive appropriate funding, as determined by the Committee, from the company for the payment of compensation to such outside advisors. The Audit Committee meets at least four times a year based upon a schedule established at the first meeting following the appointment of the Committee. The Committee meets separately with the representa- tives of Nokia’s management, head of the internal audit function, and the external auditor in connection with each regularly scheduled meeting. The head of the in- ternal audit function has at all time direct access to the Audit Committee, without involvement of management. The Audit Committee had six meetings in 2009. The attendance at all meetings was 100%. In addition, any directors who wish to may attend Audit Commit- tee meetings as nonvoting observers. 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 NASDAQ OMX Helsinki and the New York Stock Exchange. Since April 23, 2009, the Person- nel Committee consists of the following four members of the Board: Per Karlsson (Chairman), Henning Kager- mann, Marjorie Scardino and Keijo Suila. The primary purpose of the Personnel Commit- tee is to oversee the personnel policies and practices of the company. It assists the Board in discharging 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, resolving and Corporate governance statement 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 overseeing compensation philosophy and principles and ensuring the above compensation programs are performance-based, properly motivate management, support overall corporate strategies and are aligned with shareholders’ interests. The Commit- tee is responsible for the review of senior management development and succession plans. The Personnel Committee had four meetings in 2009. The average ratio of attendance at the meetings was 94%. Three members of the Committee attended 100% of the Committee meetings and one member attended 75% of the meetings. In addition, any direc- tors who wish to may attend Personnel Committee meetings as nonvoting observers. For further information on the activities of the Personnel Committee, see “Executive compensation philosophy, programs and decision-making process” on page 82. The Corporate Governance and Nomination Commit- tee 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 NASDAQ OMX Helsinki and the New York Stock Exchange. Since April 23, 2009, the Corporate Governance and Nomination Committee consists of the following three members of the Board: Marjorie Scardino (Chairman), Georg Ehrnrooth and Per Karlsson. The Corporate Governance and Nomination Com- mittee’s purpose is (1) to prepare the proposals for the general meetings in respect of the composition of the Board and the director remuneration to be ap- proved by the shareholders and (2) to monitor issues and practices related to corporate governance and to propose necessary actions in respect thereof. The Committee fulfills its responsibilities by (i) actively identifying individuals qualified to become members of the Board, (ii) proposing to the sharehold- ers the director nominees for election at the Annual General Meetings, (iii) monitoring significant develop- ments 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-evaluations, including establishing criteria to be used in connection with such evaluations, (v) develop- ing and recommending to the Board and administer- ing Nokia’s Corporate Governance Guidelines, and (vi) reviewing the company’s disclosure in the Corporate Governance Statement. The Committee has the power to retain search firms or advisors to identify candidates. The Com- mittee may also retain counsel or other advisors, as it deems appropriate. The Committee has sole 79 Corporate governance statement authority to retain or terminate such search firms or advisors and to review and approve such search firm or advisor’s fees and other retention terms. It is the Committee’s practice to retain a search firm to identify director candidates each time a new director candidate is searched for. The Corporate Governance and Nomination Com- mittee had three meetings in 2009. The attendance at all meetings was 100%. In addition, any directors who wish to may attend Corporate Governance and Nomi- nation Committee meetings as nonvoting observers. The charters of each of the committees are avail- able on Nokia’s website, www.nokia.com. Certain corporate governance policies Nokia has a Code of Conduct which is equally ap- plicable to all of Nokia’s employees, directors and management and is accessible on Nokia’s website, www.nokia.com. In addition, Nokia has a Code of Eth- ics for the Principal Executive Officers and the Senior Financial Officers. For more information about Nokia’s Code of Ethics, please see www.nokia.com. Nokia’s corporate governance practices comply with the Finnish Corporate Governance Code approved by the boards of the Finnish Securities Market Associa- tion and NASDAQ OMX Helsinki effective as of Janu- ary 1, 2009. The Finnish Corporate Governance Code is accessible, among others, at www.cgfinland.fi. In ad- dition, Nokia complies with the corporate governance rules that are mandatory for foreign private issuers under section 303A of the New York Stock Exchange Listed Company Manual, which is accessible at http:// nysemanual.nyse.com/lcm/, as well as any other mandatory corporate governance rules applicable due to listing of Nokia share in Helsinki, Frankfurt and New York stock exchanges. Internal audit function Nokia has an internal audit function that acts as an independent appraisal function by examining and evaluating the adequacy and effectiveness of the company’s system of internal control. Internal audit resides within the Chief Financial Officer’s organization and also reports to the Audit Committee of the Board of Directors. The head of internal audit function has at all times direct access to the Audit Committee, without involvement of the management. 80 Nokia in 2009 Compensation of the Board of Directors and the Group Executive Board Board of Directors The following table sets forth the annual remunera- tion of the members of the Board of Directors based on their positions on the Board and its committees, including the remuneration paid to the President and CEO for his duties as a member of the Board of Direc- tors only, as resolved at the respective Annual General Meetings in 2009, 2008 and 2007. Position, EUR Chairman Vice Chairman Member Chairman of Audit Committee Member of Audit Committee Chairman of Personnel Committee Total 2009 1 440 000 150 000 130 000 25 000 10 000 25 000 1 840 000 2008 440 000 150 000 130 000 25 000 10 000 25 000 1 710 000 2007 375 000 150 000 130 000 25 000 10 000 25 000 1 775 000 1 The increase in the total amount results from the Board of Directors having one more member in 2009 compared to 2008 while fees paid based on the position remained the same. It is Nokia’s policy that the remuneration consists of an annual fee only, no fees for meeting attendance are paid, and that a significant portion of director compensation will be paid in the form of company stock purchased from the market. It is also Nokia’s policy that the Board members shall retain all Nokia shares received as director compensation until the end of the board membership (except for those shares needed to offset any costs relating to the acquisition of the shares, including taxes). In addition, non-executive members of the Board do not receive stock options, performance shares, restricted shares or other variable compensation for their duties as Board members as per company policy. The President and CEO receives variable compensation for his executive duties, but not for his duties as a member of the Board of Directors. The total compensation of the President and CEO is described in “Summary compensation table 2009” on page 85. When preparing the Board of Directors’ remu- neration proposal, it is the policy of the Corporate Governance and Nomination Committee of the Board to review and compare the remuneration levels and their criteria paid in other global companies with net sales and business complexity comparable to that of Nokia. The Committee’s aim is to ensure that Nokia has an efficient Board of world-class professionals representing an appropriate and diverse mix of skills and experience. A competitive Board remuneration contributes to the achievement of this target. The remuneration of the Board of Directors is resolved annually by Nokia’s Annual General Meet- ing by a simple majority of the shareholders’ votes represented at the meeting, upon proposal by the Corporate Governance and Nomination Committee. The remuneration is resolved for the period as from the respective Annual General Meeting until the close of the next Annual General Meeting. Remuneration of the Board of Directors in 2009 For the year ended December 31, 2009, the aggregate remuneration paid to the members of the Board of Directors for their services as members of the Board and its committees was EUR 1 840 000. The following table sets forth the total annual remuneration paid to the members of the Board of Directors in 2009, as resolved by the shareholders at the Annual General Meeting on April 23, 2009. For information with respect to the Nokia shares and equity awards held by the members of the Board of Directors, please see “Share ownership of the Board of Directors” on page 88. Change in pension value and non-qualified deferred compensation Non-equity incentive plan compen- sation 2 EUR earnings 2 EUR All other compen- sation 2 EUR Stock awards 2 EUR Option awards 2 EUR — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — Fees earned or paid in cash 1 EUR 440 000 150 000 155 000 140 000 130 000 130 000 130 000 155 000 140 000 140 000 130 000 Total EUR 440 000 150 000 155 000 140 000 130 000 130 000 130 000 155 000 140 000 140 000 130 000 Jorma Ollila, Chairman 3 Marjorie Scardino, Vice Chairman 4 Georg Ehrnrooth 5 Lalita D. Gupte 6 Bengt Holmström Henning Kagermann Olli-Pekka Kallasvuo 7 Per Karlsson 8 Isabel Marey-Semper 9 Risto Siilasmaa 10 Keijo Suila Year 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 1 Approximately 60% of each Board member’s annual remunera- tion is paid in cash and the remaining 40% in Nokia shares purchased from the market. 2 Not applicable to any non-executive member of the Board of Directors. 3 The 2009 fee of Mr. Ollila was paid for his services as Chairman of the Board. 4 The 2009 fee of Ms. Scardino was paid for her services as Vice Chairman of the Board. 5 The 2009 fee paid to Mr. Ehrnrooth amounted to a total of EUR 155 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 25 000 for services as Chairman of the Audit Committee. member of the Board and EUR 25 000 for services as Chairman of the Personnel Committee. 6 The 2009 fee paid to Ms. Gupte amounted to a total of 9 The 2009 fee paid to Ms. Marey-Semper amounted to a total of EUR 140 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. EUR 140 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 7 This table includes remuneration paid to Mr. Kallasvuo, President and CEO, for his services as a member of the Board only. For the compensation paid for his services as the President and CEO, see “Summary compensation table 2009” on page 85. 10 The 2009 fee paid to Mr. Siilasmaa amounted to a total of EUR 140 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 8 The 2009 fee paid to Mr. Karlsson amounted to a total of EUR 155 000, consisting of a fee of EUR 130 000 for services as a 81 Compensation of the Board of Directors and the Group Executive Board Proposal of the Corporate Governance and Nomination Committee for remuneration to the Board of Directors in 2010 On January 28, 2010, the Corporate Governance and Nomination Committee of the Board announced that it will propose to the Annual General Meeting to be held on May 6, 2010 that the annual remuneration payable to the Board members elected at the same meeting for the term until the close of the Annual General Meeting in 2011 be unchanged from 2008 and 2009 as follows: EUR 440 000 for the Chairman, EUR 150 000 for the Vice Chairman and EUR 130 000 for each member; for the Chairman of the Audit Committee and the Chairman of the Personnel Committee an additional annual fee of EUR 25 000; and for each member of the Audit Committee an additional annual fee of EUR 10 000. Further, the Corporate Governance and Nomination Committee proposes that approximately 40% of the remuneration be paid in Nokia shares purchased from the market, which shares shall be retained until the end of the board membership in line with the Nokia policy (except for those shares needed to offset any costs relating to the acquisition of the shares, including taxes). Executive compensation Executive compensation philosophy, programs and decision-making process Our executive compensation philosophy and programs have been developed to enable Nokia to effectively compete in an extremely complex and rapidly evolving mobile communications industry. Nokia is a leading company in its industry and conducts business glob- ally. Nokia’s executive compensation programs have been designed to attract, retain and motivate talented executive officers globally that drive Nokia’s success and industry leadership worldwide. Our compensa- tion programs are designed to promote long-term value sustainability of the company and to ensure that remuneration is based on performance. Nokia’s compensation program for executive officers includes: » » competitive base pay rates; and short- and long-term incentives that are intended to result in a competitive total compensation package. The objectives of Nokia’s executive compensation programs are to: » » attract and retain outstanding executive talent; deliver a significant amount of performance- related variable compensation for the achieve- ment of both short- and long-term stretch goals; 82 Nokia in 2009 » » appropriately balance rewards between both Nokia’s and an individual’s performance; and align the interests of the executive officers with those of the shareholders through long-term incentives in the form of equity-based awards. The competitiveness of Nokia’s executive com- pensation levels and practices is one of several key factors the Personnel Committee of the Board (the “Personnel Committee”) considers in its determi- nation of compensation for Nokia executives. The Personnel Committee compares, on an annual basis, Nokia’s compensation practices, base salaries and total compensation, including short- and long-term incentives against those of other relevant companies with the same or similar revenue, size, global reach and complexity that Nokia believes it competes against for executive talent. The relevant sample includes companies in high technology, telecommu- nications and Internet services industries, as well as other industries that are headquartered in Europe and the United States. The peer group is determined by the Personnel Committee and reviewed for appropriate- ness from time to time as deemed necessary due to such factors as changes in the business environment or industry. The Personnel Committee retains and uses an external consultant from Mercer Human Resources to obtain benchmark data and information on current market trends. The consultant works directly for the Chairman of the Personnel Committee and meets annually with the Personnel Committee, without management present, to provide an assessment of the competitiveness and appropriateness of Nokia’s executive pay levels and programs. Management provides the consultant with information regarding Nokia’s programs and compensation levels in prepara- tion for meeting with the Committee. The consultant of Mercer Human Resources that works for the Person- nel Committee is independent of Nokia and does not have any other business relationships with Nokia. The Personnel Committee reviews the executive officers’ compensation on an annual basis and from time to time during the year when special needs arise. Without management present, the Personnel Committee reviews and recommends to the Board the corporate goals and objectives relevant to the compensation of the President and CEO, evaluates the performance of the President and CEO in light of those goals and objectives, and proposes to the Board the compensation level of the President and CEO, which is confirmed by the independent members of the Board. Management’s role is to provide any information requested by the Personnel Committee to assist in their deliberations. In addition, upon recommendation of the President and CEO, the Personnel Committee approves all compensation for all the members of the Group Executive Board (excluding that of the President and CEO of Nokia) and other direct reports to the President and CEO, including long-term equity incentives and goals and objectives relevant to compensation. The Personnel Committee also reviews the results of the evaluation of the performance of the Group Executive Board members (excluding the President and CEO) and other direct reports to the President and CEO and approves their incentive compensation based on such evaluation. The Personnel Committee considers the following factors, among others, in its review when determining the compensation of Nokia’s executive officers: » » » » The compensation levels for similar positions (in terms of scope of position, revenues, number of employees, global responsibility and reporting relationships) in relevant comparison companies; The performance demonstrated by the executive officer during the last year; The size and impact of the role on Nokia’s overall performance and strategic direction; The internal comparison to the compensation levels of the other executive officers of Nokia; and » Past experience and tenure in role. The above factors are assessed by the Personnel Committee in totality. Nokia’s management performed an internal risk assessment of Nokia’s compensation policies and practices for its employees in 2009. The internal risk assessment concluded that there are no risks arising from Nokia’s compensation policies and practices that are reasonably likely to have a material adverse effect on Nokia. The findings of the analysis were reported to the Personnel Committee. Components of executive compensation Nokia’s compensation program for executive officers includes annual cash compensation in the form of a base salary, short-term cash incentives and long-term equity-based incentive awards in the form of perfor- mance shares, stock options and restricted shares. Annual cash compensation Base salaries are targeted at globally competitive market levels. Short-term cash incentives are an important element of our variable pay programs and are tied di- rectly to Nokia’s and the executive’s performance. The short-term cash incentive opportunity is expressed as a percentage of the executive officer’s annual base salary. These award opportunities and measurement criteria are presented in the table below. Measurement criteria for the short-term cash incentive plan include those financial objectives that are considered important measures of Nokia’s success in driving increased shareholder value. Financial Compensation of the Board of Directors and the Group Executive Board objectives are established that are based on a number of factors and are intended to be stretch targets that, if achieved, we believe, will result in performance that would exceed that of our key competitors in the high technology, telecommunications and Internet services industries. The target setting, as well as the weighting of each measure, also requires the Personnel Committee’s approval. The following table reflects the measurement criteria that are established for the President and CEO and members of the Group Executive Board and the relative weighting of each objective for the year 2009. Incentive as a % of annual base salary in 2009 Minimum performance, % Target performance, % Maximum performance, % Measurement criteria Position President and CEO Total Group Executive Board Total 1 Total shareholder return reflects the change in Nokia’s share price during an established time period added with the value of dividends per share paid during the said period, divided by Nokia’s share price at the beginning of the period. The calcula- tion is the same also for each company in the said peer group. 0 0 0 0 0 0 100 25 25 150 75 25 225 37.5 37.5 300 168.75 37.5 (a) Financial Objectives (includes targets for net sales, operating profit and operating cash flow management and key business goals) (c) Total Shareholder Return 1 (comparison made with key competitors in the high technology, telecommunications and Internet services industries over one-, three- and five-year periods) (d) Strategic Objectives (a) Financial Objectives (includes targets for net sales, operating profit and operating cash flow management); and (b) Individual Strategic Objectives (as described below) (c) Total Shareholder Return 1,2 (comparison made with key competitors in the high technology, telecommunications and Internet services industries over one-, three- and five-year periods) 100 206.25 2 Only some members of the Group Executive Board are eligible for the additional 25% total shareholder return element. The short-term incentive payout is based on perfor- mance relative to targets set for each measurement criteria listed in the table above and includes: (1) a comparison of Nokia’s actual performance to pre- established targets for net sales, operating profit and operating cash flow management and key business goals and (2) a comparison of each executive of- ficer’s individual performance to his/her predefined individual strategic objectives and targets. Individual strategic objectives include key criteria which are the cornerstone for the success of Nokia’s long-term strategy and require a discretionary assessment of performance by the Personnel Committee. When determining the final incentive payout, the Personnel Committee determines an overall score for each executive based on the degree to which (a) Nokia’s financial objectives and key business goals have been achieved together with (b) qualitative and quantitative scores assigned to the individual strategic objectives. The final incentive payout is determined by multiplying each executive’s eligible salary by: (i) his/her incentive target percentage; and (ii) the score resulting from the above mentioned fac- tors (a) and (b). The resulting score for each executive is then multiplied by an “affordability factor,” which is determined based on overall sales, profitability and cash flow of Nokia. The Personnel Committee may apply discretion when evaluating actual results against targets and the resulting incentive payouts. In certain exceptional situations, the actual short-term cash incentive awarded to the executive officer could be zero. The maximum payout is only possible with maximum performance on all measures. The portion of the short-term cash incentives that is tied to (a) Nokia’s financial objectives and key business goals and (b) individual strategic objec- tives and targets, is paid twice each year based on the performance for each of Nokia’s short-term plans that end on June 30 and December 31 of each year. Another portion of the short-term cash incentives is paid annually at the end of the year, based on the Personnel Committee’s assessment of (c) Nokia’s total shareholder return compared to key competitors, which are selected by the Personnel Committee, in the high technology, Internet services and telecom- 83 Actual executive compensation for 2009 At December 31, 2009, Nokia had a Group Executive Board consisting of eleven members. Changes in the composition of the Group Executive Board during 2009 are explained in “Group Executive Board” on page 74. The following tables summarize the aggregate cash compensation paid and the long-term equity- based incentives granted to the members of the Group Executive Board under Nokia’s equity plans in 2009. Gains realized upon exercise of stock options and share-based incentive grants vested for the members of the Group Executive Board during 2009 are included in “Share ownership” on page 89. Compensation of the Board of Directors and the Group Executive Board munications industries and relevant market indices over one-, three- and five-year periods. In the case of the President and CEO, the annual incentive award is also partly based on his performance compared against (d) strategic leadership objectives, including performance in key markets, development of strategic capabilities enhanced competitiveness of core busi- nesses and executive development. For more information on the actual cash compen- sation paid in 2009 to Nokia’s executive officers, see “Summary compensation table 2009” on page 84. Long-term equity-based incentives Long-term equity-based incentive awards in the form of performance shares, stock options and restricted shares are used to align executive officers interests with shareholders’ interests, reward performance and encourage retention. These awards are deter- mined on the basis of the factors discussed above in “Executive compensation philosophy, programs and decision-making process”, including a comparison of the executive officer’s overall compensation with that of other executives in the relevant market and the impact on the competitiveness of the executive’s compensation package in that market. Performance shares are Nokia’s main vehicle for long-term equity- based incentives and reward the achievement of both Nokia’s long-term financial results and an increase in share price. Performance shares vest as shares, if at least one of the pre-determined threshold perfor- mance levels, tied to Nokia’s financial performance, is achieved by the end of the performance period and the value is dependent on Nokia’s share price. Stock options are granted to fewer employees that are in more senior and executive positions. Stock options create value for the executive officer, once vested, if the Nokia share price is higher than the exercise price of the stock option established at grant, thereby align- ing the interests of the executives with those of the shareholders. Restricted shares are used primarily for retention purposes and they vest fully after the close of a pre-determined restriction period. These equity- based incentive awards are generally forfeited if the executive leaves Nokia prior to vesting. In addition, any shares granted are subject to the share ownership guidelines as explained below. Information on the actual equity-based incen- tives granted to the members of Nokia’s Group Executive Board is included in “Share ownership” on page 89. Aggregate cash compensation to the Group Executive Board for 2009 1 Year 2009 Number of members December 31, 2009 Base salaries EUR Cash incentive payments 2 EUR 11 6 107 162 4 614 593 1 Includes base salary and cash incentives paid or payable by Nokia for the 2009 fiscal year. The cash incentives are paid as a percentage of annual base salary based on Nokia’s short-term cash incentives. Includes Robert Andersson and Simon Beresford- Wylie for the period until Septermber 30, 2009 and Alberto Torres as from October 1, 2009. 2 Excluding any gains realized upon exercise of stock options, which are described in “Share ownership” on page 89. Long-term equity-based incentives granted in 2009 1 Group Executive Board 3 Performance shares at threshold 2 Stock options Restricted shares 345 000 690 000 558 000 1 The equity-based incentive grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting. The settlement is conditional upon performance and/or service conditions, as determined in the relevant plan rules. For a descrip- tion of Nokia’s equity plans, see Note 23 “Share-based payment” to Nokia’s consolidated financial statements on page 37. 2 At maximum performance, the settlement amounts to four times the number at threshold. 3 Includes Robert Andersson for the period until Septermber 30, 2009 and Alberto Torres as from October 1, 2009. 84 Nokia in 2009 Total 2 960 110 4 791 232 4 288 600 Total number of participants 5 800 3 700 500 Compensation of the Board of Directors and the Group Executive Board Summary compensation table 2009 Name and principal position 1 Olli-Pekka Kallasvuo President and CEO Year ** Salary EUR Bonus 2 EUR Stock awards 3 EUR Option awards 3 EUR 2009 2008 2007 1 176 000 1 144 800 1 037 619 1 288 144 721 733 2 348 877 3 332 940 2 470 858 5 709 382 650 661 548 153 581 690 Timo Ihamuotila EVP and Chief Financial Officer 7 Richard Simonson EVP, Mobile Phones (Chief Financial Officer until October 31, 2009) 8 Anssi Vanjoki EVP, Markets Kai Öistämö EVP, Devices Mary McDowell EVP, Chief Development Officer 8 2009 396 825 234 286 752 856 135 834 2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2008 2007 648 494 630 263 488 422 630 000 615 143 556 381 460 000 445 143 382 667 508 338 493 798 444 139 453 705 293 477 827 333 342 250 260 314 900 499 343 225 200 126 605 520 349 911 196 138 769 773 1 449 466 699 952 1 978 385 863 212 699 952 1 978 385 935 174 699 952 1 978 385 800 873 620 690 1 978 385 166 126 152 529 199 956 166 126 152 529 199 956 166 126 152 529 199 956 152 283 133 463 199 956 1 The positions set forth in this table are the current positions of the named executives. Until October 30, 2009, Mr. Ihamuotila served as Executive Vice President and Global Head of Sales. Mr. Simonson served as Executive Vice President and Chief Financial Officer until October 30, 2009. 2 Bonus payments are part of Nokia’s short-term cash incentives. The amount consists of the bonus awarded and paid or payable by Nokia for the respective fiscal year. 3 Amounts shown represent the grant date fair value of equity grants awarded in the respective fiscal year. The fair value of stock options equals the estimated fair value on the grant date, calculated using the Black-Scholes model. The fair value of performance shares and restricted shares equals the estimated fair value on grant date. The estimated fair value is based on the grant date market price of the Nokia share less the present value of dividends expected to be paid during the vesting period. The value of the performance shares is presented on the basis of a number of shares, which is two times the number of shares at threshold. The value of restricted shares and performance shares at maximum (four times the number of shares at threshold), for each of the named executive officer, is as follows: Mr. Kallasvuo EUR 5 586 450; Mr. Ihamuotila EUR 1 249 720; Mr. Simonson EUR 2 024 831; Mr. Vanjoki EUR 1 438 576; Mr. Öistämö EUR 1 510 538 and Ms. McDowell EUR 1 328 290. 4 The change in pension value represents the proportionate change in the liability related to the individual executive. These executives are covered by the Finnish State employees’ pen- sion act (“TyEL”) that provides for a retirement benefit based on years of service and earnings according to the prescribed statutory system. The TyEL system is a partly funded and a partly pooled “pay as you go” system. Effective March 1, 2008, Nokia transferred its TyEL pension liability and assets to an external Finnish insurance company and no longer carries the liability on its financial statements. The figures shown represent only the change in liability for the funded portion. The method used to derive the actuarial IFRS valuation is based upon available salary information at the respective year end. Actuarial assumptions including salary increases and inflation have been determined to arrive at the valuation at the respective year end. 5 The change in pension value for Mr. Kallasvuo includes the reduc- tion of EUR 1 571 for the proportionate change in the liability related to the individual under the funded part of the Finnish TyEL pension (see footnote 4 above). In addition, it includes EUR 1 360 000 for the change in liability in the early retirement benefit at the age of 60 provided under his service contract. Nokia carries the liability on its books for the early retirement benefit. Considerable portion of this change in pension liability stems from the actuarial change to the discount interest rate used in the calculation. 6 All other compensation for Mr. Kallasvuo in 2009 includes: EUR 130 000 for his services as member of the Board or Directors, see page 81 “Remuneration of the Board of Directors in 2009” above; EUR 21 540 for car allowance, EUR 10 000 for financial counseling, EUR 10 989 for taxable benefit for premiums paid under supplemental medical and disability insurance, EUR 4 719 for driver and for mobile phone. 7 All other compensation for Mr. Ihamuotila in 2009 includes: EUR 7 620 for car allowance, EUR 10 000 for financial counseling, EUR 2 337 for the amount related to the end of his international assignment in the United States under Nokia’s policy, EUR 1 238 taxable benefit for premiums paid under supplemental medical and disability insurance and for mobile phone. 8 Salaries, benefits and perquisites for Ms. McDowell and Mr. Simonson are paid and denominated in USD. Amounts were converted to euro using year-end 2009 USD/EUR exchange rate of 1.43. For year 2008 disclosure, amounts were converted to euro using the year-end 2008 USD/EUR exchange rate of 1.40. For year 2007 disclosure, amounts were converted to euro using year-end 2007 USD/EUR exchange rate of 1.47. 9 All other compensation for Mr. Simonson in 2009 includes: EUR 96 498 company contributions to the Restoration & Deferral plan, EUR 11 538 company contributions to the 401(k) plan, EUR 12 345 for car allowance, EUR 11 194 for financial counseling, EUR 3 391 imputed income under the Employee Stock Purchase Plan. Change in pension value and non-qualified deferred compensation earnings EUR Non-equity incentive plan compen- sation EUR All other compen- sation EUR Total EUR * * * * * * * * * * * * * * * * 1 358 429 4, 5 469 060 956 333 177 248 6 175 164 183 603 7 983 422 5 529 768 10 817 504 15 575 4 21 195 7 1 556 571 68 541 4 — 18 521 9 824 4 87 922 41 465 134 966 9 106 632 46 699 31 055 10 33 552 49 244 29 778 11 29 712 32 086 33 726 12 33 462 32 463 2 852 757 1 882 853 3 540 795 2 101 184 1 761 490 3 702 986 1 944 127 1 615 384 3 240 079 1 845 131 1 477 551 3 424 716 10 All other compensation for Mr. Vanjoki in 2009 includes: EUR 19 817 for car allowance and driver benefit, EUR 10 000 for financial counseling, EUR 1 238 as taxable benefit for premiums paid under supplemental medical and disability insurance and for mobile phone. 11 All other compensation for Mr. Öistämö in 2009 includes: EUR 18 540 for car allowance, EUR 10 000 for financial counsel- ing, EUR 1 238 as taxable benefit for premiums paid under supplemental medical and disability insurance and for mobile phone. 12 All other compensation for Ms. McDowell in 2009 includes: EUR 12 345 for car allowance, EUR 10 996 for financial counsel- ing, EUR 10 280 company contributions to the 401(k) plan and EUR 105 as service award under Nokia’s policy. * None of the named executive officers participated in a for- mulated, non-discretionary, incentive plan. Annual incentive payments are included under the “Bonus” column. ** History has been provided only for those data elements previ- ously disclosed unless otherwise indicated. 85 Compensation of the Board of Directors and the Group Executive Board Equity grants in 2009 1 Name and principal position Year Option awards Stock awards Number of shares underlying options Grant date Grant price (EUR) Grant date fair value 2 (EUR) Performance shares at threshold (number) Performance shares at maximum (number) Restricted shares (number) Grant date fair value 3 (EUR) Olli-Pekka Kallasvuo President and CEO Timo Ihamuotila EVP and Chief Financial Officer Richard Simonson EVP, Mobile Phones (Chief Financial Officer until October 31, 2009) Anssi Vanjoki EVP, Markets Kai Öistämö EVP, Devices Mary McDowell EVP, Chief Development Officer 2009 2009 May 8 235 000 11.18 650 661 117 500 470 000 150 000 3 332 940 May 8 Nov 6 35 000 20 000 11.18 8.76 96 908 38 927 27 500 110 000 35 000 752 856 2009 May 8 60 000 11.18 166 126 30 000 120 000 107 000 1 449 466 2009 May 8 60 000 11.18 166 126 30 000 120 000 40 000 863 212 2009 May 8 60 000 11.18 166 126 30 000 120 000 50 000 935 174 2009 May 8 55 000 11.18 152 283 27 500 110 000 38 000 800 873 1 Including all equity awards made during 2009. Awards were made under the Nokia Stock Option Plan 2007, the Nokia Per- formance Share Plan 2009 and the Nokia Restricted Share Plan 2009. 2 The fair value of stock options equals the estimated fair value on the grant date, calculated using the Black-Scholes model. The stock option exercise price was EUR 11.18 on May 8, 2009 and EUR 8.76 on November 6, 2009. NASDAQ OMX HELSINKI clos- ing market price at grant date on May 8, 2009 was EUR 10.84 and on November 6, 2009 was EUR 8.84. 3 The fair value of performance shares and restricted shares equals the estimated fair value on grant date. The estimated fair value is based on the grant date market price of the Nokia share less the present value of dividends expected to be paid during the vesting period. The value of performance shares is presented on the basis of a number of shares, which is two times the number at threshold. For information with respect to the Nokia shares and equity awards held by the members of the Group Executive Board, please see “Share ownership” on page 89. Pension arrangements for the members of the Group Executive Board The members of the Group Executive Board partici- pate in the local retirement programs applicable to employees in the country where they reside. Execu- tives in Finland participate in the Finnish TyEL pension system, which provides for a retirement benefit based on years of service and earnings according to a prescribed statutory system. Under the Finnish TyEL pension system, base pay, incentives and other tax- able fringe benefits are included in the definition of earnings, although gains realized from equity are not. The Finnish TyEL pension scheme provides for early retirement benefits at age 62 with a reduction in the amount of retirement benefits. Standard retirement benefits are available from age 63 to 68, according to an increasing scale. Executives in the United States participate in Nokia’s Retirement Savings and Investment Plan. Under this 401(k) plan, participants elect to make vol- untary pre-tax contributions that are 100% matched by Nokia up to 8% of eligible earnings. 25% of the em- ployer match vests for the participants for each year of their employment. Participants earning in excess of the Internal Revenue Service (IRS) eligible earning limits may participate in the Nokia Restoration and Deferral Plan which allows employees to defer up to 50% of their salary and 100% of their bonus into this non-qualified plan. Contributions to the Restoration and Deferral Plan in excess of IRS deferral limits will be matched 100% up to 8% of eligible earnings less contributions made to the 401(k) plan. Olli-Pekka Kallasvuo can, as part of his service contract, retire at the age of 60 with full retirement benefits should he be employed by Nokia at the time. The full retirement benefit is calculated as if Mr. Kallas- vuo had continued his service with Nokia through the retirement age of 65. Hallstein Moerk, following his arrangement with a previous employer, and continuing in his current position at Nokia, has a retirement benefit of 65% of his pensionable salary beginning at the age of 62 and early retirement is possible at the age of 55 with reduced benefits. Mr. Moerk will retire at the end of September 2010 at the age of 57. nual gross base salary. In case of termination by Nokia for reasons other than cause, including a change of control, Mr. Kallasvuo is entitled to a severance payment of up to 18 months of compensation (both annual total gross base salary and target incentive). In case of termination by Mr. Kallasvuo, the notice period is six months and he is entitled to a payment for such notice period (both annual total gross base salary and target incentive for six months). Mr. Kallasvuo is subject to a 12-month non-competition obligation after termination of the contract. Unless the contract is terminated for cause, Mr. Kallasvuo may be entitled to compensation during the non-competition period or a part of it. Such compensation amounts to the annual total gross base salary and target incentive for the respective period during which no severance payment is paid. Equity-based compensation programs Service contracts Olli-Pekka Kallasvuo’s service contract covers his current position as President and CEO and Chairman of the Group Executive Board. As at December 31, 2009, Mr. Kallasvuo’s annual total gross base salary, which is subject to an annual review by the Board of Directors and confirmation by the independent members of the Board, is EUR 1 176 000. His incentive targets under the Nokia short-term cash incentive plan are 150% of an- General During the year ended December 31, 2009, Nokia sponsored three global stock option plans, five global performance share plans and four global restricted share plans. Both executives and employees partici- pate in these plans. Performance shares are the main element of the company’s broad-based equity com- pensation program to further emphasize the perfor- mance element in employees’ long-term incentives. 86 Nokia in 2009 Compensation of the Board of Directors and the Group Executive Board Our compensation programs promote long-term value sustainability of the company and ensure that remu- neration is based on performance. The rationale for using both performance shares and stock options for employees in higher job grades is to build an optimal and balanced combination of longterm equity-based incentives. The equity-based compensation programs intend to align the potential value received by par- ticipants directly with the performance of Nokia. We also have granted restricted shares to a small selected number of key employees each year. The equity-based incentive grants are generally conditioned upon continued employment with Nokia, as well as the fulfillment of performance and other conditions, as determined in the relevant plan rules. The broad-based equity compensation program for 2009, which was approved by the Board of Direc- tors, followed the structure of the program in 2008. The participant group for the 2009 equity-based incentive program continued to be broad, with a wide number of employees in many levels of the or- ganization eligible to participate. As at December 31, 2009, the aggregate number of participants in all of Nokia’s equity-based programs was approximately 13 000 compared with approximately 18 000 as at December 31, 2008 reflecting changes in Nokia’s grant guidelines and reduction in eligible population. The employees of Nokia Siemens Networks including the Chief Executive Officer of Nokia Siemens Networks have not participated in any new Nokia equity-based incentive plans since the formation of Nokia Siemens Networks on April 1, 2007. For a more detailed description of all of Nokia’s equity-based incentive plans, see Note 23 “Share- based payment” to Nokia’s consolidated financial statements on page 37. Performance shares We have granted performance shares under the global 2005, 2006, 2007, 2008 and 2009 plans, each of which, including its terms and conditions, has been approved by the Board of Directors. The performance shares represent a commitment by Nokia Group to deliver Nokia shares to employees at a future point in time, subject to Nokia’s fulfillment of pre-defined performance criteria. No performance shares will vest unless Nokia’s performance reaches at least one of the threshold levels measured by two independent, pre-defined performance criteria: The Group’s average annual net sales growth for the per- formance period of the plan and earnings per share (“EPS”) at the end of the performance period. The 2005 Performance Share Plan has a four- year performance period and a two-year interim measurement period. The 2006, 2007, 2008 and 2009 plans have a three-year performance period with no interim measurement period. The shares vest after the respective interim measurement period and/or the performance period. The shares will be delivered to the participants as soon as practicable after they vest. The below table summarizes the relevant periods and settlements under the plans. to amend the above-described determination of the exercise price. Performance share plan 2005 2006 2007 2008 2009 Performance period 2005–2008 2006–2008 2007–2009 2008–2010 2009–2011 Interim measurement period 2005–2006 N/A N/A N/A N/A 1st (interim) settlement 2nd (final) settlement 2007 N/A N/A N/A N/A 2009 2009 2010 2011 2012 Until the Nokia shares are delivered, the par- ticipants will not have any shareholder rights, such as voting or dividend rights associated with the performance shares. The performance share grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting. The performance share grants are approved by the CEO at the end of the respective calendar quarter on the basis of an authorization given by the Board of Directors. Performance share grants to the CEO are made upon recommendation by the Personnel Com- mittee and approved by the Board of Directors and confirmed by the independent members of the Board. Performance share grants to the other Group Execu- tive Board members and other direct reports of the CEO are approved by the Personnel Committee. Stock options Nokia’s global stock option plans in effect for 2009, including their terms and conditions, were approved by the Annual General Meetings in the year when each plan was launched, i.e., in 2003, 2005 and 2007. Each stock option entitles the holder to subscribe for one new Nokia share. The stock options are non- transferable. All of the stock options have a vesting schedule with a 25% vesting one year after grant and 6.25% each quarter thereafter. The stock options granted under the plans generally have a term of five years. The exercise price of the stock options are determined at the time of grant on a quarterly basis. The exercise prices are determined in accordance with a pre-agreed schedule quarterly after the release of Nokia’s periodic financial results and are based on the trade volume weighted average price of a Nokia share on NASDAQ OMX Helsinki during the trading days of the first whole week of the second month of the respec- tive calendar quarter (i.e., February, May, August or November). Exercise prices are determined on a one- week weighted average to mitigate any short-term fluctuations in Nokia’s share price. The determination of exercise price is defined in the terms and conditions of the stock option plan, which are approved by the shareholders at the respective Annual General Meet- ing. The Board of Directors does not have the right Stock option grants are approved by the CEO at the time of stock option pricing on the basis of an authorization given by the Board of Directors. Stock op- tion grants to the CEO are made upon recommendation by the Personnel Committee and a re approved by the Board of Directors and confirmed by the independent members of the Board. Stock option grants to the other Group Executive Board members and to other direct re- ports of the CEO are made by the Personnel Committee. Restricted shares Nokia has granted restricted shares to recruit, retain, reward and motivate selected high potential employ- ees, who are critical to the future success of Nokia. It is Nokia’s philosophy that restricted shares will be used only for key management positions and other critical talent. The outstanding global restricted share plans, including their terms and conditions, have been approved by the Board of Directors. All of Nokia’s restricted share plans have a restriction period of three years after grant. Once the shares vest, they are transferred and delivered to the participants. The restricted share grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting. Until the Nokia shares are delivered, the participants do not have any sharehold- er rights, such as voting or dividend rights, associated with the restricted shares. Restricted share grants are approved by the CEO at the end of the respective calen- dar quarter on the basis of an authorization given by the Board of Directors. Restricted share grants to the CEO are made upon recommendation by the Personnel Committee and approved by the Board of Directors and confirmed by the independent directors of the Board. Restricted share grants to the other Group Executive Board members and other direct reports of the CEO are approved by the Personnel Committee. Other equity plans for employees In addition to Nokia’s global equity plans described above, Nokia has equity plans for Nokia-acquired busi- nesses or employees in the United States and Canada under which participants can receive Nokia ADSs or ordinary shares. These equity plans do not result in an increase in the share capital of Nokia. 87 Compensation of the Board of Directors and the Group Executive Board In connection with Nokia’s July 10, 2008 acquisi- tion of NAVTEQ, Nokia assumed NAVTEQ’s 2001 Stock Incentive Plan (“NAVTEQ Plan”). All unvested NAVTEQ restricted stock units under the NAVTEQ Plan were converted to an equivalent number of restricted stock units entitling their holders to Nokia shares. The maximum number of Nokia shares to be delivered to NAVTEQ employees during the years 2008–2012 is ap- proximately 3 million of which approximately 1 million shares have already been delivered by December 31, 2009. The Group does not intend to make further awards under the NAVTEQ Plan. We have also an Employee Share Purchase Plan in the United States, which permits all full-time Nokia employees located in the United States to acquire Nokia ADSs at a 15% discount. The purchase of the ADSs is funded through monthly payroll deductions from the salary of the participants, and the ADSs are purchased on a monthly basis. As of December 31, 2009, approximately 12.3 million ADSs had been purchased under this plan since its inception, and there were a total of approximately 760 participants in the plan. For more information on these plans, see Note 23 “Share-based payment” to Nokia’s consolidated financial statements on page 37. Equity-based compensation program 2010 The Board of Directors announced the proposed scope and design for the Equity Program 2010 on January 28, 2010. The main equity instrument continues to be performance shares. In addition, stock options will be used on a limited basis for senior managers, and restricted shares will be used for a small number of high potential and critical employees. These equity- based incentive awards are generally forfeited if the employee leaves Nokia prior to vesting. Performance shares The Performance Share Plan 2010 approved by the Board of Directors will cover a performance period of three years (2010–2012). No performance shares will vest unless Nokia’s performance reaches at least one of the threshold levels measured by two independent, pre-defined performance criteria: 1 2 Average Annual Net Sales Growth: 0% (threshold) and 13.5% (maximum) during the performance period 2010–2012, and EPS (diluted, non-IFRS): EUR 0.82 (threshold) and EUR 1.44 (maximum) at the end of the perfor- mance period in 2012. Average Annual Net Sales Growth is calculated as an average of the net sales growth rates for the years 2010 through 2012. EPS is the diluted, non-IFRS earnings per share in 2012. Both the EPS and Average Annual Net Sales Growth criteria are equally weighted and performance under each of the two performance criteria is calculated independent of each other. Achievement of the maximum performance for both criteria would result in the vesting of a maximum of 17 million Nokia shares. Performance exceeding the maximum criteria does not increase the number of 88 Nokia in 2009 performance shares that will vest. Achievement of the threshold performance for both criteria will result in the vesting of approximately 4.25 million shares. If only one of the threshold levels of performance is achieved, only approximately 2.13 million of the performance shares will vest. If none of the threshold levels is achieved, then none of the performance shares will vest. For performance between the threshold and max- imum performance levels, the vesting follows a linear scale. If the required performance levels are achieved, the vesting will occur December 31, 2012. Until the Nokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights associated with these performance shares. Stock options The stock options to be granted in 2010 are out of the Stock Option Plan 2007 approved by the Annual Gen- eral Meeting in 2007. For more information on Stock Option Plan 2007 see “Equity-based compensation programs” on page 86. Restricted shares The restricted shares to be granted under the Restrict- ed Share Plan 2010 will have a three-year restriction period (2010–2012). The restricted shares will vest and the payable Nokia shares be delivered in 2013 and early 2014, subject to fulfillment of the service period criteria. Participants will not have any shareholder rights or voting rights during the restriction period, until the Nokia shares are transferred and delivered to plan participants at the end of the restriction period. Maximum planned grants in 2010 The maximum number of planned grants under the Nokia Equity Program 2010 (i.e., performance shares, stock options and restricted shares) in 2010 are set forth in the table below. Maximum number of planned grants under the equity program in 2010 Plan type Stock options Restricted shares Performance shares at threshold 1 8 million 6 million 4.25 million 1 The maximum number of Nokia shares to be delivered at maxi- mum performance is four times the number at threshold, i.e., a total of 17 million Nokia shares. As at December 31, 2009, the total dilutive effect of Nokia’s stock options, performance shares and restricted shares outstanding, assuming full dilution, was approximately 1.6% in the aggregate. The poten- tial maximum effect of the proposed equity program 2010 would be approximately another 0.8%. Recoupment of certain equity gains The Board of Directors has approved a policy allowing for the recoupment of equity gains realized by Group Executive Board members under Nokia equity plans in case of a financial restatement caused by an act of fraud or intentional misconduct. This policy will apply to equity grants made to Group Executive Board members after January 1, 2010. Share ownership General The following section describes the ownership or potential ownership interest in the company of the members of Nokia’s Board of Directors and the Group Executive Board, either through share ownership or through holding of equity-based incentives, which may lead to share ownership in the future. In line with Nokia’s policy, approximately 40% of the remuneration paid to the members of the Board of Directors has been paid in Nokia’s shares purchased from the market. It is Nokia’s policy that the directors retain all company stock received as director com- pensation until the end of their board membership, subject to the need to finance any costs including taxes relating to the acquisition of the shares. Non- executive members of the Board of Directors do not receive stock options, performance shares, restricted shares or other variable compensation. For a description of Nokia’s equity-based com- pensation programs for employees and executives, see “Equity-based compensation programs” on page 86. Share ownership of the Board of Directors At December 31, 2009, the members of Nokia’s Board of Directors held the aggregate of 1 626 314 shares and ADSs in Nokia (not including stock options or other equity awards that are deemed as being beneficially owned under applicable SEC rules), which represented 0.04% of Nokia’s outstanding shares and total voting rights excluding shares held by Nokia Group at that date. The following table sets forth the number of shares and ADSs held by members of the Board of Directors as at December 31, 2009. Shares 1 ADSs 1 Jorma Ollila 2 Marjorie Scardino Georg Ehrnrooth 3 Lalita D. Gupte Bengt Holmström Henning Kagermann Olli-Pekka-Kallasvuo 4 Per Karlsson 3 Isabel Marey-Semper Risto Siilasmaa Keijo Suila 740 970 — 327 531 — 27 118 10 512 383 555 32 073 5 273 48 295 13 515 — 26 150 — 11 322 — — — — — — — 1 The number of shares or ADSs includes not only shares or ADSs received as director compensation, but also shares or ADSs acquired by any other means. Compensation of the Board of Directors and the Group Executive Board 2 For Mr. Ollila, this table includes his share ownership only. Mr. Ol- lila was entitled to retain all vested and unvested stock options, performance shares and restricted shares granted to him in respect of his services as the CEO of Nokia prior to June 1, 2006 as approved by the Board of Directors. Therefore, in addition to the above-presented share ownership, Mr. Ollila held, as at December 31, 2009, a total of 1 200 000 stock options. The information relating to stock options held by Mr. Ollila as at December 31, 2009 is presented in the table below. Number of stock options Total intrinsic value of stock options, December 31, 2009 EUR Stock option category Expiration date Jorma Ollila 2004 2Q 2005 2Q 2006 2Q December 31, 2009 December 31, 2010 December 31, 2011 Exercise price per share EUR 11.79 12.79 18.02 Exercisable Unexercisable Exercisable Unexercisable 400 000 400 000 325 000 — — 75 000 0 0 0 0 0 0 The number of stock options in the above table equals the number of underlying shares represented by the option entitle- ment. Stock options vest over four years: 25% after one year and 6.25% each quarter thereafter. The intrinsic value of the stock options in the above table is based on the difference between the exercise price of the options and the closing market price of Nokia shares on NASDAQ OMX Helsinki as at December 30, 2009 of EUR 8.92. 3 Mr. Ehrnrooth’s and Mr. Karlsson’s holdings include both shares held personally and shares held through a company. 4 For Mr. Kallasvuo, this table includes his share ownership only. Mr. Kallasvuo’s holdings of long-term equity-based incentives are outlined in “Stock option ownership of the Group Executive Board” on page 90 and “Performance shares and restricted shares” on page 92. Share ownership of the Group Executive Board The following table sets forth the share ownership, as well as potential ownership interest through holding of equity-based incentives, of the members of the Group Executive Board as at December 31, 2009. Shares receivable through stock options Shares Shares receivable through performance shares at threshold 3 Shares receivable through performance shares at maximum 4 Shares receivable through restricted shares Number of equity instruments held by Group Executive Board 1 179 209 3 032 410 521 000 2 084 000 1 151 000 % of the shares 1 % of the total outstanding equity incentives (per instrument) 2 0.0318 — 0.0818 13.326 0.0140 10.228 0.0562 10.228 0.0310 12.269 1 The percentage is calculated in relation to the outstanding num- ber of shares and total voting rights of the company, excluding shares held by Nokia Group. 2 The percentage is calculated in relation to the total outstanding equity incentives per instrument, i.e., stock options, performance shares and restricted shares, as applicable, under the global equity plans. 3 No Nokia shares were delivered under Nokia Performance Share Plan 2007 as Nokia’s performance did not reach the threshold level of either performance criterion. Therefore the shares deliverable at threshold equals zero for the performance share plan 2007. 4 No Nokia shares were delivered under Nokia Performance Share Plan 2007 as Nokia’s performance did not reach the threshold level of either performance criterion. Therefore the shares deliv- erable at maximum equals zero for Nokia Performance Share Plan 2007. At maximum performance under the performance share plan 2008 and 2009, the number of shares deliverable equals four times the number of performance shares at threshold. The following table sets forth the number of shares and ADSs in Nokia (not including stock options or other equity awards that are deemed as being beneficially owned under the applicable SEC rules) held by members of the Group Executive Board as at December 31, 2009. Mr. Andersson left the Group Executive Board as of September 30, 2009 to head Nokia Corporate Alliances and Business Development. He held 69 855 shares on September 30, 2009. Mr. Beresford-Wylie left the Group Executive Board as of September 30, 2009 and ceased employment with Nokia Siemens Networks on Novem- ber 1, 2009. He held 87 547 shares on September 30, 2009. Olli-Pekka Kallasvuo Esko Aho Timo Ihamuotila Mary McDowell Hallstein Moerk Tero Ojanperä Niklas Savander Richard Simonson Alberto Torres Anssi Vanjoki Kai Öistämö Shares 383 555 — 47 159 127 906 64 526 55 826 71 165 158 841 41 410 125 514 67 750 ADSs — — — 5 000 — — — 30 557 — — — 89 Compensation of the Board of Directors and the Group Executive Board Stock option ownership of the Group Executive Board The following table provides certain information re- lating to stock options held by members of the Group Executive Board as at December 31, 2009. These stock options were issued pursuant to Nokia Stock Option Plans 2003, 2005 and 2007. For a description of Nokia’s stock option plans, see Note 23 “Share-based pay- ment” to Nokia’s consolidated financial statements on page 37. Stock option category Expiration date 2004 2Q 2005 2Q 2005 4Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2009 2Q 2004 2Q 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2009 4Q 2004 2Q 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2004 2Q 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2004 2Q 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q Olli-Pekka Kallasvuo Esko Aho Timo Ihamuotila Mary McDowell Hallstein Moerk Tero Ojanperä 90 Nokia in 2009 Number of stock options 1 Total intrinsic value of stock options, December 31, 2009 EUR 2 Exercisable Unexercisable Exercisable 3 Unexercisable — 60 000 93 750 243 750 90 000 35 937 — — — 6 300 7 200 18 000 6 250 — — — 60 000 81 250 30 935 8 750 — — 17 500 48 750 18 000 6 250 — — 40 000 48 750 18 000 6 250 — — — 6 250 56 250 70 000 79 063 235 000 35 000 — — 2 700 14 000 13 750 35 000 20 000 — — 18 750 24 065 19 250 55 000 — — 11 250 14 000 13 750 35 000 — — 11 250 14 000 13 750 35 000 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 3 200 — — — — — — — — — — — — — — — — — — Exercise price per share EUR 11.79 12.79 14.48 18.02 18.39 19.16 11.18 December 31, 2009 December 31, 2010 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2014 11.18 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2014 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 11.79 12.79 18.02 18.39 19.16 11.18 8.76 11.79 12.79 18.02 18.39 19.16 11.18 11.79 12.79 18.02 18.39 19.16 11.18 11.79 12.79 18.02 18.39 19.16 11.18 Compensation of the Board of Directors and the Group Executive Board Stock option ownership of the Group Executive Board, continued Number of stock options 1 Total intrinsic value of stock options, December 31, 2009 EUR 2 Stock option category Expiration date Exercise price per share EUR Exercisable Unexercisable Exercisable 3 Unexercisable Niklas Savander Richard Simonson Alberto Torres Anssi Vanjoki Kai Öistämö 2004 2Q 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2004 2Q 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2004 2Q 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2004 2Q 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2004 2Q 2005 2Q 2005 4Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2009 December 31, 2010 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 11.79 12.79 18.02 18.39 19.16 11.18 11.79 12.79 18.02 18.39 19.16 11.18 11.79 12.79 18.02 18.39 19.16 11.18 11.79 12.79 18.02 18.39 19.16 11.18 11.79 12.79 14.48 18.02 18.39 19.16 11.18 Stock options held by the members of the Group Executive Board Total 4 All outstanding stock option plans (global plans), Total 1 Number of stock options equals the number of underlying shares represented by the option entitlement. Stock options vest over four years: 25% after one year and 6.25% each quarter thereaf- ter. 2 The intrinsic value of the stock options is based on the difference between the exercise price of the options and the closing market price of Nokia shares on NASDAQ OMX Helsinki as at December 30, 2009 of EUR 8.92. — 7 000 33 750 18 000 8 750 — — 60 000 81 250 30 935 10 000 — — 10 000 5 850 10 125 3 125 — — 26 250 50 000 30 935 10 000 — — 7 200 17 500 81 250 30 935 10 000 — — — 11 250 14 000 19 250 55 000 — — 18 750 24 065 22 000 60 000 — — 1 350 7 875 6 875 20 000 — — 18 750 24 065 22 000 60 000 — — 1 750 18 750 24 065 22 000 60 000 1 688 537 1 343 873 12 844 453 9 911 056 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 3 200 6 099 3 For gains realized upon exercise of stock options for the mem- 4 Mr. Andersson left the Group Executive Board as of Septem- bers of the Group Executive Board, see the table in “Stock Option Exercises and Settlement of Shares” on page 94. ber 30, 2009 to head Nokia Corporate Alliances and Business Development. Mr. Beresford-Wylie left the Group Executive Board as of September 30, 2009 and ceased employment with Nokia Siemens Networks on November 1, 2009. From April 1, 2007, Mr. Beresford-Wylie has participated in a long-term cash incentive plan sponsored by Nokia Siemens Networks instead of the long-term equity-based plans of Nokia. The information related to stock options held and retained by Mr. Andersson and Mr. Beresford-Wylie as of the date of resignation from the Group Executive Board is presented in the table below. 91 Compensation of the Board of Directors and the Group Executive Board Number of stock options 1 Total intrinsic value of stock options, EUR 7 Robert Andersson 5 (as per September 30, 2009) Simon Beresford-Wylie 6 (as per September 30, 2009) Stock option category Expiration date Exercise price per share EUR Exercisable Unexercisable Exercisable 3 Unexercisable 2004 2Q 2005 2Q 2005 4Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2004 2Q 2005 2Q 2006 2Q December 31, 2009 December 31, 2010 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2009 December 31, 2010 December 31, 2011 11.79 12.79 14.48 18.02 18.39 19.16 11.18 11.79 12.79 18.02 — 12 000 24 500 35 000 16 000 5 000 — — 54 000 75 000 — — 3 500 20 000 16 000 15 000 5 000 — — 6 250 — — — — — — — — — — — — — — — — — — — — 5 Mr. Andersson remained with Nokia and thus is entitled to retain all vested and unvested stock options granted to him prior to leaving the Group Executive Board as of September 30, 2009. 6 Mr. Beresford-Wylie’s stock option grants were forfeited upon termination of employment in accordance with the plan rules. 7 The intrinsic value of the stock options is based on the difference between the exercise price of the options and the closing market price of Nokia shares on NASDAQ OMX Helsinki as at September 30, 2009 of EUR 10.05. Performance shares and restricted shares The following table provides certain information relating to performance shares and restricted shares held by members of the Group Executive Board as at December 31, 2009. These entitlements were granted pursuant to Nokia’s Performance Share Plans 2007, 2008 and 2009 and Restricted Share Plans 2007, 2008 and 2009. For a description of Nokia’s performance share and restricted share plans, please see Note 23 “Share-based payment” to the consolidated financial statements on page 37. Performance shares Restricted shares Plan name 1 Number of performance shares at threshold 2 Number of performance shares at maximum 3, 4 2007 2008 2009 2008 2009 2007 2008 2009 2007 2008 2009 2007 2008 2009 2007 2008 2009 2007 2008 2009 Olli-Pekka Kallasvuo Esko Aho Timo Ihamuotila Mary McDowell Hallstein Moerk Tero Ojanperä Niklas Savander 92 Nokia in 2009 — 57 500 117 500 — 17 500 — 10 000 27 500 — 14 000 27 500 — 10 000 17 500 — 10 000 17 500 — 14 000 27 500 — 230 000 470 000 — 70 000 — 40 000 110 000 — 56 000 110 000 — 40 000 70 000 — 40 000 70 000 — 56 000 110 000 Intrinsic value 4 December 31, 2009 EUR — — 2 096 200 — 312 200 — — 490 600 — — 490 600 — — 312 200 — — 312 200 — — 490 600 Intrinsic value 6 December 31, 2009 EUR 892 000 669 000 1 338 000 Number of restricted shares 100 000 75 000 150 000 7 000 25 000 25 000 14 000 35 000 35 000 20 000 38 000 25 000 14 000 25 000 25 000 14 000 25 000 25 000 20 000 38 000 62 440 223 000 223 000 124 880 312 200 312 200 178 400 338 960 223 000 124 880 223 000 223 000 124 880 223 000 223 000 178 400 338 960 Plan name 5 2007 2008 2009 2008 2009 2007 2008 2009 2007 2008 2009 2007 2008 2009 2007 2008 2009 2007 2008 2009 Compensation of the Board of Directors and the Group Executive Board Performance shares Restricted shares Number of performance shares at threshold 2 Number of performance shares at maximum 3,4 Intrinsic value 4 December 31, 2009 EUR — 16 000 30 000 — 5 000 10 000 — 16 000 30 000 — 16 000 30 000 — 64 000 120 000 — 20 000 40 000 — 64 000 120 000 — 64 000 120 000 — — 535 200 — — 178 400 — — 535 200 — — 535 200 Intrinsic value 6 December 31, 2009 EUR 312 200 196 240 954 440 115 960 89 200 223 000 312 200 196 240 356 800 312 200 196 240 446 000 Number of restricted shares 35 000 22 000 107 000 13 000 10 000 25 000 35 000 22 000 40 000 35 000 22 000 50 000 Plan name 5 2007 2008 2009 2007 2008 2009 2007 2008 2009 2007 2008 2009 521 000 2 084 000 6 288 600 1 151 000 10 266 920 5 093 960 11 20 375 720 12 52 040 089 9 381 002 83 678 538 4 For Performance Share Plans 2008 and 2009 the value of per- 6 The intrinsic value is based on the closing market price of a formance shares is presented on the basis of Nokia’s estimation of the number of shares expected to vest. The intrinsic value for the Performance Share Plan 2009 is based on the closing market price of a Nokia share on NASDAQ OMX Helsinki as at December 30, 2009 of EUR 8.92. For the Performance Share Plan 2007 no Nokia shares were delivered as Nokia’s performance did not reach the threshold level of either performance criterion. 5 Under the Restricted Share Plans 2007, 2008 and 2009, awards have been granted quarterly. For the major part of the awards made under these plans, the restriction period will end for the 2007 plan, on January 1, 2011; and for the 2008 plan, on Janu- ary 1, 2012 and for the 2009 plan, on January 1, 2013. Nokia share on NASDAQ OMX Helsinki as at December 30, 2009 of EUR 8.92. 7 Mr. Andersson, left the Group Executive Board as of September 30, 2009 to head Nokia Corporate Alliances and Business Development. Mr. Beresford-Wylie left the Group Executive Board as of September 30, 2009 and ceased employment with Nokia Siemens Networks on November 1, 2009. From April 1, 2007, Mr. Beresford-Wylie has participated in a long-term cash incentive plan sponsored by Nokia Siemens Networks instead of the long- term equity-based plans of Nokia. The information related to performance shares and restricted shares held by Mr. Andersson and Mr. Beresford-Wylie as of the date of resignation from the Group Executive Board is presented in the table below. Plan name 1 2007 2008 2009 2007 2008 2009 2007 2008 2009 2007 2008 2009 Richard Simonson Alberto Torres Anssi Vanjoki Kai Öistämö Performance shares and restricted shares held by the Group Executive Board, Total 7 All outstanding performance shares and restricted shares (global plans), Total 1 The performance period for the 2007 plan is 2007-2009, 2008 plan 2008-2010 and 2009 plan 2009-2011, respectively. 2 The threshold number will vest as Nokia shares should the pre-determined threshold performance levels be met. No Nokia shares were delivered under the Performance Share Plan 2007 as Nokia’s performance did not reach the threshold level of either performance criterion. Therefore the shares deliverable at threshold equals zero for the Performance Share Plan 2007. 3 The maximum number will vest as Nokia shares should the pre- determined maximum performance levels be met. The maximum number of performance shares equals four times the number at threshold. No Nokia shares were delivered under the Perfor- mance Share Plan 2007 as Nokia’s performance did not reach the threshold level of either performance criterion. Therefore the shares deliverable at maximum equals zero for the Performance Share Plan 2007. Robert Andersson 8 (as per September 30, 2009) 2007 2008 2009 Simon Beresford-Wylie 9 (as per September 30, 2009) — 8 Mr. Andersson remained with Nokia and thus is entitled to retain performance shares and restricted shares granted to him prior to leaving the Group executive Board as of September 30, 2009. 9 Mr. Beresford-Wylie’s performance and restricted shares grants were forfeited upon termination of employment in accordance with the plan rules. 10 The intrinsic value is based on the closing market price of a Nokia share on NASDAQ OMX Helsinki as at September 30, 2009 of EUR 10.05. Performance shares Number of performance shares at threshold 2 Number of performance shares at maximum 3,4 Plan name 1 Intrinsic value 10 EUR — — 50 250 — 10 000 2 500 — 40 000 10 000 — — — Restricted shares Number of restricted shares Intrinsic value 10 EUR 20 000 25 000 7 000 201 000 251 250 70 350 25 000 251 250 Plan name 5 2006 2007 2008 2006 11 The threshold number will vest as Nokia shares should the 12 The maximum number will vest as Nokia shares should the pre- predetermined threshold performance levels be met. No Nokia shares were delivered under the Performance Share Plan 2007 as Nokia’s performance did not reach the threshold level of either performance criterion. Therefore the aggregate number does not include any shares for Performance Share Plan 2007. determined maximum performance levels be met. The maximum number of performance shares equals four times the number at threshold. No Nokia shares were delivered under the Perfor- mance Share Plan 2007 as Nokia’s performance did not reach the threshold level of either performance criterion. Therefore the aggregate number does not include any shares for Performance Share Plan 2007. 93 Compensation of the Board of Directors and the Group Executive Board Stock option exercises and settlement of shares The following table provides certain information relating to stock option exercises and share deliveries upon settlement during the year 2009 for Nokia’s Group Executive Board members. Name 5 Olli-Pekka Kallasvuo Esko Aho Timo Ihamuotila Mary McDowell Hallstein Moerk Tero Ojanperä Niklas Savander Richard Simonson Alberto Torres Anssi Vanjoki Kai Öistämö Stock option awards 1 Number of shares acquired on exercise Value realized on exercise (EUR) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Performance shares awards 2 Number of shares delivered on vesting Value realized on vesting (EUR) Restricted shares awards 3 Number of shares delivered on vesting Value realized on vesting (EUR) 180 300 1 491 450 135 000 4 1 159 000 4 0 14 760 81 300 50 900 50 900 37 121 81 300 8 865 81 300 56 284 0 137 835 727 170 459 304 459 304 309 802 727 170 85 030 727 170 455 746 0 0 4 500 40 005 25 000 222 250 15 000 133 350 15 000 133 350 15 000 133 350 25 000 222 250 4 800 42 672 25 000 222 250 25 000 222 250 1 Value realized on exercise is based on the difference between the Nokia share price and exercise price of options (non-transferable stock options). 2 Represents the final payout in gross shares for the 2005 and 2006 performance share grants. Value for the 2005 performance share grant is based on the market price of the Nokia share on NASDAQ OMX Helsinki as at May 27, 2009 of EUR 10.85. Value for the 2006 performance share grant is based on the closing market price of the Nokia share on NASDAQ OMX Helsinki as at February 26, 2009 of EUR 7.72. 3 Delivery of Nokia shares vested from the 2006 restricted share grant to all members of the Group Executive Board. Value is based on the closing market price of the Nokia share on NASDAQ OMX Helsinki on October 21, 2009 of EUR 8.89 4 Represents the final payout in gross shares for the 2005 and 2006 restricted share grants. Value for the 2005 restricted share grant is based on the closing market price of the Nokia share on NASDAQ OMX Helsinki on February 26, 2009 of EUR 7.72. Value for the 2006 restricted share grant is based on the closing market price of the Nokia share on NASDAQ OMX Helsinki on October 21, 2009 of EUR 8.89. 5 Mr. Andersson, left the Group Executive Board as of September 30, 2009 to head Nokia Corporate Alliances and Business Devel- opment. Mr. Beresford-Wylie left the Group Executive Board as of September 30, 2009 and ceased employment with Nokia Siemens Networks on November 1, 2009. The information regarding stock option settlement exercises and settlement of shares regarding Mr. Andersson and Mr. Beresford-Wylie as of the date of resigna- tion from the Group Executive Board is presented in the table below. Name Year Robert Andersson (as per September 30, 2009) 2009 Simon Beresford-Wylie (as per September 30, 2009) 2009 Stock option awards 1 Number of shares acquired on exercise Value realized on exercise (EUR) Performance shares awards 2 Number of shares delivered on vesting Value realized on vesting (EUR) Restricted shares awards 3 Number of shares delivered on vesting Value realized on vesting (EUR) 0 0 0.00 0.00 45 960 374 718 81 300 727 170 0 0 0.00 0.00 94 Nokia in 2009 Stock ownership guidelines for executive management One of the goals of our long-term equity-based incentive program is to focus executives on promoting the long-term sustainability of the company and on building value for shareholders on a long-term basis. In addition to granting stock options, performance shares and restricted shares, we also encourage stock ownership by our top executives and have stock ownership commitment guidelines with minimum recommendations tied to annual base salaries. For the President and CEO, the recommended minimum investment in Nokia shares corresponds to three times his annual base salary and for members of the Group Executive Board two times the member’s annual base salary, respectively. To meet this requirement, all members of the Group Executive Board are expected to retain 50% of any after-tax gains from equity pro- grams in shares until the minimum investment level is met. The Personnel Committee regularly monitors the compliance by the executives with the stock owner- ship guidelines. Insider trading in securities The Board of Directors has established and regularly updates a policy in respect of insiders’ trading in Nokia securities. The members of the Board and the Group Executive Board are considered as primary insiders. Under the policy, the holdings of Nokia secu- rities by the primary insiders are public information, which is available from Euroclear Finland Ltd and on Nokia’s website. Both primary insiders and second- ary insiders (as defined in the policy) 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 release of Nokia’s quarterly results and the four-week “closed-window” period immediately preceding the release of Nokia’s annual results. In addition, Nokia may set trading restrictions based on participation in projects. Nokia updates its insider trading policy from time to time and closely monitors compliance with the policy on a regular basis. Nokia’s insider policy is in line with the NASDAQ OMX Helsinki Guidelines for Insiders and also sets requirements beyond those guidelines. Compensation of the Board of Directors and the Group Executive Board 95 EURm Audit fees 1 Audit-related fees 2 Tax fees 3 All other fees 4 Total Nokia 6.2 1.2 3.6 0.3 11.3 2009 Nokia Siemens Networks 9.8 1.6 2.0 — 13.4 2008 Nokia Siemens Networks 13.1 5.0 3.0 — 21.1 Total 19.5 7.4 6.8 0.7 34.4 Total Nokia 16.0 2.8 5.6 0.3 24.7 6.4 2.4 3.8 0.7 13.3 1 Audit Fees consist of fees billed for the annual audit of the company’s consolidated financial statements and the statutory financial statements of the company’s subsidiaries. They also in- clude fees billed for other audit services, which are those services that only the independent auditor reasonably can provide, and include the provision of comfort letters and consents in con- nection with statutory and regulatory filings and the review of documents filed with the SEC and other capital markets or local financial reporting regulatory bodies. 2 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 independent auditor, and include consultations concerning financial accounting and reporting standards; SAS 70 audit of internal controls; advice on tax accounting matters; advice and assistance in connection with local statutory accounting requirements; due diligence related to acquisitions; financial due diligence in connection with provi- sion of funding to customers, reports in relation to covenants in loan agreements; employee benefit plan audits and reviews; and audit procedures in connection with investigations and the compliance program implemented at Nokia Siemens Networks related to the Siemens’ carrier-related operations transferred to Nokia Siemens Networks. The amounts paid by Nokia to PricewaterhouseCoopers in 2008 include EUR 2.5 million Nokia has recovered or will be able to recover from a third party. 3 Tax fees include fees billed for (i) corporate and indirect compliance including preparation and/or review of tax returns, preparation, review and/or filing of various certificates and forms and consultation regarding tax returns and assistance with revenue authority queries; (ii) transfer pricing advice and assistance with tax clearances; (iii) customs duties reviews and advise; (iv) consultations and tax audits (assistance with technical tax queries and tax audits and appeals and advise on mergers, acquisitions and restructurings); (v) personal compli- ance (preparation of individual tax returns and registrations for employees (non-executives), assistance with applying visa, residency, work permits and tax status for expatriates); and (vi) consultation and planning (advice on stock based remuneration, local employer tax laws, social security laws, employment laws and compensation programs, tax implications on short-term international transfers). 4 All Other Fees include fees billed for company establishment, forensic accounting, data security, investigations and reviews of licensing arrangements with customers and occasional training or reference materials and services. Audit committee pre-approval policies and procedures The Audit Committee of our Board of Directors is responsible, among other matters, for the oversight of the external auditor subject to the requirements 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 a specific case-by-case services approvals (“general pre-approval”); or (ii) require the specific pre-approval of the Audit Committee (“specific pre- approval”). The Audit Committee may delegate 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. All other audit, audit-related (including services related to internal controls and significant M&A projects), tax and other services are subject to a specific pre-approval from the Audit Committee. All service requests concerning generally pre-approved services will be submitted to the Corporate Controller who will determine whether the services are within the services generally pre-approved. The Policy and its appendices are subject to annual review by 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. Requests or applications to provide services that require specific approval by the Audit Committee are submitted to the Audit Committee by both the independent auditor and the Corporate Controller. At each regular meeting of the Audit Committee, the independent auditor provides a report in order for the Audit Committee to review the services that the auditor is providing, as well as the status and cost of those services. Auditor fees and services Auditor fees and services PricewaterhouseCoopers Oy has served as our independent auditor for each of the fiscal years in the three-year period ended December 31, 2009. The inde- pendent auditor is elected annually by our sharehold- ers at the Annual General Meeting for the fiscal year in question. The Audit Committee of the Board of Direc- tors makes a proposal to the shareholders in respect of the appointment of the auditor based upon its evaluation of the qualifications and independence of the auditor to be proposed for election or re-election on an annual basis. The following table sets forth the aggregate fees for professional services and other services rendered by PricewaterhouseCoopers to Nokia in 2009 and 2008 in total with a separate presentation of those fees related to Nokia and Nokia Siemens Networks. 96 Nokia in 2009 Investor information Information on the Internet www.nokia.com/investors Investor relations contacts investor.relations@nokia.com Available on the Internet: financial reports, Nokia management’s presentations, conference call and other investor related materials, press releases as well as environmental and social information. Nokia Investor Relations 102 Corporate Park Drive White Plains, NY 10604 USA Tel. +1 914 368 0555 Fax +1 914 368 0600 Nokia Investor Relations P.O. Box 226 FI-00045 NOKIA GROUP Finland Tel. +358 7180 34927 Fax +358 7180 38329 Annual General Meeting Date: Thursday, May 6, 2010 at 3.00 pm Address: Helsinki Fair Centre, Amfi-hall, Messuaukio 1, Helsinki, Finland Dividend Dividend proposed by the Board of Directors for the fiscal year 2009 is EUR 0.40. The dividend record date is proposed to be May 11, 2010 and the pay date on or about May 25, 2010. Financial reporting Nokia’s quarterly reports in 2010 are planned for April 22, July 22, and October 21. The 2010 results are planned to be published in January 2011. Information published in 2009 All Nokia’s press releases published in 2009 are available on the Internet at investors.nokia.com. Stock exchanges The shares of Nokia Corporation are quoted on the following stock exchanges: Symbol Trading currency NASDAQ OMX Helsinki (quoted since 1915) NOK1V Frankfurter Wertpapierbörse (1988) New York Stock Exchange (1994) NOA3 NOK EUR EUR USD List of indices NOK1V OMXN40 OMX Nordic 40 OMXH OMX Helsinki OMXH25 OMX Helsinki 25 NOK NYA NYSE Composite NYL.ID NYSE World Leaders NYYID NYSE TMT HX45 OMX Helsinki Information Technology CTN CSFB Technology BE500 Bloomberg European 500 MLO Merrill Lynch 10 BETECH Bloomberg Telecommunication Equipment SX5E DJ Euro STOXX 50 SX5P DJ STOXX 50 E3X FTSE Eurofirst 300 It should be noted that certain statements herein which are not historical facts are forward-looking statements, including, without limitation, those regarding: A) the timing of the deliveries of our products and services and their combinations; B) our ability to de- velop, implement and commercialize new technologies, products and services and their combinations; C) expectations regarding market developments and structural changes; D) expectations and targets regarding our industry volumes, market share, prices, net sales and margins of products and services and their combinations; E) expec- tations and targets regarding our operational priorities and results of operations; F) the outcome of pending and threatened litigation; G) expectations regarding the successful completion of acquisitions or restructurings on a timely basis and our ability to achieve the financial and operational targets set in connection with any such acquisition or restructuring; and H) statements preceded by “be- lieve,” “expect,” “anticipate,” “foresee,” “target,” “estimate,” “de- signed,” “plans,” “will” or similar expressions. These statements are based on management’s best assumptions and beliefs in light of the information currently available to it. Because they 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 competitiveness and quality of our portfolio of products and services and their combinations; 2) our ability to timely and successfully develop or otherwise acquire the appropriate technologies and commercialize them as new advanced products and services and their combinations, including our ability to attract application developers and content providers to develop applications and provide content for use in our devices; 3) our ability to effectively, timely and profitably adapt our business and opera- tions to the requirements of the converged mobile device market and the services market; 4) the intensity of competition in the various markets where we do business and our ability to maintain or improve our market position or respond successfully to changes in the com- petitive environment; 5) the occurrence of any actual or even alleged defects or other quality, safety or security issues in our products and services and their combinations; 6) the development of the mobile and fixed communications industry and general economic conditions globally and regionally; 7) our ability to successfully manage costs; 8) exchange rate fluctuations, including, in particular, fluctuations between the euro, which is our reporting currency, and the US dol- lar, the Japanese yen and the Chinese yuan, as well as certain other currencies; 9) the success, financial condition and performance of our suppliers, collaboration partners and customers; 10) our ability to source sufficient amounts of fully functional components, sub- assemblies, software, applications and content without interruption and at acceptable prices and quality; 11) our success in collabora- tion arrangements with third parties relating to the development of new technologies, products and services, including applications and content; 12) our ability to manage efficiently our manufacturing and logistics, as well as to ensure the quality, safety, security and timely delivery of our products and services and their combinations; 13) our ability to manage our inventory and timely adapt our supply to meet changing demands for our products; 14) our ability to protect the complex technologies, which we or others develop or that we license, from claims that we have infringed third parties’ intellectual proper- ty rights, as well as our unrestricted use on commercially acceptable terms of certain technologies in our products and services and their combinations; 15) our ability to protect numerous Nokia, NAVTEQ and Nokia Siemens Networks patented, standardized or proprietary technologies from third-party infringement or actions to invalidate the intellectual property rights of these technologies; 16) the impact of changes in government policies, trade policies, laws or regulations and economic or political turmoil in countries where our assets are located and we do business; 17) any disruption to information tech- nology systems and networks that our operations rely on; 18) our ability to retain, motivate, develop and recruit appropriately skilled employees; 19) unfavorable outcome of litigations; 20) allegations of possible health risks from electromagnetic fields generated by base stations and mobile devices and lawsuits related to them, regardless of merit; 21) our ability to achieve targeted costs reductions and in- crease profitability in Nokia Siemens Networks and to effectively and timely execute related restructuring measures; 22) developments under large, multi-year contracts or in relation to major customers in the networks infrastructure and related services business; 23) the management of our customer financing exposure, particularly in the networks infrastructure and related services business; 24) whether ongoing or any additional governmental investigations into alleged violations of law by some former employees of Siemens AG (“Siemens”) may involve and affect the carrier-related assets and employees transferred by Siemens to Nokia Siemens Networks; 25) any impairment of Nokia Siemens Networks customer relationships resulting from ongoing or any additional governmental investiga- tions involving the Siemens carrier-related operations transferred to Nokia Siemens Networks; as well as the risk factors specified on pages 11–32 of Nokia’s annual report Form 20-F for the year ended December 31, 2009 under Item 3D. “Risk Factors.” Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Nokia does not un- dertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. 97 Contact information Nokia Head Office Keilalahdentie 2 – 4 02150 Espoo P.O.Box 226, FI-00045 Nokia Group FINLAND Tel. +358 7180 08000 Fax +358 7180 34003 Nokia Corporate Office –New York 102 Corporate Park Drive White Plains, New York 10604 USA Tel. +1 914 368 0400 Fax +1 914 368 0501 Nokia Latin America 703 NW 62nd Av, Suite 100 Miami FL, 33126 USA Tel. +1 786 388 4002 Fax +1 786 388 4030 Nokia Brazil Av das Nacoes Unidas 12.901 Torre Norte 11o. Andar Cep 04578-910 Sao Paulo 04578-910 BRAZIL Tel. +55 11 5508 6350 Fax +55 11 5508 0471 Nokia Greater China & Korea Nokia China Campus Beijing Economic and Technological Development Area No.5 Donghuan Zhonglu Beijing, PRC 100176 Tel. +86 10 8711 8888 Nokia South East Asia & Pacific 438B Alexandra Road #07-00 Alexandra Technopark SINGAPORE 119968 Tel. +65 6723 2323 Fax +65 6723 2324 Nokia India SP Infocity, Industrial Plot no. 243 Udyog Vihar, Phase 1, Dundahera, Gurgaon, Haryana – 122016 INDIA Tel. +91 124 483 3000 Fax +91 124 483 3099 Nokia Middle East & Africa Al Thuraya Tower II, 27th floor, Dubai Internet City Dubai, UAE Tel. +971 4 369 7600 Fax +971 4 369 7604 Nokia Eurasia Stoleshnikov Per 14 103031 Moscow RUSSIA Tel. +7495 795 0500 Fax +7495 795 0509 98 Nokia in 2009 (cid:17) (cid:81) (cid:82) (cid:76) (cid:87) (cid:68) (cid:85) (cid:82) (cid:83) (cid:85) (cid:82) (cid:38) (cid:3) (cid:68) (cid:76) (cid:78) (cid:82) (cid:49) (cid:3) (cid:73) (cid:82) (cid:3) (cid:86) (cid:78) (cid:85) (cid:68) (cid:80) (cid:72) (cid:71) (cid:68) (cid:85) (cid:87) (cid:3) (cid:71) (cid:72) (cid:85) (cid:72) (cid:87) (cid:86) (cid:76) (cid:74) (cid:72) (cid:85) (cid:3) (cid:72) (cid:85) (cid:68) (cid:72) (cid:3) (cid:79) (cid:83) (cid:82) (cid:72) (cid:51) (cid:74) (cid:81) (cid:3) (cid:76) (cid:87) (cid:70) (cid:72) (cid:81) (cid:81) (cid:82) (cid:38) (cid:3) (cid:68) (cid:76) (cid:78) (cid:82) (cid:49) (cid:71) (cid:81) (cid:68) (cid:68) (cid:76) (cid:78) (cid:82) (cid:49) (cid:3) (cid:3) (cid:17) (cid:71) (cid:72) (cid:89) (cid:85) (cid:72) (cid:86) (cid:72) (cid:85) (cid:3) (cid:86) (cid:87) (cid:75) (cid:74) (cid:76) (cid:85) (cid:3) (cid:79) (cid:79) (cid:36) (cid:3) (cid:17) (cid:81) (cid:82) (cid:76) (cid:87) (cid:68) (cid:85) (cid:82) (cid:83) (cid:85) (cid:82) (cid:38) (cid:3) (cid:68) (cid:76) (cid:78) (cid:82) (cid:49) (cid:3) (cid:17) (cid:19) (cid:20) (cid:19) (cid:21) (cid:107) (cid:3) (cid:3) (cid:87) (cid:75) (cid:74) (cid:76) (cid:85) (cid:92) (cid:83) (cid:82) (cid:38) 

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