Nokia Corporation
Annual Report 2010

Plain-text annual report

Nokia in 2010 Review by the Board of Directors and Nokia Annual Accounts 2010 Key data ........................................................................................................................................................................... 2 Review by the Board of Directors 2010 ................................................................................................................ 3 Annual Accounts 2010 Consolidated income statements, IFRS ................................................................................................................ 16 Consolidated statements of comprehensive income, IFRS ............................................................................. 17 Consolidated statements of financial position, IFRS ........................................................................................ 18 Consolidated statements of cash flows, IFRS ..................................................................................................... 19 Consolidated statements of changes in shareholders’ equity, IFRS ............................................................. 20 Notes to the consolidated financial statements ................................................................................................ 22 Income statements, parent company, FAS .......................................................................................................... 66 Balance sheets, parent company, FAS ................................................................................................................... 66 Statements of cash flows, parent company, FAS ............................................................................................... 67 Notes to the financial statements of the parent company ............................................................................. 68 Nokia shares and shareholders .............................................................................................................................. 72 Nokia Group 2006–2010, IFRS ................................................................................................................................. 78 Calculation of key ratios ............................................................................................................................................ 80 Signing of the Annual Accounts 2010 and proposal for distribution of profit .......................................... 81 Auditors’ report ........................................................................................................................................................... 82 Additional information Critical accounting policies ..................................................................................................................................... 84 Corporate governance statement Corporate governance .......................................................................................................................................... 90 Board of Directors .................................................................................................................................................. 94 Nokia Leadership Team ........................................................................................................................................ 96 Compensation of the Board of Directors and the Nokia Leadership Team .............................................. 100 Auditors fees and services ..................................................................................................................................... 120 Investor information ................................................................................................................................................ 121 Contact information ................................................................................................................................................. 123 K E Y D A T A Key data Based on financial statements according to International Financial Reporting Standards, IFRS Main currencies, exchange rates at the end of 2010 1 EUR USD GBP CNY 1.3187 0.8495 8.7867 INR 59.7792 RUB 40.5401 JPY 110.45 2 Nokia in 2010 Nokia, EURm Net sales Operating profit Profit before tax Profit attributable to equity holders’ of the parent Research and development expenses % Return on capital employed Net debt to equity (gearing) EUR Earnings per share, basic Dividend per share Average number of shares (1 000 shares) * Board’s proposal 2010 42 446 2 070 1 786 1 850 5 863 2010 11.0 – 43 2010 0.50 0.40 * 3 708 816 2009 Change, % 4 73 86 108 – 1 40 984 1 197 962 891 5 909 2009 6.7 – 25 2009 Change, % 0.24 0.40 3 705 116 108 — Reportable segments, EURm 2010 2009 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 Germany Russia USA Brazil UK Spain Italy Indonesia 10 major countries, personnel, December 31 India China Finland Germany Brazil USA Hungary UK Mexico Poland 29 134 3 299 1 002 – 225 12 661 – 686 2010 60 492 5 452 66 160 323 132 427 2010 7 149 2 952 2 019 1 744 1 630 1 506 1 470 1 313 1 266 1 157 2010 22 734 20 668 19 841 11 243 10 925 7 415 5 931 3 859 2 554 2 122 27 853 3 314 670 – 344 12 574 – 1 639 5 50 – 35 1 – 58 2009 Change, % 10 19 3 15 7 54 773 4 571 63 927 282 123 553 2009 5 990 2 809 1 733 1 528 1 731 1 333 1 916 1 408 1 252 1 458 2009 18 376 15 419 21 559 11 582 10 288 7 294 6 342 4 010 2 619 1 937 Review by the Board of Directors 2010 R E V I E W B Y T H E B O A R D O F D I R E C T O R S Before the statutory information and disclosures of the review by the son, the 10 markets in which Nokia generated the greatest net sales in Board of Directors, the Nokia Board of Directors outlines a brief summary 2009 were China, India, the United Kingdom, Germany, the United States, of the key developments and actions taken during 2010 and early 2011. Russia, Indonesia, Spain, Brazil and Italy, together representing approxi- mately 52% of total net sales in 2009. » At the Nokia Annual General Meeting in May 2010, the Chairman of the Nokia’s gross margin in 2010 was 30.2%, compared to 32.4% in 2009. Board, Jorma Ollila acknowledged that 2009 had not been a satisfac- Nokia’s 2010 operating profit increased 73% to EUR 2.1 billion, compared tory year and that Nokia shareholders were justified in being unhappy with EUR 1.2 billion in 2009. Nokia’s 2010 operating margin was 4.9% with the share price development. The Board was, as the Chairman (2.9%). Nokia’s operating profit in 2010 included purchase price account- noted, painfully aware of the situation and very determined to change ing items and other special items of net negative EUR 1.1 billion (net it around. negative EUR 2.3 billion). Devices & Services operating profit was EUR 3.3 billion, compared with EUR 3.3 billion in 2009, with a reported operat- » During the summer 2010, the Board searched for and identified a ing margin of 11.3% (11.9%). Devices & Services operating profit in 2010 new CEO with a strong background in software and a proven record included purchase price accounting items and other special items of net in change management, who replaced the previous CEO in September positive EUR 137 million (net negative EUR 174 million). NAVTEQ’s operat- 2010. ing loss for 2010 was EUR 225 million (EUR 344 million), representing an operating margin of – 22.5% (– 51.3%). NAVTEQ’s operating loss included » During the fourth quarter of 2010 and ending in early 2011, an in- purchase price accounting items and other special items of negative EUR depth review of the challenges of the company, both operational and 489 million (net negative EUR 465 million). Nokia Siemens Networks had strategic, was undertaken by the CEO with the full support and close an operating loss of EUR 0.7 billion, compared with a EUR 1.6 billion oper- involvement of the Board. ating loss in 2009, representing an operating margin of – 5.4% (– 13.0%). Nokia Siemens Networks operating loss in 2010 included purchase price » Based on the review, a new strategy was established, and approved accounting items and other special items of net negative EUR 0.8 billion and disclosed in February 2011. The strategy is built around three (net negative EUR 1.7 billion, including EUR 908 million impairment of “pillars”: regaining leadership in the smartphone market, reinforc- goodwill). Group Common Functions expenses totaled EUR 114 million in ing our leadership position in mobile phones and investing in future 2010, compared to EUR 134 million in 2009. disruptive technologies. For the full year 2010, Nokia’s net sales and profitability benefited from improved economic and financial conditions following the signifi- » During 2010 and continuing in 2011, the Board has held more meet- cant deterioration in demand during the second half of 2008 and 2009. In ings both formal and informal and interacted more intensively with 2010, we saw volume and value growth in the global mobile device market management during and between board meetings than ever before. driven by rapid growth in converged mobile devices. At the same time, the competitive environment in mobile devices intensified, adversely impact- » The Board is closely monitoring the implementation of the new strat- ing our competitive position in the market. Our device volumes were egy as well as the execution of operational activities, all with the goal of improving shareholder value. From the financial perspective, in 2010 Nokia’s net sales increased 4% to EUR 42.4 billion (EUR 41.0 billion in 2009). Net sales of Devices & Ser- also adversely affected in the second half of 2010 by shortages of certain components. For NAVTEQ and Nokia Siemens Networks, the demand envi- ronment improved in 2010. The overall appreciation of certain currencies relative to the Euro during 2010 had a positive effect on our net sales. Reported research and development expenses were EUR 5.9 billion in vices for 2010 increased 5% to EUR 29.1 billion (EUR 27.9 billion). Net sales 2010, virtually unchanged from 2009. Research and development costs of NAVTEQ increased 50% to EUR 1 002 million in 2010 (EUR 670 million). represented 13.8% of Nokia net sales in 2010, down from 14.4% in 2009. Net sales of Nokia Siemens Networks increased 1% to EUR 12.7 billion (EUR Research and development expenses included purchase price accounting 12.6 billion). In 2010, Europe accounted for 34% (36%) of Nokia’s net sales, Asia-Pacific 21% (22%), Greater China 18% (16%), Middle East & Africa items and other special items of EUR 575 million in 2010 (EUR 564 million in 2009). At December 31, 2010, Nokia employed 35 869 people in research and development, representing approximately 27% of the group’s total 13% (14%), Latin America 9% (7%) and North America 5% (5%). The 10 workforce, and had a strong research and development presence in 16 markets in which Nokia generated the greatest net sales in 2010 were, in countries. descending order of magnitude, China, India, Germany, Russia, the United In 2010, Nokia’s selling and marketing expenses were EUR 3.9 bil- States, Brazil, the United Kingdom, Spain, Italy and Indonesia, together representing approximately 52% of total net sales in 2010. In compari- lion, virtually unchanged from 2009. Selling and marketing expenses represented 9.1% of Nokia net sales in 2010 (9.6%). Selling and marketing 3 R E V I E W B Y T H E B O A R D O F D I R E C T O R S expenses included purchase price accounting items and other special Devices & Services net sales by category items of EUR 429 million in 2010 (EUR 413 million). Administrative and general expenses were EUR 1.1 billion in 2010, virtually unchanged from 2009. Administrative and general expenses were equal to 2.6% of Nokia net sales in 2010 (2.8%). Administrative and general expenses included special items of EUR 77 million in 2010 (EUR 103 million). Net financial expense was EUR 285 million in 2010 (EUR 265 million). Profit before tax was EUR 1.8 billion in 2010 (EUR 1.0 billion). Profit was EUR 1.3 billion (profit of EUR 0.3 billion), based on a profit of EUR 1.8 billion (profit of EUR 0.9 billion) attributable to equity holders of the EURm 2010 2009 3 Change, % 3 Mobile phones 1 Converged mobile devices 2 Total 14 347 15 126 14 786 12 676 29 133 27 802 – 5% 17% 5% 1 Series 30 and Series 40-based devices ranging from basic mobile phones focused on voice capability to devices with a number of additional functionalities, such as Internet connectivity, including the services and accessories sold with them. 2 Smartphones and mobile computers, including the services and accessories sold with them. 3 Does not include the net sales of the security appliance business that was divested in parent and a loss of EUR 0.5 billion (loss of EUR 0.6 billion) attributable to April 2009. non-controlling interests. Earnings per share increased to EUR 0.50 (basic) The following chart sets out Devices & Services net sales for the pe- and EUR 0.50 (diluted), compared to EUR 0.24 (basic) and EUR 0.24 (diluted) riods indicated, as well as the year-on-year growth rates, by geographic in 2009. area. The following chart sets out Nokia Group’s cash flow (for the periods indicated) and financial position (at the end of the periods indicated), as Devices & Services net sales by geographic area well as the year-on-year growth rates. Nokia Group cash flow and financial position EURm 2010 2009 Change, % Cash generated from operations Operating cash flow 1 Total cash and other liquid assets Net cash and other liquid assets 2 Net debt-equity ratio (gearing) 6 311 4 774 12 275 6 996 – 43 4 421 3 247 8 873 3 670 – 25 43% 47% 38% 91% 1 Net cash from operating activities. 2 Total cash and other liquid assets minus interest-bearing liabilities. Operating cash flow for the year ended December 31, 2010 was EUR EURm Europe Middle East & Africa Greater China Asia-Pacific North America Latin America Total 2010 2009 Change, % 9 736 4 046 6 167 6 013 901 2 270 9 890 3 923 5 028 6 230 1 020 1 762 29 133 27 853 – 2% 3% 23% – 3% – 12% 29% 5% The 5% increase in Devices & Services net sales in 2010 resulted from higher volumes and a flat ASP as well as the overall appreciation of certain currencies against the Euro during 2010 and a smaller nega- tive foreign exchange hedging impact compared with 2009. Of our total Devices & Services net sales, services contributed EUR 667 million in 2010, 4.8 billion (EUR 3.2 billion) and total combined cash and other liquid as- compared with EUR 592 million in 2009. sets were EUR 12.3 billion (EUR 8.9 billion). As of December 31, 2010, our Volume and Market Share. The following chart sets out our Devices net debt-to-equity ratio (gearing) was – 43% (– 25% as of December 31, & Services volumes for the periods indicated, as well as the year-on-year 2009). In 2010, capital expenditure amounted to EUR 679 million (EUR 531 growth rates, by category. million). Devices & Services Net Sales. The following chart sets out our Devices & Services net sales for the periods indicated, as well as the year-on-year growth rates, by category. Devices & Services mobile device volumes by category Million units 2010 2009 Change, % Mobile phones 1 Converged mobile devices 2 Total 352.6 100.3 452.9 364.0 67.8 431.8 – 3% 48% 5% 1 Series 30 and Series 40-based devices ranging from basic mobile phones focused on voice capability to devices with a number of additional functionalities, such as Inter- net connectivity, including the services and accessories sold with them. 2 Smartphones and mobile computers, including the services and accessories sold with them. 4 Nokia in 2010 R E V I E W B Y T H E B O A R D O F D I R E C T O R S In 2010, our total mobile device volumes reached 453 million units, UK and Spain, but was partly offset by share gains in markets such as Italy representing an increase of 5% year-on-year. The overall industry mobile and France. Our market share declined in North America in 2010 primarily device volumes for 2010 reached 1.43 billion units, based on Nokia’s due to a market share decline in the United States offset to some extent preliminary market estimate, representing an increase of 13% year-on- by our market share increase in Canada. In Greater China, Nokia continued year. Based on our preliminary market estimate, Nokia’s market share to benefit from its brand, broad product portfolio and extensive distribu- decreased to 32% in 2010, compared to an estimated 34% in 2009 (based tion system during 2010. on Nokia’s revised definition of the industry mobile device market share Average Selling Price. The following chart sets out our Devices & applicable beginning in 2010 and applied retrospectively to 2009 for Services ASP for the periods indicated, as well as the year-on-year growth comparative purposes only). rates, by category. Of the total industry mobile device volumes, converged mobile device industry volumes in 2010 increased to 286 million units, based on Nokia’s preliminary estimate, representing an increase of 63% year-on-year. Nokia’s preliminary estimated share of the converged mobile device mar- ket was 36% in 2010, compared with an estimated 39% in 2009. The following chart sets out our mobile device volumes for the pe- riods indicated, as well as the year-on-year growth rates, by geographic area. Nokia mobile device volumes by geographic area Devices & Services average selling price by category EUR 2010 2009 Change, % Mobile phones 1 Converged mobile devices 2 Total 41 147 64 42 187 64 – 2% – 21% 0 % 1 Series 30 and Series 40-based devices ranging from basic mobile phones focused on voice capability to devices with a number of additional functionalities, such as Inter- net connectivity, including the services and accessories sold with them. 2 Smartphones and mobile computers, including the services and accessories sold with Million units Europe Middle East & Africa Greater China Asia-Pacific North America Latin America Total 2010 2009 Change, % them. 112.7 83.8 82.5 119.1 11.1 43.7 452.9 107.0 77.6 72.6 123.5 13.5 37.6 431.8 5% 8% 14% – 4% – 18% 16% 5% Nokia’s 5% increase in global mobile device volumes was driven primarily by an improved demand environment in 2010, partially offset by the intense competitive environment and shortages of certain compo- Nokia’s device ASP (including services revenue) in 2010 was EUR 64, unchanged from 2009. During the first half 2010, our device ASP de- creased primarily as a result of general price erosion across our mobile device portfolio and a higher proportion of lower-priced converged mobile device sales, offset to some extent by the positive impact of converged mobile devices representing a higher proportion of our overall mobile device sales compared to 2009. However, the decrease in our ASP during the first half 2010 was offset by an increase in our ASP during the second half 2010. The increase in our ASP during the second half 2010 was due primarily to converged mobile devices representing a higher propor- tion of our overall mobile device sales and the appreciation of certain nents in the second half of 2010. During 2010, Nokia gained device market currencies against the Euro. This increase was offset to some extent by share in Latin America. Our device market share decreased in Asia-Pacific, general price erosion driven by the intense competitive environment and Middle East & Africa, Europe and North America. Our device market share was flat in Greater China. In Latin America, our market share increased. Nokia’s share increased a higher proportion of lower-priced converged mobile device sales, which is reflected in the 21% decline in our converged mobile devices ASP in 2010 compared to 2009. in, for example, Chile, Columbia, Paraguay and Peru, but was partly offset Profitability. Devices & Services gross profit decreased 5% to EUR by market share declines in Argentina, Brazil, Mexico and some other 8.8 billion, compared with EUR 9.3 billion in 2009, with a gross margin of countries. 30.1% (33.3%). The gross margin decline was primarily due to general In Asia-Pacific, Nokia’s market share declined in 2010 as a result price pressure, product material cost erosion being less than general of market share losses in several markets, including India, Indonesia, product price erosion, offset to some extent by converged mobile device Singapore, Vietnam and some other countries, but this was partly offset volumes representing a higher proportion of overall mobile device by market share increases in, for example, Australia, Thailand and Philip- pines. In Middle East & Africa, Nokia’s market share decline was driven by share losses in markets such as Egypt, Nigeria and UAE, which was offset to some extent by share gains in markets such as South Africa and Paki- volumes. Additionally, the gross margin was negatively impacted in 2010 by the overall appreciation of certain currencies against the Euro and unfavorable foreign exchange hedging compared with 2009. During the first half 2010, the gross margin was positively impacted by the deprecia- stan. In Europe, Nokia’s market share declined in markets including the tion of certain currencies against the Euro. However, this positive impact 5 R E V I E W B Y T H E B O A R D O F D I R E C T O R S was more than offset by the appreciation of certain currencies against the Euro during the second half 2010. Further, during the first half 2010, The 1% increase in net sales of Nokia Siemens Networks primar- ily reflected improved market conditions in the second half of the year the gross margin was negatively impacted by unfavorable foreign ex- and growth in both the product and services business, largely offset by change hedging, which was to some extent offset by a favorable foreign challenging competitive factors, as well as industry-wide shortages of exchange hedging impact during the second half 2010. certain components and security clearances issues in India preventing Devices & Services operating profit remained virtually unchanged at the completion of product sales to customers during the second and third EUR 3.3 billion, compared with 2009. Devices & Services operating margin quarters of 2010. Of total Nokia Siemens Networks net sales, services in 2010 was 11.3%, compared with 11.9% in 2009. The year-on-year contributed EUR 5.8 billion in 2010. At constant currency, net sales of decrease in operating margin in 2010 was driven primarily by the lower Nokia Siemens Networks would have decreased 4%. Europe accounted for gross margin compared to 2009. NAVTEQ 37% (37%) of Nokia Siemens Network’s net sales, Asia-Pacific 23% (22%), Middle East & Africa 11% (13%), Latin America 12% (11%), Greater China 11% (11%) and North America 6% (6%). Profitability. Nokia Siemens Networks gross profit decreased to EUR 3 395 million in 2010, compared with EUR 3 412 million in 2009, with a Net sales. Net sales of NAVTEQ were EUR 1.0 billion in 2010, compared to gross margin of 26.8% (27.1%). The year-on-year decline in gross margin EUR 670 million in 2009. Europe accounted for 43% (46%) of NAVTEQ’s net was primarily due to general price pressure on certain products, a higher sales, North America 33% (44%), Middle East & Africa 6% (4%), Asia-Pacific proportion of lower margin products in the business mix and shortages 7% (3%), Latin America 2% (2%) and Greater China 9% (1%). The year-on- of certain components during the second and third quarters of 2010, year increase in net sales was primarily driven by growth in mobile device offset to some extent by progress on product cost reductions and a more sales, particularly Nokia mobile devices, improved sales of map licenses favorable regional mix compared to 2009. to mobile device customers, as well as improved conditions and higher Nokia Siemens Networks had an operating loss of EUR 686 million, navigation uptake rates in the automotive industry. compared with operating loss of EUR 1.6 billion in 2009. The operating Profitability. NAVTEQ gross profit was EUR 849 million in 2010, com- margin of Nokia Siemens Networks in 2010 was – 5.4% compared with pared to EUR 582 million in 2009, with a gross margin of 84.7% (86.9%). – 13.0% in 2009. The operating loss decrease in 2010 resulted primar- NAVTEQ operating loss was EUR 225 million in 2010, compared to a loss of ily from the absence of goodwill charges in 2010, compared to the EUR EUR 344 million in 2009. NAVTEQ operating margin was – 22.5% (– 51.3%). 908 million impairment of goodwill in 2009, higher net sales and lower The year-on-year improvement in operating margin was primarily due operating expenses, the impact of which was partially offset by the lower to higher net sales offset to some extent by the lower gross margin and gross margin. higher operating expenses. Nokia Siemens Networks The key financial data, including the calculation of key ratios, for the years 2010, 2009 and 2008 are available in the Annual Accounts section. Net Sales. The following chart sets out Nokia Siemens Networks net sales for the periods indicated, as well as the year-on-year and sequential Nokia growth rates, by geographic area. Main events in 2010 Nokia Siemens Networks net sales by geographic area Executive Officer of Nokia as of September 21, 2010. Mr. Elop replaced Nokia Board of Directors appointed Stephen Elop as President and Chief EURm Europe Middle East & Africa Greater China Asia-Pacific North America Latin America Total 6 Nokia in 2010 2010 2009 Change, % Olli-Pekka Kallasvuo, who left the position of President and Chief Executive Officer on September 20, 2010, and his position on Nokia Board of Direc- 4 628 1 451 1 451 2 915 735 1 481 4 695 1 653 1 397 2 725 748 1 356 12 661 12 574 – 1% – 12% 4% 7% – 2% 9% 1% tors on September 10, 2010. During 2010 and subsequently, Nokia announced changes to its Group Executive Board (the Nokia Leadership Team as from February 11, 2011). Changes are described in more detail in chapter “Management and Board of Directors” below. Effective July 1, 2010, Nokia introduced a simplified company struc- ture for its devices and services business comprised of three units–Mobile Solutions, Mobile Phones and Markets–designed to accelerate product R E V I E W B Y T H E B O A R D O F D I R E C T O R S innovation and software execution in line with the company’s goals of downloads a day, compared with more than 2.7 million a day reported integrating content, applications and services into its mobile computer, in October 2010. During the year, Nokia improved the consumer user smartphone and mobile phone portfolio. Following the initiation of experience, redesigned the look and feel and made enhancements to Nokia’s strategic transformation on February 11, 2011, Nokia will have a the way content is displayed and discovered, as well as made improve- new company structure as of April 1, 2011, which features two distinct ments for developers, including providing new, simplified develop- business units: Smart Devices and Mobile Phones. They will focus on ment tools. Nokia’s key business areas: smartphones and mass-market mobile phones. Each unit will have profit-and-loss responsibility and end-to-end » Maps continued to grow and attract new users, with engagement accountability for the full consumer experience, including product devel- boosted by our introduction of new and improved versions of the opment, product management and product marketing. services as well as the modification of the Maps business model as a In the third quarter, Nokia was chosen as the world’s most sustain- result of the inclusion of worldwide walk and drive navigation for 100 able technology company, according to the Dow Jones Sustainability countries at no extra cost with compatible Nokia smartphones. The Indexes Review 2010. Nokia was chosen as “Technology Supersector company continued to integrate new features, while Nokia and third Leader” making it number one across the entire global technology sector parties continued to expand the content available to users. for the second successive year. The Interbrand annual rating of 2010 Best Global Brands positioned » In Music, the Ovi Music platform replaced the Nokia Music Store in Nokia as the eighth most valued brand in the world. the third quarter. The Ovi Music platform brings DRM-free music, im- In the third quarter, Nokia was ranked number one in The Economic proved search, a more attractive user interface, common Ovi branding Times-Brand Equity’s annual “Most Trusted Brands” survey for 2010 in and numerous user experience enhancements, including over-the-air India. Nokia has now been ranked as the most trusted brand in India for one-click album downloads. three consecutive years. Devices & Services » Life Tools, Nokia’s unique life improvement mobile information services designed especially for emerging markets, was launched in Nigeria during the fourth and in China during the second quarter, In the first quarter, Nokia and Intel merged their Maemo and Moblin expanding the presence of Life Tools to four markets. software platforms to form a single Linux-based and fully open source platform, MeeGo, for a wide range of computing devices, including pock- » In the second quarter Nokia took a significant step to building greater etable mobile computers, netbooks, tablets, mediaphones, connected TVs presence for Ovi on the web, announcing a worldwide strategic and in-vehicle infotainment systems. alliance with Yahoo! Inc., whereby Nokia has become the exclusive, Nokia brought to market a new family of smartphones based on the global provider of Yahoo!’s maps and navigation services, integrating new Symbian software that brings a clearly improved user experience, Ovi Maps across Yahoo! properties, and Yahoo! is the exclusive, global higher standards of quality, and competitive value to consumers. The provider of Nokia’s Ovi Mail and Ovi Chat services. first devices on the new software were the Nokia N8–offering industry- leading imaging, video and entertainment capabilities–the Nokia C7 In the fourth quarter Nokia announced that it will use Qt technologies and the Nokia C6-01. Nokia also brought to market Nokia E7 in the first to simplify development for both Nokia’s own and third party develop- quarter 2011. During the third and fourth quarters Nokia brought to market the ers. In addition, Nokia announced its intention to support HTML5 for the development of Web content and applications. Nokia X3 Touch & Type and the Nokia C3 Touch & Type, both affordable During the fourth quarter following the withdrawal of other mem- mobile phones which combine a touch screen and traditional phone bers, the Symbian Foundation, a non-profit entity, transitioned to a keypad. licensing operation only and Symbian platform’s development is now Nokia brought to market the Nokia C3-00, a fully QWERTY mobile phone. Nokia further added to its affordable QWERTY phone range by starting shipments of the Nokia X2-01 in China. under the control of Nokia. In the second quarter Nokia and Microsoft launched Microsoft Com- municator Mobile, the first application developed together as part of Nokia continued to develop its Ovi services. Highlights for the year their alliance around mobile productivity. The application is available for included: compatible devices through Ovi Store. » Store continued to see increased downloads of applications and content. By early 2011, the Store was attracting more than 4 million As part of the Nokia Money initiative, the first commercial services called “Mobile Money Services by YES Bank” started in city regions of Pune, Chandigarh and Nashik in India. In November, Nokia joined forces 7 R E V I E W B Y T H E B O A R D O F D I R E C T O R S with the Union Bank of India to offer “Union Bank Money” across India. in Russia market with Mobile TeleSystems and its first network out- Through these services, people can transfer money to other people just sourcing contract in China with Anhui Unicom. Nokia Siemens Networks by using their mobile phone numbers, pay utility bills, recharge their announced its plans to open new Global Network Operations Centers in prepaid SIM cards (SIM top-up), pay merchants for goods and services, Russia and Brazil. and withdraw cash from ATMs. NAVTEQ In the third quarter, marking a critical step forward to 400G (400 Gigabit per second) data transport networks, Nokia Siemens Networks succeeded in transmitting data at a speed of 200 Gigabit per second (200G) over standard optical fiber. The company was also the first in the In the first quarter NAVTEQ launched its new advanced mapping collection industry to migrate its 100th customer from legacy mobile backhaul technology, NAVTEQ True, further innovating the scale and quality of data technology to IP/Ethernet. collection and processing. In the third quarter NAVTEQ launched Natural Guidance, a product to enable guidance in a human manner through the use of descriptive Acquisitions and divestments in 2010 reference cues. In the second quarter NAVTEQ announced successful advertiser trials In April 2010, Nokia acquired MetaCarta Inc. to obtain its geographic intel- in Europe with McDonald’s and Best Western powered by NAVTEQ’s Loca- ligence technology and expertise. In July 2010, Nokia divested Metacarta’s tionPoint Advertising platform. enterprise business to Qbase Holdings LLC. NAVTEQ expanded map coverage to include six more countries, bring- In April 2010, Nokia acquired Novarra Inc., whose mobile browser ing to 84 the number of countries supported by NAVTEQ Maps. and services platform will be used by Nokia to deliver enhanced Internet In the first quarter NAVTEQ announced the availability of real-time experiences on Nokia’s Series 40-based mobile phones. traffic in the UK, bringing to 13 the number of European cities now with In July 2010, Nokia Siemens Networks announced that it had signed access to uninterrupted traffic data. Nokia Siemens Networks an agreement to acquire the majority of the wireless network infrastruc- ture assets of Motorola, Inc. for USD 1.2 billion in cash. The acquisition is expected to close after the final antitrust approval by the Chinese regula- tory authorities has been granted and the other closing conditions have Nokia Siemens Networks continued to make significant progress in LTE been met. overall by demonstrating several technological LTE world-first trials and by In September 2010, Nokia acquired Motally Inc., whose mobile analyt- announcing several commercial LTE contracts, including Deutsche Telekom, ics service enables developers and publishers to optimize the develop- TeliaSonera Sweden, Elisa and a major deal with LightSquared in the US. ment of their mobile applications through increased understanding of Nokia Siemens Networks continued to win major contracts in key how users engage. emerging markets including India with a USD 700 million network expansion deal with Bharti Airtel and 3G deals with Idea Cellular, Aircel, Vodafone Essar and Tata Teleservices. In October 2010, Nokia Siemens Networks announced that it would acquire IRIS Telecom, a telecom and engineering services firm headquar- tered in Istanbul, Turkey. The acquisition was completed in January 2011. In the second quarter Nokia Siemens Networks also signed a EUR 750 In November 2010, NAVTEQ acquired PixelActive Inc. to accelerate million frame agreement with China Mobile and China Unicom to continue expansion from a 2D to a 3D map and further leverage 3D technologies for providing GSM, WCDMA and TD-SCDMA mobile network equipment and all NAVTEQ products. solutions. In November 2010, Renesas Electronics Corporation acquired Nokia’s During the second quarter Nokia Siemens Networks smart device Wireless Modem business. With this transfer, Renesas Electronics assumes solutions, which allow improved battery life, better coverage and faster full ownership of the Wireless Modem unit, which has been responsible download speeds, were deployed in London to improve user experience for the development of Nokia’s wireless modem technologies for LTE, on the O2 network. Similar contracts were agreed with many operators including Elisa in Finland, Mosaic Telecom in the United States, SFR in France, Indosat in Indonesia, Cable & Wireless Communications in the UK and Cell C in South Africa. HSPA and GSM standards. As a result of the transaction, approximately 1 100 employees transferred from Nokia to Renesas Electronics. Nokia Siemens Networks won managed services and equipment Personnel supply contracts with NII Holdings for five years in five Latin American countries and with Vodafone Hutchison for seven years in Australia. In The average number of employees for 2010 was 129 355 (123 171 for 2009 addition, Nokia Siemens Networks secured the first outsourcing contract and 121 723 for 2008). At December 31, 2010, Nokia employed a total of 8 Nokia in 2010 R E V I E W B Y T H E B O A R D O F D I R E C T O R S 132 427 people (123 553 people at December 31, 2009 and 125 829 at De- » Juha Äkräs was appointed Executive Vice President of Human cember 31, 2008). The total amount of wages and salaries paid in 2010 was Resources and member of the Group Executive Board effective EUR 5 808 million (EUR 5 658 million in 2009 and EUR 5 615 million in 2008). April 1, 2010; Management and Board of Directors Board of Directors, Nokia Leadership Team and President » Richard Simonson, formerly Executive Vice President of Mobile Phones, resigned from the Group Executive Board effective June 30, 2010; » Anssi Vanjoki, formerly Executive Vice President of Mobile Solutions, Pursuant to the Articles of Association, Nokia Corporation has a Board resigned from the Group Executive Board effective October 12, 2010; of Directors composed of a minimum of seven and a maximum of 12 members. The members of the Board are elected for a one-year term at » Jerri DeVard was appointed Executive Vice President and Chief each Annual General Meeting, i.e. as from the close of that Annual General Marketing Officer and a member of the Group Executive Board as from Meeting until the close of the following Annual General Meeting, which January 1, 2011; convenes each year by June 30. The Board has the responsibility for ap- pointing and discharging the Chief Executive Officer, the Chief Financial » Alberto Torres, formerly Executive Vice President of MeeGo Computers, Officer and the other members of the Nokia Leadership Team. The Chief resigned from the Group Executive Board on February 10, 2011; and Executive Officer also acts as President and his rights and responsibilities include those allotted to the President under Finnish law. » On February 11, 2011 Nokia announced Nokia’s new strategy, includ- The Annual General Meeting held on May 6, 2010 elected the fol- ing changes to Nokia’s Leadership Team and operational structure. lowing 10 members to the Board of Directors: Lalita D. Gupte, Dr. Bengt Effective from that day, the Nokia Leadership Team replaced the Group Holmström, Prof. Dr. Henning Kagermann, Olli-Pekka Kallasvuo, Per Karls- Executive Board and consists of the following members: Stephen son, Jorma Ollila, Dame Marjorie Scardino, Isabel Marey-Semper, Risto Elop (chairman), Esko Aho, Juha Äkräs, Jerri DeVard, Colin Giles, Rich Siilasmaa and Keijo Suila. Olli-Pekka Kallasvuo resigned from the Board of Green, Jo Harlow, Timo Ihamuotila, Mary McDowell, Kai Öistämö, Tero Directors as from September 10, 2010. Ojanperä (in acting capacity), Louise Pentland and Niklas Savander. For 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 Service contracts members of the Nokia Leadership Team, please see the section “Compen- sation of the Board of Directors and the Nokia Leadership Team” available Stephen Elop’s service contract covers his position as President and CEO in the Additional information section of this publication Nokia in 2010. as from September 21, 2010. As at December 31, 2010, Mr. Elop’s annual For more information regarding Corporate Governance, please see the total gross base salary, which is subject to an annual review by the Board Corporate Governance Statement in the Additional information section of of Directors and confirmation by the independent members of the Board, this publication Nokia in 2010 or at Nokia’s website, www.nokia.com. is EUR 1 050 000. His incentive targets under the Nokia short-term cash incentive plan are 150% of annual gross base salary as at December 31, Changes in the Nokia Leadership Team: 2010. Mr. Elop is entitled to the customary benefits in line with our policies Nokia Board of Directors appointed Stephen Elop as President and Chief applicable to the top management, however, some of them are being Executive Officer of Nokia as of September 21, 2010. Mr. Elop replaced provided on a tax assisted basis. Mr. Elop is also eligible to participate in Olli-Pekka Kallasvuo, who left the position of President and Chief Executive Nokia’s long-term equity-based compensation programs according to Officer on September 20, 2010. Nokia policies and guidelines and as determined by the Board of Direc- During 2010 and subsequently, Nokia announced the following tors. Upon joining Nokia, Mr. Elop received 500 000 stock options, 75 000 changes in the members of the Nokia Leadership Team (the Group Execu- tive Board until February 11, 2011): performance shares at threshold performance level and 100 000 restricted shares out of Nokia Equity Program 2010. » Hallstein Moerk, formerly Executive Vice President of Human resulted due to his move to Nokia, Mr. Elop received a one-time payment Resources, resigned from the Group Executive Board effective of EUR 2 292 702 in October 2010 and is entitled to a second payment of As compensation for lost income from his prior employer, which March 31, 2010; USD 3 000 000 in October 2011. In addition, relating to his move to Nokia, Mr. Elop received a one-time payment of EUR 509 744 to reimburse him for fees he was obligated to repay his former employer. He also received 9 R E V I E W B Y T H E B O A R D O F D I R E C T O R S income of EUR 312 203, including tax assistance, resulting from legal ex- 1) Total Shareholder Return (TSR), relative to a peer group of companies penses paid by Nokia associated with his move to Nokia. In case of early over the 2 year period from December 31, 2010 until December 31, termination of employment, Mr. Elop is obliged to return to Nokia all or 2012: Minimum payout will require performance at the 50th percen- part of these payments related to his move to Nokia. tile of the peer group and the maximum payout will occur if the rank In case of termination by Nokia for reasons other than cause, Mr. Elop is among the top three of the peer group. The peer group consists is entitled to a severance payment of up to 18 months of compensation of a number of relevant companies in the high technology/mobility, (both annual total gross base salary and target incentive) and his equity telecommunications and Internet services industries, will be forfeited as determined in the applicable equity plan rules, with the exception of the equity out of the Nokia Equity Program 2010 which 2) Nokia’s absolute share price at the end of 2012: Minimum payout if the will vest in an accelerated manner. In case of termination by Mr. Elop, the notice period is six months and he is entitled to a payment for such Nokia share price is EUR 9, with maximum payout if the Nokia share price is EUR 17. notice period (both annual total gross base salary and target incen- tive for six months) but all his equity will be forfeited. In the event of a Nokia share price under both criteria is calculated as a 20-day trade change of control of Nokia, Mr. Elop may terminate his employment upon volume weighted average share price on the NASDAQ OMX Helsinki. If the a material reduction of his duties and responsibilities, upon which he minimum performance for neither of the two performance criterion is will be entitled to a compensation of 18 months (both annual total gross base salary and target incentive), and his unvested equity will vest in an reached, no share delivery will take place. If the minimum level for one of the criterion is met, a total of 125 000 Nokia ordinary shares will be de- accelerated manner. In case of termination by Nokia for cause, Mr. Elop is livered to Mr. Elop. At maximum level for both criteria, a total of 750 000 entitled to no additional compensation and all his equity will be forfeited. Nokia ordinary shares will be delivered to him. Shares earned under this In case of termination by Mr. Elop for cause, he is entitled to a severance plan during 2011–2012 will be subject to an additional one-year vesting payment equivalent to 18 months of notice (both annual total gross period until the first quarter 2014, at which point the earned and vested base salary and target incentive), and his unvested equity will vest in an shares will be delivered to Mr. Elop. The number of shares earned and to accelerated manner. Mr. Elop is subject to a 12-month non-competition be settled may be adjusted by the Board of Directors under certain excep- obligation after termination of the contract. Unless the contract is ter- tional circumstances. Until the shares are settled, no shareholder rights, minated for cause, Mr. Elop may be entitled to compensation during the such as voting or dividend rights, associated with the shares would be non-competition period or a part of it. Such compensation amounts to applicable. Right for the shares would be forfeited and no shares would the annual total gross base salary and target incentive for the respective be delivered if Mr. Elop resigned without cause or was terminated for period during which no severance payment is paid. cause by Nokia before the settlement. The Board of Directors decided in March 2011 that in order to align Stephen Elop’s compensation to the successful execution of the new strat- egy announced on February 11, 2011, his compensation structure for 2011 and 2012 would be modified. This one-time special CEO incentive program Nokia also had a service contract with Olli-Pekka Kallasvuo cover- ing his position as President and CEO until September 20, 2010. As at September 20, 2010, Mr. Kallasvuo’s annual total gross base salary was EUR 1 233 000, and his incentive targets under the Nokia short-term is designed to align Mr. Elop’s compensation to increased shareholder cash incentive plan were 150% of annual gross base salary. The service value and will link a meaningful portion of his compensation directly to the contract included provisions concerning termination of employment, performance of Nokia’s share price over the next two years. To participate and Nokia announced on September 10, 2010 that in accordance with the in this new program, Mr. Elop will invest during 2011 and 2012 a portion of terms and conditions of his service contract, Mr. Kallasvuo was entitled his short-term cash incentive opportunity and a portion of the value of his to a severance payment consisting of 18 months gross base salary and expected annual equity grants into the program as follows: target incentive which totaled EUR 4 623 750. Mr. Kallasvuo was paid the » His target short-term cash incentive level is reduced from 150% to 2010 at a level of 100% of base pay on a pro rata basis. He also received short-term cash incentive for the period from July 1 to September 20, 100%; and » His annual equity grants are reduced to a level below the competitive market value. as compensation the fair market value of the 100 000 Nokia restricted shares granted to him in 2007, which were to vest on October 1, 2010. All the unvested equity granted to him was forfeited upon termina- tion of the employment, while his vested outstanding stock options remained exercisable until mid-February 2011, at which point they were In consideration, Mr. Elop will be provided the opportunity to earn forfeited in accordance with the plans’ terms and conditions. In addi- a number of Nokia shares at the end of 2012 based on two independent criteria, half of the opportunity tied to each criterion: tion, Mr. Kallas vuo did not meet the minimum eligibility requirements under his supplemental retirement plan agreement and as such, will not 10 Nokia in 2010 R E V I E W B Y T H E B O A R D O F D I R E C T O R S receive any payments under that agreement. As a result, Nokia reversed services, particularly in emerging markets. Over the longer-term, Nokia the actuarial liability of EUR 10 154 000, that had been accrued under that expects mobile device industry gross margins to come under pressure due plan. In accordance with the terms and conditions of his service contract, to competitive factors. Mr. Kallasvuo is subject to a 12-month non-competition obligation until Due to the initiation of Nokia’s strategic transformation on Febru- September 20, 2011. Provisions on the amendment of articles of association ary 11, 2011, the full-year prospects for its Devices & Services business are subject to significant uncertainties, and therefore Nokia believes it is not appropriate to provide annual targets for 2011 at the present time. How- ever, Nokia expects to continue to provide short-term quarterly forecasts to indicate its progress in the company’s interim reports as well as annual targets when circumstances allow it to do so. Amendment of the Articles of Association requires a decision of the Nokia expects 2011 and 2012 to be transition years, as the company general meeting, supported by two-thirds of the votes cast and two-thirds invests to build the planned winning ecosystem with Microsoft. After of the shares represented at the meeting. Amendment of the provisions of the transition, Nokia targets longer-term Devices & Services net sales to Article 13 of the Articles of Association, “Obligation to purchase shares”, grow faster than the market and Devices & Services operating margin to requires a resolution supported by three-quarters of the votes cast and be 10% or more, excluding special items and purchase price accounting three-quarters of the shares represented at the meeting. related items. Shares and share capital Nokia and Nokia Siemens Networks expect overall industry revenue to grow slightly in 2011, compared to 2010. While growth is expected in certain areas, such as mobile broadband and services, this is expected to be offset to some extent by declines in certain areas and a continued Nokia has one class of shares. Each Nokia share entitles the holder to one challenging competitive environment. vote at general meetings of Nokia. Due to Nokia Siemens Networks’ solid position in industry growth In 2010, Nokia did not issue, cancel or repurchase any shares. areas, Nokia and Nokia Siemens Networks target Nokia Siemens Networks In 2010, Nokia transferred a total of 867 512 Nokia shares held by net sales to grow faster than the market in 2011 and Nokia Siemens Net- it under Nokia equity plans as settlement under the plans to the plan works operating margin to be above breakeven in 2011, excluding special participants, personnel of Nokia Group. The amount of shares transferred items and purchase price accounting related items. represented approximately 0.02% of the total number of shares and the Additionally, Nokia and Nokia Siemens Networks continue to target total voting rights. The transfers did not have a significant effect on the Nokia Siemens Networks to reduce its annualized operating expenses and relative holdings of the other shareholders of the company nor on their voting power. On December 31, 2010, Nokia and its subsidiary companies owned 35 826 052 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, 2010, was 3 744 956 052. On production overheads by EUR 500 million by the end of 2011, compared to the end of 2009, excluding special items and purchase price accounting related items. December 31, 2010, Nokia’s share capital was EUR 245 896 461.96. Subsequent events Information on the authorizations held by the Board in 2010 to issue shares and special rights entitling to shares, transfer shares and repurchase own shares as well as information on the shareholders, stock options, shareholders’ equity per share, dividend yield, price per earnings Nokia outlines new strategy, introduces new leadership and operational structure ratio, share prices, market capitalization, share turnover and average number of shares are available in the Annual Accounts section. On February 11, 2011, Nokia outlined its new strategic direction, including Industry and Nokia outlook changes in leadership and operational structure designed to accelerate the company’s speed of execution in the intensely competitive mobile product market. The main elements of the new strategy includes: plans for a broad strategic partnership with Microsoft to build a new global mobile Nokia expects attractive mobile device industry revenue growth in 2011 ecosystem, with Windows Phones serving as Nokia’s primary smartphone and over the longer-term, driven by the further adoption of smartphones platform; a renewed approach to capture volume and value growth to by consumers globally and the further adoption of mobile devices and connect “the next billion” to the internet in developing growth markets; 11 R E V I E W B Y T H E B O A R D O F D I R E C T O R S focused investments in next-generation disruptive technologies; and Risk factors a new leadership team and operational structure designed to focus on speed, accountability and results. Set forth below is a description of risk factors that could affect Nokia. Nokia and Microsoft have entered into a non-binding term sheet, There may be, however, additional risks unknown to Nokia and other risks however, the planned partnership with Microsoft remains subject to currently believed to be immaterial that could turn out to be material. negotiations and execution of definitive agreements by the parties and These risks, either individually or together, could adversely affect our there can be no assurances that definite agreements will be entered into. business, sales, profitability, results of operations, financial condition, The future impact to Nokia Group’s financial statements resulting from market share, brand, reputation and share price from time to time. Unless the terms of any definitive agreements will be evaluated once those otherwise indicated or the context otherwise provides, references in these terms are agreed. risk factors to “Nokia”, “we”, “us” and “our” mean Nokia’s consolidated As of April 1, 2011, Nokia will have a new operational structure, which operating segments. Additional risks primarily related to Nokia Siemens features two distinct business units in Devices & Services business: Networks that could affect Nokia are detailed under the heading “Nokia Smart Devices and Mobile Phones. They will focus on Nokia’s key business Siemens Networks” below. areas: smartphones and mass-market mobile phones. Each unit will have profit-and-loss responsibility and end-to-end accountability for the full » Our proposed partnership with Microsoft may not succeed in creating consumer experience, including product development, product manage- a competitive smartphone platform for high-quality differentiated ment and product marketing. winning smartphones or in creating new sources of revenue for us. Starting April 1, 2011, Nokia will present its financial information in line with the new organizational structure and provide financial informa- » We may not be able to maintain the viability of our current Symbian tion for its three businesses: Devices & Services, NAVTEQ and Nokia Siemens smartphone platform during the transition to Windows Phone as our Networks. Devices & Services will include two business units: Smart Devices primary smartphone platform or we may not realize a return on our and Mobile Phones as well as devices and services other and unallocated investment in MeeGo and next generation devices, platforms and user items. For IFRS financial reporting purposes, we will have four operating experiences. and reportable segments: Smart Devices and Mobile Phones within Devices & Services, NAVTEQ and Nokia Siemens Networks. » Our ability to bring winning smartphones to the market in a timely Nokia Siemens Networks planned acquisition of certain wireless network infrastructure assets of Motorola manner will be significantly impaired if we are unable to build a com- petitive and profitable global ecosystem of sufficient scale, attractive- ness and value to all participants. On July 19, 2010, Nokia Siemens Networks announced that it had entered efficient manner with differentiated hardware, localized services and » We may not be able to produce mobile phones in a timely and cost into an agreement to acquire the majority of Motorola’s wireless network applications. infrastructure assets for USD 1.2 billion in cash and cash equivalents. Ap- proximately 7 500 employees are expected to transfer to Nokia Siemens » Our failure to increase our speed of innovation, product development Networks from Motorola’s wireless network infrastructure business when and execution will impair our ability to bring new competitive smart- the transaction closes, including large research and development sites in phones and mobile phones to the market in a timely manner. the United States, China and India. As part of the transaction, Nokia Sie- mens Networks expects to enhance its capabilities in key wireless technol- » We may be unable to retain, motivate, develop and recruit appropri- ogies, including WiMAX and CDMA, and to strengthen its market position in ately skilled employees, which may hamper our ability to implement key geographic markets, in particular Japan and the United States. Nokia our strategies, particularly our new mobile product strategy. Siemens Networks is also targeting to gain incumbent relationship with more than 50 operators and to strengthen its relationship with certain of the largest communication service providers globally. The Motorola acquisition is expected to close after the final antitrust » We face intense competition in the mobile products and digital map data and related location-based content markets. approval by the Chinese regulatory authorities has been granted and the » Our ability to maintain and leverage our traditional strengths in the other closing conditions have been met. 12 Nokia in 2010 mobile product market may be impaired if we are unable to retain the loyalty of our mobile operator and distributor customers and consum- ers as a result of the implementation of our new strategy or other factors. R E V I E W B Y T H E B O A R D O F D I R E C T O R S » If any of the companies we partner and collaborate with, including » Our products include increasingly complex technologies, some of Microsoft, were to fail to perform as planned or if we fail to achieve which have been developed by us or licensed to us by certain third the collaboration or partnering arrangements needed to succeed, we parties. As a consequence, evaluating the rights related to the may not be able to bring our mobile products to market successfully technologies we use or intend to use is more and more challenging, or in a timely way. and we expect increasingly to face claims that we have infringed third parties’ intellectual property rights. The use of these technologies » The failure of the limited number of suppliers we depend on for the may also result in increased licensing costs for us, restrictions on our timely delivery of sufficient quantities of fully functional components, ability to use certain technologies in our products and/or costly and sub-assemblies and software on favorable terms and for their compli- time-consuming litigation, which could have a material adverse effect ance with our supplier requirements could materially adversely affect on our business, results of operations and financial condition. our ability to deliver our mobile products profitably and on time. » We may fail to efficiently manage our manufacturing, service creation Networks patented, standardized or proprietary technologies on and delivery as well as logistics without interruption or make timely which we depend. Third parties may use without a license or unlaw- and appropriate adjustments, or fail to ensure that our products meet fully infringe our intellectual property or commence actions seeking our and our customers’ and consumers’ requirements and are deliv- to establish the invalidity of the intellectual property rights of these ered on time and in sufficient volumes. technologies. This may have a material adverse effect on our business » Our products include numerous Nokia, NAVTEQ and Nokia Siemens and results of operations. » Any actual or even alleged defects or other quality, safety and security issues in our products, including the hardware, software and content » Our sales derived from, and assets located in, emerging market coun- used in our products, could have a material adverse effect on our tries may be materially adversely affected by economic, regulatory sales, results of operations, reputation and the value of the Nokia and political developments in those countries or by other countries brand. imposing regulations against imports to such countries. As sales from those countries represent a significant portion of our total sales, » Any actual or alleged loss, improper disclosure or leakage of any per- economic or political turmoil in those countries could materially sonal or consumer data collected by us or our partners or subcontrac- adversely affect our sales and results of operations. Our investments tors, made available to us or stored in or through our products could in emerging market countries may also be subject to other risks and have a material adverse effect on our sales, results of operations, uncertainties. reputation and value of the Nokia brand. » Our business and results of operations, particularly our profitability, enforcement of such regulation and policies in countries around the may be materially adversely affected if we are not able to successfully world could have a material adverse effect on our business and results manage costs related to our products and to our operations. of operations. » Changes in various types of regulation and trade policies as well as » We may be unable to effectively and smoothly implement the new » Our operations rely on the efficient and uninterrupted operation of operational structure for our devices and services business effective complex and centralized information technology systems and net- April 1, 2011. works. If a system or network inefficiency, malfunction or disruption occurs, this could have a material adverse effect on our business and » Our sales and profitability are dependent on the development of results of operations. the mobile and fixed communications industry in numerous diverse markets, as well as on general economic conditions globally and » An unfavorable outcome of litigation could have a material adverse regionally. effect on our business, results of operations and financial condition. » Our net sales, costs and results of operations, as well as the US dollar » Allegations of possible health risks from the electromagnetic fields value of our dividends and market price of our ADSs, are affected by exchange rate fluctuations, particularly between the euro, which is generated by base stations and mobile devices, and the lawsuits and publicity relating to this matter, regardless of merit, could have a our reporting currency, and the US dollar, the Japanese yen and the material adverse effect on our sales, results of operations, share price, Chinese yuan, as well as certain other currencies. reputation and brand value by leading consumers to reduce their use 13 R E V I E W B Y T H E B O A R D O F D I R E C T O R S of mobile devices, by increasing difficulty in obtaining sites for base » The networks infrastructure and related services business relies on a stations, or by leading regulatory bodies to set arbitrary use restric- limited number of customers and large multi-year contracts. Unfavor- tions and exposure limits, or by causing us to allocate additional able developments under such a contract or in relation to a major monetary and personnel resources to these issues. customer may have a material adverse effect on our business, results of operations and financial condition. Nokia Siemens Networks » Providing customer financing or extending payment terms to custom- ers can be a competitive requirement in the networks infrastructure In addition to the risks described above, the following are risks primarily and related services business and may have a material adverse effect related to Nokia Siemens Networks that could affect Nokia. on our business, results of operations and financial condition. » Nokia Siemens Networks may be unable to execute effectively and in a » Some of the Siemens carrier-related operations transferred to Nokia timely manner its plan designed to improve its financial performance Siemens Networks have been and continue to be the subject of and market position and increase profitability or Nokia Siemens various criminal and other governmental investigations related to Networks maybe unable to otherwise continue to reduce operating whether certain transactions and payments arranged by some current expenses and other costs. or former employees of Siemens were unlawful. As a result of those in- vestigations, government authorities and others have taken and may » Competition in the mobile and fixed networks infrastructure and take further actions against Siemens and/or its employees that may related services market is intense. Nokia Siemens Networks’ may be involve and affect the assets and employees transferred by Siemens to unable to maintain or improve its market position or respond success- Nokia Siemens Networks, or there may be undetected additional vio- fully to changes in the competitive environment. lations that may have occurred prior to the transfer or violations that may have occurred after the transfer of such assets and employees. » Nokia Siemens Networks’ liquidity and its ability to meet its working capital requirements depend on access to available credit under Nokia Siemens Networks’ credit facilities and other credit lines. If a signifi- Dividend cant number of those sources of liquidity were to be unavailable, or cannot be refinanced when they mature, this would have a material Nokia’s Board of Directors will propose a dividend of EUR 0.40 per share for adverse effect on our business, results of operations and financial 2010. condition. Board of Directors, Nokia Corporation March 11, 2011 » Nokia Siemens Networks may be unable to complete its planned acquisition of the majority of the wireless infrastructure networks assets of Motorola in a timely manner, or at all, and, if completed, to successfully integrate the acquired business or cross-sell Nokia Siemens Networks’ existing products and services to customers of the acquired business and realize the expected synergies and benefits of the acquisition. » Nokia Siemens Networks’ may fail to effectively and profitably invest in new products, services, upgrades and technologies and bring them to market in a timely manner. » Increasingly, Nokia Siemens Networks’ sales and profitability depend on its success in the telecommunications infrastructure services mar- ket. Nokia Siemens Networks’ may fail to effectively and profitably adapt its business and operations in a timely manner to the increas- ingly diverse service needs of its customers. 14 Nokia in 2010 R E V I E W B Y T H E B O A R D O F D I R E C T O R S 15 N O K I A C O R P O R A T I O N A N D S U B S I D I A R I E S 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 8 7 7, 8 2–10, 24 15, 31 8, 11 12 Profit attributable to equity holders of the parent Loss attributable to non-controlling interests Earnings per share (for profit attributable to the equity holders of the parent) 28 Basic Diluted 2010 EURm 42 446 – 29 629 2009 EURm 2008 EURm 40 984 50 710 – 27 720 – 33 337 12 817 – 5 863 – 3 877 – 1 115 — 476 – 368 2 070 1 – 285 1 786 – 443 13 264 – 5 909 – 3 933 – 1 145 – 908 338 – 510 1 197 30 – 265 962 – 702 17 373 – 5 968 – 4 380 – 1 284 — 420 – 1 195 4 966 6 – 2 4 970 – 1 081 1 343 260 3 889 1 850 – 507 1 343 2010 EUR 0.50 0.50 891 – 631 260 2009 EUR 0.24 0.24 3 988 – 99 3 889 2008 EUR 1.07 1.05 Average number of shares (1 000’s shares) 28 2010 2009 2008 Basic Diluted See Notes to consolidated financial statements. 3 708 816 3 705 116 3 743 622 3 713 250 3 721 072 3 780 363 16 Nokia in 2010 N O K I A C O R P O R A T I O N A N D S U B S I D I A R I E S 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 Other comprehensive income (+)/expense (–), net of tax 22 22 21 21 21, 22 2010 EURm 1 343 1 302 – 389 – 141 9 45 126 952 2009 EURm 260 – 563 114 25 48 – 7 – 44 – 427 2008 EURm 3 889 595 – 123 – 40 – 15 28 58 503 Total comprehensive income (+)/expense (–) 2 295 – 167 4 392 Total comprehensive income (+)/expense (–) attributable to equity holders of the parent non-controlling interests See Notes to consolidated financial statements. 2 776 – 481 2 295 429 – 596 – 167 4 577 – 185 4 392 17 N O K I A C O R P O R A T I O N A N D S U B S I D I A R I E S Consolidated statements of financial position, IFRS December 31 A S S E T S 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 (2010: EUR 363 million, 2009: EUR 391 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 Non-controlling 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 and other liabilities Provisions Total shareholders’ equity and liabilities See Notes to consolidated financial statements. 18 Nokia in 2010 Notes 13 13 13 14 15 16 25 16, 35 16 2010 EURm 2009 EURm 40 5 723 1 928 1 954 136 533 1 596 64 4 11 978 143 5 171 2 762 1 867 69 554 1 507 46 6 12 125 18, 20 2 523 1 865 16, 20, 35 19 16, 35 16, 17, 35 16, 35 16, 35 16, 35 35 23 22 21 16, 35 25 16, 35 16, 35 16, 17, 35 16, 35 26 27 7 570 4 360 39 378 911 3 772 5 641 1 951 27 145 39 123 246 312 – 663 825 3 3 161 10 500 14 384 1 847 16 231 4 242 1 022 88 5 352 116 921 447 6 101 7 365 2 590 17 540 39 123 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 Consolidated statements of cash flows, IFRS N O K I A C O R P O R A T I O N A N D S U B S I D I A R I E S Financial year ended December 31 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 Other financial income and expenses, net Income taxes paid, net Net cash from operating activities Notes 32 32 Cash flow from investing activities Acquisition of Group companies, net of acquired cash Purchase of current available-for-sale investments, liquid assets Purchase of investments at fair value through profit and loss, liquid assets Purchase of non-current available-for-sale investments Purchase of shares in associated companies Additions to capitalized development costs 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 Group companies, net of disposed cash 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 16, 35 2010 EURm 1 850 2 112 2 349 6 311 110 – 235 – 507 – 905 4 774 – 110 – 8 573 – 646 – 124 – 33 — — 2 – 2 – 679 – 21 5 141 2009 EURm 2008 EURm 891 3 390 140 4 421 125 – 256 – 128 – 915 3 247 – 29 – 2 800 – 695 – 95 – 30 – 27 — 2 2 – 531 — 40 61 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 7 181 1 730 4 664 333 83 21 1 – 2 421 — 1 482 – 6 131 – 1 519 – 911 224 1 666 5 926 7 592 1 951 5 641 7 592 108 14 100 2 – 2 148 — — 3 901 – 209 – 2 842 – 1 546 – 696 – 25 378 5 548 5 926 1 142 4 784 5 926 — 10 54 6 – 2 905 53 – 3 121 714 – 34 2 891 – 2 048 – 1 545 – 49 – 1 302 6 850 5 548 1 706 3 842 5 548 The figures in the consolidated statements of cash flows cannot be directly traced from the consolidated statements of financial position 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. 19 N O K I A C O R P O R A T I O N A N D S U B S I D I A R I E S Consolidated statements of changes in shareholders’ equity, IFRS EURm shares (1 000’s) capital premium shares differences reserves Number of Share Share issue Treasury Translation Fair value and Reserve for invested Before non- Non- other non-restrict. Retained controlling controlling interests equity earnings interests Total Balance at December 31, 2007 3 845 950 246 644 – 3 146 – 163 23 3 299 13 870 14 773 2 565 17 338 Translation differences Net investment hedge losses, net of tax Cash flow hedges, net of tax Available-for-sale investments, net of tax Other increase, net Profit 595 – 91 42 – 3 Total comprehensive income — — — 504 39 Stock options exercised 3 547 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 non-controlling interests Vested portion of share-based payment awards related to acquisitions Acquisition of Symbian 5 622 – 157 390 143 1 74 – 117 – 179 154 – 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 — 51 – 44 46 3 988 4 034 595 – 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 — – 4 232 -69 -3 123 2 — – 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 – 552 – 9 – 561 — 341 – 552 84 — 62 – 35 42 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 — — — – 468 7 7 – 1 891 890 — — – 1 16 – 12 10 352 – 166 230 – 136 84 – 35 42 – 1 891 429 — – 1 16 – 12 – 72 — 1 — 84 14 44 – 8 49 2 – 7 – 631 260 – 596 – 167 — – 1 16 – 1 – 13 – 72 — 1 — – 969 – 1 481 – 1 481 – 44 – 1 525 — 69 – 136 – 2 450 – 1 549 – 45 – 1 594 3 170 10 132 13 088 1 661 14 749 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 20 Nokia in 2010 Consolidated statements of changes in shareholders’ equity, IFRS (continued) N O K I A C O R P O R A T I O N A N D S U B S I D I A R I E S EURm shares (1 000’s) capital premium shares differences reserves Number of Share Share issue Treasury Translation Fair value and Reserve for invested Before non- Non- other non-restrict. Retained controlling controlling interests equity earnings interests Total Balance at December 31, 2009 3 708 262 246 279 – 681 – 127 69 3 170 10 132 13 088 1 661 14 749 Translation differences Net investment hedge losses, net of tax Cash flow hedges, net of tax Available-for-sale investments, net of tax Other increase, net Profit Total comprehensive income — 1 240 – 288 – 73 7 — 952 – 66 — 40 1 850 1 890 — – 1 47 – 1 1 240 – 288 – 73 7 40 1 850 2 776 – 1 47 – 1 – 4 1 64 1 304 – 288 – 116 7 45 – 43 5 – 507 1 343 – 481 2 295 – 1 47 – 1 – 4 1 766 766 868 – 12 17 1 – 9 Stock options exercised related to acquisitions Share-based compensation Excess tax benefit on share-based compensation Settlement of performance and restricted shares Reissuance of treasury shares Conversion of debt to equity Dividend Acquisitions and other change in non-controlling interests Total of other equity movements Balance at December 31, 2010 3 709 130 246 – 1 483 – 1 483 – 56 – 1 539 33 312 18 – 663 — 825 — 3 – 39 – 39 – 9 – 1 522 – 1 480 – 43 667 – 82 – 813 3 161 10 500 14 384 1 847 16 231 — Dividends declared per share were EUR 0.40 for 2010, subject to shareholders’ approval, (EUR 0.40 for 2009 and EUR 0.40 for 2008). 21 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Notes to the consolidated financial statements 1. Accounting principles Basis of presentation » 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 regardless of which entity in the group settles the transaction, and regardless of whether the transac- tion is settled in shares or cash. The consolidated financial statements of Nokia Corporation (“Nokia” or “the Group”), a Finnish public limited liability company with domicile » Amendments to IFRIC 14 and IAS 19 address the circumstances when in Helsinki, in the Republic of Finland, are prepared in accordance with an entity is subject to minimum funding requirements and makes International Financial Reporting Standards as issued by the Interna- an early payment of contributions to cover those requirements. The tional 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, amendment permits such an entity to treat the benefit of such an early payment as an asset. and are prepared under the historical cost convention, except as disclosed » In addition, a number of other amendments that form part of the in the accounting policies below. The notes to the consolidated financial IASB’s annual improvement project were adopted by the Group. statements also conform to Finnish Accounting legislation. On March 11, 2011, Nokia’s Board of Directors authorized the financial statements for The adoption of each of the above mentioned standards did not have 2010 for issuance and filing. a material impact to the consolidated financial statements. The Group completed the acquisition of all of the outstanding equity of NAVTEQ on July 10, 2008. The NAVTEQ business combination has had a material impact on the consolidated financial statements and associated Principles of consolidation notes. See Note 9. The consolidated financial statements include the accounts of Nokia’s Adoption of pronouncements under IFRS parent company (“Parent Company”), and each of those companies over In the current year, the Group has adopted all of the new and revised which the Group exercises control. Control over an entity is presumed to standards, amendments and interpretations to existing standards issued exist when the Group owns, directly or indirectly through subsidiaries, by the IASB that are relevant to its operations and effective for accounting over 50% of the voting rights of the entity, the Group has the power to periods commencing on or after January 1, 2010. govern the operating and financial policies of the entity through agree- » IFRS 3 (revised) Business Combinations replaces IFRS 3 (as issued in 2004). The main changes brought by IFRS 3 (revised) include clarifica- ment 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 associates is included in the tion of the definition of a business, immediate recognition of all consolidated income statement in accordance with the equity method acquisition-related costs in profit or loss, recognition of subsequent of accounting. An associate is an entity over which the Group exercises changes in the fair value of contingent consideration in accordance with other IFRSs and measurement of goodwill arising from step acquisitions at the acquisition date. 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 consoli- » IAS 27 (revised), “Consolidated and Separate Financial Statements” dation process. Profit or loss and each component of other comprehen- clarifies presentation of changes in parent-subsidiary ownership. sive income are attributed to the owners of the parent and to the non- Changes in a parent’s ownership interest in a subsidiary that do not controlling interests. In the consolidated statement of financial position result in the loss of control must be accounted for exclusively within non-controlling interests are presented within equity, separately from equity. If a parent loses control of a subsidiary, it shall derecognize the the equity of the owners of the parent. consolidated assets and liabilities, and any investment retained in the The entities or businesses acquired during the financial periods former subsidiary shall be recognized at fair value at the date when presented have been consolidated from the date on which control of the control is lost. Any differences resulting from this shall be recog- net assets and operations was transferred to the Group. Similarly, the nized in profit or loss. When losses attributed to the non-controlling result of a Group entity or business divested during an accounting period interests exceed the non-controlling shareholder’s interest in the sub- is included in the Group accounts only to the date of disposal. sidiary’s equity, these losses shall be allocated to the non-controlling interests even if this results in a deficit balance. 22 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Business Combinations at the disposal date. The gain or loss on disposal is calculated as the difference between the fair value of the consideration received and the The acquisition method of accounting is used to account for acquisi- derecognized net assets of the disposed entity or business, adjusted by tions of separate entities or businesses by the Group. The consideration amounts recognized in other comprehensive income in relation to that transferred in a business combination is measured as the aggregate of entity or business. the fair values of the assets transferred, liabilities incurred towards the former owners of the acquired business and equity instruments issued. Acquisition-related costs are recognized as expense in profit and loss Foreign currency translation in the periods when the costs are incurred and the related services are received. Identifiable assets acquired and liabilities assumed by the Group Functional and presentation currency are measured separately at their fair value as of the acquisition date. Non- The financial statements of all Group entities are measured using the controlling interests in the acquired business are measured separately currency of the primary economic environment in which the entity oper- based on their proportionate share of the identifiable net assets of the ates (functional currency). The consolidated financial statements are acquired business. The excess of the aggregate of the consideration trans- presented in Euro, which is the functional and presentation currency of ferred and recognized non-controlling interests in the acquired business the Parent Company. over the acquisition date fair values of the identifiable net assets acquired is recorded as goodwill. Transactions in foreign currencies Assessment of the recoverability of long-lived assets, intangible assets and goodwill Transactions in foreign currencies are recorded at the rates of exchange prevailing at the dates of the individual transactions. For practical rea- sons, a rate that approximates the actual rate at the date of the transac- tion is often used. At the end of the accounting period, the unsettled balances on foreign currency assets and liabilities are valued at the rates For the purposes of impairment testing, goodwill is allocated to cash- of exchange prevailing at the end of the accounting period. Foreign generating units that are expected to benefit from the synergies of the exchange gains and losses arising from statement of financial position acquisition in which the goodwill arose. items, as well as changes in fair value in the related hedging instruments, The Group assesses the carrying amount of goodwill annually or are reported in financial income and expenses. For non-monetary items, more frequently if events or changes in circumstances indicate that such such as shares, the unrealized foreign exchange gains and losses are carrying amount may not be recoverable. The Group assesses the carrying recognized in other comprehensive income. amount of identifiable intangible assets and long-lived assets if events or changes in circumstances indicate that such carrying amount may not Foreign Group companies be recoverable. Factors that could trigger an impairment review include In the consolidated accounts, all income and expenses of foreign subsidiar- significant underperformance relative to historical or projected future re- ies are translated into Euro at the average foreign exchange rates for the sults, significant changes in the manner of the use of the acquired assets accounting period. All assets and liabilities of Group companies, where or the strategy for the overall business and significant negative industry the functional currency is other than euro, are translated into euro at the or economic trends. year-end foreign exchange rates. Differences resulting from the translation The Group conducts its impairment testing by determining the re- of income and expenses at the average rate and assets and liabilities at the coverable amount for the asset or cash-generating unit. The recoverable closing rate are recognized in other comprehensive income as translation amount of an asset or a cash-generating unit is the higher of its fair value differences within consolidated shareholder’s equity. On the disposal of all less costs to sell and its value in use. The recoverable amount is then com- or part of a foreign Group company by sale, liquidation, repayment of share pared to its carrying amount and an impairment loss is recognized if the capital or abandonment, the cumulative amount or proportionate share recoverable amount is less than the carrying amount. Impairment losses of the translation difference is recognized as income or as expense in the are recognized immediately in the income statement. same period in which the gain or loss on disposal is recognized. Disposals of separate entities or businesses Revenue recognition When a disposal transaction causes the Group to relinquish control over Sales from the majority of the Group are recognized when the significant a separate entity or business, the Group records a gain or loss on disposal risks and rewards of ownership have transferred to the buyer, continuing 23 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S managerial involvement usually associated with ownership and effective Shipping and handling costs control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will The costs of shipping and distributing products are included in cost of sales. 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 Research and development volume based discounts. Service revenue is generally recognized on a straight line basis over the service period unless there is evidence that Research and development costs are expensed as they are incurred, except some other method better represents the stage of completion. License for certain development costs, which are capitalized when it is probable fees from usage are recognized in the period when they are reliably mea- that a development project will generate future economic benefits, and surable, which is normally when the customer reports them to the Group. certain criteria, including commercial and technological feasibility, have The Group enters into transactions involving multiple components been met. Capitalized development costs, comprising direct labor and consisting of any combination of hardware, services and software. The related overhead, are amortized on a systematic basis over their expected commercial effect of each separately identifiable component of the trans- useful lives between two and five years. action is evaluated in order to reflect the substance of the transaction. Capitalized development costs are subject to regular assessments of The consideration received from these transactions is allocated to each recoverability based on anticipated future revenues, including the impact separately identifiable component based on the relative fair value of each of changes in technology. Unamortized capitalized development costs component. The Group determines the fair value of each component by determined to be in excess of their recoverable amounts are expensed taking into consideration factors such as the price when the component immediately. 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. Other intangible assets In addition, sales and cost of sales from contracts involving solu- tions achieved through modification of complex telecommunications Acquired patents, trademarks, licenses, software licenses for internal use, equipment are recognized using the percentage of completion method customer relationships and developed technology are capitalized and am- when the outcome of the contract can be estimated reliably. A contract’s ortized using the straight-line method over their useful lives, generally 3 outcome can be estimated reliably when total contract revenue and the to 6 years. Where an indication of impairment exists, the carrying amount costs to complete the contract can be estimated reliably, it is probable of the related intangible asset is assessed for recoverability. Any resulting that the economic benefits associated with the contract will flow to the impairment losses are recognized immediately in the income statement. 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 Pensions such costs are expected to be recovered. Progress towards completion is measured by reference to cost The Group companies have various pension schemes in accordance with incurred to date as a percentage of estimated total project costs, the cost- the local conditions and practices in the countries in which they operate. to-cost method. The schemes are generally funded through payments to insurance compa- The percentage of completion method relies on estimates of total nies or to trustee-administered funds as determined by periodic actuarial expected contract revenue and costs, as well as dependable measure- calculations. ment of the progress made towards completing a particular project. In a defined contribution plan, the Group has no legal or constructive Recognized revenues and profits are subject to revisions during the obligation to make any additional contributions if the party receiving the project in the event that the assumptions regarding the overall project contributions is unable to pay the pension obligations in question. The outcome are revised. The cumulative impact of a revision in estimates is Group’s contributions to defined contribution plans, multi-employer and recorded in the period such revisions become likely and estimable. Losses insured plans are recognized in the income statement in the period to on projects in progress are recognized in the period they become prob- which the contributions relate for the Group. able and estimable. 24 Nokia in 2010 All arrangements that do not fulfill these conditions are considered defined benefit plans. If a pension plan is funded through an insurance contract where the Group does not retain any legal or constructive obli- gations, such a plan is treated as a defined contribution plan. N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S For defined benefit plans, pension costs are assessed using the Leases projected unit credit method: The pension cost is recognized in the income statement so as to spread the service cost over the service lives The Group has entered into various operating leases, the payments under of employees. The pension obligation is measured as the present value which are treated as rentals and recognized in the income statement on of the estimated future cash outflows using interest rates on high quality a straight-line basis over the lease terms unless another systematic ap- corporate bonds with appropriate maturities. Actuarial gains and losses proach is more representative of the pattern of the user’s benefit. 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 Inventories the respective year. Past service costs are recognized immediately in income, unless the Inventories are stated at the lower of cost or net realizable value. Cost is changes to the pension plan are conditional on the employees remain- determined using standard cost, which approximates actual cost on a FIFO ing in service for a specified period of time (the vesting period). In this (First-in First-out) basis. Net realizable value is the amount that can be case, the past service costs are amortized on a straight-line basis over the realized from the sale of the inventory in the normal course of business vesting period. after allowing for the costs of realization. The liability (or asset) recognized in the statement of financial posi- In addition to the cost of materials and direct labor, an appropriate tion is pension obligation at the closing date less the fair value of plan proportion of production overhead is included in the inventory values. assets, the share of unrecognized actuarial gains and losses, and past An allowance is recorded for excess inventory and obsolescence service costs. Any net pension asset is limited to unrecognized actuarial based on the lower of cost or net realizable value. losses, past service cost, the present value of available refunds from the plan and expected reductions in future contributions to the plan. Actuarial valuations for the Group’s defined benefit pension plans Financial assets are performed annually. In addition, actuarial valuations are performed when a curtailment or settlement of a defined benefit plan occurs in the The Group has classified its financial assets as one of the following cat- Group. egories: available-for-sale investments, loans and receivables, financial assets at fair value through profit or loss and bank and cash. Property, plant and equipment Available-for-sale investments Property, plant and equipment are stated at cost less accumulated depre- of its on-going operations in highly liquid, interest-bearing investments. ciation. Depreciation is recorded on a straight-line basis over the expected The following investments are classified as available-for-sale based on The Group invests a portion of cash needed to cover projected cash needs useful lives of the assets as follows: Buildings and constructions 20–33 years the purpose for acquiring the investments as well as ongoing intentions: (1) Highly liquid, interest-bearing investments that are readily convert- ible to known amounts of cash with maturities at acquisition of less than Production machinery, measuring and test equipment 1–3 years 3 months, which are classified in the balance sheet as current available- Other machinery and equipment 3–10 years for-sale investments, cash equivalents. Due to the high credit quality and short-term nature of these investments, there is an insignificant risk of Land and water areas are not depreciated. changes in value. (2) Similar types of investments as in category (1), but Maintenance, repairs and renewals are generally charged to expense with maturities at acquisition of longer than 3 months, classified in the during the financial period in which they are incurred. However, major balance sheet as current available-for-sale investments, liquid assets. renovations are capitalized and included in the carrying amount of the (3) Investments in technology related publicly quoted equity shares, or asset when it is probable that future economic benefits in excess of the unlisted private equity shares and unlisted funds, are classified in the bal- originally assessed standard of performance of the existing asset will ance sheet as non-current available-for-sale investments. flow to the Group. Major renovations are depreciated over the remaining Current fixed income and money-market investments are fair valued useful life of the related asset. Leasehold improvements are depreciated by using quoted market rates, discounted cash flow analyses and other over the shorter of the lease term or useful life. appropriate valuation models at the balance sheet date. Investments in Gains and losses on the disposal of fixed assets are included in oper- publicly quoted equity shares are measured at fair value using exchange ating profit/loss. quoted bid prices. Other available-for-sale investments carried at fair 25 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S value include holdings in unlisted shares. Fair value is estimated by using accordance with a documented risk management or investment strategy. various factors, including, but not limited to: (1) the current market value These investments are initially recorded at fair value. Subsequent of similar instruments, (2) prices established from a recent arm’s length to initial recognition, these investments are remeasured at fair value. financing transaction of the target companies, (3) analysis of market Fair value adjustments and realized gain and loss are recognized in the prospects and operating performance of the target companies taking income statement. into consideration the public market of comparable companies in similar industry sectors. The remaining available-for-sale investments are car- Loans receivable ried at cost less impairment, which are technology related investments in Loans receivable include loans to customers and suppliers and are initially private equity shares and unlisted funds for which the fair value cannot measured at fair value and subsequently at amortized cost using the be measured reliably due to non-existence of public markets or reliable effective interest method less impairment. Loans are subject to regular valuation methods against which to value these assets. The investment and thorough review as to their collectability and as to available collateral; and disposal decisions on these investments are business driven. in the event that any loan is deemed not fully recoverable, a provision is All purchases and sales of investments are recorded on the trade made to reflect the shortfall between the carrying amount and the pres- date, which is the date that the Group commits to purchase or sell the ent value of the expected cash flows. Interest income on loans receivable asset. is recognized by applying the effective interest rate. The long term por- The changes in fair value of available-for-sale investments are recog- tion of loans receivable is included on the statement of financial position nized in fair value and other reserves as part of shareholders’ equity, with under long-term loans receivable and the current portion under current the exception of interest calculated using effective interest method and portion of long-term loans receivable. foreign exchange gains and losses on monetary assets, which are recog- nized directly in profit and loss. Dividends on available-for-sale equity Bank and cash instruments are recognized in profit and loss when the Group’s right to Bank and cash consist of cash at bank and in hand. receive payment is established. When the investment is disposed of, the related accumulated changes in fair value are released from shareholders’ Accounts receivable equity and recognized in the income statement. The weighted aver- Accounts receivable are carried at the original amount due from custom- age method is used when determining the cost-basis of publicly listed ers, which is considered to be fair value, less allowances for doubtful equities being disposed of by the Group. FIFO (First-in First-out) method is used to determine the cost basis of fixed income securities being accounts. Allowance for doubtful accounts is based on a periodic review of all outstanding amounts, where significant doubt about collectability disposed of by the Group. An impairment is recorded when the carrying exists, including an analysis of historical bad debt, customer concentra- amount of an available-for-sale investment is greater than the estimated tions, customer creditworthiness, current economic trends and changes in fair value and there is objective evidence that the asset is impaired in- our customer payment terms. Bad debts are written off when identified as cluding, but not limited to, counterparty default and other factors causing uncollectible, and are included within other operating expenses. a reduction in value that can be considered permanent. The cumulative net loss relating to that investment is removed from equity and recog- nized in the income statement for the period. If, in a subsequent period, Financial liabilities 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 Loans payable loss was recognized, the loss is reversed, with the amount of the reversal Loans payable are recognized initially at fair value, net of transaction costs included in the income statement. incurred. Any difference between the fair value and the proceeds received is recognized in profit and loss at initial recognition. In subsequent peri- Investments at fair value through profit and loss, liquid assets ods, they are stated at amortized cost using the effective interest method. The investments at fair value through profit and loss, liquid assets include The long term portion of loans payable is included on the statement of highly liquid financial assets designated at fair value through profit or financial position under long-term interest-bearing liabilities and the cur- loss at inception. For investments designated 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 otherwise rent portion under current portion of long-term loans. Accounts payable arise from measuring the assets or recognizing gains or losses on a dif- Accounts payable are carried at the original invoiced amount, which is ferent basis; or (2) the assets are part of a group of financial assets, which considered to be fair value due to the short-term nature of the Group’s are managed and their performance evaluated on a fair value basis, in accounts payable. 26 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Derivative financial instruments Hedge accounting All derivatives are initially recognized at fair value on the date a deriva- tive contract is entered into and are subsequently remeasured at their fair Cash flow hedges: Hedging of anticipated foreign currency denominated sales and purchases value. The method of recognizing the resulting gain or loss varies accord- The Group applies hedge accounting for “Qualifying hedges”. Qualifying ing to whether the derivatives are designated and qualify under hedge hedges are those properly documented cash flow hedges of the foreign accounting or not. Generally, the cash flows of a hedge are classified as exchange rate risk of future anticipated foreign currency denominated cash flows from operating activities in the consolidated statement of cash sales and purchases that meet the requirements set out in IAS 39. The flows as the underlying hedged items relate to the company’s operating cash flow being hedged must be “highly probable” and must present an activities. When a derivative contract is accounted for as a hedge of an exposure to variations in cash flows that could ultimately affect profit or identifiable position relating to financing or investing activities, the cash loss. The hedge must be highly effective both prospectively and retro- flows of the contract are classified in the same manner as the cash flows spectively. of the position being hedged. Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss The Group claims hedge accounting in respect of certain forward foreign exchange contracts and options, or option strategies, which have zero net premium or a net premium paid, and where the critical terms of the bought and sold options within a collar or zero premium structure are Fair values of forward rate agreements, interest rate options, futures the same and where the nominal amount of the sold option component is contracts and exchange traded options are calculated based on quoted no greater than that of the bought option. market rates at each balance sheet date. Discounted cash flow analyses For qualifying foreign exchange forwards, the change in fair value are used to value interest rate and currency swaps. Changes in the fair that reflects the change in spot exchange rates is deferred in sharehold- value of these contracts are recognized in the income statement. ers’ equity to the extent that the hedge is effective. For qualifying foreign Fair values of cash settled equity derivatives are calculated based on exchange options, or option strategies, the change in intrinsic value is de- quoted market rates at each balance sheet date. Changes in fair value are ferred in shareholders’ equity to the extent that the hedge is effective. In recognized in the income statement. all cases, the ineffective portion is recognized immediately in the income Forward foreign exchange contracts are valued at the market forward statement as financial income and expenses. Hedging costs, expressed exchange rates. Changes in fair value are measured by comparing these either as the change in fair value that reflects the change in forward rates with the original contract forward rate. Currency options are valued exchange rates less the change in spot exchange rates for forward foreign at each balance sheet date by using the Garman & Kohlhagen option valu- exchange contracts, or changes in the time value for options, or options ation model. Changes in the fair value on these instruments are recog- strategies, are recognized within other operating income or expenses. nized in the income statement. Accumulated changes in fair value from qualifying hedges are For the derivatives not designated under hedge accounting but hedg- released from shareholders’ equity into the income statement as adjust- ing identifiable exposures such as anticipated foreign currency denomi- ments to sales and cost of sales, in the period when the hedged cash nated sales and purchases, the gains and losses are recognized within flow affects the income statement. If the hedged cash flow is no longer other operating income or expenses. The gains and losses on all other expected to take place, all deferred gains or losses are released immedi- hedges not designated under hedge accounting are recognized under ately into the income statement as adjustments to sales and cost of sales. financial income and expenses. If the hedged cash flow ceases to be highly probable, but is still expected Embedded derivatives are identified and monitored by the Group to take place, accumulated gains and losses remain in equity until the and fair valued at each balance sheet date. In assessing the fair value of hedged cash flow affects the income statement. embedded derivatives, the Group employs a variety of methods including Changes in the fair value of any derivative instruments that do not option pricing models and discounted cash flow analysis using assump- tions that are based on market conditions existing at each balance sheet qualify for hedge accounting under IAS 39 are recognized immediately in the income statement. The changes in fair value of derivative instruments date. Changes in fair value are recognized in the income statement. that directly relate to normal business operations are recognized within other operating income and expenses. The changes in fair value from all other derivative instruments are recognized in financial income and expenses. 27 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Cash flow hedges: Hedging of foreign currency risk of highly probable business acquisitions and other transactions value hedges, together with any changes in the fair value of the hedged liabilities attributable to the hedged risk, are recorded in the income The Group hedges the cash flow variability due to foreign currency risk statement within financial income and expenses. inherent in highly probable business acquisitions and other future trans- If a hedge no longer meets the criteria for hedge accounting, hedge actions that result in the recognition of non-financial assets. When those accounting ceases and any fair value adjustments made to the carrying non-financial assets are recognized in the statement of financial position, amount of the hedged item during the periods the hedge was effective the gains and losses previously deferred in equity are transferred from eq- are amortized to profit or loss based on the effective interest method. uity 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 Hedges of net investments in foreign operations goodwill assessments in case of business acquisitions and through depre- The Group also applies hedge accounting for its foreign currency hedging ciation in the case of other assets. In order to apply for hedge accounting, on net investments. Qualifying hedges are those properly documented the forecasted transactions must be highly probable and the hedges must hedges of the foreign exchange rate risk of foreign currency denominated be highly effective prospectively and retrospectively. The Group claims hedge accounting in respect of forward foreign net investments that meet the requirements set out in IAS 39. The hedge must be effective both prospectively and retrospectively. exchange contracts, foreign currency denominated loans, and options, or The Group claims hedge accounting in respect of forward foreign option strategies, which have zero net premium or a net premium paid, exchange contracts, foreign currency denominated loans, and options, or and where the terms of the bought and sold options within a collar or option strategies, which have zero net premium or a net premium paid, zero premium structure are the same. and where the terms of the bought and sold options within a collar or For qualifying foreign exchange forwards, the change in fair value zero premium structure are the same. that reflects the change in spot exchange rates is deferred in sharehold- For qualifying foreign exchange forwards, the change in fair value ers’ equity. The change in fair value that reflects the change in forward that reflects the change in spot exchange rates is deferred in sharehold- exchange rates less the change in spot exchange rates is recognized in ers’ equity. The change in fair value that reflects the change in forward the income statement within financial income and expenses. For qualify- exchange rates less the change in spot exchange rates is recognized in ing foreign exchange options, the change in intrinsic value is deferred in the income statement within financial income and expenses. For qualify- shareholders’ equity. Changes in the time value are at all times recog- ing foreign exchange options, the change in intrinsic value is deferred in nized directly in the income statement as financial income and expenses. shareholders’ equity. Changes in the time value are at all times recog- In all cases the ineffective portion is recognized immediately in the nized directly in the income statement as financial income and expenses. income statement as financial income and expenses. If a foreign currency denominated loan is used as a hedge, all foreign Cash flow hedges: Hedging of cash flow variability on variable rate liabilities exchange gains and losses arising from the transaction are recognized in shareholders’ equity. In all cases, the ineffective portion is recognized immediately in the income statement as financial income and expenses. The Group applies cash flow hedge accounting for hedging cash flow Accumulated changes in fair value from qualifying hedges are variability on variable rate liabilities. The effective portion of the gain or released from shareholders’ equity into the income statement only if loss relating to interest rate swaps hedging variable rate borrowings is the legal entity in the given country is sold, liquidated, repays its share deferred in shareholders’ equity. The gain or loss relating to the inef- capital or is abandoned. fective portion is recognized immediately in the income statement as financial income and expenses. For hedging instruments closed before the maturity date of the related liability, hedge accounting will immediately Income taxes discontinue from that date onwards, with all the cumulative gains and losses on the hedging instruments recycled gradually to income state- The tax expense comprises current tax and deferred tax. Current taxes are ment in the periods when the hedged variable interest cash flows affect based on the results of the Group companies and are calculated according income statement. Fair value hedges 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 directly in equity, in which case, the tax is recognized in other The Group applies fair value hedge accounting with the objective to comprehensive income or equity, respectively. reduce the exposure to fluctuations in the fair value of interest-bearing Deferred tax assets and liabilities are determined, using the liability liabilities due to changes in interest rates and foreign exchange rates. method, for all temporary differences arising between the tax bases of Changes in the fair value of derivatives designated and qualifying as fair assets and liabilities and their carrying amounts in the consolidated fi- 28 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S nancial statements. Deferred tax assets are recognized to the extent that Restructuring provisions it is probable that future taxable profit will be available against which the The Group provides for the estimated cost to restructure when a detailed unused tax losses or deductible temporary differences can be utilized. formal plan of restructuring has been completed and the restructuring Each reporting period they are assessed for realizability and when plan has been announced by the Group. circumstances indicate it is no longer probable that deferred tax assets will be utilized, they are adjusted as necessary. Deferred tax liabilities are Other provisions recognized for temporary differences that arise between the fair value The Group recognizes the estimated liability for non-cancellable purchase and tax base of identifiable net assets acquired in business combinations. commitments for inventory in excess of forecasted requirements at each Deferred tax assets and deferred tax liabilities are offset for presentation balance sheet date. purposes when there is a legally enforceable right to set off current tax The Group provides for onerous contracts based on the lower of the assets against current tax liabilities, and the deferred tax assets and the expected cost of fulfilling the contract and the expected cost of terminat- deferred tax liabilities relate to income taxes levied by the same taxation ing the contract. 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 simultaneously, in Share-based compensation each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. The Group offers three types of global equity settled share-based com- The enacted or substantially enacted tax rates as of each balance pensation schemes for employees: stock options, performance shares sheet date that are expected to apply in the period when the asset is real- and restricted shares. Employee services received, and the correspond- ized or the liability is settled are used in the measurement of deferred tax ing increase in equity, are measured by reference to the fair value of the assets and liabilities. Provisions 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 Provisions are recognized when the Group has a present legal or construc- its estimates of the number of performance shares that are expected to tive obligation as a result of past events, it is probable that an outflow of be settled. Share-based compensation is recognized as an expense in resources will be required to settle the obligation and a reliable estimate the income statement over the service period. A separate vesting period of the amount can be made. Where the Group expects a provision to be is defined for each quarterly lot of the stock options plans. When stock reimbursed, the reimbursement is recognized as an asset only when the options are exercised, the proceeds received, net of any transaction costs, reimbursement is virtually certain. At each balance sheet date, the Group as- are credited to share issue premium and the reserve for invested non- sesses the adequacy of its pre-existing provisions and adjusts the amounts restricted equity. as necessary based on actual experience and changes in future estimates. Warranty provisions Treasury shares The Group provides for the estimated liability to repair or replace products under warranty at the time revenue is recognized. The provision is an The Group recognizes acquired treasury shares as a deduction from equity estimate calculated based on historical experience of the level of volumes, at their acquisition cost. When cancelled, the acquisition cost of treasury product mix and repair and replacement cost. shares is recognized in retained earnings. Intellectual property rights (IPR) provisions The Group provides for the estimated future settlements related to as- Dividends serted and unasserted past alleged IPR infringements based on the prob- able outcome of potential infringement. Dividends proposed by the Board of Directors are not recorded in the financial statements until they have been approved by the shareholders at Tax provisions the Annual General Meeting. The Group recognizes a provision for tax contingencies based upon the estimated future settlement amount at each balance sheet date. 29 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Earnings per share The Group makes price protection adjustments based on estimates of future price reductions and certain agreed customer inventories at the The Group calculates both basic and diluted earnings per share. Basic date of the price adjustment. Possible changes in these estimates could earnings per share is computed using the weighted average number of result in revisions to the sales in future periods. shares outstanding during the period. Diluted earnings per share is com- Revenue from contracts involving solutions achieved through puted using the weighted average number of shares outstanding during modification of complex telecommunications equipment is recognized the period plus the dilutive effect of stock options, restricted shares and on the percentage of completion basis when the outcome of the contract performance shares outstanding during the period. can be estimated reliably. Recognized 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 Use of estimates and critical accounting judgments 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, The preparation of financial statements in conformity with IFRS requires changes in timing, changes in customers’ plans, realization of penalties, the application of judgment by management in selecting appropriate and other corresponding factors, which may have a significant impact on assumptions for calculating financial estimates, which inherently contain the timing and amount of revenue recognition. some degree of uncertainty. Management bases its estimates on histori- cal experience, expected outcomes and various other assumptions that Customer financing are believed to be reasonable under the circumstances, the results of The Group has provided a limited number of customer financing arrange- which form the basis for making judgments about the reported carrying ments and agreed extended payment terms with selected customers. values of assets and liabilities and the reported amounts of revenues and Should the actual financial position of the customers or general economic expenses that may not be readily apparent from other sources. Actual conditions differ from assumptions, the ultimate collectability of such fi- results may differ from these estimates under different assumptions or nancings and trade credits may be required to be re-assessed, which could conditions. result in a write-off of these balances and thus negatively impact profits Set forth below are areas requiring significant judgment and esti- in future periods. The Group endeavors to mitigate this risk through the mation that may have an impact on reported results and the financial transfer of its rights to the cash collected from these arrangements to position. Revenue recognition third party financial institutions on a non-recourse basis in exchange for an upfront cash payment. Sales from the majority of the Group are recognized when the significant Allowances for doubtful accounts risks and rewards of ownership have transferred to the buyer, continuing The Group maintains allowances for doubtful accounts for estimated loss- managerial involvement usually associated with ownership and effective es resulting from the subsequent inability of customers to make required control have ceased, the amount of revenue can be measured reliably, it payments. If the financial conditions of customers were to deteriorate, is probable that economic benefits associated with the transaction will resulting in an impairment of their ability to make payments, additional flow to the Group and the costs incurred or to be incurred in respect of allowances may be required in future periods. the transaction can be measured reliably. Sales may materially change if management’s assessment of such criteria was determined to be inac- Inventory-related allowances curate. The Group enters into transactions involving multiple components The Group periodically reviews inventory for excess amounts, obsoles- consisting of any combination of hardware, services and software. The cence and declines in market value below cost and records an allowance consideration received from these transactions is allocated to each against the inventory balance for any such declines. These reviews require separately identifiable component based on the relative fair value of each management to estimate future demand for products. Possible changes component. The consideration allocated to each component is recognized in these estimates could result in revisions to the valuation of inventory in as revenue when the revenue recognition criteria for that component future periods. have been met. Determination of the fair value for each component requires the use of estimates and judgment taking into consideration fac- Warranty provisions tors such as the price when the component is sold separately by the Group The Group provides for the estimated cost of product warranties at the or the price when a similar component is sold separately by the Group time revenue is recognized. The Group’s warranty provision is established or a third party, which may have a significant impact on the timing and based upon best estimates of the amounts necessary to settle future and amount of revenue recognition. existing claims on products sold as of each balance sheet date. As new 30 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S products incorporating complex technologies are continuously intro- attributable to the asset or cash-generating unit discounted to present duced, and as local laws, regulations and practices may change, changes value. The key assumptions applied in the determination of recoverable in these estimates could result in additional allowances or changes to amount include the discount rate, length of the explicit forecast period, recorded allowances being required in future periods. estimated growth rates, profit margins and level of operational and capi- tal investment. Amounts estimated could differ materially from what will Provision for intellectual property rights, or IPR, infringements actually occur in the future. See also Note 8. The Group provides for the estimated future settlements related to as- serted and unasserted past alleged IPR infringements based on the prob- Fair value of derivatives and other financial instruments able outcome of potential infringement. IPR infringement claims can last The fair value of financial instruments that are not traded in an active for varying periods of time, resulting in irregular movements in the IPR infringement provision. The ultimate outcome or actual cost of settling an market (for example, unlisted equities, currency options and embed- ded derivatives) are determined using various valuation techniques. The individual infringement may materially vary from estimates. Group uses judgment to select an appropriate valuation methodology as Legal contingencies well as underlying assumptions based on existing market practice and conditions. Changes in these assumptions may cause the Group to recog- Legal proceedings covering a wide range of matters are pending or nize impairments or losses in future periods. threatened in various jurisdictions against the Group. Provisions are recorded for pending litigation when it is determined that an unfavorable Income taxes outcome is probable and the amount of loss can be reasonably estimated. Management judgment is required in determining current tax expense, Due to the inherent uncertain nature of litigation, the ultimate outcome tax provisions, deferred tax assets and liabilities and the extent to which or actual cost of settlement may materially vary from estimates. deferred tax assets can be recognized. Each reporting period they are Capitalized development costs assessed for realizability and when circumstances indicate it is no longer probable that deferred tax assets will be utilized, they are adjusted as The Group capitalizes certain development costs when it is probable that necessary. If the final outcome of these matters differs from the amounts a development project will generate future economic benefits and certain initially recorded, differences may impact the income tax expense in the criteria, including commercial and technological feasibility, have been period in which such determination is made. met. Should a product fail to substantiate its estimated feasibility or life cycle, material development costs may be required to be written-off in Pensions future periods. Business combinations The determination of pension benefit obligation and expense for defined benefit pension plans is dependent on the selection of certain assump- tions used by actuaries in calculating such amounts. Those assumptions The Group applies the acquisition method of accounting to account for include, among others, the discount rate, expected long-term rate of acquisitions of businesses. The consideration transferred in a business return on plan assets and annual rate of increase in future compensation combination is measured as the aggregate of the fair values of the assets levels. A portion of plan assets is invested in equity securities, which are transferred, liabilities incurred towards the former owners of the acquired subject to equity market volatility. Changes in assumptions and actuarial business and equity instruments issued. Identifiable assets acquired, conditions may materially affect the pension benefit obligation and future and liabilities assumed by the Group are measured separately at their expense. See also Note 5. fair value as of the acquisition date. The excess of the aggregate of the consideration transferred and recognized non-controlling interests in the Share-based compensation acquired business over the acquisition date fair values of the identifiable The Group operates various types of equity settled share-based com- net assets acquired is recorded as goodwill. pensation schemes for employees. Fair value of stock options is based on The allocation of fair values to the identifiable assets acquired and certain assumptions, including, among others, expected volatility and liabilities assumed is based on various valuation assumptions requiring expected life of the options. Non-market vesting conditions attached to management judgment. Actual results may differ from the forecasted amounts and the difference could be material. See also Note 9. 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 performance shares are included in assumptions about the number of shares that the employee will ultimately receive relating to projections of net sales and earnings per share. Significant differences in equity market performance, employee option activity and the Group’s projected and ac- tual net sales and earnings per share performance, may materially affect future expense. See also Note 24. 31 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S New accounting pronouncements under IFRS Devices & Services is responsible for developing and managing the Group’s portfolio of mobile devices as well as designing and developing The Group will adopt the following new and revised standards, amend- services, including applications and content, that enrich the experience ments and interpretations to existing standards issued by the IASB that people have with their mobile devices. Devices & Services also manages are expected to be relevant to its operations and financial position: our supply chains, sales channels, brand and marketing activities, and IFRS 9 will change the classification, measurement and impairment of explores corporate strategic and future growth opportunities for Nokia. financial instruments based on our objectives for the related contractual NAVTEQ is a leading provider of comprehensive digital map informa- cash flows. tion and related location-based content and services for mobile naviga- Amendment to IAS 32 requires that if rights issues offered are issued tion devices, automotive navigation systems, Internet-based mapping pro rata to all of an entity’s existing shareholders in the same class for a applications, and government and business solutions. fixed amount of currency, they should be classified as equity regardless of Nokia Siemens Networks provides mobile and fixed network solu- the currency in which the exercise price is denominated. tions and services to operators and service providers. Amendment to IAS 12 provides clarification for measurement of Corporate Common Functions consists of company wide functions. deferred taxes in situations where an asset is measured using the fair value The accounting policies of the segments are the same as those de- model in IAS 40 Investment Property by introducing a presumption that the carrying amount of the underlying asset will be recovered through sale. scribed in Note 1. Nokia accounts for intersegment revenues and transfers as if the revenues or transfers were to third parties, that is, at current Amendment to IFRS 7 enhances disclosures about transfer transac- market prices. Nokia evaluates the performance of its segments and al- tions of financial assets for evaluating related risk exposures and their locates resources to them based on operating profit. effect on an entity’s financial position. No single customer represents 10% or more of Group revenues. IFRIC 19 clarifies the requirements when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to ac- cept 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 extinguish the financial liability and the issued instruments should be measured at their fair value. In addition, there are 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, 2011. The Group will adopt the amendments to IAS 32 and IFRIC 19 as well as the additional amendments that form part of the IASB’s annual im- provement project on January 1, 2011. Amendments to IAS 12 and IFRS 7 will be adopted on January 1, 2012. The Group does not expect that the adoption of these new standards, interpretations and amendments will have a material impact on the financial condition and results of operations of the Group. The Group also is required to adopt IFRS 9 by January 1, 2013 with earlier adoption permitted. The Group is currently evaluating the poten- tial impact of this standard on the Group’s accounts. 2. Segment information Nokia is organized on a worldwide basis into three operating and report- able segments: Devices & Services, NAVTEQ and Nokia Siemens Networks. Nokia’s reportable segments represent the businesses that offer different products and services for which discrete monthly financial information is provided to the chief operating decision maker for purposes of evaluating and managing the business. 32 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Devices & Nokia Siemens Services NAVTEQ Networks Total reportable segments Corporate Common Functions and Corporate unallocated 4, 6 Eliminations Group 29 118 16 405 — 3 299 — 337 9 560 — 10 146 27 841 12 432 56 3 314 — 232 9 203 — 8 268 35 084 15 484 58 5 816 — 578 10 300 — 8 425 668 334 519 — – 225 2 36 6 492 7 2 488 579 91 488 — – 344 — 21 6 145 5 2 330 318 43 238 — – 153 — 18 7 177 4 2 726 12 660 1 843 2 – 686 11 306 10 621 42 7 190 12 564 10 860 919 – 1 639 32 278 11 015 26 7 927 15 308 1 889 47 – 301 – 13 292 15 652 62 10 503 42 446 351 1 767 2 2 388 13 679 26 673 49 19 824 40 984 113 1 780 975 1 331 32 531 26 363 31 18 525 50 710 59 1 611 105 5 362 – 13 888 33 129 66 21 654 — — 4 13 – 114 – 12 — 14 998 87 5 616 — — 4 34 – 134 – 2 — 12 479 38 5 568 — — 6 33 – 396 19 1 9 641 30 4 606 42 446 — 1 771 15 2 070 1 679 39 123 136 22 892 40 984 — 1 784 1 009 1 197 30 531 35 738 69 20 989 50 710 — 1 617 138 4 966 6 889 39 582 96 23 072 – 351 – 204 7 – 2 548 – 2 548 – 113 – 3 104 – 3 104 – 59 – 3 188 – 3 188 2010, 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 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 1 Nokia Siemens Networks operating loss in 2009 includes a goodwill impairment loss of 4 Unallocated assets include cash and other liquid assets, available-for-sale invest- EUR 908 million. 2 Including goodwill, capital expenditures in 2010 amount to EUR 761 million (EUR 590 million in 2009). The goodwill and capitalized development costs consist of EUR 73 million in 2010 (EUR 7 million in 2009) for Devices & Services, EUR 9 million in 2010 (EUR 22 million in 2009) for NAVTEQ, EUR 0 million in 2010 (EUR 30 million in 2009) for Nokia Siemens Networks, and EUR 0 million in 2010 (EUR 0 million in 2009) for Corpo- rate Common Functions. 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 in- come. These are directly attributable to NAVTEQ and Nokia Siemens Networks as they are separate legal entities. ments, 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. 5 Comprises accounts payable, accrued expenses and other liabilities as well as provi- sions except those related to interest and taxes for Devices & Services and Corporate Common Functions. In addition, NAVTEQ’s and Nokia Siemens 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 at- tributable 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. 7 Elimination of profits recognized in NAVTEQ that are deferred in Devices & Services re- lated to Ovi Maps service sold in combination with Nokia’s GPS enabled smartphones. 33 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Net sales to external customers by geographic area by location of customer Finland China India Germany Russia USA Brazil UK Other Total Segment non-current assets by geographic area 8 Finland China India Germany USA UK Other Total 2008 EURm 362 5 916 3 719 2 294 2 083 1 907 1 902 2 382 30 145 50 710 2010 EURm 371 7 149 2 952 2 019 1 744 1 630 1 506 1 470 23 605 42 446 2010 EURm 1 501 402 210 209 6 079 236 1 008 9 645 2009 EURm 390 5 990 2 809 1 733 1 528 1 731 1 333 1 916 23 554 40 984 2009 EURm 1 698 358 180 243 5 859 228 1 377 9 943 8 Comprises intangible assets and property, plant and equipment. 4. Personnel expenses EURm Wages and salaries Share-based compensation expense Pension expenses, net Other social expenses Personnel expenses as per income statement 2010 5 808 48 431 708 2009 2008 5 658 13 427 649 5 615 67 478 754 6 995 6 747 6 914 Share-based compensation expense includes pension and other social costs of EUR 1 million in 2010 (EUR –3 million in 2009 and EUR –7 million in 2008) based upon the related employee benefit charge recognized during the year. Pension expenses, comprised of multi-employer, insured and defined contribution plans were EUR 377 million in 2010 (EUR 377 million in 2009 and EUR 394 million in 2008). Expenses related to defined benefit plans comprise the remainder. Average personnel 2010 2009 2008 Devices & Services NAVTEQ Nokia Siemens Networks Group Common Functions Nokia Group 58 642 5 020 65 379 314 129 355 56 462 4 282 62 129 298 57 443 3 969 59 965 346 123 171 121 723 3. Percentage of completion 5. Pensions Contract sales recognized under percentage of completion accounting The Group operates a number of post-retirement plans in various coun- were EUR 5 094 million in 2010 (EUR 6 868 million in 2009 and EUR 9 220 tries. These plans include both defined contribution and defined benefit million in 2008). Services revenue for managed services and network schemes. maintenance contracts were EUR 2 924 million in 2010 (EUR 2 607 million The Group’s most significant defined benefit pension plans are in in 2009 and EUR 2 530 million in 2008). Germany and in the UK. The majority of active employees in Germany Included in accrued expenses and other liabilities were advances participate in the pension scheme Beitragsorientierter Alterversorgungs received related to construction contracts of EUR 161 million at Decem- Plan (“BAP”), formerly known as Beitragsorientierte Siemens Alterversor- ber 31, 2010 (EUR 126 million in 2009). Included in accounts receivable gung (“BSAV”). The funding vehicle for the BAP is the “NSN Pension Trust were contract revenues recorded prior to billings of EUR 1 326 million at December 31, 2010 (EUR 1 396 million in 2009) and billing in excess of costs incurred of EUR 510 million at December 31, 2010 (EUR 451 million in 2009). e.V’’. In Germany, 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 pen- sion scheme which is designed according to the Scheme Trust Deeds and The aggregate amount of costs incurred and recognized profits (net Rules and is compliant with the Guidelines of the UK Pension Regulator. of recognized losses) under open construction contracts in progress since The funding vehicle for the pension scheme is Nokia Group (UK) Pension inception was EUR 17 262 million in 2010 (EUR 15 351 million in 2009). Scheme Ltd, which is run on a Trust basis. In the UK, individual benefits Retentions related to construction contracts, included in accounts are generally dependent on eligible compensation levels and years of receivable, were EUR 207 million at December 31, 2010 (EUR 265 million at service for the defined benefit section of the scheme and on individual December 31, 2009). 34 Nokia in 2010 investment choices for the defined contribution section of the scheme. 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: N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S EURm 2010 2009 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 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 the statement of financial position 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 * 2010 2009 – 106 – 120 – 54 62 14 2 – 2 – 84 – 50 49 16 1 – 2 – 106 * included within prepaid expenses and accrued income / accrued expenses – 1 411 – 49 – 61 – 78 – 8 – 1 1 – 1 1 17 46 – 1 205 5 – 55 – 69 – 12 — – 139 2 — 2 60 – 1 544 – 1 411 million (EUR 68 million in 2009) and an accrual of EUR 169 million (EUR 174 The prepaid pension cost above is made up of a prepayment of EUR 85 1 330 44 76 9 62 8 – 32 – 6 3 1 494 – 50 – 26 1 – 84 1 197 – 7 70 56 49 12 – 44 – 2 – 1 1 330 – 81 – 21 1 million in 2009). EURm 2010 2009 2008 2007 2006 Present value of defined benefit obligations Plan assets at fair value Surplus (+)/deficit (–) – 1 544 – 1 411 – 1 205 – 2 266 – 1 577 2 174 1 409 – 168 1 494 – 50 1 330 – 81 1 197 – 8 – 92 Experience adjustments arising on plan obligations amount to a gain of EUR 18 million in 2010 (loss of EUR 12 million in 2009, a gain of EUR 50 mil- lion 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 9 million in 2010 (a gain of EUR 54 million in 2009, a loss of EUR 22 mil- lion in 2008, EUR 3 million in 2007 and EUR 11 million in 2006). – 9 – 5 The principal actuarial weighted average assumptions used were as – 106 follows: % 2010 2009 Present value of obligations include EUR 932 million (EUR 822 million in 2009) of wholly funded obligations, EUR 567 million of partly funded obligations (EUR 516 million in 2009) and EUR 45 million (EUR 73 million in 2009) of unfunded obligations. 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 5.1 5.1 2.6 2.0 5.3 5.4 2.8 2.0 The amounts recognized in the income statement are as follows: The expected long-term rate of return on plan assets is based on the EURm 2010 2009 2008 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 gain (–)/loss (+) Curtailment Settlement Total, included in personnel expenses 61 78 – 76 – 1 3 1 – 1 – 11 54 55 69 – 70 – 9 5 — — — 50 79 78 – 71 — — 2 – 12 152 228 Movements in prepaid/accrued pension costs recognized in the statement of financial position are as follows: 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, 2010, and 2009, by asset category are as follows: % Asset category: Equity securities Debt securities Insurance contracts Short-term investments Other Total 2010 2009 23 57 8 4 8 100 18 64 8 5 5 100 35 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S The objective of the investment activities is to maximize the excess of Devices & Services due to measures taken to adjust the business opera- plan assets over projected benefit obligations, within an accepted risk tions and cost base according to market conditions. In conjunction with 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 Trea- sury, Head of HR and other HR representatives, approves both the target asset allocation as well as the deviation limit. Derivative instruments can 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 expenses include EUR 152 million net loss on transfer be used to change the portfolio asset allocation and risk characteristics. of Finnish pension liabilities, of which a gain of EUR 65 million is included The foreign pension plan assets include a self investment through a in Nokia Siemens Networks’ operating profit and a loss of EUR 217 million loan provided to Nokia by the Group’s German pension fund of EUR 69 mil- in Corporate Common expenses. Devices & Services recorded EUR 259 mil- lion (EUR 69 million in 2009). See Note 31. lion of restructuring charges and EUR 81 million of impairment and other The actual return on plan assets was EUR 85 million in 2010 (EUR 126 charges related to closure of the Bochum site in Germany. Other expenses million in 2009). also included a charge of EUR 52 million related to other restructuring In 2011, the Group expects to make contributions of EUR 43 million to activities in Devices & Services and EUR 49 million in charges related to its defined benefit pension plans. restructuring and other costs in Nokia Siemens Networks. 6. Expenses by nature In all three years presented “Other income and expenses” include the costs of hedging forecasted sales and purchases (forward points of cash flow hedges). Starting from 2009, within the same line are also included the changes in fair value of derivatives hedging identifiable and probable EURm 2010 2009 2008 forecasted cash flows. Cost of material Personnel expenses Depreciation and amortization Advertising and promotional expenses Warranty costs Other costs and expenses Total of Cost of sales, Research and development, Selling and marketing and Administrative and general expenses 20 917 6 995 1 771 1 291 894 8 616 19 502 6 747 1 784 1 335 696 8 643 23 892 6 914 1 617 1 600 1 020 9 926 40 484 38 707 44 969 7. Other income and expenses 8. Impairment EURm 2010 2009 2008 Goodwill Other intangible assets Property, plant and equipment Inventories Investments in associated companies Available-for-sale investments Other non-current assets Total — — — — — 107 3 110 908 56 1 — 19 25 — 1 009 — — 77 13 8 43 8 149 Other income totaled EUR 476 million in 2010 (EUR 338 million in 2009 and EUR 420 million in 2008). Other expenses totaled EUR 368 million in 2010 (EUR 510 million in 2009 and EUR 1 195 million in 2008). Goodwill In 2010, other income includes a refund of customs duties of EUR 61 million, a gain on sale of assets and a business of EUR 29 million and a Goodwill is allocated to the Group’s cash-generating units (CGU) for the gain on sale of the wireless modem business of EUR 147 million impacting Devices & Services operating profit. The wireless modem business was purpose of impairment testing. The allocation is made to those cash- generating units that are expected to benefit from the synergies of the responsible for development of Nokia’s wireless modem technologies for LTE, HSPA and GSM standards. The wireless modem business included business combination in which the goodwill arose. In 2010, the Group has goodwill allocated to two cash-generating units, which correspond to the Nokia’s wireless modem technologies for LTE, HSPA and GSM standards, Group’s reportable segments: Devices & Services CGU and NAVTEQ CGU. certain related patents and approximately 1 100 Nokia R&D profession- The recoverable amounts for the Devices & Services CGU and the als, the vast majority of whom are located in Finland, India, the UK and NAVTEQ CGU are based on value in use calculations. The cash flow projec- Denmark. The sale was closed on November 30, 2010. Other expenses tions employed in the value in use calculation are based on financial included restructuring charges of EUR 112 million, of which EUR 85 mil- plans approved by management. These projections are consistent with lion is related to Devices & Services and EUR 27 million to Nokia Siemens external sources of information, wherever available. Cash flows beyond Networks. The restructuring charges in Devices & Services mainly related the explicit forecast period are extrapolated using an estimated terminal to changes in Symbian Smartphones and Services organizations as well as certain corporate functions. Other income for 2009 includes a gain on sale of security appliance growth rate that does not exceed the long-term average growth rates for the industry and economies in which the CGU operates. The impair- ment testing has been carried out based on management’s assessment business of EUR 68 million impacting Devices & Services operating profit of financial performance and future strategies in light of current and ex- and a gain on sale of real estate in Oulu, Finland, of EUR 22 million im- pected market and economic conditions. Events that occurred subsequent pacting Nokia Siemens Networks operating loss. In 2009, other expenses includes EUR 178 million charges related to restructuring activities in to the balance sheet date, as discussed in Note 33, did not have an impact on this assessment. 36 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Goodwill amounting to EUR 1 355 million has been allocated to the Devices & Services CGU for the purpose of impairment testing. The good- will impairment testing conducted for the Devices & Services CGU for the 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 year ended December 31, 2010 did not result in any impairment charges. operating expense and is included in the Devices & Services segment. Goodwill amounting to EUR 4 368 million has been allocated to the NAVTEQ CGU. The goodwill impairment testing conducted for the NAVTEQ Property, plant and equipment and inventories CGU for the year ended December 31, 2010 did not result in any impair- ment charges. The recoverable amount of the NAVTEQ CGU is between In 2010, the Group did not recognise any impairment charges with respect 15–20% higher than its carrying amount. The Group has concluded that a to property, plant and equipment and inventories. In 2008, resulting from reasonably possible change of between 1–2% in the valuation assump- the Group’s decision to discontinue the production of mobile devices in tions for long-term growth rate and discount rate would give rise to an Germany, an impairment loss was recognised amounting to EUR 55 mil- impairment loss. lion. The impairment loss related to the closure and sale of production The key assumptions applied in the impairment testing analysis for facilities at Bochum, Germany during 2008 and is included in the each CGU are presented in the table below: Devices & Services segment. Cash-generating unit Devices & Services % 2.0 8.7 11.1 NAVTEQ % 4.0 9.6 12.8 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 assets 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 Terminal growth rate Post-tax discount rate Pre-tax discount rate The Group has applied consistent valuation methodologies for each of ments in associated companies. After application of the equity method, the Group’s CGUs for the years ended December 31, 2010, 2009 and 2008. including recognition of the Group’s share of results of associated compa- The value in use is determined on a pre-tax value basis using pre-tax nies, the Group determined that recognition of impairment losses of EUR valuation assumptions including pre-tax cash flows and pre-tax discount 19 million in 2009 and EUR 8 million in 2008 was necessary to adjust the rate. As market-based rates of return for the Group’s cash-generating Group’s investment in associated companies to its recoverable amount. In 2010, the Group did not recognise any impairment charges on its invest- units are available only on a post-tax basis, the pre-tax discount rates are derived by adjusting the post-tax discount rates to reflect the specific Available-for-sale investments amount and timing of future tax cash flows. The discount rates applied in the impairment testing for each CGU have been determined independent- The Group’s investment in certain equity securities held as non-current ly of capital structure reflecting current assessments of the time value available-for-sale suffered a permanent decline in fair value resulting in of money and relevant market risk premiums. Risk premiums included in an impairment charge of EUR 107 million in 2010 (EUR 25 million in 2009, the determination of the discount rate reflect risks and uncertainties for EUR 43 million in 2008). These impairment amounts are included within which the future cash flow estimates have not been adjusted. Overall, the financial expenses and other operating expenses in the consolidated discount rates applied in the 2010 impairment testing have decreased in income statement. See also note 11. line with declining interest rates. In 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 9. Acquisitions to the carrying amount of goodwill arising from the formation of Nokia Siemens Networks and from subsequent acquisitions completed by Nokia Acquisitions completed in 2010 Siemens Networks. As a result of the impairment loss, the amount of goodwill allocated to the Nokia Siemens Networks CGU has been reduced During 2010, the Group completed several minor acquisitions that did to zero. not have a material impact on the consolidated financial statements. The The goodwill impairment testing conducted for each of the Group’s purchase consideration paid and the total goodwill arising from these CGUs for the year ended December 31, 2008 did not result in any impair- acquisitions amounted to EUR 108 million and EUR 82 million, respectively. ment charges. Other intangible assets In 2010 and 2008, the Group did not recognise any impairment charges on other intangible assets. In conjunction with the Group’s decision to refocus its activities around specified core assets, the Group recorded The goodwill arising from these acquisitions is attributable to assembled workforce and post acquisition synergies. » MetaCarta Inc, based in Cambridge, USA, provides unique geographic intelligence technology and expertise in geographic intelligence solu- tions. The Group acquired a 100% ownership in MetaCarta on April 9, 2010. 37 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S » Novarra Inc, based in Chicago, USA, is a provider of a mobile browser and service platform with more than 100 employees. The Group acquired a 100% ownership interest in Novarra on April 9, 2010. industry leading maps data to add context–time, place, people–to web services optimized for mobility. 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 » Motally Inc, a US-based company, provides mobile analytics services directly attributable to the acquisition of EUR 12 million and consider- offering in-application tracking and reporting. The Group acquired a ation attributable to the vested portion of replacement share-based 100% ownership interest in Motally on August 31, 2010. payment awards of EUR 19 million. The following table summarizes the estimated fair values of the as- » PixelActive Inc, based in California, USA, specialises in tools and sets acquired and liabilities assumed at the date of acquisition. techniques for 3D modeling of detailed road networks, buildings and terrain. NAVTEQ acquired a 100% ownership interest in PixelActive on November 17, 2010. Acquisitions completed in 2009 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 attributable 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 members 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 infrastruc- ture 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 services 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 marketing content delivery solutions. NAVTEQ acquired a 100% own- ership interest in Acuity Mobile on September 11, 2009. 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 Acquisitions completed in 2008 NAVTEQ 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 ac- celeration of the Group’s internet services strategy. None of the goodwill On July 10, 2008, the Group completed its acquisition of all of the out- acquired is expected to be deductible for income tax purposes. standing common stock of NAVTEQ. Based in Chicago, NAVTEQ is a leading provider of comprehensive digital map information for automotive sys- tems, mobile navigation devices, Internet-based mapping applications, and government and business solutions. The Group will use NAVTEQ’s Symbian On December 2, 2008, the Group completed its acquisition of 52.1% of the outstanding common stock of Symbian Ltd. As a result of this acquisition, 38 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S the Group’s total ownership interest 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-lead- The goodwill of EUR 470 million has been allocated to the Devices & Services segment. The goodwill is attributable to assembled workforce and the significant benefits that the Group expects to realise from the ing open operating system for mobile phones. The acquisition of Symbian Symbian Foundation. None of the goodwill acquired is expected to be was a fundamental step in the establishment of the Symbian Foundation. deductible for income tax purposes. The Group contributed the Symbian OS and S60 software to the Sym- bian Foundation for the purpose of creating a unified mobile software The contribution of the Symbian OS and S60 software to the Symbian Foundation has been accounted for as a retirement. Thus, the Group has platform with a common UI framework. A full platform was available for recognised a loss on retirement of EUR 165 million consisting of EUR 55 all Foundation members under a royalty-free license, from the Founda- million book value of Symbian identifiable intangible assets and EUR 110 tion’s first day of operations. million book value of capitalised S60 development costs. The acquisition of Symbian was achieved in stages through succes- For NAVTEQ and Symbian, the Group has included net losses of EUR sive share purchases at various times from the formation of the company. 155 million and EUR 52 million, respectively, in the consolidated income Thus, the amount of goodwill arising from the acquisition has been statement. The following table depicts pro forma net sales and operating determined via a step-by-step comparison of the cost of the individual profit of the combined entity as though the acquisition of NAVTEQ and investments in Symbian with the acquired interest in the fair values of Symbian had occurred on January 1, 2008: Symbian’s identifiable net assets at each stage. Revaluation 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 Pro forma, EURm Net sales Net profit 2008 51 063 4 080 of changes in Symbian’s equity balances after each stage is included in During 2008, the Group completed five additional acquisitions. The total equity. purchase consideration paid and the total goodwill arising from these ac- The total cost of the acquisition was EUR 641 million consisting of quisitions amounted to EUR 514 million and EUR 339 million, respectively. cash paid of EUR 435 million, costs directly attributable to the acquisition The goodwill arising from these acquisitions is attributable to assembled of EUR 6 million and investments in Symbian from previous exchange workforce and post acquisition synergies. transactions of EUR 200 million. The following table summarizes the estimated fair values of the as- » Trolltech ASA, based in Oslo, Norway, is a recognised software provider sets acquired and liabilities assumed at the date of acquisition. with world-class software development platforms and frameworks. Carrying amount Fair value — 470 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 Accounts payable Accrued expenses Financial liabilities 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 5 — — 5 33 7 45 20 43 147 210 255 — 5 48 — 53 202 41 11 3 55 31 19 105 20 43 147 210 785 17 5 53 20 95 690 22 27 641 The Group acquired a 100% ownership interest in Trolltech ASA on June 6, 2008. » Oz Communications Inc., headquartered in Montreal, Canada, is a leading consumer 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 Car- rier 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 pro- vider of subscriber-centric networks for mobile, fixed and converged telecommunications 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 Technical Services from Deutsche Telekom. 39 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 10. Depreciation and amortization During 2009, interest income decreased significantly due to lower interest rates and interest expense increased given higher long term EURm 2010 2009 2008 funding with a higher cost. Depreciation and amortization by function Cost of sales Research and development 1 Selling and marketing 2 Administrative and general Total 248 906 426 191 1 771 266 909 424 185 1 784 297 778 368 174 1 617 1 In 2010, depreciation and amortization allocated to research and development in- cluded amortization of acquired intangible assets of EUR 556 million (EUR 534 million in 2009 and EUR 351 million in 2008, respectively). 2 In 2010, depreciation and amortization allocated to selling and marketing included amortization of acquired intangible assets of EUR 408 million (EUR 401 million in 2009 and EUR 343 million in 2008, respectively). 11. Financial income and expenses EURm 2010 2009 2008 During 2008, interest expense increased significantly due to increase in interest-bearing liabilities mainly related to NAVTEQ acquisition. For- eign exchange gains (or losses) increased due to higher cost of hedging and increased volatility on the foreign exchange market. 12. Income taxes EURm Income tax Current tax Deferred tax Total Finland Other countries Total 2010 2009 2008 – 798 355 – 443 – 126 – 317 – 443 – 736 34 – 702 76 – 778 – 702 – 1 514 433 – 1 081 – 604 – 477 – 1 081 Dividend income on available-for-sale financial investments Interest income on available-for-sale financial investments 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 Other financial income Other financial expenses Net foreign exchange gains (or losses) From foreign exchange derivatives 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 2 3 1 110 101 357 The differences between income tax expense computed at statutory rate (in Finland 26%) and income taxes recognized in the consolidated income – 254 – 243 – 185 statement is reconciled as follows at December 31, 2010: 1 – 3 28 2 – 4 19 11 – 63 – 4 58 73 – 129 — 18 – 29 — — — — 17 – 31 58 – 358 432 EURm 2010 2009 2008 Income tax expense at statutory rate Permanent differences Non tax deductible impairment of Nokia Siemens Networks’ goodwill 1 — Taxes for prior years – 48 Taxes on foreign subsidiaries’ profits 464 4 250 – 96 236 – 17 1 292 – 65 — – 128 in excess of (lower than) income taxes at statutory rates Change in losses and temporary differences with no tax effect 2 Net increase (+)/decrease(–) in tax contingencies Change in income tax rates Deferred tax liability on undistributed earnings 3 Other Income tax expense – 195 – 145 – 181 221 577 — 24 2 – 31 2 443 – 186 4 111 – 32 702 2 – 22 220 – 37 1 081 – 165 230 – 595 1 See note 8 – 1 – 285 – 15 – 265 6 – 2 2 This item primarily relates to Nokia Siemens Networks’ losses and temporary differ- ences for which no deferred tax was recognized. In 2010, it also includes a benefit of EUR 52 million from the reassessment of recoverability of deferred tax assets in Nokia Siemens Networks. 3 The change in deferred tax liability on undistributed earnings mainly relates to changes to tax rates applicable to profit distributions. During 2010, the Group received distributions of EUR 69 million (2009 EUR 13 million) included in other financial income from a private fund held Certain of the Group companies’ income tax returns for periods rang- ing from 2004 through 2010 are under examination by tax authorities. as non-current available-for-sale. Due to these distributions resulting The Group does not believe that any significant additional taxes in excess in a reduction in estimated future cash flows, the Group also recognized of those already provided for will arise as a result of the examinations. an impairment loss of EUR 94 million (2009 EUR 9 million) for the fund included in other financial expenses. Additional information can be found in Note 8 Impairments and Note 16 Fair Value of Financial Instruments. 40 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 13. Intangible assets 14. Property, plant and equipment EURm 2010 2009 EURm 2010 2009 Capitalized development costs Acquisition cost January 1 Additions during the period Impairment losses Retirements during the period Disposals during the period Accumulated acquisition cost December 31 Accumulated amortization January 1 Retirements during the period Impairment losses 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 Accumulated acquisition cost December 31 Accumulated impairments January 1 Impairments during the period Accumulated impairments 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 1 830 — – 11 – 784 — 1 035 – 1 687 784 11 — – 103 – 995 143 40 6 079 470 82 — 6 631 – 908 — – 908 5 171 5 723 5 287 216 58 21 – 142 — – 3 5 437 – 2 525 – 42 125 — 2 – 1 069 – 3 509 2 762 1 928 1 811 27 — — – 8 1 830 – 1 567 — — 8 – 128 – 1 687 244 143 6 257 – 207 32 – 3 6 079 — – 908 – 908 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 Land and water areas Acquisition cost January 1 Additions 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 Disposals during the period Accumulated acquisition cost December 31 Accumulated depreciation January 1 Translation differences 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 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 Disposals during the period Accumulated acquisition cost December 31 Accumulated depreciation January 1 Translation differences Disposals during the period Depreciation for the period Accumulated depreciation December 31 Net book value January 1 Net book value December 31 59 — – 2 57 59 57 1 312 69 86 – 53 1 414 – 385 – 19 41 – 90 – 453 927 961 60 1 – 2 59 60 59 1 274 – 17 132 – 77 1 312 – 350 3 42 – 80 – 385 924 927 3 984 213 472 4 — – 669 4 004 – 3 168 – 164 639 – 492 – 3 185 816 819 4 183 – 67 386 1 – 1 – 518 3 984 – 3 197 50 489 – 510 – 3 168 986 816 47 6 15 – 12 56 – 27 – 2 9 – 17 – 37 20 19 30 -2 19 — 47 – 15 1 — – 13 – 27 15 20 41 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S EURm 2010 2009 Advance payments and fixed assets under construction Net carrying amount January 1 Translation differences Additions Disposals Transfers to: Other intangible assets Buildings and constructions Machinery and equipment Other tangible assets Net carrying amount December 31 — – 20 – 10 – 11 98 45 3 92 – 1 105 – 2 29 – 1 – 3 – 34 – 36 – 13 45 Total property, plant and equipment 1 954 1 867 15. Investments in associated companies EURm 2010 2009 Net carrying amount January 1 Translation differences Additions Deductions Impairments Share of results Dividend Other movements Net carrying amount December 31 69 3 63 – 6 — 1 – 1 7 136 96 – 4 30 – 50 – 19 30 — – 14 69 Shareholdings in associated companies are comprised of investments in unlisted companies in all periods presented. 42 Nokia in 2010 16. Fair value of financial instruments N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Carrying amounts Current available-for- sale financial assets Non-current available-for- sale financial assets Financial instruments at fair value Financial Loans and liabilities receivables through measured at measured at amortised amortised profit or cost cost loss Total carrying amounts Fair value At December 31, 2010, 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 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 Short-term borrowings Other financial liabilities Accounts payable Total financial liabilities 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 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 Short-term borrowings Other financial liabilities Accounts payable Total financial liabilities 8 293 232 64 4 7 570 39 12 366 9 413 9 413 533 911 1 277 7 689 — — 359 359 — 8 257 258 7 151 31 7 151 554 — — 316 580 896 245 245 — 4 242 13 116 921 88 6 101 11 481 — 4 432 2 44 727 46 6 7 981 14 13 8 060 4 950 10 155 — 8 8 293 293 232 64 4 7 570 39 366 12 232 60 4 7 570 39 366 12 9 413 9 413 911 911 18 912 18 908 4 242 4 467 13 116 921 447 6 101 13 116 921 447 6 101 11 840 12 065 8 8 257 257 258 46 6 7 981 14 316 13 258 40 6 7 981 14 316 13 7 182 7 182 580 580 16 661 16 655 4 432 4 691 2 44 727 245 4 950 2 44 727 245 4 950 10 400 10 659 43 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S The current fixed income and money market investments included avail- able for sale liquid assets of EUR 3 772 million (EUR 2 367 million in 2009) and cash equivalents of EUR 5 641 million (EUR 4 784 million in 2009). See 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 2010. Changes in fair Note 35, section Financial Credit Risk, for details on fixed income and value that are attributable to changes in market conditions are calculated money-market investments. based on relevant benchmark interest rates. For information about the valuation of items measured at fair value The Group has a non-controlling interest that includes a put arrange- see Note 1. ment measured at its redemption value of EUR 88 million at December 31, In the tables above, fair value is set to carrying amount for other 2010 presented in Other financial liabilities. The put arrangement has available-for-sale investments carried at cost less impairment for which been exercised in the first quarter of 2011. The remaining portion of the no reliable fair value has been possible to estimate. line Other financial liabilities is comprised of derivatives liabilities. The fair value of loan receivables and payables is estimated based on Note 17 includes the split of hedge accounted and non-hedge ac- the current market values of similar instruments. Fair value is estimated counted derivatives. to be equal to the carrying amount for short-term financial assets and The following table presents the valuation methods used to deter- financial liabilities due to limited credit risk and short time to maturity. mine fair values of financial instruments carried at fair value: Instruments with quoted prices in active markets (Level 1) Valuation technique using observable data (Level 2) Valuation technique using non-observable data (Level 3) At December 31, 2010, 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 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 9 215 911 8 — — 10 134 — — 6 933 580 8 — — 7 521 — — 198 — — 14 366 578 359 359 249 — — 15 316 580 245 245 — — — 279 — 279 — — — — — 242 — 242 — — Total 9 413 911 8 293 366 10 991 359 359 7 182 580 8 257 316 8 343 245 245 Level 1 category includes financial assets and liabilities that are measured the Group’s own valuation models whereby the material assumptions are in whole or in significant part by reference to published quotes in an ac- market observable. The majority of Group’s over-the-counter derivatives tive market. A financial instrument is regarded as quoted in an active mar- and several other instruments not traded in active markets fall within this ket if quoted prices are readily and regularly available from an exchange, category. dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions Level 3 category includes financial assets and liabilities measured using on an arm’s length basis. This category includes listed bonds and other valuation techniques based on non market observable inputs. This means securities, listed shares and exchange traded derivatives. that fair values are determined in whole or in part using a valuation Level 2 category includes financial assets and liabilities measured using observable current market transactions in the same instrument nor are a valuation technique based on assumptions that are supported by prices they based on available market data. However, the fair value measure- from observable current market transactions. These include assets and ment objective remains the same, that is, to estimate an exit price from liabilities for which pricing is obtained via pricing services, but where the perspective of the Group. The main asset classes in this category are prices have not been determined in an active market, financial assets unlisted equity investments as well as unlisted funds. with fair values based on broker quotes and assets that are valued using model based on assumptions that are neither supported by prices from 44 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S The following table shows a reconciliation of the opening and closing recorded amount of Level 3 financial assets, which are measured at fair 2009, EURm Fair value 1 Notional 2 Fair value 1 Notional 2 Assets Liabilities value: EURm 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 Balance at December 31, 2009 Total gains/losses in income statement Total gains/losses recorded in other comprehensive income Purchases Sales Transfer from associated companies Transfer from level 1 and 2 Balance at December 31, 2010 Other available-for-sale investments carried at fair value 214 – 30 15 45 – 2 — 242 3 – 11 78 – 34 1 — 279 The gains and losses from Level 3 financial instruments are included in the line other operating expenses of the income statement for the respective period. A net loss of EUR 12 million (EUR 14 million in 2009) related to Level 3 financial instruments held at December 31, 2010, was included in the income statement during 2010. 17. Derivative financial instruments Hedges of net investment in foreign subsidiaries: Forward foreign exchange contracts Cash flow hedges: Forward foreign exchange contracts Interest rate swaps Fair value hedges 12 1 128 – 42 2 317 25 — 8 062 — – 25 – 2 7 027 330 Interest rate swaps 117 1 750 – 10 68 Cash flow and Fair value hedges: 3 Cross currency interest rate swaps — — – 77 416 Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss: Forward foreign exchange contracts Currency options bought Currency options sold Interest rate swaps Cash settled equity options bought 4 147 8 — 7 — 316 5 785 442 — 68 – 68 — – 1 – 20 6 504 — 102 499 6 17 241 — – 245 — 17 263 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 cancelled. The amount of notional value outstanding is not necessarily a measure or indication of market risk, as the exposure of certain contracts may be offset by that of other contracts. 3 These cross-currency interest rate swaps have been designated partly as fair value hedges and partly as cash flow hedges. Assets Liabilities 4 Cash settled equity options are used to hedge risk relating to employee incentive Fair value 1 Notional 2 Fair value 1 Notional 2 2010, EURm Hedges of net investment in foreign subsidiaries: Forward foreign exchange contracts Cash flow hedges: Forward foreign exchange contracts Fair value hedges 66 2 254 – 154 4 433 41 8 025 – 57 8 572 Interest rate swaps 128 1 550 – 8 76 Cash flow and Fair value hedges: 3 Cross currency interest rate swaps — — – 6 378 programs and investment activities. In addition to derivative liabilities, the Group has a non-controlling inter- est that includes a put arrangement measured at its redemption value of EUR 88 million at December 31, 2010 presented in Other financial liabili- ties. The put arrangement has been exercised in the first quarter of 2011. 18. Inventories EURm Raw materials, supplies and other Work in progress Finished goods Total 2010 2009 762 642 1 119 2 523 409 681 775 1 865 Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss: Forward foreign exchange contracts Currency options bought Currency options sold Interest rate swaps 73 13 — 45 366 5 349 1 959 — 1 028 20 165 – 69 — – 15 – 50 – 359 7 956 — 749 1 199 23 363 19. Prepaid expenses and accrued income Prepaid expenses and accrued income totalled EUR 4 360 million in 2010 (EUR 4 551 million in 2009). In 2010, prepaid expenses and accrued income included advance payments to Qualcomm of EUR 1 166 million (1 264 million in 2009). In 2008, Nokia and Qualcomm entered into a new 15 year agreement, under 45 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 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 upfront payment of EUR 1.7 billion, which is amortized over the contract period and ongoing royalties payable to Qualcomm. As part of the licence agreement, Nokia also assigned ownership of a number of patents to Qualcomm. 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 includes prepaid pension costs, accrued interest income and other accrued income, but no amounts which are individually significant. 20. 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 Balance at end of year 2010 Allowance for doubtful accounts Excess and obsolete inventory 2009 Allowance for doubtful accounts Excess and obsolete inventory 2008 Allowance for doubtful accounts Excess and obsolete inventory 1 Deductions include utilization and releases of the allowances. 391 361 415 348 332 417 117 124 155 192 224 151 – 145 – 184 – 179 – 179 – 141 – 221 — — — — — 1 363 301 391 361 415 348 46 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 21. Fair value and other reserves EURm Gross Tax Net Gross Tax Net Gross Tax Net Balance at December 31, 2007 54 – 15 39 – 17 1 – 16 37 – 14 23 Hedging reserve Available-for-sale investments Total Cash flow hedges: Net fair value gains (+)/losses (–) Transfer of gains (–)/losses (+) to income statement as adjustment to net sales Transfer of gains (–)/losses (+) to income statement 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 income statement on impairment Transfer of net fair value gains (–)/losses (+) to income statement on disposal Movements attributable to non-controlling interests Balance at December 31, 2008 Cash flow hedges: Net fair value gains (+)/losses (–) Transfer of gains (–)/losses (+) to income statement as adjustment to net sales Transfer of gains (–)/losses (+) to income statement as adjustment to cost of sales Available-for-sale investments: Net fair value gains (+)/losses (–) Transfer to income statement on impairment Transfer of net fair value gains (–)/losses (+) to income statement on disposal Movements attributable to non-controlling interests Balance at December 31, 2009 Cash flow hedges: Net fair value gains (+)/losses (–) Transfer of gains (–)/losses (+) to income statement as adjustment to net sales Transfer of gains (–)/losses (+) to income statement as adjustment to cost of sales Available-for-sale investments: Net fair value gains (+)/losses (–) Transfer to income statement on impairment Transfer of net fair value gains (–)/losses (+) to income statement on disposal Movements attributable to non-controlling interests Balance at December 31, 2010 281 – 67 214 — — — 281 – 67 214 – 631 177 – 454 — — — – 631 177 – 454 186 – 62 124 — — — 186 – 62 124 124 – 32 92 — — — 124 – 32 92 — — — — — — – 21 87 – 20 101 — — — 66 81 – 29 9 1 — – 20 1 – 29 1 9 — – 20 1 13 3 – 29 1 – 1 10 14 2 – 19 13 90 72 1 – 22 – 10 14 68 62 – 19 6 – 13 — — — – 19 6 – 13 873 – 222 651 — — — 873 – 222 651 – 829 205 -624 — — — – 829 205 – 624 — — — — — — 16 – 15 – 65 61 — — — – 49 46 36 – 4 14 — – 2 — – 2 — 6 17 32 14 – 2 – 2 23 36 14 – 2 – 67 78 – 4 — — 16 – 9 32 14 – 2 – 51 69 – 119 12 – 107 — — — – 119 12 – 107 357 – 57 300 — — — 357 – 57 300 – 379 70 – 309 — — — – 379 70 – 309 — — — — — — – 7 50 3 – 30 — — — 43 – 27 – 3 – 2 13 — – 5 13 – 1 — – 1 — — — 30 4 26 – 3 13 – 1 50 – 4 – 2 — — – 7 7 – 5 13 – 1 43 3 In order to ensure that amounts deferred in the cash flow hedging reserve do not include gains/losses on forward exchange contracts that have represent only the effective portion of gains and losses on properly des- been designated to hedge forecasted sales or purchases that are no ignated hedges of future transactions that remain highly probable at the longer expected to occur. balance sheet date, Nokia has adopted a process under which all deriva- All of the net fair value gains or losses recorded in the fair value and tive gains and losses are initially recognized in the income statement. The appropriate reserve balance is calculated at the end of each period and other reserve at December 31, 2010 on open forward foreign exchange contracts which hedge anticipated future foreign currency sales or pur- posted to the fair value and other reserves. chases are transferred from the hedging reserve to the income statement The Group continuously reviews the underlying cash flows and the when the forecasted foreign currency cash flows occur, at various dates hedges allocated thereto, to ensure that the amounts transferred to the fair value reserves during the years ended December 31, 2010 and 2009 up to approximately 1 year from the balance sheet date. 47 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 22. Translation differences EURm Gross Tax Net Gross Tax Net Gross Tax Net Balance at December 31, 2007 – 204 — – 204 92 – 51 41 – 112 – 51 – 163 Translation differences Net investment hedging Total 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 non-controlling 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 non-controlling interests Balance at December 31, 2009 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 non-controlling interests Balance at December 31, 2010 23. The shares of the Parent Company 595 — — — — — — — — — 391 — 595 — — — — 391 — — — — — — 595 — — 595 — — – 123 – 91 32 — — — — — — – 50 – 19 – 31 – 123 — — 360 32 – 91 — — — — 341 – 19 – 556 2 – 7 — – 554 – 7 — — — — — — – 556 – 7 2 – 554 – 7 — — — — — 1 8 3 – 164 — — 9 – 161 114 83 – 31 1 — 1 — — — 34 – 50 84 114 1 8 – 80 – 31 — 1 83 1 9 – 47 – 127 1 302 3 1 305 — — — — — — — — — 1 302 — 3 1 305 — — — — – 2 — – 65 4 1 079 – 63 1 075 – 389 101 – 288 — — — — — — 51 – 254 – 305 – 389 — – 63 770 101 – 288 — — – 65 – 2 825 55 Nokia shares and shareholders Shares and share capital through one or more issues of shares or special rights entitling to shares, including stock options. This authorization was effective until June 30, 2010 as per the resolution of the Annual General Meeting on May 3, 2007, Nokia has one class of shares. Each Nokia share entitles the holder to one but it was terminated by the resolution of the Annual General Meeting on vote at General Meetings of Nokia. May 6, 2010. On December 31, 2010, the share capital of Nokia Corporation was EUR At the Annual General Meeting held on May 6, 2010, Nokia sharehold- 245 896 461.96 and the total number of shares issued was 3 744 956 052. ers authorized the Board of Directors to issue a maximum of 740 million On December 31, 2010, the total number of shares included shares through one or more issues of shares or special rights entitling to 35 826 052 shares owned by Group companies representing approximate- shares, including stock options. The Board of Directors may issue either ly 1.0% of the share capital and the total voting rights. new shares or shares held by the Company. The authorization includes Under the Articles of Association of Nokia, Nokia Corporation does not the right for the Board to resolve on all the terms and conditions of such have minimum or maximum share capital or a par value of a share. issuances of shares and special rights, including to whom the shares Authorizations Authorization to increase the share capital and the special rights may be issued. 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 authorization is effective until June 30, 2013. At the Annual General Meeting held on May 3, 2007, Nokia shareholders au- thorized the Board of Directors to issue a maximum of 800 million shares At the end of 2010, the Board of Directors had no other authorizations to issue shares, convertible bonds, warrants or stock options. 48 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Other authorizations At the Annual General Meeting held on April 23, 2009, Nokia shareholders authorized the Board of Directors to repurchase a maximum of 360 mil- Each stock option entitles the holder to subscribe for one new Nokia share. The stock options are non-transferable and may be exercised for shares only. All of the stock options have a vesting schedule with 25% of lion Nokia shares by using funds in the unrestricted equity. Nokia did not the options vesting one year after grant and 6.25% each quarter there- repurchase any shares on the basis of this authorization. This authoriza- after. The stock options granted under the plans generally have a term of tion was effective until June 30, 2010 as per the resolution of the Annual five years. General Meeting on April 23, 2009, but it was terminated by the resolution The exercise price of the stock options is determined at the time of of the Annual General Meeting on May 6, 2010. grant, on a quarterly basis, in accordance with a pre-agreed schedule At the Annual General Meeting held on May 6, 2010, Nokia share- after the release of Nokia’s periodic financial results. The exercise prices holders authorized the Board of Directors to repurchase a maximum of are based on the trade volume weighted average price of a Nokia share 360 million Nokia shares by using funds in the unrestricted equity. The on NASDAQ OMX Helsinki during the trading days of the first whole week amount of shares corresponds to less than 10% of all the shares of the of the second month of the respective calendar quarter (i.e., February, Company. The shares may be repurchased under the buy back authoriza- May, August or November). Exercise prices are determined on a one-week tion in order to develop the capital structure of the Company. In addition, weighted average to mitigate any day-specific fluctuations in Nokia’s shares may be repurchased in order to finance or carry out acquisitions or share price. The determination of exercise price is defined in the terms other arrangements, settle the Company’s equity-based incentive plans, and conditions of the stock option plan, which are approved by the share- to be transferred for other purposes, or to be cancelled. The authorization holders at the respective Annual General Meeting. The Board of Directors is effective until June 30, 2011. does not have the right to change how the exercise price is determined. Shares will be eligible for dividend for the financial year in which the Authorizations proposed to the Annual General Meeting 2011 subscription takes place. Other shareholder rights commence on the date On January 27, 2011, Nokia announced that the Board of Directors will on which the subscribed shares are entered in the Trade Register. The propose that the Annual General Meeting convening on May 3, 2011 autho- stock option grants are generally forfeited if the employment relationship rize the Board to resolve to repurchase a maximum of 360 million Nokia terminates with Nokia. shares. The proposed maximum number of shares that may be repur- Pursuant to the stock options issued under the global stock option chased is the same as the Board’s current share repurchase authorization plans, an aggregate maximum number of 21 743 599 new Nokia shares and it corresponds to less than 10% of all the shares of the company. The may be subscribed for, representing 0.6% of the total number of votes at shares may be repurchased in order to develop the capital structure of the December 31, 2010. The exercises of stock options resulted in an increase Company, finance or carry out acquisitions or other arrangements, settle of Nokia’s share capital prior to May 3, 2007. After that date the exercises the company’s equity-based incentive plans, be transferred for other of stock options have no longer resulted in an increase of the share capi- purposes, or be cancelled. The shares may be repurchased either through tal as thereafter all share subscription prices are recorded in the fund for a tender offer made to all shareholders on equal terms, or through public invested non-restricted equity as per a resolution by the Annual General trading from the stock market. The authorization would be effective until Meeting. June 30, 2012 and terminate the current authorization for repurchasing of There were no stock options outstanding as of December 31, 2010, the Company’s shares resolved at the Annual General Meeting on which upon exercise would result in an increase of the share capital of the May 6, 2010. parent company. The following table sets forth certain information relating to the stock options outstanding at December 31, 2010. 24. Share-based payment The Group has several equity-based incentive programs for employees. The programs 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 conditions, as determined in the relevant plan rules. The share-based compensation expense for all equity-based incen- tive awards amounted to EUR 47 million in 2010 (EUR 16 million in 2009 and EUR 74 million in 2008). Stock options During 2010 Nokia administered two global stock option plans, the Stock Option Plan 2005 and 2007, each of which, including its terms and condi- tions, has been approved by the Annual General Meetings in the year when the plan was launched. 49 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Stock Plan options Number of (year of outstanding participants (approx.) launch) 2010 Option (sub) category Vesting status (as percentage of total number of stock options outstanding) Exercise period First vest date Last vest date Expiry date 2005 1 6 465 329 3 500 2005 2Q Expired July 1, 2006 July 1, 2009 December 31, 2010 Expired October 1, 2006 October 1, 2009 December 31, 2010 Expired January 1, 2007 January 1, 2010 December 31, 2010 2005 3Q 2005 4Q 2006 1Q 2006 2Q 2006 3Q 2006 4Q 2007 1Q 2007 1 15 278 270 11 000 2007 2Q 2007 3Q 2007 4Q 2008 1Q 2008 2Q 2008 3Q 2008 4Q 2009 1Q 2009 2Q 2009 3Q 2009 4Q 2010 1Q 2010 2Q 2010 3Q 2010 4Q Exercise price/ share EUR 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 8.76 100.00 100.00 100.00 93.75 87.50 81.25 75.00 68.75 62.50 56.25 50.00 43.75 37.50 31.25 25.00 — — — — — 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 April 1, 2011 April 1, 2014 December 31, 2015 10.11 July 1, 2011 July 1, 2014 December 31, 2015 October 1, 2011 October 1, 2014 December 31, 2015 January 1, 2012 January 1, 2015 December 31, 2015 8.86 7.29 7.59 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 at December 31, 2010 1 Number of shares Weighted average exercise price EUR 2 Weighted average share price EUR 2 Shares under option at January 1, 2008 Granted Exercised Forfeited Expired Shares under option at December 31, 2008 Granted Exercised Forfeited Expired Shares under option at December 31, 2009 Granted Exercised Forfeited Expired Shares under option at December 31, 2010 Options exercisable at December 31, 2007 (shares) Options exercisable at December 31, 2008 (shares) Options exercisable at December 31, 2009 (shares) Options exercisable at December 31, 2010 (shares) 50 Nokia in 2010 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 6 708 582 39 772 1 698 435 6 065 041 21 945 296 21 535 000 12 895 057 13 124 925 11 376 937 15.28 17.44 14.21 16.31 14.96 15.89 11.15 6.18 17.01 13.55 15.39 8.73 2.20 12.07 13.97 14.04 14.66 14.77 16.09 17.07 22.15 9.52 9.44 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 Includes also stock options granted under other than global equity plans. For further Performance shares information see “Other equity plans for employees” below. 2 The weighted average exercise price and the weighted average share price do not incorporate the effect of transferable stock option exercises during 2007 by option holders not employed by the Group. During 2010, Nokia administered four global performance share plans, the Performance Share Plans of 2007, 2008, 2009 and 2010, each of which, including its terms and conditions, has been approved by the Board of The weighted average grant date fair value of stock options granted was Directors. EUR 2.29 in 2010, EUR 2.34 in 2009 and EUR 3.92 in 2008. The performance shares represent a commitment by Nokia Corpo- The options outstanding by range of exercise price at December 31, ration to deliver Nokia shares to employees at a future point in time, 2010 are as follows: Options outstanding Exercise prices, EUR 0.94–9.82 10.11–14.99 15.37–19.16 19.43–27.53 Number of shares 6 201 937 4 973 503 10 681 907 87 949 21 945 296 Weighted Weighted average exercise price EUR average remaining contractual life in years 5.00 3.78 1.61 1.70 8.66 11.46 18.28 23.96 subject to Nokia’s fulfillment of pre-defined performance criteria. No per- formance 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 2007, 2008, 2009 and 2010 plans have a three-year performance period with no interim payout. The shares vest after the respective 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. The perfor- mance share grants are generally forfeited if the employment relation- Nokia calculates the fair value of stock options using the Black-Scho- ship terminates with Nokia prior to vesting. les model. The fair value of the stock options is estimated at the grant The following table summarizes our global performance share plans. date using the following assumptions: 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 2010 2009 2008 4.73% 3.63% 3.20% 52.09% 39.92% 1.52–2.49% 1.97–2.94% 3.15–4.58% 43.46% 1.78% 3.59 8.27 2.23% 3.60 10.82 3.65% 3.55 16.97 Performance shares outstanding at threshold 1,2 Number of participants (approx.) Performance period Settlement 0 0 2 469 189 3 243 580 5 000 5 000 5 000 4 000 2007–2009 2008–2010 2009–2011 2010–2012 2010 2011 2012 2013 Plan 2007 2008 2009 2010 1 Shares under performance share plan 2008 vested on December 31, 2010 and are therefore not included in the outstanding numbers. 2 Does not include 7 354 outstanding performance shares with deferred delivery due to leave of absence. Expected term of stock options is estimated by observing general option holder behavior and actual historical terms of Nokia stock option The following table sets forth the performance criteria of each global plans. performance share plan. Expected volatility has been set by reference to the implied volatility of options available on Nokia shares in the open market and in light of historical patterns of volatility. Threshold performance Maximum performance Average annual EPS 1, 2 net sales EUR growth 1 EUR Average annual EPS 1, 2 net sales Plan 2007 Performance period 2008 Performance period 2009 Performance period 2010 Performance period 1.26 1.72 1.01 0.82 9.5% 4% – 5% 0% 1.86 2.76 1.53 1.44 growth 1 20% 16% 10% 13.5% 1 Both the EPS and Average Annual Net Sales Growth criteria have an equal weight of 50%. 2 The EPS for 2007 plan: basic reported. The EPS for 2008 plan: diluted excluding special items. The EPS for 2009 and 2010 plans: diluted non-IFRS. 51 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Performance shares outstanding at December 31, 2010 1 All of the Group’s restricted share plans have a restriction period of Number of Weighted performance average grant shares at date fair value threshold EUR 2 three years after grant. Until the Nokia shares are delivered, the partici- pants will not have any shareholder rights, such as voting or dividend rights, associated with the restricted shares. The restricted share grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting. 13.35 Restricted shares outstanding at December 31, 2010 1 Performance shares at January 1, 2008 5 Granted Forfeited Vested 3, 4, 6 Performance shares at December 31, 2008 Granted Forfeited Vested 5, 7 Performance shares at December 31, 2009 Granted Forfeited Vested 8 Performance shares at December 31, 2010 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 3 576 403 1 039 908 1 910 332 5 720 123 9.57 5.94 1 Includes also performance shares granted under other than global equity plans. For further information 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 Company’s share less the present value of dividends, if any, 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 final payout, in 2008, was adjusted by the shares delivered based on the Interim Measurement Period. 4 Includes also performance shares vested under other than global equity plans. 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 Perfor- mance Share Plan are included in the number of performance shares outstanding at January 1, 2008 as these performance shares were outstanding until the final settle- ment 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. 8 Includes performance shares under Performance Share Plan 2008 that vested on December 31, 2010. Restricted shares at January 1, 2008 Granted 3 Forfeited Vested Restricted shares at December 31, 2008 Granted Forfeited Vested Restricted shares at December 31, 2009 Granted Forfeited Vested Restricted shares at December 31, 2010 4 Weighted Number of average grant restricted date fair value shares EUR 2 13.89 7.59 6.85 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 5 801 800 1 492 357 1 330 549 12 359 896 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). 4 Includes 849 800 restricted shares granted in Q4 2007 under Restricted Share Plan 2007 that vested on January 1, 2011. Other equity plans for employees In addition to the global equity incentive plans described above, Nokia has equity plans for Nokia-acquired businesses or employees in the United States and Canada under which participants can receive Nokia ADSs or or- There will be no settlement under the Performance Share Plan 2008 dinary shares. These equity plans do not result in an increase in the share as neither of the threshold performance criteria of EPS and Average An- capital of Nokia. These plans are settled by using Nokia shares or ADSs nual Net Sales Growth of this plan was met. acquired from the market. When treasury shares are issued on exercise of Restricted shares stock options any gain or loss is recognized in share issue premium. On the basis of these plans, the Group had 0.2 million stock options outstanding on December 31, 2010. The weighted average exercise price is USD 13.72. During 2010, Nokia administered four global restricted share plans, the Restricted Share Plan 2007, 2008, 2009 and 2010, each of which, including In connection with the July 10, 2008 acquisition of NAVTEQ, the Group assumed NAVTEQ’s 2001 Stock Incentive Plan (“NAVTEQ Plan”). All unvest- its terms and conditions, has been approved by the Board of Directors. ed NAVTEQ restricted stock units under the NAVTEQ Plan were converted Restricted shares are used to recruit, retain, and motivate selected to an equivalent number of restricted stock units entitling their holders high potential and critical talent who are vital to the future success of to Nokia shares. The maximum number of Nokia shares to be delivered to Nokia. Restricted shares are used only for key management positions and NAVTEQ employees during the years 2008–2012 is approximately 3 mil- other critical talent. lion, of which approximately 2 million shares have already been delivered 52 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S by December 31, 2010. The Group does not intend to make further awards under the NAVTEQ Plan. 26. Accrued expenses and other liabilities The Group also has an Employee Share Purchase Plan in the United EURm 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 par- ticipants, and the ADSs are purchased on a monthly basis. As of Decem- ber 31, 2010, approximately 12.8 million ADSs had been purchased under this plan since its inception, and there were a total of approximately Social security, VAT and other taxes Wages and salaries Deferred revenue Advance payments Other Total 2010 2009 1 585 619 786 1 172 3 203 7 365 1 808 474 231 546 3 445 6 504 550 participants in the plan. 25. Deferred taxes EURm Deferred tax assets: Other operating expense accruals include accrued discounts, royalties and marketing expenses as well as various amounts which are individu- ally insignificant. 2010 2009 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 76 388 82 268 782 21 447 – 468 1 596 77 263 73 315 796 15 320 – 352 1 507 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 – 406 – 13 – 353 – 718 468 – 1 022 – 469 – 67 – 345 – 774 352 – 1 303 Net deferred tax assets 574 204 The tax charged to equity: – 1 – 13 1 In 2010, other temporary differences include a deferred tax liability of EUR 542 million (EUR 744 million in 2009) arising from purchase price allocation related to Nokia Siemens Networks and NAVTEQ. At December 31, 2010, the Group had loss carry forwards, primarily attributable to foreign subsidiaries of EUR 1 792 million (EUR 1 150 million in 2009), most of which will not expire within 10 years. At December 31, 2010, the Group had loss carry forwards, temporary differences and tax credits of EUR 3 323 million (EUR 2 532 million in 2009) 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, 2010, the Group had undistributed earnings of EUR 360 million (EUR 322 million in 2009) on which no deferred tax liability has been formed as these have been considered to be permanent invest- ments. 53 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 27. Provisions EURm Warranty Restructuring IPR infringements Project losses 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 At January 1, 2010 Exchange differences Additional provisions Changes in estimates Charged to profit and loss account Utilized during year At December 31, 2010 1 375 – 13 793 — – 178 615 – 1 006 971 971 40 888 – 43 845 – 928 928 356 — 268 — – 62 206 – 378 184 184 — 228 – 44 184 – 173 195 343 — 73 — – 9 64 – 17 390 390 — 106 – 15 91 – 32 449 245 — 269 — – 63 206 – 254 197 197 — 239 – 52 187 – 177 207 Tax 460 — 139 — – 325 – 186 — 274 274 — 40 – 13 27 – 5 296 Other Total 813 — 344 – 1 – 174 169 – 280 702 702 — 238 – 87 151 – 338 515 3 592 – 13 1 886 – 1 – 811 1 074 – 1 935 2 718 2 718 40 1 739 – 254 1 485 – 1 653 2 590 EURm 2010 2009 Provisions for losses on projects in progress are related to Nokia Analysis of total provisions at December 31: Non-current Current Siemens Networks’ onerous contracts. Utilization of provisions for project 837 1 753 841 1 877 losses is generally expected to occur in the next 18 months. The IPR provision is based on estimated future settlements for as- serted and unasserted past IPR infringements. Final resolution of IPR Outflows for the warranty provision are generally expected to occur within the next 18 months. Timing of outflows related to tax provisions is inherently uncertain. In 2009, tax provisions decreased due to the positive claims generally occurs over several periods. Other provisions include provisions for non-cancelable purchase commitments, product portfolio provisions for the alignment of the development and outcome of various prior year items. product portfolio and related replacement of discontinued products in The restructuring provision is mainly related to restructuring activi- customer sites and provision for pension and other social security costs ties in Devices & Services and Nokia Siemens Networks segments. The on share-based awards. In 2010, usage of other provisions mainly relates majority of outflows related to the restructuring is expected to occur to product portfolio provisions. Most of those contracts were signed in during 2011. 2008 and contract fullfillment occurred primarily in 2009 and 2010. In 2010, Devices & Services recognized restructuring provisions of EUR 85 million mainly related to changes in Symbian Smartphones and Services organizations as well as certain corporate functions that are ex- 28. Earnings per share pected to result in a reduction of up to 1 800 employees globally. 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. Restructuring and other associated expenses incurred in Nokia Sie- mens Networks in 2010 totaled EUR 316 million (EUR 310 million in 2009) including mainly personnel related expenses as well as expenses arising from the elimination of overlapping functions, and the realignment of product portfolio and related replacement of discontinued products in customer sites. These expenses included EUR 173 million (EUR 151 million in 2009) impacting gross profit, EUR 19 million (EUR 30 million in 2009) research and development expenses, EUR 21 million reversal of provision (EUR 12 million in 2009) in selling and marketing expenses, EUR 76 million (EUR 103 million in 2009) administrative expenses and EUR 27 million (EUR 14 million in 2009) other operating expenses. EUR 510 million was paid during 2010 (EUR 514 million during 2009). 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 Diluted: Adjusted weighted average and assumed conversions 2010 2009 2008 1 850 891 3 988 3 708 816 3 705 116 3 743 622 324 4 110 — 4 434 9 614 6 341 1 15 956 25 997 6 543 4 201 36 741 3 713 250 3 721 072 3 780 363 54 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Under IAS 33, basic earnings per share is computed using the weighted Siemens Networks’ customers. Availability of the amounts is dependent average number of shares outstanding during the period. Diluted earn- upon the borrower’s continuing compliance with stated financial and ings per share is computed using the weighted average number of shares operational covenants and compliance with other administrative terms outstanding during the period plus the dilutive effect of stock options, of the facility. The loan facilities are primarily available to fund capital restricted shares and performance shares outstanding during the period. In 2010, stock options equivalent to 13 million shares (12 million in 2009 and 11 million in 2008) were excluded from the calculation of diluted earnings per share because they were determined to be anti-dilu- expenditure relating to purchases of network infrastructure equipment and services. Venture fund commitments of EUR 238 million in 2010 (EUR 293 mil- lion in 2009) are financing commitments to a number of funds making tive. In addition, 1 million of performance shares were excluded in 2010 technology related investments. As a limited partner in these funds, from the calculation of dilutive shares because contingency conditions Nokia is committed to capital contributions and also entitled to cash have not been met. 29. Commitments and contingencies EURm Collateral for our own commitments Property under mortgages Assets pledged 2010 2009 18 5 18 13 distributions according to respective partnership agreements. The Group is party to routine litigation incidental to the normal con- duct of business, including, but not limited to, several claims, suits and actions both initiated by third parties and initiated by Nokia relating to infringements of patents, violations of licensing arrangements and other intellectual property related matters, as well as actions with respect to products, contracts and securities. Based on the information currently available, in the opinion of the management outcome of and liabilities in excess of what has been provided for related to these or other proceed- ings, in the aggregate, are not likely to be material to the financial condi- tion or result of operations. Contingent liabilities on behalf of Group companies Other guarantees Contingent liabilities on behalf of other companies Other guarantees Financing commitments Customer finance commitments 1 Venture fund commitments 2 1 See also note 35 b). 2 See also note 35 a). 1 262 1 350 At December 31, 2010, the Group had purchase commitments of EUR 2 606 million (EUR 2 765 million in 2009) relating to inventory purchase obligations, service agreements and outsourcing arrangements, primar- 17 3 ily for purchases in 2011. 85 238 99 293 30. Leasing contracts The Group leases office, manufacturing and warehouse space under vari- ous non-cancellable operating leases. Certain contracts contain renewal options for various periods of time. The amounts above represent the maximum principal amount of commit- The future costs for non-cancellable leasing contracts are as follows: ments and contingencies. Property under mortgages given as collateral for our own commit- Leasing payments, EURm Operating leases ments comprise of mortgages given to the Finnish National Board of 2011 Customs as a general indemnity of EUR 18 million in 2010 (EUR 18 million in 2009). Assets pledged for the Group’s own commitments include available- for-sale investments of EUR 5 million in 2010 (EUR 10 million of available- for-sale investments in 2009). Other guarantees include guarantees of EUR 984 million in 2010 (EUR 1 013 million in 2009) provided to certain Nokia Siemens Networks’ customers in the form of bank guarantees or corporate guarantees issued 2012 2013 2014 2015 Thereafter Total 285 215 160 122 82 205 1 069 by Nokia Siemens Networks’ Group entity. These instruments entitle the Rental expense amounted to EUR 429 million in 2010 (EUR 436 million customer to claim payment as compensation for non-performance by in 2009 and EUR 418 million in 2008). Nokia of its obligations under network infrastructure supply agreements. Depending on the nature of the guarantee, compensation is payable on demand or subject to verification of non-performance. Volume of Other 31. Related party transactions guarantees has decreased due to release of certain commercial guaran- tees and due to exclusion of those guarantees where possibility for claim is considered as remote. Contingent liabilities on behalf of other companies were EUR 17 mil- lion in 2010 (EUR 3 million in 2009). At December 31, 2010, the Group had borrowings amounting to EUR 69 mil lion (EUR 69 million in 2009 and EUR 69 million in 2008) 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 dura- Financing commitments of EUR 85 million in 2010 (EUR 99 million in tion is pending until further notice by the loan counterparts who have the 2009) are available under loan facilities negotiated mainly with Nokia right to terminate the loan with a 90 day notice period. 55 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S There were no loans made to the members of the Group Executive Board and Board of Directors at December 31, 2010, 2009 or 2008, respec- tively. Transactions with associated companies EURm 2010 2009 2008 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 1 1 61 15 186 3 22 30 — 35 8 211 2 31 6 6 21 59 162 29 8 Management compensation The following table sets forth the salary and cash incentive informa- tion awarded and paid or payable by the company to the Chief Executive Officer and President of Nokia Corporation for fiscal years 2008–2010 as well as the share-based compensation expense relating to equity-based awards, expensed by the company. 2010 2009 2008 EUR Stephen Elop President and CEO from September 21, 2010 Olli-Pekka Kallasvuo President and CEO until September 20, 2010 Cash Share-based incentive compensation expense salary payments Base Cash Share-based incentive compensation expense salary payments Base Cash Share-based incentive compensation expense salary payments Base 280 303 440 137 67 018 — — — — — — 979 758 676 599 – 2 455 999 * 1 176 000 1 288 144 2 840 777 1 144 800 721 733 1 286 370 * The net negative share-based compensation expense of EUR 2 455 999 for Mr. Kallasvuo consisted of EUR 748 000 compensation for the fair market value of the 100 000 restricted Nokia shares granted to him in 2007, which were to vest on October 1, 2010, and reversal of the previously recognized share-based compensation expense, due to termination of Mr. Kallas vuo’s employment and forfeiture of his other equity grants. Total remuneration of the Group Executive Board awarded for the fiscal years 2008–2010 was EUR 9 009 253 in 2010 (EUR 10 723 777 in 2009 and EUR 8 859 567 in 2008), 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 3 186 223 in 2010 (EUR 9 668 484 in 2009 and EUR 4 850 204 in 2008). 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 respective years. 56 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Board of Directors Jorma Ollila, Chairman Dame Marjorie Scardino, Vice Chairman Georg Ehrnrooth 2 Lalita D. Gupte 3 Bengt Holmström Henning Kagermann Olli-Pekka Kallasvuo 4 Per Karlsson 5 Isabel Marey-Semper 6 Risto Siilasmaa 7 Keijo Suila 8 2010 2010 2009 2009 2008 2008 Gross annual fee EUR 1 Shares received Gross annual fee EUR 1 Shares received Gross annual fee EUR 1 Shares received 440 000 150 000 — 140 000 130 000 130 000 130 000 155 000 140 000 155 000 130 000 20 710 7 058 — 6 588 6 117 6 117 6 117 7 294 6 588 7 294 6 117 440 000 150 000 155 000 140 000 130 000 130 000 130 000 155 000 140 000 140 000 130 000 16 575 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 1 Approximately 40% of each Board member’s gross annual fee is paid in Nokia shares purchased from the market (included in the table under “Shares Received”) and the re- maining approximately 60% of the gross annual fee is paid in cash. 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 relating to the acquisition of the shares, including taxes. 2 The 2009 and 2008 fees of Georg Ehrnrooth amounted to an annual total of EUR 155 000 each year indicated, consisting of a fee of EUR 130 000 for services as a mem- ber of the Board and EUR 25 000 for services as Chairman of the Audit Committee. 3 The 2010, 2009 and 2008 fees of Lalita Gupte amounted to an annual total of EUR 140 000 each year indicated, 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. 4 Olli-Pekka Kallasvuo left his position on the Nokia Board of Directors on September 10, 2010. This table includes fees paid to Olli-Pekka Kallasvuo for his services as a member of the Board, only. 5 The 2010, 2009 and 2008 fees of Per Karlsson amounted to an annual total of EUR 155 000 each year indicated, 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 Com- mittee. 6 The 2010 and 2009 fees paid to Isabel Marey-Semper amounted to an annual total of EUR 140 000 each year indicated, 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 The 2010 fee of Risto Siilasmaa amounted to a total of EUR 155 000, consisting of fee of EUR 130 000 for service as a member of the Board and EUR 25 000 for service as Chair- man of the Audit Committee. The 2009 and 2008 fees of Risto Siilasmaa amounted to an annual total of EUR 140 000 each year indicated, 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 2008 fee of Keijo 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. Pension arrangements of certain Group Executive Board Members Stephen Elop, President and CEO, participates 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 Finn- ish TyEL pension system, base pay, incentives and other taxable 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 retire- ment benefits. Standard retirement benefits are available from age 63 to 68, according to an increasing scale. As part of his supplemental retirement plan agreement, Olli-Pekka Kallasvuo could have retired at the age of 60 with full retirement benefits to the extent that he had remained employed at that time by Nokia. The amount of that retirement benefit would have been calculated as if Mr. Kallasvuo had continued his service with Nokia through the retirement age of 65. As Mr. Kallasvuo’s employment with Nokia ended prior to his 60th birthday, this supplemental pension benefit was forfeited and Nokia reversed the actuarial liability of EUR 10 154 000 associated with it. Hallstein Moerk left the Group Executive Board as of March 31, 2010 and retired from employment with Nokia as of September 30, 2010 pursu- ant to the terms of his employment and pension agreement with Nokia. Nokia’s obligation was settled in full and it no longer has any actuarial liability for Mr. Moerk’s pension benefit. 32. Notes to cash flow statements EURm 2010 2009 2008 Adjustments for: Depreciation and amortization (Note 10) Profit (–)/loss (+) on sale of property, plant and equipment and available-for-sale investments Income taxes (Note 12) Share of results of associated companies (Note 15) Non-controlling interest Financial income and expenses (Note 11) Transfer from hedging reserve to sales and cost of sales (Note 21) Impairment charges (Note 8) Asset retirements (Note 9, 13) Share-based compensation (Note 24) Restructuring charges Settlement of a pension plan (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 1 771 1 784 1 617 – 193 443 – 1 – 507 – 111 702 – 11 1 081 – 30 – 631 – 6 – 99 191 265 2 – 22 110 37 47 245 — – 9 2 112 44 1 009 35 16 307 — — 3 390 – 445 149 186 74 448 152 – 124 3 024 1 281 – 512 1 145 640 – 534 321 1 563 – 1 698 – 2 333 — 140 – 2 546 17 2 349 53 57 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S The Transfer from hedging reserve to sales and cost of sales for 2008 has been reclassified for comparability purposes from Other financial income and expenses to Adjustments to profit attributable to equity holders of infrastructure assets for USD 1.2 billion in cash and cash equivalents. Ap- proximately 7 500 employees are expected to transfer to Nokia Siemens Networks from Motorola’s wireless network infrastructure business when the parent within Net cash from operating activities on the Consolidated the transaction closes, including large research and development sites in Statements of Cash Flows. the United States, China and India. As part of the transaction, Nokia Sie- In 2010, Nokia Siemens Networks’ EUR 750 million loans and capital- mens Networks expects to enhance its capabilities in key wireless technol- ized interest of EUR 16 million from Siemens were converted to equity ogies, including WiMAX and CDMA, and to strengthen its market position in impacting the non-controlling interests in the consolidated statements key geographic markets, in particular Japan and the United States. Nokia of financial position. The Group did not engage in any material non-cash Siemens Networks is also targeting to gain incumbent relationship with investing activities in 2009 and 2008. more than 50 operators and to strengthen its relationship with certain of 33. Subsequent events Nokia outlines new strategy, introduces new leadership and operational structure the largest communication service providers globally. The Motorola acquisition is expected to close after the final antitrust approval by the Chinese regulatory authorities has been granted and the other closing conditions have been met. On February 11, 2011, Nokia outlined its new strategic direction, including at December 31, 2010 34. Principal Nokia Group companies changes in leadership and operational structure designed to accelerate the company’s speed of execution in the intensely competitive mobile product market. The main elements of the new strategy includes: plans for a broad strategic partnership with Microsoft to build a new global mobile ecosystem, with Windows Phones serving as Nokia’s primary smartphone platform; a renewed approach to capture volume and value growth to connect “the next billion” to the internet in developing growth markets; focused investments in next-generation disruptive technologies; and a new leadership team and operational structure designed to focus on speed, accountability and results. Nokia and Microsoft have entered into a non-binding term sheet, however, the planned partnership with Microsoft remains subject to negotiations and execution of definitive agreements by the parties and there can be no assurances that definite agreements will be entered into. The future impact to Nokia Group’s financial statements resulting from the terms of any definitive agreements will be evaluated once those terms are agreed. As of April 1, 2011, Nokia will have a new operational structure, which features two distinct business units in Devices & Services business: Smart Devices and Mobile Phones. They will focus on Nokia’s key business areas: smartphones and mass-market mobile phones. Each unit will have profit-and-loss responsibility and end-to-end accountability for the full consumer experience, including product development, product manage- ment and product marketing. Starting April 1, 2011, Nokia will present the financial information in line with the new organizational structure and provide financial informa- % US Nokia Inc.  DE Nokia GmbH GB Nokia UK Limited KR Nokia TMC Limited CN Nokia Telecommunications Ltd NL Nokia Finance International B.V.  HU Nokia Komárom Kft IN Nokia India Pvt Ltd Nokia Italia S.p.A IT ES Nokia Spain S.A.U RO Nokia Romania SRL BR Nokia do Brazil Technologia Ltda RU OOO Nokia US NAVTEQ Corp NL Nokia Siemens Networks B.V.  FI DE Nokia Siemens Networks GmbH & Co KG IN Nokia Siemens Networks Pvt. Ltd.  Nokia Siemens Networks Oy 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 approximately 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. A complete list of subsidiaries and associated companies is included in tion for three businesses: Devices & Services, NAVTEQ and Nokia Siemens Nokia’s Statutory Accounts. Networks. Devices & Services will include two business units: Smart Devices and Mobile Phones as well as devices and services other and unal- located items. For IFRS financial reporting purposes, we will have four 35. Risk management operating and reportable segments: Smart Devices and Mobile Phones within Devices & Services, NAVTEQ and Nokia Siemens Networks. General risk management principles Nokia Siemens Networks planned acquisition of certain wireless network infrastructure assets of Motorola 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 perfor- On July 19, 2010, Nokia Siemens Networks announced that it had entered mance management. Relevant key risks are identified against business into an agreement to acquire the majority of Motorola’s wireless network targets either in business operations or as an integral part of long and 58 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S short term planning. Nokia’s overall risk management concept is based Since Nokia has subsidiaries outside the Euro zone, the euro-de- on visibility of the key risks preventing Nokia from reaching its business nominated value of the shareholders’ equity of Nokia is also exposed to objectives rather than solely focusing on eliminating risks. fluctuations in exchange rates. Equity changes resulting from movements The principles documented in Nokia’s Risk Policy and accepted by the in foreign exchange rates are shown as a translation difference in the Audit Committee of the Board of Directors require risk management and Group consolidation. its elements to be integrated into business processes. One of the main Nokia uses, from time to time, foreign exchange contracts and principles is that the business, function or category owner is also the risk foreign currency denominated loans to hedge its equity exposure arising owner, but it is everyone’s responsibility at Nokia to identify risks, which from foreign net investments. prevent Nokia to reach its objectives. Risk management covers strategic, operational, financial and hazard risks. At the end of the years 2010 and 2009, the following currencies repre- sent a significant portion of the currency mix in the outstanding financial Key risks are reported to the Group level management to create instruments: 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. Financial risks The objective for Treasury activities in Nokia is twofold: to guarantee cost-efficient funding for the Group at all times, and to identify, evalu- ate and hedge financial risks. There is a strong focus in Nokia on creating shareholder value. Treasury activities 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 manage- ment 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 pur- chases and sales contribute to foreign exchange exposure. These transac- tion exposures are managed against various local currencies because of Nokia’s substantial production and sales outside the Euro zone. 2010, EURm USD JPY CNY INR FX derivatives used as cashflow hedges (net amount) 1 FX derivatives used as net investment hedges (net amount) 2 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 mount) 3 Cross currency/interest rate hedges – 140 521 — – 23 – 642 — – 2 834 – 702 – 1 645 – 245 – 710 – 218 26 408 645 2 129 — — -95 — 2009, EURm USD JPY CNY INR FX derivatives used as cashflow hedges (net amount) 1 FX derivatives used as net investment hedges (net amount) 2 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 – 1 767 663 — – 78 – 969 – 6 – 983 – 208 – 464 – 421 – 1 358 80 – 328 375 578 1 633 — — – 164 — 1 The FX derivatives are used to hedge the foreign exchange risk from forecasted highly probable cashflows related to sales, purchases and business acquisition activities. In some of the currencies, especially 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 21 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 under- lying 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. 3 The balance sheet items and some probable forecasted cash flows, which are denomi- nated in 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. According to the foreign exchange policy guidelines of the Group, Interest rate risk which remains the same as in the previous year, material transac- tion foreign exchange exposures are hedged unless hedging would be The Group is exposed to interest rate risk either through market value uneconomical due to market liquidity and/or hedging cost. Exposures fluctuations of balance sheet items (i.e. price risk) or through changes in are defined using nominal values of the transactions, except for foreign interest income or expenses (i.e. refinancing or reinvestment risk). Inter- exchange options where the risk is measured using options’ delta. est rate risk mainly arises through interest bearing liabilities and assets. Exposures are mainly hedged with derivative financial instruments such Estimated future changes in cash flows and balance sheet structure also as forward foreign exchange contracts and foreign exchange options. The expose the Group to interest rate risk. majority of financial instruments hedging foreign exchange risk have a The objective of interest rate risk management is to manage uncer- duration of less than a year. The Group does not hedge forecasted foreign tainty caused by fluctuations in interest rates and minimizing net long- currency cash flows beyond two years. term interest rate costs over time. 59 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S The interest rate exposure of the Group is monitored and managed This model implies that within a one-month period, the potential loss centrally. Nokia uses the Value-at-Risk (VaR) methodology to assess and measure the interest rate risk of the net investments (cash and invest- will not exceed the VaR estimate in 95% of possible outcomes. In the re- maining 5% of possible outcomes, the potential loss will be at minimum ments less outstanding debt) and related derivatives. equal to the VaR figure, and on average substantially higher. At the reporting date, the interest rate profile of the Group’s interest- The VaR methodology relies on a number of assumptions, such as, bearing assets and liabilities is presented in the table below: a) risks are measured under average market conditions, assuming that EURm Assets Liabilities Assets and liabilities before derivatives Interest rate derivatives Assets and liabilities after derivatives 2010 2009 Fixed Floating rate rate Fixed Floating rate rate 8 795 – 4 156 3 588 – 992 5 712 – 3 771 3 241 – 1 403 4 639 1 036 2 596 – 994 1 941 1 628 1 838 – 1 693 5 675 1 602 3 569 145 Equity price risk 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 sensi- tive 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 relationship and are mostly used for hedging balance sheet Nokia is exposed to equity price risk as the result of market price fluctua- FX exposure. tions in the listed equity instruments held mainly for strategic business reasons. » FX derivatives designated as forecasted cash flow hedges and net Nokia has certain strategic non-controlling investments in publicly investment hedges. Most of the VaR is caused by these derivatives as listed equity shares. The fair value of the equity investments which forecasted cash flow and net investment exposures are not financial are subject to equity price risk at December 31, 2010 was EUR 8 mil- instruments as defined under IFRS 7 and thus not included in the VaR lion (EUR 8 million in 2009). In addition, Nokia invests in private equity calculation. through venture funds, which, from time to time, may have holdings in equity instruments which are listed in stock exchanges. These invest- Table 1 Foreign exchange positions Value-at-Risk ments are classified as available-for-sale carried at fair value. See Note 16 for more details on available-for-sale investments. Due to the insignificant amount of exposure to equity price risk, there EURm are currently no outstanding derivative financial instruments designated as hedges for these equity investments. 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. At December 31 Average for the year Range for the year Interest rate risk Value-at-Risk VaR from financial instruments 2009 2010 245 223 174–299 190 291 160–520 Nokia uses the Value-at-Risk (VaR) methodology to assess the Group portfolios is presented in Table 2 below. Sensitivities to credit spreads are exposures to foreign exchange (FX), interest rate, and equity risks. The not reflected in the below numbers. 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 Table 2 Treasury investment and debt portfolios Value-at-Risk The VaR for the Group interest rate exposure in the investment and debt 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 EURm At December 31 Average for the year Range for the year Equity price risk 2010 45 43 33–63 2009 41 33 4–52 The VaR for the Group equity investment in publicly traded companies is average is performed on the data with an appropriate decay factor. insignificant. 60 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S b) Credit risk Credit risk refers to the risk that a counterparty will default on its contrac- tual obligations resulting in financial loss to the Group. Credit risk arises At December 31, 2010, the carrying amount before deducting any allowances for doubtful accounts relating to customers for which an allowance was provided amounted to EUR 2 521 million (2009: EUR 2 528 million). The amount of provision taken against that portion of these from bank and cash, fixed income and money-market investments, de- receivables considered to be impaired was EUR 363 million (2009: EUR 391 rivative financial instruments, loans receivable as well as credit exposures million) (see also note 20 Valuation and qualifying accounts). to customers, including outstanding receivables, financial guarantees and An amount of EUR 472 million (2009: EUR 679 million) relates to past committed transactions. Credit risk is managed separately for business due receivables from customers for which no allowances for doubtful ac- related and financial credit exposures. counts were recognized. The aging of these receivables is as follows: Except as detailed in the following table, the maximum exposure to credit risk is limited to the book value of the financial assets included in Group’s balance sheet: EURm Financial guarantees given on behalf of customers and other third parties Loan commitments given but not used Business related credit risk 2010 2009 — 85 85 — 99 99 EURm Past due 1–30 days Past due 31–180 days More than 180 days 2010 2009 239 131 102 472 393 170 116 679 The carrying amount of accounts receivable that would otherwise be past due or impaired, but whose terms have been renegotiated was EUR 40 million (EUR 36 million in 2009). At December 31, 2010, there were no loans due from customers and other third parties, for which an allowance for doubtful accounts was provided (2009: EUR 4 million). The Company aims to ensure the highest possible quality in accounts re- There were no past due loans from customers and other third parties ceivable and loans due from customers and other third parties. The Group at December 31, 2010. Credit Policy, approved by Group Executive Board, lays out the framework for the management of the business related credit risks in all Nokia group companies. Financial credit risk Credit exposure is measured as the total of accounts receivable and loans outstanding due from customers and other third parties, and com- Financial instruments contain an element of risk of loss resulting from mitted credits. counterparties being unable to meet their obligations. This risk is mea- Group Credit Policy provides that credit decisions are based on credit sured and monitored centrally by Treasury. Nokia manages financial credit evaluation including credit ratings for larger exposures. Nokia & Nokia risk actively by limiting its counterparties to a sufficient number of major Siemens Networks Rating Policy defines the rating principles. Ratings banks and financial institutions and monitoring the credit worthiness are approved by Nokia & Nokia Siemens Networks Rating Committee. and exposure sizes continuously as well as through entering into netting Credit risks are approved and monitored according to the credit policy of arrangements (which gives Nokia the right to offset in the event that the each business entity. These policies are based on the Group Credit Policy. counterparty would not be able to fulfill the obligations) with all major Concentrations of customer or country risks are monitored at the Nokia counterparties and collateral agreements (which require counterparties to Group level. When appropriate, credit risks are mitigated with the use of post collateral against derivative receivables) with certain counterparties. approved instruments, such as letters of credit, collateral or insurance Nokia’s investment decisions are based on strict creditworthiness and sale of selected receivables. and maturity criteria as defined in the Treasury Policy and Operating Pro- The accounts receivable do not include any major concentrations of cedure. As result of this investment policy approach and active manage- credit risk by customer or by geography. Top three customers account ment of outstanding investment exposures, Nokia has not been subject to for approximately 2.2%, 2.1% and 2.1% (2009: 2.2%, 2.2% and 1.9%) of Group accounts receivable and loans due from customers and other third any material credit losses in its financial investments. The table below presents the breakdown of the outstanding fixed parties as at December 31, 2010, while the top three credit exposures by income and money market investments by sector and credit rating grades country amounted to 8.5%, 7.4% and 5.5% (2009: 7.2%, 6.5% and 5.6%), ranked as per Moody’s rating categories. respectively. The Group has provided allowances for doubtful accounts as needed on accounts 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 allowances for doubtful accounts that represent an estimate of incurred losses as of the end of the report- ing period. All receivables and loans due from customers and other third parties are considered on an individual basis in establishing the allow- ances for doubtful accounts. 61 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Fixed income and money-market investments 1, 2, 3 EURm 6 000 5 000 4 000 3 000 2 000 1 000 0 Ba1–B3 Baa1–Baa3 A1–A3 Aa1–Aa3 Aaa 2009 2010 2009 2010 2009 2010 2009 2010 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 investments at fair value through 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 37 million of restricted investment at December 31, 2010 (EUR 48 million at December 31, 2009). 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. 89% of Nokia’s cash is held with banks of investment grade credit The most significant existing committed facilities include: rating (84% for 2009). c) Liquidity risk Borrower(s): Nokia Corporation: USD 1 923 million Revolving Credit Facility, maturing 2012 Liquidity risk is defined as financial distress or extraordinary high financ- ing costs arising due to a shortage of liquid funds in a situation where Nokia Siemens Networks business conditions unexpectedly deteriorate and require financing. Finance B.V. and Transactional liquidity risk is defined as the risk of executing a financial Nokia Siemens Networks Oy: EUR 2 000 million 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 Revolving Credit Facility, maturing 2012 liquidity, and to ensure that it is available fast enough without endanger- USD 1 923 million Revolving Credit Facility of Nokia Corporation is used ing its value, in order to avoid uncertainty related to financial distress at primarily for US and Euro Commercial Paper Programs back up purposes. all times. At year end 2010, this facility was fully undrawn. Nokia guarantees a sufficient liquidity at all times by efficient cash EUR 2 000 million Revolving Credit Facility of Nokia Siemens Networks management and by investing in liquid interest bearing securities. The Finance B.V. and Nokia Siemens Networks Oy is used for general corporate transactional liquidity risk is minimized by only entering transactions purposes. The Facility includes financial covenants related to gearing test, where proper two-way quotes can be obtained from the market. leverage test and interest coverage test of Nokia Siemens Networks. As Due to the dynamic nature of the underlying business, Nokia and of December 31, 2010, EUR 103 million of the facility was drawn and all Nokia Siemens Networks aim at maintaining flexibility in funding by financial covenants were satisfied. keeping committed and uncommitted credit lines available. Nokia and As of December 31, 2010, the weighted average commitment fee on Nokia Siemens Networks manage their respective credit facilities inde- the committed credit facilities was 0.83% per annum (0.70% in 2009). pendently and facilities do not include cross-default clauses between Nokia and Nokia Siemens Networks or any forms of guarantees from either party. At December 31, 2010, the committed facilities totaled EUR 3 508 million (EUR 4 113 million in 2009). 62 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S The most significant existing funding programs as of December 31, 2010 were: Issuer(s): Nokia Corporation: Nokia Corporation: Nokia Corporation: Nokia Corporation and Nokia Finance International B.V.: Nokia Siemens Networks Finance B.V.: Program Issued Shelf registration statement on file with the US Securities and Exchange Commission USD 1 500 million 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 Local commercial paper program in Finland, totaling EUR 500 million USD 500 million — EUR 245 million The following table below is an undiscounted cash flow analysis for ments according to their remaining contractual maturity. Line-by-line both financial liabilities and financial assets that are presented on the reconciliation with the balance sheet is not possible. balance sheet, and off-balance sheet instruments such as loan commit- At 31 December 2010, EURm Non-current financial assets Available-for-sale investments 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 contract–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 net settled: 5 Derivative contracts–payments Cash flows related to derivative financial liabilities gross settled: 5 Derivative contracts–receipts Derivative contracts–payments Other financial liabilities 4 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 Due beyond 5 years 3 and 5 years — — — 9 — 10 7 904 1 951 3 — — 33 1 18 1 229 — 72 – 53 14 136 – 14 075 5 476 – 119 – 2 – 849 3 718 – 3 704 838 – 90 – 125 – 73 – 3 — 18 836 – 19 085 – 88 – 5 942 – 27 50 3 506 – 3 545 — – 155 – 38 — 3 59 2 — — 322 163 — 38 456 – 457 21 35 8 — — — 44 97 — — 1 — — — 1 043 77 — 47 – 276 123 – 128 — 253 – 247 — – 839 – 2 351 – 2 596 — — — 655 – 651 — – 9 – 20 3 355 — — 5 310 – 295 — — — — — — 58 450 – 420 — — — — 63 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S At 31 December 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 rofit 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 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: 5 Derivative contracts–payments Cash flows related to derivative financial liabilities gross settled: 5 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 Due beyond 5 years 3 and 5 years — — 4 1 3 6 417 1 142 88 14 350 – 14 201 5 903 – 124 – 3 – 628 — — 11 1 22 322 — – 47 1 067 – 1 037 1 002 – 96 – 41 – 100 – 1 – 4 14 529 – 14 652 – 4 873 – 59 — 1 444 – 1 455 – 74 – 40 — 36 3 — — 29 290 — 80 — — 73 6 1 — — 515 110 — 110 — — — 4 1 — — 139 116 — 27 — — — – 594 – 2 973 – 2 596 — — – 11 45 – 36 – 3 — 2 841 — — – 3 292 – 279 — — — — — 55 466 – 469 — — — 1 Accounts receivable maturity analysis does not include accrued receivables and receiv- ables accounted based on the percentage of completion method of EUR 1 235 million (2009: EUR 1 004 million). 2 Loan commitments given undrawn 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. 4 Other financial liabilities in 2010 (EUR 0 million in 2009) include EUR 88 million non- derivative short term financial liabilities disclosed in Note 16. 5 In 2010 the Group has changed the presentation of certain derivatives from net settled to gross settled, to better reflect the nature of the contracts. The 2009 numbers have been aligned with the new presentation. The net cash flows for each time buckets remain the same. In addition to items presented in the above table, the Group has en- management measures. Insurance is purchased for risks, which cannot tered in 2010 into an agreement to acquire the majority of the Motorola be efficiently internally managed and where insurance markets offer wireless network infrastructure assets for USD 1.2 billion in cash and cash acceptable terms and conditions. The objective is to ensure that hazard equivalents. The Motorola acquisition is expected to close after the final risks, whether related to physical assets (e.g. buildings) or intellectual antitrust approval by the Chinese regulatory authorities has been granted assets (e.g. Nokia brand) or potential liabilities (e.g. product liability) are and the other closing conditions have been met. optimally insured taking into account both cost and retention levels. Hazard risk Nokia purchases both annual insurance policies for specific risks as well as multiline and/or multiyear insurance policies, where available. Nokia strives to ensure that all financial, reputation and other losses to the Group and our customers are minimized through preventive risk 64 Nokia in 2010 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 65 P A R E N T C O M P A N Y 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 2010 EURm 2009 EURm December 31 Notes 2010 EURm 2009 EURm Net sales Cost of sales Gross margin Selling and marketing expenses Research and development expenses Administrative expenses Other operating expenses Other operating income 20 639 20 167 – 15 363 – 14 666 A S S E T S 5 276 5 501 – 1 453 – 3 142 – 217 – 124 341 – 1 403 – 3 097 – 396 – 70 106 Operating profit 2, 3 681 641 Financial income and expenses Income from long-term investments Dividend income from Group companies Dividend income from other companies Other interest and financial income Interest income from Group companies Interest income from other companies Other financial income from other companies Exchange gains and losses Interest expenses and other financial expenses Interest expenses to Group companies Interest expenses to other companies Other financial expenses Financial income and expenses, total 396 1 8 4 15 – 374 – 24 – 63 – 113 – 150 290 2 84 2 9 106 – 80 – 161 – 10 242 Profit before extraordinary items and taxes 531 883 Extraordinary items Group contributions Extraordinary items, total Profit before taxes Income taxes for the year from previous years deferred taxes – 6 – 6 10 10 525 893 18 – 106 – 2 123 – 127 1 – 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 4 5 6 6 6 Current assets Inventories and work in progress Raw materials and supplies Work in progress Finished goods Receivables Deferred tax assets Trade debtors from Group companies Trade debtors from other companies Short-term loan receivables from Group companies Prepaid expenses and accrued income from Group companies Prepaid expenses and accrued income from other companies Short-term investments Bank and cash 3 35 446 484 13 46 418 477 — — 12 054 58 12 109 30 10 107 12 229 10 74 12 223 57 65 98 220 45 86 86 217 124 1 163 568 1 1 080 713 3 970 3 472 54 15 2 133 8 012 1 858 7 139 37 207 35 70 21 189 20 161 Net profit 540 767 Total See Notes to the financial statements of the parent company. See Notes to the financial statements of the parent company. 66 Nokia in 2010 P A R E N T C O M P A N Y December 31 Notes 2010 EURm 2009 EURm Financial year ended December 31 Notes 2010 EURm 2009 EURm Statements of cash flows, parent company, FAS 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 Liabilities Long-term liabilities Long-term finance liabilities to other companies Short-term liabilities Current finance liabilities from Group companies Current finance liabilities from other companies Advance payments from other companies Trade creditors to Group companies Trade creditors to other companies Accrued expenses and prepaid income to Group companies Accrued expenses and prepaid income to other companies Total liabilities 7 7 7, 8 7, 8 7, 8 246 – 669 3 145 3 072 540 6 334 246 – 685 3 154 3 788 767 7 270 9 3 430 3 255 4 876 3 380 379 323 3 433 525 473 217 3 280 531 32 73 1 857 11 425 1 682 9 636 14 855 12 891 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 13 13 540 457 997 478 1 475 10 – 127 – 158 – 223 977 10 767 99 866 881 1 747 88 – 140 157 46 1 898 40 Net cash from operating activities 987 1 938 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 Proceeds from other long-term receivables Proceeds from short-term receivables Dividends received – 104 — – 191 14 — — – 123 – 717 324 – 93 – 1 – 461 30 – 3 – 1 128 8 356 292 Net cash used in/from investing activities – 797 8 247 Cash flow from financing activities Proceeds from short-term borrowings Proceeds from/repayment of long-term borrowings Dividends paid 1 335 3 287 97 – 12 085 – 1 481 – 1 483 Net cash used in financing activities – 51 – 10 279 Net increase/decrease in cash and cash equivalents 139 105 Cash and cash equivalents at beginning of period – 94 199 Total 21 189 20 161 Cash and cash equivalents at end of period 244 105 See Notes to the financial statements of the parent company. See Notes to the financial statements of the parent company. 67 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S O F T H E P A R E N T C O M P A N Y Notes to the financial statements of the parent company 1. Accounting principles 2. Personnel expenses The Parent company Financial Statements are prepared according to Finn- EURm 2010 2009 ish Accounting Standards (FAS). See 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 912 141 39 1 092 1 096 146 42 1 284 Management compensation The following table sets forth the salary and cash incentive informa- tion awarded and paid or payable by the company to the Chief Executive Officer and President of Nokia Corporation for fiscal years 2008–2010 as well as the share-based compensation expense relating to equity-based awards, expensed by the company. 2010 2009 2008 EUR Stephen Elop President and CEO from September 21, 2010 Olli-Pekka Kallasvuo President and CEO until September 20, 2010 Cash Share-based incentive compensation expense salary payments Base Cash Share-based incentive compensation expense salary payments Base Cash Share-based incentive compensation expense salary payments Base 280 303 440 137 67 018 — — — — — — 979 758 676 599 – 2 455 999 * 1 176 000 1 288 144 2 840 777 1 144 800 721 733 1 286 370 * The net negative share-based compensation expense of EUR 2 455 999 for Mr. Kallasvuo consisted of EUR 748 000 compensation for the fair market value of the 100 000 restricted Nokia shares granted to him in 2007, which were to vest on October 1, 2010, and reversal of the previously recognized share-based compensation expense, due to termination of Mr. Kallas vuo’s employment and forfeiture of his other equity grants. Total remuneration of the Group Executive Board awarded for the fiscal years 2008–2010 was EUR 9 009 253 in 2010 (EUR 10 723 777 in 2009 and EUR 8 859 567 in 2008), 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 3 186 223 in 2010 (EUR 9 668 484 in 2009 and EUR 4 850 204 in 2008). 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 respective years. Board of Directors Jorma Ollila, Chairman Dame Marjorie Scardino, Vice Chairman Georg Ehrnrooth 2 Lalita D. Gupte 3 Bengt Holmström Henning Kagermann Olli-Pekka Kallasvuo 4 Per Karlsson 5 Isabel Marey-Semper 6 Risto Siilasmaa 7 Keijo Suila 8 68 Nokia in 2010 2010 2010 2009 2009 2008 2008 Gross annual fee EUR 1 Shares received Gross annual fee EUR 1 Shares received Gross annual fee EUR 1 Shares received 440 000 150 000 — 140 000 130 000 130 000 130 000 155 000 140 000 155 000 130 000 20 710 7 058 — 6 588 6 117 6 117 6 117 7 294 6 588 7 294 6 117 440 000 150 000 155 000 140 000 130 000 130 000 130 000 155 000 140 000 140 000 130 000 16 575 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 1 Approximately 40% of each Board member’s gross annual fee is paid in Nokia shares purchased from the market (included in the table under “Shares Received”) and the re- maining approximately 60% of the gross annual fee is paid in cash. 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 relating to the acquisition of the shares, including taxes. 2 The 2009 and 2008 fees of Georg Ehrnrooth amounted to an annual total of EUR 155 000 each year indicated, consisting of a fee of EUR 130 000 for services as a mem- ber of the Board and EUR 25 000 for services as Chairman of the Audit Committee. 3 The 2010, 2009 and 2008 fees of Lalita Gupte amounted to an annual total of EUR 140 000 each year indicated, 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. 4 Olli-Pekka Kallasvuo left his position on the Nokia Board of Directors on September 10, 2010. This table includes fees paid to Olli-Pekka Kallasvuo for his services as a member of the Board, only. 5 The 2010, 2009 and 2008 fees of Per Karlsson amounted to an annual total of EUR 155 000 each year indicated, 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 Com- mittee. 6 The 2010 and 2009 fees paid to Isabel Marey-Semper amounted to an annual total of EUR 140 000 each year indicated, 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 The 2010 fee of Risto Siilasmaa amounted to a total of EUR 155 000, consisting of fee of EUR 130 000 for service as a member of the Board and EUR 25 000 for service as Chair- man of the Audit Committee. The 2009 and 2008 fees of Risto Siilasmaa amounted to an annual total of EUR 140 000 each year indicated, 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. N O T E S T O T H E F I N A N C I A L S T A T E M E N T S O F T H E P A R E N T C O M P A N Y 3. Depreciation and amortization EURm 2010 2009 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 143 — 33 176 4. Intangible assets 10 23 143 — 176 9 23 170 — 202 177 — 25 202 8 The 2008 fee of Keijo 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. EURm 2010 2009 Pension arrangements of certain Group Executive Board Members Stephen Elop, President and CEO, participates 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 Finn- ish TyEL pension system, base pay, incentives and other taxable 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 retire- ment benefits. Standard retirement benefits are available from age 63 to 68, according to an increasing scale. As part of his supplemental retirement plan agreement, Olli-Pekka Kallasvuo could have retired at the age of 60 with full retirement benefits to the extent that he had remained employed at that time by Nokia. The amount of that retirement benefit would have been calculated as if Mr. Kallasvuo had continued his service with Nokia through the retirement age of 65. As Mr. Kallasvuo’s employment with Nokia ended prior to his 60th birthday, this supplemental pension benefit was forfeited and Nokia reversed the actuarial liability of EUR 10 154 000 associated with it. Hallstein Moerk left the Group Executive Board as of March 31, 2010 and retired from employment with Nokia as of September 30, 2010 pursu- ant to the terms of his employment and pension agreement with Nokia. Nokia’s obligation was settled in full and it no longer has any actuarial liability for Mr. Moerk’s pension benefit. Personnel average Production Marketing R&D Administration 2010 2009 2 560 1 117 7 860 2 290 13 827 3 091 1 225 8 431 2 408 15 155 Personnel, December 31 13 017 14 133 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 31 288 — – 4 284 – 275 4 – 10 – 281 13 3 304 20 – 96 228 – 258 88 – 23 – 193 46 35 619 171 — 790 – 201 — – 143 – 344 418 446 287 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 69 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S O F T H E P A R E N T C O M P A N Y 5. Tangible assets At the end of 2010 and 2009, the parent company had no tangible assets. These assets were leased from Nokia Asset Management Oy, a company wholly owned by Nokia Corporation. 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 2010 2009 12 109 96 – 151 12 054 12 084 108 – 83 12 109 30 28 — 58 74 57 – 24 107 10 27 – 7 30 41 33 — 74 Parent Company, EURm 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 Balance at December 31, 2009 Settlement of performance and restricted shares Dividend Net profit Balance at December 31, 2010 Share capital 246 Reserve for invested non-restricted equity 3 299 51 – 59 Treasury shares – 3 147 4 231 – 3 123 154 246 – 1 885 3 291 969 231 – 685 16 – 137 3 154 – 9 246 246 – 669 3 145 Retained earnings 10 712 – 4 231 – 1 992 1 749 6 238 – 969 – 1 481 767 4 555 – 1 483 540 3 612 Total 11 110 51 — – 3 123 95 – 1 992 1 749 7 890 — 94 – 1 481 767 7 270 7 – 1 483 540 6 334 70 Nokia in 2010 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S O F T H E P A R E N T C O M P A N Y 8. Distributable earnings 13. Notes to cash flow statements EURm 2010 2009 EURm 2010 2009 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 3 145 3 072 540 6 757 – 669 6 088 3 154 3 788 767 7 709 – 685 7 024 9. Long-term liabilities EURm 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 Million 1 250 EUR 1 000 USD 500 EUR 500 USD Interest, % 5.534 5.572 6.792 6.775 2010 2009 2 930 500 3 430 2 755 500 3 255 1 640 — 1 640 1 483 500 1 983 1 290 753 524 363 2 930 1 272 653 508 322 2 755 10. Commitments and contingencies EURm 2010 2009 Contingent liabilities on behalf of Group companies Guarantees for loans Leasing guarantees Other guarantees 68 243 63 1 157 162 Contingent liabilities on behalf of other companies Other guarantees 3 — 11. Leasing contracts 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 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 176 – 14 248 – 5 — 52 457 – 200 – 3 681 478 202 126 – 242 – 7 7 13 99 364 37 480 881 14. Principal Nokia Group companies on December 31, 2010 See note 34 to Notes to the consolidated financial statements. 15. Nokia Shares and Shareholders See Nokia Shares and Shareholders p. 72–76. 16. Accrued income EURm Taxes Other Total 17. Accrued expenses EURm Personnel expenses Taxes Other Total 2010 2009 67 2 119 2 186 — 1 873 1 873 2010 2009 201 — 1 688 1 889 226 48 1 481 1 755 2010 2009 108 – 2 106 124 3 127 At December 31, 2010, the leasing contracts of the Parent Company amounted to EUR 31 million (EUR 35 million in 2009). EUR 18 million will 18. Income tax expire in 2011 (EUR 21 million in 2010). 12. Loans granted to the management of the company EURm Income tax from operations Other income tax Total There were no loans granted to the members of the Group Executive Board ments as they have been shown as a one-line item on the face of the profit and Board of Directors at December 31, 2010. and loss statement. Income taxes are shown separately in the Notes to the financial state- 71 N O K I A S H A R E S A N D S H A R E H O L D E R Nokia shares and shareholders Shares and share capital Nokia has one class of shares. Each Nokia share entitles the holder to one shares owned by Group companies representing approximately 1.0% of vote at General Meetings of Nokia. the share capital and the total voting rights. On December 31, 2010, the share capital of Nokia Corporation was EUR Under the Articles of Association of Nokia, Nokia Corporation does not 245 896 461.96 and the total number of shares issued was 3 744 956 052. have minimum or maximum share capital or a par value of a share. On December 31, 2010, the total number of shares included 35 826 052 Share capital and shares December 31, 2010 Share capital, EURm Shares (1 000) Shares owned by the Group (1 000) 2010 246 2009 246 2008 246 2007 246 2006 246 3 744 956 3 744 956 3 800 949 3 982 812 4 095 043 35 826 36 694 103 076 136 862 129 312 Number of shares excluding shares owned by the Group (1 000) 3 709 130 3 708 262 3 697 872 3 845 950 3 965 730 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 3 708 816 3 705 116 3 743 622 3 885 408 4 062 833 3 713 250 3 721 072 3 780 363 3 932 008 4 086 529 191 790 156 081 122 713 103 226 119 143 Key ratios December 31, 2010, IFRS (calculation see page 80) 2010 2009 2008 2007 2006 Earnings per share for profit attributable to equity holders of the parent, 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 0.50 0.50 15.48 0.40 1 1 498 1 0.80 1 5.17 1 3.88 28 709 0.24 0.24 37.17 0.40 1 498 1.67 4.48 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 2.00 3.84 1.06 1.05 14.60 0.43 1 761 0.41 2.80 3.02 33 078 41 046 101 995 61 390 1 2010 Dividend to be proposed by the Board of Directors for shareholders’ approval at the Annual General Meeting convening on May 3, 2011. 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 au- At the Annual General Meeting held on May 6, 2010, Nokia sharehold- ers authorized the Board of Directors to issue a maximum of 740 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 thorized the Board of Directors to issue a maximum of 800 million shares new shares or shares held by the Company. The authorization includes through one or more issues of shares or special rights entitling to shares, the right for the Board to resolve on all the terms and conditions of such including stock options. This authorization was effective until June 30, issuances of shares and special rights, including to whom the shares 2010 as per the resolution of the Annual General Meeting on May 3, 2007, and the special rights may be issued. The authorization may be used but it was terminated by the resolution of the Annual General Meeting on May 6, 2010. to develop the Company’s capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements, settle the 72 Nokia in 2010 N O K I A S H A R E S A N D S H A R E H O L D E R Company’s equity-based incentive plans, or for other purposes resolved by the Board. The authorization is effective until June 30, 2013. At the end of 2010, the Board of Directors had no other authorizations to issue shares, convertible bonds, warrants or stock options. Authorizations proposed to the Annual General Meeting 2011 On January 27, 2011 Nokia announced that the Board of Directors will pro- pose that the Annual General Meeting convening on May 3, 2011 authorize the Board to resolve to repurchase a maximum of 360 million Nokia shares. The proposed maximum number of shares that may be repurchased is the Other authorizations At the Annual General Meeting held on April 23, 2009, Nokia shareholders same as the Board’s current share repurchase authorization and it cor- responds to less than 10% of all the shares of the company. The shares may authorized the Board of Directors to repurchase a maximum of 360 mil- be repurchased in order to develop the capital structure of the Company, lion Nokia shares by using funds in the unrestricted equity. Nokia did not finance or carry out acquisitions or other arrangements, settle the com- repurchase any shares on the basis of this authorization. This authoriza- pany’s equity-based incentive plans, be transferred for other purposes, or tion was effective until June 30, 2010 as per the resolution of the Annual be cancelled. The shares may be repurchased either through a tender offer General Meeting on April 23, 2009, but it was terminated by the resolution made to all shareholders on equal terms, or through public trading from of the Annual General Meeting on May 6, 2010. the stock market. The authorization would be effective until June 30, 2012 At the Annual General Meeting held on May 6, 2010, Nokia share- and terminate the current authorization for repurchasing of the Company’s holders authorized the Board of Directors to repurchase a maximum of shares resolved at the Annual General Meeting on May 6, 2010. 360 million Nokia shares by using funds in the unrestricted equity. The amount of shares corresponds to less than 10% of all the shares of the Company. The shares may be repurchased under the buy back authoriza- tion 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, settle the Company’s equity-based incentive plans, to be transferred for other purposes, or to be cancelled. The authorization is effective until June 30, 2011. Share issues 2006–2010 Year 2006 2007 Type of issue 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 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 Number of price new shares (1 000) EUR Date of payment Net New share capital EURm proceeds EURm 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 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 2006 2006 2006 2006 2006 2006 2006 2006 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 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 0.67 0.72 18.00 0.29 0.30 17.00 0.06 0.19 0.19 11.00 0.12 975.81 0.14 0.00 0.00 0.03 0.00 0.00 0.01 0.00 0.18 — — — — 0.15 — — 0.03 — — 0.02 — — — — — 0.20 73 N O K I A S H A R E S A N D S H A R E H O L D E R Share issues 2006–2010 (continued) Year Type of issue Subscription Number of price new shares (1 000) EUR Date of payment Net New share capital EURm proceeds EURm 2008 2009 2010 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 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 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 Nokia Stock Option Plan 2008 4Q Nokia Stock Option Plan 2009 1Q Nokia Stock Option Plan 2009 2Q Nokia Stock Option Plan 2009 3Q Total 74 Nokia in 2010 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 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 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 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 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 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 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 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 0.00 0.00 0.00 0.00 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — N O K I A S H A R E S A N D S H A R E H O L D E R Number of shares (1 000) 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 20.51 — — — — — — — — — — — — — — Year 2006 2007 2008 2009 2010 Reductions of share capital Type of reduction Cancellation of shares Cancellation of shares Cancellation of shares Cancellation of shares Cancellation of shares Share turnover 2010 1 2009 1 2008 2 2007 2 2006 2 Share turnover (1 000) 12 299 112 11 025 092 12 962 489 12 695 999 12 480 730 Total number of shares (1 000) % of total number of shares 3 744 956 328 3 744 956 294 3 800 949 341 3 982 812 319 4 095 043 305 1 Includes share turnover in NASDAQ OMX Helsinki, New York Stock Exchange and Frankfurter Wertpapierbörse. 2 Includes share turnover in all exchanges. Share prices, EUR (NASDAQ OMX Helsinki) Low/high Average 1 Year-end 2010 2009 2008 2007 2006 6.59/11.82 6.67/12.25 9.95/25.78 14.63/28.60 14.61/18.65 8.41 7.74 9.64 8.92 17.35 11.10 20.82 26.52 15.97 15.48 1 Calculated by weighting average price with daily volumes. Share prices, USD (New York Stock Exchange) ADS Low/high Average 1 Year-end 2010 8.00/15.89 11.11 10.32 2009 8.47/16.58 13.36 12.85 2008 12.35/38.25 24.88 15.60 2007 19.08/41.10 29.28 38.39 2006 17.72/23.10 19.98 20.32 1 Calculated by weighting average price with daily volumes. Nokia share prices on NASDAQ OMX Helsinki Nokia ADS prices on the New York Stock Exchange (EUR) (USD) 35 30 25 20 15 10 5 45 40 35 30 25 20 15 10 5 0 | 01/06 | 01/07 | 01/08 | 01/09 | 01/10 | 0 | 01/06 | 01/07 | 01/08 | 01/09 | 01/10 | 75 N O K I A S H A R E S A N D S H A R E H O L D E R Shareholders, December 31, 2010 Shareholders registered in Finland represented 17.24% and shareholders registered in the name of a nominee represented 82.76% of the total num- ber of shares of Nokia Corporation. The number of registered shareholders was 191 790 on December 31, 2010. Each account operator (25) is included in this figure as only one registered shareholder. Nominee registered shareholders include holders of American Depositary Receipts (ADR). As of December 31, 2010, ADRs represented 14.32% of the total number of shares in Nokia. Largest shareholders registered in Finland, December 31, 2010 (excluding nominee registered shares and shares owned by Nokia Corporation 1) Ilmarinen Mutual Pension Insurance Company Varma Mutual Pension Insurance Company The State Pension Fund Svenska Litteratursällskapet i Finland rf Folketrygfondet Sigrid Jusélius Foundation OP-Delta Fund Schweizerische Nationalbank Etera Mutual Insurance Company Pension Fennia 1 Nokia Corporation owned 35 826 052 shares as of December 31, 2010. Breakdown of share ownership, December 31, 2010 1 Total number of shares (1 000) % of all shares % of all voting rights 48 356 38 231 17 000 14 226 11 800 9 400 9 100 7 227 6 500 6 306 1.29 1.02 0.45 0.38 0.32 0.25 0.24 0.19 0.17 0.17 1.30 1.03 0.46 0.38 0.32 0.25 0.25 0.19 0.18 0.17 By number of shares owned Number of shareholders % of shareholders Total number of shares % of all shares 1–100 101–1 000 1 001–10 000 10 001–100 000 100 001–500 000 500 001–1 000 000 1 000 001–5 000 000 Over 5 000 000 Total By nationality, % Non-Finnish shareholders Finnish shareholders Total By shareholder category (Finnish shareholders), % Corporations Households Financial and insurance institutions Non-profit organizations General government Total 23.85 50.69 22.55 2.71 0.15 0.02 0.02 0.01 100.00 2 811 343 42 583 383 127 384 952 129 294 504 61 561 119 28 435 787 89 696 617 3 263 188 347 3 744 956 052 0.08 1.14 3.40 3.45 1.64 0.76 2.40 87.14 100.00 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, 2010, an aggregate of 1 513 313 shares which represent- ed approximately 0.04% 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 1 943 975 shares representing approximately 0.05% of the total number of shares and voting rights on December 31, 2010. 45 743 97 211 43 242 5 195 296 41 44 18 191 790 Shares 82.76 17.24 100.00 Shares 2.40 7.48 1.90 1.85 3.61 17.24 1 Please note that the breakdown covers only shareholders registered in Finland, and each account operator (25) 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. 76 Nokia in 2010 N O K I A S H A R E S A N D S H A R E H O L D E R 77 N O K I A G R O U P 2 0 0 6 – 2 0 1 0 , I F R S Nokia Group 2006–2010, IFRS * 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 Profit attributable to equity holders of the parent Non-controlling interests 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 Non-controlling 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 and other liabilities Provisions Total assets 2010 2009 2008 2007 2006 42 446 – 40 376 2 070 1 – 285 1 786 – 443 1 343 1 850 – 507 1 343 11 978 27 145 2 523 12 347 12 275 16 231 14 384 1 847 5 352 4 242 1 022 88 17 540 116 921 447 6 101 7 365 2 590 39 123 40 984 – 39 787 1 197 30 – 265 962 – 702 260 891 – 631 260 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 50 710 – 45 744 4 966 6 – 2 4 970 – 1 081 3 889 3 988 – 99 3 889 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 39 582 51 058 – 43 073 7 985 44 239 8 268 – 1 522 6 746 7 205 – 459 6 746 8 305 29 294 2 876 14 665 11 753 17 338 14 773 2 565 1 285 203 963 119 18 976 173 714 184 7 074 7 114 3 717 37 599 41 121 – 35 633 5 488 28 207 5 723 – 1 357 4 366 4 306 60 4 366 4 031 18 586 1 554 8 495 8 537 12 060 11 968 92 396 69 205 122 10 161 — 180 67 3 732 3 796 2 386 22 617 * 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 2008–2010 are not directly comparable to the results for the full years 2006–2007. Nokia’s first quarter 2007 and full year 2006 results included Nokia’s former Networks business group only. 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. Accord- ingly, the results of NAVTEQ are not available for the prior periods. 78 Nokia in 2010 N O K I A G R O U P 2 0 0 6 – 2 0 1 0 , I F R S 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, % 2010 42 446 3.6 42 075 6 947 2 070 4.9 – 285 0.7 1 786 4.2 1 850 4.4 443 1 498 2 679 1.6 836 2.0 5 863 13.8 129 355 16 591 5 279 11.0 13.5 42.8 – 43 2009 40 984 – 19.2 40 594 6 734 1 197 2.9 – 265 0.6 962 2.3 891 2.2 702 1 498 531 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 11.8 121 723 16 833 4 452 27.2 27.5 42.3 – 14 2007 2006 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 11.1 100 534 18 208 1 090 54.8 53.9 46.7 – 62 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 2008–2010 are not di- rectly comparable to the results for the full years 2006–2007. Nokia’s first quarter 2007 and full years 2006 results included Nokia’s former Networks business group only. 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. Accord- ingly, the results of NAVTEQ are not available for the prior periods. 2 Board’s proposal 3 Includes acquisitions, investments in shares and capitalized development costs. Calculation of Key Ratios, see page 80. 79 C A L C U L A T I O N O F K E Y R A T I O S Calculation of key ratios Key ratios under IFRS Operating profit Profit after depreciation Shareholders’ equity 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 Share capital + reserves attributable to the Company’s equity holders + long-term interest-bearing liabilities Earnings per share (basic) Profit attributable to equity holders of the parent (including the current portion thereof) + non-controlling interests Average of adjusted number of shares during the year Return on shareholders’ equity, % P/E ratio Adjusted share price, December 31 Earnings per share Dividend per share Nominal dividend per share Profit attributable to the equity holders of the parent Average capital and reserves attributable to the Company’s equity holders during the year Equity ratio, % Capital and reserves attributable to the Company’s equity holders + non-controlling interests The adjustment coefficients of the share issues that have Total assets – advance payments received taken place during or after the year in question 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 + non-controlling interests Year-end currency rates 2010 USD GBP CNY INR RUB JPY 1 EUR = 1.3187 0.8495 8.7867 59.7792 40.5401 110.45 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 80 Nokia in 2010 S I G N I N G O F T H E A N N U A L A C C O U N T S 2 0 1 0 A N D P R O P O S A L F O R D I S T R I B U T I O N O F P R O F I T Signing of the Annual Accounts 2010 and proposal for distribution of profit The distributable funds in the balance sheet of the Company as per December 31, 2010 amount to EUR 6 088 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, 2010, 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, 2011 Jorma Ollila Chairman Marjorie Scardino Lalita D. Gupte Bengt Holmström Henning Kagermann Per Karlsson Isabel Marey-Semper Risto Siilasmaa Keijo Suila Stephen Elop President and CEO 81 A U D I T O R S ’ R E P O R T Auditors’ report To the Annual General Meeting of Nokia Corporation control. An audit also includes evaluating the appropriateness of account- ing policies used and the reasonableness of accounting estimates made We have audited the accounting records, the financial statements, the by management, as well as evaluating the overall presentation of the review by the Board of Directors and the administration of Nokia Corpora- financial statements and the review by the Board of Directors. tion for the year ended 31 December 2010. The financial statements com- We believe that the audit evidence we have obtained is sufficient and prise the consolidated statement of financial position, income statement, appropriate to provide a basis for our audit opinion. statement of comprehensive income, cash flow statement, statement of changes in shareholders’ equity and notes to the consolidated financial Opinion on the consolidated financial statements statements, as well as the parent company’s balance sheet, income state- In our opinion, the consolidated financial statements give a true and fair ment, cash flow statement and notes to the financial statements. view of the financial position, financial performance, and cash flows of the group in accordance with International Financial Reporting Standards Responsibility of the Board of Directors and the Managing Director (IFRS) as adopted by the EU. The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the preparation of financial statements and the review by the Board of Directors that give a true 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 and fair view in accordance with the laws and regulations governing the company’s financial performance and financial position in accordance preparation of the financial statements and the review by the Board of with the laws and regulations governing the preparation of the finan- Directors in Finland. The Board of Directors is responsible for the appropri- cial statements and the review by the Board of Directors in Finland. The ate arrangement of the control of the company’s accounts and finances, information in the review by the Board of Directors is consistent with the and the Managing Director shall see to it that the accounts of the company information in the financial statements. are in compliance with the law and that its financial affairs have been ar- ranged in a reliable manner. Other opinions Auditor’s responsibility We support that the financial statements should be adopted. The proposal by the Board of Directors regarding the distribution of the profit shown in Our responsibility is to express an opinion on the financial statements, on the balance sheet is in compliance with the Limited Liability Companies the consolidated financial statements and on the review by the Board of Act. We support that the Members of the Board of Directors and the Man- Directors based on our audit. The Auditing Act requires that we comply aging Director should be discharged from liability for the financial period with the requirements of professional ethics. We conducted our audit audited by us. in accordance with good auditing practice in Finland. Good auditing practice requires that we plan and perform the audit to obtain reasonable Helsinki, March 11, 2011 assurance about whether the financial statements and the review by the Board of Directors are free from material misstatement, and whether the PricewaterhouseCoopers Oy members of the Board of Directors of the parent company and the Manag- Authorised Public Accountants ing Director are guilty of an act or negligence which may result in liability in damages towards the company or have violated the Limited Liability Companies Act or the articles of association of the company. Merja Lindh An audit involves performing procedures to obtain audit evidence Authorised Public Account 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, whether due to fraud or error. In making those risk as- sessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements and the review by the Board of Directors that give a true and fair view in order to design audit proce- dures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal 82 Nokia in 2010 Additional information Critical accounting policies ..................................................................................................................................... 84 Corporate governance statement Corporate governance .......................................................................................................................................... 90 Board of Directors .................................................................................................................................................. 94 Nokia Leadership Team ........................................................................................................................................ 96 Compensation of the Board of Directors and the Nokia Leadership Team .............................................. 100 Auditors fees and services ..................................................................................................................................... 120 Investor information ................................................................................................................................................ 121 Contact information ................................................................................................................................................. 123 C R I T I C A L A C C O U N T I N G P O L I C I E S Critical accounting policies Our accounting policies affecting our financial condition and results of some other method better represents the stage of completion. Devices & operations are more fully described in Note 1 to our consolidated financial Services and NAVTEQ license fees from usage are recognized in the period statements. Certain of our accounting policies require the application when they are reliably measurable which is normally when the customer of judgment by management in selecting appropriate assumptions for reports them to the Group. calculating financial estimates, which inherently contain some degree Devices & Services, NAVTEQ and Nokia Siemens Networks may enter of uncertainty. Management bases its estimates on historical experience into multiple component transactions consisting of any combination and various other assumptions that are believed to be reasonable under of hardware, services and software. The commercial effect of each the circumstances, the results of which form the basis for making judg- separately identifiable element of the transaction is evaluated in order ments about the reported carrying values of assets and liabilities and the to reflect the substance of the transaction. The consideration from these reported amounts of revenues and expenses that may not be readily ap- transactions is allocated to each separately identifiable component based parent from other sources. Actual results may differ from these estimates on the relative fair value of each component. The consideration allocated under different assumptions or conditions. The estimates affect all our to each component is recognized as revenue when the revenue recogni- segments equally unless otherwise indicated. tion criteria for that element have been met. The Group determines the We believe the following are the critical accounting policies and re- fair value of each component by taking into consideration factors such as lated judgments and estimates used in the preparation of our consolidated the price when the component is sold separately by the Group, the price financial statements. We have discussed the application of these critical when a similar component is sold separately by the Group or a third party accounting estimates with our Board of Directors and Audit Committee. and cost plus a reasonable margin. Revenue recognition Nokia Siemens Networks revenue and cost of sales from contracts in- volving solutions achieved through modification of complex telecommu- nications equipment is recognized on the percentage of completion basis when the outcome of the contract can be estimated reliably. This occurs Sales from the majority of the Group are recognized when the significant when total contract revenue and the cost to complete the contract can be risks and rewards of ownership have transferred to the buyer, continuing estimated reliably, it is probable that economic benefits associated with managerial involvement usually associated with ownership and effective the contract will flow to the Group, and the stage of contract completion control have ceased, the amount of revenue can be measured reliably, it can be measured. When we are not able to meet those conditions, the is probable that economic benefits associated with the transaction will policy is to recognize revenues only equal to costs incurred to date, to the flow to the Group, and the costs incurred or to be incurred in respect of extent that such costs are expected to be recovered. Completion is mea- the transaction can be measured reliably. The remainder of revenue is sured by reference to costs incurred to date as a percentage of estimated recorded under the percentage of completion method. total project costs using the cost-to-cost method. Devices & Services and certain NAVTEQ and Nokia Siemens Networks The percentage of completion method relies on estimates of total revenues are generally recognized when the significant risks and rewards expected contract revenue and costs, as well as the dependable measure- of ownership have transferred to the buyer, continuing managerial in- ment of the progress made towards completing the particular project. volvement usually associated with ownership and effective control have Recognized revenues and profit are subject to revisions during the ceased, the amount of revenue can be measured reliably, it is probable project in the event that the assumptions regarding the overall project that economic benefits associated with the transaction will flow to the outcome are revised. The cumulative impact of a revision in estimates is Group and the costs incurred or to be incurred in respect of the transac- recorded in the period such revisions become likely and estimable. Losses tion can be measured reliably. This requires us to assess at the point on projects in progress are recognized in the period they become likely of delivery whether these criteria have been met. When management and estimable. determines that such criteria have been met, revenue is recognized. We Nokia Siemens Networks’ current sales and profit estimates for record estimated reductions to revenue for special pricing agreements, projects may change due to the early stage of a long-term project, new price protection and other volume based discounts at the time of sale, technology, changes in the project scope, changes in costs, changes in mainly in the mobile device business. Sales adjustments for volume timing, changes in customers’ plans, realization of penalties, and other based discount programs are estimated based largely on historical activ- corresponding factors. ity under similar programs. Price protection adjustments are based on estimates of future price reductions and certain agreed customer inven- Customer financing tories at the date of the price adjustment. Devices & Services and certain Nokia Siemens Networks service revenue is generally recognized on a We have provided a limited number of customer financing arrangements straight line basis over the service period unless there is evidence that and agreed extended payment terms with selected customers. In estab- 84 Nokia in 2010 C R I T I C A L A C C O U N T I N G P O L I C I E S lishing credit arrangements, management must assess the creditworthi- Warranty provisions ness of the customer and the timing of cash flows expected to be received under the arrangement. However, should the actual financial position of We provide for the estimated cost of product warranties at the time our customers or general economic conditions differ from our assump- revenue is recognized. Our products are covered by product warranty tions, we may be required to re-assess the ultimate collectability of such plans of varying periods, depending on local practices and regulations. financings and trade credits, which could result in a write-off of these While we engage in extensive product quality programs and processes, balances in future periods and thus negatively impact our profits in future including actively monitoring and evaluating the quality of our compo- periods. Our assessment of the net recoverable value considers the collat- nent suppliers, our warranty obligations are affected by actual product eral and security arrangements of the receivable as well as the likelihood failure rates (field failure rates) and by material usage and service delivery and timing of estimated collections. The Group endeavors to mitigate costs incurred in correcting a product failure. Our warranty provision is this risk through the transfer of its rights to the cash collected from these established based upon our best estimates of the amounts necessary to arrangements to third-party financial institutions on a non-recourse settle future and existing claims on products sold as of the balance sheet basis in exchange for an upfront cash payment. During the past three date. As we continuously introduce new products which incorporate com- fiscal years the Group has not had any write-offs or impairments regard- plex technology, and as local laws, regulations and practices may change, ing customer financing. The financial impact of the customer financing it will be increasingly difficult to anticipate our failure rates, the length related assumptions mainly affects the Nokia Siemens Networks segment. of warranty periods and repair costs. While we believe that our warranty See also Note 35(b) to our consolidated financial statements for a further provisions are adequate and that the judgments applied are appropriate, discussion of long-term loans to customers and other parties. the ultimate cost of product warranty could differ materially from our Allowances for doubtful accounts We maintain allowances for doubtful accounts for estimated losses resulting from the subsequent inability of our customers to make required 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 was EUR 928 million at the end of 2010 (EUR 971 million at the end of 2009). The financial impact of the assumptions regarding this pro- payments. If the financial conditions of our customers were to deteriorate, vision mainly affects the cost of sales of our Devices & Services segment. resulting in an impairment of their ability to make payments, additional allowances may be required in future periods. Management specifi- cally 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 Provision for intellectual property rights, or IPR, infringements of the allowance for doubtful accounts. Based on these estimates and as- We provide for the estimated future settlements related to asserted and sumptions the allowance for doubtful accounts was EUR 363 million at the unasserted past alleged IPR infringements based on the probable out- end of 2010 (EUR 391 million at the end of 2009). come of each potential infringement. Inventory-related allowances Our products 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 in- tellectual property rights related to our products under development and We periodically review our inventory for excess, obsolescence and thereby avoid inadvertent infringement of proprietary technologies, the declines in market value below cost and record an allowance against the nature of our business is such that patent and other intellectual property inventory balance for any such declines. These reviews require manage- right infringements may and do occur. Through contact with parties ment to estimate future demand for our products. Possible changes in claiming infringement of their patented or otherwise exclusive technol- these estimates could result in revisions to the valuation of inventory in ogy, or through our own monitoring of developments in patent and other future periods. Based on these estimates and assumptions the allowance intellectual property right cases involving our competitors, we identify for excess and obsolete inventory was EUR 301 million at the end of 2010 (EUR 361 million at the end of 2009). The financial impact of the assump- tions regarding this allowance affects mainly the cost of sales of the Devices & Services and Nokia Siemens Networks segments. potential IPR infringements. We estimate the outcome of all potential IPR infringements made known to us through assertion by third parties, or through our own monitoring of patent- and other IPR-related cases in the relevant legal systems. To the extent that we determine that an identified potential 85 C R I T I C A L A C C O U N T I N G P O L I C I E S infringement will result in a probable outflow of resources, we record a liability based on our best estimate of the expenditure required to settle the future cash outflows that are expected to occur before the asset is ready for use. See Note 8 to our consolidated financial statements. infringement proceedings. Based on these estimates and assumptions Impairment reviews are based upon our projections of anticipated the provision for IPR infringements was EUR 449 million at the end of discounted future cash flows. The most significant variables in determin- 2010 (EUR 390 million at the end of 2009). The financial impact of the as- ing cash flows are discount rates, terminal values, the number of years on sumptions regarding this provision mainly affects our Devices & Services which to base the cash flow projections, as well as the assumptions and segment. estimates used to determine the cash inflows and outflows. Manage- Our experience with claims of IPR infringement is that there is typi- ment determines discount rates to be used based on the risk inherent in cally a discussion period with the accusing party, which can last from the related activity’s current business model and industry comparisons. several months to years. In cases where a settlement is not reached, the Terminal values are based on the expected life of products and forecasted discovery and ensuing legal process typically lasts a minimum of one year. For this reason, IPR infringement claims can last for varying periods of time, resulting in irregular movements in the IPR infringement provision. In addition, the ultimate outcome or actual cost of settling an individual infringement may materially vary from our estimates. 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. Business combinations Legal contingencies We apply the acquisition method of accounting to account for acquisitions of businesses. The consideration transferred in a business combination As discussed in Note 29 to our consolidated financial statements, legal is measured as the aggregate of the fair values of the assets transferred, proceedings covering a wide range of matters are pending or threat- liabilities incurred towards the former owners of the acquired business ened in various jurisdictions against the Group. We record provisions for and equity instruments issued. Acquisition-related costs are recognized pending litigation when we determine that an unfavorable outcome is as expense in profit and loss in the periods when the costs are incurred probable and the amount of loss can be reasonably estimated. Due to the and the related services are received. Identifiable assets acquired and inherent uncertain nature of litigation, the ultimate outcome or actual liabilities assumed are measured separately at their fair value as of the cost of settlement may materially vary from estimates. acquisition date. Non-controlling interests in the acquired business are Capitalized development costs measured separately based on their proportionate share of the identifi- able net assets of the acquired business. 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. We capitalize certain development costs primarily in the Nokia Siemens The determination and allocation of fair values to the identifiable Networks segment when it is probable that a development project will be assets acquired and liabilities assumed is based on various assump- a success and certain criteria, including commercial and technical feasibil- tions and valuation methodologies requiring considerable manage- ity, have been met. These costs are then amortized on a systematic basis ment judgment. The most significant variables in these valuations are over their expected useful lives, which due to the constant development discount rates, terminal values, the number of years on which to base of new technologies is between two to five years. During the develop- the cash flow projections, as well as the assumptions and estimates used ment stage, management must estimate the commercial and technical to determine the cash inflows and outflows. Management determines feasibility of these projects as well as their expected useful lives. Should a the discount rates to be used based on the risk inherent in the related product fail to substantiate its estimated feasibility or life cycle, we may activity’s current business model and industry comparisons. Terminal be required to write off excess development costs in future periods. values are based on the expected life of products and forecasted life cycle Whenever there is an indicator that development costs capitalized for and forecasted cash flows over that period. Although we believe that the a specific project may be impaired, the recoverable amount of the asset assumptions applied in the determination are reasonable based on infor- is estimated. An asset is impaired when the carrying amount of the asset mation available at the date of acquisition, actual results may differ from exceeds its recoverable amount. The recoverable amount is defined as the forecasted amounts and the difference could be material. 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 86 Nokia in 2010 C R I T I C A L A C C O U N T I N G P O L I C I E S Valuation of long-lived assets, intangible assets and goodwill projections employed in the value in use calculation are based on finan- cial plans approved by management. These projections are consistent with external sources of information, whenever available. Cash flows We assess the carrying amount of identifiable intangible assets and beyond the explicit forecast period are extrapolated using an estimated long-lived assets if events or changes in circumstances indicate that such terminal growth rate that does not exceed the long-term average growth carrying amount may not be recoverable. We assess the carrying amount rates for the industry and economies in which the CGU operates. of our goodwill at least annually, or more frequently based on these same The discount rates applied in the value in use calculation for each indicators. Factors we consider important, which could trigger an impair- CGU have been determined independently of capital structure reflecting ment review, include the following: current assessments of the time value of money and relevant market risk premiums. Risk premiums included in the determination of the discount » significant underperformance relative to historical or projected future rate reflect risks and uncertainties for which the future cash flow esti- results; mates have not been adjusted. Overall, the discount rates applied in the 2010 impairment testing have decreased in line with declining interest » significant changes in the manner of our use of these assets or the rates. strategy for our overall business; and In case there are reasonably possible changes in estimates or un- derlying assumptions applied in our goodwill impairment testing, such » significantly negative industry or economic trends. as growth rates and discount rates, which could have a material impact on the carrying amount of the goodwill or result in an impairment loss, When we determine that the carrying amount of intangible assets, those are disclosed below in connection with the relevant CGU. long-lived assets or goodwill may not be recoverable based upon the In 2009, we recorded an impairment loss of EUR 908 million in the existence of one or more of the above indicators of impairment, we mea- third quarter of 2009 to reduce the carrying amount of the Nokia Siemens sure any impairment based on discounted projected cash flows. Networks CGU to its recoverable amount. The impairment loss was al- This review is based upon our projections of anticipated discounted located in its entirety to the carrying amount of goodwill arising from the future cash flows. The most significant variables in determining cash formation of Nokia Siemens Networks and from subsequent acquisitions flows are discount rates, terminal values, the number of years on which completed by Nokia Siemens Networks. The impairment loss is presented to base the cash flow projections, as well as the assumptions and as impairment of goodwill in the consolidated income statement. As a estimates used to determine the cash inflows and outflows. Manage- ment 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 result of the impairment loss, the amount of goodwill allocated to the Nokia Siemens Networks CGU has been reduced to zero. We have performed our annual goodwill impairment testing dur- ing the fourth quarter of 2010 on the opening fourth quarter balances. During 2010, the conditions in the world economy have shown signs that our assumptions are appropriate, such amounts estimated could of improvement as countries have begun to emerge from the global differ materially from what will actually occur in the future. In assessing economic downturn. However, significant uncertainty exists regarding goodwill, these discounted cash flows are prepared at a cash generating the speed, timing and resiliency of the global economic recovery and this unit level. Amounts estimated could differ materially from what will actu- uncertainty is reflected in the impairment testing for each of the Group’s ally occur in the future. CGUs. The impairment testing has been carried out based on manage- Goodwill is allocated to the Group’s cash-generating units (CGU) and discounted cash flows are prepared at CGU level for the purpose of ment’s assessment of financial performance and future strategies in light of current and expected market and economic conditions. Events that impairment testing. The allocation of goodwill to our CGUs is made in a occurred subsequent to the balance sheet date, as discussed in Note 33, manner that is consistent with the level at which management monitors did not have an impact on this assessment. operations and the CGUs are expected to benefit from the synergies aris- Goodwill amounting to EUR 1 355 million has been allocated to the ing from each of our acquisitions. Accordingly, (i) goodwill arising from Devices & Services CGU for the purpose of impairment testing. The good- the acquisitions completed by the Devices & Services segment has been allocated to the Devices & Services CGU and (ii) goodwill arising from the acquisition of and acquisitions completed by NAVTEQ has been allocated to the NAVTEQ CGU. The recoverable amounts for the Devices & Services CGU and NAVTEQ will impairment testing conducted for the Devices & Services CGU for the year ended December 31, 2010 did not result in any impairment charges. Goodwill amounting to EUR 4 368 million has been allocated to the NAVTEQ CGU. The goodwill impairment testing conducted for the NAVTEQ CGU for the year ended December 31, 2010 did not result in any impair- CGU are determined based on a value in use calculation. The cash flow ment charges. The recoverable amount of the NAVTEQ CGU is between 87 C R I T I C A L A C C O U N T I N G P O L I C I E S 15 to 20% higher than its carrying amount. The Group expects that a prospects and operating performance of the target companies taking into reasonably possible change of 1–2% in the valuation assumptions for long- consideration of public market comparable companies in similar industry term growth rate or discount rate would give rise to an impairment loss. sectors. Changes in these assumptions may cause the Group to recognize The key assumptions applied in the impairment testing for each CGU impairments or losses in the future periods. During 2010 the Group re- in the annual goodwill impairment testing for each year indicated are ceived distributions of EUR 69 million (EUR 13 million in 2009) included in presented in the table below: Cash-generating Unit, % 2010 2009 2008 Devices & Services Terminal growth rate Pre-tax discount rate Nokia Siemens Networks Terminal growth rate Pre-tax discount rate NAVTEQ Terminal growth rate Pre-tax discount rate 2.0 11.1 — — 4.0 12.8 2.0 11.5 1.0 13.2 5.0 12.6 2.3 12.4 1.0 15.6 5.0 12.4 other financial income from a private fund held as non-current available- for-sale. Due to a reduction in estimated future cash flows the Group also recognized an impairment loss of EUR 94 million (EUR 9 million in 2009) for the fund included in other financial expenses. Income taxes The Group is subject to income taxes both in Finland and in numerous other jurisdictions. Significant judgment 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 available in the future against which the temporary differences and unused tax losses can be utilized. We have considered future taxable income and tax planning strategies in making this assessment. Deferred The annual goodwill impairment testing conducted for each of the tax assets are assessed for realizability each reporting period, and when Group’s CGUs for the years ended December 31, 2010 and 2008 have not circumstances indicate that it is no longer probable that deferred tax as- resulted in any impairment charges. sets will be utilized, they are adjusted as necessary. At December 31, 2010, The goodwill impairment testing for the year ended December 31, the Group had loss carry forwards, temporary differences and tax credits 2009 resulted in the aforementioned impairment charge for the Nokia Siemens Networks CGU. of EUR 3 323 million (EUR 2 532 million in 2009) for which no deferred tax assets were recognized in the consolidated financial statements due to The Group has applied consistent valuation methodologies for each of loss history and current year loss in certain jurisdictions. the Group’s CGUs for the years ended December 31, 2010, 2009 and 2008. We periodically update the assumptions applied in our impairment test- We recognize tax provisions based on estimates and assumptions when, despite our belief that tax return positions are supportable, it is ing to reflect management’s best estimates of future cash flows and the more likely than not that certain positions will be challenged and may not conditions that are expected to prevail during the forecast period. be fully sustained upon review by tax authorities. See also Note 8 to our consolidated financial statements for further If the final outcome of these matters differs from the amounts information regarding “Valuation of long-lived and intangible assets and initially recorded, differences may positively or negatively impact the goodwill.” income tax and deferred tax provisions in the period in which such deter- Fair value of derivatives and other financial instruments The fair value of financial instruments that are not traded in an active mination is made. Pensions market (for example, unlisted equities, currency options and embedded The determination of our pension benefit obligation and expense for derivatives) are determined using valuation techniques. We use judgment defined benefit pension plans is dependent on our selection of certain as- to select an appropriate valuation methodology and underlying assump- sumptions used by actuaries in calculating such amounts. Those assump- tions 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 financing transaction of the target companies, (3) analysis of market tions are described in Note 5 to our consolidated financial statements and include, among others, the discount rate, expected long-term rate of return on plan assets and annual rate of increase in future compensation levels. A portion of our plan assets is invested in equity securities. The equity markets have experienced volatility, which has affected the value 88 Nokia in 2010 C R I T I C A L A C C O U N T I N G P O L I C I E S of our pension plan assets. This volatility may make it difficult to estimate addition, the value, if any, an employee ultimately receives from share- the long-term rate of return on plan assets. Actual results that differ from based payment awards may not correspond to the expense amounts our assumptions are accumulated and amortized over future periods and recorded by the Group. therefore generally affect our recognized expense and recorded obliga- tion in such future periods. Our assumptions are based on actual historical experience and external data regarding compensation and discount rate trends. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assump- tions may materially affect our pension obligation and our future expense. 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 correspond- ing 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 24 to our consoli- dated financial statements and include, among others, the dividend yield, expected volatility and expected life of stock options. The expected life of stock options is estimated by observing general option holder behavior and actual 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 89 C O R P O R A T E G O V E R N A N C E S T A T E M E N T Corporate governance Regulatory framework The Board of Directors This Corporate Governance statement is prepared in accordance with the The operations of the company are managed under the direction of the recommendation 54 of the Finnish Corporate Governance Code and is is- Board of Directors, within the framework set by the Finnish Companies sued separately from the Review by the Board of Directors. The review by Act and Nokia’s Articles of Association as well as any complementary rules the Board of Directors 2010 is available on page 3 of this publication Nokia of procedure as defined by the Board, such as the Corporate Governance in 2010. Guidelines and related Board Committee charters. Nokia’s corporate governance practices comply with Finnish legisla- tion and regulations, Nokia’s Articles of Association and the Finnish The responsibilities of the Board of Directors Corporate Governance Code, however, with one exception outlined below. The Finnish Corporate Governance Code is accessible, among others, at The Board represents and is accountable to the shareholders of the com- www.cgfinland.fi. In addition, Nokia complies with the corporate gover- pany. The Board’s responsibilities are active, not passive, and include the nance rules that are mandatory for foreign private issuers under section 303A of the New York Stock Exchange Listed Company Manual, which responsibility regularly to evaluate the strategic direction of the company, management policies and the effectiveness with which management is accessible at http://nysemanual.nyse.com/lcm/, as well as any other implements them. The Board’s responsibilities also include overseeing mandatory corporate governance rules applicable due to listing of Nokia the structure and composition of the company’s top management and share in Helsinki, Frankfurt and New York stock exchanges. monitoring legal compliance and the management of risks related to the Nokia Restricted Share Plans depart from the recommendation 39 of company’s operations. In doing so, the Board may set annual ranges and/ the Finnish Corporate Governance Code as they do not include any perfor- or individual limits for capital expenditures, investments and divestitures mance criterion but are time-based only, with a restriction period of at and financial commitments not to be exceeded without Board approval. least three years from the grant. However, restricted shares are granted In risk management policies and processes the Board’s role includes only on a very selective basis to promote long-term retention of key em- risk analysis and assessment in connection with each financial and busi- ployees and executives deemed critical for the future success of Nokia as ness review, update and decision-making proposal. Risk oversight is an well as to support attraction of promising external talent in a competitive integral part of all Board deliberations. Nokia’s risk management policies environment in which Nokia’s peers, especially in the United States, com- and processes are described in more detail in chapter “Main features monly use such shares. The Restricted Share Plans promote share owner- of the internal control and risk management systems in relation to the ship of the participants of the plans and act as a supplementary equity financial reporting process” below. incentive instrument to the Performance Share and Stock Option plans. The Board has the responsibility for appointing and discharging the Pursuant to the provisions of the Finnish Companies Act and Nokia’s Chief Executive Officer, the Chief Financial Officer and the other members Articles of Association, the control and management of Nokia is divided of the Nokia Leadership Team. The Chief Executive Officer also acts as among the shareholders at a general meeting, the Board of Directors (or President, and his rights and responsibilities include those allotted to the “Board”), the President and the Nokia Leadership Team (the Group the President under Finnish law. Subject to the requirements of Finnish Executive Board until February 11, 2011) chaired by the Chief Executive law, the independent directors of the Board confirm the compensation Officer. and the employment conditions of the Chief Executive Officer upon the Under its Articles of Association, in addition to the Board of Direc- recommendation of the Personnel Committee. The compensation and tors, Nokia has a Nokia Leadership Team that is responsible for the employment conditions of the other members of the Nokia Leadership operative management of the company. The Chairman and members of Team are approved by the Personnel Committee upon the recommenda- the Nokia Leadership Team are appointed by the Board of Directors. Only tion of the Chief Executive Officer. the Chairman of the Nokia Leadership Team, the Chief Executive Officer, The basic responsibility of the members of the Board is to act in good can be a member of both the Board of Directors and the Nokia Leader- faith and with due care so as to exercise their business judgment on an ship Team. informed basis in what they reasonably and honestly believe to be in the Nokia has a Code of Conduct which is equally applicable to all of best interests of the company and its shareholders. In discharging that Nokia’s employees, directors and management and is accessible on Nokia’s obligation, the directors must inform themselves of all relevant informa- website, www.nokia.com. In addition, Nokia has a Code of Ethics for the tion reasonably available to them. The Board and each Board Committee Principal Executive Officers and the Senior Financial Officers. For more also have the power to hire independent legal, financial or other advisors information about Nokia’s Code of Ethics, please see www.nokia.com. as they deem necessary. The Board has three committees: Audit Committee, Corporate Gover- nance and Nomination Committee and Personnel Committee, assisting the Board in its duties pursuant to the respective Committee Charter. The 90 Nokia in 2010 C O R P O R A T E G O V E R N A N C E S T A T E M E N T Board also may, and has practice to, establish ad hoc committees for a on May 3, 2011 that the Chief Executive Officer, Stephen Elop, be elected detailed review and consideration of a particular topic to be proposed for as a Nokia Board member. The Corporate Governance and Nomination the approval of the Board. Committee will also propose that Jorma Ollila be re-elected as Chairman The Board conducts annual performance self-evaluations, which also of the Board after the Annual General Meeting on May 3, 2011. include evaluations of the Board Committees’ work, the results of which The current members of the Board are all non-executive, and the are discussed by the Board. In line with the past year’s practice, in 2010, Board has determined that all of them are independent as defined by the self-evaluation process consisted of a questionnaire, a one-to-one Finnish standards. Also, the Board has determined that eight of the discussion between the Chairman and each director and a discussion by Board’s nine non-executive members are independent directors as de- the entire Board of the outcome of the evaluation, possible measures to fined by the rules of the New York Stock Exchange. Dr. Bengt Holmström be taken, as well as measures taken based on the Board’s self-evaluation was determined not to be independent under the rules of the New York of the previous year. In addition, performance of the Board Chairman was Stock Exchange due to a family relationship with an executive officer of a evaluated in a process led by the Vice Chairman. Nokia supplier of whose consolidated gross revenue from Nokia accounts Election, composition and meetings of the Board of Directors for an amount that exceeds the limit provided in the New York Stock Exchange rules, but that is less than 5%. The Board held 13 meetings during 2010, majority of which were Pursuant to the Articles of Association, Nokia Corporation has a Board regularly scheduled meetings held in person, complemented by meetings of Directors composed of a minimum of seven and a maximum of 12 through conference call and other means. In addition, in 2010, the non- members. The members of the Board are elected for a one-year term at executive directors held a meeting without management in connection each Annual General Meeting, i.e., as from the close of that Annual General with each regularly scheduled Board meeting, as well as a number of ad- Meeting until the close of the following Annual General Meeting, which ditional meetings without management. Also, the independent directors convenes each year by June 30. The Annual General Meeting held on May 6, held one meeting separately in 2010. 2010 elected the following 10 members to the Board of Directors: Lalita D. Directors’ attendance at the Board meetings, including Committee Gupte, Dr. Bengt Holmström, Prof. Dr. Henning Kagermann, Olli-Pekka Kal- meetings and, any of the meeting format mentioned above, but exclud- lasvuo, Per Karlsson, Jorma Ollila, Dame Marjorie Scardino, Isabel Marey- ing meetings among non-executive directors or independent directors Semper, Risto Siilasmaa and Keijo Suila. Olli-Pekka Kallasvuo resigned from only, was as follows in 2010: the Board of Directors as from September 10, 2010. Nokia Board’s leadership structure consists of a Chairman and Vice Chairman, annually elected by the Board and confirmed by the indepen- dent directors of the Board from among the Board members upon the recommendation of the Corporate Governance and Nomination Commit- tee. On May 6, 2010, the independent directors of the Board elected Jorma Ollila to continue as Chairman and Dame Marjorie Scardino to continue as Vice Chairman of the Board. The Chairman has certain specific duties as defined by Finnish standards and the Nokia Corporate Governance Guidelines. 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 Chairman, Jorma Ollila, and the Vice Chairman, Dame Marjorie Scardino, are independent as defined by Finnish standards and relevant stock exchange rules. Board meetings Committee meetings Georg Ehrnrooth (until May 6, 2010) Lalita Gupte Bengt Holmström Henning Kagermann Olli-Pekka Kallasvuo (until Sep 10, 2010) Per Karlsson Isabel Marey-Semper Jorma Ollila Marjorie Scardino Risto Siilasmaa Keijo Suila 100% 93% 93% 100% 100% 1 85% 85% 100% 100% 100% 100% 100% 100% N/A 100% N/A 100% 100% N/A 100% 100% 100% Nokia does not have a policy concerning the combination or separa- 1 Excluding meetings which he was excused by law. tion of the roles of Chairman and Chief Executive Officer, but the Board leadership structure is dependent on the company needs, shareholder In addition, many of the directors attended as a non-voting observer value and other relevant factors applicable from time to time, and meetings of a committee in which they were not a member. respecting the highest corporate governance standards. In 2010, the roles were separate and Jorma Ollila was the Chairman of the Board and the According to the Nokia Board Practices, the non-executive directors meet without management in connection with each regularly scheduled Chief Executive Officer was Olli-Pekka Kallasvuo until September 20, 2010 meeting. Such sessions are chaired by the non-executive Chairman of the and Stephen Elop as from September 21, 2010. Olli-Pekka Kallasvuo was a member of the Board until September 10, 2010. The Corporate Governance and Nomination Committee will propose to the Annual General Meeting Board. If the non-executive Chairman of the Board had been absent in any of the meetings of non-executive directors, the non-executive Vice Chairman of the Board would have chaired the meeting. In addition, the 91 C O R P O R A T E G O V E R N A N C E S T A T E M E N T independent directors meet separately at least once annually. All the di- and other functions, like internal audit, as well as a final review and con- rectors attended Nokia’s Annual General Meeting held on May 6, 2010. The firmation by the Audit Committee and the Board. For further information Finnish Corporate Governance Code recommends attendance by the Board on internal control over financial reporting, see chapter “Main features Chairman and a sufficient number of directors in the general meeting of of the internal control and risk management systems in relation to the shareholders to allow the shareholders to exercise their right to present financial reporting process” below. questions to the Board and management. Under Finnish law, Nokia’s external auditor is elected by Nokia’s The independent directors of the Board confirm the election of the shareholders by a simple majority vote at the Annual General Meeting for members and Chairmen for the Board’s committees from among the one fiscal year at a time. The Audit Committee makes a proposal to the Board’s independent directors upon the recommendation of the Corpo- shareholders in respect of the appointment of the external auditor based rate Governance and Nomination Committee and based on each commit- upon its evaluation of the qualifications and independence of the auditor tee’s member qualification standards. to be proposed for election or re-election. Also under Finnish law, the fees The Corporate Governance Guidelines concerning the directors’ of the external auditor are approved by Nokia’s shareholders by a simple responsibilities, the composition and selection of the Board, Board Com- majority vote at the Annual General Meeting. The Committee makes a mittees and certain other matters relating to corporate governance are proposal to the shareholders in respect of the fees of the external auditor, available on our website, www.nokia.com. and approves the external auditor’s annual audit fees under the guidance Committees of the Board of Directors given by the shareholders at the Annual General Meeting. For information about the fees paid to Nokia’s external auditor, PricewaterhouseCoopers, during 2010 see “Auditor fees and services” on page 120. The Audit Committee consists of a minimum of three members of the In discharging its oversight role, the Committee has full access to all Board who meet all applicable independence, financial literacy and other company books, records, facilities and personnel. The Committee may requirements of Finnish law and the rules of the stock exchanges where retain counsel, auditors or other advisors in its sole discretion, and must Nokia shares are listed, including NASDAQ OMX Helsinki and the New York receive appropriate funding, as determined by the Committee, from the Stock Exchange. Since May 6, 2010, the Audit Committee consists of the company for the payment of compensation to such outside advisors. following three members of the Board: Risto Siilasmaa (Chairman), Lalita The Audit Committee meets at least four times a year based upon a D. Gupte and Isabel Marey-Semper. schedule established at the first meeting following the appointment of The Audit Committee is established by the Board primarily for the the Committee. The Committee meets separately with the representa- purpose of overseeing the accounting and financial reporting processes tives of Nokia’s management, head of the internal audit function, and the of the company and audits of the financial statements of the company. external auditor in connection with each regularly scheduled meeting. The Committee is responsible for assisting the Board’s oversight of The head of the internal audit function has at all times a direct access to (1) the quality and integrity of the company’s financial statements and the Audit Committee, without involvement of management. related disclosure, (2) the statutory audit of the company’s financial The Audit Committee had seven meetings in 2010. The attendance statements, (3) the external auditor’s qualifications and independence, at all meetings was 100%. In addition, any directors who wish to may (4) the performance of the external auditor subject to the requirements attend Audit Committee meetings as non-voting observers. of Finnish law, (5) the performance of the company’s internal controls and risk management and assurance function, (6) the performance of the The Personnel Committee consists of a minimum of three members of internal audit function, and (7) the company’s compliance with legal and the Board who meet all applicable independence requirements of Finnish regulatory requirements. The Committee also maintains procedures for law and the rules of the stock exchanges where Nokia shares are listed, the receipt, retention and treatment of complaints received by the com- including NASDAQ OMX Helsinki and the New York Stock Exchange. Since pany regarding accounting, internal controls, or auditing matters and for May 6, 2010, the Personnel Committee consists of the following four mem- the confidential, anonymous submission by employees of the company bers of the Board: Per Karlsson (Chairman), Prof. Dr. Henning Kagermann, of concerns regarding accounting or auditing matters. Nokia’s disclosure Dame Marjorie Scardino and Keijo Suila. controls and procedures, which are reviewed by the Audit Committee and The primary purpose of the Personnel Committee is to oversee the approved by the Chief Executive Officer and the Chief Financial Officer, as personnel policies and practices of the company. It assists the Board well as Nokia’s internal controls over financial reporting are designed to in discharging its responsibilities relating to all compensation, includ- provide reasonable assurance regarding the quality and integrity of the ing equity compensation, of the company’s executives and the terms of company’s financial statements and related disclosures. The Disclo- employment of the same. The Committee has overall responsibility for sure Committee chaired by the Chief Financial Officer is responsible for evaluating, resolving and making recommendations to the Board regard- preparation of the quarterly and annual results announcements, and the process includes involvement by business managers, business controllers ing (1) compensation of the company’s top executives and their employ- ment conditions, (2) all equity-based plans, (3) incentive compensation 92 Nokia in 2010 C O R P O R A T E G O V E R N A N C E S T A T E M E N T plans, policies and programs of the company affecting executives and (4) The charters of each of the committees are available on Nokia’s other significant incentive plans. The Committee is responsible for over- website, www.nokia.com. seeing 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 Committee is responsible for the review of senior management development and succession plans. The Personnel Committee had four meetings in 2010. The attendance Main features of the internal control and risk management systems in relation to the financial reporting process at all meetings was 100%. In addition, any directors who wish to may at- Nokia has a Risk Policy which outlines Nokia’s risk management policies tend Personnel Committee meetings as non-voting observers. and processes and is approved by the Audit Committee. The Board’s role For further information on the activities of the Personnel Committee, in risk oversight includes risk analysis and assessment in connection with see “Executive compensation philosophy, programs and decision-making process” on page 101. 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, the risk management relating The Corporate Governance and Nomination Committee consists of three to the financial reporting process and assisting the Board’s oversight of to five members of the Board who meet all applicable independence the risk management function. Nokia applies a common and systematic requirements of Finnish law and the rules of the stock exchanges where approach to the risk management across all business operations and Nokia shares are listed, including NASDAQ OMX Helsinki and the New York processes based on a strategy approved by the Board. Accordingly, the risk Stock Exchange. Since May 6, 2010, the Corporate Governance and Nomina- management at Nokia is not a separate process but a normal daily busi- tion Committee consists of the following three members of the Board: ness and management practice. Dame Marjorie Scardino (Chairman), Per Karlsson and Risto Siilasmaa. Nokia’s management is responsible for establishing and maintain- The Corporate Governance and Nomination Committee’s purpose is ing adequate internal control over financial reporting for the company. (1) to prepare the proposals for the general meetings in respect of the Nokia’s internal control over financial reporting is designed to provide composition of the Board and the director remuneration to be approved reasonable assurance to Nokia’s management and the Board of Directors by the shareholders and (2) to monitor issues and practices related to cor- regarding the reliability of financial reporting and the preparation and porate governance and to propose necessary actions in respect thereof. fair presentation of published financial statements. Because of its inher- The Committee fulfills its responsibilities by (i) actively identifying ent limitations, internal control over financial reporting may not prevent individuals qualified to become members of the Board and considering or detect misstatements. Therefore, even those systems determined to be and evaluating the appropriate level and structure of director remunera- effective can provide only reasonable assurances with respect to financial tion, (ii) proposing to the shareholders the director nominees for election statement preparation and presentation. Also, projections of any evalua- at the Annual General Meetings as well as the director remuneration, (iii) tion of effectiveness to future periods are subject to the risk that controls monitoring significant developments in the law and practice of corporate may become inadequate because of changes in conditions, or that the governance and of the duties and responsibilities of directors of public degree of compliance with the policies or procedures may decline. companies, (iv) assisting the Board and each Committee of the Board in Management evaluated the effectiveness of Nokia’s internal control its annual performance self-evaluations, including establishing criteria to be used in connection with such evaluations, (v) developing and recom- mending to the Board and administering Nokia’s Corporate Governance over financial reporting based on the Committee of Sponsoring Orga- nizations of the Treadway Commission, or COSO, framework. Based on this evaluation, management has assessed the effectiveness of Nokia’s Guidelines, and (vi) reviewing the company’s disclosure in the Corporate internal control over financial reporting, as at December 31, 2010, and Governance Statement. concluded that such internal control over financial reporting is effective. The Committee has the power to retain search firms or advisors to Nokia also has an internal audit function that acts as an independent identify candidates. The Committee may also retain counsel or other appraisal function by examining and evaluating the adequacy and ef- advisors, as it deems appropriate. The Committee has sole authority to fectiveness of the company’s system of internal control. retain or terminate such search firms or advisors and to review and ap- Internal audit resides within the Chief Financial Officer’s organization prove such search firm or advisor’s fees and other retention terms. It is and also reports to the Audit Committee of the Board of Directors. The the Committee’s practice to retain a search firm to identify director candi- head of internal audit function has at all times direct access to the Audit dates each time a new director candidate is searched for. Committee, without involvement of the management. The Corporate Governance and Nomination Committee had four For more information on Nokia’s risk management, please see Note meetings in 2010. The attendance at all meetings was 100%. In addition, any directors who wish to may attend Corporate Governance and Nomina- tion Committee meetings as non-voting observers. 35 of Nokia’s consolidated financial statements. 93 C O R P O R A T E G O V E R N A N C E S T A T E M E N T Board of Directors The current members of the Board of Directors were elected at the Annual Vice Chairman Dame Marjorie Scardino, b. 1947 General Meeting on May 6, 2010, based on the proposal of the Board’s Chief Executive and member of the Board of Directors of Pearson plc. Corporate Governance and Nomination Committee. On the same date, the Board member since 2001. Vice Chairman since 2007. Chairman and Vice Chairman, as well as the Chairmen and members of the Chairman of the Corporate Governance and Nomination Committee. committees of the Board, were elected among the Board members and Member of the Personnel Committee. among the independent directors of the Board, respectively. The members of the Board of Directors are elected on an annual basis Bachelor of Arts (Baylor University). for a one-year term ending at the close of the next Annual General Meet- Juris Doctor (University of San Francisco). ing. The election is made by a simple majority of the shareholders’ votes represented at the Annual General Meeting. 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. Changes in the Board of Directors At the Annual General Meeting on May 6, 2010 Olli-Pekka Kallasvuo, Lalita D. Gupte, b. 1948 President and Chief Executive Officer at the time, was elected as a member Non-executive Chairman of the ICICI Venture Funds Management Co Ltd. of the Board of Directors. Mr. Kallasvuo resigned from the Board of Directors as from September 10, 2010. Board member since 2007. Member of the Audit Committee. The current members of the Board of Directors and its committees are set forth below. Chairman Jorma Ollila, b. 1950 B.A. (Economics, Hons) (University of Delhi). Master 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 Chairman of the Board of Directors of Nokia Corporation. of Directors of ICICI Limited 1999–2002 (ICICI Limited merged with ICICI Chairman of the Board of Directors of Royal Dutch Shell Plc. Bank Ltd in 2002). Deputy Managing Director of ICICI Limited 1996–1999. Board member since 1995. Chairman since 1999. Executive Director on the Board of Directors of ICICI Limited 1994–1996. Master of Political Science (University of Helsinki). Resources, and International Banking in ICICI Limited since 1971. Master of Science (Econ.) (London School of Economics). Master of Science (Eng.) (Helsinki University of Technology). Member of the Boards of Directors of Alstom S.A., Bharat Forge Ltd., Godrej Various leadership positions in Corporate and Retail Banking, Strategy and 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– Properties Ltd., and Kirloskar Brothers Ltd. Member of the Board of Direc- tors of HPCL-Mittal Energy Ltd. and Swadhaar FinServe Pvt. Ltd. (non-exec- utive Chairman). Also member of Board of Governors of educational insti- tutions. Member of the Board of Directors (non-executive director) of ICICI Bank Ltd. 1994–2002. Member of the Boards of Directors of FirstSource 1989. Holder of various managerial positions at Citibank within corporate Solutions Ltd. 2006–2010, ICICI Securities Ltd. 1993–2006, ICICI Prudential banking 1978–1985. 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 Vice Chairman of the Board of Directors of Otava Ltd. Member of the Board and ICICI Bank Eurasia Ltd. 2005–2006. of Directors of the University of Helsinki. Chairman of the Boards of Direc- tors and the Supervisory Boards of The Research Institute of the Finnish Economy ETLA and Finnish Business and Policy Forum EVA. Member of The European Round Table of Industrialists. Chairman of the World Business Council for Sustainable Development (WBCSD). Member of the Board of Directors of Ford Motor Company 2000–2008. Vice Chairman of UPM- Kymmene Corporation 2004–2008. 94 Nokia in 2010 C O R P O R A T E G O V E R N A N C E S T A T E M E N T Dr. Bengt Holmström, b. 1949 Isabel Marey-Semper, b. 1967 Paul A. Samuelson Professor of Economics at MIT, Director of Advanced Research of L’Oréal Group. joint appointment at the MIT Sloan School of Management. Board member since 2009. Board member since 1999. Member of the Audit Committee. Bachelor of Science (Helsinki University). Master of Science (Stanford University). Doctor of Philosophy (Stanford University). Ph.D. (Neuro-Pharmacology) (Université Paris Pierre et Marie Curie–Collège de France). MBA (Collège des Ingénieurs, Paris). Edwin J. Beinecke Professor of Management Studies at Yale University Director of Shared Services of L’Oréal Group 2010–2011. Chief Financial 1985–1994. Officer, Executive Vice President in charge of strategy of PSA Peugeot Citroën 2007–2009. COO, Intellectual Property and Licensing Business Unit Member of the American Academy of Arts and Sciences and Foreign Member of Thomson 2006–2007. Vice President Corporate Planning at Saint-Gobain of The Royal Swedish Academy of Sciences. Member of the Boards of Direc- 2004–2005. Director of Corporate Planning, High Performance Materials of tors of The Research Institute of the Finnish Economy ETLA and Finnish Busi- ness and Policy Forum EVA. Member of Aalto University Foundation Board. Saint-Gobain 2002–2004. Principal of A.T. Kearney (Telesis, prior to acquisi- tion by A.T. Kearney) 1997–2002. Prof. Dr. Henning Kagermann, b. 1947 Board member since 2007. Member of the Personnel Committee. Member of the Board of Directors of Faurecia S.A. 2007–2009. Risto Siilasmaa, b. 1966 Board member since 2008. Ph.D. (Theoretical Physics) (Technical University of Brunswick). Chairman of the Audit Committee. Member of the Corporate Governance and Nomination Committee. 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 AG 1998–2003. Master of Science (Eng) (Helsinki University of Technology). A number of leadership positions in SAP AG since 1982. Member of SAP Executive Board 1991–2009. Taught physics and computer science at President and CEO of F-Secure Corporation 1988–2006. the Technical University of Brunswick and the University of Mannheim 1980–1992, became professor in 1985. Member of the Supervisory Boards of Bayerische Motoren Werke Aktien- gesellschaft (BMW AG), Deutsche Bank AG, Deutsche Post AG and München- er Rückversicherungs-Gesellschaft AG (Munich Re). Member of the Board of Directors of Wipro Ltd. President of Deutsche Akademie der Technikwis- senschaften. Member of the Honorary Senate of the Foundation Lindau Nobelprizewinners. Per Karlsson, b. 1955 Independent Corporate Advisor. Board member since 2002. Chairman of the Personnel Committee. Chairman of the Boards of Directors of F-Secure Corporation and Elisa Corporation. Chairman of the Board of Directors of Fruugo Inc. Member of the Boards of Directors of Blyk Ltd, Efecte Corporation and Mendor Ltd. Member of the Board of Directors of The Federation of Finnish Technology Industries. 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). Member of the Corporate Governance and Nomination Committee. President and CEO of Finnair Plc 1999–2005. Chairman of oneworld airline Degree in Economics and Business Administration transportation associations 1999–2005. Holder of various executive posi- (Stockholm School of Economics). tions, including Vice Chairman and Executive Vice President, at Huhta- alliance 2003–2004. Member of various international aviation and air mäki Oyj, Leaf Group and Leaf Europe 1985–1998. Executive Director, with mergers and acquisitions advisory responsibili- ties, 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. Chairman of the Board of Directors of the Finnish Fair Corporation. Chairman of the Board of Directors of Solidium Oy 2008–2011. Member of the Board of Directors of Kesko Corporation 2001–2009 and Vice Chairman 2006–2009. 95 C O R P O R A T E G O V E R N A N C E S T A T E M E N T Nokia Leadership Team Election of the Board members–Proposal of the Corporate Governance and Nomination Committee for Composition of the Board of Directors in 2011 According to Nokia’s Articles of Association, Nokia has a Nokia Leadership Team (called the Group Executive Board until February 11, 2011) that is responsible for the operative management of the company. The Chairman and members of the Nokia Leadership Team are appointed by the Board On January 27, 2011, the Corporate Governance and Nomination Com- of Directors. Only the Chairman of the Nokia Leadership Team, the Chief mittee announced its proposal to the Annual General Meeting convening Executive Officer, can be a member of both the Board of Directors and the on May 3, 2011 regarding the composition of the Board of Directors for a Nokia Leadership Team. The Chief Executive Officer also acts as President, one-year term as from the Annual General Meeting in 2011 until the close and his rights and responsibilities include those allotted to the President of the Annual General Meeting in 2012. The Committee will propose that under Finnish law. the number of Board members be 11 and that the following current Nokia Board members be re-elected as members of the Nokia Board of Directors Changes in the Nokia Leadership Team for a one-year term ending at the close of the Annual General Meeting in 2012: Dr. Bengt Holmström, Prof. Dr. Henning Kagermann, Per Karlsson, Nokia Board of Directors appointed Stephen Elop as President and Chief Isabel Marey-Semper, Jorma Ollila, Dame Marjorie Scardino, and Risto Executive Officer of Nokia as of September 21, 2010. Mr. Elop replaced Siilasmaa. In addition, the Committee will propose that Jouko Karvinen, CEO of Stora Enso Oyj, Helge Lund, President and CEO of Statoil Group, and Kari Olli-Pekka Kallasvuo, who left the position of President and Chief Executive Officer on September 20, 2010. Stadigh, Group CEO and President of Sampo plc, be elected as members During 2010 and subsequently, Nokia announced the following changes in of the Nokia Board of Directors for the same one-year term ending at the Nokia Leadership Team (the Group Executive Board until February 11, the close of the Annual General Meeting in 2012. The Committee will also 2011): propose the election of Stephen Elop, President and CEO of Nokia Corpora- tion, to the Nokia Board of Directors for the same one-year term. » Hallstein Moerk, formerly Executive Vice President of Human Re- Election of the Chairman and Vice Chairman of the Board and the Chairmen and members of the Board’s Committees The Chairman and a Vice Chairman are elected by the new Board and con- sources, resigned from the Group Executive Board effective March 31, 2010, Thereafter, Mr. Moerk served as Executive Advisor for Nokia until his retirement at the end of September 2010. firmed by the independent directors of the Board from among the Board » Juha Äkräs was appointed Executive Vice President of Human Re- members upon the recommendation of the Corporate Governance and sources and member of the Group Executive Board effective April 1, Nomination Committee. The independent directors of the new Board will 2010. also confirm the election of the members and Chairmen for the Board’s committees from among the Board’s independent directors upon the rec- » Richard Simonson, formerly Executive Vice President of Mobile ommendation of the Corporate Governance and Nomination Committee and based on each committee’s member qualification standards. These elections will take place at the Board’s assembly meeting following the Phones, resigned from the Group Executive Board effective June 30, 2010. Thereafter, Mr. Simonson served as Senior Advisor to Nokia until he left the company on October 1, 2010. Annual General Meeting. On January 27, 2011, the Corporate Governance and Nomination » Anssi Vanjoki, formerly Executive Vice President of Mobile Solutions, Committee announced that it will propose in the assembly meeting of the resigned from the Group Executive Board effective October 12, 2010. new Board of Directors after the Annual General Meeting on May 3, 2011 Thereafter, Mr. Vanjoki’s employment with Nokia has continued until that Jorma Ollila be elected as Chairman of the Board and Dame Marjorie the end of his notice period on March 11, 2011. Scardino as Vice Chairman of the Board. » Jerri DeVard was appointed Executive Vice President and Chief Market- ing Officer and a member of the Group Executive Board as from Janu- ary 1, 2011. » Alberto Torres, formerly Executive Vice President of MeeGo Computers, resigned from the Group Executive Board on February 10, 2011, leav- ing the company on March 31, 2011. » On February 11, 2011 Nokia announced Nokia’s new strategy, includ- ing changes to Nokia’s leadership team and operational structure. Effective from that day, the Group Executive Board has been called the Nokia Leadership Team. 96 Nokia in 2010 C O R P O R A T E G O V E R N A N C E S T A T E M E N T The current members of Nokia Leadership Team are set forth below. Stephen Elop, b. 1963 President and CEO of Nokia Corporation. Jerri DeVard, b. 1958 Executive Vice President, Chief Marketing Officer. Nokia Leadership Team member since January 1, 2011. Joined Nokia on January 1, 2011. Nokia Leadership Team member and Chairman since September 21, 2010. B.A. (Economics) (Spelman College, Atlanta, Georgia, USA). Joined Nokia on September 21, 2010. M.B.A. (Marketing) (Clark Atlanta University Graduate School of Business, Atlanta, Georgia, USA). Bachelor of Computer Engineering and Management (McMaster University, Hamilton, Canada). Principal, DeVard Marketing Group 2007–2010. Senior Vice President, Doctor of Laws, honorary (McMaster University, Hamilton, Canada). Marketing and Brand Management, Verizon Communications Inc. President of Microsoft Business Division and member of senior member- Management, Verizon Communications Inc. 2003–2005. Chief Marketing ship team of Microsoft Corporation 2008–2010. COO, Juniper Networks, Inc. 2007–2008. President, Worldwide Field Operations, Adobe Systems Inc. 2005–2006. President and CEO (last position), Macromedia Inc. 1998–2005. Officer of e-Consumer, Citigroup 2000–2002. Management positions at Citigroup 1998–2000. Vice President, Marketing, Color Cosmetics, Revlon Inc. 1996–1998. Vice President, Sales and Marketing, Harrah’s Entertain- 2005–2007. Senior Vice President, Marketing Communications and Brand ment 1994–1996. Several brand management positions at the Pillsbury Co. Chairman of the Board of Directors of NAVTEQ Corporation. 1983–1993. Esko Aho, b. 1954 Member of the Board of Directors of Belk Inc. Vice Chair of the Board of Trustees of Spelman College. Member of the PepsiCo African-American Executive Vice President, Corporate Relations and Responsibility. Advisory Board. Nokia Leadership Team member since 2009. Joined Nokia 2008. Master of Social Sciences (University of Helsinki). Colin Giles, b. 1963 Executive Vice President, Sales. Nokia Leadership Team member since February 11, 2011. President of the Finnish Innovation Fund, Sitra 2004–2008. Private consul- Joined Nokia 1992. tant 2003–2004. Lecturer, Harvard University 2000–2001. Prime Minister of Finland 1991–1995. Chairman of the Centre Party 1990–2002. Member of Bachelor’s degree engineering (University of Western Australia). the Finnish Parliament 1983–2003. Elector in the presidential elections of 1978, 1982 and 1988. EMBA (London Business School). Member of the Board of Directors of Fortum Corporation. Member of the Board of Directors of Technology Academy Finland. Vice Chairman of the Senior Vice President, Sales, Markets, Nokia 2010–2011. President and Senior Vice President for Greater China, Japan and Korea, Nokia 2009–2010. Senior Vice President, Sales, Distribution East, Nokia 2008–2009. Senior Board of Directors of the Federation of Finnish Technology Industries. Vice President, Customer and Market Operations, Greater China, Nokia Member of the Club de Madrid, the InterAction Council, the Science and Technology in Society Forum (STS). Member of the ICC World Council and Vice Chair of ICC Finland. 2002–2008. Vice President Sales and Marketing, China, Nokia 2001–2002. General Manager, Taiwan, Nokia 1997–2001. Director, Marketing, Asia Pacific, Nokia 1994–1997. Management positions in several telecommuni- cations companies in Australia and the United Kingdom. Richard Green, b. 1955 Executive Vice President, Chief Technology Officer. Nokia Leadership Team member since February 11, 2011. Joined Nokia on May 3, 2010. Bachelor’s and Master’s degrees (State University of New York, Albany). Senior Vice President and Chief Technology Officer, Mobile Solutions, Nokia 2010–2011. Executive Vice President, Software Division, Sun Microsystems, Inc., 2006–2008. Senior roles at Casatt Software and Nuance. Member of the Board of Directors of Albany Foundation. 97 C O R P O R A T E G O V E R N A N C E S T A T E M E N T Jo Harlow, b. 1962 Executive Vice President, Smart Devices. Mary T. McDowell, b. 1964 Executive Vice President, Mobile Phones. Nokia Leadership Team member since February 11, 2011. Nokia Leadership Team member since 2004. Joined Nokia 2003. Joined Nokia 2004. Bachelor of science (psychology) Bachelor of Science (Computer Science) (Duke University, Durham, North Carolina, USA). (College of Engineering at the University of Illinois). Senior Vice President, Symbian Smartphones, Mobile Solutions, Nokia Executive Vice President and Chief Development Officer, Nokia 2008–2010. 2010–2011. Senior Vice President, Smartphones Product Management, Executive Vice President and General Manager of Enterprise Solutions, Nokia 2009. Vice President, Live Category, Nokia 2008–2009. Senior Vice Nokia 2004–2007. Senior Vice President & General Manager, Industry- President, Marketing, Mobile Phones, Nokia 2006–2007. Vice President, Standard Servers, Hewlett-Packard Company 2002–2003. Senior Vice Marketing, North America, Mobile Phones, Nokia 2003–2005. Marketing, President & General Manager, Industry-Standard Servers, Compaq Com- sales and management roles at Reebok 1992–2003 and Procter & Gamble puter Corporation 1998–2002. Vice President, Marketing, Server Products 1984–1992. Timo Ihamuotila, b. 1966 Division of Compaq Computer Corporation 1996–1998. Holder of execu- tive, managerial and other positions at Compaq Computer Corporation 1986–1996. Executive Vice President, Chief Financial Officer. Member of the Board of Directors of Autodesk, Inc. Member of the Board of Nokia Leadership Team member since 2007. With Nokia 1993–1996, rejoined 1999. Visitors of the College of Engineering at the University of Illinois. Master of Science (Economics) (Helsinki School of Economics). Licentiate of Science (Finance) (Helsinki School of Economics). Dr. Tero Ojanperä, b. 1966 Executive Vice President, Executive Vice President, Sales, Markets, Nokia 2008–2009. Executive Nokia Leadership Team member since 2005. Vice President, Sales and Portfolio Management, Mobile Phones, Nokia Joined Nokia 1990. 2007. Senior Vice President, CDMA Business Unit, Mobile Phones, Nokia 2004–2007. Vice President, Finance, Corporate Treasurer, Nokia 2000–2004. Master of Science (University of Oulu). Director, Corporate Finance, Nokia 1999–2000. Vice President of Nordic Ph.D. (Delft University of Technology, The Netherlands). acting Head of Services and Developer Experience. Derivates Sales, Citibank plc. 1996–1999. Manager, Dealing & Risk Manage- ment, Nokia 1993–1996. Analyst, Assets and Liability Management, Kansal- lis Bank 1990–1993. Member of the Boards of Directors of NAVTEQ Corporation and Nokia Sie- mens Networks B.V. Member of the Board of Directors of Central Chamber of Commerce of Finland. Executive Vice President, Chief Technology Officer, Nokia 2006–2007. Ex- ecutive Vice President and Chief Strategy Officer, Nokia 2005–2006. Senior Vice President, Head of Nokia Research Center 2003–2004. Vice President, Research, 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. Principal Engineer, Nokia Research Center 1997–1998. Member of the Board of Directors of NAVTEQ Corporation. A member of Young Global Leaders. 98 Nokia in 2010 C O R P O R A T E G O V E R N A N C E S T A T E M E N T Louise Pentland, b. 1972 Juha Äkräs, b. 1965 Executive Vice President, Chief Legal Officer. Executive Vice President, Human Resources. Nokia Leadership Team member since February 11, 2011. Nokia Leadership Team member as of April 1, 2010. Joined Nokia 1998. Joined Nokia 1993. LL.B honors (law degree) (Newcastle upon Tyne). Qualified and active Solici- Master of Science (Eng.) (Helsinki University of Technology). tor (England and Wales). Licensed attorney (Member of the New York Bar). Senior Vice President and Chief Legal Officer, Nokia 2008–2011. Acting dent, Global Operational Human Resources, Nokia 2005–2006. Senior Chief Legal Officer, Nokia 2007–2008. Vice President and Head of Legal, Vice President and General Manager, Core Networks, Nokia Networks Enterprise Solutions, Nokia 2004–2007. Senior Legal Counsel, Nokia Net- 2003–2005. Vice President and General Manager, IP Networks, Nokia works 1998–2004. Before joining Nokia, corporate in-house legal positions Networks 2002–2003. Vice President, Strategy and Business Develop- at Avon Cosmetics Ltd. and law firm positions prior to that in the United ment, Nokia Networks 2000–2001. Vice President, Customer Services APAC, Senior Vice President, Human Resources, Nokia 2006–2010. Vice Presi- Kingdom. Member of Association of General Counsel, CLO Roundtable–Europe, Global Leaders in Law, Corporate Counsel Forum. Vice chair of the International Bar Association. Nokia Telecommunications 1997–1999. Head of Marketing and Business Development, Customer Services, Nokia Telecommunications 1995–1996. Business Development Manager and Controller, Customer Services, Nokia Cellular Systems 1994–1995. Project Manager, Nokia Telecom AB (Sweden) 1993–1994. Member of the Board of Directors of Confederation of Finnish Industries (EK). Niklas Savander, b. 1962 Executive Vice President, Markets. Nokia Leadership Team member since 2006. Dr. Kai Öistämö, b. 1964 Joined Nokia 1997. Executive Vice President, Chief Development Officer. Nokia Leadership Team member since 2005. Master of Science (Eng.) (Helsinki University of Technology). Joined Nokia 1991. Master of Science (Economics and Business Administration) (Swedish School of Economics and Business Administration, Helsinki). Doctor of Technology (Signal Processing). Master of Science (Engineering) (Tampere University of Technology). Executive Vice President, Services, Nokia 2007–2010. Executive Vice Presi- dent, Technology Platforms, Nokia 2006–2007. Senior Vice President and Executive Vice President, Devices, Nokia 2007–2010. Executive Vice Presi- General Manager of Nokia Enterprise Solutions, Mobile Devices Business Unit 2003–2006. Senior Vice President, Nokia Mobile Software, Market Operations 2002–2003. Vice President, Nokia Mobile Software, Strategy, Marketing & Sales 2001–2002. Vice President and General Manager of Nokia Networks, Mobile Internet Applications 2000–2001. Vice President dent and General Manager of Mobile Phones, Nokia 2005–2007. Senior Vice President, Business Line Management, Mobile Phones, Nokia 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 of Nokia Network Systems, Marketing 1997–1998. Holder of executive and technical and managerial positions in Nokia Consumer Electronics and managerial positions at Hewlett-Packard Company 1987–1997. Nokia Mobile Phones 1991–1997. Member of the Board of Directors of Nokia Siemens Networks B.V. Member of Member of the Board of Directors of Nokian Tyres plc. Member of the Board the Board of Directors and secretary of Waldemar von Frenckells Stiftelse. of Directors of NAVTEQ Corporation. 99 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M Compensation of the Board of Directors and the Nokia Leadership Team Board of Directors compare the remuneration levels and their criteria paid in other global companies with net sales and business complexity comparable to that The following table sets forth the annual remuneration of the members of of Nokia. The Committee’s aim is to ensure that the company has an effi- the Board of Directors for service on the Board and its committees, as re- cient board of world-class professionals representing an appropriate and solved at the respective Annual General Meetings in 2010, 2009 and 2008. diverse mix of skills and experience. A competitive board remuneration contributes to the achievement of this target. Remuneration of the Board of Directors in 2010 For the year ended December 31, 2010, the aggregate amount of remu- neration paid to the members of the Board of Directors for their services as members of the Board and its committees was EUR 1 700 000. The following table sets forth the total annual remuneration paid to the members of the Board of Directors in 2010, as resolved by the share- holders at the Annual General Meeting on May 6, 2010. For information with respect to the Nokia shares and equity awards held by the members of the Board of Directors, please see “Share Ownership” on page 112. Position, EUR Chairman Vice Chairman Member Chairman of Audit Committee Member of Audit Committee Chairman of Personnel Committee Total 2010 440 000 150 000 130 000 2009 2008 440 000 150 000 130 000 440 000 150 000 130 000 25 000 25 000 25 000 10 000 10 000 10 000 25 000 1 700 000 1, 2 25 000 25 000 1 840 000 1, 2 1 710 000 1, 2 1 The changes in the aggregate amount of Board pay from year to year are due to chang- es in the number of Board members and changes in committee composition, while the amount of fees paid for the services rendered remained the same. 2 The aggregate amount of Board pay also includes the remuneration paid to the former President and CEO in his capacity as a member of the Board of Directors, but in that capacity only. It is Nokia’s policy that director remuneration consists of an annual fee only; no fees are paid for meeting attendance. In addition, approxi- mately 40% of director compensation is paid in the form of Nokia shares that is purchased from the market. It is also Nokia’s policy that the Board members retain all Nokia shares received as director compensation until the end of their board membership (except for those shares needed to offset any costs relating to the acquisition of the shares, including taxes). In addition, it is Nokia’s policy that non-executive members of the Board do not participate in any of Nokia’s equity programs and do not receive stock options, performance shares, restricted shares or any other equity- based or otherwise variable compensation for their duties as Board members. The former President and CEO received variable compensation for his executive duties, but not for his duties as a member of the Board of Direc- tors. The total compensation of the former President and CEO is described below in “Summary Compensation Table 2010” on page 107. The remuneration of the Board of Directors is set annually by our Annual General Meeting by a resolution of a simple majority of the shareholders’ votes represented at the meeting, upon the proposal of the Corporate Governance and Nomination Committee of the Board of Direc- tors. The remuneration is set for the period as from the respective Annual General Meeting until the close of the next Annual General Meeting. When preparing the proposal for the Board remuneration to the shareholders’ approval in the Annual General Meeting, it is the policy of the Corporate Governance and Nomination Committee to review and 100 Nokia in 2010 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M Fees earned or paid in cash 1 EUR Stock awards 2 EUR Option awards 2 EUR Non-equity incentive plan compen- Change in pension value and non-qualified deferred compensation sation 2 EUR earnings 2 EUR 440 000 150 000 140 000 130 000 130 000 130 000 155 000 140 000 155 000 130 000 1 700 000 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — All other compen- sation 2 EUR — — — — — — — — — — Total EUR 440 000 150 000 140 000 130 000 130 000 130 000 155 000 140 000 155 000 130 000 1 700 000 Jorma Ollila, Chairman 3 Marjorie Scardino, Vice Chairman 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 Total Year 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 1 Approximately 40% of each Board member’s annual remuneration is paid in Nokia shares purchased from the market and the remaining approximately 60% is paid in cash. 2 Not applicable to any non-executive member of the Board of Directors. Not applicable to the former President and CEO with respect to his service as a member of the Board of Directors. 3 Represents the fee of Jorma Ollila for service as Chairman of the Board. 4 Represents the fee of Dame Marjorie Scardino for service as Vice Chairman of the Board. 5 Represents the fees paid to Lalita Gupte, consisting of a fee of EUR 130 000 for service as a member of the Board and EUR 10 000 for service as a member of the Audit Com- mittee. 6 Olli-Pekka Kallasvuo left his position on the Nokia Board of Directors on September 10, 2010. This table includes remuneration paid to Mr. Kallasvuo for service as a member of the Board only. For the compensation paid for his services as the President and CEO until September 20, 2010, see “Summary Compensation Table 2010” on page 107. 7 Represents the fees paid to Per Karlsson, consisting of a fee of EUR 130 000 for service as a member of the Board and EUR 25 000 for service as Chairman of the Personnel Committee. 8 Represents the fees paid to Isabel Marey-Semper, consisting of a fee of EUR 130 000 for service as a member of the Board and EUR 10 000 for service as a member of the Audit Committee. 9 Represents the fees paid to Risto Siilasmaa, consisting of a fee of EUR 130 000 for service as a member of the Board and EUR 25 000 for service as Chairman of the Audit Committee. for the Chairman, EUR 150 000 for the Vice Chairman, and EUR 130 000 for each member (excluding the President and CEO of Nokia if elected to the Nokia Board); for the Chairman of the Audit Committee and the Chair- man 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 will propose that, as in the past, approximately 40 per cent of the remu- neration 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 devel- oped to enable Nokia to effectively compete in an extremely complex and rapidly evolving mobile communications industry. We are a leading com- Proposal by the Corporate Governance and Nomination Committee for remuneration to the Board of Directors in 2011 pany in our industry and conduct business globally. Our executive com- pensation programs have been designed to attract, retain and motivate On January 27, 2011, the Corporate Governance and Nomination Commit- tee of the Board announced its proposal to the Annual General Meeting talented executive officers on a global basis that drive Nokia’s success and industry leadership worldwide. Our compensation programs are designed convening on May 3, 2011 regarding the remuneration to the Board of to promote sustainability and long-term value creation of the company Directors in 2011. The Committee will propose that the annual fee payable and to ensure that remuneration is based on performance. to the Board members elected at the same meeting for a one-year term ending at the close of the Annual General Meeting in 2012, remain at the same level as during the past three years and be as follows: EUR 440 000 101 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M Our compensation program for executive officers includes: when special needs arise. Without management present, the Personnel » competitive base pay rates; and 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 » short- and long-term incentives that are intended to result in a com- and objectives, and proposes to the Board the compensation level of the petitive total compensation package. President and CEO. All compensation for the President and CEO, including long-term equity incentives, is approved by the Board and is confirmed The main objectives of our executive compensation programs are to: by the independent members of the Board. Management’s role is to provide any information requested by the Personnel Committee to assist » attract and retain outstanding executive talent; in their deliberations. » deliver a significant amount of performance-related variable compen- In addition, upon recommendation of the President and CEO, the Personnel Committee approves all compensation for all the members of sation for the achievement of both short- and long-term stretch goals; the Nokia Leadership Team (other than the President and CEO of Nokia) » appropriately balance rewards between both Nokia’s and an indi- equity incentives and goals and objectives relevant to compensation. and other direct reports to the President and CEO, including long-term vidual’s performance; and The Personnel Committee also reviews the results of the evaluation of the performance of the Nokia Leadership Team members (excluding the » align the interests of the executive officers with those of the share- President and CEO) and other direct reports to the President and CEO and holders through long-term incentives in the form of equity-based approves their incentive compensation based on such evaluation. awards. The competitiveness of Nokia’s executive compensation levels and in its review when determining the compensation of Nokia’s executive practices is one of several key factors the Personnel Committee of the officers or recommending the compensation of the President and CEO to The Personnel Committee considers the following factors, among others, Board considers in its determination of compensation for Nokia execu- the Board: tives. The Personnel Committee compares, on an annual basis, Nokia’s compensation practices, base salaries and total compensation, including » the compensation levels for similar positions (in terms of scope of short- and long-term incentives against those of other relevant compa- position, revenues, number of employees, global responsibility and nies with the same or similar revenue, size, global reach and complexity reporting relationships) in relevant comparison companies; that we believe we compete against for executive talent. The relevant sample includes companies in high technology, telecommunications and » the performance demonstrated by the executive officer during the Internet services industries, as well as companies from other industries last year; that are headquartered in Europe and the United States. The peer group is determined by the Personnel Committee and reviewed for appropri- » the size and impact of the particular officer’s role on Nokia’s overall ateness from time to time as deemed necessary due to such factors as performance and strategic direction; changes in the business environment or industry. The Personnel Committee retains and uses an external consultant » the internal comparison to the compensation levels of the other from Mercer Human Resources to obtain benchmark data and information executive officers of Nokia; and on current market trends. The consultant works directly for the Chair- man of the Personnel Committee and meets annually with the Personnel » past experience and tenure in role. Committee, without management present, to provide an assessment of the competitiveness and appropriateness of Nokia’s executive pay levels The above factors are assessed by the Personnel Committee in totality. and programs. Management provides the consultant with information Nokia’s management performed an internal risk assessment of regarding Nokia’s programs and compensation levels in preparation for Nokia’s compensation policies and practices for all its employees in 2009. meeting with the Committee. The consultant of Mercer Human Resources As a result, management concluded that there are no risks arising from that works for the Personnel Committee is independent of Nokia and does Nokia’s compensation policies and practices that are reasonably likely to not have any other business relationships with Nokia. have a material adverse effect on Nokia. The findings of the analysis were The Personnel Committee reviews the executive officers’ com- reported to the Personnel Committee. Nokia’s compensation policies pensation on an annual basis, and from time to time during the year and practices did not change materially during 2010 and the Personnel 102 Nokia in 2010 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M Committee concluded that there were no other significant factors which executives’ performance. The short-term cash incentive opportunity is would have necessitated a new assessment in 2010. expressed as a percentage of each executive officer’s annual base salary. These award opportunities and measurement criteria are presented in Components of executive compensation the table below. Our compensation program for executive officers includes annual cash Measurement criteria for the short-term cash incentive plan include compensation in the form of a base salary, short-term cash incentives those financial objectives that are considered important measures and long-term equity-based incentive awards in the form of performance of Nokia’s success in driving increased shareholder value. Financial shares, stock options and restricted shares. objectives are established and based on a number of factors and are The following report discusses executive compensation in 2010 when intended to be stretch targets that, if achieved, we believe, will result in the Nokia Leadership Team was called the Group Executive Board, and performance that would exceed that of our key competitors in the high thus all references are made to the Group Executive Board. technology, telecommunications and Internet services industries. The Annual cash compensation target setting, as well as the weighting of each measure, also requires the Personnel Committee’s approval with respect to the members of the Base salaries are targeted at globally competitive market levels. The Per- Nokia Leadership Team, and the Board’s approval with respect to the sonnel Committee evaluates and weighs as a whole the appropriate salary levels based on both our US and European peer companies. President and CEO. The following table reflects the measurement criteria that are established for the President and CEO and members of the Group Short-term cash incentives are an important element of our vari- Executive Board and the relative weighting of each objective for the year able pay programs and are tied directly to Nokia’s and the individual 2010. Incentive as a % of annual base salary in 2010 Position President and CEO 1 Total Group Executive Board Total Minimum performance, % Target performance, % Maximum performance, % Measurement criteria 0 0 0 0 0 0 0 100 225 25 37.5 25 150 75 37.5 300 168.75 25 37.5 100 206.25 (a) Financial Objectives (includes targets for net sales, operating profit and operating cash flow management and key business goals) (c) Total Shareholder Return 2 (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 2, 3 (comparison made with key competitors in the high technology, telecommunications and Internet services industries over one-, three- and five-year periods) 1 Applies for Olli-Pekka Kallasvuo, President and CEO until September 20, 2010. For Stephen Elop, President and CEO from September 21, 2010, short-term incentive target is 150% of base pay, paid to him pro rata for year 2010, based on his hire date. 2 Total shareholder return reflects the change in Nokia’s share price during an estab- lished time period, including the amount of dividends paid, divided by Nokia’s share price at the beginning of the period. The calculation is conducted in the same manner for each company in the peer group. 3 Only certain members of the Group Executive Board are eligible for the additional 25% total shareholder return element. 103 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M The short-term incentive payout is based on performance relative to For more information on the actual cash compensation paid in 2010 targets set for each measurement criteria listed in the table above and in- to our executive officers, see “Summary compensation table 2010” on cludes: (1) a comparison of Nokia’s actual performance to pre-established page 107. targets for net sales, operating profit and operating cash flow manage- ment and key business goals and (2) a comparison of each executive Long-term equity-based incentives officer’s individual performance to his/her predefined individual strategic Long-term equity-based incentive awards in the form of performance objectives and targets. Individual strategic objectives include key criteria shares, stock options and restricted shares are used to align executive which are the cornerstone for the success of Nokia’s long-term strategy officers’ interests with shareholders’ interests, reward for long-term and require a discretionary assessment of performance by the Personnel financial performance and encourage retention, while also considering Committee. Such strategic objectives may include, but are not limited to, evolving regulatory requirements and recommendations and changing Nokia’s product portfolio, consumer relationships, developer ecosystem, economic conditions. These awards are determined on the basis of the partnerships and other strategic assets. factors discussed above in “Executive Compensation Philosophy, Programs When determining the final incentive payout, the Personnel Commit- and Decision-making Process”, including a comparison of an executive of- tee determines an overall score for each executive based on the degree ficer’s overall compensation with that of other executives in the relevant to which (a) Nokia’s financial objectives and key business goals have market and the impact on the competitiveness of the executive’s compen- been achieved together with (b) qualitative and quantitative scores as- sation package in that market. Performance shares are Nokia’s main ve- signed to the individual strategic objectives. The final incentive payout is hicle for long-term equity-based incentives and reward the achievement determined by multiplying each executive’s eligible salary by: (i) his/her of both Nokia’s long-term financial results and an increase in share price. incentive target percentage; and (ii) the score resulting from factors (a) Performance shares vest as shares, if at least one of the pre-determined and (b) above. The resulting score for each executive is then multiplied by threshold performance levels, tied to Nokia’s financial performance, is an “affordability factor”, which is determined based on overall net sales, achieved by the end of the performance period and the value that the profitability and cash flow management of Nokia and which is applicable executive receives is dependent on Nokia’s share price. Stock options are in a similar manner to all Nokia employees within the short-term cash granted with the purpose of creating value for the executive officer, once incentive program. The Personnel Committee may apply discretion when vested, only if the Nokia share price at the time of vesting is higher than evaluating actual results against targets and the resulting incentive the exercise price of the stock option established at grant. This is also payouts. In certain exceptional situations, the actual short-term cash intended to focus executives on share price appreciation and thus aligning incentive awarded to the executive officer could be zero. The maximum the interests of the executives with those of the shareholders. Restricted payout is only possible with maximum performance on all measures. shares are used primarily for long-term retention purposes and they vest The portion of the short-term cash incentive that is tied to (a) Nokia’s fully after the close of a pre-determined restriction period. Any shares financial objectives and key business goals and (b) individual strategic granted are subject to the share ownership guidelines as explained below. objectives 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 an- All of these equity-based incentive awards are generally forfeited if the executive leaves Nokia prior to their vesting. nually at the end of the year, based on the Personnel Committee’s assess- Recoupment of certain equity gains ment of (c) Nokia’s total shareholder return compared to key peer group The Board of Directors has approved a policy allowing for the recoupment companies that are selected by the Personnel Committee in the high of equity gains realized by Nokia Leadership Team members under Nokia technology, Internet services and telecommunications industries and rel- equity plans in case of a financial restatement caused by an act of fraud or evant market indices over one-, three- and five-year periods. In the case of the former President and CEO Olli-Pekka Kallasvuo, the annual incentive intentional misconduct. This policy applies to equity grants made to Nokia Leadership Team members after January 1, 2010. award for 2010 was designed to also include his performance compared Information on the actual equity-based incentives granted to the against (d) strategic leadership objectives, including performance in key members of our Group Executive Board in 2010 is included in “Share markets, development of strategic capabilities, enhanced competitive- Ownership” on page 112. ness of core businesses and executive development. As a result of the end of his employment with Nokia prior to December 31, 2010, this incentive target, tied to strategic leadership objectives, was not paid. For our cur- Actual executive compensation for 2010 rent President and CEO, Stephen Elop, we did not designate strategic lead- ership objectives for 2010 due to the inability to measure those objectives during the short-term performance period following his hire date. Service contracts Stephen Elop’s service contract covers his position as President and CEO as from September 21, 2010. As at December 31, 2010, Mr. Elop’s annual 104 Nokia in 2010 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M total gross base salary, which is subject to an annual review by the Board strategy announced on February 11, 2011, his compensation structure of Directors and confirmation by the independent members of the Board, for 2011 and 2012 would be modified. This one-time special CEO incen- is EUR 1 050 000. His incentive targets under the Nokia short-term cash tive program is designed to align Mr. Elop’s compensation to increased incentive plan are 150% of annual gross base salary as at December 31, shareholder value and will link a meaningful portion of his compensation 2010. Mr. Elop is entitled to the customary benefits in line with our policies directly to the performance of Nokia’s share price over the next two years. applicable to the top management, however, some of them are being To participate in this new program, Mr. Elop will invest during 2011 and provided on a tax assisted basis. Mr. Elop is also eligible to participate in 2012 a portion of his short-term cash incentive opportunity and a portion Nokia’s long-term equity-based compensation programs according to of the value of his expected annual equity grants into the program as Nokia policies and guidelines and as determined by the Board of Direc- tors. Upon joining Nokia, Mr. Elop received 500 000 stock options, 75 000 performance shares at threshold performance level and 100 000 restricted follows: » His target short-term cash incentive level is reduced from 150% to shares out of Nokia Equity Program 2010. 100%; and As compensation for lost income from his prior employer, which resulted due to his move to Nokia, Mr. Elop received a one-time payment » His annual equity grants are reduced to a level below the competitive of EUR 2 292 702 in October 2010 and is entitled to a second payment of market value. USD 3 000 000 in October 2011. In addition, relating to his move to Nokia, Mr. Elop received a one-time payment of EUR 509 744 to reimburse him In consideration, Mr. Elop will be provided the opportunity to earn for fees he was obligated to repay his former employer. He also received a number of Nokia shares at the end of 2012 based on two independent income of EUR 312 203, including tax assistance, resulting from legal ex- criteria, half of the opportunity tied to each criterion: penses paid by Nokia associated with his move to Nokia. In case of early termination of employment, Mr. Elop is obliged to return to Nokia all or 1) Total Shareholder Return (TSR), relative to a peer group of companies part of these payments related to his move to Nokia. over the 2 year period from December 31, 2010 until December 31, In case of termination by Nokia for reasons other than cause, Mr. Elop 2012: Minimum payout will require performance at the 50th percen- is entitled to a severance payment of up to 18 months of compensation tile of the peer group and the maximum payout will occur if the rank (both annual total gross base salary and target incentive) and his equity is among the top three of the peer group. The peer group consists will be forfeited as determined in the applicable equity plan rules, with the exception of the equity out of the Nokia Equity Program 2010 which will vest in an accelerated manner. In case of termination by Mr. Elop, of a number of relevant companies in the high technology/mobility, telecommunications and Internet services industries. the notice period is six months and he is entitled to a payment for such 2) Nokia’s absolute share price at the end of 2012: Minimum payout if the notice period (both annual total gross base salary and target incen- Nokia share price is EUR 9, with maximum payout if the Nokia share tive for six months) but all his equity will be forfeited. In the event of a price is EUR 17. change of control of Nokia, Mr. Elop may terminate his employment upon a material reduction of his duties and responsibilities, upon which he will be entitled to a compensation of 18 months (both annual total gross base salary and target incentive), and his unvested equity will vest in an Nokia share price under both criteria is calculated as a 20-day trade volume weighted average share price on the NASDAQ OMX Helsinki. If the minimum performance for neither of the two performance criterion is accelerated manner. In case of termination by Nokia for cause, Mr. Elop is reached, no share delivery will take place. If the minimum level for one of entitled to no additional compensation and all his equity will be forfeited. the criterion is met, a total of 125 000 Nokia ordinary shares will be de- In case of termination by Mr. Elop for cause, he is entitled to a severance livered to Mr. Elop. At maximum level for both criteria, a total of 750 000 payment equivalent to 18 months of notice (both annual total gross Nokia ordinary shares will be delivered to him. Shares earned under this base salary and target incentive), and his unvested equity will vest in an plan during 2011–2012 will be subject to an additional one-year vesting accelerated manner. Mr. Elop is subject to a 12-month non-competition period until the first quarter 2014, at which point the earned and vested obligation after termination of the contract. Unless the contract is ter- shares will be delivered to Mr. Elop. The number of shares earned and to minated for cause, Mr. Elop may be entitled to compensation during the be settled may be adjusted by the Board of Directors under certain excep- non-competition period or a part of it. Such compensation amounts to tional circumstances. Until the shares are settled, no shareholder rights, the annual total gross base salary and target incentive for the respective such as voting or dividend rights, associated with the shares would be period during which no severance payment is paid. applicable. Right for the shares would be forfeited and no shares would The Board of Directors decided in March 2011 that in order to align be delivered if Mr. Elop resigned without cause or was terminated for Stephen Elop’s compensation to the successful execution of the new cause by Nokia before the settlement. 105 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M Nokia also had a service contract with Olli-Pekka Kallasvuo cover- limits may participate in the Nokia Restoration and Deferral Plan, which ing his position as President and CEO until September 20, 2010. As at allows employees to defer up to 50% of their salary and 100% of their September 20, 2010, Mr. Kallasvuo’s annual total gross base salary was short-term cash incentive. Contributions to the Restoration and Deferral EUR 1 233 000, and his incentive targets under the Nokia short-term Plan will be matched 100% up to 8% of eligible earnings, less contribu- cash incentive plan were 150% of annual gross base salary. The service tions made to the 401(k) plan. contract included provisions concerning termination of employment, As part of his supplemental retirement plan agreement, Olli-Pekka and Nokia announced on September 10, 2010 that in accordance with the Kallasvuo could have retired at the age of 60 with full retirement benefits terms and conditions of his service contract, Mr. Kallasvuo was entitled to the extent that he had remained employed at that time by Nokia. The to a severance payment consisting of 18 months gross base salary and target incentive which totaled EUR 4 623 750. Mr. Kallasvuo was paid the short-term cash incentive for the period from July 1 to September 20, 2010 at a level of 100% of base pay on a pro rata basis. He also received amount of that retirement benefit would have been calculated as if Mr. Kallasvuo had continued his service with Nokia through the retirement age of 65. As Mr. Kallasvuo’s employment with Nokia ended prior to his 60th birthday, this supplemental pension benefit was forfeited and Nokia as compensation the fair market value of the 100 000 Nokia restricted reversed the actuarial liability of EUR 10 154 000 associated with it. shares granted to him in 2007, which were to vest on October 1, 2010. All Hallstein Moerk left the Group Executive Board as of March 31, 2010 the unvested equity granted to him was forfeited upon termination of and retired from employment with Nokia as of September 30, 2010 pursu- the employment, while his vested outstanding stock options remained ant to the terms of his employment and pension agreement with Nokia. exercisable until mid-February 2011, at which point they were forfeited Nokia’s obligation was settled in full and it no longer has any actuarial in accordance with the plans’ terms and conditions. In addition, Mr. liability for Mr. Moerk’s pension benefit. Kallasvuo did not meet the minimum eligibility requirements under his supplemental retirement plan agreement and as such, will not receive any payments under that agreement. As a result, Nokia reversed the Actual compensation for the members of the Group Executive Board in 2010 actuarial liability of EUR 10 154 000, that had been accrued under that At December 31, 2010, Nokia had a Group Executive Board consisting of plan. In accordance with the terms and conditions of his service contract, nine members. Changes in the composition in the Group Executive Board Mr. Kallasvuo is subject to a 12-month non-competition obligation until during 2010 and subsequently are explained above in “Nokia Leadership September 20, 2011. Team” on page 96. For information about the compensation and benefits received by The following report discusses executive compensation in 2010 when Mr. Elop and Mr. Kallasvuo during 2010, see “Summary compensation table 2010” on page 107 and “Equity grants in 2010” on page 108. the Nokia Leadership Team was called the Group Executive Board, and thus all references are made to the Group Executive Board. Pension arrangements for the members of the Nokia Leadership Team (the Group Executive Board until February 11, 2011) 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 our equity plans in 2010. The members of the Nokia Leadership Team participate in the local retire- Gains realized upon exercise of stock options and share-based incen- ment programs applicable to employees in the country where they reside. Executives in Finland, including Mr. Elop, President and CEO, participate in the Finnish TyEL pension system, which provides for a retirement benefit tive grants vested for the members of the Group Executive Board during 2010 are included in “Share ownership” on page 112. based on years of service and earnings according to a prescribed statutory Aggregate cash compensation to the Group Executive Board for 2010 1 system. Under the Finnish TyEL pension system, base pay, incentives and other taxable 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 voluntary pre-tax contributions that are 100% matched by Nokia up to 8% of eligible earnings. 25% of the employer match vests for the participants during the first four years of their employment. Participants earning in excess of the Internal Revenue Service (IRS) eligible earning Number of members on December 31 Base salaries EUR Cash incentive payments 2 EUR 9 5 552 108 3 457 145 Year 2010 1 Includes base salary and cash incentives paid or payable by Nokia for the 2010 fiscal year. The cash incentives are paid as a percentage of annual base salary based on Nokia’s short-term cash incentives. Includes compensation paid to Hallstein Moerk for the period until March 31, 2010, Richard Simonson until June 30, 2010, Olli-Pekka Kal- lasvuo until September 20, 2010, Anssi Vanjoki until October 12, 2010 and Juha Äkräs as from April 1, 2010 and Stephen Elop as from September 21, 2010. 2 Excluding any gains realized upon exercise of stock options, which are described in “Share ownership” on page 112. 106 Nokia in 2010 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M 1 The equity-based incentive grants are generally forfeited if the employment relation- ship 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 description of our equity plans, see Note 24 to Nokia’s consolidated financial state- ments on page 49. Long-term equity-based incentives granted in 2010 1 2 At maximum performance, the settlement amounts to four times the number at threshold. Group Executive Board 3,4 Total Total number of participants 3 Includes Hallstein Moerk for the period until March 31, 2010, Richard Simonson until June 30, 2010, Olli-Pekka Kallasvuo until September 20, 2010, Anssi Vanjoki until Octo- ber 12, 2010 and Juha Äkräs as from April 1, 2010 and Stephen Elop as from September 21, 2010. Performance shares at threshold 2 Stock options Restricted shares 485 000 1 320 000 1 104 000 3 576 403 6 708 582 5 801 800 4 250 3 200 430 4 For the Group Executive Board members whose employment terminated during 2010, the long-term equity-based incentives were forfeited following termination of employment in accordance with plan rules. Mr. Vanjoki’s termination date under his employment agreement is March 11, 2011, and his equity will be forfeited thereafter. Mr. Moerk retained his vested and unvested grants upon retirement, in accordance with the equity plans’ provisions. Summary compensation table 2010 Change in pension value and Non-equity nonqualified deferred compen- sation earnings 5 incentive plan compen- sation EUR EUR Stock Option awards 3, 4 awards 3, 4 EUR EUR All other compen- sation EUR Total EUR Year Salary EUR Bonus 2 EUR Name and principal position 1 Stephen Elop President and CEO Timo Ihamuotila EVP, Chief Financial Officer 9 Mary T. McDowell EVP, Mobile Phones 10 Kai Öistämö EVP, Chief Development Officer Niklas Savander EVP, Markets 2010 280 303 440 137 1 682 607 800 132 Olli-Pekka Kallasvuo President and CEO until September 20, 2010 2010 979 758 2009 1 176 000 2008 1 144 800 676 599 1 288 144 721 733 3 267 288 3 332 940 2 470 858 2010 2009 2010 2009 2008 2010 2009 2008 423 524 396 825 559 637 508 338 493 798 481 067 460 000 445 143 245 634 234 286 314 782 349 911 196 138 248 608 343 225 200 126 1 341 568 752 856 1 233 368 800 873 620 690 1 212 143 935 174 699 952 641 551 650 661 548 153 166 328 135 834 142 567 152 283 133 463 166 328 166 126 152 529 2010 441 943 247 086 1 233 368 142 567 Richard Simonson EVP, Mobile Phones until June 30, 2010 10 2010 2009 2008 640 221 648 494 630 263 372 870 453 705 293 477 1 508 474 1 449 466 699 952 166 328 166 126 152 529 * * * * * * * * * * * * * * * * 340 471 3 115 276 6 6 658 926 7 1 358 429 469 060 5 524 061 8 177 248 175 164 11 089 257 7 983 422 5 529 768 31 933 15 575 12 9 824 87 922 8 893 9 21 195 71 386 11 33 726 33 462 18 365 13 29 778 29 712 2 217 880 1 556 571 2 321 740 1 845 131 1 477 551 2 126 511 1 944 127 1 615 384 12 23 634 14 2 088 598 77 920 15 134 966 106 632 2 765 814 2 852 757 1 882 853 1 The positions set forth in this table are the current positions of the named executives. Mr. Elop was appointed President and CEO effective September 21, 2010; Mr. Kallasvuo served as President and CEO until September 20, 2010; Ms. McDowell served as Execu- tive Vice President, Corporate Development until June 30, 2010; Mr. Öistämö served as Executive Vice President, Devices until June 30, 2010; Mr. Savander served as Executive Vice President, Services until June 30, 2010; also Mr. Simonson served as Executive Vice President, Mobile Phones until June 30, 2010. shares, which is two times the number of shares at threshold. The value of the stock awards with performance shares valued at maximum (four times the number of shares at threshold), for each of the named executive officer, is as follows: Mr. Elop EUR 2 718 091; Mr. Kallasvuo EUR 4 854 540; Mr. Ihamuotila EUR 1 753 078; Ms. McDowell EUR 1 586 091; Mr. Öistämö EUR 1 623 653; Mr. Savander EUR 1 586 091; and Mr. Simon- son EUR 1 919 984. 4 Mr. Kallasvuo’s and Mr. Simonson’s equity grants were forfeited and cancelled follow- 2 Bonus payments are part of Nokia’s short-term cash incentives. The amount consists of ing end of employment in accordance with plan provisions. the bonus earned and paid or payable by Nokia for the respective fiscal year. 3 Amounts shown represent the grant date fair value of equity grants awarded for 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 perfor- mance 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 granted number of 5 The change in pension value represents the proportionate change in the liability related to the individual executives. These executives are covered by the Finnish State employees’ pension 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 107 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M 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. Ms. Mc- Dowell participates and Mr. Simonson participated until October 2, 2010 in Nokia’s U.S Retirement Savings and Investment Plan, as described in “Pension arrangements for the Members of the Nokia Leadership Team (formerly Group Executive Board)” above on page 106. The Company’s contributions to the plan are included under “All other compensation column” and noted hereafter. 6 All other compensation for Mr. Elop in 2010 includes: EUR 2 292 702 one time payment as compensation for lost income from his prior employer which resulted due to his move to Nokia; EUR 509 744 one-time payment to reimburse him for fees he was obli- gated to repay his former employer; EUR 312 203 income resulting from legal expenses paid by Nokia associated with his move to Nokia, including tax assistance; EUR 627 for taxable benefit for premiums paid under supplemental medical and disability insur- ance, for driver and for mobile phone. 7 Mr. Kallasvuo’s proportionate change in the liability related to the individual under the funded part of the Finnish TyEL pension was negative (see footnote 5 above). In addition, it includes a negative change in the annual pension liability of EUR 9 590 000, relating to the cancellation of the early retirement benefit at the age of 60 provided under his service contract, which has been forfeited upon end of employment. As a result of the cancellation of this early retirement benefit, Nokia reversed the actuarial liability of EUR 10 154 000. 8 All other compensation for Mr. Kallasvuo in 2010 includes: EUR 4 623 750 as severance payment as described under his service agreement, see ‘‘Service contracts ‘‘ above on page 104; EUR 748 000 as compensation for the fair market value of the 100 000 Nokia restricted shares granted to him in 2007, which were to vest on October 1, 2010; EUR 130 000 for his services as member of the Board or Directors, see ‘‘Remuneration of the Board of Directors in 2010” above on page 100; EUR 15 427 for car allowance; EUR 6 088 for driver and for mobile phone; EUR 796 for taxable benefit for premiums paid under supplemental medical and disability insurance. 9 All other compensation for Mr. Ihamuotila in 2010 includes: EUR 7 440 for car allow- ance; EUR 1 453 taxable benefit for premiums paid under supplemental medical and disability insurance and for mobile phone. 10 Salaries, benefits and perquisites for Ms. McDowell and Mr. Simonson are paid and denominated in USD. Amounts were converted to euro using year-end 2010 USD/EUR exchange rate of 1.32 and GPB/EUR rate of 0.85. For year 2009 disclosure, 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 year-end 2008 USD/EUR exchange rate of 1.40. 11 All other compensation for Ms. McDowell in 2010 includes: EUR 45 951 provided un- der Nokia’s international assignment policy in the U.K; EUR 12 935 for car allowance, EUR 12 500 company contributions to the 401(k) Plan. 12 Mr. Öistämö’s and Mr. Savander’s proportionate change in the liability related to the individual under the funded part of the Finnish TyEL pension was negative (see footnote 5 above). 13 All other compensation for Mr. Öistämö in 2010 includes: EUR 16 925 for car allow- ance; EUR 1 440 as taxable benefit for premiums paid under supplemental medical and disability insurance, for mobile phone and driver benefit. 14 All other compensation for Mr. Savander in 2010 includes: EUR 22 200 for car allow- ance; EUR 1 434 as taxable benefit for premiums paid under supplemental medical and disability insurance and for mobile phone. 15 All other compensation for Mr. Simonson in 2010 includes: EUR 55 514 company contributions to the Restoration & Deferral plan; EUR 12 500 company contributions to the 401(k) plan; EUR 9 906 for car allowance. * None of the named executive officers participated in a formulated, non-discre- tionary, incentive plan. Annual incentive payments are included under the “Bonus” column. Equity grants in 2010 1 Name and principal position Year Grant date Option awards Number of shares underlying options Grant price (EUR) Stock awards Grant date fair value 2 (EUR) Performance Performance shares at maximum (number) shares at threshold (number) Restricted Grant date shares (number) fair value 3 (EUR) Stephen Elop President and CEO Olli-Pekka Kallasvuo President and CEO until September 20, 2010 4 Timo Ihamuotila EVP, Chief Financial Officer Mary T. McDowell EVP, Mobile Phones Kai Öistämö EVP, Chief Development Officer Niklas Savander EVP, Markets Richard Simonson EVP, Mobile Phones until June 30, 2010 4 2010 Nov 5 500 000 7.59 800 132 75 000 300 000 100 000 1 682 607 2010 May 7 270 000 8.86 641 551 135 000 540 000 170 000 3 267 288 2010 May 7 70 000 8.86 166 328 35 000 140 000 120 000 1 341 568 2010 May 7 60 000 8.86 142 567 30 000 120 000 115 000 1 233 368 2010 May 7 70 000 8.86 166 328 35 000 140 000 100 000 1 212 143 2010 May 7 60 000 8.86 142 567 30 000 120 000 115 000 1 233 368 2010 May 7 70 000 8.86 166 328 35 000 140 000 111 000 1 508 474 1 Including all equity awards made during 2010. Awards were made under the Nokia Stock Option Plan 2007, the Nokia Performance Share Plan 2010 and the Nokia Re- stricted Share Plan 2010. 2 The fair value of stock options equals the estimated fair value on the grant date, calcu- lated using the Black-Scholes model. The stock option exercise price was EUR 8.86 on May 7, 2010 and EUR 7.59 on November 5, 2010. NASDAQ OMX Helsinki closing market price at grant date on May 7, 2010 was EUR 8.35 and on November 5, 2010 was EUR 7.65. 3 The fair value of performance shares and restricted shares equals the estimated fair value on the 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. 4 Mr. Kallasvuo’s and Mr. Simonson’s equity grants were forfeited and cancelled follow- ing end of employment in accordance with the plan rules. 108 Nokia in 2010 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M For information with respect to the Nokia shares and equity awards ration to deliver Nokia shares to employees at a future point in time, held by the members of the Group Executive Board as at December 31, subject to Nokia’s fulfillment of pre-defined performance criteria. No per- 2010, please see “Share ownership” on page 112. formance shares will vest unless the Group’s performance reaches at least Equity-based incentive programs 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 General of the performance period. During the year ended December 31, 2010, Nokia administered two global The 2007, 2008, 2009 and 2010 plans have a three-year performance stock option plans, four global performance share plans and four global period with no interim payout. The shares vest after the respective per- restricted share plans. Both executives and employees participate in these formance period. The shares will be delivered to the participants as soon plans. Our compensation programs promote long-term value creation and as practicable after they vest. The below table summarizes the relevant sustainability of the company and ensure that remuneration is based on periods and settlements under the plans. performance. Performance shares are the main element of the company’s broad-based equity compensation program to further emphasize the performance element in employees’ long-term incentives. For managers and employees in higher job levels Nokia employs a portfolio approach designed to build an optimal and balanced combination of long-term equity-based incentives, by granting both performance shares and stock options. Nokia believes using both equity instruments help focus recipients on long term financial performance as well as on share price appreciation, thus aligning recipients’ interests with those of sharehold- ers’ and promoting the long-term financial success of the company. The equity-based compensation programs are intended to align the potential Plan 2007 1 2008 1 2009 2010 Performance period Settlement 2007–2009 2008–2010 2009–2011 2010–2012 2010 2011 2012 2013 1 No Nokia shares were delivered under Nokia Performance Share Plans 2007 and 2008 as Nokia’s performance did not reach the threshold level of either performance criteria under both plans. value received by participants directly with the performance of Nokia. Until the Nokia shares are delivered, the participants will not have Nokia also has granted restricted shares to a small selected number of key any shareholder rights, such as voting or dividend rights, associated with employees each year who are considered key talent whose retention or the performance shares. The performance share grants are generally recruitment is vital to the future success of Nokia. forfeited if the employment relationship terminates with Nokia prior to The equity-based incentive grants are generally conditioned upon vesting. continued employment with Nokia, as well as the fulfillment of perfor- Performance share grants to the CEO are made upon recommendation mance and other conditions, as determined in the relevant plan rules. by the Personnel Committee and approved by the Board of Directors and The broad-based equity compensation program for 2010, which was confirmed by the independent directors of the Board. Performance share approved by the Board of Directors, followed the structure of the program grants to the other Nokia Leadership Team members and other direct re- in 2009. The participant group for the 2010 equity-based incentive ports of the CEO are approved by the Personnel Committee. Performance program continued to be broad, with a wide number of employees in share grants to eligible employees are approved by the CEO at the end of many levels of the organization eligible to participate. As at December 31, the respective calendar quarter on the basis of an authorization given by 2010, the aggregate number of participants in all of our active equity- the Board of Directors. based programs was approximately 11 500 compared with approximately 13 000 as at December 31, 2009 reflecting changes in our grant guidelines Stock options and reduction in eligible population. During 2010 Nokia administered two global stock option plans, the Stock For a more detailed description of all of our equity-based incentive Option Plan 2005 and 2007, each of which, including its terms and condi- plans, see Note 24 to Nokia’s consolidated financial statements on page 49. tions, has been approved by the Annual General Meetings in the year when Performance shares During 2010, Nokia administered four global performance share plans, the Performance Share Plans of 2007, 2008, 2009 and 2010, each of which, including its terms and conditions, has been approved by the Board of Directors. the plan was launched. Each stock option entitles the holder to subscribe for one new Nokia share. The stock options are non-transferable and may be exercised for shares only. 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 The performance shares represent a commitment by Nokia Corpo- five years. 109 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M The exercise price of the stock options is determined at the time of Other equity plans for employees grant, on a quarterly basis, in accordance with a pre-agreed schedule In addition to Nokia’s global equity incentive plans described above, Nokia after the release of Nokia’s periodic financial results. The exercise prices has equity plans for Nokia-acquired businesses or employees in the United are based on the trade volume weighted average price of a Nokia share States and Canada under which participants can receive Nokia ADSs or on NASDAQ OMX Helsinki during the trading days of the first whole week ordinary shares. of the second month of the respective calendar quarter (i.e., February, In connection with our July 10, 2008 acquisition of NAVTEQ, the Group May, August or November). Exercise prices are determined on a one-week assumed NAVTEQ’s 2001 Stock Incentive Plan (“NAVTEQ Plan”). All unvest- weighted average to mitigate any day-specific fluctuations in Nokia’s ed NAVTEQ restricted stock units under the NAVTEQ Plan were converted share price. The determination of exercise price is defined in the terms to an equivalent number of restricted stock units entitling their holders and conditions of the stock option plan, which are approved by the share- holders at the respective Annual General Meeting. The Board of Directors to Nokia shares. The maximum number of Nokia shares to be delivered to NAVTEQ employees during the years 2008–2012 is approximately 3 mil- does not have the right to change how the exercise price is determined. lion, of which approximately 2 million shares have already been delivered Shares will be eligible for dividend for the financial year in which the by December 31, 2010. The Group does not intend to make further awards share subscription takes place. Other shareholder rights will commence under the NAVTEQ Plan. on the date on which the subscribed shares are entered in the Trade Reg- Nokia has also an Employee Share Purchase Plan in the United States, ister. The stock options grants are generally forfeited if the employment which permits all full-time Nokia employees located in the United States relationship terminates with Nokia. to acquire Nokia ADSs at a 15% discount. The purchase of the ADSs is Stock option grants to the CEO are made upon recommendation by the Personnel Committee and are approved by the Board of Directors and funded through monthly payroll deductions from the salary of the par- ticipants, and the ADSs are purchased on a monthly basis. As of Decem- confirmed by the independent directors of the Board. Stock option grants ber 31, 2010, approximately 12.8 million ADSs had been purchased under to the other Nokia Leadership Team members and other direct reports of this plan since its inception, and there were a total of approximately 550 the CEO are approved by the Personnel Committee. Stock option grants to participants in the plan. eligible employees are approved by the CEO on a quarterly basis, on the For more information on these plans, see Note 24 to Nokia’s consoli- basis of an authorization given by the Board of Directors. dated financial statements on page 49. Restricted shares During 2010 Nokia administered four global restricted share plans, the Restricted Share Plan 2007, 2008, 2009 and 2010, each of which, including its terms and conditions, has been approved by the Board of Directors. Restricted shares are used to recruit, retain, and motivate selected Nokia equity-based incentive program 2011 On January 27, 2011, the Board of Directors approved the scope and design of the Nokia Equity Program 2011, subject to the approval of the Stock Option Plan 2011 by the Annual General Meeting. Similarly, like the earlier broad-based equity incentive programs, it intends to align the potential high potential and critical talent who are vital to the future success of value received by the participants directly with the long-term financial Nokia. Restricted shares are used only for key management positions and performance of the Company, thus also aligning the participants’ interests other critical talent. with Nokia shareholders’ interests. Nokia’s balanced approach and use All of Nokia’s restricted share plans have a restriction period of three of the performance-based plan as the main long-term incentive vehicle years after grant. Until the Nokia shares are delivered, the participants effectively contribute to the long-term value creation and sustainability of will not have any shareholder rights, such as voting or dividend rights, the Company and ensure that compensation is based on performance. associated with the restricted shares. The restricted share grants are The main equity instrument continues to be performance shares. generally forfeited if the employment relationship terminates with Nokia In addition, stock options will be used in conjunction with performance prior to vesting. Restricted share grants to the CEO are made upon recommendation by the Personnel Committee and approved by the Board of Directors and shares on a limited basis for senior managers, and restricted shares will be used on a very selective basis for high potential and critical talent, vital to the future success of Nokia. These equity-based incentive awards confirmed by the independent directors of the Board. Restricted share are generally forfeited if the employee leaves Nokia prior to vesting. grants to the other Nokia Leadership Team members and other direct reports of the CEO are approved by the Personnel Committee. Restricted share grants to eligible employees 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 shares The Performance Share Plan 2011 approved by the Board of Directors will cover a performance period of three years (2011–2013). 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: 110 Nokia in 2010 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M 1 Average Annual Net Sales Growth: 2.5% (threshold) and 10% (maxi- stock options to be granted under the plan will have a term of approxi- mum) during the performance period 2011–2013, and mately six years. The vesting periods of the stock options are as follows: 50% of stock options granted under each subcategory vesting three years 2 Average Annual EPS (diluted, non-IFRS): EUR 0.50 (threshold) and EUR after grant date and the remaining 50% vesting four years from grant. 1.10 (maximum) during the performance period 2011–2013. The exercise period for the first sub-category will commence on July 1, 2014 and the exercise period for the last sub-categories will expire on Average Annual Net Sales Growth is calculated as an average of the December 27, 2019. net sales growth rates for the years 2011 through 2013. Average Annual The exercise price for each sub-category of stock options will be EPS is calculated as an average of the diluted, non-IFRS earnings per share for years 2011, 2012 and 2013. Both the Average Annual Net Sales Growth and the Averaged Annual EPS criteria are equally weighted and perfor- mance under each of the two performance criteria is calculated indepen- dent of each other. determined on a quarterly basis. The exercise price for each sub-category of stock options will be equal to the trade volume weighted average price of the Nokia share on NASDAQ OMX Helsinki during the trading days of the first whole week of the second month (i.e. February, May, August or November) of the respective calendar quarter, on which the sub-category Nokia believes the performance criteria set above are challenging. has been denominated. Should an ex-dividend date take place during The awards at the threshold are significantly reduced from grant level that week, the exercise price shall be determined based on the following and achievement of maximum award would serve as an indication that week’s trade volume weighted average price of the Nokia share on NAS- Nokia’s performance significantly exceeded current market expectations DAQ OMX Helsinki. The determination of exercise price is defined in the of our long-term execution. terms and conditions of the stock option plan, which are subject to the Achievement of the maximum performance for both criteria would approval of the shareholders at the respective Annual General Meeting. result in the vesting of a maximum of 28 million Nokia shares. Perfor- The Board of Directors does not have the right to change how the exercise mance exceeding the maximum criteria does not increase the number of price is determined. performance shares that will vest. Achievement of the threshold perfor- mance for both criteria will result in the vesting of approximately 7 mil- Restricted shares lion shares. If only one of the threshold levels of performance is achieved, Restricted shares under the Restricted Share Plan 2011 approved by the only approximately 3.5 million of the performance shares will vest. If Board of Directors are used, on a very selective basis, to attract and retain none of the threshold levels is achieved, then none of the performance shares will vest. The vesting of shares follows a linear scale for actual financial performance achieved. If the required performance level is achieved, the vesting will occur December 31, 2013. Until the Nokia shares are delivered, the participants will not have any shareholder rights, such high potential and critical talent, vital to the future success of Nokia. The restricted shares under the Restricted Share Plan 2011 will have a three- year restriction period. The restricted shares will vest and the resulting Nokia shares be delivered in 2014 and early 2015, subject to fulfillment of the service period criteria. Until the Nokia shares are delivered, the par- as voting or dividend rights associated with these performance shares. ticipants will not have any shareholder rights, such as voting or dividend rights associated with these restricted shares. Stock options The Board of Directors will make a proposal for Stock Option Plan 2011 to the Annual General Meeting convening on May 3, 2011. The Board will Maximum Planned Grants under the Nokia Equity-Based Incentive Program 2011 in Year 2011 propose to the Annual General Meeting that selected personnel of Nokia The maximum number of planned grants under the Nokia Equity Program Group be granted a maximum of 35 million stock options until the end of 2011 (i.e. performance shares, stock options and restricted shares) in 2011 2013. The proposed Stock Option Plan 2011 will succeed the previous Stock are set forth in the table below. Option Plan 2007, approved by the Annual General Meeting 2007, which has not been available for further grants of stock options since the end of 2010. The grants of stock options in 2011 will be made out of this new plan subject to its approval by the Annual General Meeting. The planned maxi- mum annual grant for the year 2011 under the Stock Option Plan 2011 is approximately 12 million stock options, with the remaining stock options available through the end of 2013. The stock options under the Stock Option Plan 2011 entitle to sub- scribe for a maximum of 35 million Nokia shares. The sub-categories of Plan type Maximum number of shares available for grants under the equity based compensation program in 2011 Stock options Restricted shares Performance shares at maximum 1 12 million 9 million 28 million 1 The number of Nokia shares to be delivered at threshold performance is a quarter of maximum performance, i.e., a total of 7 million Nokia shares. 111 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M As at December 31, 2010, the total dilutive effect of all Nokia’s stock options, performance shares and restricted shares outstanding, assuming full dilution, was approximately 1.5% in the aggregate. The potential maximum effect of the proposed Equity Based Compensation Program for 2011 would be approximately another 1.3%. 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 as at December 31, 2010, either through share ownership or through holding of equity-based incentives, which may lead to share ownership in the future. With respect to the Board of Directors, approximately 40% of direc- tor compensation is paid in the form of Nokia shares that is purchased from the market. It is also Nokia’s policy that the Board members retain all Nokia shares received as director compensa- tion until the end of their board membership (except for those shares needed to offset any costs relating to the acquisition of the shares, including taxes). In addition, it is Nokia’s policy that non-executive members of the Board do not participate in any of Nokia’s equity programs and do not receive stock options, performance shares, restricted shares or any other equity based or otherwise variable compensation for their duties as Board members. For a description of our remuneration for our Board of Directors, see “Remuneration of the Board of Directors in 2010” on page 100. The Nokia Leadership Team members receive equity based compen- sation in the form of performance shares, stock options and restricted shares. For a description of our equity-based compensation programs for employees and executives, see “Equity-based incentive programs” on page 109. Name 1 Jorma Ollila 3 Marjorie Scardino Lalita D. Gupte Bengt Holmström Henning Kagermann Per Karlsson 4 Isabel Marey-Semper Risto Siilasmaa Keijo Suila Shares 2 ADSs 2 761 680 — — 33 235 16 629 39 367 11 861 55 589 19 632 — 33 208 17 910 — — — — — — 1 Georg Ehrnrooth did not stand for re-election in the Annual General Meeting held on May 6, 2010 and he held 327 531 shares at that time, including both shares held personally and shares held through a company. Olli-Pekka Kallasvuo left the Board of Directors on September 10, 2010 and he held 389 672 shares at that time. 2 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. 3 For Jorma Ollila, this table includes his share ownership only. Mr. Ollila was entitled to retain all vested and unvested stock options, performance shares and restricted shares granted to him in respect of his service as the CEO of Nokia prior to June 1, 2006 as ap- proved by the Board of Directors. Therefore, in addition to the above-presented share ownership, Mr. Ollila held, as at December 31, 2010, a total of 400 000 stock options. The information relating to stock options held by Mr. Ollila as at December 31, 2010 is presented in the table below. Number of stock options Total intrinsic value of stock options, December 31, 2010 (EUR) Stock option category Expiration date Exercise price per share (EUR) Exercisable Unexercisable Exercisable Unexercisable 2005 2Q 2006 2Q December 31, 2010 December 31, 2011 12.79 18.02 0 400 000 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 entitlement. 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, 2010 of EUR 7.74. 4 Per Karlsson’s holdings include both shares held personally and shares held through a company. The following report discusses executive compensation in 2010 when Share ownership of the Group Executive Board the Nokia Leadership Team was called the Group Executive Board, and The following table sets forth the share ownership, as well as potential thus all references are made to the Group Executive Board. ownership interest through the holding of equity-based incentives, of the members of the Group Executive Board as at December 31, 2010. Share ownership of the Board of Directors At December 31, 2010, the members of Nokia’s Board of Directors held the aggregate of 989 111 shares and ADSs in Nokia, which represented 0.03% of our 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 the members of the Board of Directors as at December 31, 2010. 112 Nokia in 2010 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M Shares receivable through stock options Shares receivable through performance shares at threshold 4 Shares receivable through performance shares at maximum 5 Shares receivable through restricted shares 1 943 975 0.052 443 500 0.012 1 774 000 0.048 1 174 000 0.032 8.94 7.75 7.75 9.5 4 No Nokia shares were delivered under Nokia Performance Share Plan 2008 which vested in 2010 as Nokia’s performance did not reach the threshold level of either performance criteria. Therefore the shares deliverable at threshold equals zero for the Performance Share Plan 2008. 5 No Nokia shares were delivered under Nokia Performance Share Plan 2008 which vested in 2010 as Nokia’s performance did not reach the threshold level of either per- formance criteria. Therefore the shares deliverable at maximum equals zero for Nokia Performance Share Plan 2008. At maximum performance under the Performance Share Plan 2009 and 2010, the number of shares deliverable equals four times the number of performance shares at threshold. Number of equity instruments held by Group Executive Board 1 % of the outstanding shares 2 % of the total outstanding equity incentives (per instrument) 3 Shares 524 202 0.014 1 Includes nine Group Executive Board members at year end. Figures do not include those former Group Executive Board members who left during 2010. 2 The percentage is calculated in relation to the outstanding number of shares and total voting rights of the company, excluding shares held by Nokia Group. 3 The percentage is calculated in relation to the total outstanding equity incentives per instrument, i.e., stock options, performance shares and restricted shares, as ap- plicable, under the global equity plans. The following table sets forth the number of shares and ADSs in Nokia held by members of the Group Executive Board as of December 31, 2010. Name Stephen Elop Esko Aho Timo Ihamuotila Mary T. McDowell Tero Ojanperä Niklas Savander Alberto Torres Juha Äkräs Kai Öistämö Shares ADSs — — 56 213 169 219 66 872 83 465 42 832 15 976 84 625 — — — 5 000 — — — — — Hallstein Moerk left the Group Executive Board as of March 31, 2010 and held 59 526 shares at that time. Richard Simonson left the Group Executive Board as of June 30, 2010 and held 73 083 shares and 30 557 ADSs at that time. Olli-Pekka Kallasvuo left the Group Executive Board as of September 20, 2010 and held 389 672 shares at that time. Anssi Vanjoki left the Group Executive Board as of October 12, 2010 and held 125 514 shares at that time. Stock option ownership of the Group Executive Board The following table provides certain information relating to stock options held by members of the Group Executive Board as of December 31, 2010. These stock options were issued pursuant to Nokia Stock Option Plans 2005 and 2007. For a description of our stock option plans, please see Note 24 to Nokia’s consolidated financial statements on page 49. 113 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M Name Stock option category Expiration date Stephen Elop 2010 4Q December 31, 2015 Esko Aho Timo Ihamuotila Mary T. McDowell Tero Ojanperä Niklas Savander Alberto Torres 4 Juha Äkräs Kai Öistämö 2009 2Q 2010 2Q 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2009 4Q 2010 2Q 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2005 2Q 2005 4Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q December 31, 2014 December 31, 2015 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2014 December 31, 2015 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 31, 2010 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 Exercise price per share EUR 7.59 11.18 8.86 12.79 18.02 18.39 19.16 11.18 8.76 8.86 12.79 18.02 18.39 19.16 11.18 8.86 12.79 18.02 18.39 19.16 11.18 8.86 12.79 18.02 18.39 19.16 11.18 8.86 12.79 18.02 18.39 19.16 11.18 8.86 12.79 18.02 18.39 19.16 11.18 8.86 12.79 14.48 18.02 18.39 19.16 11.18 8.86 Stock options held by the members of the Group Executive Board as at December 31, 2010. Total 5 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 thereafter. 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, 2010 of EUR 7.74. 114 Nokia in 2010 Number of stock options 1 Total intrinsic value of stock options, December 31, 2010 EUR 2 Exercisable Unexercisable Exercisable 3 Unexercisable 0 500 000 10 937 0 0 9 900 26 000 11 250 10 937 0 0 0 100 000 44 683 15 750 17 187 0 0 60 000 26 000 11 250 10 937 0 0 45 000 26 000 15 750 17 187 0 0 7 200 14 625 5 625 6 250 0 0 6 875 8 125 3 375 3 750 0 0 0 100 000 44 683 18 000 18 750 0 24 063 30 000 0 0 6 000 8 750 24 063 20 000 70 000 0 0 10 317 12 250 37 813 60 000 0 0 6 000 8 750 24 063 40 000 0 0 6 000 12 250 37 813 60 000 0 0 3 375 4 375 13 750 40 000 0 0 1 875 2 625 8 250 40 000 0 0 0 10 317 14 000 41 250 70 000 696 026 1 247 949 11 712 432 10 031 167 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 75 000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 75 000 147 096 3 For gains realized upon exercise of stock options for the members of the Group Executive Board, see the table in “Stock option exercises and settlement of shares” on page 118. 4 Mr. Torres’s termination date under the employment agreement is March 31, 2011. His equity will forfeit following termination of employment in accordance with the plan rules. 5 During 2010, the following executives stepped down from the Group Executive Board: Olli-Pekka Kallasvuo, Richard Simonson, Anssi Vanjoki and Hallstein Moerk. The information related to stock options held for each former executive is as of the date of resignation from the Group Executive Board and is presented in the table below. C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M Number of stock options 1 Total intrinsic value of stock options, December 31, 2010 EUR 9 Stock option category Expiration date Exercise price per share EUR Exercisable Unexercisable Exercisable 3 Unexercisable Name Olli-Pekka Kallasvuo 6 as per September 20, 2010 Richard Simonson 6 as per June 30, 2010 2005 2Q 2005 4Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q December 31, 2010 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 Anssi Vanjoki 7 as per October 12, 2010 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q Hallstein Moerk 8 as per March 31, 2010 2005 2Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 12.79 14.48 18.02 18.39 19.16 11.18 8.86 12.79 18.02 18.39 19.16 11.18 8.86 12.79 18.02 18.39 19.16 11.18 8.86 12.79 18.02 18.39 19.16 11.18 0 0 300 000 120 000 57 498 58 750 0 0 93 750 37 809 14 000 0 0 0 68 750 44 683 18 000 18 750 0 0 52 500 20 000 7 500 0 0 0 0 40 000 57 502 176 250 270 000 0 6 250 17 191 18 000 60 000 70 000 0 0 10 317 14 000 41 250 70 000 0 7 500 12 000 12 500 35 000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12 250 6 Mr. Kallasvuo’s and Mr. Simonson’s stock option grants were forfeited following termi- nation of employment in accordance with the plan rules. 7 Mr. Vanjoki’s termination date under the employment agreement was March 11, 2011. His equity was forfeited following termination of employment in accordance with the plan rules. 8 Mr. Moerk retained his vested and unvested stock option grants upon retirement, in accordance with the plan provisions. 9 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 March 31, 2010 of EUR 11.53 in respect of Mr. Moerk, as at June 30, 2010 of EUR 6.71 in respect of Mr. Simonson, as at September 20, 2010 of EUR 7.87 in respect of Mr. Kallasvuo and as at October 12, 2010 of EUR 7.86 in respect of Mr. Vanjoki. 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, 2010. These entitlements were granted pursuant to our Performance Share Plans 2008, 2009 and 2010 and Restricted Share Plans 2007, 2008, 2009 and 2010. For a description of Nokia’s performance share and restricted share plans, please see Note 24 to Nokia’s consoli- dated financial statements on page 49. 115 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M Performance shares Number of performance shares at threshold 2 Number of performance shares at maximum 3 Intrinsic value December 31, 2010 4 EUR Plan name 1 Restricted shares Number of restricted shares Plan name 5 Intrinsic value December 31, 2010 6 EUR 2010 2008 2009 2010 2008 2009 2010 2008 2009 2010 2008 2009 2010 2008 2009 2010 2008 2009 2010 2008 2009 2010 75 000 — 17 500 15 000 0 27 500 35 000 0 27 500 30 000 0 17 500 20 000 0 27 500 30 000 0 10 000 20 000 0 6 000 20 000 0 30 000 35 000 300 000 — 70 000 60 000 0 110 000 140 000 0 110 000 120 000 0 70 000 80 000 0 110 000 120 000 0 40 000 80 000 0 24 000 80 000 0 120 000 140 000 1 161 000 — 102 224 232 200 0 160 638 541 800 0 160 638 464 400 0 102 224 309 600 0 160 638 464 400 0 58 414 309 600 0 35 048 309 600 0 175 241 541 800 2010 2008 2009 2010 2008 2009 2010 2008 2009 2010 2008 2009 2010 2008 2009 2010 2007 2008 2009 2010 2007 2008 2009 2010 2008 2009 2010 100 000 7 000 25 000 58 000 14 000 35 000 120 000 20 000 38 000 115 000 14 000 25 000 85 000 20 000 38 000 115 000 13 000 10 000 25 000 30 000 4 000 8 000 15 000 85 000 22 000 50 000 100 000 774 000 54 180 193 500 448 920 108 360 270 900 928 800 154 800 294 120 890 100 108 360 193 500 657 900 154 800 294 120 890 100 100 620 77 400 193 500 232 200 30 960 61 920 116 100 657 900 170 280 387 000 774 000 443 500 1 774 000 5 289 465 1 191 000 9 218 340 5 720 123 13 22 880 492 14 64 755 163 12 359 896 95 665 595 Name Stephen Elop Esko Aho Timo Ihamuotila Mary T. McDowell Tero Ojanperä Niklas Savander Alberto Torres 7 Juha Äkräs Kai Öistämö 2008 2009 2010 Performance shares and restricted shares held by the Group Executive Board, Total 8 All outstanding performance shares and restricted shares (global plans), Total 1 The performance period for the 2008 plan is 2008–2010, for the 2009 plan 2009–2011 and for the 2010 plan 2010–2012, respectively. 2 The threshold number will vest as Nokia shares should the pre-determined threshold performance levels be met of both performance criteria. No Nokia shares were delivered under the Performance Share Plan 2008 which would have vested in 2010 as Nokia’s performance did not reach the threshold level of either performance criteria. Therefore the shares deliverable at threshold equals zero for the Performance Share Plan 2008. 3 The maximum number will vest as Nokia shares should the pre-determined maximum performance levels be met of both performance criteria. The maximum number of performance shares equals four times the number at threshold. No Nokia shares were delivered under the Performance Share Plan 2008 as Nokia’s performance did not reach the threshold level of either performance criteria. Therefore the shares deliver- able at maximum equals zero for the Performance Share Plan 2008. 4 For Performance Share Plans 2009 and 2010 the value of performance 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 Plans 2009 and 2010 is based on the closing market price of a Nokia share on NASDAQ OMX Helsinki as at December 30, 2010 of EUR 7.74. For the Performance Share Plan 2008 no Nokia shares were delivered as Nokia’s performance did not reach the threshold level of either performance criteria. 116 Nokia in 2010 5 Under the Restricted Share Plans 2007, 2008, 2009 and 2010, awards have been grant- ed 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; for the 2008 plan, on January 1, 2012; for the 2009 plan, on January 1, 2013; and for the 2010 plan, on January 1, 2014. 6 The intrinsic value is based on the closing market price of a Nokia share on NASDAQ OMX Helsinki as at December 30, 2010 of EUR 7.74. 7 Mr. Torres’s termination date under the employment agreement is March 31, 2011. His equity will forfeit following termination of employment in accordance with the plan rules. 8 During 2010, the following executives stepped down from the Group Executive Board: Olli-Pekka Kallasvuo, Richard Simonson, Hallstein Moerk and Anssi Vanjoki. The information related to performance shares and restricted shares held by each of the former executives is as of the date of resignation from the Group Executive Board and is presented in the table below. C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M Name Olli-Pekka Kallasvuo 9 as per September 20, 2010 Richard Simonson 9 as per June 30, 2010 Anssi Vanjoki 10 as per October 12, 2010 Hallstein Moerk 11 as per March 31, 2010 Performance shares Number of performance shares at threshold 13 Number of performance shares at maximum 14 Plan name 1 Restricted shares Intrinsic value EUR 12 Number of restricted shares Plan name 5 Intrinsic value EUR 12 2008 2009 2010 2008 2009 2010 2008 2009 2010 2008 2009 0 117 500 135 000 0 470 000 540 000 0 697 890 2 124 900 0 30 000 35 000 0 30 000 35 000 0 17 500 0 120 000 140 000 0 120 000 140 000 0 151 921 469 700 0 177 958 550 200 0 70 000 0 152 280 2007 2008 2009 2010 2007 2008 2009 2010 2007 2008 2009 2010 2007 2008 2009 100 000 75 000 150 000 170 000 35 000 22 000 107 000 111 000 35 000 22 000 40 000 45 000 25 000 14 000 25 000 787 000 590 250 1 180 500 1 337 900 234 850 147 620 717 970 744 810 275 100 172 920 314 400 353 700 288 250 161 420 288 250 9 Mr. Kallasvuo’s and Mr. Simonson’s performance and restricted share grants were forfeited following termination of employment in accordance with the plan rules. 10 Mr. Vanjoki’s termination date under the employment agreement was March 11, 2011. His equity was forfeited following termination of employment in accordance with the plan rules. 11 Mr. Moerk retained his performance and restricted share grants upon retirement, in accordance with the equity plan provisions. 12 The intrinsic value is based on the closing market price of a Nokia share on NASDAQ OMX Helsinki as at March 31, 2010 of EUR 11.53 in respect of Mr. Moerk, as at June 30, 2010 of EUR 6.71 in respect of Mr. Simonson, as at September 20, 2010 of EUR 7.87 in respect of Mr. Kallasvuo and as at October 12, 2010 of EUR 7.86 in respect of Mr. Vanjoki. 13 The threshold number will vest as Nokia shares should the pre-determined threshold performance levels to be met for both performance criteria. No Nokia shares were delivered under the Performance Share Plan 2008 as Nokia’s performance did not reach the threshold level of either performance criteria. Therefore the aggregate number does not include any shares for Performance Share Plan 2008. 14 The maximum number will vest as Nokia shares should the pre-determined maxi- mum performance levels be met. The maximum number of performance shares equals four times the number at threshold. No Nokia shares were delivered under the Performance Share Plan 2008 as Nokia’s performance did not reach the thresh- old level of either performance criteria. Therefore the aggregate number does not include any shares for Performance Share Plan 2008. 117 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M 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 2010 for Nokia’s Group Executive Board members. Name 4 Stephen Elop Esko Aho Timo Ihamuotila Mary T. McDowell Tero Ojanperä Niklas Savander Alberto Torres Juha Äkräs Kai Öistämö Stock options 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 Value realized delivered on vesting EUR on vesting 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 25 000 35 000 25 000 25 000 0 0 35 000 0 0 196 500 275 100 196 500 196 500 0 0 275 100 1 Value realized on exercise is based on the difference between the Nokia share price and exercise price of options. 2 No Nokia shares were delivered under the Performance Share Plan 2007 during 2010 as Nokia’s performance did not reach the threshold level of either performance criteria. 3 Delivery of Nokia shares vested from the Restricted Share Plan 2007. Value is based on the closing market price of the Nokia share on NASDAQ OMX Helsinki on October 27, 2010 of EUR 7.86. 4 During 2010, the following executives stepped down from the Group Executive Board: Olli-Pekka Kallasvuo, Richard Simonson, Hallstein Moerk and Anssi Vanjoki. The infor- mation regarding stock option exercises and settlement of shares regarding each of the former executives is as of the date of resignation from the Group Executive Board and is represented in the table below. Stock options 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 Value realized delivered on vesting EUR on vesting 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 35 000 275 100 0 0 Name Olli-Pekka Kallasvuo as per September 20, 2010 Richard Simonson as per June 30, 2010 Anssi Vanjoki as per October 12, 2010 Hallstein Moerk as per March 31, 2010 Year 2010 2010 2010 2010 118 Nokia in 2010 C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A L E A D E R S H I P T E A M Stock ownership guidelines for executive management One of the goals of Nokia’s long-term equity-based incentive program is to focus executives on promoting the long-term value 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, Nokia also encourages stock ownership by its top executives and have stock ownership commitment guidelines with minimum recom- mendations 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 Nokia Leadership Team two times the member’s annual base salary, respectively. To meet this requirement, all members of the Nokia Leadership Team are expected to retain 50% of any after-tax gains from equity programs in shares until the minimum investment level is met. The Personnel Committee regularly monitors the compliance by the executives with the stock ownership guidelines. Insider trading in securities The Board of Directors has established a policy in respect of insiders’ trad- ing in Nokia securities. The members of the Board and the Nokia Leader- ship Team are considered as primary insiders. Under the policy, the hold- ings of Nokia securities by the primary insiders are public information, which is available from Euroclear Finland Ltd. and available on Nokia’s website. Both primary insiders and secondary 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 our quarterly results including the day of the release and the four-week “closed-window” period immediately preceding the release of Nokia’s annual results including the day of the release. 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 compli- ance with the policy. Nokia’s insider policy is in line with the NASDAQ OMX Helsinki Guidelines for Insiders and also sets requirements beyond those guidelines. 119 A U D I T O R S F E E S A N D S E R V I C E S Auditors fees and services PricewaterhouseCoopers Oy has served as our independent auditor for Audit Committee pre-approval policies and procedures each of the fiscal years in the three-year period ended December 31, 2010. The Audit Committee of our Board of Directors is responsible, among other The independent auditor is elected annually by our shareholders at the matters, for the oversight of the external auditor subject to the require- Annual General Meeting for the fiscal year in question. The Audit Com- ments of Finnish law. The Audit Committee has adopted a policy regarding mittee of the Board of Directors makes a proposal to the shareholders in pre-approval of audit and permissible non-audit services provided by our respect of the appointment of the auditor based upon its evaluation of the independent auditors (the “Policy”). qualifications and independence of the auditor to be proposed for elec- Under the Policy, proposed services either (i) may be pre-approved by tion or re-election on an annual basis. the Audit Committee without a specific case-by-case services approvals The following table sets forth the aggregate fees for professional ser- (“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 mem- bers. 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 pro- vides 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. vices and other services rendered by PricewaterhouseCoopers to Nokia in 2010 and 2009 in total with a separate presentation of those fees related to Nokia and Nokia Siemens Networks. 2010 2009 Nokia Siemens Nokia Networks Total Nokia Siemens Nokia Networks Total EURm Audit fees 1 Audit-related fees 2 Tax fees 3 All other fees 4 Total 6.8 1.3 4.4 0.1 12.6 9.6 16.4 2.5 1.2 5.6 1.2 0.1 — 12.0 24.6 6.2 1.2 3.6 0.3 11.3 9.8 16.0 2.8 1.6 5.6 2.0 0.3 — 13.4 24.7 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 subsid- iaries. They also include 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 connection 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 finan- cial 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 provision 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 compliance programs. 3 Tax fees include fees billed for (i) corporate and indirect compliance including prepara- tion and/or review of tax returns, preparation, review and/or filing of various certifi- cates 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 compliance (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. 120 Nokia in 2010 Investor information I N V E S T O R I N F O R M A T I O N Information on the Internet www.nokia.com/investors Investor relations contacts investor.relations@nokia.com Available on the Internet: financial reports, Nokia Investor Relations Nokia management’s presentations, 102 Corporate Park Drive conference call and other investor related White Plains, NY 10604 materials, press releases as well as USA environmental and social information. 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: Tuesday, May 3, 2011 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 2010 is EUR 0.40. The dividend 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 record date is proposed to be May 6, 2011 and List of indices the pay date on or about May 20, 2011. NOK1V NOK Financial reporting Nokia’s interim reports in 2011 are planned for OMXN40 OMX Nordic 40 OMXH OMX Helsinki April 21, July 21, and October 20. The 2011 results OMXH25 OMX Helsinki 25 NYA NYSE Composite NYL.ID NYSE World Leaders NYYID NYSE TMT are planned to be published in January 2012. HX45 OMX Helsinki Information Technology CTN CSFB Technology BE500 Bloomberg European 500 MLO Merrill Lynch 10 Information published in 2010 All Nokia’s press releases published in 2010 are BETECH Bloomberg Telecommunication Equipment available on the Internet at investors.nokia.com. SX5E DJ Euro STOXX 50 SX5P DJ STOXX 50 E3X FTSE Eurofirst 300 It should be noted that certain statements herein which are ket developments and structural changes; F) expectations agement’s best assumptions and beliefs in light of the in- not historical facts are forward-looking statements, includ- and targets regarding our industry volumes, market share, formation currently available to it. Because they involve ing, without limitation, those regarding: A) the intention to prices, net sales and margins of products and services; risks and uncertainties, actual results may differ materially form a strategic partnership with Microsoft to combine G) expectations and targets regarding our operational pri- from the results that we currently expect. Factors that could complementary assets and expertise to form a global mo- orities and results of operations; H) expectations and tar- cause these differences include, but are not limited to: 1) bile ecosystem and to adopt Windows Phone as our primary gets regarding collaboration and partnering arrangements; whether definitive agreements can be entered into with smartphone platform, including the expected plans and I) the outcome of pending and threatened litigation; J) ex- Microsoft for the proposed partnership in a timely manner, benefits of such partnership; B) the timing and expected pectations regarding the successful completion of acquisi- or at all, and on terms beneficial to us; 2) our ability to suc- benefits of our new strategy, including expected opera- tions or restructurings on a timely basis and our ability to ceed in creating a competitive smartphone platform for tional and financial benefits and targets as well as changes achieve the financial and operational targets set in connec- high-quality differentiated winning smartphones or in cre- in leadership and operational structure; C) the timing of the tion with any such acquisition or restructuring; and K) ating new sources of revenue through the proposed part- deliveries of our products and services; D) our ability to in- statements preceded by “believe,” “expect,” “anticipate,” nership with Microsoft; 3) the expected timing of the novate, develop, execute and commercialize new technolo- “foresee,” “target,” “estimate,” “designed,” “plans,” “will” planned transition to Windows Phone as our primary gies, products and services; E) expectations regarding mar- or similar expressions. These statements are based on man- smartphone platform and the introduction of mobile prod- 121 I N V E S T O R I N F O R M A T I O N ucts based on that platform; 4) our ability to maintain the that we have infringed third parties’ intellectual property ditional governmental investigations involving the Sie- viability of our current Symbian smartphone platform dur- rights, as well as our unrestricted use on commercially ac- mens carrier-related operations transferred to Nokia Sie- ing the transition to Windows Phone as our primary smart- ceptable terms of certain technologies in our products and mens Networks; as well as the risk factors specified on phone platform; 5) our ability to realize a return on our in- services; 23) our ability to protect numerous Nokia, NAVTEQ pages 12-39 of Nokia’s annual report Form 20-F for the year vestment in MeeGo and next generation devices, platforms and Nokia Siemens Networks patented, standardized or ended December 31, 2010 under Item 3D. “Risk Factors.” and user experiences; 6) our ability to build a competitive proprietary technologies from third-party infringement or Other unknown or unpredictable factors or underlying as- and profitable global ecosystem of sufficient scale, attrac- actions to invalidate the intellectual property rights of sumptions subsequently proving to be incorrect could tiveness and value to all participants and to bring winning these technologies; 24) the impact of changes in govern- cause actual results to differ materially from those in the smartphones to the market in a timely manner; 7) our abil- ment policies, trade policies, laws or regulations and eco- forward-looking statements. Nokia does not undertake any ity to produce mobile phones in a timely and cost efficient nomic or political turmoil in countries where our assets are obligation to publicly update or revise forward-looking manner with differentiated hardware, localized services located and we do business; 25) any disruption to informa- statements, whether as a result of new information, future and applications; 8) our ability to increase our speed of in- tion technology systems and networks that our operations events or otherwise, except to the extent legally required. novation, product development and execution to bring new rely on; 26) unfavorable outcome of litigations; 27) allega- competitive smartphones and mobile phones to the market tions of possible health risks from electromagnetic fields in a timely manner; 9) our ability to retain, motivate, de- generated by base stations and mobile products and law- velop and recruit appropriately skilled employees; 10) our suits related to them, regardless of merit; 28) our ability to ability to implement our strategies, particularly our new achieve targeted costs reductions and increase profitability mobile product strategy; 11) the intensity of competition in in Nokia Siemens Networks and to effectively and timely the various markets where we do business and our ability to execute related restructuring measures; 29) Nokia Siemens maintain or improve our market position or respond suc- Networks’ ability to maintain or improve its market posi- cessfully to changes in the competitive environment; 12) tion or respond successfully to changes in the competitive our ability to maintain and leverage our traditional environment; 30) Nokia Siemens Networks’ liquidity and its strengths in the mobile product market if we are unable to ability to meet its working capital requirements; 31) wheth- retain the loyalty of our mobile operator and distributor er Nokia Siemens Networks’ acquisition of the majority of customers and consumers as a result of the implementation Motorola’s wireless network infrastructure assets will be of our new strategy or other factors; 13) our success in col- completed in a timely manner, or at all, and, if completed, laboration and partnering arrangements with third parties, whether Nokia Siemens Networks is able to successfully in- including Microsoft; 14) the success, financial condition and tegrate the acquired business, cross-sell its existing prod- performance of our suppliers, collaboration partners and ucts and services to customers of the acquired business and customers; 15) our ability to manage efficiently our manu- realize the expected synergies and benefits of the planned facturing and logistics, as well as to ensure the quality, acquisition; 32) Nokia Siemens Networks’ ability to timely safety, security and timely delivery of our products and ser- introduce new products, services, upgrades and technolo- vices; 16) our ability to source sufficient amounts of fully gies; 33) Nokia Siemens Networks’ success in the telecom- functional quality components, subassemblies and soft- munications infrastructure services market and Nokia Sie- ware on a timely basis without interruption and on favor- mens Networks’ ability to effectively and profitably adapt able terms; 17) our ability to manage our inventory and its business and operations in a timely manner to the in- timely adapt our supply to meet changing demands for our creasingly diverse service needs of its customers; 34) devel- products; 18) our ability to successfully manage costs; 19) opments under large, multi-year contracts or in relation to our ability to effectively and smoothly implement the new major customers in the networks infrastructure and related operational structure for our devices and services business services business; 35) the management of our customer fi- effective April 1, 2011; 20) the development of the mobile nancing exposure, particularly in the networks infrastruc- and fixed communications industry and general economic ture and related services business; 36) whether ongoing or conditions globally and regionally; 21) exchange rate fluc- any additional governmental investigations into alleged tuations, including, in particular, fluctuations between the violations of law by some former employees of Siemens AG euro, which is our reporting currency, and the US dollar, the may involve and affect the carrier-related assets and em- Japanese yen and the Chinese yuan, as well as certain other ployees transferred by Siemens AG to Nokia Siemens Net- currencies; 22) our ability to protect the technologies, works; 37) any impairment of Nokia Siemens Networks which we or others develop or that we license, from claims customer relationships resulting from ongoing or any ad- 122 Nokia in 2010 C O N T A C T I N F O R M A T I O N 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 Ul. Vozdvizhenka 10 125000 Moscow RUSSIA Tel. +7495 795 0500 Fax +7495 795 0509 123 Design: HardWorkingHouse Oy, cover: Page Design Finland Oy. (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:20) (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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