Nokia Corporation Annual Report 2011

Plain-text annual report

Nokia in 2011 REVIEW BY THE BOARD OF DIRECTORS AND NOKIA ANNUAL ACCOUNTS 2011 Key data .......................................................................................................................... 2 Review by the Board of Directors 2011 .................................................................... 3 Annual Accounts 2011 Consolidated income statements, IFRS ................................................................. 20 Consolidated statements of comprehensive income, IFRS ............................... 21 Consolidated statements of ﬁ nancial position, IFRS .......................................... 22 Consolidated statements of cash ﬂ ows, IFRS ...................................................... 23 Consolidated statements of changes in shareholders’ equity, IFRS ................. 24 Notes to the consolidated ﬁ nancial statements .................................................. 26 Income statements, parent company, FAS ........................................................... 72 Balance sheets, parent company, FAS ................................................................... 72 Statements of cash ﬂ ows, parent company, FAS ................................................. 73 Notes to the ﬁ nancial statements of the parent company ................................. 74 Nokia shares and shareholders ............................................................................... 78 Nokia Group 2007–2011, IFRS .................................................................................. 84 Calculation of key ratios ............................................................................................ 86 Signing of the Annual Accounts 2011 and proposal for distribution of proﬁ t .................................................................. 87 Auditors’ report .......................................................................................................... 88 Additional information Critical accounting policies ...................................................................................... 90 Corporate governance statement Corporate governance .......................................................................................... 98 Board of Directors ............................................................................................... 104 Nokia Leadership Team ....................................................................................... 107 Compensation of the Board of Directors and the Nokia Leadership Team ............................................................................. 110 Auditors fees and services ..................................................................................... 132 Investor information ................................................................................................ 133 Contact information ................................................................................................. 135 N O K I A I N 2 0 1 1 KEY DATA Based on ﬁ nancial statements according to International Financial Reporting Standards, IFRS Nokia, EURm 2011 2010 Change, % Net sales Operating proﬁ t Proﬁ t before tax Proﬁ t attributable to equity holders’ of the parent Research and development expenses % Return on capital employed Net debt to equity (gearing) – 9 – 4 38 659 – 1 073 – 1 198 – 1 164 5 612 2011 neg. – 40 42 446 2 070 1 786 1 850 5 863 2010 11 – 43 EUR Earnings per share, basic Dividend per share Average number of shares (1 000 shares) 2011 2010 Change, % – 0.31 0.20 * 0.50 0.40 3 709 947 3 708 816 – 50 * Board’s proposal Nokia businesses, EURm Devices & Services Net sales Operating proﬁ t Location & Commerce Net sales Operating proﬁ t Nokia Siemens Networks Net sales Operating proﬁ t Personnel, December 31 Devices & Services Location & Commerce Nokia Siemens Networks Corporate Common Functions Nokia Group 10 major markets, net sales; EURm China India Brazil Russia Germany Japan USA UK Italy Spain 2011 2010 Change, % 23 943 884 29 134 3 540 1 091 – 1 526 14 041 – 300 869 – 663 12 661 – 686 – 18 – 75 26 11 2011 2010 Change, % 49 406 6 659 73 686 299 130 050 58 712 7 232 66 160 323 132 427 – 16 – 8 11 – 7 – 2 2011 6 130 2 923 1 901 1 843 1 606 1 539 1 405 996 982 907 2010 7 149 2 952 1 506 1 744 2 019 730 1 630 1 470 1 266 1 313 10 major countries, personnel, December 31 2011 2010 Main currencies, rates at the end of  1 EUR USD GBP CNY INR RUB JPY 1.3059 0.8391 8.2723 69.0430 41.7680 101.70 India China Finland Brazil Germany USA Hungary UK Poland Mexico  22 279 22 165 16 970 11 887 10 992 7 980 5 198 3 237 2 541 1 970 22 734 20 668 19 841 10 925 11 243 7 415 5 931 3 859 2 122 2 554 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 REVIEW BY THE BOARD OF DIRECTORS 2011 Before the statutory information and other disclosures of the review by the Board of Directors, the Nokia Board of Directors notes that year  was a year of transition for Nokia, and that year  is expected to continue to be a year of transi- tion. The Board continues to closely monitor the implementa- tion of the strategy as well as the execution of operational activities, all with the goal of improving shareholder value. In the following, the Board of Directors outlines a brief summary of the key developments and actions in  and early . » New strategy and operational structure. In February , Nokia outlined its new strategic direction, including changes in leadership and operational structure to accelerate the company’s speed of execution in a dynamic competitive environment. In connection with the new Nokia strategy, Nokia and Microsoft announced plans to form a partnership that brings together their complementary strengths and expertise to create a new global mobile ecosystem. Under the partnership, Windows Phone serves as Nokia’s primary smartphone platform. Nokia and Microsoft signed a deﬁ ni- tive agreement on the partnership in April . » Changes to Nokia’s operations. Nokia announced a number of planned changes to Nokia’s operations during  and  in connection with the implementation of the new strategy in Nokia’s Devices & Services business and the creation of Nokia’s new Location & Commerce business. The planned changes include substantial personnel reductions, site and facility closures and reconﬁ guration of certain facilities. Nokia expects personnel reductions to occur in phases until the end of . Nokia also launched a comprehensive social responsibility program for employees and communities likely to be aﬀ ected by the personnel reductions. » Collaboration with Accenture. In April , Nokia an- nounced a strategic collaboration with Accenture resulting in the transfer of Nokia’s Symbian-based software develop- ment and support services to Accenture. At the same time Accenture will provide mobility software services to Nokia for future smartphones. As a result of the transaction, ap- proximately   employees transferred to Accenture. » Lumia products. Eight months after the announcement of Nokia’s new strategic direction, at the Nokia World event in October, Nokia demonstrated clear progress on its strategy by unveiling a portfolio of innovative devices, services and accessories, including the ﬁ rst smartphones in its Windows Phone-based Nokia Lumia range, Nokia Lumia  and . In early , Nokia added to the Lumia range and an- nounced the Nokia Lumia  and . » Symbian transition and Nokia N. During the transition to Windows Phone as Nokia’s primary smartphone platform, Nokia announced and started shipping various new Symbian devices and made available Symbian smartphone software updates. Nokia also announced and started shipping the N, the outcome of eﬀ orts in Nokia’s MeeGo program. » Location & Commerce. As a natural next step in Nokia’s services journey, Nokia announced in June  its new Location & Commerce business, which was formed by com- bining NAVTEQ with Nokia’s social location services opera- tions from Devices & Services. The Location & Commerce business develops a new class of integrated social location products and services for consumers, as well as platform and local commerce services for device manufacturers, ap- plication developers, Internet services providers, merchants and advertisers. » Nokia Siemens Networks. Some of the main events re- garding Nokia Siemens Networks during  include the completion of Nokia Siemens Networks’ acquisition of Motorola Solutions’ Networks assets, which strengthened Nokia Siemens Networks’ position in key regions, particu- larly North America and Japan, as well as with some of the world’s major service providers. Further, in November , Nokia Siemens Networks announced its strategy to focus on mobile broadband and services and the launch of an exten- sive global restructuring program. » Proposal for new Chairman of the Board of Directors. The current Chairman of the Board of Directors, Jorma Ollila, informed that he will no longer be available to serve on the Nokia Board of Directors after the Annual General Meeting . In January , the Corporate Governance and Nomination Committee announced that it will propose in the assembly meeting of the new Board of Directors after the Annual General Meeting on May ,  that Risto Siilasmaa be elected as Chairman of the Board. CHANGE S IN OPER ATING AND REPORTABLE SEGMENTS Nokia adopted its current operational structure during  and has three businesses: Devices & Services, Location & Commerce and Nokia Siemens Networks. As of April , , Nokia’s Devices & Services business includes two operating and reportable segments – Smart Devices, which focuses on smartphones, and Mobile Phones, which focuses on mass market feature phones – as well as Devices & Services Other. Devices & Services Other includes net sales of Nokia’s luxury phone business Vertu, spare parts and related cost of sales  N O K I A I N 2 0 1 1 and operating expenses, as well as intellectual property re- lated royalty income and common research and development expenses. Location & Commerce focuses on the development of location-based services and local commerce. NAVTEQ, which Nokia acquired in July , was a separate reportable seg- ment of Nokia from the third quarter  until the end of the third quarter of . As of October , , the Location & Commerce business was formed as a new operating and reportable segment by combining NAVTEQ and Nokia’s Devices & Services social location services operations. For IFRS ﬁ nancial reporting purposes, Nokia has four op- erating and reportable segments: Smart Devices and Mobile Phones within Devices & Services, Location & Commerce and Nokia Siemens Networks. Prior period results have been regrouped and recast for comparability purposes according to the new reporting format that became eﬀ ective on April ,  and October , , respectively. RE SULTS OF OPER ATIONS Nokia Group The following table sets forth selective line items for the ﬁ scal years  and . EURm Net sales Cost of sales Gross proﬁ t Research and development expenses Selling and marketing expenses Administrative and general expenses Other operating income and expenses Operating proﬁ t 2011 2010 YoY change 38 659 42 446 – 27 340 – 29 629 – 9% – 8% 11 319 12 817 – 12% – 5 612 – 5 863 – 4% – 3 791 – 3 877 – 2% – 1 121 – 1 115 1% – 1 868 – 1 073 108 2 070 and feature phone markets. In addition, during the ﬁ rst half of  Nokia’s net sales and proﬁ tability were adversely af- fected by Nokia’s lack of dual SIM products, which continued to be a growing part of the market. For Nokia Siemens Networks, net sales growth was driven primarily by the contribution from the acquired Motorola Solutions network infrastructure assets, which was completed in April . On a year-on-year basis the movement of the euro relative to relevant curren- cies had almost no impact on Nokia’s overall net sales. The following table sets forth the distribution by geographi- cal area of Nokia’s net sales for the ﬁ scal years  and . Distribution of net sales by geographic area % Europe Middle East & Africa Greater China Asia-Paciﬁ c North America Latin America Total 2011 2010 31 14 17 23 4 11 34 13 18 21 5 9 100 100 The  markets in which Nokia generated the greatest net sales in  were, in descending order of magnitude, China, India, Brazil, Russia, Germany, Japan, the United States, the United Kingdom, Italy and Spain, together representing ap- proximately % of total net sales in . In comparison, the  markets in which Nokia generated the greatest net sales in  were China, India, Germany, Russia, the United States, Brazil, the United Kingdom, Spain, Italy and Indonesia, togeth- er representing approximately % of total net sales in . GROSS MARGIN Nokia’s gross margin in  was .%, compared to .% in . The lower gross margin in  resulted primarily from the decrease in gross margin in Devices & Services compared to , which was partially oﬀ set by increased gross margin in Nokia Siemens Networks. NET SALES Although the mobile device industry continued to see volume growth in , Nokia’s net sales and proﬁ tability were nega- tively aﬀ ected by the increasing momentum of competing smartphone platforms relative to Nokia’s Symbian smart- phones in all regions as Nokia embarked on Nokia’s platform transition to Windows Phone, as well as Nokia’s pricing actions due to the competitive environment in both the smartphone OPERATING EXPENSES Nokia’s research and development (“R&D”) expenses were EUR   million in , compared to EUR   million in . Re- search and development costs represented .% of Nokia’s net sales in  compared to .% in . The increase in R&D expenses as a percentage of net sales largely resulted from a relative decline in net sales in  compared to an increase in net sales and a decrease in research and develop-  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 ment expenses in . R&D expenses included purchase price accounting items and other special items of EUR  million in  compared to EUR  million in . At December , , Nokia employed   people in R&D, representing ap- proximately % of Nokia’s total workforce, and had a strong R&D presence in  countries. In , Nokia’s selling and marketing expenses were EUR   million, compared to EUR   million in . Selling and marketing expenses represented .% of Nokia’s net sales in  compared to .% in . The increase in selling and marketing expenses as a percentage of net sales reﬂ ected a decline in net sales in  compared to an increase in net sales and a decrease in selling and marketing expenses in . Selling and marketing expenses included purchase price accounting items and other special items of EUR  million in  compared to EUR  million in . Administrative and general expenses were EUR   million in , unchanged compared to . Administrative and general expenses were equal to .% of Nokia’s net sales in  compared to .% in . The increase in administrative and general expenses as a percentage of net sales reﬂ ected the decrease in net sales in . Administrative and general expenses included special items of EUR  million in  com- pared to EUR  million in . In , other income and expenses included restructuring charges of EUR  million, impairment of assets of EUR  mil- lion, consideration related to the Accenture transaction of EUR  million, impairment of shares in an associated company of EUR  million and a beneﬁ t from a cartel claim settlement of EUR  million in . In , other income and expenses included restructuring charges of EUR  million, a prior year- related refund of customs duties of EUR  million, a gain on sale of assets and businesses of EUR  million and a gain on sale of the wireless modem business of EUR  million. OPERATING MARGIN Nokia’s  operating loss was EUR   million, com- pared with an operating proﬁ t of EUR   million in . The decreased operating proﬁ t resulted primarily from an impairment of goodwill of EUR . billion in Nokia’s Location & Commerce business and a decrease in the operating proﬁ t in Nokia’s Devices & Services business, which was partially oﬀ set by a decrease in the operating loss in Nokia Siemens Networks. Nokia’s  operating margin was – .% in , compared to .% in . Nokia’s operating proﬁ t in  included pur- chase price accounting items and other special items of net negative EUR   million compared to net negative EUR   million in . CORPORATE COMMON Corporate Common Functions’ expenses totaled EUR  mil- lion in , compared to EUR  million in . NET FINANCIAL INCOME AND EXPENSES Financial income and expenses, net, was an expense of EUR  million in  compared to an expense of EUR  million in . The lower net expense in  was primarily driven by lower net costs related to hedging Nokia’s cash balances and favorable ﬂ uctuations in certain foreign exchange rates. Nokia expects ﬁ nancial income and expenses, net, in  to be an expense of approximately EUR  million primarily due to higher expected net costs related to hedging Nokia’s cash balances, as well as higher costs related to Nokia Siemens Net- works’ ﬁ nancing. Nokia’s net debt to equity ratio was negative % at December , , compared with a net debt to equity ratio of negative % at December , . PROFIT BEFORE TAXES Loss before tax was EUR   million in , compared to proﬁ t of EUR   million in . Taxes amounted to EUR  million in  and EUR  million in . The eﬀ ective tax rate decreased to negative .% in , compared with .% in . In , Nokia’s taxes continued to be unfa- vorably aﬀ ected by Nokia Siemens Networks taxes as no tax beneﬁ ts are recognized for certain Nokia Siemens Networks deferred tax items due to uncertainty of utilization of these items. NON-CONTROLLING INTERESTS Loss attributable to non-controlling interests totaled EUR  million in , compared with loss attributable to non-con- trolling interests of EUR  million in . This change was primarily due to a decrease in Nokia Siemens Networks’ losses. PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT AND EARNINGS PER SHARE Loss attributable to equity holders of the parent in  totaled EUR   million, compared with proﬁ t of EUR   million in . Earnings per share in  decreased to EUR – . (basic) and EUR – . (diluted), compared with EUR . (basic) and EUR . (diluted) in .  N O K I A I N 2 0 1 1 Nokia Group cash flow and financial position EURm Net cash from operating activities Total cash and other liquid assets Net cash and other liquid assets 1 2011 2010 YoY change 1 137 4 774 – 76% 10 902 12 275 – 11% 5 581 6 996 – 20%  Total cash and other liquid assets minus interest-bearing liabilities. Net cash and other liquid assets decreased by EUR . billion primarily due to payment of the dividend, cash outﬂ ows related to the acquisition of Motorola Solutions’ networks assets, and capital expenditures, partially oﬀ set by positive overall net cash from operating activities and a EUR  million equity invest- ment in Nokia Siemens Networks by Siemens. In , capital expenditure amounted to EUR  million compared with EUR  million in . Nokia’s agreement with Microsoft includes platform support payments from Microsoft to us as well as software royalty pay- ments from us to Microsoft. In the fourth quarter of , Nokia received the ﬁ rst quarterly payment of USD  million (approxi- mately EUR  million). Nokia has started to recognize a portion of the platform support payments as a beneﬁ t to Nokia’s Smart Devices cost of goods sold. The total amount of the platform support payments is expected to slightly exceed the total amount of the minimum software royalty commitments. IMPAIRMENT OF GOODWILL IN LOCATION & COMMERCE BUSINESS In the fourth quarter , Nokia conducted annual impair- ment testing to assess if events or changes in circumstances indicated that the carrying amount of Nokia’s goodwill may not be recoverable. As a result, Nokia recorded a charge to op- erating proﬁ t of EUR . billion for the impairment of goodwill in Nokia’s Location & Commerce business. The impairment charge was the result of an evaluation of the projected ﬁ nan- cial performance of Nokia’s Location & Commerce business. This took into consideration the market dynamics in digital map data and related location-based content markets, includ- ing Nokia’s estimate of the market moving long-term from fee- based towards advertising-based models especially in some more mature markets. It also reﬂ ected recently announced results and related competitive factors in the local search and advertising market resulting in lower estimated growth prospects from Nokia’s location-based assets integrated with diﬀ erent advertising platforms. After consideration of all relevant factors, Nokia reduced the net sales projections for Location & Commerce which, in turn, reduced projected proﬁ tability and cash ﬂ ows. RE SULTS BY SEGMENTS Devices & Services The following table sets forth selective line items for Devices & Services for the ﬁ scal years  and . EURm Net sales 1 Cost of sales Gross proﬁ t Research and development expenses Selling and marketing expenses Administrative and general expenses Other operating income and expenses Operating proﬁ t 2011 2010 change YoY 23 943 29 134 – 17 303 – 20 412 6 640 8 722 – 18% – 15% – 24% – 2 441 – 2 694 – 9% – 2 180 – 2 270 – 4% – 362 – 388 – 7% – 773 884 170 3 540 – 75%  Includes Intellectual Property Rights (“IPR”) royalty income recognized in Devices & Services Other net sales. NET SALES The following table sets forth Nokia’s Devices & Services net sales and year-on-year growth rate by geographic area for the ﬁ scal years  and . Devices & Services net sales by geographic area EURm Europe Middle East & Africa Greater China Asia– Paciﬁ c North America Latin America Total 2011 2010 7 064 4 098 5 063 4 896 354 9 736 4 046 6 167 6 014 901 2 468 2 270 YoY change – 27% 1% – 18% – 19% – 61% 9% 23 943 29 134 – 18% The % year-on-year decline in Devices & Services net sales in  resulted from lower volumes and Average Selling Prices (“ASP”) in both Smart Devices and Mobile Phones discussed below, partially oﬀ set by higher IPR royalty income discussed below.  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 AVERAGE SELLING PRICE Nokia’s mobile device ASP represents total Devices & Services net sales divided by total Devices & Services volumes. Nokia’s mobile device ASP in  was EUR , down % from EUR  in . The decrease in Nokia’s Devices & Services ASP in  was driven primarily by the increase in the proportion of Mobile Phone sales partially oﬀ set by the posi- tive eﬀ ect of higher IPR royalty income and the lower deferral of revenue related to services sold in combination with Nokia’s devices. On a year-on-year basis, the impact from the ap- preciation of the euro against certain currencies had a slightly negative impact, almost entirely oﬀ set by the positive impact from foreign currency hedging. GROSS MARGIN Nokia’s Devices & Services gross margin in  was .%, compared to .% in . On a year-on-year basis, the decline in Nokia’s Devices & Services gross margin in  was driven primarily by gross margin declines in both Smart Devices and, to a lesser extent, in Mobile Phones, as discussed below, which was partially oﬀ set by higher IPR royalty income. OPERATING EXPENSES Devices & Services R&D expenses in  decreased % to EUR   million, compared with EUR   million in . In , R&D expenses represented .% of Devices & Services net sales, compared with .% in . The decrease in Devices & Services R&D expenses was primarily due to declines in Smart Devices and Devices & Services Other R&D expenses, partially oﬀ set by an increase in Mobile Phones R&D expenses. The decreases in Smart Devices and Devices & Services Other R&D expenses were due primarily to a focus on priority projects and cost controls. The increase in Mobile Phones R&D expenses was due primarily to investments to accelerate product development to bring new innovations to the market faster and at lower price-points, consistent with the Mobile Phones “Internet for the next billion” strategy. This increase was partially oﬀ set by a focus on priority projects and cost controls. Devices & Services R&D expenses included amortiza- tion of acquired intangible assets of EUR  million and EUR  million in  and , respectively. In , Devices & Services selling and marketing expenses decreased % to EUR   million, compared with EUR   million in . The decrease was primarily due to lower Smart Devices sales and marketing expenses. In , selling and marketing expenses represented .% of Devices & Services net sales, compared with .% of its net sales in . Devices & Services administrative and general expenses in  decreased % to EUR  million, compared with EUR   During the second quarter of , Devices & Services net sales were negatively aﬀ ected by unexpected sales and inven- tory patterns, resulting in distributors and operators purchas- ing fewer of Nokia’s devices across Nokia’s portfolio as they reduced their inventories of Nokia devices. Devices & Services net sales were also aﬀ ected during the second quarter of  by a negative mix shift towards devices with lower average selling prices and lower gross margins. Nokia’s actions enabled us to create healthier sales channel dynamics during the latter weeks of the second quarter . Devices & Services net sales increased sequentially in the fourth quarter , supported by broader product renewal in both Mobile Phones, for ex- ample dual SIM devices, and Smart Devices as well as overall industry seasonality. Nokia’s overall Devices & Services net sales in  ben- eﬁ ted from the recognition in Devices & Services Other of approximately EUR  million (approximately EUR  million in ) of non-recurring IPR royalty income, as well as strong growth in the underlying recurring IPR royalty income. Nokia believes these developments underline Nokia’s industry lead- ing patent portfolio. During the last two decades, Nokia have invested more than EUR  billion in research and development and built one of the wireless industry’s strongest and broad- est IPR portfolios, with over   patent families. Nokia is a world leader in the development of mobile device and mobile communications technologies, which is also demonstrated by Nokia’s strong patent position. VOLUME The following chart sets out the mobile device volumes for Nokia’s Devices & Services business and year–on-year growth rates by geographic area for the ﬁ scal years  and . The IPR royalty income referred to in the paragraph above has been allocated to the geographic area contained in this chart. Devices & Services mobile device volumes by geographic area Million units Europe Middle East & Africa Greater China Asia– Paciﬁ c North America Latin America Total 2011 2010 YoY change 112.7 – 22% 87.8 94.6 65.8 83.8 82.5 118.9 119.1 3.9 46.1 11.1 43.7 417.1 452.9 13% – 20% 0% – 65% 5% – 8% On a year-on-year basis, the decline in Nokia’s total Devices & Services volumes in  was driven by lower volumes in both Smart Devices and Mobile Phones discussed below. N O K I A I N 2 0 1 1 million in . The decrease in Devices & Services administra- tive and general expenses was primarily driven by lower Smart Devices administrative and general expenses which more than oﬀ set an increase in Devices & Services Other administrative and general expenses. In , administrative and general expenses represented .% of Devices & Services net sales, compared with .% in . Other operating income and expenses were expense of EUR  million in  and included restructuring charges of  million, impairment of assets of EUR  million, Accenture deal consideration related to the Accenture transaction of EUR  million, impairment of shares in an associated company of EUR  million and a beneﬁ t from a cartel claim settlement of EUR  million. In , other operating income and expenses were EUR  million and included restructuring charges of EUR  million, a prior year-related refund of customs duties of EUR  million, a gain on sale of assets and business of EUR  million and a gain on sale of the wireless modem business of EUR  million. gross margin compared to  in both Smart Devices and Mobile Phones as well as higher restructuring charges and Ac- centure transaction related consideration. Smart Devices The following table sets forth selective line items for Smart Devices for the ﬁ scal years  and . Smart Devices results summary Net sales (EURm) 1 Smart Devices volume (million units) Smart Devices ASP (EUR) 2011 2010 YoY change 10 820 14 874 – 27% 77.3 140 103.6 – 25% 144 – 3% Gross margin (%) 23.7% 30.8% Operating expenses (EURm) 2 974 3 392 – 12% Contribution margin (%) – 3.8% 9.3%  Does not include IPR royalty income. IPR royalty income is recognized in COST REDUCTION ACTIVITIES AND PLANNED Devices & Services Other net sales. OPERATIONAL ADJUSTMENTS Nokia is targeting to reduce Nokia’s Devices & Services op- erating expenses by more than EUR  billion for the full year , compared to Devices & Services operating expenses of EUR . billion for the full year , excluding special items and purchase price accounting related items. This reduction is expected to come from a variety of diﬀ erent sources and initiatives, including a planned reduction in the number of employees and normal personnel attrition, a reduction in the use of outsourced professionals, reductions in facility costs, and various improvements in eﬃ ciencies. As of December , , Nokia had recognized cumulative net charges in Devices & Services of EUR  million related to restructuring activities in , which included restructuring charges and associated impairments. While the total extent of the restructuring activities is still to be determined, Nokia cur- rently anticipates cumulative net charges in Devices & Services of around EUR  million before the end of . Nokia also believes total cash outﬂ ows related to Nokia’s Devices & Services restructuring activities will be below the level of the cumulative charges related to these restructuring activities. OPERATING MARGIN Devices & Services operating proﬁ t decreased % to EUR  million in , compared with EUR   million in . De- vices & Services operating margin in  was .%, compared with .% in . The year-on-year decrease in operating margin in  was driven primarily by the lower net sales and NET SALES Smart Devices net sales decreased % to EUR   million in , compared to EUR   million in . The year-on- year decline in Nokia’s Smart Devices net sales in  was primarily due to signiﬁ cantly lower volumes and, to a lesser extent, lower ASPs. VOLUME Smart Devices volume decreased % to . million units in , compared to . million units in . The year-on- year decrease in Nokia’s Smart Device volumes in  was driven by the strong momentum of competing smartphone platforms relative to Nokia’s higher priced Symbian devices, particularly in Europe and Asia Paciﬁ c, as well as pricing tactics by certain of Nokia’s competitors. During the second quarter of , Nokia’s Smart Device volumes were also negatively aﬀ ected by distributors and operators purchasing fewer of Nokia’s smartphones as they reduced their inventories of those devices, which were slightly above normal levels at the end of the ﬁ rst quarter of , particularly in China. During the second half of , Nokia’s Symbian competitiveness continued to be challenged across the portfolio driving the signiﬁ cant year-on-year volume decline. AVERAGE SELLING PRICE Smart Devices ASP represents Smart Devices net sales divided by Smart Devices volumes.  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 Smart Devices ASP decreased % to EUR  in , com- pared to EUR  in . The year-on-year decline in Nokia’s Smart Devices ASP in  was driven primarily by price actions due to the competitive environment and the negative impact from foreign currency hedging, partially oﬀ set by a positive mix shift towards higher priced smartphones, such as the Nokia N, Nokia N and Lumia devices, and the lower deferral of revenue related to services sold in combination with Nokia’s devices, particularly in the second half of . Although Smart Devices ASP declined progressively during the ﬁ rst three quarters of , Smart Devices ASP increased sequentially in the fourth quarter of , supported by sales of the higher priced Nokia N and Nokia Lumia devices. GROSS MARGIN Smart Devices gross margin was .% in , down from .% in . The year-on-year decline in Nokia’s Smart Devices gross margin in  was driven primarily by greater price erosion than cost erosion due to the competitive envi- ronment, Nokia’s tactical pricing actions during the second and third quarters of  and an increase in Symbian-related allowances during the fourth quarter of . Following the announcement of Nokia’s partnership with Microsoft in February , Nokia expected to sell approxi- mately  million more Symbian devices in the years to come. However, changing market conditions have put increasing pressure on Symbian and contributed to a faster decline of Nokia’s Symbian volumes than Nokia anticipated. Nokia expect this trend to continue in . As a result of the changing market conditions, combined with Nokia’s increased focus on Lumia, Nokia believes Nokia will sell fewer Symbian devices than previously anticipated. Thus, in the fourth quarter , Nokia recognized allowances related to excess component inventory and future purchase commitments, and Nokia may need to recognize additional allowances in the future. Mobile Phones The following table sets forth selective line items for Mobile Phones for the ﬁ scal years  and . Mobile Phones results summary Net sales (EURm) 1 Mobile Phones volume (millions units) 2011 2010 YoY change 11 930 13 696 – 13% 339.8 349.2 – 3% Mobile Phones ASP (EUR) 35 39 – 10% Gross margin (%) 26.1% 28.0% Operating expenses (EURm) 1 640 1 508 9% Contribution margin (%) 12.4% 17.0%  Does not include IPR royalty income. IPR royalty income is recognized in Devices & Services Other net sales. NET SALES Mobile Phones net sales decreased % to EUR   million in , compared to EUR   million in . On a year-on- year basis, Nokia’s Mobile Phones net sales decrease in  was due to lower ASPs and, to a lesser extent, lower volumes. VOLUME Mobile Phones volume decreased % to . million units in , compared to . million units in . The year-on-year decline in Nokia’s Mobile Phones volumes in  was driven by the challenging competitive environment, especially during the ﬁ rst half of the year due to Nokia’s lack of dual SIM phones, which continued to be a growing part of the market, and pres- sure from a variety of price aggressive competitors, which adversely aﬀ ected Nokia’s Mobile Phones volumes. During , Mobile Phones volumes were also negatively aﬀ ected by Nokia’s reduced portfolio of higher priced feature phones, as well as by distributors and operators purchasing fewer of Nokia’s feature phones during the second quarter of  as they reduced their inventories of those devices which were slightly above normal levels at the end of the ﬁ rst quarter of . During the second half of , Nokia’s Mobile Phones vol- umes increased year-on-year, driven by the introduction and broader availability of Nokia’s ﬁ rst dual SIM devices and the ongoing product renewal across the feature phones portfolio, which more than oﬀ set Nokia’s reduced portfolio of higher priced feature phones. AVERAGE SELLING PRICE Mobile Phones ASP represents Mobile Phones net sales di- vided by Mobile Phones volumes. Mobile Phones ASP decreased % to EUR  in , com- pared to EUR  in . The year-on-year decline in Nokia’s Mobile Phones ASP in  was primarily due to a higher proportion of sales of lower priced devices driven by a reduced  N O K I A I N 2 0 1 1 portfolio of higher priced feature phones and Nokia’s tactical pricing actions across the portfolio, which partially aﬀ ected the second quarter of  and fully aﬀ ected the third quarter of . In addition, the appreciation of the euro against cer- tain currencies contributed to the decline, which was partially oﬀ set by the positive impact from foreign currency hedging. GROSS MARGIN Mobile Phones gross margin was .% in , down from .% in . The year-on-year decline in Nokia’s Mobile Phones gross margin in  was due primarily to greater price erosion than cost erosion due to the competitive environ- ment and Nokia’s tactical pricing actions across the portfolio which partially aﬀ ected the second quarter of  and fully aﬀ ected the third quarter of , a negative impact from foreign currency hedging and the appreciation of the euro against certain currencies, which were partially oﬀ set by a product mix shift towards higher margin feature phones. Location & Commerce The following table sets forth selective line items for Location & Commerce for the ﬁ scal years  and . EURm Net sales Cost of sales Gross proﬁ t Research and development expenses Selling and marketing expenses Administrative and general expenses Other operating income and expenses Operating proﬁ t YoY 2011 2010 change 1 091 – 214 877 869 – 169 700 26% 27% 25% – 958 – 1 011 – 5% – 259 – 274 – 5% – 68 – 75 – 9% – 1 118 – 1 526 – 3 – 663 – 130% NET SALES The following table sets forth Location & Commerce net sales and year-on-year growth rate by geographic area for the ﬁ scal years  and . Location & Commerce net sales by geographic area EURm Europe Middle East & Africa Greater China Asia-Paciﬁ c North America Latin America Total 2011 2010 488 74 128 74 284 43 1 091 380 44 57 50 322 16 869 YoY change 28% 68% 125% 48% – 12% 169% 26% Location & Commerce net sales increased % to EUR   million in , compared to EUR  million in . The year-on-year increase in net sales in  was primarily driven by higher sales of map content licenses to vehicle customers due to increased consumer uptake of navigation systems and higher recognition of deferred revenue related to sales of map platform licenses to Smart Devices. GROSS MARGIN On a year-on-year basis the gross margin in Location & Com- merce was virtually unchanged. In , the gross margin ben- eﬁ ted from an increased proportion of higher gross margin sales compared to , which were oﬀ set by a reclassiﬁ cation of certain data related charges from operating expenses to cost of sales in the fourth quarter of . OPERATING EXPENSES Location & Commerce R&D expenses decreased % to EUR  million, compared to EUR   million in . The decrease was primarily driven by a focus on cost controls, lower project spending and a shift of R&D operating expenses to cost of sales as a result of the divestiture of the media advertising business. Location & Commerce selling and marketing expenses decreased % to EUR  million, compared to EUR  million in . The decrease was primarily driven by a focus on cost controls and lower product marketing spending. Location & Commerce administrative and general expenses decreased % to EUR  million, compared to EUR  million in . The decrease was primarily driven by a focus on cost controls, partially oﬀ set by increased depreciation costs related to closure of oﬃ ces. OPERATING MARGIN Location & Commerce operating loss increased to EUR   million in , compared with a loss of EUR  million in .  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 Location & Commerce operating margin in  was negative .%, compared with negative .% in . The year-on- year decrease in operating margin in  was driven primarily by the higher other operating expenses due to the impair- ment of Location & Commerce’s goodwill of EUR . billion oﬀ set to some extent by higher net sales and lower operating expenses compared to . In the fourth quarter of , Nokia conducted Nokia’s annual impairment testing to assess if events or changes in circumstances indicated that the carrying amount of Nokia’s goodwill may not be recoverable. As a result, Nokia recorded the above-noted impairment of goodwill in Nokia’s Location & Commerce business. The impairment charge was the result of an evaluation of the projected ﬁ nancial performance of Nokia’s Location & Commerce business. This took into consideration the market dynamics in digital map data and related location-based con- tent markets, including Nokia’s estimate of the market moving long-term from fee-based towards advertising-based models especially in some more mature markets. It also reﬂ ected recently announced results and related competitive factors in the local search and advertising market resulting in lower es- timated growth prospects from Nokia’s location-based assets integrated with diﬀ erent advertising platforms. After con- sideration of all relevant factors, Nokia reduced the net sales projections for Location & Commerce which, in turn, reduced projected proﬁ tability and cash ﬂ ows. Nokia Siemens Networks Nokia Siemens Networks completed the acquisition of the ma- jority of Motorola Solutions’ wireless network infrastructure assets in April . Accordingly, the results of Nokia Siemens Networks for  are not directly comparable to . The following table sets forth selective line items for Nokia Siemens Networks for the ﬁ scal years  and . EURm Net sales Cost of Sales Gross proﬁ t Research and development expenses Selling and marketing expenses Administrative and general expenses Other income and expenses 2011 2010 change YoY 14 041 12 661 – 10 239 – 9 266 3 802 3 395 – 2 213 – 2 156 – 1 350 – 1 328 – 553 14 – 553 – 44 11% 11% 12% 3% 2% 0% Operating proﬁ t – 300 – 686 – 56% NET SALES The following table sets forth Nokia Siemens Networks net sales and year-on-year growth rate by geographic area for the ﬁ scal years  and . Nokia Siemens Networks net sales by geographic area EURm Europe Middle East & Africa Greater China Asia-Paciﬁ c North America Latin America Total 2011 2010 4 469 1 391 1 465 4 628 1 451 1 451 3 848 2 915 1 077 735 1 791 1 481 14 041 12 661 YoY change – 3% – 4% 1% 32% 47% 21% 11% Nokia Siemens Networks’ net sales increased % to EUR   million in , compared to EUR   million in . The year-on-year increase in Nokia Siemens Networks’ net sales in  was driven primarily by the contribution from the acquired Motorola Solutions networks assets, which was completed in April . Excluding the acquired Motorola Solutions networks assets, net sales would have increased % year-on-year, primarily driven by growth in services, which represented approximately % of Nokia Siemens Networks’ net sales in . GROSS MARGIN Nokia Siemens Networks’ gross margin was .% in , compared to .% in . Nokia Siemens Networks gross margin in  reﬂ ected the positive impact from the acquired Motorola Solutions networks assets oﬀ set to a large extent by the negative eﬀ ects of the competitive industry environment and an unfavorable sales mix towards lower gross margin revenues. OPERATING EXPENSES Nokia Siemens Networks’ research and development expenses increased % to EUR   million, compared to EUR   mil- lion in . The increase was primarily due to the addition of R&D operations relating to the acquired Motorola Solutions networks assets as well as investments in strategic initiatives. Nokia Siemens Networks’ selling and marketing expenses, as well as administrative and general expenses, were virtually ﬂ at year-on-year in  as the increase from the acquired Motorola Solutions networks was oﬀ set by ongoing cost control initiatives.  N O K I A I N 2 0 1 1 OPERATING MARGIN Nokia Siemens Networks’ operating loss in  was EUR  million, compared with an operating loss of EUR  million in . Nokia Siemens Networks’ operating margin in  was negative .%, compared with negative .% in  primar- ily because of higher net sales, which were oﬀ set by higher operating expenses. NEW STRATEGY AND RESTRUCTURING PROGRAM On November , , Nokia Siemens Networks announced its strategy to focus on mobile broadband and services and the launch of an extensive global restructuring program. Nokia Siemens Networks expects substantial charges related to this restructuring program in . The key ﬁ nancial data, including the calculations of key ratios, for the years ,  and  are available in the Annual Accounts section. MAIN E VENTS IN 2011 Nokia » In , Nokia announced a new strategy for its mobile products business, with three core elements: i) to win in smartphones; ii) to connect the “next billion” consumers to the Internet and information; and iii) to continue to invest in long-term exploratory research into the future of mobility and computing. Nokia outlined this new strategy in conjunc- tion with an announcement of changes to its leadership team and operational structure designed to accelerate the company’s speed of execution. Nokia switched to a struc- ture featuring two distinct business units within Nokia’s Devices & Services business–Smart Devices and Mobile Phones–and formed a new business, Location & Commerce. » As of October , Location & Commerce was formed by the combination of Nokia’s NAVTEQ business with Nokia’s social location services operations and is focusing on the development of integrated social location products and ser- vices for consumers, as well as platform services and local commerce services for device manufacturers, application developers, Internet services providers, merchants, and advertisers. Nokia also announced plans for changes to its R&D operations, including personnel reductions, to support the execution of Nokia’s new strategy. » In February , Nokia announced the new Nokia Leadership Team (formerly the Group Executive Board) composed of the following members: Stephen Elop (Chief Executive Oﬃ cer), Esko Aho (Corporate Relations and Responsibility), Juha Äkräs (Human Resources), Jerri DeVard (Chief Marketing Oﬃ cer), Colin Giles (Sales), Richard Green (Chief Technology Oﬃ cer), Jo Harlow (Smart Devices), Timo Ihamuotila (Chief Financial Oﬃ cer), Mary McDowell (Mobile Phones), Kai Öistämö (Chief Development Oﬃ cer), Tero Ojanperä (Services & Developer Experience, acting), Louise Pentland (Chief Legal Oﬃ cer) and Niklas Savander (Markets). Michael Halbherr, who was appointed as Executive Vice President to lead the new Location & Commerce business, also became a member of the Nokia Leadership Team, ef- fective July , . Henry Tirri was appointed Executive Vice President and Chief Technology Oﬃ cer, eﬀ ective September , , replacing Richard Green. Tero Ojanperä left the Nokia Leadership Team at the end of his contract on September , . » Nokia decided to delist its shares from the Frankfurt Stock Exchange, and the ﬁ nal day of trading was March , . » In September , Nokia and Siemens announced the ap- pointment of Jesper Ovesen as Executive Chairman of the Board of Nokia Siemens Networks. As Executive Chairman, Ovesen assumed a full-time role with a special emphasis on overseeing the strategic direction of Nokia Siemens Networks as it seeks to strengthen its position as a leader in the industry and become a more independent entity. » In September , Nokia and Siemens announced that they each provided capital of EUR  million to Nokia Siemens Networks to further strengthen the company’s ﬁ nancial position. » In the third quarter, Nokia was again selected as a com- ponent of the Dow Jones Sustainability World Index (DJSI) and Dow Jones Sustainability Europe Index in the DJSI  Review. » In June , Nokia announced that it has signed a patent license agreement with Apple. The agreement resulted in settlement of all patent litigation between the companies, including the withdrawal by Nokia and Apple of their respec- tive complaints to the US International Trade Commission. Devices & Services » In March , Nokia announced plans to establish a new manufacturing site near Hanoi in northern Vietnam with a targeted opening in early .  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 » To focus feature phone production in locations closest to suppliers and key markets, Nokia ended production at its manufacturing facility in Cluj, Romania in November . In January , Nokia and De’ Longhi, a global leader in household appliances, announced that they have agreed terms for De’ Longhi to acquire the facility. able Internet experience on their mobile device – in many cases, their ﬁ rst ever Internet experience with any comput- ing device. In the fourth quarter of , Nokia launched the Nokia Asha range of Nokia mobile phones, which oﬀ er access to the Internet, integrated social networking, mes- saging and access to applications from Nokia Store. SMART DEVICES » To support its eﬀ ort to win in smartphones, Nokia an- nounced in February  plans to form a partnership with Microsoft to combine their respective complementary as- sets and expertise to build a new global mobile ecosystem. Under the partnership, which was formalized in April , Nokia is adopting and licensing from Microsoft Windows Phone as its primary smartphone platform, and has subse- quently begun a transition away from Symbian. In October , Nokia launched the Nokia Lumia  and Nokia Lumia , its ﬁ rst products based on the Windows Phone plat- form. The Lumia range is designed to bring consumers at- tractive industrial design, a fast social and Internet experi- ence, leading imaging capabilities as well as signature Nokia experiences optimized for Windows Phone, such as Nokia Drive and Mix Radio. » Nokia’s new strategy for smartphones also included person- nel reductions as well as the transfer of approximately   employees to Accenture as part of an agreement in which Accenture is providing Symbian software development and support activities to Nokia through . Nokia has contin- ued to bring new Symbian smartphones to market, including seven devices during , of which three are powered by Belle, the latest version of the Symbian software, which brings a major improvement to the user experience. » In June , Nokia launched the Nokia N, the outcome of eﬀ orts in Nokia’s MeeGo program. The Nokia N is a pure touch smartphone which introduces an innovative new design where the home key – typically located at the bot- tom of the device – is replaced by a simple gesture: a swipe. Under Nokia’s new strategy for smartphones, MeeGo will place increased emphasis on longer-term market explora- tion of next-generation devices, platforms and user experi- ences. MOBILE PHONES » To support its eﬀ ort to connect the “next billion”, Nokia re- newed its strategy to focus on capturing volume and value growth by leveraging Nokia’s innovation and strength in de- veloping growth markets to provide people with an aﬀ ord- » Nokia’s dual SIM technology was among several new innova- tions during  aimed at increasing aﬀ ordability for the consumer not just at the point of sale, but in terms of the total cost of ownership of the device. During , Nokia brought to market its ﬁ rst seven dual SIM mobile phones. Mobile Phones also developed applications and services speciﬁ cally with aﬀ ordability in mind. During , some of Nokia’s new mobile phones–including the Nokia Asha range–shipped with a powerful new browser, which com- presses data and can thus reduce the cost of browsing the web. Additionally, some new models shipped with Nokia’s new maps software which provides an advanced, cost-eﬃ - cient maps experience. Nokia Maps for Series  is similar to that available on Nokia’s smartphones in that people can view maps and plan routes when the phone is in oﬄ ine mode. Location & Commerce » During , Location & Commerce continued to develop in- tegrated location-based products and services for consum- ers, as well as platform services for the wider ecosystem. For consumers, these included the following applications available either commercially or in beta: • Nokia Maps, a mobile application that gives people new ways to discover and explore the world around them, as well as enabling them to search for and navigate to ad- dresses and places of interest; • Nokia Drive, a dedicated in-car navigation application, equivalent to a fully-ﬂ edged personal navigation device, including voice-guided navigation in multiple languages for more than  countries, D and D map views and day and night modes; • Nokia Public Transport, a dedicated public transport application which provides smart public transportation routing for more than  cities worldwide on mobile, including timetable routing for bus and train routes for  cities; • Nokia Pulse, an application that enables people to instantly share their location or other information with family, friends or any other pre-deﬁ ned group;  N O K I A I N 2 0 1 1 • Nokia Live View, an augmented reality application that enables people to see information about points of inter- est–such as a restaurant, hotel or shop–in their camera viewﬁ nder; • Nokia Maps HTML–a mobile web version of Nokia Maps providing access to Nokia’s rich mapping experience to owners of non-Nokia smartphones and tablets; and • maps.nokia.com, Nokia’s mapping oﬀ ering on the web, enabling people to discover the world easy and comforta- bly with City Pages, heat maps, stunning D maps for more than  cities, a rich places directory, superior content from leading guides, and local insights from Nokia users. Mobilais Telefons in Latvia; with TeliaSonera in Finland, Bell in Canada, LG U+ and SK Telecom in Korea, Telecom Italia and Telefonica O in Germany. » During the third quarter, to further support its focus on mobile broadband, Nokia Siemens Networks also outlined its vision for how broadband must be delivered in the future via Liquid Net; unveiled three new TD-LTE devices to supply communications service providers and enable the market for TD-LTE; agreed to establish a mobile broadband focused SmartLab with the Skolkovo Foundation in Russia; and set- up a joint venture to build G LTE equipment with Micran in Tomsk, Russia. » In the fourth quarter, Location & Commerce began power- ing Yahoo! Maps. SIGNIFIC ANT ACQUISITIONS AND DIVE STMENTS IN 2011 » Location & Commerce continued to build the “Where” » During the second quarter , Nokia Siemens Networks ecosystem with partners from Internet companies as well as the car and mobile industry, including Yahoo! whose maps.yahoo.com oﬀ ering is powered by the Nokia Location Platform, beneﬁ ting from the latest maps with up-to-date location data/addresses, new routing options enabling us- ers to avoid tolls and freeway, updated road networks and points of interest. » During the third quarter, Location & Commerce announced that it is supplying map data and content to Daimler AG for the Mercedes E Class range plus the CLS-Class model. As a result, almost all Daimler passenger vehicle navigation plat- forms in Europe will be powered by Location & Commerce. » During the fourth quarter, Location & Commerce was selected by Ford Motor Company to be its exclusive map supplier for the SYNC MyFord Touch navigation system. The agreement positions Location & Commerce as the map data provider for the system in North America, Latin America, the Middle East, Russia and Europe. Nokia Siemens Networks » In November , Nokia Siemens Networks announced a new strategy, including changes to its organizational struc- ture and a signiﬁ cant restructuring program aimed at mak- ing the company an undisputed leader in mobile broadband and services and improving the company’s competitiveness and proﬁ tability. » Throughout , Nokia Siemens Networks announced a number of contracts in the key area of mobile broad- band, including LTE deals with STC in Saudi Arabia, Latvijas completed the acquisition of certain wireless network infra- structure assets of Motorola Solutions, including products and services in relation to GSM, CDMA, WCDMA, WiMAX and LTE. The acquisition is designed to strengthen the com- pany’s position in North America and Japan, adding approxi- mately   employees across  countries. » As part of its new strategy, Nokia Siemens Networks is focusing on mobile broadband and services, and as such has announced during the fourth quarter a number of planned divestments, with the sale of its Microwave Transport business to DragonWave, its ﬁ xed line Broadband Access business to ADTRAN and its WiMAX unit to NewNet Communications Technologies. PER SONNEL The average number of employees for  was   (  for  and   for ). At December , , Nokia employed a total of   people (  people at December ,  and   people at December , ). The total amount of wages and salaries paid in  was EUR   (EUR   million in  and EUR   million in ). SUSTAINABILIT Y AT NOKIA Nokia strives to be a leader in sustainability. Nokia has a long track record of taking sustainability into account in everything it does, from product design and supplier requirements, to service oﬀ ering which enhance people’s education, liveli- hoods and health, and which can be beneﬁ cial in many other ways too. Nokia believes that its approach in considering our environmental and social impact not only reﬂ ects ethical and legal responsibilities, but also makes good business sense and  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 our goals go way beyond compliance. In managing environ- mental requirements, Nokia focuses on materials used, energy eﬃ ciency, take-back of used products, the environmental performance of Nokia operations and supply chain, and ser- vices downloadable from Nokia store to help people to make sustainable choices. In social issues management, the focus is on human rights, labor conditions and origins of raw materials, as well as leveraging the power of mobile technology to make a positive impact in people´s lives. Some of the  sustainability highlights include: » eﬀ orts in providing the next billion people with the access to the Internet and information; » improving education, health and livelihoods with mobile technology, for example  million people having experi- enced Nokia Life as of the end of ; » increasing focus on supplier performance and making pro- gress in tracing the origins of certain raw materials; » introducing ﬁ ve new Eco Hero devices, including the Nokia Asha  and , the ﬁ rst Eco Hero devices available at a lower price point; and » launching the Nokia Public Transport, an application that oﬀ ers public transportation route planning in hundreds of cities all over the world. MANAGEMENT AND BOARD OF DIREC TOR S Board of Directors, Nokia Leadership Team and President Pursuant to the Articles of Association, Nokia Corporation has a Board of Directors composed of a minimum of seven and a maximum of  members. The members of the Board are elected for a one-year term at each Annual General Meeting, i.e. from the close of that Annual General Meeting until the close of the following Annual General Meeting, which convenes each year by June . The Board has the responsibility for ap- pointing and discharging the Chief Executive Oﬃ cer, the Chief Financial Oﬃ cer and the other members of the Nokia Leader- ship Team. The Chief Executive Oﬃ cer also acts as President and his rights and responsibilities include those allotted to the President under Finnish law. The Annual General Meeting held on May ,  elected the following  members to the Board of Directors: Stephen Elop, Bengt Holmström, Henning Kagermann, Per Karlsson, Jouko Karvinen, Helge Lund, Isabel Marey-Semper, Jorma Ollila, Dame Marjorie Scardino, Risto Siilasmaa and Kari Stadigh. For information on shares and stock options held by the members of the Board of Directors, the President and CEO and the other members of the Nokia Leadership Team, please see the section “Compensation of the Board of Directors and the Nokia Leadership Team” available in the Additional informa- tion section of this ‘Nokia in ’ publication. For more information regarding Corporate Governance, please see the Corporate Governance Statement in the Additional information section of this ‘Nokia in ’ publica- tion or Nokia’s website, www.nokia.com/global/about-nokia. Changes in the Nokia Leadership Team During  and subsequently, the following appointments to the Nokia Leadership Team were made: » Jerri DeVard was appointed Executive Vice President, Chief Marketing Oﬃ cer, and member of the Nokia Leadership Team as from January , . » Colin Giles was appointed Executive Vice President of Sales and member of the Nokia Leadership Team as from February , . » Jo Harlow was appointed Executive Vice President of Smart Devices and member of the Nokia Leadership Team as from February , . » Louise Pentland, Chief Legal Oﬃ cer, was appointed Executive Vice President and member of the Nokia Leadership Team as from February , . » Michael Halbherr was appointed Executive Vice President of Location & Commerce and member of the Nokia Leadership Team as from July , . » Henry Tirri was appointed Executive Vice President, Chief Technology Oﬃ cer, and member of the Nokia Leadership Team as from September , . » Marko Ahtisaari was appointed Executive Vice President of Design and member of the Nokia Leadership Team as from February , . Further, during , the following Nokia Leadership Team members resigned: » Alberto Torres, formerly Executive Vice President of MeeGo Computers, resigned from the Nokia Leadership Team ef- fective as from February ,  and left Nokia on March , .  N O K I A I N 2 0 1 1 » Richard Green, formerly Executive Vice President and Chief Technology Oﬃ cer, resigned from the Nokia Leadership Team and left Nokia eﬀ ective as from September , . » Dr. Tero Ojanperä formerly Executive Vice President of Services and Developer Experience resigned from the Nokia Leadership Team and left Nokia eﬀ ective as from October , . PROVISIONS ON THE AMENDMENT OF ARTICLE S OF A SSOCIATION Amendment of the Articles of Association requires a decision of the general meeting, supported by two-thirds of the votes cast and two-thirds of the shares represented at the meet- ing. Amendment of the provisions of Article  of the Articles of Association, “Obligation to purchase shares”, requires a resolution supported by three-quarters of the votes cast and three-quarters of the shares represented at the meeting. SHARE S AND SHARE C APITAL Nokia has one class of shares. Each Nokia share entitles the holder to one vote at general meetings of Nokia. In , Nokia did not cancel or repurchase any shares nor did Nokia issue any new shares. In , Nokia transferred a total of    Nokia shares held by it as settlement under Nokia equity plans to the plan participants, personnel of Nokia Group. The shares were transferred free of charge and the amount of shares trans- ferred represented approximately .% of the total number of shares and the total voting rights. The transfers did not have a signiﬁ cant eﬀ ect on the relative holdings of the other shareholders of the company nor on their voting power. On December , , Nokia and its subsidiary compa- nies owned    Nokia shares. The shares represented approximately .% of the total number of the shares of the company and the total voting rights. The total number of shares at December , , was    . On December , , Nokia’s share capital was EUR   .. Information on the authorizations held by the Board in  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 ratio, share prices, market capitalization, share turnover and average number of shares are available in the Annual Accounts section. NOKIA OUTLOOK Year  is expected to continue to be a year of transition during which Nokia’s Devices & Services business will be subject to risks and uncertainties as Nokia’s Smart Devices business unit continues to transition from Symbian products to Nokia products with Windows Phone and Nokia’s Mobile Phones business unit aims to bring more smartphone-like features and design to Nokia’s feature phone portfolio. Those risks and uncertainties include, among others, continued deterioration in demand for Nokia’s Symbian devices; the tim- ing, ramp-up and demand for Nokia’s new products, including Nokia’s Lumia devices; and further pressure on margins as competitors endeavor to capitalize on Nokia’s platform and product transition. Nokia Siemens Networks announced in No- vember  a new strategy which focuses its business on mo- bile broadband and services, and has launched an extensive global restructuring program. In  Nokia Siemens Networks is continuing to implement its new strategy and restructur- ing program. Additionally, the macroeconomic environment is making it increasingly diﬃ cult to estimate our outlook and provide reliable targets. Mainly due to these factors, Nokia believes that it is not appropriate to provide annual targets for . Longer-term, Nokia targets: » Devices & Services net sales to grow faster than the market, and » Devices & Services operating margin to be % or more, ex- cluding special items and purchase price accounting related items. Longer-term, Nokia and Nokia Siemens Networks target: » Nokia Siemens Networks’ operating margin to be between % and %, excluding special items and purchase price accounting related items. Nokia and Nokia Siemens Networks have announced a number of planned changes to operations during  and  in connection with the implementation of new strategies for Nokia’s Devices & Services and Nokia Siemens Networks businesses as well as in relation to the creation of a new Location & Commerce business. The planned changes include substantial personnel reductions, site and facility closures and reconﬁ gurations of certain Nokia facilities. Nokia continues to target to reduce its Devices & Services operating expenses by more than EUR  billion for the full year , compared to the Devices & Services operating expenses of EUR . billion for the full year , excluding special items and purchase price accounting related items. Nokia and Nokia Siemens Networks continue to target to reduce Nokia Siemens Networks annual-  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 ized operating expenses and production overheads, excluding special items and purchase price accounting related items, by EUR  billion by the end of , compared to the end of . RISK FAC TOR S Set forth below is a description of risk factors that could af- fect Nokia. There may be, however, additional risks unknown to Nokia and other risks currently believed to be immaterial that could turn out to be material. These risks, either individu- ally or together, could adversely aﬀ ect Nokia’s business, sales, proﬁ tability, results of operations, ﬁ nancial condition, market share, brand, reputation and share price from time to time. Unless otherwise indicated or the context otherwise provides, references in these risk factors to “Nokia”, “we”, “us” and “our” mean Nokia’s consolidated operating segments. Additional risks primarily related to Nokia Siemens Networks that could aﬀ ect Nokia are detailed under the heading “Nokia Siemens Networks” below. » Our success in the smartphone market depends on our ability to introduce and bring to market quantities of at- tractive, competitively priced Nokia products with Windows Phone that are positively diﬀ erentiated from our competi- tors’ products, both outside and within the Windows Phone ecosystem, and receive broad market acceptance. » We may not be able to make Nokia products with Windows Phone a competitive choice for consumers unless, together with Microsoft, we successfully encourage and support a competitive and proﬁ table global ecosystem for Windows Phone smartphones that achieves suﬃ cient scale, value and attractiveness to all market participants. » We may experience further diﬃ culties in having a com- petitive oﬀ ering of Symbian devices and maintaining the economic viability of the Symbian smartphone platform during the transition to Windows Phone as our primary smartphone platform. » We may not be able to produce attractive and competitive feature phones, including devices with more smartphone- like features, in a timely and cost eﬃ cient manner with diﬀ erentiated hardware, software, localized services and applications. » We face intense competition in mobile products and in the digital map data and related location-based content and services markets. » We may not be able to retain, motivate, develop and recruit appropriately skilled employees, which may hamper our ability to implement our strategies, particularly our current mobile products strategy and location-based services and commerce strategy, and we may not be able to eﬀ ectively and smoothly implement the new operational structure for our businesses, achieve targeted eﬃ ciencies and reduc- tions in operating expenses. » Our strategy for our Location & Commerce business may not succeed if we are unable to maintain current sources of revenue, provide support for our Devices & Services busi- ness and create new sources of revenue from our location- based services and commerce assets. » Our partnership with Microsoft is subject to risks and uncer- tainties. » Our failure to keep momentum and increase our speed of innovation, product development and execution will impair our ability to bring new innovative and competitive mobile products and location-based or other services to the mar- ket in a timely manner. » Our sales and proﬁ tability are dependent on the develop- ment of the mobile and communications industry, including location-based and other services industries, in numerous diverse markets, as well as on general economic conditions globally and regionally. » Our products include numerous patented standardized or proprietary technologies on which we depend. Third parties may use without a license and unlawfully infringe our intel- lectual property or commence actions seeking to establish the invalidity of the intellectual property rights of these technologies. This may have a material adverse eﬀ ect on our business and results of operations. » Our ability to maintain and leverage our traditional strengths in the mobile product market may be impaired if we are unable to retain the loyalty of our mobile operator and distributor customers and consumers as a result of the implementation of our strategies or other factors. » If any of the companies we partner and collaborate with, in- cluding Microsoft and Accenture, were to fail to perform as planned or if we fail to achieve the collaboration or partner- ing arrangements needed to succeed, we may not be able to bring our mobile products or location-based or other services to market successfully or in a timely way. » If the limited number of suppliers we depend on fail to deliv- er suﬃ cient quantities of fully functional products, compo- nents, sub-assemblies, software and services on favorable terms and in compliance with our supplier requirements, our ability to deliver our mobile products proﬁ tably, in line  N O K I A I N 2 0 1 1 with quality requirements and on time could be materially adversely aﬀ ected. other developments in those countries or by other countries imposing regulations against imports to such countries. » We may fail to manage our manufacturing, service creation and delivery as well as our logistics eﬃ ciently and without interruption, or fail to make timely and appropriate adjust- ments, or fail to ensure that our products meet our and our customers’ and consumers’ requirements and are delivered on time and in suﬃ cient volumes. » Any actual or even alleged defects or other quality, safety and security issues in our products, including the hardware, software and content used in our products, could have a material adverse eﬀ ect on our sales, results of operations, reputation and the value of the Nokia brand. » Any cybersecurity breach or other factors leading to an actual or alleged loss, improper disclosure or leakage of any personal or consumer data collected by us or our partners or subcontractors, made available to us or stored in or through our products could have a material adverse eﬀ ect on our sales, results of operations, reputation and value of the Nokia brand. » Our business and results of operations, particularly our proﬁ tability, may be materially adversely aﬀ ected if we are not able to successfully manage the pricing of our products and costs related to our products and our operations. » Our net sales, costs and results of operations, as well as the US dollar value of our dividends and market price of our ADSs, are aﬀ ected by exchange rate ﬂ uctuations, particu- larly between the euro, which is our reporting currency, and the US dollar, the Japanese yen and the Chinese yuan, as well as certain other currencies. » Our products include increasingly complex technologies, some of which have been developed by us or licensed to us by certain third parties. As a result, evaluating the rights related to the technologies we use or intend to use is more and more challenging, and we expect increasingly to face claims that we could have allegedly infringed third parties’ intellectual property rights. The use of these technolo- gies may also result in increased licensing costs for us, restrictions on our ability to use certain technologies in our products and/or costly and time-consuming litigation, which could have a material adverse eﬀ ect on our business, results of operations and ﬁ nancial condition. » Our sales derived from, and manufacturing facilities and assets located in, emerging market countries may be materi- ally adversely aﬀ ected by economic, regulatory, political or » Changes in various types of regulation, technical standards and trade policies as well as enforcement of such regula- tion and policies in countries around the world could have a material adverse eﬀ ect on our business and results of operations. » We have operations in a number of countries and, as a result, face complex tax issues and could be obligated to pay ad- ditional taxes in various jurisdictions. » Our operations rely on the eﬃ cient and uninterrupted op- eration of complex and centralized information technology systems and networks. If a system or network ineﬃ ciency, malfunction or disruption occurs, this could have a material adverse eﬀ ect on our business and results of operations. » An unfavorable outcome of litigation could have a material adverse eﬀ ect on our business, results of operations, ﬁ nan- cial condition and reputation. » Allegations of possible health risks from the electromagnetic ﬁ elds generated by base stations and mobile devices, and the lawsuits and publicity relating to this matter, regardless of merit, could have a material adverse eﬀ ect on our sales, results of operations, share price, reputation and brand value by leading consumers to reduce their use of mobile devices, by increasing diﬃ culty in obtaining sites for base stations, by leading regulatory bodies to set arbitrary use restrictions and exposure limits, or by causing us to allocate additional monetary and personnel resources to these issues. Nokia Siemens Networks In addition to the risks described above, the following are risks primarily related to Nokia Siemens Networks that could aﬀ ect Nokia. » Nokia Siemens Networks’ new strategy to focus on mobile broadband and services and its restructuring plan designed to improve ﬁ nancial performance and competitiveness may not succeed in improving its overall competitiveness and proﬁ tability. Nokia Siemens Networks may be unable to execute the strategy eﬀ ectively and in a timely manner, and it may be unable to otherwise continue to reduce operating expenses and other costs. » Nokia Siemens Networks’ sales and proﬁ tability depend on its success in the mobile broadband infrastructure services market, a key focus area in its new strategy. Nokia Siemens Networks’ may fail to eﬀ ectively and proﬁ tably adapt its  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 by Siemens to Nokia Siemens Networks, or there may be undetected additional violations that may have occurred prior to the transfer or violations that may have occurred after the transfer of such assets and employees. DIVIDEND Nokia’s Board of Directors will propose a dividend of EUR . per share for . Board of Directors, Nokia Corporation March ,   business and operations in a timely manner to the increas- ingly diverse service needs of its customers in that market. » Competition in the mobile broadband infrastructure and related services market is intense. Nokia Siemens Networks’ may be unable to maintain or improve its market position or respond successfully to changes in the competitive environ- ment. » Nokia Siemens Networks’ liquidity and its ability to meet its working capital requirements depend on access to avail- able credit under Nokia Siemens Networks’ credit facilities and other credit lines as well as cash at hand. If a signiﬁ cant number of those sources of liquidity were to be unavailable, or cannot be reﬁ nanced when they mature, this would have a material adverse eﬀ ect on our business, results of opera- tions and ﬁ nancial condition. » Nokia Siemens Networks’ may fail to eﬀ ectively and proﬁ tably invest in new competitive products, services, upgrades and technologies and bring them to market in a timely manner. » Nokia Siemens Networks may be unable to execute suc- cessfully its strategy for the acquired Motorola Solutions wireless network infrastructure assets, including retaining existing customers of those acquired assets, cross-selling its products and services to customers of those acquired assets and otherwise realizing the expected synergies and beneﬁ ts of the acquisition. » The networks infrastructure and related services business relies on a limited number of customers and large multi-year contracts. Unfavorable developments under such a con- tract or in relation to a major customer may have a material adverse eﬀ ect on our business, results of operations and ﬁ nancial condition. » Providing customer ﬁ nancing or extending payment terms to customers can be a competitive requirement in the net- works infrastructure and related services business and may have a material adverse eﬀ ect on our business, results of operations and ﬁ nancial condition. » Some of the Siemens carrier-related operations transferred to Nokia Siemens Networks have been and continue to be the subject of various criminal and other governmental investigations related to whether certain transactions and payments arranged by some current or former employees of Siemens were unlawful. As a result of those investigations, government authorities and others have taken and may take further actions against Siemens and/or its employees that may involve and aﬀ ect the assets and employees transferred N O K I A I N 2 0 1 1 CONSOLIDATED INCOME STATEMENTS, IFRS Financial year ended December 31 Notes Net sales Cost of sales Gross proﬁ t Research and development expenses Selling and marketing expenses Administrative and general expenses Impairment of goodwill Other income Other expenses Operating loss (–)/proﬁ t (+) Share of results of associated companies Financial income and expenses Loss (–)/proﬁ t (+) before tax Tax 2011 EURm 38 659 – 27 340 11 319 – 5 612 – 3 791 – 1 121 – 1 090 221 – 999 8 7 7, 8 2–10, 24 – 1 073 15, 31 8, 11 12 – 23 – 102 – 1 198 – 290 2010 EURm 2009 EURm 42 446 40 984 – 29 629 – 27 720 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 Loss (–)/proﬁ t (+) – 1 488 1 343 260 Loss (–)/proﬁ t (+) attributable to equity holders of the parent Loss attributable to non-controlling interests – 1 164 – 324 – 1 488 1 850 – 507 1 343 Earnings per share (for loss (–)/proﬁ t (+) attributable to the equity holders of the parent) Basic Diluted 28 2011 EUR – 0.31 – 0.31 2010 EUR 0.50 0.50 891 – 631 260 2009 EUR 0.24 0.24 Average number of shares (1 000’s shares) 28 2011 2010 2009 Basic Diluted See Notes to consolidated financial statements. 3 709 947 3 708 816 3 705 116 3 709 947 3 713 250 3 721 072  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 Loss (–)/proﬁ t (+) Other comprehensive income Translation diﬀ erences Net investment hedge gains (+)/losses (–) Cash ﬂ ow 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 2011 EURm – 1 488 9 – 37 116 70 -16 – 16 126 2010 EURm 1 343 1 302 – 389 – 141 9 45 126 952 2009 EURm 260 – 563 114 25 48 -7 – 44 – 427 Total comprehensive income (+)/expense (–) – 1 362 2 295 – 167 Total comprehensive income (+)/expense (–) attributable to equity holders of the parent non-controlling interests See Notes to consolidated financial statements. – 1 083 – 279 – 1 362 2 776 – 481 2 295 429 – 596 – 167  N O K I A I N 2 0 1 1 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 (2011: EUR 284 million, 2010: EUR 363 million) Prepaid expenses and accrued income Current portion of long-term loans receivable Other ﬁ nancial assets Investments at fair value through proﬁ t and loss, liquid assets Available-for-sale investments, liquid assets Available-for-sale investments, cash equivalents Bank and cash Total assets 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 Capital and reserves attributable to equity holders of the parent Share capital Share issue premium Treasury shares, at cost Translation diﬀ erences 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 ﬁ nancial liabilities Accounts payable Accrued expenses and other liabilities Provisions Total shareholders’ equity and liabilities See Notes to consolidated financial statements.  Notes 2011 EURm 2010 EURm 13 13 13 14 15 16 25 16, 34 6 4 838 1 406 1 842 67 641 1 848 99 3 40 5 723 1 928 1 954 136 533 1 596 64 4 10 750 11 978 18, 20 2 330 2 523 16, 20, 34 19 16, 34 16, 17, 34 16, 34 16, 34 16, 34 34 23 22 21 16, 34 25 16, 34 16, 34 16, 17, 34 16, 34 26 27 7 181 4 488 54 500 433 1 233 7 279 1 957 25 455 36 205 246 362 -644 771 154 3 148 7 836 11 873 2 043 13 916 3 969 800 76 4 845 357 995 483 5 532 7 450 2 627 17 444 36 205 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 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 CASH FLOWS, IFRS Financial year ended December 31 Cash ﬂ ow from operating activities Loss (–)/proﬁ t (+) attributable to equity holders of the parent Adjustments, total Change in net working capital Cash generated from operations Interest received Interest paid Other ﬁ nancial income and expenses, net Income taxes paid, net Net cash from operating activities Notes 32 32 Cash ﬂ ow 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 proﬁ t 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 (+) /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 proﬁ t and loss, liquid assets Proceeds from sale of non-current available-for-sale investments Proceeds from sale of ﬁ xed assets Dividends received Net cash from/used in investing activities Cash ﬂ ow from ﬁ nancing activities Other contributions from shareholders 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 ﬁ nancing 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, 34 2011 EURm – 1 164 3 486 – 638 1 684 190 – 283 264 – 718 2010 EURm 1 850 2 112 2 349 6 311 110 – 235 – 507 – 905 1 137 4 774 – 817 – 3 676 – 607 – 111 – 2 — – 14 – 31 – 597 – 5 4 3 – 110 – 8 573 – 646 – 124 – 33 — 2 – 2 – 679 – 21 5 141 2009 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 6 090 7 181 1 730 1 156 57 48 1 333 83 21 1 108 14 100 2 1 499 – 2 421 – 2 148 546 — 1 – 51 – 59 – 1 536 – 1 099 107 1 644 7 592 9 236 1 957 7 279 9 236 — 1 482 – 6 131 – 1 519 – 911 224 1 666 5 926 7 592 1 951 5 641 7 592 — — 3 901 – 209 – 2 842 – 1 546 – 696 – 25 378 5 548 5 926 1 142 4 784 5 926 The figures in the consolidated cash flow statement cannot be directly traced from the balance sheet without additional information as a result of acquisitions and disposals of subsidiaries and net foreign exchange differences arising on consolidation. See Notes to consolidated financial statements.  N O K I A I N 2 0 1 1 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY, IFRS EURm Number of shares Share (1 000’s) capital premium Share lation issue Treasury diﬀ er- Trans - Fair value and other shares ences reserves Non- restrict. Retained controlling controlling interests equity earnings interests Total Before non- Reserve for invested non- Balance at December 31, 2008 3 697 872 246 442 – 1 881 341 62 3 306 11 692 14 208 2 302 16 510 Translation diﬀ erences Net investment hedge gains, net of tax Cash ﬂ ow hedges, net of tax Available-for-sale investments, net of tax Other decrease, net Proﬁ t – 552 84 – 35 42 Total comprehensive income — — — – 468 7 Stock options exercised 7 Stock options exercised related to acquisitions Share-based compensation Excess tax beneﬁ t on share-based compensation Settlement of performance and restricted shares Reissuance of treasury shares Cancellation of treasury shares Dividend 10 352 31 – 1 16 – 12 – 166 230 1 969 Total of other equity movements 10 390 — – 163 1 200 — Balance at December 31, 2009 3 708 262 246 279 – 681 – 127 – 552 – 9 – 561 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 — – 1 481 – 1 549 – 44 – 1 525 – 45 – 1 594 – 1 891 890 — — – 136 – 969 – 1 481 – 136 – 2 450 3 170 10 132 13 088 1 661 14 749 Translation diﬀ erences Net investment hedge losses, net of tax Cash ﬂ ow hedges, net of tax Available-for-sale investments, net of tax Other increase, net Proﬁ t Total comprehensive income — Stock options exercised related to acquisitions Share-based compensation Excess tax beneﬁ t 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 — 952 – 66 — 40 1 850 1 890 — – 1 47 – 1 868 – 12 17 1 – 9 1 240 – 288 – 73 7 40 1 850 2 776 – 1 47 – 1 – 4 1 64 1 304 – 288 – 43 – 116 7 45 5 – 507 1 343 – 481 2 295 – 1 47 – 1 – 4 1 – 1 483 – 1 483 766 766 – 56 – 1 539 – 39 – 39 – 43 – 82 Total of other equity movements 868 — 33 18 — — – 9 – 1 522 – 1 480 667 – 813 Balance at December 31, 2010 3 709 130 246 312 – 663 825 3 3 161 10 500 14 384 1 847 16 231  1 240 – 288 — 69 – 73 7 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 (continued) EURm Number of shares Share (1 000’s) capital premium Share lation issue Treasury diﬀ er- Trans- Fair value and other shares ences reserves Non- restrict. Retained controlling controlling interests equity earnings interests Total Before non- Reserve for invested non- Balance at December 31, 2010 3 709 130 246 312 – 663 825 3 3 161 10 500 14 384 1 847 16 231 Translation diﬀ erences Net investment hedge losses, net of tax Cash ﬂ ow hedges, net of tax Available-for-sale investments, net of tax Other decrease, net Loss Total comprehensive income Share-based compensation Excess tax beneﬁ t on share-based compensation Settlement of performance and restricted shares 1 059 Contributions from shareholders Dividend Acquisitions and other change in non-controlling interests — — 18 – 3 – 11 46 – 26 – 28 84 67 — – 54 151 — – 1 180 – 16 – 1 164 19 – 13 – 26 – 28 84 67 – 16 35 10 9 – 28 94 67 – 16 – 1 164 – 1 083 – 324 – 1 488 – 279 – 1 362 18 – 3 – 5 46 18 – 4 – 5 546 – 1 500 – 1 484 – 1 484 – 39 – 1 523 — 15 15 Total of other equity movements 1 059 — 50 19 — — – 13 – 1 484 – 1 428 475 – 953 Balance at December 31, 2011 3 710 189 246 362 – 644 771 154 3 148 7 836 11 873 2 043 13 916 Dividends declared per share were EUR . for  (EUR . for , EUR . for ), subject to shareholders’ approval.  N O K I A I N 2 0 1 1 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING PRINCIPLE S Basis of presentation The consolidated ﬁ nancial statements of Nokia Corporation (“Nokia” or “the Group”), a Finnish public limited liability com- pany with domicile in Helsinki, in the Republic of Finland, are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Stand- ards Board (“IASB”) and in conformity with IFRS as adopted by the European Union (“IFRS”). The consolidated ﬁ nancial state- ments are presented in millions of euros (“EURm”), except as noted, and are prepared under the historical cost convention, except as disclosed in the accounting policies below. The notes to the consolidated ﬁ nancial statements also conform to Finnish accounting legislation. Nokia’s Board of Directors authorized the ﬁ nancial statements for  for issuance and ﬁ ling on March , . As of April , , the Group’s operational structure fea- tured two new operating and reportable segments: Smart Devices and Mobile Phones, which combined with Devices & Services Other and unallocated items form Devices & Services business. As of October , , the Group formed a Location & Commerce business which combines NAVTEQ and Nokia’s social location services operations from Devices & Services. Location & Commerce business is an operating and report- able segment. From the third quarter  until the end of the third quarter , NAVTEQ was a separate reportable segment of Nokia. As a consequence, Nokia currently has four operating and reportable segments: Smart Devices and Mobile Phones within Devices & Services, Location & Commerce and Nokia Siemens Networks. Prior year segment speciﬁ c results for  and  have been regrouped and recasted for comparability purposes ac- cording to the new operational structure. See Note . ADOPTION OF PRONOUNCEMENTS UNDER IFRS In the current year, the Group has adopted all of the new and revised standards, amendments and interpretations to existing standards issued by the IASB that are relevant to its operations and eﬀ ective for accounting periods commencing on or after January , . » Amendment to IAS  Financial Instruments: Presentation requires that if an entity’s rights issues oﬀ ered are issued pro-rata to all existing shareholders in the same class for a ﬁ xed amount of currency, they should be classiﬁ ed as equity regardless of the currency in which the exercise price is denominated. » Amendment to IFRS  Financial Instruments: Disclosures en- hances disclosures about transfer transactions of ﬁ nancial assets in order to help users of ﬁ nancial statements evalu- ate related risk exposures and their eﬀ ect on an entity’s ﬁ nancial position. » IFRIC  Extinguishing Financial Liabilities with Equity Instruments clariﬁ es accounting requirements for an entity that renegotiates terms of a ﬁ nancial liability with its credi- tor and the creditor agrees to accept the entity’s equity instruments to settle the ﬁ nancial liability fully or partially. The entity’s equity instruments issued to the creditor are part of the consideration paid to extinguish the ﬁ nancial liability and the issued instruments should be measured at their fair value. In addition, a number of other amendments that form part of the IASB’s annual improvement project were adopted by the Group. The adoption of each of the above mentioned standards did not have a material impact to the consolidated ﬁ nancial statements. Principles of consolidation The consolidated ﬁ nancial statements include the accounts of Nokia’s parent company (“Parent Company”), and each of those companies over which the Group exercises control. Con- trol over an entity is presumed to exist when the Group owns, directly or indirectly through subsidiaries, over % of the voting rights of the entity, the Group has the power to govern the operating and ﬁ nancial policies of the entity through agreement or the Group has the power to appoint or remove the majority of the members of the board of the entity. The Group’s share of proﬁ ts and losses of associates is included in the consolidated income statement in accord- ance with the equity method of accounting. An associate is an entity over which the Group exercises signiﬁ cant inﬂ uence. Signiﬁ cant inﬂ uence is generally presumed to exist when the Group owns, directly or indirectly through subsidiaries, over % of the voting rights of the company. All inter-company transactions are eliminated as part of the consolidation process. Proﬁ t or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. In the consoli- dated statement of ﬁ nancial position, non-controlling inter- ests are presented within equity, separately from the equity of the owners of the parent. The entities or businesses acquired during the ﬁ nancial peri- ods presented have been consolidated from the date on which  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 control of the net assets and operations was transferred to the Group. Similarly, the result of a Group entity or business divested during an accounting period is included in the Group accounts only to the date of disposal. Business Combinations The acquisition method of accounting is used to account for acquisitions of separate entities or businesses by the Group. The consideration transferred in a business combination is measured as the aggregate of the fair values of the assets transferred, liabilities incurred towards the former own- ers of the acquired business and equity instruments issued. Acquisition-related costs are recognized as expense in proﬁ t and loss in the periods when the costs are incurred and the related services are received. Identiﬁ able assets acquired and liabilities assumed by the Group are measured separately at their fair value as of the acquisition date. Non-controlling interests in the acquired business are 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 the interest in the fair value of the identiﬁ - able net assets acquired and attributable to the owners of the parent, is recorded as goodwill. Assessment of the recoverability of long-lived assets, intangible assets and goodwill For the purposes of impairment testing, goodwill is allocated to cash-generating units that are expected to beneﬁ t from the synergies of the acquisition in which the goodwill arose. The Group assesses the carrying amount of goodwill annu- ally or more frequently if events or changes in circumstances indicate that such carrying amount may not be recoverable. The Group assesses the carrying amount of identiﬁ able intangible assets and long-lived assets if events or changes in circumstances indicate that such carrying amount may not be recoverable. Factors that could trigger an impairment review include signiﬁ cant underperformance relative to historical or projected future results, signiﬁ cant changes in the manner of the use of the acquired assets or the strategy for the overall business and signiﬁ cant negative industry or economic trends. The Group conducts its impairment testing by determining the recoverable amount for the asset or cash-generating unit. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. If there is no reason to believe that cash-generating unit’s value in use materially exceeds its fair value less costs to sell, the Group may use fair value less costs to sell as its recover- able amount. Cash-generating unit, as determined for the purposes of Group’s goodwill impairment testing, is the smallest group of assets (including goodwill) generating cash inﬂ ows that are largely independent of the cash inﬂ ows from other assets or groups of assets. In testing a cash-generating unit for impair- ment, the Group identiﬁ es all corporate assets that relate to the cash-generating unit under review and those assets are al- located, on a reasonable and consistent basis, to the relevant units. The aggregate total carrying amount of the unit, includ- ing the portion of the carrying amount of the corporate assets allocated to the unit, is compared with its recoverable amount. An impairment loss is recognized if the recoverable amount is less than the carrying amount. Impairment losses are recog- nized immediately in the income statement. Disposals of separate entities or businesses When a disposal transaction causes the Group to relinquish control over a separate entity or business, the Group records a gain or loss on disposal at the disposal date. The gain or loss on disposal is calculated as the diﬀ erence between the fair value of the consideration received and the derecognized net assets of the disposed entity or business, adjusted by amounts recognized in other comprehensive income in rela- tion to that entity or business. Foreign currency translation FUNCTIONAL AND PRESENTATION CURRENCY The ﬁ nancial statements of all Group entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). The consoli- dated ﬁ nancial statements are presented in Euro, which is the functional and presentation currency of the Parent Company. TRANSACTIONS IN FOREIGN CURRENCIES Transactions in foreign currencies are recorded at the rates of exchange prevailing at the dates of the individual transac- tions. For practical reasons, a rate that approximates the actual rate at the date of the transaction is often used. At the end of the accounting period, the unsettled balances on foreign currency assets and liabilities are valued at the rates of exchange prevailing at the end of the accounting period. Foreign exchange gains and losses arising from statement of ﬁ nancial position items, as well as changes in fair value in the related hedging instruments, are reported in ﬁ nancial income and expenses. For non-monetary items, such as shares, the unrealized foreign exchange gains and losses are recognized in other comprehensive income.  N O K I A I N 2 0 1 1 FOREIGN GROUP COMPANIES In the consolidated accounts, all income and expenses of foreign subsidiaries are translated into Euro at the average foreign exchange rates for the accounting period. All assets and liabilities of Group companies, where the functional cur- rency is other than euro, are translated into euro at the year- end foreign exchange rates. Diﬀ erences resulting from the translation of income and expenses at the average rate and assets and liabilities at the closing rate are recognized in other comprehensive income as translation diﬀ erences within con- solidated shareholder’s equity. On the disposal of all or part of a foreign Group company by sale, liquidation, repayment of share capital or abandonment, the cumulative amount or pro- portionate share of the translation diﬀ erence is recognized as income or as expense in the same period in which the gain or loss on disposal is recognized. Revenue recognition Majority of the Group’s sales are recognized as revenue when the signiﬁ cant risks and rewards of ownership have trans- ferred to the buyer, continuing managerial involvement usually associated with ownership and eﬀ ective control have ceased, the amount of revenue can be measured reliably, it is probable that economic beneﬁ ts associated with the transaction will ﬂ ow 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 agree- ments, price protection and other volume based discounts. Service revenue is generally recognized on a straight line basis over the service period unless there is evidence that some other method better represents the stage of completion. Li- cense fees from usage are recognized in the period when they are reliably measurable, which is normally when the customer reports them to the Group. The Group enters into transactions involving multiple com- ponents consisting of any combination of hardware, services and software. The commercial eﬀ ect of each separately iden- tiﬁ able component of the transaction is evaluated in order to reﬂ ect the substance of the transaction. The consideration re- ceived from these transactions is allocated to each separately identiﬁ able component based on the relative fair value of each component. The Group determines the fair value of each com- ponent by taking into consideration factors such as the price when the component or a similar component is sold separately by the Group or a third party. The consideration allocated to each component is recognized as revenue when the revenue recognition criteria for that component have been met. In addition, sales and cost of sales from contracts involving solutions achieved through modiﬁ cation of complex telecom- munications equipment are recognized using the percentage of completion method when the outcome of the contract can be estimated reliably. A contract’s outcome can be estimated reliably when total contract revenue and the costs to complete the contract can be estimated reliably, it is probable that the economic beneﬁ ts associated with the contract will ﬂ ow to the Group and the stage of contract completion can be measured reliably. When the Group is not able to meet one or more of the conditions, the policy is to recognize revenues only equal to costs incurred to date, to the extent that such costs are expected to be recovered. Progress towards completion is measured by reference to cost incurred to date as a percentage of estimated total project costs, the cost-to-cost method. The percentage of completion method relies on estimates of total expected contract revenue and costs, as well as depend- able measurement of the progress made towards completing a particular project. Recognized revenues and proﬁ ts are subject to revisions during the project in the event that the assump- tions regarding the overall project outcome are revised. The cumulative impact of a revision in estimates is recorded in the period where such revisions become probable and can be esti- mated reliably. Losses on projects in progress are recognized in the period they become probable and can be estimated reliably. Shipping and handling costs The costs of shipping and distributing products are included in cost of sales. Research and development Research and development costs are expensed as they are incurred, except for certain development costs, which are capitalized when it is probable that a development project will generate future economic beneﬁ ts, and certain criteria, including commercial and technological feasibility, have been met. Capitalized development costs, comprising direct labor and related overhead, are amortized on a systematic basis over their expected useful lives between two and ﬁ ve years. Capitalized development costs are subject to regular assess- ments of recoverability based on anticipated future revenues, including the impact of changes in technology. Unamortized capitalized development costs determined to be in excess of their recoverable amounts are expensed immediately. Other intangible assets Acquired patents, trademarks, licenses, software licenses for internal use, customer relationships and developed technol- ogy are capitalized and amortized using the straight-line method over their useful lives, generally  to  years. Where  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 an indication of impairment exists, the carrying amount of the related intangible asset is assessed for recoverability. Any resulting impairment losses are recognized immediately in the income statement. Actuarial valuations for the Group’s deﬁ ned beneﬁ t pension plans are performed annually. In addition, actuarial valuations are performed when a curtailment or settlement of a deﬁ ned beneﬁ t plan occurs in the Group. Pensions The Group companies have various pension schemes in ac- cordance with the local conditions and practices in the coun- tries in which they operate. The schemes are generally funded through payments to insurance companies or contributions to trustee-administered funds as determined by periodic actuarial calculations. In a deﬁ ned contribution plan, the Group has no legal or constructive obligation to make any additional contributions even if the party receiving the contributions is unable to pay the pension obligations in question. The Group’s contributions to deﬁ ned contribution plans, multi-employer and insured plans are recognized in the income statement in a period which the contributions relate to. If a pension plan is funded through an insurance contract where the Group does not retain any legal or constructive ob- ligations, the plan is treated as a deﬁ ned contribution plan. All arrangements that do not fulﬁ ll these conditions are consid- ered deﬁ ned beneﬁ t plans. For deﬁ ned beneﬁ t plans, pension costs are assessed using the projected unit credit method: Pension cost is recognized in the income statement so as to spread the service cost over the service lives of employees. Pension obligation is measured as the present value of the estimated future cash outﬂ ows using interest rates on high quality corporate bonds with appropriate maturities. Actuarial gains and losses outside cor- ridor are recognized over the average remaining service lives of employees. The corridor is deﬁ ned as ten percent of the greater of the value of plan assets or deﬁ ned beneﬁ t obliga- tion at the beginning of the respective year. Actuarial gains and losses within the corridor limits are not recognized. Past service costs are recognized immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service for a speciﬁ ed period of time (the vesting period). In this case, the past service costs are amortized on a straight-line basis over the vesting period. The liability (or asset) recognized in the statement of ﬁ nan- cial position is pension obligation at the closing date less the fair value of plan assets, the share of unrecognized actuarial gains and losses, and past service costs. Any net pension asset is limited to unrecognized actuarial losses, past service cost, the present value of available refunds from the plan and expected reductions in future contributions to the plan. Property, plant and equipment Property, plant and equipment are stated at cost less accumu- lated depreciation. Depreciation is recorded on a straight-line basis over the expected useful lives of the assets as follows: Buildings and constructions  –  years Production machinery, measuring and test equipment Other machinery and equipment  –  years  –  years Land and water areas are not depreciated. Maintenance, repairs and renewals are generally charged to expense during the ﬁ nancial period in which they are incurred. However, major renovations are capitalized and included in the carrying amount of the asset when it is probable that future economic beneﬁ ts in excess of the originally assessed stand- ard of performance of the existing asset will ﬂ ow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. Leasehold improvements are depreci- ated over the shorter of the lease term or useful life. Gains and losses on the disposal of ﬁ xed assets are included in operating proﬁ t/loss. Leases The Group has entered into various operating lease contracts. The related payments are treated as rentals and recognized in the income statement on a straight-line basis over the lease terms unless another systematic approach is more represent- ative of the pattern of the user’s beneﬁ t. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using standard cost, which ap- proximates actual cost on a FIFO (First-in First-out) basis. Net realizable value is the amount that can be realized from the sale of the inventory in the normal course of business after allowing for the costs of realization. In addition to the cost of materials and direct labor, an ap- propriate proportion of production overhead is included in the inventory values. An allowance is recorded for excess inventory and obsoles- cence based on the lower of cost or net realizable value.  N O K I A I N 2 0 1 1 Financial assets The Group has classiﬁ ed its ﬁ nancial assets as one of the fol- lowing categories: available-for-sale investments, loans and receivables, ﬁ nancial assets at fair value through proﬁ t or loss and bank and cash. AVAILABLE-FOR-SALE INVESTMENTS The Group invests a portion of cash needed to cover pro- jected cash needs of its on-going operations in highly liquid, interest-bearing investments and certain equity instruments. The following investments are classiﬁ ed as available-for- sale based on the purpose for acquiring the investments as well as ongoing intentions: () Highly liquid, interest-bearing investments that are readily convertible to known amounts of cash with maturities at acquisition of less than  months, which are classiﬁ ed in the balance sheet as current available- for-sale investments, cash equivalents. Due to the high credit quality and short-term nature of these investments, there is an insigniﬁ cant risk of changes in value. () Similar types of investments as in category (), but with maturities at acquisi- tion of longer than  months, are classiﬁ ed in the balance sheet as current available-for-sale investments, liquid assets. () Investments in technology related publicly quoted equity shares, or unlisted private equity shares and unlisted funds, are classiﬁ ed in the balance sheet as non-current available- for-sale investments. Current ﬁ xed income and money-market investments are fair valued by using quoted market rates, discounted cash ﬂ ow analyses and other appropriate valuation models at the balance sheet date. Investments in publicly quoted equity shares are measured at fair value using exchange quoted bid prices. Other available-for-sale investments carried at fair value include holdings in unlisted shares. Fair value is esti- mated by using various factors, including, but not limited to: () the current market value of similar instruments, () prices established from a recent arm’s length ﬁ nancing transaction of the target companies, () analysis of market prospects and operating performance of the target companies taking into consideration the public market of comparable companies in similar industry sectors. The remaining available-for-sale investments are carried at cost less impairment, which are technology related investments in private equity shares and unlisted funds for which the fair value cannot be measured reliably due to non-existence of public markets or reliable valuation methods against which to value these assets. The investment and disposal decisions on these investments are business driven. All purchases and sales of investments are recorded on the trade date, which is the date that the Group commits to purchase or sell the asset. The changes in fair value of available-for-sale investments are recognized in fair value and other reserves as part of shareholders’ equity, with the exception of interest calculated using the eﬀ ective interest method and foreign exchange gains and losses on monetary assets, which are recognized directly in proﬁ t and loss. Dividends on available-for-sale equity instruments are recognized in proﬁ t and loss when the Group’s right to receive payment is established. When the investment is disposed of, the related accumulated changes in fair value are released from shareholders’ equity and recog- nized in the income statement. The weighted average method is used when determining the cost-basis of publicly listed eq- uities being disposed of by the Group. FIFO (First-in First-out) method is used to determine the cost basis of ﬁ xed income securities being disposed of by the Group. An impairment is recorded when the carrying amount of an available-for-sale investment is greater than the estimated fair value and there is objective evidence that the asset is impaired including, but not limited to, counterparty default and other factors causing a reduction in value that can be considered other than tem- porary. The cumulative net loss relating to that investment is removed from equity and recognized in the income statement for the period. If, in a subsequent period, the fair value of the investment in a non-equity instrument increases and the increase can be objectively related to an event occurring after the loss was recognized, the loss is reversed, with the amount of the reversal included in the income statement. INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS, LIQUID ASSETS The investments at fair value through proﬁ t and loss, liquid assets include highly liquid ﬁ nancial assets designated at fair value through proﬁ t or loss at inception. For investments designated at fair value through proﬁ t or loss, the follow- ing criteria must be met: () the designation eliminates or signiﬁ cantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on a diﬀ erent basis; or () the assets are part of a group of ﬁ nancial assets, which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy. These investments are initially recorded at fair value. Subsequent to initial recognition, these investments are remeasured at fair value. Fair value adjustments and realized gain and loss are recognized in the income statement. LOANS RECEIVABLE Loans receivable include loans to customers and suppliers and are initially measured at fair value and subsequently at amor-  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 tized cost using the eﬀ ective interest method less impairment. Loans are subject to regular and thorough review as to their collectability and as to available collateral; in the event that any loan is deemed not fully recoverable, a provision is made to reﬂ ect the shortfall between the carrying amount and the present value of the expected cash ﬂ ows. Interest income on loans receivable is recognized by applying the eﬀ ective inter- est rate. The long-term portion of loans receivable is included on the statement of ﬁ nancial position under long-term loans receivable and the current portion under current portion of long-term loans receivable. BANK AND CASH Bank and cash consist of cash at bank and in hand. ACCOUNTS RECEIVABLE Accounts receivable are carried at the original amount due from customers, which is considered to be fair value, less allowances for doubtful accounts. Allowance for doubtful accounts is based on a periodic review of all outstanding amounts, where signiﬁ cant doubt about collectability exists, including an analysis of historical bad debt, customer concen- trations, customer creditworthiness, current economic trends and changes in our customer payment terms. Bad debts are written oﬀ when identiﬁ ed as uncollectible, and are included within other operating expenses. Financial liabilities LOANS PAYABLE Loans payable are recognized initially at fair value, net of transaction costs incurred. Any diﬀ erence between the fair value and the proceeds received is recognized in proﬁ t and loss at initial recognition. In subsequent periods, they are stated at amortized cost using the eﬀ ective interest method. The long-term portion of loans payable is included on the statement of ﬁ nancial position under long-term interest- bearing liabilities and the current portion under current por- tion of long-term loans. ACCOUNTS PAYABLE Accounts payable are carried at the original invoiced amount, which is considered to be fair value due to the short-term nature of the Group’s accounts payable. Derivative ﬁ nancial instruments All derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss varies according to whether the deriva- tives are designated and qualify under hedge accounting or not. Generally, the cash ﬂ ows of a hedge are classiﬁ ed as cash ﬂ ows from operating activities in the consolidated statement of cash ﬂ ows as the underlying hedged items relate to the company’s operating activities. When a derivative contract is accounted for as a hedge of an identiﬁ able position relating to ﬁ nancing or investing activities, the cash ﬂ ows of the contract are classiﬁ ed in the same manner as the cash ﬂ ows of the position being hedged. DERIVATIVES NOT DESIGNATED IN HEDGE ACCOUNTING RELATIONSHIPS CARRIED AT FAIR VALUE THROUGH PROFIT AND LOSS Fair values of forward rate agreements, interest rate options, futures contracts and exchange traded options are calculated based on quoted market rates at each balance sheet date. Discounted cash ﬂ ow analyses are used to value interest rate and currency swaps. Changes in the fair value of these con- tracts are recognized in the income statement. Fair values of cash settled equity derivatives are calculated based on quoted market rates at each balance sheet date. Changes in fair value are recognized in the income statement. Forward foreign exchange contracts are valued at the market forward exchange rates. Changes in fair value are measured by comparing these rates with the original contract forward rate. Currency options are valued at each balance sheet date by using the Garman & Kohlhagen option valuation model. Changes in the fair value on these instruments are recognized in the income statement. For the derivatives not designated under hedge account- ing but hedging identiﬁ able exposures such as anticipated foreign currency denominated sales and purchases, the gains and losses are recognized within other operating income or expenses. The gains and losses on all other hedges not desig- nated under hedge accounting are recognized under ﬁ nancial income and expenses. Embedded derivatives are identiﬁ ed and monitored by the Group and fair valued at each balance sheet date. In assessing the fair value of embedded derivatives, the Group employs a variety of methods including option pricing models and dis- counted cash ﬂ ow analysis using assumptions that are based on market conditions existing at each balance sheet date. Changes in fair value are recognized in the income statement.  N O K I A I N 2 0 1 1 Hedge accounting CASH FLOW HEDGES: HEDGING OF ANTICIPATED FOREIGN CURRENCY DENOMINATED SALES AND PURCHASES The Group applies hedge accounting for “Qualifying hedges”. Qualifying hedges are those properly documented cash ﬂ ow hedges of the foreign exchange rate risk of future antici- pated foreign currency denominated sales and purchases that meet the requirements set out in IAS . The cash ﬂ ow being hedged must be “highly probable” and must present an exposure to variations in cash ﬂ ows that could ultimately aﬀ ect proﬁ t or loss. The hedge must be highly eﬀ ective both prospectively and retrospectively. The Group claims hedge accounting in respect of certain forward foreign exchange contracts and options, or option strategies, which have zero net premium or a net premium paid, and where the critical terms of the bought and sold op- tions within a collar or zero premium structure are the same and where the nominal amount of the sold option component is no greater than that of the bought option. For qualifying foreign exchange forwards, the change in fair value that reﬂ ects the change in spot exchange rates is deferred in shareholders’ equity to the extent that the hedge is eﬀ ective. For qualifying foreign exchange options, or option strategies, the change in intrinsic value is deferred in share- holders’ equity to the extent that the hedge is eﬀ ective. In all cases, the ineﬀ ective portion is recognized immediately in the income statement as ﬁ nancial income and expenses. Hedging costs, expressed either as the change in fair value that reﬂ ects the change in forward exchange rates less the change in spot exchange rates for forward foreign exchange contracts, or changes in the time value for options, or options strategies, are recognized within other operating income or expenses. Accumulated changes in fair value from qualifying hedges are released from shareholders’ equity into the income state- ment as adjustments to sales and cost of sales, in the period when the hedged cash ﬂ ow aﬀ ects the income statement. If the hedged cash ﬂ ow is no longer expected to take place, all deferred gains or losses are released immediately into the income statement as adjustments to sales and cost of sales. If the hedged cash ﬂ ow ceases to be highly probable, but is still expected to take place, accumulated gains and losses remain in equity until the hedged cash ﬂ ow aﬀ ects the income statement. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting under IAS  are recog- nized immediately in the income statement. The changes in fair value of derivative instruments that directly relate to nor- mal business operations are recognized within other operating income and expenses. The changes in fair value from all other derivative instruments are recognized in ﬁ nancial income and expenses. CASH FLOW HEDGES: HEDGING OF FOREIGN CURRENCY RISK OF HIGHLY PROBABLE BUSINESS ACQUISITIONS AND OTHER TRANSACTIONS The Group hedges the cash ﬂ ow variability due to foreign currency risk inherent in highly probable business acquisitions and other future transactions that result in the recognition of non-ﬁ nancial assets. When those non-ﬁ nancial assets are recognized in the statement of ﬁ nancial position, the gains and losses previously deferred in equity are transferred from equity and included in the initial acquisition cost of the as- set. The deferred amounts are ultimately recognized in the proﬁ t and loss as a result of goodwill assessments in case of business acquisitions and through depreciation in the case of other assets. In order to apply for hedge accounting, the fore- casted transactions must be highly probable and the hedges must be highly eﬀ ective prospectively and retrospectively. The Group claims hedge accounting in respect of forward foreign exchange contracts, foreign currency denominated loans, and options, or option strategies, which have zero net premium or a net premium paid, and where the terms of the bought and sold options within a collar or zero premium struc- ture are the same. For qualifying foreign exchange forwards, the change in fair value that reﬂ ects the change in spot exchange rates is deferred in shareholders’ equity. The change in fair value that reﬂ ects the change in forward exchange rates less the change in spot exchange rates is recognized in the income statement within ﬁ nancial income and expenses. For qualifying foreign exchange options, the change in intrinsic value is deferred in shareholders’ equity. Changes in the time value are at all times recognized directly in the income statement as ﬁ nancial income and expenses. In all cases the ineﬀ ective portion is recognized immediately in the income statement as ﬁ nancial income and expenses. CASH FLOW HEDGES: HEDGING OF CASH FLOW VARIABILITY ON VARIABLE RATE LIABILITIES The Group applies cash ﬂ ow hedge accounting for hedging cash ﬂ ow variability on variable rate liabilities. The eﬀ ective portion of the gain or loss relating to interest rate swaps hedging vari- able rate borrowings is deferred in shareholders’ equity. The gain or loss relating to the ineﬀ ective portion is recognized immediately in the income statement as ﬁ nancial income and expenses. For hedging instruments closed before the maturity date of the related liability, hedge accounting will immediately discontinue from that date onwards, with all the cumulative  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 gains and losses on the hedging instruments recycled gradu- ally to income statement in the periods when the hedged vari- able interest cash ﬂ ows aﬀ ect the income statement. FAIR VALUE HEDGES The Group applies fair value hedge accounting with the objec- tive to reduce the exposure to ﬂ uctuations in the fair value of interest-bearing liabilities due to changes in interest rates and foreign exchange rates. Changes in the fair value of deriva- tives designated and qualifying as fair value hedges, together with any changes in the fair value of the hedged liabilities attributable to the hedged risk, are recorded in the income statement within ﬁ nancial income and expenses. If a hedge no longer meets the criteria for hedge accounting, hedge accounting ceases and any fair value adjustments made to the carrying amount of the hedged item during the periods the hedge was eﬀ ective are amortized to proﬁ t or loss based on the eﬀ ective interest method. HEDGES OF NET INVESTMENTS IN FOREIGN OPERATIONS The Group also applies hedge accounting for its foreign cur- rency hedging on net investments. Qualifying hedges are those properly documented hedges of the foreign exchange rate risk of foreign currency denominated net investments that meet the requirements set out in IAS . The hedge must be eﬀ ective both prospectively and retrospectively. The Group claims hedge accounting with respect to forward foreign exchange contracts, foreign currency denominated loans, and options, or option strategies, which have zero net premium or a net premium paid, and where the terms of the bought and sold options within a collar or zero premium struc- ture are the same. For qualifying foreign exchange forwards, the change in fair value that reﬂ ects the change in spot exchange rates is deferred in shareholders’ equity. The change in fair value that reﬂ ects the change in forward exchange rates less the change in spot exchange rates is recognized in the income statement within ﬁ nancial income and expenses. For qualifying foreign exchange options, the change in intrinsic value is deferred in shareholders’ equity. Changes in the time value are at all times recognized directly in the income statement as ﬁ nancial in- come and expenses. If a foreign currency denominated loan is used as a hedge, all foreign exchange gains and losses arising from the transaction are recognized in shareholders’ equity. In all cases, the ineﬀ ective portion is recognized immediately in the income statement as ﬁ nancial income and expenses. Accumulated changes in fair value from qualifying hedges are released from shareholders’ equity into the income statement only if the legal entity in the given country is sold, liquidated, repays its share capital or is abandoned. Income taxes The tax expense comprises current tax and deferred tax. Current taxes are based on the results of the Group compa- nies and are calculated according to local tax rules. Taxes are recognized in the income statement, except to the extent that it relates to items recognized in the other comprehensive in- come or directly in equity, in which case, the tax is recognized in other comprehensive income or equity, respectively. Deferred tax assets and liabilities are determined, for all temporary diﬀ erences arising between tax bases of assets and liabilities and their carrying amounts in the consolidated ﬁ nancial statements using liability method. Deferred tax assets are recognized to the extent that it is probable that future taxable proﬁ t will be available against which the unused tax losses or deductible temporary diﬀ erences can be utilized. Each reporting period they are assessed for realizability and when circumstances indicate it is no longer probable that deferred tax assets will be utilized, they are adjusted as neces- sary. Deferred tax liabilities are recognized for temporary dif- ferences that arise between the amounts initially recognized and the tax base of identiﬁ able net assets acquired in business combinations. Deferred tax assets and deferred tax liabilities are oﬀ set for presentation purposes when there is a legally enforceable right to set oﬀ current tax assets against current tax liabilities, and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or diﬀ erent tax- able 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 each future period in which signiﬁ cant amounts of deferred tax liabilities or assets are expected to be settled or recovered. The enacted or substantively enacted tax rates as of each balance sheet date that are expected to apply in the period when the asset is realized or the liability is settled are used in the measurement of deferred tax assets and liabilities. Provisions Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is prob- able that an outﬂ ow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. When the Group expects a provision to be reimbursed, the reimbursement is recognized as an asset only when the re- imbursement is virtually certain. The Group assesses the ad- equacy of its pre-existing provisions and adjusts the amounts as necessary based on actual experience and changes in future estimates at each balance sheet date.  N O K I A I N 2 0 1 1 WARRANTY PROVISIONS The Group provides for the estimated liability to repair or replace products under warranty at the time revenue is recognized. The provision is an estimate calculated based on historical experience of the level of volumes, product mix and repair and replacement cost. INTELLECTUAL PROPERTY RIGHTS (IPR) PROVISIONS The Group provides for the estimated future settlements relat- ed to asserted and unasserted past alleged IPR infringements based on the probable outcome of potential infringement. TAX PROVISIONS The Group recognizes a provision for tax contingencies based upon the estimated future settlement amount at each bal- ance sheet date. RESTRUCTURING PROVISIONS The Group provides for the estimated cost to restructure when a detailed formal plan of restructuring has been com- pleted, the restructuring plan has been announced by the Group and a reliable estimate of the amount can be made. OTHER PROVISIONS The Group recognizes the estimated liability for non-can- cellable purchase commitments for inventory in excess of forecasted requirements at each balance sheet date. The Group provides for onerous contracts based on the lower of the expected cost of fulﬁ lling the contract and the expected cost of terminating the contract. Share-based compensation The Group oﬀ ers three types of global equity settled share-based compensation schemes for employees: stock options, performance shares and restricted shares. Em- ployee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments as of the date of grant, excluding the impact of any non-market vesting conditions. Non-market vesting conditions attached to the performance shares are included in assumptions about the number of shares that the employee will ultimately receive. On a regular basis, the Group reviews the assumptions made and, where necessary, revises its estimates of the number of performance shares that are expected to be settled. Share-based compensation is recognized as an expense in the income statement over the service period. A separate vesting period is deﬁ ned for each quarterly lot of the stock options plans. When stock options are exercised, the proceeds received, net of any transaction costs, are credited to share issue premium and the reserve for invested non-restricted equity. Treasury shares The Group recognizes acquired treasury shares as a deduc- tion from equity at their acquisition cost. When cancelled, the acquisition cost of treasury shares is recognized in retained earnings. Dividends Dividends proposed by the Board of Directors are not record- ed in the ﬁ nancial statements until they have been approved by the shareholders at the Annual General Meeting. Earnings per share The Group calculates both basic and diluted earnings per share. Basic earnings per share is computed using the weight- ed average number of shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of shares outstanding during the period plus the dilutive eﬀ ect of stock options, restricted shares and performance shares outstanding during the period. Use of estimates and critical accounting judgments The preparation of ﬁ nancial statements in conformity with IFRS requires the application of judgment by management in selecting appropriate assumptions for calculating ﬁ nancial estimates, which inherently contain some degree of uncer- tainty. Management bases its estimates on historical experi- ence, expected outcomes and various other assumptions that are believed to be reasonable under the circumstances. The related results form a basis for making judgments about the reported carrying values of assets and liabilities and the reported amounts of revenues and expenses that may not be readily apparent from other sources. The Group will revise material estimates if changes occur in the circumstances on which an estimate was based or as a result of new informa- tion or more experience. Actual results may diﬀ er from these estimates under diﬀ erent assumptions or conditions. Set forth below are areas requiring signiﬁ cant judgment and estimation that may have an impact on reported results and the ﬁ nancial position. REVENUE RECOGNITION Majority of the Group’s sales are recognized as revenue when the signiﬁ cant risks and rewards of ownership have trans- ferred to the buyer, continuing managerial involvement usually associated with ownership and eﬀ ective control have ceased, the amount of revenue can be measured reliably, it is probable  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 that economic beneﬁ ts associated with the transaction will ﬂ ow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Sales could materially change if management’s assessment of such criteria was determined to be inaccurate. The Group enters into transactions involving multiple components consisting of any combination of hardware, services and software. The consideration received from these transactions is allocated to each separately identiﬁ able component based on the relative fair value of each component. The consideration allocated to each component is recognized as revenue when the revenue recognition criteria for that component have been met. Determination of the fair value for each component requires the use of estimates and judgment taking into consideration factors which may have a signiﬁ cant impact on the timing and amount of revenue recognition. Examples of such factors include price when the component is sold separately by the Group or the price when a similar component is sold sepa- rately by the Group or a third party. The Group makes price protection adjustments based on estimates of future price reductions and certain agreed customer inventories at the date of the price adjustment. Potential changes in these estimates could result in revisions to the sales in future periods. Revenue from contracts involving solutions achieved through modiﬁ cation of complex telecommunications equip- ment is recognized on the percentage of completion basis when the outcome of the contract can be estimated reliably. Recognized revenues and proﬁ ts are subject to revisions during the project in the event that the assumptions regard- ing the overall project outcome are revised. Current sales and proﬁ t estimates for projects may materially change due to the early stage of a long-term project, new technology, changes in the project scope, changes in costs, changes in timing, chang- es in customers’ plans, realization of penalties, and other corresponding factors, which may have a signiﬁ cant impact on the timing and amount of revenue recognition. CUSTOMER FINANCING The Group has provided a limited number of customer ﬁ nanc- ing arrangements and agreed extended payment terms with selected customers. Should actual ﬁ nancial position of the customers or general economic conditions diﬀ er from as- sumptions, the ultimate collectability of such ﬁ nancings and trade credits may be required to be re-assessed, which could result in a write-oﬀ of these balances and thus negatively impact proﬁ ts in future periods. From time to time the Group endeavors to mitigate this risk through transfer of its rights to the cash collected from these arrangements to third party ﬁ nancial institutions on a non-recourse basis in exchange for an upfront cash payment. ALLOWANCES FOR DOUBTFUL ACCOUNTS The Group maintains allowances for doubtful accounts for estimated losses resulting from subsequent inability of cus- tomers to make required payments. If the ﬁ nancial conditions of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required in future periods. INVENTORY-RELATED ALLOWANCES The Group periodically reviews inventory for excess amounts, obsolescence and declines in net realizable value below cost and records an allowance against the inventory balance for any such declines. These reviews require management to estimate future demand for products. Possible changes in these estimates could result in revisions to the valuation of inventory in future periods. WARRANTY PROVISIONS The Group provides for the estimated cost of product warran- ties at the time revenue is recognized. The Group’s warranty provision is established based upon best estimates of the amounts necessary to settle future and existing claims on products sold as of each balance sheet date. As new prod- ucts incorporating complex technologies are continuously introduced, and as local laws, regulations and practices may change, changes in these estimates could result in additional allowances or changes to recorded allowances being required in future periods. PROVISION FOR INTELLECTUAL PROPERTY RIGHTS, OR IPR, INFRINGEMENTS The Group provides for the estimated future settlements related to asserted and unasserted past alleged IPR infringe- ments based on the probable outcome of potential infringe- ment. IPR infringement claims can last for varying periods of time, resulting in irregular movements in the IPR infringement provision. The ultimate outcome or actual cost of settling an individual infringement may materially vary from estimates. LEGAL CONTINGENCIES Legal proceedings covering a wide range of matters are pending or threatened in various jurisdictions against the Group. Provisions are recorded for pending litigation when it is determined that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inher- ent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates.  N O K I A I N 2 0 1 1 CAPITALIZED DEVELOPMENT COSTS The Group capitalizes certain development costs when it is probable that a development project will generate future eco- nomic beneﬁ ts and certain criteria, including commercial and technological feasibility, have been met. Should a product fail to substantiate its estimated feasibility or life cycle, material development costs may be required to be written-oﬀ in future periods. BUSINESS COMBINATIONS The Group applies the acquisition method of accounting to account for acquisitions of businesses. The consideration transferred in a business combination is measured as the ag- gregate of the fair values of the assets transferred, liabilities incurred towards the former owners of the acquired business and equity instruments issued. Identiﬁ able assets acquired, and liabilities assumed by the Group are measured separately at their fair value as of the acquisition date. Non-controlling interests in the acquired business are 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 Nokia’s interest in the fair value of the identi- ﬁ able net assets acquired is recorded as goodwill. The allocation of fair values to the identiﬁ able assets acquired and liabilities assumed is based on various valuation assumptions requiring management judgment. Actual results may diﬀ er from the forecasted amounts and the diﬀ erence could be material. See also Note . 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 ex- pected future cash ﬂ ows attributable to the asset or cash-gen- erating unit discounted to present value. The key assumptions applied in the determination of recoverable amount include discount rate, length of an explicit forecast period, estimated growth rates, proﬁ t margins and level of operational and capital investment. Amounts estimated could diﬀ er materially from what will actually occur in the future. See also Note . FAIR VALUE OF DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS The fair value of ﬁ nancial instruments that are not traded in an active market (for example, unlisted equities, currency options and embedded derivatives) are determined using vari- ous valuation techniques. The Group uses judgment to select an appropriate valuation methodology as well as underlying assumptions based on existing market practice and condi- tions. Changes in these assumptions may cause the Group to recognize impairments or losses in future periods. INCOME TAXES Management judgment is required in determining current tax expense, tax provisions, deferred tax assets and liabilities and the extent to which deferred tax assets can be recognized. Each reporting period they are assessed for realizability and when circumstances indicate it is no longer probable that deferred tax assets will be utilized, they are adjusted as nec- essary. If the ﬁ nal outcome of these matters diﬀ ers from the amounts initially recorded, diﬀ erences may impact the income tax expense in the period in which such determination is made. Primarily in Finland and Germany but also in certain other jurisdictions the utilization of deferred tax assets is depend- ent on future taxable proﬁ t in excess of the proﬁ ts arising from reversal of existing taxable temporary diﬀ erences. The recognition of deferred tax assets is based upon whether it is more likely than not that suﬃ cient taxable proﬁ ts will be avail- able in the future from which the reversal of temporary diﬀ er- ences and tax losses can be deducted. Recognition therefore involves judgment with regard to future ﬁ nancial performance of a particular legal entity or tax group in which the deferred tax asset has been recognized. PENSIONS The determination of pension beneﬁ t obligation and expense for deﬁ ned beneﬁ t pension plans is dependent on the selec- tion of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, the discount rate, expected long-term rate of return on plan as- sets and annual rate of increase in future compensation levels. A portion of plan assets is invested in equity securities, which are subject to equity market volatility. Changes in assump- tions and actuarial conditions may materially aﬀ ect the pen- sion beneﬁ t obligation and future expense. See also Note . SHARE-BASED COMPENSATION The Group operates various types of equity settled share- based compensation schemes for employees. Fair value of stock options is based on certain assumptions, including, among others, expected volatility and expected life of the options. Non-market related vesting conditions attached to 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. Signiﬁ cant diﬀ erences in equity market performance, em-  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 ployee option activity and the Group’s projected and actual net sales and earnings per share performance, may aﬀ ect future expense. See also Note . New accounting pronouncements under IFRS The Group will adopt the following new and revised standards, amendments and interpretations to existing standards issued by the IASB that are expected to be relevant to its operations and ﬁ nancial position: IFRS  Financial Instruments will change the classiﬁ cation, measurement and impairment of ﬁ nancial instruments based on the Group’s objectives for the related contractual cash ﬂ ows. IFRS  Consolidated Financial Statements establishes prin- ciples for the presentation and preparation of consolidated ﬁ nancial statements when an entity controls one or more other entities. IFRS  Joint Arrangements establishes that the legal form of an arrangement should not be the primary factor in the determination of the appropriate accounting for the arrange- ment. Party to a joint arrangement determines the type of joint arrangement in which it is involved by assessing its rights and obligations and then accounting for those rights and obli- gations in accordance with that type of joint arrangement. IFRS  Disclosure of Interests in Other Entities requires disclosure of information that enables users of ﬁ nancial state- ments to evaluate nature of, and risks associated with, its interests in other entities and the eﬀ ects of those interests on its ﬁ nancial position, ﬁ nancial performance and cash ﬂ ows. IFRS  Fair Value Measurement replaces fair value measure- ment guidance contained within individual IFRSs with a single, uniﬁ ed deﬁ nition of fair value in a single new IFRS standard. The new standard provides a framework for measuring fair value, related disclosure requirements about fair value meas- urements and further authoritative guidance on the applica- tion of fair value measurement in inactive markets. Amendments to IAS  Presentation of Financial Statements retains the ‘one or two statement’ approach at the option of the entity and only revises the way other comprehensive income is presented: Requiring separate subtotals for those elements which may be ‘recycled’ and those elements that will not. Amendment to IAS  Income Taxes provides clariﬁ cation for measurement of deferred taxes in situations where an asset is measured using the fair value model in IAS  Investment Property by introducing a presumption that the carrying amount of the underlying asset will be recovered through sale. Amended IAS  Employee Beneﬁ ts discontinues the use of the ‘corridor’ approach and re-measurement impacts will be recognized in other comprehensive income (with the remain- der in proﬁ t or loss). Other long-term beneﬁ ts are required to be measured in the same way even though changes in the rec- ognized amount are fully reﬂ ected in proﬁ t or loss. Treatment for termination beneﬁ ts, speciﬁ cally the point in time when an entity would recognize a liability for termination beneﬁ ts is also revised. Amendments to IAS  and IAS  will be adopted on January , . The Group expects to adopt the new standards IFRS , IFRS , IFRS  and IFRS  as well as the amended IAS  on their eﬀ ective date, January , . On  December , the IASB amended the eﬀ ective date of IFRS  to annual periods beginning on or after  January , and modiﬁ ed the relief from restating comparative periods and the associated disclosures in IFRS . The Group will adopt the standard on the revised eﬀ ective date. The Group is currently evaluating potential impact of the new standards on its accounts. 2. SEGMENT INFORMATION Nokia has three businesses: Devices & Services, Location & Commerce and Nokia Siemens Networks, and four operating and reportable segments for ﬁ nancial reporting purposes: Smart Devices and Mobile Phones within our Devices & Services business, Location & Commerce and Nokia Siemens Networks. Nokia’s reportable segments represent the strategic busi- ness units that oﬀ er diﬀ erent products and services. The chief operating decision maker receives monthly ﬁ nancial infor- mation for these business units. Key ﬁ nancial performance measures of the reportable segments include primarily net sales and contribution/operating proﬁ t. Segment contribution for Smart Devices and Mobile Phones consists of net sales as well as its own, directly assigned costs and allocated costs but exclude major restructuring projects/programs and certain other items that are not directly related to the segments. Operating Proﬁ t is presented for Location & Commerce and Nokia Siemens Networks. Nokia evaluates the performance of its segments and allocates resources to them based on operating proﬁ t/contribution. Smart Devices focuses on smartphones and smart devices and has proﬁ t-and-loss responsibility and end-to-end account- ability for the full consumer experience, including product development, product management and product marketing. Mobile Phones focuses on mass market feature phones and related services and applications and has proﬁ t-and-loss re- sponsibility and end-to-end accountability for the full consumer experience, including development, management and market- ing of feature phone products, services and applications.  N O K I A I N 2 0 1 1 Devices & Services Other includes net sales of Vertu, spare parts and related cost of sales and operating expenses, as well as intellectual property related royalty income. Operating expenses of Devices & Services Other also include common re- search and development. Other income and expenses include major restructuring projects/programs related to the Devices & Services business as well as other unallocated items. Location & Commerce develops a range of location-based products and services for consumers, as well as platform services and local commerce services for the Group’s feature phones and smartphones as well as for other device manu- facturers, application developers, Internet service provid- ers, merchants, and advertisers. Location & Commerce also continues to serve NAVTEQ’s existing customers both in terms of provision of content and as a business-to-business provider of map data. Location & Commerce has proﬁ t and loss respon- sibility and end-to-end accountability for the full consumer experience. Nokia Siemens Networks provides a portfolio of mobile, ﬁ xed and converged network technology, as well as profes- sional services including managed services, consultancy and systems integration, deployment and maintenance to opera- tors and service providers. Corporate Common Functions consists of company-wide functions. In February , Nokia announced a partnership with Micro- soft to bring together the respective complementary assets and expertise of both parties to build a new global mobile eco- system for smartphones. The partnership, under which Nokia is adopting and licensing Windows Phone from Microsoft as its primary smartphone platform, was formalized in April . The Group is paying Microsoft a software royalty fee to license the Windows Phone smartphone platform, which the Group records as royalty expense in its Smart Devices cost of goods sold. Nokia has a competitive software royalty structure, which includes annual minimum software royalty commitments and reﬂ ects the large volumes that the Group expects to ship, as well as a variety of other considerations related to engineer- ing work to which both companies are committed. The Group expects that the adoption of Windows Phone will enable it to reduce signiﬁ cantly its operating expenses. The Microsoft partnership also recognizes the value of intel- lectual property and puts in place mechanisms for exchanging intellectual property rights. Nokia adopted its current operational structure during . As of April ,  Devices & Services business, previously a reportable segment itself, has two operating and reportable segments; Smart Devices and Mobile Phones as well as Devices & Services Other. As of October , , Location & Commerce, was formed by combining the NAVTEQ business, previously a reportable segment itself, with Devices & Services social location services operations. Prior period results have been regrouped and recast for comparability purposes according to the new organizational structure. Majority of impacted amounts relate to operating expenses which were previously recorded in Devices & Services and subsequently transferred to Location & Commerce, and which speciﬁ cally related to social location services operations. In order to consistently reﬂ ect where the economic value of location services is created, the recast also impacted cost of sales by reportable segment. Amounts that were previ- ously reported within Devices & Services Other cost of sales and Smart Devices cost of sales were transferred to Location & Commerce cost of sales. As a consequence of the higher value add performed in Location & Commerce, the recasted numbers also reﬂ ect a higher internal transfer price, which impacted Location & Commerce net sales positively and Smart Devices cost of sales negatively. The internal transfer price represents revenue to Location & Commerce and cost of sales to Smart Devices. Location & Commerce will be responsible for developing the services going forward and these services will continue to be delivered to customers and consumers by Devices & Services in combination with our devices. In order to consistently re- ﬂ ect deferral of services revenue over the service period, the recast also had an impact on Location & Commerce revenue and corporate eliminations. The accounting policies of the segments are the same as those described in Note . Nokia accounts for intersegment revenues and transfers as if the revenues were to third parties, that is, at current market prices. No single customer represents % or more of Group In recognition of the contributions that the Group is pro- revenues. viding, the Group will receive quarterly platform support payments from Microsoft. The received platform support payments are recognized over time as a beneﬁ t to our Smart Devices costs of goods sold. The total amount of the platform payments is expected to slightly exceed the total amount of the minimum software royalty commitments.  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 Corporate Common Functions and Corporate un- allocated.4, 6 Elimina- tions Group 2011, EURm Proﬁ t and loss information Smart Mobile Phones Devices Net sales to external customers 10 818 11 930 1 178 23 926 Devices & Services Devices & Other Nokia Location & Siemens Services Commerce Networks Net sales to other segments Depreciation and amortization Impairment 1 Contribution Operating proﬁ t (+)/loss (–) 1 2 18 — — 20 2 15 315 168 – 411 1 481 – 186 Share of results of associated companies — — 18 — 213 21 2 367 1 999 4 299 Balance sheet information Capital expenditures 2 Segment assets 3 of which: 17 353 170 884 — 252 8 665 698 393 491 1 091 14 035 6 711 19 – 1 526 1 – 300 – 17 — — 7 58 – 131 – 7 38 659 – 416 — 1 562 1 338 – 1 073 – 23 43 302 — 597 5 257 11 310 13 505 – 2 532 36 205 Investments in associated companies — — — — 4 29 34 67 Segment liabilities 5 2 528 1 270 5 696 9 494 2 812 7 520 4 995 – 2 532 22 289 2010, EURm Proﬁ t and loss information Net sales to external customers 14 870 13 696 Net sales to other segments Depreciation and amortization Impairment Contribution Operating proﬁ t (+)/loss (–) Share of results of associated companies — Balance sheet information Capital expenditures 2 Segment assets 3 of which: 3 38 — — 17 — 552 13 350 — 1 376 2 327 – 163 — 13 — 256 31 2 924 1 905 4 725 29 118 16 405 — 3 540 — 300 9 554 668 201 519 — 12 660 1 843 2 – 663 2 – 686 11 — — 4 13 – 113 – 12 73 306 — 42 446 – 218 — 1 771 15 – 8 2 070 1 679 6 742 10 621 14 754 – 2 548 39 123 Investments in associated companies — 7 42 87 136 Segment liabilities 5 3 064 1 417 5 627 10 108 3 009 7 190 5 133 – 2 548 22 892 2009, EURm Proﬁ t and loss information Net sales to external customers 12 640 14 644 557 27 841 Net sales to other segments Depreciation and amortization Impairment 1 Contribution Operating proﬁ t (+)/loss (–) 1 9 35 — — 17 — 3 380 56 1 438 2 240 – 114 12 432 56 Share of results of associated companies — — — 579 177 488 — 12 564 10 860 919 3 564 — – 594 – 1 639 — 32 — — 4 34 – 134 – 2 40 984 – 199 — 1 784 1 009 1 197 30  Location & Commerce operating loss in  includes a goodwill impair- ment loss of EUR   million. Nokia Siemens Networks operating loss in  includes a goodwill impairment loss of EUR  million.  Including goodwill, capital expenditures in  amount to EUR  million (EUR  million in ). The goodwill consists of EUR  million in  (EUR  million in ) for Devices & Services, EUR  million in  (EUR  million in ) for Location & Commerce, EUR  million in  (EUR  million in ) for Nokia Siemens Networks, and EUR  million in  (EUR  million in ) for Corporate Common Functions.  Comprises intangible assets, property, plant and equipment, invest- ments, 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, Location & Commerce and Nokia Siemens Networks’ assets include cash and other liquid assets, available-for-sale investments, long-term loans receiv- able and other financial assets as well as interest and tax related prepaid expenses and accrued income. These are directly attributable to Location & Commerce and Nokia Siemens Networks.  Unallocated assets include cash and other liquid assets, available-for-sale investments, long-term loans receivable and other financial assets as well as interest and tax related prepaid expenses and accrued income for Devices & Services and Corporate Common Functions.  Comprises accounts payable, accrued expenses and provisions except those related to interest and taxes for Devices & Services and Corporate Common Functions. In addition, Location & Commerce’s and Nokia Sie- mens Networks’ liabilities include non-current liabilities and short-term borrowings as well as interest and tax related prepaid income and accrued expenses and provisions. These are directly attributable to Location & Commerce and Nokia Siemens Networks.  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.  N O K I A I N 2 0 1 1 Net sales to external customers by geographic area by location of customer, EURm 4. PER SONNEL E XPENSE S 2011 2010 2009 EURm 2011 2010 2009 Finland China India Brazil Russia Germany Japan USA UK Italy Other Total 317 6 130 2 923 1 901 1 843 1 606 1 539 1 405 996 982 371 7 149 2 952 1 506 1 744 2 019 730 1 630 1 470 1 266 390 5 990 2 809 1 333 1 528 1 733 312 1 731 1 916 1 252 19 017 21 609 21 990 38 659 42 446 40 984 Segment non-current assets by geographic area 7, EURm 2011 2010 Finland China India Germany UK USA Other Total 894 472 185 192 120 4 732 1 497 8 092 1 501 402 210 209 236 6 079 1 008 9 645  Comprises intangible and tangible assets and property, plant and equipment. 3. PERCENTAGE OF COMPLE TION Contract sales recognized under percentage of completion accounting are EUR   million in  (EUR   million in  and EUR   million in ). Services revenue for managed services and network maintenance contracts are EUR   million in  (EUR   million in  and EUR   million in ). Advances received related to construction contracts, included in accrued expenses and other liabilities, are EUR  million at December ,  (EUR  million in ). Included in accounts receivable are contract revenues recorded prior to billings EUR   million at December ,  (EUR   mil- lion in ) and billings in excess of costs incurred are EUR  million at December ,  (EUR  million in ). The aggregate amount of costs incurred and recognized proﬁ ts (net of recognized losses) under construction contracts in progress since inception is EUR   million at December ,  (EUR   million in ). Retentions related to construction contracts, included in accounts receivable, are EUR  million at December ,  (EUR  million at December , ). Wages and salaries 6 284 5 808 5 658 Share-based compensation expense, total Pension expenses, net Other social expenses Personnel expenses as per income statement 18 445 787 48 431 708 13 427 649 7 534 6 995 6 747 Share-based compensation expense includes pension and other social costs of EUR  million in  (EUR  million in  and EUR –  million in ) based on the related employee beneﬁ t charge recognized during the year. Pension expenses, comprised of multi-employer, insured and deﬁ ned contribution plans were EUR  million in  (EUR  million in  and EUR  million in ). The re- mainder consists of expenses related to deﬁ ned beneﬁ t plans. Average personnel 2011 2010 2009 Devices & Services 54 850 56 896 54 987 Location & Commerce 7 187 6 766 5 757 Nokia Siemens Networks 71 825 65 379 62 129 Group Common Functions 309 314 298 Nokia Group 134 171 129 355 123 171 5. PENSIONS The Group operates a number of post retirement plans in vari- ous countries. These plans include both deﬁ ned contribution and deﬁ ned beneﬁ t schemes. The Group’s most signiﬁ cant deﬁ ned beneﬁ t pension plans are in Germany and in the UK. The majority of active employees in Germany participate in the pension scheme BAP (Beitragsorientierter Alterversorgungs Plan), formerly known as Beitragsorientierte Siemens Alterversorgung (“BSAV”). The funding vehicle for the BAP is the NSN Pension Trust e.V. In Germany, individual beneﬁ ts are generally dependent on eligible compensation levels, ranking within the Group and years of service. The majority of active employees in Nokia UK participate in a pension scheme which is designed according to the Scheme Trust Deeds and Rules and is compliant with the Guidelines of the UK Pension Regulator. The funding vehicle for the pen- sion scheme is Nokia Group (UK) Pension Scheme Ltd which is run on a Trust basis. In the UK, individual beneﬁ ts are gener- ally dependent on eligible compensation levels and years of service for the deﬁ ned beneﬁ t section of the scheme and on individual investment choices for the deﬁ ned contribution section of the scheme. The following table sets forth the changes in the beneﬁ t obligation and fair value of plan assets during the year and the funded status of the signiﬁ cant deﬁ ned beneﬁ t pension plans showing the amounts that are recognized in the Group’s consolidated statement of ﬁ nancial position at December :  Present value of deﬁ ned beneﬁ t obligations at end of year – 1 737 – 1 544 Prepaid (+)/accrued (–) pension costs at end of year 1 1 494 1 330  Included within prepaid expenses and accrued income/accrued expense . 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 Movements in prepaid/accrued pension costs recognized in the statement of financial position are as follows: EURm Prepaid (+)/accrued (–) pension costs at beginning of year Net income (+)/expense (–) recognized in the proﬁ t and loss account Contributions paid Beneﬁ ts paid Business combinations Foreign exchange 2011 2010 – 84 – 106 – 49 – 54 54 9 – 2 2 62 14 2 – 2 – 70 – 84 The accrued pension cost above is made up of a prepayment of EUR  million (EUR  million in ) and an accrual of EUR  million (EUR  million in ). EURm 2011 2010 2009 2008 2007 Present value of deﬁ ned beneﬁ t obligations Plan assets at fair value Surplus (+)/ deﬁ cit (–) – 1 737 – 1 544 – 1 411 – 1 205 – 2 266 1 657 1 494 1 330 1 197 2 174 – 80 – 50 – 81 – 8 – 92 Experience adjustments arising on plan obligations amount to a gain of EUR  million in  (gain of EUR  million in , a loss of EUR  million in , a gain of EUR  million in , a loss of EUR  million in ). Experience adjustments arising on plan assets amount to a loss of EUR  million in  (a gain of EUR  million in , EUR  million in , a loss of EUR  million in , EUR  million in ). The principal actuarial weighted average assumptions used were as follows: % Discount rate for determining present values Expected long-term rate of return on plan assets Annual rate of increase in future compensation levels 2011 2010 4.9 4.5 2.4 2.0 5.1 5.1 2.6 2.0 EURm Present value of deﬁ ned beneﬁ t obligations at beginning of year 2011 2010 – 1 544 – 1 411 Foreign exchange Current service cost Interest cost Plan participants’ contributions Past service cost Actuarial gain (+)/loss (–) Business combinations Curtailment Settlements Beneﬁ ts paid Other movements 1 – 3 – 59 – 83 – 9 – 1 – 26 — 8 17 46 – 83 – 49 – 61 – 78 – 8 – 1 1 – 1 1 17 46 — 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 Beneﬁ ts paid Settlements Business combinations Other movements 1 4 77 – 14 54 9 – 37 – 11 – 2 83 44 76 9 62 8 – 32 – 6 3 — Plan assets at fair value at end of year 1 657 1 494 Deﬁ cit 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 ﬁ nancial position – 80 – 50 10 1 – 26 1 – 1 – 9 – 70 – 84  The Group has reclassified an existing plan as a defined benefit plan due to requirement to cover for shortfall in return on plan assets. This reclassification did not have a material impact on the Group’s financial statements. Present value of obligations include EUR  million (EUR  million in ) of wholly funded obligations, EUR   million of partly funded obligations (EUR  million in ) and EUR  million (EUR  million in ) of unfunded obligations. The amounts recognized in the income statement are as follows: EURm Current service cost Interest cost 59 83 61 78 – 76 55 69 – 70 Expected return on plan assets – 77 Net actuarial gains (–)/losses (+) recognized in year 7 – 1 – 9 Impact of paragraph 58 (b) limitation Past service cost gain (–)/loss (+) Curtailment Settlement Total, included in personnel expenses – 7 1 – 11 – 6 3 1 – 1 – 11 5 — — — 49 54 50 2011 2010 2009 Pension increases The expected long-term rate of return on plan assets is based on the expected return multiplied with the respective percentage weight of the market-related value of plan assets. The expected return is deﬁ ned on a uniform basis, reﬂ ecting long-term historical returns, current market conditions and strategic asset allocation. The Group’s pension plan weighted average asset allocation as a percentage of Plan Assets at December , , and , by asset category are as follows:  N O K I A I N 2 0 1 1 % Asset category: Equity securities Debt securities Insurance contracts Short-term investments Other Total 2011 2010 activities to Accenture, which resulted in the transfer of ap- proximately   employees to Accenture. 20 62 8 3 7 23 57 8 4 8 100 100 The objective of the investment activities is to maximize the excess of plan assets over projected beneﬁ t obligations, within an accepted risk level, taking into account the interest rate and inﬂ ation sensitivity of the assets as well as the obligations. Derivative instruments can be used to change the portfolio asset allocation and risk characteristics. The foreign pension plan assets include a self investment through a loan provided to Nokia by the Group’s German pen- sion fund of EUR  million (EUR  million in ). See Note . The actual return on plan assets was EUR  million in  (EUR  million in ). In , the Group expects to make contributions of EUR  million to its deﬁ ned beneﬁ t pension plans. 6. E XPENSE S BY NATURE EURm 2011 2010 2009 Cost of material 18 331 20 917 19 502 Personnel expenses 7 534 6 995 6 747 Depreciation and amortization 1 562 1 771 1 784 Advertising and promotional expenses Warranty costs 1 212 1 291 1 335 671 894 696 Other costs and expenses 8 554 8 616 8 643 Total of Cost of sales, Research and development, Selling and marketing and Administrative and general expenses In , other income includes a refund of customs duties of EUR  million, a gain on sale of assets and a business of EUR  million and a gain on sale of the wireless modem business of EUR  million impacting Devices & Services operating proﬁ t. The wireless modem business was responsible for develop- ment of Nokia’s wireless modem technologies for LTE, HSPA and GSM standards. The wireless modem business included Nokia’s wireless modem technologies for LTE, HSPA and GSM standards, certain related patens and approximately   Nokia R&D pro- fessionals, the vast majority of whom were located in Finland, India, the UK and Denmark. The sale was closed on November , . Other expenses included restructuring charges of EUR  million, of which EUR  million is related to Devices & Services and EUR  million to Nokia Siemens Networks. The restructuring charges in Devices & Services mainly related to changes in Symbian Smartphones and Services organizations as well as certain corporate functions. Other income for  includes a gain on sale of security appliance business of EUR  million impacting Devices & Services operating proﬁ t and a gain on sale of real estate in Oulu, Finland, of EUR  million impacting Nokia Siemens Networks operating loss. In , other operating expenses includes EUR  million charges related to restructuring activities in Devices & Services due to measures taken to adjust the business operations and cost base according to market conditions. In conjunction with the decision to refocus its activities around speciﬁ ed core assets, Devices & Services recorded impairment charges totaling EUR  million for intangible assets arising from the acquisitions of Enpocket and Intellisync and the asset acquisition of Twango. In all three years presented “Other income and expenses” include the costs of hedging forecasted sales and purchases (forward points of cash ﬂ ow hedges) and fair value changes of derivatives hedging identiﬁ able and probable forecasted cash ﬂ ows. 37 864 40 484 38 707 8. IMPAIRMENT 7. OTHER INCOME AND E XPENSE S Other income totaled EUR  million in  (EUR  million in  and EUR  million in ). Other expenses totaled EUR  million in  (EUR  million in  and EUR  million in ). In , other operating income includes a beneﬁ t from a cartel claim settlement of EUR  million. Other expenses in- cluded restructuring charges of EUR  million and associated impairments of EUR  million. Restructuring charges included EUR  million related to Devices & Services, recorded within Devices & Services other, EUR  million related to Location & Commerce and EUR  million to Nokia Siemens Networks, respectively. Other expenses also included an impairment of shares in an associated company of EUR  million. In addi- tion other expenses included a consideration paid related to the Accenture transaction of EUR  million. Nokia agreed to outsource its Symbian software development and support  EURm Goodwill Other intangible assets Property, plant and equipment 104 Inventories Investments in associated companies Available-for-sale investments Other assets Total, net 2011 2010 2009 1 090 2 7 41 94 — — — — — — 107 3 908 56 1 — 19 25 — 1 338 110 1 009 Goodwill Goodwill is allocated to the Group’s cash-generating units (CGU) for the purpose of impairment testing. The allocation is made to those cash-generating units that are expected to beneﬁ t from the synergies of the business combination in which the goodwill arose. In , the Group has allocated goodwill to four cash-generating units, which correspond to the Group’s reportable segments: Smart Devices CGU, Mobile Phones CGU, Location & Commerce CGU and Nokia Siemens Networks CGU. For the purposes of the Group’s  annual impairment testing, the amount of goodwill previously allocat- ed in  to the Devices & Services CGU has been reallocated to the Smart Devices CGU and the Mobile Phones CGU based on their relative fair values. Based on the Group’s assessment, no goodwill was allocated from Devices & Services to Loca- tion & Commerce pursuant to the formation of Location & Commerce business unit and segment on October , . The organizational changes were not a driver of, and did not result in an impairment in the Location & Commerce CGU. The recoverable amounts for the Smart Devices CGU and the Mobile Phones CGU are based on value in use calculations. A discounted cash ﬂ ow calculation was used to estimate the value in use for both CGUs. Cash ﬂ ow projections determined by management are based on information available, to reﬂ ect the present value of the future cash ﬂ ows expected to be derived through the continuing use of the Smart Devices CGU and the Mobile Phones CGU. The recoverable amounts for the Location & Commerce CGU and the Nokia Siemens Networks CGU are based on fair value less costs to sell. A discounted cash ﬂ ow calculation was used to estimate the fair value less costs to sell for both CGUs. The cash ﬂ ow projections employed in the discounted cash ﬂ ow calculation have been determined by management based on the information available, to reﬂ ect the amount that an entity could obtain from separate disposal of each of the Location & Commerce CGU and the Nokia Siemens Networks CGU, in an arm’s length transaction between knowledgeable, willing par- ties, after deducting the estimated costs of disposal. The cash ﬂ ow projections employed in the value in use and the fair value less costs to sell calculations are based on detailed ﬁ nancial plans approved by management, covering a three-year planning horizon. Cash ﬂ ows in subsequent periods reﬂ ect a realistic pattern of slowing growth that declines towards an estimated terminal growth rate utilized in the terminal period. The terminal growth rate utilized does not exceed long-term average growth rates for the industry and economies in which the CGU operates. All cash ﬂ ow projections are consistent with external sources of information, wherever available. Goodwill amounting to EUR  million, EUR  million and EUR  million was allocated to the Smart Devices CGU, Mobile Phones CGU and Nokia Siemens Networks CGU, respectively, at the date of the  impairment testing. The goodwill impair- ment testing conducted for the aforementioned CGUs did not result in any impairment charges for the year ended December , . In the fourth quarter of , the Group conducted annual impairment testing for the Location & Commerce CGU to as- sess if events or changes in circumstances indicated that the carrying amount of the Location & Commerce CGU was not recoverable. As a result, the Group recorded an impairment loss of EUR   million to reduce the carrying amount of the Location & Commerce CGU to its recoverable amount. The impairment loss was allocated in its entirety to the carrying amount of goodwill in the balance sheet of the Location & Commerce CGU. This impairment loss is presented as impair- ment of goodwill in the consolidated income statement. As a result of the impairment loss, the amount of goodwill allocat- 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 ed to the Location & Commerce CGU has been reduced to EUR   million at December , . The impairment charge is the result of an evaluation of the projected ﬁ nancial performance and net cash ﬂ ows of the Location & Commerce CGU. The main drivers for manage- ment’s net cash ﬂ ow projections include license fees related to digital map data, fair value of the services sold within the Group and estimated average revenue per user with regard to mobile media advertising. The average revenue per user is estimated based on peer market data for mobile advertising revenue. Projected device sales volumes impact the overall forecasted intercompany and advertising revenues. This takes into consideration the market dynamics in digital map data and related location-based content markets, including the Group’s long-term view that the market will move from fee- based models towards advertising-based models especially in some more mature markets. It also reﬂ ects recently an- nounced results and related competitive factors in local search and advertising markets resulting in lower estimated growth prospects from location-based assets integrated with diﬀ er- ent advertising platforms. After consideration of all relevant factors, the Group reduced the net sales projections for the Location & Commerce CGU which, in turn, reduced projected proﬁ tability and cash ﬂ ows. The Group has concluded that the recoverable amount for the Location & Commerce CGU is most sensitive to the valua- tion assumptions for discount rate and long-term growth rate. A reasonably possible increase in the discount rate or decrease in long-term growth rate would give rise to an additional mate- rial impairment loss. The key assumptions applied in the impairment testing analysis for each CGU are presented in the table below: Cash-generating unit Smart Devices % Nokia Mobile Location & Siemens Phones Commerce Networks % % % Terminal growth rate Post-tax discount rate Pre-tax discount rate 1.9 9.0 1.5 9.0 3.1 9.7 1.0 10.4 12.2 13.1 13.1 13.8 Both value in use of Smart Devices CGU and Mobile Phones CGU and fair value less costs to sell for Location & Commerce CGU and Nokia Siemens Networks CGU are determined on a pre-tax value basis using pre-tax valuation assumptions including pre-tax cash ﬂ ows and pre-tax discount rate. As market-based rates of return for the Group’s CGUs are avail- able only on a post-tax basis, the pre-tax discount rates are derived by adjusting the post-tax discount rates to reﬂ ect the speciﬁ c amount and timing of future tax cash ﬂ ows. The discount rates applied in the impairment testing for each CGU have been determined independently of capital structure reﬂ ecting current assessments of the time value of money and relevant market risk premiums. Risk premiums included in the determination of the discount rate reﬂ ect risks and uncertainties for which the future cash ﬂ ow estimates have not been adjusted.  N O K I A I N 2 0 1 1 In , the Group recorded an impairment loss of EUR  million to reduce the carrying amount of the Nokia Siemens Networks CGU to its recoverable amount. The impairment loss was allocated in its entirety to the carrying amount of goodwill arising from the formation of Nokia Siemens Networks and from subsequent acquisitions completed by Nokia Siemens Networks. As a result of the impairment loss, the amount of goodwill allocated to the Nokia Siemens Networks CGU in the year ended December , , was reduced to zero. Goodwill allocated to the Nokia Siemens Networks CGU has subsequent- ly increased during , primarily as a result of the acquisition of Motorola Solutions’ Networks business (see Note ). The goodwill impairment testing conducted for each of the Group’s CGUs for the year ended December ,  did not result in any impairment charges. Other intangible assets In conjunction with the Group’s decision to refocus its activi- ties around speciﬁ ed core assets, the Group recorded impair- ment charges in  totaling EUR  million for intangible as- sets arising from the acquisitions of Enpocket and Intellisync and the asset acquisition of Twango. The impairment charge was recognized in other operating expense and is included in Devices & Services Other. Property, plant and equipment and inventories The majority of  impairment losses recognized with re- spect to property, plant and equipment resulted from EUR  million charges related to the Group’s restructuring programs, including the closure of manufacturing operations in Cluj, Romania, and consolidation of other oﬃ ce sites. The charges were recorded in other operating expense and are included in Devices & Services Other. Investments in associated companies After application of the equity method, including recognition of the Group’s share of results of associated companies, the Group determined that recognition of impairment losses of EUR  million in  (EUR  million in , EUR  million in ) was necessary to adjust the Group’s investment in as- sociated companies to its recoverable amount. Available-for-sale investments The Group’s investment in certain equity and interest bearing securities held as available-for-sale suﬀ ered a permanent de- cline in fair value resulting in an impairment charge of EUR  million (EUR  million in , EUR  million in ). These impairment amounts are included within ﬁ nancial expenses and other operating expenses in the consolidated income statement. See also Note . 9. ACQUISITIONS Acquisitions in 2011 MOTOROLA On April ,  Nokia Siemens Networks completed its acquisition of assets related to Motorola Solutions’ networks business in exchange for a total consideration of EUR  million. The acquired business consists of Motorola’s wireless networks infrastructure equipment manufacturing and sales operations, including the GSM, CDMA, WCDMA, WiMAX and LTE product portfolios and services oﬀ erings. The acquisition is expected to strengthen the Group’s position in certain regions, particularly North America and Japan. The goodwill of EUR  million arising from the acquisition is attributable to the increased presence in these key markets and the as- sembled workforce. The majority of the goodwill acquired is expected to be deductible for income tax purposes. The following table summarizes the consideration paid, the fair value of assets acquired, liabilities assumed and the non-controlling interest at December , . The fair values of certain intangible and tangible assets acquired remain provisional as at December ,  pending ﬁ nalization of the valuation of those assets. Consequently, the goodwill is also provisional. Cash Fair value of installment payments receivable Total consideration Non-current assets Goodwill Developed technology Customer relationships Other intangible assets Property, plant & equipment Investments in associated companies Deferred tax assets Current assets Inventories Accounts receivable Prepaid expenses and accrued income Deferred tax assets Bank and cash Total assets acquired Non-current liabilities Other long-term liabilities Current liabilities Accounts payable Accrued expenses Deferred tax liabilities Provisions Total liabilities assumed Non-controlling interests Net assets acquired EURm 706 -64 642 155 156 195 3 509 105 6 1 621 103 228 20 35 31 417 1 038 15 15 154 166 15 30 365 380 16 642 Nokia Siemens Networks has concluded on a working capital adjustment settlement with respect to the acquisition where-  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 Acquisitions in 2009 During , the Group completed ﬁ ve acquisitions that did not have a material impact on the consolidated ﬁ nancial state- ments. The purchase consideration paid and the total goodwill arising from these acquisitions amounted to EUR  million and EUR  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 messag- ing service for private groups. The Group acquired certain assets of Plum on September , . • 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 % ownership interest in Dopplr on September , . • Huano Technology Co., Ltd, based in Changsha, China, is an infrastructure service provider with Nokia Siemens Networks as its primary customer. Nokia Siemens Networks increased its ownership interest in Huano from % to % on July , . • T-Systems Traﬃ c GmbH is a leading German provider of dy- namic mobility services delivering near real-time data about traﬃ c ﬂ ow and road conditions. The Group acquired a % ownership interest in T-Systems Traﬃ c on January , . • Acuity Mobile, based in Greenbelt, USA, is a leading provider of mobile marketing content delivery solutions. The Group acquired a % ownership interest in Acuity Mobile on September , . 10. DEPRECIATION AND AMORTIZ ATION EURm 2011 2010 2009 Depreciation and amortization by function Cost of sales Research and development 1 Selling and marketing 2 Administrative and general 227 674 442 219 248 906 426 191 266 909 424 185 Total 1 562 1 771 1 784   In , depreciation and amortization allocated to research and develop- ment included amortization of acquired intangible assets of EUR  million (EUR  million in  and EUR  million in ). In , depreciation and amortization allocated to selling and marketing included amortization of acquired intangible assets of EUR  million (EUR  million in  and EUR  million in ). by Motorola Solutions has agreed to make additional install- ment payments to Nokia Siemens Networks. The installment payments are subject to certain conditions that Nokia Siemens Networks must fulﬁ ll over a given time period. The maximum amount of installment payments totals EUR  million and Nokia Siemens Networks has determined that the fair value of the installment payments amounts to EUR  million of which EUR  million has been received at December , . The fair value of accounts receivables of EUR  million includes trade receivables with a fair value of EUR  million. The gross contractual amount for trade receivables due is EUR  million, of which EUR  million is expected to be uncol- lectible. Acquisition-related costs of EUR  million and EUR  million have been charged to administrative and general expenses in the consolidated income statement for the years ended December ,  and December , , respectively. From April , , the consolidated statement of compre- hensive income includes revenue and net loss contributed by the Motorola networks business of EUR  million and EUR  million, respectively. Had Motorola Networks business been consolidated from January , , the Group consolidated statement of income would show revenue of EUR   million and loss of EUR   million. This pro forma information is not necessarily indicative of the results of the combined operations, had the acquisition actually occurred on January , , nor is it indicative of the future results of the combined operations. During , the Group completed additional acquisitions that in aggregate did not have a material impact on the con- solidated ﬁ nancial statements. Acquisitions in 2010 During , the Group completed several minor acquisi- tions that did not have a material impact on the consolidated ﬁ nancial statements. The purchase consideration paid and the total goodwill arising from these acquisitions amounted to EUR  million and EUR  million, respectively. 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 geo- graphic intelligence solutions. The Group acquired a % ownership in MetaCarta on April , . • Novarra Inc, based in Chicago, USA, is a provider of a mobile browser and service platform with more than  em- ployees. The Group acquired a % ownership interest in Novarra on April , . • Motally Inc, a US-based company, provides mobile analytics services oﬀ ering in-application tracking and reporting. The Group acquired a % ownership interest in Motally on August  . • PixelActive Inc, based in California, USA, specialises in tools and techniques for D modeling of detailed road networks, buildings and terrain. The Group acquired a % ownership interest in PixelActive on November , .  N O K I A I N 2 0 1 1 11. FINANCIAL INCOME AND E XPENSE S EURm 2011 2010 2009 Dividend income on available-for-sale ﬁ nancial investments Interest income on available-for-sale ﬁ nancial investments Interest income on loans receivables carried at amortized cost Interest income on investments at fair value through proﬁ t and loss Net interest income / (expense) on derivatives not under hedge accounting Interest expense on ﬁ nancial liabilities carried at amortized cost Net realised gains (or losses) on disposal of ﬁ xed income available-for– sale ﬁ nancial investments Net fair value gains (or losses) on investments at fair value through proﬁ t and loss Net gains (net losses) on other derivatives designated at fair value through proﬁ t 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 Net foreign exchange gains (or losses) From foreign exchange derivatives designated at fair value through proﬁ t and loss From balance sheet items revaluation Other ﬁ nancial income Other ﬁ nancial expenses Total interest rates in EUR and USD had a positive impact on Net fair value gains (or losses) on investments at fair value through proﬁ t and loss but these gains were oﬀ set by the negative impact on Net gains (or losses) on other derivatives desig- nated at fair value through proﬁ t and loss that was aﬀ ected by similar factors. Foreign exchange gains (or losses) were positively impacted by low and in some cases negative hedging costs (i.e. income) in  as well as increased volatility on the foreign exchange market. During , interest income decreased signiﬁ cantly due to lower interest rates and interest expense has increased given higher long-term funding with a higher cost. 2 2 3 169 110 101 1 — — 18 28 11 12. INCOME TA XE S – 12 – 20 – 8 EURm 2011 2010 2009 – 255 – 254 – 243 – 4 1 2 102 – 3 19 – 121 19 – 7 Income tax Current tax Deferred tax Total Finland Other countries Total – 752 462 – 290 – 97 – 193 – 290 – 798 355 – 443 – 126 – 317 – 443 – 736 34 – 702 76 – 778 – 702 The diﬀ erences between income tax expense computed at statutory rate (in Finland %) and income taxes recognized in the consolidated income statement is reconciled as follows at December , : – 82 – 63 – 4 EURm 2011 2010 2009 72 58 — 74 58 – 358 – 34 49 – 81 – 102 – 165 73 – 129 – 285 230 18 – 29 – 265 Income tax expense (+)/beneﬁ t (–) at statutory rate Permanent diﬀ erences Non tax deductible impairment of goodwill 1 Taxes for prior years Taxes on foreign subsidiaries’ proﬁ ts in excess of (lower than) income taxes – 311 – 22 283 – 7 464 4 — – 48 250 – 96 236 – 17 at statutory rates – 73 – 195 – 145 Change in losses and temporary diﬀ erences with no tax eﬀ ect 2 Net increase (+)/decrease (–) in tax contingencies Change in income tax rates Deferred tax liability on undistributed earnings 3 Other Income tax expense  See Note . 280 221 577 7 39 62 32 290 24 2 – 31 2 443 – 186 4 111 – 32 702  This item primarily relates to Nokia Siemens Networks’ losses and tempo- rary differences for which no deferred tax was recognized. In  it also includes benefit of EUR  million from reassessment of recoverability of deferred tax assets in Nokia Siemens Networks.  In  the change in deferred tax liability on undistributed earnings mainly relates to changes to tax rates applicable to profit distributions. During , the Group received distributions of  million (EUR  million in ) included in other ﬁ nancial income from a private fund held as non-current available-for-sale. Due to these distributions resulting in a reduction in estimated future cash ﬂ ows, the Group also recognized an impairment loss of  million (EUR  million in ) for the fund included in other ﬁ nancial expenses. Due to deterioration of the Asset Backed Security market the Group recognized an impairment loss of  million in  (EUR  million in ) included in other ﬁ nancial expenses. Additional information can be found in Note  and Note . During , interest income increased mainly as a result of higher cash levels than in  and higher interest rates in certain currencies where the Group has investments. Lower  Certain of the Group companies’ income tax returns for periods ranging from  through  are under examina- tion by tax authorities. The Group does not believe that any signiﬁ cant additional taxes in excess of those already provided for will arise as a result of the examinations. 13. INTANGIBLE A SSE TS EURm Capitalized development costs Acquisition cost January 1 1 035 1 830 Impairments Retirements — — – 11 – 784 Accumulated acquisition cost December 31 1 035 1 035 Accumulated amortization January 1 – 995 – 1 687 Retirements Impairments Amortization — — – 34 Accumulated amortization December 31 – 1 029 Net book value January 1 Net book value December 31 40 6 784 11 – 103 – 995 143 40 Goodwill Acquisition cost January 1 6 631 6 079 Translation diﬀ erences Acquisitions Disposals 17 189 – 1 470 82 — Accumulated acquisition cost December 31 6 836 6 631 Accumulated impairments January 1 – 908 – 908 Impairments – 1 090 — Accumulated impairments December 31 – 1 998 – 908 Net book value January 1 Net book value December 31 5 723 5 171 4 838 5 723 Other intangible assets Acquisition cost January 1 5 437 5 287 Translation diﬀ erences Additions Acquisitions Retirements Impairments Disposals 83 53 366 – 23 – 2 – 37 216 58 21 – 142 — – 3 Accumulated acquisition cost December 31 5 877 5 437 Accumulated amortization January 1 – 3 509 – 2 525 Translation diﬀ erences Retirements Disposals Amortization – 84 21 25 – 42 125 2 – 924 – 1 069 Accumulated amortization December 31 – 4 471 – 3 509 Net book value January 1 Net book value December 31 1 928 2 762 1 406 1 928 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 14. PROPERT Y, PL ANT AND EQUIPMENT EURm 2011 2010 2011 2010 Accumulated acquisition cost December 31 Land and water areas Acquisition cost January 1 Acquisitions Impairments Disposals Net book value January 1 Net book value December 31 Buildings and constructions Acquisition cost January 1 Translation diﬀ erences Additions Acquisitions Impairments Disposals 57 9 – 4 — 62 57 62 59 — — – 2 57 59 57 1 414 1 312 3 86 32 – 124 – 31 69 86 — — – 53 Accumulated acquisition cost December 31 1 380 1 414 Accumulated depreciation January 1 – 453 Translation diﬀ erences Impairments Disposals Depreciation Accumulated depreciation December 31 Net book value January 1 Net book value December 31 — 40 13 – 119 – 519 961 861 – 385 – 19 — 41 – 90 – 453 927 961 Machinery and equipment Acquisition cost January 1 Translation diﬀ erences Additions Acquisitions Impairments Disposals 4 004 3 984 – 4 464 66 – 25 213 472 4 — – 427 – 669 Accumulated acquisition cost December 31 4 078 4 004 Accumulated depreciation January 1 – 3 185 – 3 168 Translation diﬀ erences Impairments Disposals Depreciation – 13 – 164 9 410 – 478 — 639 – 492 Accumulated depreciation December 31 – 3 257 – 3 185 Net book value January 1 Net book value December 31 819 821 816 819  N O K I A I N 2 0 1 1 EURm 2011 2010 Other tangible assets Acquisition cost January 1 Translation diﬀ erences Additions Disposals Accumulated acquisition cost December 31 Accumulated depreciation January 1 Translation diﬀ erences Disposals Depreciation Accumulated depreciation December 31 Net book value January 1 Net book value December 31 Advance payments and ﬁ xed assets under construction Net carrying amount January 1 Translation diﬀ erences Additions Acquisitions Disposals Transfers to: Other intangible assets Buildings and constructions Machinery and equipment Other tangible assets Net carrying amount December 31 56 – 3 11 – 7 57 – 37 3 7 – 7 – 34 19 23 98 — 57 1 — 2 – 42 – 38 – 3 75 47 6 15 – 12 56 – 27 – 2 9 – 17 – 37 20 19 45 3 92 — – 1 — – 20 – 10 – 11 98 Total property, plant and equipment 1 842 1 954 15. INVE STMENTS IN A SSOCIATED COMPANIE S EURm 2011 2010 Net carrying amount January 1 Translation diﬀ erences Additions Deductions Impairments (Note 8) Share of results Dividend Other movements Net carrying amount December 31 136 – 5 8 – 7 – 41 – 23 — – 1 67 69 3 63 – 6 — 1 – 1 7 136 Shareholdings in associated companies are comprised of investments in unlisted companies in all periods presented.  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 16. FAIR VALUE OF FINANCIAL INSTRUMENTS Carrying amounts Current available- for-sale ﬁ nancial assets Non-current available- for-sale ﬁ nancial assets Financial instruments at fair value Loans and receivables Financial liabilties through measured at measured at amortized amortized cost cost proﬁ t or loss At December 31, 2011, 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 Accounts receivable Current portion of long-term loans receivable Derivative assets Other current ﬁ nancial assets Fixed income and money-market investments carried at fair value Investments designated at fair value through proﬁ t and loss Total ﬁ nancial assets Long-term interest-bearing liabilities Other long-term non-interest bearing ﬁ nancial liabilities Current portion of long-term loans payable Short-term borrowings Other ﬁ nancial liabilities Accounts payable Total ﬁ nancial liabilities 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 ﬁ nancial assets Fixed income and money-market investments carried at fair value Investments designated at fair value through proﬁ t and loss Total ﬁ nancial assets Long-term interest-bearing liabilities Other long-term non-interest bearing ﬁ nancial liabilities Current portion of long-term loans payable Short-term borrowings Other ﬁ nancial liabilities Accounts payable Total ﬁ nancial liabilities — — — — — — — — 8 512 — 8 512 — — — — — — — — — — — — — — — — 9 413 — 9 413 — — — — — — — 7 359 215 — — — — — 60 — 641 — — — — — — — 8 293 232 — — — — — — — — 533 — — — — — — — — — — — — — 475 — — 433 908 — — — — 483 — 483 — — — — — — — 366 — — 911 1 277 — — — — 359 — 359 — — — 99 7 181 54 — 25 — — 7 359 — — — — — — — — — — 64 4 7 570 39 — 12 — — 7 689 — — — — — — — Total carrying amounts Fair value 7 7 359 359 215 99 215 97 7 181 7 181 54 475 25 54 475 25 8 572 8 572 433 433 17 420 17 418 — — — — — — — — — — — 3 969 3 969 3 929 3 357 995 — 3 357 995 483 3 357 995 483 5 532 10 856 5 532 5 532 11 339 11 299 — — — — — — — — — — — — 8 8 293 293 232 232 64 4 60 4 7 570 7 570 39 366 12 39 366 12 9 413 9 413 911 911 18 912 18 908 4 242 4 242 4 467 13 116 921 88 13 116 921 447 13 116 921 447 6 101 6 101 6 101 11 481 11 840 12 065  N O K I A I N 2 0 1 1 The current ﬁ xed income and money market investments in- cluded available for sale liquid assets of EUR   million (EUR   million in ) and cash equivalents of EUR   million (EUR   million in ). See Note , section Financial Credit Risk, for details on ﬁ xed income and money-market invest- ments. For information about the valuation of items measured at fair value see Note . In the tables above fair value is set to carrying amount for other available-for-sale investments carried at cost less impairment for which no reliable fair value has been possible to estimate. Fair value is estimated to be equal to the carrying amount for short-term ﬁ nancial assets and ﬁ nancial liabilities due to limited credit risk and short time to maturity. The Group had a non-controlling interest that includes a put arrangement measured at its redemption value of EUR  million at December ,  presented in Other ﬁ nancial liabilities. The put arrangement has been exercised in the ﬁ rst quarter of . The remaining portion of the line Other ﬁ nancial liabilities is comprised of derivative liabilities. Note  includes the split of hedge accounted and non- hedge accounted derivatives. The following table presents the valuation methods used to The fair value of loan receivables and payables is estimated based on the current market values of similar instruments. determine fair values of ﬁ nancial 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, 2011, EURm Fixed income and money-market investments carried at fair value Investments at fair value through proﬁ t 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, 2010, EURm Fixed income and money-market investments carried at fair value Investments at fair value through proﬁ t 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 8 540 433 7 — — 8 980 — — 9 215 911 8 — — 10 134 — — 32 — — 13 475 520 483 483 198 — — 14 366 578 359 359 Total 8 572 433 7 359 475 — — — 346 — 346 9 846 — — — — — 279 — 483 483 9 413 911 8 293 366 279 10 991 — — 359 359 Level  category includes ﬁ nancial assets and liabilities that are measured in whole or in signiﬁ cant part by reference to published quotes in an active market. A ﬁ nancial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, bro- ker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. This category includes listed bonds and other securities, listed shares and exchange traded derivatives. Level  category includes ﬁ nancial assets and liabilities measured using a valuation technique based on assumptions that are supported by prices from observable current market transactions. These include assets and liabilities for which pricing is obtained via pricing services, but where prices have not been determined in an active market, ﬁ nancial assets with fair values based on broker quotes and assets that are valued using the Group’s own valuation models whereby the material assumptions are market observable. The majority of Group’s over-the-counter derivatives and several other instruments not traded in active markets fall within this category. Level  category includes ﬁ nancial assets and liabilities measured using valuation techniques based on non market observable inputs. This means that fair values are determined in whole or in part using a valuation model based on assump- tions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data. However, the fair value measurement objective remains the same, that is, to estimate an exit price from the perspective of the Group. The main as- set classes in this category are unlisted equity investments as well as unlisted funds.  The following table shows a reconciliation of the opening and closing recorded amount of Level  ﬁ nancial assets which are measured at fair value: EURm Other available- for-sale investments carried at fair value Balance at December 31, 2009 Total gains/losses in income statement Total gains/losses recorded in other comprehensive income Purchases Sales Other transfers Balance at December 31, 2010 Total gains/losses in income statement Total gains/losses recorded in other comprehensive income Purchases Sales Other transfers Balance at December 31, 2011 242 3 – 11 78 – 34 1 279 – 22 51 81 – 47 4 346 The gains and losses from Level  ﬁ nancial instruments are included in other operating expenses for the respective period. A net loss of EUR  million (net loss of EUR  million in ) related to level  ﬁ nancial instruments held at December , , was included in the proﬁ t and loss during . 17. DERIVATIVE FINANCIAL INSTRUMENTS Assets Liabilities Fair value 1 Notional 2 value 1 Notional 2 Fair 56 1 584 – 179 2 810 107 7 464 – 117 7 540 2011, EURm Hedges of net investment in foreign subsidiaries: Forward foreign exchange contracts Cash ﬂ ow hedges: Forward foreign exchange contracts Fair value hedges Interest rate swaps 167 1 627 — Cash ﬂ ow and Fair value hedges: 3 Cross currency interest rate swaps 26 378 — Derivatives not designated in hedge accounting relationships carried at fair value through proﬁ t and loss: 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 Assets Liabilities Fair value 1 Notional 2 value 1 Notional 2 Fair 66 2 254 – 154 4 433 41 8 025 – 57 8 572 2010, EURm Hedges of net investment in foreign subsidiaries: Forward foreign exchange contracts Cash ﬂ ow hedges: Forward foreign exchange contracts Fair value hedges Interest rate swaps 128 1 550 – 8 76 Cash ﬂ ow and Fair value hedges: 3 Cross currency interest rate swaps — — – 6 378 Derivatives not designated in hedge accounting relationships carried at fair value through proﬁ t and loss: Forward foreign exchange contracts 73 5 349 – 69 7 956 Currency options bought 13 1 959 Currency options sold — — Interest rate swaps 45 1 028 — – 15 – 50 — 749 1 199 366 20 165 – 359 23 363  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.  Includes the gross amount of all notional values for contracts that have not yet been settled or cancelled. The amount of notional value out- standing is not necessarily a measure or indication of market risk, as the exposure of certain contracts may be offset by that of other contracts.  These cross-currency interest rate swaps have been designated partly as fair value hedges and partly as cash flow hedges. In addition to derivative liabilities the Group had a non- controlling interest that included a put arrangement measured at its redemption value of EUR  million at December ,  presented in Other ﬁ nancial liabilities. The put arrangement has been exercised in the ﬁ rst quarter of . — — 18. INVENTORIE S EURm Raw materials, supplies and other Work in progress Finished goods Total 2011 2010 789 516 762 642 1 025 1 119 2 330 2 523 19. PREPAID E XPENSE S AND ACCRUED INCOME Forward foreign exchange contracts 112 5 435 – 139 6 282 EURm 2011 2010 Social security, VAT and other taxes 1 906 1 690 Currency options bought 7 994 Currency options sold — Interest rate swaps Other derivatives — — — — 3 — – 6 – 41 – 1 — 721 552 38 Deferred cost of sales Other prepaid expenses and accrued income 475 17 485 – 483 17 943 Total 114 175 2 468 2 495 4 488 4 360  N O K I A I N 2 0 1 1 In , other prepaid expenses and accrued income includ- ed advance payments to Qualcomm of EUR   million (EUR   million in ). In , Nokia and Qualcomm entered into a new  year agreement, under the terms of which Nokia was granted a license to all Qualcomm’s patents for the use in Nokia mobile devices and Nokia Siemens Networks infra- structure equipment. The ﬁ nancial structure of the agree- ment included an upfront payment of EUR . 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 ﬂ ows, on a discounted basis, over the as- signed patents’ estimated useful life. Based on the valuation and underlying assumptions Nokia determined that the fair value of these patents were not material. Prepaid expenses and accrued income also include, ac- crued interest income and various other prepaid expenses and accrued income, but no amounts which are individually signiﬁ cant. 20. VALUATION AND QUALIF YING ACCOUNTS EURm Allowances on assets to which they apply: Balance at beginning of year Charged to cost and expenses Deductions 1 Balance at end of year 2011 Allowance for doubtful accounts Excess and obsolete inventory 2010 Allowance for doubtful accounts Excess and obsolete inventory 2009 Allowance for doubtful accounts Excess and obsolete inventory  Deductions include utilization and releases of the allowances. 363 301 391 361 415 348 131 345 117 124 155 192 – 210 – 189 – 145 – 184 – 179 – 179 284 457 363 301 391 361  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 RE SERVE S EURm Gross Tax Net Gross Tax Net Gross Tax Net Balance at December 31, 2008 101 – 20 81 – 29 10 – 19 72 – 10 62 Hedging reserve Available-for-sale investments Fair value and other reserves total Cash ﬂ ow hedges: Net fair value gains (+)/losses (–) – 19 6 – 13 Transfer of gains (–)/losses (+) to proﬁ t and loss account as adjustment to net sales Transfer of gains (–)/losses (+) to proﬁ t and loss account as adjustment to cost of sales 873 – 222 651 – 829 205 – 624 Available-for-sale investments: Net fair value gains (+)/losses (–) Transfer to proﬁ t and loss account on impairment Transfer of net fair value gains (–)/losses (+) to proﬁ t and loss account on disposal — — — Movements attributable to non-controlling interests – 65 — — — 16 Balance at December 31, 2009 61 – 15 — — — – 49 46 Cash ﬂ ow hedges: Net fair value gains (+)/losses (–) – 119 12 – 107 Transfer of gains (–)/losses (+) to proﬁ t and loss account as adjustment to net sales Transfer of gains (–)/losses (+) to proﬁ t and loss account as adjustment to cost of sales Available-for-sale investments: Net fair value gains (+)/losses(–) Transfer to proﬁ t and loss account on impairment Transfer of net fair value gains (–)/losses (+) to proﬁ t and loss account on disposal Movements attributable to non-controlling interests Balance at December 31, 2010 Cash ﬂ ow hedges: 357 – 57 300 – 379 70 – 309 — — — 50 – 30 — — — – 7 3 — — — 43 – 27 Net fair value gains (+)/losses (–) 106 – 25 81 Transfer of gains (–)/losses (+) to proﬁ t and loss account as adjustment to net sales Transfer of gains (–)/losses (+) to proﬁ t and loss account as adjustment to cost of sales Transfer of gains (–)/losses (+) as a basis adjustment to assets and liabilities 1 Available-for-sale investments: Net fair value gains (+)/losses (–) Transfer to proﬁ t and loss account on impairment Transfer of net fair value gains (–)/losses (+) to proﬁ t and loss account on disposal Movements attributable to non-controlling interests Balance at December 31, 2011 – 166 42 – 124 162 – 36 126 14 – 3 11 — — — – 8 78 — — — – 2 – 21 — — — – 10 57 67 22 – 19 — 96 — — — 36 14 – 2 – 2 17 — — — – 3 13 – 1 — 26 — — — — — — — – 4 — — — 6 — — — – 2 — — — 4 — — — — — – 2 – 1 — 1 — — — 32 14 – 2 – 2 23 — — — – 5 13 – 1 — 30 — — — — 67 20 – 20 — 97 – 19 6 – 13 873 – 222 651 – 829 205 – 624 36 14 – 2 – 67 78 – 4 — — 16 – 9 32 14 – 2 – 51 69 – 119 12 – 107 357 – 57 300 – 379 70 – 309 – 3 13 – 1 50 – 4 – 2 — — – 7 7 – 5 13 – 1 43 3 106 – 25 81 – 166 42 – 124 162 – 36 126 14 – 3 11 67 22 – 19 – 8 — – 2 – 1 – 2 67 20 – 20 – 10 174 – 20 154  The adjustments relate to acquisitions completed in . For more details see Note . In order to ensure that amounts deferred in the cash ﬂ ow hedging reserve represent only the eﬀ ective portion of gains and losses on properly designated hedges of future transac- tions that remain highly probable at the balance sheet date, Nokia has adopted a process under which all derivative gains and losses are initially recognized in the income statement. The appropriate reserve balance is calculated at the end of each period and posted to the fair value and other reserves. The Group continuously reviews the underlying cash ﬂ ows and the hedges allocated thereto, to ensure that the amounts transferred to the fair value reserves during the years ended December ,  and  do not include gains/losses  N O K I A I N 2 0 1 1 on forward exchange contracts that have been designated to hedge forecasted sales or purchases that are no longer expected to occur. All of the net fair value gains or losses recorded in the fair value and other reserves at December ,  on open forward foreign exchange contracts which hedge anticipated future foreign currency sales or purchases are transferred from the hedging reserve to the income statement when the hedged items aﬀ ect the income statement, at various dates up to approximately  year from the balance sheet date. 22. TR ANSL ATION DIFFERENCE S Translation diﬀ erences Net investment hedging Translation diﬀ erences total EURm Gross Tax Net Gross Tax Net Gross Tax Net Balance at December 31, 2008 1 260 0 260 100 – 19 81 360 – 19 341 Translation diﬀ erences: Currency translation diﬀ erences – 556 2 – 554 Transfer to proﬁ t and loss (ﬁ nancial income and expense) Net investment hedging: Net investment hedging gains (+)/losses (–) Transfer to proﬁ t and loss (ﬁ nancial income and expense) Movements attributable to non-controlling interests – 7 — – 7 — — 8 — — 1 — — 9 — — — — — — – 556 2 – 554 – 7 — – 7 114 – 31 83 114 – 31 83 1 — — — 1 — 1 8 — 1 1 9 Balance at December 31, 2009 – 295 3 – 292 215 – 50 165 – 80 – 47 – 127 Translation diﬀ erences: Currency translation diﬀ erences 1 302 3 1 305 Transfer to proﬁ t and loss (ﬁ nancial income and expense) Net investment hedging: Net investment hedging gains (+)/losses (–) Transfer to proﬁ t and loss (ﬁ nancial income and expense) Movements attributable to non-controlling interests Balance at December 31, 2010 Translation diﬀ erences: Currency translation diﬀ erences Transfer to proﬁ t and loss (ﬁ nancial income and expense) Net investment hedging: Net investment hedging gains (+)/losses (–) Transfer to proﬁ t and loss (ﬁ nancial income and expense) Movements attributable to non-controlling interests Balance at December 31, 2011 — — – 63 944 9 — — — – 35 918 — — — — — – 2 — — – 65 — — — — — — 1 302 3 1 305 — — — – 389 101 – 288 – 389 101 – 288 — — — — — — — – 63 770 — – 2 55 — – 65 825 4 948 – 174 51 – 123 — — — — — 4 9 — — — – 35 922 — — — — — — 9 — — — 9 — – 37 9 – 28 – 37 9 – 28 — — — — — — – 211 60 – 151 — – 35 707 — — 64 — – 35 771  Reclassification of an item recognized prior to  with no impact to total translation differences in the consolidated statement of financial position.  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 2 3. THE SHARE S OF THE PARENT COMPANY AUTHORIZATIONS PROPOSED TO THE ANNUAL GENERAL Nokia shares and shareholders SHARES AND SHARE CAPITAL Nokia has one class of shares. Each Nokia share entitles the holder to one vote at General Meetings of Nokia. On December , , the share capital of Nokia Corpora- tion was EUR   . and the total number of shares issued was    . On December , , the total number of shares included    shares owned by Group companies representing approximately .% of the share capital and the total voting rights. Under the Articles of Association of Nokia, Nokia Corpora- tion does not have minimum or maximum share capital or a par value of a share. Authorizations AUTHORIZATION TO INCREASE THE SHARE CAPITAL At the Annual General Meeting held on May , , Nokia share holders authorized the Board of Directors to issue a maximum of  million shares through one or more issues of shares or special rights entitling to shares, including stock options. The Board of Directors may issue either new shares or shares held by the Company. The authorization includes the right for the Board to resolve on all the terms and conditions of such issuances of shares and special rights, including to whom the shares and the special rights may be issued. The authoriza- tion may be used to develop the Company’s capital structure, diversify the shareholder base, ﬁ nance or carry out acquisi- tions or other arrangements, settle the Company’s equity- based incentive plans, or for other purposes resolved by the Board. The authorization is eﬀ ective until June , . At the end of , the Board of Directors had no other authorizations to issue shares, convertible bonds, warrants or stock options. OTHER AUTHORIZATIONS At the Annual General Meeting held on May , , Nokia shareholders authorized the Board of Directors to repurchase a maximum of  million Nokia shares by using funds in the unrestricted equity. Nokia did not repurchase any shares on the basis of this authorization. This authorization was eﬀ ec- tive until June ,  as per the resolution of the Annual General Meeting on May , , but it was terminated by the resolution of the Annual General Meeting on May , . At the Annual General Meeting held on May , , Nokia shareholders authorized the Board of Directors to repurchase a maximum of  million Nokia shares by using funds in the unrestricted equity. The amount of shares corresponds to less than % of all the shares of the Company. The shares may be repurchased under the buyback authorization in order to develop the capital structure of the Company. In addition, shares may be repurchased in order to ﬁ nance or carry out acquisitions or other arrangements, to settle the Company’s equity-based incentive plans, to be transferred for other purposes, or to be cancelled. The authorization is eﬀ ective until June , . MEETING  On January , , Nokia announced that the Board of Directors will propose that the Annual General Meeting convening on May ,  authorize the Board to resolve to repurchase a maximum of  million Nokia shares. The pro- posed maximum number of shares that may be repurchased is the same as the Board’s current share repurchase authori- zation and it corresponds to less than % of all the shares of the company. The shares may be repurchased in order to develop the capital structure of the Company, ﬁ nance or carry out acquisitions or other arrangements, settle the com- pany’s equity-based incentive plans, be transferred for other purposes, or be cancelled. The shares may be repurchased either through a tender oﬀ er made to all shareholders on equal terms, or through public trading from the stock market. The authorization would be eﬀ ective until June ,  and terminate the current authorization for repurchasing of the Company’s shares resolved at the Annual General Meeting on May , . 24. SHARE-BA SED 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 fulﬁ llment of such performance, service and other conditions, as determined in the relevant plan rules. The share-based compensation expense for all equity- based incentive awards amounted to EUR  million in  (EUR  million in  and EUR  million in ). Stock options During  Nokia administered three global stock option plans, the Stock Option Plan ,  and , each of which, including its terms and conditions, has been approved by the Annual General Meeting in the year when 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 granted under the Stock Option Plans  and  have a vesting schedule with % of the options vesting one year af- ter grant and .% each quarter thereafter. The stock options granted under the  and  plans have a term of approx- imately ﬁ ve years. The stock options granted under the Stock Option Plan  have a vesting schedule with % of stock options vesting three years after grant date and the remaining % vesting four years from grant. The stock options granted under the  plan have a term of approximately six years. The exercise price of the stock options is determined at the time of grant, on a quarterly basis, in accordance with a pre-agreed schedule after the release of Nokia’s periodic ﬁ nancial results. The exercise prices are based on the trade volume weighted average price of a Nokia share on NASDAQ OMX Helsinki during the trading days of the ﬁ rst whole week  N O K I A I N 2 0 1 1 of the second month of the respective calendar quarter (i.e., February, May, August or November). With respect to the  Stock Option Plan, should an ex-dividend date take place dur- ing that week, the exercise price shall be determined based on the following week’s trade volume weighted average price of the Nokia share on NASDAQ OMX Helsinki. Exercise prices are determined on a one-week weighted average to mitigate any day-speciﬁ c ﬂ uctuations in Nokia’s share price. The determi- nation of exercise price is deﬁ ned in the terms and conditions of the stock option plan, which are approved by the sharehold- ers at the respective Annual General Meeting. The Board of Directors does not have the right to change how the exercise price is determined. Shares will be eligible for dividend for the ﬁ nancial year in which the subscription takes place. Other shareholder rights commence on the date on which the subscribed shares are entered in the Trade Register. The stock option grants are generally forfeited if the employment relationship terminates with Nokia. Pursuant to the stock options issued under the global stock option plans, an aggregate maximum number of    new Nokia shares may be subscribed for, representing .% of the total number of votes at December , . All share subscription prices based on the exercises of stock options are recorded in the fund for invested non-restricted equity as per a resolution by the Annual General Meeting. The table below sets forth certain information relating to the stock options outstanding at December , . Plan (year of launch) Stock options outstanding 2011 Number of participants (approx.) Vesting status (as percentage of total number of stock options outstanding) Option (sub) category Exercise period First vest date Last vest date Expiry date 2005 1 — — 2006 1Q 2006 2Q 2006 3Q 2006 4Q 2007 1Q 2007 1 12 352 526 4 600 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 2011 2 10 850 802 3 000 2011 2Q 2011 3Q 2011 4Q Expired Expired April 1, 2007 April 1, 2010 December 31, 2011 July 1, 2007 July 1, 2010 December 31, 2011 Expired October 1, 2007 October 1, 2010 December 31, 2011 Expired January 1, 2008 January 1, 2011 December 31, 2011 Expired April 1, 2008 April 1, 2011 December 31, 2011 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 — — — — 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 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 July 1, 2014 July 1, 2015 December 27, 2017 October 1, 2014 October 1, 2015 December 27, 2017 January 1, 2015 January 1, 2016 December 27, 2017 Exercise price/ share EUR 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 10.11 8.86 7.29 7.59 6.02 3.76 4.84  The Group’s global Stock Option Plans  and  have a vesting  The Group’s global Stock Option Plan  has a vesting schedule with schedule with % vesting one year after grant, and quarterly vesting thereafter, each of the quarterly lots representing .% of the total grant. The grants vest fully in four years. % of stock options vesting three years after grant date and the remain- ing % vesting four years from grant.  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 Total stock options outstanding at December ,   Number of shares Weighted average exercise price EUR Weighted average share price EUR Shares under option at January 1, 2009 Granted Exercised Forfeited Expired Shares under option at December 31, 2009 Granted Exercised Forfeited Expired Shares under option at December 31, 2010 Granted Exercised Forfeited Expired Shares under option at December 31, 2011 Options exercisable at December 31, 2008 (shares) Options exercisable at December 31, 2009 (shares) Options exercisable at December 31, 2010 (shares) Options exercisable at December 31, 2011 (shares)  Includes also stock options granted under other than global equity plans. For further information see “Other equity plans for employees” below. 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 11 751 907 6 208 2 441 876 7 909 089 23 340 030 12 895 057 13 124 925 11 376 937 6 904 331 9.52 9.44 7.69 15.89 11.15 6.18 17.01 13.55 15.39 8.73 2.20 12.07 13.97 14.04 5.50 5.07 9.05 17.53 9.08 14.77 16.09 17.07 14.01 The weighted average grant date fair value of stock options granted was EUR . in , EUR . in  and EUR . in . Nokia calculates the fair value of stock options using the Black-Scholes model. The fair value of the stock options is estimated at the grant date using the following assumptions: The options outstanding by range of exercise price at December ,  are as follows: Options outstanding Exercise prices, EUR 0.90–4.84 5.14–6.02 6.20–8.86 8.88–14.75 17.80–27.53 Number of shares 2 825 362 8 098 681 5 112 043 3 994 625 3 309 319 23 340 030 Weighted Weighted average exercise price EUR average remaining contractual life in years 5.99 5.98 4.00 2.84 1.50 3.85 6.01 8.69 11.40 18.83 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 2011 2010 2009 7.37% 4.73% 3.63% 36.95% 52.09% 43.46% 1.71–2.86% 1.52–2.49% 1.97–2.94% 2.68% 4.70 1.78% 3.59 2.23% 3.60 5.46 8.27 10.82 Expected term of stock options is estimated by observing general option holder behavior and actual historical terms of Nokia stock option plans. Expected volatility has been set by reference to the implied volatility of options available on Nokia shares in the open mar- ket and in light of historical patterns of volatility.  N O K I A I N 2 0 1 1 Performance shares During , Nokia administered four global performance share plans, the Performance Share Plans of , ,  and , each of which, including its terms and conditions, has been approved by the Board of Directors. The performance shares represent a commitment by Nokia Corporation to deliver Nokia shares to employees at a future point in time, subject to Nokia’s fulﬁ llment of pre-deﬁ ned performance criteria. No performance shares will vest un- less the Group’s performance reaches at least one of the threshold levels measured by two independent, pre-deﬁ ned performance criteria: the Group’s average annual net sales growth for the performance period of the plan and, in the Performance Share Plans of ,  and  earnings per share (“EPS”) at the end of the performance period and in the Performance Share Plan  average annual EPS during the performance period. The , ,  and  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 relationship terminates with Nokia prior to vesting. The following table summarizes our global performance share plans. Performance shares outstanding Plan at threshold 1,2 2008 2009 2010 2011 0 0 2 660 445 4 669 530 Number of participants Performance Settle- period ment (approx.) 5000 4000 3000 4000 2008–2010 2011 2009–2011 2012 2010–2012 2013 2011–2013 2014 Performance shares outstanding at December ,   Number of performance shares at threshold Weighted average grant date fair value EUR 2 Performance shares at January 1, 2009 Granted Forfeited Vested 3, 4 Performance shares at December 31, 2009 Granted Forfeited Vested 5 Performance shares at December 31, 2010 Granted Forfeited Vested 6 Performance shares at December 31, 2011 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 5 410 211 1 538 377 2 009 423 7 582 534 9.57 5.94 3.66  Includes also performance shares granted under other than global equity plans. For further information see “Other equity plans for employees” below.  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.  Based on the performance of the Group during the Interim Measure- ment Period –, under the  Performance Share Plan, both performance criteria were met. Hence,    Nokia shares equaling the threshold number were delivered in . The final payout, in , was adjusted by the shares delivered based on the Interim Measurement Period.  Includes performance shares under Performance Share plan  that vested on December , .  Includes performance shares under Performance Share plan  that vested on December , .  Includes performance shares under Performance Share plan  that vested on December , .  Shares under performance share plan  vested on December ,  and are therefore not included in the outstanding numbers.  Does not include  outstanding performance shares with deferred delivery due to leave of absence. There will be no settlement under the Performance Share Plan  as neither of the threshold performance criteria of EPS and Average Annual Net Sales Growth of this plan was met. The following table sets forth the performance criteria of each global performance share plan. Threshold performance Maximum performance Average annual EPS 1,2 net sales EUR growth 1 Average annual EPS 1,2 net sales EUR growth 1 1.72 1.01 0.82 0.50 4% – 5% 0% 2.5% 2.76 1.53 1.44 1.10 16% 10% 13.5% 10% Plan 2008 2009 2010 2011  Both the EPS and Average Annual Net Sales Growth criteria have an equal weight of %.  Performance Share Plans of ,  and : EPS at the end of the performance period. Performance Share Plan : average annual EPS. The EPS for  plan: diluted excluding special items. The EPS for ,  and  plans: diluted non-IFRS. Restricted shares During , Nokia administered four global restricted share plans, the Restricted Share Plans , ,  and , 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 high potential and critical talent who are vital to the future success of Nokia. Restricted shares are used only for key management positions and other critical talent. All of the Group’s restricted share plans have a restric- tion period of three years after grant. Until the Nokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights, associated with the restricted shares. The restricted share grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting.  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 Restricted shares outstanding at December ,   Number of restricted shares Weighted average grant date fair value EUR 2 Restricted shares at January 1, 2009 Granted Forfeited Vested Restricted shares at December 31, 2009 Granted Forfeited Vested Restricted shares at December 31, 2010 Granted Forfeited Vested Restricted shares at December 31, 2011 3 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 8 024 880 2 063 518 1 735 167 16 586 091 7.59 6.85 3.15  Includes also restricted shares granted under other than global equity plans. For further information see “Other equity plans for employees” below.  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.  Includes   restricted shares granted in Q  under Restricted Share Plan  that vested on January , . 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 ordinary shares. These equity plans do not result in an increase in the share capital of Nokia. On the basis of these plans, the Group had . mil- lion stock options outstanding on December , . The weighted average exercise price is USD .. In connection with the July ,  acquisition of NAVTEQ, the Group assumed NAVTEQ’s  Stock Incentive Plan (“NAVTEQ Plan”). All unvested NAVTEQ restricted stock units under the NAVTEQ Plan were converted to an equivalent num- ber of restricted stock units entitling their holders to Nokia shares. The maximum number of Nokia shares to be delivered to NAVTEQ employees during the years – is approxi- mately  million, of which approximately . million shares have already been delivered by December , . The Group does not intend to make further awards under the NAVTEQ Plan. The Group also has an Employee Share Purchase Plan in the United States, which permits all full-time Nokia employees located in the United States to acquire Nokia ADSs at a % discount. The purchase of the ADSs is funded through monthly payroll deductions from the salary of the participants, and the ADSs are purchased on a monthly basis. As of December , , approximately   ADSs had been purchased under this plan during , and there were a total of approximately   participants in the plan. Nokia also has a one-time special CEO incentive program designed to align the CEO’s compensation to increased share- holder value and links a meaningful portion of CEO’s compen- sation directly to the performance of Nokia’s share price over the period of -. Mr. Elop has the opportunity to earn  –  Nokia shares at the end of  based on two independent criteria: Total Shareholder Return (TSR) relative to a peer group of companies over the two-year period and Nokia’s absolute share price at the end of . If the minimum performance for neither of the two performance criterion is reached, no share delivery will take place. Shares earned under this plan are subject to an additional one-year vesting period. 2 5. DEFERRED TA XE S EURm Deferred tax assets: 2011 2010 Intercompany proﬁ t in inventory 66 76 Tax losses carried forward and unused tax credits Warranty provision Other provisions Depreciation diﬀ erences and untaxed reserves Share-based compensation Other temporary diﬀ erences Reclassiﬁ cation due to netting of deferred taxes Total deferred tax assets Deferred tax liabilities: Depreciation diﬀ erences and untaxed reserves Fair value gains/losses Undistributed earnings Other temporary diﬀ erences 1 Reclassiﬁ cation due to netting of deferred taxes Total deferred tax liabilities 715 63 363 711 11 362 488 82 268 782 21 347 – 443 1 848 – 468 1 596 – 500 – 65 – 268 – 410 – 406 – 13 – 353 – 718 443 468 – 800 – 1 022 Net deferred tax asset 1 048 574 Tax charged to equity – 4 – 1  In  other temporary differences include a deferred tax liability of EUR  million (EUR  million in ) arising from purchase price allocation related to Nokia Siemens Networks and NAVTEQ. At December ,  the Group had loss carry forwards of EUR   million (EUR   million in ) of which EUR  million will expire within  years (EUR  million in ). At December ,  the Group had loss carry forwards, temporary diﬀ erences and tax credits of EUR   million (EUR   million in ) for which no deferred tax asset was rec- ognized due to uncertainty of utilization of these items. Most of these items do not have an expiry date. The recognition of the remaining deferred tax assets is sup- ported by proﬁ t projections in the relevant jurisdictions.  N O K I A I N 2 0 1 1 At December ,  the Group had undistributed earnings of EUR  million (EUR  million in ) on which no de- ferred tax liability has been formed as these will not reverse in the foreseeable future. 26. ACCRUED E XPENSE S AND OTHER LIABILITIE S EURm 2011 2010 Social security, VAT and other taxes 1 655 1 585 Wages and salaries Deferred revenue Advance payments Other Total 27. PROVISIONS 636 751 619 786 1 524 1 172 2 884 7 450 3 203 7 365 Other operating expense accruals include accrued dis- counts, royalties and marketing expenses as well as various amounts which are individually insigniﬁ cant. Majority of the deferred revenue will be recognized as revenue within the next  months. EURm Warranty Restructuring At January 1, 2011 Translation diﬀ erences Acquisitions Additional provisions Changes in estimates Charged to proﬁ t and loss account Utilized during year At December 31, 2011 At January 1, 2010 Translation diﬀ erences Additional provisions Changes in estimates Charged to proﬁ t and loss account Utilized during year At December 31, 2010 928 – 5 30 671 – 33 638 – 903 688 971 40 888 – 43 845 – 928 928 195 — — 584 – 95 489 – 225 459 184 — 228 – 44 184 – 173 195 IPR infringements Project losses Tax Other Total 449 207 296 515 2 590 — — 70 – 74 – 4 – 14 431 390 — 106 – 15 91 – 32 449 — — 237 – 70 167 – 169 205 197 — 239 – 52 187 – 177 207 – 4 — 124 – 103 21 – 14 299 274 — 40 – 13 27 – 5 — 5 374 – 135 239 – 9 35 2 060 – 510 1 550 – 214 – 1 539 545 2 627 702 — 238 – 87 151 2 718 40 1 739 – 254 1 485 – 338 – 1 653 296 515 2 590 EURm 2011 2010 Analysis of total provisions at December 31: Non-current Current 1 175 837 1 452 1 753 Outﬂ ows for the warranty provision are generally expected to occur within the next  months. Timing of outﬂ ows related to tax provisions is inherently uncertain. The restructuring provision is mainly related to restruc- turing activities in Devices & Services and Nokia Siemens Networks businesses. The majority of outﬂ ows related to the restructuring is expected to occur during . In April , Nokia announced plans to reduce its global workforce by about   employees by the end of , as well as plans to consolidate the company’s research and prod- uct development sites so that each site has a clear role and mission. In September , Nokia announced plans to take further actions to align its workforce and operations, which includes reductions in Sales and Marketing and Corporate functions in line with Nokia’s earlier announcement in April . The measures also include the closure of Nokia’s manu- facturing facility in Cluj, Romania, which–together with adjust- ments to supply chain operations–has aﬀ ected approximately   employees. As a result, Devices & Services recognized a restructuring provision of EUR  million in total. In , Devices & Services recognized restructuring provi- sions of EUR  million mainly related to changes in Symbian Smartphones and Services organizations as well as certain corporate functions that were expected to result in a reduction of up to   employees globally. In September , Nokia announced a plan to concentrate the development eﬀ orts of the Location & Commerce business in Berlin, Germany and Boston and Chicago in the USA, and oth- er supporting sites and plans to close its operations in Bonn, Germany and Malvern, USA. As a result, Location & Commerce recognized a restructuring provision of EUR  million.  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 Restructuring and other associated expenses incurred in Nokia Siemens Networks in  totaled EUR  million (EUR  million in ) including mainly personnel related expenses as well as expenses arising from the elimination of overlapping functions, and the realignment of product port- folio and related replacement of discontinued products in customer sites. These expenses included EUR  million (EUR  million in ) impacting gross proﬁ t, EUR  million (EUR  million in ) research and development expenses, EUR  million reversal of provision (EUR  million in ) in selling and marketing expenses, EUR  million (EUR  million in ) administrative expenses and EUR  million (EUR  million in ) other operating expenses. Provisions for losses on projects in progress are related to Nokia Siemens Networks’ onerous contracts. Utilization of provisions for project losses is generally expected to occur in the next  months. The IPR provision is based on estimated future settlements for asserted and unasserted past IPR infringements. Final resolution of IPR claims generally occurs over several periods. Other provisions include provisions for non-cancellable purchase commitments, product portfolio provisions for the alignment of the product portfolio and related replacement of discontinued products in customer sites and provision for pension and other social security costs on share-based awards. 28. E ARNINGS PER SHARE 2011 2010 2009 Numerator/EURm Basic/Diluted: Proﬁ t attributable to equity holders of the parent Denominator/1000 shares Basic: Weighted average shares Eﬀ ect of dilutive securities: Performance shares Restricted shares Stock options Diluted: Adjusted weighted average shares and assumed conversions – 1 164 1 850 891 3 709 947 3 708 816 3 705 116 — — — — 324 4 110 — 9 614 6 341 1 4 434 15 956 3 709 947 3 713 250 3 721 072 Under IAS , basic earnings per share is computed using the weighted average number of shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of shares outstanding during the period plus the dilutive eﬀ ect of stock options, restricted shares and performance shares outstanding during the period. In , stock options equivalent to  million shares ( million in  and  million in ) were excluded from the calculation of diluted earnings per share because they were determined to be anti-dilutive. In addition,  million of performance shares were excluded from the calculation of dilutive shares because contingency conditions have not been met. As at  December , there were  million of restricted shares outstanding that could potentially have a dilutive im- pact in the future but were excluded from the calculation. 29. COMMITMENTS AND CONTINGENCIE S EURm 2011 2010 Collateral for our own commitments Property under mortgages Assets pledged 18 2 18 5 Contingent liabilities on behalf of Group companies Other guarantees 1 292 1 262 Contingent liabilities on behalf of other companies Other guarantees 16 17 Financing commitments Customer ﬁ nance commitments 1 Venture fund commitments 2  See also Note  b).  See also Note  a). 86 133 85 238 The amounts above represent the maximum principal amount of commitments and contingencies. Property under mortgages given as collateral for our own commitments comprise of mortgages given to the Finnish National Board of Customs as a general indemnity of EUR  million in  (EUR  million in ). Assets pledged for the Group’s own commitments include available-for-sale investments of EUR  million in  (EUR  million of available-for-sale investments in ). Other guarantees include guarantees of EUR  million in  (EUR  million in ) provided to certain Nokia Siemens Networks’ customers in the form of bank guarantees or corporate guarantees issued by Nokia Siemens Networks’ Group entity. These instruments entitle the customer to claim payment as compensation for non-performance by Nokia Siemens Networks of its obligations under network infra- structure supply agreements. Depending on the nature of the guarantee, compensation is payable on demand or subject to veriﬁ cation of non-performance. Volume of Other guarantees has slightly increased due to release of certain commercial guarantees and due to transferred business related commer- cial guarantees from Motorola Solutions, Inc. Contingent liabilities on behalf of other companies were EUR  million in  (EUR  million in ). Financing commitments of EUR  million in  (EUR  million in ) are available under loan facilities negotiated  31. REL ATED PART Y TR ANSAC TIONS At December , , the Group had borrowings amounting to EUR  million (EUR  million in  and EUR  million in ) from Nokia Unterstützungskasse GmbH, the Group’s German pension fund, which is a separate legal entity. The loan bears interest at % annum and its duration is pending until further notice by the loan counterparts who have the right to terminate the loan with a  day notice period. There were no loans made to the members of the Nokia Leadership Team and the Board of Directors at December , ,  or , respectively. Transactions with associated companies EURm 2011 2010 2009 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 – 23 — 47 37 91 — 14 1 1 61 15 30 — 35 8 186 211 3 22 2 31 Management compensation The following table sets forth the salary and cash incentive information awarded and paid or payable by the company to the Chief Executive Oﬃ cer and President of Nokia Corporation for ﬁ scal years – as well as the share-based compen- sation expense relating to equity-based awards, expensed by the company. N O K I A I N 2 0 1 1 mainly with Nokia Siemens Networks’ customers. Availability of the amounts is dependent upon the borrower’s continuing compliance with stated ﬁ nancial and operational covenants and compliance with other administrative terms of the facil- ity. The loan facilities are primarily available to fund capital expenditure relating to purchases of network infrastructure equipment and services. Venture fund commitments of EUR  million in  (EUR  million in ) are ﬁ nancing commitments to a number of funds making technology related investments. As a limited partner in these funds Nokia is committed to capital contri- butions and also entitled to cash distributions according to respective partnership agreements. The Group is party to routine litigation incidental to the normal conduct 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, and in the opinion of the management, outcome of and liabilities in excess of what has been provided for related to these or other proceedings, in the aggregate, are not likely to be material to the ﬁ nancial condition or result of operations. As of December , , the Group had purchase commit- ments of EUR   million (EUR   million in ) relating to inventory purchase obligations, service agreements and outsourcing arrangements, primarily for purchases in . The Group has also entered into a partnership with Microsoft whereas the Group is committed to a software royalty struc- ture which includes annual minimum software royalty com- mitments. In consideration for Nokia’s contribution under the arrangement, the Group will also receive quarterly platform support payments from Microsoft. The total amount of the platform support payments is expected to slightly exceed the total amount of the minimum software royalty commitments. 30. LE A SING CONTR AC TS The Group leases oﬃ ce, manufacturing and warehouse space under various non-cancellable operating leases. Certain con- tracts contain renewal options for various periods of time. The future costs for non-cancellable leasing contracts are as follows: Leasing payments, EURm Operating leases 2012 2013 2014 2015 2016 Thereafter Total 292 206 154 108 71 196 1 027 Rental expense amounted to EUR  million in  (EUR  million in  and EUR  million in ).  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 2011 2010 2009 EUR Stephen Elop President and CEO Cash incentive salary payments Base Share-based compensation expense Cash Share-based incentive compensation expense salary payments Base Cash Share-based incentive compensation expense salary payments Base 1 020 000 473 070 2 086 351 280 303 440 137 67 018 — — — Total remuneration of the Nokia Leadership Team awarded for the ﬁ scal years – was EUR    in  (EUR    in  and EUR    in ), 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    in  (EUR    in  and EUR    in ). 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 Stephen Elop 3 Lalita D. Gupte 4 Bengt Holmström Henning Kagermann 5 Olli-Pekka Kallasvuo 6 Per Karlsson 7 Jouko Karvinen 8 Helge Lund Isabel Marey-Semper 9 Risto Siilasmaa 10 Kari Stadigh Keijo Suila 2011 2010 2009 Gross annual fee 1 Shares received Gross annual fee 1 Shares received Gross annual fee 1 Shares received EUR 440 000 150 000 29 604 10 092 — — — — — — 130 000 8 746 155 000 10 428 — 130 000 140 000 130 000 140 000 — 8 746 9 419 8 746 9 419 155 000 10 428 130 000 8 746 EUR 440 000 150 000 — — 140 000 130 000 130 000 130 000 155 000 — — 140 000 155 000 — 20 710 7 058 — — 6 588 6 117 6 117 6 117 7 294 — — 6 588 7 294 — EUR 440 000 16 575 150 000 155 000 — 140 000 130 000 130 000 130 000 155 000 — — 140 000 140 000 — 5 649 5 838 — 5 273 4 896 4 896 4 896 5 838 — — 5 273 5 273 — — — 130 000 6 117 130 000 4 896  Approximately % 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 remaining approximately % of the gross an- nual 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.  The  fee of Georg Ehrnrooth amounted to an annual total of EUR  , consisting of a fee of EUR   for services as a member of the Board and EUR   for services as Chairman of the Audit Committee.  Stephen Elop did not receive remuneration for his services as a member of the Board. This table does not include remuneration paid to Mr. Elop for services as the President and CEO.  The  and  fees of Lalita D. Gupte amounted to an annual total of EUR   each year indicated, consisting of a fee of EUR   for services as a member of the Board and EUR   for services as a member of the Audit Committee.  The  fee of Henning Kagermann amounted to an annual total of EUR  , consisting of a fee of EUR   for services as a member of the Board and EUR   for services as Chairman of the Personnel Committee.  Olli-Pekka Kallasvuo left his position on the Nokia Board of Directors in . This table includes fees paid to Olli-Pekka Kallasvuo for his services as a member of the Board, only.  The  and  fees of Per Karlsson amounted to an annual total of EUR   each year indicated, consisting of a fee of EUR   for services as a member of the Board and EUR   for services as Chairman of the Personnel Committee.  The  fee of Jouko Karvinen amounted to an annual total of EUR  , consisting of a fee of EUR   for services as a member of the Board and EUR   for services as a member of the Audit Committee.  The ,  and  fees paid to Isabel Marey-Semper amounted to an annual total of EUR   each year indicated, consisting of a fee of EUR   for services as a member of the Board and EUR   for services as a member of the Audit Committee.  The  and  fees paid to Risto Siilasmaa amounted to an annual total of EUR   each year indicated, consisting of a fee of EUR   for service as a member of the Board and EUR   for service as Chairman of the Audit Committee. The  fee of Risto Siilasmaa amounted to an annual total of EUR  , consisting of a fee of EUR   for services as a member of the Board and EUR   for services as a member of the Audit Committee. Pension arrangements of certain Nokia Leadership Team Members Stephen Elop, President and CEO, participates in the Finn- ish TyEL pension system, which provides for a retirement beneﬁ t based on years of service and earnings according to prescribed statutory rules. Under the Finnish TyEL pen- sion system, base pay, incentives and other taxable fringe beneﬁ ts are included in the deﬁ nition of earnings, although gains realized from equity are not. The Finnish TyEL pension scheme provides for early retirement beneﬁ ts at age  with a reduction in the amount of retirement beneﬁ ts. Standard retirement beneﬁ ts are available from age  to , according to an increasing scale.  – 4 – 22 44 US NAVTEQ Corp NL Nokia Siemens Networks B.V. 1 009 FI Nokia Siemens Networks Oy N O K I A I N 2 0 1 1 32. NOTE S TO C A SH FLOW STATEMENT 33. PRINCIPAL NOKIA GROUP COMPANIE S EURm 2011 2010 2009 AT DECEMBER 31, 2011 % Parent Group holding majority 1 562 1 771 1 784 US Nokia Inc. Non-controlling interest – 324 – 507 Adjustments for: Depreciation and amortization (Note 10) Proﬁ t (–)/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) 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 13) Share-based compensation (Note 24) Restructuring related charges (Note 7, 27) Other income and expenses – 49 290 – 193 443 – 111 702 23 – 1 – 30 – 631 49 191 265 1 338 13 18 565 5 110 37 47 245 – 9 35 16 307 — Adjustments, total 3 486 2 112 3 390 Change in net working capital Decrease (+)/increase (–) in short-term receivables 137 1 281 1 145 Decrease (+)/increase (–) in inventories Decrease (–)/increase (+) in interest-free short-term borrowings – 1 145 1 563 – 1 698 Loans made to customers 81 17 Change in net working capital – 638 2 349 53 140 In , Nokia Siemens Networks’ EUR  million loans and capitalized interest of EUR  million from Siemens were con- verted into equity impacting the non-controlling interests in the Consolidated Statements of Financial Position. The Group did not engage in any material non-cash investing activities in  and .  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 IT Nokia Italia S.p.A ES Nokia Spain S.A.U BR Nokia do Brazil Technologia Ltda RU OOO Nokia — 100.0 — 100.0 4.5 100.0 100.0 99.9 100.0 100.0 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 50.0 1 50.0 50.0 50.0 DE Nokia Siemens Networks GmbH & Co KG — IN Nokia Siemens Networks Pvt. Ltd. —  Nokia Siemens Networks B.V., the ultimate parent of the Nokia Siemens Network group, is owned approximately % by each of Nokia and Sie- mens 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 consoli- dated Nokia Siemens Networks. A complete list of subsidiaries and associated companies is included in Nokia’s Statutory Accounts. General risk management principles Nokia has a common and systematic approach to risk manage- ment across business operations and processes. Material risks and opportunities are identiﬁ ed, analyzed, managed and monitored as part of business performance management. Relevant key risks are identiﬁ ed against business targets either in business operations or as an integral part of long and short-term planning. Nokia’s overall risk management concept is based on visibility of the key risks preventing Nokia from reaching its business objectives rather than solely focusing on eliminating risks. The principles documented in Nokia’s Risk Policy and ac- cepted by the Audit Committee of the Board of Directors require risk management and its elements to be integrated into business processes. One of the main principles is that the business, function or category owner is also the risk owner, but it is everyone’s responsibility at Nokia to identify risks, which prevent Nokia to reach its objectives. Risk management covers strategic, operational, ﬁ nancial and hazard risks. Key risks are reported to the Group level management to create assurance on business risks as well as to enable prior- itization of risk management activities at Nokia. In addition to general principles there are speciﬁ c risk management policies covering, for example treasury and customer related credit risks. 289 – 512 640 34. RISK MANAGEMENT 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 Financial risks The objective for Treasury activities in Nokia is to guarantee cost-eﬃ cient funding for the Group at all times, and to iden- tify, evaluate and hedge ﬁ nancial risks. There is a strong focus in Nokia on creating shareholder value. Treasury activities sup- port this aim by: i) mitigating the adverse eﬀ ects caused by ﬂ uctuations in the ﬁ nancial markets on the proﬁ tability of the underlying businesses; and ii) managing the capital structure of the Group by prudently balancing the levels of liquid assets and ﬁ nancial borrowings. Treasury activities are governed by policies approved by the CEO. Treasury Policy provides principles for overall ﬁ nancial risk management and determines the allocation of respon- sibilities for ﬁ nancial risk management in Nokia. Operating Procedures cover speciﬁ c areas such as foreign exchange risk, interest rate risk, use of derivative ﬁ nancial instruments, as well as liquidity and credit risk. Nokia is risk averse in its Treasury activities. A) MARKE T RISK Foreign exchange risk Nokia operates globally and is thus exposed to foreign ex- change risk arising from various currencies. Foreign currency denominated assets and liabilities together with foreign currency denominated cash ﬂ ows from highly probable or probable purchases and sales contribute to foreign exchange exposure. These transaction exposures are managed against various local currencies because of Nokia’s substantial pro- duction and sales outside the Euro zone. According to the foreign exchange policy guidelines of the Group, which remains the same as in the previous year, mate- rial transaction foreign exchange exposures are hedged unless hedging would be uneconomical due to market liquidity and/or hedging cost. Exposures are deﬁ ned using nominal values of the transactions. Exposures are mainly hedged with derivative ﬁ nancial instruments such as forward foreign exchange con- tracts and foreign exchange options. The majority of ﬁ nancial instruments hedging foreign exchange risk have duration of less than a year. The Group does not hedge forecasted foreign currency cash ﬂ ows beyond two years. Since Nokia has subsidiaries outside the Euro zone, the euro-denominated value of the shareholders’ equity of Nokia is also exposed to ﬂ uctuations in exchange rates. Equity changes resulting from movements in foreign exchange rates are shown as a translation diﬀ erence in the Group consolida- tion. Nokia uses, from time to time, forward foreign exchange contracts, foreign exchange options and foreign currency denominated loans to hedge its equity exposure arising from foreign net investments. At the end of years  and , the following curren- cies represent a signiﬁ cant portion of the currency mix in the outstanding ﬁ nancial instruments: 2011, EURm USD JPY CNY INR FX derivatives used as cash ﬂ ow 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 the proﬁ t and loss statement (net amount) 3 Cross currency / interest rate hedges 1 282 110 — – 20 – 1 045 – 17 – 2 023 – 818 – 962 – 19 880 – 109 875 255 – 825 – 264 420 — — — 2010, EURm USD JPY CNY INR FX derivatives used as cashﬂ ow 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 proﬁ t and loss (net amount) 3, 4 Cross currency / interest rate hedges – 140 521 — – 23 – 642 — – 2 834 – 702 – 1 645 – 245 – 710 – 218 134 1 026 1 845 – 117 408 — — — . The FX derivatives are used to hedge the foreign exchange risk from fore- casted 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  for more details on hedge accounting. The underlying exposures hedged are not presented in the table, as they are not financial instruments as defined under IFRS . . The FX derivatives are used to hedge the Group’s net investment expo- sure. The underlying exposures hedged are not presented in the table, as they are not financial instruments as defined under IFRS . . The balance sheet items and some probable forecasted cash flows which are denominated in foreign currencies are hedged by a portion of FX derivatives not designated in a hedge relationship and carried at fair value through the profit and loss statement. . The FX exposures for  have been recalculated to include options’ nominal instead of options’ delta as a measure of exposure. Interest rate risk The Group is exposed to interest rate risk either through mar- ket value ﬂ uctuations of balance sheet items (i.e. price risk) or through changes in interest income or expenses (i.e. reﬁ - nancing or reinvestment risk). Interest rate risk mainly arises through interest bearing liabilities and assets. Estimated future changes in cash ﬂ ows and balance sheet structure also expose the Group to interest rate risk. The objective of Interest rate risk management is to man- age uncertainty caused by ﬂ uctuations in interest rates and minimize net long-term debt funding costs.  N O K I A I N 2 0 1 1 The interest rate exposure of the Group is monitored and managed centrally. Nokia uses the Value-at-Risk (VaR) method- ology complemented by selective shock sensitivity analyses to assess and measure the interest rate risk of interest-bearing assets, interest-bearing liabilities and related derivatives, which together create the Group’s interest rate exposure. At the reporting date, the interest rate proﬁ le of the Group’s interest-bearing assets and liabilities is presented in the table below: EURm Assets 2011 2010 Fixed Floating rate rate Fixed Floating rate rate 6 384 4 733 8 795 3 588 Liabilities – 4 313 – 950 – 4 156 – 992 Assets and liabilities before derivatives Interest rate derivatives Assets and liabilities after derivatives 2 071 3 783 4 639 2 596 1 736 – 1 656 1 036 – 994 3 807 2 127 5 675 1 602 Equity price risk Nokia is exposed to equity price risk as the result of market price ﬂ uctuations in the listed equity instruments held mainly for strategic business reasons. Nokia has certain strategic non-controlling investments in publicly listed equity shares. The fair value of the equity investments which are subject to equity price risk at December ,  was EUR  million (EUR  million in ). In addition, Nokia invests in private equity through venture funds, which, from time to time, may have holdings in equity instruments which are listed in stock exchanges. These investments are classiﬁ ed as available-for-sale carried at fair value. See Note  for more details on available-for-sale investments. Due to the insigniﬁ cant amount of exposure to equity price risk, there are currently no outstanding derivative ﬁ nancial instruments designated as hedges for these equity invest- ments. 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 as appropriate. Value-at-Risk Nokia uses the Value-at-Risk (VaR) methodology to assess the Group exposures to foreign exchange (FX), interest rate, and equity risks. The VaR gives estimates of potential fair value losses in market risk sensitive instruments as a result of adverse changes in speciﬁ ed market factors, at a speciﬁ ed conﬁ dence level over a deﬁ ned 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 correla- tions of rates and prices estimated from a one-year sample of historical market data, at % conﬁ dence level, using a one- month holding period. To put more weight on recent market conditions, an exponentially weighted moving average is performed on the data with an appropriate decay factor. This model implies that within a one-month period, the potential loss will not exceed the VaR estimate in % of pos- sible outcomes. In the remaining % of possible outcomes, the potential loss will be at minimum equal to the VaR ﬁ gure, and on average substantially higher. The VaR methodology relies on a number of assumptions, such as, a) risks are measured under average market condi- tions, assuming that market risk factors follow normal dis- tributions; 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 % conﬁ dence level are diﬀ erent and could be substantially higher than the estimated VaR. FX risk The VaR ﬁ gures for the Group’s ﬁ nancial instruments which are sensitive to foreign exchange risks are presented in Table  below. As deﬁ ned under IFRS , the VaR calculation includes foreign currency denominated monetary ﬁ nancial instruments such as: » Available-for-sale investments, loans and receivables, investments at fair value through proﬁ t and loss, cash, loans and accounts payable. » FX derivatives carried at fair value through proﬁ t and loss which are not in a hedge relationship and are mostly used for hedging balance sheet FX exposure. » FX derivatives designated as forecasted cash ﬂ ow hedges and net investment hedges. Most of the VaR is caused by these derivatives as forecasted cash ﬂ ow and net invest- ment exposures are not ﬁ nancial instruments as deﬁ ned under IFRS  and thus not included in the VaR calculation. Table  Foreign exchange positions Value-at-Risk VaR from ﬁ nancial instruments, EURm 2011 2010 At December 31 Average for the year Range for the year 141 218 245 223 141–316 174–299 Interest rate risk The VaR for the Group interest rate exposure in the invest- ment and debt portfolios is presented in Table  below. Sensitivities to credit spreads are not reﬂ ected in the below numbers.  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 Table  Treasury investment and debt portfolios Value-at-Risk EURm At December 31 Average for the year Range for the year 2011 2010 33 34 45 43 19–45 33–63 Equity price risk The VaR for the Group equity investment in publicly traded companies is insigniﬁ cant. B) CREDIT RISK Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in ﬁ nancial loss to the Group. Credit risk arises from bank and cash, ﬁ xed income and money-market investments, derivative ﬁ nancial instruments, loans receivable as well as credit exposures to customers, including outstanding receivables, ﬁ nancial guarantees and committed transactions. Credit risk is managed separately for business related and ﬁ nancial credit exposures. Except as detailed in the following table, the maximum ex- posure to credit risk is limited to the book value of the ﬁ nancial assets as included in Group’s balance sheet: EURm 2011 2010 December , , while the top three credit exposures by country amounted to .%, .% and .% (.%, .% and .% in ), respectively. The Group has provided allowances for doubtful accounts as needed on accounts receivable and loans due from custom- ers and other third parties not past due, based on the analysis of debtors’ credit quality and credit history. The Group es- tablishes allowances for doubtful accounts that represent an estimate of incurred losses as of the end of reporting period. All receivables and loans due from customers and other third parties are considered on an individual basis in establishing the allowances for doubtful accounts. As at December , , the carrying amount before deducting any allowances for doubtful accounts as well as amounts expected to be uncollectible for acquired receivables relating to customers for which an allowance was provided or an uncollectible amount has been identiﬁ ed amounted to EUR   million (EUR   million in ). The amount of provision taken against that portion of these receivables considered to be impaired as well as the amount expected to be uncollectible for acquired receivables was a total of EUR  million (EUR  million in ) (see also Note  and Note ). An amount of EUR  million (EUR  million in ) relates to past due receivables from customers for which no allowances for doubtful accounts were recognized. The aging of these receivables is as follows: Financial guarantees given on behalf of customers and other third parties Loan commitments given but not used — 86 86 — 85 85 EURm Past due 1–30 days Past due 31–180 days More than 180 days 2011 2010 169 118 29 316 239 131 102 472 Business Related Credit Risk The Company aims to ensure highest possible quality in ac- counts receivable and loans due from customers and other third parties. The Group Credit Policy, approved by the Nokia Leadership Team, lays out the framework for the management of the business related credit risks in all Nokia group compa- nies. Credit exposure is measured as the total of accounts receiv- able and loans outstanding due from customers and other third parties, and committed credits. Group Credit Policy provides that credit decisions are based on credit evaluation including credit rating for larger exposures. Nokia & Nokia Siemens Networks Rating Policy deﬁ nes the rating principles. Ratings are approved by Nokia & Nokia Siemens Networks Rating Committee. Credit risks are approved and monitored according to the credit policy of each business entity. These policies are based on the Group Credit Policy. Concentrations of customer or country risks are monitored at the Nokia Group level. When appropriate, credit risks are mitigated with the use of approved instruments, such as letters of credit, collateral or insurance and sale of selected receivables. The accounts receivable do not include any major concen- trations of credit risk by customer or by geography. Top three customers account for approximately .%, .% and .% (.%, .% and .% in ) of Group accounts receivable and loans due from customers and other third parties as at The carrying amount of accounts receivable that would otherwise be past due or impaired but whose terms have been renegotiated was EUR  million (EUR  million in ). Financial Credit Risk Financial instruments contain an element of risk of loss result- ing from counterparties being unable to meet their obliga- tions. This risk is measured and monitored centrally by Treas- ury. Nokia manages ﬁ nancial credit risk actively by limiting its counterparties to a suﬃ cient number of major banks and ﬁ nancial institutions and monitoring the credit worthiness and exposure sizes continuously as well as through entering into netting arrangements (which gives Nokia the right to oﬀ set in the event that the counterparty would not be able to fulﬁ ll the obligations) with all major counterparties and collateral agree- ments (which require counterparties to post collateral against derivative receivables) with certain counterparties. Nokia’s investment decisions are based on strict creditwor- thiness and maturity criteria as deﬁ ned in the Treasury Policy and Operating Principles. As result of this investment policy approach and active management of outstanding investment exposures, Nokia has not been subject to any material credit losses in its ﬁ nancial investments. The table below presents the breakdown of the outstanding ﬁ xed income and money market investments by sector and credit rating grades ranked as per Moody’s rating categories.  Due within Due between Due between Due between Due beyond 5 years EURm 3 and 12 months EURm 3 months EURm 1 and 3 years EURm 3 and 5 years EURm N O K I A I N 2 0 1 1 At December 31, 2011 Banks Governments Other Rating 3 Aaa Aa1–Aa3 A1–A3 Baa1–Baa3 Non rated Aaa Aa1–Aa3 Aaa Aa1–Aa3 A1–A3 Baa1–Baa3 Ba1–C Non rated Total amount 1,2 EURm 1 368 1 319 1 706 616 270 3 224 408 — 11 18 2 1 2 1 368 1 316 1 706 616 260 2 508 400 — — — — — — — — — — 10 221 6 — — — — — 2 Total 8 945 8 174 239 At December 31, 2010 Banks Aaa Aa1–Aa3 A1–A3 Baa1-Baa3 Non rated 1 152 1 283 2 971 340 303 1 152 1 227 2 942 338 303 Governments Aaa 3 408 1 499 Other Aa1–Aa3 Baa1–Baa3 Aaa Aa1–Aa3 A1–A3 Baa1–Baa3 Ba1–C Non rated 638 5 167 43 9 2 1 2 402 — 30 — — — — — — 52 21 — — 899 199 — 32 10 3 — — 2 — 1 — — — 50 2 — — 12 — — — 65 — 1 2 — — 376 26 — 43 — — — — — — 2 — — — — — — — — 266 179 — — — — — — — — — 11 6 2 1 — 268 199 — — 1 — — 18 11 5 28 27 — — — — 90 — 3 5 2 — 616 — — 34 6 6 2 1 — 675 Total 10 324 7 893 1 218 448  Fixed income and money-market investments include term deposits, in-  vestments 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. Included within fixed income and money-market investments is EUR  million of restricted investment at December ,  (EUR  million at December , ). They are restricted financial assets under various contractual or legal obligations.  Bank parent company ratings used here for bank groups. In some emerg- ing markets countries actual bank subsidiary ratings may differ from parent company rating. % of Nokia’s cash in bank accounts is held with banks of The objective of liquidity risk management is to maintain investment grade credit rating (% for ). C) LIQUIDIT Y RISK Liquidity risk is deﬁ ned as ﬁ nancial distress or extraordinary high ﬁ nancing costs arising due to a shortage of liquid funds in a situation where business conditions unexpectedly dete- riorate and require ﬁ nancing. Transactional liquidity risk is deﬁ ned as the risk of executing a ﬁ nancial transaction below fair market value, or not being able to execute the transaction at all, within a speciﬁ c period of time. suﬃ cient liquidity, and to ensure that it is available fast enough without endangering its value, in order to avoid uncer- tainty related to ﬁ nancial distress at all times. Nokia guarantees a suﬃ cient liquidity at all times by ef- ﬁ cient cash management and by investing in short-term liquid interest bearing securities. The transactional liquidity risk is minimized by entering transactions where proper two-way quotes can be obtained from the market. Due to the dynamic nature of the underlying business, Nokia and Nokia Siemens Networks aim at maintaining ﬂ exibility in  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 funding by keeping committed and uncommitted credit lines available. Nokia and Nokia Siemens Networks manage their re- spective credit facilities independently and facilities do not in- clude cross-default clauses between Nokia and Nokia Siemens Networks or any forms of guarantees from either party. At the end of December ,  the committed facilities totaled EUR   million (EUR   million in ). The most signiﬁ cant existing Committed Facilities include: Borrower(s): Nokia Corporation: Nokia Siemens Networks Finance B.V. and Nokia Siemens Networks Oy: EUR 1 500 million Revolving Credit Facility, maturing 2016 EUR 2 000 million Revolving Credit Facility, maturing 2012 back up purposes. As at year end , this facility was fully undrawn. On December , , Nokia Siemens Networks signed a forward starting term and multicurrency revolving facili- ties agreement valued at EUR   million to replace Nokia Siemens Networks’ existing EUR   million revolving credit facility when it matures in June . The committed facili- ties are comprised in equal parts of a revolving credit facility maturing in June  and a term loan facility that matures in June . They will be used for general corporate purposes. The amount of commitments available under the Forward Starting Credit Facilities may be increased until the forward starting date in June  and by March  the commitment has been increased by EUR  million to EUR   million. Both the EUR   million Forward Starting Credit Facility and the existing EUR   million Revolving Credit Facility include ﬁ nancial covenants related to leverage and interest cover- age of Nokia Siemens Networks. As of December , , EUR  million of the existing EUR   million Revolving Credit Facility was drawn and all ﬁ nancial covenants were satisﬁ ed. As of December ,  the weighted average commitment EUR   million Revolving Credit Facility of Nokia Corporation is used primarily for US and Euro Commercial Paper Programs fee on the committed credit facilities was .% per annum (.% in ). The most significant existing funding programs as of December ,  were: Issuer(s): Nokia Corporation: Nokia Corporation: Nokia Corporation: Nokia Corporation: Nokia Corporation and Nokia Finance International B.V.: Nokia Siemens Networks Finance B.V.: Program Issued USD 1 500 million EUR 1 750 million Shelf registration statement on ﬁ le with the US Securities and Exchange Commission Euro Medium-Term Note Program, totaling EUR 5 000 million Local commercial paper program in Finland, totaling EUR 750 million US Commercial Paper program, totaling USD 4 000 million Euro Commercial Paper program, totaling USD 4 000 million Local commercial paper program in Finland, totaling EUR 500 million EUR 148 million The following table below is an undiscounted cash ﬂ ow analysis for both ﬁ nancial liabilities and ﬁ nancial assets that are presented on the balance sheet, and oﬀ -balance sheet instruments such as loan commitments according to their re- maining contractual maturity. Line-by-line reconciliation with the balance sheet is not possible.  N O K I A I N 2 0 1 1 At 31 December 2011, EURm Non-current ﬁ nancial assets Long-term loans receivable Current ﬁ nancial assets Current portion of long-term loans receivable Short-term loans receivable Investments at fair value through proﬁ t and loss Available-for-sale investment Cash Cash ﬂ ows related to derivative ﬁ nancial assets net settled: Due Due between between between Due Due within 3 3 and 12 Total months months 1 and 3 years Due 3 and 5 beyond 5 years years 112 59 14 575 1 10 12 — 8 557 8 305 1 957 1 957 2 49 2 7 133 — 43 — — 14 69 — 62 — — 264 15 — 4 — — 290 35 — Derivative contracts–receipts 215 72 – 46 90 17 82 Cash ﬂ ows related to derivative ﬁ nancial assets gross settled: Derivative contracts–receipts Derivative contracts–payments Accounts receivable 1 Non-current ﬁ nancial liabilities Long-term liabilities Current ﬁ nancial liabilities Current portion of long-term loans Short-term liabilities Cash ﬂ ows related to derivative ﬁ nancial liabilities net settled: 16 014 14 272 1 226 – 15 779 – 14 113 – 1 200 5 872 5 030 802 41 – 27 40 41 – 27 — 434 – 412 — – 5 391 – 106 – 153 – 2 374 – 316 – 2 442 – 387 – 1 002 – 61 – 915 – 326 – 87 — — — — — — Derivative contracts–payments – 107 — – 3 – 2 – 3 – 99 Cash ﬂ ows related to derivative ﬁ nancial liabilities gross settled: Derivative contracts–receipts Derivative contracts–payments Accounts payable Contingent ﬁ nancial assets and liabilities Loan commitments given undrawn 2 Loan commitments obtained undrawn 3 17 354 15 480 1 874 – 17 775 – 15 775 – 2 000 — — – 5 532 – 5 449 – 65 – 18 – 86 2 937 – 37 50 – 49 1 387 — — — — — — 1 500 — — — — —  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 Due Due between between between Due Due within 3 3 and 12 Total months months 1 and 3 years Due 3 and 5 beyond 5 years years At 31 December 2010, EURm Non-current ﬁ nancial assets Available-for-sale investments Long-term loans receivable Other non-current assets Current ﬁ nancial assets Current portion of long-term loans receivable Short-term loans receivable 41 68 2 42 1 — — — 9 — 10 3 — — 33 1 18 3 59 2 — — 322 163 — 35 8 — — — 44 97 — — 1 — — — 1 043 77 — Investments at fair value through proﬁ t and loss 1 437 Available-for-sale investment Cash Cash ﬂ ows related to derivative ﬁ nancial assets net settled : 9 470 7 904 1 229 1 951 1 951 — Derivative contracts–receipts – 172 72 – 53 38 47 – 276 Cash ﬂ ows related to derivative ﬁ nancial assets gross settled: Derivative contracts–receipts Derivative contracts–payments Accounts receivable 1 Non-current ﬁ nancial liabilities Long-term liabilities Current ﬁ nancial liabilities Current portion of long-term loans Short-term liabilities 18 686 14 136 3 718 – 18 611 – 14 075 – 3 704 6 335 5 476 838 456 – 457 21 123 – 128 — 253 – 247 — – 5 995 – 119 – 90 – 839 – 2 351 – 2 596 Cash ﬂ ows related to derivative ﬁ nancial liabilities net settled: Derivative contracts–payments 60 – 3 — – 127 – 922 – 2 – 849 – 125 – 73 — — — — — — — 5 58 Cash ﬂ ows related to derivative ﬁ nancial liabilities gross settled: Derivative contracts–receipts Derivative contracts–payments Other ﬁ nancial liabilities 4 Accounts payable Contingent ﬁ nancial assets and liabilities Loan commitments given undrawn 2 Loan commitments obtained undrawn 3 23 757 18 836 3 506 – 23 996 – 19 085 – 3 545 – 88 – 88 — – 6 106 – 5 942 – 155 655 – 651 — – 9 – 85 3 405 – 27 50 – 38 — – 20 3 355 310 – 295 450 – 420 — — — — — — — —  Accounts receivable maturity analysis does not include receivables ac- counted based on the percentage of completion method of EUR   million (: EUR   million).  Loan commitments obtained undrawn have been included based on the period in which they expire.  Other financial liabilities in  included EUR  million non-derivative  Loan commitments given undrawn have been included in the earliest short-term financial liabilities disclosed in Note . period in which they could be drawn or called. Hazard risk Nokia strives to ensure that all ﬁ nancial, reputation and other losses to the Group and our customers are minimized through preventive risk management measures. Insurance is purchased for risks, which cannot be eﬃ ciently internally managed and where insurance markets oﬀ er acceptable terms and conditions. The objective is to ensure that hazard risks, whether related to physical assets (e.g. buildings) or intel- lectual assets (e.g. Nokia) or potential liabilities (e.g. product liability) are optimally insured taking into account both cost and retention levels. Nokia purchases both annual insurance policies for speciﬁ c risks as well as multiline and/or multiyear insurance policies, where available.  N O K I A I N 2 0 1 1 PARENT COMPANY FINANCIAL STATEMENTS ACCORDING TO FINNISH ACCOUNTING STANDARDS INCOME STATEMENTS, PARENT COMPANY, FA S BAL ANCE SHEE TS, PARENT COMPANY, FA S Financial year ended December 31 Notes 2011 EURm 2010 EURm December 31 Notes 2011 EURm 2010 EURm Net sales Cost of sales Gross margin 17 240 20 639 – 12 979 – 15 363 ASSETS 4 261 5 276 Fixed assets and other non-current assets Selling and marketing expenses – 1 384 – 1 453 Research and development expenses – 2 888 – 3 142 Intangible assets 4 Capitalized development costs Administrative expenses Other operating expenses Other operating income – 227 – 586 203 – 217 – 124 341 Operating proﬁ t 2, 3 – 621 681 Financial income and expenses Income from long-term investments Dividend income from Group companies 3 696 396 Dividend income from other companies Other interest and ﬁ nancial income Interest income from Group companies Interest income from other companies Other ﬁ nancial income from other companies Exchange gains and losses Interest expenses and other ﬁ nancial expenses 1 20 5 8 65 Interest expenses to Group companies Interest expenses to other companies Impairment loss on investments in subsidiaries Other ﬁ nancial expenses Financial income and expenses, total – 53 – 72 – 1 461 – 98 2 111 1 8 4 15 – 374 – 24 – 63 — – 113 – 150 Intangible rights Other intangible assets Tangible assets Machinery and equipment Investments Investments in subsidiaries Investments in associated companies Long-term loan receivables from Group companies Long-term loan receivables from other companies Other non-current assets Current assets Inventories and work in progress Raw materials and supplies Work in progress Finished goods Receivables Deferred tax assets 5 6 6 6 — 36 319 355 1 1 3 35 446 484 — — 11 199 12 054 11 — 13 85 58 10 — 107 11 308 12 229 74 72 78 57 65 98 224 220 371 124 Proﬁ t before extraordinary items and taxes Trade debtors from Group companies 1 277 1 163 1 490 531 Trade debtors from other companies 497 568 Extraordinary items Group contributions Extraordinary items, total Proﬁ t before taxes Income taxes for the year from previous years deferred taxes — — – 6 – 6 1 490 525 18 – 138 – 106 – 14 204 – 2 123 Net proﬁ t 1 542 540 Total Short-term loan receivables from Group companies Prepaid expenses and accrued income 2 673 3 970 from Group companies 278 54 Prepaid expenses and accrued income from other companies 2 194 7 290 2 133 8 012 Short-term investments 37 37 Bank and cash 290 207 19 505 21 189 See Notes to the financial statements of the parent company. See Notes to the financial statements of the parent company.  P A R E N T C O M P A N Y STATEMENTS OF C A SH FLOWS, PARENT COMPANY, FA S December 31 Notes 2011 EURm 2010 EURm Financial year ended December 31 Notes 2011 EURm 2010 EURm SHAREHOLDERS’ EQUITY AND LIABILITIES Net proﬁ t Cash ﬂ ow from operating activities Shareholders’ equity Share capital Share issue premium Treasury shares Fair value reserve Reserve for invested non-restricted equity Retained earnings Net proﬁ t for the year 7 7, 8 7, 8 7, 8 7, 8 7, 8 246 46 246 — – 649 – 669 68 — Adjustments, total Cash ﬂ ow before change in net working capital Change in net working capital 13 Cash generated from operations Interest received Interest paid 3 132 3 145 Other ﬁ nancial income and expenses 2 128 3 072 Income taxes paid 1 542 540 Cash ﬂ ow before extraordinary items 6 513 6 334 Extraordinary income and expenses 1 542 13 – 1 740 540 457 997 478 1 475 10 – 127 – 158 – 223 977 10 – 198 – 440 – 638 28 – 205 87 – 165 – 893 – 6 Liabilities Net cash used in/from operating activities – 899 987 Long-term liabilities Long-term ﬁ nance liabilities to other companies Short-term liabilities Deferred tax liabilities Current ﬁ nance liabilities from Group companies Current ﬁ nance liabilities from other companies Advance payments from other companies Accrued expenses and prepaid income to Group companies Accrued expenses and prepaid income to other companies 9 3 528 3 430 65 — Cash ﬂ ow from investing activities Investments in shares Capital expenditures Proceeds from sale of shares Proceeds from sale of other intangible assets 4 215 4 876 Proceeds from short-term receivables Proceeds from other long-term receivables Dividends received – 563 – 66 – 104 – 191 2 17 21 1 179 2 656 14 — – 123 – 717 324 — 379 614 323 Net cash from/used in investing activities 3 246 – 797 Cash ﬂ ow from ﬁ nancing activities Other contribution from shareholders 46 — 52 32 Repayments/proceeds from short-term borrowings 2 098 1 857 Proceeds from long-term borrowings 9 464 11 425 Dividends paid – 938 1 335 112 97 – 1 484 – 1 483 Trade creditors to Group companies 1 799 3 433 Trade creditors to other companies 621 525 Total liabilities 12 992 14 855 Net cash used in ﬁ nancing activities – 2 264 – 51 Net increase/decrease in cash and cash equivalents Cash and cash equivalents at beginning of period 83 139 244 105 Total 19 505 21 189 Cash and cash equivalents at end of period 327 244 See Notes to the financial statements of the parent company. See Notes to the financial statements of the parent company.  N O K I A I N 2 0 1 1 NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY 1. ACCOUNTING PRINCIPLE S The Parent company Financial Statements are prepared ac- cording to Finnish Accounting Standards (FAS). See Note  to Notes to the consolidated ﬁ nancial state- ments. 2. PER SONNEL E XPENSE S EURm Wages and salaries Pension expenses Other social expenses Personnel expenses as per proﬁ t and loss account 2011 2010 800 136 27 912 141 39 963 1 092 Management compensation The following table sets forth the salary and cash incentive information awarded and paid or payable by the company to the Chief Executive Oﬃ cer and President of Nokia Corporation for ﬁ scal years – as well as the share-based compen- sation expense relating to equity-based awards, expensed by the company. 2011 2010 2009 Cash incentive salary payments Base Share-based compensation expense Cash Share-based incentive compensation expense salary payments Base Cash Share-based incentive compensation expense salary payments Base 1 020 000 473 070 2 086 351 280 303 440 137 67 018 — — — Total remuneration of the Nokia Leadership Team awarded for the ﬁ scal years – was EUR    in  (EUR    in  and EUR    in ), 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    in  (EUR    in  and EUR    in ). 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 Stephen Elop 3 Lalita D. Gupte 4 Bengt Holmström Henning Kagermann 5 Olli-Pekka Kallasvuo 6 Per Karlsson 7 Jouko Karvinen 8 Helge Lund Isabel Marey-Semper 9 Risto Siilasmaa 10 Kari Stadigh Keijo Suila 2011 2010 2009 Gross annual fee 1 Shares received Gross annual fee 1 Shares received Gross annual fee 1 Shares received EUR 440 000 150 000 29 604 10 092 — — — — — — 130 000 8 746 155 000 10 428 — 130 000 140 000 130 000 140 000 — 8 746 9 419 8 746 9 419 155 000 10 428 130 000 8 746 EUR 440 000 150 000 — — 140 000 130 000 130 000 130 000 155 000 — — 140 000 155 000 — 20 710 7 058 — — 6 588 6 117 6 117 6 117 7 294 — — 6 588 7 294 — EUR 440 000 16 575 150 000 155 000 — 140 000 130 000 130 000 130 000 155 000 — — 140 000 140 000 — 5 649 5 838 — 5 273 4 896 4 896 4 896 5 838 — — 5 273 5 273 — — — 130 000 6 117 130 000 4 896 EUR Stephen Elop President and CEO  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  Approximately % 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 remaining approximately % of the gross an- nual 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.  The  fee of Georg Ehrnrooth amounted to an annual total of EUR  , consisting of a fee of EUR   for services as a member of the Board and EUR   for services as Chairman of the Audit Commit- tee. 3. DEPRECIATION AND AMORTIZ ATION EURm 2011 2010 Depreciation and amortization by asset class category Intangible assets Capitalized development costs  Stephen Elop did not receive remuneration for his services as a member of the Board. This table does not include remuneration paid to Mr. Elop for services as the President and CEO. Intangible rights Other intangible assets  The  and  fees of Lalita D. Gupte amounted to an annual total of EUR   each year indicated, consisting of a fee of EUR   for services as a member of the Board and EUR   for services as a member of the Audit Committee.  The  fee of Henning Kagermann amounted to an annual total of EUR  , consisting of a fee of EUR   for services as a member of the Board and EUR   for services as Chairman of the Personnel Committee.  Olli-Pekka Kallasvuo left his position on the Nokia Board of Directors in . This table includes fees paid to Olli-Pekka Kallasvuo for his services as a member of the Board, only.  The  and  fees of Per Karlsson amounted to an annual total of EUR   each year indicated, consisting of a fee of EUR   for services as a member of the Board and EUR   for services as Chairman of the Personnel Committee.  The  fee of Jouko Karvinen amounted to an annual total of EUR  , consisting of a fee of EUR   for services as a member of the Board and EUR   for services as a member of the Audit Commit- tee.  The ,  and  fees paid to Isabel Marey-Semper amounted to an annual total of EUR   each year indicated, consisting of a fee of EUR   for services as a member of the Board and EUR   for services as a member of the Audit Committee.  The  and  fees paid to Risto Siilasmaa amounted to an annual total of EUR   each year indicated, consisting of a fee of EUR   for service as a member of the Board and EUR   for service as Chairman of the Audit Committee. The  fee of Risto Siilasmaa amounted to an annual total of EUR  , consisting of a fee of EUR   for services as a member of the Board and EUR   for services as a member of the Audit Committee. Pension arrangements of certain Nokia Leadership Team Members Stephen Elop, President and CEO, participates in the Finn- ish TyEL pension system, which provides for a retirement beneﬁ t based on years of service and earnings according to prescribed statutory rules. Under the Finnish TyEL pen- sion system, base pay, incentives and other taxable fringe beneﬁ ts are included in the deﬁ nition of earnings, although gains realized from equity are not. The Finnish TyEL pension scheme provides for early retirement beneﬁ ts at age  with a reduction in the amount of retirement beneﬁ ts. Standard retirement beneﬁ ts are available from age  to , according to an increasing scale. Personnel average Production Marketing R&D Administration 2011 2010 2 473 1 064 5 985 2 373 2 560 1 117 7 860 2 290 11 895 13 827 Personnel, December 31 10 262 13 017 Tangible assets Total Depreciation and amortization by function R&D Production Selling, marketing and administration Total 3 25 143 — 171 131 1 39 171 10 23 143 — 176 143 — 33 176 4. INTANGIBLE A SSE TS EURm 2011 2010 Capitalized development costs Acquisition cost January 1 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 31 284 — 284 – 281 — – 3 – 284 3 — 228 28 – 5 251 – 193 3 – 25 – 215 35 36 790 36 – 44 782 – 344 24 – 143 – 463 446 319 288 – 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  N O K I A I N 2 0 1 1 5. TANGIBLE A SSE TS At the end of  and  the parent company had no tangible assets. These assets were leased from Nokia Asset Management Oy, a company wholly owned by Nokia Corporation. 6. INVE STMENTS EURm 2011 2010 Investments in subsidiaries Acquisition cost January 1 12 054 12 109 Additions Impairments Disposals 608 – 1 360 96 — – 103 – 151 Net carrying amount December 31 11 199 12 054 Investments in associated companies Acquisition cost January 1 Additions Impairments Net carrying amount December 31 Investments in other shares Acquisition cost January 1 Additions Impairments Disposals Net carrying amount December 31 7. SHAREHOLDER S’ EQUIT Y 58 2 – 49 11 107 32 – 52 – 2 85 30 28 — 58 74 57 — – 24 107 Parent Company, EURm Share Share issue premium capital Reserve for invested Treasury Fair value non-restricted equity reserve shares Balance at December 31, 2008 246 — – 1 885 — 3 291 Cancellation of treasury shares Settlement of performance and restricted shares Dividend Net proﬁ t 969 231 – 137 Balance at December 31, 2009 246 — – 685 — 3 154 Retained earnings 6 238 – 969 Total 7 890 — 94 – 1 481 – 1 481 767 4 555 767 7 270 16 – 9 7 Settlement of performance and restricted shares Dividend Net proﬁ t Balance at December 31, 2010 246 Other contribution from shareholders Settlement of performance and restricted shares Fair value reserve increase Dividend Net proﬁ t – 669 — 3 145 — 46 20 – 13 68 – 1 483 – 1 483 540 3 612 540 6 334 46 7 68 – 1 484 – 1 484 1 542 3 670 1 542 6 513 Balance at December 31, 2011 246 46 – 649 68 3 132  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 E ARNINGS 13. NOTE S TO C A SH FLOW STATEMENTS EURm 2011 2010 EURm 2011 2010 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 (+) 171 – 107 – 3 529 6 1 461 258 – 1 740 176 – 14 248 – 5 — 52 457 209 – 200 Inventories, increase (–), decrease (+) — – 3 Interest-free short-term liabilities, increase (+), decrease (–) – 649 – 440 681 478 14. PRINCIPAL NOKIA GROUP COMPANIE S ON DECEMBER 31, 2011 See note  to Notes to the consolidated ﬁ nancial statements. 15. NOKIA SHARE S AND SHAREHOLDER S See Nokia shares and shareholders p. –. 16. ACCRUED INCOME Reserve for invested non-restricted equity 3 132 Retained earnings from previous years Net proﬁ t for the year Retained earnings, total Treasury shares Distributable earnings, December 31 2 128 1 542 6 802 – 649 6 153 3 145 3 072 540 6 757 – 669 6 088 9. LONG -TERM LIABILITIE S EURm 2011 2010 Long-term ﬁ nancial liabilities Bonds Loans from ﬁ nancial institutions Long-term liabilities, total 3 028 2 930 500 500 3 528 3 430 Long-term liabilities repayable after 5 years Change in net working capital Bonds Loans from ﬁ nancial institutions Long-term liabilities, total 1 731 1 640 — — 1 731 1 640 Bonds Million Interest, % 2009 –2014 1 250 EUR 2009–2019 1 000 USD 2009–2019 2009–2039 500 EUR 500 USD 5.534 5.572 6.792 6.775 1 297 1 290 799 543 389 753 524 363 3 028 2 930 10. COMMITMENTS AND CONTINGENCIE S EURm 2011 2010 EURm Taxes Other Total Contingent liabilities on behalf of Group companies Guarantees for loans Leasing guarantees Other guarantees Contingent liabilities on behalf of other companies Guarantees for loans Other guarantees 11. LE A SING CONTR AC TS At December ,  the leasing contracts of the Parent Company amounted to EUR  million (EUR  million in ). EUR  million will expire in  (EUR  million in ). 12. LOANS GR ANTED TO THE MANAGEMENT OF THE COMPANY There were no loans granted to the members of the Group Executive Board and Nokia Leadership team at December , . 17. ACCRUED E XPENSE S 2 204 65 68 243 63 EURm Personnel expenses — 3 — 3 Taxes Other Total 18. INCOME TA X EURm Income tax from operations Other income tax Total 2011 2010 85 2 386 2 471 67 2 119 2 186 2011 2010 134 — 2 016 2 150 201 — 1 688 1 889 2011 2010 138 — 138 108 – 2 106 Income taxes are shown separately in the Notes to the ﬁ nan- cial statements as they have been shown as a one-line item on the face of the proﬁ t and loss statement.  N O K I A I N 2 0 1 1 NOKIA SHARES AND SHAREHOLDERS SHARE S AND SHARE C APITAL Nokia has one class of shares. Each Nokia share entitles the holder to one vote at General Meetings of Nokia. Group companies representing approximately .% of the share capital and the total voting rights. On December , , the share capital of Nokia Under the Articles of Association of Nokia, Nokia Corporation was EUR   . and the total number of shares issued was    . On December , , the total number of shares included    shares owned by Corporation does not have minimum or maximum share capi- tal or a par value of a share. Share capital and shares December 31, 2011 Share capital, EURm Shares (1 000) 2011 246 2010 246 2009 246 2008 246 2007 246 3 744 956 3 744 956 3 744 956 3 800 949 3 982 812 Shares owned by the Group (1 000) 34 767 35 826 36 694 103 076 136 862 Number of shares excluding shares owned by the Group (1 000) 3 710 189 3 709 130 3 708 262 3 697 872 3 845 950 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 3 709 947 3 708 816 3 705 116 3 743 622 3 885 408 3 709 947 3 713 250 3 721 072 3 780 363 3 932 008 229 096 191 790 156 081 122 713 103 226  Each account operator is included in the figure as only one registered shareholder Key ratios December 31, 2011, IFRS (calculation see page 86) 2011 2010 2009 2008 2007 Earnings per share for proﬁ t 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 – 0.31 – 0.31 neg. 0.20 1 749 1 neg. 1 5.30 1 3.20 0.50 0.50 15.48 0.40 1 498 0.80 5.17 3.88 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 13 987 28 709 33 078 41 046 101 995   Dividend to be proposed by the Board of Directors for shareholders’ approval at the Annual General Meeting convening on May , .  Calculated for all the shares of the company as of the applicable year-end.  Shares owned by the Group companies are not included. AUTHORIZ ATIONS Authorization to increase the share capital At the Annual General Meeting held on May , , Nokia shareholders authorized the Board of Directors to issue a maximum of  million shares through one or more issues of shares or special rights entitling to shares, including stock options. The Board of Directors may issue either new shares or shares held by the Company. The authorization includes the right for the Board to resolve on all the terms and conditions of such issuances of shares and special rights, including to whom the shares and the special rights may be issued. The authoriza- tion may be used to develop the Company’s capital structure, diversify the shareholder base, ﬁ nance or carry out acquisi- tions or other arrangements, settle the Company’s equity- based incentive plans, or for other purposes resolved by the Board. The authorization is eﬀ ective until June , . At the end of , the Board of Directors had no other authorizations to issue shares, convertible bonds, warrants or stock options. Other authorizations At the Annual General Meeting held on May , , Nokia shareholders authorized the Board of Directors to repurchase a maximum of  million Nokia shares by using funds in the unrestricted equity. Nokia did not repurchase any shares on the basis of this authorization. This authorization was eﬀ ec- tive until June ,  as per the resolution of the Annual  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 S General Meeting on May , , but it was terminated by the resolution of the Annual General Meeting on May , . At the Annual General Meeting held on May , , Nokia shareholders authorized the Board of Directors to repurchase a maximum of  million Nokia shares by using funds in the unrestricted equity. The amount of shares corresponds to less than % of all the shares of the Company. The shares may be repurchased under the buyback authorization in order to develop the capital structure of the Company. In addition, shares may be repurchased in order to ﬁ nance or carry out acquisitions or other arrangements, to settle the Company’s equity-based incentive plans, to be transferred for other purposes, or to be cancelled. The authorization is eﬀ ective until June , . Authorizations proposed to the Annual General Meeting 2012 On January , , Nokia announced that the Board of Directors will propose that the Annual General Meeting convening on May ,  authorize the Board to resolve to repurchase a maximum of  million Nokia shares. The pro- posed maximum number of shares that may be repurchased is the same as the Board’s current share repurchase authori- zation and it corresponds to less than % of all the shares of the company. The shares may be repurchased in order to develop the capital structure of the Company, ﬁ nance or carry out acquisitions or other arrangements, settle the com- pany’s equity-based incentive plans, be transferred for other purposes, or be cancelled. The shares may be repurchased either through a tender oﬀ er made to all shareholders on equal terms, or through public trading from the stock market. The authorization would be eﬀ ective until June ,  and terminate the current authorization for repurchasing of the Company’s shares resolved at the Annual General Meeting on May , . Stock Option exercises – Year Stock Option Category Subscription Number of price new shares (1 000) EUR Date of payment Net New share capital EURm proceeds EURm 2007 2008 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 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 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 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 43 513 17 243 49 9 683 53 48 1 569 30 25 1 350 4 13 13 631 7 57 248 2 444 11 82 415 5 13 361 5 0 1 192 11 6 0 0 0 3 546 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 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 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 — — — — 0.15 — — 0.03 — — 0.02 — — — — — 0.20 — — — — — — — — — — — — — — — —  N O K I A I N 2 0 1 1 Year Stock option category Subscription Number of price new shares (1 000) EUR Date of payment Net New share capital EURm proceeds EURm 2009 2010 2011 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 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 Nokia Stock Option Plan 2009 4Q Nokia Stock Option Plan 2010 1Q Nokia Stock Option Plan 2010 2Q Nokia Stock Option Plan 2010 3Q Total  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 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 10.11 8.86 7.29 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 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 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 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 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 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 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 S Reductions of share capital Type of reduction Cancellation of shares Cancellation of shares Cancellation of shares Cancellation of shares Cancellation of shares Share turnover Share turnover (1 000) Total number of shares (1 000) % of total number of shares Number of shares (1 000) 169 500 185 410 56 000 — — Year 2007 2008 2009 2010 2011 Amount of reduction of the share capital EURm Amount of reduction of the restricted capital EURm Amount of reduction of the retained earnings EURm — — — — — — — — — — — — — — — 2011 1 2010 1 2009 1 2008 2 2007 2 15 696 008 12 299 112 11 025 092 12 962 489 12 695 999 3 744 956 3 744 956 3 744 956 3 800 949 3 982 812 419 328 294 341 319   Includes share turnover in NASDAQ OMX Helsinki, New York Stock Exchange and Frankfurter Wertpapierbörse. Includes share turnover in all exchanges. Share prices, EUR (NASDAQ OMX Helsinki) Low/high Average 1 Year-end  Calculated by weighting average price with daily volumes. Share prices, USD (New York Stock Exchange) 2011 2010 2009 2008 2007 3.33/8.49 6.59/11.82 6.67/12.25 9.95/25.78 14.63/28.60 5.19 3.77 8.41 7.74 9.64 8.92 17.35 11.10 20.82 26.52 ADS Low/high Average 1 Year-end 2011 2010 2009 2008 2007 4.46/11.75 8.00/15.89 8.47/16.58 12.35/38.25 19.08/41.10 7.13 4.82 11.11 10.32 13.36 12.85 24.88 15.60 29.28 38.39  Calculated by weighting average price with daily volumes. Nokia share prices on NASDAQ OMX Helsinki (EUR) Nokia ADS prices on the New York Stock Exchange (USD) 35 30 25 20 15 10 5 0 | | | | | 45 40 35 30 25 20 15 10 5 0 | | | | | / / / / / / / / / /  N O K I A I N 2 0 1 1 Shareholders, December 31, 2011 Shareholders registered in Finland represented .% and shareholders registered in the name of a nominee represent- ed .% of the total number of shares of Nokia Corpora- tion. The number of registered shareholders was   on December , . Each account operator () is included in this ﬁ gure as only one registered shareholder. Largest shareholders registered in Finland, December ,   Nominee registered shareholders include holders of American Depositary Receipts (ADR). As of December , , ADRs represented .% of the total number of shares in Nokia. Shareholder Ilmarinen Mutual Pension Insurance Company Varma Mutual Pension Insurance Company The State Pension Fund Svenska Litteratursällskapet i Finland rf OP-Delta Fund Sigrid Jusélius Foundation Mutual Insurance Company Pension Fennia Schweizerische Nationalbank Nordea Suomi Fund Keva (Local Government Pensions Institutions) Total number of shares (1 000) % of all shares % of all voting rights 79 889 40 002 23 000 14 226 12 600 9 400 8 181 7 923 7 300 5 836 2.13 1.07 0.61 0.38 0.34 0.25 0.22 0.21 0.19 0.16 2.15 1.08 0.62 0.38 0.34 0.25 0.22 0.21 0.20 0.16  Excluding nominee registered shares and shares owned by Nokia Corporation. Nokia Corporation owned    shares as of December , . Breakdown of share ownership, December ,   By number of shares owned 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 Number of shareholders % of shareholders Total number of shares % of all shares 47 949 115 427 58 462 6 812 341 43 43 19 20.93 50.38 25.52 2.97 0.15 0.02 0.02 0.01 229 096 100.00 2 939 023 52 109 957 175 741 877 165 606 238 68 676 745 30 491 834 105 647 022 3 143 743 356 3 744 956 052 0.08 1.39 4.69 4.42 1.83 0.81 2.82 83.95 100.00 By nationality, % Non-Finnish shareholders Finnish shareholders Total By shareholder category (Finnish shareholders), % Corporations Households Financial and insurance institutions Non-proﬁ t organizations General government Total Shares 78.15 21.85 100.00 Shares 2.86 9.94 2.47 1.86 4.72 21.85  Please note that the breakdown covers only shareholders registered in Finland, and each account operator () is included in the number of shareholders as only one registered shareholder. Due to this, the break- down is not illustrative to the entire shareholder base of Nokia. SHARE S AND STOCK OPTIONS OWNED BY THE MEMBER S OF THE BOARD OF DIREC TOR S AND NOKIA LE ADER SHIP TE AM Members of the Board of Directors and the Nokia Leadership Team owned on December , , an aggregate of    shares which represented approximately .% of the ag- gregate number of shares and voting rights. They also owned stock options which, if exercised in full, including both exercis- able and unexercisable stock options, would be exercisable for additional    shares representing approximately .% of the total number of shares and voting rights on December , .  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 S  N O K I A I N 2 0 1 1 NOKIA GROUP 2007–2011, IFRS* 2011 2010 2009 2008 2007 Proﬁ t and loss account, EURm Net sales Cost and expenses Operating proﬁ t Share of results of associated companies Financial income and expenses Proﬁ t before tax Tax Proﬁ t 38 659 – 39 732 – 1 073 – 23 – 102 – 1 198 – 290 – 1 488 Proﬁ t attributable to equity holders of the parent – 1 164 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 ﬁ nancial liabilities Accounts payable Accrued expenses and other liabilities Provisions Total assets 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 42 446 – 40 376 2 070 40 984 – 39 787 1 197 1 – 285 1 786 – 443 1 343 1 850 – 507 1 343 11 978 27 145 2 523 12 347 12 275 16 231 30 – 265 962 – 702 260 891 – 631 260 12 125 23 613 1 865 12 875 8 873 14 749 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 – 324 – 1 488 10 750 25 455 2 330 12 223 10 902 13 916 11 873 14 384 13 088 14 208 2 043 4 845 3 969 800 76 1 847 5 352 4 242 1 022 88 1 661 5 801 4 432 1 303 66 2 302 2 717 861 1 787 69 17 444 17 540 15 188 20 355 18 976 357 995 483 5 532 7 450 2 627 116 921 447 6 101 7 365 2 590 44 727 245 4 950 6 504 2 718 13 3 578 924 5 225 7 023 3 592 173 714 184 7 074 7 114 3 717 36 205 39 123 35 738 39 582 37 599 * As of April , , 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 – are not directly compara- ble to the results for the full year . Nokia’s first quarter  results included Nokia’s former Networks business group only. On July , , Nokia completed the acquisition of NAVTEQ Corporation. NAVTEQ was a separate reportable segment of Nokia starting from the third quarter  until end of third quarter . Accordingly, the results of NAVTEQ are not available for prior period. As of October , , Loca- tion & Commerce was formed by combining the NAVTEQ business with Devices & Services social location services operations.  N O K I A G R O U P 2 0 0 7 – 2 0 1 1 , 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 proﬁ t, EURm % of net sales Financial income and expenses, EURm % of net sales Proﬁ t before tax, EURm % of net sales Proﬁ t 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 2011 38 659 – 8.9 38 342 7 516 – 1 073 – 2.8 – 102 – 0.3 – 1 198 – 3.0 – 1 164 – 3.0 290 749 2 597 1.5 710 1.8 5 612 14.5 2010 42 446 3.6 42 075 2009 40 984 – 19.2 40 594 6 947 2 070 4.9 – 285 0.7 1 786 4.2 1 850 4.4 443 1 498 679 1.6 836 2.0 5 863 13.8 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 2008 50 710 – 0.7 50 348 6 847 4 966 9.8 – 2 — 4 970 9.8 3 988 7.9 1 081 1 520 889 1.8 1 166 2.3 5 968 11.8 2007 51 058 24.2 50 736 5 702 7 985 15.6 239 0.5 8 268 16.2 7 205 14.1 1 522 2 111 715 1.4 1 017 2.0 5 647 11.1 134 171 129 355 123 171 121 723 100 534 Non-interest bearing liabilities, EURm Interest-bearing liabilities, EURm 16 168 5 321 16 591 5 279 14 483 5 203 16 833 4 452 18 208 1 090 Return on capital employed, % Return on equity, % Equity ratio, % Net debt to equity, % neg. neg. 40.1 – 40 11.0 13.5 42.8 – 43 6.7 6.5 41.9 – 25 27.2 27.5 42.3 – 14 54.8 53.9 46.7 – 62  As of April , , 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 – are not directly compara- ble to the results for the full year . Nokia’s first quarter  results included Nokia’s former Networks business group only. On July , , Nokia completed the acquisition of NAVTEQ Corporation. NAVTEQ was a separate reportable segment of Nokia starting from the third quarter  until end of third quarter . Accordingly, the results of NAVTEQ are not available for prior period. As of October , , Loca- tion & Commerce was formed by combining the NAVTEQ business with Devices & Services social location services operations.  Board’s proposal  Includes acquisitions, investments in shares and capitalized development costs. Calculation of Key Ratios, see page .  N O K I A I N 2 0 1 1 CALCULATION OF KEY RATIOS KE Y R ATIOS UNDER IFR S Operating proﬁ t Proﬁ t after depreciation Shareholders’ equity Share capital + reserves attﬁ butable to the Company’s equity holders Earnings per share (basic) Proﬁ t attributable to equity holders of the parent Average of adjusted number of shares during the year P/E ratio Adjusted share price, December  Earnings per share Dividend per share Nominal dividend per share The adjustment coeﬃ cients of the share issues that have taken place during or after the year in question Payout ratio Dividend per share Earnings per share Dividend yield, % Nominal dividend per share Share price Shareholders’ equity per share Capital and reserves attributable to the Company’s equity holders Adjusted number of shares at year end Market capitalization Number of shares x share price per share class Adjusted average share price Amount traded, in EUR, during the period Adjusted number of shares traded during the period Share turnover, % Number of shares traded during the period Average number of shares during the period Return on capital employed, % Proﬁ t before taxes + interest and other net ﬁ nancial expenses Average capital and reserves attributable to the Company’s equity holders + short-term borrowings + long-term interest-bearing liabilities (including the current portion thereof) + non-controlling interests Return on shareholders’ equity, % Proﬁ t 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 Total assets – advance payments received Net debt to equity (gearing), % Long-term interest-bearing liabilities (including the current portion thereof) + short-term borrowings – cash and other liquid assets Capital and reserves attributable to the equity holders of the parent + non-controlling interests Year-end currency rates  USD GBP CNY INR RUB JPY 1 EUR = 1.3059 0.8391 8.2723 69.0430 41.7680 101.70  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 1 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 2011 AND PROPOSAL BY THE BOARD OF DIRECTORS FOR DISTRIBUTION OF PROFIT The distributable funds in the balance sheet of the Company as per December ,  amount to EUR   million. The Board proposes that from the retained earnings a divi- dend of EUR . per share is to be paid out on the shares of the Company. As per December , , the number of shares of the Company amounted to    , based on which the maximum amount to be distributed as dividend is EUR  million. The proposed dividend is in line with the Company’s distribu- tion policy and it signiﬁ cantly exceeds the minority dividend required by law. Espoo, March ,  Jorma Ollila Chairman Marjorie Scardino Bengt Holmström Henning Kagermann Per Karlsson Jouko Karvinen Helge Lund Isabel Marey-Semper Risto Siilasmaa Kari Stadigh Stephen Elop President and CEO  N O K I A I N 2 0 1 1 AUDITORS’ REPORT TO THE ANNUAL GENER AL MEE TING OF NOKIA CORPOR ATION We have audited the accounting records, the ﬁ nancial state- ments, the review by the Board of Directors and the adminis- tration of Nokia Corporation for the year ended  December . The ﬁ nancial statements comprise the consolidated statement of ﬁ nancial position, income statement, statement of comprehensive income, statement of cash ﬂ ows, statement of changes in shareholders’ equity and notes to the consoli- dated ﬁ nancial statements, as well as the parent company’s balance sheet, income statement, statement of cash ﬂ ows and notes to the ﬁ nancial statements. Responsibility of the Board of Directors and the Managing Director The Board of Directors and the Managing Director are respon- sible for the preparation of consolidated ﬁ nancial 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 ﬁ nancial statements and the review by the Board of Directors that give a true and fair view in accordance with the laws and regulations governing the preparation of the ﬁ nancial statements and the review by the Board of Directors in Finland. The Board of Directors is responsible for the appropriate arrangement of the control of the company’s accounts and ﬁ nances, and the Managing Director shall see to it that the accounts of the company are in compliance with the law and that its ﬁ nancial aﬀ airs have been arranged in a reliable manner. Auditor’s responsibility Our responsibility is to express an opinion on the ﬁ nancial statements, on the consolidated ﬁ nancial statements and on the review by the Board of Directors based on our audit. The Auditing Act requires that we comply with the requirements of professional ethics. We conducted our audit in accordance with good auditing practice in Finland. Good auditing practice requires that we plan and perform the audit to obtain reason- able assurance about whether the ﬁ nancial statements and the review by the Board of Directors are free from material misstatement, and whether the members of the Board of Directors of the parent company and the Managing Director 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. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ﬁ nancial statements and the review by the Board of Directors. The procedures selected depend on the auditor’s judgment, in- cluding the assessment of the risks of material misstatement, whether due to fraud or error. In making those risk assess- ments, the auditor considers internal control relevant to the entity’s preparation of the ﬁ nancial statements and the review by the Board of Directors that give a true and fair view in order to design audit procedures that are appropriate in the circum- stances, but not for the purpose of expressing an opinion on the eﬀ ectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall pres- entation of the ﬁ nancial statements and the review by the Board of Directors. We believe that the audit evidence we have obtained is suf- ﬁ cient and appropriate to provide a basis for our audit opinion. Opinion on the consolidated ﬁ nancial statements In our opinion, the consolidated ﬁ nancial statements give a true and fair view of the ﬁ nancial position, ﬁ nancial per- formance, and cash ﬂ ows of the group in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. Opinion on the company’s ﬁ nancial statements and the review by the Board of Directors In our opinion, the ﬁ nancial statements and the review by the Board of Directors give a true and fair view of both the con- solidated and the parent company’s ﬁ nancial performance and ﬁ nancial position in accordance with the laws and regulations governing the preparation of the ﬁ nancial statements and the review by the Board of Directors in Finland. The information in the review by the Board of Directors is consistent with the information in the ﬁ nancial statements. Other opinions We support that the ﬁ nancial statements should be adopted. The proposal by the Board of Directors regarding the distribu- tion of the proﬁ t shown in the balance sheet is in compliance with the Limited Liability Companies Act. We support that the Members of the Board of Directors and the Managing Director should be discharged from liability for the ﬁ nancial period audited by us. Helsinki,  March,  PricewaterhouseCoopers Oy Authorised Public Accountants Merja Lindh Authorised Public Account  ADDITIONAL INFORMATION Critical accounting policies ...................................................................................... 90 Corporate governance statement Corporate governance .......................................................................................... 98 Board of Directors ............................................................................................... 104 Nokia Leadership Team ....................................................................................... 107 Compensation of the Board of Directors and the Nokia Leadership Team ............................................................................. 110 Auditors fees and services ..................................................................................... 132 Investor information ................................................................................................ 133 Contact information ................................................................................................. 135 N O K I A I N 2 0 1 1 CRITICAL ACCOUNTING POLICIES Our accounting policies aﬀ ecting our ﬁ nancial condition and results of operations are more fully described in Note  to our consolidated ﬁ nancial statements. Some of our accounting policies require the application of judgment by management in selecting appropriate assumptions for calculating ﬁ nancial estimates, which inherently contain some degree of uncer- tainty. Management bases its estimates on historical experi- ence and various other assumptions that are believed to be reasonable under the circumstances. The related results form the basis for making judgments about reported carrying values of assets and liabilities and reported amounts of revenues and expenses that may not be readily apparent from other sources. The Group will revise material estimates if changes occur in the circumstances on which an estimate was based or as a result of new information or more experience. Actual results may diﬀ er from current estimates under diﬀ erent assumptions or condi- tions. The estimates aﬀ ect all our businesses equally unless otherwise indicated. The following paragraphs discuss critical accounting policies and related judgments and estimates used in the preparation of our consolidated ﬁ nancial statements. We have discussed the application of these critical accounting estimates with our Board of Directors and Audit Committee. RE VENUE RECOGNITION Majority of the Group’s sales are recognized when the signiﬁ - cant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and eﬀ ective control have ceased, the amount of revenue can be measured reliably, it is probable that eco- nomic beneﬁ ts associated with the transaction will ﬂ ow to the Group, and the costs incurred or to be incurred in respect of the transaction can be measured reliably. The remainder of rev- enue is recorded under the percentage of completion method. Devices & Services and certain Local & Commerce and Nokia Siemens Networks revenues are generally recognized when the signiﬁ cant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associ- ated with ownership and eﬀ ective control have ceased, the amount of revenue can be measured reliably, it is probable that economic beneﬁ ts associated with the transaction will ﬂ ow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. This requires us to assess at the point of delivery whether these criteria have been met. When management determines that such criteria have been met, revenue is recognized. We record estimated reduc- tions to revenue for special pricing agreements, price protec- tion and other volume based discounts at the time of sale, mainly in the mobile device business. Sales adjustments for volume based discount programs are estimated largely based on historical activity under similar programs. Price protection adjustments are based on estimates of future price reduc- tions and certain agreed customer inventories at the date of the price adjustment. Devices & Services and certain Nokia Siemens Networks service revenue is generally recognized on a straight line basis over the service period unless there is evi- dence that some other method better represents the stage of completion. Devices & Services and Location & Commerce li- cense fees from usage are recognized in the period when they are reliably measurable which is normally when the customer reports them to the Group. Devices & Services, Location & Commerce and Nokia Siemens Networks may enter into multiple component trans- actions consisting of any combination of hardware, services and software. The commercial eﬀ ect of each separately identiﬁ able element of the transaction is evaluated in order to reﬂ ect the substance of the transaction. The considera- tion from these transactions is allocated to each separately identiﬁ able component based on the relative fair value of each component. The consideration allocated to each component is recognized as revenue when the revenue recognition criteria for that element have been met. The Group determines the fair value of each component by taking into consideration factors such as the price when the component is sold sepa- rately by the Group, the price when a similar component is sold separately by the Group or a third party and cost plus a reasonable margin. Nokia Siemens Networks revenue and cost of sales from contracts involving solutions achieved through modiﬁ cation of complex telecommunications equipment is recognized on the percentage of completion basis when the outcome of the contract can be estimated reliably. This occurs when total contract revenue and the cost to complete the contract can be estimated reliably, it is probable that economic beneﬁ ts associated with the contract will ﬂ ow to the Group, and the stage of contract completion can be measured. When we are not able to meet one or more of those conditions, the policy is to recognize revenues only equal to costs incurred to date,  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 to the extent that such costs are expected to be recovered. Completion is measured by reference to costs incurred to date as a percentage of estimated total project costs using the cost-to-cost method. The percentage of completion method relies on estimates of total expected contract revenue and costs, as well as the dependable measurement of the progress made towards completing the particular project. Recognized revenues and proﬁ t are subject to revisions during the project in the event that the assumptions regarding the overall project outcome are revised. The cumulative impact of a revision in estimates is recorded in the period such revisions become probable and can be estimated reliably. Losses on projects in progress are recognized in the period they become probable and can be estimated reliably. Nokia Siemens Networks’ current sales and proﬁ t estimates for projects may change due to the early stage of a long-term project, new technology, changes in the project scope, chang- es in costs, changes in timing, changes in customers’ plans, realization of penalties, and other corresponding factors. CUSTOMER FINANCING We have provided a limited number of customer ﬁ nancing arrangements and agreed extended payment terms with se- lected customers. In establishing credit arrangements, man- agement must assess the creditworthiness of the customer and the timing of cash ﬂ ows expected to be received under the arrangement. However, should the actual ﬁ nancial position of our customers or general economic conditions diﬀ er from our assumptions, we may be required to reassess the ultimate collectability of such ﬁ nancings and trade credits, which could result in a write-oﬀ of these balances in future periods and thus negatively impact our proﬁ ts in future periods. Our as- sessment of the net recoverable value considers the collateral and security arrangements of the receivable as well as the likelihood and timing of estimated collections. From time to time, the Group endeavors to mitigate this risk through trans- fer of its rights to the cash collected from these arrangements to third-party ﬁ nancial institutions on a non-recourse basis in exchange for an upfront cash payment. During the past three ﬁ scal years the Group has not had any write-oﬀ s or impair- ments regarding customer ﬁ nancing. The ﬁ nancial impact of the customer ﬁ nancing related assumptions mainly aﬀ ects the Nokia Siemens Networks business. See also Note (b) to our consolidated ﬁ nancial statements for a further discussion of long-term loans to customers and other parties. ALLOWANCE S FOR DOUBTFUL ACCOUNTS We maintain allowances for doubtful accounts for estimated losses resulting from the subsequent inability of our custom- ers to make required payments. If ﬁ nancial conditions of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required in future periods. Management speciﬁ cally ana- lyzes accounts receivables and historical bad debt, customer concentrations, customer creditworthiness, current eco- nomic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Based on these estimates and assumptions the al- lowance for doubtful accounts was EUR  million at the end of  (EUR  million at the end of ). INVENTORY-REL ATED ALLOWANCE S We periodically review our inventory for excess, obsolescence and declines in market value below cost and record an allow- ance against the inventory balance for any such declines. These reviews require management to estimate future demand for our products. Possible changes in these estimates could result in revisions to the valuation of inventory in future periods. Based on these estimates and assumptions, the al- lowance for excess and obsolete inventory was EUR  million at the end of  (EUR  million at the end of ). The ﬁ nancial impact of the assumptions regarding this allowance aﬀ ects mainly the cost of sales of the Devices & Services and Nokia Siemens Networks businesses. WARR ANT Y PROVISIONS We provide for the estimated cost of product warranties at the time revenue is recognized. Our products are covered by product warranty plans of varying periods, depending on local practices and regulations. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligations are aﬀ ected by actual product failure rates (ﬁ eld failure rates) and by material usage and service delivery costs incurred in correcting a product failure. Our warranty provision is established based upon our best estimates of the amounts necessary to settle future  N O K I A I N 2 0 1 1 and existing claims on products sold as of the balance sheet date. As we continuously introduce new products which incorporate complex technology, and as local laws, regulations and practices may change, it will be increasingly diﬃ cult to anticipate our failure rates, the length of warranty periods and repair costs. While we believe that our warranty provisions are adequate and that the judgments applied are appropriate, the ultimate cost of product warranty could diﬀ er materially from our estimates. When the actual cost of quality of our products is lower than we originally anticipated, we release an appropri- ate 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  million at the end of  (EUR  million at the end of ). The ﬁ nancial impact of the assumptions regarding this provision mainly aﬀ ects the cost of sales of our Devices & Services business. PROVISION FOR INTELLEC TUAL PROPERT Y RIGHTS, OR IPR, INFRINGEMENTS We provide for the estimated future settlements related to asserted and unasserted past alleged IPR infringements based on the probable outcome of each potential infringement. Our products include increasingly complex technologies involving numerous patented and other proprietary technolo- gies. Although we proactively try to ensure that we are aware of any patents and other intellectual property rights related to our products under development and thereby avoid inad- vertent infringement of proprietary technologies, the nature of our business is such that patent and other intellectual property right infringements may and do occur. We identify potential IPR infringements through contact with parties claiming infringement of their patented or otherwise exclusive technology, or through our own monitoring of developments in patent and other intellectual property right cases involving our competitors. 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 identiﬁ ed potential infringement will result in a probable outﬂ ow of resources, we record a liability based on our best estimate of the expenditure required to settle infringement proceedings. Based on these estimates and assumptions the provision for IPR infringements was EUR  million at the end of  (EUR  million at the end of ). The ﬁ nancial impact of the assumptions regarding this provi- sion mainly aﬀ ects our Devices & Services business. Our experience with claims of IPR infringement is that there is typically a discussion period with the accusing party, which can last from several months to years. In cases where a settlement is not reached, the discovery and ensuing legal process typically lasts a minimum of one year. For this rea- son, 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. LEGAL CONTINGENCIE S As discussed in Note  to the consolidated ﬁ nancial state- ments, legal proceedings covering a wide range of matters are pending or threatened in various jurisdictions against the Group. We record provisions for pending litigation when we determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inher- ent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates. C APITALIZED DE VELOPMENT COSTS We capitalize certain development costs primarily in the Nokia Siemens Networks business when it is probable that a devel- opment project will be a success, the development project will generate further economic beneﬁ ts and certain criteria, including commercial and technical feasibility, have been met. These costs are then amortized on a systematic basis over their expected useful lives, which due to the constant develop- ment of new technologies is between two to ﬁ ve years. During the development stage, management must estimate the commercial and technical feasibility of these projects as well as their expected useful lives. Should a product fail to substanti- ate its estimated feasibility or life cycle, we may be required to write oﬀ excess development costs in future periods. Whenever there is an indicator that development costs capitalized for a speciﬁ c project may be impaired, the recover- able amount of the asset is estimated. An asset is impaired when the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is deﬁ ned as the higher of  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 an asset’s net selling price and value in use. Value in use is the present value of discounted estimated future cash ﬂ ows ex- pected to arise from the continuing use of an asset and from its disposal at the end of its useful life. For projects still in de- velopment, these estimates include the future cash outﬂ ows that are expected to occur before the asset is ready for use. See Note  to our consolidated ﬁ nancial statements. Impairment reviews are based upon our projections of anticipated discounted future cash ﬂ ows. The most signiﬁ cant variables in determining cash ﬂ ows are discount rates, termi- nal values, the number of years on which to base the cash ﬂ ow projections, as well as the assumptions and estimates used to determine the cash inﬂ ows and outﬂ ows. Management de- termines 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 ﬂ ows over that period. While we believe that our assumptions are appropriate, such amounts estimated could diﬀ er materially from what will actually occur in the future. BUSINE SS COMBINATIONS We apply the acquisition method of accounting to account for acquisitions of businesses. The consideration transferred in a business combination is measured as the aggregate of the fair values of the assets transferred, liabilities incurred towards the former owners of the acquired business and equity instru- ments issued. Acquisition-related costs are recognized as expense in proﬁ t and loss in the periods when the costs are incurred and the related services are received. Identiﬁ able as- sets acquired and liabilities assumed are measured separately at their fair value as of the acquisition date. Non-controlling interests in the acquired business are 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 identiﬁ able net assets acquired is recorded as goodwill. The determination and allocation of fair values to the identiﬁ able assets acquired and liabilities assumed is based on various assumptions and valuation methodologies requir- ing considerable management judgment. The most signiﬁ cant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash ﬂ ow projections, as well as the assumptions and estimates used to determine the cash inﬂ ows and outﬂ ows. Management deter- mines the 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 ﬂ ows over that period. Although we believe that the assump- tions applied in the determination are reasonable based on information available at the date of acquisition, actual results may diﬀ er from the forecasted amounts and the diﬀ erence could be material. VALUATION OF LONG -LIVED A SSE TS, INTANGIBLE A SSE TS AND GOODWILL We assess the carrying amount of identiﬁ able intangible assets and long-lived assets if events or changes in circum- stances indicate that such carrying amount may not be recov- erable. We assess the carrying amount of our goodwill at least annually, or more frequently based on these same indicators. Factors that we consider important, and which could trigger an impairment review, include the following: » signiﬁ cant underperformance relative to historical or projected future results; » signiﬁ cant changes in the manner of our use of these assets or the strategy for our overall business; and » signiﬁ cantly negative industry or economic trends. When we determine that the carrying amount of intangible assets, long-lived assets or goodwill may not be recoverable based upon the existence of one or more of the above indica- tors of impairment, we measure any impairment based on discounted projected cash ﬂ ows. This review is based upon our projections of anticipated discounted future cash ﬂ ows. The most signiﬁ cant variables in determining cash ﬂ ows are discount rates, terminal values, the number of years on which to base the cash ﬂ ow projections, as well as the assumptions and estimates used to determine the cash inﬂ ows and outﬂ ows. Management determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash ﬂ ows over that period. While we believe that our assumptions are appropri-  N O K I A I N 2 0 1 1 ate, such amounts estimated could diﬀ er materially from what will actually occur in the future. In assessing goodwill, these discounted cash ﬂ ows are prepared at a cash generating unit level. Amounts estimated could diﬀ er materially from what will actually occur in the future. Goodwill is allocated to the Group’s cash-generating units (CGU) and discounted cash ﬂ ows are prepared at CGU level for the purpose of impairment testing. The allocation of goodwill to our CGUs is made in a manner that is consistent with the level at which management monitors operations and the CGUs are expected to beneﬁ t from the synergies arising from each of our acquisitions. Accordingly, goodwill has been allocated to the Group’s reportable segments; Smart Devices CGU, Mobile Phones CGU, Location & Commerce CGU and Nokia Siemens Networks CGU. For the purposes of the Group’s  annual impairment testing, the amount of goodwill previously allocat- ed in  to the Devices & Services CGU has been reallocated to the Smart Devices CGU and the Mobile Phones CGU based on their relative fair values. Based on the Group’s assess- ment, no goodwill was allocated from Devices & Services to Location & Commerce pursuant to the formation of Location & Commerce business unit and segment on October , . The organizational changes were not a driver of, and did not result in an impairment in the Location & Commerce CGU. Goodwill amounting to EUR  million, EUR  million and EUR  million was allocated to the Smart Devices CGU, Mobile Phones CGU and Nokia Siemens Networks CGU, respectively, at the date of the  impairment testing. In the fourth quarter of , we conducted our annual impairment testing to assess if events or changes in circum- stances indicated that the carrying amount of our goodwill may not be recoverable. The impairment testing was carried out based on management’s assessment of ﬁ nancial perfor- mance and future strategies in light of current and expected market and economic conditions. The recoverable amounts for the Smart Devices CGU and the Mobile Phones CGU are based on value in use calculations. A discounted cash ﬂ ow calculation was used to estimate the value in use for both CGUs. Cash ﬂ ow projections determined by management are based on information available, to reﬂ ect the present value of the future cash ﬂ ows expected to be derived through the continuing use of the Smart Devices CGU and the Mobile Phones CGU. The recoverable amounts for the Location & Commerce CGU and the Nokia Siemens Networks CGU are based on fair value less costs to sell. A discounted cash ﬂ ow calculation was used to estimate the fair value less costs to sell for both CGUs. The cash ﬂ ow projections employed in the discounted cashﬂ ow calculation have been determined by management based on the information available, to reﬂ ect the amount that an entity could obtain from separate disposal of each of the Location & Commerce CGU and the Nokia Siemens Networks CGU, in an arm’s length transaction between knowledgeable, willing par- ties, after deducting the estimated costs of disposal. The cash ﬂ ow projections employed in the value in use and the fair value less costs to sell calculations are based on detailed ﬁ nancial plans approved by management, covering a three-year planning horizon. Cash ﬂ ows in subsequent peri- ods reﬂ ect a realistic pattern of slowing growth that declines towards an estimated terminal growth rate utilized in the terminal period. The terminal growth rate utilized does not exceed long-term average growth rates for the industry and economies in which the CGU operates. All cash ﬂ ow projections are consistent with external sources of information, wherever available. The goodwill impairment testing conducted for the Smart Devices CGU, Mobile Phones CGU and Nokia Siemens Networks CGU did not result in any impairment charges for the year ended December , . A charge to operating proﬁ t of EUR   million was record- ed for the impairment of goodwill in our Location & Commerce business in the fourth quarter . The impairment loss was allocated in its entirety to the carrying amount of goodwill in the balance sheet of the Location & Commerce CGU. This impairment loss is presented as impairment of goodwill in the consolidated income statement. As a result of the impair- ment loss, the amount of goodwill allocated to the Location & Commerce CGU has been reduced to EUR   million at December , . The impairment charge is the result of an evaluation of the projected ﬁ nancial performance and net cash ﬂ ows of the Location & Commerce CGU. The main drivers for manage- ment’s net cash ﬂ ow projections include license fees related to digital map data, fair value of the services sold within the Group and estimated average revenue per user with regard to mobile media advertising. The average revenue per user is estimated based on peer market data for mobile advertising  revenue. Projected device sales volumes impact the overall forecasted intercompany and advertising revenues. This takes into consideration the market dynamics in digital map data and related location-based content markets, including the Group’s long-term view that the market will move from fee- based models towards advertising-based models especially in some more mature markets. It also reﬂ ects recently an- nounced results and related competitive factors in local search and advertising market resulting in lower estimated growth prospects from location-based assets integrated with diﬀ er- ent advertising platforms. After consideration of all relevant factors, the Group reduced the net sales projections for the Location & Commerce CGU which, in turn, reduced projected proﬁ tability and cash ﬂ ows. The Group has concluded that the recoverable amount for the Location & Commerce CGU is most sensitive to the valua- tion assumptions for discount rate and long-term growth rate. A reasonably possible increase in the discount rate or decrease in long-term growth rate would give rise to an additional mate- rial impairment loss. The key assumptions applied in the impairment testing for each CGU in the annual goodwill impairment testing for each year indicated are presented in the table below: 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 Cash generating units 2011 2010 2009 Devices & Services Terminal growth rate Post-tax discount rate Pre-tax discount rate Nokia Siemens Networks Terminal growth rate Post-tax discount rate Pre-tax discount rate Location & Commerce Terminal growth rate Post-tax discount rate Pre-tax discount rate Smart Devices Terminal growth rate Post-tax discount rate Pre-tax discount rate Mobile Phones Terminal growth rate Post-tax discount rate Pre-tax discount rate — — — 2.0 8.7 11.1 2.0 — 11.5 1.0 — 13.2 — — — 4.0 9.6 5.0 — 12.8 12.6 1.0 10.4 13.8 3.1 9.7 13.1 1.9 9.0 12.2 1.5 9.0 13.1 Both value in use of Smart Devices CGU and Mobile Phones CGU and fair value less costs to sell for Location & Commerce CGU and Nokia Siemens Networks CGU are determined on a pre-tax value basis using pre-tax valuation assumptions including pre-tax cash ﬂ ows and pre-tax discount rate. As mar- ket-based rates of return for the Group’s CGUs are available only on a post-tax basis, the pre-tax discount rates are derived by adjusting the post-tax discount rates to reﬂ ect the speciﬁ c amount and timing of future tax cash ﬂ ows. The discount rates applied in the impairment testing for each CGU have been de- termined independently of capital structure reﬂ ecting current assessments of the time value of money and relevant market risk premiums. Risk premiums included in the determination of the discount rate reﬂ ect risks and uncertainties for which the future cash ﬂ ow estimates have not been adjusted.  N O K I A I N 2 0 1 1 In , the Group recorded an impairment loss of EUR  million to reduce the carrying amount of the Nokia Siemens Networks CGU to its recoverable amount. The impairment loss was allocated in its entirety to the carrying amount of goodwill arising from the formation of Nokia Siemens Networks and from subsequent acquisitions completed by Nokia Siemens Networks. As a result of the impairment loss, the amount of goodwill allocated to the Nokia Siemens Networks CGU in the year ended December , , was reduced to zero. Goodwill allocated to the Nokia Siemens Networks CGU has subsequent- ly increased during , primarily as a result of the acquisition of Motorola Solutions’ Networks business. The goodwill impairment testing conducted for each of the Group’s CGUs for the year ended December ,  did not re- sult in any impairment charges. See also Note  to our consoli- dated ﬁ nancial statements for further information regarding “Valuation of long-lived and intangible assets and goodwill.” FAIR VALUE OF DERIVATIVE S AND OTHER FINANCIAL INSTRUMENTS The fair value of ﬁ nancial instruments that are not traded in an active market (for example, unlisted equities, currency options and embedded derivatives) are determined using valuation techniques. We use judgment to select an appropri- ate valuation methodology and underlying assumptions based principally on existing market conditions. If quoted market prices are not available for unlisted shares, fair value is esti- mated by using various factors, including, but not limited to: () the current market value of similar instruments, () prices established from a recent arm’s length ﬁ nancing transaction of the target companies, () analysis of market prospects and operating performance of the target companies taking into consideration of public market comparable companies in simi- lar industry sectors. Changes in these assumptions may cause the Group to recognize impairments or losses in the future periods. During  the Group received distributions of EUR  million (EUR  million in ) included in other ﬁ nancial income from a private fund held as non-current available-for- sale. Due to a reduction in estimated future cash ﬂ ows the Group also recognized an impairment loss of EUR  million (EUR  million in ) for the fund included in other ﬁ nancial expenses. INCOME TA XE S The Group is subject to income taxes both in Finland and in numerous other jurisdictions. Signiﬁ cant judgment is required in determining income tax expense, tax provisions, deferred tax assets and liabilities recognized in the consolidated ﬁ nancial statements. We recognize deferred tax assets to the extent that it is probable that suﬃ cient taxable income will be available in the future against which the temporary diﬀ erenc- es and unused tax losses can be utilized. We have considered future taxable income and tax planning strategies in making this assessment. Deferred tax assets are assessed for realiz- ability each reporting period, and when circumstances indicate that it is no longer probable that deferred tax assets will be utilized, they are adjusted as necessary. At December , , the Group had loss carry forwards, temporary diﬀ erences and tax credits of EUR   million (EUR   million in ) for which no deferred tax assets were recognized in the consolidated ﬁ nancial statements due to uncertainty of utilization of these items. We recognize tax provisions based on estimates and as- sumptions when, despite our belief that tax return positions are supportable, it is more likely than not that certain posi- tions will be challenged and may not be fully sustained upon review by tax authorities. If the ﬁ nal outcome of these matters diﬀ ers from the amounts initially recorded, diﬀ erences may positively or negatively impact the current taxes and deferred taxes in the period in which such determination is made. PENSIONS The determination of our pension beneﬁ t obligation and ex- pense for deﬁ ned beneﬁ t pension plans is dependent on our selection of certain assumptions used by actuaries in calculat- ing such amounts. Those assumptions are described in Note  to our consolidated ﬁ nancial statements and include, among others, the discount rate, expected long-term rate of return on plan assets and annual rate of increase in future compen- sation levels. A portion of our plan assets is invested in equity securities. The equity markets have experienced volatility, which has aﬀ ected the value of our pension plan assets. This volatility may make it diﬃ cult to estimate the long-term rate of return on plan assets. Actual results that diﬀ er from our assumptions are accumulated and amortized over future  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 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 proﬁ t and loss account, and in subsequent periods for unvested performance shares for which the expense has not yet been recognized in the proﬁ t and loss account. Signiﬁ cant diﬀ erences in employee option activity, equity market performance, and our projected and actual net sales and earnings per share performance may materially aﬀ ect future expense. In addition, the value, if any, an employee ultimately receives from share-based payment awards may not correspond to the expense amounts recorded by the Group.  periods and therefore generally aﬀ ect our recognized expense and recorded obligation in such future periods. Our assump- tions are based on actual historical experience and external data regarding compensation and discount rate trends. While we believe that our assumptions are appropriate, signiﬁ cant diﬀ erences in our actual experience or signiﬁ cant changes in our assumptions may materially aﬀ ect our pension obligation and our future expense. The ﬁ nancial impact of the pension assumptions aﬀ ects mainly the Devices & Services and Nokia Siemens Networks businesses. SHARE-BA SED COMPENSATION We have various types of equity-settled share-based compen- sation schemes for employees mainly in Devices & Services and Location & Commerce. Employee services received, and the corresponding increase in equity, are measured by refer- ence 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  to our consolidated ﬁ nancial statements and include, among others, the dividend yield, expected volatility and expected life of stock options. The expected life of stock options is esti- mated 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 diﬃ cult. Non-market vesting conditions attached to the perfor- mance 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 num- ber 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 N O K I A I N 2 0 1 1 CORPORATE GOVERNANCE This Corporate Governance statement is prepared in accord- ance with Chapter , Section  of the Finnish Securities Mar- kets Act and the recommendation  of the Finnish Corporate Governance Code and is issued separately from the review by the Board of Directors. The review by the Board of Directors  is available on page  of the ‘Nokia in ’ publication. REGUL ATORY FR AME WORK Nokia’s corporate governance practices comply with Finnish laws and regulations as well as with Nokia’s Articles of Associa- tion. Nokia also complies with the Finnish Corporate Govern- ance Code with the following two exceptions: Nokia is not in full compliance with the recommendation  of the Finnish Corporate Governance Code as Nokia’s Restricted Share Plans do not include any performance cri- teria but are time-based only, with a restriction period of at least three years from the grant. However, restricted shares are granted only on a selective basis to promote long-term retention of functional mastery and other employees and executives deemed critical for the future success of Nokia, as well as to support attraction of promising external talent in a competitive environment in which Nokia’s peers, especially in the United States, commonly use such shares. The Restricted Share Plans also promote employee share ownership, and are used in conjunction with the Performance Share and Stock Option Plans. Further, in , Nokia did not fully comply with the recom- mendation  of the Finnish Corporate Governance Code as Helge Lund, who was proposed for the ﬁ rst time to the Board, was not able to attend the Annual General Meeting held on May , . However, there were well-founded reasons for his absence and all of the prospective directors proposed for the ﬁ rst time to the Board, including Mr. Lund, were introduced to the shareholders via video messages. The Finnish Corporate Governance Code is accessible at www.cgﬁ nland.ﬁ . In addition, as a result of Nokia’s listing of its shares on the New York Stock Exchange and its registration under the US Securities Exchange Act of , Nokia must comply with the US federal securities laws and regulations, including the Sarbanes-Oxley Act of  as well as the requirements of the New York Stock Exchange, in particular the corporate governance rules under section A of the New York Stock Exchange Listed Company Manual, which is accessible at http://nysemanual.nyse.com/lcm/. Nokia complies with the above rules in each case to the extent that those provisions are applicable to foreign private issuers. Nokia also complies with any other mandatory corporate governance rules applicable due to listing of Nokia share in Helsinki and New York stock exchanges. In , Nokia decided to delist its shares from the Frankfurt Stock Exchange, and the ﬁ nal day of trading was March , . Nokia’s aim is to comply in all material respects with appli- cable rules and regulations. To the extent any non-domestic rules and regulations would require a violation of the laws of Finland, Nokia is obliged to comply with the Finnish require- ments. Nevertheless, Nokia aims to minimize the necessity for, or consequences of, conﬂ icts between the laws of Finland and applicable non-domestic requirements. MAIN CORPOR ATE GOVERNANCE BODIE S OF NOKIA Pursuant to the provisions of the Finnish Companies Act and Nokia’s Articles of Association, the control and management of Nokia is divided among the shareholders at a General Meeting, the Board of Directors (the “Board”), the President and the Nokia Leadership Team chaired by the Chief Executive Oﬃ cer. External Auditor General Meeting of Shareholders Board of Directors Audit Comittee Corporate Governance & Nomination Comittee Personnel Comittee Nokia Leadership Team President & CEO Internal Audit General Meeting of shareholders The shareholders may exercise their decision-making power and their right to speak and ask questions at the General Meeting of shareholders. Each Nokia share entitles the share- holder to one vote at General Meetings of Nokia. Pursuant to the Finnish Companies Act, an Annual General Meeting must be convened each year by June . The Annual General Meet- ing decides, among other things, on the election and remu- neration of the Board of Directors, on the election and fees of external auditor as well as on distribution of proﬁ t. In addition to the Annual General Meeting, an Extraordinary General Meeting shall be convened when the Board considers such meeting to be necessary, or, when the provisions of the Finnish Companies Act mandate that such a meeting must be held. The Board of Directors The operations of Nokia are managed under the direction of the Board of Directors, within the framework set by the Finnish Companies Act and Nokia’s Articles of Association as well as any complementary rules of procedure as deﬁ ned by  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 Board, such as the Corporate Governance Guidelines and related Board Committee charters. considerations of particular topics to be proposed for the ap- proval of the Board. THE RESPONSIBILITIES OF THE BOARD OF DIRECTORS The Board represents and is accountable to the shareholders of Nokia. The Board’s responsibilities are active, not passive, and include the responsibility regularly to evaluate the strate- gic direction of Nokia, management policies and the eﬀ ective- ness with which management implements them. The Board’s responsibilities also include overseeing the structure and composition of Nokia’s top management and monitoring legal compliance and the management of risks related to Nokia’s operations. In doing so, the Board may set annual ranges and/ or individual limits for capital expenditures, investments and divestitures and ﬁ nancial commitments not to be exceeded without Board approval. In risk management policies and processes the Board’s role includes risk analysis and assessment in connection with each ﬁ nancial and business review, update and decision-making proposal. Risk oversight is an integral part of all Board deliber- ations. For a more detailed description of Nokia’s risk manage- ment policies and processes, please see the chapter “Main features of the internal control and risk management systems in relation to the ﬁ nancial reporting process” below. The Board has the responsibility for appointing and dis- charging the Chief Executive Oﬃ cer, the Chief Financial Oﬃ cer and the other members of the Nokia Leadership Team. The Chief Executive Oﬃ cer, who is separate from Chairman, also acts as President, and his rights and responsibilities include those allotted to the President under Finnish law. Subject to the requirements of Finnish law, the independent directors of the Board conﬁ rm the compensation and the employment conditions of the Chief Executive Oﬃ cer upon the recommen- dation of the Personnel Committee. The compensation and employment conditions of the other members of the Nokia Leadership Team are approved by the Personnel Committee upon the recommendation of the Chief Executive Oﬃ cer. It is the responsibility of the members of the Board to act in good faith and with due care so as to exercise their busi- ness judgment on an informed basis in what they reason- ably and honestly believe to be in the best interests of the company and its shareholders. In discharging that obligation, the directors must inform themselves of all relevant informa- tion reasonably available to them. The Board and each Board Committee also have the power to hire independent legal, ﬁ nancial or other advisors as they deem necessary. The Board has three committees: Audit Committee, Corporate Governance and Nomination Committee and Personnel Committee. These assist the Board in its duties pursuant to their respective committee charters. The Board may also establish ad hoc committees for detailed reviews or The Board conducts annual performance self-evaluations, which also include evaluations of the Board Committees’ work, the results of which are discussed by the Board. In line with past years’ practice, in , the self-evaluation process con- sisted of a questionnaire, a one-to-one discussion between the Chairman and each director and a discussion by the entire Board of the outcome of the evaluation, possible measures to be taken, as well as measures taken based on the Board’s self-evaluation of the previous year. In addition, performance of the Board Chairman was evaluated in a process led by the Vice Chairman. ELECTION, COMPOSITION AND MEETINGS OF THE BOARD OF DIRECTORS Pursuant to the Articles of Association, Nokia Corporation has a Board of Directors composed of a minimum of seven and a maximum of  members. The members of the Board are elected for a one-year term at each Annual General Meeting, i.e., as from the close of that Annual General Meeting until the close of the following Annual General Meeting, which convenes each year by June . The Annual General Meeting held on May ,  elected the following  members to the Board of Directors: Stephen Elop, Bengt Holmström, Henning Kager- mann, Per Karlsson, Jouko Karvinen, Helge Lund, Isabel Marey- Semper, Jorma Ollila, Dame Marjorie Scardino, Risto Siilasmaa and Kari Stadigh. Nokia Board’s leadership structure consists of a Chairman and Vice Chairman, elected annually by the Board and con- ﬁ rmed by the independent directors of the Board from among the Board members upon the recommendation of the Corporate Governance and Nomination Committee. On May , , 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 speciﬁ c duties as deﬁ ned by Finnish standards and the Nokia Corporate Governance Guidelines. The Vice Chairman assumes the duties of the Chairman in case the Chairman is prevented from performing his duties. The Board has deter- mined that Nokia Board Chairman, Jorma Ollila, and the Vice Chairman, Dame Marjorie Scardino, are independent as de- ﬁ ned by Finnish standards and relevant stock exchange rules. Nokia does not have a policy concerning the combination or separation of the roles of Chairman and Chief Executive Oﬃ cer, but the Board leadership structure is dependent on the company needs, shareholder value and other relevant factors applicable from time to time, and respecting the high- est corporate governance standards. In , the roles were separate and Jorma Ollila was the Chairman of the Board and the Chief Executive Oﬃ cer was Stephen Elop.  N O K I A I N 2 0 1 1 The current members of the Board are all non-executive, except the President and CEO, who is an executive member of the Board. The Board has determined that all ten non-exec- utive Board members are independent as deﬁ ned by Finnish standards. Also, the Board has determined that nine of the Board’s ten non-executive members are independent direc- tors as deﬁ ned by the rules of the New York Stock Exchange. Bengt Holmström was determined not to be independent under the rules of the New York Stock Exchange due to a fam- ily relationship with an executive oﬃ cer of a Nokia supplier whose consolidated gross revenue from Nokia accounts for an amount that exceeds the limit provided in the New York Stock Exchange corporate governance standards, but that is less than %. The Board held  meetings during , the majority of which were regularly scheduled meetings held in person, complemented by meetings through conference call and other means. In addition, in  the non-executive directors held a meeting without management in connection with each regu- larly scheduled Board meeting. Also, the independent direc- tors held one meeting separately in . Directors’ attendance at the Board meetings, including Committee meetings, but excluding meetings among the non-executive directors or independent directors only, was as follows in : In addition, many of the directors attended as non-voting observers meetings of a committee in which they were not a member. According to the Nokia Board practices, the non-executive directors meet without management in connection with each regularly scheduled meeting. Such sessions are chaired by the non-executive Chairman of the Board. If the non-executive Chairman of the Board is unable to chair any of the meetings of non-executive directors, the non-executive Vice Chairman of the Board chairs the meeting. In addition, the independent directors meet separately at least once annually. All the directors who served on the Board for the term until the close of the Annual General Meeting , except for Per Karlsson, attended Nokia’s Annual General Meeting held on May , . The Finnish Corporate Governance Code recommends attendance by the Board Chairman and a suﬃ cient number of directors in the general meeting of shareholders to allow the shareholders to exercise their right to present questions to the Board and manage- ment. Also all of the persons proposed for the ﬁ rst time to the Board, except for Helge Lund, attended the Annual General Meeting held on May , , which elected them. The Finnish Corporate Governance Code recommends that a person proposed for the ﬁ rst time as director shall participate in the general meeting that decides on his or her election in order to Board meetings meetings Audit Committee Personnel Committee meetings Corporate Governance & Nomination Committee meetings Stephen Elop (as of May 3, 2011) Lalita Gupte (until May 3, 2011) Bengt Holmström Henning Kagermann Per Karlsson Jouko Karvinen (as of May 3, 2011) Helge Lund (as of May 3, 2011) Isabel Marey-Semper Jorma Ollila Marjorie Scardino Risto Siilasmaa Kari Stadigh (as of May 3, 2011) Keijo Suila (until May 3, 2011) 100% 100% 95% 95% 10% 1 100% 100% 90% 100% 85% 100% 100% 84% N/A 100% N/A N/A N/A 100% N/A 100% N/A N/A 100% N/A N/A  Per Karlsson was absent from the Board and Committee meetings in  due to illness requiring medication and hospitalization. After recovering he was able to rejoin the Board and Committee meetings as from Novem- ber . N/A N/A N/A 100% 20% 1 N/A 67% N/A N/A 80% N/A 100% N/A N/A N/A N/A 100% 0% (until May 3, 2011) 1 N/A N/A N/A N/A 100% 100% N/A N/A  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 be introduced to the shareholders. All of the persons pro- posed for the ﬁ rst time to the Board were introduced to the shareholders via video messages. The independent directors of the Board conﬁ rm the elec- tion of the members and Chairmen for the Board’s commit- tees from among the Board’s independent directors upon the recommendation of the Corporate Governance and Nomination Committee and based on each committee’s mem- ber qualiﬁ cation standards. The Corporate Governance Guidelines concerning the directors’ responsibilities, the composition and selection of the Board, its committees and certain other matters relat- ing to corporate governance are available on Nokia’s website, www.nokia.com/global/about-nokia. Also, the Committee Charters of the Audit Committee, Corporate Governance and Nomination Committee and Personnel Committee are avail- able on Nokia’s website, www.nokia.com/global/about-nokia. Nokia also has a Code of Conduct which is equally applicable to all of Nokia’s employees, directors and management, and a Code of Ethics for the Principal Executive Oﬃ cers and the Senior Financial Oﬃ cers. Both the Code of Conduct and Code of Ethics are available on Nokia’s website, www.nokia.com/ global/about-nokia. COMMITTEES OF THE BOARD OF DIRECTORS The Audit Committee consists of a minimum of three mem- bers of the Board who meet all applicable independence, ﬁ nancial literacy and other requirements of Finnish law and the rules of the stock exchanges where Nokia shares are listed, i.e. NASDAQ OMX Helsinki and the New York Stock Exchange. Since May , , the Audit Committee consists of the follow- ing three members of the Board: Risto Siilasmaa (Chairman), Jouko Karvinen and Isabel Marey-Semper. The Audit Committee is established by the Board primar- ily for the purpose of overseeing the accounting and ﬁ nancial reporting processes of the company and audits of the ﬁ nancial statements of the company. The Committee is responsible for assisting the Board’s oversight of () the quality and integrity of the company’s ﬁ nancial statements and related disclosure, () the statutory audit of the company’s ﬁ nancial statements, () the external auditor’s qualiﬁ cations and independence, () the performance of the external auditor subject to the requirements of Finnish law, () the performance of the com- pany’s internal controls and risk management and assurance function, () the performance of the internal audit function, and () the company’s compliance with legal and regulatory requirements, including also the performance of its ethics and compliance program. The Committee also maintains proce- dures for the receipt, retention and treatment of complaints received by the company regarding accounting, internal controls, or auditing matters and for the conﬁ dential, anony- mous submission by employees of the company of concerns regarding accounting or auditing matters. Nokia’s disclosure controls and procedures, which are reviewed by the Audit Committee and approved by the Chief Executive Oﬃ cer and the Chief Financial Oﬃ cer, as well as Nokia’s internal controls over ﬁ nancial reporting, are designed to provide reasonable assurance regarding the quality and integrity of the company’s ﬁ nancial statements and related disclosures. The Disclosure Committee chaired by the Chief Financial Oﬃ cer is respon- sible for the preparation of the quarterly and annual results announcements, and the process includes involvement by business managers, business controllers and other functions, like internal audit, as well as a ﬁ nal review and conﬁ rmation by the Audit Committee and the Board. For further information on internal control over ﬁ nancial reporting, see chapter “Main features of the internal control and risk management systems in relation to the ﬁ nancial reporting process” below. Under Finnish law, Nokia’s external auditor is elected by Nokia’s shareholders by a simple majority vote at the Annual General Meeting for one ﬁ scal year at a time. The Audit Committee makes a proposal to the shareholders in respect of the appointment of the external auditor based upon its evalu- ation of the qualiﬁ cations and independence of the auditor to be proposed for election or re-election. Under Finnish law, the fees of the external auditor are also approved by Nokia’s shareholders by a simple majority vote at the Annual General Meeting. The Committee makes a proposal to the shareholders in respect of the fees of the external auditor, and approves the external auditor’s annual audit fees under the guidance given by the Annual General Meeting. For information about the fees paid to Nokia’s external auditor, PricewaterhouseCoopers, during  see “Auditor fees and services” on page . In discharging its oversight role, the Audit Committee has full access to all company books, records, facilities and per- sonnel. The Committee may retain counsel, auditors or other advisors in its sole discretion, and must receive appropriate funding, as determined by the Committee, from the company for the payment of compensation to such outside advisors. The Audit Committee meets at least four times a year based upon a schedule established at the ﬁ rst meeting following the appointment of the Committee. The Committee meets sepa- rately with the representatives of Nokia’s management, heads of the internal audit and ethics and compliance functions, and the external auditor in connection with each regularly sched- uled meeting. The head of the internal audit function has at all times a direct access to the Audit Committee, without involve- ment of management. The Audit Committee had eight meetings in . The at- tendance at all meetings was %. In addition, any directors who wish to may attend Audit Committee meetings as non- voting observers.  N O K I A I N 2 0 1 1 The Personnel Committee consists of a minimum of three members of the Board who meet all applicable independ- ence requirements of Finnish law and the rules of the stock exchanges where Nokia shares are listed, i.e. NASDAQ OMX Hel- sinki and the New York Stock Exchange. Since May , , the Personnel Committee consists of the following ﬁ ve members of the Board: Henning Kagermann (Chairman), Per Karlsson, Helge Lund, Dame Marjorie Scardino and Kari Stadigh. The primary purpose of the Personnel Committee is to oversee the personnel policies and practices of the company. It assists the Board in discharging its responsibilities relating to all compensation, including equity compensation, of the company’s executives and their terms of employment. The Committee has overall responsibility for evaluating, resolv- ing and making recommendations to the Board regarding () compensation of the company’s top executives and their em- ployment conditions, () all equity-based plans, () incentive compensation plans, policies and programs of the company aﬀ ecting executives and () other signiﬁ cant incentive plans. The Committee is responsible for overseeing compensation philosophy and principles and ensuring the above compen- sation programs are performance-based, designed with an intention to contribute to the long-term value sustainability of the company, properly motivate management, support overall corporate strategies and are aligned with shareholders’ inter- ests. The Committee is responsible for the review of senior management development and succession plans. The Personnel Committee had ﬁ ve meetings in . The average attendance at the meetings was %. In addition, any directors who wish to may attend Personnel Committee meet- ings as non-voting observers. For further information on the activities of the Personnel Committee, see “Executive compensation philosophy, pro- grams and decision-making process” on page . The Corporate Governance and Nomination Committee consists of three to ﬁ ve members of the Board who meet all applicable independence requirements of Finnish law and the rules of the stock exchanges where Nokia shares are listed, i.e. NASDAQ OMX Helsinki and the New York Stock Exchange. Since May , , the Corporate Governance and Nomination Com- mittee consists of the following three members of the Board: Dame Marjorie Scardino (Chairman), Henning Kagermann and Risto Siilasmaa. The Corporate Governance and Nomination Committee’s purpose is () to prepare the proposals for the general meet- ings in respect of the composition of the Board and the direc- tor remuneration to be approved by the shareholders and () to monitor issues and practices related to corporate govern- ance and to propose necessary actions in respect thereof. The Committee fulﬁ lls its responsibilities by (i) actively identifying individuals qualiﬁ ed to become members of the Board and considering and evaluating the appropriate level and structure of director remuneration, (ii) proposing to the shareholders the director nominees for election at the Annual General Meetings as well as the director remuneration, (iii) monitoring signiﬁ cant developments in the law and practice of corporate governance and of the duties and responsibilities of directors of public companies, (iv) assisting the Board and each Committee of the Board in its annual performance self-evalu- ations, including establishing criteria to be used in connection with such evaluations, (v) developing and recommending to the Board and administering Nokia’s Corporate Governance Guidelines, and (vi) reviewing the company’s disclosure in the Corporate Governance Statement. The Committee has the power to retain search ﬁ rms or advisors to identify candidates. The Committee may also retain counsel or other advisors, as it deems appropriate. The Committee has the sole authority to retain or terminate such search ﬁ rms or advisors and to review and approve such search ﬁ rm or advisor’s fees and other retention terms. It is the Committee’s practice to retain a search ﬁ rm to identify new director candidates. The Corporate Governance and Nomination Committee had ﬁ ve meetings in . The average attendance at the meetings was %. In addition, any directors who wish to may attend Corporate Governance and Nomination Committee meetings as non-voting observers. The charters of each of the committees are available on Nokia’s website, www.nokia.com/global/about-nokia. Nokia Leadership Team and CEO Under its Articles of Association, in addition to the Board of Directors, Nokia has a Nokia Leadership Team that is respon- sible for the operative management of Nokia. The Chairman and members of the Nokia Leadership Team are appointed by the Board of Directors. Nokia Leadership Team is chaired by the Chief Executive Oﬃ cer. Only the Chairman of the Nokia Leadership Team, the Chief Executive Oﬃ cer, can be a mem- ber of both the Board of Directors and the Nokia Leadership Team. The Chief Executive Oﬃ cer also acts as President, and his rights and responsibilities include those allotted to the President under Finnish law. MAIN FE ATURE S OF THE INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS IN REL ATION TO THE FINANCIAL REPORTING PROCE SS Nokia has a Risk Policy which outlines Nokia’s risk manage- ment policies and processes and is approved by the Audit Committee. The Board’s role in risk oversight includes risk  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 purchase cycle, treasury cycle, human resources cycle, ac- counting and reporting cycle and IT cycle. Financial cycles have been designed to (i) give a complete end-to-end view to all ﬁ nancial processes (ii) identify key control points (iii) identify involved organizations, (iv) ensure coverage for important accounts and ﬁ nancial statement assertions and (v) enable internal control management within Nokia. Further, the management also: » assessed the design of controls in place to mitigate the ﬁ nancial reporting risks; » tested operating eﬀ ectiveness of all key controls; » evaluated all noted deﬁ ciencies in internal controls over ﬁ nancial reporting as of year-end; and » performed a quality review on assessment documentation and provided feedback for improvement. Based on this evaluation, the management has assessed the eﬀ ectiveness of Nokia’s internal control over ﬁ nancial report- ing, as at December , , and concluded that such internal control over ﬁ nancial reporting is eﬀ ective. Nokia also has an internal audit function that acts as an independent appraisal function by examining and evaluating the adequacy and eﬀ ectiveness of Nokia’s system of internal control. Internal audit resides within the Chief Financial Oﬃ cer’s or- ganization and reports to the Audit Committee of the Board of Directors. The head of internal audit function has at all times direct access to the Audit Committee, without involvement of the management. For more information on Nokia’s risk management, please see Note  of Nokia’s consolidated ﬁ nancial statements. analysis and assessment in connection with each ﬁ nancial and business review, update and decision-making proposal and is an integral part of all Board deliberations. The Audit Commit- tee is responsible for, among other matters, the risk manage- ment relating to the ﬁ nancial reporting process and assisting the Board’s oversight of the risk management function. Nokia applies a common and systematic approach to the risk man- agement across all business operations and processes based on a strategy approved by the Board. Accordingly, the risk management at Nokia is not a separate process but a normal daily business and management practice. The management is responsible for establishing and maintaining adequate internal control over ﬁ nancial reporting for Nokia. Nokia’s internal control over ﬁ nancial reporting is designed to provide reasonable assurance to the management and the Board of Directors regarding the reliability of ﬁ nancial reporting and the preparation and fair presentation of pub- lished ﬁ nancial statements. The management conducts a yearly assessment of Nokia’s internal controls over ﬁ nancial reporting in accordance with the Committee of Sponsoring Organizations (COSO) frame- work and the Control Objectives for Information and related Technology (CoBiT) of internal controls. For the year , the assessment was performed based on a top down risk as- sessment of Nokia’s ﬁ nancial statements covering signiﬁ cant accounts, processes and locations, corporate level controls, control activities and information systems’ general controls. As part of its assessment the management documented: » The corporate-level controls, which create the “tone from the top” containing Nokia values and Code of Conduct and provide discipline and structure to the decision making and ways of working. Selected items from Nokia’s operational mode and governance principles are separately document- ed as corporate level controls. » The control activities, which consist of policies and proce- dures to ensure the management’s directives are carried out and the related documentation is stored according to Nokia’s document retention practices and local statutory requirements. » The information systems’ general controls to ensure that suﬃ cient information technology general controls, includ- ing change management, system development, computer operations as well as access and authorizations, are in place. » The signiﬁ cant processes, including six ﬁ nancial cycles and underlying IT cycle identiﬁ ed by Nokia to address control activities implementing a top down risk based approach. These cycles include revenue cycle, delivery cycle, indirect  N O K I A I N 2 0 1 1 BOARD OF DIRECTORS The current members of the Board of Directors were elected at the Annual General Meeting on May , , based on the proposal of the Board’s Corporate Governance and Nomina- tion Committee. On the same date, the Chairman and Vice Chairman, as well as the Chairmen and members of the com- mittees of the Board, were elected among the Board members and among the independent directors of the Board, respec- tively. The members of the Board of Directors are elected on an annual basis for a one-year term ending at the close of the next Annual General Meeting. The election is made by a simple majority of the shareholders’ votes represented at the Annual General Meeting. Vice Chairman Dame Marjorie Scardino, b. 1947 Chief Executive and member of the Board of Directors of Pearson plc. Board member since . Vice Chairman since . Chairman of the Corporate Governance and Nomination Committee. Member of the Personnel Committee. Bachelor of Arts (Baylor University). Juris Doctor (University of San Francisco). Chief Executive of The Economist Group –. President of the North American Operations of The Economist Group –. Lawyer – and publisher of The Georgia Gazette newspaper –. THE CURRENT MEMBER S OF THE BOARD OF DIREC TOR S AND ITS COMMIT TEE S ARE SE T FORTH BELOW. Chairman Jorma Ollila, b. 1950 Chairman of the Board of Directors of Nokia Corporation. Chairman of the Board of Directors of Royal Dutch Shell Plc. Board member since . Chairman since . Master of Political Science (University of Helsinki). Master of Science (Econ.) (London School of Economics). Master of Science (Eng.) (Helsinki University of Technology). Chairman and CEO, Chairman of the Group Executive Board of Nokia Corporation –. President and CEO, Chairman of the Group Executive Board of Nokia Corporation –. President of Nokia Mobile Phones –. Senior Vice President, Finance of Nokia –. Holder of various managerial positions at Citibank within corporate banking –. Vice Chairman of the Board of Directors of Otava Ltd. Member of the Board of Directors of the University of Helsinki. Chairman of the Boards of Directors and the Supervisory Boards of The Research Institute of the Finnish Economy ETLA and Finnish Business and Policy Forum EVA. Member of the Executive Committee of the World Business Council for Sustainable Development (WBCSD). Member of the Board of Directors of Ford Motor Company –. Vice Chairman of UPM-Kymmene Corporation –. Stephen Elop, b. 1963 President and CEO of Nokia Corporation. Chairman of the Nokia Leadership Team. Board member since May , . Bachelor of Computer Engineering and Management (McMaster University, Hamilton, Canada). Doctor of Laws, honorary (McMaster University, Hamilton, Canada). President of Microsoft Business Division and member of senior membership team of Microsoft Corporation –. COO, Juniper Networks, Inc. –. President, Worldwide Field Operations, Adobe Systems Inc. –. President and CEO (last position), Macromedia Inc. –. Bengt Holmström, b. 1949 Paul A. Samuelson Professor of Economics at MIT, joint appointment at the MIT Sloan School of Management. Board member since . Bachelor of Science (Helsinki University). Master of Science (Stanford University). Doctor of Philosophy (Stanford University). Edwin J. Beinecke Professor of Management Studies at Yale University –. Member of the American Academy of Arts and Sciences and Foreign Member of The Royal Swedish Academy of Sciences. Member of the Boards of Directors of The Research Institute of the Finnish Economy ETLA and Finnish Business and Policy Forum EVA. Member of Aalto University Foundation Board.  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 Henning Kagermann, b. 1947 Board member since . Chairman of the Personnel Committee. Member of the Corporate Governance and Nomination Committee. Helge Lund, b. 1962 President and CEO of Statoil ASA. Board member since May , . Member of the Personnel Committee. MA in Business Economics (School of Economics and Business Administration, Bergen). Master of Business Administration (MBA) (INSEAD). CEO of StatoilHydro –. CEO of Statoil –. CEO of Aker Kvaerner ASA until , central managerial posi- tions in the Aker RGI system from . Deputy Managing Director of Nycomed Pharma AS. Political adviser to the Conservative Party of the parliamentary group of Norway. Consultant of McKinsey & Co. Isabel Marey-Semper, b. 1967 Director of Advanced Research of L’Oréal Group. Board member since . Member of the Audit Committee. Ph.D. (Neuro-Pharmacology) (Université Paris Pierre et Marie Curie–Collège de France). MBA (Collège des Ingénieurs, Paris). Director of Shared Services of L’Oréal Group –. Chief Financial Oﬃ cer, Executive Vice President in charge of strategy of PSA Peugeot Citroën –. COO, Intellectual Property and Licensing Business Unit of Thomson –. Vice President Corporate Planning at Saint-Gobain –. Director of Corporate Planning, High Performance Materials of Saint-Gobain –. Principal of A.T. Kearney (Telesis, prior to acquisition by A.T. Kearney) –. Member of the Board of Directors of Faurecia S.A. –. Risto Siilasmaa, b. 1966 Board member since . Chairman of the Audit Committee. Member of the Corporate Governance and Nomination Committee. Master of Science (Eng.) (Helsinki University of Technology). President and CEO of F-Secure Corporation –. 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. Ph.D. (Theoretical Physics) (Technical University of Brunswick). Co-CEO and Chairman of the Executive Board of SAP AG –. CEO of SAP –. Co-chairman of the Executive Board of SAP AG –. A number of leader- ship positions in SAP AG since . Member of SAP Executive Board –. Taught physics and computer science at the Technical University of Brunswick and the University of Mannheim –, became professor in . Member of the Supervisory Boards of Bayerische Motoren Werke Aktiengesellschaft (BMW AG), Deutsche Bank AG, Deutsche Post AG and Münchener Rückversicherungs- Gesellschaft AG (Munich Re). Member of the Board of Directors of Wipro Ltd. President of Deutsche Akademie der Technikwissenschaften. Member of the Honorary Senate of the Foundation Lindau Nobelprizewinners. Per Karlsson, b. 1955 Independent Corporate Advisor. Board member since . Member of the Personnel Committee. Degree in Economics and Business Administration (Stockholm School of Economics). Executive Director, with mergers and acquisitions advisory responsibilities, at Enskilda M&A, Enskilda Securities (London) –. Corporate strategy consultant at the Boston Consulting Group (London) –. Member of the Board of Directors of IKANO Group S.A. Jouko Karvinen, b. 1957 CEO of Stora Enso Oyj. Board member since May , . Member of the Audit Committee. Master of Science (Eng.) (Tampere University of Technology). CEO of Philips Medical Systems Division –. Member of Board of Management of Royal Philips Electronics  and Group Management Committee –. Holder of executive and managerial positions at ABB Group Limited from , including Executive Vice President, Head of Automation Technology Products Division and Member of Group Executive Committee –, Senior Vice President, Business Area Automation Power Products –, Vice President, Business Unit Drives Products & Systems –, Vice President, Power Electronics Division of ABB Drives Oy, Global AC Drives Feeder Factory and R&D Centre –. Member of the Board of Directors of Aktiebolaget SKF. Member of the Board of Directors of the Finnish Forest Industries Federation and the Confederation of European Paper Industries (CEPI).  N O K I A I N 2 0 1 1 Kari Stadigh, b. 1955 Group CEO and President of Sampo plc. Board member since May , . Member of the Personnel Committee. Master of Science (Eng.) (Helsinki University of Technology). Bachelor of Business Administration (Swedish School of Economics and Business Administration, Helsinki). Deputy CEO of Sampo plc –. President of Sampo Life Insurance Company Limited –. President of Nova Life Insurance Company Ltd –. President and COO of Jaakko Pöyry Group -. Member of the Board of Directors of Nordea Bank AB (publ). Chairman of the Board of Directors of If P&C Insurance Holding Ltd (publ), Kaleva Mutual Insurance Company and Mandatum Life Insurance Company Limited. Member of the Board of Directors of Varma Mutual Pension Insurance Company. Chairman of the Board of Directors of The Federation of Finnish Financial Services. Vice Chairman of Confederation of Finnish Industries (EK). Member of the Board of Directors of Central Chamber of Commerce of Finland. Chairman of the Board of Directors of Alma Media Corporation -. Member of the Board of Directors of Aspo Plc. . Chairman of the Board of Directors of Aspo Plc. -. ELEC TION OF THE BOARD MEMBER S Proposal of the Corporate Governance and Nomination Committee for Composition of the Board of Directors in 2012 On January , , the Corporate Governance and Nomina- tion Committee announced its proposal to the Annual General Meeting convening on May ,  regarding the composition of the Board of Directors for a one-year term from the Annual General Meeting  until the close of the Annual General Meeting . The Committee will propose that the number of Board members be  and that the following current Nokia Board members be re-elected as members of the Nokia Board of Directors for a term until the close of the Annual General Meeting : Stephen Elop, Henning Kagermann, Jouko Karvinen, Helge Lund, Isabel Marey-Semper, Dame Marjorie Scardino, Risto Siilasmaa and Kari Stadigh. In addition, the Committee will propose that Bruce Brown, Chief Technology Oﬃ cer, The Procter & Gamble Company, Mårten Mickos, CEO of Eucalyptus Systems, Inc., and Elizabeth Nelson, independent corporate advisor, be elected as mem- bers of the Nokia Board of Directors for the same term until the close of the Annual General Meeting . Election of the Chairman and Vice Chairman of the Board and the Chairmen and members of the Board’s Committees The Chairman and the Vice Chairman are elected by the new Board and conﬁ rmed by the independent directors of the Board from among the Board members upon the recom- mendation of the Corporate Governance and Nomination Committee. The independent directors of the new Board will also conﬁ rm the election of the members and Chairmen for the Board’s committees from among the Board’s independ- ent directors upon the recommendation of the Corporate Governance and Nomination Committee and based on each committee’s member qualiﬁ cation standards. These elections will take place at the Board’s assembly meeting following the Annual General Meeting. On January , , the Corporate Governance and Nomination Committee announced that it will propose in the assembly meeting of the new Board of Directors after the Annual General Meeting on May ,  that Risto Siilasmaa be elected as Chairman of the Board and Dame Marjorie Scardino as Vice Chairman of the Board.  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 According to Nokia’s Articles of Association, the Nokia Leader- ship Team is responsible for the operative management of Nokia. The Chairman and members of the Nokia Leadership Team are appointed by the Board of Directors. Only the Chair- man of the Nokia Leadership Team, the Chief Executive Oﬃ cer, can be a member of both the Board of Directors and the Nokia Leadership Team. THE CURRENT MEMBER S OF THE NOKIA LE ADER SHIP TE AM ARE SE T FORTH BELOW. Stephen Elop, b. 1963 President and CEO of Nokia Corporation. Member of the Board of Directors of Nokia Corporation. Nokia Leadership Team member and Chairman since . Joined Nokia . CHANGE S IN THE NOKIA LE ADER SHIP TE AM During  and subsequently, the following appointments to the Nokia Leadership Team were made: » Jerri DeVard was appointed Executive Vice President, Chief Marketing Oﬃ cer, and member of the Nokia Leadership Team as from January , . » Colin Giles was appointed Executive Vice President of Sales and member of the Nokia Leadership Team as from February , . » Jo Harlow was appointed Executive Vice President of Smart Devices and member of the Nokia Leadership Team as from February , . » Louise Pentland, Chief Legal Oﬃ cer, was appointed Executive Vice President and member of the Nokia Leadership Team as from February , . » Michael Halbherr was appointed Executive Vice President of Location & Commerce and member of the Nokia Leadership Team as from July , . » Henry Tirri was appointed Executive Vice President, Chief Technology Oﬃ cer, and member of the Nokia Leadership Team as from September , . » Marko Ahtisaari was appointed Executive Vice President of Design and member of the Nokia Leadership Team as from February , . Further, during , the following Nokia Leadership Team members resigned: » Alberto Torres, formerly Executive Vice President of MeeGo Computers, resigned from the Nokia Leadership Team ef- fective as from February ,  and left Nokia on March , . » Richard Green, formerly Executive Vice President and Chief Technology Oﬃ cer, resigned from the Nokia Leadership Team and left Nokia eﬀ ective as from September , . » Dr. Tero Ojanperä formerly Executive Vice President of Services and Developer Experience resigned from the Nokia Leadership Team and left Nokia eﬀ ective as from October , . Bachelor of Computer Engineering and Management (McMas- ter University, Hamilton, Canada). Doctor of Laws, honorary (McMaster University, Hamilton, Canada). President of Microsoft Business Division and member of senior membership team of Microsoft Corporation –. COO, Juniper Networks, Inc. –. President, Worldwide Field Operations, Adobe Systems Inc. –. President and CEO (last position), Macromedia Inc. –. Esko Aho, b. 1954 Executive Vice President, Corporate Relations and Responsibility. Nokia Leadership Team member since . Joined Nokia . Master of Social Sciences (University of Helsinki). President of the Finnish Innovation Fund, Sitra –. Private consultant –. Lecturer, Harvard University –. Prime Minister of Finland –. Chairman of the Centre Party –. Member of the Finnish Parliament –. Elector in the presidential elections of ,  and . Member of the Board of Directors of Fortum Corporation. Member of the Board of Directors of Terveystalo. Member of the Board of Directors of Technology Academy Finland. Vice Chairman of the Board of Directors of the Federation of Finnish Technology Industries. 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. Marko Ahtisaari, b. 1969 Executive Vice President, Design. Nokia Leadership Team member since February , . With Nokia –, rejoined . Master of Arts in Philosophy (Graduate School of Arts and Sci- ences, Columbia University, New York, USA). Bachelor of Arts in Economics and Philosophy (Columbia College, New York, USA). Senior Vice President, Design, Nokia –. CEO and Co-founder, Dopplr –. Head of Brand & Design, Blyk –. Director, Design Strategy, Nokia –. Director, Insight & Innovation, Nokia –. Designer, Satama Interactive –. Faculty Fellow, Graduate School of Arts and Sciences, Columbia University –. Member of the Board of Directors of Artek oy ab. Member of the Board of Directors of WITNESS.  N O K I A I N 2 0 1 1 Jerri DeVard, b. 1958 Executive Vice President, Chief Marketing Oﬃ cer. Nokia Leadership Team member since January , . Joined Nokia on January , . Jo Harlow, b. 1962 Executive Vice President, Smart Devices. Nokia Leadership Team member since February , . Joined Nokia . B.A. (Economics) (Spelman College, Atlanta, Georgia, USA). M.B.A. (Marketing) (Clark Atlanta University Graduate School of Business, Atlanta, Georgia, USA). Bachelor of science (psychology) (Duke University, Durham, North Carolina, USA). Senior Vice President, Symbian Smartphones, Mobile Principal, DeVard Marketing Group –. Senior Vice President, Marketing and Brand Management, Verizon Communications Inc. –. Senior Vice President, Marketing Communications and Brand Management, Verizon Communications Inc. –. Chief Marketing Oﬃ cer of e-Consumer, Citigroup –. Management positions at Citigroup –. Vice President, Marketing, Color Cosmetics, Revlon Inc. –. Vice President, Sales and Marketing, Harrah’s Entertainment –. Several brand management positions at the Pillsbury Co. –. Member of the Board of Directors of Belk Inc. Member of the Board of Trustees of Spelman College. Member of the PepsiCo African-American Advisory Board. Colin Giles, b. 1963 Executive Vice President, Sales. Nokia Leadership Team member since February , . Joined Nokia . Bachelor’s degree engineering (University of Western Aus- tralia). EMBA (London Business School). Senior Vice President, Sales, Markets, Nokia –. President and Senior Vice President for Greater China, Japan and Korea, Nokia –. Senior Vice President, Sales, Distribution East, Nokia –. Senior Vice President, CMO, Greater China, Nokia –. Vice President Sales and Marketing, China, Nokia –. General Manager, Taiwan, Nokia –. Director, Marketing, Asia Paciﬁ c, Nokia –. Management positions in several telecom- munications companies in Australia and the United Kingdom. Michael Halbherr, b. 1964 Executive Vice President, Location & Commerce. Nokia Leadership Team member since July , . Joined Nokia . PhD. (Electrical Engineering) (ETH, Zurich, Switzerland). Work at MIT Laboratory for Computer Science (Cambridge, MA, USA). Vice President, Ovi Product Development, Nokia Services –. Vice President, Nokia Maps, Nokia Services – . CEO, gate AG, Berlin, Germany –. Managing Director, Europeatweb, Munich, Germany –. Manager, The Boston Consulting Group, in the USA and Switzerland –. Solutions, Nokia –. Senior Vice President, Smartphones Product Management, Nokia . Vice President, Live Category, Nokia –. Senior Vice President, Marketing, Mobile Phones, Nokia –. Vice President, Marketing, North America, Mobile Phones, Nokia –. Marketing, sales and management roles at Reebok – and Procter & Gamble –. Timo Ihamuotila, b. 1966 Executive Vice President, Chief Financial Oﬃ cer. Nokia Leadership Team member since . With Nokia –, rejoined . Master of Science (Economics) (Helsinki School of Economics). Licentiate of Science (Finance) (Helsinki School of Economics). Executive Vice President, Sales, Markets, Nokia –. Executive Vice President, Sales and Portfolio Management, Mobile Phones, Nokia . Senior Vice President, CDMA Business Unit, Mobile Phones, Nokia –. Vice President, Finance, Corporate Treasurer, Nokia –. Director, Corporate Finance, Nokia –. Vice President of Nordic Derivates Sales, Citibank plc. –. Manager, Dealing & Risk Management, Nokia –. Analyst, Assets and Liability Management, Kansallis Bank –. Member of the Board of Directors of Nokia Siemens Networks B.V. Member of the Board of Directors of Central Chamber of Commerce of Finland. Mary T. McDowell, b. 1964 Executive Vice President, Mobile Phones. Nokia Leadership Team member since . Joined Nokia . Bachelor of Science (Computer Science) (College of Engineer- ing at the University of Illinois). Executive Vice President and Chief Development Oﬃ cer, Nokia –. Executive Vice President and General Manager of Enterprise Solutions, Nokia –. Senior Vice President & General Manager, Industry-Standard Servers, Hewlett-Packard Company –. Senior Vice President & General Manager, Industry-Standard Servers, Compaq Computer Corporation –. Vice President, Marketing, Server Products Division of Compaq Computer Corporation –. Holder of executive, managerial and other posi- tions at Compaq Computer Corporation –. Member of the Board of Directors of Autodesk, Inc. Member of the Board of Visitors of the College of Engineering at the University of Illinois.  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 Executive Vice President, Chief Legal Oﬃ cer. Nokia Leadership Team member since February , . Joined Nokia . Henry Tirri, b. 1956 Executive Vice President, Chief Technology Oﬃ cer. Nokia Leadership Team member since September , . Joined Nokia . LL.B honors (law degree) (Newcastle upon Tyne). Qualiﬁ ed and active Solicitor (England and Wales). Licensed attorney (Mem- ber of the New York Bar). Senior Vice President and Chief Legal Oﬃ cer, Nokia –. Acting Chief Legal Oﬃ cer, Nokia –. Vice President and Head of Legal, Enterprise Solutions, Nokia –. Senior Legal Counsel, Nokia Networks –. Before joining Nokia, corporate in-house legal positions at Avon Cosmetics Ltd. and law ﬁ rm positions prior to that in the United Kingdom. Member of Association of General Counsel, CLO Roundtable–Europe, Global Leaders in Law, Corporate Counsel Forum. Vice chair of the International Bar Association. Ph.D. (computer science) (University of Helsinki). Dr. h.c. (University of Tampere). Head of Nokia Research Center (NRC), CTO Oﬃ ce –. Head of NRC Systems Research laboratory –. Nokia Research Fellow –. Adjunct Professor in computer science (University of Helsinki). Adjunct Professor in computational engineering (Aalto University, Helsinki). Member of the Industry Advisory Board of IEEE Computer Society. Member of the Scientiﬁ c Advisory Board of Institute for Infocom Research. Member of the international Advisory Committee of Tsinghua National Laboratory for Information Science and Technology. Niklas Savander, b. 1962 Executive Vice President, Markets. Nokia Leadership Team member since . Joined Nokia . Master of Science (Eng.) (Helsinki University of Technology). Master of Science (Economics and Business Administration) (Swedish School of Economics and Business Administration, Helsinki). Executive Vice President, Services, Nokia –. Executive Vice President, Technology Platforms, Nokia –. Senior Vice President and General Manager of Nokia Enterprise Solutions, Mobile Devices Business Unit –. Senior Vice President, Nokia Mobile Software, Market Operations –. Vice President, Nokia Mobile Software, Strategy, Marketing & Sales –. Vice President and General Manager of Nokia Networks, Mobile Internet Applications –. Vice President, Marketing, Nokia Networks –. Vice President of Nokia Network Systems, Marketing –. Holder of executive and mana- gerial positions at Hewlett-Packard Company –. Member of the Board of Directors of Nokia Siemens Networks B.V. Member of the Board of Directors and secretary of Waldemar von Frenckells Stiftelse. Juha Äkräs, b. 1965 Executive Vice President, Human Resources. Nokia Leadership Team member since . Joined Nokia . Master of Science (Eng.) (Helsinki University of Technology). Senior Vice President, Human Resources, Nokia –. Vice President, Global Operational Human Resources, Nokia –. Senior Vice President and General Manager, Core Networks, Nokia Networks –. Vice President and General Manager, IP Networks, Nokia Networks –. Vice President, Strategy and Business Development, Nokia Networks –. Vice President, Customer Services APAC, Nokia Telecommunications –. Head of Marketing and Business Development, Customer Services, Nokia Tele communications –. Business Development Manager and Controller, Customer Services, Nokia Cellular Systems –. Project Manager, Nokia Telecom AB (Sweden) –. Member of the Board of Directors of Confederation of Finnish Industries (EK). Dr. Kai Öistämö, b. 1964 Executive Vice President, Chief Development Oﬃ cer. Nokia Leadership Team member since . Joined Nokia . Doctor of Technology (Signal Processing). Master of Science (Engineering) (Tampere University of Technology). Executive Vice President, Devices, Nokia –. Executive Vice President and General Manager of Mobile Phones, Nokia –. Senior Vice President, Business Line Management, Mobile Phones, Nokia –. Senior Vice President, Mobile Phones Business Unit, Nokia Mobile Phones –. Vice President, TDMA/GSM  Product Line, Nokia Mobile Phones –. Vice President, TDMA Product Line –. Various technical and managerial positions in Nokia Consumer Electronics and Nokia Mobile Phones –. Member of the Board of Directors of Sanoma Corporation. Chairman of the Board of The Funding Agency for Technology and Innovation (TEKES).  N O K I A I N 2 0 1 1 COMPENSATION OF THE BOARD OF DIRECTORS AND THE NOKIA LEADERSHIP TEAM The remuneration of the Board of Directors is set annu- ally by our Annual General Meeting by a resolution of a simple majority of the shareholders’ votes represented at the meet- ing, upon the proposal of the Corporate Governance and Nomination Committee of the Board of Directors. The remu- neration 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 for the shareholders’ approval in the Annual General Meeting, it is the policy of the Corporate Governance and Nomination Committee to review and compare the remuneration levels and their criteria paid in other global companies with net sales and business complexity comparable to that of Nokia. The Committee’s aim is to ensure that Nokia has an eﬃ cient Board of international professionals representing a diverse mix of skills and experience. A competitive Board remuneration con- tributes to the achievement of this target. Remuneration of the Board of Directors in 2011 For the year ended December , , the aggregate amount of remuneration paid to the members of the Board of Direc- tors for their services as members of the Board and its com- mittees was EUR   . The following table sets forth the total annual remunera- tion paid to the members of the Board of Directors in , as resolved by the shareholders at the Annual General Meeting on May , . For information with respect to the Nokia shares and equity awards held by the members of the Board of Directors, please see “Share Ownership of the Board of Directors” on page . BOARD OF DIREC TOR S The following table sets forth the annual remuneration of the members of the Board of Directors for service on the Board and its committees, as resolved at the respective Annual General Meetings in ,  and . Position, EUR 2011 2010 2009 Chairman 440 000 440 000 440 000 Vice Chairman 150 000 150 000 150 000 Member 130 000 130 000 130 000 Chairman of Audit Committee Member of Audit Committee Chairman of Personnel Committee Total 25 000 25 000 25 000 10 000 10 000 10 000 25 000 25 000 1 700 000 1 1 700 000 1,2 1 840 000 1,2 25 000  The changes in the aggregate amount of Board pay from year to year are due to changes in the number of Board members and changes in commit- tee composition. The amount of fees paid to the Board and Committee members for the services rendered remained the same. The President and CEO Stephen Elop did not receive remuneration for his service as a member of the Board in .  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 and no fees are paid for meeting attendance. Approximately % of director compensation is paid in the form of Nokia shares that are 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 oﬀ set any costs relating to the acquisition of the shares, includ- ing 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, perfor- mance shares, restricted shares or any other equity-based or otherwise variable compensation for their duties as Board members. The President and CEO did not receive compensation for his duties as a member of the Board of Directors in . The total compensation of the President and CEO is described below in “Summary Compensation Table ” on page .  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 Stock Option Year EUR 1 EUR 2 awards awards compensation EUR 2 EUR 2 All other compensation EUR 2 EUR 2 Total EUR Change in pension value and nonqualiﬁ ed deferred incentive plan compensation earnings Non-Equity Jorma Ollila, Chairman 3 2011 440 000 Marjorie Scardino, Vice Chairman 4 Stephen Elop 5 Bengt Holmström Henning Kagermann 6 Per Karlsson Jouko Karvinen 7 Helge Lund Isabel Marey-Semper 8 Risto Siilasmaa 9 Kari Stadigh Total 2011 150 000 2011 — 2011 130 000 2011 155 000 2011 130 000 2011 140 000 2011 130 000 2011 140 000 2011 155 000 2011 130 000 1 700 000 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 440 000 — — — — 150 000 — 130 000 155 000 130 000 — 140 000 130 000 140 000 155 000 130 000 — — — 1 700 000  Approximately % of each Board member’s annual remuneration is paid in Nokia shares purchased from the market and the remaining approxi- mately % is paid in cash.  Represents the fees paid to Henning Kagermann, consisting of a fee of EUR   for service as a member of the Board and EUR   for service as Chairman of the Personnel Committee.  Not applicable to any non-executive member of the Board of Directors. Not applicable to the President and CEO with respect to his service as a member of the Board of Directors.  Represents the fees paid to Jouko Karvinen, consisting of a fee of EUR   for service as a member of the Board and EUR   for service as a member of the Audit Committee.  Represents the fee of Jorma Ollila for service as Chairman of the Board.  Represents the fee of Dame Marjorie Scardino for service as Vice Chair- man of the Board.  Stephen Elop did not receive remuneration for his service as a member of the Board. This table does not include remuneration paid to Mr. Elop for his service as the President and CEO. For the compensation paid for his service as the President and CEO, see “Summary Compensation Table ” on page .  Represents the fees paid to Isabel Marey-Semper, consisting of a fee of EUR   for service as a member of the Board and EUR   for service as a member of the Audit Committee.  Represents the fees paid to Risto Siilasmaa, consisting of a fee of EUR   for service as a member of the Board and EUR   for service as Chairman of the Audit Committee. Proposal by the Corporate Governance and Nomination Committee for remuneration to the Board of Directors in 2012 On January , , the Corporate Governance and Nomina- tion Committee of the Board announced its proposal to the Annual General Meeting convening on May ,  regard- ing the remuneration to the Board of Directors in . The Committee will propose that the annual fee payable to the Board members elected at the same meeting for a term until the close of the Annual General Meeting in , remain at the same level as during the past four years and be as fol- lows: EUR   for the Chairman, EUR   for the Vice Chairman and EUR   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 Chairman of the Personnel Committee an additional annual fee of EUR  , and for each member of the Audit Committee an additional annual fee of EUR  . Further, the Corporate Governance and Nomination Committee will propose that, as in the past, approximately  percent of the remuneration be paid in Nokia shares purchased from the market, which shares shall be retained until the end of the board membership in line with the Nokia policy (except for those shares needed to oﬀ set any costs relating to the acquisition of the shares, including taxes). E XECUTIVE COMPENSATION Executive compensation philosophy, programs and decision-making process The basic principles of our executive compensation philosophy are to attract, retain and motivate talented executive oﬃ cers on a global basis with the right mix of skills and capabilities to drive Nokia’s success in an extremely complex and rapidly evolving mobile communications industry. As a result, we have developed an overall compensation framework that provides competitive base pay rates combined with short- and long- term incentives that are intended to result in a competitive total compensation package. Our executive compensation programs have been designed to enable Nokia to eﬀ ectively execute our strategy announced in early . Speciﬁ cally, our programs are designed to: » incorporate speciﬁ c measures that align directly with the execution of our new strategy over the next year; » deliver an appropriate amount of performance-related vari- able compensation for the achievement of strategic goals and ﬁ nancial targets in both the short- and long-term; » appropriately balance rewards between both Nokia’s and an individual’s performance; and  N O K I A I N 2 0 1 1 » foster an ownership culture that promotes sustainability and long-term value creation and align the interests of the executive oﬃ cers with those of the shareholders through long-term equity-based incentives. The competitiveness of Nokia’s executive compensation levels and practices is one of several key factors the Personnel Committee of the Board considers in its determination of compensation for Nokia executive oﬃ cers. The Personnel Committee compares, on an annual basis, Nokia’s compensa- tion practices, base salaries and total compensation, including short- and long-term incentives against those of other rel- evant companies with the same or similar revenue, size, global reach and complexity that we believe we compete against for executive talent. The relevant sample includes companies in high technology, telecommunications and Internet services industries, as well as companies from other industries that are headquartered in Europe and the United States. The peer group is determined by the Personnel Committee and reviewed for appropriateness from time to time as deemed necessary due to such factors as changes in the business environment or industry. The Personnel Committee retains and uses an external compensation consultant from Mercer Human Resources to obtain benchmark data and information on current market trends. The consultant works directly for the Chairman of the Personnel Committee and meets annually with the Personnel Committee, without management present, to provide an assessment of the competitiveness and appropriateness of Nokia’s executive pay levels and programs. Management provides the consultant with information regarding Nokia’s programs and compensation levels in preparation for meet- ing with the Committee. The consultant of Mercer Human Resources that works for the Personnel Committee is in- dependent of Nokia and does not have any other business relationships with Nokia. The Personnel Committee reviews the executive oﬃ cers’ compensation on an annual basis, and from time to time dur- ing the year when special needs arise. Without management present, the Personnel Committee reviews and recommends to the Board the corporate goals and objectives relevant to the compensation of the President and CEO, evaluates the performance of the President and CEO in light of those goals and objectives, and proposes to the Board the compensa- tion level of the President and CEO. All compensation for the President and CEO, including long-term equity incentives, is approved by the Board and is conﬁ rmed by the independent members of the Board. Management’s role is to provide any information requested by the Personnel Committee to assist in their deliberations. In addition, upon recommendation of the President and CEO, the Personnel Committee approves all compensation for all the members of the Nokia Leadership Team (other than the President and CEO of Nokia) and other executive level direct reports to the President and CEO, including long-term equity incentives and goals and objectives relevant to compensa- tion. The Personnel Committee also reviews the results of the evaluation of the performance of the Nokia Leadership Team members (excluding the President and CEO) and other execu- tive level direct reports to the President and CEO and approves their incentive compensation based on such evaluation. The Personnel Committee considers the following factors, among others, in its review when determining the compensa- tion of Nokia’s executive oﬃ cers or recommending the com- pensation of the President and CEO to the Board: » the compensation levels for similar positions (in terms of scope of position, revenues, number of employees, global responsibility and reporting relationships) in relevant com- parison companies; » the performance demonstrated by the executive oﬃ cer during the last year; » the size and impact of the particular oﬃ cer’s role on Nokia’s overall performance and strategic direction; » the internal comparison to the compensation levels of the other executive oﬃ cers of Nokia; » past experience and tenure in role; and » the potential and expected future contributions of the executive. The above factors are assessed by the Personnel Committee in totality. Nokia’s management performed an internal risk assess- ment of Nokia’s compensation policies and practices for all its employees speciﬁ cally to understand any potential risk factors that would be associated with the changes made to Nokia’s  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 assessing an executive’s performance. The measures to be included in the scorecard for each executive and the speciﬁ c targets require the Personnel Committee’s approval with re- spect to the members of the Nokia Leadership Team, and the Board’s approval with respect to the President and CEO. The following table reﬂ ects the measurement criteria that are established for the President and CEO and members of the Nokia Leadership Team and the relative weighting of each component for the year . The short-term incentive payout is based on performance relative to targets set for each meas- urement criteria listed in the table and includes a comparison of each executive oﬃ cer’s individual performance to his/her predeﬁ ned scorecard objectives and targets. compensation programs in  in alignment to our new strat- egy. Management assessed such factors as Nokia’s proportion of ﬁ xed compensation in relation to variable compensation, the caps on incentive compensation that can be earned under our plans, performance metrics tied to the incentive programs and the time horizon over which variable compensation may be earned, as well as Nokia’s share ownership, severance and recoupment policies and our overall governance structure and practices. Based on the assessment, management concluded that there are no risks arising from Nokia’s compensation programs, policies and practices or the changes implemented that are likely to have a material adverse eﬀ ect on Nokia. The ﬁ ndings of the analysis were reported to the Personnel Committee. COMPONENTS OF E XECUTIVE COMPENSATION Our compensation program for executive oﬃ cers includes annual cash compensation in the form of a base salary and short-term cash incentives as well as long-term equity-based incentive awards in the form of performance shares, stock op- tions and restricted shares. Annual cash compensation Base salaries are targeted at globally competitive market levels. The Personnel Committee evaluates and weighs as a whole the appropriate salary levels based on both our US and European peer companies. Short-term cash incentives are an important element of our variable pay programs and are tied directly to Nokia’s and the individual executives’ performance. The short-term cash incentive opportunity is expressed as a percentage of each ex- ecutive oﬃ cer’s annual base salary. These award opportunities and measurement criteria are presented in the table below. Short-term incentives are determined for each executive based on their performance as measured on an individual scorecard. Measurement criteria for the scorecard include a common set of objectives and targets shared by all Nokia Leadership Team members related to the change in strategy, individual strategic objectives for each executive oﬃ cer and Business Unit-speciﬁ c key operative targets which consist of key ﬁ nancial targets, key delivery milestones (products and services) and other key performance indicators such as quality and customer satisfaction. A broad range of sustainability and competitive factors are also taken into consideration when  N O K I A I N 2 0 1 1 Short-term incentive as a % of annual base salary in  Position Minimum Target performance performance Maximum performance Measurement criteria President and CEO 0% 100% 225% Total Nokia Leadership Team 0% 0% 100% 225% 75% 168.75% 0% 25% 37.5% (a) Shared Strategic Change Goals applicable to all Nokia Leadership Team members (including but not limited to targets for Nokia’s product and service portfolio, partnerships and organizational performance) (b) Individual Strategic / Change Goals 1 (c) Key Operative Targets (including net sales, operating proﬁ t and gross margin) (a) Shared Strategic Change Goals applicable to all Nokia Leadership Team members (including but not limited to targets for Nokia’s product and service portfolio, partnerships and organizational performance) (b) Individual Strategic / Change Goals 1 (c) Key Operative Targets (including net sales, operating proﬁ t and gross margin) (d) Total Shareholder Return 2,3 (comparison made with key competitors in the high technology, telecommunications and Internet services industries over one-, three- and ﬁ ve-year periods) Total 0% 100% 206.25%  The individual strategic objectives in the scorecard include key criteria  Only certain members of the Nokia Leadership Team are eligible for the which are the cornerstone for the success of Nokia’s long-term strategy. Such strategic objectives may include, but are not limited to, Nokia’s prod- uct and service portfolio, consumer relationships, developer ecosystem, partnerships and other strategic assets. additional % total shareholder return element. For Stephen Elop, Total Shareholder Return is measured in the one-time special CEO incentive program approved by the Board of Directors for the two-year period –.  Total shareholder return reflects the change in Nokia’s share price during an established time period, including the amount of dividends paid, di- vided 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. When determining the ﬁ nal incentive payout, the Personnel Committee determines an overall score for each executive based on the evaluation (including both qualitative and quan- titative scores) of the individual scorecard. The ﬁ nal incentive payout is determined by multiplying each executive’s eligible salary by: (i) his/her incentive target percentage; and (ii) the score resulting from scorecard evaluation above. The result- ing score for each executive is then multiplied by an “aﬀ ord- ability factor”, which is determined based on overall net sales, proﬁ tability and cash ﬂ ow management of Nokia and which is applicable in a similar manner to all Nokia employees within the short-term cash incentive program. The Personnel Committee applies discretion when evaluating actual results against targets and the resulting incentive payouts. In certain excep- tional situations, the actual short-term cash incentive awarded to the executive oﬃ cer could be zero. The maximum payout is only possible with maximum performance on all measures. In , the portion of the short-term cash incentive that is tied to the predeﬁ ned individual scorecard was paid twice a year based on the performance for Nokia’s short-term plans that ended on June  and December , . The portion of the short-term cash incentive that is tied to Total Shareholder  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 Return is paid annually at the end of the year to eligible Nokia Leadership Team members. The payment is based on the Personnel Committee’s assessment of Nokia’s total share- holder return compared to key peer group companies that are selected by the Personnel Committee in the high technology, Internet services and telecommunications industries and rel- evant market indices over one-, three- and ﬁ ve-year periods. For more information on the actual cash compensation paid in  to our executive oﬃ cers, see “Summary compensation table ” on page . Long-term equity-based incentives Long-term equity-based incentive awards in the form of performance shares, stock options and restricted shares are used to align executive oﬃ cers’ interests with shareholders’ interests, reward for long-term ﬁ nancial performance and en- courage retention, while also considering evolving regulatory requirements and recommendations and changing economic conditions. These awards are determined on the basis of the factors discussed above in “Executive Compensation Philoso- phy, Programs and Decision-making Process,” including a com- parison of an executive oﬃ cer’s overall compensation with that of other executives in the relevant market and the impact on the competitiveness of the executive’s compensation package in that market. Performance shares are Nokia’s main vehicle for long-term equity-based incentives and reward the achievement of both Nokia’s long-term ﬁ nancial results and an increase in share price. Performance shares vest as shares, if at least one of the pre-determined threshold performance levels, tied to Nokia’s ﬁ nancial performance, is achieved by the end of the performance period and the value that the executive receives is dependent on Nokia’s share price. Stock options are granted with the purpose of creating value for the executive oﬃ cer, once vested, only if the Nokia share price at the time of vesting is higher than the exercise price of the stock option established at grant. This is also intended to focus executives on share price appreciation and thus aligning the interests of the executives with those of the shareholders. Restricted shares are used primarily for long-term retention purposes and they vest fully after the close of a pre-deter- mined restriction period. Any shares granted are subject to the share ownership guidelines as explained below. All of these equity-based incentive awards are generally forfeited if the executive leaves Nokia prior to their vesting. Recoupment of certain equity gains The Board of Directors has approved a policy allowing for the recoupment of equity gains realized by Nokia Leader- ship Team members under Nokia equity plans in case of a ﬁ nancial restatement caused by an act of fraud or intentional misconduct. This policy applies to equity grants made to Nokia Leadership Team members after January , . Information on the actual equity-based incentives granted to the members of our Nokia Leadership Team in  is included in “Stock option ownership of the Nokia Leadership Team” on page  and “Performance shares and restricted shares of the Nokia Leadership Team” on page  . AC TUAL E XECUTIVE COMPENSATION FOR 2011 Service contracts Stephen Elop’s service contract covers his position as Presi- dent and CEO as from September , . As at December , , Mr. Elop’s annual base salary, which is subject to an annual review by the Board of Directors and conﬁ rmation by the independent members of the Board, is EUR   . His incentive targets under the Nokia short-term cash incen- tive plan are % of annual base salary as at December ,  (description of a separate plan approved by the Board of Directors for - is below). Mr. Elop is entitled to the customary beneﬁ ts in line with our policies applicable to the top management, however, some of them are being provided on a tax assisted basis. Mr. Elop is also eligible to participate in Nokia’s long-term equity-based compensation programs according to Nokia policies and guidelines and as determined by the Board of Directors. In case of termination by Nokia for reasons other than cause, Mr. Elop is entitled to a severance payment of up to  months of compensation (both annual base salary and target incentive) and his equity will be forfeited as determined in the applicable equity plan rules, with the exception of the equity out of the Nokia Equity Program  which will vest in an ac- celerated manner. In case of termination by Mr. Elop, the notice period is six months and he is entitled to a payment for such notice period (both annual base salary and target incentive for six months) and all his equity will be forfeited. In the event of a change of control of Nokia, Mr. Elop may terminate his employ- ment upon a material reduction of his duties and responsibili- ties, upon which he will be entitled to a compensation of   N O K I A I N 2 0 1 1 months (both annual base salary and target incentive), and his unvested equity will vest in an accelerated manner. In case of termination by Nokia for cause, Mr. Elop is entitled to no additional compensation and all his equity will be forfeited. In case of termination by Mr. Elop for cause, he is entitled to a severance payment equivalent to  months of notice (both annual base salary and target incentive), and his unvested equity will vest in an accelerated manner. Mr. Elop is subject to a -month non-competition obligation after termination of the contract. Unless the contract is terminated by Nokia for cause, Mr. Elop may be entitled to compensation during the non-competition period or a part of it. Such compensation amounts to the annual base salary and target incentive for the respective period during which no severance payment is paid. The Board of Directors decided in March  that in order to align Stephen Elop’s compensation to the successful execu- tion of the new strategy announced on February , , his compensation structure for  and  would be modiﬁ ed. This one-time special CEO incentive program is designed to align Mr. Elop’s compensation to increased shareholder value and links a meaningful portion of his compensation directly to the performance of Nokia’s share price over the period of –. To participate in this program, Mr. Elop invested a portion of his short-term cash incentive opportunity and a portion of the value of his expected annual equity grants into the program as follows: • His target short-term cash incentive level is reduced from % to % and • His equity grants are reduced to a level below the competitive market value. In consideration, Mr. Elop has the opportunity to earn a number of Nokia shares at the end of  based on two independent criteria, with half of the opportunity tied to each criterion:  Total Shareholder Return (TSR) relative to a peer group of companies over the two-year period from December ,  until December , : Minimum payout will require performance at the th percentile of the peer group and the maximum payout will occur if the rank is among the top three of the peer group. The peer group consists of a num- ber of relevant companies in the high technology/mobility, telecommunications and Internet services industries.  Nokia’s absolute share price at the end of : Minimum payout if the Nokia share price is EUR , with maximum payout if the Nokia share price is EUR . Nokia share price under both criteria is calculated as a - day trade volume weighted average share price on the NASDAQ OMX Helsinki. If the minimum performance for neither of the two performance criterion is reached, no share delivery will take place. If the minimum level for one of the criterion is met, a total of   Nokia ordinary shares will be delivered to Mr. Elop. At maximum level for both criteria, a total of   Nokia ordinary shares will be delivered to him. Shares earned under this plan during – will be subject to an addition- al one-year vesting period until the ﬁ rst quarter , at which point the earned and vested shares will be delivered to Mr. Elop. The number of shares earned and to be settled may be adjusted by the Board of Directors under certain exceptional circumstances. Until the shares are settled, no shareholder rights, such as voting or dividend rights, associated with the shares would be applicable. No shares will be delivered if Mr. Elop resigns without cause or is terminated for cause by Nokia before the settlement. For information about the compensation and beneﬁ ts received by Mr. Elop during , see “Summary compensation table ” on page  and “Equity grants in ” on page . Pension arrangements for the members of the Nokia Leadership Team The members of the Nokia Leadership Team participate in the local retirement programs applicable to employees in the country where they reside. Executives in Finland, including Mr. Elop, participate in the Finnish TyEL pension system, which provides for a retirement beneﬁ t based on years of service and earnings according to prescribed statutory rules. Under the Finnish TyEL pension system, base pay, incentives and other taxable fringe beneﬁ ts are included in the deﬁ nition of earnings, although gains realized from equity are not. The Finnish TyEL pension scheme provides for early retirement beneﬁ ts at age  with a reduction in the amount of retire- ment beneﬁ ts. Standard retirement beneﬁ ts are available from age  to , according to an increasing scale.  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 Long-term equity-based incentives granted in   Nokia Leadership Team 4, 5 Total number of Total participants Performance shares at threshold 2, 3 716 500 5 410 211 Stock options 3 383 000 11 751 907 Restricted shares 726 000 8 024 880 4 350 3 200 1 050  The equity-based incentive grants are generally forfeited if the employ- ment relationship terminates with Nokia prior to vesting. The settlement is conditional upon performance and/or service conditions, as determined in the relevant plan rules. For a description of our equity plans, see Note  to our consolidated financial statements.  Includes also the threshold number of shares under the one-time special CEO incentive program.  For performance shares granted under Nokia Performance Share Plans, at maximum performance, the settlement amounts to four times the number at threshold. For the one-time special CEO incentive program, at maximum performance, the settlement amounts to three times the number at threshold.  Includes Alberto Torres for the period until February , , Richard Green until September , , Tero Ojanperä until September ,  and Colin Giles, Jo Harlow and Louise Pentland as from February , , Michael Halbherr as from July ,  and Henry Tirri as from September , .  For the Nokia Leadership Team members whose employment terminated during , the long-term equity-based incentives were forfeited follow- ing termination of employment in accordance with plan rules Actual compensation for the members of the Nokia Leadership Team in 2011 At December , , Nokia had a Nokia Leadership Team consisting of  members. Changes in the composition in the Nokia Leadership Team during  and subsequently are explained above in “Nokia Leadership Team” on page . The following tables summarize the aggregate cash com- pensation paid and the long-term equity-based incentives granted to the members of the Nokia Leadership Team under our equity plans in . Gains realized upon exercise of stock options and share- based incentive grants vested for the members of the Nokia Leadership Team during  are included in “Stock option exercises and settlement of shares” on page . Aggregate cash compensation to the Nokia Leadership Team for   Number of members on December 31 Base salaries EUR Cash incentive payments 2 EUR 13 6 229 909 2 166 514 Year 2011  Includes base salary and cash incentives paid or payable by Nokia for the  fiscal year. The cash incentives are paid as a percentage of annual base salary Includes base salary and cash incentives paid or payable by Nokia for the  fiscal year. The cash incentives are paid as a percent- age of annual base salary based on Nokia’s short-term cash incentives. Includes compensation paid to Alberto Torres for the period until Febru- ary , , Richard Green until September , , Tero Ojanperä until September ,  and Colin Giles, Jo Harlow and Louise Pentland as from February , , Michael Halbherr as from July ,  and Henry Tirri as from September , .  Excluding any gains realized upon exercise of stock options, which are described in “Stock option exercises and settlement of shares” on page .  N O K I A I N 2 0 1 1 Summary compensation table  Name and principal position 1 Stephen Elop, President and CEO Timo Ihamuotila, EVP, Chief Financial Oﬃ cer Mary T. McDowell, EVP, Mobile Phones 8 Jerri DeVard, EVP, Chief Marketing Oﬃ cer 8 Niklas Savander, EVP, Markets Tero Ojanperä, EVP, Services and Developer Experience, until September 30, 2011 Change in pension value and nonqualiﬁ ed deferred compensation Year Salary EUR Bonus 2 EUR Stock awards 3 EUR Option awards 3 EUR 2011 1 020 000 473 070 3 752 396 4 280 303 440 137 1 682 607 2010 2011 2010 2009 2011 2010 2009 550 000 173 924 479 493 423 524 245 634 1 341 568 752 856 396 825 234 286 559 177 202 294 479 493 559 637 314 782 1 233 368 800 873 508 338 349 911 539 443 800 132 185 448 166 328 135 834 185 448 142 567 152 283 earnings 5 EUR 73 956 340 471 150 311 31 933 15 575 All other compensation EUR Total 7 944 813 6 658 926 2 085 948 6 3 115 276 8 743 7 1 547 919 2 217 880 8 893 1 556 571 21 195 249 517 9,10 1 675 929 2 321 740 71 386 1 845 131 33 726 2011 402 489 98 069 609 789 131 503 284 867 9,11 1 526 717 2011 2010 550 000 134 809 479 493 441 943 247 086 1 233 368 185 448 142 567 103 173 21 905 12 23 634 1 474 828 2 088 598 2011 341 222 45 339 212 480 15 30 329 15 55 550 1 085 713 13 1 770 634 Richard Green, EVP, Chief Technology Oﬃ cer, February 11–September 21, 2011 2011 303 472 69 628 320 942 15 45 494 15 684 368 9,14 1 423 904  The positions set forth in this table are the current positions of the named executives. Mr. Ojanperä served as Executive Vice President, Ser- vices and Developer Experience until September ,  and Mr. Green served as Executive Vice President and Chief Technology Officer from February ,  until September , .  Bonus payments are part of Nokia’s short-term cash incentives. The amount consists of the annual cash bonus earned and paid or payable by Nokia for the respective fiscal year.  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 performance shares and restricted shares equals the estimated fair value on grant date. The estimated fair value is based on the grant date market price of a 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 shares, which is two times the number of shares at thresh- old. 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 officers, is as follows: Mr. Elop EUR   , Mr. Ihamuo- tila EUR  , Ms. McDowell EUR  , Ms. DeVard EUR  , Mr. Savander EUR  , Mr. Ojanperä EUR   and Mr. Green EUR  .  The value of stock awards for Mr. Elop includes EUR    as the fair value of the one-time special CEO incentive program based on the estimated fair value on the grant date. It was calculated using the Black- Scholes model, taking into consideration the two performance criteria, Nokia’s share price on an absolute and relative basis to a peer group, as defined by the incentive program rules. Based on the stock price at December , , the actual value of this award would be zero.  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 , , Nokia transferred its TyEL pension liability and assets to an external Finnish insurance company and no longer carries the liability on its financial statements. The figures shown represent only the change in liability for the funded portion. The method used to derive the actuarial IFRS valua- tion 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.  All other compensation for Mr. Elop in  includes: final one-time pay- ment of EUR    as compensation for lost income from his prior employer which resulted due to his move to Nokia and EUR   taxable benefit for premiums paid under supplemental medical and disability insurance and for mobile phone and driver.  All other compensation for Mr. Ihamuotila in  includes: EUR   for car allowance and EUR   taxable benefit for premiums paid under supplemental medical and disability insurance and for mobile phone and driver.  Salaries, benefits and perquisites for Ms. McDowell and Ms. DeVard were paid and denominated in GBP and USD. Amounts were converted using year-end  USD/EUR exchange rate of . and GPB/EUR rate of .. For year  disclosure, amounts were converted using year-end  USD/EUR exchange rate of .. For year  disclosure, amounts were converted using year-end  USD/EUR exchange rate of ..  Ms. McDowell, Ms. DeVard and Mr. Green participated in Nokia’s U.S Retire- ment Savings and Investment Plan. Under this (k) plan, participants elect to make voluntary pre-tax contributions that are % matched by Nokia up to % of eligible earnings. % of the employer’s match vests for the participants during each of the first four years of their employment. Participants earning in excess of the Internal Revenue Service (IRS) eligible earning limits may participate in the Nokia Restoration and Deferral Plan, which allows employees to defer up to % of their salary and % of their short-term cash incentive. Contributions to the Restoration and Deferral Plan are matched % up to % of eligible earnings, less contri- butions made to the (k) plan. The company’s contributions to the plan are included under “All Other Compensation” column and noted hereafter.  All other compensation for Ms. McDowell in  includes: EUR   provided under Nokia’s international assignment policy in the UK, EUR   for car allowance and EUR   company contributions to the (k) Plan.  All other compensation for Ms. DeVard in  includes: EUR   pro- vided under Nokia’s international assignment policy in the UK, EUR   for car allowance, EUR   company contributions to the (k) Plan and EUR   accrued US-related benefits.  All other compensation for Mr. Savander in  includes: EUR   for car allowance and EUR   taxable benefit for premiums paid under supplemental medical and disability insurance and for mobile phone and driver.  All other compensation for Mr. Ojanperä in  includes: EUR    for severance compensation, EUR   taxable benefit for premiums paid under supplemental medical and disability insurance and for mobile phone and driver, EUR  for medical-related benefits and EUR  for service award.  All other compensation for Mr. Green in  includes: EUR   for severance compensation, EUR   for accrued vacation time and EUR   for company contributions to the (k) Plan.  Mr. Green’s and Mr. Ojanperä’s equity grants were forfeited and cancelled upon their respective terminations of employment in accordance with plan rules.  Equity grants in   Name and principal position Stephen Elop, President and CEO Timo Ihamuotila, EVP, Chief Financial Oﬃ cer Mary T. McDowell, EVP, Mobile Phones Jerri DeVard, EVP, Chief Marketing Oﬃ cer 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 Option awards Stock awards Number of Performance Performance shares Grant Grant date Year Grant underlying options date price EUR fair value 2 EUR shares at threshold (number) shares at Restricted Grant date maximum (number) shares (number) fair value 3 EUR 2011 Mar. 11 2011 May 13 Aug. 5 2011 2011 May 13 Aug. 5 2011 2011 May 13 Aug. 5 2011 2011 May 13 Aug. 5 2011 250 000 500 000 70 000 200 000 70 000 200 000 45 000 150 000 6.02 3.76 6.02 3.76 6.02 3.76 6.02 3.76 6.02 3.76 252 745 286 698 70 769 114 679 70 769 114 679 45 494 86 009 70 769 114 679 250 000 4 125 000 750 000 4 500 000 2 033 572 5 180 000 1 718 824 35 000 140 000 50 000 479 493 35 000 140 000 50 000 479 493 22 500 90 000 100 000 609 789 35 000 140 000 50 000 479 493 Niklas Savander, EVP, Markets 2011 May 13 Aug. 5 2011 70 000 200 000 Tero Ojanperä, EVP, Services and Developer Experience, until September 30, 2011 6 Richard Green, EVP, Chief Technology Oﬃ cer, until September 21, 2011 6 2011 May 13 30 000 6.02 30 329 15 000 60 000 23 000 212 480 2011 May 13 45 000 6.02 45 494 22 500 90 000 35 000 320 942  Including all equity awards made during . Awards were made under the Nokia Stock Option Plan , the Nokia Performance Share Plan  and the Nokia Restricted Share Plan . The table includes also the award made under the one-time special CEO incentive program.  The fair value of stock options equals the estimated fair value on the grant date, calculated using the Black-Scholes model. The stock option ex- ercise price was EUR . on May ,  and EUR . on August , . NASDAQ OMX Helsinki closing market price was EUR . at grant date on May ,  and EUR . on August , .  The fair value of performance shares and restricted shares equals the estimated fair value on grant date. The estimated fair value is based on the grant date market price of the Nokia share less the present value of dividends expected to be paid during the vesting period. The value of per- formance shares is presented on the basis of a number of shares, which is two times the number at threshold.  Represents the threshold and maximum number of shares under the one- time special CEO incentive program granted on March , .  The fair value of the one-time special CEO incentive program equals the estimated fair value on the grant date, calculated using the Black-Scholes model and taking into consideration the two performance criteria, Nokia’s share price both on an absolute basis and relative to a peer group, as defined by the incentive program rules. NASDAQ OMX Helsinki closing market price at grant date on March ,  was EUR ..  Mr. Green’s and Mr. Ojanperä’s equity grants were forfeited and cancelled upon their respective terminations of employment in accordance with plan rules. For information with respect to the Nokia shares and equity awards held by the members of the Nokia Leadership Team as at December , , please see “Share ownership of the Nokia Leadership Team” on page . EQUIT Y-BA SED INCENTIVE PROGR AMS General During the year ended December , , we administered three global stock option plans, four global performance share plans and four global restricted share plans. Both executives and employees participate in these plans. Our compensation programs promote long-term value creation and sustain- ability of the company and ensure that remuneration is based on performance. Performance shares have been 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 em- ployees in higher job levels we employ a portfolio approach designed to build an optimal and balanced combination of long-term equity-based incentives, by granting both perfor- mance shares and stock options. We believe using both equity instruments help focus recipients on long term ﬁ nancial per- formance as well as on share price appreciation, thus aligning recipients’ interests with those of shareholders’ and pro- moting the long-term ﬁ nancial success of the company. The equity-based compensation programs are intended to align the potential value received by participants directly with the performance of Nokia. We have also granted restricted shares to a small selected number of key employees considered key talent whose retention or recruitment is vital to the future success of Nokia. The equity-based incentive grants are generally conditioned upon continued employment with Nokia, as well as the fulﬁ ll- ment of performance and other conditions, as determined in the relevant plan rules. The equity program for , which was approved by the Board of Directors, followed the structure of the program in . The participant group for the  equity-based in- centive program continued to be broad, with a wide number of employees in many levels of the organization eligible to participate. As at December , , the aggregate number of participants in all of our active equity-based programs was approximately   compared with approximately   as at December ,  reﬂ ecting changes in our grant guidelines and reduction in eligible population. For a more detailed description of all of our equity-based incentive plans, see Note  to Nokia’s consolidated ﬁ nancial statements on page .  N O K I A I N 2 0 1 1 Performance shares During , we administered four global performance share plans, the Performance Share Plans of , ,  and , each of which, including its terms and conditions, has been approved by the Board of Directors. The performance shares represent a commitment by Nokia Corporation to deliver Nokia shares to employees at a future point in time, subject to Nokia’s fulﬁ llment of pre-deﬁ ned performance criteria. No performance shares will vest un- less the Group’s performance reaches at least one of the threshold levels measured by two independent, pre-deﬁ ned performance criteria: the Group’s average annual net sales growth for the performance period of the plan and, in the Performance Share Plans of ,  and  earnings per share (“EPS”) at the end of the performance period and in the Performance Share Plan  average annual EPS. The , ,  and  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. The below table summarizes the relevant periods and settlements under the plans. Plan 2008 1 2009 1 2010 2011 Performance period Settlement 2008–2010 2009–2011 2010–2012 2011–2013 2011 2012 2013 2014  No Nokia shares were delivered under Nokia Performance Share Plans  and  as Nokia’s performance did not reach the threshold level of either performance criteria under both plans. 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 performance share grants are generally forfeited if the employment rela- tionship terminates with Nokia prior to vesting. Performance share grants to the CEO are made upon recommendation by the Personnel Committee and approved by the Board of Directors and conﬁ rmed by the independ- ent directors of the Board. Performance share grants to the other Nokia Leadership Team members and other direct reports of the CEO are approved by the Personnel Committee. Performance share grants to eligible employees are approved by the CEO on a quarterly basis, based on an authorization given by the Board of Directors. Stock options During  we administered three global stock option plans, the Stock Option Plan ,  and , each of which, including its terms and conditions, has been approved by the Annual General Meeting in the year when 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 granted under the Stock Option Plans  and  have a vesting schedule with % of the options vesting one year af- ter grant and .% each quarter thereafter. The stock options granted under the  and  plans have a term of approx- imately ﬁ ve years. The stock options granted under the Stock Option Plan  have a vesting schedule with % of stock options vesting three years after grant date and the remaining % vesting four years from grant. The stock options granted under the  plan have a term of approximately six years. The exercise price of the stock options is determined at the time of grant, on a quarterly basis, in accordance with a pre-agreed schedule after the release of Nokia’s periodic ﬁ nancial results. The exercise prices are based on the trade volume weighted average price of a Nokia share on NASDAQ OMX Helsinki during the trading days of the ﬁ rst whole week of the second month of the respective calendar quarter (i.e., February, May, August or November). With respect to the  Stock Option Plan, should an ex-dividend date take place dur- ing that week, the exercise price shall be determined based on the following week’s trade volume weighted average price of the Nokia share on NASDAQ OMX Helsinki. Exercise prices are determined on a one-week weighted average to mitigate any day-speciﬁ c ﬂ uctuations in Nokia’s share price. The determi- nation of exercise price is deﬁ ned in the terms and conditions of the stock option plan, which are approved by the sharehold- ers at the respective Annual General Meeting. The Board of Directors does not have the right to change how the exercise price is determined. Shares will be eligible for dividend for the ﬁ nancial year in which the share subscription takes place. Other shareholder rights will commence on the date on which the subscribed shares are entered in the Trade Register. The stock option  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 grants are generally forfeited if the employment relationship terminates with Nokia. Stock option grants to the CEO are made upon recom- mendation by the Personnel Committee and are approved by the Board of Directors and conﬁ rmed by the independent directors of the Board. Stock option grants to the other Nokia Leadership Team members and other direct reports of the CEO are approved by the Personnel Committee. Stock option grants to eligible employees are approved by the CEO on a quarterly basis, based on an authorization given by the Board of Directors. Restricted shares During , we administered four global restricted share plans, the Restricted Share Plan , ,  and , 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 high potential and critical talent who are vital to the future success of Nokia. Restricted shares are used only for key management positions and other critical talent. All of our restricted share plans have a restriction period of three years after grant. Until the Nokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights, associated with the restricted shares. The restricted share grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting. Restricted share grants to the CEO are made upon recom- mendation by the Personnel Committee and approved by the Board of Directors and conﬁ rmed by the independent direc- tors of the Board. Restricted share 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 on a quarterly basis, based on an authorization given by the Board of Directors. Nokia equity-based incentive program 2012 On January , , the Board of Directors approved the scope and design of the Nokia Equity Program . Simi- larly to the earlier broad-based equity incentive programs, it intends to align the potential value received by the partici- pants directly with the long-term ﬁ nancial performance of the company and increases in the company’s share price, thus aligning the participants’ interests with Nokia shareholders’ interests. Nokia’s balanced approach toward the use of equity eﬀ ectively contributes to long-term value creation and sus- tainability of the company and ensures compensation is based on performance. The Equity Program  consists of performance shares, stock options and restricted shares. The primary equity instruments for the executive employees are performance shares and stock options. Restricted shares are also used for executives in lesser amounts for retention purposes. For directors below the executive level the primary equity instru- ments are performance shares and restricted shares. Below the director level, performance shares and restricted shares are used on a selective basis to ensure retention and recruit- ment of functional mastery and other employees deemed critical to Nokia’s future success. These equity-based incen- tive awards are generally forfeited if the employee leaves Nokia prior to vesting. Performance shares The Performance Share Plan  approved by the Board of Directors has a performance period of two years (–) and a subsequent one-year restriction period. Therefore, the amount of shares based on the ﬁ nancial performance during – will vest after . No performance shares will vest unless Nokia’s performance reaches at least one of the threshold levels measured by two independent, pre-deﬁ ned performance criteria:  Average Annual Net Sales (non-IFRS): EUR   million (threshold) and EUR   million (maximum) during the performance period –, and  Average Annual EPS (diluted, non-IFRS): EUR . (threshold) and EUR . (maximum) during the performance period –. Average Annual Net Sales is calculated as an average of the non-IFRS net sales for Nokia Group (excluding Nokia Siemens Networks B.V. and its subsidiaries) for the years  and . Average Annual EPS is calculated as an average of the diluted, non-IFRS earnings per share for the years  and  for Nokia Group. Both the Average Annual Net Sales and the Average Annual EPS criteria are equally weighted and perfor-  N O K I A I N 2 0 1 1 mance under each of the two performance criteria is calcu- lated independent of each other. We believe the performance criteria set above are challeng- ing. The awards at the threshold are signiﬁ cantly reduced from grant level and achievement of maximum award would serve as an indication that Nokia’s performance signiﬁ cantly exceeded current market expectations of our long-term execution. Achievement of the maximum performance for both criteria would result in the vesting of a maximum of  million Nokia shares. Performance exceeding the maximum criteria does not increase the number of performance shares that will vest. Achievement of the threshold performance for both criteria will result in the vesting of approximately  million shares. If only one of the threshold levels of performance is achieved, only approximately . million of the performance shares will vest. If none of the threshold levels is achieved, then none of the performance shares will vest. If the required performance level is achieved, the vesting will occur after . Until the Nokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights associ- ated with these performance shares. Stock options The stock options to be granted in  are out of the Stock Option Plan  approved by the Annual General Meeting in . For more information about the Stock Option Plan  see “Equity-Based Incentive Programs–Stock Options” above. Restricted shares Restricted shares under the Restricted Share Plan  ap- proved by the Board of Directors are used as described above to ensure retention and recruitment of functional mastery and other employees deemed critical to Nokia’s future success. The restricted shares under the Restricted Share Plan  have a three-year restriction period. The restricted shares will vest and the resulting Nokia shares be delivered in  and early , subject to fulﬁ llment of the service period criteria. Until the Nokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights associated with these restricted shares.  Maximum planned grants under the Nokia equity- based incentive program 2012 in year 2012 The approximate maximum number of planned grants under the Nokia Equity Program  (i.e. performance shares, stock options and restricted shares) in  are set forth in the table below. Planned maximum number of shares available for grants under the equity based incentive program in 2012 Plan type Stock options Restricted shares Performance shares at maximum 1 8.5 million 14 million 36 million  The number of Nokia shares to be delivered at threshold performance is a quarter of maximum performance, i.e., a total of  million Nokia shares. As at December , , the total dilutive eﬀ ect of all Nokia’s stock options, performance shares and restricted shares outstanding, assuming full dilution, was approximately .% in the aggregate. The potential maximum eﬀ ect of the proposed Equity Based Compensation Program for  would be approximately another .%. SHARE OWNER SHIP General The following section describes the ownership or potential ownership interest in the company of the members of our Board of Directors and the Nokia Leadership Team as at December , , either through share ownership or, with respect to the Nokia Leadership Team, through holding of equity-based incentives, which may lead to share ownership in the future. With respect to the Board of Directors, approximately % 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 direc- tor compensation until the end of their board membership (except for those shares needed to oﬀ set 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 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 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 ,  as approved by the Board of Direc- tors. Therefore, in addition to the above-presented share ownership, Mr. Ollila held, as at December , , a total of   stock options, which all expired without exercise on the same date. The information relating to stock options held by Mr. Ollila as at December ,  is presented in the table below. Number of stock options Total intrinsic value of stock options, December 30, 2011 EUR Stock option category Expiration date Exercise price per share EUR Exer- Unexer- cisable cisable Exer- Unexer- cisable cisable 2006 2Q December 31, 2011 18.02 0 0 0 0 The number of stock options in the above table equals the number of un- derlying 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 ,  of EUR ..  Per Karlsson’s holdings include both shares held personally and shares held through a company. 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 ” on page . The Nokia Leadership Team members receive equity based compensation in the form of performance shares, stock op- tions and restricted shares. For a description of our equity- based compensation programs for employees and executives, see “Equity-based incentive programs” on page . Share ownership of the Board of Directors At December , , the members of our Board of Directors held the aggregate of    shares and ADSs in Nokia, which represented .% 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 , . Name 1 Jorma Ollila 3 Marjorie Scardino Stephen Elop Bengt Holmström Henning Kagermann Per Karlsson 4 Jouko Karvinen Helge Lund Isabel Marey-Semper Risto Siilasmaa Kari Stadigh Shares 2 ADSs 2 791 284 43 300 — — — 150 000 41 981 27 057 48 113 9 419 8 746 21 280 129 017 208 746 — — — — — — — —  Lalita D. Gupte did not stand for re-election in the Annual General Meeting held on May ,  and she held   shares at that time. Keijo Suila did not stand for re-election in the Annual General Meeting held on May ,  and he held   shares at that time.  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. Stock options or other equity awards that are deemed as being beneficially owned under the applicable SEC rules are not included. For the number of shares or ADSs received as director compensation, see Note  to our consolidated financial statements on page .  N O K I A I N 2 0 1 1 Share ownership of the Nokia Leadership Team The following table sets forth the share ownership, as well as potential ownership interest through the holding of equity- based incentives, of the members of the Nokia Leadership Team as at December , . 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 Shares Number of equity instruments held by Nokia Leadership Team 1 925 509 4 970 949 993 250 6 3 723 000 6 1 983 500 % of the outstanding shares 2 0.020 0.134 0.027 0.100 0.053 21.42 13.10 12.27 11.96  No Nokia shares were delivered under Nokia Performance Share Plan  which vested in  as Nokia’s performance did not reach the threshold level of either performance criteria. Therefore the shares deliverable at maximum equals zero for Nokia Performance Share Plan . At maximum performance under the Performance Share Plan  and , the number of shares deliverable equals four times the number of perfor- mance shares at threshold.  Includes also the shares receivable through the one-time special CEO incentive program. For the one-time special CEO incentive program, at maximum performance, the number of shares deliverable equals three times the number of shares at threshold. % of the total outstanding equity incentives (per instrument) 3  Includes  Nokia Leadership Team members at year end. Figures do not include those former Nokia Leadership Team members who left during .  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.  The percentage is calculated in relation to the total outstanding equity incentives per instrument.  No Nokia shares were delivered under Nokia Performance Share Plan  which vested in  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 . The following table sets forth the number of shares and ADSs in Nokia held by members of the Nokia Leadership Team as of December , . Name 1 Shares 2 Became Nokia Leadership Team member (Year) ADSs 2 Stephen Elop Esko Aho Jerri DeVard Colin Giles Michael Halbherr — — — 64 018 200 000 150 000 — — — — Jo Harlow 9 913 15 000 Timo Ihamuotila Mary T. McDowell Louise Pentland Niklas Savander Henry Tirri Juha Äkräs Kai Öistämö 62 894 180 830 25 283 93 403 6 032 17 904 95 232 — 5 000 — — — — — 2010 2009 2011 2011 2011 2011 2007 2004 2011 2006 2011 2010 2005  Alberto Torres left the Nokia Leadership Team on February ,  and held   shares at that time. Richard Green left the Nokia Leadership Team on September ,  and did not hold any shares at that time. Tero Ojanperä left the Nokia Leadership Team on September ,  and held   shares at that time.  Stock options or other equity awards that are deemed as being benefi- cially owned under applicable SEC rules are not included.  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 ownership of the Nokia Leadership Team The following table provides certain information relating to stock options held by members of the Nokia Leadership Team as of December , . These stock options were issued pursuant to Nokia Stock Option Plans ,  and . For a description of our stock option plans, please see Note  to Nokia’s consolidated ﬁ nancial statements on page . Name Stephen Elop Esko Aho Jerri DeVard Colin Giles Michael Halbherr Jo Harlow Timo Ihamuotila Mary T. McDowell Stock option category 2010 4Q 2011 2Q 2011 3Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2011 2Q 2011 3Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2009 4Q 2010 2Q 2011 2Q 2011 3Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q Expiration date December 31, 2015 December 27, 2017 December 27, 2017 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2017 December 27, 2017 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 Number of stock options 1 Total intrinsic value of stock options, December 30, 2011 EUR 2 Exercise price per share EUR Exer- cisable Unexer- cisable Exer- cisable 3 Unexer- cisable 7.59 6.02 3.76 11.18 8.86 6.02 3.76 6.02 3.76 18.02 18.39 19.16 11.18 8.86 6.02 3.76 18.39 19.16 11.18 8.86 6.02 3.76 18.02 18.39 19.16 11.18 8.86 6.02 3.76 18.02 18.39 19.16 11.18 8.76 8.86 6.02 3.76 18.02 18.39 19.16 11.18 8.86 6.02 3.76 0 0 0 19 685 9 375 0 0 0 0 0 18 000 8 125 11 250 7 812 0 0 533 3 043 3 935 2 031 0 0 0 10 000 2 837 3 090 7 812 0 0 0 32 000 16 250 19 685 8 750 21 875 0 0 0 55 000 22 750 30 935 18 750 0 0 500 000 250 000 500 000 15 315 20 625 30 000 100 000 45 000 150 000 0 0 1 875 8 750 17 188 45 000 150 000 0 707 3 065 4 469 15 000 255 000 0 0 663 2 410 17 188 70 000 200 000 0 0 3 750 15 315 11 250 48 125 70 000 200 000 0 0 5 250 24 065 41 250 70 000 200 000 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 5 000 0 0 0 1 000 0 1 500 0 0 0 0 0 0 1 500 0 0 0 0 0 2 550 0 0 0 0 0 0 2 000 0 0 0 0 0 0 0 2 000 0 0 0 0 0 0 2 000  N O K I A I N 2 0 1 1 Name Louise Pentland Niklas Savander Henry Tirri Juha Äkräs Kai Öistämö Stock option category 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 4Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q Exercise price per share EUR 18.02 18.39 19.16 11.18 8.86 6.02 3.76 18.02 18.39 19.16 11.18 8.86 6.02 3.76 18.02 18.39 19.16 11.18 8.86 6.02 4.84 18.02 18.39 19.16 11.18 8.86 6.02 3.76 18.02 18.39 19.16 11.18 8.86 6.02 3.76 Expiration date December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 Number of stock options 1 Total intrinsic value of stock options, December 30, 2011 EUR 2 Exer- cisable Unexer- cisable Exer- cisable 3 Unexer- cisable 0 3 333 3 250 6 750 9 375 0 0 0 32 000 22 750 30 935 18 750 0 0 0 1 333 2 837 6 750 6 250 0 0 0 10 000 4 875 6 750 12 500 0 0 0 55 000 26 000 33 750 21 875 0 0 0 0 750 5 250 20 625 45 000 150 000 0 0 5 250 24 065 41 250 70 000 200 000 0 0 663 5 250 13 750 27 000 118 000 0 0 1 125 5 250 27 500 45 000 150 000 0 0 6 000 26 250 48 125 45 000 150 000 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 1 500 0 0 0 0 0 0 2 000 0 0 0 0 0 0 0 0 0 0 0 0 0 1 500 0 0 0 0 0 0 1 500 Stock options held by the members of the Nokia Leadership Team as at December 31, 2011, Total 4 All outstanding stock option plans (global plans), Total  Number of stock options equals the number of underlying shares repre- sented by the option entitlement. Stock options granted under ,  and  Stock Option Plans have different vesting schedules. The Group’s global Stock Option Plans  and  have a vesting schedule with a % vesting one year after grant, and quarterly vesting thereafter, each of the quarterly lots representing .% of the total grant. The grants vest fully in four years. The Group’s global Stock Option Plan  has a vesting schedule with % of stock options vesting three years after grant date and the remaining % vesting four years from grant. 648 586 4 322 363 24 050 6 767 629 16 435 699  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 ,  of EUR ..  For gains realized upon exercise of stock options for the members of the Nokia Leadership Team, see the table in “Stock option exercises and set- tlement of shares” on page .  During , the following executives stepped down from the Nokia Leadership Team: Alberto Torres, Richard Green and Tero Ojanperä. The in- formation related to stock options held for each former executive is as of the date of resignation from the Nokia Leadership Team 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 Alberto Torres 5 as per February 10, 2011 Richard Green 6 as per September 21, 2011 Tero Ojanperä 6 as per September 30, 2011 Number of stock options 1 Total intrinsic value of stock options, EUR 7 Stock option category Expiration date Exercise price per share EUR Exer- cisable Unexer- cisable Exer- cisable 3 Unexer- cisable 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 18.02 18.39 19.16 11.18 8.86 7 200 15 750 6 250 7 500 0 0 2 250 3 750 12 500 40 000 2010 3Q 2011 2Q December 31, 2015 December 27, 2017 7.29 6.02 0 0 25 000 45 000 2006 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 18.02 18.39 19.16 11.18 8.86 6.02 60 000 32 000 15 000 17 498 10 000 0 0 0 5 000 17 502 30 000 30 000 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  Mr. Torres’ termination date under the employment agreement was March , . His equity was forfeited and cancelled upon termination of employment in accordance with the plan rules.  Mr. Green’s and Mr. Ojanperä’s stock option grants were forfeited and can- celled upon their respective terminations of employment in accordance with the plan rules.  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 February ,  of EUR . in respect of Mr. Torres, as at September ,  of EUR . in respect of Mr. Green, and as at September ,  of EUR . in respect of Mr. Ojan- perä. Performance shares and restricted shares of the Nokia Leadership Team The following table provides certain information relating to performance shares and restricted shares held by members of the Nokia Leadership Team as at December , . These en- titlements were granted pursuant to our Performance Share Plans ,  and  and Restricted Share Plans , ,  and . For Stephen Elop the table also includes the one-time special CEO incentive program. For a description of our performance share and restricted share plans, please see Note  to Nokia’s consolidated ﬁ nancial statements on page .  N O K I A I N 2 0 1 1 Name Stephen Elop Esko Aho Jerri DeVard Colin Giles Michael Halbherr Jo Harlow Timo Ihamuotila Mary T. McDowell Louise Pentland Niklas Savander Henry Tirri Juha Äkräs Kai Öistämö Plan name 1 2010 2011 2011 2009 2010 2011 2011 2009 2010 2011 2009 2010 2011 2009 2010 2011 2009 2010 2011 2009 2010 2011 2009 2010 2011 2009 2010 2011 2009 2010 2011 2009 2010 2011 2009 2010 2011 Performance shares Restricted shares Number of Intrinsic value Number of performance performance December 31, 2011 5 EUR shares at maximum 3 shares at threshold 2 Plan name 7 Number restricted shares Intrinsic value of December 30, 2011 8 EUR 75 000 125 000 250 000 4 300 000 500 000 750 000 4 279 772 942 500 0 6 2010 2011 100 000 180 000 377 000 678 600 0 15 000 15 000 22 500 0 12 500 22 500 0 3 250 35 000 0 12 500 35 000 0 35 000 35 000 0 30 000 35 000 0 15 000 22 500 0 30 000 35 000 0 10 000 22 500 0 20 000 22 500 0 35 000 22 500 0 60 000 60 000 90 000 0 50 000 90 000 0 13 000 140 000 0 50 000 140 000 0 140 000 140 000 0 120 000 140 000 0 60 000 90 000 0 120 000 140 000 0 40 000 90 000 0 80 000 90 000 0 140 000 90 000 0 55 954 113 100 169 650 0 46 629 169 650 0 12 123 263 900 0 46 629 263 900 0 130 560 263 900 0 111 909 263 900 0 55 954 169 650 0 111 909 263 900 0 37 303 169 650 0 74 606 169 650 0 130 560 169 650 2008 2009 2010 2011 7 000 25 000 58 000 23 000 26 390 94 250 218 660 86 710 2011 100 000 377 000 2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011 2009 2010 2011 2009 2010 2011 2009 2010 2011 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011 2009 2010 2011 10 000 20 000 55 000 35 000 9 000 10 500 17 000 50 000 6 000 20 000 55 000 50 000 35 000 120 000 50 000 38 000 115 000 50 000 6 000 78 000 35 000 38 000 115 000 50 000 10 000 20 000 30 000 35 000 8 000 15 000 85 000 35 000 50 000 100 000 35 000 37 700 75 400 207 350 131 950 33 930 39 585 64 090 188 500 22 620 75 400 207 350 188 500 131 950 452 400 188 500 143 260 433 550 188 500 22 620 294 060 131 950 143 260 433 550 188 500 37 700 75 400 113 100 131 950 30 160 56 550 320 450 131 950 188 500 377 000 131 950 Performance shares and restricted shares held by the Nokia Leadership Team, Total 9 All outstanding performance shares and restricted shares (global plans), Total 993 250 3 723 000 4 486 907 1 983 500 7 477 795 7 582 534 30 080 134 14 45 153 423 16 586 091 62 529 563  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 performance period for the  plan is –, for the  plan – and for the  plan –, respectively.  The threshold number will vest as Nokia shares should the pre-deter- mined threshold performance levels be met of both performance criteria. No Nokia shares were delivered under the Performance Share Plan  which would have vested in  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 .  The maximum number will vest as Nokia shares should the pre-deter- mined maximum performance levels be met of both performance criteria. The maximum number of performance shares equals four times the num- ber at threshold. No Nokia shares were delivered under the Performance Share Plan  as Nokia’s performance did not reach the threshold level of either performance criteria. Therefore the shares deliverable at maxi- mum equals zero for the Performance Share Plan .  Represents the threshold and maximum number of shares under the one-time special CEO incentive program. For the one-time special CEO incentive program, the maximum number equals three times the number at threshold.  For Performance Share Plans  and  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  and  is based on the closing market price of a Nokia share on NASDAQ OMX Helsinki as at December ,  of EUR .. For the Performance Share Plan  no Nokia shares were delivered as Nokia’s performance did not reach the threshold level of either performance criteria.  The intrinsic value of the one-time special CEO incentive program is based on the assessment of the two performance criteria of Total Shareholder Return relative to a peer group and Nokia’s absolute share price as of December , . Nokia share price is a -day trade volume weighted average on NASDAQ OMX Helsinki as at December ,  of EUR ..  Under the Restricted Share Plans , ,  and , awards have been granted quarterly. For the major part of the awards made under these plans, the restriction period will end for the  plan on January , ; for the  plan on January , ; for the  plan on January , ; and for the  plan, on January , .  The intrinsic value is based on the closing market price of a Nokia share on NASDAQ OMX Helsinki as at December ,  of EUR ..  During , the following executives stepped down from the Nokia Leadership Team: Alberto Torres, Richard Green and Tero Ojanperä. 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 Nokia Leadership Team and is presented in the table below. Performance shares Restricted shares Name Alberto Torres 10 as per February 10, 2011 Richard Green 11 as per September 21, 2011 Tero Ojanperä 11 as per September 30, 2011 Number of Number of performance performance shares at shares at threshold 13 maximum 14 Plan name 1 Intrinsic value 12 EUR Number of restricted shares Plan name 5 Intrinsic value 12 EUR 2009 2010 10 000 20 000 40 000 80 000 0 161 481 2008 2009 2010 10 000 25 000 30 000 81 600 204 000 244 800 2010 2011 12 500 22 500 50 000 90 000 51 823 188 550 2010 2011 75 000 35 000 314 250 146 650 2009 2010 2011 17 500 20 000 15 000 70 000 80 000 60 000 0 84 105 127 500 2008 2009 2010 2011 14 000 25 000 85 000 23 000 59 500 106 250 361 250 97 750  Mr. Torres’ termination date under the employment agreement was March , . His equity was forfeited and cancelled upon termination of employment in accordance with the plan rules.  Mr. Green’s and Mr. Ojanperä’s performance and restricted share grants were forfeited and cancelled upon their respective terminations of em- ployment in accordance with the plan rules.  The intrinsic value is based on the closing market price of a Nokia share on NASDAQ OMX Helsinki as at February ,  of EUR . in respect of Mr. Torres, as at September ,  of EUR . in respect of Mr. Green, and as at September ,  of EUR . in respect of Mr. Ojanperä.  The threshold number will vest as Nokia shares should the pre-de- termined threshold performance levels be met for both performance criteria. No Nokia shares were delivered under the Performance Share Plan  as Nokia’s performance did not reach the threshold level of either performance criteria.  The maximum number will vest as Nokia shares should the pre-deter- mined maximum performance levels be met. The maximum number of performance shares equals four times the number at threshold. No Nokia shares were delivered under the Performance Share Plan  as Nokia’s performance did not reach the threshold level of either performance criteria.  N O K I A I N 2 0 1 1 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  for our Nokia Leadership Team members. Stock options awards 1 Performance shares awards 2 Restricted shares awards 3,4 Number of shares acquired on exercise Value realized on exercise EUR Number of shares delivered on vesting Value realized on vesting EUR Number of shares delivered on vesting Value realized on vesting EUR 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 0 0 0 0 0 0 0 0 0 13 000 3 82 550 0 4 000 3 14 000 4 20 000 4 3 000 3 8 500 4 20 000 4 5 000 3 4 000 3 0 25 400 68 600 98 000 19 050 41 650 98 000 31 750 25 400 22 000 4 107 800 Name 5 Stephen Elop Esko Aho Jerri DeVard Colin Giles Michael Halbherr Jo Harlow Timo Ihamuotila Mary T. McDowell Louise Pentland Niklas Savander Henry Tirri Juha Äkräs Kai Öistämö  Value realized on exercise is based on the difference between the Nokia share price and exercise price of options.  No Nokia shares were delivered under the Performance Share Plan  during  as Nokia’s performance did not reach the threshold level of either performance criteria.  Represents the payout for the  Restricted Share Plan. Value is based on the average market price of the Nokia share on NASDAQ OMX Helsinki on February ,  of EUR ..  Represents the payout for the  Restricted Share Plan. Value is based on the average market price of the Nokia share on NASDAQ OMX Helsinki on October ,  of EUR ..  During , the following executives stepped down from the Nokia Leadership Team: Alberto Torres, Richard Green and Tero Ojanperä. The information regarding stock option exercises and settlement of shares regarding each of the former executives is as of the date of resignation from the Nokia Leadership Team and is represented in the table below. Stock options awards 1 Performance shares awards 2 Restricted shares awards 3,4 Number of shares acquired on exercise Value realized on exercise EUR Number of shares delivered on vesting Value realized on vesting EUR Number of shares delivered on vesting Value realized on vesting EUR Name 5 Alberto Torres as per February 10, 2011 Richard Green as per September 21, 2011 Tero Ojanperä as per September 30, 2011 0 0 0 0 0 0 0 0 0 0 0 0 13 000 3 82 550 0 0 0 0  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 our 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, we also encourage stock ownership by our top executives and have stock ownership commitment guidelines with mini- mum recommendations tied to annual base salaries. For the President and CEO, the recommended minimum investment in Nokia shares corresponds to three times his annual base salary and for members of the 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 % 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’ trading in Nokia securities. The members of the Board and the Nokia Leadership Team are considered as primary insiders. Under the policy, the holdings of Nokia securities by the primary insiders are public information, which is available from Euroclear Finland Ltd. and available on our website. Both primary insiders and secondary insiders (as deﬁ ned in the policy) are subject to a number of trading restrictions and rules, including, among other things, prohibi- tions 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 our annual results including the day of the release. In addition, Nokia may set trading restrictions based on participation in projects. We update our insider trading policy from time to time and provide training for compliance 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.  N O K I A I N 2 0 1 1 AUDITOR FEES AND SERVICES PricewaterhouseCoopers Oy has served as our independent auditor for each of the ﬁ scal years in the three-year period ended December , . The independent auditor is elected annually by our shareholders at the Annual General Meeting for the ﬁ scal year in question. The Audit Committee of the Board of Directors makes a proposal to the shareholders in re- spect of the appointment of the auditor based upon its evalu- ation of the qualiﬁ cations and independence of the auditor to be proposed for election or re-election on an annual basis. The following table sets forth the aggregate fees for professional services and other services rendered by PricewaterhouseCoopers to Nokia in  and  in total, with a separate presentation of those fees related to Nokia and Nokia Siemens Networks. 2011 Nokia Siemens Nokia Networks Total 7.2 1.3 2.8 1.1 10.9 18.1 2.3 2.1 — 3.6 4.9 1.1 2010 Nokia Siemens Nokia Networks Total 6.8 1.3 4.4 0.1 9.8 16.4 1.2 1.2 — 2.5 5.6 0.1 EURm Audit fees 1 Audit-related fees 2 Tax fees 3 All other fees 4 Total 12.4 15.3 27.7 12.6 12.0 24.6  Audit fees consist of fees billed for the annual audit of the company’s con- solidated financial statements and the statutory financial statements of the company’s subsidiaries.  Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the company’s financial statements or that are traditionally performed by the independent auditor, and include consultations concerning financial accounting and reporting standards; advice on tax accounting matters; advice and assistance in connection with local statutory accounting requirements; due diligence related to acquisitions or divestitures; finan- cial 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 investi- gations and compliance programs. 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.  Tax fees include fees billed for (i) corporate and indirect compliance in- cluding preparation and/or review of tax returns, preparation, review and/ or filing of various certificates and forms and consultation regarding tax returns and assistance with revenue authority queries; (ii) transfer pricing advice and assistance with tax clearances; (iii) customs duties reviews and advice; (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 compensa- tion programs, tax implications on short-term international transfers).  All other fees include fees billed for company establishment, forensic accounting, data security, investigations and reviews of licensing arrange- ments with customers, other consulting services and occasional training or reference materials and services.  AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES The Audit Committee of our Board of Directors is responsible, among other matters, for the oversight of the external auditor subject to the requirements of Finnish law. The Audit Commit- tee has adopted a policy regarding pre-approval of audit and permissible non-audit services provided by our independent auditors (the “Policy”). Under the Policy, proposed services either (i) may be pre- approved by the Audit Committee without a speciﬁ c case-by- case services approvals (“general pre-approval”); or (ii) require the speciﬁ c pre-approval of the Audit Committee (“speciﬁ c pre-approval”). The Audit Committee may delegate either type of pre-approval authority to one or more of its members. The appendices to the Policy set out the audit, audit-related, tax and other services that have received the general pre- approval of the Audit Committee. All other audit, audit-related (including services related to internal controls and signiﬁ cant M&A projects), tax and other services are subject to a speciﬁ c 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 an- nually 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 speciﬁ c approval by the Audit Committee are submitted to the Audit Committee by both the independent auditor and the Corporate Controller. At each regular meeting of the Audit Committee, the independent auditor provides a report in order for the Audit Committee to review the services that the auditor is providing, as well as the status and cost of those services. I N V E S T O R I N F O R M A T I O N INVESTOR INFORMATION INFORMATION ON THE INTERNE T www.nokia.com/global/about-nokia/investors INVE STOR REL ATIONS CONTAC TS investor.relations@nokia.com Available on the Internet: ﬁ nancial reports, Nokia management’s presentations, conference call and other investor related materials, press releases as well as environmental and social information. Nokia Investor Relations P.O. Box  FI- NOKIA GROUP Finland Tel. +   Fax +   Nokia Investor Relations  Main Street, Suite  White Plains, NY  USA Tel. +    Annual General Meeting Date: Thursday, May ,  at . pm Address: Helsinki Fair Centre, Amﬁ -hall, Messuaukio , Helsinki, Finland Dividend Dividend proposed by the Board of Directors for the ﬁ scal year  is EUR .. The dividend record date is proposed to be May ,  and the pay date on or about May , . Financial reporting Nokia’s interim reports in  are planned for April , July , and October . The  results are planned to be published in January . Information published in 2011 All Nokia’s global press releases published in  are available on the Internet at press.nokia.com. Stock exchanges The Nokia Corporation share is quoted on the following stock exchanges: Symbol Trading currency NOK1V EUR NOK USD NOK NYA NYSE Composite CTN CSFB Technology MLO Merrill Lynch 10 NASDAQ OMX Helsinki (since 1915) New York Stock Exchange (since 1994) List of indices NOK1V OMXN40 OMX Nordic 40 HEX OMX Helsinki HEX25 OMX Helsinki 25 HXINFT Helsinki Information Technology BE500 Bloomberg European 500 SX5E DJ Euro STOXX 50 E300 FTSE Euroﬁ rst 300 It should be noted that certain statements herein that are not historical facts are forward-looking statements, including, without limitation, those regarding: A) the expected plans and benefits of our partnership with Microsoft to bring together complementary assets and expertise to form a global mobile ecosystem for smart- phones; B) the timing and expected benefits of our new strategies, including expected operational and financial benefits and targets as well as changes in leadership and operational structure; C) the timing of the deliveries of our products and services; D) our ability to innovate, develop, execute and commercialize new technolo- gies, products and services; E) expectations regarding market developments and structural changes; F) expectations and targets regarding our industry volumes, market share, prices, net sales and margins of our products and services; G expectations and targets regarding our operational priorities and results of operations; H) expectations and targets regarding collaboration and partnering arrangements; I) the outcome of pending and threatened litigation; J) expectations regarding the successful completion of acquisitions or restructurings on a timely basis and our ability to achieve the financial and operational targets set in connection with any such acquisition or restructuring; and K) statements preceded by “believe,” “expect,” “anticipate,” “foresee,” “target,” “estimate,” “designed,” “aim”, “plans,” “will” or similar expressions. These statements are based on manage- ment’s best assumptions and beliefs in light of the information currently available to it. Because they involve risks and uncertain- ties, actual results may differ materially from the results that we currently expect. Factors that could cause these differences  N O K I A I N 2 0 1 1 Chinese yuan, as well as certain other currencies; ) our ability to protect the technologies, which we or others develop or that we license, from claims that we have infringed third parties’ intellectual property rights, as well as our unrestricted use on commercially acceptable terms of certain technologies in our products and services; ) the impact of economic, political, regulatory or other developments on our sales, manufacturing facilities and assets located in emerging market countries; ) the impact of changes in government policies, trade policies, laws or regulations where our assets are located and where we do business; ) the potential complex tax issues and obligations we may incur to pay additional taxes in the various jurisdictions in which we do business; ) any disruption to information technol- ogy systems and networks that our operations rely on; ) unfavorable outcome of litigations; ) allegations of possible health risks from electromagnetic fields generated by base stations and mobile products and lawsuits related to them, regardless of merit; ) Nokia Siemens Networks ability to implement its new strategy and restructuring plan effectively and in a timely manner to improve its overall competitiveness and profitability; ) Nokia Siemens Networks’ success in the telecommunications infrastructure services market and Nokia Siemens Networks’ ability to effectively and profitably adapt its business and operations in a timely manner to the increasingly diverse service needs of its customers; ) Nokia Siemens Networks’ ability to maintain or improve its market position or respond successfully to changes in the competitive environment; ) Nokia Siemens Networks’ liquidity and its ability to meet its working capital requirements; ) Nokia Siemens Networks’ ability to timely introduce new competitive products, services, upgrades and technologies; ) Nokia Siemens Networks’ ability to execute successfully its strategy for the acquired Motorola Solutions wireless network infrastructure assets; ) developments under large, multi-year contracts or in relation to major customers in the networks infrastructure and related services business; ) the management of our customer financing exposure, particularly in the networks infrastructure and related services business; ) whether ongoing or any additional governmental investiga- tions into alleged violations of law by some former employees of Siemens may involve and affect the carrier-related assets and employees transferred by Siemens to Nokia Siemens Networks; and ) any impairment of Nokia Siemens Networks customer relationships resulting from ongoing or any additional governmen- tal investigations involving the Siemens carrier-related operations transferred to Nokia Siemens Networks, as well as the risk factors specified on pages – of Nokia’s annual report Form -F for the year ended December ,  under Item D. “Risk Factors.” Other unknown or unpredictable factors or underlying assump- tions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Nokia does not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. include, but are not limited to: ) our success in the smartphone market, including our ability to introduce and bring to market quantities of attractive, competitively priced Nokia products with Windows Phone that are positively differentiated from our competitors’ products, both outside and within the Windows Phone ecosystem; ) our ability to make Nokia products with Windows Phone a competitive choice for consumers, and together with Microsoft, our success in encouraging and supporting a competitive and profitable global ecosystem for Windows Phone smartphones that achieves sufficient scale, value and attractive- ness to all market participants; ) the difficulties we experience in having a competitive offering of Symbian devices and maintaining the economic viability of the Symbian smartphone platform during the transition to Windows Phone as our primary smartphone platform; ) our ability to realize a return on our investment in next generation devices, platforms and user experiences; ) our ability to produce attractive and competitive feature phones, including devices with more smartphone-like features, in a timely and cost efficient manner with differentiated hardware, software, localized services and applications; ) the intensity of competition in the various markets where we do business and our ability to maintain or improve our market position or respond successfully to changes in the competitive environment; ) our ability to retain, motivate, develop and recruit appropriately skilled employees; ) our ability to effectively and smoothly implement the new operational structure for our businesses, achieve targeted efficiencies and reductions in operating expenses; ) the success of our Location & Commerce strategy, including our ability to maintain current sources of revenue, provide support for our Devices & Services business and create new sources of revenue from our location-based services and commerce assets; ) our success in collaboration and partnering arrangements with third parties, including Microsoft; ) our ability to increase our speed of innovation, product development and execution to bring new innovative and competitive mobile products and location-based or other services to the market in a timely manner; ) our dependence on the development of the mobile and communica- tions industry, including location-based and other services industries, in numerous diverse markets, as well as on general economic conditions globally and regionally; ) our ability to protect numerous patented standardized or proprietary technologies from third-party infringement or actions to invalidate the intellectual property rights of these technologies; ) our ability to maintain and leverage our traditional strengths in the mobile product market if we are unable to retain the loyalty of our mobile operator and distributor customers and consumers as a result of the implementation of our strategies or other factors; ) the success, financial condition and performance of our suppliers, collaboration partners and customers; ) our ability to manage efficiently our manufacturing and logistics, as well as to ensure the quality, safety, security and timely delivery of our products and services; ) our ability to source sufficient amounts of fully functional quality components, sub-assemblies, software and services on a timely basis without interruption and on favorable terms; ) our ability to manage our inventory and timely adapt our supply to meet changing demands for our products; ) any actual or even alleged defects or other quality, safety and security issues in our product; ) the impact of a cybersecurity breach or other factors leading to any actual or alleged loss, improper disclosure or leakage of any personal or consumer data collected by us or our partners or subcontractors, made available to us or stored in or through our products; ) our ability to successfully manage the pricing of our products and costs related to our products and operations; ) exchange rate fluctuations, including, in particular, fluctuations between the euro, which is our reporting currency, and the US dollar, the Japanese yen and the  C O N T A C T I N F O R M A T I O N CONTACT INFORMATION NOKIA HEAD OFFICE Keilalahdentie –  Espoo P.O.Box , FI- Nokia Group FINLAND Tel. +   Fax +   NOKIA CALIFORNIA  South Matilda Avenue W. 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Vozdvizhenka   Moscow RUSSIA Tel. +   Fax +    Paper: G-Print 115 g/m2 Cover: Invercote Creato 240 g/m2 Design: HardWorkingHouse Oy Cover: Page Design Finland Oy Lönnberg Painot Oy ISO 9001, 2012. Copyright © 2012. Nokia Corporation. All rights reserved. Nokia and Nokia Connecting People are registered trademarks of Nokia Corporation.

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