Nokia Corporation Annual Report 2012

Plain-text annual report

NOKIA IN 2012 KEY DATA ................................................................................................................. 2 REVIEW BY THE BOARD OF DIRECTORS 2012 .......................... 3 ANNUAL ACCOUNTS 2012 Consolidated income statements, IFRS ................................................................. 18 Consolidated statements of comprehensive income, IFRS ............................... 19 Consolidated statements of ﬁ nancial position, IFRS .......................................... 20 Consolidated statements of cash ﬂ ows, IFRS ...................................................... 21 Consolidated statements of changes in shareholders’ equity, IFRS ................ 22 Notes to the consolidated ﬁ nancial statements .................................................. 24 Income statements, parent company, FAS ........................................................... 70 Balance sheets, parent company, FAS ................................................................... 70 Statements of cash ﬂ ows, parent company, FAS ................................................. 71 Notes to the ﬁ nancial statements of the parent company ................................ 72 Nokia shares and shareholders ............................................................................... 77 Nokia Group 2008 – 2012, IFRS ................................................................................ 82 Calculation of key ratios ............................................................................................ 84 Signing of the Annual Accounts 2012 and proposal for distribution of proﬁ t .................................................................. 85 Auditors’ report .......................................................................................................... 86 ADDITIONAL INFORMATION Critical accounting policies ...................................................................................... 88 Corporate governance statement Corporate governance .......................................................................................... 94 Board of Directors ............................................................................................... 100 Nokia Leadership Team ....................................................................................... 103 Compensation of the Board of Directors and the Nokia Leadership Team ............................................................................ 106 Auditor fees and services ....................................................................................... 125 Investor information ................................................................................................ 126 Contact information ................................................................................................. 128 KEY DATA Based on ﬁ nancial statements according to International Financial Reporting Standards, IFRS Nokia, EURm 2012 2011 Change, % Net sales Operating loss Loss before tax Loss attributable to equity holders’ of the parent Research and development expenses % Return on capital employed Net debt to equity (gearing) – 22 – 14 30 176 – 2 303 – 2 644 – 3 106 4 782 2012 neg. – 46 38 659 – 1 073 – 1 198 – 1 164 5 584 2011 neg. – 40 EUR 2012 2011 Change, % Earnings per share, basic Dividend per share Average number of shares (1 000 shares) * Board’s proposal Nokia businesses, EURm Devices & Services Net sales Operating loss/proﬁ t Location & Commerce Net sales Operating loss Nokia Siemens Networks Net sales Operating loss Personnel, December 31 Devices & Services Location & Commerce Nokia Siemens Networks Corporate Common Functions Nokia Group 10 major markets, net sales; EURm China India Japan USA Brazil Germany Russia UK Indonesia Italy – 0.84 – 0.31 0.20 3 710 845 3 709 947 0.00 * – 100 2012 2011 Change, % 15 686 – 1 100 23 943 884 1 103 – 301 13 779 – 799 1 091 – 1 526 14 041 – 300 – 34 1 – 80 – 2 166 2012 2011 Change, % 32 986 6 186 58 411 215 97 798 49 406 6 659 73 686 299 130 050 – 33 – 7 – 21 – 28 – 25 2012 2 509 2 227 2 182 1 880 1 753 1 299 1 287 900 799 783 2011 6 130 2 923 1 539 1 405 1 901 1 606 1 843 996 904 982 10 major countries, personnel, December 31 2012 2011 Main currencies, rates at the end of  1 EUR USD GBP CNY INR 1.3140 0.8121 8.1963 71.9280 RUB 40.5002 JPY 110.16 2 N O K I A I N 2 0 1 2 India China Finland Brazil Germany United States Hungary Poland UK Russia 20 027 18 684 11 767 7 348 7 026 6 692 2 772 2 491 1 740 1 573 22 279 22 165 16 970 11 887 10 992 7 980 5 198 2 541 3 237 1 256 REVIEW BY THE BOARD OF DIRECTORS 2012 Before the statutory information and other disclosures of the review by the Board of Directors, the Board of Directors outlines a brief summary of the key developments and actions in  and early . ■ Lumia products. Since the unveiling of the ﬁ rst Nokia Lumia products in , Nokia has expanded the Lumia experi- ence to new price points and geographies. During the third quarter of , Nokia announced the Nokia Lumia  and the Nokia Lumia , the ﬁ rst devices in Nokia’s Windows Phone  range which began to ship in select markets during the fourth quarter of . ■ Asha products. The Nokia Asha family has expanded rap- idly since its debut at Nokia World in October . Nokia Asha products blur the lines between feature phones and smartphones and are designed to oﬀ er the best overall experience and value proposition for the next billion mobile device users. Asha signiﬁ es Nokia’s focus on positive user experiences and connecting millions of people to new op- portunities that help them reach their aspirations. In , we continued to strengthen our Asha portfolio of products, including launching the ﬁ rst Asha full touch smartphones, such as the Nokia Asha  and Asha . ■ Symbian products. During Nokia’s transition to Windows Phone, Nokia continued to ship devices based on its own smartphone operating system called Symbian. However, after a decade-long history as part of Nokia’s portfolio, Nokia is not creating any new devices based on Symbian. The Nokia  PureView, a device which showcases some of Nokia’s imaging capabilities and which came to market dur- ing the ﬁ rst half of , was the last Symbian device from Nokia. Nokia does not expect to sell any signiﬁ cant volumes of Symbian devices in . ■ Strategy and restructuring activities. In June , Nokia outlined a range of actions – planned or since com- pleted – aimed at sharpening its strategy, improving its operating model and returning the company to proﬁ table growth. Nokia announced that it plans to invest in products and experiences that make Lumia smartphones stand out and available to more consumers, invest in location-based services as an area of competitive diﬀ erentiation for Nokia products and extend its location-based platform to new industries and improve the competitiveness and proﬁ tabil- ity of its Mobile Phones business. These actions announced in June included also streamlining, reducing and divesting certain operations, as well as headcount reductions in our Devices & Services business. To execute the strategy Nokia also made changes to its senior leadership. ■ HERE (formerly Location & Commerce). As of January , , HERE is the new name of our former Location & Commerce business and reportable segment. Nokia’s HERE business has continued to strengthen both its portfolio of location-based oﬀ erings with updates to its signature ap- plications and its customer base through new partnerships and licensing deals. In November , Nokia introduced the brand HERE, the ﬁ rst location cloud aiming to deliver the world’s best maps and location experiences across multiple screens and operating systems. The business aims to positively diﬀ erentiate its digital map data and location- based oﬀ erings from those of our competitors and create competitive business models for our customers. ■ Nokia Siemens Networks. Nokia Siemens Networks exe- cuted well during  on the focused strategy and the restructuring program it announced in the end of . Built around both technological and geographic focus, quality and innovation, the strategy guides Nokia Siemens Networks to focus its business solely on mobile broadband and ser- vices, for example by divesting a number of businesses and streamlining its portfolio. At the same time as it announced its new strategy, Nokia Siemens Networks also communicat- ed plans to undertake a far-reaching and signiﬁ cant restruc- turing, aimed at reducing its annualized operating expenses and production overheads. RESULTS OF OPERATIONS As of January , , Location & Commerce reportable seg- ment is renamed as the HERE reportable segment and the terms “Location & Commerce” and “HERE” can be used as interchangeably in this annual report. We have three businesses: Devices & Services, HERE (for- merly 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; HERE; and Nokia Siemens Networks. Our Devices & Services business includes two operating and reportable segments – Smart Devices, which focuses on our most advanced products, including Lumia smartphones, and Mobile Phones, which focuses on our most aﬀ ordable prod- ucts, including Asha full touch smartphones – as well as Devices & Services Other. Devices & Services Other includes intellec- tual property income, net sales of spare parts and related cost of sales and operating expenses and common research and development expenses. Devices & Services Other also in- cluded our luxury phone business Vertu until October , , when we sold most of our shareholding in Vertu to the private equity fund EQT VI. 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 3 Nokia Group The following table sets forth selective line items and the percentage of net sales that they represent for the ﬁ scal years  and . EURm Net sales Cost of sales Gross proﬁ t 2012 YoY 2011 change 30 176 38 659 – 22% – 21 786 – 27 300 – 20% 8 390 11 359 – 26% Research and development expenses – 4 782 – 5 584 Selling and marketing expenses – 3 205 – 3 769 – 14% – 15% Administrative and general expenses Other operating income and expenses – 959 – 1 085 – 12% – 1 747 – 1 994 – 12% Operating loss – 2 303 – 1 073 NET SALES Our net sales and proﬁ tability were negatively aﬀ ected by the increasing momentum of competing smartphone platforms relative to our Symbian smartphones in all regions as we con- tinued on our platform transition to Windows Phone, as well as our pricing actions due to the competitive environment in both the smartphone and feature phone markets. In addition, during the ﬁ rst half of  our net sales and proﬁ tability were adversely aﬀ ected by our lack of aﬀ ordable full touch devices which continued to be a growing part of the market. For Nokia Siemens Networks, net sales decrease was driven primarily by Nokia Siemens Networks’ strategy to focus on mobile broad- band and services. the decreased gross margin in Devices & Services compared to , which was partially oﬀ set by increased gross margin in Nokia Siemens Networks. OPERATING EXPENSES Our research and development (“R&D”) expenses were EUR   million in , compared to EUR   million in . Research and development costs represented .% of our net sales in  compared to .% in . The increase in research and development expenses as a percentage of net sales largely resulted from a relative decline in net sales in . Research and development expenses included purchase price accounting items of EUR  million in  compared to EUR  million in . At December , , we employed   people in research and development, representing ap- proximately % of our total workforce. In , our selling and marketing expenses were EUR   million, compared to EUR   million in . Selling and mar- keting expenses represented .% of our net sales in  compared to .% in . The increase in selling and market- ing expenses as a percentage of net sales reﬂ ected a decline in net sales in . Selling and marketing expenses included purchase price accounting items of EUR  million in  compared to EUR  million in . Administrative and general expenses were EUR  million in , compared to EUR   million in . Administrative and general expenses were equal to .% of our net sales in  compared to .% in . The increase in administrative and general expenses as a percentage of net sales reﬂ ected a decline in net sales in . Administrative and general ex- penses included no purchase price accounting items in  compared to EUR  million in . The following table sets forth the distribution by geographi- In , other income and expenses included restructuring cal area of our 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 2012 2011 29 14 10 27 7 13 31 14 17 23 4 11 100 100 charges of EUR   million, including EUR  million related to country and contract exits, impairments of assets of EUR  million, a negative adjustment of EUR  million to purchase price allocations related to the ﬁ nal payment from Motorola, amortization of acquired intangible assets of EUR  million, beneﬁ t from cartel claim settlements of EUR  million, a net gain on sale of Vertu business of EUR  million and a net gain on sale of real estate of EUR  million. In , other income and expenses included restructuring charges of EUR  mil- lion, impairment of assets of EUR  million, consideration related to the Accenture transaction of EUR  million, impair- ment of shares in an associated company of EUR  million and a beneﬁ t from a cartel claim settlement of EUR  million. The  markets in which we generated the greatest net sales in  were, in descending order of magnitude, China, India, Japan, the United States, Brazil, Germany, Russia, the United Kingdom, Indonesia and Italy, together representing approxi- mately % of total net sales in . In comparison, the  markets in which we generated the greatest net sales in  were China, India, Brazil, Russia, Germany, Japan, the United States, the United Kingdom, Italy and Spain, together repre- senting approximately % of total net sales in . GROSS MARGIN Our gross margin in  was .%, compared to .% in . The lower gross margin in  resulted primarily from OPERATING MARGIN Our  operating loss was EUR   million, compared with an operating loss of EUR   million in . The increased operating loss resulted primarily from restructuring charges and associated items of EUR . billion and a decrease in the operating performance of our Devices & Services business, which was partially oﬀ set by an increase in the operating performance of Nokia Siemens Networks. Our  operating margin was negative .% compared to negative .% in . Our operating loss in  included purchase price account- ing items, restructuring charges and other special items of net negative EUR . billion compared to net negative EUR . billion in . 4 N O K I A I N 2 0 1 2 all net cash from operating activities, excluding cash outﬂ ows related to restructuring, net ﬁ nancial expenses and taxes, as well as cash ﬂ ows related to the receipt of quarterly platform support payments from Microsoft (which commenced in the fourth quarter ). In , Nokia Siemens Networks’ contribution to net cash from operating activities was approximately EUR . billion, primarily due to net working capital changes. At the end of , Nokia Siemens Networks’ contribution to the Nokia gross cash was EUR . billion and contribution to Nokia’s net cash was EUR . billion. Our agreement with Microsoft includes platform support payments from Microsoft to us as well as software royalty payments from us to Microsoft. Under the terms of the agree- ment governing the platform support payments, the amount of each quarterly platform support payment is USD  mil- lion. We have a competitive software royalty structure, which includes annual minimum software royalty commitments that vary over the life of the agreement. Software royalty pay- ments, with minimum commitments are paid quarterly. Over the life of the agreement, both the platform support pay- ments and the minimum software royalty commitments are expected to measure in the billions of US dollars. Over the life of the agreement the total amount of the platform support payments is expected to slightly exceed the total amount of the minimum software royalty commitment payments. As of the end of , the amount of platform support payments received by Nokia has exceeded the amount of minimum software royalty commitment payments made to Microsoft, thus the net cash ﬂ ows have been in our favor. As a result, the remaining minimum software royalty commitment pay- ments are expected to exceed the remaining platform support payments by a total of approximately EUR . billion over the remaining life of the agreement. However, in  the amount of the platform support payments is expected to slightly exceed the total amount of the minimum software royalty commitment payments, thus the net cash ﬂ ows are still ex- pected to be slightly in our favor. In accordance with the terms of the agreement, the platform support payments and annual minimum software royalty commitment payments continue for a corresponding period of time. We have recognized a por- tion of the received platform support payments as a beneﬁ t to our Smart Devices cost of goods sold and the remainder as a liability as part of accrued expenses and other liabilities on our balance sheet. RESULTS BY SEGMENTS Devices & Services The following table sets forth selective line items and the per- centage of net sales that they represent for Devices & Services for the ﬁ scal years  and . 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 higher net expense in  was primarily driven by foreign exchange losses. Nokia expects ﬁ nancial income and expenses, net, in  to be an expense of approximately EUR  million. Our net debt to equity ratio was negative % at Decem- ber , , compared with a net debt to equity ratio of nega- tive % at December , . PROFIT BEFORE TAXES Loss before tax was EUR   million in , compared to a loss of EUR   million in . Taxes amounted to EUR   million in  and EUR  million in . Nokia taxes contin- ued to be unfavorably aﬀ ected by Nokia Siemens Networks taxes as no tax beneﬁ ts are recognized for certain Nokia Siemens Networks deferred tax items. Additionally, in , Nokia taxes were adversely aﬀ ected by allowances related to Devices & Services’ Finnish deferred tax assets and discon- tinuation of recognizing tax beneﬁ ts for Devices & Services’ Finnish 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 a loss attributable to non- controlling interests of EUR  million in . This change was primarily due to an increase 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 a loss of EUR   million in . Earnings per share in  decreased to EUR – . (basic) and EUR – . (diluted), compared with EUR – . (basic) and EUR – . (diluted) in . CASH FLOW AND FINANCIAL POSITION The following chart sets out Nokia Group’s cash ﬂ ow for the ﬁ scal years  and  and ﬁ nancial position at the end of each of those years, as well as the year-on-year growth rates. EURm 2012 YoY 2011 Change Net cash from operating activities – 354 1 137 Total cash and other liquid assets Net cash and other liquid assets 1 9 909 10 902 – 9% 4 360 5 581 – 22%  Total cash and other liquid assets minus interest-bearing liabilities. Year-on-year, net cash and other liquid assets decreased by EUR . billion in , primarily due to cash outﬂ ows related to restructuring of approximately EUR . billion, the payment of the dividend of approximately EUR  million in  and cash outﬂ ows related to net ﬁ nancial expenses and taxes as well as capital expenditures. This was partially oﬀ set by positive over- 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 5 EURm Net sales 1 Cost of sales Gross proﬁ t 2012 YoY 2011 change 15 686 23 943 – 34% – 12 340 – 17 303 – 29% 3 346 6 640 – 50% Research and development expenses – 1 852 – 2 441 Selling and marketing expenses – 1 857 – 2 180 – 24% – 15% Administrative and general expenses Other operating income and expenses – 292 – 362 – 19% – 445 – 773 – 42% Operating proﬁ t/loss – 1 100 884  Includes IPR income recognized in Devices & Services Other net sales. NET SALES The following table sets forth our Devices & Services net sales and year-on-year growth rate by geographic area for the ﬁ scal years  and . The IPR income referred to in the paragraph below has been allocated to the geographic area contained in this chart. Devices & Services net sales by geographic area EURm Europe Middle East & Africa Greater China Asia– Paciﬁ c North America Latin America Total 2012 YoY 2011 Change 4 643 7 064 – 34% 2 827 4 098 – 31% 1 610 5 063 – 68% 3 811 4 896 – 22% 453 354 2 342 2 468 28% – 5% 15 686 23 943 – 34% The % year-on-year decline in Devices & Services net sales in  resulted from lower volumes in both Smart Devices and Mobile Phones as well as a lower ASP in Mobile Phones, partially oﬀ set by a higher ASP in Smart Devices. Devices & Services Other net sales decreased in  due to lower non-recurring IPR income, the divestment of Vertu dur- ing the fourth quarter  and lower spare parts sales. Smart Devices continued to transition as Symbian volumes decreased sequentially every quarter in . Lumia device volumes grew in the ﬁ rst half of  by expanding geographi- cal distribution as well as new product launches, but were negatively aﬀ ected in the third quarter  by product transi- tions. In the fourth quarter , Smart Devices net sales grew sequentially as we started shipping new Lumia devices, al- though volumes were adversely aﬀ ected by supply constraints as we ramped up our production capacity, particularly related to the Lumia . Smart Devices shipped a total of . million Lumia devices in . During the ﬁ rst half of , Mobile Phones was negatively aﬀ ected by aggressive price competi- tion and the lack of aﬀ ordable full touch devices. Towards the end of the second quarter  Mobile Phones introduced aﬀ ordable Asha full touch smartphones and sold . million units in the second half . Our overall Devices & Services net sales in  beneﬁ ted from the recognition in Devices & Services Other of approxi- mately EUR  million (EUR  million in ) of non-recurring IPR income. The non-recurring IPR income relates to new pat- ent license agreements for the respective years that included settlements of past royalties and accordingly is not expected to have a recurring beneﬁ t. Patent license agreements are generally multi-year arrangements and may cover both licen- see’s past and future sales. Typically, when a patent license agreement is signed it includes an agreement or settlement on past royalties that the licensor is entitled to. Such income for past periods is typically recognized as a non-recurring item. The license payments relating to the future royalties are typi- cally recognized over the remaining contract period based on the contract terms. The future license payments may ﬂ uctu- ate based on the terms of the license. During the last two decades, we have invested approximate- ly EUR  billion in research and development and built one of the wireless industry’s strongest and broadest IPR portfolios, with approximately   patent families. We are a world leader in the development of handheld device and mobile communications technologies, which is also demonstrated by our strong patent position. Within Devices & Services Other, we estimate that our current annual IPR income run-rate is ap- proximately EUR . billion. VOLUME The following chart sets out the mobile device volumes for our Devices & Services business and year-on-year growth rates by geographic area for the ﬁ scal years  and . Devices & Services mobile device volumes by geographic area EURm Europe Middle East & Africa Greater China Asia– Paciﬁ c North America Latin America Total 2012 67.3 81.7 27.5 YoY 2011 Change 87.8 – 23% 94.6 65.8 – 14% – 58% 113.5 118.9 – 5% 2.2 43.4 3.9 – 44% 46.1 – 6% 335.6 417.1 – 20% On a year-on-year basis, the decline in our total Devices & Services volumes in  was driven by lower volumes in both Smart Devices and Mobile Phones discussed below. AVERAGE SELLING PRICE Our total mobile device ASP represents total Devices & Services net sales divided by total Devices & Services volumes. Devices & Services Other net sales includes net sales of Nokia’s luxury phone business Vertu through October , , spare parts, as well as IPR income. As IPR income is included in Devices & Services Other net sales, we provide our total mobile device ASP both including and excluding IPR income in this Annual Report. Our total mobile device ASP, including IPR income, in  was EUR , down % from EUR  in . The decrease in our mobile device ASP in  was due to a higher proportion of Mobile Phones volumes and lower Mobile Phones ASPs, partially oﬀ set by higher Smart Devices ASPs. Our total mobile device ASP, excluding IPR income, in  was EUR , down % from EUR  in . 6 N O K I A I N 2 0 1 2 GROSS MARGIN Our Devices & Services gross margin in  was .%, com- pared to .% in . On a year-on-year basis, the decline in our Devices & Services gross margin in  was due to gross margin declines in Smart Devices and to a lesser degree in Mobile Phones and Devices & Services Other. OPERATING EXPENSES Devices & Services operating expenses decreased % year- on-year in . On a year-on-year basis, operating expenses related to Smart Devices decreased % in , where Mobile Phones remained approximately on the same level. In addition to the factors described below, the year-on-year changes were aﬀ ected by the proportionate allocation of operat- ing expenses being aﬀ ected by the relative mix of sales and gross proﬁ t performance between Mobile Phones and Smart Devices. This resulted in higher and lower relative allocations to Mobile Phones and Smart Devices, respectively. Devices & Services research and development expenses decreased % year-on-year in  due to declines in Smart Devices and Devices & Services Other research and develop- ment expenses. The decreases in research and development expenses were due primarily to a focus on priority projects and cost controls as well as business divestments. Devices & Services sales and marketing expenses decreased % year-on-year in  primarily due to lower overall busi- ness activity, improved eﬃ ciency in general marketing activi- ties and business divestments. Devices & Services administrative and general expenses decreased % year-on-year in , primarily due structural cost savings as well as business divestments. In , Devices & Services other income and expense had a negative year-on-year impact on proﬁ tability. In , we recognized special items of net EUR  million in Devices & Services Other, comprised of restructuring charges of EUR  million and related impairments of EUR  million, a beneﬁ t from cartel claim settlements of EUR  million, a net gain from the sale of a real estate of EUR  million and a net gain from the divestment of the Vertu business of EUR  million. In , we recognized special items of net EUR  million in Devices & Services Other, comprised of restructuring charges of EUR  million, impairment of assets of EUR  million, Accenture deal consideration 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. COST REDUCTION ACTIVITIES AND PLANNED OPERATIONAL ADJUSTMENTS We continue to target to reduce our Devices & Services operat- ing expenses to an annualized run rate of approximately EUR . billion, excluding special items and purchase price account- ing related items, by the end of . In June, , we announced additional restructuring measures to those announced in , including targeted investments in key growth areas, operational changes, divest- ment of non-core assets and signiﬁ cantly increased our cost reduction target. The measures included the closure of our manufacturing facility in Salo, Finland as well as the closure of our research and development facilities in Ulm, Germany and Burnaby, Canada. We also focused our sales and marketing ac- tivities and streamlined our information technology, corporate and support functions to align with the sharpened strategy. In addition, we completed the divestment of Vertu and our headquarters building in Finland. As of December , , we had recognized cumulative net charges in Devices & Services in  and  of approxi- mately EUR . billion related to restructuring activities, which included restructuring charges and associated impairments. While the total extent of the restructuring activities is still to be determined, we currently anticipate cumulative charges in Devices & Services of approximately EUR . billion before the end of . We also expect the total cash outﬂ ows related to our Devices & Services restructuring activities to be approxi- mately EUR . billion of which approximately EUR . billion had been incurred as of December , . OPERATING MARGIN Devices & Services reported an operating loss of EUR   million in , compared with an operating proﬁ t of EUR  million in . Devices & Services operating margin in  was negative .%, compared with positive .% in . The year-on-year decrease in operating margin in  was driven primarily by the lower net sales and gross margin compared to  in both Smart Devices and Mobile Phones. Smart Devices The following table sets forth selective line items for Smart Devices for the ﬁ scal years  and . Smart Devices results summary EURm Net sales (EURm) 1 Smart Devices volume (millions units) Smart Devices ASP (EUR) 2012 YoY 2011 Change 5 446 10 820 – 50% 35.1 155 77.3 – 55% 140 11% Gross margin (%) 8.8% 23.7% Operating expenses (EURm) 2 018 2 974 – 32% Contribution margin (%) – 28.6% – 3.8%  Does not include IPR income. IPR income is recognized in Devices & Ser- vices Other net sales. NET SALES Smart Devices net sales decreased % to EUR   million in , compared to EUR   million in . The year-on-year decline in our Smart Devices net sales in  was primarily due to signiﬁ cantly lower volumes, partially oﬀ set by higher ASPs. VOLUME Smart Devices volume decreased % to . million units in , compared to . million units in . The year-on-year decrease in our Smart Device volumes in  was driven by the strong momentum of competing smartphone platforms relative to our Symbian devices. On a geographical basis, the decrease in volumes was due to lower volumes in Greater Chi- na, Europe, Asia Paciﬁ c, Middle East & Africa and Latin America, partially oﬀ set by slightly higher volumes in North America. AVERAGE SELLING PRICE Smart Devices ASP represents Smart Devices net sales divided by Smart Devices volumes. IPR income is not recognized at the Smart Devices and Mobile Phone business unit levels. 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 7 Smart Devices ASP increased % to EUR  in , com- pared to EUR  in . The year-on-year increase in our Smart Devices ASP in  was primarily due to a positive mix shift towards sales of our Lumia devices, which had a higher ASP, a positive impact related to deferred revenue on services sold in combination with our devices as well as the net positive impact related to foreign currency ﬂ uctuations, partially oﬀ set by general price erosion and our pricing actions. GROSS MARGIN Smart Devices gross margin was .% in , down from .% in . The year-on-year decline in our Smart Devices gross margin in  was primarily due to greater price erosion than cost erosion due to the competitive environment, inven- tory related allowances of EUR  million in the second quar- ter  and EUR  million in the third quarter , higher ﬁ xed costs per unit because of lower sales volumes, and a negative product mix shift towards lower gross margin devices. Mobile Phones The following table sets forth selective line items for Mobile Phones for the ﬁ scal years  and . Mobile Phones results summary EURm Net sales (EURm) 1 Mobile Phones volume (millions units) Mobile Phones ASP (EUR) 2012 YoY 2011 Change 9 436 11 930 – 21% 300 31 340 – 12% 35 – 11% Gross margin (%) 23.4% 26.1% Operating expenses (EURm) 1 661 1 640 1% Contribution margin (%) 5.6% 12.4%  Does not include IPR income. IPR income is recognized in Devices & Ser- vices 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, our Mobile Phones net sales decreased in  due to lower volumes and ASPs. VOLUME Mobile Phones volume decreased % to  million units in , compared to  million units in . The year-on-year decline in our Mobile Phones volumes in  was due to the challenging competitive environment and market environ- ment, which negatively aﬀ ected our volumes across the Mobile Phones portfolio. In particular, low-end smartphones powered by the Android operating system proliferated at lower price points throughout . During the second half of , Mobile Phones started shipping Asha full touch smartphones, which improved the competitiveness of our higher end Mobile Phones product portfolio. During the second half of , Mo- bile Phones shipped . million Asha full touch smartphones. AVERAGE SELLING PRICE Mobile Phones ASP represents Mobile Phones net sales divided by Mobile Phones volumes. IPR income is not recognized at the Smart Devices and Mobile Phone business unit levels. 8 N O K I A I N 2 0 1 2 Mobile Phones ASP decreased % to EUR  in , com- pared to EUR  in . The year-on-year decline in our Mobile Phones ASP in  was primarily due to a higher proportion of sales of lower priced devices and general price erosion. GROSS MARGIN Mobile Phones gross margin was .% in , down from .% in . The year-on-year decline in our Mobile Phones gross margin in  was primarily due to a higher proportion of sales of lower gross margin devices as well as the net nega- tive impact related to foreign currency ﬂ uctuations. Location & Commerce As of January ,  our Location & Commerce business and reportable segment was renamed HERE. The name Location & Commerce is used in the following discussion of the operating results for this segment for the ﬁ scal years  and . The following table sets forth selective line items and the percentage of net sales that they represent 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 loss 2012 1 103 – 228 875 – 883 – 186 YoY 2011 change 1 091 – 214 877 1% 7% 0% – 958 – 259 – 8% – 28% – 77 – 68 13% – 30 – 1 118 – 301 – 1 526 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 2012 477 74 63 82 335 72 YoY 2011 Change 488 74 -2% 0% 128 -51% 74 284 43 11% 18% 67% 1% 1 103 1 091 Location & Commerce net sales increased % to EUR   million in , compared to EUR   million in . The year-on-year increase in Location & Commerce external net sales in  was primarily driven by higher sales of map content licenses to vehicle customers, partially oﬀ set by lower sales to personal navigation devices customers. The year-on- year decline in Location & Commerce internal net sales was primarily due to lower sales related to the large decline in our Symbian device volumes experienced since . GROSS MARGIN On a year-on-year basis, the decrease in Location & Commerce gross margin in  was primarily due to lower personal navi- gation device sales which carry a higher gross margin, partially oﬀ set by a higher gross margin in the vehicle segment. 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 OPERATING EXPENSES Location & Commerce research and development expenses decreased % primarily driven by a focus on cost controls, lower project spending and a shift of research and develop- ment operating expenses to cost of sales as a result of the divestiture of the media advertising business. Location & Commerce sales and marketing expenses de- creased % primarily driven by a focus on cost controls and lower marketing spending. Location & Commerce administrative and general expenses increased % primarily driven by higher use of services pro- vided by shared support functions. In , Location & Commerce other income and expense had a positive year-on-year impact on proﬁ tability. In , we recognized special items of EUR  million in Location & Commerce, comprised of restructuring charges of EUR  million. In , we recognized special items of EUR . billion in Location & Commerce, comprised of restructuring charges of EUR  million and impairment of goodwill of EUR . billion. OPERATING MARGIN Location & Commerce operating loss decreased to EUR  million in , compared with a loss of EUR   million in . Location & Commerce operating margin in  was negative .%, compared with negative .% in . The year-on-year improvement in operating margin in  was driven primarily by the lower other operating expenses due to the impairment of Location & Commerce’s goodwill of EUR . billion in . Nokia Siemens Networks Nokia Siemens Networks completed the acquisition of the ma- jority of Motorola Solutions’ wireless network infrastructure assets on April , . Accordingly, the results of Nokia Sie- mens Networks for  are not directly comparable to . The following table sets forth selective line items and the percentage of net sales that they represent for Nokia Siemens Networks for the ﬁ scal years  and . EURm Net sales Cost of sales Gross proﬁ t 2012 YoY 2011 change 13 779 14 041 – 9 610 – 10 199 4 169 3 842 – 2% – 6% 9% Research and development expenses – 2 046 – 2 185 – 6% Selling and marketing expenses – 1 158 – 1 328 – 13% Administrative and general expenses Other operating income and expenses – 474 – 517 – 8% – 1 290 – 112 Operating loss – 799 – 300 – 166% EURm Europe Middle East & Africa Greater China Asia– Paciﬁ c North America Latin America Total 2012 YoY 2011 Change 3 896 4 469 – 13% 1 287 1 391 – 7% 1 278 1 465 – 13% 4 347 3 848 1 294 1 077 1 677 1 791 13 779 14 041 13% 20% – 6% – 2% Nokia Siemens Networks’ net sales decreased % to EUR   million in , compared to EUR   million in . The year-on-year decline in Nokia Siemens Networks’ net sales was primarily due to the decline in sales of business areas not consistent with Nokia Siemens Networks’ strategic focus and lower infrastructure equipment sales, partially oﬀ set by higher services net sales. On a full year basis, services represented slightly more than % of Nokia Siemens Networks’ net sales in  and . GROSS MARGIN Nokia Siemens Networks’ gross margin was .% in , compared to .% . The increase in Nokia Siemens Networks gross margin in  was primarily due to the better gross margin in both infrastructure equipment and services. Within infrastructure equipment, the increase was primarily due to favorable region and product mix consistent with Nokia Siemens Networks’ strategy to focus on mobile broadband. Within services, the increase was primarily due to structural cost actions and eﬀ orts to align the services business with the focused strategy. OPERATING EXPENSES Nokia Siemens Networks’ research and development expenses decreased % year-on-year in  primarily due to structural cost saving actions and overall research and development eﬃ ciency. Nokia Siemens Networks’ sales and marketing expenses de- creased % year-on-year in  primarily due to structural cost saving actions. Nokia Siemens Networks’ administrative and general expenses decreased % year-on-year in  primarily due to structural cost saving actions. In , Nokia Siemens Networks other and income and expense had a negative year-on-year impact on proﬁ tability. In , we recognized special items of EUR . billion in Nokia Siemens Networks, comprised of net restructuring charges and associated items of EUR . billion. In , we recognized special items of EUR  million in Nokia Siemens Networks, comprised of restructuring charges of EUR  million. 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 9 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  primarily due to restructuring charges of EUR . billion in . STRATEGY AND RESTRUCTURING PROGRAM In 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 continues to target to reduce its annual- ized operating expenses and production overheads, excluding special items and purchase price accounting related items, by more than EUR  billion by the end of , compared to the end of . While these savings are expected to come largely from organizational streamlining, it has also targeted areas such as real estate, information technology, product and service procurement costs, overall general and administrative expenses, and a signiﬁ cant reduction of suppliers in order to further lower costs and improve quality. During , Nokia Siemens Networks recognized restructur- ing charges and other associated items of EUR . billion related to this restructuring program, resulting in cumulative charges of approximately EUR . billion. In total we now expect cumula- tive Nokia Siemens Networks restructuring charges of approxi- mately EUR . billion by the end of , virtually all of which have now been recognized. By the end of , Nokia Siemens Networks had cumulative restructuring related cash outﬂ ows of approximately EUR  million related to this restructuring program. Nokia Siemens Networks expects restructuring- related cash outﬂ ows to be approximately EUR  million for the full year , and approximately EUR  million for the full year  related to this restructuring program. The key ﬁ nancial data, including the calculations of key ratios, for the years ,  and  are available in the Annual Accounts section. MAIN EVENTS IN 2012 Nokia ■ Nokia outlined a range of actions – planned or since completed – aimed at sharpening its strategy, improving its operating model and returning the company to proﬁ table growth. The measures included: ▪ Reductions within certain research and development pro- jects, resulting in the closure of Nokia’s facilities in Ulm, Germany and Burnaby, Canada; ▪ The transfer of device assembly from our production facilities in Komarom in Hungary and Reynosa in Mexico to Nokia facilities in Asia, where the majority of component suppliers are based. The Komarom and Reynosa facilities are now focusing on smartphone product customization; ▪ The consolidation of certain manufacturing operations, resulting in the closure of Nokia’s manufacturing facility in Salo, Finland; ▪ Nokia, and De’ Longhi SpA, a global leader in household appliances, agreed terms for De’ Longhi to acquire Nokia’s production facility in Cluj, Romania during the ﬁ rst quarter in ; ▪ Focusing of marketing and sales activities, including prioritizing key markets; and ▪ Streamlining of corporate and support functions. ■ In April , to unify the ﬁ nancial mode of operation of Nokia, Nokia Corporation transferred its mobile device sales related business operations, including sales agreements, to Nokia Sales International Oy, a wholly owned subsidiary of Nokia Corporation. The transfer had no eﬀ ect on mobile device sales that has been carried out by other Nokia subsidiaries. ■ Nokia completed an oﬀ ering of EUR  million of senior unsecured convertible bonds due  convertible into ordinary shares of Nokia Corporation. Nokia intends to use the net proceeds of the oﬀ ering to prudently manage its capital structure, proactively address upcoming maturities while preserving existing pools of liquidity and for general corporate purposes. ■ Nokia entered into a new patent license agreement with BlackBerry (formerly Research In Motion). The agreement results in settlement of all existing patent litigation between the companies and withdrawal of pending actions in the US, UK and Canada related to a recent arbitration tribunal decision. ■ Nokia sold its head oﬃ ce building in Espoo, Finland, to Finland-based Exilion and has leased it back from Exilion on a long-term lease. The selling price was EUR  million. ■ Since the end of , Nokia has outlined a range of planned changes to streamline its IT organization. As part of the planned changes, Nokia transferred certain activities and approximately  employees to HCL Technologies and TATA Consultancy Services. In addition, Nokia plans to reduce its global IT organization by approximately  employees. Nokia believes these changes will increase operational ef- ﬁ ciency and reduce operating costs, creating an IT organiza- tion appropriate for Nokia’s current size and scope. ■ Nokia started development of a new manufacturing facility in Vietnam to serve the feature phone market. The targeted opening of the facility is the second half of . ■ During 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 the third quarter, Nokia was included by the Carbon Disclosure Project (CDP) in the Carbon Disclosure Leadership Index and the Carbon Performance Leadership Index, receiving recognition both for its disclosure of climate change information and the action it is taking to reduce its emissions. 10 N O K I A I N 2 0 1 2 Devices & Services SMART DEVICES ■ Nokia continued to expand the breadth and depth of its Nokia Lumia range of Windows Phone -based smartphones and brought the range to new markets, including China and the United States. ■ In September , Nokia launched its ﬁ rst products on Windows Phone , the latest generation of the Windows Phone platform. Nokia started selling the ﬁ rst products running Windows Phone  – the ﬂ agship Nokia Lumia  and the mid-range Nokia Lumia  – in select markets including China, Germany, the United Kingdom and the United States. Nokia has also launched in markets such as India as well as introduced the Nokia  in select markets, with Lumia smartphones now available in more than  markets around the world. Nokia’s ﬁ rst Windows Phone  products showcase the best of Windows Phone , which for the ﬁ rst time shares many core technologies with the wider Windows ecosystem. Windows Phone  also introduced multi-core processor support, NFC (near ﬁ eld communication) technology, and support for higher screen resolutions, as well as increased language support and new capabilities in imaging and ap- plication. ■ Nokia continued to support the growth of the Windows Phone ecosystem. The number of applications in the Windows Phone Marketplace grew to more than   by the end of , up from approximately   at the start of the year. ■ During Nokia’s transition to Windows Phone through , Nokia continued to ship devices based on Symbian. The Nokia  PureView, a device which showcases our imaging capabilities and which came to market in mid-, was the last Symbian device from Nokia. ■ Nokia announced a range of wireless charging accessories and partnerships. The Fatboy Recharge Pillow provides an alternative way to charge the Lumia  and Lumia  wirelessly, while HARMAN’S JBL brand introduced the JBL PowerUP, a wireless charging docking station with high quality audio in retro styling and the JBL PlayUp for high quality portable audio. Nokia also agreed with Virgin Atlantic to put wireless charging stations in its London Heathrow Clubhouse lounge and with Coﬀ ee Bean & Tea Leaf to put charging plates on tables in some of their cafés. ■ Nokia announced the launch of Nokia Music in the United States, further expanding the number of markets in which the free music streaming service is now available. Nokia Music is a free mobile experience exclusive to Nokia Lumia handsets, providing consumers with a simple and delightful way to discover and enjoy music. MOBILE PHONES ■ Mobile Phones continued to expand Nokia’s Asha range of products with technological and design innovations, in- cluding launching full touch models such as the Asha  and Asha . These two models oﬀ er a ﬂ uid ‘swipe’ user interface and an open environment for third-party applica- tion development – characteristics which helped earn the complete Asha touch range full smartphone classiﬁ cation from global market research companies and analysts such as GfK. ■ In the fourth quarter, Nokia introduced the Nokia  in both a single and dual SIM version. The Nokia  includes Nokia’s exclusive Slam feature, which enables consumers to share multimedia content like photos and videos with nearby friends almost instantly. Slam works with most Bluetooth- enabled mobile phones without the need to pair devices, and without the recipient needing to also have Slam. ■ Nokia unveiled Nokia Life+, the latest evolution of its widely- used Nokia Life service. Nokia Life+ is a Web application, which will provide millions of people with valuable informa- tion on education, health and “infotainment” topics. Nokia Life+ will be supported by the Nokia Asha  and Nokia Asha  smartphones alongside a wide range of Nokia mobile phones. ■ In the ﬁ rst quarter , the Nokia Xpress browser, Nokia’s cloud-accelerated browser for Series  devices, continued to grow rapidly with support for  devices in  languages and more than  countries. The Nokia Xpress browser is the ﬁ rst of its kind to support web apps, and since the release of the SDK in , developer support has continued to grow. HERE (formerly Location & Commerce) ■ Nokia introduced a new brand – HERE – for our location-based products and services and has begun adopting the HERE brand in the portfolio. HERE is the ﬁ rst location cloud to de- liver the world’s best maps and location experiences across multiple screens and operating systems. ■ To further extend its location services, Nokia launched a maps application for iOS under the HERE brand. ■ Nokia announced a strategic partnership with Mozilla to bring new location experiences to the Firefox OS. ■ Nokia introduced LiveSight, a technology based on a highly accurate, D map of the world. LiveSight provides a precise and intuitive augmented reality experience. ■ HERE continued to grow the Nokia Location Platform (NLP), an advanced location platform which oﬀ ers numerous opportunities upon which third parties can build. During the year, among others, Amazon became an NLP licensee for maps and geocoding and Ford’s research organization selected the NLP to leverage Nokia’s high-quality global location content as well as scalable cloud services and APIs. ■ As part of its commitment to strengthen the Windows Phone ecosystem, Nokia integrated the NLP into Windows Phone  OS to power location-based experiences built for Windows Phone , including access to oﬄ ine maps. ■ HERE agreed a partnership with Groupon to bring local and national deals to Nokia customer and released a new version of HERE Maps for the Lumia range that integrates Groupon Now! deals into the app. 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 11 ■ HERE introduced My Commute, a new feature of HERE Drive that learns people’s driving preferences and uses infor- mation about the latest traﬃ c conditions to help people choose between the diﬀ erent routes they usually take to get to the places they travel most. ■ HERE brought HERE City Lens, an augmented reality applica- tion, to the Nokia Lumia smartphone range and continued to update it throughout the year. ■ In the ﬁ rst quarter, Location & Commerce released HERE Transport, a mobile application for the Lumia range provid- ing underground, tram, suburban train and bus directions for more than  cities in  countries in a convenient way, and further updated the application during the year. ■ HERE continued to build partnerships with a number of ma- jor industry players, particularly in the area of automotive- grade maps content and solutions. We are providing content to partners including Audi, BMW Chrysler, Dacia, ESRI, Ford, Garmin, Hyundai, Kia, Mercedes, Nikon, Pioneer, Scania, Toyota and Volkswagen. ■ In indoor mapping, HERE continued to steadily increase its coverage of venues and buildings around the world and now covers   venues and altogether   buildings in  countries. Nokia Siemens Networks ■ Nokia Siemens Networks added signiﬁ cant commercial LTE deals during , including; a major contract with SOFTBANK MOBILE Corp. in Japan to upgrade its mobile broadband capacity across the country, supplying, deploy- ing and integrating its HSPA+ (G) and FDD LTE (G) networks; deploying the world’s ﬁ rst multi-technology, multi-vendor self-organizing G and G mobile networks for KDDI, also in Japan; and supporting T-Mobile’s G network evolution plan with the modernization of its GSM, HSPA+ core and radio access infrastructure in key markets in the USA to improve existing voice and data coverage. ■ Nokia Siemens Networks had a total of  LTE deals by the  year end, with other mobile broadband deals includ- ing with: Bharti Airtel in India; Telkomsel in Indonesia; KT in Korea; Singapore’s StarHub; Tele in Estonia, Latvia and Lithuania; Hrvatski Telekom in Croatia; T-Mobile and Orange in Poland; Polkomtel in Poland; Si.mobil in Slovenia; COTA and Wimax Online in Spain; Zain KSA in Saudi Arabia; TOT in Thailand; Optus in Australia; Mobile TeleSystems in Russia; O in the UK; Vodacom in South Africa; Saudi Telecom Company; and China Mobile. ■ Nokia Siemens Networks demonstrated its commitment to staying at the forefront of mobile broadband innova- tion with the opening of a mobile broadband testing and development facility which opened in Silicon Valley in the United States. In other LTE technology developments, Nokia Siemens Networks: launched its “FlexiZone” approach to mobile broadband coverage, which will deliver faster and more ﬂ exible G across areas with a very high user density more eﬃ ciently and cost eﬀ ectively; and expanded its portfolio, to enable smooth G rollouts using the ‘Digital Dividend’ in the Asia Paciﬁ c region, Latin America and other parts of the world. ■ Nokia Siemens Networks also launched a new CDMA base station, bringing the beneﬁ ts of its globally recognized Flexi Multiradio Base Station platform to CDMA operators whilst reducing base station operating costs by up to %, and with G upgrade capability underlining Nokia Siemens Networks’ commitment to mobile broadband technology evolution. ■ Nokia Siemens Networks unveiled its ‘Intelligent IP Edge’, the world’s most advanced network gateway that enables operators to deliver a better mobile broadband experience and reduce running costs using Nokia Siemens Networks’ Liquid Net approach. Nokia Siemens Networks and Juniper Networks announced the launch of the “Integrated Packet Transport Network”, addressing the need for service provid- ers to simplify network architecture and giving operators more ﬂ exibility in their transport networks in a cost ef- fective way, reﬂ ecting Nokia Siemens Networks Liquid Net approach to transforming networks to cope with unpredict- ability and increasing network demand. ■ Nokia Siemens Networks extended its comprehensive small cells portfolio with the launch of an enhanced range of picocell base stations and G Femto access points, and announced a US-based trial of its Hot Zone approach for increasing network capacity in the Chicago area. ■ The launch of the Customer Experience Management (CEM) on Demand portal in the ﬁ rst quarter allowed Nokia Siemens Networks to showcase a new way of handling relationships with the world’s six billion mobile users. Nokia Siemens Networks was recognized for its advances in CEM at the Global Telecoms Business (GTB) Innovation Awards  in the wireless infrastructure category where it won a joint award with Telkomsel for its use of Nokia Siemens Networks’ CEM on Demand portfolio. Guangdong MCC in China has signed up to Nokia Siemens Networks’ CEM software and services, enabling it to improve customer experience by providing a uniﬁ ed view of its customer data and continuous reporting of usage trends. SIGNIFICANT ACQUISITIONS AND DIVESTMENTS IN 2012 ■ Nokia completed the acquisition of all technologies and intellectual property from Scalado AB to strengthen Nokia’s leading position in mobile imaging. As part of the transac- tion, approximately  world-class imaging specialists trans- ferred to Nokia. ■ During the fourth quarter in , Nokia completed the divestment of Vertu, its luxury mobile phones business to EQT VI, a European private equity ﬁ rm. ■ Nokia acquired earthmine inc. Earthmine’s reality capture and processing technologies will become integral parts of the D map making capabilities of HERE. 12 N O K I A I N 2 0 1 2 ■ During the year, Nokia Siemens Networks completed the sale of its microwave transport business to DragonWave, the sale of its ﬁ xed line Broadband Access business to ADTRAN and the divestment of the assets of the non-core IPTV busi- ness to Belgacom and Accenture. It also announced it had reached an agreement to sell its Optical Networks business to Marlin Equity Partners and its Business Support Systems business to Redknee. PERSONNEL The average number of employees of Nokia Group for  was   (  for  and   for ). At December , , Nokia Group employed a total of   people (  people at December ,  and   people at Decem- ber , ). The total amount of wages and salaries paid in  was EUR   million (EUR   million in  and EUR   million in ). SUSTAINABILITY AT NOKIA With over . billion customers using Nokia devices, Nokia is in a unique position to eﬀ ect positive environmental and social change around the world. Nokia aims to maximize its positive impact on the world and its people, reduce any negative envi- ronmental impact, and aims to oﬀ er people products and solu- tions that help them make sustainable choices. Also, by closely collaborating with Nokia’s suppliers, Nokia hopes to improve the social and environmental performance of its supply chain. Nokia strives to be a responsible company in all areas, for ex- ample aiming to reduce the emissions of its own facilities and those of its suppliers, to increase energy eﬃ ciency and use green energy where possible, to save resources through simple initiatives such as cutting down on packaging, and to use sus- tainable, ethically sourced materials in Nokia’s products. Nokia believes that its approach in considering its environmental and social impact not only reﬂ ects ethical and legal responsibilities, but also makes good business sense and actually goes beyond legal requirements. We also work to ensure world-class working conditions for our own employees as well as at our suppliers’ operations. Furthermore, we invest in social projects which impact particularly education and livelihoods. ■ In our own operations: we delivered progress in increasing the waste utilization rate at our factories and in the level of renewable electricity usage. MANAGEMENT AND BOARD OF DIRECTORS 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: Bruce Brown, Stephen Elop, Henning Kagermann, Jouko Karvinen, Helge Lund, Isabel Marey-Semper, Mårten Mickos, Elizabeth Nelson, 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 information 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 , the following appointments were made to the Nokia Leadership Team: ■ Marko Ahtisaari was appointed Executive Vice President of Design and member of the Nokia Leadership Team as from February , . Some of the  sustainability highlights include: ■ Juha Putkiranta was appointed Executive Vice President ■ In products: we introduced environmental innovations, such as bio-plastics and recycled metals, and reached % level in renewable, paper-based materials use in Nokia device and accessories packaging. ■ In sustainability related services: our focus on mobile learning is bearing fruit, with  million people having experienced the Nokia Life information service at the end of , Nokia Mobile Mathematics reaching   students,  teachers,  schools in South Africa, and Nokia Education Delivery showing promising results in the quality of teaching and classroom environment in India and Indonesia. We also expanded HERE Transport application further, oﬀ ering people options to reduce their environmen- tal footprint by helping them plan their journeys on public transport. of Operations and member of the Nokia Leadership Team as from July , . ■ Timo Toikkanen was appointed Executive Vice President of Mobile Phones and member of the Nokia Leadership Team as from July , . ■ Chris Weber was appointed Executive Vice President of Sales and Marketing and member of the Nokia Leadership Team as from July , . Further, during , the following Nokia Leadership Team members resigned: ■ Jerri DeVard, formerly Executive Vice President and Chief Marketing Oﬃ cer, stepped down from the Nokia Leadership Team eﬀ ective June , . 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 13 ■ Colin Giles, formerly Executive Vice President of Sales, NOKIA OUTLOOK stepped down from the Nokia Leadership Team eﬀ ective June , . ■ Mary T. McDowell, formerly Executive Vice President of Mobile Phones stepped down from the Nokia Leadership Team eﬀ ective June , . ■ Niklas Savander, formerly Executive Vice President of Markets stepped down from the Nokia Leadership Team eﬀ ective June , . ■ Esko Aho, formerly Executive Vice President of Corporate Relations and Responsibility stepped down from the Nokia Leadership Team eﬀ ective August , . ARTICLES OF ASSOCIATION Nokia’s Articles of Association include a provision on obligation to purchase shares. Amendment of the Articles of Association requires a de- cision of the general meeting, supported by two-thirds of the votes cast and two-thirds of the shares represented at the meeting. Amendment of the provisions of Article  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. SHARES AND SHARE CAPITAL Nokia has one class of shares. Each Nokia share entitles the holder to one vote at general meetings of Nokia. Our Devices & Services business is expected to continue to be subject to risks and uncertainties, as our Smart Devices business unit continues to broaden its portfolio of Windows Phone  based products and our Mobile Phones business unit continues to bring more smartphone features and design to our Mobile Phones portfolio. Those risks and uncertainties in- clude, among others, the timing, ramp-up, quality and demand for our new products, including our Lumia and Asha devices; further pressure on margins as competitors endeavor to capi- talize on our transition; and uncertainty in the macroeconomic environment. Nokia Siemens Networks plans to continue to prioritize the improvement of its proﬁ tability and cash generation over growth in revenue. In addition, it plans to target increasing its market share in certain growth areas such as G (LTE), in particular in priority countries, Japan, Korea and the United States. Longer-term, Nokia continues to target: ■ Devices & Services net sales to grow faster than the market, and ■ Devices & Services operating margin to be % or more, excluding special items and purchase price accounting related items. Longer-term, Nokia Siemens Networks continues to target: ■ Nokia Siemens Networks’ operating margin to be between % and %, excluding special items and purchase price accounting related items. In , Nokia did not cancel or repurchase any shares nor In , we announced additional restructuring measures 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, including certain Nokia Leadership Team members. The shares were transferred free of charge and the amount of shares transferred 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 companies owned    Nokia shares. The shares represented ap- proximately .% of the total number of the shares of the com- pany 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 related party transactions, the shareholders, stock options, shareholders’ equity per share, dividend yield, price per earn- ings ratio, share prices, market capitalization, share turnover and average number of shares are available in the Annual Accounts section. to those announced during  as a result of our Devices & Services strategy. We announced in June  that Nokia targets to reduce its Devices & Services operating expenses, excluding special items and purchase price accounting related items, to an annualized run rate of approximately EUR . bil- lion by the end of . Nokia Siemens Networks continues to target to reduce its annualized operating expenses and production overheads, excluding special items and purchase price accounting related items, by more than EUR  billion by the end of , compared to the end of . While these savings are expected to come largely from organizational streamlining, it has also targeted areas such as real estate, information technology, product and service procurement costs, overall general and administrative expenses and a signiﬁ cant reduction of suppliers in order to further lower costs and improve quality. RISK FACTORS Set forth below is a description of risk factors that could aﬀ ect Nokia, starting with the risks which are mainly related to our primary revenue generating areas. There may be, however, additional risks unknown to Nokia and other risks currently believed to be immaterial that could turn out to be material. These risks, either individually or together, could adversely aﬀ ect our business, sales, proﬁ tability, results of operations, 14 N O K I A I N 2 0 1 2 ﬁ nancial condition, liquidity, market share, brand, reputation and share price from time to time. Unless otherwise indicated or the context otherwise provides, references in these risk fac- tors 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. ■ We may not be able to make Nokia products with Windows Phone a competitive choice for consumers unless the Windows Phone ecosystem becomes a competitive and prof- itable global ecosystem that achieves suﬃ cient scale, value and attractiveness to relevant market participants. ■ 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 produce attractive and competitive devices in our Mobile Phones business unit, including feature phones and devices with features such as full touch that can be categorized as smartphones, in a timely and cost eﬃ cient manner with diﬀ erentiated hardware, software, localized services and applications. ■ Our strategy for our HERE business includes various risks and uncertainties and may not succeed if we are unable to establish a successful location-based platform, extend our location-based services across devices and operating sys- tems, maintain current sources of revenue, provide support for our HERE business and create new sources of revenue from our location-based services and commerce assets. ■ Our products include numerous patented standardized or proprietary technologies on which we depend and utilize for revenue generation. Third parties may use without a license and unlawfully infringe our intellectual property or commence actions seeking to establish the invalidity of the intellectual property rights of these technologies, or we may not be able to maintain the existing sources of intellectual property related revenue or establish new such sources. ■ We face intense competition in mobile products and in the digital map data and related location-based content and services markets. ■ 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 market in a timely manner. ■ Our partnership with Microsoft is subject to risks and uncertainties. ■ We may not be able to eﬀ ectively and smoothly implement the planned changes in operational structure or achieve targeted eﬃ ciencies and reductions in operating expenses. ■ We may not be able to retain, motivate, develop and recruit appropriately skilled employees, which may hamper our abil- ity to implement our strategies. ■ 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 ability to maintain and leverage our traditional strengths in the mobile products 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, were to fail to perform as planned or if we fail to achieve the collaboration or partnering arrangements needed to succeed, we may not be able to bring our mobile products or location-based or other services to market suc- cessfully 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 with quality requirements and on time could be materially adversely aﬀ ected. ■ 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. ■ 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. ■ 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. ■ We have operations in a number of countries and, as a result, face complex tax issues and could be obligated to pay additional taxes in various jurisdictions and our actual or anticipated performance, among other factors, could result in allowances related to deferred tax assets. R E V I E W B Y T H E B O A R D O F D I R E C T O R S 15 ■ Our net sales, costs and results of operations, as well as ■ Nokia Siemens Networks’ restructuring plan to improve 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 technologies may also result in increased licensing costs for us, restric- tions on our ability to use certain technologies in our prod- ucts and/or costly and time-consuming litigation. ■ Our sales derived from, and manufacturing facilities and as- sets located in, emerging market countries may be materi- ally adversely aﬀ ected by economic, regulatory, political or other developments in those countries or by other countries imposing regulations against imports to such countries. ■ 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. ■ 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’ sales and proﬁ tability depend on its success in the mobile broadband infrastructure and related services market. Nokia Siemens Networks may fail to eﬀ ectively and proﬁ tably adapt its business and operations in a timely manner to the increasingly 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 environment. ﬁ nancial performance and competitiveness may not lead to sustainable improvements in Nokia Siemens Networks’ over- all competitiveness and proﬁ tability, and it may be unable to otherwise continue to reduce operating expenses and other costs. Additionally, changes in the ownership structure of Nokia Siemens Networks could have an adverse eﬀ ect on Nokia Siemens Networks or us. ■ 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’ business is dependent on a limited number of customers. ■ Nokia Siemens Networks’ mobile broadband infrastructure and related services business is dependent on large multi- year contracts. ■ Nokia Siemens Networks’ liquidity and its ability to meet its working capital requirements depend on access to available credit under its ﬁ nancing arrangements and other credit lines as well as cash at hand. If those sources of liquidity were to be unavailable, or cannot be reﬁ nanced when they mature, this could have a material adverse eﬀ ect on our business, results of operations and ﬁ nancial condition. ■ Nokia Siemens Networks may be adversely aﬀ ected by customer ﬁ nancing or extending payment terms it provides to customers. ■ 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 trans- ferred 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 The Board will propose that no dividend be paid for the ﬁ scal year . Board of Directors, Nokia Corporation March ,  16 N O K I A I N 2 0 1 2 ANNUAL ACCOUNTS 2012 Consolidated income statements, IFRS ................................................................. 18 Consolidated statements of comprehensive income, IFRS ............................... 19 Consolidated statements of ﬁ nancial position, IFRS .......................................... 20 Consolidated statements of cash ﬂ ows, IFRS ...................................................... 21 Consolidated statements of changes in shareholders’ equity, IFRS ................ 22 Notes to the consolidated ﬁ nancial statements .................................................. 24 Income statements, parent company, FAS ........................................................... 70 Balance sheets, parent company, FAS ................................................................... 70 Statements of cash ﬂ ows, parent company, FAS ................................................. 71 Notes to the ﬁ nancial statements of the parent company ................................ 72 Nokia shares and shareholders ............................................................................... 77 Nokia Group 2008 – 2012, IFRS ................................................................................ 82 Calculation of key ratios ............................................................................................ 84 Signing of the Annual Accounts 2012 and proposal for distribution of proﬁ t .................................................................. 85 Auditors’ report .......................................................................................................... 86 A N N U A L A C C O U N T S 2 0 1 2 17 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 2012 EURm 30 176 – 21 786 8 390 – 4 782 – 3 205 – 959 — 403 8 7 7, 8 – 2 150 2011 EURm 38 659 – 27 300 11 359 – 5 584 – 3 769 – 1 085 – 1 090 221 – 1 125 2–10, 24 – 2 303 – 1 073 15, 31 8, 11 – 1 – 340 – 2 644 – 1 145 12 – 23 – 102 – 1 198 – 290 2010 EURm 42 446 – 29 456 12 990 – 5 844 – 3 856 – 1 039 — 476 – 657 2 070 1 – 285 1 786 – 443 Loss (–)/proﬁ t (+) – 3 789 – 1 488 1 343 Loss (–)/proﬁ t (+) attributable to equity holders of the parent Loss attributable to non-controlling interests Earnings per share (for loss (–)/proﬁ t (+) attributable to the equity holders of the parent) 28 Basic Diluted – 3 106 – 683 – 3 789 2012 EUR – 0.84 – 0.84 – 1 164 – 324 – 1 488 2011 EUR – 0.31 – 0.31 Average number of shares (1 000’s shares) 28 2012 2011 1 850 – 507 1 343 2010 EUR 0.50 0.50 2010 Basic Diluted See Notes to Consolidated Financial Statements. 3 710 845 3 709 947 3 708 816 3 710 845 3 709 947 3 713 250 18 N O K I A I N 2 0 1 2 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME, IFRS Financial year ended December 31 Notes Loss (–)/proﬁ t (+) 2012 EURm – 3 789 2011 EURm – 1 488 Other comprehensive income (+)/expense (–) Items that may be reclassiﬁ ed subsequently to proﬁ t or loss Translation diﬀ erences Net investment hedges Cash ﬂ ow hedges Available-for-sale investments Other increase (+)/decrease (–), net Income tax related to components of other comprehensive income/expense Other comprehensive income (+)/expense (–), net of tax 22 22 21 21 21, 22 39 – 58 – 41 35 10 12 – 3 9 – 37 116 70 – 16 – 16 126 2010 EURm 1 343 1 302 – 389 – 141 9 45 126 952 Total comprehensive income (+)/expense (–) – 3 792 – 1 362 2 295 Total comprehensive income (+)/expense (–), attributable to equity holders of the parent non-controlling interests See Notes to Consolidated Financial Statements. – 3 157 – 635 – 3 792 – 1 083 – 279 – 1 362 2 776 – 481 2 295 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 19 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION, IFRS December 31 ASSETS Non-current assets 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 (2012: EUR 248 million, 2011: EUR 284 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 SHAREHOLDERS’ EQUITY AND LIABILITIES 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. 20 N O K I A I N 2 0 1 2 Notes 2012 EURm 2011 EURm 13 13 14 15 16 25 16, 34 4 876 647 1 431 58 689 1 254 112 4 9 071 18, 20 1 538 16, 20, 34 19 16, 34 16, 17, 35 16, 34 16, 34 16, 34 34 23 22 21 16, 34 25 16, 34 16, 34 16, 17, 34 16, 34 26 27 5 551 3 381 35 464 415 542 5 448 3 504 20 878 29 949 246 446 –629 744 123 3 136 3 995 8 061 1 386 9 447 5 087 700 69 5 856 201 261 90 4 394 7 081 2 619 14 646 29 949 4 838 1 412 1 842 67 641 1 848 99 3 10 750 2 330 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 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 used in / from operating activities Cash ﬂ ow from investing activities Acquisition of businesses, 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 Proceeds from (+) / payment of (– ) other long-term receivables Proceeds from (+) / payment of (– ) short-term loans receivable Capital expenditures Proceeds from disposal of businesses, net of disposed cash Proceeds from disposal of shares in associated companies Notes 2012 EURm 2011 EURm 32 32 – 3 106 3 838 123 855 130 – 277 – 584 – 478 – 354 13 – 1 668 – 40 – 55 – 1 — 24 – 461 – 15 5 – 1 164 3 486 – 638 1 684 190 – 283 264 – 718 1 137 – 817 – 3 676 – 607 – 111 – 2 – 14 – 31 – 597 – 2 4 2010 EURm 1 850 2 112 2 349 6 311 110 – 235 – 507 – 905 4 774 – 110 – 8 573 – 646 – 124 – 33 2 – 2 – 679 120 5 Proceeds from maturities and sale of current available-for-sale investments, liquid assets 2 355 6 090 7 181 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 86 37 279 3 562 — — 752 – 266 – 196 – 755 – 465 – 27 – 284 9 236 8 952 3 504 5 448 8 952 1 156 57 48 1 333 83 21 1 1 499 – 2 421 546 — 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 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 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 21 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY, IFRS Number of shares Share Trans- Share lation issue Treasury diﬀ er- (1 000’s) capital premium shares ences reserves Non- other restrict. Retained controlling controlling interests interests earnings equity Total Before non- Fair Reserve for value invested non- and Balance at December 31, 2009 3 708 262 246 279 – 681 – 127 69 3 170 10 132 13 088 1 661 14 749 Translation diﬀ erences Net investment hedges, 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 Translation diﬀ erences Net investment hedges 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 Contributions from shareholders Dividend Acquisitions and other change in non-controlling interests 1 240 – 288 – 73 7 — 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 – 116 – 43 7 45 5 – 507 1 343 – 481 2 295 – 1 47 – 1 – 4 1 766 766 – 56 – 1 539 – 43 667 – 82 – 813 – 1 483 – 1 483 – 39 – 39 – 9 – 1 522 – 1 480 – 26 – 28 — 3 84 67 3 161 10 500 14 384 1 847 16 231 – 26 – 28 84 67 – 16 35 10 9 – 28 94 67 – 16 – 16 — — 18 – 3 – 11 46 1 059 — – 54 151 — – 1 180 – 1 083 – 279 – 1 362 – 1 164 – 1 164 – 324 – 1 488 19 – 13 18 – 3 – 5 46 18 – 4 – 5 546 – 1 500 – 1 484 – 1 484 – 39 – 1 523 — 15 15 Total of other equity movements 868 — 33 18 — Balance at December 31, 2010 3 709 130 246 312 – 663 825 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 22 N O K I A I N 2 0 1 2 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY, IFRS (continued) Number of shares Share Trans– Share lation issue Treasury diﬀ er- (1 000’s) capital premium shares ences reserves Non- other restrict. Retained controlling controlling interests interests earnings equity Total Before non- Fair Reserve for value invested non- and Balance at December 31, 2011 3 710 189 246 362 – 644 771 154 3 148 7 836 11 873 2 043 13 916 Translation diﬀ erences Net investment hedges, net of tax Cash ﬂ ow hedges, net of tax Available-for-sale investments, net of tax Other increase, net Loss Total comprehensive income Share-based compensation Excess tax beneﬁ t on share-based compensation Settlement of performance and restricted shares Dividend — 796 Convertible bond – equity component Total of other equity movements 796 — 40 – 67 – 67 36 — – 27 – 31 — – 3 099 7 – 3 106 15 – 12 – 742 15 — — – 12 – 742 40 – 67 – 67 36 7 – 2 47 3 38 – 67 – 20 36 10 – 3 106 – 3 157 – 683 – 3 789 – 635 – 3 792 1 3 – 2 – 742 85 – 655 1 3 – 2 – 22 – 764 85 – 22 – 677 — 1 3 – 5 85 84 Balance at December 31, 2012 3 710 985 246 446 – 629 744 123 3 136 3 995 8 061 1 386 9 447 Dividends declared per share were EUR . for  (EUR . for  and EUR . for ), subject to shareholders’ approval. See Notes to Consolidated Financial Statements. 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 23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING PRINCIPLES 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 Standards 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 Finn- ish accounting legislation. Nokia’s Board of Directors author- ized 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 reportable seg- ment. From the third quarter  until the end of the third quarter , NAVTEQ was a separate reportable segment of Nokia. As a result of this structure, Nokia currently has four operating and reportable segments: Smart Devices and Mobile Phones within Devices & Services, Location & Commerce and Nokia Siemens Networks. As of January , , Location & Commerce business and reportable segment has been renamed as the HERE business and reportable segment. The presentation of Nokia Siemens Networks’ restructuring and other associated expenses has been aligned with other Nokia businesses and included within other expenses instead of impacting functions. Accordingly, included in other expens- es in  is EUR  million restructuring charges, previously reﬂ ected within cost of sales (EUR  million), R&D (EUR  mil- lion), selling and marketing (EUR  million) and administrative expenses (EUR  million). Included in other expenses in  is EUR  million restructuring charges previously reﬂ ected within cost of sales (EUR  million), R&D (EUR  million), sell- ing and marketing (EUR  million) and administrative expenses (EUR  million). Certain notes to the ﬁ nancial statements include changes in presentation format. To allow meaningful comparison be- tween years, comparative information have been aligned with current presentation format. ADOPTION OF PRONOUNCEMENTS UNDER IFRS In the current year, the Group has adopted all of the new and revised standards, amendments and interpretations to exist- ing standards issued by the IASB that are relevant to its opera- tions and eﬀ ective for accounting periods commencing on or after January , . ■ 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. 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 amendments 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. Control 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 gov- ern 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 periods presented have been consolidated from the date on which control of the net assets and operations was transferred to the Group. Similarly, the result of a Group entity or business divested during an accounting period is included in the Group accounts only to the date of disposal. 24 N O K I A I N 2 0 1 2 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 par- ent, 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 the 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 allocated, on a reasonable and consistent basis, to the rel- evant units. The aggregate total carrying amount of the unit, including 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 recognized 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 carrying amounts of derecognized net assets attributable to the equity holders of the parent and non-controlling interests of the disposed entity or business, adjusted by amounts previously recognized in other comprehensive income in relation to that entity or business. Foreign currency translation FUNCTIONAL AND PRESENTATION CURRENCY The ﬁ nancial statements of all Group companies are measured using functional currency, which is the currency of the primary economic environment in which each of the companies oper- ate. The consolidated 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 transactions. For practical reasons, a rate that approximates the actual rate at the date of the transaction is often used. At the end of the accounting period, the unsettled balances on foreign currency assets and liabilities are valued at the rates of ex- change prevailing at the end of the accounting period. Foreign exchange gains and losses arising from statement of ﬁ nancial position items are reported in ﬁ nancial income and expenses. Unrealized foreign exchange gains and losses related to non- current available-for-sale investments are recognized in other comprehensive income. FOREIGN GROUP COMPANIES In the consolidated accounts, all income and expenses of for- eign Group companies, where the functional currency is other than euro, are translated into euro at the average monthly foreign exchange rates. All assets and liabilities of foreign Group companies are translated into euro at the year-end for- eign 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 compre- hensive income as translation diﬀ erences within consolidated 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 proportionate share of the translation diﬀ erences is recognized as income or as expense when the gain or loss on disposal is recognized. 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 25 Revenue recognition Majority of the Group’s sales are recognized as revenue when the signiﬁ cant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually as- sociated 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 with re- spect to the transaction can be measured reliably. The Group records reductions to revenue for special pricing agreements, price protection and other volume-based discounts. Service revenue is generally recognized on a straight line basis over the service period unless there is evidence that some other method better represents the stage of completion. License fees from usage are recognized in the period when they are reliably measurable, which is normally when the customer reports them to the Group. The Group enters into transactions involving multiple 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 dependable 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 assumptions 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 estimated 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 as they do not meet the criteria for capitalization. Other intangible assets Acquired patents, trademarks, licenses, software licenses for internal use, customer relationships and developed technology are capitalized and amortized using the straight-line method over their useful lives, generally  to  years. Where an indica- tion 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. Employee beneﬁ ts 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 us- ing interest rates on high quality corporate bonds with appro- priate maturities. Actuarial gains and losses outside corridor are recognized over the average remaining service lives of em- ployees. The corridor is deﬁ ned as ten percent of the greater of the value of plan assets or deﬁ ned beneﬁ t obligation at the beginning of the respective year. Actuarial gains and losses within the corridor limits are not recognized. 26 N O K I A I N 2 0 1 2 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 nancial position is pension obligation at the closing date less the fair value of plan assets, 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. 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. 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 approxi- mates actual cost on a FIFO (First-in First-out) basis. Net realiz- able 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. TERMINATION BENEFITS Termination beneﬁ ts are payable when employment is ter- minated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these beneﬁ ts. The Group recognizes termination beneﬁ ts when it is demonstrably committed to either terminating the employ- ment of current employees according to a detailed formal plan without possibility of withdrawal, or providing termination beneﬁ ts as a result of an oﬀ er made to encourage voluntary redundancy. 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 Light buildings and constructions Production machinery, measuring and test equipment Other machinery and equipment  –  years  –  years  –  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 Financial assets The Group has classiﬁ ed its ﬁ nancial assets to the following categories: available-for-sale investments, loans and receiva- bles, 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 projected cash needs of its on-going operations in highly liquid, interest- bearing investments and certain equity instruments. The fol- lowing investments are classiﬁ ed as available-for-sale based on the purpose for acquiring the investments as well as ongo- ing intentions: () Highly liquid ﬁ xed income and money-market investments that are readily convertible to known amounts of cash with maturities at acquisition of  months or less, 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 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 27 consideration the public market of comparable companies in similar industry sectors. The remaining available-for-sale investments, which are technology related investments in pri- vate 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, are carried at cost less impairment. All purchases and sales of investments are recorded on the trade date, which is the date that the Group commits to purchase or sell the asset. The 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 calcu- lated using the eﬀ ective interest method as well as foreign exchange gains and losses on monetary assets, which are rec- ognized 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 proﬁ t and loss. The weighted average method is used when determining the cost basis of publicly listed equities be- ing 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 im- paired including, but not limited to, counterparty default and other factors causing a reduction in value that can be consid- ered other than temporary. The cumulative net loss relating to that investment is removed from equity and recognized in proﬁ t and loss. 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 proﬁ t and loss. INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS, LIQUID ASSETS Certain highly liquid ﬁ nancial assets are designated as invest- ments at fair value through proﬁ t and loss, liquid assets, at inception. For these investments the following criteria must be met: () the designation eliminates or signiﬁ cantly reduces the inconsistent treatment that would otherwise arise from meas- uring 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 manage- ment or investment strategy. These investments are initially recognized and subsequent- ly remeasured at fair value. Fair value adjustments and realized gains and losses are recognized in proﬁ t and loss. LOANS RECEIVABLE Loans receivable include loans to customers and suppliers. Loans receivable are initially measured at fair value and subse- quently at amortized cost less impairment using the eﬀ ective interest method. Loans are subject to regular and thorough review as to their collectability and available collateral. In the event that a 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. Loan interest is recognized in interest income. 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 monthly review of all outstanding amounts where signiﬁ cant doubt about collectability exists. Monthly review includes an analysis of historical bad debt, customer concentrations, customer creditworthiness, current economic trends and changes in our customer payment terms. Allowance for doubtful accounts is included in proﬁ t and loss within other operating expenses. Financial liabilities COMPOUND FINANCIAL INSTRUMENTS Compound ﬁ nancial instruments have both a ﬁ nancial liability and an equity component from the issuers’ perspective. The components are deﬁ ned based on the terms of the ﬁ nancial instrument and presented and measured separately accord- ing to their substance. At initial recognition of a compound ﬁ nancial instrument, the ﬁ nancial liability component is recognized at fair value and residual amount is allocated to the equity component. This allocation is not revised subsequently. The Group has issued a convertible bond, which is a compound ﬁ nancial instrument, and its ﬁ nancial liability component is accounted for as a loan payable. LOANS PAYABLE Loans payable are recognized initially at fair value, net of transaction costs incurred. In subsequent periods loans payable are measured at amortized cost using the eﬀ ective interest method. Transaction costs and loan interest are recognized in interest expenses over the life of the instrument. The long-term portion of loans payable is included on the statement of ﬁ nan- cial position under long-term interest-bearing liabilities and the current portion under current portion of long-term loans. 28 N O K I A I N 2 0 1 2 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 derivatives are designated under and qualify for 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 posi- tion being hedged. DERIVATIVES NOT DESIGNATED IN HEDGE ACCOUNTING RELATIONSHIPS CARRIED AT FAIR VALUE THROUGH PROFIT AND LOSS 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 us- ing the Garman & Kohlhagen option valuation model. Changes in the fair value on these instruments are recognized in proﬁ t and loss. Fair values of forward rate agreements, interest rate op- tions, futures contracts and exchange traded options are cal- culated based on quoted market rates at each balance sheet date. Discounted cash ﬂ ow analyses are used to value interest rate and cross-currency interest rate swaps. Changes in the fair value of these contracts are recognized in proﬁ t and loss. For derivatives not designated under hedge accounting but hedging identiﬁ able exposures such as anticipated foreign currency denominated sales and purchases, the gains and losses are recognized in other operating income or expenses. The gains and losses on all other derivatives not designated under hedge accounting are recognized in ﬁ nancial income and expenses. Embedded derivatives are identiﬁ ed and monitored by the Group. Embedded derivatives are measured at fair valued at each balance sheet date with changes in the fair value are recognized in proﬁ t and loss. Hedge accounting The Group applies hedge accounting on certain forward foreign exchange contracts, certain options or option strategies and certain interest rate derivatives. Qualifying options and option strategies have zero net premium or a net premium paid. For option structures the critical terms of the bought and sold op- tions are the same and the nominal amount of the sold option component is no greater than that of the bought option. CASH FLOW HEDGES: HEDGING OF FORECAST 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 forecast foreign currency denominated sales and purchases that meet the following requirements. The cash ﬂ ow being hedged must be “highly probable” and must present an exposure to varia- tions in cash ﬂ ows that could ultimately aﬀ ect proﬁ t or loss. The hedge must be highly eﬀ ective both prospectively and retrospectively. For qualifying foreign exchange forwards, the change in fair value that reﬂ ects the change in spot exchange rates is deferred in fair value and other reserves 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 fair value and other reserves to the extent that the hedge is eﬀ ective. In all cases, the ineﬀ ective portion is recognized im- mediately in proﬁ t and loss 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 change in the time value for options, or op- tions strategies, are recognized in other operating income or expenses. Accumulated changes in fair value from qualifying hedges are released from fair value and other reserves to proﬁ t and loss as adjustments to sales and cost of sales when the hedged cash ﬂ ow aﬀ ects proﬁ t and loss. Forecast foreign currency sales and purchases aﬀ ect proﬁ t and loss at various dates up to approximately  year from the balance sheet date. If the hedged cash ﬂ ow is no longer expected to occur, all deferred gains or losses are released immediately to proﬁ t and loss as adjustments to sales and cost of sales. If the hedged cash ﬂ ow ceases to be highly probable, but is still expected to occur, accumulated gains and losses remain in equity until the hedged cash ﬂ ow aﬀ ects proﬁ t and loss. CASH FLOW HEDGES: HEDGING OF FOREIGN CURRENCY RISK OF HIGHLY PROBABLE BUSINESS ACQUISITIONS AND OTHER TRANSACTIONS From time to time the Group hedges the cash ﬂ ow variability due to foreign currency risk inherent in highly probable busi- ness 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 are trans- ferred from fair value and other reserves and included in the initial acquisition cost of the asset. The deferred amounts are ultimately recognized in proﬁ t and loss as a result of goodwill assessments in case of business acquisitions and through de- 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 29 preciation in case of other assets. In order to apply for hedge accounting, the forecast transactions must be highly probable and the hedges must be highly eﬀ ective prospectively and retrospectively. 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 certain variable rate liabilities. The eﬀ ective portion of the gain or loss relating to interest rate swaps hedging variable rate borrowings is deferred in fair value and other reserves. The gain or loss related to the ineﬀ ective portion is recognized immediately in proﬁ t and loss 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 gains and losses on the hedging instruments recycled gradually to proﬁ t and loss when the hedged variable interest cash ﬂ ows aﬀ ect proﬁ t and loss. 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 derivatives designated and qualifying as fair value hedges, together with any changes in the fair value of the hedged liabilities attrib- utable to the hedged risk, are recorded in proﬁ t and loss in ﬁ nancial income and expenses. If a hedge no longer meets the criteria for hedge account- ing, hedge accounting ceases and any fair value adjustments made to the carrying amount of the hedged item while the hedge was eﬀ ective are amortized to proﬁ t and 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 are eﬀ ective both prospectively and retrospectively. For qualifying foreign exchange forwards, the change in fair value that reﬂ ects the change in spot exchange rates is deferred in translation diﬀ erences within consolidated share- holder’s equity. The change in fair value that reﬂ ects the change in forward exchange rates less the change in spot ex- change rates is recognized in proﬁ t and loss in ﬁ nancial income and expenses. For qualifying foreign exchange options, the change in intrinsic value is deferred in translation diﬀ erences within consolidated shareholder’s equity. Changes in the time value are at all times recognized directly in proﬁ t and loss as ﬁ nancial income and expenses. If a foreign currency denomi- nated loan is used as a hedge, all foreign exchange gains and losses arising from the transaction are recognized in transla- tion diﬀ erences within consolidated shareholder’s equity. In all cases, the ineﬀ ective portion is recognized immediately in proﬁ t and loss as ﬁ nancial income and expenses. Accumulated changes in fair value from qualifying hedges are released from translation diﬀ erences 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 proportionate share of the changes in the fair value from qualifying hedges deferred in translation diﬀ erences is recognized as income or as expense when the gain or loss on disposal is recognized. 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 income 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 nan- cial 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 tax losses, unused tax credits 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 liabilities are oﬀ set when there is a legally enforceable right to oﬀ set current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or diﬀ er- ent taxable entities where there is an intention to settle the balances on a net basis. 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 reimbursement 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 30 N O K I A I N 2 0 1 2 estimates at each balance sheet date. 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 A provision for tax contingencies is recognized when, despite our belief that tax return positions are supportable, it is more likely than not that certain positions will be challenged and may not be fully sustained upon review by tax authorities. Tax provisions are based upon the estimated future settlement amount at each balance sheet date. RESTRUCTURING PROVISIONS The Group provides for the estimated cost to restructure when a detailed formal plan of restructuring has been completed, 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. Employee 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 recog- nized as an expense in the income statement over the relevant service periods. A separate vesting period is deﬁ ned for each quarterly stock options plan tranche. 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. The Group has also issued certain stock options which are accounted for as cash-settled. Related employee services received, and the liability incurred, are measured at the fair value of the liability. The fair value of stock options is estimat- ed based on the reporting date market value less the exercise price of the stock options. The fair value of the liability is remeasured at each reporting date and at the date of set- tlement and related change in fair value is recognized in the income statement over the relevant service periods. 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 recorded in the ﬁ nancial statements until they have been approved by the shareholders at the Annual General Meeting. Earnings per share Basic earnings per share is calculated by dividing the proﬁ t attributable to equity holders of the parent by the weighted average number of shares outstanding during the year exclud- ing shares purchased by the Group and held as treasury shares. Diluted earnings per share is calculated by adjusting the net proﬁ t attributable to equity holders of the parent to eliminate the interest expense of the convertible bond and by adjusting the weighted average number of the shares outstanding with the dilutive eﬀ ect of stock options, performance shares and restricted shares outstanding during the year as well as the assumed conversion of convertible bond. 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 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 31 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 transferred to the buyer, continuing managerial involvement usually as- sociated 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. 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. Deter- mination 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 separately 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 future proﬁ ts. 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 es- timated losses resulting from subsequent inability of custom- ers to make required payments. If the ﬁ nancial conditions of customers were to deteriorate, reducing their ability to make payments, additional allowances may be required. 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 esti- mates 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 past costs related to alleged asserted IPR infringements. The provision is an estimate calculated based on a probable outcome of potential future settlement. 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. RESTRUCTURING PROVISIONS 32 N O K I A I N 2 0 1 2 The Group provides for the estimated future cost related to restructuring programs. The provision made for restructuring is based on management’s best estimate. Changes in esti- mates of timing or amounts of costs to be incurred may be- come necessary as the restructuring program is implemented. 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 identiﬁ - 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 expected future cash ﬂ ows attributable to the asset or cash- generating unit discounted to present value. The key assump- tions 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 opera- tional 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 and embed- ded derivatives) are determined using various valuation techniques. The Group uses judgment to select an appropri- ate valuation methodology as well as underlying assumptions based on existing market practice and conditions. Changes in these assumptions may cause the Group to recognize impair- ments 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 necessary. Tax provisions are recognized based on estimates and assumptions when, despite of management’s belief that tax return positions are supportable, it is more likely than not that certain positions will be challenged and may not be fully sustained upon review by tax authorities. Furthermore, the Group has ongoing tax investigations in multiple jurisdictions, including Hungary and India. If the ﬁ nal outcome of these mat- ters diﬀ ers from the amounts initially recorded, diﬀ erences may impact the income tax expense in the period in which such determination is made. In Netherlands but also in certain other jurisdictions, the utilization of deferred tax assets is dependent 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 available in the future from which the reversal of temporary diﬀ erences 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 assumptions and actuarial conditions may materially aﬀ ect the pension beneﬁ t obligation and future expense. See also Note . SHARE-BASED COMPENSATION The Group operates various types of equity and cash-settled share-based compensation schemes for employees. Fair value of equity settled stock options is based on certain assump- tions, including, among others, expected volatility and expect- ed 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, employee 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 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 33 and ﬁ nancial position: other comprehensive income. 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. A party to a joint arrangement determines the type of joint arrangement in which it is involved by assessing its rights and obligations and accounts for those rights and obligations 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. Amended IAS  Employee Beneﬁ ts discontinues use of the ‘corridor’ approach and remeasurement impacts will be recog- nized in other comprehensive income. Net interest as a prod- uct of discount rate and net pension liability will be recognized in the income statements while eﬀ ect from the diﬀ erence between the discount rate and actual return on plan assets will be reﬂ ected in remeasurements within other comprehensive income. Previously unrecognized actuarial gains and losses are also recognized in other comprehensive income. Other long-term employee beneﬁ ts are required to be measured in the same way even though changes in the recognized amounts 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. The Group does not currently expect the adoption of the amended IAS  to have a material impact on the ﬁ nancial condition and the results of operations of the Group on a going forward basis. However, the standard requires retro- spective application for all ﬁ nancial statements presented including previous years. While the Group anticipates virtually no impact to prior period income statements as a result of the retrospective application, the Group expects change in the net pension liabilities and other comprehensive income due to the elimination of the ‘corridor approach’. For , there will be an approximately EUR  million (EUR  million for ) increase in our pension liabilities and approximately EUR  million (EUR  million for ) decrease, net of tax, in our The eﬀ ective date for IFRS , IFRS  and IFRS  is January , , as issued by the IASB. In December , the EU endorsed adoption of these standards for companies in the EU with mandatory eﬀ ective date of January , , earlier adoption permitted. The Group will early adopt these stand- ards on January ,  and will adopt IFRS  and 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 standards on the revised eﬀ ective date. Excluding the impacts of the Amended IAS  Employee Beneﬁ ts, the Group does not expect material impact from adoption of the other standards eﬀ ective January , . 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 excludes 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 oper- ating proﬁ t/contribution. Smart Devices focuses on Nokia’s most advanced prod- ucts, including smartphones powered by the Windows Phone system and has proﬁ t-and-loss responsibility and end-to-end accountability for the full consumer experience, including product development, product management and product marketing. Mobile Phones focuses on the area of mass market entry and feature phones as well as aﬀ ordable smart phones and has proﬁ t-and-loss responsibility and end-to-end accountability for the full consumer experience, including development, man- agement and marketing of feature phone products, services and applications. Devices & Services Other includes net sales of spare parts and related cost of sales and operating expenses, as well as intellectual property related income and common research 34 N O K I A I N 2 0 1 2 amount of the platform support payment will ﬂ uctuate based on the applicable foreign exchange translation of the US dollars into euro which is the Group’s reporting currency. 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 roy- alty commitments. At the end of , the amount of platform support payments received by Nokia has exceeded the amount of minimum software royalty commitment payments made to Microsoft and the remaining minimum software royalty com- mitment payments are expected to exceed the remaining plat- form support payments by a total of approximately EUR . billion over the remaining life of the agreement. In accordance with the terms of the agreement, the platform support pay- ments and annual minimum software royalty commitment payments continue for a corresponding period of time. The Group has recognized a portion of the received platform sup- port payments as a beneﬁ t to our Smart Devices cost of goods sold and the remainder within accrued expenses and other liabilities. The Microsoft partnership also recognizes the value of intellectual property and puts in place mechanisms for exchanging intellectual property rights. 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 par- ties, that is, at current market prices. No single customer represents % or more of Group revenues. and development expenses. Devices & Services Other also included operating results of Nokia’s luxury phone business Vertu until October , , the date of divestment. Net assets of Devices & Services Other consists of the as- sets and liabilities related to the above mentioned activities as well as common functions responsible for selling Nokia’s products, executing marketing and communications, sourc- ing, manufacturing and logistics across all Devices & Services products which have not been allocated to Smart Devices and Mobile Phones segments. 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 responsibility and end-to-end accountability for the full consumer experience. In November , we introduced HERE as the new brand for Nokia’s location and mapping service. Also, as of January , , Location & Commerce business and reportable segment has been renamed as the HERE reportable business and segment. HERE focuses on the development of location-based services and local commerce. 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 Microsoft to bring together the respective complementary as- sets and expertise of both parties to build a new global mobile ecosystem 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 engineering 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. In recognition of the contributions that the Group is provid- ing, the Group will receive quarterly platform support pay- ments from Microsoft. The amount of the quarterly platform support payment is USD  million for each quarter. The euro 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 35 Devices & Smart Mobile Services Devices & Location & Siemens Services Commerce Networks Corporate Common Nokia Functions and Corporate unallocated 4, 6 Elimina- 2012, EURm Devices Phones Other Proﬁ t and loss information Net sales to external customers 5 445 9 435 Net sales to other segments Depreciation and amortization Impairment Contribution Operating proﬁ t (+)/loss (–) 1 22 — — 23 8 –1 560 524 790 15 194 33 –64 Share of results of associated companies — — — 15 670 16 239 41 –1 100 — 729 374 496 — –301 1 13 777 2 587 37 –799 8 tions Group 30 176 –392 — 1 326 109 –2 303 –1 461 — — 4 31 –103 –10 1 Balance sheet information Capital expenditures 2 Segment assets 3 of which: 33 11 136 180 64 216 2 040 1 803 2 530 6 373 5 551 10 187 10 854 –3 016 29 949 Investments in associated companies — — — — 5 32 21 58 Segment liabilities 5 2 762 2 320 2 091 7 173 2 885 7 756 5 704 –3 016 20 502 2011, EURm Proﬁ t and loss information Net sales to external customers 10 818 11 930 1 178 23 926 Net sales to other segments Depreciation and amortization Impairment Contribution Operating proﬁ t (+)/loss (–) 1 2 18 — — 20 2 15 315 168 –411 1 481 –186 Share of results of associated companies — — — 17 353 170 884 — Balance sheet information Capital expenditures 2 Segment assets 3 of which: 21 18 213 2 367 1 999 4 299 252 8 665 698 393 491 1 091 –1 526 1 14 035 6 711 19 –300 –17 43 302 — — 7 58 –131 –7 — 38 659 –416 — 1 562 1 338 –1 073 –23 597 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 (–) 3 38 — — 17 — 552 13 350 — 1 376 2 327 –163 29 118 16 405 — 3 540 — 668 201 519 — –663 2 12 660 1 843 2 –686 11 — — 4 13 –113 –12 42 446 –218 — 1 771 15 –8 2 070 1 Share of results of associated companies — — —  Location & Commerce operating loss in  includes a goodwill impair- ment 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. 36 N O K I A I N 2 0 1 2 Net sales to external customers by geographic area by location of customer, EURm Finland China India Japan USA Brazil Germany Russia UK Indonesia Italy Other Total Segment non-current assets by geographic area 7, EURm Finland China India Brazil UK USA Other Total 2012 2011 2010 303 317 2 509 6 130 2 227 2 923 371 7 149 2 952 2 182 1 539 730 1 880 1 405 1 630 1 753 1 901 1 506 1 299 1 606 1 287 1 843 900 799 783 996 904 982 2 019 1 744 1 470 1 157 1 266 14 254 18 113 20 452 30 176 38 659 42 446 2012 2011 1 662 1 651 387 151 77 175 472 185 83 212 4 166 4 757 336 732 6 954 8 092 4. PERSONNEL EXPENSES EURm 2012 2011 2010 Wages and salaries 6 080 6 284 5 808 Share-based compensation expense, total Pension expenses, net Other social expenses Personnel expenses as per income statement 1  Include termination benefits. 13 375 715 18 445 787 48 431 708 7 183 7 534 6 995 Share-based compensation expense includes pension and other social costs of EUR  million in  (EUR  million in  and EUR  million in ) based upon 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 2012 2011 2010 Devices & Services 41 480 54 850 56 896 Location & Commerce 6 441 7 187 6 766 Nokia Siemens Networks 64 052 71 825 65 379 Group Common Functions 283 309 314 Nokia Group 112 256 134 171 129 355  Comprises intangible and tangible assets and property, plant and equip- ment. 5. PENSIONS 3. PERCENTAGE OF COMPLETION Contract sales recognized under percentage of completion ac- counting are EUR   million in  (EUR   million in  and EUR   million in ). Service 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   million in ) and billings in excess of costs incurred are EUR  mil- lion at December ,  (EUR  million in ). The aggregate amount of costs incurred and recognized proﬁ ts (net of recognized losses) under construction con- tracts 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 , ). 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), formly 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 : 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 37 EURm 2012 2011 Movements in prepaid/accrued pension costs recognized in Present value of deﬁ ned beneﬁ t obligations January 1 –1 737 –1 544 Translation diﬀ erences Current service cost Interest cost Plan participants’ contributions Past service cost Actuarial gain (+)/loss (–) Acquisitions and divestments Curtailments Settlements Beneﬁ ts paid Other movements 1 –6 –58 –82 –14 –2 –301 14 25 13 68 –2 –3 –59 –83 –9 –1 –26 — 8 17 46 –83 Present value of deﬁ ned beneﬁ t obligations December 31 –2 082 –1 737 Plan assets at fair value January 1 1 657 1 494 Translation diﬀ erences Expected return on plan assets Actuarial gain (+)/loss (–) on plan assets Employer contribution Plan participants’ contributions Beneﬁ ts paid Settlements Acquisitions and divestments Other movements 1 9 80 67 51 14 –50 –10 –12 2 4 77 –14 54 9 –37 –11 –2 83 the statement of ﬁ nancial position are as follows: EURm 2012 2011 Prepaid (+)/accrued (–) pension costs January 1 Net income (+)/expense (–) recognized in the proﬁ t and loss account Contributions paid Beneﬁ ts paid Acquisitions and divestments Foreign exchange Prepaid (+)/accrued (–) pension costs December 31 1 –70 –40 51 18 2 3 –84 –49 54 9 –2 2 –36 –70  Included within prepaid expenses and accrued income/accrued expenses. 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 2012 2011 2010 2009 2008 Present value of deﬁ ned beneﬁ t obligations Plan assets at fair value –2 082 –1 737 –1 544 –1 411 –1 205 1 808 1 657 1 494 1 330 1 197 Plan assets at fair value December 31 1 808 1 657 Surplus (+)/deﬁ cit (–) –274 –80 –50 –81 –8 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 –274 –80 239 1 –2 10 1 –1 –36 –70  Group has reclassified an existing plan as a defined benefit plan due to requirement to cover for shortfall in return on plan assets in . 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 Expected return on plan assets Net actuarial gain (–)/loss (+) recognized in year Impact of paragraph 58(b) limitation Past service cost gain (–)/loss (+) Curtailment Settlement Total, included in personnel expenses 2012 2011 2010 58 82 –80 2 — 2 –21 –3 40 59 83 –77 7 –7 1 –11 –6 49 61 78 –76 –1 3 1 –1 –11 54 Experience adjustments arising on plan obligations amount to a loss of EUR  million in  (gain of EUR  million in , EUR  million in , a loss of EUR  million in , a gain of EUR  million in ). Experience adjustments arising on plan assets amount to a gain of EUR  million (a loss of EUR  million in , a gain of EUR  million in , EUR  million in , a loss of 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 Pension increases 2012 2011 3.7 3.4 2.4 1.9 4.9 4.5 2.4 2.0 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 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: 38 N O K I A I N 2 0 1 2 % Asset category: Equity securities Debt securities Insurance contracts Short-term investments Others Total 2012 2011 22 60 8 3 7 20 62 8 3 7 100 100 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. EXPENSES BY NATURE EURm 2012 2011 2010 Cost of material 13 697 18 331 20 917 Personnel expenses 5 750 7 014 6 881 Depreciation and amortization 1 326 1 562 1 771 Advertising and promotional expenses Warranty costs 984 312 1 212 1 291 671 894 Other costs and expenses 8 663 8 948 8 441 Total of Cost of sales, Research and development, Selling and marketing and Administrative and general expenses 30 732 37 738 40 195 7. OTHER INCOME AND EXPENSES 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 gain on sale of a real estate of EUR  million, beneﬁ t from cartel claim settle- ments of EUR  million and a gain of EUR  million on sale of Vertu, Nokia’s luxury phone business. As part of the transac- tion, approximately   employees transferred with Vertu. Nokia retains a % minority shareholding in Vertu. Other expenses included restructuring and related charges of EUR   million, which consists primarily of employee termination beneﬁ ts, but includes also, EUR  million related to country and contract exits based on Nokia Siemens Networks’ new strategy that focuses on key markets and product segments and a net loss of EUR  million arising from divestments of businesses within Nokia Siemens Networks, as well as related impairments of assets of EUR  million. Restructuring and related charges included EUR  million related to Devices & Services, recorded within Devices & Services other, EUR  mil- lion related to Location & Commerce and EUR   million to Nokia Siemens Networks, respectively. 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 oursource its Symbian software development and support activities to Accenture, which resulted in the transfer of ap- proximately   employees to Accenture. 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 professionals, the vast majority of whom are locat- ed 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. 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). Within the same line are also included the fair value changes of derivatives hedging identiﬁ able and probable forecasted cash ﬂ ows. 8. IMPAIRMENT EURm Goodwill Other intangible assets Property, plant and equipment Inventories Investments in associated companies 8 Available-for-sale investments Other assets Total, net 2012 2011 2010 — 16 54 — 31 — 1 090 2 104 7 41 94 — 109 1 338 — — — — — 107 3 110 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 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 39 beneﬁ t from the synergies of the business combination in which the goodwill arose. The Group has allocated goodwill to the cash-generating units, which correspond to the Group’s reportable segments at each of the respective years’ impair- ment testing date, as presented in the table below: EURm Smart Devices Mobile Phones Location & Commerce Nokia Siemens Networks Total 2012 2011 899 530 862 502 3 270 3 274 183 173 4 882 4 811 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 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 key assumptions applied in the  impairment testing analysis for each CGU are presented in the table below: 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. The recoverable amount of the Location & Commerce CGU exceeds its carrying amount by a small margin in the fourth quarter . The related valuation is deemed most sensitive to the changes in both discount and long-term growth rates. A discount rate increase in excess of . percentage point or long-term growth decline in excess of  percentage point would result in impairment loss in the Location & Commerce CGU. Management’s estimates of the overall automotive vol- umes and market share, customer adoption of the new loca- tion-based platform and related service oﬀ erings, projected device sales volumes and fair value of the services sold within the Group as well as continued focus on cost eﬃ ciency are the main drivers for the Location & Commerce net cash ﬂ ow projections. The Group’s cash ﬂ ow forecasts reﬂ ect the cur- rent strategic views that license fee based models will remain important in both near and long term. Management expects that license fee based models which are augmented with soft- ware and services and monetized via license fees, transactions fees and advertising, will grow in the future as more customers demand complete, end-to-end location solutions. Actual short and long-term performance could vary from management’s forecasts and impact future estimates of recoverable value. Since the recoverable amount exceeds the carrying amount only by a small margin, any material adverse changes such as market deterioration or changes in the competitive landscape could impact management’s estimates of the main drivers and result in impairment loss. In the fourth quarter of , the Group conducted annual impairment testing for the Location & Commerce CGU to as- Cash-generating unit Smart Devices Mobile Phones Location & Commerce Nokia Siemens Networks % 2012 2011 2012 2011 2012 2011 2012 2011 Terminal growth rate Post-tax discount rate Pre-tax discount rate 2.3 10.5 12.8 1.9 9.0 12.2 -2.3 10.5 15.5 1.5 9.0 13.1 1.7 9.9 3.1 9.7 12.8 13.1 0.7 10.3 14.2 1.0 10.4 13.8 40 N O K I A I N 2 0 1 2 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 allocated to the Location & Commerce CGU was reduced to EUR   million at December , . The impairment charge was 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 included 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 was estimated based on peer market data for mobile advertising revenue. Projected device sales volumes impacted the overall forecasted intercompany and advertising revenues. This took into consideration the market dynamics in digital map data and related location-based content markets, including the Group’s long-term view at the time of  impairment test- ing, that the market will move from fee-based models towards advertising-based models especially in some more mature markets. It also reﬂ ected recent results and related competi- tive factors in local search and advertising markets resulting in lower estimated growth prospects from location-based assets integrated with diﬀ erent advertising platforms. After consid- eration 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’s goodwill impairment testing did not result in impairment charges for the years ended December ,  or . An impairment loss was recorded with respect to the Group’s Location & Commerce CGU in , as noted above. No further impairment charges were recorded with respect to the other CGUs in . Other intangible assets During , EUR  million impairment charge was recorded on certain technology assets due to obsolescense within Mobile Phones. Furthermore, a charge of EUR  million was recorded on intangible assets attributable to the decision to transition certain operations into maintenance mode within Nokia Sie- mens Networks. All charges were recorded in other operating expenses. Property, plant and equipment and inventories During , the Group recognized EUR  million impairment losses related to restructuring activities mainly with respect to its Salo, Finland and Komarom, Hungary facilities within other operating expenses of Devices & Services Other. Nokia Sie- mens Networks recorded an impairment loss of EUR  million to reﬂ ect non-current assets of Optical Networks business at market value, in anticipation of sale of the business. Majority of  impairment losses recognized with respect to property, plant and equipment resulted from EUR  mil- lion 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 asso- ciated companies to its recoverable amount. The charges were recorded in other operating expense. Available-for-sale investments The Group’s investment in certain equity and interest-bearing securities held as available-for-sale suﬀ ered a signiﬁ cant or prolonged decline in fair value resulting in an impairment charge of EUR  million (EUR  million in , EUR  million in ). These impairment losses are included within ﬁ nancial expenses and other operating expenses in the consolidated income statement. See also Note . 9. ACQUISITIONS Acquisitions completed in 2012 During , the Group completed minor acquisitions that did not have a material impact on the consolidated ﬁ nancial statements. The purchase consideration paid and the total of 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. ■ Scalado AB, based in Lund, Sweden, provides and develops imaging software and experiences. The Group acquired im- aging specialists, all technologies and intellectual property from Scalado AB on July , . ■ earthmine Inc., based in California, USA, develops systems to collect and process D imagery. The Group acquired a % ownership interest in earthmine on November , . Acquisitions completed in 2011 MOTOROLA On April , , Nokia Siemens Networks completed its ac- quisition of Motorola Solutions’ networks business in exchange for a total consideration of EUR  million. The acquired busi- ness 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 Nokia Siemens Networks’ position in certain regions, particu- larly 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 assembled workforce. The majority of the goodwill acquired is expected to be de- ductible for income tax purposes. 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 41 The following table summarizes the consideration paid, the fair value of assets acquired, liabilities assumed and the non-controlling interest at the acquisition date. Fair values of certain assets acquired, liabilities assumed and goodwill were provisional at the end of . Fair values have been ﬁ nalized during . EURm Total consideration in cash 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 Bank and cash Total assets acquired Non-current liabilities Deferred tax liabilities Other long-term liabilities Current liabilities Accounts payable Accrued expenses Provisions Total liabilities assumed Non-controlling interest Net assets acquired Provisional fair values 2011 Adjustments Final fair values 2012 642 155 156 195 3 509 105 6 36 656 103 228 20 31 382 1 038 15 15 30 154 166 30 350 380 16 642 9 — — — 9 –8 — — 1 — –6 — — –6 –5 — — — –1 –2 –2 –5 –5 — — 642 164 156 195 3 518 97 6 36 657 103 222 20 31 376 1 033 15 15 30 153 164 28 345 375 16 642 In , Nokia Siemens Networks had concluded on a work- ing capital adjustment settlement with respect to the acquisi- tion whereby Motorola Solutions agreed to make additional installment payments to Nokia Siemens Networks. The install- ment payments were subject to certain conditions that Nokia Siemens Networks must fulﬁ l over a given time period. The maximum amount of installment payments receivable totalled EUR  million and Nokia Siemens Networks had determined that the fair value of the installment payments amounted to EUR  million. During , the working capital adjustment arrangement has been settled and Nokia Siemens Networks received the maximum amount of installment payments. As a result, EUR  million gain has been recognized in other operat- ing income. The fair value of accounts receivable of EUR  million includes trade receivables with a fair value of EUR  mil- lion. The gross contractual amount for trade receivables due is EUR  million, of which EUR  million is expected to be uncollectible. 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 Solutions’ networks business of EUR  million and EUR  million, respectively. Had Motorola Solutions’ networks business been consoli- dated from January , , the Group consolidated statement of income for  would have shown revenue of EUR   million and loss of EUR   million. This unaudited 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. 42 N O K I A I N 2 0 1 2 10. DEPRECIATION AND AMORTIZATION EURm 2012 2011 2010 Depreciation and amortization by function Cost of sales Research and development 1 Selling and marketing 2 Administrative and general 190 613 347 176 227 674 442 219 248 906 426 191 Total 1 326 1 562 1 771  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 ). 11. FINANCIAL INCOME AND EXPENSES EURm 2012 2011 2010 impairments for these securities amounted to EUR  million in  and EUR  million in . Additional information can be found in Note  and Note . During , interest income decreased mainly as a result of lower cash levels than in  and lower interest rates in certain currencies where the Group has investments. Foreign exchange gains (or losses) were negatively impacted by higher hedging costs than in  as well as signiﬁ cant weakening of certain emerging market currencies. 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 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. 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 3 2 2 119 169 110 3 8 1 — 18 28 12. INCOME TAXES EURm Income tax Current tax Deferred tax –4 –12 –20 Total 2012 2011 2010 – 641 – 504 – 1 145 – 724 – 421 – 1 145 – 752 462 – 290 – 97 – 193 – 290 – 798 355 – 443 – 126 – 317 – 443 Finnish entities Other countries Total The diﬀ erences between income tax expense computed at statutory rate .% in  in Finland (% in  and ) and income taxes recognized in the consolidated income statement is reconciled as follows: Interest expense on ﬁ nancial liabilities carried at amortized cost –264 –255 –254 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 –1 –4 1 27 102 –3 Net gains (net losses) on other derivatives designated at fair value through proﬁ t and loss –11 Net fair value gains (or losses) on hedged items under fair value hedge accounting –15 –121 19 –82 –63 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 1 Other ﬁ nancial expenses 2 Total 23 72 58 –73 74 58 –173 –34 –165 52 –34 49 73 –81 –129 –340 –102 –285  Other financial income includes distributions of EUR  million in  (EUR  million in  and EUR  million in ) from a private fund held as non-current available-for-sale.  Other financial expenses include an impairment loss of EUR  million in  (EUR  million in  and EUR  million in ) in the Group’s investment in the above mentioned private fund due to changes in esti- mated future cash flows resulting from distributions received as well as other factors. The Group did not recognize any impairment losses related to Asset Backed Securities in  in other financial expenses, whereas 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 43 EURm 2012 2011 2010 13. INTANGIBLE ASSETS Income tax expense (+)/beneﬁ t (–) at statutory rate Permanent diﬀ erences Non tax deductible impairment of goodwill (Note 8) Taxes for prior years Taxes on foreign subsidiaries’ proﬁ ts in excess of (lower than) EURm 2012 2011 –648 75 — –50 –311 –22 283 –7 464 4 — –48 Capitalized development costs Acquisition cost January 1 Retirements 1 035 1 035 –7 — Accumulated acquisition cost December 31 1 028 1 035 Accumulated amortization January 1 –1 029 –995 Retirements Amortization 7 –6 — –34 Accumulated amortization December 31 –1 028 –1 029 280 221 Net book value January 1 Net book value December 31 6 — 40 6 income taxes at statutory rates 43 –73 –195 Tax losses and temporary diﬀ erences with no tax eﬀ ect 1 1 675 Net increase(+)/decrease (–) in tax contingencies 39 Change in income tax rates 6 Taxes on undistributed earnings 2 –4 Other 9 Income tax expense 1 145 290 7 39 62 32 24 2 –31 2 443 Goodwill Acquisition cost January 1 6 836 6 631 Translation diﬀ erences Acquisitions Disposals –16 54 — 17 189 –1 Accumulated acquisition cost December 31 6 874 6 836 Accumulated impairments January 1 –1 998 –908 Impairments — –1 090 Accumulated impairments December 31 –1 998 –1 998 Net book value January 1 Net book value December 31 4 838 4 876 5 723 4 838 Other intangible assets Acquisition cost January 1 Translation diﬀ erences Additions Acquisitions Retirements Impairments Disposals 5 877 5 437 –20 46 11 –52 –65 –44 83 53 366 –23 –2 –37 Accumulated acquisition cost December 31 5 753 5 877 Accumulated amortization January 1 –4 471 –3 509 Translation diﬀ erences Retirements Impairments Disposals Amortization 19 48 49 33 –84 21 — 25 –784 –924 Accumulated amortization December 31 –5 106 –4 471 Net book value January 1 Net book value December 31 1 406 1 928 647 1 406  In , this item primarily relates to Devices & Services’ past and current year Finnish tax losses, unused tax credits and temporary differences and Nokia Siemens Networks’ Finnish and German tax losses, unused tax cred- its and temporary differences for which no deferred tax was recognized. In  and , this item primarily relates to Nokia Siemens Networks’ Finnish tax losses, unused tax credits and temporary differences for which no deferred tax was recognized. In , it also includes benefit of  million from reassessment of recoverability of deferred tax assets in Nokia Siemens Networks.  In , taxes on undistributed earnings mainly relates to changes to tax rates applicable to profit distributions. Certain of the Group companies’ income tax returns for prior periods are under examination by tax authorities. Our business and investments especially in emerging market coun- tries may be subject to uncertainties, including unfavorable or unpredictable taxation treatment. Management judgment and a degree of estimation are required in determining tax expense. Even though the Group does not believe that any signiﬁ cant additional taxes in excess of those already pro- vided for will arise as a result of the examinations, it cannot be excluded that ﬁ nal resolutions of open items may substantially diﬀ er from the amounts initially recorded. 44 N O K I A I N 2 0 1 2 57 1 6 –20 44 –34 –1 8 –3 –30 23 14 75 –4 58 — –5 –8 –23 –18 –2 73 56 –3 11 –7 57 –37 3 7 –7 –34 19 23 98 — 57 1 — 2 –42 –38 –3 75 14. PROPERTY, PLANT AND EQUIPMENT EURm 2012 2011 EURm 2012 2011 Land and water areas Acquisition cost January 1 Acquisitions Impairments Disposals Accumulated acquisition cost December 31 Net book value January 1 Net book value December 31 Buildings and constructions Acquisition cost January 1 Translation diﬀ erences Additions Acquisitions Impairments Disposals 62 — –4 –25 33 62 33 Other tangible assets Acquisition cost January 1 Translation diﬀ erences Additions 57 9 –4 — Disposals 62 57 62 Accumulated acquisition cost December 31 Accumulated depreciation January 1 Translation diﬀ erences Disposals Depreciation 1 380 1 414 Accumulated depreciation December 31 –1 80 — –36 –294 3 86 32 –124 –31 Net book value January 1 Net book value December 31 Advance payments and ﬁ xed assets under construction Accumulated acquisition cost December 31 1 129 1 380 Net carrying amount January 1 Accumulated depreciation January 1 –519 –453 Translation diﬀ erences Translation diﬀ erences Impairments Disposals Depreciation –3 15 134 –96 Accumulated depreciation December 31 –469 Net book value January 1 Net book value December 31 861 660 — 40 13 –119 –519 961 861 Machinery and equipment Acquisition cost January 1 Translation diﬀ erences Additions Acquisitions Impairments Disposals 4 078 4 004 –1 329 –8 –131 –573 –4 464 66 –25 –427 Additions Acquisitions Disposals Transfers to: Other intangible assets Buildings and constructions Machinery and equipment Other tangible assets Net carrying amount December 31 Total property, plant and equipment 1 431 1 842 15. INVESTMENTS IN ASSOCIATED COMPANIES Accumulated acquisition cost December 31 3 694 4 078 Accumulated depreciation January 1 –3 257 –3 185 EURm 2012 2011 Translation diﬀ erences Impairments Disposals Depreciation –1 102 550 –437 –13 9 410 –478 Net carrying amount January 1 Translation diﬀ erences Additions Deductions Accumulated depreciation December 31 –3 043 –3 257 Impairments (Note 8) Net book value January 1 Net book value December 31 821 651 819 821 Share of results Other movements Net carrying amount December 31 67 3 1 –4 –8 –1 — 58 136 –5 8 –7 –41 –23 –1 67 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 45 16. FAIR VALUE OF FINANCIAL INSTRUMENTS Carrying amounts Current Non-current available- for-sale ﬁ nancial assets available- for-sale ﬁ nancial assets Financial instruments at fair value Loans and receivables Financial liabilities through measured at measured at amortized amortized cost cost proﬁ t or loss Total carrying amounts value 1 Fair At December 31, 2012, EURm Available-for-sale investments, publicly quoted equity shares Available-for-sale investments, carried at fair value Available-for-sale investments, carried at cost less impairment Long-term loans receivable Accounts receivable Current portion of long-term loans receivable Other current ﬁ nancial assets, derivatives Other current ﬁ nancial assets, other Investments at fair value through proﬁ t and loss, liquid assets Available-for-sale investments, liquid assets carried at fair value Available for-sale investments, cash equivalents carried at fair value Total ﬁ nancial assets Long-term interest-bearing liabilities Current portion of long-term loans payable Short-term borrowing Other ﬁ nancial liabilities Accounts payable Total ﬁ nancial liabilities At December 31, 2011, EURm Available-for-sale investments, publicly quoted equity shares Available-for-sale investments, carried at fair value Available-for-sale investments, carried at cost less impairment Long-term loans receivable Accounts receivable Current portion of long-term loans receivable Other current ﬁ nancial assets, derivatives Other current ﬁ nancial assets, other Investments at fair value through proﬁ t and loss, liquid assets Available-for-sale investments, liquid assets carried at fair value Available for-sale investments, cash equivalents carried at fair value 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 borrowing Other ﬁ nancial liabilities Accounts payable Total ﬁ nancial liabilities 46 N O K I A I N 2 0 1 2 — — — — — — — — — 542 5 448 5 990 — — — — — — — — — — — — — — — 1 233 7 279 8 512 — — — — — — — 11 447 231 — — — — — — — — — — — — — — 448 — 415 — — — — — 112 5 551 35 — 16 — — — 689 863 5 714 — — — — — — 7 419 215 — — — — — — — — — 90 — 90 — — — — — — 475 — 433 — — — — — — — — — — 99 7 181 54 — 25 — — — — — — — — — — — — — — 11 447 231 112 11 447 231 110 5 551 5 551 35 448 16 35 448 16 415 415 542 542 5 448 5 448 13 256 13 254 5 087 5 087 5 298 201 261 — 201 261 90 201 261 90 4 394 9 943 4 394 4 394 10 033 10 244 — — — — — — — — — — 7 419 215 99 7 419 215 97 7 181 7 181 54 475 25 54 475 25 433 433 1 233 1 233 7 279 7 279 641 908 7 359 — 17 420 17 418 — — — — — — — — — — — 483 — 483 — — — — — — — 3 969 3 969 3 929 3 357 995 — 3 357 995 483 3 357 995 483 5 532 5 532 5 532 10 856 11 339 11 299  For information about the valuation of items measured at fair value see Note . The fair value is set to carrying amount for available-for-sale invest- ments carried at cost less impairment for which no reliable fair value has been possible to estimate. The fair value of loan receivables and payables is estimated based on the current market values of similar instruments. The fair value is estimated to be equal to the carrying amount for short-term financial assets and financial liabilities due to limited credit risk and short time to maturity. The following table presents the valuation methods used to de- termine 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, 2012, EURm Available-for-sale investments, publicly quoted equity shares Available-for-sale investments, carried at fair value Other current ﬁ nancial assets, derivatives 1 Investments at fair value through proﬁ t and loss, liquid assets Available-for-sale investments, liquid assets carried at fair value Available for-sale investments, cash equivalents carried at fair value Total assets Derivative liabilities 1 Total liabilities At December 31, 2011, EURm Available-for-sale investments, publicly quoted equity shares Available-for-sale investments, carried at fair value Other current ﬁ nancial assets, derivatives 1 Investments at fair value through proﬁ t and loss, liquid assets Available-for-sale investments, liquid assets carried at fair value Available for-sale investments, cash equivalents carried at fair value Total assets Derivative liabilities 1 Total liabilities 11 57 — 415 532 5 448 6 463 — — 7 60 — 433 1 201 7 279 8 980 — — — 20 448 — 10 — 478 90 90 — 13 475 — 32 520 483 483 — 370 — — — — 370 — — — 346 — — — — 346 — — Total 11 447 448 415 542 5 448 7 311 90 90 7 419 475 433 1 233 7 279 9 846 483 483  Note  includes the split of hedge accounted and non-hedge accounted derivatives. 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 mate- rial assumptions are market observable. The majority of the Group’s over-the-counter derivatives and certain other instru- ments 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 open- ing and closing balances of Level  ﬁ nancial assets which are measured at fair value: 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 47 EURm 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 Total gains/losses in income statement Total gains/losses recorded in other comprehensive income Purchases Sales Other transfers Balance at December 31, 2012 Other available- for-sale investments carried at fair value 279 –22 51 81 –47 4 346 – 8 34 41 – 35 – 8 370 The gains and losses from ﬁ nancial assets categorized in level  are included in other operating income and expenses as the investment and disposal objectives for these investments are business driven. 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 2012, EURm value 1 Notional 2 value 1 Notional 2 Fair Fair Hedges of net investment in foreign subsidiaries: Forward foreign exchange contracts Cash ﬂ ow hedges: Forward foreign exchange contracts Fair value hedges 7 2 968 – 6 3 158 Interest rate swaps 174 1 626 — Cash ﬂ ow and fair value hedges: 3 Cross currency interest rate swaps 42 378 — Derivatives not designated in hedge accounting relationships carried at fair value through proﬁ t and loss: — — 185 7 111 – 18 3 337 Assets Liabilities 2011, EURm value 1 Notional 2 value 1 Notional 2 Fair Fair Hedges of net investment in foreign subsidiaries: Forward foreign exchange contracts Cash ﬂ ow hedges: Forward foreign exchange contracts Fair value hedges 56 1 584 – 179 2 810 92 6 273 – 97 6 362 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: Forward foreign exchange contracts 6 626 127 – 159 Currency options bought 7 994 Currency options sold — Interest rate swaps Other derivatives — — — — 3 — – 6 – 41 – 1 7 460 — 721 552 38 475 17 485 – 483 17 943   In the statement of financial position the fair value of derivative financial instruments is included in Other financial assets and in 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. Raw materials, supplies and other Work in progress Finished goods Total 2012 2011 409 352 777 1 538 789 516 1 025 2 330 During  the Group recognized an expense of EUR  million (EUR  million in  and ) within cost of sales to write- down the inventories to net realizable value. 19. PREPAID EXPENSES AND ACCRUED INCOME 24 2 164 – 11 1 182 EURm 18. INVENTORIES — – 6 – 48 – 1 –90 — 289 513 9 EURm 2012 2011 Social security, VAT and other taxes 1 384 1 906 Deferred cost of sales 145 114 Other prepaid expenses and accrued income 1 852 2 468 8 488 Total 3 381 4 488 Forward foreign exchange contracts Currency options bought 16 1 107 Currency options sold — Interest rate swaps Other derivatives — — — 150 — 448 15 504 48 N O K I A I N 2 0 1 2 In , other prepaid expenses and accrued income in- cluded 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 accrued interest income and various other prepaid expenses and accrued income, but no amounts which are individually signiﬁ cant. 20. VALUATION AND QUALIFYING ACCOUNTS EURm Allowances on assets to which they apply: Balance at beginning of year Charged to costs and expenses Balance Deductions 1 at end of year 2012 Allowance for doubtful accounts Excess and obsolete inventory 2011 Allowance for doubtful accounts Excess and obsolete inventory 2010 Allowance for doubtful accounts Excess and obsolete inventory  Deductions include utilization and releases of the allowances. 284 457 363 301 391 361 53 403 131 345 117 124 – 89 – 389 – 210 – 189 – 145 – 184 248 471 284 457 363 301 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 49 21. FAIR VALUE AND OTHER RESERVES EURm Gross Tax Net Gross Tax Net Gross Tax Net Balance at December 31, 2009 61 – 15 46 17 6 23 78 – 9 69 Hedging reserve Available-for-sale investments Fair value and other reserves total 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 357 – 57 300 – 379 70 – 309 — — — 50 — — — – 7 — — — 43 Balance at December 31, 2010 – 30 3 – 27 Cash ﬂ ow hedges: 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 Cash ﬂ ow hedges: Net fair value gains (+)/losses (–) – 25 21 – 4 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, 2012 390 — 390 – 406 — – 406 — — — – 47 – 10 — — — — — — — – 47 — – 10  The adjustments relate to acquisitions completed in . For more details see Note . — — — – 3 13 – 1 — 26 — — — — — — — – 2 — — — 4 — — — — — — — – 5 13 – 1 — 30 — — — — 67 22 — – 2 67 20 – 19 – 1 – 20 — 96 — — — 32 24 – 21 — 131 — 1 — — — 1 — — — 2 — 97 — — — 33 24 – 21 — 133 – 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 – 25 21 – 4 390 — 390 – 406 — – 406 32 24 – 21 – 47 121 1 — — — 33 24 – 21 – 47 2 123 50 N O K I A I N 2 0 1 2 22. TRANSLATION DIFFERENCES EURm Gross Tax Net Gross Tax Net Gross Tax Net Balance at December 31, 2009 – 295 3 – 292 215 – 50 165 – 80 – 47 – 127 Translation diﬀ erences Net investment hedging Translation diﬀ erences total 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 Translation diﬀ erences: Currency translation diﬀ erences Transfer to proﬁ t and loss (ﬁ nancial income and expense) Net investment hedging: — — — — – 63 944 17 – 8 — — – 35 918 — — – 2 4 — — — — — 4 — — — – 65 948 17 – 8 — — – 35 922 — — — — — — 1 302 3 1 305 — — — – 389 101 – 288 – 389 101 – 288 — — — — — — – 174 51 – 123 — – 63 770 — – 2 55 — – 65 825 — — — — — — 17 — – 8 — 17 – 8 – 37 9 – 28 – 37 9 – 28 — — — — — — – 211 60 – 151 — – 35 707 — — 64 — – 35 771 40 – 1 39 – 1 — – 1 — — — — — — 40 – 1 39 – 1 — – 1 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, 2012 — — 2 959 — — — 3 — — 2 – 58 – 9 – 67 – 58 – 9 – 67 — — — — — — — 2 — — — 2 962 – 269 51 – 218 690 54 744 23. THE SHARES OF THE PARENT COMPANY Nokia shares and shareholders Authorizations 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 Corporation 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 Corporation does not have minimum or maximum share capi- tal or a par value of a share. 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- 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 51 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 would have been eﬀ ective 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 , . AUTHORIZATIONS PROPOSED TO THE ANNUAL GENERAL MEETING 2013 On January , , Nokia announced that the Board of Direc- tors will propose that the Annual General Meeting convening on May ,  authorize the Board to resolve to repurchase a maximum of  million Nokia shares. The proposed maximum number of shares that may be repurchased 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 arrange- ments, settle the company’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 in such marketplaces the rules of which allow companies to trade with their own shares. 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 , . Nokia also announced on January ,  that the Board of Directors will propose to the Annual General Meeting to be held on May ,  that the Annual General Meeting authorize the Board to resolve to issue a maximum of  million shares through issuance of shares or special rights entitling to shares (including stock options) in one or more issues. The Board may issue either new shares or shares held by the Company. The Board proposes that the authorization may be used to develop the Company’s capital structure, diversify the shareholder base, ﬁ nance or carry out acquisitions or other arrangements, settle the Company’s equity-based incentive plans, or for other purposes resolved by the Board. The proposed authorization includes the right for the Board to resolve on all the terms and conditions of the issuance of shares and special rights entitling to shares, including issuance in deviation from the sharehold- ers’ pre-emptive rights. The authorization would be eﬀ ective until June ,  and terminate the current authorization granted by the Annual General Meeting on May , . 24. SHARE-BASED PAYMENT The Group has several equity-based incentive plans for employees. The plans 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 per- formance 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 two global stock option plans, the Stock Option Plans  and , each of which, includ- ing 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 Plan  have a vesting schedule with % of the options vesting one year after grant and .% each quarter thereafter. The stock options granted under the  plan have a term of approximately 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 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 plans, which were approved by the share- holders at the respective Annual General Meetings  and . 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 52 N O K I A I N 2 0 1 2 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. of the total number of votes at December , . All share subscription prices based on the exercises of stock options are recorded in the reserve for invested non-restricted equity as per a resolution by the Annual General Meeting. Pursuant to the stock options issued under the global stock The table below sets forth certain information relating to option plans, an aggregate maximum number of    new Nokia shares may be subscribed for, representing .% the stock options outstanding at December , . Plan (year of launch) 2007 1 Stock options Number of outstanding participants Option (sub) (approx.) category 2012 Vesting status (as percentage of total number of stock options outstanding) Exercise period First vest date Last vest date Expiry date 7 579 015 2 400 2007 2Q Expired July 1, 2008 July 1, 2011 December 31, 2012 2007 3Q Expired October 1, 2008 October 1, 2011 December 31, 2012 2007 4Q Expired January 1, 2009 January 1, 2012 December 31, 2012 2008 1Q 100.00 April 1, 2009 April 1, 2012 December 31, 2013 2008 2Q 100.00 July 1, 2009 July 1, 2012 December 31, 2013 2008 3Q 100.00 October 1, 2009 October 1, 2012 December 31, 2013 2008 4Q 93.75 January 1, 2010 January 1, 2013 December 31, 2013 2009 1Q 87.50 April 1, 2010 April 1, 2013 December 31, 2014 2009 2Q 81.25 July 1, 2010 July 1, 2013 December 31, 2014 2009 3Q 75.00 October 1, 2010 October 1, 2013 December 31, 2014 2009 4Q 68.75 January 1, 2011 January 1, 2014 December 31, 2014 Exercise price/ share EUR 18.39 21.86 27.53 24.15 19.16 17.80 12.43 9.82 11.18 9.28 8.76 2010 1Q 62.50 April 1, 2011 April 1, 2014 December 31, 2015 10.11 2010 2Q 56.25 July 1, 2011 July 1, 2014 December 31, 2015 2010 3Q 50.00 October 1, 2011 October 1, 2014 December 31, 2015 2010 4Q 43.75 January 1, 2012 January 1, 2015 December 31, 2015 2011 2 18 141 987 1 960 2011 2Q 2011 3Q 2011 4Q 2012 1Q 2012 2Q 2012 3Q 2012 4Q — — — — — — — 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 April 1, 2015 April 1, 2016 December 27, 2018 July 1, 2015 July 1, 2016 December 27, 2018 October 1, 2015 October 1, 2016 December 27, 2018 January 1, 2016 January 1, 2017 December 27, 2018 8.86 7.29 7.59 6.02 3.76 4.84 3.84 2.44 2.18 2.12  The Group’s global Stock Option Plan  has 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 vesting schedule with % of stock options vesting three years after grant and the remaining % 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 53 Total stock options outstanding as at December ,   Number of shares Weighted average exercise price EUR Weighted average share price EUR Shares under option at January 1, 2010 Granted Exercised Forfeited Expired Shares under option at December 31, 2010 Granted Exercised Forfeited Expired Shares under option at December 31, 2011 2 Granted Exercised Forfeited Expired Shares under option at December 31, 2012 Options exercisable at December 31, 2009 (shares) Options exercisable at December 31, 2010 (shares) Options exercisable at December 31, 2011 (shares) Options exercisable at December 31, 2012 (shares)  Includes also stock options granted under other than global equity plans, however excluding the Nokia Siemens Network share-based incentive program. For further information see “Other equity plans for employees” below.  Due to an administrative error, the amount of   stock options granted to a Nokia Leadership Team member in Q  was not reported in Annual Accounts . The administrative error was corrected in  and the table reflects the corrected amount. 23 039 962 6 708 582 39 772 1 698 435 6 065 041 21 945 296 11 801 907 6 208 2 441 876 7 909 089 23 390 030 10 258 400 627 4 246 222 3 555 213 25 846 368 13 124 925 11 376 937 6 904 331 5 616 112 9.44 7.69 2.08 15.39 8.73 2.20 12.07 13.97 14.04 5.50 5.07 9.05 17.53 9.07 2.32 0.97 6.60 15.26 5.95 16.09 17.07 14.01 11.96 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 2012 2011 2010 Weighted average expected dividend yield Weighted average expected volatility Risk-free interest rate 7.96% 7.37% 4.73% 65.97% 36.95% 52.09% 0.70 – 1.60% 1.71 – 2.86% 1.52 – 2.49% Weighted Weighted average average remaining exercise price EUR contractual life in years 5.78 4.96 2.99 1.86 1.03 2.64 6.02 8.65 11.37 19.03 Weighted average risk-free interest rate Expected life (years) Weighted average share price, EUR 1.13% 4.70 2.68% 4.70 1.78% 3.59 2.42 5.46 8.27 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. Exercise prices, EUR 2.12 – 4.84 4.97 – 6.02 6.71 – 8.86 8.87 – 12.43 12.78 – 24.15 Number of shares 12 382 650 5 822 568 3 737 369 2 697 026 1 206 755 25 846 368 54 N O K I A I N 2 0 1 2 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 Nokia shares will be delivered unless the Group’s performance reaches at least one of the threshold levels measured by two independent, pre-deﬁ ned performance criteria. The below table illustrates the performance criteria of the Performance Share Plans from  through . Performance criteria Average annual net sales growth (Nokia Group) EPS at the end of performance period (Nokia Group) Average annual net sales (Nokia Group excluding NSN) Average annual EPS (Nokia Group) Performance share plan 2012 2011 2010 2009 — Yes Yes Yes — — Yes Yes Yes — Yes Yes — — — — The ,  and  plans have a three-year perfor- mance period. The shares vest after the respective perfor- mance period. The  plan has a two-year performance period and a subsequent one-year restriction period, after which the shares vest. The shares will be delivered to the par- ticipants as soon as practicable after they vest. Until the Nokia shares are delivered, the participants will not have any share- holder rights, such as voting or dividend rights associated with the performance shares. The performance share grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting. The term “vesting” means that the performance period and/or restriction period speciﬁ ed in the plan rules has ended and does not indicate that actual share delivery took place. The following table summarizes our global performance share plans. Performance shares outstanding Plan at threshold 1,2 2009 2010 2011 2012 0 0 3 346 428 5 226 959 Number of participants Performance Settle- period ment (approx.) 4 000 2009 – 2011 3 000 2010 – 2012 2012 2013 3 000 3 000 2011 – 2013 2014 2012 – 2013 3 2015  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.  Performance share plan  has a two-year performance period with an additional one-year restriction period. The following tables set 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 1.01 0.82 0.50 -5% 0% 2.5% 1.53 1.44 1.10 10% 13.5% 10% Plan 2009 2010 2011  Both the EPS and average annual net sales growth criteria have an equal weight of %.  Performance share plan  and : EPS at the end of the perfor- mance period. Performance share plan : average annual EPS. Threshold performance Maximum performance Average annual EPS 1 EUR 0.04 Average annual net sales 1 EURm Average annual EPS 1 EUR Average annual net sales 1 EURm 17 394 0.35 26 092 Plan 2012  Both the EPS and average annual net sales criteria have an equal weight of %. Performance shares outstanding as at December ,  Number of performance shares at threshold Weighted average grant date fair value EUR 2 Performance shares at January 1, 2010 Granted Forfeited Vested 3 Performance shares at December 31, 2010 Granted Forfeited Vested 4 Performance shares at December 31, 2011 Granted Forfeited Vested 5 Performance shares at December 31, 2012 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 5 785 875 2 718 208 2 076 116 8 574 085 5.94 3.66 1.33  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.   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 , . Includes shares receivable through the one- time special CEO incentive program that vested on December , . 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 55 There was 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. There was no settlement under the one-time special CEO incentive program as the performance criteria were not met. 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 on a selective basis to ensure retention and recruitment of individuals with functional mas- tery and other employees deemed critical to Nokia’s future success. 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. Restricted shares outstanding as at December ,   Weighted average grant date fair value EUR 2 6.85 3.15 1.76 Number of restricted shares 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 12 999 131 4 580 182 1 324 508 23 680 532 Restricted shares at January 1, 2010 Granted Forfeited Vested Restricted shares at December 31, 2010 Granted Forfeited Vested Restricted shares at December 31, 2011 3 Granted Forfeited Vested Restricted shares at December 31, 2012 4  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 , . 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 plans described above, Nokia has equity plans for Nokia acquired businesses or employees in the United States and Canada under which participants can re- ceive Nokia ADSs or ordinary shares. These equity plans do not result in an increase in the reserve for invested non-restricted equity of Nokia. On the basis of these plans, the Group had . million 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  –  was approx- imately  million, all of which have 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. The plan will be ramped-down during  as a new global Employee Share Purchase Plan will be implemented as described below. During  – , Nokia had a one-time special CEO incen- tive program designed to align the CEO’s compensation to increased shareholder value and to link a meaningful portion of CEO’s compensation directly to the performance of Nokia’s share price over the period of  – . Mr. Elop had 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 . As the minimum performance for neither of the two performance criterion was reached, no share delivery took place. The number of shares earned and to be settled may be adjusted by the Board of Directors under certain exceptional circumstances up until June , , should the results sig- niﬁ cantly change. On January ,  Nokia introduced an Employee Share Purchase Plan, which is planned to be oﬀ ered in  countries to all Nokia employees (excluding Nokia Siemens Networks’ employees). Under the Plan, the eligible Nokia employees can elect to make monthly contributions from their salary to purchase Nokia shares. The contribution per employee cannot exceed EUR   per year. The share purchases will be made at market value on pre-determined dates on a monthly basis dur- ing a -month savings period. Nokia will oﬀ er one matching share for every two purchased shares the employee still holds after the last monthly purchase has been made in June . In addition,  free shares will be delivered to employees who make the ﬁ rst three consecutive monthly share purchases. The participation in the plan is voluntary to the employees. Nokia Siemens Networks established a share-based incen- tive program in  under which options for Nokia Siemens Networks B.V. shares are granted to selected Nokia Siemens Networks’ employees. The options generally become exercis- able on the fourth anniversary of the grant date or, if earlier, on the occurrence of certain corporate transactions, such as 56 N O K I A I N 2 0 1 2 initial public oﬀ ering (“IPO”). The exercise price of the options is based on a per share value on grant as determined for the purposes of the incentive program. The options will be cash- settled at exercise unless an IPO has taken place, at which point they would be converted into equity-settled options. If an IPO has not taken place by the sixth anniversary of the grant date, Nokia Siemens Networks will cash out any remaining op- tions. If an IPO has taken place, equity options remain exercis- able until the tenth anniversary of the grant date. The fair value of the liability is determined based on the estimated fair value of shares less the exercise price of the options on the reporting date. The total carrying amount for liabilities arising from share-based payment transactions is EUR  million at December , . The recognition of the remaining deferred tax assets is sup- ported by oﬀ setting deferred tax liabilities, earnings history and proﬁ t projections in the relevant jurisdictions. At December , , the Group had undistributed earn- ings of EUR  million (EUR  million in ) on which no deferred tax liability has been formed as these will not reverse in the foreseeable future. 26. ACCRUED EXPENSES AND OTHER LIABILITIES EURm 2012 2011 Social security, VAT and other taxes 821 1 358 25. DEFERRED TAXES EURm Deferred tax assets: Wages and salaries Deferred revenue Advance payments 2012 2011 Other Total 1 031 369 933 751 1 887 1 524 2 973 2 884 7 081 7 450 Intercompany proﬁ t in inventory 58 66 Other accruals include accrued discounts, royalties and marketing expenses as well as various amounts which are individually insigniﬁ cant. Majority of the deferred revenue and advance payments will be recognized as revenue within the next  months. Tax losses carried forward and unused tax credits Warranty provision Other provisions Depreciation diﬀ erences 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 564 47 261 868 — 145 715 63 363 711 11 362 – 689 1 254 – 443 1 848 – 892 — – 313 – 184 689 – 700 – 500 – 65 – 268 – 410 443 – 800 Net deferred tax asset 554 1 048 Tax charged to equity 3 – 4  In , other temporary differences included a deferred tax liability of EUR  million arising from purchase price allocation related to Nokia Siemens Networks and NAVTEQ. In  the deferred tax liabilities for these two items were nil. At December , , the Group had tax losses carry forward of EUR   million (EUR   million in ) of which EUR   million will expire within  years (EUR  million in ). At December , , the Group had tax losses carry forward, temporary diﬀ erences and tax credits of EUR   million (EUR   million in ) for which no deferred tax asset was recognized due to uncertainty of utilization of these items. EUR   million of those will expire within  years (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 57 27. PROVISIONS EURm Warranty Restructuring infringements IPR Material liability Project losses Tax Other Total At January ,  Translation diﬀ erences Acquisitions Additional provisions Changes in estimates Charged to proﬁ t and loss account Utilized during year At December 31, 2012 At January ,  Translation diﬀ erences Acquisitions Additional provisions Changes in estimates Charged to proﬁ t and loss account Utilized during year At December 31, 2011   —  –   –  407  –    –   –  688  — —   –    –   653  — —  –   –  459 EURm 2012 2011 Analysis of total provisions at December 31: Non-current Current 971 1 648 1 175 1 452 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 February , Nokia announced planned changes at its factories in Komarom, Hungary, Reynosa, Mexico and Salo, Finland to increase eﬃ ciency in smartphone manufacturing. In June , Nokia announced additional actions to align its workforce and operations. The planned actions was expected to lead to a total reduction of up to   positions glob- ally by the end of . As part of this Nokia planned to make signiﬁ cant reductions in certain R&D projects, which resulted in the closure of Ulm in Germany and Burnaby, Canada; reduce factory operations, including the closure of the factory in Salo; prioritize sales eﬀ orts around certain markets resulting in reducing headcount in certain other markets; align sup- port functions around Nokia’s focused strategy resulting in a signiﬁ cant reduction in the number of employees in corporate functions. As a result, Devices & Services recognized restruc- turing charges of EUR  million in total. 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  — —  –  –  –  388  — —  –  –  –  431   —  –    — —  –   –  –   –  —  –   –     –  —  –  –  —   –     –  –   242  — —  —  149 327 453 2 619      — —  –   –  —  —  –      –  –  –      –  –  –  –  –   125 205 299 420 2 627 mission. In September , Nokia announced plans to take further actions to align its workforce and operations, which in- cludes reductions in Sales and Marketing and Corporate func- tions in line with Nokia’s earlier announcement in April . The measures also include the closure of Nokia’s manufactur- ing facility in Cluj, Romania, which – together with adjustments to supply chain operations – has aﬀ ected approximately   employees. As a result, Devices & Services recognized restruc- turing charges of EUR  million in total. In , Location & Commerce announced further plans to reduce its workforce and as a result recognized restructuring charges of EUR  million in total. In September , Nokia announced a plan to concentrate the development eﬀ orts of the Location & Commerce busi- ness in Berlin, Germany and Boston and Chicago in the U.S., and other supporting sites and plans to close its operations in Bonn, Germany and Malvern, U.S. As a result, Location & Commerce recognized restructuring charges of EUR  million. In November , Nokia Siemens Networks announced a new strategy to focus on mobile broadband and services and the launch of an extensive global restructuring program. At the same time, Nokia Siemens Networks announced its inten- tion to reduce its global workforce by approximately   by the end of . 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 country and contract exits based on Nokia Siemens Networks’ strategy that focuses on key markets and product segments. The IPR provision is based on estimated potential future settlements for asserted past IPR infringements. Final resolu- tion of IPR claims generally occurs over several periods. Material liability provision relates to non-cancellable pur- chase commitments with suppliers. The outﬂ ows are expected to occur over the next  months. 58 N O K I A I N 2 0 1 2 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. Other provisions include provisions for various contractual obligations and provisions for pension and other social secu- rity costs on share-based awards. 28. EARNINGS PER SHARE 2012 2011 2010 – 3 106 – 1 164 1 850 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 impact in the future but were currently excluded from the calculation because they were determined anti-dilutive. The convertible bond includes a voluntary conversion op- tion. Based on the initial conversion price, voluntary conver- sion of the entire bond would result in the issue of  million shares. The potential shares related to the bond as well as the interest on the convertible bond were currently excluded from the calculation of dilutive shares because they were deter- mined to be anti-dilutive at December , . 29. COMMITMENTS AND CONTINGENCIES – 3 106 – 1 164 1 850 EURm 2012 2011 — — — Assets pledged Collateral for our own commitments Property under mortgages — 38 18 2 – 3 106 – 1 164 1 850 Contingent liabilities on behalf of Group companies Other guarantees 937 1 292 Numerator/EURm Basic: Proﬁ t attributable to equity holders of the parent Diluted: Proﬁ t attributable to equity holders of the parent Elimination of interest expense, net of tax, on convertible bond, where dilutive Proﬁ t used to determine diluted earnings per share Denominator/1 000 shares Basic: Weighted average number of shares in issue Eﬀ ect of dilutive securities: Stock options Performance shares Restricted shares Assumed conversion of convertible bond Diluted: Adjusted weighted average number of hares and assumed conversions 3 710 845 3 709 947 3 708 816 — — — — — — — — — — — 324 4 110 — 4 434 Contingent liabilities on behalf of Associated companies Financial guarantees on behalf of associated companies Contingent liabilities on behalf of other companies Financial guarantees on behalf of third parties 1 Other guarantees Financing commitments Customer ﬁ nance commitments 1 Venture fund commitments 11 — 12 68 — 16 34 282 86 133 3 710 845 3 709 947 3 713 250  See also Note . Basic earnings per share is calculated by dividing the proﬁ t attributable to equity holders of the parent by the weighted average number of shares outstanding during the year exclud- ing shares purchased by the Group and held as treasury shares. Diluted earnings per share is calculated by adjusting the proﬁ t attributable to equity holders of the parent to eliminate the interest expense of the convertible bond and by adjusting the weighted average number of shares outstanding with the dilu- tive eﬀ ect of stock options, performance shares and restricted shares outstanding during the year as well as the assumed conversion of convertible bond. In , stock options equivalent to  million shares ( million in  and  million in ) were excluded from the The amounts above represent the maximum principal amount of commitments and contingencies. Other guarantees include commercial 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 infrastructure 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 decreased mainly due to expired guarantees. 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 59 31. RELATED PARTY TRANSACTIONS At December , , the Group had borrowings amounting to EUR  million (EUR  million in ) from Nokia Unterstüt- zungskasse 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. There were no loans granted to the members of the Nokia Leadership Team and the Board of Directors at December , ,  or . EURm 2012 2011 2010 Transactions with associated companies Share of results of associated companies Dividend income Share of shareholders’ equity of associated companies Sales to associated companies Purchases from associated companies Receivables from associated companies Liabilities to associated companies – 1 — 46 12 150 1 32 – 23 — 47 37 91 — 14 1 1 61 15 186 3 22 At December , , the Group has an outstanding ﬁ nan- cial guarantee of EUR  million for an associated company of the Group. Management compensation The following table sets forth the salary and cash incentive information awarded and paid or payable by the company to the President and CEO of Nokia Corporation for ﬁ scal years – as well as the share-based compensation expense relating to equity-based awards, expensed by the company. Financing commitments of EUR  million in  (EUR  million in ) are available under loan facilities negotiated 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 con- tributions and also entitled to cash distributions according to respective partnership agreements and underlying fund activities. 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. Over the lifetime of the agreement the total amount of the platform support pay- ments is expected to slightly exceed the total amount of the minimum software royalty commitments. The Group is party to routine litigation incidental to the nor- mal 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, viola- tions of licensing arrangements and other intellectual proper- ty related matters, as well as actions with respect to products, contracts and securities. Based on the information currently available, in the opinion of the management outcome of and liabilities in excess of what has been provided for related to these or other proceedings, in the aggregate, are not likely to be material to the ﬁ nancial condition or result of operations. 30. LEASING CONTRACTS 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 2013 2014 2015 2016 2017 Thereafter Total 238 176 130 87 68 309 1 008 Rental expense amounted to EUR  in  (EUR  mil- lion in  and EUR  million in ). 60 N O K I A I N 2 0 1 2 2012 2011 2010 Cash Share-based incentive compensation expense salary payments Base Cash Share-based incentive compensation expense salary payments Base Cash Share-based incentive compensation expense salary payments Base 1 079 500 — 1 597 496 1 020 000 473 070 2 086 351 280 303 440 137 67 018 EUR Stephen Elop President and CEO from September 21, 2010 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 ). For the Nokia Leadership Team members whose employment terminated during , the equity-based incentives were forfeited fol- lowing the termination of employment in accordance with plan rules. 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 EUR EUR EUR 2012 2011 2010 Gross Shares annual fee 1 received Gross annual fee 1 Shares received Gross annual fee 1 Shares received 440 000 70 575 155 000 10 428 155 000 7 294 — — 440 000 29 604 440 000 20 710 Risto Siilasmaa, Chairman as from May 3, 2012 2 Jorma Ollila, Chairman until May 3, 2012 3 Dame Marjorie Scardino, Vice Chairman 4 Bruce Brown Stephen Elop 5 Lalita D. Gupte 6 Bengt Holmström Henning Kagermann 7 Olli-Pekka Kallasvuo 8 Per Karlsson 9 Jouko Karvinen 10 Helge Lund Isabel Marey-Semper 11 Mårten Mickos Elizabeth Nelson 12 Kari Stadigh Keijo Suila 150 000 130 000 24 062 20 850 — — — — — — 155 000 24 860 — — 155 000 130 000 140 000 130 000 140 000 130 000 — — — 24 860 20 850 22 454 20 850 22 454 20 850 —  Approximately % of each Board member’s gross annual fee is paid in Nokia shares and the remaining approximately % of the gross annual fee is paid in cash. Further, it is Nokia policy that the directors retain all company stock received as director compensation until the end of their board membership, subject to the need to finance any costs relating to the acquisition of the shares, including taxes.  The  fee paid to Risto Siilasmaa amounted to an annual total of EUR   for services as Chairman of the Board. The  and  fees paid to Risto Siilasmaa amounted to an annual total of EUR   each year indicated, consisting of a fee of EUR   for services as a mem- ber of the Board and EUR   for services as Chairman of the Audit Committee.  The  and  fees paid to Jorma Ollila amounted to an annual total of EUR   each year indicated for his services as Chairman of the Board.  The ,  and  fees paid to Dame Marjorie Scardino amounted to an annual total of EUR   each year indicated for services as Vice Chairman of the Board.  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  fee paid to Lalita D. Gupte 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. 150 000 10 092 150 000 7 058 — — 130 000 155 000 — 130 000 140 000 130 000 140 000 — — — — 8 746 10 428 — 8 746 9 419 8 746 9 419 — — 130 000 8 746 — 140 000 130 000 130 000 130 000 155 000 — — — 6 588 6 117 6 117 6 117 7 294 — — 140 000 6 588 — — — — — — — — 130 000 6 117  The  and  fees paid to Henning Kagermann 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.  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  fee paid to Per Karlsson 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.  The  fee paid to 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 service as Chairman of the Audit Commit- tee. The  fee paid to Jouko Karvinen amounted to an annual total of EUR  , consisting of a fee of   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  fee paid to Elizabeth Nelson 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. 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 61 the annual base salary and target incentive for the respective period during which no severance payment is paid. 32. NOTES TO CASH FLOW STATEMENT EURm 2012 2011 2010 Adjustments for: Depreciation and amortization (Note 10) 1 326 1 562 1 771 Proﬁ t (–) / loss (+) on sale of property, plant and equipment and available-for-sale investments – 131 Income taxes (Note 12) 1 145 – 49 290 – 193 443 Share of results of associated companies (Note 15) 1 23 – 1 Non-controlling interest – 683 – 324 – 507 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 and related charges 1 (Note 7, 27) Other income and expenses 333 49 191 – 16 109 31 13 1 659 51 – 4 1 338 13 18 565 5 – 22 110 37 47 245 – 9 Adjustments, total 3 838 3 486 2 112 Change in net working capital Decrease (+) / increase (–) in short-term receivables Decrease (+) / increase (–) in inventories Decrease (–) / increase (+) in interest-free short-term 2 040 137 1 281 707 289 – 512 borrowings – 2 702 – 1 145 1 563 Loans made to customers Change in net working capital 78 123 81 17 – 638 2 349  The adjustments for restructuring and related charges represent the non-cash portion of the restructuring and related charges recognized in the income statement. 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 . Pension arrangements of certain Nokia Leadership Team members 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 earn- ings, 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. The Nokia Leadership Team members in the United States participate in Nokia’s US 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 year of the ﬁ rst four years of their employment. The Nokia Leadership Team members in Germany participate in the Nokia German Pension Plan that is % company funded. Contributions are based on pensionable earnings, the pen- sion table and retirement age. For the Nokia Leadership Team members in UK, the pension accrued in the UK Pension Scheme is a Money Purchase beneﬁ t. Contributions are paid into the UK Pension Scheme by both the member and employer. These contributions are held within the UK Pension Scheme and are invested in funds selected by the member. Termination beneﬁ ts of the President and CEO 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 accelerated manner (the performance period of Nokia Performance Share Plan  ended in  and no shares were delivered in ac- cordance with its terms). 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 incen- tive 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 employment upon a material reduction of his duties and re- sponsibilities, upon which he will be entitled to a compensation of  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 eq- uity 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-com- petition period or a part of it. Such compensation amounts to 62 N O K I A I N 2 0 1 2 33. PRINCIPAL NOKIA GROUP COMPANIES AT DECEMBER 31, 2012 % Parent Group holding majority FI Nokia Sales International Oy 100.0 100.0 US Nokia Inc. DE Nokia GmbH GB Nokia UK Limited KR Nokia TMC Limited — 100.0 100.0 100.0 — 100.0 100.0 100.0 CN Nokia (China) Investment Co. Ltd 100.0 100.0 CN Nokia Telecommunications Ltd 4.5 83.9 NL Nokia Finance International B.V. 100.0 100.0 IN Nokia India Pvt Ltd BR Nokia do Brazil Technologia Ltda RU OOO Nokia US NAVTEQ Corp NL NAVTEQ B.V. 99.9 99.9 100.0 100.0 100.0 100.0 — 100.0 1.45 100.0 NL NAVTEQ Europe B.V. NL Nokia Siemens Networks B.V. FI Nokia Siemens Networks Oy — — DE Nokia Siemens Networks GmbH & Co KG — IN Nokia Siemens Networks Pvt. Ltd. JP Nokia Siemens Networks Japan Corp. US Nokia Siemens Networks US LLC — — — 100.0 50.0 1 50.0 50.0 50.0 50.0 50.0  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. 34. RISK MANAGEMENT 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. Financial risks The objective for Treasury activities in Nokia is to guarantee suﬃ cient funding for the Group at all times, and to identify, evaluate and manage ﬁ nancial risks. Treasury activities sup- port this aim by mitigating the adverse eﬀ ects caused by ﬂ uctuations in the ﬁ nancial markets on the proﬁ tability of the underlying businesses and by managing the capital structure of the Group by prudently balancing the levels of liquid assets and ﬁ nancial borrowings. Treasury activities are governed by the Treasury Policy approved by the CEO, that provides principles for overall ﬁ nancial risk management and determines the allocation of responsibilities for ﬁ nancial risk management in Nokia. Standard Operating Procedures approved by the CFO cover speciﬁ c areas such as foreign exchange risk, interest rate risk, credit and liquidity risk as well as use of derivative ﬁ nancial instruments in managing these risks. Nokia is risk averse in its Treasury activities. Financial risks are divided into (a) market risk (covering for- eign exchange risk, interest risk and equity price risk), (b) credit risk (covering business related credit risk and ﬁ nancial credit risk) and (c) liquidity risk. A) MARKET RISK Methodology for assessing market risk exposures: 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 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 63 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. Foreign exchange risk Nokia operates globally and is exposed to transactional and translational foreign exchange risks. Transaction risk arises from foreign currency denominated assets and liabilities together with foreign currency denominated future cash ﬂ ows. Transaction exposures are managed in the context of various functional currencies of foreign Group companies. According to the foreign exchange policy guidelines of the Group, which remains the same as in the previous year, mate- rial transactional 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 ex- change contracts 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 fore- cast foreign currency cash ﬂ ows beyond two years. Since Nokia has subsidiaries outside the euro zone, transla- tion risk arises from the euro-denominated value of the share- holders’ equity of foreign Group companies being exposed to ﬂ uctuations in exchange rates. Equity changes resulting from movements in foreign exchange rates are shown as a transla- tion diﬀ erence in the Group consolidation. 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: 2012, EURm USD JPY CNY INR 550 – 281 — — – 281 – 16 – 1 043 – 763 2011, 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 Cross currency / interest rate hedges 1 282 110 — – 20 – 1 045 – 17 – 2 023 – 818 – 962 – 19 880 – 109 875 255 – 825 – 264 420 — — —  The FX derivatives are used to hedge the foreign exchange risk from forecast highly probable cashflows related to sales, purchases and busi- ness 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. The underlying exposures for which these hedges are entered into are not presented in the table, as they are not financial instruments.  The FX derivatives are used to hedge the Group’s net investment expo- sure. The underlying exposures for which these hedges are entered into are not presented in the table, as they are not financial instruments.  The balance sheet items and some probable forecast 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 profit and loss. The VaR ﬁ gures for the Group’s ﬁ nancial instruments which are sensitive to foreign exchange risks are presented in the table below. The VaR calculation includes foreign currency denominated monetary ﬁ nancial instruments such as: ■ Available-for-sale investments, loans and accounts receiva- bles, 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. 1 156 38 263 – 539 VaR from ﬁ nancial instruments, EURm 2012 2011 – 1 439 106 – 114 420 428 — — — At December 31 Average for the year Range for the year 67 128 141 218 67–192 141–316 Interest rate risk The Group is exposed to interest rate risk either through market 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. 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 Cross currency / interest rate hedges 64 N O K I A I N 2 0 1 2 The objective of interest rate risk management is to balance uncertainty caused by ﬂ uctuations in interest rates and net long-term funding costs. At the reporting date, the interest rate proﬁ le of the Group’s interest-bearing assets and liabilities is presented in the table below: Liabilities – 4 191 – 1 312 – 4 313 2012 2011 Fixed Floating rate rate Fixed Floating rate rate 3 488 6 627 6 384 4 733 – 950 – 703 5 315 2 071 3 783 1 880 – 1 784 1 736 – 1 656 EURm Assets Assets and liabilities before derivatives Interest rate derivatives Assets and liabilities after derivatives Business related credit risk The Group aims to ensure highest possible quality in accounts receivable and loans due from customers and other third par- ties. Nokia and Nokia Siemens Networks Credit Policies (both approved by the respective Leadership Teams) lay out the framework for the management of the business related credit risks in Nokia and Nokia Siemens Networks. Nokia and Nokia Siemens Networks Credit Policies provide that credit decisions are based on credit evaluation including credit rating for larger exposures. Nokia and Nokia Siemens Networks Rating Policies deﬁ ne the rating principles. Ratings are approved by Nokia and Nokia Siemens Networks Rating Committees. Credit risks are approved and monitored accord- ing to the credit policy of each business entity. When ap- propriate, credit risks are mitigated with the use of approved instruments, such as letters of credit, collateral or insurance and sale of selected receivables. 1 177 3 531 3 807 2 127 Credit exposure is measured as the total of accounts receiv- 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. The VaR for the Group interest rate exposure in the investment and debt portfolios is presented in the table below. Sensitivities to credit spreads are not reﬂ ected in the below numbers. EURm At December 31 Average for the year Range for the year 2012 2011 22 19 33 34 9 – 44 19 – 45 Equity price risk Nokia’s exposure to equity price risk is related to certain pub- licly listed equity shares. The fair value of these investments at December ,  was EUR  million (EUR  million in ). 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 credit exposures to customers, including outstanding receivables, ﬁ nancial guarantees and committed transactions as well as ﬁ nancial institutions, includ- ing bank and cash, ﬁ xed income and money-market investments and derivative ﬁ nancial instruments. 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 the Group’s balance sheet: able and loans outstanding due from customers and other third parties, and committed credits. 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 December , , while the top three credit exposures by country amounted to .%, .% and .% (.%, .% and .% in ). 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 ). These aforementioned amounts are relative to total net accounts receivable and loans due from customers and other third parties of EUR   in  (EUR   million in ). An amount of EUR  million (EUR  million in ) relates to past due receivables from customers for which no allowanc- es for doubtful accounts were recognized. The aging of these receivables is as follows: EURm 2012 2011 EURm Financial guarantees given on behalf of customers and other third parties Loan commitments given but not used 12 34 46 — 86 86 Past due 1 – 30 days Past due 31 – 180 days More than 180 days 2012 2011 250 70 45 365 169 118 29 316 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 65 In , Nokia adjusted the way aging credit notes are taken into account when calculating past due receivables presented in the table above. This adjustment has increased the amounts of past due receivables compared to the method used by Nokia in . Financial credit risk Financial instruments contain an element of risk resulting from changes in market price of such instruments due to counter- parties becoming less creditworthy or risk of loss due to coun- terparties that are unable to meet their obligations. This risk is measured and monitored centrally by Treasury. 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 creditworthiness and exposure sizes continu- ously. Nokia also enters into netting arrangements (which gives Nokia the right to oﬀ set in the event that the counter- party would not be able to fulﬁ ll the obligations) with all major counterparties as well as collateral agreements (which require counterparties to post collateral against derivative receiva- bles) 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 a 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 in the years presented. The table below presents the breakdown of the outstand- ing ﬁ xed income and money market investments by sector and credit rating grades ranked as per Moody’s rating categories. Due between Due between Due between Total amount 1,2 EURm Due within 3 months EURm 3 and 12 months EURm 1 and 3 years EURm 3 and Due beyond 5 years EURm 5 years EURm At December 31, 2012 Banks Governments Other Rating 3 Aaa Aa – Aa A – A Baa – Baa Non rated Aaa Aa1 – Aa3 Aaa Aa – Aa A – A Baa – Baa Ba – C Non rated       215   401 — —  — — 2       215   37 — — — — — — —   — —  57 — — — — — 2 Total 6 405 5 772 115 At December 31, 2011 Banks Governments Other Aaa Aa – Aa A – A Baa – Baa Non rated Aaa Aa1 – Aa3 Aaa Aa – Aa A – A Baa – Baa Ba – C Non rated        270   408 —     2        260   400 — — — — — — — — — — 10  6 — — — — — 2 Total 8 945 8 174 239 — — — — —  24 — —  — — — 76 —  — — —  2 — —  — — — 65 — — —  —  283 — — — — — — — — — — —  — — — — — — — 303 139 —  — — —  — — — — — — — — — — — —  — —     — 268 199  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 investment grade credit rating (% for ). C) LIQUIDITY RISK Liquidity risk is deﬁ ned as ﬁ nancial distress or extraordinarily high ﬁ nancing costs arising due to a shortage of liquid funds in a situation where outstanding debt needs to be reﬁ nanced or where business conditions unexpectedly deteriorate 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. 66 N O K I A I N 2 0 1 2 The objective of liquidity risk management is to maintain Due to the dynamic nature of the underlying business, Nokia 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 aims to secure suﬃ cient liquidity at all times by ef- ﬁ cient cash management and by investing in short-term liquid interest bearing securities. Depending on overall liquidity position Nokia aims to pre- or reﬁ nance upcoming debt ma- turities before contractual maturity dates. The transactional liquidity risk is minimized by entering into transactions where proper two-way quotes can be obtained from the market. and Nokia Siemens Networks aim at maintaining ﬂ exibility in funding by keeping committed and uncommitted credit lines available. Nokia and Nokia Siemens Networks manage their respective credit facilities independently and facilities do not include cross-default clauses between Nokia and Nokia Siemens Networks or any forms of guarantees from either party. At the end of December , , the Group’s commit- ted revolving credit facilities totaled EUR   million (EUR   million in ). The most signiﬁ cant existing long-term funding programs as of December ,  were: Issuer(s) Program Nokia Corporation Shelf registration statement on ﬁ le with the US Securities and Exchange Commission Nokia Corporation Euro Medium-Term Note Program, totaling EUR 5 000 million The most signiﬁ cant existing short-term funding programs as of December ,  were: Issuer(s) Program Nokia Corporation Nokia Corporation Local commercial paper program in Finland, totaling EUR 750 million US Commercial Paper program, totaling USD 4 000 million Issued USD 1 500 million EUR 1 750 million Issued — — — Nokia Corporation and Nokia Finance International B.V. Nokia Siemens Networks Finance B.V. Euro Commercial Paper program, totaling USD 4 000 million Local commercial paper program in Finland, totaling EUR 500 million EUR 82 million As of December , , Group’s interest bearing liabilities consisted of: Issuer/borrower Final maturity 2012 EURm 2011 EURm Nokia Revolving Credit Facility (EUR 1 500 million) EUR Bond 2014 (EUR 1 250 million 5.5%) EUR Bond 2019 (EUR 500 million 6.75%) Nokia Corporation Nokia Corporation Nokia Corporation USD Bond 2019 (USD 1 000 million 5.375%) Nokia Corporation USD Bond 2039 (USD 500 million 6.625%) EUR EIB R&D Loan Nokia Corporation Nokia Corporation EUR Convertible Bond 2017 (EUR 750 million 5%) Nokia Corporation March 2016 — — February 2014 1 250 1 250 February 2019 May 2019 May 2039 February 2014 October 2017 500 761 381 500 750 500 766 383 500 — 55 129 209 4 406 168 3 696 June 2012 — 613 600 — 132 150 80 — — 176 250 80 181 1 143 5 549 506 1 625 5 321 Nokia Corporation Nokia Corporation and various subsidiaries Nokia Siemens Networks Finance B.V. Nokia Siemens Networks Finance B.V. Nokia Siemens Networks Finance B.V. March 2014 June 2015 Nokia Siemens Networks Oy October 2015 Nokia Siemens Networks Finance B.V. Nokia Siemens Networks Finance B.V. Nokia Siemens Networks Finance B.V. and various subsidiaries January 2015 March 2015 Diﬀ erences between Bond nominal and carrying values 1 Other interest-bearing liabilities Total Nokia Nokia Siemens Networks Revolving Credit Facility (EUR 2 000 million) Bank Term Loan (EUR 600 million) Revolving Credit Facility (EUR 750 million) EUR Finnish Pension Loan EUR EIB R&D Loan EUR Nordic Investment Bank Other interest-bearing liabilities Total Nokia Siemens Networks Total Nokia Group  This line includes mainly fair value adjustments for bonds that are designated under Fair value hedge accounting and difference between convertible bond nominal value and carrying value of the financial liability component. 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 67 All Nokia borrowings speciﬁ ed above are senior unsecured and have no ﬁ nancial covenants. All borrowings, apart from EIB R&D loan, are used for general corporate purposes. All Nokia Siemens Networks borrowings speciﬁ ed above are senior unsecured and include ﬁ nancial covenants relating to ﬁ nancial leverage and interest coverage of the Nokia Siemens Networks. As at year end  all ﬁ nancial covenants were satisﬁ ed. All borrowings, apart from EIB and Nordic Investment bank R&D loans, are used for general corporate purposes. Nokia has not guaranteed any of the Nokia Siemens Networks borrowings and thus these are non-recourse to Nokia. All Nokia Siemens Networks Finance B.V. borrowings above are guaranteed by Nokia Siemens Networks Oy and/or Nokia Siemens Networks BV. In October , Nokia issued a EUR  million convert- ible bond that matures in October . The bond includes a voluntary conversion option starting from December  until maturity. Based on initial conversion price, voluntary conversion of the entire bond would result in the issue of  million shares. In December , Nokia Siemens Networks entered into a EUR   million committed forward starting credit facility ef- fective from the forward start date of June , . By April  the committed facility had been increased to EUR   million. The facility replaced EUR   million revolving credit facility from  that matured in June . EUR   million commit- ted facility comprised in two equal parts, EUR  million revolv- ing credit facility maturing in June  and EUR  million term loan maturing in June . In December , EUR  million of the term loan was prepaid and the maturity of the remaining EUR  million term loan was extended to March . Of the Nokia Siemens Networks’ EUR Finnish Pension Loan, EUR EIB R&D Loan and EUR Nordic Investment Bank Loan EUR  million, EUR  million and EUR  million respectively are included in current maturities as of  December, . 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. At 31 December 2012, 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 between 3 and 3 months 12 months Due within Due between 1 and 3 years Due between 3 and 5 years Due beyond 5 years Total amount 217 40 1 493 6 008 3 504 1 12 1 1 5 782 3 504 2 46 37 131 28 — 5 119 — — — 11 82 — — — 260 25 — — — 216 — — Derivative contracts–receipts 240 78 – 30 86 25 81 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 13 864 – 13 596 4 579 10 299 – 10 212 3 952 3 072 – 2 959 615 41 – 17 12 41 – 17 — 411 – 391 — – 6 642 – 111 – 163 – 2 933 – 1 123 – 2 312 Current portion of long-term loans Short-term liabilities – 216 – 262 – 83 – 207 – 133 – 55 — — — — — — Cash ﬂ ows related to derivative ﬁ nancial liabilities net settled: Derivative contracts–payments – 99 – 2 – 3 – 7 – 7 – 80 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 7 966 – 8 016 – 4 394 – 34 2 261 6 964 – 6 999 – 4 241 – 28 46 889 – 903 – 136 – 6 – 11 113 – 114 – 17 — 727 — — — — 1 499 — — — — — 68 N O K I A I N 2 0 1 2 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 between 3 and 3 months 12 months Due within Due between 1 and 3 years Due between 3 and 5 years Due beyond 5 years Total amount 112 59 14 575 8 557 1 957 1 10 12 — 8 305 1 957 2 43 62 4 49 2 7 133 — — — 14 69 — — — 264 15 — — — 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 16 014 – 15 779 5 872 14 272 1 226 – 14 113 – 1 200 5 030 802 41 – 27 40 41 – 27 — 434 – 412 — – 5 391 – 106 – 153 – 2 374 – 316 – 2 442 Current portion of long-term loans Short-term liabilities – 387 – 1 002 – 61 – 915 – 326 – 87 — — — — — — Cash ﬂ ows related to derivative ﬁ nancial liabilities net settled: 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 17 354 – 17 775 – 5 532 15 480 – 15 775 – 5 449 1 874 – 2 000 – 65 Loan commitments given, undrawn 2 Loan commitments obtained, undrawn 3 – 86 2 917 – 37 45 – 49 1 382 — — – 18 — – 6 — — — — 1 496 — — — — —  Accounts receivable maturity analysis does not include receivables ac- counted based on the percentage of completion method of EUR  million (EUR   million in ).  Loan commitments given, undrawn, have been included in the earliest period in which they could be drawn or called.  Loan commitments obtained, undrawn, have been included based on the period in which they expire. These amounts include related commitment fees. 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 condi- tions. The objective is to ensure that hazard risks, whether related to physical assets (e.g. buildings) or intellectual assets (e.g. Nokia brand) or potential liabilities (e.g. product liability) are optimally insured taking into account both cost and reten- tion levels. Nokia purchases both annual insurance policies for speciﬁ c risks as well as multiline and/or multiyear insurance policies, where available. 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 69 PARENT COMPANY FINANCIAL STATEMENTS ACCORDING TO FINNISH ACCOUNTING STANDARDS INCOME STATEMENTS, PARENT COMPANY, FAS BALANCE SHEETS, PARENT COMPANY, FAS Financial year ended December 31 Notes 2012 EURm 2011 EURm December 31 Notes 2012 EURm 2011 EURm Net sales Cost of sales Gross margin 11 727 17 240 – 10 198 – 12 979 ASSETS 1 529 4 261 Fixed assets and other non-current assets Selling and marketing expenses – 1 141 – 1 384 Research and development expenses – 2 298 – 2 888 Administrative expenses Other operating expenses Other operating income – 133 – 119 1 136 – 227 – 586 203 Operating loss 2, 3 – 1 026 – 621 Financial income and expenses Income from long-term investments Dividend income from Group companies 2 168 3 696 Dividend income from other companies Interest 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 7 2 11 1 7 – 147 1 — 20 5 8 65 Interest expenses to Group companies Interest expenses to other companies Impairment loss on investments Other ﬁ nancial expenses – 14 – 115 – 53 – 72 – 750 – 1 461 – 31 – 98 Financial income and expenses, total 1 139 2 111 Intangible assets 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 Proﬁ t before extraordinary items and taxes 113 1 490 Receivables 4 5 6 6 6 14 165 179 2 2 36 319 355 1 1 11 548 11 199 3 — 48 105 11 — 13 85 11 704 11 308 1 6 50 57 74 72 78 224 Extraordinary items Group contributions Extraordinary items, total Proﬁ t before taxes Income taxes for the year from previous years deferred taxes 204 204 — — 317 1 490 – 56 60 18 – 475 – 138 – 14 204 Deferred tax assets Trade debtors from Group companies Trade debtors from other companies Short-term loan receivables from Group companies — 673 132 371 1 277 497 2 938 2 673 Prepaid expenses and accrued income from Group companies 724 278 Prepaid expenses and accrued income from other companies 1 503 5 970 2 194 7 290 Short-term investments 40 37 Net loss/proﬁ t – 154 1 542 Total Bank and cash 37 290 17 989 19 505 See Notes to the financial statements of the parent company. See Notes to the financial statements of the parent company. 70 N O K I A I N 2 0 1 2 STATEMENTS OF CASH FLOWS, PARENT COMPANY, FAS December 31 Notes 2012 EURm 2011 EURm Financial year ended December 31 Notes 2012 EURm 2011 EURm SHAREHOLDERS’ EQUITY AND LIABILITIES Net loss/proﬁ t – 154 1 542 Cash ﬂ ow from operating activities Shareholders’ equity 7 Share capital Share issue premium Treasury shares Fair value reserve Reserve for invested non-restricted equity Retained earnings Net proﬁ t for the year Liabilities 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 Adjustments, total 13 – 2 131 – 1 740 Cash ﬂ ow before change in net working capital Change in net working capital 13 Cash generated from operations Interest received Interest paid Other ﬁ nancial income and expenses Income taxes paid – 2 285 1 631 – 654 13 – 146 – 352 – 115 Cash ﬂ ow before extraordinary items – 1 254 Extraordinary income and expenses — – 198 – 440 – 638 28 – 205 87 – 165 – 893 – 6 Net cash used in operating activities – 1 254 – 899 Cash ﬂ ow from investing activities Investments in shares Capital expenditures Proceeds from sale of shares Proceeds from sale of other intangible assets — 65 Proceeds from other long-term receivables Proceeds from short-term receivables Dividends received – 70 – 9 357 8 64 – 563 – 66 2 17 21 109 1 510 1 179 2 656 Net cash from investing activities 1 969 3 246 246 46 – 634 – 46 3 120 2 927 – 154 5 505 246 46 – 649 68 3 132 2 128 1 542 6 513 7, 8 7, 8 7, 8 7, 8 7, 8 9 4 480 3 528 3 142 4 215 — — 757 614 1 916 8 004 2 098 9 464 Trade creditors to Group companies 1 828 1 799 Cash ﬂ ow from ﬁ nancing activities Trade creditors to other companies 293 621 Other contribution from shareholders — 68 52 Proceeds from long-term borrowings 961 Proceeds from short-term borrowings – 1 184 46 – 938 112 Accrued expenses and prepaid income to Group companies Accrued expenses and prepaid income to other companies Dividends paid – 742 – 1 484 Net cash used in ﬁ nancing activities – 965 – 2 264 Net decrease/increase in cash and cash equivalents Cash and cash equivalents at beginning of period – 250 83 327 244 Total liabilities 12 484 12 992 Total 17 989 19 505 Cash and cash equivalents at end of period 77 327 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 71 NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY 1. ACCOUNTING PRINCIPLES 2. PERSONNEL EXPENSES 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. EURm Wages and salaries Pension expenses Other social expenses Personnel expenses as per proﬁ t and loss account 2012 2011 738 102 18 800 136 27 858 963 Management compensation The following table sets forth the salary and cash incentive information awarded and paid or payable by the company to the President and CEO of Nokia Corporation for ﬁ scal years – as well as the share-based compensation expense relating to equity-based awards, expensed by the company. 2012 2011 2010 EUR Stephen Elop President and CEO from September 21, 2010 Cash Share-based incentive compensation expense salary payments Base Cash Share-based incentive compensation expense salary payments Base Cash Share-based incentive compensation expense salary payments Base 1 079 500 — 1 597 496 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 ). For the Nokia Leadership Team members whose employment terminated during , the equity-based incentives were forfeited fol- lowing the termination of employment in accordance with plan rules. 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 EUR EUR EUR 2012 2011 2010 Gross Shares annual fee 1 received Gross annual fee 1 Shares received Gross annual fee 1 Shares received Risto Siilasmaa, Chairman as from May 3, 2012 2 Jorma Ollila, Chairman until May 3, 2012 3 Dame Marjorie Scardino, Vice Chairman 4 Bruce Brown Stephen Elop 5 Lalita D. Gupte 6 Bengt Holmström Henning Kagermann 7 Olli-Pekka Kallasvuo 8 Per Karlsson 9 Jouko Karvinen 10 Helge Lund Isabel Marey-Semper 11 Mårten Mickos Elizabeth Nelson 12 Kari Stadigh Keijo Suila 440 000 70 575 155 000 10 428 155 000 7 294 — — 440 000 29 604 440 000 20 710 150 000 130 000 24 062 20 850 — — — — — — 155 000 24 860 — — — — 155 000 130 000 140 000 130 000 140 000 130 000 24 860 20 850 22 454 20 850 22 454 20 850 150 000 10 092 150 000 7 058 — — — — 130 000 155 000 8 746 10 428 — — 130 000 140 000 130 000 140 000 — — 8 746 9 419 8 746 9 419 — — 130 000 8 746 — 140 000 130 000 130 000 130 000 155 000 — — — 6 588 6 117 6 117 6 117 7 294 — — 140 000 6 588 — — — — — — — — — — 130 000 6 117 72 N O K I A I N 2 0 1 2  Approximately % of each Board member’s gross annual fee is paid in Nokia shares and the remaining approximately % of the gross annual fee is paid in cash. Further, it is Nokia policy that the directors retain all company stock received as director compensation until the end of their board membership, subject to the need to finance any costs relating to the acquisition of the shares, including taxes.  The  fee paid to Risto Siilasmaa amounted to an annual total of EUR   for services as Chairman of the Board. The  and  fees paid to Risto Siilasmaa amounted to an annual total of EUR   each year indicated, consisting of a fee of EUR   for services as a mem- ber of the Board and EUR   for services as Chairman of the Audit Committee.  The  and  fees paid to Jorma Ollila amounted to an annual total of EUR   each year indicated for his services as Chairman of the Board.  The ,  and  fees paid to Dame Marjorie Scardino amounted to an annual total of EUR   each year indicated for services as Vice Chairman of the Board.  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  fee paid to Lalita D. Gupte 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 Henning Kagermann 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.  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  fee paid to Per Karlsson 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.  The  fee paid to 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 service as Chairman of the Audit Commit- tee. The  fee paid to Jouko Karvinen amounted to an annual total of EUR  , consisting of a fee of   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  fee paid to Elizabeth Nelson 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 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 earn- ings, 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. The Nokia Leadership Team members in the United States participate in Nokia’s US 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 year of the ﬁ rst four years of their employment. The Nokia Leadership Team members in Germany participate in the Nokia German Pension Plan that is % company funded. Contributions are based on pensionable earnings, the pen- sion table and retirement age. For the Nokia Leadership Team members in UK, the pension accrued in the UK Pension Scheme is a Money Purchase beneﬁ t. Contributions are paid into the UK Pension Scheme by both the member and employer. These contributions are held within the UK Pension Scheme and are invested in funds selected by the member. Termination beneﬁ ts of the President and CEO 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 accelerated manner (the performance period of Nokia Performance Share Plan  ended in  and no shares were delivered in ac- cordance with its terms). 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 incen- tive 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 employment upon a material reduction of his duties and re- sponsibilities, upon which he will be entitled to a compensation of  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 eq- uity 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-com- petition 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. Personnel average Production Marketing R&D Administration 2012 2011 1 086 763 3 788 2 379 2 473 1 064 5 985 2 373 8 016 11 895 Personnel, December 31 5 901 10 262 3. DEPRECIATION AND AMORTIZATION EURm 2012 2011 Depreciation and amortization by asset class category Intangible assets Capitalized development costs Intangible rights Other intangible assets Tangible assets Total Depreciation and amortization by function R&D Production Selling, marketing and administration Total — 19 143 2 164 145 3 16 164 3 25 143 — 171 131 1 39 171 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 73 4. INTANGIBLE ASSETS 6. INVESTMENTS EURm 2012 2011 EURm 2012 2011 Capitalized development costs Acquisition cost January 1 Disposals during the period 284 — Accumulated acquisition cost December 31 284 284 — 284 Investments in subsidiaries Acquisition cost January 1 Additions Impairments Disposals 11 199 12 054 3 127 608 – 740 – 1 360 – 2 038 – 103 Accumulated amortization January 1 – 284 – 281 Net carrying amount December 31 11 548 11 199 11 1 – 8 – 1 3 85 23 – 2 – 1 105 58 2 – 49 — 11 107 32 – 52 – 2 85 Disposals during the period Amortization during the period — — — – 3 Investments in associated companies Accumulated amortization December 31 – 284 – 284 Acquisition cost January 1 Additions Impairments Disposals Net carrying amount December 31 Investments in other shares Acquisition cost January 1 Additions Impairments Disposals Net carrying amount 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 — — 251 4 – 27 228 3 — 228 28 – 5 251 Accumulated amortization January 1 – 215 – 193 Disposals during the period Amortization during the period 20 – 19 Accumulated amortization December 31 – 214 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 36 14 782 2 – 31 753 3 – 25 – 215 35 36 790 36 – 44 782 Accumulated amortization January 1 – 463 – 344 Disposals during the period Amortization during the period Accumulated amortization December 31 Net book value January 1 Net book value December 31 5. TANGIBLE ASSETS 18 – 143 – 588 319 165 24 – 143 – 463 446 319 At the end of  and  the parent company had only mi- nor amounts of tangible assets. Most of the assets were leased from Nokia Asset Management Oy, a company wholly owned by Nokia Corporation. 74 N O K I A I N 2 0 1 2 7. SHAREHOLDERS’ EQUITY Parent Company, EURm Share capital premium Share issue Treasury Fair value non-restricted Retained earnings reserve shares equity Reserve for invested Total Balance at December 31, 2009 246 — – 685 — 3 154 4 555 7 270 Settlement of performance and restricted shares 16 – 9 7 Dividend Net proﬁ t Balance at December 31, 2010 246 Other contribution from shareholders — 46 – 669 — 3 145 3 612 6 334 – 1 483 – 1 483 540 540 Settlement of performance and restricted shares 20 – 13 Fair value reserve increase 68 Dividend Net proﬁ t 46 7 68 – 1 484 – 1 484 1 542 1 542 Balance at December 31, 2011 246 46 – 649 68 3 132 3 670 6 513 Settlement of performance and restricted shares 15 – 12 Fair value reserve decrease – 114 Dividend Net proﬁ t 3 – 114 – 742 – 154 – 742 – 154 Balance at December 31, 2012 246 46 – 634 – 46 3 120 2 773 5 505 8. DISTRIBUTABLE EARNINGS 9. LONG-TERM LIABILITIES EURm 2012 2011 EURm Reserve for invested non-restricted equity 3 120 3 132 Long-term ﬁ nancial liabilities Fair value reserve Retained earnings from previous years Net proﬁ t for the year Retained earnings, total Treasury shares Distributable earnings, December 31 – 46 2 927 – 154 5 847 – 634 5 213 2 128 1 542 6 802 – 649 6 153 — Bonds Convertible bond Loans from ﬁ nancial institutions Liabilities from Group companies 2012 2011 3 036 3 028 743 500 200 — 500 — Long-term liabilities, total 4 479 3 528 Long-term liabilities repayable after 5 years Bonds Convertible bond Loans from ﬁ nancial institutions 1 749 1 731 — — — — Long-term liabilities, total 1 749 1 731 Bonds Million Interest, % 2009–2014 1 250 EUR 5.534 1 287 1 297 2009–2019 1 000 USD 2009–2019 2009–2039 500 EUR 500 USD 5.572 6.792 6.775 805 558 386 799 543 389 3 036 3 028 Convertible bond Million Interest, % 2012–2017 750 EUR 7.920 743 743 — — 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 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 75 10. COMMITMENTS AND CONTINGENCIES 14. PRINCIPAL NOKIA GROUP COMPANIES EURm 2012 2011 Collateral for own commitments Assets pledged 3 — Contingent liabilities on behalf of Group companies Guarantees for loans Leasing guarantees Other guarantees Contingent liabilities on behalf of associated companies 1 168 43 2 204 65 Guarantees for loans 11 — Contingent liabilities on behalf of other companies Guarantees for loans Other guarantees 11. LEASING CONTRACTS At December ,  the leasing contracts of the Parent Com- pany amounted to EUR  million (EUR  million in 2011). EUR 12 million will expire in 2013 (EUR 16 million in 2012). ON DECEMBER 31, 2012 See note  to Notes to the consolidated ﬁ nancial statements. 15. NOKIA SHARES AND SHAREHOLDERS See Nokia shares and shareholders p. 77–81. 12 27 — 3 17. ACCRUED EXPENSES 16. ACCRUED INCOME EURm Taxes Other Total EURm Personnel expenses Taxes Other Total 2012 2011 58 2 169 2 227 85 2 386 2 471 2012 2011 103 — 1 881 1 984 134 — 2 016 2 150 12. LOANS GRANTED TO THE MANAGEMENT 18. INCOME TAXES OF THE COMPANY There were no loans granted to the members of the Group Executive Board and Board of Directors at December , . 13. NOTES TO CASH FLOW STATEMENTS EURm Adjustments for: Depreciation Income taxes 2012 2011 164 471 171 – 107 Financial income and expenses – 2 694 – 3 529 Impairment of intangible assets 12 6 Impairment of non-current available-for-sale investments 150 1 461 EURm Income tax from operations Income tax from extraordianry items Total 2012 2011 – 56 — – 56 – 138 — – 138 Income taxes are shown separately in the Notes to the ﬁ nancial statements as they have been shown as a one-line item on the face of the proﬁ t and loss statement. 19. DEFERRED TAXES EURm 2012 2011 – 475 – 475 204 204 Other operating income and expenses – 234 258 Deferred taxes Adjustments, total – 2 131 – 1 740 Total Change in net working capital Short-term trade receivables, increase (–), decrease (+) Inventories, increase (–), decrease (+) Interest-free short-term liabilities, increase (+), decrease (–) Change in net working capital 2 190 167 – 726 1 631 209 — – 649 – 440 No deferred tax asset has been recognized for tax losses carry forward, temporary diﬀ erences and tax credits due to uncer- tainty of utilization of these items. 76 N O K I A I N 2 0 1 2 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. 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, 2012 Share capital, EURm Shares (1 000) 2012 246 2011 246 2010 246 2009 246 2008 246 3 744 956 3 744 956 3 744 956 3 744 956 3 800 949 Shares owned by the Group (1 000) 33 971 34 767 35 826 36 694 103 076 Number of shares excluding shares owned by the Group (1 000) 3 710 985 3 710 189 3 709 130 3 708 262 3 697 872 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 3 710 845 3 709 947 3 708 816 3 705 116 3 743 622 3 710 845 3 709 947 3 713 250 3 721 072 3 780 363 250 799 229 096 191 790 156 081 122 713  Each account operator is included in the figure as only one registered shareholder. Key ratios December 31, 2012, IFRS (calculation see page 84) 2012 2011 2010 2009 2008 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 -0.84 -0.84 neg. 0.00 1 0.00 1 0.00 1 0.00 1 2.17 – 0.31 – 0.31 neg. 0.20 749 neg. 5.30 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 10 873 13 987 28 709 33 078 41 046  Dividend to be proposed by the Board of Directors for fiscal year  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. AUTHORIZATIONS 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 would have been eﬀ ective 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 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 77 purposes, or to be cancelled. The authorization is eﬀ ective until June , . Company’s shares resolved at the Annual General Meeting on May , . Authorizations proposed to the Annual General Meeting 2013 On January , , Nokia announced that the Board of Direc- tors will propose that the Annual General Meeting convening on May ,  authorize the Board to resolve to repurchase a maximum of  million Nokia shares. The proposed maximum number of shares that may be repurchased 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 arrange- ments, settle the Company’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 in such marketplaces the rules of which allow companies to trade with their own shares. The authorization would be eﬀ ective until June ,  and terminate the current authorization for repurchasing of the Nokia also announced on January ,  that the Board of Directors will propose to the Annual General Meeting to be held on May ,  that the Annual General Meeting authorize the Board to resolve to issue a maximum of  million shares through issuance of shares or special rights entitling to shares (including stock options) in one or more issues. The Board may issue either new shares or shares held by the Company. The Board proposes that the authorization may be used to develop the Company’s capital structure, diversify the shareholder base, ﬁ nance or carry out acquisitions or other arrangements, settle the Company’s equity-based incentive plans, or for other purposes resolved by the Board. The proposed authorization includes the right for the Board to resolve on all the terms and conditions of the issuance of shares and special rights entitling to shares, including issuance in deviation from the sharehold- ers’ pre-emptive rights. The authorization would be eﬀ ective until June ,  and terminate the current authorization granted by the Annual General Meeting on May , . Stock option exercises – Year Stock option category Subscription price EUR Number of new shares (1 000) Date of payment Net proceeds EURm New share capital EURm 2008 2009 Nokia Stock Option Plan 2003 2Q Nokia Stock Option Plan 2003 3Q Nokia Stock Option Plan 2003 4Q Nokia Stock Option Plan 2004 2Q Nokia Stock Option Plan 2004 3Q Nokia Stock Option Plan 2004 4Q Nokia Stock Option Plan 2005 2Q Nokia Stock Option Plan 2005 3Q Nokia Stock Option Plan 2005 4Q Nokia Stock Option Plan 2006 1Q Nokia Stock Option Plan 2006 2Q Nokia Stock Option Plan 2006 3Q Nokia Stock Option Plan 2006 4Q Nokia Stock Option Plan 2007 1Q Nokia Stock Option Plan 2007 2Q Nokia Stock Option Plan 2007 3Q Total Nokia Stock Option Plan 2004 2Q Nokia Stock Option Plan 2004 3Q Nokia Stock Option Plan 2004 4Q Nokia Stock Option Plan 2005 2Q Nokia Stock Option Plan 2005 3Q Nokia Stock Option Plan 2005 4Q Nokia Stock Option Plan 2006 1Q Nokia Stock Option Plan 2006 2Q Nokia Stock Option Plan 2006 3Q Nokia Stock Option Plan 2006 4Q Nokia Stock Option Plan 2007 1Q Nokia Stock Option Plan 2007 2Q Nokia Stock Option Plan 2007 3Q Nokia Stock Option Plan 2007 4Q Nokia Stock Option Plan 2008 1Q Nokia Stock Option Plan 2008 2Q Nokia Stock Option Plan 2008 3Q Total 78 N O K I A I N 2 0 1 2 14.95 12.71 15.05 11.79 9.44 12.35 12.79 13.09 14.48 14.99 18.02 15.37 15.38 17.00 18.39 21.86 11.79 9.44 12.35 12.79 13.09 14.48 14.99 18.02 15.37 15.38 17.00 18.39 21.86 27.53 24.15 19.16 17.80 2 444 11 82 415 5 13 361 5 0 1 192 11 6 0 0 0 3 546 0 8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 8 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 36.53 0.15 1.24 4.90 0.05 0.16 4.62 0.07 0.00 0.01 3.46 0.17 0.09 0.00 0.00 0.00 51.45 0.00 0.07 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.07 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — Year Stock option category Subscription price EUR Number of new shares (1 000) Date of payment Net proceeds EURm New share capital EURm 2010 2011 2012 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 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 Nokia Stock Option Plan 2010 4Q Total 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 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 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 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 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 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 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 79 Reductions of share capital Type of reduction Cancellation of shares Cancellation of shares Cancellation of shares Cancellation of shares Cancellation of shares Share turnover Year 2008 2009 2010 2011 2012 Number of shares (1 000) 185 410 56 000 — — — Amount of reduction of the share capital EURm Amount of reduction of the restricted capital EURm Amount of reduction of the retained earnings EURm — — — — — — — — — — — — — — — Share turnover (1 000) 20 002 578 15 696 008 12 299 112 11 025 092 12 962 489 Total number of shares (1 000) 3 744 956 3 744 956 3 744 956 3 744 956 3 800 949 % of total number of shares 534 419 328 294 341 2012 1 2011 2 2010 2 2009 2 2008 3  Includes share turnover in NASDAQ OMX Helsinki, New York Stock Exchange and until March ,  Frankfurter Wertpapierbörse.  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) 2012 2011 2010 2009 2008 1.33/4.46 3.33/8.49 6.59/11.82 6.67/12.25 9.95/25.78 2.62 2.93 5.19 3.77 8.41 7.74 9.64 8.92 17.35 11.10 ADS Low/high Average 1 Year-end 2012 2011 2010 2009 2008 1.63/5.87 4.46/11.75 8.00/15.89 8.47/16.58 12.35/38.25 3.41 3.95 7.13 4.82 11.11 10.32 13.36 12.85 24.88 15.60  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 | | | | | / / / / / / / / / / 80 N O K I A I N 2 0 1 2 Shareholders, December 31, 2012 Shareholders registered in Finland represented .% and shareholders registered in the name of a nominee represented .% of the total number of shares of Nokia Corporation. The number of registered shareholders was   on De- cember , . 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 Keva (Local Government Pensions Institution) Schweizerische Nationalbank Svenska Litteratursällskapet i Finland rf Mutual Insurance Company Pension Fennia Nordea Suomi Fund OP-FocusSpecial Fund OP-Delta Fund Total number of shares (1 000) % of all shares % of all voting rights 71 219 70 294 28 000 23 744 21 956 14 304 11 757 11 250 11 100 11 024 1.90 1.88 0.75 0.63 0.59 0.38 0.31 0.30 0.30 0.29 1.92 1.89 0.75 0.64 0.59 0.39 0.32 0.30 0.30 0.30  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 Number of shareholders % of shareholders Total number of shares % of all shares 1–100 101–1 000 1 001–10 000 10 001–100 000 100 001–500 000 500 001–1 000 000 1 000 001–5 000 000 Over 5 000 000 Total 47 197 122 422 71 436 9 190 439 41 53 21 18.82 48.81 28.48 3.66 0.18 0.02 0.02 0.01 250 799 100.00 2 894 271 57 051 389 224 666 202 223 116 498 84 287 325 28 065 662 122 363 685 3 002 511 020 3 744 956 052 0.08 1.52 6.00 5.96 2.25 0.75 3.27 80.17 100.00 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 AND STOCK OPTIONS OWNED BY THE MEMBERS OF THE BOARD OF DIRECTORS AND THE NOKIA LEADERSHIP TEAM Members of the Board of Directors and the Nokia Leadership Team owned on December , , an aggregate of    shares which represented approximately .% of the aggre- gate 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 Decem - ber , . % of shares 72.98 27.02 100.00 % of shares 3.34 13.04 2.72 1.93 5.99 27.02  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. 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 81 NOKIA GROUP 2008 – 2012, IFRS* Income statement, 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 Proﬁ t attributable to equity holders of the parent Non-controlling interests Balance sheet items, EURm Fixed assets and other non-current assets Current assets Inventories Accounts receivable and prepaid expenses Total cash and other liquid assets Total equity Capital and reserves attributable to the Company’s equity holders Non-controlling interests Long-term liabilities Long-term interest-bearing liabilities Deferred tax liabilities Other long-term liabilities Current liabilities Current portion of long-term loans Short-term borrowings Other ﬁ nancial liabilities Accounts payable Accrued expenses and other liabilities Provisions Total assets 2012 2011 2010 2009 2008 30 176 – 32 479 – 2 303 – 1 – 340 – 2 644 – 1 145 – 3 789 – 3 106 – 683 – 3 789 9 071 20 878 1 538 9 431 9 909 9 447 8 061 1 386 5 856 5 087 700 69 38 659 – 39 732 – 1 073 – 23 – 102 – 1 198 – 290 – 1 488 – 1 164 – 324 – 1 488 10 750 25 455 2 330 12 223 10 902 13 916 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 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 14 646 17 444 17 540 15 188 20 355 201 261 90 4 394 7 081 2 619 357 995 483 5 532 7 450 2 627 29 949 36 205 116 921 447 6 101 7 365 2 590 39 123 44 727 245 4 950 6 504 2 718 13 3 578 924 5 225 7 023 3 592 35 738 39 582 * 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. As of January , , Location & Commerce business and reportable segment has been renamed as the HERE business and reportable segment. 82 N O K I A I N 2 0 1 2 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 2012 30 176 – 21.9 29 873 7 170 – 2 303 – 7.6 – 340 1.1 – 2 644 – 8.8 – 3 106 – 10.3 1 145 0 2 461 1.5 517 1.7 4 782 15.8 2011 38 659 – 8.9 38 342 7 516 – 1 073 – 2.8 – 102 0.3 – 1 198 – 3.0 – 1 164 – 3.0 290 749 597 1.5 710 1.8 5 584 14.4 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 5 844 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 11.8 112 256 134 171 129 355 123 171 121 723 Non– interest bearing liabilities, EURm Interest– bearing liabilities, EURm 14 253 5 549 16 168 5 321 16 591 5 279 14 483 5 203 16 833 4 452 Return on capital employed, % Return on equity, % Equity ratio, % Net debt to equity, % neg. neg. 33.7 – 46 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  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. As of January , , Location & Commerce business and reportable segment has been renamed as the HERE business and reportable segment.  Board’s proposal  Includes acquisitions, investments in shares and capitalized development costs. Calculation of Key Ratios, see page . N O K I A G R O U P 2 0 0 8 – 2 0 1 2 , I F R S 83 CALCULATION OF KEY RATIOS KEY RATIOS UNDER IFRS Operating proﬁ t Proﬁ t after depreciation Shareholders’ equity Share capital + reserves attributable 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 = 1.3140 0.8121 8.1963 71.9280 40.5002 110.16 84 N O K I A I N 2 0 1 2 SIGNING OF THE ANNUAL ACCOUNTS 2012 AND PROPOSAL BY THE BOARD OF DIRECTORS FOR DISTRIBUTION OF PROFIT The distributable funds in the balance sheet of the Company at December ,  amounted to EUR   million. The Board proposes to the Annual General Meeting that no dividend be paid out on the shares of the Company. Espoo, March ,  Risto Siilasmaa Chairman of the Board Marjorie Scardino Bruce Brown Henning Kagermann Jouko Karvinen Helge Lund Isabel Marey-Semper Mårten Mickos Elizabeth Nelson Kari Stadigh Stephen Elop President and CEO SIGNING OF THE ANNUAL ACCOUNTS 2012 AND PROPOSAL FOR DISTRIBUTION OF PROFIT 85 AUDITOR’S REPORT TO THE ANNUAL GENERAL MEETING OF NOKIA CORPORATION 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 mis- statement, 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 and the consoli- dated ﬁ nancial statements should be adopted. The proposal by the Board of Directors regarding the use of 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. Espoo,  March  PricewaterhouseCoopers Oy Authorised Public Accountants Heikki Lassila Authorised Public Accountant 86 N O K I A I N 2 0 1 2 ADDITIONAL INFORMATION Critical accounting policies ...................................................................................... 88 Corporate governance statement Corporate governance .......................................................................................... 94 Board of Directors ............................................................................................... 100 Nokia Leadership Team ....................................................................................... 103 Compensation of the Board of Directors and the Nokia Leadership Team ............................................................................ 106 Auditor fees and services ....................................................................................... 125 Investor information ................................................................................................ 126 Contact information ................................................................................................. 128 CRITICAL ACCOUNTING POLICIES As of January ,  our Location & Commerce business and reportable segment was renamed HERE. The name Location & Commerce is used in the following discussion of critical ac- counting 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 es- timates, which inherently contain some degree of uncertainty. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. The related results form the basis for making judgments about reported carrying values of as- sets and liabilities and reported amounts of revenues and ex- penses 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 conditions. 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. REVENUE 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 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. The remainder of revenue is recorded under the percentage of completion method. Devices & Services and certain Location & 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 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 trans- action will ﬂ ow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reli- ably. 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 reductions to revenue for special pricing agreements, price protection and other volume based dis- counts at the time of sale, mainly in the mobile device busi- ness. Sales adjustments for volume based discount programs are estimated largely based on historical activity under similar programs. Price protection adjustments are based on esti- mates of future price reductions 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 ser- vice period unless there is evidence that some other method better represents the stage of completion. Devices & Services and Location & Commerce license fees from usage are recog- nized 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, 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 selected 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 88 N O K I A I N 2 0 1 2 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. 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. ALLOWANCES 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-RELATED ALLOWANCES We periodically review our inventory for excess, obsoles- cence and declines in market value below cost and record an allowance against the inventory balance for any such de- clines. 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. During  the Group also recognized an expense of EUR  million (EUR  in ) within Devices & Services’ cost of sales to write-down the inventories to net realizable value. WARRANTY PROVISIONS We provide for the estimated cost of product warranties at the time revenue is recognized. Our products are covered by prod- uct warranty plans of varying periods, depending on local prac- tices 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 war- ranty provision is established based upon our best estimates of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. As we continu- ously 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 appropriate proportion of the provision, and if the cost of quality is higher than antici- pated, 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 nan- cial impact of the assumptions regarding this provision mainly aﬀ ects the cost of sales of our Devices & Services business. PROVISION FOR INTELLECTUAL PROPERTY RIGHTS, OR IPR, INFRINGEMENTS We provide for the estimated past costs related to alleged asserted IPR infringements based on the probable outcome of each potential future settlement. 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 IPR related to our products under development and thereby avoid inadvertent infringement of proprietary technologies, the nature of our business is such that patent and other IPR infringements may and do occur. We identify potential IPR infringements through contact with par- ties claiming infringement of their patented or otherwise ex- clusive technology, or through our own monitoring of develop- ments in patent and other IPR 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. 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 89 LEGAL CONTINGENCIES 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. BUSINESS 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 ASSETS, INTANGIBLE ASSETS AND GOODWILL We assess 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. 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- 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. Goodwill amounting to EUR  million, EUR  million, EUR   million and EUR  million was allocated to the Smart Devices CGU, Mobile Phones CGU, Location & Commerce CGU and Nokia Siemens Networks CGU, respective- ly, 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 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. 90 N O K I A I N 2 0 1 2 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 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: Cash generating units Smart Devices % Mobile Phones % Location & Commerce % Nokia Siemens Networks % 2012 2011 2012 2011 2012 2011 2012 2011 Terminal growth rate Post-tax discount rate Pre-tax discount rate 2.3 10.5 12.8 1.9 9.0 12.2 – 2.3 10.5 15.5 1.5 9.0 13.1 1.7 9.9 12.8 3.1 9.7 13.1 0.7 10.3 14.2 1.0 10.4 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 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. The recoverable amount of the Location & Commerce CGU exceeds its carrying amount by a small margin in the fourth quarter . The related valuation is deemed most sensitive to the changes in both discount and long-term growth rates. A discount rate increase in excess of . percentage point or long-term growth decline in excess of  percentage point would result in impairment loss in the Location & Commerce CGU. Management’s estimates of the overall automotive vol- umes and market share, customer adoption of the new loca- tion-based platform and related service oﬀ erings, projected device sales volumes and fair value of the services sold within the Group as well as continued focus on cost eﬃ ciency are the main drivers for the Location & Commerce net cash ﬂ ow projections. The Group’s cash ﬂ ow forecasts reﬂ ect the cur- rent strategic views that license fee based models will remain important in both near and long term. Management expects that license fee based models which are augmented with soft- ware and services and monetized via license fees, transactions fees and advertising, will grow in the future as more customers demand complete, end-to-end location solutions. Actual short and long-term performance could vary from management’s forecasts and impact future estimates of recoverable value. Since the recoverable amount exceeds the carrying amount only by a small margin, any material adverse changes such as market deterioration or changes in the competitive landscape could impact management’s estimates of the main drivers and result in impairment loss. A charge to operating proﬁ t of EUR   million was re- corded for the impairment of goodwill in our Location & Commerce business in the fourth quarter . The impair- ment 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 impairment loss, the amount of goodwill allocated to the Location & Commerce CGU was reduced to EUR   million at December , . The impairment charge was 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 included 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 was estimated based on peer market data for mobile advertising revenue. Projected device sales volumes impacted the overall forecasted intercompany and advertising revenues. This took into consideration the market dynamics in digital map data and related location-based content markets, including the Group’s long-term view at the time of the  annual impair- ment testing, that the market will move from fee-based mod- els towards advertising-based models especially in some more mature markets. It also reﬂ ected recently announced results and related competitive factors in local search and advertising market resulting in lower estimated growth prospects from location-based assets integrated with diﬀ erent advertis- ing 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’s goodwill impairment testing did not result in impairment charges for the years ended December ,  or . An impairment loss was recorded with respect to 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 91 the Group’s Location & Commerce CGU in , as discussed above. No further impairment charges were recorded with respect to the other CGUs in . See Note  to our consolidated ﬁ nancial statements for further information regarding “Valuation of long-lived and intangible assets and goodwill.” FAIR VALUE OF DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS The fair value of ﬁ nancial instruments that are not traded in an active market, for example unlisted equities, are deter- mined using valuation techniques. We use judgment to select an appropriate valuation methodology and underlying as- sumptions based principally on existing market conditions. If quoted market prices are not available for unlisted shares, fair value is estimated by using various factors, including, but not limited to: () 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 compa- nies in similar industry sectors. Changes in these assumptions may cause the Group to recognize impairments or losses in the future periods. During  the Group received distribu- tions 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 TAXES 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 erences, tax losses and unused tax credits can be utilized. We have considered future taxable income and tax planning strategies in making this assessment. Deferred tax assets are assessed for realizability 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. In  Nokia taxes continued to be unfavorably aﬀ ected by Nokia Siemens Networks taxes as no tax beneﬁ ts are recognized for certain Nokia Siemens Networks deferred tax items. Additionally Nokia taxes were adversely aﬀ ected by allowances related to Devices & Services’ Finnish deferred tax assets and discontinuation of recognizing tax beneﬁ ts for Devices & Services’ Finnish deferred tax items due to uncertainty of utilization of these items. At December , , the Group had tax losses carry forward, temporary diﬀ erences and tax credits of EUR   million (EUR   million in ) for which no deferred tax as- sets 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. The Group has ongoing tax investi- gations in multiple jurisdictions, including Hungary and India. 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 expense for deﬁ ned beneﬁ t pension plans is dependent on our selection of certain assumptions used by actuaries in calculating 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 compensation levels. A portion of our plan assets is invested in equity securities. The equity markets have experienced volatil- ity, 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 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-BASED 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 performance shares are included in assump- tions about the number of shares that the employee will ultimately receive relating to projections of sales and earnings per share. On a regular basis, we review the assumptions made and revise the estimates of the number of performance shares that are expected to be settled, where necessary. At the date of grant, the number of performance shares granted that are 92 N O K I A I N 2 0 1 2 expected to be settled is assumed to be two times the amount at threshold. Any subsequent revisions to the estimates of the number of performance shares expected to be settled may increase or decrease total compensation expense. Such increase or decrease adjusts the prior period compensation expense in the period of the review on a cumulative basis for unvested performance shares for which compensation expense has already been recognized in the 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. The Group has also issued certain stock options for the employees of Nokia Siemens Networks, which are accounted for as cash-settled. Related employee services received, and the liability incurred, are measured at the fair value of the liability. The fair value of stock options is estimated based on the reporting date market value less the exercise price of the stock options. The fair value of the liability is remeasured at each reporting date and at the date of settlement and related change in fair value is recognized in the income statement over the relevant service periods. 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 93 CORPORATE GOVERNANCE This Corporate Governance statement is prepared in accord- ance with Chapter , Section  of the Finnish Securities Markets 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. REGULATORY FRAMEWORK MAIN CORPORATE GOVERNANCE BODIES 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 President and CEO. 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 exception: Nokia is not in full compliance with recommendation  of the Finnish Corporate Governance Code as Nokia’s Restricted Share Plans do not include any performance criteria but are time-based only, with a restriction period of at least three years from the grant. Restricted shares are granted on a selective basis to promote long-term retention of individuals with 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 competi- tive 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. The Finnish Corporate Governance Code is ac- cessible at www.cgﬁ nland.ﬁ . 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 corpo- rate governance rules applicable due to listing of Nokia share in Helsinki and New York stock exchanges. 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 requirements. Nevertheless, Nokia aims to minimize the necessity for, or consequences of, conﬂ icts between the laws of Finland and applicable non- domestic requirements. 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 meet- ing of shareholders. Each Nokia share entitles a shareholder 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 Meeting decides, among other things, on the election and remuneration of the Board of Directors, the adoption of annual accounts, the use of the proﬁ t shown on the balance sheet, discharging from li- ability the members of the Board and the President and CEO as well as on the election and fees of external auditor. 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 our Articles of Association as well as any complementary rules of procedure as deﬁ ned by the Board, such as the Corporate Governance Guidelines and related Board Committee charters. THE RESPONSIBILITIES OF THE BOARD OF DIRECTORS The Board represents and is accountable to the 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 94 N O K I A I N 2 0 1 2 and/or individual limits for capital expenditures, invest- ments and divestitures and ﬁ nancial commitments not to be exceeded without Board approval. Jouko Karvinen, Helge Lund, Isabel Marey-Semper, Mårten Mickos, Elizabeth Nelson, Dame Marjorie Scardino, Risto Siilas- maa 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 Risto Siilasmaa as the new 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, Risto Siilasmaa, and the Vice Chairman, Dame Marjorie Scardino, are independent as deﬁ 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, respecting the high- est corporate governance standards. In , the roles were separate while Risto Siilasmaa was the Chairman of the Board and Stephen Elop was the Chief Executive Oﬃ cer. The current members of the Board are all non-executive, except the President and CEO. The Board has determined that nine of the current ten non-executive Board members are independent as deﬁ ned by Finnish standards as well as by the rules of the New York Stock Exchange. Mårten Mickos was determined not to be independent under both Finnish standards and the rules of the New York Stock Exchange due to his position as CEO of Eucalyptus Systems, Inc., which has a business relationship with and receives revenue from Nokia Siemens Networks. The executive member of the Board, President and CEO Stephen Elop, was determined not to be independent under both Finnish standards and the New York Stock Exchange rules. The Board held  meetings during , of which approxi- mately half were regularly scheduled meetings held in person, complemented by meetings through video or conference calls and other means. In addition, in  the non-executive direc- tors held a meeting without management in connection with each regularly scheduled Board meeting. Also, the independ- ent directors held one meeting separately in . Directors’ attendance at the Board meetings in , includ- ing Committee meetings, but excluding meetings among the non-executive directors or independent directors only, was as described in the table on next page. 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 President and CEO upon the recommenda- tion 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 President and CEO. 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 committees assist the Board in its duties pursuant to their respective committee charters. The Board may also establish ad hoc committees for detailed reviews or consideration of particular topics to be proposed for the approval of the Board. In line with Nokia’s Corporate Governance Guidelines, the Board conducts annual performance evaluations, which also include evaluations of the Board Committees’ work, the re- sults of which are discussed by the Board. Regarding , the evaluation was conducted by an external evaluator, and the evaluation consisted of interviews with the Board members. The results of the evaluation for year  were discussed by the entire Board. 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: Bruce Brown, Stephen Elop, Henning Kagermann, 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 95 Board meetings meetings Audit Committee Personnel Committee Nomination meetings Committee meetings Corporate Governance & Bruce Brown (as of May 3, 2012) Stephen Elop 92% 100% Bengt Holmström (until May 3, 2012) 80% Henning Kagermann Per Karlsson (until May 3, 2012) Jouko Karvinen Helge Lund Isabel Marey-Semper Mårten Mickos (as of May 3, 2012) Elizabeth Nelson (as of May 3, 2012) Jorma Ollila (until May 3, 2012) Dame Marjorie Scardino Risto Siilasmaa 100% 100% 100% 94% 88% 100% 100% 100% 82% 100% — — — — — 100% — 100% — 100% — — 100% (until May 3, 2012) 75% — — 100% 100% — 86% — — — — 43% — 100% — — — 100% — 100% (as of May 3, 2012) — — — — — 60% 100% — Kari Stadigh 100% — In addition, many of the directors attended as non-voting observers in 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 Helge Lund, 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 management. The independent directors of the Board conﬁ rm the elec- tion of the members and Chairmen for the Board’s com- mittees from among the Board’s independent directors upon the recommendation of the Corporate Governance and Nomination Committee and based on each committee’s member 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. 96 N O K I A I N 2 0 1 2 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 has consisted of the follow- ing three members of the Board: Jouko Karvinen (Chairman), Isabel Marey-Semper and Elizabeth Nelson. 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 state- ments, () the external auditor’s qualiﬁ cations and independ- ence, () the performance of the external auditor subject to the requirements of Finnish law, () the performance of the company’s internal controls and risk management and as- surance 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 main- tains procedures for the receipt, retention and treatment of complaints received by the company regarding accounting, internal controls, or auditing matters and for the conﬁ den- tial, anonymous submission by employees of the company of concerns regarding accounting or auditing matters. Our 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 our 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, our external auditor is elected by our 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 ap- pointment of the external auditor based upon its evaluation of the qualiﬁ cations and independence of the auditor to be pro- posed for election or re-election. Under Finnish law, the fees of the external auditor are also approved by our 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 regularly scheduled meetings. 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  meetings in . The attend- ance at all meetings was %. In addition, any directors who wish to may attend Audit Committee meetings as non-voting observers. 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 Helsinki and the New York Stock Exchange. Since May , , the Personnel Committee has consisted of the following ﬁ ve members of the Board: Henning Kagermann (Chairman), Bruce Brown, 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, resolving and making recommendations to the Board regarding () com- pensation 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  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 Committee has consisted of the following four members of the Board: Risto Siilasmaa (Chairman), Henning Kagermann, Jouko Karvinen and Dame Marjorie Scardino. 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 responsibili- ties of directors of public companies, (iv) assisting the Board and each Committee of the Board in its annual performance evaluations, including establishing criteria to be used in con- nection with such evaluations, (v) developing and recommend- ing to the Board and administering our 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  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. 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 97 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 purchase cycle, treasury cycle, human resources cycle, record to report 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 inter- nal control. Internal audit resides within the Chief Financial Oﬃ cer’s organization 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. 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 member 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 Presi- dent under Finnish law. MAIN FEATURES OF THE INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS IN RELATION TO THE FINANCIAL REPORTING PROCESS Nokia has a Risk Policy which outlines Nokia’s risk management policies and processes and is approved by the Audit Commit- tee. The Board’s role in risk oversight includes risk 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 Committee is respon- sible for, among other matters, the risk management 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 management across all business operations and processes based on a strat- egy 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 documented 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 98 N O K I A I N 2 0 1 2 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 99 BOARD OF DIRECTORS The current members of the Board of Directors were elected at the Annual General Meeting on May , , based on the pro- posal of the Board’s Corporate Governance and Nomination Committee. On the same date, the Chairman and Vice Chair- man, as well as the Chairmen and members of the committees of the Board, were elected among the Board members and among the independent directors of the Board, respectively. The members of the Board of Directors are 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. THE CURRENT MEMBERS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES ARE SET FORTH BELOW. CHAIRMAN RISTO SIILASMAA, B. 1966 Chairman of the Board of Directors of Nokia Corporation. Board member since . Chairman since . Chairman 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 Board of Directors of F-Secure Corporation. Member of the Board of Directors of Mendor Ltd. Vice Chairman of the Board of Directors of The Federation of Finnish Technology Industries. Member of the Board of Directors of The Confederation of Finnish Industries (EK). Chairman of the Board of Directors of Elisa Corporation  – . Member of the Board of Directors of Elisa Corporation  – . VICE CHAIRMAN DAME MARJORIE SCARDINO, B. 1947 Board member since . Vice Chairman since . Member 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 Pearson plc.  – . Chief Executive of The Economist Group  – . President of the North American Operations of The Economist Group  – . Lawyer  –  and publisher of The Georgia Gazette newspaper  – . Member of the Board of Directors of Pearson plc  – . 100 N O K I A I N 2 0 1 2 BRUCE BROWN, B. 1958 Chief Technology Oﬃ cer of The Procter & Gamble Company. Board member since May , . Member of the Personnel Committee. M.B.A. (International Business) (Xavier University). B.S. (Chemical Engi- neering) (Polytechnic Institute of New York University). Various executive and managerial positions in Baby Care, Feminine Care, and Beauty Care units of The Procter & Gamble Company since  in the United States, Germany and Japan. Member of the Board of Directors of Agency for Science, Technology & Research (A*STAR). Strategy Adviser in US National Innovation. Member of the Board of Trustees of Xavier University. Chairman of the Advisory Board of MDVIP. Member of the Board of the University of Cincinnati Research Institute. JOUKO KARVINEN, B. 1957 CEO of Stora Enso Oyj. Board member since . Chairman of the Audit Committee. Member of the Corporate Governance and Nomination Committee. Master of Science (Eng.) (Tampere Univer- sity of Technology). CEO of Philips Medical Systems Division  – . Member of Board of Management of Royal Philips Electronics  and Group Management Committee  – . Holder of ex- ecutive 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  – . STEPHEN ELOP, B. 1963 President and CEO of Nokia Corporation. Chairman of the Nokia Leadership Team. Board member since . 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). Bachelor of Computer Engineering and Management (McMaster University, Ham- ilton, Canada). Doctor of Laws, honorary (McMaster University, Hamilton, Canada). President of Microsoft Business Division and mem- ber 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.  – . HENNING KAGERMANN, B. 1947 Board member since . Chairman of the Personnel Committee. Member of the Corporate Governance and Nomination Committee. 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 leadership 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 Nobel prizewinners. HELGE LUND, B. 1962 President and CEO of Statoil ASA. Board member since . Member of the Personnel Committee. MA in Business Economics (School of Economics and Business Administration, Bergen). Master of Business Administration (MBA) (INSEAD). President and CEO of StatoilHydro  – . President and CEO of Statoil  – . President and CEO of Aker Kvaerner ASA  – . Central managerial positions in the Aker RGI system from . Prior to , Deputy Managing Director of Nycomed Pharma AS, a political adviser to the Conservative Party of the parliamentary group of Norway and a 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.  – . 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 101 MÅRTEN MICKOS, B. 1962 Chief Executive Oﬃ cer of Eucalyptus Systems, Inc. Board member since May , . The following individuals served on Nokia Board until the close of the Annual General Meeting held on May , : ■ Bengt Holmström, b. . Board member  – . No committee memberships in . Master of Science (Eng.) (Helsinki Univer- sity of Technology). ■ Per Karlsson, b. . Board member  – . Served as a member of the Personnel Committee until May , . Senior Vice President, Database Group, Sun Microsystems  – . CEO, MySQL AB  – . Chairman, Vexillum Ab  – . CEO, MatchON Sports Ltd.  – . CEO, Intellitel Communications Ltd.  – . ELIZABETH NELSON, B. 1960 Independent Corporate Advisor. Board member since May , . Member of the Audit Committee. M.B.A. (Finance) (The Wharton School, University of Pennsylvania). B.S. (Foreign Service) (Georgetown University). Executive Vice President and Chief Financial Oﬃ cer, Macromedia, Inc.  – . Vice President, Corporate Development, Macromedia, Inc.  – . Project Manager, Corporate Development and International Finance, Hewlett-Packard Company  – . Associate, Robert Nathan Associates  – . Member of the Board of Directors of Brightcove Inc. Member of the Boards of Directors of Ancestry.com, Inc.  – , SuccessFactors, Inc.  – , Autodesk, Inc.  –  and CNET Networks, Inc.  – . KARI STADIGH, B. 1955 Group CEO and President of Sampo plc. Board member since . Member of the Personnel Committee. Master of Science (Eng.) (Helsinki Univer- sity 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. Vice Chairman of the Board of Directors of Confederation of Finnish Industries (EK). Vice Chairman of the Board of Directors of the Federation of Finnish Financial Services. 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.  – . ■ Jorma Ollila, b. . Board member  – . Chairman  – . No committee memberships in . ELECTION OF THE BOARD MEMBERS Proposal of the Corporate Governance and Nomination Committee for Composition of the Board of Directors in 2013 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 ten 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 : Bruce Brown, Stephen Elop, Henning Kager- mann, Jouko Karvinen, Helge Lund, Mårten Mickos, Elizabeth Nelson, Risto Siilasmaa and Kari Stadigh. In addition, the Committee will propose that Elizabeth Doherty, the Chief Financial Oﬃ cer of Reckitt Benckiser Group plc until March , , be elected as a member 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 independent directors upon the recommendation of the Corporate Govern- ance and Nomination Committee and based on each commit- tee’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 Jouko Karvinen as Vice Chairman of the Board. 102 N O K I A I N 2 0 1 2 NOKIA LEADERSHIP TEAM According to our Articles of Association, the Nokia Leadership Team is responsible for the operative management of the Company. The Chairman and members of the Nokia Leader- ship Team are appointed by the Board of Directors. Only the Chairman of the Nokia Leadership Team, the President and CEO, can be a member of both the Board of Directors and the Nokia Leadership Team. CHANGES IN THE NOKIA LEADERSHIP TEAM During , the following appointments were made to the Nokia Leadership Team: ■ Marko Ahtisaari was appointed Executive Vice President of Design and member of the Nokia Leadership Team as from February , . ■ Juha Putkiranta was appointed Executive Vice President of Operations and member of the Nokia Leadership Team as from July , . ■ Timo Toikkanen was appointed Executive Vice President of Mobile Phones and member of the Nokia Leadership Team as from July , . ■ Chris Weber was appointed Executive Vice President of Sales and Marketing and member of the Nokia Leadership Team as from July , . Further, during , the following Nokia Leadership Team members resigned: ■ Jerri DeVard, formerly Executive Vice President and Chief Marketing Oﬃ cer, stepped down from the Nokia Leadership Team eﬀ ective June , . ■ Colin Giles, formerly Executive Vice President of Sales, stepped down from the Nokia Leadership Team eﬀ ective June ,  and left Nokia on September , . ■ Mary T. McDowell, formerly Executive Vice President of Mobile Phones stepped down from the Nokia Leadership Team eﬀ ective June ,  and left Nokia on December , . ■ Niklas Savander, formerly Executive Vice President of Markets stepped down from the Nokia Leadership Team eﬀ ective June ,  and left Nokia on February , . ■ Esko Aho, formerly Executive Vice President of Corporate Relations and Responsibility stepped down from the Nokia Leadership Team and left Nokia eﬀ ective August , . He continues as an external consultant to Nokia. THE CURRENT MEMBERS OF THE NOKIA LEADERSHIP TEAM ARE SET FORTH BELOW. CHAIRMAN 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 . Bachelor of Computer Engineering and Management (McMaster University, Ham- ilton, 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.  – . 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 Sciences, Columbia Uni- versity, 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. MICHAEL HALBHERR, B. 1964 Executive Vice President, HERE. Nokia Leadership Team member since . Joined Nokia . PhD. (Electrical Engineering) (ETH, Zurich, Switzerland). Worked at MIT Laboratory for Computer Science (Cambridge, MA, USA). Vice President, Ovi Product Develop- ment, 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  – . 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 103 JO HARLOW, B. 1962 Executive Vice President, Smart Devices. Nokia Leadership Team member since . Joined Nokia . Bachelor of science (psychology) (Duke University, Durham, North Carolina, USA). Senior Vice President, Symbian Smartphones, Mobile 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 man- agement 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 Sci- ence (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 Derivatives Sales, Citibank plc.  – . Manager, Dealing & Risk Management, Nokia  – . Analyst, Assets and Liability Management, Kansallis Bank  – . Member of the Board of Directors of Uponor Corporation. 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. LOUISE PENTLAND, B. 1972 Executive Vice President, Chief Legal Oﬃ cer. Nokia Leadership Team member since . Joined Nokia . LL.B honours (law degree) (Newcastle upon Tyne). Qualiﬁ ed and active Solicitor (England and Wales). Licensed attorney (Member 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 the Board of Directors of Nokia Siemens Networks B.V. Member of Association of General Counsel, CLO Roundtable – Europe, Global Leaders in Law, Corporate Counsel Forum. Vice chair of the International Bar Association. JUHA PUTKIRANTA, B. 1957 Executive Vice President, Operations. Nokia Leadership Team member since July , . Joined Nokia . Master of Science (Eng.) (Helsinki Univer- sity of Technology). Majors in Industrial Economics and Information Technology. Senior Vice President, Supply Chain, Nokia  – . Senior Vice President, Multimedia Computers, Nokia  – . Senior Vice President, Imaging Business Unit, Nokia  – . Senior Vice President, Cellular Telephone Business Unit, Nokia  – . Vice President, Corporate Planning and Business Development, Nokia  – . Managerial positions at Hewlett-Packard Company  – . HENRY TIRRI, B. 1956 Executive Vice President, Chief Technology Oﬃ cer. Nokia Leadership Team member since . Joined Nokia . Ph.D. (computer science) (University of Helsinki). Dr. h.c. (University of Tampere). Head of Nokia Research Center (NRC), Corporate Development, Nokia  – . Head of NRC Systems Research  – . Nokia Research Center, Research Fellow  – . Adjunct Professor in computer science (University of Helsinki). Adjunct Professor in computational engineer- ing (Aalto University, Helsinki). Adjunct Professor in Civil Engineering (University of California, Berkeley). Member of the international Advisory Committee of Tsinghua National Laboratory for Information Science and Technology. 104 N O K I A I N 2 0 1 2 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 Directors of University of Tampere. Chairman of the Board of The Funding Agency for Technology and Innovation (TEKES). TIMO TOIKKANEN, B. 1966 Executive Vice President, Mobile Phones. Nokia Leadership Team member since July , . Joined Nokia . Master of Law degree (University of Helsinki). Master of Law degree (King’s College, London). Head of Business Development, Nokia  – . Senior Vice President, Strategic Business Operations, Nokia  – . Senior Vice President, Sales, Distribution East, Nokia  – . Senior Vice President, Middle East and Africa, Customer and Market Operations, Nokia  – . Vice President, Greater China Mobile Phones Sales, Nokia. Vice President, Sales, China South Mobile Phones, Nokia  – . General Manager, Hong Kong and Macao, Nokia  – . CHRIS WEBER, B. 1965 Executive Vice President, Sales and Marketing. Nokia Leadership Team member since July , . Joined Nokia . Bachelor degree in business administra- tion (economics and computer science) (Mount Union College, Alliance, Ohio, USA). Senior Vice President of Markets, Americas, Nokia  – . CEO of own sales consulting business,  – . Holder of several executive sales and marketing positions during a -year career at Microsoft, including corporate vice president, U.S. Enterprise and Partner Group, and overseeing national sales strategy, sales operations, enterprise partners and vertical industry strategy. 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 Telecommunications  – . Business Development Manager and Controller, Customer Services, Nokia Cellular Systems  – . Project Manager, Nokia Telecom AB (Sweden)  – . Member of the Board of Directors of Nokia Siemens Networks B.V. Member of the Board of Directors of The Federation of Finnish Technology Industries. 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 105 COMPENSATION OF THE BOARD OF DIRECTORS AND THE NOKIA LEADERSHIP TEAM BOARD OF DIRECTORS 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 2012 2011 2010 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 1 700 000 2 25 000  Our President and CEO, Stephen Elop, did not receive remuneration for his service as a member of the Board in  and .  The aggregate amount of Board pay also includes the remuneration paid to our 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, including taxes). In addition, it is Nokia’s policy that non-executive mem- bers of the Board do not participate in any of Nokia’s equity programs and do not receive stock options, performance shares, restricted shares or any other equity-based or oth- erwise variable compensation for their duties as Board mem- bers. The President and CEO did not receive compensation for his service 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 . 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 total remuneration levels and their criteria paid in other global companies with net sales and complexity of business comparable to that of Nokia. The Committee’s aim is to ensure that Nokia has an eﬃ cient 106 N O K I A I N 2 0 1 2 Board of international professionals representing a diverse mix of skills and experience. A competitive Board remuneration contributes to the achievement of this target. Remuneration of the Board of Directors in 2012 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 . Fees earned or paid in cash EUR 1 Year Total EUR 2012 440 000 440 000 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 — — 150 000 150 000 130 000 130 000 — — — — 155 000 155 000 — — 155 000 155 000 130 000 130 000 140 000 140 000 130 000 130 000 140 000 140 000 130 000 130 000 1 700 000 1 700 000 Risto Siilasmaa, Chairman as of May 3, 2012 2 Jorma Ollila, Chairman until May 3, 2012 3 Marjorie Scardino, Vice Chairman 4 Bruce Brown Stephen Elop 5 Bengt Holmström 3 Henning Kagermann 6 Per Karlsson 3 Jouko Karvinen 7 Helge Lund Isabel Marey-Semper 8 Mårten Mickos Elizabeth Nelson 9 Kari Stadigh Total  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. The non-executive members of the Board do not participate in any of Nokia’s equity programs and do not receive stock options, performance shares, restricted shares or any other equity-based or other compensation for their duties as Board members.  Represents the fee paid to Risto Siilasmaa for service as the Chairman of the Board.  Jorma Ollila, Bengt Holmström and Per Karlsson served on the Board until the close of the Annual General Meeting in . They were not paid any fees during fiscal year , but received their compensation for the term until the close of the Annual General Meeting in  during fiscal year . For their compensation in  see Note  to our consolidated financial statements.  Represents the fee paid to Marjorie Scardino for service as Vice Chairman 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 Henning Kagermann, consisting of a fee of EUR   for service as a member of the Board and EUR   for service as the Chairman of the Personnel Committee.  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 the Chairman of the Audit Committee.  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 Elizabeth Nelson, 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. Proposal by the Corporate Governance and Nomination Committee for remuneration to the Board of Directors in 2013 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 it has been for the past ﬁ ve 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  . The guiding principle of the Committee’s proposal is to align the interests of the directors with those of the shareholders by remunerating directors primarily with Nokia shares that must be retained for the duration of the Board membership. Therefore, the 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 a director’s 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). The rest of the remuneration would be payable in cash, most of which is typically used to cover taxes arising out of the remuneration. EXECUTIVE COMPENSATION The sections below describe in more detail, our executive compensation philosophy, the design of our programs and the factors that are considered during the decision-making process. One of the underlying principles of our philosophy and our program design is that a signiﬁ cant portion of execu- tive’s compensation is at-risk pay tied to the performance of the company and aligned with the value delivered to share- holders. Of the total compensation package for the President and CEO, % is at-risk pay tied to performance. The amount of pay at risk for the other members of the Nokia Leadership Team ranges from % to %. Our programs are designed so this portion of at-risk pay is earned and delivered when results warrant. While signiﬁ cant strides have been made in the execution of our strategy, the transition has taken longer than anticipated in terms of results relative to the measures that were deﬁ ned. As a result, under our executive compensa- tion programs, the President and CEO and the members of the Nokia Leadership Team have not realized signiﬁ cant elements of their pay over this past year. 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 the strategy announced in early . Speciﬁ cally, our programs are designed to: ■ incorporate speciﬁ c measures that align directly with the execution of our strategy; ■ 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 Nokia’s and an indi- vidual’s performance; and ■ 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 rele- vant 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 com- pensation consultant from Mercer Human Resources to obtain benchmark data and information on current market trends. The consultant works directly for the Personnel Committee and meets annually with the Personnel Committee, with- out 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 compensa- 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 107 tion levels in preparation for meeting with the Committee. The Committee has reviewed and established that the consult- ant of Mercer Human Resources that works for the Personnel Committee is independent 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 comparison companies; ■ the performance demonstrated by the executive oﬃ cer during the last year, which is evaluated at the end of the year against individual goals that are aligned to Nokia-level ﬁ nancial and strategic goals and against the executive oﬃ cer’s overall leadership capabilities; ■ 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. In , Nokia’s management performed an internal risk assessment 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 compensation programs in  in alignment to our strategy. Management assessed such factors as Nokia’s pro- portion of ﬁ xed compensation in relation to variable compen- sation, 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 compen- sation 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, manage- ment concluded that there are no material 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. A similar assessment was not con- ducted in , as the  assessment considered changes in our programs that were being implemented in . Components of executive 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-level ﬁ nancial and strategic goals that are shared by the Nokia Leadership Team. The short-term cash incentive opportunity is expressed as a percentage of each executive oﬃ cer’s annual base salary. These award opportunities and measurement criteria are presented in the table below. Short-term incentives are determined for the Nokia Leadership Team based on their performance as a team. Additionally, some members of the Nokia Leadership Team have an objective on relative Total Shareholder Return (TSR). The payment with respect to relative TSR 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 rele- vant market indices over one-, three- and ﬁ ve-year periods. The speciﬁ c goals and underlying targets require the Board’s approval with respect to the President and CEO and the Personnel Committee’s approval with respect to the other members of the Nokia Leadership Team. The following table reﬂ ects the measurement criteria that were established for the President and CEO and members of the Nokia Leadership Team for the year . The short-term incentive payout is based on performance relative to targets set for each measurement criteria listed in the table. 108 N O K I A I N 2 0 1 2 Short-term incentive as a % of annual base salary in  Position President and CEO Minimum performance Target performance Maximum performance Measurement criteria 0% 100% 200% Nokia Leadership Team 0% 75% 150% Certain Nokia Leadership Team members (in addition to above) 0% 25% 50% Key ﬁ nancial targets 1 (including gross proﬁ t, OPEX and net cash ﬂ ow); and Strategic objectives 1 (including targets for performance of Nokia’s product and service portfolio); Total shareholder return 2 (comparison made with key competitors in the high technology, telecommunications and Internet services industries over one-, three- and ﬁ ve-year periods)  One Nokia Leadership Team member’s incentive structure is also tied to specific sales and gross margin targets in addition to the key financial targets and strategic objectives.  Total Shareholder Return reflects the change in Nokia’s share price during an established time period, including the amount of dividends paid, divided by Nokia’s share price at the beginning of the period. The calculation is conducted in the same manner for each company in the peer group. Only certain members of the Nokia Leadership Team are eligible for the additional Total Shareholder Return element. For Stephen Elop, Total Shareholder Return was measured in the one-time special CEO incentive program approved by the Board of Directors for the two-year period  – . Annual incentive cash bonus under the Nokia short-term cash incentive plan is paid once per year based on pre-deter- mined Nokia performance criteria assessed as of December , . To determine the pay-out under the Nokia short- term cash incentive plan, the Personnel Committee approved incentive goals are evaluated against pre-deﬁ ned achievement criteria. The resulting scores are then calculated against each executive individual incentive target to ascertain an individual pay-out percent. The executive’s annual base salary is then multiplied by the pay-out percent to determine the pay-out amount. The achievement scores and individual pay-out percent and amount is presented to the Personnel Committee for approval. In the event the achievement criteria is not met, the actual short-term cash incentive awarded to the executive oﬃ cer can be zero. The maximum payout is only possible with maximum performance on all measures. For ﬁ scal year , the incentive criteria were not achieved and as a result there was no pay-out under the short-term cash incentive plan. 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 Phi- losophy, Programs and Decision-making Process,” including a comparison 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. 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, 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-determined restriction period. Any shares granted are subject to the share ownership guidelines as explained below. All of these equity-based incen- tive 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 Leadership Team members under Nokia equity plans in case of a ﬁ nancial re- statement 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 . 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 109 Actual Executive Compensation for 2012 ■ His equity grants were reduced to a level below the competi- 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 an- nual review by the Board of Directors and conﬁ rmation by the independent members of the Board, is EUR   . His in- centive target under the Nokia short-term cash incentive plan is % of annual base salary as at December , . In addi- tion, Mr. Elop had a separate plan for  – , approved by the Board of Directors. Description and outcome of this plan 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 guide- lines 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 tar- get 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 accelerated manner (the performance period of Nokia Performance Share Plan  ended in  and no shares were delivered in accordance with its terms). In case of ter- mination 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 employment upon a material reduction of his duties and responsibilities, upon which he will be entitled to a compensation of  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 con- tract 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 Mr. Elop’s compensation to increased shareholder value and to link a meaningful portion of his compensation directly to the performance of Nokia’s share price over the period of  – , his compensation structure for  and  would be modiﬁ ed. 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 was reduced from % to % and tive market value. In consideration, Mr. Elop had 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 would re- quire performance at the th percentile of the peer group and the maximum payout would occur if the rank is among the top three of the peer group. The peer group consists of a number of relevant companies in the high technology/mo- bility, telecommunications and Internet services industries.  Nokia’s absolute share price at the end of : Minimum payout if the Nokia share price was EUR , with maximum payout if the Nokia share price was EUR . Nokia share price under both criteria was calculated as a - day trade volume weighted average share price on the NASDAQ OMX Helsinki. If the minimum level for one of the criterion had been met, a total of   Nokia ordinary shares would have been delivered to Mr. Elop. At maximum level for both criteria, a total of   Nokia ordinary shares would have been de- livered to him. Shares earned under this plan during – would have been subject to an additional one-year vesting period until the ﬁ rst quarter , at which point the earned and vested shares would have been delivered to Mr. Elop. Based on the results, as of December , , no share de- livery will take place as the minimum performance for neither of the two performance criteria was reached. The number of shares earned and to be settled may be adjusted by the Board of Directors under certain exceptional circumstances up until June ,  should the results signiﬁ cantly change. 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 earn- ings, 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. The Nokia Leadership Team members in the United States participate in Nokia’s US 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. 110 N O K I A I N 2 0 1 2 Long-term equity-based incentives granted in   Nokia Leadership Team 3,4 Total number of Total participants Performance shares at threshold 2 1 131 000 5 785 875 Stock options 2 262 000 10 258 400 Restricted shares 1 606 000 12 999 131 3 560 180 3 690  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.  For performance shares granted under Nokia Performance Share Plans, at maximum performance, the settlement amounts to four times the number at threshold.  Includes Jerri DeVard, Colin Giles, Mary T. McDowell and Niklas Savander for the period until June , , Esko Aho until August ,  and Marko Ahtisaari as from February , , Juha Putkiranta, Timo Toikkanen and Chris Weber as from July , .  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. % of the employer’s match vests for the participants during each year of the ﬁ rst four years of their employment. The Nokia Leadership Team members in Germany participate in the Nokia German Pension Plan that is % company funded. Contributions are based on pensionable earnings, the pen- sion table and retirement age. For the Nokia Leadership Team members in UK, the pension accrued in the UK Pension Scheme is a Money Purchase beneﬁ t. Contributions are paid into the UK Pension Scheme by both the member and employer. These contributions are held within the UK Pension Scheme and are invested in funds selected by the member. ACTUAL COMPENSATION FOR THE MEMBERS OF THE NOKIA LEADERSHIP TEAM IN 2012 At December , , Nokia had a Nokia Leadership Team con- sisting of  members. Changes in the composition in the Nokia Leadership Team during  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, 2012 Base salaries EUR Cash incentive payments 2 EUR 12 6 788 567 515 702 Year 2012  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 based on Nokia’s short-term cash incentives. Includes Jerri DeVard, Colin Giles, Mary T. McDowell and Niklas Savander for the period until June , , Esko Aho until August ,  and Marko Ahtisaari as from February , , Juha Putkiranta, Timo Toikkanen and Chris Weber as from July , .  The amount consists of the annual incentive cash bonus and other bo- nuses earned and paid or payable by Nokia. For fiscal year , the annual incentive bonus plan under the Nokia short-term cash incentive plan did not achieve established criteria; as a result, there was no payout under that plan. The amount includes the discretionary spot bonus awarded to certain Nokia Leadership Team members in recognition of their specific contributions toward the progress made on our strategy as we headed into . The amount does not include any gains realized upon exercise of stock options, which are described in “Stock option exercises and set- tlement of shares” 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 111 Summary compensation table  Year Salary EUR Bonus 2 EUR Stock awards 3 EUR Option awards 3 EUR Change in pension value and nonqualiﬁ ed deferred compensation All other earnings 4 compensation EUR EUR 1 079 500 2012 0 2011 1 020 000 473 070 2010 2 631 400 3 752 396 280 303 440 137 1 682 607 539 300 570 690 57 750 550 000 173 924 479 493 423 524 245 634 1 341 568 497 350 539 443 800 132 106 575 185 448 166 328 56 776 73 956 340 471 262 183 150 311 31 933 69 395 6 2 085 948 3 115 276 40 146 7 8 743 8 893 2012 2011 2010 2012 555 296 55 494 539 300 106 575 58 732 10 1 315 397 Total 5 EUR 4 334 421 7 944 813 6 658 926 1 576 644 1 547 919 2 217 880 2012 411 531 44 038 539 300 106 575 61 477 11 1 162 921 2012 466 653 46 321 407 730 81 708 22 761 9,12 1 025 173 2012 2011 2010 2012 2011 2010 539 300 659 335 0 559 177 202 294 479 493 559 637 314 782 1 233 368 647 160 570 690 0 550 000 134 809 479 493 441 943 247 086 1 233 368 106 575 185 448 142 567 127 890 185 448 142 567 265 566 9,13 1 570 777 1 675 929 249 517 2 321 740 71 386 25 553 15 21 905 23 634 1 621 558 1 474 828 2 088 598 250 265 103 173 Name and principal position 1 Stephen Elop, President and CEO Timo Ihamuotila, EVP, Chief Financial Oﬃ cer Jo Harlow, EVP, Smart Devices 8 Michael Halbherr, EVP, Location & Commerce Louise Pentland, EVP, Chief Legal Oﬃ cer 8 Mary T. McDowell, EVP, Mobile Phones until June 30, 2012 8,14 Niklas Savander, EVP, Markets until June 30, 2012 14  The positions set forth in this table are the current positions of the named executives. Ms. McDowell served as Executive Vice President, Mobile Phones and Mr. Savander served as Executive Vice President, Markets until June , .  The amount consists of the annual incentive cash bonus and/or other bonuses earned and paid or payable by Nokia for the respective fiscal year. For fiscal year , the annual incentive bonus plan under the Nokia short-term cash incentive plan did not achieve established criteria; as a result, there was no pay-out under that plan. The amount for year  represents a discretionary spot bonus awarded to certain Nokia Leader- ship Team members in recognition of their specific contributions toward the progress made on our strategy as we headed into .  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 the grant date. The estimated fair value is based on the grant date market price of a Nokia share less the present value of dividends, if any, 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 threshold. The value of the stock awards with performance shares valued at maximum (four times the number of shares at threshold), for each of the named executive officers, is as follows: Mr. Elop EUR   ; Mr. Ihamuotila EUR  ; Ms. Harlow EUR  ; Mr. Halbherr EUR  ; Ms. Pentland EUR  ; Ms. McDowell EUR  ; and Mr. Savander EUR  .  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.  The amounts shown in the total compensation column do not represent the amount actually payable or paid for the respective fiscal years, as they also include the theoretical pension value and the theoretical grant date fair value of the stock awards and option awards, and not the actual value received by the executive.  All other compensation for Mr. Elop in  includes: EUR   for hous- ing; EUR   for participation in a health assessment and leadership performance program; EUR   for home security; and EUR   tax- able 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; EUR   service year award; EUR   for participation in a health assessment and leadership performance program; EUR   for home security 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. Harlow, Ms. Pentland and Ms. McDowell were paid and denominated in GBP and USD. Amounts were converted using year-end  USD/EUR exchange rate of . and GBP/ EUR rate of .. For year  disclosure, amounts were converted using year-end  USD/EUR and GBP/EUR exchange rate of . and ., respectively. For year  disclosure, amounts were converted using year-end  USD/EUR exchange rate of ..  Ms. McDowell and Ms. Pentland participated in Nokia’s U.S Retirement 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 contributions 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. Harlow in  includes: EUR   com- pany contributions to the UK Pension Plan; EUR   for car and fuel and EUR  for health insurance and home security.  All other compensation for Mr. Halbherr in  includes: EUR   company contributions to the German Pension Plan and EUR   for car, fuel, account maintenance and health insurance.  All other compensation for Ms. Pentland in  includes: EUR   for participation in a health assessment and leadership performance pro- gram; EUR   company contributions to the (k) Plan and EUR   provided under Nokia’s international assignment policy in the UK.  All other compensation for Ms. McDowell in  includes: EUR   provided under Nokia’s international assignment policy in the UK; EUR   for car allowance; EUR   for accrued and unused holiday and payment provided under Nokia’s international assignment policy in the UK and EUR   company contributions to the (k) and Executive Salary Deferral Plan.  Ms. McDowell’s and Mr. Savander’s equity grants were forfeited and can- celled upon their respective terminations of employment in accordance with plan rules.  All other compensation for Mr. Savander in  includes: EUR   for car allowance; EUR   for home security and EUR   taxable benefit for premiums paid under supplemental medical and disability insurance and for mobile phone and driver. 112 N O K I A I N 2 0 1 2 Equity grants in   Name and principal position Stephen Elop, President and CEO Timo Ihamuotila, EVP, Chief Financial Oﬃ cer Jo Harlow, EVP, Smart Devices Michael Halbherr, EVP, Location & Commerce Louise Pentland, EVP, Chief Legal Oﬃ cer Mary T. McDowell, EVP, Mobile Phones, until June 30, 2012 4 Niklas Savander, EVP, Markets, until June 30, 2012 4 Option awards Number of shares underlying options Grant price EUR Grant date fair value 2 EUR Performance shares at threshold (number) 700 000 2.44 497 350 Stock awards Performance shares at Restricted shares maximum (number) (number) Grant date fair value 3 EUR 150 000 2.44 106 575 150 000 2.44 106 575 150 000 2.44 106 575 115 000 2.44 81 708 150 000 2.44 106 575 180 000 2.44 127 890 350 000 1 400 000 500 000 2 631 400 75 000 300 000 75 000 300 000 75 000 300 000 57 500 230 000 100 000 539 300 100 000 539 300 100 000 539 300 75 000 407 730 75 000 300 000 100 000 539 300 90 000 360 000 120 000 647 160 Year Grant date 2012 May 11 June 30 March 31 2012 May 11 June 30 March 31 2012 May 11 June 30 March 31 2012 May 11 June 30 March 31 2012 May 11 June 30 March 31 2012 May 11 June 30 March 31 2012 May 11 June 30 March 31  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 fair value of stock options equals the estimated fair value on the grant date, calculated using the Black-Scholes model. The stock option exercise price was EUR . on May , . NASDAQ OMX Helsinki closing market price was EUR . at grant date on May , . 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 . EQUITY-BASED INCENTIVE PROGRAMS General During the year ended December , , we administered two 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 sustainability of the company and ensure that remuneration is based on per- formance. Performance shares have been the main element of the company’s broad-based equity compensation program for several years to further emphasize the performance element in employees’ long-term incentives. The primary equity instruments for the executive employ- ees are performance shares and stock options. Restricted shares are also used for executives for retention purposes. The portfolio approach is designed to build an optimal and bal- anced combination of long-term equity-based incentives and to help focus recipients on long term ﬁ nancial performance as well as on share price appreciation, thus aligning recipients’ interests with those of shareholders. For directors below the executive level the primary equity instruments are perfor-  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, if any, expected to be paid during the vesting period. The value of performance shares is presented on the basis of a number of shares, which is two times the number at threshold.  Ms. McDowell’s and Mr. Savander’s equity grants were forfeited and can- celled upon their respective terminations of employment in accordance with plan rules. mance shares and restricted shares. Below the director level, performance shares and restricted shares are used on a selec- tive basis to ensure retention and recruitment of individuals with functional mastery and other employees deemed critical to Nokia’s future success. 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 participant group for the  equity-based incentive program continued to include employees from many levels of the organization. As at December , , the aggregate number of participants in all of our active equity-based pro- grams was approximately   compared with approximately   as at December ,  reﬂ ecting changes in our grant guidelines and reduction in eligible population. Stock option, performance share and restricted share grants to the President and CEO are made upon recom- mendation by the Personnel Committee and approved by the Board of Directors and conﬁ rmed by the independent directors of the Board. Stock option, performance share and restricted share grants to the other Nokia Leadership Team members and other direct reports of the President and CEO are approved by the Personnel Committee. Stock option, performance share and restricted share grants to other eligible employees are approved by the President and CEO on a quarterly basis, based on an authorization given by the Board of Directors. 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 113 For a more detailed description of all of our equity-based incentive plans, see Note  to Nokia’s consolidated ﬁ nancial statements. 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 Nokia shares will be delivered unless the Group’s performance reaches at least one of the threshold levels measured by two independent, pre-deﬁ ned performance criteria. The below table illustrates the performance criteria of the Performance Share Plans from  through . Performance criteria 2012 2011 2010 2009 Performance share plan Average annual net sales growth (Nokia Group) EPS at the end of performance period (Nokia Group) Average annual net sales (Nokia Group excluding NSN) Average annual EPS (Nokia Group) — yes yes yes — — yes yes yes — — — yes yes — — The , , and  plans have a three-year perfor- mance period. The shares vest after the respective perfor- mance period. The  plan has a two-year performance period and a subsequent one-year restriction period, after which the shares vest. 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 2009 1 2010 1 2011 2012 Performance period Settlement 2009–2011 2010–2012 2011–2013 2012–2013 2 2012 2013 2014 2015  No Nokia shares were delivered under the Nokia Performance Share Plans  and  as Nokia’s performance did not reach the threshold level of either performance criteria under both plans.  Nokia Performance Share Plan  has a one-year restriction period after the two-year performance period. Until the shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights, as- sociated with the performance shares. The performance share grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting. Similar to the previous ,  and  plans, there was no payout from the  Performance Share Plan. Stock options During  we administered two global stock option plans, the Stock Option Plans  and , each of which, includ- ing 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 Plan  have a vesting schedule with % of the options vesting one year after grant and .% each quarter thereafter. The stock options granted under the  plan have a term of approximately 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 and the remaining % vesting four years from grant. The stock options granted under the  plan have a term of approximately six years. For information on stock option exercise prices, exercise periods and expiry dates, see Note  to our consolidated ﬁ nancial statements. 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 plans, which were approved by the share- holders at the Annual General Meetings  and . 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 grants are generally forfeited if the employment relationship terminates with Nokia. Restricted shares During , we 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 on a selective basis to ensure retention and recruitment of individuals with functional mas- tery and other employees deemed critical to Nokia’s future success. All of our restricted share plans have a restriction period of three years after grant. Until the shares are delivered, the par- ticipants 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 employ- ment relationship terminates with Nokia prior to vesting. 114 N O K I A I N 2 0 1 2 Nokia equity-based incentive program 2013 On January , , the Board of Directors approved the scope and design of the Nokia Equity Program . The Equity Pro- gram  mirrors the  Program in terms of performance shares, stock options and restricted shares. In addition to these instruments, the Board of Directors approved also the imple- mentation of a new Employee Share Purchase Plan. Similarly to the earlier broad-based equity incentive programs, the Equity Program  is designed to support the participants’ focus and alignment with the company’s strategy and targets. Nokia’s use of the performance-based plan in conjunction with the restricted share plan as the main long-term incentive vehicles is planned to eﬀ ectively contribute to the long-term value creation and sustainability of the company and to align the interests of the employees with those of the sharehold- ers. It is also designed to ensure that the overall equity-based compensation is based on performance, while also ensuring the recruitment and retention of talent vital to the future suc- cess of Nokia. In addition, the new Employee Share Purchase Plan is introduced to encourage employee share ownership, commitment and engagement. The primary equity instruments for the executive employ- ees are performance shares and stock options. Restricted shares are also used for executives for retention purposes. For directors below the executive level, the primary equity instruments 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 recruitment of individuals with functional mastery and other employees deemed critical to Nokia’s future success. These equity-based incentive awards are generally forfeited if the employee leaves Nokia prior to vesting. The Employee Share Purchase Plan will be oﬀ ered to all employees in selected jurisdictions (excluding Nokia Siemens Networks’ employees), to the extent there are no local regula- tory or administrative obstacles for the oﬀ er. The participa- tion in the plan will be voluntary to eligible employees. 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 Nokia shares will be deliv- ered 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 . (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- 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, yet realistic and within reach. 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 per- formance 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 no Nokia shares will be delivered. If the required performance level is achieved, the vesting will occur after . Until the Nokia shares are delivered, the participants will not have any share- holder rights, such as voting or dividend rights associated 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 “Stock Options” on page . RESTRICTED SHARES Restricted shares under the Restricted Share Plan  ap- proved by the Board of Directors are used as described above on a selective basis to ensure retention and recruitment of individuals with 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 will be delivered in  and early , dependent on the fulﬁ llment of the criteria of continued employment during the restriction period. Until the shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights associated with these restricted shares. EMPLOYEE SHARE PURCHASE PLAN Under the Employee Share Purchase Plan, eligible Nokia employees can elect to make monthly contributions from their salary to purchase Nokia shares. The contribution per employee cannot exceed EUR   per year. The share pur- chases will be made at market value on pre-determined dates on a monthly basis during a -month savings period. Nokia will oﬀ er one matching share for every two purchased shares the employee still holds after the last monthly purchase has been made in June . In addition,  free shares will be delivered to employees who make the ﬁ rst three consecutive monthly share purchases. The participation in the plan is voluntary to the employees. 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 115 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 Risto Siilasmaa Marjorie Scardino Bruce Brown Stephen Elop Shares 2 732 592 — — — ADSs 2 — 67 362 42 850 425 000 Henning Kagermann 187 977 Jouko Karvinen Helge Lund Isabel Marey-Semper Mårten Mickos Elizabeth Nelson Kari Stadigh 34 279 46 596 43 734 88 350 56 554 400 000 — — — — — — —  Bengt Holmström did not stand for re-election in the Annual General Meeting held on May ,  and he held   shares at that time. Per Karlsson did not stand for re-election in the Annual General Meeting held on May ,  and he held   shares at that time. Per Karlsson’s holdings included both shares held personally and shares held through a company. Jorma Ollila 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. 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 , . MAXIMUM PLANNED GRANTS UNDER THE NOKIA EQUITY-BASED INCENTIVE PROGRAM 2013 IN YEAR 2013 The approximate maximum numbers of planned grants under the Nokia Equity Program  (i.e. performance shares, stock options, restricted shares as well as matching share awards under the Employee Share Purchase Plan) in  are set forth in the table below. Planned maximum number of shares available for grants under the equity program 2013 Plan type Stock options Restricted shares Performance shares at maximum 1 Employee share purchase plan 2 11 million 16 million 32 million 3.15 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.  The total maximum amount of employee contributions during the plan cycle commencing in  will be approximately EUR  million, which equals approximately . million Nokia shares using the January ,  closing share price of EUR .. Based on the matching ratio of one match- ing share for every two purchased shares, the number of matching shares would be . million. In addition,  free shares will be delivered to em- ployees who make the first three consecutive monthly share purchases. 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 Program  would be approximately another .%. SHARE OWNERSHIP 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 are purchased from the market. It is also Nokia’s policy that the Board members retain all Nokia shares received as di- rector 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 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- 116 N O K I A I N 2 0 1 2 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 1 983 866 5 686 250 1 379 750 6 5 519 000 6 2 772 500 % of the outstanding shares 2 0.027 0.153 0.037 0.149 0.075 22.11 16.09 16.09 11.71  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 Plans  and , the number of shares deliverable equals four times the number of performance shares at threshold.  No Nokia shares were delivered under the one-time special CEO incentive program. Therefore the shares deliverable at threshold and maximum equals zero for the incentive program. % 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 ADSs 2 Stephen Elop — 425 000 Marko Ahtisaari 10 000 Michael Halbherr 205 451 Jo Harlow Timo Ihamuotila Louise Pentland Juha Putkiranta Henry Tirri Timo Toikkanen Chris Weber Juha Äkräs Kai Öistämö 14 219 74 825 31 444 36 031 11 931 4 821 4 043 21 761 119 340 — — 25 000 — — — — — — — — Became Nokia Leadership Team member (year) 2010 2012 2011 2011 2007 2011 2012 2011 2012 2012 2010 2005  Jerri DeVard left the Nokia Leadership Team on June ,  and did not hold any shares at that time. Colin Giles left the Nokia Leadership Team on June ,  and held   shares at that time. Mary T. McDowell left the Nokia Leadership Team on June ,  and held   shares and  ADS’s at that time. Niklas Savander left the Nokia Leadership Team on June ,  and held   shares at that time. Esko Aho left the Nokia Leadership Team on August ,  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 117 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 our consolidated ﬁ nancial statements. Number of stock options 1 Total intrinsic value of stock options, December 28, 2012 EUR 2 Name Stephen Elop Marko Ahtisaari Michael Halbherr Jo Harlow Timo Ihamuotila Louise Pentland Juha Putkiranta Stock option category 2010 4Q 2011 2Q 2011 3Q 2012 2Q 2010 2Q 2011 2Q 2011 3Q 2012 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2012 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2012 2Q 2007 2Q 2008 2Q 2009 2Q 2009 4Q 2010 2Q 2011 2Q 2011 3Q 2012 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2012 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2012 2Q 2012 3Q Expiration date December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2018 December 27, 2018 Exercise price per share EUR Exer- cisable Unexer- cisable Exer- cisable 3 Unexer- cisable 7.59 6.02 3.76 2.44 8.86 6.02 3.76 2.44 18.39 19.16 11.18 8.86 6.02 3.76 2.44 18.39 19.16 11.18 8.86 6.02 3.76 2.44 18.39 19.16 11.18 8.76 8.86 6.02 3.76 2.44 18.39 19.16 11.18 8.86 6.02 3.76 2.44 18.39 19.16 11.18 8.86 6.02 2.44 2.18 218 750 0 0 0 15 185 0 0 0 0 3750 5 683 3 655 0 0 0 0 3 500 4 462 14 060 0 0 0 0 20 000 28 433 13 750 39 375 0 0 0 0 4 000 9 750 16 875 0 0 0 0 10 000 16 250 14 060 0 0 0 281 250 250 000 500 000 700 000 11 815 30 000 100 000 115 000 0 0 1 317 2 845 15 000 255 000 150 000 0 0 1 038 10 940 70 000 200 000 150 000 0 0 6 567 6 250 30 625 70 000 200 000 150 000 0 0 2 250 13 125 45 000 150 000 115 000 0 0 3 750 10 940 27 000 50 000 53 500 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 0 343 000 0 0 0 56 350 0 0 0 0 0 0 73 500 0 0 0 0 0 0 73 500 0 0 0 0 0 0 0 73 500 0 0 0 0 0 0 56 350 0 0 0 0 0 24 500 40 125 118 N O K I A I N 2 0 1 2 Number of stock options 1 Total intrinsic value of stock options, December 28, 2012 EUR 2 Exercise price per share EUR Exer- cisable Unexer- cisable Exer- cisable 3 Unexer- cisable 18.39 19.16 11.18 8.86 6.02 4.84 2.44 18.39 19.16 11.18 8.86 6.02 2,44 2.18 6.02 2.44 2.18 18.39 19.16 11.18 8.86 6.02 3.76 2.44 18.39 19.16 11.18 8.86 6.02 3.76 2.44 0 3 500 9 750 11 250 0 0 0 0 10 000 9 750 14 060 0 0 0 0 0 0 0 6 000 9 750 22 500 0 0 0 0 32 000 48 750 39 375 0 0 0 0 0 2 250 8 750 27 000 168 000 4 115 000 0 0 2 250 10 940 27 000 28 500 75 000 25 000 40 000 63 500 0 0 2 250 17 500 45 000 150 000 115 000 0 0 11 250 30 625 45 000 150 000 90 000 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 56 350 0 0 0 0 0 13 965 56 250 0 19 600 47 625 0 0 0 0 0 0 56 350 0 0 0 0 0 0 44 100 658 223 5 028 027 1 035 065 5 490 746 20 230 256  The Personnel Committee approved a grant of    Q stock options to Mr. Tirri. Due to an administrative error, only   stock options were reflected in the documentation provided to Mr. Tirri and reported in ‘Nokia in ’ publication. The administrative error was corrected in .  During , the following executives stepped down from the Nokia Leader ship Team: Jerri DeVard, Colin Giles, Mary T. McDowell, Niklas Savander and Esko Aho. The information 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. Name Henry Tirri Timo Toikkanen Chris Weber Juha Äkräs Kai Öistämö Stock option category 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 4Q 2012 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2012 2Q 2012 3Q 2011 2Q 2012 2Q 2012 3Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2012 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2012 2Q Expiration date December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2018 December 27, 2018 December 27, 2017 December 27, 2018 December 27, 2018 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 Stock options held by the members of the Nokia Leadership Team as at December 31, 2012 Total 5 All outstanding stock option plans (global plans), Total  Number of stock options equals the number of underlying shares represented by the option entitlement. Stock options granted under  and  Stock Option Plans have different vesting schedules. The Group’s global Stock Option Plan  has 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 and the remaining % vesting four years from grant.  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 any gains realized upon exercise of stock options for the members of the Nokia Leadership Team, see the table in “Stock option exercises and settlement of shares” 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 119 Name Jerri DeVard 6 as per June 30, 2012 Colin Giles 7 as per June 30, 2012 Mary T. McDowell 7 as per June 30, 2012 Niklas Savander 7 as per June 30, 2012 Number of stock options 1 Total intrinsic value of stock options, December 28, 2012 EUR 8 Stock option category Expiration date Exercise price per share EUR Exer- cisable Unexer- cisable Exer- cisable 3 Unexer- cisable 2011 2Q 2011 3Q December 27, 2017 December 27, 2017 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2012 2Q 2007 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2012 2Q 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 27, 2018 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 6.02 3.76 18.39 19.16 11.18 8.86 6.02 3.76 18.39 19.16 11.18 8.86 6.02 3.76 2.44 18.39 19.16 11.18 8.86 6.02 3.76 2.44 11.18 8.86 6.02 3.76 2.44 0 0 45 000 150 000 18 000 9 375 13 750 10 936 0 0 55 000 26 250 37 809 26 250 0 0 0 32 000 26 250 37 809 26 250 0 0 0 26 246 15 000 0 0 0 0 625 6 250 14 064 45 000 150 000 0 1 750 17 191 33 750 70 000 200 000 150 000 0 1 750 17 191 33 750 70 000 200 000 180 000 8 754 15 000 30 000 100 000 40 000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Esko Aho 7 as per August 31, 2012 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2012 2Q  Ms. DeVard’s equity will be forfeited and cancelled upon termination of employment in accordance with the plan rules.  Mr. Giles’, Ms. McDowell’s, Mr. Savander’s and Mr. Aho’s stock option grants were forfeited and cancelled 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 June ,  of EUR . in respect of Ms. DeVard, Mr. Giles, Ms. McDowell and Mr. Savander and as at August ,  of EUR . in respect of Mr. Aho. 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 entitlements 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 the consolidated ﬁ nancial statements. 120 N O K I A I N 2 0 1 2 Name Stephen Elop Marko Ahtisaari Michael Halbherr Jo Harlow Timo Ihamuotila Louise Pentland Juha Putkiranta Henry Tirri Timo Toikkanen Chris Weber Juha Äkräs Kai Öistämö Plan name 1 2010 2011 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012 2011 2012 2010 2011 2012 2010 2011 2012 Performance shares Restricted shares Number of Intrinsic value Number of performance performance December 28, 2012 5 EUR shares at threshold 2 maximum 3 shares at Plan name 7 Number restricted shares Intrinsic value of December 28, 2012 8 EUR 0 125 000 0 4 350 000 0 500 000 0 4 0 0 0 6 2010 2011 100 000 180 000 293 000 527 400 1 400 000 2 051 000 2012 500 000 1 465 000 0 15 000 57 500 0 35 000 75 000 0 35 000 75 000 0 35 000 75 000 0 22 500 57 500 0 13 500 51 750 0 22 500 57 500 0 13 500 51 750 12 500 51 750 0 22 500 57 500 0 22 500 45 000 0 60 000 230 000 0 140 000 300 000 0 140 000 300 000 0 140 000 300 000 0 90 000 230 000 0 54 000 207 000 0 90 000 230 000 0 54 000 207 000 50 000 207 000 0 90 000 230 000 0 90 000 180 000 0 0 336 950 0 0 439 500 0 0 439 500 0 0 439 500 0 0 336 950 0 0 303 255 0 0 336 950 0 0 303 255 0 303 255 0 0 336 950 0 0 263 700 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2012 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2012 2011 2012 2009 2010 2011 2012 2010 2011 2012 37 000 23 000 75 000 10 500 17 000 50 000 100 000 20 000 55 000 50 000 100 000 10 000 120 000 50 000 100 000 78 000 35 000 75 000 20 000 30 000 25 000 68 000 20 000 30 000 35 000 75 000 15 000 23 000 15 000 68 000 90 000 68 000 15 000 85 000 35 000 75 000 100 000 35 000 60 000 108 410 67 390 219 750 30 765 49 810 146 500 293 000 58 600 161 150 146 500 293 000 29 300 351 600 146 500 293 000 228 540 102 550 219 750 58 600 87 900 73 250 199 240 58 600 87 900 102 550 219 750 43 950 67 390 43 950 199 240 263 700 199 240 43 950 249 050 102 550 219 750 293 000 102 550 175 800 Performance shares and restricted shares held by the Nokia Leadership Team, Total 9 All outstanding performance shares and restricted shares (global plans), Total 1 379 750 5 519 000 5 890 765 2 772 500 8 123 425 8 574 085 34 296 340 30 634 233 23 680 532 69 383 959  The performance period for the  plan is –, for the  plan – and for the  plan – (with a subsequent one-year restriction period), 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 maximum equals zero for the Performance Share Plan .  Represents the threshold and maximum number of shares under the one- time special CEO incentive program. No Nokia shares were delivered under 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 121 the incentive program, as Nokia’s performance did not reach the thresh- old level of either performance criteria. Therefore the shares deliverable at threshold and maximum equals zero.  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 Plan  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 is zero, as no Nokia shares were delivered, as Nokia’s performance did not reach the threshold level of either performance criteria.  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 July , .  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 Leader ship Team: Jerri DeVard, Colin Giles, Mary T. McDowell, Niklas Savander and Esko Aho. 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 Jerri DeVard 10 as per June 30, 2012 Colin Giles 11 as per June 30, 2012 Mary T. McDowell 11 as per June 30, 2012 Niklas Savander 11 as per June 30, 2012 Esko Aho 11 as per August 31, 2012 2010 2011 2010 2011 2010 2011 2010 2011 2012 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 2011 22 500 90 000 12 500 22 500 50 000 90 000 30 000 35 000 120 000 140 000 30 000 35 000 120 000 140 000 15 000 15 000 20 000 60 000 60 000 80 000 0 0 90 400 0 0 0 0 0 0 0 0 2011 100 000 162 000 2009 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012 20 000 55 000 35 000 60 000 115 000 50 000 100 000 115 000 50 000 120 000 32 400 89 100 56 700 97 200 186 300 81 000 162 000 186 300 81 000 194 400 58 000 23 000 30 000 131 080 51 980 67 800  Ms. DeVard’s equity will be forfeited and cancelled upon termination of employment in accordance with the plan rules.  Mr. Giles’, Ms. McDowell’s, Mr. Savander’s and Mr. Aho’s performance and restricted share grants were forfeited and cancelled upon their respective terminations of employment 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 June ,  of EUR . in respect of Ms. DeVard, Mr. Giles, Ms. McDowell and Mr. Savander and as at August ,  of EUR . in respect of Mr. Aho.  The threshold number will vest as Nokia shares should the pre-deter- mined 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. 122 N O K I A I N 2 0 1 2 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 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 9 000 3 6 000 3 25 000 4 6 000 4 10 000 3 10 000 3 10 000 3 0 0 37 980 3 25 320 3 69 750 4 16 740 4 42 200 3 42 200 3 42 200 3 0 0 8 000 3 33 760 3 50 000 4 139 500 4 Name 5 Stephen Elop Marko Ahtisaari Michael Halbherr Jo Harlow Timo Ihamuotila Louise Pentland Juha Putkiranta Henry Tirri Timo Toikkanen Chris Weber 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 delivery of Nokia shares vested from 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 delivery of Nokia shares vested from the Restricted Share Plan . Value is based on the average market price of the Nokia share on NASDAQ OMX Helsinki on April ,  of EUR ..  During , the following executives stepped down from the Nokia Lead- ership Team: Jerri DeVard, Colin Giles, Mary T. McDowell, Niklas Savander and Esko Aho. 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 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 Jerri DeVard as per June 30, 2012 Colin Giles as per June 30, 2012 Mary T. McDowell as per June 30, 2012 Niklas Savander as per June 30, 2012 Esko Aho as per August 31, 2012 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 10 000 3 42 200 3 38 000 4 106 020 4 38 000 4 106 020 4 7 000 3 25 000 4 29 540 3 69 750 4 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 123 Share 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 avail- able 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, prohibitions on trading in Nokia securities during the three-week “closed-window” pe- riod 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 an- nual 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. 124 N O K I A I N 2 0 1 2 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”). 2011 Under the Policy, proposed services either (i) may be pre- approved by the Audit Committee without 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. 4.9 3.6 1.1 2.3 2.1 — 15.3 27.7 10.9 18.1 Nokia Siemens Nokia Networks Total 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 respect of the appointment of the auditor based upon its evaluation 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. 2012 Nokia Siemens Nokia Networks Total 7.2 0.8 2.4 0.3 10.2 17.4 1.4 2.2 1.6 4.0 — 0.3 EURm Audit fees 1 Audit-related fees 2 Tax fees 3 All other fees 4 7.2 1.3 2.8 1.1 Total 10.7 13.2 23.9 12.4  Audit fees consist of fees billed for the annual audit of the company’s consolidated financial statements and the statutory financial statements of the company’s subsidiaries.  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 advice 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 and 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. 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. A U D I T O R F E E S A N D S E R V I C E S 125 INVESTOR INFORMATION INFORMATION ON THE INTERNET www.nokia.com/global/about-nokia INVESTOR RELATIONS CONTACTS 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: Tuesday, May ,  at . pm Address: Helsinki Fair Centre, Amﬁ -hall, Messuaukio , Helsinki, Finland Stock exchanges The Nokia Corporation share is quoted on the following stock exchanges: Symbol Trading currency Dividend The Board proposes to the Annual General Meeting that no dividend be paid for the ﬁ scal year . NASDAQ OMX Helsinki (since 1915) New York Stock Exchange (since 1994) NOK1V EUR NOK USD 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 2012 All Nokia’s global press releases published in  are available on the Internet at press.nokia.com. FORWARD-LOOKING STATEMENTS It should be noted that Nokia and its business are exposed to various risks and uncertainties and 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 smartphones; B) the timing and expected benefits of our 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 technologies, 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, regulatory proceedings or investigations by authorities; J) expectations regarding the successful completion of restructurings, invest- ments, acquisitions and divestments on a timely basis and our ability to achieve the financial and operational targets set in connection with any such restructurings, investments, acquisi- tions and divestments; and K) statements preceded by “believe,” “expect,” “anticipate,” “foresee,” “target,” “estimate,” “designed,” “aim”, “plans,” “intends,” “will” or similar expressions. These statements are based on management’s best assumptions and beliefs in light of the information currently available to it. Because they involve risks and uncertainties, actual results may differ materially from the results that we currently expect. Factors, including risks and uncertainties that could cause these differ- ences include, but are not limited to: ) our ability to make the Windows Phone ecosystem a competitive and profitable global ecosystem that achieves sufficient scale, value and attractiveness to relevant market participants, making Nokia products with Windows Phone a competitive choice for consumers; ) our success in the smartphone market, including our ability to introduce and bring to market quantities of attractive, competi- tively priced Nokia products with Windows Phone that are positive- ly differentiated from our competitors’ products, both outside and within the Windows Phone ecosystem; ) our ability to produce attractive and competitive devices in our Mobile Phones business unit, including feature phones and devices with features such as full touch that can be categorized as smartphones, in a timely and cost efficient manner with differentiated hardware, software, 126 N O K I A I N 2 0 1 2 as the impact of regulations against imports to those countries; ) the impact of changes in and enforcement of government policies, technical standards, trade policies, laws or regulations in countries where our assets are located and where we do business; ) investigations or claims by contracting parties in relation to exits from countries, areas or contractual arrangements; ) unfavorable outcome of litigation, regulatory proceedings or investigations by authorities; ) allegations of possible health risks from electromagnetic fields generated by base stations and mobile devices, and the lawsuits and publicity related to them, regardless of merit; ) Nokia Siemens Networks’ success in the mobile broadband infrastructure and related services market and its ability to effectively, profitably and timely adapt business and operations to the diverse needs of its customers; ) Nokia Siemens Networks’ ability to maintain and improve its market position and respond successfully to changes and competition in the mobile broadband infrastructure and related services market; ) Nokia Siemens Networks’ success in implementing its restructuring plan and reducing its operating expenses and other costs; ) Nokia Siemens Networks’ ability to invest in and timely introduce new competitive products, services, upgrades and technologies; ) Nokia Siemens Networks’ dependence on limited number of customers and large, multi-year contracts; ) Nokia Siemens Networks’ liquidity and its ability to meet its working capital requirements, including access to available credit under its financing arrangements and other credit lines as well as cash at hand; ) the management of Nokia Siemens Networks’ customer financing exposure; ) whether ongoing or any additional governmental investigations of 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; ) any impairment of Nokia Siemens Networks customer relationships resulting from ongoing or any additional governmental 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 on Form -F for the year ended December ,  under Item D. “Risk Factors.” Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Nokia does not undertake any obligation to publicly update or revise forward-looking state- ments, whether as a result of new information, future events or otherwise, except to the extent legally required. localized services and applications; ) the success of our HERE strategy, including our ability to establish a successful location- based platform and extend our location-based services across devices and operating systems; ) our ability to provide support for our Devices & Services business and maintain current and create new sources of revenue from our location-based service and commerce assets; ) 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 the existing sources of intellectual property related revenue and establish new such sources; ) 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 keep momentum and increase our speed of innovation, product development and execution in order to bring new innovative and competitive mobile products and location-based or other services to the market in a timely manner; ) the success of our partnership with Microsoft in connection with the Windows Phone ecosystem; ) our ability to effectively and smoothly implement the planned changes in our operational structure and achieve targeted efficiencies and reduc- tions in operating expenses; ) our ability to retain, motivate, develop and recruit appropriately skilled employees; ) 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 maintain and leverage our traditional strengths in the mobile products market, especially if we are unable 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 performance of the parties we partner and collaborate with, including Microsoft and our ability to achieve successful collaboration or partnering arrangements; ) our ability to deliver our mobile products profitably, in line with quality requirements and on time, especially if the limited number of suppliers we depend on fail to deliver sufficient quantities of fully functional products, components, sub-assemblies, software and services on favorable terms and in compliance with our supplier requirements; ) 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; ) any actual or even alleged defects or other quality, safety and security issues in our products; ) any inefficiency, malfunction or disruption of a system or network that our operations rely on; ) the impact of 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; ) our ability to successfully manage the pricing of our products and costs related to our products and our operations; ) the potential complex tax issues and obligations we may face, including the obligation to pay additional taxes in various jurisdictions and our actual or anticipated performance, among other factors, could result in allowances related to deferred tax assets; ) exchange rate fluctuations, particularly between the euro, which is our reporting currency, and the US dollar, the Japanese yen and the Chinese yuan, as well as certain other currencies; ) our ability to protect the technologies, which we or others develop or which 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 product and services; ) the impact of economic, regulatory, political or other development on our sales, manufacturing facilities and assets located in emerging market countries as well I N V E S T O R I N F O R M A T I O N 127 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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