NOKIA IN 2013 NOKIA IN 2013 YEAR 2013 HIGHLIGHTS ............................................................................. 2 KEY DATA ................................................................................................................. 4 REVIEW BY THE BOARD OF DIRECTORS 2012 .......................... 5 ANNUAL ACCOUNTS 2013 Consolidated income statements, IFRS ................................................................. 22 Consolidated statements of comprehensive income, IFRS ............................... 23 Consolidated statements of fi nancial position, IFRS .......................................... 24 Consolidated statements of cash fl ows, IFRS ...................................................... 25 Consolidated statements of changes in shareholders’ equity, IFRS ................ 26 Notes to the consolidated fi nancial statements .................................................. 28 Income statements, parent company, FAS ........................................................... 82 Balance sheets, parent company, FAS ................................................................... 82 Statements of cash fl ows, parent company, FAS ................................................. 83 Notes to the fi nancial statements of the parent company ................................ 84 Nokia shares and shareholders ............................................................................... 90 Nokia Group 2009 – 2013, IFRS ................................................................................ 96 Calculation of key ratios ............................................................................................ 98 Signing of the Annual Accounts 2013 and proposal for distribution of profi t .................................................................. 99 Auditors’ report ........................................................................................................ 100 ADDITIONAL INFORMATION Critical accounting policies .................................................................................... 102 Corporate governance statement Corporate governance ........................................................................................ 108 Board of Directors ............................................................................................... 114 Nokia Group Leadership Team ........................................................................... 117 Compensation of the Board of Directors and the Nokia Group Leadership Team ................................................................ 119 Auditor fees and services ....................................................................................... 140 Investor information ................................................................................................ 141 Contact information ................................................................................................. 143 YEAR 2013 HIGHLIGHTS A TRANSFORMATIVE YEAR FOR NOKIA 25.2. Nokia expands its Windows Phone 8 portfolio by launching the Nokia Lumia 720 and the Nokia Lumia 520 at Mobile World Congress. 3.6. Nokia’s new manufacturing facility in Hanoi, Vietnam starts customer shipments. 7.8. Nokia completes the acquisition of Siemens’ stake in Nokia Siemens Networks and renames the business Nokia Solutions and Networks, also known as NSN. 9.7. HERE introduces HERE Drive + for all Windows Phone 8 smartphones. 25.2. HERE introduces LiveSightTM, Nokia’s set of augmented- reality technologies in the new HERE Maps. 9.5. Nokia introduces the Nokia Asha 501 in New Delhi. 1.7. Nokia announces its plans to acquire Siemens’ stake in Nokia Siemens Networks. 11.7. Nokia launches the Nokia Lumia 1020 in New York. 1/2013 22.10. (cid:49)(cid:82)(cid:78)(cid:76)(cid:68)(cid:3)(cid:79)(cid:68)(cid:88)(cid:81)(cid:70)(cid:75)(cid:72)(cid:86)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:428)(cid:85)(cid:86)(cid:87)(cid:3) Windows tablet, the Nokia Lumia 2520 with integrated (cid:43)(cid:40)(cid:53)(cid:40)(cid:3)(cid:48)(cid:68)(cid:83)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:428)(cid:85)(cid:86)(cid:87)(cid:3)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3) screen Lumia smartphones: the Nokia Lumia 1520 and the Nokia Lumia 1320. 9.9. HERE begins work with Mercedes-Benz to explore “smart maps” for self- driving cars and announces partnerships with Magneti Marelli and Continental. 19.11. Nokia’s Extraordinary (cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:48)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:428)(cid:85)(cid:80)(cid:86)(cid:3) and approves the sale of substantially all of the Devices & Services business to Microsoft. 31.12. The embedded navigation systems of more than 10 million new cars sold in 2013 are powered by maps from HERE, underlining the leadership of HERE in providing navigation and mapping solutions for the automotive industry. 30.10. NSN wins a deal with Sprint for the deployment of its TD-LTE network. Other major deals won by NSN in 2013 include e.g. China Mobile and China Telecommunications Corporation. 30.8. HERE introduces the Connected Driving solution. 3.9. Nokia announces the sale of substantially all of its Devices & Services business to Microsoft and changes in its leadership. 12/2013 KEY DATA Based on fi nancial statements according to International Financial Reporting Standards, IFRS. Nokia continuing operations, EURm Net sales Operating profi t/loss Profi t/loss before tax Profi t/loss attributable to equity holders’ of the parent Research and development expenses Nokia Group, % Return on capital employed Net debt to equity (gearing) 2013 12 709 519 243 186 2 619 2013 neg. – 35 2012 Change, % – 17 – 15 15 400 – 821 – 1 179 – 771 3 081 2012 neg. – 47 EUR 2013 2012 Change, % Nokia continuing operations Earnings per share, basic Nokia Group Earnings per share, basic Dividend per share Average number of shares (1 000 shares) * Board’s proposal 0.05 – 0.21 – 0.17 0.37 * – 0.84 0.00 3 712 079 3 710 845 – 80 Nokia continuing businesses, EURm 2013 2012 Change, % Networks Net sales Operating profi t/loss HERE Net sales Operating loss Technologies Net sales Operating profi t Personnel, December 31 Networks HERE Technologies and Corporate Common Functions Nokia continuing operations 10 major markets, net sales; EURm Continuing operations Main currencies, rates at the end of 1 EUR USD GBP CNY INR RUB JPY 1.3751 0.8444 8.3498 85.1620 45.2264 141.80 4 N O K I A I N 2 0 1 3 USA Japan China India Germany Finland Brazil Russia Indonesia Great Britain 11 282 420 13 779 – 795 -18 – 17 – 49 – 1 – 5 1 103 – 301 534 325 2012 Change, % – 17 – 7 – 8 – 16 58 411 6 186 950 65 547 2012 1 498 2 176 1 077 757 844 659 805 476 418 540 914 – 154 529 310 2013 48 628 5 741 875 55 244 2013 1 542 1 388 896 656 609 594 511 421 410 392 REVIEW BY THE BOARD OF DIRECTORS 2013 Year constituted a remarkable time in the almost - year history of Nokia as two major transactions reshaped the company. In the fi rst, Nokia purchased the remaining half of a leading telecommunications infrastructure business. In the second, Nokia divested its devices business which for over three decades had emerged to become a household name. This has been a transformative time for Nokia, its shareholders, people and other stakeholders. However, we believe that the changes we have pursued and executed were in the interests of Nokia and its shareholders, and today, we believe that the company is on a new path and has the capability to grow a new. Sale of substantially all of Devices & Services business to Microsoft The process leading to the announcement of the proposed sale of substantially all of Nokia’s Devices & Services business to Microsoft on September , , and eventually to the clos- ing of the transaction on April , , started in early when Microsoft approached Nokia indicating its interest in purchasing all or part of our Devices & Services business. After this contact, we carried out an extensive strategic review and considered a wide range of strategic alternatives and scenarios for the company. This review included, among other things, a thorough assessment of what would be possible within the framework of the partnership with Microsoft, outside of it, as well as the value of Nokia’s businesses and assets in diff erent scenarios. During this process and throughout the negotiations, we consulted with our senior management as well as with outside legal and fi nancial advisors. The negotiations with Microsoft progressed and eventually resulted in an off er from Microsoft to purchase substantially all of Nokia’s Devices & Services business and to license our patents. After a thorough and careful assessment, we determined at a meeting held on September , , that the proposed transaction was advisable, fair to, and in the best interests of Nokia and its shareholders. We decided to enter into the transaction and resolved to submit it to Nokia shareholders for confi rmation and approval. On September , , Nokia announced that it had signed an agreement to enter into a transaction whereby Nokia would sell to Microsoft substantially all of its Devices & Services business, including the Mobile Phones and Smart Devices busi- ness units as well as an industry-leading design team, opera- tions including Nokia Devices & Services production facilities, Devices & Services-related sales and marketing activities, and related support functions. Also, in conjunction with the closing of the transaction Nokia granted Microsoft a -years non-exclusive license to its patents and Microsoft granted Nokia reciprocal rights to use Microsoft patents in our HERE services, our mapping and location services business. The total purchase price was EUR . billion, of which EUR . bil- lion related to the purchase of substantially all of the Devices & Services business, and EUR . billion related to the year mutual patent license agreement and the option to extend this agreement in perpetuity (hereafter the transaction is referred to as the “Sale of the D&S Business”). In addition, Microsoft became a strategic licensee of the HERE platform, and separately pays Nokia for a four-year license. On November , , Nokia’s shareholders confi rmed and approved the transaction at the Extraordinary General Meeting in Helsinki. We were very pleased by the overwhelm- ingly strong support our shareholders gave for the transaction, as total of over % of the votes cast were in favour of the approval. Having received the approval of Nokia shareholders and regulatory authorities as well as fulfi lling other customary closing conditions, the transaction closed on April , . Purchase of the remaining stake in NSN During the summer we were able to move forward with negotiating the purchase of Siemens’ share of Nokia Siemens Networks, our infrastructure joint venture. We saw potential in its leadership in next generation technologies, such as LTE, as well as in its profi tability improvement, which was the result of the focused strategy and successful implementation of the company’s restructuring programme. We saw an oppor- tunity to purchase Siemens’ share at what we believed to be an attractive price and create value for our shareholders. We announced the transaction on July , and the transaction was completed on August , . Interim governance In connection with the announcement of the Microsoft trans- action in September , the Board deemed it fi t to also re- evaluate the governance and management roles for Nokia. As Stephen Elop was agreed to transfer to Microsoft upon closing of the transaction, he stepped aside as President and CEO of Nokia Corporation, resigned from the Nokia Board of Directors, and became Executive Vice President, Devices & Services, as from September , , in order to avoid the perception of any potential confl icts of interest. On the same day, Risto Siilasmaa assumed the position of interim CEO and Timo Ihamuotila assumed the position of interim President, both in addition to their respective existing duties as Chairman of the Nokia Board and CFO, respectively. 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 On April , , Nokia announced its new strategy and consequently, changes to its leadership. Nokia Board appoint- ed, eff ective as from May , , Rajeev Suri as the President and CEO of Nokia. Board work The Nokia Board of Directors and its committees met approxi- mately times over the year. Part of these meetings were regularly scheduled meetings, complemented by meetings through video and conference calls and other means. This extensive amount was appropriate given the careful and thorough evaluations we undertook in relation to the strategic plans in consideration and the two major transactions, in addi- tion to carrying out the regular work of the Board. Nokia going forward Following the closing of the transaction, Nokia continues to own and maintain the Nokia brand. Under the terms of the transaction, Microsoft received a -year license arrangement with Nokia to use the Nokia brand on certain Mobile Phones products. Additionally, Nokia is restricted from licensing the Nokia brand for use in connection with mobile device sales for months from the closing and from using the Nokia brand on Nokia’s own mobile devices until December , . The signifi cant developments during and early also meant that Nokia needed to re-evaluate its strategy and corporate identity going forward. A large component of the process was to assess which technologies would defi ne and dominate the next ten years and how Nokia could position itself in that emerging environment. The evaluation comprised of evaluations of strategies for each of Nokia’s three continu- ing businesses and possible synergies between them, as well as an evaluation of the optimal corporate and capital structure for Nokia after the closing of the transaction. Nokia an- nounced the outcome of its evaluation and the new strategy on April , . Looking ahead, Nokia has three continuing businesses, each of which is a leader in enabling mobility in its respective market segment: network business Networks (previously Nokia Solutions and Networks, or NSN), HERE mapping and location services and Technologies (previously Advanced Technologies), which is focused on technology development and intellectual property licensing. The history of Nokia goes far beyond mobile devices. In the course of its almost years of existence, the company brand has been associated with cables, rubber boots, car tyres, and televisions, and more. Nokia has always lived among changes, encountered diffi culties, made landmark decisions, and survived. The Nokia Board continuing its work in focused on building the next chapter of Nokia’s success. RESULTS OF OPERATIONS We have three businesses: Networks, HERE, and Technologies, and four operating and reportable segments for fi nancial reporting purposes: Mobile Broadband and Global Services within Networks, HERE, and Technologies. Below is a descrip- tion of our four reportable segments. ■ Mobile Broadband provides mobile operators with radio and core network software together with the hardware needed to deliver mobile voice and data services. ■ Global Services provides mobile operators with a broad range of services, including network implementation, care, managed services, network planning and optimization, as well as systems integration. ■ HERE focuses on the development of location intelligence, location-based services and local commerce. ■ Technologies is built on Nokia’s Chief Technology Offi ce and intellectual property rights and licensing activities. Networks also contains Networks Other, which includes net sales and related cost of sales and operating expenses of non-core businesses, as well as Optical Networks busi- ness until May , , when its divestment was completed. It also includes restructuring and associated charges for Networks business. Additionally, as a result of the Sale of the D&S Business, we report certain separate information for Discontinued operations. On August , , Nokia completed the acquisition of Siemens’ stake in Nokia Siemens Networks, which was a joint venture between Nokia and Siemens and renamed the com- pany Nokia Solutions and Networks, also referred to as NSN. After the closing of the Sale of the D&S Business, NSN was renamed Networks. Networks was consolidated by Nokia prior to this transaction. Beginning in the third quarter of , Nokia has reported fi nancial information for the two operating and reportable segments within Networks; Mobile Broadband and Global Services. Beginning in the fourth quarter of , the Devices & Services business has been reported as Discontinued operations. To refl ect these changes, histori- cal results information for past periods has been regrouped for historical comparative purposes. As is customary, certain judgments have been made when regrouping historical results information and allocating items in the regrouped results. When presenting fi nancial information as at December , and related comparative information for previous periods, we generally refer to the names of the businesses and reportable segments as they were named at December , . However, the terms “Networks” and “Nokia Solutions and Networks, or “NSN” and the terms “Technologies” and “Advanced Technologies” may be used interchangeably in this annual report. 6 N O K I A I N 2 0 1 3 Nokia Continuing operations The following table sets forth selective line items for the fi scal years and . EURm Net sales Cost of sales Gross profi t Research and development expenses 2013 YoY 2012 Change 12 709 15 400 – 17% – 7 364 – 9 841 – 25% 5 345 5 559 – 4% – 2 619 – 3 081 – 15% Selling and marketing expenses – 974 – 1 372 – 29% Administrative and general expenses Other operating income and expenses – 697 – 690 1% – 536 – 1 237 – 57% Operating profi t (loss) 519 – 821 NET SALES Continuing operations net sales declined by % to EUR million in compared with EUR million in . The decline in Nokia’s continuing operations’ net sales in was primarily due to lower NSN and HERE net sales. The decline in NSN net sales was partially due to divestments of businesses not consistent with its strategic focus, as well as the exiting of certain customer contracts and countries. Excluding these two factors, NSN net sales in declined by approximately % primarily due to reduced wireless infrastructure deploy- ment activity, which aff ected both Global Services and Mobile Broadband. The decline in HERE net sales was primarily due to a decline in internal HERE net sales due to lower recognition of deferred revenue related to our smartphone sales, partially off set by an increase in external HERE net sales due to higher sales to vehicle customers. Additionally, NSN and HERE net sales were negatively aff ected by foreign currency fl uctua- tions. The following table sets forth the distribution by geographi- cal area of our net sales for the fi scal years and . Distribution of net sales by geographic area EURm Europe Middle East & Africa Greater China Asia-Pacifi c North America Latin America Total 2013 2012 3 940 1 169 1 201 3 428 1 656 1 315 4 892 1 362 1 341 4 429 1 628 1 748 12 709 15 400 The markets in which we generated the greatest net sales in were, in descending order of magnitude, the United States, Japan, China, India, Germany, Finland, Brazil, Russia, Indonesia and Great Britain, together representing approxi- mately % of total net sales in . In comparison, the markets in which we generated the greatest net sales in were Japan, the United States, China, Germany, Brazil, India, Finland, Great Britain, Russia and Indonesia, together repre- senting approximately % of total net sales in . GROSS MARGIN Gross margin for continuing operations in was .%, compared to .% in . The increase in was primarily due to a higher NSN gross margin. NSN gross margin increased primarily due to improved effi ciency in Global Services, an improved product mix with a greater share of higher margin products, and the divestment of less profi table businesses. OPERATING EXPENSES Our research and development expenses were EUR mil- lion in , compared to EUR million in . Research and development expenses represented .% of our net sales in , compared to .% in . Research and devel- opment expenses included purchase price accounting items of EUR million in , compared to EUR in . The decrease was primarily due to lower amortization of acquired intangible assets within HERE. In addition, it included EUR million of transaction related costs, related to the Sale of the D&S Business. In , our selling and marketing expenses were EUR million, compared to EUR million in . Selling and marketing expenses represented .% of our net sales in compared to .% in . The decrease in selling and mar- keting expenses was due to lower purchase price accounting items and generally lower expenses in NSN and HERE. Selling and marketing expenses included purchase price accounting items of EUR million in compared to EUR million in . The decrease was primarily due to items arising from the formation of NSN becoming fully amortized at the end of the fi rst quarter of . 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 de- cline in net sales in . Administrative and general expenses did not include purchase price accounting items in either or . Other income and expense was a lower net expense of EUR million in , compared to EUR million in . HERE internal sales refers to sales that HERE had to our Discontinued operations (formerly Devices & Services business) that used certain HERE services in its mobile devices. After the closing of the Sale of the D&S Business HERE no longer generates such internal sales, however it will continue to recognize deferred revenue related to this business for up to months after the closing of the Sale of the D&S Business. As part of the Sale of the D&S Business, Microsoft will become a strategic licensee of the HERE platform, and will separately pay HERE for a four-year license that will be recognized ratably as external net sales. 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 In , other income and expenses included restructur- ing charges of EUR million, as well as transaction related costs of EUR million related to the Sale of the D&S Business. In , other income and expenses included restructuring 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 as well as amortization of acquired intangible assets of EUR million and a net gain on sale of real estate of EUR million. OPERATING PROFIT (LOSS) Our operating profi t was EUR million, compared with an operating loss of EUR million in . The increased operating profi t resulted primarily from lower restructuring charges and purchase price accounting items in general and an increase in the operating performance of our NSN busi- ness, which was partially off set by a decrease in the operating performance of HERE. Our operating profi t in included purchase price accounting items, restructuring charges and other special items of net negative EUR million compared to net negative EUR million in . Our operating margin was positive .% compared to negative .% in . The improvement was primarily due to an increase in our gross margin and lower expenses in other income and expenses. CORPORATE COMMON Corporate common functions’ operating loss totalled EUR million in , compared to EUR million in . In cor- porate common included restructuring charges and associated impairments of EUR million, as well as transaction related costs of EUR million related to the Sale of the D&S Business. In corporate common benefi tted from a net gain from sale of real estate of EUR million and included restructuring charges of EUR million. NET FINANCIAL INCOME AND EXPENSES Financial income and expenses, net, was an expense of EUR million in compared to an expense of EUR million in . The lower net expense in was primarily driven by lower foreign exchange losses. Our net debt to equity ratio was negative % at December , , compared with a net debt to equity ratio of negative % at December , . PROFIT (LOSS) BEFORE TAXES Continuing operations profi t before tax was EUR million in , compared to a loss of EUR million in . Taxes amounted to EUR million in and EUR million in . NON-CONTROLLING INTERESTS Loss attributable to non-controlling interests from continuing operations totalled EUR million in , compared with a loss attributable to non-controlling interests of EUR million in . This change was primarily due to an improvement in NSN’s results and our acquisition of Siemens’ stake in NSN. PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT AND EARNINGS PER SHARE Nokia Group’s total loss attributable to equity holders of the parent in amounted to EUR million, compared with a loss of EUR million in . Continuing operations gener- ated a profi t attributable to equity holders of the parent in , amounting to EUR million, compared with a loss of EUR million in . Nokia Group’s total earnings per share in increased to EUR – . (basic) and EUR – . (diluted), compared with EUR – . (basic) and EUR – . (diluted) in . From continuing operations, earnings per share in increased 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’s continuing operations cash fl ow for the fi scal years and , as well as the year- on-year growth rates. EURm Net cash from operating activities Total cash and other liquid assets Net cash and other liquid assets 1 2013 YoY 2012 Change 72 – 354 8 971 9 909 – 9% 2 309 4 360 – 47% Total cash and other liquid assets minus interest-bearing liabilities. The items below are the primary drivers of the decrease in Nokia’s continuing operations net cash and other liquid assets in of EUR . billion: ■ Nokia’s continuing operations net profi t adjusted for non- cash items of positive EUR . billion; ■ Nokia’s continuing operations outfl ow related to the acquisition of Siemens’ stake in Nokia Siemens Networks of EUR . billion; ■ Nokia’s continuing operations net working capital-related cash outfl ows of approximately EUR million, which included approximately EUR million of restructuring related cash outfl ows; ▪ NSN net working capital-related outfl ows of approximately EUR million, which included approximately EUR million of restructuring-related cash outfl ows. Excluding 8 N O K I A I N 2 0 1 2 the restructuring-related cash outfl ows, NSN net working capital-related infl ows of approximately EUR million is primarily due to a decrease in receivables and inventories, partially off set by a decrease in interest free short term liabilities. RESULTS BY SEGMENTS Nokia Solutions and Networks The following table sets forth selective line items for the fi scal years and . ▪ HERE net working capital-related infl ows of approximately EUR million; ▪ Advanced Technologies net working capital-related in- fl ows of approximately EUR million. EURm Net sales Cost of sales Gross profi t ■ Nokia’s continuing operations net fi nancial income and expense-related cash infl ow of approximately EUR million, ■ Nokia’s continuing operations cash tax net outfl ows of approximately EUR million; ■ Nokia’s continuing operations net proceeds related to unlisted funds of approximately EUR million; 2013 YoY 2012 Change 11 282 13 779 – 7 148 – 9 610 4 134 4 169 – 1 822 – 2 046 – 18% – 26% – 1% – 11% – 29% Research and development expenses Selling and marketing expenses – 821 – 1 158 Administrative and general expenses Other operating income and expenses – 489 – 470 4% – 582 – 1 290 – 55% Operating profi t/loss 420 – 795 ■ Nokia’s continuing operations capital expenditure of Segment information approximately EUR million; ■ Nokia’s continuing operations net outfl ows of approximately EUR million related to business divestments; 2013 Net sales Mobile Global Broadband Services NSN Other NSN 5 347 5 753 182 11 282 ■ Nokia’s continuing operations infl ow related to the proceeds Operating profi t (loss) 420 693 – 693 420 from the sale of fi xed assets of approximately EUR million; ■ Nokia’s continuing operations proceeds related to the equity component of the Microsoft convertible bond of approximately EUR million; ■ Nokia’s continuing operations negative foreign exchange impact from translation of opening net cash of approximately EUR million; and ■ Discontinued operations cash outfl ow of approximately EUR . billion. 2012 Net sales 6 043 6 929 807 13 779 Operating profi t (loss) 490 334 – 1 619 – 795 NSN Other includes net sales and related cost of sales and operating expenses of non-core businesses, as well as Optical Networks business until May , when its divestment was completed. It also includes restructur- ing and associated charges for the NSN business. NET SALES NSN’s net sales decreased % to EUR million in , compared to EUR million in . The year-on-year decline in NSN’s net sales was primarily due to reduced wire- less infrastructure deployment activity aff ecting both Mobile Broadband and Global Services, as well as the divestments of businesses not consistent with its strategic focus, foreign currency fl uctuations, and the exiting of certain customer contracts and countries. Mobile Broadband net sales declined % to EUR mil- lion in , compared to EUR million in , as declines in WCDMA, CDMA and GSM were partially off set by growth in both FD-LTE and TD-LTE, refl ecting the industry shift to G technology. Core network sales declined as a result of the customer focus on radio technologies. Global Services net sales declined % to EUR million in , compared to EUR million in primarily due 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 to the exiting of certain customer contracts and countries as part of NSN’s strategy to focus on more profi table business as well as a decline in network roll-outs in Japan and Europe. The following table sets forth the distribution by geographi- cal area of our net sales for the fi scal years and . NSN net sales by geographic area EURm Europe Middle East & Africa Greater China Asia–Pacifi c North America Latin America Total 2013 3 041 1 111 1 185 3 354 1 334 1 257 YoY 2012 Change 3 896 1 287 1 278 4 347 1 294 1 677 – 22% – 14% – 7% – 23% 3% – 25% – 18% 11 282 13 779 GROSS MARGIN NSN’s gross margin was .% in , compared to .% in , driven by improved effi ciency in Global Services, an improved product mix with a greater share of higher margin products, and the divestment of less profi table businesses. In Mobile Broadband, gross margin improved in driven by an increased software share in the product mix, off set by costs incurred in anticipation of a technology shift to TD-LTE. In Global Services, gross margin improved signifi cantly in due to the increase in effi ciencies as part of our restruc- turing program and the exit of certain customer contracts and countries as part of NSN’s strategy to focus on more profi table business. OPERATING EXPENSES NSN’s research and development expenses decreased % year-on-year in to EUR million from EUR million in , primarily due to business divestments and reduced investment in business activities not in line with NSN’s focused strategy as well as increased research and development ef- fi ciency, partially off set by higher investments in business activities that are in line with NSN’s focused strategy, most notably LTE. NSN’s sales and marketing expenses decreased % year- on-year in to EUR million from EUR million in , primarily due to structural cost savings from NSN’s restruc- turing program and a decrease in purchase price accounting related items arising from the formation of NSN, which were fully amortized at the end of the fi rst quarter of . NSN’s administrative and general expenses increased % year-on-year in to EUR million from EUR million in , primarily due to consultancy fees related to fi nance and information technology related projects, partially off set by structural cost savings. 10 N O K I A I N 2 0 1 3 NSN’s other income and expenses decreased in to an expense of EUR million from an expense of EUR million in . In other income and expenses included restructuring charges of EUR million, including EUR mil- lion related to country and contract exits and EUR million related to divestments to businesses, and in included restructuring charges and associated charges of EUR mil- lion, including EUR million related to country and contract exits, divestment of businesses EUR million, impairments of assets of EUR million, a negative adjustment of EUR million to purchase price allocations related to the fi nal payment from Motorola, as well as amortization of acquired intangible assets of EUR million. OPERATING PROFIT (LOSS) NSN’s operating profi t in was EUR million, compared with an operating loss of EUR million in . NSN’s operat- ing margin in was .%, compared with a negative .% in . The increase in operating profi t was primarily a result of an increase in the contribution of Global Services and a reduc- tion in costs associated with NSN’s transformation, consisting mainly of restructuring charges. Further, the purchase price accounting related items arising from the formation of NSN, which were fully amortized at the end of the fi rst quarter of . The contribution of Mobile Broadband declined from EUR million in to EUR million in , primarily as a result of lower net sales, which was partially off set by an im- proved gross margin and a reduction in operating expenses. The contribution of Global Services increased from EUR million in to EUR million in , as the increase in gross margin more than compensated for the decline in net sales, and the contribution in was further supported by a reduction in operating expenses. STRATEGY AND RESTRUCTURING PROGRAM In November , NSN announced its strategy to focus on mobile broadband and services, and also launched an exten- sive global restructuring program, targeting the reduction of its annualized operating expenses and production overhead, excluding special items and purchase price accounting related items, by EUR billion by the end of , compared to the end of . In January , this target was raised to EUR . billion, and in July this target was further raised to “more than EUR . billion”. While these savings were expected to come largely from organizational streamlining, the program 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 suppli- ers in order to further lower costs and improve quality. In , NSN achieved its target to reduce operating expenses and production overhead, excluding special items and purchase price accounting items, by more than EUR . billion by the end of , compared to the end of . During , NSN recognized restructuring charges and other associated items of EUR million related to this restructuring program, resulting in cumulative charges of approximately EUR million. By the end of , NSN had cumulative restructuring related cash outfl ows of approxi- mately EUR million relating to this restructuring program. NSN expects restructuring related cash outfl ows to be ap- proximately EUR million for the full year relating to this restructuring program. HERE The following table sets forth selective line items for the fi scal years and . EURm Net sales Cost of sales Gross profi t Research and development expenses Selling and marketing expenses Administrative and general expenses Other operating income and expenses Operating profi t (loss) 2013 914 – 208 706 – 648 – 119 YoY 2012 Change 1 103 – 228 – 17% – 9% 875 – 19% – 883 – 186 – 27% – 36% – 69 – 77 – 10% – 24 – 154 – 30 – 20% – 301 NET SALES HERE net sales decreased % to EUR million in , compared to EUR million in . HERE internal net sales decreased % to EUR million in , compared to EUR million in . HERE external net sales increased % to EUR million in , compared to EUR million in . The year-on-year decline in HERE internal net sales was due to low- er recognition of deferred revenue related to our smartphone sales. The year-on-year increase in HERE external net sales in was primarily due to higher sales to vehicle customers, partially off set by lower sales to personal navigation devices customers. Additionally, HERE net sales were negatively af- fected by foreign currency fl uctuations. The following table sets forth the distribution by geographi- cal area of our net sales for the fi scal years and . HERE net sales by geographic area EURm Europe Middle East & Africa Greater China Asia-Pacifi c North America Latin America Total 2013 YoY 2012 Change 384 477 57 17 75 322 59 914 74 63 82 335 72 1 103 – 19% – 23% – 73% – 9% – 4% – 18% – 17% GROSS MARGIN On a year-on-year basis, the decrease in HERE gross margin, .% in compared to .% in , was primarily due to proportionally higher sales of update units to vehicle custom- ers which generally carry a lower gross margin, partially off set by lower costs related to service delivery. OPERATING EXPENSES HERE research and development expenses decreased % to EUR million in compared to EUR million in , primarily due to a decrease in purchase price accounting related items, EUR million in compared to EUR mil- lion in , and cost reduction actions. HERE sales and marketing expenses decreased % to EUR million in compared to EUR million in , primar- ily driven by a decrease in purchase price accounting items, EUR million in compared to EUR million in , cost reduction actions and lower marketing spending. HERE administrative and general expenses decreased % to EUR million in compared to EUR million in , primarily due cost reduction actions. In , HERE other income and expense had a slightly positive year-on-year impact on profi tability, decreasing from EUR million in to EUR million in . In , we recognized restructuring charges of EUR million in HERE, compared to EUR million in . OPERATING PROFIT (LOSS) HERE operating loss decreased to EUR million in , compared with a loss of EUR million in . HERE operating margin in was negative .%, compared with negative .% in . The year-on-year improvement in operating margin in was driven primarily by the absence of signifi - cant purchase price accounting related items arising from the purchase of NAVTEQ, the vast majority of which had been fully amortized as of the end of the second quarter of . Advanced Technologies The following table sets forth selective line items for the fi scal years and . R E V I E W B Y T H E B O A R D O F D I R E C T O R S 11 EURm Net sales Cost of sales Gross profi t Research and development expenses Selling and marketing expenses Administrative and general expenses Other operating income and expenses Operating profi t (loss) 2013 529 – 14 515 – 147 – 34 YoY 2012 Change 534 – 7 527 – 1% 100% – 2% – 153 – 24 – 4% 42% – 2 310 – 3 325 – 33% – 5% NET SALES Advanced Technologies net sales was stable on a year-on-year basis, EUR million in compared to EUR million in , primarily due to a non-recurring license fee of EUR mil- lion in the fourth quarter , partially off set by net increases in royalty payments from our licensees. GROSS MARGIN On a year-on-year basis, the Advanced Technology gross mar- gin decreased to .% in compared to .% in . OPERATING EXPENSES Advanced Technologies research and development expenses decreased % to EUR million in compared to EUR million in , primarily due to lower research and develop- ment costs, partially off set by transaction related costs of EUR million related to the Sale of the D&S Business. Advanced Technologies sales and marketing expenses increased % to EUR million in compared to EUR million in , primarily due to IP licensing related litigation expenses. In sales and marketing expenses included transaction related costs of EUR million related to the Sale of the D&S Business. Advanced Technologies administrative and general expens- Discontinued operations The following table sets forth selective line items for the fi scal years and . EURm Net sales Cost of sales Gross profi t – 22 – 22 0% Research and development expenses 2013 YoY 2012 Change 10 735 15 152 – 8 526 – 12 320 2 209 2 832 – 1 130 – 1 658 – 29% – 31% – 22% – 32% – 28% Selling and marketing expenses – 1 345 – 1 857 Administrative and general expenses Other operating income and expenses Operating profi t (loss) – 215 – 286 – 25% – 109 – 590 – 510 – 79% – 1 479 NET SALES Discontinued operations net sales decreased by % to EUR million compared to EUR million in . The de- cline in discontinued operations net sales in was primarily due to lower Mobile Phones net sales and, to a lesser extent, lower Smart Devices net sales. The decline in Mobile Phones net sales was due to lower volumes and ASPs, aff ected by competitive industry dynamics, including intense smartphone competition at increasingly lower price points and intense competition at the low end of our product portfolio. The decline in Smart Devices net sales was primarily due to lower volumes, aff ected by competitive industry dynamics including the strong momentum of competing smartphone platforms, as well as our portfolio transition from Symbian products to Lumia products. The following table sets forth the distribution by geographi- cal area of our net sales for the fi scal years and . Discontinued operations net sales by geographic area EURm Europe Greater China Asia–Pacifi c North America Latin America Total YoY 2012 Change 2013 3 266 1 689 816 2 691 623 4 498 2 712 1 519 3 655 532 1 650 2 236 10 735 15 152 – 27% – 38% – 46% – 26% 17% – 26% – 29% GROSS MARGIN Discontinued operations gross margin improved to .% in compared to .% in . The increase in gross margin in was primarily due to a higher Smart Devices gross margin, partially off set by slightly lower Mobile Phones gross es were fl at year-on-year, amounting to EUR million. Middle East & Africa Advanced Technologies other income and expense was ap- proximately fl at year-on-year, and included restructuring charges of EUR million in , compared to EUR million in . OPERATING PROFIT (LOSS) Advanced Technologies operating profi t decreased to EUR million in , compared to EUR million in . Advanced Technologies operating margin in was .%, compared with .% in . The year-on-year decline in operating margin was driven primarily by the transaction related costs of EUR million related to the Sale of D&S Business to Microsoft, partially off set by decreased restructuring charges. 12 N O K I A I N 2 0 1 3 margin. The increase in Smart Devices gross margin was primarily due to lower inventory related allowances, which negatively aff ected Smart Devices gross margin in . OPERATING EXPENSES Discontinued operations operating expenses were approxi- mately EUR million in , compared to approximately EUR million in . The % decrease in was due to lower Mobile Phones and Smart Devices operating expenses, primarily due to structural cost savings, as well as overall cost controls. OPERATING PROFIT (LOSS) Discontinued operations operating margin improved to negative .% in compared to negative .% in . The improvement was primarily due to structural cost savings, as well as overall cost controls, and a higher gross margin. MAIN EVENTS IN 2013 Nokia ■ Nokia completed the acquisition of Siemens’ stake in Nokia Siemens Networks on August , , making it wholly owned subsidiary of Nokia. The acquisition was initially announced on July , . In accordance with this transac- tion, the Siemens name was phased out from Nokia Siemens Networks’ company name and branding. The new name and brand was announced to be Nokia Solutions and Networks, also referred to as NSN, which was also used for fi nancial reporting purposes. ■ On September , , Nokia announced that it had signed an agreement to enter into a transaction whereby Nokia would sell substantially all of its Devices & Services business and license its patents to Microsoft. ■ Nokia’s Extraordinary General Meeting held on November , confi rmed and approved the Sale of the D&S Business to Microsoft in line with the proposal and recommendation of the Nokia Board of Directors. The transaction was com- pleted on April , . ■ Nokia also announced changes to its leadership as a result of the announcement of the transaction with Microsoft in September. To avoid the perception of any potential confl ict of interest between the announcement and the consum- mation of the transaction, Stephen Elop stepped aside as President and CEO of Nokia Corporation, resigned from the Board of Directors, and became Executive Vice President, Devices & Services. Risto Siilasmaa assumed an interim CEO role while continuing to serve in his role as Chairman of the Nokia Board of Directors and Timo Ihamuotila assumed an interim President role while also continuing to serve as CFO. Mr. Ihamuotila also assumed the responsibility of chairing the Nokia Leadership Team during this interim period. The interim governance ended on May , after the an- nouncement of the new strategy and management, includ- ing the new President and CEO, Rajeev Suri. ■ As a result of the announcement of the Sale of D&S Business, Nokia Board conducted a strategy evaluation for Nokia Group, results of which were announced on April , . Nokia plans to focus on three established businesses: Networks, a leader in network infrastructure and ser- vices; HERE, a leader in mapping and location services; and Technologies, which will build on several of Nokia’s current CTO and intellectual property rights activities. Networks operating highlights ■ We won LTE contracts for China Mobile’s and China Telecom’s nationwide TD-LTE networks; with Chunghwa Telecom in Taiwan; Celcom in Malaysia; Sprint in the USA; US Cellular’s second wave of LTE services; with TIM Brasil and Oi Brasil; Movistar and Claro in Chile; MTS in the Moscow and Central Russia regions; SFR in Paris; Tele in the Netherland; Vodafone in New Zealand, and Ooredoo in Qatar. ■ We continued to stay at the forefront of mobile broadband, further enhancing the Radio Base Station Smart Scheduler and launching a powerful TD-LTE Base Station radio module; and introducing new (FlexiZone) microcell and picocell base stations. ■ Networks and China Mobile enabled the world’s fi rst live TV broadcast via TD-LTE; NSN and the Singapore-based opera- tor StarHub completed Southeast Asia’s fi rst GPP standard Voice over LTE call in a live network. Networks and Panasonic Mobile Communications were selected by NTT DOCOMO in Japan to develop for LTE-Advanced next-generation mobile broadband network architecture; Networks also helped all three major Korean operators – SK Telecom, LG U+ and Korea Telecom – to become the world’s fi rst to launch LTE- Advanced services commercially. ■ Networks and SK Telecom of South Korea completed world’s fi rst proof-of-concept of Liquid Applications over LTE, and Networks successfully demonstrated its telco cloud capa- bilities in a joint proof-of-concept for Evolved Packet Core (EPC) virtualization with SK Telecom. ■ The Lebanese telecommunications operator, touch, chose our operations support systems (OSS) portfolio and related integration services; Zain Kuwait deployed our Customer Experience Management (CEM) solution, and our CEM con- tract with Beijing Mobile was extended. 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 ■ We announced research co-operation with China Mobile Research Institute; made a multi-year commitment to G research activities together with the NYU WIRELESS research center; and announced participation as a founding member in the G public-private partnership between the European Union and G PPP Association. ■ In June , ABI Research ranked us number in its macro base station vendor competitive assessment; and industry analyst fi rm Gartner positioned us in the ‘Leaders’ quadrant of the Magic Quadrant for LTE Network Infrastructure, for the second consecutive year. HERE operating highlights ■ HERE announced a complete Connected Driving off er, includ- ing HERE Auto, HERE Auto Cloud and HERE Auto Companion. It is the only end-to-end driving solution on the market today that will help car makers and in-vehicle technology suppliers connect the car to the cloud. ■ HERE radically improved its traffi c product, HERE Traffi c, by building a new system and engine that processes data even faster and more accurately than before. further strengthened the Windows Phone ecosystem by making the suite available for all Windows Phone devices. Technologies operating highlights ■ Nokia was one of the founding industrial partners and board members for the EU’s Graphene Flagship, the EU’s biggest research initiative ever, tasked with taking graphene, a nano-technology material with unique properties, from the realm of academic research into commercial use in the space of ten years. Our participation is led from the Nokia Research Center in Cambridge, UK. ■ Nokia announced in November that Samsung had extended a patent license agreement between Nokia and Samsung for fi ve years. The agreement would have expired at the end of . According to the agreement, Samsung will pay additional compensation to us for the period com- mencing from January , onwards, and the amount of such compensation will be fi nally settled in a binding arbitra- tion, which is expected to be concluded during . Discontinued operations’ operating highlights ■ Continental Corporation implemented D content from ■ Nokia’s new manufacturing facility in Hanoi, Vietnam, be- HERE in its new entertainment platform. Automotive manu- facturers can expand their location-based applications to include rich D landmarks, satellite imagery with split screen and current traffi c information. This also will advance the multi-modal transportation concept another step by pro- viding drivers the ability to synch their route profi les across in-dash systems in their vehicles and their smartphone, tablet or PC. came fully operational in the third quarter. ■ Nokia launched its fi rst Windows tablet, the Nokia Lumia , and its fi rst large screen Lumia smartphones, the Lumia and Lumia . ■ Nokia launched the Lumia , which set a new benchmark for smartphone imaging, and the Lumia , which intro- duced metal for the fi rst time to the Nokia Lumia range. ■ Garmin continued to put their trust in HERE across the ■ Nokia started shipments of the Nokia , the most aff ord- globe by adopting Natural Guidance in North America and Europe, changing the way people provide directions to each other. This includes leveraging local knowledge and market research to incorporate local nuances for choosing and describing reference cues such as the color of a building or the name of a restaurant. ■ HERE teamed up with Mercedes-Benz to jointly develop smart maps for connected cars and ultimately, self-driving cars leveraging cloud technology. ■ The embedded navigation systems of more than million new cars sold in are powered by maps from HERE. This milestone underlines the leadership of HERE in providing nav- igation and mapping solutions for the automotive industry. ■ HERE continued to strengthen its popular and critically ac- claimed suite of integrated location experiences on Windows Phone with a number of updates throughout the year and able phone in its portfolio, retailing at a recommended price of EUR . PERSONNEL The average number of employees of Nokia Group’s continu- ing operations for was ( for and for ), of which the average number of employees at HERE and NSN was and respectively. At December , , Nokia Group’s continuing operations employed a total of people ( people at December , and people at December , ), of which the number of employ- ees at HERE and NSN was and respectively. The total amount of wages and salaries in Nokia Group’s continuing operations in was EUR million (EUR million in and EUR million in ). 14 N O K I A I N 2 0 1 3 The average number of employees of Nokia Group’s dis- continued operations for was ( for and for ). At December , , Nokia Group’s discontinued operations employed a total of people ( people at December , and people at December , ). The total amount of wages and salaries in Nokia Group’s discontinuing operations in was EUR million (EUR million in and EUR million in ). SUSTAINABILITY AT NOKIA At Nokia, we integrate responsible environmental and social practices into everything we do. We strive to create value for people and the planet, as well as for Nokia as a company. The basic principles of our sustainability work are: Valuing people in everything we do; Being Green and Clean, Unleashing the potential of technology for good; Making change happen together. ■ We used recycled plastics in the product cover for the fi rst time in the Lumia Black variant. ■ We were able to maintain the good level of renewable elec- tricity share in our facilities, %, despite the challenges in its availability in some areas. ■ Nokia was ranked second within the Communications Equipment industry in the Dow Jones Sustainability Indexes and ninth in Interbrand’s Best Global Green Brands survey. ■ Top ratings in both Performance and Disclosure ratings in The Carbon Disclosure Project (CDP) Nordic Climate Change Report. Ranked second among technology sector leaders in the FTSE ESG rating. More information about sustainability at Nokia can be found from our annual Sustainability Report, available on our web- site www.company.nokia.com/en/about-us/people-planet. We go to great lengths to implement sustainable and ethi- MANAGEMENT AND BOARD OF DIRECTORS cal working practices in our own operations, and we expect the same from our suppliers. We have long fostered diversity, equality and respect for human rights and dignity. We do not tolerate corruption of any kind, whether internal to Nokia or in our business relationships. In addition, we enhance the health, safety and wellbeing of our workforce. Our environmental work focuses on minimizing the poten- tial negative impact, and is based on global principles and standards that we integrate in our business activities. We improve our offi ces, factories, logistical operations and use of technologies in ways that save energy and reduce emis- sions. In addition, we continuously improve the environmental credentials of all our products. The power of mobility plays a key role in making people’s lives better, particularly in developing countries. Our technol- ogies can help develop education and livelihoods. Additionally, mobile technology, if used in a smart way, can help people lower their environmental impact. We believe collaboration with others can often be the most eff ective way to approach certain sustainability issues. That’s why we work with various organizations driving sustainable development and participate in public policy development initiatives across the world. Some of the sustainability highlights include: ■ % of Nokia employees think that “Nokia is socially and environmentally responsible”. This is an important achieve- ment for us as our employees are a vital stakeholder group, and we have a high regard for their feedback on how we run our business. ■ We continued strengthening our performance in matters of occupational health and safety (OHS). Board of Directors, Nokia Group Leadership Team and President and CEO 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 the Annual General Meeting until the close of the next Annual General Meeting, which convenes each year by June . The Annual General Meeting held on May , elected the following ten members to the Board of Directors: Bruce Brown, Elizabeth Doherty, Stephen Elop, Henning Kagermann, Jouko Karvinen, Helge Lund, Mårten Mickos, Elizabeth Nelson, Risto Siilasmaa and Kari Stadigh. Stephen Elop resigned from the Board of Directors eff ective as from September , , after which the Board of Directors consists of nine members. The Board has the responsibility for appointing and dis- charging the Chief Executive Offi cer (CEO), the Chief Financial Offi cer and the other members of the Nokia Group Leadership Team. Until September , , Stephen Elop was the President and CEO, on which day Nokia announced changes to its leader- ship as a result of the announced transaction regarding the Sale of the D&S Business. As of September , , Risto Siilas- maa assumed the role of interim CEO while continuing to serve in his role as Chairman of the Nokia Board of Directors and Timo Ihamuotila assumed the role of interim President while also continuing to serve as CFO. Eff ective as of May , , Nokia Board appointed Rajeev Suri the President and CEO. 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 Group Leadership 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 Team, please see the section “Compensation of the Board of Directors and the Nokia Group 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 ’ publi- cation or on Nokia’s website, www.company.nokia.com/en/ about-us. Changes in Nokia Leadership Team During , and subsequently, the following changes took place in the Nokia Leadership Team (as of May , renamed to Nokia Group Leadership Team): ■ Stephen Elop stepped aside as President and CEO while continuing as a member of the Nokia Leadership Team as Executive Vice President, Devices & Services, eff ective as of September , . He stepped down from the Nokia Leadership Team eff ective as of April , due to trans- ferring to Microsoft in connection with the Sale of the D&S Business. ■ Timo Ihamuotila served as interim President from September , through April , while also continu- ing to serve as Chief Financial Offi cer. During this interim time Mr. Ihamuotila also chaired the Nokia Leadership Team. ■ Marko Ahtisaari, formerly Executive Vice President, Design, stepped down from the Nokia Leadership Team eff ective as of November , and continues in transitional role until May , . ■ Jo Harlow, formerly Executive Vice President, Smart Devices, stepped down from the Nokia Leadership Team eff ective as of April , due to transferring to Microsoft in connec- tion with the Sale of the D&S Business. ■ Juha Putkiranta, formerly Executive Vice President, Operations, stepped down from the Nokia Leadership Team eff ective as of April , due to transferring to Microsoft in connection with the Sale of the D&S Business. ■ Timo Toikkanen, formerly Executive Vice President, Mobile Phones, stepped down from the Nokia Leadership Team eff ective as of April , due to transferring to Microsoft in connection with the Sale of the D&S Business. ■ Chris Weber, formerly Executive Vice President, Sales and Marketing, stepped down from the Nokia Leadership Team eff ective as of April , due to transferring to Microsoft in connection with the Sale of the D&S Business. ■ Louise Pentland, formerly Executive Vice President, Chief Legal Offi cer stepped down from the Nokia Leadership Team eff ective as of May , and continues to serve Nokia in an advisory role during a transition period. ■ Juha Äkräs, formerly Executive Vice President, Human Resources stepped down from the Nokia Leadership Team eff ective as of May , and continues to serve Nokia in an advisory role during a transition period. ■ Kai Öistämö, formerly Executive Vice President, Corporate Development stepped down from the Nokia Leadership Team eff ective as of May , and continues to serve Nokia in an advisory role during a transition period. ■ Rajeev Suri was appointed the President and CEO of Nokia Corporation and Chairman of Nokia Group Leadership Team as from May , . ■ Samih Elhagen was appointed Executive Vice President and Chief Financial and Operating Offi cer of Networks and mem- ber of Nokia Group Leadership Team as from May , . ARTICLES OF ASSOCIATION Nokia’s Articles of Association is available on our website www. company.nokia.com. Amendment of the Articles of Associa- tion requires a resolution of the general meeting, supported by two-thirds of the votes cast and two-thirds of the shares represented at the meeting. Nokia’s Articles of Association include provisions for re- demption obligation. 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, SHARE CAPITAL AND SHAREHOLDERS Nokia has one class of shares. Each Nokia share entitles the holder to one vote at general meetings of Nokia. In , Nokia did not cancel or repurchase any shares nor did Nokia issue any new shares. In , Nokia transferred a total of Nokia shares held by it as settlement under Nokia equity plans to the plan participants, personnel of Nokia Group, 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. 16 N O K I A I N 2 0 1 3 On December , , Nokia and its subsidiary compa- nies owned Nokia shares. The shares represented approximately .% of the total number of the shares of the company and the total voting rights. The total number of shares at December , , was . On December , , Nokia’s share capital was EUR .. Information on the authorizations held by the Board in to issue shares and special rights entitling to shares, transfer shares and repurchase own shares, as well as information on 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 and Additional Information sections. NOKIA OUTLOOK Continuing Operations ■ Nokia expects Networks operating margin for the full year to be towards the higher end of Networks’ targeted long term operating margin range of % to %. In addi- tion, Nokia now expects Networks’ net sales to grow on a year-on-year basis in the second half of . This outlook is based on Nokia’s expectations regarding a number of fac- tors, including: • competitive industry dynamics; • product and regional mix; • the timing of major new network deployments; and • expected continued improvement under Networks’ transformation programs. ■ In , Nokia expects HERE to invest to capture longer term transformational growth opportunities. This is expected to negatively aff ect HERE’s operating margin, excluding special items and purchase price accounting related items. ■ Nokia expects Technologies annualized net sales run rate to expand to approximately EUR million during , now that Microsoft has become a more signifi cant intellectual property licensee in conjunction with the Sale of the D&S Business. ■ Until a pattern of tax profi tability is re-established in Finland, Nokia continues to expect to record approximately EUR million of annualized tax expense for the continuing operations. This corresponds to the anticipated cash tax obligations for Networks, HERE and Technologies. After a pattern of tax profi tability is re-established in Finland, Nokia expects to record tax expenses at a long term eff ective tax rate of approximately %, however Nokia’s cash tax obliga- tions are expected to remain at approximately EUR million annually until Nokia’s currently unrecognized Finnish deferred tax assets have been fully utilized. ■ Nokia expects full year capital expenditures for con- tinuing operations to be approximately EUR million, primarily attributable to Networks. RISK FACTORS Set forth below is a description of risk factors that could aff ect Nokia. There may be, however, additional risks unknown to Nokia and other risks currently believed to be immaterial that could turn out to be material. These risks, either individually or together, could adversely aff ect our business, sales, profi tabil- ity, results of operations, 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 factors to “Nokia”, “we”, “us” and “our” mean Nokia’s consolidated operating segments. ■ Nokia has announced a new strategy which is subject to various risks and uncertainties, including that Nokia may not be able to sustain or improve the operational and fi nancial performance of its continuing businesses or that Nokia may not be able to correctly identify business opportunities or successfully pursue new business opportunities. ■ Networks’ strategy focuses on mobile broadband and ac- cordingly its sales and profi tability depend on its success in the mobile broadband infrastructure and related services market. Networks may fail to execute its strategy or to ef- fectively and profi tably adapt its business and operations in a timely manner to the increasingly diverse solution needs of its customers in that market or technological develop- ments. ■ Networks faces intense competition and may fail to eff ec- tively and profi tably invest in new competitive high-quality products, services, upgrades and technologies and to bring them to market in a timely manner. ■ Our intellectual property (IP) portfolio includes various patented standardized or proprietary technologies on which our products and services depend and we also use our IP portfolio for revenue generation. Third parties may use without a license and unlawfully infringe our IP or commence actions seeking to establish the invalidity of the intellectual property rights of these technologies, or we may not be able to suffi ciently invent new relevant technologies, products and services to develop and maintain our IP portfolio, main- tain the existing sources of intellectual property related revenue or establish new sources. 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 17 ■ Our HERE business includes various risks and uncertainties, including that we may be unable to maintain current sources of net sales in the vehicle segment from which our HERE business has historically derived most of its net sales from, establish a successful location-based platform, extend our location-based services across devices and operating systems or create new sources of revenue. ■ Our sales, profi tability and cash fl ow are dependent on the development of the mobile and communications industry in numerous diverse markets, as well as on general economic conditions globally and regionally. ■ Networks is dependent on a limited number of customers and large multi-year contracts and accordingly a loss of a single customer or issues related to a single contract can have a signifi cant impact on Networks. ■ We may be unable to retain, motivate, develop and recruit appropriately skilled employees. ■ We have operations in a number of countries and, as a result, face complex tax issues and could be obligated to pay ad- ditional taxes in various jurisdictions. Further our actual or anticipated performance, among other factors, could reduce our ability to utilize our deferred tax assets. ■ We may fail to manage our manufacturing, service creation and delivery, as well as our logistics effi ciently, and without interruption, or the limited number of suppliers we depend on may fail to deliver suffi cient quantities of fully functional products and components or deliver timely services meeting our customers’ needs. ■ The Sale of the D&S Business may expose us to contingent liabilities and the agreements we have entered into with Microsoft may have terms that prove to be unfavorable to us. ■ Our operations rely on the effi cient and uninterrupted op- eration of complex and centralized information technology systems and networks and we store certain personal and consumer data as part of our business operations. If a sys- tem or network ineffi ciency, cybersecurity breach, malfunc- tion or disruption occurs, this could have a material adverse eff ect on our business and results of operations. ■ Our eff orts aimed at managing and improving fi nancial per- formance, cost savings and competitiveness may not lead to targeted results or improvements. ■ Networks may be adversely aff ected by negative develop- ments with respect to the customer fi nancing or extended payment terms it provides to customers. ■ If any of the companies we partner and collaborate with were to fail to perform as planned or if we fail to achieve the col- laboration or partnering arrangements needed to succeed, we may not be able to bring our products or services to market successfully or in a timely way. ■ Our products and services 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 to con- tinue 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, restrictions on our ability to use certain technologies in our products and/or costly and time-consuming litigation. ■ We are a company with global operations and with sales derived from various countries, exposing us to risks related to regulatory, political or other developments in various counties or regions. ■ Our net sales, costs and results of operations, as well as the US dollar value of our dividends and market price of our ADSs, are aff ected by exchange rate fl uctuations, particu- larly between the euro, which is our reporting currency, and the US dollar, the Japanese yen and the Chinese yuan, as well as certain other currencies. ■ We may not be able to achieve targeted benefi ts from or successfully implement planned transactions, such as acqui- sitions, divestments, mergers or joint ventures, for instance due to issues in selecting successfully the targets or failures to execute transactions or due to unexpected liabilities as- sociated with such transactions. ■ An unfavorable outcome of litigation, contract related disputes or allegations of health hazards associated with our business could have a material adverse eff ect on our busi- ness, results of operations, fi nancial condition and reputa- tion. DIVIDEND AND PLANNED EUR 5 BILLION CAPITAL STRUCTURE OPTIMIZATION PROGRAM As announced on April , , as a result of the closing of the Sale of the D&S Business, Nokia’s fi nancial position and earnings profi le have both improved signifi cantly. Furthermore, Nokia’s Board of Directors has conducted a thorough analysis of Nokia’s potential capital structure requirements. Based on this analysis, the Nokia Board is confi dent that Nokia has the fi nancial strength and fl exibility to sustain the long-term investments necessary to ensure industry leadership in the future. 18 N O K I A I N 2 0 1 3 of months under Finnish regulations, and is expected to be re-proposed by the Nokia Board at the Annual General Meeting . The shares are expected to be cancelled. The shares may be repurchased in the open market, in privately negotiated transactions, through the use of derivative instru- ments, or through a tender off er made to all shareholders on equal terms. The share repurchase authorization would be eff ective until December , and terminate the current authorization granted by the Annual General Meeting on May , . The Nokia Board plans to commence the repurchases following the publication of the Company’s interim report for the second quarter of . In addition, Nokia plans to reduce interest bearing debt by approximately EUR billion by the end of the second quarter . Once complete, the debt reduction is expected to result in annual run rate savings of at least EUR million related to recurring interest costs. Furthermore, lowering our gross debt level is aligned with our target to return to being an invest- ment grade company. Nokia intends to reduce interest bearing debt by utilizing applicable maturity dates, call dates, or other terms allowing early redemption or retirement of debt or by making off ers to repurchase debt in the open market. Board of Directors, Nokia Corporation April , In addition, to improve the effi ciency of Nokia’s capital structure, the Nokia Board announced plans for a EUR billion capital structure optimization program which focuses on re- commencing ordinary dividends, distributing deemed excess capital to shareholders, and reducing interest bearing debt. This comprehensive program consists of the following components: ■ Recommencement of ordinary dividend payments, with at least EUR million of ordinary dividends in total planned for and , as follows: ▪ An ordinary dividend for of EUR . per share (approximately EUR million), subject to shareholder approval in ; and ▪ A planned ordinary dividend for of at least EUR . per share (at least approximately EUR million), subject to shareholder approval in ; ■ An special dividend of EUR . per share, subject to share- holder approval in (approximately EUR billion); ■ A EUR . billion share repurchase program, subject to the authorization to the Board by the shareholders in ; and ■ Debt reduction of approximately EUR billion by the end of the second quarter . As part of the overall capital structure optimization program, Nokia Board of Directors proposes to the Annual General Meeting, scheduled to take place on June , (Annual General Meeting ), the recommencement of ordi- nary dividend payments to shareholders. The Nokia Board pro- poses to the Annual General Meeting that a dividend of EUR . per share be paid with respect to the year , which equals approximately half of Nokia’s earnings from continuing operations in , excluding special items and purchase price accounting related items. This ordinary dividend for is expected to be paid on or about July , . Furthermore, the Nokia Board plans to propose an ordinary dividend of at least EUR . per share with respect to the year to the Annual General Meeting convening in spring . The Nokia Board of Directors proposes to the Annual General Meeting a special dividend of EUR . per share (approximately EUR billion). The special dividend is expected to be paid on or about July , . The Nokia Board also proposes a share repurchase authori- zation to facilitate the EUR . billion of planned share re- purchases over two years. The Nokia Board proposes that the Annual General Meeting authorize the Board to resolve to repurchase a maximum of million Nokia shares, which corresponds to less than % of Nokia shares outstanding. The term of the repurchase authorization is for the maximum 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 19 20 N O K I A I N 2 0 1 3 ANNUAL ACCOUNTS 2013 Consolidated income statements, IFRS ................................................................. 22 Consolidated statements of comprehensive income, IFRS ............................... 23 Consolidated statements of fi nancial position, IFRS .......................................... 24 Consolidated statements of cash fl ows, IFRS ...................................................... 25 Consolidated statements of changes in shareholders’ equity, IFRS ................ 26 Notes to the consolidated fi nancial statements .................................................. 28 Income statements, parent company, FAS ........................................................... 82 Balance sheets, parent company, FAS ................................................................... 82 Statements of cash fl ows, parent company, FAS ................................................. 83 Notes to the fi nancial statements of the parent company ................................ 84 Nokia shares and shareholders ............................................................................... 90 Nokia Group 2009 – 2013, IFRS ................................................................................ 96 Calculation of key ratios ............................................................................................ 98 Signing of the Annual Accounts 2013 and proposal for distribution of profi t .................................................................. 99 Auditors’ report ........................................................................................................ 100 A N N U A L A C C O U N T S 2 0 1 2 21 CONSOLIDATED INCOME STATEMENTS, IFRS Financial year ended December 31 Notes Continuing operations 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 profi t (+)/loss (–) Share of results of associated companies Financial income and expenses Profi t (+)/loss (–) before tax Income tax 9 8 8, 9 2 – 11, 25 16, 32 9, 12 13 2013 EURm 12 709 – 7 364 5 345 – 2 619 – 974 – 697 — 272 – 808 519 4 – 280 243 – 202 2012 * EURm 2011 * EURm 15 400 – 9 841 5 559 – 3 081 – 1 372 – 690 — 276 – 1 513 – 821 – 1 – 357 – 1 179 – 304 15 968 – 10 408 5 560 – 3 334 – 1 608 – 735 – 1 090 151 – 332 – 1 388 – 23 – 131 – 1 542 – 73 Profi t (+)/loss (–) from continuing operations 41 – 1 483 – 1 615 Profi t (+)/loss (–) from continuing operations attributable to equity holders of the parent Loss from continuing operations attributable to non-controlling interests 186 – 145 41 – 771 – 712 – 1 483 – 1 272 – 343 – 1 615 Loss (–)/profi t (+) from discontinued operations 3 – 780 – 2 303 Loss (–)/profi t (+) from discontinued operations attributable to equity holders of the parent Profi t from discontinued operations attributable to non-controlling interests – 801 21 – 780 – 2 334 31 – 2 303 128 109 19 128 Loss for the year – 739 – 3 786 – 1 487 Loss attributable to equity holders of the parent Loss attributable to non-controlling interests Earnings per share from continuing and discontinued operations (for profi t (+)/loss (–) attributable to the equity holders of the parent) 29 Basic earnings per share From continuing operations From discontinued operations From the profi t of the year Diluted earnings per share From continuing operations From discontinued operations From the profi t of the year Average number of shares (000’s shares) 29 Basic From continuing operations From discontinued operations From the profi t of the year Diluted From continuing operations From discontinued operations From the profi t of the year – 615 – 124 – 739 2013 EUR 0.05 – 0.22 – 0.17 0.05 – 0.22 – 0.17 – 3 105 – 681 – 3 786 2012 EUR – 0.21 – 0.63 – 0.84 – 0.21 – 0.63 – 0.84 – 1 163 – 324 – 1 487 2011 EUR – 0.34 0.03 – 0.31 – 0.34 0.03 – 0.31 3 712 079 3 712 079 3 712 079 3 733 364 3 712 079 3 712 079 3 710 845 3 710 845 3 710 845 3 710 845 3 710 845 3 710 845 3 709 947 3 709 947 3 709 947 3 709 947 3 717 034 3 709 947 * Full years and reflect the retrospective application of Revised IAS , Employee Benefits. See Notes to Consolidated Financial Statements. 22 N O K I A I N 2 0 1 3 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME, IFRS Financial year ended December 31 Notes Loss 2013 EURm – 739 2012 * EURm 2011 * EURm – 3 786 – 1 487 Other comprehensive income (+)/expence (–) Items that will not be reclassifi ed to profi t or loss Remeasurements on defi ned benefi t pensions 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 expense (–)/income (+) Other comprehensive expense (–)/income (+), net of tax 6 23 23 22 22 22, 23 83 – 228 – 496 114 3 49 5 – 2 – 244 41 – 58 – 41 35 10 34 – 207 – 36 9 – 37 116 70 – 17 – 4 101 Total comprehensive expense – 983 – 3 993 – 1 386 Total comprehensive expense attributable to equity holders of the parent non-controlling interests Total comprehensive income(+)/expense (–) attributable to equity holders of the parent arises from: Continuing operations Discontinued operations * Full years and reflect the retrospective application of Revised IAS , Employee Benefits. See Notes to Consolidated Financial Statements. – 863 – 120 – 983 34 – 897 – 863 – 3 281 – 712 – 3 993 – 831 – 2 450 – 3 281 – 1 089 – 297 – 1 386 – 1 200 111 – 1 089 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 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 (2013: EUR 124 million, 2012: EUR 248 million) Prepaid expenses and accrued income Current income tax assets 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 Assets held for sale Assets of disposal groups classifi ed as held for sale Notes 14 14 15 16 17 26 17, 35 19, 21 17, 21, 35 20 17, 35 17, 18, 35 17, 35 17, 35 17, 35 35 15, 17 3 2013 EURm 3 295 296 566 65 741 890 96 99 6 048 804 2 901 660 146 29 285 382 956 3 957 3 676 13 796 89 5 258 2012 * EURm 4 876 647 1 431 58 689 1 279 125 218 9 323 1 538 5 551 2 682 495 35 451 415 542 5 448 3 504 20 661 — — Total assets 25 191 29 984 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 Provisions Current liabilities Current portion of long-term loans Short-term borrowings Other fi nancial liabilities Current income tax liabilities Accounts payable Accrued expenses and other liabilities Provisions Liabilities of disposal groups classifi ed as held for sale 24 23 22 17, 35 26 28 17, 35 17, 35 17, 18, 35 13 17, 35 27 28 3 246 615 – 603 434 80 3 115 2 581 6 468 192 6 660 3 286 195 630 242 4 353 3 192 184 35 484 1 842 3 033 680 9 450 4 728 246 446 – 629 746 – 5 3 136 3 997 7 937 1 302 9 239 5 087 701 997 304 7 089 201 261 90 499 4 394 6 223 1 988 13 656 — Total shareholders’ equity and liabilities 25 191 29 984 * December , reflects the retrospective application of Revised IAS , Employee Benefits. See Notes to Consolidated Financial Statements. 24 N O K I A I N 2 0 1 3 CONSOLIDATED STATEMENTS OF CASH FLOWS, IFRS Financial year ended December 31 Cash fl ow from operating activities Loss attributable to equity holders of the parent Adjustments, total Change in net working capital Cash generated from operations Interest received Interest paid Other fi nancial income and expenses, net Income taxes paid, net Net cash from/used in operating activities Cash fl ow from investing activities Acquisition of businesses, net of acquired cash 2012 * EURm 2011 * EURm Notes 33 33 2013 EURm – 615 1 789 – 945 229 92 – 208 345 – 386 72 – 3 105 3 841 119 855 130 – 277 – 584 – 478 – 354 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 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 Proceeds from maturities and sale of current available-for-sale investments, liquid assets Proceeds from maturities and sale of investments at fair value through profi t and loss, liquid assets Proceeds from sale of non-current available-for-sale investments Proceeds from sale of fi xed assets Dividends received Net cash used in/from investing activities Cash fl ow from fi nancing activities Other contributions from shareholders Purchase of a subsidiary’s equity instruments Proceeds from long-term borrowings Repayment of long-term borrowings Repayment of short-term borrowings Dividends paid Net cash used in fi nancing activities Foreign exchange adjustment Net decrease (–)/increase (+) 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 17, 35 — – 1 021 13 – 1 668 — – 53 – 8 – 1 4 – 407 – 63 — 586 — 129 138 5 – 691 — – 1 707 2 291 – 862 – 128 – 71 – 477 – 223 – 1 319 8 952 7 633 3 676 3 957 7 633 – 40 – 55 – 1 — 24 – 461 – 15 5 2 355 86 37 279 3 562 — — 752 – 266 – 196 – 755 – 465 – 27 – 284 9 236 8 952 3 504 5 448 8 952 – 1 163 3 488 – 641 1 684 190 – 283 264 – 718 1 137 – 817 – 3 676 – 607 – 111 – 2 – 14 – 31 – 597 – 2 4 6 090 1 156 57 48 1 1 499 546 — 1 – 51 – 59 – 1 536 – 1 099 107 1 644 7 592 9 236 1 957 7 279 9 236 The figures in the consolidated statement of cash flows combine cash flows relating to both continuing and discontinued operations. Note includes information about discontinued operations cash flows. The figures in the consolidated statement cash flows 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. * Full years and reflect the retrospective application of Revised IAS , Employee Benefits. 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 25 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 and Non- other restrict. Retained holders of controlling interests earnings the parent Equity equity Total Fair Reserve for value invested non- Balance at December 31, 2010 3 709 130 246 312 – 663 825 9 3 161 10 500 14 390 1 858 16 248 Remeasurement on defi ned benefi t pensions, net of tax 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 Profi t 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 Total of other equity movements – 26 – 28 – 7 84 67 – 7 – 26 – 28 84 67 – 16 – 17 35 10 – 1 – 24 9 – 28 94 67 – 17 – 16 — – 54 144 — – 1 179 – 1 089 – 297 – 1 386 – 1 163 – 1 163 – 324 – 1 487 19 – 13 18 – 3 – 5 46 18 – 4 – 5 546 – 1 500 – 1 484 – 1 484 – 39 – 1 523 — 15 15 — — 18 – 3 – 11 46 1 059 — 50 19 — — – 13 – 1 484 – 1 428 475 – 953 Balance at December 31, 2011 3 710 189 246 362 – 644 771 153 3 148 7 837 11 873 2 036 13 909 Remeasurement on defi ned benefi t pensions, net of tax 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 — — 1 3 – 5 85 84 42 – 67 – 127 – 67 36 — – 25 – 158 — – 3 098 7 – 3 105 15 – 12 – 742 – 12 – 742 – 127 42 – 67 – 67 36 7 – 79 – 206 – 2 47 3 40 – 67 – 20 36 10 – 3 105 – 3 281 – 681 – 3 786 – 712 – 3 993 1 3 – 2 – 742 85 – 655 1 3 – 2 – 22 – 764 85 – 22 – 677 15 — — – 5 3 136 3 997 7 937 1 302 9 239 Balance at December 31, 2012 3 710 985 246 446 – 629 746 26 N O K I A I N 2 0 1 3 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 and Non- other restrict. Retained holders of controlling interests earnings the parent Equity equity Total Fair Reserve for value invested non- Balance at December 31, 2012 3 710 985 246 446 – 629 746 – 5 3 136 3 997 7 937 1 302 9 239 Remeasurement on defi ned benefi t pensions, net of tax 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 Settlement of performance and restricted shares Dividend Acquisition of non-controlling interest Other change in non-controlling interest Convertible bond – equity component Convertible bond – conversion to equity — 1 404 38 Total of other equity movements — Balance at December 31, 2013 3 712 427 246 – 468 114 55 – 3 49 — – 354 101 — 26 – 21 55 – 468 114 – 3 49 5 – 615 – 863 25 – 2 — 25 80 – 28 – 496 114 4 49 5 7 — — – 124 – 739 – 120 – 983 25 – 2 – 37 – 37 5 – 615 – 610 — 42 – 16 – 806 – 783 – 924 – 1 707 26 42 – 16 — – 21 — – 29 – 29 154 — 154 — – 806 – 606 – 990 – 1 596 – 603 434 80 3 115 2 581 6 468 192 6 660 — 25 – 7 – 3 154 169 615 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 27 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 April , . In the prior year, the Group’s operational structure featured three businesses: Devices & Services, HERE and Nokia Siemens Networks, also referred to as NSN. For fi nancial reporting purposes, the Group previously reported four operating seg- ments: Smart Devices and Mobile Phones within the Devices & Services business, HERE and Nokia Siemens Networks. On August , Nokia completed the acquisition of Siemens’ stake in Nokia Siemens Networks, which was previ- ously a consolidated subsidiary and business owned by Nokia and Siemens. Upon acquisition, the name of the business was changed to Nokia Solutions and Networks, also referred to as NSN. As a result of the acquisition, NSN is now a wholly owned subsidiary of Nokia and Nokia reports two operating segments within the NSN business: Mobile Broadband and Global Services. On September , Nokia announced that it had signed an agreement to enter into a transaction whereby Nokia sold substantially all of its Devices & Services business to Microsoft (“sale of the D&S business”). Upon receiving share- holder confi rmation and approval of the transaction at Nokia’s Extraordinary General Meeting in November , substan- tially all of the Devices & Services business was determined to constitute discontinued operations. The fi nancial results for the discontinued operations are now reported separately in accordance with IFRS along with the luxury phone business Vertu which was disposed of in the last quarter of . The Sale of D&S Business was completed on April , . In connection with the transactions noted above, the Group considered how operating results are reported and reviewed by management and the Group’s Chief Operating Decision Maker, and identifi ed four operating and reportable segments: Mobile Broadband and Global Services within NSN, HERE and Advanced Technologies. The HERE brand was introduced for our location and map- ping service in , and as of January , our former Location & Commerce business and reportable segment was renamed HERE. As announced by Nokia on April , , Nokia has made certain changes to the names of its businesses and reportable segments. However, when presenting fi nancial information as at December , and related comparative information for previous periods, we generally refer to the names of the businesses and reportable segments as they were named at December , . However, the terms “Networks” and “Nokia Solutions and Networks, or “NSN”, as well as “Technologies” and “Advanced Technologies” can be used interchangeably in this annual report. The consolidated statements of fi nancial position and certain notes to the fi nancial statements include changes in presentation format. To allow meaningful comparison be- tween years, comparative information has 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 existing standards issued by the IASB that are relevant to its operations and eff ective for accounting periods commencing on or after January , . 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. The adoption of each of the above mentioned standards did not have a material impact to the consolidated fi nancial state- ments. Additional disclosures required by the new standards have been provided in the notes. Revised IAS Employee Benefi ts discontinues use of the ‘corridor’ approach and remeasurement impacts are recognized in other comprehensive income. Net interest as a product of discount rate and adjusted net pension liability at the start of the annual reporting period is recognized in the consolidated income statements while the return on plan assets, excluding amounts included in net interest is refl ected in remeasurements within other comprehensive income. 28 N O K I A I N 2 0 1 3 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. As a result of adopting the revised IAS , the net pension liabilities and other comprehensive income were impacted mainly by the retrospectively applied elimination of the ‘corri- dor’ approach for and . In total, for , net pension liabilities increased by EUR million (EUR million for ) and other comprehensive income decreased by EUR mil- lion (EUR million in ), net of tax. 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 these 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. The Group controls an entity when the Group is exposed to, or has right to, variable returns from its involvement with the entity and has the ability to aff ect those returns through its power over the entity. The Group’s share of profi ts and losses of associates is included in the consolidated income statement in accordance with the equity method of accounting. An as- sociate 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 subsidiar- ies, over % of the voting rights of the company. All inter-company transactions are eliminated as part of the consolidation process. Profi t or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. In the consoli- dated statement of fi nancial position, non-controlling inter- ests are presented within equity, separately from the equity of the owners of the parent. The entities or businesses acquired during the fi nancial peri- ods presented have been consolidated from the date on which control of the net assets and operations was transferred to the Group. Similarly, the results of a Group entity or business divested during an accounting period is included in the Group accounts only to the date of disposal. Business combinations The acquisition method of accounting is used to account for acquisitions of separate entities or businesses by the Group. The consideration transferred in a business combination is measured as the aggregate of the fair values of the assets transferred, liabilities incurred towards the former own- ers of the acquired business and equity instruments issued. Acquisition-related costs are recognized as expense in profi t and loss in the periods when the costs are incurred and the related services are received. Identifi able assets acquired and liabilities assumed by the Group are measured separately at their fair value as of the acquisition date. Non-controlling interests in the acquired business are measured separately based on their proportionate share of the identifi able net assets of the acquired business. The excess of the cost of the acquisition over the interest in the fair value of the identifi able net assets acquired and attributable to the owners of the 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 determin- ing 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 of disposal or its value in use. If there is no reason to believe that the cash- generating unit’s value in use materially exceeds its fair value less costs of disposal, the Group may use fair value less costs of disposal as its recoverable amount. A 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 al- located, on a reasonable and consistent basis, to the relevant units. The aggregate total carrying amount of the unit, includ- ing the portion of the carrying amount of the corporate assets allocated to the unit, is compared with its recoverable amount. An impairment loss is recognized if the recoverable amount is less than the carrying amount. Impairment losses are recog- nized immediately in the income statement. Disposals of separate entities or businesses When a disposal transaction causes the Group to relinquish control over a separate entity or business, the Group records a gain or loss on disposal at the disposal date. The gain or loss on disposal is calculated as the diff erence between the fair value 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 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. 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. Discontinued operations and assets held for disposal Discontinued operations are reported when a component of an entity comprising operations and cash fl ows that can be clearly distinguished, operationally and for fi nancial report- ing purposes, from the rest of the entity is classifi ed as held for disposal or has been disposed of, if the component either () represents a major line of business or geographical area of operations or () is part of a single co-ordinated plan to dis- pose of a separate major line of business or geographical area of operations. In the consolidated income statement, results from discontinued operations is reported separately from income and expenses from continuing operations and prior periods are presented on a comparative basis. Cash fl ows for discontinued operations are presented separately in Note . In order to present the fi nancial eff ects of the continuing opera- tions and discontinued operation revenues and expenses arising from intra-group transactions are eliminated except for those revenues and expenses that are considered to continue after the disposal of the discontinued operations. Non-current assets or disposal groups are classifi ed as as- sets held for sale when the carrying amount is to be recovered principally through a sale transaction rather than through con- tinuing use. For this to be the case, the asset or disposal group must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets or disposal groups and the sale must be highly probable. Non-current assets classifi ed as held for sale and disposal groups are measured at the lower of their carrying amount or fair value less costs to sell. 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 monetary assets and liabilities are valued at the rates of ex- change prevailing at the end of the accounting period. Foreign 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 capi- tal 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. Revenue recognition Revenues within the Group are generally recognized when the signifi cant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associ- ated with ownership and eff ective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefi ts associated with the transaction will fl ow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. When manage- ment determines that such criteria have been met, revenue is recognized. NSN enters into transactions which involve multiple compo- nents consisting of any combination of hardware, services and software. Within these arrangements, separate components are identifi ed and accounted for based on the nature and fair value of those components and considering the economic substance of the entire arrangement. Revenue is allocated to each separately identifi able component based on the relative fair value of each component. The fair value of each compo- nent is determined by taking into consideration factors such as the price of the component when sold separately and the component cost plus a reasonable margin when price refer- ences are not available. This determination of the fair value and allocation thereof to each separately identifi able compo- nent of a transaction requires the use of estimates and judg- ment which may have a signifi cant impact on the timing and amount of revenue recognized for the period. Service revenue, which typically includes managed services and maintenance services, is generally recognized on a straight-line basis over the specifi ed period unless there is evidence that some other method better represents the rendering of services. Also at NSN, certain revenue is recognized from contracts involving solutions achieved through modifi cation of complex 30 N O K I A I N 2 0 1 3 telecommunications equipment on a percentage of comple- tion basis when the outcome of the contract can be estimated reliably. Recognized revenues and profi t estimates are subject to revisions during the project in the event that the assump- tions regarding the overall project outcome are revised. Current sales and profi t estimates for projects may materi- ally change due to the early stage of a long-term project, new technology, changes in the project scope, changes in costs, changes in timing, changes in customers’ plans, realization of penalties, and other corresponding factors. Within the HERE business, a substantial majority of revenue is derived from the licensing of the HERE database. Revenue which consists of license fees from usage (including license fees in excess of the nonrefundable minimum fees), are rec- ognized in the period in which the license fees are estimable. Nonrefundable minimum annual licensing fees are generally received upfront and represent a minimum guarantee of fees to be received from the licensee during the period of the arrangement. The total up-front fee paid by the customer is generally amortized ratably over the term of the arrange- ment. When it is determined that the actual amount of licens- ing fees earned exceeds the cumulative revenue recognized under the amortization method, we recognize the additional licensing revenue. Furthermore, within the HERE business, some licensing arrangements contain multiple elements, that could include data, software, services and updates. Revenue is allocated to each element based on its relative fair value and is recognized as the element is delivered and the obligation is fulfi lled. Advanced Technologies’ patent license agreements are mul- ti-year arrangements usually covering both a licensee’s past and future sales until a certain agreed date, when the license expires. When a patent license agreement is signed, it includes an agreement or settlement on past royalties that the licen- sor is entitled to. Such income for past periods is recognized immediately. The license payments relating to the future royalties are recognized over the remaining contract period, typically to years. Licensees often pay a fi xed license fee in one or more installments and running royalties based on their sales of licensed products. Licensees generally report and pay their running royalties on a quarterly basis after the end of each quarter and Nokia revenue recognition takes place accordingly at the time the royalty reports are received. Within Devices & Services business reported as discon- tinued operations, a sale of devices can include multiple components consisting of a combination of hardware, ser- vices and software. The commercial eff ect of each separately identifi able element of the transaction is evaluated in order to determine the appropriate accounting treatment for each component of the transaction. The total amount received is allocated to individual components based on their estimated fair value. Fair value of each component is determined by tak- ing into consideration factors such as the price when the com- ponent is sold separately, the price when a similar component is sold separately by a third party and cost plus a reasonable margin when pricing references are not available. The esti- mated fair values are allocated fi rst to software and services, and the residual amount allocated to hardware. Application of the recognition criteria described above generally results in recognition of hardware related revenue at the time of deliv- ery with software and services related revenue recognized on a straight-line basis over their respective terms. Also within the Devices & Services business, estimated reductions to revenue are recorded for special pricing agree- ments and other volume based discounts at the time of sale. Sales adjustments for volume based discount programs are estimated largely based on historical activity under similar programs. 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 technol- ogy are capitalized and amortized using the straight-line method over their useful lives, generally to years. Where an indication of impairment exists, the carrying amount of the related intangible asset is assessed for recoverability. Any resulting impairment losses are recognized immediately in the income statement. Employee benefi ts PENSIONS The Group companies have various pension schemes in accord- ance with the local conditions and practices in the countries 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 consolidated income statements in the 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 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 the consolidated income statements so as to spread the cur- rent service cost over the service lives of employees. Pension obligation is measured as the present value of the estimated future cash outfl ows using interest rates on high quality corporate bonds with appropriate maturities. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past service costs and settlement gains and losses are rec- ognized immediately in income as part of service cost, when the plan amendment or settlement occurs. Curtailment gains and losses are accounted for as past service costs. The liability (or asset) recognized in the consolidated state- ments of fi nancial position is the pension obligation at the closing date less the fair value of plan assets including eff ects of asset ceilings (if any). Remeasurement, comprising actuarial gains and losses, the eff ect of changes to the asset ceiling and the return on plan assets (excluding interest), are recognized immediately in the consolidated statements of fi nancial position with the cor- responding change to retained earnings recognized through other comprehensive income in the period in which they occur. Remeasurements are not reclassifi ed to profi t and loss in subsequent periods. 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. 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. Assets held for sale are not depreciated as they are carried at the lower of car- rying value or fair value less cost to sell. Maintenance, repairs and renewals are generally charged to expense during the fi nancial period in which they are incurred. However, major renovations are capitalized and included in the carrying amount of the asset when it is probable that future economic benefi ts in excess of the originally assessed stand- ard of performance of the existing asset will fl ow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. Leasehold improvements are depreci- ated over the shorter of the lease term or useful life. Gains and losses on the disposal of fi xed assets are included in operating profi t/loss. Leases The Group has entered into various operating lease contracts. The related payments are treated as rentals and recognized in the consolidated income statements on a straight-line basis over the lease terms unless another systematic approach is more representative 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. Fair value measurement Many fi nancial instruments are measured at fair value at each reporting date after initial recognition. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset or a liabil- ity is measured using the assumptions that market partici- pants would use when pricing the asset or liability, assuming that market participants act in their economic best interest by using quoted market rates, discounted cash fl ow analyses and other appropriate valuation models. The Group uses valua- tion techniques that are appropriate in the circumstances and for which suffi cient data are available to measure fair value, maximizing the use of relevant observable inputs and minimiz- ing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the fi nancial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is signifi cant to the fair value measurement as a whole: ■ Level – Quoted (unadjusted) market prices in active markets for identical assets or liabilities 32 N O K I A I N 2 0 1 3 ■ Level – Valuation techniques for which signifi cant inputs other than quoted prices are directly or indirectly observable ■ Level – Valuation techniques for which signifi cant inputs are unobservable The Group categorizes assets and liabilities that are meas- ured at fair value to the appropriate level of fair value hierar- chy at the end of each reporting period. 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 consolidated statements of fi nancial posi- tion as current available-for-sale investments, cash equiva- lents. 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 acquisition of longer than months, are classifi ed in the consolidated statements of fi nancial position as current available-for-sale investments, liquid assets. () In- vestments in technology related publicly quoted equity shares, or unlisted private equity shares and unlisted funds, are clas- sifi ed in the consolidated statements of fi nancial position as non-current available-for-sale investments. Investments in publicly quoted equity shares are meas- ured at fair value using exchange quoted bid prices. Other available-for-sale investments carried at fair value include holdings in unlisted shares where the fair value is estimated by using various factors, including, but not limited to: () the current market value of similar instruments, () prices estab- lished from a recent arm’s length fi nancing transaction of the target companies, () analysis of market prospects and operating performance of the target companies taking into consideration the public market of comparable companies in similar industry sectors. The Group uses judgment to select an appropriate valuation methodology as well as underlying assumptions based on existing market practice and condi- tions. Changes in these assumptions may cause the Group to recognize impairments or losses in future periods. The remaining available-for-sale investments, which are technology related investments in private equity shares and unlisted funds for which the fair value cannot be measured reliably due to non-existence of public markets or reliable valuation methods against which to value these assets, 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 being disposed of by the Group. The 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 one of the following criteria must be met: () the designation eliminates or signifi cantly reduces an inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on a diff erent basis; or () the assets are part of a group of fi nancial assets, which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy. These investments are initially recognized and subsequently 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- 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 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 consolidated statement of fi nan- cial 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 less allowances for doubtful accounts, which is considered to be fair value. Allowances for doubtful accounts are 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 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 convertible bonds, which are compound fi nancial instruments, and their 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 rec- ognized in fi nancial income and expenses over the life of the instrument. The long-term portion of loans payable is included on the consolidated statement of fi nancial position under long-term interest-bearing liabilities and the current portion under current portion of long-term loans. 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 state- ments of cash fl ows as the underlying hedged items relate to the Group’s operating activities. When a derivative contract is accounted for as a hedge of an identifi able position relating to fi nancing or investing activities, the cash fl ows of the contract are classifi ed in the same manner as the cash fl ows of the position being hedged. DERIVATIVES NOT DESIGNATED IN HEDGE ACCOUNTING RELATIONSHIPS CARRIED AT FAIR VALUE THROUGH PROFIT AND LOSS 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 are recognized in fi nancial income and expenses. Embedded derivatives are identifi ed and monitored by the Group. Embedded derivatives are measured at fair value at each balance sheet date with changes in the fair value recog- nized 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. 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. 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 34 N O K I A I N 2 0 1 3 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 vari- ations in cash fl ows that could ultimately aff ect profi t or loss, and 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. 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 for- ward foreign exchange contracts, or change in the time value for options, or options 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. 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 nan- cial assets are recognized in the consolidated statements of fi nancial position, the gains and losses previously deferred are transferred 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 good- will assessments in case of business acquisitions and through depreciation 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 prospec- tively 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 hedg- ing 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. For hedging instru- ments 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 hedg- ing 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 accounting, 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 in fi nancial income and expenses 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 shareholder’s equity. The change in fair value that refl ects the change in forward exchange rates less the change in spot exchange rates is recognized in 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 denominated loan is used as a hedge, all foreign exchange gains and losses arising from the transaction are recognized in translation diff erences within consolidated shareholder’s equity. In all cases, the ineff ective portion is recognized immediately in profi t and loss. 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. 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 Income taxes The income tax expense comprises current tax and deferred tax. Current taxes are based on the results of the Group companies and are calculated according to local tax rules. Taxes are recog- nized in the consolidated income statements, except to the ex- tent that it relates to items recognized in other comprehensive income or directly in equity, in which case, the tax is recognized in other comprehensive income or equity, respectively. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It adjusts the amounts recorded where appropriate on the basis of amounts expected to be paid to the tax authorities. The amount of current income tax liabilities is adjusted when, despite management’s belief that tax return positions are supportable, it is more likely than not that certain tax positions will be challenged and may not be fully sustained upon review by tax authorities. The amounts recorded are based upon the estimated future settlement amount at each reporting date. Current income tax assets and liabilities are presented separately in the consoli- dated statements of fi nancial position and amounts recorded in respect of uncertain tax positions are presented as part of current income tax liabilities. Deferred tax assets and liabilities are determined, for all temporary diff erences arising between tax bases of assets and liabilities and their carrying amounts in the consolidated fi nancial statements using the liability method. Deferred tax assets are recognized to the extent that it is probable that fu- ture 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 deferred tax assets are assessed for realizability and when circumstances indicate it is no longer probable that deferred tax assets will be utilized, they are ad- justed as necessary. Deferred tax liabilities are recognized for temporary diff erences 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 erent taxable entities where there is an intention to settle the balances on a net basis. Deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill. Deferred income tax liabili- ties are provided on taxable temporary diff erences arising from investments in subsidiaries, associates and joint ar- rangements, except for deferred income tax liability where the timing of the reversal of the temporary diff erence is controlled by the Group and it is probable that the temporary diff erence will not reverse in the foreseeable future. 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 facts and circumstances 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. PROJECT LOSS PROVISIONS 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. 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. MATERIAL LIABILITY The Group recognizes the estimated liability for non-can- cellable purchase commitments for inventory in excess of forecasted requirements at each balance sheet date. INTELLECTUAL PROPERTY RIGHTS (IPR) PROVISIONS The Group provides for the estimated future settlements related to asserted and unasserted past alleged IPR infringe- ments based on the probable and estimable outcome of potential infringement. OTHER PROVISIONS The Group provides for other contractual and other obliga- tions based on the expected cost of executing any such contractual and other commitments. 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 in- crease 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 36 N O K I A I N 2 0 1 3 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. The Group has also issued certain stock options which are accounted for as cash-settled. Related employee services re- ceived, 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 re- measured at each reporting date and at the date of settlement and related change in fair value is recognized in the consolidat- ed income statements over the relevant service periods. Treasury shares The Group recognizes acquired treasury shares as a reduction of equity at their acquisition cost. When cancelled, the acquisi- tion cost of treasury shares is recognized in retained earnings. Dividends Dividends proposed by the Board of Directors are recorded in the consolidated fi nancial statements when 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 bonds 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 the convertible bonds. Use of estimates and critical accounting judgments The preparation of fi nancial statements in conformity with IFRS requires the application of judgment by management in selecting appropriate assumptions for calculating fi nancial estimates, which inherently contain some degree of uncer- tainty. Management bases its estimates on historical experi- ence, expected outcomes and various other assumptions that are believed to be reasonable under the circumstances. The related results form a basis for making judgments about the reported carrying values of assets and liabilities and the reported amounts of revenues and expenses that may not be readily apparent from other sources. The Group will revise material estimates if changes occur in the circumstances on which an estimate was based or as a result of new informa- tion or more experience. Actual results may diff er from these estimates under diff erent assumptions or conditions. Set forth below are areas requiring signifi cant judgment and estimation that may have an impact on reported results and the fi nancial position. REVENUE RECOGNITION The majority of the Group’s sales are recognized as revenue when the signifi cant risks and rewards of ownership have trans- ferred to the buyer, continuing managerial involvement usually associated with ownership and eff ective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefi ts associated with the transaction will fl ow to the Group and the costs incurred or to be incurred in re- spect of the transaction can be measured reliably. Sales could materially change if management’s assessment of such criteria changes. 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 compo- nent. The NSN allocation method is based on relative fair value, while the allocation of revenue for multiple component ar- rangements within the Devices & Services business reported as discontinued operations is based on the residual value method. The consideration allocated to each component is recognized as revenue when the revenue recognition criteria for that com- ponent have been met. Determination of the fair value for each component requires the use of estimates and judgment taking into consideration factors which may have a signifi cant impact on the timing and amount of revenue recognition. Examples of such factors include price when the component is sold separately by the Group or the price when a similar component is sold separately by the Group or a third party. 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 the actual fi nancial position of the customers or general economic conditions diff er from assumptions, the ultimate collectability of such fi nancings and trade credits may be required to be re-assessed, which could result in a write-down of these balances and thus negatively 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 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 in- stitutions on a non-recourse basis in exchange for an upfront cash payment. 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 infringe- ment provision. The ultimate outcome or actual cost of settling an individual infringement may materially vary from estimates. 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 AND PROVISIONS 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. The Group recognizes the estimated liability for non-cancellable purchase commitments for inventory in excess of forecasted requirements at each balance sheet date. RESTRUCTURING PROVISIONS 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. PROJECT LOSS PROVISIONS The Group provides for onerous contracts based on the lower of the expected cost of fulfi lling the contract and the expected cost of termination the contract. Due to the long-term nature of customer projects, changes in estimates of costs to be incurred, and therefore project loss estimates, may become necessary as the projects are executed. 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 (IPR) INFRINGEMENTS The Group provides for the estimated past costs related to al- leged asserted IPR infringements. The provision is an estimate 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. 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 ex- pected future cash fl ows attributable to the asset or cash-gen- erating unit discounted to present value. The key assumptions applied in the determination of recoverable amount include discount rate, length of an explicit forecast period, estimated growth rates, profi t margins and level of operational and capi- tal investment. Amounts estimated could diff er materially from what will actually occur in the future. See also Note . INCOME TAXES Management judgment is required in determining current tax expense, uncertain tax positions, deferred tax assets and liabilities and the extent to which deferred tax assets can be recognized. Each reporting period deferred tax assets 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. In the event any deferred tax assets are to be re-recognized, they would be subject to 38 N O K I A I N 2 0 1 3 detailed analysis to assess any potential impact on the fi nal amount to be recognized. At December , , Nokia’s continuing operations in Finland had approximately EUR . billion (calculated at the Finnish corporate tax rate of %) of net deferred tax assets that have not been recognized in the fi nancial statements. A signifi cant portion of Nokia’s Finnish deferred tax assets are indefi nite in nature and available against future Finnish taxable income. The Group will continue closely monitoring the realizability of these deferred tax assets, including assessing future fi nancial performance of continuing activities in Finland. Should the recent improvements in the continuing fi nancial results be sustained, all or part of the unrecognized deferred tax assets may be recognized in the future. In the Netherlands and in certain other jurisdictions, the uti- lization 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 suf- fi cient taxable profi ts will be available in the future from which the reversal of temporary diff erences and tax losses can be de- ducted. 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. Liabilities for uncertain tax positions are recorded based on estimates and assumptions when, despite management’s be- lief 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 jurisdic- tions, including India. If the fi nal outcome of these matters diff ers from the amounts initially recorded, diff erences may impact the income tax expense in the period in which such determination is made. PENSIONS AND OTHER LONG-TERM EMPLOYEE BENEFITS The determination of pension benefi t obligation and ex- pense for defi ned benefi t pension plans and other long-term employee benefi ts is dependent on the Group’s selection of certain assumptions which are used by actuaries in calculating such amounts. Those assumptions include, among others, the discount rate and annual rate of increase in future compensa- tion levels. A portion of plan assets is invested in equity securi- ties, 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 . New accounting pronouncements under IFRS The Group will adopt the following new and revised standards, amendments and interpretations to existing standards issued by the IASB that are expected to be relevant to its operations and fi nancial position: IFRS Financial Instruments refl ects the fi rst phase of the IASB’s work on the replacement of IAS Financial Instruments: Recognition and Measurement and will change the classifi ca- tion and measurement of the Group’s fi nancial assets and introduced a new hedge accounting model. The Group is plan- ning to adopt the standard on the revised eff ective date of not earlier than January , . The Group will assess IFRS ’s full impact when all phases have been completed and the fi nal standard is issued. The amendments described below will be adopted on January , and they are not expected to have a material impact on the fi nancial condition and the results of operations of the Group. Amendment to IAS Off setting Financial Assets and Financial Liabilities clarifi es the meaning of “currently has a legally enforceable right to set-off ”. Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS ) adds guidance to IAS Impairment of Assets on disclosure of recoverable amounts and discount rates. Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS ) makes it clear that IAS Financial Instruments: Recognition and Measurement does not require discontinuing hedge accounting if a hedging derivative is novated, provided certain criteria are met. Defi ned Benefi t Plans: Employee Contributions (Amend- ments to IAS ) clarifi es IAS Employee Benefi ts require- ments that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service. IFRIC Levies, an interpretation of IAS Provisions, Contingent Liabilities and Contingent Assets clarifi es that the obligating event giving rise to a liability to pay a levy to a gov- ernment agency is the activity that triggers the payment. 2. SEGMENT INFORMATION Nokia has three continuing businesses: NSN, HERE and Ad- vanced Technologies, and four operating and reportable seg- ments for fi nancial reporting purposes: Mobile Broadband and Global Services within the NSN, HERE and Advanced Technolo- gies. Also, Devices & Services business, which is presented as discontinued operations, forms an operating and reportable segment. Nokia adopted its current operational and reporting struc- ture during in response to the following events: ■ On August , Nokia announced that it had completed the acquisition of Siemens’ stake in Nokia Siemens Networks also referred to as NSN. Until then, NSN was reported as a single reportable segment. Following the completion of the transaction Nokia Solutions and Networks also referred to as NSN (formerly Nokia Siemens Networks) became a wholly owned subsidiary of Nokia and the chief operating decision maker started to evaluate the business more from a product perspective. As a result, NSN business has two operating and reportable segments, Mobile Broadband and Global Services. 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 Advanced Technologies includes net sales from both intellec- tual property right activities and technology licensing. Corporate Common Functions consists of company-wide functions. Devices & Services business focuses on developing and selling smartphones powered by the Windows Phone system, feature phones and aff ordable smart phones. The accounting policies of the segments are the same as those described in Note . Nokia accounts for inter-segment revenues and transfers as if the revenues were to third parties, that is, at current market prices. No single customer represents % or more of Group revenues. ■ On September , Nokia signed an agreement to enter into a transaction whereby Nokia sold substantially all of its Devices & Services business to Microsoft (“sale of the D&S business”). After receiving shareholder confi rmation and approval at Nokia’s Extraordinary General Meeting on November , for the transaction, Nokia began pre- senting substantially all of its former Devices & Services business as discontinued operations, and Advanced Technologies as an operating and reportable segment. Previously Advanced Technologies was part of the Devices & Services business. The Sale of D&S Business was completed on April , . ■ Substantially all of the former Devices & Services business is presented as discontinued operations and at the same time forms an operating and reportable segment. Discontinued business is described in more detail in note . Prior period results have been regrouped and recasted for comparability purposes according to the new operational and reporting structure. 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 Mobile Broadband and Global Services consists of net sales, cost of sales and operating expenses, and excludes restruc- turing and associated charges, purchase price accounting related charges and certain other items not directly related to the segments. Operating profi t is presented for HERE and Advanced Technologies. The chief operating decision maker evaluates the performance of its segments and allocates resources to them based on operating profi t/contribution. Mobile Broadband provides mobile operators with radio and core network software together with the hardware needed to deliver mobile voice and data services. Global Services provides mobile operators with a broad range of services from network planning and optimization to network implementation, system integration and care services, as well as managed services for network and service operations. NSN Other includes net sales and related cost of sales and operating expenses of non-core businesses as well as Optical Networks business until May , when its divestment was completed. It also includes restructuring and associated charges as well as purchase price accounting related charges and certain other items for NSN business. HERE focuses on the development of location-based ser- vices and local commerce. The HERE brand was introduced for our location and mapping service in , and as of January , our former Location & Commerce business and report- able segment was renamed HERE. The Advanced Technologies business builds on Nokia’s Chief Technology Offi ce (CTO) and Intellectual Property Rights activi- ties. Advanced Technologies focuses on technology develop- ment and licensing and is planning to continue to build Nokia’s patent portfolio and expand its technology licensing program. 40 N O K I A I N 2 0 1 3 2013, EURm Mobile Broad- Global band 1 Services 1 NSN Other Advanced Techno- NSN HERE 1 logies 1 Corporate Common Elimina- Functions tions Group Net sales to external customers 2 5 346 5 752 182 11 280 Net sales to other segments Depreciation and amortization Impairment Operating profi t (+)/loss (–) Share of results of associated companies 1 217 1 420 — 1 94 1 693 — — 2 6 – 693 8 914 — 241 — 2 313 8 420 – 154 8 1 515 14 3 — 310 — 2012, EURm Net sales to external customers 2 6 042 6 928 807 13 777 1 103 520 Net sales to other segments Depreciation and amortization Impairment Operating loss (–)/profi t (+) Share of results of associated companies 1 351 8 490 — 1 198 — — 38 29 2 587 37 — 496 — 334 – 1 619 – 795 – 301 — 8 8 1 14 3 — 325 — 2011, EURm Net sales to external customers 2 6 335 6 737 Net sales to other segments Depreciation and amortization Impairment Operating loss (–)/profi t (+) 3 Share of results of associated companies — 403 — 216 — — 190 — 230 — 969 — 118 19 – 743 – 17 14 041 1 091 836 — 711 — 491 19 1 091 – 297 – 1 526 – 17 1 14 3 — 609 — — — 3 12 – 57 – 5 — — 2 33 – 50 – 10 — — 113 134 – 174 – 7 12 709 – 16 — 560 20 519 4 15 400 – 16 — 1 088 70 – 821 – 1 15 968 – 14 — 1 318 1 244 – 1 388 – 23 Represents an operating and reportable segment. Net sales to external customers include the HERE sales to discontinued operations (EUR million in , EUR million in and EUR million in ). HERE operating loss in includes a goodwill impairment loss of EUR million. Net sales to external customers by geographic area by location of customer, EURm Finland 4 United States Japan China India Germany Brazil Russia Indonesia Other Total 2013 2012 2011 594 1 542 1 388 896 656 609 511 421 410 659 1 498 2 176 1 077 757 844 805 476 418 955 1 199 1 533 1 384 929 946 845 542 475 5 682 6 690 7 160 12 709 15 400 15 968 All Advanced Technologies net sales is allocated to Finland. Segment non-current assets by geographic area 5, EURm Finland USA China India Other Total 2013 2012 529 3 371 94 58 194 1 662 4 166 387 151 588 4 246 6 954 Comprises goodwill and other intangible assets and property, plant and equipment as well as assets-held-for sale. 3. DISCONTINUED OPERATIONS Nokia announced on September , that it had signed an agreement to sell substantially all of its Devices & Services business and license its patents to Microsoft. The transac- tion was approved by Nokia shareholders in an Extraordinary Shareholders’ meeting in November and, after which the results of Devices & Services business were reclassifi ed as discontinued Operations. The transaction was completed on April , . 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 Devices & Services is comprised of two previously report- able segments, Smart Devices and Mobile Phones as well as Devices & Services Other. Smart Devices focuses on Nokia’s most advanced products, including smartphones powered by the Windows Phone system and has profi t-and-loss respon- sibility and end-to-end accountability for the full consumer experience, including product development, product man- agement 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 experi- ence, including development, management and marketing of feature phone products, services and applications. Devices & Services Other includes net sales related to spare parts, related cost of sales and operating expenses and operating results of Vertu through October , , the date of divest- ment of the business. Devices & Services Other also includes major restructuring projects/programs related to the Devices & Services business as well as other unallocated items. Results of discontinued operations, EURm Net sales Cost of sales Gross profi t 2013 2012 2011 10 735 15 152 23 091 – 8 526 – 12 320 – 17 292 2 209 2 832 5 799 Research and development expenses – 1 130 – 1658 – 2 211 Selling and marketing expenses – 1 345 – 1 857 –2 179 Administrative and general expenses Other income and expenses Operating loss (–)/profi t (+) Financial income (+)/expense (–) – 215 – 109 – 590 10 – 286 – 510 – 1 479 18 – 370 – 723 316 28 Income tax – 200 – 842 – 216 Loss (–)/profi t (+) for the year – 780 – 2 303 Depriciation and amortization 168 238 128 244 Cash fl ows (used in) discontinued operation, EURm 2013 2012 2011 Eff ect of disposal on the fi nancial position of the Group, EURm Goodwill and other intangible assets Property plant and equipment Deferred tax assets and non-current assets Inventories Trade and other receivables Prepaid and other current assets Assets of disposal groups classifi ed as held for sale Deferred tax liabilities and other liabilities Trade and other payables Deferred income and accrued expense Provisions Liabilities of disposal groups classifi ed as held for sale 2013 1 426 559 381 347 691 1 854 5 258 114 1 381 2 220 1 013 4 728 4. PERCENTAGE OF COMPLETION Contract sales recognized under percentage of completion accounting were EUR million in (EUR million in and EUR million in ). Service revenue for managed services and network maintenance contracts were EUR 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 of 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 , ). Net cash used in operating activities Net cash used in investing activities Net cash used in fi nancing activities – 1 062 – 2 252 – 95 – 130 – 68 – 206 5. PERSONNEL EXPENSES – 21 — — Continuing operations, EURm 2013 2012 2011 Net cash fl ow for the year – 1 213 – 2 320 – 301 Wages and salaries 3 432 4 295 3 875 Share-based compensation expense Pension expenses, net Other social expenses 42 206 403 11 232 507 6 220 517 Personnel expenses total 4 083 5 045 4 618 Personnel expenses include termination benefi ts. Pension expenses, comprised of multi-employer, insured and defi ned contribution plans were EUR million in (EUR million in and EUR million in ). Expenses related to defi ned benefi t plans comprise the remainder. 42 N O K I A I N 2 0 1 3 Average personnel 2013 2012 2011 NSN HERE Advanced Technologies and Corporate Common Functions Nokia Group, continuing operations 52 564 64 052 71 825 5 897 6 441 7 187 872 1 315 1 844 59 333 71 808 80 856 January 1, 2011 shareholders’ equity EURm Nokia Group Adjust- Nokia Group reported ments adjusted Total equity 16 231 17 16 248 Equity attributable to equity holders of parent Equity attributable to non-controlling interests 14 384 6 14 390 1 847 11 1 858 6. PENSIONS The Group operates a number of post-employment plans in various countries including both defi ned contribution and defi ned benefi t schemes. These plans expose the Group to actuarial risks such as, investment risk, interest rate risk, life expectancy risk and salary risk. The characteristics and associ- ated risks of the defi ned benefi t plans vary depending on legal, fi scal, and economic requirements in each country. These char- acteristics and risks are further described below relating to the plans included in the continuing operations of the Group. Any of the following disclosures are attributable to the continuing operations only. Disclosures relating to and comparative annual periods represent the results for the entire consolidated Group. Accordingly, the current year results are not directly comparable to the prior periods. Change in accounting policy At January , , the Group adopted the Revised IAS Em- ployee Benefi ts. Actuarial gains and losses under the revised standard are required to be recognized immediately and in full in other comprehensive income and such balances are excluded permanently from the consolidated income state- ment. Previously, all actuarial gains and losses were deferred in accordance with the corridor method. Calculation of the pension expense has been simplifi ed under the revised standard and the related impacts to the Group’s loss presented in the historical comparative consoli- dated income statements are not material. The main changes relate to the fully recognized actuarial gains and losses which impact the relevant net pension assets and liabilities and other comprehensive income. The revised IAS requires retrospective application for all fi nancial statements presented. The adjustments resulting from the implementation of the revised standard for the years ended December , and December , are present- ed in the following tables. For the year ended and as of December 31, 2011 EURm Nokia Group Adjust- Nokia Group reported ments adjusted Impact to consolidated statement of fi nancial position: Defi ned benefi t pension assets Deferred tax assets Defi ned benefi t pension obligations Deferred tax liabilities 106 1 848 176 800 15 5 24 3 121 1 853 200 803 Total equity 13 916 – 7 13 909 Equity attributable to equity holders of parent Equity attributable to non-controlling interests Impact to consolidated income statement and other comprehensive income: 11 873 — 11 873 2 043 – 7 2 036 Loss – 1 488 1 – 1 487 Other comprehensive income Remeasurements on defi ned benefi t pensions Income taxes related to components of other comprehensive Income — – 36 – 36 – 16 12 – 4 For the year ended and as of December 31, 2012 EURm Nokia Group Adjust- Nokia Group reported ments adjusted Impact to consolidated statement of fi nancial position: Defi ned benefi t pension assets 142 Deferred tax assets Defi ned benefi t pension obligations Deferred tax liabilities 1 254 178 700 10 25 242 1 152 1 279 420 701 Total equity 9 447 – 208 9 239 Equity attributable to equity holders of parent Equity attributable to non-controlling interests Impact to consolidated income statement and other comprehensive income: 8 061 – 124 7 937 1 386 – 84 1 302 Loss – 3 789 3 – 3 786 Other comprehensive income Remeasurements on defi ned benefi t pensions Income taxes related to components of other comprehensive Income — – 228 – 228 12 22 34 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 The Group’s most signifi cant defi ned benefi t pension plans are in Germany, UK, India and Switzerland. Together they account for % (% in ) of the Group’s total defi ned benefi t obligation and % (% in ) of the Group’s total plan assets. Germany The majority of active employees in Germany participate in the cash balance plan BAP (Beitragsorientierter Alterversorgungs Plan), formerly known as Beitragsorientierte Siemens Alterver- sorgung (“BSAV”). Individual benefi ts are generally dependent on eligible compensation levels, ranking within the Group and years of service. This plan is a partly funded defi ned benefi t pension plan, the benefi ts of which are subject to a minimum return guaranteed by the Group. The funding vehicle for the BAP plan is the NSN Pension Trust e.V. The trust is legally separate from the Group and manages the plan assets in accordance with the respective trust agreements with the Group. The risks spe- cifi c to the German defi ned benefi t plans are related to changes in mortality of covered members and investment return of the plan assets. Curtailments were recognized in service costs for German pension plans during as a result of reduction in workforce in and the planned reduction in . United Kingdom The Group has a UK defi ned benefi t plan divided into two sec- tions: the money purchase section and the fi nal salary section, both being closed to future contributions and accruals as of April , . Individual benefi ts are generally dependent on eligible compensation levels and years of service for the de- fi ned benefi t section of the plan and on individual investment choices for the defi ned contribution section of the plan. The funding vehicle for the pension plan is the NSN Pension Plan that is run on a trust basis. India Government mandated gratuity and provident plans provide benefi ts based on years of service and projected salary levels at the date of separation for the Gratuity Plan and through an interest rate guarantee on existing investments in a government prescribed Provident Fund Trust. Gratuity Fund plan assets are invested and managed through an insurance policy. Provident Fund Assets are managed by NSN PF Trustees through a pattern prescribed by the Government in various fi xed income securities. Switzerland The Group’s Swiss pension plans are governed by the Swiss Federal Law on Occupational Retirements, Survivors’ and Disability Pension plans (BVG), which stipulates that pension plans are to be managed by an independent, legally autono- mous unit. In Switzerland, individual benefi ts are provided through the collective foundation Profond. The plan’s benefi ts are based on age, years of service, salary and an individual old age account. The funding vehicle for the pension scheme is the Profond Vorsorgeeinrichtung. During fi scal year , the collective foundation Profond has decided to decrease their conversion rates (pension received as a percentage of retirement savings) in fi ve years gradually from .% to .%, which will reduce the expected benefi ts at retirement for all employees. This event qualifi es as a plan amendment and the past service gain of EUR million arising from this amendment was recognized immediately in the service cost of the year. The following table presents the defi ned benefi t obliga- tions, the fair value of plan assets, the eff ects of the asset ceiling and the net defi ned benefi t balance at December , for continuing operations and at December , for the Group, as restated. EURm Germany UK India Switzerland Other Defi ned benefi t obligation Fair value of plan assets Eff ects of asset ceiling Net defi ned benefi t balance 2013 2012 2013 2012 2013 2012 2013 2012 – 1 062 – 1 305 – 98 – 85 – 78 – 130 – 405 – 115 – 91 – 157 904 108 82 63 104 996 527 110 57 118 — — – 1 — – 6 – 7 — — — — – 3 – 3 – 158 – 309 10 – 4 – 15 – 32 122 – 5 – 34 – 42 – 199 – 268 Nokia Group Total – 1 453 – 2 073 1 261 1 808 44 N O K I A I N 2 0 1 3 The movements in the present value of the defi ned benefi t obligation, fair value of plan assets and the impact of minimum funding/asset ceiling are as follows for continuing operations in and for the entire Group in , as restated: Present value of obligation Fair value of plan assets EURm Balance at January 1, 2012 Current service cost Interest expense (–)/income (+) Past service cost and gains and losses on curtailments Settlements Remeasurements: Return on plan assets, excluding amounts included in interest expense (–)/income (+) Gain from change in demographic assumptions (Loss) from change in fi nancial assumptions Experience (losses) Change in asset ceiling, excluding amounts included in interest expense (–)/income (+) Exchange diff erences Contributions: Employers Plan participants Payments from plans: Benefi t payments Acquired in a business combination Other movements Balance at December, 2012 Balance at January 1, 2013 Transfer to discontinued operations Current service cost Interest expense (–)/income (+) Past service cost and gains and losses on curtailments Settlements Remeasurements: Return on plan assets, excluding amounts included in interest expense (–)/income (+) Gain from change in demographic assumptions Gain from change in fi nancial assumptions Experience gains Change in asset ceiling, excluding amounts included in interest expense (–)/income (+) Exchange diff erences Contributions: Employers Plan participants Payments from plans: Benefi t payments Acquired in a business combination Other movements Balance at December, 2013 – 1 737 – 58 – 89 23 13 – 111 — — – 264 – 25 — – 289 – 7 — – 14 68 14 3 64 – 2 073 – 2 073 445 – 44 – 54 5 12 – 81 — 4 93 6 — 103 30 — – 13 53 83 — 153 – 1 453 1 657 — 84 — – 10 74 62 — — — — 62 10 50 14 – 50 – 12 3 15 1 808 1 808 – 516 — 43 — – 8 35 15 — — — — 15 – 27 33 13 Total – 80 – 58 – 5 23 3 – 37 62 — – 264 – 25 — – 227 3 50 — 18 2 4 79 – 265 – 265 – 71 – 44 – 11 5 4 – 46 15 4 93 6 — 118 3 33 — Impact of minimum funding/asset ceiling Net defi ned benefi t balance – 2 — — — — — — — — — – 1 – 1 — — — — — — — – 3 – 3 — — — — — — — — — — – 4 – 4 — — — — — — — – 7 – 82 – 58 – 5 23 3 – 37 62 — – 264 – 25 – 1 – 228 3 50 — 18 2 4 79 – 268 – 268 – 71 – 44 – 11 5 4 – 46 15 4 93 6 – 4 114 3 33 — 25 11 — 72 – 199 – 28 – 72 — – 81 1 261 25 11 — 72 – 192 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 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 include continuing operations in and the entire Group in , as restated). The net accrued pension cost for continuing operations above is made up of an accrual of EUR million included in other long-term liabilities (EUR million in , for the entire Group, as restated) and a prepayment of EUR million included in other long-term assets (EUR million in , for the entire Group, as restated). The amounts recognized in the consolidated income state- ment are as follows (including continuing operations in and the entire Group in and , as restated): EURm 2013 2012 2011 Current service cost Past service cost and gains and losses on curtailments Net interest cost Settlements Total, included in personnel expenses 44 – 5 11 – 4 46 58 – 23 5 – 3 37 59 – 8 3 – 6 48 The movements in pension remeasurements recognized in other comprehensive income are as follows (the amounts presented include continuing operations in and the entire Group in and , as restated): EURm 2013 2012 2011 Remeasurements Return on plan assets (excl. interest income), gain (+)/loss (–) Changes in demographic assumptions, gain 15 4 62 – 18 — — Changes in fi nancial assumptions, gain (+)/loss (–) 93 – 264 – 43 Experience adjustments, gain (+)/loss (–) Current year change in asset ceiling Total remeasurement included in comprehensive income 6 – 25 – 4 – 1 19 6 114 – 228 – 36 Actuarial assumptions The principal actuarial weighted average assumptions used for determining the defi ned benefi t obligation were as follows: % 2013 2012 Discount rate for determining present values Annual rate of increase in future compensation levels Pension growth rate Infl ation rate 4.0 2.4 1.7 2.0 3.7 2.4 1.9 1.8 46 N O K I A I N 2 0 1 3 Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each country. The following discount rates and mortality tables have been used for Nokia’s signifi cant coun- tries: Discount rate Mortality table 2013 2012 2013 Germany UK India 3.6% 4.5% 9.0% 3.2% 4.1% 8.3% Richttafeln 2005 G S1NA Light * LIC (2006-08) Ultimate Switzerland 2.2% 1.6% BVG 2010 G Total weighted average for all countries 4.0% 3.7% * Tables unadjusted for males and rated down by years for females. The sensitivity of the defi ned benefi t obligation to changes in the principal assumptions is presented below. Impact on defi ned benefi t obligation Increase in Decrease in Change in assumption assumption EURm EURm assumption Discount rate for determining present values Annual rate of increase in future compensation levels Pension growth rate Infl ation rate Life expectancy 1 year 1.0% 173 -225 1.0% 1.0% 1.0% – 24 – 127 – 136 – 27 21 123 126 26 The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant and may not be representative of the actual impact of changes. If more than one assumption is changed simultaneously, the combined impact of changes would not necessarily be the same as the sum of the individual changes. If the assumptions change to a diff erent level compared to that presented above, the eff ect on the defi ned benefi t obligation may not be linear. The methods and types of assumptions used in preparing the sensitivity analyses are the same as in the previous period. When calculating the sensitivity of the defi ned benefi t obli- gation to signifi cant actuarial assumptions, the same method has been applied as when calculating the post-employment benefi t obligation recognized in the consolidated statement of fi nancial position; specifi cally, the present value of the defi ned benefi t obligation is calculated with the projected unit credit method. Increases and decreases in the discount rate, rate of increase in future compensation levels, pension growth rate and infl ation, which are used in determining the defi ned benefi t obligation, do not have a symmetrical eff ect on the defi ned benefi t obligation primarily due to the compound in- terest eff ect created when determining the net present value of the future benefi t. Investment strategies The objective of investment activities is to maximize the ex- cess of plan assets over the projected benefi t obligations and to achieve asset performance at least in line with the interest costs in order to minimize required future employer contribu- tions. To achieve these goals, the Group uses an asset-liability matching framework, which forms the basis for its strategic asset allocation of the respective plans. The Group also takes into consideration other factors in addition to the discount rate, such as infl ation and longevity. The results of the asset- liability matching framework are implemented on a plan level. The Group’s pension governance does not allow direct investments and requires all investments to be placed either in funds or by professional asset managers. Derivative instru- ments are permitted and are used to change risk characteris- tics as part of the German plan assets. The performance and risk profi le of investments is constantly monitored on a stand- alone basis as well as in the broader portfolio context. One major risk is a decline in the plan`s funded status as a result of the adverse development of plan assets and/or defi ned ben- efi t obligations. The application of the Asset-Liability-Model study focuses on minimizing such risks. There has been no change in the process used by the Group to manage its risk from prior periods. Disaggregation of plan assets Pension assets are comprised as follows: Asset category Equity securities Debt securities Insurance contracts Real estate Short-term investments Others Total 2013 2012 Quoted Unquoted EURm EURm Total EURm 300 564 — — 92 — — 121 70 57 — 57 300 685 70 57 92 57 % 24% 54% 6% 5% 7% 4% Quoted Unquoted EURm EURm Total EURm 397 973 — — 49 — — 116 137 62 — 74 397 1 089 137 62 49 74 % 22% 60% 8% 3% 3% 4% 956 305 1 261 100% 1 419 389 1 808 100% All short term investments, equity and nearly all fi xed in- come securities have quoted market prices in active markets. Equity securities represent investments in equity funds and direct investments, which have quoted market prices in an ac- tive market. Debt securities represent investments in govern- ment and corporate bonds, as well as investments in bond funds, which have quoted market prices in an active market. Debt securities may also comprise investments in funds and direct investments. Real estate investments are investments into real estate funds which invest in a diverse range of real estate properties. Insurance contracts are customary pen- sion insurance contracts structured under domestic law in the respective countries. Short-term investments are liquid assets or cash which are being held for a short period of time, with the primary purpose of controlling the tactical asset alloca- tion. The other category includes commodities as well as alter- native investments, including derivative fi nancial instruments. The pension plan assets include a self investment through a loan provided to Nokia by the Group’s German pension fund of EUR million (EUR million in ). See Note . Future cash fl ows Employer contributions expected to be paid to the post- employment defi ned benefi t plans relating to continued operations in are EUR million and the weighted average duration of the defi ned benefi t obligations was . years at December , . Expected maturity analysis of undiscounted payments from the defi ned benefi t plans of the continued operations: Pension benefi ts, EURm Within 1 year Between 1 and 5 years Between 5 and 10 years Between 10 and 20 years Over 20 years Total 34 150 264 826 1 840 3 114 7. EXPENSES BY NATURE EURm 2013 2012 2011 Continuing operations Cost of material 2 835 3 820 4 201 Personnel expenses Subcontracting costs Real estate costs Depreciation and amortization Warranty costs 3 857 4 108 2 427 3 070 4 510 2 742 408 351 560 52 446 1 088 1 318 21 59 Other costs and expenses 1 572 2 431 2 847 Total of cost of sales, research and development, selling and marketing and administrative and general expenses 11 654 14 984 16 085 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 8. OTHER INCOME AND EXPENSES 9. IMPAIRMENT Continuing operations EURm Other income 2013 2012 2011 Distributions from unlisted venture funds FX gain on hedging forecasted sales and purchases Rental income Profi t on sale of other fi xed assets Gain on sale of real estate Interest income from customer receivables and overdue payments Pension curtailments Other miscellaneous income 97 36 25 26 6 27 — 55 22 26 20 28 79 10 12 79 26 2 30 18 9 11 — 55 Other income, total 272 276 151 Other expenses Restructuring and associated charges Country and contract exits Divestment of businesses Loss on sale of property, plant and equipment Impairment of shares in associated companies Other impairments Sale of receivables transactions Valuation allowances for doubtful accounts FX loss on hedging forecasted sales and purchases VAT and other indirect tax write-off s and provisions Transaction costs related to the Sale of D&S Business Other miscellaneous expenses – 395 – 1 174 – 169 – 52 – 157 – 42 – 50 — – 19 – 20 – 40 – 9 — – 13 – 53 – 8 – 29 – 44 – 30 – 34 – 24 – 18 – 41 – 66 – 33 33 8 – 37 – 25 – 35 – 18 – 9 — – 49 — – 1 Other expenses, total – 808 – 1 513 – 332 In , other expenses from continuing operations included restructuring and related charges of EUR million, which consists primarily of employee termination benefi ts. Restruc- turing and related charges included EUR million related to NSN, recorded within NSN, other, EUR million related to HERE, EUR million related to Advanced Technologies and EUR mil- lion related to Corporate Common Functions, respectively. In , other expenses included restructuring and re- lated charges of EUR million, which consists primairily of employee termination benefi ts. Restructuring and related charges included EUR million related to NSN, EUR mil- lion to HERE, EUR million to Advanced Technologies and EUR million related to Corporate Common Functions, respectively. In , other expenses included restructuring charges of EUR million. Restructuring charges inlcuded EUR mil- lion related to NSN, recorded within NSN Other, EUR million related to HERE, EUR million to Advanced Technologies and EUR million to Corporate Common Functions, respectively. EURm Goodwill Other intangible assets Property, plant and equipment Inventories Investments in associated companies Available-for-sale investments Continued operations, net Discontinued operations, net 2013 2012 2011 — — 12 — — 8 20 — — 8 23 — 8 31 70 39 1 090 2 10 7 41 94 1 244 94 Goodwill Goodwill is allocated to the Group’s cash-generating units (“CGUs”) or groups of cash-generating units for the purpose of impairment testing. The allocation is made to those CGUs that are expected to benefi t from the synergies of the business combination in which the goodwill arose. As a result of the Sale of the D&S business to Microsoft, as well as Nokia’s acquisition of the Siemens’ stake in NSN, the Group reviewed the structure of its CGUs. In consequence of the Purchase Agreement with Microsoft, the Smart Devices and Mobile Phones CGUs have been com- bined to a single Devices & Services CGU and aligned with the scope of the business being sold. The goodwill previously allo- cated to the two separate CGUs was allocated to the combined CGU for impairment testing purposes in . No goodwill was allocated to the new Advanced Technologies CGU. In previous years, the Group had defi ned the NSN operating segment as a single CGU. As a consequence of Nokia’s acquisi- tion of the Siemens minority stake in NSN and the resulting change in reportable segments, the Group has identifi ed two NSN related groups of CGUs to which goodwill has been al- located: Radio Access Networks within the Mobile Broadband operating segment and Global Services. IAS requires goodwill to be assessed annually for im- pairment unless triggering events are identifi ed prior to the annual testing date that indicate a potential impairment, in which case an interim assessment is required. The annual im- pairment testing for the Devices & Services and HERE CGUs is performed as of October . The annual impairment testing for the Nokia Solutions and Networks related groups of CGUs has been performed as of September . An additional impairment analysis specifi c to NSN CGUs was performed subsequently at November , to align the annual testing date with NSN’s annual fi nancial planning cycle. Management determined that the signing of the agreement with Microsoft for the Sale of the D&S business constituted a triggering event requiring an inter- im impairment test for the Devices & Services and HERE CGUs. Accordingly, an interim review was performed in September . No impairment charges were recorded for any of the CGUs as a result of either the interim or annual tests. The Group allocated goodwill to the CGUs at each of the respective years’ impairment testing date, as presented in the table below: 48 N O K I A I N 2 0 1 3 EURm Smart Devices 1 Mobile Phones 1 Devices & Services (discontinued operations) 1 HERE Radio Access Networks in Mobile Broadband 2 Global Services 2 NSN 2 2013 2012 2011 — — 899 530 862 502 1 417 — — 3 219 3 270 3 274 88 91 — — — — — 183 173 Total 4 815 4 882 4 811 Smart Devices and Mobile Phones CGUs have been combined to a single Devices & Services CGU in . NSN has two groups of CGUs to which goodwill has been allocated in . The recoverable values of the Smart Devices and Mobile Phones CGUs, were previously valued on a value in use basis. Value in use was based on reasonable and supportable as- sumptions that represented management’s best estimate of the economic circumstances that will prevail over the remain- ing life of an asset (“steady state”). During , the Devices & Services CGU recoverable value was estimated based on the fair value less cost of disposal based on the agreed purchase price defi ned for the Sale of the D&S business, excluding any consideration attributable to patents or patent applications. The recoverable amounts for the HERE CGU, Radio Access Networks and Global Services group of CGUs are based on fair value less cost of disposal and were EUR million, EUR million and EUR million, respectively, at the date of the annual impairment testing. The valuation meth- odologies have remained consistent from previous years. Fair value less cost of disposal was estimated using a discounted cash fl ow calculation. 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 CGUs, in an orderly transaction between market participants at the measurement date after deducting the estimated costs of disposal. The estimates of fair value less cost of disposal are categorized in the level of the fair value hierarchy. Discounted cash fl ows for the NSN groups of CGUs and HERE CGU were modeled over ten annual periods. The growth rates used in transitioning to terminal year refl ect estimated long- term stable growth which do not exceed long-term average growth rates for the industry and economies in which the CGUs operate. All cash fl ow projections are consistent with external sources of information, wherever possible. The key assumptions applied in the impairment test- ing analysis for each CGU are presented in the table below. No information has been included for the Devices & Services CGU as the recoverable amount was not determined using a discounted cash fl ow analysis and the CGU is attributable to discontinued operations: Cash-generating unit Radio Access Networks group of CGUs in Mobile Broadband 1 Global Services group of CGUs 1 HERE NSN % 2013 2012 2013 2012 2013 2012 2013 2012 Terminal growth rate Post-tax discount rate 1.7 10.6 1.7 9.9 1.5 10.8 — — 0.5 10.1 — — — — 0.7 10.3 NSN CGU is divided into two groups of CGUs in : Radio Access Net- works group of CGUs within the Mobile Broadband operating segment and the Global Services group of CGUs. Fair value less cost of disposal for the HERE CGU and Radio Access Networks and Global Services group of CGUs are determined using post-tax valuation assumptions including projected cash fl ows and the discount rate. The discount rates applied in the impairment testing for the above noted CGUs or groups of CGUs refl ect current assess- ments 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. In the fourth quarter of the Group recorded an impair- ment loss of EUR million to reduce the carrying amount of the HERE CGU to its recoverable amount at that time. The impairment loss was allocated in its entirety to the carrying amount of goodwill. The Group’s goodwill impairment test- ing did not result in impairment charges for the years ended December , or . The recoverable amount of the HERE CGU exceeds its carry- ing amount by a small margin at the testing date. 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 HERE CGU. Management’s estimates of the overall automotive volumes and market share, customer adoption of the new location-based platform and related service off er- ings, projected value of the services sold to Microsoft and assumptions regarding pricing as well as continued focus on cost effi ciency are the main drivers for the HERE 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 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 fees and advertising, will grow in the future as more custom- ers demand complete, end-to-end location solutions and as cloud computing and cloud-based services garner greater market acceptance. 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 mate- rial 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. Other than as disclosed for the HERE CGU above, manage- ment believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of any cash generating unit to exceed its recoverable amount. Other intangible assets There were no impairment charges recognized during . During , a charge of EUR million was recorded on intangible assets attributable to the decision to transition certain operations into maintenance mode within NSN. These charges were recorded in other operating expenses. Property, plant and equipment During Nokia Solutions and Networks recorded an impair- ment charge of EUR million (EUR million in ) on prop- erty, plant and equipment as a result of the remeasurement of the Optical Networks disposal group at fair value less cost of disposal. Furthermore, the Group recognized impairment losses of EUR million related to certain properties attribut- able to Corporate Common Functions. Investments in associated companies No material impairment charges were recognized during . After application of the equity method, including recogni- tion 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 ) was necessary to adjust the Group’s investment in associated companies to its recoverable amount. The charges were recorded in other operating expense and are included in Corporate Common Functions. 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 income and expenses and other operating expenses in the consolidated income statement. See also Note . 10. ACQUISITIONS Acquisitions completed in 2013 ACQUISITION OF SIEMENS’ NON-CONTROLLING INTEREST IN NSN On August , Nokia completed its acquisition of Siemens’ % interest in their joint venture, Nokia Siemens Networks (renamed Nokia Solutions and Networks) for a consideration of EUR million. Cash of EUR million was paid at the closing of the transaction. The remaining EUR million was fi nanced through a secured loan from Siemens, which was repaid in September . Transaction related costs amounted to EUR million. Upon closing, the parent entity of NSN business, Nokia Siemens Networks B.V., became wholly owned subsidiary of Nokia. Nokia continues to control and consolidate NSN’s results and fi nancial position and the acquisition of Siemens’ non- controlling interest is accounted for as an equity transaction. The transaction reduced the Group’s equity by EUR million, representing the diff erence between the carrying amount of Siemens’ non-controlling interest on the date of the acquisi- tion of EUR million and the total consideration paid of EUR million. The impact to individual shareholder’s equity line items is presented in “Acquisition of non-controlling interest” line item in the consolidated statement of changes in share- holder’s equity and in the accompanying notes. The transaction resulted in changes in the reporting struc- ture of the NSN business, for further information refer to Note . 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 , . 11. DEPRECIATION AND AMORTIZATION EURm 2013 2012 2011 Depreciation and amortization by function Cost of sales Research and development 1 Selling and marketing 2 Administrative and general 88 293 95 84 119 525 334 110 151 586 435 146 Total 560 1 088 1 318 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 ). 50 N O K I A I N 2 0 1 3 12. FINANCIAL INCOME AND EXPENSES 13. INCOME TAXES EURm 2013 2012 2011 EURm 2013 2012 2011 Continuing operations 1 3 1 95 119 169 Income tax Current Deferred Total 7 6 3 8 1 18 Finnish entities Other countries Total – 354 152 – 202 – 87 – 115 – 202 – 329 – 340 25 – 304 – 147 – 157 – 304 267 – 73 – 102 29 – 73 – 4 – 4 – 12 – 319 – 263 – 255 The diff erences between the income tax expense computed at statutory rate of .% in and in Finland (% in ) and income taxes recognized in the consolidated income statement is reconciled as follows: Continuing operations Dividend income on available-for-sale fi nancial investments Interest income on available-for-sale fi nancial investments 1 Interest income on loans receivables carried at amortized cost Interest income on investments at fair value through profi t and loss Net interest expense on derivatives not under hedge accounting Interest expense on fi nancial liabilities carried at amortized cost 1 Net realised gains (+)/losses (–) on disposal of fi xed income available-for-sale fi nancial investments Net fair value gains (+)/losses (–) on investments at fair value through profi t and loss Net gains (+)/losses (–) on other derivatives designated at fair value through profi t and loss Net fair value gains (+)/losses (–) on hedged items under fair value hedge accounting 2 – 1 – 4 EURm – 29 27 102 32 – 11 – 121 69 – 15 – 82 – 28 – 42 100 Income taxes on undistributed earnings Other Income tax expense Income tax expense (+)/benefi t (–) at statutory rate Permanent diff erences Non tax deductible impairment of goodwill (Note 9) Income taxes for prior years Income taxes on foreign subsidiaries’ profi ts in excess of (lower than) income taxes at statutory rates 5 Realizability of deferred tax assets 1 138 Net increase (+)/decrease (–) in uncertain tax positions Change in income tax rates 2013 2012 2011 60 – 289 – 401 – 22 67 – 98 — — – 22 – 78 283 – 16 15 609 – 14 4 – 24 14 304 – 22 279 3 11 9 25 73 14 7 – 21 43 202 This item primarily relates to NSN’s Finnish tax losses, unused tax credits and temporary differences for which no deferred tax was recognized. In this item also relates to NSN’s German tax losses and temporary dif- ferences for which no deferred tax was recognized. Current income tax liabilities at December , include EUR million (EUR million in ) related to uncertain tax positions. The timing of outfl ows related to these matters is inherently uncertain. 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 provided for will arise as a result of the examinations, fi nal resolutions of open items may substantially diff er from the amounts initially recorded. Net fair value gains (+)/losses (–) on hedging instruments under fair value hedge accounting Net foreign exchange gains (+)/losses (–) 2 – 63 23 72 From foreign exchange derivatives designated at fair value through profi t and loss From balance sheet items revaluation Other fi nancial income 3 Other fi nancial expenses 4 Total – 74 – 223 48 – 23 51 – 32 – 90 48 – 78 – 280 – 357 – 131 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. Interest expense increased due to higher levels of borrowing as well as expenses related to funding the purchase of NSN non-controlling interest from Siemens. 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. During foreign exchange gains (or losses) were positively impacted by lower hedging costs than in as well as lower volatility of certain emerging market currencies. During foreign exchange gains (or losses) were negatively impacted by higher hedging costs than in as well as significant weakening of certain emerging market currencies. 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 investments. 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 or in other financial expenses, whereas impairments for these securities amounted to EUR million in . Additional information can be found in Note and Note . 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 14. INTANGIBLE ASSETS 15. PROPERTY, PLANT AND EQUIPMENT EURm 2013 2012 EURm 2013 2012 Capitalized development costs Acquisition cost January 1 Transfer to assets held for sale Retirements during the period Disposals during the period 1 028 – 284 – 6 — Land and water areas 1 035 Acquisition cost January 1 — Transfer to assets held for sale – 7 Translation diff erences — Additions during the period Accumulated acquisition cost December 31 738 1 028 Impairments during the period Accumulated amortization January 1 – 1 028 – 1 029 Disposals during the period Transfer to assets held for sale Retirements during the period Amortization for the period 284 6 — — 7 – 6 Accumulated amortization December 31 – 738 – 1 028 Accumulated acquisition cost December 31 Net book value January 1 Net book value December 31 Buildings and constructions Acquisition cost January 1 Transfer to assets held for sale Translation diff erences — — 6 — 6 874 6 836 Additions during the period – 1 428 – 153 — — – 16 54 Impairments during the period Disposals during the period Accumulated acquisition cost December 31 336 1 129 Accumulated acquisition cost December 31 5 293 6 874 Accumulated depreciation January 1 Accumulated impairments January 1 – 1 998 – 1 998 Transfer to assets held for sale Impairments during the period — — Translation diff erences Accumulated impairments December 31 – 1 998 – 1 998 Impairments during the period 4 876 3 295 4 838 4 876 Disposals during the period Depreciation for the period 33 – 6 – 1 4 – 1 – 17 12 33 12 62 — — — – 4 – 25 33 62 33 1 129 1 380 – 422 – 44 — — – 327 — – 1 80 – 36 – 294 – 469 150 19 — 191 – 48 – 519 — -3 15 134 – 96 Accumulated depreciation December 31 – 157 – 469 Net book value January 1 Net book value December 31 660 179 861 660 Machinery and equipment Acquisition cost January 1 3 694 4 078 Transfer to assets held for sale – 1 528 — Translation diff erences Additions during the period Acquisitions Impairments during the period Disposals during the period – 122 138 — – 6 – 428 – 1 329 – 8 – 131 – 573 Accumulated acquisition cost December 31 1 748 3 694 Accumulated depreciation January 1 – 3 043 – 3 257 Transfer to assets held for sale 1 335 — 5 753 5 877 – 282 – 127 24 — – 92 — – 62 — – 20 46 11 – 52 – 65 – 44 245 107 89 — 57 — 19 48 49 33 Accumulated acquisition cost December 31 5 214 5 753 Accumulated amortization January 1 – 5 106 – 4 471 Translation diff erences Impairments during the period – 310 – 784 Disposals during the period 107 — 397 – 1 102 550 Accumulated amortization December 31 – 4 918 – 5 106 Depreciation for the period – 200 – 437 Net book value January 1 Net book value December 31 647 296 1 406 647 Accumulated depreciation December 31 – 1 404 – 3 043 Net book value January 1 Net book value December 31 651 344 821 651 52 N O K I A I N 2 0 1 3 Net book value January 1 Net book value December 31 Goodwill Acquisition cost January 1 Transfer to assets held for sale Translation diff erences Acquisitions Net book value January 1 Net book value December 31 Other intangible assets Acquisition cost January 1 Transfer to assets held for sale Translation diff erences Additions during the period Acquisitions Retirements during the period Impairments during the period Disposals during the period Transfer to assets held for sale Translation diff erences Retirements during the period Impairments during the period Disposals during the period Amortization for the period EURm 2013 2012 Other tangible assets Acquisition cost January 1 Transfer to assets held for sale Translation diff erences Additions during the period Disposals during the period Accumulated acquisition cost December 31 Accumulated depreciation January 1 Transfer to assets held for sale Translation diff erences Disposals during the period Depreciation for the period Accumulated depreciation December 31 Net book value January 1 Net book value December 31 Advance payments and fi xed assets under construction Net carrying amount January 1 Translation diff erences Additions Acquisitions Impairment Disposals Transfers/reclassifi cations: Other intangible assets Land and water areas Buildings and constructions Machinery and equipment Other tangible assets Assets held for sale Net carrying amount December 31 44 – 4 – 2 — – 10 28 – 30 4 1 6 – 2 – 21 14 7 73 – 5 11 — — – 3 — 33 31 11 — – 127 24 57 — 1 6 – 20 44 – 34 — – 1 8 – 3 – 30 23 14 75 – 4 58 — — – 5 – 8 — – 23 – 18 – 2 — 73 Total property, plant and equipment 566 1 431 Assets held for sale Net carrying amount January 1 Additions during the period Impairments during the period Net carrying amount December 31 — 94 – 5 89 — — — — 16. INVESTMENTS IN ASSOCIATED COMPANIES EURm 2013 2012 Net carrying amount January 1 Translation diff erences Additions Deductions Impairments (Note 9) Share of results Dividend Net carrying amount December 31 58 – 1 9 — — 4 – 5 65 67 3 1 – 4 – 8 – 1 — 58 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 53 17. 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 Continuing operations At December 31, 2013, 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 2 Current portion of long-term loans payable 2 Short-term borrowing Other fi nancial liabilities Accounts payable Total fi nancial liabilities 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 2 Current portion of long-term loans payable 2 Short-term borrowing Other fi nancial liabilities Accounts payable Total fi nancial liabilities 54 N O K I A I N 2 0 1 3 — — — — — — — — — 956 3 957 4 913 — — — — — — — — — — — — — — — 542 5 448 5 990 — — — — — — — — — — — — — — — — — — 3 286 3 192 184 — 1 842 8 504 11 503 227 96 11 503 227 85 2 901 2 901 29 191 94 29 191 94 382 382 956 956 3 957 3 957 9 347 9 336 3 286 4 521 3 192 3 385 184 35 184 35 1 842 1 842 8 539 9 967 — — — — — — — — — — — — 11 447 231 125 11 447 231 113 5 551 5 551 35 448 3 35 448 3 415 415 542 542 5 448 5 448 13 256 13 244 11 503 227 — — — — — — — — — — — — — — 191 — 382 — — — — — 96 2 901 29 — 94 — — — 741 573 3 120 — — — 35 — 35 — — — — — — 448 — 415 — — — — — — — — — — — 125 5 551 35 — 3 — — — 863 5 714 — — — — — — 11 447 231 — — — — — — — — 689 — — — — — — — — — 90 — 90 — — — — — — 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 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 investments carried at cost less impairment for which no reliable fair value has been possible to estimate as there is no active market for these investments in private funds. Impairment testing of these assets is based on a discounted cash flow analysis of expected cash distributions. 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 fair value of EUR Convertible Bonds (total of EUR million matur- ing -) is based on bonds being redeemed at par plus accrued interest at the close of Sale of the D&S business to Microsoft (level ). The fair values of other long-term interest bearing liabilities are based on discounted cash flow analysis (level ) or quoted prices (level ). At the end of each reporting period Nokia categorizes its fi nan- cial assets and liabilities to the appropriate level of fair value hierarchy. The following table presents the valuation methods used to determine fair values of fi nancial instruments that are measured at fair value on a recurring basis: 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, 2013, 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, 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 11 56 — 382 945 3 957 5 351 — — 11 57 — 415 532 5 448 6 463 — — — 18 191 — 11 — 220 35 35 — 20 448 — 10 — 478 90 90 — 429 — — — — 429 — — — 370 — — — — 370 — — Total 11 503 191 382 956 3 957 6 000 35 35 11 447 448 415 542 5 448 7 311 90 90 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 Nokia Continuing operations’ over-the-counter derivatives and certain other instruments not traded in active markets fall within this category. Level category includes fi nancial assets and liabilities measured using valuation techniques based on non market observable inputs. This means that fair values are determined in whole or in part using a valuation model based on assump- tions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data. However, the fair value measurement objective remains the same, that is, to estimate an exit price from the perspective of the Nokia Continuing op- erations. The main asset classes in this category are unlisted equity investments as well as unlisted funds. Level investments mainly include a large number of unlist- ed equities and unlisted funds where fair value is determined based on relevant information such as operating performance, recent transactions and available market data on peer compa- nies. No individual input has a signifi cant impact on the total 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 fair value. The following table shows a reconciliation of the opening and closing balances of Level fi nancial assets: 18. DERIVATIVE FINANCIAL INSTRUMENTS Continuing operations Assets Liabilities 2013, EURm value 1 Notional 2 value 1 Notional 2 Fair Fair Hedges of net investment in foreign subsidiaries: Forward foreign exchange contracts — 2 035 – 3 1 086 Currency options bought Currency options sold Cash fl ow hedges: 1 — 152 — — — — 53 Forward foreign exchange contracts — Fair value hedges 308 — 453 Interest rate swaps 76 750 – 3 73 Cash fl ow and fair value hedges: 3 Cross currency interest rate swaps 8 378 — — Derivatives not designated in hedge accounting relationships carried at fair value through profi t and loss: Forward foreign exchange contracts 94 Currency options bought Currency options sold Interest rate swaps 5 — 7 3 687 – 7 1 691 332 — 109 — — – 22 – 35 — 18 249 3 623 191 7 751 Other available- for-sale investments carried at fair value EURm Balance at December 31, 2011 Total losses in consolidated income statement Total gains recorded in other comprehensive income Purchases Sales Other transfers Balance at December 31, 2012 Total gains in consolidated income statement Total gains recorded in other comprehensive income Purchases Sales Other transfers Balance at December 31, 2013 346 – 8 34 41 – 35 – 8 370 81 52 47 – 123 2 429 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 dur- ing . In the fourth quarter management has concluded that certain real estate properties meet the criteria of assets held for sale. These long lived assets have been identifi ed for disposal as part of the on-going restructuring activities. Nokia expects to realize the sale of these properties within the fol- lowing twelve months. At December , the fair value of these assets is EUR million. The valuation of these assets is based on third-party evaluations by real estate brokers taking into account Nokia’s divestment strategy for these assets as well as relevant market dynamics. This evaluation includes non-market observable inputs and hence these assets are considered to be level category assets that are measured at fair value on a non-recurring basis. 56 N O K I A I N 2 0 1 3 Assets Liabilities 19. INVENTORIES 2012, EURm value 1 Notional 2 value 1 Notional 2 Fair Fair EURm Hedges of net investment in foreign subsidiaries: Forward foreign exchange contracts Cash fl ow hedges: Forward foreign exchange contracts Fair value hedges 24 2 164 – 11 1 182 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: Forward foreign exchange contracts 185 Raw materials, supplies and other Work in progress Finished goods Total 2013 2012 147 136 521 804 409 352 777 1 538 The total amount of inventories included within Assets of disposal groups classifi ed as held for sale at December , , net of write-downs to the net realizable value, is EUR million. During the Group recognized an expense of EUR million (EUR million in ) to write-down the inventories to net realizable value. The write-down relates to discontinued operations inventories. 20. PREPAID EXPENSES AND ACCRUED INCOME 7 111 – 18 3 337 EURm 2013 2012 Currency options bought Currency options sold Interest rate swaps Other derivatives 16 1 107 — — — — — — 150 — 448 15 504 – 6 – 48 – 1 – 90 289 513 9 8 488 In the consolidated 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. Social security, VAT and other indirect taxes 286 Deposits Interest income Deferred cost of sales Rents 43 33 14 15 875 71 45 145 34 Other prepaid expenses and accrued income 269 1 512 Total 660 2 682 Prepaid expenses and accrued income also include various other prepaid expenses and accrued income, but no amounts which are individually signifi cant. Total amount of prepaid expenses and accrued income included within Assets of disposal groups classifi ed as held for sale at December , , is EUR million, of which EUR million relates to the Qualcomm advance payment. Prepaid expenses and accrued income regarding current tax are included in Current income tax assets in the consolidated statement of fi nancial position in , and have also been reclassifi ed for comparability purposes in . 21. VALUATION AND QUALIFYING ACCOUNTS EURm Allowances on assets to which they apply: Balance at Transfer to beginning discontinued operations of year Charged to costs and expenses Deductions 1 Balance at end of year 2013 Allowance for doubtful accounts Excess and obsolete inventory 2012 Allowance for doubtful accounts Excess and obsolete inventory 2011 Allowance for doubtful accounts Excess and obsolete inventory Deductions include utilization and releases of the allowances. 248 471 284 457 363 301 – 120 – 192 — — — — 40 39 53 403 131 345 – 44 – 140 – 89 – 389 – 210 – 189 124 178 248 471 284 457 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 22. FAIR VALUE AND OTHER RESERVES Pension remeasurements Hedging reserve Available-for-sale investments Fair value and other reserves total EURm Gross Tax Net Gross Tax Net Gross Tax Net Gross Tax Net Balance at December 31, 2010 10 – 4 6 – 30 3 – 27 26 4 30 6 3 9 Pension remeasurements: Remeasurements of defi ned benefi t plans – 36 12 – 24 — — — — — — – 36 12 – 24 Cash fl ow hedges: Net fair value gains (+)/losses (–) 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 — — — — — — — — — 106 – 25 81 – 166 42 – 124 162 – 36 126 14 – 3 11 — — — — — — — — — — — — — — — — — — — — — 106 – 25 81 – 166 42 – 124 162 – 36 126 14 – 3 11 67 22 — – 2 67 20 67 22 — – 2 67 20 – 19 – 1 – 20 – 19 – 1 – 20 Movements attributable to non-controlling interests Balance at December 31, 2011 Pension remeasurements: 24 – 2 – 7 1 17 – 1 – 8 – 2 – 10 78 – 21 57 — 96 — 1 — 97 16 – 9 7 172 – 19 153 Remeasurements of defi ned benefi t plans – 228 22 – 206 — — — — — — – 228 22 – 206 Cash fl ow hedges: Net fair value gains (+)/losses (–) 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 — — — — — — — — — – 25 21 – 4 390 — 390 – 406 — – 406 — — — — — — — — — — — — — — — — 32 24 — — — — 1 — — — — — 33 24 – 25 21 – 4 390 — 390 – 406 — – 406 — — — 32 24 1 — 33 24 – 21 — – 21 – 21 — – 21 Movements attributable to non-controlling interests 83 – 4 79 – 47 — – 47 — — — Balance at December 31, 2012 – 147 19 – 128 – 10 — – 10 131 2 133 Pension remeasurements: Transfer to discontinued operations 2 Remeasurements of defi ned benefi t plans Cash fl ow hedges: Transfer to discontinued operations 2 Net fair value gains (+)/losses (–) 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 — — Acquisition of non-controlling interest – 63 3 – 60 Movements attributable to non-controlling interests Balance at December 31, 2013 2 – 28 – 93 3 – 25 8 – 85 31 – 11 20 114 – 6 108 — — — — — — — — — — — — — — — — — — — — — — — — — — 48 — 48 124 — 124 – 130 — – 130 – 23 — – 23 — — — — — — — — — 44 — – 6 — 47 — — — — 44 – 6 47 — — — — — — — — — — — — — — — — — — — — — 139 — 139 5 – 95 – 1 — 179 — — — — 5 – 95 – 1 — 2 181 36 – 26 – 4 21 32 – 5 31 – 11 20 114 – 6 108 48 124 — — 48 124 – 130 — – 130 – 23 — – 23 — — — 139 5 – 95 – 20 – 34 133 — — — 3 139 5 – 95 – 17 3 10 – 31 143 The adjustments relate to acquisitions completed in . Movements in after transfer to discontinued operations represents movements of continuing operations and the balance at December , represents the balance of continuing operations. 58 N O K I A I N 2 0 1 3 23. TRANSLATION DIFFERENCES Translation diff erences Net investment hedging Translation diff erences total EURm Gross Tax Net Gross Tax Net Gross Tax Net Balance at December 31, 2010 944 4 948 – 174 51 – 123 770 55 825 Translation diff erences: Currency translation diff erences 17 Transfer to profi t and loss (fi nancial income and expense) – 8 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 – 35 918 42 Transfer to profi t and loss (fi nancial income and expense) – 1 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, 2012 Translation diff erences: Currency translation diff erences 2 961 – 496 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) — Acquisition of non-controlling interest Movements attributable to non-controlling interests Balance at December 31, 2013 42 28 535 — — — — — 4 – 1 — — — — 3 — — — — — — 3 17 – 8 — — – 35 922 41 – 1 — — 2 — — – 37 — — — — 9 — — — — – 28 — — – 211 60 – 151 17 – 8 – 37 — – 35 707 — — 9 — — 64 17 – 8 – 28 — – 35 771 — — – 58 — — — — – 9 — — — — 42 – 1 – 1 — 41 – 1 – 67 – 58 – 9 – 67 — — — 2 — — — 2 964 – 269 51 – 218 692 54 746 – 496 — — — 42 28 — — 114 — — — — — — — — — — — – 496 — — — – 496 — 114 114 — 114 — — — — — — 42 28 — — 42 28 538 – 155 51 – 104 380 54 434 24. 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 Corpora- tion was EUR . and the total number of shares issued was . On December , , the total number of shares included shares owned by Group companies representing approximately .% of the share capital and the total voting rights. Under the Articles of Association of Nokia, Nokia Corpora- tion does not have minimum or maximum share capital or a par value of a share. 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 Parent Company. The authorization includes the right for the Board to resolve on all the terms and conditions of such issuances of shares and special rights, including to whom the shares and the special rights may be issued. The authorization may be used to develop the Parent Company’s capital structure, diversify the shareholder base, fi nance or carry out acquisitions or other arrangements, settle the Parent Company’s equity-based incentive plans, or for other purposes resolved by the Board. This authorization would have been eff ective until June , as per the reso- lution of the Annual General Meeting on May , , but it was 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 terminated by the resolution of the Annual General Meeting on May , . On October , Nokia issued a EUR million convert- ible bond on the basis of the authorization granted by the Annual General Meeting held on May , . The bonds have maturity of years and a .% per annum coupon payable semi-annually with an initial conversion price of EUR .. The maximum number of shares which may be issued by Nokia upon conversion of all the bonds (based on the initial conver- sion price) is approximately . million shares. The right to convert the bonds into shares commenced on December , , and ends on October , . On March , EUR . million of the bond was converted into shares resulting in issu- ance of shares. 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 Parent Company. The authorization includes the right for the Board to resolve on all the terms and conditions of such issuances of shares and special rights, including to whom the shares and the special rights may be issued. The authorization may be used to develop the Parent Company’s capital structure, diversify the shareholder base, fi nance or carry out acquisitions or other arrangements, settle the Parent Company’s equity-based incentive plans, or for other purposes resolved by the Board. The authorization is eff ective until June , . On September , Nokia issued three EUR million tranches of convertible bonds on the basis of the authoriza- tion granted by the Annual General Meeting held on May , . First EUR million bonds had maturity of years and a .% per annum coupon payable semi-annually with an initial conversion price of EUR .. The second EUR million bonds had maturity of years and a .% per annum coupon payable semi-annually with an initial conversion price of EUR .. The third EUR million bonds had maturity of years and a .% per annum coupon payable semi-annually with an initial conversion price of EUR .. The maximum number of shares which might have been issued by Nokia upon conversion of all the bonds (based on the initial conversion price of each tranche) was approximately . million. [At the closing of the Sale of the D&S business, the bonds were redeemed and the principal amount and accrued interest netted against the Sale of the D&S business proceeds.] At the end of , the Board of Directors had no other authorizations to issue shares, convertible bonds, warrants or stock options. 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 Parent Company. The shares may be repurchased under the buyback authorization in order to develop the capital structure of the Parent Company. In ad- dition, shares may be repurchased in order to fi nance or carry out acquisitions or other arrangements, to settle the Parent Company’s equity-based incentive plans, to be transferred for other purposes, or to be cancelled. The authorization is eff ec- tive until June , . AUTHORIZATIONS PROPOSED TO THE ANNUAL GENERAL MEETING 2014 On April , , Nokia announced that the Board of Directors will propose that the Annual General Meeting convening on June , 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 and are expected to be cancelled. 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, or to be transferred for other purposes. 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 December , and terminate the current authoriza- tion for repurchasing of the Company’s shares resolved at the Annual General Meeting on May , . Nokia also announced on April , that the Board of Directors will propose to the Annual General Meeting to be held on June , that the Annual General Meeting author- ize the Board to resolve to issue a maximum of million shares through issuance of shares or special rights entitling to shares 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 purpos- es resolved by the Board. The proposed authorization includes the right for the Board to resolve on all the terms and condi- tions of the issuance of shares and special rights entitling to shares, including issuance in deviation from the shareholders’ pre-emptive rights. The authorization would be eff ective until December , and terminate the current authorization granted by the Annual General Meeting on May , . 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 , . 25. SHARE-BASED PAYMENT The Group has several equity-based incentive programs for employees. The plans include performance share plans, stock option plans and restricted share plans. Both executives and employees participate in these programs. In years presented Nokia global equity-based incentive programs have been off ered to employees of Devices & Services business, HERE, 60 N O K I A I N 2 0 1 3 Advanced Technologies and Corporate Common Functions, but not to employees of NSN due to the previous ownership structure of NSN business. The equity-based incentive grants are generally conditional upon continued employment as well as fulfi llment of such performance, service and other conditions, as determined in the relevant plan rules. The share-based compensation expense for all equity- based incentive awards for Nokia continuing operations 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, including its terms and conditions, has been approved by the sharehold- ers at 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. Shares subscribed under global stock option plans will be eligible for dividend for the fi - nancial year in which the subscription takes place. Other share- holder rights commence on the date on which the subscribed shares are entered in the Trade Register. The stock option grants are generally forfeited if the employment relationship terminates with Nokia. Unvested stock options for employ- ees who have transferred to Microsoft following the sale of Devices & Services business have been forfeited. 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 Total stock options outstanding as at December , Shares under option at January 1, 2011 Granted Exercised Forfeited Expired Shares under option at December 31, 2011 Granted Exercised Forfeited Expired Shares under option at December 31, 2012 Granted Exercised Forfeited Expired Shares under option at December 31, 2013 Options exercisable at December 31, 2010 (shares) Options exercisable at December 31, 2011 (shares) Options exercisable at December 31, 2012 (shares) Options exercisable at December 31, 2013 (shares) Number of shares 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 8 334 200 — 3 705 512 2 474 864 28 000 192 11 376 937 6 904 331 5 616 112 4 339 341 Weighted exercise share price EUR Weighted average share price EUR Weighted grant date fair value 2 0.92 0.76 1.23 7.69 2.08 — 14.04 5.50 5.07 9.05 17.53 9.07 2.32 0.97 6.60 15.26 5.95 2.77 — 4.06 14.78 4.47 17.07 14.01 11.96 9.66 Performance shares outstanding Plan at threshold 1 2010 2011 2012 2013 — — 4 476 263 6 513 941 Number of participants Performance Settle- period ment (approx.) 3 000 2010 – 2012 2013 2 200 2 800 3 500 2014 2011 – 2013 2012 – 2013 2 2015 2013 – 2014 3 2016 Shares under Performance Share Plan vested on December , and are therefore not included in the outstanding numbers. Shares under Performance Share Plan are outstanding, however there will be no settlement under the Performance Share Plan as neither of the performance criteria of the plan was met. Performance Share Plan has a two-year performance period with an additional one-year restriction period. Performance Share Plan has a two-year performance period with an additional one-year restriction period. Includes also stock options granted under other than global equity plans, however excluding the NSN share-based incentive program. Fair value of stock options is calculated using the Black-Scholes model. Performance shares During Nokia administered four global performance share plans, the Performance Share Plans of , , and each of which, including its terms and conditions, has been approved by the Board of Directors. The performance shares represent a commitment by Nokia Corporation to deliver Nokia shares to employees at a future point in time, subject to Nokia’s fulfi llment of pre-defi ned performance criteria. No performance shares will vest unless the Group’s performance reaches at least one of the threshold levels measured by two independent, pre-defi ned perfor- mance criteria related to net sales and earnings per share (“EPS”). The and plans have a three-year performance period. The shares vest after the respective performance period. The and plans have a two-year performance period and a subsequent one-year restriction period, after which the shares vest. Until the Nokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights associated with the performance shares. The performance share grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting. Unvested performance shares for employees who have transferred to Microsoft following the sale of Devices & Services business have been forfeited. The following table summarizes our global performance share plans. 62 N O K I A I N 2 0 1 3 Performance shares outstanding as at December , Restricted shares outstanding as at December , Number of performance shares at threshold Weighted average grant date fair value EUR 2 Number of restricted shares Weighted average grant date fair value EUR 2 Performance shares at January 1, 2011 Granted Forfeited Vested 3 Performance shares at December 31, 2011 Granted Forfeited Vested 4 Performance shares at December 31, 2012 Granted Forfeited Vested 5 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 6 696 241 1 512 710 2 767 412 3.66 1.33 2.96 Restricted shares at January 1, 2011 Granted Forfeited Vested Restricted shares at December 31, 2011 3 Granted Forfeited Vested Restricted shares at December 31, 2012 4 Granted Forfeited Vested Performance shares at December 31, 2013 10 990 204 Restricted shares at December 31, 2013 5 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 12 347 931 3 490 913 2 180 700 30 356 850 3.15 1.76 3.05 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 Nokia share less the present value of dividends expected to be paid during the vesting period. Includes performance shares under Performance Share Plan that vested on December , . There was no settlement under this plan as neither of the threshold performance criteria was met. 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 , , there was no settlement under the one-time special CEO incentive program as the performance criteria were not met. Includes performance shares under Performance Share Plan that vested on December , . There was no settlement under the Performance Share Plan and there will be no settlement under the Performance Share Plan as neither of the threshold performance criteria linked to EPS and Average Annual Net Sales Revenue of these plans were met. Restricted shares During , Nokia administered four global restricted share plans, the Restricted Share Plan , , and , each of which, including its terms and conditions, has been approved by the Board of Directors. Restricted Shares are used on a selective basis to ensure re- tention and recruitment of individuals with functional mastery and other employees deemed critical to Nokia’s future success. All of the Group’s restricted share plans have a restriction period of three years after grant. Until the Nokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights, associated with the restrict- ed shares. The restricted share grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting. Unvested restricted shares for employees who have transferred to Microsoft following the sale of Devices & Services business have been forfeited. Includes also restricted shares granted under other than global equity plans. The fair value of restricted shares is estimated 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. 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 , . Includes restricted shares granted in Q under Restricted Share Plan that vested on January , . Other equity plans for employees During – , Nokia had a one-time special CEO incen- tive program designed to align Mr. Elop’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 op- portunity to earn – Nokia shares at the end of based on two independent criteria: Total Shareholder Re- turn 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. NSN established a share-based incentive program in under which options for Nokia Solutions and Networks B.V. shares are granted to selected NSN’s senior management and key employees. The options generally become exercisable on the fourth anniversary of the grant date or, if earlier, on the occurrence of certain corporate transactions, such as an initial public off ering. 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 ex- ercise unless an IPO has taken place, at which point they would be converted into equity-settled options. The options are accounted for as a cash-settled share-based payment liability based on the circumstances at December , . 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 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 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. 27. ACCRUED EXPENSES AND OTHER LIABILITIES EURm 2013 2012 Advance payments and deferred revenue 1 163 Wages and salaries Social security, VAT and other indirect taxes NSN customer project related Other Total 710 312 234 614 3 033 1 747 1 031 555 378 2 512 6 223 Other accruals include accrued discounts, royalties, research and development expenses, marketing expenses and interest expenses as well as various amounts which are individually insignifi cant. Accrued expenses and other liabilities of disposal groups classifi ed as held for sale at December , were EUR million. Accrued current tax liabilities are presented separately in the consolidated statement of fi nancial position in and have also been reclassifi ed for comparability purposes in . reporting date. The total carrying amount for liabilities arising from share-based payment transactions is EUR million at December , (EUR million in ) and is included in accrued expenses and other liabilities in the consolidated statement of fi nancial position. In , Nokia introduced a voluntary Employee Share Purchase Plan, which was off ered in to Nokia employees working for Devices & Services business, HERE, Advanced Technologies and Corporate Common Functions. Under the plan employees make monthly contributions from their sal- ary to purchase Nokia shares on a monthly basis during a -month savings period. Nokia off ers one matching share for every two purchased shares the employee still holds after the last monthly purchase has been made in June . Employees who have transferred to Microsoft following the Sale of Devices & Services business will receive a cash settle- ment under the plan. 26. DEFERRED TAXES EURm Deferred tax assets: 2013 2012 Intercompany profi t in inventory 48 58 Tax losses carried forward and unused tax credits Warranty provision Other provisions Depreciation diff erences 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 Undistributed earnings Other temporary diff erences Reclassifi cation due to netting of deferred taxes Total deferred tax liabilities 446 6 120 660 102 564 47 261 893 145 – 492 890 – 689 1 279 – 609 – 68 – 10 492 – 195 – 893 – 313 – 184 689 – 701 Net deferred tax asset 695 578 Tax charged to equity 6 3 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 ). 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. 64 N O K I A I N 2 0 1 3 28. PROVISIONS EURm Restructuring Project losses Warranty Material liability IPR infringements At January 1, 2012 Exchange diff erences Additional provisions Changes in estimates Charged to profi t and loss account Utilized during year At December 31, 2012 Transfer to liabilities of disposal groups held for sale Exchange diff erences Additional provisions Changes in estimates Charged to profi t and loss account Utilized during year At December 31, 2013 483 — – – 747 – – – – 443 205 — – – 149 — — – – 152 Provision balances before movements during the year. EURm 2013 2012 Analysis of total provisions at December 31: Non-current Current 242 680 304 1 988 The restructuring provision in is mainly related to re- structuring activities in NSN. In , the remaining balance of NSN’s restructuring provision is EUR million (EUR million in ). The majority of outfl ows related to the restructuring is expected to occur over the next two years. Restructuring and other associated expenses incurred in NSN in , including mainly personnel related expenses as well as expenses arising from the country and contract exits based on NSN’s strategy that focuses on key markets and product segments and costs incurred in connection with the divestments of businesses, totaled EUR million (EUR million in ). In , the remaining balance of HERE’s restructuring provi- sion is EUR million. In addition to the plans announced in and , HERE announced during further plans to reduce its workforce in the map data collection and processing areas of its business. Provisions for losses on projects in progress are related to NSN’s onerous contracts. Utilization of provisions for project losses is generally expected to occur in the next months. Outfl ows for the warranty provision are generally expected to occur within the next months. Material liability provision relates to non-cancellable pur- chase commitments with suppliers. The outfl ows are expected to occur over the next months. 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. Other provisions include provisions for various contractual obligations and litigations. Outfl ows for other provisions 688 – – 407 – – – – 94 125 – – 242 – — – — – 19 Other Total 396 2 328 – – – — – – – 359 2 292 431 — – – – 388 – – – — — – – – 15 – – – 199 – – – 922 are generally expected to occur over the next two years. Provisions for project losses and other provisions include amounts recorded for claims and related to the exit from various customer contracts in line with the NSN’s strategic focus or due to challenging political or business environments. Such provisions are estimated based on the information cur- rently available and are subject to change as negotiations with customers, trade sanctions environment, or other related circumstances evolve. Uncertain income tax positions regarding current tax are included in Current income tax liabilities in the consolidated statement of fi nancial position in and have also been reclassifi ed for comparability purposes in . Provisions included in Liabilities of disposal groups classifi ed as held for sale at December , were EUR million. Legal Matters A number of Nokia companies are, and will likely continue to be, subject to various legal proceedings and investigations that arise from time to time, including proceedings regarding intellectual property, product liability, sales and marketing practices, commercial disputes, employment, and wrongful discharge, antitrust, securities, health and safety, environ- mental, tax, international trade and privacy matters. As a result, the Group may become subject to substantial liabilities that may not be covered by insurance and could aff ect our business and reputation. While Nokia does not believe that any of these legal proceedings will a have a material adverse eff ect on its fi nancial position, litigation is inherently unpredictable and large judgments sometimes occur. As a consequence, Nokia may in the future incur judgments or enter into settle- ments of claims that could have a material adverse eff ect on its results of operations and cash fl ow. 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 Taxation Related Litigation and Proceedings TAX PROCEEDINGS IN INDIA During early Nokia became subject to a tax investiga- tion in India, focusing on Indian withholding tax consequences of payments made within Nokia for the supply of operating software from its parent company in Finland. Subsequently, Indian authorities have extended the investigation to other related tax consequences, such as allegations claiming that Nokia Corporation would have a permanent establishment in India for taxation purposes, transfer pricing aspects and potential non-deductibility of certain software payments for Indian corporate tax purposes. While raising these claims and arguing based on potential future claims against Nokia India Private Limited and the parent company Nokia Corporation, Indian authorities have also placed liens on Nokia India Private Limited’s and Nokia Corporation’s assets in India. These liens have prevented Nokia from transferring the Chennai factory and selected other Indian assets to Microsoft in connection with the closing of the Sale of the D&S Business. In addition, Indian authorities have ordered a special audit on Nokia India Private Limited, while seeking to fi nalize the ongoing tax investigations. To date, Nokia has been served with fi nal assessment orders on the underlying withholding tax case in , and the company has appealed on this case to the Income Tax Tribunal in Delhi. Other related assessment proceeding mentioned above are pending. While taking necessary actions to defends its rights vigorously under Indian and International laws, Nokia is extending its full cooperation with the income tax authori- ties and special auditors to fi nalize the pending assessment proceedings in due course. Intellectual Property Rights Litigation HTC In , Nokia commenced patent infringement proceedings against HTC in relation to non-essential patents in Germany in the District Courts of Mannheim, Munich and Düsseldorf, in relation to nine non-essential patents in the ITC in Washington DC, and non-essential patents in the United States District Court for the District of Delaware. In response, HTC fi led nullity actions with the Federal Patent Court in Munich, commenced revocation proceedings against of Nokia’s non-essential patents in the UK High Court, and fi led an action for patent infringement in respect of one non-essential patent against Nokia GmbH in the District Court of Mannheim and against Nokia Oyj in the District Court of Munich in . S Graphics Co. Ltd, a subsidiary of HTC, also fi led actions for patent infringement in respect of one non- essential patent against Nokia GmbH in the District Court of Mannheim and Nokia Oyj in the District Court of Dusseldorf. HTC commenced, then later withdrew, an arbitration in the UK claiming that some of the patents asserted by Nokia against HTC were licensed under an essential patent licence. Subsequently, Nokia fi led further infringement actions in respect of HTC’s UK revocation actions, brought further infringement proceedings against HTC in relation to nine non- essential patents in the District Courts of Mannheim, Munich and Dusseldorf, three non-essential patents in the Court of Paris, France, two non-essential patents in the Regional Court of the Hague, the Netherlands, two non-essential patents in the Court of Rome, Italy and four non-essential patents in the Tokyo District Court, Japan. Nokia also commenced patent infringement proceedings against HTC in respect of seven non-essential patents in the ITC in Washington DC, and ten non-essential patents in the United States District Court for the Southern District of California. Nokia was awarded injunctions against HTC in respect of a power control patent and patent enabling modern mobile devices to work in older networks by the District Court of Mannheim, a USB functionality patent and a patent enabling the transfer of network resource information between mobile devices by the District Court of Munich. The UK High Court found that Nokia’s patent relating to a modulator structure was valid and infringed by HTC in October . In its initial determination in September , the ITC found that HTC had violated two patents which cover improvements to radio re- ceivers and transmitters. The Tokyo District Court gave a judg- ment in default against HTC in respect of a calendar display patent. The fi rst two of S and HTC’s actions were dismissed by the District Court of Mannheim. On February , , the parties settled all pending pat- ent litigation between them, and entered into a patent and technology collaboration agreement. HTC will make payments to Nokia and the collaboration will involve HTC’s LTE patent portfolio. The full terms of the agreement are confi dential. SAMSUNG During August and September , Nokia and Samsung agreed to extend their existing patent license agreement for fi ve years from December , . According to the agree- ment, Samsung will pay additional compensation to Nokia for the period commencing from January , onwards, and the amount of this compensation will be fi nally settled in a bind- ing arbitration. The parties have commenced arbitration and expect to have a fi nal resolution in . ERISA & SECURITIES LITIGATION On April , and April , , two individuals fi led sepa- rate putative class action lawsuits against Nokia Inc. and the directors and offi cers of Nokia Inc., and certain other employ- ees and representatives of the company, claiming to represent all persons who were participants in or benefi ciaries of the Nokia Retirement Savings and Investment Plan (the “Plan”) who participated in the Plan between January , and the pre- sent and whose accounts included investments in Nokia stock. The plaintiff s allege that the defendants failed to comply with their statutory and fi duciary duties when they failed to remove Nokia stock as a plan investment option. The cases were consolidated into Majad v. Nokia and an amended consolidated complaint was fi led on September , . The amended complaint alleges that the named individuals knew of the mat- ters alleged in the securities case referenced above, that the matters signifi cantly increased the risk of Nokia stock owner- ship, and as a result of that knowledge, the named defendants should have removed Nokia stock as a Plan investment option. The plaintiff ’s claims were dismissed in their entirety on Sep- tember , . On September , the Court denied Plain- 66 N O K I A I N 2 0 1 3 all claims with prejudice. Plaintiff did not appeal and this mat- ter is closed. Antitrust Litigation LCD AND CRT CARTEL CLAIMS In November , Nokia Corporation fi led two lawsuits, one in the United Kingdom’s High Court of Justice and the other in the United States District Court for the Northern District of California, joined by Nokia Inc., against certain manufactur- ers of liquid crystal displays (“LCDs”). Both suits concerned the same underlying allegations: namely, that the defendants violated the relevant antitrust or competition laws by entering into a worldwide conspiracy to raise and/or stabilize the prices of LCDs, among other anticompetitive conduct, from approxi- mately January to December (the “Cartel Period”). Defendants Sharp Corporation, LG Display Co. Ltd., Chunghwa Picture Tubes, Ltd., Hitachi Displays Ltd. and Epson Imaging Devices Corporation, as well as non-defendant Chi Mei Opto- electronics, and Hannstar Display Corporation, have pleaded guilty in the United States to participating in a conspiracy to fi x certain LCD prices and have agreed to pay fi nes totaling approximately USD million. Further, the United States De- partment of Justice has indicted AU Optronics Corporation and its American subsidiary, AU Optronics Corporation America, for participation in the conspiracy to fi x the prices of TFT-LCD panels sold worldwide from September , to December , . Also in November , Nokia Corporation fi led a lawsuit in the United Kingdom’s High Court of Justice against certain manufacturers of cathode rays tubes (“CRTs”). In this law- suit, Nokia alleges that the defendants violated the relevant antitrust or competition laws by entering into a worldwide conspiracy to raise and/or stabilize the prices of CRTs, among other anticompetitive conduct, from no later than March to around November . All of the defendants have now settled Nokia’s claims against them on confi dential terms. We are also party to other routine litigation, as well as indemnity claims involving customers or suppliers, which are incidental to the normal conduct of our business. Based upon the information currently available, our management does not believe that liabilities related to those proceedings are likely to be material to our fi nancial condition or results of operations. tiff s’ motion for leave to amend their complaint a second time and entered judgment in favor of Nokia. On October , , the plaintiff s fi led an appeal of the District Court’s order grant- ing judgment in favor of Nokia. On June , , the Second Circuit upheld the earlier decision of the US District Court for the Southern District of New York from September , to dismiss all claims made in the ERISA claim fi led against defend- ants including Nokia Inc. and the Nokia Inc. Retirement Plan by Javad Majad and Ryan Sharif. The Plaintiff had until September , to appeal the Second Circuit decision by fi ling a cert petition to the US Supreme Court. The Plaintiff did not appeal and the case is closed. On September , , a class action based on the US Employee Retirement Income Security Act (“ERISA”) entitled Romero v. Nokia was fi led in the United States District Court for the Southern District of New York. The complaint named Nokia Corporation, certain Nokia Corporation Board members, Fidelity Management Trust Co., The Nokia Retirement Savings & Investment Plan Committee and Linda Fonteneaux as well as certain individuals from the Nokia Retirement Savings & Investment Plan Committee whose identity is not known to the plaintiff s as defendants. The complaint claimed to represent all persons who were participants in or benefi ciaries of the Nokia Retirement Savings and Investment Plan (the “Plan”) who participated in the Plan between January , and the present and whose accounts invested in the Nokia Stock Fund (“the Fund”). The complaint alleged that the named individu- als breached their fi duciary duties by, among other things, permitting the plan to off er the Fund as an investment option, permitting the plan to invest in the Fund and permitting the Fund to invest in and remain invested in American Depository Receipts of Nokia Corporation when the defendants allegedly knew the Fund and Nokia’s shares were extremely risky invest- ments. Plaintiff was provided plan documents and informed that it had incorrectly identifi ed the proper defendants in its complaint. On December , Plaintiff fi led a motion to dismiss the complaint against all defendants, without preju- dice and indicated it would refi le in California where the Nokia Retirement Savings and Investment Plan is currently adminis- tered. Romero fi led a new complaint on December , in the United States District Court for the Northern District of California, naming as defendants Nokia Inc., the Nokia Retirement Savings and Investment Plan Committee, and sev- eral individuals alleged to be plan fi duciaries, claiming to rep- resent all persons who were participants in or benefi ciaries of the Nokia Retirement Savings and Investment Plan (the “Plan”) who participated in the Plan between January , and the present and whose accounts invested in the Nokia Stock Fund (“the Fund”). The complaint alleges that named individu- als breached their fi duciary duties by, among other things, permitting the plan to off er the Fund as an investment option, permitting the plan to invest in the Fund and permitting the Fund to invest in and remain invested in American Depository Receipts of Nokia Corporation when the defendants allegedly knew the Fund and Nokia’s shares were extremely risky invest- ments. On May , , Nokia and the Named Defendants fi led a motion to dismiss all claims against the defendants and are awaiting the Court’s decision. On October , the court granted Nokia and the Named Defendants motion to dismiss 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 29. EARNINGS PER SHARE 2013 2012 2011 Numerator/EURm Basic: Profi t attributable to equity holders of the parent Continuing operations 186 – 771 – 1 272 Discontinued operations – 801 – 2 334 109 Total Group – 615 – 3 105 – 1 163 Diluted: Elimination of interest expense, net of tax, on convertible bonds, where dilutive — Profi t used to determine diluted earnings per share — — Continuing operations 186 – 771 – 1 272 Discontinued operations – 801 – 2 334 109 Total Group – 615 – 3 105 – 1 163 Denominator/1 000 shares and million in ) were excluded from the calculation of dilu- tive shares because contingency conditions have not been met. As at December , , there were million ( million in and million in ) of restricted shares outstanding that could potentially have a dilutive impact in the future but were excluded from the calculation as they were determined anti-dilutive. Convertible bonds issued to Microsoft in September, were excluded from the calculation of diluted shares in because they were determined to be antidilutive. These potential shares, if fully converted, would result in an issuance of million shares. As a result of the closing of the sale of Device & Services business the bonds have been redeemed. The convertible bond includes a voluntary conver- sion option. Based on the initial conversion price, voluntary conversion of the entire bond would result in the issue of million shares. These potential shares were excluded from the calculation of diluted shares in and because they were determined to be antidilutive at December , and , respectively. Basic: Weighted average number of shares in issue 3 712 079 3 710 845 3 709 947 EURm 2013 1 2012 2 30. COMMITMENTS AND CONTINGENCIES Eff ect of dilutive securities: Stock options Performance shares Restricted shares and other Assumed conversion of convertible bonds 1 978 — 19 307 21 285 — Diluted: Adjusted weighted average number of shares and assumed conversions — — — 473 — 6 614 7 087 — — — Continuing operations Discontinued operations 3 733 364 3 710 845 3 709 947 3 712 079 3 710 845 3 717 034 Other guarantees Collateral for own commitments Assets pledged 38 38 Contingent liabilities on behalf of Group companies Other guarantees 778 937 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 3 Financing commitments Customer fi nance commitments 3 Venture fund commitments Continuing operations Nokia Group See also Note Risk Management. 16 11 12 103 12 68 25 215 34 282 The amounts above represent the maximum principal amount of commitments and contingencies. Other guarantees on behalf of Group Companies include commercial guarantees of EUR million in (EUR million in ) provided to certain NSN customers in the form of bank guarantees or corporate guarantees issued by NSN’s Group entity. These instruments entitle the customer to claim payment as compensation for non-performance by NSN 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-perfor- Total Group 3 712 079 3 710 845 3 709 947 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 dilutive convertible bond and by adjusting the weighted average number of shares outstanding with the dilutive eff ect of stock options, restricted shares and performance shares outstanding during the period as well as the assumed conversion of convertible bonds. In , stock options equivalent to million shares ( million in and million in ) were excluded from the calculation of diluted earnings per share because they were determined to be anti-dilutive. In addition, million of performance shares ( million in 68 N O K I A I N 2 0 1 3 mance. Volume of other guarantees has decreased mainly due to expired guarantees. Contingent liabilities on behalf of other companies were EUR million in (EUR million in ). The increase in vol- ume is mainly due to the transfer of guarantees in connection with the disposal of certain businesses where contractual risks and revenues have been transferred, but some of the com- mercial guarantees have not yet been re-assigned legally. Financing commitments of EUR million in (EUR million in ) are available under loan facilities negotiated mainly with NSN’s 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 facility. 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 contributions and also entitled to cash distributions ac- cording to respective partnership agreements and underlying fund activities. As of December , , Nokia continuing operations had purchase commitments of EUR million (Nokia Group EUR million in ) relating to inventory purchase obliga- tions, service agreements and outsourcing arrangements, primarily for purchases in . 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 management the outcome of and liabilities in excess of what has been provided for related to these or other proceedings, in the aggregate, are not likely to be material to the fi nancial condition or result of operations. See also Note . 31. 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: Continuing operations Leasing payments, EURm Operating leases 2014 2015 2016 2017 2018 Thereafter Total 139 98 66 51 45 151 550 Rental expense amounted to EUR million in (EUR million in and EUR million in ). 32. RELATED PARTY TRANSACTIONS At December , , the Group had borrowings amounting to EUR million (EUR million in ) from Nokia Unterstüt- zungsgesellschaft mbH, 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 counterparties who have the right to terminate the loan with a day notice. The loan is included in long-term interest- bearing liabilities in the consolidated statement of fi nancial position. There were no loans granted to the members of the Nokia Leadership Team and the Board of Directors at December , , or . EURm 2013 2012 2011 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 4 5 53 6 – 1 — 46 12 178 150 — 12 1 32 – 23 — 47 37 91 — 14 At December , , the Group has guaranteed a loan of EUR million (EUR million in ) for an associated com- pany of the Group. Management compensation Nokia announced on September , that it had entered into a transaction agreement whereby Nokia will sell substan- tially all of its Devices & Services business to Microsoft. As a result of the proposed transaction, Nokia announced changes to its leadership. These changes were designed to provide an appropriate corporate governance structure during the interim period following the announcement of this transaction. Stephen Elop stepped down from his positions as President and CEO and Nokia’s Chairman of the Board Risto Siilasmaa and Chief Financial Offi cer of Nokia Timo Ihamuotila assumed ad- ditional responsibilities as Interim CEO and Interim President, respectively, from September , . The following table sets forth the salary and cash incentive information awarded and paid or payable by the Group to the Chief Executive Offi cer and President of Nokia Corporation for fi scal years – , share-based compensation expense relating to equity-based awards, expensed by the Group as well as the pension expenses, expensed by the Group. The ta- ble includes compensation for the time in-role or the compen- sation for the role related responsibilities, only. 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 Total remuneration of the Nokia Leadership Team awarded for the fi scal years – was EUR in (EUR in and EUR in ), which consist- ed of base salaries and cash incentive payments. Total share- based compensation expense relating to equity-based awards expensed by the Group was EUR in (EUR in and EUR in ). The members of the Nokia Leadership Team participate in the local retirement programs applicable to employees in the country where they reside. 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. EUR Risto Siilasmaa Interim CEO as of September 3, 2013 2 Timo Ihamuotila Interim President as of September 3, 2013 3 Stephen Elop, President and CEO until September 3, 2013 Base salary/ fee 1 Cash incentive payments 1 Share-based compensation expense Pension expenses Year 2013 500 000 2013 150 000 — — — — 12 107 42 500 2013 2012 2011 753 911 1 079 500 1 020 000 769 217 — 473 070 2 903 226 1 597 496 2 086 351 263 730 247 303 280 732 Base salaries are prorated for the time in role, incentive payments repre- sent full year incentive payment earned under Nokia short term incentive programs. For interim roles the base salaries or fees for the role related responsibilities, only. As compensation for his additional responsibilities as interim CEO, Risto Siilasmaa received EUR , % was delivered to him in shares bought on the open market. The remaining % was paid in cash, most of which was used to cover the estimated associated taxes. In recognition of additional responsibilities, Timo Ihamuotila will receive EUR , out of which EUR was paid in . In addition, Timo Ihamuotila received an equity grant with an approximate aggregate grant date value of EUR in the form of Nokia stock options and Nokia re- stricted shares. These grants are subject to Nokia’s Equity plans standard terms and conditions and vesting schedules. Board of Directors EUR EUR EUR 2013 2012 2011 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 until May 7, 2013 4 Jouko Karvinen Vice Chairman from May 7, 2013 5 Bruce Brown Elisabeth Doherty 6 Stephen Elop 7 Bengt Holmström Henning Kagermann 8 Per Karlsson Helge Lund Isabel Marey-Semper 9 Mårten Mickos Elizabeth Nelson 10 Kari Stadigh 440 000 77 217 440 000 70 575 155 000 10 428 — — — — 175 000 14 374 130 000 10 678 140 000 11 499 — — — — — — 440 000 29 604 150 000 24 062 150 000 10 092 155 000 130 000 24 860 20 850 — — — — — — 140 000 9 419 — — — — — — 130 000 8 746 155 000 12 731 155 000 24 860 155 000 10 428 — — 130 000 10 678 — — 130 000 10 678 140 000 11 499 130 000 10 678 — 130 000 140 000 130 000 140 000 130 000 — 20 850 22 454 20 850 22 454 20 850 130 000 130 000 140 000 — — 8 746 8 746 9 419 — — 130 000 8 746 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 and fees paid to Risto Siilasmaa amounted to an annual total of EUR for services as Chairman of the Board. The fee paid to Risto Siilasmaa amounted to an annual total of EUR , con- sisting of a fee of EUR for services as a member of the Board and EUR for services as Chairman of the Audit Committee. Siilasmaa was also paid a fee acting as interim CEO as of September , . Fee for his duties as interim CEO is presented under Management compensation. The fee paid to Jorma Ollila amounted to an annual total of EUR 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 Chair- man of the Board. The fee paid to Jouko Karvinen amounted to an annual total of EUR , consisting of a fee of EUR for services as a Vice Chairman 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 EUR for services as a member of the Board and EUR for service as Chairman of the Audit Com- mittee. 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 Commit- tee. The fee paid to Elizabeth Doherty amounted to 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. 70 N O K I A I N 2 0 1 3 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. Stephen Elop stepped down from the board of directors as of September , . 33. NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOW 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. EURm Adjustments for: 1 2013 2012 2011 The and fees paid to Isabel Marey-Semper amounted to an annual total of EUR each year indicated, consisting of a fee of EUR for services as a member of the Board and EUR for services as a member of the Audit Committee. The and fees paid to 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. Termination benefi ts of the President and CEO Mr. Elop’s employment contract was amended eff ective as of September , , as a result of entering into a transaction with Microsoft for the Sale of D&S Business. Under the terms of the amendment, Mr. Elop resigned from his position as President and CEO as of September , and assumed the role of Executive Vice President, Devices & Services. He also resigned from his position as a member of Board of Directors as of the same date. After the closing of the Sale of D&S Business, he transferred to Microsoft as agreed with Microsoft. In accordance with his service contract he received a severance payment of EUR . million in total. This amount included: base salary and management incentive EUR . million and value of equity awards EUR . million. The amount of the equity awards was based on the Nokia closing share price of EUR . per share at NASDAQ OMX Helsinki on April , . Pursuant to the terms of the purchase agreement with Microsoft entered into in connection with the Sale of D&S Business, % of the total severance payment was borne by Microsoft and the remaining % of the severance amount (EUR . million) was borne by Nokia. Depreciation and amortization 728 1 326 1 562 Loss (+)/profi t (–) on sale of property, plant and equipment and available-for-sale investments Income taxes 40 – 131 401 1 145 – 49 291 Share of results of associated companies (Note 16) – 4 1 23 Non-controlling interest – 124 – 681 – 323 Financial income and expenses 264 333 Transfer from hedging reserve to sales and cost of sales Impairment charges (Note 9) Asset retirements Share-based compensation Restructuring related charges 2 49 – 4 1 338 13 18 – 87 20 24 56 – 16 109 31 13 446 1 659 565 Other income and expenses 25 52 5 Adjustments, total 1 789 3 841 3 488 Change in net working capital Decrease in short-term receivables Decrease in inventories (Decrease) in interest-free 1 655 2 118 193 707 218 289 short-term borrowings – 2 793 – 2 706 – 1 148 Change in net working capital – 945 119 – 641 Combines adjustments relating to both continuing and discontinued operations. The adjustments for restructuring related charges represent the non- cash portion of the restructuring related charges recognized in the consolidated income statement. The Group did not engage in any material non-cash investing activities in , 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 71 34. PRINCIPAL NOKIA GROUP COMPANIES AT DECEMBER 31, 2013 Country of incorporation and place of business Primary nature of business Parent holding majority % Non- Group controlling interests % % Continuing Nokia Group companies Nokia Solutions and Networks B.V. The Hague, Netherlands Holding company Nokia Solutions and Networks Oy Helsinki, Finland Sales and manu- facturing company — 100.00 1 — 100.00 Nokia Solutions and Networks US LLC Nokia Solutions and Networks Japan Corp. Delaware, USA Sales company — 100.00 Tokyo, Japan Sales company — 100.00 Nokia Solutions and Networks India Private Limited New Delhi, India Nokia Solutions and Networks System Technology (Beijing) Co., Ltd. Beijing, China Sales and manu- facturing company — 100.00 Sales company — 100.00 Nokia Solutions and Networks Branch Operations Oy Nokia Solutions and Networks Korea Ltd. Nokia Solutions and Networks do Brasil Telecomunicações Ltda. Nokia Solutions and Networks Technology Service Co., Ltd. HERE Holding Corporation HERE Global B.V. HERE Europe B.V. Helsinki, Finland Sales company — 100.00 Seoul, South Korea Sales company — 100.00 Sao Paolo, Brazil Sales company — 100.00 Beijing, China Delaware, USA Sales company Holding company Veldhoven, Netherlands Holding company Veldhoven, Netherlands Holding company — — 100.00 100.00 1.45 100.00 — 100.00 — 100.00 HERE North America LLC Delaware, USA Sales and develoment company Nokia Gate5 GmbH/HERE Deutschland GmbH Berlin, Germany Development — 100.00 Nokia Finance International B.V. Haarlem, Netherlands Holding and fi nance company 100.00 100.00 Discontinued Nokia Group companies Nokia Sales International Oy Helsinki, Finland Sales company 100.00 100.00 Nokia India Pvt Ltd Nokia India Sales Pvt Limited OOO Nokia New Delhi, India New Delhi, India Moscow, Russia Nokia (China) Investment Co., Ltd Beijing, China Manufacturing company 99.99 100.00 Sales company Sales company Sales and holding company — 100.00 100.00 100.00 100.00 100.00 — — — — — — — — — — — — — — — — — — — — Nokia Telecommunications Ltd Beijing, China Manufacturing company 4.50 83.90 16.10 Nokia Inc. Nokia UK Limited Delaware, USA London, UK Sales company Sales company Nokia do Brasil Tecnologia Ltda Manaus, Brasil Manufacturing company — — — 100.00 100.00 100.00 Nokia TMC Limited Nokia (Thailand) Ltd Masan, South Korea Manufacturing company 100.00 100.00 Bangkok, Thailand Sales company — 100.00 — — — — — In , Nokia acquired the remaining % of Nokia Siemens Networks B.V., the ultimate parent of the NSN business. By that, the parent entity of NSN became fully owned subsidiary of Nokia. A complete list of subsidiaries and associated companies is included in Nokia’s Statutory Accounts. 35. 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 72 N O K I A I N 2 0 1 3 is based on visibility of the key risks preventing Nokia from reaching its business objectives rather than solely focusing on eliminating risks. derivative instruments into account. The variance-covariance methodology is used to assess and measure the interest rate risk and equity price risk. The principles documented in the Nokia Risk Policy and approved by the Audit Committee of the Board of Directors require risk management and its elements to be integrated into business processes. One of the main principles is that the business or function head is also the risk owner, but it is eve- ryone’s responsibility in Nokia to identify risks, which prevent Nokia from reaching its objectives. Risk management covers strategic, operational, fi nancial and hazard risks. Key risks and opportunities are reviewed by the Nokia Leadership team and the Board of Directors in order to create visibility on business risks as well as to enable prioritization of risk management activities at Nokia. In addition to the general principles defi ned in the Nokia Risk Policy, specifi c risk management implementation is refl ected in other key Nokia policies. The following information for has been presented for Nokia continuing operations only. The comparative year includes the Nokia Group total. Financial risks The objective for Treasury activities in Nokia is to guarantee suffi cient funding for the Group at all times, and to iden- tify, evaluate and manage fi nancial risks. Treasury activities support 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 ap- proved by the CEO, that provides principles for overall fi nancial risk management and determines the allocation of responsi- bilities for fi nancial risk management in Nokia. Other related policies and procedures in Nokia and NSN, approved by respec- tive CFO’s or relevant fi nance executives, 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, 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 foreign exchange 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 foreign exchange The VaR is determined by using volatilities and correlations 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 conditions, assuming that market risk factors follow normal distributions; b) future movements in market risk factors follow estimated historical movements; and c) the assessed exposures do not change during the holding period. Thus it is possible that, for any given month, the potential losses at % confi dence level are diff erent and could be substantially higher than the estimated VaR. 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 a 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: 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 73 2013, 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 – 409 – 232 — — – 724 – 14 – 358 – 157 – 217 36 – 47 – 141 – 367 – 116 81 57 390 — — — 2012, 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 550 – 281 — — – 281 – 16 – 1 043 – 763 1 156 38 263 – 539 – 1 439 106 – 114 420 428 — — — The FX derivatives are used to hedge the foreign exchange risk from fore- cast highly probable cashflows related to sales, purchases and business acquisition activities. In some of the currencies, especially in US dollar, Nokia has substantial foreign exchange risks in both estimated cash inflows and outflows, which have been netted in the table. 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 receiv- able, 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 foreign exchange 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. VaR from fi nancial instruments, EURm 2013 2012 At December 31 Average for the year Range for the year 42 114 67 128 42 – 188 67 – 192 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. 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: EURm Assets 2013 2012 Fixed Floating rate rate Fixed Floating rate rate 4 400 4 739 3 488 6 627 Liabilities – 5 947 – 630 – 4 191 – 1 312 Assets and liabilities before derivatives Interest rate derivatives Assets and liabilities after derivatives – 1 547 4 109 – 703 5 315 954 – 926 1 880 – 1 784 – 593 3 183 1 177 3 531 The interest rate exposure of the Group is monitored and managed centrally. Nokia uses the VaR methodology com- plemented 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 2013 2012 42 45 22 19 20 – 84 9 – 44 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 insig- nifi cant. The private funds where the Group has investments 74 N O K I A I N 2 0 1 3 may, from time to time, have investments in public equity. Such investments have not been included in the aforemen- tioned number. 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 custom- ers, including outstanding receivables, fi nancial guarantees and committed transactions as well as fi nancial institutions, including 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 exposure to credit risk is limited to the book value of the fi nancial assets as included in the consolidated statement of fi nancial positions: ‘ EURm Financial guarantees given on behalf of customers and other third parties Loan commitments given but not used All receivables and loans due from customers are considered on an individual basis in establishing the allowances for doubt- ful 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 allow- ance recognized 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 sums are relative to total net accounts receivable and loans due from customers of EUR in (EUR million in ). An amount of EUR million (EUR million in ) relates to past due receivables from customers for which no allowances for doubtful accounts were recognized. The aging of these receivables is as follows: 2013 2012 EURm 12 25 37 12 34 46 Past due 1 – 30 days Past due 31 – 180 days More than 180 days 2013 2012 53 43 13 109 250 70 45 365 Business related credit risk The Company aims to ensure the highest possible quality in accounts receivable and loans due from customers and other third parties. Nokia and NSN 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 NSN. Nokia and NSN Credit Policies provide that credit decisions are based on credit evaluation including credit rating for larger exposures. Nokia and NSN Rating Policy defi nes the rating prin- ciples. Ratings of material exposures are approved by Nokia’s Rating Committee and NSN’s Rating Committee. Credit risks are approved and monitored according to the credit policy of each business entity. When appropriate, credit risks are miti- gated with the use of approved instruments, such as letters of credit, collateral or insurance and sale of selected receivables. Credit exposure is measured as the total of accounts receiv- able and loans outstanding due from customers and commit- ted credits. The accounts receivable do not include any major concen- trations of credit risk by customer. The 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 amount- ed to .%, .% and .% (.%, .% and .% in ), respectively with China being the biggest exposure. The Group has provided allowances for doubtful accounts as needed on accounts receivable and loans due from customers and other third parties not past due, based on the analysis of debtors’ credit quality and credit history. The Group estab- lishes allowances for doubtful accounts that represent an estimate of incurred losses as of the end of reporting period. 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 credit worthy or risk of loss due to coun- terparties being unable to meet their obligations. This risk is measured and monitored centrally by Treasury departments in Nokia and NSN. Financial credit risk is managed actively by lim- iting counterparties to a suffi cient number of major banks and fi nancial institutions and monitoring the credit worthiness and exposure sizes continuously as well as through entering into netting arrangements (which gives Nokia the right to off set in the event that the counterparty would not be able to fulfi ll the obligations) with all major counterparties and collateral agree- ments (which require counterparties to post collateral against derivative receivables) with certain counterparties. Nokia’s investment decisions are based on strict creditwor- thiness and maturity criteria as defi ned in Treasury related policies and procedures. 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 outstanding fi xed income and money market investments by sector and credit rating grades ranked as per Moody’s rating categories. 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 75 Rating 3 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 Due between Due between Due between — — — — 357 — — — — — 561 — — — — — 24 — — — — — 76 — — — — — — — — — — — — — — — — — 283 — — — — — — — — — — — — — — — — — 111 — — — — — — — — — — — — 303 139 At December 31, 2013 Banks Governments Other Aaa Aa – Aa A – A Baa – Baa Non rated Aaa Aa1 – Aa3 Aaa Aa – Aa A – A Baa – Baa Ba1 – C 159 572 — — — — 159 176 — — — — — Total 5 295 4 380 At December 31, 2012 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 215 401 — — — — 2 215 37 — — — — — — — — — — — 39 — — — — 243 — — — 57 — — — — — 2 Total 6 405 5 772 115 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 ). The following tables present fi nancial assets and liabilities subject to off setting under enforceable master netting agree- ments and similar arrangements. 76 N O K I A I N 2 0 1 3 Gross Gross amounts of amounts of fi nancial liabilities (assets) set off in the statement of fi nancial position fi nancial assets (liabilities) Net amounts of fi nancial assets (liabilities) presented in the statement of fi nancial position Related amounts not set off in the statement of fi nancial position Financial instruments assets (liabilities) Cash collateral received (pledged) Net amount 191 – 35 156 448 – 90 358 — — — — — — 191 – 35 156 448 – 90 358 34 – 34 — 87 – 87 — 66 — 66 123 – 1 122 91 – 1 90 238 – 2 236 EURm At December 31, 2013 Derivative assets Derivative liabilities Total At December 31, 2012 Derivative assets Derivative liabilities Total The fi nancial instruments subject to enforceable master netting agreements and similar arrangements are not set off in the consolidated statement of fi nancial positions in cases where there is no intention to settle net or realize the asset and settle the liability simultaneously. 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. The objective of liquidity risk management is to maintain 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. Due to the dynamic nature of the underlying business, Nokia and NSN aim at maintaining fl exibility in funding by keeping committed and uncommitted credit lines available. Nokia and NSN manage their respective credit facilities independently and facilities do not include cross-default clauses between Nokia and NSN or any forms of guarantees from either party. As of December , , the Group’s committed 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 Issued USD 1 500 million EUR 1 750 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 Euro Commercial Paper program, totaling USD 4 000 million Issued — — — Nokia Corporation and Nokia Finance International B.V. Nokia Solutions and Networks Finance B.V. Local commercial paper program in Finland, totaling EUR 500 million EUR 25 million N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 77 As of December , Group’s interest bearing liabilities consisted of: Issuer/Borrower Final Maturity 2013 EURm 2012 EURm Nokia Revolving Credit Facility (EUR 1 500 million) USD Bond 2039 (USD 500 million 6.625%) Nokia Corporation Nokia Corporation EUR Convertible Bond 2020 (EUR 500 million 3.625%) Nokia Corporation EUR Convertible Bond 2019 (EUR 500 million 2.5%) Nokia Corporation USD Bond 2019 (USD 1 000 million 5.375%) EUR Bond 2019 (EUR 500 million 6.75%) Nokia Corporation Nokia Corporation March 2016 May 2039 September 2020 September 2019 May 2019 February 2019 EUR Convertible Bond 2018 (EUR 500 million 1.125%) Nokia Corporation September 2018 EUR Convertible Bond 2017 (EUR 750 million 5%) Nokia Corporation EUR Bond 2014 (EUR 1 250 million 5.5%) EUR EIB R&D Loan Diff erences between Bond nominal and carrying values 1 Other interest-bearing liabilities Total Nokia NSN Revolving Credit Facility (EUR 750 million) EUR Bond 2020 (EUR 350 million 7.125%) EUR Bond 2018 (EUR 450 million 6.75%) EUR Finnish Pension Loan EUR Nordic Investment Bank EUR EIB R&D Loan EUR Bank Term Loan (EUR 750 million) Diff erences between Bond nominal and carrying values 1 Other liabilities 2 Total NSN Total Nokia Group Nokia Corporation Nokia Corporation Nokia Corporation Nokia Corporation and various subsidiaries Nokia Solutions and Networks Finance B.V. Nokia Solutions and Networks Finance B.V. Nokia Solutions and Networks Finance B.V. Nokia Solutions and Networks Finance Oy Nokia Solutions and Networks Finance B.V. Nokia Solutions and Networks Finance B.V. Nokia Solutions and Networks Finance B.V. Nokia Solutions and Networks Finance B.V. Nokia Solutions and Networks Finance B.V. and various subsidiaries — 364 500 500 727 500 500 750 1 250 500 — 381 — — 761 500 — 750 1 250 500 – 164 55 144 5 571 209 4 406 October 2017 February 2014 February 2014 June 2015 April 2020 April 2018 October 2015 March 2015 January 2015 Prepaid March 2013 — 350 450 88 20 50 — — — — 132 80 150 600 – 18 — 151 1 091 6 662 181 1 143 5 549 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. This line includes also EUR million (EUR million, in ) non-interest bearing payables relating to cash held temporarily due to the divested businesses where NSN continues to perform services within a contractu- ally defined scope for a specified timeframe. All Nokia borrowings specifi ed above are senior unsecured and have no fi nancial covenants. All borrowings, apart from the EIB R&D loan, are used for general corporate purposes. All NSN borrowings specifi ed above are senior unsecured and include fi nancial covenants relating to fi nancial leverage and interest coverage of the NSN. As of December all fi nancial covenants were satisfi ed. All borrowings, apart from the EIB and Nordic Investment bank R&D loans, are used for general corporate purposes. Nokia has not guaranteed any of the NSN borrowings and thus these are non-recourse to Nokia. All Nokia Solutions and Networks Finance B.V. borrowings above are guaranteed by Nokia Solutions and Networks Oy and/or Nokia Solutions and Networks B.V. In October , Nokia issued a EUR million convertible bond that matures in October . The bond includes a vol- untary conversion option starting from December until maturity. Based on initial conversion price, voluntary conver- sion of the entire bond would result in the issue of million shares. In July Nokia obtained committed bank fi nancing for the EUR . billion cash portion of the acquisition of NSN that was completed in August . The balance of EUR . 78 N O K I A I N 2 0 1 3 billion was agreed to be paid in the form of a secured loan from Siemens due one year from closing. In September , Nokia issued EUR . billion of fi nancing in the form of three EUR million tranches of convertible bonds issued to Microsoft maturing in , and years, respectively. On September , , Nokia announced that it had decided to draw down all of this fi nancing to prepay aforementioned fi nancing raised for the acquisition of the shares in NSN and for general corporate purposes. Microsoft has agreed not to sell any of the bonds or convert any of the bonds to Nokia shares prior to the closing of the Sale of the Devices & Services business. When the Sale of the Devices & Services business was completed, the bonds were redeemed and the principal amount and accrued interest were netted against the proceeds from the transaction. In December , NSN signed a forward starting term loan and revolving credit facilities agreement to replace its revolv- ing credit facility that matured in June . In December , the maturity date of the term loan agreement was extended from June to March and the size was reduced from EUR million to EUR million. In March NSN issued EUR million of .% Senior Notes due April and EUR million of .% Senior Notes due April . The net proceeds, EUR million, from the bond issuance were used to prepay EUR million Bank term loan and EUR million of the EUR EIB R&D loan in March , and the remaining pro- ceeds are to be used for general corporate purposes. Of the NSN’s 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 consolidated statement of fi nancial position, and off -balance sheet instruments such as loan com- mitments according to their remaining contractual maturity. The line-by-line analysis does not directly reconcile with the statement of fi nancial position. At December 31, 2013, 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 189 30 94 478 4 935 3 676 1 4 94 1 4 392 3 676 3 34 26 — 5 253 — — — 261 290 — 6 — — 9 — — 145 — — 202 — — Derivative contracts – receipts – 3 39 – 11 13 13 – 57 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 6 985 – 6 853 2 286 5 835 – 5 776 1 722 699 – 659 564 39 – 18 — 39 – 18 — 373 – 382 — Long-term liabilities – 4 894 – 35 – 161 – 561 – 1 505 – 2 632 Current fi nancial liabilities Current portion of long-term loans 2 Short-term liabilities Cash fl ows related to derivative fi nancial liabilities net settled: – 3 431 – 185 – 1 844 – 185 Derivative contracts – payments 62 — 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 3 Loan commitments obtained undrawn 4 3 301 – 3 311 – 1 842 – 25 2 227 3 146 – 3 155 – 1 704 – 7 – 4 – 1 587 — 3 155 – 156 – 138 – 13 – 10 — — 5 — — — – 5 2 241 — — 5 — — — — — — — 49 — — — — — N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 79 At December 31, 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 3 Loan commitments obtained undrawn 4 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 — — — — — Accounts receivable maturity analysis does not include receivables ac- counted for based on the percentage of completion method of EUR million (EUR million in ). The maturity bucket presented for EUR Convertible Bonds (total of EUR million maturing – ) is based on the bonds being redeemed at par plus accrued interest at the close of Sale of the D&S business. 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 managed 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), 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. 36. SUBSEQUENT EVENTS On April , Nokia completed the sale of substantially all of its Devices & Services business to Microsoft. The transac- tion was subject to potential purchase price adjustments. At 80 N O K I A I N 2 0 1 3 closing, the agreed transaction price of EUR . billion was increased by approximately EUR million as a result of the estimated adjustments made for net working capital and cash earnings. However this adjustment is based on an estimate which will be fi nalized when the fi nal cash earnings and net working capital numbers are expected to be available during the second quarter . Nokia expects to book a gain on sale of approximately EUR . billion from the transaction. As a result of the gain, Nokia expects to record tax expenses of approximately EUR million. Additionally, as is customary for transactions of this size, scale and complexity, Nokia and Microsoft made certain adjustments to the scope of the assets originally planned to transfer. These adjustments have no impact on the mate- rial deal terms of the transaction and Nokia will be materially compensated for any retained liabilities. In India, our manufacturing facility remains part of Nokia following the closing of the transaction. Nokia and Microsoft have entered into a service agreement whereby Nokia would produce mobile devices for Microsoft for a limited time. In Korea, Nokia and Microsoft agreed to exclude the Masan facility from the scope of the transaction and Nokia is taking steps to close the facility, which employs approximately people. Altogether, and accounting for these adjustments, approximately employees transferred to Microsoft at the closing. The EUR . billion convertible bonds issued by Nokia to Microsoft following the announcement of the transaction have been redeemed and netted against the deal proceeds by the amount of principal and accrued interest. 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 81 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 2013 EURm 2012 EURm December 31 Notes 2013 EURm 2012 EURm Net sales Cost of sales Gross profi t 11 177 11 727 – 9 865 – 10 198 ASSETS 1 312 1 529 Fixed assets and other non-current assets Selling and marketing expenses – 668 – 1 141 Research and development expenses – 1 516 – 2 298 Administrative expenses Other operating expenses Other operating income – 94 – 39 65 – 133 – 119 1 136 Operating profi t 2, 3 – 940 – 1 026 Financial income and expenses Income from long-term investments Dividend income from Group companies 1 720 2 168 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 — 6 9 7 11 – 17 Interest expenses to Group companies – 2 Interest expenses to other companies – 233 Impairment loss on investments in subsidiaries Other fi nancial expenses Financial income and expenses, total – 1 240 58 319 7 2 11 1 7 – 147 – 14 – 115 – 750 – 31 1 139 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 – 621 113 Deferred tax assets Receivables 4 5 6 6 6 7 50 57 — — 14 165 179 2 2 10 625 11 548 3 — 53 108 3 — 48 105 10 789 11 704 3 24 55 82 — 775 61 1 6 50 57 — 673 132 Extraordinary items Group contributions Extraordinary items, total Profi t before taxes Income taxes for the year from previous years deferred taxes Trade debtors from Group companies Trade debtors from other companies 75 75 204 204 Short-term loan receivables from Group companies 2 020 2 938 Prepaid expenses and accrued income from Group companies 714 724 – 546 317 18 19 – 61 38 — – 56 60 – 475 Prepaid expenses and accrued income from other companies Short-term investments Bank and cash 1 224 4 794 1 503 5 970 5 31 40 37 15 759 17 989 Net profi t – 569 – 154 Total See Notes to the financial statements of the parent company. See Notes to the financial statements of the parent company. 82 N O K I A I N 2 0 1 3 STATEMENTS OF CASH FLOWS, PARENT COMPANY, FAS December 31 Notes 2013 EURm 2012 EURm Financial year ended December 31 Notes 2013 EURm 2012 EURm SHAREHOLDERS’ EQUITY AND LIABILITIES Net loss – 569 – 154 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 246 46 – 608 – 19 3 099 2 773 – 569 4 968 246 46 – 634 – 46 3 120 2 927 – 154 5 505 7, 8 7, 8 7, 8 7, 8 7, 8 9 2 590 4 480 — — 802 3 142 3 253 — 543 757 Trade creditors to Group companies 1 301 1 828 Trade creditors to other companies 623 293 Accrued expenses and prepaid income to Group companies Accrued expenses and prepaid income to other companies 1 554 8 201 1 916 8 004 Total liabilities 10 791 12 484 Adjustments, total 13 – 192 – 2 131 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/received – 761 – 2 285 292 – 469 17 – 335 – 33 48 1 631 – 654 13 – 146 – 352 – 115 Cash fl ow before extraordinary items – 772 – 1 254 Extraordinary income and expenses 204 — Net cash used in operating activities – 568 – 1 254 Cash fl ow from investing activities Investments in shares Capital expenditures Proceeds from sale of shares Proceeds from sale of other intangible assets Proceeds from other long-term receivables Proceeds from short-term receivables Dividends received – 320 – 4 2 1 – 5 820 925 – 70 – 9 357 8 64 109 1 510 Net cash from investing activities 1 419 1 969 Cash fl ow from fi nancing activities Proceeds from short-term borrowings 944 – 1 184 Net cash used in fi nancing activities – 893 – 965 Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period – 42 – 250 77 327 125 68 Proceeds from of long-term borrowings – 1 837 Dividends paid — 961 – 742 Total 15 759 17 989 Cash and cash equivalents at end of period 35 77 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 83 NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY 1. ACCOUNTING PRINCIPLES The Parent company Financial Statements are prepared ac- cording to Finnish Accounting Standards (FAS). See Note to Notes to the consolidated fi nancial state- ments. 2. PERSONNEL EXPENSES EURm Wages and salaries Pension expenses Other social expenses Personnel expenses as per profi t and loss account 2013 2012 423 66 14 738 102 18 503 858 Management compensation Nokia announced on September , that it had entered into a transaction agreement whereby Nokia will sell substan- tially all of its Devices & Services business to Microsoft. As a result of the proposed transaction, Nokia announced changes to its leadership. These changes were designed to provide an appropriate corporate governance structure during the interim period following the announcement of this transaction. Stephen Elop stepped down from his positions as President and CEO and Nokia’s Chairman of the Board Risto Siilasmaa and Chief Financial Offi cer of Nokia Timo Ihamuotila assumed ad- ditional responsibilities as Interim CEO and Interim President, respectively, from September , . The following table sets forth the salary and cash incentive information awarded and paid or payable by the company to the Chief Executive Offi cer and President of Nokia Corporation for fi scal years – , share-based compensation ex- pense relating to equity-based awards, expensed by the company as well as the pension expenses, expensed by the company. The table includes compensation for the time in-role or the compensation for the role related responsibilities, only. EUR Risto Siilasmaa Interim CEO as of September 3, 2013 2 Timo Ihamuotila Interim President as of September 3, 2013 3 Stephen Elop, President and CEO until September 3, 2013 Base salary/ fee 1 Cash incentive payments 1 Share-based compensation expense Pension expenses Year 2013 500 000 2013 150 000 — — — — 12 107 42 500 2013 2012 2011 753 911 1 079 500 1 020 000 769 217 — 473 070 2 903 226 1 597 496 2 086 351 263 730 247 303 280 732 Base salaries are prorated for the time in role, incentive payments repre- sent full year incentive payment earned under Nokia short term incentive programs. For interim roles the base salaries or fees for the role related responsibilities, only. As compensation for his additional responsibilities as interim CEO, Risto Siilasmaa received EUR , % was delivered to him in shares bought on the open market. The remaining % was paid in cash, most of which was used to cover the estimated associated taxes. In recognition of additional responsibilities, Timo Ihamuotila will receive EUR , out of which EUR was paid in . In addition, Timo Ihamuotila received an equity grant with an approximate aggregate grant date value of EUR in the form of Nokia stock options and Nokia re- stricted shares. These grants are subject to Nokia’s Equity plans standard terms and conditions and vesting schedules. 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 ). The members of the Nokia Leadership Team participate in the local retire- ment programs applicable to employees in the country where they reside. 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. 84 N O K I A I N 2 0 1 3 Board of Directors EUR EUR EUR 2013 2012 2011 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 until May 7, 2013 4 Jouko Karvinen Vice Chairman from May 7, 2013 5 Bruce Brown Elisabeth Doherty 6 Stephen Elop 7 Bengt Holmström Henning Kagermann 8 Per Karlsson Helge Lund Isabel Marey-Semper 9 Mårten Mickos Elizabeth Nelson 10 Kari Stadigh 440 000 77 217 440 000 70 575 155 000 10 428 — — — — 175 000 14 374 130 000 10 678 140 000 11 499 — — — — — — 440 000 29 604 150 000 24 062 150 000 10 092 155 000 130 000 24 860 20 850 — — — — — — 140 000 9 419 — — — — — — 130 000 8 746 155 000 12 731 155 000 24 860 155 000 10 428 — — 130 000 10 678 — — 130 000 10 678 140 000 11 499 130 000 10 678 — 130 000 140 000 130 000 140 000 130 000 — 20 850 22 454 20 850 22 454 20 850 130 000 130 000 140 000 — — 8 746 8 746 9 419 — — 130 000 8 746 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 and fees paid to Risto Siilasmaa amounted to an annual total of EUR for services as Chairman of the Board. The fee paid to Risto Siilasmaa amounted to an annual total of EUR , con- sisting of a fee of EUR for services as a member of the Board and EUR for services as Chairman of the Audit Committee. Siilasmaa was also paid a fee acting as interim CEO as of September , . Fee for his duties as interim CEO is presented under Management compensation. The fee paid to Jorma Ollila amounted to an annual total of EUR 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 Chair- man of the Board. The fee paid to Jouko Karvinen amounted to an annual total of EUR , consisting of a fee of EUR for services as a Vice Chairman 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 EUR for services as a member of the Board and EUR for service as Chairman of the Audit Com- mittee. 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 Commit- tee. The fee paid to Elizabeth Doherty amounted to 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. 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. Stephen Elop stepped down from the board of directors as of September , . 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. The and fees paid to Isabel Marey-Semper amounted to an annual total of EUR each year indicated, consisting of a fee of EUR for services as a member of the Board and EUR for services as a member of the Audit Committee. The and fees paid to 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. Termination benefi ts of the President and CEO Mr. Elop’s employment contract was amended eff ective as of September , , as a result of entering into a transaction with Microsoft for the Sale of D&S Business. Under the terms of the amendment, Mr. Elop resigned from his position as Presi- dent and CEO as of September , and assumed the role of Executive Vice President, Devices & Services. He also resigned from his position as a member of Board of Directors as of the same date. After the closing of the Sale of D&S Business, he transferred to Microsoft as agreed with Microsoft. In accord- ance with his service contract he received a severance pay- ment of EUR . million in total. This amount included: base salary and management incentive EUR . million and value of equity awards EUR . million. The amount of the equity awards was based on the Nokia closing share price of EUR . per share at NASDAQ OMX Helsinki on April , . Pursu- ant to the terms of the purchase agreement with Microsoft entered into in connection with the Sale of D&S Business, % of the total severance payment was borne by Microsoft and the remaining % of the severance amount (EUR . million) was borne by Nokia. Number of personnel Personnel average 2013 2012 Production Marketing R&D Administration 209 463 2 827 1 330 4 829 1 086 763 3 788 2 379 8 016 Personnel, December 31 4 544 5 901 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 85 3. DEPRECIATION AND AMORTIZATION 4. INTANGIBLE ASSETS EURm 2013 2012 EURm 2013 2012 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 — 11 114 1 126 115 1 10 126 — 19 143 2 164 145 3 16 164 Capitalized development costs Acquisition cost January 1 Disposals during the period 284 — Accumulated acquisition cost December 31 284 284 — 284 Accumulated amortization January 1 – 284 – 284 Disposals during the period Amortization during the period — — — — Accumulated amortization December 31 – 284 – 284 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 — — 228 4 – 75 157 — — 251 4 – 27 228 Accumulated amortization January 1 – 214 – 215 Disposals during the period Amortization during the period 75 – 11 20 – 19 Accumulated amortization December 31 – 150 – 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 14 7 753 — – 2 Accumulated acquisition cost December 31 751 36 14 782 2 – 31 753 Accumulated amortization January 1 – 587 – 463 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 — – 114 – 701 166 50 18 – 143 – 588 319 165 At the end of and the parent company had only minor amounts of tangible assets. These assets were leased from Nokia Asset Management Oy, a company wholly owned by Nokia Corporation. 86 N O K I A I N 2 0 1 3 6. INVESTMENTS 8. DISTRIBUTABLE EARNINGS EURm 2013 2012 EURm 2013 2012 Investments in subsidiaries Reserve for invested non-restricted equity 3 099 3 120 Acquisition cost January 1 11 548 11 199 Fair value reserve Additions Impairments Disposals 354 – 1 240 3 127 – 740 Retained earnings from previous years Net profi t for the year – 37 – 2 038 Retained earnings, total Net carrying amount December 31 10 625 11 548 Treasury shares Distributable earnings, December 31 – 19 2 773 – 569 5 284 – 608 4 676 – 46 2 927 – 154 5 847 – 634 5 213 Investments in associated companies Acquisition cost January 1 Additions Impairments Disposals Net carrying amount December 31 Investments in other shares Acquisition cost January 1 Additions Impairments Disposals 3 — — — 3 105 7 — – 4 11 1 – 8 – 1 3 85 23 – 2 – 1 Net carrying amount December 31 108 105 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, 2010 246 Other contribution from shareholders — 46 – 669 — 3 145 3 612 6 334 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 – 743 – 154 – 743 – 154 Balance at December 31, 2012 246 46 – 634 – 46 3 120 2 773 5 505 Settlement of performance and restricted shares 26 – 21 Fair value reserve decrease 27 Dividend Net profi t 5 27 — — – 569 – 569 Balance at December 31, 2013 246 46 – 608 – 19 3 099 2 204 4 968 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 87 9. LONG-TERM LIABILITIES 11. LEASING CONTRACTS EURm Bonds Convertible bond Loans from fi nancial institutions Liabilities from Group companies 2013 2012 1 645 3 036 745 — 200 743 500 200 Long-term liabilities, total 2 590 4 479 Long-term liabilities repayable after 5 years Bonds Convertible bond Loans from fi nancial institutions Long-term liabilities, total 1 645 1 749 — — — — At December 31, 2013 the leasing contracts of the Parent Company amounted to EUR 22 million (EUR 37 million in 2012). EUR 8 million will expire in 2014 (EUR 12 million in 2013). 12. LOANS GRANTED TO THE MANAGEMENT OF THE COMPANY There were no loans granted to the members of the Group Executive Board and Board of Directors at December , . 1 645 1 749 13. NOTES TO CASH FLOW STATEMENTS Bonds Million Interest, % 2009 – 2014 1 250 EUR 5.534 * — 1 287 2009 – 2019 1 000 USD 2009 – 2019 2009 – 2039 500 EUR 500 USD 5.572 6.792 6.775 747 545 353 805 558 386 1 645 3 036 Convertible bond Million Interest, % 2012 – 2017 2013 – 2018 2013 – 2019 2013 – 2020 750 EUR 500 EUR 500 EUR 500 EUR 7.920 745 743 1.125 * 2.500 * 3.625 * — — — — — — 745 743 EURm Adjustments for: Depreciation Income taxes 2013 2012 126 23 164 471 Financial income and expenses – 1 504 – 2 694 Impairment of intangible assets 1 12 Impairment of non-current available-for-sale investments Other operating income and expenses Adjustments, total 1 277 – 114 150 – 234 – 191 – 2 131 Change in net working capital Short-term trade receivables, increase (–), decrease (+) 1 005 2 190 * Included in short-term liabilities. Inventories, increase (–), decrease (+) – 25 167 10. COMMITMENTS AND CONTINGENCIES Change in net working capital Interest-free short-term liabilities, increase (+), decrease (–) – 688 292 – 726 1 631 EURm 2013 2012 Collateral for own commitments Assets pledged 14. PRINCIPAL NOKIA GROUP COMPANIES 3 3 ON DECEMBER 31, 2013 Contingent liabilities on behalf of Group companies Guarantees for loans Leasing guarantees Other guarantees Contingent liabilities on behalf of associated companies See note to Notes to the consolidated fi nancial statements. 2 143 55 1 168 43 15. NOKIA SHARES AND SHAREHOLDERS See Nokia shares and shareholders p. 90–94. Guarantees for loans 16 11 16. ACCRUED INCOME Contingent liabilities on behalf of other companies Guarantees for loans Other guarantees EURm Taxes Other Total 12 24 12 27 2013 2012 7 1 931 1 938 58 2 169 2 227 88 N O K I A I N 2 0 1 3 17. ACCRUED EXPENSES EURm Personnel expences Taxes Other Total 18. INCOME TAXES EURm Income tax from operations Income tax from extraordinary items Total 2013 2012 68 — 1 611 1 679 103 — 1 881 1 984 2013 2012 – 61 — – 61 – 56 — – 56 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 income statement. 19. DEFERRED TAXES EURm Deferred taxes Total 2013 2012 — — – 475 – 475 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. 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 89 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. companies representing approximately .% of the share capital and the total voting rights. On December , , the share capital of Nokia Corpora- tion was EUR . and the total number of shares issued was . On December , , the total number of shares included shares owned by Group Under the Articles of Association of Nokia, Nokia Corpo ra- tion does not have minimum or maximum share capital or a par value of a share. Share capital and shares December 31, 2013 Share capital, EURm Shares (1 000) 2013 246 2012 246 2011 246 2010 246 2009 246 3 744 994 3 744 956 3 744 956 3 744 956 3 744 956 Shares owned by the Group (1 000) 32 568 33 971 34 767 35 826 36 694 Number of shares excluding shares owned by the Group (1 000) 3 712 427 3 710 985 3 710 189 3 709 130 3 708 262 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 3 712 079 3 710 845 3 709 947 3 708 816 3 705 116 3 712 079 3 710 845 3 709 947 3 713 250 3 721 072 225 587 250 799 229 096 191 790 156 081 Each account operator is included in the figure as only one registered shareholder. Key ratios December 31, 2013, IFRS (calculation see page 98) 2013 2012 2011 2010 2009 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 – 0.17 – 0.17 neg. 0.37 1 386 neg. 6.36 1.74 -0.84 -0.84 neg. 0.00 0.00 0.00 0.00 2.14 – 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 21 606 10 873 13 987 28 709 33 078 Dividend to be proposed by the Board of Directors for fiscal year for shareholders’ approval at the Annual General Meeting convening on June , . 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 share- holders authorized the Board of Directors to issue a maximum of million shares through one or more issues of shares or special rights entitling to shares, including stock options. The Board of Directors may issue either new shares or shares held by the Company. The authorization includes the right for the Board to resolve on all the terms and conditions of such issuances of shares and special rights, including to whom the shares and the special rights may be issued. The authorization may be used to develop the Company’s capital structure, di- versify 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 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 90 N O K I A I N 2 0 1 3 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 2014 On April , , Nokia announced that the Board of Directors will propose that the Annual General Meeting convening on June , 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 and are expected to be cancelled. 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, or to be transferred for other purposes. 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 December , and terminate the current authoriza- tion for repurchasing of the Company’s shares resolved at the Annual General Meeting on May , . Nokia also announced on April , that the Board of Directors will propose to the Annual General Meeting to be held on June , 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 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, includ- ing issuance in deviation from the shareholders’ pre-emptive rights. The authorization would be eff ective until December , 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 2009 2010 Nokia Stock Option Plan 2004 2Q Nokia Stock Option Plan 2004 3Q Nokia Stock Option Plan 2004 4Q Nokia Stock Option Plan 2005 2Q Nokia Stock Option Plan 2005 3Q Nokia Stock Option Plan 2005 4Q Nokia Stock Option Plan 2006 1Q Nokia Stock Option Plan 2006 2Q Nokia Stock Option Plan 2006 3Q Nokia Stock Option Plan 2006 4Q Nokia Stock Option Plan 2007 1Q Nokia Stock Option Plan 2007 2Q Nokia Stock Option Plan 2007 3Q Nokia Stock Option Plan 2007 4Q Nokia Stock Option Plan 2008 1Q Nokia Stock Option Plan 2008 2Q Nokia Stock Option Plan 2008 3Q Total Nokia Stock Option Plan 2005 2Q Nokia Stock Option Plan 2005 3Q Nokia Stock Option Plan 2005 4Q Nokia Stock Option Plan 2006 1Q Nokia Stock Option Plan 2006 2Q Nokia Stock Option Plan 2006 3Q Nokia Stock Option Plan 2006 4Q Nokia Stock Option Plan 2007 1Q Nokia Stock Option Plan 2007 2Q Nokia Stock Option Plan 2007 3Q Nokia Stock Option Plan 2007 4Q Nokia Stock Option Plan 2008 1Q Nokia Stock Option Plan 2008 2Q Nokia Stock Option Plan 2008 3Q Nokia Stock Option Plan 2008 4Q Nokia Stock Option Plan 2009 1Q Nokia Stock Option Plan 2009 2Q Nokia Stock Option Plan 2009 3Q Total 11.79 9.44 12.35 12.79 13.09 14.48 14.99 18.02 15.37 15.38 17.00 18.39 21.86 27.53 24.15 19.16 17.80 12.79 13.09 14.48 14.99 18.02 15.37 15.38 17.00 18.39 21.86 27.53 24.15 19.16 17.80 12.43 9.82 11.18 9.28 0 8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 0.00 0.07 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.07 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — N O K I A S H A R E S A N D S H A R E H O L D E R S 91 Year Stock option category Subscription price EUR Number of new shares (1 000) Date of payment Net proceeds EURm New share capital EURm 2011 2012 2013 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 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 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 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 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 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 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 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 92 N O K I A I N 2 0 1 3 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 2009 2010 2011 2012 2013 Number of shares (1 000) 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) 16 748 276 20 002 578 15 696 008 12 299 112 11 025 092 Total number of shares (1 000) 3 744 956 3 744 956 3 744 956 3 744 956 3 744 956 % of total number of shares 447 534 419 328 294 2013 1 2012 2 2011 3 2010 3 2009 3 Includes share turnover in NASDAQ OMX Helsinki and New York Stock Exchange. Includes share turnover in NASDAQ OMX Helsinki, New York Stock Exchange and until March , 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) 2013 2012 2011 2010 2009 2.30/6.03 1.33/4.46 3.33/8.49 6.59/11.82 6.67/12.25 3.57 5.82 2.62 2.93 5.19 3.77 8.41 7.74 9.64 8.92 ADS Low/high Average 1 Year-end 2013 2012 2011 2010 2009 3.02/8.18 1.63/5.87 4.46/11.75 8.00/15.89 8.47/16.58 4.82 8.11 3.41 3.95 7.13 4.82 11.11 10.32 13.36 12.85 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) 14 12 10 8 6 4 2 0 | | | | | 18 16 14 12 10 8 6 4 2 0 | | | | | / / / / / / / / / / 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 93 Shareholders, December 31, 2013 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 December , . Each account operator () is included in this fi gure as only one registered shareholder. Largest shareholders registered in Finland, December , Nominee registered shareholders include holders of American Depositary Receipts (ADR). As of December , , ADRs represented .% of the total number of shares in Nokia. Shareholder Varma Mutual Pension Insurance Company Ilmarinen Mutual Pension Insurance Company The State Pension Fund Schweizerische Nationalbank Svenska Litteratursällskapet i Finland rf Keva (Local Government Pensions Institution) Mutual Insurance Company Pension Fennia Nordea Fennia Fund Folketrygdfondet OP-FocusSpecial Fund Total number of shares (1 000) % of all shares % of all voting rights 85 394 61 394 29 500 23 506 14 304 13 506 12 463 10 200 9 768 8 250 2.28 1.64 0.79 0.63 0.38 0.36 0.33 0.27 0.26 0.22 2.30 1.65 0.79 0.63 0.39 0.36 0.34 0.27 0.26 0.22 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 46 342 112 277 59 382 7 165 318 37 44 22 20.54 49.77 26.32 3.18 0.14 0.02 0.02 0.01 225 587 100.00 2 802 625 51 401 093 182 554 539 172 915 138 61 819 076 24 776 602 91 287 240 3 157 438 029 3 744 994 342 0.07 1.37 4.87 4.62 1.65 0.66 2.44 84.31 100.00 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 % of shares 77.03 22.97 100.00 % of shares 2.55 10.50 2.26 1.75 5.91 22.97 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. 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 exercisable and unexercisable stock options, would be exercisable for additional shares representing approximately .% of the total number of shares and voting rights on December , . 94 N O K I A I N 2 0 1 3 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 95 NOKIA GROUP 2009 – 2013, 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 from continuing operations 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 Assets held for sale Assets of disposal groups classifi ed as assets held for sale 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 Provisions Current liabilities Current portion of long-term loans Short-term borrowings and other fi nancial liabilities Accounts payable Accrued expenses and other liabilities Provisions Liabilities of disposal groups classifi ed as liabilities held for sale Total assets 2013 2012 2011 2010 2009 12 709 – 12 190 519 4 – 280 243 – 202 41 186 – 145 41 6 048 13 796 804 4 021 8 971 89 5 258 6 660 6 468 192 4 353 3 286 195 630 242 9 450 3 192 219 1 842 3 517 680 15 400 – 16 221 – 821 – 1 – 357 – 1 179 – 304 – 1 483 – 771 – 712 – 1 483 9 323 20 661 1 538 9 214 9 909 — — 15 968 – 17 356 – 1 388 – 23 – 131 – 1 542 – 73 – 1 615 – 1 272 – 343 – 1 615 10 950 25 275 2 330 12 043 10 902 — — 13 586 – 15 026 – 1 440 1 – 233 – 1 672 95 – 1 577 – 1 030 – 547 – 1 577 12 136 26 987 2 523 12 189 12 275 — — 13 373 – 15 746 – 2 373 30 – 236 – 2 579 – 89 – 2 668 – 2 005 – 663 – 2 668 12 259 23 479 1 865 12 741 8 873 — — 9 239 13 909 16 231 14 749 7 937 1 302 7 089 5 087 701 997 304 13 656 201 351 4 394 6 722 1 988 11 866 14 384 13 088 2 043 5 872 3 969 803 623 477 16 444 357 1 478 5 532 7 207 1 870 1 847 5 688 4 242 1 022 310 114 17 204 116 1 368 6 101 7 439 2 180 1 661 6 270 4 432 1 303 330 205 14 719 44 972 4 950 6 514 2 239 4 728 25 191 — — — — 29 984 36 225 39 123 35 738 96 N O K I A I N 2 0 1 3 Key ratios and economic indicators 1 2013 2012 2011 2010 2009 Nokia continuing operations 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/(loss), EURm % of net sales Taxes, EURm Dividends 2, EURm Capital expenditure, EURm % of net sales Gross investments 3, EURm % of net sales R&D expenditure, EURm % of net sales 12 709 – 17.5% 12 115 4 041 519 4.1% – 280 – 2.2% 243 1.9% 41 0.3% 202 1 386 2 214 1.7% 275 2.2% 2 619 20.6% 15 400 – 3.6% 14 741 5 034 – 821 – 5.3% – 357 – 2.3% – 1 179 – 7.7% – 1 483 – 9.6% 304 — 290 1.9% 346 2.2% 3 081 20.0% 15 968 17.5% 15 013 4 612 – 1 388 – 8.7% – 131 – 0.8% – 1 542 – 9.7% – 1 615 – 10.1% 73 749 410 2.6% 523 3.3% 3 334 13 586 1.6% 12 907 4 204 – 1 440 – 10.6% – 233 – 1.7% – 1 672 – 12.3% – 1 577 – 11.6% -95 1 498 376 2.8% 511 3.8% 3 261 20.9% 24.0% 13 373 n/a 12 704 4 203 – 2 373 – 17.7% – 236 – 1.8% – 2 579 – 19.3% – 2 668 – 20.0% 89 1 498 322 2.4% 420 3.1% 3 019 22.6% Average personnel 59 333 71 808 80 856 73 959 69 684 Non-interest bearing liabilities, EURm Interest-bearing liabilities, EURm Return on capital employed, % Return on equity, % Equity ratio, % Net debt to equity, % 6 946 6 662 5.6 2.6 28.0 – 35.0 14 253 5 549 16 168 5 321 16 591 5 279 14 483 5 203 neg. neg. 32.9 – 47.0 neg. neg. 40.1 – 40.0 neg. neg. 42.8 – 43.0 neg. neg. 41.9 – 25.0 As is customary, certain judgements have been made when regrouping historical information. Board 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 9 – 2 0 1 3 , I F R S 97 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 = 1.3751 0.8444 8.3498 85.1620 45.2264 141.80 98 N O K I A I N 2 0 1 3 SIGNING OF THE ANNUAL ACCOUNTS 2013 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 from the retained earnings an ordinary dividend of EUR , per share be paid out on the shares of the Company. The proposed dividend is in line with the Company’s distribution policy. The Board further proposes to the Annual General Meeting that from the retained earnings a special dividend of EUR , per share be paid out on the shares of the Company. At December , , the number of shares of the Company was , based on which the maximum aggregate amount to be distributed as ordinary and special dividend is EUR million. Espoo, April , Risto Siilasmaa Chairman of the Board of Directors Bruce Brown Elizabeth Doherty Henning Kagermann Jouko Karvinen Helge Lund Mårten Mickos Elizabeth Nelson Kari Stadigh Timo Ihamuotila Chief Executive Offi cer SIGNING OF THE ANNUAL ACCOUNTS 2013 AND PROPOSAL FOR DISTRIBUTION OF PROFIT 99 AUDITOR’S REPORT (TRANSLATION) 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 misstatement, and whether the members of the Board of Directors of the parent company and the Managing Director are guilty of an act or negligence which may result in liability in damages towards the company or have violated the Limited Liability Companies Act or the articles of association of the company. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements and the review by the Board of Directors. The procedures selected depend on the auditor’s judgment, in- cluding the assessment of the risks of material misstatement, whether due to fraud or error. In making those risk assess- ments, the auditor considers internal control relevant to the entity’s preparation of the fi nancial statements and the review by the Board of Directors that give a true and fair view in order to design audit procedures that are appropriate in the circum- stances, but not for the purpose of expressing an opinion on the eff ectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall pres- entation of the fi nancial statements and the review by the Board of Directors. We believe that the audit evidence we have obtained is suf- fi cient and appropriate to provide a basis for our audit opinion. Opinion on the Consolidated Financial 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 Financial 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, April PricewaterhouseCoopers Oy Authorised Public Accountants Heikki Lassila Authorised Public Account 100 N O K I A I N 2 0 1 3 ADDITIONAL INFORMATION Critical accounting policies .................................................................................... 102 Corporate governance statement Corporate governance ........................................................................................ 108 Board of Directors ............................................................................................... 114 Nokia Group Leadership Team ........................................................................... 117 Compensation of the Board of Directors and the Nokia Group Leadership Team ................................................................ 119 Auditor fees and services ....................................................................................... 140 Investor information ................................................................................................ 141 Contact information ................................................................................................. 143 CRITICAL ACCOUNTING POLICIES Our accounting policies aff ecting our fi nancial condition and results of operations are more fully described in Note to our consolidated fi nancial statements included in Item of this annual report. Some of our accounting policies require the application of judgment by management in selecting appropri- ate assumptions for calculating fi nancial estimates, which inherently contain some degree of uncertainty. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. The related results form the basis for making judgments about reported carrying values of assets and li- abilities and reported amounts of revenues and expenses that may not be readily apparent from other sources. The Group will revise material estimates if changes occur in the circum- stances 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 other- wise 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 Revenues within the Group are generally recognized when the signifi cant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associ- ated with ownership and eff ective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefi ts associated with the transaction will fl ow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. When manage- ment determines that such criteria have been met, revenue is recognized. At NSN, transactions are also entered into involving multi- ple components consisting of any combination of hardware, services and software. Within these arrangements, separate components are identifi ed and accounted for based on the nature and fair value of those components and considering the economic substance of the entire arrangement. Revenue is allocated to each separately identifi able component based on the relative fair value of each component. The fair value of each component is determined by taking into consideration factors such as the price of the component when sold sepa- rately and the component cost plus a reasonable margin when price references are not available. This determination of the fair value and allocation thereof to each separately identifi able component of a transaction requires the use of estimates and judgment which may have a signifi cant impact on the timing and amount of revenue recognized for the period. Service rev- enue, which typically includes managed services and mainte- nance services, is generally recognized on a straight-line basis over the specifi ed period unless there is evidence that some other method better represents the rendering of services. Also at NSN, certain revenue is recognized from contracts involving solutions achieved through the modifi cation of complex telecommunications equipment on the percentage of completion basis when the outcome of the contract can be estimated reliably. Recognized revenues and profi t estimates are subject to revisions during the project in the event that the assumptions regarding 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 pro- ject, new technology, changes in the project scope, changes in costs, changes in timing, changes in customers’ plans, realiza- tion of penalties, and other corresponding factors. Within the HERE business, a substantial majority of revenue is derived from the licensing of the HERE database. Revenue which consists of license fees from usage (including license fees in excess of the nonrefundable minimum fees), are rec- ognized in the period in which the license fees are estimable. Nonrefundable minimum annual licensing fees are generally received upfront and represent a minimum guarantee of fees to be received from the licensee during the period of the arrangement. The total up-front fee paid by the customer is generally amortized ratably over the term of the arrange- ment. When it is determined that the actual amount of licens- ing fees earned exceeds the cumulative revenue recognized under the amortization method, we recognize the additional licensing revenue. Furthermore, within the HERE business, some licensing arrangements contain multiple elements, that could include data, software, services and updates. Revenue is allocated to each element based on its relative fair value and is recognized as the element is delivered and the obligation is fulfi lled. Advance Technologies’ patent license agreements are multi- year arrangements usually covering both a licensee’s past and future sales until a certain agreed date, when the license expires. 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 recognized immediately. The license payments relating to the future royalties are recognized over the remaining contract period, typically to years. Licensees often pay a fi xed license fee in one or more installments and running royalties based on their sales of licensed products. Licensees gener- ally report and pay their running royalties on a quarterly basis after the end of each quarter and Nokia revenue recognition takes place accordingly at the time the royalty reports are received. Within Devices & Services, the sale of devices can include multiple components consisting of a combination of hardware, services and software. The commercial eff ect of each sepa- rately identifi able element of the transaction is evaluated in order to determine the appropriate accounting treatment for each component of the transaction. The total amount re- ceived is allocated to individual components based on their es- timated fair value. Fair value of each component is determined by taking into consideration factors such as the price when the component is sold separately, the price when a similar compo- nent is sold separately by a third party and cost plus a reason- able margin when pricing references are not available. The es- timated fair values are allocated fi rst to software and services, with the residual amount allocated to hardware. Application of the recognition criteria described above generally results in recognition of hardware related revenue at the time of deliv- ery with software and services related revenue recognized on a straight-line basis over their respective terms. 102 N O K I A I N 2 0 1 3 Also within the Devices & Services business, we record estimated reductions to revenue for special pricing agree- ments, price protection and other volume based discounts at the time of sale. Sales adjustments for volume based discount programs are estimated largely based on historical activity un- der similar programs. Price protection adjustments are based on estimates of future price reductions and certain agreed customer inventories at the date of the price adjustment. CUSTOMER FINANCING We have provided certain customer fi nancing arrangements, predominantly within Nokia Solutions and Networks, and agreed extended payment terms with selected customers. In establishing credit arrangements, management must assess the creditworthiness of the customer and the timing of cash fl ows expected to be received under the arrangement. How- ever, 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 assessment of the net re- coverable value considers the collateral and security arrange- ments 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 transfer of its rights to the cash collected from these arrangements to third-party fi nancial in- stitutions 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 Solutions and Networks business. 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 Nokia continuing operations’ allowance for doubtful accounts was 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 declines. These reviews require management to estimate future de- mand 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 Nokia continuing operations’ allowance for excess and obsolete inventory was 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 Nokia Solutions and Networks business and the results from discontinued operations through the Devices & Services business. WARRANTY PROVISIONS We provide for the estimated cost of product warranties at the time revenue is recognized. Our products are covered by product warranty plans of varying periods, depending on local practices and regulations. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component sup- pliers, our warranty obligations are aff ected by actual product failure rates and by material usage and service delivery costs incurred in correcting a product failure. Our warranty provision is established based upon our best estimates of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. As we continuously introduce new products which incorporate complex technology, and as local laws, regulations and practices may change, it will be increasingly diffi cult to anticipate our failure rates, the length of warranty periods and repair costs. While we believe that our warranty provisions are adequate and that the judgments applied are appropriate, the ultimate cost of product warranty could diff er materially from our estimates. When the actual cost of quality of our products is lower than we originally anticipated, we release an appropriate proportion of the provi- sion, and if the cost of quality is higher than anticipated, we increase the provision. Based on these estimates and assump- tions the Nokia continuing operations warranty provision was EUR million at the end of . The fi nancial impact of the assumptions regarding this provision mainly aff ects the cost of sales of the Nokia Solutions and Networks business and the results from discontinued operations through the 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 in Nokia continuing operations. 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 103 Our experience with claims of IPR infringement is that there is typically a discussion period with the accusing party, which can last from several months to years. In cases where a settlement is not reached, the discovery and ensuing legal process typically lasts a minimum of one year. For this rea- son, IPR infringement claims can last for varying periods of time, resulting in irregular movements in the IPR infringement provision. In addition, the ultimate outcome or actual cost of settling an individual infringement may materially vary from our estimates. LEGAL CONTINGENCIES As discussed in Item A. “Litigation” and in Note and to the consolidated fi nancial statements included in Item of this annual report, legal proceedings covering a wide range of matters are pending or threatened in various jurisdictions against the Group. We record provisions for pending litigation when we determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates. 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 circum- stances indicate that such carrying amount may not be recov- erable. We assess the carrying amount of our goodwill at least annually, or more frequently based on these same indicators. Factors that we consider important, and which could trigger an impairment review, include the following: ■ signifi cant underperformance relative to historical or pro- jected 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 recoverable value based on discounted projected cash fl ows. Recoverable value is based upon our projections of an- ticipated discounted future cash fl ows. The most signifi cant variables in determining cash fl ows are discount rates, termi- nal values, the number of years on which to base the cash fl ow projections, as well as the assumptions and estimates used to determine the cash infl ows and outfl ows. Management de- termines discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash fl ows over that period. While we believe that our assumptions are appropriate, such amounts estimated could diff er materi- ally from what will actually occur in the future. In assessing goodwill, these discounted cash fl ows are prepared at the cash generating unit level. Amounts estimated could diff er materi- ally from what will actually occur in the future. Goodwill is allocated to the Group’s cash-generating units (“CGUs”) or groups of cash-generating units (CGUs) and re- coverable value are prepared at the 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 are expected to benefi t from the synergies arising from each of our acquisitions. As a result of the sale of the D&S business, we have combined the Smart Devices and Mobile Phones CGUs into a single Devices & Services CGU and aligned with the scope of the business being sold. The goodwill previously allocated to the two separate CGUs has been allocated to the combined CGU for impair- ment testing purposes. No goodwill was allocated to the new Advanced Technology CGU. In previous years we have defi ned the NSN’s operating seg- ment as a single CGU. As a consequence of the acquisition of the Siemens’ minority stake in NSN and the resulting change in reportable segments, the Group has identifi ed two NSN related groups of CGUs to which goodwill has been allocated: Radio Access Networks within the Mobile Broadband operating segment and Global Services. Goodwill amounting to EUR million has been allocated as follows: Devices & Services CGU (EUR million), HERE 104 N O K I A I N 2 0 1 3 CGU (EUR million), NSN Mobile Broadband group of CGUs (EUR million) and NSN Global Services group of CGUs (EUR million). IAS requires goodwill to be assessed annually for im- pairment unless triggering events are identifi ed prior to the annual testing date that indicate a potential impairment in which case an interim assessment is required. The annual impairment testing for the Devices & Services and HERE CGUs is performed as of October . The annual impairment testing for the Nokia Solutions and Networks related groups of CGUs has been performed as of September . An additional impair- ment analysis specifi c to NSN CGUs was performed subse- quently at November , to align the annual testing date with the NSN’s annual fi nancial planning cycle. Management determined that the signing of the agreement with Microsoft for the Sale of D&S Business constituted a triggering event re- quiring an interim impairment test for the Devices & Services and HERE CGUs. Accordingly, an interim review was performed in September . No impairment charges were recorded for any of the CGUs as a result of either the interim or annual tests. The recoverable values of the Smart Devices and Mobile Phones CGUs, that are now combined to form the Devices & Services CGU and are classifi ed as discontinued operations in , were previously valued using a value in use basis. During , the Devices & Services CGU recoverable value was de- termined using a fair value less cost of disposal model based on the agreed purchase price defi ned for the Sale of D&S Business, excluding any consideration attributable to patents or patent applications. During , the recoverable amounts of the HERE CGU, Radio Access Networks and Global Services Group of CGUs have been determined using a fair value less cost of disposal model. Fair value less cost of disposal was estimated using discounted cash fl ow calculations. The cash fl ow projections employed in the discounted cash fl ow calculations have been determined by management based on the information avail- able, to refl ect the amount that an entity could obtain from separate disposal of each of the CGUs in an orderly transaction between market participants at the measurement date after deducting the estimated cost of disposal. The estimates of fair value less cost of disposal are categorized as level of the fair value hierarchy. Discounted cash fl ows for the Nokia Solutions and Networks groups of CGUs and HERE CGU were modeled over ten an- nual periods. The growth rates used in transition to terminal year refl ect estimated long term stable growth which do not exceed long-term average growth rates for the industry and economies in which the CGUs operate. All cash fl ow projections are consistent with external sources of information, wherever possible. 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. No informa- tion has been included for the Devices & Services CGU as the recoverable amount was not determined using a discounted cash fl ow analysis and the CGU is attributable to discontinued operations: Cash generating units Radio Access Networks group of CGUs in Mobile Broadband 1 % HERE % Global Services group of CGUs 1 % NSN % 2013 2012 2013 2012 2013 2012 2013 2012 Terminal growth rate Post-tax discount rate 1.7 10.6 1.7 9.9 1.5 10.8 — — 0.5 10.1 — — — — 0.7 10.3 NSN CGU is divided into two groups of CGUs in : Radio Access Networks group of CGUs within Mobile Broadband operating segment and the Global Service group of CGUs. 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 105 Fair value less cost of disposal for the HERE CGU, Radio Access Networks and Global Services groups of CGUs are determined using post-tax valuation assumptions including projected cash fl ows and the discount rate. The discount rates applied in the impairment testing for the above noted CGUs or groups of CGUs refl ect current assess- ments 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. In the fourth quarter of the Group recorded an impair- ment loss t of EUR million to reduce the carrying amount of the HERE CGU to its at that time recoverable amount. The impairment loss was allocated in its entirety to the carrying amount for goodwill. As a result of the impairment loss, the amount of goodwill allocated to HERE CGU was reduced to EUR million at December , . The Group’s goodwill im- pairment testing did not result in impairment charges for the years ended December , and . An impairment loss was recorded with respect to the Group’s HERE CGU in , as noted above. The recoverable amount of the HERE CGU exceeds its carry- ing amount by a small margin at the testing date. 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 HERE CGU. Management’s estimates of the overall automotive volumes and market share, customer adoption of the new location-based platform and related service off er- ings, projected value of the services sold to Microsoft and assumptions regarding pricing as well as continued focus on cost effi ciency are the main drivers for the HERE 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 custom- ers demand complete, end-to-end location solutions and as cloud computing and cloud-based services garner greater market acceptance. 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 mate- rial 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. Other than disclosed for the HERE CGU above, management believes that no reasonably possible change in any of the above assumptions would cause the carrying value of any cash generating unit to exceed its recoverable amount. See Note to our consolidated fi nancial statements in- cluded in Item of this annual report 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 determined using widely accepted valuation techniques. We use judgment to select an appropriate valuation methodology and underlying assumptions based principally on existing market conditions. If quoted market prices are not available for unlisted shares, fair value is estimated by using various factors, including, but not limited to: () the current market value of similar instruments, () prices established from a recent arm’s length transactions, () analysis of market prospects and operating performance of target companies taking into consideration of public market comparable companies in similar industry sectors. Changes in these assumptions may cause the Group to recognize impairments or losses in future periods. During the Group received distributions of EUR million (EUR million in ) included in other fi nancial income from a private fund held as non-current available-for-sale. Due to a reduction in estimated future cash fl ows the Group also recognized an impairment loss of EUR million in for the fund included in other fi - nancial expenses. See also note to our consolidated fi nancial statements included in item of this annual report. INCOME TAXES The Group is subject to income taxes both in Finland and in nu- merous other jurisdictions. Signifi cant judgment is required in determining income tax expense, uncertain tax positions, de- ferred 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 NSN taxes as no tax benefi ts are recognized for certain Nokia Solutions and 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 assets were recognized in the consolidated fi nancial state- ments due to uncertainty of utilization of these items. We recognize liabilities for uncertain tax positions based on estimates and assumptions when, despite our belief that tax return positions are supportable, it is more likely than not that certain positions will be challenged and may not be fully sustained upon review by tax authorities. The Group has ongo- ing tax investigations in multiple jurisdictions, including 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. 106 N O K I A I N 2 0 1 3 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 107 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. 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. REGULATORY FRAMEWORK 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, available at www.cgfi nland.fi , with the following exceptions: In Nokia was not in full compliance with recommenda- tion of the Finnish Corporate Governance Code as Nokia’s Restricted Share Plans did not include any performance criteria but were time-based only, with a restriction period of at least three years from the grant. Restricted Shares are granted only for exceptional retention and recruitment pur- poses aimed to ensure Nokia is able to retain and recruit talent vital to the future success of the Company. In the Restricted Share Plan , the number of the shares to be granted was reduced signifi cantly and they no longer are part of the annual grants. In Nokia was not in full compliance with the recom- mendation of the Finnish Corporate Governance Code as the termination payment payable due to the termination of Nokia’s former President and CEO Stephen Elop’s service contract exceeded the aggregate amount of his non-variable salary of two years. While we decide on our executives’ total compensation through benchmarking against similar compa- nies, along with other factors, the company’s approach has been to keep the non-variable part rather small in proportion and emphasize the variable part. This compensation structure is designed to align the interest of executive offi cers with those of the shareholders and with Nokia’s performance. The termination payment was also signifi cantly aff ected by the share price increase from the announcement of the trans- action with Microsoft through the termination of Mr. Elop’s contract, as over % of the termination payment consisted of the value of his equity-based compensation. Moreover, in the end % of this termination payment was borne by Microsoft and the remaining % of the amount, equaling to EUR , million, by Nokia pursuant to the agreement between Nokia and Microsoft. 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 available 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. MAIN CORPORATE GOVERNANCE BODIES OF NOKIA Pursuant to the provisions of the Finnish Limited Liability 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 CEO and the Nokia Group Leadership Team, chaired by the President and CEO. General Meeting of Shareholders External Auditor Board of Directors Audit Comittee CG & Nomination Comittee Personnel Comittee Internal Audit Nokia Group Leadership Team President & CEO General Meeting of Shareholders The shareholders may exercise their decision-making power and their right to speak and ask questions at the general meeting of shareholders. Each Nokia share entitles a share- holder to one vote at general meetings of Nokia. Pursuant to the Finnish Limited Liability 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 liability 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 Limited Liability 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 Limited Liability 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. 108 N O K I A I N 2 0 1 3 RESPONSIBILITIES OF THE BOARD OF DIRECTORS The Board represents and is accountable to the shareholders of Nokia. The Board’s responsibilities are active, not pas- sive, and include the responsibility regularly to evaluate the strategic direction of Nokia, management policies and the ef- fectiveness with which management implements them. It is the responsibility of the members of the Board to act in good faith and with due care so as to exercise their business judgment on an informed basis in what they reasonably and honestly believe to be in the best interests of the company and its sharehold- ers. In discharging that obligation, the directors must inform themselves of all relevant information 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’s responsibilities also include overseeing the structure and composition of Nokia’s top management and monitoring legal compliance and the management of risks related to Nokia’s operations. In doing so, the Board may set annual ranges and/or individual limits for capital expenditures, investments and divestitures and fi nancial commitments not to be exceeded without Board approval. In risk management policies and processes the Board’s role includes risk analysis and assessment in connection with fi nan- cial and business reviews, update and decision-making pro- posals and it is an integral part of all Board deliberations. For a more detailed description of Nokia’s risk management 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 President and Chief Executive Offi cer (CEO), the Chief Financial Offi cer and the other members of the Nokia Group Leadership Team (previously, until May , Nokia Leadership Team). On September , , Nokia announced changes to its leadership as a result of the proposed Sale of the D&S Business. These changes were designed to provide an appropriate corporate governance structure during the interim period following the announcement. As Stephen Elop was agreed to transfer to Microsoft upon closing of the transaction, he left his position as President and CEO eff ective September , in order to avoid the perception of any po- tential confl ict of interest, and continued to lead the Devices & Services business as Executive Vice President, Devices & Services. For the same reason, Mr. Elop also resigned from the Nokia Board of Directors on September , . On the same day, Risto Siilasmaa assumed the role of interim CEO role of Nokia while continuing to serve in his role as Chairman of the Nokia Board of Directors, and Timo Ihamuotila assumed the role of interim President and Chairman of Nokia Leadership Team while also continuing to serve as Chief Financial Offi cer. On April , , Nokia announced its new strategy and con- sequently, changes to its leadership. Nokia Board appointed, eff ective as from May , Rajeev Suri the President and Chief Executive Offi cer of Nokia. His rights and responsibilities include those allotted to the President under Finnish law and he also chairs the Nokia Group Leadership Team. Subject to the requirements of Finnish law, the independ- ent directors of the Board confi rm the compensation and the employment conditions of the President and CEO upon the recommendation of the Personnel Committee. The compensa- tion and employment conditions of the other members of the Nokia Group Leadership Team are approved by the Personnel Committee upon the recommendation of the President and CEO. The Board has three committees: Audit Committee, Personnel Committee and Corporate Governance and Nomination Committee. These committees assist the Board in its duties pursuant to their respective committee char- ters. The Board elects and the independent directors of the Board confi rm the election of the members and Chairmen for the Board’s committees from among the Board’s independ- ent directors upon the recommendation of the Corporate Governance and Nomination Committee and based on each committee’s member qualifi cation standards. On September , Risto Siilasmaa assumed the position of interim CEO of Nokia and consequently stepped down from his position as the Chairman of the Corporate Governance and Nomination Committee. On the same day, Jouko Karvinen was elected the Chairman of the Corporate Governance and Nomination Committee. 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 results of which are discussed by the Board. Regarding , the Board conducted an evaluation process consisting of self- evaluations, peer evaluations as well as interviews. The results of the evaluation are discussed by the entire Board. ELECTION AND COMPOSITION 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 term beginning from the Annual General Meeting in which elected and expiring at the close of the following An- nual General Meeting. The Annual General Meeting convenes each year by June . The Annual General Meeting held on May , elected the following ten members to the Board of Directors: Bruce Brown, Elizabeth Doherty, Stephen Elop, Henning Kagermann, Jouko Karvinen, Helge Lund, Mårten Mickos, Elizabeth Nelson, Risto Siilasmaa and Kari Stadigh. Stephen Elop resigned from the Board of Directors eff ective as from September , , after which the Board of Directors has consisted of nine members. 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 to continue as the Chairman and Jouko Karvinen as the Vice Chairman of the Board. The Chairman has cer- tain specifi c duties as defi ned by Finnish law 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 determined that the Vice Chairman Jouko Karvinen is independent as defi ned by Finnish standards and relevant stock exchange rules. The 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 109 Board Chairman Risto Siilasmaa was determined not to be independent as defi ned by Finnish standards and the rules of the New York Stock Exchange due to his position as interim CEO from September , . Nokia does not have a policy concerning the combination or separation of the roles of the Chairman and the President and CEO, but the Board leadership structure is dependent on the company needs, shareholder value and other relevant factors applicable from time to time, respecting the highest corporate governance standards. In through September , , the roles were separate while Risto Siilasmaa was the Chairman of the Board and Stephen Elop was the President and CEO. During the interim period after the announcement of the transaction with Microsoft, the roles of Chairman and President continued to be separate, as Timo Ihamuotila assumed the role of interim President as of September , while Risto Siilasmaa as- sumed the role of interim CEO and continued as the Chairman of the Board of Directors. As part of his interim CEO role, Risto Siilasmaa took on, among others, the responsibility of leading the vision work, strategy process, work on the new company structure and managing the CEO recruitment process, while Timo Ihamuotila took on, among others, additional respon- sibilities for matters related to the closing of the Sale of D&S Business transaction. Following the new strategy announce- ment, Rajeev Suri was appointed as the President and CEO eff ective as from May , , while Risto Siilasmaa continues as the Chairman of the Board. The current members of the Board are all non-executive, except the interim CEO. The Board has determined that seven of the current eight 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 stand- ards and the rules of the New York Stock Exchange due to a his position as CEO of Eucalyptus Systems, Inc. that has a busi- ness relationship with and receives revenue from Networks. The Board Chairman Risto Siilasmaa was determined not to be independent under Finnish standards and the rules of the New York Stock Exchange due to his position as interim CEO from September , . Meetings of the Board of Directors The Board held meetings, during and if committee meetings are included, the total number of meetings was more than . Of these meetings approximately third were regularly scheduled meetings held in person, complemented by meet- ings through video or conference calls and other means. In addition, in the non-executive directors held a meeting regularly without management in connection with scheduled Board meetings. Also, the independent directors held one meeting separately in . Directors’ attendance at the Board meetings, including Committee meetings, but excluding meetings among the non-executive directors or independent directors only, was as follows in : Board meetings meetings Audit Committee Personnel Committee Nomination meetings Committee meetings Corporate Governance & Bruce Brown Elizabeth Doherty (as of May 7, 2013) Stephen Elop (until September 3, 2013) Henning Kagermann Jouko Karvinen Helge Lund Isabel Marey-Semper (until May 7, 2013) Mårten Mickos Elizabeth Nelson Dame Marjorie Scardino (until May 7, 2013) Risto Siilasmaa Kari Stadigh 91% — 78% 96% 100% 96% 91% 100% 88% 88% 100% 100% 100% 100% 85% — — 100% — 75% — 92% — — — — — 100% — 66% — — — 100% — 88% — — — 100% 100% 100% — — — 100% 100% (until September 3, 2013) — 110 N O K I A I N 2 0 1 3 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 Bruce Brown, attended Nokia’s Annual General Meeting held on May , . In addition, all the current members of the Board of Directors attended Nokia’s Extraordinary General Meeting held on November , . 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 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.company.nokia.com/en/about-us. Also, the Committee Charters of the Audit Committee, Personnel Committee and Corporate Governance and Nomination Committee are avail- able on Nokia’s website, www.company.nokia.com/en/about- us. We also have a Code of Conduct which is equally applicable to all of Nokia’s employees, directors and management. In addition, we have 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.company.nokia.com/en/about-us. 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), Elizabeth Doherty and Elizabeth Nelson. The Audit Committee is established by the Board primarily for the purpose of overseeing the accounting and fi nancial reporting processes of the company and audits of the fi nan- cial statements of the company. The Committee is responsi- ble for assisting the Board’s oversight of () the quality and integrity of the company’s fi nancial statements and related disclosure, () the statutory audit of the company’s fi nancial statements, () the external auditor’s qualifi cations and inde- pendence, () 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 assurance function, () the performance of the internal audit function, and () the company’s compliance with legal and regulatory requirements, including also the performance of its ethics and compliance program. The Committee also maintains 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 iternal 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”. In discharging its oversight role, the Audit Committee has full access to all company books, records, facilities and per- sonnel. The Committee may retain counsel, auditors or other advisors in its sole discretion, and must receive appropriate funding, as determined by the Committee, from the company for the payment of compensation to such outside advisors. The Audit Committee meets at least four times a year based upon a schedule established at the fi rst meeting following the appointment of the Committee. The Committee meets sepa- rately with the representatives of Nokia’s management, heads of the internal audit and ethics and compliance functions, and the external auditor in connection with each regularly sched- uled meeting. The head of the internal audit function has at all times a direct access to the Audit Committee, without involve- ment of management. The Audit Committee had meetings in . The attend- ance at all meetings was %. In addition, any director who wishes to, may attend Audit Committee meetings as a non- voting observer. 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 four 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 111 members of the Board: Henning Kagermann (Chairman), Bruce Brown, Helge Lund and Kari Stadigh. The primary purpose of the Personnel Committee is to oversee the personnel policies and practices of the company. It assists the Board in discharging its responsibilities relating to all compensation, including equity compensation, of the company’s executives and their terms of employment. The Committee has overall responsibility for evaluating, resolv- ing and making recommendations to the Board regarding () compensation of the company’s top executives and their em- ployment conditions, () all equity-based plans, () incentive compensation plans, policies and programs of the company aff ecting executives and () other signifi cant incentive plans. The Committee is responsible for overseeing compensation philosophy and principles and ensuring the above compen- sation programs are performance-based, designed with an intention to contribute to the long-term value sustainability of the company, properly motivate management, support overall corporate strategies and are aligned with shareholders’ inter- ests. The Committee is responsible for the review of senior management development and succession plans. The Personnel Committee had nine meetings in . The average attendance at the meetings was %. In addition, any director who wishes to, may attend Personnel Committee meetings as a non-voting observer. For further information on the activities of the Personnel Committee, see “Executive compensation philosophy, pro- grams and decision-making process”. 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. From May , until September , , the Corporate Governance and Nomination Committee consisted of the fol- lowing four members of the Board: Risto Siilasmaa (Chairman), Henning Kagermann, Jouko Karvinen and Helge Lund. After Risto Siilasmaa assumed the position of Nokia’s interim CEO and since September , , the Corporate Governance and Nomination Committee has consisted of the following three members of the Board: Jouko Karvinen (Chairman), Henning Kagermann and Helge Lund. 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 fi ve meetings in . The average attendance at the meetings was %. In addition, any director who wishes to, may attend Corporate Governance and Nomination Committee meetings as a non-voting observer. The charters of each of the committees are available on Nokia’s website, www.company.nokia.com/en/about-us. Nokia Group Leadership Team and President and CEO Under its Articles of Association, in addition to the Board of Directors, Nokia has Nokia Group Leadership Team (previously, until May , Nokia Leadership Team) that is responsible for the operative management of Nokia. The Chairman and members of the Nokia Group Leadership Team are appointed by the Board of Directors. Nokia Group Leadership Team is chaired by the Chief Executive Offi cer. Only the Chairman of the Nokia Group Leadership Team can be a member of both the Board of Directors and the Nokia Group 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 business planning and reviews, updates and decision-making proposals. Risk oversight is an integral part of all Board deliberations. The Audit Committee is responsible 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 risk manage- ment across business operations and processes with the Nokia strategy and plans approved by the Board as the baseline. 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. 112 N O K I A I N 2 0 1 3 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. The management conducts a yearly assessment of Nokia’s internal controls over fi nancial reporting in accordance with the Committee of Sponsoring Organizations (COSO) frame- work and the Control Objectives for Information and related Technology (CoBiT) of internal controls. For the year , the assessment was performed based on a top down risk as- sessment of Nokia’s fi nancial statements covering signifi cant accounts, processes and locations, corporate level controls, control activities and information systems’ general controls. As part of its assessment the management documented: ■ The corporate-level controls, which create the “tone from the top” containing Nokia values and Code of Conduct and provide discipline and structure to the decision making and ways of working. Selected items from Nokia’s operational mode and governance principles are separately document- ed as corporate level controls. ■ The control activities, which consist of policies and proce- dures to ensure the management’s directives are carried out and the related documentation is stored according to Nokia’s document retention practices and local statutory requirements. ■ The information systems’ general controls to ensure that suffi cient information technology general controls, includ- ing change management, system development, computer operations as well as access and authorizations, are in place. ■ The signifi cant processes, including six fi nancial cycles and underlying IT cycle identifi ed by Nokia to address control activities implementing a top down risk based approach. These cycles include revenue cycle, delivery cycle, invest- ment cycle, treasury cycle, human resources cycle, record to report cycle and IT cycle. Financial cycles have been de- signed 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 reporting, 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 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 113 BOARD OF DIRECTORS The members of the Board of Directors were elected at the Annual General Meeting on May , , based on the proposal of the Board’s Corporate Governance and Nomination Com- mittee. On the same date, the Chairman and Vice Chairman, as well as the Chairmen and members of the committees of the Board, were elected from among the Board members and among the independent directors of the Board, respectively. The Committee composition and the Committee Chairman of the Corporate Governance & Nomination Committee were fur- ther changed eff ective from September , as a result of the interim governance arrangements related to the proposed Sale of the D&S business. 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 cast 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. Interim CEO of Nokia Corporation from September , until May , . Board member since . Chairman since . Chairman of the Corporate Governance and Nomination Committee until September , . 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) Member of the European Roundtable of Industrialists, ERT. Member of the Tsinghua SEM Advisory Board. Member of the International Business Leaders Advisory Council for the Mayor of Beijing. Chairman of the Board of Directors of Elisa Corporation – . VICE CHAIRMAN JOUKO KARVINEN, B. 1957 CEO of Stora Enso Oyj. Board member since . Vice Chairman since . Chairman of the Audit Committee. Chairman of the Corporate Governance and Nomination Committee since September , . Master of Science (Eng.) (Tampere University of Technology). CEO of Philips Medical Systems Division – . Member of Board of Management of Royal Philips Electronics and Group Management Committee – . Holder of executive and managerial positions at ABB Group Limited from , including Executive Vice President, Head of Automation Technology Products Division and Member of Group Executive Committee – , Senior Vice President, Business Area Automation Power Products – , Vice President, Business Unit Drives Products & Systems – , Vice President, Power Electronics Division of ABB Drives Oy, Global AC Drives Feeder Factory and R&D Centre – . Member of the Board of Directors of Aktiebolaget SKF. Member of the Board of Directors of the Finnish Forest Industries Federation and the Confederation of European Paper Industries (CEPI). 114 N O K I A I N 2 0 1 3 BRUCE BROWN, B. 1958 Offi cer on Special Assignment at The Procter & Gamble Company. Board member since . Member of the Personnel Committee. M.B.A. (Marketing and Finance) (Xavier University). B.S. (Chemical Engi- neering) (Polytechnic Institute of New York University). Chief Technology Offi cer of The Procter & Gamble Company until February , . 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. ELIZABETH DOHERTY, B. 1957 Independent director. Board member since May , . Member of the Audit Committee. Bachelor of Science (University of Man- chester). FCMA (Fellow of the Chartered Institute of Management Accountants). Chief Financial Offi cer and Executive Director of Reckitt Benckiser Group plc – . Chief Financial Offi cer and Executive Director of Brambles Industries Ltd – . Group International Finance Director of Tesco plc – . Various executive and managerial positions within Unilever plc – including Senior Vice President Finance, Central and Eastern Europe; Commercial Director, Unilever Thai Holdings Ltd; Commercial Director, Frigo España SA; Supply Chain Manager, Mattessons Walls Ltd; and Internal Audit Manager. Member of the Board of Directors of Dunelm Group Plc. Member of the Board of Directors of Delhaize SA. Member of the Audit Committee and Board of Directors of SAB Miller plc – . 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 com- puter 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. Member of the Corporate Governance and Nomination Committee. MA in Business Economics (School of Economics and Business Adminis- tration, 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. MÅRTEN MICKOS, B. 1962 Chief Executive Offi cer of Eucalyptus Systems, Inc. Board member since . Master of Science (Eng.) (Helsinki Univer- sity of Technology). Senior Vice President, Database Group, Sun Microsystems – . CEO, MySQL AB – . Chairman, Vexillum Ab – . CEO, MatchON Sports Ltd. – . CEO, Intellitel Communications Ltd. – . 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 115 ELIZABETH NELSON, B. 1960 Independent Corporate Advisor. Board member since . 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 Pandora Media. 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. 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. . At the Annual General Meeting on May , , Stephen Elop, then President and CEO, was elected as a member of the Board of Directors. Mr. Elop resigned from the Board of Directors ef- fective as of September , . The following individuals served on Nokia Board until the close of the Annual General Meeting held on May , : ■ Dame Marjorie Scardino, b. . Board member – –. Vice Chairman – –. Served as a member of the Corporate Governance and Nomination Committee until May , and as a member of the Personnel Committee until May , . ■ Isabel Marey-Semper, b. . Board member – –. Served as a member of the Audit Committee until May , . ELECTION OF THE BOARD MEMBERS Proposal of the Corporate Governance and Nomination Committee for composition of the Board of Directors in 2014 On April , , the Corporate Governance and Nomination Committee announced its proposal to the Annual General Meet- ing convening on June , 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 nine and that the following current Nokia Board members be re-elected as members of the Nokia Board of Di- rectors for a term until the close of the Annual General Meeting : Bruce Brown, Elizabeth Doherty, Jouko Karvinen, Mårten Mickos, Elizabeth Nelson, Risto Siilasmaa and Kari Stadigh. In addition, the Committee proposes that Vivek Badrinath, Deputy CEO of Accor, and Dennis Strigl, retired CEO of Verizon Wireless and Author and Consultant, be elected as members 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 recommenda- tion 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 Governance and Nomination Committee and based on each committee’s member qualifi cation standards. These elections will take place at the Board’s assembly meeting following the Annual General Meeting. On April , , the Corporate Governance and Nomination Committee announced that it will propose in the assem- bly meeting of the new Board of Directors after the Annual General Meeting on June , that Risto Siilasmaa be elected as Chairman of the Board and Jouko Karvinen as Vice Chairman of the Board. 116 N O K I A I N 2 0 1 3 NOKIA GROUP LEADERSHIP TEAM ■ Kai Öistämö, formerly Executive Vice President, Corporate Development stepped down from the Nokia Leadership Team eff ective as of May , and continues to serve Nokia in an advisory role during a transition period. ■ Rajeev Suri was appointed the President and CEO of Nokia Corporation and Chairman of Nokia Group Leadership Team as from May , . ■ Samih Elhagen was appointed Executive Vice President and Chief Financial and Operating Offi cer of Networks and mem- ber of Nokia Group Leadership Team as from May , . THE MEMBERS OF THE NOKIA GROUP LEADERSHIP TEAM AS FROM MAY 1, 2014 ARE SET FORTH BELOW RAJEEV SURI, B. 1967 President and Chief Executive Offi cer of Nokia. Nokia Group Leadership Team member and Chairman since . Joined Nokia . Bachelor of Engineering in Electronics and Telecommunications, Manipal Insti- tute of Technology, Mangalore University, Karnataka, India. CEO, NSN – . Head of Services, NSN, – . Head of Asia Pacifi c, NSN, . Senior Vice President Nokia Networks Asia Pacifi c, – . Vice President, Hutchison Customer Business Team, Nokia Networks, – . General Manager, Business Development, Nokia Networks Asia Pacifi c, . Sales Director – BT, O and Hutchison Global Customers, Nokia Networks, . Director, Technology and Applications, BT Global Customer, Nokia Networks, – . Head of Global Competitive Intelligence, Nokia Networks, – . Head of Product Competence Center, Nokia Networks South Asia, – . System Marketing Manager, Cellular Transmission, Nokia Networks India, – . Head of Group Procurement, imports and special projects, Churchgate Group, Nigeria, -. National Account Manager – Transmission / Manager – Strategic Planning, ICL India (ICIM), – . Production Engineer, Calcom Electronics, . According to our Articles of Association, the Nokia Group Leadership Team (previously, until May , , Nokia Leader- ship Team) is responsible for the operative management of the company. The Chairman and members of the Nokia Group Leadership Team are appointed by the Board of Directors. Only the Chairman of the Nokia Group Leadership Team, the Presi- dent and CEO, can be a member of both the Board of Directors and the Nokia Group Leadership Team. CHANGES IN THE NOKIA LEADERSHIP TEAM During and subsequently, the following changes took place in the Nokia Leadership Team: ■ Stephen Elop stepped aside as President and CEO while continued as a member of the Nokia Leadership Team as Executive Vice President, Devices & Services, eff ective as of September , . He stepped down from the Nokia Leadership Team eff ective as of April , due to trans- ferring to Microsoft in connection with the Sale of the D&S business. ■ Timo Ihamuotila served as interim President from September , until May , while also continuing to serve as Chief Financial Offi cer. During this interim time Mr. Ihamuotila also chaired the Nokia Leadership Team. ■ Marko Ahtisaari, formerly Executive Vice President, Design stepped down from the Nokia Leadership Team eff ective as of November , and continues in transitional role until May , . ■ Jo Harlow, formerly Executive Vice President, Smart Devices stepped down from the Nokia Leadership Team eff ective as of April , due to transferring to Microsoft in acquisi- tion of substantially all of Nokia’s Devices & Services busi- ness. ■ Juha Putkiranta, formerly Executive Vice President, Operations stepped down from the Nokia Leadership Team eff ective as of April , due to transferring to Microsoft in connection with the Sale of the D&S business. ■ Timo Toikkanen, formerly Executive Vice President, Mobile Phones stepped down from the Nokia Leadership Team ef- fective as of April , due to transferring to Microsoft in connection with the Sale of the D&S business. ■ Chris Weber, formerly Executive Vice President, Sales and Marketing stepped down from the Nokia Leadership Team eff ective as of April , due to transferring to Microsoft in connection with the Sale of the D&S business. ■ Louise Pentland, formerly Executive Vice President, Chief Legal Offi cer stepped down from the Nokia Leadership Team eff ective as of May , and continues to serve Nokia in an advisory role during a transition period. ■ Juha Äkräs, formerly Executive Vice President, Human Resources stepped down from the Nokia Leadership Team eff ective as of May , and continues to serve Nokia in an advisory role during a transition period. 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 117 SAMIH ELHAGE, B. 1961 Executive Vice President and Chief Finan- cial and Operating Offi cer of Networks. Nokia Group Leadership Team member since . Joined NSN in . Bachelor of Electrical Engineering (telecommunications), University of Ottawa, Canada. Bachelor of Economics, University of Ottawa, Canada. Master of Electrical Engineer- ing (telecommunications), École Polytechnique de Montréal, Canada. Chief Financial Offi cer, NSN, – . Chief Operating Offi cer, NSN, . Senior Advisor, leading private equity and global management consulting fi rms, – .President, Carrier Voice over IP and Applications Solutions (CVAS) divi- sion, Nortel, – . Leadership positions in Operations, Business Transformation, Broadband Networks, Optical Networks, and Core Data Networks, Nortel, – . Multiple leadership and management roles related to Network Development at Bell Canada, – . MICHAEL HALBHERR, B. 1964 CEO of HERE. Nokia Group 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 – . TIMO IHAMUOTILA, B. 1966 Group Chief Financial Offi cer. Interim President from September , until May , . Nokia Group Leadership Team member since . With Nokia – , rejoined . Master of Science (Economics) (Helsinki School of Economics). Licentiate of Science (Finance) (Helsinki School of Economics). Executive Vice President, Sales, Markets, Nokia – . Executive Vice President, Sales and Portfolio Management, Mobile Phones, Nokia . Senior Vice President, CDMA Business Unit, Mobile Phones, Nokia – . Vice President, Finance, Corporate Treasurer, Nokia – . Director, Corporate Finance, Nokia – . Vice President of Nordic 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 Central Chamber of Commerce of Finland. HENRY TIRRI, B. 1956 Executive Vice President and acting Head of Technologies. Nokia Group 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. 118 N O K I A I N 2 0 1 3 COMPENSATION OF THE BOARD OF DIRECTORS AND THE NOKIA GROUP LEADERSHIP TEAM The following section explains our compensation policies and details for both cash- and equity-based compensation as it re- lates to the Board of Directors and the Nokia Leadership Team which includes the six named executive offi cers. As announced by Nokia on April , , the Nokia Leader- ship Team is renamed as the Nokia Group Leadership Team ef- fective as from May , . We generally use the term “Nokia Leadership Team” when discussing the management and compensations in and, where applicable, use the name “Nokia Group Leadership Team” in other connections. The terms “Nokia Leadership Team” and “Nokia Group Leadership Team” can be used interchangeably in this annual report. BOARD OF DIRECTORS The table below outlines the annual compensation of the members of the Board of Directors for services on the Board and its committees, as resolved at the respective Annual Gen- eral Meetings in , and . Position, EUR 2013 2012 2011 Chairman 440 000 440 000 440 000 Vice Chairman Member Chairman of Audit Committee Member of Audit Committee 150 000 130 000 150 000 150 000 130 000 130 000 25 000 25 000 25 000 10 000 10 000 10 000 Chairman of Personnel Committee 25 000 Total 25 000 1 570 000 1, 2 1 700 000 1 1 700 000 1 25 000 Stephen Elop stepped down from his position as President and CEO and resigned from the Board of Directors effective September , . He did not receive compensation for his service as a member of the Board. The changes in the aggregate Board compensation year on year are due to changes in the number of Board members. The compensation paid for services rendered remained the same. It is Nokia’s policy that directors’ compensation consists only of an annual fee and no additional fees are paid for meet- ing attendance. Approximately % of the director compen- sation is paid in the form of Nokia shares that are purchased from the market. The remaining compensation is paid in cash, which is typically used to cover taxes arising from the compen- sation. The current policy is that the directors are expected to retain all Nokia shares received as 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). Non- executive directors do not participate in any of Nokia’s equity programs or receive any other form of variable compensation for their duties as Board members. Finally, the President and CEO does not receive compensation for his services as a Board member. The former President and CEO, Stephen Elop, who stepped down from his position as President and CEO and resigned from the Board of Directors eff ective September , , did not receive compensation for his services as a Board member in , and . The total compensation of the former President and CEO is described below in “Summary compensation table ”. The compensation of the Board of Directors is resolved an- nually by our shareholders at our Annual General Meeting. It is resolved by a majority vote of the shareholders represented at the meeting, upon the proposal of the Corporate Governance and Nomination Committee of the Board of Directors. The compensation is set as of the date of the Annual General Meeting until the close of the next Annual General Meeting. When preparing the proposal for Board compensation for shareholders’ approval at the Annual General Meeting, it is the policy of the Corporate Governance and Nomination Committee to review and compare total compensation levels and their criteria paid at other global peer companies with net sales and complexity of business comparable to that of Nokia. The Corporate Governance and Nomination Committee’s aim is to ensure that Nokia has an eff ective Board of international professionals representing a diverse mix of skills and experi- ence. A competitive Board compensation contributes to the achievement of this target. Compensation of the Board of Directors in 2013 For the year ended December , , the aggregate amount of compensation 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 outlines the total annual compensation paid to the members of the Board of Directors in , as re- solved by shareholders at the Annual General Meeting on May , . For more details on Nokia shares held by the members of the Board of Directors, please see “Share Ownership of the Board of Directors”. Compen- sation earned or paid in cash EUR 1 Year Total EUR 2013 440 000 440 000 2013 175 000 175 000 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 — — 130 000 130 000 140 000 140 000 — — 155 000 155 000 130 000 130 000 — — 130 000 130 000 140 000 140 000 130 000 130 000 1 570 000 1 570 000 Risto Siilasmaa, Chairman 2 Jouko Karvinen, Vice Chairman as of May 7, 2013 3 Marjorie Scardino, Vice Chairman until May 7, 2013 4 Bruce Brown Elizabeth Doherty 5 Stephen Elop, Board member until September 3, 2013 6 Henning Kagermann 7 Helge Lund Isabel Marey-Semper, Board member until May 7, 2013 4 Mårten Mickos Elizabeth Nelson 8 Kari Stadigh Total 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 119 Approximately % of each Board member’s annual compensation is paid in Nokia shares purchased from the market and the remaining approxi- mately % is paid in cash. The members of the Board do not participate in any of Nokia’s equity programs or receive any other form of variable compensation for their duties as Board members. Represents compensation paid to Risto Siilasmaa for services as the Chairman of the Board. This table does not include compensation paid to Mr. Siilasmaa for his services as the interim CEO. For the compensation paid for his services as the interim CEO. For the compensation paid for his services as the interim CEO, please see “Summary compensation table”. Represents compensation paid to Jouko Karvinen, consisting of EUR for services as Vice Chairman of the Board and EUR for service as the Chairman of the Audit Committee. Marjorie Scardino and Isabel Marey-Semper served on the Board until the close of the Annual General Meeting in . They were not paid any compensation during fiscal year , but received their compensation for the term until the close of the Annual General Meeting in in fiscal year . For their compensation in , see Note to our consolidated financial statements. Represents compensation paid to Elizabeth Doherty, consisting of EUR for services as a member of the Board and EUR for service as a member of the Audit Committee. Stephen Elop did not receive compensation for his services as a member of the Board. This table does not include compensation paid to Mr. Elop for his services as the President and CEO. For compensation paid for his service as the President and CEO, please see “Summary compensation table ”. Mr. Elop stepped down from his position as President and CEO and resigned from the Board of Directors effective September , . Represents compensation paid to Henning Kagermann, consisting of EUR for services as a member of the Board and EUR for service as the Chairman of the Personnel Committee. Represents compensation paid to Elizabeth Nelson, consisting of EUR for services 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 compensation to the Board of Directors in 2014 On April , , the Corporate Governance and Nomination Committee of the Board announced its proposal to the Annual General Meeting convening on June , regarding the re- muneration 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 six years and be as follows: EUR for the Chairman, EUR for the Vice Chairman and EUR for each member; for the Chairman of the Audit Com- mittee and the Chairman of the Personnel Committee an ad- ditional 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, approximately % of the remuneration be paid in Nokia shares purchased from the market or alternatively by using own shares held by the company, which shares shall be retained until the end of a director’s Board membership in line with the current 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 remu- neration. EXECUTIVE COMPENSATION The sections below describe our executive compensation philosophy, the design of our compensation programs and the factors considered during the decision-making process. One of the underlying principles of our compensation philosophy and our compensation program design is that a signifi cant portion of an executive’s total compensation is tied to the company’s performance and be aligned with the value delivered to shareholders. Of the total compensation for Stephen Elop, the President and CEO until September , , % of his compensation was tied to the company’s performance. The amount of compensation tied to the company’s performance for the other members of the Nokia Leadership Team for ranged from % to %. Our programs are designed so that this portion of compensation is earned and delivered only when results warrant. In , we acquired the full ownership of Networks (previously called Nokia Solutions and Networks), and the three business continuing with Nokia after the Sale of D&S Business were profi table. However, we did not achieve all of our targets due to losses sustained in the Devices & Services business. As a result, some members of the Nokia Leadership Team did not realize signifi cant elements of their total compensation in . There were no payments under the vested Performance Share Plan to any Nokia Leadership Team members and some did not receive annual short-term variable incentive. Executive compensation philosophy, programs and decision-making process The basic principles of our executive compensation philosophy is to attract, retain and motivate talented executive offi cers globally with the right mix of skills and capabilities to drive Nokia’s success in an extremely complex and rapidly evolv- ing mobile communications industry. To achieve this, we have developed an overall compensation framework that provides competitive base pay rates combined with short- and long- term incentives or compensation that are intended to result in a competitive total compensation package. Our executive compensation programs are designed to support Nokia in the execution of the corporate strategy. Specifi cally, our programs are designed to: ■ incorporate specifi c performance 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 named executive offi cers with those of the shareholders through long-term equity-based incentives. The competitiveness of Nokia’s executive compensation program is one of several key factors that the Personnel Committee of the Board considers in its determination of compensation for the Nokia Group Leadership Team, which includes the named executive offi cers. The Personnel Committee compares, on an annual basis, Nokia’s compensa- tion practices, base salaries and total compensation, including short- and long-term incentives against those of other rel- 120 N O K I A I N 2 0 1 3 evant companies with the same or similar revenue, size, global reach and complexity that we believe we compete against for executive talent. For , the peer group included companies in high technology, telecommunications and Internet ser- vices 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 to keep abreast of changes in the business environ- ment 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 compensation levels and programs. Management provides the consultant with information regarding Nokia’s compensa- tion levels and programs in preparation for meeting with the Committee. The Committee has reviewed and established that the consultant 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 Nokia Group Leadership Team’s compensation on an annual basis, and from time to time during the year when special needs arise. Without management present, the Personnel Committee evaluates the performance of the President and CEO against previously established goals and objectives, recommends corporate goals and objectives for the coming year and proposes to the Board the compensation 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. Upon the recommendation of the President and CEO, the Personnel Committee also approves all compensation, in- cluding long-term equity incentives and goals and objectives relevant to compensation for all members of the Nokia Group Leadership Team (other than the President and CEO) and other executive level direct reports to the President and CEO. Additionally, the Personnel Committee approves annual short- term incentive payments and reviews the results of perfor- mance evaluation of Nokia Group Leadership Team members (excluding the President and CEO) and other executive level direct reports to the President and CEO. The Personnel Committee considers the following factors, among others, when determining the compensation of the Nokia Group Leadership Team or recommending the compen- sation of the President and CEO to the Board: ■ the compensation levels for similar positions (in terms of scope of position, revenues, number of employees, global responsibility and reporting relationships) in relevant com- parison companies; ■ the performance demonstrated by the executive offi cer during the last year, which is evaluated at the end of the year against individual goals that are aligned to Nokia-level fi nan- cial 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 with 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 were 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 . In a full risk assessment will be conducted based on Nokia’s new strategy. Components of executive compensation Our compensation program for Nokia Group Leadership Team members includes annual cash compensation in the form of a base salary and short-term variable cash incentives, as well as long-term equity-based incentives in the form of performance shares, stock options and restricted shares. ANNUAL CASH COMPENSATION Base salaries are targeted at globally competitive market lev- els. The Personnel Committee evaluates and weighs as a whole the appropriate base salary levels based on both our European and US peer companies. Short-term cash incentives are an important element of our variable compensation programs and are tied directly to Nokia-level fi nancial and strategic goals that are shared by the Nokia Group Leadership Team. The annual short-term variable cash incentive is expressed as a percentage of Nokia Group Leadership Team member’s annual base salary. These award and measurement criteria are presented in the table below. Annual short-term variable incentives are normally deter- mined for the Nokia Group Leadership Team based on their performance as a team. We began with a team scorecard made up of Nokia fi nancial and strategic targets. As a result 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 G R O U P L E A D E R S H I P T E A M 121 of the Sale of D&S Business to Microsoft, in the second half of , the team scorecard was modifi ed to include individual targets related to the Sale of D&S Business for some Nokia Leadership Team members. Some members of the Nokia Leadership Team also have an objective based on relative Total Shareholder Return. For , the payment with respect to relative Total Shareholder Return is based on the Personnel Committee’s assessment of Nokia’s total shareholder return compared to key peer group companies that are selected by the Personnel Committee in the high technology, Internet ser- vices and telecommunications industries and relevant market indices over one, three and fi ve year periods. Annual short-term variable incentive goals and underlying targets require the full Board’s approval for the President and CEO and the Personnel Committee’s approval for the other members of the Nokia Group Leadership Team. The below table outlines the measurement criteria that were established for the President and CEO and members of the Nokia Leadership Team for the year . The annual short- term incentive payout is based on performance relative to targets set for each measurement criteria listed in the table. Short-term incentive as a % of annual base salary in Position President and CEO Nokia Leadership Team Minimum performance Target performance Maximum performance Measurement criteria 0% 0% 125% 250% 75% 150% 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); and Individual objectives (includes targets relating to the transition of the Devices & Services business to Microsoft) Certain Nokia Leadership Team members (in addition to above) 0% 25% 50% Total shareholder return 2 (comparison 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. Annual short-term variable incentive compensation under the Nokia short-term cash incentive program is paid once per year based on pre-determined Nokia performance criteria assessed as of December . To determine annual short-term variable incentive pay-out under the Nokia short-term cash incentive program, the Personnel Committee approved incen- tive goals are evaluated against pre-defi ned achievement criteria. The resulting scores are then calculated against each executives individual incentive target to ascertain an individu- al 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 per- cent and amount is presented to the Personnel Committee for approval. In the event the achievement criteria is not met, the actual short-term variable 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 annual short term incentive plan pay-out was in accordance with achievement against the in- centive criteria. Other short-term variable incentive payments were made to Nokia Leadership Team members for specifi c achievements during the year. For more information on the actual cash compensation paid in to our named executive offi cers, please see “Summary compensation table ”. made with key competitors in the high technology, telecommunications and Internet services industries over one-, three- and fi ve-year periods) Total Shareholder Return reflects the change in Nokia’s share price during an established time period, including the amount of dividends paid, di- vided by Nokia’s share price at the beginning of the period. The calculation is conducted in the same manner for each company in the peer group. Only some members of the Nokia Leadership Team are eligible for the additional Total Shareholder Return element. Long-term equity-based incentives In , long-term equity-based incentives in the form of performance shares, stock options and restricted shares were used to align the Nokia Leadership Team members’ interests with shareholders’ interests, reward for long-term fi nancial performance and encourage retention, while also considering evolving regulatory requirements and recommendations and changing economic conditions. These awards were determined on the basis of the factors discussed above in “Executive Com- pensation Philosophy, Programs and Decision-making Process”, including the comparison of a Nokia Leadership Team mem- ber’s overall compensation with that of other similarly-situat- ed executives in the relevant market and the competitiveness of the executive’s compensation package in that market. In , performance shares would have settled as Nokia shares if at least one of the pre-determined threshold performance lev- els, tied to Nokia’s fi nancial performance, had been achieved by the end of the performance period. The value the executive would have received was dependent on Nokia’s share price. Stock options were granted with the purpose of creating value for the Nokia Leadership Team member, 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 has also been intended to focus executives on share price appre- ciation, thus aligning the interests of the executives with those 122 N O K I A I N 2 0 1 3 of shareholders. Restricted shares were used primarily for long-term retention purposes for executives deemed critical for the future success of Nokia, as well as to support attrac- tion of promising external talent in a competitive environment in which Nokia competes, namely in the United States where restricted shares are commonly used. Any shares granted are subject to the share ownership guidelines as explained below. All equity-based incentives 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 Group Leader- ship Team members under Nokia equity plans in case of a fi nancial restatement caused by an act of fraud or intentional misconduct. This policy applies to equity grants made to Nokia Group Leadership Team members after January , . Information on the actual equity-based incentives granted to the members of our Nokia Group Leadership Team in is included in “Share ownership”. Share ownership guidelines for executive management One of the main goals of our long-term equity-based incentive program is to focus executives on promoting the long-term value sustainability of the company and building value for shareholders on a long-term basis. In addition to granting eq- uity, we encourage stock ownership by our top executives and have stock ownership commitment guidelines with minimum recommendations tied to annual base salaries. For the Presi- dent and CEO, the recommended minimum investment in Nokia shares corresponds to three times his annual base salary and for members of the Nokia Group Leadership Team two times annual base salary. To meet this requirement, all members of the Nokia Group 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 Group Leadership Team are considered primary insiders. Under the policy, the holdings of Nokia securities by the primary insiders are public information and are available on our website and at Euroclear Finland Ltd. 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 four-week “closed-window” period immediately preceding the release of our interim and annual results includ- ing the day of the release. Nokia also sets trading restrictions based on participation in projects. We update our insider trading policy from time to time and provide training to ensure 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. Executive compensation SERVICE CONTRACT OF STEPHEN ELOP DUE TO HIS PRESIDENT AND CEO ROLE Stephen Elop’s employment contract, dated Septem- ber , , covered his position as President and CEO. The agreement provided for an annually adjusted base salary (EUR for ) and an annual management incentive target under the Nokia short-term cash incentive program of % of annual base salary. Mr. Elop was entitled to the ben- efi ts in line with our policies applicable to the Nokia Leadership Team, however, some of his benefi ts were being provided on a tax-assisted basis. Mr. Elop’s employment contract was amended eff ective as of September , , as a result of entering into a transac- tion with Microsoft for the Sale of D&S Business. Under the terms of the amendment, Mr. Elop resigned from his position as President and CEO as of September , and assumed the role of Executive Vice President, Devices & Services. He also resigned from his position as a member of Board of Directors as of the same date. After the closing of the Sale of D&S Business, he transferred to Microsoft as agreed with Microsoft. In accordance with his service contract he received a severance payment of EUR . million in total. This amount included: base salary and management incentive EUR . mil- lion and value of equity awards EUR . million. The amount of the equity awards was based on the Nokia closing share price of EUR . per share at NASDAQ OMX Helsinki on April , . Pursuant to the terms of the purchase agreement with Microsoft entered into in connection with the Sale of D&S Business, % of the total severance payment was borne by Microsoft and the remaining % of the severance amount (EUR . million) was borne by Nokia. Mr. Elop is subject to a covenant restricting him from work- ing for specifi ed competitors of Nokia for months following the termination of his contract with Nokia. Nokia waived his competition restriction with respect to Microsoft only in con- nection with amending his service contract in September . For information about the compensation and benefi ts received by Mr. Elop during , see “Summary compensation table ” and “Equity grants in ”. Interim governance On September , , Nokia announced changes to its leader- ship as a result of the proposed Sale of D&S Business to Micro- soft. These changes were to ensure appropriate corporate governance structure during the interim period following the announcement until the consummation of the transaction. In order to avoid the perception of any potential confl ict of inter- est, Stephen Elop, who agreed to transfer to Microsoft upon the closing of the transaction, continued to lead the Devices & Services business, but resigned from his position as President and CEO and member of the Board of Directors as of Septem- ber , . On the same date, Risto Siilasmaa assumed the role of interim CEO of Nokia while continuing to serve in his role as Chairman of the Nokia Board of Directors, and Timo Ihamuotila assumed the role of interim President and Chairman of the Nokia Leadership Team while also continuing to serve as Chief Financial Offi cer. C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A G R O U P L E A D E R S H I P T E A M 123 The above mentioned interim roles ended eff ective May , , as a result of Nokia announcing its new strategy and changes to its leadership. Nokia Board appointed, eff ective from May , Rajeev Suri as the President and CEO of Nokia. He also chairs the Nokia Group Leadership Team. ADDITIONAL COMPENSATION FOR CHAIRMAN OF THE BOARD RISTO SIILASMAA DUE TO HIS INTERIM CEO ROLE As a result of entering into the Sale of D&S Business, Risto Siilasmaa assumed additional responsibilities as interim CEO from September , , through April , in addition to his role as the Chairman of the Board of Nokia. As compensa- tion for these additional responsibilities, he received a total amount of EUR . In order to reinforce the alignment of his interests with those of shareholders, % of this amount was delivered to him in Nokia shares bought on the open mar- ket. The remaining % was paid in cash, most of which was used to cover the estimated associated taxes. In recognition of Mr. Siilasmaa performance in his role as interim CEO, the Board of Directors approved on January , , an additional award of Nokia shares (gross, i.e. deducted by applicable taxes) to be purchased for Mr. Siilasmaa from the market dur- ing an open insider window period. Mr. Siilasmaa is to retain the net amount of shares delivered to him as stipulated for the Board members. EXECUTIVE AGREEMENT OF TIMO IHAMUOTILA DUE TO HIS INTERIM PRESIDENT ROLE Mr. Ihamuotila’s executive agreement covers his position as Executive Vice President and Chief Financial Offi cer. In addition to his responsibilities as Chief Financial Offi cer of Nokia, Timo Ihamuotila assumed additional responsibilities as interim President and Chairman of the Nokia Leadership Team, from September , , through April , . In recognition of these additional responsibilities, Mr. Ihamuotila received EUR paid in fi ve monthly installments of EUR each commencing in October . In addition, Mr. Ihamuotila received an equity grant with an approximate aggregate grant date value of EUR in the form of stock options and re- stricted shares. These grants are subject to the plans’ stand- ard terms and conditions and vesting schedules as described in the Equity-based incentive programs section below. No changes were made to his compensation as a result of his additional responsibilities as Interim President, other than as described above. His annual base salary for was EUR . His annual management incentive target under the Nokia short-term cash incentive program is % of annual base salary. He is eligible to participate in Nokia’s long-term equity-based incentive programs according to Nokia policies and guidelines and as determined by the Board of Directors. Mr. Ihamuotila is also entitled to benefi ts in line with our poli- cies applicable to the Nokia Group Leadership Team. In case of termination by Nokia for reasons other than cause, Mr. Ihamuotila is entitled to a severance payment of up to months of compensation inclusive of annual base salary, annual management incentive at target and benefi ts. Additionally, a pro-rated portion of all unvested performance shares, restricted shares and stock options would have been treated as vested until March , . On March , , the Personnel Committee approved an amendment to Mr. Ihamuotila’s executive agreement which replaced the above described pro-rated vesting of unvested equity with a full acceleration of unvested equity incentive grants awarded as at March , . For equity grants awarded after March , , neither the pro-rated vesting nor accelerated vesting treatment will apply. In case of termination by Nokia for cause, Mr. Ihamuotila will not be entitled to any notice period or additional compensa- tion and all his equity will be forfeited. In case of termination by Mr. Ihamuotila for cause, he is entitled to a severance payment equivalent of up to months compensation inclu- sive of annual base salary, annual management incentive at target and benefi ts. In case of termination by Mr. Ihamuotila, the notice period is six months and he is entitled to a payment for such notice period inclusive of annual base salary, annual management incentive at target and benefi ts for six months. All unvested equity will be forfeited. Mr. Ihamuotila is subject to a -month non-competition obligation after termination of his contract. Unless the con- tract is terminated by Nokia for cause, Mr. Ihamuotila may be entitled to compensation during the non-competition period or a part of it. Such compensation amounts to the annual base salary and management incentive at target for the respective period during which no severance payment is paid. In the event of a change of control of Nokia, Mr. Ihamuotila will be treated in accordance with his change of control agree- ment as described below in “Employment arrangements with the Nokia Group Leadership Team”. SERVICE CONTRACT OF PRESIDENT AND CEO RAJEEV SURI, EFFECTIVE FROM MAY 1, 2014 On April , the Nokia Board of Directors resolved to appoint Mr. Rajeev Suri as Nokia’s President and CEO eff ec- tive from May , . Pursuant to a new service contract Mr. Suri’s annual base salary, which is subject to annual review by the Board of Directors and confi rmation by the independ- ent members of the Board, is EUR and his incentive target under the Nokia short-term cash incentive plan is % of annual base salary. Mr. Suri is entitled to the customary ben- efi ts in line with our policies applicable to the senior executives, however, some of the benefi ts are being provided to him on a tax assisted basis. Mr. Suri is also eligible to participate in Nokia Group’s long-term equity based compensation programs in accordance with Nokia policies and guidelines and as deter- mined by the Board of Directors. In , Mr. Suri will receive an annual Nokia equity grant of Peformance Shares plus a one-time discretionary grant of Performance Shares. Mr. Suri’s service contract may be terminated as follows: ■ Termination by Nokia for reasons other than cause. In the event of a termination by Nokia for reasons other than cause, Mr. Suri is entitled to a severance payment equaling up to months of compensation (including annual base sal- ary, benefi ts, and target incentive), and his unvested equity awards will be forfeited. ■ Termination by Nokia for cause. In the event of a termina- tion by Nokia for cause, Mr. Suri is entitled to no additional compensation and all his unvested equity awards will be forfeited. 124 N O K I A I N 2 0 1 3 ■ Termination by Mr. Suri for any reason. Mr. Suri may termi- nate his service contract at any time with six months’ prior notice. Nokia may choose to pay a lump sum payment in lieu of his service during the notice period or ask Mr. Suri to con- tinue his service through all or part of this notice period. In either event, Mr. Suri is entitled to six months compensation (including annual base salary, benefi ts, and target incentive), and his unvested equity awards will be forfeited. ■ Termination by Mr. Suri for Nokia’s material breach of the service contract. In the event that Mr. Suri terminates his service contract based on a fi nal arbitration award dem- onstrating Nokia’s material breach of the service contract, he is entitled to a severance payment equaling to up to months of compensation (including annual base salary, benefi ts, and target incentive), and all his unvested equity awards will be forfeited. ownership of NSN. The plan had two objectives: () increasing the value of NSN and () creating incentives relating to an exit option for its parent companies. With the signifi cantly im- proved performance of NSN, the fi rst objective has been met. The second objective has not occurred and given the change in Nokia’s strategy, the likelihood of a sale or IPO has reduced. Accordingly, the value of the payouts under the NSN Equity Incentive Plan are expected to be reduced by %. The actual payments, if any, under the NSN Equity Incentive Plan will be determined based on the value of the Networks business and could ultimately decline to zero if the value of the business falls below a certain level. There is also a cap that limits the upside for all plan participants, and if an IPO or sale has not occurred, the maximum total payment to Mr. Suri pur- suant to the plan would be limited to EUR . million. In the unlikely event of an IPO or exit event the value of the options could exceed this maximum. ■ Termination based on specifi ed events. Mr. Suri’s service These equity awards were originally intended to vest upon contract includes special severance provisions on a termina- tion following change of control events. These change of control provisions are based on a double trigger structure, which means that both a change of control event and the termination of the individual’s employment within a defi ned period of time must take place for any change of control based severance payment to become due. More specifi - cally, if a change of control event, as defi ned in the service contract, has occurred, and Mr. Suri’s service with the com- pany is terminated either by Nokia or its successor without cause, or by Mr. Suri for “good reason”, in either case within months from such change of control event, Mr. Suri will be entitled to a severance payment equaling to up to months of compensation (including annual base salary, benefi ts, and target incentive) and cash payment(or pay- ments) for the pxro-rated value of his outstanding unvested equity awards, including equity awards under the NSN Equity Incentive Plan, restricted shares, performance shares and stock options (if any), payable pursuant to the terms of the service contract. “Good reasons” referred to above include amaterial reduction of Mr. Suri’s compensation and a mate- rial reduction of his duties and responsibilities, as defi nedin the service contract and as determined by the Board of Directors. In addition, the service contract defi nes a specifi c, limited termination event that applies until June , . Upon this event, if. Mr. Suri’s service with Nokia is terminated as a result of the circumstances specifi ed in the service contract, he is entitled to, in addition to normal severance payment payable upon his termination by Nokia for reasons other than cause, to a pro-rated value of unvested equity awards under the NSN Equity Incentive Plan, provided that the termination of his service takes place within six months from the defi ned termi- nation event (and on or before June , ). Subject to this limited time treatment of unvested equity awards under the NSN Executive Incentive Plan, all of Mr. Suri’s other unvested equity will be forfeited. Subject to his continued employment, Mr. Suri is also expected to receive payments in the future pursuant to op- tions granted under the NSN Equity Incentive Plan. This plan was established in prior to Nokia’s acquisition of full the sale or IPO of NSN, or upon the fourth anniversary of the grant date. Given the change in Nokia’s strategy and the signifi cant improvement in the performance of NSN, the Nokia Board of Directors has determined that % of the options will vest on the third anniversary of grant (June , ) and % will continue to vest on the fourth anniversary of grant (June , ) Mr. Suri is subject to a -month non-competition obliga- tion that applies after the termination of the service contract or the date when he is released from his obligations and responsibilities, whichever occurs earlier. Executive arrangements with the Leadership Team Nokia has entered into executive agreements with all members of the Nokia Leadership Team (valid through April , ) and the Nokia Group Leadership Team (valid as from May , ). The below description of employment arrangements refers to Nokia Group Leadership Team but is valid for both Nokia Leadership Team and Nokia Group Leadership Team, unless otherwise specifi cally mentioned. The contracts of Mr. Elop, Mr. Ihamuotila and Mr. Suri are described above. Under the terms of their executive agreements with Nokia, Nokia Group Leadership Team members are entitled to a sev- erance payment of up to months of compensation inclusive of annual base salary, management incentive at target under the Nokia short-term cash incentive program and benefi ts. In case of termination by a Nokia Group Leadership Team member, the notice period is six months and such member is entitled to a payment for such notice period inclusive of an- nual base salary, annual management incentive at target and benefi ts. All equity will be forfeited. In case of termination by Nokia for cause, Nokia Group Leadership Team member will not be entitled to any notice period or additional compensa- tion and all equity will be forfeited. In case of termination by the Nokia Group Leadership Team member for cause, such member is entitled to a severance payment equivalent of up to months’ compensation inclusive of annual base salary, annual management incentive at target and benefi ts. Nokia Group Leadership Team members are subject to a -month non-competition obligation after termination of the contract. Unless the contract is terminated by Nokia for cause, the 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 G R O U P L E A D E R S H I P T E A M 125 ACTUAL COMPENSATION FOR THE MEMBERS OF THE NOKIA LEADERSHIP TEAM IN 2013 At December , , The Nokia Leadership Team consisted of members. Changes in the composition of the Nokia Leader- ship Team during and subsequently are explained above in “Nokia Group Leadership Team”. 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”. Aggregate cash compensation to the Nokia Leadership Team for , Number of members on December 31, 2013 Base salaries EUR Cash incentive payments EUR 11 6 305 269 2 855 579 Year 2013 Includes base salary and short-term cash incentives paid or payable by Nokia for fiscal year . The short-term cash incentives include annual short-term cash incentives that are paid as a percentage of annual base salary and/or variable spot compensation paid for specific achievements during the year. Includes Marko Ahtisaari for the period until October , EUR for annual base salary as a Nokia Leadership Team member and zero short-term cash incentive payment. Long-term equity-based incentives granted in Nokia Leadership Team 3, 4 Total number of Total participants Performance shares at threshold 2 1 537 500 6 696 241 Stock options 5 150 000 8 334 200 Restricted shares 1 970 000 12 347 931 3 580 140 3 600 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 deter- mined 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 Marko Ahtisaari for the period until October , . For the Nokia Leadership Team member whose employment terminated during , the long-term equity-based Incentives were forfeited follow- ing termination of employment in accordance with plan rules. Nokia Group Leadership Team member may be entitled to compensation during the non-competition period or a part of it. Such compensation amounts to the annual base salary and annual management incentive at target for the respective period during which no severance payment is paid. The Nokia Group Leadership Team members have change of control agreements with Nokia, which serve as an addendum to their executive agreements. These change of control agree- ments are based on a double trigger structure, which means that both the change of control event and the termination of the individual’s employment must take place for any change of control based severance payment to materialize. More specifi - cally, if a change of control event, as defi ned in the agreement, has occurred in the company, and the individual’s employment with the company is terminated either by Nokia or its succes- sor without cause, or by the individual for “good reason” (for example, material reduction of duties and responsibilities), in either case within months from such change of control event, the individual will be entitled to his or her notice period compensation (including base salary, benefi ts, and target incentive) and cash payment (or payments) for the pro-rated value of the individual’s outstanding unvested equity, includ- ing restricted shares, performance shares, stock options and equity awards under NSN Equity Incentive Plan, payable pursu- ant to the terms of the agreement. The Board of Directors has the full discretion to terminate or amend the change of control agreements at any time. PENSION ARRANGEMENTS FOR THE MEMBERS OF THE NOKIA GROUP LEADERSHIP TEAM The members of the Nokia Group Leadership Team participate in the local retirement programs applicable to employees in the country where they reside. This applies also to Mr. Elop, the former President and CEO, and Mr. Suri, the President and CEO as from May , , who are not entitled to any extraordinary pension arrangements. Executives in Finland, including Mr. Elop and Mr. Suri participate in the Finnish TyEL pension sys- tem, 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 ni- tion of earnings, although gains realized from equity are not. Retirement benefi ts are available from age to , according to an increasing scale. The Nokia Group Leadership Team mem- bers in the United States participate in Nokia’s US Retirement Savings and Investment Plan. Under this (k) plan, partici- pants 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 Group Leadership Team members in Germany participate in the Nokia German Pension Plan that is % company funded. Contributions are based on pensionable earnings, the pension table and retirement age. For the Nokia Group 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 employ- er. These contributions are held within the UK Pension Scheme and are invested in funds selected by the member. 126 N O K I A I N 2 0 1 3 A signifi cant portion of equity grants presented in the below Summary compensation table to the named executive offi cers are tied to the performance of the company and aligned with the value delivered to shareholders. Therefore, the amounts shown are not representative of the amounts that will actually be earned and paid out to each named executive offi cer (but rather the accounting grant date fair value of each applica- ble grant, which is required to be reported in the Summary compensation table). In fact, for each of the years reported, the compensation “realized” by each named executive of- fi cer is lower than the amount required to be reported in the Summary compensation table. Summary compensation table Name and principal position 1 Year Salary EUR Variable compen- sation 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 Total EUR Stephen Elop, EVP Devices & Services, former President and CEO Risto Siilasmaa Chairman of the Board of Directors, Interim CEO Timo Ihamuotila EVP, Chief Financial Offi cer, Interim President Louise Pentland 8 EVP, Chief Legal Offi cer Michael Halbherr EVP, HERE Jo Harlow 8 EVP, Smart Devices 1 105 171 2013 2012 1 079 500 2011 1 020 000 769 217 0 473 070 5 385 660 2 631 400 3 752 396 2 197 691 497 350 539 443 2013 0 0 0 75 554 56 776 73 956 121 765 5 69 395 2 085 948 9 655 059 4 334 421 7 944 813 0 500 000 6 500 000 2013 2012 2011 2013 2012 2013 2012 2013 2012 578 899 628 909 57 750 570 690 173 924 550 000 1 136 530 539 300 479 493 441 499 466 653 476 027 46 321 440 375 206 426 44 038 411 531 533 436 555 296 0 55 494 905 120 407 730 990 280 539 300 990 280 539 300 547 748 106 575 185 448 427 329 81 708 451 748 106 575 451 748 106 575 160 630 262 183 150 311 314 066 7 40 146 8 743 3 366 782 1 576 644 1 547 919 9 324 9, 10 2 259 299 1 025 173 22 761 89 849 11 61 477 62 415 12 58 732 2 178 678 1 162 921 2 037 879 1 315 397 The positions set forth in this table are the positions of the named execu- tive officers as of December , . The amount consists of the annual short term variable compensation and/ or other incentives earned and paid or payable by Nokia for the respective fiscal year. The amount above is inclusive of any discretionary variable spot compensation earned by active Nokia Leadership Team members for specific contributions during the year. Amounts shown represent the grant date fair value of equity grants awarded for the respective fiscal year. The fair value of stock options equals the estimated fair value on the grant date, calculated using the Black-Scholes model. The fair value of performance shares and restricted shares equals the estimated fair value on grant date. The estimated fair value is based on the grant date market price of a Nokia share less the present value of dividends expected to be paid during the vesting period. The value of the performance shares is presented on the basis of granted number of shares, which is two times the number of shares at 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 ; and Ms. Pentland EUR ; Mr. Halbherr EUR and Ms. Harlow 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. All other compensation for Mr. Elop in includes: EUR for tax services for fiscal years , and ; housing of EUR ; EUR for participation in a health assessment and leadership perfor- mance program; home security EUR ; and EUR taxable benefit for premiums paid under supplemental medical and disability insurance and for mobile phone and driver. All other compensation for Mr. Siilasmaa in includes: EUR as compensation for his additional responsibilities as Interim CEO, % of this amount was delivered to him in shares bought on the open market. The remaining % was paid in cash, most of which was used to cover the estimated associated taxes. The table does not include the compensation he is paid for his role as Chairman of the Board of Directors. All other compensation for Mr. Ihamuotila in includes: EUR for car allowance; EUR for security and EUR taxable benefit for premiums paid under supplemental medical and disability insurance and for mobile phone and driver; EUR for participation in a health assessment and leadership performance program. In recognition of additional responsibilities for his role as acting President, Mr. Ihamuotila received EUR cash paid in installments starting in October , resulting in EUR being paid in and EUR being paid in . Additionally, he received an equity grant value EUR (included in the stock award and stock options columns) which will vest in accord- ance with normal plan rules. Salaries, benefits and perquisites for Ms. Harlow and Ms. Pentland were paid and denominated in GBP and USD, respectively. Amounts were converted using year-end USD/EUR exchange rate of . and GPB/ EUR rate of .. For year disclosure, amounts were converted using year-end USD/EUR exchange rate of . and GPB/EUR exchange rate of .. For year disclosure, amounts were converted using year-end USD/EUR and GPB/EUR exchange rate of . and ., respectively. Ms. Pentland participated in Nokia’s U.S Retirement Savings and Invest- ment 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 em- ployees to defer up to % of their salary and % of their short-term variable 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. Pentland in includes: EUR com- pany contributions to the (k) Plan and EUR provided under Nokia’s international assignment policy in the UK. 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 and EUR for partici- pation in a health assessment and leadership performance program. All other compensation for Ms. Harlow in includes: EUR company’s contributions to the UK Pension Plan; EUR for car and fuel and EUR for health insurance; EUR service award and EUR for participation in a health assessment and leadership performance program. 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 G R O U P L E A D E R S H I P T E A M 127 Equity grants in Option awards Name and principal position 2 Stephen Elop, EVP Devices & Services, former President and CEO Risto Siilasmaa, Chairman of the Board of Directors. Interim CEO Year 2013 2013 2013 Number of shares Grant price EUR underlying options Grant date fair value 3 EUR Performance shares at threshold (number) Stock awards Performance shares at Restricted maximum (number) (number) Grant date shares fair value 4 EUR 1 800 000 2.71 2 197 692 562 500 2 250 000 785 000 5 385 660 Grant date May 15 March 13 — 0 0 0 0 0 0 0 Timo Ihamuotila, EVP, Chief Financial Offi cer, Interim President May 15 2013 2013 March 13 2013 November 13 Louise Pentland, EVP, Chief Legal Offi cer Michael Halbherr, EVP, HERE Jo Harlow, EVP, Smart Devices 2013 2013 2013 2013 2013 2013 May 15 March 13 May 15 March 13 May 15 March 13 370 000 2.71 451 748 110 000 440 000 350 000 2.71 427 329 100 000 400 000 370 000 2.71 451 748 110 000 440 000 370 000 2.71 451 748 110 000 440 000 130 000 25 000 990 280 146 125 120 000 905 120 130 000 990 280 130 000 990 280 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 positions set forth in this table are the positions of the named execu- tive officers as of December , . 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”. EQUITY-BASED INCENTIVE PROGRAMS General The Board of Directors approved on February , Nokia equity based incentive programme for the year . The pro- gramme for will be explained in more detail under “Nokia eguity based incentive programme ”. During the year ended December , , we administered two global stock option plans, four global performance share plans, four global restricted share plans and an employee share purchase plan. Both executives and employees partici- pate in these plans. Our compensation programs promote long-term value creation and sustainability of the company and are designed to ensure that compensation is based on performance. Performance shares have been the main ele- ment of the company’s broad-based equity compensation program for several years to emphasize the performance ele- ment in employees’ long-term incentives. The primary equity instruments for the executive employ- ees were performance shares and stock options. Restricted shares have also been used for executives for retention pur- poses. The portfolio approach has been designed to build an optimal and balanced 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 align- ing recipients’ interests with those of shareholders. For direc- tors below the executive level, the primary equity instruments have been performance shares and restricted shares. Below The fair value of performance shares and restricted shares equals the estimated fair value on the grant date. The estimated fair value is based on the grant date market price of the Nokia share less the present value of dividends expected to be paid during the vesting period. The value of performance shares is presented on the basis of a number of shares, which is two times the number at threshold. the director level, performance shares and restricted shares have been 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. The equity-based incentive grants are conditioned upon continued employment with Nokia, as well as the fulfi llment 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 and approximately as at December , . 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. The interim CEO was not eligible to receive any equity-based incentive grants and did not receive any grants during . The interim President’s stock option and restricted share grants in recognition of his additional responsibilities as the interim President were made upon recommendation by the Personnel Committee and approved by the Board of Directors in accordance with the terms and conditions of the plans. Stock option, performance share and restricted share grants to the other Nokia Group Leadership Team members and other direct reports of the President and CEO are approved by the Personnel Committee. Stock op- tion, 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. 128 N O K I A I N 2 0 1 3 In employees of Networks were excluded from Nokia’s Until the shares are delivered, the participants will not have equity incentive programs. For a more detailed description of all of our equity-based incentive plans, see Note to our 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 perfor- mance criteria. The below table illustrates the performance criteria of the Performance Share Plans from through . Performance share plan Performance criteria 2012 2011 2010 2009 Average annual net sales growth (Nokia Group) EPS at the end of performance period (Nokia Group) Average annual net sales (Nokia Group excluding Networks) Average annual net sales (Nokia Group) Average annual EPS (Nokia Group) — — yes yes — — — yes yes 1 yes yes 2 — — — — — yes yes yes — Specific to year, of the two-year performance period ( – ), only. Specific to year, of the two-year performance period ( – ), only to reflect the change in ownership structure of Networks. The and plans have a three-year performance pe- riod. The shares vest after the respective performance period. The and plans have 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. No shares will be deliv- ered if Nokia’s performance does not reach the performance criteria. The below table summarizes the relevant periods and settlements under the plans. Plan 2010 1 2011 2 2012 2 2013 Performance period Settlement 2010 – 2012 2011 – 2013 2012 – 2013 3 2013 – 2014 3 2013 2014 2015 2016 No Nokia shares were delivered under the Nokia Performance Share Plan as Nokia’s performance did not reach the requisite threshold level with respect to the applicable performance criteria under the plan. No Nokia shares will be delivered under the Nokia Performance Share Plans and as Nokia’s performance did not reach the requisite threshold level with respect to the applicable performance criteria for either plan. Nokia Performance Share Plans and have a one-year restriction period after the two-year performance period. 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 Nokia Performance Share Plan . There will also be no payout from Nokia Performance Share Plan as the threshold level under the applicable perfor- mance criteria was not reached. 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. 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 during 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 deter- mined on a one-week weighted average to mitigate any day- specifi c fl uctuations in Nokia’s share price. The determination of exercise price is defi ned in the terms and conditions of the stock option plans, which were approved by the shareholders 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 Nokia Restricted Share Plans , , and , each of which, including its terms and conditions, has been approved 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 G R O U P L E A D E R S H I P T E A M 129 Beneath the executive and director levels restricted shares were used on a selective basis to ensure retention and recruit- ment of individuals with functional mastery and other employ- ees deemed critical to Nokia’s future success. employees in selected jurisdictions (excluding Networks’ em- ployees for ), to the extent there are no local regulatory or administrative obstacles for the off er. The participation in the plan will be voluntary to eligible employees. Performance shares The Nokia Performance Share Plan has a two-year perfor- mance period ( through ) and a subsequent one-year restriction period. Therefore, the amount of shares based on the fi nancial performance during – will vest after . The performance criteria for the performance period are as follows: For Nokia Group employees (excluding HERE employees): ■ Nokia Group average annual non-IFRS net sales ■ Nokia Group average annual non-IFRS EPS For HERE employees: ■ Nokia Group average annual non-IFRS EPS ■ HERE average annual non-IFRS net sales ■ HERE average annual non-IFRS operating profi t The number of shares to be settled after the restriction period will start at % of the granted amount and any payout beyond this will be determined with reference to the fi nancial performance against the established performance criteria during the two-year performance period. The threshold and maximum levels for the Nokia Performance Share Plan are as follows: 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. Employee share purchase plan During , Nokia launched for the fi rst time an Employee Share Purchase Plan (so called Share in Success). Under the Employee Share Purchase Plan, eligible Nokia employees could elect to make monthly contributions from their salary to purchase Nokia shares. The contribution per employee cannot exceed EUR per year. The share purchases are 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 were delivered to employees who made the fi rst three consecutive monthly share purchases. The participation in the plan was voluntary to the employees. Nokia equity-based incentive program 2014 On February , , the Board of Directors approved the scope and design of the Nokia Equity Program . The Board of Directors decided not to propose stock options for the Annual General Meeting. Similarly to the earlier equity incen- tive programs, the Equity Program is designed to support the participants’ focus and alignment with Nokia’s long term success. Nokia’s use of the performance-based plan as the main long-term incentive vehicles is planned to eff ectively con- tribute to the long-term value creation and sustainability of the company and to align the interests of the employees with those of the shareholders. It is also designed to ensure that the overall equity-based compensation is based on perfor- mance, while also ensuring the recruitment and retention of talent vital to the future success of Nokia. Shares under the Nokia Restricted Share Plan are intended to be granted only for exceptional retention and recruitment purposes as to ensure Nokia is able to retain and recruit talent vital to the future success of the group. In addition, the Employee Share Purchase Plan continues to be off ered to encourage employee share ownership, commitment and engagement. The primary equity instruments for the executive em- ployees and directors below executive level are performance shares. Below the director level, performance 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. Shares under Nokia Restricted Share Plan are intended to be granted only for exceptional retention and recruitment purposes as to ensure Nokia is able to retain and recruit talent vital to the future success of the group. The Employee Share Purchase Plan will be off ered to all 130 N O K I A I N 2 0 1 3 Performance criterion for the Nokia Group employees (excluding HERE employees): Performance criterion Weighting Nokia average annual non-IFRS net sales during Jan. 1, 2014 – Dec. 31, 2015 50% Threshold performance Maximum performance Potential range of settlement* EUR 11.135 billion EUR 15.065 billion Threshold number up to maximum level (4 x threshold number) Nokia average annual non-IFRS EPS during Jan. 1, 2014 – Dec. 31, 2015 50% EUR 0.11 EUR 0.38 Threshold number up to maximum level (4 x threshold number) Performance criterion for the HERE employees: Performance criterion Weighting Threshold performance Maximum performance Potential range of settlement* Nokia average annual non-IFRS EPS during Jan. 1, 2014 – Dec. 31, 2015 25% EUR 0.11 EUR 0.38 Threshold number up to maximum level (4 x threshold number) HERE non-IFRS average annual operating profi t during Jan. 1, 2014 – Dec. 31, 2015 HERE average annual non-IFRS net sales during Jan. 1, 2014 – Dec. 31, 2015 25% EUR 0 million EUR 130 million Threshold number up to maximum level (4 x threshold number) 50% EUR 950 million EUR 1.150 billion Threshold number up to maximum level (4 x threshold number) * The minimum payout of % of the grant amount will be payable only in the event that the calculated payout (based on Nokia’s performance against the performance criteria) is beneath % achievement against the performance criteria. 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 all 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 all criteria will result in the vesting of approximately . million shares and will be the minimum payout under the plan. Minimum payout un- der the plan, even if threshold performance is not achieved, is . million shares due to the % minimum payout. The vesting will occur after . Until Nokia shares are delivered, the par- ticipants will not have any shareholder rights, such as voting or dividend rights associated with these performance shares. RESTRICTED SHARES Restricted shares under the Nokia Restricted Share Plan approved by the Board of Directors are used as described above on a selective basis to ensure extraordinary retention and recruitment of individuals with functional mastery and other employees deemed critical to Nokia’s future success and will only be used in limited and exceptional circumstances. This is a change to the earlier practice when restricted shares were included as part of the annual compensation reviews. The restricted shares under the Nokia 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 share- holder 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 following the end of the -month savings period. Participation in the plan is voluntary to the employees. MAXIMUM PLANNED GRANTS UNDER THE NOKIA EQUITY- BASED INCENTIVE PROGRAM 2014 IN YEAR 2014 The approximate maximum numbers of planned grants under the Nokia Equity Program (i.e., performance shares, restricted shares as well as matching share awards under the Employee Share Purchase Plan) in are set forth in the table below. C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A G R O U P L E A D E R S H I P T E A M 131 Plan type Planned maximum number of shares available for grants under the Equity Program 2014 Restricted shares Performance shares at maximum 1 Employee share purchase plan 2 2 million 29.7 million 0.42 million The number of Nokia shares to be delivered at minimum is a quarter of maximum performance, i.e., a total of . million Nokia shares. The calculation for the Employee Share Purchase Plan is based on the closing share price EUR . on February , , the day prior to board approval. 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 Equity Program would be approximately another .%. Due to the Sale of D&S Business to Microsoft shares will be forfeited when employees transfer to Microsoft. The impact to dilution is .%, and, consequently, overall expected maxi- mum dilution of outstanding equity programs is .%. NSN EQUITY INCENTIVE PLAN Networks established a share-based incentive plan in under which options over Networks shares were granted to selected employees (“NSN Equity Incentive Plan”). The options generally become exercisable on the fourth anniversary of the grant date or, if earlier, on the occurrence of certain corporate transactions such as an initial public off ering (“Corporate Transaction”). The exercise price of the options is based on a Networks share value on grant as determined for the purposes of the NSN Equity Incentive Plan. The options will be cash-settled at exercise, unless an initial public off ering has taken place, at which point they would be converted into equity-settled options. If the options are cash-settled, the holder will be en- titled to half of the share appreciation based on the exercise price and the estimated value of shares on the exercise date, unless there has been a change of control, as specifi ed in the plan terms, in which case the holder will be entitled to all of the share appreciation. If a Corporate Transaction has not taken place by the sixth anniversary of the grant date, the options will be cashed out. If an initial public off ering has taken place, equity-settled options remain exercisable until the tenth an- niversary of the grant date. The gains that may be made under the NSN Equity Plan are also subject to a cap. As a consequence of (i) Networks having become a wholly owned subsidiary of Nokia, and (ii) Nokia being in the process of the Sale of the D&S business, the Board of Directors ap- proved on February , a modifi cation to the NSN Equity Incentive Plan to allow % of the options to vest on the third anniversary of the grant date, with the remainder of the op- tions continuing to become exercisable on the fourth anniver- sary of the grant date, or earlier, in the event of a Corporate Transaction. 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 or alternatively by us- ing own shares held by the company. It is also Nokia’s current policy that the Board members retain all Nokia shares received as director compensation until the end of their board mem- bership (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, re- stricted shares or any other equity based or otherwise vari- able compensation for their duties as Board members. For a description of the compensation for our Board of Directors, please see “Compensation of the Board of Directors in ”. The Nokia Group Leadership Team members have received equity-based compensation in the form of performance shares, restricted shares, stock options and equity awards under the Networks Equity Incentive Plan. For a description of our equity-based compensation programs for employees and executives, see “Equity-based incentive programs”. Share ownership of the Board of Directors At December , , the members of our Board of Direc- tors 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. Each member of the Board of Directors owns less than % of Nokia shares. 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 Bruce Brown Elizabeth Doherty Henning Kagermann Jouko Karvinen Helge Lund Mårten Mickos Elisabeth Nelson Kari Stadigh Shares 2 ADSs 2 809 809 — — 53 528 11 499 200 708 48 653 57 274 99 028 — — — — — — 68 053 110 678 — Isabel Marey-Semper did not stand for re-election in the Annual General Meeting held on May , , and she held shares at that time. Mar- jorie Scardino did not stand for re-election in the Annual General Meeting held on May , and she held shares at that time. Stephen Elop stepped down from the board as of September , , and 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. 132 N O K I A I N 2 0 1 3 Share ownership of the Nokia Leadership Team The following table sets forth the share ownership, as well as potential ownership interest through the holding of equity- based incentives, of the members of the Nokia Leadership Team as at December , . Shares receivable through stock options Shares receivable through performance shares at threshold 4 Shares receivable through performance shares at maximum 5 Shares receivable through restricted shares Shares Number of equity instruments held by Nokia Leadership Team 1 1 005 150 10 271 500 1 462 500 5 850 000 4 264 000 % of the outstanding shares 2 0.03 0.28 0.04 0.16 0.11 % of the total outstanding equity incentives (per instrument) 3 36.81 22.45 22.45 14.05 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. Each Nokia Leadership Team member owns less than % of Nokia shares. The percentage is calculated in relation to the total outstanding equity incentives per instrument. No Nokia shares were delivered under the Nokia Performance Share Plan , which vested in . Nokia’s performance did not reach the requi- site threshold level with respect to the applicable performance criteria. Therefore, the shares deliverable at threshold equaled zero and no Nokia shares were delivered pursuant to the Nokia Performance Share Plan . No Nokia shares were delivered under the Nokia Performance Share Plan , which vested in . Nokia’s performance did not reach the requi- site threshold level with respect to the applicable performance criteria. Therefore, the shares deliverable at maximum equaled zero and no Nokia shares were delivered pursuant to the Nokia Performance Share Plan . There will also be no payout under the Nokia Performance Share Plan . At maximum performance under the Nokia Performance Share Plans , the number of shares deliverable equals four times the number of perfor- mance shares at threshold. At the end of the performance period for the Nokia Performance Share Plan , which ended on December , , the threshold performance criteria for net sales and EPS were not met. Therefore, there will be no payout under the Nokia Performance Share Plan as the threshold level under the applicable performance criteria was not reached. 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 Michael Halbherr 210 823 — Jo Harlow 25 830 25 000 Timo Ihamuotila Louise Pentland 3 Juha Putkiranta Henry Tirri Timo Toikkanen 3 Chris Weber Juha Äkräs Kai Öistämö 89 990 500 45 734 23 330 159 157 42 794 110 373 — — — — — 5 460 — — Became Nokia Leadership Team member (year) 2010 2011 2011 2007 2011 2012 2011 2012 2012 2010 2005 Marko Ahtisaari left the Nokia on October , 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. Nokia Leadership Team member will be purchasing shares on the external market in order to meet the shareholding requirements for Nokia Group Leadership Team members. 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 G R O U P L E A D E R S H I P T E A M 133 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 31, 2013 EUR 2 Name Timo Ihamuotila Stephen Elop Michael Halbherr Jo Harlow Louise Pentland Juha Putkiranta Stock option category 2008 2Q 2009 2Q 2009 4Q 2010 2Q 2011 2Q 2011 3Q 2012 2Q 2013 2Q 2013 4Q 2010 4Q 2011 2Q 2011 3Q 2012 2Q 2013 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2012 2Q 2013 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2012 2Q 2013 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2012 2Q 2013 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2012 2Q 2012 3Q 2013 2Q Expiration date December 31, 2013 December 31, 2014 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 27, 2019 December 27, 2019 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 27, 2019 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 27, 2019 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 27, 2019 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 27, 2019 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2018 December 27, 2018 December 27, 2019 Exercise price per share EUR Exer- cisable Unexer- cisable Exer- cisable 3 Unexer- cisable 19.16 11.18 8.76 8.86 6.02 3.76 2.44 2.71 5.77 7.59 6.02 3.76 2.44 2.71 19.16 11.18 8.86 6.02 3.76 2.44 2.71 19.16 11.18 8.86 6.02 3.76 2.44 2.71 19.16 11.18 8.86 6.02 3.76 2.44 2.71 19.16 11.18 8.86 6.02 2.44 2.18 2.71 0 35 000 18 750 56 875 0 0 0 0 0 0 0 1 250 13 125 70 000 200 000 150 000 370 000 50 000 156 250 343 750 250 000 0 500 000 0 0 700 000 0 1 800 000 0 7 000 5 279 0 0 0 0 0 5 500 20 308 0 0 0 0 0 12 000 24 375 0 0 0 0 0 20 000 20 308 0 0 0 0 0 0 1 221 15 000 255 000 150 000 370 000 0 0 4 692 70 000 200 000 150 000 370 000 0 0 5 625 45 000 150 000 115 000 350 000 0 0 4 692 27 000 50 000 53 500 250 000 0 0 0 0 0 0 0 0 0 0 412 000 0 0 507 000 0 1 150 700 2 500 0 0 0 0 0 0 1 030 000 0 2 366 000 0 5 598 000 0 0 0 0 0 0 0 0 525 300 0 0 507 000 0 1 150 700 0 0 0 0 0 0 0 0 412 000 0 0 507 000 0 1 150 700 0 0 0 0 0 0 0 0 309 000 0 388 700 0 0 1 088 500 0 0 0 0 0 0 0 0 0 0 0 169 000 194 740 777 500 134 N O K I A I N 2 0 1 3 Name Henry Tirri Timo Toikkanen Chris Weber Juha Äkräs Kai Öistämö Stock option category 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 4Q 2012 2Q 2013 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2012 2Q 2012 3Q 2013 2Q 2011 2Q 2012 2Q 2012 3Q 2013 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2012 2Q 2013 2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2011 3Q 2012 2Q 2013 2Q Expiration date December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 27, 2019 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2018 December 27, 2018 December 27, 2019 December 27, 2017 December 27, 2018 December 27, 2018 December 27, 2019 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 27, 2019 December 31, 2013 December 31, 2014 December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 27, 2019 Number of stock options 1 Total intrinsic value of stock options, December 31, 2013 EUR 2 Exercise price per share EUR Exer- cisable Unexer- cisable Exer- cisable 3 Unexer- cisable 19.16 11.18 8.86 6.02 4.84 2.44 2.71 19.16 11.18 8.86 6.02 2.44 2.18 2.71 6.02 2.44 2.18 2.71 19.16 11.18 8.86 6.02 3.76 2.44 2.71 19.16 11.18 8.86 6.02 3.76 2.44 2.71 0 12 000 16 250 0 0 0 0 0 12 000 20 308 0 0 0 0 0 0 0 0 0 12 000 32 500 0 0 0 0 0 60 000 56 875 0 0 0 0 0 0 3 750 27 000 168 000 115 000 220 000 0 0 4 692 27 000 28 500 75 000 350 000 25 000 40 000 63 500 350 000 0 0 7 500 45 000 150 000 115 000 250 000 0 0 13 125 45 000 150 000 90 000 220 000 0 0 0 0 0 0 0 0 0 0 0 164 640 388 700 684 200 0 0 0 0 0 0 0 0 96 330 0 0 273 000 0 1 088 500 0 0 135 200 0 0 231 140 0 1 088 500 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 309 000 388 700 777 500 0 0 0 0 309 000 304 200 684 200 Stock options held by the members of the Nokia Leadership Team on December 31, 2013, Total 4 All outstanding stock option plans (global plans), Total 791 078 9 480 422 55 176 056 4 242 226 23 660 851 Number of stock options equals the number of underlying shares The intrinsic value of the stock options is based on the difference 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. between the exercise price of the options and the closing market price of Nokia shares on NASDAQ OMX Helsinki as at December , of EUR .. For gains realized upon exercise of stock options for the members of the Group Executive Board, see the table in “Stock Option Exercises and Set- tlement of Shares” below. During , Marko Ahtisaari stepped down from the Nokia Leadership Team. The information related to stock options Mr. Ahtisaari held is as of the date of resignation from the Nokia Leadership Team and is presented in the table below. C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A G R O U P L E A D E R S H I P T E A M 135 Number of stock options 1 Total intrinsic value of stock options EUR 6 Exer- cisable Unexer- cisable Exer- cisable 3 Unexer- cisable 21 933 0 0 0 0 5 067 30 000 100 000 115 000 250 000 0 0 0 0 0 0 0 181 000 359 950 715 000 Name Marko Ahtisaari 5 as per October 31, 2013 Stock option category 2010 2Q 2011 2Q 2011 3Q 2012 2Q 2013 2Q Exercise price per share EUR 8.86 6.02 3.76 2.44 2.71 Expiration date December 31, 2015 December 27, 2017 December 27, 2017 December 27, 2018 December 27, 2019 Mr.Ahtisaari’s stock option grants were forfeited and cancelled upon his termination 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 October , of EUR .. 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 Nokia Performance Share Plans , and and Nokia Restricted Share Plans , , and . For a description of our per- formance share and restricted share plans, please see Note to the consolidated fi nancial statements. Performance shares Restricted shares Number of Intrinsic value Number of performance performance December 31, 2013 4 EUR shares at threshold 2 maximum 3 shares at 0 0 110 000 0 0 440 000 0 0 562 500 0 0 2 250 000 0 0 110 000 0 0 110 000 0 0 100 000 0 0 75 000 0 0 440 000 0 0 440 000 0 0 400 000 0 0 300 000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Plan name 5 2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013 Name Timo Ihamuotila Stephen Elop Michael Halbherr Jo Harlow Louise Pentland Juha Putkiranta Plan name 1 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013 136 N O K I A I N 2 0 1 3 Number restricted shares Intrinsic value of December 31, 2013 6 EUR 75 000 50 000 100 000 155 000 100 000 180 000 500 000 785 000 17 000 50 000 100 000 130 000 55 000 50 000 100 000 130 000 55 000 35 000 75 000 120 000 30 000 25 000 68 000 90 000 436 500 291 000 582 000 902 100 582 000 1 047 600 2 910 000 4 568 700 98 940 291 000 582 000 756 600 320 100 291 000 582 000 756 600 320 100 203 700 436 500 698 400 174 600 145 500 395 760 523 800 Performance shares Restricted shares Number of Intrinsic value Number of performance performance December 31, 2013 4 EUR shares at threshold 2 maximum 3 shares at Name Henry Tirri Timo Toikkanen Chris Weber Juha Äkräs Kai Öistämö Plan name 1 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013 0 0 60 000 0 0 100 000 0 0 100 000 0 0 75 000 0 0 60 000 0 0 240 000 0 0 400 000 0 0 400 000 0 0 300 000 0 0 240 000 Performance shares and restricted shares held by the Nokia Leadership Team, Total 7 All outstanding performance shares and restricted shares (global plans), Total 1 462 500 5 850 000 10 990 204 43 960 814 The performance period for the plan is – , for the plan – (with a subsequent one-year restriction period) and for the plan – (with a subsequent one-year restriction period), respectively. The threshold number will vest as Nokia shares, subject to the pre- determined threshold performance levels being met with respect to the applicable performance criteria. No Nokia shares were delivered under the Nokia Performance Share Plan , which would have vested in , as Nokia’s performance did not reach the threshold level with respect to the applicable performance criteria. Therefore, the shares deliverable at threshold equaled zero for the Nokia Performance Share Plan . There will also be no payout from the Nokia Performance Share Plan as the requisite threshold level with respect to the applicable performance criteria was not reached. Therefore, the shares deliverable at threshold equals zero for the Nokia Performance Share Plan . The maximum number will vest as Nokia shares, subject to the pre- determined maximum performance levels being met with respect to the applicable performance criteria. The maximum number of performance shares equals four times the number at threshold. No Nokia shares were delivered under the Nokia Performance Share Plan , as Nokia’s performance did not reach the requisite threshold level with respect to the applicable performance criteria. Therefore, the shares deliverable at maximum equaled zero for the Nokia Performance Share Plan . There will also be no payout from the Nokia Performance Share Plan as the requisite threshold level with respect to the applicable performance criteria was not reached. Therefore, the shares deliverable at maximum equals zero for the Nokia Performance Share Plan . Number restricted shares Intrinsic value of December 31, 2013 6 EUR 30 000 35 000 75 000 70 000 23 000 15 000 68 000 120 000 90 000 68 000 120 000 55 000 35 000 75 000 90 000 55 000 35 000 60 000 70 000 174 600 203 700 436 500 407 400 133 860 87 300 395 760 698 400 523 800 395 760 698 400 320 100 203 700 436 500 523 800 320 100 203 700 349 200 407 400 Plan name 5 2010 2011 2012 2013 2010 2011 2012 2013 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013 4 264 000 24 816 480 30 356 850 176 676 867 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 For Nokia Performance Share Plans and the value of perfor- mance shares is presented on the basis of Nokia’s estimation of the number of shares expected to vest. The intrinsic value for the Nokia 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 Nokia Performance Share Plan no Nokia shares were delivered, as Nokia’s performance did not reach the threshold level of either performance criteria. There will also be no payout from the Nokia Performance Share Plan as the requisite threshold level with respect to the applicable performance criteria was not reached. Therefore, the shares deliverable at threshold equals zero for the Nokia Performance Share Plan . Under the Nokia 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 July , ; 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 , Marko Ahtisaari stepped down from the Nokia Leadership Team. The information related to performance shares and restricted shares held by Mr. Ahtisaari is as of the date of resignation from the Nokia Leadership Team and is presented in the table below. C O M P E N S A T I O N O F T H E B O A R D O F D I R E C T O R S A N D T H E N O K I A G R O U P L E A D E R S H I P T E A M 137 Performance shares Restricted shares Number of Number of performance performance shares at shares at threshold 10 maximum 11 Plan name 1 Name Marko Ahtisaari 8 as per October 31, 2013 2011 2012 2013 15 000 57 500 75 000 60 000 230 000 300 000 Intrinsic value 9 EUR Number of restricted shares Plan name 5 Intrinsic value 9 EUR 0 0 0 2010 2011 2012 2013 30 000 23 000 75 000 90 000 167 100 128 110 417 750 501 300 Mr. Ahtisaari’s equity grants were forfeited and cancelled upon his termi- The maximum number will vest as Nokia shares, subject to the pre- determined maximum performance levels being met with respect to the applicable performance criteria. The maximum number of performance shares equals four times the number at threshold. No Nokia shares were delivered under the Nokia Performance Share Plan , as Nokia’s performance did not reach the requisite threshold level with respect to the applicable performance criteria. Therefore, the shares deliverable at maximum equaled zero for the Nokia Performance Share Plan . There will also be no payout from the Nokia Performance Share Plan as the requisite threshold level with respect to the applicable performance criteria was not reached. Therefore, the shares deliverable at maximum equals zero for the Nokia Performance Share Plan . nation of employment as of May , 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 October , , of EUR .. The threshold number will vest as Nokia shares, subject to the pre- determined threshold performance levels being met with respect to the applicable performance criteria. No Nokia shares were delivered under the Nokia Performance Share Plan , which would have vested in , as Nokia’s performance did not reach the threshold level with respect to the applicable performance criteria. Therefore, the shares deliverable at threshold equaled zero for the Nokia Performance Share Plan . There will also be no payout from the Nokia Performance Share Plan as the requisite threshold level with respect to the applicable performance criteria was not reached. Therefore, the shares deliverable at threshold equals zero for the Nokia Performance Share Plan . 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 10 000 3 45 000 4 0 10 500 3 20 000 3 23 000 4 20 000 3 20 000 3 15 000 3 0 15 000 3 30 000 4 45 000 4 29 000 118 350 0 30 450 58 000 60 490 58 000 58 000 43 500 0 43 500 78 900 118 350 Name 5 Timo Ihamuotila Stephen Elop Michael Halbherr Jo Harlow 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 Nokia Performance Share Plan during as Nokia’s performance did not reach the requisite threshold level with respect to applicable performance criteria. Represents the delivery of Nokia shares vested from the Nokia 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 Nokia Restricted Share Plan . Value is based on the average market price of the Nokia share on NASDAQ OMX Helsinki on April , of EUR .. During , Marko Ahtisaari stepped down from the Nokia Leadership Team. The information regarding stock option exercises and settlement of shares regarding Mr. Ahtisaari is as of the date of resignation from the Nokia Leadership Team and is represented in the table below. 138 N O K I A I N 2 0 1 3 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 Marko Ahtisaari 5 as per October 31, 2013 0 0 0 0 7 000 4 18 410 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 G R O U P L E A D E R S H I P T E A M 139 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 NSN. Audit Committee pre-approval policies and procedures The Audit Committee of our Board of Directors is responsible, among other matters, for the oversight of the external auditor subject to the requirements of Finnish law. The Audit Commit- tee has adopted a policy regarding pre-approval of audit and permissible non-audit services provided by our independent auditors (the “Policy”). Under the Policy, proposed services either (i) may be pre- approved by the Audit Committee in accordance with certain service categories described in appendices to the Policy (“gen- eral 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 author- 2013 2012 EURm Nokia NSN Total Nokia NSN Total Audit fees 1 Audit-related fees 2 Tax fees 3 All other fees 4 Total 6.9 0.6 1.3 1.1 9.9 9.9 16.8 9.4 10.0 0.4 — 1.7 1.1 7.2 0.8 2.4 0.3 10.2 17.4 1.4 1.6 — 2.2 4.0 0.3 19.7 29.6 10.7 13.2 23.9 ity to one or more of its members. The appendices to the Policy set out the audit, audit-related, tax and other services that have received the general pre-approval of the Audit Committee. All other audit, audit- related (including services related to internal controls and signifi cant M&A projects), tax and other services are subject to a specifi c pre-approval from the Audit Committee. All service requests concerning generally pre- approved services will be submitted to the Corporate Controller, who will determine whether the services are within the services generally pre-approved. The Policy and its appendices are subject to annual review by the Audit Committee. The Audit Committee establishes budgeted fee levels an- nually for each of the four categories of audit and non-audit services that are pre-approved under the Policy, namely, audit, audit-related, tax and other services. Requests or applications to provide services that require specifi c approval by the Audit Committee are submitted to the Audit Committee by both the independent auditor and the Corporate Controller. At each regular meeting of the Audit Committee, the independent auditor provides a report in order for the Audit Committee to review the services that the auditor is providing, as well as the status and cost of those services. Audit fees consist of fees billed for the annual audit of the company’s con- solidated financial statements and the statutory financial statements of the company’s subsidiaries. Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the company’s financial statements or that are traditionally performed by the independent auditor, and include consultations concerning financial accounting and reporting standards; advice on tax accounting matters; advice and assistance in connection with local statutory accounting requirements; due diligence related to acquisitions or divestitures; finan- cial due diligence in connection with provision of funding to customers, reports in relation to covenants in loan agreements; employee benefit plan audits and reviews; and audit procedures in connection with investi- gations and compliance programs. They also include fees billed for other audit services, which are those services that only the independent auditor reasonably can provide, and include the provision of comfort letters and consents in connection with statutory and regulatory filings and the review of documents filed with the SEC and other capital markets or local financial reporting regulatory bodies. The NSN Audit-related fees for are primarily related to due diligence services provided in connection with the transaction where Nokia purchased Siemens’ stake in NSN, which was completed on August , . 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. 140 N O K I A I N 2 0 1 3 INVESTOR INFORMATION INFORMATION ON THE INTERNET www.company.nokia.com INVESTOR RELATIONS CONTACTS investor.relations@nokia.com Available on the Internet: fi nancial reports, members of Nokia’s management, 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. + Nokia USA Inc. Investor Relations South Mathilda Avenue Sunnyvale, CA Tel. + Stock exchanges The Nokia Corporation share is quoted on the following stock exchanges: Symbol Trading currency NASDAQ OMX Helsinki (since 1915) New York Stock Exchange (since 1994) NOK1V EUR NOK USD Annual General Meeting Date: Tuesday, June , at . pm Address: Helsinki Fair Centre, Amfi -hall, Messuaukio , Helsinki, Finland Dividend The Board proposes to the Annual General Meeting an ordinary dividend of EUR , per share for the year . In addition, the Board proposes to the Annual General Meeting a special dividend of EUR , per share. 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 2013 All Nokia’s global press releases published in are available on the Internet at company.nokia.com/news. I N V E S T O R I N F O R M A T I O N 141 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; ) our ability to manage our manufacturing, service creation and delivery, and logistics efficiently and without interruption, especially if the limited number of suppliers we depend on fail to deliver sufficient quantities of fully functional products and components or deliver timely services; ) potential exposure to contingent liabilities due to the Sale of the D&S Business and possibility that the agree- ments we have entered into with Microsoft may have terms that prove to be unfavorable to us; ) any inefficiency, malfunction or disruption of a system or network that our operations rely on or any impact of a possible cybersecurity breach; ) our ability to reach targeted results or improvements by managing and improv- ing our financial performance, cost savings and competitiveness; ) management of Networks’ customer financing exposure; ) the performance of the parties we partner and collaborate with, and our ability to achieve successful collaboration or partnering arrangements; ) our ability to protect the technologies, which we develop, license, use or intend to use from claims that we have infringed third parties’ intellectual property rights, as well as, impact of possible licensing costs, restriction on our usage of certain technologies, and litigation related to intellectual property rights; ) the impact of regulatory, political or other develop- ments on our operations and sales in those various countries or regions where we do business; ) 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 successfully implement planned transactions, such as acquisitions, divestments, mergers or joint ventures, manage unexpected liabilities related thereto and achieve the targeted benefits; ) the impact of unfavorable outcome of litigation, contract related disputes or allegations of health hazards associated with our business, as well as the risk factors specified in the most recent Nokia’s annual report on Form -F under Item D. “Risk Factors”. Other unknown or unpredict- able factors or underlying assumptions subsequently proven 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. 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, includ- ing, without limitation, those regarding: A) expectations, plans or benefits related to Nokia’s new strategy; B) expectations, plans or benefits related to future performance of Nokia’s continuing businesses Networks, HERE and Technologies; C) expectations, plans or benefits related to changes in leadership and opera- tional structure; D) expectations regarding market developments, general economic conditions and structural changes; E) expecta- tions and targets regarding performance, including those related to market share, prices, net sales and margins; F) the timing of the deliveries of our products and services; G) expectations and targets regarding our financial performance, cost savings and competitiveness as well as results of operations; H) expectations and targets regarding collaboration and partnering arrangements; I) the outcome of pending and threatened litigation, disputes, regulatory proceedings or investigations by authorities; J) expec- tations regarding restructurings, investments, uses of proceeds from transactions, acquisitions and divestments and our ability to achieve the financial and operational targets set in connec- tion with any such restructurings, investments, divestments and acquisitions, including any expectations, plans or benefits related to or caused by the transaction announced on September , where Nokia sold substantially all of Nokia’s Devices & Services business to Microsoft on April , (“Sale of the D&S Busi- ness”); K) statements preceded by or including “believe,” “expect,” “anticipate,” “foresee,” “sees,” “target,” “estimate,” “designed,” “aim”, “plans,” “intends,” “focus”, “continue”, “project”, “should”, “will” or similar expressions. These statements are based on man- agement’s best assumptions and beliefs in light of the information currently available to it. Because they involve risks and uncertain- ties, actual results may differ materially from the results that we currently expect. Factors, including risks and uncertainties that could cause these differences include, but are not limited to: ) our ability to execute our new strategy successfully and in a timely manner, and our ability to successfully adjust our operations; ) our ability to sustain or improve the operational and financial performance of our continuing businesses and correctly identify business opportunities or successfully pursue new business opportunities; ) our ability to execute Networks’ strategy and ef- fectively, profitably and timely adapt its business and operations to the increasingly diverse needs of its customers and technologi- cal developments; ) our ability within our Networks business to effectively and profitably invest in and timely introduce new com- petitive high-quality products, services, upgrades and technolo- gies; ) our ability to invent new relevant technologies, products and services, to develop and maintain our intellectual property portfolio and to maintain the existing sources of intellectual prop- erty related revenue and establish new such sources; ) our ability to protect numerous patented standardized or proprietary tech- nologies from third-party infringement or actions to invalidate the intellectual property rights of these technologies; ) our ability within our HERE business to maintain current sources of revenue, historically derived mainly from the automotive industry, create new sources of revenue, establish a successful location-based platform and extend our location-based services across devices and operating systems; ) effects of impairments or charges to carrying values of assets, including goodwill, or liabilities; ) our dependence on the development of the mobile and communica- tions industry in numerous diverse markets, as well as on general economic conditions globally and regionally; ) our Networks business’ dependence on a limited number of customers and large, multi-year contracts; ) our ability to retain, motivate, develop and recruit appropriately skilled employees; ) the potential 142 N O K I A I N 2 0 1 3 CONTACT INFORMATION NOKIA HEAD OFFICE Karakaari Espoo P.O.Box , FI- Nokia Group FINLAND Tel. + Fax + C O N T A C T I N F O R M A T I O N 143 Copyright © 2014 Nokia Corporation. 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