Nokia in 2007

Nokia in 2007 - Nokia in 2007 Review by the Board of...

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Unformatted text preview: Nokia in 2007 Review by the Board of Directors and Nokia Annual Accounts 2007 Key data 2007 ........................................................................................................................................... 2 Review by the Board of Directors ...................................................................................................... 3 Annual Accounts 2007 Consolidated profit and loss accounts, IFRS ..................................................................................... 8 Consolidated balance sheets, IFRS ....................................................................................................... 9 Consolidated cash flow statements, IFRS ....................................................................................... 10 Consolidated statements of changes in shareholders' equity, IFRS ........................................ 12 Notes to the consolidated financial statements ........................................................................... 13 Profit and loss accounts, parent company, FAS ............................................................................. 46 Balance sheets, parent company, FAS .............................................................................................. 46 Cash flow statements, parent company, FAS ................................................................................. 47 Notes to the financial statements of the parent company ........................................................ 48 Nokia shares and shareholders ......................................................................................................... 52 Nokia Group 20032007, IFRS ............................................................................................................. 56 Calculation of key ratios ...................................................................................................................... 58 Proposal by the Board of Directors for distribution of profit .................................................... 59 Auditors' report ..................................................................................................................................... 60 Additional information Critical accounting policies ................................................................................................................ 62 Group Executive Board ........................................................................................................................ 66 Board of Directors ................................................................................................................................. 68 Corporate governance ......................................................................................................................... 70 Investor information ............................................................................................................................ 86 Contact information ............................................................................................................................. 87 Key data * Based on financial statements according to International Financial Reporting Standards, IFRS Nokia, EURm 2007 2006 41 121 5 488 5 723 4 306 3 897 2006 45.8 68 2006 1.06 0.43 4 062 833 Change, % 24 45 44 67 45 Net sales 51 058 Operating profit 7 985 Profit before taxes 8 268 Profit attributable to equity holders' of the parent 7 205 Research and development 5 647 % Return on capital employed Net debt to equity (gearing) EUR Earnings per share, basic Dividend per share Average number of shares (1 000 shares) ** Board's proposal 2007 54.3 61 2007 1.85 0.53 ** 3 885 408 Change, % 75 23 Business Groups, EURm Mobile Phones Net sales Operating profit Multimedia Net sales Operating profit Enterprise Solutions Net sales Operating profit Nokia Siemens Networks Net sales Operating profit Personnel, December 31 Mobile Phones Multimedia Enterprise Solutions Nokia Siemens Networks Common Group Functions Nokia Group 10 major markets, net sales, EURm China India Germany UK USA Russia Spain Italy Indonesia Brazil 10 major countries, personnel, December 31 Finland Germany China India Brazil Hungary United States Mexico UK Italy * 2007 25 083 5 434 10 538 2 230 2 070 267 13 393 1 308 2007 3 614 3 923 2 059 58 423 44 243 112 262 2007 5 898 3 684 2 641 2 574 2 124 2 012 1 830 1 792 1 754 1 257 2007 23 015 13 926 12 856 11 491 8 527 6 601 5 269 3 056 2 618 2 129 2006 24 769 4 100 7 877 1 319 1 031 258 7 453 808 2006 3 409 3 397 2 308 21 061 38 308 68 483 2006 4 913 2 713 2 060 2 425 2 815 1 518 1 139 1 394 1 069 1 044 2006 23 894 3 887 7 191 6 494 1 960 4 947 5 127 2 764 2 317 493 Change, % 1 33 34 69 101 80 Change, % 6 15 11 177 15 64 Main currencies, rates at the end of 2007 1 EUR USD GBP SEK JPY 1.4439 0.7148 9.4397 163.52 As of April 1, 2007, Nokia results include those of Nokia Siemens Networks on a fully consolidated basis. Nokia Siemens Networks, a company jointly owned by Nokia and Siemens, is comprised of Nokia's former Networks business group and Siemens' carrier-related operations for fixed and mobile networks. Accordingly, the results of the Nokia Group and Nokia Siemens Networks for the year ended December 31, 2007 are not directly comparable with the results of the year ended December 31, 2006. Nokia's 2006 results included Nokia's former Networks business group only. 2 Nokia in 2007 Review by the Board of Directors 2007 * Nokia's net sales for 2007 increased 24% to EUR 51 058 million (EUR 41 121 million for 2006). Net sales of Mobile Phones for 2007 increased 1% to EUR 25 083 million (EUR 24 769 million). Net sales of Multimedia for 2007 increased 34% to EUR 10 538 million (EUR 7 877 million). Net sales of Enterprise Solutions for 2007 increased 101% to EUR 2 070 million (EUR 1 031 million). Net sales of Nokia Siemens Networks were EUR 13 393 million. In 2007, Europe accounted for 39% of Nokia's net sales (38% in 2006), Asia-Pacific 22% (20%), China 12% (13%), North America 5% (7%), Latin America 8% (9%), and Middle East & Africa 14% (13%). The 10 markets in which Nokia generated the greatest net sales in 2007 were, in descending order of magnitude, China, India, Germany, the UK , the US, Russia, Spain, Italy, Indonesia and Brazil, together representing approximately 50% of total net sales in 2007. In comparison, the 10 markets in which Nokia generated the greatest net sales in 2006 were China, the US, India, the UK , Germany, Russia, Italy, Spain, Indonesia and Brazil, together representing approximately 51% of total net sales in 2006. Nokia's operating profit for 2007 increased 45% to EUR 7 985 million, including net positive special items of EUR 858 million (operating profit of EUR 5 488 million in 2006, including net positive special items of EUR 171 million), representing a 2007 operating margin of 15.6% (13.3%). Operating profit in Mobile Phones increased 33% to EUR 5 434 million (operating profit of EUR 4 100 million in 2006), representing a 2007 operating margin of 21.7% (16.6%). Operating profit in Multimedia increased to EUR 2 230 million (operating profit of EUR 1 319 million in 2006), representing a 2007 operating margin of 21.2% (16.7%). Enterprise Solutions operating profit was EUR 267 million (operating loss of EUR 258 million in 2006), representing a 2007 operating margin of 12.9% (25.0%) Nokia Siemens Networks had an operating loss of EUR 1 308 million, including net negative special items of EUR 1 069 million, representing an operating margin of 9.8%. Research and development expenses were EUR 5 647 million in 2007, up 45% from EUR 3 897 million in 2006. The increase in research and development spending was primarily due to the formation of Nokia Siemens Networks, which added Siemens' carrierrelated operations and associated research and development expenses. Research and development expenses for 2007 also included special items of EUR 439 million. Research and development expenses have been higher as a percent of sales for both Nokia's former Networks business group and Nokia Siemens Networks than for the Nokia Group. Research and development costs represented 11.1% of Nokia Group net sales in 2007, up from 9.5% in 2006. Research and development expenses for the device business represented 6.6% of its net sales in 2007, down from 7.1% in * 2006, reflecting continued efforts to gain efficiencies in our investments. As of December 31, 2007, Nokia employed 30 415 people in research and development, representing approximately 27% of the group's total workforce, and had a strong research and development presence in 10 countries. In 2007, Nokia's selling and marketing expenses were EUR 4 380 million, up 32% from EUR 3 314 million in 2006, reflecting increased selling and marketing spend in all business groups to support new product introductions and the higher level of overall Nokia net sales. The increased selling and marketing expense also was impacted by the formation of Nokia Siemens Networks, which added Siemens' carrier-related operations and associated selling and marketing expenses. Selling and marketing expenses for 2007 also included special items of EUR 149 million. Selling and marketing expenses have been higher as a percent of sales for both Nokia's former Networks business group and Nokia Siemens Networks than for the Nokia Group. Selling and marketing expenses for the Nokia Group represented 8.6% of its net sales in 2007, up from 8.1% in 2006. Selling and marketing expenses for the device business represented 7.5% of its net sales in 2007, down from 7.9% in 2006, reflecting continued efforts to gain efficiencies in our investments. Administrative and general expenses were EUR 1 180 million in 2007, compared to EUR 666 million in 2006. Administrative and general expenses were equal to 2.3% of net sales in 2007 (1.6%). Administrative and general expenses for 2007 also included special items of EUR 146 million. Group Common Functions operating profit totaled EUR 1 362 million in 2007 (Group Common Functions expenses totaled EUR 481 million in 2006), including a EUR 1 879 million non-taxable gain on the formation of Nokia Siemens Networks, EUR 75 million real estate gains and a EUR 53 million gain on a business transfer. Net financial income was EUR 239 million in 2007 (EUR 207 million in 2006). Profit before tax and minority interests was EUR 8 268 million (EUR 5 723 million in 2006). Net profit totaled EUR 7 205 million (EUR 4 306 million). Earnings per share increased to EUR 1.85 (basic) and EUR 1.83 (diluted), compared to EUR 1.06 (basic) and EUR 1.05 (diluted) in 2006. Operating cash flow for the year ended December 31, 2007, was EUR 7 882 million (EUR 4 478 million in 2006) and total combined cash and other liquid assets were EUR 11 753 million (EUR 8 537 million in 2006). As of December 31, 2007, our net debt-to-equity ratio (gearing) was 61% ( 68% as of December 31, 2006). In 2007, capital expenditure (excluding acquisitions) amounted to EUR 715 million (EUR 650 million). The key financial data, including the calculation of key ratios, for the years 2007, 2006 and 2005 may be found in the Annual Accounts. Operating highlights in 2007 Nokia Group On June 20, 2007, Nokia announced that it would introduce a new integrated company structure for its devices business from January 1, 2008. As part of this reorganization, Nokia has replaced its three reportable devices segments with an integrated reportable segment, Devices & Services. In August, Nokia introduced Ovi, the company's new Internet services brand name. Ovi will enable people to easily access their existing social network, communities and content, as well as act as a gateway to Nokia services. As part of Ovi, Nokia announced the Nokia Music Store and N-Gage, two services that make it easy for people to discover, try and buy music and games respectively, from a range of artists and publishers, including exclusive content only available through Nokia. The Nokia Music Store went live in the UK in November 2007 and the N-Gage games service is expected to go live in early 2008. In December, we announced Nokia Comes With Music, a program that will enable people to buy a Nokia device with access to millions of tracks from a range of artists. Nokia Comes With Music is expected to become commercially available in the second half of 2008. Mobile Phones Mobile Phones introduced a broader entry-level portfolio, focusing on thinner design, and adding features such as music playing capability to many devices. Shipments of the slim and stylish Nokia 6300 GSM device, announced in late 2006, began in 2007. The Nokia 8800 Arte and Nokia 8800 Sapphire Arte were announced, bringing 3G capabilities to the Nokia 8800 series. The Nokia 8800 Arte began shipping during 2007. The Nokia 3110 Evolve, a mobile device with bio-covers made from more than 50% renewable material, was announced in December 2007. There were also several announcements from Vertu, including the Vertu Ascent Ferrari 1947 Limited Edition; The Vertu Ascent Ti collection; the Vertu Constellation Burgundy; the Vertu Constellation Mixed Metals; and various Vertu Signature phones. As of April 1, 2007, Nokia results include those of Nokia Siemens Networks on a fully consolidated basis. Nokia Siemens Networks, a company jointly owned by Nokia and Siemens, is comprised of Nokia's former Networks business group and Siemens' carrier-related operations for fixed and mobile networks. Accordingly, the results of the Nokia Group and Nokia Siemens Networks for 2007 are not directly comparable to results for 2006 and 2005. Nokia's 2006 and 2005 results included Nokia's former Networks business group only. Review by the Board of Directors 3 Review by the Board of Directors In addition, the following devices were announced and began shipping during 2007: Seven devices with functions and features specially designed for consumers in emerging markets: Nokia 1200, Nokia 1208, Nokia 1650, Nokia 2505, Nokia 2630, Nokia 2660 and Nokia 2760. The Nokia 6110 Navigator, an HSDPA device with GPS and A-GPS. The Nokia 6500 classic, a thin 3G phone with a sleek design; and the Nokia 6120 classic, Nokia's smallest 3G device. The Nokia 6555, the first phone with a unique smooth-back fold design. In the US, the Nokia 6555 is exclusively available from AT&T. The Nokia 6263 device for the US market, complete with e-mail capability and support for attachments, a 1.3 megapixel camera, video recorder and music player. A new music range including the Nokia 5610 XpressMusic and The Nokia 5310 XpressMusic. A new fashion collection with the Nokia 7900 Prism and the Nokia 7500 Prism, featuring a diamond-cut design with sharp angled lines, geometric patterns and graphic light-refracting colors. In CDMA : the Nokia 2505, a sleek fold-style phone; the Nokia 7088, the first CDMA model in the popular L'Amour Collection; and the Nokia 2135, a compact device with a contemporary design and solid basic features. Enterprise Solutions Four new Nokia Eseries business devices were announced and started shipping: Nokia E90 Communicator, Nokia E61i, Nokia E65 and Nokia E51. The four dual-mode devices, capable of utilizing both cellular and Wi-Fi networks, are designed to offer faster and better quality access to important business information and processes over wireless technologies. The Nokia Eseries became available in the United States through complementary channels, including Ingram Micro and Dell.com, for businesses and consumers. Nokia Call Connect for Cisco became commercially available, allowing businesses to route calls through corporate PBX s instead of cellular networks, with the aim of realizing significant cost savings and improved worker flexibility, collaboration and productivity. Nokia Intellisync Mobile Suite 8.0 was launched. This comprehensive platform of wireless email, file synchronization and application synchronization features is designed to bring flexibility and cost-control. New device management features for Nokia Intellisync Mobile Suite were announced, including wider device support, remote control, improved theft-loss protection and hardware control. The Nokia Intellisync Mobile Suite customer base was expanded to include more than 40 operators around the globe by December 31, 2007, with more than 3.7 million user licenses signed. Three new IP security appliances were launched: Nokia IP290, Nokia IP690 and Nokia IP2450. The appliances are based on a scalable new hardware platform design aimed at offering better IT investment protection and a greater choice of security software applications to address emerging threats to company networks and data. Nokia announced collaboration with Check Point and Intel aimed at improving enterprise security by delivering new security appliances that inspect network traffic in multi-gigabit environments. The Nokia IP2450 security platform was the first product announced as part of this collaboration. The first Accelerated Data Path (ADP) Service Modules were delivered, as was the latest version of the Nokia IPSO operating system IPSO 6.0 aimed at allowing customers to expand the performance of their Nokia IP Security appliances. The new Nokia for Business Channel Program came to market in January and more than 500 accredited partners joined during the year. In October, Nokia announced plans to expand the program to include operators and independent software vendors. Nokia Siemens Networks The new company defined its values and introduced ethics and integrity guidelines, as well as a compliance program, for all its employees. Nokia Siemens Networks showed its commitment to emerging markets with the expansion of R&D capacity in Chengdu, China, and the investment of USD 100 million to strengthen operations in India. The company also moved its Services business unit to India. Deals signed in India included a USD 500 million network expansion contract with Idea Cellular and a USD 900m end-to-end network expansion with Bharti Airtel; and in China a EUR 180 million GSM/EDGE deal with Henan MCC . Nokia Siemens Networks won a deal with Sprint Nextel to become an infrastructure provider for its 4G WiMAX network; won the first commercial deployment for its I-HSPA solution with TerreStar; won a trial deal with Verizon for LTE ; and was chosen together with Panasonic by NTT DoCoMo in Japan for its super 3G (LTE) base station project. Nokia Siemens Networks demonstrated the world's first multi-user field trial in an urban environment using LTE technology, which delivers data rates up to 10 times the current level. Nokia Siemens Networks also became the first company to successfully deploy hybrid backhaul in a live network, aimed at allowing operators to reduce costs while boosting capacity. The company signed a cooperation agreement with Intel in IPTV; and launched a new 3G Femto Home Access solution and then struck Femto cooperation deals with Airvana Inc. and Thomson. Nokia Siemens Networks announced an energy efficiency solution designed to lower customers' energy consumption and operating expenses. In December, Nokia Siemens Networks reached an agreement on supplying 2G and 3G network equipment to Zain in Saudi Arabia (the USD 935 million deal was announced on January 7, 2008.) Multimedia Multimedia continued to build the Nokia Nseries sub-brand and multimedia computer product category, and developed and brought to market Nokia's first Internet services, such as Nokia Maps and the Nokia Music Store. Key volume devices for 2007 included the Nokia N95, Nokia's flagship product for technology enthusiasts, the Nokia N73 and the Nokia N70. Important new products launched and shipping during the year included the Nokia N95 8GB, which follows on from the success of the original Nokia N95 with a larger display, enhanced usage times and 8 gigabytes memory capacity; Nokia N81, an entertainment focused multimedia computer, and the Nokia N82, a multimedia computer optimized for photography, navigation and Internet connectivity. Multimedia also announced and started shipments of the Nokia N810 Internet Tablet with slide-out keyboard, built-in GPS, digital audio/ video playback and WLAN capability for VoIP calling. Acquisitions and divestments On April 1, 2007, Nokia's Networks business group was combined with Siemens' carrier-related operations for fixed and mobile networks to form Nokia Siemens Networks, a company jointly owned by Nokia and Siemens and consolidated by Nokia. On July 24, 2007, Nokia announced that it had acquired substantially all the assets of Twango, a provider of a comprehensive media sharing solution for organizing and sharing photos, videos and other personal media. 4 Nokia in 2007 Review by the Board of Directors On August 8, 2007, in connection with Nokia's announcement of introducing a licensing and multisourcing model for its chipset strategy, Nokia also announced that it planned to deepen its collaboration with STMicroelectronics on the licensing and supply of integrated circuit designs and modem technologies for 3G and its evolution. This included a transfer of a part of Nokia's integrated circuit operations to STMicroelectronics, the closing of which was announced on November 5, 2007. On September 17, 2007, Nokia announced the acquisition of Enpocket, a global leader in mobile advertising. The completion of the acquisition was announced on October 8, 2007. On October 1, 2007, Nokia and NAVTEQ Corporation announced a definitive agreement for Nokia to acquire NAVTEQ, a leading provider of comprehensive digital map information for automotive navigation systems, mobile navigation devices, Internet-based mapping applications, and government and business solutions. Under the terms of the agreement, Nokia agreed to pay USD 78 in cash for each share of NAVTEQ including outstanding options for an aggregate purchase price of USD 8.1 billion, or approximately USD 7.7 billion net of NAVTEQ 's existing cash balance. The acquisition has been approved by the board of directors of each company and the shareholders of NAVTEQ and is subject to customary closing conditions, including regulatory approvals. On October 23, 2007, Nokia Siemens Networks announced that it would assume control of Vivento Technical Services (VTS), a division of Deutsche Telekom's personnel service provider, Vivento. As part of the deal, approximately 2 000 VTS employees transferred to Nokia Siemens Networks in Germany. On October 25, 2007, Nokia Siemens Networks announced the acquisition of Atrica, which provides a full range of Carrier Ethernet transport solutions to service providers delivering Metro Ethernet services. The completion of the acquisition was announced on January 7, 2008. On December 5, 2007, Nokia announced the completion of the acquisition of Avvenu, a company providing secure remote access and private sharing technology that allows users to access and view PC files remotely. Management and Board of Directors Board of Directors and President Pursuant to the articles of association, Nokia has a Board of Directors composed of a minimum of seven and a maximum of twelve members. The members of the Board are elected at each Annual General Meeting for a term of one year expiring at the close of the following Annual General Meeting. The Annual General Meeting convenes each year by June 30. A general meeting may also dismiss a member of the Board of Directors. The Board of Directors shall elect and dismiss the President of Nokia. The current members of the Board of Directors were elected at the Annual General Meeting on May 3, 2007. On December 31, 2007, the Board consisted of the following members: Jorma Ollila (Chair), Marjorie Scardino (Vice Chair), Georg Ehrnrooth, Lalita D. Gupte, Bengt Holmstrm, Henning Kagermann, Per Karlsson, Olli-Pekka Kallasvuo, Keijo Suila and Vesa Vainio. Also Daniel R . Hesse was re-elected as a Nokia Board member in the Annual General Meeting on May 3, 2007. Due to his resignation from the Board of Directors after being appointed as President and CEO of Sprint Nextel Corporation, Nokia announced on December 28, 2007, that its Board consisted of the above-mentioned ten members. Information on shares and stock options held by the members of the Board of Directors and the President and CEO of Nokia may be found in the Annual Accounts. Provisions on the amendment of articles of association Amendment of the articles of association requires a decision of the general meeting, supported by two-thirds of the votes cast and two-thirds of the shares represented at the meeting. Amendment of the provisions of Article 13 of the articles of association requires a resolution supported by three-quarters of the votes cast and three-quarters of the shares represented at the meeting. Shares and share capital Nokia has one class of shares. Each Nokia share entitles the holder to one vote at general meetings of Nokia. In 2007, Nokia's shareholders' equity increased by EUR 193 904.82 as a result of the issue of 3 231 747 new shares upon exercise of stock options issued to personnel in 2003 and 2005. Effective April 4, 2007, a total of 169 500 000 shares held by the company were cancelled. The cancellation of shares does not have an effect on the amount of share capital of the company. Neither the aforementioned issuances nor the cancellation of shares had any significant effect on the relative holdings of the other shareholders of the company nor on their voting power. Nokia repurchased through its share repurchase plan a total of 180.6 million shares on the Helsinki Stock Exchange at an aggregate price of approximately EUR 3 884 million during the period from January 26, 2007, to December 21, 2007. The price paid was based on the market price at the time of repurchase. The shares were repurchased to be used for the purposes specified in the authorizations given by the Annual General Meetings of 2006 and 2007 to the Board. The aggregate amount of shares repurchased in 2007 represented approximately 4.6% of the total number of shares of the company and the total voting rights. These new holdings did not have any significant effect on the relative holdings of the other shareholders of the company nor on their voting power. As announced on May 21, 2007, Nokia transferred a total of 2.3 million Nokia shares held by it under the Performance Share Plans and 0.9 million shares held by it under its Restricted Share Plans as settlement under the plans to the Plan participants, personnel of Nokia Group. The amount of shares transferred represented approximately 0.08% of the total number of shares of the company and the total voting rights. The transfers did not have a significant effect on the relative holdings of the other shareholders of the company nor on their voting power. On December 31, 2007, Nokia and its subsidiary companies owned 136 862 005 Nokia shares. The shares represented approximately 3.4% of the total number of the shares of the company and the total voting rights. The total number of shares at December 31, 2007, was 3 982 811 957. On December 31, 2007, Nokia's share capital was EUR 245 896 461.96. Changes in the Group Executive Board Timo Ihamuotila was appointed as a new member of the Group Executive Board effective April 1, 2007. Service contracts Olli Pekka Kallasvuo's service contract covers his current position as President and CEO and Chairman of the Group Executive Board. As of December 31, 2007, Mr. Kallasvuo's annual total gross base salary, which is subject to an annual review by the Board of Directors and confirmation by the independent members of the Board, is EUR 1 050 000. His incentive targets under the Nokia short-term cash incentive plan are 150% of the annual gross base salary. In case of termination by Nokia for reasons other than cause, including a change of control, Mr. Kallasvuo is entitled to a severance payment of up to 18 months of compensation (both the annual total gross base salary and target incentive). In case of termination by Mr. Kallasvuo, the notice period is 6 months and he is entitled to a payment for such notice period (both annual total gross base salary and target incentive for 6 months). Mr. Kallasvuo is subject to a 12-month non-competition obligation after termination of the contract. Unless the contract is terminated for cause, Mr. Kallasvuo may be entitled to compensation during the non-competition period or a part of it. Such compensation amounts to the annual total gross base salary and target incentive for the respective period during which no severance payment is paid. Personnel The average number of employees for 2007 was 100 534 (65 324 for 2006 and 56 896 for 2005). At December 31, 2007, Nokia employed a total of 112 262 people (68 483 people at December 31, 2006). The increase in personnel in 2007 is primarily attributable to the formation of Nokia Siemens Networks. The total amount of wages and salaries paid in 2007 was EUR 4 664 million (EUR 3 457 million in 2006 and EUR 3 127 million in 2005). Review by the Board of Directors 5 Review by the Board of Directors Information on the authorizations held by the Board in 2007 to increase the share capital, transfer shares and repurchase own shares as well as information on the shareholders, stock options, dividend yield, price per earnings ratio, share prices, market capitalization, share turnover and average number of shares may be found in the Annual Accounts. completion of the acquisition is subject to customary closing conditions, including acceptance by shareholders of Trolltech representing more than 90% of the fully diluted share capital and the necessary regulatory approvals. Risk factors Industry and Nokia outlook for full year 2008 Nokia continues to expect industry mobile device volumes in 2008 to grow approximately 10% from the approximately 1.14 billion units Nokia estimates for 2007. Nokia continues to expect the device industry to experience value growth in 2008, but expects some decline in industry ASP s, primarily reflecting the increasing impact of the emerging markets and competitive factors in general. Nokia continues to target an increase in its market share in mobile devices in 2008. Nokia continues to expect very slight growth for the mobile and fixed infrastructure and related services market in euro terms in 2008. Nokia and Nokia Siemens Networks continue to target that Nokia Siemens Networks will grow faster than the market in 2008. Nokia and Nokia Siemens Networks cost synergy target for Nokia Siemens Networks is to achieve substantially all of the EUR 2.0 billion of targeted annual cost synergies by the end of 2008, as previously announced. Set forth below is a description of factors that may affect our business, results of operations and share price from time to time. We need to have a competitive portfolio of products, services and solutions that are preferred by our current and potential customers to those of our competitors. If we fail to achieve or maintain a competitive portfolio, our business, market share and results of operations may be materially adversely affected. Our sales and profitability depend materially on the continued growth of the mobile communications industry in terms of the number of new mobile subscribers, number of existing subscribers who upgrade and/or replace their devices, and increased usage and demand for valueadded services as well as on general economic conditions globally and regionally. If the mobile communications industry does not grow as we expect or general economic conditions deteriorate, our business and results of operations may be materially adversely affected. The mobile communications industry continues to undergo significant changes and new market segments within our industry have been introduced and are still being introduced. Our sales and profitability are significantly affected by the growth and profitability of the new market segments that we target and our ability to successfully develop or acquire and market products, services and solutions in those segments. If the new market segments we target and invest in grow less or are less profitable than expected, or if new faster growing market segments emerge in which we have not invested, our business, results of operations and financial condition may be materially adversely affected. Our business and results of operations, particularly our profitability, may be materially adversely affected if we are not able to successfully manage costs related to our products, services, solutions and operations. Competition in our industry is intense. Our failure to maintain or improve our market position or respond successfully to changes in the competitive landscape may have a material adverse effect on our business and results of operations. We must develop or otherwise acquire complex, evolving technologies to use in our business. If we fail to develop or otherwise acquire these complex technologies as required by the market, with full rights needed to use in our business, or to protect them, or to successfully commercialize such technologies as new advanced products, services and solutions that meet customer demand, or fail to do so on a timely basis, this may have a material adverse effect on our business and results of operations. Our products, services and solutions include increasingly complex technologies, some of which have been developed by us or licensed to us by certain third parties. As a consequence, evaluating the rights related to the technologies we use or intend to use is more and more challenging, and we expect increasingly to face claims that we have infringed third parties' intellectual property rights. The use of these technologies may also result in increased licensing costs for us, restrictions on our ability to use certain technologies in our products, services and solution offerings, and/or costly and time-consuming litigation, which could have a material adverse effect on our business and results of operations. Our products, services and solutions include numerous new Nokia and Nokia Siemens Networks patented, standardized or proprietary technologies on which we depend. Third parties may use without a license or unlawfully infringe our intellectual property or commence actions seeking to establish the invalidity of the intellectual property rights of these technologies. This may have a material adverse effect on our business and results of operations. Currently expected benefits and synergies from forming Nokia Siemens Networks may not be achieved to the extent or within the time period that is currently anticipated or the currently expected benefits or synergies may not be sufficient to achieve the objectives for the formation of Nokia Siemens Networks. We may also encounter costs and difficulties related to the integration of Nokia Siemens Networks which could reduce or delay the realization of anticipated net sales, cost savings and operational benefits. The Siemens carrier-related operations transferred to Nokia Siemens Networks are the subject of various ongoing criminal and other governmental investigations related to whether certain transactions and payments arranged by some former employees of Siemens' Com business group were unlawful. As a result of those investigations, government authorities and others have taken and may take further actions against Siemens and/or its employees that may involve and affect the assets and employees transferred Subsequent events On December 20, 2007, Nokia announced its decision to transfer the Finnish statutory pension liability of Nokia and Nokia Siemens Networks to the pension insurance companies Ilmarinen and Varma, respectively, as of March 1, 2008. On January 15, 2008, Nokia announced plans to discontinue the production of mobile devices in Germany and close its Bochum site by mid-2008. Nokia plans to move the production to its other, more cost-competitive European facilities. On January 2, 2008, Nokia Siemens Networks announced the acquisition of the UK-based subscribercentric network specialist Apertio Ltd for approximately EUR 140 million. The acquisition closed on February 11, 2008. On January 28, 2008, Nokia and Norway-based software provider Trolltech ASA announced that they have entered into an agreement that Nokia will make a public voluntary offer to acquire Trolltech. The 6 Nokia in 2007 Review by the Board of Directors by Siemens to Nokia Siemens Networks, or there may be undetected additional violations that may have occurred prior to the transfer or violations that may have occurred after the transfer, of such assets and employees that could have a material adverse effect on Nokia Siemens Networks and our reputation, business, results of operations and financial condition. Any actual or even alleged defects or other quality issues in our products, services and solutions could materially adversely affect our sales, results of operations, reputation and the value of the Nokia brand. Our sales and results of operations could be materially adversely affected if we fail to efficiently manage our manufacturing and logistics without interruption, or fail to ensure that our products, services and solutions meet our and our customers' quality, safety, security and other requirements and are delivered on time and in sufficient volumes. We depend on a limited number of suppliers for the timely delivery of sufficient amounts of fully functional components and subassemblies and for their compliance with our supplier requirements, such as our and our customers' product quality, safety, security and other standards. Their failure to do so could materially adversely affect our ability to deliver our products, services and solutions successfully and on time. Our operations rely on complex and centralized information technology systems and networks. If any system or network disruption occurs, this could have a material adverse effect on our business and results of operations. The global networks business relies on a limited number of customers and large multiyear contracts. Unfavorable developments under such a contract or in relation to a major customer may adversely and materially affect our sales, results of operations and financial position. Our sales derived from, and assets located in, emerging market countries may be materially adversely affected by economic, regulatory and political developments in those countries or by other countries imposing regulations against imports to such countries. As sales from these countries represent a significant portion of our total sales, economic or political turmoil in these countries could materially adversely affect our sales and results of operations. Our investments in emerging market countries may also be subject to other risks and uncertainties. We are developing a number of our new products, services and solutions together with other companies. If any of these companies were to fail to perform as planned, we may not be able to bring our products, services and solutions to market successfully or in a timely way and this could have a material adverse effect on our sales and results of operations. Our sales, costs and results of operations are affected by exchange rate fluctuations, particularly between the euro, which is our reporting currency, and the US dollar, the Chinese yuan, the UK pound sterling and the Japanese yen, as well as certain other currencies. Providing customer financing or extending payment terms to customers can be a competitive requirement and could have a material adverse effect on our results of operations and financial condition. Allegations of possible health risks from the electromagnetic fields generated by base stations and mobile devices, and the lawsuits and publicity relating to them, regardless of merit, could have a material adverse effect on our sales, results of operations and share price by leading consumers to reduce their use of mobile devices, or by leading regulatory bodies to set arbitrary use restrictions and exposure limits, or by causing us to allocate additional monetary and personnel resources to these issues. An unfavorable outcome of litigation could have a material adverse effect on our business, results of operations and financial condition. If we are unable to recruit, retain and develop appropriately skilled employees, our ability to implement our strategies may be hampered and, consequently, that may have a material adverse effect on our business and results of operations. Changes in various types of regulation and trade policies in countries around the world could have a material adverse effect on our business. If we are unable to effectively and smoothly implement the new organizational structure effective January 1, 2008, we may experience a material adverse effect on our business, sales and results of operations. Dividend Nokia's Board of Directors will propose a dividend of EUR 0.53 per share for 2007. Review by the Board of Directors 7 Nokia Corporation and Subsidiaries Consolidated profit and loss accounts, IFRS Financial year ended December 31 Net sales Cost of sales Gross profit Research and development expenses Selling and marketing expenses Administrative and general expenses Other income Other expenses Operating profit Share of results of associated companies Financial income and expenses Profit before tax Tax Profit before minority interests Minority interests Profit attributable to equity holders of the parent 11 6 6, 7 Notes 2007 EURm 51 058 33 754 17 304 5 647 4 380 1 180 2 312 424 7 985 44 239 8 268 1 522 6 746 459 7 205 2006 EURm 41 121 27 742 13 379 3 897 3 314 666 522 536 5 488 28 207 5 723 1 357 4 366 60 4 306 2005 EURm 34 191 22 209 11 982 3 825 2 961 609 285 233 4 639 10 322 4 971 1 281 3 690 74 3 616 29 14, 31 10 Earnings per share (for profit attributable to the equity holders of the parent) Basic Diluted 28 2007 EUR 1.85 1.83 2006 EUR 1.06 1.05 2005 EUR 0.83 0.83 Average number of shares (1 000 shares) Basic Diluted See Notes to consolidated financial statements. 28 2007 3 885 408 3 932 008 2006 4 062 833 4 086 529 2005 4 365 547 4 371 239 8 Nokia in 2007 Nokia Corporation and Subsidiaries Consolidated balance sheets, IFRS December 31 ASSETS Non-current assets Capitalized development costs Goodwill Other intangible assets Property, plant and equipment Investments in associated companies Available-for-sale investments Deferred tax assets Long-term loans receivable Other non-current assets Current assets Inventories Accounts receivable, net of allowances for doubtful accounts (2007: EUR 332 million, 2006: EUR 212 million) Prepaid expenses and accrued income Current portion of long-term loans receivable Other financial assets Available-for-sale investments, liquid assets Available-for-sale investments, cash equivalents Bank and cash Total assets SHAREHOLDERS' EQUITY AND LIABILITIES Capital and reserves attributable to equity holders of the parent Share capital Share issue premium Treasury shares, at cost Translation differences Fair value and other reserves Reserve for invested non-restricted equity Retained earnings Minority interests Total equity Non-current liabilities Long-term interest-bearing liabilities Deferred tax liabilities Other long-term liabilities Current liabilities Current portion of long-term loans Short-term borrowings Accounts payable Accrued expenses Provisions Total shareholders' equity and liabilities See Notes to consolidated financial statements. Notes 2007 EURm 2006 EURm 12 12 12 13 14 15 24 16, 25 378 1 384 2 358 1 912 325 341 1 553 10 44 8 305 251 532 298 1 602 224 288 809 19 8 4 031 1 554 5 888 2 496 -- 111 5 012 2 046 1 479 18 586 22 617 17, 19 19, 35 18 35 2 876 11 200 3 070 156 239 4 903 4 725 2 125 29 294 37 599 15, 35 15, 32, 35 32, 35 21 246 644 3 146 163 246 2 707 2 060 34 14 -- 11 123 11 968 92 12 060 20 23 3 299 13 870 14 773 2 565 17 338 23, 35 24 203 963 119 1 285 69 205 122 396 -- 247 3 732 3 796 2 386 10 161 22 617 35 35 35 25 27 173 898 7 074 7 114 3 717 18 976 37 599 Consolidated financial statements 9 Nokia Corporation and Subsidiaries Consolidated cash flow statements, IFRS Financial year ended December 31 Cash flow from operating activities Profit attributable to equity holders of the parent Adjustments, total Profit attributable to equity holders of the parent before change in net working capital Change in net working capital Cash generated from operations Interest received Interest paid Other financial income and expenses, net Income taxes paid, net received Net cash from operating activities Cash flow from investing activities Acquisition of Group companies, net of acquired cash Purchase of current available-for-sale investments, liquid assets Purchase of non-current available-for-sale investments Purchase of shares in associated companies Additions to capitalized development costs Long-term loans made to customers Proceeds from repayment and sale of long-term loans receivable Recovery of impaired long-term loans made to customers Proceeds from (+) /payment of () other long-term receivables Proceeds from (+) /payment of () short-term loans receivable Capital expenditures Proceeds from disposal of shares in Group companies, net of disposed cash Proceeds from disposal of shares in associated companies Proceeds from disposal of businesses Proceeds from maturities and sale of current available-for-sale investments, liquid assets Proceeds from sale of current available-for-sale investments Proceeds from sale of non-current available-for-sale investments Proceeds from sale of fixed assets Dividends received Net cash from (used in) investing activities Cash flow from financing activities Proceeds from stock option exercises Purchase of treasury shares Proceeds from long-term borrowings Repayment of long-term borrowings Proceeds from (+) /repayment of () short-term borrowings Dividends paid Net cash used in financing activities Foreign exchange adjustment Net increase (+) /decrease () in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 987 3 819 115 16 661 1 760 3 832 15 3 325 3 525 6 850 46 3 371 56 7 137 1 553 4 966 51 467 3 058 3 525 2 4 258 5 -- 212 1 531 5 570 183 601 2 457 3 058 253 4 798 126 25 157 261 163 -- 5 119 715 -- 6 -- 4 930 -- 50 72 12 710 517 3 219 88 15 127 11 56 276 3 199 650 -- 1 -- 5 058 -- 17 29 -- 1 006 92 7 277 89 16 153 56 -- -- 14 182 607 5 18 95 9 402 247 3 167 1 1 844 32 32 Notes 2007 EURm 2006 EURm 2005 EURm 7 205 1 269 8 474 605 9 079 362 59 43 1 457 7 882 4 306 1 857 6 163 793 5 370 235 18 54 1 163 4 478 3 616 1 774 5 390 366 5 024 353 26 47 1 254 4 144 10 Nokia in 2007 Nokia Corporation and Subsidiaries Consolidated cash flow statements, IFRS (continued) Financial year ended December 31 Cash and cash equivalents comprise of: Bank and cash Current available-for-sale investments, cash equivalents 15, 35 Notes 2007 EURm 2006 EURm 2005 EURm 2 125 4 725 6 850 1 479 2 046 3 525 1 565 1 493 3 058 The figures in the consolidated cash flow statement cannot be directly traced from the balance sheet without additional information as a result of acquisitions and disposals of subsidiaries and net foreign exchange differences arising on consolidation. See Notes to consolidated financial statements. Consolidated financial statements 11 Nokia Corporation and Subsidiaries Consolidated statements of changes in shareholders' equity, IFRS EURm Balance at December 31, 2004 Number of shares (1 000's) 4 486 941 Share capital 280 Share issue premium 2 366 2 406 211 132 57 55 3 616 3 561 Treasury shares 2 022 Translation differences 126 Fair value and other reserves 13 Reserve for invested non-restrict equity -- Retained earnings 13 874 Before minority interests 14 385 2 406 211 132 57 55 3 616 3 565 2 1 79 4 268 10 -- 1 463 5 641 12 309 23 14 141 38 171 9 52 4 306 4 350 43 1 219 31 3 413 4 -- 1 512 -- 4 691 11 968 128 167 38 11 48 40 7 205 7 201 978 3 228 37 3 884 7 -- -- 1 685 -- 4 396 14 773 Minority interests 168 31 Total 14 553 2 437 211 132 57 54 3 690 3 671 2 1 79 4 268 10 -- 1 532 5 710 12 514 23 14 154 38 171 9 53 4 366 4 396 43 1 219 31 3 413 4 -- 1 552 119 4 850 12 060 128 151 38 11 48 40 6 746 6 758 978 3 228 37 3 884 7 -- -- 1 760 2 991 1 480 17 338 Tax benefit on stock options exercised Translation differences Net investment hedge losses Cash flow hedges, net of tax Available-for-sale investments, net of tax Other decrease, net Profit Total recognized income and expense Stock options exercised 125 Stock options exercised related to acquisitions Share-based compensation 1 Acquisition of treasury shares 315 174 Reissuance of treasury shares 484 Cancellation of treasury shares Dividend Total of other equity movements Balance at December 31, 2005 4 172 376 Tax benefit on stock options exercised Excess tax benefit on share-based compensation Translation differences Net investment hedge gains, net of tax Cash flow hedges, net of tax Available-for-sale investments, net of tax Other decrease, net Profit Total recognized income and expense Stock options exercised 3 046 Stock options exercised related to acquisitions Share-based compensation 1 Settlement of performance and restricted shares 2 236 Acquisition of treasury shares 212 340 Reissuance of treasury shares 412 Cancellation of treasury shares Dividend Acquisition of minority interests Total of other equity movements 3 965 730 Balance at December 31, 2006 -- 2 2 1 79 -- 195 189 -- 1 74 106 14 14 266 14 94 2 458 23 14 4 268 10 2 664 1 594 3 616 -- 69 -- 176 -- -- 2 664 1 463 4 127 13 308 69 69 205 141 38 171 9 52 4 306 4 254 13 -- 0 37 43 1 219 69 -- 103 162 -- 1 60 46 20 20 38 3 413 4 4 927 4 927 1 512 -- 34 167 38 11 48 40 7 205 7 165 -- 14 6 439 11 123 20 246 212 2 707 128 1 556 2 060 -- 40 119 159 92 16 Excess tax benefit on share-based compensation Translation differences Net investment hedge gains, net of tax Cash flow hedges, net of tax Available-for-sale investments, net of tax Other decrease, net Profit Total recognized income and expense -- Stock options exercised 57 269 0 Stock options exercised related to acquisitions Share-based compensation Settlement of performance and restricted shares 3 138 Acquisition of treasury shares 180 590 Reissuance of treasury shares 403 Cancellation of treasury shares Share premium reduction and transfer Dividend Minority interest on formation of Nokia Siemens Networks Total of other equity movements 0 3 845 950 246 Balance at December 31, 2007 1 128 46 3 228 104 -- 129 37 -- 932 459 443 58 3 884 7 2 733 9 2 733 2 358 1 685 2 358 2 191 644 1 086 3 146 -- 163 -- 23 3 299 3 299 4 418 13 870 75 2 991 2 916 2 565 In 2005 and 2006, share-based compensation is shown net of deferred compensation recorded related to social security costs on share-based payments. Dividends declared per share were EUR 0.53 for 2007 (EUR 0.43 for 2006 and EUR 0.37 for 2005), subject to shareholders' approval. 12 Nokia in 2007 Notes to the consolidated financial statements Notes to the consolidated financial statements 1. Accounting principles Basis of presentation The consolidated financial statements of Nokia Corporation ("Nokia" or "the Group"), a Finnish public limited liability company with domicile in Helsinki, in the Republic of Finland, are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (" IASB ") and in conformity with IFRS as adopted by the European Union (" IFRS"). The consolidated financial statements are presented in millions of euros ("EURm"), except as noted, and are prepared under the historical cost convention, except as disclosed in the accounting policies below. The notes to the consolidated financial statements also conform with Finnish Accounting legislation. On March 19, 2008, Nokia's Board of Directors authorized the financial statements for issuance and filing. As described in Note 8 the Group and Siemens AG ("Siemens") completed a transaction to form Nokia Siemens Networks on April 1, 2007. Nokia and Siemens contributed to Nokia Siemens Networks certain tangible and intangible assets and certain business interests that comprised Nokia's networks business and Siemens' carrier-related operations. This transaction had a material impact on the consolidated financial statements and associated notes. 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 effective for accounting periods commencing on or after January 1, 2007. IFRS 7 Financial Instruments: Disclosures. The impact of the new standard has been to expand the disclosures provided in the financial statements regarding the Group's financial instruments. The Group's financial instruments include available-for-sale investments, derivatives, loans receivable and payable and accounts receivable and payable. IFRIC 8, Scope of IFRS 2 requires consideration of transactions involving the issuance of equity instruments where the identifiable consideration received is less than the fair value of the equity instruments issued to establish whether or not they fall within the scope of IFRS 2. IFRIC 9, Reassessment of Embedded Derivatives requires an entity to assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. IAS 1 (Amendment), Presentation of Financial Statements: Capital Disclosures requires qualitative and quantitative disclosures to enable users to evaluate an entity's objectives, policies and processes for managing capital. The adoption of each of the above mentioned standards did not have a material impact to the Group's balance sheet, profit and loss or cash flows. Assessment of the recoverability of long-lived and intangible assets and goodwill For the purposes of impairment testing, goodwill is allocated to cash-generating units that are expected to benefit from the synergies of the acquisition in which the goodwill arose. The Group assesses the carrying value of goodwill annually, or more frequently if events or changes in circumstances indicate that such carrying value may not be recoverable. The Group assesses the carrying value of identifiable intangible assets and long-lived assets if events or changes in circumstances indicate that such carrying value may not be recoverable. Factors that trigger an impairment review include underperformance relative to historical or projected future results, significant changes in the manner of the use of the acquired assets or the strategy for the overall business and significant negative industry or economic trends. The Group conducts its impairment testing by determining the recoverable amount for the asset or cash-generating unit. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. The recoverable amount is then compared to its carrying amount and an impairment loss is recognized if the recoverable amount is less than the carrying amount. Impairment losses are recognized immediately in the profit and loss account. Principles of consolidation The consolidated financial statements include the accounts of Nokia's parent company ("Parent Company"), and each of those companies over which the Group exercises control. Control over an entity is presumed to exist when the Group owns, directly or indirectly through subsidiaries, over 50% of the voting rights of the entity, the Group has the power to govern the operating and financial policies of the entity through agreement or the Group has the power to appoint or remove the majority of the members of the board of the entity. The Group's share of profits and losses of associated companies is included in the consolidated profit and loss account in accordance with the equity method of accounting. An associated company is an entity over which the Group exercises significant influence. Significant influence is generally presumed to exist when the Group owns, directly or indirectly through subsidiaries, over 20% of the voting rights of the company. All inter-company transactions are eliminated as part of the consolidation process. Minority interests are presented separately in arriving at the net profit and they are shown as a component of shareholders' equity in the consolidated balance sheet. Profits realized in connection with the sale of fixed assets between the Group and associated companies are eliminated in proportion to share ownership. Such profits are deducted from the Group's equity and fixed assets and released in the Group accounts over the same period as depreciation is charged. The companies acquired during the financial periods presented have been consolidated from the date on which control of the net assets and operations was transferred to the Group. Similarly the result of a Group company divested during an accounting period is included in the Group accounts only to the date of disposal. Foreign currency translation Functional and presentation currency The financial statements of all Group entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). The consolidated financial statements are presented in Euro, which is the functional and 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 non-functional foreign currency receivables and liabilities are valued at the rates of exchange prevailing at the year-end. Foreign exchange gains and losses arising from balance sheet items, as well as fair value changes in the related hedging instruments, are reported in Financial Income and Expenses. Foreign Group companies In the consolidated accounts all income and expenses of foreign subsidiaries are translated into Euro at the average foreign exchange rates for the accounting period. All assets and liabilities of foreign Group companies are translated into Euro at the year-end foreign exchange rates with the exception of goodwill arising on the acquisition of foreign companies prior Business combinations The purchase method of accounting is used to account for acquisitions of businesses by the Group. The cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities assumed or incurred, equity instruments issued and costs directly attributable to the acquisition. Identifiable assets, liabilities and contingent liabilities acquired or assumed by the Group are measured separately at their fair value as of the acquisition date. The excess of the cost of the acquisition over the Group's interest in the fair value of the identifiable net assets acquired is recorded as goodwill. Notes to the consolidated financial statements 13 Notes to the consolidated financial statements to the adoption of IAS 21 (revised 2004) on January 1, 2005, which is translated to Euro at historical rates. Differences resulting from the translation of income and expenses at the average rate and assets and liabilities at the closing rate are treated as an adjustment affecting consolidated shareholders' equity. On the disposal of all or part of a foreign Group company by sale, liquidation, repayment of share capital or abandonment, the cumulative amount or proportionate share of the translation difference is recognized as income or as expense in the same period in which the gain or loss on disposal is recognized. Revenue recognition Sales from the majority of the Group are recognized when the significant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. An immaterial part of the revenue from products sold through distribution channels is recognized when the reseller or distributor sells the products to the end users. The Group records reductions to revenue for special pricing agreements, price protection and other volume based discounts. Service revenue is generally recognized on a straight line basis over the service period unless there is evidence that some other method better represents the stage of completion. The Group enters into transactions involving multiple components consisting of any combination of hardware, services and software. The commercial effect of each separately identifiable component of the transaction is evaluated in order to reflect the substance of the transaction. The consideration received from these transactions is allocated to each separately identifiable component based on the relative fair value of each component. The Group determines the fair value of each component by taking into consideration factors such as the price when the component or a similar component is sold separately by the Group or a third party. The consideration allocated to each component is recognized as revenue when the revenue recognition criteria for that component have been met. If the Group is unable to reliably determine the fair value attributable to separately identifiable undelivered components, the Group defers revenue until the revenue recognition criteria for the undelivered components have been met. In addition, sales and cost of sales from contracts involving solutions achieved through modification of complex telecommunications equipment are recognized using the percentage of completion method when the outcome of the contract can be estimated reliably. A contract's outcome can be estimated reliably when total contract revenue and the costs to complete the contract can be estimated reliably, it is probable that the economic benefits associated with the contract will flow to the Group and the stage of contract completion can be measured reliably. When the Group is not able to meet those conditions, the policy is to recognize revenue only equal to costs incurred to date, to the extent that such costs are expected to be recovered. Progress towards completion is measured by reference to cost incurred to date as a percentage of estimated total project costs using the cost-to-cost method. The percentage of completion method relies on estimates of total expected contract revenue and costs, as well as dependable measurement of the progress made towards completing a particular project. Recognized revenues and profits are subject to revisions during the project in the event that the assumptions regarding the overall project outcome are revised. The cumulative impact of a revision in estimates is recorded in the period such revisions become likely and estimable. Losses on projects in progress are recognized in the period they become probable and estimable. Pensions The Group companies have various pension schemes in accordance with the local conditions and practices in the countries in which they operate. The schemes are generally funded through payments to insurance companies or to trustee-administered funds as determined by periodic actuarial calculations. The Group's contributions to defined contribution plans and to multi-employer and insured plans are recognized in the profit and loss account in the period to which the contributions relate. For defined benefit plans, pension costs are assessed using the projected unit credit method: The pension cost is recognized in the profit and loss account so as to spread the service cost over the service lives of employees. The pension obligation is measured as the present value of the estimated future cash outflows using interest rates on high quality corporate bonds with appropriate maturities. Actuarial gains and losses outside the corridor are recognized over the average remaining service lives of employees. The corridor is defined as ten percent of the greater of the value of plan assets or defined benefit obligation at the beginning of the respective year. Past service costs are recognized immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortized on a straight-line basis over the vesting period. Shipping and handling costs The costs of shipping and distributing products are included in cost of sales. Research and development Research and development costs are expensed as they are incurred, except for certain development costs, which are capitalized when it is probable that a development project will generate future economic benefits, and certain criteria, including commercial and technological feasibility, have been met. Capitalized development costs, comprising direct labor and related overhead, are amortized on a systematic basis over their expected useful lives between two and five years. Capitalized development costs are subject to regular assessments of recoverability based on anticipated future revenues, including the impact of changes in technology. Unamortized capitalized development costs determined to be in excess of their recoverable amounts are expensed immediately. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is recorded on a straight-line basis over the expected useful lives of the assets as follows: Buildings and constructions Production machinery, measuring and test equipment Other machinery and equipment 2033 years 13 years 310 years Other intangible assets Acquired patents, trademarks, licenses, software licenses for internal use, customer relationships and developed technology are capitalized and amortized using the straight-line method over their useful lives, generally 3 to 6 years, but not exceeding 20 years. Where an indication of impairment exists, the carrying amount of any intangible asset is assessed and written down to its recoverable amount. Land and water areas are not depreciated. Maintenance, repairs and renewals are generally charged to expense during the financial period in which they are incurred. However, major renovations are capitalized and included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. Leasehold improvements are depreciated over the shorter of the lease term or useful life. Gains and losses on the disposal of fixed assets are included in operating profit/loss. 14 Nokia in 2007 Notes to the consolidated financial statements Leases The Group has entered into various operating leases, the payments under which are treated as rentals and recognized in the profit and loss account on a straight-line basis over the lease terms. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using standard cost, which approximates actual cost on a FIFO basis. Net realizable value is the amount that can be realized from the sale of the inventory in the normal course of business after allowing for the costs of realization. In addition to the cost of materials and direct labor, an appropriate proportion of production overhead is included in the inventory values. An allowance is recorded for excess inventory and obsolescence based on the lower of cost or net realizable value. Financial assets The Group has classified its financial assets as one of the following categories: available-for-sale investments, loans and receivables, bank and cash and financial assets at fair value through profit or loss. Available-for-sale investments The Group classifies the following investments as available for sale based on the purpose for acquiring the investments as well as ongoing intentions: (1) highly liquid, interest-bearing investments with maturities at acquisition of less than 3 months, which are classified in the balance sheet as current available-forsale investments, cash equivalents, (2) similar types of investments as in category (1), but with maturities at acquisition of longer than 3 months, classified in the balance sheet as current available-for-sale investments, liquid assets, (3) investments in technology related publicly quoted equity shares, or unlisted private equity shares and unlisted funds, classified in the balance sheet as non-current available-for-sale investments. Current fixed income and money-market investments are fair valued by using quoted market rates, discounted cash flow analyses and other appropriate valuation models at the balance sheet date. Investments in publicly quoted equity shares are measured at fair value using exchange quoted bid prices. Other available-for-sale investments carried at fair value include holdings in unlisted shares. Fair value for these unlisted shares is estimated by using various factors, including, but not limited to: (1) the current market value of similar instruments, (2) prices established from a recent arm's length financing transaction of the target companies, (3) analysis of market prospects and operating performance of the target companies taking into consideration of public market comparable companies in similar industry sectors. The remaining available-for-sale investments are carried at cost less impairment, which are technology related investments in private equity shares and unlisted funds for which the fair value cannot be measured reliably due to non-existence of public markets or reliable valuation methods, against which to value these assets. The investment and disposal decisions on these investments are business driven. All purchases and sales of investments are recorded on the trade date, which is the date that the Group commits to purchase or sell the asset. The fair value changes of available-for-sale investments are recognized in fair value and other reserves as part of shareholders' equity, with the exception of interest calculated using effective interest method and foreign exchange gains and losses on monetary assets, which are recognized directly in profit and loss. Dividends on available-for-sale equity instruments are recognized in profit and loss when the Group's right to receive payment is established. When the investment is disposed of, the related accumulated fair value changes are released from shareholders' equity and recognized in the profit and loss account. The weighted average method is used when determining the cost-basis of publicly listed equities being disposed of. FIFO (First-in First-out) method is used to determine the cost basis of fixed income securities being disposed of. An impairment is recorded when the carrying amount of an availablefor-sale investment is greater than the estimated fair value and there is objective evidence that the asset is impaired. The cumulative net loss relating to that investment is removed from equity and recognized in the profit and loss account for the period. If, in a subsequent period, the fair value of the investment in a non-equity instrument increases and the increase can be objectively related to an event occurring after the loss was recognized, the loss is reversed, with the amount of the reversal included in the profit and loss account. Loans receivable Loans receivable include loans to customers and suppliers and are measured at amortized cost using the effective interest method less impairment. Loans are subject to regular and thorough review as to their collectibility and as to available collateral; in the event that any loan is deemed not fully recoverable, a provision is made to reflect the shortfall between the carrying amount and the present value of the expected cash flows. Interest income on loans receivable is recognized by applying the effective interest rate. The long term portion of loans receivable is included in the balance sheet under long-term loans receivable and the current portion under current portion of longterm 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 invoiced to customers, which is considered to be fair value, less allowances for doubtful accounts based on a periodic review of all outstanding amounts including an analysis of historical bad debt, customer concentrations, customer creditworthiness, current economic trends and changes in our customer payment terms. Bad debts are written off when identified. Financial liabilities Loans payable Loans payable are recognized initially at fair value, net of transaction costs incurred. Any difference between the fair value and the proceeds received is recognized in profit and loss at initial recognition. In the subsequent periods, they are stated at amortized cost using the effective interest method. The long term portion of loans payable is included in the balance sheet under long-term interest-bearing liabilities and the current portion under current portion of long-term loans. Accounts payable Accounts payable are carried at the original invoiced amount, which is considered to be fair value due to the short-term nature. Derivative financial instruments All derivatives are recorded at fair value according to the same principles but the accounting treatment varies according to whether the derivatives are designated and qualify under hedge accounting. Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss Fair values of forward rate agreements, interest rate options, futures contracts and exchange traded options are calculated based on quoted market rates at each balance sheet date. Discounted cash flow analyses are used to value interest rate and currency swaps. Changes in the fair value of these contracts are recognized in the profit and loss account. Fair values of cash settled equity derivatives are calculated by revaluing the contract at year end quoted market rates. Changes in fair value are recognized in the profit and loss account. Forward foreign exchange contracts are valued at the market forward exchange rates. Changes in fair value are measured by comparing these rates with the original contract forward rate. Currency options are valued at each balance sheet date by using the Garman & Kohlhagen option valuation model. Changes in the fair value on these instruments are recognized in the profit and loss account. Embedded derivatives are identified and monitored by the Group and recorded at fair value as at each balance sheet date. In assessing the fair value of embedded derivatives, the Group employs a variety of methods including option pricing models and discounted cash flow analysis using assumptions that are based on market conditions existing at each balance sheet date. The fair value changes are recognized in the profit and loss account. Notes to the consolidated financial statements 15 Notes to the consolidated financial statements Hedge accounting Cash flow hedges: Hedging of anticipated foreign currency denominated sales and purchases The Group applies hedge accounting for "Qualifying hedges". Qualifying hedges are those properly documented cash flow hedges of the foreign exchange rate risk of future anticipated foreign currency denominated sales and purchases that meet the requirements set out in IAS 39 (R). The cash flow being hedged must be "highly probable" and must present an exposure to variations in cash flows that could ultimately affect profit or loss. The hedge must be highly effective both prospectively and retrospectively. The Group claims hedge accounting in respect of certain forward foreign exchange contracts and options, or option strategies, which have zero net premium or a net premium paid, and where the critical terms of the bought and sold options within a collar or zero premium structure are the same and where the nominal amount of the sold option component is no greater than that of the bought option. For qualifying foreign exchange forwards the change in fair value that reflects the change in spot exchange rates is deferred in shareholders' equity to the extent that the hedge is effective. For qualifying foreign exchange options, or option strategies, the change in intrinsic value is deferred in shareholders' equity to the extent that the hedge is effective. In all cases the ineffective portion is recognized immediately in the profit and loss account as financial income and expenses. Hedging costs, either expressed as the change in fair value that reflects the change in forward exchange rates less the change in spot exchange rates for forward foreign exchange contracts, or changes in the time value for options, or options strategies, are recognized within other operating income or expenses. Accumulated fair value changes from qualifying hedges are released from shareholders' equity into the profit and loss account as adjustments to sales and cost of sales, in the period when the hedged cash flow affects the profit and loss account. If the hedged cash flow is no longer expected to take place, all deferred gains or losses are released immediately into the profit and loss account as adjustments to sales and cost of sales. If the hedged cash flow ceases to be highly probable, but is still expected to take place, accumulated gains and losses remain in equity until the hedged cash flow affects the profit and loss account. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting under IAS 39 (R) are recognized immediately in the profit and loss account. The fair value changes of derivative instruments that directly relate to normal business operations are recognized within other operating income and expenses. The fair value changes from all other derivative instruments are recognized in financial income and expenses. Cash flow hedges: Hedging of highly probable business acquisition The Group hedges the foreign currency risk in highly probable business acquisition transactions, which cre- ates cash flow variation in the transaction settlement flow and could potentially impact Group's profit and loss through goodwill assessment from the Group's perspective. In order to apply for hedge accounting, the planned business acquisition must be highly probable and the hedges must be effective prospectively and retrospectively. The Group claims hedge accounting in respect of forward foreign exchange contracts, foreign currency denominated loans, and options, or option strategies, which have zero net premium or a net premium paid, and where the terms of the bought and sold options within a collar or zero premium structure are the same. For qualifying foreign exchange forwards, the change in fair value that reflects the change in spot exchange rates is deferred in shareholders' equity. The change in fair value that reflects the change in forward exchange rates less the change in spot exchange rates is recognized in the profit and loss account within financial income and expenses. For qualifying foreign exchange options the change in intrinsic value is deferred in shareholders' equity. Changes in the time value are at all times recognized directly in the profit and loss account as financial income and expenses. In all cases the ineffective portion is recognized immediately in the profit and loss account as financial income and expenses. Accumulated fair value changes from qualifying hedges are released from shareholders' equity to adjust the EUR equivalent amount of the purchase price upon the completion of the business acquisition. Cash flow hedges: Foreign currency hedging of net investments The Group also applies hedge accounting for its foreign currency hedging on net investments. Qualifying hedges are those properly documented hedges of the foreign exchange rate risk of foreign currency denominated net investments that meet the requirements set out in IAS 39 (R). The hedge must be effective both prospectively and retrospectively. The Group claims hedge accounting in respect of forward foreign exchange contracts, foreign currency denominated loans, and options, or option strategies, which have zero net premium or a net premium paid, and where the terms of the bought and sold options within a collar or zero premium structure are the same. For qualifying foreign exchange forwards, the change in fair value that reflects the change in spot exchange rates is deferred in shareholders' equity. The change in fair value that reflects the change in forward exchange rates less the change in spot exchange rates is recognized in the profit and loss account within financial income and expenses. For qualifying foreign exchange options the change in intrinsic value is deferred in shareholders' equity. Changes in the time value are at all times recognized directly in the profit and loss account as financial income and expenses. If a foreign currency denominated loan is used as a hedge, all foreign exchange gains and losses arising from the transaction are recognized in shareholders' equity. In all cases the ineffective portion is recognized immediately in the profit and loss account as financial income and expenses. Accumulated fair value changes from qualifying hedges are released from shareholders' equity into the profit and loss account only if the legal entity in the given country is sold, liquidated, repays its share capital or is abandoned. Income taxes Current taxes are based on the results of the Group companies and are calculated according to local tax rules. Deferred tax assets and liabilities are determined, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. The enacted or substantially enacted tax rates as of each balance sheet date that are expected to apply in the period when the asset is realized or the liability is settled are used in the measurement of deferred tax assets and liabilities. The principal temporary differences arise from intercompany profit in inventory, warranty and other provisions, untaxed reserves and tax losses carried forward. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilized. Deferred tax liabilities are recognized for temporary differences that arise between the fair value and tax base of identifiable net assets acquired in business combinations. Provisions Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognized as an asset only when the reimbursement is virtually certain. At each balance sheet date, the Group assesses the adequacy of its pre-existing provisions and adjusts the amounts as necessary based on actual experience and changes in future estimates. Warranty provisions The Group provides for the estimated liability to repair or replace products under warranty at the time revenue is recognized. The provision is an estimate calculated based on historical experience of the level of repairs and replacements. Intellectual property rights (IPR) provisions The Group provides for the estimated future settlements related to asserted and unasserted past IPR infringements based on the probable outcome of potential infringement. 16 Nokia in 2007 Notes to the consolidated financial statements Tax provisions The Group recognizes a provision for tax contingencies based upon the estimated future settlement amount at each balance sheet date. Restructuring provisions The Group provides for the estimated cost to restructure when a detailed formal plan of restructuring has been completed and the restructuring plan has been announced. Other provisions The Group recognizes the estimated liability for non-cancelable purchase commitments for inventory in excess of forecasted requirements at each balance sheet date. The Group recognizes a provision for pension and other social costs on unvested equity instruments based upon local statutory law. In accordance with the requirements applying to cash-settled share-based payment transactions, this provision is measured at fair value and remeasurement of the fair value of the provision is recognized in profit or loss for the period. The Group provides for onerous contracts based on the lower of the expected cost of fulfilling the contract and the expected cost of terminating the contract. Dividends Dividends proposed by the Board of Directors are not recorded in the financial statements until they have been approved by the shareholders at the Annual General Meeting. regarding the overall project outcome are revised. Current sales and profit estimates for projects may materially change due to the early stage of a longterm project, new technology, changes in the project scope, changes in costs, changes in timing, changes in customers' plans, realization of penalties, and other corresponding factors. Customer financing The Group has provided a limited amount of customer financing and agreed extended payment terms with selected customers. Should the actual financial position of the customers or general economic conditions differ from assumptions, the ultimate collectibility of such financings and trade credits may be required to be re-assessed, which could result in a write-off of these balances and thus negatively impact profits in future periods. Allowances for doubtful accounts The Group maintains allowances for doubtful accounts for estimated losses resulting from the subsequent inability of customers to make required payments. If the financial conditions of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required in future periods. Inventory-related allowances The Group periodically reviews inventory for excess amounts, obsolescence and declines in market value below cost and records an allowance against the inventory balance for any such declines. These reviews require management to estimate future demand for products. Possible changes in these estimates could result in revisions to the valuation of inventory in future periods. Warranty provisions The Group provides for the estimated cost of product warranties at the time revenue is recognized. The Group's warranty provision is established based upon best estimates of the amounts necessary to settle future and existing claims on products sold as of each balance sheet date. As new products incorporating complex technologies are continuously introduced, and as local laws, regulations and practices may change, changes in these estimates could result in additional allowances or changes to recorded allowances being required in future periods. Provision for intellectual property rights, or IPR , infringements The Group provides for the estimated future settlements related to asserted and unasserted past IPR infringements based on the probable outcome of potential infringement. IPR infringement claims can last for varying periods of time, resulting in unpredictable movements in the IPR infringement provision. The ultimate outcome or actual cost of settling an individual infringement may materially vary from estimates. Earnings per share The Group calculates both basic and diluted earnings per share. Basic earnings per share is computed using the weighted average number of shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of shares outstanding during the period plus the dilutive effect of stock options, restricted shares and performance shares outstanding during the period. Use of estimates The preparation of financial statements in conformity with IFRS requires the application of judgment by management in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the reported carrying values of assets and liabilities and the reported amounts of revenues and expenses that may not be readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Set forth below are areas requiring significant judgment and estimation that may have an impact on reported results and the financial position. Revenue recognition Sales from the majority of the Group are recognized when the significant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Sales may materially change if management's assessment of such criteria was determined to be inaccurate. The Group makes price protection adjustments based on estimates of future price reductions and certain agreed customer inventories at the date of the price adjustment. Possible changes in these estimates could result in revisions to the sales in future periods. Revenue from contracts involving solutions achieved through modification of complex telecommunications equipment is recognized on the percentage of completion basis when the outcome of the contract can be estimated reliably. Recognized revenues and profits are subject to revisions during the project in the event that the assumptions Share-based compensation The Group offers three types of equity settled sharebased compensation schemes for employees: stock options, performance shares and restricted shares. Employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments as of the date of grant, excluding the impact of any non-market vesting conditions. Non-market vesting conditions attached to the performance shares are included in assumptions about the number of shares that the employee will ultimately receive. On a regular basis, the Group reviews the assumptions made and, where necessary, revises its estimates of the number of performance shares that are expected to be settled. Share-based compensation is recognized as an expense in the profit and loss account on straight line basis over the service period. A separate vesting period is defined for each quarterly lot of the stock options plans. When stock options are exercised, the proceeds received net of any transaction costs are credited to share premium and the reserve for invested non-restricted equity. Treasury shares The Group recognizes acquired treasury shares as a deduction from equity at their acquisition cost. When cancelled, the acquisition cost of treasury shares is recognized in retained earnings. Notes to the consolidated financial statements 17 Notes to the consolidated financial statements Legal contingencies Legal proceedings covering a wide range of matters are pending or threatened in various jurisdictions against the Group. Provisions are recorded for pending litigation when it is determined that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates. Capitalized development costs The Group capitalizes certain development costs when it is probable that a development project will generate future economic benefits and certain criteria, including commercial and technological feasibility, have been met. Should a product fail to substantiate its estimated feasibility or life cycle, material development costs may be required to be written-off in future periods. Business combinations The Group applies the purchase method of accounting to account for acquisitions businesses. The cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities assumed or incurred, equity instruments issued and costs directly attributable to the acquisition. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date. The excess of the cost of the acquisition over our interest in the fair value of the identifiable net assets acquired is recorded as goodwill. The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various assumptions and valuation methodologies requiring management judgment. Actual results may differ from the forecasted amounts and the difference could be material. Assessment of the recoverability of long-lived and intangible assets and goodwill The Group assesses the carrying value of goodwill annually, or more frequently if events or changes in circumstances indicate that such carrying value may not be recoverable. The Group assesses the carrying value of identifiable intangible assets and long-lived assets if events or changes in circumstances indicate that such carrying value may not be recoverable. Factors that trigger an impairment review include underperformance relative to historical or projected future results, significant changes in the manner of the use of the acquired assets or the strategy for the overall business and significant negative industry or economic trends. The most significant variables in determining cash flows are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. Amounts estimated could differ materially from what will actually occur in the future. Fair value of derivatives and other financial instruments The fair value of financial instruments that are not traded in an active market (for example, unlisted equities, currency options and embedded derivatives) are determined using various valuation techniques. The Group uses judgment to select an appropriate valuation methodology as well as underlying assumptions based on existing market practice and conditions. Changes in these assumptions may cause the Group to recognize impairments or losses in future periods. Income taxes Management judgment is required in determining provisions for income taxes, deferred tax assets and liabilities and the extent to which deferred tax assets can be recognized. If the final outcome of these matters differs from the amounts initially recorded, differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Pensions The determination of pension benefit obligation and expense for defined benefit pension plans is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, the discount rate, expected long-term rate of return on plan assets and annual rate of increase in future compensation levels. A portion of plan assets is invested in equity securities which are subject to equity market volatility. Changes in assumptions and actuarial conditions may materially affect the pension obligation and future expense. Share-based compensation The Group operates various types of equity settled share-based compensation schemes for employees. Fair value of stock options is based on certain assumptions, including, among others, expected volatility and expected life of the options. Non-market vesting conditions attached to performance shares are included in assumptions about the number of shares that the employee will ultimately receive relating to projections of net sales and earnings per share. Significant differences in equity market performance, employee option activity and the Group's projected and actual net sales and earnings per share performance, may materially affect future expense. 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: IFRS 8, Operating Segments requires that segments are identified and reported based on how management views and operates the business. Under IFRS 8, segments are components of an entity regularly reviewed by an entity's chief operating decision-maker. Amendment to IFRS 2, Share-based payment, Group and Treasury Share Transactions, clarifies the definition of different vesting conditions, treatment of all non-vesting conditions and provides further guidance on the accounting treatment of cancellations by parties other than the entity. IFRIC 13, Customer Loyalty Programs addresses service concession arrangements and the accounting surrounding customer loyalty programs and whether some consideration should be allocated to free goods or services provided by a company. Consideration should be allocated to award credits based on their fair value, as they are a separately identifiable component. Amendment to IAS 1, Presentation of financial statements, prompts entities to aggregate information in the financial statements on the basis of shared characteristics. All non-owner changes in equity (i.e. comprehensive income) should be presented either in one statement of comprehensive income or in a separate income statement and statement of comprehensive income. Amendment to IAS 23, Borrowing costs, changes the treatment of borrowing costs that are directly attributable to an acquisition, construction or production of a qualifying asset. These costs will consequently form part of the cost of that asset. Other borrowing costs are recognized as an expense. Under the amended IAS 32 Financial Instruments: Presentation, the Group must classify puttable financial instruments or instruments or components thereof that impose an obligation to deliver to another party, a pro-rata share of net assets of the entity only on liquidation, as equity. Previously, these instruments would have been classified as financial liabilities. IFRS 3 (revised) Business Combinations replaces IFRS 3 (as issued in 2004). The main changes brought by IFRS 3 (revised) include immediate recognition of all acquisition-related costs in profit or loss, recognition of subsequent changes in the fair value of contingent consideration in accordance with other IFRSs and measurement of goodwill arising from step acquisitions at the acquisition date. Amendment to IAS 27 "Consolidated and Separate Financial Statements" clarifies presentation of changes in parent-subsidiary ownership. Changes in a parent's ownership interest in a subsidiary that do not result in the loss of control are accounted for exclusively within equity. If a parent loses control of a subsidiary it shall derecognize the consolidated assets and liabilities and any investment retained in the former subsidiary shall be recognized at fair value at the date when control is lost. Any differences resulting from this shall be recognized in profit or loss. When losses attributed to the minority (non-controlling) interests exceed the minority's interests in the subsidiary's equity, these losses shall be allocated to the non-controlling interests even if this results in a deficit balance. The Group will adopt IFRS 8 on January 1, 2008, and the amendments to IFRS 2, IFRIC 13, IAS 1, IAS 23 and IAS 32 on January 1, 2009. The Group does not 18 Nokia in 2007 Notes to the consolidated financial statements expect the adoption of revised standards to have a material impact on the financial conditions or result of operations. The Group is required to adopt both IFRS 3 (revised) and IAS 27 (revised) on January 1, 2010, with early adoption permitted and is currently evaluating the impact of these standards on the Group's accounts. 2. Segment information Nokia is organized on a worldwide basis into four primary business segments: Mobile Phones; Multimedia; Enterprise Solutions; and Nokia Siemens Networks. Nokia's reportable segments represent the strategic business units that offer different products and services for which monthly financial information is provided to the Board. Mobile Phones currently offers mobile phones and devices based on the following global cellular technologies: GSM/EDGE , 3G/ WCDMA and CDMA . Multimedia brings connected mobile multimedia experiences to consumers in the form of advanced mobile devices and applications. Enterprise Solutions works with businesses and institutions to improve their performance through mobility, currently focusing on two key areas of corporate communication expenditure; voice and mobile e-mail. Nokia Siemens Networks provides wireless and fixed network infrastructure, communications and networks service platforms as well as professional services to operators and service providers. In addition to the four business groups, the Group's organization has two horizontal units to support the mobile device business groups, increase operational efficiency and competitiveness, and to take advantage of economies of scale: Customer and Market Operations and Technology Platforms. The horizontal groups are not separate reporting entities, but their costs are carried mainly by the mobile device business groups, which comprises of Mobile Phones, Multimedia and Enterprise Solutions, with the balance included in Common Group Functions. The costs and revenues as well as assets and liabilities of the horizontal groups are allocated to the mobile device business groups on a symmetrical basis; with any amounts not so allocated included in Common Group Functions. Common Group Functions consists of common research and general Group functions. The accounting policies of the segments are the same as those described in Note 1. Nokia accounts for intersegment revenues and transfers as if the revenues or transfers were to third parties, that is, at current market prices. Nokia evaluates the performance of its segments and allocates resources to them based on operating profit. No single customer represents 10% or more of Group net sales. As of January 1, 2008, the Group's three mobile device business groups and the supporting horizontal groups have been replaced by an integrated business segment, Devices & Services. For financial reporting purposes, the Group will have two reportable segments from January 1, 2008: Devices & Services and Nokia Siemens Networks. Notes to the consolidated financial statements 19 Notes to the consolidated financial statements 2007, EURm Profit and loss information Net sales to external customers Net sales to other segments Depreciation and amortization Impairments Operating profit/loss 2 Share of results of associated companies Balance sheet information Capital expenditures 3 Segment assets 4, 8 of which: Investments in associated companies Unallocated assets 5, 8 Total assets Segment liabilities 6, 9 Unallocated liabilities 7, 9 Total liabilities 2006, EURm Profit and loss information Net sales to external customers Net sales to other segments Depreciation and amortization Impairments Operating profit/loss 2 Share of results of associated companies Balance sheet information Capital expenditures 3 Segment assets 4 of which: Investments in associated companies Unallocated assets 5, 8 Total assets Segment liabilities 6 Unallocated liabilities 7, 9 Total liabilities 2005, EURm Profit and loss information Net sales to external customers Net sales to other segments Depreciation and amortization Impairment and customer finance charges Operating profit/loss Share of results of associated companies 1 Mobile Phones Multimedia Enterprise Solutions Nokia Siemens Networks 1 Total reportable segments Common Group Functions Eliminations Group 25 083 -- 239 -- 5 434 -- 250 5 234 -- 10 537 1 109 -- 2 230 -- 100 2 339 -- 2 048 22 32 -- 267 -- 16 777 -- 13 376 17 714 27 1 308 4 182 15 564 58 51 044 40 1 094 27 6 623 4 548 23 914 58 14 14 112 36 1 362 40 167 1 713 267 365 26 51 058 -- 1 206 63 7 985 44 715 25 262 325 12 337 37 599 6 060 2 309 509 9 700 18 578 592 418 18 752 1 509 20 261 24 769 -- 279 -- 4 100 -- 244 4 921 -- 7 877 -- 99 -- 1 319 -- 73 1 474 -- 1 015 16 36 -- 258 -- 30 604 -- 7 453 -- 203 -- 808 -- 126 3 746 -- 41 114 16 617 -- 5 969 -- 473 10 745 -- 7 7 95 51 481 28 177 1 190 224 31 9 41 121 -- 712 51 5 488 28 650 11 904 224 10 713 22 617 5 140 1 622 395 1 703 8 860 337 333 8 864 1 693 10 557 20 811 -- 247 -- 3 598 -- 2 5 979 2 83 36 836 -- 839 22 22 -- 258 -- 6 556 1 241 -- 855 -- 34 185 25 593 36 5 031 -- 4 6 6 119 30 392 10 19 34 191 -- 712 66 4 639 10 As from April 1, 2007, Nokia consolidated financial data includes that of Nokia Siemens Networks on a fully consolidated basis. Nokia Siemens Networks, a company jointly owned by Nokia and Siemens, is comprised of our former Networks business group and Siemens' carrier-related operations for fixed and mobile networks. Accordingly, our consolidated financial data for the year ended at December 31, 2007, is not directly comparable to our consolidated financial data for the prior years. Our consolidated financial data for the years prior to the year ended at December 31, 2007, included our former Networks business group only. Common Group Functions operating profit in 2007 includes a non-taxable gain of EUR 1 879 million related to the formation of Nokia Siemens Networks. Networks operating profit in 2006 includes a gain of EUR 276 million relating to a partial recovery of a previously impaired financing arrangement with Telsim. Including goodwill and capitalized development costs, capital expenditures in 2007 amount to EUR 1 753 million (EUR 1 240 million in 2006). The goodwill and capitalized development costs consist of EUR 33 million in 2007 (EUR 60 million in 2006) for Mobile Phones, EUR 21 million in 2007 (EUR 171 million in 2006) for Multimedia, EUR 15 million in 2007 (EUR 271 million in 2006) for Enterprise Solutions, EUR 888 million in 2007 (EUR 88 million in 2006) for Nokia Siemens Networks and EUR 81 million in 2007 (EUR 0 million in 2006) for Common Group Functions. 3 Comprises intangible assets, property, plant and equipment, investments, inventories and accounts receivable as well as prepaid expenses and accrued income except those related to interest and taxes for Mobile Phones, Multimedia and Enterprise Solutions. In addition, Nokia Siemens Networks' assets include cash and other liquid assets, available-for-sale investments, long-term loans receivable and other financial assets as well as interest and tax related prepaid expenses and accrued income. These are directly attributable to Nokia Siemens Networks as it is a separate legal entity. 5 Unallocated assets include cash and other liquid assets, available-for-sale investments, long-term loans receivable and other financial assets as well as interest and tax related prepaid expenses and accrued income for Mobile Phones, Multimedia, Enterprise Solutions and Common Group Functions. 20 Nokia in 2007 6 Comprises accounts payable, accrued expenses and provisions except those related to interest and taxes for Mobile Phones, Multimedia and Enterprise Solutions. In addition, Nokia Siemens Networks' liabilities include non-current liabilities and short-term borrowings as well as interest and tax related prepaid income, accrued expenses and provisions. These are directly attributable to Nokia Siemens Networks as it is a separate legal entity. 7 Unallocated liabilities include non-current liabilities and short-term borrowings as well as interest and tax related prepaid income, accrued expenses and provisions related to Mobile Phones, Multimedia, Enterprise Solutions and Common Group Functions. Notes to the consolidated financial statements 4. Personnel expenses 8 Tax related prepaid expenses and accrued income, and deferred tax assets amount to EUR 2 060 million in 2007 (EUR 1 240 million in 2006). 9 Tax related to accrued expenses and deferred tax liabilities amount to EUR 2 099 million in 2007 (EUR 497 million in 2006). EURm Wages and salaries Share-based compensation expense, total Pension expenses, net Other social expenses Personnel expenses as per profit and loss account 2007 4 664 236 420 618 5 938 2006 3 457 192 310 439 4 398 2005 3 127 104 252 394 3 877 Net sales to external customers by geographic area by location of customer Finland China India Germany Great Britain USA Other Total 2007 EURm 322 5 898 3 684 2 641 2 574 2 124 33 815 51 058 2006 EURm 387 4 913 2 713 2 060 2 425 2 815 25 808 41 121 2005 EURm 331 3 403 2 022 1 982 2 405 2 743 21 305 34 191 Segment assets by geographic area Finland China India Germany Great Britain USA Other Total 2007 EURm 5 595 2 480 1 028 2 842 649 1 279 11 389 25 262 2006 EURm 4 165 1 257 618 615 523 1 270 3 456 11 904 Share-based compensation expense includes pension and other social costs of EUR 8 million (EUR 4 million in 2006 and EUR 9 million in 2005) based upon the related employee benefit charge recognized during the year. In 2006, a benefit was recognised due to a change in the treatment of pension and other social costs. Pension expenses, comprised of multi-employer, insured and defined contribution plans were EUR 289 million in 2007 (EUR 198 million in 2006 and EUR 206 million in 2005). Average personnel Mobile Phones Multimedia Enterprise Solutions Nokia Siemens Networks Common Group Functions Nokia Group 2007 3 475 3 708 2 095 50 336 40 920 100 534 2006 3 639 3 058 2 264 20 277 36 086 65 324 2005 2 647 2 750 2 185 17 676 31 638 56 896 Capital expenditures by market area Finland China India Germany Great Britain USA Other Total 1 1 2007 EURm 237 125 72 67 26 21 167 715 2006 EURm 275 125 65 23 11 63 88 650 2005 EURm 259 93 31 26 12 74 112 607 5. Pensions The Group's most significant pension plans are in Finland and Germany. The Finnish plan is comprised of the Finnish state Employees' Pension Act (Ty EL) system with benefits directly linked to employee earnings. These benefits are financed in two distinct portions. Majority of the benefits are financed by contributions to a central pool with the majority of the contributions being used to pay current benefits. The rest is comprised of reserved benefits which are pre-funded through a trusteeadministered Nokia Pension Foundation. The pooled portion of the TyEL system is accounted for as a defined contribution plan and the reserved portion as a defined benefit plan. Foreign plans include both defined contribution and defined benefit plans. In connection with the formation of Nokia Siemens Networks, the Group assumed multiple pension plans reflected as acquisitions in the following tables. The majority of active employees in Germany participate in a pension scheme which is designed according to the Beitragsorientierte Siemens Altersversorgung (BSAV). The funding vehicle for the BSAV is the NSN Pension Trust. In Germany, individual benefits are generally dependent on eligible compensation levels, ranking within the Group and years of service. The pension acts applying to wage and salary earners in private sectors in Finland, including the former TEL Act, were combined on January 1, 2007, into one earnings-related pensions act, the Employee Pensions Act (TyEL). The change had no impact to the Group's net pension asset in Finland. Effective on January 1, 2005, the former Finnish Employees' Pension Act (TEL) system was reformed. The most significant change that has an impact on the Group's future financial statements is that pensions accumulated after 2005 are calculated on the earnings during the entire working career, not only based on the last few years of employment as provided by the old rules. As a result of the 2005 changes in the TEL system, which increased the Group's obligation in respect of ex-employees, and reduced the obligation in respect of recent recruits, a change in the liability has been recognised to cover future disability pensions. In 2005, to compensate the Group for the additional liability in respect of Including goodwill and capitalized development costs, capital expenditures amount to EUR 1 753 million in 2007 (EUR 1 240 million in 2006 and EUR 760 million in 2005). The goodwill and capitalized development costs in 2007 consist of EUR 78 million in USA (EUR 268 million in USA in 2006 and EUR 0 million in USA in 2005) and EUR 960 million in other areas (EUR 321 million in 2006 and EUR 153 million in 2005). 3. Percentage of completion Contract sales recognized under percentage of completion accounting were EUR 10 171 million in 2007 (EUR 6 308 million in 2006 and EUR 5 520 million in 2005). Advances received related to construction contracts, included under accrued expenses, were EUR 303 million at December 31, 2007 (EUR 220 million in 2006). Contract revenues recorded prior to billings, included in accounts receivable, were EUR 1 587 million at December 31, 2007 (EUR 371 million in 2006 and EUR 0 million in 2005). Billing in excess of costs incurred, included in contract revenues recorded prior to billings, were EUR 482 million at December 31, 2007. The aggregate amount of costs incurred and recognized profits (net of recognized losses) under construction contracts in progress since inception (for contracts acquired inception refers to April 1, 2007) was EUR 10 173 million at December 31, 2007 (EUR 6 705 million at December 31, 2006). Retentions related to construction contracts, included in accounts receivable, were EUR 166 million at December 31, 2007 (EUR 131 million at December 31, 2006). Notes to the consolidated financial statements 21 Notes to the consolidated financial statements ex-employees, assets of EUR 24 million were transferred from the pooled part of the pension system to cover future disability pensions inside Nokia Pension Foundation. As this transfer of assets is effectively a reduction of the obligation to the pooled premium, it has been accounted for as a credit to the profit and loss account during 2005. The following table sets forth the changes in the benefit obligation and fair value of plan assets during the year and the funded status of the significant defined benefit pension plans showing the amounts that are recognized in the Group's consolidated balance sheet at December 31: 2007 EURm Present value of defined benefit obligations at beginning of year Foreign exchange Current service cost Interest cost Plan participants' contributions Actuarial gain (+)/loss() Acquisitions Curtailment Settlements Benefits paid Present value of defined benefit obligations at end of year 2006 Movements in prepaid pension cost recognized in the balance sheet are as follows: EURm Prepaid pension cost at beginning of year Net income (+)/expense () recognized in the profit and loss account Contributions paid Acquisitions Foreign currency exchange rate change Prepaid (+)/accrued( ) pension cost at end of year 1 1 Included within prepaid expenses and accrued income/accrued expenses. 2007 108 131 163 175 1 36 2006 127 112 91 -- 2 108 Domestic Foreign Domestic Foreign plans plans plans plans 1 031 -- 59 50 -- 115 -- 3 -- 11 546 27 66 54 8 126 780 1 15 30 890 -- 63 40 -- 51 -- 3 -- 10 1 031 904 -- 41 8 59 -- 11 -- -- 985 46 187 141 495 3 38 26 7 14 -- -- -- 9 546 372 3 21 3 32 8 9 -- -- 424 122 89 33 The prepaid pension cost above is made up of a prepayment of EUR 218 million (EUR 206 million in 2006) and an accrual of EUR 254 million (EUR 98 million in 2006). EURm Present value of defined benefit obligation Plan assets at fair value Deficit 2007 2 266 2 174 92 2006 2005 2004 2003 1 577 1 385 1 409 1 276 168 109 1 125 1 009 1 071 887 54 122 1 011 1 255 985 -- 49 33 73 -- 11 -- -- 1 063 52 97 149 424 27 46 2 90 8 30 3 605 1 111 144 41 185 Experience adjustments arising on plan obligations amount to a loss of EUR 31 million in 2007 (EUR 25 million in 2006). Experience adjustments arising on plan assets amount to a loss of EUR 3 million in 2007 (EUR 11 million in 2006). The principal actuarial weighted average assumptions used were as follows: 2007 % Discount rate for determining present values Expected long-term rate of return on plan assets Annual rate of increase in future compensation levels Pension increases 2006 Plan assets at fair value at beginning of year Foreign exchange Expected return on plan assets Actuarial gain (+)/loss() on plan assets Employer contribution Plan participants' contributions Benefits paid Settlements Acquisitions Plan assets at fair value at end of year Surplus (+)/deficit () Unrecognized net actuarial gains/losses Prepaid (+)/accrued () pension cost in balance sheet Domestic Foreign Domestic Foreign 5.50 5.30 3.00 2.70 5.40 5.10 3.30 2.30 4.60 4.60 3.50 2.00 4.78 5.50 3.59 2.69 The expected long-term rate of return on plan assets is based on the expected return multiplied with the respective percentage weight of the market-related value of plan assets. The expected return is defined on a uniform basis, reflecting longterm historical returns, current market conditions and strategic asset allocation. The Group's weighted average pension plan asset allocation as a percentage of plan assets at December 31, 2007, and 2006, by asset category is as follows: 2007 % Asset category: 2006 Present value of obligations include EUR 1 799 million (EUR 300 million in 2006) of wholly funded obligations, EUR 333 million of partly funded obligations (EUR 1 244 million in 2006) and EUR 134 million (EUR 33 million in 2006) of unfunded obligations. The amounts recognized in the profit and loss account are as follows: EURm Current service cost Interest cost Expected return on plan assets Net actuarial losses recognized in year Past service cost gain (-)/loss (+) Transfer from central pool Curtailment Settlement Total, included in personnel expenses 2007 125 104 95 10 -- -- 1 12 131 2006 101 66 62 8 3 -- 4 -- 112 2005 69 58 64 9 1 24 3 -- 46 Domestic Foreign Domestic Foreign Equity securities Debt securities Insurance contracts Real estate Short-term investments Total 12 78 0 1 9 100 11 85 3 1 -- 100 11 75 -- 1 13 100 27 61 11 -- 1 100 The objective of the investment activities is to maximize the excess of plan assets over projected benefit obligations, within an accepted risk level, taking into account the interest rate and inflation sensitivity of the assets as well as the obligations. 22 Nokia in 2007 Notes to the consolidated financial statements The Pension Committee of the Group, consisting of the CFO, Head of Treasury, Head of HR and other HR representatives, approves both the target asset allocation as well as the deviation limit. Derivative instruments can be used to change the portfolio asset allocation and risk characteristics. The domestic pension plans' assets did not include Nokia securities in 2007 or in 2006. The foreign pension plan assets include a self investment through a loan provided to Nokia by the Group's German pension fund of EUR 69 million (EUR 69 million in 2006). See Note 31. The actual return on plan assets was EUR 61 million in 2007 (EUR 51 million in 2006). In 2008, the Group expects to make contributions of EUR 70 million and EUR 70 million to its domestic and foreign defined benefit pension plans, respectively. Available-for-sale investments During 2007, the Group's investment in certain equity securities held as noncurrent available-for-sale suffered a permanent decline in fair value resulting in an impairment charge of EUR 29 million (EUR 18 million in 2006, EUR 30 million in 2005) relating to non-current available-for-sale investments. Investments in associated companies After application of the equity method, including recognition of the associate's losses, the Group determined that recognition of an impairment loss of EUR 7 million in 2007 was necessary to adjust the Group's net investment in the associate to its recoverable amount. Capitalized development costs During 2007, Nokia Siemens Networks recorded an impairment charge on capitalized development costs of EUR 27 million. The impairment loss was determined as the full carrying amount of the capitalized development programs costs related to products that will not be included in future product portfolios. This impairment amount is included within research and development expenses in the consolidated profit and loss statement. 6. Other operating income and expenses Other operating income for 2007 includes a non-taxable gain of EUR 1 879 million relating to the formation of Nokia Siemens Networks. Other operating income also includes gain on sale of real estate in Finland of EUR 128 million, of which EUR 75 million is included in Common functions' operating profit and EUR 53 million in Nokia Siemens Networks' operating profit. In addition, other operating income includes a gain on business transfer EUR 53 million impacting Common functions' operating profit. In 2007, other operating expenses includes EUR 58 million in charges related to restructuring costs in Nokia Siemens Networks. Enterprise Solutions recorded a charge of EUR 17 million for personnel expenses and other costs as a result of more focused R&D. Mobile Phones recorded restructuring costs of EUR 35 million primarily related to restructuring of a subsidiary company. Other operating income for 2006 includes a gain of EUR 276 million representing Nokia's share of the proceeds relating to a partial recovery of a previously impaired financing arrangement with Telsim. Other operating expenses for 2006 includes EUR 142 million charges primarily related to the restructuring for the CDMA business and associated asset write-downs. Working together with co-development partners, Nokia intends to selectively participate in key CDMA markets, with special focus on North America, China and India. Accordingly, Nokia ramped down its CDMA research, development and production which ceased by April 2007. In 2006, Enterprise Solutions recorded a charge of EUR 8 million for personnel expenses and other costs as a result of more focused R&D. Other operating income for 2005 includes a gain of EUR 61 million relating to the divestiture of the Group's Tetra business, a EUR 18 million gain related to the partial sale of a minority investment and a EUR 45 million gain related to qualifying sale and leaseback transactions for real estate. In 2005, Enterprise Solutions recorded a charge of EUR 29 million for personnel expenses and other costs in connection with a restructuring taken in light of general downturn in market conditions, which were fully paid during 2005. In all three years presented "Other operating income and expenses" include the costs of hedging forecasted sales and purchases (forward points of cash flow hedges). Other intangible assets In connection with the restructuring of its CDMA business, the Group recorded an impairment charge of EUR 33 million during 2006 related to an acquired CDMA license. The impaired CDMA license was included in Mobile Phones business group. Goodwill The recoverable amount of each CGU is determined based on a value-in-use calculation. The pre-tax cash flow projections employed in the value-in-use calculation are based on financial budgets approved by management. These projections are consistent with external source of information. Cash flows beyond the explicit forecast period are extrapolated using an estimated terminal growth rate that does not exceed the long-term average growth rates for the industry and economies in which the CGU operates. The goodwill of EUR 803 million arising from the formation of Nokia Siemens Networks was allocated to that CGU for the purpose of impairment testing. Management expects moderate market share growth in this industry segment will drive moderate revenue growth. Increased volumes and cost savings derived from the business combination are expected to drive operating profit margins to improve to prevailing levels in this industry. Cash flows beyond the explicit forecast period are extrapolated using an estimated residual growth rate of 2.5%. The pre-tax cash flow projections are discounted using a pre-tax discount rate of 16%. Goodwill amounting to EUR 240 million was allocated to the Intellisync CGU, which is included in the Enterprise Solutions segment. Management expects that moderate market share growth in a high-growth industry segment will drive strong revenue growth. Increased volume is expected to cause operating profit margins to improve to prevailing levels in the industry. Cash flows beyond the explicit forecast period are extrapolated using an estimated terminal growth rate of 5%. The pre-tax cash flow projections are discounted using a pre-tax discount rate of 20%. The aggregate carrying amount of goodwill allocated across multiple CGUs amounts to EUR 341 million and the amount allocated to each individual CGU is not individually significant. 7. Impairment EURm Available-for-sale investments Investments in associated companies Capitalized development costs Other intangible assets Total, net 2007 29 7 27 -- 63 2006 18 -- -- 33 51 2005 30 -- -- -- 30 8. Acquisitions Acquisitions completed in 2007 The Group and Siemens AG ("Siemens") completed a transaction to form Nokia Siemens Networks on April 1, 2007. Nokia and Siemens contributed to Nokia Siemens Networks certain tangible and intangible assets and certain business interests that comprised Nokia's networks business and Siemens' carrier-related operations. This transaction combined the worldwide mobile and fixed-line telecommunications network equipment businesses of Nokia and Siemens. Nokia and Siemens each own approximately 50% of Nokia Siemens Networks. Nokia has the ability to appoint key officers and the majority of the members of the Board of Directors. Accordingly, for Notes to the consolidated financial statements 23 Notes to the consolidated financial statements accounting purposes, Nokia is deemed to have control and thus consolidates the results of Nokia Siemens Networks in its financial statements. The transfer of Nokia's networks business was treated as a partial sale to the minority shareholders of Nokia Siemens Networks. Accordingly, the Group recognized a non-taxable gain on the partial sale amounting to EUR 1 879 million. The gain was determined as the Group's retained ownership interest in the excess of the fair value over book value of the net assets contributed by the Group to Nokia Siemens Networks. Nokia Siemens Networks commenced operations on April 1, 2007. The Group's contributed networks business was valued at EUR 5 500 million. In addition, the 2007 JanuaryMarch Net sales, EURm Nokia Networks Nokia Siemens Networks Total Operating profit, EURm Nokia Networks Nokia Siemens Networks Total * Group incurred costs directly attributable to the acquisition of EUR 51 million. Upon closing of the transaction, Nokia and Siemens contributed net assets, with book values amounting to EUR 1 742 million and EUR 2 385 million, respectively. The Group's contributed networks business was valued at EUR 5 500 million. In addition, the Group incurred costs directly attributable to the acquisition of EUR 51 million. The table below presents the reported results of Nokia Networks prior to the formation of Nokia Siemens Networks and the reported results of Nokia Siemens Networks since inception. 2006 Total JanuaryMarch AprilDecember Total AprilDecember 1 697 * 1 697 * 11 696 11 696 1 697 11 696 13 393 1 699 N/A 1 699 5 754 N/A 5 754 7 453 N/A 7 453 78 * 78 * 1 386 1 386 78 1 386 1 308 149 N/A 149 659 N/A 659 808 N/A 808 No results presented as Nokia Siemens Networks began operations on April 1, 2007. It is not practicable to determine the results of the Siemens' carrier-related operations for three month period of January 1, 2007 through March 31, 2007 as Siemens did not report those operations separately. As a result pro forma revenues and operating profit as if the acquisition had occurred as of January 1, 2007 have not been presented. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. Carrying amount EURm Intangible assets subject to amortization: Customer relationships Developed technology License to use trade name and trademark Capitalized development costs Other intangible assets Property, plant & equipment Deferred tax assets Other non-current assets Non-current assets Inventories Accounts receivable Prepaid expenses and accrued income Other financial assets Bank and cash Current assets Total assets acquired Deferred tax liabilities Long-term interest-bearing liabilities Non-current liabilities Short-term borrowings Accounts payable Accrued expenses Provisions Fair value EURm Useful lives years Current liabilities Total liabilities assumed Minority interest Net assets acquired Carrying amount EURm 3 577 3 782 110 2 385 Fair value EURm 3 603 4 634 108 3 995 Useful lives years -- -- -- 143 47 190 371 111 153 825 1 010 3 135 870 55 382 5 452 6 277 171 34 205 231 1 539 1 344 463 1 290 710 350 154 47 2 551 344 181 153 3 229 1 138 3 087 846 55 382 5 508 8 737 997 34 1 031 213 1 491 1 502 397 6 4 5 3 35 Cost of acquisition 5 500 Goodwill 1 505 Less non-controlling interest in goodwill 753 Plus costs directly attributable to the acquisition 51 Goodwill arising on formation of Nokia Siemens Networks 803 The goodwill of EUR 803 million has been allocated to the Nokia Siemens Networks segment. The goodwill is attributable to assembled workforce and the synergies expected to arise subsequent to the acquisition. None of the goodwill acquired is expected to be deductible for income tax purposes. The amount of the loss specifically attributable to the business acquired from Siemens since the acquisition date included in the Group's profit for the period has not been disclosed as it is not practicable to do so. This is due to the ongoing integration of the acquired Siemens' carrier-related operations and Nokia's networks business, and management's focus on the operations and results of the combined entity, Nokia Siemens Networks. During 2007, the Group completed the acquisition of the following three companies. The purchase consideration paid and goodwill arising from these acquisitions was not material to the Group. 24 Nokia in 2007 Notes to the consolidated financial statements Enpocket Inc., based in Boston, USA , a global leader in mobile advertising providing technology and services that allow brands to plan, create, execute, measure and optimize mobile advertising campaigns around the world. The Group acquired 100% ownership interest in Enpocket Inc. on October 5, 2007. Avvenu Inc., based in Palo Alto, USA , provides Internet services that allow anyone to use their mobile devices to securely access, use and share personal computer files. The Group acquired 100% ownership interest in Avvenu Inc. on December 5, 2007. Twango, provides a comprehensive media sharing solution for organizing and sharing photos, videos and other personal media. The Group acquired substantially all assets of Twango on July 25, 2007. Loudeye Corporation, based in Bristol, England, a global leader of digital music platforms and digital media distribution services. The Group acquired a 100% ownership interest in Loudeye Corporation on October 16, 2006. gate5 AG, based in Berlin, Germany, a leading supplier of mapping, routing and navigation software and services. The Group acquired a 100% ownership interest in gate5 AG on October 15, 2006. Goodwill and aggregate net assets acquired in these three transactions amounted to EUR 198 million and EUR 168 million, respectively. Goodwill has been allocated to the Multimedia segment and to the Mobile Phone segment. The goodwill arising from these acquisitions is attributable to assembled workforce and post acquisition synergies. None of the goodwill recognized in these transactions is expected to be tax deductible. Goodwill and aggregate net assets acquired in these transactions has been allocated to Common Group Functions, Enterprise Solutions segment and Multimedia segment. 9. Depreciation and amortization Acquisitions completed in 2006 On February 10, 2006, the Group completed its acquisition of all of the outstanding common stock of Intellisync Corporation. Intellisync is a leader in synchronization technology for platform-independent wireless messaging and other business applications for mobile devices. The acquisition of Intellisync will enhance Nokia's ability to respond to its customers and effectively puts Nokia at the core of any mobility solution for businesses of all sizes. The total cost of the acquisition was EUR 325 million consisting of EUR 319 million of cash and EUR 6 million of costs directly attributable to the acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. The carrying amount of Intellisync net assets immediately before the acquisition amounted to EUR 50 million. EURm Depreciation and amortization by function Cost of sales Research and development 1 Selling and marketing 1 Administrative and general Other operating expenses Total 1 2007 2006 2005 303 523 232 148 -- 1 206 279 312 9 111 1 712 242 349 9 99 13 712 In 2007, depreciation and amortization allocated to research and development and selling and marketing included amortization of acquired intangible assets of EUR 136 million and EUR 214 million, respectively. February 10, 2006 Intangible assets subject to amortization: Technology related intangible assets Other intangible assets Deferred tax assets Other non-current assets Non-current assets Goodwill Current assets Total assets acquired Deferred tax liabilities Other non-current liabilities Non-current liabilities Current liabilities Total liabilities assumed Net assets acquired EURm 38 22 60 45 16 121 290 42 453 23 1 24 104 128 325 10. Financial income and expenses EURm Dividend income on available-for-sale financial investments Interest income on available-for-sale financial investments Interest income on loans receivables carried at amortized cost Interest expense on financial liabilities carried at amortized cost Other financial income Other financial expenses Net foreign exchange gains (or net foreign exchange losses) From foreign exchange derivatives designated at fair value through profit and loss accounts From balance sheet items revaluation Net gains (net losses) on other derivatives designated at fair value through profit and loss accounts Total 2007 -- 338 1 43 43 24 2006 -- 225 -- 22 55 18 2005 1 296 -- 18 77 22 The goodwill of EUR 290 million has been allocated to the Enterprise Solutions segment. The goodwill is attributable to assembled workforce and the significant synergies expected to arise subsequent to the acquisition. None of the goodwill acquired is expected to be deductible for tax purposes. In 2006, the Group acquired ownership interests or increased its existing ownership interests in the following three entities for total consideration of EUR 366 million, of which EUR 347 million was in cash, EUR 5 million in directly attributable costs and EUR 14 million in deferred cash consideration: Nokia Telecommunications Ltd, based in BDA , Beijing, a leading mobile communications manufacturer in China. The Group acquired an additional 22% ownership interest in Nokia Telecommunications Ltd. on June 30, 2006. 37 118 75 106 167 156 5 239 2 207 1 322 During 2005, Nokia sold the remaining holdings in the subordinated convertible perpetual bonds issued by France Telecom. As a result, the Group booked a total net gain of EUR 57 million in other financial income, of which EUR 53 million was recycled from fair value and other reserves in shareholders' equity. Notes to the consolidated financial statements 25 Notes to the consolidated financial statements 11. Income taxes EURm Income tax expense Current tax Deferred tax Total Finland Other countries Total 2007 2006 2005 12. Intangible assets EURm Capitalized development costs Acquisition cost January 1 Additions during the period Acquisitions Impairment losses Disposals during the period Accumulated acquisition cost December 31 Accumulated amortization January 1 Disposals during the period Amortization for the period Accumulated amortization December 31 Net book value January 1 Net book value December 31 Goodwill Acquisition cost January 1 Translation differences Acquisitions Other changes Accumulated acquisition cost December 31 Net book value January 1 Net book value December 31 Other intangible assets Acquisition cost January 1 Translation differences Additions during the period Acquisitions Impairment losses Disposals during the period Accumulated acquisition cost December 31 Accumulated amortization January 1 Translation differences Disposals during the period Amortization for the period Accumulated amortization December 31 Net book value January 1 Net book value December 31 2007 2006 2 209 687 1 522 1 323 199 1 522 1 303 54 1 357 941 416 1 357 1 262 19 1 281 759 522 1 281 1 533 157 154 27 -- 1 817 1 282 -- 157 1 439 251 378 1 445 127 -- -- 39 1 533 1 185 39 136 1 282 260 251 The differences between income tax expense computed at the statutory rate in Finland of 26% and income taxes recognized in the consolidated income statement is reconciled as follows at December 31, 2007: EURm Income tax expense at statutory rate Provisions without tax benefit/expense Non-taxable gain on formation of Nokia Siemens Networks 1 Taxes for prior years Taxes on foreign subsidiaries' profits in excess of (lower than) income taxes at statutory rates Operating losses with no current tax benefit Net increase in provisions Change in income tax rate 2 Deferred tax liability on undistributed earnings 3 Other Income tax expense 1 2 3 See Note 8. The change in income tax rate decreased Group tax expense primarly due to the impact of a decrease in the German statutory tax rate on deferred tax asset balances. The change in deferred tax liability on undistributed earnings mainly related to amendment of the FIN-US tax treaty, which abolished the withholding tax under certain conditions. 2007 2 150 61 489 20 2006 1 488 12 -- 24 2005 1 295 11 -- 1 532 30 882 -- 1 384 532 1 384 90 26 488 20 532 90 532 138 15 50 114 37 4 1 522 73 -- 12 -- 3 31 1 357 30 -- 22 -- 8 26 1 281 772 20 102 2 437 -- 73 3 218 474 11 73 470 860 298 2 358 676 21 99 122 33 71 772 465 10 66 85 474 211 298 Income taxes include a tax benefit from received and accrued tax refunds from previous years of EUR 84 million in 2006 and EUR 48 million in 2005. Certain of the Group companies' income tax returns for periods ranging from 2001 through 2007 are under examination by tax authorities. The Group does not believe that any significant additional taxes in excess of those already provided for will arise as a result of the examinations. 26 Nokia in 2007 Notes to the consolidated financial statements 13. Property, plant and equipment EURm Land and water areas Acquisition cost January 1 Translation differences Additions during the period Acquisitions Disposals during the period Accumulated acquisition cost December 31 Net book value January 1 Net book value December 31 Buildings and constructions Acquisition cost January 1 Translation differences Additions during the period Acquisitions Disposals during the period Accumulated acquisition cost December 31 Accumulated depreciation January 1 Translation differences Disposals during the period Depreciation for the period Accumulated depreciation December 31 Net book value January 1 Net book value December 31 Machinery and equipment Acquisition cost January 1 Translation differences Additions during the period Acquisitions Disposals during the period Accumulated acquisition cost December 31 Accumulated depreciation January 1 Translation differences Disposals during the period Depreciation for the period Accumulated depreciation December 31 Net book value January 1 Net book value December 31 Other tangible assets Acquisition cost January 1 Translation differences Additions during the period Disposals during the period Accumulated acquisition cost December 31 Accumulated depreciation January 1 Translation differences Disposals during the period Depreciation for the period Accumulated depreciation December 31 Net book value January 1 Net book value December 31 2007 2006 EURm Advance payments and fixed assets under construction Net carrying amount January 1 Translation differences Additions Acquisitions Disposals Transfers to: Other intangible assets Buildings and constructions Machinery and equipment Net carrying amount December 31 Total property, plant and equipment 2007 2006 78 2 4 5 12 73 78 73 82 1 -- -- 3 78 82 78 73 -- 123 17 2 7 29 21 154 1 912 120 2 213 -- 1 37 89 131 73 1 602 925 15 97 58 57 1 008 230 3 25 37 239 695 769 865 11 123 -- 52 925 244 4 40 30 230 621 695 14. Investments in associated companies EURm Net carrying amount January 1 Translation differences Additions Acquisitions Deductions Impairments Share of results Dividends Other movements Net carrying amount December 31 2007 224 -- 19 67 6 7 44 12 4 325 2006 193 2 19 -- 1 -- 28 -- 13 224 3 707 42 448 264 365 4 012 2 966 34 364 539 3 107 741 905 3 735 62 466 -- 432 3 707 2 984 48 429 459 2 966 751 741 Shareholdings in associated companies are comprised of investments in unlisted companies in all periods presented. 15. Available-for-sale investments Available-for-sale investments included the following: 2007 EURm Fixed income and money-market investments carried at fair value Available-for-sale investments in publicly quoted equity shares Other available-for-sale investments carried at fair value Other available-for-sale investments carried at cost less impairment NonCurrent current 9 628 -- -- -- 9 628 -- 10 184 147 341 2006 NonCurrent current 7 058 -- -- -- 7 058 -- 8 177 103 288 22 1 2 3 20 7 -- 1 3 9 15 11 17 1 6 -- 22 6 -- -- 1 7 11 15 The current fixed income and money market investments, carried at fair value, included available-for-sale liquid assets of EUR 4 903 million (EUR 5 012 million in 2006) and cash equivalents of EUR 4 725 million (EUR 2 046 million in 2006). See Note 35 for details of fixed income and money market investments. Notes to the consolidated financial statements 27 Notes to the consolidated financial statements 16. Long-term loans receivable 2007 EURm Long-term loans receivable carried at amortized cost Carrying amount 10 Fair value 10 2006 Carrying amount 19 Fair value 19 The long-term loans receivable mainly consist of loans made to suppliers and to customers principally to support their financing of network infrastructure and services or working capital. Their fair value approximates the carrying value. See Note 35 for long-term and short-term portion and related maturities. 17. Inventories EURm Raw materials, supplies and other Work in progress Finished goods Total 2007 591 1 060 1 225 2 876 2006 360 600 594 1 554 18. Prepaid expenses and accrued income Prepaid expenses and accrued income primarily consists of VAT and other tax receivables. Prepaid expenses and accrued income also include prepaid pension costs, accrued interest income and other accrued income, but no amounts which are individually significant. 19. Valuation and qualifying accounts Balance at beginning of year EURm Charged to cost and expenses EURm Balance at end of year EURm Allowances on assets to which they apply: 2007 Allowance for doubtful accounts Excess and obsolete inventory 2006 Allowance for doubtful accounts Excess and obsolete inventory 2005 Allowance for doubtful accounts Excess and obsolete inventory 1 Deductions include utilization and releases of the allowances. Deductions 1 EURm Acquisitions EURm 212 218 38 145 72 202 154 256 332 417 281 176 70 353 139 311 212 218 361 172 80 376 160 372 281 176 28 Nokia in 2007 Notes to the consolidated financial statements 20. Fair value and other reserves Available-for-sale investments, EURm Gross 7 Tax 5 Net 2 Gross 21 Hedging reserve, EURm Gross Balance at December 31, 2004 Cash flow hedges: Net fair value gains (+)/losses () Transfer to profit and loss account as adjustment to net sales Transfer to profit and loss account as adjustment to cost of sales Available-for-sale Investments: Net fair value gains (+)/losses () Transfer to profit and loss account on impairment Transfer of net fair value gains ()/losses (+) to profit and loss account on disposal Balance at December 31, 2005 Cash flow hedges: Net fair value gains (+)/losses () Transfer to profit and loss account as adjustment to net sales Transfer to profit and loss account as adjustment to cost of sales Available-for-sale Investments: Net fair value gains (+)/losses () Transfer to profit and loss account on impairment Transfer of net fair value gains ()/losses (+) to profit and loss account on disposal Balance at December 31, 2006 Cash flow hedges: Net fair value gains (+)/losses () Transfer to profit and loss account as adjustment to net sales Transfer to profit and loss account as adjustment to cost of sales Available-for-sale investments: Net fair value gains (+)/losses () Transfer to profit and loss account on impairment Transfer of net fair value gains ()/losses (+) to profit and loss account on disposal Balance at December 31, 2007 14 Tax 3 Net 11 Total, EURm Tax 8 Net 13 327 568 418 -- -- -- 163 84 147 108 -- -- -- 42 243 421 310 -- -- -- 121 -- -- -- 69 9 3 56 -- -- -- 6 -- -- 1 -- -- -- 63 9 3 55 327 568 418 69 9 3 219 84 147 108 6 -- -- 43 243 421 310 63 9 3 176 61 243 414 -- -- -- 69 16 68 113 -- -- -- 19 45 175 301 -- -- -- 50 -- -- -- 42 18 14 66 -- -- -- 1 -- -- 2 -- -- -- 41 18 14 64 61 243 414 42 18 14 3 16 68 113 1 -- -- 17 45 175 301 41 18 14 14 29 687 643 -- -- -- 54 7 186 175 -- -- -- 15 22 501 468 -- -- -- 39 -- -- -- 32 29 12 17 -- -- -- 1 -- -- 1 -- -- -- 31 29 12 16 29 687 643 32 29 12 37 7 186 175 1 -- -- 14 22 501 468 31 29 12 23 In order to ensure that amounts deferred in the cash flow hedging reserve represent only the effective portion of gains and losses on properly designated hedges of future transactions that remain highly probable at the balance sheet date, Nokia has adopted a process under which all derivative gains and losses are initially recognized in the profit and loss account. The appropriate reserve balance is calculated at the end of each period and posted to the fair value and other reserves. The Group continuously reviews the underlying cash flows and the hedges allocated thereto, to ensure that the amounts transferred to the fair value reserves during the year ended December 31, 2007, and 2006 do not include gains/losses on forward exchange contracts that have been designated to hedge forecasted sales or purchases that are no longer expected to occur. All of the net fair value gains or losses recorded in the fair value and other reserve at December 31, 2007, on open forward foreign exchange contracts which hedge anticipated future foreign currency sales or purchases are transferred from the Hedging Reserve to the profit and loss account when the forecasted foreign currency cash flows occur, at various dates up to approximately 1 year from the balance sheet date. 21. The shares of the Parent Company See note 14 to the financial statements of the Parent Company. Notes to the consolidated financial statements 29 Notes to the consolidated financial statements 22. Share-based payment The Group has several equity-based incentive programs for employees. The programs include performance share plans, stock option plans and restricted share plans. Both executives and employees participate in these programs. The equity-based incentive grants are generally forfeited, if the employment relationship with the Group terminates, and they are conditioned upon the fulfillment of such performance, service and other conditions, as determined in the relevant plan rules. Share-based compensation expense for all equity-based incentive awards amounted to EUR 228 million in 2007 (EUR 196 million in 2006 and EUR 95 million in 2005). Stock options Nokia's global stock option plans in effect for 2007, including their terms and conditions, were approved by the Annual General Meeting in the year when each plan was launched, i.e. in 2001, 2003, 2005 and 2007. Each stock option entitles the holder to subscribe for one new Nokia share. Under the 2001 stock option plan, the stock options were transferable by the participants. Under the 2003, 2005 and 2007 plans, the stock options are non-transferable. All of the stock options have a vesting schedule with a 25% vesting one year after grant and quarterly vesting thereafter. The stock options granted under the plans generally have a term of five years. The exercise price of the stock options is determined at the time of grant on a quarterly basis. The exercise prices are determined in accordance with a pre-agreed schedule quarterly after the release of Nokia's periodic financial results and are based on the trade volume weighted average price of a Nokia share on the Helsinki Stock Exchange during the trading days of the first whole week of the second month of the respective calendar quarter (i.e., February, May, August or November). Exercise prices are determined on a one-week weighted average to mitigate any short term fluctuations in Nokia's share price. The determination of exercise price is defined in the terms and conditions of the stock option plan, which are approved by the shareholders at the respective Annual General Meeting. The Board of Directors does not have right to amend the above-described determination of the exercise price. The stock option exercises are settled with newly issued Nokia shares which entitle the holder to a dividend for the financial year in which the subscription occurs. Other shareholder rights commence on the date on which the shares subscribed for are registered with the Finnish Trade Register. Pursuant to the stock options issued, an aggregate maximum number of 34 673 312 new Nokia shares may be subscribed for, representing 0.9% of the total number of votes at December 31, 2007. During 2007 the exercise of 57 269 338 options resulted in the issuance of 57 269 338 new shares. The exercises during 2007 resulted in an increase of the share capital of the parent company of EUR 193 905 by the Annual General Meeting on May 3, 2007. After that date the exercises of stock options have no longer resulted in an increase of the share capital as thereafter all share subscription prices are recorded in the fund for invested non-restricted equity as resolved by the Annual General Meeting. There were no stock options or convertible bonds outstanding as of December 31, 2007, which upon exercise would result in an increase of the share capital of the parent company. The table below sets forth certain information relating to the stock options outstanding at December 31, 2007. Exercise period Vesting status (as percentage of total number Option of stock options (sub)category outstanding) 2001 C 1Q/02 2001 C 3Q/02 2001 C 4Q/02 2002 A+B 2003 2 17 113 788 14 000 2003 2Q 2003 3Q 2003 4Q 2004 2Q 2004 3Q 2004 4Q 2005 2 14 498 513 5 000 2005 2Q 2005 3Q 2005 4Q 2006 1Q 2006 2Q 2006 3Q 2006 4Q 2007 1Q 2007 2 3 061 011 3 000 2007 2Q 2007 3Q 2007 4Q 1 2 The stock options under the 2001 plan were listed on the Helsinki Stock Exchange. The Group's current global stock option plans have a vesting schedule with a 25% vesting one year after grant, and quarterly vesting thereafter, each of the quarterly lots representing 6.25% of the total grant. The grants vest fully in four years. Plan (year of launch) 2001 1, 2 Stock options outstanding -- Number of participants (approx.) -- First vest date April 1, 2003 October 1, 2003 January 2, 2004 July 1, 2003 July 1, 2004 October 1, 2004 January 3, 2005 July 1, 2005 October 3, 2005 January 2, 2006 July 1, 2006 October 1, 2006 January 1, 2007 April 1, 2007 July 1, 2007 October 1, 2007 January 1, 2008 April 1, 2008 July 1, 2008 October 1, 2008 January 1, 2009 Last vest date April 3, 2006 October 2, 2006 January 2, 2007 July 3, 2006 July 2, 2007 October 1, 2007 January 2, 2008 July 1, 2008 October 1, 2008 January 2, 2009 July 1, 2009 October 1, 2009 January 1, 2010 April 1, 2010 July 1, 2010 October 1, 2010 January 1, 2011 April 1, 2011 July 1, 2011 October 1, 2011 January 1, 2012 Expiry date December 31, 2007 December 31, 2007 December 31, 2007 December 31, 2007 December 31, 2008 December 31, 2008 December 31, 2008 December 31, 2009 December 31, 2009 December 31, 2009 December 31, 2010 December 31, 2010 December 31, 2010 December 31, 2011 December 31, 2011 December 31, 2011 December 31, 2011 December 31, 2011 December 31, 2012 December 31, 2012 December 31, 2012 Exercise price/share EUR 26.06 12.99 16.86 17.89 14.95 12.71 15.05 11.79 9.44 12.35 12.79 13.09 14.48 14.99 18.02 15.37 15.38 17.00 18.39 21.86 27.53 Expired Expired Expired Expired 100.00 100.00 93.75 81.25 75.00 68.75 56.25 50.00 43.75 37.50 31.25 25.00 -- -- -- -- -- 30 Nokia in 2007 Notes to the consolidated financial statements Total stock options outstanding as at December 31, 2007 1 Number of shares Shares under option at January 1, 2005 Granted Exercised Forfeited Shares under option at December 31, 2005 Granted Exercised Forfeited Expired Shares under option at December 31, 2006 Granted Exercised Forfeited Expired Shares under option at December 31, 2007 Options exercisable at December 31, 2004 (shares) Options exercisable at December 31, 2005 (shares) Options exercisable at December 31, 2006 (shares) Options exercisable at December 31, 2007 (shares) 1 2 Weighted average exercise price 2 EUR 23.29 12.82 10.94 17.86 22.97 16.79 13.71 15.11 33.44 16.28 18.48 16.99 15.13 17.83 15.28 26.18 25.33 16.65 14.66 Weighted average share price 2 EUR 142 957 316 8 552 160 724 796 5 052 794 145 731 886 11 421 939 3 302 437 2 888 474 57 677 685 93 285 229 3 211 965 57 776 205 1 992 666 1 161 096 35 567 227 83 667 122 112 095 407 69 721 916 21 535 000 13.42 16.70 21.75 Includes also a minor number of stock options granted under other than global equity plans. For further information see "Other equity plans for employees" below. The weighted average excercise price and the weighted average share price do not incorporate the effect of transferable stock option exercises by option holders not employed by the Group. The weighted average grant date fair value of stock options granted was EUR 3.32 in 2007, EUR 3.65 in 2006 and EUR 2.45 in 2005. The options outstanding by range of exercise price at December 31, 2007, are as follows: Options outstanding Weighted average remaining contractual life in years 2.60 2.99 1.10 4.21 Weighted average exercise price, EUR 11.10 12.84 14.97 18.36 Exercise prices, EUR 0.7511.96 12.0614.48 14.9517.61 18.0238.34 Number of shares 4 140 394 5 939 886 13 805 227 11 681 720 35 567 227 Nokia calculates the fair value of stock options using the Black Scholes model. The fair value of the stock options is estimated at the grant date using the following assumptions: 2007 Weighted average expected dividend yield Weighted average expected volatility Risk-free interest rate Weighted average risk-free interest rate Expected life (years) Weighted average share price, EUR 2.30% 25.24% 3.79%4.19% 4.09% 3.59 18.49 2006 2.08% 24.09% 2.86%3.75% 3.62% 3.60 17.84 2005 2.50% 25.92% 2.16%3.09% 2.60% 3.59 13.20 Expected term of stock options is estimated by observing general option holder behaviour and actual historical terms of Nokia stock option plans. Expected volatility has been set by reference to the implied volatility of options available on Nokia shares in the open market and in light of historical patterns of volatility. Notes to the consolidated financial statements 31 Notes to the consolidated financial statements Performance shares The Group has granted performance shares under the Global Plans 2004, 2005, 2006 and 2007, each of which, including its terms and conditions, has been approved by the Board of Directors. A valid authorization from the Annual General Meeting is required, when the plans are settled by using the Nokia newly issued shares or existing treasury shares. The Group may also settle the plans by using Nokia shares purchased on the open market or by using cash instead of shares. The performance shares represent a commitment by Nokia to deliver Nokia shares to employees at a future point in time, subject to Nokia's fulfillment of pre-defined performance criteria. No performance shares will vest unless Nokia's performance reaches at least one of the threshold levels measured by two independent, pre-defined performance criteria: Nokia's average annual net sales growth for the performance period of the plan and earnings per share (EPS) at the end of the performance period. The 2004 and 2005 plans have a four-year performance period with a two-year interim measurement period, and the 2006 and 2007 plans have a three-year performance period without an interim payout. The shares vest after the respective interim measurement period and/or the performance period. Once the shares vest, they will be delivered to the participants. Until the Nokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights associated with the performance shares. The following table summarizes our global performance share plans. Plan 2004 2005 2006 2007 Performance shares outstanding at threshold 3 195 197 3 819 347 4 432 655 2 107 359 Number of participants (approx.) 10 000 11 000 12 000 5 000 Interim measurement period 20042005 20052006 N/A N/A Performance period 20042007 20052008 20062008 20072009 1st (interim) settlement 2006 2007 N/A N/A 2nd (final) settlement 2008 2009 2009 2010 The following table sets forth the performance criteria of each global performance share plan. Threshold performance Plan 2004 2005 2006 2007 1 Maximum performance EPS 1 EUR 0.94 1.18 0.96 1.33 1.41 1.86 Average annual net sales growth 1 16% 20% 12% 17% 26% 20% EPS 1 EUR Interim measurement Performance period Interim measurement Performance period Performance period Performance period 0.80 0.84 0.75 0.82 0.96 1.26 Average annual net sales growth 1 4% 8% 3% 8% 11% 9.5% Both the EPS and Average Annual Net Sales Growth criteria have an equal weight of 50%. 32 Nokia in 2007 Notes to the consolidated financial statements Performance shares outstanding as at December 31, 2007 1 Number of performance shares at threshold Performance shares at January 1, 2005 Granted Forfeited Performance shares at December 31, 2005 Granted Forfeited Performance shares at December 31, 2006 3 Granted Forfeited Vested 4 Performance shares at December 31, 2007 5 1 2 3 Includes also a minor number of performance shares granted under other than global equity plans. For further information see "Other equity plans for employees" below. The fair value of performance shares is estimated based on the grant date market price of the Company's share less the present value of dividends expected to be paid during the vesting period. Based on the performance of the Group during the Interim Measurement Period 20042005, under the 2004 Performance Share Plan, both performance criteria were met. Hence, 3 595 339 Nokia shares equalling the threshold number were delivered in 2006. The performance shares related to the interim settlement of the 2004 Performance Share Plan are included in the number of performance shares outstanding at December 31, 2006, as these performance shares will remain outstanding until the final settlement in 2008. The final payout, in 2008, will be adjusted by the shares delivered based on the Interim Measurement Period. 4 5 Weighted average grant date fair value EUR 2 3 910 840 4 469 219 337 242 8 042 817 5 140 736 569 164 12 614 389 2 163 901 1 001 332 222 400 13 554 558 Includes also performance shares vested under other than global equity plans. Based on the performance of the Group during the Interim Measurement Period 20052006, under the 2005 Performance Share Plan, both performance criteria were met. Hence, 3 980 572 Nokia shares equalling the threshold number were delivered in 2007. The performance shares related to the interim settlement of the 2005 Performance Share Plan are included in the number of performance shares outstanding at December 31, 2007, as these performance shares will remain outstanding until the final settlement in 2009. The final payout, in 2009, if any, will be adjusted by the shares delivered based on the Interim Measurement Period. 11.86 14.83 19.96 Based on the performance of the Group during the Performance Period 20042007, under the 2004 Performance Share Plan, both threshold performance criteria were exceeded. Hence 7.6 million Nokia shares are expected to vest in 2008. The shares will vest as of the date of the Annual General Meeting on May 8, 2008. Restricted shares The Group has granted restricted shares to recruit, retain, reward and motivate selected high potential employees, who are critical to the future success of Nokia. It is Nokia's philosophy that restricted shares will be used only for key management positions and other critical resources. The outstanding global restricted share plans, including their terms and conditions, have been approved by the Board of Directors. A valid authorization from the Annual General Meeting is required, when the plans are settled by using Nokia newly issued shares or existing treasury shares. The Group may also settle the plans by using Nokia shares purchased on the open market or by using cash instead of shares. All of our restricted share plans have a restriction period of three years after grant, after which period the granted shares will vest. Once the shares vest, they will be delivered to the participants. Until the Nokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights, associated with the restricted shares. Restricted shares outstanding as at December 31, 2007 1 Number of restricted shares Restricted shares at January 1, 2005 Granted Forfeited Restricted shares at December 31, 2005 Granted Forfeited Vested Restricted shares at December 31, 2006 Granted Forfeited Vested Restricted shares at December 31, 2007 1 Includes also a minor number of restricted shares granted under other than global equity plans. For further information see "Other equity plans for employees" below. 2 Weighted average grant date fair value EUR 2 2 319 430 3 016 746 150 500 5 185 676 1 669 050 455 100 334 750 6 064 876 1 749 433 297 900 1 521 080 5 995 329 12.14 14.71 24.37 The fair value of restricted shares is estimated based on the grant date market price of the Company's share less the present value of dividends expected to be paid during the vesting period. Notes to the consolidated financial statements 33 Notes to the consolidated financial statements Other equity plans for employees In addition to the global equity plans described above, the Group has minor equity plans for Nokia acquired businesses or employees in the United States or Canada, which do not result in an increase in the share capital of Nokia. These plans are settled by using Nokia shares or ADSs acquired from the market. When these treasury shares are issued on exercise of stock options any gain or loss is recognized in share issue premium. On the basis of these plans the Group had 0.9 million stock options and minor number of restricted shares outstanding on December 31, 2007. For stock options, the average exercise price is USD 20.53. At December 31, 2007, the Group had loss carry forwards of EUR 242 million (EUR 24 million in 2006) for which no deferred tax asset was recognized due to uncertainty of utilization of these loss carry forwards. Part of these losses do not have an expiry date. At December 31, 2007, the Group had undistributed earnings of EUR 315 million, for which no deferred tax liability was recognized as these earnings are considered permanently invested. 25. Accrued expenses EURm 2007 2 024 865 503 3 722 7 114 2006 966 250 303 2 277 3 796 23. Long-term interest-bearing liabilities 2007 EURm Long-term interest-bearing liabilities carried at amortized cost Carrying amount Fair value 2006 Carrying amount Fair value Social security, VAT and other taxes Wages and salaries Advance payments Other Total 203 203 69 69 Other operating expense accruals include various amounts which are individually insignificant. Fair value is estimated based on the current market values of similar instruments. 26. Derivative financial instruments 24. Deferred taxes EURm Deferred tax assets: Intercompany profit in inventory Tax losses carried forward Warranty provision Other provisions Depreciation differences and untaxed reserves Share-based compensation Other temporary differences Total deferred tax assets Deferred tax liabilities: Depreciation differences and untaxed reserves Fair value gains/losses Undistributed earnings Other temporary differences 1 Total deferred tax liabilities Net deferred tax asset The tax charged to shareholders' equity is as follows: Fair value and other reserves, fair value gains/losses and excess tax benefit on share-based compensation 1 2007 Assets 2007 2006 EURm Fair value 1 Notional 2 2007 Liabilities Fair value 1 Notional 2 87 314 132 292 367 227 134 1 553 165 40 31 727 963 590 34 41 134 253 104 70 173 809 23 16 65 101 205 604 Hedges of net investment in foreign subsidiaries: Forward foreign exchange contracts Currency options bought Cash flow hedges: Forward foreign exchange contracts Currency options bought Currency options sold Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss: Forward foreign exchange contracts Currency options bought Interest rate futures Interest rate swaps Cash settled equity options bought 3 Cash settled equity options sold 3 22 -- 89 20 1 264 51 15 718 7 618 6 -- 64 -- 25 393 -- 12 062 -- 6 872 22 4 6 -- 41 -- 204 2 831 1 530 39 43 63 -- 29 157 49 -- -- -- -- 23 167 4 456 -- -- -- -- 40 23 823 133 43 In 2007, other temporary differences included a deferred tax liability of EUR 563 million arising from purchase price allocation related to Nokia Siemens Networks. Deferred taxes include deferred tax assets and liabilities arising from the formation of Nokia Siemens Networks at April 1, 2007. See Note 8. At December 31, 2007, the Group had loss carry forwards, primarily attributable to foreign subsidiaries of EUR 1 403 million (EUR 143 million in 2006), most of which do not have an expiry date. 34 Nokia in 2007 Notes to the consolidated financial statements 2006 Assets EURm Fair value 1 Notional 2 2006 Liabilities Fair value 1 Notional 2 Hedges of net investment in foreign subsidiaries: Forward foreign exchange contracts Currency options bought Cash flow hedges: Forward foreign exchange contracts Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss: Forward foreign exchange contracts Currency options bought Currency options sold Cash settled equity options bought 3 Cash settled equity options sold 3 27 -- 27 1 561 186 1 783 6 -- 51 686 -- 11 641 11 2 -- 7 -- 74 12 090 218 -- 63 -- 15 901 7 1 2 -- 2 69 2 098 50 143 -- 18 14 636 1 2 The fair value of derivative financial instruments is included on the asset side under heading Other financial assets and on the liability side under Short term borrowings. Includes the gross amount of all notional values for contracts that have not yet been settled or cancelled. The amount of notional value outstanding is not necessarily a measure or indication of market risk, as the exposure of certain contracts may be offset by that of other contracts. Cash settled equity options are used to hedge risk relating to employee incentive programs and investment activities. 3 27. Provisions IPR infringements EURm At January 1, 2007 Exchange differences Acquisitions Additional provisions Change in fair value Changes in estimates Charged to profit and loss account Utilized during year At December 31, 2007 Warranty 1 198 10 263 1 127 126 1 001 963 1 489 Restructuring 65 -- -- 744 53 691 139 617 Tax 402 -- 59 9 50 -- 452 Other 437 -- 134 548 16 216 348 305 614 Total 2 386 10 397 2 823 16 451 2 388 1 444 3 717 284 -- -- 345 47 298 37 545 EURm Analysis of total provisions at December 31: Non-current Current 2007 2006 1 323 2 394 690 1 696 Outflows for the warranty provision are generally expected to occur within the next 18 months. Timing of outflows related to tax provisions is inherently uncertain. The restructuring provision is mainly related to restructuring activities in Nokia Siemens Networks. The majority of outflows related to the restructuring is expected to occur during 2008. Restructuring and other associated expenses incurred in Nokia Siemens Networks in 2007 totaled EUR 1 110 million including mainly personnel related expenses as well as expenses arising from the elimination of overlapping functions, and the realignment of the product portfolio and related replacement of discontinued products at customer sites. These expenses included EUR 318 million impacting gross profit, EUR 439 million research and development expenses, EUR 149 million selling and marketing expenses, EUR 146 million administrative expenses and EUR 58 million other operating expenses. EUR 254 million of the expenses was paid during 2007. The Group provides for the estimated future settlements related to asserted and unasserted past IPR infringements based on the probable outcome of potential infringement. Final resolution of IPR claims generally occurs over several periods. Other provisions include provisions for non-cancelable purchase commitments, provision for pension and other social costs on share-based awards and provision for losses on projects in progress. Notes to the consolidated financial statements 35 Notes to the consolidated financial statements 28. Earnings per share 2007 Numerator/EURm Basic/Diluted: Profit attributable to equity holders of the parent Denominator/1 000 shares Basic: Weighted average shares Effect of dilutive securities: stock options, restricted shares and performance shares Diluted: Adjusted weighted average shares and assumed conversions 2006 2005 7 205 4 306 3 616 3 885 408 4 062 833 4 365 547 46 600 23 696 5 692 3 932 008 4 086 529 4 371 239 Basic earnings per share is computed using the weighted average number of shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of shares outstanding during the period plus the dilutive effect of stock options, restricted shares and performance shares outstanding during the period. 29. Commitments and contingencies EURm Collateral for our own commitments Property under mortgages Assets pledged Contingent liabilities on behalf of Group companies Other guarantees Collateral given on behalf of other companies Securities pledged 1 Contingent liabilities on behalf of other companies Financial guarantees on behalf of third parties 1 Other guarantees Financing commitments Customer finance commitments 1 Venture fund commitments 2 1 2 See also Note 35 b). See also Note 35 a). 2007 2006 18 29 18 27 Other guarantees include guarantees of EUR 2 429 million in 2007 (EUR 259 million in 2006) provided to certain Nokia Siemens Networks' customers (Nokia's network customers in 2006) in the form of bank guarantees, standby letters of credit and other similar instruments. These instruments entitle the customer to claim payment as compensation for non-performance by Nokia of its obligations under network infrastructure supply agreements. Depending on the nature of the instrument, compensation is payable either immediately upon request, or subject to independent verification of non-performance by Nokia. Guarantees for loans and other financial commitments on behalf of other companies of EUR 130 million in 2007 (EUR 23 million in 2006) represent guarantees relating to payment by certain Nokia Siemens Networks' customers and other third parties under specified loan facilities between such a customer and other third parties and their creditors. Nokia's obligations under such guarantees are released upon the earlier of expiration of the guarantee or early payment by the customer. Financing commitments of EUR 270 million in 2007 (EUR 164 million in 2006) are available under loan facilities negotiated with Nokia Siemens Networks' customers. Availability of the amounts is dependent upon the borrower's continuing compliance with stated financial and operational covenants and compliance with other administrative terms of the facility. The loan facilities are primarily available to fund capital expenditure relating to purchases of network infrastructure equipment and services. Venture fund commitments of EUR 251 million in 2007 (EUR 208 million in 2006) are financing 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 according to respective partnership agreements. The Group is party to routine litigation incidental to the normal conduct of business, including, but not limited to, several claims, suits and actions both initiated by third parties and initiated by Nokia relating to infringements of patents, violations of licensing arrangements and other intellectual property related matters, as well as actions with respect to products, contracts and securities. In the opinion of the management outcome of and liabilities in excess of what has been provided for related to these or other proceedings, in the aggregate, are not likely to be material to the financial condition or result of operations. As of December 31, 2007, the Group had purchase commitments of EUR 2 610 million (EUR 1 630 million in 2006) relating to inventory purchase obligations, primarily for purchases in 2008. 2 563 358 30. Leasing contracts The Group leases office, manufacturing and warehouse space under various noncancellable operating leases. Certain contracts contain renewal options for various periods of time. The future costs for non-cancellable leasing contracts are as follows: EURm Operating leases 2008 2009 2010 2011 2012 Thereafter Total 281 218 157 117 96 129 998 -- -- 130 1 23 2 270 251 164 208 Leasing payments The amounts above represent the maximum principal amount of commitments and contingencies. Property under mortgages given as collateral for our own commitments include mortgages given to the Finnish National Board of Customs as a general indemnity of EUR 18 million in 2007 (EUR 18 million in 2006). Assets pledged for the Group's own commitments include available-for-sale investments of EUR 10 million in 2007 (EUR 10 million of available-for-sale investments in 2006). Rental expense amounted to EUR 328 million in 2007 (EUR 285 million in 2006 and EUR 262 million in 2005). 36 Nokia in 2007 Notes to the consolidated financial statements 31. Related party transactions Nokia Pension Foundation is a separate legal entity that manages and holds in trust the assets for the Group's Finnish employee benefit plans. These assets do not include Nokia shares. The Group recorded net rental expense of EUR 0 million in 2007 (EUR 2 million in 2006 and EUR 2 million in 2005) pertaining to a sale-leaseback transaction with the Nokia Pension Foundation involving certain buildings and a lease of the underlying land. At December 31, 2007, the Group had borrowings amounting to EUR 69 million (EUR 69 million in 2006) from Nokia Untersttzungskasse GmbH, the Group's German pension fund, which is a separate legal entity. The loan bears interest at 6% annum and its duration is pending until further notice by the loan counterparts who have the right to terminate the loan with a 90-day notice period. There were no loans granted to the members of the Group Executive Board and Board of Directors at December 31, 2007, 2006 or 2005. Transactions with associated companies EURm 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 2007 44 12 158 82 125 61 69 2006 28 1 61 -- -- -- 14 2005 10 1 33 -- -- -- 14 Management compensation The following table sets forth the salary and cash incentive information awarded and paid or payable by the company to the Chief Executive Officer and President of Nokia Corporation for fiscal years 20052007 as well as the share-based compensation expense relating to equity-based awards, expensed by the company. 2007 Base salary 1 037 619 Cash Share-based incentive compensation payments expense 2 348 877 4 805 722 Base salary 898 413 2006 Cash Share-based incentive compensation payments expense 664 227 2 108 197 Base salary 623 524 2005 Cash Share-based incentive compensation payments expense 947 742 666 313 EUR Olli-Pekka Kallasvuo President and CEO 1 1 President and CEO as of June 1, 2006; and President and COO until June 1, 2006; Executive Vice President and General Manager and President of Mobile Phones January 1, 2004October 1, 2005. Total remuneration of the Group Executive Board awarded for the fiscal years 20052007 was EUR 13 634 791 in 2007 (EUR 8 574 443 in 2006 and EUR 14 684 602 in 2005), which consisted of base salaries and cash incentive payments. Total sharebased compensation expense relating to equity-based awards, expensed by the company was EUR 19 837 583 in 2007 (EUR 15 349 337 in 2006 and EUR 8 295 227 in 2005). Notes to the consolidated financial statements 37 Notes to the consolidated financial statements 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. 2007 Gross annual fee EUR 1 375 000 150 000 155 000 140 000 130 000 130 000 130 000 155 000 140 000 140 000 Shares received Gross annual fee EUR 1 375 000 110 000 120 000 -- 110 000 -- -- 135 000 120 000 120 000 2006 Shares received Gross annual fee EUR 1 165 000 110 000 120 000 -- 110 000 -- -- 135 000 -- 120 000 2005 Shares received Board of Directors Chairman Jorma Ollila 2 Vice Chairman Dame Marjorie Scardino 3 Georg Ehrnrooth 4 Lalita D. Gupte 5 Dr. Bengt Holmstrm 6 Dr. Henning Kagermann Olli-Pekka Kallasvuo 7 Per Karlsson 8 Keijo Suila 9 Vesa Vainio 10 11 8 110 3 245 3 351 3 027 2 810 2 810 2 810 3 351 3 027 3 027 8 035 2 356 2 570 -- 2 356 -- -- 2 892 2 570 2 570 5 011 3 340 3 644 -- 3 340 -- -- 4 100 -- 3 644 1 2 3 4 Approximately 60% of the gross annual fee is paid in cash and the remaining 40% is paid in Nokia shares purchased from the market and included in the table under "Shares Received." This table includes fees paid for Mr. Ollila, Chairman, for his services as Chairman of the Board, only. The 2007 fee of Ms. Scardino amounted to a total of EUR 150 000 for services as Vice Chairman. The 2005 and 2006 fees of Ms. Scardino amounted to EUR 110 000 for services as a member of the Board. The 2007 fee of Mr. Ehrnrooth amounted to a total of EUR 155 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 25 000 for services as Chairman of the Audit Committee. The 2005 and 2006 fees of Mr. Ehrnrooth consisted of a fee of EUR 110 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. The 2007 fee of Ms. Gupte amounted to a total of EUR 140 000, consisting of fee of 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. The 2007 fee of Mr. Holmstrm amounted to EUR 130 000 for services as a member of the Board. The 2005 and 2006 fees of Mr. Holmstrm amounted to EUR 110 000 for services as a member of the Board. This table includes fees paid for Mr. Kallasvuo for his services as a member of the Board, only. The 2007 fee of Mr. Karlsson amounted to a total of EUR 155 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 25 000 for services as Chairman of the Personnel Committee. The 2006 and 2005 fees of Mr. Karlsson amounted to a total of EUR 135 000, consisting of a fee of EUR 110 000 for services as a member of the Board and EUR 25 000 for services as Chairman of the Audit Committee. 9 The 2007 fee of Mr. Suila amounted to a total of EUR 140 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. The 2006 fee of Mr. Suila amounted to a total of EUR 120 000, consisting of a fee of EUR 110 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 10 The 2007 fee of Mr. Vainio amounted to a total of EUR 140 000 consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. The 2005 and 2006 fees of Mr. Vainio amounted to a total of EUR 120 000, consisting of a fee of EUR 110 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 11 Daniel R. Hesse, who was re-elected as a Nokia Board member in the Annual General Meeting on May 3, 2007, was paid the annual fee of EUR 130 000 for services as a member of the Board, prior to his resignation announced on December 28, 2007. This amount included 2 810 shares. The 2005 and 2006 fees of Mr. Hesse amounted to EUR 110 000 for services as a member of the Board, which amounts included 2 356 shares in 2006 and 3 340 shares in 2005. 5 6 7 8 Pension arrangements of certain Group Executive Board Members Olli-Pekka Kallasvuo can, as part of his service contract, retire at the age of 60 with full retirement benefit should he be employed by Nokia at the time. The full retirement benefit is calculated as if Mr. Kallasvuo had continued his service with Nokia through the statutory retirement age of 65. Hallstein Moerk, following his arrangement with a previous employer, has also in his current position at Nokia a retirement benefit of 65% of his pensionable salary beginning at the age of 62. Early retirement is possible at the age of 55 with reduced benefits. Simon Beresford-Wylie participates in the Nokia International Employee Benefit Plan (NIEBP). The NIEBP is a defined contribution retirement arrangement provided to some Nokia employees on international assignments. The contributions to NIEBP are funded two-thirds by Nokia and one-third by the employee. Because Mr. Beresford-Wylie also participates in the Finnish TEL system, the company contribution to NIEBP is 1.3% of annual earnings. 38 Nokia in 2007 Notes to the consolidated financial statements 32. Notes to cash flow statement EURm Adjustments for: Depreciation and amortization (Note 9,13) Profit on sale of property, plant and equipment and available-for-sale investments Income taxes (Note 11) Share of results of associated companies (Note 14) Minority interest Financial income and expenses (Note 10) Impairment charges (Note 7) Share-based compensation (Note 22) Restructuring charges Customer financing impairment charges and reversals Adjustments, total Change in net working capital Increase in short-term receivable Increase ()/decrease (+) in inventories Increase in interest-free short-term borrowings Change in net working capital 2 146 245 2 996 605 1 770 84 893 793 896 301 831 366 1 206 712 712 2007 2006 2005 The Group is currently evaluating the accounting impact of the closure of the Bochum site and expects to recognize restructuring and other charges in 2008. Acquisitions The Group announced the following acquisitions and expects them to close during 2008. 1 864 1 522 44 459 239 63 228 856 -- 1 269 4 1 357 28 60 207 51 192 -- 276 1 857 131 1 281 10 74 322 66 104 -- -- 1 774 NAVTEQ On October 1, 2007, the Nokia and US -based digital map provider NAVTEQ announced a definitive agreement for Nokia to acquire a 100% ownership interest in NAVTEQ for approximately USD 8.1 billion (EUR 5.7 billion). NAVTEQ is a leading provider of comprehensive digital map information for automotive systems, mobile navigation devices, Internet-based mapping applications, and government and business solutions. NAVTEQ also owns Traffic.com, a web and interactive service that provides traffic information and content to consumers. Completion of the acquisition is subject to customary closing conditions including regulatory approvals. NAVTEQ 's results of operations will be included in the Group's consolidated financial statements from the acquisition date and NAVTEQ 's current map data business will form a separate reportable segment. The value of the synergies between NAVTEQ and the Group and the value of NAVTEQ 's assembled workforce will form the principal items expected to result in the recognition of goodwill. None of the goodwill is expected to be deductible for tax purposes. Nokia plans to finance the acquisition with a combination of cash and debt, and has secured a commitment on the debt. For its recently completed fiscal year ended December 31, 2007, NAVTEQ reported revenues, net profit, total assets and shareholders' equity of USD 853 million (EUR 591 million), USD 173 million (EUR 120 million), USD 1 322 million (EUR 916 million) and USD 1 007 million (EUR 697 million), respectively. Trolltech On January 28, 2008, Nokia and Norway-based software provider Trolltech ASA announced that they have entered into an agreement that Nokia will make a public voluntary offer to acquire a 100% ownership interest in Trolltech which offer has thereafter commenced. Trolltech is a recognized software provider with world-class software development platforms and frameworks. Completion of the acquisition is subject to customary closing conditions, including acceptance by shareholders representing more than 90% of the fully diluted share capital and the necessary regulatory approvals. For its recently completed fiscal year ended December 31, 2007, Trolltech reported unaudited revenues, net loss, total assets and shareholders' equity of NOK 218 million (EUR 27 million), NOK 38 million (EUR 5 million), NOK 210 million (EUR 26 million) and NOK 120 million (EUR 15 million), respectively. Apertio Ltd. On January 2, 2008, Nokia Siemens Networks announced the acquisition of a 100% ownership interest in the UK-based subscriber-centric network specialist Apertio Ltd for approximately EUR 140 million. Apertio is a leading provider of open real-time subscriber data platforms and applications built specifically for mobile, fixed, and converged telecommunications operators. The acquisition of Apertio closed on February 11, 2008. The Group is in the process of evaluating the Apertio acquisition and expects to finalize the PPA during 2008. The formation of Nokia Siemens Networks was completed through the contribution of certain tangible and intangible assets and certain business interests that comprised Nokia's networks business and Siemens' carrier-related operations. See Note 8. 33. Subsequent events Transfer of statutory pension liability in Finland to Ilmarinen and Varma On December 20, 2007, the Group announced its decision to transfer the Finnish statutory pension liability of Nokia and Nokia Siemens Networks to the pension insurance companies Ilmarinen and Varma, respectively, as of March 1, 2008. The transfer did not affect the number of employees covered by the plan nor will it affect the current employees' entitlement to pension benefits. At the transfer date, the Group has retained no direct or indirect obligation to pay employee benefits relating to employee service in current, prior or future periods. The Group is currently evaluating the accounting impact of the transfer including the recognition of unrecognized actuarial gains and losses. Closure of Bochum site in Germany On January 15, 2008, the Group announced plans to discontinue the production of mobile devices in Germany and close its Bochum site by mid-2008. The company plans to move manufacturing to its other more cost-competitive sites in Europe. The Group also intends to discontinue other non-production activities at the Bochum site. The Group also announced plans to sell its Bochum-based line fit automotive business and it is in negotiations to sell the adaptation software R&D entity also located in Bochum. The planned closure of the site in Bochum is estimated to affect approximately 2 300 Nokia employees. Notes to the consolidated financial statements 39 Notes to the consolidated financial statements 34. Principal Nokia Group companies at December 31, 2007 Parent holding Nokia Inc. Nokia GmbH Nokia UK Limited Nokia TMC Limited Nokia Telecommunications Ltd Nokia Finance International B.V. Nokia Komrom Kft Nokia India Pvt Ltd Nokia Italia S.pA. Nokia Spain S.A.U Nokia do Brazil Technologia Ltda Nokia Siemens Networks B.V. Nokia Siemens Networks Oy Nokia Siemens Networks GmbH & Co KG Nokia Siemens Networks Pvt. Ltd. -- 100.0 -- 100.0 4.5 100.0 100.0 100.0 100.0 100.0 100.0 -- -- -- -- Group majority 100.0 100.0 100.0 100.0 83.9 100.0 100.0 100.0 100.0 100.0 100.0 50.0 1 50.0 50.0 50.0 Financial risks The objective for Treasury activities in Nokia is twofold: to guarantee cost-efficient funding for the Group at all times, and to identify, evaluate and hedge financial risks in close co-operation with the business groups. There is a strong focus in Nokia on creating shareholder value. The Treasury activities supports this aim by minimizing the adverse effects caused by fluctuations in the financial markets on the profitability of the underlying businesses and by managing the balance sheet structure of the Group. Nokia has Treasury Centers in Geneva, Singapore/Beijing and New York/Sao Paolo, and a Corporate Treasury unit in Espoo. This international organization enables Nokia to provide the Group companies with financial services according to local needs and requirements. Treasury activities is governed by policies approved by the CEO. Treasury Policy provides principles for overall financial risk management and determines the allocation of responsibilities for financial risk management in Nokia. Operating Procedures cover specific areas such as foreign exchange risk, interest rate risk, use of derivative financial instruments, as well as liquidity and credit risk. Nokia is risk averse in its Treasury activities. % US DE GB KR CN NL HU IN IT ES BR NL FI DE IN a) Market risk Foreign exchange risk Nokia operates globally and is thus exposed to foreign exchange risk arising from various currency combinations. Foreign currency denominated assets and liabilities together with expected cash flows from highly probable purchases and sales give rise to foreign exchange exposures. These transaction exposures are managed against various local currencies because of Nokia's substantial production and sales outside the Euro zone. According to the foreign exchange policy guidelines of the Group, which stays the same as in the previous year, material transaction foreign exchange exposures are hedged. Exposures are mainly hedged with derivative financial instruments such as forward foreign exchange contracts and foreign exchange options. The majority of financial instruments hedging foreign exchange risk have duration of less than a year. The Group does not hedge forecasted foreign currency cash flows beyond two years. Since Nokia has subsidiaries outside the Euro zone, the euro-denominated value of the shareholders' equity of Nokia is also exposed to fluctuations in exchange rates. Equity changes caused by movements in foreign exchange rates are shown as a translation difference in the Group consolidation. Nokia uses, from time to time, foreign exchange contracts and foreign currency denominated loans to hedge its equity exposure arising from foreign net investments. At the end of year 2007 and 2006, following currencies represent a significant portion of the currency mix in the outstanding financial instruments: Associated companies Symbian Limited 1 -- 47.9 Nokia Siemens Networks B.V., the ultimate parent of the Nokia Siemens Networks group, is owned approximately 50% by each of Nokia and Siemens and consolidated by Nokia. Nokia effectively controls Nokia Siemens Networks as it has the ability to appoint key officers and the majority of the members of its Board of Directors, and accordingly, Nokia consolidates Nokia Siemens Networks. A complete list of subsidiaries and associated companies is included in Nokia's Statutory Accounts. 35. Risk Management General risk management principles Nokia's overall risk management concept is based on visibility of the key risks preventing Nokia from reaching its business objectives. This covers all risk areas: strategic, operational, financial and hazard risks. Risk management at Nokia is a systematic and pro-active way to analyze, review and manage opportunities, threats and risks related to Nokia's objectives rather than to solely eliminate risks. The principles documented in Nokia's Risk Policy and accepted by the Audit Committee of the Board of Directors require risk management and its elements to be integrated into business processes. One of the main principles is that the business or function owner is also the risk owner, however, it is everyone's responsibility at Nokia to identify risks preventing us from reaching our objectives. Key risks are reported to the business and Group level management to create assurance on business risks and to enable prioritization of risk management implementation at Nokia. In addition to general principles there are specific risk management policies covering, for example, treasury and customer business related credit risks. 40 Nokia in 2007 Notes to the consolidated financial statements 2007, EURm FX derivatives used as cash flow hedges (net amount) 1 FX derivatives used as net investment hedges (net amount) 2 FX exposure from balance sheet items (net amount) 3 FX derivatives not designated in a hedge relationship and carried at fair value through profit anc loss accounts (net amount) 3 USD 803 -- 2 204 JPY 1 274 -- 739 GBP 656 -- 89 INR -- 216 33 EURm Fixed rate instruments in available-for-sale investment Floating rate instruments in available-for-sale investment 2007 7 716 1 912 9 628 2006 5 853 1 205 7 058 Equity price risk Nokia is exposed to market price risk as the result of market price movement in the quoted equity instruments held mainly for strategic business reasons. Nokia has certain strategic minority investments in publicly quoted equity shares. The fair value of the equity investments which are subject to market price risk at December 31, 2007 was EUR 10 million (EUR 8 million in 2006). In addition, Nokia invests in private equity through Nokia Venture Funds, which, from time to time, could have holdings in equity instruments which are listed in stock exchanges. These investments are classified as available-for-sale carried at fair value. See Note 15 for more details on available-for-sale investments. Due to the insignificant amount of exposure to equity price risk, there are currently no outstanding derivative financial instruments designated as hedges of these equity investments. Nokia is exposed to equity price risk on social security costs relating to stock compensation plans. Nokia hedges this risk by entering into cash settled equity swap and option contracts. 2 361 847 127 51 2006, EURm FX derivatives used as cash flow hedges (net amount) 1 FX derivatives used as net investment hedges (net amount) 2 FX exposure from balance sheet items (net amount) 3 FX derivatives not designated in a hedge relationship and carried at fair value through profit anc loss accounts (net amount) 3 1 USD 2 439 457 617 JPY 1 626 -- 488 GBP 526 -- 196 INR -- 785 -- 1 442 564 235 -- Value-at-Risk The FX derivatives are used to hedge the foreign exchange risk from forecasted highly probably cash flows related to sales, purchases and business acquisition activities. In some of the currencies, especially in US Dollar, Nokia has substantial foreign exchange risks in both estimated cash inflows and outflows, which have been netted in the table. See Note 20 for more details on hedge accounting. The underlying exposures which these hedges are entered for are not presented in the table, as they are not financial instruments as defined under IFRS 7. The FX derivatives are used to hedge the Group's net investment exposure. The underlying exposures which these hedges are entered for are not presented in the table, as they are not financial instruments as defined under IFRS 7. The balance sheet items which are denominated in the foreign currencies are hedged by a portion of FX derivatives not designated in a hedge relationship and carried at fair value through profit and loss accounts, resulting in offsetting FX gains or losses in the financial income and expenses. 2 3 Interest rate risk The Group is exposed to interest rate risk either through market value fluctuations of balance sheet items (i.e. price risk) or through changes in interest income or expenses (i.e. re-investment risk). Interest rate risk mainly arises through interest bearing liabilities and assets. Estimated future changes in cash flows and balance sheet structure also expose the Group to interest rate risk. The objective of interest rate risk management is to support Nokia in maximizing its shareholder value by optimizing the balance between minimizing uncertainty caused by fluctuations in interest rates and maximizing the consolidated net interest income and expense within risk limits. The interest rate exposure of the Group is monitored and managed centrally. Due to the current balance sheet structure of Nokia, primary emphasis is placed on managing the interest rate risk of investments. Nokia uses the Value-at-Risk (VaR) methodology to assess and measure the interest rate risk in the investment portfolio and related derivatives in managing material exposure from the investment portfolio. At the reporting date, the interest rate profile of the Group's interest-bearing available-for-sale investment is presented in the table below: Nokia uses the Value-at-Risk (VaR) methodology to assess the Group exposures to foreign exchange (FX), interest rate, and equity risks. VaR is a statistical risk measurement of a potential fair value loss in market risk sensitive instruments, as the result of adverse changes in specified market factors, at a specified probability level, over a defined holding period. In Nokia FX VaR is calculated by Monte Carlo simulation with a sufficient amount of random market rate scenarios to take the non-linear price function of certain FX derivative instruments into account. The variance-covariance methodology is used to assess and measure the interest rate risk and equity price risk. VaR is measured based upon volatilities and correlations of rates and prices calculated from a one-year set of historical market data, at 95% confidence level, over a one-month period. To reflect the most recent market conditions, the data is weighted by exponential moving averages with an appropriate decay factor. This model implies that within a one-month period, the potential loss will not exceed the VaR estimate in 95% of the possible outcomes. In the remaining 5% of the possible outcomes, the potential loss will be at minimum equal to the VaR figure, and on average substantially higher. The VaR methodology uses a number of assumptions, such as, a) risks are measured under average market conditions, assuming normal distribution of market risk factors; b) future movements in market risk factors follow estimated historical movements; c) the assessed exposures do not change during the holding period. Thus it is possible that, for any given month, the potential losses are different and could be substantially higher than the estimated VaR. Notes to the consolidated financial statements 41 Notes to the consolidated financial statements FX risk The VaR figures for the Group's financial instruments which are sensitive to foreign exchange risks are presented in Table 1 below. As defined under IFRS 7, the financial instruments included in the VaR calculation are: FX exposures from outstanding balance sheet items and other FX derivatives carried at fair value through profit and loss which are not in a hedge relationship and are mostly used for hedging balance sheet FX exposure. FX derivatives designated as forecasted cash flow hedges and net investment hedges. Most of the VaR is caused by these derivatives as forecasted cash flow and net investment exposures are not financial instruments as defined under IFRS 7 and thus not included in the VaR calculation. b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises from bank and cash, fixed income and money-market investments, derivative financial instruments, loans receivable as well as credit exposures to customers, including outstanding receivables, financial guarantees and committed transactions. Credit risk is managed separately for business related- and financial-credit exposures. Except as detailed in the following table, the maximum exposure to credit risk is limited to the book value of the financial assets as included in Group's balance sheet: EURm Financial guarantees given on behalf of customers or suppliers Loan commitments given but not used 2007 130 270 400 2006 23 164 187 Table 1 Foreign exchange position Value-at-Risk VaR from financial instruments 1 2007 At December 31 Average for the year Range for the year 1 2006 77 92 67134 246 96 57246 Business related credit risk The Company aims to ensure highest possible quality in accounts receivable and loans due from customers and suppliers. The Group Credit Policy, approved by Group Executive Board, lays out the framework for the management of the business related credit risks in all Nokia group companies and affiliates. Credit exposure is measured as the total of accounts receivable and loans outstanding due from customers and other third parties and committed credits. Group Credit Policy provides that credit decisions are based on credit rating. Group Rating Policy defines the rating principles. Ratings are approved by Nokia Group Rating Committee. Credit risks are approved and monitored according to the credit policy of each business entity. These policies are based on the Group Credit Policy. Concentrations of customer or country risks are monitored at the Nokia Group level. When appropriate, assumed credit risks are mitigated with the use of approved instruments, such as collateral or insurance and sale of selected receivables. Bad debt provisions are made if recovery of a credit becomes uncertain. The Group has provided impairment allowances as needed, including on accounts receivable and loans due from customers and other third parties not past due, based on the analysis of debtors' credit quality and credit history. The Group establishes an allowance for impairment that represents an estimate of incurred losses. All receivables and loans due from customers and other third parties are considered on an individual basis for impairment testing. Three customers account for approximately 4.9%, 2.9% and 2.5% (2006: 4.2%, 4.0%, 3.2%) of Group accounts receivables and loans due from customers and other third parties as at December 31, 2007 while the top three credit exposures by country amounted to 8.7%, 6.9% and 6.5% (2006: 8.7%, 7.6%, 7.1%) respectively. As at December 31, 2007, the carrying amount before deducting any impairment allowance of accounts receivables related to customers other third parties for which impairment was provided amounted to EUR 3 011 million (2006: EUR 1 368 million). The amount of provision taken against that portion of these receivables considered to be impaired was EUR 332 million (2006: EUR 212 million) (see also Note 19 Valuation and qualifying accounts). An amount of EUR 478 million (2006: EUR 518 million) relates to past due receivables for which no impairment loss was recognized. The aging of these receivables is as follows: 2007 Past due 130 days Past due 31180 days More than 180 days 411 66 1 478 2006 394 101 23 518 The increase in the VaR in year-over-year comparison is mainly attributable to increased hedging of forecasted cash flows due to a business acquisition. Interest rate risk The VaR for the Group interest rate exposure in the investment portfolio is presented in Table 2 below. Table 2 Treasury investment portfolio Value-at-Risk 2007 At December 31 Average for the year Range for the year 8 12 527 2006 11 15 1021 Equity price risk The VaR for the Group equity investment in publicly traded companies is presented in Table 3 below. Table 3 Equity investment Value-at-Risk 2007 At December 31 Average for the year Range for the year 0.8 0.5 0.20.8 2006 0.3 0.3 0.20.5 42 Nokia in 2007 Notes to the consolidated financial statements As at December 31, 2007, the carrying amount before deducting any impairment allowance of loans due from customers and other third parties for which impairment was provided amounted to EUR 161 million (2006: none). The amount of provision taken for these loans was EUR 19 million (2006: none). There were no past due loans due from customers and other third parties. Financial credit risk Financial instruments contain an element of risk of loss resulting from counterparties being unable to meet their obligations. This risk is measured and monitored centrally. Nokia minimizes financial credit risk by limiting its counterparties to a sufficient number of major banks and financial institutions, as well as through entering into netting arrangements, which gives Nokia the right to offset in the case that the counterparty would not be able to fulfill the obligations. Nokia's investment decisions are based on strict creditworthiness criteria as defined in the Treasury Policy and Operating Procedure. As a result of the constant monitoring of its outstanding investments, Nokia does not have exposure of any significance to subprime loans via its investment portfolio. The table below presents the breakdown of the outstanding available-for-sale fixed income and money market investment by sector and credit rating grades ranked as per Moody's rating categories. Fixed income and money-market investments 1, 2 EUR million 8 000 7 000 Baa1Baa3 6 000 5 000 4 000 3 000 2 000 1 000 0 2006 Banks 1 P-1 A1A3 Aa1Aa3 Aaa 2007 2006 Corporates 2007 2006 2007 2006 ABS 2007 Governments Fixed income and money-market investments include term deposits, investments in liquidity funds and investments in fixed income instruments classified as Available-for-sale. Available-for-sale investments are carried at fair value in 2007 and 2006. Included within fixed income and money-market investments is EUR 169 million of restricted investment at December 31, 2007 (EUR 10 million at December 31, 2006). They are restricted financial assets under various contractual or legal obligations. 2 73% of Nokia's Bank and cash is held with banks of credit rating A a2 or above (70% for 2006). Notes to the consolidated financial statements 43 Notes to the consolidated financial statements c) Liquidity risk Liquidity risk is defined as financial distress or extraordinary high financing costs arising due to a shortage of liquid funds in a situation where business conditions unexpectedly deteriorate and require financing. Transactional liquidity risk is defined as the risk of executing a financial transaction below fair market value, or not being able to execute the transaction at all, within a specific period of time. The objective of liquidity risk management is to maintain sufficient liquidity, and to ensure that it is available fast enough without endangering its value, in order to avoid uncertainty related to financial distress at all times. Nokia guarantees a sufficient liquidity at all times by efficient cash management and by investing in liquid interest bearing securities. The transactional liquidity risk is minimized by only entering into transactions where proper two-way quotes can be obtained from the market. Due to the dynamic nature of the underlying business, Treasury also aims at maintaining flexibility in funding by keeping committed and uncommitted credit lines available. At the end of December 31, 2007, the committed facilities totaled EUR 3 270 million. The committed credit facilities are intended to be used primarily for US and Euro Commercial Paper Programs back up purposes. The average commitment fee on the facilities is 0.041% per annum. The most significant existing funding programs include: Revolving Credit Facility of USD 2 000 million, maturing 2008 Credit Facility of EUR 500 million, maturing 2011 Revolving Credit Facility of USD 2 000 million, maturing in 2012 Euro Medium Term Note (EMTN) program, totaling EUR 3 000 million Local commercial paper program in Finland, totaling EUR 750 million Euro Commercial Paper (ECP) program, totaling USD 500 million US Commercial Paper (USCP) program, totaling USD 500 million None of the above programs have been used to a significant degree in 2007. Nokia's international creditworthiness facilitates the efficient use of international capital and loan markets. The ratings of Nokia from credit rating agencies have not changed during the year. The ratings as at December 31, 2007, were: Short-term Long-term Standard & Poor's Moody's Standard & Poor's Moody's A-1 P-1 A A1 The following table below is an undiscounted cash flow analysis for both financial liabilities and financial assets that are presented on the balance sheet, and offbalance sheet instruments such as loan commitments according to their remaining contractual maturity. Line-by-line reconciliation with the balance sheet as such is not possible. At December 31, 2007, EURm Non-current financial assets Long-term loans receivable Other non-current assets Loan commitments obtained Current financial assets Current portion of long-term loans receivable Short-term loans receivable Available-for-sale investments Cash Cash flows related to derivative financial assets net settled : Derivative contracts-receipts Cash flows related to derivative financial assets gross settled: Derivative contracts-receipts Derivative contracts-payments Accounts receivable 1, 2 Non-current financial liabilities Long-term liabilities Loan commitments given Current financial liabilities Current portion of long-term loans Short-term liabilities Cash flows related to derivative financial liabilities net settled: Derivative contracts-payments Cash flows related to derivative financial liabilities gross settled: Derivative contracts receipts Derivative contracts-payments Accounts payable 1 Due within 3 months Due between 3 and 12 months Due between 1 and 3 years Due between 3 and 5 years Due beyond 5 years -- -- -- 5 16 6 543 2 125 24 19 459 19 331 7 398 10 178 115 617 13 16 207 16 317 6 986 -- -- 1 385 165 8 1 012 -- 15 394 384 1 720 3 39 61 105 10 635 633 88 7 6 500 -- -- 2 003 -- 8 65 69 381 53 21 -- -- -- 70 65 -- 3 -- 1 385 -- -- 343 -- 1 -- -- -- 130 18 -- -- -- -- -- -- 1 -- -- -- -- 355 -- 1 -- -- -- 70 14 -- -- -- -- -- -- 44 Nokia in 2007 Notes to the consolidated financial statements At December 31, 2006, EURm Non-current financial assets Long-term loans receivables Other non-current financial assets Loan commitments obtained Current financial assets Short-term loans receivables Current portion of long-term loans receivable Available-for-sale investments Cash Cash flows related to derivative financial assets net settled : Derivative contracts-receipts Cash flows related to derivative financial assets gross settled: Derivative contracts-receipts Derivative contracts-payments Accounts receivables 1, 2 Non-current financial liabilities Long-term liabilities Loan commitments given Current financial liabilities Current portion of long-term loans Short-term liabilities Cash flows related to derivative financial liabilities net settled: Derivative contracts-payments Cash flows related to derivative financial liabilities gross settled: Derivative contracts-receipts Derivative contracts-payments Accounts payable 1 2 Due within 3 months Due between 3 and 12 months Due between 1 and 3 years Due between 3 and 5 years Due beyond 5 years -- -- -- 23 -- 2 454 1 479 -- 15 032 14 986 4 456 1 1 1 -- 4 -- 801 -- 2 408 393 950 3 11 7 -- -- -- 3 396 0 4 -- -- 115 8 164 14 -- -- -- -- 547 -- 1 -- -- -- 8 -- -- 1 524 -- -- 374 -- -- -- -- -- 69 -- 160 -- 14 242 14 301 3 706 -- 2 1 236 244 22 -- -- 1 -- -- -4 -- -- -- -- -- -- -- -- -- -- -- -- The fair values of trade receivables and payables are assumed to approximate their carrying values due to their short term nature. Accounts receivable maturity analysis does not include accrued receivables and receivables accounted based on the percentage of completion method of EUR 1 700 million (2006: EUR 367 million). Hazard risk Nokia strives to ensure that all financial, reputation and other losses to the Group and our customers are minimized through preventive risk management measures or purchase of insurance. Insurance is purchased for risks, which cannot be internally managed. The objective is to ensure that Group's hazard risks, whether related to physical assets (e.g. buildings) or intellectual assets (e.g. Nokia) or potential liabilities (e.g. product liability) are optimally insured taking into account both cost as well as retention levels. Nokia purchases both annual insurance policies for specific risks as well as multi-line and/or multi-year insurance policies, where available. Notes to the consolidated financial statements 45 Parent company financial statements according to Finnish Accounting Standards Profit and loss accounts, parent company, FAS Balance sheets, parent company, FAS Notes Financial year ended December 31 Net sales Cost of sales Gross margin Selling and marketing expenses Research and development expenses Administrative expenses Other operating expenses Other operating income Operating profit Financial income and expenses Income from long-term investments Dividend income from Group companies Dividend income from other companies Interest income from Group companies Other interest and financial income Interest income from Group companies Interest income from other companies Other financial income from other companies Exchange gains and losses Interest expenses and other financial expenses Interest expenses to Group companies Interest expenses to other companies Other financial expenses Financial income and expenses, total Profit before extraordinary items and taxes Extraordinary items Group contributions Extraordinary items, total Profit before taxes Income taxes for the year from previous years Net profit See Notes to the financial statements of the parent company. 2007 EURm 30 907 20 995 9 912 1 328 2 894 566 195 139 2006 EURm 32 213 23 165 Notes December 31 ASSETS Fixed assets and other non-current assets 2007 EURm 2006 EURm 9 048 Intangible assets 1 446 3 777 820 506 438 2 937 Tangible assets 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 6 6 6 5 4 Capitalized development costs Intangible rights Other long-term expenses 106 48 4 158 -- 250 61 5 316 -- 2, 3 5 068 6 564 9 9 -- 4 6 586 3 682 6 35 12 5 3 740 2 585 3 3 250 7 1 22 168 19 2 2 638 7 706 4 447 1 1 355 2 -- 53 385 4 3 4 467 7 404 Current assets Inventories and work in progress Raw materials and supplies Work in progress Finished goods 72 294 72 438 Receivables Trade debtors from Group companies Trade debtors from other companies Short-term loan receivables from Group companies Short-term loan receivables from other companies Prepaid expenses and accrued income from Group companies Prepaid expenses and accrued income from other companies 958 1 405 8 219 40 1 942 1 372 13 936 Bank and cash Total See Notes to the financial statements of the parent company. 149 141 251 541 1 369 1 885 4 897 7 2 495 965 11 618 204 16 419 -- -- 7 706 33 33 7 437 1 314 34 6 358 759 5 6 683 212 21 330 46 Nokia in 2007 Parent company Cash flow statements, parent company, FAS Notes December 31 SHAREHOLDERS' EQUITY AND LIABILITIES Shareholders' equity Share capital Share issue premium Treasury shares Reserve for invested non-restricted equity Retained earnings Net profit for the year 7 7, 8 7, 8 7, 8 7 2007 EURm 2006 EURm Notes Financial year ended December 31 Cash flow from operating activities Net profit Adjustments, total 12 2007 EURm 2006 EURm 6 358 925 5 433 12 6 683 3 293 3 390 32 3 422 359 388 22 628 2 787 16 2 771 246 -- 3 147 3 299 4 354 6 358 11 110 246 2 312 2 054 -- 2 090 6 683 9 277 Net profit before change in net working capital Change in net working capital Cash generated from operations Interest received Interest paid Other financial income and expenses Income taxes paid Cash flow before extraordinary items Extraordinary income and expenses 150 5 583 256 182 40 822 4 795 33 4 828 Provisions Other provisions Liabilities Short-term liabilities Current finance liabilities from Group companies Current finance liabilities from other companies Advance payments from other companies Trade creditors to Group companies Trade creditors to other companies Accrued expenses and prepaid income to Group companies Accrued expenses and prepaid income to other companies 5 332 24 7 1 222 881 122 2 632 10 220 2 810 2 72 1 127 1 154 94 1 762 7 021 -- 121 Net cash from operating activities Cash flow from investing activities Investments in shares Additions to capitalized development costs Capital expenditures Proceeds from sale of shares Long-term loans made to customers Proceeds from repayment and sale of long-term loans receivable Proceeds from other long-term receivables Proceeds from short-term receivables Dividends received Net cash used in investing activities Cash flow from financing activities Proceeds from share issue Proceeds from borrowings Repayment of borrowings Purchase of treasury shares Dividends paid Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period 50 90 28 37 11 11 28 3 372 672 2 803 135 127 38 1 11 56 14 6 911 2 013 8 684 987 2 508 -- 3 826 1 686 2 017 8 204 46 -- 6 451 3 366 1 512 11 283 172 32 Total See Notes to the financial statements of the parent company. 21 330 16 419 Cash and cash equivalents at end of period See Notes to the financial statements of the parent company. 212 204 Parent company 47 Notes to the financial statements of the parent company 1. Accounting principles The Parent company Financial Statements are prepared according to Finnish Accounting Standards (FAS). See Note 1 to Notes to the consolidated financial statements. 2. Personnel expenses EURm Wages and salaries Pension expenses Other social expenses Personnel expenses as per profit and loss account 2007 1 059 165 41 1 265 2006 1 395 218 97 1 710 Management compensation The following table sets forth the salary and cash incentive information awarded and paid or payable by the company to the Chief Executive Officer and President of 2007 Base salary 1 037 619 Cash Share-based incentive compensation payments expense 2 348 877 4 805 722 Base salary 898 413 Nokia Corporation for fiscal years 20052007 as well as the share-based compensation expense relating to equity-based awards, expensed by the company. 2006 Cash Share-based incentive compensation payments expense 664 227 2 108 197 Base salary 623 524 2005 Cash Share-based incentive compensation payments expense 947 742 666 313 EUR Olli-Pekka Kallasvuo President and CEO 1 1 President and CEO as of June 1, 2006; and President and COO October 1, 2005June 1, 2006; Executive Vice President and General Manager and President of Mobile Phones January 1, 2004October 1, 2005. Total remuneration of the Group Executive Board awarded for the fiscal years 20052007 was EUR 13 634 791 in 2007 (EUR 8 574 443 in 2006 and EUR 14 684 602 in 2005), 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 19 837 583 in 2007 (EUR 15 349 337 in 2006 and EUR 8 295 227 in 2005). 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. 2007 Gross annual fee EUR 1 375 000 150 000 155 000 140 000 130 000 130 000 130 000 155 000 140 000 140 000 Shares received Gross annual fee EUR 1 375 000 110 000 120 000 -- 110 000 -- -- 135 000 120 000 120 000 2006 Shares received Gross annual fee EUR 1 165 000 110 000 120 000 -- 110 000 -- -- 135 000 -- 120 000 2005 Shares received Board of Directors Chairman Jorma Ollila 2 Vice Chairman Dame Marjorie Scardino 3 Georg Ehrnrooth 4 Lalita D. Gupte 5 Dr. Bengt Holmstrm 6 Dr. Henning Kagermann Olli-Pekka Kallasvuo 7 Per Karlsson 8 Keijo Suila 9 Vesa Vainio 10 11 1 2 3 4 8 110 3 245 3 351 3 027 2 810 2 810 2 810 3 351 3 027 3 027 8 035 2 356 2 570 -- 2 356 -- -- 2 892 2 570 2 570 5 011 3 340 3 644 -- 3 340 -- -- 4 100 -- 3 644 Approximately 60% of the gross annual fee is paid in cash and the remaining 40% is paid in Nokia shares purchased from the market and included in the table under "Shares Received." This table includes fees paid for Mr. Ollila, Chairman, for his services as Chairman of the Board, only. The 2007 fee of Ms. Scardino amounted to a total of EUR 150 000 for services as Vice Chairman. The 2006 and 2005 fees of Ms. Scardino amounted to EUR 110 000 for services as a member of the Board. The 2007 fee of Mr. Ehrnrooth amounted to a total of EUR 155 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 25 000 for services as Chairman of the Audit Committee. The 2006 and 2005 fees of Mr. Ehrnrooth consisted of a fee of EUR 110 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 5 6 7 8 The 2007 fee of Ms. Gupte amounted to a total of EUR 140 000, consisting of fee of 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. The 2007 fee of Mr. Holmstrm amounted to EUR 130 000 for services as a member of the Board. The 2005 and 2006 fees of Mr. Holmstrm amounted to EUR 110 000 for services as a member of the Board. This table includes fees paid for Mr. Kallasvuo for his services as a member of the Board, only. The 2007 fee of Mr. Karlsson amounted to a total of EUR 155 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 25 000 for services as Chairman of the Personnel Committee. The 2006 and 2005 fees of Mr. Karlsson amounted to a total of EUR 135 000, consisting of a fee of EUR 110 000 for services as a member of the Board and EUR 25 000 for services as Chairman of the Audit Committee. 48 Nokia in 2007 Notes to the financial statements of the parent company 9 The 2007 fee of Mr. Suila amounted to a total of EUR 140 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. The 2006 fee of Mr. Suila amounted to a total of EUR 120 000, consisting of a fee of EUR 110 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 4. Intangible assets EURm Capitalized development costs Acquisition cost January 1 Additions Accumulated amortization relating to additions December 31 Disposals Accumulated amortization relating to deductions December 31 Accumulated amortiza tion December 31 Net carrying amount December 31 Intangible rights Acquisition cost January 1 Additions Accumulated amortization relating to additions December 31 Disposals Accumulated amortization relating to deductions December 31 Accumulated amortization December 31 Net carrying amount December 31 Other intangible assets Acquisition cost January 1 Additions Accumulated amortization relating to additions December 31 Disposals Accumulated amortization relating to deductions December 31 Accumulated amortization December 31 Net carrying amount December 31 2007 2006 10 The 2007 fee of Mr. Vainio amounted to a total of EUR 140 000 consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. The 2006 and 2005 fees of Mr. Vainio amounted to a total of EUR 120 000, consisting of a fee of EUR 110 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 11 Daniel R. Hesse, who was re-elected as a Nokia Board member in the Annual General Meeting on May 3, 2007, was paid the annual fee of EUR 130 000 for services as a member of the Board, prior to his resignation announced on December 28, 2007. This amount included 2 810 shares. The 2006 and 2005 fees of Mr. Hesse amounted to EUR 110 000 for services as a member of the Board, which amounts included 2 356 shares in 2006 and 2 340 shares in 2005. 1 605 90 1 1 336 1 158 1 410 106 1 517 127 5 39 39 1 389 250 Retirement benefits of certain Group Executive Board Members Olli-Pekka Kallasvuo can, as part of his service contract, retire at the age of 60 with full retirement benefit should he be employed by Nokia at the time. The full retirement benefit is calculated as if Mr. Kallasvuo had continued his service with Nokia through the statutory retirement age of 65. Hallstein Moerk, following his arrangement with a previous employer, has also in his current position at Nokia a retirement benefit of 65% of his pensionable salary beginning at the age of 62. Early retirement is possible at the age of 55 with reduced benefits. Simon Beresford-Wylie participates in the Nokia International Employee Benefit Plan (NIEBP). The NIEBP is a defined contribution retirement arrangement provided to some Nokia employees on international assignments. The contributions to NIEBP are funded two-thirds by Nokia and one-third by the employee. Because Mr. Beresford-Wylie also participates in the Finnish TEL system, the company contribution to NIEBP is 1.3% of annual earnings. 310 25 4 75 66 274 48 311 37 5 38 38 282 61 8 4 2 6 3 3 4 7 3 -- 2 -- 3 5 Personnel average Production Marketing R&D Administration 2007 3 965 1 187 9 732 2 580 17 464 15 070 2006 6 194 1 444 13 544 3 121 24 303 24 333 5. Tangible assets Personnel, December 31 At the end of 2007 and 2006 the parent company had no tangible assets. These assets were leased from Nokia Asset Management Oy, a company wholly owned by Nokia Corporation. 3. Depreciation and amortization EURm Depreciation and amortization by asset class category Intangible assets Capitalized development costs Intangible rights Tangible assets Total Depreciation and amortization by function R&D Production Selling, marketing and administration Total 2007 2006 6. Investments EURm Investments in subsidiaries Acquisition cost January 1 Additions Disposals Net carrying amount December 31 Investments in associated companies Acquisition cost January 1 Additions Disposals Net carrying amount December 31 Investments in other shares Acquisition cost January 1 Additions Disposals Net carrying amount December 31 2007 2006 55 28 2 85 137 31 -- 168 3 682 5 454 2 572 6 564 3 565 148 31 3 682 67 1 17 85 149 2 17 168 6 3 -- 9 7 4 5 6 5 -- 1 4 5 -- -- 5 Notes to the financial statements of the parent company 49 Notes to the financial statements of the parent company 7. Shareholders' equity Reserve for invested nonrestricted equity -- Parent company, EURm Balance at January 1, 2005 Share issue Cancellation of treasury shares Acquisitions of treasury shares Dividend Adoption of IAS 39(R) Net profit Balance at December 31, 2005 Share issue Cancellation of treasury shares Acquisitions of treasury shares Settlement of performance shares Dividend Net profit Balance at December 31, 2006 Share issue Cancellation of treasury shares Acquisitions of treasury shares Settlement of performance shares Reserve for invested non-restricted equity Dividend Net profit Balance at December 31, 2007 Share capital 280 14 Share issue premium 2 230 2 14 Treasury shares 2 012 2 664 4 266 Retained earnings 10 163 2 664 1 463 71 2 422 Total 10 661 2 -- 4 266 1 463 71 2 422 7 427 46 -- 3 404 37 266 20 2 246 46 20 3 614 4 927 3 404 37 -- 8 529 4 927 1 512 6 683 246 2 312 46 2 733 3 884 58 2 358 3 299 1 686 6 358 246 -- 3 147 3 299 10 712 2 733 2 054 -- 8 773 1 512 6 683 9 277 46 -- 3 884 58 941 1 686 6 358 11 110 8. Distributable earnings EURm Reserve for invested non-restricted equity Retained earnings from previous years Net profit for the year Retained earnings, total Treasury shares Distributable earnings, December 31 2007 3 299 4 354 6 358 14 011 3 147 10 864 2006 -- 2 090 6 683 8 773 2 054 6 719 10. Leasing contracts At December 31, 2007 the leasing contracts of the Parent Company amounted to EUR 25 million (EUR 428 million in 2006). EUR 12 million will expire in 2008 (EUR 408 million in 2006). 11. Loans granted to the management of the company There were no loans granted to the members of the Group Executive Board and Board of Directors at December 31, 2007. 9. Commitments and contingencies EURm Contingent liabilities on behalf of Group companies Guarantees for loans Leasing guarantees Other guarantees Contingent liabilities on behalf of other companies Guarantees for loans Other guarantees 2007 2006 104 213 89 3 -- 151 291 343 23 1 50 Nokia in 2007 Notes to the financial statements of the parent company 12. Notes to cash flow statements EURm Adjustments for: Depreciation Income taxes Financial income and expenses Impairment of intangible assets Impairment of non-current available-for-sale investments Other operating income and expenses Adjustments, total Change in net working capital Short-term trade receivables, increase (), decrease (+) Inventories, increase (), decrease (+) Interest-free short-term liabilities, increase (+), decrease () Change in net working capital 2007 2006 17. Income tax EURm Income tax from operations Other income tax Total 2007 1 314 -- 1 314 2006 750 9 759 85 1 348 2 638 177 1 102 925 168 754 4 467 -- 34 218 3 293 Income taxes are shown separately in the Notes to the financial statements as they have been shown as a one-line item on the face of the profit and loss statement. 2 856 102 2 808 150 361 143 250 32 13. Principal Nokia Group companies on December 31, 2007 See Note 34 to Notes to the consolidated financial statements. 14. Nokia Shares and Shareholders See Nokia Shares and Shareholders p. 5255. 15. Accrued income EURm Taxes Other Total 2007 -- 3 314 3 314 2006 188 3 272 3 460 16. Accrued expenses EURm Personnel expenses Taxes Other Total 2007 207 338 2 209 2 754 2006 297 -- 1 680 1 977 Notes to the financial statements of the parent company 51 Nokia shares and shareholders Shares and share capital Nokia has one class of shares. Each Nokia share entitles the holder to one vote at General Meetings of Nokia. On December 31, 2007, the share capital of Nokia Corporation was EUR 245 896 461.96 and the total number of shares issued was 3 982 811 957. On December 31, 2007, the total number of shares included 136 862 005 shares owned by Group companies representing approximately 3.4% of the share capital and the total voting rights. To align the Articles of Association of Nokia with the new Finnish Companies Act, effective as of September 1, 2006, the Annual General Meeting held on May 3, 2007, amended the Articles of Association to the effect that the provisions on minimum and maximum share capital as well as on the par value of a share were removed. Share capital and shares December 31, 2007 Share capital, EURm Shares (1 000, par value EUR 0.06) Shares owned by the Group (1 000) Number of shares excluding shares owned by the Group (1 000) Average number of shares excluding shares owned by the Group during the year (1 000), basic Average number of shares excluding shares owned by the Group during the year (1 000), diluted Number of registered shareholders 1 1 Each account operator is included in the figure as only one registered shareholder. 2007 246 3 982 811 136 862 3 845 949 3 885 408 3 932 008 103 226 2006 246 4 095 043 129 312 3 965 730 4 062 833 4 086 529 119 143 2005 266 4 433 887 261 511 4 172 376 4 365 547 4 371 239 126 352 2004 280 4 663 761 176 820 4 486 941 4 593 196 4 600 337 142 095 2003 288 4 796 292 96 024 4 700 268 4 761 121 4 761 160 133 991 Key ratios December 31, 2007 IFRS (calculation see page 58) Earnings per share from net profit, EUR Earnings per share, basic Earnings per share, diluted P/E ratio 2007 2006 2005 2004 2003 1.85 1.83 14.34 0.53 * 2 111 * 0.29 * 2.00 3.84 101 995 1.06 1.05 14.60 0.43 1 761 0.41 2.80 3.02 61 390 0.83 0.83 18.61 0.37 1 641 0.45 2.4 2.95 64 463 0.69 0.69 16.84 0.33 1 539 0.48 2.8 3.21 52 138 0.74 0.74 18.53 0.30 1 439 0.41 2.2 3.26 65 757 (Nominal) dividend per share, EUR Total dividends paid, EURm 1 Payout ratio Dividend yield, % Shareholders' equity per share, EUR Market capitalization, EURm 2 * 1 2 Board's proposal. 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 The Board of Directors had been authorized by Nokia shareholders at the Annual General Meeting held on March 30, 2006, to decide on an increase of the share capital by a maximum of EUR 48 540 000 offering a maximum of 809 000 000 new shares. In 2007, the Board of Directors did not increase the share capital on the basis of this authorization. The authorization expired on March 30, 2007. At the Annual General Meeting held on May 3, 2007, Nokia shareholders authorized the Board of Directors to issue a maximum of 800 000 000 new shares through one or more issues of shares or special rights entitling to shares, including stock options. The Board of Directors may issue either new shares or shares held by the Company. The authorization includes the right for the Board to resolve on all the terms and conditions of such issuances of shares and special rights, including to whom the shares and the special rights may be issued. In 2007, the Board of Directors did not increase the share capital on the basis of this authorization. The authorization is effective until June 30, 2010. At the end of 2007, 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 March 30, 2006, Nokia shareholders authorized the Board of Directors to repurchase a maximum of 405 000 000 Nokia shares. In 2007, Nokia repurchased 45 220 000 Nokia shares on the basis of this authorization. The authorization expired on March 30, 2007. At the Annual General Meeting held on May 3, 2007, Nokia shareholders authorized the Board of Directors to repurchase a maximum of 380 000 000 Nokia shares by using funds in the unrestricted shareholders' equity. The amount of shares corresponds to less than 10% of all shares of the company. In 2007, Nokia repurchased a total of 135 370 000 shares under this buy-back authorization, as a result of which the unused authorization amounted to 244 630 000 shares on December 31, 2007. The shares may be repurchased under the buy-back authorization in order to carry out the company's stock repurchase plan. In addition, shares may be repurchased in order to develop the capital structure of the company, to finance or carry out acquisitions or other arrangements, to settle the company's equity-based incentive plans, to be transferred for other purposes, or to be cancelled. This authorization is effective until June 30, 2008. Authorizations proposed to the Annual General Meeting 2008 The Board of Directors will propose to the Annual General Meeting that the Annual General Meeting authorize the Board of Directors to repurchase a maximum of 370 000 000 Nokia shares by using funds in the unrestricted shareholders' equity. The proposed amount of shares corresponds to less than 10% of all shares of the company. It is proposed that the authorization be effective until June 30, 2009. 52 Nokia in 2007 Nokia shares and shareholders Share and bonus issues 20032007 Subscription price or amount of bonus issue EUR 3.23 14.76 Year 2003 Type of Issue Nokia Stock Option Plan 1997 Share issue to stockholders of Eizel Technologies Inc. Total Number of new shares (1 000) 7 160 1 225 8 385 Date of payment 2003 2003 Net proceeds EURm 23.11 18.08 41.19 New share capital EURm 0.43 0.07 0.50 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.14 0.00 0.00 0.03 0.00 0.00 0.01 0.00 0.18 2004 Nokia Stock Option Plan 1999 (A) Total 16.89 5 5 2004 0.09 0.09 2005 Nokia Stock Option Plan 2003 2Q Nokia Stock Option Plan 2003 3Q Nokia Stock Option Plan 2004 2Q Nokia Stock Option Plan 2004 3Q Total 14.95 12.71 11.79 9.44 61 6 55 3 125 2005 2005 2005 2005 0.91 0.08 0.65 0.02 1.66 2006 Nokia Stock Option Plan 2003 2Q Nokia Stock Option Plan 2003 3Q Nokia Stock Option Plan 2003 4Q Nokia Stock Option Plan 2004 2Q Nokia Stock Option Plan 2004 3Q Nokia Stock Option Plan 2004 4Q Nokia Stock Option Plan 2005 2Q Nokia Stock Option Plan 2005 3Q Total 14.95 12.71 15.05 11.79 9.44 12.35 12.79 13.09 2 287 32 3 523 9 17 174 2 3 047 2006 2006 2006 2006 2006 2006 2006 2006 34.19 0.41 0.05 6.16 0.08 0.21 2.22 0.03 43.34 2007 Nokia Stock Option Plan 2002 A/B Nokia Stock Option Plan 2001C 1Q/02 Nokia Stock Option Plan 2001C 3Q/02 Nokia Stock Option Plan 2001C 4Q/02 Nokia Stock Option Plan 2003 2Q Nokia Stock Option Plan 2003 3Q Nokia Stock Option Plan 2003 4Q Nokia Stock Option Plan 2004 2Q Nokia Stock Option Plan 2004 3Q Nokia Stock Option Plan 2004 4Q Nokia Stock Option Plan 2005 2Q Nokia Stock Option Plan 2005 3Q Nokia Stock Option Plan 2005 4Q Nokia Stock Option Plan 2006 1Q Nokia Stock Option Plan 2006 2Q Nokia Stock Option Plan 2006 3Q Total 17.89 26.06 12.99 16.86 14.95 12.71 15.05 11.79 9.44 12.35 12.79 13.09 14.48 14.99 18.02 15.37 43 513 17 243 49 9 683 53 48 1 569 30 25 1 350 4 13 13 631 7 57 248 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 778 0.44 3 0.83 145 0.67 0.72 18 0.29 0.30 17 0.06 0.19 0.19 11 0.12 975.81 0.20 0.02 0.03 0.15 Nokia shares and shareholders 53 Nokia shares and shareholders Reductions of share capital Number of shares (1 000, par value EUR 0.06) 132 536 230 000 341 890 169 500 Amount of reduction of the share capital EURm 7.95 13.80 20.51 Amount of reduction of the restricted capital EURm -- -- -- Amount of reduction of the retained earnings EURm -- -- -- Type of reduction Cancellation of shares Cancellation of shares Cancellation of shares Cancellation of shares Year 2004 2005 2006 2007 Share turnover (all stock exchanges) 2007 Share turnover (1 000) Total number of shares (1 000) % of total number of shares 12 695 999 3 982 812 319 2006 12 480 730 4 095 043 305 2005 12 977 232 4 433 887 293 2004 14 091 430 4 663 761 302 2003 11 788 172 4 796 282 246 Share prices, EUR (Helsinki Stock Exchange) 2007 Low/high Average 1 Year-end 1 Calculated by weighting average price with daily volumes. 2006 14.61/18.65 15.97 15.48 2005 10.75/15.75 13.20 15.45 2004 8.97/18.79 12.84 11.62 2003 11.44/16.16 14.12 13.71 14.63/28.60 20.82 26.52 Share prices, USD (New York Stock Exchange) ADS Low/high Average 1 Year-end 1 Calculated by weighting average price with daily volumes. 2007 19.08/41.10 29.28 38.39 2006 17.72/23.10 19.98 20.32 2005 13.92/18.62 16.39 18.30 2004 11.03/23.22 15.96 15.67 2003 12.67/18.45 15.99 17.00 Nokia share prices on the Helsinki Stock Exchange EUR 30 45 40 35 20 30 25 15 20 10 15 10 5 5 0 01/03 01/04 01/05 01/06 01/07 01/07 01/07 0 01/03 Nokia ADS prices on the New York Stock Exchange USD 25 01/04 01/05 01/06 01/07 01/07 01/07 54 Nokia in 2007 Nokia shares and shareholders Shareholders, December 31, 2007 Shareholders registered in Finland represented 11.05% and shareholders registered in the name of a nominee represented 88.95% of the total number of shares of Nokia Corporation. The number of registered shareholders was 103 226 on December 31, 2007. Each account operator (26) is included in this figure as only one registered shareholder. Nominee registered shareholders include holders of American Depositary Receipts (ADR). As of December 31, 2007, ADR s represented 25.44% of the total number of shares in Nokia. Largest shareholders registered in Finland, December 31, 2007 (excluding nominee registered shares and shares owned by Nokia Corporation) 1 Ilmarinen Mutual Pension Insurance Company Svenska Litteratursllskapet i Finland rf Varma Mutual Pension Insurance Company Sigrid Juslius Foundation BNP Arbitrage Total number of shares 15 807 989 14 220 000 11 257 946 10 000 000 8 074 889 5 700 000 4 288 896 3 850 000 3 551 100 2 785 424 % of all shares 0.40 0.36 0.28 0.25 0.20 0.14 0.11 0.10 0.09 0.07 % of all voting rights 2 0.41 0.37 0.29 0.26 0.21 0.15 0.11 0.10 0.09 0.07 The State Pension Fund The Social Insurance Institution of Finland Mutual Insurance Company Pension Fennia The Finnish Cultural Foundation The Finnish Innovation Fund (Sitra) 1 2 Nokia Corporation owned 136 687 253 shares as of December 31, 2007. 174 752 shares owned by the Group companies as of December 31, 2006 do not carry voting rights. Breakdown of share ownership, December 31, 2007 1 Number of shareholders 36 873 47 395 15 683 2 989 229 22 22 13 103 226 % of shareholders 35.72 45.91 15.19 2.90 0.22 0.02 0.02 0.01 100.00 Total number of shares 2 191 042 18 046 785 50 129 126 77 120 899 47 717 133 15 025 177 44 884 766 3 727 697 029 3 982 811 957 % of share capital 0.06 0.45 1.26 1.94 1.20 0.38 1.13 93.59 100.00 By number of shares owned 1100 1011 000 1 00110 000 10 001100 000 100 001500 000 500 0011 000 000 1 000 0015 000 000 Over 5 000 000 Total By nationality, % Non-Finnish shareholders Finnish shareholders Total Shares 88.95 11.05 100.00 By shareholder category (Finnish shareholders), % Corporations Households Financial and insurance institutions Non-profit organizations General government Total Shares 3.85 3.73 0.54 1.58 1.35 11.05 Shares and stock options owned by the members of the Board of Directors and the Group Executive Board Members of the Board of Directors and the Group Executive Board owned on December 31, 2007, an aggregate of 1 452 167 shares which represented approximately 0.04% of the aggregate number of shares and voting rights. They also owned stock options which, if exercised in full, including both exercisable and unexercisable stock options, would be exercisable for additional 4 493 844 shares representing approximately 0.11% of the total number of shares and voting rights on December 31, 2007. 1 Please note that the breakdown covers only shareholders registered in Finland, and each account operator (26) is included in the number of shareholders as only one registered shareholder. Due to this, the breakdown is not illustrative to the entire shareholder base of Nokia. Nokia shares and shareholders 55 Nokia Group 2003 2007, IFRS * 2007 Profit and loss account, EURm Net sales Cost and expenses Operating profit Share of results of associated companies Financial income and expenses Profit before tax Tax Profit before minority interests Minority interests Profit attributable to equity holders of the parent Balance sheet items, EURm Fixed assets and other non-current assets Current assets Inventories Accounts receivable and prepaid expenses Available-for-sale investments Total cash and other liquid assets Total equity Capital and reserves attributable to the Company's equity holders Minority interests Long-term liabilities Long-term interest-bearing liabilities Deferred tax liabilities Other long-term liabilities Current liabilities Short-term borrowings Current portion of long-term loans Accounts payable Accrued expenses Provisions Total assets * 2006 2005 2004 2003 51 058 43 073 7 985 44 239 8 268 1 522 6 746 459 7 205 41 121 35 633 5 488 28 207 5 723 1 357 4 366 60 4 306 34 191 29 552 4 639 10 322 4 971 1 281 3 690 74 3 616 29 371 25 045 4 326 26 405 4 705 1 446 3 259 67 3 192 29 533 24 573 4 960 18 352 5 294 1 697 3 597 54 3 543 8 305 29 294 2 876 14 665 -- 11 753 17 338 14 773 2 565 1 285 203 963 119 18 976 898 173 7 074 7 114 3 717 37 599 4 031 18 586 1 554 8 495 -- 8 537 12 060 11 968 92 396 69 205 122 10 161 247 -- 3 732 3 796 2 386 22 617 3 501 18 951 1 668 7 373 -- 9 910 12 514 12 309 205 268 21 151 96 9 670 377 -- 3 494 3 320 2 479 22 452 3 315 19 508 1 305 6 406 255 11 542 14 553 14 385 168 294 19 179 96 7 976 215 -- 2 669 2 604 2 488 22 823 3 991 20 083 1 169 6 802 816 11 296 15 466 15 302 164 328 20 241 67 8 280 387 84 2 919 2 468 2 422 24 074 As of April 1, 2007, Nokia results include those of Nokia Siemens Networks on a fully consolidated basis. Nokia Siemens Networks, a company jointly owned by Nokia and Siemens, is comprised of Nokia's former Networks business group and Siemens' carrier-related operations for fixed and mobile networks. Accordingly, the results of the Nokia Group and Nokia Siemens Networks for the year ended December 31, 2007 are not directly comparable to the results for the year ended December 31, 2006. Nokia's 2003-2006 results included Nokia's former Networks business group only. 56 Nokia in 2007 Nokia Group 2003 2007, IFRS Key ratios and economic indicators 1 Net sales, EURm Change, % Exports and foreign subsidiaries, EURm Salaries and social expenses, EURm Operating profit, EURm % of net sales Financial income and expenses, EURm % of net sales Profit before tax, EURm % of net sales Profit from continuing operations, EURm % of net sales Taxes, EURm Dividends, EURm Capital expenditure, EURm % of net sales Gross investments 3, EURm % of net sales R&D expenditure, EURm % of net sales Average personnel Non-interest bearing liabilities, EURm Interest-bearing liabilities, EURm Return on capital employed, % Return on equity, % Equity ratio, % Net debt to equity, % 2007 51 058 24.2 50 736 5 702 7 985 15.6 239 0.5 8 268 16.2 7 205 14.1 1 522 2 111 2 715 1.4 1 017 2.0 5 647 11.1 100 534 18 024 1 274 54.3 53.9 45.5 61 2006 41 121 20.3 40 734 4 206 5 488 13.3 207 0.5 5 723 13.9 4 306 10.5 1 357 1 761 650 1.6 897 2.2 3 897 9.5 65 324 10 036 316 45.8 35.5 52.6 68 2005 34 191 16.4 33 860 3 773 4 639 13.6 322 0.9 4 971 14.5 3 616 10.6 1 281 1 641 607 1.8 870 3.1 3 825 11.2 56 896 9 389 398 36.3 27.1 56.4 76 2004 29 371 0.5 29 020 3 430 4 326 14.7 405 1.4 4 705 16.0 3 192 10.9 1 446 1 539 548 1.9 1 197 4.1 3 776 12.9 53 511 7 857 234 31.2 21.5 64.6 78 2003 29 533 1.6 29 186 3 026 4 960 16.8 352 1.2 5 294 17.9 3 543 12.0 1 699 1 439 432 1.5 1 013 3.4 3 788 12.8 51 605 8 117 491 34.0 23.8 65.0 70 1 As of April 1, 2007, Nokia results include those of Nokia Siemens Networks on a fully consolidated basis. Nokia Siemens Networks, a company jointly owned by Nokia and Siemens, is comprised of Nokia's former Networks business group and Siemens' carrier-related operations for fixed and mobile networks. Accordingly, the results of the Nokia Group and Nokia Siemens Networks for the year ended December 31, 2007 are not directly comparable to the results for the year ended December 31, 2006. Nokia's 2003-2006 results included Nokia's former Networks business group only. Board's proposal Includes acquisitions, investments in shares and capitalized development costs. 2 3 Calculation of Key Ratios, see page 58. Nokia Group 2003 2007, IFRS 57 Calculation of key ratios Key ratios under IFRS Operating profit Profit after depreciation Shareholders' equity Share capital + reserves attfibutable to the Company's equity holders Earnings per share (basic) Profit attributable to equity holders of the parent Average of adjusted number of shares during the year P/E ratio Adjusted share price, December 31 Earnings per share Dividend per share Nominal dividend per share The adjustment coefficients of the share issues that have taken place during or after the year in question Payout ratio Dividend per share Earnings per share Dividend yield, % Nominal dividend per share Share price Shareholders' equity per share Capital and reserves attributable to the Company's equity holders Adjusted number of shares at year end Market capitalization Number of shares x share price per share class Adjusted average share price Amount traded, in EUR, during the period Adjusted number of shares traded during the period Share turnover, % Number of shares traded during the period Average number of shares during the period Return on capital employed, % Profit before taxes + interest and other net financial expenses Average capital and reserves attributable to the Company's equity holders + short-term borrowings + long-term interest-bearing liabilities (including the current portion thereof) + minority shareholders' interests Return on shareholders' equity, % Profit attributable to the equity holders of the parent Average capital and reserves attributable to the Company's equity holders during the year Equity ratio, % Capital and reserves attributable to the Company's equity holders + minority shareholders' interests Total assets advance payments received Net debt to equity (gearing), % Long-term interest-bearing liabilities (including the current portion thereof) + short-term borrowings cash and other liquid assets Capital and reserves attributable to the equity holders of the parent + minority shareholders' interests Year-end currency rates 2007 1 EUR = USD GBP SEK JPY 1.4439 0.7148 9.4397 163.52 58 Nokia in 2007 Proposal by the Board of Directors for distribution of profit The distributable funds in the balance sheet of the Company as per December 31, 2007 amount to EUR 10 864 million. The Board proposes that from the retained earnings a dividend of EUR 0.53 per share is to be paid out on the shares of the Company. As per December 31, 2007 the number of shares of the Company amounted to 3 982 811 957, based on which the maximum amount to be distributed as dividend is EUR 2 111 million. The proposed dividend is in line with the Company's distribution policy, considering also the distribution of funds through share repurchases, and it significantly exceeds the minimum dividend required by law. The proposed dividend is 23 per cent higher than the dividend resolved to be distributed by the Annual General Meeting in 2007, which was EUR 0.43 per share. Espoo, March 19, 2008 Jorma Ollila Chairman Marjorie Scardino Georg Ehrnrooth Lalita D. Gupte Bengt Holmstrm Henning Kagermann Per Karlsson Keijo Suila Vesa Vainio Olli-Pekka Kallasvuo President and CEO Proposal by the Board of Directors for distribution of profit 59 Auditors' report Translation from the Finnish original To the shareholders of Nokia Oyj We have audited the accounting records, the report of the Board of Directors, the financial statements and the administration of Nokia Oyj for the period 1. 1.31. 12. 2007. The Board of Directors and the Managing Director have prepared the consolidated financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, as well as the report of the Board of Directors and the parent company's financial statements, prepared in accordance with prevailing regulations in Finland, containing the parent company's balance sheet, income statement, cash flow statement and notes to the financial statements. Based on our audit, we express an opinion on the consolidated financial statements, as well as on the report of the Board of Directors, the parent company's financial statements and the administration. We conducted our audit in accordance with the Finnish Standards on Auditing. Those standards require that we perform the audit to obtain reasonable assurance about whether the report of the Board of Directors and the financial statements are free of material misstatement. An audit includes examining on a test basis evidence supporting the amounts and disclosures in the report of the Board of Directors and in the financial statements, assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. The purpose of our audit of the administration is to examine whether the members of the Board of Directors and the Managing Director of the parent company have complied with the rules of the Companies' Act. Consolidated financial statements In our opinion the consolidated financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view, as defined in those standards and in the Finnish Accounting Act, of the consolidated results of operations as well as of the financial position. Parent company's financial statements, report of the Board of Directors and administration In our opinion the parent company's financial statements have been prepared in accordance with the Finnish Accounting Act and other applicable Finnish rules and regulations. The parent company's financial statements give a true and fair view of the parent company's result of operations and of the financial position. In our opinion the report of the Board of Directors has been prepared in accordance with the Finnish Accounting Act and other applicable Finnish rules and regulations. The report of the Board of Directors is consistent with the consolidated financial statements and the parent company's financial statements and gives a true and fair view, as defined in the Finnish Accounting Act, of the result of operations and of the financial position. The consolidated financial statements and the parent company's financial statements can be adopted and the members of the Board of Directors and the Managing Director of the parent company can be discharged from liability for the period audited by us. The proposal by the Board of Directors regarding the disposal of distributable funds is in compliance with the Companies' Act. Helsinki, 19 March 2008 PricewaterhouseCoopers Oy Authorised Public Accountants Eero Suomela Authorised Public Account 60 Nokia in 2007 Additional information Critical accounting policies ................................................................................................................ 62 Group Executive Board ........................................................................................................................ 66 Board of Directors ................................................................................................................................. 68 Corporate governance ......................................................................................................................... 70 Investor information ............................................................................................................................ 86 Contact information ............................................................................................................................. 87 Critical accounting policies Our accounting policies affecting our financial condition and results of operations are more fully described in Note 1 to our consolidated financial statements. Certain of Nokia's accounting policies require the application of judgment by management in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the reported carrying values of assets and liabilities and the reported amounts of revenues and expenses that may not be readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following are the critical accounting policies and related judgments and estimates used in the preparation of our consolidated financial statements. We have discussed the application of these critical accounting estimates with our Board of Directors and Audit Committee. Revenue recognition Sales from the majority of the Group are recognized when the significant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. The remainder of revenue is recorded under the percentage of completion method. Mobile Phones, Multimedia and certain Enterprise Solutions and Nokia Siemens Networks revenue is generally recognized when the significant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. This requires us to assess at the point of delivery whether these criteria have been met. When management determines that such criteria have been met, revenue is recognized. We record estimated reductions to revenue for special pricing agreements, price protection and other volume based discounts at the time of sale, mainly in the mobile device business. Sales adjustments for volume based discount programs are estimated based largely on historical activity under similar programs. Price protection adjustments are based on estimates of future price reductions and certain agreed customer inventories at the date of the price adjustment. An immaterial part of the revenue from products sold through distribution channels is recognized when the reseller or distributor sells the product to the end-user. Mobile Phones, Multimedia and certain Enterprise Solutions and Nokia Siemens Networks service revenue is generally recognized on a straight line basis over the service period unless there is evidence that some other method better represents the stage of completion. Multimedia, Enterprise Solutions and Nokia Siemens Networks may enter into multiple component transactions consisting of any combination of hardware, services and software. The commercial effect of each separately identifiable element of the transaction is evaluated in order to reflect the substance of the transaction. The consideration from these transactions is allocated to each separately identifiable component based on the relative fair value of each component. The consideration allocated to each component is recognized as revenue when the revenue recognition criteria for that element have been met. If the Group is unable to reliably determine the fair value attributable to the separately identifiable components, the Group defers revenue until all components are delivered and services have been performed. The Group determines the fair value of each component by taking into consideration factors such as the price when the component is sold separately by the Group, the price when a similar component is sold separately by the Group or a third party and cost plus a reasonable margin. Nokia Siemens Networks revenue and cost of sales from contracts involving solutions achieved through modification of complex telecommunications equipment is recognized on the percentage of completion basis when the outcome of the contract can be estimated reliably. This occurs when total contract revenue and the cost to complete the contract can be estimated reliably, it is probable that economic benefits associated with the contract will flow to the Group, and the stage of contract completion can be measured. When we are not able to meet those conditions, the policy is to recognize revenues only equal to costs incurred to date, to the extent that such costs are expected to be recovered. Completion is measured by reference to costs incurred to date as a percentage of estimated total project costs using the cost-to-cost method. The percentage of completion method relies on estimates of total expected contract revenue and costs, as well as the dependable measurement of the progress made towards completing the particular project. Recognized revenues and profit are subject to revisions during the project in the event that the assumptions regarding the overall project outcome are revised. The cumulative impact of a revision in estimates is recorded in the period such revisions become likely and estimable. Losses on projects in progress are recognized in the period they become likely and estimable. Nokia Siemens Networks' current sales and profit estimates for projects may change due to the early stage of a long-term project, new technology, changes in the project scope, changes in costs, changes in timing, changes in customers' plans, realization of penalties, and other corresponding factors. Customer financing We have provided a limited amount of customer financing 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 flows expected to be received under the arrangement. However, should the actual financial position of our customers or general 62 Nokia in 2007 Critical accounting policies economic conditions differ from our assumptions, we may be required to re-assess the ultimate collectibility of such financings and trade credits, which could result in a write-off of these balances in future periods and thus negatively impact our profits in future periods. Our assessment of the net recoverable value considers the collateral and security arrangements of the receivable as well as the likelihood and timing of estimated collections. See also Note 35(b) to our consolidated financial statements for a further discussion of long-term loans to customers and other parties. Allowances for doubtful accounts We maintain allowances for doubtful accounts for estimated losses resulting from the subsequent inability of our customers to make required payments. If the financial conditions of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required in future periods. Management specifically analyzes accounts receivables and historical bad debt, customer concentrations, customer creditworthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. tions. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligations are affected by actual product failure rates (field failure rates) and by material usage and service delivery costs incurred in correcting a product failure. Our warranty 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 difficult to anticipate our failure rates, the length of warranty periods and repair costs. While we believe that our warranty provisions are adequate and that the judgments applied are appropriate, the ultimate cost of product warranty could differ materially from our estimates. When the actual cost of quality of our products is lower than we originally anticipated, we release an appropriate proportion of the provision, and if the cost of quality is higher than anticipated, we increase the provision. We estimate the outcome of all potential IPR infringements made known to us through assertion by third parties, or through our own monitoring of patent- and other IPR-related cases in the relevant legal systems. To the extent that we determine that an identified potential infringement will result in a probable outflow of resources, we record a liability based on our best estimate of the expenditure required to settle infringement proceedings. Our experience with claims of IPR infringement is that there is typically a discussion period with the accusing party, which can last from several months to years. In cases where a settlement is not reached, the discovery and ensuing legal process typically lasts a minimum of one year. For this reason, IPR 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 Note 29 to the consolidated financial statements, legal proceedings covering a wide range of matters are pending or threatened in various jurisdictions against the Group. We record provisions for pending litigation when we determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates. Provision for intellectual property rights, or IPR , infringements We provide for the estimated future settlements related to asserted and unasserted past IPR infringements based on the probable outcome of each potential infringement. Our products and solutions include increasingly complex technologies involving numerous patented and other proprietary technologies. Although we proactively try to ensure that we are aware of any patents and other intellectual property rights related to our products and solutions under development and thereby avoid inadvertent infringement of proprietary technologies, the nature of our business is such that patent and other intellectual property right infringements may and do occur. Through contact with parties claiming infringement of their patented or otherwise exclusive technology, or through our own monitoring of developments in patent and other intellectual property right cases involving our competitors, we identify potential IPR infringements. Inventory-related allowances We periodically review our inventory for excess, obsolescence and declines in market value below cost and record an allowance against the inventory balance for any such declines. These reviews require management to estimate future demand for our products. Possible changes in these estimates could result in revisions to the valuation of inventory in future periods. Capitalized development costs We capitalize certain development costs when it is probable that a development project will be a success and certain criteria, including commercial and technical feasibility, have been met. These costs are then amortized on a systematic basis over their expected useful lives, which due to the constant development of new technologies is between two to five years. During the development stage, management must estimate 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 regula- Critical accounting policies 63 Critical accounting policies the commercial and technical feasibility of these projects as well as their expected useful lives. Should a product fail to substantiate its estimated feasibility or life cycle, we may be required to write off excess development costs in future periods. Whenever there is an indicator that development costs capitalized for a specific project may be impaired, the recoverable amount of the asset is estimated. An asset is impaired when the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is defined as the higher of an asset's net selling price and value in use. Value in use is the present value of discounted estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. For projects still in development, these estimates include the future cash outflows that are expected to occur before the asset is ready for use. See Note 7 to our consolidated financial statements. Impairment reviews are based upon our projections of anticipated discounted future cash flows. The most significant variables in determining cash flows are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. Management determines discount rates to be used based on the risk inherent in the related activity's current business model and industry comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash flows over that period. While we believe that our assumptions are appropriate, such amounts estimated could differ materially from what will actually occur in the future. measured separately at their fair value as of the acquisition date. The excess of the cost of the acquisition over our interest in the fair value of the identifiable net assets acquired is recorded as goodwill. The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various assumptions and valuation methodologies requiring considerable management judgment. Although we believe that the assumptions applied in the determination are reasonable based on information available at the date of acquisition, actual results may differ from the forecasted amounts and the difference could be material. cash inflows and outflows. Management determines discount rates to be used based on the risk inherent in the related activity's current business model and industry comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash flows over that period. While we believe that our assumptions are appropriate, such amounts estimated could differ materially from what will actually occur in the future. In assessing goodwill, these discounted cash flows are prepared at a cash generating unit level. Amounts estimated could differ materially from what will actually occur in the future. Valuation of long-lived and intangible assets and goodwill We assess the carrying value of identifiable intangible assets, long-lived assets and goodwill annually, or more frequently if events or changes in circumstances indicate that such carrying value may not be recoverable. Factors we consider important, which could trigger an impairment review, include the following: significant underperformance relative to historical or projected future results; significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and significantly negative industry or economic trends. Fair value of derivatives and other financial instruments The fair value of financial instruments that are not traded in an active market (for example, unlisted equities, currency options and embedded derivatives) are determined using valuation techniques. We use judgment to select an appropriate valuation methodology and underlying assumptions based principally on existing market conditions. Changes in these assumptions may cause the Group to recognize impairments or losses in the future periods. Income taxes The Group is subject to income taxes both in Finland and in numerous foreign jurisdictions. Significant judgment is required in determining the provision for income taxes and deferred tax assets and liabilities recognized in the consolidated financial statements. We recognize deferred tax assets to the extent that it is probable that sufficient taxable income will be available in the future against which the temporary differences and unused tax losses can be utilized. We have considered future taxable income and tax planning strategies in making this assessment. We recognize tax provisions based on estimates and assumptions when, despite our belief that tax return positions are supportable, it is more likely than not that certain positions will be challenged and may not be fully sustained upon review by tax authorities. Business combinations We apply the purchase method of accounting to account for acquisitions of separate entities or businesses. The cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities assumed or incurred, equity instruments issued and costs directly attributable to the acquisition. Identifiable assets, liabilities and contingent liabilities acquired or assumed are When we determine that the carrying value of intangible assets, long-lived assets or goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any impairment based on discounted projected cash flows. This review is based upon our projections of anticipated discounted future cash flows. The most significant variables in determining cash flows are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the 64 Nokia in 2007 Critical accounting policies If the final outcome of these matters differs from the amounts initially recorded, differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Pensions The determination of our pension benefit obligation and expense for defined benefit pension plans is dependent on our selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 5 to our consolidated financial statements and include, among others, the discount rate, expected long-term rate of return on plan assets and annual rate of increase in future compensation levels. A portion of our plan assets is invested in equity securities. The equity markets have experienced volatility, which has affected the value of our pension plan assets. This volatility may make it difficult to estimate the long-term rate of return on plan assets. Actual results that differ from our assumptions are accumulated and amortized over future periods and therefore generally affect our recognized expense and recorded obligation in such future periods. Our assumptions are based on actual historical experience and external data regarding compensation and discount rate trends. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our pension obligation and our future expense. Share-based compensation We have various types of equity settled share-based compensation schemes for employees. Employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments as at the date of grant, excluding the impact of any non-market vesting conditions. Fair value of stock options is estimated by using the Black Scholes model on the date of grant based on certain assumptions. Those assumptions are described in Note 22 to the consolidated financial statements and include, among others, the dividend yield, expected volatility and expected life of stock options. The expected life of stock options is estimated by observing general option holder behavior and actual historical terms of Nokia stock option programs, whereas the assumption of the expected volatility has been set by reference to the implied volatility of stock options available on Nokia shares in the open market and in light of historical patterns of volatility. These variables make estimation of fair value of stock options difficult. Non-market vesting conditions attached to the performance shares are included in assumptions about the number of shares that the employee will ultimately receive relating to projections of sales and earnings per share. On a regular basis we review the assumptions made and revise the estimates of the number of performance shares that are expected to be settled, where necessary. At the date of grant the number of performance shares granted to employees that are expected to be settled is assumed to be the target amount. Any subsequent revisions to the estimates of the number of performance shares expected to be settled may increase or decrease total compensation expense. Such increase or decrease adjusts the prior period compensation expense in the period of the review on a cumulative basis for unvested performance shares for which compensation expense has already been recognized in the profit and loss account, and in subsequent periods for unvested performance shares for which the expense has not yet been recognized in the profit and loss account. Significant differences in employee option activity, equity market performance and our projected and actual sales and earnings per share performance may materially affect future expense. In addition, the value, if any, an employee ultimately receives from share-based payment awards may not correspond to the expense amounts recorded by the Group. Critical accounting policies 65 Group Executive Board March 31, 2008 The current members of Nokia's Group Executive Board are set forth below. According to Nokia's articles of association, Nokia has a Group Executive Board, which is responsible for the operative management of the Group. The Chairman and members of the Group Executive Board are appointed by the Board of Directors. Only the Chairman of the Group Executive Board can be a member of both the Board of Directors and the Group Executive Board. Chairman Olli-Pekka Kallasvuo, b. 1953 President and CEO of Nokia Corporation. Group Executive Board member since 1990, Chairman since 2006. With Nokia 19801981, rejoined 1982. LL.M. (University of Helsinki). Simon Beresford-Wylie, b. 1958 Chief Executive Officer, Nokia Siemens Networks. Group Executive Board member since 2005. Joined Nokia 1998. Bachelor of Arts (Economic Geography and History) (Australian National University). Executive Vice President and General Manager of Networks 20052007. Senior Vice President of Nokia Networks, Asia-Pacific 20032004, Senior Vice President, Customer Operations of Nokia Networks 20022003, Vice President, Customer Operations of Nokia Networks 20002002, Managing Director of Nokia Networks in India and Area General Manager, South Asia 19992000, Regional Director of Business Development, Project and Trade Finance of Nokia Networks, Asia-Pacific 19981999, Chief Executive Officer of Modi Telstra, India 19951998, General Manager, Banking and Finance, Corporate and Government business unit of Telstra Corporation 19931995, holder of executive positions in the Corporate and Government business units of Telstra Corporation 19891993, holder of executive, managerial and clerical positions in the Australian Commonwealth Public Service 19821989. Member of the Board of Directors of the Vitec Group. Timo Ihamuotila, b. 1966 Executive Vice President, Sales. Group Executive Board member since April 1, 2007. With Nokia 19931996, rejoined 1999. Master of Science (Economics) (Helsinki School of Economics), Licentiate of Science (Finance) (Helsinki School of Economics). Executive Vice President, Sales and Portfolio Management, Mobile Phones, 2007. Senior Vice President, CDMA Business Unit, Mobile Phones 20042007, Vice President, Finance, Corporate Treasurer of Nokia Corporation 20002004, Director of Corporate Finance 19992000, Vice President of Nordic Derivates Sales, Citibank plc 19961999, Manager of Dealing & Risk Management of Nokia 19931996, Analyst, Assets and Liability Management, Kansallis Bank 19901993. President and COO of Nokia Corporation 20052006, Executive Vice President and General Manager of Nokia Mobile Phones 20042005, Executive Vice President, CFO of Nokia 19992003, Executive Vice President of Nokia Americas and President of Nokia Inc. 19971998, Executive Vice President, CFO of Nokia 19921996, Senior Vice President, Finance of Nokia 19901991. Member of the Board of Directors of Nokia Corporation and EMC Corporation. Chairman of the Board of Directors of Nokia Siemens Networks B.V. Robert Andersson, b. 1960 Executive Vice President, Devices Finance, Strategy and Strategic Sourcing. Group Executive Board member since 2005. Joined Nokia in 1985. Master of Business Administration (George Washington University), Master of Science (Economics and Business Administration) (Swedish School of Economics and Business Administration, Helsinki). Executive Vice President of Customer and Market Operations 20052007, Senior Vice President of Customer and Market Operations, Europe, Middle East and Africa 20042005, Senior Vice President of Nokia Mobile Phones in Asia-Pacific 20012004, Vice President of Sales for Nokia Mobile Phones in Europe and Africa 19982001. Various managerial positions within Nokia Mobile Phones, Nokia Consumer Electronics and Nokia Data 19851998. 66 Nokia in 2007 Mary T. McDowell, b. 1964 Executive Vice President, Chief Development Officer. Group Executive Board member since 2004. Joined Nokia 2004. Bachelor of Science (Computer Science) (College of Engineering at the University of Illinois). Executive Vice President and General Manager of Enterprise Solutions 20042007. Senior Vice President, Strategy and Corporate Development of Hewlett-Packard Company 2003, Senior Vice President & General Manager, Industry-Standard Servers of HewlettPackard Company 20022003, Senior Vice President & General Manager, Industry-Standard Servers of Compaq Computer Corporation 19982002, Vice President, Marketing, Server Products Division of Compaq Computer Corporation 19961998. Holder of executive, managerial and other positions at Compaq Computer Corporation 19861996. Hallstein Moerk, b. 1953 Executive Vice President, Human Resources. Group Executive Board member since 2004. Joined Nokia 1999. Diplomkonom (Econ.) (Norwegian School of Management). Holder of various positions at Hewlett-Packard Corporation 19771999. Member of the Board of Advisors of Center for HR Strategy, Rutgers University. Fellow of Academy of Human Resources, Class of 2007. Dr. Tero Ojanper, b. 1966 Executive Vice President, Entertainment and Communities. Group Executive Board member since 2005. Joined Nokia 1990. Master of Science (University of Oulu), Ph.D. (Delft University of Technology, The Netherlands). Executive Vice President, Chief Technology Officer 20062007. Executive Vice President & Chief Strategy Officer 20052006, Senior Vice President, Head of Nokia Research Center 20032004. Vice President, Research, Standardization and Technology of IP Mobility Networks, Nokia Networks 19992002. Vice President, Radio Access Systems Research and General Manager of Nokia Networks in Korea, 1999. Head of Radio Access Systems Research, Nokia Networks 19981999, Principal Engineer, Nokia Research Center, 19971998. A member of Young Global Leaders. Niklas Savander, b. 1962 Executive Vice President, Services & Software. Group Executive Board Member 2006. Joined Nokia 1997. Master of Science (Eng.) (Helsinki University of Technology), Master of Science (Economics and Business Administration) (Swedish School of Economics and Business Administration, Helsinki). Executive Vice President, Technology Platforms 20062007. Senior Vice President and General Manager of Nokia Enterprise Solutions, Mobile Devices Business Unit 20032006, Senior Vice President, Nokia Mobile Software, Market Operations 20022003, Vice President, Nokia Mobile Software, Strategy, Marketing & Sales 20012002, Vice President and General Manager of Nokia Networks, Mobile Internet Applications 20002001, Vice President of Nokia Network Systems, Marketing 19971998. Holder of executive and managerial positions at Hewlett-Packard Company 19871997. Member of the Board of Directors of Nokia Siemens Networks B.V. Vice Chairman of the Board of Directors of Tamfelt Oyj. Member of the Board of Directors and secretary of Waldemar von Frenckells Stiftelse. Richard A. Simonson, b. 1958 Executive Vice President, Chief Financial Officer. Group Executive Board member since 2004. Joined Nokia 2001. Bachelor of Science (Mining Eng.) (Colorado School of Mines), Master of Business Administration (Finance) (Wharton School of Business at University of Pennsylvania). Vice President & Head of Customer Finance of Nokia Corporation 20012003, Managing Director of Telecom & Media Group of Barclays 2001, Head of Global Project Finance and other various positions at Bank of America Securities 19852001. Member of the Board of Directors of Nokia Siemens Networks B.V. Member of the Board of Directors of Electronic Arts, Inc. Member of the Board of Trustees of International HouseNew York. Member of US Treasury Advisory Committee on the Auditing Profession. Veli Sundbck, b. 1946 Executive Vice President, Corporate Relations and Responsibility. Group Executive Board member since 1996. Joined Nokia 1996. LL.M. (University of Helsinki). Secretary of State at the Ministry for Foreign Affairs 19931995, Under-Secretary of State for External Economic Relations at the Ministry for Foreign Affairs 19901993. Member of the Board of Directors of Finnair Oyj. Member of the Board and its executive committee, Confederation of Finnish Industries (EK), Vice Chairman of the Board, Technology Industries of Finland, Vice Chairman of the Board of the International Chamber of Commerce, Finnish Section, Chairman of the Board of the Finland-China Trade Association. Anssi Vanjoki, b. 1956 Executive Vice President, Markets. Group Executive Board member since 1998. Joined Nokia 1991. Master of Science (Econ.) (Helsinki School of Economics and Business Administration). Executive Vice President and General Manager of Multimedia 20042007. Executive Vice President of Nokia Mobile Phones 19982003, Senior Vice President, Europe & Africa of Nokia Mobile Phones 19941998, Vice President, Sales of Nokia Mobile Phones 19911994, 3M Corporation 19801991. Chairman of the Board of Directors of Amer Sports Corporation. Dr. Kai istm, b. 1964 Executive Vice President, Devices. Group Executive Board Member since 2005. Joined Nokia in 1991. Doctor of Technology (Signal Processing), Master of Science (Engineering) (Tampere University of Technology). Executive Vice President and General Manager of Mobile Phones 20052007. Senior Vice President, Business Line Management, Mobile Phones 20042005, Senior Vice President, Mobile Phones Business Unit, Nokia Mobile Phones 20022003, Vice President, TDMA /GSM 1900 Product Line, Nokia Mobile Phones 19992002, Vice President, TDMA Product Line 19971999, various technical and managerial positions in Nokia Consumer Electronics and Nokia Mobile Phones 19911997. Member of the Board of Directors of the Finnish Funding Agency for Technology and Innovation (Tekes). Chairman of the Research and Technology Committee of the Confederation of Finnish Industries (EK). Group Executive Board 67 Board of Directors March 31, 2008 The current members of the Board of Directors are set forth below. Pursuant to the provisions of the Finnish Companies Act and Nokia's articles of association, the control and management of Nokia is divided among the shareholders at a general meeting, the Board of Directors, the President and the Group Executive Board chaired by the Chief Executive Officer. The current members of the Board of Directors were elected at the Annual General Meeting on May 3, 2007, in accordance with the proposal of the Corporate Governance and Nomination Committee of the Board of Directors. On the same date, the Chair and Vice Chair of the Board of Directors, as well as the Chairs and members of the committees of the Board, were elected by the members of the Board of Directors. The members of the Board of Directors are annually elected by a simple majority of the shareholders' votes represented at the Annual General Meeting for a one-year term ending at the next Annual General Meeting. Chairman Jorma Ollila, b. 1950 Chairman of the Board of Directors of Nokia Corporation. Chairman of the Board of Directors of Royal Dutch Shell Plc. Board member since 1995. Chairman since 1999. Master of Political Science (University of Helsinki), Master of Science (Econ.) (London School of Economics), Master of Science (Eng.) (Helsinki University of Technology). Chairman and CEO, Chairman of the Group Executive Board of Nokia Corporation 19992006, President and CEO, Chairman of the Group Executive Board of Nokia Corporation 19921999, President of Nokia Mobile Phones 19901992, Senior Vice President, Finance of Nokia 19861989. Holder of various managerial positions at Citibank within corporate banking 19781985. Member of the Board of Directors of Ford Motor Company, Vice Chairman of the Board of Directors of Otava Books and Magazines Group Ltd and member of the Board of Directors of Fruugo Inc. Chairman of the Boards of Directors and the Supervisory Boards of The Research Institute of the Finnish Economy ETLA and Finnish Business and Policy Forum EVA . Chairman of The European Round Table of Industrialists. Vice Chairman of the Independent Reflection Group of the Council of the European Union considering the future of the European Union. Vice Chair Dame Marjorie Scardino, b. 1947 Chief Executive and member of the Board of Directors of Pearson plc. Board member since 2001. B.A. (Baylor University), J.D. (University of San Francisco). Chief Executive of The Economist Group 19931997, President of the North American Operations of The Economist Group 19851993, lawyer 19761985 and publisher of The Georgia Gazette newspaper 19781985. Georg Ehrnrooth, b. 1940 Board member since 2000. Master of Science (Eng.) (Helsinki University of Technology). President and CEO of Metra Corporation 19912000, President and CEO of Lohja Corporation 19791991. Holder of various executive positions at Wrtsil Corporation within production and management 19651979. Chairman of the Board of Directors of Sampo Plc., member of the Board of Directors of Oy Karl Fazer Ab and Sandvik AB (publ). Vice Chairman of the Boards of Directors of The Research Institute of the Finnish Economy ETLA and Finnish Business and Policy Forum EVA . Lalita D. Gupte, b. 1948 Non-executive Chairman of the ICICI Venture Funds Management Co Ltd. Board member since May 3, 2007. B.A. in Economics (University of Delhi) and Master of Management Studies (University of Bombay). Joint Managing Director of ICICI Bank Limited 19992006, Deputy Managing Director of ICICI Bank 19961999, Executive Director on the Board of Directors of ICICI Limited 19941996. Various leadership positions in Corporate and Retail Banking, Strategy and Resources, and International Banking in ICICI Limited and subsequently in ICICI Bank Ltd since 1971. Member of the Board of Directors of Bharat Forge Ltd, Kirloskar Brothers Ltd, FirstSource Solutions Ltd, Godrej Properties Ltd, HPCL-Mittal Energy Ltd. and a-non-profit micro-finance institution. Member of the Board of Management of SVKM 's NMIMS University. Dr. Bengt Holmstrm, b. 1949 Paul A. Samuelson Professor of Economics at MIT, joint appointment at the MIT Sloan School of Management. Board member since 1999. Bachelor of Science (Helsinki University), Master of Science (Stanford University), Doctor of Philosophy (Stanford University). Edwin J. Beinecke Professor of Management Studies at Yale University 19851994. Member of the Board of Directors of Kuusakoski Oy. Member of the American Academy of Arts and Sciences and Foreign Member of The Royal Swedish Academy of Sciences. 68 Nokia in 2007 Prof. Dr. Henning Kagermann, b. 1947 CEO and Chairman of the Executive Board of SAP AG . Board member since May 3, 2007. Ph.D. in Theoretical Physics (Technical University of Brunswick). Co-chairman of the Executive Board of SAP 19982003. A number of leadership positions in SAP since 1982. Member of SAP Executive Board since 1991. Taught physics and computer science at the Technical University of Brunswick and the University of Mannheim 19801992, became professor in 1985. Member of the Supervisory Boards of Deutsche Bank AG and Mnchener Rckversicherungs-Gesellschaft AG (Munich Re). Member of the Honorary Senate of the Foundation Lindau Nobelprizewinners. Olli-Pekka Kallasvuo, b. 1953 President and CEO of Nokia Corporation. Board member since May 3, 2007. LL.M. (University of Helsinki). Keijo Suila, b. 1945 Board member since 2006. B.Sc. (Economics and Business Administration) (Helsinki University of Economics and Business Administration). President and CEO of Finnair Oyj 19992005. Chairman of oneworld airline alliance 20032004 and member of various international aviation and air transportation associations 19992005. Holder of various executive positions, including Vice Chairman and Executive Vice President, at Huhtamki Oyj, Leaf Group and Leaf Europe 19851998. Vice Chairman of the Board of Directors of Kesko Corporation. Member of the Board of Directors of The Finnish Fair Corporation. Vesa Vainio, b. 1942 Board member since 1993. LL.M. (University of Helsinki). Proposal of the Corporate Governance and Nomination Committee of the Board On January 24, 2008, the Corporate Governance and Nomination Committee announced its proposal to the Annual General Meeting convening on May 8, 2008 regarding the composition of the members of the Board of Directors for a one-year term ending at the next Annual General Meeting. The Corporate Governance and Nomination Committee will propose to the Annual General Meeting that the number of Board members be ten and that the following persons be re-elected for a one-year term until the close of the Annual General Meeting in 2009: Georg Ehrnrooth, Lalita D. Gupte, Dr. Bengt Holmstrm, Dr. Henning Kagermann, Olli-Pekka Kallasvuo, Per Karlsson, Jorma Ollila, Dame Marjorie Scardino and Keijo Suila. Vesa Vainio, member of the Board since 1993, will not stand for re-election to the Board of Directors. Moreover, the Committee will propose that Risto Siilasmaa would be elected as a new member of the Board for the term from the Annual General Meeting in 2008 until the close of the Annual General Meeting in 2009. Mr. Siilasmaa is a founder of F-Secure Corporation, which provides security services protecting consumers and businesses against computer viruses and other threats from the Internet and mobile networks. Mr. Siilasmaa is the Chairman of the Board of Directors of F-Secure Corporation, a member of the Board of Directors of Elisa Corporation and a Chairman or member of the Board of Directors of various private companies. He is also Vice Chairman of the Board of the Technology Industries of Finland. President and COO of Nokia Corporation 20052006, Executive Vice President and General Manager of Nokia Mobile Phones 20042005, Executive Vice President, CFO of Nokia 19992003, Executive Vice President of Nokia Americas and President of Nokia Inc. 19971998, Executive Vice President, CFO of Nokia 19921996, Senior Vice President, Finance of Nokia 19901991. Member of the Board of Directors of EMC Corporation. Chairman of the Board of Directors of Nokia Siemens Networks B.V. Per Karlsson, b. 1955 Independent Corporate Advisor. Board member since 2002. Degree in Economics and Business Administration (Stockholm School of Economics). Executive Director, with mergers and acquisitions advisory responsibilities, at Enskilda M&A , Enskilda Securities (London) 19861992. Corporate strategy consultant at the Boston Consulting Group (London) 19791986. Member of the Board of Directors of IKANO Holdings S.A. Member 19962001 and 20012008 Chairman of the Board of Directors of UPM -Kymmene Corporation. Chairman 19981999 and 20002002 and Vice Chairman 19992000 of the Board of Directors of Nordea AB (publ). Chairman of the Executive Board and CEO of Union Bank of Finland 19921995 and Merita Bank Ltd and CEO of Merita Ltd 19951997. President of Kymmene Corporation 19911992. Holder of various other executive positions in Finnish industry 19721991. Daniel R. Hesse was re-elected as a Nokia Board member in the Annual General Meeting on May 3, 2007. Due to his resignation from the Board of Directors after being appointed as President and CEO of Sprint Nextel Corporation, Nokia announced on December 28, 2007 that its Board consisted of the above-mentioned ten members. Board of Directors 69 Corporate governance Pursuant to the provisions of the Finnish Companies Act and Nokia's Articles of Association, the control and management of Nokia is divided among the shareholders at a general meeting, the Board of Directors, the President and the Group Executive Board chaired by the Chief Executive Officer. Under the Articles of Association, in addition to the Board of Directors, Nokia has a Group Executive Board, which is responsible for the operative management of the Group. The Chairman and members of the Group Executive Board are appointed by the Board of Directors. Only the Chairman of the Group Executive Board can be a member of both the Board of Directors and the Group Executive Board. best interests of the company and its shareholders. In discharging that obligation, the directors must inform themselves of all relevant information reasonably available to them. The Board and each Committee also have the power to hire independent legal, financial or other advisors as they deem necessary. The Board conducts annual performance self-evaluations, which also include evaluations of the Committees' work, the results of which are discussed by the Board. Election, composition and meetings of the Board of Directors Pursuant to the articles of association, Nokia Corporation has a Board of Directors composed of a minimum of seven and a maximum of twelve members. The members of the Board are elected for a term of one year at each Annual General Meeting, i.e., from the close of that Annual General Meeting until the close of the following Annual General Meeting, which convenes each year by June 30. The Annual General Meeting held on May 3, 2007 elected eleven members to the Board of Directors. One member, Daniel R. Hesse, resigned from the Board in December 2007 as a result of which the Board consisted of ten members on December 31, 2007. The Board elects a Chair and a Vice Chair from among its members for a one-year term. On May 3, 2007, the Board resolved that Jorma Ollila should continue to act as Chair and that Marjorie Scardino shall act as Vice Chair of the Board. The Board also appoints the members and the chairpersons for its Committees from among its non-executive, independent members for a one-year term. For information about the members and the chairpersons for Board's Committees, see "Committees of the Board of Directors" on page 71. The current members of the Board are all nonexecutive, except the President and Chief Executive Officer who is also a member of the Board. The non-executive Board members are all independent as defined under Finnish rules and regulations, except the Chairman of the Board who acted as Chairman and Chief Executive Officer until June 1, 2006. In January 2008, the Board determined that seven of the Board's ten members are independent, as defined in the New York Stock Exchange's corporate governance listing standards, as amended in November 2004. In addition to the Chairman of the Board and the President and Chief Executive Officer, Bengt Holmstrm was determined not to be independent under the NYSE standards due to a family relationship with an executive officer of a Nokia supplier of whose consolidated gross revenue from Nokia accounts for an amount that exceeds the limit provided in the NYSE listing standards, but that is less than 5%. Also in January 2008, the Board determined that Georg Ehrnrooth, Chairman of the Audit Committee, was a financial expert within the meaning of the Sarbanes-Oxley Act of 2002 and the subsequent regulations by the US Securities and Exchange Commission. The Board of Directors The operations of the company are managed under the direction of the Board of Directors, within the framework set by the Finnish Companies Act and Nokia's Articles of Association and the complementary Corporate Governance Guidelines and related charters adopted by the Board. The responsibilities of the Board of Directors The Board represents and is accountable to the shareholders of the company. The Board's responsibilities are active, not passive, and include the responsibility regularly to evaluate the strategic direction of the company, management policies and the effectiveness with which management implements them, and assesses the overall risk of the company. The Board's responsibilities further include overseeing the structure and composition of the company's top management and monitoring legal compliance and the management of risks related to the company's operations. In doing so the Board may set annual ranges and/or individual limits for capital expenditures, investments and divestitures and financial commitments not to be exceeded without Board approval. The Board has the responsibility for appointing and discharging the Chief Executive Officer and the other members of the Group Executive Board. The Chief Executive Officer also acts as President, and his rights and responsibilities include those allotted to the President under Finnish law. Subject to the requirements of Finnish law, the independent directors of the Board confirm the compensation and the employment conditions of the Chief Executive Officer upon the recommendation of the Personnel Committee. The compensation and employment conditions of the other members of the Group Executive Board are approved by the Personnel Committee upon the recommendation of the Chief Executive Officer. The basic responsibility of the members of the Board is to act in good faith and with due care so as to exercise their business judgment on an informed basis in what they reasonably and honestly believe to be the 70 Nokia in 2007 Corporate governance The Board convened twelve times during 2007. Six of the meetings were held through technical equipment. The average ratio of attendance at the meetings was 94%. The non-executive directors meet without management at regularly scheduled sessions twice a year and at such other times as they deem appropriate, in practice in connection with each regularly scheduled meeting in 2007. Such sessions were chaired by the non-executive Chairman of the Board or, in his absence, the non-executive Vice Chair of the Board. In addition, the independent directors meet separately at least once annually. The Corporate Governance Guidelines concerning the directors' responsibilities, the composition and selection of the Board, Board committees and certain other matters relating to corporate governance are available on Nokia's website, www.nokia.com. the Annual General Meeting. The Committee makes a proposal to the shareholders in respect of the fees of the external auditor, and approves the external auditor's annual audit fees under the guidance given by the shareholders at the Annual General Meeting. The Committee meets at least four times a year based upon a schedule established at the first meeting following the appointment of the Committee. The Committee meets separately with the representatives of Nokia's management, head of the internal audit function, and the external auditor in connection with each regularly scheduled meeting. The head of the internal audit function has at all times direct access to the Audit Committee, without involvement of management. The Audit Committee convened seven times in 2007. One of the meetings was held through technical equipment. The Personnel Committee consists of a minimum of three members of the Board who meet all applicable independence requirements of Finnish law and the rules of the stock exchanges where Nokia shares are listed, including the Helsinki Stock Exchange and the New York Stock Exchange. Since May 3, 2007, the Personnel Committee has consisted of the following members of the Board: Per Karlsson (Chair), Daniel R. Hesse (until December 2007), Henning Kagermann and Marjorie Scardino. 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 the terms of employment of the same. The Committee has overall responsibility for evaluating, resolving and making recommendations to the Board regarding (1) compensation of the company's top executives and their employment conditions, (2) all equity-based plans, (3) incentive compensation plans, policies and programs of the company affecting executives and (4) other significant incentive plans. The Committee is responsible for overseeing compensation philosophy and principles and ensuring the above compensation programs are performance-based, properly motivate management, support overall corporate strategies and are aligned with shareholders' interests. The Committee is responsible for the review of senior management development and succession plans. The Personnel Committee convened three times in 2007. The Corporate Governance and Nomination Committee consists of three to five members of the Board who meet all applicable independence requirements of Finnish law and the rules of the stock exchanges where Nokia shares are listed, including the Helsinki Stock Exchange and the New York Stock Exchange. Since May 3, 2007, the Corporate Governance and Nomination Committee has consisted of the following Committees of the Board of Directors The Audit Committee consists of a minimum of three members of the Board who meet all applicable independence, financial literacy and other requirements of Finnish law and the rules of the stock exchanges where Nokia shares are listed, including the Helsinki Stock Exchange and the New York Stock Exchange. Since May 3, 2007, the Committee has consisted of the following four members of the Board: Georg Ehrnrooth (Chair), Lalita D. Gupte, Keijo Suila and Vesa Vainio. The Audit Committee is established by the Board primarily for the purpose of overseeing the accounting and financial reporting processes of the company and audits of the financial statements of the company. The Committee is responsible for assisting the Board's oversight of (1) the quality and integrity of the company's financial statements and related disclosure, (2) the external auditor's qualifications and independence, (3) the performance of the external auditor subject to the requirements of Finnish law, (4) the performance of the company's internal controls and risk management and assurance function, (5) the performance of the internal audit function, and (6) the company's compliance with legal and regulatory requirements. 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 confidential, anonymous submission by employees of the company of concerns regarding accounting or auditing matters. Under Finnish law, Nokia's external auditor is elected by Nokia's shareholders by a simple majority vote at the Annual General Meeting for one fiscal year at a time. The Committee makes a proposal to the shareholders in respect of the appointment of the external auditor based upon its evaluation of the qualifications and independence of the auditor to be proposed for election or re-election. Also under Finnish law, the fees of the external auditor are approved by Nokia's shareholders by a simple majority vote at three members of the Board: Marjorie Scardino (Chair), Georg Ehrnrooth and Per Karlsson. The Corporate Governance and Nomination Committee's purpose is (1) to prepare the proposals for the general meetings in respect of the composition of the Board and the director remuneration to be approved by the shareholders, and (2) to monitor issues and practices related to corporate governance and to propose necessary actions in respect thereof. The Committee fulfills its responsibilities by (i) actively identifying individuals qualified to become members of the Board, (ii) recommending to the shareholders the director nominees for election at the Annual General Meetings, (iii) monitoring significant developments in the law and practice of corporate governance and of the duties and responsibilities of directors of public companies, (iv) assisting the Board and each committee of the Board in its annual performance self-evaluations, including establishing criteria to be used in connection with such evaluations, and (v) developing and recommending to the Board and administering Nokia's Corporate Governance Guidelines. The Corporate Governance and Nomination Committee convened four times in 2007. One of the meetings was held through technical equipment. The charters of each of the committees are available on Nokia's website, www.nokia.com. Management and corporate governance practices Nokia has a company Code of Conduct which is equally applicable to all of Nokia's employees, directors and management and is accessible on Nokia's website, www.nokia.com. As well, Nokia has a Code of Ethics for the Principal Executive Officers and the Senior Financial Officers. For more information about Nokia's Code of Ethics, please see www.nokia.com. Nokia's corporate governance practices comply with the Corporate Governance Recommendation for Listed Companies approved by the Helsinki Stock Exchange in December 2003 effective as of July 1, 2004. Internal audit function Nokia has an internal audit function that acts as an independent appraisal function by examining and evaluating the adequacy and effectiveness of the company's system of internal control. Internal audit resides within the CFO 's organization and also reports to the Audit Committee of the Board of Directors. The head of internal audit function has at all times direct access to the Audit Committee, without involvement of the management. Corporate governance 71 Corporate governance Compensation of the members of the Board of Directors and the Group Executive Board Board of Directors The following table sets forth the annual remuneration of the members of the Board of Directors based on their positions on the Board and its committees, including the remuneration paid to the President and CEO for his duties as the member of the Board of Directors only, as resolved by the respective Annual General Meetings, in 2007, 2006 and 2005. Position, EUR Chair Vice Chair Member Chair of Audit Committee Member of Audit Committee Chair of Personnel Committee Total 2007 375 000 150 000 130 000 25 000 10 000 25 000 1 775 000 2006 375 000 137 500 110 000 25 000 10 000 25 000 1 472 500 2005 165 000 137 500 110 000 25 000 10 000 25 000 1 262 500 Non-executive members of the Board of Directors do not receive stock options, performance shares, restricted shares or other variable compensation for their duties as Board members. In addition, no meeting fees are payable. However, it is Nokia policy that a significant portion of director remuneration is paid in the form of Nokia shares. Since 1999, approximately 40% of the annual remuneration payable to the members of Board of Directors has been paid in Nokia shares purchased from the market. The President and CEO receives variable compensation for his executive duties, but not for his duties as a member of the Board of Directors, see "Actual Executive Compensation for 2007" on page 75. When preparing the Board of Directors' remuneration proposal, it is the policy of the Corporate Governance and Nomination Committee of the Board to review and compare the level of board remuneration paid in other global companies with net sales and business complexity comparable to that of Nokia. The Committee's aim is that Nokia has an effective Board consisting of world-class professionals representing an appropriate and diverse mix of skills and experience. A competitive Board remuneration contributes to Nokia's achievement of this target. The remuneration of the Board of Directors is resolved annually by Nokia's Annual General Meeting by a simple majority of the shareholders' votes represented at the meeting, upon proposal by the Corporate Governance and Nomination Committee of the Board. The remuneration is resolved for the period from the respective Annual General Meeting until the next Annual General Meeting. Remuneration of the Board of Directors For the year ended December 31, 2007, the aggregate renumeration paid to the members of the Board of Directors for their services as the members of the Board and its committees was EUR 1 775 000. The following table depicts the annual remuneration structure paid to the members of Nokia's Board of Directors, as resolved by the Annual General Meetings in the respective years. 2006 2005 Shares received Gross annual fee EUR 1 165 000 110 000 120 000 -- 110 000 -- -- 135 000 -- 120 000 Shares received 2007 Gross annual fee EUR 1 375 000 150 000 155 000 140 000 130 000 130 000 130 000 155 000 140 000 140 000 Shares received Gross annual fee EUR 1 375 000 110 000 120 000 -- 110 000 -- -- 135 000 120 000 120 000 Board of Directors Chairman Jorma Ollila 2 Vice Chairman Dame Marjorie Scardino 3 Georg Ehrnrooth 4 Lalita D.Gupte 5 Dr. Bengt Holmstrm 6 Dr. Henning Kagermann Olli-Pekka Kallasvuo 7 Per Karlsson 8 Keijo Suila 9 8 110 3 245 3 351 3 027 2 810 2 810 2 810 3 351 3 027 3 027 8 035 2 356 2 570 -- 2 356 -- -- 2 892 2 570 2 570 5 011 3 340 3 644 -- 3 340 -- -- 4 100 -- 3 644 Vesa Vainio 10 11 1 Approximately 60% of the gross annual fee is paid in cash and the remaining 40% in Nokia shares purchased from the market and included in the table under "Shares Received." This table includes fees paid for Mr. Ollila, Chairman, for his services as Chairman of the Board, only. The 2007 fee of Ms. Scardino amounted to a total of EUR 150 000 for services as Vice Chairman. The 2006 and 2005 fees of Ms. Scardino amounted to EUR 110 000 for services as a member of the Board. The 2007 fee of Mr. Ehrnrooth amounted to a total of EUR 155 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 25 000 for services as Chairman of the Audit Committee. The 2006 and 2005 fees of Mr. Ehrnrooth consisted of a fee of EUR 110 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. The 2007 fee of Ms. Gupte amounted to a total of EUR 140 000, consisting of a fee of 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 6 2 3 The 2007 fee of Mr. Holmstrm amounted to EUR 130 000 for services as a member of the Board. The 2006 and 2005 fees of Mr. Holmstrm amounted to EUR 110 000 for services as a member of the Board. This table includes fees paid for Mr. Kallasvuo for his services as a member of the Board, only. The 2007 fee of Mr. Karlsson amounted to a total of EUR 155 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 25 000 for services as Chairman of the Personnel Committee. The 2006 and 2005 fees of Mr. Karlsson amounted to a total of EUR 135 000, consisting of a fee of EUR 110 000 for services as a member of the Board and EUR 25 000 for services as Chairman of the Audit Committee. The 2007 fee of Mr. Suila amounted to a total of EUR 140 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. The 2006 fee of Mr. Suila amounted to a total of EUR 120 000, consisting of a fee of EUR 110 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 7 8 10 The 2007 fee of Mr. Vainio amounted to a total of EUR 140 000 consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. The 2006 and 2005 fees of Mr. Vainio amounted to a total of EUR 120 000, consisting of a fee of EUR 110 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. 11 Daniel R. Hesse, who was re-elected as a Nokia Board member in the Annual General Meeting on May 3, 2007, was paid the annual fee of EUR 130 000 for services as a member of the Board, prior to his resignation announced on December 28, 2007. This amount included 2 810 shares. The 2006 and 2005 fees of Mr. Hesse amounted to EUR 110 000 for services as a member of the Board, which amounts included 2 356 shares in 2006 and 3 340 in 2005. 4 9 5 72 Nokia in 2007 Corporate governance Proposal of the Corporate Governance and Nomination Committee of the Board On January 24, 2008, the Corporate Governance and Nomination Committee of the Board announced that it will propose to the Annual General Meeting to be held on May 8, 2008 that the annual remuneration payable to the Board members to be elected at the same meeting for the term until the close of the Annual General Meeting in 2009 be as follows: EUR 440 000 for the Chairman, EUR 150 000 for the Vice Chairman and EUR 130 000 for each member. In addition, the Corporate Governance and Nomination Committee will propose that the Chairman of the Audit Committee and the Chairman of the Personnel Committee will each receive an additional annual fee of EUR 25 000 and each member of the Audit Committee an additional annual fee of EUR 10 000. Further, the Committee will propose that approximately 40% of the remuneration be paid in Nokia Corporation shares purchased from the market. The proposed remuneration is at the same level as in 2007 except for the Chairman's fee, which would increase to EUR 440 000 from the fee of EUR 375 000 paid in both 2006 and 2007. Group Executive Board Executive Compensation Philosophy, Programs and Decision-making Process Our executive compensation philosophy and programs have been developed to enable Nokia to effectively compete in an extremely complex and rapidly evolving mobile communications industry. Nokia is a leading company in its industry and conduct business globally. Nokia's executive compensation programs have been designed to attract, retain and motivate talented executive officers that drive Nokia's success and industry leadership worldwide. Our compensation program for executive officers includes: competitive base pay rates; and short- and long-term incentives that are intended to result in competitive total compensation package. The objectives of Nokia's executive compensation programs are to: attract and retain outstanding executive talent; deliver a significant amount of performancerelated variable compensation for the achievement of both short- and long-term stretch goals; appropriately balance rewards between both Nokia's and an individual's performance; and align the interests of the executive officers with those of the shareholders through long-term incentives in the form of equity-based awards. The competitiveness of Nokia's executive compensation levels and practices is one of several key factors the Personnel Committee of the Board (the "Personnel Committee") considers in its determination of compensation for Nokia executives. The Personnel Committee compares, on an annual basis, Nokia's compensation practices, base salaries and total compensation, including short- and long-term incentives against those of other relevant companies in the same or similar industries and of the same or similar size that Nokia believes it competes against for executive talent. The relevant companies include high technology and telecommunications companies that are headquartered in Europe and the United States. The Personnel Committee retains and uses external consultants, Mercer Human Resources, to obtain benchmark data and information on current market trends. Mercer Human Resources works directly for the Chairman of the Personnel Committee and meets annually with the Personnel Committee, without management present, to provide an assessment of the competitiveness and appropriateness of Nokia's executive pay levels and programs. Management provides Mercer Human Resources with information with regard to Nokia's programs and compensation levels for their preparation in meeting with the Committee. 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 executive officers' compensation on an annual basis and from time to time during the year, when special needs arise. Without management present, the Committee reviews and recommends to the Board the corporate goals and objectives relevant to the compensation of the President and CEO, evaluates the performance of the President and CEO in light of those goals and objectives, and proposes to the Board the compensation level of the President and CEO, which is confirmed by the independent members of the Board. Management's role is to provide any information requested by the Personnel Committee to assist in their deliberations. In addition, upon initial recommendation of the President and CEO, the Personnel Committee approves all compensation for all the members of the Group Executive Board (excluding that of the President and CEO of Nokia and Simon Beresford-Wylie, Chief Executive Officer of Nokia Siemens Networks) and other direct reports to the President and CEO, including long-term equity incentives and goals and objectives relevant to compensation. The Personnel Committee also reviews the results of the evaluation of the performance of the Group Executive Board members (excluding the President and CEO and Mr. Beresford-Wylie) and other direct reports to the President and CEO and approves their incentive compensation based on such evaluation. Mr. Beresford-Wylie's compensation as CEO of Nokia Siemens Networks is evaluated and approved by the Board of Directors of Nokia Siemens Networks. The Personnel Committee is apprised annually on actions taken with respect to Mr. Beresford-Wylie's compensation. The Personnel Committee considers the following factors, among others, in its review when determining the compensation of Nokia's executive officers: The compensation levels for similar positions (in terms of scope of position, revenues, number of employees, global responsibility and reporting relationships) in relevant comparison companies; The performance demonstrated by the executive officer during the last year; The size and impact of the role on Nokia's overall performance and strategic direction; The internal comparison to the compensation levels of the other executive officers of Nokia; and Past experience and tenure in role. The above factors are assessed in totality. The compensation for Mr. Beresford-Wylie is determined by the Board of Directors of Nokia Siemens Networks based on the same factors as for the other members of the Group Executive Board of Nokia and determined in a similar process. Components of Executive Compensation Our compensation program for executive officers includes annual cash compensation in the form of a base salary, short-term cash incentives and long-term equity-based incentive awards in the form of performance shares, stock options and restricted shares. Annual Cash Compensation Base salaries are targeted at globally competitive market levels. Short-term cash incentives are tied directly to performance and represent a significant portion of an executive officer's total annual cash compensation. The short-term cash incentive opportunity is expressed as a percentage of the executive officer's annual base salary. These award opportunities and measurement criteria are presented in the table on page 74. Measurement criteria for the short-term cash incentive plan include those financial objectives that are considered important measures of Nokia's success in driving increased shareholder value. Financial objectives are established which are based on a number of factors and are intended to be stretch targets that, when achieved, Nokia believes, will result in performance that will exceed that of Nokia's key competitors in the high technology and telecommunications industries. The target setting, as well as the weighting of each measure, also requires the Personnel Committee's approval. The following table reflects the measurement criteria that are established for the President and CEO and members of the Group Executive Board and the relative weighting of each objective for the year 2007. Corporate governance 73 Corporate governance Incentive as a % of Annual Base Salary in 2007 Minimum performance, % 0 0 Target performance, % 100 25 Maximum performance, % 225 37.5 Position President and CEO Measurement criteria (a) Financial Objectives (includes targets for net sales, operating profit and operating cash flow measures) (c) Total Shareholder Return 1 (comparison made with key competitors in the high technology and telecommunications industries over one, three and five year periods) (d) Strategic Objectives 0 Total Group Executive Board 0 0 25 150 75 37.5 300 168.75 (a) Financial Objectives (includes targets for net sales, operating profit and operating cash flow); and (b) Individual Strategic Objectives (as described below) (c) Total Shareholder Return 1, 2 0 Total 1 25 100 2 37.5 206.25 0 Total shareholder return reflects the change in Nokia's share price during a respective time period added with the value of dividends per share paid during the said period, divided by Nokia's share price at the beginning of the period. The calculation is the same also for each company in the said peer group. Only some members of the Group Executive Board are eligible for the additional 25% total shareholder return element. The incentive payout is based on performance relative to targets set for each measurement criteria listed in the table above: (a) a comparison of Nokia's actual performance to pre-established targets for net sales, operating profit and operating cash flow and (b) a comparison of each executive officer's individual performance to his/her predefined individual strategic objectives and targets. Individual strategic objectives include market share, quality, technology innovation, new product revenue, customer retention rates, environmental achievements and other objectives of key strategic importance which require a discretionary assessment of performance by the Personnel Committee. When determining the final incentive pay-out, the Personnel Committee determines an overall score for each executive based on the degree to which (a) Nokia's financial objectives have been achieved together with (b) qualitative scores assigned to the individual strategic objectives. The final incentive payout is determined by multiplying each executive's eligible salary by: (i) his/her incentive target percent; and (ii) the score resulting from the above-mentioned factors (a) and (b). The resulting score for each executive is then multiplied by an "affordability factor," which is determined based on overall sales, profitability and cash flow of Nokia. The Personnel Committee may apply discretion when evaluating actual results against targets and the resulting incentive payouts. In certain exceptional situations, the actual short-term cash incentive awarded to the executive officer could be zero. The maximum payout is only possible with maximum performance on all measures. The portion of the short-term cash incentives that is tied to (a) Nokia's financial objectives and (b) individual strategic objectives and targets is paid twice each year based on the performance for each of Nokia's short-term plans that end on June 30 and December 31 of each year. Another portion of the shortterm cash incentives is paid annually at the end of the year, based on the Personnel Committee's assessment of (c) Nokia's total shareholder return compared to key competitors in the high technology and telecommunications industries and relevant market indices over one-, three- and five-year periods. In the case of the President and CEO, the annual incentive award is also partly based on his performance compared against (d) strategic leadership objectives, including entry into new markets and services and executive development. Instead of Nokia's short-term cash incentive plan, Simon Beresford-Wylie participates in a short-term cash incentive plan sponsored by Nokia Siemens Networks, which is similar to Nokia's plan. Fore more information on the actual cash compensation paid in 2007 to Nokia's executive officers, see "Actual Executive Compensation for 2007" on page 75. Long-term equity-based incentives Long-term equity-based incentive awards in the form of performance shares, stock options and restricted shares are used to align executive officers interests with shareholders' interests, reward performance and encourage retention. These awards are determined on the basis of the factors discussed above in "Executive Compensation Philosophy and Decision-making Process", including a comparison of the executive officer's overall compensation with that of other executives in the relevant market and the impact on the competitiveness of the executive's compensation package in that market. Performance shares are Nokia's main vehicle for long-term equity-based incentives and reward the achievement of both Nokia's long-term financial results and an increase in share price. Performance shares vest as shares, if at least one of the pre-determined threshold performance levels, tied to Nokia's financial performance, is achieved by the end of the performance period and their value increases with Nokia's share price. Stock options are granted to fewer employees that are in more senior and executive positions. Stock options create value for the executive officer, once vested, if the Nokia share price is higher than the exercise price of the stock option established at grant, thereby aligning the interests of the executives with those of the shareholders. Restricted shares are used primarily for retention purposes and they vest fully after the close of a pre-determined restriction period. These equitybased incentive awards are generally forfeited, if the executive leaves Nokia prior to vesting. Instead of the long-term equity-based incentive plans of Nokia, Simon Beresford-Wylie participates in a long-term cash incentive plan sponsored by Nokia Siemens Networks. The long-term cash incentive plan of Nokia Siemens Networks is designed to align the interests of Nokia Siemens Networks executives with increased shareholder value of Nokia Siemens Networks and, ultimately, with increased shareholder value for that of its owners, including Nokia and its shareholders. The plan provides Nokia Siemens Networks executives an opportunity to earn cash incentives based on the achievement of pre-determined financial goals, including net sales and operating margin. These long-term cash incentive awards of Nokia Siemens Networks are generally forfeited if the executive leaves employment prior to the end of the plan period. Information on the actual equity-based incentives granted to the members of Nokia's Group Executive Board is included in "Share Ownership" on page 78. 74 Nokia in 2007 Corporate governance Actual Executive Compensation for 2007 At December 31, 2007, Nokia had a Group Executive Board consisting of 12 members. The only change in the membership of Nokia's Group Executive Board during 2007 was the appointment of Timo Ihamuotila as a new member of the Group Executive Board, effective April 1, 2007. The following tables summarize the aggregate cash compensation paid and the long-term equitybased incentives granted to the members of the Group Executive Board under Nokia's equity plans in 2007. Gains realized upon exercise of stock options and share-based incentive grants vested for the members of the Group Executive Board during 2007 are included in "Stock option exercise and settlement of shares" on page 84. Aggregate cash compensation to the Group Executive Board for 2007 Number of members December 31, 2007 12 3 Year 2007 1 Base salaries 3 EUR 5 354 176 Cash incentive payments 1, 2, 3 EUR 8 280 615 Includes payments pursuant to cash incentive arrangements for the 2007 calendar year paid or payable by Nokia for the respective fiscal year. The cash incentives are paid as a percentage of annual base salary based on Nokia's short-term cash incentives. Excluding any gains realized upon exercise of stock options, which are described in "Stock option exercises and settlement of shares" on page 84. 2 Includes base salary and bonuses to Simon Beresford-Wylie, EVP and General Manager Networks of Nokia for the period until March 31, 2007 and Chief Executive Officer of Nokia Siemens Networks for the remainder of 2007 and to Timo Ihamuotila from April 1, 2007. Long-Term Equity-Based Incentives Granted in 2007 1 Group Executive Board 3 Performance shares at threshold 2 Stock options Restricted shares 1 Total 2 163 901 3 211 965 1 749 433 Total number of participants 5 300 2 800 300 286 000 572 000 390 000 2 The equity-based incentive grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting. The settlement is conditional upon performance and service conditions, as determined in the relevant plan rules. For a description of Nokia's equity plans, see Note 22 "Share-based payment" to Nokia's consolidated financial statements on page 30. At maximum performance, the settlement amounts to four times the number of performance shares originally granted at threshold. Including Timo Ihamuotila from April 1, 2007. 3 Summary compensation table 2007 Name and principal position 1 Olli-Pekka Kallasvuo President and CEO Year * 2007 2006 2005 2007 2006 2005 2007 2006 2005 2007 2006 2007 Salary EUR 1 037 619 898 413 623 524 488 422 460 070 461 526 556 381 505 343 476 000 444 139 466 676 382 667 Bonus 2 EUR 2 348 877 664 227 947 742 827 333 292 673 634 516 900 499 353 674 718 896 769 773 249 625 605 520 Stock awards 3 EUR 4 112 581 1 529 732 Non-equity incentive plan Option compenawards 4 sation ** EUR EUR 693 141 578 465 -- -- Change in pension value and nonqualified deferred compensation earnings EUR 956 333 4, 5 1 496 883 4 All other compensation EUR 183 603 6 38 960 Total EUR 9 332 153 5 206 680 Richard Simonson EVP and Chief Financial Officer 7 Anssi Vanjoki EVP, Markets 1 576 376 958 993 234 310 194 119 -- -- 46 699 8 84 652 3 173 141 1 990 507 1 602 605 938 582 239 829 222 213 -- -- 18 521 4 215 143 4 49 244 9 29 394 3 367 078 2 264 349 Mary McDowell EVP, Chief Development Officer 7 Kai istm EVP, Devices 1 1 551 482 786 783 1 412 371 396 169 213 412 223 284 -- -- -- 41 465 4 32 463 10 45 806 32 086 11 3 194 027 1 762 302 2 697 393 The positions set forth in this table are the current positions of the named executives. Mr. Kallasvuo was President and COO until June 1, 2006. Until December 31, 2007, Mr. Vanjoki was Executive Vice President and General Manager of Multimedia; Ms. McDowell, Executive Vice President and General Manager of Enterprise Solutions; and Mr. istm, Executive Vice President and General Manager of Mobile Phones. Bonus payments are part of Nokia's short-term cash incentives. The amount consists of the bonus awarded and paid or payable by Nokia for the respective fiscal year. 3 Amounts shown represent share-based compensation expense recognized in the respective fiscal year for all outstanding equity grants in accordance with IFRS 2, Share-based payment. The change in pension value represents the proportionate change in Nokia's liability related to the individual executive. These executives participate in the Finnish TyEL pension system 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. The figures shown represent only the change in liability for the funded portion. The method used to derive the 5 4 actuarial IFRS valuation is based upon salary information at the respective year-end. Actuarial assumptions including salary increases and inflation have been determined to arrive at the valuation at the respective year end The change in pension value for Mr. Kallasvuo includes EUR 148 333 for the proportionate change in the company's liability related to the individual under the funded part of the Finnish TyEL pension (see footnote 4 above). In addition, it includes EUR 808 000 for the change in liability in the early retirement benefit at the age of 60 provided under his service contract. 2 Corporate governance 75 Corporate governance 6 All other compensation for Mr. Kallasvuo in 2007 includes: EUR 130 000 for his services as member of the Board of Directors, see also "Board of Directors" above; EUR 21 300 for car allowance; EUR 10 000 for financial counseling; EUR 17 383 for a taxable benefit concerning payment of the Finnish transfer tax and related gross-up in respect of settlements under performance and restricted share plans made to all participants of those plans who were Finnish tax residents; and EUR 4 920 for driver and for mobile phone. Salaries, benefits and perquisites of Ms. McDowell and Mr. Simonson are paid and denominated in USD. Amounts were converted to EUR using year-end 2007 USD/EUR exchange rate of 1.47. For year 2006, amounts were converted to EUR using year-end 2006 USD/EUR exchange rate of 1.31. 8 All other compensation for Mr. Simonson in 2007 includes: EUR 10 544 company contributions to the 401(k) plan, EUR 11 565 for car allowance, EUR 10 548 for financial counseling, EUR 9 691 provided as benefit under Nokia's relocation policy and EUR 4 351 Employee Stock Purchase Plan benefit. All other compensation for Mr. Vanjoki in 2007 includes: EUR 22 020 for car allowance, EUR 16 984 taxable benefit concerning payment of the Finnish transfer tax and related gross-up in respect of settlements under performance and restricted share plans made to all participants of those plans who were Finnish tax residents; EUR 10 000 for financial counseling and the remainder for mobile phone. 9 11 All other compensation for Mr. istm in 2007 includes: EUR 13 777 for car allowance, EUR 8 069 taxable benefit concerning payment of the Finnish transfer tax and related gross-up in respect of settlements under performance and restricted share plans made to all participants of those plans who were Finnish tax residents; EUR 10 000 for financial counseling and the remainder for mobile phone. * History has been provided for those data elements previously disclosed. 7 ** None of the named executive officers participated in a formulated, non-discretionary incentive plan. Annual incentive payments are included under the "Bonus" column. 10 All other compensation for Ms. McDowell in 2007 includes: EUR 9 184 company contributions to the 401(k) plan, EUR 11 565 for car allowance, EUR 10 531 for financial counseling and the remainder for benefit provided under Nokia's relocation policy. Equity grants in 2007 1 Option awards Number of shares underlying options 160 000 55 000 55 000 55 000 55 000 Grant price (EUR) 18.39 18.39 18.39 18.39 18.39 Grant date fair value 2 (EUR) 581 690 199 956 199 956 199 956 199 956 Performance shares at threshold (number) 80 000 27 500 27 500 27 500 27 500 3 Stock awards Performance shares at maximum (number) 320 000 110 000 110 000 110 000 110 000 Restricted shares (number) 100 000 35 000 35 000 35 000 35 000 Grant date fair value 3 (EUR) 5 709 382 1 978 385 1 978 385 1 978 385 1 978 385 Name and principal position Olli-Pekka Kallasvuo President and CEO Richard Simonson EVP and Chief Financial Officer Anssi Vanjoki EVP, Markets Mary McDowell EVP, Chief Development Officer Kai istm EVP, Devices 1 Including all grants made during 2007. Grants were made under the Nokia Stock Option Plan 2007, the Nokia Performance Share Plan 2007 and the Nokia Restricted Share Plan 2007, respectively. Grant date May 11 May 11 May 11 May 11 May 11 2 The fair values of stock options equal the estimated fair value on the grant date, calculated using the Black-Scholes model. The stock option exercise price is EUR 18.39. The Helsinki Stock Exchange closing market price at the grant date was EUR 18.42. The fair value of performance shares and restricted shares equals the estimated fair value on grant date. The estimated fair value is based on the grant date market price of the Nokia share less the present value of dividends expected to be paid during the vesting period. The value of performance shares is presented on the basis of a number of shares which is two times the number at threshold. For information with respect to the Nokia shares and equity awards held by the members of the Group Executive Board, please see "Share Ownership" on page 78. Pension arrangements for the members of the Group Executive Board The members of the Group Executive Board participated in the local retirement programs applicable to employees in the country where they reside. Executives in Finland participate in the Finnish Ty EL pension system, which provides for a retirement benefit based on years of service and earnings according to a prescribed statutory system. Under the Finnish Ty EL pension system, base pay, incentives and other taxable fringe benefits are included in the definition of earnings, although gains realized from equity are not. The Finnish Ty EL pension scheme provides for early retirement benefits at age 62 with a reduction in the amount of retirement benefits. Standard retirement benefits are available from age 63 to 68, according to an increasing scale. Executives in the United States participate in Nokia's Retirement Savings and Investment Plan. Under this 401(k) plan, participants elect to make voluntary pre-tax contributions that are 100% matched by Nokia up to 8% of eligible earnings. 25% of the employer match vests for the participants for each year of their employment. Participants earning in excess of the Internal Revenue Service (IRS) eligible earning limits may participate in the Nokia Restoration and Deferral Plan which allows employees to defer up to 50% of their salary and 100% of their bonus into this non-qualified plan. Contributions to the Restoration and Deferral Plan in excess of IRS deferral limits will be matched 100% up to 8% of eligible earnings less contributions made to the 401(k) plan. Olli-Pekka Kallasvuo can, as part of his service contract, retire at the age of 60 with full retirement benefits should he be employed by Nokia at the time. The full retirement benefit is calculated as if Mr. Kallasvuo had continued his service with Nokia through the retirement age of 65. Simon Beresford-Wylie participates in the Nokia International Employee Benefit Plan (NIEBP). The NIEBP is a defined contribution retirement arrangement provided to some Nokia employees on international assignments. The contributions to NIEBP are funded two-thirds by Nokia and one-third by the employee. Because Mr. Beresford-Wylie also participates in the Finnish Ty EL system, the company contribution to NIEBP is 1.3% of annual earnings. Hallstein Moerk, following his arrangement with a previous employer, has also in his current position at Nokia a retirement benefit of 65% of his pensionable salary beginning at the age of 62. Early retirement is possible at the age of 55 with reduced benefits. Service contracts Olli-Pekka Kallasvuo's service contract covers his current position as President and CEO and Chairman of the Group Executive Board. As of December 31, 2007, Mr. Kallasvuo's annual total gross base salary, which is subject to an annual review by the Board of Directors and confirmation by the independent members of the Board, is EUR 1 050 000. His incentive targets under the Nokia short-term cash incentive plan are 150% of annual gross base salary. In case of termination by Nokia for reasons other than cause, including a change of control, Mr. Kallasvuo is entitled to a severance payment of up to 18 months of compensation (both annual total gross base salary and target incentive). In 76 Nokia in 2007 Corporate governance case of termination by Mr. Kallasvuo, the notice period is 6 months and he is entitled to a payment for such notice period (both annual total gross base salary and target incentive for 6 months). Mr. Kallasvuo is subject to a 12-month non-competition obligation after termination of the contract. Unless the contract is terminated for cause, Mr. Kallasvuo may be entitled to compensation during the non-competition period or a part of it. Such compensation amounts to the annual total gross base salary and target incentive for the respective period during which no severance payment is paid. Equity-Based Compensation Programs General During the year ended December 31, 2007, Nokia sponsored four global stock option plans, four global performance share plans and four global restricted share plans. Both executives and employees participate in these plans. In 2004, Nokia introduced performance shares as the main element to the company's broad-based equity compensation program to further emphasize the performance element in employees' long-term incentives. Thereafter, the number of stock options granted has been significantly reduced. The rationale for using both performance shares and stock options for employees in higher job grades is to build an optimal and balanced combination of long-term equity-based incentives. The equity-based compensation programs intend to align the potential value received by participants directly with the performance of Nokia. Since 2003, Nokia also have granted restricted shares to a small selected number of employees each year. The equity-based incentive grants are generally conditioned upon continued employment with Nokia, as well as the fulfillment of performance and other conditions, as determined in the relevant plan rules. The broad-based equity compensation program for 2007, which was approved by the Board of Directors, followed the structure of the program in 2006. The participant group for the 2007 equity-based incentive program continued to be broad, with a wide number of employees in many levels of the organization eligible to participate. As at December 31, 2007, the aggregate number of participants in all of Nokia's equity-based programs was approximately 22 000 compared with approximately 30 000 as at December 31, 2006 reflecting changes in Nokia's grant guidelines. The employees of Nokia Siemens Networks have not participated in any new Nokia equity-based incentive plans since the formation of Nokia Siemens Networks on April 1, 2007. For a more detailed description of all of Nokia's equity-based incentive plans, see Note 22 "Sharebased payment" to Nokia's consolidated financial statements on page 30. Performance Shares We have granted performance shares under the global 2004, 2005, 2006 and 2007 plans, each of which, including its terms and conditions, has been approved by the Board of Directors. The performance shares represent a commitment by Nokia to deliver Nokia shares to employees at a future point in time, subject to Nokia's fulfillment of pre-defined performance criteria. No performance shares will vest unless Nokia's performance reaches at least one of the threshold levels measured by two independent, pre-defined performance criteria: Nokia's average annual net sales growth for the performance period of the plan and earnings per share (EPS) at the end of the performance period. The 2004 and 2005 Performance Share Plans have a four-year performance period and a two-year interim measurement period. The 2006 and 2007 Performance Share Plans have a three-year performance period with no interim measurement period. The below table summarizes the relevant periods and settlements under the plans. a term of five years. The exercise prices of the stock options are determined at the time of their grant on a quarterly basis. The exercise prices are determined in accordance with a pre-agreed schedule after the release of Nokia's periodic financial results and are based on the trade volume weighted average price of a Nokia share on the Helsinki Stock Exchange during the trading days of the first whole week of the second month of the respective calendar quarter (i.e., February, May, August or November). Exercise prices are determined on a one-week weighted average to mitigate any short-term fluctuations in Nokia's share price. The determination of exercise price is defined in the terms and conditions of the stock option plan, which are approved by the shareholders at the respective Annual General Meeting. The Board of Directors does not have the right to amend the above-described determination of the exercise price. Stock option grants are approved by the CEO at the time of stock option pricing on the basis of an authorization given by the Board of Directors. Ap- Performance Share Plan 2004 2005 2006 2007 Performance period 20042007 20052008 20062008 20072009 Interim measurement period 20042005 20052006 N/A N/A 1st (interim) settlement 2006 2007 N/A N/A 2nd (final) settlement 2008 2009 2009 2010 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. Performance share grants are approved by the CEO at the end of the respective calendar quarter on the basis of an authorization given by the Board of Directors. Approvals for performance share grants to the CEO are made by the independent members of the Board of Directors. Approvals for performance share grants to the other Group Executive Board members and other direct reports of the CEO are made by the Personnel Committee. Stock Options Nokia's global stock option plans in effect for 2007, including their terms and conditions, were approved by the Annual General Meetings in the year when each plan was launched, i.e., in 2001, 2003, 2005 and 2007. Each stock option entitles the holder to subscribe for one new Nokia share. Under the 2001 stock option plan, the stock options were transferable by the participants. Under the 2003, 2005 and 2007 plans, the stock options are non-transferable. All of the stock options have a vesting schedule with a 25% vesting one year after grant, and quarterly vesting thereafter. The stock options granted under the plans generally have provals for stock option grants to the CEO are made by the independent members of the Board of Directors. Approvals for stock option grants to the other Group Executive Board members and for other direct reports of the CEO are made by the Personnel Committee. Restricted Shares Since 2003, Nokia has granted restricted shares to recruit, retain, reward and motivate selected high potential employees, who are critical to the future success of Nokia. It is Nokia's philosophy that restricted shares will be used only for key management positions and other critical resources. The outstanding global restricted share plans, including their terms and conditions, have been approved by the Board of Directors. All of Nokia's restricted share plans have a restriction period of three years after grant. Once the shares vest, they are transferred and delivered to the participants. The restricted share grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting. Until the Nokia shares are delivered, the participants do not have any shareholder rights, such as voting or dividend rights, associated with the restricted shares. Restricted share grants are approved by the CEO at the end of the respective calendar quarter on the basis of an authorization given by the Board of Directors. Approvals of restricted share grants to the CEO are made by the independent Corporate governance 77 Corporate governance members of the Board of Directors. Approvals for restricted share grants to the other Group Executive Board members and other direct reports of the CEO are made by the Personnel Committee. Other equity plans for employees In addition to Nokia's global equity plans described above, Nokia has equity plans for Nokia-acquired businesses or employees in the United States and Canada under which participants can receive Nokia ADSs or ordinary shares. These equity plans do not result in an increase in the share capital of Nokia. We have also an Employee Share Purchase Plan in the United States, which permits all full-time Nokia employees located in the United States to acquire Nokia ADSs at a 15% discount. The purchase of the ADSs is funded through monthly payroll deductions from the salary of the participants, and the ADSs are purchased on a monthly basis. As at December 31, 2007, a total of 11 339 333 ADSs had been purchased under this plan since its inception, and there were a total of approximately 600 participants. For more information on these plans, see Note 22 "Share-based payment" to Nokia's consolidated financial statements on page 30. Equity-based compensation program 2008 The Board of Directors announced the proposed scope and design for the Equity Program 2008 on January 24, 2008. The main equity instrument will be performance shares. In addition, stock options will be used on a limited basis for senior managers, and restricted shares will be used for a small number of high potential and critical employees. These equitybased incentive awards are generally forfeited, if the employee leaves Nokia prior to vesting. Performance shares The Performance Share Plan 2008 approved by the Board of Directors will cover a performance period of three years (20082010) with no interim measurement period. No performance shares will vest unless Nokia's performance reaches at least one of the threshold levels measured by two independent, pre-defined performance criteria: 1 Average Annual Net Sales Growth: 4% (threshold) and 16% (maximum) during the performance period 20082010, and EPS (diluted, excluding special items): EUR 1.72 (threshold) and EUR 2.76 (maximum) at the end of the performance period in 2010. Achievement of the maximum performance for both criteria would result in the vesting of a maximum of 12 million Nokia shares. Performance exceeding the maximum criteria does not increase the number of performance shares that will vest. Achievement of the threshold performance for both criteria will result in the vesting of approximately 3 million shares. If only one of the threshold levels of performance is achieved, only approximately 1.5 million of the performance shares will vest. If none of the threshold levels is achieved, then none of the performance shares will vest. For performance between the threshold and maximum performance levels, the vesting follows a linear scale. If the required performance levels are achieved, the vesting will take place in 2010. Until the Nokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights associated with these performance shares. Stock options The stock options to be granted in 2008 are out of the Stock Option Plan 2007 approved by the Annual General Meeting in 2007. For more information on Stock Option Plan 2007, see "Equity Based Compensation Programs" on page 77. Restricted shares The restricted shares to be granted under the Restricted Share Plan 2008 will have a three-year restriction period. The restricted shares will vest and the payable Nokia shares will be delivered mainly in 2011, subject to fulfillment of the service period criteria. Participants will not have any shareholder rights or voting rights during the restriction period, until the Nokia shares are transferred and delivered to plan participants at the end of the restriction period. Maximum planned grants in 2008 The maximum number of planned grants under the 2008 Equity Program (i.e., performance shares, stock options and restricted shares) in 2008 are set forth in the table below. Maximum number of planned grants under the 2008 equityprogram in 2008 5 million 4 million 3 million Share ownership General The following section describes the ownership or potential ownership interest in the company of the members of Nokia's Board of Directors and the Group Executive Board, either through share ownership or through holding of equity based incentives, which may lead to share ownership in the future. Since 1999, approximately 40% of the remuneration paid to the Board of Directors has been paid in Nokia shares purchased from the market. Non-executive members of the Board of Directors do not receive stock options, performance shares, restricted shares or other variable pay compensation. For a description of Nokia's equity-based compensation programs for employees and executives, see "Equity-Based Compensation Programs" on page 77. Share ownership of the Board of Directors At December 31, 2007, the members of Nokia's Board of Directors held the aggregate of 975 797 shares and ADSs in Nokia which represented 0.03% of Nokia's outstanding share capital and total voting rights excluding shares held by Nokia Group at that date. The following table sets forth the number of shares and ADSs held by members of the Board of Directors as at December 31, 2007. Shares Jorma Ollila 2 Marjorie Scardino Georg Ehrnrooth 3 Lalita D. Gupte Bengt Holmstrm Henning Kagermann Olli-Pekka Kallasvuo 4 Per Karlsson 3 Keijo Suila Vesa Vainio Total 1 1 ADSs -- 17 263 -- 3 027 -- -- -- -- -- -- 20 290 389 578 -- 318 347 -- 19 416 2 810 166 059 22 889 5 597 30 811 955 507 Plan type 2 Stock options Restricted shares Performance shares at threshold 1 1 The number of shares includes not only shares acquired as compensation for services rendered as a member of the Board of Directors, but also shares acquired by any other means. For Mr. Ollila, this table includes his share ownership, only. Mr. Ollila was entitled to retain all vested and unvested stock options, performance shares and restricted shares granted to him in respect of his services as the CEO of Nokia prior to June 1, 2006 as approved by the Board of Directors. Therefore, in addition to the above-presented share ownership, Mr. Ollila held, as of December 31, 2007, a total of 1 800 000 stock options, 300 000 performance shares (at threshold) and 200 000 restricted shares. The information relating to stock options held by Mr. Ollila as at December 31, 2007 is represented in the table below. 2 Average Annual Net Sales Growth is calculated as an average of the net sales growth rates for the years 2007 through 2010. EPS is the diluted earnings per share in 2010 excluding special items. Both the EPS and Average Annual Net Sales Growth criteria are equally weighted and performance under each of the two performance criteria is calculated independent of each other. The maximum number of shares to be delivered at maximum performance is four times the number at threshold, i.e., a total of 12 million Nokia shares. As at December 31, 2007, the total dilutive effect of Nokia's stock options, performance shares and restricted shares outstanding, assuming full dilution, was approximately 2.3% in the aggregate. The potential maximum effect of the proposed equity program 2008 would be approximately another 0.6%. 78 Nokia in 2007 Corporate governance Number of stock options in the below table equals the number of underlying shares represented by the option entitlement. Stock options vest over four years: 25% after one year and 6.25% each quarter thereafter. The intrinsic value of the stock options in the above table is based on the difference between the exercise price of the options and the closing market price of Nokia shares on the Helsinki Stock Exchange as at December 28, 2007 of EUR 26.52. 3 4 Mr. Ehrnrooth's and Mr. Karlsson's holdings include both shares held personally and shares held through a company. For Mr. Kallasvuo, this table includes his share ownership only. Mr. Kallasvuo's holdings of long-term equity-based incentives are outlined under "Stock Option Ownership of the Group Executive Board" on page 80 and "Performance Shares and Restricted Shares" on page 82. Total intrinsic value of stock options, December 31, 2007 EUR Number of stock options Stock option category Jorma Ollila 2002 A/B 2003 2Q 2004 2Q 2005 2Q 2006 2Q Expiration date December 31, 2007 December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2011 Exercise price per share EUR 17.89 14.95 11.79 12.79 18.02 Exercisable -- 600 000 325 000 225 000 125 000 Unexercisable -- -- 75 000 175 000 275 000 Exercisable Unexercisable -- 6 942 000 4 787 250 3 089 250 1 062 500 -- -- 1 104 750 2 402 750 2 337 500 Share Ownership of the Group Executive Board The following table sets forth the share ownership, as well as potential ownership interest through holding of equity-based incentives, of the members of the Group Executive Board as at December 31, 2007. Shares receivable through performance shares at threshold 3 569 600 0.015 8.709 4 Shares Number of equity instruments held by Group Executive Board % of the share capital 1 % of the total outstanding equity incentives (per instrument) 2 1 The percentage is calculated in relation to the outstanding share capital and total voting rights of the company, excluding shares held by Nokia Group. The percentage is calculated in relation to the total outstanding equity incentives per instrument, i.e., stock options, performance shares and restricted shares, as applicable. 3 Shares receivable through stock options 2 693 844 0.070 7.769 Shares receivable through performance shares at maximum 4 2 835 637 0.074 6.266 Shares receivable through restricted shares 1 087 500 0.028 18.139 642 429 0.017 -- 2 Performance shares at threshold represent the original grant. Due to the interim payouts, the participants have already received threshold number of Nokia shares under 2004 and 2005 plans. Therefore, the shares receivable under the 2004 and 2005 performance share plans equal to zero. At maximum performance under the performance share plans 2006 and 2007, the number of Nokia shares deliverable equals four times the number of performance shares originally granted (at threshold). Due to the interim payout (at threshold) in 2006 and based on the actual level of the performance criteria for the performance period, the number of Nokia shares deliverable under the performance share plan 2004 equals 2.39 times the number of performance shares originally granted (at threshold). Due to the interim payout (at threshold) in 2007, the maximum number of Nokia shares deliverable under the performance share plan 2005 equals three times the number of performance shares originally granted (at threshold). The following table sets forth the number of shares and ADSs in Nokia held by members of the Group Executive Board as at December 31, 2007. Shares Olli-Pekka Kallasvuo Robert Andersson Simon Beresford-Wylie Timo Ihamuotila Mary McDowell Hallstein Moerk Tero Ojanper Niklas Savander Richard Simonson Veli Sundbck Anssi Vanjoki Kai istm Total 166 059 28 580 25 436 31 637 31 029 37 209 16 135 30 367 53 746 117 774 60 799 13 931 612 702 ADSs -- -- -- -- 5 000 3 213 -- -- 21 514 -- -- -- 29 727 Corporate governance 79 Corporate governance Stock Option Ownership of the Group Executive Board The following table provides certain information relating to stock options held by members of the Group Executive Board as at December 31, 2007. These stock options were issued pursuant to Nokia Stock Option Plans 2001, 2003, 2005 and 2007. For a description of Nokia's stock option plans, please see Note 22 to Nokia's consolidated financial statements on page 30. Number of stock options 1 Exercise price per share EUR 17.89 14.95 11.79 12.79 14.48 18.02 18.39 17.89 14.95 11.79 12.79 14.48 18.02 18.39 17.89 14.95 11.79 12.79 18.02 17.89 14.95 11.79 12.79 18.02 18.39 15.05 11.79 12.79 18.02 18.39 17.89 14.95 11.79 12.79 18.02 18.39 Total intrinsic value of stock options, December 31, 2007 EUR 2 Stock option category Olli-Pekka Kallasvuo 2002 A/B 2003 2Q 2004 2Q 2005 2Q 2005 4Q 2006 2Q 2007 2Q Robert Andersson 2002 A/B 2003 2Q 2004 2Q 2005 2Q 2005 4Q 2006 2Q 2007 2Q 2002 A/B 2003 2Q 2004 2Q 2005 2Q 2006 2Q Timo Ihamuotila 2002 A/B 2003 2Q 2004 2Q 2005 2Q 2006 2Q 2007 2Q 2003 4Q 2004 2Q 2005 2Q 2006 2Q 2007 2Q 2002 A/B 2003 2Q 2004 2Q 2005 2Q 2006 2Q 2007 2Q Expiration date December 31, 2007 December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2007 December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2007 December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2007 December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2007 December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 Exercisable -- 120 000 48 750 33 750 43 750 93 750 -- -- -- 8 450 6 750 12 250 -- -- -- 13 000 8 125 27 750 31 250 7 -- -- -- -- -- 65 625 40 625 33 750 31 250 -- -- -- -- -- 18 750 -- Unexercisable -- -- 11 250 26 250 56 250 206 250 160 000 -- -- 1 950 5 250 15 750 55 000 32 000 -- -- 1 875 26 250 68 750 -- -- 1 500 6 300 9 900 32 000 4 375 9 375 26 250 68 750 55 000 -- -- 5 625 17 500 41 250 32 000 Exercisable 3 Unexercisable -- 1 388 400 718 088 463 388 526 750 796 875 -- -- -- 124 469 92 678 147 490 -- -- -- 150 410 119 681 381 008 265 625 60 -- -- -- -- -- 752 719 598 406 463 388 265 625 -- -- -- -- -- 159 375 -- -- -- 165 713 360 413 677 250 1 753 125 1 300 800 -- -- 28 724 72 083 189 630 467 500 260 160 -- -- 27 619 360 413 584 375 -- -- 22 095 86 499 84 150 260 160 50 181 138 094 360 413 584 375 447 150 -- -- 82 856 240 275 350 625 260 160 Simon Beresford-Wylie 4 Mary McDowell Hallstein Moerk 80 Nokia in 2007 Corporate governance Stock option ownership of the Group Executive Board, continued Number of stock options 1 Exercise price per share EUR 17.89 14.95 11.79 12.79 18.02 18.39 17.89 14.95 11.79 12.79 18.02 18.39 17.89 14.95 11.79 12.79 18.02 18.39 17.89 14.95 11.79 12.79 18.02 18.39 17.89 14.95 11.79 12.79 18.02 18.39 17.89 14.95 11.79 12.79 14.48 18.02 18.39 Total intrinsic value of stock options, December 31, 2007 EUR 2 Stock option category Tero Ojanper 2002 A/B 2003 2Q 2004 2Q 2005 2Q 2006 2Q 2007 2Q 2002 A/B 2003 2Q 2004 2Q 2005 2Q 2006 2Q 2007 2Q 2002 A/B 2003 2Q 2004 2Q 2005 2Q 2006 2Q 2007 2Q 2002 A/B 2003 2Q 2004 2Q 2005 2Q 2006 2Q 2007 2Q 2002 A/B 2003 2Q 2004 2Q 2005 2Q 2006 2Q 2007 2Q 2002 A/B 2003 2Q 2004 2Q 2005 2Q 2005 4Q 2006 2Q 2007 2Q Expiration date December 31, 2007 December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2007 December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2007 December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2007 December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2007 December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2007 December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2010 December 31, 2011 December 31, 2012 Exercisable -- 16 000 8 125 22 500 18 750 -- -- -- 640 875 3 750 -- -- 11 500 40 625 33 750 31 250 -- -- 50 000 24 375 22 500 18 750 -- -- -- -- -- -- -- -- 727 1 250 1 600 3 500 31 250 -- Unexercisable -- -- 1 875 17 500 41 250 32 000 -- -- 1 920 6 125 41 250 32 000 -- -- 9 375 26 250 68 750 55 000 -- -- 5 625 17 500 41 250 32 000 -- -- 11 250 26 250 68 750 55 000 -- -- 1 875 5 600 15 750 68 750 55 000 Exercisable 3 Unexercisable -- 185 120 119 681 308 925 159 375 -- -- -- 9 427 12 014 31 875 -- -- 133 055 598 406 463 388 265 625 -- -- 578 500 359 044 308 925 159 375 -- -- -- -- -- -- -- -- 8 411 18 413 21 968 42 140 265 625 -- -- -- 27 619 240 275 350 625 260 160 -- -- 28 282 84 096 350 625 260 160 -- -- 138 094 360 413 584 375 447 150 -- -- 82 856 240 275 350 625 260 160 -- -- 165 713 360 413 584 375 447 150 -- -- 27 619 76 888 189 630 584 375 447 150 Niklas Savander Richard Simonson Veli Sundbck Anssi Vanjoki Kai istm Stock options held by the members of the Group Executive Board on December 31, 2007, Total All outstanding stock option plans (global plans), Total 1 Number of stock options equals the number of underlying shares represented by the option entitlement. Stock options vest over four years: 25% after one year and 6.25% each quarter thereafter. 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 the Helsinki Stock Exchange as at December 28, 2007 of EUR 26.52. 3 979 299 1 714 545 11 463 724 16 163 936 20 869 758 For gains realized upon exercise of stock options for the members of the Group Executive Board, see the table in "Stock Option Exercises and Settlement of Shares" on page 84. From April 1, 2007, Mr. Beresford-Wylie has participated in a long-term cash incentive plan sponsored by Nokia Siemens Networks instead of the long-term equity-based plans of Nokia. 13 803 554 248 800 175 139 926 235 4 2 Corporate governance 81 Corporate governance Performance shares and restricted shares The following table provides certain information relating to performance shares and restricted shares held by members of the Group Executive Board as at December 31, 2007. These entitlements were granted pursuant to Nokia's performance share plans 2004, 2005, 2006 and 2007 and restricted share plans 2005, 2006 and 2007. For a description of Nokia's performance share and restricted share plans, please see Note 22 to the consolidated financial statements on page 30. Performance shares Number of performance shares at threshold 2 15 000 15 000 75 000 80 000 2 600 3 000 20 000 16 000 2 500 15 000 25 000 2 000 3 600 3 600 16 000 12 500 15 000 25 000 27 500 7 500 10 000 15 000 16 000 2 500 10 000 15 000 16 000 2 560 3 500 15 000 16 000 12 500 15 000 25 000 27 500 Number of performance shares at maximum 2 35 850 45 000 300 000 320 000 6 214 9 000 80 000 64 000 5 975 45 000 100 000 4 780 10 800 14 400 64 000 29 875 45 000 100 000 110 000 17 925 30 000 60 000 64 000 5 975 30 000 60 000 64 000 6 118 10 500 60 000 64 000 29 875 45 000 100 000 110 000 Restricted shares Plan name 1 Olli-Pekka Kallasvuo 2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2007 Intrinsic value 3 EUR 950 742 1 193 400 6 552 786 6 571 490 164 795 238 680 1 747 410 1 314 298 158 457 1 193 400 2 184 262 126 766 286 416 314 534 1 314 298 792 285 1 193 400 2 184 262 2 258 950 475 371 795 600 1 310 557 1 314 298 158 457 795 600 1 310 557 1 314 298 162 260 278 460 1 310 557 1 314 298 792 285 1 193 400 2 184 262 2 258 950 Plan name 4 Number of restricted shares Intrinsic value 5 EUR 2005 2006 2007 70 000 100 000 100 000 1 856 400 2 652 000 2 652 000 Robert Andersson 2005 2006 2007 28 000 20 000 25 000 742 560 530 400 663 000 Simon Beresford-Wylie 6 2005 2006 35 000 25 000 928 200 663 000 Timo Ihamuotila 2005 2006 2007 25 000 4 500 25 000 663 000 119 340 663 000 Mary McDowell 2005 2006 2007 35 000 25 000 35 000 928 200 663 000 928 200 Hallstein Moerk 2005 2006 2007 25 000 15 000 25 000 663 000 397 800 663 000 Tero Ojanper 2005 2006 2007 25 000 15 000 25 000 663 000 397 800 663 000 Niklas Savander 2005 2006 2007 25 000 15 000 25 000 663 000 397 800 663 000 Richard Simonson 2005 2006 2007 35 000 25 000 35 000 928 200 663 000 928 200 82 Nokia in 2007 Corporate governance Performance shares Number of performance shares at threshold 2 7 500 10 000 15 000 16 000 15 000 15 000 25 000 27 500 2 500 3 200 25 000 27 500 Number of performance shares at maximum 2 17 925 30 000 60 000 64 000 35 850 45 000 100 000 110 000 5 975 9 600 100 000 110 000 Restricted shares Plan name 1 Veli Sundbck 2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2007 Intrinsic value 3 EUR 475 371 795 600 1 310 557 1 314 298 950 742 1 193 400 2 184 262 2 258 950 158 457 254 592 2 184 262 2 258 950 Plan name 4 Number of restricted shares Intrinsic value 5 EUR 2005 2006 2007 25 000 15 000 25 000 663 000 397 800 663 000 Anssi Vanjoki 2005 2006 2007 35 000 25 000 35 000 928 200 663 000 928 200 Kai istm 2005 2006 2007 25 000 25 000 35 000 663 000 663 000 928 200 Performance shares and restricted shares held by the Group Executive Board, Total All outstanding performance shares and restricted shares (global plans), Total 1 The performance period for the 2004 plan was 20042007, with one interim measurement period for fiscal years 20042005. The performance period for the 2005 plan is 20052008, with one interim measurement period for fiscal years 20052006. The performance period for the 2006 plan is 20062008, without any interim measurement period. The performance period for the 2007 plan is 20072009, without any interim measurement period. For the performance share plans 2004, 2005, 2006 and 2007, the number of performance shares at threshold represents the number of performance shares granted. This number will vest as Nokia shares should the pre-determined threshold performance levels of Nokia be met. The maximum number of Nokia shares 772 560 2 835 637 63 049 281 1 087 500 28 840 500 13 544 558 45 254 618 1 066 777 076 4 5 915 929 156 890 437 will vest should the predetermined maximum performance levels be met. The maximum number of performance shares equals four times the number originally granted at 20042007 threshold. Due to the interim payout in 2006 and based on the actual level of the performance criteria for the performance period, the number of Nokia shares deliverable under the 2004 plan is equal to 2.39 times the number at threshold. 3 The intrinsic value is based on the closing market price of a Nokia share on the Helsinki Stock Exchange as at December 28, 2007 of EUR 26.52. The value of performance shares is presented on the basis of Nokia's estimation of the number of shares expected to vest. For performance share plan 2004 the value of performance shares is presented on the basis of actual number of shares expected to vest. Under the restricted share plans 2004, 2005, 2006 and 2007 awards are granted quarterly. For the major part of the awards made under these plans the restriction period ended for the 2004 plan on October 1, 2007; and will end for the 2005 plan, on October 1, 2008; for the 2006 plan, on October 1, 2009; for the 2007 plan, on October 1, 2010. The intrinsic value is based on the closing market price of a Nokia share on the Helsinki Stock Exchange as at December 28, 2007 of EUR 26.52. From April 1, 2007, Mr. Beresford-Wylie has participated in a long-term cash incentive plan sponsored by Nokia Siemens Networks instead of the long-term equity-based plans of Nokia. 5 2 6 For gains realized upon exercise of stock options or delivery of Nokia shares on the basis of performance shares and restricted shares granted to the members of the Group Executive Board, see the table in "Stock Option Exercises and Settlement of Shares" on page 84. Corporate governance 83 Corporate governance 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 2007 for Nokia's Group Executive Board members. Stock option awards 1 Options exercised (number) 175 000 73 000 6 000 30 223 -- 83 750 14 500 64 180 15 000 40 000 156 250 23 989 2 Performance shares awards 2 Shares delivered (number) 15 000 3 000 15 000 3 600 15 000 10 000 10 000 3 500 15 000 10 000 15 000 3 200 3 Restricted shares awards 3 Shares delivered (number) 35 000 15 000 -- 15 000 20 000 20 000 15 000 16 500 25 000 20 000 35 000 15 000 Value realized (EUR) 651 000 388 200 -- 388 200 331 600 372 000 388 200 427 020 465 000 372 000 651 000 388 200 Name Olli-Pekka Kallasvuo Robert Andersson Simon Beresford-Wylie Timo Ihamuotila Mary McDowell Hallstein Moerk Tero Ojanper Niklas Savander Richard Simonson Veli Sundbck Anssi Vanjoki Kai istm 1 Year 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 Value realized (EUR) 150 518 381 620 87 300 218 849 -- 707 937 151 380 427 001 42 750 209 350 1 461 900 121 392 Value realized (EUR) 301 500 60 300 301 500 72 360 301 500 201 000 201 000 70 350 301 500 201 000 301 500 64 320 Value realized on exercise is based on the total gross value received in 2007 in respect of stock options sold on the Helsinki Stock Exchange (transferable stock options) and on the difference between the Nokia share price and exercise price of options (non-transferable stock options). Represents interim payout at threshold for the 2005 performance share grant. Value is based on the market price of the Nokia share on the Helsinki Stock Exchange as at May 21, 2007 of EUR 20.10. Delivery of Nokia shares vested from the 2003 grant to Ms. McDowell and from the 2004 grant to the other members of the Group Executive Board. Value is based on the market price of the Nokia share on the Helsinki Stock Exchange for the grant of Ms. McDowell on January 29, 2007 of EUR 16.58; Mr. Kallasvuo, Mr. Moerk, Mr. Simonson, Mr. Sundbck and Mr. Vanjoki as at May 7, 2007 of EUR 18.60; and Mr. Andersson, Mr. Ihamuotila, Mr. Ojanper, Mr. Savander and Mr. istm on October 22, 2007 of EUR 25.88. Stock ownership guidelines for executive management One of the goals of Nokia's long-term equity-based incentive program is to focus executives on building value for shareholders. In addition to granting the stock options, performance shares and restricted shares, Nokia also encourages stock ownership by Nokia's top executives. Since January 2001, Nokia has had stock ownership commitment guidelines with minimum recommendations tied to annual base salaries. For the President and CEO, the recommended minimum investment in Nokia shares corresponds to three times his annual base salary, for Simon Beresford-Wylie, Chief Executive Officer of Nokia Siemens Networks, one time his annual base salary and for the other members of the Group Executive Board, two times the member's annual base salary, respectively. To meet this requirement, all members are expected to retain after-tax equity gains in shares until the minimum investment level is met. Insider trading in securities The Board of Directors has established and regularly updates a policy in respect of insiders' trading in Nokia securities. The members of the Board and the Group Executive Board are considered as primary insiders. Under the policy, the holdings of Nokia securities by the primary insiders are public information, which is available in the Finnish Central Securities Depositary and on Nokia's website. Both primary insiders and secondary insiders (as defined in the policy) are subject to a number of trading restrictions and rules, including, among other things, prohibitions on trading in Nokia securities during the three-week "closed-window" period immediately preceding the release of Nokia's quarterly results and the four-week "closed-window" period immediately preceding the release of Nokia's annual results. In addition, Nokia may set trading restrictions based on participation in projects. Nokia updates its insider trading policy from time to time and monitors Nokia's insiders' compliance with the policy on a regular basis. Nokia's insider policy is in line with the Helsinki Stock Exchange Guidelines for Insiders and also sets requirements beyond those guidelines. 84 Nokia in 2007 Corporate governance Auditor fees and services PricewaterhouseCoopers Oy has served as Nokia's independent auditor for each of the fiscal years in the three-year period ended December 31, 2007. The independent auditor is elected annually by Nokia's shareholders at the Annual General Meeting for the fiscal 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 qualifications and independence of the auditor to be proposed for election or re-election on an annual basis. The following table sets forth the aggregate fees for professional services and other services rendered by PricewaterhouseCoopers to Nokia in 2007 and 2006. The aggregate fees for 2007 are set forth in total with a separate presentation of those fees related to Nokia and Nokia Siemens Networks. Audit committee pre-approval policies and procedures The Audit Committee of Nokia's Board of Directors is responsible, among other matters, for the oversight of the external auditor subject to the requirements of Finnish law. The Audit Committee has adopted a policy regarding pre-approval of audit and permissible non-audit services provided by Nokia's independent auditors (the "Policy"). Under the Policy, proposed services either (i) may be pre-approved by the Audit Committee without a specific case-by-case service approval ("general pre-approval"); or (ii) require the specific pre-approval of the Audit Committee ("specific preapproval"). The Audit Committee may delegate either type of pre-approval authority to one or more of its members. The appendices to the Policy set out the audit, audit-related, tax and other services that have received the general pre-approval of the Audit Committee. All other audit, audit-related (including services related to internal controls and significant M&A projects), tax and other services are subject to a specific pre-approval from the Audit Committee. All service requests concerning generally pre-approved services will be submitted to the Corporate Controller who will determine whether the services are within the services generally pre-approved. The Policy and its appendices are subject to annual review by the Audit Committee. The Audit Committee establishes budgeted fee levels annually for each of the four categories of audit and non-audit services that are pre-approved under the Policy, namely, audit, audit-related, tax and other services. Requests or applications to provide services that require specific approval by the Audit Committee are submitted to the Audit Committee by both the independent auditor and the Chief Financial Officer. 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. 2007 EURm Audit fees 1 Audit-related fees 2 Tax fees 3 All other fees 4 Total 1 2006 Total 18.0 27.9 7.3 0.2 53.4 Total 5.2 7.1 6.8 0.4 19.5 Nokia 5.3 3.6 5.0 0.2 14.1 Nokia Siemens Networks 12.7 24.3 2.3 -- 39.3 Audit fees consist of fees billed for the annual audit of the company's consolidated financial statements and the statutory financial statements of the company's subsidiaries. They also 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 fees for 2007 include EUR 2.9 million of accrued audit fees for the 2007 year-end audit that were not billed until 2008. There were no unbilled audit fees at year-end 2006. 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; financial due diligence in connection with provision of funding to customers, reports in relation to covenants in loan agreements; employee benefit plan audits and reviews; and audit procedures in connection with investigations and the compliance program implemented at Nokia Siemens Networks related to the Siemens' carrier-related operations transferred to Nokia Siemens Networks. The fees for 2007 include EUR 1.0 million of accrued audit related fees that were not billed until 2008. The fees for 2006 include EUR 1.5 million of accrued audit related fees that were not billed until 2007. The amounts paid by Nokia to PricewaterhouseCoopers include EUR 23.9 million and EUR 0.3 million that Nokia has recovered or will be able to recover from a third party for 2007 and 2006, respectively. 3 Tax fees include fees billed for (i) corporate and indirect compliance including preparation and/or review of tax returns, preparation, review and/or filing of various certificates and forms and consultation regarding tax returns and assistance with revenue authority queries; (ii) transfer pricing advice and assistance with tax clearances; (iii) customs duties reviews and advice; (iv) consultations and tax audits (assistance with technical tax queries and tax audits and appeals and advice on mergers, acquisitions and restructurings) and (v) personal compliance (preparation of individual tax returns and registrations for employees (non-executives), assistance with applying for visa, residency, work permits and tax status for expatriates) and (vi) consultation and planning (advice on stock based remuneration, local employer tax laws, social security laws, employment laws and compensation programs, tax implications on short-term international transfers). The tax fees for 2007 include EUR 2.1 million of accrued tax fees that were not billed until 2008. The tax fees for 2006 include EUR 0.4 million of accrued tax fees that were not billed until 2007. All other fees include fees billed for company establishment, forensic accounting, data security and occasional training or reference materials and services. 2 4 Corporate governance 85 Investor information Information on the Internet www.nokia.com/investors Available on the Internet: financial reports, Nokia management's presentations, conference call and other investor related material, press releases as well as environmental and social information. Investor relations contacts investor.relations@nokia.com Nokia Investor Relations 102 Corporate Park Drive White Plains, NY 10604 USA Tel. +1 914 368 0555 Fax +1 914 368 0600 Nokia Investor Relations P.O. Box 226 FI-00045 NOKIA GROUP Finland Tel. +358 7180 34927 Fax +358 7180 38787 Annual General Meeting Date: Thursday, May 8, 2008 at 3.00 pm Address: Helsinki Fair Centre, Amfi-hall, Messuaukio 1, Helsinki, Finland Stock exchanges The shares of Nokia Corporation are quoted on the following stock exchanges: Symbol HEX , Helsinki (quoted since 1915) Trading currency EUR EUR USD Dividend Dividend proposed by the Board of Directors for the fiscal year 2007 is EUR 0.53. The dividend record date is proposed to be May 13, 2008 and the pay date on or about May 27, 2008. NOK1V NOA3 NOK Frankfurter Wertpapierbrse (1988) New York Stock Exchange (1994) List of indices Financial reporting Nokia's quarterly reports in 2008 are planned for April 17, July 17, and October 16. The 2008 results are planned to be published in January 2009. NOK1V OMXN40 OMX Nordic 40 OMXH OMX Helsinki OMXH25 OMX Helsinki 25 HX45 OMX Helsinki Information Technology BE500 Bloomberg European 500 BETECH Bloomberg Telecommunication Equipment SX5E DJ Euro STOXX 50 SX5P DJ STOXX 50 E3X FTSE Eurofirst 300 NOK NYA NYSE Composite NYL.ID NYSE World Leaders NYYID NYSE TMT CTN CSFB Technology MLO Merrill Lynch 10 Information published in 2007 All Nokia's press releases as well as quartely results announcements and financial statements published in 2007 are available on the Internet at www.nokia.com. It should be noted that certain statements herein which are not historical facts, including, without limitation, those regarding: A) the timing of product, services and solution deliveries; B) our ability to develop, implement and commercialize new products, services, solutions and technologies; C) expectations regarding market growth, developments and structural changes; D) expectations regarding our mobile device volume growth, market share, prices and margins; E) expectations and targets for our results of operations; F) the outcome of pending and threatened litigation; G) expectations regarding the successful completion of contemplated acquisitions on a timely basis and our ability to achieve the set targets upon the completion of such acquisitions; and H) statements preceded by "believe," "expect," "anticipate," "foresee," "target," "estimate," "designed," "plans," "will" or similar expressions are forward-looking statements. These statements are based on management's best assumptions and beliefs in light of the information currently available to it. Because they involve risks and uncertainties, actual results may differ materially from the results that we currently expect. Factors that could cause these differences include, but are not limited to: 1) competitiveness of our product, service and solutions portfolio; 2) the extent of the growth of the mobile communications industry and general economic conditions globally; 3) the growth and profitability of the new market segments that we target and our ability to successfully develop or acquire and market products, services and solutions in those segments; 4) our ability to successfully manage costs; 5) the intensity of competition in the mobile communications industry and our ability to maintain or improve our market position or respond successfully to changes in the competitive landscape; 6) the impact of changes in technology and our ability to develop or otherwise acquire complex technologies as required by the market, with full rights needed to use; 7) timely and successful commercialization of complex technologies as new advanced products, services and solutions; 8) our ability to protect the complex technologies, which we or others develop or that we license, from claims that we have infringed third parties' intellectual property rights, as well as our unrestricted use on commercially acceptable terms of certain technologies in our products, services and solution offerings; 9) our ability to protect numerous Nokia and Nokia Siemens Networks patented, standardized or proprietary technologies from third-party infringement or actions to invalidate the intellectual property rights of these technologies; 10) Nokia Siemens Networks' ability to achieve the expected benefits and synergies from its formation to the extent and within the time period anticipated and to successfully integrate its operations, personnel and supporting activities; 11) whether, as a result of investigations into alleged violations of law by some current or former employees of Siemens AG ("Siemens"), government authorities or others take further actions against Siemens and/or its employees that may involve and affect the carrier-related assets and employees transferred by Siemens to Nokia Siemens Networks, or there may be undetected additional violations that may have occurred prior to the transfer, or ongoing violations that may have occurred after the transfer, of such assets and employees that could result in additional actions by government authorities; 12) any impairment of Nokia Siemens Networks customer relationships resulting from the ongoing government investigations involving the Siemens carrier-related operations transferred to Nokia Siemens Networks; 13) occurrence of any actual or even alleged defects or other quality issues in our products, services and solutions; 14) our ability to manage efficiently our manufacturing and logistics, as well as to ensure the quality, safety, security and timely delivery of our products, services and solutions; 15) inventory management risks resulting from shifts in market demand; 16) our ability to source sufficient amounts of fully functional components and sub-assemblies without interruption and at acceptable prices; 17) any disruption to information technology systems and networks that our operations rely on; 18) developments under large, multi-year contracts or in relation to major customers; 19) economic or political turmoil in emerging market countries where we do business; 20) our success in collaboration arrangements relating to development of technologies or new products, services and solutions; 21) the success, financial condition and performance of our collaboration partners, suppliers and customers; 22) exchange rate fluctuations, including, in particular, fluctuations between the euro, which is our reporting currency, and the US dollar, the Chinese yuan, the UK pound sterling and the Japanese yen, as well as certain other currencies; 23) the management of our customer financing exposure; 24) allegations of possible health risks from electromagnetic fields generated by base stations and mobile devices and lawsuits related to them, regardless of merit; 25) unfavorable outcome of litigations; 26) our ability to recruit, retain and develop appropriately skilled employees; 27) the impact of changes in government policies, laws or regulations; and 28) our ability to effectively and smoothly implement our new organizational structure; as well as the risk factors specified on pages 10-25 of Nokia's annual report on Form 20-F for the year ended December 31, 2007 under "Item 3.D Risk Factors." Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Nokia does not undertake any obligation to update publicly or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. 86 Nokia in 2007 Contact information Nokia Head Office Keilalahdentie 24 02150 Espoo P.O. Box 226, FI-00045 Nokia Group FINLAND Tel. +358 7180 08000 Fax +358 7180 38226 Nokia Corporate OfficeNew York 102 Corporate Park Drive White Plains, New York 10604 USA Tel. +1 914 368 0400 Fax +1 914 368 0501 Nokia Corporate OfficeTexas 6000 Connection Drive Irving, Texas 75039 USA Tel. +1 972 894 5000 Fax +1 972 894 5106 Nokia Asia-Pacific 438B Alexandra Road #07-00 Alexandra Technopark SINGAPORE 119968 Tel. +65 6723 2323 Fax +65 6723 2324 Nokia Middle East & North Africa Al Thuraya Tower II, 27th floor, Dubai Internet City Dubai, UAE Tel. +971 4 3697600 Fax +971 4 3697606 Investor information 87 Paper: Munken Lynx 100 g/m2 Cover: Munken Lynx 240 g/m2 Design: HardWorkingHouse Oy, cover: Louise Bostrm Oy. F.G. Lnnberg ISO 9001, 2008. Copyright 2008. Nokia Corporation. All rights reserved. Nokia and Nokia Connecting People are registered trademarks of Nokia Corporation. ...
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