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Nokia 6-K 2005

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Table of Contents



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

Report on Form 6-K dated February 28, 2005


Nokia Corporation
Nokia House
Keilalahdentie 4
02150 Espoo
Finland
(Name and address of registrant's principal executive office)


(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

Form 20-F ý    Form 40-F o

Enclosures:

    1.
    Nokia Corporation, Proxy Material for registered ADR Holders for Annual General Meeting on April 7, 2005




LOGO   LOGO

THE ENCLOSED MATERIALS ARE TIME SENSITIVE. VOTING CARDS MUST BE RECEIVED FROM ADR HOLDERS BEFORE 5:00 P.M. (NEW YORK CITY TIME) ON MARCH 21, 2005, WHICH IS THE VOTING DEADLINE.


NOKIA CORPORATION
Proxy Material for

Annual General Meeting

On April 7, 2005 at 3 P.M. (Helsinki Time)

At Hartwall Areena
Veturitie 13, Helsinki, Finland

Materials Enclosed:

Depositary's Notice of Annual General Meeting of Nokia Corporation

Questions and Answers on the Voting Process

Nokia Corporation's Notice of Annual General Meeting

Questions and Answers on the Notice and Agenda of Annual General Meeting

Nokia's Corporate Governance and Nomination Committee's proposal on the composition of the Board of Directors of Nokia Corporation

Voting Card

Annual Accounts (prepared under IAS) of Nokia Corporation

Delivery of Shareholder Documents

* For registered ADR Holders only.

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Depositary's Notice of
Annual General Meeting of
Nokia Corporation

ADSs:   American Depositary Shares ("ADSs") evidenced by American Depositary Receipts ("ADRs").

ADS CUSIP No.:

 

654902204.

Deposited Securities:

 

Shares, par value 0.06 euro each, of Nokia Corporation (the "Company").

ADS Ratio:

 

1 Share to 1 ADS.

Depositary:

 

Citibank, N.A.

Deposit Agreement:

 

Amended and Restated Deposit Agreement, dated as of March 28, 2000, as amended from time to time, by and among the Depositary, the Company and the Holders from time to time of ADRs evidencing ADSs issued thereunder.

TIMETABLE

 

 
 
February 2, 2005

 

ADS Record Date
Date on which ADR Holders are required to be record holders of the Company's ADSs in order to receive proxy material.
 
March 21, 2005
5:00 P.M.
(New York City time)

 

Voting Deadline
Date and time on which ADR Holders are required to have provided instructions to the Depositary to (i) vote their ADSs and (ii) temporarily record them on the Register of Shareholders of the Company as of the Finnish Record Date.
 
March 25, 2005

 

Reconciliation of Voting Position
Any transfers between March 22 and close of business on March 25 will be reconciled for the correct voting position as of the Finnish Record Date.
 
March 28, 2005

 

Finnish Record Date
Date on which ADR Holders are required to be recorded on the Register of Shareholders of the Company in order to vote at the Meeting.
 
April 7, 2005
3:00 P.M.
(Helsinki time)

 

Meeting Date
Date on which the Company will hold its Annual General Meeting 2005 (the "Meeting").

A RECORD HOLDER OF THE COMPANY'S ADSs AS OF THE CLOSE OF BUSINESS ON MARCH 25, 2005 WHO HAS PROVIDED VOTING INSTRUCTIONS TO THE DEPOSITARY BY THE VOTING DEADLINE, WILL BE TEMPORARILY RECORDED ON THE REGISTER OF SHAREHOLDERS OF THE COMPANY ON THE FINNISH RECORD DATE WITHOUT ANY FURTHER ACTION. THE QUESTIONS AND ANSWERS ON PAGES 4 AND 10 SHOULD ANSWER MOST OF YOUR QUESTIONS RELATED TO THE VOTING PROCESS AND THE AGENDA ITEMS OF THE MEETING.

THE ANNUAL ACCOUNTS (PREPARED UNDER IAS), THE PROPOSALS BY THE BOARD OF DIRECTORS OF THE COMPANY TO THE AGM AND OTHER ADDITIONAL INFORMATION RELATED TO THE MEETING ARE AVAILABLE AT http://www.nokia.com/agm AND http://www.citibank.com/adr

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(click on "Nokia AGM"). NOKIA'S FORM 20-F ANNUAL REPORT FOR 2004 WILL BE MADE AVAILABLE ON THE SAME WEBSITE WHEN FILED.

If you are a registered holder of ADSs, Nokia's Annual Accounts (prepared under IAS) for 2004 is among the enclosed materials. In addition, Nokia's Form 20-F Annual Report for 2004 will be mailed to you when filed. If you are a beneficial holder of ADSs, you are advised to either access the annual accounts and later Nokia's Form 20-F Annual Report through the Internet, or to request a hard copy from Nokia Investor Relations US Main Office, please call 1-914-368-0555.

The enclosed materials are provided to allow you to vote at the Meeting of the Company. There are four alternative ways for voting:

a)
Through the Internet: if you are a registered ADR Holder, i.e. you do not hold your ADSs through a custodian, broker or other agent, follow these instructions:

Access the World Wide Web site: http://www.citibank.com/adr;

Click on "Investors" and then click on "Voting by Internet";

Input the number in the grey shaded box (located on the bottom portion of your Voting Card); and

Complete the Voting Instructions provided on the Internet site by the Voting Deadline.

If you hold your ADSs through a custodian, broker or other agent and you wish to vote through the Internet, you should refer to other information provided by your agent.

b)
On the Telephone: if you are a registered ADR Holder, i.e. you do not hold your ADSs through a custodian, broker or other agent, follow these instructions:

Call the telephone voting access number: 1-877-779-8683;

Enter the number in the grey shaded box (located on the bottom portion of your Voting Card); and

Complete the Voting Instructions as indicated on a recording by the Voting Deadline.

If you hold your ADSs through a custodian, broker or other agent and you wish to vote on the telephone, you should refer to other information provided by your agent.

c)
By Mailing the Voting Card, please

Complete all of the required information on the Voting Card;

Sign the Voting Card; and

Return the Voting Card by the Voting Deadline to Citibank, N.A., P.O. Box 8527, Edison, New Jersey 08818-9395.

If you hold your ADSs through a custodian, broker or other agent, you may have special instructions from your agent.

d)
Moreover, you may attend the Meeting in person in Helsinki, Finland. Please see the instructions in the attached Questions and Answers.

By voting through the Internet or on the telephone or by signing and returning the Voting Card, you are:

    Certifying that you are a record holder of ADSs as of the close of business on March 25, 2005;

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    Instructing the Depositary to arrange for the temporary recording of the Deposited Securities represented by your ADSs in your name on the Register of Shareholders of the Company, on the Finnish Record Date of March 28, 2005;

    Instructing the Depositary to vote your Deposited Securities in the manner indicated in the Internet or Telephone Voting Instructions or Voting Card; and

    Authorizing and directing the disclosure of your name, address, number of Deposited Securities held and account number to the Depositary, the Company, and the Finnish Registrar for the purpose of temporarily recording your name on the Register of Shareholders of the Company.

PLEASE NOTE THAT YOUR VOTING INSTRUCTIONS WILL NOT BE PROCESSED AND YOUR VOTES WILL NOT BE COUNTED IF YOU DO NOT SIGN (IF APPLICABLE) OR COMPLETE ALL REQUIRED INFORMATION, INCLUDING YOUR NAME, ADDRESS AND ACCOUNT NUMBER.

Please note that the Deposit Agreement provides that, in connection with the Meeting the Depositary shall not be responsible for instructions not carried out or for the manner in which such instructions are carried out or the effect of any such action or omission, provided that such action or omission is without negligence and in good faith.

If you have any questions concerning the enclosed material or if you need further explanation of the questions covered therein, please call Citibank, N.A., ADR Services at 1-877-NOKIA-ADR (1-877-665-4223).

You may also find additional information on the Internet pages http://www.citibank.com/adr.

* * * * * * * * * *
Citibank, N.A., as Depositary

The information contained in this notice regarding the Meeting has been provided by the Company. Citibank, N.A. is forwarding this information to you solely as Depositary and in accordance with the terms of the Deposit Agreement and disclaims any responsibility with respect to the accuracy or completeness of such information. Citibank, N.A. does not, and should not be deemed to, express any opinion with respect to the proposals to be considered at the Meeting.

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LOGO   LOGO

Questions and Answers

Which ADR Holders are entitled to vote?

ADR Holders who are record holders of the Company's ADSs on the ADS Record Date of February 2, 2005 will receive the proxy material. Those ADR Holders who are record holders of the Company's ADSs as of the close of business on March 25, 2005 are entitled to vote at the Meeting, although their voting position will be reconciled as of the Finnish Record Date March 28, 2005.

How does an ADR Holder vote?

Registered ADR Holder

If you are a registered ADR Holder, i.e. you do not hold your ADSs through a custodian, broker or other agent, you may vote at the Meeting either through the Internet, on the telephone, by the Voting Card sent via mail or by attending the Meeting in person by following the instructions provided in this proxy booklet.

ADR Holder holding his/her ADSs through a custodian, broker or other agent.

If you hold your ADSs through a custodian, broker or other agent, you should, in order to vote at the Meeting, refer to information provided by your agent.

How can I vote through the Internet?

If you are a registered ADR Holder, i.e. you do not hold your ADSs through a custodian, broker or other agent, you can vote through the Internet by accessing the Citibank World Wide Web site http://www.citibank.com/adr. Click on "Investors"and then on "Voting by Internet", input the number in the grey shaded box (located on the bottom portion of your Voting Card) and complete the Voting Instructions by the Voting Deadline of March 21, 2005. If you hold your ADSs through a custodian, broker or other agent, you should, in order to vote through the Internet, refer to information provided by your agent.

How can I vote on the telephone?

If you are a registered ADR Holder, i.e. you do not hold your ADSs through a custodian, broker or other agent, you can vote over the telephone by calling: 1-877-779-8683. Input the number in the grey shaded box (located on the bottom portion of your Voting Card) and complete the Voting Instructions by the Voting Deadline of March 21, 2005. If you hold your ADSs through a custodian, broker or other agent, you should, in order to vote on the telephone, refer to information provided by your agent.

How can I vote by Voting Card sent via mail?

As an ADR Holder you can also vote by completing the enclosed Voting Card, signing it and returning it to the Depositary in the envelope provided herewith, by the Voting Deadline of March 21, 2005. If you hold your ADSs through a custodian, broker or other agent, you may have additional delivery instructions.

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How can I vote by attending the Meeting in person?

As an ADR Holder you can vote in person at the Meeting in Helsinki, Finland by temporarily becoming a direct and registered shareholder on the Register of Shareholders of the Company as of the Finnish Record Date of March 28, 2005 and by notifying the Company of your intention to attend the Meeting in person.

If you wish to become a direct and registered shareholder of the Company and attend the Meeting in person, please:

    (i)
    contact and instruct (if you are a registered ADR Holder) or have your agent contact and instruct (if you hold your ADSs through a custodian, broker or other agent) Citibank's ADR Services at 1-877-NOKIA-ADR (1-877-665-4223) by the Voting Deadline of March 21, 2005, to register you temporarily as a direct and registered shareholder on the Register of Shareholders of the Company as of the Finnish Record Date of March 28, 2005; and

    (ii)
    contact the Company to give notice of your attendance at the Meeting no later than April 1, 2005, as indicated in the Company's Notice of Annual General Meeting on pages 8-9 of this proxy booklet.

If you wish to authorize your own representative to attend the Meeting in person on your behalf, you must, in addition to following the requirements set forth above, issue a dated and signed proxy to him/her. The proxy should be received at the Register of Shareholders of the Company no later than April 1, 2005, as indicated in the Company's Notice of Annual General Meeting on pages 8 and 9 of this booklet.

What is the Finnish Record Date?

According to Finnish law, a shareholder must be recorded on the Register of Shareholders of the Company ten days prior to the Meeting, i.e. on the Finnish Record Date of March 28, 2005, in order to be entitled to vote at the Meeting. This means that although you have voted correctly before 5:00 P.M. on March 21, 2005, your voting position will be reconciled as of the Finnish Record Date.

Will I be recorded on the Register of Shareholders of the Company on the Finnish Record Date?

Yes. If you are a record holder of the Company's ADSs as of the close of business on March 25, 2005, and you have provided your voting instructions to the Depositary as instructed in this proxy booklet, you will be automatically recorded on the Register on a temporary basis.

Are there any other requirements in connection with the Finnish Record Date?

No. Being a record holder of the Company's ADSs as of the close of business on March 25, 2005 and providing voting instructions to the Depositary by the Voting Deadline automatically ensures that the ADR Holder will be temporarily recorded on the Register of Shareholders of the Company on the Finnish Record Date of March 28, 2005.

What is the temporary recording of the Deposited Securities on the Company's Register of Shareholders and why is it required?

As mentioned above, only shareholders registered on the Register of Shareholders of the Company on the Finnish Record Date of March 28, 2005, may vote at the Meeting. As an ADR Holder, in the normal course, your Deposited Securities are registered on the Register of Shareholders of the Company in the name of Citibank's local custodian. For you to vote at the Meeting, the Deposited Securities underlying your ADSs must be temporarily re-recorded from Citibank's local custodian's

6



name to your name on the Register of Shareholders of the Company as of the Finnish Record Date. This is done temporarily for the purpose of voting at the Meeting only.

What happens if the Internet Voting Instructions, the Telephone Voting Instructions or the Voting Card are incompletely executed? What must the Internet Voting Instructions, the Telephone Voting Instructions or the Voting Card contain in order to be completely executed?

If you do not provide all the information requested in the Internet Voting Instructions, the Telephone Voting Instructions, or the Voting Card, your votes will not be counted.

The following information (included in your Internet Voting Instructions, Telephone Voting Instructions or on your Voting Card) is required for the votes to be counted:

    Signature (only applicable for written instructions);

    Address;

    Number of Deposited Shares held; and

    Account number.

The address and account number must be provided for the "beneficial owner"—the person or corporate entity (ex. corporation, partnership, etc.) owning the beneficial interest in the ADR.

If a broker, custodian or other agent signs for his/her client (who is the beneficial owner of the ADSs), such agent must give the name and address for the beneficial owner (if an individual), and provide some evidence to the Depositary that it has the full authority to vote on behalf of the beneficial owner of the ADSs. Brokers, custodians or other agents fulfilling these requirements should also fill in the "Agent Authorization Form" provided to them separately.

How do I vote for the election of the members of the Board of Directors?

You can (i) vote "FOR" the election of all nominees, (ii) "WITHHOLD" your vote from all nominees; or (iii) WITHHOLD your vote from certain nominees. In the event that you wish to vote for some but not all the nominees, simply insert the number corresponding to the nominee(s) for whom you intend to withhold your vote in the space provided on the Voting Card.

Can voting instructions be changed?

Yes, voting instructions may be changed at any time prior to the Voting Deadline of 5:00 P.M. (New York City time) on March 21, 2005 by completing new Voting Instructions on the Internet Voting website, by giving new Telephone Voting Instructions at 1-877-779-8683 or by calling Citibank's ADR Services at 1-877-NOKIA-ADR (1-877-665-4223) and requesting a new Voting Card and returning the new and completed Voting Card to the Depositary.

Please note that the last instructions received by the Depositary (whether it be a new Voting Card, Internet Voting Instructions, or Telephone Voting Instructions) by the Voting Deadline will be the Voting Instructions followed by the Depositary.

Can custodians, brokers or other agents vote via the Citibank World Wide Web site?

No. Custodians, brokers or other agents must follow the standard practices provided by their agents and The Depository Trust Company.

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What information is required from me to vote my ADSs?

Finnish law and regulations require at the minimum the following information from a beneficial owner:

    Name;

    Address;

    Number of Deposited Securities held; and

    Identification number (i.e. account number).

Please note that by voting your ADSs, you are authorizing your bank, broker, or nominee to disclose the above-mentioned information to the Depositary, the Company, and the Finnish Registrar for the purpose of temporarily recording your name on the Company's Register of Shareholders. Without disclosure of this information, your votes will not be counted.

Is it possible to receive proxy materials over the Internet?

Yes. Nokia is capable of providing you with all mailings of Nokia shareholder documents (such as disclosure documents, proxy material, etc.) in a timely manner as well as, convenient and cost-effective over the Internet. Please see the enclosed leaflet "Delivery of Shareholder Documents via the Internet" with respect to instructions on receiving the documents over the Internet.

"Householding" of shareholder documents

In December 2000, the Securities and Exchange Commission ("SEC") adopted a rule allowing companies to send a single set of shareholder documents, such as proxy materials, information statements or other disclosure documents to any household at which two or more ADR Holders reside. This process is commonly referred to as "householding". The shareholder documents that are affected by the SEC rule are: Annual Reports, proxy materials, information statements or other disclosure documents. The rule does not apply to the proxy card. Each registered ADR holder will continue to receive a separate proxy card.

Householding will not only reduce the volume of duplicate information received at your household, but it will also help Nokia to reduce its operating expenses. For these reasons, Nokia is taking advantage of the rule.

A number of custodians, brokers and other agents with account holders who are Nokia ADR Holders will be "householding", i.e. sending a single set of proxy materials to multiple ADR Holders sharing an address, unless contrary instructions have been received from an affected ADR Holder. Once you have received notice from your custodian, broker, other agent or the Company that they will be "householding" shareholder documents, "householding" will continue until you are notified otherwise or until you revoke your consent.

This year, Nokia will be "householding", i.e. sending a single set of proxy materials to multiple ADR Holders sharing an address who held Nokia ADRs on February 2, 2005, unless contrary instructions have been received from an affected ADR Holder. If you did not respond to last year's notice of Nokia's intention to "household" shareholder documents, "householding" will continue until you are notified otherwise or until you revoke your consent.

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Registered ADR Holder

If you are a registered ADR Holder, i.e. you do not hold your ADSs through a custodian, broker or other agent, and wish to receive a single set of shareholder documents at your household, you must do the following:

A.
If you have the same last or family name as the other ADR holder(s) at you address, you do not need to take any sort of action. Unless you notify us by April 7, 2005, your household will begin receiving a single set of our shareholder documents.

B.
If you have a different last or family name from the other ADR holder(s) at your address, you and the other ADR holder(s) must provide written consent to receive a single set of materials. Your consent can be provided by completing the enclosed form and returning it with your proxy material to Citibank, N.A. Shareholder Services, P.O. Box 8963, Edison, NJ 08818-9303 or by faxing the completed form to 201-222-4593.

If you prefer to continue to receive your own set of our shareholder documents, please contact Citibank, N. A., on or before April 7, 2005 by calling its toll-free number, 1-877-NOKIA-ADR (1-877-665-4223), and informing them of your request.

Please be aware that your consent will remain in effect until you revoke it. You can revoke your consent at any time by contacting Citibank, N. A. and informing them of your request. This can be done by calling to the toll-free number, 1-877-NOKIA-ADR (1-877-665-4223) or by directing your written request to Citibank, NA., Shareholder Services, P.O. Box 8963, Edison, NJ 08818-9303, 201-222-4593. Your request to begin receiving your own set of shareholder documents will be effective within 30 days of your request.

ADR Holder holding his/her ADSs through a custodian, broker or other agent

If you hold your ADSs through a custodian, broker or other agent, please notify your custodian, broker or other agent by telephone or direct your written request to them in accordance with the instructions you have received from them. Your request to receive your own set of shareholder documents will be effective within 30 days of your request.

How can my household receive a single set of proxy materials in the future?

Registered ADR Holder

If you are a registered ADR Holder, i.e. you do not hold your ADSs through a custodian, broker or other agent, and have not already received a single set of proxy materials or other shareholder documents as described above, please call 1-877-NOKIA-ADR (1-877-665-4223) or direct your written request to Citibank, NA., Shareholder Services, P.O. Box 8963, Edison, NJ 08818-9303, 201-222-4593. Your request to begin receiving your own set of shareholder documents will be effective within 30 days of your request.

ADR Holder holding his/her ADSs through a custodian, broker or other agent

If you hold your ADSs through a custodian, broker or other agent, please refer to the information provided by them.

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GRAPHIC

Notice is given to the shareholders of Nokia Corporation (the "Company") of the
Annual General Meeting to be held on Thursday, April 7, 2005 at 3:00 p.m. at
Hartwall Areena, Veturitie 13, Helsinki, Finland. Registration of the persons
who have given a prior notice to attend will commence at 1:30 p.m.

The matters specified in Article 12 of the Company's Articles of Association as well as the following other matters, will be on the agenda of the Meeting as follows:

1.     Presentation of the Annual Accounts

2.     Approval of the Income Statements and Balance Sheets

3.     Handling of the profit for the year, payment of dividend

    The Board of Directors has decided to propose to the Annual General Meeting a dividend for the fiscal year 2004 of EUR 0.33 per share. The dividend will be paid to shareholders registered in the Register of Shareholders held by Finnish Central Securities Depository Ltd on the record date, April 12, 2005. The Board proposes that the dividend be paid on or about April 22, 2005.

4.     Discharging of the Chairman, the members of the Board of Directors, and the President, from liability

5.     Resolution on the remuneration payable to the members of the Board of Directors

6.     Resolution on the number of the members of the Board of Directors

    The Corporate Governance and Nomination Committee of the Board will propose to the Annual General Meeting that the number of Board members will be increased from eight to ten.

7.     Election of the members of the Board of Directors

    The Corporate Governance and Nomination Committee of the Board will propose to the Annual General Meeting that all the present Board members—Paul J. Collins, Georg Ehrnrooth, Bengt Holmström, Per Karlsson, Jorma Ollila, Marjorie Scardino, Vesa Vainio and Arne Wessberg—be re-elected until the closing of the following Annual General Meeting. In addition, the Committee will propose that Dan Hesse and Edouard Michelin be elected as new members of the Board for the same one-year term. Hesse is a member of the Terabeam Wireless board of directors. Michelin is the CEO of Michelin Group.

8.     Auditor remuneration

    The Board's Audit Committee will propose for the General Meeting's approval that the external auditor that will be elected, be reimbursed according to the auditor's invoice, and in compliance with the purchase policy approved by the Board's Audit Committee.

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9.     Election of the Auditor

    The external Auditor is elected by the shareholders at the Annual General Meeting, for one fiscal year at a time. The Audit Committee of the Board has evaluated the performance and the independence of the current auditor of Nokia, PricewaterhouseCoopers Oy, for the fiscal year 2004.

    The Audit Committee recommends the re-election of PricewaterhouseCoopers Oy for the fiscal year 2005.

10.  Proposal by the Board of Directors to grant stock options to selected personnel of Nokia

    The Board of Directors proposes that as a part of Nokia's equity-based incentive program 2005 selected personnel of Nokia Group and a fully owned subsidiary of Nokia Corporation be granted a maximum of 25 000 000 stock options, which entitle to subscribe for a maximum of 25 000 000 new Nokia shares. The intention is to grant stock options under the plan during the next two years.

    The share subscription price (i.e. exercise price) applicable upon exercise of the stock option will be regularly determined for the stock options to be subsequently granted on a quarterly basis and, subject to the resolution by the Board, on a monthly basis. According to the determination of the exercise price either quarterly or monthly, the stock options will also be divided into subcategories.

    The share subscription price for each subcategory of stock options will equal the trade volume weighted average price of Nokia shares on the Helsinki Exchanges for the first whole week of the second month of the calendar quarter (i.e. February, May, August or November) or for the monthly priced stock options, the first whole week of such calendar month, respectively.

    Share subscription period (i.e. exercise period) will commence no earlier than July 1, 2006, and terminate no later than December 31, 2011 in accordance with the Board's resolution to be taken at a later time.

    The Company's plan for its Equity program 2005 is available on the Company's website at www.nokia.com/agm.

11.  Proposal by the Board of Directors to reduce the share capital through cancellation of shares

    The Board of Directors proposes that the share capital be reduced by a minimum of EUR 10 560 000 and a maximum of EUR 13 800 000 through cancellation of a minimum of 176 000 000 and a maximum of 230 000 000 Nokia shares held by the Company prior to the Annual General Meeting.

    The Board proposes that the share capital be reduced by transfer of the aggregate par value of the shares to be cancelled from the share capital to the share premium capital.

    The cancellation comprises solely Nokia shares held by the Company and will have no effect on the relative holdings of the other shareholders of the Company and on the voting powers among them.

12.  Proposal by the Board of Directors to authorize the Board of Directors to resolve to increase the share capital

    The Board of Directors proposes that the Annual General Meeting authorize the Board to resolve to increase the share capital of the Company with a maximum of EUR 53 160 000. As

11


    a result of share issuance an aggregate maximum of 886 000 000 new shares may be issued, at a subscription price and on the terms and conditions as decided by the Board.

    The Board proposes that it be authorized to disapply the shareholders' pre-emptive rights to the Company's shares provided that from the Company's perspective important financial grounds exist. It is proposed that the Board be authorized to determine that a share subscription may be made against payment in kind or otherwise on certain terms.

    The authorization is proposed to be effective until April 7, 2006.

13.  Proposal by the Board of Directors to authorize the Board of Directors to resolve to repurchase Nokia shares

    The Board of Directors proposes that the Annual General Meeting authorize the Board to resolve to repurchase a maximum of 443 200 000 Nokia shares by using funds available for distribution of profits. The proposed amount corresponds to nearly 10 percent of the share capital of the Company and the total voting rights. The proposal is based on the assumption that the amendment of the Finnish Companies Act will be passed by the Parliament prior to or during the validity of the proposed authorization.

    In the event that the proposed amendment does not enter into force, the authorization for the Board shall amount to a maximum of 221 600 000 Nokia shares. The amount corresponds to a maximum of 5 percent of the Company's share capital or total voting rights as permitted by the current law.

    The shares can be repurchased either

    a)
    through a tender offer made to all the shareholders on equal terms and for an equal price determined by the Board; or

    b)
    through public trading in which case the shares will be repurchased in another proportion than that of holdings of the current shareholders. The Company may enter into derivative, share lending or other arrangements within applicable regulatory limits, whereby the repurchase price is based on the market price of the Nokia share in public trading.

    The shares may be repurchased in order to develop the capital structure of the Company, to finance or carry out acquisitions or related arrangements, to settle the Company's equity-based incentive plans, to be transferred for other purposes, or to be cancelled. Repurchases will reduce the Company's distributable retained earnings.

    The authorization is proposed to be effective until April 7, 2006.

14.  Proposal by the Board of Directors to authorize the Board of Directors to resolve to dispose Nokia shares held by the Company

    The Board of Directors proposes that the Annual General Meeting authorize the Board to resolve to dispose a maximum of 443 200 000 Nokia shares. However, the authorization is not proposed to exceed the authorization to be approved for repurchases of the Company's own shares.

    The authorization includes that the Board has the right to resolve to whom, under which terms and conditions and how many shares are disposed. The shares may be disposed at a price determined by the Board, also for consideration in kind. The authorization also allows the Board to resolve to dispose the shares in another proportion than that of the shareholders'

12



    pre-emptive rights to the Company's shares, provided that from the Company's perspective important financial grounds exist.

    The authorization is proposed to be effective until April 7, 2006.

Annual Accounts 2004 and the proposals by the Board of Directors

The proposals by the Board presented under items 10 through 14 above are available at Nokia's Internet pages at www.nokia.com/agm no later than as of February 9, 2005. Paper copies of these documents with enclosures and the Annual Accounts of the Company are on display at the Head Office of the Company at Nokia House, Keilalahdentie 4, Espoo, Finland, as from March 31, 2005. The copies of the documents will be sent to shareholders upon request, and they are also available at the Meeting.

Right to Attend and to Vote at the Meeting

In order to attend and have a right to vote at the Meeting,

1)
a shareholder must be registered in the Register of Shareholders of Nokia, held by Finnish Central Securities Depository Ltd., on Monday, March 28, 2005; and;

2)
a shareholder must give to Nokia a prior notice to attend the Meeting by 4:00 p.m. (Finnish time) on Friday, April 1, 2005.

Registration in the Register of Shareholders

In order to attend the Meeting, shareholders who hold their shares under a name of a nominee must contact their bank, broker or other custodian to be temporarily recorded in the Register of Shareholders. The recording must be made effective no later than on March 28, 2005.

Prior Notice to Attend

A prior notice to attend the Meeting may be given either

    a)
    through Nokia's Internet pages at www.nokia.com/agm (available only for directly registered shareholders);

    b)
    by letter to the Registry of Shareholders, Nokia Corporation, P.O. Box 226, FlN-00045 NOKIA GROUP;

    c)
    by telefax to +358 7180 38984; or

    d)
    by telephone to +358 7180 34700 from Monday to Friday at 10:00 a.m.—4:00 p.m. (Finnish time).

The notice should arrive at the Company by 4:00 p.m. (Finnish time) on Friday, April 1, 2005.

Advance Delivery of Proxies

Possible proxies for representing a shareholder at the Meeting shall arrive to the Registry of Shareholders of the Company no later than on Friday, April 1, 2005, at 4:00 p.m. (Finnish time).

Espoo, January 27,2005
BOARD OF DIRECTORS

13


LOGO   LOGO

Questions and Answers on the Notice and Agenda of the Annual General Meeting

The Company has provided Citibank with the following information with respect to the Agenda of the Meeting as numbered in the Voting Instruction. Nokia encourages its shareholders to exercise their right to vote. Approximately 25% of Nokia's ownership is represented by ADR Holders, and although the majority of those shareholders outside Finland will not attend Nokia's Annual General Meeting in person, their voices can be heard via their vote.

What does the presentation of the Annual Accounts under item 1 mean?

The Annual Accounts comprise an income statement, balance sheet and the notes thereto, the report by the Board of Directors as well as the consolidated annual accounts. The presentation of the Annual Accounts is a non-votable item, but an ADR Holder may cast a vote for or against the approval of the Income Statements and Balance Sheets under item 2, or abstain.

What is the dividend amount proposed by the Board of Directors of Nokia?

Nokia's Board of Directors proposes, under item 3, a dividend of EUR 0.33 per share to be distributed for the financial year 2004. In addition to the cash dividend, Nokia's Board of Directors also projects share repurchases in 2005 with up to EUR 5 billion. Under item 13, Nokia's Board of Directors proposes an authorization to repurchase Nokia shares.

When will I receive the dividend?

The dividend will be paid to the Depositary on April 22, 2005, and will then be distributed to all shareholders shortly thereafter either directly to you or through your broker. The dividend pay date in the United States is estimated to be on or about April 29, 2005.

What does discharging of the Chairman, the members of the Board of Directors and the President from liability under item 4 mean?

This is one of the standard matters voted at during Nokia's shareholder's meetings, which according to Finnish mandatory law must be discussed and resolved at each Annual General Meeting for the preceding financial year. In principle, the resolution provides a release from liability towards the company for the Chairman and the members of the Board and the President, for matters occurred in the financial year 2004. This release from liability will only cover matters that are within the knowledge of Nokia and the shareholders when the resolution is taken, and are valid only provided that the resolution of the meeting is made legally in proper order.

Is it possible to vote on the nomination of members to the Board of Directors?

Yes. An ADR Holder may either cast a vote of support for the Corporate Governance and Nomination Committee's proposal of the number of members under 6 and membership under 7, or abstain. It is also possible to withhold votes from individual candidates proposed by the Corporate Governance and Nomination Committee.

ADR Holders cannot vote against the Corporate Governance and Nomination Committee's proposal, as it is only possible to make counter proposals and also cast a vote of support for such counter proposals at the actual Meeting. The Corporate Governance and Nomination Committee's proposal under item 7 is on page 13 of this proxy booklet.

14



Why is it not possible to vote on the remuneration to be paid to the members of the Board of Directors?

At the time when the proxy material is distributed, the proposal under the agenda item 5, remuneration proposed to be paid to the members of the Board is not yet available. Under Finnish law, proposals and counterproposals may be made with respect to this agenda item up to and during the Meeting, and a vote of support for such proposals can be cast only at the actual Meeting. Therefore, ADR holders cannot vote on this agenda item.

Historical information about the remuneration paid to the members of the Board of Directors for years 2002-2004 is included in our Annual Accounts for 2004, and our Form 20-F Annual Report for 2004, when filed.

What does the proposal regarding auditor remuneration mean?

The Board's Audit Committee oversees the qualifications and independence of the company's external auditor. This includes the adoption of the pre-approval policy for the purchase of audit and non-audit services from the external auditor, as well as overseeing the compliance with such policy.

In addition to the proposal on the election of auditor under item 9, the Audit Committee will also propose, under item 8, for the General Meeting's approval that the external auditor would be reimbursed according to the auditor's invoice to the company, and in accordance with the purchase policy approved by the Audit Committee.

The total audit and audit-related fees paid by Nokia Group to the external auditor for the fiscal period 2003 amounted to EUR 5.5 million and in 2004 to EUR 5.2 million. The Audit Committee does not expect the amount of fees payable to the external auditor during the current fiscal period to change materially from the 2004 level.

What does the statement of the Audit Committee of the Board mean in respect of election of the Auditor?

Under Finnish law, shareholders of the Company elect the external Auditor at the Annual General Meeting for one fiscal year at a time. The role of Nokia's Audit Committee is, among other things, to confirm the independence of the external Auditor and oversee the overall performance of the Auditor subject to the requirements of Finnish law. The Audit Committee has evaluated the performance and the independence of the current auditor of Nokia, PricewaterhouseCoopers Oy, for the fiscal year 2004. Based on its evaluation, the Audit Committee recommends the re-election of PricewaterhouseCoopers Oy for the fiscal year 2005.

Why does the Board of Directors propose granting stock options to selected personnel of Nokia under item 10?

Equity-based incentives are a part of Nokia's compensation program. The compensation program includes performance related and discretionary elements, the purpose of which is to reward achievement, and retain talented and critical employees in the company.

Nokia competes for the talented people on a global basis, and for this purpose needs incentive programs that are competitive. The combined use of Performance Shares, which are the main element in Nokia's equity-based compensation program, and stock options builds a well-balanced combination of share-based compensation elements for Nokia's award model. The program aligns the potential value received by participants directly with the performance of the company, and in line with shareholders' interests.

15



A resolution under item 10 requires a qualified majority of the votes cast, as well as of the shares represented at the meeting. ADR Holders form a significant number of Nokia shares represented at the Meeting. Therefore, in order for the Board to receive the approval proposed, the Company encourages ADR Holders to vote for the Board's proposal under this item. Please see the complete proposal by the Board of Directors, as well as related press releases on the internet at http://www.citibank.com/adr and http://www.nokia.com/agm.

Why does the Board of Directors propose to cancel shares and reduce the share capital under item 11?

The Board of Directors has by December 31, 2004 used part of the authorization by the Annual General Meeting held on March 25, 2004 to repurchase Nokia shares through public trading. As a result of the repurchases, the Company held a total of 176 000 000 Nokia shares as of December 31, 2004, having spent EUR 2 012 million for repurchases. The authorization is still valid until March 25, 2005, for 54 000 000 shares.

The Board proposes that the share capital be reduced through cancellation of these Nokia shares held by the Company as well as any shares possibly repurchased until the Annual General Meeting 2005. The reduction of the share capital will have no effect on the relative holdings of other shareholders of the Company or on the voting powers among them.

Under current Finnish law, repurchase of shares may not result in Nokia Group holding more than 5 percent of the registered share capital or the total voting rights of the company at any time. Therefore, if shares previously acquired by Nokia through repurchases are not cancelled, these shares will limit planned repurchases in the future. The Board has on January 27, 2005 announced its projection for a share purchase plan also during 2005.

What do the authorizations under items 12 - 14 mean?

As a Finnish company Nokia may not, pursuant to mandatory Finnish law, issue new shares, repurchase Nokia shares or dispose them without shareholders' approval, or a shareholders' authorization to the Board for these actions. The Nokia Board proposes an extension of the authorizations it presently holds to issue new shares, as well as repurchase and/or dispose Nokia shares. Such authorizations are only valid for the year following the approval.

Related to the proposed authorization to repurchase shares under item 13, the Board has on January 27, 2005 announced its projection for a stock repurchase plan with up to EUR 5 billion as a means to develop Nokia's capital structure. A share repurchase plan has also been carried out during 2003 and 2004. In addition, pursuant to the Board's proposal, the authorization to repurchase shares may be used to carry out financing or other arrangements.

The proposed amount of authorization corresponds to nearly 10 percent of the share capital of the Company and the total voting rights. The proposal is based on the assumption that the amendment of the Finnish Companies Act will be passed by the Parliament prior to or during the validity of the proposed one-year authorization. In the event that the proposed amendment does enter into force, but this is later than as of April 7, 2005, the authorization for the Board shall amount to the proposed 443 200 000 shares only from such date, and until then, to a maximum of 5 percent of the Company's share capital or total voting rights as permitted by the current law.

A resolution under items 12-14 requires a qualified majority of the votes cast, as well as of the shares represented at the meeting. ADR Holders form a significant number of Nokia shares represented at the Meeting. Therefore, in order for the Board to receive the authorizations proposed, the Company encourages ADR Holders to vote under these items. Please see the

16



complete proposals by the Board of Directors on Internet, as well as related press releases http://www.citibank.com/adr and http://www.nokia.com/agm.

Why is an item 15, which pertains to other matters at the Annual General Meeting, on the agenda?

Under Finnish law, Nokia's Notice of Annual General Meeting must include an agenda setting out the matters to be brought before the meeting. The agenda must include those matters, which, pursuant to Nokia's Articles of Association and mandatory Finnish law, must be resolved at the Annual General Meeting.

In order for other matters to be included in the Notice of the Annual General Meeting and related agenda, the Board of Directors must be given sufficient notice of said items. As of the date on which this proxy material went to press, the Board of Directors was not aware of any matters to be voted upon at the Meeting other than those included in the Notice of the Annual General Meeting.

Various matters of order may require a vote at the actual Meeting. The "other matters" referred to in the voting card may include, but are not limited to, the election of the chairman of the meeting and persons to scrutinize the minutes. The voting instructions under item 15 relate to procedural matters only.

What does it mean if I mark the box to give a discretionary proxy regarding item of the Annual General Meeting?

If you have marked the relevant box and "other matters" are properly brought before the Meeting, the nominated representative of the Company will have a discretionary proxy to vote your ADSs with respect to those "other matters". The nominated representatives are Nokia's legal counsels.

What does it mean if I do not mark the box to give a discretionary proxy regarding item of the Annual General Meeting?

If you have not marked the relevant box and other matters are properly brought before the Meeting, your ADSs will not be voted with respect to those other matters. A resolution on those other matters will then be made only by the votes cast at the actual meeting.

Are the proposals on the Agenda available in their entirety?

The proposals by the Nokia Board are available in their entirety on the Internet through http://www.citibank.com/adr and http://www.nokia.com/agm. The Company's Annual Accounts (prepared under IAS) for 2004 will also be made available on Nokia's internet pages when completed, and Nokia's Form 20-F Annual Report for 2004, when filed.

17


LOGO   LOGO

PROPOSAL ON THE COMPOSITION OF THE BOARD OF DIRECTORS OF NOKIA

The Corporate Governance and Nomination Committee proposes to the Annual General Meeting that the number of members of the Board of Directors be increased from eight to ten and the following persons be elected* or re-elected for the term expiring at the closing of the following Annual General Meeting:

Paul J. Collins, b. 1936
Board member since 1998. Vice Chairman since 2000.

    BBA (University of Wisconsin), MBA (Harvard Business School).

    Vice Chairman of Citigroup Inc. 1998-2000, Vice Chairman and member of the Board of Directors of Citicorp and CitibankN.A. 1988-2000.

    Holder of various executive positions at Citibank within investment management, investment banking, corporate planning as well as finance and administration 1961-1988.

    Member of the Board of Directors of BG Group and The Enstar Group, Inc.

    Member of the Supervisory Board of Actis Capital LLP.

Georg Ehrnrooth, b. 1940
Board member since 2000.

    Master of Science (Eng.) (Helsinki University of Technology).

    President and CEO of Metra Corporation 1991-2000, President and CEO of Lohja Corporation 1979-1991.

    Holder of various executive positions at Wärtsilä Corporation within production and management 1965-1979.

    Chairman of the Board of Directors of Assa Abloy AB (publ) and Vice Chairman of the Board of Directors of Rautaruukki Corporation, member of the Board of Directors of Oy Karl Fazer Ab, Sandvik AB (publ) and Sampo plc.

    Vice Chairman of the Boards of Directors of The Research Institute of the Finnish Economy ETLA and Finnish Business and Policy Forum EVA.

Dan Hesse, b. 1953*
Member of the Board of Directors of Terabeam Wireless.

    M.S. (Massachusetts Institute of Technology), M.B.A. (Cornell University), A.B. (University of Notre Dame).

    Chairman, President and CEO of Terabeam 2000-2004. President and CEO of AT&T Wireless Services 1997-2000, Executive Vice President of AT&T 1997-2000, General Manager for the AT&T Online Services Group 1996-1997, President and CEO of AT&T Network Systems International 1991-1995. Various managerial positions in AT&T, including network operations, strategic planning and sales 1977-1991.

    Member of the Board of Directors of the VF Corporation.

    Member of the National Board of Governors of the Boys & Girls Clubs of America.

18


Dr. Bengt Holmström, 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 1985-1994.

    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.

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) 1986-1992.

    Corporate strategy consultant at the Boston Consulting Group (London) 1979-1986.

    Board member of IKANO Holdings S.A.

Edouard Michelin, b. 1963*
Managing Partner and CEO of Michelin Group

    Engineering graduate of the Ecole Centrale de Paris.

    Head of Michelin Manufacturing facilities and Michelin Truck Business in North America 1990-1993, various managerial positions in Michelin, including research, manufacturing, marketing and sales 1988-1990.

    Member of the World Business Council for Sustainable Development (WBCSD).

Jorma Ollila, b. 1950
Chairman and CEO and Chairman of the Group Executive Board of Nokia Corporation.
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).

    President and CEO, and Chairman of the Group Executive Board of Nokia Corporation 1992-1999, President of Nokia Mobile Phones 1990-1992, Senior Vice President, Finance of Nokia 1986-1989.

    Holder of various managerial positions at Citibank within corporate banking 1978-1985.

    Member of the Board of Directors of Ford Motor Company and Vice Chairman of the Board of Directors of UPM-Kymmene Corporation and Vice Chairman of the Board of Directors of Otava Books and Magazines Group Ltd. Chairman of the Boards of Directors and the Supervisory Boards of The Research Institute of the Finnish Economy ETLA and Finnish Business and Policy Forum EVA.

    Member of The European Round Table of Industrialists.

19


Dame Marjorie Scardino, b. 1947
Chief Executive and member of the Board of Directors of Pearson plc.
Board member since 2001.

    BA (Baylor), JD (University of San Francisco).

    Chief Executive of The Economist Group 1993-1997, President of the North American Operations of The Economist Group 1985-1993.

    Lawyer 1976-1985 and publisher of the Georgia Gazette newspaper 1978-1985.

Vesa Vainio, b. 1942
Board member since 1993.

    LL.M. (University of Helsinki).

    Chairman 1998-1999 and 2000-2002 and Vice Chairman 1999-2000 of the Board of Directors of Nordea AB (publ). Chairman of the Executive Board and CEO of Merita Bank Ltd and CEO of Merita Ltd 1992-1997. President of Kymmene Corporation 1991-1992.

    Holder of various other executive positions in Finnish industry 1972-1991.

    Chairman of the Board of Directors of UPM-Kymmene Corporation.

Arne Wessberg, b. 1943
Chairman of the Board of Directors and Chief Executive Officer of Yleisradio Oy (Finnish Broadcasting Company).
Board member since 2001.

    Studies in economics in the University of Tampere (1963-1966).

    Chairman of the Board of Eurosport Consortium 1998-2000, member 1989-1997. Member of the Board of Trustees of IIC 1996-1998 and 1993-1995.

    Holder of various positions at Yleisradio Oy (Finnish Broadcasting Company) in different executive roles 1979-1994 and as a reporter and editor 1971-1976.

    President of the European Broadcasting Union (EBU), member of the Board of Directors of the International Academy of Television Arts & Sciences and member of the Trilateral Commission (Europe).

20


GRAPHIC


GRAPHIC


ý   Please mark
your vote as in
this example
  1221
    

If this Voting Card is signed and timely returned to the Depositary but no specific direction as to voting is marked below as to an issue, the undersigned shall be deemed to have directed the Depositary to give voting instructions "FOR" the unmarked issue, except for item 15.

    FOR AGAINST   ABSTAIN   FOR ELECTION OF ALL NOMINEES WITHHOLD VOTE FROM ALL NOMINEES       FOR AGAINST ABSTAIN
2   o o   o   7 o N/A o   9   o N/A o

 

 

 

 

 

 

 

01 Paul J. Collins

06 Marjorie Scardino

 

 

 

 

 

 
3   o o   o   02 Georg Ehrnrooth 07 Vesa Vainio   10   o o o
              03 Bengt Holmström
04 Per Karlsson
08 Arne Wessberg
09 Dan Hesse
           
4   o o   o   05 Jorma Ollila 10 Edouard Michelin   11   o o o

5

 

N/A

N/A

 

N/A

 

Except for nominee(s) listed below from whom vote is withheld:

 

12

 

o

o

o
                  
           

6

 

o

N/A

 

o

 

    FOR

AGAINST

ABSTAIN

 

13

 

o

o

o

 

 

 

 

 

 

 

8    o

N/A

o

 

14

 

o

o

o

 

 

 

 

 

 

 

 

 

 

 

 

15

 

Mark the box if you wish to instruct the Depositary to give a proxy to any one of Marianna Uotinen-Tarkoma, Esa Kaunistola, both Legal Counsels of Nokia Corporation, to authorize any of them (with full power of substitution) to vote, in their discretion, on

o
SIGNATURE(S)                                                                                                           Date   as of March 25, 2005   your behalf only upon  
    Please sign your name to the Voting Card exactly as printed above. When signing in a fiduciary or representative capacity, give full title as such. Where more than one owner, each MUST sign. Voting Cards executed by a corporation should be signed in full corporate name by a duly authorized officer with full title as such.   item 15 of the Annual General Meeting and any adjournments or postponement thereof.  

DETACH HERE

The matters specified in Article 12 of the Articles of Association and the following other matters:

1.
Presentation of the Annual Accounts

2.
Approval of the Income Statements and the Balance Sheet.

3
Approval of a proposal to the Annual General Meeting of a dividend of EUR 0.33 per share.

4
Approval of the discharge of the Chairman, the members of the Board of Directors and the President from liability.

5
Approval of the remuneration to be paid to the members of the Board of Directors.*

6.
Approval of the proposal on the composition of the Board of Directors as proposed by the Corporate Governance and Nomination Committee.*

7.
Approval of the proposal of the election of the Board of Directors as proposed by the Corporate Governance and Nomination Committee.*

8.
Approval of the remuneration to be paid to the auditor.*

9.
Approval of the re-election of PricewaterhouseCoopers Oy as the Auditors for fiscal year 2005.*

10.
Approval of the proposal of the Board of Directors to grant stock options to selected personnel of the Company.

11
Approval of the proposal of the Board to reduce the share capital through cancellation of Nokia shares held by the Company.

12.
Approval of the authorization to the Board to increase the share capital of the Company.

13.
Approval of the authorization to the Board to repurchase Nokia shares.

14.
Approval of the authorization to the Board to dispose Nokia shares held by the Company.

15.
Such other matters as may properly come before the Annual General Meeting.

For more details on the above agenda items please refer to the Company's Notice of Meeting and the Questions and Answers section in the Proxy Material enclosed herewith.

[* Please note that the Company has informed the Depositary that pursuant to Finnish law proposals may be accepted with respect to these agenda items 5, 6, 7, 8, and 9 up to and including the Meeting. However, the Corporate Governance and Nomination Committee of the Board of Directors has disclosed a proposal on item 7 (see page 13 of the proxy material) and the Audit Committee has disclosed a recommendation on item 8 and 9, and it is possible for the ADR Holders to vote "FOR" the Corporate Governance and Nomination Committee's proposal as a whole or in part, and "FOR" the Audit Committee's recommendations.]

*NOTE* Proposal 1 on the agenda is a non-voting proposal. For more information on this item see the Questions and Answers section in the Proxy Material.

If this Voting Card is signed and timely returned to the Depositary but no specific direction as to voting is marked above as to an issue, the undersigned shall be deemed to have directed the Depositary to vote "FOR" the unmarked issue, except for item 15.


To be signed, completed and returned to Citibank, N.A., as Depositary P.O. Box 8527, Edison,
New Jersey 08818-9395, prior to 5:00 P.M. (New York City time) on March 21, 2005 for action to be taken.

2005 VOTING CARD   AMERICAN DEPOSITARY SHARES

Nokia Corporation (the "Company")

ADS CUSIP No.:

 

654902204.
ADS Record Date:   February 2, 2005.
Meeting:   Annual General Meeting—April 7, 2005 at 3 P.M. (Helsinki time) at Hartwall Areena, Veturitie 13, Helsinki, Finland.
Deposited Securities:   Shares, par value 0.06 euro per share, of the Company.

You as the undersigned holder, as of the close of business on March 25, 2005 and as of the Finnish Record Date, of the American Depositary Receipts (the "ADRs") issued under the Deposit Agreement and evidencing the number of American Depositary Shares identified on the reverse side hereof (such American Depositary Shares, the "ADSs") and of the Deposited Securities, acknowledge receipt of a copy of the Depositary's Notice of Annual General Meeting and by signing the reverse side hereof:

(1)
certify that you are a record holder of ADSs as of the close of business on March 25, 2005 and as of the Finnish Record Date;

(2)
irrevocably authorize and direct the Depositary to cause to be voted at the Meeting (and any adjournment or postponement thereof) your Deposited Securities represented by your ADSs in the manner indicated on the reverse side hereof;

(3)
irrevocably authorize and direct the Depositary to temporarily record your Deposited Securities represented by your ADSs on the Register of Shareholders of the Company in your name on the Finnish Record Date of March 28, 2005; and

(4)
irrevocably authorize and direct the Depositary to disclose your name, address, number of Deposited Securities held and account number to the Company and the Finnish Registrar for the purpose of temporarily recording your name on the Register of Shareholders of the Company.

DETACH HERE

Dear Shareholder:

Nokia Corporation encourages you to take advantage of new and convenient ways by which you can vote your shares. You can vote your shares electronically through the Internet or by telephone by the Voting Deadline. This eliminates the need to return your proxy card.

To vote your shares electronically, you must use the number in the grey shaded box on the other side of the card, just below the perforation, to access the system.

1.
To vote over the Internet:

Log on to the Internet and go to the web site http://www.citibank.com/adr

Click on "Investors" and then click on "Voting by Internet" and follow the instructions.

2.
To vote by telephone:

On a touch-tone telephone, simply dial 1-877-779-8683 and follow the instructions. When you are finished voting, your vote will be confirmed and the call will end.

If you choose to vote your shares electronically, there is no need to mail back your proxy card.

Your vote is important. Thank you for voting.


Nokia 2004 Annual Accounts (IFRS)


ANNUAL ACCOUNTS 2004    
 
Review by the Board of Directors

 

3
 
Consolidated profit and loss accounts, IFRS

 

9
 
Consolidated balance sheets, IFRS

 

10
 
Consolidated cash flow statements, IFRS

 

11
 
Consolidated statements of changes in shareholders' equity, IFRS

 

13
 
Notes to the consolidated financial statements

 

14
 
Profit and loss accounts, parent company, FAS

 

58
 
Balance sheets, parent company, FAS

 

59
 
Cash flow statements, parent company, FAS

 

60
 
Notes to the financial statements of the parent company

 

61
 
Nokia shares and shareholders

 

67
 
Nokia 2000-2004, IFRS

 

76
 
Calculation of key ratios

 

78
 
Proposal by the Board of Directors to the Annual General Meeting

 

80
 
Auditors' Report

 

81


ADDITIONAL INFORMATION


 


 
 
Group Executive Board

 

83
 
Board of Directors

 

88
 
Corporate Governance

 

91
 
Investor information

 

107
 
Contact information

 

108

Review by the Board of Directors 2004

Net sales by business group
January 1 - December 31

 
  2004
  %
  2003
  %
  Change
%

 
 
  EURm

   
  EURm

   
   
 
Mobile Phones   18,507   63   20,951   71   (12 )
Multimedia   3,659   12   2,504   8   46  
Enterprise Solutions   830   3   529   2   57  
Networks   6,367   22   5,620   19   13  
Inter-business group eliminations   (96 )   (149 )    
   
 
 
 
 
 
Nokia Group   29,267   100   29,455   100   (1 )
   
 
 
 
 
 

Operating profit, IFRS
January 1 - December 31

 
  2004
  % of net
sales

  2003
  % of net sales
 
 
  EURm

   
  EURm

   
 
Mobile Phones   3,768   20.4   5,927   28.3  
Multimedia   179   4.9   (186 ) (7.4 )
Enterprise Solutions   (199 ) (24.0 ) (141 ) (26.7 )
Networks   878   13.8   (219 ) (3.9 )
Common Group Expenses   (296 )   (370 )  
   
 
 
 
 
Nokia Group   4,330   14.8   5,011   17.0  
   
 
 
 
 

Nokia's net sales decreased by 1% to EUR 29,267 million (EUR 29,455 million). Sales of Mobile Phones decreased by 12% to EUR 18,507 million (EUR 20,951 million). Sales of Multimedia increased by 46% to EUR 3,659 million (EUR 2,504 million). Sales of Enterprise Solutions increased by 57% and totaled EUR 830 million (EUR 529 million). Sales of Networks increased by 13% to EUR 6,367 million (EUR 5,620 million).

Operating profit decreased by 14% to EUR 4,330 million (EUR 5,011 million), representing an operating margin of 14.8% (17.0%). Operating profit in Mobile Phones decreased by 36% to EUR 3,768 million (EUR 5,927 million), representing an operating margin of 20.4% (28.3%). Operating profit in Multimedia was EUR 179 million (operating loss EUR 186 million), representing an operating margin of 4.9% (-7.4%). Enterprise Solutions reported an operating loss of EUR 199 million (operating loss of EUR 141 million). Operating profit in Networks increased to EUR 878 million including a negative impact from research and development impairments totaling EUR 115 million; representing an operating margin of 13.8% (-3.9%). In 2003, operating profit included a positive adjustment of EUR 226 million related to customer financing impairment charges (MobilCom) and charges of EUR 550 million related to restructuring costs and impairments and write-offs of capitalized R&D expenses, as well as a goodwill impairment of EUR 151 million, with a total net impact of EUR 475 million.

Common Group expenses totaled EUR 296 million (EUR 370 million, including the gain of EUR 56 million on the sale of the remaining shares of Nokian Tyres Ltd) and included a one-time positive item of EUR 160 million representing the premium return under our multi-line, multi-year insurance program, which expired during 2004. The return was due to our low claims experience

3



during the policy period. It also included a EUR 12 million negative impact from the divestiture of Nextrom.

In January - December, net financial income was EUR 405 million (EUR 352 million), including a one-time positive item of EUR 106 million. During the year, Nokia sold approximately 69% of its original holdings in the subordinated convertible perpetual bonds issued by France Telecom. As a result, the company booked a total net gain of EUR 106 million. The bonds had been classified as available-for-sale investments and fair valued through shareholders' equity.

Profit before tax and minority interests was EUR 4,709 million (EUR 5,345 million). Net profit totaled EUR 3,207 million (EUR 3,592 million). Earnings per share decreased to EUR 0.70 (basic) and EUR 0.70 (diluted), compared with EUR 0.75 (basic) and EUR 0.75 (diluted) in 2003.

At December 31, 2004, net debt-to-equity ratio (gearing) was -78% (-71% at December 31, 2003). During the January - December 2004, capital expenditure amounted to EUR 548 million (EUR 432 million).

Global reach

In 2004, Europe/Middle East/Africa accounted for 55% of Nokia's net sales (56% in 2003), North America 12% (16%), Latin America 8% (6%), China 10% (8%), and Asia-Pacific 15% (14%). The 10 largest markets were the US, China, UK, Germany, India, Brazil, Russia, United Arab Emirates, Italy and Spain, together representing 54% of total sales.

Research and development

As of December 31, 2004, we employed 20,722 people in research and development in 12 countries, representing approximately 37% of Nokia's total workforce. R&D expenses totaled EUR 3,733 million in 2004, a decrease of 1% from 2003 (EUR 3,760 million). R&D expenses represented 12.8% of Nokia net sales in 2004, compared with 12.8% of net sales in 2003.

If R&D impairments, write-offs and personnel-related restructuring costs in Networks were excluded from both the 2004 (impairments of EUR 115 million) and 2003 (personnel-related restructuring costs, impairments and write-offs totaling EUR 470 million) R&D expenses, the increase in R&D expenses would have been 10%, and would have represented 12.4% of Nokia net sales in 2004, compared with 11.2% of net sales in 2003.

Technology developments

During the year, Nokia continued to make advances in new technologies for mobile devices, software platforms and developer operations. Nokia added compelling features to its mobile devices with technologies such as Push to Talk over Cellular, megapixel cameras and multiradio capability, including wireless LAN and near field communications.

Nokia entered several technology development agreements with operators to jointly bring innovations to market. These included agreements with France Telecom for rich media solutions and with T-Mobile for the development of Series 60 Platform applications. A mobile service architecture initiative led by Nokia and Vodafone was launched to simplify mobile Java standards. Nokia also continued its work with in numerous industry associations and initiatives to support interoperable, high-quality products and solutions.

Nokia strengthened its commitment to Symbian's long-term success in the mobile operating system market by increasing its shareholding in Symbian from 32.2% to 47.9%. Nokia also extended its Symbian OS application technology development abilities through an agreement with Metrowerks.

4


In June, Nokia introduced the Series 60 2nd Edition with support for scalable user interfaces, high-resolution displays and multi-radio. The external licensee base of Series 60 continued to grow during the year. Nokia outlined plans to expand the Series 60 Platform for smartphones to a variety of segments, such as enterprise, multimedia and consumer.

In 2004, to support advanced mobile software developers, Nokia opened Forum Nokia PRO, a developer community, and launched the Preminet service.

People

The average number of personnel for 2004 was 53,511 (51,605 for 2003). At the end of 2004, Nokia employed 55,505 people worldwide (51,359 at year-end 2003). In 2004, Nokia's personnel increased by a total of 4,146 employees (decrease of 389 in 2003).

Corporate reorganization

On January 1, 2004, Nokia reorganized to further align the company's overall structure with its strategy, to better position each business group to meet the specific needs of diverse market segments, and to increase Nokia's operational efficiency and maintain the economies of scale. The structure includes four business groups: Mobile Phones, Multimedia, Enterprise Solutions and Networks. In addition, there are two horizontal groups that support the mobile device business groups: Customer and Market Operations and Technology Platforms.

Nokia in mobile devices in 2004

In 2004, the total mobile device sales volume achieved by our Mobile Phones, Multimedia and Enterprise Solutions business groups reached a record of 207.7 million units, representing growth of 16% compared with 2003. According to Nokia's preliminary estimates, the overall market for mobile devices grew by 31% to reach 643 million units.

Of the 36 devices we announced in 2004, the majority had cameras and nearly all had color screens. We also introduced additional designs with ten new clamshell models, in addition to flip-open messenger devices and the Nokia 9300 smartphone for enterprises.

We also expanded our 3G offering with shipments of two mobile devices, the Nokia 7600 and Nokia 6630. In the smartphone segment, where we are a clear market leader, Nokia delivered approximately 12 million Symbian operating system-based mobile devices during 2004.

Mobile Phones in 2004

During 2004, the Mobile Phones business group continued to support the company's long-term strategy of expanding mobile voice in growth markets as well as identifying further opportunities in the more developed markets. In line with this, we announced a range of competitive voice-optimized phones and camera phones as well as a number of new mobile entry models.

Highlights for 2004 in Mobile Phones' portfolio included the Nokia 6230, a business camera phone, with a balanced feature set that sold well throughout the year. In the fourth quarter it became the top-selling phone in Western Europe—a first for a camera phone. Sales of the Nokia 6230 camera phone were followed closely by the Nokia 6610i. The Nokia 3230 camera phone, targeting younger audiences, was also strategically important.

During the year, we announced more than 10 new CDMA products. Of these, the Nokia 6255, a high-end CDMA camera phone for business users, began shipping in December, and strengthened our overall CDMA offering.

5



In design, the company announced an art-deco inspired Fashion Collection, presenting three distinct form factors and a sample of bold new features: the Nokia 7260, a monoblock design; the Nokia 7270, a clamshell; and the Nokia 7280, a slide phone with no keypad.

In our entry-level offering, initial shipments of the Nokia 2600, a color-screen monoblock phone and the Nokia 2650, a color-screen clamshell model, both met with a positive response from consumers.

Multimedia in 2004

Nokia continued to take advantage of digital convergence by announcing six new smartphones and numerous products in the areas of imaging, games and new enhancement products.

The Nokia 7610 imaging smartphone, Nokia's first megapixel imaging device, started sales in May and quickly became the best selling megapixel GSM imaging smartphone globally. By the end of 2004, Nokia had four different megapixel models in the market, making Nokia the market leader in megapixel mobile imaging in GSM. Nokia continued to collaborate with operators, retailers and printing partners to enable ease-of-use when sharing, printing or storing images.

The Nokia 6630, our latest 3G WCDMA smartphone, was offered by more than 30 operators worldwide, including in Japan, and initial market feedback has been very positive. Sales of Nokia's first EDGE-enabled Series 60 smartphone, the Nokia 6620, started in the Americas in July.

Sales of the imaging devices unit were robust, while the games business in 2004 was a disappointment.

Enterprise Solutions in 2004

Nokia began shipments of the Nokia 6820 and Nokia 6810 messaging devices and the Nokia 9500 Communicator in 2004. These business-optimized devices drove Enterprise Solutions' 2004 full-year sales. During the third quarter 2004, Nokia launched the Nokia 9300 high-end, enterprise smartphone, which is expected to ship during the first quarter 2005.

Nokia announced or reaffirmed alliances with leading IT companies that support our new Communicator family for enterprises. The most significant alliances were with those supporting our mobile e-mail efforts, including Good Technology, Smartner and Visto. These provide a broad range of e-mail options for Nokia business-optimized devices such as, the Nokia 9500 and Nokia 9300.

Two new network security gateways, the Nokia IP2250 and Nokia IP1220, were announced during 2004. Designed for medium-to-large enterprises, service providers and data sites, Nokia's network security gateways are designed to bring improved total cost of ownership and higher return on investment. These new products place Nokia at the top end of performance in the firewall marketplace. The new Nokia IPSO Operating System was also announced and is intended to lengthen the life of Nokia customers' firewall and VPN investments.

The Nokia Secure Access System, an SSL-based remote access solution with clientless virtual private network functionality, also had good success in the market during 2004.

Networks in 2004

During 2004, Nokia announced 13 WCDMA 3G contracts, seven of which were with new 3G customers underscoring Nokia's strong ability to win new business in this technology as the industry moves towards full commercialization of WCDMA. By end of the year, 63 operators had launched commercial WCDMA 3G networks, and Nokia was supplier to 28 of these.

6



Nokia also signed over 30 GSM, EDGE or GPRS contracts covering all markets, including contracts with 10 new GSM customers. Nokia made important new market entries to several emerging growth markets.

Operators increasing focus on operating expenses, combined with the increasing complexity of mobile networks, further opened the market for services. Nokia rapidly built its position in the managed services market and signed seven significant contracts. The multi-vendor, multi-technology Nokia NetAct™ service and network management system was included in most of the infrastructure deals during the year. Systems integration and efficiently run deployments played a key role in the rollout of new technology, and the year saw a rising trend in the volume of consultative service sales to operators. Nokia strengthened its strategic focus on the services business by creating a dedicated Services Business Unit.

Significant progress was also made in the new core networks business. Nokia won its first commercial contracts for the IP Multimedia Subsystem (IMS) for richer multimedia communications. Nokia also started a service trial with Telecom Italia to explore the opportunities this offers for operators. Nokia is the number one in the market for push to talk, winning 26 commercial Push to talk over Cellular contracts with operators during 2004. Nokia was the first vendor to start delivering 3GPP Release 4 architecture to operators, winning 25 deals for the Nokia MSC Server System, which enables significant cost savings in the delivery of voice minutes.

Shares and share capital

In 2004, Nokia's share capital increased by EUR 302.40 as a result of the issue of 5,040 new shares upon exercise of stock options issued to key personnel in 1999. Effective April 14, 2004, a total of 132,536,200 shares held by the company were cancelled pursuant to the shareholders' resolution taken at the Annual General Meeting on March 25, 2004. As a result of the cancellation, the share capital was reduced by the aggregate par value of the shares cancelled, EUR 7,952,172, corresponding to less than 2.8% of the share capital of the company and the total voting rights. The cancellation did not reduce the shareholders' equity. 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 plans a total of 214,057,700 shares on the Helsinki Exchanges at an aggregate price of approximately EUR 2.659 billion during the period from January 23, 2004 to November 26, 2004. 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 2003 and 2004 to the Board. The aggregate par value of the shares purchased was EUR 12,843,462, representing approximately 4.59% of the share capital 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.

On December 31, 2004, Nokia and its subsidiary companies owned 176,819,877 Nokia shares. The shares had an aggregate par value of EUR 10,609,192.62, representing approximately 3.79% of the share capital of the company and the total voting rights.

The total number of shares at December 31, 2004 was 4,663,761,300. As a result of the new share issues, Nokia received a total of EUR 84,810.60 in additional shareholders' equity in 2004. On December 31, 2004, Nokia's share capital was EUR 279,825,678.

7



Corporate responsibility

As market leader and a leading global brand, our impact on society comes with responsibilities that go beyond providing products. Listening to stakeholders is one key element in developing corporate responsibility programs. Following are some developments made in this area during 2004.

The European Community invited Nokia, as one of two companies, to participate in a multi-stakeholder consultation pilot, called the Integrated Product Policy, that examines how environmental awareness works in practice and aims to improve knowledge of the environmental performance and the sustainable use of products throughout their life-cycle.

We gained positive results from our Philippines pilot of Bridgeit, a program using mobile technology to bring interactive, multimedia learning materials to teachers and students who would otherwise have no access to them. Launched by Nokia, the International Youth Foundation (IYF), the United Nations Development Programme (UNDP) and Pearson, Bridgeit is now being expanded to double the number of schools and will be replicated in other countries.

In recognition of this work, we gained first place for the second year running in the Dow Jones Sustainability Index European Technology and Global Communications Technology categories.

Outlook

The year 2004 was demanding for Nokia. In response, the company set five top priorities in the areas of customer relations, product offering, R&D efficiency, demand-supply management and the company's ability to offer end-to-end solutions. Nokia is making good progress in these areas, and is now better positioned to meet future challenges.

Nokia continues to expect the overall mobile device market in 2005 to grow by approximately 10% in volume and to a lesser extent in value. Growth is expected to continue to be driven by replacement and upgrade sales in more developed markets and by new subscriber growth in developing mobile markets, as well as the wide-spread commercialization of 3G devices in the second half of 2005.

In infrastructure, Nokia expects the overall market in 2005 to be up slightly in euro terms as operators continue building coverage and expanding capacity in growth markets, as well as optimizing and expanding existing 2G networks and rolling-out 3G networks in more developed markets.

Competition in both the mobile device and infrastructure markets is expected to further intensify in 2005 as a result of anticipated slower growth, compared with 2004. However, by upholding a clear competitive focus, particularly in the priority areas outlined above, Nokia's goal is to further build on its industry-leading position.

Dividend

Nokia's Board of Directors will propose a dividend of EUR 0.33 per share for 2004.

8



Consolidated Financial Statements according to IFRS

Consolidated Profit and Loss Accounts, IFRS

 
   
  Financial year ended December 31
 
 
  Notes
  2004
  2003
  2002
 
 
   
  EURm

  EURm

  EURm

 
Net sales       29,267   29,455   30,016  
Cost of sales       (18,133 ) (17,237 ) (18,278 )
Research and development expenses       (3,733 ) (3,760 ) (3,052 )
Selling, general and administrative expenses   7, 8   (2,975 ) (3,363 ) (3,239 )
Customer finance impairment charges, net of reversals   8     226   (279 )
Impairment of goodwill   8     (151 ) (182 )
Amortization of goodwill   10   (96 ) (159 ) (206 )
       
 
 
 

Operating profit

 

3, 4, 5, 6, 7, 8, 10

 

4,330

 

5,011

 

4,780

 
Share of results of associated companies   33   (26 ) (18 ) (19 )
Financial income and expenses   11   405   352   156  
       
 
 
 

Profit before tax and minority interests

 

 

 

4,709

 

5,345

 

4,917

 
Tax   12   (1,435 ) (1,699 ) (1,484 )
Minority interests       (67 ) (54 ) (52 )
       
 
 
 
Net profit       3,207   3,592   3,381  
       
 
 
 

 

 

 

 

2004

 

2003

 

2002

 
        EUR   EUR   EUR
 
Earnings per share   29              
  Basic       0.70   0.75   0.71  
  Diluted       0.70   0.75   0.71  

 

 

 

 

2004

 

2003

 

2002

 
Average number of shares (000's shares)   29              
  Basic       4,593,196   4,761,121   4,751,110  
  Diluted       4,600,337   4,761,160   4,788,042  

See Notes to Consolidated Financial Statements.

9



Consolidated Financial Statements according to IFRS

Consolidated Balance Sheets, IFRS

 
   
  December 31
 
 
  Notes
  2004
  2003
 
 
   
  EURm

  EURm

 
ASSETS              

Fixed assets and other non-current assets

 

 

 

 

 

 

 
Capitalized development costs   13   278   537  
Goodwill   13   90   186  
Other intangible assets   13   209   185  
Property, plant and equipment   14   1,534   1,566  
Investments in associated companies   15   200   76  
Available-for-sale investments   16   169   121  
Deferred tax assets   25   623   743  
Long-term loans receivable   17     354  
Other non-current assets       58   69  
       
 
 
        3,161   3,837  
Current assets              
Inventories   18, 20   1,305   1,169  
Accounts receivable, net of allowances for doubtful accounts
(2004: EUR 361 million, 2003: EUR 367 million)
  19, 20   4,382   5,231  
Prepaid expenses and accrued income   19   1,429   1,106  
Other financial assets       595   465  
Available-for-sale investments   16   255   816  
Available-for-sale investments, liquid assets   16   9,085   8,512  
Available-for-sale investments, cash equivalents   16, 35   1,367   1,639  
Bank and cash   35   1,090   1,145  
       
 
 
        19,508   20,083  

Total assets

 

 

 

22,669

 

23,920

 
       
 
 

SHAREHOLDERS' EQUITY AND LIABILITIES

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 
Share capital   22   280   288  
Share issue premium       2,272   2,272  
Treasury shares, at cost       (2,022 ) (1,373 )
Translation differences       (126 ) (85 )
Fair value and other reserves   21   69   93  
Retained earnings   23   13,765   13,953  
       
 
 
        14,238   15,148  

Minority interests

 

 

 

168

 

164

 

Long-term liabilities

 

24

 

 

 

 

 
Long-term interest-bearing liabilities       19   20  
Deferred tax liabilities   25   179   241  
Other long-term liabilities       96   67  
       
 
 
        294   328  

Current liabilities

 

 

 

 

 

 

 
Short-term borrowings   26   215   387  
Current portion of long-term debt         84  
Accounts payable       2,669   2,919  
Accrued expenses   27   2,606   2,468  
Provisions   28   2,479   2,422  
       
 
 
        7,969   8,280  

Total shareholders' equity and liabilities

 

 

 

22,669

 

23,920

 
       
 
 

See Notes to Consolidated Financial Statements.

10


Consolidated Financial Statements according to IFRS

Consolidated Cash Flow Statements, IFRS

 
   
  Financial year ended
December 31

 
 
  Notes
  2004
  2003
  2002
 
 
   
  EURm

  EURm

  EURm

 
Cash flow from operating activities                  
Net profit       3,207   3,592   3,381  
  Adjustments, total   34   1,986   2,953   3,151  
       
 
 
 
Net profit before change in net working capital       5,193   6,545   6,532  
  Change in net working capital   34   299   (194 ) 914  
       
 
 
 
Cash generated from operations       5,492   6,351   7,446  
  Interest received       204   256   229  
  Interest paid       (26 ) (33 ) (94 )
  Other financial income and expenses, net received       41   118   67  
  Income taxes paid       (1,368 ) (1,440 ) (1,947 )
       
 
 
 
Net cash from operating activities       4,343   5,252   5,701  

Cash flow from investing activities

 

 

 

 

 

 

 

 

 
Acquisition of Group companies, net of acquired cash
(2004: EUR 0 million, 2003: EUR 0 million, 2002: EUR 6 million)
        (7 ) (10 )
Purchase of current available-for-sale investments, liquid assets       (10,318 ) (11,695 ) (7,392 )
Purchase of non-current available-for-sale investments       (388 ) (282 ) (99 )
Purchase of shares in associated companies       (109 ) (61 )  
Additions to capitalized development costs       (101 ) (218 ) (418 )
Long-term loans made to customers         (97 ) (563 )
Proceeds from repayment and sale of long term loans receivable       368   315   314  
Proceeds from (+) / payment of (-) other long-term receivables       2   (18 ) (32 )
Proceeds from (+) / payment of (-) short-term loans receivable       66   63   (85 )
Capital expenditures       (548 ) (432 ) (432 )
Proceeds from disposal of shares in Group companies, net of disposed cash       1     93  
Proceeds from maturities and sale of current available-for-sale investments, liquid assets       9,737   8,793   4,390  
Proceeds from sale of current available-for-sale investments       587      
Proceeds from sale of non-current available-for-sale investments       346   381   162  
Proceeds from sale of fixed assets       6   19   177  
Dividends received       22   24   25  
       
 
 
 
Net cash used in investing activities       (329 ) (3,215 ) (3,870 )

11


 
   
  Financial year ended
December 31

 
 
  Notes
  2004
  2003
  2002
 
 
   
  EURm

  EURm

  EURm

 

Cash flow from financing activities

 

 

 

 

 

 

 

 

 
Proceeds from stock option exercises         23   163  
Purchase of treasury shares       (2,648 ) (1,355 ) (17 )
Capital investment by minority shareholders           26  
Proceeds from long-term borrowings       1   8   100  
Repayment of long-term borrowings       (3 ) (56 ) (98 )
Repayment of short-term borrowings       (255 ) (22 ) (406 )
Dividends paid       (1,413 ) (1,378 ) (1,348 )
       
 
 
 
Net cash used in financing activities       (4,318 ) (2,780 ) (1,580 )

Foreign exchange adjustment

 

 

 

(23

)

(146

)

(135

)
       
 
 
 
Net increase (+) / decrease (-) in cash and cash
equivalents
      (327 ) (889 ) 116  

Cash and cash equivalents at beginning of period

 

 

 

2,784

 

3,673

 

3,557

 
       
 
 
 
Cash and cash equivalents at end of period       2,457   2,784   3,673  
       
 
 
 

Cash and cash equivalents comprise of:

 

 

 

 

 

 

 

 

 
  Bank and cash       1,090   1,145   1,496  
  Current available-for-sale investments, cash equivalents   16, 35   1,367   1,639   2,177  
       
 
 
 
        2,457   2,784   3,673  
       
 
 
 

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.

12



Consolidated Financial Statements according to IFRS

Consolidated Statements of Changes in Shareholders' Equity, IFRS

 
  Number of
shares

  Share capital
  Share issue
premium

  Treasury
shares

  Translation
differences(1)

  Fair value
and other
reserves(1)

  Retained
earnings

  Total
 
 
  (000's)

   
   
   
   
   
   
   
 
Group, EURm                                  
Balance at December 31, 2001   4,736,302   284   2,060   (21 ) 326   20   9,536   12,205  
   
 
 
 
 
 
 
 
 
  Stock options exercised   50,377   3   160                   163  
  Stock options exercised related to acquisitions           (17 )                 (17 )
  Tax benefit on stock options exercised           22                   22  
  Acquisition of treasury shares   (900 )         (17 )             (17 )
  Reissuance of treasury shares   983           18               18  
  Dividend                           (1,279 ) (1,279 )
  Translation differences                   (285 )         (285 )
  Net investment hedge gains                   94           94  
  Cash flow hedges, net of tax                       60       60  
  Available-for-sale investments, net of tax                       (87 )     (87 )
  Other increase, net                           23   23  
  Net profit                           3,381   3,381  
   
 
 
 
 
 
 
 
 
Balance at December 31, 2002   4,786,762   287   2,225   (20 ) 135   (7 ) 11,661   14,281  
   
 
 
 
 
 
 
 
 
  Share issue related to acquisitions   1,225       18                   18  
  Stock options exercised   7,160   1   22                   23  
  Stock options exercised related to acquisitions           (6 )                 (6 )
  Tax benefit on stock options exercised           13                   13  
  Acquisition of treasury shares   (95,339 )         (1,363 )             (1,363 )
  Reissuance of treasury shares   460           10               10  
  Dividend                           (1,340 ) (1,340 )
  Translation differences                   (375 )         (375 )
  Net investment hedge gains                   155           155  
  Cash flow hedges, net of tax                       2       2  
  Available-for-sale investments, net of tax                       98       98  
  Other increase, net                           40   40  
  Net profit                           3,592   3,592  
   
 
 
 
 
 
 
 
 
Balance at December 31, 2003   4,700,268   288   2,272   (1,373 ) (85 ) 93   13,953   15,148  
   
 
 
 
 
 
 
 
 
  Stock options exercised   5   0   0                   0  
  Stock options exercised related to acquisitions           (8 )                 (8 )
  Acquisition of treasury shares   (214,120 )         (2,661 )             (2,661 )
  Reissuance of treasury shares   788           14               14  
  Cancellation of treasury shares       (8 ) 8   1,998           (1,998 )  
  Dividend                           (1,398 ) (1,398 )
  Translation differences                   (119 )         (119 )
  Net investment hedge gains                   78           78  
  Cash flow hedges, net of tax                       42       42  
  Available-for-sale investments, net of tax                       (66 )     (66 )
  Other increase, net                           1   1  
  Net profit                           3,207   3,207  
   
 
 
 
 
 
 
 
 
Balance at December 31, 2004   4,486,941   280   2,272   (2,022 ) (126 ) 69   13,765   14,238  
   
 
 
 
 
 
 
 
 

(1)
Accumulated other comprehensive income comprises translation differences and fair value and other reserves.

Dividends declared per share were EUR 0.33 for 2004 (EUR 0.30 for 2003 and EUR 0.28 for 2002), subject to shareholders' approval.

See Notes to Consolidated Financial Statements.

13



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 limited liability company with domicile in Helsinki, are prepared in accordance with International Financial Reporting Standards (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.

Use of estimates

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of consolidation

The consolidated financial statements include the accounts of Nokia's parent company ("Parent Company"), and each of those companies in which it either owns, directly or indirectly through subsidiaries, over 50% of the voting rights, or over which it has control of their operating and financial policies. The Group's share of profits and losses of associated companies (generally 20% to 50% voting rights or over which the Group has significant influence) is included in the consolidated profit and loss account in accordance with the equity method of accounting.

All inter-company transactions are eliminated as part of the consolidation process. Minority interests are presented separately in arriving at the net profit. They are also shown separately from shareholders' equity and liabilities 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.

Goodwill

Acquisitions of companies are accounted for using the purchase method of accounting. Goodwill represents the excess of the purchase cost over the fair value of assets less liabilities of acquired companies. Goodwill is amortized on a straight-line basis over its expected useful life. Useful lives vary between two and five years depending upon the nature of the acquisition. Expected useful lives are reviewed at each balance sheet date and, where these differ significantly from previous estimates, amortization periods are changed accordingly.

The Group adopted the transition provisions of IFRS 3, Business Combinations, with effect from April 1, 2004. As a result, goodwill relating to purchase acquisitions and acquisitions of associated companies for which the agreement date was on or after March 31, 2004, is no longer subject to

14



amortization. Goodwill arising in business combinations completed before March 31, 2004 will continue to be amortized until the standard is fully adopted as of January 1, 2005.

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. If such indication exists the recoverable amount is determined for the cash-generating unit, to which goodwill belongs. This amount is then compared to the carrying amount of the cash-generating unit 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.

Transactions in foreign currencies

Transactions in foreign currencies are recorded at the rates of exchange prevailing at the dates of the individual transactions. For practical reasons, a rate that approximates the actual rate at the date of the transaction is often used. At the end of the accounting period, the unsettled balances on foreign currency receivables and liabilities are valued at the rates of exchange prevailing at the year-end. Foreign exchange gains and losses related to normal business operations are treated as adjustments to sales or to cost of sales. Foreign exchange gains and losses associated with financing are included as a net amount under financial income and expenses.

Foreign Group companies

In the consolidated accounts all items in the profit and loss accounts of foreign subsidiaries are translated into euro at the average foreign exchange rates for the accounting period. The balance sheets 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 a foreign company, which is translated, to euro at historical rates. Differences resulting from the translation of profit and loss account items at the average rate and the balance sheet items at the closing rate are also 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.

Fair valuing principles

Financial assets and liabilities

Under IAS 39, the Group classifies its investments in marketable debt and equity securities and investments in unlisted equity securities into the following categories: held-to-maturity, trading, or available-for-sale depending on the purpose for acquiring the investments. All investments of the Group are currently classified as available-for-sale. Available-for-sale investments are fair valued by using quoted market rates, discounted cash flow analyses and other appropriate valuation models at the balance sheet date. Certain unlisted equities for which fair values cannot be measured reliably are reported at cost less impairment. All purchases and sales of investments are recorded on the trade date, which is the date that the Group commits to purchase or sell the asset.

The fair value changes of available-for-sale investments are recognized in shareholders' equity. 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 accumulated fair value changes are calculated using a weighted average purchase price method. An impairment is

15



recorded when the carrying amount of an available for sale investment is greater than the estimated fair value and there is objective evidence that the asset is impaired. 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 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.

The fair values of other financial assets and financial liabilities are assumed to approximate their carrying values, either because of their short maturities, or where their fair values cannot be measured reliably.

Derivatives

Fair values of forward rate agreements, interest rate options and futures contracts are calculated based on quoted market rates at the balance sheet date. Interest rate and currency swaps are valued by using discounted cash flow analyses. The changes in the fair values of these contracts are reported 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 the fair value are reported in the profit and loss account.

Forward foreign exchange contracts are valued with the forward exchange rate. Changes in fair value are calculated by comparing this with the original amount calculated by using the contract forward rate prevailing at the beginning of the contract. Currency options are valued at the balance sheet date by using the Garman & Kohlhagen option valuation model. Changes in the fair value on these instruments are reported in the profit and loss account except to the extent they qualify for hedge accounting.

Embedded derivatives are identified and monitored in the Group and fair valued at the balance sheet date. In assessing the fair value of embedded derivatives the Group uses a variety of methods, such as option pricing models and discounted cash flow analysis, and makes assumptions that are based on market conditions existing at each balance sheet date. The fair value changes are reported in the profit and loss account.

Hedge accounting

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. The cash flow being hedged must be 'highly probable' and must ultimately impact the profit and loss account. 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.

16


For qualifying foreign exchange forwards the change in fair value is deferred in shareholders' equity to the extent that the hedge is effective. For qualifying foreign exchange options the change in intrinsic value is deferred in shareholders' equity to the extent that the hedge is effective. Changes in the time value are at all times taken directly as adjustments to sales or to cost of sales in the profit and loss account.

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 into the profit and loss account as adjustments to sales and cost of sales, immediately. 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 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 as adjustments to sales or cost of sales or treated as other operating income and expenses. The fair value changes from all other derivative instruments are recognized in financial income and expenses.

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. 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. For qualifying foreign exchange options the change in intrinsic value is deferred in shareholders' equity. Changes in the time value are at all times taken directly to the profit and loss account. 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.

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 or liquidated.

Revenue recognition

Sales from the majority of the Group are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable and collectibility is probable. 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.

17



In addition, sales and cost of sales from contracts involving solutions achieved through modification of complex telecommunications equipment are recognized on 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 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 cost incurred to date as a percentage of estimated total project costs, the cost-to-cost method.

The percentage of completion method relies on estimates of total expected contract revenue and costs, as well as dependable measurement of the progress made towards completing a particular project. Recognized revenues and 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 likely and estimable.

All the Group's material revenue streams are recorded according to the above policies.

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 be a success, 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.

Other intangible assets

Expenditures on acquired patents, trademarks and licenses are capitalized and amortized using the straight-line method over their useful lives, 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. Costs of software licenses associated with internal-use software are capitalized. These costs are included within other intangible assets and are amortized over a period not to exceed three years.

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

18



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 charged to the profit and loss account in the period to which the contributions relate.

For defined benefit plans, principally the reserved portion of the Finnish TEL system, pension costs are assessed using the projected unit credit method: the cost of providing pensions is charged to 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 government securities that have terms to maturity approximating the terms of the related liabilities. Actuarial gains and losses outside the corridor are recognized over the average remaining service lives of employees.

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   20–33 years
Production machinery, measuring and test equipment   3 years
Other machinery and equipment   3–10 years

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.

Gains and losses on the disposal of fixed assets are included in operating profit/loss.

Leases

The Group has entered into various operating leases, the payments under which are treated as rentals and charged to 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 first in first out (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 overheads are included in the inventory values.

An allowance is recorded for excess inventory and obsolescence.

19



Cash and cash equivalents

Bank and cash consist of cash at bank and in hand. Cash equivalents consist of highly liquid available-for-sale investments purchased with remaining maturities at the date of acquisition of three months or less.

Short-term Investments

The Group considers all highly liquid marketable securities purchased with maturity at acquisition of more than three months as short-term investments. They are included in current available-for-sale investments, liquid assets, in the balance sheet.

Accounts receivable

Accounts receivable are carried at the original invoice amount to customers less an estimate made for doubtful receivables based on a periodic review of all outstanding amounts, which includes 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.

Borrowings

Borrowings are classified as originated loans and are recognized initially at an amount equal to the proceeds received, net of transaction costs incurred. In subsequent periods, they are stated at amortized cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognized in the profit and loss account over the period of the borrowings.

Loans to customers

Loans to customers are recorded at amortized cost. 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, provision is made to reflect the shortfall between the carrying amount and the present value of the expected cash flows. Interest income on loans to customers is accrued monthly on the principal outstanding at the market rate on the date of financing and is included within other operating income within selling, general and administrative expenses.

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 basis of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used in the determination of deferred income tax.

Under this method the Group is required, in relation to an acquisition, to make provision for deferred taxes on the difference between the fair values of the net assets acquired and their tax bases.

20



The principal temporary differences arise from intercompany profit in inventory, warranty and other provisions, untaxed reserves and tax losses carried forward. Deferred tax assets relating to the carry forward of unused tax losses 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.

Stock compensation

No compensation cost is recognized in respect of stock options, restricted shares and performance shares granted to employees. The options are granted with a fixed exercise price set on a date outlined in the plan. When the options are exercised, the proceeds received, net of any transaction costs, are credited to share capital (nominal value) and share premium. Treasury shares are acquired by the Group to meet its obligations under employee stock compensation plans in the United States. When treasury shares are issued on exercise of stock options any gain or loss is recognized in share issue premium. Tax benefits on options exercised in the United States are credited to share issue premium.

Under the restricted share and performance share programs, Nokia shares are delivered to employees at a future point in time. Performance shares vest subject to the Group's performance reaching the threshold performance levels measured by pre-defined performance criteria. The method by which the shares are obtained for delivery, as determined by the Group, include the use of one or more of the following: treasury shares, newly issued shares and shares purchased on the open market.

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 would be recognized as an asset but only when the reimbursement is virtually certain.

The Group recognizes the estimated liability to repair or replace products still under warranty at the balance sheet date. The provision is calculated based on historical experience of the level of repairs and replacements.

The Group recognizes the estimated liability for non-cancellable purchase commitments for inventory in excess of forecasted requirements at each balance sheet date.

The Group recognizes a provision for the estimated future settlements related to asserted and unasserted Intellectual Property Rights (IPR) infringements, based on the probable outcome of each case as of each balance sheet date.

The Group recognizes a provision for social security costs on unexercised stock options granted to employees at the date options are granted. The provision is measured based on the fair value of the options, and the amount of the provision is adjusted to reflect the changes in the Nokia share price.

The Group recognizes a provision for prior year tax contingencies based upon the estimated future settlement amount at each balance sheet date.

21



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.

Earnings per share

The Group calculates both basic and diluted earnings per share in accordance with IAS 33, Earnings per share, (IAS 33). Under IAS 33, 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.

New IFRS standards and revised IAS standards

In December 2003, International Accounting Standards (IAS) were amended as the IASB released revised IAS 32, Financial Instruments: Disclosure and Presentation and IAS 39, Financial Instruments: Recognition and Measurement. These standards replace IAS 32 (revised 2000), and supersedes IAS 39 (revised 2000), and must be applied for annual periods beginning on or after January 1, 2005. Under IAS 39 (revised) no cash flow hedge accounting is available on forecast intragroup transactions. Any deferral of hedging gains or losses that were included in the 2004 and 2003 consolidated financial statements needs to be reversed. The final form of the standards is still open and given the uncertainty the Group is currently not able to estimate the impact of adopting the revised standards on the financial statements.

The revised IAS 21, The Effects of Changes in Foreign Exchange Rates, issued by the IASB in December 2003, requires the goodwill arising on the acquisition of a foreign operation to be expressed in the functional currency of the foreign operation and translated at the closing rate. Currently the Group records goodwill arising on the acquisition of a foreign entity using the exchange rate at the date of the transaction. The revised standard is effective for fiscal years beginning on or after January 1, 2005. The Group does not expect the adoption of the revised standard will have a material impact on the Group's financial position, results of operations or cash flows.

In February 2004, the IASB issued IFRS 2, Share-based Payment. The standard requires the recognition of share-based payment transactions in financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the Company. Currently the Group has only share-based payment transactions with employees to be settled in equity instruments of the Company. The services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments granted. The compensation is recognized as an expense in the profit and loss account over the service period. IFRS 2 is effective for fiscal years beginning on or after January 1, 2005 and applies to grants of shares, share options or other equity instruments that were granted after November 7, 2002 and had not yet vested at the effective date of the standard. The Group is currently estimating the impact of adopting IFRS 2 on the financial statements.

In March 2004, the IASB issued IFRS 3, Business Combinations, and the revised standards IAS 36, Impairment of Assets, and IAS 38, Intangible Assets. IFRS 3 is required to be applied to all business combinations for which the agreement date is on or after March 31, 2004. The standard requires

22



that all business combinations be accounted for by the purchase method, provides specific criteria for recognizing intangible assets acquired in a business combination and also prohibits the amortization of goodwill and instead requires it to be tested for impairment annually, in accordance with the revised IAS 36. Any excess of acquirer's interest in the net fair value of acquiree's identifiable assets, liabilities and contingent liabilities over cost is recognized immediately as a gain.

Goodwill related to acquisitions prior to March 31, 2004 continued to be amortized through December 31, 2004 as required in the transition guidance. Goodwill related to acquisitions subsequent to March 31, 2004 is not amortized. Intangible assets with definite useful lives will continue to be amortized over their respective estimated useful lives. Intangible assets with indefinite useful lives are not amortized. Currently the Group does not have indefinitely lived intangible assets. The revised standards IAS 36 and IAS 38 are effective for fiscal years beginning on or after January 1, 2005. The Group does not expect the adoption of these standards to have a material impact on the Group's financial position, results of operations or cash flows.

In March 2004, the IASB issued IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, which addresses financial accounting and reporting for the disposal of non-current assets. The standard supersedes IAS 35, Discontinuing Operations. IFRS 5 introduces the concept of a disposal group and adopts the classification "held for sale". IFRS 5 retains the requirement to report separately discontinued operations. An asset classified as held for sale, or included within a disposal group that is classified as held for sale, is not depreciated. IFRS 5 is effective for fiscal years beginning on or after January 1, 2005. The Group does not expect the adoption of this standard will have a material impact on the Group's financial position, results of operations or cash flows.

2. Change in comparative figures—cash equivalents

 In 2003 and earlier, the Group maintained its excess cash in a single pool of highly liquid, low risk instruments with varying maturity dates. These pooled instruments were originally presented as cash equivalents irrespective of the instruments' maturities. During 2004, cash management practices were revised, such that this single pool was divided into two—one of instruments with maturities of 90 days or less at the date of acquisition and the other of instruments with maturities of more than 90 days at the date of acquisition.

This change was made in order for the Group to better manage its excess liquidity by enabling the use of longer dated instruments where appropriate and by facilitating a wider range of benchmarks for performance measurement and interest risk management purposes. Both pools remain available to meet the Group's cash commitments, and initially, both have similar highly liquid and low risk profiles, with the pool of 90 day and under instruments treated as cash equivalents and the pool of over 90 day instruments treated as available-for-sale investments, liquid assets.

In the future the risk profile of the two pools may be different in line with the revised cash management practices.

Prior year amounts in the balance sheet and the statement of cash flows have been changed to reflect the current composition of cash equivalents and available-for-sale investments, liquid assets.

23


Further details of the Group's risk management principles in relation to its excess liquidity are provided in Note 35.

3. Segment information

 Until January 1, 2004, Nokia's organizational and reporting structure consisted of three primary business segments: Nokia Mobile Phones, Nokia Networks, and Nokia Ventures Organization. Effective January 1, 2004, Nokia's structure was reorganized in a move to further align the Group's overall structure with its strategy. Nokia's revised structure includes four business segments, which form the main reporting structure: Mobile Phones; Multimedia; Enterprise Solutions and 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. The comparative figures have been regrouped accordingly.

Mobile Phones currently offers mobile phones and devices based on the three global cellular technologies: GSM/EDGE, CDMA and TDMA.

The Multimedia business group focuses on bringing connected and mobile multimedia to consumers in the form of advanced mobile devices and solutions.

Enterprise Solutions offers businesses solutions ranging from business-optimized mobile devices for end users to a broad portfolio of IP network perimeter security gateways and mobile connectivity offerings.

Networks is a leading provider of network infrastructure, communications and networks service platforms and 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 Expenses. 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 revenues.

24



 

 

Mobile
Phones


 

Multimedia


 

Enterprise
Solutions


 

Networks


 

Common
Group
Functions


 

Total
reportable
segments


 

Eliminations


 

Group


 
 
  EURm

  EURm

  EURm

  EURm

  EURm

  EURm

  EURm

  EURm

 
2004                                  

Profit and Loss Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Net sales to external
customers
  18,429   3,636   806   6,367   29   29,267       29,267  
  Net sales to other segments   78   23   24     (29 ) 96   (96 )  
  Depreciation and amortization   306   77   23   314   148   868       868  
  Impairment and customer finance charges         115   11   126       126  
  Operating profit   3,768   179   (199 ) 878   (296 ) 4,330       4,330  
  Share of results of associated companies           (26 ) (26 )     (26 )

Balance Sheet Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Capital expenditures(1)   279   67   18   91   93   548       548  
  Segment assets(2)   3,758   787   210   3,055   1,142   8,952   (12 ) 8,940  
  of which:                                  
    Investments in associated companies           200   200       200  
  Unallocated assets(3)                               13,729  
                               
 
  Total assets                               22,669  
                               
 
  Segment liabilities(4)   4,114   934   271   1,574   170   7,063   (12 ) 7,051  
  Unallocated liabilities(5)                               1,212  
                               
 
  Total liabilities                               8,263  
                               
 

25



 

 

Mobile
Phones


 

Multimedia


 

Enterprise
Solutions


 

Networks


 

Common
Group
Functions


 

Total
reportable
segments


 

Eliminations


 

Group


 
 
  EURm

  EURm

  EURm

  EURm

  EURm

  EURm

  EURm

  EURm

 
2003                                  

Profit and Loss Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Net sales to external customers   20,826   2,496   502   5,620   11   29,455       29,455  
  Net sales to other segments   125   8   27     (11 ) 149   (149 )  
  Depreciation and amortization   378   55   10   520   175   1,138       1,138  
  Impairment and customer finance charges         200   40   240       240  
  Operating profit   5,927   (186 ) (141 ) (219 ) (370 ) 5,011       5,011  
  Share of results of associated companies           (18 ) (18 )     (18 )
Balance Sheet Information                                  
  Capital expenditures(1)   298   33   3   44   54   432       432  
  Segment assets(2)   4,169   604   135   4,108   1,101   10,117   (22 ) 10,095  
  of which:                                  
    Investments in associated companies           76   76       76  
  Unallocated assets(3)                               13,825  
                               
 
  Total assets                               23,920  
                               
 
  Segment liabilities(4)   4,532   689   180   1,628   178   7,207   (22 ) 7,185  
  Unallocated liabilities(5)                               1,423  
                               
 
  Total liabilities                               8,608  
                               
 

26



 

 

Mobile
Phones


 

Multimedia


 

Enterprise
Solutions


 

Networks


 

Common
Group
Functions


 

Total
reportable
segments


 

Eliminations


 

Group


 
 
  EURm

  EURm

  EURm

  EURm

  EURm

  EURm

  EURm

  EURm

 

2002

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit and Loss Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Net sales to external customers   21,417   1,552   469   6,538   40   30,016       30,016  
  Net sales to other segments   211   3   18   1   (40 ) 193   (193 )  
  Depreciation and amortization   501   46   28   542   194   1,311       1,311  
  Impairment and customer finance charges       61   400   77   538       538  
  Operating profit   5,718   (365 ) (102 ) (49 ) (422 ) 4,780       4,780  
  Share of results of associated companies           (19 ) (19 )     (19 )

(1)
Including goodwill and capitalized development costs, capital expenditures in 2004 amount to EUR 649 million (EUR 670 million in 2003). The goodwill and capitalized development costs consist of EUR 11 million in 2004 (EUR 17 million in 2003) for Mobile Phones, EUR 3 million in 2004 (12 million in 2003) for Multimedia, EUR 1 million in 2004 (EUR 22 million in 2003) for Enterprise Solutions, EUR 83 million in 2004 (182 million in 2003) for Networks and EUR 3 million in 2004 (EUR 5 million in 2003) for Common Group Functions.

(2)
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.

(3)
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. Tax related prepaid expenses and accrued income, and deferred tax assets amount to EUR 826 million in 2004 (EUR 834 million in 2003).

(4)
Comprises accounts payable, prepaid income, accrued expenses and provisions except those related to interest and taxes.

(5)
Unallocated liabilities include long-term liabilities, short-term borrowings and current portion of long-term debt, as well as interest and tax related prepaid income, accrued expenses and provisions. Tax related prepaid income and accrued expenses, and deferred tax liabilities amount to EUR 246 million in 2004 (EUR 394 million in 2003).

27



 

 

2004


 

2003


 

2002

 
  EURm

  EURm

  EURm

Net sales to external customers by geographic area by location of customer            
Finland   351   347   353
USA   3,416   4,475   4,665
China   2,660   2,013   2,802
Great Britain   2,261   2,693   3,111
Germany   1,730   2,297   1,849
Other   18,849   17,630   17,236
   
 
 
Total   29,267   29,455   30,016
   
 
 

 

 

2004


 

2003


 

 

 
  EURm

  EURm

   
Segment assets by geographic area            
Finland   3,429   4,215    
USA   1,025   1,563    
China   880   1,011    
Great Britain   502   344    
Germany   353   387    
Other   2,751   2,575    
   
 
   
Total   8,940   10,095    
   
 
   

 

 

2004


 

2003


 

2002

 
 
EURm

 
EURm

 
EURm

Capital expenditures by market area            
Finland   216   160   188
USA   80   49   71
China   57   53   47
Great Britain   5   9   27
Germany   20   17   21
Other   170   144   78
   
 
 
Total(1)   548   432   432
   
 
 

(1)
Including goodwill and capitalized development costs, capital expenditures amount to EUR 649 million in 2004 (EUR 670 million in 2003 and EUR 860 million in 2002). The goodwill and capitalized development costs in 2004 consist of EUR 0 million in USA (EUR 20 million in USA in 2003 and 1 million in USA in 2002) and EUR 101 million in other areas (EUR 218 million in 2003 and EUR 427 million in 2002).

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4. Percentage of completion

 Contract sales recognized under the cost-to-cost method of percentage of completion accounting were approximately EUR 5.2 billion in 2004 (EUR 4.8 billion in 2003 and EUR 5.9 billion in 2002). Billings in advance of contract revenues, included in prepaid income, were EUR 185 million at December 31, 2004 (EUR 195 million in 2003 and 108 million in 2002). Contract revenues recorded prior to billings, included in receivables, were EUR 80 million at December 31, 2004 (EUR 665 million in 2003 and EUR 573 million in 2002).

Revenue recognition on initial 3G network contracts started in 2002 when Nokia Networks achieved 3G functionality for its single-mode and dual-mode WCDMA 3G systems. Until the time 3GPP specifications required by our customers were met, the application of the cost-to-cost input model was deferred. Upon achieving 3G functionality for WCDMA network projects, the Group began recognizing revenue under the cost-to-cost input method of percentage of completion accounting and have continued to apply the method in 2003 and in 2004.

5. Personnel expenses


 

 

2004


 

2003


 

2002

 
  EURm

  EURm

  EURm

Wages and salaries   2,805   2,501   2,531
Pension expenses, net   253   184   224
Other social expenses   372   341   385
   
 
 
Personnel expenses as per profit and loss account   3,430   3,026   3,140
   
 
 

Pension expenses, comprised of multi-employer, insured and defined contribution plans were EUR 192 million in 2004 (EUR 146 million in 2003 and EUR 167 million in 2002).


 

 

2004


 

2003


 

2002

 
  EURm

  EURm

  EURm

Remuneration of the Chairman and the other members of the Board of Directors, Group Executive Board and Presidents and Managing Directors*   25   22   19

           
* Incentives included in remuneration   8   5   4

Pension commitments for the management:

The retirement age of the management of the Group companies is between 60-65 years.

For the Chief Executive Officer and the President of the Parent Company the retirement age is 60 years. There were also three other Group Executive Board Members whose retirement age is 60 years as of December 31, 2004. There is also one other Member, following his arrangement from a previous employer, who has a retirement benefit of 65% of his pensionable salary beginning at age 62. Early retirement is possible at age 55 with reductions in benefits. Nokia does not offer any similar benefit to any other members of the 2004 Group Executive Board.

29



Average personnel

 
  2004
  2003
  2002
Mobile Phones   2,853        
Multimedia   2,851        
Enterprise Solutions   2,167        
Networks   15,463        
Common Group Functions   30,177        
   
 
 
Nokia Group   53,511   51,605   52,714
   
 
 

6. Pensions

 The most significant pension plans are in Finland and are comprised of the Finnish state TEL system with benefits directly linked to employee earnings. These benefits are financed in two distinct portions. The majority of benefits are financed by contributions to a central pool with the majority of the contributions being used to pay current benefits. The other part comprises reserved benefits which are pre-funded through the trustee-administered Nokia Pension Foundation. The pooled portion of the TEL system is accounted for as a defined contribution plan and the reserved portion as a defined benefit plan. The foreign plans include both defined contribution and defined benefit plans.

Effective on January 1, 2005, the Finnish TEL system will undergo a reform. The most significant change that will have an impact on Nokia's future financial statements is that pensions accumulated after 2005 are calculated on the earnings during the entire working career, not only on the basis of the last few years of employment as provided by the old rules. An increase to the rate at which pensions accrue has led to a past service cost of EUR 5 million which will be recognized over employees' future working life.

The amounts recognized in the balance sheet relating to single employer defined benefit schemes are as follows:

 
  2004
  2003
 

 

 

Domestic
Plans


 

Foreign
Plans


 

Domestic
Plans


 

Foreign
Plans


 
 
  EURm

  EURm

  EURm

  EURm

 
Fair value of plan assets   768   303   683   204  
Present value of funded obligations   (727 ) (398 ) (666 ) (343 )
   
 
 
 
 
Surplus/(Deficit)   41   (95 ) 17   (139 )
Unrecognized net actuarial (gains)/losses   93   82   140   61  
Unrecognized past service cost   5        
   
 
 
 
 
Prepaid/(Accrued) pension cost in balance sheet   139   (13 ) 157   (78 )
   
 
 
 
 

30


The amounts recognized in the profit and loss account are as follows:


 

 

2004


 

2003


 

2002


 
 
  EURm

  EURm

  EURm

 
Current service cost   62   54   58  
Interest cost   56   46   47  
Expected return on plan assets   (56 ) (55 ) (61 )
Net actuarial losses (gains) recognized in year     3   2  
Past service cost gain (-) loss (+)   (1 )   11  
Curtailment     (10 )  
   
 
 
 
Total, included in personnel expenses   61   38   57  
   
 
 
 

Movements in prepaid pension costs recognized in the balance sheet are as follows:


 

 

2004


 

2003


 
 
  EURm

  EURm

 
Prepaid pension costs at beginning of year   79   70  
Net income (expense) recognized in the profit and loss account   (61 ) (38 )
Contributions paid   108   47  
   
 
 
Prepaid pension costs at end of year   126 * 79 *
   
 
 

*
Included within prepaid expenses and accrued income

The principal actuarial weighted average assumptions used were as follows:

 
  2004
  2003

 

 

Domestic


 

Foreign


 

Domestic


 

Foreign

 
  %

  %

  %

  %

Discount rate for determining present values   4.75   5.00   5.25   5.30
Expected long term rate of return on plan assets   5.00   5.31   6.00   6.87
Annual rate of increase in future compensation levels   3.50   3.82   3.50   3.49
Pension increases   2.00   2.38   2.30   2.27

The prepaid pension cost above is made up of a prepayment of EUR 202 million (EUR 164 million in 2003) and an accrual of EUR 76 million (EUR 85 million in 2003).

The domestic pension plans' assets include Nokia securities with fair values of EUR 4 million in 2004 (EUR 19 million in 2003).

The foreign pension plan assets include a self investment through a loan provided to Nokia by the Group's German pension fund of EUR 62 million (EUR 64 million in 2003). See Note 32.

The actual return on plan assets was EUR 83 million in 2004 (EUR 41 million in 2003).

31



7. Selling and marketing expenses, administration expenses and other operating income and expenses

 
  2004
  2003
  2002
 
 
  EURm

  EURm

  EURm

 
Selling and marketing expenses   (2,552 ) (2,649 ) (2,579 )
Administration expenses   (604 ) (630 ) (701 )
Other operating expenses   (162 ) (384 ) (292 )
Other operating income   343   300   333  
   
 
 
 
Total   (2,975 ) (3,363 ) (3,239 )
   
 
 
 

Other operating income for 2004 includes a gain of EUR 160 million representing the premium return under a multi-line, multi-year insurance program, which expired during 2004. The return was due to our low claims experience during the policy period.

Other operating income for 2003 includes a gain of EUR 56 million on the sale of the remaining shares of Nokian Tyres Ltd. In 2003, Nokia Networks recorded a charge of EUR 80 million for personnel expenses and other costs in connection with the restructuring taken in light of general downturn in market conditions, of which EUR 15 million was paid during 2003.

Other operating income for 2002 includes a gain of EUR 106 million relating to the sale of Nokia's investment in PayPal. Other operating expenses for 2002 are composed of various items which are individually insignificant.

The Group expenses advertising and promotion costs as incurred. Advertising and promotional expenses were EUR 1,144 million in 2004 (1,414 million in 2003 and EUR 1,174 million in 2002).

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8. Impairment

2004

  Mobile
Phones

  Multimedia
  Enterprise
Solutions

  Networks
  Common
Group
Functions

  Group
 
 
  EURm

  EURm

  EURm

  EURm

  EURm

  EURm

 
Impairment of available-for-sale investments           11   11  
Impairment of capitalized development costs         115     115  
   
 
 
 
 
 
 
Total, net         115   11   126  
   
 
 
 
 
 
 

2003

 

 

 

 

 

 

 

 

 

 

 

 

 
    EURm   EURm   EURm   EURm   EURm   EURm  
Customer finance impairment charges, net of reversals         (226 )   (226 )
Impairment of goodwill         151     151  
Impairment of available-for-sale investments           27   27  
Impairment of capitalized development costs         275     275  
   
 
 
 
 
 
 
Total, net         200   27   227  
   
 
 
 
 
 
 

2002

 

 

 

 

 

 

 

 

 

 

 

 

 
    EURm   EURm   EURm   EURm   EURm   EURm  
Customer finance impairment charges, net         279     279  
Impairment of goodwill       61   121     182  
Impairment of available-for-sale investments           77   77  
   
 
 
 
 
 
 
Total, net       61   400   77   538  
   
 
 
 
 
 
 

During 2004, Nokia recorded an impairment charge of EUR 65 million of capitalized development costs due to the abandonment of FlexiGateway and Horisontal Technology modules. In addition, an impairment charge of EUR 50 million was recorded on WCDMA radio access network program due to changes in market outlook. The impairment loss was determined as the difference between the carrying amount of the asset and its recoverable amount. The recoverable amount for WCDMA radio access network was derived from the discounted cash flow projections, which covers the estimated life of the WCDMA radio access network current technology using a discount rate of 15%. The impaired technologies were part of Networks business group.

Relating to restructuring at Networks, Nokia recorded in 2003 EUR 206 million impairment of capitalized development costs relating to the WCDMA 3G systems. In 2003 Nokia also recorded a EUR 26 million and EUR 43 million impairment of capitalized development costs relating to FlexiGateway and Metrosite systems, respectively. The impairment losses were determined as the difference between the carrying amount of the asset and its recoverable amount. In determining the recoverable amount the Group calculated the present value of estimated discounted future cash flows, using a 15% discount rate for WCDMA and FlexiGateway and 12% discount rate for

33



Metrosite, expected to arise from the continuing use of the asset and from its disposal at the end of its useful life.

During 2002, Nokia recorded a net customer financing impairment charge of EUR 279 million. Of this amount, EUR 292 million was an impairment charge to write down the loans receivable to their estimated recoverable amount related to MobilCom and EUR 13 million was a partial recovery received relating to amounts written off in 2001 related to Dophin. The impairment charge recorded in 2002 relating to Mobilcom was substantially reversed in 2003 by EUR 226 million as a result of the company receiving repayment of the MobilCom loans receivables in the form of subordinated convertible perpetual bonds of France Telecom. See Notes 11, 16 and 21.

In 2003 and 2002 Nokia has evaluated the carrying value of goodwill arising from certain acquisitions by determining if the carrying values of the net assets of the cash generating unit to which the goodwill belongs exceeds the recoverable amounts of that unit. In 2003 and 2002, in the Nokia Networks business, Nokia recorded an impairment charge of EUR 151 million and EUR 104 million, respectively, on goodwill related to the acquisition of Amber Networks. The recoverable amount for Amber Networks was derived from the value in use discounted cash flow projections, which covers the estimated life of the Amber platform technology, using a discount rate of 15%. At December 31, 2004, there is EUR 0 million of Amber goodwill (EUR 0 million in 2003). The impairment is a result of significant declines in the market outlook for products under development.

In 2002, Nokia recognized impairment loss of EUR 36 million on goodwill related to the acquisition of Ramp Networks. In 2002, Nokia recognized an impairment loss of EUR 25 million, respectively, on goodwill related to the acquisition of Network Alchemy. Both of these entities are part of Enterprise Solutions business segment. The remaining goodwill balances were written off as a result of decisions to discontinue the related product development.

Nokia recognized various minor goodwill impairment charges totaling EUR 0 million in 2004 and 2003 and EUR 17 million in 2002.

During 2004 the Group's investment in certain equity securities suffered a permanent decline in fair value resulting in an impairment charge of EUR 11 million relating to non-current available-for-sale investments (EUR 27 million in 2003 and EUR 77 million in 2002).

9. Acquisitions

In 2003 Nokia made three minor purchase acquisitions for a total consideration of EUR 38 million, of which EUR 20 million in cash and EUR 18 million in non-cash consideration.

In 2002, Nokia increased its voting percentage of 39.97% and holding percentage of 59.97% in Nextrom Holding S.A. to voting percentage of 86.21% and a holding percentage of 79.33%. These increases resulted from rights offering by Nextrom in June 2002 and by acquiring new registered and bearer shares in an offering by Nextrom in December 2002 both totalling EUR 13 million. The fair value of net assets acquired was EUR 4 million giving rise to goodwill of EUR 9 million.

34



10. Depreciation and amortization

 
  2004
  2003
  2002
 
  EURm

  EURm

  EURm

Depreciation and amortization by asset category            
Intangible assets            
  Capitalized development costs   244   327   233
  Intangible rights   38   51   65
  Goodwill   96   159   206
  Other intangible assets   30   21   28
Property, plant and equipment            
  Buildings and constructions   32   34   37
  Machinery and equipment   426   545   737
  Other tangible assets   2   1   5
   
 
 
Total   868   1,138   1,311
   
 
 
Depreciation and amortization by function            
Cost of sales   196   214   314
R&D   431   537   473
Selling, marketing and administration   137   185   211
Other operating expenses   8   43   107
Goodwill   96   159   206
   
 
 
Total   868   1,138   1,311
   
 
 

11. Financial income and expenses

 
  2004
  2003
  2002
 
 
  EURm

  EURm

  EURm

 
Income from available-for-sale investments              
  Dividend income   22   24   25  
  Interest income   299   323   230  
Other financial income   178   38   27  
Exchange gains and losses   8   32   (29 )
Interest expense   (22 ) (25 ) (43 )
Other financial expenses   (80 ) (40 ) (54 )
   
 
 
 
Total   405   352   156  
   
 
 
 

During 2004, Nokia sold approximately 69% of its original holdings in the subordinated convertible perpetual bonds issued by France Telecom. As a result, the Group booked a total net gain of EUR 106 million in other financial income, of which EUR 104 million was recycled from Fair Value and Other Reserves. See Notes 16 and 21.

35



12. Income taxes

 
  2004
  2003
  2002
 
 
  EURm

  EURm

  EURm

 
Income tax expense              
  Current tax   (1,392 ) (1,686 ) (1,423 )
  Deferred tax   (43 ) (13 ) (61 )
   
 
 
 
Total   (1,435 ) (1,699 ) (1,484 )
   
 
 
 
Finland   (1,117 ) (1,118 ) (1,102 )
Other countries   (318 ) (581 ) (382 )
   
 
 
 
Total   (1,435 ) (1,699 ) (1,484 )
   
 
 
 

The differences between income tax expense computed at statutory rates (29% in Finland in 2004, 2003 and 2002) and income tax expense provided on earnings are as follows at December 31:

 
  2004
  2003
  2002
 
 
  EURm

  EURm

  EURm

 
Income tax expense at statutory rate   1,372   1,555   1,431  
  Amortization of goodwill   28   46   59  
  Impairment of goodwill     58   70  
  Provisions without income tax benefit/expense       (10 )
  Taxes for prior years   (34 ) 56   8  
  Taxes on foreign subsidiaries' profits in excess of (lower than) income taxes at statutory rates   (130 ) (77 ) (59 )
  Operating losses with no current tax benefit     8   6  
  Net increase in provisions   67   14   (39 )
  Change in deferred tax rate   26      
  Deferred tax liability on undistributed earnings   60      
  Other   46   39   18  
   
 
 
 
Income tax expense   1,435   1,699   1,484  
   
 
 
 

At December 31, 2004 the Group had loss carry forwards, primarily attributable to foreign subsidiaries of EUR 105 million (EUR 186 million in 2003 and EUR 425 million in 2002), most of which will expire between 2005 and 2024.

In 2005, the corporate tax rate in Finland will be reduced from 29% to 26%. The change had no impact on the current tax expense in 2004. The impact of the change on the Profit and loss account through change in deferred taxes in 2004 was EUR 26 million.

Certain of the Group companies' income tax returns for periods ranging from 1998 through 2002 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.

During 2004, the Group analyzed its future foreign investment plans with respect to certain foreign investments. As a result of this analysis, the Group concluded that it could no longer represent that all foreign earnings may be permanently reinvested. Accordingly, the Group recorded the recognition of a EUR 60 million deferred tax liability during the year.

36



13. Intangible assets

 
  2004
  2003
 
 
  EURm

  EURm

 
Capitalized development costs          
Acquisition cost January 1   1,470   1,707  
Additions   101   218  
Impairment and write-offs   (115 ) (455 )
Accumulated amortization December 31   (1,178 ) (933 )
   
 
 
Net carrying amount December 31   278   537  
   
 
 
Goodwill          
Acquisition cost January 1   1,298   1,429  
Additions     20  
Impairment charges (Note 8)     (151 )
Accumulated amortization December 31   (1,208 ) (1,112 )
   
 
 
Net carrying amount December 31   90   186  
   
 
 
Other intangible assets          
Acquisition cost January 1   554   524  
Additions   86   87  
Disposals   (7 ) (44 )
Translation differences   (4 ) (13 )
Accumulated amortization December 31   (420 ) (369 )
   
 
 
Net carrying amount December 31   209   185  
   
 
 

The amount of capitalized development cost impairment and write-offs in 2004 include an EUR 50 million impairment charge based on IFRS impairment review and EUR 65 million of other impairments (EUR 275 million and EUR 180 million in 2003, respectively).

37



14. Property, plant and equipment

 
  2004
  2003
 
 
  EURm

  EURm

 
Land and water areas          
Acquisition cost January 1   108   112  
Additions   1    
Disposals   (5 )  
Translation differences     (4 )
   
 
 
Net carrying amount December 31   104   108  
   
 
 
Buildings and constructions          
Acquisition cost January 1   887   911  
Additions   38   5  
Disposals   (10 ) (1 )
Translation differences   (5 ) (28 )
Accumulated depreciation December 31   (220 ) (196 )
   
 
 
Net carrying amount December 31   690   691  
   
 
 
Machinery and equipment          
Acquisition cost January 1   3,223   3,249  
Additions   438   336  
Disposals   (277 ) (313 )
Translation differences   (13 ) (49 )
Accumulated depreciation December 31   (2,681 ) (2,521 )
   
 
 
Net carrying amount December 31   690   702  
   
 
 
Other tangible assets          
Acquisition cost January 1   18   22  
Additions   1    
Disposals     (1 )
Translation differences   2   (3 )
Accumulated depreciation December 31   (11 ) (6 )
   
 
 
Net carrying amount December 31   10   12  
   
 
 
Advance payments and fixed assets under construction          
Acquisition cost January 1   53   60  
Additions   25   44  
Disposals     (10 )
Transfers to:          
  Other intangible assets   (1 ) (4 )
  Buildings and constructions   (8 )  
  Machinery and equipment   (30 ) (35 )
Translation differences   1   (2 )
   
 
 
Net carrying amount December 31   40   53  
   
 
 
Total property, plant and equipment   1,534   1,566  

38


15. Investments in associated companies

 
  2004
  2003
 
 
  EURm

  EURm

 
Net carrying amount January 1   76   49  
Additions   150   59  
Share of results   (26 ) (18 )
Translation differences   1   (2 )
Other movements   (1 ) (12 )
   
 
 
Net carrying amount December 31   200   76  
   
 
 

In 2004 Nokia increased its ownership in Symbian from 32.2% to 47.9% by acquiring part of the shares of Symbian owned by Psion for EUR 102 million (GBP 70 million). EUR 68 million (GBP 47 million) of the total acquisition cost was paid in cash and the remaining purchase price is considered as contingent consideration to be paid in 2005 and 2006. Nokia also participated in a rights issue to raise EUR 73 million (GBP 50 million) additional funding to Symbian. The issue was pro rata to existing shareholders.

In 2003 Nokia increased its ownership in Symbian from 19.0% to 32.2% by acquiring part of the shares of Symbian owned by Motorola representing 13.2% of all the shares in Symbian, for EUR 57 million (GBP 39.6 million) in cash.

Shareholdings in associated companies are comprised of investments in unlisted companies in all periods presented.

16. Available-for-sale investments

 
  2004
  2003
 
 
  EURm

  EURm

 
Fair value at January 1   11,088   8,093  
Additions (deductions), net   (221 ) 2,911  
Fair value gains/losses   20   111  
Impairment charges (Note 8)   (11 ) (27 )
   
 
 
Fair value at December 31   10,876   11,088  
   
 
 
Non-current   169   121  
Current   255   816  
Current, liquid assets   9,085   8,512  
Current, cash equivalents   1,367   1,639  

Available-for-sale investments, comprising marketable debt and equity securities and investments in unlisted equity shares, are fair valued, except in the case of certain unlisted equities, where the fair value cannot be measured reliably. Such unlisted equities are carried at cost, less impairment (EUR 54 million in 2004 and EUR 45 million in 2003). Fair value for equity investments traded in active markets and for unlisted equities, where the fair value can be measured reliably, was EUR 115 million in 2004 and EUR 77 million in 2003. Fair value for equity investments traded in active markets is determined by using exchange quoted bid prices. For other investments, fair value is estimated by using the current market value of similar instruments or by reference to the

39



discounted cash flows of the underlying net assets. Gains and losses arising from the change in the fair value of available-for-sale investments are recognized directly in fair value and other reserves.

Available-for-sale investments comprise: (1) the subordinated convertible perpetual bonds of France Telecom (convertible at any time to ordinary shares of France Telecom at a price of EUR 40 and with a fixed coupon of 5.75% until the end of 2009, thereafter floating rate plus a spread of 300bp, both being subject to a maximum 50bp step down linked to France Telecom's long term credit ratings), which are regarded as current available-for-sale investments, (2) highly liquid, interest-bearing investments with maturities at acquisition of longer than 3 months, which are regarded as current available-for-sale investments, liquid assets and (3) similar types of investments as in category (2), but with maturities at acquisition of less than 3 months, which are regarded as current available-for-sale investments, cash equivalents. The remaining part of the available-for-sale investments portfolio is classified as non-current. See Note 35 for details of these investments.

17. Long-term loans receivable

 Long-term loans receivable, consisting of loans made to customers principally to support their financing of network infrastructure and services or working capital, net of allowances and write-offs amounts (Note 8), are repayable as follows:

 
  2004
  2003
 
  EURm

  EURm

Under 1 year    
Between 1 and 2 years     354
Between 2 and 5 years    
Over 5 years    
   
 
      354
   
 

18. Inventories

 
  2004
  2003
 
  EURm

  EURm

Raw materials, supplies and other   326   346
Work in progress   477   435
Finished goods   502   388
   
 
Total   1,305   1,169
   
 

19. Receivables

 Prepaid expenses and accrued income consists of VAT and other tax receivables, prepaid pension costs, accrued interest income and other accrued income, but no amounts which are individually significant.

Accounts receivable include EUR 118 million (EUR 40 million in 2003) due more than 12 months after the balance sheet date.

40



20. Valuation and qualifying accounts

Allowances on
assets to which they apply:

  Balance at
beginning
of year

  Charged to
cost and
expenses

  Charged to
other
accounts

  Deductions(1)
  Balance
at end
of year

 
  EURm

  EURm

  EURm

  EURm

  EURm

2004                    
Doubtful accounts receivable   367   155     (161 ) 361
Excess and obsolete inventory   188   308     (324 ) 172

2003

 

 

 

 

 

 

 

 

 

 
Doubtful accounts receivable   300   228     (161 ) 367
Excess and obsolete inventory   290   229     (331 ) 188

2002

 

 

 

 

 

 

 

 

 

 
Doubtful accounts receivable   217   186     (103 ) 300
Long-term loans receivable   13       (13 )
Excess and obsolete inventory   314   318     (342 ) 290

(1)
Deductions include utilization and releases of the allowances

21. Fair value and other reserves

 
  Hedging
reserve, EURm

  Available-for-sale
investments, EURm

  Total, EURm
 
 
  Gross
  Tax
  Net
  Gross
  Tax
  Net
  Gross
  Tax
  Net
 
Balance at December 31, 2002   31   (9 ) 22   (13 ) (16 ) (29 ) 18   (25 ) (7 )
           
         
         
 
Cash flow hedges:                                      
  Fair value gains/(losses) in period   1   1   2         1   1   2  

Available-for-sale Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Net fair value gains/(losses)         110   (12 ) 98   110   (12 ) 98  
  Transfer to profit and loss account on impairment         27     27   27     27  
  Transfer of fair value gains to profit and loss account on disposal         (84 ) 20   (64 ) (84 ) 20   (64 )
  Transfer of fair value losses to profit and loss account on disposal         43   (6 ) 37   43   (6 ) 37  
           
         
         
 
Balance at December 31, 2003   32   (8 ) 24   83   (14 ) 69   115   (22 ) 93  
           
         
         
 
Cash flow hedges:                                      
  Fair value gains/(losses) in period   59   (16 ) 43         59   (16 ) 43  

Available-for-sale Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Net fair value gains/(losses)         18   (1 ) 17   18   (1 ) 17  
  Transfer to profit and loss account on impairment         11     11   11     11  
  Transfer of fair value gains to profit and loss account on disposal         (105 ) 10   (95 ) (105 ) 10   (95 )
  Transfer of fair value losses to profit and loss account on disposal                    
           
         
         
 
Balance at December 31, 2004   91   (24 ) 67   7   (5 ) 2   98   (29 ) 69  
           
         
         
 

41


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 equity.

Nokia continuously reviews the underlying cash flows and the hedges allocated thereto, to ensure that the amounts transferred to the Hedging Reserve during the year ended December 31, 2004 and 2003 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. Because of the number of transactions undertaken during each period and the process used to calculate the reserve balance, separate disclosure of the transfers of gains and losses to and from the reserve would be impractical.

All of the net fair value gains or losses recorded in the Fair value and other reserve at December 31, 2004 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 1 year from the balance sheet date.

22. The shares of the Parent Company

 See Note 15 to the Financial Statements of the Parent company.

23. Distributable earnings

 
  2004
 
 
  EURm

 
Retained earnings   13,765  
Translation differences (distributable earnings)   (432 )
Treasury shares   (2,022 )
Other non-distributable items      
  Portion of untaxed reserves   12  
   
 
Distributable earnings December 31   11,323  
   
 

Retained earnings under IFRS and Finnish Accounting Standards (FAS) are substantially the same. Distributable earnings are calculated based on Finnish legislation.

42


24. Long-term liabilities

 Long-term loans are repayable as follows:

 
  Outstanding
December 31, 2004

  Repayment
date beyond
5 years

  Outstanding
December 31, 2003

 
  EURm

  EURm

  EURm

Loans from financial institutions       1
Loans from pension insurance companies   19   19   18
Other long-term finance loans       1
Other long-term liabilities   96   96   67
   
 
 
    115   115   87
   
 
 
Deferred tax liabilities   179       241
   
     
Total long-term liabilities   294       328
   
     

The long-term liabilities excluding deferred tax liabilities as of December 31, 2004 mature as follows:

 
  EURm
  Percent of total
 
2005      
2006      
2007      
2008      
2009      
Thereafter   115   100.0 %
   
 
 
    115   100.0 %
   
 
 

The currency mix of the Group long-term liabilities as at December 31, 2004 was as follows:

EUR
  USD
   
 
97.24 % 2.76 %    

43


25. Deferred taxes

 
  2004
  2003
 
 
  EURm

  EURm

 
Deferred tax assets:          
  Intercompany profit in inventory   41   40  
  Tax losses carried forward   12   36  
  Warranty provision   118   157  
  Other provisions   174   179  
  Other temporary differences   190   233  
  Untaxed reserves   88   98  
   
 
 
Total deferred tax assets   623   743  
   
 
 
Deferred tax liabilities:          
  Untaxed reserves   (30 ) (33 )
  Fair value gains/losses   (28 ) (22 )
  Undistributed earnings   (60 )  
  Other   (61 ) (186 )
   
 
 
Total deferred tax liabilities   (179 ) (241 )
   
 
 
Net deferred tax asset   444   502  
   
 
 
The tax charged to shareholders' equity is as follows:          
Fair value and other reserves, fair value gains/losses   (7 ) (22 )

In 2005, the corporate tax rate in Finland will be reduced from 29% to 26%. The impact of the change on the deferred tax assets in 2004 was a reduction of EUR 28 million and on the deferred tax liabilities an increase of EUR 2 million. Accordingly, the impact of the change in the tax rate on the profit and loss account through change in deferred taxes in 2004 was EUR 26 million tax expense.

During 2004, the Group analyzed the majority of its future foreign investment plans with respect to foreign investments. As a result of this analysis, the Group concluded that it could no longer represent that all foreign earnings may be permanently reinvested. Accordingly, the Group recorded the recognition of a EUR 60 million deferred tax liability during the year.

At December 31, 2004 the Group had loss carry forwards of EUR 67 million (EUR 75 million in 2003) for which no deferred tax asset was recognized due to uncertainty of utilization of these loss carry forwards. These loss carry forwards will expire in years 2005 through 2010.

26. Short-term borrowings

 Short-term borrowings consist primarily of borrowings from banks denominated in different foreign currencies.

The weighted average interest rate at December 31, 2004 and 2003 was 3.07% and 6.73%, respectively.

44



27. Accrued expenses

 
  2004
  2003
 
  EURm

  EURm

Social security, VAT and other taxes   450   501
Wages and salaries   209   170
Prepaid income   293   276
Other   1,654   1,521
   
 
Total   2,606   2,468
   
 

Other includes various amounts which are individually insignificant.

28. Provisions

 
  Warranty
  IPR infringements
  Other
  Total
 
 
  EURm

  EURm

  EURm

  EURm

 
At January 1, 2004   1,303   371   748   2,422  
Exchange differences   (6 )     (6 )
Additional provisions   751   96   653   1,500  
Change in fair value       (8 ) (8 )
Unused amounts reversed   (233 ) (74 ) (187 ) (494 )
   
 
 
 
 
Charged to profit and loss account   518   22   458   998  
   
 
 
 
 
Utilized during year   (598 ) (35 ) (302 ) (935 )
   
 
 
 
 
At December 31, 2004   1,217   358   904   2,479  
   
 
 
 
 
 
  2004
  2003
 
  EURm

  EURm

Analysis of total provisions at December 31:        
Non-current   726   593
Current   1,753   1,829

The IPR provision is based on estimated future settlements for asserted and unasserted past IPR infringements. Final resolution of IPR claims generally occurs over several periods. This results in varying usage of the provision year to year.

Other provisions include tax provisions of EUR 364 million at December 31, 2004 (EUR 185 million in 2003). Other items within Other provisions include provisions for non-cancelable purchase commitments, provision for social security costs on stock options and provision for losses on projects in progress.

45



29. Earnings per share

 
  2004
  2003
  2002
Numerator/EURm            
  Basic/Diluted:            
    Net profit   3,207   3,592   3,381
   
 
 
Denominator/1000 shares            
  Basic:            
    Weighted average shares   4,593,196   4,761,121   4,751,110
    Effect of dilutive securities:            
      stock options, restricted shares and performance shares   7,141   40   36,932
   
 
 
  Diluted:            
    Adjusted weighted average shares and assumed conversions   4,600,337   4,761,161   4,788,042
   
 
 

Under IAS 33, 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.

30. Commitments and contingencies

 
  2004
  2003
 
  EURm

  EURm

Collateral for our own commitments        
Property under mortgages   18   18
Assets pledged   11   13
Contingent liabilities on behalf of Group companies        
Other guarantees   275   184
Collateral given on behalf of other companies        
Securities pledged(1)     28
Contingent liabilities on behalf of other companies        
Guarantees for loans(1)   3   5
Other guarantees   2  
Financing commitments        
Customer finance commitments(1)   56   490

(1)
See also note 35 b

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 2004 (EUR 18 million in 2003).

Assets pledged for the Group's own commitments include available-for-sale investments of EUR 11 million in 2004 (EUR 3 million of inventories and EUR 10 million available-for-sale investments in 2003).

46



Other guarantees include guarantees of Nokia's performance of EUR 223 million in 2004 (EUR 171 million in 2003). However, EUR 175 million of these guarantees are provided to certain Networks' customers 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 nonperformance by Nokia.

Securities pledged and guarantees for loans on behalf of other companies of EUR 3 million in 2004 (EUR 33 million in 2003) represent guarantees relating to payment by certain Networks' customers under specified loan facilities between such customers 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 56 million in 2004 (EUR 490 million in 2003) are available under loan facilities negotiated with customers of Networks. 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 and to fund working capital.

The Group has been named as defendant along with certain of its senior executives in a class action complaint in the United States relating to certain public statements about its product portfolio and related financial projections. The Group does not believe that the claim has merit and intends to vigorously defend itself.

The Group is party to routine litigation incidental to the normal conduct of business. In the opinion of management the outcome of and liabilities in excess of what has been provided for related to these and other proceedings, in the aggregate, are not likely to be material to the financial condition or results of operations.

As of December 31, 2004, the Group had purchase commitments of EUR 1,236 million (EUR 1,051 million in 2003) relating to inventory purchase obligations, primarily for purchases in 2005.

31. Leasing contracts

 The Group leases office, manufacturing and warehouse space under various non-cancellable operating leases. Certain contracts contain renewal options for various periods of time.

47



The future costs for non-cancellable leasing contracts are as follows:

 
  Operating leases
Leasing payments, EURm    
  2005   175
  2006   137
  2007   94
  2008   78
  2009   70
  Thereafter   57
   
  Total   611
   

Rental expense amounted to EUR 236 million in 2004 (285 million in 2003 and EUR 384 million in 2002).

32. 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 include 0.008% of Nokia's shares.

At December 31, 2004 the Group had borrowings amounting to EUR 62 million (EUR 64 million in 2003) from Nokia Unterstützungskasse GmbH, the Group's German pension fund, which is a separate legal entity.

The Group recorded net rental expense of EUR 2 million in 2004 (EUR 2 million in 2003 and EUR 2 million in 2002) pertaining to a sale-leaseback transaction with the Nokia Pension Foundation involving certain buildings and a lease of the underlying land.

There were no loans granted to top management at December 31, 2004 or 2003. See Note 5, Personnel expenses, for officers and directors remunerations.

33. Associated companies

 
  2004
  2003
  2002
 
 
  EURm

  EURm

  EURm

 
Share of results of associated companies   (26 ) (18 ) (19 )
Dividend income   2   3   1  
Share of shareholders' equity of associated companies   37   18   30  
Liabilities to associated companies   3   3   7  

48


34. Notes to cash flow statement

 
  2004
  2003
  2002
 
 
  EURm

  EURm

  EURm

 
Adjustments for:              
  Depreciation and amortization (Note 10)   868   1,138   1,311  
  (Profit)/loss on sale of property, plant and equipment and available-for-sale investments   26   170   (92 )
  Income taxes (Note 12)   1,435   1,699   1,484  
  Share of results of associated companies (Note 33)   26   18   19  
  Minority interest   67   54   52  
  Financial income and expenses (Note 11)   (405 ) (352 ) (156 )
  Impairment charges (Note 8)   129   453   245  
  Premium return   (160 )    
  Customer financing impairment charges and reversals     (226 ) 279  
  Other     (1 ) 9  
   
 
 
 
Adjustments, total   1,986   2,953   3,151  
   
 
 
 
Change in net working capital              
  (Increase) Decrease in short-term receivables   385   (207 ) (16 )
  (Increase) Decrease in inventories   (193 ) (41 ) 243  
  Increase in interest-free short-term liabilities   107   54   687  
   
 
 
 
Change in net working capital   299   (194 ) 914  
   
 
 
 
Non-cash investing activities              
Acquisition of:              
  Current available-for-sale investments in settlement of customer loan     676    
  Company acquisitions     18    
   
 
 
 
  Total     694    
   
 
 
 

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 all 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

49



addition to general principles there are specific risk management policies covering, for example, treasury and customer finance risks.

Financial risks

The key financial targets for Nokia are growth, profitability, operational efficiency and a strong balance sheet. The objective for the Treasury function 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 function 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.

The Treasury function is governed by policies approved by top management. Treasury Policy provides principles for overall financial risk management and determines the allocation of responsibilities for financial risk management in Nokia. Operating Policies 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. Business Groups have detailed Standard Operating Procedures supplementing the Treasury Policy in financial risk management related issues.

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 Eurozone.

Due to the changes in the business environment, currency combinations may also change within the financial year. The most significant non-euro sales currencies during the year were US dollar (USD), UK pound sterling (GBP) and Australian dollar (AUD). In general, depreciation of another currency relative to the euro has an adverse effect on Nokia's sales and operating profit, while appreciation of another currency has a positive effect, with the exception of Japanese yen (JPY), being the only significant foreign currency in which Nokia has more purchases than sales.

50



The following chart shows the break-down by currency of the underlying net foreign exchange transaction exposure as of December 31, 2004 (in some of the currencies, especially the US dollar, Nokia has both substantial sales as well as cost, which have been netted in the chart).

GRAPHIC

According to the foreign exchange policy guidelines of the Group, 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 a duration of less than a year. The Group does not hedge forecasted foreign currency cash flows beyond two years.

Nokia uses the Value-at-Risk ("VaR") methodology to assess the foreign exchange risk related to the Treasury management of the Group exposures. The VaR figure represents the potential fair value losses for a portfolio resulting from adverse changes in market factors using a specified time period and confidence level based on historical data. To correctly take into account the non-linear price function of certain derivative instruments, Nokia uses Monte Carlo simulation. Volatilities and correlations are calculated from a one-year set of daily data. The VaR figures assume that the forecasted cash flows materialize as expected. The VaR figures for the Group transaction foreign exchange exposure, including hedging transactions and Treasury exposures for netting and risk management purposes, with a one-week horizon and 95% confidence level, are shown in Table 1, below.

Table 1 Transaction foreign exchange position Value-at-Risk

VaR

  2004
  2003
 
  EURm

  EURm

At December 31   12.7   16.7
Average for the year   14   9.3
Range for the year   1.6-26.9   5.8-16.7

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.

51



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.

Treasury is responsible for monitoring and managing the interest rate exposure of the Group. Due to the current balance sheet structure of Nokia, emphasis is placed on managing the interest rate risk of investments.

Nokia uses the VaR methodology to assess and measure the interest rate risk in the investment portfolio, which is benchmarked against a one-year investment horizon. The VaR figure represents the potential fair value losses for a portfolio resulting from adverse changes in market factors using a specified time period and confidence level based on historical data. For interest rate risk VaR, Nokia uses variance-covariance methodology. Volatilities and correlations are calculated from a one-year set of daily data. The VaR-based interest rate risk figures for an investment portfolio with a one-week horizon and 95% confidence level are shown in Table 2, below.

Table 2 Treasury investment portfolio Value-at-Risk

VaR

  2004
  2003
 
  EURm

  EURm

At December 31   10.4   9.8
Average for the year   6.3   6.7
Range for the year   3.6-10.8   4.7-11.9

Equity price risk

Nokia has certain strategic minority investments in publicly traded companies. These investments are classified as available-for-sale. The fair value of the equity investments at December 31, 2004 was EUR 7 million (EUR 8 million in 2003).

There are currently no outstanding derivative financial instruments designated as hedges of these equity investments. The VaR figures for equity investments, shown in Table 3, below, have been calculated using the same principles as for interest rate risk.

Table 3 Equity investments Value at Risk

VaR

  2004
  2003
 
  EURm

  EURm

At December 31   0.1   0.2
Average for the year   0.2   3.5
Range for the year   0.1-0.3   0.2-9.4

In addition to the listed equity holdings, Nokia invests in private equity through Nokia Venture Funds. The fair value of these available-for-sale equity investments at December 31, 2004 was USD 142 million (USD 85 million in 2003). Nokia is exposed to equity price risk on social security costs

52



relating to stock compensation plans. Nokia hedges this risk by entering into cash settled equity swap and option contracts.

b)    Credit risk

Customer Finance Credit Risk

Network operators in some markets sometimes require their suppliers to arrange or provide term financing in relation to infrastructure projects. Nokia has maintained a financing policy aimed at close cooperation with banks, financial institutions and Export Credit Agencies to support selected customers in their financing of infrastructure investments. Nokia actively mitigates, market conditions permitting, this exposure by arrangements with these institutions and investors.

Credit risks related to customer financing are systematically analyzed, monitored and managed by Nokia's Customer Finance organization, reporting to the Chief Financial Officer. Credit risks are approved and monitored by Nokia's Credit Committee along principles defined in the Company's credit policy and according to the credit approval process. The Credit Committee consists of the CFO, Group Controller, Head of Group Treasury and Head of Nokia Customer Finance.

There were no outstanding loans to customers (EUR 354 million in 2003 net of allowances and write-offs), while financial guarantees given on behalf of third parties totaled EUR 3 million (EUR 33 million in 2003). In addition, we had financing commitments totaling EUR 56 million (EUR 490 million in 2003). Total customer financing (outstanding and committed) stood at EUR 59 million (EUR 877 million in 2003).

The term customer financing portfolio at December 31, 2004 was:

 
  Outstanding
  Financing Commitments
  Total
 
  EURm

  EURm

  EURm

Total Portfolio   3   56   59
   
 
 

The term customer financing portfolio at December 31, 2004 mainly consists of committed customer financing to wireless operator Astelit LLC in Ukraine, of which none was outstanding.

Financial credit risk

Financial instruments contain an element of risk of the counterparties being unable to meet their obligations. This risk is measured and monitored by the Treasury function. The Group 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 the Company the right to offset in the case that the counterparty would not be able to fulfill the obligations.

Direct credit risk represents the risk of loss resulting from counterparty default in relation to on-balance sheet products. The fixed income and money market investment decisions are based on strict creditworthiness criteria. The outstanding investments are also constantly monitored by the Treasury. Nokia does not expect the counterparties to default given their high credit quality.

53



Current Available-for-sale investments(1)(2)(3)

 
  Maturity date
less than 12 months

  Maturity date
12 months or more

  Total
2004

  Fair
Value

  Unrealized
Losses

  Unrealized
Gains

  Fair
Value

  Unrealized
Losses

  Unrealized
Gains

  Fair
Value

  Unrealized
Losses

  Unrealized
Gains

Governments   1,820     1   3,999   (14 ) 4   5,819   (14 ) 5
Banks   3,927     1   428   (1 ) 2   4,355   (1 ) 3
Corporates   166       302     10   468     10
Asset backed securities         65       65    
   
 
 
 
 
 
 
 
 
    5,913     2   4,794   (15 ) 16   10,707   (15 ) 18
   
 
 
 
 
 
 
 
 
2003
                                   
Governments   1,058     1   1,109   (3 ) 6   2,167   (3 ) 7
Banks   5,206   (1 ) 2   264     4   5,470   (1 ) 6
Corporates   2,165     1   1,115     128   3,280   (1 ) 128
Asset backed securities         50       50    
   
 
 
 
 
 
 
 
 
    8,430   (2 ) 4   2,538   (3 ) 137   10,967   (5 ) 141
   
 
 
 
 
 
 
 
 
 
  2004
  2003
 
  EURm

  EURm

Fixed rate investments   10,429   10,541
Floating rate investments   278   426
   
 
Total   10,707   10,967
   
 

(1)
Available-for-sale investments are carried at fair value in 2004 and 2003.

(2)
Weighted average interest rate for current available-for-sale investments was 3.63% in 2004 and 3.08% in 2003.

(3)
Included within current Available-for-sale investments is EUR 11 million and EUR 31 million of restricted cash at December 31, 2004 and 2003, respectively.

c)     Liquidity risk

 Nokia guarantees a sufficient liquidity at all times by efficient cash management and by investing in liquid interest bearing securities. 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, 2004 the committed facility totaled USD 2.0 billion. The committed credit facility is intended to be used for U.S. and Euro Commercial Paper Programs back up purposes. The commitment fee on the facility is 0.10% per annum.

The most significant existing funding programs include:

            Revolving Credit Facility of USD 2,000 million, maturing in 2008

            Local commercial paper program in Finland, totaling EUR 750 million

54



            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 2004.

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, 2004 were:

Short-term   Standard & Poor's   A-1
    Moody's   P-1
Long-term   Standard & Poor's   A
    Moody's   A1

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. Nokia's Insurance & Risk Finance function's objective is to ensure that Group's hazard risks, whether related to physical assets (e.g. buildings) or intellectual assets (e.g. Nokia brand) or potential liabilities (e.g. product liability) are optimally insured.

Nokia purchases both annual insurance policies for specific risks as well as multi-line and/or multi-year insurance policies, where available.

Notional amounts of derivative financial instruments(1)

 
  2004
  2003
 
  EURm

  EURm

Foreign exchange forward contracts(2)   10,745   10,271
Currency options bought(2)   715   2,924
Currency options sold(2)   499   2,478
Interest rate swaps     1,500
Cash settled equity options(3)   237   228
Credit default swaps(4)   200  

(1)
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.

(2)
As at December 31, 2004 notional amounts include contracts amounting to EUR 1.6 billion used to hedge the shareholders' equity of foreign subsidiaries (December 31, 2003 EUR 3.3 billion).

(3)
Cash settled equity options can be used to hedge risk relating to incentive programs and investment activities.

(4)
Credit default swaps are used to selectively hedge counterparty risks involved in investment activities.

55


Fair values of derivatives

The net fair values of derivative financial instruments at the balance sheet date were:

 
  2004
  2003
 
 
  EURm

  EURm

 
Derivatives with positive fair value(1):          
  Forward foreign exchange contracts(2)   278   358  
  Currency options bought   14   59  
  Cash settled equity options   5   13  
  Interest rate swaps     1  
  Embedded derivatives(3)     25  

Derivatives with negative fair value(1):

 

 

 

 

 
  Forward foreign exchange contracts(2)   (89 ) (108 )
  Currency options written   (11 ) (35 )
  Credit default swaps   (2 )  
  Embedded derivatives(3)     (8 )

(1)
Out of the forward foreign exchange contracts and currency options, fair value EUR 43 million was designated for hedges of net investment in foreign subsidiaries as at December 31, 2004 (EUR 90 million at December 31, 2003) and reported within translation differences.

(2)
Out of the foreign exchange forward contracts, fair value EUR 91 million was designated for cash flow hedges as at December 31, 2004 (EUR 33 million at December 31, 2003) and reported in fair value and other reserves.

(3)
Embedded derivatives are components of contracts having the characteristics of derivatives, and thus requiring fair valuing of such components. The change in the fair value is reported in other financial income and expenses.

36. Principal Nokia Group companies at December 31, 2004

 
   
  Parent
holding
%

  Group
majority
%

US   Nokia Inc.     100.00
DE   Nokia GmbH   100.00   100.00
GB   Nokia UK Limited     100.00
KR   Nokia TMC Limited   100.00   100.00
CN   Nokia Capitel Telecommunications Ltd     52.90
NL   Nokia Finance International B.V.   100.00   100.00
HU   Nokia Komárom Kft   100.00   100.00
BR   Nokia do Brazil Technologia Ltda   99.99   100.00
IT   Nokia Italia Spa   100.00   100.00
IN   Nokia India Ltd   100.00   100.00
CN   Dongguan Nokia Mobile Phones Company Ltd     70.00
CN   Beijing Nokia Hang Xing Telecommunications Systems Co. Ltd     69.00

56


Shares in listed companies

Group holding more than 5%

 
  Group
holding
%

  Group
voting
%

  Nextrom Holding S.A.   79.33   86.21

Under a binding sale agreement signed on December 31, 2004, Nokia will sell its entire holding in Nextrom Holding S.A. and the remaining loan agreement to Knill Group. The transaction is expected to be completed during the first quarter of 2005. The negative impact of EUR 12 million from the divestiture was recognized in other operating expenses in 2004.

Associated companies

 

 

 

 
  Symbian Limited   47.90   47.90

A complete list of subsidiaries and associated companies is included in Nokia's Statutory Accounts.

57



Profit and Loss Accounts, Parent Company, FAS

 
   
  Financial year
ended
December 31

 
 
  Notes
  2004
  2003
 
 
   
  EURm

  EURm

 
Net sales       22,888   22,402  
Cost of sales       (15,162 ) (13,704 )

Gross margin

 

 

 

7,726

 

8,698

 

Selling and marketing expenses

 

 

 

(982

)

(1,058

)
Research and development expenses       (3,587 ) (3,496 )
Administrative expenses       (666 ) (762 )
Other operating expenses       (63 ) (79 )
Other operating income       124   392  

Operating profit

 

2, 3

 

2,552

 

3,695

 

Financial income and expenses

 

 

 

 

 

 

 
Income from long-term investments              
  Dividend income from Group companies       418   106  
  Dividend income from other companies       23   23  
  Interest income from Group companies       6   15  
  Interest income from other companies         21  
Other interest and financial income              
  Interest income from Group companies       169   145  
  Interest income from other companies         1  
  Other financial income from other companies       21   42  
Exchange gains and losses       117   144  
Interest expenses and other financial expenses              
  Interest expenses to Group companies       (65 ) (26 )
  Interest expenses to other companies       (2 ) (9 )
  Other financial expenses       (10 ) (19 )
       
 
 
Financial income and expenses, total       677   443  

Profit before extraordinary items and taxes

 

 

 

3,229

 

4,138

 

Extraordinary items

 

 

 

 

 

 

 
  Group contributions       12   93  
       
 
 
  Extraordinary items, total       12   93  

Profit before taxes

 

 

 

3,241

 

4,231

 
Income taxes              
  for the year       (826 ) (1,132 )
  from previous years       19   (29 )
       
 
 

Net profit

 

 

 

2,434

 

3,070

 
       
 
 

See Notes to the financial statements of the parent company.

58



Balance Sheets, Parent Company, FAS

 
   
  December 31
 
 
  Notes
  2004
  2003
 
 
   
  EURm

  EURm
 
ASSETS              

Fixed assets and other non-current assets

 

 

 

 

 

 

 
Intangible assets   4          
  Capitalized development costs       328   619  
  Intangible rights       59   52  
       
 
 
        387   671  
Tangible assets   5      
Investments              
  Investments in subsidiaries   6   3,597   3,540  
  Investments in associated companies   6   5   4  
  Long-term loan receivables from Group companies       140   152  
  Long-term loan receivables from other companies       38   394  
  Other non-current assets   7   7   17  
       
 
 
        3,787   4,107  
Current assets              
Inventories and work in progress              
  Raw Materials and supplies       102   81  
  Work in progress       84   80  
  Finished goods       284   237  
  Prepaid inventories       2   7  
       
 
 
        472   405  
Receivables              
  Trade debtors from Group companies       633   1,895  
  Trade debtors from other companies       1,523   1,046  
  Short-term loan receivables from Group companies       12,704   9,886  
  Short-term loan receivables from other companies       6   13  
  Prepaid expenses and accrued income from Group companies       71   3  
  Prepaid expenses and accrued income from other companies       576   454  
       
 
 
        15,513   13,297  
Short-term investments         31  
Bank and cash       75   72  
       
 
 
        20,234   18,583  
       
 
 

SHAREHOLDERS' EQUITY AND LIABILITIES

 

 

 

 

 

 

 

Shareholders' equity

 

8

 

 

 

 

 
  Share capital       280   288  
  Share issue premium       2,230   2,222  
  Treasury shares   8   (2,012 ) (1,351 )
  Retained earnings   9   7,729   8,062  
  Net profit for the year   8, 9   2,434   3,070  
       
 
 
        10,661   12,291  
Liabilities              
Short-term liabilities              
  Current finance liabilities from Group companies       6,436   3,100  
  Current finance liabilities from other companies       2   65  
  Advance payments from other companies       133   4  
  Trade creditors to Group companies       634   767  
  Trade creditors to other companies       902   923  
  Accrued expenses and prepaid income to Group companies       76   16  
  Accrued expenses and prepaid income to other companies       1,390   1,417  
       
 
 
        9,573   6,292  
        20,234   18,583  
       
 
 

See Notes to the financial statements of the parent company.

59



Cash Flow Statements, Parent Company, FAS

 
   
  Financial year ended December 31
 
 
  Notes
  2004
  2003
 
 
   
  EURm

  EURm

 
Cash flow from operating activities              
Net profit       2,434   3,070  
  Adjustments, total   13   539   1,041  
       
 
 
Net profit before change in net working capital       2,973   4,111  
  Change in net working capital   13   679   (660 )
       
 
 
Cash generated from operations       3,652   3,451  
  Interest received       175   167  
  Interest paid       (70 ) (37 )
  Other financial income and expenses       133   127  
  Income taxes paid       (928 ) (1,095 )
       
 
 
Cash flow before extraordinary items       2,962   2,613  
  Extraordinary income and expenses       93   119  
       
 
 
Net cash from operating activities       3,055   2,732  

Cash flow from investing activities

 

 

 

 

 

 

 
Investments in shares       (398 ) (235 )
Additions to capitalized development costs       (101 ) (218 )
Capital expenditures       (39 ) (36 )
Proceeds from sale of shares       346   1,024  
Long-term loans made to customers       (1 ) (97 )
Proceeds from repayment and sale of long term loans receivable       365   315  
Proceeds from other long-term receivables       13   163  
Payments of short-term receivables       (2,880 ) (1,420 )
Dividends received       366   123  
       
 
 
Net cash used in investing activities       (2,329 ) (381 )

Cash flow from financing activities

 

 

 

 

 

 

 
Proceeds from share issue         23  
Proceeds from borrowings       3,333   247  
Repayment of borrowings       (23 ) (64 )
Purchase of treasury shares       (2,660 ) (1,351 )
Dividends paid       (1,399 ) (1,340 )
Support to the Foundation of Nokia Corporation       (5 )  
       
 
 
Net cash used in financing activities       (754 ) (2,485 )
       
 
 
Net decrease in cash and cash equivalents       (28 ) (134 )

Cash and cash equivalents at beginning of period

 

 

 

103

 

237

 
       
 
 
Cash and cash equivalents at end of period       75   103  
       
 
 

See Notes to the financial statements of the parent company.

60



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

 
  2004
  2003
 
  EURm

  EURm

Wages and salaries   1,172   1,050
Pension expenses   162   149
Other social expenses   80   117
   
 
Personnel expenses as per profit and loss account   1,414   1,316
   
 
Remuneration of the members of the Board of Directors, the Chief Executive Officer and the President*   6   5

       
* Salaries include incentives   3   2

Pension commitments for the management:

For the Chief Executive Officer and the President of the Parent Company the retirement age is 60 years. There were three other Group Executive Board Members whose retirement age is 60 years as of December 31, 2004. There was also one other member, following his arrangement from a previous employer, who has a retirement benefit of 65% of his pensionable salary beginning at age 62. Early retirement is possible at age 55 with reductions in benefits. Nokia does not offer any similar benefit to any other members of the 2004 Group Executive Board.

Personnel average

  2004
  2003
Production   5,029   4,839
Marketing   1,609   1,577
R&D   12,861   12,553
Administration   3,292   3,481
   
 
    22,791   22,450
   
 
Personnel, December 31   22,990   22,132
   
 

61


3. Depreciation and amortization

 
  2004
  2003
 
  EURm

  EURm

Depreciation and amortization by asset class category        
Intangible assets        
  Capitalized development costs   290   327
  Intangible rights   31   42
Tangible assets    
   
 
Total   321   369
   
 
Depreciation and amortization by function        
R&D   298   332
Production    
Selling, marketing and administration   23   37
   
 
Total   321   369
   
 

4. Intangible assets

 
  2004
  2003
 
 
  EURm

  EURm

 
Capitalized development costs          
Acquisition cost January 1   1,416   1,706  
Additions   101   201  
Disposals   (123 ) (491 )
Accumulated amortization December 31   (1,066 ) (797 )
   
 
 
Net carrying amount December 31   328   619  
   
 
 
Intangible rights          
Acquisition cost January 1   256   225  
Additions   40   36  
Disposals   (4 ) (5 )
Accumulated amortization December 31   (233 ) (204 )
   
 
 
Net carrying amount December 31   59   52  
   
 
 
Other intangible assets          
Acquisition cost January 1   3   50  
Additions      
Disposals     (47 )
Accumulated amortization December 31   (3 ) (3 )
   
 
 
Net carrying amount December 31      
   
 
 

5. Tangible assets

 At the end of 2004 and 2003 the parent company had no tangible assets. These assets were leased from Nokia Asset Management Oy, a company wholly owned by Nokia Oyj.

62



6. Investments

 
  2004
  2003
 
 
  EURm

  EURm

 
Investments in subsidiaries          
Acquisition cost January 1   3,540   3,519  
Additions   68   41  
Disposals   (11 ) (20 )
   
 
 
Net carrying amount December 31   3,597   3,540  
   
 
 
Investments in associated companies          
Acquisition cost January 1   4   5  
Additions   1    
Disposals     (1 )
   
 
 
Net carrying amount December 31   5   4  
   
 
 

7. Other non-current assets

 
  2004
  2003
 
 
  EURm

  EURm

 
Investments in other shares          
Acquisition cost January 1   17   17  
Additions   334   231  
Disposals   (344 ) (238 )
   
 
 
Net carrying amount December 31   7   10  
Other investments     7  
   
 
 
    7   17  
   
 
 

At the balance sheet date, the fair value of investments in listed companies was EUR 0 million (EUR 1 million in 2003).

63


8. Shareholders' equity

 
  Share capital
  Share issue
premium

  Treasury shares
  Retained
earnings

  Total
 
Parent Company, EURm                      
Balance at December 31, 2002   287   2,182     9,401   11,870  
   
 
 
 
 
 
  Share issue   1   40           41  
  Acquisitions of treasury shares           (1,351 )     (1,351 )
  Dividend               (1,339 ) (1,339 )
  Net profit               3,070   3,070  
   
 
 
 
 
 
Balance at December 31, 2003   288   2,222   (1,351 ) 11,132   12,291  
   
 
 
 
 
 
  Share issue                    
  Cancellation of treasury shares   (8 ) 8   1,999   (1,999 )  
  Acquisitions of treasury shares           (2,660 )     (2,660 )
  Dividend               (1,399 ) (1,399 )
  Support to the Foundation of Nokia Corporation               (5 ) (5 )
  Net profit               2,434   2,434  
   
 
 
 
 
 
Balance at December 31, 2004   280   2,230   (2,012 ) 10,163   10,661  
   
 
 
 
 
 

9. Distributable earnings

 
  2004
  2003
 
 
  EURm

  EURm

 
Retained earnings from previous years   7,729   8,062  
Net profit for the year   2,434   3,070  
   
 
 
Retained earnings, total   10,163   11,132  
Treasury shares   (2012 ) (1351 )
   
 
 
Distributable earnings, December 31   8,151   9,781  
   
 
 

64


10. Commitments and contingencies

 
  2004
  2003
 
  EURm

  EURm

Collateral for own commitments        
Mortgages    

Collateral given on behalf of other companies

 

 

 

 
Assets pledged     28

Contingent liabilities on behalf of Group companies

 

 

 

 
Guarantees for loans   173   112
Leasing guarantees   246   350
Other guarantees   244   186

Contingent liabilities on behalf of other companies

 

 

 

 
Guarantees for loans   3   5
Other guarantees   1  

11. Leasing contracts

 At December 31, 2004 the leasing contracts of the Parent Company amounted to EUR 491 million (EUR 936 million in 2003), of which EUR 454 million in 2004 relate to Group internal agreements. EUR 473 million will expire in 2005 (EUR 472 million in 2004).

12. Loans granted to top management

 There were no loans granted to top management at December 31, 2004.

13. Notes to cash flow statements

 
  2004
  2003
 
 
  EURm

  EURm

 
Adjustments for:          
  Depreciation   321   339  
  Income taxes   807   1,161  
  Financial income and expenses   (677 ) (443 )
  Impairment charge   102   374  
  Other operating income and expenses   (14 ) (390 )
   
 
 
Adjustments, total   539   1,041  
   
 
 
Change in net working capital          
  Short-term trade receivables, increase (-), decrease (+)   682   (564 )
  Inventories, increase (-), decrease (+)   (67 ) 181  
  Interest-free short-term liabilities, increase (+), decrease (-)   64   (277 )
   
 
 
Change in net working capital   679   (660 )
   
 
 
Non-cash investing activities          
Acquisition of:          
  Current available-for-sale investments in settlement of customer loan     676  

65


14. Principal Nokia Group companies on December 31, 2004

 See note 36 to Notes to the consolidated financial statements.

15. Nokia Shares and Shareholders

 See Nokia Shares and Shareholders p. 67–75.

66


Nokia shares and shareholders

Shares and share capital

Nokia has one class of shares. Each Nokia share entitles the holder to one (1) vote at General Meetings of Nokia. With effect from April 10, 2000, the par value of the share is EUR 0.06.

The minimum share capital stipulated in the Articles of Association is EUR 170 million and the maximum share capital EUR 680 million. The share capital may be increased or reduced within these limits without amending the Articles of Association.

On December 31, 2004 the share capital of Nokia Corporation was EUR 279,825,678.00 and the total number of shares was 4,663,761,300.

On December 31, 2004 the total number of shares included 176,819,877 shares owned by the Group companies with an aggregate par value of EUR 10,609,192.62 representing approximately 3.79% of the total number of shares and votes.

Share Capital and Shares Dec. 31, 2004(1)

  2004
  2003
  2002
  2001
  2000
Share capital, EURm   280   288   287   284   282
   
 
 
 
 
Shares (1,000, par value EUR 0.06)   4,663,761   4,796,292   4,787,907   4,737,530   4,696,213
   
 
 
 
 
Shares owned by the Group (1,000)   176,820   96,024   1,145   1,228   4,080
   
 
 
 
 
Number of shares excluding shares owned by the Group (1,000)   4,486,941   4,700,268   4,786,762   4,736,302   4,692,133
   
 
 
 
 
Average number of shares excluding shares owned by the Group during the year (1,000), basic   4,593,196   4,761,121   4,751,110   4,702,852   4,673,162
   
 
 
 
 
Average number of shares excluding shares owned by the Group during the year (1,000), diluted   4,600,337   4,761,160   4,788,042   4,787,219   4,792,980
   
 
 
 
 
Number of registered shareholders(2)   142,095   133,991   129,508   116,352   94,500
   
 
 
 
 

(1)
Figures have been recalculated to reflect the par value of EUR 0.06 of the share

(2)
Each account operator is included in the figure as only one registered shareholder

Key Ratios December 31, IFRS (calculation see page 78)

  2004
  2003
  2002
  2001
  2000
Earnings per share from net profit, EUR                    
Earnings per share, basic   0.70   0.75   0.71   0.47   0.84
Earnings per share, diluted   0.70   0.75   0.71   0.46   0.82
   
 
 
 
 
P/E Ratio   16.60   18.28   21.34   61.60   56.50
   
 
 
 
 
(Nominal) dividend per share, EUR   0.33   0.30   0.28   0.27   0.28
Total dividends paid, EURm(1)   1,539 * 1,439   1,341   1,279   1,315
Payout ratio   0.47   0.40   0.39   0.57   0.33
   
 
 
 
 
Dividend yield, %   2.8   2.2   1.8   0.9   0.6
   
 
 
 
 
Shareholders' equity per share, EUR   3.17   3.22   2.98   2.58   2.30
Market capitalization, EURm(2)   52,138   65,757   72,537   137,163   222,876
   
 
 
 
 

*
Board's proposal.

(1)
Calculated for all the shares of the company as of the applicable year-end.

(2)
Shares owned by the Group companies are not included.

67


Splits of the par value of the Nokia share

  Par value before
  Split ratio
  Par value after
  Effective date
1986   FIM 100 (EUR 16.82 ) 5:1   FIM 20 (EUR 3.36 ) December 31, 1986
1995   FIM 20 (EUR 3.36 ) 4:1   FIM 5 (EUR 0.84 ) April 24, 1995
1998   FIM 5 (EUR 0.84 ) 2:1   FIM 2.5 (EUR 0.42 ) April 16, 1998
1999   FIM 2.5 (EUR 0.42 ) 2:1   EUR 0.24 (1) April 12, 1999
2000   EUR 0.24   4:1   EUR 0.06   April 10, 2000

(1)
At the same time with a bonus issue of EUR 0.03 per each share of a par value of EUR 0.24.

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 27, 2003 to decide on an increase of the share capital by a maximum of EUR 57,000,000 offering a maximum of 950,000,000 new shares. In 2004, the Board of Directors did not increase the share capital on the basis of this authorization. The authorization expired on March 27, 2004.

At the Annual General Meeting held on March 25, 2004 Nokia shareholders authorized the Board of Directors to decide on an increase of the share capital by a maximum of EUR 55,500,000, of which a maximum of EUR 3,000,000 may result from incentive plans, within one year from the resolution of the Annual General Meeting. The increase of the share capital may consist of one or more issues offering a maximum of 925,000,000 new shares with a par value of EUR 0.06. The share capital may be increased in deviation from the shareholders' pre-emptive rights for share subscription provided that from the company's perspective important financial grounds exist such as financing or carrying out of an acquisition or another arrangement and granting incentives to selected members of the personnel. In 2004, the Board of Directors did not increase the share capital on the basis of this authorization. The authorization is effective until March 25, 2005.

At the end of 2004, the Board of Directors had no other authorizations to issue shares, convertible bonds, warrants or stock options.

Other authorizations

The Board of Directors had been authorized by Nokia shareholders at the Annual General Meeting held on March 27, 2003 to decide to repurchase a maximum of 225 million Nokia shares. In 2004 Nokia repurchased 38,057,700 Nokia shares on the basis of this authorization.

At the Annual General Meeting held on March 25, 2004 Nokia shareholders authorized the Board of Directors to repurchase a maximum of 230 million Nokia shares, representing less than 5% of total shares outstanding, and to resolve on the disposal of a maximum of 230 million Nokia shares. In 2004, a total of 176,000,000 Nokia shares were repurchased under the buy-back authorization, as a result of which the unused authorization amounted to 54,000,000 shares on December 31, 2004. No shares were disposed of in 2004 under the respective authorization. The shares may be repurchased under the buy-back authorization in order to carry out the company's stock repurchase plan as a means to develop the capital structure of the company, to finance or carry out acquisitions or other arrangements, to grant incentives to selected members of the personnel or in connection with these, to be transferred in other ways, or to be cancelled. The authorization to dispose of the shares may be carried out pursuant to terms determined by the Board in connection with acquisitions or other arrangements or for incentive purposes to selected members of the personnel. The Board may resolve to dispose the shares in another proportion than that of the shareholders' pre-emptive rights to the company's shares, provided that from the company's

68



perspective important financial grounds exist for such disposal. These authorizations are effective until March 25, 2005.

General information about Nokia's equity based incentive plans

Stock option plans

The table "Outstanding stock option plans, December 31, 2004" depicts the main features of outstanding stock option plans, which may result in an increase of our share capital. The increase in share capital resulted by these stock options is the number of shares to be issued times the par value of each share. The plans have been approved by the Annual General Meetings in the year of the launch of the plan. Shares subscribed for pursuant to the stock options will entitle to dividend for the financial year in which the subscription occurs. Other shareholder rights will 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 140,379,459 new shares may be subscribed for representing EUR 8,422,767.54 of the share capital and approximately 3% of the total number of votes on December 31, 2004. During 2004 the exercise of 1,260 options resulted in the issuance of 5,040 new shares and the increase of the share capital of Nokia Corporation with EUR 302.40.

There were no other stock options and no convertible bonds outstanding as of December 31, 2004, the exercise of which would result in an increase of the share capital of the parent company.

In addition to above, Nokia has minor stock option plans for Nokia employees in the U.S. and Canada which do not result in an increase of the share capital of Nokia Corporation and in which holders receive Nokia ADSs. On the basis of these stock option plans Nokia had granted 2,577,857 stock options on December 31, 2004. Each stock option entitles the holder to receive the same amount of Nokia ADSs. The average exercise price of stock options under these plans is USD 22.95. These stock options are included in the table "The options outstanding by range of exercise price at December 31, 2004".

Performance shares

In 2004, we introduced performance shares as the main element to our broad-based equity compensation program, as approved by the Board of Directors, to further emphasize the performance element in employees' long-term incentives. As part of this change, the number of stock options to be granted was significantly reduced as compared to 2003.

A total number of 3.9 million Performance Share Units were granted to a wide number of selected employees on many levels of the organization in 2004. Performance Share Units represent a commitment by the company to deliver Nokia shares to employees at a future point in time, subject to the company's fulfillment of pre-defined performance criteria. No Performance Share Units will vest unless the company performance reaches at least one of the threshold levels measured by two pre-defined performance criteria: the company's Average Annual Net Sales Growth and EPS Growth (basic) for 2004 to 2007. If the required performance level is achieved, the first payout will take place in 2006. The second and final payout, if any, will be in 2008.

Both the EPS and Average Annual Net Sales Growth criteria have an equal weight of 50%. The initial threshold for the Average Annual Net Sales Growth criteria is 4% resulting in the vesting of up to 1.95 million performance shares. Similarly, the first threshold for the annual EPS Growth criteria is EUR 0.84 in 2007 resulting in the vesting of up to 1.95 million perform