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NOKIA FORM 20–F 2003

Table of contents

  • Page 1
    NOKIA FORM 20-F 2003

  • Page 2
    ... Box 226, FIN-00045 NOKIA GROUP, Espoo, Finland (Address of principal executive offices) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered American Depositary Shares Shares, par value EUR 0.06 (1) New York Stock Exchange New...

  • Page 3
    ......Significant Changes ...THE OFFER AND LISTING ...Offer and Listing Details ...Plan of Distribution ...Markets ...Selling Shareholders ...Dilution ...Expenses of the Issue ...ADDITIONAL INFORMATION ...Share Capital ...Memorandum and Articles of Association ...Material Contracts ...Exchange Controls...

  • Page 4
    ... TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS ...CONTROLS AND PROCEDURES ...AUDIT COMMITTEE FINANCIAL EXPERT ...CODE OF ETHICS ...PRINCIPAL ACCOUNTANT FEES AND SERVICES ...EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ...PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND...

  • Page 5
    ... at any other rates. In this Form 20-F, unless otherwise stated, references to ''shares'' are to Nokia Corporation shares, par value EUR 0.06. Our principal executive office is currently located at Keilalahdentie 4, P.O. Box 226, FIN-00045 Nokia Group, Espoo, Finland and our telephone number is +358...

  • Page 6
    ... quality of our products and solutions; • inventory management risks resulting from shifts in market demand; • our ability to source quality components without interruption and at acceptable prices; • our success in collaboration arrangements relating to technologies, software or new products...

  • Page 7
    ... our products and solutions at commercially acceptable terms and without infringing any protected intellectual property rights; • developments under large, multi-year contracts or in relation to major customers; • the management of our customer financing exposure; • exchange rate fluctuations...

  • Page 8
    ... OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. ITEM 3. KEY INFORMATION 3.A Selected Financial Data The financial data set forth below at December 31, 2002 and 2003 and for each of the years in the three-year period...

  • Page 9
    1999 (EUR) Year ended December 31, 2000 2001 2002 2003 (EUR) (EUR) (EUR) (EUR) (in millions, except per share data) 2003 (USD) Profit and Loss Account Data Amounts in accordance with IAS Net sales ...Operating profit ...Profit before tax and minority interests ...Profit from continuing operations...

  • Page 10
    ... to the annual accounts as approved by our shareholders. Subject to exceptions relating to the right of minority shareholders to request otherwise, the distribution may not exceed the amount proposed by the Board of Directors. Share Buy-backs Under the Finnish Companies Act, Nokia Corporation may...

  • Page 11
    ...of Equity Securities by the Issuer and Affiliated Purchasers.'' Dividends The Board of Directors will propose for approval at the Annual General Meeting convening on March 25, 2004 a dividend of EUR 0.30 per share in respect of 2003. The table below sets forth the amounts of total cash dividends per...

  • Page 12
    ...table sets forth information concerning the noon buying rate in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York for euro for the years 1999 through 2003 and for each of the months in the six-month period ended January 31, 2004, expressed in...

  • Page 13
    ... and share price from time to time. Changes in the mobile communications industry require us to develop complex, evolving technologies to use in our various businesses, some of which are new to us. If we fail to develop these technologies or successfully commercialize them as new advanced products...

  • Page 14
    ... and builds networks based primarily on GSM, EDGE and WCDMA technologies. Although these are currently the leading mobile communications technology platforms, they may not always be. Our networks business's sales and operating results may be adversely affected if these technologies or subsequent new...

  • Page 15
    ... covering all major user segments and price points. The quarterly and annual sales and operating results in our mobile device businesses also depend on a number of other factors that are not within our control. Such factors include the global growth rate in mobile device volumes, which is influenced...

  • Page 16
    ...fail to efficiently manage our manufacturing and logistics, or fail to ensure that our products and solutions meet our and our customers' quality, safety and other corresponding requirements and are delivered in time. Our manufacturing and logistics are complex, require advanced and costly equipment...

  • Page 17
    ... a way that we cannot foresee or prevent, the technologies, products or solutions supplied by companies working with us do not meet the required quality, safety and other corresponding standards or customer needs, our own quality controls fail, or the financial standing of our collaboration partners...

  • Page 18
    ... in our products and solutions or by companies with which we work in cooperative research and development activities. Similarly, we and our customers may face claims of infringement in connection with our customers' use of our products and solutions. Finally, as all technology standards, including...

  • Page 19
    ... that we must extend short-term trade credits to them. In some cases, the amounts and duration of these financings and trade credits, and the associated impact on our working capital, may be significant. At December 31, 2003 our outstanding long-term loans to customers totaled EUR 354 million, while...

  • Page 20
    ... a new organizational structure consisting of four business groups, Mobile Phones; Multimedia; Networks; and Enterprise Solutions, and the three horizontal groups of Customer and Market Operations; Technology Platforms; and Research, Venturing and Business Infrastructure. The new organization is...

  • Page 21
    ... effects of mobile communications devices could adversely affect us through a reduction in sales of handsets or increased difficulty in obtaining sites for base stations, and could have a negative effect on our reputation and brand value as well as harm our share price. Changes in various types of...

  • Page 22
    ... commercial success. Finally, export control, tariff, environmental, safety and other regulation that adversely affects the pricing or costs of our products and solutions as well as new services related to our products could affect our net sales and results of operations. The impact of these changes...

  • Page 23
    ... is dedicated to enhancing people's lives and productivity by providing easy-to-use and secure products like mobile phones, and solutions for imaging, games, media, mobile network operators and businesses. For the 2003 financial year, Nokia's net sales totaled EUR 29.5 billion (USD 37.1 billion). At...

  • Page 24
    ... on five major securities exchanges. Our principal executive office is located at Keilalahdentie 4, P.O. Box 226, FIN-00045 Nokia Group, Espoo, Finland and our telephone number is +358 (0) 7 1800-8000. Our agent in the United States is Nokia Inc., 6000 Connection Drive, Irving, Texas, 75039, and its...

  • Page 25
    ... voice-based communications toward new, data-driven areas and applications in the realm of consumer multimedia and enterprise solutions. As evidence of growing demand for advanced products and services, annual sales of mobile camera phones clearly outsold digital cameras for the first time in 2003...

  • Page 26
    ...scales in favor of wireless solutions. We also intend to focus on markets where the need for network capacity is growing as a result of mobile network operators promoting the replacement of fixed networks with wireless. • Drive consumer mobile multimedia: We intend to enter new product and service...

  • Page 27
    ... markets. • Strong product offering: Our strong product offering goes beyond voice-centric mobile phones to include entirely new functional categories of mobile devices, such as enhanced communicators, entertainment and gaming devices and media and imaging phones. • Advanced technology: Nokia...

  • Page 28
    ...corporate culture, which emphasizes and values product innovation, customer satisfaction and employees motivated by high levels of trust, independence and opportunities for personal and professional enrichment. New Organizational Structure Until January 1, 2004, Nokia's organizational and reporting...

  • Page 29
    ...connectivity solutions based on end-to-end mobility architecture. It combines the Business Applications business unit from the former Nokia Mobile Phones with Nokia Internet Communications and Nokia One, formerly units located within Nokia Ventures Organization. Horizontal Groups Customer and Market...

  • Page 30
    ... and commercialization of messaging devices and data card products such as these, including the Communicator product line. The following table sets forth net sales, operating profit and average number of employees for Nokia Mobile Phones during the past three years. Nokia Mobile Phones Net Sales...

  • Page 31
    ... the Nokia N-Gage in October 2003 in over 60 countries through over 30 000 major retail, game-specific and video game outlets, in addition to mobile phone delivery channels. At the same time, we opened the N-Gage Arena, a mobile online gaming community, which is accessible via mobile networks...

  • Page 32
    ... 1, 2004 did not result in any alteration to the structure of the Networks business group. Networks' strategy addresses both mobile voice and mobile data markets. In mobile voice, we aim to drive and benefit from fixed-to-mobile substitution in mature markets. At the same time, we are working to...

  • Page 33
    ... solution brings new functionality to the network, such as services using IP connections between mobile phones and devices, while the Nokia Intelligent Content Delivery system supports differentiated charging and business models for operators. Radio Networks develops GSM, EDGE and WCDMA Radio Access...

  • Page 34
    ...building on Nokia's long history in this area. For example, Nokia has been manufacturing the Communicator Series of devices since 1996. These integrate mobile phone and network connectivity with features such as e-mail, Internet access, calendar and other specific applications designed for corporate...

  • Page 35
    ... on the overall market growth in 2003. Sales at Nokia Internet Communications were slightly lower year on year, reflecting the continued weakness of the US dollar. The unit introduced new product categories and solutions in 2003 that expanded Nokia's network security appliance portfolio beyond...

  • Page 36
    ... set for all Nokia products. We are using a wide range of media, including TV, print, outdoor, retail and online to reach our target audience of adults who enjoy and own game devices and consoles. Generally, our product marketing is carried out partly through our own campaigns and sales promotions...

  • Page 37
    ... supply chain integration with suppliers, and the rate of technological change. From time to time, our inventory levels of components may differ from actual requirements. Networks Our Networks business group operated six production facilities at December 31, 2003: three in Finland and three in China...

  • Page 38
    ... of entry-level phones to aid the introduction of voice terminals to new markets. Nokia remains committed to a global and open mobile software and services market. We aim to achieve this objective by working together with customers, suppliers and industry participants in the Open Mobile Alliance and...

  • Page 39
    ... primarily on the development of high value-added software. Nokia Mobile Software, now part of the Technology Platforms horizontal group, will provide software solutions for mobile phones and devices. The key product is Series 60, a horizontal terminal software platform, which allows a licensee to...

  • Page 40
    ... overall market volumes in 2003 reached about 471 million units. Mobile phone market participants compete mainly on the basis of the breadth and depth of their product portfolios, price, operational and manufacturing efficiency, technical performance, product features, quality, customer support, and...

  • Page 41
    ... of patented and proprietary technologies. A 3G mobile handset, for example, may incorporate three times as many components, including substantially more complex software, as our GSM phones. As the number of entrants in the market grows, as the Nokia product range becomes more diversified, and...

  • Page 42
    ...the Internet and the delivery of advanced mobile services should allow us to expand our business operations by offering businesses and consumers new and innovative mobile communications products and solutions. EU regulation in many areas has a direct effect on the business of Nokia and our customers...

  • Page 43
    ... commercial success. Finally, export control, tariff, environmental, safety and other regulation that adversely affects the pricing or costs of our products and solutions as well as new services related to our products could affect our net sales and operating results. The impact of these changes...

  • Page 44
    ... communications and feedback channels. • Performance-based rewarding: base pay and benefits, equity-based instruments, Nokia connecting people bonus and incentive payments. • Professional and personal growth: career development, job rotation, training and performance management. • Work life...

  • Page 45
    4.C Organizational Structure The following is a list of Nokia's significant subsidiaries as of December 31, 2003: Country of Incorporation Nokia Ownership Interest Nokia Voting Interest Company Nokia Inc...Nokia GmbH ...Nokia UK Limited ...Nokia TMC Limited ...Beijing Capitel Nokia Mobile ...

  • Page 46
    ... 2 728 26 201 FINLAND Nokia Mobile Phones, Salo (mobile phones) ...Nokia Networks, Espoo (switching systems, base station controllers, transcoders, radio access products) ...Nokia Networks, Limingantulli (plug-in units for both GSM and WCDMA base station product families) ...Nokia Networks, Rusko...

  • Page 47
    ...we supply our products in over 130 countries worldwide. In 2003, 57% of our net sales originated from Europe, Middle-East & Africa, 22% from Asia-Pacific and 21% from the Americas. Based on sales, the ten largest markets in 2003 were the United States, the United Kingdom, Germany, China, United Arab...

  • Page 48
    ...In particular, Nokia records estimated reductions to revenue for customer programs and incentive offerings, including special pricing agreements, price protection and other volume based discounts, mainly in the mobile phone business. Sales adjustments for volume based discount programs are estimated...

  • Page 49
    ... method since that point. Until the time the 3GPP specifications required by our customers were met, we deferred the application of the cost-to-cost input model. Nokia Networks' current sales and profit estimates for projects may change due to the early stage of a long-term project, new technology...

  • Page 50
    ... development of new technologies is between two to five years. During the development stage, management must estimate the commercial and technological feasibility of these projects as well as their expected useful lives. Should a product fail to substantiate its estimated feasibility or life cycle...

  • Page 51
    ...and include, among others, the discount rate, expected long-term rate of return on plan assets and annual rate of increase in future compensation levels. A portion of our plan assets is invested in equity securities. The equity markets have experienced volatility, which has affected the value of 50

  • Page 52
    ..., 2003 2002 2001 Europe, Middle-East & Africa ...Asia-Pacific ...Americas ...Total ... 57% 22% 21% 100% 54% 24% 22% 100% 49% 26% 25% 100% Nokia is not a capital intensive company in terms of fixed assets, but rather invests in research and development, building the Nokia brand and marketing. In...

  • Page 53
    ... total of 389 employees as a result of restructuring at Nokia Networks, offset by recruitment mainly in research and development at Nokia Mobile Phones. In 2002, we decreased our personnel by 2 101, mainly as a result of outsourcing and restructuring at Nokia Networks and Nokia Ventures Organization...

  • Page 54
    ...in the United States and the number one position in GSM in China, as well as significantly increasing global CDMA market share. Nokia Mobile Phones continued to invest in research and development. Nokia Mobile Phones R&D costs totaled EUR 2 064 million (8.7% of Nokia Mobile Phones net sales) in 2003...

  • Page 55
    ... the United States. In 2003, Nokia Networks took action to improve profitability, by ceasing certain ongoing research and development projects and reducing the number of its employees. Nokia Networks research and development costs totaled EUR 1 540 million in 2003 (27.4% of Nokia Networks' net sales...

  • Page 56
    ... growth in 2003. Sales at Nokia Internet Communications were slightly lower in 2003, reflecting the continued weakness of the US dollar. During 2003, Nokia Home Communications continued renewing and broadening its product portfolio. However, the market for digital set top boxes developed slower...

  • Page 57
    ... its market share for the fifth consecutive year reaching an estimated 38% for the full year 2002, based on the number of Nokia mobile phones sold into our distribution channels as a percentage of estimated aggregate retail unit sales. In 2002, Nokia shipped a record number of 33 new mobile phone...

  • Page 58
    ... Nokia Head Office, Nokia Research Center and other general functions' operating losses, totaled EUR 231 million in 2002, unchanged from 2001. During 2002, the company's investment in certain equity securities suffered a permanent decline in value resulting in an impairment of available-for-sale...

  • Page 59
    ...-F. Exchange Rates Nokia's business and results of operations are from time to time affected by changes in exchange rates, particularly between the euro and other currencies such as the US dollar, the Japanese yen and the UK pound sterling. See ''Item 3.A Selected Financial Data-Exchange Rate Data...

  • Page 60
    ... ''Item 11. Quantitative and Qualitative Disclosures About Market Risk'' and ''Item 3.D Risk Factors- Our sales, costs and results are affected by exchange rate fluctuations, particularly between the euro, which is our reporting currency, and the US dollar, UK pound sterling and the Japanese yen as...

  • Page 61
    ...as shareholders' equity and minority interests, was -71%, -61%, and -41% at December 31, 2003, 2002 and 2001, respectively. The change in 2003 resulted from both our continued good profitability and the improvements in our cash position. The total dividends per share were EUR 0.30 for the year ended...

  • Page 62
    ...period is a result of aligning our manufacturing capacity to match the slower market growth for mobile phones and lower demand for network infrastructure. Principal capital expenditures during the three years included office and manufacturing facilities, production lines, test equipment and computer...

  • Page 63
    ... capital expenditure relating to purchases of network infrastructure equipment and services from Nokia Networks, or working capital requirements. Certain loans are partially secured through either guarantees by the borrower's direct or indirect parent or other group companies, or shares and/or other...

  • Page 64
    ...of voice and data transmission. In 2001, the mobile communications industry experienced a year of transition leading to a market decline. However, growth started to emerge in 2002 with the launch of feature-rich multimedia products offering new advanced mobile services. In 2003, mobile phone volumes...

  • Page 65
    ... million units in 2003. The Nokia-licensed Series 60 platform incorporates open technologies, including MMS, Java and the Symbian OS, and is expected to move beyond advanced phones to volume products in the coming years. While 2002 featured initial rollouts of 3G mobile communications technologies...

  • Page 66
    ... and product offering to expand in line with market demand. For 2003 Nokia estimates the global mobile subscriber base to have grown to 1.3 billion subscriptions and forecasts the number to reach two billion in 2008. During 2003, feature-rich phones with color screens and access to new services...

  • Page 67
    ... levels of security and good maintenance and manageability are key issues, which need to be assured for the mass adoption of new mobile working practices. We anticipate that 2004 will be a year of initial building in the mobile enterprise solutions market by the industry and Nokia. Mobile Networks...

  • Page 68
    ...), 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...

  • Page 69
    ... (Eng.) (Helsinki University of Technology). President and CEO of Metra Corporation 1991-2000, President and CEO of Lohja Corporation 1979-1991. Holder ¨ ¨ Corporation of various executive positions at Wartsil a within production and management 1965-1979. Chairman of the Board of Directors of Assa...

  • Page 70
    ... 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...

  • Page 71
    ...), 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...

  • Page 72
    ... 1998-1999, President of Nokia Mobile Phones 1992-1998, Vice President, Product Marketing of Nokia Mobile Phones 1991-1992, Vice President, Strategic Planning of Nokia Mobile Phones 1990-1991. Member of the Supervisory Board of SAP AG. Member of the Science and Technology Policy Council of Finland...

  • Page 73
    ... Manager, Business Units, Networks. Group Executive Board member since 2002. Joined Nokia 1983. Doctor of Science (Technology) (Helsinki University of Technology). Executive Vice President and General Manager, IP Mobility Nokia Networks 2001-2003, Senior Vice President, Radio Access Systems of Nokia...

  • Page 74
    ... Technology Officer. Group Executive Board member since 2002. Joined Nokia 1986. Master of Science (Electronics Eng.) (University of Oulu). Executive Vice President of Nokia Mobile Software 2001-2003. Senior Vice President, Global Operations, Logistics and Sourcing of Nokia Mobile Phones 1999-2001...

  • Page 75
    ... of Nokia Corporation. Group Executive Board member since 1996. Joined Nokia 1996. LL.M. (University of Helsinki). Executive Vice President, Corporate Relations and Trade Policy of Nokia Corporation 1996-2003. Secretary of State at the Ministry for Foreign Affairs 1993-1995, UnderSecretary of State...

  • Page 76
    ... President, Europe & Africa of Nokia Mobile Phones 1994-1998, Vice President, Sales of Nokia Mobile Phones 1991-1994, 3M Corporation 1980-1991. Governor of European Foundation of Quality Management. 6.B Compensation Compensation of the Members of the Board of Directors and the Group Executive Board...

  • Page 77
    ...of equity-based awards. Compensation Components and Determination The compensation program for executives includes the following: • Base salaries targeted at competitive market levels • Short-term cash incentives paid twice each year based on performance for each of Nokia's short-term plans that...

  • Page 78
    ... on a limited basis Restricted Shares. A full description of the 2004 Equity Program is in ''Item 6.E Share Ownership-Nokia's Equity Based Compensation Program 2004.'' Group Executive Board For the year ended December 31, 2003, Nokia had a Group Executive Board consisting of 10 members. Three new...

  • Page 79
    ...Compensation (EUR) Name and Principal Position in 2003 Year Jorma Ollila Chairman and Chief Executive Officer ...¨ Pekka Ala-Pietila President of Nokia Corporation and Head of Nokia Ventures Organization ...Matti Alahuhta President of Nokia Mobile Phones ...Olli-Pekka Kallasvuo(3) Executive Vice...

  • Page 80
    ... an executive officer of a Nokia supplier of whose consolidated gross revenues Nokia accounts for an amount that exceeds the limit provided in the NYSE listing standards, but that is less than 10%. The Board convened nine times during 2003, three of the meetings were held in the form of a conference...

  • Page 81
    ... require that equity compensation plans be approved by a company's shareholders. Nokia's corporate governance practices also comply with the Corporate Governance Recommendation for Listed Companies approved by the Helsinki Exchanges in December 2003. Committees of the Board of Directors The Audit...

  • Page 82
    ...plans, policies and programs of the company affecting executives, and (4) other significant incentive plans. The Committee is responsible for ensuring the above compensation programs are performance-based, properly motivate management, support overall corporate strategies and align with shareholders...

  • Page 83
    ...following tables set forth the number of shares and ADSs beneficially held by members of the Board of Directors and the Group Executive Board as of December 31, 2003 (not including the new Group Executive Board Members whose service began on January 1, 2004). Board of Directors Shares(1) ADSs Jorma...

  • Page 84
    ...Group Executive Board as of December 31, 2003 (not including the new Group Executive Board members whose service began on January 1, 2004). These stock options were issued pursuant to the Nokia Stock Option Plans 1999, 2001 and 2003. For a description of our stock option plans, including information...

  • Page 85
    ... for four shares of Nokia stock. The exercise price per share and the number of shares for the 1999 A, B and C options have been adjusted for the share split that took place in April 2000. Each 2001 A and B option originally granted entitles the holder to subscribe for one share of Nokia stock. The...

  • Page 86
    ...and the closing market price of Nokia shares on the Helsinki Exchanges as of December 31, 2003 of EUR 13.71. Insiders' Trading in Securities The Board of Directors has established a policy in respect of insiders' trading in Nokia securities. Under the policy, the holdings of Nokia securities by the...

  • Page 87
    ... Nokia Holding Inc. 1999 Stock Option Plan. For more information on this plan, see Note 21 to our consolidated financial statements included in Item 18 of this Form 20-F. In 2000, we introduced an Employee Share Purchase Plan, which permits all full-time Nokia employees located in the United States...

  • Page 88
    ... of this change, Nokia will grant significantly fewer stock options in 2004 compared to 2003. The new, more diversified program aligns the potential value received by participants directly with the performance of the company. The target group for this new share-based incentive program continues to...

  • Page 89
    ... that may result in a change of control of Nokia. During the past three years, the only shareholder we have known to hold 5% of our voting securities has been Janus Capital Corporation, which informed us on December 9, 1999 that its holdings of Nokia shares exceeded 5% of our total share capital...

  • Page 90
    ... before a US federal district court in Baltimore, Maryland, United States. The actions were brought on behalf of a purported class of persons in the United States as a whole consisting of all individuals that purchased mobile phones without a headset. In general, the complaints allege that...

  • Page 91
    ...high and low quoted prices for our shares on the Helsinki Exchanges and the high and low quoted prices for the shares, in the form of ADSs, on the New York Stock Exchange. In 1999, Nokia effected a two-for-one share split, effective in public trading on April 12, 1999. In 2000, Nokia effected a four...

  • Page 92
    ... 9, 1999, Nokia had two classes of shares, K shares and A shares, which were consolidated on that date into one class of shares. 9.B Plan of Distribution Not applicable. 9.C Markets The principal trading markets for the shares are the New York Stock Exchange, in the form of ADSs, and the Helsinki...

  • Page 93
    ... period, in which case the unclaimed dividend will be retained by Nokia. Each share confers the right to one vote. Votes may be used at general meetings called by the Board of Directors. According to Finnish law, a company generally must hold an Annual General Meeting once a year. In addition, the...

  • Page 94
    ... the Finnish Companies Act of 1978, as amended, a shareholder whose holding exceeds nine-tenths of the total number of shares or voting rights in Nokia has both the right and the obligation to purchase all the shares of the minority shareholders for the current price. The current price is determined...

  • Page 95
    ...,'' and that are entitled to the benefits of the Treaty under the ''Limitation on Benefits'' provisions contained in the Treaty, are referred to as ''US Holders.'' Beneficial owners that are citizens or residents of the United States, corporations created in or organized under US law, and estates or...

  • Page 96
    ...not discuss the treatment of ADSs that are held in connection with a permanent establishment or fixed base in Finland. For the purposes of both the Treaty and the United States Internal Revenue Code of 1986, as amended, referred to as the Code, US Holders of ADSs will be treated as the owners of the...

  • Page 97
    ... securities market in the United States, or (ii) the non-US corporation is eligible for the benefits of a comprehensive US income tax treaty (such as the US-Finland income tax treaty) which provides for the exchange of information. We currently believe that dividends paid with respect to our shares...

  • Page 98
    ... are met. US Information Reporting and Backup Withholding Dividend payments with respect to shares or ADSs and proceeds from the sale or other disposition of ADSs may be subject to information reporting to the Internal Revenue Service and possible US backup withholding at the current rate of 28...

  • Page 99
    ... 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 Dallas/Sao Paolo, and a Corporate Treasury unit in Espoo. This international organization enables Nokia to provide the Group companies...

  • Page 100
    ... 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...

  • Page 101
    ... 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...

  • Page 102
    ... 303A.02 of the New York Stock Exchange's Listed Company Manual. ITEM 16B. CODE OF ETHICS We have adopted a code of ethics that applies to our Chief Executive Officer, President, Chief Financial Officer and Corporate Controller. This code of ethics is posted on our website, www.nokia.com, and may be...

  • Page 103
    ... concerning financial accounting and reporting standards; internal control reviews; review of security controls and operational effectiveness of systems; due diligence related to acquisitions; and employee benefit plan audits. Tax Fees include fees billed for tax compliance services, including the...

  • Page 104
    ... applicable. ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS The following table sets out certain information concerning purchases of Nokia shares by Nokia Corporation and its affiliates during 2003. (c) Total Number (d) Maximum of Shares Number of Shares Purchased...

  • Page 105
    a total of 860 000 shares in open-market transactions effected by affiliates of Nokia Corporation to cover the Group's obligations in connection with certain employee stock option plans. For more information, see ''Item 6.E Share Ownership-Other Employee Stock Option Plans.'' (2) On March 21, 2002,...

  • Page 106
    ... earnings per share information was calculated. List of significant subsidiaries. Certification of Jorma Ollila, Chairman and Chief Executive Officer of Nokia Corporation, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Richard A. Simonson, Senior Vice President and Chief...

  • Page 107
    ... of GSM technical specifications and reports, including GPRS and EDGE. Access network: A network for the delivery of voice, data, text and images to end users. ADSL (Asymmetric Digital Subscriber Line): A transmission system that supports high bit rates over existing copper twisted pair access...

  • Page 108
    ...To expand the mobile market, companies supporting the Open Mobile Alliance will work to stimulate the fast and wide adoption of a variety of new, enhanced mobile information, communication and entertainment services. The Open Mobile Alliance includes all key elements of the wireless value chain, and...

  • Page 109
    ...air interface access method in third generation mobile systems. WLAN (Wireless Local Area Network): A local area network using wireless connections, such as radio, microwave or infrared links, in place of physical cables. xDSL: Various forms of Digital Subscriber Line technologies. XHTML (Extensible...

  • Page 110
    ... from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of consolidated net profit for each of the three years in the period ended December 31, 2003, and the determination of consolidated shareholders' equity...

  • Page 111
    Nokia Corporation and Subsidiaries Consolidated Profit and Loss Accounts Financial year ended December 31 2003 2002 2001 EURm EURm EURm Notes Net sales ...Cost of sales ...Research and development expenses . . Selling, general and administrative expenses ...Customer finance impairment charges, net...

  • Page 112
    Nokia Corporation and Subsidiaries Consolidated Balance Sheets Notes December 31 2003 2002 EURm EURm ASSETS Fixed assets and other non-current assets Capitalized development costs ...Goodwill ...Other intangible assets ...Property, plant and equipment ...Investments in associated companies ......

  • Page 113
    Nokia Corporation and Subsidiaries Consolidated Cash Flow Statements Financial year ended December 31 2003 2002 2001 EURm EURm EURm Notes Cash flow from operating activities Net profit ...Adjustments, total ...Net profit before change in net working capital ...Change in net working capital ...Cash...

  • Page 114
    ... Corporation and Subsidiaries Consolidated Cash Flow Statements (Continued) Financial year ended December 31 2003 2002 2001 EURm EURm EURm Notes Movement in cash and cash equivalents: At beginning of year, as previously reported ...On adoption of IAS 39, remeasurement of current available-for-sale...

  • Page 115
    Nokia Corporation and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity Fair value Number of Share issue Treasury Translation and other Retained shares Share capital premium shares differences(1) reserves(1) earnings (000's) Total Group, EURm Balance at December 31, 2000 ...

  • Page 116
    ... 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...

  • Page 117
    ... 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...

  • Page 118
    ... 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...

  • Page 119
    ... 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...

  • Page 120
    ... of sales from contracts involving solutions achieved through modification of 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...

  • Page 121
    ...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...

  • Page 122
    ... 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...

  • Page 123
    ... to reflect the changes in the Nokia share price. 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...

  • Page 124
    ...: Nokia Mobile Phones, Nokia Networks, and Nokia Ventures Organization. Nokia's reportable segments are strategic business units that offer different products and services for which monthly financial information is provided to the Board. Nokia Mobile Phones develops, manufactures and supplies mobile...

  • Page 125
    ... 10% or more of Group revenues. Nokia Nokia Common Total Mobile Nokia Ventures Group reportable Phones Networks Organization Functions segments Eliminations EURm EURm EURm EURm EURm EURm Group EURm 2003 Profit and Loss Information Net sales to external customers ...Net sales to other segments...

  • Page 126
    ...) 2. Segment information (Continued) Nokia Nokia Common Total Mobile Nokia Ventures Group reportable Phones Networks Organization Functions segments Eliminations EURm EURm EURm EURm EURm EURm Group EURm 2002 Profit and Loss Information Net sales to external customers ...Net sales to other...

  • Page 127
    ... deferred tax liabilities (EUR 394 million in 2003 and EUR 248 million in 2002). 2003 EURm 2002 EURm 2001 EURm (4) (5) Net sales to external customers by geographic area by location of customer Finland ...USA ...Great Britain ...Germany ...China ...Other ... ... ... 347 4,475 2,693 2,297 2,013 17...

  • Page 128
    ... 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. Until the time 3GPP specifications required by our customers were met, the application of the cost-to-cost input model...

  • Page 129
    ... (539) 97 45 142 126 (261) (135) 63 (72) The amounts recognized in the profit and loss account are as follows: 2003 EURm 2002 EURm 2001 EURm Current service cost ...Interest cost ...Expected return on plan assets ...Net actuarial losses (gains) recognized in year Past service cost ...Curtailment...

  • Page 130
    ...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 the general downturn in market conditions, of which EUR 15 million...

  • Page 131
    ...of EUR 714 million to cover Nokia Networks' customer loans by EUR 669 million related to a defaulted financing to Telsim, a GSM operator in Turkey, and EUR 45 million relating to the insolvency of Dolphin in the UK. These charges resulted in a write-down of the company's total exposure to Telsim and...

  • Page 132
    ... to discontinue the related product development. Nokia recognized various minor goodwill impairment charges totaling EUR 0 million in 2003 (EUR 17 million in 2002). During 2003 the company's investment in certain equity securities suffered a permanent decline in fair value resulting in an impairment...

  • Page 133
    ... of sales ...R&D ...Selling, marketing and administration ...Other operating expenses ...Goodwill ... Total ...10. Financial income and expenses 2003 EURm 2002 EURm 2001 EURm Income from available-for-sale investments Dividend income ...Interest income ...Other financial income ...Exchange gains...

  • Page 134
    ... follows at December 31: 2003 EURm 2002 EURm 2001 EURm Income tax expense at statutory rate ...Deduction for write-down of investments in subsidiaries ...Amortization of goodwill ...Impairment of goodwill ...Provisions without income tax benefit/expense ...Taxes for prior years ...Taxes on foreign...

  • Page 135
    ... (332) 192 Net carrying amount December 31 ...31 ... Net carrying amount December 31 ... The amount of capitalized development costs impairment and write-offs in 2003 include a EUR 275 million impairment charge based on IAS impairment review and EUR 180 million of other writeoffs (EUR 0 million and...

  • Page 136
    Notes to the Consolidated Financial Statements (Continued) 13. Property, plant and equipment 2003 EURm 2002 EURm Land and water areas Acquisition cost January 1 ...fixed assets Acquisition cost January 1 ...Additions ...Disposals ...Transfers to: Other intangible assets ...Machinery and equipment...

  • Page 137
    ... 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 discounted cash flows of the underlying net assets. Gains and losses arising from the change in the fair value of available-for-sale investments...

  • Page 138
    ...-for-sale investments are classified as non-current, except for 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...

  • Page 139
    ...-for-sale investments EURm Total EURm Balance at December 31, 2001 ...Cash flow hedges: Fair value gains/(losses) in period ...Available-for-sale Investments: Net fair value gains/(losses) ...Transfer to profit and loss account on impairment ...Transfer to profit and loss account on disposal...

  • Page 140
    ...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. 21. The shares of the Parent Company Nokia shares and share capital Nokia has...

  • Page 141
    ... shareholders authorized the Board of Directors to repurchase a maximum of 225 million Nokia shares, representing less than 5% of total shares outstanding, and to resolve on the disposal of a maximum of 225 million Nokia shares. In 2003, a total of 94,478,500 shares were repurchased under the buy...

  • Page 142
    ... in share capital resulted by these stock options is the number of shares to be issued times the nominal value of each share. The plans have been approved by the Annual General Meetings in the year of the launch of the plan. Outstanding stock option plans, December 31, 2003(1) Total plan size...

  • Page 143
    ...26.53 29.15 36.75 56.14 General information about our stock option plans Shares subscribed for pursuant to the stock options described above will entitle the holder to a dividend for the financial year in which the subscription occurs. Other shareholder rights will commence on the date on which the...

  • Page 144
    .... 1999 Stock Option Plan). Each stock option granted by December 31, 2000 entitles the holder to purchase one Nokia ADS during certain periods of time after April 1, 2001 until five years from the date of grant, for a price within the range of USD 20.50-54.50 per ADS. On December 31, 2003 a total of...

  • Page 145
    ...2002 the weighted average interest rate on loans from financial institutions was 5.81% and 8.44%, respectively. Bonds: Million of bonds Currency Interest 2003 EURm 2002 EURm 1989-2004 ... 40.0 GBP 11.375% - 62 At December 31, 2003 the bonds are reported under short-term borrowings as the bonds...

  • Page 146
    ... tax liabilities: Untaxed reserves ...Fair value gains/losses ...Other ...Total deferred tax liabilities ...Net deferred tax asset ...The tax (charged)/credited to shareholders' equity is as follows: Fair value and other reserves, fair value gains/losses ... Deferred income tax liabilities have...

  • Page 147
    ... - (36) 300 1,102 (22) (22) (28) (314) 250 (96) 748 2003 EURm Charged to profit and loss account ...Utilized during year ...At December 31, 2003 ... 766 (778) 2,422 2002 EURm Analysis of total provisions at December 31: Non-current ...Current ... 593 1,829 460 2,010 The IPR provision is based on...

  • Page 148
    ... to fund capital expenditure relating to purchases of network infrastructure equipment and services and to fund working capital. Certain loans are partially secured through either guarantees by the borrower's direct or indirect parent or other group companies, or shares and/or other assets of the...

  • Page 149
    ... Finnish employee benefit plans; these assets include 0.03% of Nokia's shares. In 2002 Nokia Pension Foundation was the counterparty to equity swap agreements with the Group. The equity swaps were entered into to hedge part of the company's liability relating to future social security cost on stock...

  • Page 150
    ... loans granted to top management at December 31, 2003 or 2002. See Note 4, Personnel expenses, for officers and directors remunerations. 32. Associated companies 2003 EURm 2002 EURm 2001 EURm Share of results of associated companies ...Dividend income ...Share of shareholders' equity of associated...

  • Page 151
    ... 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 Dallas/Sao Paolo, and a Corporate Treasury unit in Espoo. This international organization enables Nokia to provide the Group companies...

  • Page 152
    ... 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...

  • Page 153
    ... 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. Equity price risk Nokia has...

  • Page 154
    ... Banks ...4,012 Corporates ...2,075 6,371 4 3 7 (1) (1) Fixed rate investments ...Floating rate investments ...Total ...(1) (2) 10,541 426 10,967 7,433 422 7,855 Available-for-sale investments are carried at fair value in 2003 and 2002. Weighted average interest rate for current available-for...

  • Page 155
    ... 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 and multi-line multi-year insurance policies, where available. Nokia has concluded a Multi-Line Multi-Year...

  • Page 156
    ... The net fair values of derivative financial instruments at the balance sheet date were: 2003 EURm 2002 EURm Derivatives with positive fair value(1): Forward foreign exchange contracts(2) Currency options bought ...Cash settled equity options ...Interest rate swaps ...Embedded derivatives...

  • Page 157
    ....0 69.0 Shares in listed companies Group holding more than 5% Group holding % Group voting % Nextrom Holding S.A...Associated companies Symbian Limited ... 79.33 32.19 86.21 32.19 A complete list of subsidiaries and associated companies is included in Nokia's Statutory Accounts. 36. Differences...

  • Page 158
    ...total shareholders' equity as of and for the years ended December 31: 2003 EURm 2002 EURm 2001 EURm Reconciliation of net income: Net income reported under IAS ...U.S. GAAP adjustments: Pension expense ...Development costs ...Provision for social security cost on stock options ...Stock compensation...

  • Page 159
    ...shareholders' equity Total shareholders' equity reported under IAS ...U.S. GAAP adjustments: Pension expense ...Additional minimum liability ...Development costs ...Marketable securities and unlisted investments ...Provision for social security cost on stock options ...Deferred compensation ...Share...

  • Page 160
    ... within shareholders' equity until realized in the profit and loss account upon sale or disposal. Under U.S. GAAP, the Group's listed marketable securities would be classified as available-for-sale and carried at aggregate fair value with gross unrealized holding gains and losses reported as...

  • Page 161
    ... market value of the underlying stock on the date of grant. Also, certain employees have been granted restricted shares. This intrinsic value of the stock options and the restricted shares is recorded as deferred compensation within shareholders' equity and recognized in the profit and loss account...

  • Page 162
    ... Accepted Accounting Principles (Continued) over its estimated useful life. The adjustment to U.S. GAAP net income and shareholders' equity relates to the amortization and accumulated amortization, respectively, of Amber Networks' intangible asset. The gross carrying amount of unpatented technology...

  • Page 163
    ... cash generating unit exceeded the recoverable amount of the unit. Upon completion of the annual impairment test, the Group determined that the impairment recorded for Amber Networks should be reversed for U.S. GAAP purposes because, at the Core Networks reporting unit level in 2003 and IP Mobility...

  • Page 164
    ..., or we may fail in our own quality controls. Moreover, a component supplier may experience delays or disruption to its manufacturing, or financial difficulties. Any of these events could delay our successful delivery of products and solutions, which meet our and our customers' quality, safety and...

  • Page 165
    ...to third parties, and therefore at current market prices. Nokia evaluates the performance of its segments and allocates resources to them based on operating profit. 2003 EURm 2002 EURm 2001 EURm Long lived assets by location of assets(1): Finland ...USA ...Great Britain ...China ...Germany ...Other...

  • Page 166
    ......Add: Stock-based employee compensation expense included in reported net income under U.S. GAAP, net of tax ...Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of tax ...Net income under U.S. GAAP (EURm) ...Basic earnings per share (EUR...

  • Page 167
    ... Principles (Continued) reporting. This table presents the IAS deferred tax assets and liabilities according to the presentation prescribed by FAS 109, Accounting for Income Taxes under U.S. GAAP. 2003 EURm 2002 EURm Current assets: Intercompany profit in inventory Warranty provision ...Other...

  • Page 168
    ... U.S. GAAP at December 31: 2003 Domestic Foreign plans plans EURm 2002 Domestic Foreign plans plans EURm Projected benefit obligation at beginning of year Remeasurement ...Foreign exchange ...Service cost ...Interest on projected benefit obligation ...Plan participants' contributions ...Amendments...

  • Page 169
    ... Accounting Principles (Continued) 2003 Domestic Foreign plans plans EURm 2002 Domestic Foreign plans plans EURm Plan assets at fair value at beginning of year Remeasurement ...Foreign exchange ...Actual return on plan assets ...Employer contribution ...Plan participants' contributions ...Benefits...

  • Page 170
    ... investment strategies. As of December 31, 2003 the target asset allocation was: 40% equity securities, 55% debt securities and 5% real estate. The Pension Foundation board of trustees approves the target asset allocation as well as deviation limits. Derivative instruments can be used to change the...

  • Page 171
    ... of the Domestic plans' net periodic benefit cost for years ending December 31 are as follows: 2003 Domestic % 2002 Domestic % Discount rate for determining present values ...Expected long term rate of return on plan assets ...Annual rate of increase in future compensation levels Pension increases...

  • Page 172
    ...December 31, 2003, Nokia is a variable interest holder as defined by FIN 46 in a reinsurance company that was formed in connection with its multi-line multi-year insurance program. This holding is represented by a call option on the company's shares and is fair valued in Nokia's financial statements...

  • Page 173
    ... has duly caused and authorized the undersigned to sign this annual report on its behalf. NOKIA CORPORATION By: /s/ MAIJA TORKKO Name: Maija Torkko Title: Senior Vice President, Corporate Controller By: Name: Title: /s/ URSULA RANIN Ursula Ranin Vice President, General Counsel February 6, 2004

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