NOKIA X X
A N N U A L A C C O U N T S 2 0 0 2
Key data 2002 4
Review by the Board of Directors 5
Consolidated profit and loss accounts,
Consolidated balance sheets,
Consolidated cash flow statements,
Statements of changes in shareholders’ equity,
Notes to the consolidated financial statements 13
Profit and loss accounts, parent company,
Cash flow statements, parent company,
Balance sheets, parent company,
Notes to the financial statements of the parent company 34
Nokia shares and shareholders 38
Nokia
1998–2002, IAS 45
Calculation of key ratios 48
Proposal by the Board of Directors
IAS 9
IAS 8
IAS 10
IAS 12
FAS 32
FAS 32
FAS 33
to the Annual General Meeting 49
Auditor’s report 50
A D D I T I O N A L I N F O R M A T I O N
U.S. GAAP 52
Critical accounting policies 55
Risk factors 57
Group Executive Board 58
Board of Directors 60
Corporate Governance 62
Investor information 65
General contact information 66
Key data 2002
The key data is based on financial statements according to International Accounting
Standards, IAS.
2002 2001 Change 2000
Nokia EURm EURm % EURm
Net sales 30 016 31 191 -4 30 376
Operating profit 4 780 3 362 42 5 776
Profit before taxes 4 917 3 475 41 5 862
Net profit 3 381 2 200 54 3 938
Research and development 3 052 2 985 2 2 584
2002,% 2001,% 2000,%
Return on capital employed 35.3 27.9 58.0
Net dept to equity (gearing) –61 –41 –26
10 major markets,
net sales
2002 2001 2000
EURm EURm EURm
USA 4 665 5 614 5 312
UK 3 111 2 808 2 828
China 2 802 3 418 3 065
Germany 1 849 2 003 2 579
Italy 1 342 1 168 1 243
France 1 273 1 260 1 085
United Arab Emirates 925 619 316
Thailand 827 908 445
Brazil 773 892 1 056
Poland 582 590 478
2002 2001 Change 2000
EUR EUR % EUR
Earnings per share, basic 0.71 0.47 51 0.84
Dividend per share 0.28 * 0.27 4 0.28
Average number
of shares (1 000 shares) 4 751 110 4 702 852 4 673 162
* Board’s proposal
2002 2001 Change 2000
Business Groups EURm EURm % EURm
Nokia Mobile Phones
Net sales 23 211 23 158 0 21 887
Operating profit 5 201 4 521 15 4 879
Research and development 1 884 1 599 18 1 306
Nokia Networks
Net sales 6 539 7 534 –13 7 714
Operating profit –49 –73 33 1 358
Research and development 995 1 135 –12 1 013
Nokia Ventures Organization
Net sales 459 585 –22 854
Operating profit –141 –855 84 –387
Research and development 136 221 –38 235
Personnel, Dec. 31 2002 2001 Change,% 2000
Nokia Mobile Phones 26 090 26 453 –1 28 047
Nokia Networks 17 361 19 392 –10 23 965
Nokia Ventures Organization 1 506 1 886 –20 2 570
Common Group Functions 6 791 6 118 11 5 707
10 major countries,
personnel
Finland 22 535 22 246 24 379
USA 6 661 7 298 8 765
China 4 778 5 202 5 675
Germany 3 620 3 892 4 747
UK 2 139 2 286 2 777
Hungary 1 975 1 937 1 972
Brazil 1 466 1 413 1 260
Denmark 1 176 1 166 1 266
Mexico 1 158 1 198 1 122
South-Korea 821 864 937
, Dec. 31
2002 2001 2000
Main currencies,
1 EUR rates at the year-end 2002
USD 1.0247
GBP 0.6439
SEK 9.1144
JPY 124.17
Nokia Group 51 748 53 849 –4 60 289
4 | Nokia in 2002
Review by the Board of Directors
Review by the Board of Directors 2002
Nokia’s net sales in 2002 decreased by 4% compared with 2001 and totaled
EUR 30 016 million (EUR 31 191 million in 2001). Sales in Nokia Mobile
Phones were flat at EUR 23 211 million (EUR 23 158 million) and decreased
in Nokia Networks by 13% to EUR 6 539 million (EUR 7 534 million). Sales
decreased in Nokia Ventures Organization by 22% to EUR 459 million (EUR
585
million).
Operating profit in 2002 increased by 42% and totaled EUR 4 780 million
(EUR 3 362 million in 2001). Operating margin was 15.9% (10.8% in 2001).
Operating profit in Nokia Mobile Phones increased by 15% to EUR 5 201
million (EUR 4 521 million in 2001). Operating loss in Nokia Networks
decreased to EUR 49 million (operating loss of EUR 73 million in 2001).
Operating margin in Nokia Mobile Phones was 22.4% (19.5% in 2001),
while the operating margin in Nokia Networks was –0.7% (–1.0% in
2001). Nokia Ventures Organization showed an operating loss of EUR 141
million (operating loss of EUR 855 million in 2001). Common Group
Expenses totaled EUR 231 million (EUR 231 million in 2001).
During 2002, operating profit was negatively impacted by goodwill
impairments of EUR 182 million and net customer financing impairment
charges related to MobilCom of EUR 265 million.
Financial income totaled EUR 156 million in 2002 (EUR 125 million in
2001). Profit before tax and minority interests was EUR 4 917 million in
2002 (EUR 3 475 million in 2001). Net profit totaled EUR 3 381 million in
2002 (EUR 2 200 million in 2001). Earnings per share increased to EUR 0.71
(
basic) and to EUR 0.71 (diluted) in 2002, compared with EUR 0.47 (basic)
and EUR 0.46 (diluted) in 2001.
At December 31, 2002, net-debt-to-equity ratio (gearing) was –61% (–41%
at the end of 2001). Total capital expenditures in 2002 amounted to EUR
432 million (EUR 1 041 million in 2001).
At the end of 2002, outstanding long-term loans to customers totaled
EUR 1 056 million (compared with EUR 1 128 in 2001), while guarantees
given on behalf of customers totaled EUR 91 million (EUR 127 million). In
addition, Nokia had financing commitments totaling EUR 857 million
(EUR 2 955 million) at the end of 2002. Of the total outstanding and com-
mitted customer financing of EUR 2 004 million (EUR 4 210 million), EUR
1 573
million (EUR 3 607 million) related to 3G networks.
Research and development
In 2002, Nokia continued to invest in its worldwide research and development network and co-operation. At year-end, Nokia had 19 579 R&D
employees, approximately 38% of Nokia’s total personnel. Nokia has R&D
centers in 14 countries. Investments in R&D increased by 2% (16% in 2001)
and totalled EUR 3 052 million (EUR 2 985 million in 2001), representing
10.2% of net sales (9.6% of net sales in 2001).
Joint initiatives
Open Mobile Alliance
As the mobile industry evolves into new applications and services, cooperation among industry players has intensified, facilitating the faster
adoption of mobile services as well as market growth for the entire mobile
industry. Nokia, an active promoter of the Open Mobile Architecture
initiative, launched in November 2001, was a founding member of the
Open Mobile Alliance, which naturally evolved from this. Since its inception
in June 2002, the Open Mobile Alliance has rapidly expanded from
around 180 members to include more than 300 companies, representing
leading mobile operators, device and network suppliers, IT companies
and content providers.
People
The average number of personnel for 2002 was 52 714 (57 716 for 2001).
At the end of 2002, Nokia employed 51 748 people worldwide (53 849 at
year-end 2001). In 2002, Nokia’s personnel decreased by a total of 2 101
employees (decrease of 6 440 in 2001).
Employee Value Proposition
In a move to further attract, engage and retain a skilled workforce, Nokia
this year developed an employee value proposition framework. The
adaptation and implementation of this has already started at country
levels to reflect and respond to local employee needs and expectations.
The four fundamentals of the proposition are (1) the Nokia Way and
Values, (2) performance-based rewarding, (3) professional and personal
growth, and (4) work-life balance.
Global reach
In 2002, Europe accounted for 54% of Nokia’s net sales (49% in 2001), the
Americas 22% (25%) and Asia-Pacific 24% (26%). The 10 largest markets
were US, UK, China, Germany, Italy, France, UAE, Thailand, Brazil and Poland,
together representing 60% of total sales.
Corporate responsibility
During 2002, Nokia made clear progress in the area of corporate responsibility. Developments included the expansion of our global community
involvement program (Make a Connection) to 12 countries, reaching over
one million people; the introduction of a company-wide diversity program
Nokia in 2002 | 5
Review by the Board of Directors
Net sales by
business group
Jan. 1 – Dec. 31 EURm EURm %
Nokia Mobile Phones 23 211 77 23 158 74
Nokia Networks 6 539 22 7 534 24 –13
Nokia Ventures Organization 459 1 585 2 –22
Inter-business
group eliminations –193 –86
Nokia Group 30 016 100 31 191 100 –4
Operating profit by
business group,
Jan. 1 – Dec. 31 EURm net sales EURm net sales
Nokia Mobile Phones 5 201 22.4 4 521 19.5
Nokia Networks –49 –0.7 –73 –1.0
Nokia Ventures Organization –141 –30.7 –855 –146.2
Common Group Expenses –231 –231
Nokia Group 4 780 15.9 3 362 10.8
aimed at preventing discrimination and increasing the productivity and
innovation of teams; and further development and increased transparency
in our product life-cycle management (related to our work in design for
environment, supplier network management, manufacturing and endof-life practices).
Nokia is actively participating in a number of international initiatives,
such as those of Global Compact, UN ICT Task Force, International Youth
Foundation, World Business Council for Sustainable Development and
WWF. As a result of our performance in economic, environmental and
social issues, and increased transparency in reporting, Nokia was again
included in Socially Responsible Investment (SRI) benchmarks, such as
Dow Jones Sustainability Indexes and the FTSE4Good.
In 2002, Nokia was named as the top stock held by SRI funds in Europe,
according to an analysis of European SRI funds by the Sustainable Invest-
ment Research International Group (SiRi), a coalition of 12 national SRI
research bodies.
IAS 2002 % of 2001 % of
2002 % 2001 % Change
Nokia Mobile Phones in 2002
Nokia Mobile Phones continued to renew its industry-leading product
line-up, launching a record 34 new products during 2002, incorporating
color, imaging, multimedia, mobile games and polyphonic ring tones. Of
the total new phones launched, 14 had color screens and multimedia
capability. This attests to the growing share of feature-rich phones offering
advanced mobile services in the company’s product portfolio.
During the year, Nokia launched its first WCDMA mobile phone, the
Nokia 6650, which began deliveries to operators for testing in October
2002. The company also commenced shipments of its first CDMA2000 1X
mobile phones in the Americas. These included the Nokia 6370, the Nokia
6385, the Nokia 3585, and the Nokia 8280.
In imaging, Nokia began shipping its iconic camera phone, the Nokia
7650, expanding the scope of the mobile market from voice to visual com-
munications. Feedback from customers and users across the board has
been extremely positive.
In the enterprise segment, the company expanded its product offering
from the Nokia Communicator 9200 series to include the Nokia 6800
messaging device, with full QWERTY keypad optimized for personal and
enterprise mobile e-mail.
In entertainment, Nokia announced it would bring mobility to gaming
by offering console quality games for its new mobile game deck device
category. Under a collaboration agreement with world leading games
publisher, Sega, the two companies will develop games for the new
Nokia N-Gage™ mobile game deck, which will run on the Nokia Series 60
platform and the Symbian operating system.
For the full year 2002, Nokia volumes reached a record level of 152
million units, representing faster than market growth of 9%, compared
with 2001. Backed by Nokia’s ongoing product leadership and user brand
preference, Nokia has again increased its market share for the fifth
consecutive year reaching about 38% for the full year 2002, bringing the
company closer to its target of 40%.
During the year, Nokia Mobile Phones took steps to accelerate growth
and enhance both agility and scale benefits with the introduction of a
new operational structure. From May 1, nine new business units were
each made responsible for product and business development within a
defined market segment. This allowed Nokia to optimize its activities in
these vertically-focused areas, while continuing to achieve broad economies
of scale from horizontal functions such as application software development and the company’s market-leading demand-supply network.
Nokia Networks in 2002
During the year, Nokia Networks signed 20 GSM network deals in Asia,
China, Europe and the US, including three new customers.
Mobile Multimedia Messaging Services (MMS) became a reality in 2002,
with its rapid implementation into most GSM operator networks. By yearend, Nokia Networks had delivered MMS solutions to well over 40 operators.
WCDMA 3G technology implementation moved to pre-commercial and
commercial phase towards the end of 2002. Nokia signed 10 new 3G deals
in Austria, Belgium, Germany, Ireland, Japan, the UK and Taiwan. In September, Nokia became the first vendor to commence volume deliveries of
EDGE hardware across all major GSM bands and in all continents.
In broadband access, Nokia signed nine new contracts in 2002, and
launched the Nokia D500 next generation multiservice broadband access
platform for the US and ETSI markets.
6 | Nokia in 2002
Review by the Board of Directors
The company also further strengthened its GSM/EDGE/WCDMA product
family with several new products and solutions. Key launches included a
high-availability server platform for use in All-IP mobility networks, and
the Nokia LTX , a linear transceiver product family of base station modules
that support the definition of Open IP Base Station Architecture.
During the year, Nokia took measures to align its operations to better
reflect current market capacity and conditions, reducing the number of
employees in its delivery and maintenance services as well as in production.
Nokia also streamlined its professional mobile radio unit to reflect the
slower than expected take-off of this market.
Nokia Ventures Organization in 2002
Despite overall flat IT spending and slow growth in the corporate network
security market throughout 2002, Nokia Internet Communications maintained the same level of sales and market share in the enterprise
firewall/VPN appliance segment as the previous year, as well as significantly improving its operational efficiency.
Highlights for the year include the introduction of a record number of
new products and solutions that both expand Nokia’s network security
appliance portfolio and respond to emerging market opportunities.
Extending mobility to enterprise workforces, protecting corporate e-mail
content and providing firewall/VPN benefits to remote offices were
promising growth areas addressed with new product offerings from
Nokia. To help foster the creation of new security applications to complement Nokia’s own solutions, the Nokia Security Developers Alliance was
launched in July. Looking forward to 2003, Nokia Internet Communications
remains committed to building a leading position in the corporate
network security market and extending mobility to enterprises.
For Nokia Home Communications, sales in 2002 clearly declined as
the unit began a migration towards emerging horizontal markets with
the launch of new types of terminals focused on horizontal terrestrial
and satellite markets, providing digital viewers access to a broad range
of digital services. Products, such as the Nokia Mediamaster 230 S, introduced Bluetooth-enabled interoperability to the home environment in
the second half of the year.
Outlook
Nokia’s objective is to take and maintain a leading role in creating
communications products and services that enrich the daily lives of
people and enable enterprises to prosper. The company strives to keep a
clear focus on human needs, managing risks and building reputation,
integrating all stakeholder expectations into its business decision making.
In 2002, Nokia confirmed its ability to perform well in a challenging
environment, translating core strengths of leading brand, excellence in
execution and continuous product renewal into strong profitability. Going
into 2003, the company expects market conditions to remain challenging,
but will continue to build on Nokia’s industry-leading position, seeking
to achieve high profitability as well as to grow market share in its two
main businesses.
As market leader and a global company, Nokia takes its responsibilities
seriously. Sound company ethics makes business sense by helping minimize risk, ensuring legal compliance, and building reputation amongst
stakeholders. By conducting business in a responsible way, Nokia can
make a significant contribution to sustainable development, at the same
time building a strong foundation for economic growth.
Dividend
Nokia’s Board of Directors will propose a dividend of EUR 0.28 per share
in respect of 2002.
Changes in share capital
In 2002, Nokia’s share capital increased by EUR 3 022 621.20 as a result of
the issue of 50 377 020 new shares upon exercise of warrants and stock
options issued to key personnel in 1997 and 1999.
On December 31, 2002, Nokia Group companies owned 1 145 621
Nokia shares. The shares had an aggregate nominal value of EUR
68 737.26 representing 0.02% of the share capital of the company and the
total voting rights.
The total number of shares at December 31, 2002 was 4 787 907 141.
As a result of the new share issues, Nokia received a total of EUR
162 827 165.74
2002, Nokia’s share capital was EUR 287 274 428.46.
in additional shareholders’ equity in 2002. At December 31,
Parent company
Effective July 1, Nextrom Holding S.A., a publicly listed corporation organized under the laws of Switzerland, became a subsidiary of Nokia Corporation.
Nokia in 2002 | 7
Consolidated financial statements according to International Accounting Standards (IAS)
Consolidated profit and loss accounts, IAS
Financial year ended Dec. 31 Notes EURm EURm EURm
2002 2001 2000
Net sales 30 016 31 191 30 376
Cost of sales –18 278 –19 787 –19 072
Research and development expenses –3 052 –2 985 –2 584
Selling, general and administrative
expenses 6,7 –3 239 –3 523 –2 804
Customer finance impairment charges, net 7 –279 –714 –
Impairment of goodwill 7 –182 –518 –
Amortization of goodwill 9 –206 –302 –140
Operating profit 2, 3, 4, 5, 6, 7, 9 4 780 3 362 5 776
Share of results of associated companies 32 –19 –12 –16
Financial income and expenses 10 156 125 102
Profit before tax and minority interests 4 917 3 475 5 862
Tax 11 –1 484 –1 192 –1 784
Minority interests –52 –83 –140
Net profit 3 381 2 200 3 938
2002 2001 2000
Earnings per share 28 EUR EUR EUR
Basic 0.71 0.47 0.84
Diluted 0.71 0.46 0.82
Average number of shares
(1 000 shares) 28 2002 2001 2000
Basic 4 751 110 4 702 852 4 673 162
Diluted 4 788 042 4 787 219 4 792 980
See Notes to consolidated financial statements.
8 | Nokia in 2002
Consolidated financial statements according to International Accounting Standards (IAS)
Consolidated balance sheets, IAS
Dec. 31 Notes EURm EURm
2002 2001
ASSETS
Fixed assets and other non-current assets
Capitalized development costs 12 1 072 893
Goodwill 12 476 854
Other intangible assets 12 192 237
Property, plant and equipment 13 1 874 2 514
Investments in associated companies 14 49 49
Available-for-sale investments 15 238 399
Deferred tax assets 24 731 832
Long-term loans receivable 16 1 056 1 128
Other non-current assets 54 6
5 742 6 912
Current assets
Inventories 17, 19 1 277 1 788
Accounts receivable 18, 19 5 385 5 719
Prepaid expenses and accrued income 18 1 156 1 480
Other financial assets 416 403
Available-for-sale investments 15, 34 7 855 4 271
Bank and cash 34 1 496 1 854
17 585 15 515
Total assets 23 327 22 427
2002 2001
Dec. 31 Notes EURm EURm
SHAREHOLDERS’ EQUITY AND LIABILITIES
Shareholders’ equity
Share capital 21 287 284
Share issue premium 2 225 2 060
Treasury shares, at cost –20 –21
Translation differences 135 326
Fair value and other reserves 20 –7 20
Retained earnings 22 11 661 9 536
14 281 12 205
Minority interest 173 196
Long-term liabilities 23
Long-term interest-bearing liabilities 187 207
Deferred tax liabilities 24 207 177
Other long-term liabilities 67 76
461 460
Current liabilities
Short-term borrowings 25 377 831
Accounts payable 2 954 3 074
Accrued expenses 26 2 611 3 477
Provisions 27 2 470 2 184
8 412 9 566
Total shareholders’ equity and liabilities 23 327 22 427
See Notes to consolidated financial statements.
Nokia in 2002 | 9
Consolidated financial statements according to International Accounting Standards (IAS)
Consolidated cash flow statements, IAS
Financial year ended Dec. 31 Notes EURm EURm EURm
2002 2001 2000
Cash flow from operating activities
Net profit 3 381 2 200 3 938
Adjustments, total 33 3 151 4 132 2 805
Net profit before change in net working capital 6 532 6 332 6 743
Change in net working capital 33 955 978 –1 377
Cash generated from operations 7 487 7 310 5 366
Interest received 229 226 255
Interest paid –94 –155 –115
Other financial income and expenses 139 99 –454
Income taxes paid –1 947 –933 –1 543
Net cash from operating activities 5 814 6 547 3 509
Cash flow from investing activities
Acquisition of Group companies, net of acquired cash
(2002: EUR 6 million, 2001: EUR 12 million, 2000: EUR 2 million) –10 –131 –400
Purchase of non-current available-for-sale investments –99 –323 –111
Additions to capitalized development costs –418 –431 –393
Long-term loans made to customers –563 –1 129 –776
Proceeds from repayment and transfers of long-term
loans receivable 314 ––
Proceeds from (+) / payment of (–)
other long-term receivables –32 84 –
Proceeds from (+) / payment of (–)
short-term loans receivable –85 –114 378
Capital expenditures –432 –1 041 –1 580
Proceeds from disposal of shares in Group companies,
net of disposed cash 93 –4
Proceeds from sale of non-current available-for-sale
investments 162 204 75
Proceeds from sale of fixed assets 177 175 221
Dividends received 25 27 51
Net cash used in investing activities –868 –2 679 –2 531
Cash flow from financing activities
Proceeds from stock option exercises 163 77 72
Purchase of treasury shares –17 –21 –160
Capital investment by minority shareholders 26 47
Proceeds from long-term borrowings 100 102 –
Repayment of long-term borrowings –98 –59 –82
Proceeds from (+) / repayment of
(–) short-term borrowings –406 –602 133
Dividends paid –1 348 –1 396 –1 004
Net cash used in financing activities –1 580 –1 895 –1 034
Foreign exchange adjustment –163 –43 80
Net increase in cash and cash equivalents 3 203 1 930 24
Cash and cash equivalents at beginning of
period 6 125 4 183 4 159
Cash and cash equivalents at end of period 9 328 6 113 4 183
10 | Nokia in 2002
Consolidated financial statements according to International Accounting Standards (IAS)
2002 2001 2000
EURm EURm EURm
Change in net fair value of current
available-for-sale investments 23 12 –
As reported on balance sheet 9 351 6 125 4 183
Movement in cash and cash equivalents:
At beginning of year, as previously reported 6 125 4 183 4 159
On adoption of IAS 39, remeasurement of current
available-for-sale investments to fair value – 42 –
At beginning of year, as restated 6 125 4 225 4 159
Net fair value gains (+) / losses (–)
on current available-for-sale investments 23 –30 –
Net increase in cash and cash equivalents 3 203 1 930 24
As reported on balance sheet 9 351 6 125 4 183
At end of year, comprising:
Bank and cash 1 496 1 854 1 409
Current available-for-sale investments 7 855 4 271 2 774
9 351 6 125 4 183
See Notes to consolidated financial statements.
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.
Nokia in 2002 | 11
Consolidated financial statements according to International Accounting Standards (IAS)
Consolidated statements of changes in shareholders’ equity , IAS
Group, EURm (1 000) capital premium shares differences reserves earnings Total
Number of shares Share Share issue Treasury Translation and other Retained
Balance at Dec. 31, 1999 4 652 679 279 1 079 –24 243 – 5 801 7 378
Share issue related to acquisitions 10 021 1 484 485
Stock options exercised 32 128 2 70 72
Stock options issued on
acquisitions 75 75
Stock options exercised
related to acquisitions –13 –13
Acquisition of treasury shares –3 252 –160 –160
Reissuance of treasury shares 557 27 27
Dividend –931 –931
Translation differences 104 104
Change in accounting policy –206 –206
Other increase, net 39 39
Net profit 3 938 3 938
Balance at Dec. 31, 2000 4 692 133 282 1 695 –157 347 – 8 641 10 808
Effect of adopting IAS 39 –56 –56
Balance at Jan. 1, 2001, restated 4 692 133 282 1 695 –157 347 –56 8 641 10 752
Share issue related to acquisitions 18 329 1 331 332
Stock options exercised 23 057 1 76 77
Stock options issued on acquisition 20 20
Stock options exercised
related to acquisitions –10 –10
Acquisition of treasury shares –995 –21 –21
Reissuance of treasury shares 3 778 –52 157 105
Dividend –1 314 –1 314
Translation differences 65 65
Net investment hedge losses –86 –86
Cash flow hedges, net 76 76
Available-for-sale investments, net 00
Other increase, net 99
Net profit 2 200 2 200
Balance at Dec. 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 Dec. 31, 2002 4 786 762 287 2 225 –20 135 –7 11 661 14 281
Dividends declared per share were EUR 0.28 for 2002 (EUR 0.27 for 2001 and EUR 0.28 for 2000), subject to shareholders’ approval.
See Notes to consolidated financial statements.
Fair value
12 | Nokia in 2002
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 Accounting Standards
(IAS). The consolidated financial statements are presented in millions of
euros (EURm) 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.
In 2001 the Group adopted IAS 39, Financial Instruments: Recognition
and Measurement (IAS 39). The effects of adopting the standard are summarized in the consolidated statement of changes in shareholders’ equity,
and further information is disclosed in the accounting policies, Fair
Valuing Principles and Hedge Accounting and in Notes 15, 20 and 34. In
accordance with IAS 39, the comparative financial statements for the
year ended December 31, 2000 have not been restated.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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 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 any 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 exchange
rates for the accounting period. The balance sheets of foreign Group companies are translated into euro at the rates of exchange ruling at the
year-end 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
At January 1, 2001 the Group adopted IAS 39. The impact of adopting the
standard on shareholders’ equity is quantified in note 20. 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
Nokia in 2002 | 13
Notes to the consolidated financial statements
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 recycled from shareholders’ equity
into the profit and loss account. An impairment is recorded when the
carrying amount of an available for sale investment is greater than the
estimated fair value and there is objective evidence that the asset is
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.
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 financial income and expenses
in the profit and loss account.
Hedge accounting
Hedging of anticipated foreign currency
denominated sales and purchases
The Group is applying 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.
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 under hedge accounting under IAS 39 are recognized immediately
in the profit and loss account.
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.
Sales and cost 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. Completion is generally measured by reference
to cost incurred to date as a percentage of estimated total project costs.
The milestone output method is applied when the nature of the individual
projects indicates that a milestone method is the most applicable
measure of progress.
The percentage of completion method relies on estimates of total
14 | Nokia in 2002
Notes to the consolidated financial statements
expected contract revenue and costs, as well as dependable measurement of the progress made towards completing that 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 known and estimable. Losses on
projects in progress are recognized immediately when known and
estimable.
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 in the financial period
during which 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 are
amortized on a systematic basis over their expected useful lives between
two and five years.
Other intangible assets
Expenditure on acquired patents, trademarks and licenses is 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 internaluse 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 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 multiemployer 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 regular 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
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 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 is included in the inventory values.
An allowance is recorded for obsolescence.
Cash and cash equivalents
The Group manages its short-term liquidity through holdings of cash and
highly liquid interest-bearing securities (included as current availablefor-sale investments in the balance sheet). For the purposes of the cash
flow statement, these are shown together as cash and cash equivalents.
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. 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 included within other operating income.
Nokia in 2002 | 15
Notes to the consolidated financial statements
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.
The principal temporary differences arise from intercompany profit
in inventory, depreciation on property, plant and equipment, 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 options
Stock options are 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. Tax benefits
on options exercised in the United States are credited to share issue
premium. Treasury shares are acquired by the Group to meet its obligations
under employee stock compensation plans. When treasury shares are
issued on exercise of stock options any gain or loss is recognized in share
issue premium.
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.
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 outstanding during the
period.
2. Segment information
Nokia is organized on a worldwide basis into three primary business
segments: 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
phones and wireless data products, including a complete range of mobile
phones for all major digital and analog standards worldwide.
Nokia Networks is a leading provider of mobile and IP network infrastructure and related services. Nokia Networks aims to be a leader in IP
mobility core, radio and broadband access for network providers and
operators.
Nokia Ventures Organization exists to create new businesses outside
the natural development path of the company’s core activities. The unit
comprises venture capital activities, incubation, and a portfolio of new
ventures, including two more mature businesses: Nokia Internet Communications and Nokia Home Communications.
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.
16 | Nokia in 2002
Notes to the consolidated financial statements
Nokia Nokia Common Total
2002, EURm Phones Networks Organization Functions segments tions Group
Profit and loss information
Net sales to external customers 22 997 6 538 441 40 30 016 30 016
Net sales to other segments 214 1 18 –40 193 –193 –
Depreciation and amortization 546 542 33 190 1 311 1 311
Impairment and customer finance charges – 400 83 55 538 538
Operating profit 5 201 –49 –141 –231 4 780 4 780
Share of results of associated companies – – – –19 –19 –19
Balance sheet information
Capital expenditures
Segment assets
1
2
of which: Investments in
associated companies – – – 49 49 49
Unallocated assets
3
Total assets 23 327
Segment liabilities
Unallocated liabilities
4
5
Total liabilities 8 873
Mobile Nokia Ventures Group reportable Elimina-
224 93 8 107 432 432
4 888 6 163 114 965 12 130 –26 12 104
11 223
5 080 1 861 188 225 7 354 –24 7 330
1 543
2001, EURm
Profit and loss information
Net sales to external customers 23 107 7 521 563 – 31 191 31 191
Net sales to other segments 51 13 22 – 86 –86 –
Depreciation and amortization 642 511 115 162 1 430 1 430
Impairment and customer finance charges – 925 307 80 1 312 1 312
Operating profit 4 521 –73 –855 –231 3 362 3 362
Share of results of associated companies – – – –12 –12 –12
Balance sheet information
Capital expenditures
Segment assets
1
2
377 288 23 353 1 041 1 041
6 087 6 597 260 1 104 14 048 –160 13 888
of which: Investments in
associated companies – – – 49 49 49
Unallocated assets
3
Total assets 22 427
Segment liabilities
Unallocated liabilities
4
5
4 867 2 084 283 258 7 492 –132 7 360
Total liabilities 10 026
2000, EURm
Profit and loss information
Net sales to external customers 21 844 7 708 824 – 30 376 30 376
Net sales to other segments 43 6 30 – 79 –79 –
Depreciation and amortization 467 354 102 86 1 009 1 009
Operating profit 4 879 1 358 –387 –74 5 776 5 776
Share of results of associated companies – – – –16 –16 –16
1
Including goodwill and capitalized development costs, capital expenditures amount
to
EUR 860 million in 2002 (EUR 2 064 million in 2001). The goodwill and capitalized
development costs consist of
Mobile Phones,
EUR 1 million in 2002 (EUR 163 million in 2001) for Nokia Ventures Organization and
EUR 9 million in 2002 (EUR 0 million in 2001) 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
EUR 377 million in 2002 (EUR 801 million in 2001) for Nokia Networks,
EUR 41 million in 2002 (EUR 59 million in 2001) for Nokia
related to interest and taxes.
3
Unallocated assets including prepaid expenses and accrued income related to taxes
and deferred tax assets
4
Comprises accounts payable, deferred income, accrued expenses and provisions except
those related to interest and taxes.
5
Unallocated liabilities including prepaid income and accrued expenses related to taxes
and deferred tax liabilities
(EUR 853 million in 2002 and EUR 1 106 million in 2001).
(EUR 248 million in 2002 and EUR 1 077 million in 2001).
8 539
2 666
Nokia in 2002 | 17
Notes to the consolidated financial statements
Net sales to external customers 2002 2001 2000
by geographic area EURm EURm EURm
Finland 353 453 494
USA 4 665 5 614 5 312
Great Britain 3 111 2 808 2 828
China 2 802 3 418 3 065
Germany 1 849 2 003 2 579
Other 17 236 16 895 16 098
Total 30 016 31 191 30 376
Segment assets 2002 2001
by geographic area EURm EURm
Finland 4 913 5 087
USA 1 777 2 279
Great Britain 627 519
China 1 107 1 668
Germany 431 611
Other 3 249 3 724
Total 12 104 13 888
Capital expenditures 2002 2001 2000
by market area EURm EURm EURm
Finland 188 477 587
1
USA
71 151 279
Great Britain 27 34 75
China 47 131 157
Germany 21 37 133
1
Other
78 211 349
Total 432 1 041 1 580
1
Including goodwill and capitalized development costs, capital expenditures amount
EUR 860 million in 2002 (EUR 2 064 million in 2001 and EUR 2 990 million in 2000).
to
The goodwill and capitalized development costs consist of
(EUR 582 million in 2001 and EUR 567 in 2000) and EUR 427 million in other areas in 2002
(EUR 441 million in 2001 and EUR 843 in 2000).
EUR 1 million in USA in 2002
3. Percentage of completion
Contract sales recognized under the percentage of completion method
were approximately EUR 5.9 billion in 2002 (EUR 6.7 billion in both 2001
and 2000). Billings in advance of contract revenues, included in advance
payments, were EUR 108 million at December 31, 2002 (EUR 146 million in
2001 and EUR 97 million in 2000). Contract revenues recorded prior to
billings were EUR 573 million at December 31, 2002 (EUR 319 million in
2001 and EUR 418 million in 2000).
Revenue recognition on initial 3G network contracts started in 2002
when Nokia Networks reached the relevant milestones for its singlemode and dual-mode WCDMA 3G systems.
4. Personnel expenses
2002 2001 2000
EURm EURm EURm
Wages and salaries 2 531 2 388 2 378
Pension expenses, net 224 193 54
Other social expenses 385 524 456
Personnel expenses as per
profit and loss account 3 140 3 105 2 888
Pension expenses comprise EUR 167 million in 2002 (EUR 196 million in
2001 and EUR 93 million in 2000) in respect of multi-employer, insured
and defined contribution plans.
Remuneration of the Chairman and the
other members of the Board of Directors,
Group Executive Board and Presidents
and Managing Directors * 19 16 17
* Incentives included in remuneration 4 24
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.
5. 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.
18 | Nokia in 2002
Notes to the consolidated financial statements
The amounts recognized in the balance sheet relating to single employer
defined benefit schemes are as follows:
2002 2001
Domestic Foreign Domestic Foreign
Plans Plans Plans Plans
EURm EURm EURm EURm
Fair value of plan assets 636 126 664 123
Present value of funded
obligations –539 –261 –530 –236
Surplus/(Deficit) 97 –135 134 –113
Unrecognized net actuarial
(gains)/losses 45 63 448
Prepaid/(Accrued) pension
cost in balance sheet 142 –72 138 –65
The amounts recognized in the profit and loss account are as follows:
2002 2001 2000
EURm EURm EURm
Current service cost 58 49 40
Interest cost 47 40 36
Expected return on plan assets –61 –75 –78
Net actuarial losses (gains)
recognized in year 2 –16 –24
Past service cost 11 ––
Curtailment – –1 –
The principal actuarial weighted average assumptions used were as
follows:
Discount rate for determining
present values 5.50 5.58 5.80 5.85
Expected long term rate of
return on plan assets 7.25 6.56 7.50 6.49
Annual rate of increase in future
compensation levels 3.50 3.09 4.00 3.05
Pension increases 2.30 2.29 2.80 2.87
The prepaid pension cost above is made up of a prepayment of EUR 150
million (EUR 146 million in 2001) and an accrual of EUR 80 million (EUR 73
million in 2001).
The domestic pension plan assets include Nokia securities with fair values
of EUR 125 million in 2002 (EUR 332 million in 2001).
The foreign pension plans’ assets include a loan provided to Nokia by the
Group’s German pension fund of EUR 66 million (EUR 66 million in 2001).
See Note 31.
The actual return on plan assets was EUR –66 million in 2002 EUR –253
million in 2001).
6. Selling and marketing expenses, administration
expenses and other operating income and expenses
Total, included in personnel expenses 57 –3 –26
Movements in prepaid pension costs recognized in the balance sheet are
as follows: 2002 2001
EURm EURm
Prepaid pension costs at beginning of year 73 55
Net income (expense) recognized in
the profit and loss account –57 3
Contributions paid 54 15
Selling and marketing expenses –2 579 –2 363 –2 103
Administration expenses –701 –737 –754
Other operating expenses –292 –605 –225
Other operating income 333 182 278
Total –3 239 –3 523 –2 804
2002 2001
Domestic Foreign Domestic Foreign
%% %%
2002 2001 2000
EURm EURm EURm
Prepaid pension costs at end of year 70 * 73 *
* Included within prepaid expenses and accrued income.
Other operating income for 2002 includes a gain of EUR 106 million relat-
ing to the sale of Nokia Venture Partners’ investment in PayPal within
Nokia Ventures Organization. Other operating expenses for 2002 are com-
posed of various items which are individually insignificant.
Other operating expenses for 2001 include restructuring charges of
EUR 166 million.
Other operating income for 2000 includes a pension credit of EUR 55
million relating to the change in accounting method for the Finnish pension plans. Other operating expenses for 2000 are composed of various
items which are individually insignificant.
The Group expenses advertising and promotion costs as incurred.
Advertising and promotional expenses were EUR 1 174 million in 2002
(EUR 849 million in 2001 and EUR 853 million in 2000).
Nokia in 2002 | 19
Notes to the consolidated financial statements
7. Impairment
2002, EURm Mobile Phones Networks Organization Functions Group
Nokia Nokia Nokia Ventures Group
Customer finance impairment charges, net – 279 – – 279
Impairment of goodwill – 121 61 – 182
Impairment of available-for-sale investments – – 22 55 77
Total, net – 400 83 55 538
2001, EURm
Customer finance impairment charges – 714 – – 714
Impairment of goodwill – 211 307 – 518
Impairment of available-for-sale investments – – 6 74 80
Total – 925 313 74 1 312
During 2002, Nokia recorded net customer financing impairment charges
of EUR 279 million. Of this amount, EUR 292 million was an impairment
of loans receivable with a carrying value of approximately EUR 0.8 billion
from MobilCom, a customer of Nokia Networks, as a result of financial
difficulties of MobilCom. Such loans have been reduced to their estimated
recoverable amounts, based on the estimated fair value of the subordinated convertible perpetual bonds of France Telecom S.A., a shareholder
of MobilCom, that Nokia expects to receive as repayment for the loans to
MobilCom pursuant to an agreement with France Telecom. The estimated
fair value will be reassessed upon approval from the respective boards
and shareholders of MobilCom and France Telecom. Also in 2002, Nokia
received EUR 13 million as partial recovery of amounts written off in
2001 related to Dolphin.
During 2001, Nokia recorded an impairment charge 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 customer financing exposure to
Telsim and Dolphin.
In 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 the Nokia Networks business,
Nokia recorded an impairment charge of EUR 104 million on goodwill
related to the acquisition of Amber Networks. The recoverable amount
for Amber Networks has been derived from the value in use discounted
cash flow projections which cover the estimated life of the Amber platform
technology, using a discount rate of 15%. The remaining goodwill of EUR
207 million is being amortized over the expected useful life. The impairment
is a result of significant declines in the market outlook for products
under development. In the Nokia Networks business in 2001, Nokia recognized a goodwill impairment charge of EUR 170 million related to the
acquisition of Nokia DiscoveryCom, as a result of a decision to discontinue
the related product development.
In 2002 and 2001, Nokia recognized impairment losses of EUR 36 million
and EUR 88 million, respectively, on goodwill related to the acquisition of
Ramp Networks. In 2002 and 2001, Nokia recognized impairment losses
of EUR 25 and EUR 181 million, respectively, on goodwill related to the
acquisition of Network Alchemy. Both of these entities are part of the
Nokia Internet Communications business unit of Nokia Ventures Organization. For the impairments in 2001 the recoverable amounts were calculated based on value in use discounted cash flow projections using a discount rate of 13%. The impairments in 2001 resulted from the restructuring
of these businesses. In 2002, the remaining goodwill balances were written
off as a result of decisions to discontinue the related product development.
Nokia recognized other minor goodwill impairment charges totaling
EUR 17 million in 2002 (EUR 78 million in 2001).
During 2002 the company’s investments in certain equity securities
suffered a permanent decline in fair value resulting in impairment
charges of EUR 77 million relating to non-current available-for-sale
investments (EUR 80 million in 2001).
8. Acquisitions
In 2002, Nokia increased its voting percentage of 39.97% and holding per-
centage of 59.97% in Nextrom Holding S.A. to a voting percentage of
86.21% and a holding percentage of 79.33%. These increases resulted
from a rights offering by Nextrom in June 2002 and by acquiring new
registered and bearer shares in an offering by Nextrom in December 2002
both totaling EUR 13 million. The fair value of net assets acquired was
EUR 4 million giving rise to goodwill of EUR 9 million.
In August 2001 Nokia acquired Amber Networks, a networking infra-
structure company, for EUR 408 million, which was paid in Nokia stock
and Nokia stock options. The fair value of net assets acquired was EUR
–13 million giving rise to goodwill of EUR 421 million.
In January 2001 Nokia acquired in a cash tender offer Ramp Networks,
a provider of purpose built Internet security appliances, for EUR 147
million. The fair value of net assets acquired was EUR –16 million giving
rise to goodwill of EUR 163 million.
In October 2000 Nokia increased its ownership of the Brazilian handset
manufacturing joint venture NG Industrial (NGI) from 51% to 100% by
acquiring all the shares of NGI held by Gradiente Telecom S.A. for EUR 492
Common
20 | Nokia in 2002
Notes to the consolidated financial statements
million in cash. The fair value of net assets acquired was EUR 43 million
giving rise to goodwill of EUR 449 million.
In August 2000 Nokia acquired DiscoveryCom, a company which
provides solutions that enable communications service providers to rapidly
install and maintain Broadband Digital Subscriber Line (DSL) services for
fast Internet access. The acquisition price was EUR 223 million, which
was paid in Nokia stock and Nokia stock options. The fair value of net
assets acquired was EUR –4 million giving rise to goodwill of EUR 227
million.
In March 2000 Nokia acquired Network Alchemy, a provider of IP Clus-
tering solutions for EUR 336 million, which was paid in Nokia stock and
Nokia stock options. The fair value of net assets acquired was EUR –2
million giving rise to goodwill of EUR 338 million.
9. Depreciation and amortization
Depreciation and 2002 2001 2000
amortization by asset category EURm EURm EURm
Intangible assets
Capitalized development costs 233 169 118
Intangible rights 65 65 50
Goodwill 206 302 140
Other intangible assets 28 34 29
Property, plant and equipment
Buildings and constructions 37 31 27
Machinery and equipment 737 811 615
Other tangible assets 5 18 30
Total 1 311 1 430 1 009
Depreciation and amortization by function
Cost of sales 314 367 298
R&D 473 427 244
Selling, marketing and administration 211 264 230
Other operating expenses 107 70 97
Goodwill 206 302 140
Total 1 311 1 430 1 009
10. Financial income and expenses
2002 2001 2000
EURm EURm EURm
Income from available-for-sale investments
Dividend income 25 27 70
Interest income 230 215 212
Other financial income 27 24 17
Exchange gains and losses –29 –25 –1
Interest expense –43 –82 –115
Other financial expenses –54 –34 –81
11. Income taxes
2002 2001 2000
EURm EURm EURm
Current tax –1 423 –1 542 –1 852
Deferred tax –61 350 68
Total –1 484 –1 192 –1 784
Finland –1 102 –877 –1 173
Other countries –382 –315 –611
Total –1 484 –1 192 –1 784
The differences between income tax expense computed at statutory rates
(29% in Finland in 2002, 2001 and 2000) and income tax expense provided
on earnings are as follows at December 31:
2002 2001 2000
EURm EURm EURm
Income tax expense at statutory rate 1 431 1 011 1 689
Deduction for write-down of
investments in subsidiaries – –37 –28
Amortization of goodwill 59 87 40
Impairment of goodwill 70 197 –
Provisions without income
tax benefit/expense –10 553
Tax es for prior years 8 23 53
Tax es on foreign subsidiaries’ net income in
excess of income taxes at statutory rates –59 –106 –29
Operating losses with no current tax benefit 6 16 25
Other –21 –4 –19
Income tax expense 1 484 1 192 1 784
At December 31, 2002 the Group had loss carryforwards, primarily attributable to foreign subsidiaries of EUR 425 million (EUR 75 million in 2001
and EUR 109 million in 2000), most of which will expire between 2006
and 2022.
Certain of the Group companies’ income tax returns for periods ranging from 1998 through 2001 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.
Total 156 125 102
Nokia in 2002 | 21
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