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As filed with the Securities and Exchange Commission on April 30, 2014.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
Commission file number 1-13202
Nokia Corporation
(Exact name of Registrant as specified in its charter)
Republic of Finland
(Jurisdiction of incorporation)
Karakaari 7, P.O. Box 226, FI-02610 NOKIA GROUP, Espoo, Finland
(Address of principal executive offices)
Riikka Tieaho, Vice President, Corporate Legal, Telephone: +358 (0) 10 44 88 000, Facsimile: +358 (0) 7 1803-8503, Karakaari 7, P.O. Box 226, FI-02610 NOKIA GROUP, Espoo, Finland
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the “Exchange Act”):
| Title of each class |
Name of each exchange on which registered | |
| American Depositary Shares | New York Stock Exchange | |
| Shares | New York Stock Exchange(1) |
| (1) | Not for trading, but only in connection with the registration of American Depositary Shares representing these shares, pursuant to the requirements of the Securities and Exchange Commission. |
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Exchange Act: 5.375% Notes due 2019 and 6.625% Notes due 2039.
Indicate the number of outstanding shares of each of the registrant’s classes of capital or common stock as of the close of the period covered by the annual report. Shares: 3 744 956 052.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | x | Accelerated filer | ¨ | |||
| Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ | |||
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ¨
International Financial Reporting Standards as issued by the International Accounting Standards Board x Other ¨
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
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INTRODUCTION AND USE OF CERTAIN TERMS
Nokia Corporation is a public limited liability company incorporated under the laws of the Republic of Finland. In this document, any reference to “we,” “us,” “the Group” or “Nokia” means Nokia Corporation and its subsidiaries on a consolidated basis and which refers generally to Nokia’s continuing operations, except where we make clear that the term means Nokia Corporation or a particular subsidiary or business segment only or the discontinued operations, and except that references to “our shares,” matters relating to our shares or matters of corporate governance refer to the shares and corporate governance of Nokia Corporation.
In this document, “Sale of the D&S Business” refers to the transaction announced on September 3, 2013 and closed on April 25, 2014 where Nokia sold substantially all of Nokia’s Devices & Services business “D&S Business” to Microsoft pursuant to the Stock and Asset Purchase Agreement, dated as of September 2, 2013, between Nokia and Microsoft International Holdings B.V. (referred to in this document as the “D&S Purchase Agreement”).
We have three businesses: Networks, HERE, and Technologies, and four operating and reportable segments for financial reporting purposes: Mobile Broadband and Global Services within Networks, HERE, and Technologies. Below is a description of our four reportable segments. Mobile Broadband provides mobile operators with radio and core network software together with the hardware needed to deliver mobile voice and data services. Global Services provides mobile operators with a broad range of services, including network implementation, care, managed services, network planning and optimization as well as systems integration. HERE focuses on the development of location intelligence, location-based services and local commerce. Technologies is built on Nokia’s Chief Technology Office and intellectual property rights and licensing activities. Networks also contains Networks Other, which includes net sales and related cost of sales and operating expenses of non-core businesses, as well as the Optical Networks business until May 6, 2013, when its divestment was completed. It also includes restructuring and associated charges for Networks business. Additionally, as a result of the Sale of the D&S Business, we report certain separate information for Discontinued Operations.
On August 7, 2013, Nokia completed the acquisition of Siemens’ stake in Nokia Siemens Networks, which was a joint venture between Nokia and Siemens, and renamed the company Nokia Solutions and Networks, also referred to as NSN. After the closing of the Sale of the D&S Business, NSN was renamed Networks. Networks was consolidated by Nokia prior to this transaction. Beginning in the third quarter of 2013, Nokia has reported financial information for the two operating and reportable segments within Networks: Mobile Broadband and Global Services. Beginning in the fourth quarter of 2013, the Devices & Services business has been reported as Discontinued Operations. To reflect these changes, historical results information for past periods has been regrouped for historical comparative purposes. As is customary, certain judgments have been made when regrouping historical results information and allocating items in the regrouped results. When presenting financial information as at December 31, 2013 and related comparative information for previous periods, we generally refer to the names of the businesses and reportable segments as they were named at December 31, 2013. However, the terms “Networks” and “Nokia Solutions and Networks, or “NSN”, as well as “Technologies” and “Advanced Technologies” can be used interchangeably in this annual report.
Nokia Corporation has published its consolidated financial statements in euro for periods beginning on or after January 1, 1999. In this annual report on Form 20-F, references to “EUR,” “euro” or “€” are to the common currency of the European Economic and Monetary Union, or EMU, and references to “dollars,” “US dollars,” “USD” or “$” are to the currency of the United States. Solely for the convenience of the reader, this annual report contains conversions of selected euro amounts into US dollars at specified rates, or, if not so specified, at the rate of 1.3779 US dollars per euro, which was the noon buying rate in New York City for cable transfers in euro as certified for customs purposes by the
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Federal Reserve Bank of New York on December 31, 2013. No representation is made that the amounts have been, could have been or could be converted into US dollars at the rates indicated or at any other rates.
Our principal executive office is located at Karakaari 7, P.O. Box 226, FI-02610 Nokia Group, Espoo, Finland and our telephone number is Tel. +358 (0) 10 44 88 000.
Nokia Corporation furnishes Citibank, N.A., as Depositary, with consolidated financial statements and a related audit opinion of our independent auditors annually. These financial statements are prepared on the basis of International Financial Reporting Standards as issued by the International Accounting Standards Board and in conformity with International Financial Reporting Standards as adopted by the European Union (“IFRS”). In accordance with the rules and regulations of the US Securities and Exchange Commission, or SEC, we do not provide a reconciliation of net income and shareholders’ equity in our consolidated financial statements to accounting principles generally accepted in the United States, or US GAAP. We also furnish the Depositary with quarterly reports containing unaudited financial information prepared on the basis of IFRS, as well as all notices of shareholders’ meetings and other reports and communications that are made available generally to our shareholders. The Depositary makes these notices, reports and communications available for inspection by record holders of American Depositary Receipts, or ADRs, evidencing American Depositary Shares, or ADSs (one ADS represents one share), and distributes to all record holders of ADRs notices of shareholders’ meetings received by the Depositary.
In addition to the materials delivered to holders of ADRs by the Depositary, holders can access our consolidated financial statements, and other information included in our annual reports and proxy materials, at www.nokia.com. This annual report on Form 20-F is also available at www.nokia.com as well as on Citibank’s website at http://citibank.ar.wilink.com (enter “Nokia” in the Company Name Search). Holders may also request a hard copy of this annual report by calling the toll-free number 1-877-NOKIA-ADR (1-877-665-4223), or by directing a written request to Citibank, N.A., Shareholder Services, PO Box 43124, Providence, RI 02940-5140, or by calling Nokia Investor Relations at +1-408-663-5685. With each annual distribution of our proxy materials, we offer our record holders of ADRs the option of receiving all of these documents electronically in the future.
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It should be noted that Nokia and its business are exposed to various risks and uncertainties and certain statements herein that are not historical facts are forward-looking statements, including, without limitation, those regarding:
| • | expectations, plans or benefits related to Nokia’s new strategy; |
| • | expectations, plans or benefits related to future performance of Nokia’s continuing businesses Networks, HERE and Technologies; |
| • | expectations, plans or benefits related to changes in leadership and operational structure; |
| • | expectations regarding market developments, general economic conditions and structural changes; |
| • | expectations and targets regarding performance, including those related to market share, prices, net sales and margins; |
| • | the timing of the deliveries of our products and services; |
| • | expectations and targets regarding our financial performance, cost savings and competitiveness as well as results of operations; |
| • | expectations and targets regarding collaboration and partnering arrangements; |
| • | the outcome of pending and threatened litigation, disputes, regulatory proceedings or investigations by authorities; |
| • | expectations regarding restructurings, investments, uses of proceeds from transactions, acquisitions and divestments and our ability to achieve the financial and operational targets set in connection with any such restructurings, investments, divestments and acquisitions, including any expectations, plans or benefits related to or caused by the Sale of the D&S Business; |
| • | statements preceded by or including “believe,” “expect,” “anticipate,” “foresee,” “sees,” “target,” “estimate,” “designed,” “aim”, “plans,” “intends,” “focus”, “continue”, “project”, “should”, “will” or similar expressions. |
These statements are based on management’s best assumptions and beliefs in light of the information currently available to it. Because they involve risks and uncertainties, actual results may differ materially from the results that we currently expect. Factors, including risks and uncertainties that could cause these differences include, but are not limited to:
| 1) | our ability to execute our new strategy successfully and in a timely manner, and our ability to successfully adjust our operations; |
| 2) | our ability to sustain or improve the operational and financial performance of our continuing businesses and correctly identify business opportunities or successfully pursue new business opportunities; |
| 3) | our ability to execute Networks’ strategy and effectively, profitably and timely adapt its business and operations to the increasingly diverse needs of its customers and technological developments; |
| 4) | our ability within our Networks business to effectively and profitably invest in and timely introduce new competitive high-quality products, services, upgrades and technologies; |
| 5) | our ability to invent new relevant technologies, products and services, to develop and maintain our intellectual property portfolio and to maintain the existing sources of intellectual property related revenue and establish new such sources; |
| 6) | our ability to protect numerous patented standardized or proprietary technologies from third-party infringement or actions to invalidate the intellectual property rights of these technologies; |
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| 7) | our ability within our HERE business to maintain current sources of revenue, historically derived mainly from the automotive industry, create new sources of revenue, establish a successful location-based platform and extend our location-based services across devices and operating systems; |
| 8) | effects of impairments or charges to carrying values of assets, including goodwill, or liabilities; |
| 9) | our dependence on the development of the mobile and communications industry in numerous diverse markets, as well as on general economic conditions globally and regionally; |
| 10) | our Networks business’ dependence on a limited number of customers and large, multi-year contracts; |
| 11) | our ability to retain, motivate, develop and recruit appropriately skilled employees; |
| 12) | the potential complex tax issues and obligations we may face, including the obligation to pay additional taxes in various jurisdictions and our actual or anticipated performance, among other factors, could result in allowances related to deferred tax assets; |
| 13) | our ability to manage our manufacturing, service creation and delivery, and logistics efficiently and without interruption, especially if the limited number of suppliers we depend on fail to deliver sufficient quantities of fully functional products and components or deliver timely services; |
| 14) | potential exposure to contingent liabilities due to the Sale of the D&S Business and possibility that the agreements we have entered into with Microsoft may have terms that prove to be unfavorable to us; |
| 15) | any inefficiency, malfunction or disruption of a system or network that our operations rely on or any impact of a possible cybersecurity breach; |
| 16) | our ability to reach targeted results or improvements by managing and improving our financial performance, cost savings and competitiveness; |
| 17) | management of Networks’ customer financing exposure; |
| 18) | the performance of the parties we partner and collaborate with, and our ability to achieve successful collaboration or partnering arrangements; |
| 19) | our ability to protect the technologies, which we develop, license, use or intend to use from claims that we have infringed third parties’ intellectual property rights, as well as, impact of possible licensing costs, restriction on our usage of certain technologies, and litigation related to intellectual property rights; |
| 20) | the impact of regulatory, political or other developments on our operations and sales in those various countries or regions where we do business; |
| 21) | exchange rate fluctuations, particularly between the euro, which is our reporting currency, and the US dollar, the Japanese yen and the Chinese yuan, as well as certain other currencies; |
| 22) | our ability to successfully implement planned transactions, such as acquisitions, divestments, mergers or joint ventures, manage unexpected liabilities related thereto and achieve the targeted benefits; |
| 23) | the impact of unfavorable outcome of litigation, contract related disputes or allegations of health hazards associated with our business, |
as well as the risk factors specified in this annual report under Item 3D. “Risk Factors.” Other unknown or unpredictable factors or underlying assumptions subsequently proven to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Nokia does not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.
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| ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
| ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
| ITEM 3. | KEY INFORMATION |
The financial data set forth below at December 31, 2012 and 2013 and for each of the years in the three-year period ended December 31, 2013 has been derived from our audited consolidated financial statements included in Item 18 of this annual report. Financial data at December 31, 2009, 2010, and 2011 and for each of the years in the two-year period ended December 31, 2010 have been derived from our previously published audited consolidated financial statements not included in this annual report.
The financial data at December 31, 2012 and 2013 and for each of the years in the three-year period ended December 31, 2013 should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements.
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The audited consolidated financial statements from which the selected consolidated financial data set forth below have been derived were prepared in accordance with IFRS.
| Year Ended December 31, | ||||||||||||||||||||||||
| 2009 | 2010 | 2011 | 2012 | 2013 | 2013 | |||||||||||||||||||
| (EUR) | (EUR) | (EUR) | (EUR) | (EUR) | (USD) | |||||||||||||||||||
| (in millions, except per share data) | ||||||||||||||||||||||||
| Profit and Loss Account Data |
||||||||||||||||||||||||
| Net sales from continuing operations |
13 373 | 13 586 | 15 968 | 15 400 | 12 709 | 17 512 | ||||||||||||||||||
| Operating profit from continuing operations |
(2 373 | ) | (1 440 | ) | (1 388 | ) | (821 | ) | 519 | 715 | ||||||||||||||
| Profit before tax from continuing operations |
(2 579 | ) | (1 672 | ) | (1 542 | ) | (1 179 | ) | 243 | 335 | ||||||||||||||
| Profit from continuing operations |
(2 668 | ) | (1 577 | ) | (1 615 | ) | (1 483 | ) | 41 | 56 | ||||||||||||||
| Profit from discontinued operations |
2 928 | 2 920 | 128 | (2 303 | ) | (780 | ) | (1 075 | ) | |||||||||||||||
| Group profit for the year |
260 | 1 343 | (1 487 | ) | (3 786 | ) | (739 | ) | (1 018 | ) | ||||||||||||||
| Profit from continuing operations attributable to equity holders of the parent |
(2 005 | ) | (1 020 | ) | (1 272 | ) | (771 | ) | 186 | 256 | ||||||||||||||
| Group profit attributable to equity holders of the parent |
891 | 1 850 | (1 163 | ) | (3 105 | ) | (615 | ) | (847 | ) | ||||||||||||||
| Earnings per share (for profit attributable to equity holders of the parent) |
||||||||||||||||||||||||
| Basic earnings per share |
||||||||||||||||||||||||
| From continuing operations |
(0.54 | ) | (0.28 | ) | (0.34 | ) | (0.21 | ) | 0.05 | 0.07 | ||||||||||||||
| From the group profit of the year |
0.24 | 0.50 | (0.31 | ) | (0.84 | ) | (0.17 | ) | (0.23 | ) | ||||||||||||||
| Diluted earnings per share |
||||||||||||||||||||||||
| From continuing operations |
(0.54 | ) | (0.28 | ) | (0.34 | ) | (0.21 | ) | 0.05 | 0.07 | ||||||||||||||
| From the group profit of the year |
0.24 | 0.50 | (0.31 | ) | (0.84 | ) | (0.17 | ) | (0.23 | ) | ||||||||||||||
| Cash dividends per share |
0.40 | 0.40 | 0.20 | 0.00 | 0.37 | (1) | 0.51 | (1) | ||||||||||||||||
| Average number of shares (millions of shares) |
||||||||||||||||||||||||
| Basic |
3 705 | 3 709 | 3 710 | 3 711 | 3 712 | 3 712 | ||||||||||||||||||
| Diluted |
||||||||||||||||||||||||
| Continuing operations |
3 705 | 3 709 | 3 710 | 3 711 | 3 733 | 3 733 | ||||||||||||||||||
| Group |
3 721 | 3 713 | 3 710 | 3 711 | 3 712 | 3 712 | ||||||||||||||||||
| Balance Sheet Data |
||||||||||||||||||||||||
| Fixed assets and other non-current assets |
12 259 | 12 136 | 10 950 | 9 323 | 6 048 | 8 334 | ||||||||||||||||||
| Cash and other liquid assets(2) |
8 873 | 12 275 | 10 902 | 9 909 | 8 971 | 12 361 | ||||||||||||||||||
| Other current assets |
14 606 | 14 712 | 14 373 | 10 752 | 4 825 | 6 648 | ||||||||||||||||||
| Assets held for sale and assets of disposal groups classified as held for sale |
— | — | — | — | 5 347 | 7 368 | ||||||||||||||||||
| Total assets |
35 738 | 39 123 | 36 225 | 29 984 | 25 191 | 34 711 | ||||||||||||||||||
| Capital and reserves attributable to equity holders of the parent |
13 088 | 14 384 | 11 866 | 7 937 | 6 468 | 8 912 | ||||||||||||||||||
| Non-controlling interests |
1 661 | 1 847 | 2 043 | 1 302 | 192 | 265 | ||||||||||||||||||
| Long-term interest-bearing liabilities |
4 432 | 4 242 | 3 969 | 5 087 | 3 286 | 4 528 | ||||||||||||||||||
| Other long-term liabilities |
1 838 | 1 446 | 1 903 | 2 002 | 1 067 | 1 470 | ||||||||||||||||||
| Borrowings due within one year |
771 | 1 037 | 1 352 | 462 | 3 376 | 4 652 | ||||||||||||||||||
| Other current liabilities |
13 948 | 16 167 | 15 092 | 13 194 | 6 074 | 8 369 | ||||||||||||||||||
| Liabilities of disposal groups classified as held for sale |
— | — | — | — | 4 728 | 6 515 | ||||||||||||||||||
| Total shareholders’ equity and liabilities |
35 738 | 39 123 | 36 225 | 29 984 | 25 191 | 34 711 | ||||||||||||||||||
| Net interest-bearing debt |
(3 670 | ) | (6 996 | ) | (5 581 | ) | (4 360 | ) | (2 309 | ) | (3 180 | ) | ||||||||||||
| Share capital |
246 | 246 | 246 | 246 | 246 | 339 | ||||||||||||||||||
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| (1) | The Board of Directors will propose the cash dividend for 2013 for shareholders’ approval at the Annual General Meeting convening on June 17, 2014. The proposal comprises of a planned ordinary dividend for 2013 of EUR 0.11 per share and a special dividend of EUR 0.26 per share. |
| (2) | Cash and other liquid assets consist of the following captions from our consolidated balance sheets: (1) bank and cash, (2) available-for-sale investments, cash equivalents, (3) available-for-sale investments, liquid assets and (4) investments at fair value through profit and loss, liquid assets. Net interest-bearing debt consists of borrowings due within one year and long-term interest-bearing liabilities, less cash and other liquid assets. |
Distribution of Earnings
We distribute retained earnings, if any, within the limits set by the Finnish Companies Act. We make and calculate the distribution, if any, either in the form of cash dividends, share buy-backs, or in some other form or a combination of these. There is no specific formula by which the amount of a distribution is determined, although some limits set by law are discussed below. The timing and amount of future distributions of retained earnings, if any, will depend on our future results and financial condition.
Under the Finnish Companies Act, we may distribute retained earnings on our shares only upon a shareholders’ resolution and subject to limited exceptions in the amount proposed by our Board of Directors. The amount of any distribution is limited to the amount of distributable earnings of the parent company pursuant to the last accounts approved by our shareholders, taking into account the material changes in the financial situation of the company after the end of the last financial period and a statutory requirement that the distribution of earnings must not result in insolvency of the company. Subject to exceptions relating to the right of minority shareholders to request a certain minimum distribution, the distribution may not exceed the amount proposed by the Board of Directors.
Share Buy-backs
Under the Finnish Companies Act, Nokia Corporation may repurchase its own shares pursuant to either a shareholders’ resolution or an authorization to the Board of Directors approved by the company’s shareholders. The authorization may amount to a maximum of 10% of all the shares of the company, and its maximum duration is 18 months. The Board of Directors has been regularly authorized by our shareholders at the Annual General Meetings to repurchase Nokia’s own shares, and during the past three years the authorization covered 360 million shares in 2011, 360 million shares in 2012 and 370 million shares in 2013. The amount authorized each year has been at or slightly under the maximum limit provided by the Finnish Companies Act. Nokia has not repurchased any of its own shares since September 2008.
On April 29, 2014, we announced that the Board of Directors will propose that the Annual General Meeting convening on June 17, 2014 authorize the Board to resolve to repurchase a maximum of 370 million Nokia shares. The proposed maximum number of shares that may be repurchased corresponds to less than 10% of all the shares of the company. The shares may be repurchased under the proposed authorization in order to optimize the capital structure of the Company and are expected to be cancelled. In addition, shares may be repurchased in order to finance or carry out acquisitions or other arrangements, to settle the Company’s equity-based incentive plans, or to be transferred for other purposes. The shares may be repurchased either through a tender offer made to all shareholders on equal terms, or in marketplaces by repurchasing the shares in another proportion than that of the current shareholders. The authorization would be effective until December 17, 2015 and terminate the current authorization for repurchasing of the company’s shares resolved at the Annual General Meeting on May 7, 2013.
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Cash Dividends
On April 29, 2014, we announced that the Board of Directors will propose for shareholders’ approval at the Annual General Meeting convening on June 17, 2014 in total a dividend of EUR 0.37 per share in respect of 2013. Comprises of a planned ordinary dividend for 2013 of EUR 0.11 per share and a special dividend of EUR 0.26 per share. Additionally, we announced plans for an ordinary dividend for 2014 of at least EUR 0.11 per share, subject to shareholder approval in 2015.
The table below sets forth the amounts of total cash dividends per share and per ADS paid in respect of each fiscal year indicated. For the purposes of showing the US dollar amounts per ADS for 2008 through 2012, the dividend per share amounts have been translated into US dollars at the noon buying rate in New York City for cable transfers in euro as certified for customs purposes by the Federal Reserve Bank of New York on the respective dividend payment dates.
| EUR per share | USD per ADS | EUR millions (in total) |
||||||||||
| 2009 |
0.40 | 0.49 | 1 483 | |||||||||
| 2010 |
0.40 | 0.57 | 1 484 | |||||||||
| 2011 |
0.20 | 0.25 | 742 | |||||||||
| 2012 |
0.00 | (1) | 0.00 | (1) | 0 | (1) | ||||||
| 2013 |
0.37 | (2) | — | (3) | 1 386 | (4) | ||||||
| (1) | No dividend payment was made with respect to the year 2012. |
| (2) | The Board of Directors will propose the cash dividend for 2013 for shareholders’ approval at the Annual General Meeting convening on June 17, 2014. The proposal comprises of a planned ordinary dividend for 2013 of EUR 0.11 per share and a special dividend of EUR 0.26 per share. |
| (3) | The final US dollar amount will be determined on the basis of the decision of the Annual General Meeting and the dividend payment date. |
| (4) | Maximum amount to be distributed as dividends based on the number of shares at December 31, 2013. Earlier year figure represents the total actual amount paid. |
We make our cash dividend payments in euro. As a result, exchange rate fluctuations will affect the US dollar amount received by holders of ADSs on conversion of these dividends. Moreover, fluctuations in the exchange rates between the euro and the US dollar will affect the dollar equivalent of the euro price of the shares on NASDAQ OMX Helsinki and, as a result, are likely to affect the market price of the ADSs in the United States. See also Item 3D. “Risk Factors—Our net sales, costs and results of operations, as well as the US dollar value of our dividends and market price of our ADSs, are affected by exchange rate fluctuations, particularly between the euro, which is our reporting currency, and the US dollar, the Japanese yen and the Chinese yuan, as well as certain other currencies.”
Planned EUR 5 billion capital structure optimization program
In conjunction with announcing our new strategy on April 29, 2014, we announced a planned EUR 5 billion capital structure optimization program. For a more detailed discussion of this planned EUR 5 billion capital optimization program, see Item 5B. “Liquidity and Capital Resources”.
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Exchange Rate Data
The following table sets forth information concerning the noon buying rate for the years 2009 through 2013 and for each of the months in the six-month period ended March 31, 2014, expressed in US dollars per euro. The average rate for a year means the average of the exchange rates on the last day of each month during a year. The average rate for a month means the average of the daily exchange rates during that month.
| Exchange rates | ||||||||||||||||
| For the year ended December 31: |
Rate at Period end |
Average rate |
Highest rate |
Lowest rate |
||||||||||||
| (USD per EUR) | ||||||||||||||||
| 2009 |
1.4332 | 1.3955 | 1.5100 | 1.2547 | ||||||||||||
| 2010 |
1.3269 | 1.3216 | 1.4536 | 1.1959 | ||||||||||||
| 2011 |
1.2973 | 1.3931 | 1.4875 | 1.2926 | ||||||||||||
| 2012 |
1.3186 | 1.2859 | 1.3463 | 1.2062 | ||||||||||||
| 2013 |
1.3779 | 1.3281 | 1.3816 | 1.2774 | ||||||||||||
| October 31, 2013 |
1.3594 | 1.3646 | 1.3810 | 1.3490 | ||||||||||||
| November 30, 2013 |
1.3606 | 1.3491 | 1.3606 | 1.3357 | ||||||||||||
| December 31, 2013 |
1.3779 | 1.3708 | 1.3816 | 1.3552 | ||||||||||||
| January 31, 2014 |
1.3500 | 1.3618 | 1.3682 | 1.3500 | ||||||||||||
| February 28, 2014 |
1.3806 | 1.3665 | 1.3806 | 1.3507 | ||||||||||||
| March 31, 2014 |
1.3777 | 1.3828 | 1.3927 | 1.3731 | ||||||||||||
On April 25, 2014, the noon buying rate was USD 1.3838 per EUR 1.00.
3B. Capitalization and Indebtedness
Not applicable.
3C. Reasons for the Offer and Use of Proceeds
Not applicable.
Set forth below is a description of risk factors that could affect Nokia. There may be, however, additional risks unknown to Nokia and other risks currently believed to be immaterial that could turn out to be material. These risks, either individually or together, could adversely affect our business, sales, profitability, results of operations, financial condition, liquidity, market share, brand, reputation and share price from time to time. Unless otherwise indicated or the context otherwise provides, references in these risk factors to “Nokia”, “we”, “us” and “our” mean Nokia’s consolidated operating segments and refer to Nokia’s continuing operations and businesses.
Nokia has announced a new strategy which is subject to various risks and uncertainties, including that Nokia may not be able to sustain or improve the operational and financial performance of its continuing businesses or that Nokia may not be able to correctly identify business opportunities or successfully pursue new business opportunities.
Nokia announced a new strategy on April 29, 2014 after the Nokia Board of Directors conducted a strategic evaluation of the company and its continuing businesses. See Item 4. “Information on the Company” for a more information on the new strategy and Nokia’s continuing businesses. This strategy,
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including continued investment into our continuing businesses or new business opportunities that we may pursue, may not deliver a return on investment as planned, or at all. Our ability to achieve our new strategic goals and targets is subject to uncertainties and contingencies, some of which are beyond our control, and no assurance can be given that we will be able to achieve these goals or targets.
The Sale of the D&S Business is a significant transaction to Nokia. The Devices & Services business, generated, over the long-term, a significant portion of our profits and cash, as well as net sales. The operations that were transferred to Microsoft generated EUR 15.1 billion, or approximately 50%, of Nokia’s net sales for the full year 2012 and EUR 10.7 billion, or approximately 46%, of Nokia’s net sales for the full year 2013. Accordingly, the Sale of the D&S Business is expected to reduce our net sales significantly compared to historical levels. There can be no assurances that Nokia’s new strategic and operational focus will succeed in replacing or improving upon the historical contribution of the Devices & Services business to our consolidated results of operations. In addition, the Sale of the D&S Business may lead to us having a less diversified portfolio of businesses and may lead to reduced bargaining power with counterparties or reduced relevance in the overall technology sector and, most specifically in the industries we operate.
We operate in fast-paced and innovative industries. Our business may require significant investment to innovate and grow successfully. Such investment may include research and development, licensing arrangements, acquiring businesses and technologies, recruiting specialized expertise and partnering with third parties. Those investments may not, however, result in technologies, products or services that achieve or retain broad or timely market acceptance or are preferred by our customers and consumers. As such, the investments may not be profitable or achieve the target rates of return. There can be no assurance that we will be able to identify and understand the key market trends and user segments to enable us to address customers’ and consumers’ expanding needs in order to bring new innovative and competitive products and services to market in a timely manner. If we are unable to anticipate and respond with speed to these key market trends, or to actively drive future trends, through our product development processes, we may not achieve the intended goals of our new strategy, which may materially and adversely affect our business, financial condition and results of operations.
We may invest in certain new technologies, including investment in market exploration into connectivity capable of handling very large numbers of devices and exponential increases in data traffic, location services that seamlessly bridge between the real and virtual worlds and innovation, including in sensing, radio and low power technologies. Additionally, we continuously seek new business and monetization models. Certain of our competitors have significant resources to invest in market exploration and seek new monetization models or drive industry development and capture value in areas where we are not competitive. Those areas can be, for instance, monetization models linked to the use of advertising, large amounts of consumer data, large connected communities, home entertainment services and alternative payment mechanisms. We may not be able to invest our own resources to compete in these areas, which may in the future prove a competitive disadvantage for us. If we fail in these aspects of our strategy, we may not realize a return on our investments or may incur operating losses and impair our competitiveness for the longer term. We have also made, and may make in the future, these investments through acquisitions. We may, however, fail to successfully complete planned acquisitions or integrate the acquired businesses or assets or retain and motivate their key employees.
In addition to the risks set out above, we may not realize the intended benefits of our new strategy for a number of reasons, including but not limited to:
| • | The execution of our new strategy fails or is slower than anticipated, for example due to a lack of strategic clarity. |
| • | We are unable to implement an efficient corporate and operational structure for Nokia going forward. |
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| • | We have based our strategic choices on expectations or developments that do not materialize as planned or at all, such as those related to market or technological developments. |
| • | We fail to effectively invest in the right areas of our continuing businesses or invest in areas that do not deliver intended results and our evaluation of the prospects with respect to the shared opportunities between our continuing businesses do not materialize as planned. |
| • | Our announced strategy or its implementation causes disruption in our continuing businesses or results in reduced performance of the continuing businesses. |
| • | We lose key talent or are unable to recruit, retain or motive the executives or employees needed to effectively manage Nokia and its continuing business, for example as a result of dissatisfaction with our new strategic direction or uncertainty about our continuing businesses or prospects. |
| • | The Sale of the D&S Business may result in inefficiencies in our corporate or operational structure or gaps in resourcing or capabilities due to the transfer of significant amounts of employees, assets, contracts and legal entities to Microsoft. |
| • | Our less diversified product and business portfolio may lead to an over-reliance on certain industries, which may materially expose our business and results of operations to certain market trends related to those industries that are beyond our control, such as the availability of competing services at lower cost or free of charge over the internet. |
| • | By completing the Sale of the D&S Business with Microsoft, our engagement in the manufacture and sale of mobile phones and smartphones has ceased in accordance with the D&S Purchase Agreement and as such we have a less diversified business position and may lose relevance to customers and consumers that have associated Nokia with the D&S Business. |
| • | Deterioration of Nokia’s brand or reputation due to Nokia’s reduced position in the consumer electronics industry or Nokia’s new strategy, or by actions of other parties that have a license to use the Nokia brand for certain purposes. Any such deterioration to the Nokia brand or reputation may have an adverse effect on our continuing businesses. |
| • | The focus of our management or other key employees may be diverted from our day-to-day business due to changes in Nokia’s structure and business model. In addition, our management or other key employees may focus too much on certain areas of the continuing businesses, which may result in the suboptimal performance of the other businesses. |
| • | We may not be able to implement certain required new capabilities, such as data analytics skills needed for certain business areas that involve processing large amounts of data. |
| • | We make acquisitions that do not result in the intended benefits, or which are extensive or cause disruption to Nokia’s business. |
| • | We may fail in successfully marketing our products and services, as we have in the past mainly focused marketing on mobile products and related services. |
| • | Negative effects to Nokia or its customer relationships due to speculation about Nokia strategy or the future of its businesses. |
| • | We announced a planned capital structure optimization program on April 29, 2014, which focuses on recommencing ordinary dividends, distributing deemed excess capital to shareholders, and reducing interest bearing debt. Nokia is also targeting to returning to being an investment grade company. There can be no assurance that the capital structure optimization program can be executed as currently planned or that it would result in the targeted benefits, including returning us to being an investment grade company. Additionally, returning capital to shareholders reduces our capital, which could expose us to financial |
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| difficulties or us needing to incur additional indebtedness under certain circumstances, for instance if we have not accurately estimated our need of capital going forward or our business performance. |
Networks’ strategy focuses on mobile broadband and accordingly its sales and profitability depend on its success in the mobile broadband infrastructure and related services market. Networks may fail to execute its strategy or to effectively and profitably adapt its business and operations in a timely manner to the increasingly diverse solution needs of its customers in that market or technological developments.
In line with its strategy, Networks focuses on mobile broadband. Networks has recently evolved this strategy further around end-to-end mobile broadband leadership, services growth, and quality and execution. Accordingly, if Networks is not successful in implementation of its strategy and achieving the desired outcomes in a timely manner or if the mobile broadband infrastructure and related services market fails to develop in the manner currently anticipated by us, or if there are unfavorable variations in Networks’ product and service mix towards lower margin products or services, Networks’ business, results of operations, particularly profitability, and financial condition could be materially adversely effected. Networks’ success with its focus on mobile broadband infrastructure and related services is subject to risks and uncertainties, including:
| • | Intensity of the competition. |
| • | Further consolidation of Networks’ customers or competitors. |
| • | Networks may not develop in a timely manner, or at all, mobile broadband products and services that meet future technological or quality requirements and challenges. |
| • | Networks may not be able to correctly estimate technological developments or adapt to those. |
| • | The mobile broadband and related services market may develop in directions that leave Networks deficient in certain technologies and industry areas that impact its overall competitiveness. |
| • | Certain customers who currently buy services and products from Networks that are not regarded as core may choose to turn to alternative vendors to maintain end-to-end service from such vendors. |
| • | Delays in executing relevant initiatives related to the further implementation of Networks’ strategy. |
| • | Networks may not be able to successfully develop market recognition as a leading provider of software and services in the mobile broadband infrastructure and related services market. |
| • | Networks may not be able to sustain or grow its net sales in the businesses and areas of its strategic focus, this could result in the loss of scale benefits and reduced competitiveness. |
| • | Networks may not be able to continue identifying opportunities and obtaining contracts which meet its requirements and estimates for their profitability and to capture the expected opportunities for additional sales related to deals with lower initial profitability. |
| • | Networks may not be able to continue utilizing the customer relations related to its mobile broadband infrastructure products for advancing its services sales, and Networks may not be able to pursue new services-led growth opportunities. |
| • | Networks may not be able to maintain efficient and low-cost operations. |
| • | Networks may be adversely effected by economic or political instability or the introduction of trade sanctions; for instance the recent events in Ukraine and the international reaction to them may adversely affect Networks business or operations in Ukraine, Russia and/or related markets. |
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Networks faces intense competition and may fail to effectively and profitably invest in new competitive high-quality products, services, upgrades and technologies and to bring them to market in a timely manner.
The mobile broadband infrastructure and related services market is characterized by rapidly changing technologies, frequent new solutions requirements and product feature introductions and evolving industry standards.
Networks’ business performance depends to a significant extent on the timely and successful introduction of new products, services and upgrades of current products to meet the evolving requirements of its customers, to comply with emerging industry standards and to address competing technological and product developments carried out by its competitors. The research and development of new and innovative, technologically advanced products, including the introduction of new radio frequency technologies, as well as upgrades to current products and new generations of technologies, is a complex and uncertain process requiring high levels of innovation and investment, as well as accurate anticipation of technology and market trends. Networks may focus its resources on products and technologies that do not become widely accepted or ultimately prove not to be viable. Networks results of operation will depend to a significant extent on its ability in following areas:
| • | Maintaining and developing a product portfolio and service capability that is attractive to its customers. |
| • | Continuing to introduce new products and product upgrades successfully and on a timely basis. |
| • | Development of new or enhance existing tools for its services offerings. |
| • | Optimizing the amount of customer account market specific technology, product and feature variants in its product portfolio. |
| • | Continuing to enhance the quality of its products and services. |
| • | Leveraging its technological strengths. |
The participants in the mobile broadband infrastructure and related services market compete with each other on the basis of product offerings, technical capabilities, quality, service and price. The competitive environment in this market continues to be intense and is characterized by maturing of industry technology, equipment price erosion and intense price competition. Moreover, mobile operators’ cost reductions, network sharing and the industry consolidation among the operators are reducing the amount of available business, resulting in further intense competition and pressure on pricing and profitability.
Networks competes with companies that have larger scale, affording such companies more flexibility on pricing, likewise Networks competes with companies that may have stronger customer finance possibilities due to internal policies or governmental support, such as in the form of trade guarantees, allowing them to offer products and services at very low prices or with attractive financing terms. Networks’ key competitors have large scale, and industry consolidation could result in even larger scale entities, impairing Networks’ competitive position. Networks also continues to face intense competition from competitors, including from China, which endeavor to gain further market share and broaden their presence in new areas of network infrastructure and related services business. Competition for new customers, as well as for new infrastructure deployment is particularly intense and focused on price and contract terms in favor of the customers. In addition, new competitors may enter the industry as a result of acquisitions or shifts in technology. For example, the virtualization of core and radio networks and the convergence of information technology and telecommunications may lower the barriers of entry for IT companies to the traditional telecommunications industry. Further, these developments may enable more generic IT and IP hardware to be used in telecommunications
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networks leading to further price pressure. If Networks cannot respond successfully to the competitive challenges in the mobile broadband infrastructure and related services market, our business and results of operations, particularly profitability, and financial condition may be materially adversely affected.
Networks’ failure to effectively and profitably invest in new competitive products, services, upgrades and technologies and bring them to market in a timely manner could result in a loss of net sales and market share and could have a material adverse effect on our results of operations, particularly profitability, and financial condition. Networks needs to introduce products and services in a cost-efficient and timely manner and to manage proactively the costs and cost development related to its portfolio of products and services, including component sourcing, manufacturing, logistics and other operations. Currency fluctuations may also have an adverse impact on Networks’ ability to manage its costs. If Networks fails to maintain or improve its market position and scale compared to our competitors across the range of our products and services, as well as leverage our scale to the fullest extent, or if it is unable to develop or otherwise acquire software, cost competitively in comparison to our competitors, or if its costs increase relative to those of our competitors due to currency fluctuations, this could materially adversely affect our competitive position, business and results of operations, particularly our profitability.
Networks’ products are highly complex, and defects in their design, manufacture and associated hardware, software and content have occurred and may occur in the future. Defects and other quality issues may result from, among other things, failures in our own product and service creation and deliveries as well as manufacturing processes, failures of our suppliers to comply with our supplier requirements, or failures in products and services created jointly with collaboration partners or other third parties where the development and manufacturing process is not fully in our control. Quality issues may cause for instance delays in deliveries, liabilities for network outages, additional repair, product replacement or warranty costs to us, and harm our reputation and our ability to sustain or obtain business with our current and potential customers. With respect to our services, quality issues may relate to the challenges in having the services fully operational at the time they are made available to our customers and maintaining them on an ongoing basis. We make provisions to cover our estimated warranty costs for our products. We believe our provisions are appropriate, although the ultimate outcome may differ from the provisions that are provided for, which could have a material adverse effect on our results of operations, particularly profitability and financial condition.
Our intellectual property (IP) portfolio includes various patented standardized or proprietary technologies on which our products and services depend and we also use our IP portfolio for revenue generation. Third parties may use without a license and unlawfully infringe our IP or commence actions seeking to establish the invalidity of the intellectual property rights of these technologies, or we may not be able to sufficiently invent new relevant technologies, products and services to develop and maintain our IP portfolio, maintain the existing sources of intellectual property related revenue or establish new sources.
Our products and services include numerous patented standardized or proprietary technologies. We invest significantly in research and development in our businesses to develop new relevant technologies, products and services. For instance in 2013 our research and development spend through our three continuing businesses amounted to approximately EUR 2.5 billion. Our research and development activities have led to us having one of the industry’s strongest IP portfolios in Technologies and a strong portfolio in Networks that our products and services depend on and we also generate revenue by licensing the portfolios. The continued strength of our portfolios depends on our ability to create new relevant technologies, products and services through our research and development activities. If we fail in creating technologies, products and services that are granted protection by intellectual property rights or if the technologies, products and services do not become
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relevant and therefore attractive to licensees, the strength of our IP portfolios would reduce, which could adversely affect our ability to use our IP portfolios for revenue generation.
We retained our entire patent portfolio upon the Sale of the D&S Business. In the past parts of our IP creation has been driven by the innovation in D&S Business. As we no longer own this business, this may lead to a reduced level of IP creation or a reduction in the relevance of Nokia’s IP to the technology sector. Nokia may also have a diminished ability to influence industry trends and technology selections, reducing the relevance of our IP portfolio.
Despite the steps that we have taken to protect our technology investment with intellectual property rights, we cannot be certain that any rights or pending applications will be granted or that the rights granted in connection with any future patents or other intellectual property rights will be sufficiently broad to protect our technology. Third parties may infringe our intellectual property relating to our proprietary technologies or by ignoring their obligation to seek a license under our standard essential patents or by seeking to pay less than reasonable license fees.
Any patents or other intellectual property rights that are granted to us may be challenged, invalidated or circumvented, and any right granted under our patents may not provide competitive advantages for us. Our ability to protect our IP is dependent on regulatory developments in various jurisdictions and the implementation of the regulations by administrative bodies. As such, regulatory developments or applications of regulations may adversely affect our ability to protect our IP or create IP related revenue.
IP related disputes and litigation are common in the technology industry and are often used to enforce the patents and seek licensing fees. Other companies have commenced and may continue to commence actions seeking to establish the invalidity of our intellectual property, for example, patent rights. In the event that one or more of our patents are challenged, a court may invalidate the patent or determine that the patent is not enforceable, which could harm our competitive position. The outcome of court proceedings is difficult to predict and as such our ability to use intellectual property for revenue generation is at times dependent on favorable court rulings. In addition, if any of our key patents are invalidated, or if the scope of the claims in any of these patents is limited by a court decision, we could be prevented from using such patents as a basis for product differentiation or from licensing the invalidated or limited portion of our intellectual property rights. Even if such a patent challenge is not successful, it could be expensive and time-consuming, divert attention of our management and technical personnel from our business and harm our reputation. Any diminution of the protection that our own intellectual property rights enjoy could cause us to lose some of the benefits of our investments in research and development. Additionally, our IP related revenue could be negatively affected if we were unable to successfully maintain or broaden the scope of licensees or contribute to future innovations and creation of IP.
We enforce our patents against unlawful infringement and generate revenue through realizing the value of our intellectual property by entering into license agreements and through patent transactions. Patent license agreements can cover both licensee’s past and future sales. The portion of the income that relates to licensees past sales is not expected to have a recurring benefit and ongoing patent income from licensing is generally subject to various factors that we have little or no control over, for instance sales by the licensees. There are no assurance that our actions to generate intellectual property-related revenue will lead to favorable outcomes, such as patent license agreements on favorable terms to us or that we would be able to use our patent portfolio for revenue generation to a similar extent going forward. While we have various licensees, a significant portion of licensing revenues is generated from a limited number of licensees and as such issues as ends of contracts, licensee business performance or bankruptcies in relation to these select licensees could have a significant impact on our revenue. Due to various reasons including those that are set out above, our
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intellectual property related revenue can vary considerably from time to time and there is no assurance that past levels are indicative of future levels of intellectual property related revenue.
Our HERE business includes various risks and uncertainties, including that we may be unable to maintain current sources of net sales in the vehicle segment from which our HERE business has historically derived most of its net sales from, establish a successful location-based platform, extend our location-based services across devices and operating systems or create new sources of revenue.
Our HERE business net sales are mainly derived from sales to the automotive industry, making it dependent on overall developments in that industry and HERE’s ability to remain successful in that industry. Our HERE business faces intense competition from several global and local companies with different business models. For example, Google uses an advertising-based model that allows consumers and companies to use parts of its map data and related services in their products free of charge. Google is increasingly competing with our HERE business in the provision of local search and services also to the automotive industry. The success of Google’s Android platform and search services from Google can provide a competitive advantage to Google when providing local search and services to the automotive industry. Additionally certain competitors are bringing novel solutions, for instance offering entertainment and information capabilities, into vehicles which can include location intelligence provided by HERE’s competitors. Additionally, certain governmental and quasi-governmental agencies are making more map data with improving coverage and content, and high quality, available free of charge or at lower prices. Certain crowdsourcing efforts may also result in the availability of competing map data. Additionally, our HERE business is exposed to various risks and uncertainties, including the following:
| • | The existing map license data customers may choose not to purchase, or purchase less, content or services from our HERE business. |
| • | HERE net sales and profitability are dependent on developments in the automotive industry, including vehicle sales and adoption of in-vehicle navigation systems. |
| • | HERE strives to be relevant in new and upcoming location-based services, such as augmented reality, new vehicle software systems, and autonomous driving systems. Also, HERE strives to be deeply integrated into the vehicle driver assistance systems. If HERE does not succeed in implementing this strategy, our HERE business could be materially and adversely affected. |
| • | We may have inaccurately predicted market developments in, or market size of, the automotive navigation and personal navigation devices markets or we may lose market share to other manufacturers or other devices offering navigation solutions, including smartphones. |
| • | HERE’s competitiveness may be adversely affected if it is unable to effectively collate, process and analyze data, such as end-user behavioral data, and to derive intelligence from that data, which could be used to enhance its product offering. |
| • | We may not be able to use our location-based assets to compete on a standalone basis or support the overall Nokia strategy. |
| • | We may not be able to establish a successful location-based platform through HERE if other competing location-based platforms are preferred by customers and consumers, especially as HERE is a recently launched brand and platform and as such may be disadvantaged to more established brands and platforms. |
| • | We may not be able to establish a successful HERE application suite for the platforms we are targeting. |
| • | Investments into new business opportunities may not give a return on investment as planned, or at all. |
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| • | We may not succeed in attracting strategic partners and developers to develop and support our ecosystem around our HERE offering, or provide services that are supported by relevant ecosystems. |
| • | Our HERE business may lose bargaining power or perceived relevance as a result of the Sale of the D&S Business, resulting, for instance, in a reduced ability to negotiate favorable terms or to attract partners and customers. |
| • | We may fail to attract business partners and merchants to our service offerings. |
| • | The service offering we currently provide may not be competitive or another participant may provide a more competitive new offering in the future or new more efficient or affordable ways of map content creation are introduced which may disrupt our own business models. |
| • | HERE Maps, involves a possibility of product liability claims and associated adverse publicity. Claims could be made by business customers if errors or defects result in a failure of their products or services, or by end-users of those products or services as a result of actual or perceived errors or defects in the map database. In addition, business customers may require us to correct defective data, which could be costly, or pay penalties if quality requirements or service level agreements are not satisfied. |
| • | HERE may be subject to IT issues or cybersecurity breaches, resulting, for instance, in disruptions in online service continuity, privacy breaches and security of customer data issues. |
We assess the carrying amount of goodwill annually or more frequently if events or changes in circumstances indicate that such carrying amount may not be recoverable. Additionally, we assess the carrying amount of other identifiable assets if events or changes in circumstances indicate that their carrying amounts may not be recoverable. If revenue from our HERE business does not develop as anticipated or new sources of revenue do not materialize as expected, or at all, the HERE business may not generate enough positive operating cash flow. This or other factors may lead to the decrease in value of our location-based services and commerce assets, leading to further impairments charges that may be negative to Nokia, including goodwill for our HERE business. There was no goodwill impairment charge recorded in 2013 as a result of the goodwill impairment assessment, however an adverse change in any of the key assumptions used in measuring the recoverable value of our HERE business could have resulted in goodwill impairment as the current carrying value of HERE is only slightly lower than its’ recoverable value. While we believe the estimated recoverable values are reasonable, actual performance in the short- and long-term could be materially different from our forecasts, which could impact future estimates of recoverable value of HERE and may result in impairment charges.
Our sales, profitability and cash flow are dependent on the development of the mobile and communications industry in numerous diverse markets, as well as on general economic conditions globally and regionally.
As we are a global company with sales in most countries of the world, our sales and profitability are dependent on general economic conditions globally and regionally. The traditional mobile communications industry has matured to varying degrees in different markets and, consequently, the industry is more vulnerable than before to the negative effects related to the deterioration in global economic conditions.
Networks’ sales and profitability are dependent on the development of the mobile broadband infrastructure industry in numerous diverse markets, particularly the growth of the investments made by mobile operators and services providers in network infrastructure and related services. The pace of such investments is in turn dependent on the ability of network providers and mobile operators to
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increase subscriber numbers, compete with alternative business models eroding the revenue from the traditional voice, messaging and data transport services, stimulate increased usage of voice, data and value-adding services that the subscribers will pay for, and maintain their profitability in intense competition.
Negative developments in, or the general weakness of, the economy, particularly in increasing levels of unemployment in the markets in which our customers operate, may have a direct negative impact on the spending patterns of end-users. This may affect both the services they subscribe to and usage levels of such services, which may lead to mobile operators and service providers investing in the related infrastructure and services less than anticipated. Regional and country specific changes may also affect us adversely. We continue to witness political unrest in various regions where we do business, which adversely affected our sales in those markets. For instance, the recent events and instability in Ukraine and the international reaction to them may adversely affect our business or operations in Ukraine, Russia and/or related markets, including as a result of potential trade sanctions or economic uncertainly or slowdown resulting from these events.
Continued difficulties, uncertainty or any deterioration in global economic conditions or a recurrence or escalation of political unrest may result in mobile network operators postponing or reducing their investment in their network infrastructure and related services. The demand for digital map information and other location-based content by automotive and mobile device manufacturers may decline in relation to any further contraction of sales in the automotive and consumer electronics industry. The demand for digital map information and other location-based content by automotive and mobile device manufacturers may decline in relation to any further contraction of sales in the automotive and consumer electronics industry. Our IP licensing business may be affected for instance as licensees may not have motivation to seek new or renew existing licensing arrangements with us or have reduced unit sales, as it is common that licensing fees are tied to unit sales.
In addition, continued difficulties, uncertainty or any deterioration in the global or relevant regional economic conditions may:
| • | Limit the availability of credit or raise the interest rates related to credit which may have a negative effect on the financial condition, and in particular on the purchasing ability, of some of our customers and may also result in requests for extended payment terms, credit losses, insolvencies, or limited ability to respond to demand. |
| • | Cause financial difficulties for our suppliers and collaborative partners which may result in their failure to perform as planned and, consequently, in delays in the delivery of our products. |
| • | Impair our ability to address the customer requests for longer payment terms through sales of our customer receivables. |
| • | Cause lowered credit ratings of our short- and long-term debt or their outlook from the credit rating agencies and, consequently, impair our ability to raise new financing or refinance our current borrowings and increase our interest costs associated with any new debt instruments. |
| • | Result in failures of derivative counterparties or other financial institutions which could have a negative impact on our treasury operations. |
| • | Increase volatility in exchange rates which may increase the costs of our products that we may not be able to pass on to our customers and result in significant competitive benefit to certain of our competitors that incur a material part of their costs in other currencies than we do; hamper our pricing; and increase our hedging costs and limit our ability to hedge our exchange rate exposure. |
| • | Result in inefficiencies due to our deteriorated ability to appropriately forecast developments in our industry and plan our operations accordingly, delayed or insufficient investments in new market segments and failure to adjust our costs appropriately. |
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| • | Cause reductions in the future valuations of our investments and assets and result in impairment charges related to goodwill or other assets due to any significant underperformance relative to historical or projected future results by us or any part of our business or any significant changes in the manner of our use of acquired assets or the strategy for our overall business. |
| • | Result in increased and/or more volatile taxes that could negatively impact our effective tax rate, including the possibility of new tax regulations, interpretations of regulations which are stricter or increased effort by governmental bodies seeking to receive taxes more aggressively. |
We currently believe our funding position is sufficient to meet our operating and capital expenditures in the foreseeable future. However, adverse developments in the global financial markets could have a material adverse effect on our financial condition and results of operations and/or our ability to access affordable financing on terms satisfactory to us. For a more detailed discussion of our liquidity and capital resources, see Item 5B. “Liquidity and Capital Resources” and Note 35 of our consolidated financial statements included in Item 18 of this annual report.
Networks is dependent on a limited number of customers and large multi-year contracts and accordingly a loss of a single customer or issues related to a single contract can have a significant impact on Networks.
A large proportion of net sales that Networks generates have historically come from a limited number of customers. As consolidation among existing customers continues, it is possible that an even greater portion of Networks’ net sales will be attributable to a smaller number of large service providers operating in multiple markets. As part of Networks’ strategic focus on certain markets, the proportion of the sales to certain key customers in those markets has also grown. These developments will also increase the impact of the outcome of some individual contract tenders on Networks’ net sales. In addition, mobile operators are increasingly entering into network sharing arrangements, as well as joint procurement agreements, which may reduce their investments and the number of networks available for Networks to service. Further, the procurement organizations of certain large mobile operators sell consulting services to enhance the negotiation position of smaller operators towards their vendors. As a result of these trends and the intense competition in the industry, Networks may be required to provide contract terms increasingly favorable to the customer to remain competitive. Any unfavorable developments in relation to or any change in the contract terms applicable to a major customer may have a material adverse effect on our business, results of operations and financial condition.
Large multi-year contracts, which are typical in the mobile broadband infrastructure and related services business, include a risk that the timing of sales and results of operations associated with those contracts will differ from what was expected. Moreover, such contracts often require the dedication of substantial amounts of working capital and other resources, which may negatively affect our cash flow, particularly in the early stages of a contract, or may require Networks to continue to sell certain products and services, or to certain markets, that would otherwise be discontinued, thereby diverting resources from developing more profitable or strategically important products and services. Any suspension, termination or non-performance by us under the contracts may have a material adverse effect on Networks because mobile operators have demanded and may continue to demand stringent contract undertakings, such as penalties for contract violations.
We may be unable to retain, motivate, develop and recruit appropriately skilled employees.
Our success is dependent on our ability to retain, motivate, develop through constant competence training and recruit appropriately skilled employees with a comprehensive understanding of our current and future businesses, technologies, software, products and services. We seek to create a corporate
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culture that is motivational and encourages creativity and continuous learning as competition for skilled personnel remains intense. We have over recent years significantly reduced our workforce and introduced changes in strategies. Changes and uncertainty may cause disruption and dissatisfaction among employees, as well as fatigue due to the cumulative effect of several other reorganizations in the past few years. As a result, employee motivation, energy, focus, morale and productivity may be reduced, causing inefficiencies and other problems across the organization and leading to the loss of key personnel and the related costs in dealing with such matters. Reorganizations and strategic changes may also result in key people leaving the company or resource gaps, some of which may be only noticed after a certain period of time. If the strategic direction of Nokia or any of its businesses is perceived negatively by our employees, this may result in a heightened risk of being able to retain or recruit needed resources. Moreover, our employees may be targeted aggressively by our competitors due to our changes in strategy, and some employees may be more receptive to such offers, leading to the loss of key personnel. Accordingly, we may need to adjust our compensation and benefits policies and take other measures to attract, retain and motivate skilled personnel aligned with the changes to our mode of working and culture needed to implement new strategies successfully. This will require significant time, attention and resources of our senior management and others within the organization and may result in increased costs. We have encountered, and may encounter in the future, shortages of appropriately skilled personnel, which may hamper our ability to implement our strategies and materially harm our business and results of operations.
Relationships with employee representatives are generally managed at site level and most collective bargaining agreements have been in place for several years. Our inability to negotiate successfully with employee representatives or failures in our relationships with the representatives could result in strikes by the employees, increased operating costs as a result of higher wages or benefits paid to employees as the result of a strike or other industrial action and/or inability to implement changes to our organization and operational structure in the planned time or cost, or at all. If our employees were to engage in a strike or other work stoppage, we could experience a significant disruption of operations and/or higher ongoing labor costs.
We have operations in a number of countries and, as a result, face complex tax issues and could be obligated to pay additional taxes in various jurisdictions. Further, our actual or anticipated performance, among other factors, could reduce our ability to utilize our deferred tax assets.
We operate our business in a number of countries which involve different tax regimes and the application of rules related to taxation. Applicable taxes, value added tax (VAT) and social taxes for which we make provisions could increase significantly as a result of changes in applicable tax laws in the countries where we operate, the interpretation of those laws by local tax authorities or tax audits performed by local tax authorities. The impact of these factors is dependent on the types of revenue and mix of profit we generate in various countries; for instance, profits from sales of devices or services may have a different tax treatment.
Nokia is subject to income taxes in Finland and in numerous other jurisdictions. Our business and investments globally and especially in emerging market countries are subject to uncertainties, including unfavorable or unpredictable tax law changes (even possibly with retroactive effect), taxation treatment and regulatory proceedings including tax audits. For instance, during early 2013 Nokia became subject to a tax investigation in India, focusing on Indian tax consequences of payments made within Nokia for the supply of operating software from its parent company in Finland. Such proceedings can be lengthy, involve actions that can hinder local operations, affect unrelated parts of our business and the outcomes of such proceedings is difficult to predict. To this end, Nokia has appealed on the underlying withholding tax claim it received in 2013 to the Income Tax Tribunal, Delhi.
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Negative developments or outcome in such proceedings could have adverse effects to our cash flows, income statements and to our financial position. We are required to indemnify Microsoft for certain tax liabilities, including tax liabilities of the Nokia entities acquired by Microsoft in connection with the closing of the Sale of the D&S Business or the assets acquired by Microsoft attributable to tax periods ending on or prior to the closing date of the closing of the Sale of the D&S Business or the certain pre-closing portion of any taxable period that includes the closing date of the closing of the Sale of the D&S Business or taxes imposed with respect to any asset not acquired by Microsoft.
Deferred tax assets recognized on tax losses, unused tax credits and tax deductible temporary differences are dependent on our ability to offset such items against future taxable income within the relevant tax jurisdiction. Deferred tax assets recognized on tax losses, unused tax credits and tax deductible temporary differences are based on our assumptions for future taxable earnings and these may not occur as planned, which may cause the deferred tax asset to be reduced. There can be no assurances that an unexpected reduction in deferred tax assets will not occur. Any such reduction could have an adverse effect on us. Additionally, our earnings have been and may continue to be in the future unfavorably impacted if no tax benefits are recognized for certain deferred tax items. There may also be unforeseen tax expenses that may have an unfavorable impact on us. As a result and given the inherent unpredictable nature of taxation, there can be no assurance that the estimated long-term tax rate of Nokia will remain at current levels or that cash flows regarding taxes will be stable.
We may fail to manage our manufacturing, service creation and delivery, as well as our logistics efficiently, and without interruption, or the limited number of suppliers we depend on may fail to deliver sufficient quantities of fully functional products and components or deliver timely services meeting our customers’ needs.
Our product manufacturing, service creation and delivery as well as our logistics are complex, require advanced and costly equipment and include outsourcing to third parties. These operations are continuously modified in an effort to improve efficiency and flexibility of our manufacturing, service creation and delivery as well as our logistics and to produce, create and distribute continuously changing volumes. We may experience difficulties in adapting our supply to meet the changing demand for our products and services, both ramping up and down production at our facilities and network implementation capabilities as needed on a timely basis; maintaining an optimal inventory level; adopting new manufacturing processes; finding the most timely way to develop the best technical solutions for new products; managing the increasingly complex manufacturing process and service creation and delivery process or achieving required efficiency and flexibility, whether we manufacture our products and create and deliver our services ourselves or outsource to third parties.
Our manufacturing operations depend on obtaining sufficient quantities of fully functional products, components, sub-assemblies, software and services on a timely basis. Our principal supply requirements for our products are for electronic components, mechanical components and software, which all have a wide range of applications in our products.
In some cases, a particular component or service may be available only from a limited number of suppliers or from a single supplier. In addition, our dependence on third-party suppliers has increased as a result of our strategic decisions to outsource certain activities. Suppliers may from time to time extend lead times, limit supplies, change their partner preferences, increase prices, have poor quality or be unable to increase supplies to meet increased demand due to capacity constraints or other factors, which could adversely affect our ability to deliver our products and services on a timely basis. For example, Networks’ efforts to meet its customer needs during major network roll-outs in certain markets may require sourcing large volumes of components and services from the suppliers and vendors at short notice and at the same time with its competitors. If we fail to anticipate customer
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demand properly, an over-supply or under-supply of components and production or services delivery capacity could occur. In many cases, some of our competitors utilize the same contract manufacturers, component suppliers and service vendors. If they have purchased capacity or components ahead of us, this could prevent us from acquiring the needed components or services, which could limit our ability to supply our customers or increase our costs.
We also commit to certain capacity levels or component quantities which, if unused, will result in charges for unused capacity or scrapping costs. The cost efficiencies implemented in our supply chain to meet our targets to reduce Networks’ production overheads may result in lapses in the availability of certain components, especially in situations of tight supply or demand peaks.
We may not be able to secure components at attractive terms from our suppliers or, a supplier may fail to meet our supplier requirements, such as, most notably, our and our customers’ product quality, safety, security and other standards. Consequently, some of our products may be unacceptable to us and our customers, or may fail to meet our quality controls. In case of issues affecting a product’s safety or regulatory compliance, we may be subject to damages due to product liability, or defective products, components or services may need to be replaced. Also, some suppliers may not be compliant with local laws, including, among other things, local labor laws. In addition, a component supplier may experience delays or disruption to its manufacturing processes or financial difficulties or even insolvency or closure of its business, in particular due to difficult economic conditions. Any of these events could delay our successful and timely delivery of products that meet our and our customers’ quality, safety, security and other requirements, or otherwise materially adversely affect our sales and results of operations or our reputation and brand value.
We may also experience challenges caused by third parties or other external difficulties in connection with our efforts to modify our operations to improve the efficiency and flexibility of our manufacturing, service creation and delivery as well as our logistics, including, but not limited to, strikes, purchasing boycotts, public harm to our brands and claims for compensation resulting from our decisions on where to locate and how to utilize our manufacturing facilities. Such difficulties may result from, among other things, delays in adjusting or upgrading production at our facilities, delays in expanding production capacity, failure in our manufacturing, service creation and delivery as well as logistics processes, failures in the activities we have outsourced, and interruptions in the data communication systems that run our operations. Such failures or interruptions could result in our products not meeting our and our customers’ quality, safety, security and other requirements, or being delivered late or in insufficient or excess volumes compared to our own estimates or customer requirements, which could have a material adverse effect on our sales, results of operations, reputation and the value of our brands.
Many of our production sites or the production sites of our suppliers are geographically concentrated, with a majority of our suppliers based in Asia. In the event that any of these geographic areas is affected by any adverse conditions, such as natural disasters, geopolitical disruptions or civil unrest that disrupt production and/or deliveries from our suppliers, our ability to deliver our products on a timely basis could be negatively affected, which may materially adversely affect our business and results of operations.
The Sale of the D&S Business may expose us to contingent liabilities and the agreements we have entered into with Microsoft may have terms that prove to be unfavorable to us.
The sale by Nokia of substantially all of Nokia’s Devices & Services business, including Smart Devices and Mobile Phones pursuant to the D&S Purchase Agreement may expose us to liabilities or have terms that prove unfavorable to us. Under the D&S Purchase Agreement, we are required to indemnify Microsoft for the breach or violation of certain representations and warranties and covenants made by us in the D&S Purchase Agreement, subject to certain limitations and, in some cases, subject to a cap
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of EUR 284 250 000 and for losses arising from assets not acquired by Microsoft, liabilities retained by us and liabilities that are not primarily related to the D&S Business, subject to certain limitations and, in some cases, subject to a cap of EUR 284 250 000. Significant indemnification claims by Microsoft with respect to the D&S Purchase Agreement and the Sale of the D&S Business could have a material adverse effect on our financial condition. In addition, we are required to indemnify Microsoft for certain tax liabilities, including tax liabilities of the Nokia entities acquired by Microsoft, the D&S Business or the assets to be acquired by Microsoft attributable to tax periods ending on or prior to the closing date of the transaction or the certain pre-closing portion of any taxable period that includes the closing date of the transaction or taxes imposed with respect to any asset not being acquired by Microsoft. The D&S Purchase Agreement may have terms that prove to be unfavorable to us and significant transactions may result in claims between the parties, which can consume time and management attention and the outcome of disputes related to significant transactions may be difficult to predict.
The D&S Purchase Agreement contains certain purchase price adjustment mechanisms. The estimate of the adjustments made for net working capital and cash earnings was slightly positive for Nokia, and we currently expect the total transaction price to be slightly higher than the earlier-announced transaction price of EUR 5.44 billion after the final adjustments are made based on the verified closing balance sheet. In line with the D&S Purchase Agreement, the final purchase price adjustment will be based on the final adjustment amount determined after Closing in accordance with the terms of the D&S Purchase Agreement and as such there are no assurances that this will be the final purchase price adjustment as it may be higher or lower.
Nokia and Microsoft made certain adjustments to the scope of the assets originally planned to transfer. These adjustments included Nokia’s manufacturing facilities in Chennai in India and Masan in the Republic of Korea not transferring to Microsoft. In India, our manufacturing facility is subject to an asset freeze by the Indian tax authorities as a result of ongoing tax proceedings. Consequently, the facility remains part of Nokia following the closing of the transaction. Nokia and Microsoft have entered into a service agreement whereby Nokia will produce mobile devices for Microsoft. In the Republic of Korea, Nokia and Microsoft agreed to exclude the Masan facility from the scope of the transaction. Nokia will now take steps to close the facility, which employs approximately 200 people.
As Nokia retains the Chennai facility and is taking steps to close the Masan facility, it continues to face certain risks and costs related to these production facilities that may not be fully remedied by our arrangements with Microsoft, including claims that may be made against Nokia as the owner of these facilities, administrative burden associated with running these facilities, potential claims by authorities and potential reputational damage associated with owning and running these production facilities. After the above mentioned periods, Nokia will need to find alternative solutions for these production facilities, which may further expose Nokia to additional risks and cost associated with such plans.
Our operations rely on the efficient and uninterrupted operation of complex and centralized information technology systems and networks and we store certain personal and consumer data as part of our business operations. If a system or network inefficiency, cybersecurity breach, malfunction or disruption occurs, this could have a material adverse effect on our business and results of operations.
Our operations rely on the efficient and uninterrupted operation of complex and centralized information technology systems and networks, which are integrated with those of third parties. Additionally, we store certain personal and consumer data as part of our business operations. All information technology systems are potentially vulnerable to damage, malfunction or interruption from a variety of sources. We are to a significant extent relying on third parties for the provision of information
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technology systems and networks. We may experience disruptions if our partners do not deliver as we have planned or if we are unable to successfully and manage systems together with our partners.
We have made certain adjustments to our information technology systems as a result of the Sale of the D&S Business. We will need to use new service providers and may increase our reliance on certain new technologies, such as cloud based services and certain other services that are used over the internet rather than with the traditional licensing model. Switching to using new service providers and introducing new technologies is inherently risky and may exposes us to a heightened risk of experiencing disruptions in our operations for instance due to network inefficiency, cybersecurity breach, malfunction or other disruptions resulting from information technology systems.
We pursue various measures in order to manage our risks related to system and network malfunction and disruptions, including the use of multiple suppliers and available information technology security. However, despite precautions taken by us, any malfunction or disruption of our current or future systems, or networks such as an outage in a telecommunications network used by any of our information technology systems, or a breach of our cybersecurity, such as an attack, malware or other event that leads to an unanticipated interruption or malfunction of our information technology systems or networks or data leakages, could have a material adverse effect on our brand image, business and results of operations. In addition, if we fail to successfully use our information technology systems and networks, our operational efficiency or competitiveness could be impaired which could have a material adverse effect on our business and results of operations. A disruption, for instance, in our location-based services, could cause significant discontent among users of our products resulting in claims or deterioration of our brand image.
Although we endeavor to develop products and services that meet the appropriate security standards, including with respect to data protection, we or our products and online services, marketing and developer sites may be subject to breaches in our cybersecurity, including hacking, viruses, worms and other malicious software, unauthorized modifications or illegal activities, that may cause potential security risks and other harm to us, our customers or consumers and other end-users of our products. Events or mere allegations of cybersecurity breaches may have a material adverse effect on our business. Additionally, we contract with multiple third parties in various jurisdictions who collect and use certain data on our behalf. Although we have processes in place designed to ensure appropriate collection, handling and use of such data, third parties may use the data inappropriately, breach laws in collecting, handling or using such data or leak such data. This could lead to lengthy proceedings or fines imposed on us as well as adverse effects to our reputation and brand value.
In connection with providing our products to our customers and consumers, certain customer feedback, information on consumer usage patterns and other personal and consumer data is collected and stored through us, either by the consumers or by us or our partners or subcontractors. Loss, improper disclosure or leakage of any personal or consumer data collected by us or that is available to our partners or subcontractors, made available to us or stored in or through our products could result in liability to us and harm our reputation and brand. In addition, governmental authorities may use our networks products to access the personal data of individuals without our involvement, for example, through so-called lawful intercept capability of network infrastructure. Even perceptions that our products do not adequately protect personal or consumer data collected by us, made available to us or stored in or through our products or that they are being used by third parties to access personal or consumer data could impair our sales, results of operations, reputation and brand value.
Our efforts aimed at managing and improving financial performance, cost savings and competitiveness may not lead to targeted results or improvements.
We need to manage our operating expenses and other internal costs to maintain cost efficiency and competitive pricing of our products and services. Any failure by us to determine the appropriate
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prioritization of operating expenses and other costs, to identify and implement on a timely basis the appropriate measures to adjust our operating expenses and other costs accordingly, or to maintain achieved reduction levels, could have a material adverse effect on our business, results of operations and financial condition.
Nokia has recently completed large restructuring programs and has over recent years significantly reduced its global work force. In November 2011, NSN (since renamed Networks) announced a strategy, including changes to its organizational structure and an extensive global restructuring program, aimed at improving its competitiveness and profitability. The strategy also included efforts to focus its business and exit certain countries, business areas and contacts. This program was largely completed at the end of 2013 resulting in a reduction of more than EUR 1.5 billion NSN (since renamed Networks) annualized operating expenses and production overheads, excluding special items and purchase price related items. We may in the ordinary course of business institute new plans for restructuring measures. The restructuring programs are costly, potentially disruptive to operations and may not lead to sustainable improvements in overall competitiveness and profitability, and may have a negative effect for instance as result in the loss of scale benefits.
Networks may be adversely affected by negative developments with respect to the customer financing or extended payment terms it provides to customers.
Mobile operators in some markets may require their suppliers, including Networks, to arrange, facilitate or provide financing in order to obtain sales or business. They may also require extended payment terms. In some cases, the amounts and duration of these financings and trade credits, and the associated impact on our working capital, may be significant. Credit markets in general have been tight since 2009. Requests for customer financing and especially extended payment terms have remained at a reasonably high level. However, the amount of financing provided directly to our customers continued to decrease in 2013.
Uncertainty in the financial markets may result in more customer financing requests. As a strategic market requirement, Networks arranges and facilitates financing or provides longer payment terms to a number of customers, typically supported by export credit or guarantee agencies or through sale of the related receivables. In the event that export credit agencies face future constraints on their ability or willingness to provide financing to Networks’ customers or there is not sufficient demand to purchase their receivables, there could be a material adverse effect on our business and financial condition. Networks has agreed to extended payment terms for a number of customers, and may continue to do so. Extended payment terms may continue to result in a material aggregate amount of trade credits. Even when the associated risk is mitigated by the fact that the portfolio relates to a variety of customers, defaults in the aggregate could have a material adverse effect on us.
Networks cannot guarantee that it will be successful in arranging, facilitating or providing needed financing, including longer or extended payment terms to customers, particularly in difficult financial market conditions. In addition, certain of Networks’ competitors may have greater access to credit financing, which could adversely affect our ability to compete successfully for business in the mobile broadband infrastructure and, indirectly, in the related services sectors. Networks’ ability to manage its total customer finance and trade credit exposure depends on a number of factors, including capital structure, market conditions affecting its customers, the level and terms of credit available to it and to its customers, the cooperation of export credit or guarantee agencies and our ability to mitigate exposure on acceptable terms. Networks may not be successful in managing the challenges associated with the customer financing and trade credit exposure that Networks may have from time to time. While defaults under financings, guarantees and trade credits to our customers resulting in impairment charges and credit losses have not been a significant factor for Networks, these may increase in the future, and commercial banks may not continue to be able or willing to provide
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sufficiently long-term financing, even when backed by export credit agency guarantees, due to their own liquidity constraints.
Networks has used the sale of receivables to banks or other financial institutions to improve its liquidity, and any significant change in Networks’ ability to continue this practice could impair our liquidity. See Item 5B. “Liquidity and Capital Resources—Structured Finance,” and Note 35(b) to our consolidated financial statements included in Item 18 of this annual report for a more detailed discussion of issues relating to customer financing, trade credits and related commercial credit risk.
If any of the companies we partner and collaborate with were to fail to perform as planned or if we fail to achieve the collaboration or partnering arrangements needed to succeed, we may not be able to bring our products or services to market successfully or in a timely way.
We are increasingly collaborating and partnering with third parties to develop technologies, products and services. Additionally, we have outsourced various functions to third parties and are relying on them to provide certain services to us. These arrangements involve the commitment by each party of various resources, including technology, research and development efforts, services and personnel. Although the objective of the collaborative and partnering arrangements is a mutually beneficial outcome for each party, our ability to introduce products and services that are commercially viable and meet our and our customers’ and consumers’ quality, safety, security and other standards successfully and on schedule could be hampered if, for example, any of the following risks were to materialize:
| • | We fail to engage the right partners or on terms that are beneficial to us. |
| • | We are unable to collaborate and partner effectively with individual partners and simultaneously with multiple partners to execute and reach the targets set for the collaboration. |
| • | The arrangements with the parties we work with do not develop as expected, including their performance, delivery and timing, or include terms which prove unfavorable to us. |
| • | The technologies provided by the parties we work with are not sufficiently protected or infringe third parties’ intellectual property rights in a way that we cannot foresee or prevent, or private information shared with partners is leaked. |
| • | The technologies or products or services supplied by the parties we work with do not meet the required quality, safety, security and other standards or customer needs. |
| • | Our own quality controls fail. |
| • | The financial condition of our collaborative partners deteriorates which may result in underperformance by the collaborative partners or insolvency or closure of the business of such partners. |
Our products and services include increasingly complex technologies, some of which have been developed by us or licensed to us by certain third parties. As a result, evaluating the rights related to the technologies we use or intend to use is more and more challenging, and we expect to continue to face claims that we could have allegedly infringed third parties’ intellectual property rights. The use of these technologies may also result in increased licensing costs for us, restrictions on our ability to use certain technologies in our products and/or costly and time-consuming litigation.
Our products and services include increasingly complex technologies, some of which have been developed by us or licensed to us by certain third parties. As the amount of such proprietary technologies and the number of parties claiming intellectual property rights continue to increase, even within individual products, as the range of our products becomes more diversified and if we were to
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enter into new businesses, and as the complexity of the technology increases, the possibility of alleged infringement and related intellectual property claims against us continues. The holders of patents and other intellectual property rights potentially relevant to our products may be unknown to us, may have different business models, may refuse to grant licenses to their proprietary rights, or may otherwise make it difficult for us to acquire a license on commercially acceptable terms. There may also be technologies licensed to and relied on by us that are subject to alleged infringement or other corresponding allegations or claims by others which could impair our ability to rely on such technologies. In addition, although we endeavor to ensure that companies that work with us possess appropriate intellectual property rights or licenses, we cannot fully avoid the risks of intellectual property rights infringement created by suppliers of components and various layers in our products, 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.
In many aspects the business models for mobile services are not yet established. The lack of availability of licenses for copyrighted content, delayed negotiations, or restrictive licensing terms may have a material adverse effect on the cost or timing of content-related services offered by us, mobile network operators or third-party service providers.
Since all technology standards, including those we use and rely on, include some intellectual property rights, we cannot fully avoid risks of a claim for infringement of such rights due to our reliance on such standards. We believe, the number of third parties declaring their intellectual property to be potentially relevant to these standards, for example, the standards related to so-called 3G and 4G mobile communication technologies, as well as other advanced mobile communications standards, is increasing, which may increase the likelihood that we will be subject to such claims in the future. As the number of market entrants and the complexity of technology increases, it remains likely that we will need to obtain licenses with respect to existing and new standards from other licensors. While we believe, most such intellectual property rights declared or actually found to be essential to a given standard carry with them an obligation to be licensed on fair, reasonable and non-discriminatory terms, not all intellectual property owners agree on the meaning of that obligation and thus costly and time-consuming litigation over such issues has resulted and may continue to result in the future.
From time to time, some existing patent licenses may expire or otherwise become subject to renegotiation. The inability to renew or finalize such arrangements or new licenses with acceptable commercial terms may result in costly and time-consuming litigation, and any adverse result in any such litigation may lead to restrictions on our ability to sell certain products and could result in payments that potentially could have a material adverse effect on our operating results and financial condition. These legal proceedings may continue to be expensive and time-consuming and divert the efforts of our management and technical personnel from our business, and, if decided against us, could result in restrictions on our ability to sell our products, require us to pay increased licensing fees, substantial judgments, settlements or other penalties and incur expenses.
Our patent license agreements may not cover all the future businesses that we may enter; our existing businesses may not necessarily be covered by our patent license agreements if there are changes in our corporate structure or in companies under our control; or our newly-acquired businesses may already have patent license agreements with terms that differ from similar terms in our patent license agreements. This may result in increased costs, restrictions to use certain technologies or time-consuming and costly disputes whenever there are changes in our corporate structure or in companies under our control, or whenever we enter new businesses or acquire new businesses.
We make accruals and provisions to cover our estimated total direct IPR costs for our products. The total direct IPR cost consists of actual payments to licensors, accrued expenses under existing
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agreements and provisions for potential liabilities. We believe that our accruals and provisions are appropriate for all technologies owned by others. The ultimate outcome, however, may differ from the provided level which could have a positive or negative impact on our results of operations and financial condition.
Any restrictions on our ability to sell our products due to expected or alleged infringements of third-party intellectual property rights and any intellectual property rights claims, regardless of merit, could result in material loss of profits, costly litigation, the payment of damages and other compensation, the diversion of the attention of our personnel, product shipment delays or the need for us to develop non-infringing technology or to enter into a licensing agreement. If licensing agreements were not available or are not available on commercially acceptable terms, we could be precluded from making and selling the affected products, or could face increased licensing costs. As new features are added to our products, we may need to acquire further licenses, including from new and sometimes unidentified owners of intellectual property. The cumulative costs of obtaining any necessary licenses are difficult to predict and may over time have a negative effect on our operating results. See Item 4B. “Business Overview—Patents and Licenses” for a more detailed discussion of our intellectual property activities.
We are a company with global operations and with sales derived from various countries, exposing us to risks related to regulatory, political or other developments in various counties or regions.
We generate sales from and have manufacturing facilities and suppliers located in various countries. Additionally, sales from emerging markets that may have a higher degree of regulatory or political risk represent a significant portion of our total sales and those countries represent a significant portion of any expected industry growth. Most of our suppliers are located in and our products are manufactured and assembled in emerging market countries, particularly in Asia. Accordingly, economic or political turmoil, military actions, labor unrest, civil unrest, public health and environmental issues or natural and man-made disasters in those countries could materially adversely affect the supply of our products and services, including network infrastructure equipment manufactured in those countries, our sales and results of operations. In recent years, we witnessed political unrest in various markets where we do business or have operations in, which adversely affected our sales in those markets or operations also outside those countries or regions, and any reoccurrence or escalation of such unrest could do so in the future. For instance, economic or political instability or the introduction of trade sanctions, as a result of the recent events and instability in Ukraine and the international reaction to them may adversely affect our business or operations in Ukraine, Russia and/or related markets, including as a result of potential trade sanctions or economic uncertainly or slowdown resulting from these events.
Further, the economic conditions in emerging market countries may be more volatile than in developed countries, and the purchasing power of our customers and consumers in those countries depends to a greater extent on the price development of basic commodities and currency fluctuations which may render our products too expensive to afford. Our business and investments in emerging market countries may also be subject to risks and uncertainties, including unfavorable or unpredictable taxation treatment, exchange controls, and other restrictions affecting our ability to make cross-border transfers of funds, regulatory proceedings, unsound or unethical business practices, challenges in protecting our intellectual property rights, nationalization, inflation, currency fluctuations, or the absence of, or unexpected changes in, regulation as well as other unforeseeable operational risks. See Note 2 to our consolidated financial statements included in Item 18 of this annual report for more detailed information on geographic location of net sales to external customers, segment assets and capital expenditures.
Our business is subject to direct and indirect regulation in each of the countries where we, the companies with which we work, and our customers, do business. We develop many of our products based on existing regulations and technical standards, our interpretation of unfinished technical
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standards or there may be an absence of applicable regulations and standards. As a result, changes in various types of regulations, their application and trade policies applicable to current or new technologies or products may adversely affect our business and results of operations. For example, changes in regulation affecting the construction of base stations and other network infrastructure could adversely affect the timing and costs of new network construction or expansion and the commercial launch and ultimate commercial success of those networks. Also, changes in the applicable privacy related regulatory framework may adversely affect our business, especially our offering through our networks business, including if there are changes that reduce or are seen to reduce the privacy aspects of our offering, for instance if further governmental interception capabilities are required for the products and services that we offer. Our ability to protect the IP in our products and generate IP related net sales is dependent on regulatory developments in various jurisdictions, as well as the application of the regulations for instance through administrative bodies. Export control, tariffs or other fees or levies imposed on our products and environmental, health, data protection, product safety and data protection, security, consumer protection, money laundering and other regulations that adversely affect the export, import, technical design, pricing or costs of our products could also adversely affect our sales and results of operations. In addition, changes in various types of regulations or their application with respect to taxation or other fees collected by governments or governmental agencies may result in unexpected payments to be made by us, and in response to difficult global economic conditions there may be an increase in the aggressiveness of collecting such fees. The trade sanctions environment can be difficult to navigate for companies with global operations. We may be subject to new, existing or tightened export control regulations, sanctions, embargoes or other forms of trade restrictions imposed on certain countries. Such actions may trigger additional investigations, including tax audits by authorities or claims by contracting parties. The result and costs of such investigations or claims may be difficult to predict and could lead to lengthy disputes, fines or fees, indemnities or a settlement.
Our expansion into the provision of services, including the activities of our HERE business, has resulted in a variety of new regulatory issues and subjects us to increased regulatory scrutiny. Moreover, our competitors have employed and will likely continue to employ significant resources to shape the legal and regulatory regimes in countries where we have significant operations. Legislators and regulators may make legal and regulatory changes or interpret and apply existing laws in ways that make our services less appealing to the end users, require us to incur substantial costs, change our business practices or prevent us from offering our services.
In line with changes in strategy, as well as in some cases a difficult political or business environment and an increasingly complicated trade sanctions environment, Nokia and its Networks business have exited or reduced operations in certain areas or countries, with some of these exits or reductions in operations still-ongoing. We continuously monitor international developments and assess the appropriateness of our presence and businesses in various markets. For instance, in light of the recent developments relating to Iran, Networks is assessing its position on performing business in Iran in compliance with all applicable trade sanctions and regulations, including potentially increasing its business activities with its existing customers in the country, while NSN works with them to find solutions to honor existing contractual obligations. The actions described in this paragraph may have adverse effects on Nokia for instance through triggering additional investigations, including tax audits by authorities or claims by contracting parties or reputational damage resulting for instance in adverse effects to business relationships. The result and costs of investigations or claims may be difficult to predict and could lead to lengthy disputes, fines or fees, indemnities or a settlement.
The impact of changes in or uncertainties related to regulation and trade policies could affect our business and results of operations adversely even though the specific regulations do not always directly apply to us or our products. In many parts of the world where we currently operate or seek to expand our business, local practices and customs may be contrary to our code of conduct and could violate anticorruption laws, including the US Foreign Corrupt Practices Act and the UK Bribery Act
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2010 or EU and other applicable trade sanctions and embargoes. Our employees, or others who act on our behalf, could violate policies and procedures intended to promote compliance with anticorruption laws or trade sanctions. Violations of these laws by our employees or others who act on our behalf, regardless of whether we participated in such acts or knew about such acts at certain levels of our organization, could subject us and our employees to criminal or civil enforcement actions, including fines or penalties, disgorgement of profits and suspension or disqualification from sales. Additionally, violations of law or allegations of violations may result in the loss of reputation and business. Detecting, investigating and resolving such situations may also result in significant costs, including the need to engage external advisors, and consume significant time, attention and resources of our management. The result and costs of such investigations or claims may be difficult to predict and could lead to lengthy disputes, fines or fees, indemnities or a settlement.
As a global company, we are subject to various legislative frameworks and jurisdictions that regulate fraud committed in the course of business operations and trade sanctions and as such the extent and outcome of any proceedings is difficult to estimate. Further, our business and results of operations may be adversely affected by regulation and trade policies favoring the local industry participants as well as other measures with potentially protectionist objectives which host governments in different countries may take, particularly in response to difficult global economic conditions.
Our net sales, costs and results of operations, as well as the US dollar value of our dividends and market price of our ADSs, are affected by exchange rate fluctuations, particularly between the euro, which is our reporting currency, and the US dollar, the Japanese yen and the Chinese yuan, as well as certain other currencies.
We operate globally and are therefore exposed to foreign exchange risks in the form of both transaction risks and translation risks. Our policy is to monitor and hedge exchange rate exposure, and we manage our operations to mitigate, but not to eliminate, the impacts of exchange rate fluctuations. There can be no assurance, however, that our hedging activities will be successful in mitigating the impact of exchange rate fluctuations. In addition, significant volatility in the exchange rates may increase our hedging costs, as well as limit our ability to hedge our exchange rate exposure in particular against unfavorable movements in the exchange rates of certain emerging market currencies and could have an adverse effect on our results of operations, particularly our profitability. Further, exchange rate fluctuations may have an adverse effect on our net sales, costs and results of operations, as well as our competitive position through their impact on our competitors and customers. Further, exchange rate fluctuations may also materially affect the US dollar value of any dividends or other distributions that are paid in euro as well as the market price of our ADSs. For a more detailed discussion of exchange risks, see Item 5A. “Operating Results—Certain Other Factors—Exchange Rates” and Note 35 of our consolidated financial statements included in Item 18 of this annual report.
We may not be able to achieve targeted benefits from or successfully implement planned transactions, such as acquisitions, divestments, mergers or joint ventures, for instance due to issues in selecting successfully the targets or failure to execute transactions or due to unexpected liabilities associated with such transactions.
From time to time, we may consider possible transactions that would complement our existing operations and enable us to grow our business or divest our existing businesses or operations. In addition to the Sale of the D&S Business, we have for instance as part of Networks’ strategy to focus on mobile broadband, divested certain businesses and may make further strategic divestments in the future.
We cannot provide assurance that any transactions, such as acquisitions, divestments, mergers or joint ventures, we consummate will ultimately provide the benefit we originally anticipate and the return on the acquisition may be below targets or negative. Furthermore, we may not succeed in integrating acquired operations with our existing businesses. We may not overcome problems encountered in connection with
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transactions, such as potential acquisitions or completed acquisitions, and such problems could have a material adverse effect on our business, financial condition, results of operation and cash flows.
Transactions, including acquisitions, divestments, mergers or joint ventures involve inherent risks, including:
| • | The assumption and exposure to unknown or contingent liabilities of acquired businesses. |
| • | The ability to integrate acquired businesses and/or to achieve identified and anticipated operating and financial synergies. |
| • | Unanticipated delays or inability to proceed with transactions as planned, for instance, due to issues in obtaining regulatory approvals. |
| • | Unanticipated costs or changes in scope, for instance, due to issues with regulators or courts imposing terms on a transaction or obstacles that result in changes required in the scope of the transaction. |
| • | The diversion of management attention from existing business. |
| • | The potential loss of key employees and customers. |
| • | Unanticipated changes in business, industry or general economic conditions that affect the assumptions underlying the acquisition. |
| • | Potential disputes with sellers. |
| • | Impairments related to goodwill and other intangible assets. |
| • | Unexpected costs associated with the separation of the business to be sold. |
| • | Additional payment obligations and higher costs resulting from non-performance by divested businesses. |
| • | Exposure to contingent liabilities in connection with any indemnity we provide to the purchaser in connection with such divestiture. |
| • | Potential post-closing claims for indemnification and disputes with purchasers. |
| • | Our dependency on some of the divested businesses as our suppliers. |
| • | High transaction costs. |
An unfavorable outcome of litigation, contract-related disputes or allegations of health hazards associated with our business could have a material adverse effect on our business, results of operations, financial condition and reputation.
We are a party to lawsuits and contract-related disputes in the normal course of our business. Litigation or contract related disputes can be expensive, lengthy and disruptive to normal business operations and divert the efforts of our management. Moreover, the results of complex legal proceedings or contract related disputes are difficult to predict. An unfavorable resolution of a particular lawsuit or contract related dispute could have a material adverse effect on our business, results of operations, financial condition and reputation.
We record provisions for pending litigation when we determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may vary materially from estimates. We believe that our provisions for pending litigation are appropriate. The ultimate outcome, however, may differ from the provided level which could have a positive or negative impact on our results of operations and financial condition.
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There has been public speculation about possible health risks to individuals from exposure to electromagnetic fields from base stations and from the use of mobile devices. A substantial amount of scientific research conducted to date by various independent research bodies has indicated that these radio signals, at levels within the limits prescribed by safety standards set by, and recommendations of, public health authorities, present no adverse effect on human health. We cannot, however, be certain that future studies, irrespective of their scientific basis, will not suggest a link between electromagnetic fields and adverse health effects that could have a material adverse effect on our sales, results of operations, share price, reputation and brand value. Research into these issues is ongoing by government agencies, international health organizations and other scientific bodies in order to develop a better scientific and public understanding of these issues.
Although Nokia products are designed to meet all relevant safety standards and recommendations globally, we cannot guarantee we will not become subject to product liability claims or be held liable for such claims or be required to comply with future regulatory changes in this area that could have a material adverse effect on our business. We have been involved in several lawsuits alleging adverse health effects associated with our product, including those caused electromagnetic fields and the outcome of such procedures is difficult to predict, including the potentially significant fines or settlements. Even a perceived risk of adverse health effects of mobile devices or base stations could have a material adverse effect on us through a reduction in the demand for mobile devices having a negative effect on our continuing businesses, for instance through demand for mobile networks or increased difficulty in obtaining sites for base stations.
See Item 8A7. “Litigation” for a more detailed discussion about litigation that we are party to.
ITEM 4. INFORMATION ON THE COMPANY
4A. History and Development of the Company
Nokia invests in technologies important in a world where billions of devices are connected. We are focused on three businesses: network infrastructure software, hardware and services, which we offer through Networks; location intelligence, which we provide through HERE; and advanced technology development and licensing, which we pursue through Technologies. Each of these businesses is a leader in its respective field.
Through our three businesses, we have a global presence with operations and R&D facilities in Europe, North America and Asia, sales in approximately 130 countries, and we employ around 55 000 people. We are also a major investor in R&D, with expenditure through the three businesses amounting to more than EUR 2.5 billion in 2013.
Until recently, Nokia was a key participant in the mobile devices market through its Devices & Services business, which largely comprised two business units: Smart Devices and Mobile Phones. In September 2013, Nokia announced an agreement with Microsoft whereby it would sell substantially all of its Devices & Services business to Microsoft. The transaction, which we describe in more detail below, was completed on April 25, 2014.
In this report, we describe the Nokia business as of today, including our three continuing businesses but also provide under “Discontinued Operations” information about the Devices & Services business which was fully part of the Nokia Group throughout 2013.
For 2013, our three continuing businesses had net sales of approximately EUR 13 billion and generated an operating profit of EUR 0.5 billion.
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History
Nokia has a long history of successful change and innovation, adapting to shifts in markets and technologies. From its humble beginning in 1865 with one paper mill, the company has participated in many sectors over time: cables, paper products, tires, rubber boots, consumer and industrial electronics, plastics, chemicals, telecommunications infrastructure and more.
Most recently, Nokia has been best known for its revolutionary wireless communication technologies, which have connected billions of people through networks and mobile phones. Nokia’s history dates back to 1865, when mining engineer Fredrik Idestam set up his first wood pulp mill at the Tammerkoski Rapids in Southwestern Finland. A few years later he opened a second mill on the banks of the Nokianvirta River, inspiring him to name his company Nokia Ab in 1871.
In 1967, we took our current form as Nokia Corporation as a result of the merger of Idestam’s Nokia AB, Finnish Rubber Works, a manufacturer of rubber boots, tires and other rubber products founded in 1898, and Finnish Cable Works Ltd, a manufacturer of telephone and power cables founded in 1912. The new Nokia Corporation had five businesses: rubber, cable, forestry, electronics and power generation.
Nokia first entered the telecommunications equipment market in 1960 when an electronics department was established at Finnish Cable Works to concentrate on the production of radio-transmission equipment. Regulatory and technological reforms have played a role in our success. Deregulation of the European telecommunications industries since the late 1980s has stimulated competition and boosted customer demand.
In 1982, we introduced the first fully-digital local telephone exchange in Europe, and, in the same year, the world’s first car phone for the Nordic Mobile Telephone analog standard. The technological breakthrough of GSM, which made more efficient use of frequencies and had greater capacity in addition to high-quality sound, was followed by the European resolution in 1987 to adopt GSM as the European digital standard by July 1, 1991. The first GSM call was made with a Nokia phone over the Nokia-built network of a Finnish operator called Radiolinja in 1991, and in the same year Nokia won contracts to supply GSM networks in other European countries.
In the early 1990s, we made a strategic decision to make telecommunications our core business, with the goal of establishing leadership in every major global market. Basic industry and non-telecommunications operations—including paper, personal computer, rubber, footwear, chemicals, power plant, cable, aluminum and television businesses—were divested between 1989 and 1996. By 1998, Nokia was the world leader in mobile phones, a position it enjoyed for more than a decade
In 2006, Nokia, which had already been investing in its mapping capabilities for many years, acquired Gate5, a mapping software specialist, and then in 2008 NAVTEQ, the US-based maker of digital mapping and navigational software. Today, Nokia offers leading location services through the HERE business and brand, launched in 2012.
In 2007, Nokia combined its telecoms infrastructure operations with those of Siemens to form a joint venture named Nokia Siemens Networks. NSN, today known as Networks, has become a leading global provider of telecommunications infrastructure, with a focus on offering innovative mobile broadband technology and services.
In 2011, Nokia joined forces with Microsoft to strengthen its position in the highly competitive smartphone market. Nokia adopted the Windows Phone operating system for smart devices and through their strategic partnership Nokia and Microsoft set about establishing an alternative ecosystem to rival iOS and Android. In 2011, Nokia also started to make a number of changes to its operations
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and company culture that would in the course of the next two years lead to shortened product development times and better responsiveness to market demand.
In 2013, Nokia moved to reinvent itself with two transformative transactions. The first was the purchase of Siemens’ stake in the then NSN, which was nearing the end of a deep restructuring and remarkable transformation. The second was the announcement of the sale of substantially all of Nokia’s Devices & Services business to Microsoft, which we completed in April 2014.
Following the closing of the Microsoft transaction, Nokia announced its new strategy, building on its three strong businesses: Networks, HERE, and Technologies.
Acquisition of Siemens’ Stake in NSN
Nokia announced the first of what would be two transformative transactions for the company during 2013 on July 1 when it announced an agreement to acquire Siemens’ 50% in the companies’ joint venture Nokia Siemens Networks. The purchase price for Siemens’ stake was EUR 1.7 billion and the transaction closed on August 7, 2013, at which time NSN became a wholly owned subsidiary of Nokia.
Nokia saw the transaction as an opportunity to create more shareholder value for the group. We had a clear view of NSN’s leadership in next generation technologies, such as LTE, as well as its impressive profitability improvement, which was the result of the focused strategy and successful implementation of the company’s restructuring program. Furthermore, it was evident to us that NSN was not a core business for Siemens. We saw a good opportunity to purchase Siemens’ share at what we believed to be an attractive price.
After the transaction closed, we phased out the Siemens name from Nokia Siemens Networks’ company name and branding and adopted Nokia Solutions and Networks, or NSN, as the name and brand. Upon the announcement of our new strategy on April 29, 2014, NSN is now known as Networks and operates under the Nokia brand.
Following the completion of the transaction, Rajeev Suri continued as CEO of NSN. However, the NSN Board of Directors was adjusted to the new ownership structure, with the Siemens-appointed directors resigning. In addition, Jesper Ovesen stepped down from his position as Executive Chairman of the NSN Board upon the closing of the sale of the Devices & Services Business.
Sale of the Devices & Services Business to Microsoft
The process leading to the announcement of the proposed sale of substantially all of Nokia’s Devices & Services business to Microsoft on September 3, 2013, and eventually to the closing of the transaction on April 25, 2014, started in early 2013 when Microsoft approached Nokia indicating its interest in purchasing all or part of our Devices & Services business. After this contact, we carried out an extensive strategic review and considered a wide range of strategic alternatives and scenarios for the company. This review included, among other things, a thorough assessment of what would be possible within the framework of the partnership with Microsoft, outside of it, as well as the value of Nokia’s businesses and assets in different scenarios.
During this process and throughout the negotiations, we consulted with our senior management as well as with outside legal and financial advisors. The negotiations with Microsoft progressed and eventually resulted in an offer from Microsoft to purchase substantially all of Nokia’s Devices & Services business and to license our patents. After a thorough and careful assessment, we determined at a meeting held on September 2, 2013, that the proposed transaction was advisable, fair to, and in the best interests of Nokia and its shareholders. We decided to enter into the transaction and resolved to submit it to Nokia shareholders for confirmation and approval.
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On September 3, 2013, Nokia announced that it had signed an agreement to enter into a transaction whereby Nokia would sell to Microsoft substantially all of its Devices & Services business, including the Mobile Phones and Smart Devices business units as well as an industry-leading design team, operations including Nokia Devices & Services production facilities, Devices & Services-related sales and marketing activities, and related support functions. Also, in conjunction with the closing of the transaction, Nokia granted Microsoft a 10 year non-exclusive license to its patents and Microsoft granted Nokia reciprocal rights to use Microsoft patents in our HERE services, our mapping and location services business. The total purchase price was EUR 5.44 billion, of which EUR 3.79 billion related to the purchase of substantially all of the Devices & Services business, and EUR 1.65 billion related to the 10 year mutual patent license agreement and the option to extend this agreement to perpetuity. In addition, Microsoft became a strategic licensee of the HERE platform, and separately pays Nokia for a four-year license.
On November 19, 2013, Nokia’s shareholders confirmed and approved the transaction at the Extraordinary General Meeting in Helsinki. We were very pleased for the overwhelmingly strong support our shareholders gave for the transaction, as a total of over 99% of the votes cast were in favour of the approval. Having received the approval of Nokia shareholders and regulatory authorities as well as fulfilling other customary closing conditions, the transaction closed on April 25, 2014.
Of the Devices & Services related assets, Nokia’s former CTO (Chief Technology Office) organization and patent portfolio remained within the Nokia Group, which are currently part of the Technologies business. The operations that were transferred to Microsoft generated EUR 10.7 billion, or approximately 46%, of Nokia’s net sales for the full year 2013.
As is customary for transactions of this size, scale and complexity, Nokia and Microsoft made certain adjustments to the scope of the assets originally planned to transfer. These adjustments included Nokia’s manufacturing facilities in Chennai in India and Masan in the Republic of Korea not transferring to Microsoft. These adjustments did not impact the material deal terms of the transaction and Nokia will be materially compensated for any retained liabilities.
In India, our manufacturing facility is subject to an asset freeze by the Indian tax authorities as a result of ongoing tax proceedings. Consequently, the facility remains part of Nokia following the closing of the transaction. Nokia and Microsoft have entered into a service agreement whereby Nokia would produce mobile devices for Microsoft.
In the Republic of Korea, Nokia and Microsoft agreed to exclude the Masan facility from the scope of the transaction. At the time of writing, Nokia was taking steps to close the facility, which employs approximately 200 people.
Altogether, and accounting for these adjustments, approximately 25 000 employees transferred to Microsoft at the closing. Earlier, we had expected approximately 32 000 employees to transfer.
Following the transaction, Nokia continues to own and maintain the Nokia brand. Under the terms of the transaction, Microsoft received a 10 year license arrangement with Nokia to use the Nokia brand on certain Mobile Phones products. Additionally, Nokia is restricted from licensing the Nokia brand for use in connection with mobile device sales for 30 months and from using the Nokia brand on Nokia’s own mobile devices until December 31, 2015.
Nokia retains its headquarters in Finland, but as the majority of employees working at the Keilaniemi, Espoo headquarters were focused on Devices & Services activities and support functions it was agreed that the Keilaniemi facility would become a Microsoft site upon the closing of the transaction. Nokia has since relocated its headquarters to the Karaportti campus in Espoo.
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New vision, strategy and structure
The completion of the transaction with Microsoft has provided Nokia with a solid basis for future investment. It has also significantly strengthened our financial position, supporting our target of returning to being an investment grade company. On April 29, 2014, and building on this platform of renewed financial strength, Nokia outlined its next steps and future plans in more detail. These included:
| • | The appointment of Rajeev Suri as President and CEO, effective May 1, 2014; |
| • | A vision to be a leader in technologies important in a connected world; |
| • | A strategy to realize that vision by building on Nokia’s three strong businesses in networks, location and technologies; |
| • | Plans for a EUR 5 billion program to optimize capital structure, including the Nokia Board’s proposal to the Annual General Meeting 2014 for the dividend and for an authorization for the Board to repurchase shares; and |
| • | A new governance structure and the appointment of a new leadership team, effective May 1, 2014. |
Long-term leadership targeted in three key areas
Nokia believes that over the next 10 years billions of connected devices will converge into intelligent and programmable systems that will have the potential to improve lives in a vast number of areas: time and availability, transportation and resource consumption, learning and work, health and wellness, and many more.
This new world of technology will require 1) connectivity capable of handling massive numbers of devices and exponential increases in data traffic; 2) location services that seamlessly bridge between the real and virtual worlds; and 3) innovation, including in sensing, radio and low power technologies. Nokia’s vision is to be a leader over the long term in these three areas.
Nokia strategy
Nokia’s strategy is to develop its three businesses—Networks, HERE, and Technologies—in order to realize its vision of being a technology leader in a connected world and, in turn, create long-term shareholder value. Our goal is to optimize the company so that each business is best enabled to meet its goals. Where it makes sense to do so, we will pursue shared opportunities between the businesses, but not at the expense of focus and discipline in each.
Nokia will target the creation of long-term shareholder value by focusing on the following three areas:
| 1. | Through its Networks business (formerly NSN), Nokia will invest in the innovative products and services needed by telecoms operators to manage the increase in wireless data traffic which is more than doubling every year. Future investment will focus on further building on our strong position in mobile broadband and related services, and strengthening our leadership position in next-generation network technologies. |
Today, the Networks business serves more than 90 of the world’s 100 largest operators, is a leader in the large and dynamic mobile broadband market, and is ranked third in estimated global market share in mobile radio and second in telecommunication services. An early leader in virtualization and cloud technologies, Networks conducted trials and pre-commercial live projects with more than 50 customers in 2013.
| 2. | Through its HERE business, Nokia is will invest to further develop its location cloud to make it the leading source of location intelligence and experiences across many different operating systems, platforms and screens. Given that location is an essential element of a connected |
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| world, we will target our investment in three areas: 1) technology for smart, connected cars; 2) cloud-based services for personal mobility and location intelligence, including for the growing segment of wearables and special purpose devices; and 3) location-based analytics for better business decisions. |
Today, HERE is the leading global provider of map content, powering four out of five in-car navigation systems. Its location platform is used by leading internet companies such as Amazon, Microsoft and Yahoo.
| 3. | Through its Technologies business, Nokia will invest in the further development of its industry-leading innovation portfolio. This will include 1) expanding our successful intellectual property licensing program; 2) helping other companies and organizations benefit from our breakthrough innovations through technology licensing; and 3) exploring new technologies for use in potential future products and services. |
The Technologies team includes hundreds of world-class scientists and engineers who have driven more than half of Nokia’s recent patent filings and many of whom are recognized as leading experts in fields that are essential for enabling the future connected world. These areas include low-power connected smart multi-sensor systems, distributed sensing, and intelligent interplay between various types of radio technologies.
Nokia’s continuing businesses invested more than EUR 2.5 billion in research and development in 2013. We believe that the company has a strong financial position and the capacity to continue to make the investments necessary to remain an innovation leader in the three segments in which it competes.
Clear operational governance and structure; strong leadership team
Nokia will adopt a simple and clear operational governance model, designed to facilitate innovation and growth. As of May 1, 2014, all three businesses will report to the Nokia President and CEO, who has full accountability for the performance of the company. HERE and Technologies each will have a single leader reporting to the President and CEO. To ensure efficiency and simplicity, the Nokia President and CEO will assume direct control of the Networks business and key Networks leaders will report to him.
The primary operative decision-making body for the company will be the Nokia Group Leadership Team, which will be responsible for Group level matters, including the company strategy and overall business portfolio. Effective May 1 2014, the Nokia Group Leadership Team will replace the current Nokia Leadership Team, and the President and CEO will chair the Group Leadership Team, which will consist of the following members:
| • | Rajeev Suri as President and CEO of Nokia. |
| • | Timo Ihamuotila as Executive Vice President and Group Chief Financial Officer. |
| • | Michael Halbherr as CEO of HERE. |
| • | Henry Tirri as Executive Vice President, and acting Head of Technologies. |
| • | Samih Elhage as Executive Vice President and Chief Financial and Operating Officer of Networks. |
Effective May 1, 2014 the interim governance structure of Nokia will cease to exist. Risto Siilasmaa, who has been serving as an interim CEO since September 3, 2013, will focus exclusively on his role as the Chairman of the Nokia Board of Directors. In addition, Timo Ihamuotila will step down from the interim President position.
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Consistent with the planned structural changes we announced on April 29, 2014, Networks (formerly Nokia Solutions and Networks, or NSN) and Technologies will operate under the Nokia brand. HERE will retain its distinct identity within the Nokia family and, where appropriate, will be identified as “A Nokia Company”. The NSN name will no longer be used after a short phase-out period.
Organizational Structure and Reportable Segments
We have three businesses: Networks, HERE, and Technologies, and four operating and reportable segments for financial reporting purposes: Mobile Broadband and Global Services within Networks, HERE, and Technologies.
Networks also contains Networks Other, which includes net sales and related cost of sales and operating expenses of non-core businesses, as well as Optical Networks business until May 6, 2013, when its divestment was completed. It also includes restructuring and associated charges for Nokia Solutions and Networks business. Additionally, as a result of the Sale of the D&S Business, we report certain separate information for Discontinued Operations.
On August 7, 2013, Nokia completed the acquisition of Siemens’ stake in Nokia Siemens Networks, which was a joint venture between Nokia and Siemens. NSN was consolidated by Nokia prior to this transaction. Beginning in the third quarter of 2013, Nokia has reported financial information for the two operating and reportable segments within NSN; Mobile Broadband and Global Services. As of the fourth quarter of 2013, the Devices & Services business has been reported as Discontinued Operations. To reflect these changes, historical results information for past periods has been regrouped for historical comparative purposes. As is customary, certain judgments have been made when regrouping historical results information and allocating items in the regrouped results.
For the breakdown of our net sales and other operating results by category of activity and geographical location in 2013, see Item 5 and Note 2 to our consolidated financial statements included in Item 18 of this annual report.
Other
During 2014, we currently expect the amount of capital expenditure from continuing operations, excluding acquisitions, to be approximately EUR 200 million, primarily attributable to Networks, and to be funded from our cash flow from operations.
During 2013, our capital expenditures, excluding acquisitions, totaled EUR 407 million, compared with EUR 461 million in 2012. For further information regarding capital expenditures, see Item A “Operating results”, and for a description of capital expenditures by our reportable segments, see Note 2 to our consolidated financial statements included in Item 18 of this annual report.
We maintain listings on two major securities exchanges. The listing venues for our shares are NASDAQ OMX Helsinki, in the form of shares, and the New York Stock Exchange, in the form of American Depositary Shares.
Following the closing of the Sale of the D&S Business on April 25, 2014, our principal executive office is located at Karakaari 7, FI-02610 Espoo and our telephone number is +358 (0) 10 44 88 000.
The following discussion focuses mainly on Nokia’s three businesses: Networks, HERE, and Technologies. Prior to its sale, the Devices & Services business was a reportable segment for Nokia
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until the end of the third quarter 2013 and was reported as Discontinued Operations as of the fourth quarter 2013.
CONTINUING OPERATIONS
Networks
Market Overview
The mobile infrastructure and related services market comprises a broad range of different products, from the hardware components of networks used by network operators to software solutions supporting the efficient interaction of them as well as services to plan, implement, run and upgrade mobile operators’ networks. The fundamental driver of demand in the mobile infrastructure and related services market is the ever-growing need for greater bandwidth and capacity. Bandwidth requirements are rapidly expanding as markets transition to data-rich websites and video-based and other web applications become more commonly deployed, and as market penetration of data intensive devices such as smartphones and tablets increases.
Segment Overview
Through Networks (formerly NSN), Nokia is a leading global provider of telecommunications infrastructure that focuses on the mobile broadband market. We believe we are the third largest company worldwide by revenue in our target market. We have a strong position in the newer infrastructure technologies of 3G and 4G (LTE). In 3G, we are the industry leader by customers served, with more than a billion subscribers connected through our 3G networks. In LTE, we had 117 commercial contracts at the end of 2013.
Networks is the former NSN business, which began operations on April 1, 2007, combining the networks business of Nokia Corporation and the carrier-related operations of Siemens AG for fixed and mobile networks. Since August 7, 2013, the business has been wholly owned by the Nokia Corporation and is now operating under the Nokia brand.
Networks continues to focus on mobile broadband. The company believes this market will continue to grow as mobile operators face the challenge of increasing demand for greater network capacity and improved user experience. At the same time, mobile operators are continually seeking ways to meet subscriber demands in a cost-effective manner. With a specialist approach to mobile broadband, targeted research and development, and a streamlined structure, Networks has positioned itself to enable operators to address these challenges.
The company has an installed base of around 600 customers worldwide and these operators serve over 4 billion subscribers. Networks’ customers include many of the world’s largest mobile operators, including Bharti Airtel, China Mobile, Deutsche Telekom, NTT DoCoMo, Softbank, Sprint, Telefónica, Verizon and Vodafone among them.
For the year ended December 31, 2013, Networks had net sales of EUR 11.3 billion and total assets of EUR 8.6 billion.
Strategy
Networks has identified the following key developments in its industry:
| • | Industry consolidation. In a market faced with flat to modest growth, possible operator consolidation and disruption of IT and telecommunications convergence, Networks believes operators’ choice of suppliers will lead to only a limited number of network infrastructure and |
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| related service vendors to be able to achieve or maintain the necessary scale in the future evolution of radio technology. |
| • | Entry of new players. The convergence of IT and telecommunications enables a shift of network intelligence from telecom-specific platforms to generic data centers using IT and IP hardware. While we believe this creates an opportunity for telecommunications vendors to provide cloud technology and network function virtualization, we believe that this also creates opportunities for both start-ups and established IT companies and may result in new participants entering into our industry. |
| • | Mobile data traffic growth. The exponential growth in mobile data traffic continues. Networks currently predicts that worldwide mobile data traffic can be approximately 1 000 times that of 2010 before the year 2020. |
| • | Mixed radio technology environment. Mobile networks have four generations of co-existing radio technologies supporting billions of connected devices. The operators need to manage the complexity of multiple radio technologies, and modernize their networks in a flexible and efficient manner to cope with evolving technological requirements while optimizing their capital investments. Innovations like self-organizing networks and Single RAN will help to manage multiple technologies. |
| • | Declining operator revenue growth. Operators’ revenues from traditional mobile voice and text messaging continue to decline, as subscribers adopt over-the-top applications for voice and messaging, while the revenue growth from the data traffic appears to not be sufficient to maintain the past growth rates of the operators’ overall revenues. |
| • | Network sharing and operator consolidation. Network sharing presents opportunities for operators to achieve scale and efficiencies, improve customer experience, and improve their profitability, along with addressing operators’ needs for radio frequency spectrum for their telecommunication networks, and may further facilitate possible operator consolidation. |
| • | Utilization of spectrum assets and re-farming. Operators are increasingly allocating data services to more efficient bands of radio frequency spectrum, sharing radio spectrum and re-using free GSM frequencies to support 3G and 4G rollouts. |
| • | Spectrum availability. Frequency spectrum is a limited and expensive resource that is essential to an operator’s ability to address the fast pace of mobile data traffic growth. |
| • | Telco cloud and virtualization. Cloud technology and virtualization of core network can be deployed to provide solutions quickly and cost-efficiently as IT and IP hardware commoditize and transform to more software-driven solutions. |
| • | From data analytics to cognitive networks. By using cognitive (self-aware) telecommunications networks, operators can ensure their infrastructure is able to automatically adapt to rapidly changing requirements on their networks. |
Networks’ strategy announced in 2011 is built around focus, quality and innovation. To address the industry developments identified above, we have evolved this strategy around three areas: 1) end-to-end mobile broadband leadership, 2) services growth, and 3) quality and execution. Overlying these areas we have defined three enablers of its strategy: innovation, automation and partnering.
| 1) | End-to-end Mobile Broadband Leadership |
Networks continues to focus on its current Radio and Core businesses, as well as plans to address new areas within mobile broadband for further growth. In the Radio business, we are focused on strengthening the company’s position in SingleRAN technology, which allows the same hardware platform to be used for different generations of radio technology, and using it to develop an improved
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position in the LTE market. Further, we believe small cells, which are targeted on a smaller geographical area and a fewer number of users, represent an area of significant opportunity for the future and that we have a competitive advantage with its microcells and picocells which are estimated to be the smallest in the industry and are also uniquely able to provide feature parity with larger macro cells. In the Core business, we estimate it has taken an early lead in the effort of providing a fully virtualized Liquid Core, as well as positioning itself well with respect to the emerging telco cloud through its already existing commercial solutions.
| 2) | Services Growth |
During the recent transformation of the company, we rebalanced our Global Services business unit by adjusting the services portfolio, exiting from certain unprofitable customer deals and focusing its attention on the business and geographic areas in which we can add the most value for our customers. In its refreshed services strategy, we have placed increased focus on the revenues of Global Services by concentrating on three priority areas:
| • | Pursuing services-led growth opportunities, particularly in the Network Optimization and Managed Services businesses. We are developing new services and business models, for instance for telco cloud. |
| • | Capitalizing on the volume of the Mobile Broadband business unit to increase the attached Network Implementation and Systems Integration services. |
| • | Improving the operational excellence of Global Services; optimizing both end-to-end delivery of services and the day-to-day running of networks through Care services. |
| 3) | Quality and Execution |
We plan to make quality a competitive differentiator for Networks and believe that the importance of end-to-end quality is increasing in the telecommunications industry, while the complexity and cost of delivering it are rising as well. The intolerance of lapses in service from mobile broadband subscribers and operators means that quality improvements have a direct impact on the reputation and success of network suppliers. We aim to meet these quality requirements proactively to ensure that mobile operators can provide their customers with an excellent end-user experience. We are also focusing on continuously improving efficiency in all operations.
Innovation
We employ a strategy of customer-focused innovation, which aims to deliver a better return on investment for its customers than pure technology research, and to direct resources and attention to specific challenges faced by operators.
We have one of the largest research and development commitments in the telecommunications industry with total expenditures of EUR 1.8 billion in 2013. The efforts of our R&D teams result in a stream of continuous improvement, technology breakthroughs and industry awards.
For example, the company’s Flexi Multiradio base stations have, since their first shipment in 2008, been shipped to close to 300 customers. New generations of the product are continuously in development and launch, such as the launch of our new Flexi Zone LTE microcell and picocell base stations in November 2013.
We also focus on innovation in the area of customer experience management (CEM) which involves various tools that help operators to better meet their subscribers’ demands and monetize their network investments.
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With a portfolio of almost 4 000 patent families, Networks is a significant holder of intellectual property rights (please also see the section “Research and Development” below).
Partnering
We aim to leverage the broader IT and telecommunications ecosystem with an increased focus on partnerships, ranging from largely standardized areas of transport, packet networks and IT hardware, to core virtualization, network security, Liquid Applications and specialized services.
Automation
We have leveraged automation in areas such as Global Delivery and R&D Centers, making considerable progress in efficiency and profitability. We now plan to extend the automation focus to other areas, aiming to improve efficiency and gain more time for value-added work dedicated to improving our offerings for customers.
Networks Business Overview in 2013
During 2013, Networks made progress in a number of areas relative to its strategy, including the following:
| • | We won LTE contracts for China Mobile’s and China Telecom’s nationwide TD-LTE networks; with Chunghwa Telecom in Taiwan; Celcom in Malaysia; Sprint in the United States; US Cellular’s second wave of LTE services; with TIM Brasil and Oi Brasil; Movistar and Claro in Chile; MTS in the Moscow and Central Russia regions; SFR in Paris; Tele2 in the Netherland; Vodafone in New Zealand, and Ooredoo in Qatar. |
| • | We continued to stay at the forefront of mobile broadband, further enhancing its Radio Base Station Smart Scheduler and launching a powerful TD-LTE Base Station radio module; and introducing new (FlexiZone) microcell and picocell base stations. |
| • | Networks and China Mobile enabled the world’s first live TV broadcast via TD-LTE; Networks and the Singapore-based operator StarHub completed Southeast Asia’s first 3GPP standard Voice over LTE call in a live network; Networks and Panasonic Mobile Communications were selected by NTT DOCOMO in Japan to develop LTE-Advanced next-generation mobile broadband network architecture; Networks also helped all three major Korean operators—SK Telecom, LG U+ and Korea Telecom—to become the world’s first operators to launch LTE-Advanced services commercially. |
| • | Networks and SK Telecom of South Korea completed the world’s first proof-of-concept of Liquid Applications over LTE, and Networks successfully demonstrated its telco cloud capabilities in a joint proof-of-concept for Evolved Packet Core (EPC) virtualization with SK Telecom. |
| • | The Lebanese telecommunications operator, touch, chose our operations support systems (OSS) portfolio and related integration services; Zain Kuwait deployed our Customer Experience Management (CEM) solution, and our CEM contract with Beijing Mobile was extended. |
| • | We announced research co-operation with China Mobile Research Institute; made a multi-year commitment to 5G research activities together with the NYU WIRELESS research center; and announced its participation as a founding member in the 5G public-private partnership between the European Union and 5G PPP Association. |
| • | In June 2013, ABI Research ranked us as number one in its macro base station vendor competitive assessment; and industry analyst firm Gartner positioned us in the ‘Leaders’ quadrant of the Magic Quadrant for LTE Network Infrastructure, for the second consecutive year. |
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Restructuring
In November 2011, NSN (now Networks) announced its strategy to focus on mobile broadband and services. It also announced an extensive global restructuring program, targeting the reduction of its annualized operating expenses and production overhead, excluding special items and purchase price accounting related items, by EUR 1 billion by the end of 2013, compared to the end of 2011. In January 2013, this target was raised to EUR 1.5 billion, and in July 2013 this target was further raised to “more than EUR 1.5 billion”. While these savings were expected to come largely from organizational streamlining, the program also targeted areas such as real estate, information technology, product and service procurement costs, overall general and administrative expenses, and a significant reduction of suppliers in order to further lower costs and improve quality. By the end of 2013, the business had achieved this target.
Non-core Businesses, Divestments and Portfolio Management
As part of its strategy of focusing on mobile broadband, Networks has divested a number of businesses not in line with company direction. In 2013, Networks completed the divestment of its Optical Network business to Marlin Equity Partners, and the divestment of the Business Support Systems operations to Redknee. This was in addition to the five transactions closed in the course of 2012, including the divestments of the microwave transport business, former Motorola Solutions’ WiMAX business, fixed-line broadband access business, Belgacom-related IPTV assets and NSN’s proprietary broadband business, Expedience.
Organization
Networks has two business units: Mobile Broadband and Global Services. The Mobile Broadband business unit provides flexible and adaptable network solutions for mobile voice and data services through its Radio and Core businesses. The Radio business covers all generations of the technology: GSM, CDMA, WCDMA, and LTE. The Core product portfolio includes a comprehensive mobile switching portfolio and voice and packet core solutions as well as smartphone-friendly “Liquid” software providing a high level of network capacity and performance. Additionally, Mobile Broadband’s expertise in customer experience management, virtualization and software-rich solutions helps operators to deal with the new technology trends such as cloud computing, big data, multimedia content, special events, and security.
The Global Services business unit provides mobile operators with a broad range of services. Network Implementation includes services needed to build, expand or modernize a communications network efficiently. Customer Care includes software and hardware maintenance as well as competence development services. Within the Managed Services business, Networks takes the responsibility for running a range of services for operators, from network operations to service operations, which enables operators to manage service life-cycles efficiently and enhance their customers’ experience. The Network Planning and Optimization business offers network assessment and capacity and configuration planning. Our Systems Integration capabilities ensure that all the elements of a new mobile broadband solution seamlessly bring together new and legacy technologies. We use global and local services experts and centralized tools and architecture at two Global Delivery Centers and five Global Service Delivery hubs around the world. These delivery centers, which deliver a growing proportion of our services, consolidate a range of service solutions into one location to provide greater efficiency for customers.
Sales and Marketing
Our direct sales force or sales support teams are active in approximately 120 countries. They help to ensure that we are close to our customers, both physically and in terms of understanding the local market, and helps us develop stable customer relationships.
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In 2013, our country operations were grouped into three main geographical markets: Asia, Middle East and Africa; Europe and Latin America; and North America. These three markets further divide into regions containing our sales and delivery teams, which benefit from a close relationship with mobile operators in their countries. Our operating approach in the various regions and countries is tailored according to the requirements of the countries and their respective operator customers.
Our Asia, Middle East and Africa (AMEA) Market spans an expansive and varied geographical scope—ranging from advanced telecommunications markets, such as Japan and Korea, to developing markets, such Bangladesh, India, Kenya and Vietnam. We have strong mobile broadband momentum in the AMEA market, including Saudi Arabia, China, Japan, Korea, Indonesia, and Australia and works with the leading operators in this market, such as Vodafone, China Mobile, China Unicom, China Telecom, SoftBank, KDDI, NTT DoCoMo, KT, SKT, Telkomsel, Bharti Airtel, Etisalat, Ooredoo, STC and, and Zain. The AMEA market has one Global Delivery Center in India.
Our Europe and Latin America (ELAT) Market is further divided into the regions of Europe and Latin America. The European region includes our headquarters in Finland and the Global Delivery Center in Portugal. In Europe, we work with all the region’s major operators, including Orange, Vodafone Group, Deutsche Telekom, MTS Sistema, MegaFon, TeliaSonera and WIND, serving hundreds of millions of customers. Operators like Telefónica, TIM and Portugal Telecom are present in both Europe and Latin America, on a very large scale. We also have extensive R&D expertise in Europe, including some of its largest technology centers working on future mobile broadband technologies. In Latin America, we work with all major operators, including Oi, TIM, Telefónica, América Móvil, Telecom Personal, Nuevatel and Avantel. We believe that the mobile broadband market in Latin America has high potential, as the majority of mobile devices are not yet 3G capable.
Our North America (NAM) Market comprises operations in the United States and Canada. Teams across the region work with 8 of the top 10 North American mobile operators, as well as local operators, key cable companies, and government entities. With strong demand for advanced services driven by growth in the smartphone market, 4G LTE has been strongly embraced by all major NAM operators. These operators have invested in an attempt to provide the best in coverage and speed to grow their market share. We believe our major LTE contract with T-Mobile USA, the new TD-LTE contract with Sprint, and the IP multimedia subsystem (IMS) solution with Verizon have positioned our mobile operator customers well to compete in this competitive market. We also have the “Innovation Lab”, which is our flagship mobile broadband testing and development facility located in Silicon Valley. We estimate that North America was one of the fastest growing markets in 2013, delivering strong net sales growth for us in 2013 both in terms of products and services.
Networks’ Marketing and Corporate Affairs organization is responsible for developing, executing and measuring corporate strategies, plans and budgets for marketing, communications, government relations, health and safety, and security. The organization drives product launches and sales enablement, manages corporate reputation, and oversees the health and safety and security of employees and contractors. Following the announcement by Nokia of its new strategy, it is also charged with raising the visibility of the Nokia brand and positioning the company as a leader in the telecommunications industry, as well as, more broadly, a technology leader in a world where everyone and everything is connected.
Production of Infrastructure Equipment and Products
Networks’ Operations unit handles the supply chain management of all of the business’s hardware, software and original equipment manufacturer products. This includes supply planning, manufacturing, distribution, procurement, logistics, supply network design and delivery capability creation in product programs.
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As of December 31, 2013, Networks had seven manufacturing facilities worldwide: four in China (Beijing, Shanghai, Tianjin and Suzhou), one in Finland (Oulu), one in India (Chennai) and one in Russia (Tomsk).
Certain components and sub-assemblies for products, such as company specific integrated circuits and radio frequency components, are sourced and manufactured by third-party suppliers. We then assembles these components and sub-assemblies into final products and solutions. For selected products and solutions, suppliers deliver goods directly to customers. Consistent with industry practice, we manufacture telecommunications systems on a contract-by-contract basis.
Research and Development
Networks has ten Global Technology Centers with specific technology and competence profiles in China, Finland, Germany, Hungary, India, Poland and the United States.
Networks’ research and development (R&D) activities and product portfolio are software-driven, and the majority of R&D resources are dedicated to software development. The R&D organization is designed to have a flat structure to encourage process discipline, and at the same time increased R&D automation is implemented for improved efficiency. We focus on creating a strong partner ecosystem and effective management of portfolio decision-making for its partners and suppliers and their products. The Mobile Broadband business unit conducts R&D internally as well as with external partners when additional capacity or expertise is required.
Through Networks, Nokia is one of the largest investors in R&D in the telecommunications industry, with total expenditures of EUR 1.8 billion in 2013, and with approximately 16 000 R&D personnel, at the end of 2013. These R&D capabilities are designed to give us the ability to keep up with the pace of change in the telecommunications sector, where the products and their development needs to be faster, more intelligent, more efficient, interconnected, context-aware and adaptive, driven by an evolving device landscape and exponential data traffic growth.
We believe that the geographical diversity of its R&D network is an important competitive advantage for Networks. In addition, the ecosystem around each of its R&D sites helps it connect with experts worldwide, complemented by cooperation with universities and other research facilities.
In recent years, we have increased our R&D efficiency and scale by aligning resources with its focus on the mobile broadband and related services market. Since the end of 2008, we have more than doubled its development capacity in terms of research hours in next generation radio and core, such as LTE, small cells, IMS/Voice over LTE, evolved packet core and customer experience management, while reducing capacity by more than 50% on more mature technologies such as GSM and CDMA.
Networks’ Technology & Innovation unit complements the R&D organization by focusing on developing and implementing cutting-edge technologies that are several years more advanced than other technologies currently in the market. Technology & Innovation also has responsibility for research, standardization, intellectual property rights and innovation. The unit cooperates with universities, research institutes, leading industry partners and other industry cooperation bodies worldwide.
Patents and Licenses
Intellectual property assets are fundamental to Networks and its business units. We believe Networks is an industry leader in the research and development of wireless, broadband and transport technologies, and has a robust patent portfolio in a broad range of technology areas. Networks seeks to safeguard its investments in technology through appropriate IPR protections and it has generated and maintained an extensive portfolio of patents covering significant innovations arising from its
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research and development activities since the business’s formation, including patents, design patents, trade secrets, trademark registrations, and copyrights. Additionally, where deemed necessary, Networks obtains licenses to use standards-essential and other patents in its hardware and software solutions for both fixed and mobile network infrastructure.
Networks owns a large portfolio of almost 4 000 patent families comprising of approximately 11 000 individual patents and patent applications across an array of technologies, some of which were transferred from Nokia and Siemens upon the formation of the business as NSN in 2007.
Networks’ IPR portfolio includes high-quality standard-essential patents (SEPs) and patent applications which have been declared to ETSI and other SDOs as essential to LTE, WCDMA, TD-SCDMA, WIMAX, GSM, CDMA2000 and other standards. In addition, Networks holds copyright registrations relating to certain aspects of its products and services.
Networks receives and pays patent license royalties in the ordinary course of its business based on existing agreements with telecommunications vendors. The company has in place a number of patent license agreements with other major companies and patent holders, both directly and through Nokia, that afford it freedom to operate without risk of infringing standard-essential patents owned by such entities.
Competition
Conditions in the market for mobile network infrastructure and related services continued to be intensely competitive during 2013. With a relatively flat market, competition was intense, most notably around growth areas such as 4G (LTE).
Industry participants have changed significantly in recent years. Substantial industry consolidation occurred in 2006 and 2007 with the emergence of three major European vendors: Alcatel-Lucent, Ericsson, and the then Nokia Siemens Networks. In November 2009, Ericsson acquired Nortel’s CDMA and LTE business and, in April 2011, NSN acquired the majority of Motorola Solutions’ wireless network assets.
During this period, the market also saw the rise of Huawei and ZTE, both of which have gained market share by leveraging their low-cost advantage in tenders for customer contracts. In recent years, the technological capabilities of these vendors, particularly Huawei, have improved significantly, resulting in competition not only on price but also on quality. In 2013, Huawei continued to grow its market share albeit at a slower pace than in previous years, further challenging European vendors. In 2012 and 2013, competition emerged from Samsung Electronics, which expanded its network infrastructure business out of its domestic Korean market with limited gains in Europe and the United States.
At present, we consider five companies—Ericsson, Alcatel-Lucent, Huawei, ZTE and Samsung Electronics—to be our main competitors as major network infrastructure providers. We also competes with Cisco Systems, Oracle and NEC.
In 2013, the overall telecommunications infrastructure market was flat in terms of capital expenditure, mainly attributable to increased investment by operators in Japan, Asia Pacific and North America being off-set by declines in Europe.
The continued decline of legacy technologies such as 2G (GSM) and CDMA that was experienced in 2012 continued during 2013. After reasonable growth in 2011, the 3G radio market declined in 2012, and the decline has accelerated during 2013. This decline has been off-set by the growth in 4G (LTE), which has emerged as a fast-growing commercial technology in markets outside the early adopting United States, and especially in Asia.
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Within the 4G market, leading vendors are competing based on factors such as technology innovation, network topology and simplified network architectures, as well as network quality and network virtualization. Competition in legacy radio technologies remains intense as deployments of single Radio Access Network technology are viewed as a critical entry point for networks, particularly by vendors looking to win share in new markets. This was particularly intense in 2011, but has showed some signs of easing during last two years.
In services, which remained a growth area in the industry, our business is increasingly tied directly to the mobile broadband product business, in particular in areas such as Care and Network Implementation. As a result, pricing, efficiency and roll-out capabilities are competitive drivers. The development of its global service delivery capability, which allows us to perform more tasks remotely using standardized tools and processes, is increasingly important. Competition in services is from both traditional network providers such as Ericsson, Alcatel-Lucent and Huawei, as well as non-traditional telecommunications entities and system integrators, such as Accenture and IBM. In addition to these companies, there are also local service companies competing, which have a narrower scope in terms of served regions and business areas. In 2013, Alcatel-Lucent and Networks scaled back their activities in the lower profitability areas of services such as field maintenance and some managed networks operations.
Certain of our competitors may receive governmental support allowing them to offer products and services at substantially lower prices. In some regions, restricted access to capital continues to cause mobile operators to reduce capital expenditure and creates demand for vendor financing. Certain of our competitors may have stronger customer financing options due to internal policies or government support.
HERE
Market Overview
The market for location services has undergone significant change in recent years. Access to location services has broadened from personal navigation devices (PNDs)—such as those in cars—to multiple devices and screens, including smartphones. Location is now a key aspect of the mobile and web experience, whether it is to seek live subway departures, check restaurant ratings, share location-tagged images on social networks, or track pending online deliveries.
The industry is also delivering location experiences in a different way. Until recently, static maps tended to be provided on disc or pre-installed on a device, whereas today users are increasingly being delivered content and services over the Internet in real time thanks to cloud-based technologies. Cloud-based location services hold the potential to transform the lives of many people and industries. Companies in the automotive, enterprise, mobile and broader consumer electronics industries are already making considerable investments in and around location services, and location will be a critical element in, for example, the areas of wearable computing, augmented reality, personal activity tracking, connected cars, and autonomous driving.
Segment Overview
HERE is the leading company in the location intelligence business, delivering highly precise and up-to-date maps, a location platform, and location experiences across multiple screens and operating systems. Built on more than 25 years of experience in cartography and drawing on more than 80 000 sources of data, we offer maps for more than 190 countries, voice guided navigation in 95 countries in more than 50 languages and live traffic information for 34 countries. We believe our map is the best digital representation of the real world in terms of accuracy, coverage, richness and freshness. More than 3 000 geographic analysts around the world maintain and improve the quality of the core map. Altogether, HERE employs approximately 6 500 people, with its major development sites in Berlin in Germany and Chicago, Boston and Sunnyvale in the United States.
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HERE’s customer base includes many of the world’s leading companies from the automotive, commerce, mobile, Internet and consumer electronics industries. Customers can license map content, our location platform, specific location services or all or parts of the HERE offering. The platform is device and operating system-agnostic and includes functionalities such as routing, traffic and positioning, a digital 3D reference model of the world, the development tools with which customers can create their own experiences on top of our map, and the analytical tools to make sense of location-based data. The flexibility in being able to choose all or specific parts of HERE’s offering enables us to serve a broad range of customers with different business models and needs.
Nokia launched HERE as a brand in 2012, prior to which it was already an established business operating under the Nokia name. The business has developed organically and through acquisitions, the most significant of which were location software provider Gate5 in 2006, digital mapping provider NAVTEQ in 2008, and data capture company earthmine in 2012.
Since 2006—the year in which Nokia was also the first company to launch a mobile phone with in-built GPS—we have been driving fundamental changes to our map. Chiefly, we have developed our map from a static, two-dimensional form akin to a digital version of a paper map to a dynamic, three-dimensional digital representation of the world rich in real time and contextually-relevant information drawn from both real-world and digital sources.
In recent years, amid advances in wireless connectivity and a growing need for ever-more-relevant data, we have also been driving a fundamental change to the way we build and deliver map and location data. Increasingly, our location experiences are powered by our location cloud, which processes and delivers data to smartphones, tablets, in-car navigation systems and other devices over the cloud in real time, reducing the need for those devices to do any heavy computing themselves.
We already aggregate data related to parking, gas prices, traffic, weather and more, and see further opportunities in a world where billions of devices, including phones, tablets and cars, are connected. Accordingly, we are investing in technologies and analytics capabilities to ensure our location cloud can harness the collective power of the data those devices generate to deliver real-time, predictive and relevant information to every individual user. We believe the next generation map has to be fresh, predictive and very rich.
The automotive market is a clear growth area for us. More and more cars will be connected to the cloud, which will drive an increase of data and services in areas such as traffic, predictive driver behavior, driver safety and autonomous driving, all of which are areas in which we are investing. In addition to the automotive industry, we invest in and target growth opportunities to offer our services to Internet companies and to companies operating in the consumer electronic industry.
HERE Business Overview in 2013
In 2013 HERE made significant progress towards our goal of becoming the leading location cloud business with the introduction of new, innovative products as well as updates to its signature experiences, a number of new partnerships that demonstrate that HERE is the preferred partner across industries for maps and location-based technology, and through further extending its reach across a number of operating systems.
| • | HERE announced a complete Connected Driving offer, including HERE Auto, HERE Auto Cloud and HERE Auto Companion. It is the only end-to-end driving solution on the market today, which will help car makers and in-vehicle technology suppliers connect the car to the cloud. |
| • | HERE radically improved its traffic product, HERE Traffic, by building a new system and engine that processes data even faster and more accurately than before. |
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| • | Continental Corporation implemented 3D content from HERE in its new entertainment platform. Automotive manufacturers can expand their location-based applications to include rich 3D landmarks, satellite imagery with split screen and current traffic information. This also will advance the multi-modal transportation concept another step by providing drivers the ability to synch their route profiles across in-dash systems in their vehicles and their smartphone, tablet or PC. |
| • | Garmin continued to put their trust in HERE across the globe by adopting Natural Guidance in North America and Europe, changing the way people provide directions to each other. This includes leveraging local knowledge and market research to incorporate local nuances for choosing and describing reference cues such as the color of a building or the name of a restaurant. |
| • | HERE teamed up with Mercedes-Benz to jointly develop smart maps for connected cars and ultimately, self-driving cars leveraging cloud technology. |
| • | The embedded navigation systems of more than 10 million new cars sold in 2013 are powered by maps from HERE. This milestone underlines the leadership of HERE in providing navigation and mapping solutions for the automotive industry. |
| • | HERE continued to strengthen its popular and critically acclaimed suite of integrated location experiences on Windows Phone with a number of updates throughout the year and further strengthened the Windows Phone 8 ecosystem by making the suite available for all Windows Phone 8 devices. |
Sales and Marketing
HERE’s core business has been licensing content and platform technologies and today it has agreements with most of the world’s leading automotive brands, as well as many Internet and technology companies including Amazon, Microsoft and Yahoo.
Research & Development
HERE is an R&D-intensive business. The team is focused on building and enriching our core map as well as developing the platform and cloud technologies with which we can ensure the effective delivery of the map and location services to our customers irrespective of the device they use.
HERE collects data in over 200 field offices, across 56 countries. We have hundreds of cars driving the roads every day. Our most advanced vehicles capture 700 000 data points per second with their 360-degree cameras and LiDAR. As a result, our large data factories make 2.7 million changes to the map every single day.
In addition to collecting data with our own fleet of cars, we aggregate data from another 80 000 sources, including but not limited to parking, gas price, traffic, weather and points of interest (POI) data. To maintain the freshest maps, we compile, test and publish them continuously. From usage, we collect billions of data points to train our real-time traffic, routing and search engines.
Our longer-term R&D efforts are focused on the development of software and data analytical capabilities that would support our plan to convert behavioral data into such data which can serve as a basis for location services that are more predictive.
Competition
Historically, the market for mapping data has been structured like many other content-centric service businesses with just a few leading suppliers delivering map data to fragmented end markets. Today, HERE and Google Maps are the largest suppliers, followed by TomTom.
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In contrast to HERE, which has a licensing model for its map data and platform, Google uses an advertising-based model allowing consumers and businesses to use its map data and related services free of charge. Google has continued to leverage Google Maps as a differentiator for Android, bringing certain new features and functionalities to the platform.
TomTom licenses map data to Apple, which offers its own mapping service. Apple, which has sought to strengthen its location assets and capabilities through targeted acquisitions and organic growth, offers its maps through iOS, the operating system that powers its range of iPhones and iPads. Apple’s map offering has displaced Google Maps, which had been pre-loaded on iOS for many years following the iPhone’s launch in 2007, although a native iOS application from Google Maps is available to iPhone users via download. TomTom also licenses its map data to other companies in different industries.
While content remains hugely important, HERE has been increasing its focus on platform technologies which can power up-to-date and predictive maps more tailored to the individual user and we believe that in this regard the only competitive platform to ours is that of Google. Google’s focus is on visuals and search, while HERE has historically been focused on the automotive industry. Our platform is seen as the benchmark in the automotive space and the business is making rapid progress in the mobile space with significant investments into visuals, including the earthmine acquisition in 2012.
We believe that economies of scale and scope in the mapping services industry favor players that are able to provide end-to-end hardware-agnostic solutions which include proprietary content, platform technologies and applications. In this sense, we believe the mapping industry will continue to transition away from pure content-based business models towards cloud-based solutions.
TECHNOLOGIES
Market Overview
Technologies aims to be a leader in technology development and licensing, building on several of Nokia’s Chief Technology Office (CTO) and intellectual property rights activities. Prior to the sale of substantially all of our Devices & Business to Microsoft, Nokia’s CTO focused primarily on developing innovations in the mobile devices market. In particular, much of its work aimed at bringing new technologies and features to our own range of mobile devices to help make them differentiated from competitors’ offerings. Today, as part of our newly formed business, Technologies, the research agenda of our engineers, scientists and researchers is shifting to address opportunities in a broader market that both encompasses and goes beyond mobile devices. We see a world where hundreds of billions of devices—large, small and miniscule—will connect to form intelligent systems, and we see significant potential for our own technologies in that world.
Segment Overview
Technologies develops technologies which it believes will be important in the “programmable world”. We seek to create value from our investments by helping other companies and organizations benefit from our innovations through our established and successful licensing business. Additionally, we are also exploring the possibility of utilizing new technologies in our own future products and services.
We formed Technologies upon the closing of the transaction to sell substantially all of our Devices & Services business to Microsoft. The business combines a leading team from our Chief Technology Office with our world-class Intellectual Property Rights activities which have developed on the back of Nokia having invested cumulatively more than EUR 50 billion in research and development over the last two decades. Previously working closely with our Devices & Services business, the personnel which form our Advanced Technologies business solve problems in project-specific teams in addition
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to working closely with leading universities and technology partners around the world. Our primary technology development centers are in Espoo and Tampere in Finland and California in the United States. The majority of our IPR team is based in Finland.
Innovations from our Technologies business have created and shaped fundamental technologies used in all mobile products and in multiple wireless communications technologies today. We are continuing to build on that heritage to drive further innovations, with a focus on connectivity, sensing and material technologies, as well as imaging, web and cloud technologies.
We manage a portfolio with approximately 10 000 patent families comprising of around 30 000 individual patents and patent applications. In industry terms, our portfolio is relatively young: in ten years from now, two-thirds of our current patents will continue to be in force.
Sales and Marketing
While a new business, Technologies already has significant ongoing research and development activities and an established licensing program. We manage our intellectual property as a technology asset and seek a return on investment by making the innovation available to the markets through different licensing activities and transactions. We have more than 60 licensees, mainly for Nokia standard-essential patents.
We see further opportunities in licensing our proprietary technologies, intellectual property and brand assets into telecommunications and adjacent industries. Over the last ten years, we have also systematically licensed certain Nokia proprietary technologies, which we have decided not to reserve solely for our internal use. This has enabled numerous companies and businesses to benefit from Nokia innovation, in areas such as connectivity and imaging.
Research & Development
Technologies has advanced research and development activities, in countries including Finland, the United States, and the United Kingdom. We also collaborate in open innovation with universities and research institutes around the world.
The applied nature of our R&D in Advanced Technologies has resulted in the team making various relevant and valuable inventions both in and around the technologies that we believe will be important in the programmable world as well as emerging consumer experiences. In recent years, the team has contributed more than half of the new patent filings in Nokia, and has been particularly strong in, for example, 3G and 4G patents, codecs and imaging.
We hold several central roles in standardization bodies and we contribute to the standardization work by filing technical proposals, which when found relevant are often accepted and embodied in standards. In addition, we develop reference implementations while defining the standards, which result in significant innovations which cover proprietary ways to implement relevant technologies.
Our achievements Technologies in recent years include:
| • | Nokia being among the founders of several local connectivity technologies such as Bluetooth, Bluetooth low energy, and NFC. |
| • | Nokia leading the way in introducing multiple sensor technologies into mobile devices, such as audio, imaging, positioning, motion and touch. |
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| • | Nokia being among the first to deploy web based applications in mobile devices. Nokia continues to invent ways to build software for the emerging multi-device cloud. |
| • | Nokia’s development of 3G and 4G technologies. Nokia’s intellectual property in this area is widely recognized as being highly relevant for mobile devices for the foreseeable future. |
| • | In recent years, we have reached several important patent license agreements. For example, we announced in November 2013 that Samsung had extended a patent license agreement between Nokia and Samsung for five years. The agreement would have expired at the end of 2013. According to the agreement, Samsung will pay additional compensation to us for the period commencing from January 1, 2014 onwards, and the amount of such compensation will be finally settled in a binding arbitration, which is expected to be concluded during 2015. |
| • | Nokia’s CTO unit, which our Advanced Technologies business is built on, continued advanced research and development of sensing and materials technologies, including Nokia Research Center’s efforts as a founder partner and board member of the European Union’s Graphene Flagship, the EU’s biggest research initiative ever. During 2013, NRC’s Cambridge lab in the UK demonstrated one potential for graphene, creating an ultra-thin, transparent, flexible humidity sensor capable of unprecedented response times. The sensor’s fast performance and physical properties make possible a wide range of exciting future applications. |
Competition
During 2013, Technologies revenue came from intellectual property income. The majority of the IP income was from licensing our standards essential patents. We are a leading innovator in key cellular standards, as well as wireless LAN, NFC and various audio, speech and video codecs, and we believe the licensing of essential patents will continue to be a strength for us.
Of our current IP portfolio, approximately one-third is related to radio communications, one-third to software and services, and one-third to product technologies. As we expand our successful licensing program to cover patents which have not been broadly licensed to date, as well as proprietary technologies and other intellectual property, we could face competition from alternate technologies or solutions. However, it is too early to anticipate which of these may be significant in future.
DISCONTINUED OPERATIONS
Devices & Services Operations Sold to Microsoft
Market Overview
Since the early 1990s, mobile telecommunications penetration has grown rapidly and today billions of people own a mobile device. Over the same period, what people can do with their mobile device has also undergone fundamental change. With early models enabling voice calls and text messaging, the mobile phone has developed into a powerful computing and Internet device with which we take photographs, listen to music, watch television and movies, play games, navigate, bank, shop and more. Supported by new-generation mobile networks, the mobile phone or smartphone—together with their larger-screened “phablet” and “tablet” offshoots—are today the primary interfaces through which we access and consume web and cloud services.
In recent years, success for participants in the mobile devices market has been influenced by their ability to build, catalyze or be part of a competitive “ecosystem”, examples of which include those based around the Google Android, Apple iOS, Microsoft Windows and BlackBerry software platforms. A vibrant ecosystem creates value for consumers, giving them access to a rich and broad range of user experiences through an array of different form factors and screen sizes, such as smartphones, tablets, televisions, desktop computers and games consoles. Each based on software platforms with
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different technologies, the leading ecosystems have enjoyed differing degrees of success in attracting the resources of developers and other industry participants such as hardware manufacturers, software providers, publishers, entertainment providers, and advertisers. Consequently, they have also enjoyed differing degrees of success in attracting consumers.
Segment Overview
With the closing of the Sale of the D&S Business to Microsoft in April 2014, Nokia has exited the business of selling mobile devices. Prior to the sale, Nokia created products for virtually every demographic and every geography worldwide, with sales in more than 160 countries. Through 2013, the Devices & Services business comprised of two business units: Mobile Phones, which focused on the area of mass market entry and feature phones as well as affordable smartphones; and Smart Devices, which focused on our most advanced products, including smartphones powered by the Windows Phone operating system.
Mobile Phones
During 2013, our Mobile Phones unit, which was acquired by Microsoft in its entirety, shipped more than 200 million mobile devices. The unit developed ultra-low cost phones, feature phones and affordable smartphones, with most models running the Nokia Asha software platform and the Series 30+ operating system. In early 2014, the unit also introduced its first affordable smartphones based on the Nokia X software platform, which offers access to Android applications. Our major Mobile Phones development sites were in Beijing in China and Oulu in Finland.
The strategy of our Mobile Phones unit focused on leveraging the company’s innovation and strength in growth markets to provide people with an affordable Internet experience on their mobile device. Our most affordable products were targeted at consumers for whom durability, good battery life and price are most important. Mobile Phones also produced a range of affordable smartphones whose hardware, software and services are optimized for—and not compromised by—low price points.
As part of Nokia’s transaction with Microsoft, Microsoft has licensed for a limited time the Nokia brand for use with certain products from the Mobile Phones unit as well as acquired the Asha brand under which Nokia marketed some of its Mobile Phones products.
Smart Devices
Our Smart Devices unit, which was acquired by Microsoft in its entirety, developed smartphones based on Microsoft’s Windows Phone operating system. In October 2013, the unit also introduced its first tablet device. Our major Smart Devices development sites were in Beijing in China, San Diego in the United States and in Salo, Tampere and Greater Helsinki in Finland.
Nokia brought its first Windows Phone products—under the Lumia brand—to market in 2011, several months after entering into a strategic partnership with Microsoft that brought together our respective complementary assets and expertise to build a new global mobile ecosystem for smartphones. We then expanded the depth and breadth of our Lumia range, contributing to Windows Phone becoming the third-largest ecosystem system globally during 2013. As part of Nokia’s transaction with Microsoft, Microsoft acquired the Lumia brand.
Sales and Marketing
We derived our net sales of mobile devices primarily from sales to mobile network operators and distributors, and to a lesser extent independent retailers, corporate customers and consumers. Our marketing efforts were aimed at creating consumer loyalty, enhancing the Nokia brand and increasing
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sales. In the marketing of our mobile devices, we focused on expanding awareness of the key points of differentiation in our products and services, such as the imaging capabilities of our high-end smartphones or the robust quality and long battery life of our most affordable feature phones. During 2013, we also continued to expand our digital marketing efforts, including engaging consumers through our own social media channels, including Nokia Conversations, which is among the most popular company blogs worldwide.
Production of Mobile Devices
In 2013 Nokia operated in a total of eight production facilities for the production and customization of mobile devices. The production facilities were in Manaus, Brazil; Beijing and Dongguan, China; Komárom, Hungary; Chennai, India; Reynosa, Mexico; Masan, Republic of Korea and Hanoi, Vietnam. We opened our Hanoi facility, which focused on producing Nokia’s most affordable Asha smartphones and feature phones, in 2013.
Competition
The mobile device industry has undergone radical changes since 2007, with new entrants and operating systems changing the competitive landscape, particularly in the area of smartphones.
In smartphones, our competitors have pursued a wide range of strategies. Apple, for example, deploys its proprietary iOS operating system on its popular iPhone smartphones and iPad tablets, while many other device manufacturers in the industry are utilizing Google’s Android operating system. Android, which is available to anyone without a software license cost, has made entry into and expansion in the smartphone market easier for a number of hardware manufacturers, especially at the mid-to-low price points of the smartphone market. Samsung has become by far the most successful vendor using Android, offering a broad portfolio of devices including high-end smartphones under the Galaxy series. Vendors such as HTC, LG, Google’s own Motorola, and Sony also have an Android-based offering, while Android has become a springboard to market for a number of Chinese vendors too. In particular, many have grown market share by developing affordable Android handsets with low-cost chipsets from MediaTek of China.
When deploying the Android operating system on a smartphone, vendors have an opportunity to join Google’s Open Handset Alliance (OHA), which then requires them to deploy Google-developed services on their products. Alternatively, vendors can choose not to join the OHA and instead use only the Android operating system made available through the Android open source project, meaning that they can offer their own services in place of those provided by Google. Xiaomi, which has also employed novel go-to-market strategies including selling phones in bulk online auctions, is among the Chinese vendors which have been most successful in building market share.
Generally, the increased availability of lower cost chips and components has seen fully-fledged smartphones become available at lower price points, with some models offered for sale for under EUR 75. Consequently, the market for traditional feature phones has narrowed in scope, though in practice the distinction between the feature and smartphone markets has also blurred since many feature phone models—including those from Nokia—offer a variety of smartphone functionalities. In Nokia’s case, the company offered affordable devices which combined basic smartphone features with important features such as long battery life, durability, and robustness. In this portion of the market, we competed with established vendors such as Samsung but also increasingly with certain vendors with manufacturing facilities primarily centered around certain locations in Asia and other emerging markets which produce inexpensive devices with oftentimes low quality and limited after-sales services.
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Seasonality—Networks, HERE and Technologies
For information on the seasonality of NSN, HERE and AT, see Item 5A. “Operating Results—Certain Other Factors—Seasonality.”
Sales in US Sanctioned Countries: Networks, HERE, Technologies and Discontinued Operations
General
We are a global company and have sales in most countries of the world. For more information on our organizational structure see Item 4A. “History and Development of the Company—Organizational Structure and Reportable Segments”. Cuba, Iran, Sudan and Syria are targets of comprehensive United States economic sanctions and the United States government has designated these countries as “state sponsors of terrorism”.
We cannot exclude the possibility that third parties acting independently from us have exported our products to countries from other countries in which we sell them. We also distribute certain services, through the Internet. In terms of these offerings, we have industry standard systems in place recognizing users’ IP addresses and, if applicable, block the access to our service offerings if they are not intended for a certain market or country. We cannot exclude the possibility that our services when distributed through the Internet, may be accessed in markets or countries which they are not intended for if the industry standard protective mechanisms, such as IP address blocks, are circumvented.
Continuing Operations
In 2013, we sold through our continuing operations, Networks, HERE and AT certain services and network equipment to customers in Iran, Sudan and Syria. Our continuing operations did not have any sales in Cuba in 2013, 2012 or 2011. Our aggregate net sales to customers in Iran, Sudan and Syria accounted for approximately 0.01% of Nokia’s continuing operations total net sales, or EUR 1 million, in 2013; 0.49% of Nokia’s continuing operations total net sales, or EUR 76 million, in 2012; and approximately 1.06%, or EUR 169 million, in 2011.
Discontinued Operations
In 2013, we sold mobile devices and services through our Discontinued Operations to customers in Iran, Sudan and Syria. Our Discontinued Operations did not have any sales in Cuba in 2013, 2012 or 2011. Our aggregate net sales to customers through our Discontinued Operations in Iran, Sudan and Syria accounted for approximately 1.02% of its total net sales, or EUR 110 million, in 2013; 1.24% of Discontinued Operation’s total net sales, or EUR 188 million, in 2012; and approximately 1.65% of Discontinued Operation’s total net sales, or EUR 382 million, in 2011.
We closed the local Iranian office for our Devices & Services business, now classified as Discontinued Operations, in 2012. There were no employees based in Iran for our Discontinued Operations for the year ended December 31, 2013. The other activities relating to the termination of the local presence in Iran for Discontinued Operations have been ongoing, such as closing of the local branch. In connection with terminating the presence in Iran, we have routine contacts with governmental agencies in Iran as required, such as with respect to activities related to closing the local branch. Our Discontinued Operations sold mobile devices, accessories and certain free of charge items such as digital content and services into Iran through regional distributors based outside of Iran.
After the completion of the Sale of the D&S Business, completed on April 25, 2014 we are no longer managing the business described in this Discontinued Operations section.
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Disclosure pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights
Act of 2012 (ITRA)
Networks- then operating as NSN—made the decision in November 2011 to withdraw from the Iranian market in a controlled manner and reached the milestone of ceasing all revenue-generating activities relating to Iran as of July 16, 2013. Networks has been working with its current customers in Iran to find solutions to honor existing contractual obligations. Further, in the light of the recent international developments, Networks is assessing its position on performing business in Iran in compliance with all applicable trade sanctions and regulations, including potentially increasing its business activities with its existing customers in the country. In connection with the business activities relating to Iran, Networks has routine contacts with governmental agencies in Iran as required, for example, to maintain a legal presence in Iran, pay taxes, employ Iranian nationals and offer customary work related services and facilities and maintain shareholdings in certain Iranian companies as required under Iranian law and as is customary under Iranian business practices. NSN expects to manage these contacts and shareholdings in line with the information provided above.
To our knowledge, none of our sales through HERE, Technologies or Discontinued Operations in Iran in 2013 are required to be disclosed pursuant to ITRA Section 219. To our knowledge, none of our sales of network equipment and services through Networks in Iran in 2013 are required to be disclosed pursuant to ITRA Section 219, with the possible exception of the following: During the year ended December 31, 2013, Networks provided 2G Radio, core and transmission equipment, including related implementation and care services, in Iran under agreements with Mobile Communications Company of Iran (MCCI) and MTN Irancell. Additionally, during the year ended December 31, 2013, Networks purchased certain fixed line telephony services from Telecommunication Company of Iran (TCI) and certain mobile telephony services from MCCI. Through a branch of its Finnish subsidiary, Networks employs personnel in Iran to perform its contractual and regulatory obligations in Iran. In connection with these agreements, Networks maintains a shareholding in Pishahang Communications Network Development Company (Pishahang), as required under Iranian law and as is customary under Iranian business practices. NSN holds 49% of the outstanding shares of Pishahang. The other major shareholder in Pishahang is Information Technology Application Development TACFAM Company (Tacfam). Tacfam holds 49% of the outstanding shares of Pishahang. Although it is difficult to do with a reasonable degree of certainty, we have concluded that the possibility that TCI, MCCI, MTN Irancell or Tacfam is owned or controlled, directly or indirectly, by the Government of Iran cannot be excluded. During the year ended December 31, 2013, NSN divested its 20% shareholding in Iran Telecommunications Manufacturing Company (ITMC).
During the year ended December 31, 2013, Networks did not recognize sales revenue from agreements with MCCI and MTN Irancell, and recorded a net loss for that period.
Networks closed its bank accounts in Iran with Bank Tejarat on August 13, 2013. Networks conducted transactions in these accounts until March 17, 2012 mainly relating to winding down its activities. Between March 17, 2012 and August 13, 2013, no transactions were conducted in these accounts with the exception of maintaining a balance so that unpresented checks issued on these accounts could be honored upon presentment to Bank Tejarat.
Government Regulation—Networks, HERE and Technologies
Our business is subject to direct and indirect regulation in each of the countries in which we, the companies with which we work and our customers do business. As a result, changes in or uncertainties related to various types of regulations applicable to current or new technologies, products and services could affect our business adversely. Moreover, the implementation of technological or legal requirements could impact our products and services, manufacturing and distribution processes, and could affect the timing of product and services introductions, the cost of our production, products and services, as well as their commercial success. Also, our business is subject to the impacts of changes in trade policies or
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regulation favoring the local industry participants, as well as other measures with potentially protectionist objectives that the host governments in different countries may take. Export control, tariffs or other fees or levies imposed on our products and services as well as environmental, product safety and security and other regulations that adversely affect the export, import, pricing or costs of our products and services could adversely affect our net sales and results of operations.
For example, in the United States, our products and services are subject to a wide range of government regulations that might have a direct impact on our business, including, but not limited to, regulation related to product certification, standards, spectrum management, consumer privacy, competition and sustainability. In the European Union the EU level or local member state regulation has in many areas a direct impact on our business and customers. The European regulation influences for example conditions for innovation for multifunctional devices and services, as well as investment in fixed and wireless broadband communication infrastructure. In China new partly local 3G telecom standards have been enacted that may affect production processes and have impact on our business. Additionally, with respect to certain developing market countries for example in Asia and in Latin and South America the business environment we operate in can pose risks to our business due to unpredictable, discriminatory or protectionist regulation.
We are in continuous dialogue with relevant state agencies, regulators and other decision makers through our experts, industry associations and our representatives in Washington, D.C., Brussels, Espoo, Berlin, Beijing and Delhi and through our experts, industry associations and representatives in the regions of Middle East and Africa, Latin and South America and South-East Asia.
Corporate responsibility—Nokia Group, excluding Networks
During 2013, the corporate sustainability activities of Nokia, including its Devices & Services-related activities, were managed separately from those of Networks. Consequently, in the following discussion, we present corporate sustainability activities firstly for Nokia, which covers all of our operations, including the operations sold to Microsoft but excluding Networks. Thereafter, we provide separate discussions of the corporate sustainability activities of Networks and certain information for the operations sold to Microsoft in the Discontinued Operations section.
Sustainability issues are reviewed regularly at various levels of the company, including within the Nokia Leadership Team and the Board of Directors, and we have personnel across the business responsible for environmental and social targets.
The basic principles of our sustainability work are: Valuing people in everything we do; Being Green and Clean, Unleashing the potential of technology for good; Making change happen together.
For many years, we have been recognized for the results we achieve in the area of sustainability. For example, in 2013, Nokia was ranked second within the Communications Equipment industry in the Dow Jones Sustainability Indexes and ninth in Interbrand’s Best Global Green Brands survey.
Human rights. We have specific human rights responsibilities toward our employees, customers, the communities where we work, and within our supply chain. We apply the UN Human Rights special representative John Ruggie’s business and human rights framework to our business practices. Since 2011 our Nokia Human Rights Approach has been based on the framework—Protect, Respect and Remedy.
Nokia Code of Conduct. The Nokia Code of Conduct sets our approach to ethical and sustainable business practices and is based on the highest ethical standards. It outlines our commitment to respect and promote human rights and fair workplace practices, equal opportunities, environmentally sustainable business and our zero-tolerance policy on bribery and corruption, and all Nokia employees must understand and comply with it. We have held Code of Conduct training for all employees using e-learning (in 14 languages) as well as classroom training. By the end of 2013, 94% of eligible non-manufacturing
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employees and 93% of eligible employees in our manufacturing facilities had completed the training. During 2013 the Ethics and Compliance Office developed a comprehensive training program designed to support a culture of compliance based on the highest standards of ethical behavior and to safeguard Nokia against global compliance risks. New or refreshed modules were introduced including one on General Privacy for all Nokia employees and other modules for specific groups of employees covering the areas of Competition Law, Anticorruption and Trade Compliance. We also established a new Nokia business ethics helpline designed for reporting on concerns involving financial affairs, auditing or accounting practices, corruption, fraud or other serious misconduct. The helpline is available globally and provides a dedicated telephone line in nearly every country where Nokia has a presence, and an encrypted Internet site available to employees and others.
Nokia values. Nokia’s values have been articulated by our employees around the world. They act as a foundation for our evolving business culture, and form the basis for how we operate as a company. Together we have defined four core values that guide us in our everyday work. These values are: Make it great for the customer, Challenge and innovate, Achieve together, and Act with empathy and integrity.
Diversity and inclusion. Nokia is committed to promoting diversity and inclusion in the workplace and providing rewarding career development opportunities for all employees. We strive to create an inclusive workplace that welcomes men and women of different cultural or ethnic backgrounds, skills and abilities, lifestyles, generations and perspectives.
Training and development. We provide a variety of training opportunities for our employees to help them develop a broad range of skills for the workplace, as well as competencies specific to their roles. In 2013, we invested almost EUR 15 million in training and development.
Performance and rewarding employees. We offer a variety of recognition plans with levels of compensation determined by local labor markets and taking into account both individual contribution and company performance. The Nokia Equity Program 2013 included: New Employee Share Purchase Plan for Nokia employees in selected jurisdictions, Performance Shares, Restricted Shares, and Stock Options. Approximately 38 500 employees in 27 countries were offered the possibility to participate in the Employee Share Purchase Plan for the plan cycle in 2013 and 9 177 of them enrolled. Additionally, a total of 3 500 employees participated in the Nokia Performance Share Plan, Restricted Share Plan and Stock Option Plan. There are also other plans, including cash incentive plans for all employees, as well as small monetary bonuses as recognition awards, and we encourage managers to coach employees continually and to have at least one formal performance review every year. For information about our equity programs, see Item 6 of this annual report.
Customer privacy. As the Internet has expanded and new services for consumers have emerged, user privacy has become increasingly important. Consumers have increasing possibilities to use and share their personal information in new contexts. To remain a trusted brand, we work to ensure that this custodial information is protected from any threats. Respect for privacy is part of our commitment to observing high standards of integrity and ethical conduct in all our operations. In 2013, we improved the maturity of our privacy program by updating our privacy principles, policies, requirements and processes. Nokia believes in “privacy by design” which means that we strive to consider the privacy impacts already in the design of a product or service and not only as an afterthought.
Energy use and carbon emissions of our operations. In 2013, our facilities consumed 419 GWh of energy. This energy consumption caused 8 200 tonnes of direct and 187 100 tonnes of indirect greenhouse gas (C02e) gross emissions. Direct emissions are generated from our use of gas and oil, while our consumption of electricity and district heating/cooling generates indirect emissions. Nokia Group as a whole consumed 925 GWh of energy, out of which 332 GWh was certified renewable electricity. Purchased renewables reduced indirect CO2 emissions by 115 000 tonnes and hence, Nokia Group net emissions were 327 300 tonnes.
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Reducing waste. In 2013, Nokia produced a total of 22 600 tons of waste, a 28% reduction from 2012.
Water usage. Water is not a significant environmental issue for our own operations, but used mainly for sanitary and catering purposes, and in gardening and facilities management, e.g. cooling towers. Production processes used relatively small amounts of water, under 1 000 liters per year in each factory. In 2013, we withdrew 1 096 mega liters of water for use in our facilities. Nokia Group as whole withdrew 1 628 mega liters of water.
Helping others decrease emissions. The role of ICT in driving a sustainable future and decreasing global greenhouse gas (GHG) emissions is quite significant. Our precise maps, combined with in-car connectivity, creates possibilities for helping people in cars plot the most optimal route to their destination, making it possible to cut down on carbon emissions.
Working together. Nokia has global partnerships in place to support our ambitions in our key corporate responsibility focus areas. Our global partners in 2013 were Oxfam, Plan International, UNESCO (United Nations Educational, Scientific and Cultural Organization), British Council and WWF (World Wide Fund for Nature), and our partnerships with IUCN (International Union for Conservation of Nature) and UNICEF (United Nations Children’s Fund) ended during the year. In each of these partnerships, we have provided not only financial support, but also our technology, resources and expertise on an ongoing basis for projects in which we are working jointly together. In addition, we work together with our non-profit partners around the world when a disaster strikes. In 2013, we responded to relief efforts when an earthquake struck in China and to the relief efforts when the Typhoon Haiyan–known locally as Typhoon Yolanda–struck the south-easterly islands of the Philippines.
Suppliers. For over a decade, Nokia has required its first tier suppliers to adhere to strict ethical and sustainable business practices. The Nokia Supplier Requirements and the Nokia Supplier Code of Conduct provide clear guidance on the environmental, social, ethical, as well as health and safety expectations we have for our suppliers. These requirements are based on international standards such as ISO 14001, SA 8000, OHSAS 18001, ILO and UN conventions and they are enforced through contractual agreements.
Bridge program. Already in 2011, Nokia reported expecting critical challenges to its business and the way of working. As part of the transformation, Nokia outlined a range of planned changes in 2013 to streamline its IT organization and Nokia’s Mobile Phones business unit announced its plans to focus its product offering with the aim of improving product competitiveness and delivering more innovation. The affected employees were offered both financial support and a comprehensive Bridge support program. Nokia engaged with employee representatives regarding the plans in accordance with country-specific legal requirements. The program, which supported individuals and local communities directly impacted by changes at Nokia, provided the following options to employees whose job is affected by the restructuring:
| • | A new job within Nokia: We provided career counseling and help employees identify new job opportunities at Nokia. |
| • | A new job outside the company. We offer career coaching, resume writing and job search support. |
| • | Entrepreneurship: We offer funding and other support for those interested in starting a new business, which could also fuel new growth for impacted communities. We have arranged coaching in business planning and establishing startups. We give grants of up to EUR 25 000 to new entrepreneurs. |
| • | Training: We fund training that helps affected employees in finding a new job quickly. In Finland, we have planned and implemented training programs jointly with local employment offices. The Finnish government offers significant funding for training programs, which is normal practice in Finland. |
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Employees losing their jobs at Nokia have typically been entitled to severance packages more generous than local minimum practice.
By the end of 2013, the Bridge program, established in 2011, had served approximately 18 000 people, including factory workers. As a result, more than 1 000 new businesses have been established and approximately 60% of the employees participating in the program had found a new position within Nokia, outside of Nokia or in the newly-established businesses or are now pursuing full-time education, measured on their last day in Nokia.
Corporate responsibility—Networks
Networks aims to minimize the adverse impacts of its business while also maximizing the positive social and environmental impacts its products can have.
Networks has an impact on people including employees, suppliers and communities. The company’s five values guide the actions and behavior of employees and define the company culture. The values are: focus on the customer; communicate openly; win together; inspire; and innovate.
Global workforce. The restructuring efforts announced in November 2011 have progressed well towards the set goals with the aim of creating an efficient and more competitive Networks business. The change continued during 2013 with speed and momentum, and started moving from a phase where the focus has been primarily on restructuring to one where that primary focus shifted more to transformation and continuous improvement efforts. In 2013, the original target of reducing our annualized operating expenses and production overhead, excluding special items and purchase price accounting related items, was raised to more than EUR 1.5 billion. This revised target was achieved by the end of 2013. We have followed country-specific legal requirements to find socially responsible means of reducing its workforce and treated those affected with dignity and respect. Wherever possible, we transferred employees to new roles inside the company to support businesses that are core to its strategy. Additionally, we have often worked with local communities to speed up the process for re-employment with other companies.
On December 31, 2013, Networks had almost approximately 48 500 employees, of which approximately 2 500 worked in production. During the year, the rate of voluntary attrition was 7.5%, involuntary attrition was 18.2% and attrition due to common agreement was 7.1%.
Diversity and inclusion. At the end of 2013, 13% of senior management positions (approximately 350 employees) within Networks were held by women, an increase of 0.5 percentage points from 2012. Employees of non-Finnish or non-German nationality held 57% of senior management positions. For example, NSN has a very diverse Executive Board including members from Australia, Canada/Lebanon, France, Germany, India, Iran, Italy, Sweden and United States.
Training and development. During 2013, Networks spent EUR 41.5 million on training for employees through its training organization.
Health, safety and labor conditions. Providing safe and decent working conditions for employees is a priority for Nokia and its Networks business. The company’s Code of Conduct and Global Labor Standard set out clear requirements for labor conditions, based on the International Labor Organisation (ILO) conventions. Networks is implementing the global standard at country level, focusing on the highest risk countries for labor violations. Internal audits are used to confirm compliance.
Networks’ health and safety management system, based on the international standard OHSAS 18001, safeguards employees with appropriate safety procedures, equipment and training. In 2013, Networks was awarded a global ISO OHSAS 18001 certificate, excluding China, which will be amended during
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2014. Also, contractors must comply with our health and safety standards and Networks trains contractors to ensure they understand the procedures. Regular internal and external audits are used to check compliance. In 2013, Networks regrettably recorded two fatal incidents both resulting in contractor fatality. Overall, however, fatalities were reduced by 83% in 2013.
Networks Code of Conduct. The Code of Conduct sets out Networks’ commitment to uphold high ethical standards wherever it operates. Networks trains its employees on ethical business conduct every year and concerns can be reported anonymously through established whistleblower channels. Reported ethical concerns are investigated thoroughly by the company’s Ethics and Compliance Office. In 2013, 96% of employees completed ethical business conduct training and 96% of employees received further training on anti-corruption.
Community. Networks has policies in place relating to disaster relief and to employee volunteering. During 2013, its efforts were focused on local activities on helping to recover telecommunications functionality in disaster areas.
Human rights. Networks recognizes its responsibility to help ensure that the communications technologies it provides are used to respect, and not infringe on, human rights. Networks’ Code of Conduct spells out zero tolerance for the violation of human rights. This commitment is reinforced in Networks’ human rights policy, which establishes due diligence processes to identify and address relevant human rights risks across the company’s global operations. Employees are trained on human rights through ethical business training and those in high-risk roles such as procurement are given additional training on the company’s human rights policy.
Suppliers. Networks’ Global supplier requirements, which set standards in ethical, environment and social issues, form a part of contractual agreements with suppliers and must be met by every NSN supplier. In 2013, we continued to tighten these requirements by putting in place Consequence Management for suppliers who do not meet our Health and Safety requirements. Failing to demonstrate robust safety management can trigger the termination of contract and phase out of the supplier. Compliance to supplier requirements was monitored through 27 system audits.
More detailed audits are undertaken with some suppliers selected through a risk assessment process. During 2013, we closed 3 audits and conducted 10 new audits. Additionally, 52 suppliers were assessed through the EcoVadis platform.
Networks requires suppliers who manufacture components containing materials associated with conflict minerals to adopt a zero tolerance policy on use of conflict minerals with their respective suppliers. We further clarified our scope of suppliers under the Conflict Free Sourcing Program, and as a result, we have made enquiries with 282 key suppliers with respect to their mineral sourcing processes and we are ready for the first time progress reporting as required in 2014.
Environmental strategy. Networks’ environmental strategy has two key elements:
| • | Designing products and services that help telecoms operators reduce the environmental impact of their networks; |
| • | Ensuring maximized efficiency in the company’s own operations to minimize its environmental impact. |
Networks offers a comprehensive range of energy solutions for telecoms operators, combining products and services. The portfolio is designed to reduce the network operating costs of new and legacy telecommunications networks, using more efficient technology and renewable energy to reduce power consumption and the resultant GHG (greenhouse gas) emissions.
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To achieve improved environmental performance, Networks operates a company-wide Environmental Management System (EMS), certified to the internationally recognized standard ISO 14001. Networks also requires its suppliers to have a documented Environmental Management System–compliant with ISO 14001–in place. In 2013, Networks was recertified with ISO14001.
Reducing the company’s environmental impact. Networks continued to reduce the environmental impact of products and operations. Also, the company managed to reduce the energy consumption of buildings in 2013 by 9%. This exceeds the initial 5% target set for 2013. Renewable energy continues to form a substantial part of the energy used in Networks’ own facilities–in 2013, Networks was able to grow the amount of renewable energy used in our operations, and today 44.5% of the used overall energy at Networks is from certified renewable sources.
In 2013, Networks continued with the logistics improvements, including the efforts to reduce airfreight and shift to ground/sea freight and had significant success. Efforts in 2013 for lowering energy consumption and emissions resulted in 19% reduction of total CO2 emissions from Networks operations including facilities, air freight and air travel.
Radio waves and health. Wireless communications technologies operate well within the limits recommended by the International Commission on Non-Ionizing Radiation Protection and endorsed by the WHO, and the company works to ensure continued compliance of its products with these requirements. Networks engages with its stakeholders and in public discussions on this topic, as well as monitoring scientific studies.
Corporate responsibility—Discontinued operations
This section gives a brief overview of some of the sustainability activities of the operations we divested to Microsoft in April, 2014 due to the closing of the Sale of the D&S Business.
Unleashing the full potential of mobile technology for good. By extending the power of mobile technology, our Devices & Services business helped address global sustainability challenges such as education, livelihoods, and accessibility. For example, our Nokia Data Gathering software that replaces traditional data collection methods with mobile devices, improving results and saving time and money has made data collection more efficient in around 70 countries and by over 300 registered organizations for fields such as birth registration, agricultural production monitoring, water surveys, the fight against dengue fever and more.
Additionally, Nokia has supported the use of mobile communications to deliver education to people. Our mobile learning solutions included Nokia Mobile Mathematics, a mobile service that combines official mathematics curricula with social networking; Nokia Education Delivery, software which enables delivery of quality education materials over mobile networks to the classroom, particularly useful in hard-to-reach areas.
Accessibility. In the area of accessibility, we worked to bring mobile communications to the people worldwide who have a recognized disability, whether in vision, hearing, speech, mobility or cognition. For example, in 2013, we made our Lumia devices usable for the blind and people with severe sight impairment by launching the Mobile Accessibility screen reader for Windows Phone. For the hard-of-hearing, we gathered the largest hearing-aid manufacturers together to create a new, open, Bluetooth-based standard for a direct connectivity between phone and the hearing aid. Additionally, in partnership with the Royal National Institute of Blind People (RNIB), we invited developers to create new apps that will make the lives of people with low vision easier; or update their existing apps to make them more accessible in general.
Health, safety and well-being. The health, safety and well-being of our employees are vital to the success of our business. Our global OHS Injury and Illness Reporting includes all factory internal Nokia
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employees, external contractors and service providers as well. In 2013, our Total Incident Frequency Rate for all of our major manufacturing facilities was 0.11. In other words, for every 100 employees, contractors and service providers, there were 0.11 incidents of occupational injury or illness. Since 2011, our global Occupational Health and Safety Injury and Illness Reporting has included all cases that require some type of medical treatment, not just those that result in absence from work.
Labor Conditions at manufacturing facilities. We used Nokia Labor Conditions Requirements as a framework to monitor labor conditions in a consistent manner. Compliance with local law is naturally the foundation for all our activities but, on top of this, we also aim to comply with global practices that often go above and beyond scope of the local legislation.
We carried out in-depth assessments at our major mobile device production facilities every second year to monitor labor conditions and verify compliance. These assessments were always conducted by a professional external assessment company. The last assessment round took place in 2012 and the outcome indicated that labor, health and safety were properly managed at all seven factories.
In 2013, our internal assessors carried out internal assessments at our factories in Hanoi, Chennai and Dongguan. We also followed up on non-conformity found during the third party assessments.
Product safety. Product safety has been a top priority for Nokia. All the mobile products we made operate below relevant international exposure guidelines and limits that are set by public health authorities. Since 1995, expert panels and government agencies around the world have performed more than 110 reviews of the scientific evidence regarding health effects from exposure to radio frequencies (RF). These reviews consistently support the scientific conclusion that RF fields operated at levels below the exposure guidelines pose no adverse effects to humans. We are responsive to our customers’ questions about mobile device safety and are committed to making information available transparently for consumers.
Environmentally-leading mobile product range. In 2013, we introduced our very first phone using recycled plastics in the product cover, the Nokia Lumia 1520. The phone continued our range of eco hero devices, such as the Nokia Lumia 820 and Nokia Asha 311, which showcase the widest range of environmental features and innovations in our product range.
Energy-savings in our mobile products. Since 2004, we have reduced the no-load power consumption of our chargers by over 83% and in our best-in-class chargers by over 90%. During 2013, we have introduced one new energy efficient charger: AC-60, for our high end phones. Since 2012, all new Nokia devices have been shipped with a four star or five star chargers. The target for the average no-load was to reduce it with 75% to 0.07W from the 2006 value of 0.278W. We reached 0.061W which is a reduction of 37% from year 2012. The charger no-load power consumption values are calculated as volume weighted average charger no-load power consumption for phone products per year.
Substance and materials management in our mobile products. Our main objective has been to know all the substances in our products, not just those that raise concerns. Our products must be safe for people and the environment when used in the proper way. All our mobile devices and accessories worldwide are fully compliant with the EU Directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (EU RoHS), and all national requirements similar to RoHS. Since 2009, all our new products must be free of BFR (brominated flame retardants) and RFR (restricted flame retardants), as defined in the Nokia Substance List (NSL). The full NSL, with information about our substance management, including legal requirements and our voluntary phase-outs, is available on our website.
Packaging. During 2013, we continued to find more sustainable materials both in fiber packages and in plastics materials. We increased the use of recycled fibers in our packaging and at the end of 2013,
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78% of our packaging materials needed in retail and transport were made of recycled fibers, of which a large proportion are also certified. The increased use of recycled fibers and related material choices decreased the need for virgin fibers. The share of certified virgin materials used in our packaging was 9% and not certified virgin materials 13%. We also only used plastics in those packages where transparency was needed to show the products to customers, which were usually accessory packages.
Take-back and recycling. 100% of the materials in a Nokia mobile device can be recovered and used to make new products or generate energy. Our challenge has been to create a recycling culture where the recycling of mobile products is easy and desirable. We focus on raising consumer awareness, ensuring that old products are treated responsibly as recyclable materials and getting the recycling process right by working with recyclers. Our own take-back and recycling efforts have been intended to ensure not only legal compliance, but also go above and beyond legally set requirements.
Environmental management systems (EMS). Our EMS is an integral part of our common global management structure. The international ISO14001 standard has been the foundation for our certified EMS for more than 15 years and it covers all of our manufacturing facilities. Its goal is to improve our environmental performance, focusing on energy consumption, waste management, water management and air emissions. We require a certified EMS according to ISO 14001 from our contract manufacturers, and a certified EMS from all our direct suppliers.
Suppliers. To monitor supplier compliance and performance against the Nokia Supplier code of Conduct, Nokia used a wide range of approaches and means. At the end of 2013, 371 supplier facilities had been risk self-assessed relation to labor, ethics, health and safety and environmental practices at the factories. Self-assessments have provided us with an indication of the supplier’s own understanding of their compliance level before conducting selected on-site assessments. This accounts for around 90% of our hardware and mechanics estimated business value for 2013. Estimated Business value is based on the estimated volume of the year.
In 2013, 42 Nokia Supplier Requirements on-site assessments and 13 Environmental and Ethical on-site in-depth assessments were carried out to ensure that suppliers provide a safe work environment, exercise good labor practices, use environmentally sustainable manufacturing processes, and aim to reduce the environmental impact of their own operations. In addition to assessments, we pay attention to these processes and practices in supplier selection and contracting, relationship development, procurement decisions and steering meetings. Nokia has also taken continuous actions to ensure that our products are manufactured from ethically sourced materials. We do not tolerate activity in our supply chain that fuels conflict, violates human rights or leads to serious environmental degradation. The issue is currently especially acute with the extraction and trade of minerals in Democratic Republic of Congo (DRC) and surrounding countries. During 2013, we continued to evaluate our suppliers’ due diligence activities towards conflict-free sourcing and to contribute to activities that support responsible sourcing from high-risk regions.
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The following is a list of Nokia’s significant subsidiaries at December 31, 2013. See also, Item 4A. “History and Development of the Company—Organizational Structure and Reportable Segments”.
| Continuing Nokia Group Companies |
Country of Incorporation |
Nokia Ownership Interest |
Nokia Voting Interest |
|||||||
| Nokia Solutions and Networks B.V |
The Netherlands | 100% | (1) | 100% | (1) | |||||
| Nokia Solutions and Networks Oy |
Finland | 100% | 100% | |||||||
| Nokia Solutions and Networks US LLC |
United States | 100% | 100% | |||||||
| Nokia Solutions and Networks Japan Corp |
Japan | 100% | 100% | |||||||
| Nokia Solutions and Networks India Private Limited |
India | 100% | 100% | |||||||
| Nokia Solutions and Networks System Technology (Beijing) Co., Ltd |
China | 100% | 100% | |||||||
| Nokia Solutions and Networks Branch Operations Oy |
Finland | 100% | 100% | |||||||
| Nokia Solutions and Networks Korea Ltd. |
South Korea | 100% | 100% | |||||||
| Nokia Solutions and Networks do Brasil Telecomunicações Ltda |
Brazil | 100% | 100% | |||||||
| Nokia Solutions and Networks Technology Service Co., Ltd |
China | |||||||||
| HERE Holding Corporation |
United States | 100% | 100% | |||||||
| HERE Global B.V. |
The Netherlands | 100% | 100% | |||||||
| HERE Europe B.V |
The Netherlands | 100% | 100% | |||||||
| HERE North America LLC |
United States | 100% | 100% | |||||||
| HERE Deutschland GmbH |
Germany | 100% | 100% | |||||||
| Nokia Finance International B.V |
The Netherlands | 100% | 100% | |||||||
| Discontinued Nokia Group Companies |
Country of Incorporation |
Nokia Ownership Interest |
Nokia Voting Interest |
|||||||
| Nokia Sales International Oy |
Finland | 100% | 100% | |||||||
| Nokia India Sales Pvt. Limited |
India | 100% | 100% | |||||||
| Nokia India Pvt. Ltd |
India | 100% | 100% | |||||||
| OOO Nokia |
Russia | 100% | 100% | |||||||
| Nokia (China) Investment Co., Ltd |
China | 100% | 100% | |||||||
| Nokia Telecommunications Ltd |
China | 83.9% | 83.9% | |||||||
| Nokia Inc |
United States | 100% | 100% | |||||||
| Nokia UK Limited |
United Kingdom | 100% | 100% | |||||||
| Nokia do Brasil Technologia Ltda |
Brazil | 100% | 100% | |||||||
| Nokia TMC Limited |
South Korea | 100% | 100% | |||||||
| Nokia (Thailand) Ltd |
Thailand | 100% | 100% | |||||||
| (1) | In 2013, Nokia acquired the remaining 50% of Nokia Siemens Networks B.V., the ultimate parent of the NSN business, now operating as Networks. By that, the parent entity of the NSN business became a fully owned subsidiary of Nokia. |
Upon the closing of the Sale of the D&S Business to Microsoft on April 25, 2014, Nokia’s companies listed under Discontinued Nokia Group Companies transferred to Microsoft with the exception of Nokia India Pvt. Ltd. and Nokia TMC Limited.
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4D. Property, Plants and Equipment
At December 31, 2013, Nokia operated seven manufacturing facilities in six countries for the production of Nokia-branded mobile devices, and Networks had seven manufacturing facilities in four countries. We consider the production capacity of our manufacturing facilities to be sufficient to meet the requirements of our networks infrastructure business. The extent of utilization of our manufacturing facilities varies from plant to plant and from time to time during the year. None of these facilities is subject to a material encumbrance, with the exception of the mobile devices related facility in Chennai as tax authorities in India have placed a lien on this facility prohibiting Nokia to transfer this facility.
The following is a list of the location, use and capacity of major manufacturing facilities for Nokia mobile devices and NSN infrastructure equipment on December 31, 2013.
| Country |
Location and Products |
Productive Capacity, Net (m2)(1) |
||||
| BRAZIL |
Manaus: mobile devices |
9 026 | ||||
| CHINA |
Beijing: mobile devices |
29 272 | ||||
| Dongguan: mobile devices |
25 644 | |||||
| Beijing: switching systems and radio controllers |
6 749 | |||||
| Shanghai: base stations, transmission systems |
15 954 | |||||
| Suzhou: base stations |
8 940 | |||||
| Tianjin: Wireless base stations, mobile core systems, radio controllers |
10 000 | |||||
| FINLAND |
Oulu: base stations |
16 000 | ||||
| HUNGARY |
Komárom: mobile devices |
12 150 | ||||
| INDIA |
Chennai: mobile devices |
35 323 | ||||
| Chennai: base stations, radio controllers and transmission systems |
8 364 | |||||
| MEXICO |
Reynosa: mobile devices |
8 889 | ||||
| REPUBLIC OF KOREA |
Masan: mobile devices |
3 743 | ||||
| RUSSIA |
Tomsk: base stations |
1 494 | ||||
| (1) | Productive capacity equals the total area allotted to manufacturing and to the storage of manufacturing-related materials. |
Upon the closing of the Sale of the D&S Business to Microsoft, Nokia’s manufacturing sites located in Manaus, Beijing, Dongguan, Komárom, and Reynosa transferred to Microsoft. Contrary to the original scope of the Sale of the D&S Business, Nokia’s manufacturing facilities in Chennai in India and Masan in the Republic of Korea did not transfer to Microsoft at the closing of the transaction. With regard to the Chennai facility, Nokia and Microsoft have entered into a service agreement whereby Nokia will produce mobile devices for Microsoft. With regard to the Masan facility, Nokia is taking steps to close the facility, which employs approximately 200 people.
| ITEM 4A. | UNRESOLVED STAFF COMMENTS |
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
This section begins with an overview of the principal factors and trends affecting our results of operations. The overview is followed by a discussion of our critical accounting policies and estimates
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that we believe are important to understanding the assumptions and judgments reflected in our reported financial results. We then present an analysis of our results of operations for the last three fiscal years.
Nokia announced two significant transactions during 2013. On July 1, 2013, Nokia announced an agreement to acquire Siemens’ 50% stake in the companies’ joint venture Nokia Siemens Networks. The purchase price for Siemens’ stake was EUR 1.7 billion and the transaction closed on August 7, 2013. Additionally, on September 3, 2013, Nokia announced that it had signed an agreement to enter into a transaction whereby Nokia sold substantially all of its Devices & Services business and license its patents to Microsoft for EUR 5.44 billion in cash, payable at closing, which took place on April 25, 2014. More details on the transactions can be found in Item 4A. “History and Development of the Company—Organizational Structure and Reportable Segments”.
Organizational Structure and Reportable Segments
We have three businesses: Networks, HERE, and Technologies, and four operating and reportable segments for financial reporting purposes: Mobile Broadband and Global Services within Networks, HERE, and Technologies. Below is a description of our four reportable segments.
| • | Mobile Broadband provides mobile operators with radio and core network software together with the hardware needed to deliver mobile voice and data services. |
| • | Global Services provides mobile operators with a broad range of services, including network implementation, care, managed services, network planning and optimization, as well as systems integration. |
| • | HERE focuses on the development of location intelligence, location-based services and local commerce. |
| • | Technologies is built on Nokia’s Chief Technology Office and intellectual property rights and licensing activities. |
Networks also contains Networks Other, which includes net sales and related cost of sales and operating expenses of non-core businesses, as well as Optical Networks business until May 6, 2013, when its divestment was completed. It also includes restructuring and associated charges for Networks business. Additionally, as a result of the Sale of the D&S Business, we report certain separate information for Discontinued Operations.
On August 7, 2013, Nokia completed the acquisition of Siemens’ stake in Nokia Siemens Networks, which was a joint venture between Nokia and Siemens and renamed the company Nokia Solutions and Networks, also referred to as NSN. After the closing of the Sale of the D&S Business, NSN was renamed Networks. Networks was consolidated by Nokia prior to this transaction. Beginning in the third quarter of 2013, Nokia has reported financial information for the two operating and reportable segments within Networks; Mobile Broadband and Global Services. Beginning in the fourth quarter of 2013, the Devices & Services business has been reported as Discontinued Operations. To reflect these changes, historical results information for past periods has been regrouped for historical comparative purposes. As is customary, certain judgments have been made when regrouping historical results information and allocating items in the regrouped results. When presenting financial information as at December 31, 2013 and related comparative information for previous periods, we generally refer to the names of the businesses and reportable segments as they were named at December 31, 2013. However, the terms “Networks” and “Nokia Solutions and Networks, or “NSN” and the terms “Technologies” and “Advanced Technologies” may be used interchangeably in this annual report.
For more information on our organizational structure, see Item 4A. “History and Development of the Company—Organizational Structure and Reportable Segments”. Business segment data in the
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following discussion is prior to inter-segment eliminations. See Note 2 to our consolidated financial statements included in Item 18 of this annual report. The following discussion should be read in conjunction with our consolidated financial statements included in Item 18 of this annual report, Item 3D, “Risk Factors” and “Forward-Looking Statements”. Our financial statements have been prepared in accordance with IFRS.
Principal Factors & Trends Affecting our Results of Operations
Continuing Operations
Networks
Networks, our network infrastructure and related services business, is a leading vendor in the mobile infrastructure market comprising a broad range of different products, from the hardware components of networks used by network operators to software solutions supporting the efficient interaction of networks, as well as services to plan, implement, run and upgrade mobile operators’ networks. We are investing in the innovative products and services needed by telecoms operators to manage the increase in wireless data traffic. We plan to focus future investment on further building on our strong position in mobile broadband and related services, and strengthening our leadership position in next-generation network technologies that will be important enablers for the future networks connecting tens of billions of devices. For more information on the Networks business see Item 4B.
Industry Trends
In recent years, the most important trends affecting Networks have been the increase in the use of mobile data services and the resulting exponential increase in data traffic, which however has not been directly reflected in operators’ revenue. With end users replacing operator services, such as voice telephony and SMS with over-the-top applications, such as Skype and WhatsApp, operators’ revenue growth is slowing down. As a result, there is an increased need for efficiency for both operators and network infrastructure, as well as services vendors that may lead to industry consolidation to achieve scale. Other developments related to the need for greater efficiency are the mixed radio technology environment, increased network sharing, re-use of already scarce radio frequency spectrums, and an increased need for network flexibility, as well as the use of cognitive network technologies. In addition to the attempts to reduce their costs, the operators want to increase their agility through the adoption of the emerging telco cloud and network virtualization which is enabled by the convergence of IT and telecommunications. For more information, please see Item 4B.
Pricing and Price Erosion
The pricing environment remained intense in 2013. In particular, a wave of network modernization that has taken place, primarily in Europe, and increasingly also in other regions, including Asia Pacific, has continued to put pressure on pricing as the vendors compete for market share.
Networks net sales are impacted by these pricing developments. Although some regional variation exists, price erosion is evident across most geographical markets and impacts Networks sales and profitability.
Product and regional mix
Networks profitability is also impacted by the product mix, software sales and regional mix.
Products and services have varying profitability profiles. The Mobile Broadband business offers a combination of hardware and software. These products, in particular software products, have higher gross margins; however, they require much higher research and development investments. Global Services offerings are typically labor-intensive while carrying low research and development
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investment, and have relatively low gross margins compared to the hardware and software products of Mobile Broadband.
Regional sales also carry varying profitability. Overall profitability for certain regions should only be seen as indicative, since profitability can vary from country to country, within a particular region, and even from customer to customer within a particular country. In general, developed markets provide relatively high margins while emerging markets, where end-users, and therefore mobile operators, are often more financially constrained, provide lower margins.
Cyclical nature of projects
In addition to the normal industry seasonality described in the section “Certain other factors” below, there are normal peaks and troughs in the roll-out of large infrastructure projects. The timing of roll-outs is dependent on factors that affect our customers, such as new spectrum allocation, network upgrade cycles and the availability of new consumer devices. Networks net sales are affected by the cycle stages of these large projects, and the extent to which they overlap. Overall, profitability can be affected by the sales impact as well as the requirement to source large volumes of components at short notice, which can impact the cost of sales.
Continued efficiency improvements
Efficiency improvements are expected to continue in 2014 as Networks continues to realize some of the benefits from the restructuring program announced in 2011. Networks also plans further efficiency gains from increased automation in Global Service delivery and other areas, as well as continued improvements in R&D efficiency and agility.
Cost of components and raw materials
There are several factors that drive Networks profitability. Scale, operational efficiency and cost control have been, and will continue to be, important factors affecting profitability and competitiveness. Networks product costs are comprised of the cost of components, manufacturing, labor and overhead, royalties and license fees, the depreciation of product machinery, logistics costs, as well as warranty and other quality costs.
Targets and Priorities
Networks is putting increased focus on revenue growth and market share gains while it aims to maintain strong profitability and cash generation. (For more information, please see Item 4B, Strategy section.)
Longer-term, Nokia continues to target Networks operating margin to be between 5% and 10%, excluding special items and purchase price accounting related items.
Nokia expects Networks’ operating margin for the full year 2014 to be towards the higher end of Networks targeted long term operating margin range of 5% to 10%, excluding special items and purchase price accounting related items. In addition, Nokia expects Networks net sales to grow on a year-on-year basis in the second half of 2014. This outlook is based on Nokia’s expectations regarding a number of factors, including:
| • | competitive industry dynamics; |
| • | product and regional mix; |
| • | the timing of major new network deployments; and |
| • | expected continued improvement under Networks’ transformation programs. |
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HERE
Our HERE business is a leading provider of maps and location experiences across multiple screens and operating systems. We are focused on producing the most accurate and fresh map content, available through multiple devices and operating systems. We are investing to further develop our leading location cloud to make it the source of location intelligence and experiences across many different operating systems, platforms and screens. Given that location is an essential element of a connected world, we are targeting our investment in three areas: 1) technology for smart, connected cars; 2) cloud-based services for personal mobility and location intelligence, including for the growing segment of wearables and special purpose devices; and 3) location-based analytics for better business decisions. For more information on the HERE business, see Item 4B.
Vertical and Horizontal opportunities in Map Content, Platform and Applications
HERE is a leading provider of map content and is focused on providing the richest, most accurate and most current maps possible, since these attributes are becoming more important for consumers and providers of location services. HERE’s ability to offer independent solutions at various levels of the value chain offers both vertical and horizontal opportunities. We see opportunities in being able to offer solutions across ecosystems and different layers within them, as well as with different types of devices.
HERE’s map data provides a strong foundation, and HERE’s cloud-based map platform enables us to compete at multiple levels of the location services value chain including partnering with automobile vendors and internet services companies for their own differentiated offerings.
The HERE map platform enables our location intelligence and experiences to be distributed in the cloud and to be used across many different operating systems, platforms and screens. This enables users of the platform to license certain parts of our offering, including content, location services and functionalities, such as routing and positioning. Access to the platform allows users to build specific applications for location-related services and products, such as wearables and special purpose devices.
Automotive and Other Industries
We see, and are investing in, certain transformational growth opportunities within the automotive and other industries that require location-based intelligence. An area of interest is the automotive industry, where our focus goes beyond the traditional turn-by-turn navigation, and towards concepts such as smart, connected cars, autonomous driving and augmented reality. As these are new areas, our success in terms of transforming development efforts into sales is dependent on these concepts developing commercially and on our ability to produce products that are appealing to the industry.
In general, we believe there is a trend of more and more devices being connected, forming an Internet of Things. We believe there may be opportunities for location-based intelligence to serve as a key dimension in this development, and we believe that HERE is well-positioned to capture those potential growth opportunities with its broad offering.
As the automotive industry is a significant contributor to HERE’s sales, the broader economy and its influence on new car sales are an important factor in HERE’s future success. The adoption rate of in-car navigation products and services is important too. In general, adoption of these types of products has been increasing.
Targets and Priorities
In 2014, Nokia expects HERE to invest to capture longer term transformational growth opportunities. This is expected to negatively affect HERE’s 2014 operating margin, excluding special items and purchase price accounting related items.
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Technologies
Our Technologies business builds on several of Nokia’s Chief Technology Office (“CTO”) and Intellectual Property Rights (“IPR”) activities, including patent, technology, trademark and brand assets. Technologies explores new business opportunities through advanced research and development and concept products in areas such as connectivity, sensing and material technologies, as well as web and cloud technologies. We are investing in the further development of our industry-leading innovation portfolio. This includes 1) expanding our successful IP licensing program; 2) helping other companies and organizations benefit from our breakthrough innovations through technology licensing; and 3) exploring new technologies for use in potential future products and services. For more information on the Technologies business, see Item 4B.
Divestment of substantially all of our Devices & Services business
Since the early 1990s, we have invested more than EUR 50 billion in research and development and built one of the market’s strongest and broadest IPR portfolios, with approximately 10 000 patent families. In addition, Networks has a separate portfolio of approximately 4 000 patent families. As Nokia is no longer a handset manufacturer, due to the Sale of D&S Business to Microsoft, the need to obtain licenses from other companies will be significantly reduced. As the length of license agreements is generally several years, the eventual renegotiations of our existing contracts, once they expire, are expected to have a positive impact on our future results. While the majority of our current revenues are derived from licenses related to Standard Essential Patents, these only represent approximately 15% of our overall portfolio. The vast majority of Nokia’s patents cover proprietary technologies, which have been crucial for driving differentiation of our handsets. As this exclusivity is no longer needed, we see further opportunities in the licensing of such patented technologies more broadly. As an example, the technology licensing could include connectivity, sensing, materials and energy and power management technologies.
Monetization Strategies of Intellectual Property Rights
Success in the technology industry requires significant research and development investments, with intellectual property rights to protect those investments and related inventions. In recent years, we have seen new entrants in the mobile device industry, many of which do not have licenses to our IPR. In 2013, we continued to see active licensing and enforcement strategies of IPR emerge through a series of legal disputes between several industry participants, as patent holders sought to protect their IPR against unauthorized infringements by other device OEMs. We believe we are well-positioned to protect our existing industry-leading IPR portfolio, and consequently increase value to our shareholders.
General Trends in IPR Licensing
In general, there has been increased focus on IPR protection and licensing, and this trend is expected to continue. As such, new agreements are generally a product of lengthy negotiations and potential litigation, and therefore the timing and outcome can be difficult to forecast. Due to the structure of the patent license agreements, the payments may be very infrequent, often retrospective in part, and the lengths of license agreements can vary.
Technology Licensing
As a result of the Sale of the D&S Business, we have an opportunity to develop a technology licensing business, in order to realize returns on our investments in certain technologies that have previously been crucial to the differentiation of our devices, as well as other relevant future technologies. This may increase the scope of potential sales opportunities in the longer term, as some of the technologies may be of interest to other market participants.
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Research, Development and Patent Portfolio Development
As the creation of new technology assets, including IPR, is heavily focused on research and development activities, we may from time to time see investment opportunities that have strategic importance. This generally affects the operating expenses before the results of such investments are visible in the sales.
Targets and Priorities
Nokia expects Technologies annualized net sales run rate to expand to approximately EUR 600 million during 2014, now that Microsoft has become a more significant intellectual property licensee in conjunction with the Sale of the D&S Business.
Certain Other Factors
Exchange Rates
Our business and results of operations are, from time to time, affected by changes in exchange rates, particularly between the euro, our reporting currency, and other currencies such as the US dollar and the Japanese yen. See Item 3A. “Selected Financial Data-Exchange Rate Data”. Foreign currency denominated assets and liabilities, together with highly probable purchase and sale commitments, give rise to foreign exchange exposure.
The magnitude of foreign exchange exposures changes over time as a function of our presence in different markets and the prevalent currencies used for transactions in those markets. The majority of our non-euro based sales are denominated in the US dollar, but our strong presence in emerging markets like China and India also gives rise to foreign exchange exposure in several emerging market currencies. The majority of our non-euro based purchases are denominated in US dollars. In general, depreciation of another currency relative to the euro has an adverse effect on our sales and operating profit, while appreciation of another currency relative to the euro has a positive effect.
In addition to foreign exchange risk of our own sales and costs, our overall risk depends on the competitive environment in our industry and the foreign exchange exposures of our competitors.
To mitigate the impact of changes in exchange rates on our results, we hedge material transaction exposures, unless hedging would be uneconomical due to market liquidity and/or hedging cost. We hedge significant forecasted cash flows typically with an approximately 12-month hedging horizon. For the majority of these hedges, hedge accounting is applied to reduce income statement volatility. We also hedge significant balance sheet exposures. Our balance sheet is also affected by the translation into euro for financial reporting purposes of the shareholders’ equity of our foreign subsidiaries that are denominated in currencies other than the euro. In general, this translation increases our shareholders’ equity when the euro depreciates, and affects shareholders’ equity adversely when the euro appreciates against the relevant other currencies (year-end rate to previous year-end rate). To mitigate the impact to shareholders’ equity, we hedge selected net investment exposures from time to time.
In 2013, the overall volatility of the global currency markets has remained broadly around the same level as in 2012. Out of our significant non-euro transaction currencies, however, the Japanese yen depreciated significantly during 2013 compared to the rate at the end of 2012. Overall, hedging costs remained relatively low in 2013 due to the low interest rate environment globally.
During 2013, the US dollar depreciated against the euro by 7.1%. The weaker US dollar in 2013 had a negative impact on our net sales expressed in euro, as approximately 30% of our net sales are generated in US dollars and currencies closely following the US dollar. The depreciation of the US dollar
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also contributed to lower cost of sales and operating expenses, as approximately 30% of our cost base was in US dollars and currencies closely following the US dollar. In total, before hedging, the movement of the US dollar against the euro had a negative effect on our operating profit in 2013.
In 2013, the Japanese yen depreciated by 26.8% against the euro. During that year, approximately 10% of our net sales were generated in Japanese yen. The depreciation of the Japanese yen also contributed to lower cost of sales and operating expenses, as approximately 10% of our cost base was in Japanese yen. In total, before hedging, the depreciation of the Japanese yen had a negative impact on our operating profit in 2013.
The majority of the impact of the US dollar and Japanese yen depreciation against the euro on our operating result was, however, mitigated through hedging.
Significant changes in exchange rates may also impact our competitive position and related price pressures through their impact on our competitors.
For a discussion on the instruments used by Nokia in connection with our hedging activities, see Note 35 to our consolidated financial statements included in Item 18 of this annual report. See also Item 11. “Quantitative and Qualitative Disclosures About Market Risk” and Item 3D. “Risk Factors”.
Income Taxes
At December 31, 2013, Nokia’s continuing operations in Finland had approximately EUR 2.3 billion (calculated at the Finnish corporate tax rate of 20%) of net deferred tax assets that have not been recognized in the financial statements. A significant portion of Nokia’s Finnish deferred tax assets are indefinite in nature and available against future Finnish taxable income. Nokia will continue to closely monitor its ability to utilize these deferred tax assets, including assessing future financial performance of Nokia’s continuing operations in Finland. Should the recent improvements in Nokia’s continuing operations financial results be sustained, all or part of the unrecognized deferred tax assets may be recognized in the future.
Seasonality
Our Networks sales are affected by seasonality in the network operators’ planning, budgeting and spending cycles, with generally higher Networks sales in the fourth quarter compared to the first quarter of the following year.
Our HERE sales to the automotive industry are affected by seasonality in the automobile market, navigation device market, and mobile device market, with generally higher HERE sales in the fourth quarter compared to the first quarter of the following year.
Technologies sales are not significantly affected by seasonality. However, the sales can be unevenly distributed across the quarters, based on the timing and frequency of certain payments from certain licensees. In addition, possible retrospective payments that may occur, for instance as a result of entering into an agreement or settlement, may cause even significant variations on quarterly sales.
Accounting Developments
The International Accounting Standards Board, or IASB, has and will continue to critically examine current IFRS, with a view towards improving existing IFRS, as well as increasing international harmonization of accounting rules. This process of improvement and convergence of worldwide accounting standards has resulted in amendments to existing rules effective during the year ended
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December 31, 2013. These are discussed in more detail under “New accounting pronouncements under IFRS” in Note 1 to our consolidated financial statements included in Item 18 of this annual report. The adopted 2013 amendments to IFRS did not have a material impact on our results of operations or financial position.
Subsequent Events
On April 25, 2014 Nokia completed the sale of substantially all of its Devices & Services business to Microsoft. The transaction was subject to potential purchase price adjustments. At closing, the agreed transaction price of EUR 5.44 billion was increased by approximately EUR 170 million as a result of the estimated adjustments made for net working capital and cash earnings. However this adjustment is based on an estimate which will be finalized when the final cash earnings and net working capital numbers are expected to be available during the second quarter 2014.
Nokia expects to book a gain on sale of approximately EUR 3.0 billion from the transaction. As a result of the gain, Nokia expects to record tax expenses of approximately EUR 180 million.
Additionally, as is customary for transactions of this size, scale and complexity, Nokia and Microsoft made certain adjustments to the scope of the assets originally planned to transfer. These adjustments have no impact on the material deal terms of the transaction and Nokia will be materially compensated for any retained liabilities.
In India, our manufacturing facility remains part of Nokia following the closing of the transaction. Nokia and Microsoft have entered into a service agreement whereby Nokia would produce mobile devices for Microsoft for a limited time. In the Republic of Korea, Nokia and Microsoft agreed to exclude the Masan facility from the scope of the transaction and Nokia is taking steps to close the facility, which employs approximately 200 people. Altogether, and accounting for these adjustments, approximately 25 000 employees transferred to Microsoft at the closing.
The EUR 1.5 billion convertible bonds issued by Nokia to Microsoft following the announcement of the transaction have been redeemed and netted against the deal proceeds by the amount of principal and accrued interest.
Critical Accounting Policies
Our accounting policies affecting our financial condition and results of operations are more fully described in Note 1 to our consolidated financial statements included in Item 18 of this annual report. Some of our accounting policies require the application of judgment by management in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. The related results form the basis for making judgments about reported carrying values of assets and liabilities and reported amounts of revenues and expenses that may not be readily apparent from other sources. The Group will revise material estimates if changes occur in the circumstances on which an estimate was based or as a result of new information or more experience. Actual results may differ from current estimates under different assumptions or conditions. The estimates affect all our businesses equally unless otherwise indicated.
The following paragraphs discuss critical accounting policies and related judgments and estimates used in the preparation of our consolidated financial statements. We have discussed the application of these critical accounting estimates with our Board of Directors and the Audit Committee.
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Revenue Recognition
Revenues within the Group are generally recognized when the significant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. When management determines that such criteria have been met, revenue is recognized.
Networks enters into transactions that involve multiple components consisting of any combination of hardware, software and services. Within these arrangements, separate components are identified and accounted for based on the nature and fair value of those components and considering the economic substance of the entire arrangement. Revenue is allocated to each separately identifiable component based on the relative fair value of each component. The fair value of each component is determined by taking into consideration factors such as the price of the component when sold separately and the component cost plus a reasonable margin when price references are not available. This determination of the fair value and allocation thereof to each separately identifiable component of a transaction requires the use of estimates and judgment which may have a significant impact on the timing and amount of revenue recognized for the period. Service revenue, which typically includes managed services and maintenance services, is generally recognized on a straight-line basis over the specified period unless there is evidence that some other method better represents the rendering of services.
Also at Networks, certain revenue is recognized from contracts involving solutions achieved through modification of complex telecommunications equipment on a percentage of completion basis when the outcome of the contract can be estimated reliably. Recognized revenues and profit estimates are subject to revisions during the project in the event that the assumptions regarding the overall project outcome are revised. Current sales and profit estimates for projects may materially change due to an early stage of a long-term project, new technology, changes in the project scope, changes in costs, changes in timing, changes in customers’ plans, realization of penalties and other corresponding factors.
Within the HERE business, a substantial majority of revenue is derived from the licensing of the HERE database. Revenue which consists of license fees from usage (including license fees in excess of the nonrefundable minimum fees), are recognized in the period in which the license fees are estimable. Nonrefundable minimum annual licensing fees are generally received upfront and represent a minimum guarantee of fees to be received from the licensee during the period of the arrangement. The total up-front fee paid by the customer is generally amortized ratably over the term of the arrangement. When it is determined that the actual amount of licensing fees earned exceeds the cumulative revenue recognized under the amortization method, we recognize the additional licensing revenue. Furthermore, within the HERE business, some licensing arrangements contain multiple elements, that could include data, software, services and updates. Revenue is allocated to each element based on its relative fair value and is recognized as the element is delivered and the obligation is fulfilled.
Technologies’ patent license agreements are multi-year arrangements, which usually cover both a licensee’s past and future sales until a certain agreed date, when the license expires. When a patent license agreement is signed, it typically includes an agreement or settlement on past royalties that the licensor is entitled to. Such income for past periods is recognized immediately. License payments relating to the future royalties are recognized over the remaining contract period, typically 5 to 10 years. Licensees often pay a fixed license fee in one or more installments and running royalties based on their sales of licensed products. Licensees generally report and pay their running royalties on a quarterly basis after the end of each quarter and Nokia revenue recognition takes place accordingly at the time the royalty reports are received.
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Within the Devices & Services business in Discontinued Operations, a sale of devices can include multiple components consisting of a combination of hardware, services and software. The commercial effect of each separately identifiable element of the transaction is evaluated in order to determine the appropriate accounting treatment for each component of the transaction. The total amount received is allocated to individual components based on their estimated fair value. Fair value of each component is determined by taking into consideration factors such as the price when the component is sold separately, the price when a similar component is sold separately by a third party and cost plus a reasonable margin when pricing references are not available. The estimated fair values are allocated first to software and services and the residual amount allocated to hardware. Application of the recognition criteria described above generally results in recognition of hardware-related revenue at the time of delivery with software and services-related revenue recognized on a straight-line basis over their respective terms.
Also within the Devices & Services business in Discontinued Operations, we record estimated reductions to revenue for special pricing agreements and other volume-based discounts at the time of sale. Sales adjustments for volume based discount programs are estimated largely based on historical activity under similar programs.
Customer Financing
We have provided a limited amount of customer financing arrangements, predominantly within Networks, and agreed extended payment terms with selected customers. In establishing credit arrangements, management must assess the creditworthiness of the customer and the timing of cash flows expected to be received under the arrangement. However, should the actual financial position of our customers or general economic conditions differ from our assumptions, we may be required to reassess the ultimate collectability of such financings and trade credits, which could result in a write-off of these balances in future periods and thus negatively impact our profits in future periods. Our assessment of the net recoverable value considers the collateral and security arrangements of the receivable, as well as the likelihood and timing of estimated collections. From time to time, the Group endeavors to mitigate this risk through transfer of its rights to the cash collected from these arrangements to third-party financial institutions on a non-recourse basis in exchange for an upfront cash payment. The financial impact of the customer financing related assumptions mainly affects the Networks business.
Allowances for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the subsequent inability of our customers to make required payments. If financial conditions of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required in future periods. Management specifically analyzes accounts receivables and historical bad debt, customer concentrations, customer creditworthiness, past due balances, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Based on these estimates and assumptions, Nokia continuing operations’ allowance for doubtful accounts was EUR 124 million at the end of 2013.
Inventory-related Allowances
We periodically review our inventory for excess, obsolescence and declines in market value below cost and record an allowance against the inventory balance for any such declines. These reviews require management to estimate future demand for our products. Possible changes in these estimates could result in revisions to the valuation of inventory in future periods. Based on these estimates and assumptions, the Nokia continuing operations’ allowance for excess and obsolete inventory was EUR 178 million at the end of 2013. The financial impact of the assumptions regarding this allowance
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affects mainly the cost of sales of the Networks business and the results from Discontinued Operations through the Devices & Services business.
Project loss provisions
The Group provides for onerous contracts based on the lower of the expected cost of fulfilling the contract and the expected cost of terminating the contract. Due to the long-term nature of customer projects, changes in estimates of costs to be incurred, and therefore project loss estimates, may become necessary as the projects are executed. Based on these estimates and assumptions, the Networks project loss provision is EUR 152 million.
Warranty Provisions
We provide for the estimated cost of product warranties at the time revenue is recognized. Our products are covered by product warranty plans of varying periods, depending on local practices and regulations. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligations are affected by actual product failure rates and by material usage and service delivery costs incurred in correcting a product failure. Our warranty provision is established based upon our best estimates of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. As we continuously introduce new products which incorporate complex technology, and as local laws, regulations and practices may change, it will be increasingly difficult to anticipate our failure rates, the length of warranty periods and repair costs. While we believe that our warranty provisions are adequate and that the judgments applied are appropriate, the ultimate cost of product warranty could differ materially from our estimates. When the actual cost of quality of our products is lower than we originally anticipated, we release an appropriate proportion of the provision, and if the cost of quality is higher than anticipated, we increase the provision. Based on these estimates and assumptions, the Nokia continuing operations warranty provision was EUR 94 million at the end of 2013. The financial impact of the assumptions regarding this provision mainly affects the cost of sales of the Networks business and the results from Discontinued Operations through the Devices & Services business.
Provision for Intellectual Property Rights, or IPR, Infringements
We provide for the estimated past costs related to alleged asserted IPR infringements based on the probable outcome of each potential future settlement.
Our products include increasingly complex technologies involving numerous patented and other proprietary technologies. Although we proactively try to ensure that we are aware of any patents and other IPR related to our products under development and thereby avoid inadvertent infringement of proprietary technologies, the nature of our business is such that patent and other IPR infringements may and do occur. We identify potential IPR infringements through contact with parties claiming infringement of their patented or otherwise exclusive technology, or through our own monitoring of developments in patent and other IPR cases involving our competitors.
We estimate the outcome of all potential IPR infringements made known to us through assertion by third parties, or through our own monitoring of patent- and other IPR-related cases in the relevant legal systems. To the extent that we determine that an identified potential infringement will result in a probable outflow of resources, we record a liability based on our best estimate of the expenditure required to settle infringement proceedings. Based on these estimates and assumptions, the provision for IPR infringements was EUR 15 million at the end of 2013 in Nokia continuing operations.
Our experience with claims of IPR infringement is that there is typically a discussion period with the accusing party, which can last from several months to years. In cases where a settlement is not
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reached, the discovery and ensuing legal process typically lasts a minimum of one year. For this reason, IPR infringement claims can last for varying periods of time, resulting in irregular movements in the IPR infringement provision. In addition, the ultimate outcome or actual cost of settling an individual infringement may materially vary from our estimates.
Legal Contingencies
As discussed in Item 8A7. “Litigation” and in Note 28 and 30 to the consolidated financial statements included in Item 18 of this annual report, legal proceedings covering a wide range of matters are pending or threatened in various jurisdictions against the Group. We record provisions for pending litigation when we determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates.
Business Combinations
We apply the acquisition method of accounting to account for acquisitions of businesses. The consideration transferred in a business combination is measured as the aggregate of the fair values of the assets transferred, liabilities incurred towards the former owners of the acquired business and equity instruments issued. Acquisition-related costs are recognized as expense in profit and loss in the periods when the costs are incurred and the related services are received. Identifiable assets acquired and liabilities assumed are measured separately at their fair value as of the acquisition date. Non-controlling interests in the acquired business are measured separately based on their proportionate share of the identifiable net assets of the acquired business. The excess of the cost of the acquisition over our interest in the fair value of the identifiable net assets acquired is recorded as goodwill.
The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. Management determines the discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash flows over that period. Although we believe that the assumptions applied in the determination are reasonably based on information available at the date of acquisition, actual results may differ from the forecasted amounts and the difference could be material.
Valuation of Long-lived Assets, Intangible Assets and Goodwill
We assess the carrying amount of identifiable intangible assets and long-lived assets if events or changes in circumstances indicate that such carrying amount may not be recoverable. We assess the carrying amount of our goodwill at least annually, or more frequently based on these same indicators. Factors that we consider important, and which could trigger an impairment review, include the following:
| • | significant underperformance relative to historical or projected future results; |
| • | significant changes in the manner of our use of these assets or the strategy for our overall business; and |
| • | significantly negative industry or economic trends. |
When we determine that the carrying amount of intangible assets, long-lived assets or goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure recoverable value based on discounted projected cash flows.
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Recoverable value is based upon our projections of anticipated discounted future cash flows. The most significant variables in determining cash flows are discount rates, terminal values and the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. Management determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash flows over that period. While we believe that our assumptions are appropriate, such amounts estimated could differ materially from what will actually occur in the future.
Goodwill is allocated to the Group’s cash-generating units or groups of cash-generating units (CGUs) and recoverable value is determined for each of the CGUs for the purpose of impairment testing. The allocation of goodwill to the CGUs is made in a manner that is consistent with the level at which management monitors operations and the CGUs are expected to benefit from the synergies arising from the business combinations in which the goodwill arose. As a result of the Sale of the D&S Business, we have combined the Smart Devices and Mobile Phones CGUs into a single Devices & Services CGU and aligned with the scope of the business being sold. The goodwill previously allocated to the two separate CGUs has been allocated to the combined CGU for impairment testing purposes. No Goodwill was allocated to the new Technologies CGU, which aligns with the Group’s new operating and reportable segment.
In previous years, we have defined the Networks operating segment as a single CGU. As a consequence of the acquisition of the Siemens’ minority stake in NSN on August 7, 2013, and the resulting change in reportable segments, the Group has identified two Networks related groups of CGUs to which goodwill has been allocated: Radio Access Networks within the Mobile Broadband operating segment and Global Services.
Goodwill amounting to EUR 4 815 million at the end of 2013 has been allocated as follows: HERE CGU (EUR 3 219 million), Networks Radio Access Networks group of CGUs within Mobile Broadband (EUR 88 million), Networks Global Services group of CGUs (EUR 91 million) and Devices & Services CGU within Discontinued Operations (EUR 1 417 million).
IAS 36 requires goodwill to be assessed annually for impairment unless triggering events are identified prior to the annual testing date that indicate a potential impairment in which case an interim assessment is required. The annual impairment testing for the HERE and Devices & Services CGUs is performed as of October 1. The annual impairment testing for the Networks related groups of CGUs has been performed as of September 30. An additional impairment analysis specific to Networks CGUs was performed subsequently at November 30, 2013, to align the annual testing date with Networks annual financial planning cycle. Management determined that the signing of the agreement with Microsoft on the Sale of the D&S Business constituted a triggering event requiring an interim impairment test for the Devices & Services and HERE CGUs. Accordingly, an interim review was performed in September 2013. No impairment charges were recorded for any of the CGUs as a result of either the interim or annual tests.
The recoverable values of the Smart Devices and Mobile Phones CGUs, that were combined to form the Devices & Services CGU and have been classified as Discontinued Operations in 2013, were previously valued using a value in use basis. During 2013, the Devices & Services CGU recoverable value was determined using a fair value less cost of disposal model based on the agreed purchase price defined in the agreement for the Sale of the D&S Business, excluding any consideration attributable to patents or patent applications.
During 2013, the recoverable amounts of the HERE CGU, Radio Access Networks and Global Services groups of CGUs have been determined using a fair value less cost of disposal model. Fair value less cost of disposal was estimated using discounted cash flow calculations. The cash flow projections employed in the discounted cash flow calculations have been determined by management
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based on the information available, to reflect the amount that an entity could obtain from separate disposal of each of the CGUs in an orderly transaction between market participants at the measurement date after deducting the estimated cost of disposal. The estimates of fair value less cost of disposal are categorized as level 3 of the fair value hierarchy.
Discounted cash flows for the Networks CGUs and HERE CGU were modeled over 10 annual periods. The growth rates used in transition to terminal year reflect estimated long-term stable growth which do not exceed long-term average growth rates for the industry and economies in which the CGUs operate. All cash flow projections are consistent with external sources of information, wherever possible.
The key assumptions applied in the impairment testing for each CGU in the annual goodwill impairment testing for each year indicated are presented in the table below. No information has been included for the Devices & Services CGU as the recoverable amount was not determined using a discounted cash flow analysis and the CGU is attributable to discontinued operations:
| Cash generating units | ||||||||||||||||||||||||||||||||
| HERE | Radio Access | Global | Networks | |||||||||||||||||||||||||||||
|
|
Networks group of CGUs in Mobile Broadband* % |
Services group of CGUs* % |
% | |||||||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||||
| Terminal growth rate |
1.7 | 1.7 | 1.5 | — | 0.5 | — | — | 0.7 | ||||||||||||||||||||||||
| Post-tax discount rate |
10.6 | 9.9 | 10.8 | — | 10.1 | — | — | 10.3 | ||||||||||||||||||||||||
| * | Networks CGU is divided into two groups of CGUs in 2013: Radio Access Networks group of CGUs within the Mobile Broadband operating segment and the Global Services group of CGUs. |
Fair value less cost of disposal for the HERE CGU and Radio Access Networks and Global Services groups of CGUs are determined using post-tax valuation assumptions including projected cash flows and the discount rate.
The discount rates applied in the impairment testing for the above noted CGUs or groups of CGUs reflect current assessments of the time value of money and relevant market risk premiums. Risk premiums included in the determination of the discount rate reflect risks and uncertainties for which the future cash flow estimates have not been adjusted.
The recoverable amount of the HERE CGU exceeds its carrying amount by a small margin at the testing date. The related valuation is deemed most sensitive to the changes in both discount and long-term growth rates. A discount rate increase in excess of 0.5 percentage point or long-term growth decline in excess of 1 percentage point would result in impairment loss in the HERE CGU. Management’s estimates of the overall automotive volumes and market share, customer adoption of the new location-based platform and related service offerings, projected value of the services sold to Microsoft and assumptions regarding pricing, as well as continued focus on cost efficiency are the main drivers for the HERE net cash flow projections. The Group’s cash flow forecasts reflect the current strategic views that license fee-based models will remain important in both near and long term. Management expects that license fee-based models which are augmented with software and services and monetized via license fees, transactions fees and advertising, will grow in the future as more customers demand complete, end-to-end location solutions and as cloud computing and cloud-based services garner greater market acceptance. Actual short- and long-term performance could vary from management’s forecasts and impact future estimates of recoverable value. Since the recoverable amount exceeds the carrying amount only by a small margin, any material adverse changes such as market deterioration or changes in the competitive landscape could impact management’s estimates of the main drivers and result in impairment loss.
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In the fourth quarter of 2011, the Group recorded an impairment loss of EUR 1 090 million to reduce the carrying amount of the HERE CGU to its recoverable amount at that time. The impairment loss was allocated in its entirety to the carrying amount for goodwill. The Group’s goodwill impairment testing did not result in impairment charges for the years ended December 31, 2013 and 2012.
Other than disclosed for the HERE CGU above, management believes that no reasonably possible change in any of the above assumptions would cause the carrying value of any cash generating unit to exceed its recoverable amount.
See Note 9 to our consolidated financial statements included in Item 18 of this annual report for further information regarding “Valuation of long-lived and intangible assets and goodwill”.
Fair Value of Derivatives and Other Financial Instruments
The fair value of financial instruments that are not traded in an active market for example, unlisted equities, are determined using widely accepted valuation techniques. We use judgment to select an appropriate valuation methodology and underlying assumptions based principally on existing market conditions. If quoted market prices are not available for unlisted shares, fair value is estimated by using various factors, including, but not limited to: (1) the current market value of similar instruments, (2) prices established from a recent arm’s length transactions and (3) analysis of market prospects and operating performance of target companies taking into consideration of public market comparable companies in similar industry sectors. Changes in these assumptions may cause the Group to recognize impairments or losses in future periods. During 2013, the Group received distributions of EUR 44 million (EUR 49 million in 2012) included in other financial income from a private fund held as non-current available-for-sale. Due to a reduction in estimated future cash flows, the Group also recognized an impairment loss of EUR 7 million in 2012 for the fund included in other financial expenses. See also note 12 to our consolidated financial statements included in item 18 of this annual report.
Income Taxes
The Group is subject to income taxes both in Finland and in numerous other jurisdictions. Significant judgment is required in determining income tax expense, uncertain tax positions, deferred tax assets and liabilities recognized in the consolidated financial statements. We recognize deferred tax assets to the extent that it is probable that sufficient taxable income will be available in the future against which the temporary differences, tax losses and unused tax credits can be utilized. We have considered future taxable income and tax planning strategies in making this assessment. Deferred tax assets are assessed for realizability each reporting period, and when circumstances indicate that it is no longer probable that deferred tax assets will be utilized, they are adjusted as necessary. In 2013, Nokia taxes continued to be unfavorably affected by Networks taxes as no tax benefits are recognized for certain Networks deferred tax items. Additionally, Nokia taxes were adversely affected by allowances related to Devices & Services’ Finnish deferred tax assets and discontinuation of recognizing tax benefits for Devices & Services’ Finnish deferred tax items due to uncertainty of utilization of these items.
At December 31, 2013, the Group had tax losses carry forward, temporary differences and tax credits of EUR 10 693 million (EUR 10 446 million in 2012) for which no deferred tax assets were recognized in the consolidated financial statements due to uncertainty of utilization of these items.
We recognize liabilities for uncertain tax positions based on estimates and assumptions when, despite our belief that tax return positions are supportable, it is more likely than not that certain positions will be challenged and may not be fully sustained upon review by tax authorities. The Group has ongoing tax investigations in multiple jurisdictions, including India. If the final outcome of these matters differs from
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the amounts initially recorded, differences may positively or negatively impact the current taxes and deferred taxes in the period in which such determination is made.
Results of Operations
In this “Results of Operations” discussion, we continue to refer to the reportable segments under their names as at December 31, 2013. Our current Networks business is referred to as Nokia Solutions and Networks, or NSN, HERE naming remains unchanged and our current Technologies business is referred to as Advanced Technologies.
2013 compared with 2012
Nokia Continuing Operations
The following table sets forth selective line items and the percentage of net sales that they represent for the fiscal years 2013 and 2012.
| Year Ended December 31, 2013 |
Percentage of Net Sales |
Year Ended December 31, 2012 |
Percentage of Net Sales |
Percentage Increase/ (Decrease) |
||||||||||||||||
| (EUR millions, except percentage data) | ||||||||||||||||||||
| Net sales |
12 709 | 100.0 | % | 15 400 | 100.0 | % | (17 | )% | ||||||||||||
| Cost of sales |
(7 364 | ) | (57.9 | )% | (9 841 | ) | (63.9 | )% | (25 | )% | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Gross profit |
5 345 | 42.1 | % | 5 559 | 36.1 | % | (4 | )% | ||||||||||||
| Research and development expenses |
(2 619 | ) | (20.6 | )% | (3 081 | ) | (20.0 | )% | (15 | )% | ||||||||||
| Selling and marketing expenses |
(974 | ) | (7.7 | )% | (1 372 | ) | (8.9 | )% | (29 | )% | ||||||||||
| Administrative and general expenses |
(697 | ) | (5.5 | )% | (690 | ) | (4.5 | )% | 1 | % | ||||||||||
| Other operating income and expenses |
(536 | ) | (4.2 | )% | (1 237 | ) | (8.0 | )% | (57 | )% | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Operating profit (loss) |
519 | 4.1 | % | (821 | ) | (5.3 | )% | |||||||||||||
|
|
|
|
|
|||||||||||||||||
Net Sales
Continuing operations net sales declined by 17% to EUR 12 709 million in 2013 compared with EUR 15 400 million in 2012. The decline in Nokia’s continuing operations net sales in 2013 was primarily due to lower NSN and HERE net sales. The decline in NSN net sales was partially due to divestments of businesses not consistent with its strategic focus, as well as the exiting of certain customer contracts and countries. Excluding these two factors, NSN net sales in 2013 declined by approximately 13% primarily due to reduced wireless infrastructure deployment activity, which affected both Global Services and Mobile Broadband. The decline in HERE net sales was primarily due to a decline in internal1 HERE net sales due to lower recognition of deferred revenue related to our smartphone sales, partially offset by an increase in external HERE net sales due to higher sales to vehicle customers. Additionally, NSN and HERE net sales were negatively affected by foreign currency fluctuations.
| 1 | HERE internal sales refers to sales that HERE had to our Discontinued Operations (formerly Devices & Services business) that used certain HERE services in its mobile devices. After the closing of the Sale of the D&S Business, HERE no longer generates such internal sales however, it will continue to recognize deferred revenue related to this business for up to 24 months after the closing of the Sale of the D&S Business. As part of the Sale of the D&S Business, Microsoft will become a strategic licensee of the HERE platform, and will separately pay HERE for a four-year license that will be recognized ratably as external net sales. |
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The following table sets forth the distribution by geographical area of our net sales for the fiscal years 2013 and 2012.
| Year Ended December 31, 2013 |
Change 2012 to 2013 |
Year Ended December 31, 2012 |
||||||||||
| (EUR millions, except percentage data) | ||||||||||||
| Europe1) |
3 940 | (19 | %) | 4 892 | ||||||||
| Middle East & Africa |
1 169 | (14 | %) | 1 362 | ||||||||
| Greater China |
1 201 | (10 | %) | 1 341 | ||||||||
| Asia-Pacific |
3 428 | (23 | %) | 4 429 | ||||||||
| North America |
1 656 | 2 | % | 1 628 | ||||||||
| Latin America |
1 315 | (25 | %) | 1 748 | ||||||||
|
|
|
|
|
|||||||||
| Total |
12 709 | (17 | %) | 15 400 | ||||||||
|
|
|
|
|
|||||||||
| 1 | All Technologies net sales are allocated to Finland. |
Gross Margin
Gross margin for continuing operations in 2013 was 42.1%, compared to 36.1% in 2012. The increase in 2013 was primarily due to a higher NSN gross margin. NSN gross margin increased primarily due to improved efficiency in Global Services, an improved product mix with a greater share of higher margin products, and the divestment of less profitable businesses.
Operating Expenses
Our research and development expenses were EUR 2 619 million in 2013, compared to EUR 3 081 million in 2012. Research and development expenses represented 20.6% of our net sales in 2013, compared to 20.0% in 2012. Research and development expenses included purchase price accounting items of EUR 188 million in 2013, compared to EUR 375 in 2012. The decrease was primarily due to lower amortization of acquired intangible assets within HERE. In addition, it included EUR 15 million of transaction related costs, related to the Sale of the D&S Business.
In 2013, our selling and marketing expenses were EUR 974 million, compared to EUR 1 372 million in 2012. Selling and marketing expenses represented 7.7% of our net sales in 2013 compared to 8.9% in 2012. The decrease in selling and marketing expenses was due to lower purchase price accounting items and generally lower expenses in NSN and HERE. Selling and marketing expenses included purchase price accounting items of EUR 93 million in 2013 compared to EUR 313 million in 2012. The decrease was primarily due to items arising from the formation of NSN becoming fully amortized at the end of the first quarter of 2013.
Administrative and general expenses were EUR 697 million in 2013, compared to EUR 690 million in 2012. Administrative and general expenses were equal to 5.5% of our net sales in 2013 compared to 4.5% in 2012. The increase in administrative and general expenses as a percentage of net sales reflected a decline in net sales in 2013. Administrative and general expenses did not include purchase price accounting items in either 2013 or 2012.
Other income and expense was a net expense of EUR 536 million in 2013, compared to a net expense of EUR 1 237 million in 2012. In 2013, other income and expenses included restructuring charges of EUR 602 million, as well as transaction related costs of EUR 18 million related to the Sale of the D&S Business. In 2012, other income and expenses included restructuring charges of EUR 1 265 million, including EUR 42 million related to country and contract exits, impairments of assets of EUR 2 million, a negative adjustment of EUR 4 million to purchase price allocations related to the final payment from
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Motorola as well as amortization of acquired intangible assets of EUR 23 million and a net gain on sale of real estate of EUR 79 million.
Operating Profit (loss)
Our 2013 operating profit was EUR 519 million, compared with an operating loss of EUR 821 million in 2012. The increased operating profit resulted primarily from lower restructuring charges and purchase price accounting items in general and an increase in the operating performance of our NSN and HERE businesses. Our operating profit in 2013 included purchase price accounting items, restructuring charges and other special items of net negative EUR 917 million compared to net negative EUR 1 963 million in 2012. Our 2013 operating margin was positive 4.1% compared to negative 5.3% in 2012. The improvement was primarily due to an increase in our gross margin and lower expenses in other income and expenses.
Corporate Common
Corporate common functions’ operating loss totaled EUR 57 million in 2013, compared to EUR 50 million in 2012. In 2013 corporate common included restructuring charges and associated impairments of EUR 10 million, as well as transaction related costs of EUR 18 million related to the Sale of the D&S Business. In 2012, corporate common benefitted from a net gain from sale of real estate of EUR 79 million and included restructuring charges of EUR 6 million.
Net Financial Income and Expenses
Financial income and expenses, net, was an expense of EUR 280 million in 2013 compared to an expense of EUR 357 million in 2012. The lower net expense in 2013 was primarily driven by lower foreign exchange losses.
Our net debt to equity ratio was negative 35% at December 31, 2013, compared with a net debt to equity ratio of negative 47% at December 31, 2012. See Item 5B. “Liquidity and Capital Resources” below.
Profit (loss) Before Taxes
Continuing operations profit before tax was EUR 243 million in 2013, compared to a loss of EUR 1 179 million in 2012. Taxes amounted to EUR 202 million in 2013 and EUR 304 million in 2012.
Non-controlling interests
Loss attributable to non-controlling interests from continuing operations totaled EUR 145 million in 2013, compared with a loss attributable to non-controlling interests of EUR 712 million in 2012. This change was primarily due to an improvement in NSN’s results and our acquisition of Siemens’ stake in NSN.
Profit (loss) Attributable to Equity Holders of the Parent and Earnings per Share
Nokia Group’s total loss attributable to equity holders of the parent in 2013 amounted to EUR 615 million, compared with a loss of EUR 3 105 million in 2012. Continuing operations generated a profit attributable to equity holders of the parent in 2013, amounting to EUR 186 million, compared with a loss of EUR 771 million in 2012. Nokia Group’s total earnings per share in 2013 increased to EUR (0.17) (basic) and EUR (0.17) (diluted), compared with EUR (0.84) (basic) and EUR (0.84) (diluted) in 2012. From continuing operations, earnings per share in 2013 increased to EUR 0.05 (basic) and EUR 0.05 (diluted), compared with EUR (0.21) (basic) and EUR (0.21) (diluted) in 2012.
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Results by Segments
Nokia Solutions and Networks
The following table sets forth selective line items and the percentage of net sales that they represent for the fiscal years 2013 and 2012.
| Year Ended December 31, 2013 |
Percentage of Net Sales |
Year Ended December 31, 2012 |
Percentage of Net Sales |
Percentage Increase/ (Decrease) |
||||||||||||||||
| (EUR millions, except percentage data) | ||||||||||||||||||||
| Net sales |
11 282 | 100.0 | % | 13 779 | 100.0 | % | (18 | )% | ||||||||||||
| Cost of Sales |
(7 148 | ) | (63.4 | )% | (9 610 | ) | (69.7 | )% | (26 | )% | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Gross profit |
4 134 | 36.6 | % | 4 169 | 30.3 | % | (1 | %) | ||||||||||||
| Research and development expenses |
(1 822 | ) | (16.1 | )% | (2 046 | ) | (14.9 | )% | (11 | %) | ||||||||||
| Selling and marketing expenses |
(821 | ) | (7.3 | )% | (1 158 | ) | (8.4 | )% | (29 | %) | ||||||||||
| Administrative and general expenses |
(489 | ) | (4.3 | )% | (470 | ) | (3.4 | )% | 4 | % | ||||||||||
| Other income and expenses |
(582 | ) | (5.2 | )% | (1 290 | ) | (9.4 | )% | (55 | %) | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Operating profit (loss) |
420 | 3.7 | % | (795 | ) | (5.8 | )% | |||||||||||||
|
|
|
|
|
|||||||||||||||||
Segment information
| Mobile Broadband |
Global Services |
NSN Other |
NSN | |||||||||||||
| (EUR millions, except percentage data) | ||||||||||||||||
| 2013 |
||||||||||||||||
| Net sales |
5 347 | 5 753 | 182 | 11 282 | ||||||||||||
| Contribution |
420 | 693 | (693 | ) | ||||||||||||
| % of net sales |
7.9 | % | 12.0 | % | (381.9 | )% | ||||||||||
| Operating profit |
420 | |||||||||||||||
| % of net sales |
3.7 | % | ||||||||||||||
| Mobile Broadband |
Global Services |
NSN Other |
NSN | |||||||||||||
| (EUR millions, except percentage data) | ||||||||||||||||
| 2012 |
||||||||||||||||
| Net Sales |
6 043 | 6 929 | 807 | 13 779 | ||||||||||||
| Contribution |
490 | 334 | (1 619 | ) | ||||||||||||
| % of net sales |
8.1 | % | 4.8 | % | (200.6 | )% | ||||||||||
| Operating loss |
(795 | ) | ||||||||||||||
| % of net sales |
(5.8 | )% | ||||||||||||||
NSN Other includes net sales and related cost of sales and operating expenses of non-core businesses, as well as Optical Networks business until May 6, 2013 when its divestment was completed. It also includes restructuring and associated charges for the NSN business.
Net Sales
NSN’s net sales decreased 18% to EUR 11 282 million in 2013, compared to EUR 13 779 million in 2012. The year-on-year decline in NSN’s net sales was primarily due to reduced wireless infrastructure deployment activity affecting both Mobile Broadband and Global Services, as well as the divestments of businesses not consistent with its strategic focus, foreign currency fluctuations and the exiting of certain customer contracts and countries.
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Mobile Broadband net sales declined 12% to EUR 5 347 million in 2013, compared to EUR 6 043 million in 2012, as declines in WCDMA, CDMA and GSM were partially offset by growth in both FD-LTE and TD-LTE, reflecting the industry shift to 4G technology. Core network sales declined as a result of the customer focus on radio technologies.
Global Services net sales declined 17% to EUR 5 753 million in 2013, compared to EUR 6 929 million in 2012 primarily due to the exiting of certain customer contracts and countries as part of NSN’s strategy to focus on more profitable business as well as a decline in network roll-outs in Japan and Europe.
The following table sets forth the distribution by geographical area of our net sales for the fiscal years 2013 and 2012.
| Year Ended December 31, 2013 |
Change 2012 to 2013 |
Year Ended December 31, 2012 |
||||||||||
| (EUR millions, except percentage data) | ||||||||||||
| Europe |
3 041 | (22 | %) | 3 896 | ||||||||
| Middle East & Africa |
1 111 | (14 | %) | 1 287 | ||||||||
| Greater China |
1 185 | (7 | %) | 1 278 | ||||||||
| Asia-Pacific |
3 354 | (23 | %) | 4 347 | ||||||||
| North America |
1 334 | 3 | % | 1 294 | ||||||||
| Latin America |
1 257 | (25 | %) | 1 677 | ||||||||
|
|
|
|
|
|||||||||
| Total |
11 282 | (18 | %) | 13 779 | ||||||||
|
|
|
|
|
|||||||||
Gross Margin
NSN’s gross margin was 36.6% in 2013, compared to 30.3% in 2012, driven by improved efficiency in Global Services, an improved product mix with a greater share of higher margin products, and the divestment of less profitable businesses.
In Mobile Broadband, gross margin improved in 2013 driven by an increased software share in the product mix, offset by costs incurred in anticipation of a technology shift to TD-LTE.
In Global Services, gross margin improved significantly in 2013 due to the increase in efficiencies as part of our restructuring program and the exit of certain customer contracts and countries as part of NSN’s strategy to focus on more profitable business.
Operating Expenses
NSN’s research and development expenses decreased 11% year-on-year in 2013 to EUR 1 822 million from EUR 2 046 million in 2012, primarily due to business divestments and reduced investment in business activities not in line with NSN’s focused strategy as well as increased research and development efficiency, partially offset by higher investments in business activities that are in line with NSN’s focused strategy, most notably LTE.
NSN’s sales and marketing expenses decreased 29% year-on-year in 2013 to EUR 821 million from EUR 1 158 million in 2012, primarily due to structural cost savings from NSN’s restructuring program and a decrease in purchase price accounting related items arising from the formation of NSN, which were fully amortized at the end of the first quarter of 2013.
NSN’s administrative and general expenses increased 4% year-on-year in 2013 to EUR 489 million from EUR 470 million in 2012, primarily due to consultancy fees related to finance and information technology related projects, partially offset by structural cost savings.
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NSN’s other income and expenses decreased in 2013 to an expense of EUR 582 million from an expense of EUR 1 290 million in 2012. In 2013, other income and expenses included restructuring charges of EUR 570 million, including EUR 52 million related to country and contract exits and EUR 157 million related to divestments to businesses, and in 2012 included restructuring charges and associated charges of EUR 1 226 million, including EUR 42 million related to country and contract exits, divestment of businesses EUR 50 million, impairments of assets of EUR 2 million, a negative adjustment of EUR 4 million to purchase price allocations related to the final payment from Motorola, as well as amortization of acquired intangible assets of EUR 23 million.
Operating Profit (loss)
NSN’s operating profit in 2013 was EUR 420 million, compared with an operating loss of EUR 795 million in 2012. NSN’s operating margin in 2013 was 3.7%, compared with a negative 5.8% in 2012. The increase in operating profit was primarily a result of an increase in the contribution of Global Services and a reduction in costs associated with NSN’s transformation, consisting mainly of restructuring charges. Further, the purchase price accounting related items arising from the formation of NSN were fully amortized at the end of the first quarter of 2013.
The contribution of Mobile Broadband declined from EUR 490 million in 2012 to EUR 420 million in 2013, primarily as a result of lower net sales, which was partially offset by an improved gross margin and a reduction in operating expenses.
The contribution of Global Services increased from EUR 334 million in 2012 to EUR 693 million in 2013, as the increase in gross margin more than compensated for the decline in net sales, and the contribution in 2013 was further supported by a reduction in operating expenses.
Strategy and restructuring program
In November 2011, NSN announced its strategy to focus on mobile broadband and related services, and also launched an extensive global restructuring program, targeting a reduction of its annualized operating expenses and production overhead, excluding special items and purchase price accounting related items, by EUR 1 billion by the end of 2013, compared to the end of 2011. In January 2013, this target was raised to EUR 1.5 billion, and in July 2013 this target was further raised to “more than EUR 1.5 billion”. While these savings were expected to come largely from organizational streamlining, the program also targeted areas such as real estate, information technology, product and service procurement costs, overall general and administrative expenses, and a significant reduction of suppliers in order to further lower costs and improve quality. In 2013, NSN achieved its target to reduce operating expenses and production overhead, excluding special items and purchase price accounting items, by more than EUR 1.5 billion by the end of 2013, compared to the end of 2011.
During 2013, NSN recognized restructuring charges and other associated items of EUR 550 million related to this restructuring program, resulting in cumulative charges of approximately EUR 1 850 million. By the end of 2013, NSN had cumulative restructuring related cash outflows of approximately EUR 1 250 million relating to this restructuring program. NSN expects restructuring related cash outflows to be approximately EUR 450 million for the full year 2014 relating to this restructuring program.
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HERE
The following table sets forth selective line items and the percentage of net sales that they represent for the fiscal years 2013 and 2012.
| Year Ended December 31, 2013 |
Percentage of Net Sales |
Year Ended December 31, 2012 |
Percentage of Net Sales |
Percentage Increase/ (Decrease) |
||||||||||||||||
| (EUR millions, except percentage data) | ||||||||||||||||||||
| Net sales |
914 | 100.0 | % | 1 103 | 100.0 | % | (17 | %) | ||||||||||||
| Cost of sales |
(208 | ) | (22.8 | %) | (228 | ) | (20.7 | %) | (9 | %) | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Gross profit |
706 | 77.2 | % | 875 | 79.3 | % | (19 | %) | ||||||||||||
| Research and development expenses |
(648 | ) | (70.9 | %) | (883 | ) | (80.0 | %) | (27 | %) | ||||||||||
| Selling and marketing expenses |
(119 | ) | (13.0 | %) | (186 | ) | (16.9 | %) | (36 | %) | ||||||||||
| Administrative and general expenses |
(69 | ) | (7.5 | %) | (77 | ) | (7.0 | %) | (10 | %) | ||||||||||
| Other operating income and expenses |
(24 | ) | (2.6 | %) | (30 | ) | (2.7 | %) | (20 | %) | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Operating profit (loss) |
(154 | ) | (16.8 | %) | (301 | ) | (27.3 | %) | ||||||||||||
|
|
|
|
|
|||||||||||||||||
Net Sales
HERE net sales decreased 17% to EUR 914 million in 2013, compared to EUR 1 103 million in 2012. HERE internal net sales decreased 59% to EUR 154 million in 2013, compared to EUR 374 million in 2012. HERE external net sales increased 4% to EUR 760 million in 2013, compared to EUR 729 million in 2012. The year-on-year decline in HERE internal net sales was due to lower recognition of deferred revenue related to our smartphone sales. The year-on-year increase in HERE external net sales in 2013 was primarily due to higher sales to vehicle customers, partially offset by lower sales to personal navigation devices customers. Additionally, HERE net sales were negatively affected by foreign currency fluctuations.
The following table sets forth the distribution by geographical area of our net sales for the fiscal years 2013 and 2012.
| Year Ended December 31, 2013 |
Change 2012 to 2013 |
Year Ended December 31, 2012 |
||||||||||
| (EUR millions, except percentage data) | ||||||||||||
| Europe |
384 | (19 | %) | 477 | ||||||||
| Middle East & Africa |
57 | (23 | %) | 74 | ||||||||
| Greater China |
17 | (73 | %) | 63 | ||||||||
| Asia-Pacific |
75 | (9 | %) | 82 | ||||||||
| North America |
322 | (4 | %) | 335 | ||||||||
| Latin America |
59 | (18 | %) | 72 | ||||||||
|
|
|
|
|
|||||||||
| Total |
914 | (17 | %) | 1 103 | ||||||||
|
|
|
|
|
|||||||||
Gross Margin
On a year-on-year basis, the decrease in HERE gross margin, 77.2% in 2013 compared to 79.3% in 2012, was primarily due to proportionally higher sales of update units to vehicle customers which generally carry a lower gross margin, partially offset by lower costs related to service delivery.
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Operating Expenses
HERE research and development expenses decreased 27% to EUR 648 million in 2013 compared to EUR 883 million in 2012, primarily due to a decrease in purchase price accounting related items, EUR 168 million in 2013 compared to EUR 355 million in 2012, and cost reduction actions.
HERE sales and marketing expenses decreased 36% to EUR 119 million in 2013 compared to EUR 186 million in 2012, primarily driven by a decrease in purchase price accounting items, EUR 11 million in 2013 compared to EUR 68 million in 2012, cost reduction actions and lower marketing spending.
HERE administrative and general expenses decreased 10% to EUR 69 million in 2013 compared to EUR 77 million in 2012, primarily due cost reduction actions.
In 2013, HERE other income and expense had a slightly positive year-on-year impact on profitability, decreasing from EUR 30 million in 2012 to EUR 24 million in 2013. In 2013, we recognized restructuring charges of EUR 22 million in HERE, compared to EUR 31 million in 2012.
Operating Profit (loss)
HERE operating loss decreased to EUR 154 million in 2013, compared with a loss of EUR 301 million in 2012. HERE operating margin in 2013 was negative 16.8%, compared with negative 27.3% in 2012. The year-on-year improvement in operating margin in 2013 was driven primarily by the absence of significant purchase price accounting related items arising from the purchase of NAVTEQ, the vast majority of which had been fully amortized as of the end of the second quarter of 2013.
Advanced Technologies
The following table sets forth selective line items and the percentage of net sales that they represent for the fiscal years 2013 and 2012.
| Year Ended December 31, 2013 |
Percentage of Net Sales |
Year Ended December 31, 2012 |
Percentage of Net Sales |
Percentage Increase/ (Decrease) |
||||||||||||||||
| (EUR millions, except percentage data) | ||||||||||||||||||||
| Net sales |
529 | 100.0 | % | 534 | 100.0 | % | (1 | %) | ||||||||||||
| Cost of sales |
(14 | ) | (2.6 | %) | (7 | ) | (1.3 | %) | 100 | % | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Gross profit |
515 | 97.4 | % | 527 | 98.7 | % | (2 | %) | ||||||||||||
| Research and development expenses |
(147 | ) | (27.8 | %) | (153 | ) | (28.7 | %) | (4 | %) | ||||||||||
| Selling and marketing expenses |
(34 | ) | (6.4 | %) | (24 | ) | (4.5 | %) | 42 | % | ||||||||||
| Administrative and general expenses |
(22 | ) | (4.2 | %) | (22 | ) | (4.1 | %) | 0 | % | ||||||||||
| Other operating income and expenses |
(2 | ) | (0.4 | %) | (3 | ) | (0.5 | %) | (33 | %) | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Operating profit (loss) |
310 | 58.6 | % | 325 | 60.9 | % | (5 | %) | ||||||||||||
|
|
|
|
|
|||||||||||||||||
Net Sales
Advanced Technologies net sales was stable on a year-on-year basis, EUR 529 million in 2013 compared to EUR 534 million in 2012, primarily due to a non-recurring license fee of EUR 50 million in the fourth quarter 2012, partially offset by net increases in royalty payments from our licensees.
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Gross Margin
On a year-on-year basis, the Advanced Technology gross margin decreased to 97.4% in 2013 compared to 98.7% in 2012.
Operating Expenses
Advanced Technologies research and development expenses decreased 4% to EUR 147 million in 2013 compared to EUR 153 million in 2012, primarily due to lower research and development costs, partially offset by transaction related costs of EUR 15 million related to the Sale of the D&S Business.
Advanced Technologies sales and marketing expenses increased 42% to EUR 34 million in 2013 compared to EUR 24 million in 2012, primarily due to IP licensing related litigation expenses. In 2013 sales and marketing expenses included transaction related costs of EUR 2 million related to the Sale of the D&S Business.
Advanced Technologies administrative and general expenses were flat year-on-year, amounting to EUR 22 million.
Advanced Technologies other income and expense was approximately flat year-on-year, and included restructuring charges of EUR 2 million in 2013, compared to EUR 3 million in 2012.
Operating Profit (loss)
Advanced Technologies operating profit decreased to EUR 310 million in 2013, compared to EUR 325 million in 2012. Advanced Technologies operating margin in 2013 was 58.6%, compared with 60.9% in 2012. The year-on-year decline in operating margin was driven primarily by the transaction related costs of EUR 17 million related to the Sale of the D&S Business to Microsoft, partially offset by decreased restructuring charges.
Nokia Discontinued Operations
The following table sets forth selective line items and the percentage of net sales that they represent for the fiscal years 2013 and 2012.
| Year Ended December 31, 2013 |
Percentage of Net Sales |
Year Ended December 31, 2012 |
Percentage of Net Sales |
Percentage Increase/ (Decrease) |
||||||||||||||||
| (EUR millions, except percentage data) | ||||||||||||||||||||
| Net sales |
10 735 | 100.0 | % | 15 152 | 100.0 | % | (29 | %) | ||||||||||||
| Cost of sales |
(8 526 | ) | (79.4 | %) | (12 320 | ) | (81.3 | %) | (31 | %) | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Gross profit |
2 209 | 20.6 | % | 2 832 | 18.7 | % | (22 | %) | ||||||||||||
| Research and development expenses |
(1 130 | ) | (10.5 | %) | (1 658 | ) | (10.9 | %) | (32 | %) | ||||||||||
| Selling and marketing expenses |
(1 345 | ) | (12.5 | %) | (1 857 | ) | (12.3 | %) | (28 | %) | ||||||||||
| Administrative and general expenses |
(215 | ) | (2.0 | %) | (286 | ) | (1.9 | %) | (25 | %) | ||||||||||
| Other operating income and expenses |
(109 | ) | (1.0 | %) | (510 | ) | (3.4 | %) | (79 | %) | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Operating profit (loss) |
(590 | ) | (5.5 | %) | (1 479 | ) | (9.8 | %) | ||||||||||||
|
|
|
|
|
|||||||||||||||||
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Net Sales
Discontinued operations net sales decreased by 29% to EUR 10 735 million compared to EUR 15 152 million in 2012. The decline in discontinued operations net sales in 2013 was primarily due to lower Mobile Phones net sales and, to a lesser extent, lower Smart Devices net sales. The decline in Mobile Phones net sales was due to lower volumes and ASPs, affected by competitive industry dynamics, including intense smartphone competition at increasingly lower price points and intense competition at the low end of our product portfolio. The decline in Smart Devices net sales was primarily due to lower volumes, affected by competitive industry dynamics, including the strong momentum of competing smartphone platforms, as well as our portfolio transition from Symbian products to Lumia products.
The following table sets forth the distribution by geographical area of our net sales for the fiscal years 2013 and 2012.
| Year Ended December 31, 2013 |
Change 2012 to 2013 |
Year Ended December 31, 2012 |
||||||||||
| (EUR millions, except percentage data) | ||||||||||||
| Europe |
3 266 | (27 | %) | 4 498 | ||||||||
| Middle East & Africa |
1 689 | (38 | %) | 2 712 | ||||||||
| Greater China |
816 | (46 | %) | 1 519 | ||||||||
| Asia-Pacific |
2 691 | (26 | %) | 3 655 | ||||||||
| North America |
623 | 17 | % | 532 | ||||||||
| Latin America |
1 650 | (26 | %) | 2 236 | ||||||||
|
|
|
|
|
|||||||||
| Total |
10 735 | (29 | %) | 15 152 | ||||||||
|
|
|
|
|
|||||||||
Gross Margin
Discontinued operations gross margin improved to 20.6% in 2013 compared to 18.7% in 2012. The increase in gross margin in 2013 was primarily due to a higher Smart Devices gross margin, partially offset by slightly lower Mobile Phones gross margin. The increase in Smart Devices gross margin was primarily due to lower inventory related allowances, which negatively affected Smart Devices gross margin in 2012.
Operating Expenses
Discontinued operations operating expenses were EUR 2 799 million in 2013, compared to EUR 4 311 million in 2012. The 35% decrease in 2013 was due to lower Mobile Phones and Smart Devices operating expenses, primarily due to structural cost savings, as well as overall cost controls.
Operating Profit (loss)
Discontinued operations operating margin improved to negative 5.5% in 2013 compared to negative 9.8% in 2012. The improvement was primarily due to structural cost savings, as well as overall cost controls, and a higher gross margin.
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2012 compared with 2011
Nokia Continuing Operations
The following table sets forth selective line items and the percentage of net sales that they represent for the fiscal years 2012 and 2011.
| Year Ended December 31, 2012 |
Percentage of Net Sales |
Year Ended December 31, 2011 |
Percentage of Net Sales |
Percentage Increase/ (Decrease) |
||||||||||||||||
| (EUR millions, except percentage data) | ||||||||||||||||||||
| Net sales |
15 400 | 100.0 | % | 15 968 | 100.0 | % | (4 | %) | ||||||||||||
| Cost of sales |
(9 841 | ) | (63.9 | %) | (10 408 | ) | (65.2 | %) | (5 | %) | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Gross profit |
5 559 | 36.1 | % | 5 560 | 34.8 | % | (0 | %) | ||||||||||||
| Research and development expenses |
(3 081 | ) | (20.0 | %) | (3 334 | ) | (20.9 | %) | (8 | %) | ||||||||||
| Selling and marketing expenses |
(1 372 | ) | (8.9 | %) | (1 608 | ) | (10.1 | %) | (15 | %) | ||||||||||
| Administrative and general expenses |
(690 | ) | (4.5 | %) | (735 | ) | (4.6 | %) | (6 | %) | ||||||||||
| Impairment of goodwill |
— | 0.0 | % | (1 090 | ) | (6.8 | %) | (100 | %) | |||||||||||
| Other operating income and expenses |
(1 237 | ) | (8.0 | %) | (181 | ) | (1.1 | %) | 583 | % | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Operating profit (loss) |
(821 | ) | (5.3 | %) | (1 388 | ) | (8.7 | %) | ||||||||||||
|
|
|
|
|
|||||||||||||||||
Net Sales
Nokia continuing operations net sales declined by 4% to EUR 15 400 million in 2012 compared to EUR 15 969 million in 2011. The decline was primarily due to lower net sales in Advanced Technologies due to non-recurring license payments in 2011, and lower net sales in NSN.
The following table sets forth the distribution by geographical area of our net sales for the fiscal years 2012 and 2011.
| Year Ended December 31, 2012 |
Change 2011 to 2012 |
Year Ended December 31, 2011 |
||||||||||
| (EUR millions, except percentage data) | ||||||||||||
| Europe1) |
4 892 | (16 | %) | 5 794 | ||||||||
| Middle East & Africa |
1 362 | (7 | %) | 1 466 | ||||||||
| Greater China |
1 341 | (16 | %) | 1 592 | ||||||||
| Asia-Pacific |
4 429 | 13 | % | 3 921 | ||||||||
| North America |
1 628 | 20 | % | 1 361 | ||||||||
| Latin America |
1 748 | (5 | %) | 1 834 | ||||||||
|
|
|
|
|
|||||||||
| Total |
15 400 | (4 | %) | 15 968 | ||||||||
|
|
|
|
|
|||||||||
| 1 | All Technologies net sales are allocated to Finland. |
Gross Margin
Continuing operations gross margin improved from 34.8% in 2011 to 36.1% in 2012. The improvement was primarily due to an increased gross margin in NSN.
Operating Expenses
Continuing operations research and development expenses were EUR 3 081 million in 2012, compared to EUR 3 334 million in 2011. Research and development costs represented 20.0% of our
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net sales in 2012 compared to 20.9% in 2011. Research and development expenses included purchase price accounting items of EUR 375 million in 2012 compared to EUR 404 million in 2011.
In 2012, continuing operations selling and marketing expenses were EUR 1 372 million, compared to EUR 1 608 million in 2011. Selling and marketing expenses represented 8.9% of our net sales in 2012 compared to 10.1% in 2011. Selling and marketing expenses included purchase price accounting items of EUR 313 million in 2012 compared to EUR 421 million in 2011.
Continuing operations administrative and general expenses were EUR 690 million in 2012, compared to EUR 735 million in 2011. Administrative and general expenses were equal to 4.5% of our net sales in 2012 compared to 4.6% in 2011. Administrative and general expenses included purchase price accounting items of EUR 1 million in both 2012 and 2011.
Other income and expense was a slightly lower expense of EUR 1 237 million in 2012, compared to EUR 1 271 million in 2011. In 2012, other income and expenses included restructuring charges of EUR 1 265 million, including EUR 42 million related to country and contract exits, impairments of assets of EUR 2 million, a negative adjustment of EUR 4 million to purchase price allocations related to the final payment from Motorola as well as amortization of acquired intangible assets of EUR 23 million and a net gain on sale of real estate of EUR 79 million. In 2011, other income and expenses included an impairment of goodwill of EUR 1 090 million and restructuring charges of EUR 183 million.
Operating Profit (loss)
Our 2012 operating loss was EUR 821 million, compared to a loss of EUR 1 388 million in 2011. The improvement was primarily due to lower other expenses in the HERE business due to the impairment of goodwill of EUR 1 090 million in 2011 and increased underlying profitability at NSN, partially offset by higher restructuring charges in NSN. Continuing operations operating margin improved from negative 8.7% in 2011 to negative 5.3% in 2012. Our operating loss in 2012 included purchase price accounting items, restructuring charges and other special items of a net negative EUR 1 962 million in 2012 compared to a net negative EUR 2 191 million in 2011, including impairment of goodwill amounting to EUR 1 090 million.
Corporate Common
Corporate common functions’ operating loss totaled EUR 50 million in 2012 compared to EUR 174 million in 2011. In 2012, corporate common benefitted from a net gain from sale of real estate of EUR 79 million and included restructuring charges of EUR 6 million, whereas 2011 included impairments in associated companies of EUR 41 million and restructuring charges of EUR 5 million.
Net Financial Income and Expenses
Financial income and expenses, net, was an expense of EUR 357 million in 2012 compared to an expense of EUR 131 million in 2011. The higher net expense in 2012 was primarily driven by foreign exchange losses.
Our net debt to equity ratio was negative 46% at December 31, 2012, compared with a net debt to equity ratio of negative 40% at December 31, 2011. See Item 5B. “Liquidity and Capital Resources” below.
Profit (loss) Before Taxes
Continuing operations loss before tax was EUR 1 179 million in 2012, compared to a loss of EUR 1 542 million in 2011. Taxes amounted to EUR 304 million in 2012 and EUR 73 million in 2011.
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Non-controlling interests
Loss attributable to non-controlling interests from continuing operations totaled EUR 712 million in 2012, compared with a loss attributable to non-controlling interests of EUR 343 million in 2011. This change was primarily due to an increase in NSN’s losses.
Profit (loss) Attributable to Equity Holders of the Parent and Earnings per Share
Nokia Group’s total loss attributable to equity holders of the parent in 2012 amounted to EUR 3 105 million, compared with a loss of EUR 1 163 million in 2011. Continuing operations generated a loss attributable to equity holders of the parent in 2012, amounting to EUR 771 million, compared with a loss of EUR 1 272 million in 2011. Nokia Group’s total earnings per share in 2012 decreased to EUR (0.84) (basic) and EUR (0.84) (diluted), compared with EUR (0.31) (basic) and EUR (0.31) (diluted) in 2011. From continuing operations, earnings per share in 2012 increased to EUR (0.21) (basic) and EUR (0.21) (diluted), compared with EUR (0.34) (basic) and EUR (0.34) (diluted) in 2011.
Results by Segments
Nokia Solutions and Networks
NSN completed the acquisition of the majority of Motorola Solutions’ wireless network infrastructure assets on April 30, 2011. Accordingly, the results of NSN for 2012 are not directly comparable to 2011.
The following table sets forth selective line items and the percentage of net sales that they represent for the fiscal years 2012 and 2011.
| Year Ended December 31, 2012 |
Percentage of Net Sales |
Year Ended December 31, 2011 |
Percentage of Net Sales |
Percentage Increase/ (Decrease) |
||||||||||||||||
| (EUR millions, except percentage data) | ||||||||||||||||||||
| Net sales |
13 779 | 100.0 | % | 14 041 | 100.0 | % | (2 | %) | ||||||||||||
| Cost of sales |
(9 610 | ) | (69.7 | %) | (10 199 | ) | (72.6 | %) | (6 | %) | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Gross profit |
4 169 | 30.3 | % | 3 842 | 27.4 | % | 8 | % | ||||||||||||
| Research and development expenses |
(2 046 | ) | (14.8 | %) | (2 185 | ) | (15.6 | %) | (6 | %) | ||||||||||
| Selling and marketing expenses |
(1 158 | ) | (8.4 | %) | (1 328 | ) | (9.5 | %) | (13 | %) | ||||||||||
| Administrative and general expenses |
(470 | ) | (3.4 | %) | (514 | ) | (3.7 | %) | (8 | %) | ||||||||||
| Other operating income and expenses |
(1 290 | ) | (9.4 | %) | (112 | ) | (0.8 | %) | ||||||||||||
|
|
|
|
|
|||||||||||||||||
| Operating profit (loss) |
(795 | ) | (5.8 | %) | (297 | ) | (2.1 | %) | ||||||||||||
|
|
|
|
|
|||||||||||||||||
Segment information
| Mobile Broadband |
Global Services |
NSN Other |
NSN | |||||||||||||
| (EUR millions, except percentage data) | ||||||||||||||||
| 2012 |
||||||||||||||||
| Net sales |
6 043 | 6 929 | 807 | 13 779 | ||||||||||||
| Contribution |
490 | 334 | (1 619 | ) | ||||||||||||
| % of net sales |
8.1 | % | 4.8 | % | (200.6 | )% | ||||||||||
| Operating profit |
(795 | ) | ||||||||||||||
| % of net sales |
(5.8 | )% | ||||||||||||||
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| Mobile Broadband |
Global Services |
NSN Other |
NSN | |||||||||||||
| (EUR millions, except percentage data) | ||||||||||||||||
| 2011 |
||||||||||||||||
| Net Sales |
6 335 | 6 737 | 969 | 14 041 | ||||||||||||
| Contribution |
216 | 230 | (743 | ) | ||||||||||||
| % of net sales |
3.4 | % | 3.4 | % | (76.7 | )% | ||||||||||
| Operating loss |
(297 | ) | ||||||||||||||
| % of net sales |
(2.1 | )% | ||||||||||||||
NSN Other includes net sales and related cost of sales and operating expenses of non-core businesses, as well as Optical Networks business until May 6, 2013 when its divestment was completed. It also includes restructuring and associated charges for the NSN business.
Net Sales
NSN’s net sales decreased 2% to EUR 13 779 million in 2012, compared to EUR 14 041 million in 2011. The year-on-year decline in NSN’s net sales was primarily due to the decline in sales of business areas not in line with NSN’s strategic focus and lower Mobile Broadband sales, partially offset by higher Global Services net sales. On a full-year basis, Global Services represented slightly more than 50% of NSN’s net sales in 2012 and 48% in 2011.
The following table sets forth the distribution by geographical area of our net sales for the fiscal years 2012 and 2011.
| Year Ended December 31, 2012 |
Change 2011 to 2012 |
Year Ended December 31, 2011 |
||||||||||
| (EUR millions, except percentage data) | ||||||||||||
| Europe |
3 896 | (13 | %) | 4 469 | ||||||||
| Middle East & Africa |
1 287 | (7 | %) | 1 391 | ||||||||
| Greater China |
1 278 | (13 | %) | 1 465 | ||||||||
| Asia-Pacific |
4 347 | 13 | % | 3 848 | ||||||||
| North America |
1 294 | 20 | % | 1 077 | ||||||||
| Latin America |
1 677 | (6 | %) | 1 791 | ||||||||
|
|
|
|
|
|||||||||
| Total |
13 779 | (2 | %) | 14 041 | ||||||||
|
|
|
|
|
|||||||||
Gross Margin
NSN’s gross margin was 30.3% in 2012, compared to 27.4% 2011. The increase in NSN gross margin in 2012 was primarily due to the better gross margin in both Mobile Broadband and Global Services. Within Mobile Broadband, the increase was primarily due to favorable region and product mix in line with NSN’s strategic focus. Within Global Services, the increase was primarily due to structural cost actions and efforts to align the business with the focused strategy.
Operating Expenses
NSN’s research and development expenses decreased 6% year-on-year in 2012, primarily due to structural cost saving actions and overall research and development efficiency.
NSN’s sales and marketing expenses decreased 13% year-on-year in 2012, primarily due to structural cost saving actions.
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NSN’s administrative and general expenses decreased 8% year-on-year in 2012, primarily due to structural cost saving actions.
In 2012, NSN other and other income and expense had a negative year-on-year impact on profitability, and amounted to EUR 1 290 million in 2012 compared to EUR 112 million in 2011. In 2012, other income and expense included restructuring charges and associated charges of EUR 1 226 million, including EUR 42 million related to country and contract exits, EUR 50 million related to divestments of businesses, impairments of assets of EUR 2 million, a negative adjustment of EUR 4 million to purchase price allocations related to the final payment from Motorola, as well as amortization of acquired intangible assets of EUR 23 million. In 2011, NSN recognized restructuring charges of EUR 145 million and associated charges, including EUR 19 million related to divestments of businesses.
Operating Profit (loss)
NSN’s operating loss in 2012 was EUR 795 million, compared with an operating loss of EUR 297 million in 2011. NSN’s operating margin in 2012 was a negative 5.8%, compared with a negative 2.1% in 2011, primarily due to restructuring charges of EUR 1 247 million in 2012.
Strategy and restructuring program
During 2012, NSN recognized restructuring charges and other associated items of approximately EUR 1 300 million related to this restructuring program, resulting in cumulative charges of approximately EUR 1 300 million. By the end of 2012, NSN had cumulative restructuring related cash outflows of approximately EUR 650 million relating to this restructuring program.
HERE
The following table sets forth selective line items and the percentage of net sales that they represent for HERE for the fiscal years 2012 and 2011.
| Year Ended December 31, 2012 |
Percentage of Net Sales |
Year Ended December 31, 2011 |
Percentage of Net Sales |
Percentage Increase/ (Decrease) |
||||||||||||||||
| (EUR millions, except percentage data) | ||||||||||||||||||||
| Net sales |
1 103 | 100.0 | % | 1 091 | 100.0 | % | 1 | % | ||||||||||||
| Cost of sales |
(228 | ) | (20.7 | %) | (214 | ) | (19.6 | %) | 7 | % | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Gross profit |
875 | 79.3 | % | 877 | 80.4 | % | (0 | %) | ||||||||||||
| Research and development expenses |
(883 | ) | (80.0 | %) | (958 | ) | (87.8 | %) | (8 | %) | ||||||||||
| Selling and marketing expenses |
(186 | ) | (16.9 | %) | (259 | ) | (23.7 | %) | (28 | %) | ||||||||||
| Administrative and general expenses |
(77 | ) | (7.0 | %) | (68 | ) | (6.2 | %) | 13 | % | ||||||||||
| Other operating income and expenses |
(30 | ) | (2.7 | %) | (1 118 | ) | (102.5 | %) | (97 | %) | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Operating profit (loss) |
(301 | ) | (27.3 | %) | (1 526 | ) | (139.9 | %) | ||||||||||||
|
|
|
|
|
|||||||||||||||||
Net Sales
HERE net sales increased 1% to EUR 1 103 million in 2012, compared to EUR 1 091 million in 2011. The year-on-year increase in HERE external net sales in 2012 was primarily driven by higher sales of map content licenses to vehicle customers, partially offset by lower sales to personal navigation devices customers. The year-on-year decline in HERE internal net sales was primarily due to lower sales related to the large decline in our Symbian device volumes experienced since 2010.
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The following table sets forth HERE net sales and year-on-year growth rate by geographic area for the fiscal years 2012 and 2011.
| Year Ended December 31, 2012 |
Change 2011 to 2012 |
Year Ended December 31, 2011 |
||||||||||
| (EUR millions, except percentage data) | ||||||||||||
| Europe |
477 | (2 | %) | 488 | ||||||||
| Middle East & Africa |
74 | 0 | % | 74 | ||||||||
| Greater China |
63 | (51 | %) | 128 | ||||||||
| Asia-Pacific |
82 | 11 | % | 74 | ||||||||
| North America |
335 | 18 | % | 284 | ||||||||
| Latin America |
72 | 67 | % | 43 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total |
1 103 | 1 | % | 1 091 | ||||||||
|
|
|
|
|
|
|
|||||||
Gross Margin
On a year-on-year basis, the decrease in HERE gross margin in 2012 was primarily due to lower personal navigation device sales which carry a higher gross margin, partially offset by a higher gross margin in the vehicle segment.
Operating Expenses
HERE research and development expenses decreased 8% primarily driven by a focus on cost controls, lower project spending and a shift of research and development operating expenses to cost of sales as a result of the divestiture of the media advertising business.
HERE sales and marketing expenses decreased 28% primarily driven by a focus on cost controls and lower marketing spending.
HERE administrative and general expenses increased 13% primarily driven by higher use of services provided by shared support functions.
In 2012, HERE other income and expense had a positive year-on-year impact on profitability, and amounted to EUR 30 million in 2012, compared to EUR 1 118 million in 2011. In 2012, we recognized special items of EUR 31 million in HERE, comprised of restructuring charges of EUR 31 million. In 2011, we recognized special items of EUR 1 115 million in HERE, comprised of restructuring charges of EUR 25 million and impairment of goodwill of EUR 1 090 million.
Operating Profit (loss)
HERE operating loss decreased to EUR 301 million in 2012, compared with a loss of EUR 1 526 million in 2011. HERE operating margin in 2012 was negative 27.3%, compared with negative 139.9% in 2011. The year-on-year improvement in operating margin in 2012 was driven primarily by the lower other operating expenses due to the impairment of HERE’s goodwill of EUR 1 090 million in 2011.
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Advanced Technologies
The following table sets forth selective line items and the percentage of net sales that they represent for the fiscal years 2012 and 2011.
| Year Ended December 31, 2012 |
Percentage of Net Sales |
Year Ended December 31, 2011 |
Percentage of Net Sales |
Percentage Increase/ (Decrease) |
||||||||||||||||
| (EUR millions, except percentage data) | ||||||||||||||||||||
| Net sales |
534 | 100.0 | % | 851 | 100.0 | % | (37 | %) | ||||||||||||
| Cost of sales |
(7 | ) | (1.3 | %) | — | — | — | |||||||||||||
|
|
|
|
|
|||||||||||||||||
| Gross profit |
527 | 98.7 | % | 851 | 100.0 | % | (38 | %) | ||||||||||||
| Research and development expenses |
(153 | ) | (28.7 | %) | (193 | ) | (22.7 | %) | (21 | %) | ||||||||||
| Selling and marketing expenses |
(24 | ) | (4.5 | %) | (18 | ) | (2.1 | %) | 33 | % | ||||||||||
| Administrative and general expenses |
(22 | ) | (4.1 | %) | (18 | ) | (2.1 | %) | 22 | % | ||||||||||
| Other operating income and expenses |
(3 | ) | (0.5 | %) | (13 | ) | (1.5 | %) | (77 | %) | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Operating profit |
325 | 60.9 | % | 609 | 71.6 | % | (47 | %) | ||||||||||||
|
|
|
|
|
|||||||||||||||||
Net Sales
Advanced Technologies net sales declined by 37%, EUR 534 million in 2012 compared to EUR 851 million in 2011, primarily due to lower non-recurring IPR income in 2012 compared to 2011, amounting to EUR 50 million and EUR 450 million, respectively. The non-recurring IPR income relates to new patent license agreements for the respective years that included settlements of past royalties and accordingly is not expected to have a recurring benefit.
Gross Margin
Advanced Technologies gross margin declined to 98.7% in 2012 compared to 100.0% in 2011.
Operating Expenses
Advanced Technologies research and development expenses decreased 21% to EUR 153 million in 2012 compared to EUR 193 million in 2011, due to overall cost reduction activities in several locations in 2012.
Advanced Technologies sales and marketing expenses increased 33% to EUR 24 million in 2012 compared to EUR 18 million in 2011, due to IP licensing and related litigation in 2012.
Advanced Technologies administrative and general expenses increased 22% to EUR 22 million in 2012 compared to EUR 18 million in 2011 due to higher allocation of site related costs.
Advanced Technologies other income and expense was an expense of EUR 3 million in 2012 compared to an expense of EUR 13 million in 2011, consisting of restructuring charges.
Operating Profit (loss)
Advanced Technologies operating profit decreased to EUR 325 million in 2012, compared to EUR 609 million in 2011. Advanced Technologies operating margin was 60.9% in 2012 compared to 71.6% in 2011. The year-on-year decline in operating margin was driven primarily by lower non-recurring IPR income in 2012 compared to 2011.
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Nokia Discontinued Operations
The following table sets forth selective line items and the percentage of net sales that they represent for the fiscal years 2012 and 2011.
| Year Ended December 31, 2012 |
Percentage of Net Sales |
Year Ended December 31, 2011 |
Percentage of Net Sales |
Percentage Increase/ (Decrease) |
||||||||||||||||
| (EUR millions, except percentage data) | ||||||||||||||||||||
| Net sales |
15 152 | 100.0 | % | 23 091 | 100.0 | % | (34 | %) | ||||||||||||
| Cost of sales |
(12 320 | ) | (81.3 | %) | (17 292 | ) | (74.9 | %) | (29 | %) | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Gross profit |
2 832 | 18.7 | % | 5 799 | 25.1 | % | (51 | %) | ||||||||||||
| Research and development expenses |
(1 658 | ) | (10.9 | %) | (2 211 | ) | (9.7 | %) | (25 | %) | ||||||||||
| Selling and marketing expenses |
(1 857 | ) | (12.3 | %) | (2 179 | ) | (9.4 | %) | (15 | %) | ||||||||||
| Administrative and general expenses |
(286 | ) | (1.9 | %) | (370 | ) | (1.5 | %) | (23 | %) | ||||||||||
| Other operating income and expenses |
(510 | ) | (3.4 | %) | (723 | ) | (3.1 | %) | (29 | %) | ||||||||||
|
|
|
|
|
|||||||||||||||||
| Operating profit (loss) |
(1 479 | ) | (9.8 | %) | 316 | 1.4 | % | |||||||||||||
|
|
|
|
|
|||||||||||||||||
Net Sales
Discontinued operations net sales in 2012 decreased by 34% to EUR 15 152 million compared to EUR 23 091 million in 2011. The decrease was primarily due to declining devices sales volumes, both within Smart Devices and Mobile Phones, as well as lower ASP in Mobile Phones, partially offset by a higher ASP in Smart Devices.
The following table sets forth the distribution by geographical area of our net sales for the fiscal years 2012 and 2011.
| Year Ended December 31, 2012 |
Change 2011 to 2012 |
Year Ended December 31, 2011 |
||||||||||
| (EUR millions, except percentage data) | ||||||||||||
| Europe |
4 498 | (34 | %) | 6 857 | ||||||||
| Middle East & Africa |
2 712 | (31 | %) | 3 928 | ||||||||
| Greater China |
1 519 | (68 | %) | 4 808 | ||||||||
| Asia-Pacific |
3 655 | (22 | %) | 4 693 | ||||||||
| North America |
532 | 22 | % | 436 | ||||||||
| Latin America |
2 236 | (6 | %) | 2 369 | ||||||||
|
|
|
|
|
|||||||||
| Total |
15 152 | (34 | %) | 23 091 | ||||||||
|
|
|
|
|
|||||||||
Gross Margin
Discontinued operations gross margin declined to 18.7% in 2012 compared to 25.1% in 2011. The decline was primarily due to a lower gross margin in Smart Devices, and to a lesser degree in Mobile Phones.
Operating Expenses
Discontinued operations operating expenses were approximately EUR 4 311 million in 2012, compared to approximately EUR 5 483 million in 2011. The decrease was primarily due to lower operating expenses in Smart Devices.
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Operating Margin
Discontinued operations operating margin declined to negative 9.8% in 2012 compared to positive 1.4% in 2011. The decline was primarily due to lower net sales and a lower gross margin in both Smart Devices and Mobile Phones.
5B. Liquidity and Capital Resource
At December 31, 2013, our cash and other liquid assets (bank and cash; available-for-sale investments, cash equivalents; available-for-sale investments, liquid assets; and investments at fair value through profit and loss, liquid assets) decreased to EUR 8 971 million, compared with EUR 9 909 million at December 31, 2012, primarily due to the acquisition of Siemens AG’s stake in NSN, cash outflows related to restructuring and taxes, as well as capital expenditures. This was partially offset by the issuance of convertible bonds to Microsoft, and positive overall net cash from operating activities. At December 31, 2011, cash and other liquid assets totaled EUR 10 902 million.
At December 31, 2013, cash and cash equivalents (bank and cash and available-for-sale investments, cash equivalent) decreased to EUR 7 633 million, compared with EUR 8 952 million at December 31, 2012. We hold our cash and cash equivalents predominantly in euro. Cash and cash equivalents totaled EUR 9 236 million at December 31, 2011.
Net cash from operating activities was EUR 72 million in 2013, compared with net cash used in operating activities of EUR 354 million in 2012 and net cash from operating activities of EUR 1 137 million in 2011. In 2013, net cash from operating activities increased primarily due to increase in profitability and other financial income and expenses, net and a decrease in income taxes paid. This was partially offset by an increase in working capital. In 2012, net cash from operating activities decreased to net cash used in operating activities primarily due to a decrease in profitability and cash outflows relating to restructuring. Net cash used in investing activities was EUR 691 million in 2013, compared with EUR 562 million net cash from investing activities in 2012 and EUR 1 499 million in 2011. No net cash from acquisitions of businesses, net of acquired cash, was recorded in 2013, compared to net cash from acquisitions of businesses, net of acquired cash, of EUR 13 million in 2012 and EUR 817 million net cash used in 2011. Cash flow from investing activities in 2013 included purchases of current available-for-sale investments, liquid assets of EUR 1 021 million, compared with EUR 1 668 million in 2012 and EUR 3 676 million in 2011. In 2013, net cash used in investing activities did not include purchase of investments at fair value through profit and loss, liquid assets, compared with EUR 40 million in 2012.
Capital expenditures for 2013 were EUR 407 million, compared with EUR 461 million in 2012 and EUR 597 million in 2011. Major items of capital expenditure included production lines, test equipment and computer hardware used primarily in research and development, office and manufacturing facilities as well as services and software related intangible assets.
Proceeds from maturities and sale of current available-for-sale investments, liquid assets, decreased to EUR 586 million, compared with EUR 2 355 million in 2012 and EUR 6 090 million in 2011. Net cash used in financing activities increased to EUR 477 million in 2013, compared with EUR 465 million in 2012, due to EUR 1 707 million used to purchase the shares in NSN, EUR 2 291 proceeds from long-term borrowing and EUR 862 million repayment of long-term borrowings, EUR 128 million repayment of short-term borrowings and EUR 71 million payment of dividends. Net cash used in financing activities decreased to EUR 465 million in 2012, compared with EUR 1 099 million in 2011, primarily as a result EUR 743 million net proceeds from the issuance of a convertible bond and a decrease in dividend payments to EUR 755 million in 2012 from EUR 1 536 million in 2011 partly offset by an increase in repayments of long-term and short-term borrowings as well as no contributions from other
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shareholders compared to the EUR 500 million equity investment in Nokia Siemens Networks by Siemens in 2011. Dividends paid decreased to EUR 71 million in 2013, compared with EUR 755 million in 2012 and EUR 1 536 million in 2011.
At December 31, 2013, we had EUR 3 286 million in long-term interest-bearing liabilities and EUR 3 376 million in short-term borrowings, offset by EUR 8 971 million in cash and other liquid assets, resulting in a net liquid assets balance of EUR 2 309 million, compared with EUR 4 360 million at the end of 2012 and EUR 5 581 million at the end of 2011. The decrease in net liquid assets in 2013 was primarily due to acquisition of Siemens AG’s stake in NSN, cash outflows relating to restructuring and cash outflows related to net financial expenses and taxes as well as capital expenditures. This was partially offset by positive overall net cash from operating activities, excluding cash outflows related to restructuring, net financial expenses and taxes, proceeds from sale of fixed assets and recording of the EUR 154 million equity component of the convertible bonds issued to Microsoft as shareholders’ equity. For further information regarding our long-term liabilities, see Note 35 to our consolidated financial statements included in Item 18 of this annual report. Our ratio of net interest-bearing debt, defined as short-term and long-term debt less cash and other liquid assets, to equity, defined as capital and reserves attributable to equity holders of the parent and non-controlling interests, was negative 35%, negative 47% and negative 40% at December 31, 2013, 2012 and 2011, respectively.
We have EUR 3 376 million of interest-bearing liabilities maturing in 2014. EUR 1 750 million was repaid in February 2014 and EUR 1 500 million nominal value convertible bonds issued to Microsoft were netted against the deal proceeds at closing of the transaction on April 25, 2014. We may incur additional indebtedness from time to time as required to finance acquisitions and working capital needs, or to pre-finance future debt maturities. In 2013, we obtained EUR 1 200 bridge financing and EUR 500 million vendor loan financing for the financing of the acquisition of Siemens AG’s stake in NSN. Further, we issued convertible bonds with a nominal value of EUR 1 500 million to Microsoft. Net proceeds were used to partially refinance the bridge facility and vendor loan financing related to the acquisition of Siemens AG’s stake in NSN and for general corporate purposes. The convertible bonds carry coupons of 1.125%, 2.5% and 3.625% and have maturity dates in September 2018, 2019 and 2020. The bonds are convertible to our shares with initial conversion prices of EUR 3.9338, 4.0851 and 4.2364 per share, respectively. The conversion prices are subject to adjustment according to customary anti-dilution provisions.
In 2013, Nokia Networks issued EUR 450 million of 6.75% Senior Notes due April 2018 and EUR 350 million of 7.125% Senior Notes due April 2020. The net proceeds, EUR 779 million, from the bond issuance were used to prepay EUR 600 million bank term loan and EUR 50 million of EIB R&D loan in March 2013 and the remaining proceeds are to be used for general corporate purposes. The notes include covenants restricting, among other things, Networks’ ability to incur or guarantee additional debt, pay dividends, buy back equity and make investments in minority interests, create or incur certain liens and engage in merger, consolidation or asset sales. These covenants, which are customary in the issuance of high yield bonds, are subject to a number of qualifications and exceptions.
In 2012, we issued a convertible bond with a nominal value of EUR 750 million. The convertible bond carries a coupon of 5% and has a maturity date in October 2017. It is convertible to our shares with an initial conversion price of EUR 2.6116 per share. The conversion price is subject to adjustments according to customary anti-dilution provisions. In 2011 we did not raise material new long-term debt.
At December 31, 2013, we had a USD 4 000 million US Commercial Paper program, a USD 4 000 million Euro Commercial Paper program, a domestic Finnish commercial paper program totaling EUR 750 million, a EUR 5 000 million Euro Medium-Term Note program, and a shelf registration statement for an indeterminate amount of debt securities on file with the US Securities and Exchange Commission. At December 31, 2013, we also had an undrawn committed credit facility of EUR 1 500 million maturing in 2016. The credit facility has no financial covenants.
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In December 2011, Nokia Networks entered into a EUR 1 255 million committed forward starting credit facility effective from the forward start date of June 1, 2012. By April 2012 the committed facility had been increased to EUR 1 500 million. The facility replaced the EUR 2 000 million revolving credit facility from 2009 that matured in June 2012. The EUR 1 500 million committed facility was comprised of two equal parts, a EUR 750 million revolving credit facility maturing in June 2015 and a EUR 750 million term loan maturing in June 2013. In December 2012, EUR 150 million of the term loan was repaid and the maturity of the remaining EUR 600 million term loan was extended to March 2014. The forward starting credit facility is used for general corporate purposes and includes financial covenants relating to financial leverage and interest coverage of Networks. At December 31, 2012, all financial covenants were satisfied.
At December 31, 2013, Networks had EUR 88 million in Finnish pension loans outstanding with final maturity in 2015, EUR 50 million loan outstanding from the European Investment Bank (EIB) with final maturity in 2015 and EUR 20 million loan outstanding from the Nordic Investment Bank (NIB) with final maturity in 2015. The proceeds of the EIB and NIB loans are being used to finance the investments in research and development in radio access network technology for mobile communication systems. The loans include similar financial covenants as the forward starting credit facility. At December 31, 2013, all financial covenants were satisfied. In March 2013, Networks prepaid the EUR 600 million term loan under the forward starting credit facility. At December 31, 2013, the revolving credit facility of EUR 750 million remains undrawn under the forward starting credit facility.
Networks had a domestic Finnish commercial paper program totaling EUR 500 million of which EUR 25 million was outstanding at December 31, 2013.
We have historically maintained a high level of liquid assets. Management estimates that the cash and other liquid assets level of EUR 8 971 million at the end of 2013, together with our available credit facilities, cash flow from operations, funds available from long-term and short-term debt financings, as well as the proceeds of future equity or convertible bond offerings, will be sufficient to satisfy our future working capital needs, capital expenditure, research and development, acquisitions and debt service requirements at least through 2014.
We believe that we will continue to be able to access the capital markets on terms and in amounts that will be satisfactory to us, and that we will be able to obtain bid and performance bonds, to arrange or provide customer financing as necessary to support our business and to engage in hedging transactions on commercially acceptable terms.
We primarily invest in research and development. Over the past few years we have also invested in services and software by acquiring certain companies with specific technology assets and expertise. In 2013, capital expenditures, excluding acquisitions, totaled EUR 407 million, compared with EUR 461 million in 2012 and EUR 597 million in 2011. The decrease in 2013 resulted primarily from site consolidation and increased efficiency. Principal capital expenditures during the three years included production lines, test equipment and computer hardware used primarily in research and development, office and manufacturing facilities as well as services and software-related intangible assets. During 2014, we currently expect the amount of capital expenditure from continuing operations, excluding acquisitions, to be approximately EUR 200 million, primarily attributable to Networks, and to be funded from our cash flow from operations. The reduction in the estimated capital expenditures (excluding acquisitions) during 2014, compared to the previous years is primarily attributable to the effect of the Sale of the D&S Business.
Planned EUR 5 billion capital structure optimization program
As announced on April 29, 2014, as a result of the closing of the Sale of the D&S Business, Nokia’s financial position and earnings profile have both improved significantly. Furthermore, Nokia’s Board of
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Directors has conducted a thorough analysis of Nokia’s potential capital structure requirements. Based on this analysis, the Nokia Board is confident that Nokia has the financial strength and flexibility to sustain the long-term investments necessary to ensure industry leadership in the future.
In addition, to improve the efficiency of Nokia’s capital structure, the Nokia Board announced plans for a EUR 5 billion capital structure optimization program which focuses on recommencing ordinary dividends, distributing deemed excess capital to shareholders, and reducing interest bearing debt. The plan consists of EUR 3 billion of total cash returns to shareholders through dividends and share repurchases and EUR 2 billion of debt reduction, over the next two years. This comprehensive program consists of the following components:
| • | Recommencement of ordinary dividend payments, with at least EUR 800 million of ordinary dividends in total planned for 2013 and 2014, as follows: |
| • | An ordinary dividend for 2013 of EUR 0.11 per share (approximately EUR 400 million), subject to shareholder approval in 2014; and |
| • | A planned ordinary dividend for 2014 of at least EUR 0.11 per share (at least approximately EUR 400 million), subject to shareholder approval in 2015; |
| • | A special dividend of EUR 0.26 per share, subject to shareholder approval in 2014 (approximately EUR 1 billion); |
| • | A EUR 1.25 billion share repurchase program, subject to the authorization to the Board by the shareholders in 2014; and |
| • | Debt reduction of approximately EUR 2 billion by the end of the second quarter 2016. |
As part of the overall capital structure optimization program, Nokia Board of Directors proposes to the Annual General Meeting, scheduled to take place on June 17, 2014 (Annual General Meeting 2014), the recommencement of ordinary dividend payments to shareholders. The Nokia Board proposes to the Annual General Meeting 2014 that a dividend of EUR 0.11 per share be paid with respect to the year 2013, which equals approximately half of Nokia’s earnings from continuing operations in 2013, excluding special items and purchase price accounting related items. This ordinary dividend for 2013 is expected to be paid on or about July 3, 2014.
Furthermore, the Nokia Board plans to propose an ordinary dividend of at least EUR 0.11 per share with respect to the year 2014 to the Annual General Meeting convening in spring 2015.
The Nokia Board of Directors proposes to the Annual General Meeting 2014 a special dividend of EUR 0.26 per share (approximately EUR 1 billion). The special dividend is expected to be paid on or about July 3, 2014.
The Nokia Board also proposes a share repurchase authorization to facilitate the EUR 1.25 billion of planned share repurchases over two years. The Nokia Board proposes that the Annual General Meeting 2014 authorize the Board to resolve to repurchase a maximum of 370 million Nokia shares, which corresponds to less than 10% of Nokia shares outstanding. The term of the repurchase authorization is for the maximum of 18 months under Finnish regulations, and is expected to be re-proposed by the Nokia Board at the Annual General Meeting 2015. The shares are expected to be cancelled. The shares may be repurchased in the open market, in privately negotiated transactions, through the use of derivative instruments, or through a tender offer made to all shareholders on equal terms. The share repurchase authorization would be effective until December 17, 2015 and terminate the current authorization granted by the Annual General Meeting on May 7, 2013. The Nokia Board plans to commence the repurchases following the publication of the Company’s interim report for the second quarter of 2014.
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In addition, Nokia plans to reduce interest bearing debt by approximately EUR 2 billion by the end of the second quarter 2016. Once complete, the debt reduction is expected to result in annual run rate savings of at least EUR 100 million related to recurring interest costs. Furthermore, lowering our gross debt level is aligned with our target to return to being an investment grade company. Nokia intends to reduce interest bearing debt by utilizing applicable maturity dates, call dates, or other terms allowing early redemption or retirement of debt or by making offers to repurchase debt in the open market.
See Item 3A. “Selected Financial Data—Distribution of Earnings for certain additional information”.
Structured Finance
Structured finance includes customer financing and other third-party financing. Network operators in some markets sometimes require their suppliers, including us, to arrange, facilitate or provide long-term financing as a condition to obtain infrastructure projects. Credit markets in general have been tight since 2009. Requests for customer financing and especially extended payment terms have remained at a reasonably high level.
However, during 2013, the amount of financing provided directly to our customers continued to decrease. We do not currently intend to significantly increase financing directly to our customers, which may have an adverse effect on our ability to compete successfully for their business. Rather, as a strategic market requirement, we plan to continue to arrange and facilitate financing, typically supported by export credit or guarantee agencies, and provide extended payment terms to a number of customers. Extended payment terms may continue to result in a material aggregate amount of trade credits, but the associated risk is mitigated by the fact that the portfolio relates to a variety of customers.
The following table sets forth our total customer financing, outstanding and committed, for the years indicated.
Customer Finance
| At December 31, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
| (EUR millions) | ||||||||||||
| Financing commitments |
25 | 34 | 86 | |||||||||
| Outstanding long-term loans (net of allowances and write-offs) |
10 | 39 | 60 | |||||||||
| Current portion of outstanding long-term loans (net of allowances and write-offs) |
29 | 35 | 54 | |||||||||
| Outstanding financial guarantees and securities pledged |
— | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
64 | 108 | 200 | |||||||||
|
|
|
|
|
|
|
|||||||
In 2013, our total customer financing, outstanding and committed, decreased to EUR 64 million from EUR 108 million in 2012 and primarily consisted of outstanding short-term and long-term loans to network operators.
In 2012, our total customer financing, outstanding and committed, decreased to EUR 108 million from EUR 200 million in 2011 and primarily consisted of outstanding long-term loans to network operators.
See Note 34(b) to our consolidated financial statements included in Item 18 of this annual report for further information relating to our committed and outstanding customer financing.
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We continue to make arrangements with financial institutions and investors to sell credit risk we have incurred from the commitments and outstanding loans we have made. Should the demand for customer finance increase in the future, we intend to continue mitigation of our total structured financing exposure, market conditions permitting.
We expect our structured financing commitments to be financed mainly through the capital markets as well as through cash flow from operations.
The structured financing commitments are available under loan facilities mainly negotiated with customers of Networks. Availability of the amounts is dependent upon the borrowers’ continuing compliance with stated financial and operational covenants and compliance with other administrative terms of the facilities. The customer loans are available to fund capital expenditure relating to the purchase of network infrastructure equipment and services from Networks.
The following table sets forth the amounts of our contingent commitments for the periods indicated as at December 31, 2013. The amounts represent the maximum principal amount of commitments.
Contingent Commitments Expiration Per Period
| 2014 | 2015-2016 | 2017-2018 | Thereafter | Total | ||||||||||||||||
| (EUR millions) | ||||||||||||||||||||
| Guarantees of Nokia’s performance |
83 | 297 | 55 | 27 | 463 | |||||||||||||||
Guarantees of Nokia’s performance consist of EUR 463 million of guarantees that are provided to certain Networks customers in the form of bank guarantees, or corporate guarantees issued by Networks Group entity. These instruments entitle the customer to claim payment as compensation for non-performance by Networks of its obligations under network infrastructure supply agreements. Depending on the nature of the instrument, compensation is payable either on demand, or is subject to verification of non-performance.
Financial guarantees and securities pledged that we may give on behalf of customers represent guarantees relating to payment by certain Networks customers and other third parties under specified loan facilities between such a customer or other third parties and their creditors. Nokia’s obligations under such guarantees are released upon the earlier of expiration of the guarantee or early payment by the customer or other third party.
See Note 29 to our consolidated financial statements included in Item 18 of this annual report for further information regarding commitments and contingencies.
5C. Research and Development, Patents and Licenses
Success in the mobile communications industry requires continuous introduction of new products and services and their combinations based on the latest available technology. Consequently, we have made substantial research and development (“R&D”) investments in each of the last three years. Our consolidated R&D expenses for 2013 were EUR 3 748 million, decrease of 21% from EUR 4 739 million in 2012. The decrease in R&D expenses was due to decreased R&D expenses in all businesses. R&D expenses in 2011 were EUR 5 546 million. These expenses represented 16.0%, 15.5% and 14.2% of Nokia net sales in 2013, 2012 and 2011, respectively. For continuing operations, the R&D expenses were EUR 2 619 million in 2013, EUR 3 081 million in 2012 and EUR 3 334 million in 2011. For continuing operations, these expenses represented 20.6%, 20.0% and 20.9% of continuing operations net sales for 2013, 2012 and 2011, respectively. In 2013, Networks R&D expenses included EUR 20 million of purchase price accounting related items compared to EUR 20 million in 2012. In 2011, Networks R&D expenses included EUR 61 million of purchase price
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accounting related items. In 2013, HERE R&D expenses included EUR 168 million of purchase price accounting related items compared to EUR 355 million in 2012. In 2011, R&D expenses in HERE included EUR 343 million of purchase price accounting related items.
At December 31, 2013, we employed 20 868 people in R&D, representing approximately 38% of our total workforce, and had a strong global research and development presence, including countries such as China, Finland, Germany, Hungary, India, Poland and the United States. R&D expenses of Networks as a percentage of its net sales were 16.2% in 2013 compared with 14.8% in 2012 and 15.6% in 2011. HERE R&D expenses represented 70.9% of its net sales in 2013, compared with 80.1% of its net sales in 2012 and 87.8% in 2011. In the case of Technologies, R&D expenses represented 27.8%, 28.3% and 22.6% of its net sales in 2013, 2012 and 2011, respectively.
We will continue to invest in research and development in an appropriate manner to support our strategic objectives.
See Item 5A. “Operating Results—Principal Factors and Trends Affecting our Results of Operations” for information on material trends affecting our business and results of operations.
5E. Off-Balance Sheet Arrangements
There are no material off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
5F. Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations for Nokia continuing operations for the periods indicated as at December 31, 2013.
Contractual Obligations Payments Due by Period
| 2014 | 2015-2016 | 2017-2018 | Thereafter | Total | ||||||||||||||||
| (EUR millions) | ||||||||||||||||||||
| Long-term liabilities |
3 192 | 134 | 1 131 | 2 090 | 6 547 | |||||||||||||||
| Operating leases |
139 | 164 | 96 | 151 | 550 | |||||||||||||||
| Purchase obligations |
597 | 174 | 1 | — | 772 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
3 928 | 472 | 1 228 | 2 241 | 7 869 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Benefit payments related to the underfunded defined benefit plans are not expected to be material in any given period in the future. Therefore, these amounts have not been included in the table above for any of the years presented.
| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
As announced by Nokia on April 29, 2014, the Nokia Leadership Team is renamed the Nokia Group Leadership Team effective as from May 1, 2014. We generally use the term “Nokia Leadership Team” when discussing the management and compensation in 2013 and, where applicable, use the name “Nokia Group Leadership Team” in other connections The terms “Nokia Leadership Team” and “Nokia Group Leadership Team” may be used interchangeably in this annual report.
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6A. Directors and Senior Management
Pursuant to the provisions of the Finnish Limited Liability Companies Act and Nokia’s Articles of Association, the control and management of Nokia is divided among the shareholders at a general meeting, the Board of Directors (the “Board”), the President and Chief Executive Officer (CEO) and the Nokia Group Leadership Team (previously, until May 1, 2014 Nokia Leadership Team), chaired by the President and CEO.
On September 3, 2013, Nokia announced changes to its leadership as a result of the proposed Sale of the D&S Business. These changes were designed to provide an appropriate corporate governance structure during the interim period following the announcement. As Stephen Elop was agreed to transfer to Microsoft upon closing of the transaction, he left his position as President and CEO effective September 3, 2013 in order to avoid the perception of any potential conflict of interest, and continued to lead the Devices & Services business as Executive Vice President, Devices & Services. For the same reason, Mr. Elop also resigned from the Nokia Board of Directors on September 3, 2013. On the same day, Risto Siilasmaa assumed the role of interim CEO role of Nokia while continuing to serve in his role as Chairman of the Nokia Board of Directors, and Timo Ihamuotila assumed the role of interim President and Chairman of the Nokia Leadership Team while also continuing to serve as Chief Financial Officer.
On April 29, 2014, Nokia announced its new strategy and consequently, changes to its leadership. Nokia Board appointed, effective as from May 1, 2014 Rajeev Suri the President and Chief Executive Officer of Nokia. His rights and responsibilities include those allotted to the President under Finnish law and he also chairs the Nokia Group Leadership Team.
Board of Directors
The members of the Board of Directors were elected at the Annual General Meeting on May 7, 2013, based on the proposal of the Board’s Corporate Governance and Nomination Committee. On the same date, the Chairman and Vice Chairman, as well as the Chairmen and members of the committees of the Board, were elected from among the Board members and among the independent directors of the Board, respectively. The Committee composition and the Committee Chairman of the Corporate Governance & Nomination Committee were further changed effective from September 3, 2013 as a result of the interim governance arrangements related to the proposed Sale of the D&S Business.
The members of the Board of Directors are elected on an annual basis for a one-year term ending at the close of the next Annual General Meeting. The election is made by a simple majority of the shareholders’ votes cast at the Annual General Meeting.
The current members of the Board of Directors and its committees are set forth below.
| Chairman Risto Siilasmaa, b. 1966 |
Chairman of the Board of Directors of Nokia Corporation. Interim CEO from September 3, 2013 until May 1, 2014. Board member since 2008. Chairman since 2012. Chairman of the Corporate Governance and Nomination Committee until September 3, 2013. |
| Master of Science (Eng.) (Helsinki University of Technology). |
| President and CEO of F-Secure Corporation 1988-2006. |
| Chairman of the Board of Directors of F-Secure Corporation. Member of the Board of Directors of Mendor Ltd. Vice Chairman of the Board of Directors of The Federation of Finnish Technology Industries. Member of the Board of Directors of The Confederation of Finnish Industries (EK). Member of the European Roundtable of Industrialists, ERT. Member of the Tsinghua SEM Advisory Board. Member of the International Business Leaders Advisory Council for the Mayor of Beijing. |
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| Chairman of the Board of Directors of Elisa Corporation 2008-2012. |
| Vice Chairman Jouko Karvinen, b. 1957 |
CEO of Stora Enso Oyj. Board member since 2011. Vice Chairman since 2013. Chairman of the Audit Committee. Chairman of the Corporate Governance and Nomination Committee since September 3, 2013. |
| Master of Science (Eng.) (Tampere University of Technology). |
| CEO of Philips Medical Systems Division 2002-2006. Member of Board of Management of Royal Philips Electronics 2006 and Group Management Committee 2002-2006. Holder of executive and managerial positions at ABB Group Limited from 1987, including Executive Vice President, Head of Automation Technology Products Division and Member of Group Executive Committee 2000-2002, Senior Vice President, Business Area Automation Power Products 1998-2000, Vice President, Business Unit Drives Products & Systems 1993-1998, Vice President, Power Electronics Division of ABB Drives Oy, Global AC Drives Feeder Factory and R&D Centre 1990-1993. |
| Member of the Board of Directors of Aktiebolaget SKF. Member of the Board of Directors of the Finnish Forest Industries Federation and the Confederation of European Paper Industries (CEPI). |
| Bruce Brown, b. 1958 |
Officer on Special Assignment at The Procter & Gamble Company. Board member since 2012. Member of the Personnel Committee. |
| M.B.A. (Marketing and Finance) (Xavier University). B.S. (Chemical Engineering) (Polytechnic Institute of New York University). |
| Chief Technology Officer of The Procter & Gamble Company until February 1, 2014. Various executive and managerial positions in Baby Care, Feminine Care, and Beauty Care units of The Procter & Gamble Company since 1980 in the United States, Germany and Japan. |
| Member of the Board of Directors of Agency for Science, Technology & Research (A*STAR). Strategy Adviser in US National Innovation. Member of the Board of Trustees of Xavier University. Chairman of the Advisory Board of MDVIP. Member of the Board of the University of Cincinnati Research Institute. |
| Elizabeth Doherty, b. 1957 |
Independent director. Board member since May 7, 2013. Member of the Audit Committee. |
| Bachelor of Science (University of Manchester). FCMA (Fellow of the Chartered Institute of Management Accountants). |
| Chief Financial Officer and Executive Director of Reckitt Benckiser Group plc 2011-2013. Chief Financial Officer and Executive Director of Brambles Industries Ltd 2007-2009. Group International Finance Director of Tesco plc 2001-2007. |
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| Various executive and managerial positions within Unilever plc 1979-2001 including Senior Vice President Finance, Central and Eastern Europe; Commercial Director, Unilever Thai Holdings Ltd; Commercial Director, Frigo España SA; Supply Chain Manager, Mattessons Walls Ltd; and Internal Audit Manager. |
| Member of the Board of Directors of Dunelm Group Plc. Member of the Board of Directors of Delhaize SA. |
| Member of the Audit Committee and Board of Directors of SAB Miller plc 2004-2011. |
| Henning Kagermann, b. 1947 |
Board member since 2007. Chairman of the Personnel Committee. Member of the Corporate Governance and Nomination Committee. |
| Ph.D. (Theoretical Physics) (Technical University of Brunswick). |
| Co-CEO and Chairman of the Executive Board of SAP AG 2008-2009. CEO of SAP 2003-2008. Co-chairman of the Executive Board of SAP AG 1998-2003. A number of leadership positions in SAP AG since 1982. Member of SAP Executive Board 1991-2009. Taught physics and computer science at the Technical University of Brunswick and the University of Mannheim 1980-1992, became professor in 1985. |
| Member of the Supervisory Boards of Bayerische Motoren Werke Aktiengesellschaft (BMW AG), Deutsche Bank AG, Deutsche Post AG and Münchener Rückversicherungs-Gesellschaft AG (Munich Re). Member of the Board of Directors of Wipro Ltd. President of Deutsche Akademie der Technikwissenschaften. Member of the Honorary Senate of the Foundation Lindau Nobel prizewinners. |
| Helge Lund, b. 1962 |
President and CEO of Statoil ASA. Board member since 2011. Member of the Personnel Committee. Member of the Corporate Governance and Nomination Committee |
| MA in Business Economics (School of Economics and Business Administration, Bergen). Master of Business Administration (MBA) (INSEAD). |
| President and CEO of StatoilHydro 2007-2009. President and CEO of Statoil 2004-2007. President and CEO of Aker Kvaerner ASA 2002-2004, central managerial positions in the Aker RGI system from 1999. Prior to 1999, Deputy Managing Director of Nycomed Pharma AS, a political adviser to the Conservative Party of the parliamentary group of Norway and a consultant of McKinsey & Co. |
| Mårten Mickos, b. 1962 |
Chief Executive Officer of Eucalyptus Systems, Inc. Board member since 2012. |
| Master of Science (Eng.) (Helsinki University of Technology). |
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| Senior Vice President, Database Group, Sun Microsystems 2008-2009. CEO, MySQL AB 2001-2008. Chairman, Vexillum Ab 2000-2001. CEO, MatchON Sports Ltd. 1999-2000. CEO, Intellitel Communications Ltd. 1997-1999. |
| Elizabeth Nelson, b. 1960 |
Independent Corporate Advisor. Board member since 2012. Member of the Audit Committee. |
| M.B.A. (Finance) (The Wharton School, University of Pennsylvania). B.S. (Foreign Service) (Georgetown University). |
| Executive Vice President and Chief Financial Officer, Macromedia, Inc. 1997-2005. Vice President, Corporate Development, Macromedia, Inc. 1996-1997. Project Manager, Corporate Development and International Finance, Hewlett-Packard Company 1988-1996. Associate, Robert Nathan Associates 1982-1986. |
| Member of the Board of Directors of Pandora Media. Member of the Board of Directors of Brightcove Inc. |
| Member of the Boards of Directors of Ancestry.com, Inc. 2009-2012, SuccessFactors, Inc. 2007-2012, Autodesk, Inc. 2007-2010 and CNET Networks, Inc. 2003-2008. |
| Kari Stadigh, b. 1955 |
Group CEO and President of Sampo plc. Board member since 2011. Member of the Personnel Committee. |
| Master of Science (Eng.) (Helsinki University of Technology). Bachelor of Business Administration (Swedish School of Economics and Business Administration, Helsinki). |
| Deputy CEO of Sampo plc 2001-2009. President of Sampo Life Insurance Company Limited 1999-2000. President of Nova Life Insurance Company Ltd 1996-1998. President and COO of Jaakko Pöyry Group 1991-1996. |
| Member of the Board of Directors of Nordea Bank AB (publ). Chairman of the Board of Directors of If P&C Insurance Holding Ltd (publ), Kaleva Mutual Insurance Company and Mandatum Life Insurance Company Limited. Vice Chairman of the Board of Directors of the Federation of Finnish Financial Services. Member of the Board of Directors of Central Chamber of Commerce of Finland. |
| Chairman of the Board of Directors of Alma Media Corporation 2005-2011. Member of the Board of Directors of Aspo Plc. 2009. |
At the Annual General Meeting on May 7, 2013, Stephen Elop, then President and CEO, was elected as a member of the Board of Directors. Mr. Elop resigned from the Board of Directors effective as of September 3, 2013.
Proposal of the Corporate Governance and Nomination Committee for Composition of the Board of Directors in 2014
On April 29, 2014, the Corporate Governance and Nomination Committee announced its proposal to the Annual General Meeting convening on June 17, 2014 regarding the composition of the Board of Directors for a one-year term from the Annual General Meeting 2014 until the close of the Annual General Meeting 2015. The Committee will propose that the number of Board members be nine (9)
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and that the following current Nokia Board members be re-elected as members of the Nokia Board of Directors for a term until the close of the Annual General Meeting 2015: Bruce Brown, Elizabeth Doherty, Jouko Karvinen, Mårten Mickos, Elizabeth Nelson, Risto Siilasmaa and Kari Stadigh.
In addition, the Committee proposes that Vivek Badrinath, Deputy CEO of Accor, and Dennis Strigl, retired CEO of Verizon Wireless and Author and Consultant, be elected as members of the Nokia Board of Directors for the same term until the close of the Annual General Meeting 2015.
The Committee’s aim is continually to renew the Board to ensure an efficient Board of international professionals with a diverse mix of skills and experience. The Committee considers potential director candidates based on the short-term and long-term needs of Nokia and of the Board and may engage search firms or advisors to identify director candidates. According to Nokia’s Articles of Association, the Board consists of a minimum of seven and a maximum of 12 directors. Based on past experience and the current business situation at Nokia, the Committee regards nine as an appropriate number of directors for the needed diversity in experience and skills to perform the Board’s work effectively.
The Chairman and the Vice Chairman are elected by the new Board and confirmed by the independent directors of the Board from among the Board members upon the recommendation of the Corporate Governance and Nomination Committee. The independent directors of the new Board will also confirm the election of the members and Chairmen for the Board’s committees from among the Board’s independent directors upon the recommendation of the Corporate Governance and Nomination Committee and based on each committee’s member qualification standards. These elections will take place at the Board’s assembly meeting following the Annual General Meeting.
On April 29, 2014, the Corporate Governance and Nomination Committee announced that it will propose in the assembly meeting of the new Board of Directors after the Annual General Meeting on June 17, 2014 that Risto Siilasmaa be elected as Chairman of the Board and Jouko Karvinen as Vice Chairman of the Board.
Nokia Group Leadership Team
According to our Articles of Association, the Nokia Group Leadership Team is responsible for the operative management of the Company. The Chairman and members of the Nokia Group Leadership Team are appointed by the Board of Directors. Only the Chairman of the Nokia Group Leadership Team, the President and CEO, can be a member of both the Board of Directors and the Nokia Group Leadership Team.
During 2013 and subsequently, the following changes took place in the Nokia Leadership Team:
| • | Stephen Elop stepped aside as President and CEO while continuing as a member of the Nokia Leadership Team as Executive Vice President, Devices & Services, effective as of September 3, 2013. He stepped down from the Nokia Leadership Team effective as of April 25, 2014 due to transferring to Microsoft in connection with the Sale of the D&S Business. |
| • | Timo Ihamuotila served as interim President from September 3, 2013 until May 1, 2014 while also continuing to serve as Chief Financial Officer. During this interim time Mr. Ihamuotila also chaired the Nokia Leadership Team. |
| • | Marko Ahtisaari, formerly Executive Vice President, Design, stepped down from the Nokia Leadership Team effective as of November 1, 2013 and continues in transitional role until May 31, 2014. |
| • | Jo Harlow, formerly Executive Vice President, Smart Devices, stepped down from the Nokia Leadership Team effective as of April 25, 2014 due to transferring to Microsoft in connection with the Sale of the D&S Business. |
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| • | Juha Putkiranta, formerly Executive Vice President, Operations, stepped down from the Nokia Leadership Team effective as of April 25, 2014 due to transferring to Microsoft in connection with the Sale of the D&S Business. |
| • | Timo Toikkanen, formerly Executive Vice President, Mobile Phones, stepped down from the Nokia Leadership Team effective as of April 25, 2014 due to transferring to Microsoft in connection with the Sale of the D&S Business. |
| • | Chris Weber, formerly Executive Vice President, Sales and Marketing, stepped down from the Nokia Leadership Team effective as of April 25, 2014 due to transferring to Microsoft in connection with the Sale of the D&S Business. |
| • | Louise Pentland, formerly Executive Vice President, Chief Legal Officer stepped down from the Nokia Leadership Team effective as of May 1, 2014 and continues to serve Nokia in an advisory role during a transition period. |
| • | Juha Äkräs, formerly Executive Vice President, Human Resources stepped down from the Nokia Leadership Team effective as of May 1, 2014 and continues to serve Nokia in an advisory role during a transition period. |
| • | Kai Öistämö, formerly Executive Vice President, Corporate Development stepped down from the Nokia Leadership Team effective as of May 1, 2014 and continues to serve Nokia in an advisory role during a transition period. |
| • | Rajeev Suri was appointed the President and CEO of Nokia Corporation and Chairman of Nokia Group Leadership Team as from May 1, 2014. |
| • | Samih Elhagen was appointed Executive Vice President and Chief Financial and Operating Officer of Networks and member of Nokia Group Leadership Team as from May 1, 2014. |
The members of the Nokia Group Leadership Team, effective as from May 1, 2014, are set forth below.
| Rajeev Suri, b. 1967 |
President and Chief Executive Officer of Nokia. Nokia Group Leadership Team member and Chairman since 2014. Joined Nokia 1995. |
| Bachelor of Engineering in Electronics and Telecommunications, Manipal Institute of Technology, Mangalore University, Karnataka, India. |
| CEO, NSN 2009-2014. Head of Services, NSN, 2007-2009. Head of Asia Pacific, NSN, 2007. Senior Vice President Nokia Networks Asia Pacific, 2005-2007. Vice President, Hutchison Customer Business Team, Nokia Networks, 2004-2005. General Manager, Business Development, Nokia Networks Asia Pacific, 2003. Sales Director—BT, O2 and Hutchison Global Customers, Nokia Networks, 2002. Director, Technology and Applications, BT Global Customer, Nokia Networks, 2000-2001. Head of Global Competitive Intelligence, Nokia Networks, 1999-2000. Head of Product Competence Center, Nokia Networks South Asia, 1997-1999. System Marketing Manager, Cellular Transmission, Nokia Networks India, 1995-1997. Head of Group Procurement, imports and special projects, Churchgate Group, Nigeria, 1993-1995. National Account Manager—Transmission / Manager—Strategic Planning, ICL India (ICIM), 1990-1993. Production Engineer, Calcom Electronics, 1989. |
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| Samih Elhage, b. 1961 |
Executive Vice President and Chief Financial and Operating Officer of Networks. Nokia Group Leadership Team member since 2014. Joined NSN in 2012. |
| Bachelor of Electrical Engineering (telecommunications), University of Ottawa, Canada. Bachelor of Economics, University of Ottawa, Canada. Master of Electrical Engineering (telecommunications), École Polytechnique de Montréal, Canada. |
| Chief Financial Officer, NSN, 2013-2014. Chief Operating Officer, NSN, 2012. Senior Advisor, leading private equity and global management consulting firms, 2011-2012. President, Carrier Voice over IP and Applications Solutions (CVAS) division, Nortel, 2008-2010. Leadership positions in Operations, Business Transformation, Broadband Networks, Optical Networks, and Core Data Networks, Nortel, 1998–2008. Multiple leadership and management roles related to Network Development at Bell Canada, 1990–1998. |
| Michael Halbherr, b. 1964 |
CEO of HERE. Nokia Group Leadership Team member since 2011. Joined Nokia 2006. |
| PhD. (Electrical Engineering) (ETH, Zurich, Switzerland). Worked at MIT Laboratory for Computer Science (Cambridge, MA, USA). |
| Vice President, Ovi Product Development, Nokia Services 2010-2011. Vice President, Nokia Maps, Nokia Services 2006-2010. CEO, gate5 AG, Berlin, Germany 2001-2006. Managing Director, Europeatweb, Munich, Germany 2000-2001. Manager, The Boston Consulting Group, in the USA and Switzerland 1994-2000. |
| Timo Ihamuotila, b. 1966 |
Group Chief Financial Officer. Interim President from September 3, 2013 until May 1, 2014. Nokia Group Leadership Team member since 2007. With Nokia 1993-1996, rejoined 1999. |
| Master of Science (Economics) (Helsinki School of Economics). Licentiate of Science (Finance) (Helsinki School of Economics). |
| Executive Vice President, Sales, Markets, Nokia 2008-2009. Executive Vice President, Sales and Portfolio Management, Mobile Phones, Nokia 2007. Senior Vice President, CDMA Business Unit, Mobile Phones, Nokia 2004-2007. Vice President, Finance, Corporate Treasurer, Nokia 2000-2004. Director, Corporate Finance, Nokia 1999-2000. Vice President of Nordic Derivatives Sales, Citibank plc. 1996-1999. Manager, Dealing & Risk Management, Nokia 1993-1996. Analyst, Assets and Liability Management, Kansallis Bank 1990-1993. |
| Member of the Board of Directors of Central Chamber of Commerce of Finland. |
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| Henry Tirri, b. 1956 |
Executive Vice President and acting Head of Technologies. Nokia Group Leadership Team member since 2011. Joined Nokia 2004. |
| Ph.D. (computer science) (University of Helsinki). Dr. h.c. (University of Tampere). |
| Head of Nokia Research Center (NRC), Corporate Development 2008-2011. Head of NRC Systems Research 2007-2008. Nokia Research Center, Research Fellow 2004-2007. |
| Adjunct Professor in computer science (University of Helsinki). Adjunct Professor in computational engineering (Aalto University, Helsinki). Adjunct Professor in Civil Engineering (University of California, Berkeley). Member of the international Advisory Committee of Tsinghua National Laboratory for Information Science and Technology. |
The following section explains our compensation policies and details for both cash- and equity-based compensation as it relates to the Board of Directors and the Nokia Leadership Team which includes the six named executive officers.
Board of Directors
The table below outlines the annual compensation of the members of the Board of Directors for services on the Board and its committees, as resolved at the respective Annual General Meetings in 2013, 2012 and 2011.
| Position |
2013 (EUR) | 2012 (EUR) | 2011 (EUR) | |||||||||
| Chairman |
440 000 | 440 000 | 440 000 | |||||||||
| Vice Chairman |
150 000 | 150 000 | 150 000 | |||||||||
| Member |
130 000 | 130 000 | 130 000 | |||||||||
| Chairman of Audit Committee |
25 000 | 25 000 | 25 000 | |||||||||
| Member of Audit Committee |
10 000 | 10 000 | 10 000 | |||||||||
| Chairman of Personnel Committee |
25 000 | 25 000 | 25 000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
1 570 000 | (1)(2) | 1 700 000 | (1) | 1 700 000 | (1) | ||||||
|
|
|
|
|
|
|
|||||||
| (1) | Stephen Elop stepped down from his position as President and CEO and resigned from the Board of Directors effective September 3, 2013. He did not receive compensation for his service as a member of the Board. |
| (2) | The changes in the aggregate Board compensation year on year are due to changes in the number of Board members. The compensation paid for services rendered remained the same. |
It is Nokia’s policy that directors’ compensation consists only of an annual fee and no additional fees are paid for meeting attendance. Approximately 40% of the director compensation is paid in the form of Nokia shares that are purchased from the market or alternatively by using own shares held by the Company. The remaining compensation is paid in cash, which is typically used to cover taxes arising from the compensation. The current policy is that directors are expected to retain all Nokia shares received as compensation until the end of their Board membership (except for those shares needed to offset any costs relating to the acquisition of the shares). Non-executive directors do not participate in any of Nokia’s equity programs or receive any other form of variable compensation for their duties as
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Board members. Finally, the President and CEO does not receive compensation for his services as a Board member. The former President and CEO, Stephen Elop, who stepped down from his position as President and CEO and resigned from the Board of Directors effective September 3, 2013, did not receive compensation for his services as a Board member in 2013, 2012 and 2011. The total compensation of the former President and CEO is described below in “—Executive Compensation—Actual Executive Compensation for 2013—Summary Compensation Table 2013”.
The compensation of the Board of Directors is resolved annually by our shareholders at our Annual General Meeting. It is resolved by a majority vote of the shareholders represented at the meeting, upon the proposal of the Corporate Governance and Nomination Committee of the Board of Directors. The compensation is set as of the date of the Annual General Meeting until the close of the next Annual General Meeting.
When preparing the proposal for Board compensation for shareholders’ approval at the Annual General Meeting, it is the policy of the Corporate Governance and Nomination Committee to review and compare total compensation levels and their criteria paid at other global peer companies with net sales and complexity of business comparable to that of Nokia. The Corporate Governance and Nomination Committee’s aim is to ensure that Nokia has an effective Board of international professionals representing a diverse mix of skills and experience. A competitive Board compensation contributes to the achievement of this target.
Compensation of the Board of Directors in 2013
For the year ended December 31, 2013, the aggregate amount of compensation paid to the members of the Board of Directors for their services as members of the Board and its committees was EUR 1 570 000.
The following table outlines the total annual compensation paid to the members of the Board of Directors in 2013, as resolved by shareholders at the Annual General Meeting on May 7, 2013. For more details on Nokia shares held by the members of the Board of Directors, please see Item 6E. “Share Ownership”.
| Year | Compen- sation Earned or Paid in Cash (EUR)(1) |
Total (EUR) |
||||||||||
| Risto Siilasmaa, Chairman(2) |
2013 | 440 000 | 440 000 | |||||||||
| Jouko Karvinen, Vice Chairman as of May 7, 2013(3) |
2013 | 175 000 | 175 000 | |||||||||
| Marjorie Scardino, Vice Chairman until May 7, 2013(4) |
2013 | — | — | |||||||||
| Bruce Brown |
2013 | 130 000 | 130 000 | |||||||||
| Elizabeth Doherty(5) |
2013 | 140 000 | 140 000 | |||||||||
| Stephen Elop, Board Member until September 3, 2013(6) |
2013 | — | — | |||||||||
| Henning Kagermann(7) |
2013 | 155 000 | 155 000 | |||||||||
| Helge Lund |
2013 | 130 000 | 130 000 | |||||||||
| Isabel Marey-Semper, Board member until May 7, 2013(4) |
2013 | — | — | |||||||||
| Mårten Mickos |
2013 | 130 000 | 130 000 | |||||||||
| Elizabeth Nelson(8) |
2013 | 140 000 | 140 000 | |||||||||
| Kari Stadigh |
2013 | 130 000 | 130 000 | |||||||||
| Total |
1 570 000 | 1 570 000 | ||||||||||
| (1) | Approximately 40% of each Board member’s annual compensation is paid in Nokia shares purchased from the market and the remaining approximately 60% is paid in cash. The members of |
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| the Board do not participate in any of Nokia’s equity programs or receive any other form of variable compensation for their duties as Board members. |
| (2) | Represents compensation paid to Risto Siilasmaa for services as the Chairman of the Board. This table does not include compensation paid to Mr. Siilasmaa for his services as the interim CEO. For the compensation paid for his services as the interim CEO, see “—Executive Compensation—Actual Executive Compensation for 2013—Summary Compensation Table 2013” below. |
| (3) | Represents compensation paid to Jouko Karvinen, consisting of EUR 150 000 for service as Vice Chairman of the Board and EUR 25 000 for services as the Chairman of the Audit Committee. |
| (4) | Marjorie Scardino and Isabel Marey-Semper served on the Board until the close of the Annual General Meeting in 2013. They were not paid any compensation during fiscal year 2013, but received their compensation for the term until the close of the Annual General Meeting in 2013 in fiscal year 2012. For their compensation in 2012, see Note 31 to our consolidated financial statements included in Item 18 of this annual report. |
| (5) | Represents compensation paid to Elizabeth Doherty, consisting of EUR 130 000 for services as a member of the Board and EUR 10 000 for service as a member of the Audit Committee. |
| (6) | Stephen Elop did not receive compensation for his services as a member of the Board. This table does not include compensation paid to Mr. Elop for his services as the President and CEO. For compensation paid for his service as the President and CEO, see “—Executive Compensation—Actual Executive Compensation for 2013—Summary Compensation Table 2013” below. Mr. Elop stepped down from his position as President and CEO and resigned from the Board of Directors effective September 3, 2013. |
| (7) | Represents compensation paid to Henning Kagermann, consisting of EUR 130 000 for services as a member of the Board and EUR 25 000 for service as the Chairman of the Personnel Committee. |
| (8) | Represents compensation paid to Elizabeth Nelson, consisting of EUR 130 000 for services as a member of the Board and EUR 10 000 for service as a member of the Audit Committee. |
Proposal by the Corporate Governance and Nomination Committee for Compensation to the Board of Directors in 2014
On April 28, 2014, the Corporate Governance and Nomination Committee of the Board announced its proposal to the Annual General Meeting convening on June 17, 2014 regarding the remuneration to the Board of Directors in 2014. The Committee will propose that the annual fee payable to the Board members elected at the same meeting for a term until the close of the Annual General Meeting in 2015, remain at the same level as it has been for the past six years and be as follows: EUR 440 000 for the Chairman, EUR 150 000 for the Vice Chairman and EUR 130 000 for each member; for the Chairman of the Audit Committee and the Chairman of the Personnel Committee an additional annual fee of EUR 25 000, and for each member of the Audit Committee an additional annual fee of EUR 10 000.
The guiding principle of the Committee’s proposal is to align the interests of the directors with those of the shareholders by remunerating directors primarily with Nokia shares that according to the current policy must be retained for the duration of the Board membership. Therefore, the Committee will propose that, as in the past, approximately 40 per cent of the remuneration be paid in Nokia shares purchased from the market or alternatively by using shares held by the company, which shares shall be retained until the end of a director’s Board membership in line with the Nokia current policy (except for those shares needed to offset any costs relating to the acquisition of the shares, including taxes). The rest of the remuneration would be payable in cash, most of which is typically used to covering taxes arising out of the remuneration.
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The Committee’s aim is to ensure that the Company has an efficient Board of international professionals representing a diverse mix of skills and experience. A competitive Board remuneration contributes to the achievement of this target.
In determining the proposed remuneration, it is the Committee’s policy to review and compare the total remuneration levels and their criteria paid in other global companies with net sales and complexity of business comparable to that of Nokia’s. It is the Company’s policy that the remuneration consists of an annual fee only, and that no fees for meeting attendance are paid. It is also the Company’s policy that a significant portion of director compensation will be paid in the form of Company shares purchased from the market or by using shares held by the company and that each Board member shall retain, in accordance with the current policy, all Nokia shares received as director compensation until the end of his or her Board membership (except for those shares needed to offset any costs relating to the acquisition of the shares, including taxes). In addition, it is the Company’s policy that non-executive members of the Board do not participate in any of the Company’s equity programs and do not receive stock options, performance shares, restricted shares or any other equity based or otherwise variable compensation for their duties as Board members.
Executive Compensation
The sections below describe our executive compensation philosophy, the design of our compensation programs and the factors considered during the decision-making process. One of the underlying principles of our compensation philosophy and our compensation program design is that a significant portion of an executive’s total compensation is tied to the company’s performance and be aligned with the value delivered to shareholders. Of the 2013 total compensation for Stephen Elop, the President and CEO until September 3, 2013, 88% of his compensation was tied to the company’s performance. The amount of compensation tied to the company’s performance for the other members of the Nokia Leadership Team for 2013 ranged from 71% to 80%. Our programs are designed so that this portion of compensation is earned and delivered only when results warrant. In 2013, we acquired the full ownership of Networks (previously called Nokia Solutions and Networks), and the three business continuing with Nokia after the Sale of D&S Business were profitable. However, we did not achieve all of our targets due to losses sustained in the Devices & Services business. As a result, some members of the Nokia Leadership Team did not realize significant elements of their total compensation in 2013. There were no payments under the vested Performance Share Plan to any Nokia Leadership Team members and some did not receive annual short-term variable incentive.
Executive Compensation Philosophy, Programs and Decision-Making Process
The basic principles of our executive compensation philosophy is to attract, retain and motivate talented executive officers globally with the right mix of skills and capabilities to drive Nokia’s success in an extremely complex and rapidly evolving mobile communications industry. To achieve this, we have developed an overall compensation framework that provides competitive base pay rates combined with short- and long-term incentives or compensation that are intended to result in a competitive total compensation package.
Our executive compensation programs are designed to support Nokia in the execution of the corporate strategy. Specifically, our programs are designed to:
| • | incorporate specific performance measures that align directly with the execution of our strategy; |
| • | deliver an appropriate amount of performance-related variable compensation for the achievement of strategic goals and financial targets in both the short- and long-term; |
| • | appropriately balance rewards between Nokia’s and an individual’s performance; and |
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| • | foster an ownership culture that promotes sustainability and long-term value creation and align the interests of the named executive officers with those of the shareholders through long-term equity-based incentives. |
The competitiveness of Nokia’s executive compensation program is one of several key factors that the Personnel Committee of the Board considers in its determination of compensation for the Nokia Group Leadership Team, which includes the named executive officers. The Personnel Committee compares, on an annual basis, Nokia’s compensation practices, base salaries and total compensation, including short- and long-term incentives against those of other relevant companies with the same or similar revenue, size, global reach and complexity that we believe we compete against for executive talent. For 2013, the peer group included companies in high technology, telecommunications and Internet services industries, as well as companies from other industries that are headquartered in Europe and the United States. The peer group is determined by the Personnel Committee and reviewed for appropriateness from time to time as deemed necessary to keep abreast of changes in the business environment or industry.
The Personnel Committee retains and uses an external compensation consultant from Mercer Human Resources to obtain benchmark data and information on current market trends. The consultant works directly for the Personnel Committee and meets annually with the Personnel Committee, without management present, to provide an assessment of the competitiveness and appropriateness of Nokia’s executive compensation levels and programs. Management provides the consultant with information regarding Nokia’s compensation levels and programs in preparation for meeting with the Committee. The Committee has reviewed and established that the consultant of Mercer Human Resources that works for the Personnel Committee is independent of Nokia and does not have any other business relationships with Nokia.
The Personnel Committee reviews the Nokia Group Leadership Team’s compensation on an annual basis, and from time to time during the year when special needs arise. Without management present, the Personnel Committee evaluates the performance of the President and CEO against previously established goals and objectives, recommends corporate goals and objectives for the coming year and proposes to the Board the compensation level of the President and CEO. All compensation for the President and CEO, including long-term equity incentives, is approved by the Board and is confirmed by the independent members of the Board. Management’s role is to provide any information requested by the Personnel Committee to assist in their deliberations.
Upon the recommendation of the President and CEO, the Personnel Committee also approves all compensation, including long-term equity incentives and goals and objectives relevant to compensation for all members of the Nokia Group Leadership Team (other than the President and CEO) and other executive level direct reports to the President and CEO. Additionally, the Personnel Committee approves annual short-term incentive payments and reviews the results of performance evaluation of Nokia Group Leadership Team members (excluding the President and CEO) and other executive level direct reports to the President and CEO.
The Personnel Committee considers the following factors, among others, when determining the compensation of the Nokia Group Leadership Team or recommending the compensation of the President and CEO to the Board:
| • | the compensation levels for similar positions (in terms of scope of position, revenues, number of employees, global responsibility and reporting relationships) in relevant comparison companies; |
| • | the performance demonstrated by the executive officer during the last year, which is evaluated at the end of the year against individual goals that are aligned to Nokia-level financial and strategic goals and against the executive officer’s overall leadership capabilities; |
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| • | the size and impact of the particular officer’s role on Nokia’s overall performance and strategic direction; |
| • | the internal comparison to the compensation levels of the other executive officers of Nokia; |
| • | past experience and tenure in role; and |
| • | the potential and expected future contributions of the executive. |
The above factors are assessed by the Personnel Committee in totality.
In 2011, Nokia’s management performed an internal risk assessment of Nokia’s compensation policies and practices for all its employees specifically to understand any potential risk factors that would be associated with the changes made to Nokia’s compensation programs in 2011 in alignment with our strategy. Management assessed such factors as Nokia’s proportion of fixed compensation in relation to variable compensation, the caps on incentive compensation that can be earned under our plans, performance metrics tied to the incentive programs and the time horizon over which variable compensation may be earned, as well as Nokia’s share ownership, severance and recoupment policies and our overall governance structure and practices. Based on the assessment, management concluded that there were no material risks arising from Nokia’s compensation programs, policies and practices or the changes implemented that are likely to have a material adverse effect on Nokia. The findings of the analysis were reported to the Personnel Committee. A similar assessment was not conducted in 2013 as the 2011 assessment considered changes in our programs that were being implemented in 2013. In 2014 a full risk assessment will be conducted based on Nokia’s new strategy.
Components of Executive Compensation
Our compensation program for Nokia Group Leadership Team members includes annual cash compensation in the form of a base salary and short-term variable cash incentives, as well as long-term equity-based incentives in the form of performance shares, stock options and restricted shares.
Annual Cash Compensation
Base salaries are targeted at globally competitive market levels. The Personnel Committee evaluates and weighs as a whole the appropriate base salary levels based on both our European and US peer companies.
Short-term cash incentives are an important element of our variable compensation programs and are tied directly to Nokia-level financial and strategic goals that are shared by the Nokia Group Leadership Team. The annual short-term variable cash incentive is expressed as a percentage of Nokia Group Leadership Team member’s annual base salary. These award and measurement criteria are presented in the table below.
Annual short-term variable incentives are normally determined for the Nokia Group Leadership Team based on their performance as a team. We began 2013 with a team scorecard made up of Nokia financial and strategic targets. As a result of the Sale of D&S Business to Microsoft, in the second half of 2013, the team scorecard was modified to include individual targets related to the Sale of D&S Business for some Nokia Leadership Team members. Some members of the Nokia Leadership Team also have an objective based on relative Total Shareholder Return. For 2013, the payment with respect to relative Total Shareholder Return is based on the Personnel Committee’s assessment of Nokia’s total shareholder return compared to key peer group companies that are selected by the Personnel Committee in the high technology, Internet services and telecommunications industries and relevant market indices over one, three and five year periods.
Annual short-term variable incentives, goals and underlying targets require the full Board’s approval for the President and CEO and the Personnel Committee’s approval for the other members of the Nokia Group Leadership Team.
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The below table outlines the measurement criteria that were established for the President and CEO and members of the Nokia Leadership Team for the year 2013. The annual short-term incentive payout is based on performance relative to targets set for each measurement criteria listed in the table.
Short-Term Incentive as a % of Annual Base Salary in 2013
| Position |
Minimum Performance |
Target Performance |
Maximum Performance |
Measurement Criteria | ||||||||||
| President and CEO |
|
0 |
% |
|
125 |
% |
|
250 |
% |
Key financial targets(1) (including gross profit, OPEX and net cash flow); and | ||||
| Nokia Leadership Team |
|
0 |
% |
|
75 |
% |
|
150 |
% |
Strategic objectives(1) (including targets for performance of Nokia’s product and service portfolio); and Individual objectives (includes targets relating to the transition of the Devices & Services Business to Microsoft) | ||||
| Certain Nokia Leadership Team members (in addition to above) |
0 | % | 25 | % | 50 | % | Total Shareholder Return(2) (comparison made with key competitors in the high technology, telecommunications and Internet services industries over one-, three- and five-year periods) | |||||||
| (1) | One Nokia Leadership Team member’s incentive structure is also tied to specific sales and gross margin targets in addition to the key financial targets and strategic objectives. |
| (2) | Total Shareholder Return reflects the change in Nokia’s share price during an established time period, including the amount of dividends paid, divided by Nokia’s share price at the beginning of the period. The calculation is conducted in the same manner for each company in the peer group. Only some members of the Nokia Leadership Team are eligible for the additional Total Shareholder Return element. |
Annual short-term variable incentive compensation under the Nokia short-term cash incentive program is paid once per year based on pre-determined Nokia performance criteria assessed as of December 31. To determine annual short-term variable incentive pay-out under the Nokia short-term cash incentive program, the Personnel Committee approved incentive goals are evaluated against pre-defined achievement criteria. The resulting scores are then calculated against each executive’s individual incentive target to ascertain an individual pay-out percent. The executive’s annual base salary is then multiplied by the pay-out percent to determine the pay-out amount. The achievement scores and individual pay-out percent and amount is presented to the Personnel Committee for approval. In the event the achievement criteria is not met, the actual short-term variable incentive awarded to the executive officer can be zero. The maximum payout is only possible with maximum performance on all measures.
For fiscal year 2013, the annual short-term incentive plan pay-out was in accordance with achievement against the incentive criteria. Other short-term variable incentive payments were made to Nokia Leadership Team members for specific achievements during the year.
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For more information on the actual cash compensation paid in 2013 to our named executive officers, see “—Actual Executive Compensation for 2013—Summary Compensation Table 2013” below.
Long-Term Equity-Based Incentives
In 2013, long-term equity-based incentives in the form of performance shares, stock options and restricted shares were used to align the Nokia Leadership Team members’ interests with shareholders’ interests, reward for long-term financial performance and encourage retention, while also considering evolving regulatory requirements and recommendations and changing economic conditions. These awards were determined on the basis of the factors discussed above in “—Executive Compensation Philosophy, Programs and Decision-making Process”, including the comparison of a Nokia Leadership Team member’s overall compensation with that of other similarly-situated executives in the relevant market and the competitiveness of the executive’s compensation package in that market. In 2013, performance shares would have settled as Nokia shares if at least one of the pre-determined threshold performance levels, tied to Nokia’s financial performance, had been achieved by the end of the performance period. The value the executive would have received was dependent on Nokia’s share price. Stock options were granted with the purpose of creating value for the Nokia Leadership Team member, once vested, only if the Nokia share price at the time of vesting is higher than the exercise price of the stock option established at grant. This has also been intended to focus executives on share price appreciation, thus aligning the interests of the executives with those of shareholders. Restricted shares were used primarily for long-term retention purposes for executives deemed critical for the future success of Nokia, as well as to support attraction of promising external talent in a competitive environment in which Nokia competes, namely in the United States where restricted shares are commonly used. Any shares granted are subject to the share ownership guidelines as explained below. All equity-based incentives are generally forfeited if the executive leaves Nokia prior to their vesting.
Recoupment of certain equity gains
The Board of Directors has approved a policy allowing for the recoupment of equity gains realized by Nokia Group Leadership Team members under Nokia equity plans in case of a financial restatement caused by an act of fraud or intentional misconduct. This policy applies to equity grants made to Nokia Group Leadership Team members after January 1, 2010.
Information on the actual equity-based incentives granted to the members of our Nokia Group Leadership Team in 2013 is included in Item 6E. “Share Ownership”.
Share Ownership Guidelines for Executive Management
One of the main goals of our long-term equity-based incentive program is to focus executives on promoting the long-term value sustainability of the company and building value for shareholders on a long-term basis. In addition to granting equity, we encourage stock ownership by our top executives and have stock ownership commitment guidelines with minimum recommendations tied to annual base salaries. For the President and CEO, the recommended minimum investment in Nokia shares corresponds to three times his annual base salary and for members of the Nokia Group Leadership Team two times annual base salary. To meet this requirement, all members of the Nokia Group Leadership Team are expected to retain 50% of any after-tax gains from equity programs in shares until the minimum investment level is met. The Personnel Committee regularly monitors the compliance by the executives with the stock ownership guidelines.
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Insider Trading in Securities
The Board of Directors has established a policy in respect of insiders’ trading in Nokia securities. The members of the Board and the Nokia Group Leadership Team are considered primary insiders. Under the policy, the holdings of Nokia securities by the primary insiders are public information and are available on our website and at Euroclear Finland Ltd. Both primary insiders and secondary insiders (as defined in the policy) are subject to a number of trading restrictions and rules, including, among other things, prohibitions on trading in Nokia securities during the four-week “closed-window” period immediately preceding the release of our interim and annual results including the day of the release. Nokia also sets trading restrictions based on participation in projects. We update our insider trading policy from time to time and provide training to ensure compliance with the policy. Nokia’s insider policy is in line with the NASDAQ OMX Helsinki Guidelines for Insiders and also sets requirements beyond those guidelines.
Executive Compensation
Service Contract of Stephen Elop due to his President and CEO role
Stephen Elop’s employment contract, dated September 21, 2010, covered his position as President and CEO. The agreement provided for an annually adjusted base salary (EUR 1 106 469 for 2013) and an annual management incentive target under the Nokia short-term cash incentive program of 150% of annual base salary. Mr. Elop was entitled to the benefits in line with our policies applicable to the Nokia Leadership Team, however, some of his benefits were being provided on a tax-assisted basis.
Mr. Elop’s employment contract was amended effective as of September 3, 2013, as a result of entering into a transaction with Microsoft for the Sale of D&S Business. Under the terms of the amendment, Mr. Elop resigned from his position as President and CEO as of September 3, 2013 and assumed the role of Executive Vice President, Devices & Services. He also resigned from his position as a member of Board of Directors as of the same date. After the closing of the Sale of D&S Business, he transferred to Microsoft as agreed with Microsoft. In accordance with his service contract, he received a severance payment of EUR 24.2 million in total. This amount included: base salary and management incentive EUR 4.1 million, and value of equity awards EUR 20.1 million. The amount of the equity awards was based on the Nokia closing share price of EUR 5.28 per share at NASDAQ OMX Helsinki on April 24, 2014. Pursuant to the terms of the purchase agreement with Microsoft entered into in connection with the Sale of D&S Business, 70% of the total severance payment was borne by Microsoft and the remaining 30% of the severance amount (EUR 7.3 million) was borne by Nokia.
Mr. Elop is subject to a covenant restricting him from working for specified competitors of Nokia for 12 months following the termination of his contract with Nokia. Nokia waived his competition restriction with respect to Microsoft only in connection with amending his service contract in September 2013.
For information about the compensation and benefits received by Mr. Elop during 2013, see Item 6B. “Compensation—Executive Compensation—Summary Compensation Table 2013” and “Compensation—Executive Compensation—Equity Grants in 2013.”
Interim governance
On September 3, 2013, Nokia announced changes to its leadership as a result of the proposed Sale of D&S Business to Microsoft. These changes were to ensure appropriate corporate governance structure during the interim period following the announcement until the consummation of the transaction. In order to avoid the perception of any potential conflict of interest, Stephen Elop, who agreed to transfer to Microsoft upon the closing of the transaction, continued to lead the Devices & Services business, but resigned from his position as President and CEO and member of the Board of Directors as of September 3, 2013.
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On the same date, Risto Siilasmaa assumed the role of interim CEO of Nokia while continuing to serve in his role as Chairman of the Nokia Board of Directors, and Timo Ihamuotila assumed the role of interim President and Chairman of the Nokia Leadership Team while also continuing to serve as Chief Financial Officer.
The above mentioned interim roles ended effective as from May 1, 2014, as a result of Nokia announcing its new strategy and changes to its leadership. Nokia Board appointed, effective from May 1, 2014 Rajeev Suri as the President and CEO of Nokia. He also chairs the Nokia Group Leadership Team.
Additional Compensation for Chairman of the Board Risto Siilasmaa due to his interim CEO role
As a result of entering into the Sale of D&S Business, Risto Siilasmaa assumed additional responsibilities as interim CEO from September 3, 2013, through April 30, 2014 in addition to his role as the Chairman of the Board of Nokia. As compensation for these additional responsibilities, he received a total amount of EUR 500 000. In order to reinforce the alignment of his interests with those of shareholders, 40% of this amount was delivered to him in Nokia shares bought on the open market. The remaining 60% was paid in cash, most of which was used to cover the estimated associated taxes. In recognition of Mr. Siilasmaa performance in his role as interim CEO, the Board of Directors approved on January 22, 2014, an additional award of 200,000 Nokia shares (gross, i.e. deducted by applicable taxes) to be purchased for Mr. Siilasmaa from the market during an open insider window period. Mr. Siilasmaa is to retain the net amount of shares delivered to him as stipulated for the Board members.
Executive agreement of Timo Ihamuotila due to his interim President role
Mr. Ihamuotila’s executive agreement covers his position as Executive Vice President and Chief Financial Officer. In addition to his responsibilities as Chief Financial Officer of Nokia, Timo Ihamuotila assumed additional responsibilities as interim President and Chairman of the Nokia Leadership Team, from September 3, 2013, through April 30, 2014. In recognition of these additional responsibilities, Mr. Ihamuotila received EUR 250 000 paid in five monthly installments of EUR 50 000 each commencing in October 2013. In addition, Mr. Ihamuotila received an equity grant with an approximate aggregate grant date value of EUR 250 000 in the form of stock options and restricted shares. These grants are subject to the plans’ standard terms and conditions and vesting schedules as described in the Equity-Based Incentive Programs section below.
No changes were made to his compensation as a result of his additional responsibilities as Interim President, other than as described above. His annual base salary for 2013 was EUR 579 579. His annual management incentive target under the Nokia short-term cash incentive program is 100% of annual base salary. He is eligible to participate in Nokia’s long-term equity-based incentive programs according to Nokia policies and guidelines and as determined by the Board of Directors. Mr. Ihamuotila is also entitled to benefits in line with our policies applicable to the Nokia Group Leadership Team.
In case of termination by Nokia for reasons other than cause, Mr. Ihamuotila is entitled to a severance payment of up to 18 months of compensation inclusive of annual base salary, annual management incentive at target and benefits. Additionally, a pro-rated portion of all unvested performance shares, restricted shares and stock options would have been treated as vested until March 25, 2014. On March 25, 2014, the Personnel Committee approved an amendment to Mr. Ihamuotila’s executive agreement which replaced the above described pro-rated vesting of unvested equity with a full acceleration of unvested equity incentive grants awarded as at March 25, 2014. For equity grants awarded after March 25, 2014, neither the pro-rated vesting nor accelerated vesting treatment will apply. In case of termination by Nokia for cause, Mr. Ihamuotila will not be entitled to any notice period or additional compensation and all his equity will be forfeited. In case of termination by Mr. Ihamuotila for cause, he is entitled to a severance payment equivalent of up to 18 months compensation inclusive of annual base salary, annual management incentive at target and benefits. In case of termination by
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Mr. Ihamuotila, the notice period is six months and he is entitled to a payment for such notice period inclusive of annual base salary, annual management incentive at target and benefits for six months. All unvested equity will be forfeited.
Mr. Ihamuotila is subject to a 12-month non-competition obligation after termination of his contract. Unless the contract is terminated by Nokia for cause, Mr. Ihamuotila may be entitled to compensation during the non-competition period or a part of it. Such compensation amounts to the annual base salary and management incentive at target for the respective period during which no severance payment is paid.
In the event of a change of control of Nokia, Mr. Ihamuotila will be treated in accordance with his change of control agreement as described below in “Employment Arrangements with the Nokia Group Leadership Team”.
Service contract of President and CEO Rajeev Suri, effective from May 1, 2014
On April 28, 2014 the Nokia Board of Directors resolved to appoint Mr. Rajeev Suri as Nokia’s President and CEO effective from May 1, 2014. Pursuant to a new service contract Mr. Suri’s annual base salary, which is subject to annual review by the Board of Directors and confirmation by the independent members of the Board, is EUR 1 000 000 and his incentive target under the Nokia short-term cash incentive plan is125% of annual base salary. Mr. Suri is entitled to the customary benefits in line with our policies applicable to the senior executives, however, some of the benefits are being provided to him on a tax assisted basis. Mr. Suri is also eligible to participate in Nokia Group’s long-term equity based compensation programs in accordance with Nokia policies and guidelines and as determined by the Board of Directors. In 2014, Mr. Suri will receive an annual Nokia equity grant of 475,000 Peformance Shares plus a one-time discretionary grant of 175,000 Performance Shares.
Mr. Suri’s service contract may be terminated as follows:
Termination by Nokia for reasons other than cause. In the event of a termination by Nokia for reasons other than cause, Mr. Suri is entitled to a severance payment equaling up to18 months of compensation (including annual base salary, benefits, and target incentive), and his unvested equity awards will be forfeited.
Termination by Nokia for cause. In the event of a termination by Nokia for cause, Mr. Suri is entitled to no additional compensation and all his unvested equity awards will be forfeited.
Termination by Mr. Suri for any reason. Mr. Suri may terminate his service contract at any time with six months’ prior notice. Nokia may choose to pay a lump sum payment in lieu of his service during the notice period or ask Mr. Suri to continue his service through all or part of this notice period. In either event, Mr. Suri is entitled to six months compensation (including annual base salary, benefits, and target incentive), and his unvested equity awards will be forfeited.
Termination by Mr. Suri for Nokia’s material breach of the service contract. In the event that Mr. Suri terminates his service contract based on a final arbitration award demonstrating Nokia’s material breach of the service contract, he is entitled to a severance payment equaling to up to 18 months of compensation (including annual base salary, benefits, and target incentive), and all his unvested equity awards will be forfeited.
Termination based on specified events. Mr. Suri’s service contract includes special severance provisions on a termination following change of control events. These change of control provisions are based on a double trigger structure, which means that both a change of control event and the
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termination of the individual’s employment within a defined period of time must take place for any change of control based severance payment to become due. More specifically, if a change of control event, as defined in the service contract, has occurred, and Mr. Suri’s service with the company is terminated either by Nokia or its successor without cause, or by Mr. Suri for “good reason”, in either case within 18 months from such change of control event, Mr. Suri will be entitled to a severance payment equaling to up to 18 months of compensation (including annual base salary, benefits, and target incentive) and cash payment(or payments) for the pro-rated value of his outstanding unvested equity awards, including equity awards under the NSN Equity Incentive Plan, restricted shares, performance shares and stock options (if any), payable pursuant to the terms of the service contract. “Good reasons” referred to above include a material reduction of Mr Suri’s compensation and a material reduction of his duties and responsibilities, as definedin the service contract and as determined by the Board of Directors.
In addition, the service contract defines a specific, limited termination event that applies until June 30, 2016. Upon this event, if. Mr. Suri’s service with Nokia is terminated as a result of the circumstances specified in the service contract, he is entitled to, in addition to normal severance payment payable upon his termination by Nokia for reasons other than cause, to a pro-rated value of unvested equity awards under the NSN Equity Incentive Plan, provided that the termination of his service takes place within six months from the defined termination event (and on or before June 30, 2016). Subject to this limited time treatment of unvested equity awards under the NSN Executive Incentive Plan, all of Mr. Suri’s other unvested equity will be forfeited.
Subject to his continued employment, Mr. Suri is also expected to receive payments in the future pursuant to options granted under the NSN Equity Incentive Plan. This plan was established in 2012 prior to Nokia’s acquisition of full ownership of NSN. The plan had two objectives: (1) increasing the value of NSN and (2) creating incentives relating to an exit option for its parent companies. With the significantly improved performance of NSN, the first objective has been met. The second objective has not occurred and given the change in Nokia’s strategy, the likelihood of a sale or IPO has reduced. Accordingly, the value of the payouts under the NSN Equity Incentive Plan are expected to be reduced by 50%.
The actual payments, if any, under the NSN Equity Incentive Plan will be determined based on the value of the Networks business and could ultimately decline to zero if the value of the business falls below a certain level. There is also a cap that limits the upside for all plan participants, and if an IPO or sale has not occurred, the maximum total payment to Mr. Suri pursuant to the plan would be limited to EUR 10.8 million. In the unlikely event of an IPO or exit event the value of the options could exceed this maximum.
These equity awards were originally intended to vest upon the sale or IPO of NSN, or upon the fourth anniversary of the grant date. Given the change in Nokia’s strategy and the significant improvement in the performance of NSN, the Nokia Board of Directors has determined that 30% of the options will vest on the third anniversary of grant (June 21, 2015) and 70% will continue to vest on the fourth anniversary of grant ( June 21, 2016).
Mr. Suri is subject to a 12-month non-competition obligation that applies after the termination of the service contract or the date when he is released from his obligations and responsibilities, whichever occurs earlier.
Executive Arrangements with the Leadership Team
Nokia has entered into executive agreements with all members of the Nokia Leadership Team (valid through April 30, 2014) and the Nokia Group Leadership Team (valid as from May 1, 2014). The below
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description of executive arrangements refers to Nokia Group Leadership Team but is valid for both the old (Nokia Leadership Team) and new leadership team (Nokia Group Leadership Team) , unless otherwise specifically mentioned. The contracts of Mr. Elop, Mr. Ihamuotila and Mr. Suri are described above.
Under the terms of their executive agreements with Nokia, Nokia Group Leadership Team members are entitled to a severance payment of up to 12 months of compensation inclusive of annual base salary, management incentive at target under the Nokia short-term cash incentive program and benefits.
In case of termination by a Nokia Group Leadership Team member, the notice period is six months and such member is entitled to a payment for such notice period inclusive of annual base salary, annual management incentive at target and benefits. All equity will be forfeited. In case of termination by Nokia for cause, Nokia Group Leadership Team member will not be entitled to any notice period or additional compensation and all equity will be forfeited. In case of termination by the Nokia Group Leadership Team member for cause, such member is entitled to a severance payment equivalent of up to 12 months’ compensation inclusive of annual base salary, annual management incentive at target and benefits. Nokia Group Leadership Team members are subject to a 12-month non-competition obligation after termination of the contract. Unless the contract is terminated by Nokia for cause, the Nokia Group Leadership Team member may be entitled to compensation during the non-competition period or a part of it. Such compensation amounts to the annual base salary and annual management incentive at target for the respective period during which no severance payment is paid.
The Nokia Group Leadership Team members have change of control agreements with Nokia, which serve as an addendum to their executive agreements. These change of control agreements are based on a double trigger structure, which means that both the change of control event and the termination of the individual’s employment must take place for any change of control based severance payment to materialize. More specifically, if a change of control event, as defined in the agreement, has occurred in the company, and the individual’s employment with the company is terminated either by Nokia or its successor without cause, or by the individual for “good reason” (for example, material reduction of duties and responsibilities), in either case within 18 months from such change of control event, the individual will be entitled to his or her notice period compensation (including base salary, benefits, and target incentive) and cash payment (or payments) for the pro-rated value of the individual’s outstanding unvested equity, including restricted shares, performance shares, stock options and equity awards under NSN Equity Incentive Plan, payable pursuant to the terms of the agreement. The Board of Directors has the full discretion to terminate or amend the change of control agreements at any time.
Pension Arrangements for the Members of the Nokia Group Leadership Team
The members of the Nokia Group Leadership Team participate in the local retirement programs applicable to employees in the country where they reside. This applies also to Mr. Elop, the former President and CEO, and Mr. Suri, the President and CEO as from May 1, 2014, who are not entitled to any extraordinary pension arrangements. Executives in Finland, including Mr. Elop and Mr. Suri participate in the Finnish TyEL pension system, which provides for a retirement benefit based on years of service and earnings according to prescribed statutory rules. Under the Finnish TyEL pension system, base pay, incentives and other taxable fringe benefits are included in the definition of earnings, although gains realized from equity are not. Retirement benefits are available from age 63 to 68, according to an increasing scale. The Nokia Group Leadership Team members in the United States participate in Nokia’s US Retirement Savings and Investment Plan. Under this 401(k) plan, participants elect to make voluntary pre-tax contributions that are 100% matched by Nokia up to 8% of eligible earnings. 25% of the employer’s match vests for the participants during each year of the first four years of their employment. The Nokia Group Leadership Team members in Germany participate in the Nokia
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German Pension Plan that is 100% company funded. Contributions are based on pensionable earnings, the pension table and retirement age. For the Nokia Group Leadership Team members in UK, the pension accrued in the UK Pension Scheme is a Money Purchase benefit. Contributions are paid into the UK Pension Scheme by both the member and employer. These contributions are held within the UK Pension Scheme and are invested in funds selected by the member.
Actual Compensation for the Members of the Nokia Leadership Team in 2013
At December 31, 2013, The Nokia Leadership Team consisted of 11 members. Changes in the composition of the Nokia Leadership Team during 2013 and subsequently are explained above in Item 6A. “Directors and Senior Management—Nokia Leadership Team”.
The following tables summarize the aggregate cash compensation paid and the long-term equity-based incentives granted to the members of the Nokia Leadership Team under our equity plans in 2013.
Gains realized upon exercise of stock options and share-based incentive grants vested for the members of the Nokia Leadership Team during 2013 are included in Item 6E. “Share Ownership”.
Aggregate Cash Compensation to the Nokia Leadership Team for 2013(1)
| Year |
Number of Members on December 31, 2013 |
Base Salaries (EUR) |
Cash Incentive Payments (EUR) |
|||||||||
| 2013 |
11 | 6 305 269 | 2 855 579 | |||||||||
| (1) | Includes base salary and short-term cash incentives paid or payable by Nokia for fiscal year 2013. The short-term cash incentives include annual short-term cash incentives that are paid as a percentage of annual base salary and/or variable spot compensation paid for specific achievements during the year. |
| (2) | Includes Marko Ahtisaari for the period until October 31, 2013, EUR 370 973 for annual base salary as a Nokia Leadership Team member and zero short-term cash incentive payment. |
Long-Term Equity-Based Incentives Granted in 2013(1)
| Nokia
Leadership Team(3)(4) |
Total | Total number of participants |
||||||||||
| Performance Shares at Threshold(2) |
1 537 500 | 6 696 241 | 3 580 | |||||||||
| Stock Options |
5 150 000 | 8 334 200 | 140 | |||||||||
| Restricted Shares |
1 970 000 | 12 347 931 | 3 600 | |||||||||
| (1) | The equity-based incentive grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting. The settlement is conditional upon performance and/or service conditions, as determined in the relevant plan rules. For a description of our equity plans, see Note 25 to our consolidated financial statements included in Item 18 of this annual report. |
| (2) | For performance shares granted under Nokia Performance Share Plans, at maximum performance, the settlement amounts to four times the number at threshold. |
| (3) | Includes Marko Ahtisaari for the period until October 31, 2013. |
| (4) | For the Nokia Leadership Team member whose employment terminated during 2013, the long-term equity-based Incentives were forfeited following termination of employment in accordance with plan rules. |
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A significant portion of equity grants presented in the below Summary Compensation Table to the named executive officers are tied to the performance of the company and aligned with the value delivered to shareholders. Therefore, the amounts shown are not representative of the amounts that will actually be earned and paid out to each named executive officer (but rather the accounting grant date fair value of each applicable grant, which is required to be reported in the Summary Compensation Table). In fact, for each of the years reported, the compensation “realized” by each named executive officer is lower than the amount required to be reported in the Summary Compensation Table.
Summary Compensation Table 2013
| Name and Principal Position(1) |
Year | Salary (EUR) |
Variable Compensation(2) (EUR) |
Stock Awards(3) (EUR) |
Option Awards(3) (EUR) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings(4) (EUR) |
All Other Compensation (EUR) |
Total (EUR) |
||||||||||||||||||||||||
| Stephen Elop, EVP Devices & Services, former President and CEO |
2013 | 1 105 171 | 769 217 | 5 385 660 | 2 197 691 | 75 554 | 121 765 | (5) | |
9 655 059 |
| |||||||||||||||||||||
| 2012 | 1 079 500 | 0 | 2 631 400 | 497 350 | 56 776 | 69 395 | 4 334 421 | |||||||||||||||||||||||||
| 2011 | 1 020 000 | 473 070 | 3 752 396 | 539 443 | 73 956 | 2 085 948 | 7 944 813 | |||||||||||||||||||||||||
| Risto Siilasmaa Chairman of the Board of Directors, Interim CEO |
|
2013 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
500 000 |
(6) |
|
500 000 |
| |||||||||||
| Timo Ihamuotila EVP, Chief Financial Officer, Interim President |
2013 | 578 899 | 628 909 | 1 136 530 | 547 748 | 160 630 | 314 066 | (7) | 3 366 782 | |||||||||||||||||||||||
| 2012 | 570 690 | 57 750 | 539 300 | 106 575 | 262 183 | 40 146 | 1 576 644 | |||||||||||||||||||||||||
| 2011 | 550 000 | 173 924 | 479 493 | 185 448 | 150 311 | 8 743 | 1 547 919 | |||||||||||||||||||||||||
| Louise Pentland(8) EVP, Chief Legal Officer |
2013 | 441 499 | 476 027 | 905 120 | 427 329 | 9 324 | (9)(10) | 2 259 299 | ||||||||||||||||||||||||
| 2012 | 466 653 | 46 321 | 407 730 | 81 708 | 22 761 | 1 025 173 | ||||||||||||||||||||||||||
| Michael Halbherr EVP, HERE |
2013 | 440 375 | 206 426 | 990 280 | 451 748 | 89 849 | (11) | 2 178 678 | ||||||||||||||||||||||||
| 2012 | 411 531 | 44 038 | 539 300 | 106 575 | 61 477 | 1 162 921 | ||||||||||||||||||||||||||
| Jo Harlow(8) EVP, Smart Devices |
2013 | 533 436 | 0 | 990 280 | 451 748 | 62 415 | (12) | 2 037 879 | ||||||||||||||||||||||||
| 2012 | 555 296 | 55 494 | 539 300 | 106 575 | 58 732 | 1 315 397 | ||||||||||||||||||||||||||
| (1) | The positions set forth in this table are the positions of the named executive officers as of December 31, 2013. |
| (2) | The amount consists of the annual short term variable compensation and/or other incentives earned and paid or payable by Nokia for the respective fiscal year. The amount above is inclusive of any discretionary variable spot compensation earned by active Nokia Leadership Team members for specific contributions during the year. |
| (3) | Amounts shown represent the grant date fair value of equity grants awarded for the respective fiscal year. The fair value of stock options equals the estimated fair value on the grant date, calculated using the Black-Scholes model. |
The fair value of performance shares and restricted shares equals the estimated fair value on grant date. The estimated fair value is based on the grant date market price of a Nokia share less the present value of dividends expected to be paid during the vesting period. The value of the performance shares is presented on the basis of granted number of shares, which is two times the number of shares at threshold.
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The value of the stock awards with performance shares valued at maximum (four times the number of shares at threshold), for each of the named executive officers, is as follows:
Mr. Elop EUR 8 670 660; Mr. Ihamuotila EUR 1 778 930; and Ms. Pentland EUR 1 489 120; Mr. Halbherr EUR 1 632 680 and Ms. Harlow EUR 1 632 680.
| (4) | The change in pension value represents the proportionate change in the liability related to the individual executives. These executives are covered by the Finnish State employees’ pension act (“TyEL”) that provides for a retirement benefit based on years of service and earnings according to the prescribed statutory system. The TyEL system is a partly funded and a partly pooled “pay as you go” system. Effective March 1, 2008, Nokia transferred its TyEL pension liability and assets to an external Finnish insurance company and no longer carries the liability on its financial statements. The figures shown represent only the change in liability for the funded portion. The method used to derive the actuarial IFRS valuation is based upon available salary information at the respective year end. Actuarial assumptions including salary increases and inflation have been determined to arrive at the valuation at the respective year end. |
| (5) | All other compensation for Mr. Elop in 2013 includes: EUR 66 913 for tax services for fiscal years 2011, 2012 and 2013; housing of EUR 40 131; EUR 9 600 for participation in a health assessment and leadership performance program; home security EUR 1 249; and EUR 3 873 taxable benefit for premiums paid under supplemental medical and disability insurance and for mobile phone and driver. |
| (6) | All other compensation for Mr. Siilasmaa in 2013 includes: EUR 500 000 as compensation for his additional responsibilities as Interim CEO, 40% of this amount was delivered to him in shares bought on the open market. The remaining 60% was paid in cash, most of which was used to cover the estimated associated taxes. The table does not include the compensation he is paid for his role as Chairman of the Board of Directors. |
| (7) | All other compensation for Mr. Ihamuotila in 2013 includes: EUR 11 220 for car allowance; |
EUR 43 896 for security and EUR 2 200 taxable benefit for premiums paid under supplemental medical and disability insurance and for mobile phone and driver; EUR 6 750 for participation in a health assessment and leadership performance program. In recognition of additional responsibilities for his role as acting President, Mr. Ihamuotila received EUR 250 000 cash paid in 5 installments starting in October 2013, resulting in EUR 150 000 being paid in 2013 and EUR 100 000 being paid in 2014. Additionally, he received an equity grant value EUR 242 250 (included in the stock award and stock options columns) which will vest in accordance with normal plan rules.
| (8) | Salaries, benefits and perquisites for Ms. Harlow and Ms. Pentland were paid and denominated in GBP and USD, respectively. Amounts were converted using year-end 2013 USD/EUR exchange rate of 1.37 and GPB/EUR rate of 0.85. For year 2012 disclosure, amounts were converted using year-end 2012 USD/EUR exchange rate of 1.28 and GPB/EUR exchange rate of 0.85. For year 2011 disclosure, amounts were converted using year-end 2011 USD/EUR and GPB/EUR exchange rate of 1.35 and 0.86, respectively. |
| (9) | Ms. Pentland participated in Nokia’s U.S Retirement Savings and Investment Plan. Under this 401(k) plan, participants elect to make voluntary pre-tax contributions that are 100% matched by Nokia up to 8% of eligible earnings. 25% of the employer’s match vests for the participants during each of the first four years of their employment. Participants earning in excess of the Internal Revenue Service (IRS) eligible earning limits may participate in the Nokia Restoration and deferral Plan, which allows employees to defer up to 50% of their salary and 100% of their short-term variable incentive. Contributions to the Restoration and Deferral Plan are matched 100% up to 8% of eligible earnings, less contributions made to the 401(k) plan. The company’s contributions to the plan are included under “All Other Compensation Column” and noted hereafter. |
| (10) | All other compensation for Ms. Pentland in 2013 includes: EUR 9 324 company contributions to the 401(k) Plan and EUR 530 provided under Nokia’s international assignment policy in the UK. |
| (11) | All other compensation for Mr. Halbherr in 2013 includes: EUR 69 747 company contributions to the German Pension Plan and EUR 13 352 for car, fuel, account maintenance and health insurance and EUR 6 750 for participation in a health assessment and leadership performance program. |
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| (12) | All other compensation for Ms. Harlow in 2013 includes: EUR 44 318 company’s contributions to the UK Pension Plan; EUR 9 541 for car and fuel and EUR 691 for health insurance; EUR 1 114 service award and EUR 6 750 for participation in a health assessment and leadership performance program. |
Equity Grants in 2013(1)
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||
| Name and
Principal |
Year | Grant Date |
Number of Shares underlying Options |
Grant Price (EUR) |
Grant Date Fair Value(3) (EUR) |
Performance Shares at Threshold (Number) |
Performance Shares at Maximum (Number) |
Restricted Shares (Number) |
Grant Date Fair Value(4) (EUR) |
|||||||||||||||||||||||||
| Stephen Elop, EVP Devices & Services, former President and CEO |
2013 | May 15 | 1 800 000 | 2.71 | 2 197 692 | 562 500 | 2 250 000 | |||||||||||||||||||||||||||
| 2013 | March 13 | 785 000 | 5 385 660 | |||||||||||||||||||||||||||||||
| Risto Siilasmaa, Chairman of the Board of Directors. Interim CEO | 2013 | — | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
| Timo Ihamuotila, EVP, Chief Financial Officer, Interim President | 2013 | May 15 | 370 000 | 2.71 | 451 748 | 110 000 | 440 000 | |||||||||||||||||||||||||||
| 2013 | March 13 | 130 000 | 990 280 | |||||||||||||||||||||||||||||||
| 2013 | November 13 | 25 000 | 146 125 | |||||||||||||||||||||||||||||||
| Louise Pentland, EVP, Chief Legal Officer | 2013 | May 15 | 350 000 | 2.71 | 427 329 | 100 000 | 400 000 | |||||||||||||||||||||||||||
| 2013 | March 13 | 120 000 | 905 120 | |||||||||||||||||||||||||||||||
| Michael Halbherr, EVP, HERE | 2013 | May 15 | 370 000 | 2.71 | 451 748 | 110 000 | 440 000 | |||||||||||||||||||||||||||
| 2013 | March 13 | 130 000 | 990 280 | |||||||||||||||||||||||||||||||
| Jo Harlow, EVP, Smart Devices |
2013 | May 15 | 370 000 | 2.71 | 451 748 | 110 000 | 440 000 | |||||||||||||||||||||||||||
| 2013 | March 13 | 130 000 | 990 280 | |||||||||||||||||||||||||||||||
| (1) | Including all equity awards made during 2013. Awards were made under the Nokia Stock Option Plan 2011, the Nokia Performance Share Plan 2013 and the Nokia Restricted Share Plan 2013. |
| (2) | The positions set forth in this table are the positions of the named executive officers as of December 31, 2013. |
| (3) | The fair value of stock options equals the estimated fair value on the grant date, calculated using the Black-Scholes model. The stock option exercise price was EUR 2.71 on May 15, 2013. NASDAQ OMX Helsinki closing market price was EUR 2.92 at grant date on May 15, 2013. |
| (4) | The fair value of performance shares and restricted shares equals the estimated fair value on the grant date. The estimated fair value is based on the grant date market price of the Nokia share less the present value of dividends expected to be paid during the vesting period. The value of performance shares is presented on the basis of a number of shares, which is two times the number at threshold. |
For information with respect to the Nokia shares and equity awards held by the members of the Nokia Leadership Team as at December 31, 2013, please see Item 6E. “Share Ownership”.
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Equity-Based Incentive Programs
General
The Board of Directors approved on February 14, 2014 Nokia Equity Based Incentive Programme for the year 2014. The programme for 2014 will be explained in more detail under “Nokia Equity-Based Incentive Programme 2014”.
During the year ended December 31, 2013, we administered two global stock option plans, four global performance share plans, four global restricted share plans and an employee share purchase plan. Both executives and employees participate in these plans. Our compensation programs promote long-term value creation and sustainability of the company and are designed to ensure that compensation is based on performance. Performance shares have been the main element of the company’s broad-based equity compensation program for several years to emphasize the performance element in employees’ long-term incentives.
The primary equity instruments for the executive employees were performance shares and stock options. Restricted shares have also been used for executives for retention purposes. The portfolio approach has been designed to build an optimal and balanced combination of long-term equity-based incentives and to help focus recipients on long term financial performance as well as on share price appreciation, thus aligning recipients’ interests with those of shareholders. For directors below the executive level, the primary equity instruments have been performance shares and restricted shares. Below the director level, performance shares and restricted shares have been used on a selective basis to ensure retention and recruitment of individuals with functional mastery and other employees deemed critical to Nokia’s future success.
The equity-based incentive grants are conditioned upon continued employment with Nokia, as well as the fulfillment of performance and other conditions, as determined in the relevant plan rules.
The participant group for the 2013 equity-based incentive program continued to include employees from many levels of the organization. As at December 31, 2013, the aggregate number of participants in all of our active equity-based programs was approximately 7 200 and approximately 7 200 as at December 31, 2012.
Stock option, performance share and restricted share grants to the President and CEO are made upon recommendation by the Personnel Committee and approved by the Board of Directors and confirmed by the independent directors of the Board. The interim CEO was not eligible to receive any equity-based incentive grants and did not receive any grants during 2013. The interim President’s stock option and restricted share grants in recognition of his additional responsibilities as the interim President were made upon recommendation by the Personnel Committee and approved by the Board of Directors in accordance with the terms and conditions of the plans. Stock option, performance share and restricted share grants to the other Nokia Group Leadership Team members and other direct reports of the President and CEO are approved by the Personnel Committee. Stock option, performance share and restricted share grants to other eligible employees are approved by the President and CEO on a quarterly basis, based on an authorization given by the Board of Directors.
In 2013 employees of Networks were excluded from Nokia’s equity incentive programs.
Performance Shares
During 2013, we administered four global performance share plans: the Performance Share Plans of 2010, 2011, 2012 and 2013, each of which, including its terms and conditions, has been approved by the Board of Directors.
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The performance shares represent a commitment by Nokia Corporation to deliver Nokia shares to employees at a future point in time, subject to Nokia’s fulfillment of pre-defined performance criteria. No Nokia shares will be delivered unless the Group’s performance reaches at least one of the threshold levels measured by two independent, pre-defined performance criteria. The below table illustrates the performance criteria of the Performance Share Plans from 2010 through 2013.
| Performance Share Plan | ||||||||||||||||
| Performance Criteria |
2013 | 2012 | 2011 | 2010 | ||||||||||||
| Average Annual Net Sales Growth (Nokia Group) |
— | — | yes | yes | ||||||||||||
| EPS at the end of Performance period (Nokia Group) |
— | — | — | yes | ||||||||||||
| Average Annual Net Sales (Nokia Group excluding Networks) |
yes | (1) | yes | — | — | |||||||||||
| Average Annual Net Sales (Nokia Group) |
yes | (2) | — | — | — | |||||||||||
| Average Annual EPS (Nokia Group) |
yes | yes | yes | — | ||||||||||||
| (1) | Specific to 2013 year, of the two-year performance period (2013 – 2014), only. |
| (2) | Specific to 2014 year, of the two-year performance period (2013 – 2014), only to reflect the change in ownership structure of Networks. |
The 2010 and 2011 plans have a three-year performance period. The shares vest after the respective performance period. The 2012 and 2013 plans have a two-year performance period and a subsequent one-year restriction period, after which the shares vest. The shares will be delivered to the participants as soon as practicable after they vest. No shares will be delivered if Nokia’s performance does not reach the performance criteria. The below table summarizes the relevant periods and settlements under the plans.
| Plan |
Performance period |
Settlement | ||||||
| 2010(1) |
2010-2012 | 2013 | ||||||
| 2011(2) |
2011-2013 | 2014 | ||||||
| 2012(2) |
2012-2013 | (3) | 2015 | |||||
| 2013 |
2013-2014 | (3) | 2016 | |||||
| (1) | No Nokia shares were delivered under the Nokia Performance Share Plan 2010 as Nokia’s performance did not reach the requisite threshold level with respect to the applicable performance criteria under the plan. |
| (2) | No Nokia shares will be delivered under the Nokia Performance Share Plans 2011 and 2012 as Nokia’s performance did not reach the requisite threshold level with respect to the applicable performance criteria for either plan. |
| (3) | Nokia Performance Share Plans 2012 and 2013 have a one-year restriction period after the two-year performance period. |
Until the shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights, associated with the performance shares. The performance share grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting.
Similar to the previous 2008, 2009 and 2010 plans, there was no payout from the Nokia Performance Share Plan 2011. There will also be no payout from Nokia Performance Share Plan 2012 as the threshold level under the applicable performance criteria was not reached.
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Stock Options
During 2013 we administered two global stock option plans: the Stock Option Plans 2007 and 2011, each of which, including its terms and conditions, has been approved by the Annual General Meeting in the year when the plan was launched.
Each stock option entitles the holder to subscribe for one new Nokia share. The stock options are non-transferable and may be exercised for shares only. All of the stock options granted under the Stock Option Plan 2007 have a vesting schedule with 25% of the options vesting one year after grant and 6.25% each quarter thereafter. The stock options granted under the 2007 plan have a term of approximately five years. The stock options granted under the Stock Option Plan 2011 have a vesting schedule with 50% of stock options vesting three years after grant and the remaining 50% vesting four years from grant. The stock options granted under the 2011 plan have a term of approximately six years.
The exercise price of the stock options is determined at the time of grant, on a quarterly basis, in accordance with a pre-agreed schedule after the release of Nokia’s periodic financial results. The exercise prices are based on the trade volume weighted average price of a Nokia share on NASDAQ OMX Helsinki during the trading days of the first whole week of the second month of the respective calendar quarter (i.e., February, May, August or November). With respect to the Stock Option Plan 2011, should an ex-dividend date take place during that week, the exercise price shall be determined based on the following week’s trade volume weighted average price of the Nokia share on NASDAQ OMX Helsinki. Exercise prices are determined on a one-week weighted average to mitigate any day-specific fluctuations in Nokia’s share price. The determination of exercise price is defined in the terms and conditions of the stock option plans, which were approved by the shareholders at the Annual General Meetings 2007 and 2011. The Board of Directors does not have the right to change how the exercise price is determined.
Shares will be eligible for dividend for the financial year in which the share subscription takes place. Other shareholder rights will commence on the date on which the subscribed shares are entered in the Trade Register. The stock option grants are generally forfeited if the employment relationship terminates with Nokia.
Restricted Shares
During 2013, we administered four global restricted share plans: the Nokia Restricted Share Plans 2010, 2011, 2012 and 2013, each of which, including its terms and conditions, has been approved by the Board of Directors.
Beneath the executive and director levels restricted shares were used on a selective basis to ensure retention and recruitment of individuals with functional mastery and other employees deemed critical to Nokia’s future success.
All of our restricted share plans have a restriction period of three years after grant. Until the shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights, associated with the restricted shares. The restricted share grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting.
Employee Share Purchase Plan
During 2013, Nokia launched for the first time an Employee Share Purchase Plan (so called Share in Success). Under the Employee Share Purchase Plan, eligible Nokia employees could elect to make monthly contributions from their salary to purchase Nokia shares. The contribution per employee
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cannot exceed EUR 1 200 per year. The share purchases are made at market value on pre-determined dates on a monthly basis during a 12-month savings period. Nokia will offer one matching share for every two purchased shares the employee still holds after the last monthly purchase has been made in June 2014. In addition, 20 free shares were delivered to employees who made the first three consecutive monthly share purchases. The participation in the plan was voluntary to the employees.
Nokia Equity-Based Incentive Program 2014
On February 14, 2014, the Board of Directors approved the scope and design of the Nokia Equity Program 2014. The Board of Directors decided not to propose stock options for the 2014 Annual General Meeting. Similarly to the earlier equity incentive programs, the Equity Program 2014 is designed to support the participants’ focus and alignment with Nokia’s long term success. Nokia’s use of the performance-based plan as the main long-term incentive vehicles is planned to effectively contribute to the long-term value creation and sustainability of the company and to align the interests of the employees with those of the shareholders. It is also designed to ensure that the overall equity-based compensation is based on performance, while also ensuring the recruitment and retention of talent vital to the future success of Nokia. Shares under the Nokia Restricted Share Plan 2014 are intended to be granted only for exceptional retention and recruitment purposes as to ensure Nokia is able to retain and recruit talent vital to the future success of the group. In addition, the Employee Share Purchase Plan continues to be offered to encourage employee share ownership, commitment and engagement.
The primary equity instruments for the executive employees and directors below executive level are performance shares. Below the director level, performance shares are used on a selective basis to ensure retention and recruitment of individuals with functional mastery and other employees deemed critical to Nokia’s future success. These equity-based incentive awards are generally forfeited if the employee leaves Nokia prior to vesting. Shares under Nokia Restricted Share Plan 2014 are intended to be granted only for exceptional retention and recruitment purposes as to ensure Nokia is able to retain and recruit talent vital to the future success of the group. The Employee Share Purchase Plan will be offered to all employees in selected jurisdictions (excluding Networks’ employees for 2014), to the extent there are no local regulatory or administrative obstacles for the offer. The participation in the plan will be voluntary to eligible employees.
Performance Shares
The Nokia Performance Share Plan 2014 has a two-year performance period (2014 through 2015) and a subsequent one-year restriction period. Therefore, the amount of shares based on the financial performance during 2014-2015 will vest after 2016. The performance criteria for the performance period are as follows:
For Nokia Group employees (excluding HERE employees):
| • | Nokia Group Average Annual Non-IFRS Net Sales |
| • | Nokia Group Average Annual Non-IFRS EPS |
For HERE employees:
| • | Nokia Group Average Annual Non-IFRS EPS |
| • | HERE Average Annual Non-IFRS Net Sales |
| • | HERE Average Annual Non-IFRS Operating Profit |
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The number of shares to be settled after the restriction period will start at 25% of the granted amount and any payout beyond this will be determined with reference to the financial performance against the established performance criteria during the two-year performance period.
The threshold and maximum levels for the Nokia Performance Share Plan 2014 are as follows:
Performance Criterion for the Nokia Group employees (excluding HERE employees):
| Performance Criterion |
Weighting | Threshold performance |
Maximum Performance |
Potential range of Settlement* | ||||||
| Nokia Average Annual Non-IFRS Net Sales during Jan.1 2014-Dec. 31. 2015 |
50 | % | EUR 11.135 billion | EUR 15.065 billion | Threshold Number up to maximum level (4 x Threshold Number) | |||||
| Nokia Average Annual Non-IFRS EPS during Jan.1 2014-Dec. 31. 2015 |
50 | % | EUR 0.11 | EUR 0.38 | Threshold Number up to maximum level (4 x Threshold Number) | |||||
Performance Criterion for the HERE employees:
| Performance Criterion |
Weighting | Threshold performance |
Maximum Performance |
Potential range of Settlement* | ||||||
| Nokia Average Annual Non-IFRS EPS during Jan.1 2014-Dec. 31. 2015 |
25 | % | EUR 0.11 | EUR 0.38 | Threshold Number up to maximum level (4 x Threshold Number) | |||||
| HERE Non-IFRS Average Annual Operating Profit during Jan.1 2014- Dec. 31. 2015 |
25 | % | EUR 0 million | EUR 130 million | Threshold Number up to maximum level (4 x Threshold Number) | |||||
| HERE Average Annual Non-IFRS Net Sales during Jan.1 2014-Dec. 31. 2015 |
50 | % | EUR 950 million | EUR 1.150 billion | Threshold Number up to maximum level (4 x Threshold Number) | |||||
| * | The minimum pay-out of 25% of the Grant Amount will be payable only in the event that the calculated pay-out (based on Nokia’s performance against the Performance Criteria) is beneath 25% achievement against the Performance Criteria. |
We believe the performance criteria set above are challenging, yet realistic and within reach. The awards at the threshold are significantly reduced from grant level and achievement of maximum award would serve as an indication that Nokia’s performance significantly exceeded current market expectations of our long-term execution.
Achievement of the maximum performance for all criteria would result in the vesting of a maximum of 29.7 million Nokia shares. Performance exceeding the maximum criteria does not increase the number of performance shares that will vest. Achievement of the threshold performance for all criteria will result in the vesting of approximately 7.4 million shares and will be the minimum payout under the plan. Minimum pay-out under the plan, even if threshold performance is not achieved, is 7.4 million shares due to the 25% minimum pay-out. The vesting will occur after 2016. Until Nokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights associated with these performance shares.
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Restricted Shares
Restricted shares under the Nokia Restricted Share Plan 2014 approved by the Board of Directors are used as described above on a selective basis to ensure extraordinary retention and recruitment of individuals with functional mastery and other employees deemed critical to Nokia’s future success and will only be used in limited and exceptional circumstances. This is a change to the earlier practice when restricted shares were included as part of the annual compensation reviews. The restricted shares under the Nokia Restricted Share Plan 2014 have a three-year restriction period. The restricted shares will vest and the resulting Nokia shares will be delivered in 2017, and early 2018, dependent on the fulfillment of the criteria of continued employment during the restriction period. Until the shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights associated with these restricted shares.
Employee Share Purchase Plan
Under the Employee Share Purchase Plan, eligible Nokia employees can elect to make monthly contributions from their salary to purchase Nokia shares. The contribution per employee cannot exceed EUR 1 200 per year. The share purchases will be made at market value on pre-determined dates on a monthly basis during a 12-month savings period. Nokia will offer one matching share for every two purchased shares the employee still holds after the last monthly purchase has been made following the end of the 12-month savings period. Participation in the plan is voluntary to the employees.
Maximum Planned Grants under the Nokia Equity-Based Incentive Program 2014 in Year 2014
The approximate maximum numbers of planned grants under the Nokia Equity Program 2014 (i.e., performance shares, restricted shares as well as matching share awards under the Employee Share Purchase Plan) in 2014 are set forth in the table below.
| Plan type |
Planned Maximum Number of Shares Available for Grants under the Equity Program 2014 |
|||
| Restricted Shares | 2 million | |||
| Performance Shares at Maximum(1) | 29.7 million | |||
| Employee Share Purchase Plan(2) | 0.420 million | |||
| (1) | The number of Nokia shares to be delivered at minimum is a quarter of maximum performance, i.e., a total of 7.4 million Nokia shares. |
| (2) | The calculation for the Employee Share Purchase Plan is based on the closing share price EUR 5.28 on February 13, 2014, the day prior to board approval. |
As at December 31, 2013, the total dilutive effect of all Nokia’s stock options, performance shares and restricted shares outstanding, assuming full dilution, was approximately 2.3% in the aggregate. The potential maximum effect of the Equity Program 2014 would be approximately another 0.9%. Due to the Sale of D&S Business to Microsoft shares will be forfeited when employees transfer to Microsoft. The impact to dilution is 1.4%, and, consequently, overall expected maximum dilution of outstanding equity programs is 1.67%.
NSN Equity Incentive Plan
Networks established a share-based incentive plan in 2012 under which options over Networks shares were granted to selected employees (“NSN Equity Incentive Plan”). The options generally become exercisable on the fourth anniversary of the grant date or, if earlier, on the occurrence of certain corporate transactions such as an initial public offering (“Corporate Transaction”).
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The exercise price of the options is based on a Networks share value on grant as determined for the purposes of the NSN Equity Incentive Plan. The options will be cash-settled at exercise, unless an initial public offering has taken place, at which point they would be converted into equity-settled options. If the options are cash-settled, the holder will be entitled to half of the share appreciation based on the exercise price and the estimated value of shares on the exercise date, unless there has been a change of control, as specified in the plan terms, in which case the holder will be entitled to all of the share appreciation. If a Corporate Transaction has not taken place by the sixth anniversary of the grant date, the options will be cashed out. If an initial public offering has taken place, equity-settled options remain exercisable until the tenth anniversary of the grant date. The gains that may be made under the NSN Equity Plan are also subject to a cap.
As a consequence of (i) Networks having become a wholly owned subsidiary of Nokia, and (ii) Nokia being in the process of the Sale of the D&S Business, the Board of Directors approved on February 14, 2014 a modification to the NSN Equity Incentive Plan to allow 30% of the options to vest on the third anniversary of the grant date, with the remainder of the options continuing to become exercisable on the fourth anniversary of the grant date, or earlier, in the event of a Corporate Transaction.
The Board of Directors
The operations of Nokia are managed under the direction of the Board of Directors, within the framework set by the Finnish Limited Liability Companies Act and our Articles of Association as well as any complementary rules of procedure as defined by the Board, such as the Corporate Governance Guidelines and related Board Committee charters.
Responsibilities of the Board of Directors
The Board represents and is accountable to the shareholders of Nokia. The Board’s responsibilities are active, not passive, and include the responsibility to regularly evaluate the strategic direction of Nokia, management policies and the effectiveness with which management implements them. It is the responsibility of the members of the Board to act in good faith and with due care so as to exercise their business judgment on an informed basis in what they reasonably and honestly believe to be in the best interests of the company and its shareholders. In discharging that obligation, the directors must inform themselves of all relevant information reasonably available to them. The Board and each Board Committee also have the power to hire independent legal, financial or other advisors as they deem necessary.
The Board’s responsibilities also include overseeing the structure and composition of Nokia’s top management and monitoring legal compliance and the management of risks related to Nokia’s operations. In doing so, the Board may set annual ranges and/or individual limits for capital expenditures, investments and divestitures and financial commitments not to be exceeded without Board approval.
Nokia has a Risk Policy which outlines Nokia’s overall guidelines for risk management and related processes. The Nokia Risk Policy is approved by the Audit Committee of the Board of Directors. The Board’s role in risk oversight includes risk analysis and assessment in connection with financial and business reviews, update and decision-making proposals and is an integral part of Board deliberations. The Audit Committee is responsible for, among other matters, risk management relating to the financial reporting process and assisting the Board’s oversight of the risk management function. Nokia applies a common and systematic approach to risk management across all business operations and processes based on a business strategy approved by the Board. Accordingly, risk management at Nokia is not a separate process but a normal daily business and management practice.
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The Board has the responsibility for appointing and discharging the President and Chief Executive Officer (CEO), the Chief Financial Officer and the other members of the Nokia Group Leadership Team (previously, until May 1, 2014 Nokia Leadership Team). On September 3, 2013, Nokia announced changes to its leadership as a result of the announced Sale of the D&S Business. These changes were designed to provide an appropriate corporate governance structure during the interim period following the announcement until the consummation of the transaction As Stephen Elop was agreed to transfer to Microsoft upon closing of the transaction, he left his position as President and CEO effective September 3, 2014 in order to avoid the perception of any potential conflict of interests, and continued to lead the Devices & Services business as Executive Vice President, Devices & Services. For the same reason, Mr. Elop also resigned from the Nokia Board of Directors on September 3, 2013. On the same day, Risto Siilasmaa assumed the role of interim CEO of Nokia while continuing to serve in his role as Chairman of the Nokia Board of Directors, and Timo Ihamuotila assumed the role of interim President and Chairman of Nokia Leadership Team while also continuing to serve as Chief Financial Officer. On April 29, 2014, Nokia announced its new strategy and consequently, changes to its leadership. Nokia Board appointed, effective as from May 1, 2014, Rajeev Suri as the President and Chief Executive Officer of Nokia. His rights and responsibilities include those allotted to the President under Finnish law and he also chairs the Nokia Group Leadership Team.
Subject to the requirements of Finnish law, the independent directors of the Board confirm the compensation and the employment conditions of the President and CEO upon the recommendation of the Personnel Committee of the Board of Directors. The compensation and employment conditions of the other members of the Nokia Group Leadership Team are approved by the Personnel Committee upon the recommendation of the President and CEO.
The Board has three committees: Audit Committee, Corporate Governance and Nomination Committee and Personnel Committee. These committees assist the Board in its duties pursuant to their respective committee charters. The independent directors of the Board confirm the election of the members and Chairmen for the Board’s committees from among the Board’s independent directors upon the recommendation of the Corporate Governance and Nomination Committee and based on each committee’s member qualification standards. On September 3, 2013 Risto Siilasmaa assumed the position of interim CEO of Nokia and consequently stepped down from the Corporate Governance and Nomination Committee. On the same day, Jouko Karvinen was elected the Chairman of the Corporate Governance and Nomination Committee. The Board may also establish ad hoc committees for detailed reviews or consideration of particular topics to be proposed for the approval of the Board. For information about the members and the Chairmen for the Board of Directors and its committees, see Item 6A. “Directors and Senior Management—Board of Directors” above and “—Committees of the Board of Directors” below.
In line with Nokia’s Corporate Governance Guidelines, the Board conducts annual performance evaluations, which also include evaluations of the Board Committees’ work, the results of which are discussed by the Board. Regarding 2013, the Board conducted an evaluation process consisting of self-evaluations, peer evaluations as well as interviews. The results of the evaluation are discussed by the entire Board.
Composition of the Board of Directors
Pursuant to the Articles of Association, Nokia Corporation has a Board of Directors composed of a minimum of seven and a maximum of 12 members. The members of the Board are elected for a term beginning from the Annual General Meeting in which elected and expiring at the close of the following Annual General Meeting. The Annual General Meeting convenes each year by June 30. The Annual General Meeting held on May 7, 2013 elected the following 10 members to the Board of Directors: Bruce Brown, Elizabeth Doherty, Stephen Elop, Henning Kagermann, Jouko Karvinen, Helge Lund,
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Mårten Mickos, Elizabeth Nelson, Risto Siilasmaa and Kari Stadigh. Stephen Elop resigned from the Board of Directors effective as from September 3, 2013, after which the Board of Directors has consisted of nine members.
Nokia Board’s leadership structure consists of a Chairman and Vice Chairman elected annually by the Board, and confirmed by the independent directors of the Board, from among the Board members upon the recommendation of the Corporate Governance and Nomination Committee. On May 7, 2013, the independent directors of the Board elected Risto Siilasmaa to continue as the Chairman and Jouko Karvinen as the Vice Chairman of the Board. The Chairman has certain specific duties as defined by Finnish law and the Nokia Corporate Governance Guidelines. The Vice Chairman assumes the duties of the Chairman in case the Chairman is prevented from performing his duties. The Board has determined that the Vice Chairman Jouko Karvinen is independent as defined by Finnish standards and relevant stock exchange rules. The Board Chairman Risto Siilasmaa was determined not to be independent as defined by Finnish standards and the rules of the New York Stock Exchange due to his position as interim CEO from September 3, 2013.
Nokia does not have a policy concerning the combination or separation of the roles of the Chairman and the President and CEO, but the Board leadership structure is dependent on the company needs, shareholder value and other relevant factors applicable from time to time, respecting the highest corporate governance standards. In 2013 through September 3, 2013, the roles were separate while Risto Siilasmaa was the Chairman of the Board and Stephen Elop was the President and CEO. During the interim period between the announcement of the transaction with Microsoft and its consummation, the roles of Chairman and President continued to be separate, as Timo Ihamuotila assumed the role of interim President as of September 3, 2013 while Risto Siilasmaa continued as the Chairman of the Board of Directors. As part of his interim CEO role, Risto Siilasmaa took on, among others, the responsibility of leading the vision work, strategy process, work on the new company structure and managing the CEO recruitment process, while Timo Ihamuotila took on, among others, additional responsibilities for matters related to the closing of the Sale of the D&S Business transaction, financial reporting and investor relations. Following the new strategy announcement, Rajeev Suri was appointed as the President and CEO effective from May 1, 2014, while Risto Siilasmaa continues as the Chairman of the Board.
The current members of the Board are all non-executive. The Board has determined that seven of the current nine non-executive Board members are independent as defined by Finnish standards as well as by the rules of the New York Stock Exchange. Mårten Mickos was determined not to be independent under both Finnish standards and the rules of the New York Stock Exchange due to a his position as CEO of Eucalyptus Systems, Inc. that has a business relationship with and receives revenue from Networks. The Board Chairman Risto Siilasmaa was determined not to be independent under Finnish standards and the rules of the New York Stock Exchange due to his position as interim CEO from September 3, 2013.
The Board has determined that all of the members of the Audit Committee, including its Chairman, Jouko Karvinen, are “audit committee financial experts” as defined in Item 16A of this annual report.
Meetings of the Board of Directors
The Board held 34 meetings during 2013, of which approximately third were regularly scheduled meetings held in person, complemented by meetings through video or conference calls and other means. In addition, in 2013 the non-executive directors held a meeting without management in connection with regularly scheduled Board meetings. Also, the independent directors held one meeting separately in 2013.
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Directors’ attendance at the Board meetings, including Committee meetings, but excluding meetings among the non-executive directors or independent directors only, was as follows in 2013.
| Board meetings |
Audit Committee meetings |
Personnel Committee meetings |
Corporate Governance & Nomination Committee meetings |
|||||||||||||
| Bruce Brown |
91 | % | — | 78 | % | — | ||||||||||
| Elizabeth Doherty (as of May 7, 2013) |
96 | % | 100 | % | — | — | ||||||||||
| Stephen Elop (until September 3, 2013) |
96 | % | — | — | — | |||||||||||
| Henning Kagermann |
91 | % | — | 100 | % | 100 | % | |||||||||
| Jouko Karvinen |
100 | % | 100 | % | — | 100 | % | |||||||||
| Helge Lund |
88 | % | — | 66 | % | 100 | % | |||||||||
| Isabel Marey-Semper (until May 7, 2013) |
88 | % | 75 | % | — | — | ||||||||||
| Mårten Mickos |
100 | % | — | — | — | |||||||||||
| Elizabeth Nelson |
100 | % | 92 | % | — | — | ||||||||||
| Dame Marjorie Scardino (until May 7, 2013) |
100 | % | — | 100 | % | 100 | % | |||||||||
| Risto Siilasmaa |
100 | % | — | — | |
100% (until September 3, 2013) |
| |||||||||
| Kari Stadigh |
85 | % | — | 88 | % | — | ||||||||||
In addition, many of the directors attended as non-voting observers in meetings of a committee in which they were not a member.
According to the Nokia Board practices, the non-executive directors meet without management in connection with each regularly scheduled meeting. Such sessions are chaired by the non-executive Chairman of the Board. If the non-executive Chairman of the Board is unable to chair any of the meetings of non-executive directors, the non-executive Vice Chairman of the Board chairs the meeting. In addition, the independent directors meet separately at least once annually.
All the directors who served on the Board for the term until the close of the Annual General Meeting 2013, except for Bruce Brown, attended Nokia’s Annual General Meeting held on May 7, 2013. In addition, all the current members of the Board of Directors attended Nokia’s Extraordinary General Meeting held on November 19, 2013. The Finnish Corporate Governance Code recommends attendance by the Board Chairman and a sufficient number of directors in the general meeting of shareholders to allow the shareholders to exercise their right to present questions to the Board and management.
The Corporate Governance Guidelines concerning the directors’ responsibilities, the composition and election of the Board, its committees and certain other matters relating to corporate governance are available on our website, www.company.nokia.com/en/about-us. Also, the Committee Charters of the Audit Committee, Corporate Governance and Nomination Committee and Personnel Committee are available on our website, www.company.nokia.com/en/about-us. We also have a Code of Conduct which is equally applicable to all of our employees, directors and management and is available on our website, www.company.nokia.com/en/about-us. In addition, we have a Code of Ethics for the Principal Executive Officers and the Senior Financial Officers. For more information about our Code of Ethics, see Item 16B. “Code of Ethics”.
Until September 3, 2013, Mr. Elop, then President and CEO, was the only Board member who had a service contract with Nokia. During the interim governance, Chairman of the Board of Directors, Risto Siilasmaa received additional compensation for his position as the interim CEO. For discussion of the service contract of Mr. Elop and additional compensation to Mr. Siilasmaa, see Item 6B. “Executive Compensation—Actual Executive Compensation for 2013—Service Contracts.”
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Committees of the Board of Directors
The Audit Committee consists of a minimum of three members of the Board who meet all applicable independence, financial literacy and other requirements of Finnish law and the rules of the stock exchanges where Nokia shares are listed, i.e. NASDAQ OMX Helsinki and the New York Stock Exchange. Since May 7, 2013, the Audit Committee consists of the following three members of the Board: Jouko Karvinen (Chairman), Elizabeth Doherty and Elizabeth Nelson.
The Audit Committee is established by the Board primarily for the purpose of overseeing the accounting and financial reporting processes of the company and audits of the financial statements of the company. The Committee is responsible for assisting the Board’s oversight of (1) the quality and integrity of the company’s financial statements and related disclosure, (2) the statutory audit of the company’s financial statements, (3) the external auditor’s qualifications and independence, (4) the performance of the external auditor subject to the requirements of Finnish law, (5) the performance of the company’s internal controls and risk management and assurance function, (6) the performance of the internal audit function, and (7) the company’s compliance with legal and regulatory requirements, including also the performance of its ethics and compliance program. The Committee also maintains procedures for the receipt, retention and treatment of complaints received by the company regarding accounting, internal controls, or auditing matters and for the confidential, anonymous submission by employees of the company of concerns regarding accounting or auditing matters. Our disclosure controls and procedures, which are reviewed by the Audit Committee and approved by the Chief Executive Officer and the Chief Financial Officer, as well as our internal controls over financial reporting, are designed to provide reasonable assurance regarding the quality and integrity of the company’s financial statements and related disclosures. The Disclosure Committee chaired by the Chief Financial Officer is responsible for the preparation of the quarterly and annual results announcements, and the process includes involvement by business managers, business controllers and other functions, like internal audit, as well as a final review and confirmation by the Audit Committee and the Board. For further information on internal control over financial reporting, see Item 15. “Controls and Procedures”.
Under Finnish law, our external auditor is elected by our shareholders by a simple majority vote at the Annual General Meeting for one fiscal year at a time. The Audit Committee makes a proposal to the shareholders in respect of the appointment of the external auditor based upon its evaluation of the qualifications and independence of the auditor to be proposed for election or re-election. Under Finnish law, the fees of the external auditor are also approved by our shareholders by a simple majority vote at the Annual General Meeting. The Committee makes a proposal to the shareholders in respect of the fees of the external auditor, and approves the external auditor’s annual audit fees under the guidance given by the Annual General Meeting. For information about the fees paid to our external auditor, PricewaterhouseCoopers during 2013, see Item 16C. “Principal Accountant Fees and Services—Auditor Fees and Services.”
In discharging its oversight role, the Audit Committee has full access to all company books, records, facilities and personnel. The Committee may retain counsel, auditors or other advisors in its sole discretion, and must receive appropriate funding, as determined by the Committee, from the company for the payment of compensation to such outside advisors.
The Audit Committee meets at least four times a year based upon a schedule established at the first meeting following the appointment of the Committee. The Committee meets separately with the representatives of Nokia’s management, heads of the internal audit and ethics and compliance functions, and the external auditor in connection with each regularly scheduled meeting. The head of the internal audit function has at all times a direct access to the Audit Committee, without involvement of management.
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The Audit Committee had 13 meetings in 2013. The attendance at all meetings was 92%. In addition, any director who wishes to, may attend Audit Committee meetings as a non-voting observer.
The Personnel Committee consists of a minimum of three members of the Board who meet all applicable independence requirements of Finnish law and the rules of the stock exchanges where Nokia shares are listed, i.e. NASDAQ OMX Helsinki and the New York Stock Exchange. Since May 7, 2013, the Personnel Committee consists of the following four members of the Board: Henning Kagermann (Chairman), Bruce Brown, Helge Lund, and Kari Stadigh.
The primary purpose of the Personnel Committee is to oversee the personnel policies and practices of the company. It assists the Board in discharging its responsibilities relating to all compensation, including equity compensation, of the company’s executives and their terms of employment. The Committee has overall responsibility for evaluating, resolving and making recommendations to the Board regarding (1) compensation of the company’s top executives and their employment conditions, (2) all equity-based plans, (3) incentive compensation plans, policies and programs of the company affecting executives and (4) other significant incentive plans. The Committee is responsible for overseeing compensation philosophy and principles and ensuring that the above compensation programs are performance-based, designed with an intention to contribute to the long-term value sustainability of the company, properly motivate management, support overall corporate strategies and are aligned with shareholders’ interests. The Committee is responsible for the review of senior management development and succession plans.
The Personnel Committee had 9 meetings in 2013. The average attendance at the meetings was 86%. In addition, any director who wishes to, may attend Personnel Committee meetings as a non-voting observer.
For further information on the activities of the Personnel Committee, see Item 6B. “Compensation—Executive Compensation.”
The Corporate Governance and Nomination Committee consists of three to five members of the Board who meet all applicable independence requirements of Finnish law and the rules of the stock exchanges where Nokia shares are listed, i.e. NASDAQ OMX Helsinki and the New York Stock Exchange. From May 7, 2013 until September 3, 2013, the Corporate Governance and Nomination Committee consisted of the following four members of the Board: Risto Siilasmaa (Chairman), Henning Kagermann, Jouko Karvinen and Helge Lund. After Risto Siilasmaa assumed the position of Nokia’s interim CEO and since September 3, 2013 the Corporate Governance and Nomination Committee has consisted of the following three members of the Board: Jouko Karvinen (Chairman), Henning Kagermann and Helge Lund.
The Corporate Governance and Nomination Committee’s purpose is (1) to prepare the proposals for the general meetings in respect of the composition of the Board and the director remuneration to be approved by the shareholders and (2) to monitor issues and practices related to corporate governance and to propose necessary actions in respect thereof.
The Committee fulfills its responsibilities by (i) actively identifying individuals qualified to become members of the Board and considering and evaluating the appropriate level and structure of director remuneration, (ii) proposing to the shareholders the director nominees for election at the Annual General Meetings as well as the director remuneration, (iii) monitoring significant developments in the law and practice of corporate governance and of the duties and responsibilities of directors of public companies, (iv) assisting the Board and each Committee of the Board in its annual performance self-evaluations, including establishing criteria to be used in connection with such evaluations, (v) developing and recommending to the Board and administering our Corporate Governance Guidelines, and (vi) reviewing the company’s disclosure in the Corporate Governance Statement published in Nokia’s Finnish annual report.
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The Committee has the power to retain search firms or advisors to identify candidates. The Committee may also retain counsel or other advisors, as it deems appropriate. The Committee has the sole authority to retain or terminate such search firms or advisors and to review and approve such search firm or advisor’s fees and other retention terms. It is the Committee’s practice to retain a search firm to identify new director candidates.
The Corporate Governance and Nomination Committee had 5 meetings in 2013. The average attendance at the meetings was 100%. In addition, any director who wishes to, may attend Corporate Governance and Nomination Committee meetings as a non-voting observer.
At December 31, 2013, Nokia employed 86 462 employees, which includes 55 244 employees employed by Nokia’s continuing businesses, as well as 31 218 people employed by discontinuing business. The tables below show the average number of employees divided into continuing and discontinuing employees and according to their activity and geographical location:
| Nokia Continuing Operations(1) |
2013 | |||
| NSN (renamed Networks) |
52 564 | |||
| HERE |
5 897 | |||
| Advanced Technologies (renamed Technologies) |
872 | |||
| and Corporate Common Functions |
||||
| Total |
59 333 | |||
| Finland |
6 521 | |||
| Other European countries |
16 776 | |||
| Middle-East & Africa |
2 929 | |||
| China |
8 146 | |||
| Asia-Pacific |
15 047 | |||
| North America |
5 178 | |||
| Latin America |
4 736 | |||
| Nokia Discontinued Operations(2) |
||||
| Discontinued Operations |
31 055 | |||
| Finland |
4 559 | |||
| Other European countries |
2 834 | |||
| Middle-East & Africa |
319 | |||
| China |
10 245 | |||
| Asia-Pacific |
9 791 | |||
| North America |
1 396 | |||
| Latin America |
1 891 | |||
| Nokia Group |
90 388 | |||
| (1) | Employees who continued to be employees of Nokia after the close of the Sale of D&S Business. |
| (2) | Employees who transferred to Microsoft at the close of the Sale of D&S Business. |
Management believes that we have a good relationship with our employees and with the labor unions.
General
The following section describes the ownership or potential ownership interest in the company of the members of our Board of Directors and the Nokia Leadership Team as at December 31, 2013, either through share ownership or, with respect to the Nokia Leadership Team, through holding of equity-based incentives, which may lead to share ownership in the future.
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With respect to the Board of Directors, approximately 40% of director compensation is paid in the form of Nokia shares that are purchased from the market or alternatively by using own shares held by the Company. It is also Nokia’s current policy that the Board members retain all Nokia shares received as director compensation until the end of their board membership (except for those shares needed to offset any costs relating to the acquisition of the shares, including taxes). In addition, it is Nokia’s policy that non-executive members of the Board do not participate in any of Nokia’s equity programs and do not receive stock options, performance shares, restricted shares or any other equity based or otherwise variable compensation for their duties as Board members.
For a description of the compensation for our Board of Directors, see Item 6B. “Compensation—Board of Directors—Compensation of the Board of Directors in 2013”.
The Nokia Group Leadership Team members have received equity-based compensation in the form of performance shares, restricted shares, stock options and equity awards under the Networks Equity Incentive Plan. For a description of our equity-based compensation programs for employees and executives, see Item 6B. “Compensation—Equity-Based Incentive Programs”.
Share Ownership of the Board of Directors
At December 31, 2013, the members of our Board of Directors held the aggregate of 1 459 230 shares and ADSs in Nokia, which represented 0.04% of our outstanding shares and total voting rights excluding shares held by Nokia Group at that date. Each member of the Board of Directors owns less than 1% of Nokia shares.
The following table sets forth the number of shares and ADSs held by the members of the Board of Directors as at December 31, 2013.
| Name(1) |
Shares(2) | ADSs(2) | ||||||
| Risto Siilasmaa |
809 809 | — | ||||||
| Bruce Brown |
— | 53 528 | ||||||
| Elizabeth Doherty |
11 499 | — | ||||||
| Henning Kagermann |
200 708 | — | ||||||
| Jouko Karvinen |
48 653 | — | ||||||
| Helge Lund |
57 274 | — | ||||||
| Mårten Mickos |
99 028 | — | ||||||
| Elisabeth Nelson |
— | 68 053 | ||||||
| Kari Stadigh |
110 678 | — | ||||||
| (1) | Isabel Marey-Semper did not stand for re-election in the Annual General Meeting held on May 7, 2013, and she held 43 734 shares at that time. Marjorie Scardino did not stand for re-election in the Annual General Meeting held on May 7, 2013 and she held 67 362 shares at that time. Stephen Elop stepped down from the board as of September 3, 2013, and held 425 000 shares at that time. |
| (2) | The number of shares or ADSs includes not only shares or ADSs received as director compensation, but also shares or ADSs acquired by any other means. Stock options or other equity awards that are deemed as being beneficially owned under the applicable SEC rules are not included. For the number of shares or ADSs received as director compensation, see Note 31 to our consolidated financial statements included in Item 18 of this annual report. |
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Share Ownership of the Nokia Leadership Team
The following table sets forth the share ownership, as well as potential ownership interest through the holding of equity-based incentives, of the members of the Nokia Leadership Team as at December 31, 2013.
| Shares | Shares Receivable Through Stock Options |
Shares Receivable Through Performance Shares at Threshold(4) |
Shares Receivable Through Performance Shares at Maximum(5) |
Shares Receivable Through Restricted Shares |
||||||||||||||||
| Number of equity instruments held by Nokia Leadership Team(1) | 1 005 150 | 10 271 500 | 1 462 500 | 5 850 000 | 4 264 000 | |||||||||||||||
| % of the outstanding shares(2) |
0.03 | 0.28 | 0.04 | 0.16 | 0.11 | |||||||||||||||
| % of the total outstanding equity incentives (per instrument)(3) | 36.81 | 22.45 | 22.45 | 14.05 | ||||||||||||||||
| (1) | Includes 11 Nokia Leadership Team members at year end. Figures do not include those former Nokia Leadership Team members who left during 2013. |
| (2) | The percentage is calculated in relation to the outstanding number of shares and total voting rights of the company, excluding shares held by Nokia Group. Each Nokia Leadership Team member owns less than 1% of Nokia shares. |
| (3) | The percentage is calculated in relation to the total outstanding equity incentives per instrument. |
| (4) | No Nokia shares were delivered under the Nokia Performance Share Plan 2011, which vested in 2013. Nokia’s performance did not reach the requisite threshold level with respect to the applicable performance criteria. Therefore, the shares deliverable at threshold equaled zero and no Nokia shares were delivered pursuant to the Nokia Performance Share Plan 2011. |
| (5) | No Nokia shares were delivered under the Nokia Performance Share Plan 2011, which vested in 2013. Nokia’s performance did not reach the requisite threshold level with respect to the applicable performance criteria. Therefore, the shares deliverable at maximum equaled zero and no Nokia shares were delivered pursuant to the Nokia Performance Share Plan 2011. |
There will also be no payout under the Nokia Performance Share Plan 2012. At maximum performance under the Nokia Performance Share Plan 2012, the number of shares deliverable equals four times the number of performance shares at threshold. At the end of the performance period for the Nokia Performance Share Plan 2012, which ended on December 31, 2013, the threshold performance criteria for net sales and EPS were not met. Therefore, there will be no payout under the Nokia Performance Share Plan 2012 as the threshold level under the applicable performance criteria was not reached.
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The following table sets forth the number of shares and ADSs in Nokia held by members of the Nokia Leadership Team as of December 31, 2013.
| Name(1) |
Shares(2) | ADSs(2) | Became Nokia Leadership Team member (Year) |
|||||||||
| Stephen Elop |
— | 425 000 | 2010 | |||||||||
| Michael Halbherr |
210 823 | — | 2011 | |||||||||
| Jo Harlow |
25 830 | 25 000 | 2011 | |||||||||
| Timo Ihamuotila |
89 990 | — | 2007 | |||||||||
| Louise Pentland(3) |
500 | — | 2011 | |||||||||
| Juha Putkiranta |
45 734 | — | 2012 | |||||||||
| Henry Tirri |
23 330 | — | 2011 | |||||||||
| Timo Toikkanen(3) |
159 | — | 2012 | |||||||||
| Chris Weber |
157 | 5 460 | 2012 | |||||||||
| Juha Äkräs |
42 794 | — | 2010 | |||||||||
| Kai Öistämö |
110 373 | — | 2005 | |||||||||
| (1) | Marko Ahtisaari left the Nokia on October 31, 2013 and held 13 377 shares at that time. |
| (2) | Stock options or other equity awards that are deemed as being beneficially owned under applicable SEC rules are not included. |
| (3) | Nokia Leadership Team member will be purchasing shares on the external market in order to meet the shareholding requirements for Nokia Group Leadership Team members. |
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Stock Option Ownership of the Nokia Leadership Team
The following table provides certain information relating to stock options held by members of the Nokia Leadership Team as of December 31, 2013. These stock options were issued pursuant to Nokia Stock Option Plans 2007 and 2011. For a description of our stock option plans, please see Note 25 to our consolidated financial statements in Item 18 of this annual report.
| Stock Option Category |
Expiration Date |
Exercise Price Share (EUR) |
Number of
Stock Options(1) |
Total Intrinsic Value of Stock Options December 31, 2013 (EUR)(2) |
||||||||||||||||||||||||
| Name |
Exercisable | Unexercisable | Exercisable(3) | Unexercisable | ||||||||||||||||||||||||
| Timo Ihamuotila |
2008 2Q | December 31, 2013 | 19.16 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
| 2009 2Q | December 31, 2014 | 11.18 | 35 000 | 0 | 0 | 0 | ||||||||||||||||||||||
| 2009 4Q | December 31, 2014 | 8.76 | 18 750 | 1 250 | 0 | 0 | ||||||||||||||||||||||
| 2010 2Q | December 31, 2015 | 8.86 | 56 875 | 13 125 | 0 | 0 | ||||||||||||||||||||||
| 2011 2Q | December 27, 2017 | 6.02 | 0 | 70 000 | 0 | 0 | ||||||||||||||||||||||
| 2011 3Q | December 27, 2017 | 3.76 | 0 | 200 000 | 0 | 412 000 | ||||||||||||||||||||||
| 2012 2Q | December 27, 2018 | 2.44 | 0 | 150 000 | 0 | 507 000 | ||||||||||||||||||||||
| 2013 2Q | December 27, 2019 | 2.71 | 0 | 370 000 | 0 | 1 150 700 | ||||||||||||||||||||||
| 2013 4Q | December 27, 2019 | 5.77 | 0 | 50 000 | 0 | 2 500 | ||||||||||||||||||||||
| Stephen Elop |
2010 4Q | December 31, 2015 | 7.59 | 343 750 | 156 250 | 0 | 0 | |||||||||||||||||||||
| 2011 2Q | December 27, 2017 | 6.02 | 0 | 250 000 | 0 | 0 | ||||||||||||||||||||||
| 2011 3Q | December 27, 2017 | 3.76 | 0 | 500 000 | 0 | 1 030 000 | ||||||||||||||||||||||
| 2012 2Q | December 27, 2018 | 2.44 | 0 | 700 000 | 0 | 2 366 000 | ||||||||||||||||||||||
| 2013 2Q | December 27, 2019 | 2.71 | 0 | 1 800 000 | 0 | 5 598 000 | ||||||||||||||||||||||
| Michael Halbherr. |
2008 2Q | December 31, 2013 | 19.16 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
| 2009 2Q | December 31, 2014 | 11.18 | 7 000 | 0 | 0 | 0 | ||||||||||||||||||||||
| 2010 2Q | December 31, 2015 | 8.86 | 5 279 | 1 221 | 0 | 0 | ||||||||||||||||||||||
| 2011 2Q | December 27, 2017 | 6.02 | 0 | 15 000 | 0 | 0 | ||||||||||||||||||||||
| 2011 3Q | December 27, 2017 | 3.76 | 0 | 255 000 | 0 | 525 300 | ||||||||||||||||||||||
| 2012 2Q | December 27, 2018 | 2.44 | 0 | 150 000 | 0 | 507 000 | ||||||||||||||||||||||
| 2013 2Q | December 27, 2019 | 2.71 | 0 | 370 000 | 0 | 1 150 700 | ||||||||||||||||||||||
| Jo Harlow |
2008 2Q | December 31, 2013 | 19.16 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
| 2009 2Q | December 31, 2014 | 11.18 | 5 500 | 0 | 0 | 0 | ||||||||||||||||||||||
| 2010 2Q | December 31, 2015 | 8.86 | 20 308 | 4 692 | 0 | 0 | ||||||||||||||||||||||
| 2011 2Q | December 27, 2017 | 6.02 | 0 | 70 000 | 0 | 0 | ||||||||||||||||||||||
| 2011 3Q | December 27, 2017 | 3.76 | 0 | 200 000 | 0 | 412 000 | ||||||||||||||||||||||
| 2012 2Q | December 27, 2018 | 2.44 | 0 | 150 000 | 0 | 507 000 | ||||||||||||||||||||||
| 2013 2Q | December 27, 2019 | 2.71 | 0 | 370 000 | 0 | 1 150 700 | ||||||||||||||||||||||
| Louise Pentland |
2008 2Q | December 31, 2013 | 19.16 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
| 2009 2Q | December 31, 2014 | 11.18 | 12 000 | 0 | 0 | 0 | ||||||||||||||||||||||
| 2010 2Q | December 31, 2015 | 8.86 | 24 375 | 5 625 | 0 | 0 | ||||||||||||||||||||||
| 2011 2Q | December 27, 2017 | 6.02 | 0 | 45 000 | 0 | 0 | ||||||||||||||||||||||
| 2011 3Q | December 27, 2017 | 3.76 | 0 | 150 000 | 0 | 309 000 | ||||||||||||||||||||||
| 2012 2Q | December 27, 2018 | 2.44 | 0 | 115 000 | 0 | 388 700 | ||||||||||||||||||||||
| 2013 2Q | December 27, 2019 | 2.71 | 0 | 350 000 | 0 | 1 088 500 | ||||||||||||||||||||||
| Juha Putkiranta |
2008 2Q | December 31, 2013 | 19.16 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
| 2009 2Q | December 31, 2014 | 11.18 | 20 000 | 0 | 0 | 0 | ||||||||||||||||||||||
| 2010 2Q | December 31, 2015 | 8.86 | 20 308 | 4 692 | 0 | 0 | ||||||||||||||||||||||
| 2011 2Q | December 27, 2017 | 6.02 | 0 | 27 000 | 0 | 0 | ||||||||||||||||||||||
| 2012 2Q | December 27, 2018 | 2.44 | 0 | 50 000 | 0 | 169 000 | ||||||||||||||||||||||
| 2012 3Q | December 27, 2018 | 2.18 | 0 | 53 500 | 0 | 194 740 | ||||||||||||||||||||||
| 2013 2Q | December 27, 2019 | 2.71 | 0 | 250 000 | 0 | 777 500 | ||||||||||||||||||||||
| Henry Tirri |
2008 2Q | December 31, 2013 | 19.16 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
| 2009 2Q | December 31, 2014 | 11.18 | 12 000 | 0 | 0 | 0 | ||||||||||||||||||||||
| 2010 2Q | December 31, 2015 | 8.86 | 16 250 | 3 750 | 0 | 0 | ||||||||||||||||||||||
| 2011 2Q | December 27, 2017 | 6.02 | 0 | 27 000 | 0 | 0 | ||||||||||||||||||||||
| 2011 4Q | December 27, 2017 | 4.84 | 0 | 168 000 | 0 | 164 640 | ||||||||||||||||||||||
| 2012 2Q | December 27, 2018 | 2.44 | 0 | 115 000 | 0 | 388 700 | ||||||||||||||||||||||
| 2013 2Q | December 27, 2019 | 2.71 | 0 | 220 000 | 0 | 684 200 | ||||||||||||||||||||||
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| Stock Option Category |
Expiration Date |
Exercise Price Share (EUR) |
Number of
Stock Options(1) |
Total Intrinsic Value of Stock Options December 31, 2013 (EUR)(2) |
||||||||||||||||||||||||
| Name |
Exercisable | Unexercisable | Exercisable(3) | Unexercisable | ||||||||||||||||||||||||
| Timo Toikkanen |
2008 2Q | December 31, 2013 | 19.16 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
| 2009 2Q | December 31, 2014 | 11.18 | 12 000 | 0 | 0 | 0 | ||||||||||||||||||||||
| 2010 2Q | December 31, 2015 | 8.86 | 20 308 | 4 692 | 0 | 0 | ||||||||||||||||||||||
| 2011 2Q | December 27, 2017 | 6.02 | 0 | 27 000 | 0 | 0 | ||||||||||||||||||||||
| 2012 2Q | December 27, 2018 | 2.44 | 0 | 28 500 | 0 | 96 330 | ||||||||||||||||||||||
| 2012 3Q | December 27, 2018 | 2.18 | 0 | 75 000 | 0 | 273 000 | ||||||||||||||||||||||
| 2013 2Q | December 27, 2019 | 2.71 | 0 | 350 000 | 0 | 1 088 500 | ||||||||||||||||||||||
| Chris Weber |
2011 2Q | December 27, 2017 | 6.02 | 0 | 25 000 | 0 | 0 | |||||||||||||||||||||
| 2012 2Q | December 27, 2018 | 2.44 | 0 | 40 000 | 0 | 135 200 | ||||||||||||||||||||||
| 2012 3Q | December 27, 2018 | 2.18 | 0 | 63 500 | 0 | 231 140 | ||||||||||||||||||||||
| 2013 2Q | December 27, 2019 | 2.71 | 0 | 350 000 | 0 | 1 088 500 | ||||||||||||||||||||||
| Juha Äkräs |
2008 2Q | December 31, 2013 | 19.16 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
| 2009 2Q | December 31, 2014 | 11.18 | 12 000 | 0 | 0 | 0 | ||||||||||||||||||||||
| 2010 2Q | December 31, 2015 | 8.86 | 32 500 | 7 500 | 0 | 0 | ||||||||||||||||||||||
| 2011 2Q | December 27, 2017 | 6.02 | 0 | 45 000 | 0 | 0 | ||||||||||||||||||||||
| 2011 3Q | December 27, 2017 | 3.76 | 0 | 150 000 | 0 | 309 000 | ||||||||||||||||||||||
| 2012 2Q | December 27, 2018 | 2.44 | 0 | 115 000 | 0 | 388 700 | ||||||||||||||||||||||
| 2013 2Q | December 27, 2019 | 2.71 | 0 | 250 000 | 0 | 777 500 | ||||||||||||||||||||||
| Kai Öistämö |
2008 2Q | December 31, 2013 | 19.16 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
| 2009 2Q | December 31, 2014 | 11.18 | 60 000 | 0 | 0 | 0 | ||||||||||||||||||||||
| 2010 2Q | December 31, 2015 | 8.86 | 56 875 | 13 125 | 0 | 0 | ||||||||||||||||||||||
| 2011 2Q | December 27, 2017 | 6.02 | 0 | 45 000 | 0 | 0 | ||||||||||||||||||||||
| 2011 3Q | December 27, 2017 | 3.76 | 0 | 150 000 | 0 | 309 000 | ||||||||||||||||||||||
| 2012 2Q | December 27, 2018 | 2.44 | 0 | 90 000 | 0 | 304 200 | ||||||||||||||||||||||
| 2013 2Q | December 27, 2019 | 2.71 | 0 | 220 000 | 0 | 684 200 | ||||||||||||||||||||||
| Stock options held by the members of the Nokia Leadership Team on December 31, 2013, Total(4) | 791 078 | 9 480 422 | 55 176 056 | |||||||||||||||||||||||||
| All outstanding stock option plans (global plans),Total | 4 242 226 | 23 660 851 | ||||||||||||||||||||||||||
| (1) | Number of stock options equals the number of underlying shares represented by the option entitlement. Stock options granted under 2007 and 2011 Stock Option Plans have different vesting schedules. The Group’s global Stock Option Plan 2007 has a vesting schedule with a 25% vesting one year after grant, and quarterly vesting thereafter, each of the quarterly lots representing 6.25% of the total grant. The grants vest fully in four years. The Group’s global Stock Option Plan 2011 has a vesting schedule with 50% of stock options vesting three years after grant and the remaining 50% vesting four years from grant. |
| (2) | The intrinsic value of the stock options is based on the difference between the exercise price of the options and the closing market price of Nokia shares on NASDAQ OMX Helsinki as at December 31, 2013 of EUR 5.82. |
| (3) | For gains realized upon exercise of stock options for the members of the Group Executive Board, see the table in “—Stock Option Exercises and Settlement of Shares” below. |
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| (4) | During 2013, Marko Ahtisaari stepped down from the Nokia Leadership Team. The information related to stock options Mr. Ahtisaari held is as of the date of resignation from the Nokia Leadership Team and is presented in the table below. |
| Stock Option Category |
Expiration Date |
Exercise Price Share (EUR) |
Number of
Stock Options(1) |
Total Intrinsic Value of Stock Options (EUR)(6) |
||||||||||||||||||||||||
| Name |
Exercisable | Unexercisable | Exercisable(3) | Unexercisable | ||||||||||||||||||||||||
| Marko Ahtisaari(5) as per October 31, 2013 | 2010 2Q | December 31, 2015 | 8.86 | 21 933 | 5 067 | 0 | 0 | |||||||||||||||||||||
| 2011 2Q | December 27, 2017 | 6.02 | 0 | 30 000 | 0 | 0 | ||||||||||||||||||||||
| 2011 3Q | December 27, 2017 | 3.76 | 0 | 100 000 | 0 | 181 000 | ||||||||||||||||||||||
| 2012 2Q | December 27, 2018 | 2.44 | 0 | 115 000 | 0 | 359 950 | ||||||||||||||||||||||
| 2013 2Q | December 27, 2019 | 2.71 | 0 | 250 000 | 0 | 715 000 | ||||||||||||||||||||||
| (5) | Mr.Ahtisaari’s stock option grants were forfeited and cancelled upon his termination of employment in accordance with the plan rules. |
| (6) | The intrinsic value of the stock options is based on the difference between the exercise price of the options and the closing market price of Nokia shares on NASDAQ OMX Helsinki as at October 31, 2013 of EUR 5.57. |
Performance Shares and Restricted Shares of the Nokia Leadership Team
The following table provides certain information relating to performance shares and restricted shares held by members of the Nokia Leadership Team as at December 31, 2013. These entitlements were granted pursuant to our Nokia Performance Share Plans 2011, 2012 and 2013 and Nokia Restricted Share Plans 2010, 2011, 2012 and 2013. For a description of our performance share and restricted share plans, please see Note 25 to the consolidated financial statements in Item 18 of this annual report.
| Performance Shares | Restricted Shares | |||||||||||||||||||||||||||
| Name |
Plan Name(1) |
Number of Performance Shares at Threshold(2) |
Number of Performance Shares at Maximum(3) |
Intrinsic Value December 31, 2013(4) (EUR) |
Plan Name(5) |
Number of Restricted Shares |
Intrinsic Value December 31, 2013(6) (EUR) |
|||||||||||||||||||||
| Timo Ihamuotila |
2010 | 75 000 | 436 500 | |||||||||||||||||||||||||
| 2011 | 0 | 0 | 0 | 2011 | 50 000 | 291 000 | ||||||||||||||||||||||
| 2012 | 0 | 0 | 0 | 2012 | 100 000 | 582 000 | ||||||||||||||||||||||
| 2013 | 110 000 | |
440 000 |
|
0 | 2013 | 155 000 | 902 100 | ||||||||||||||||||||
| Stephen Elop |
2010 | 100 000 | 582 000 | |||||||||||||||||||||||||
| 2011 | 0 | 0 | 0 | 2011 | 180 000 | 1 047 600 | ||||||||||||||||||||||
| 2012 | 0 | 0 | 0 | 2012 | 500 000 | 2 910 000 | ||||||||||||||||||||||
| 2013 | 562 500 | |
2 250 000 |
|
0 | 2013 | 785 000 | 4 568 700 | ||||||||||||||||||||
| Michael Halbherr |
2010 | 17 000 | 98 940 | |||||||||||||||||||||||||
| 2011 | 0 | 0 | 0 | 2011 | 50 000 | 291 000 | ||||||||||||||||||||||
| 2012 | 0 | 0 | 0 | 2012 | 100 000 | 582 000 | ||||||||||||||||||||||
| 2013 | 110 000 | |
440 000 |
|
0 | 2013 | 130 000 | 756 600 | ||||||||||||||||||||
| Jo Harlow |
2010 | 55 000 | 320 100 | |||||||||||||||||||||||||
| 2011 | 0 | 0 | 0 | 2011 | 50 000 | 291 000 | ||||||||||||||||||||||
| 2012 | 0 | 0 | 0 | 2012 | 100 000 | 582 000 | ||||||||||||||||||||||
| 2013 | 110 000 | |
440 000 |
|
0 | 2013 | 130 000 | 756 600 | ||||||||||||||||||||
| Louise Pentland |
2010 | 55 000 | 320 100 | |||||||||||||||||||||||||
| 2011 | 0 | 0 | 0 | 2011 | 35 000 | 203 700 | ||||||||||||||||||||||
| 2012 | 0 | 0 | 0 | 2012 | 75 000 | 436 500 | ||||||||||||||||||||||
| 2013 | 100 000 | |
400 000 |
|
0 | 2013 | 120 000 | 698 400 | ||||||||||||||||||||
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| Performance Shares | Restricted Shares | |||||||||||||||||||||||||||
| Name |
Plan Name(1) |
Number of Performance Shares at Threshold(2) |
Number of Performance Shares at Maximum(3) |
Intrinsic Value December 31, 2013(4) (EUR) |
Plan Name(5) |
Number of Restricted Shares |
Intrinsic Value December 31, 2013(6) (EUR) |
|||||||||||||||||||||
| Juha Putkiranta |
2010 | 30 000 | 174 600 | |||||||||||||||||||||||||
| 2011 | 0 | 0 | 0 | 2011 | 25 000 | 145 500 | ||||||||||||||||||||||
| 2012 | 0 | 0 | 0 | 2012 | 68 000 | 395 760 | ||||||||||||||||||||||
| 2013 | 75 000 | 300 000 | 0 | 2013 | 90 000 | 523 800 | ||||||||||||||||||||||
| Henry Tirri |
2010 | 30 000 | 174 600 | |||||||||||||||||||||||||
| 2011 | 0 | 0 | 0 | 2011 | 35 000 | 203 700 | ||||||||||||||||||||||
| 2012 | 0 | 0 | 0 | 2012 | 75 000 | 436 500 | ||||||||||||||||||||||
| 2013 | 60 000 | 240 000 | 0 | 2013 | 70 000 | 407 400 | ||||||||||||||||||||||
| Timo Toikkanen |
2010 | 23 000 | 133 860 | |||||||||||||||||||||||||
| 2011 | 0 | 0 | 0 | 2011 | 15 000 | 87 300 | ||||||||||||||||||||||
| 2012 | 0 | 0 | 0 | 2012 | 68 000 | 395 760 | ||||||||||||||||||||||
| 2013 | 100 000 | 400 000 | 0 | 2013 | 120 000 | 698 400 | ||||||||||||||||||||||
| Chris Weber |
2011 | 0 | 0 | 0 | 2011 | 90 000 | 523 800 | |||||||||||||||||||||
| 2012 | 0 | 0 | 0 | 2012 | 68 000 | 395 760 | ||||||||||||||||||||||
| 2013 | 100 000 | 400 000 | 0 | 2013 | 120 000 | 698 400 | ||||||||||||||||||||||
| Juha Äkräs |
2010 | 55 000 | 320 100 | |||||||||||||||||||||||||
| 2011 | 0 | 0 | 0 | 2011 | 35 000 | 203 700 | ||||||||||||||||||||||
| 2012 | 0 | 0 | 0 | 2012 | 75 000 | 436 500 | ||||||||||||||||||||||
| 2013 | 75 000 | 300 000 | 0 | 2013 | 90 000 | 523 800 | ||||||||||||||||||||||
| Kai Öistämö |
2010 | 55 000 | 320 100 | |||||||||||||||||||||||||
| 2011 | 0 | 0 | 0 | 2011 | 35 000 | 203 700 | ||||||||||||||||||||||
| 2012 | 0 | 0 | 0 | 2012 | 60 000 | 349 200 | ||||||||||||||||||||||
| 2013 | 60 000 | 240 000 | 0 | 2013 | 70 000 | 407 400 | ||||||||||||||||||||||
| Performance Shares and Restricted Shares held by the Nokia Leadership Team, Total(7) | 1 462 500 | 5 850 000 | 0 | 4 264 000 | 24 816 480 | |||||||||||||||||||||||
| All outstanding Performance Shares and Restricted Shares (Global plans), Total | 10 990 204 | 43 960 814 | 0 | 30 356 850 | 176 676 867 | |||||||||||||||||||||||
| (1) | The performance period for the 2011 plan is 2011-2013, for the 2012 plan 2012-2013 (with a subsequent one-year restriction period) and for the 2013 plan 2013-2014 (with a subsequent one-year restriction period), respectively. |
| (2) | The threshold number will vest as Nokia shares, subject to the pre-determined threshold performance levels being met with respect to the applicable performance criteria. No Nokia shares were delivered under the Nokia Performance Share Plan 2011, which would have vested in 2013, as Nokia’s performance did not reach the threshold level with respect to the applicable performance criteria. Therefore, the shares deliverable at threshold equaled zero for the Nokia Performance Share Plan 2011. There will also be no payout from the Nokia Performance Share Plan 2012 as the requisite threshold level with respect to the applicable performance criteria was not reached. Therefore, the shares deliverable at threshold equals zero for the Nokia Performance Share Plan 2012. |
| (3) | The maximum number will vest as Nokia shares, subject to the pre-determined maximum performance levels being met with respect to the applicable performance criteria. The maximum number of performance shares equals four times the number at threshold. No Nokia shares were delivered under the Nokia Performance Share Plan 2011, as Nokia’s performance did not reach the requisite maximum level with respect to the applicable performance criteria. Therefore, the shares deliverable at maximum equaled zero for the Nokia Performance Share Plan 2011. There will also be no payout from the Nokia Performance Share Plan 2012 as the requisite threshold level with respect to the applicable performance criteria was not reached. Therefore, the shares deliverable at threshold equals zero for the Nokia Performance Share Plan 2012. |
| (4) | For Nokia Performance Share Plans 2012 and 2013 the value of performance shares is presented on the basis of Nokia’s estimation of the number of shares expected to vest. The intrinsic value for |
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| the Nokia Performance Share Plan 2013 is based on the closing market price of a Nokia share on NASDAQ OMX Helsinki as at December 31, 2013 of EUR 5.82. For the Nokia Performance Share Plan 2011 no Nokia shares were delivered, as Nokia’s performance did not reach the threshold level of either performance criteria. There will also be no payout from the Nokia Performance Share Plan 2012 as the requisite threshold level with respect to the applicable performance criteria was not reached. Therefore, the shares deliverable at threshold equals zero for the Nokia Performance Share Plan 2012. |
| (5) | Under the Nokia Restricted Share Plans 2010, 2011, 2012 and 2013, awards have been granted quarterly. For the major part of the awards made under these plans, the restriction period will end for the 2010 plan on January 1, 2014; for the 2011 plan on January 1, 2015; for the 2012 plan on July 1, 2015; and for the 2013 plan on July 1, 2016. |
| (6) | The intrinsic value is based on the closing market price of a Nokia share on NASDAQ OMX Helsinki as at December 31, 2013 of EUR 5.82. |
| (7) | During 2013, Marko Ahtisaari stepped down from the Nokia Leadership Team. The information related to performance shares and restricted shares held by Mr. Ahtisaari is as of the date of resignation from the Nokia Leadership Team and is presented in the table below. |
| Performance Shares | Restricted Shares | |||||||||||||||||||||||||||
| Name |
Plan Name(1) |
Number of Performance Shares at Threshold(10) |
Number of Performance Shares at Maximum(11) |
Intrinsic Value (EUR)(9) |
Plan Name(5) |
Number of Restricted Shares |
Intrinsic Value (EUR)(9) |
|||||||||||||||||||||
| Marko Ahtisaari(8) as per October 31, 2013 | 2010 | 30 000 | 167 100 | |||||||||||||||||||||||||
| 2011 | 15 000 | 60 000 | 0 | 2011 | 23 000 | 128 110 | ||||||||||||||||||||||
| 2012 | 57 500 | 230 000 | 0 | 2012 | 75 000 | 417 750 | ||||||||||||||||||||||
| 2013 | 75 000 | 300 000 | 0 | 2013 | 90 000 | 501 300 | ||||||||||||||||||||||
| (8) | Mr. Ahtisaari’s equity grants were forfeited and cancelled upon his termination of employment as of May 31, 2014, in accordance with the plan rules. |
| (9) | The intrinsic value is based on the closing market price of a Nokia share on NASDAQ OMX Helsinki as at October 31, 2013 of EUR 5.57. |
| (10) | The threshold number will vest as Nokia shares, subject to the pre-determined threshold performance levels being met with respect to the applicable performance criteria. No Nokia shares were delivered under the Nokia Performance Share Plan 2011, which would have vested in 2013, as Nokia’s performance did not reach the threshold level with respect to the applicable performance criteria. Therefore, the shares deliverable at threshold equaled zero for the Nokia Performance Share Plan 2011. There will also be no payout from the Nokia Performance Share Plan 2012 as the requisite threshold level with respect to the applicable performance criteria was not reached. Therefore, the shares deliverable at threshold equals zero for the Nokia Performance Share Plan 2012. |
| (11) | The maximum number will vest as Nokia shares, subject to the pre-determined maximum performance levels being met with respect to the applicable performance criteria. The maximum number of performance shares equals four times the number at threshold. No Nokia shares were delivered under the Nokia Performance Share Plan 2011, as Nokia’s performance did not reach the requisite threshold level with respect to the applicable performance criteria. Therefore, the shares deliverable at maximum equaled zero for the Nokia Performance Share Plan 2011. There will also be no payout from the Nokia Performance Share Plan 2012 as the requisite threshold level with respect to the applicable performance criteria was not reached. Therefore, the shares deliverable at maximum equals zero for the Nokia Performance Share Plan 2012. |
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Stock Option Exercises and Settlement of Shares
The following table provides certain information relating to stock option exercises and share deliveries upon settlement during the year 2013 for our Nokia Leadership Team members.
| Stock Options Awards(1) |
Performance
Shares Awards(2) |
Restricted Shares Awards |
||||||||||||||||||||||
| Name(5) |
Number of Shares Acquired on Exercise |
Value Realized on Exercise (EUR) |
Number of Shares Delivered on Vesting |
Value Realized on Vesting (EUR) |
Number of Shares Delivered on Vesting |
Value Realized on Vesting (EUR) |
||||||||||||||||||
| Timo Ihamuotila |
0 | 0 | 0 | 0 | 10 000 | (3) | 29 000 | |||||||||||||||||
| 45 000 | (4) | 118 350 | ||||||||||||||||||||||
| Stephen Elop |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
| Michael Halbherr |
0 | 0 | 0 | 0 | 10 500 | (3) | 30 450 | |||||||||||||||||
| Jo Harlow |
0 | 0 | 0 | 0 | 20 000 | (3) | 58 000 | |||||||||||||||||
| Louise Pentland |
0 | 0 | 0 | 0 | 23 000 | (4) | 60 490 | |||||||||||||||||
| Juha Putkiranta |
0 | 0 | 0 | 0 | 20 000 | (3) | 58 000 | |||||||||||||||||
| Henry Tirri |
0 | 0 | 0 | 0 | 20 000 | (3) | 58 000 | |||||||||||||||||
| Timo Toikkanen |
0 | 0 | 0 | 0 | 15 000 | (3) | 43 500 | |||||||||||||||||
| Chris Weber |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
| Juha Äkräs |
0 | 0 | 0 | 0 | 15 000 | (3) | 43 500 | |||||||||||||||||
| 30 000 | (4) | 78 900 | ||||||||||||||||||||||
| Kai Öistämö |
0 | 0 | 0 | 0 | 45 000 | (4) | 118 350 | |||||||||||||||||
| (1) | Value realized on exercise is based on the difference between the Nokia share price and exercise price of options. |
| (2) | No Nokia shares were delivered under the Nokia Performance Share Plan 2011 during 2013 as Nokia’s performance did not reach the requisite threshold level with respect to applicable performance criteria. |
| (3) | Represents the delivery of Nokia shares vested from the Nokia Restricted Share Plan 2009. Value is based on the average market price of the Nokia share on NASDAQ OMX Helsinki on February 20, 2013 of EUR 2.90. |
| (4) | Represents the delivery of Nokia shares vested from the Nokia Restricted Share Plan 2010. Value is based on the average market price of the Nokia share on NASDAQ OMX Helsinki on April 17, 2013 of EUR 2.63. |
| (5) | During 2013, Marko Ahtisaari stepped down from the Nokia Leadership Team. The information regarding stock option exercises and settlement of shares regarding Mr. Ahtisaari is as of the date of resignation from the Nokia Leadership Team and is represented in the table below. |
| Stock Options Awards(1) |
Performance Shares Awards(2) | Restricted Shares Awards | ||||||||||||||||||||||
| Name |
Number of Shares Acquired on Exercise |
Value Realized on Exercise (EUR) |
Number of Shares Delivered on Vesting |
Value Realized on Vesting (EUR) |
Number of Shares Delivered on Vesting |
Value Realized on Vesting (EUR) |
||||||||||||||||||
| Marko Ahtisaari as per October 31, 2013 |
0 | 0 | 0 | 0 | 7 000 | (4) | 18 410 | |||||||||||||||||
| ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
At December 31, 2013, a total of 767 615 081 ADSs (equivalent to the same number of shares or approximately 20.50% of the total outstanding shares) were outstanding and held of record by 12 182 registered holders in the United States. We are aware that many ADSs are held of record by brokers
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and other nominees, and accordingly the above number of holders is not necessarily representative of the actual number of persons who are beneficial holders of ADSs or the number of ADSs beneficially held by such persons. Based on information available from Automatic Data Processing, Inc., the number of beneficial owners of ADSs as at December 31, 2013 was 351 431.
Based on information known to us as of February 13, 2014, as at December 31, 2013, Dodge & Cox Incorporated beneficially owned 321 232 096 Nokia shares or ADRs combined, which at that time corresponded to approximately 8.6% of the share capital of Nokia.
As far as we know, Nokia is not directly or indirectly owned or controlled by any other corporation or any government, and there are no arrangements that may result in a change of control of Nokia.
7B. Related Party Transactions
There have been no material transactions during the last three fiscal years to which any director, executive officer or 5% shareholder, or any relative or spouse of any of them, was a party. There is no significant outstanding indebtedness owed to Nokia by any director, executive officer or 5% shareholder.
There are no material transactions with enterprises controlling, controlled by or under common control with Nokia or associates of Nokia.
See Note 32 to our consolidated financial statements included in Item 18 of this annual report.
7C. Interests of Experts and Counsel
Not applicable.
| ITEM | 8. FINANCIAL INFORMATION |
8A. Consolidated Statements and Other Financial Information
8A1. See Item 18 for our consolidated financial statements.
8A2. See Item 18 for our consolidated financial statements, which cover the last three financial years.
8A3. See page F-1 for the audit report of our accountants, entitled “Report of Independent Registered Public Accounting Firm”.
8A4. Not applicable.
8A5. Not applicable.
8A6. See Note 2 to our audited consolidated financial statements included in Item 18 of this annual report for the amount of our export sales.
8A7. Litigation
Taxation Related Litigation and Proceedings
Tax proceedings in India
During early 2013 Nokia became subject to a tax investigation in India, focusing on Indian withholding tax consequences of payments made within Nokia for the supply of operating software from its parent company in Finland. Subsequently, Indian authorities have extended the investigation to other related tax consequences, such as allegations claiming that Nokia Corporation would have a permanent establishment in India for taxation purposes, transfer pricing aspects and potential non-deductibility of certain software payments for Indian corporate tax purposes.
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While raising these claims and arguing based on potential future claims against Nokia India Private Limited and the parent company Nokia Corporation, Indian authorities have also placed liens on Nokia India Private Limited’s and Nokia Corporation’s assets in India. These liens have prevented Nokia from transferring the Chennai factory and selected other Indian assets to Microsoft in connection with the closing of the Sale of the D&S Business.
In addition, Indian authorities have ordered a special audit on Nokia India Private Limited, while seeking to finalize the ongoing tax investigations.
To date, Nokia has been served with final assessment orders on the underlying withholding tax case in 2013, and the company has appealed on this case to the Income Tax Tribunal in Delhi. Other related assessment proceeding mentioned above are pending. While taking necessary actions to defends its rights vigorously under Indian and International laws, Nokia is extending its full cooperation with the income tax authorities and special auditors to finalize the pending assessment proceedings in due course.
Intellectual Property Rights Litigation
HTC
In 2012, Nokia commenced patent infringement proceedings against HTC in relation to 21 non-essential patents in Germany in the District Courts of Mannheim, Munich and Düsseldorf, in relation to nine non-essential patents in the ITC in Washington DC, and 18 non-essential patents in the United States District Court for the District of Delaware.
In response, HTC filed nullity actions with the Federal Patent Court in Munich, commenced revocation proceedings against 18 of Nokia’s non-essential patents in the UK High Court, and filed an action for patent infringement in respect of one non-essential patent against Nokia GmbH in the District Court of Mannheim and against Nokia Oyj in the District Court of Munich in 2012. S3 Graphics Co. Ltd, a subsidiary of HTC, also filed actions for patent infringement in respect of one non-essential patent against Nokia GmbH in the District Court of Mannheim and Nokia Oyj in the District Court of Dusseldorf. HTC commenced, then later withdrew, an arbitration in the UK claiming that some of the patents asserted by Nokia against HTC were licensed under an essential patent licence.
Subsequently, Nokia filed further infringement actions in respect of HTC’s UK revocation actions, brought further infringement proceedings against HTC in relation to nine non-essential patents in the District Courts of Mannheim, Munich and Dusseldorf, three non-essential patents in the Court of Paris, France, two non-essential patents in the Regional Court of the Hague, the Netherlands, two non-essential patents in the Court of Rome, Italy and four non-essential patents in the Tokyo District Court, Japan. Nokia also commenced patent infringement proceedings against HTC in respect of seven non-essential patents in the ITC in Washington DC, and ten non-essential patents in the United States District Court for the Southern District of California.
Nokia was awarded injunctions against HTC in respect of a power control patent and patent enabling modern mobile devices to work in older networks by the District Court of Mannheim, a USB functionality patent and a patent enabling the transfer of network resource information between mobile devices by the District Court of Munich. The UK High Court found that Nokia’s patent relating to a modulator structure was valid and infringed by HTC in October 2013. In its initial determination in September 2013, the ITC found that HTC had violated two patents which cover improvements to radio receivers and transmitters. The Tokyo District Court gave a judgment in default against HTC in respect of a calendar display patent. The first two of S3 and HTC’s actions were dismissed by the District Court of Mannheim.
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On February 7, 2014, the parties settled all pending patent litigation between them, and entered into a patent and technology collaboration agreement. HTC will make payments to Nokia and the collaboration will involve HTC’s LTE patent portfolio. The full terms of the agreement are confidential.
Samsung
During August and September 2013, Nokia and Samsung agreed to extend their existing patent license agreement for five years from December 31, 2013. According to the agreement, Samsung will pay additional compensation to Nokia for the period commencing from January 1, 2014 onwards, and the amount of this compensation will be finally settled in a binding arbitration. The parties have commenced arbitration and expect to have a final resolution in 2015.
ERISA & Securities Litigation
On April 19, 2010 and April 21, 2010, two individuals filed separate putative class action lawsuits against Nokia Inc. and the directors and officers of Nokia Inc., and certain other employees and representatives of the company, claiming to represent all persons who were participants in or beneficiaries of the Nokia Retirement Savings and Investment Plan (the “Plan”) who participated in the Plan between January 1, 2008 and the present and whose accounts included investments in Nokia stock. The plaintiffs allege that the defendants failed to comply with their statutory and fiduciary duties when they failed to remove Nokia stock as a plan investment option. The cases were consolidated into Majad v. Nokia and an amended consolidated complaint was filed on September 15, 2010. The amended complaint alleges that the named individuals knew of the matters alleged in the securities case referenced above, that the matters significantly increased the risk of Nokia stock ownership, and as a result of that knowledge, the named defendants should have removed Nokia stock as a Plan investment option. The plaintiff’s claims were dismissed in their entirety on September 5, 2011. On September 13, 2012, the Court denied Plaintiffs’ motion for leave to amend their complaint a second time and entered judgment in favor of Nokia. On October 23, 2012, the plaintiffs filed an appeal of the District Court’s order granting judgment in favor of Nokia. On June 21, 2013, the Second Circuit upheld the earlier decision of the US District Court for the Southern District of New York from September 13, 2012, to dismiss all claims made in the ERISA claim filed against defendants including Nokia Inc. and the Nokia Inc. Retirement Plan by Javad Majad and Ryan Sharif. The Plaintiff had until September 23, 2013, to appeal the Second Circuit decision by filing a cert petition to the US Supreme Court. The Plaintiff did not appeal and the case is closed.
On September 19, 2012, a class action based on the US Employee Retirement Income Security Act (“ERISA”) entitled Romero v. Nokia was filed in the United States District Court for the Southern District of New York. The complaint named Nokia Corporation, certain Nokia Corporation Board members, Fidelity Management Trust Co., The Nokia Retirement Savings & Investment Plan Committee and Linda Fonteneaux, as well as certain individuals from the Nokia Retirement Savings & Investment Plan Committee whose identity is not known to the plaintiffs as defendants. The complaint claimed to represent all persons who were participants in or beneficiaries of the Nokia Retirement Savings and Investment Plan (the “Plan”) who participated in the Plan between January 19, 2012 and the present and whose accounts invested in the Nokia Stock Fund (“the Fund”). The complaint alleged that the named individuals breached their fiduciary duties by, among other things, permitting the plan to offer the Fund as an investment option, permitting the plan to invest in the Fund and permitting the Fund to invest in and remain invested in American Depository Receipts of Nokia Corporation when the defendants allegedly knew the Fund and Nokia’s shares were extremely risky investments. Plaintiff was provided plan documents and informed that it had incorrectly identified the proper defendants in its complaint. On December 10, 2012, Plaintiff filed a motion to dismiss the complaint against all defendants, without prejudice and indicated it would refile in California where the Nokia Retirement Savings and Investment Plan is currently administered.
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Romero filed a new complaint on December 10, 2012, in the United States District Court for the Northern District of California, naming as defendants Nokia Inc., the Nokia Retirement Savings and Investment Plan Committee, and several individuals alleged to be plan fiduciaries, claiming to represent all persons who were participants in or beneficiaries of the Nokia Retirement Savings and Investment Plan (the “Plan”) who participated in the Plan between January 19, 2012, and the present and whose accounts invested in the Nokia Stock Fund (the “Fund”). The complaint alleges that named individuals breached their fiduciary duties by, among other things, permitting the plan to offer the Fund as an investment option, permitting the plan to invest in the Fund and permitting the Fund to invest in and remain invested in American Depository Receipts of Nokia Corporation when the defendants allegedly knew the Fund and Nokia’s shares were extremely risky investments. On May 15, 2013, Nokia and the Named Defendants filed a motion to dismiss all claims against the defendants and are awaiting the Court’s decision. On October 15, 2013, the court granted Nokia and the Named Defendants motion to dismiss all claims with prejudice. Plaintiff did not appeal and this matter is closed.
Antitrust Litigation
LCD and CRT Cartel claims
In November 2009, Nokia Corporation filed two lawsuits, one in the United Kingdom’s High Court of Justice and the other in the United States District Court for the Northern District of California, joined by Nokia Inc., against certain manufacturers of liquid crystal displays (“LCDs”). Both suits concerned the same underlying allegations: namely, that the defendants violated the relevant antitrust or competition laws by entering into a worldwide conspiracy to raise and/or stabilize the prices of LCDs, among other anticompetitive conduct, from approximately January 1996 to December 2006 (the “Cartel Period”). Defendants Sharp Corporation, LG Display Co. Ltd., Chunghwa Picture Tubes, Ltd., Hitachi Displays Ltd. and Epson Imaging Devices Corporation, as well as non-defendant Chi Mei Optoelectronics, and Hannstar Display Corporation, have pleaded guilty in the United States to participating in a conspiracy to fix certain LCD prices and have agreed to pay fines totaling approximately USD 900 million. Further, the United States Department of Justice has indicted AU Optronics Corporation and its American subsidiary, AU Optronics Corporation America, for participation in the conspiracy to fix the prices of TFT-LCD panels sold worldwide from September 14, 2001 to December 1, 2006.
Also in November 2009, Nokia Corporation filed a lawsuit in the United Kingdom’s High Court of Justice against certain manufacturers of cathode rays tubes (“CRTs”). In this lawsuit, Nokia alleges that the defendants violated the relevant antitrust or competition laws by entering into a worldwide conspiracy to raise and/or stabilize the prices of CRTs, among other anticompetitive conduct, from no later than March 1995 to around November 2007.
All of the defendants have now settled Nokia’s claims against them on confidential terms.
Certain litigation that has been included in this section of our annual report on Form 20-F in the previous year have transferred to Microsoft at the closing of the Sale of the D&S Business and accordingly no information on those cases is included here.
We are also party to other routine litigation, as well as indemnity claims involving customers or suppliers, which are incidental to the normal conduct of our business. Based upon the information currently available, our management does not believe that liabilities related to those proceedings are likely to be material to our financial condition or results of operations.
8A8. Dividend Policy
See Item 3A. “Selected Financial Data—Distribution of Earnings” for a discussion of our dividend policy.
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No significant changes have occurred since the date of our consolidated financial statements included in this annual report. See Item 5A. “Operating Results—Principal Factors and Trends Affecting our Results of Operations” for information on material trends affecting our business and results of operations.
| ITEM 9. | THE OFFER AND LISTING |
Our capital consists of shares traded on NASDAQ OMX Helsinki under the symbol “NOK1V”. American Depositary Shares, or ADSs, each representing one of our shares, are traded on the New York Stock Exchange under the symbol “NOK”. The ADSs are evidenced by American Depositary Receipts, or ADRs, issued by Citibank, N.A., as the Depositary under the Amended and Restated Deposit Agreement dated as of March 28, 2000 (as amended), among Nokia, Citibank, N.A. and registered holders from time to time of ADRs.
The table below sets forth, for the periods indicated, the reported high and low quoted prices for our shares on NASDAQ OMX Helsinki and the high and low quoted prices for the shares, in the form of ADSs, on the New York Stock Exchange.
| NASDAQ OMX Helsinki Price per share |
New York Stock Exchange Price per ADS |
|||||||||||||||
| High | Low | High | Low | |||||||||||||
| (EUR) | (USD) | |||||||||||||||
| 2009 |
12.25 | 6.67 | 16.58 | 8.47 | ||||||||||||
| 2010 |
11.82 | 6.59 | 15.89 | 8.00 | ||||||||||||
| 2011 |
8.49 | 3.33 | 11.75 | 4.46 | ||||||||||||
| 2012 |
||||||||||||||||
| First Quarter |
4.46 | 3.75 | 5.87 | 4.90 | ||||||||||||
| Second Quarter |
4.11 | 1.60 | 5.52 | 2.04 | ||||||||||||
| Third Quarter |
2.79 | 1.33 | 3.39 | 1.63 | ||||||||||||
| Fourth Quarter |
3.31 | 1.92 | 4.35 | 2.52 | ||||||||||||
| Full Year |
4.46 | 1.33 | 5.87 | 1.63 | ||||||||||||
| 2013 |
||||||||||||||||
| First Quarter |
3.64 | 2.45 | 4.90 | 3.19 | ||||||||||||
| Second Quarter |
3.01 | 2.30 | 4.12 | 3.02 | ||||||||||||
| Third Quarter |
5.10 | 2.88 | 6.78 | 3.81 | ||||||||||||
| Fourth Quarter |
6.03 | 4.64 | 8.18 | 6.22 | ||||||||||||
| Full Year |
6.03 | 2.30 | 8.18 | 3.02 | ||||||||||||
| Most recent six months |
||||||||||||||||
| October 2013 |
5.70 | 4.64 | 7.77 | 6.22 | ||||||||||||
| November 2013 |
6.03 | 5.54 | 8.18 | 7.42 | ||||||||||||
| December 2013 |
5.99 | 5.35 | 8.18 | 7.31 | ||||||||||||
| January 2014 |
6.00 | 5.07 | 8.18 | 6.86 | ||||||||||||
| February 2014 |
5.62 | 5.00 | 7.69 | 6.66 | ||||||||||||
| March 2014 |
5.69 | 5.18 | 7.95 | 7.17 | ||||||||||||
Not applicable.
The principal trading markets for the shares are the New York Stock Exchange, in the form of ADSs, and NASDAQ OMX Helsinki, in the form of shares.
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Not applicable.
Not applicable.
Not applicable.
| ITEM 10. | ADDITIONAL INFORMATION |
Not applicable.
10B. Memorandum and Articles of Association
Registration
Nokia is organized under the laws of the Republic of Finland and registered under the business identity code 0112038-9. Under our current Articles of Association, Nokia’s corporate purpose is to engage in the telecommunications industry and other sectors of the electronics industry as well as the related service businesses, including the development, manufacture, marketing and sales of mobile devices, other electronic products and telecommunications systems and equipment as well as related mobile, Internet and network infrastructure services and other consumer and enterprise services. Nokia may also create, acquire and license intellectual property and software as well as engage in other industrial and commercial operations. Further, we may engage in securities trading and other investment activities.
Director’s Voting Powers
Under Finnish law and our Articles of Association, resolutions of the Board of Directors shall be made by a majority vote. A director shall refrain from taking any part in the consideration of a contract between the director and the company or third party, or any other issue that may provide any material benefit to him, which may be contradictory to the interests of the company. Under Finnish law, there is no age limit requirement for directors, and there are no requirements under Finnish law that a director must own a minimum number of shares in order to qualify to act as a director. However, our Board has established a guideline retirement age of 70 years for the members of the Board of Directors and the Corporate Governance and Nomination Committee will not without specific reason propose re-election of a person who has reached 70 years of age. In addition, in accordance with company policy, approximately 40% of the annual remuneration payable to the Board members has been paid in Nokia shares purchased from the market, which shares shall be retained until the end of the board membership (except for those shares needed to offset any costs relating to the acquisition of the shares, including taxes).
Share Rights, Preferences and Restrictions
Each share confers the right to one vote at general meetings. According to Finnish law, a company generally must hold an Annual General Meeting called by the Board within six months from the end of the fiscal year. In addition, the Board is obliged to call an extraordinary general meeting at the request of the auditor or shareholders representing a minimum of one-tenth of all outstanding shares. Under our Articles of Association, the members of the board are elected for a term beginning at the Annual General Meeting where elected and expiring at the end of the next Annual General Meeting.
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Under Finnish law, shareholders may attend and vote at general meetings in person or by proxy. It is not customary in Finland for a company to issue forms of proxy to its shareholders. Accordingly, Nokia does not do so. However, registered holders and beneficial owners of ADSs are issued forms of proxy by the Depositary.
To attend and vote at a general meeting, a shareholder must be registered in the register of shareholders in the Finnish book-entry system on or prior to the record date set forth in the notice of the Annual General Meeting. A registered holder or a beneficial owner of the ADSs, like other beneficial owners whose shares are registered in the company’s register of shareholders in the name of a nominee, may vote with his shares provided that he arranges to have his name entered in the temporary register of shareholders for the Annual General Meeting.
The record date is the eighth business day preceding the meeting. To be entered in the temporary register of shareholders for the Annual General Meeting, a holder of ADSs must provide the Depositary, or have his broker or other custodian provide the Depositary, on or before the voting deadline, as defined in the proxy material issued by the Depositary, a proxy with the following information: the name, address, and social security number or another corresponding personal identification number of the holder of the ADSs, the number of shares to be voted by the holder of the ADSs and the voting instructions. The register of shareholders as of the record date of each general meeting is public until the end of the respective meeting. Other nominee registered shareholders can attend and vote at the Annual General Meeting by instructing their broker or other custodian to register the shareholder in Nokia’s temporary register of shareholders and give the voting instructions in accordance with the broker’s or custodian’s instructions.
By completing and returning the form of proxy provided by the Depositary, a holder of ADSs also authorizes the Depositary to give a notice to us, required by our Articles of Association, of the holder’s intention to attend the general meeting.
Each of our shares confers equal rights to share in the distribution of the company’s funds. For a description of dividend rights attaching to our shares, see Item 3A. “Selected Financial Data—Distribution of Earnings”. Dividend entitlement lapses after three years if a dividend remains unclaimed for that period, in which case the unclaimed dividend will be retained by Nokia.
Under Finnish law, the rights of shareholders related to shares are as stated by law and in our Articles of Association. Amendment of the Articles of Association requires a decision of the general meeting, supported by two-thirds of the votes cast and two-thirds of the shares represented at the meeting.
Disclosure of Shareholder Ownership or Voting Power
According to the Finnish Securities Market Act (746/2012), which entered into force on January 1, 2013, a shareholder shall disclose its ownership or voting power to the company and the Finnish Financial Supervisory Authority when the ownership or voting power reaches, exceeds or falls below 5, 10, 15, 20, 25, 30, 50 or 90 per cent of all the shares or the voting rights outstanding. The term “ownership” includes ownership by the shareholder, as well as selected related parties and calculating the ownership or voting power covers agreements or other arrangements, which when concluded would cause the proportion of voting rights or number of shares to reach, exceed or fall below the above mentioned limits. Upon receiving such notice, the company shall disclose it by a stock exchange release without undue delay.
Purchase Obligation
Our Articles of Association require a shareholder that holds one-third or one-half of all of our shares to purchase the shares of all other shareholders that so request, at a price generally based on the
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historical weighted average trading price of the shares. A shareholder who becomes subject to the purchase obligation is also obligated to purchase any subscription rights, stock options or convertible bonds issued by the company if so requested by the holder. The purchase price of the shares under our Articles of Association is the higher of (a) the weighted average trading price of the shares on NASDAQ OMX Helsinki during the 10 business days prior to the day on which we have been notified by the purchaser that its holding has reached or exceeded the threshold referred to above or, in the absence of such notification or its failure to arrive within the specified period, the day on which our Board of Directors otherwise becomes aware of this; or (b) the average price, weighted by the number of shares, which the purchaser has paid for the shares it has acquired during the last 12 months preceding the date referred to in (a).
Under the Finnish Securities Market Act, a shareholder whose voting power exceeds 30 or 50 per cent of the total voting rights in a company shall, within one month, offer to purchase the remaining shares of the company, as well as any other rights entitling to the shares issued by the company, such as subscription rights, convertible bonds or stock options issued by the company. The purchase price shall be the market price of the securities in question. The market price is determined on the basis of the highest price paid for the security during the preceding six months by the shareholder or any party in close connection to the shareholder. This price can be deviated from for a specific reason. If the shareholder or any related party has not during the six months preceding the offer acquired any securities that are the target for the offer, the market price is determined based on the average of the prices paid for the security in public trading during the preceding three months weighted by the volume of trade. This price can be deviated from for a specific reason.
Under the Finnish Companies Act (2006/624), 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, upon a request from the minority shareholders, the obligation to purchase all the shares of the minority shareholders for the current market price. The market price is determined, among other things, on the basis of the recent market price of the shares. The purchase procedure under the Companies Act differs, and the purchase price may differ, from the purchase procedure and price under the Securities Market Act, as discussed above. However, if the threshold of nine-tenths has been exceeded through either a mandatory or a voluntary public offer pursuant to the Securities Market Act, the market price under the Companies Act is deemed to be the price offered in the public offer, unless there are specific reasons to deviate from it.
Pre-Emptive Rights
In connection with any offering of shares, the existing shareholders have a pre-emptive right to subscribe for shares offered in proportion to the amount of shares in their possession. However, a general meeting of shareholders may vote, by a majority of two-thirds of the votes cast and two-thirds of the shares represented at the meeting, to waive this pre-emptive right provided that, from the company’s perspective, weighty financial grounds exist.
Under the Finnish Act on the Monitoring of Foreign Corporate Acquisitions (2012/172), a notification to the Ministry of Employment and the Economy is required for a non-resident of Finland, directly or indirectly, when acquiring one-tenth or more of the voting power or corresponding factual influence in a company. The Ministry of Employment and the Economy has to confirm the acquisition unless the acquisition would jeopardize important national interests, in which case the matter is referred to the Council of State. If the company in question is operating in the defense sector an approval by the Ministry of Employment and the Economy is required before the acquisition is made. These requirements are not applicable if, for instance, the voting power is acquired in a share issue that is proportional to the holder’s ownership of the shares. Moreover, the requirements do not apply to residents of countries in the European Economic Area or EFTA countries.
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More details on the below transactions can be found in Item 4A. “History and Development of the Company—Organizational Structure and Reportable Segments”.
Acquisition of Siemens’ Stake in NSN
Nokia announced on July 1, 2013 that it had entered into an agreement to acquire Siemens’ in the companies’ joint venture Nokia Siemens Networks, pursuant to the Share Purchase Agreement by and among Siemens AG, Siemens International Holding B.V., Nokia Finance International B.V. and Nokia Corporation dated July 1, 2013. The transaction closed on August 7, 2013, at which time NSN became a wholly owned subsidiary of Nokia.
Sale of the D&S Business to Microsoft
On September 3, 2013, Nokia announced that it had signed an agreement to enter into a transaction whereby Nokia would sell to Microsoft substantially all of its Devices & Services business, including the Mobile Phones and Smart Devices business units as well as an industry-leading design team, operations including all Nokia Devices & Services production facilities, Devices & Services-related sales and marketing activities, and related support functions, pursuant to Stock and Asset Purchase Agreement by and between Nokia Corporation and Microsoft International Holdings B.V. dated September 2, 2013. The transaction closed on April 25, 2014.
There are currently no Finnish laws which may affect the import or export of capital, or the remittance of dividends, interest or other payments.
General
The taxation discussion set forth below is intended only as a descriptive summary and does not purport to be a complete analysis or listing of all potential tax effects relevant to ownership of our shares represented by ADSs.
The statements of US and Finnish tax laws set out below are based on the laws in force as of the date of this annual report and may be subject to any changes in US or Finnish law, and in any double taxation convention or treaty between the United States and Finland, occurring after that date, possibly with retroactive effect.
For purposes of this summary, beneficial owners of ADSs that hold the ADSs as capital assets and that are considered residents of the United States for purposes of the current income tax convention between the United States and Finland, signed September 21, 1989 (as amended by a protocol signed May 31, 2006), referred to as the Treaty, 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 trusts (to the extent their income is subject to US tax either directly or in the hands of beneficiaries) generally will be considered to be residents of the United States under the Treaty. Special rules apply to US Holders that are also residents of Finland and to citizens or residents of the United States that do not maintain a substantial presence, permanent home or habitual abode in the United States. For purposes of this discussion, it is assumed that the Depositary and its custodian will perform all actions as required by the deposit agreement with the Depositary and other related agreements between the Depositary and Nokia.
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If a partnership holds ADSs (including for this purpose any entity or arrangement treated as a partnership for US federal income tax purposes), the tax treatment of a partner will depend upon the status of the partner and activities of the partnership. If a US Holder is a partnership or a partner in a partnership that holds ADSs, the holder is urged to consult its own tax advisor regarding the specific tax consequences of owning and disposing of its ADSs.
Because this summary is not exhaustive of all possible tax considerations—such as situations involving financial institutions, banks, tax-exempt entities, pension funds, US expatriates, real estate investment trusts, persons that are dealers in securities, persons who own (directly, indirectly or by attribution) 10% or more of the share capital or voting stock of Nokia, persons who acquired their ADSs pursuant to the exercise of employee stock options or otherwise as compensation, or US Holders whose functional currency is not the US dollar, who may be subject to special rules that are not discussed herein—holders of shares or ADSs that are US Holders are advised to satisfy themselves as to the overall US federal, state and local tax consequences, as well as to the overall Finnish and other applicable non-US tax consequences, of their ownership of ADSs and the underlying shares by consulting their own tax advisors. This summary does not discuss the treatment of ADSs that are held in connection with a permanent establishment or fixed base in Finland, and it does not address the US Medicare tax on certain investment income.
For the purposes of both the Treaty and the US Internal Revenue Code of 1986, as amended, referred to as the Code, US Holders of ADSs will be treated as the owners of the underlying shares that are represented by those ADSs. Accordingly, the following discussion, except where otherwise expressly noted, applies equally to US Holders of ADSs, on the one hand, and of shares, on the other.
The holders of ADSs will, for Finnish tax purposes, be treated as the owners of the shares that are represented by the ADSs. The Finnish tax consequences to the holders of shares, as discussed below, also apply to the holders of ADSs.
US and Finnish Taxation of Cash Dividends
For US federal income tax purposes, the gross amount of dividends paid to US Holders of shares or ADSs, including any related Finnish withholding tax, generally will be included in gross income as foreign source dividend income. We do not expect to maintain calculations of our earnings and profits under US federal income tax principles; therefore, US Holders should expect that the entire amount of any distribution generally will be reported as dividend income. Dividends will not be eligible for the dividends received deduction allowed to corporations under Section 243 of the Code. The amount includible in income (including any Finnish withholding tax) will equal the US dollar value of the payment, determined at the time such payment is received by the Depositary (in the case of ADSs) or by the US Holder (in the case of shares), regardless of whether the payment is in fact converted into US dollars. Generally, any gain or loss resulting from currency exchange rate fluctuations during the period between the time such payment is received and the date the dividend payment is converted into US dollars will be treated as US source ordinary income or loss to a US Holder.
Special rules govern and specific elections are available to accrual method taxpayers to determine the US dollar amount includible in income in the case of a dividend paid (and taxes withheld) in foreign currency. Accrual basis taxpayers are urged to consult their own tax advisors regarding the requirements and elections applicable in this regard.
Under the Finnish Income Tax Act and Act on Taxation of Non-residents’ Income, non-residents of Finland are generally subject to a withholding tax at a rate of 30% payable on dividends paid by a Finnish resident company. However, pursuant to the Treaty, dividends paid to US Holders generally will be subject to Finnish withholding tax at a reduced rate of 15% of the gross amount of the dividend.
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Qualifying pension funds are, however, pursuant to the Treaty exempt from Finnish withholding tax. See also “Finnish Withholding Taxes on Nominee Registered Shares” below.
Subject to conditions and limitations, Finnish income taxes withheld will be treated as foreign taxes eligible for credit against a US Holder’s US federal income tax liability. Dividends received generally will constitute foreign source “passive category income” for foreign tax credit purposes. In lieu of a credit, a US Holder may elect to deduct all of its foreign taxes provided the deduction is claimed for all of the foreign taxes paid by the US Holder in a particular year. A deduction does not reduce US tax on a dollar-for-dollar basis like a tax credit. The deduction, however, is not subject to the limitations applicable to foreign tax credits.
Provided that certain holding period and other requirements are met, certain US Holders (including individuals and some trusts and estates) are eligible for reduced rates of US federal income tax at a maximum rate of 20% in respect of “qualified dividend income” received in taxable years beginning after December 31, 2012. Dividends that Nokia pays with respect to its shares and ADSs generally will be qualified dividend income if Nokia was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, a passive foreign investment company (a “PFIC”). Nokia currently believes that dividends paid with respect to its shares and ADSs will constitute qualified dividend income for US federal income tax purposes, however, this is a factual matter and is subject to change. Nokia anticipates that its dividends will be reported as qualified dividends on Forms 1099-DIV delivered to US Holders. US Holders of shares or ADSs are urged to consult their own tax advisors regarding the availability to them of the reduced dividend tax rate in light of their own particular situation and the computations of their foreign tax credit limitation with respect to any qualified dividends paid to them, as applicable.
We believe that we should not be classified as a PFIC for US federal income tax purposes for the taxable year ended December 31, 2013, and we do not expect to become a PFIC in the foreseeable future. US Holders are advised, however, that this conclusion is a factual determination that must be made annually and thus may be subject to change. If we were to be classified as a PFIC, the tax on distributions on our shares or ADSs and on any gains realized upon the disposition of our shares or ADSs generally would be less favorable than as described herein. Dividends paid by a PFIC are not “qualified dividend income” and are not eligible for reduced rates of taxation. In addition, US persons that are shareholders in a PFIC generally will be required to file an annual report disclosing the ownership of such shares and certain other information as yet to be determined. US Holders should consult their own tax advisors regarding the application of the PFIC rules (including the new reporting requirements) to their ownership of our shares or ADSs.
The US Treasury has expressed concern that parties to whom ADSs are released may be taking actions inconsistent with the claiming of foreign tax credits or reduced rates in respect of qualified dividends by US Holders of ADSs. Accordingly, the analysis of the creditability of Finnish withholding taxes or the availability of qualified dividend treatment could be affected by future actions that may be taken by the US Treasury with respect to ADSs.
Finnish Withholding Taxes on Nominee Registered Shares
Generally, for US Holders, the reduced 15% withholding tax rate of the Treaty (instead of 30%) is applicable to dividends paid to nominee-registered shares only when the conditions of the provisions applied to dividends are met (Section 10b of the Finnish Act on Taxation of Non-residents’ Income).
According to the provisions, the Finnish account operator and a foreign custodian are required to have a custody agreement, according to which the custodian undertakes to (a) declare the country of residence of the beneficial owner of the dividend, (b) confirm the applicability of the Treaty to the
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dividend, (c) inform the account operator of any changes to the country of residence or the applicability of the Treaty, and (d) provide the legal identification and address of the beneficial owner of the dividend and a certificate of residence issued by the local tax authorities upon request. It is further required that the foreign custodian is domiciled in a country with which Finland has entered into a treaty for the avoidance of double taxation and that the custodian is entered into the register of foreign custodians maintained by the Finnish tax authorities.
In general, if based on an applicable treaty for the avoidance of double taxation the withholding tax rate for dividends is 15% or higher, the treaty rate may be applied when the above-described conditions of the new provisions are met (Section 10b of the Finnish Act on Taxation of Non-residents’ Income). A lower rate than 15% may be applied based on the applicable treaty for the avoidance of double taxation only when the following information on the beneficial owner of the dividend is provided to the payer prior to the dividend payment: name, date of birth or business ID (if applicable) and address in the country of residence.
US and Finnish Tax on Sale or Other Disposition
A US Holder generally will recognize taxable capital gain or loss on the sale or other disposition of ADSs in an amount equal to the difference between the US dollar value of the amount realized and the adjusted tax basis (determined in US dollars) in the ADSs. If the ADSs are held as a capital asset, this gain or loss generally will be long-term capital gain or loss if, at the time of the sale, the ADSs have been held for more than one year. Any capital gain or loss, for foreign tax credit purposes, generally will constitute US source gain or loss. In the case of a US Holder that is an individual, long-term capital gain generally is subject to US federal income tax at preferential rates. The deductibility of capital losses is subject to significant limitations.
The deposit or withdrawal by a US Holder of shares in exchange for ADSs or of ADSs for shares under the deposit agreement generally will not be subject to US federal income tax or Finnish income tax.
The sale by a US Holder of the ADSs or the underlying shares, other than an individual that, by reason of his residence in Finland for a period exceeding six months, is or becomes liable for Finnish income tax according to the relevant provisions of Finnish tax law, generally will not be subject to income tax in Finland, in accordance with Finnish tax law and the Treaty.
Finnish Capital Taxes
The Finnish capital tax regime was abolished in the beginning of 2006.
Finnish Transfer Tax
Transfers of shares and ADSs could be subject to the Finnish transfer tax only when one of the parties to the transfer is subject to Finnish taxation under the Finnish Income Tax Act by virtue of being a resident of Finland or a Finnish branch of a non-Finnish credit institution. In accordance with the amendments in the Finnish Transfer Tax Act (applicable as of November 9, 2007) no transfer tax is payable on the transfer of shares or ADSs (irrespective of whether the transfer is carried out on a stock exchange or not). However, there are certain conditions for the exemption. Prior to the said amendments, transfer tax was not payable on stock exchange transfers. In cases where the transfer tax would be payable, the transfer tax would be 1.6% of the transfer value of the security traded.
Finnish Inheritance and Gift Taxes
A transfer of an underlying share by gift or by reason of the death of a US Holder and the transfer of an ADS are not subject to Finnish gift or inheritance tax provided that none of the deceased person, the donor, the beneficiary of the deceased person or the recipient of the gift is resident in Finland.
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Non-Residents of the United States
Beneficial owners of ADSs that are not US Holders will not be subject to US federal income tax on dividends received with respect to ADSs unless such dividend income is effectively connected with the conduct of a trade or business within the United States. Similarly, non-US Holders generally will not be subject to US federal income tax on any gain realized on the sale or other disposition of ADSs, unless (a) the gain is effectively connected with the conduct of a trade or business in the United States or (b) in the case of an individual, that individual is present in the United States for 183 days or more in the taxable year of the disposition and other conditions 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 shares or ADSs may be subject to information reporting to the Internal Revenue Service and possible US backup withholding. Backup withholding will not apply to a holder if the holder furnishes a correct taxpayer identification number or certificate of foreign status and makes any other required certification in connection therewith or if it is a recipient otherwise exempt from backup withholding (such as a corporation). Any US person required to establish its exempt status generally must furnish a duly completed IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Non-US holders generally are not subject to US information reporting or backup withholding. However, such holders may be required to provide certification of non-US status (generally on IRS Form W-8BEN) in connection with payments received in the United States or through certain US-related financial intermediaries. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s US federal income tax liability, and the holder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the Internal Revenue Service and furnishing any required information.
10F. Dividends and Paying Agents
Not applicable.
Not applicable.
The documents referred to in this annual report can be read at the Securities and Exchange Commission’s public reference facilities at 100 F Street, N.E., Room 1580, Washington, D.C. 20549.
Not applicable.
| ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
See Note 35 to our consolidated financial statements included in Item 18 of this annual report for information on market risk.
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| ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
12D. American Depositary Shares
12D.3 Depositary Fees and Charges
Our American Depositary Shares, or ADSs, each representing one of our shares, are traded on the New York Stock Exchange under the symbol “NOK”. The ADSs are evidenced by American Depositary Receipts, or ADRs, issued by Citibank, N.A., as Depositary under the Amended and Restated Deposit Agreement dated as of March 28, 2000, among Nokia, Citibank, N.A. and registered holders from time to time of ADRs, as amended on February 6, 2008. ADS holders may have to pay the following service fees to the Depositary:
| Service |
Fees (USD) | |
| Issuance of ADSs |
Up to 5 cents per ADS(1) | |
| Cancellation of ADSs |
Up to 5 cents per ADS(1) | |
| Distribution of cash dividends or other cash distributions |
Up to 2 cents per ADS(2) | |
| Distribution of ADSs pursuant to (i) stock dividends, free stock distributions or (ii) exercises of rights to purchase additional ADSs |
Up to 5 cents per ADS(2) | |
| Distribution of securities other than ADSs or rights to purchase additional ADSs |
Up to 5 cents per ADS(1) | |
| ADR transfer fee |
USD 1.50 per transfer(1) |
| (1) | These fees are typically paid to the Depositary by the brokers on behalf of their clients receiving the newly issued ADSs from the Depositary and by the brokers on behalf of their clients delivering the ADSs to the Depositary for cancellation. The brokers in turn charge these transaction fees to their clients. |
| (2) | In practice, the Depositary has not collected these fees. If collected, such fees are offset against the related distribution made to the ADR holder. |
In addition, ADS holders are responsible for certain fees and expenses incurred by the Depositary on their behalf and certain governmental charges such as taxes and registration fees, transmission and delivery expenses, conversion of foreign currency and fees relating to compliance with exchange control regulations. The fees and charges may vary over time.
In the event of refusal to pay the depositary fees, the Depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set-off the amount of the depositary fees from any distribution to be made to the ADR holder.
12D.4 Depositary Payments for 2012
For the year ended December 31, 2013, our Depositary made the following payments on our behalf in relation to our ADR program.
| Category |
Payment (USD) | |||
| Settlement infrastructure fees (including the Depositary Trust Company fees) |
35 309 | |||
| Proxy process expenses (including printing, postage and distribution) |
1 241 585 | |||
| ADS holder identification expenses |
103 540 | |||
| Legal fees |
4 800 | |||
| NYSE Listing fees |
500 000 | |||
|
|
|
|||
| Total |
1 885 234 | |||
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In addition, for the year ended December 31, 2013, our Depositary has agreed to reimburse us USD 2 658 529 mainly for contributions towards our investor relations activities, including investor meetings and conferences and fees of investor relations service vendors, and other miscellaneous expenses related to the US listing of our ADSs.
| ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
| ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
None.
| ITEM 15. | CONTROLS AND PROCEDURES |
(a) Disclosure Controls and Procedures. Our Chairman and interim Chief Executive Officer and our Chief Financial Officer and interim President, after evaluating the effectiveness of our disclosure controls and procedures (as defined in US Exchange Act Rule 13a-15(e)) as of the end of the period covered by this annual report, have concluded that, as of such date, our disclosure controls and procedures were effective.
(b) Management’s Annual Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Our internal control over financial reporting is designed to provide reasonable assurance to our management and the Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may decline.
Management evaluated the effectiveness of our internal control over financial reporting based on the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, framework (1992 version). Based on this evaluation, management has assessed the effectiveness of Nokia’s internal control over financial reporting, as at December 31, 2013, and concluded that such internal control over financial reporting is effective.
PricewaterhouseCoopers Oy, which has audited our consolidated financial statements for the year ended December 31, 2013, has issued an attestation report on the effectiveness of the company’s internal control over financial reporting under Auditing Standard No. 5 of the Public Company Accounting Oversight Board (United States of America).
(c) Attestation Report of the Registered Public Accounting Firm. See the Auditors’ report on page F-1.
(d) Changes in Internal Control Over Financial Reporting. There were no changes in Nokia’s internal control over financial reporting that occurred during the year ended December 31, 2013, that have materially affected, or are reasonably likely to materially affect, the Group’s internal control over financial reporting during 2013.
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| ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
The Board of Directors has determined that all of the members of the Audit Committee, including its Chairman, Jouko Karvinen, are “audit committee financial experts” as defined in Item 16A of Form 20-F. Mr. Karvinen and each of the other members of the Audit Committee is an “independent director” as defined in Section 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 available on our website through, www.company.nokia.com.
| ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Auditor Fees and Services
PricewaterhouseCoopers Oy has served as our independent auditor for each of the fiscal years in the three-year period ended December 31, 2013. The independent auditor is elected annually by our shareholders at the Annual General Meeting for the fiscal year in question. The Audit Committee of the Board of Directors makes a proposal to the shareholders in respect of the appointment of the auditor based upon its evaluation of the qualifications and independence of the auditor to be proposed for election or re-election on an annual basis.
The following table sets forth the aggregate fees for professional services and other services rendered by PricewaterhouseCoopers to Nokia in 2013 and 2012 in total, with a separate presentation of those fees related to Nokia and NSN.
| 2013 | 2012 | |||||||||||||||||||||||
| Nokia | NSN | Total | Nokia | NSN | Total | |||||||||||||||||||
| (EUR millions) | ||||||||||||||||||||||||
| Audit Fees(1) |
6.9 | 9.9 | 16.8 | 7.2 | 10.2 | 17.4 | ||||||||||||||||||
| Audit-Related Fees(2) |
0.6 | 9.4 | 10.0 | 0.8 | 1.4 | 2.2 | ||||||||||||||||||
| Tax Fees(3) |
1.3 | 0.4 | 1.7 | 2.4 | 1.6 | 4.0 | ||||||||||||||||||
| All Other Fees(4) |
1.1 | 0.0 | 1.1 | 0.3 | 0.0 | 0.3 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
9.9 | 19.7 | 29.6 | 10.7 | 13.2 | 23.9 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| (1) | Audit Fees consist of fees billed for the annual audit of the company’s consolidated financial statements and the statutory financial statements of the company’s subsidiaries. |
| (2) | Audit-Related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the company’s financial statements or that are traditionally performed by the independent auditor, and include consultations concerning financial accounting and reporting standards; advice on tax accounting matters; advice and assistance in connection with local statutory accounting requirements; due diligence related to acquisitions or divestitures; financial due diligence in connection with provision of funding to customers, reports in relation to covenants in loan agreements; employee benefit plan audits and reviews; and audit procedures in connection with investigations and compliance programs. They also include fees billed for other audit services, which are those services that only the independent auditor reasonably can provide, and include the provision of comfort letters and consents in connection with statutory and regulatory filings and the review of documents filed with the SEC and other capital markets or local financial reporting regulatory bodies. The NSN Audit-Related Fees for 2013 are primarily related to due diligence services provided in connection with the transaction where Nokia purchased Siemens’ stake in NSN, which was completed on August 7, 2013. |
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| (3) | Tax fees include fees billed for (i) corporate and indirect compliance including preparation and/or review of tax returns, preparation, review and/or filing of various certificates and forms and consultation regarding tax returns and assistance with revenue authority queries; (ii) transfer pricing advice and assistance with tax clearances; (iii) customs duties reviews and advice; (iv) consultations and tax audits (assistance with technical tax queries and tax audits and appeals and advice on mergers, acquisitions and restructurings); (v) personal compliance (preparation of individual tax returns and registrations for employees (non-executives), assistance with applying visa, residency, work permits and tax status for expatriates); and (vi) consultation and planning (advice on stock-based remuneration, local employer tax laws, social security laws, employment laws and compensation programs and tax implications on short-term international transfers). |
| (4) | All Other Fees include fees billed for company establishment, forensic accounting, data security, investigations and reviews of licensing arrangements with customers, other consulting services and occasional training or reference materials and services. |
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee of our Board of Directors is responsible, among other matters, for the oversight of the external auditor subject to the requirements of Finnish law. The Audit Committee has adopted a policy regarding pre-approval of audit and permissible non-audit services provided by our independent auditors (the “Policy”).
Under the Policy, proposed services either (i) may be pre-approved by the Audit Committee in accordance with certain service categories described in appendices to the Policy (“general pre-approval”); or (ii) require the specific pre-approval of the Audit Committee (“specific pre-approval”). The Audit Committee may delegate either type of pre-approval authority to one or more of its members. The appendices to the Policy set out the audit, audit-related, tax and other services that have received the general pre-approval of the Audit Committee. All other audit, audit-related (including services related to internal controls and significant M&A projects), tax and other services are subject to a specific pre-approval from the Audit Committee. All service requests concerning generally pre-approved services will be submitted to the Corporate Controller, who will determine whether the services are within the services generally pre-approved. The Policy and its appendices are subject to annual review by the Audit Committee.
The Audit Committee establishes budgeted fee levels annually for each of the four categories of audit and non-audit services that are pre-approved under the Policy, namely, audit, audit-related, tax and other services. Requests or applications to provide services that require specific approval by the Audit Committee are submitted to the Audit Committee by both the independent auditor and the Corporate Controller. At each regular meeting of the Audit Committee, the independent auditor provides a report in order for the Audit Committee to review the services that the auditor is providing, as well as the status and cost of those services.
| ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
Not applicable.
| ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
There were no purchases of Nokia shares or ADSs by Nokia Corporation or its affiliates during 2013.
| ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
None.
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| ITEM 16G. | CORPORATE GOVERNANCE |
The following is a summary of any significant ways in which our corporate governance practices differ from those followed by US domestic companies under the corporate governance standards of the New York Stock Exchange, or NYSE. There are no significant differences in the corporate governance practices followed by us as compared to those followed by US domestic companies under the NYSE corporate governance standards, except that we follow the requirements of Finnish law with respect to the approval of equity compensation plans. Under Finnish law, stock option plans require shareholder approval at the time of their launch. All other plans that include the delivery of company stock in the form of newly-issued shares or treasury shares require a shareholder approval at the time of the delivery of the shares or, if the shareholder approval is granted through an authorization to the Board of Directors, no more than a maximum of five years earlier. The NYSE corporate governance standards require that the equity compensation plans be approved by a company’s shareholders.
Our corporate governance practices comply with the Finnish Corporate Governance Code, approved by the boards of the Finnish Securities Market Association and NASDAQ OMX Helsinki effective as of October 1, 2010, with one exception outlined below. The Finnish Corporate Governance Code is available, for instance, at www.cgfinland.fi.
In 2013 Nokia was not in full compliance with recommendation 39 of the Finnish Corporate Governance Code as Nokia’s Restricted Share Plans did not include any performance criteria but were time-based only, with a restriction period of at least three years from the grant. Restricted Shares are granted only for exceptional retention and recruitment purposes aimed to ensure Nokia is able to retain and recruit talent vital to the future success of the Company. In the Restricted Share Plan 2014, the number of the shares to be granted was reduced significantly and they no longer are part of the annual grants.
Additionally, in 2013 Nokia was not in full compliance with the recommendation 46 of the 2010 Finnish Corporate Governance Code as the termination payment payable due to the termination of Nokia’s former President and CEO Stephen Elop’s service contract exceeded the aggregate amount of his non-variable salary of two years. While we decide on our executives’ total compensation through benchmarking against similar companies, along with other factors, the company’s approach has been to keep the non-variable part rather small in proportion and emphasize the variable part. This compensation structure is designed to align the interest of executive officers with those of the shareholders and with Nokia’s performance. The termination payment was also significantly affected by the share price increase from the announcement of the transaction with Microsoft through the termination of Mr. Elop’s contract, as over 80% of the termination payment consisted of the value of his equity-based compensation. Moreover, in the end 70% of this termination payment was borne by Microsoft and the remaining 30% of the amount, equaling to EUR 7.3 million, by Nokia pursuant to the agreement between Nokia and Microsoft.
| ITEM 16H. | MINE SAFETY DISCLOSURE |
Not applicable.
| ITEM 17. | FINANCIAL STATEMENTS |
Not applicable.
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| ITEM 18. | FINANCIAL STATEMENTS |
The following financial statements are filed as part of this annual report:
| Consolidated Financial Statements Report of Independent Registered Public Accounting Firm |
F-1 | |||
| F-2 | ||||
| F-3 | ||||
| F-4 | ||||
| F-5 | ||||
| F-7 | ||||
| F-9 |
| ITEM 19. | EXHIBITS |
| *1 | Articles of Association of Nokia Corporation. | |||
| 4.1 | Share Purchase Agreement by and among Siemens AG, Siemens International Holding B.V., Nokia Finance International B.V. and Nokia Corporation dated July 1, 2013. | |||
| 4.2 | Stock and Asset Purchase Agreement by and between Nokia Corporation and Microsoft International Holdings B.V. dated September 2, 2013. | |||
| 6 | See Note 29 to our consolidated financial statements included in Item 18 of this annual report for information on how earnings per share information was calculated. | |||
| 8 | List of significant subsidiaries. | |||
| 12.1 | Certification of Risto Siilasmaa, Chairman and interim Chief Executive Officer of Nokia Corporation, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
| 12.2 | Certification of Timo Ihamuotila, Chief Financial Officer and interim President of Nokia Corporation, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
| 13 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
| 15.(a) | Consent of Independent Registered Public Accounting Firm. |
| * | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2010. |
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3G (Third Generation Mobile Communications): The third generation of mobile communications standards designed for carrying both voice and data generally using WCDMA or close variants.
4G (Fourth Generation Mobile Communications): The fourth generation of mobile communications standards based on LTE, offering IP data connections only and providing true broadband Internet access for mobile devices.
5G (Fifth Generation Mobile Communications): The next major phase of mobile telecommunications standards. 5G will be the set of technical components and systems needed to handle new requirements and overcome the limits of current systems.
Access network: A telecommunications network between a local exchange and the subscriber station.
Asha: The product name for Nokia’s high-end feature phones and most affordable smartphones. The Asha devices were developed by our Mobile Phones business unit, which was part of the Devices & Services business sold to Microsoft. As part of Nokia’s transaction with Microsoft, Microsoft also acquired the Asha brand.
ASP (average selling price): A term used commonly for instance in the mobile devices industry to reflect an average price of a category of devices sold. There is no industry guidance or clear practice to follow when calculating presenting this figure. In this annual report Smart Devices ASP represents Smart Devices net sales divided by Smart Devices volumes. Mobile Phones ASP represents Mobile Phones net sales divided by Mobile Phones volumes.
Bandwidth: The width of a communication channel, which affects transmission speeds over that channel.
Base station: A network element in a mobile network responsible for radio transmission and reception to or from the mobile station.
Broadband: The delivery of higher bandwidth by using transmission channels capable of supporting data rates greater than the primary rate of 9.6 Kbps.
CDMA (Code Division Multiple Access): A technique in which radio transmissions using the same frequency band are coded in a way that a signal from a certain transmitter can be received only by certain receivers.
Cellular network: A mobile telephone network consisting of switching centers, radio base stations and transmission equipment.
Continuing operations: refers to the continuing operations of Nokia following the sale of substantially all of our Devices & Services business to Microsoft. Nokia’s continuing operations include three businesses: Networks, HERE, and Technologies.
Convergence: The coming together of two or more disparate disciplines or technologies. Convergence types are, for example, IP convergence, fixed-mobile convergence and device convergence.
Core network: A combination of exchanges and the basic transmission equipment that together form the basis for network services.
Customer experience management (CEM) Software suite used to manage and improve the customer experience, based on customer, device and network insights.
Devices & Services: Nokia’s former mobile device business, most of which we sold to Microsoft.
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Digital: A signaling technique in which a signal is encoded into digits for transmission.
Discontinued Operations: refers mainly in this report to those operations we divested to Microsoft.
Ecosystem: An industry term to describe the increasingly large communities of mutually beneficial partnerships that participants such as hardware manufacturers, software providers, developers, publishers, entertainment providers, advertisers and ecommerce specialists form in order to bring their offerings to market. At the heart of the major ecosystems in the mobile devices and related services industry is the operating system and the development platform upon which services are built.
EDGE (Enhanced Data Rates for Global Evolution): A technology to boost cellular network capacity and increase data rates of existing GSM networks to as high as 473 Kbit/s.
Engine: Hardware and software that perform essential core functions for telecommunication or application tasks. A mobile device engine includes, for example, the printed circuit boards, radio frequency components, basic electronics and basic software.
Ethernet: A type of local area network (LAN).
ETSI (European Telecommunications Standards Institute): Standards produced by the ETSI contain technical specifications laying down the characteristics required for a telecommunications product.
FD-LTE (Frequency Division Long-term Evolution) also known as FDD (Frequency Division Duplex): A standard for LTE mobile broadband networks. Frequency Division means that separate, parallel connections are used to carry data from the base station to the mobile device (‘downlink’) and from the mobile device to the base station (‘uplink’).
Feature phone: Mobile devices that support a wide range of functionalities and applications, such as Internet connectivity and access to our services, but whose software capabilities are generally less powerful than those of smartphones. The feature phones manufactured by Nokia before the sale of our Devices & Services business were mostly based on the Series 30+ operating system.
Flexi Zone: A number of Flexi small cells which can be meshed together in a zone which collectively act as a single but distributed macro cell.
Flexi Multiradio base station: a system module platform developed to support higher GSM, HSPA+, LTE and LTE-A capacities and wider variety of BTS site configurations with minimized amount of equipment and with lower power consumption.
Global Services: a business unit within Networks. Global Services provides mobile operators with a broad range of services, including professional services, network implementation and customer care services.
GPS (Global Positioning System): Satellite-based positioning system that is used for reading geographical position and as a source of the accurate coordinated universal time.
GSM (Global System for Mobile Communications): A digital system for mobile communications that is based on a widely accepted standard and typically operates in the 900 MHz, 1800 MHz and 1900 MHz frequency bands.
HERE: A Nokia company focused on location intelligence.
HSPA (High-Speed Packet Access): A wideband code division multiple access (WCDMA or 3G) feature that refers to both 3GPP high-speed downlink packet access and high-speed uplink packet access.
ICT: Information and communications technology.
Implementation patents: Implementation patents include technologies used to implement functionalities in products or services which are not covered by commitments to standards setting
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organizations, so they typically offer product differentiation by giving competitive advantage, such as increased performance, smaller size or improved battery life and the patent owner has no obligation to license them to others.
IMS (IP Multimedia Subsystem): Architectural framework designed to deliver IP based multimedia services on telco networks. Standardized by 3GPP.
Internet Protocol: A network layer protocol that offers a connectionless Internet work service and forms part of the TCP/IP protocol.
IP (Intellectual property): Intellectual property results from original creative thought, covering items such as patents, copyright material, trademarks, as well as business models and plans.
IPR (Intellectual Property Right): Legal right protecting the economic exploitation of intellectual property, a generic term used to describe products of human intellect, for example, patents, that have an economic value.
IP licensing: Generally refers to an agreement or an arrangement where a company allows another company to use its intellectual property (such as patents, trademarks or copyrights under certain terms.
IPTV (Internet Protocol television): Television services delivered over Internet protocol infrastructure through a telephone or cable network using a broadband access line.
Java: An object-oriented programming language that is intended to be hardware and software independent.
Liquid Applications: Applications which can be hosted on an IT server blade and data storage included within a base station which can utilize real time network information.
Liquid Core: NSN’s proprietary name for a core network product suite which enables dynamic capacity allocation across the different network functions.
LTE (Long-Term Evolution): 3GPP radio technology evolution architecture and a standard for wireless communication of high-speed data. Also referred to as 4G.
LTE Advanced (LTE-A): the evolution of LTE that allows operators to use more than one spectrum band in parallel and defines a set of techniques focused on enhancing the mobile broadband user experience, as well as reducing the cost per bit.
Lumia: the product name for the family of smartphones we made based on the Windows Phone operating system.
Microcell: a cell in a mobile phone network served by a low power cellular base station covering a limited area, typically up to 2 kilometer wide.
Mobile broadband: mobile broadband refers to high-speed wireless Internet connections and services designed to be used from arbitrary locations.
Mobile Broadband: a business unit with Networks. Mobile Broadband provides mobile operators with radio and core network software together with the hardware needed to deliver mobile voice and data services.
Mobile phone: A generic term for devices that are used for mobile communications over a cellular network. Often used to refer to mobile devices whose software capabilities are generally less powerful than those of smartphones. See also Feature phone.
Mobile Phones: one of the two business units of Nokia’s Devices & Services business, which was sold to Microsoft. The Mobile Phones unit was focused on the area of mass market entry and feature phones as well as affordable smartphones.
Multiradio: Able to support several different radio access technologies.
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Networks: a Nokia business focused on network infrastructure software, hardware and services.
NFC (near field communication): a short-range wireless technology that enables people to connect one NFC enabled device with another, or to read an NFC tag. By bringing one NFC-enabled mobile device close to another NFC device, or to an NFC tag, people can easily share content; access information and services; or pay for goods.
NGOA (Next Generation Optical Access): Future telecommunications system based on fiber optic cables capable of achieving bandwidth data rates greater than 100 Mbps.
NSN: short for Nokia Solutions and Networks, the former name of our Networks business. NSN was also earlier known as Nokia Siemens Networks until Nokia acquired Siemens’ 50% stake in the joint venture in 2013.
OFDM (Orthogonal Frequency-Division Multiplexing): A technique for transmitting large amounts of digital data over a radio wave. OFDM works by splitting the radio signal into multiple smaller sub-signals that are then transmitted simultaneously at different frequencies to the receiver.
Open source: Refers to a program in which the source code is available to the general public for use and modification from its original design free of charge.
Operating system (OS): Software that controls the basic operation of a computer or a mobile device, such as managing the processor and memory. The term is also often used to refer more generally to the software within a device, including, for instance, the user interface.
Packet: Part of a message transmitted over a packet switched network.
Picocell: A small cellular basestation typically covering a small area typically up to 200 meter wide. Typically used to extend coverage to indoor areas or to add network capacity in areas with very dense phone usage, such as train stations.
Platform: Software platform is a term used to refer to an operating system or programming environment, or a combination of the two.
PND (personal navigation device): A term used to describe portable devices or devices embedded in a vehicle that are used primarily for navigation. Smartphones and increasingly feature phones may include navigation functionalities, but are not generally referred to as PNDs.
Radio Access Network (RAN): A mobile telecommunications system consisting of radio base stations and transmission equipment.
Series 30+: A software platform that powered Nokia’s most cost-effective voice and messaging feature phones.
Single RAN Single RAN allows different radio technologies to be provided at the same time from a single base station, using a multi-purpose platform.
Small Cells: low-powered radio access nodes (micro cells or pico cells) and are a vital element to handling very dense data traffic demands. 3G and LTE small cells use spectrum licensed by the operator; WiFi uses unlicensed spectrum which is therefore not under the operator’s exclusive control.
Smart Devices: one of the two business units of Nokia’s Devices & Services business, which was sold to Microsoft. The Smart Devices business unit focused on our most advanced mobile devices, including smartphones powered by the Windows Phone operating system.
Smartphone: A generic category of mobile devices with sophisticated software and embedded services. Smartphones can run applications such as email, web browsing, navigation, social
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networking and enterprise software, and can also have built-in music players, video recorders, and other multimedia features. Software capabilities are generally more powerful in smartphones than in feature phones (See feature phone). We offer smartphones under the Asha and Lumia product names.
Standard-essential patents: Generally, patents needed to produce products which work on a standard, which companies declare as essential and agree to license on fair, reasonable and non-discriminatory (FRAND) terms.
Subscription: The contract between a mobile phone subscriber and the network carrier for its mobile phone services.
Symbian: A software platform which powered Nokia smartphones.
TD-LTE Time Division Long Term Evolution, also known as TDD (Time Division Duplex): An alternative standard for LTE mobile broadband networks. Time Division means that a single connection is used alternately to carry data from the base station to the mobile device (‘downlink’) and then from the mobile device to the base station (‘uplink’).
TD-SCDMA (time division synchronous code division multiple access): An alternative 3G standard.
Technologies: A Nokia business focused on advanced technology development and licensing,
Technology licensing: Generally refers to an agreement or arrangement where a company provides under certain terms another company its technology and possibly know-how, whether protected by intellectual property or not, for use in products or services offered by the other company.
Transmission: The action of conveying signals from one point to one or more other points.
VDSL (very high bit rate digital subscriber line): A form of digital subscriber line similar to asymmetric digital subscriber line (ADSL) but providing higher speeds at reduced lengths.
VoIP (Voice over Internet Protocol): Use of the Internet protocol to carry and route two-way voice communications.
VoLTE (Voice over LTE) required to offer voice services on an all-IP LTE network and generally provided using IMS.
WCDMA (Wideband Code Division Multiple Access): A third-generation mobile wireless technology that offers high data speeds to mobile and portable wireless devices.
Wi-Fi: A technology enabling an electronic device to transfer data wirelessly over a network, including high-speed Internet connections.
Windows 8: A version of the Microsoft Windows operating system, developed by Microsoft. Windows 8 shares many of the same core technologies as Windows Phone 8, the latest version of the software platform designed for smartphones.
Windows Phone: A software platform developed by Microsoft that Nokia deployed as its principal smartphone operating system. As a result of the acquisition whereby Nokia sold substantially all of its Devices & Services business to Microsoft, Nokia has exited the mobile devices market.
WiMAX (Worldwide Interoperability for Microwave Access): A technology of wireless networks that operates according to the 802.16 standard of the Institute of Electrical and Electronics Engineers (IEEE).
WLAN (wireless local area network): A local area network using wireless connections, such as radio, microwave or infrared links, in place of physical cables.
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Nokia Corporation
In our opinion, the accompanying consolidated statements of financial position and the related consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows present fairly, in all material respects, the financial position of Nokia Corporation and its subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and in conformity with IFRS as adopted by the European Union. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Annual Report on Internal Control Over Financial Reporting” appearing under Item 15. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers Oy
Helsinki, Finland
April 30, 2014
F-1
Table of Contents
Nokia Corporation and Subsidiaries
Consolidated Income Statements
| Financial year ended December 31 |
||||||||||||||||
| Notes | 2013 | 2012(1) | 2011(1) | |||||||||||||
| EURm | EURm | EURm | ||||||||||||||
| Continuing operations |
||||||||||||||||
| Net sales |
12 709 | 15 400 | 15 968 | |||||||||||||
| Cost of sales |
(7 364 | ) | (9 841 | ) | (10 408 | ) | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Gross profit |
5 345 | 5 559 | 5 560 | |||||||||||||
| Research and development expenses |
(2 619 | ) | (3 081 | ) | (3 334 | ) | ||||||||||
| Selling and marketing expenses |
(974 | ) | (1 372 | ) | (1 608 | ) | ||||||||||
| Administrative and general expenses |
(697 | ) | (690 | ) | (735 | ) | ||||||||||
| Impairment of goodwill |
9 | — | — | (1 090 | ) | |||||||||||
| Other income |
8 | 272 | 276 | 151 | ||||||||||||
| Other expenses |
8, 9 | (808 | ) | (1 513 | ) | (332 | ) | |||||||||
|
|
|
|
|
|
|
|||||||||||
| Operating profit (loss) |
2-11, 25 | 519 | (821 | ) | (1 388 | ) | ||||||||||
| Share of results of associated companies |
16, 32 | 4 | (1 | ) | (23 | ) | ||||||||||
| Financial income and expenses |
9, 12 | (280 | ) | (357 | ) | (131 | ) | |||||||||
|
|
|
|
|
|
|
|||||||||||
| Profit (loss) before tax |
243 | (1 179 | ) | (1 542 | ) | |||||||||||
| Income tax |
13 | (202 | ) | (304 | ) | (73 | ) | |||||||||
|
|
|
|
|
|
|
|||||||||||
| Profit (loss) from continuing operations |
41 | (1 483 | ) | (1 615 | ) | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Profit (loss) from continuing operations attributable to equity holders of the parent |
186 | (771 | ) | (1 272 | ) | |||||||||||
| Loss from continuing operations attributable to non-controlling interests |
(145 | ) | (712 | ) | (343 | ) | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| 41 | (1 483 | ) | (1 615 | ) | ||||||||||||
|
|
|
|
|
|
|
|||||||||||
| (Loss) profit from discontinued operations |
3 | (780 | ) | (2 303 | ) | 128 | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| (Loss) profit from discontinued operations attributable to equity holders of the parent |
(801 | ) | (2 334 | ) | 109 | |||||||||||
| Profit from discontinued operations attributable to non-controlling interests |
21 | 31 | 19 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| (780 | ) | (2 303 | ) | 128 | ||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Loss for the year |
(739 | ) | (3 786 | ) | (1 487 | ) | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Loss attributable to equity holders of the parent |
(615 | ) | (3 105 | ) | (1 163 | ) | ||||||||||
| Loss attributable to non-controlling interests |
(124 | ) | (681 | ) | (324 | ) | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| (739 | ) | (3 786 | ) | (1 487 | ) | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| 2013 | 2012 | 2011 | ||||||||||||||
| EUR | EUR | EUR | ||||||||||||||
| Earnings per share from continuing and discontinued operations (for profit (loss) attributable to the equity holders of the parent) |
29 | |||||||||||||||
| Basic earnings per share |
||||||||||||||||
| From continuing operations |
0.05 | (0.21 | ) | (0.34 | ) | |||||||||||
| From discontinued operations |
(0.22 | ) | (0.63 | ) | 0.03 | |||||||||||
| From the profit of the year |
(0.17 | ) | (0.84 | ) | (0.31 | ) | ||||||||||
| Diluted earnings per share |
||||||||||||||||
| From continuing operations |
0.05 | (0.21 | ) | (0.34 | ) | |||||||||||
| From discontinued operations |
(0.22 | ) | (0.63 | ) | 0.03 | |||||||||||
| From the profit of the year |
(0.17 | ) | (0.84 | ) | (0.31 | ) | ||||||||||
| 2013 | 2012 | 2011 | ||||||||||||||
| Average number of shares (000’s shares) |
29 | |||||||||||||||
| Basic |
||||||||||||||||
| From continuing operations |
3 712 079 | 3 710 845 | 3 709 947 | |||||||||||||
| From discontinued operations |
3 712 079 | 3 710 845 | 3 709 947 | |||||||||||||
| From the profit of the year |
3 712 079 | 3 710 845 | 3 709 947 | |||||||||||||
| Diluted |
||||||||||||||||
| From continuing operations |
3 733 364 | 3 710 845 | 3 709 947 | |||||||||||||
| From discontinued operations |
3 712 079 | 3 710 845 | 3 717 034 | |||||||||||||
| From the profit of the year |
3 712 079 | 3 710 845 | 3 709 947 | |||||||||||||
| (1) | Full years 2012 and 2011 reflect the retrospective application of Revised IAS 19 Employee Benefits. |
See Notes to Consolidated Financial Statements.
F-2
Table of Contents
Nokia Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
| Financial year ended December 31 | ||||||||||||||||
| Notes | 2013 | 2012(1) | 2011(1) | |||||||||||||
| EURm | EURm | EURm | ||||||||||||||
| Loss |
(739 | ) | (3 786 | ) | (1 487 | ) | ||||||||||
| Other comprehensive income (expense) |
||||||||||||||||
| Items that will not be reclassified to profit or loss |
||||||||||||||||
| Remeasurements on defined benefit pensions |
6 | 83 | (228 | ) | (36 | ) | ||||||||||
| Items that may be reclassified subsequently to profit or loss |
||||||||||||||||
| Translation differences |
23 | (496 | ) | 41 | 9 | |||||||||||
| Net investment hedges |
23 | 114 | (58 | ) | (37 | ) | ||||||||||
| Cash flow hedges |
22 | 3 | (41 | ) | 116 | |||||||||||
| Available-for-sale investments |
22 | 49 | 35 | 70 | ||||||||||||
| Other increase (decrease), net |
5 | 10 | (17 | ) | ||||||||||||
| Income tax related to components of other comprehensive (expense) income |
|
22, 23 |
|
(2 | ) | 34 | (4 | ) | ||||||||
|
|
|
|
|
|
|
|||||||||||
| Other comprehensive (expense) income, net of tax |
(244 | ) | (207 | ) | 101 | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total comprehensive expense |
(983 | ) | (3 993 | ) | (1 386 | ) | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total comprehensive expense attributable to |
||||||||||||||||
| equity holders of the parent |
(863 | ) | (3 281 | ) | (1 089 | ) | ||||||||||
| non-controlling interests |
(120 | ) | (712 | ) | (297 | ) | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| (983 | ) | (3 993 | ) | (1 386 | ) | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total comprehensive income (expense) attributable to equity holders of the parent arises from: |
||||||||||||||||
| Continuing operations |
34 | (831 | ) | (1 200 | ) | |||||||||||
| Discontinued operations |
(897 | ) | (2 450 | ) | 111 | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| (863 | ) | (3 281 | ) | (1 089 | ) | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| (1) | Full years 2012 and 2011 reflect the retrospective application of Revised IAS 19 Employee Benefits. |
See Notes to Consolidated Financial Statements.
F-3
Table of Contents
Nokia Corporation and Subsidiaries
Consolidated Statements of Financial Position
| December 31 | ||||||||||||
| Notes | 2013 | 2012(1) | ||||||||||
| EURm | EURm | |||||||||||
| ASSETS |
||||||||||||
| Non-current assets |
||||||||||||
| Goodwill |
14 | 3 295 | 4 876 | |||||||||
| Other intangible assets |
14 | 296 | 647 | |||||||||
| Property, plant and equipment |
15 | 566 | 1 431 | |||||||||
| Investments in associated companies |
16 | 65 | 58 | |||||||||
| Available-for-sale investments |
17 | 741 | 689 | |||||||||
| Deferred tax assets |
26 | 890 | 1 279 | |||||||||
| Long-term loans receivable |
17, 35 | 96 | 125 | |||||||||
| Other non-current assets |
99 | 218 | ||||||||||
|
|
|
|
|
|||||||||
| 6 048 | 9 323 | |||||||||||
| Current assets |
||||||||||||
| Inventories |
19, 21 | 804 | 1 538 | |||||||||
| Accounts receivable, net of allowances for doubtful accounts (2013: EUR 124 million, 2012: EUR 248 million) |
17, 21, 35 | 2 901 | 5 551 | |||||||||
| Prepaid expenses and accrued income |
20 | 660 | 2 682 | |||||||||
| Current income tax assets |
146 | 495 | ||||||||||
| Current portion of long-term loans receivable |
17, 35 | 29 | 35 | |||||||||
| Other financial assets |
17, 18, 35 | 285 | 451 | |||||||||
| Investments at fair value through profit and loss, liquid assets |
17, 35 | 382 | 415 | |||||||||
| Available-for-sale investments, liquid assets |
17, 35 | 956 | 542 | |||||||||
| Available-for-sale investments, cash equivalents |
17, 35 | 3 957 | 5 448 | |||||||||
| Bank and cash |
35 | 3 676 | 3 504 | |||||||||
|
|
|
|
|
|||||||||
| 13 796 | 20 661 | |||||||||||
| Assets held for sale |
15, 17 | 89 | — | |||||||||
| Assets of disposal groups classified as held for sale |
3 | 5 258 | — | |||||||||
| Total assets |
25 191 | 29 984 | ||||||||||
|
|
|
|
|
|||||||||
| Notes | ||||||||||||
| SHAREHOLDERS’ EQUITY AND LIABILITIES |
||||||||||||
| Capital and reserves attributable to equity holders of the parent |
||||||||||||
| Share capital |
24 | 246 | 246 | |||||||||
| Share issue premium |
615 | 446 | ||||||||||
| Treasury shares, at cost |
(603 | ) | (629 | ) | ||||||||
| Translation differences |
23 | 434 | 746 | |||||||||
| Fair value and other reserves |
22 | 80 | (5 | ) | ||||||||
| Reserve for invested non-restricted equity |
3 115 | 3 136 | ||||||||||
| Retained earnings |
2 581 | 3 997 | ||||||||||
|
|
|
|
|
|||||||||
| 6 468 | 7 937 | |||||||||||
| Non-controlling interests |
192 | 1 302 | ||||||||||
|
|
|
|
|
|||||||||
| Total equity |
6 660 | 9 239 | ||||||||||
| Non-current liabilities |
||||||||||||
| Long-term interest-bearing liabilities |
17, 35 | 3 286 | 5 087 | |||||||||
| Deferred tax liabilities |
26 | 195 | 701 | |||||||||
| Other long-term liabilities |
630 | 997 | ||||||||||
| Provisions |
28 | 242 | 304 | |||||||||
|
|
|
|
|
|||||||||
| 4 353 | 7 089 | |||||||||||
| Current liabilities |
||||||||||||
| Current portion of long-term loans |
17, 35 | 3 192 | 201 | |||||||||
| Short-term borrowings |
17, 35 | 184 | 261 | |||||||||
| Other financial liabilities |
17, 18, 35 | 35 | 90 | |||||||||
| Current income tax liabilities |
13 | 484 | 499 | |||||||||
| Accounts payable |
17, 35 | 1 842 | 4 394 | |||||||||
| Accrued expenses and other liabilities |
27 | 3 033 | 6 223 | |||||||||
| Provisions |
28 | 680 | 1 988 | |||||||||
|
|
|
|
|
|||||||||
| 9 450 | 13 656 | |||||||||||
| Liabilities of disposal groups classified as held for sale |
3 | 4 728 | — | |||||||||
| Total shareholders’ equity and liabilities |
25 191 | 29 984 | ||||||||||
|
|
|
|
|
|||||||||
| (1) | December 31, 2012 reflects the retrospective application of Revised IAS 19 Employee Benefits. |
See Notes to Consolidated Financial Statements.
F-4
Table of Contents
Nokia Corporation and Subsidiaries
Consolidated Statements of Cash Flows
| Financial year ended December 31 | ||||||||||||||||
| Notes | 2013 | 2012(1) | 2011(1) | |||||||||||||
| EURm | EURm | EURm | ||||||||||||||
| Cash flow from operating activities |
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| Loss attributable to equity holders of the parent |
(615 | ) | (3 105 | ) | (1 163 | ) | ||||||||||
| Adjustments, total |
33 | 1 789 | 3 841 | 3 488 | ||||||||||||
| Change in net working capital |
33 | (945 | ) | 119 | (641 | ) | ||||||||||
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| Cash generated from operations |
229 | 855 | 1 684 | |||||||||||||
| Interest received |
92 | 130 | 190 | |||||||||||||
| Interest paid |
(208 | ) | (277 | ) | (283 | ) | ||||||||||
| Other financial income and expenses, net |
345 | (584 | ) | 264 | ||||||||||||
| Income taxes paid, net |
(386 | ) | (478 | ) | (718 | ) | ||||||||||
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| Net cash from / used in operating activities |
72 | (354 | ) | 1 137 | ||||||||||||
| Cash flow from investing activities |
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| Acquisition of businesses, net of acquired cash |
— | 13 | (817 | ) | ||||||||||||
| Purchase of current available-for-sale investments, liquid assets |
(1 021 | ) | (1 668 | ) | (3 676 | ) | ||||||||||
| Purchase of investments at fair value through profit and loss, liquid assets |
— | (40 | ) | (607 | ) | |||||||||||
| Purchase of non-current available-for-sale investments |
(53 | ) | (55 | ) | (111 | ) | ||||||||||
| Purchase of shares in associated companies |
(8 | ) | (1 | ) | (2 | ) | ||||||||||
| Payment of other long-term receivables |
(1 | ) | — | (14 | ) | |||||||||||
| Proceeds from (payment of) short-term loans receivable |
4 | 24 | (31 | ) | ||||||||||||
| Capital expenditures |
(407 | ) | (461 | ) | (597 | ) | ||||||||||
| Proceeds from disposal of businesses, net of disposed cash |
(63 | ) | (15 | ) | (2 | ) | ||||||||||
| Proceeds from disposal of shares in associated companies |
— | 5 | 4 | |||||||||||||
| Proceeds from maturities and sale of current available-for-sale investments, liquid assets |
586 | 2 355 | 6 090 | |||||||||||||
| Proceeds from maturities and sale of investments at fair value through profit and loss, liquid assets |
— | 86 | 1 156 | |||||||||||||
| Proceeds from sale of non-current available-for-sale investments |
129 | 37 | 57 | |||||||||||||
| Proceeds from sale of fixed assets |
138 | 279 | 48 | |||||||||||||
| Dividends received |
5 | 3 | 1 | |||||||||||||
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| Net cash used in / from investing activities |
(691 | ) | 562 | 1 499 | ||||||||||||
| Cash flow from financing activities |
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| Other contributions from shareholders |
— | — | 546 | |||||||||||||
| Purchase of a subsidiary’s equity instruments |
(1 707 | ) | — | — | ||||||||||||
| Proceeds from long-term borrowings |
2 291 | 752 | 1 | |||||||||||||
| Repayment of long-term borrowings |
(862 | ) | (266 | ) | (51 | ) | ||||||||||
| Repayment of short-term borrowings |
(128 | ) | (196 | ) | (59 | ) | ||||||||||
| Dividends paid |
(71 | ) | (755 | ) | (1 536 | ) | ||||||||||
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| Net cash used in financing activities |
(477 | ) | (465 | ) | (1 099 | ) | ||||||||||
| Foreign exchange adjustment |
(223 | ) | (27 | ) | 107 | |||||||||||
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| Net increase (decrease) in cash and cash equivalents |
(1 319 | ) | (284 | ) | 1 644 | |||||||||||
| Cash and cash equivalents at beginning of period |
8 952 | 9 236 | 7 592 | |||||||||||||
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| Cash and cash equivalents at end of period |
7 633 | 8 952 | 9 236 | |||||||||||||
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F-5
Table of Contents
Nokia Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
| December 31 | ||||||||||||||||
| Notes | 2013 | 2012 | 2011 | |||||||||||||
| EURm | EURm | EURm | ||||||||||||||
| Cash and cash equivalents comprise of: |
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| Bank and cash |
3 676 | 3 504 | 1 957 | |||||||||||||
| Current available-for-sale investments, cash equivalents |
17, 35 | 3 957 | 5 448 | 7 279 | ||||||||||||
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| 7 633 | 8 952 | 9 236 | ||||||||||||||
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The figures in the consolidated statement of cash flows combine cash flows relating to both continuing and discontinued operations. Note 3 includes information about discontinued operations cash flows.
The figures in the consolidated statement of cash flows cannot be directly traced from the consolidated statement of financial position without additional information as a result of acquisitions and disposals of subsidiaries and net foreign exchange differences arising on consolidation.
| (1) | Full years 2012 and 2011 reflect the retrospective application of Revised IAS 19 Employee Benefits. |
See Notes to Consolidated Financial Statements.
F-6
Table of Contents
Nokia Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
| Number of shares (000’s) |
Share capital |
Share issue premium |
Treasury shares |
Translation differences |
Fair value and other reserves |
Reserve for invested non-restrict. equity |
Retained earnings |
Equity holders of the parent |
Non- controlling interests |
Total | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2010 |
3 709 130 | 246 | 312 | (663 | ) | 825 | 9 | 3 161 | 10 500 | 14 390 | 1 858 | 16 248 | ||||||||||||||||||||||||||||||||
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| Remeasurement on defined benefit pensions, net of tax |
(7 | ) | (7 | ) | (17 | ) | (24 | ) | ||||||||||||||||||||||||||||||||||||
| Translation differences |
(26 | ) | (26 | ) | 35 | 9 | ||||||||||||||||||||||||||||||||||||||
| Net investment hedges, net of tax |
(28 | ) | (28 | ) | (28 | ) | ||||||||||||||||||||||||||||||||||||||
| Cash flow hedges, net of tax |
84 | 84 | 10 | 94 | ||||||||||||||||||||||||||||||||||||||||
| Available-for-sale investments, net of tax |
67 | 67 | 67 | |||||||||||||||||||||||||||||||||||||||||
| Other decrease, net |
(16 | ) | (16 | ) | (1 | ) | (17 | ) | ||||||||||||||||||||||||||||||||||||
| Profit |
(1 163 | ) | (1 163 | ) | (324 | ) | (1 487 | ) | ||||||||||||||||||||||||||||||||||||
| Total comprehensive income |
— | — | — | (54 | ) | 144 | — | (1 179 | ) | (1 089 | ) | (297 | ) | (1 386 | ) | |||||||||||||||||||||||||||||
| Share-based compensation |
18 | 18 | 18 | |||||||||||||||||||||||||||||||||||||||||
| Excess tax benefit on share-based compensation |
(3 | ) | (3 | ) | (1 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||||
| Settlement of performance and restricted shares |
1 059 | (11 | ) | 19 | (13 | ) | (5 | ) | (5 | ) | ||||||||||||||||||||||||||||||||||
| Contributions from shareholders |
46 | 46 | 500 | 546 | ||||||||||||||||||||||||||||||||||||||||
| Dividend |
(1 484 | ) | (1 484 | ) | (39 | ) | (1 523 | ) | ||||||||||||||||||||||||||||||||||||
| Acquisitions and other change in non-controlling interests |
— | 15 | 15 | |||||||||||||||||||||||||||||||||||||||||
| Total of other equity movements |
— | 50 | 19 | — | — | (13 | ) | (1 484 | ) | (1 428 | ) | 475 | (953 | ) | ||||||||||||||||||||||||||||||
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| Balance at December 31, 2011 |
3 710 189 | 246 | 362 | (644 | ) | 771 | 153 | 3 148 | 7 837 | 11 873 | 2 036 | 13 909 | ||||||||||||||||||||||||||||||||
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| Remeasurement on defined benefit pensions, net of tax |
(127 | ) | (127 | ) | (79 | ) | (206 | ) | ||||||||||||||||||||||||||||||||||||
| Translation differences |
42 | 42 | (2 | ) | 40 | |||||||||||||||||||||||||||||||||||||||
| Net investment hedges, net of tax |
(67 | ) | (67 | ) | (67 | ) | ||||||||||||||||||||||||||||||||||||||
| Cash flow hedges, net of tax |
(67 | ) | (67 | ) | 47 | (20 | ) | |||||||||||||||||||||||||||||||||||||
| Available-for-sale investments, net of tax |
36 | 36 | 36 | |||||||||||||||||||||||||||||||||||||||||
| Other increase, net |
7 | 7 | 3 | 10 | ||||||||||||||||||||||||||||||||||||||||
| Loss |
(3 105 | ) | (3 105 | ) | (681 | ) | (3 786 | ) | ||||||||||||||||||||||||||||||||||||
| Total comprehensive income |
— | — | — | (25 | ) | (158 | ) | — | (3 098 | ) | (3 281 | ) | (712 | ) | (3 993 | ) | ||||||||||||||||||||||||||||
| Share-based compensation |
1 | 1 | 1 | |||||||||||||||||||||||||||||||||||||||||
| Excess tax benefit on share-based compensation |
3 | 3 | 3 | |||||||||||||||||||||||||||||||||||||||||
| Settlement of performance and restricted shares |
796 | (5 | ) | 15 | (12 | ) | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||
| Dividend |
(742 | ) | (742 | ) | (22 | ) | (764 | ) | ||||||||||||||||||||||||||||||||||||
| Convertible bond—equity component |
85 | 85 | 85 | |||||||||||||||||||||||||||||||||||||||||
| Total of other equity movements |
— | 84 | 15 | — | — | (12 | ) | (742 | ) | (655 | ) | (22 | ) | (677 | ) | |||||||||||||||||||||||||||||
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F-7
Table of Contents
Nokia Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity (Continued)
| Number of shares (000’s) |
Share capital |
Share issue premium |
Treasury shares |
Translation differences |
Fair value and other reserves |
Reserve for invested non-restrict. equity |
Retained earnings |
Equity holders of the parent |
Non- controlling interests |
Total | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2012 |
3 710 985 | 246 | 446 | (629 | ) | 746 | (5 | ) | 3 136 | 3 997 | 7 937 | 1 302 | 9 239 | |||||||||||||||||||||||||||||||
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| Remeasurement on defined benefit pensions, net of tax |
55 | 55 | 25 | 80 | ||||||||||||||||||||||||||||||||||||||||
| Translation differences |
(468 | ) | (468 | ) | (28 | ) | (496 | ) | ||||||||||||||||||||||||||||||||||||
| Net investment hedges, net of tax |
114 | 114 | 114 | |||||||||||||||||||||||||||||||||||||||||
| Cash flow hedges, net of tax |
(3 | ) | (3 | ) | 7 | 4 | ||||||||||||||||||||||||||||||||||||||
| Available-for-sale investments, net of tax |
49 | 49 | 49 | |||||||||||||||||||||||||||||||||||||||||
| Other increase, net |
5 | 5 | 5 | |||||||||||||||||||||||||||||||||||||||||
| Loss |
(615 | ) | (615 | ) | (124 | ) | (739 | ) | ||||||||||||||||||||||||||||||||||||
| Total comprehensive income |
— | — | — | (354 | ) | 101 | — | (610 | ) | (863 | ) | (120 | ) | (983 | ) | |||||||||||||||||||||||||||||
| Share-based compensation |
25 | 25 | 25 | |||||||||||||||||||||||||||||||||||||||||
| Settlement of performance and restricted shares |
1 404 | (7 | ) | 26 | (21 | ) | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||
| Dividend |
— | — | (37 | ) | (37 | ) | ||||||||||||||||||||||||||||||||||||||
| Acquisition of non-controlling interest |
(3 | ) | 42 | (16 | ) | (806 | ) | (783 | ) | (924 | ) | (1 707 | ) | |||||||||||||||||||||||||||||||
| Other change in non-controlling interest |
— | (29 | ) | (29 | ) | |||||||||||||||||||||||||||||||||||||||
| Convertible bond—equity component |
154 | 154 | 154 | |||||||||||||||||||||||||||||||||||||||||
| Convertible bond—conversion to equity |
38 | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Total of other equity movements |
— | 169 | 26 | 42 | (16 | ) | (21 | ) | (806 | ) | (606 | ) | (990 | ) | (1 596 | ) | ||||||||||||||||||||||||||||
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| Balance at December 31, 2013 |
3 712 427 | 246 | 615 | (603 | ) | 434 | 80 | 3 115 | 2 581 | 6 468 | 192 | 6 660 | ||||||||||||||||||||||||||||||||
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Dividends declared per share were EUR 0.37 for 2013 (EUR 0.00 for 2012 and EUR 0.20 for 2011), subject to shareholders’ approval.
F-8
Table of Contents
| 1. | Accounting principles |
Basis of presentation
The consolidated financial statements of Nokia Corporation (“Nokia” or “the Group”), a Finnish public limited liability company with domicile in Helsinki, in the Republic of Finland, are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”) and in conformity with IFRS as adopted by the European Union (“IFRS”). The consolidated financial statements are presented in millions of euros (“EURm”), except as noted, and are prepared under the historical cost convention, except as disclosed in the accounting policies below. The notes to the consolidated financial statements also conform to Finnish accounting legislation. Nokia’s Board of Directors authorized the financial statements for 2013 for issuance and filing on April 30, 2014.
In the prior year, the Group’s operational structure featured three businesses: Devices & Services, HERE and Nokia Siemens Networks, also referred to as NSN. For financial reporting purposes, the Group previously reported four operating segments: Smart Devices and Mobile Phones within the Devices & Services business, HERE and NSN.
On August 7, 2013 Nokia completed the acquisition of Siemens’ stake in Nokia Siemens Networks, which was previously a consolidated subsidiary and business owned by Nokia and Siemens. Upon acquisition, the name of the business was changed to Nokia Solutions and Networks, also referred to as NSN. As a result of the acquisition, NSN is now a wholly owned subsidiary of Nokia and Nokia reports two operating segments within the NSN business: Mobile Broadband and Global Services.
On September 3, 2013 Nokia announced that it had signed an agreement to enter into a transaction whereby Nokia sold substantially all of its Devices & Services business to Microsoft (“Sale of the D&S Business”). Upon receiving shareholder confirmation and approval of the transaction at Nokia’s Extraordinary General Meeting in November 2013, substantially all of the Devices & Services business was determined to constitute discontinued operations. The financial results for the discontinued operations are now reported separately in accordance with IFRS 5 along with the luxury phone business Vertu which was disposed of in the last quarter of 2012. The Sale of D&S business was completed on April 25, 2014.
In connection with the transactions noted above, the Group considered how operating results are reported and reviewed by management and the Group’s Chief Operating Decision Maker, and identified four operating and reportable segments: Mobile Broadband and Global Services within NSN, HERE and Advanced Technologies.
The HERE brand was introduced for our location and mapping service in 2012, and as of January 1, 2013 our former Location & Commerce business and reportable segment was renamed HERE.
As announced by Nokia on April 29, 2014, Nokia has made certain changes to the names of its businesses and reportable segments. However, when presenting financial information as at December 31, 2013 and related comparative information for previous periods, we generally refer to the names of the businesses and reportable segments as they were named at December 31, 2013. However, the terms “Networks” and “Nokia Solutions and Networks, or “NSN”, as well as “Technologies” and “Advanced Technologies” can be used interchangeably in this annual report.
The consolidated statements of financial position and certain notes to the financial statements include changes in presentation format. To allow meaningful comparison between years, comparative information has been aligned with current presentation format.
F-9
Table of Contents
Adoption of pronouncements under IFRS
In the current year, the Group has adopted all of the new and revised standards, amendments and interpretations to existing standards issued by the IASB that are relevant to its operations and effective for accounting periods commencing on or after January 1, 2013.
IFRS 10 Consolidated Financial Statements establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.
IFRS 11 Joint Arrangements establishes that the legal form of an arrangement should not be the primary factor in the determination of the appropriate accounting for the arrangement. A party to a joint arrangement determines the type of joint arrangement in which it is involved by assessing its rights and obligations and accounts for those rights and obligations in accordance with that type of joint arrangement.
IFRS 12 Disclosure of Interests in Other Entities requires disclosure of information that enables users of financial statements to evaluate nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows.
IFRS 13 Fair Value Measurement replaces fair value measurement guidance contained within individual IFRSs with a single, unified definition of fair value in a single new IFRS standard. The new standard provides a framework for measuring fair value, related disclosure requirements about fair value measurements and further authoritative guidance on the application of fair value measurement in inactive markets.
The adoption of each of the above mentioned standards did not have a material impact to the consolidated financial statements. Additional disclosures required by the new standards have been provided in the notes.
Revised IAS 19 Employee Benefits discontinues use of the ‘corridor’ approach and re-measurement impacts are recognized in other comprehensive income. Net interest as a product of discount rate and adjusted net pension liability at the start of the annual reporting period is recognized in the consolidated income statements while the return on plan assets, excluding amounts included in net interest, is reflected in remeasurements within other comprehensive income. Previously unrecognized actuarial gains and losses are also recognized in other comprehensive income. Other long-term employee benefits are required to be measured in the same way even though changes in the recognized amounts are fully reflected in profit or loss. Treatment for termination benefits, specifically the point in time when an entity would recognize a liability for termination benefits, is also revised.
As a result of adopting the revised IAS 19, the net pension liabilities and other comprehensive income were impacted mainly by the retrospectively applied elimination of the ‘corridor’ approach for 2012 and 2011. In total, for 2012, net pension liabilities increased by EUR 232 million (EUR 9 million for 2011) and other comprehensive income decreased by EUR 206 million (EUR 24 million in 2011), net of tax.
In addition, a number of other amendments that form part of the IASB’s annual improvement project were adopted by the Group. The adoption of these amendments did not have a material impact to the consolidated financial statements.
Principles of consolidation
The consolidated financial statements include the accounts of Nokia’s parent company (“Parent Company”), and each of those companies over which the Group exercises control. The Group controls an entity when the Group is exposed to, or has right to, variable returns from its involvement with the
F-10
Table of Contents
entity and has the ability to affect those returns through its power over the entity. The Group’s share of profits and losses of associates is included in the consolidated income statement in accordance with the equity method of accounting. An associate is an entity over which the Group exercises significant influence. Significant influence is generally presumed to exist when the Group owns, directly or indirectly through subsidiaries, over 20% of the voting rights of the company.
All inter-company transactions are eliminated as part of the consolidation process. Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. In the consolidated statement of financial position, non-controlling interests are presented within equity, separately from the equity of the owners of the parent.
The entities or businesses 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 results of a Group entity or business divested during an accounting period is included in the Group accounts only to the date of disposal.
Business Combinations
The acquisition method of accounting is used to account for acquisitions of separate entities or businesses by the Group. The consideration transferred in a business combination is measured as the aggregate of the fair values of the assets transferred, liabilities incurred towards the former owners of the acquired business and equity instruments issued. Acquisition-related costs are recognized as expense in profit and loss in the periods when the costs are incurred and the related services are received. Identifiable assets acquired and liabilities assumed by the Group are measured separately at their fair value as of the acquisition date. Non-controlling interests in the acquired business are measured separately based on their proportionate share of the identifiable net assets of the acquired business. The excess of the cost of the acquisition over the interest in the fair value of the identifiable net assets acquired and attributable to the owners of the parent, is recorded as goodwill.
Assessment of the recoverability of long-lived assets, intangible assets and goodwill
For the purposes of impairment testing, goodwill is allocated to cash-generating units that are expected to benefit from the synergies of the acquisition in which the goodwill arose.
The Group assesses the carrying amount of goodwill annually or more frequently if events or changes in circumstances indicate that such carrying amount may not be recoverable. The Group assesses the carrying amount of identifiable intangible assets and long-lived assets if events or changes in circumstances indicate that such carrying amount may not be recoverable. Factors that could trigger an impairment review include significant underperformance relative to historical or projected future results, significant changes in the manner of the use of the acquired assets or the strategy for the overall business and significant negative industry or economic trends.
The Group conducts its impairment testing by determining the recoverable amount for the asset or cash-generating unit. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs of disposal or its value in use. If there is no reason to believe that the cash-generating unit’s value in use materially exceeds its fair value less costs of disposal, the Group may use fair value less costs of disposal as its recoverable amount.
A cash-generating unit, as determined for the purposes of the Group’s goodwill impairment testing, is the smallest group of assets (including goodwill) generating cash inflows that are largely independent of the cash inflows from other assets or groups of assets. In testing a cash-generating unit for impairment, the Group identifies all corporate assets that relate to the cash-generating unit under review and those assets are allocated, on a reasonable and consistent basis, to the relevant units. The
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aggregate total carrying amount of the unit, including the portion of the carrying amount of the corporate assets allocated to the unit, is compared with its recoverable amount. An impairment loss is recognized if the recoverable amount is less than the carrying amount. Impairment losses are recognized immediately in the income statement.
Disposals of separate entities or businesses
When a disposal transaction causes the Group to relinquish control over a separate entity or business, the Group records a gain or loss on disposal at the disposal date. The gain or loss on disposal is calculated as the difference between the fair value of the consideration received and the carrying amounts of derecognized net assets attributable to the equity holders of the parent and non-controlling interests of the disposed entity or business, adjusted by amounts previously recognized in other comprehensive income in relation to that entity or business.
Discontinued operations and assets held for disposal
Discontinued operations are reported when a component of an entity comprising operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity is classified as held for disposal or has been disposed of, if the component either (1) represents a major line of business or geographical area of operations or (2) is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations. In the consolidated income statement, results from discontinued operations is reported separately from income and expenses from continuing operations and prior periods are presented on a comparative basis. Cash flows for discontinued operations are presented separately in Note 3. In order to present the financial effects of the continuing operations and discontinued operations, revenues and expenses arising from intra-group transactions are eliminated except for those revenues and expenses that are considered to continue after the disposal of the discontinued operations.
Non-current assets or disposal groups are classified as assets held for sale when the carrying amount is to be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset or disposal group must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets or disposal groups and the sale must be highly probable. Non-current assets classified as held for sale and disposal groups are measured at the lower of their carrying amount or fair value less costs to sell.
Foreign currency translation
Functional and presentation currency
The financial statements of all Group companies are measured using functional currency, which is the currency of the primary economic environment in which each of the companies operate. The consolidated financial statements are presented in euro, which is the functional and presentation currency of the Parent Company.
Transactions in foreign currencies
Transactions in foreign currencies are recorded at the rates of exchange prevailing at the dates of the individual transactions. For practical reasons, a rate that approximates the actual rate at the date of the transaction is often used. At the end of the accounting period, the unsettled balances on foreign currency monetary assets and liabilities are valued at the rates of exchange prevailing at the end of the accounting period. Foreign exchange gains and losses arising from statement of financial position items are reported in financial income and expenses. Unrealized foreign exchange gains and losses related to non-current available-for-sale investments are recognized in other comprehensive income.
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Table of Contents
Foreign Group companies
In the consolidated accounts, all income and expenses of foreign Group companies, where the functional currency is other than euro, are translated into euro at the average monthly foreign exchange rates. All assets and liabilities of foreign Group companies are translated into euro at the year-end foreign exchange rates. Differences resulting from the translation of income and expenses at the average rate and assets and liabilities at the closing rate are recognized in other comprehensive income as translation differences within consolidated shareholder’s 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 differences is recognized as income or as expense when the gain or loss on disposal is recognized.
Revenue recognition
Revenues within the Group are generally recognized when the significant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. When management determines that such criteria have been met, revenue is recognized.
NSN enters into transactions which involve multiple components consisting of any combination of hardware, services and software. Within these arrangements, separate components are identified and accounted for based on the nature and fair value of those components and considering the economic substance of the entire arrangement. Revenue is allocated to each separately identifiable component based on the relative fair value of each component. The fair value of each component is determined by taking into consideration factors such as the price of the component when sold separately and the component cost plus a reasonable margin when price references are not available. This determination of the fair value and allocation thereof to each separately identifiable component of a transaction requires the use of estimates and judgment which may have a significant impact on the timing and amount of revenue recognized for the period. Service revenue, which typically includes managed services and maintenance services, is generally recognized on a straight-line basis over the specified period unless there is evidence that some other method better represents the rendering of services.
Also at NSN, certain revenue is recognized from contracts involving solutions achieved through modification of complex telecommunications equipment on a percentage of completion basis when the outcome of the contract can be estimated reliably. Recognized revenues and profit estimates are subject to revisions during the project in the event that the assumptions regarding the overall project outcome are revised. Current sales and profit estimates for projects may materially change due to the early stage of a long-term project, new technology, changes in the project scope, changes in costs, changes in timing, changes in customers’ plans, realization of penalties, and other corresponding factors.
Within the HERE business, a substantial majority of revenue is derived from the licensing of the HERE database. Revenue which consists of license fees from usage (including license fees in excess of the nonrefundable minimum fees), are recognized in the period in which the license fees are estimable. Nonrefundable minimum annual licensing fees are generally received upfront and represent a minimum guarantee of fees to be received from the licensee during the period of the arrangement. The total up-front fee paid by the customer is generally amortized ratably over the term of the arrangement. When it is determined that the actual amount of licensing fees earned exceeds the cumulative revenue recognized under the amortization method, we recognize the additional licensing revenue. Furthermore, within the HERE business, some licensing arrangements contain multiple elements, that
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could include data, software, services and updates. Revenue is allocated to each element based on its relative fair value and is recognized as the element is delivered and the obligation is fulfilled.
Advanced Technologies’ patent license agreements are multi-year arrangements usually covering both a licensee’s past and future sales until a certain agreed date, when the license expires. When a patent license agreement is signed, it typically includes an agreement or settlement on past royalties that the licensor is entitled to. Such income for past periods is recognized immediately. The license payments relating to the future royalties are recognized over the remaining contract period, typically 5 to 10 years. Licensees often pay a fixed license fee in one or more installments and running royalties based on their sales of licensed products. Licensees generally report and pay their running royalties on a quarterly basis after the end of each quarter and Nokia revenue recognition takes place accordingly at the time the royalty reports are received.
Within Devices & Services business reported as discontinued operations, a sale of devices can include multiple components consisting of a combination of hardware, services and software. The commercial effect of each separately identifiable element of the transaction is evaluated in order to determine the appropriate accounting treatment for each component of the transaction. The total amount received is allocated to individual components based on their estimated fair value. Fair value of each component is determined by taking into consideration factors such as the price when the component is sold separately, the price when a similar component is sold separately by a third party and cost plus a reasonable margin when pricing references are not available. The estimated fair values are allocated first to software and services, and the residual amount allocated to hardware. Application of the recognition criteria described above generally results in recognition of hardware related revenue at the time of delivery with software and services related revenue recognized on a straight-line basis over their respective terms.
Also within the Devices & Services business, estimated reductions to revenue are recorded for special pricing agreements, and other volume based discounts at the time of sale. Sales adjustments for volume based discount programs are estimated largely based on historical activity under similar programs.
Shipping and handling costs
The costs of shipping and distributing products are included in cost of sales.
Research and development
Research and development costs are expensed as they are incurred as they do not meet the criteria for capitalization.
Other intangible assets
Acquired patents, trademarks, licenses, software licenses for internal use, customer relationships and developed technology are capitalized and amortized using the straight-line method over their useful lives, generally 3 to 7 years. Where an indication of impairment exists, the carrying amount of the related intangible asset is assessed for recoverability. Any resulting impairment losses are recognized immediately in the income statement.
Employee benefits
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
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to insurance companies or contributions to trustee-administered funds as determined by periodic actuarial calculations.
In a defined contribution plan, the Group has no legal or constructive obligation to make any additional contributions even if the party receiving the contributions is unable to pay the pension obligations in question. The Group’s contributions to defined contribution plans, multi-employer and insured plans are recognized in the consolidated income statement in the period which the contributions relate to.
If a pension plan is funded through an insurance contract where the Group does not retain any legal or constructive obligations, the plan is treated as a defined contribution plan. All arrangements that do not fulfill these conditions are considered defined benefit plans.
For defined benefit plans, pension costs are assessed using the projected unit credit method: Pension cost is recognized in the consolidated income statements so as to spread the current service cost over the service lives of employees. Pension obligation is measured as the present value of the estimated future cash outflows using interest rates on high quality corporate bonds with appropriate maturities. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.
Past service costs and settlement gains and losses are recognized immediately in income as part of service cost, when the plan amendment or settlement occurs. Curtailment gains and losses are accounted for as past service costs.
The liability (or asset) recognized in the consolidated statements of financial position is the pension obligation at the closing date less the fair value of plan assets including effects of asset ceilings (if any).
Remeasurement, comprising actuarial gains and losses, the effect of changes to the asset ceiling and the return on plan assets (excluding interest), are recognized immediately in the consolidated statements of financial position with the corresponding change to retained earnings recognized through other comprehensive income in the period in which they occur. Remeasurements are not reclassified to profit and loss in subsequent periods.
Actuarial valuations for the Group’s defined benefit pension plans are performed annually. In addition, actuarial valuations are performed when a curtailment or settlement of a defined benefit plan occurs.
Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
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 | |
| Light buildings and constructions |
3 – 20 years | |
| Production machinery, measuring and test equipment |
1 – 5 years | |
| Other machinery and equipment |
3 – 10 years |
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Land and water areas are not depreciated. Assets held for sale are not depreciated as they are carried at the lower of carrying value or fair value less costs to sell.
Maintenance, repairs and renewals are generally charged to expense during the financial period in which they are incurred. However, major renovations are capitalized and included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. Leasehold improvements are depreciated over the shorter of the lease term or useful life.
Gains and losses on the disposal of fixed assets are included in operating profit/loss.
Leases
The Group has entered into various operating lease contracts. The related payments are treated as rentals and recognized in the consolidated income statements on a straight-line basis over the lease terms unless another systematic approach is more representative of the pattern of the user’s benefit.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using standard cost, which approximates actual cost on a FIFO (First-in First-out) basis. Net realizable value is the amount that can be realized from the sale of the inventory in the normal course of business after allowing for the costs of realization.
In addition to the cost of materials and direct labor, an appropriate proportion of production overhead is included in the inventory values.
An allowance is recorded for excess inventory and obsolescence based on the lower of cost or net realizable value.
Fair value measurement
Many financial instruments are measured at fair value at each reporting date after initial recognition. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest by using quoted market rates, discounted cash flow analyses and other appropriate valuation models. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
| • | Level 1—Quoted (unadjusted) market prices in active markets for identical assets or liabilities |
| • | Level 2—Valuation techniques for which significant inputs other than quoted prices are directly or indirectly observable |
| • | Level 3—Valuation techniques for which significant inputs are unobservable |
The Group categorizes assets and liabilities that are measured at fair value to the appropriate level of fair value hierarchy at the end of each reporting period.
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Financial assets
The Group has classified its financial assets to the following categories: available-for-sale investments, loans and receivables, financial assets at fair value through profit or loss and bank and cash.
Available-for-sale investments
The Group invests a portion of cash needed to cover projected cash needs of its on-going operations in highly liquid, interest-bearing investments and certain equity instruments. The following investments are classified as available-for-sale based on the purpose for acquiring the investments as well as ongoing intentions: (1) Highly liquid fixed income and money-market investments that are readily convertible to known amounts of cash with maturities at acquisition of 3 months or less, which are classified in the consolidated statements of financial position as current available-for-sale investments, cash equivalents. Due to the high credit quality and short-term nature of these investments, there is an insignificant risk of changes in value. (2) Similar types of investments as in category (1), but with maturities at acquisition of longer than 3 months, are classified in the consolidated statements of financial position as current available-for-sale investments, liquid assets. (3) Investments in technology related publicly quoted equity shares, or unlisted private equity shares and unlisted funds, are classified in the consolidated statements of financial position as non-current available-for-sale investments.
Investments in publicly quoted equity shares are measured at fair value using exchange quoted bid prices. Other available-for-sale investments carried at fair value include holdings in unlisted shares where the fair value is estimated by using various factors, including, but not limited to: (1) the current market value of similar instruments, (2) prices established from a recent arm’s length financing transaction of the target companies, and (3) analysis of market prospects and operating performance of the target companies taking into consideration the public market of comparable companies in similar industry sectors. The Group uses judgment to select an appropriate valuation methodology as well as underlying assumptions based on existing market practice and conditions. Changes in these assumptions may cause the Group to recognize impairments or losses in future periods.
The remaining available-for-sale investments, which are technology related investments in private equity shares and unlisted funds for which the fair value cannot be measured reliably due to non-existence of public markets or reliable valuation methods against which to value these assets, are carried at cost less impairment.
All purchases and sales of investments are recorded on the trade date, which is the date that the Group commits to purchase or sell the asset.
The changes in fair value of available-for-sale investments are recognized in fair value and other reserves as part of shareholders’ equity, with the exception of interest calculated using the effective interest method as well as foreign exchange gains and losses on monetary assets, which are recognized directly in profit and loss. Dividends on available-for-sale equity instruments are recognized in profit and loss when the Group’s right to receive payment is established. When the investment is disposed of, the related accumulated changes in fair value are released from shareholders’ equity and recognized in profit and loss. The weighted average method is used when determining the cost basis of publicly listed equities being disposed of by the Group. The FIFO (First-in First-out) method is used to determine the cost basis of fixed income securities being disposed of by the Group.
An impairment is recorded when the carrying amount of an available-for-sale investment is greater than the estimated fair value and there is objective evidence that the asset is impaired including, but not limited to, counterparty default and other factors causing a reduction in value that can be
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considered other than temporary. The cumulative net loss relating to that investment is removed from equity and recognized in profit and loss. If, in a subsequent period, the fair value of the investment in a non-equity instrument increases and the increase can be objectively related to an event occurring after the loss was recognized, the loss is reversed, with the amount of the reversal included in profit and loss.
Investments at fair value through profit and loss, liquid assets
Certain highly liquid financial assets are designated as Investments at fair value through profit and loss, liquid assets, at inception. For these investments one of the following criteria must be met: (1) the designation eliminates or significantly reduces an inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on a different basis; or (2) the assets are part of a group of financial assets, which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.
These investments are initially recognized and subsequently remeasured at fair value. Fair value adjustments and realized gains and losses are recognized in profit and loss.
Loans receivable
Loans receivable include loans to customers and suppliers. Loans receivable are initially measured at fair value and subsequently at amortized cost less impairment using the effective interest method. Loans are subject to regular and thorough review as to their collectability and available collateral. In the event that a loan is deemed not fully recoverable, a provision is made to reflect the shortfall between the carrying amount and the present value of the expected cash flows. Loan interest is recognized in interest income. The long-term portion of loans receivable is included on the consolidated statement of financial position under long-term loans receivable and the current portion under current portion of long-term loans receivable.
Bank and cash
Bank and cash consist of cash at bank and in hand.
Accounts receivable
Accounts receivable are carried at the original amount due from customers less allowances for doubtful accounts, which is considered to be fair value. Allowances for doubtful accounts are based on a monthly review of all outstanding amounts where significant doubt about collectability exists. Monthly review includes an analysis of historical bad debt, customer concentrations, customer creditworthiness, past due amounts, current economic trends and changes in our customer payment terms. Allowance for doubtful accounts is included in other operating expenses.
Financial liabilities
Compound financial instruments
Compound financial instruments have both a financial liability and an equity component from the issuers’ perspective. The components are defined based on the terms of the financial instrument and presented and measured separately according to their substance. At initial recognition of a compound financial instrument, the financial liability component is recognized at fair value and the residual amount is allocated to the equity component. This allocation is not revised subsequently. The Group has issued convertible bonds, which are compound financial instruments, and their financial liability component is accounted for as a loan payable.
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Loans payable
Loans payable are recognized initially at fair value, net of transaction costs incurred. In subsequent periods loans payable are measured at amortized cost using the effective interest method. Transaction costs and loan interest are recognized in financial income and expenses over the life of the instrument. The long-term portion of loans payable is included on the consolidated statement of financial position under long-term interest-bearing liabilities and the current portion under current portion of long-term loans.
Accounts payable
Accounts payable are carried at the original invoiced amount, which is considered to be fair value due to the short-term nature of the Group’s accounts payable.
Derivative financial instruments
All derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss varies according to whether the derivatives are designated under and qualify for hedge accounting or not.
Generally, the cash flows of a hedge are classified as cash flows from operating activities in the consolidated statements of cash flows as the underlying hedged items relate to the Group’s operating activities. When a derivative contract is accounted for as a hedge of an identifiable position relating to financing or investing activities, the cash flows of the contract are classified in the same manner as the cash flows of the position being hedged.
Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss
Forward foreign exchange contracts are valued at the market forward exchange rates. Changes in fair value are measured by comparing these rates with the original contract forward rate. Currency options are valued at each balance sheet date by using the Garman & Kohlhagen option valuation model. Changes in the fair value on these instruments are recognized in profit and loss.
Fair values of forward rate agreements, interest rate options, futures contracts and exchange traded options are calculated based on quoted market rates at each balance sheet date. Discounted cash flow analyses are used to value interest rate and cross-currency interest rate swaps. Changes in the fair value of these contracts are recognized in profit and loss.
For derivatives not designated under hedge accounting but hedging identifiable exposures such as anticipated foreign currency denominated sales and purchases, the gains and losses are recognized in other operating income or expenses. The gains and losses on all other derivatives are recognized in financial income and expenses.
Embedded derivatives are identified and monitored by the Group. Embedded derivatives are measured at fair value at each balance sheet date with changes in the fair value recognized in profit and loss.
Hedge accounting
The Group applies hedge accounting on certain forward foreign exchange contracts, certain options or option strategies and certain interest rate derivatives. Qualifying options and option strategies have
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zero net premium or a net premium paid. For option structures the critical terms of the bought and sold options are the same and the nominal amount of the sold option component is no greater than that of the bought option.
Cash flow hedges: Hedging of forecast foreign currency denominated sales and purchases
The Group applies hedge accounting for “Qualifying hedges”. Qualifying hedges are those properly documented cash flow hedges of the foreign exchange rate risk of future forecast foreign currency denominated sales and purchases that meet the following requirements: the cash flow being hedged must be “highly probable” and must present an exposure to variations in cash flows that could ultimately affect profit or loss, and the hedge must be highly effective both prospectively and retrospectively.
For qualifying foreign exchange forwards, the change in fair value that reflects the change in spot exchange rates is deferred in fair value and other reserves to the extent that the hedge is effective. For qualifying foreign exchange options, or option strategies, the change in intrinsic value is deferred in fair value and other reserves to the extent that the hedge is effective. In all cases, the ineffective portion is recognized immediately in profit and loss. Hedging costs, expressed either as the change in fair value that reflects the change in forward exchange rates less the change in spot exchange rates for forward foreign exchange contracts, or change in the time value for options, or options strategies, are recognized in other operating income or expenses.
Accumulated changes in fair value from qualifying hedges are released from fair value and other reserves to profit and loss as adjustments to sales and cost of sales when the hedged cash flow affects profit and loss. Forecast foreign currency sales and purchases affect profit and loss at various dates up to approximately 1 year from the balance sheet date.
If the hedged cash flow is no longer expected to occur, all deferred gains or losses are released immediately to profit and loss. If the hedged cash flow ceases to be highly probable, but is still expected to occur, accumulated gains and losses remain in equity until the hedged cash flow affects profit and loss.
Cash flow hedges: Hedging of foreign currency risk of highly probable business acquisitions and other transactions
From time to time the Group hedges the cash flow variability due to foreign currency risk inherent in highly probable business acquisitions and other future transactions that result in the recognition of non-financial assets. When those non-financial assets are recognized in the consolidated statements of financial position, the gains and losses previously deferred are transferred from fair value and other reserves and included in the initial acquisition cost of the asset. The deferred amounts are ultimately recognized in profit and loss as a result of goodwill assessments in case of business acquisitions and through depreciation in case of other assets. In order to apply for hedge accounting, the forecast transactions must be highly probable and the hedges must be highly effective prospectively and retrospectively.
Cash flow hedges: Hedging of cash flow variability on variable rate liabilities
The Group applies cash flow hedge accounting for hedging cash flow variability on certain variable rate liabilities. The effective portion of the gain or loss relating to interest rate swaps hedging variable rate borrowings is deferred in fair value and other reserves. The gain or loss related to the ineffective portion is recognized immediately in profit and loss. For hedging instruments closed before the maturity date of the related liability, hedge accounting will immediately discontinue from that date onwards, with
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all the cumulative gains and losses on the hedging instruments recycled gradually to profit and loss when the hedged variable interest cash flows affect profit and loss.
Fair value hedges
The Group applies fair value hedge accounting with the objective to reduce the exposure to fluctuations in the fair value of interest-bearing liabilities due to changes in interest rates and foreign exchange rates. Changes in the fair value of derivatives designated and qualifying as fair value hedges, together with any changes in the fair value of the hedged liabilities attributable to the hedged risk, are recorded in profit and loss in financial income and expenses.
If a hedge no longer meets the criteria for hedge accounting, hedge accounting ceases and any fair value adjustments made to the carrying amount of the hedged item while the hedge was effective are amortized to profit and loss in financial income and expenses based on the effective interest method.
Hedges of net investments in foreign operations
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 are effective both prospectively and retrospectively.
For qualifying foreign exchange forwards, the change in fair value that reflects the change in spot exchange rates is deferred in translation differences within consolidated shareholder’s equity. The change in fair value that reflects the change in forward exchange rates less the change in spot exchange rates is recognized in financial income and expenses. For qualifying foreign exchange options, the change in intrinsic value is deferred in translation differences within consolidated shareholder’s equity. Changes in the time value are at all times recognized directly in profit and loss as financial income and expenses. If a foreign currency denominated loan is used as a hedge, all foreign exchange gains and losses arising from the transaction are recognized in translation differences within consolidated shareholder’s equity. In all cases, the ineffective portion is recognized immediately in profit and loss.
Accumulated changes in fair value from qualifying hedges are released from translation differences on the disposal of all or part of a foreign Group company by sale, liquidation, repayment of share capital or abandonment. The cumulative amount or proportionate share of the changes in the fair value from qualifying hedges deferred in translation differences is recognized as income or as expense when the gain or loss on disposal is recognized.
Income taxes
The income tax expense comprises current tax and deferred tax. Current taxes are based on the results of the Group companies and are calculated according to local tax rules. Taxes are recognized in the consolidated income statements, except to the extent that it relates to items recognized in other comprehensive income or directly in equity, in which case, the tax is recognized in other comprehensive income or equity, respectively.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It adjusts the amounts recorded where appropriate on the basis of amounts expected to be paid to the tax authorities. The amount of current income tax liabilities is adjusted when, despite management’s belief that tax return positions are supportable, it is more likely than not that certain tax positions will be challenged and may not be fully sustained upon review by tax authorities. The amounts recorded are based upon the estimated future settlement
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amount at each reporting date. Current income tax assets and liabilities are presented separately in the consolidated statements of financial position and amounts recorded in respect of uncertain tax positions are presented as part of current income tax liabilities.
Deferred tax assets and liabilities are determined, for all temporary differences arising between tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements using the liability method. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the tax losses, unused tax credits or deductible temporary differences can be utilized. Each reporting period deferred tax assets are assessed for realizability and when circumstances indicate it is no longer probable that deferred tax assets will be utilized, they are adjusted as necessary. Deferred tax liabilities are recognized for temporary differences that arise between the amounts initially recognized and the tax base of identifiable net assets acquired in business combinations. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill. Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
The enacted or substantively enacted tax rates as of each balance sheet date that are expected to apply in the period when the asset is realized or the liability is settled are used in the measurement of deferred tax assets and liabilities.
Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. When the Group expects a provision to be reimbursed, the reimbursement is recognized as an asset only when the reimbursement is virtually certain. The Group assesses the adequacy of its pre-existing provisions and adjusts the amounts as necessary based on actual experience and changes in facts and circumstances at each balance sheet date.
Restructuring provisions
The Group provides for the estimated cost to restructure when a detailed formal plan of restructuring has been completed, the restructuring plan has been announced by the Group and a reliable estimate of the amount can be made.
Project loss provisions
The Group provides for onerous contracts based on the lower of the expected cost of fulfilling the contract and the expected cost of terminating the contract.
Warranty provisions
The Group provides for the estimated liability to repair or replace products under warranty at the time revenue is recognized. The provision is an estimate calculated based on historical experience of the level of volumes, product mix and repair and replacement cost.
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Material liability
The Group recognizes the estimated liability for non-cancellable purchase commitments for inventory in excess of forecasted requirements at each balance sheet date.
Intellectual property rights (IPR) provisions
The Group provides for the estimated future settlements related to asserted and unasserted past alleged IPR infringements based on the probable and estimable outcome of potential infringement.
Other provisions
The Group provides for other contractual and other obligations based on the expected cost of executing any such contractual and other commitments.
Share-based compensation
The Group offers three types of global equity settled share-based compensation schemes for employees: stock options, performance shares and restricted shares.
Employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments as of the date of grant, excluding the impact of any non-market vesting conditions. Non-market vesting conditions attached to the performance shares are included in assumptions about the number of shares that the employee will ultimately receive. On a regular basis, the Group reviews the assumptions made and where necessary, revises its estimates of the number of performance shares that are expected to be settled. Share-based compensation is recognized as an expense in the income statement over the relevant service periods.
The Group has also issued certain stock options which are accounted for as cash-settled. Related employee services received, and the liability incurred, are measured at the fair value of the liability. The fair value of stock options is estimated based on the reporting date market value less the exercise price of the stock options. The fair value of the liability is remeasured at each reporting date and at the date of settlement and related change in fair value is recognized in the consolidated income statements over the relevant service periods.
Treasury shares
The Group recognizes acquired treasury shares as a reduction of equity at their acquisition cost. When cancelled, the acquisition cost of treasury shares is recognized in retained earnings.
Dividends
Dividends proposed by the Board of Directors are recorded in the consolidated financial statements when they have been approved by the shareholders at the Annual General Meeting.
Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the parent by the weighted average number of shares outstanding during the year excluding shares purchased by the Group and held as treasury shares. Diluted earnings per share is calculated by adjusting the net profit attributable to equity holders of the parent to eliminate the interest expense of the convertible bonds and by adjusting the weighted average number of the shares outstanding with the dilutive effect of stock options, performance shares and restricted shares outstanding during the year as well as the assumed conversion of the convertible bonds.
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Use of estimates and critical accounting judgments
The preparation of financial statements in conformity with IFRS requires the application of judgment by management in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. Management bases its estimates on historical experience, expected outcomes and various other assumptions that are believed to be reasonable under the circumstances. The related results form a basis for making judgments about the reported carrying values of assets and liabilities and the reported amounts of revenues and expenses that may not be readily apparent from other sources. The Group will revise material estimates if changes occur in the circumstances on which an estimate was based or as a result of new information or more experience. Actual results may differ from these estimates under different assumptions or conditions.
Set forth below are areas requiring significant judgment and estimation that may have an impact on reported results and the financial position.
Revenue recognition
The majority of the Group’s sales are recognized as revenue when the significant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Sales could materially change if management’s assessment of such criteria changes. The Group enters into transactions involving multiple components consisting of any combination of hardware, services and software. The consideration received from these transactions is allocated to each separately identifiable component. The NSN allocation method is based on relative fair value, while the allocation of revenue for multiple component arrangements within the Devices & Services business reported as discontinued operations is based on the residual value method. The consideration allocated to each component is recognized as revenue when the revenue recognition criteria for that component have been met. Determination of the fair value for each component requires the use of estimates and judgment taking into consideration factors which may have a significant impact on the timing and amount of revenue recognition. Examples of such factors include price when the component is sold separately by the Group or the price when a similar component is sold separately by the Group or a third party.
Revenue from contracts involving solutions achieved through modification of complex telecommunications equipment is recognized on the percentage of completion basis when the outcome of the contract can be estimated reliably. Recognized revenues and profits are subject to revisions during the project in the event that the assumptions regarding the overall project outcome are revised. Current sales and profit estimates for projects may materially change due to the early stage of a long-term project, new technology, changes in the project scope, changes in costs, changes in timing, changes in customers’ plans, realization of penalties, and other corresponding factors, which may have a significant impact on the timing and amount of revenue recognition.
Customer financing
The Group has provided a limited number of customer financing arrangements and agreed extended payment terms with selected customers. Should the actual financial position of the customers or general economic conditions differ from assumptions, the ultimate collectability of such financings and trade credits may be required to be re-assessed, which could result in a write-down of these balances and thus negatively impact future profits. From time to time the Group endeavors to mitigate this risk through transfer of its rights to the cash collected from these arrangements to third party financial institutions on a non-recourse basis in exchange for an upfront cash payment.
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Allowances for doubtful accounts
The Group maintains allowances for doubtful accounts for estimated losses resulting from subsequent inability of customers to make required payments. If the financial conditions of customers were to deteriorate, reducing their ability to make payments, additional allowances may be required.
Inventory-related allowances and provisions
The Group periodically reviews inventory for excess amounts, obsolescence and declines in net realizable value below cost and records an allowance against the inventory balance for any such declines. These reviews require management to estimate future demand for products. Possible changes in these estimates could result in revisions to the valuation of inventory in future periods.The Group recognizes the estimated liability for non-cancellable purchase commitments for inventory in excess of forecasted requirements at each balance sheet date.
Restructuring provisions
The Group provides for the estimated future cost related to restructuring programs. The provision made for restructuring is based on management’s best estimate. Changes in estimates of timing or amounts of costs to be incurred may become necessary as the restructuring program is implemented.
Project loss provisions
The Group provides for onerous contracts based on the lower of the expected cost of fulfilling the contract and the expected cost of terminating the contract. Due to the long-term nature of customer projects, changes in estimates of costs to be incurred, and therefore project loss estimates, may become necessary as the projects are executed.
Warranty provisions
The Group provides for the estimated cost of product warranties at the time revenue is recognized. The Group’s warranty provision is established based upon best estimates of the amounts necessary to settle future and existing claims on products sold as of each balance sheet date. As new products incorporating complex technologies are continuously introduced, and as local laws, regulations and practices may change, changes in these estimates could result in additional allowances or changes to recorded allowances being required in future periods.
Provision for intellectual property rights (IPR) infringements
The Group provides for the estimated past costs related to alleged asserted IPR infringements. The provision is an estimate calculated based on a probable outcome of potential future settlement. IPR infringement claims can last for varying periods of time, resulting in irregular movements in the IPR infringement provision. The ultimate outcome or actual cost of settling an individual infringement may materially vary from estimates.
Legal contingencies
Legal proceedings covering a wide range of matters are pending or threatened in various jurisdictions against the Group. Provisions are recorded for pending litigation when it is determined that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates.
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Business combinations
The Group applies the acquisition method of accounting to account for acquisitions of businesses. The consideration transferred in a business combination is measured as the aggregate of the fair values of the assets transferred, liabilities incurred towards the former owners of the acquired business and equity instruments issued. Identifiable assets acquired and liabilities assumed by the Group are measured separately at their fair value as of the acquisition date. Non-controlling interests in the acquired business are measured separately based on their proportionate share of the identifiable net assets of the acquired business. The excess of the cost of the acquisition over Nokia’s interest in the fair value of the identifiable net assets acquired is recorded as goodwill.
The allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various valuation assumptions requiring management judgment. Actual results may differ from the forecasted amounts and the difference could be material. See also Note 10.
Assessment of the recoverability of long-lived assets, intangible assets and goodwill
The recoverable amounts for long-lived assets, intangible assets and goodwill have been determined based on the expected future cash flows attributable to the asset or cash-generating unit discounted to present value. The key assumptions applied in the determination of recoverable amount include discount rate, length of an explicit forecast period, estimated growth rates, profit margins and level of operational and capital investment. Amounts estimated could differ materially from what will actually occur in the future. See also Note 9.
Income taxes
Management judgment is required in determining current tax expense, uncertain tax positions, deferred tax assets and liabilities and the extent to which deferred tax assets can be recognized. Each reporting period deferred tax assets are assessed for realizability and when circumstances indicate it is no longer probable that deferred tax assets will be utilized, they are adjusted as necessary. In the event any deferred tax assets are to be re-recognized, they would be subject to a detailed analysis to assess any potential impact on the final amount to be recognized.
At December 31, 2013, Nokia’s continuing operations in Finland had approximately EUR 2.3 billion (calculated at the Finnish corporate tax rate of 20%) of net deferred tax assets that have not been recognized in the financial statements. A significant portion Nokia’s Finnish deferred tax assets are indefinite in nature and available against future Finnish taxable income. The Group will continue closely monitoring the realizability of these deferred tax assets, including assessing future financial performance of continuing activities in Finland. Should the recent improvements in continuing financial results be sustained, all or part of the unrecognized deferred tax assets may be recognized in the future.
In the Netherlands and in certain other jurisdictions, the utilization of deferred tax assets is dependent on future taxable profit in excess of the profits arising from reversal of existing taxable temporary differences. The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient taxable profits will be available in the future from which the reversal of temporary differences and tax losses can be deducted. Recognition therefore involves judgment with regard to future financial performance of a particular legal entity or tax group in which the deferred tax asset has been recognized.
Liabilities for uncertain tax positions are recorded based on estimates and assumptions when, despite management’s belief that tax return positions are supportable, it is more likely than not that certain positions will be challenged and may not be fully sustained upon review by tax authorities. Furthermore, the Group has ongoing tax investigations in multiple jurisdictions, including India. If the
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final outcome of these matters differs from the amounts initially recorded, differences may impact the income tax expense in the period in which such determination is made.
Pensions and other long-term employee benefits
The determination of pension benefit obligation and expense for defined benefit pension plans and other long-term employee benefits is dependent on the Group’s selection of certain assumptions which are used by actuaries in calculating such amounts. Those assumptions include, among others, the discount rate and annual rate of increase in future compensation levels. A portion of plan assets is invested in equity securities, which are subject to equity market volatility. Changes in assumptions and actuarial conditions may materially affect the pension benefit obligation and future expense. See also Note 6.
New accounting pronouncements under IFRS
The Group will adopt the following new and revised standards, amendments and interpretations to existing standards issued by the IASB that are expected to be relevant to its operations and financial position:
IFRS 9 Financial Instruments reflects the first phase of the IASB’s work on the replacement of IAS 39 Financial Instruments: Recognition and Measurement and will change the classification and measurement of the Group’s financial assets and introduced a new hedge accounting model. The Group is planning to adopt the standard on the revised effective date of not earlier than January 1, 2018. The Group will assess IFRS 9’s full impact when all phases have been completed and the final standard is issued.
The amendments described below will be adopted on January 1, 2014 and they are not expected to have a material impact on the financial condition and the results of operations of the Group.
Amendment to IAS 32 Offsetting Financial Assets and Financial Liabilities clarifies the meaning of “currently has a legally enforceable right to set-off”.
Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36) adds guidance to IAS 36 Impairment of Assets on disclosure of recoverable amounts and discount rates.
Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39) makes it clear that IAS 39 Financial Instruments: Recognition and Measurement does not require discontinuing hedge accounting if a hedging derivative is novated, provided certain criteria are met.
Defined Benefit Plans: Employee Contributions (Amendments to IAS 19) clarifies IAS 19 Employee Benefits requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service.
IFRIC 21 Levies, an interpretation of IAS 37 Provisions, Contingent Liabilities and Contingent Assets clarifies that the obligating event giving rise to a liability to pay a levy to a government agency is the activity that triggers the payment.
| 2. | Segment information |
Nokia has three continuing businesses: NSN, HERE and Advanced Technologies, and four operating and reportable segments for financial reporting purposes: Mobile Broadband and Global Services within NSN, HERE and Advanced Technologies. Also, Devices & Services business, which is presented as discontinued operations, forms an operating and reportable segment.
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Nokia adopted its current operational and reporting structure during 2013 in response to the following events:
| • | On August 7, 2013 Nokia announced that it had completed the acquisition of Siemens’ stake in Nokia Siemens Networks, also referred to as NSN. Until then, NSN was reported as a single reportable segment. Following the completion of the transaction Nokia Solutions and Networks, also referred to as NSN (formerly Nokia Siemens Networks) became a wholly owned subsidiary of Nokia and the chief operating decision maker started to evaluate the business more from a product perspective. As a result, the NSN business has two operating and reportable segments, Mobile Broadband and Global Services. |
| • | On September 2, 2013 Nokia signed an agreement to enter into a transaction whereby Nokia sold substantially all of its Devices & Services business to Microsoft. After receiving shareholder confirmation and approval at Nokia’s Extraordinary General Meeting on November 19, 2013 for the transaction, Nokia began presenting substantially all of its former Devices & Services business as discontinued operations, and Advanced Technologies as an operating and reportable segment. Previously Advanced Technologies was part of the Devices & Services business. The Sale of the D&S Business was completed on April 25, 2014. |
| • | Substantially all of the former Devices & Services business is presented as discontinued operations and at the same time forms an operating and reportable segment. Discontinued business is described in more detail in note 3. |
Prior period results have been regrouped and recasted for comparability purposes according to the new operational and reporting structure.
Nokia’s reportable segments represent the strategic business units that offer different products and services. The chief operating decision maker receives monthly financial information for these business units. Key financial performance measures of the reportable segments include primarily net sales and contribution/operating profit. Segment contribution for Mobile Broadband and Global Services consists of net sales, cost of sales and operating expenses, and excludes restructuring and associated charges, purchase price accounting related charges and certain other items not directly related to the segments. Operating profit is presented for HERE and Advanced Technologies. The chief operating decision maker evaluates the performance of its segments and allocates resources to them based on operating profit/contribution.
Mobile Broadband provides mobile operators with radio and core network software together with the hardware needed to deliver mobile voice and data services.
Global Services provides mobile operators with a broad range of services from network planning and optimization to network implementation, system integration and care services, as well as managed services for network and service operations.
NSN Other includes net sales and related cost of sales and operating expenses of non-core businesses as well as Optical Networks business until May 6, 2013 when its divestment was completed. It also includes restructuring and associated charges as well as purchase price accounting related charges and certain other items for the NSN business.
HERE focuses on the development of location-based services and local commerce. The HERE brand was introduced for our location and mapping service in 2012, and as of January 1, 2013 our former Location & Commerce business and reportable segment was renamed HERE.
The Advanced Technologies business builds on Nokia’s Chief Technology Office (CTO) and Intellectual Property Rights activities. Advanced Technologies focuses on technology development and
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licensing and is planning to continue to build Nokia’s patent portfolio and expand its technology licensing program. Advanced Technologies includes net sales from both intellectual property right activities and technology licensing.
Corporate Common Functions consists of company-wide functions.
Devices & Services business focuses on developing and selling smartphones powered by the Windows Phone system, feature phones and affordable smart phones.
The accounting policies of the segments are the same as those described in Note 1. Nokia accounts for inter-segment revenues and transfers as if the revenues were to third parties, that is, at current market prices.
No single customer represents 10% or more of Group revenues.
| Profit and Loss information | ||||||||||||||||||||||||||||||||||||
| 2013 |
Mobile Broadband(1) |
Global Services(1) |
NSN Other |
NSN | HERE(1) | Advanced Technologies(1) |
Corporate Common Functions |
Elimina- tions |
Group | |||||||||||||||||||||||||||
| EURm | EURm | EURm | EURm | EURm | EURm | EURm | EURm | EURm | ||||||||||||||||||||||||||||
| Net sales to external customers(2) |
5 346 | 5 752 | 182 | 11 280 | 914 | 515 | — | 12 709 | ||||||||||||||||||||||||||||
| Net sales to other segments |
1 | 1 | — | 2 | — | 14 | — | (16 | ) | — | ||||||||||||||||||||||||||
| Depreciation and amortization |
217 | 94 | 2 | 313 | 241 | 3 | 3 | 560 | ||||||||||||||||||||||||||||
| Impairment |
1 | 1 | 6 | 8 | — | — | 12 | 20 | ||||||||||||||||||||||||||||
| Operating profit (loss) |
420 | 693 | (693 | ) | 420 | (154 | ) | 310 | (57 | ) | 519 | |||||||||||||||||||||||||
| Share of results of associated companies |
— | — | 8 | 8 | 1 | — | (5 | ) | 4 | |||||||||||||||||||||||||||
| 2012 | Mobile Broadband(1) |
Global Services(1) |
NSN Other |
NSN | HERE(1) | Advanced Technologies(1) |
Corporate Common Functions |
Elimina- tions |
Group | |||||||||||||||||||||||||||
| EURm | EURm | EURm | EURm | EURm | EURm | EURm | EURm | EURm | ||||||||||||||||||||||||||||
| Net sales to external customers(2) |
6 042 | 6 928 | 807 | 13 777 | 1 103 | 520 | — | 15 400 | ||||||||||||||||||||||||||||
| Net sales to other segments |
1 | 1 | — | 2 | — | 14 | — | (16 | ) | — | ||||||||||||||||||||||||||
| Depreciation and amortization |
351 | 198 | 38 | 587 | 496 | 3 | 2 | 1 088 | ||||||||||||||||||||||||||||
| Impairment |
8 | — | 29 | 37 | — | — | 33 | 70 | ||||||||||||||||||||||||||||
| Operating (loss) profit |
490 | 334 | (1 619 | ) | (795 | ) | (301 | ) | 325 | (50 | ) | (821 | ) | |||||||||||||||||||||||
| Share of results of associated companies |
— | — | 8 | 8 | 1 | — | (10 | ) | (1 | ) | ||||||||||||||||||||||||||
| 2011 |
Mobile Broadband(1) |
Global Services(1) |
NSN Other |
NSN | HERE(1) | Advanced Technologies(1) |
Corporate Common Functions |
Elimina- tions |
Group | |||||||||||||||||||||||||||
| EURm | EURm | EURm | EURm | EURm | EURm | EURm | EURm | EURm | ||||||||||||||||||||||||||||
| Net sales to external customers(2) |
6 335 | 6 737 | 969 | 14 041 | 1 091 | 836 | — | 15 968 | ||||||||||||||||||||||||||||
| Net sales to other segments |
— | — | — | — | — | 14 | — | (14 | ) | — | ||||||||||||||||||||||||||
| Depreciation and amortization |
403 | 190 | 118 | 711 | 491 | 3 | 113 | 1 318 | ||||||||||||||||||||||||||||
| Impairment |
— | — | 19 | 19 | 1 091 | — | 134 | 1 244 | ||||||||||||||||||||||||||||
| Operating (loss) profit(3) |
216 | 230 | (743 | ) | (297 | ) | (1 526 | ) | 609 | (174 | ) | (1 388 | ) | |||||||||||||||||||||||
| Share of results of associated companies |
— | — | (17 | ) | (17 | ) | 1 | — | (7 | ) | (23 | ) | ||||||||||||||||||||||||
| (1) | Represents an operating and reportable segment. |
| (2) | Net sales to external customers include the HERE sales to discontinued operations (EUR 154 million in 2013, EUR 374 million in 2012 and EUR 393 million in 2011). |
| (3) | HERE operating loss in 2011 includes a goodwill impairment loss of EUR 1 090 million. |
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| Net sales to external customers by geographic area by location of customer | 2013 | 2012 | 2011 | |||||||||
| EURm | EURm | EURm | ||||||||||
| Finland(4) |
594 | 659 | 955 | |||||||||
| United States |
1 542 | 1 498 | 1 199 | |||||||||
| Japan |
1 388 | 2 176 | 1 533 | |||||||||
| China |
896 | 1 077 | 1 384 | |||||||||
| India |
656 | 757 | 929 | |||||||||
| Germany |
609 | 844 | 946 | |||||||||
| Brazil |
511 | 805 | 845 | |||||||||
| Russia |
421 | 476 | 542 | |||||||||
| Indonesia |
410 | 418 | 475 | |||||||||
| Other |
5 682 | 6 690 | 7 160 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
12 709 | 15 400 | 15 968 | |||||||||
|
|
|
|
|
|
|
|||||||
| (4) | All Advanced Technologies net sales is allocated to Finland. |
| Segment non-current assets by geographic area(5) | 2013 | 2012 | ||||||||
| EURm | EURm | |||||||||
| Finland |
529 | 1 662 | ||||||||
| USA |
3 371 | 4 166 | ||||||||
| China |
94 | 387 | ||||||||
| India |
58 | 151 | ||||||||
| Other |
194 | 588 | ||||||||
|
|
|
|
|
|||||||
| Total |
4 246 | 6 954 | ||||||||
|
|
|
|
|
|||||||
| (5) | Comprises goodwill and other intangible assets and property, plant and equipment as well as assets held-for-sale. |
| 3. | Discontinued operations |
Nokia announced on September 3, 2013 that it had signed an agreement to sell substantially all of its Devices & Services business and license its patents to Microsoft. The transaction was approved by Nokia shareholders in an Extraordinary Shareholders’ meeting in November 2013, after which the results of the Devices & Services business were reclassified as discontinued operations. The transaction was completed on April 25, 2014.
Devices & Services is comprised of two previously reportable segments, Smart Devices and Mobile Phones as well as Devices & Services Other. Smart Devices focuses on Nokia’s most advanced products, including smartphones powered by the Windows Phone system and has profit-and-loss responsibility and end-to-end accountability for the full consumer experience, including product development, product management and product marketing. Mobile Phones focuses on the area of mass market entry and feature phones as well as affordable smart phones and has profit-and-loss responsibility and end-to-end accountability for the full consumer experience, including development, management and marketing of feature phone products, services and applications. Devices & Services Other includes net sales related to spare parts, related cost of sales and operating expenses and operating results of Vertu through October 12, 2012, the date of divestment of the business. Devices & Services Other also includes major restructuring projects/programs related to the Devices & Services business as well as other unallocated items.
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Results of discontinued operations
| 2013 | 2012 | 2011 | ||||||||||
| EURm | EURm | EURm | ||||||||||
| Net sales |
10 735 | 15 152 | 23 091 | |||||||||
| Cost of sales |
(8 526 | ) | (12 320 | ) | (17 292 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Gross profit |
2 209 | 2 832 | 5 799 | |||||||||
| Research and development expenses |
(1 130 | ) | (1 658 | ) | (2 211 | ) | ||||||
| Selling and marketing expenses |
(1 345 | ) | (1 857 | ) | (2 179 | ) | ||||||
| Administrative and general expenses |
(215 | ) | (286 | ) | (370 | ) | ||||||
| Other income and expenses |
(109 | ) | (510 | ) | (723 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Operating (loss) profit |
(590 | ) | (1 479 | ) | 316 | |||||||
| Financial income and expenses |
10 | 18 | 28 | |||||||||
| Income tax |
(200 | ) | (842 | ) | (216 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| (Loss) profit for the year |
(780 | ) | (2 303 | ) | 128 | |||||||
|
|
|
|
|
|
|
|||||||
| Depreciation and amortization |
168 | 238 | 244 | |||||||||
Cash flows (used in) discontinued operations
| 2013 | 2012 | 2011 | ||||||||||
| EURm | EURm | EURm | ||||||||||
| Net cash used in operating activities |
(1 062 | ) | (2 252 | ) | (95 | ) | ||||||
| Net cash used in investing activities |
(130 | ) | (68 | ) | (206 | ) | ||||||
| Net cash used in financing activities |
(21 | ) | — | — | ||||||||
|
|
|
|
|
|
|
|||||||
| Net cash flow for the year |
(1 213 | ) | (2 320 | ) | (301 | ) | ||||||
|
|
|
|
|
|
|
|||||||
Effect of disposal on the financial position of the Group
| 2013 | ||||
| EURm | ||||
| Goodwill and other intangible assets |
1 426 | |||
| Property plant and equipment |
559 | |||
| Deferred tax assets and non-current assets |
381 | |||
| Inventories |
347 | |||
| Trade and other receivables |
691 | |||
| Prepaid and other current assets |
1 854 | |||
|
|
|
|||
| Assets of disposal groups classified as held for sale |
5 258 | |||
|
|
|
|||
| Deferred tax liabilities and other liabilities |
114 | |||
| Trade and other payables |
1 381 | |||
| Deferred income and accrued expense |
2 220 | |||
| Provisions |
1 013 | |||
|
|
|
|||
| Liabilities of disposal groups classified as held for sale |
4 728 | |||
|
|
|
|||
| 4. | Percentage of completion |
Contract sales recognized under percentage of completion accounting were EUR 1 012 million in 2013 (EUR 3 431 million in 2012 and EUR 4 769 million in 2011). Service revenue for managed services and network maintenance contracts were EUR 2 318 in 2013 (EUR 2 655 million in 2012 and EUR 2 994 million in 2011).
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Advances received related to construction contracts, included in accrued expenses and other liabilities, are EUR 14 million at December 31, 2013 (EUR 58 million in 2012). Included in accounts receivable are contract revenues recorded prior to billings of EUR 162 million at December 31, 2013 (EUR 700 million in 2012) and billings in excess of costs incurred are EUR 99 million at December 31, 2013 (EUR 216 million in 2012).
The aggregate amount of costs incurred and recognized profits (net of recognized losses) under construction contracts in progress since inception is EUR 13 049 million at December 31, 2013 (EUR 18 107 million in 2012).
Retentions related to construction contracts, included in accounts receivable, are EUR 23 million at December 31, 2013 (EUR 100 million at December 31, 2012).
| 5. | Personnel expenses |
| 2013 | 2012 | 2011 | ||||||||||
| EURm | EURm | EURm | ||||||||||
| Continuing operations |
||||||||||||
| Wages and salaries |
3 432 | 4 295 | 3 875 | |||||||||
| Share-based compensation expense |
42 | 11 | 6 | |||||||||
| Pension expenses, net |
206 | 232 | 220 | |||||||||
| Other social expenses |
403 | 507 | 517 | |||||||||
|
|
|
|
|
|
|
|||||||
| Personnel expenses total |
4 083 | 5 045 | 4 618 | |||||||||
|
|
|
|
|
|
|
|||||||
| Personnel | expenses include termination benefits. |
Pension expenses, comprised of multi-employer, insured and defined contribution plans were EUR 160 million in 2013 (EUR 193 million in 2012 and EUR 175 million in 2011). Expenses related to defined benefit plans comprise the remainder.
Average personnel
| 2013 | 2012 | 2011 | ||||||||||
| NSN |
52 564 | 64 052 | 71 825 | |||||||||
| HERE |
5 897 | 6 441 | 7 187 | |||||||||
| Advanced Technologies and Corporate Common Functions |
872 | 1 315 | 1 844 | |||||||||
|
|
|
|
|
|
|
|||||||
| Nokia Group, continuing operations |
59 333 | 71 808 | 80 856 | |||||||||
|
|
|
|
|
|
|
|||||||
| 6. | Pensions |
The Group operates a number of post-employment plans in various countries including both defined contribution and defined benefit schemes. These plans expose the Group to actuarial risks such as, investment risk, interest rate risk, life expectancy risk and salary risk. The characteristics and associated risks of the defined benefit plans vary depending on legal, fiscal, and economic requirements in each country. These characteristics and risks are further described below relating to the plans included in the continuing operations of the Group.
Any of the following 2013 disclosures are attributable to the continuing operations only. Disclosures relating to 2012 and 2011 comparative annual periods represent the results for the entire consolidated Group. Accordingly, the current year results are not directly comparable to the prior periods.
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Change in accounting policy
At January 1, 2013, the Group adopted the revised IAS 19 Employee Benefits. Actuarial gains and losses under the revised standard are required to be recognized immediately and in full in other comprehensive income, and such balances are excluded permanently from the consolidated income statement. Previously, all actuarial gains and losses were deferred in accordance with the corridor method.
Calculation of the pension expense has been simplified under the revised standard and the related impacts to the Group’s loss presented in the historical comparative consolidated income statements are not material. The main changes relate to the fully recognized actuarial gains and losses which impact the relevant net pension assets and liabilities and other comprehensive income.
The revised IAS 19 requires retrospective application for all financial statements presented. The adjustments resulting from the implementation of the revised standard for the years ended December 31, 2011 and December 31, 2012 are presented in the following tables.
| January 1, 2011 Shareholders’ equity EURm |
Nokia Group Reported |
Adjustments | Nokia Group Adjusted |
|||||||||
| Total equity |
16 231 | 17 | 16 248 | |||||||||
| Equity attributable to equity holders of parent |
14 384 | 6 | 14 390 | |||||||||
| Equity attributable to non-controlling interests |
1 847 | 11 | 1 858 | |||||||||
| For the year ended and as of December 31, 2011 EURm |
Nokia Group Reported |
Adjustments | Nokia Group Adjusted |
|||||||||
| Impact to consolidated statement of financial position: |
||||||||||||
| Defined benefit pension assets |
106 | 15 | 121 | |||||||||
| Deferred tax assets |
1 848 | 5 | 1 853 | |||||||||
| Defined benefit pension obligations |
176 | 24 | 200 | |||||||||
| Deferred tax liabilities |
800 | 3 | 803 | |||||||||
| Total equity |
13 916 | (7 | ) | 13 909 | ||||||||
| Equity attributable to equity holders of parent |
11 873 | — | 11 873 | |||||||||
| Equity attributable to non-controlling interests |
2 043 | (7 | ) | 2 036 | ||||||||
| Impact to consolidated income statement and other comprehensive income: |
||||||||||||
| Loss |
(1 488 | ) | 1 | (1 487 | ) | |||||||
| Other comprehensive income |
||||||||||||
| Remeasurements on defined benefit pensions |
— | (36 | ) | (36 | ) | |||||||
| Income taxes related to components of other comprehensive Income |
(16 | ) | 12 | (4 | ) | |||||||
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| For the year ended and as of December 31, 2012 EURm |
Nokia Group Reported |
Adjustments | Nokia Group Adjusted |
|||||||||
| Impact to consolidated statement of financial position: |
||||||||||||
| Defined benefit pension assets |
142 | 10 | 152 | |||||||||
| Deferred tax assets |
1 254 | 25 | 1 279 | |||||||||
| Defined benefit pension obligations |
178 | 242 | 420 | |||||||||
| Deferred tax liabilities |
700 | 1 | 701 | |||||||||
| Total equity |
9 447 | (208 | ) | 9 239 | ||||||||
| Equity attributable to equity holders of parent |
8 061 | (124 | ) | 7 937 | ||||||||
| Equity attributable to non-controlling interests |
1 386 | (84 | ) | 1 302 | ||||||||
| Impact to consolidated income statement and other comprehensive income: |
||||||||||||
| Loss |
(3 789 | ) | 3 | (3 786 | ) | |||||||
| Other comprehensive income |
||||||||||||
| Remeasurements on defined benefit pensions |
— | (228 | ) | (228 | ) | |||||||
| Income taxes related to components of other comprehensive Income |
12 | 22 | 34 | |||||||||
The Group’s most significant defined benefit pension plans are in Germany, UK, India and Switzerland. Together they account for 91% (92 % in 2012) of the Group’s total defined benefit obligation and 92% (93% in 2012) of the Group’s total plan assets.
Germany
The majority of active employees in Germany participate in the cash balance plan BAP (Beitragsorientierter Alterversorgungs Plan), formerly known as Beitragsorientierte Siemens Alterversorgung (“BSAV”). Individual benefits are generally dependent on eligible compensation levels, ranking within the Group and years of service. This plan is a partly funded defined benefit pension plan, the benefits of which are subject to a minimum return guaranteed by the Group. The funding vehicle for the BAP plan is the NSN Pension Trust e.V. The trust is legally separate from the Group and manages the plan assets in accordance with the respective trust agreements with the Group. The risks specific to the German defined benefit plans are related to changes in mortality of covered members and investment return of the plan assets. Curtailments were recognized in service costs for German pension plans during 2013 as a result of reduction in workforce in 2013 and the planned reduction in 2014.
United Kingdom
The Group has a UK defined benefit plan divided into two sections; the money purchase section and the final salary section, both being closed to future contributions and accruals as of April 30, 2012. Individual benefits are generally dependent on eligible compensation levels and years of service for the defined benefit section of the plan and on individual investment choices for the defined contribution section of the plan. The funding vehicle for the pension plan is the NSN Pension Plan that is run on a trust basis.
India
Government mandated gratuity and provident plans provide benefits based on years of service and projected salary levels at the date of separation for the Gratuity Plan and through an interest rate guarantee on existing investments in a government prescribed Provident Fund Trust. Gratuity Fund plan assets are invested and managed through an insurance policy. Provident Fund Assets are managed by NSN PF Trustees through a pattern prescribed by the Government in various fixed income securities.
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Table of Contents
Switzerland
The Group’s Swiss pension plans are governed by the Swiss Federal Law on Occupational Retirements, Survivors’ and Disability Pension plans (BVG), which stipulates that pension plans are to be managed by an independent, legally autonomous unit. In Switzerland, individual benefits are provided through the collective foundation Profond. The plan’s benefits are based on age, years of service, salary and an individual old age account. The funding vehicle for the pension scheme is the Profond Vorsorgeeinrichtung. During fiscal year 2013, the collective foundation Profond has decided to decrease their conversion rates (pension received as a percentage of retirement savings) in five years gradually from 7.2% to 6.8%, which will reduce the expected benefits at retirement for all employees. This event qualifies as a plan amendment and the past service gain of EUR 1 million arising from this amendment was recognized immediately in the service cost of the year.
The following table presents the defined benefit obligations, the fair value of plan assets, the effects of the asset ceiling and the net defined benefit balance at December 31, 2013 for continuing operations and at December 31, 2012 for the Group, as restated.
| Defined benefit obligation |
Fair value of plan assets |
Effects of asset ceiling |
Net defined benefit balance |
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| 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||||
| EURm | EURm | EURm | EURm | EURm | EURm | EURm | EURm | |||||||||||||||||||||||||
| Germany |
(1 062 | ) | (1 305 | ) | 904 | 996 | — | — | (158 | ) | (309 | ) | ||||||||||||||||||||
| UK |
(98 | ) | (405 | ) | 108 | 527 | — | — | 10 | 122 | ||||||||||||||||||||||
| India |
(85 | ) | (115 | ) | 82 | 110 | (1 | ) | — | (4 | ) | (5 | ) | |||||||||||||||||||
| Switzerland |
(78 | ) | (91 | ) | 63 | 57 | — | — | (15 | ) | (34 | ) | ||||||||||||||||||||
| Other |
(130 | ) | (157 | ) | 104 | 118 | (6 | ) | (3 | ) | (32 | ) | (42 | ) | ||||||||||||||||||
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| Nokia Group Total |
(1 453 | ) | (2 073 | ) | 1 261 | 1 808 | (7 | ) | (3 | ) | (199 | ) | (268 | ) | ||||||||||||||||||
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F-35
Table of Contents
The movements in the present value of the defined benefit obligation, fair value of plan assets and the impact of minimum funding/asset ceiling are as follows for continuing operations in 2013 and for the entire Group in 2012, as restated:
| EURm |
Present value of obligation |
Fair value of plan assets |
Total | Impact of minimum funding/asset ceiling |
Net defined benefit balance |
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| Balance at January 1, 2012 |
(1 737 | ) | 1 657 | (80 | ) | (2 | ) | (82 | ) | |||||||||||
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| Current service cost |
(58 | ) | — | (58 | ) | — | (58 | ) | ||||||||||||
| Interest (expense)/income |
(89 | ) | 84 | (5 | ) | — | (5 | ) | ||||||||||||
| Past service cost and gains and losses on curtailments |
23 | — | 23 | — | 23 | |||||||||||||||
| Settlements |
13 | (10 | ) | 3 | — | 3 | ||||||||||||||
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| (111 | ) | 74 | (37 | ) | — | (37 | ) | |||||||||||||
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| Remeasurements: |
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| Return on plan assets, excluding amounts included in interest (expense)/income |
— | 62 | 62 | — | 62 | |||||||||||||||
| Gain from change in demographic assumptions |
— | — | — | — | — | |||||||||||||||
| (Loss) from change in financial assumptions |
(264 | ) | — | (264 | ) | — | (264 | ) | ||||||||||||
| Experience (losses) |
(25 | ) | — | (25 | ) | — | (25 | ) | ||||||||||||
| Change in asset ceiling, excluding amounts included in interest (expense)/income |
— | — | — | (1 | ) | (1 | ) | |||||||||||||
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| (289 | ) | 62 | (227 | ) | (1 | ) | (228 | ) | ||||||||||||
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| Exchange differences |
(7 | ) | 10 | 3 | — | 3 | ||||||||||||||
| Contributions: |
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| Employers |
— | 50 | 50 | — | 50 | |||||||||||||||
| Plan participants |
(14 | ) | 14 | — | — | — | ||||||||||||||
| Payments from plans: |
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| Benefit payments |
68 | (50 | ) | 18 | — | 18 | ||||||||||||||
| Acquired in a business combination |
14 | (12 | ) | 2 | — | 2 | ||||||||||||||
| Other movements |
3 | 3 | 6 | — | 6 | |||||||||||||||
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| 64 | 15 | 79 | — | 79 | ||||||||||||||||
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| Balance at December 31, 2012 |
(2 073 | ) | 1 808 | (265 | ) | (3 | ) | (268 | ) | |||||||||||
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F-36
Table of Contents
| EURm |
Present value of obligation |
Fair value of plan assets |
Total | Impact of minimum funding/asset ceiling |
Net defined benefit balance |
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| Balance at January 1, 2013 |
(2 073 | ) | 1 808 | (265 | ) | (3 | ) | (268 | ) | |||||||||||
| Transfer to discontinued operations |
445 | (516 | ) | (71 | ) | — | (71 | ) | ||||||||||||
| Current service cost |
(44 | ) | — | (44 | ) | — | (44 | ) | ||||||||||||
| Interest (expense)/income |
(54 | ) | 43 | (11 | ) | — | (11 | ) | ||||||||||||
| Past service cost and gains and losses on curtailments |
5 | — | 5 | — | 5 | |||||||||||||||
| Settlements |
12 | (8 | ) | 4 | — | 4 | ||||||||||||||
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| (81 | ) | 35 | (46 | ) | — | (46 | ) | |||||||||||||
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| Remeasurements: |
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| Return on plan assets, excluding amounts included in interest (expense)/income |
— | 15 | 15 | — | 15 | |||||||||||||||
| Gain from change in demographic assumptions |
4 | — | 4 | — | 4 | |||||||||||||||
| Gain from change in financial assumptions |
93 | — | 93 | — | 93 | |||||||||||||||
| Experience gains |
6 | — | 6 | — | 6 | |||||||||||||||
| Change in asset ceiling, excluding amounts included in interest (expense)/income |
— | — | — | (4 | ) | (4 | ) | |||||||||||||
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| 103 | 15 | 118 | (4 | ) | 114 | |||||||||||||||
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| Exchange differences |
30 | (27 | ) | 3 | — | 3 | ||||||||||||||
| Contributions: |
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| Employers |
— | 33 | 33 | — | 33 | |||||||||||||||
| Plan participants |
(13 | ) | 13 | — | — | — | ||||||||||||||
| Payments from plans: |
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| Benefit payments |
53 | (28 | ) | 25 | — | 25 | ||||||||||||||
| Acquired in a business combination |
83 | (72 | ) | 11 | — | 11 | ||||||||||||||
| Other movements |
— | — | — | — | — | |||||||||||||||
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| 153 | (81 | ) | 72 | — | 72 | |||||||||||||||
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| Balance at December 31, 2013 |
(1 453 | ) | 1 261 | (192 | ) | (7 | ) | (199 | ) | |||||||||||
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Present value of obligations include EUR 425 million (EUR 571 million in 2012) of wholly funded obligations, EUR 979 million of partly funded obligations (EUR 1 442 million in 2012) and EUR 49 million (EUR 60 million in 2012) of unfunded obligations (the amounts include continuing operations in 2013 and the entire Group in 2012, as restated).
The net accrued pension cost for continuing operations above is made up of an accrual of EUR 237 million included in other long-term liabilities (EUR 420 million in 2012, for the entire Group, as restated) and a prepayment of EUR 38 million included in other long-term assets (EUR 152 million in 2012, for the entire Group, as restated).
F-37
Table of Contents
The amounts recognized in the consolidated income statement are as follows (including continuing operations in 2013 and the entire Group in 2012 and 2011, as restated):
| 2013 | 2012 | 2011 | ||||||||||
| EURm | EURm | EURm | ||||||||||
| Current service cost |
44 | 58 | 59 | |||||||||
| Past service cost and gains and losses on curtailments |
(5 | ) | (23 | ) | (8 | ) | ||||||
| Net interest cost |
11 | 5 | 3 | |||||||||
| Settlements |
(4 | ) | (3 | ) | (6 | ) | ||||||
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| Total, included in personnel expenses |
46 | 37 | 48 | |||||||||
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The movements in pension remeasurements recognized in other comprehensive income are as follows (the amounts presented include continuing operations in 2013 and the entire Group in 2012 and 2011, as restated):
| 2013 | 2012 | 2011 | ||||||||||
| EURm | EURm | EURm | ||||||||||
| Remeasurements: |
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| Return on plan assets (excl. interest income), gain/(loss) |
15 | 62 | (18 | ) | ||||||||
| Changes in demographic assumptions, gain |
4 | — | — | |||||||||
| Changes in financial assumptions, gain/(loss) |
93 | (264 | ) | (43 | ) | |||||||
| Experience adjustments, gain/(loss) |
6 | (25 | ) | 19 | ||||||||
| Current year change in asset ceiling |
(4 | ) | (1 | ) | 6 | |||||||
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| Total Remeasurement included in comprehensive Income |
114 | (228 | ) | (36 | ) | |||||||
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Actuarial Assumptions
The principal actuarial weighted average assumptions used for determining the defined benefit obligation were as follows:
| 2013 | 2012 | |||||||
| % | % | |||||||
| Discount rate for determining present values |
4.0 | 3.7 | ||||||
| Annual rate of increase in future compensation levels |
2.4 | 2.4 | ||||||
| Pension growth rate |
1.7 | 1.9 | ||||||
| Inflation rate |
2.0 | 1.8 | ||||||
Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each country. The following discount rates and mortality tables have been used for Nokia’s significant countries:
| Discount Rate | Mortality Table | |||||||||
| 2013 | 2012 | 2013 | ||||||||
| Germany |
3.6 | % | 3.2 | % | Richttafeln 2005 G | |||||
| UK |
4.5 | % | 4.1 | % | S1NA Light* | |||||
| India |
9.0 | % | 8.3 | % | LIC (2006-08) Ultimate | |||||
| Switzerland |
2.2 | % | 1.6 | % | BVG2010G | |||||
| Total weighted average for all countries |
4.0 | % | 3.7 | % | ||||||
*tables unadjusted for males and rated down by 2 years for females
F-38
Table of Contents
The sensitivity of the defined benefit obligation to changes in the principal assumptions is presented below.
| Impact on defined benefit obligation | ||||||||||||
| Change in assumption |
Increase in assumption |
Decrease in assumption |
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| EURm | EURm | |||||||||||
| Discount rate for determining present values |
1.0 | % | 173 | (225 | ) | |||||||
| Annual rate of increase in future compensation levels |
1.0 | % | (24 | ) | 21 | |||||||
| Pension growth rate |
1.0 | % | (127 | ) | 123 | |||||||
| Inflation rate |
1.0 | % | (136 | ) | 126 | |||||||
| Life expectancy |
1 year | (27 | ) | 26 | ||||||||
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant and may not be representative of the actual impact of changes. If more than one assumption is changed simultaneously, the combined impact of changes would not necessarily be the same as the sum of the individual changes. If the assumptions change to a different level compared to that presented above, the effect on the defined benefit obligation may not be linear. The methods and types of assumptions used in preparing the sensitivity analyses are the same as in the previous period.
When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method has been applied as when calculating the post-employment benefit obligation recognized in the consolidated statement of financial position; specifically, the present value of the defined benefit obligation is calculated with the projected unit credit method. Increases and decreases in the discount rate, rate of increase in future compensation levels, pension growth rate and inflation, which are used in determining the defined benefit obligation, do not have a symmetrical effect on the defined benefit obligation primarily due to the compound interest effect created when determining the net present value of the future benefit.
Investment strategies
The objective of investment activities is to maximize the excess of plan assets over the projected benefit obligations and to achieve asset performance at least in line with the interest costs in order to minimize required future employer contributions. To achieve these goals, the Group uses an asset-liability matching framework, which forms the basis for its strategic asset allocation of the respective plans. The Group also takes into consideration other factors in addition to the discount rate, such as inflation and longevity. The results of the asset-liability matching framework are implemented on a plan level.
The Group’s pension governance does not allow direct investments and requires all investments to be placed either in funds or by professional asset managers. Derivative instruments are permitted and are used to change risk characteristics as part of the German plan assets. The performance and risk profile of investments is constantly monitored on a stand-alone basis as well as in the broader portfolio context. One major risk is a decline in the plan`s funded status as a result of the adverse development of plan assets and/or defined benefit obligations. The application of the Asset-Liability-Model study focuses on minimizing such risks.
There has been no change in the process used by the Group to manage its risk from prior periods.
F-39
Table of Contents
Disaggregation of plan assets
Pension assets are comprised as follows:
| 2013 | 2012 | |||||||||||||||||||||||||||||||
| Quoted | Unquoted | Total | % | Quoted | Unquoted | Total | % | |||||||||||||||||||||||||
| EURm | EURm | EURm | EURm | EURm | EURm | |||||||||||||||||||||||||||
| Asset category: |
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| Equity securities |
300 | — | 300 | 24 | % | 397 | — | 397 | 22 | % | ||||||||||||||||||||||
| Debt securities |
564 | 121 | 685 | 54 | % | 973 | 116 | 1 089 | 60 | % | ||||||||||||||||||||||
| Insurance contracts |
— | 70 | 70 | 6 | % | — | 137 | 137 | 8 | % | ||||||||||||||||||||||
| Real estate |
— | 57 | 57 | 5 | % | — | 62 | 62 | 3 | % | ||||||||||||||||||||||
| Short-term investments |
92 | — | 92 | 7 | % | 49 | — | 49 | 3 | % | ||||||||||||||||||||||
| Others |
— | 57 | 57 | 4 | % | — | 74 | 74 | 4 | % | ||||||||||||||||||||||
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| Total |
956 | 305 | 1 261 | 100 | % | 1 419 | 389 | 1 808 | 100 | % | ||||||||||||||||||||||
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All short term investments, equity and nearly all fixed income securities have quoted market prices in active markets. Equity securities represent investments in equity funds and direct investments, which have quoted market prices in an active market. Debt securities represent investments in government and corporate bonds, as well as investments in bond funds, which have quoted market prices in an active market. Debt securities may also comprise investments in funds and direct investments. Real estate investments are investments into real estate funds which invest in a diverse range of real estate properties. Insurance contracts are customary pension insurance contracts structured under domestic law in the respective countries. Short-term investments are liquid assets or cash which are being held for a short period of time, with the primary purpose of controlling the tactical asset allocation. The other category includes commodities as well as alternative investments, including derivative financial instruments.
The pension plan assets include a self investment through a loan provided to Nokia by the Group’s German pension fund of EUR 69 million (EUR 69 million in 2012). See Note 32.
Future Cash Flows
Employer contributions expected to be paid to the post-employment defined benefit plans relating to continued operations in 2014 are EUR 23 million and the weighted average duration of the defined benefit obligations was 13.9 years at December 31, 2013.
Expected maturity analysis of undiscounted payments from the defined benefit plans of the continued operations:
| EURm |
Within 1 year | Between 1 and 5 years |
Between 5 and 10 years |
Between 10 and 20 years |
Over 20 years | Total | ||||||||||||||||||
| Pension benefits |
34 | 150 | 264 | 826 | 1 840 | 3 114 | ||||||||||||||||||
F-40
Table of Contents
| 7. | Expenses by nature |
| 2013 | 2012 | 2011 | ||||||||||
| EURm | EURm | EURm | ||||||||||
| Continuing operations |
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| Cost of material |
2 835 | 3 820 | 4 201 | |||||||||
| Personnel expenses |
3 857 | 4 108 | 4 510 | |||||||||
| Subcontracting costs |
2 427 | 3 070 | 2 742 | |||||||||
| Real estate costs |
351 | 446 | 408 | |||||||||
| Depreciation and amortization |
560 | 1 088 | 1 318 | |||||||||
| Warranty costs |
52 | 21 | 59 | |||||||||
| Other costs and expenses |
1 572 | 2 431 | 2 847 | |||||||||
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| Total of Cost of sales, Research and development, Selling and marketing and Administrative and general expenses |
11 654 | 14 984 | 16 085 | |||||||||
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| 8. | Other income and expenses |
| 2013 | 2012 | 2011 | ||||||||||
| EURm | EURm | EURm | ||||||||||
| Continuing operations |
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| Other income |
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| Distributions from unlisted venture funds |
97 | 22 | 26 | |||||||||
| FX gain on hedging forecasted sales and purchases |
36 | 26 | 2 | |||||||||
| Rental income |
25 | 20 | 30 | |||||||||
| Profit on sale of other fixed assets |
26 | 28 | 18 | |||||||||
| Gain on sale of real estate |
6 | 79 | 9 | |||||||||
| Interest income from customer receivables and overdue payments |
27 | 10 | 11 | |||||||||
| Pension curtailments |
— | 12 | — | |||||||||
| Other miscellaneous income |
55 | 79 | 55 | |||||||||
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| Other income, total |
272 | 276 | 151 | |||||||||
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| Other expenses |
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| Restructuring and associated charges |
(395 | ) | (1 174 | ) | (169 | ) | ||||||
| Country and contract exits |
(52 | ) | (42 | ) | — | |||||||
| Divestment of businesses |
(157 | ) | (50 | ) | (19 | ) | ||||||
| Loss on sale of property, plant and equipment |
(20 | ) | (40 | ) | (9 | ) | ||||||
| Impairment of shares in associated companies |
— | (8 | ) | (41 | ) | |||||||
| Other impairments |
(13 | ) | (29 | ) | (66 | ) | ||||||
| Sale of receivables transactions |
(53 | ) | (44 | ) | (33 | ) | ||||||
| Valuation allowances for doubtful accounts |
(30 | ) | (34 | ) | 33 | |||||||
| FX loss on hedging forecasted sales and purchases |
(24 | ) | (18 | ) | 8 | |||||||
| VAT and other indirect tax write-offs and provisions |
(37 | ) | (25 | ) | (35 | ) | ||||||
| Transaction costs related to the Sale of D&S business |
(18 | ) | — | — | ||||||||
| Other miscellaneous expenses |
(9 | ) | (49 | ) | (1 | ) | ||||||
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| Other expenses, total |
(808 | ) | (1 513 | ) | (332 | ) | ||||||
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In 2013, other expenses from continuing operations included restructuring and related charges of EUR 395 million, which consists primarily of employee termination benefits. Restructuring and related charges included EUR 361 million related to NSN, recorded within NSN, other, EUR 22 million related to HERE, EUR 2 million related to Advanced Technologies and EUR 10 million related to Corporate Common Functions, respectively.
F-41
Table of Contents
In 2012, other expenses included restructuring and related charges of EUR 1 174 million, which consists primarily of employee termination benefits. Restructuring and related charges included EUR 1 134 million related to NSN, EUR 31 million to HERE, EUR 3 million to Advanced Technologies and EUR 6 million related to Corporate Common Functions, respectively.
In 2011, other expenses included restructuring charges of EUR 169 million. Restructuring charges included EUR 126 million related to NSN, recorded within NSN other, EUR 25 million related to HERE, EUR 13 million to Advanced Technologies and EUR 5 million to Corporate Common Functions, respectively.
| 9. | Impairment |
| 2013 | 2012 | 2011 | ||||||||||
| EURm | EURm | EURm | ||||||||||
| Goodwill |
— | — | 1 090 | |||||||||
| Other intangible assets |
— | 8 | 2 | |||||||||
| Property, plant and equipment |
12 | 23 | 10 | |||||||||
| Inventories |
— | — | 7 | |||||||||
| Investments in associated companies |
— | 8 | 41 | |||||||||
| Available-for-sale investments |
8 | 31 | 94 | |||||||||
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| Continued operations, net |
20 | 70 | 1 244 | |||||||||
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| Discontinued operations, net |
— | 39 | 94 | |||||||||
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Goodwill
Goodwill is allocated to the Group’s cash-generating units (“CGUs”) or groups of cash-generating units for the purpose of impairment testing. The allocation is made to those CGUs that are expected to benefit from the synergies of the business combination in which the goodwill arose. As a result of the Sale of the D&S Business to Microsoft, as well as Nokia’s acquisition of the Siemens’ stake in NSN, the Group reviewed the structure of its CGUs.
In consequence of the Purchase Agreement with Microsoft, the Smart Devices and Mobile Phones CGUs have been combined to a single Devices & Services CGU and aligned with the scope of the business being sold. The goodwill previously allocated to the two separate CGUs was allocated to the combined CGU for impairment testing purposes in 2013. No goodwill was allocated to the new Advanced Technologies CGU.
In previous years, the Group had defined the NSN operating segment as a single CGU. As a consequence of Nokia’s acquisition of the Siemens minority stake in NSN and the resulting change in reportable segments, the Group has identified two NSN related groups of CGUs to which goodwill has been allocated: Radio Access Networks within the Mobile Broadband operating segment and Global Services.
IAS 36 requires goodwill to be assessed annually for impairment unless triggering events are identified prior to the annual testing date that indicate a potential impairment, in which case an interim assessment is required. The annual impairment testing for the Devices & Services and HERE CGUs is performed as of October 1. The annual impairment testing for the NSN related groups of CGUs has been performed as of September 30. An additional impairment analysis specific to NSN CGUs was performed subsequently at November 30, 2013 to align the annual testing date with the NSN annual financial planning cycle. Management determined that the signing of the agreement with Microsoft for the Sale of the D&S Business constituted a triggering event requiring an interim impairment test for the
F-42
Table of Contents
Devices & Services and HERE CGUs. Accordingly, an interim review was performed in September 2013. No impairment charges were recorded for any of the CGUs as a result of either the interim or annual tests.
The Group allocated goodwill to the CGUs at each of the respective years’ impairment testing date, as presented in the table below:
| 2013 | 2012 | 2011 | ||||||||||
| EURm | EURm | EURm | ||||||||||
| Smart Devices(1) |
— | 899 | 862 | |||||||||
| Mobile Phones(1) |
— | 530 | 502 | |||||||||
| Devices & Services (discontinued operations)(1) |
1 417 | — | — | |||||||||
| HERE |
3 219 | 3 270 | 3 274 | |||||||||
| Radio Access Networks in Mobile Broadband(2) |
88 | — | — | |||||||||
| Global Services(2) |
91 | — | — | |||||||||
| NSN(2) |
— | 183 | 173 | |||||||||
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| Total |
4 815 | 4 882 | 4 811 | |||||||||
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|||||||
| (1) | Smart Devices and Mobile Phones CGUs have been combined to a single Devices & Services CGU in 2013. |
| (2) | NSN has two groups of CGUs to which goodwill has been allocated in 2013. |
The recoverable values of the Smart Devices and Mobile Phones CGUs, were previously valued on a value in use basis. Value in use was based on reasonable and supportable assumptions that represented management’s best estimate of the economic circumstances that will prevail over the remaining life of an asset (“steady state”). During 2013, the Devices & Services CGU recoverable value was estimated based on the fair value less cost of disposal based on the agreed purchase price defined for the Sale of the D&S Business, excluding any consideration attributable to patents or patent applications.
The recoverable amounts for the HERE CGU, Radio Access Networks and Global Services group of CGUs are based on fair value less cost of disposal and were EUR 3 803 million, EUR 3 096 million and EUR 3 910 million, respectively, at the date of the 2013 annual impairment testing. The valuation methodologies have remained consistent from previous years. Fair value less cost of disposal was estimated using a discounted cash flow calculation. The cash flow projections employed in the discounted cash flow calculation have been determined by management based on the information available to reflect the amount that an entity could obtain from separate disposal of each of the CGUs, in an orderly transaction between market participants at the measurement date after deducting the estimated costs of disposal. The estimates of fair value less cost of disposal are categorized in the level 3 of the fair value hierarchy.
Discounted cash flows for the NSN groups of CGUs and HERE CGU were modeled over ten annual periods. The growth rates used in transitioning to terminal year reflect estimated long-term stable growth which do not exceed long-term average growth rates for the industry and economies in which the CGUs operate. All cash flow projections are consistent with external sources of information, wherever possible.
F-43
Table of Contents
The key assumptions applied in the 2013 impairment testing analysis for each CGU are presented in the table below. No information has been included for the Devices & Services CGU as the recoverable amount was not determined using a discounted cash flow analysis and the CGU is attributable to discontinued operations:
| Cash-generating unit | ||||||||||||||||||||||||||||||||
| HERE | Radio Access Networks group of CGUs in Mobile Broadband(1) |
Global Services group of CGUs(1) |
NSN | |||||||||||||||||||||||||||||
| % | % | % | % | |||||||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||||
| Terminal growth rate |
1.7 | 1.7 | 1.5 | — | 0.5 | — | — | 0.7 | ||||||||||||||||||||||||
| Post-tax discount rate |
10.6 | 9.9 | 10.8 | — | 10.1 | — | — | 10.3 | ||||||||||||||||||||||||
| (1) | NSN CGU is divided into two groups of CGUs in 2013: Radio Access Networks group of CGUs within the Mobile Broadband operating segment and the Global Services group of CGUs. |
Fair value less cost of disposal for the HERE CGU and Radio Access Networks and Global Services groups of CGUs are determined using post-tax valuation assumptions including projected cash flows and the discount rate.
The discount rates applied in the impairment testing for the above noted CGUs or groups of CGUs reflect current assessments of the time value of money and relevant market risk premiums. Risk premiums included in the determination of the discount rate reflect risks and uncertainties for which the future cash flow estimates have not been adjusted.
In the fourth quarter of 2011 the Group recorded an impairment loss of EUR 1 090 million to reduce the carrying amount of the HERE CGU to its recoverable amount at that time. The impairment loss was allocated in its entirety to the carrying amount of goodwill. The Group’s goodwill impairment testing did not result in impairment charges for the years ended December 31, 2013 or 2012.
The recoverable amount of the HERE CGU exceeds its carrying amount by a small margin at the testing date. The related valuation is deemed most sensitive to the changes in both discount and long-term growth rates. A discount rate increase in excess of 0.5 percentage point or long-term growth decline in excess of 1.1 percentage point would result in impairment loss in the HERE CGU. Management’s estimates of the overall automotive volumes and market share, customer adoption of the new location-based platform and related service offerings, projected value of the services sold to Microsoft and assumptions regarding pricing as well as continued focus on cost efficiency are the main drivers for the HERE net cash flow projections. The Group’s cash flow forecasts reflect the current strategic views that license fee based models will remain important in both near and long term. Management expects that license fee based models which are augmented with software and services and monetized via license fees, transactions fees and advertising, will grow in the future as more customers demand complete, end-to-end location solutions and as cloud computing and cloud-based services garner greater market acceptance. Actual short and long-term performance could vary from management’s forecasts and impact future estimates of recoverable value. Since the recoverable amount exceeds the carrying amount only by a small margin, any material adverse changes such as market deterioration or changes in the competitive landscape could impact management’s estimates of the main drivers and result in impairment loss.
Other than as disclosed for the HERE CGU above, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of any cash generating unit to exceed its recoverable amount.
F-44
Table of Contents
Other intangible assets
There were no impairment charges recognized during 2013.
During 2012, a charge of EUR 8 million was recorded on intangible assets attributable to the decision to transition certain operations into maintenance mode within NSN. These charges were recorded in other operating expenses.
Property, plant and equipment
During 2013 NSN recorded an impairment charge of EUR 6 million (EUR 23 million in 2012) on property, plant and equipment as a result of the re-measurement of the Optical Networks disposal group at fair value less cost of disposal. Furthermore, the Group recognized impairment losses of EUR 6 million related to certain properties attributable to Corporate Common Functions.
Investments in associated companies
No material impairment charges were recognized during 2013.
After application of the equity method, including recognition of the Group’s share of results of associated companies, the Group determined that recognition of impairment losses of EUR 8 million in 2012 (EUR 41 million in 2011) was necessary to adjust the Group’s investment in associated companies to its recoverable amount. The charges were recorded in other operating expense and are included in Corporate Common Functions.
Available-for-sale investments
The Group’s investment in certain equity and interest-bearing securities held as available-for-sale suffered a significant or prolonged decline in fair value resulting in an impairment charge of EUR 8 million (EUR 31 million in 2012, EUR 94 million in 2011). These impairment losses are included within financial income and expenses and other operating expenses in the consolidated income statement. See also Note 12.
| 10. | Acquisitions |
Acquisitions completed in 2013
Acquisition of Siemens’ non-controlling interest in NSN
On August 7, 2013 Nokia completed its acquisition of Siemens’ 50% interest in their joint venture, Nokia Siemens Networks (renamed Nokia Solutions and Networks) for a consideration of EUR 1 700 million. Cash of EUR 1 200 million was paid at the closing of the transaction. The remaining EUR 500 million was financed through a secured loan from Siemens, which was repaid in September 2013. Transaction related costs amounted to EUR 7 million.
Upon closing, the parent entity of NSN business, Nokia Siemens Networks B.V., became wholly owned subsidiary of Nokia. Nokia continues to control and consolidate NSN results and financial position and the acquisition of Siemens’ non-controlling interest is accounted for as an equity transaction. The transaction reduced the Group’s equity by EUR 783 million, representing the difference between the carrying amount of Siemens’ non-controlling interest on the date of the acquisition of EUR 924 million and the total consideration paid of EUR 1 707 million. The impact to individual shareholder’s equity line items is presented in “Acquisition of non-controlling interest” line item in the consolidated statement of changes in shareholder’s equity and in the accompanying notes.
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Table of Contents
The transaction resulted in changes in the reporting structure of the NSN business, for further information refer to Note 2.
Acquisitions completed in 2012
During 2012, the Group completed minor acquisitions that did not have a material impact on the consolidated financial statements. The purchase consideration paid and the total of goodwill arising from these acquisitions amounted to EUR 56 million and EUR 45 million, respectively. The goodwill arising from these acquisitions is attributable to assembled workforce and post-acquisition synergies.
| • | Scalado AB, based in Lund, Sweden, provides and develops imaging software and experiences. The Group acquired imaging specialists, all technologies and intellectual property from Scalado AB on July 20, 2012. |
| • | earthmine Inc., based in California, USA, develops systems to collect and process 3D imagery. The Group acquired a 100% ownership interest in earthmine on November 19, 2012. |
| 11. | Depreciation and amortization |
| 2013 | 2012 | 2011 | ||||||||||
| EURm | EURm | EURm | ||||||||||
| Depreciation and amortization by function |
||||||||||||
| Cost of sales |
88 | 119 | 151 | |||||||||
| Research and development(1) |
293 | 525 | 586 | |||||||||
| Selling and marketing(2) |
95 | 334 | 435 | |||||||||
| Administrative and general |
84 | 110 | 146 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
560 | 1 088 | 1 318 | |||||||||
|
|
|
|
|
|
|
|||||||
| (1) | In 2013, depreciation and amortization allocated to research and development included amortization of acquired intangible assets of EUR 188 million (EUR 375 million in 2012 and EUR 404 million in 2011). |
| (2) | In 2013, depreciation and amortization allocated to selling and marketing included amortization of acquired intangible assets of EUR 93 million (EUR 313 million in 2012 and EUR 421 million in 2011). |
F-46
Table of Contents
| 12. | Financial income and expenses |
| 2013 | 2012 | 2011 | ||||||||||
| EURm | EURm | EURm | ||||||||||
| Continuing operations |
||||||||||||
| Dividend income on available-for-sale financial investments |
1 | 3 | 1 | |||||||||
| Interest income on available-for-sale financial investments(1) |
95 | 119 | 169 | |||||||||
| Interest income on loans receivables carried at amortized cost |
7 | 3 | 1 | |||||||||
| Interest income on investments at fair value through profit and loss |
6 | 8 | 18 | |||||||||
| Net interest expense on derivatives not under hedge accounting |
(4 | ) | (4 | ) | (12 | ) | ||||||
| Interest expense on financial liabilities carried at amortized cost(1) |
(319 | ) | (263 | ) | (255 | ) | ||||||
| Net realised gains (losses) on disposal of fixed income available-for-sale financial investments |
2 | (1 | ) | (4 | ) | |||||||
| Net fair value gains (losses) on investments at fair value through profit and loss |
(29 | ) | 27 | 102 | ||||||||
| Net gains (net losses) on other derivatives designated at fair value through profit and loss |
32 | (11 | ) | (121 | ) | |||||||
| Net fair value gains (losses) on hedged items under fair value hedge accounting |
69 | (15 | ) | (82 | ) | |||||||
| Net fair value gains (losses) on hedging instruments under fair value hedge accounting |
(63 | ) | 23 | 72 | ||||||||
| Net foreign exchange gains (losses)(2) |
||||||||||||
| From foreign exchange derivatives designated at fair value through profit and loss |
(28 | ) | (42 | ) | 100 | |||||||
| From balance sheet items revaluation |
(74 | ) | (223 | ) | (90 | ) | ||||||
| Other financial income(3) |
48 | 51 | 48 | |||||||||
| Other financial expenses(4) |
(23 | ) | (32 | ) | (78 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total |
(280 | ) | (357 | ) | (131 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| (1) | During 2013, interest income decreased mainly as a result of lower cash levels than in 2012 and lower interest rates in certain currencies where the Group has investments. Interest expense increased due to higher levels of borrowing as well as expenses related to funding the purchase of NSN non-controlling interest from Siemens. During 2012, interest income decreased mainly as a result of lower cash levels than in 2011 and lower interest rates in certain currencies where the Group has investments. |
| (2) | During 2013 foreign exchange gains (or losses) were positively impacted by lower hedging costs than in 2012 as well as lower volatility of certain emerging market currencies. During 2012 foreign exchange gains (or losses) were negatively impacted by higher hedging costs than in 2011 as well as significant weakening of certain emerging market currencies. |
| (3) | Other financial income includes distributions of EUR 44 million in 2013 (EUR 49 million in 2012 and EUR 45 million in 2011) from a private fund held as non-current available-for-sale investments. |
| (4) | Other financial expenses include an impairment loss of EUR 0 million in 2013 (EUR 7 million in 2012 and EUR 38 million in 2011) in the Group’s investment in the above mentioned private fund due to changes in estimated future cash flows resulting from distributions received as well as other factors. The Group did not recognize any impairment losses related to Asset Backed Securities in 2013 or 2012 in other financial expenses, whereas impairments for these securities amounted to EUR 15 million in 2011. Additional information can be found in Note 9 and Note 17. |
F-47
Table of Contents
| 13. | Income taxes |
| 2013 | 2012 | 2011 | ||||||||||
| EURm | EURm | EURm | ||||||||||
| Continuing operations |
||||||||||||
| Income tax |
||||||||||||
| Current |
(354 | ) | (329 | ) | (340 | ) | ||||||
| Deferred |
152 | 25 | 267 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
(202 | ) | (304 | ) | (73 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Finnish entities |
(87 | ) | (147 | ) | (102 | ) | ||||||
| Other countries |
(115 | ) | (157 | ) | 29 | |||||||
|
|
|
|
|
|
|
|||||||
| Total |
(202 | ) | (304 | ) | (73 | ) | ||||||
|
|
|
|
|
|
|
|||||||
The differences between income tax expense computed at the statutory rate of 24.5% in 2013 and 2012 in Finland (26% in 2011) and income taxes recognized in the consolidated income statement is reconciled as follows:
| 2013 | 2012 | 2011 | ||||||||||
| EURm | EURm | EURm | ||||||||||
| Income tax expense (benefit) at statutory rate |
60 | (289 | ) | (401 | ) | |||||||
| Permanent differences |
(22 | ) | 67 | (98 | ) | |||||||
| Non tax deductible impairment of goodwill (Note 9) |
— | — | 283 | |||||||||
| Income taxes for prior years |
(22 | ) | (78 | ) | (16 | ) | ||||||
| Income taxes on foreign subsidiaries’ profits in excess of (lower than) income taxes at statutory rates |
5 | 15 | (22 | ) | ||||||||
| Realizability of deferred tax assets(1) |
138 | 609 | 279 | |||||||||
| Net increase (decrease) in uncertain tax positions |
14 | (14 | ) | 3 | ||||||||
| Change in income tax rates |
7 | 4 | 11 | |||||||||
| Income taxes on undistributed earnings |
(21 | ) | (24 | ) | 9 | |||||||
| Other |
43 | 14 | 25 | |||||||||
|
|
|
|
|
|
|
|||||||
| Income tax expense |
202 | 304 | 73 | |||||||||
|
|
|
|
|
|
|
|||||||
| (1) | This item primarily relates to NSN Finnish tax losses, unused tax credits and temporary differences for which no deferred tax was recognized. In 2012 this item also relates to NSN German tax losses and temporary differences for which no deferred tax was recognized. |
Current income tax liabilities at December 31, 2013 include EUR 394 million (EUR 327 million in 2012) related to uncertain tax positions. The timing of outflows related to these matters is inherently uncertain.
Certain of the Group companies’ income tax returns for prior periods are under examination by tax authorities. Our business and investments especially in emerging market countries may be subject to uncertainties, including unfavorable or unpredictable taxation treatment. Management judgment and a degree of estimation are required in determining tax expense. Even though the Group does not believe that any significant additional taxes in excess of those already provided for will arise as a result of the examinations, final resolutions of open items may substantially differ from the amounts initially recorded.
F-48
Table of Contents
| 14. | Intangible assets |
| 2013 | 2012 | |||||||
| EURm | EURm | |||||||
| Capitalized development costs |
||||||||
| Acquisition cost January 1 |
1 028 | 1 035 | ||||||
| Transfer to assets held for sale |
(284 | ) | — | |||||
| Retirements during the period |
(6 | ) | (7 | ) | ||||
|
|
|
|
|
|||||
| Accumulated acquisition cost December 31 |
738 | 1 028 | ||||||
|
|
|
|
|
|||||
| Accumulated amortization January 1 |
(1 028 | ) | (1 029 | ) | ||||
| Transfer to assets held for sale |
284 | — | ||||||
| Retirements during the period |
6 | 7 | ||||||
| Amortization for the period |
— | (6 | ) | |||||
|
|
|
|
|
|||||
| Accumulated amortization December 31 |
(738 | ) | (1 028 | ) | ||||
|
|
|
|
|
|||||
| Net book value January 1 |
— | 6 | ||||||
| Net book value December 31 |
— | — | ||||||
| Goodwill |
||||||||
| Acquisition cost January 1 |
6 874 | 6 836 | ||||||
| Transfer to assets held for sale |
(1 428 | ) | — | |||||
| Translation differences |
(153 | ) | (16 | ) | ||||
| Acquisitions |
— | 54 | ||||||
|
|
|
|
|
|||||
| Accumulated acquisition cost December 31 |
5 293 | 6 874 | ||||||
|
|
|
|
|
|||||
| Accumulated impairments January 1 |
(1 998 | ) | (1 998 | ) | ||||
| Impairments during the period |
— | — | ||||||
|
|
|
|
|
|||||
| Accumulated impairments December 31 |
(1 998 | ) | (1 998 | ) | ||||
|
|
|
|
|
|||||
| Net book value January 1 |
4 876 | 4 838 | ||||||
| Net book value December 31 |
3 295 | 4 876 | ||||||
| Other intangible assets |
||||||||
| Acquisition cost January 1 |
5 753 | 5 877 | ||||||
| Transfer to assets held for sale |
(282 | ) | — | |||||
| Translation differences |
(127 | ) | (20 | ) | ||||
| Additions during the period |
24 | 46 | ||||||
| Acquisitions |
— | 11 | ||||||
| Retirements during the period |
(92 | ) | (52 | ) | ||||
| Impairments during the period |
— | (65 | ) | |||||
| Disposals during the period |
(62 | ) | (44 | ) | ||||
|
|
|
|
|
|||||
| Accumulated acquisition cost December 31 |
5 214 | 5 753 | ||||||
|
|
|
|
|
|||||
| Accumulated amortization January 1 |
(5 106 | ) | (4 471 | ) | ||||
| Transfer to assets held for sale |
245 | — | ||||||
| Translation differences |
107 | 19 | ||||||
| Retirements during the period |
89 | 48 | ||||||
| Impairments during the period |
— | 49 | ||||||
| Disposals during the period |
57 | 33 | ||||||
| Amortization for the period |
(310 | ) | (784 | ) | ||||
|
|
|
|
|
|||||
| Accumulated amortization December 31 |
(4 918 | ) | (5 106 | ) | ||||
|
|
|
|
|
|||||
| Net book value January 1 |
647 | 1 406 | ||||||
| Net book value December 31 |
296 | 647 | ||||||
F-49
Table of Contents
| 15. | Property, plant and equipment |
| 2013 | 2012 | |||||||
| EURm | EURm | |||||||
| Land and water areas |
||||||||
| Acquisition cost January 1 |
33 | 62 | ||||||
| Transfer to assets held for sale |
(6 | ) | — | |||||
| Translation differences |
(1 | ) | — | |||||
| Additions during the period |
4 | — | ||||||
| Impairments during the period |
(1 | ) | (4 | ) | ||||
| Disposals during the period |
(17 | ) | (25 | ) | ||||
|
|
|
|
|
|||||
| Accumulated acquisition cost December 31 |
12 | 33 | ||||||
|
|
|
|
|
|||||
| Net book value January 1 |
33 | 62 | ||||||
| Net book value December 31 |
12 | 33 | ||||||
| Buildings and constructions |
||||||||
| Acquisition cost January 1 |
1 129 | 1 380 | ||||||
| Transfer to assets held for sale |
(422 | ) | — | |||||
| Translation differences |
(44 | ) | (1 | ) | ||||
| Additions during the period |
— | 80 | ||||||
| Impairments during the period |
— | (36 | ) | |||||
| Disposals during the period |
(327 | ) | (294 | ) | ||||
|
|
|
|
|
|||||
| Accumulated acquisition cost December 31 |
336 | 1 129 | ||||||
|
|
|
|
|
|||||
| Accumulated depreciation January 1 |
(469 | ) | (519 | ) | ||||
| Transfer to assets held for sale |
150 | — | ||||||
| Translation differences |
19 | (3 | ) | |||||
| Impairments during the period |
— | 15 | ||||||
| Disposals during the period |
191 | 134 | ||||||
| Depreciation for the period |
(48 | ) | (96 | ) | ||||
|
|
|
|
|
|||||
| Accumulated depreciation December 31 |
(157 | ) | (469 | ) | ||||
|
|
|
|
|
|||||
| Net book value January 1 |
660 | 861 | ||||||
| Net book value December 31 |
179 | 660 | ||||||
| Machinery and equipment |
||||||||
| Acquisition cost January 1 |
3 694 | 4 078 | ||||||
| Transfer to assets held for sale |
(1 528 | ) | — | |||||
| Translation differences |
(122 | ) | (1 | ) | ||||
| Additions during the period |
138 | 329 | ||||||
| Acquisitions |
— | (8 | ) | |||||
| Impairments during the period |
(6 | ) | (131 | ) | ||||
| Disposals during the period |
(428 | ) | (573 | ) | ||||
|
|
|
|
|
|||||
| Accumulated acquisition cost December 31 |
1 748 | 3 694 | ||||||
|
|
|
|
|
|||||
| Accumulated depreciation January 1 |
(3 043 | ) | (3 257 | ) | ||||
| Transfer to assets held for sale |
1 335 | — | ||||||
| Translation differences |
107 | (1 | ) | |||||
| Impairments during the period |
— | 102 | ||||||
| Disposals during the period |
397 | 550 | ||||||
| Depreciation for the period |
(200 | ) | (437 | ) | ||||
|
|
|
|
|
|||||
| Accumulated depreciation December 31 |
(1 404 | ) | (3 043 | ) | ||||
|
|
|
|
|
|||||
F-50
Table of Contents
| 2013 | 2012 | |||||||
| EURm | EURm | |||||||
| Net book value January 1 |
651 | 821 | ||||||
| Net book value December 31 |
344 | 651 | ||||||
| Other tangible assets |
||||||||
| Acquisition cost January 1 |
44 | 57 | ||||||
| Transfer to assets held for sale |
(4 | ) | — | |||||
| Translation differences |
(2 | ) | 1 | |||||
| Additions during the period |
— | 6 | ||||||
| Disposals during the period |
(10 | ) | (20 | ) | ||||
|
|
|
|
|
|||||
| Accumulated acquisition cost December 31 |
28 | 44 | ||||||
|
|
|
|
|
|||||
| Accumulated depreciation January 1 |
(30 | ) | (34 | ) | ||||
| Transfer to assets held for sale |
4 | — | ||||||
| Translation differences |
1 | (1 | ) | |||||
| Disposals during the period |
6 | 8 | ||||||
| Depreciation for the period |
(2 | ) | (3 | ) | ||||
|
|
|
|
|
|||||
| Accumulated depreciation December 31 |
(21 | ) | (30 | ) | ||||
|
|
|
|
|
|||||
| Net book value January 1 |
14 | 23 | ||||||
| Net book value December 31 |
7 | 14 | ||||||
| Advance payments and fixed assets under construction |
||||||||
| Net carrying amount January 1 |
73 | 75 | ||||||
| Translation differences |
(5 | ) | (4 | ) | ||||
| Additions |
11 | 58 | ||||||
| Acquisitions |
— | — | ||||||
| Impairment |
— | — | ||||||
| Disposals |
(3 | ) | (5 | ) | ||||
| Transfers/reclassifications: |
||||||||
| Other intangible assets |
— | (8 | ) | |||||
| Land and water areas |
33 | — | ||||||
| Buildings and constructions |
31 | (23 | ) | |||||
| Machinery and equipment |
11 | (18 | ) | |||||
| Other tangible assets |
— | (2 | ) | |||||
| Assets held for sale |
(127 | ) | — | |||||
|
|
|
|
|
|||||
| Net carrying amount December 31 |
24 | 73 | ||||||
|
|
|
|
|
|||||
| Total property, plant and equipment |
566 | 1 431 | ||||||
| Assets held for Sale |
||||||||
| Net carrying amount January 1 |
— | — | ||||||
| Additions during the period |
94 | — | ||||||
| Impairments during the period |
(5 | ) | — | |||||
|
|
|
|
|
|||||
| Net carrying amount December 31 |
89 | — | ||||||
|
|
|
|
|
|||||
F-51
Table of Contents
| 16. | Investments in associated companies |
| 2013 | 2012 | |||||||
| EURm | EURm | |||||||
| Net carrying amount January 1 |
58 | 67 | ||||||
| Translation differences |
(1 | ) | 3 | |||||
| Additions |
9 | 1 | ||||||
| Deductions |
— | (4 | ) | |||||
| Impairments (Note 9) |
— | (8 | ) | |||||
| Share of results |
4 | (1 | ) | |||||
| Dividend |
(5 | ) | — | |||||
|
|
|
|
|
|||||
| Net carrying amount December 31 |
65 | 58 | ||||||
|
|
|
|
|
|||||
Shareholdings in associated companies are comprised of investments in unlisted companies in all periods presented.
| 17. | Fair value of financial instruments |
| Continuing operations | Carrying amounts | Total carrying amounts |
Fair value(1) |
|||||||||||||||||||||||||
| At December 31, 2013 |
Current available-for- sale financial assets |
Non-current available-for- sale financial assets |
Financial instruments at fair value through profit or loss |
Loans and receivables measured at amortised cost |
Financial liabilities measured at amortised cost |
|
|
|||||||||||||||||||||
| EURm | EURm | EURm | EURm | EURm | EURm | EURm | ||||||||||||||||||||||
| Available-for-sale investments, publicly quoted equity shares |
— | 11 | — | — | — | 11 | 11 | |||||||||||||||||||||
| Available-for-sale investments, carried at fair value |
— | 503 | — | — | 503 | 503 | ||||||||||||||||||||||
| Available-for-sale investments, carried at cost less impairment |
— | 227 | — | — | — | 227 | 227 | |||||||||||||||||||||
| Long-term loans receivable |
— | — | — | 96 | — | 96 | 85 | |||||||||||||||||||||
| Accounts receivable |
— | — | — | 2 901 | — | 2 901 | 2 901 | |||||||||||||||||||||
| Current portion of long-term loans receivable |
— | — | — | 29 | — | 29 | 29 | |||||||||||||||||||||
| Other current financial assets, derivatives |
— | — | 191 | — | — | 191 | 191 | |||||||||||||||||||||
| Other current financial assets, other |
— | — | — | 94 | — | 94 | 94 | |||||||||||||||||||||
| Investments at fair value through profit and loss, liquid assets |
— | — | 382 | — | — | 382 | 382 | |||||||||||||||||||||
| Available-for-sale investments, liquid assets carried at fair value |
956 | — | — | — | — | 956 | 956 | |||||||||||||||||||||
| Available for-sale investments, cash equivalents carried at fair value |
3 957 | — | — | — | — | 3 957 | 3 957 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total financial assets |
4 913 | 741 | 573 | 3 120 | — | 9 347 | 9 336 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| — | — | — | — | — | — | — | ||||||||||||||||||||||
| Long-term interest-bearing liabilities(2) |
— | — | — | — | 3 286 | 3 286 | 4 521 | |||||||||||||||||||||
| Current portion of long-term loans payable(2) |
— | — | — | — | 3 192 | 3 192 | 3 385 | |||||||||||||||||||||
| Short-term borrowing |
— | — | — | — | 184 | 184 | 184 | |||||||||||||||||||||
| Other financial liabilities |
— | — | 35 | — | — | 35 | 35 | |||||||||||||||||||||
| Accounts payable |
— | — | — | — | 1 842 | 1 842 | 1 842 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total financial liabilities |
— | — | 35 | — | 8 504 | 8 539 | 9 967 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
F-52
Table of Contents
| Carrying amounts | Total carrying amounts |
Fair value(1) |
||||||||||||||||||||||||||
| At December 31, 2012 |
Current available-for- sale financial assets |
Non-current available-for- sale financial assets |
Financial instruments at fair value through profit or loss |
Loans and receivables measured at amortised cost |
Financial liabilities measured at amortised cost |
|
|
|||||||||||||||||||||
| EURm | EURm | EURm | EURm | EURm | EURm | EURm | ||||||||||||||||||||||
| Available-for-sale investments, publicly quoted equity shares |
— | 11 | — | — | — | 11 | 11 | |||||||||||||||||||||
| Available-for-sale investments, carried at fair value |
— | 447 | — | — | — | 447 | 447 | |||||||||||||||||||||
| Available-for-sale investments, carried at cost less impairment |
— | 231 | — | — | — | 231 | 231 | |||||||||||||||||||||
| Long-term loans receivable |
— | — | — | 125 | — | 125 | 113 | |||||||||||||||||||||
| Accounts receivable |
— | — | — | 5 551 | — | 5 551 | 5 551 | |||||||||||||||||||||
| Current portion of long-term loans receivable |
— | — | — | 35 | — | 35 | 35 | |||||||||||||||||||||
| Other current financial assets, derivatives |
— | — | 448 | — | — | 448 | 448 | |||||||||||||||||||||
| Other current financial assets, other |
— | — | — | 3 | — | 3 | 3 | |||||||||||||||||||||
| Investments at fair value through profit and loss, liquid assets |
— | — | 415 | — | — | 415 | 415 | |||||||||||||||||||||
| Available-for-sale investments, liquid assets carried at fair value |
542 | — | — | — | — | 542 | 542 | |||||||||||||||||||||
| Available for-sale investments, cash equivalents carried at fair value |
5 448 | — | — | — | — | 5 448 | 5 448 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total financial assets |
5 990 | 689 | 863 | 5 714 | — | 13 256 | 13 244 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Long-term interest-bearing |
— | — | — | — | 5 087 | 5 087 | 5 298 | |||||||||||||||||||||
| Current portion of long-term loans payable(2) |
— | — | — | — | 201 | 201 | 201 | |||||||||||||||||||||
| Short-term borrowing |
— | — | — | — | 261 | 261 | 261 | |||||||||||||||||||||
| Other financial liabilities |
— | — | 90 | — | — | 90 | 90 | |||||||||||||||||||||
| Accounts payable |
— | — | — | — | 4 394 | 4 394 | 4 394 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total financial liabilities |
— | — | 90 | — | 9 943 | 10 033 | 10 244 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| (1) | For information about the valuation of items measured at fair value see Note 1. The fair value is set to carrying amount for available-for-sale investments carried at cost less impairment for which no reliable fair value has been possible to estimate as there is no active market for these investments in private funds. Impairment testing of these assets is based on a discounted cash flow analysis of expected cash distributions. The fair value of loan receivables and payables is estimated based on the current market values of similar instruments. The fair value is estimated to be equal to the carrying amount for short-term financial assets and financial liabilities due to limited credit risk and short time to maturity. |
| (2) | The fair value of EUR Convertible Bonds (total of EUR 1 500 million maturing 2018-2020) is based on the bonds being redeemed at par plus accrued interest at the close of the Sale of the D&S Business to Microsoft (level 3). The fair values of other long-term interest bearing liabilities are based on discounted cash flow analysis (level 2) or quoted prices (level 1). |
F-53
Table of Contents
At the end of each reporting period Nokia categorizes its financial assets and liabilities to the appropriate level of fair value hierarchy. The following table presents the valuation methods used to determine fair values of financial instruments that are measured at fair value on a recurring basis:
| At December 31, 2013 |
Instruments with quoted prices in active markets (Level 1) |
Valuation technique using observable data (Level 2) |
Valuation technique using non- observable data (Level 3) |
Total | ||||||||||||
| EURm | EURm | EURm | EURm | |||||||||||||
| Available-for-sale investments, publicly quoted equity shares |
11 | — | — | 11 | ||||||||||||
| Available-for-sale investments, carried at fair value |
56 | 18 | 429 | 503 | ||||||||||||
| Other current financial assets, derivatives(1) |
— | 191 | — | 191 | ||||||||||||
| Investments at fair value through profit and loss, liquid assets |
382 | — | — | 382 | ||||||||||||
| Available-for-sale investments, liquid assets carried at fair value |
945 | 11 | — | 956 | ||||||||||||
| Available for-sale investments, cash equivalents carried at fair value |
3 957 | — | — | 3 957 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
5 351 | 220 | 429 | 6 000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivative liabilities(1) |
— | 35 | — | 35 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities |
— | 35 | — | 35 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| At December 31, 2012 |
Instruments with quoted prices in active markets (Level 1) |
Valuation technique using observable data (Level 2) |
Valuation technique using non- observable data (Level 3) |
Total | ||||||||||||
| EURm | EURm | EURm | EURm | |||||||||||||
| Available-for-sale investments, publicly quoted equity shares |
11 | — | — | 11 | ||||||||||||
| Available-for-sale investments, carried at fair value |
57 | 20 | 370 | 447 | ||||||||||||
| Other current financial assets, derivatives(1) |
— | 448 | — | 448 | ||||||||||||
| Investments at fair value through profit and loss, liquid assets |
415 | — | — | 415 | ||||||||||||
| Available-for-sale investments, liquid assets carried at fair value |
532 | 10 | — | 542 | ||||||||||||
| Available for-sale investments, cash equivalents carried at fair value |
5 448 | — | — | 5 448 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
6 463 | 478 | 370 | 7 311 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivative liabilities(1) |
— | 90 | — | 90 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities |
— | 90 | — | 90 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | Note 18 includes the split of hedge accounted and non-hedge accounted derivatives. |
Level 1 category includes financial assets and liabilities that are measured in whole or in significant part by reference to published quotes in an active market. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. This category includes listed bonds and other securities, listed shares and exchange traded derivatives.
F-54
Table of Contents
Level 2 category includes financial assets and liabilities measured using a valuation technique based on assumptions that are supported by prices from observable current market transactions. These include assets and liabilities for which pricing is obtained via pricing services, but where prices have not been determined in an active market, financial assets with fair values based on broker quotes and assets that are valued using the Group’s own valuation models whereby the material assumptions are market observable. The majority of the Nokia continuing operations’ over-the-counter derivatives and certain other instruments not traded in active markets fall within this category.
Level 3 category includes financial assets and liabilities measured using valuation techniques based on non market observable inputs. This means that fair values are determined in whole or in part using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data. However, the fair value measurement objective remains the same, that is, to estimate an exit price from the perspective of the Nokia continuing operations. The main asset classes in this category are unlisted equity investments as well as unlisted funds.
Level 3 investments mainly include a large number of unlisted equities and unlisted funds where fair value is determined based on relevant information such as operating performance, recent transactions and available market data on peer companies. No individual input has a significant impact on the total fair value. The following table shows a reconciliation of the opening and closing balances of Level 3 financial assets:
| EURm |
Other available-for- sale investments carried at fair value |
|||
| Balance at December 31, 2011 |
346 | |||
|
|
|
|||
| Total losses in consolidated income statement |
(8 | ) | ||
| Total gains recorded in other comprehensive income |
34 | |||
| Purchases |
41 | |||
| Sales |
(35 | ) | ||
| Other transfers |
(8 | ) | ||
|
|
|
|||
| Balance at December 31, 2012 |
370 | |||
|
|
|
|||
| Total gains in consolidated income statement |
81 | |||
| Total gains recorded in other comprehensive income |
52 | |||
| Purchases |
47 | |||
| Sales |
(123 | ) | ||
| Other transfers |
2 | |||
|
|
|
|||
| Balance at December 31, 2013 |
429 | |||
|
|
|
|||
The gains and losses from financial assets categorized in level 3 are included in other operating income and expenses as the investment and disposal objectives for these investments are business driven. A net loss of EUR 4 million (net loss of EUR 23 million in 2012) related to level 3 financial instruments held at December 31, 2013, was included in the profit and loss during 2013.
In the fourth quarter of 2013 management has concluded that certain real estate properties meet the criteria of assets held for sale. These long lived assets have been identified for disposal as part of the on-going restructuring activities. Nokia expects to realize the sale of these properties within the following twelve months. At December 31, 2013 the fair value of these assets is EUR 89 million. The valuation of these assets is based on third-party evaluations by real estate brokers taking into account
F-55
Table of Contents
Nokia’s divestment strategy for these assets as well as relevant market dynamics. This evaluation includes non-market observable inputs and hence these assets are considered to be level 3 category assets that are measured at fair value on a non-recurring basis.
| 18. | Derivative financial instruments |
Continuing operations
| Assets | Liabilities | |||||||||||||||
| 2013 |
Fair value(1) | Notional(2) | Fair value(1) | Notional(2) | ||||||||||||
| EURm | EURm | EURm | EURm | |||||||||||||
| Hedges of net investment in foreign subsidiaries: |
||||||||||||||||
| Forward foreign exchange contracts |
— | 2 035 | (3 | ) | 1 086 | |||||||||||
| Currency options bought |
1 | 152 | — | — | ||||||||||||
| Currency options sold |
— | — | — | 53 | ||||||||||||
| Cash flow hedges: |
||||||||||||||||
| Forward foreign exchange contracts |
— | 308 | — | 453 | ||||||||||||
| Fair value hedges |
||||||||||||||||
| Interest rate swaps |
76 | 750 | (3 | ) | 73 | |||||||||||
| Cash flow and Fair value hedges: (3) |
||||||||||||||||
| Cross currency interest rate swaps |
8 | 378 | — | — | ||||||||||||
| Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss: |
||||||||||||||||
| Forward foreign exchange contracts |
94 | 3 687 | (7 | ) | 1 691 | |||||||||||
| Currency options bought |
5 | 332 | — | — | ||||||||||||
| Currency options sold |
— | — | — | 18 | ||||||||||||
| Interest rate swaps |
7 | 109 | (22 | ) | 249 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 191 | 7 751 | (35 | ) | 3 623 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Assets | Liabilities | |||||||||||||||
| 2012 |
Fair value(1) | Notional(2) | Fair value(1) | Notional(2) | ||||||||||||
| EURm | EURm | EURm | EURm | |||||||||||||
| Hedges of net investment in foreign subsidiaries: |
||||||||||||||||
| Forward foreign exchange contracts |
24 | 2 164 | (11 | ) | 1 182 | |||||||||||
| Cash flow hedges: |
||||||||||||||||
| Forward foreign exchange contracts |
7 | 2 968 | (6 | ) | 3 158 | |||||||||||
| Fair value hedges |
||||||||||||||||
| Interest rate swaps |
174 | 1 626 | — | — | ||||||||||||
| Cash flow and Fair value hedges: (3) |
||||||||||||||||
| Cross currency interest rate swaps |
42 | 378 | — | — | ||||||||||||
| Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss: |
||||||||||||||||
| Forward foreign exchange contracts |
185 | 7 111 | (18 | ) | 3 337 | |||||||||||
| Currency options bought |
16 | 1 107 | — | — | ||||||||||||
| Currency options sold |
— | — | (6 | ) | 289 | |||||||||||
| Interest rate swaps |
— | 150 | (48 | ) | 513 | |||||||||||
| Other derivatives |
— | — | (1 | ) | 9 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 448 | 15 504 | (90 | ) | 8 488 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | In the consolidated statement of financial position the fair value of derivative financial instruments is included in Other financial assets and in Other financial liabilities. |
F-56
Table of Contents
| (2) | Includes the gross amount of all notional values for contracts that have not yet been settled or cancelled. The amount of notional value outstanding is not necessarily a measure or indication of market risk, as the exposure of certain contracts may be offset by that of other contracts. |
| (3) | These cross-currency interest rate swaps have been designated partly as fair value hedges and partly as cash flow hedges. |
| 19. | Inventories |
| 2013 | 2012 | |||||||
| EURm | EURm | |||||||
| Raw materials, supplies and other |
147 | 409 | ||||||
| Work in progress |
136 | 352 | ||||||
| Finished goods |
521 | 777 | ||||||
|
|
|
|
|
|||||
| Total |
804 | 1 538 | ||||||
|
|
|
|
|
|||||
The total amount of inventories included within Assets of disposal groups classified as held for sale at December 31, 2013, net of write-downs to the net realizable value, is EUR 347 million.
During 2012 the Group recognized an expense of EUR 55 million (EUR 0 million in 2011) to write-down the inventories to net realizable value. The write-down relates to discontinued operations inventories.
| 20. | Prepaid expenses and accrued income |
| 2013 | 2012 | |||||||
| EURm | EURm | |||||||
| Social security, VAT and other indirect taxes |
286 | 875 | ||||||
| Deposits |
43 | 71 | ||||||
| Interest income |
33 | 45 | ||||||
| Deferred cost of sales |
14 | 145 | ||||||
| Rents |
15 | 34 | ||||||
| Other prepaid expenses and accrued income |
269 | 1 512 | ||||||
|
|
|
|
|
|||||
| Total |
660 | 2 682 | ||||||
|
|
|
|
|
|||||
Prepaid expenses and accrued income also include various other prepaid expenses and accrued income, but no amounts which are individually significant.
Total amount of prepaid expenses and accrued income included within Assets of disposal groups classified as held for sale at December 31, 2013, is EUR 1 716 million, of which EUR 829 million relates to the Qualcomm advance payment.
Prepaid expenses and accrued income regarding current tax are included in Current income tax assets in the consolidated statement of financial position in 2013, and have also been reclassified for comparability purposes in 2012.
F-57
Table of Contents
| 21. | Valuation and qualifying accounts |
| Allowances on assets to which they apply: |
Balance at beginning of year |
Transfer to discontinued operations |
Charged to costs and expenses |
Deductions(1) | Balance at end of year |
|||||||||||||||
| EURm | EURm | EURm | EURm | |||||||||||||||||
| 2013 |
||||||||||||||||||||
| Allowance for doubtful accounts |
248 | (120 | ) | 40 | (44 | ) | 124 | |||||||||||||
| Excess and obsolete inventory |
471 | (192 | ) | 39 | (140 | ) | 178 | |||||||||||||
| 2012 |
||||||||||||||||||||
| Allowance for doubtful accounts |
284 | — | 53 | (89 | ) | 248 | ||||||||||||||
| Excess and obsolete inventory |
457 | — | 403 | (389 | ) | 471 | ||||||||||||||
| 2011 |
||||||||||||||||||||
| Allowance for doubtful accounts |
363 | — | 131 | (210 | ) | 284 | ||||||||||||||
| Excess and obsolete inventory |
301 | — | 345 | (189 | ) | 457 | ||||||||||||||
| (1) | Deductions include utilization and releases of the allowances. |
F-58
Table of Contents
| 22. | Fair value and other reserves |
| Pension Remeasurements, EURm |
Hedging reserve, EURm |
Available-for-sale investments, EURm |
Fair value and other reserves total, EURm |
|||||||||||||||||||||||||||||||||||||||||||||
| Gross | Tax | Net | Gross | Tax | Net | Gross | Tax | Net | Gross | Tax | Net | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2010 |
10 | (4 | ) | 6 | (30 | ) | 3 | (27 | ) | 26 | 4 | 30 | 6 | 3 | 9 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Pension Remeasurements: |
||||||||||||||||||||||||||||||||||||||||||||||||
| Remeasurements of defined benefit plans |
(36 | ) | 12 | (24 | ) | — | — | — | — | — | — | (36 | ) | 12 | (24 | ) | ||||||||||||||||||||||||||||||||
| Cash flow hedges: |
||||||||||||||||||||||||||||||||||||||||||||||||
| Net fair value gains/(losses) |
— | — | — | 106 | (25 | ) | 81 | — | — | — | 106 | (25 | ) | 81 | ||||||||||||||||||||||||||||||||||
| Transfer of (gains)/losses to profit and loss account as adjustment to Net sales |
— | — | — | (166 | ) | 42 | (124 | ) | — | — | — | (166 | ) | 42 | (124 | ) | ||||||||||||||||||||||||||||||||
| Transfer of (gains)/losses to profit and loss account as adjustment to Cost of sales |
— | — | — | 162 | (36 | ) | 126 | — | — | — | 162 | (36 | ) | 126 | ||||||||||||||||||||||||||||||||||
| Transfer of (gains)/losses as a basis adjustment to Assets and Liabilities(1) |
— | — | — | 14 | (3 | ) | 11 | — | — | — | 14 | (3 | ) | 11 | ||||||||||||||||||||||||||||||||||
| Available-for-sale Investments: |
||||||||||||||||||||||||||||||||||||||||||||||||
| Net fair value gains/(losses) |
— | — | — | — | — | — | 67 | — | 67 | 67 | — | 67 | ||||||||||||||||||||||||||||||||||||
| Transfer to profit and loss account on impairment |
— | — | — | — | — | — | 22 | (2 | ) | 20 | 22 | (2 | ) | 20 | ||||||||||||||||||||||||||||||||||
| Transfer of net fair value (gains)/losses to profit and loss account on disposal |
— | — | — | — | — | — | (19 | ) | (1 | ) | (20 | ) | (19 | ) | (1 | ) | (20 | ) | ||||||||||||||||||||||||||||||
| Movements attributable to non-controlling interests |
24 | (7 | ) | 17 | (8 | ) | (2 | ) | (10 | ) | — | — | — | 16 | (9 | ) | 7 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Balance at December 31, 2011 |
(2 | ) | 1 | (1 | ) | 78 | (21 | ) | 57 | 96 | 1 | 97 | 172 | (19 | ) | 153 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Pension Remeasurements: |
||||||||||||||||||||||||||||||||||||||||||||||||
| Remeasurements of defined benefit plans |
(228 | ) | 22 | (206 | ) | — | — | — | — | — | — | (228 | ) | 22 | (206 | ) | ||||||||||||||||||||||||||||||||
| Cash flow hedges: |
||||||||||||||||||||||||||||||||||||||||||||||||
| Net fair value gains/(losses) |
— | — | — | (25 | ) | 21 | (4 | ) | — | — | — | (25 | ) | 21 | (4 | ) | ||||||||||||||||||||||||||||||||
| Transfer of (gains)/losses to profit and loss account as adjustment to Net sales |
— | — | — | 390 | — | 390 | — | — | — | 390 | — | 390 | ||||||||||||||||||||||||||||||||||||
| Transfer of (gains)/losses to profit and loss account as adjustment to Cost of sales |
— | — | — | (406 | ) | — | (406 | ) | — | — | — | (406 | ) | — | (406 | ) | ||||||||||||||||||||||||||||||||
| Transfer of (gains)/losses as a basis adjustment to Assets and Liabilities(1) |
||||||||||||||||||||||||||||||||||||||||||||||||
| Available-for-sale Investments: |
||||||||||||||||||||||||||||||||||||||||||||||||
| Net fair value gains/(losses) |
— | — | — | — | — | — | 32 | 1 | 33 | 32 | 1 | 33 | ||||||||||||||||||||||||||||||||||||
| Transfer to profit and loss account on impairment |
— | — | — | — | — | — | 24 | — | 24 | 24 | — | 24 | ||||||||||||||||||||||||||||||||||||
| Transfer of net fair value (gains)/losses to profit and loss account on disposal |
— | — | — | — | — | — | (21 | ) | — | (21 | ) | (21 | ) | — | (21 | ) | ||||||||||||||||||||||||||||||||
| Movements attributable to non-controlling interests |
83 | (4 | ) | 79 | (47 | ) | (47 | ) | — | — | — | 36 | (4 | ) | 32 | |||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||
| Balance at December 31, 2012 |
(147 | ) | 19 | (128 | ) | (10 | ) | — | (10 | ) | 131 | 2 | 133 | (26 | ) | 21 | (5 | ) | ||||||||||||||||||||||||||||||
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F-59
Table of Contents
| Pension Remeasurements, EURm |
Hedging reserve, EURm |
Available-for-sale investments, EURm |
Fair value and other reserves total, EURm |
|||||||||||||||||||||||||||||||||||||||||||||
| Gross | Tax | Net | Gross | Tax | Net | Gross | Tax | Net | Gross | Tax | Net | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2012 |
(147 | ) | 19 | (128 | ) | (10 | ) | — | (10 | ) | 131 | 2 | 133 | (26 | ) | 21 | (5 | ) | ||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||
| Pension Remeasurements: |
||||||||||||||||||||||||||||||||||||||||||||||||
| Transfer to discontinued operations(2) |
31 | (11 | ) | 20 | — | — | — | — | — | — | 31 | (11 | ) | 20 | ||||||||||||||||||||||||||||||||||
| Remeasurements of defined benefit plans |
114 | (6 | ) | 108 | — | — | — | — | — | — | 114 | (6 | ) | 108 | ||||||||||||||||||||||||||||||||||
| Cash flow hedges: |
||||||||||||||||||||||||||||||||||||||||||||||||
| Transfer to discontinued operations(2) |
— | — | — | 48 | — | 48 | — | — | — | 48 | — | 48 | ||||||||||||||||||||||||||||||||||||
| Net fair value gains/(losses) |
— | — | — | 124 | — | 124 | — | — | — | 124 | — | 124 | ||||||||||||||||||||||||||||||||||||
| Transfer of (gains)/losses to profit and loss account as adjustment to Net sales |
— | — | — | (130 | ) | — | (130 | ) | — | — | — | (130 | ) | — | (130 | ) | ||||||||||||||||||||||||||||||||
| Transfer of (gains)/losses to profit and loss account as adjustment to Cost of sales |
— | — | — | (23 | ) | — | (23 | ) | — | — | — | (23 | ) | — | (23 | ) | ||||||||||||||||||||||||||||||||
| Transfer of (gains)/losses as a basis adjustment to Assets and |
— | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Available-for-sale Investments: |
||||||||||||||||||||||||||||||||||||||||||||||||
| Net fair value gains/(losses) |
— | — | — | — | — | — | 139 | — | 139 | 139 | — | 139 | ||||||||||||||||||||||||||||||||||||
| Transfer to profit and loss account on impairment |
— | — | — | — | — | — | 5 | — | 5 | 5 | — | 5 | ||||||||||||||||||||||||||||||||||||
| Transfer of net fair value (gains)/losses to profit and loss account on disposal |
— | — | — | — | — | — | (95 | ) | — | (95 | ) | (95 | ) | — | (95 | ) | ||||||||||||||||||||||||||||||||
| Acquisition of non-controlling interest |
(63 | ) | 3 | (60 | ) | 44 | — | 44 | (1 | ) | — | (1 | ) | (20 | ) | 3 | (17 | ) | ||||||||||||||||||||||||||||||
| Movements attributable to non-controlling interests |
(28 | ) | 3 | (25 | ) | (6 | ) | — | (6 | ) | — | — | — | (34 | ) | 3 | (31 | ) | ||||||||||||||||||||||||||||||
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| Balance at December 31, 2013(2) |
(93 | ) | 8 | (85 | ) | 47 | — | 47 | 179 | 2 | 181 | 133 | 10 | 143 | ||||||||||||||||||||||||||||||||||
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| (1) | The adjustments relate to acquisitions completed in 2011. |
| (2) | Movements in 2013 after transfer to discontinued operations represents movements of continuing operations and the balance at December 31, 2013 represents the balance of continuing operations. |
F-60
Table of Contents
| 23. | Translation differences |
| Translation differences, EURm |
Net investment hedging, EURm |
Translation differences total, EURm |
||||||||||||||||||||||||||||||||||
| Gross | Tax | Net | Gross | Tax | Net | Gross | Tax | Net | ||||||||||||||||||||||||||||
| Balance at December 31, 2010 |
944 | 4 | 948 | (174 | ) | 51 | (123 | ) | 770 | 55 | 825 | |||||||||||||||||||||||||
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| Translation differences: |
||||||||||||||||||||||||||||||||||||
| Currency translation differences |
17 | — | 17 | — | — | — | 17 | — | 17 | |||||||||||||||||||||||||||
| Transfer to profit and loss (financial income and expense) |
(8 | ) | — | (8 | ) | — | — | — | (8 | ) | — | (8 | ) | |||||||||||||||||||||||
| Net investment hedging: |
||||||||||||||||||||||||||||||||||||
| Net investment hedging gains/(losses) |
— | — | — | (37 | ) | 9 | (28 | ) | (37 | ) | 9 | (28 | ) | |||||||||||||||||||||||
| Transfer to profit and loss (financial income and expense) |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Movements attributable to non-controlling interests |
(35 | ) | — | (35 | ) | — | — | — | (35 | ) | — | (35 | ) | |||||||||||||||||||||||
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| Balance at December 31, 2011 |
918 | 4 | 922 | (211 | ) | 60 | (151 | ) | 707 | 64 | 771 | |||||||||||||||||||||||||
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| Translation differences: |
||||||||||||||||||||||||||||||||||||
| Currency translation differences |
42 | (1 | ) | 41 | — | — | — | 42 | (1 | ) | 41 | |||||||||||||||||||||||||
| Transfer to profit and loss (financial income and expense) |
(1 | ) | — | (1 | ) | — | — | — | (1 | ) | — | (1 | ) | |||||||||||||||||||||||
| Net investment hedging: |
||||||||||||||||||||||||||||||||||||
| Net investment hedging gains/(losses) |
— | — | — | (58 | ) | (9 | ) | (67 | ) | (58 | ) | (9 | ) | (67 | ) | |||||||||||||||||||||
| Transfer to profit and loss (financial income and expense) |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Movements attributable to non-controlling interests |
2 | — | 2 | — | — | — | 2 | — | 2 | |||||||||||||||||||||||||||
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| Balance at December 31, 2012 |
961 | 3 | 964 | (269 | ) | 51 | (218 | ) | 692 | 54 | 746 | |||||||||||||||||||||||||
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|||||||||||||||||||
| Translation differences: |
||||||||||||||||||||||||||||||||||||
| Currency translation differences |
(496 | ) | — | (496 | ) | — | — | — | (496 | ) | — | (496 | ) | |||||||||||||||||||||||
| Transfer to profit and loss (financial income and expense) |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Net investment hedging: |
||||||||||||||||||||||||||||||||||||
| Net investment hedging gains/(losses) |
— | — | — | 114 | — | 114 | 114 | — | 114 | |||||||||||||||||||||||||||
| Transfer to profit and loss (financial income and expense) |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Acquisition of non-controlling interest |
42 | — | 42 | — | — | — | 42 | — | 42 | |||||||||||||||||||||||||||
| Movements attributable to non-controlling interests |
28 | — | 28 | — | — | — | 28 | — | 28 | |||||||||||||||||||||||||||
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| Balance at December 31, 2013 |
535 | 3 | 538 | (155 | ) | 51 | (104 | ) | 380 | 54 | 434 | |||||||||||||||||||||||||
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F-61
Table of Contents
| 24. | The shares of the Parent Company |
Nokia shares and shareholders
Shares and share capital
Nokia has one class of shares. Each Nokia share entitles the holder to one vote at General Meetings of Nokia.
On December 31, 2013, the share capital of Nokia Corporation was EUR 245 896 461.96 and the total number of shares issued was 3 744 994 342.
On December 31, 2013, the total number of shares included 32 567 617 shares owned by Group companies representing approximately 0.9% of the share capital and the total voting rights.
Under the Articles of Association of Nokia, Nokia Corporation does not have minimum or maximum share capital or a par value of a share.
Authorizations
Authorization to increase the share capital
At the Annual General Meeting held on May 6, 2010, Nokia shareholders authorized the Board of Directors to issue a maximum of 740 million shares through one or more issues of shares or special rights entitling to shares, including stock options. The Board of Directors may issue either new shares or shares held by the Parent Company. The authorization includes the right for the Board to resolve on all the terms and conditions of such issuances of shares and special rights, including to whom the shares and the special rights may be issued. The authorization may be used to develop the Parent Company’s capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements, settle the Parent Company’s equity-based incentive plans, or for other purposes resolved by the Board. This authorization would have been effective until June 30, 2013 as per the resolution of the Annual General Meeting on May 6, 2010, but it was terminated by the resolution of the Annual General Meeting on May 7, 2013.
On October 26, 2012 Nokia issued a EUR 750 million convertible bond on the basis of the authorization granted by the Annual General Meeting held on May 6, 2010. The bonds have maturity of 5 years and a 5.00% per annum coupon payable semi-annually with an initial conversion price of EUR 2. 6116. The maximum number of shares which may be issued by Nokia upon conversion of all the Bonds (based on the initial conversion price) is approximately 287.2 million shares. The right to convert the bonds into shares commenced on December 6, 2012, and ends on October 18, 2017. On March 15, 2013 EUR 0.1 million of the bond was converted into shares resulting in issuance of 38 290 shares.
At the Annual General Meeting held on May 7, 2013, Nokia shareholders authorized the Board of Directors to issue a maximum of 740 million shares through one or more issues of shares or special rights entitling to shares, including stock options. The Board of Directors may issue either new shares or shares held by the Parent Company. The authorization includes the right for the Board to resolve on all the terms and conditions of such issuances of shares and special rights, including to whom the shares and the special rights may be issued. The authorization may be used to develop the Parent Company’s capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements, settle the Parent Company’s equity-based incentive plans, or for other purposes resolved by the Board. The authorization is effective until June 30, 2016.
On September 23, 2013 Nokia issued three EUR 500 million tranches of convertible bonds on the basis of the authorization granted by the Annual General Meeting held on May 7, 2013. First EUR 500 million bonds had maturity of 5 years and a 1.125% per annum coupon payable semi-annually with an initial conversion price of EUR 3.9338. The second EUR 500 million bonds had maturity of 6 years and a 2.5% per annum coupon payable semi-annually with an initial conversion price of EUR 4.0851. The third EUR 500 million bonds had maturity of 7 years and a 3.625% per annum coupon payable semi-annually with an initial conversion price of EUR 4.2364.
F-62
Table of Contents
The maximum number of shares which might have been issued by Nokia upon conversion of all the Bonds (based on the initial conversion price of each tranche) was approximately 367.5 million. At the closing of the Sale of the D&S Business, the Bonds were redeemed and the principal amount and accrued interest netted against the Sale of the D&S Business proceeds.
At the end of 2013, the Board of Directors had no other authorizations to issue shares, convertible bonds, warrants or stock options.
Other authorizations
At the Annual General Meeting held on May 3, 2012, Nokia shareholders authorized the Board of Directors to repurchase a maximum of 360 million Nokia shares by using funds in the unrestricted equity. Nokia did not repurchase any shares on the basis of this authorization. This authorization would have been effective until June 30, 2013 as per the resolution of the Annual General Meeting on May 3, 2012, but it was terminated by the resolution of the Annual General Meeting on May 7, 2013.
At the Annual General Meeting held on May 7, 2013, Nokia shareholders authorized the Board of Directors to repurchase a maximum of 370 million Nokia shares by using funds in the unrestricted equity. The amount of shares corresponds to less than 10% of all the shares of the Parent Company. The shares may be repurchased under the buyback authorization in order to develop the capital structure of the Parent Company. In addition, shares may be repurchased in order to finance or carry out acquisitions or other arrangements, to settle the Parent Company’s equity-based incentive plans, to be transferred for other purposes, or to be cancelled. The authorization is effective until June 30, 2014.
Authorizations proposed to the Annual General Meeting 2014
On April 29, 2014, Nokia announced that the Board of Directors will propose that the Annual General Meeting convening on June 17, 2014 authorize the Board to resolve to repurchase a maximum of 370 million Nokia shares. The proposed maximum number of shares that may be repurchased corresponds to less than 10% of all the shares of the Company. The shares may be repurchased in order to develop the capital structure of the Company and are expected to be cancelled. In addition, shares may be repurchased in order to finance or carry out acquisitions or other arrangements, to settle the Company’s equity-based incentive plans, or to be transferred for other purposes. The shares may be repurchased either through a tender offer made to all shareholders on equal terms, or in such marketplaces the rules of which allow companies to trade with their own shares. The authorization would be effective until December 17, 2015 and terminate the current authorization for repurchasing of the Company’s shares resolved at the Annual General Meeting on May 7, 2013.
Nokia also announced on April 29, 2014 that the Board of Directors will propose to the Annual General Meeting to be held on June 18, 2014 that the Annual General Meeting authorize the Board to resolve to issue a maximum of 740 million shares through issuance of shares or special rights entitling to shares in one or more issues. The Board may issue either new shares or shares held by the Company. The Board proposes that the authorization may be used to develop the Company’s capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements, settle the Company’s equity-based incentive plans, or for other purposes resolved by the Board. The proposed authorization includes the right for the Board to resolve on all the terms and conditions of the issuance of shares and special rights entitling to shares, including issuance in deviation from the shareholders’ pre-emptive rights. The authorization would be effective until December 17, 2015 and terminate the current authorization granted by the Annual General Meeting on May 7, 2013.
F-63
Table of Contents
| 25. | Share-based payment |
The Group has several equity-based incentive programs for employees. The plans include performance share plans, stock option plans and restricted share plans. Both executives and employees participate in these programs. In years presented Nokia global equity-based incentive programs have been offered to employees of Devices & Services business, HERE, Advanced Technologies and Corporate Common Functions, but not to employees of NSN due to the previous ownership structure of NSN business.
The equity-based incentive grants are generally conditional upon continued employment as well as fulfillment of such performance, service and other conditions, as determined in the relevant plan rules.
The share-based compensation expense for all equity-based incentive awards for Nokia continuing operations amounted to EUR 42 million in 2013 (EUR 11 million in 2012 and EUR 6 million in 2011).
Stock options
During 2013 Nokia administered two global stock option plans, the Stock Option Plans 2007 and 2011, each of which, including its terms and conditions, has been approved by the shareholders at the Annual General Meeting in the year when the plan was launched.
Each stock option entitles the holder to subscribe for one new Nokia share. The stock options are non-transferable and may be exercised for shares only. Shares subscribed under global stock option plans will be eligible for dividend for the financial year in which the subscription takes place. Other shareholder rights commence on the date on which the subscribed shares are entered in the Trade Register. The stock option grants are generally forfeited if the employment relationship terminates with Nokia. Unvested stock options for employees who have transferred to Microsoft following the sale of Devices & Services business have been forfeited.
F-64
Table of Contents
Total stock options outstanding as at December 31, 2013(1)
| Number of shares | Weighted average exercise price EUR |
Weighted average share price EUR |
Weighted average grant date fair value(2) |
|||||||||||||
| Shares under option at January 1, 2011 |
21 945 296 | 14.04 | ||||||||||||||
| Granted |
11 801 907 | 5.50 | 0.92 | |||||||||||||
| Exercised |
6 208 | 5.07 | 7.69 | |||||||||||||
| Forfeited |
2 441 876 | 9.05 | ||||||||||||||
| Expired |
7 909 089 | 17.53 | ||||||||||||||
| Shares under option at December 31, 2011 |
23 390 030 | 9.07 | ||||||||||||||
| Granted |
10 258 400 | 2.32 | 0.76 | |||||||||||||
| Exercised |
627 | 0.97 | 2.08 | |||||||||||||
| Forfeited |
4 246 222 | 6.60 | ||||||||||||||
| Expired |
3 555 213 | 15.26 | ||||||||||||||
| Shares under option at December 31, 2012 |
25 846 368 | 5.95 | ||||||||||||||
| Granted |
8 334 200 | 2.77 | 1.23 | |||||||||||||
| Exercised |
— | — | ||||||||||||||
| Forfeited |
3 705 512 | 4.06 | ||||||||||||||
| Expired |
2 474 864 | 14.78 | ||||||||||||||
| Shares under option at December 31, 2013 |
28 000 192 | 4.47 | ||||||||||||||
| Options exercisable at December 31, 2010 (shares) |
11 376 937 | 17.07 | ||||||||||||||
| Options exercisable at December 31, 2011 (shares) |
6 904 331 | 14.01 | ||||||||||||||
| Options exercisable at December 31, 2012 (shares) |
5 616 112 | 11.96 | ||||||||||||||
| Options exercisable at December 31, 2013 (shares) |
4 339 341 | 9.66 | ||||||||||||||
| (1) | Includes also stock options granted under other than global equity plans, however excluding the NSN share-based incentive program. |
| (2) | Fair value of stock options is calculated using the Black-Scholes model. |
Performance shares
During 2013 Nokia administered four global performance share plans, the Performance Share Plans of 2010, 2011, 2012 and 2013 each of which, including its terms and conditions, has been approved by the Board of Directors.
The performance shares represent a commitment by Nokia Corporation to deliver Nokia shares to employees at a future point in time, subject to Nokia’s fulfillment of pre-defined performance criteria. No performance shares will vest unless the Group’s performance reaches at least one of the threshold levels measured by two independent, pre-defined performance criteria related to net sales and earnings per share (“EPS”).
F-65
Table of Contents
The 2010 and 2011 plans have a three-year performance period. The shares vest after the respective performance period. The 2012 and 2013 plans have a two-year performance period and a subsequent one-year restriction period, after which the shares vest. Until the Nokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights associated with the performance shares. The performance share grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting. Unvested performance shares for employees who have transferred to Microsoft following the sale of Devices & Services business have been forfeited.
The following table summarizes our global performance share plans.
| Plan |
Performance shares outstanding at threshold(1) |
Number of participants (approx.) |
Performance period |
Settlement | ||||||||||||
| 2010 |
— | 3 000 | 2010-2012 | 2013 | ||||||||||||
| 2011 |
— | 2 200 | 2011-2013 | 2014 | ||||||||||||
| 2012 |
4 476 263 | 2 800 | 2012-2013 | (2) | 2015 | |||||||||||
| 2013 |
6 513 941 | 3 500 | 2013-2014 | (3) | 2016 | |||||||||||
| (1) | Shares under Performance Share Plan 2011 vested on December 31, 2013 and are therefore not included in the outstanding numbers. Shares under Performance Share Plan 2012 are outstanding, however there will be no settlement under the Performance Share Plan 2012 as neither of the performance criteria of the plan was met. |
| (2) | Performance Share Plan 2012 has a two-year performance period with an additional one-year restriction period. |
| (3) | Performance Share Plan 2013 has a two-year performance period with an additional one-year restriction period. |
Performance Shares Outstanding as at December 31, 2013(1)
| Number of performance shares at threshold |
Weighted average grant date fair value EUR(2) |
|||||||
| Performance shares at January 1, 2011 |
5 720 123 | |||||||
| Granted |
5 410 211 | 3.66 | ||||||
| Forfeited |
1 538 377 | |||||||
| Vested(3) |
2 009 423 | |||||||
| Performance shares at December 31, 2011 |
7 582 534 | |||||||
| Granted |
5 785 875 | 1.33 | ||||||
| Forfeited |
2 718 208 | |||||||
| Vested(4) |
2 076 116 | |||||||
| Performance shares at December 31, 2012 |
8 574 085 | |||||||
| Granted |
6 696 241 | 2.96 | ||||||
| Forfeited |
1 512 710 | |||||||
| Vested(5) |
2 767 412 | |||||||
| Performance shares at December 31, 2013 |
10 990 204 | |||||||
| (1) | Includes also performance shares granted under other than global equity plans. For further information see “Other equity plans for employees” below. |
| (2) | The fair value of performance shares is estimated based on the grant date market price of the Nokia share less the present value of dividends expected to be paid during the vesting period. |
| (3) | Includes performance shares under Performance Share plan 2009 that vested on December 31, 2011. There was no settlement under this plan as neither of the threshold performance criteria was met. |
F-66
Table of Contents
| (4) | Includes performance shares under Performance Share plan 2010 that vested on December 31, 2012. Includes shares receivable through the one-time special CEO incentive program that vested on December 31, 2012, there was no settlement under the one-time special CEO incentive program as the performance criteria were not met. |
| (5) | Includes performance shares under Performance Share plan 2011 that vested on December 31, 2013. |
There was no settlement under the Performance Share Plan 2011 and there will be no settlement under the Performance Share Plan 2012 as neither of the threshold performance criteria linked to EPS and Average Annual Net Sales Revenue of these plans were met.
Restricted Shares
During 2013, Nokia administered four global restricted share plans, the Restricted Share Plan 2010, 2011, 2012 and 2013, each of which, including its terms and conditions, has been approved by the Board of Directors.
Restricted Shares are used on a selective basis to ensure retention and recruitment of individuals with functional mastery and other employees deemed critical to Nokia’s future success.
All of the Group’s restricted share plans have a restriction period of three years after grant. Until the Nokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights, associated with the restricted shares. The restricted share grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting. Unvested restricted shares for employees who have transferred to Microsoft following the sale of Devices & Services business have been forfeited.
Restricted Shares Outstanding as at December 31, 2013(1)
| Number of Restricted Shares |
Weighted average grant date fair value EUR(2) |
|||||||
| Restricted Shares at January 1, 2011 |
12 359 896 | |||||||
| Granted |
8 024 880 | 3.15 | ||||||
| Forfeited |
2 063 518 | |||||||
| Vested |
1 735 167 | |||||||
| Restricted Shares at December 31, 2011(3) |
16 586 091 | |||||||
| Granted |
12 999 131 | 1.76 | ||||||
| Forfeited |
4 580 182 | |||||||
| Vested |
1 324 508 | |||||||
| Restricted Shares at December 31, 2012(4) |
23 680 532 | |||||||
| Granted |
12 347 931 | 3.05 | ||||||
| Forfeited |
3 490 913 | |||||||
| Vested |
2 180 700 | |||||||
| Restricted Shares at December 31, 2013(5) |
30 356 850 | |||||||
| (1) | Includes also restricted shares granted under other than global equity plans. |
| (2) | The fair value of restricted shares is estimated based on the grant date market price of the Nokia share less the present value of dividends, if any, expected to be paid during the vesting period. |
| (3) | Includes 901 900 restricted shares granted in Q4 2008 under Restricted Share Plan 2008 that vested on January 1, 2012. |
| (4) | Includes 1 960 700 restricted shares granted in Q4 2009 under Restricted Share Plan 2009 that vested on January 1, 2013. |
F-67
Table of Contents
| (5) | Includes 2 409 700 restricted shares granted in Q4 2010 under Restricted Share Plan 2010 that vested on January 1, 2014. |
Other equity plans for employees
During 2011-2012, Nokia had a one-time special CEO incentive program designed to align Mr. Elop’s compensation to increased shareholder value and to link a meaningful portion of CEO’s compensation directly to the performance of Nokia’s share price over the period of 2011-2012. Mr. Elop had the opportunity to earn 125 000 – 750 000 Nokia shares at the end of 2012 based on two independent criteria: Total Shareholder Return relative to a peer group of companies over the two-year period and Nokia’s absolute share price at the end of 2012. As the minimum performance for neither of the two performance criterion was reached, no share delivery took place.
NSN established a share-based incentive program in 2012 under which options for Nokia Solutions and Networks B.V. shares are granted to selected NSN senior management and key employees. The options generally become exercisable on the fourth anniversary of the grant date or, if earlier, on the occurrence of certain corporate transactions, such as an initial public offering. The exercise price of the options is based on a per share value on grant as determined for the purposes of the incentive program. The options will be cash-settled at exercise unless an IPO has taken place, at which point they would be converted into equity-settled options. The options are accounted for as a cash-settled share-based payment liability based on the circumstances at December 31, 2013. The fair value of the liability is determined based on the estimated fair value of shares less the exercise price of the options on the reporting date. The total carrying amount for liabilities arising from share-based payment transactions is EUR 41 million at December 31, 2013 (EUR 11 million in 2012) and is included in accrued expenses and other liabilities in the consolidated statement of financial position.
In 2013, Nokia introduced a voluntary Employee Share Purchase Plan, which was offered in 2013 to Nokia employees working for Devices & Services business, HERE, Advanced Technologies and Corporate Common Functions. Under the plan employees make monthly contributions from their salary to purchase Nokia shares on a monthly basis during a 12-month savings period. Nokia offers one matching share for every two purchased shares the employee still holds after the last monthly purchase has been made in June 2014. Employees who have transferred to Microsoft following the Sale of Devices & Services business will receive a cash settlement under the plan.
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| 26. | Deferred taxes |
| 2013 | 2012 | |||||||
| EURm | EURm | |||||||
| Deferred tax assets: |
||||||||
| Intercompany profit in inventory |
48 | 58 | ||||||
| Tax losses carried forward and unused tax credits |
446 | 564 | ||||||
| Warranty provision |
6 | 47 | ||||||
| Other provisions |
120 | 261 | ||||||
| Depreciation differences |
660 | 893 | ||||||
| Other temporary differences |
102 | 145 | ||||||
| Reclassification due to netting of deferred taxes |
(492 | ) | (689 | ) | ||||
|
|
|
|
|
|||||
| Total deferred tax assets |
890 | 1 279 | ||||||
|
|
|
|
|
|||||
| Deferred tax liabilities: |
||||||||
| Depreciation differences and untaxed reserves |
(609 | ) | (893 | ) | ||||
| Undistributed earnings |
(68 | ) | (313 | ) | ||||
| Other temporary differences |
(10 | ) | (184 | ) | ||||
| Reclassification due to netting of deferred taxes |
492 | 689 | ||||||
|
|
|
|
|
|||||
| Total deferred tax liabilities |
(195 | ) | (701 | ) | ||||
|
|
|
|
|
|||||
| Net deferred tax asset |
695 | 578 | ||||||
|
|
|
|
|
|||||
| Tax charged to equity |
6 | 3 | ||||||
At December 31, 2013 the Group had tax losses carry forward of EUR 6 295 million (EUR 6 528 million in 2012) of which EUR 5 117 million will expire within 10 years (EUR 4 554 million in 2012).
At December 31, 2013 the Group had tax losses carry forward, temporary differences and tax credits of EUR 10 693 million (EUR 10 446 million in 2012) for which no deferred tax asset was recognized due to uncertainty of utilization of these items. EUR 4 882 million of those will expire within 10 years (EUR 4 392 million in 2012).
The recognition of the remaining deferred tax assets is supported by offsetting deferred tax liabilities, earnings history and profit projections in the relevant jurisdictions.
At December 31, 2013 the Group had undistributed earnings of EUR 614 million (EUR 347 million in 2012) on which no deferred tax liability has been formed as these will not reverse in the foreseeable future.
| 27. | Accrued expenses and other liabilities |
| 2013 | 2012 | |||||||
| EURm | EURm | |||||||
| Advance payments and deferred revenue |
1 163 | 1 747 | ||||||
| Wages and salaries |
710 | 1 031 | ||||||
| Social security, VAT and other indirect taxes |
312 | 555 | ||||||
| NSN customer project related |
234 | 378 | ||||||
| Other |
614 | 2 512 | ||||||
|
|
|
|
|
|||||
| Total |
3 033 | 6 223 | ||||||
|
|
|
|
|
|||||
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Other accruals include accrued discounts, royalties, research and development expenses, marketing expenses and interest expenses as well as various amounts which are individually insignificant.
Accrued expenses and other liabilities of disposal groups classified as held for sale at December 31, 2013 were EUR 2 113 million.
Accrued current tax liabilities are presented separately in the consolidated statement of financial position in 2013 and have also been reclassified for comparability purposes in 2012.
| 28. | Provisions |
| Restructuring | Project losses |
Warranty | Material liability |
IPR infringements |
Other | Total | ||||||||||||||||||||||
| EURm | EURm | EURm | EURm | EURm | EURm | |||||||||||||||||||||||
| At January 1, 2012 |
483 | 205 | 688 | 125 | 431 | 396 | 2 328 | |||||||||||||||||||||
| Exchange differences |
— | — | 3 | 4 | — | (7 | ) | — | ||||||||||||||||||||
| Additional provisions |
1 566 | 247 | 340 | 300 | 38 | 51 | 2 542 | |||||||||||||||||||||
| Changes in estimates |
(124 | ) | (65 | ) | (28 | ) | (85 | ) | (63 | ) | (61 | ) | (426 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Charged to profit and loss account |
1 442 | 182 | 312 | 215 | (25 | ) | (10 | ) | 2 116 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Utilized during year |
(1 178 | ) | (238 | ) | (596 | ) | (102 | ) | (18 | ) | (20 | ) | (2 152 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| At December 31, 2012 |
747 | 149 | 407 | 242 | 388 | 359 | 2 292 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Transfer to liabilities of disposal groups held for sale(1) |
(165 | ) | — | (333 | ) | (207 | ) | (371 | ) | (214 | ) | (1 290 | ) | |||||||||||||||
| Exchange differences |
(2 | ) | — | (2 | ) | — | — | (10 | ) | (14 | ) | |||||||||||||||||
| Additional provisions |
283 | 170 | 65 | 6 | — | 107 | 631 | |||||||||||||||||||||
| Changes in estimates |
(38 | ) | (57 | ) | (12 | ) | (6 | ) | (1 | ) | (13 | ) | (127 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Charged to profit and loss account |
245 | 113 | 53 | 0 | (1 | ) | 94 | 504 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Utilized during year |
(382 | ) | (110 | ) | (31 | ) | (16 | ) | (1 | ) | (30 | ) | (570 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| At December 31, 2013 |
443 | 152 | 94 | 19 | 15 | 199 | 922 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| (1) | Provision balances before movements during the year. |
| 2013 | 2012 | |||||||
| EURm | EURm | |||||||
| Analysis of total provisions at December 31: |
||||||||
| Non-current |
242 | 304 | ||||||
| Current |
680 | 1 988 | ||||||
The restructuring provision in 2013 is mainly related to restructuring activities in NSN. In 2013, the remaining balance of NSN’s restructuring provision is EUR 437 million (EUR 568 million in 2012). The majority of outflows related to the restructuring is expected to occur over the next two years.
Restructuring and other associated expenses incurred in NSN in 2013, including mainly personnel related expenses as well as expenses arising from the country and contract exits based on NSN strategy that focuses on key markets and product segments and costs incurred in connection with the divestments of businesses totaled EUR 570 million (EUR 1 226 million in 2012).
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In 2013, the remaining balance of HERE’s restructuring provision is EUR 4 million. In addition to the plans announced in 2011 and 2012, HERE announced during 2013 further plans to reduce its workforce in the map data collection and processing areas of its business.
Provisions for losses on projects in progress are related to NSN onerous contracts. Utilization of provisions for project losses is generally expected to occur in the next 12 months.
Outflows for the warranty provision are generally expected to occur within the next 18 months.
Material liability provision relates to non-cancellable purchase commitments with suppliers. The outflows are expected to occur over the next 12 months.
The IPR provision is based on estimated potential future settlements for asserted past IPR infringements. Final resolution of IPR claims generally occurs over several periods.
Other provisions include provisions for various contractual obligations and litigations. Outflows for other provisions are generally expected to occur over the next two years. Provisions for project losses and other provisions include amounts recorded for claims related to the exit from various customer contracts in line with the NSN strategic focus or due to challenging political or business environments. Such provisions are estimated based on the information currently available and are subject to change as negotiations with customers, trade sanctions environment, or other related circumstances evolve.
Uncertain income tax positions regarding current tax are included in Current income tax liabilities in the consolidated statement of financial position in 2013 and have also been reclassified for comparability purposes in 2012.
Provisions included in Liabilities of disposal groups classified as held for sale at December 31, 2013 were EUR 1 013 million.
Legal Matters
A number of Nokia companies are, and will likely continue to be, subject to various legal proceedings and investigations that arise from time to time, including proceedings regarding intellectual property, product liability, sales and marketing practices, commercial disputes, employment, and wrongful discharge, antitrust, securities, health and safety, environmental, tax, international trade and privacy matters. As a result, the Group may become subject to substantial liabilities that may not be covered by insurance and could affect our business and reputation. While Nokia does not believe that any of these legal proceedings will a have a material adverse effect on its financial position, litigation is inherently unpredictable and large judgments sometimes occur. As a consequence, Nokia may in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations and cash flow.
Taxation Related Litigation and Proceedings
Tax proceedings in India
During early 2013 Nokia became subject to a tax investigation in India, focusing on Indian withholding tax consequences of payments made within Nokia for the supply of operating software from its parent company in Finland. Subsequently, Indian authorities have extended the investigation to other related tax consequences, such as allegations claiming that Nokia Corporation would have a permanent establishment in India for taxation purposes, transfer pricing aspects and potential non-deductibility of
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certain software payments for Indian corporate tax purposes. While raising these claims and arguing based on potential future claims against Nokia India Private Limited and the parent company Nokia Corporation, Indian authorities have also placed liens on Nokia India Private Limited’s and Nokia Corporation’s assets in India. These liens have prevented Nokia from transferring the Chennai factory and selected other Indian assets to Microsoft in connection with the closing of the Sale of the D&S Business. In addition, Indian authorities have ordered a special audit on Nokia India Private Limited, while seeking to finalize the ongoing tax investigations.
To date, Nokia has been served with final assessment orders on the underlying withholding tax case in 2013, and the company has appealed on this case to the Income Tax Tribunal in Delhi. Other related assessment proceeding mentioned above are pending. While taking necessary actions to defends its rights vigorously under Indian and International laws, Nokia is extending its full cooperation with the income tax authorities and special auditors to finalize the pending assessment proceedings in due course.
Intellectual Property Rights Litigation
HTC
In 2012, Nokia commenced patent infringement proceedings against HTC in relation to 21 non-essential patents in Germany in the District Courts of Mannheim, Munich and Düsseldorf, in relation to nine non-essential patents in the ITC in Washington DC, and 18 non-essential patents in the United States District Court for the District of Delaware.
In response, HTC filed nullity actions with the Federal Patent Court in Munich, commenced revocation proceedings against 18 of Nokia’s non-essential patents in the UK High Court, and filed an action for patent infringement in respect of one non-essential patent against Nokia GmbH in the District Court of Mannheim and against Nokia Oyj in the District Court of Munich in 2012. S3 Graphics Co. Ltd, a subsidiary of HTC, also filed actions for patent infringement in respect of one non-essential patent against Nokia GmbH in the District Court of Mannheim and Nokia Oyj in the District Court of Dusseldorf. HTC commenced, then later withdrew, an arbitration in the UK claiming that some of the patents asserted by Nokia against HTC were licensed under an essential patent licence.
Subsequently, Nokia filed further infringement actions in respect of HTC’s UK revocation actions, brought further infringement proceedings against HTC in relation to nine non-essential patents in the District Courts of Mannheim, Munich and Dusseldorf, three non-essential patents in the Court of Paris, France, two non-essential patents in the Regional Court of the Hague, the Netherlands, two non-essential patents in the Court of Rome, Italy and four non-essential patents in the Tokyo District Court, Japan. Nokia also commenced patent infringement proceedings against HTC in respect of seven non-essential patents in the ITC in Washington DC, and ten non-essential patents in the United States District Court for the Southern District of California.
Nokia was awarded injunctions against HTC in respect of a power control patent and patent enabling modern mobile devices to work in older networks by the District Court of Mannheim, a USB functionality patent and a patent enabling the transfer of network resource information between mobile devices by the District Court of Munich. The UK High Court found that Nokia’s patent relating to a modulator structure was valid and infringed by HTC in October 2013. In its initial determination in September 2013, the ITC found that HTC had violated two patents which cover improvements to radio receivers and transmitters. The Tokyo District Court gave a judgment in default against HTC in respect of a calendar display patent. The first two of S3 and HTC’s actions were dismissed by the District Court of Mannheim.
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On February 7, 2014, the parties settled all pending patent litigation between them, and entered into a patent and technology collaboration agreement. HTC will make payments to Nokia and the collaboration will involve HTC’s LTE patent portfolio. The full terms of the agreement are confidential.
Samsung
During August and September 2013, Nokia and Samsung agreed to extend their existing patent license agreement for five years from December 31, 2013. According to the agreement, Samsung will pay additional compensation to Nokia for the period commencing from January 1, 2014 onwards, and the amount of this compensation will be finally settled in a binding arbitration. The parties have commenced arbitration and expect to have a final resolution in 2015.
ERISA & Securities Litigation
On April 19, 2010 and April 21, 2010, two individuals filed separate putative class action lawsuits against Nokia Inc. and the directors and officers of Nokia Inc., and certain other employees and representatives of the company, claiming to represent all persons who were participants in or beneficiaries of the Nokia Retirement Savings and Investment Plan (the “Plan”) who participated in the Plan between January 1, 2008 and the present and whose accounts included investments in Nokia stock. The plaintiffs allege that the defendants failed to comply with their statutory and fiduciary duties when they failed to remove Nokia stock as a plan investment option. The cases were consolidated into Majad v. Nokia and an amended consolidated complaint was filed on September 15, 2010. The amended complaint alleges that the named individuals knew of the matters alleged in the securities case referenced above, that the matters significantly increased the risk of Nokia stock ownership, and as a result of that knowledge, the named defendants should have removed Nokia stock as a Plan investment option. The plaintiff’s claims were dismissed in their entirety on September 5, 2011. On September 13, 2012 the Court denied Plaintiffs’ motion for leave to amend their complaint a second time and entered judgment in favor of Nokia. On October 23, 2012, the plaintiffs filed an appeal of the District Court’s order granting judgment in favor of Nokia. On June 21, 2013, the Second Circuit upheld the earlier decision of the US District Court for the Southern District of New York from September 13, 2012 to dismiss all claims made in the ERISA claim filed against defendants including Nokia Inc. and the Nokia Inc. Retirement Plan by Javad Majad and Ryan Sharif. The Plaintiff had until September 23, 2013 to appeal the Second Circuit decision by filing a cert petition to the US Supreme Court. The Plaintiff did not appeal and the case is closed.
On September 19, 2012, a class action based on the US Employee Retirement Income Security Act (“ERISA”) entitled Romero v. Nokia was filed in the United States District Court for the Southern District of New York. The complaint named Nokia Corporation, certain Nokia Corporation Board members, Fidelity Management Trust Co., The Nokia Retirement Savings & Investment Plan Committee and Linda Fonteneaux as well as certain individuals from the Nokia Retirement Savings & Investment Plan Committee whose identity is not known to the plaintiffs as defendants. The complaint claimed to represent all persons who were participants in or beneficiaries of the Nokia Retirement Savings and Investment Plan (the “Plan”) who participated in the Plan between January 19, 2012 and the present and whose accounts invested in the Nokia Stock Fund (“the Fund”). The complaint alleged that the named individuals breached their fiduciary duties by, among other things, permitting the plan to offer the Fund as an investment option, permitting the plan to invest in the Fund and permitting the Fund to invest in and remain invested in American Depository Receipts of Nokia Corporation when the defendants allegedly knew the Fund and Nokia’s shares were extremely risky investments. Plaintiff was provided plan documents and informed that it had incorrectly identified the proper defendants in its complaint. On December 10, 2012 Plaintiff filed a motion to dismiss the complaint against all defendants, without prejudice and indicated it would refile in California where the Nokia Retirement Savings and Investment Plan is currently administered.
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Romero filed a new complaint on December 10, 2012 in the United States District Court for the Northern District of California, naming as defendants Nokia Inc., the Nokia Retirement Savings and Investment Plan Committee, and several individuals alleged to be plan fiduciaries, claiming to represent all persons who were participants in or beneficiaries of the Nokia Retirement Savings and Investment Plan (the “Plan”) who participated in the Plan between January 19, 2012 and the present and whose accounts invested in the Nokia Stock Fund (“the Fund”). The complaint alleges that named individuals breached their fiduciary duties by, among other things, permitting the plan to offer the Fund as an investment option, permitting the plan to invest in the Fund and permitting the Fund to invest in and remain invested in American Depository Receipts of Nokia Corporation when the defendants allegedly knew the Fund and Nokia’s shares were extremely risky investments. On May 15, 2013, Nokia and the Named Defendants filed a motion to dismiss all claims against the defendants and are awaiting the Court’s decision. On October 15, 2013 the court granted Nokia and the Named Defendants motion to dismiss all claims with prejudice. Plaintiff did not appeal and this matter is closed.
Antitrust Litigation
LCD and CRT Cartel claims
In November 2009, Nokia Corporation filed two lawsuits, one in the United Kingdom’s High Court of Justice and the other in the United States District Court for the Northern District of California, joined by Nokia Inc., against certain manufacturers of liquid crystal displays (“LCDs”). Both suits concerned the same underlying allegations: namely, that the defendants violated the relevant antitrust or competition laws by entering into a worldwide conspiracy to raise and/or stabilize the prices of LCDs, among other anticompetitive conduct, from approximately January 1996 to December 2006 (the “Cartel Period”). Defendants Sharp Corporation, LG Display Co. Ltd., Chunghwa Picture Tubes, Ltd., Hitachi Displays Ltd. and Epson Imaging Devices Corporation, as well as non-defendant Chi Mei Optoelectronics, and Hannstar Display Corporation, have pleaded guilty in the United States to participating in a conspiracy to fix certain LCD prices and have agreed to pay fines totaling approximately USD 900 million. Further, the United States Department of Justice has indicted AU Optronics Corporation and its American subsidiary, AU Optronics Corporation America, for participation in the conspiracy to fix the prices of TFT-LCD panels sold worldwide from September 14, 2001 to December 1, 2006.
Also in November 2009, Nokia Corporation filed a lawsuit in the United Kingdom’s High Court of Justice against certain manufacturers of cathode rays tubes (“CRTs”). In this lawsuit, Nokia alleges that the defendants violated the relevant antitrust or competition laws by entering into a worldwide conspiracy to raise and/or stabilize the prices of CRTs, among other anticompetitive conduct, from no later than March 1995 to around November 2007.
All of the defendants have now settled Nokia’s claims against them on confidential terms.
Certain litigation that has been included in this section of our annual report on Form 20-F in the previous year have transferred to Microsoft at the closing of the Sale of the D&S Business and accordingly no information on those cases is included here.
We are also party to other routine litigation, as well as indemnity claims involving customers or suppliers, which are incidental to the normal conduct of our business. Based upon the information currently available, our management does not believe that liabilities related to those proceedings are likely to be material to our financial condition or results of operations.
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| 29. | Earnings per share |
| 2013 | 2012 | 2011 | ||||||||||
| Numerator/EURm |
||||||||||||
| Basic: |
||||||||||||
| Profit (loss) attributable to equity holders of the parent |
||||||||||||
| Continuing operations |
186 | (771 | ) | (1 272 | ) | |||||||
| Discontinued operations |
(801 | ) | (2 334 | ) | 109 | |||||||
| Total Group |
(615 | ) | (3 105 | ) | (1 163 | ) | ||||||
| Diluted: |
||||||||||||
| Elimination of interest expense, net of tax, on convertible bonds, where dilutive |
— | — | — | |||||||||
| Profit (loss) used to determine diluted earnings per share |
||||||||||||
| Continuing operations |
186 | (771 | ) | (1 272 | ) | |||||||
| Discontinued operations |
(801 | ) | (2 334 | ) | 109 | |||||||
| Total Group |
(615 | ) | (3 105 | ) | (1 163 | ) | ||||||
| Denominator/1000 shares |
||||||||||||
| Basic: |
||||||||||||
| Weighted average number of shares in issue |
3 712 079 | 3 710 845 | 3 709 947 | |||||||||
| Effect of dilutive securities: |
||||||||||||
| Stock options |
1 978 | — | 473 | |||||||||
| Performance shares |
— | — | — | |||||||||
| Restricted shares and other |
19 307 | — | 6 614 | |||||||||
|
|
|
|
|
|
|
|||||||
| 21 285 | 7 087 | |||||||||||
| Assumed conversion of convertible bonds |
— | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
| 21 285 | — | 7 087 | ||||||||||
| Diluted: |
||||||||||||
| Adjusted weighted average number of shares and assumed conversions |
||||||||||||
| Continuing operations |
3 733 364 | 3 710 845 | 3 709 947 | |||||||||
| Discontinued operations |
3 712 079 | 3 710 845 | 3 717 034 | |||||||||
| Total Group |
3 712 079 | 3 710 845 | 3 709 947 | |||||||||
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the parent by the weighted average number of shares outstanding during the year excluding shares purchased by the Group and held as treasury shares. Diluted earnings per share is calculated by adjusting the profit attributable to equity holders of the parent to eliminate the interest expense of the dilutive convertible bond and by adjusting the weighted average number of shares outstanding with the dilutive effect of stock options, restricted shares and performance shares outstanding during the period as well as the assumed conversion of convertible bonds.
In 2013, stock options equivalent to 16 million shares (22 million in 2012 and 16 million in 2011) were excluded from the calculation of diluted earnings per share because they were determined to be anti-dilutive.
In addition, 4 million performance shares (2 million in 2012 and 2 million in 2011) were excluded from the calculation of dilutive shares because contingency conditions have not been met.
As of December 31, 2013, there were 19 million (4 million in 2012 and 7 million in 2011) of restricted shares outstanding that could potentially have a dilutive impact in the future but were excluded from the calculation as they were determined anti-dilutive.
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Convertible bonds issued to Microsoft in September 2013 were excluded from the calculation of diluted shares in 2013 because they were determined to be antidilutive. These potential shares, if fully converted, would result in an issuance of 368 million shares. As a result of the closing of the sale of Device & Services business the bonds have been redeemed.
The 2012 convertible bond includes a voluntary conversion option. Based on the initial conversion price, voluntary conversion of the entire bond would result in the issue of 287 million shares. These potential shares were excluded from the calculation of diluted shares in 2013 and 2012 because they were determined to be antidilutive at December 31, 2013 and 2012, respectively.
| 30. | Commitments and contingencies |
| 2013(1) | 2012(2) | |||||||
| EURm | EURm | |||||||
| Collateral for own commitments |
||||||||
| Assets pledged |
38 | 38 | ||||||
| Contingent liabilities on behalf of Group companies |
||||||||
| Other guarantees |
778 | 937 | ||||||
| Contingent liabilities on behalf of associated companies |
||||||||
| Financial guarantees on behalf of associated companies |
16 | 11 | ||||||
| Contingent liabilities on behalf of other companies |
||||||||
| Financial guarantees on behalf of third parties(3) |
12 | 12 | ||||||
| Other guarantees |
103 | 68 | ||||||
| Financing commitments |
||||||||
| Customer finance commitments(3) |
25 | 34 | ||||||
| Venture fund commitments |
215 | 282 | ||||||
| (1) | Continuing operations |
| (2) | Nokia Group |
| (3) | See also Note 35 Risk Management |
The amounts above represent the maximum principal amount of commitments and contingencies.
Other guarantees on behalf of Group companies include commercial guarantees of EUR 463 million in 2013 (EUR 598 million in 2012) provided to certain NSN customers in the form of bank guarantees or corporate guarantees issued by NSN. These instruments entitle the customer to claim payment as compensation for non-performance by NSN of its obligations under network infrastructure supply agreements. Depending on the nature of the guarantee, compensation is payable on demand or subject to verification of non-performance. Volume of other guarantees has decreased mainly due to expired guarantees.
Contingent liabilities on behalf of other companies were EUR 103 million in 2013 (EUR 68 million in 2012). The increase in volume is mainly due to the transfer of guarantees in connection with the disposal of certain businesses where contractual risks and revenues have been transferred, but some of the commercial guarantees have not yet been re-assigned legally.
Financing commitments of EUR 25 million in 2013 (EUR 34 million in 2012) are available under loan facilities negotiated mainly with NSN customers. Availability of the amounts is dependent upon the borrower’s continuing compliance with stated financial and operational covenants and compliance with
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other administrative terms of the facility. The loan facilities are primarily available to fund capital expenditure relating to purchases of network infrastructure equipment and services.
Venture fund commitments of EUR 215 million in 2013 (EUR 282 million in 2012) are financing commitments to a number of funds making technology related investments. As a limited partner in these funds Nokia is committed to capital contributions and also entitled to cash distributions according to respective partnership agreements and underlying fund activities.
As of December 31, 2013, Nokia continuing operations had purchase commitments of EUR 772 million (Nokia Group EUR 2 042 million in 2012) relating to inventory purchase obligations, service agreements and outsourcing arrangements, primarily for purchases in 2014.
The Group is party to routine litigation incidental to the normal conduct of business, including, but not limited to, several claims, suits and actions both initiated by third parties and initiated by Nokia relating to infringements of patents, violations of licensing arrangements and other intellectual property related matters, as well as actions with respect to products, contracts and securities. Based on the information currently available, in the opinion of management the outcome of and liabilities in excess of what has been provided for related to these or other proceedings, in the aggregate, are not likely to be material to the financial condition or result of operations. See also Note 28.
| 31. | Leasing contracts |
The Group leases office, manufacturing and warehouse space under various non-cancellable operating leases. Certain contracts contain renewal options for various periods of time.
The future costs for non-cancellable leasing contracts are as follows:
| Continuing operations | Operating leases |
|||||
| EURm | ||||||
| Leasing payments |
2014 | 139 | ||||
| 2015 | 98 | |||||
| 2016 | 66 | |||||
| 2017 | 51 | |||||
| 2018 | 45 | |||||
| Thereafter | 151 | |||||
|
|
|
|||||
| Total | 550 | |||||
|
|
|
|||||
Rental expense amounted to EUR 256 million in 2013 (EUR 361 million in 2012 and EUR 313 million in 2011).
| 32. | Related party transactions |
At December 31, 2013, the Group had borrowings amounting to EUR 69 million (EUR 69 million in 2012) from Nokia Unterstützungsgesellschaft mbH, the Group’s German pension fund, which is a separate legal entity. The loan bears interest at 6% annum and its duration is pending until further notice by the loan counterparties who have the right to terminate the loan with a 90 day notice. The loan is included in long-term interest-bearing liabilities in the consolidated statement of financial position.
There were no loans granted to the members of the Nokia Leadership Team and the Board of Directors at December 31, 2013, 2012 or 2011.
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Transactions with associated companies
| 2013 | 2012 | 2011 | ||||||||||
| EURm | EURm | EURm | ||||||||||
| Share of results of associated companies |
4 | (1 | ) | (23 | ) | |||||||
| Dividend income |
5 | — | — | |||||||||
| Share of shareholders’ equity of associated companies |
53 | 46 | 47 | |||||||||
| Sales to associated companies |
6 | 12 | 37 | |||||||||
| Purchases from associated companies |
178 | 150 | 91 | |||||||||
| Receivables from associated companies |
— | 1 | — | |||||||||
| Liabilities to associated companies |
12 | 32 | 14 | |||||||||
At December 31, 2013, the Group has guaranteed a loan of EUR 16 million (EUR 11 million in 2012) for an associated company of the Group.
Management compensation
Nokia announced on September 3, 2013 that it had entered into a transaction agreement whereby Nokia will sell substantially all of its Devices & Services business to Microsoft. As a result of the proposed transaction, Nokia announced changes to its leadership. These changes were designed to provide an appropriate corporate governance structure during the interim period following the announcement of this transaction. Stephen Elop stepped down from his positions as President and CEO and Nokia’s Chairman of the Board Risto Siilasmaa and Chief Financial Officer of Nokia Timo Ihamuotila assumed additional responsibilities as Interim CEO and Interim President, respectively, from September 3, 2013.
The following table sets forth the salary and cash incentive information awarded and paid or payable by the Group to the Chief Executive Officer and President of Nokia Corporation for fiscal years 2011-2013, share-based compensation expense relating to equity-based awards, expensed by the Group as well as the pension expenses, expensed by the Group. The table includes compensation for the time in-role or the compensation for the role related responsibilities, only.
| 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||||||||||||||||||||
| Base salary/ fee(1) |
Cash incentive payments(1) |
Share-based compensation expense |
Pension expenses |
Base salary |
Cash incentive payments |
Share-based compensation expense |
Pension expenses |
Base salary |
Cash incentive payments |
Share-based compensation expense |
Pension expenses |
|||||||||||||||||||||||||||||||||||||
| EUR | EUR | EUR | EUR | EUR | EUR | EUR | EUR | EUR | EUR | EUR | EUR | |||||||||||||||||||||||||||||||||||||
| Risto Siilasmaa |
||||||||||||||||||||||||||||||||||||||||||||||||
| Interim CEO as of September 3, 2013(2) |
500 000 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Timo Ihamuotila |
||||||||||||||||||||||||||||||||||||||||||||||||
| Interim President as of September 3, 2013(3) |
150 000 | — | 12 107 | 42 500 | ||||||||||||||||||||||||||||||||||||||||||||
| Stephen Elop, |
||||||||||||||||||||||||||||||||||||||||||||||||
| President and CEO until September 3, 2013 |
753 911 | 769 217 | 2 903 226 | 263 730 | 1 079 500 | — | 1 597 496 | 247 303 | 1 020 000 | 473 070 | 2 086 351 | 280 732 | ||||||||||||||||||||||||||||||||||||
| (1) | Base salaries are prorated for the time in role, incentive payments represent full year incentive payment earned under Nokia short term incentive programs. For interim roles the base salaries or fees for the role related responsibilities, only. |
| (2) | As compensation for his additional responsibilities as interim CEO, Risto Siilasmaa received EUR 500 000, 40% was delivered to him in shares bought on the open market. The remaining 60% was paid in cash, most of which was used to cover the estimated associated taxes. |
| (3) | In recognition of additional responsibilities, Timo Ihamuotila will receive EUR 250 000, out of which EUR 150 000 was paid in 2013. In addition, Timo Ihamuotila received an equity grant with an approximate aggregate grant date value of EUR 250 000 in the form of Nokia stock options and Nokia restricted shares. These grants are subject to Nokia’s Equity plans standard terms and conditions and vesting schedules. |
Total remuneration of the Nokia Leadership Team awarded for the fiscal years 2011-2013 was EUR 9 160 848 in 2013 (EUR 7 304 269 in 2012 and EUR 8 396 423 in 2011), which consisted of base
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salaries and cash incentive payments. Total share-based compensation expense relating to equity-based awards expensed by the Group was EUR 7 913 633 in 2013 (EUR 3 213 047 in 2012 and EUR 4 513 671 in 2011). The members of the Nokia Leadership Team participate in the local retirement programs applicable to employees in the country where they reside.
Board of Directors
The following table depicts the annual remuneration structure paid to the members of our Board of Directors, as resolved by the Annual General Meetings in the respective years.
| 2013 | 2012 | 2011 | ||||||||||||||||||||||
| Gross Annual Fee |
Shares Received |
Gross Annual Fee |
Shares Received |
Gross Annual Fee |
Shares Received |
|||||||||||||||||||
| EUR(1) | EUR(1) | EUR(1) | ||||||||||||||||||||||
| Board of Directors |
||||||||||||||||||||||||
| Risto Siilasmaa |
||||||||||||||||||||||||
| Chairman as from May 3, 2012(2) |
440 000 | 77 217 | 440 000 | 70 575 | 155 000 | 10 428 | ||||||||||||||||||
| Jorma Ollila |
||||||||||||||||||||||||
| Chairman until May 3, 2012(3) |
— | — | 440 000 | 29 604 | ||||||||||||||||||||
| Dame Marjorie Scardino Vice Chairman until May 7, 2013(4) |
150 000 | 24 062 | 150 000 | 10 092 | ||||||||||||||||||||
| Jouko Karvinen Vice Chairman from May 7, 2013(5) |
175 000 | 14 374 | 155 000 | 24 860 | 140 000 | 9 419 | ||||||||||||||||||
| Bruce Brown |
130 000 | 10 678 | 130 000 | 20 850 | ||||||||||||||||||||
| Elisabeth Doherty(6) |
140 000 | 11 499 | ||||||||||||||||||||||
| Stephen Elop(7) |
— | — | — | — | — | — | ||||||||||||||||||
| Bengt Holmström |
130 000 | 8 746 | ||||||||||||||||||||||
| Henning Kagermann(8) |
155 000 | 12 731 | 155 000 | 24 860 | 155 000 | 10 428 | ||||||||||||||||||
| Per Karlsson |
— | — | 130 000 | 8 746 | ||||||||||||||||||||
| Helge Lund |
130 000 | 10 678 | 130 000 | 20 850 | 130 000 | 8 746 | ||||||||||||||||||
| Isabel Marey-Semper(9) |
140 000 | 22 454 | 140 000 | 9 419 | ||||||||||||||||||||
| Mårten Mickos |
130 000 | 10 678 | 130 000 | 20 850 | — | — | ||||||||||||||||||
| Elizabeth Nelson(10) |
140 000 | 11 499 | 140 000 | 22 454 | — | — | ||||||||||||||||||
| Kari Stadigh |
130 000 | 10 678 | 130 000 | 20 850 | 130 000 | 8 746 | ||||||||||||||||||
| (1) | Approximately 40% of each Board member’s gross annual fee is paid in Nokia shares and the remaining approximately 60% of the gross annual fee is paid in cash. Further, it is Nokia policy that the directors retain all company stock received as director compensation until the end of their board membership, subject to the need to finance any costs relating to the acquisition of the shares, including taxes. |
| (2) | The 2013 and 2012 fees paid to Risto Siilasmaa amounted to an annual total of EUR 440 000 for services as Chairman of the Board. The 2011 fee paid to Risto Siilasmaa amounted to an annual total of EUR 155 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 25 000 for services as Chairman of the Audit Committee. Siilasmaa was also paid a fee serving as interim CEO as of September 3, 2013. Fee for his duties as interim CEO is presented under Management compensation. |
| (3) | The 2011 fee paid to Jorma Ollila amounted to an annual total of EUR 440 000 indicated for his services as Chairman of the Board. |
| (4) | The 2012 and 2011 fees paid to Dame Marjorie Scardino amounted to an annual total of EUR 150 000 each year indicated for services as Vice Chairman of the Board. |
| (5) | The 2013 fee paid to Jouko Karvinen amounted to an annual total of EUR 175 000, consisting of a fee of EUR 150 000 for services as a Vice Chairman of the Board and EUR 25 000 for service as |
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| Chairman of the Audit Committee. The 2012 fee paid to Jouko Karvinen amounted to an annual total of EUR 155 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 25 000 for service as Chairman of the Audit Committee. The 2011 fee paid to Jouko Karvinen amounted to an annual total of EUR 140 000, consisting of a fee of 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. |
| (6) | The 2013 fee paid to Elizabeth Doherty amounted to total of EUR 140 000 consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. |
| (7) | Stephen Elop did not receive remuneration for his services as a member of the Board. This table does not include remuneration paid to Mr. Elop for services as the President and CEO. Stephen Elop stepped down from the board of directors as of September 3, 2013. |
| (8) | The 2013, 2012 and 2011 fees paid to Henning Kagermann amounted to an annual total of EUR 155 000 each year indicated, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 25 000 for services as Chairman of the Personnel Committee. |
| (9) | The 2012 and 2011 fees paid to Isabel Marey-Semper amounted to an annual total of EUR 140 000 each year indicated, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit Committee. |
| (10) | The 2013 and 2012 fees paid to Elizabeth Nelson amounted to an annual total of EUR 140 000, consisting of a fee of EUR 130 000 for services as a member of the Board and EUR 10 000 for services as a member of the Audit committee. |
Termination benefits of the President and CEO
Mr. Elop’s employment contract was amended effective as of September 3, 2014, as a result of entering into a transaction with Microsoft for the Sale of D&S Business. Under the terms of the amendment, Mr. Elop resigned from his position as President and CEO as of September 3, 2013 and assumed the role of Executive Vice President, Devices & Services. He also resigned from his position as a member of Board of Directors as of the same date. After the closing of the Sale of D&S Business, he transferred to Microsoft as agreed with Microsoft. In accordance with his service contract he received a severance payment of EUR 24.2 million in total. This amount included: base salary and management incentive EUR 4.1 million and value of equity awards EUR 20.1 million. The amount of the equity awards was based on the Nokia closing share price of EUR 5.28 per share at NASDAQ OMX Helsinki on April 24, 2014. Pursuant to the terms of the purchase agreement with Microsoft entered into in connection with the Sale of D&S Business, 70% of the total severance payment was borne by Microsoft and the remaining 30% of the severance amount (EUR 7.3 million) was borne by Nokia.
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| 33. | Notes to the consolidated statements of cash flows |
| 2013 | 2012 | 2011 | ||||||||||
| EURm | EURm | EURm | ||||||||||
| Adjustments for(1): |
||||||||||||
| Depreciation and amortization |
728 | 1 326 | 1 562 | |||||||||
| Loss/(profit) on sale of property, plant and equipment and available-for-sale investments |
40 | (131 | ) | (49 | ) | |||||||
| Income taxes |
401 | 1 145 | 291 | |||||||||
| Share of results of associated companies (Note 16) |
(4 | ) | 1 | 23 | ||||||||
| Non-controlling interest |
(124 | ) | (681 | ) | (323 | ) | ||||||
| Financial income and expenses |
264 | 333 | 49 | |||||||||
| Transfer from hedging reserve to sales and cost of sales |
(87 | ) | (16 | ) | (4 | ) | ||||||
| Impairment charges (Note 9) |
20 | 109 | 1 338 | |||||||||
| Asset retirements |
24 | 31 | 13 | |||||||||
| Share-based compensation |
56 | 13 | 18 | |||||||||
| Restructuring related charges(2) |
446 | 1 659 | 565 | |||||||||
| Other income and expenses |
25 | 52 | 5 | |||||||||
|
|
|
|
|
|
|
|||||||
| Adjustments, total |
1 789 | 3 841 | 3 488 | |||||||||
|
|
|
|
|
|
|
|||||||
| Change in net working capital |
||||||||||||
| Decrease in short-term receivables |
1 655 | 2 118 | 218 | |||||||||
| Decrease in inventories |
193 | 707 | 289 | |||||||||
| (Decrease) in interest-free short-term borrowings |
(2 793 | ) | (2 706 | ) | (1 148 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Change in net working capital |
(945 | ) | 119 | (641 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| (1) | Combines adjustments relating to both continuing and discontinued operations. |
| (2) | The adjustments for restructuring related charges represent the non-cash portion of the restructuring related charges recognized in the consolidated income statement. |
The Group did not engage in any material non-cash investing activities in 2013, 2012 and 2011.
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| 34. | Principal Nokia Group companies at December 31, 2013 |
| Country of incorporation |
Primary nature of |
Parent holding % |
Group majority % |
Non-controlling interests % |
||||||||||||
| Continuing Nokia Group companies |
||||||||||||||||
| Nokia Solutions and Networks B.V. |
The Hague, Netherlands |
Holding company |
|
— |
|
|
100.0 |
(1) |
|
— |
| |||||
| Nokia Solutions and Networks Oy |
Helsinki, Finland |
Sales and manufacturing company |
|
— |
|
|
100.0 |
|
|
— |
| |||||
| Nokia Solutions and Networks US LLC |
Delaware, USA |
Sales company |
|
— |
|
|
100.0 |
|
|
— |
| |||||
| Nokia Solutions and Networks Japan Corp. |
Tokyo, Japan | Sales company | — | 100.0 | — | |||||||||||
| Nokia Solutions and Networks India Private Limited |
New Delhi, India | Sales and manufacturing company | — | 100.0 | — | |||||||||||
| Nokia Solutions and Networks System Technology (Beijing) Co., Ltd. |
Beijing, China | Sales company | — | 100.0 | — | |||||||||||
| Nokia Solutions and Networks Branch Operations Oy |
Helsinki, Finland | Sales company | — | 100.0 | — | |||||||||||
| Nokia Solutions and Networks Korea Ltd. |
Seoul, South Korea | Sales company | — | 100.0 | — | |||||||||||
| Nokia Solutions and Networks do Brasil Telecomunicações Ltda. |
Sao Paolo, Brazil | Sales company | — | 100.0 | — | |||||||||||
| Nokia Solutions and Networks Technology Service Co., Ltd. |
Beijing, China | Sales company | — | 100.0 | — | |||||||||||
| HERE Holding Corporation |
Delaware, USA | Holding company |
— | 100.0 | — | |||||||||||
| HERE Global B.V. |
Veldhoven, Netherlands | Holding company | 1.45 | 100.0 | — | |||||||||||
| HERE Europe B.V. |
Veldhoven, Netherlands | Sales and holding company | — | 100.0 | — | |||||||||||
| HERE North America LLC |
Delaware, USA | Sales and development company | — | 100.0 | — | |||||||||||
| Nokia Gate5 GmbH/HERE Deutschland GmbH |
Berlin, Germany | Development | — | 100.0 | — | |||||||||||
| Nokia Finance International B.V. |
Haarlem, Netherlands | Holding and finance company | 100.0 | 100.0 | ||||||||||||
| Discontinued Nokia Group companies |
||||||||||||||||
| Nokia Sales International Oy |
Helsinki, Finland | Sales company | 100.0 | 100.0 | — | |||||||||||
| Nokia India Sales Pvt Limited |
New Delhi, India | Sales company | 100.0 | |||||||||||||
| Nokia India Pvt |
New Delhi, India | Manufacturing Company | 99.99 | 100.0 | — | |||||||||||
| OOO Nokia |
Moscow, Russia | Sales company | 100.0 | % | 100.0 | |||||||||||
| Nokia (China) Investment Co., Ltd |
Beijing, China | Sales and holding company | 100.0 | 100.0 | — | |||||||||||
| Nokia Telecommunications Ltd |
Beijing, China | Manufacturing company | 4.5 | 83.9 | 16.1 | |||||||||||
| Nokia Inc. |
Delaware, USA | Sales company | — | 100.0 | — | |||||||||||
| Nokia UK Limited |
London, United Kingdom | Sales company | — | 100.0 | — | |||||||||||
| Nokia do Brazil Technologia Ltd a |
Manaus, Brazil | Manufacturing company | — | 100.0 | — | |||||||||||
| Nokia TMC Limited |
Masan, South Korea | Manufacturing company | 100.0 | % | 100.0 | — | ||||||||||
| Nokia (Thailand) Ltd |
Bangkok, Thailand | Sales company | 100.0 | — | ||||||||||||
| (1) | In 2013, Nokia acquired the remaining 50% of Nokia Siemens Networks B.V., the ultimate parent of the NSN business. By that, the parent entity of NSN business became a fully owned subsidiary of Nokia. |
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| 35. | Risk Management |
General risk management principles
Nokia has a common and systematic approach to risk management across business operations and processes. Material risks and opportunities are identified, analyzed, managed and monitored as part of business performance management. Relevant key risks are identified against business targets either in business operations or as an integral part of long and short-term planning. Nokia’s overall risk management concept is based on visibility of the key risks preventing Nokia from reaching its business objectives rather than solely focusing on eliminating risks.
The principles documented in the Nokia Risk Policy and approved by the Audit Committee of the Board of Directors require risk management and its elements to be integrated into business processes. One of the main principles is that the business or function head is also the risk owner, but it is everyone’s responsibility in Nokia to identify risks which prevent Nokia from reaching its objectives. Risk management covers strategic, operational, financial and hazard risks.
Key risks and opportunities are reviewed by the Nokia Leadership team and the Board of Directors in order to create visibility on business risks as well as to enable prioritization of risk management activities at Nokia. In addition to the general principles defined in the Nokia Risk Policy, specific risk management implementation is reflected in other key Nokia policies.
The following information for 2013 has been presented for Nokia continuing operations only. The comparative year includes the Nokia Group total.
Financial risks
The objective for Treasury activities in Nokia is to guarantee sufficient funding for the Group at all times, and to identify, evaluate and manage financial risks. Treasury activities support this aim by mitigating the adverse effects caused by fluctuations in the financial markets on the profitability of the underlying businesses and by managing the capital structure of the Group by prudently balancing the levels of liquid assets and financial borrowings.
Treasury activities are governed by the Treasury Policy approved by the CEO, that provides principles for overall financial risk management and determines the allocation of responsibilities for financial risk management in Nokia. Other related policies and procedures in Nokia and NSN, approved by respective CFO’s or relevant finance executives, cover specific areas such as foreign exchange risk, interest rate risk, credit and liquidity risk as well as use of derivative financial instruments in managing these risks. Nokia is risk averse in its Treasury activities.
Financial risks are divided into (a) market risk (covering foreign exchange risk, interest risk and equity price risk), (b) credit risk (covering business related credit risk and financial credit risk) and (c) liquidity risk.
(a) Market Risk
Methodology for assessing market risk exposures: Value-at-Risk
Nokia uses the Value-at-Risk (“VaR”) methodology to assess the Group exposures to foreign exchange, interest rate, and equity risks. The VaR gives estimates of potential fair value losses in market risk sensitive instruments as a result of adverse changes in specified market factors, at a specified confidence level over a defined holding period.
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In Nokia, the foreign exchange VaR is calculated with the Monte Carlo method which simulates random values for exchange rates in which the Group has exposures and takes the non-linear price function of certain foreign exchange derivative instruments into account. The variance-covariance methodology is used to assess and measure the interest rate risk and equity price risk.
The VaR is determined by using volatilities and correlations of rates and prices estimated from a one-year sample of historical market data, at 95% confidence level, using a one-month holding period. To put more weight on recent market conditions, an exponentially weighted moving average is performed on the data with an appropriate decay factor.
This model implies that within a one-month period, the potential loss will not exceed the VaR estimate in 95% of possible outcomes. In the remaining 5% of possible outcomes, the potential loss will be at minimum equal to the VaR figure, and on average substantially higher.
The VaR methodology relies on a number of assumptions, such as a) risks are measured under average market conditions, assuming that market risk factors follow normal distributions; b) future movements in market risk factors follow estimated historical movements; and c) the assessed exposures do not change during the holding period. Thus it is possible that, for any given month, the potential losses at 95% confidence level are different and could be substantially higher than the estimated VaR.
Foreign exchange risk
Nokia operates globally and is exposed to transactional and translational foreign exchange risks. Transaction risk arises from foreign currency denominated assets and liabilities together with foreign currency denominated future cash flows. Transaction exposures are managed in the context of various functional currencies of foreign Group companies.
According to the foreign exchange policy guidelines of the Group, which remains the same as in the previous year, material transactional foreign exchange exposures are hedged unless hedging would be uneconomical due to market liquidity and/or hedging cost. Exposures are defined using nominal values of the transactions. Exposures are mainly hedged with derivative financial instruments such as forward foreign exchange contracts and foreign exchange options. The majority of financial instruments hedging foreign exchange risk have a duration of less than a year. The Group does not hedge forecast foreign currency cash flows beyond two years.
Since Nokia has subsidiaries outside the euro zone, translation risk arises from the euro-denominated value of the shareholders’ equity of foreign Group companies being exposed to fluctuations in exchange rates. Equity changes resulting from movements in foreign exchange rates are shown as a translation difference in the Group consolidation.
Nokia uses, from time to time, forward foreign exchange contracts, foreign exchange options and foreign currency denominated loans to hedge its equity exposure arising from foreign net investments.
At the end of years 2013 and 2012, the following currencies represent a significant portion of the currency mix in the outstanding financial instruments:
| 2013 |
USD | JPY | CNY | INR | ||||||||||||
| EURm | EURm | EURm | EURm | |||||||||||||
| FX derivatives used as cashflow hedges (net amount)(1) |
(409 | ) | (232 | ) | — | — | ||||||||||
| FX derivatives used as net investment hedges (net amount)(2) |
(724 | ) | (14 | ) | (358 | ) | (157 | ) | ||||||||
| FX exposure from balance sheet items (net amount)(3) |
(217 | ) | 36 | (47 | ) | (141 | ) | |||||||||
| FX derivatives not designated in a hedge relationship and carried at fair value through profit and loss (net amount)3 |
(367 | ) | (116 | ) | 81 | 57 | ||||||||||
| Cross currency / interest rate hedges |
390 | — | — | — | ||||||||||||
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| 2012 |
USD | JPY | CNY | INR | ||||||||||||
| EURm | EURm | EURm | EURm | |||||||||||||
| FX derivatives used as cashflow hedges (net amount)(1) |
550 | (281 | ) | — | — | |||||||||||
| FX derivatives used as net investment hedges (net amount)(2) |
(281 | ) | (16 | ) | (1 043 | ) | (763 | ) | ||||||||
| FX exposure from balance sheet items (net amount)(3) |
1 156 | 38 | 263 | (539 | ) | |||||||||||
| FX derivatives not designated in a hedge relationship and carried at fair value through profit and loss (net amount)(3) |
(1 439 | ) | 106 | (114 | ) | 420 | ||||||||||
| Cross currency / interest rate hedges |
428 | — | — | — | ||||||||||||
| (1) | The FX derivatives are used to hedge the foreign exchange risk from forecast highly probable cashflows related to sales, purchases and business acquisition activities. In some of the currencies, especially in US dollar, Nokia has substantial foreign exchange risks in both estimated cash inflows and outflows, which have been netted in the table. The underlying exposures for which these hedges are entered into are not presented in the table, as they are not financial instruments. |
| (2) | The FX derivatives are used to hedge the Group’s net investment exposure. The underlying exposures for which these hedges are entered into are not presented in the table, as they are not financial instruments. |
| (3) | The balance sheet items and some probable forecast cash flows which are denominated in foreign currencies are hedged by a portion of FX derivatives not designated in a hedge relationship and carried at fair value through profit and loss. |
The VaR figures for the Group’s financial instruments which are sensitive to foreign exchange risks are presented in the table below. The VaR calculation includes foreign currency denominated monetary financial instruments such as:
| • | Available-for-sale investments, loans and accounts receivable, investments at fair value through profit and loss, cash, loans and accounts payable. |
| • | FX derivatives carried at fair value through profit and loss which are not in a hedge relationship and are mostly used for hedging balance sheet foreign exchange exposure. |
| • | FX derivatives designated as forecasted cash flow hedges and net investment hedges. Most of the VaR is caused by these derivatives as forecasted cash flow and net investment exposures are not financial instruments as defined under IFRS 7 and thus not included in the VaR calculation. |
| VaR from financial instruments |
||||||||
| 2013 | 2012 | |||||||
| EURm | EURm | |||||||
| At December 31 |
42 | 67 | ||||||
| Average for the year |
114 | 128 | ||||||
| Range for the year |
42 - 188 | 67 - 192 | ||||||
Interest rate risk
The Group is exposed to interest rate risk either through market value fluctuations of balance sheet items (i.e. price risk) or through changes in interest income or expenses (i.e. refinancing or reinvestment risk). Interest rate risk mainly arises through interest bearing liabilities and assets. Estimated future changes in cash flows and balance sheet structure also expose the Group to interest rate risk.
The objective of interest rate risk management is to balance uncertainty caused by fluctuations in interest rates and net long-term funding costs.
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At the reporting date, the interest rate profile of the Group’s interest-bearing assets and liabilities is presented in the table below:
| 2013 | 2012 | |||||||||||||||
| Fixed rate | Floating rate | Fixed rate | Floating rate | |||||||||||||
| EURm | EURm | EURm | EURm | |||||||||||||
| Assets |
4 400 | 4 739 | 3 488 | 6 627 | ||||||||||||
| Liabilities |
(5 947 | ) | (630 | ) | (4 191 | ) | (1 312 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Assets and liabilities before derivatives |
(1 547 | ) | 4 109 | (703 | ) | 5 315 | ||||||||||
| Interest rate derivatives |
954 | (926 | ) | 1 880 | (1 784 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Assets and liabilities after derivatives |
(593 | ) | 3 183 | 1 177 | 3 531 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The interest rate exposure of the Group is monitored and managed centrally. Nokia uses the VaR methodology complemented by selective shock sensitivity analyses to assess and measure the interest rate risk of interest-bearing assets, interest-bearing liabilities and related derivatives, which together create the Group’s interest rate exposure. The VaR for the Group interest rate exposure in the investment and debt portfolios is presented in the table below. Sensitivities to credit spreads are not reflected in the below numbers.
| 2013 | 2012 | |||||||
| EURm | EURm | |||||||
| At December 31 |
42 | 22 | ||||||
| Average for the year |
45 | 19 | ||||||
| Range for the year |
20 - 84 | 9 - 44 | ||||||
Equity price risk
Nokia’s exposure to equity price risk is related to certain publicly listed equity shares.
The fair value of these investments at December 31, 2013 was EUR 11 million (EUR 11 million in 2012). The VaR for the Group equity investment in publicly traded companies is insignificant. The private funds where the Group has investments may, from time to time, have investments in public equity. Such investments have not been included in the aforementioned number.
(b) Credit Risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises from credit exposures to customers, including outstanding receivables, financial guarantees and committed transactions as well as financial institutions, including bank and cash, fixed income and money-market investments and derivative financial instruments. Credit risk is managed separately for business related and financial credit exposures.
Except as detailed in the following table, the maximum exposure to credit risk is limited to the book value of the financial assets as included in the consolidated statement of financial position:
| 2013 | 2012 | |||||||
| EURm | EURm | |||||||
| Financial guarantees given on behalf of customers and other third parties |
12 | 12 | ||||||
| Loan commitments given but not used |
25 | 34 | ||||||
|
|
|
|
|
|||||
| 37 | 46 | |||||||
|
|
|
|
|
|||||
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Table of Contents
Business Related Credit Risk
The Company aims to ensure the highest possible quality in accounts receivable and loans due from customers and other third parties. Nokia and NSN Credit Policies, both approved by the respective Leadership Teams, lay out the framework for the management of the business related credit risks in Nokia and NSN.
Nokia and NSN Credit Policies provide that credit decisions are based on credit evaluation including credit rating for larger exposures. Nokia and NSN Rating Policy defines the rating principles. Ratings of material exposures are approved by Nokia’s Rating Committee and NSN’s Rating Committee. Credit risks are approved and monitored according to the credit policy of each business entity. When appropriate, credit risks are mitigated with the use of approved instruments, such as letters of credit, collateral or insurance and sale of selected receivables.
Credit exposure is measured as the total of accounts receivable and loans outstanding due from customers and committed credits.
The accounts receivable do not include any major concentrations of credit risk by customer. The top three customers account for approximately 4.0%, 3.6% and 3.3% (7.0%, 2.5% and 2.1% in 2012) of Group accounts receivable and loans due from customers and other third parties as at December 31, 2013, while the top three credit exposures by country amounted to 20.9%, 6.3% and 5.7% (9.5%, 8.5% and 7.5% in 2012), respectively with China being the biggest exposure.
The Group has provided allowances for doubtful accounts as needed on accounts receivable and loans due from customers and other third parties not past due, based on the analysis of debtors’ credit quality and credit history. The Group establishes allowances for doubtful accounts that represent an estimate of incurred losses as of the end of reporting period. All receivables and loans due from customers are considered on an individual basis in establishing the allowances for doubtful accounts.
As at December 31, 2013, the carrying amount before deducting any allowances for doubtful accounts as well as amounts expected to be uncollectible for acquired receivables relating to customers for which an allowance was provided or an uncollectible amount has been identified amounted to EUR 1 075 million (EUR 1 727 million in 2012). The amount of allowance recognized against that portion of these receivables considered to be impaired as well as the amount expected to be uncollectible for acquired receivables was a total of EUR 132 million (EUR 264 million in 2012) (see also Note 10 and Note 21). These aforementioned sums are relative to total net accounts receivable and loans due from customers of EUR 2 929 in 2013 (EUR 5 625 million in 2012).
An amount of EUR 109 million (EUR 365 million in 2012) relates to past due receivables from customers for which no allowances for doubtful accounts were recognized. The aging of these receivables is as follows:
| EURm |
2013 | 2012 | ||||||
| Past due 1-30 days |
53 | 250 | ||||||
| Past due 31-180 days |
43 | 70 | ||||||
| More than 180 days |
13 | 45 | ||||||
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| 109 | 365 | |||||||
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F-87
Table of Contents
Financial Credit Risk
Financial instruments contain an element of risk resulting from changes in market price of such instruments due to counterparties becoming less credit worthy or risk of loss due to counterparties being unable to meet their obligations. This risk is measured and monitored centrally by Treasury departments in Nokia and NSN. Financial credit risk is managed actively by limiting counterparties to a sufficient number of major banks and financial institutions and monitoring the credit worthiness and exposure sizes continuously as well as through entering into netting arrangements (which gives Nokia the right to offset in the event that the counterparty would not be able to fulfill the obligations) with all major counterparties and collateral agreements (which require counterparties to post collateral against derivative receivables) with certain counterparties.
Nokia’s investment decisions are based on strict creditworthiness and maturity criteria as defined in Treasury related policies and procedures. As a result of this investment policy approach and active management of outstanding investment exposures, Nokia has not been subject to any material credit losses in its financial investments in the years presented.
The table below presents the breakdown of the outstanding fixed income and money market investments by sector and credit rating grades ranked as per Moody’s rating categories.
| At December 31, 2013 |
Rating(3) | Total amount(1)(2) | Due within 3 months |
Due between 3 and 12 months |
Due between 1 and 3 years |
Due between 3 and 5 years |
Due beyond 5 years |
|||||||||||||||||||
| EURm | EURm | EURm | EURm | EURm | EURm | |||||||||||||||||||||
| Banks |
Aaa | 795 | 795 | — | — | — | — | |||||||||||||||||||
| Aa1-Aa3 | 738 | 738 | — | — | — | — | ||||||||||||||||||||
| A1-A3 | 1 281 | 1 281 | — | — | — | — | ||||||||||||||||||||
| Baa1-Baa3 | 828 | 826 | — | 2 | — | — | ||||||||||||||||||||
| Non rated | 159 | 159 | — | — | — | — | ||||||||||||||||||||
| Governments |
Aaa | 911 | 405 | 193 | 202 | — | 111 | |||||||||||||||||||
| Aa1-Aa3 | 572 | 176 | 39 | 357 | — | — | ||||||||||||||||||||
| Other |
Aaa | — | — | — | — | — | — | |||||||||||||||||||
| Aa1-Aa3 | — | — | — | — | — | — | ||||||||||||||||||||
| A1-A3 | 11 | — | 11 | — | — | — | ||||||||||||||||||||
| Baa1-Baa3 | — | — | — | — | — | — | ||||||||||||||||||||
| Ba1-C | — | — | — | — | — | — | ||||||||||||||||||||
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|||||||||||||||
| Total |
5 295 | 4 380 | 243 | 561 | — | 111 | ||||||||||||||||||||
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| At December 31, 2012 |
Rating(3) | Total amount(1)(2) | Due within 3 months |
Due between 3 and 12 months |
Due between 1 and 3 years |
Due between 3 and 5 years |
Due beyond 5 years |
|||||||||||||||||||
| EURm | EURm | EURm | EURm | EURm | EURm | |||||||||||||||||||||
| Banks |
Aaa | 1 401 | 1 401 | — | — | — | — | |||||||||||||||||||
| Aa1-Aa3 | 756 | 755 | 1 | — | — | — | ||||||||||||||||||||
| A1-A3 | 1 106 | 1 082 | 24 | — | — | — | ||||||||||||||||||||
| Baa1-Baa3 | 942 | 940 | — | — | 2 | — | ||||||||||||||||||||
| Non rated | 215 | 215 | — | — | — | — | ||||||||||||||||||||
| Governments |
Aaa | 1 572 | 1 342 | 31 | 42 | 18 | 139 | |||||||||||||||||||
| Aa1-Aa3 | 401 | 37 | 57 | 24 | 283 | — | ||||||||||||||||||||
| Other |
Aaa | — | — | — | — | — | — | |||||||||||||||||||
| Aa1-Aa3 | — | — | — | — | — | — | ||||||||||||||||||||
| A1-A3 | 10 | — | — | 10 | — | — | ||||||||||||||||||||
| Baa1-Baa3 | — | — | — | — | — | — | ||||||||||||||||||||
| Ba1-C | — | — | — | — | — | — | ||||||||||||||||||||
| Non rated | 2 | — | 2 | — | — | — | ||||||||||||||||||||
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| Total |
6 405 | 5 772 | 115 | 76 | 303 | 139 | ||||||||||||||||||||
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F-88
Table of Contents
| (1) | Fixed income and money-market investments include term deposits, investments in liquidity funds and investments in fixed income instruments classified as available-for-sale investments and investments at fair value through profit and loss. Liquidity funds invested solely in government securities are included under Governments. Other liquidity funds are included under Banks. |
| (2) | Included within fixed income and money-market investments is EUR 39 million of restricted investment at December 31, 2012 (EUR 77 million at December 31, 2012). They are restricted financial assets under various contractual or legal obligations. |
| (3) | Bank parent company ratings used here for bank groups. In some emerging markets countries actual bank subsidiary ratings may differ from parent company rating. |
98 % of Nokia’s cash in bank accounts is held with banks of investment grade credit rating (95% for 2012).
The following tables present financial assets and liabilities subject to offsetting under enforceable master netting agreements and similar arrangements.
| EURm
At December 31, 2013 |
Gross amounts of financial assets (liabilities) |
Gross amounts of financial liabilities (assets) set off in the statement of financial position |
Net amounts of financial assets (liabilities) presented in the statement of financial position |
Related amounts not set off in the statement of financial position |
Net amount | |||||||||||||||||||
| Financial instruments assets (liabilities) |
Cash collateral received (pledged) |
|||||||||||||||||||||||
| Derivative assets |
191 | — | 191 | 34 | 66 | 91 | ||||||||||||||||||
| Derivative liabilities |
(35 | ) | — | (35 | ) | (34 | ) | — | (1 | ) | ||||||||||||||
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|
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| Total |
156 | — | 156 | — | 66 | 90 | ||||||||||||||||||
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| EURm
At December 31, 2012 |
Gross amounts of financial assets (liabilities) |
Gross amounts of financial liabilities (assets) set off in the statement of financial position |
Net amounts of financial assets (liabilities) presented in the statement of financial position |
Related amounts not set off in the statement of financial position |
Net amount | |||||||||||||||||||
| Financial instruments assets (liabilities) |
Cash collateral received (pledged) |
|||||||||||||||||||||||
| Derivative assets |
448 | — | 448 | 87 | 123 | 238 | ||||||||||||||||||
| Derivative liabilities |
(90 | ) | — | (90 | ) | (87 | ) | (1 | ) | (2 | ) | |||||||||||||
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| Total |
358 | — | 358 | — | 122 | 236 | ||||||||||||||||||
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The financial instruments subject to enforceable master netting agreements and similar arrangements are not set off in the consolidated statement of financial position in cases where there is no intention to settle net or realize the asset and settle the liability simultaneously.
(c) Liquidity Risk
Liquidity risk is defined as financial distress or extraordinarily high financing costs arising due to a shortage of liquid funds in a situation where outstanding debt needs to be refinanced or where business conditions unexpectedly deteriorate and require financing. Transactional liquidity risk is defined as the risk of executing a financial transaction below fair market value, or not being able to execute the transaction at all, within a specific period of time.
The objective of liquidity risk management is to maintain sufficient liquidity, and to ensure that it is available fast enough without endangering its value, in order to avoid uncertainty related to financial distress at all times.
F-89
Table of Contents
Nokia aims to secure sufficient liquidity at all times by efficient cash management and by investing in short-term liquid interest bearing securities. Depending on overall liquidity position Nokia aims to pre- or refinance upcoming debt maturities before contractual maturity dates. The transactional liquidity risk is minimized by entering into transactions where proper two-way quotes can be obtained from the market.
Due to the dynamic nature of the underlying business, Nokia and NSN aim at maintaining flexibility in funding by keeping committed and uncommitted credit lines available. Nokia and NSN manage their respective credit facilities independently and facilities do not include cross-default clauses between Nokia and NSN or any forms of guarantees from either party. As of December 31, 2013, the Group’s committed revolving credit facilities totaled EUR 2 250 million (EUR 2 250 million in 2012).
The most significant existing long-term funding programs as of December 31, 2013 were:
| Issuer(s): | Program: | Issued | ||
| Nokia Corporation |
Shelf registration statement on file with the US Securities and Exchange Commission |
USD 1 500 million | ||
| Nokia Corporation |
Euro Medium-Term Note Program, totaling EUR 5 000 million |
EUR 1 750 million |
The most significant existing short-term funding programs as of December 31, 2013 were:
| Issuer(s): | Program: | Issued | ||
| Nokia Corporation |
Local commercial paper program in Finland, totaling EUR 750 million |
— | ||
| Nokia Corporation |
US Commercial Paper program, totaling USD 4 000 million |
— | ||
| Nokia Corporation and Nokia Finance International B.V. |
Euro Commercial Paper program, totaling USD 4 000 million |
— | ||
| Nokia Solutions and Networks Finance B.V. |
Local commercial paper program in Finland, totaling EUR 500 million |
EUR 25 million |
F-90
Table of Contents
As of December 31, 2013 Group’s interest bearing liabilities consisted of:
| Nokia | Issuer/Borrower | Final Maturity | 2013 | 2012 | ||||||||
|
|
||||||||||||
| EURm | EURm | |||||||||||
| Revolving Credit Facility (EUR 1 500 million) |
Nokia Corporation |
March 2016 | — | — | ||||||||
| USD Bond 2039 (USD 500 million 6.625%) |
Nokia Corporation |
May 2039 | 364 | 381 | ||||||||
| EUR Convertible Bond 2020 (EUR 500 million 3.625%) |
Nokia Corporation |
September 2020 | 500 | — | ||||||||
| EUR Convertible Bond 2019 (EUR 500 million 2.5%) |
Nokia Corporation |
September 2019 | 500 | — | ||||||||
| USD Bond 2019 (USD 1 000 million 5.375%) |
Nokia Corporation |
May 2019 | 727 | 761 | ||||||||
| EUR Bond 2019 (EUR 500 million 6.75%) |
Nokia Corporation |
February 2019 | 500 | 500 | ||||||||
| EUR Convertible Bond 2018 (EUR 500 million 1.125%) |
Nokia Corporation |
September 2018 | 500 | — | ||||||||
| EUR Convertible Bond 2017 (EUR 750 million 5%) |
Nokia Corporation |
October 2017 | 750 | 750 | ||||||||
| EUR Bond 2014 (EUR 1 250 million 5.5%) |
Nokia Corporation |
February 2014 | 1 250 | 1 250 | ||||||||
| EUR EIB R&D Loan |
Nokia Corporation |
February 2014 | 500 | 500 | ||||||||
| Differences between Bond nominal and carrying values(1) |
Nokia Corporation |
(164 | ) | 55 | ||||||||
| Other interest-bearing liabilities |
Nokia Corporation and various subsidiaries |
144 | 209 | |||||||||
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|||||||||
| Total Nokia |
5 571 | 4 406 | ||||||||||
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| NSN |
Issuer/Borrower | Final Maturity | 2013 | 2012 | ||||||||
|
|
||||||||||||
| EURm | EURm | |||||||||||
| Revolving Credit Facility (EUR 750 million) |
Nokia Solutions and Networks Finance B.V. |
June 2015 | — | — | ||||||||
| EUR Bond 2020 (EUR 350 million 7.125%) |
Nokia Solutions and Networks Finance B.V. |
April 2020 | 350 | — | ||||||||
| EUR Bond 2018 (EUR 450 million 6.75%) |
Nokia Solutions and Networks Finance B.V. |
April 2018 | 450 | — | ||||||||
| EUR Finnish Pension Loan |
Nokia Solutions and Networks Finance Oy |
October 2015 | 88 | 132 | ||||||||
| EUR Nordic Investment Bank |
Nokia Solutions and Networks Finance B.V. |
March 2015 | 20 | 80 | ||||||||
| EUR EIB R&D Loan |
Nokia Solutions and Networks Finance B.V. |
January 2015 | 50 | 150 | ||||||||
| EUR Bank Term Loan (EUR 750 million) |
Nokia Solutions and Networks Finance B.V. |
Prepaid March 2013 | — | 600 | ||||||||
| Differences between Bond nominal and carrying values(1) |
Nokia Solutions and Networks Finance B.V. |
(18 | ) | — | ||||||||
| Other liabilities(2) |
Nokia Solutions and Networks Finance B.V. and various subsidiaries |
151 | 181 | |||||||||
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| Total NSN |
1 091 | 1 143 | ||||||||||
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| Total Nokia Group |
6 662 | 5 549 | ||||||||||
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F-91
Table of Contents
| (1) | This line includes mainly fair value adjustments for bonds that are designated under fair value hedge accounting and difference between convertible bond nominal value and carrying value of the financial liability component. |
| (2) | This line includes also EUR 76 million (EUR 2 million, in 2012) non-interest bearing payables relating to cash held temporarily due to the divested businesses where NSN continues to perform services within a contractually defined scope for a specified timeframe. |
All Nokia borrowings specified above are senior unsecured and have no financial covenants. All borrowings, apart from the EIB R&D loan, are used for general corporate purposes.
All NSN borrowings specified above are senior unsecured and include financial covenants relating to financial leverage and interest coverage of the NSN. As of December 31, 2013 all financial covenants were satisfied. All borrowings, apart from the EIB and Nordic Investment bank R&D loans, are used for general corporate purposes.
Nokia has not guaranteed any of the NSN borrowings and thus these are non-recourse to Nokia. All Nokia Solutions and Networks Finance B.V. borrowings above are guaranteed by Nokia Solutions and Networks Oy and/or Nokia Solutions and Networks BV.
In October 2012, Nokia issued a EUR 750 million convertible bond that matures in October 2017. The bond includes a voluntary conversion option starting from December 2012 until maturity. Based on initial conversion price, voluntary conversion of the entire bond would result in the issue of 287 million shares. In July 2013 Nokia obtained committed bank financing for the EUR 1.2 billion cash portion of the acquisition of NSN that was completed in August 2013. The balance of EUR 0.5 billion was agreed to be paid in the form of a secured loan from Siemens due one year from closing. In September 2013, Nokia issued EUR 1.5 billion of financing in the form of three EUR 500 million tranches of convertible bonds issued to Microsoft maturing in 5, 6 and 7 years, respectively. On September 6, 2013, Nokia announced that it had decided to draw down all of this financing to prepay aforementioned financing raised for the acquisition of the shares in NSN and for general corporate purposes. Microsoft has agreed not to sell any of the bonds or convert any of the bonds to Nokia shares prior to the closing of the sale of the Devices & Services business. When the sale of the Devices & Services business was completed, the bonds were redeemed and the principal amount and accrued interest were netted against the proceeds from the transaction.
In December 2011, NSN signed a forward starting term loan and revolving credit facilities agreement to replace its revolving credit facility that matured in June 2012. In December 2012, the maturity date of the term loan agreement was extended from June 2013 to March 2014 and the size was reduced from EUR 750 million to EUR 600 million. In March 2013 NSN issued EUR 450 million of 6.75% Senior Notes due April 2018 and EUR 350 million of 7.125% Senior Notes due April 2020. The net proceeds, EUR 779 million, from the bond issuance were used to prepay EUR 600 million Bank term loan and EUR 50 million of the EUR EIB R&D loan in March 2013, and the remaining proceeds are to be used for general corporate purposes.
Of the NSN EUR Finnish Pension Loan, EUR EIB R&D Loan and EUR Nordic Investment Bank Loan, EUR 44 million, EUR 25 million and EUR 16 million, respectively, are included in current maturities as of December 31, 2013.
F-92
Table of Contents
The following table below is an undiscounted cash flow analysis for both financial liabilities and financial assets that are presented on the consolidated statement of financial position, and off-balance sheet instruments such as loan commitments according to their remaining contractual maturity. The line-by-line analysis does not directly reconcile with the consolidated statement of financial position.
| At December 31, 2013 |
Total amount |
Due within 3 months |
Due between 3 and 12 months |
Due between 1 and 3 years |
Due between 3 and 5 years |
Due beyond 5 years |
||||||||||||||||||
| EURm | EURm | EURm | EURm | EURm | ||||||||||||||||||||
| Non-current financial assets |
||||||||||||||||||||||||
| Long-term loans receivable |
189 | 1 | 3 | 34 | 6 | 145 | ||||||||||||||||||
| Current financial assets |
||||||||||||||||||||||||
| Current portion of long-term loans receivable |
30 | 4 | 26 | — | — | — | ||||||||||||||||||
| Short-term loans receivable |
94 | 94 | — | — | — | — | ||||||||||||||||||
| Investments at fair value through profit and loss |
478 | 1 | 5 | 261 | 9 | 202 | ||||||||||||||||||
| Available-for-sale investment |
4 935 | 4 392 | 253 | 290 | — | — | ||||||||||||||||||
| Cash |
3 676 | 3 676 | — | — | — | — | ||||||||||||||||||
| Cash flows related to derivative financial assets net settled: |
||||||||||||||||||||||||
| Derivative contracts—receipts |
(3 | ) | 39 | (11 | ) | 13 | 13 | (57 | ) | |||||||||||||||
| Cash flows related to derivative financial assets gross settled: |
||||||||||||||||||||||||
| Derivative contracts—receipts |
6 985 | 5 835 | 699 | 39 | 39 | 373 | ||||||||||||||||||
| Derivative contracts—payments |
(6 853 | ) | (5 776 | ) | (659 | ) | (18 | ) | (18 | ) | (382 | ) | ||||||||||||
| Accounts receivable1 |
2 286 | 1 722 | 564 | — | — | — | ||||||||||||||||||
| Non-current financial liabilities |
||||||||||||||||||||||||
| Long-term liabilities |
(4 894 | ) | (35 | ) | (161 | ) | (561 | ) | (1 505 | ) | (2 632 | ) | ||||||||||||
| Current financial liabilities |
||||||||||||||||||||||||
| Current portion of long-term loans(2) |
(3 431 | ) | (1 844 | ) | (1 587 | ) | — | — | — | |||||||||||||||
| Short-term liabilities |
(185 | ) | (185 | ) | — | — | — | — | ||||||||||||||||
| Cash flows related to derivative financial liabilities net settled: |
||||||||||||||||||||||||
| Derivative contracts—payments |
62 | — | 3 | 5 | 5 | 49 | ||||||||||||||||||
| Cash flows related to derivative financial liabilities gross settled: |
||||||||||||||||||||||||
| Derivative contracts—receipts |
3 301 | 3 146 | 155 | — | — | — | ||||||||||||||||||
| Derivative contracts—payments |
(3 311 | ) | (3 155 | ) | (156 | ) | — | — | — | |||||||||||||||
| Accounts payable |
(1 842 | ) | (1 704 | ) | (138 | ) | — | — | — | |||||||||||||||
| Contingent financial assets and liabilities |
||||||||||||||||||||||||
| Loan commitments given undrawn3 |
(25 | ) | (7 | ) | (13 | ) | (5 | ) | — | — | ||||||||||||||
| Loan commitments obtained undrawn4 |
2 227 | (4 | ) | (10 | ) | 2 241 | — | — | ||||||||||||||||
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Table of Contents
| At December 31, 2012 |
Total amount |
Due within 3 months |
Due between 3 and 12 months |
Due between 1 and 3 years |
Due between 3 and 5 years |
Due beyond 5 years |
||||||||||||||||||
| EURm | EURm | EURm | EURm | EURm | ||||||||||||||||||||
| Non-current financial assets |
||||||||||||||||||||||||
| Long-term loans receivable |
217 | 1 | 2 | 46 | 37 | 131 | ||||||||||||||||||
| Current financial assets |
||||||||||||||||||||||||
| Current portion of long-term loans receivable |
40 | 12 | 28 | — | — | — | ||||||||||||||||||
| Short-term loans receivable |
1 | 1 | — | — | — | — | ||||||||||||||||||
| Investments at fair value through profit and loss |
493 | 1 | 5 | 11 | 260 | 216 | ||||||||||||||||||
| Available-for-sale investment |
6 008 | 5 782 | 119 | 82 | 25 | — | ||||||||||||||||||
| Cash |
3 504 | 3 504 | — | — | — | — | ||||||||||||||||||
| Cash flows related to derivative financial assets net settled: |
||||||||||||||||||||||||
| Derivative contracts—receipts |
240 | 78 | (30 | ) | 86 | 25 | 81 | |||||||||||||||||
| Cash flows related to derivative financial assets gross settled: |
||||||||||||||||||||||||
| Derivative contracts—receipts |
13 864 | 10 299 | 3 072 | 41 | 41 | 411 | ||||||||||||||||||
| Derivative contracts—payments |
(13 596 | ) | (10 212 | ) | (2 959 | ) | (17 | ) | (17 | ) | (391 | ) | ||||||||||||
| Accounts receivable(1) |
4 579 | 3 952 | 615 | 12 | — | — | ||||||||||||||||||
| Non-current financial liabilities |
||||||||||||||||||||||||
| Long-term liabilities |
(6 642 | ) | (111 | ) | (163 | ) | (2 933 | ) | (1 123 | ) | (2 312 | ) | ||||||||||||
| Current financial liabilities |
||||||||||||||||||||||||
| Current portion of long-term loans |
(216 | ) | (83 | ) | (133 | ) | — | — | — | |||||||||||||||
| Short-term liabilities |
(262 | ) | (207 | ) | (55 | ) | — | — | — | |||||||||||||||
| Cash flows related to derivative financial liabilities net settled: |
||||||||||||||||||||||||
| Derivative contracts—payments |
(99 | ) | (2 | ) | (3 | ) | (7 | ) | (7 | ) | (80 | ) | ||||||||||||
| Cash flows related to derivative financial liabilities gross settled: |
||||||||||||||||||||||||
| Derivative contracts—receipts |
7 966 | 6 964 | 889 | 113 | — | — | ||||||||||||||||||
| Derivative contracts—payments |
(8 016 | ) | (6 999 | ) | (903 | ) | (114 | ) | — | — | ||||||||||||||
| Accounts payable |
(4 394 | ) | (4 241 | ) | (136 | ) | (17 | ) | — | — | ||||||||||||||
| Contingent financial assets and liabilities |
||||||||||||||||||||||||
| Loan commitments given undrawn(3) |
(34 | ) | (28 | ) | (6 | ) | — | — | — | |||||||||||||||
| Loan commitments obtained undrawn(4) |
2 261 | 46 | (11 | ) | 727 | 1 499 | — | |||||||||||||||||
| (1) | Accounts receivable maturity analysis does not include receivables accounted for based on the percentage of completion method of EUR 615 million (EUR 972 million in 2012). |
| (2) | The maturity bucket presented for EUR Convertible Bonds (total of EUR 1 500 million maturing 2018-2020) is based on the bonds being redeemed at par plus accrued interest at the close of the Sale of the D&S Business. |
| (3) | Loan commitments given undrawn have been included in the earliest period in which they could be drawn or called. |
| (4) | Loan commitments obtained undrawn have been included based on the period in which they expire. These amounts include related commitment fees. |
F-94
Table of Contents
Hazard risk
Nokia strives to ensure that all financial, reputation and other losses to the Group and our customers are managed through preventive risk management measures. Insurance is purchased for risks which cannot be efficiently internally managed and where insurance markets offer acceptable terms and conditions. The objective is to ensure that hazard risks, whether related to physical assets (e.g. buildings), intellectual assets (e.g. Nokia brand) or potential liabilities (e.g. product liability), are optimally insured taking into account both cost and retention levels.
Nokia purchases both annual insurance policies for specific risks as well as multiline and/or multiyear insurance policies, where available.
| 36 | Subsequent events |
Subsequent Events
On April 25, 2014 Nokia completed the sale of substantially all of its Devices & Services business to Microsoft. The transaction was subject to potential purchase price adjustments. At closing, the agreed transaction price of EUR 5.44 billion was increased by approximately EUR 170 million as a result of the estimated adjustments made for net working capital and cash earnings. However this adjustment is based on an estimate which will be finalized when the final cash earnings and net working capital numbers are expected to be available during the second quarter 2014.
Nokia expects to book a gain on sale of approximately EUR 3.0 billion from the transaction. As a result of the gain, Nokia expects to record tax expenses of approximately EUR 180 million.
Additionally, as is customary for transactions of this size, scale and complexity, Nokia and Microsoft made certain adjustments to the scope of the assets originally planned to transfer. These adjustments have no impact on the material deal terms of the transaction and Nokia will be materially compensated for any retained liabilities.
In India, our manufacturing facility remains part of Nokia following the closing of the transaction. Nokia and Microsoft have entered into a service agreement whereby Nokia would produce mobile devices for Microsoft. In the Republic of Korea, Nokia and Microsoft agreed to exclude the Masan facility from the scope of the transaction and Nokia is taking steps to close the facility, which employs approximately 200 people. Altogether, and accounting for these adjustments, approximately 25 000 employees transferred to Microsoft at the closing.
The EUR 1.5 billion convertible bonds issued by Nokia to Microsoft following the announcement of the transaction have been redeemed and netted against the deal proceeds by the amount of principal and accrued interest.
F-95
Table of Contents
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| NOKIA CORPORATION | ||
| By: | /S/ KRISTIAN PULLOLA | |
| Name: | Kristian Pullola | |
| Title: | Senior Vice President, Corporate Controller | |
| By: | /S/ RIIKKA TIEAHO | |
| Name: | Riikka Tieaho | |
| Title: | Vice President, Corporate Legal | |
| April 30, 2014 | ||
Exhibit 4.1
DATED JULY 1, 2013
SIEMENS AG
and
SIEMENS INTERNATIONAL HOLDING B.V.
and
NOKIA FINANCE INTERNATIONAL B.V.
and
NOKIA CORPORATION
SHARE PURCHASE AGREEMENT
relating to the sale and purchase of
shares in Nokia Siemens Networks B.V.
Exhibit 4.1
CONTENTS
| Page | ||||||
| 1. |
Interpretation | 1 | ||||
| 2. |
Sale and purchase | 10 | ||||
| 3. |
Conditions and Termination for Failure of Conditions | 10 | ||||
| 4. |
Consideration | 12 | ||||
| 5. |
Completion | 13 | ||||
| 6. |
Sellers’ Warranties | 14 | ||||
| 7. |
Purchaser and Nokia Corporation’s warranties, confirmations and undertakings | 15 | ||||
| 8. |
Purchaser’s remedies and Sellers’ limitations on liability | 20 | ||||
| 9. |
Nokia Corporation Guarantee | 21 | ||||
| 10. |
Siemens Designation | 23 | ||||
| 11. |
Access | 25 | ||||
| 12. |
Effect of Completion | 26 | ||||
| 13. |
Remedies and waivers | 26 | ||||
| 14. |
Assignment | 27 | ||||
| 15. |
Further assurance | 27 | ||||
| 16. |
Joint and Several Liability | 27 | ||||
| 17. |
Entire agreement | 27 | ||||
| 18. |
Notices | 28 | ||||
| 19. |
Announcements | 30 | ||||
| 20. |
Confidentiality | 31 | ||||
| 21. |
Costs and expenses | 32 | ||||
| 22. |
Counterparts | 32 | ||||
| 23. |
Invalidity | 33 | ||||
| 24. |
Contracts (Rights of Third Parties) Act 1999 | 33 | ||||
| 25. |
Choice of governing law | 33 | ||||
| 26. |
Jurisdiction | 33 | ||||
| 27. |
Agent for service | 34 | ||||
| 28. |
Language | 35 | ||||
SCHEDULES
| Schedule 1 |
36 | |||
| Schedule 2 (Completion Arrangements) |
37 | |||
| Schedule 3 (Warranties) |
42 | |||
| Schedule 4 (Sale and Purchase of the Shares and the CP Shares) |
44 | |||
| Schedule 5 (Deed of Termination and Release) |
45 | |||
| Schedule 6 (Loan Note Instrument) |
46 | |||
| Schedule 7 (Deed of Transfer) |
47 | |||
| Schedule 8 (Deed of Articles of Association) |
48 | |||
| Schedule 9 (Deed of Pledge) |
49 | |||
| Schedule 10 (IPR Agreement Assignment Letter) |
50 | |||
| Schedule 11 (Noednett Consent Award) |
51 | |||
| Schedule 12 (Guarantees) |
52 | |||
| Schedule 13 (Form of Directors’ Resignation Letter) |
53 | |||
| Schedule 14 (Shareholders’ resolution) |
54 | |||
| Schedule 15 (Contract Side Letter) |
55 | |||
Exhibit 4.1
THIS AGREEMENT is made on 2013
PARTIES:
| 1. | SIEMENS AG, a company incorporated in and registered in the Commercial Register of the Local Court of Munich (registration HRB 6684) and in the Commercial Register of the Local Court of Berlin (registration HRB 12300), with its registered office at Wittelsbacherplatz 2, 80333, Munich, Germany (“Siemens”); |
AND
| 2. | SIEMENS INTERNATIONAL HOLDING B.V., a private limited liability company incorporated under the laws of the Netherlands (besloten vennootschap met beperkte aansprakelijkheid), registered with the trade register of the Dutch Chamber of Commerce under number 27044420, with corporate seat in ‘s-Gravenhage, the Netherlands and with registered office at Prinses Beatrixlaan 800, 2595 BN ‘s-Gravenhage, the Netherlands (“Siemens International” and together with Siemens, the “Sellers”); |
AND
| 3. | NOKIA FINANCE INTERNATIONAL B.V., a private limited liability company incorporated under the laws of the Netherlands (besloten vennootschap met beperkte aansrakelijkheid), registered with the trade register of the Dutch Chamber of Commerce under number 33229670, with corporate seat in Haarlem, the Netherlands and with registered office Laan van Oversteen 14A, 2289 CX Rijswijk Zh, the Netherlands (the “Purchaser”); |
AND
| 4. | NOKIA CORPORATION, a company incorporated in Finland (Business ID number 0112038-9) and whose registered office is at Keilalahdentie 4, P.O. Box 226, FIN-00045 NOKIA GROUP, Espoo, Finland (“Nokia Corporation”), |
together, the “parties”.
BACKGROUND:
The Sellers have agreed to sell and the Purchaser has agreed to purchase and pay for the Shares and the CP Shares (each as defined in this Agreement) in each case on the terms and subject to the conditions of this Agreement.
THE PARTIES AGREE as follows:
| 1. | Interpretation |
| 1.1 | In this Agreement and the Schedules to it: |
| “Acquisition Facility B1” | means the loan facility made available under the Acquisition Facility B1 Agreement as described in clause 2.1 thereof; |
| “Acquisition Facility B2” | means the loan facility made available under the Acquisition Facility B2 Agreement as described in clause 2.1 thereof; | |
| “Acquisition Facility B3” | means the loan facility made available under the Acquisition Facility B3 Agreement as described in clause 2.1 thereof; | |
| “Acquisition Facility Agreements” | means the Acquisition Facility B1 Agreement, the Acquisition Facility B2 Agreement and the Acquisition Facility B3 Agreement; | |
| “Acquisition Facility B1 Agreement” | means the EUR 400,000,000 Bridge Facility Agreement dated on or around the date of this Agreement and made between, among others, the Purchaser as borrower and J.P. Morgan Limited as arranger; | |
| “Acquisition Facility B2 Agreement” | means the EUR 300,000,000 Bridge Facility Agreement dated on or around the date of this Agreement and made between, among others, the Purchaser as borrower and J.P. Morgan Limited as arranger ; | |
| “Acquisition Facility B3 Agreement” | means the EUR 500,000,000 Bridge Facility Agreement dated on or around the date of this Agreement and made between, among others, the Purchaser as borrower and J.P. Morgan Limited as arranger ; | |
| “Acquisition Finance Document” | means any Finance Document so defined or designated under any one of the Acquisition Facility Agreements (together, the “Acquisition Finance Documents”); | |
| “Books and Records” | means all agreements, documents, books, records and files, including records and files stored on computer disks or tapes or any other storage medium; | |
| “B Shares” | means the class B shares with a par value of €4.00 in the capital of the Company; | |
2
| “Business Day” | means a day (other than a Saturday or a Sunday) on which banks are open for general non-automated business in each of Amsterdam, the Netherlands, Helsinki, Finland, Munich, Germany, London, UK and, in relation to any date for payment of EURO, which is a TARGET Day; | |
| “CADE” | has the meaning given in sub-clause 3.1(A); | |
| “Cash Consideration” | means the €1,200,000,000 (in words: one billion two hundred million) consideration payable in accordance with clauses 4 and 5 and the relevant provisions of Schedule 2 (Completion Arrangements); | |
| “Certain Funds Drawstop Default” | means a Facility B1 Certain Funds Drawstop Default, a Facility B2 Certain Funds Drawstop Default and a Facility B3 Certain Funds Drawstop Default ; | |
| “Certain Funds Period” | means the period from the date of this Agreement until and including the Completion Date; | |
| “Certain Funds Representations” | means a Facility B1 Certain Funds Representation, a Facility B2 Certain Funds Representation and a Facility B3 Certain Funds Representation ; | |
| “Certain Funds Undertakings” | means a Facility B1 Certain Funds Undertaking, a Facility B2 Certain Funds Undertaking and a Facility B3 Certain Funds Undertaking; | |
| “Certain Funds Utilisation” | means a Certain Funds Utilisation as defined in the Acquisition Facility B1 Agreement, a Certain Funds Utilisation as defined in the Acquisition Facility B2 Agreement and/or a Certain Funds Utilisation as defined in the Acquisition Facility B3 Agreement ; | |
| “Commitments” | means the Commitments as defined in the Acquisition Facility B1 Agreement, the Commitments as defined in the Acquisition Facility B2 Agreement and the Commitments as defined in the Acquisition Facility B3 Agreement being, in aggregate, EUR 1,200,000,000 ; | |
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| “Company” | means Nokia Siemens Networks B.V., a private limited liability company incorporated under the laws of the Netherlands (besloten vennootschap met beperkte aansprakelijkheid) with registered number 34259706 and whose registered office is at Werner von Siemensstraat 7, 2712 PN Zoetermeer, the Netherlands; | |
| “Completion” | means completion of the sale and purchase of the Shares and the CP Shares under and in accordance with this Agreement; | |
| “Completion Date” | means fifteen calendar days following the day on which the last in time of the conditions set forth in sub-clause 3.1 shall have been satisfied or waived in accordance with sub-clause 3.6 (or, if such date is not a Business Day, the next following Business Day); | |
| “Consideration” | has the meaning given in sub-clause 4.1; | |
| “Contract Side Letter” | means the side letter substantially in the form set out in Schedule 15 (Contract Side Letter); | |
| “CP Shares” | means the CPB Shares and the CPD Shares set out against each of the Sellers’ names in Schedule 4 (Sale and Purchase of the Shares and the CP Shares); | |
| “CPB Shares” | means the class cumulative preference B shares with a par value of €0.01 in the capital of the Company; | |
| “CPD Shares” | means the class cumulative preference D shares with a par value of €0.01 in the capital of the Company; | |
| “D Shares” | means the class D shares with a par value of €1.00 in the capital of the Company; | |
| “Deed of Articles of Association” | means the deed of amendment to the articles of association of the Company substantially in the form set out in Schedule 8 (Deed of Articles of Association); | |
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| “Deed of Pledge” | means the deed of pledge substantially in the form set out in Schedule 9 (Deed of Pledge); | |
| “Deed of Termination and Release” | means the deed of termination and release substantially in the form set out in Schedule 5 (Deed of Termination and Release); | |
| “Deed of Transfer” | means the notarial deed of sale, purchase and transfer in respect of the Shares and the CP Shares, substantially in the form as set out in Schedule 7 (Deed of Transfer); | |
| “Facility B1 Certain Funds Drawstop Default” | means a Major Event of Default under and as defined in the Acquisition Facility B1 Agreement; | |
| “Facility B2 Certain Funds Drawstop Default” | means a Major Event of Default under and as defined in the Acquisition Facility B2 Agreement; | |
| “Facility B3 Certain Funds Drawstop Default” | means a Major Event of Default under and as defined in the Acquisition Facility B3 Agreement; | |
| “Facility B1 Certain Funds Representations” | means the Major Representations under and as defined in the Acquisition Facility B1 Agreement; | |
| “Facility B2 Certain Funds Representations” | means the Major Representations under and as defined in the Acquisition Facility B2 Agreement; | |
| “Facility B3 Certain Funds Representations” | means the Major Representations under and as defined in the Acquisition Facility B3 Agreement; | |
| “Facility B1 Certain Funds Undertakings” | means the Major Undertakings under and as defined in the Acquisition Facility B1 Agreement; | |
| “Facility B2 Certain Funds Undertakings” | means the Major Undertakings under and as defined in the Acquisition Facility B2 Agreement; | |
| “Facility B3 Certain Funds Undertakings” | means the Major Undertakings under and as defined in the Acquisition Facility B3 Agreement; | |
| “Finance Party” | means any Finance Party as defined in the Acquisition Facility B1 Agreement, any Finance Party as defined in the Acquisition Facility B2 Agreement or any Finance Party as defined in the Acquisition Facility B3 Agreement (together, the “Finance Parties”); | |
5
| “Governmental Authority” | means any government or political subdivision or any court, arbitral body, administrative agency or commission or other governmental or other regulatory body or authority or agency, federal, state, local, transnational or foreign (whether within or outside the United Kingdom); | |
| “Group” | means the Company and its subsidiaries and subsidiary undertakings from time to time; | |
| “IPR Agreement Assignment Letter” | means the IPR Agreement assignment letter substantially in the form set out in Schedule 10 (IPR Assignment Letter); | |
| “Lender” | means any Lender as defined in the Acquisition Facility B1 Agreement, any Lender as defined in the Acquisition Facility B2 Agreement or any Lender as defined in the Acquisition Facility B3 Agreement (together, the “Lenders”); | |
| “Loan Note Instrument” | means the loan note instrument in the form set out in Schedule 6 (Loan Note Instrument) to be issued by the Purchaser (and guaranteed by Nokia Corporation) constituting €500,000,000 Loan Notes (as defined in such instrument) due 2014; | |
| “Long Stop Date” | means 15 December 2013; | |
| “Name Affix” | means any addendum (such as “A Siemens Company”) which is used in connection with a commercial designation; | |
| “Noednett Claim” | has the meaning given in the Deed of Termination and Release; | |
| “Noednett Consent Award” | means the consent award in relation to the termination of the Noednett arbitration substantially in the form set out in Schedule 11 (Noednett Consent Award); | |
| “Nokia Group” | means the Purchaser, its subsidiaries and subsidiary undertakings, any holding company of the Purchaser and all other subsidiaries and subsidiary undertakings of any such holding company from time to time (excluding, for the avoidance of doubt, the Company and each other member of the Group prior | |
6
| to Completion, and including, for the avoidance of doubt, the Company and each other member of the Group following Completion); | ||
| “Notary De Brauw” | means Professor Martin van Olffen, a civil law notary (notaris), practising with De Brauw Blackstone Westbroek N.V., or his deputy, substitute or successor in office; | |
| “Notary Houthoff Buruma” | Philippe Konig, a civil-law notary (notaris), practising with Houthoff Buruma Coöperatief U.A., or his deputy, substitute or successor in office; | |
| “OTE Settlement Agreement” | means the settlement agreement in relation to the claim involving Hellenic Telecommunications Organization (OTE S.A.) dated 28 June 2013 between Siemens and the Company; | |
| “Proceedings” | means any proceeding, suit or action arising out of or in connection with this Agreement or the negotiation, existence, validity or enforceability of this Agreement, whether contractual or non-contractual; | |
| “Sellers’ Account(s)” | means such account or accounts as the Sellers may notify the Purchaser in writing at least five Business Days prior to the Completion Date; | |
| “Sellers’ Group” | means Siemens and its subsidiaries and subsidiary undertakings, any holding company of Siemens and all other subsidiaries and subsidiary undertakings of any such holding company from time to time (including, for the avoidance of doubt, Siemens International and excluding, for the avoidance of doubt, the Company and each other member of the Group); | |
| “Service Document” | means a claim form, application notice, order, judgment or other document relating to any Proceedings; | |
| “Shareholders’ Agreement” | means the amended and restated shareholders’ agreement between the Sellers, the Purchaser, Nokia Corporation and the Company dated 29 September 2011; | |
7
| “Share Purchase Documents” | means this Agreement, the Deed of Transfer, the | |
| Deed of Termination and Release, the Loan Note Instrument, the Deed of Pledge, the Noednett Consent Award, the OTE Settlement Agreement, the Tax Letter, the Deed of Articles of Association, the IPR Agreement Assignment Letter, the Contract Side Letter and any and all other agreements entered into pursuant to this Agreement; | ||
| “Shares” | means the B Shares and the D Shares set out against each of the Sellers’ names in Schedule 4 (Sale and Purchase of the Shares and the CP Shares); | |
| “Siemens Designation” | means any designation “Siemens”, “Si”, any similar reference to the designation “Siemens”, any abbreviations thereof which are confusingly similar thereto and/or any word or logo which is confusingly similar thereto; | |
| “TARGET Day” | means a day on which the Trans-European Automated Real-time Gross Settlement Express Transfer payment system which utilises a single shared platform and which was launched on 19 November 2007 is open for the settlement of payments in EURO; | |
| “Tax” | has the meaning given in the Tax Deed; | |
| “Tax Authority” | means any taxing, revenue or other authority (whether within or outside the United Kingdom) competent to impose any liability to, or assess or collect, any Tax; | |
| “Tax Deed” | means the tax deed dated 3 April 2007 between Nokia Corporation, the Purchaser, Siemens and the Company as it may be amended from time to time; | |
| “Tax Letter” | means the letter dated the same date as this Agreement between Siemens and Nokia Corporation in relation to Section 22 of the Umwandlungssteuergesetz; | |
| “Utilisation Request” | means any Utilisation Request as defined in the Acquisition Facility B1 Agreement, any Utilisation Request as defined in the Acquisition Facility B2 Agreement or any Utilisation Request as defined in the Acquisition Facility B3 Agreement (together, the “Utilisation Requests”); | |
8
| “Warranties” | means the warranties set out in Schedule 3 (Warranties) given by each of the Sellers; and | |
| “Working Hours” | means 9.30 a.m. to 5 p.m. on a Business Day. | |
| 1.2 | In this Agreement, unless otherwise specified: |
| (A) | the expressions “body corporate”, “holding company”, “subsidiary”, and “subsidiary undertaking” shall have the meaning given in the Companies Act 2006; |
| (B) | references to the awareness of the Sellers shall be limited to the knowledge of Ms Sigrid Dengler, after due enquiry of the members of her department, and Mr Anton Steiger; |
| (C) | references to any English legal term for any action, remedy, method of judicial proceeding, legal document, legal status, court, official, or any legal concept or thing shall in respect of any jurisdiction other than England be deemed to include what most nearly approximates in that jurisdiction to the English legal term; |
| (D) | all headings and titles are inserted for convenience only and are to be ignored in the interpretation of this Agreement; |
| (E) | the Schedules hereto form an integral part of this Agreement. Any reference to this Agreement shall include the Schedules hereto; and |
| (F) | any indemnity or covenant to pay (the “Payment Obligation”) being given on an “after-Tax basis” means that the amount payable pursuant to such Payment Obligation (the “Payment”) shall be calculated in such a manner as will ensure that, after taking into account: |
| (i) | any Tax required to be deducted or withheld from the Payment; |
| (ii) | the amount and timing of any additional Tax which becomes payable by the recipient of the Payment as a result of the Payment’s being subject to Tax in the hands of the recipient of the Payment; and |
| (iii) | the amount and timing of any Tax benefit which is obtained by the recipient of the Payment to the extent that such Tax benefit is attributable to the matter giving rise to the Payment Obligation or to the receipt of the Payment; |
9
| (which amount and timing is to be determined by the auditors of the recipient at the shared expense of both parties and is to be certified as such to the party making the Payment), the recipient of the Payment is in the same position as that in which it would have been if the matter giving rise to the Payment Obligation had not occurred. |
| 2. | Sale and purchase |
| 2.1 | Each of the Sellers shall sell, with full title guarantee, and the Purchaser shall purchase the Shares and CP Shares as set out opposite their respective names in Schedule 4 (Sale and Purchase of the Shares and the CP Shares). The Shares and the CP Shares shall be sold and purchased free from all liens, charges and encumbrances and from all other rights exercisable by third parties, together with all rights of any nature attached or accruing to them at Completion, including, without limitation, all rights to any dividends or other distributions declared, paid or made after Completion. |
| 2.2 | Each of the Sellers waives all rights of pre emption over any of the Shares or CP Shares conferred upon it by the Shareholders’ Agreement, the articles of association of the Company or in any other way and undertakes to take all reasonable steps necessary to ensure that any rights of pre-emption over any of the Shares or CP Shares are waived. |
| 3. | Conditions and Termination for Failure of Conditions |
| 3.1 | The sale and purchase of the Shares and the CP Shares pursuant to this Agreement are in all respects conditional upon: |
| (A) | receipt of approval of the Conselho Administrativo de Defesa Econômica (“CADE”) under Article 88 of the Brazilian Competition Act (Law No. 12,529 of 2011) of the transactions contemplated by this Agreement; and |
| (B) | receipt of the irrevocable approval of the terms of this Agreement and the transactions contemplated herein by Siemens’ supervisory board (Aufsichtsrat), which irrevocable approval shall not be rescinded or modified in any respect. |
| 3.2 | The Purchaser shall procure that the condition set out in sub-clause 3.1(A) is fulfilled as soon as is reasonably practicable after the date of this Agreement and, in any event, before the Long Stop Date, provided that (i) the Sellers shall not take any action that may frustrate the Purchaser’s ability to satisfy its obligations pursuant to this sub-clause 3.2 (without prejudice to, and subject to, its rights under sub-clause 3.3) and (ii) the Purchaser shall not be deemed to be in breach of its obligations under this sub-clause 3.2 if such breach results from a breach by any of the Sellers of their obligations under sub-clause 3.4. |
| 3.3 | The Purchaser shall: |
| (A) | procure that the filing of the notification to be made in connection with the merger clearance required by sub-clause 3.1(A) is made (and any associated fees are |
10
| paid) as soon as practicable after the date of this Agreement and, in any event, by 12 July 2013, provided that the Purchaser shall not be deemed to be in breach of its obligations under this sub-clause 3.3(A) if such breach results from a breach by any of the Sellers of their obligations under sub-clause 3.4; |
| (B) | offer any disposals, conditions, obligations, terms or undertakings that may be required as a basis for CADE to give its approval of the transactions contemplated by this Agreement, provided that the Purchaser shall only be required to offer any disposals, conditions, obligations, terms or undertakings (i) in relation to any assets of the Nokia Group and/or the Group that are located in Brazil (including, for the avoidance of doubt and without limitation, any shares or other interests in any entity incorporated in Brazil) to the extent related to the business of the Group; and (ii) in the nature of any vertical agreements or arrangements (including, without limitation, licences) that are necessary to be put in place by the Nokia Group and/or the Group so as to ensure that the Brazilian business of the Group can operate on a stand-alone basis; provided, however, that with respect to sub-clause 3.3(B)(ii), the Nokia Group and/or the Group shall not be required to enter into any agreements or arrangements that require the Nokia Group and/or the Group to provide third parties with the right to use or practice the Nokia Group and/or the Group’s intellectual property outside of Brazil; |
| (C) | subject to appropriate confidentiality safeguards, promptly notify the Sellers of any material communication (whether written or oral) from CADE in relation to the transactions contemplated by this Agreement; |
| (D) | give the Sellers reasonable notice of and reasonable opportunity to participate in all meetings and telephone calls with CADE (except where CADE requests that the Sellers should not participate in all or part of the meeting or the telephone call), other than in relation to purely administrative matters; and |
| (E) | provide the Sellers with drafts of all written communications intended to be sent to CADE (excluding any information which is confidential to the Purchaser), give the Sellers a reasonable opportunity to comment on them and take into account (acting reasonably and in good faith) any comments the Sellers may make and provide the Sellers with final copies of all such communications (excluding information which is confidential to the Purchaser), other than in relation to purely administrative matters. |
| 3.4 | The Sellers shall promptly provide to the Purchaser all assistance, information and documentation (excluding any information which is protected by a confidentiality undertaking with a third party and otherwise, subject to appropriate confidentiality safeguards being given to the Sellers by the Purchaser) that is reasonably necessary in connection with any notification or submission to, or request from, CADE and that the Sellers are reasonably able to provide to help the Purchaser to achieve the fulfillment of the condition set out in sub-clause 3.1(A). |
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| 3.5 | Without prejudice to sub-clause 3.3, the Purchaser shall notify the Sellers in writing of the satisfaction of the condition set out in sub-clause 3.1(A) as soon as reasonably practicable and, in any event, within one Business Day of the Purchaser having become aware of the satisfaction of such condition. The Sellers shall notify the Purchaser by way of e-mail to Jaakko Sulander (jaakko.sulander@nokia.com), Michael Daly (michael.daly@nokia.com) and Riikka Tieaho (riikka.tieaho@nokia.com), Scott Petepiece (scott.petepiece@shearman.com) and Jeremy Kutner (jeremy.kutner@shearman.com) of the satisfaction of the condition set out in sub-clause 3.1(B) as soon as reasonably practicable following its satisfaction and, in any event, by 4 a.m. Central European Time on 1 July 2013. |
| 3.6 | The Purchaser may, in its sole discretion, waive in writing the condition set out in sub-clause 3.1(A); provided that notwithstanding any other provision in this Agreement, under no circumstances shall the Purchaser be required to waive such condition. |
| 3.7 | In the event the condition set out in sub-clause 3.1(B) is not satisfied by 4 a.m. Central European Time on 1 July 2013 (or such other time as Siemens (Karl-Heinz Seibert) and Nokia Corporation (Michael Daly) may agree in writing (including by way of e-mail)), this Agreement shall automatically terminate. In the event the condition set out in sub-clause 3.1(A) is not fulfilled or waived in accordance with sub-clause 3.6 by the Long Stop Date, each of the Sellers and the Purchaser may terminate this Agreement by written notice to the other. |
| 3.8 | In the event of the termination of this Agreement under sub-clause 3.7, and without limiting any rights to claim for damages, the obligations of the parties under this Agreement shall end (except for the provisions of clauses 1, 5.9, 13, 14, 16 and 18 to 28 (inclusive), which shall survive any termination of this Agreement) but (for the avoidance of doubt) all rights, obligations and liabilities of the parties which have accrued before termination shall continue to exist. |
| 4. | Consideration |
| 4.1 | The total consideration for the sale of the Shares and the CP Shares shall be the payment by or on behalf of the Purchaser of the sum of €1,700,000,000 (in words: one billion seven hundred million Euros) (the “Consideration”) to be paid and satisfied by the payment of €1,200,000,000 (in words: one billion two hundred million Euros) in cash by the Purchaser to Siemens and Siemens International in the proportion set out below and the issue of the Loan Note Instrument by the Purchaser (guaranteed by Nokia Corporation) to Siemens International, in each case, in accordance with clause 5 (Completion) and the relevant provisions of Schedule 2 (Completion Arrangements). The Consideration (and any other payments to be made under this Agreement) shall be paid and satisfied in full without and free and clear of any adjustments, set-off, deductions, restrictions, conditions or withholdings of whatsoever nature. For the avoidance of doubt, nothing in this clause 4 shall prejudice any rights to any interest that may arise under the Loan Note Instrument. The Consideration shall be allocated between the Sellers as follows: €986,019,715 (in words: nine hundred and eighty six million nineteen thousand seven hundred and fifteen |
12
| Euros) (in cash) to Siemens and €213,980,285 (in words: two hundred and thirteen million nine hundred and eighty thousand two hundred and eighty five Euros) (in cash), together with €500,000,000 (in words: five hundred million Euros) of Notes (as defined in the Loan Note Instrument) under the Loan Note Instrument, to Siemens International. |
| 4.2 | Any payment made under this Agreement between the parties shall be treated (so far as possible) as an adjustment to the Consideration and any such adjustment shall be made pro rata between Siemens and Siemens International. |
| 5. | Completion |
| 5.1 | Completion shall take place at 2 p.m. Central European Time on the Completion Date at the offices of De Brauw Blackstone Westbroek N.V. at Claude Debussylaan 80, 1082 MD Amsterdam, the Netherlands or at such other time and place as the parties may agree. |
| 5.2 | At or immediately prior to Completion, the Sellers shall do those things listed in Part A (Sellers’ Obligations) and Part C (Joint Obligations) of Schedule 2 (Completion Arrangements) and the Purchaser shall do those things listed in Part B (Purchaser’s Obligations) and Part C (Joint Obligations) of Schedule 2 (Completion Arrangements). Completion shall take place in accordance with Part D (General) of Schedule 2 (Completion Arrangements). |
| 5.3 | Neither the Purchaser nor the Sellers shall be obliged to complete the sale and purchase of any of the Shares or the CP Shares unless the sale and purchase of all of the Shares and the CP Shares is completed simultaneously. |
| 5.4 | If the respective obligations of the Sellers and the Purchaser under sub-clause 5.2 and Schedule 2 (Completion Arrangements) are not complied with on the Completion Date, the Purchaser or, as the case may be, the Sellers may: |
| (A) | defer Completion (so that the provisions of this clause 5 shall apply to Completion as so deferred); |
| (B) | proceed to Completion so far as practicable (without limiting its rights under this Agreement); or |
| (C) | terminate this Agreement by notice in writing to the Sellers or, as the case may be, the Purchaser. |
| 5.5 | In the event of the termination of this Agreement under sub-clause 5.4, and without limiting any rights to claim for damages, the obligations of the parties under this Agreement shall end (except for the provisions of clauses and sub-clauses 1, 5.9, 13, 14, 16 and 18 to 28 (inclusive), which shall survive any termination of this Agreement) but (for the avoidance of doubt) all rights, obligations and liabilities of the parties which have accrued before termination shall continue to exist. |
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| 5.6 | The parties hereby instruct the Notary De Brauw and the Notary Houthoff to take such steps as are set out in Schedule 2 (Completion Arrangements), paragraphs 7 and 8. |
| 5.7 | Payment or satisfaction by or on behalf of the Purchaser (and receipt by the Sellers) of the Consideration in accordance with sub-clause 4.1 shall constitute payment of the full consideration for the Shares and the CP Shares and shall discharge the obligations of the Purchaser under clause 2 (Sale and purchase). For the avoidance of doubt, nothing in this sub-clause 5.7 shall prejudice any rights or obligations under the Loan Note Instrument. |
| 5.8 | Within five Business Days following Completion, the parties shall (and, in the case of the Purchaser, shall procure that the Company shall) send a letter to the relevant arbitral tribunal requesting the Noednett Consent Award to be given (and, for the avoidance of doubt, append to that letter a copy of the Noednett Consent Award for signature by the relevant arbitrators). |
| 5.9 | For the avoidance of doubt, in the event of the termination of this Agreement under sub-clause 3.7 or sub-clause 5.4, the Noednett Claim will continue on the same basis as prior to the execution of this Agreement. |
| 6. | Sellers’ Warranties |
| 6.1 | Subject to clause 8 (Purchaser’s remedies and Sellers’ limitations on liability), each of the Sellers warrants to the Purchaser that each of the Warranties is true and accurate in all respects at the date of this Agreement and, except for any part of the Warranties that are qualified by reference to the Sellers’ awareness, shall be true and accurate in all respects as at Completion as if repeated immediately before Completion. |
| 6.2 | Except in the case of fraud, the Purchaser acknowledges that it does not rely on and has not been induced to enter into this Agreement on the basis of any warranties, representations, covenants, undertakings, indemnities or other statements whatsoever, other than the Warranties, and acknowledges that none of the Sellers, any member of the Sellers’ Group, any member of the Group or any of their agents, officers or employees have given any such warranties, representations, covenants, undertakings, indemnities or other statements. |
| 6.3 | The Sellers shall pay, and shall hold and keep the Purchaser (for itself and as trustee for other members of the Nokia Group) indemnified on an after-Tax basis from, any Tax payable by the Purchaser or any other member of the Nokia Group (whether by way of withholding or otherwise) in connection with any income, profits or gains arising or deemed to arise to any Seller or any other member of the Sellers’ Group in connection with (a) the sale of the Shares or the CP Shares pursuant to this Agreement, or (b) the indirect transfer of any interest in any other member of the Group by reason of any such sale pursuant to this Agreement. The provisions of clause 5 (Resistance of Claims) of the Tax Deed shall apply for the purposes of this sub-clause 6.3 as if any Tax that is contemplated by this sub-clause 6.3 and payable by the Purchaser or any other member of the Nokia Group were a Tax Liability (as defined in the Tax Deed) and as if the same provisions were incorporated herein with all appropriate consequential amendments being made. |
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| 7. | Purchaser and Nokia Corporation’s warranties, confirmations and undertakings |
| 7.1 | Each of the Purchaser and Nokia Corporation warrants to each of the Sellers that the following are true and accurate in all respects as at the date of this Agreement and shall be true and accurate in all respects as at Completion as if repeated immediately before Completion: |
| (A) | except as set out in sub-clause 3.1(A), each of the Purchaser and Nokia Corporation has obtained all corporate authorisations (whether required under applicable law, its articles of association or equivalent constitutional document or otherwise) to empower it to enter into and perform this Agreement and the other Share Purchase Documents to which it is a party; |
| (B) | the execution, delivery and performance of this Agreement and each of the other Share Purchase Documents to which the Purchaser and/or Nokia Corporation is, or will on the Completion Date be, party by the Purchaser and/or Nokia Corporation do not and will not require any consent, approval, authorisation or other order of, action by, filing with or notification to, any Governmental Authority, except as set out in sub-clause 3.1(A), except (i) where failure to obtain such consent, approval, authorisation or action, or to make any such filing or notification, would not have a material and adverse effect on the ability of the Purchaser or Nokia Corporation to carry out its obligations under, and to consummate the transactions contemplated by, this Agreement or any other Share Purchase Document to which the Purchaser or Nokia Corporation is party or (ii) as may be necessary as a result of any facts or circumstances relating solely to the Sellers or any other member of the Sellers’ Group; and |
| (C) | assuming the making and obtaining of all filings, notifications, consents, approvals, authorisations and other actions referred to in sub-clause 3.1(A), and except as may result from any facts or circumstances relating solely to the Sellers, the execution, delivery and performance of this Agreement and each of the other Share Purchase Documents to which the Purchaser and/or Nokia Corporation is, or will on the Completion Date be, party by the Purchaser and/or Nokia Corporation do not and will not (a) violate, conflict with or result in the breach of the certificate of incorporation or bylaws (or similar organisational documents) of the Purchaser or Nokia Corporation, as the case may be, (b) conflict with or violate any law or order of a Governmental Authority applicable to the Purchaser or Nokia Corporation, as the case may be, or (c) conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, acceleration or cancellation of, any note, bond, mortgage or indenture, contract, permit, franchise or other instrument or arrangement to which any member of the Nokia Group is a party. |
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| 7.2 | The Purchaser undertakes: |
| (A) | to use all reasonable endeavours to procure the release of each of the Sellers and/or any other members of the Sellers’ Group from any guarantees, indemnities, letters of comfort and/or counter indemnities given to any third parties by any of the Sellers or any other member of the Sellers’ Group in relation to the business of the Group and which are set out in Schedule 12 (Guarantees) or which are notified by either or both of the Sellers from time to time, whether before, on or after Completion (a “Target Guarantee”), in the case of those Target Guarantees set out in Schedule 12 (Guarantees), as soon as reasonably practicable following Completion, and, in the case of those Target Guarantees notified by either or both of the Sellers from time to time, whether before, on or after Completion, as soon as reasonably practicable following such notification, but, in any event, not before Completion; |
| (B) | in the case of any and all Target Guarantees that have not been released by Completion, to hold and keep each of the Sellers, for itself and as trustee for other members of the Sellers’ Group, indemnified on an after-Tax basis from and against all actions, claims, proceedings, loss, damage, all payments, costs or expenses incurred by such Seller or any member of the Sellers’ Group in relation to or arising out of any and all such Target Guarantees following Completion; and |
| (C) | not to, and to procure that no other person shall, amend the terms of any Target Guarantee (or the terms of any contract to which such Target Guarantee relates) in any way which would adversely affect the interests of any member of the Sellers’ Group. |
| 7.3 | The following confirmations and undertakings set out in this sub-clause 7.3 are given by the Purchaser to each of the Sellers and shall apply and remain in force at all times on and from the date of this Agreement until the end of the Certain Funds Period: |
| (A) | The Purchaser has provided the Sellers and their legal advisers with a true redacted copy of each of the Acquisition Facility Agreements which in each case conforms to the original. The Purchaser warrants that (i) the only terms and conditions which have been redacted in such copies are those which are not in any way pertaining to the availability of a Certain Funds Utilisation, and (ii) except for the Acquisition Facility Agreements, no Acquisition Finance Document or other agreement contains any terms or conditions which would reasonably be expected to adversely impact the availability of a Certain Funds Utilisation under any of the Acquisition Facility Agreements. |
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| (B) | The entry into the Acquisition Finance Documents does not materially breach any term or condition of the Purchaser’s existing financing arrangements or the financing arrangements of any other member of the Nokia Group. |
| (C) | The obligations of the parties under each of the Acquisition Facility Agreements are legally binding, valid and enforceable subject, as regards enforceability as against any party which is not a member of the Nokia Group, to any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors’ generally. |
| (D) | The Purchaser shall not, and shall ensure that no other member of the Nokia Group shall: |
| (i) | after the time of signing of this Agreement, designate any document as an Acquisition Finance Document without the Sellers’ prior written consent if such document would reasonably be expected to adversely impact the availability of a Certain Funds Utilisation under any of the Acquisition Facility Agreements; |
| (ii) | amend, vary, waive, supplement, replace, novate, supersede or terminate any term of the Acquisition Finance Documents without the Sellers’ prior written consent if such proposed action would reasonably be expected to adversely impact the availability of a Certain Funds Utilisation under any of the Acquisition Facility Agreements; |
| (iii) | rescind, terminate or cancel any of the Acquisition Facility Agreements or cancel any of the Commitments in whole or in part unless, prior to any such rescission, termination or cancellation, either (a) the Purchaser has deposited a sum in euro equal to the aggregate principal amount of the Commitments proposed to be cancelled by virtue of such rescission, termination or cancellation into an interest bearing deposit account in the name of Siemens or Siemens International with an escrow agent approved by the Sellers in writing (acting reasonably), to be held by the escrow agent on terms acceptable to the Sellers and the Purchaser (each acting reasonably), or (b) a letter of credit or other bank guarantee instrument having a face amount in euro equal to the aggregate principal amount of the Commitments proposed to be cancelled by virtue of such rescission, termination or cancellation, on terms approved by the Sellers in writing (acting reasonably), has been issued in favour of the Sellers by a bank or financial institution which has a rating for its short term debt obligations of A-1 or higher by Standard & Poor’s Rating Services or P-1 or higher by Moody’s Investor Services Limited; |
| (iv) | voluntarily prepay any loan outstanding under the Acquisition Facility Agreements; or |
| (v) | take any action or omit to take any action which would reasonably be expected to prevent the full amount required to satisfy the Cash Consideration being available for drawdown under the Acquisition Facility Agreements. |
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| (E) | The Purchaser shall, and shall ensure each other member of the Nokia Group shall: |
| (i) | comply with the Facility B1 Certain Funds Representations and Facility B1 Certain Funds Undertakings in, and clause 22.1 (Non-payment) of, the Acquisition Facility B1 Agreement; |
| (ii) | comply with the Facility B2 Certain Funds Representations and Facility B2 Certain Funds Undertakings in, and clause 22.1 (Non-payment) of, the Acquisition Facility B2 Agreement; |
| (iii) | comply with the Facility B3 Certain Funds Representations and Facility B3 Certain Funds Undertakings in, and clause 23.1 (Non-payment) of, the Acquisition Facility B3 Agreement; and |
| (iv) | take all such actions or refrain from taking such actions as may be within its power to satisfy the remaining conditions to drawdown under the Acquisition Facility Agreements. |
| (F) | Nokia Corporation shall directly own all of the issued shares in the Purchaser. |
| (G) | The Purchaser hereby confirms that: |
| (i) | no Facility B1 Certain Funds Drawstop Default is outstanding or would result from a utilisation of the Acquisition Facility B1 and that no breach of a Facility B1 Certain Funds Representation or Facility B1 Certain Funds Undertaking is outstanding or would result from a utilisation of the Acquisition Facility B1; |
| (ii) | no Facility B2 Certain Funds Drawstop Default is outstanding or would result from a utilisation of the Acquisition Facility B2 and that no breach of a Facility B2 Certain Funds Representation or Facility B2 Certain Funds Undertaking is outstanding or would result from a utilisation of the Acquisition Facility B2; |
| (iii) | no Facility B3 Certain Funds Drawstop Default is outstanding or would result from a utilisation of the Acquisition Facility B3 and that no breach of a Facility B3 Certain Funds Representation or Facility B3 Certain Funds Undertaking is outstanding or would result from a utilisation of the Acquisition Facility B3; |
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| (iv) | it is not, and that no other member of the Nokia Group is, aware of any fact, matter, event or circumstance which would reasonably be expected to cause any of the remaining conditions precedent to the making of any Certain Funds Utilisation to be or to become incapable of being satisfied on or prior to the Completion Date or to constitute a breach of any Certain Funds Representation or any Certain Funds Undertaking or to trigger any Certain Funds Drawstop Default (it being understood that for the purposes of this sub-paragraph “awareness” means the knowledge of Mr Jani Relander, after due enquiry of the members of his department, and Mr Jaakko Sulander; |
| (v) | the condition precedent to drawdown described under paragraph 4(b) and 5(b) of schedule 2 to the Acquisition Facility B1 Agreement (which are the only schedule 2 conditions precedent to drawdown of the Acquisition Facility B1 remaining to be satisfied as at the date of this Agreement) are either in agreed form (in the case of paragraph 4(b)) or within its control to satisfy (in the case of paragraph 5(b)) and will be satisfied on or prior to the Completion Date; |
| (vi) | the conditions precedent to drawdown described under paragraphs 3(e), 3(f), 4(b) and 5(b) of schedule 2 to the Acquisition Facility B2 Agreement (which are the only schedule 2 conditions precedent to drawdown of the Acquisition Facility B2 remaining to be satisfied as at the date of this Agreement) are either in agreed form (in the case of paragraph 3(e) and 4(b)) or are within its control to satisfy (in the case of paragraphs 3(e), 3(f) and 5(b)) and will be satisfied on or prior to the Completion Date; |
| (vii) | the condition precedent to drawdown described under paragraph 5(b) of schedule 2 to the Acquisition Facility B3 Agreement (which is the only schedule 2 condition precedent to drawdown of the Acquisition Facility B3 remaining to be satisfied as at the date of this Agreement) is within its control to satisfy and will be satisfied on or prior to the Completion Date; |
| (viii) | neither it nor any member of the Nokia Group has any consent rights with respect to any transfers by way of novation or assignments by any Lender under the Acquisition Facility Agreements; |
| (ix) | it shall or shall ensure that the relevant members of the Nokia Group deliver the Utilisation Requests in accordance with the applicable Acquisition Facility Agreements such that sufficient funds would be available to pay an amount equal to the Cash Consideration on the Completion Date; and |
| (x) | it is satisfied that none of the events or circumstances described in (a) clauses 22.6 (Insolvency) to 22.8 (Insolvency proceedings) (inclusive) of the Acquisition Facility B1 Agreement, (b) clauses 22.6 (Insolvency) to 22.8 (Insolvency proceedings) (inclusive) of the Acquisition Facility B2 |
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| Agreement, or (c) clauses 22.6 (Insolvency) to 22.8 (Insolvency proceedings) (inclusive) of the Acquisition Facility B3 Agreement, will occur during the Certain Funds Period. |
| (H) | To the extent it is legally able and to the extent within its control, the Purchaser shall not take or omit to take or permit any other person to take or omit to take any action which: |
| (i) | would or might render it unlawful in any applicable jurisdiction for any Lender or other Finance Party to perform any of its obligations under the Acquisition Finance Documents or to fund or maintain its participations in any Certain Funds Utilisation; |
| (ii) | would or might render it unlawful for any Obligor (as defined in the Acquisition Facility Agreements) to exercise its rights or perform any of its obligations under the Acquisition Finance Documents; or |
| (iii) | would or might allow a Finance Party to take any of the actions set out in (a) clause 4.4(b)(i)-(v) (inclusive) of the Acquisition Facility B1 Agreement, (b) clause 4.4(b)(i)-(v) (inclusive) of the Acquisition Facility B2 Agreement or (c) clause 4.4(b)(i)-(v) (inclusive) of the Acquisition Facility B2 Agreement. |
For the avoidance of doubt, nothing in this sub-clause 7.3 shall require the Purchaser to waive any conditions to Completion included in this Agreement.
| 8. | Purchaser’s remedies and Sellers’ limitations on liability |
| 8.1 | The aggregate liability of the Sellers under this Agreement in respect of any and all breaches of the Warranties shall not in any event exceed an amount equal to the amount of the Consideration. No claim for breach of any of the Warranties shall be made after the date falling 18 months following the Completion Date. |
| 8.2 | After Completion, if the Purchaser becomes aware that there has been any breach of the Warranties or any other term of this Agreement, it shall not be entitled to terminate or rescind this Agreement. |
| 8.3 | Neither of the Sellers shall be liable to make any payment under this Agreement nor shall the Purchaser exercise any right of (i) set-off or (ii) counterclaim in relation to a matter (other than arising out of this Agreement), or otherwise withhold payment of any sums stated to be payable by the Purchaser to the Sellers hereunder, in either case, unless and until the liability of such Seller under this Agreement has been agreed or adjudged payable in legal or arbitration proceedings (it being understood by the parties that nothing in this sub-clause 8.3 shall preclude the Purchaser from exercising any right of counterclaim against the Sellers to the extent the claim to which such counterclaim is made (and such counterclaim) is unrelated to this Agreement). |
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| 9. | Nokia Corporation Guarantee |
| 9.1 | In consideration of the entry into this Agreement by the Sellers, Nokia Corporation hereby guarantees on demand the due and punctual performance by the Purchaser of all of the Purchaser’s obligations under this Agreement. |
| 9.2 | If any amount payable under this Agreement is not paid in full by the Purchaser on the due date for payment, Nokia Corporation shall (subject to the provisions of this clause 9) immediately pay to the relevant Seller(s) after the receipt by Nokia Corporation of a demand substantially complying with the requirements of clause 9.5, the amount so payable. |
| 9.3 | Nokia Corporation agrees with each of the Sellers that if any obligation guaranteed by it is or becomes unenforceable, invalid or illegal, it will, as an independent and primary obligation, indemnify that Seller immediately on demand and on an after-Tax basis against any cost, loss or liability it incurs as a result of the Purchaser not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable by it under this Agreement on the date when it would have been due. |
| 9.4 | Any amounts due hereunder will be paid whether or not the Purchaser disputes the truth or accuracy of any statement given pursuant to sub-clause 9.5(C). |
| 9.5 | Every demand pursuant to this clause 9 shall: |
| (A) | be in writing; |
| (B) | be signed by or on behalf of the relevant Seller(s); |
| (C) | provide sufficient details of the amount and nature of the demand; and |
| (D) | give full details of the bank account in the name of the relevant Seller(s) to which the sum so demanded is to be paid by Nokia Corporation. |
| 9.6 | Payment of any demand complying with the requirements of this clause 9 shall be made by Nokia Corporation in Euro to such bank account as the relevant Seller(s) shall specify pursuant to clause 9.5. |
| 9.7 | Nokia Corporation may rely on any demand or other document or information believed by it to be genuine and correct and to have been signed or communicated by the person by whom it purports to be signed or communicated and Nokia Corporation shall not be liable for the consequences of such reliance and shall have no obligation to verify that the facts or matters stated therein are true and correct. |
| 9.8 | Payment by Nokia Corporation of a claim made in accordance with this clause 9 shall be deemed a valid payment for all purposes of this clause 9 and shall discharge Nokia Corporation and the Purchaser from their liability hereunder to the extent of such payment and Nokia Corporation shall not be concerned to see to the application of any such payment. |
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| 9.9 | The guarantee under this clause 9 may be enforced by the relevant Seller(s) for the payment of any amount due and owing to it or them (or any other member of the Sellers’ Group), as the case may be, at any time after the Purchaser has failed to pay the same without the relevant Seller(s) first taking any proceedings against the Purchaser. |
| 9.10 | This guarantee under this clause 9 is a continuing guarantee and Nokia Corporation acknowledges and undertakes that, subject to the express terms of this clause 9 and this Agreement, none of its liabilities under this clause 9 shall be reduced, discharged or otherwise adversely affected by: |
| (A) | any time, indulgence, concession, waiver or consent at any time given to the Purchaser, Nokia Corporation or any other person; |
| (B) | any amendment to any other provision of this Agreement; |
| (C) | the enforcement or absence of enforcement of this Agreement or of any security or other guarantee; |
| (D) | the taking, existence or release of any security or other guarantee; |
| (E) | the winding-up, merger or other change of status of the Purchaser, Nokia Corporation or any other person; |
| (F) | the illegality, invalidity or unenforceability of any provision of this Agreement or any of the Purchaser’s or Nokia Corporation’s obligations; or |
| (G) | any other matter or thing which, but for this sub-clause 9.10, may exonerate the Purchaser or Nokia Corporation. |
| 9.11 | Until all amounts which may be or become payable by Nokia Corporation under or in connection with this Agreement have been irrevocably paid in full, Nokia Corporation will not exercise any rights which it may have by reason of performance by it of its obligations under this Agreement or by reason of any amount being payable, or liability arising, under this clause 9: |
| (A) | to be indemnified by the Purchaser; |
| (B) | to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the relevant Seller(s) under this Agreement or of any other guarantee or security taken pursuant to, or in connection with, this Agreement; |
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| (C) | to bring legal or other proceedings for an order requiring the Purchaser to make any payment, or perform any obligation, in respect of which Nokia Corporation has given a guarantee, undertaking or indemnity under this clause 9; |
| (D) | to exercise any right of set-off against the Purchaser; and/or |
| (E) | to claim or prove as a creditor of the Purchaser in competition with the Sellers. |
If Nokia Corporation receives any benefit, payment or distribution in relation to such rights it shall hold that benefit, payment or distribution to the extent necessary to enable all amounts which may be or become payable to the Sellers by the Purchaser under or in connection with this Agreement to be repaid in full on trust for the Sellers and shall promptly pay or transfer the same to the Sellers.
| 9.12 | All payments to be made by Nokia Corporation hereunder to a Seller shall be made in full without set-off or counterclaim in relation to a separate matter and free and clear of and without any deduction whatsoever except to the extent required by law. |
| 9.13 | The guarantee in this clause 9 is in addition to and is not in any way prejudiced by any other guarantee or security now or subsequently held by or for the benefit of any of the Sellers. |
| 9.14 | If any discharge, release or arrangement (whether in respect of the obligations of the Purchaser or the guarantee under this clause 9 or any security for those obligations or otherwise) is made by any of the Sellers in whole or in part on the basis of any payment, security or other disposition which is avoided or must be restored in insolvency, liquidation, administration or otherwise, without limitation, then the liability of Nokia Corporation under this clause 9 will continue or be reinstated as if the discharge, release or arrangement had not occurred. |
| 10. | Siemens Designation |
| 10.1 | The Purchaser acknowledges and agrees that nothing in this Agreement shall transfer or licence, or shall operate as an agreement to transfer or licence, any right, title or interest in or to the Siemens Designation or any associated logo or device which the members of the Sellers’ Group own, or any similar name or mark. Following Completion, the Purchaser shall not, and shall procure that no other member of the Nokia Group shall, hold itself out as being part of or in any way connected with the Sellers’ Group. |
| 10.2 | Except as explicitly provided for in Clause 13 of the Trade Marks Agreement between Siemens, Nokia Corporation, the Purchaser and the Company dated 3 April 2007 (the “Trade Marks Agreement”) the Purchaser shall and shall procure that all members of the Nokia Group shall refrain from using and, if used prior to the Completion Date, cease to use and remove, any Siemens Designation as commercial designation, as part of a logo, as Name Affix, as trademark, as domain or otherwise in any communication (print or electronic), including internet websites, emails, any material (including business papers and marketing material), in connection with services and on or in connection with products (including software). |
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| 10.3 | The Purchaser shall procure that the Company and each member of the Nokia Group shall comply with the obligations set forth in Clauses 13.3 to 13.5 (inclusive) and 13.8 of the Trade Marks Agreement. |
| 10.4 | Notwithstanding the foregoing, the Company and its subsidiaries and subsidiary undertakings shall be entitled to use the acronym “NSN” in connection with its company name and in connection with any new trademark not including any Siemens Designation under the following conditions: |
| (A) | the acronym “NSN” shall be combined with a descriptive element within the company name (such as, for example, NSN Networks), or |
| (B) | the acronym “NSN” shall be an abbreviation of the official long form company name, which shall contain at least three (3) words starting with the letters “N”, “S” and “N”, whereby the word starting with the letter “S” shall not contain a Siemens Designation, and shall be used in combination with such company name. |
It is further agreed that, the Company’s corporate design shall be sufficiently different from Siemens’ corporate design not to cause any confusion with the Siemens’ corporate design. For the avoidance of doubt, the Company shall be entitled to continue to use its existing corporate design.
Each of the Sellers agrees that neither it nor any of its holding companies, subsidiaries or subsidiary undertakings (together the “Affiliates”) shall use “NSN” or any trademark including “NSN” in connection with any goods or services in the field of communications infrastructure equipment anywhere in the world, and neither it nor any of its Affiliates shall register or file an application to register the trademark “NSN” or any trademark including “NSN” for such goods and services anywhere in the world. Each of the Sellers further agrees that neither it nor any of its Affiliates shall oppose any registration or application to register, by any member of the Nokia Group, the trademark “NSN” or any trademark including “NSN” anywhere in the world, provided that, for the avoidance of doubt, it is only the Company and its subsidiaries and subsidiary undertakings that are entitled to use the acronym “NSN” in accordance with the first paragraph of this sub-clause 10.4.
| 10.5 | Siemens shall have a right to verify if the Company and the members of the Nokia Group have complied and are complying with their obligations set forth in or referenced in this clause 10, in particular with respect to products (including software) of the Company, its subsidiaries and subsidiary undertakings and any other members of the Nokia Group, signs in or on buildings as well as any material. The Purchaser shall procure that for a period of 3 years from the Completion Date, Siemens, its professional advisors and other representatives will be granted all reasonable access to the buildings, premises and other facilities of the Company for such purpose during normal Working Hours, provided no less than 2 Business Days’ notice of such visit has been given and any such visitors and the |
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| location of such visit are identified in writing by a representative of the Sellers’ Group and subject to Siemens giving such undertaking as to confidentiality as the Purchaser shall reasonably require. Any knowledge gained during such visits is to be kept confidential and is only to be used to review (and, if relevant, to enforce) compliance of the Company, its subsidiaries and subsidiary undertakings and any other member of the Nokia Group with its obligations set forth in this clause 10. |
| 10.6 | The Purchaser shall indemnify and hold Siemens (on its behalf and on behalf of any and all other members of the Sellers’ Group) harmless on an after-Tax basis from and against all (including any past, present or future, contingent, known or unknown) claims, suits, lawsuits, damages, costs, expenses and liabilities directly or indirectly arising out of or relating to, whether directly or indirectly, the Purchaser’s (or any other members of the Nokia Group’s) or the Company’s (or any of its subsidiaries’ or subsidiary undertakings’) (i) use of any Siemens Designation or (ii) the manufacture, engineering, marketing, sale, distribution, advertisement or importation of products (including software), material or services bearing any Siemens Designation or being provided under any Siemens Designation including, but not limited to third party claims according to section 4 of the German Product Liability Code (Produkthaftungsgesetz) and similar claims in other jurisdictions. |
| 11. | Access |
| 11.1 | The Purchaser shall (and shall procure that each other member of the Nokia Group shall) make available to the Sellers any Books or Records (to the extent relating to statutory and/or corporate books and/or other accounting records) of the Company and of any of its subsidiaries and of any of its subsidiary undertakings (and, if different, of the business of the Company and of any of its subsidiaries and of any of its subsidiary undertakings as at the date of this Agreement) which are required by any Seller (or any other member of the Sellers’ Group) for the purposes of dealing with its (or their) Tax and accounting affairs and, accordingly, the Purchaser shall, upon being given reasonable notice by such Seller, and subject to such Seller giving such undertaking as to confidentiality as the Purchaser shall reasonably require, procure that such Books and Records are made available to such Seller for inspection (during Working Hours) and copying (at the cost of such Seller), for and only to the extent necessary for such purposes for a period of ten years from Completion. |
| 11.2 | The Purchaser shall (and shall procure that each other member of the Nokia Group shall) make available to the Sellers any Books or Records of, and/or any personnel and/or advisers of, the Company and of any of its subsidiaries and of any of its subsidiary undertakings (and, if different, of the business of the Company and of any of its subsidiaries and of any of its subsidiary undertakings as at the date of this Agreement) which are required by any Seller (or any other member of the Sellers’ Group) for the purposes of any settlement reached and/or proposed to be reached with the United States Securities and Exchange Commission, the World Bank and/or any former employees of any member of the Sellers’ Group, and, accordingly, the Purchaser shall, upon being given reasonable notice by such Seller, and subject to such Seller giving such undertaking as to confidentiality as the Purchaser shall reasonably require, use commercially reasonable efforts to ensure that |
25
| such Books and Records and/or personnel and/or advisers are made available to such Seller (during Working Hours) and, in the case of any Books and Records, inspection and copying (at the cost of such Seller), for and only to the extent necessary for such purposes for a period of five years from Completion. |
| 11.3 | In the event that the Sellers (or any other member of the Sellers’ Group) require access to any Books and Records of any member of the Group (or, if different, of the business of the Group) other than as provided for in sub-clauses 11.1 and 11.2, the Sellers and the Purchaser shall enter into discussions (acting reasonably and in good faith) with a view to agreeing the same. |
| 11.4 | Notwithstanding the foregoing, in the event that the Company, its subsidiaries and/or subsidiary undertakings (as relevant) cease(s) to be part of the Nokia Group (or any part of the business of the Company, its subsidiaries and/or subsidiary undertakings (as relevant) as at the date of this Agreement cease(s) to be contained within the Nokia Group), the Purchaser shall not be liable for failing to comply with its obligations under this clause 11, provided that it has used reasonable endeavours to procure compliance with such obligations. |
| 12. | Effect of Completion |
| 12.1 | Any provision of this Agreement and any other documents referred to herein which is capable of being performed after but which has not been performed at or before Completion and all Warranties and covenants and other undertakings contained in or entered into pursuant to this Agreement shall remain in full force and effect notwithstanding Completion. |
| 13. | Remedies and waivers |
| 13.1 | No delay or omission by any party to this Agreement in exercising any right, power or remedy provided by law or under this Agreement or any other documents referred to in it shall: |
| (A) | affect that right, power or remedy; or |
| (B) | operate as a waiver of it. |
| 13.2 | The single or partial exercise of any right, power or remedy provided by law or under this Agreement shall not unless otherwise expressly stated preclude any other or further exercise of it or the exercise of any other right, power or remedy. |
| 13.3 | Except as otherwise expressly provided in this Agreement, the rights, powers and remedies provided in this Agreement are cumulative and not exclusive of any rights, powers and remedies provided by law. |
26
| 14. | Assignment |
| 14.1 | None of the parties shall assign, or purport to assign, all or any part of the benefit of, or its rights or benefits under, this Agreement or any of the other Share Purchase Documents to which it is a party (together with any causes of action arising in connection with any of them); provided, however, that each party may assign any or all of its rights (but not its obligations) under this Agreement (or any of the other Share Purchase Documents) to another member of the Sellers’ Group or the Nokia Group, as the case may be, for so long as that company remains a member of the Sellers’ Group or the Nokia Group, as the case may be and provided further that no assignee shall be entitled to receive under this Agreement any amount that is greater than that to which the assigning party would have been entitled. Such assignor shall procure that such assignee assigns any rights assigned to it in accordance with this clause 14 back to the assignor or another member of the Sellers’ Group or the Nokia Group, as the case may be, immediately before it ceases to be a member of the Sellers’ Group or the Nokia Group, as the case may be. |
| 14.2 | None of the parties shall make a declaration of trust in respect of or enter into any arrangement whereby it agrees to hold in trust for any other person all or any part of the benefit of, or its rights or benefits under, this Agreement or any of the other Share Purchase Documents to which it is a party. |
| 15. | Further assurance |
Insofar as they are able to do so after Completion, the Sellers shall, on being requested to do so by the Purchaser, do or procure the doing of all acts and/or execute or procure the execution of all documents as the Purchaser may reasonably consider necessary for vesting the Shares and the CP Shares in the Purchaser in accordance with the terms of this Agreement.
| 16. | Joint and Several Liability |
| 16.1 | The obligations of the Sellers under this Agreement shall be joint and several. |
| 16.2 | The Purchaser may release, or compromise the liability of, any of the Sellers, or grant time or other indulgence to any of the Sellers, without releasing or reducing the liability of the other Seller. Where a liability of one but not both the Sellers under any obligation which is joint and several is released or compromised, the remaining Seller shall continue to be severally and shall together be jointly liable on that obligation. |
| 17. | Entire agreement |
| 17.1 | The Share Purchase Documents constitute the whole and only agreement between the parties relating to the sale and purchase of the Shares and the CP Shares and other matters referred to therein. |
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| 17.2 | Except in the case of fraud, each party acknowledges that in entering into the Share Purchase Documents it is not relying upon any pre-contractual statement which is not expressly repeated in the Share Purchase Documents. |
| 17.3 | Except in the case of fraud, no party shall have any right of action against any other party to this Agreement arising out of or in connection with any pre-contractual statement except to the extent that it is expressly repeated in the other Share Purchase Documents. |
| 17.4 | For the purposes of this clause 17, “pre contractual statement” means any draft, agreement, undertaking, representation, warranty, promise, assurance or arrangement of any nature whatsoever, whether or not in writing, relating to the subject matter of the Share Purchase Documents made or given by any person at any time prior to the date of this Agreement. |
| 17.5 | This Agreement may only be varied in writing signed by each of the parties. |
| 18. | Notices |
| 18.1 | A notice under this Agreement shall only be effective if it is in writing and signed by the relevant party. Notices may be sent by way of fax or e-mail, but a fax or e-mail in and of itself, with no inclusion or attachment of a signed written document, will not constitute a notice for the purposes of this Agreement. |
| 18.2 | Notices under this Agreement shall be sent to a party at its address or number and for the attention of the individual set out below: |
The Sellers
Address: Wittelsbacherplatz 2, 80333, Muenchen, Germany
Facsimile Number: +49 (89) 636 55002
E-mail address: karl-heinz.seibert@siemens.com
For the attention of: Karl-Heinz Seibert
With a copy to:
Address: St.-Martin-Str. 76, 81541 Muenchen, Germany
Facsimile Number: +49 (89) 636-32568
E-mail address: karin.flesch@siemens.com
For the attention of: Karin Flesch
28
With a copy to:
Address: Werner-von-Siemens-Straße 50, 91052 Erlangen, Germany
Facsimile Number: +49 (9131) 7-27783
E-mail address: anton.steiger@siemens.com
For the attention of: Anton Steiger
Nokia Corporation and the Purchaser
Address: PO Box 226, FIN-00045, Nokia Group
Facsimile Number: +358 7180 34070 and +358 7180 45742
E-mail address: timo.j.ihamuotila@nokia.com and louise.pentland@nokia.com
For the attention of: Timo Ihamuotila and Louise Pentland
With a copy to:
Address: Shearman & Sterling LLP, Broadgate West, 9 Appold Street, London, EC2A 2AP United Kingdom
Facsimile Number: +44 20 7655 5443
E-mail address: jeremy.kutner@shearman.com
For the attention of: Jeremy Kutner
With a copy to:
Address: Shearman & Sterling LLP, 599 Lexington Ave., New York, NY 10022 USA
Facsimile Number: +212 848 7179
E-mail address: peter,lyons@shearman.com
scott.petepiece@shearman.com
samuel.waxman@shearman.com
For the attention of: Peter Lyons, Scott Petepiece and Samuel Waxman
With a copy to:
Address: Nokia Corporation, Keilalahdentie 2-4, 02150 Espoo, Finland
E-mail address: jaakko.sulander@nokia.com
For the attention of: Jaakko Sulander
29
Provided that a party may change its notice details on giving notice to the other parties of the change in accordance with this clause 18. That notice shall only be effective on the day falling five clear Business Days after the notification has been received or such later date as may be specified in the notice.
| 18.3 | Any notice given under this Agreement shall, in the absence of earlier receipt, be deemed to have been duly given as follows: |
| (A) | if delivered personally, on delivery; |
| (B) | if sent by first class inland post, two clear Business Days after the date of posting; |
| (C) | if sent by airmail, six clear Business Days after the date of posting; and |
| (D) | if sent by facsimile or e-mail, when sent. |
| 18.4 | Any notice given under this Agreement outside Working Hours in the place to which it is addressed shall be deemed not to have been given until the start of the next period of Working Hours in such place. |
| 18.5 | The provisions of this clause 18 shall not apply in relation to the service of Service Documents. |
| 19. | Announcements |
| 19.1 | No announcement concerning the sale of the Shares or the CP Shares or any ancillary matter shall be made by any party without the prior written approval of the other parties, such approval not to be unreasonably withheld or delayed. This sub-clause 19.1 does not apply in the circumstances described in sub-clause 19.2. |
| 19.2 | A party may, after consultation with the other parties to the extent reasonably possible, make an announcement concerning the sale of the Shares or the CP Shares or any ancillary matter if required by: |
| (A) | law; or |
| (B) | any securities exchange or regulatory or Governmental Authority or any Tax Authority to which that party is subject or submits, wherever situated, whether or not the requirement has the force of law. |
| 19.3 | The restrictions contained in this clause 19 shall continue to apply after Completion or the termination of this Agreement without limit in time. |
30
| 20. | Confidentiality |
| 20.1 | Each party shall (and the Purchaser shall procure that the Company shall) treat as confidential all information obtained as a result of entering into or performing any of the Share Purchase Documents which relates to: |
| (A) | the provisions of any of the Share Purchase Documents; |
| (B) | the negotiations relating to any of the Share Purchase Documents; |
| (C) | the subject matter of any of the Share Purchase Documents; or |
| (D) | any other party, |
and the Purchaser and Nokia Corporation shall (and shall procure that the Company shall) also treat as confidential all information obtained as a result of entering into or performing this Agreement which relates to any member of the Sellers’ Group.
| 20.2 | Subject to sub-clause 20.3, neither of the Sellers shall, from Completion, without the prior written consent of the other parties, divulge, or permit its employees, agents, advisers or contractors to divulge, to any person (other than persons to whom, in each case, disclosure of information is permitted by this Agreement and who require the same to enable them properly to carry out their duties): |
| (A) | any information which it may have or may have acquired prior to Completion (whether before or after the date of this Agreement) to the extent relating to the business, assets or affairs of the Company and/or any customers or clients of, or suppliers to, the business of the Company (in their capacity as customers or clients of, or suppliers to, the business of the Company only (and not also in their capacity as customers or clients of, or suppliers to, the business of any member of the Sellers’ Group), or otherwise (and to the extent) relating to the Company; and |
| (B) | any information which, in consequence of a party being involved in the business of the Company or the Company in any manner whatsoever (including, without limitation, as a shareholder or as a director) or performing or exercising its rights and obligations under the Shareholders’ Agreement, any of the Sellers may have acquired prior to Completion (whether before or after the date of this Agreement) to the extent relating to the customers or clients (in their capacity as customers or clients of the Company only (and not also in their capacity as customers or clients of any member of the Sellers’ Group) or the business, assets or affairs of Nokia Corporation, the Purchaser or the Company. |
| 20.3 | Notwithstanding the other provisions of this clause 20, a party may disclose any such confidential information: |
| (A) | to any of its employees, agents, consultants and contractors, to any other member of the Sellers’ Group or, as the case may be, the Nokia Group and to any employees, agents, consultants or contractors of any such member, in each case, on a need-to-know and confidential basis; |
31
| (B) | to the extent required by law or for the purpose of any judicial proceedings; |
| (C) | to the extent required by any securities exchange or Government Authority or any Tax Authority to which that party is subject or submits, wherever situated, whether or not the requirement for information has the force of law; |
| (D) | to the extent required for the purposes of any arbitration pursuant to clause 26; |
| (E) | to the extent required to vest the full benefit of any of the Share Purchase Documents in that party; |
| (F) | to its professional advisers, auditors, debt financing sources and bankers provided they have a duty to keep such information confidential; |
| (G) | to the extent the information has come into the public domain through no fault of that party; or |
| (H) | to the extent the other parties have given prior written consent to the disclosure. |
Any information to be disclosed pursuant to sub-clause 20.3(B) or sub-clause 20.3(C) shall be disclosed only after consultation with the other parties to the extent reasonably possible.
| 20.4 | The restrictions contained in this clause 20 shall continue to apply after Completion or the termination of this Agreement without limit in time. |
| 21. | Costs and expenses |
| 21.1 | Except as otherwise stated in this Agreement or the other Share Purchase Documents, each party shall pay its own costs and expenses in relation to the negotiations leading up to the sale and purchase of the Shares and the CP Shares and the preparation, execution and carrying into effect of this Agreement, the other Share Purchase Documents and all other documents referred to in this Agreement. |
| 21.2 | Notwithstanding sub-clause 21.1, the Purchaser shall bear the costs and expenses of the notaries and any transfer taxes relating to Completion. |
| 22. | Counterparts |
| 22.1 | This Agreement may be executed in any number of counterparts, and by the parties to it on separate counterparts, but shall not be effective until each party has executed at least one counterpart. |
| 22.2 | Each counterpart shall constitute an original of this Agreement, but all the counterparts shall together constitute but one and the same instrument. |
32
| 23. | Invalidity |
| 23.1 | If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, that shall not affect or impair: |
| (A) | the legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or |
| (B) | the legality, validity or enforceability under the law of any other jurisdiction of that or any other provision of this Agreement. |
| 24. | Contracts (Rights of Third Parties) Act 1999 |
A person who is not a party to this Agreement shall have no right under the Contracts (Rights of Third Parties) Act 1999 to enforce its terms.
| 25. | Choice of governing law |
This Agreement is to be governed by and construed in accordance with English law. Any matter, claim or dispute arising out of or in connection with this Agreement, whether contractual or non-contractual, is to be governed by and determined in accordance with English law.
| 26. | Jurisdiction |
| 26.1 | Any dispute (whether contractual or non-contractual) arising out of or in connection with this Agreement shall be finally settled in accordance with the Rules of Arbitration (“Rules”) of the International Chamber of Commerce (“ICC”). Insofar as any provision contained in the Rules is incompatible with applicable English law, that provision or relevant part of that provision is to be excluded. |
| 26.2 | The tribunal shall consist of three arbitrators. Each of Siemens and the Purchaser shall appoint one arbitrator for confirmation by the ICC. Such arbitrators shall then agree on a third arbitrator within 30 days of their appointment. Should such arbitrators fail to reach agreement on the third arbitrator within such period, the ICC shall select and appoint the third arbitrator. |
| 26.3 | The seat of arbitration shall be London. The language to be used in the arbitration proceedings shall be English. |
| 26.4 | Any production of documents shall be limited to the documents on which each party specifically relies in its submission. |
33
| 26.5 | Consolidation of arbitrations pending under the Rules into a single arbitration shall only be possible if the parties have agreed to consolidation. |
| 26.6 | The parties undertake to keep confidential all awards in their arbitration, together with all materials in the proceedings created for the purpose of the arbitration and all other information or documents produced or disclosed by the parties or by witnesses in the proceedings not otherwise in the public domain, save and to the extent that disclosure may be required of a party by legal duty, to protect or pursue a legal right or to enforce or challenge an award in bona fide legal proceedings before a state court or other judicial authority. |
| 26.7 | The arbitrators shall determine how the costs of the arbitral proceedings shall be paid on the basis that the unsuccessful party shall bear all the costs of the arbitral proceedings, except where the arbitrators determine that the conduct of the successful party in respect of the arbitral proceedings was such that the costs should be split between the parties in such proportions as the arbitrators think fit. |
| 27. | Agent for service |
| 27.1 | The Purchaser and Nokia Corporation irrevocably appoint Nokia UK Limited of Lancaster House, Lancaster Way, Ermine Business Park, Huntingdon, Cambridgeshire PE29 6YJ to be its agent for the receipt of Service Documents. It agrees that any Service Document may be effectively served on it in connection with Proceedings in England and Wales by service on its agent effected in any manner permitted by the Civil Procedure Rules. |
| 27.2 | Siemens and Siemens International irrevocably appoints Siemens plc of Siemens House, Oldbury, Bracknell, Berkshire RG12 8FZ to be its agent for the receipt of Service Documents. It agrees that any Service Document may be effectively served on it in connection with Proceedings in England and Wales by service on its agent effected in any manner permitted by the Civil Procedure Rules. |
| 27.3 | If any such agent at any time ceases for any reason to act as such, the relevant party shall appoint a replacement agent having an address for service in England or Wales and shall notify the other parties of the name and address of the replacement agent. Failing such appointment and notification, any other party shall be entitled by notice to the first-mentioned relevant party to appoint a replacement agent to act on behalf of the first-mentioned relevant party. The provisions of this clause 27 applying to service on an agent apply equally to service on a replacement agent. |
| 27.4 | A copy of any Service Document served on an agent shall be sent by post to the relevant party. Failure or delay in so doing shall not prejudice the effectiveness of service of the Service Document. |
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| 28. | Language |
| 28.1 | Each notice, demand, request, statement, instrument, certificate, or other communication under or in connection with this Agreement shall be: |
| (A) | in English; or |
| (B) | if not in English, accompanied by an English translation made by a translator, and certified by an officer of the party giving the notice to be accurate. |
| 28.2 | The receiving party or its agent (as appropriate) shall be entitled to assume the accuracy of and rely upon any English translation of any document provided pursuant to sub-clause 28.1(B). |
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IN WITNESS whereof this Agreement has been entered into the day and year first before written.
| Signed by | ) | |||
| as (an) authorised individual(s) for and on behalf of | ) | |||
| SIEMENS AG | ) | |||
| ) | ||||
| ) | ||||
| ) | ||||
| ) | ||||
| Signed by | ) | |||
| as (an) authorised individual(s) for and on behalf of | ) | |||
| SIEMENS INTERNATIONAL HOLDING B.V. | ) | |||
| ) | ||||
| ) | ||||
| ) | ||||
| ) | ||||
36
| Signed by | ) | |||
| and | ) | |||
| as (an) authorised individual(s) for and on behalf of | ) | |||
| NOKIA CORPORATION | ) | |||
| ) | ||||
| ) | ||||
| ) | ||||
| Signed by | ) | |||
| and | ) | |||
| as (an) authorised individual(s) for and on behalf of | ) | |||
| NOKIA FINANCE INTERNATIONAL B.V. | ) | |||
| ) | ||||
| ) | ||||
| ) | ||||
37
Exhibit 4.2
STOCK AND ASSET PURCHASE AGREEMENT
by and between
NOKIA CORPORATION
and
MICROSOFT INTERNATIONAL HOLDINGS B.V.
Dated as of September 2, 2013
TABLE OF CONTENTS
| ARTICLE I | ||||||
| DEFINITIONS | ||||||
| Section 1.1 |
Definitions | 2 | ||||
| ARTICLE II | ||||||
| PURCHASE AND SALE OF THE DEVICES & SERVICES BUSINESS | ||||||
| Section 2.1 |
Purchase and Sale of Equity Interests | 14 | ||||
| Section 2.2 |
Purchase and Sale of the Purchased Assets | 15 | ||||
| Section 2.3 |
Excluded Assets of the Devices & Services Business | 18 | ||||
| Section 2.4 |
Assumption of Certain Obligations of the Devices & Services Business | 19 | ||||
| Section 2.5 |
Retained Liabilities of the Devices & Services Business | 21 | ||||
| Section 2.6 |
Consents | 22 | ||||
| Section 2.7 |
Further Assurances | 24 | ||||
| Section 2.8 |
Purchase Price | 25 | ||||
| Section 2.9 |
Closing | 26 | ||||
| Section 2.10 |
Purchase Price Adjustment | 28 | ||||
| Section 2.11 |
Purchase Price Allocation | 31 | ||||
| Section 2.12 |
Proceedings at Closing | 32 | ||||
| ARTICLE III | ||||||
| REPRESENTATIONS AND WARRANTIES OF SELLER | ||||||
| Section 3.1 |
Due Organization of Seller Entities | 32 | ||||
| Section 3.2 |
Authorization of Transaction by Seller | 33 | ||||
| Section 3.3 |
Due Organization and Good Standing of Transferred Subsidiaries | 33 | ||||
| Section 3.4 |
Title to Tangible Assets; Sufficiency of Assets | 34 | ||||
| Section 3.5 |
Governmental Filings | 34 | ||||
| Section 3.6 |
Capital Structure | 34 | ||||
| Section 3.7 |
Financial Statements | 35 | ||||
| Section 3.8 |
No Conflict or Violation | 36 | ||||
| Section 3.9 |
Legal Proceedings | 36 | ||||
| Section 3.10 |
Real Property | 37 | ||||
| Section 3.11 |
Taxes | 38 | ||||
| Section 3.12 |
Absence of Certain Changes | 39 | ||||
| Section 3.13 |
Material Contracts | 39 | ||||
| Section 3.14 |
Labor | 41 | ||||
| Section 3.15 |
Compliance With Law; Permits | 42 | ||||
| Section 3.16 |
Employee Benefit Plans | 43 | ||||
ii
| Section 3.17 |
Intellectual Property | 44 | ||||
| Section 3.18 |
Brokers’ Fees | 45 | ||||
| Section 3.19 |
Environmental Matters | 45 | ||||
| Section 3.20 |
Customers and Suppliers | 46 | ||||
| Section 3.21 |
Shareholder Vote | 47 | ||||
| Section 3.22 |
Anti-Bribery/OFAC | 47 | ||||
| Section 3.23 |
Product Liability | 48 | ||||
| Section 3.24 |
Internal Restructuring | 48 | ||||
| Section 3.25 |
Disclaimer of Warranties | 48 | ||||
| ARTICLE IV | ||||||
| REPRESENTATIONS AND WARRANTIES OF BUYER | ||||||
| Section 4.1 |
Due Organization and Good Standing of Buyer | 49 | ||||
| Section 4.2 |
Authorization of Transaction by Buyer | 49 | ||||
| Section 4.3 |
Governmental Filings | 50 | ||||
| Section 4.4 |
No Conflict or Violation | 50 | ||||
| Section 4.5 |
Legal Proceedings | 50 | ||||
| Section 4.6 |
Funding | 50 | ||||
| Section 4.7 |
Brokers’ Fees | 50 | ||||
| Section 4.8 |
No Buyer Stockholder Vote Required | 51 | ||||
| Section 4.9 |
No Reliance | 51 | ||||
| ARTICLE V | ||||||
| COVENANTS | ||||||
| Section 5.1 |
Conduct of Seller’s Business | 51 | ||||
| Section 5.2 |
Employment Matters | 55 | ||||
| Section 5.3 |
Publicity | 60 | ||||
| Section 5.4 |
Confidentiality | 60 | ||||
| Section 5.5 |
Access to Information | 62 | ||||
| Section 5.6 |
Post-Closing Access | 63 | ||||
| Section 5.7 |
Appropriate Actions | 64 | ||||
| Section 5.8 |
Ancillary Agreements | 65 | ||||
| Section 5.9 |
Seller Guaranties | 66 | ||||
| Section 5.10 |
Termination of Intercompany Agreements | 66 | ||||
| Section 5.11 |
Insurance | 67 | ||||
| Section 5.12 |
Non-Solicitation; No Hire | 67 | ||||
| Section 5.13 |
Seller Extraordinary General Meeting | 68 | ||||
| Section 5.14 |
Competing Proposals | 69 | ||||
| Section 5.15 |
Wrong Pocket | 71 | ||||
| Section 5.16 |
Collection of Receivables | 72 | ||||
| Section 5.17 |
Restructuring; Dormant Subsidiaries; Director Shares | 72 | ||||
| Section 5.18 |
Repayment of Indebtedness | 72 | ||||
| Section 5.19 |
Labor Matters | 72 | ||||
iii
| Section 5.20 |
Additional IP Licenses to Copyrights, Database Rights and Trade Secrets | 73 | ||||
| Section 5.21 |
Certain Open Source Matters | 75 | ||||
| Section 5.22 |
In-Bound Patent Licenses | 75 | ||||
| ARTICLE VI | ||||||
| CONDITIONS TO CLOSING | ||||||
| Section 6.1 |
Conditions to Obligations of Buyer | 76 | ||||
| Section 6.2 |
Conditions to Obligations of Seller | 77 | ||||
| ARTICLE VII | ||||||
| TERMINATION | ||||||
| Section 7.1 |
Termination of Agreement | 78 | ||||
| Section 7.2 |
Effect of Termination | 79 | ||||
| Section 7.3 |
Fees and Expenses | 79 | ||||
| ARTICLE VIII | ||||||
| TAX MATTERS | ||||||
| Section 8.1 |
Transfer Taxes | 81 | ||||
| Section 8.2 |
Preparation and Filing of Tax Returns | 82 | ||||
| Section 8.3 |
Tax Indemnification | 83 | ||||
| Section 8.4 |
Purchase Price Adjustment | 84 | ||||
| Section 8.5 |
Tax Sharing Agreements | 84 | ||||
| Section 8.6 |
Cooperation, Exchange of Information and Record Retention | 84 | ||||
| Section 8.7 |
Tax Refunds | 85 | ||||
| Section 8.8 |
Tax Contests | 86 | ||||
| Section 8.9 |
Tax Dispute Resolution | 87 | ||||
| Section 8.10 |
Subrogation | 87 | ||||
| Section 8.11 |
Certain Actions | 87 | ||||
| Section 8.12 |
Exclusivity | 87 | ||||
| ARTICLE IX | ||||||
| MISCELLANEOUS | ||||||
| Section 9.1 |
Survival | 88 | ||||
| Section 9.2 |
Assignment; Binding Effect | 88 | ||||
| Section 9.3 |
Choice of Law | 88 | ||||
| Section 9.4 |
Jurisdiction and Service of Process | 88 | ||||
| Section 9.5 |
Notices | 89 | ||||
| Section 9.6 |
Headings | 90 | ||||
| Section 9.7 |
Entire Agreement | 90 | ||||
| Section 9.8 |
Interpretation | 90 | ||||
iv
| Section 9.9 |
Disclosure | 91 | ||||
| Section 9.10 |
Waiver and Amendment | 91 | ||||
| Section 9.11 |
Third-Party Beneficiaries | 91 | ||||
| Section 9.12 |
Specific Performance | 91 | ||||
| Section 9.13 |
Severability | 92 | ||||
| Section 9.14 |
Negotiation of Agreement | 92 | ||||
| Section 9.15 |
Counterparts; Facsimile Signatures | 92 | ||||
| Section 9.16 |
Waiver of Jury Trial | 92 | ||||
| ARTICLE X | ||||||
| INDEMNIFICATION | ||||||
| Section 10.1 |
Indemnification by Seller | 93 | ||||
| Section 10.2 |
Indemnification by Buyer | 94 | ||||
| Section 10.3 |
Indemnification as Exclusive Remedy | 94 | ||||
| Section 10.4 |
Indemnification Calculations | 94 | ||||
| Section 10.5 |
Notice and Opportunity to Defend | 95 | ||||
| Section 10.6 |
Tax Indemnity | 96 | ||||
| Exhibits |
||||
| Exhibit A | — | Example of Calculation of the Adjustment Amount | ||
| Exhibit B | — | Form of Assignment and Assumption Agreement | ||
| Exhibit C | — | Form of Bill of Sale | ||
| Exhibit D | — | Form of Term Sheet for Camera and Imaging Assets Agreement | ||
| Exhibit E | — | Internal Restructuring Plan | ||
| Exhibit F | — | Form of Local Asset Transfer Agreement | ||
| Exhibit G | — | Form of Local Share Transfer Agreement | ||
| Exhibit H | — | Cash Principles | ||
| Exhibit I | — | Target Cash Earnings | ||
| Exhibit J | — | Form of Software License Agreement | ||
| Exhibit K | — | Form of Transition Services Agreement | ||
| Exhibit L | — | Form of FIRPTA Certificate | ||
| Exhibit M | — | Requisite Regulatory Approvals | ||
| Exhibit N | — | Target Net Working Capital | ||
| Exhibit O | — | Adjustment Amount | ||
| Exhibit P | — | Form of Trademark License Agreement | ||
| Exhibit Q | — | Mutual Termination Amendment | ||
| Exhibit R | — | Historical Itemized Working Capital |
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INDEX OF DEFINED TERMS
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STOCK AND ASSET PURCHASE AGREEMENT
Stock and Asset Purchase Agreement (this “Agreement”), dated as of September 2, 2013, by and between Nokia Corporation, a company incorporated in Finland and registered under the Finnish trade register number 0112938-9 (“Seller”), and Microsoft International Holdings B.V., a Dutch besloten vennootschap met beperkte aansprakelijkheid (“Buyer”).
RECITALS
WHEREAS, Seller, directly and through certain of its Subsidiaries, is engaged in the Devices & Services Business;
WHEREAS, Seller is the direct or indirect owner of controlling stock or limited liability company interests in one or more of the Equity Selling Entities and of controlling stock or limited liability company interests in one or more of the Asset Selling Entities;
WHEREAS, Seller and the Equity Selling Entities are the record and beneficial owners of the issued and outstanding shares of capital stock or limited liability company interests of the Transferred Subsidiaries set forth on Section 1.1(a) of the Seller Disclosure Letter (collectively, the “Equity Interests”);
WHEREAS, Seller and the applicable Asset Selling Entities own, license or lease one or more of the Purchased Assets;
WHEREAS, Seller plans to cause Internal Restructuring to be completed on or prior to the Closing;
WHEREAS, on September 2, 2013, Buyer and Seller entered into the Bond Purchase Agreement whereby Buyer committed to purchase up to €1,500,000,000 in Senior Unsecured Convertible Bonds in one or more tranches on the terms and conditions set forth in the Bond Purchase Agreement (the “Nokia Securities”);
WHEREAS, the parties desire that, at the Closing, (i) Seller shall, and Seller shall cause the Equity Selling Entities to, sell and transfer to Buyer (or one of its Affiliates) and Buyer (or one of its Affiliates) shall purchase from Seller and the Equity Selling Entities, all of the Equity Interests of the Transferred Subsidiaries owned by Seller and such Equity Selling Entities, and (ii) Seller shall, and Seller shall cause the Asset Selling Entities to, sell and transfer to Buyer (or one of its Affiliates), and Buyer (or one of its Affiliates) shall purchase from Seller and the Asset Selling Entities, all of the Purchased Assets and assume all of the Assumed Liabilities, in each case, upon the terms and conditions set forth herein;
WHEREAS, concurrently with the execution and delivery of this Agreement, Microsoft Corporation, a Washington corporation (“Parent”) entered into a guarantee (the “Guarantee”) with Seller for the benefit of Seller pursuant to which Parent is guaranteeing obligations of Buyer in connection with this Agreement pursuant to the terms of such Guarantee;
WHEREAS, on the date hereof, Parent, Seller and Microsoft Ireland Operations Limited entered into an amendment to the Existing Commercial Agreement; and
WHEREAS, on September 2, 2013, HERE North America, LLC and Parent entered into the Location Services Agreement (the “Location Services Agreement”), pursuant to which HERE North America, LLC will provide certain mapping and other services to Parent on the terms and conditions set forth therein.
WHEREAS, on September 2, 2013, Parent and Seller entered into the Patent License Agreement (the “Patent License Agreement”).
NOW, THEREFORE, in consideration of the foregoing, the representations, warranties, covenants and agreements set forth in this Agreement, and other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. The following terms, when used in this Agreement, shall have the meanings assigned to them in this Section 1.1.
“Accounting Principles” means the accounting principles, procedures, policies, practices, methods and management judgments, consistently applied by Seller under IFRS in preparing the Pro Forma Financial Statements as modified by Section 1.1(b) of the Seller Disclosure Letter (unless otherwise set forth in the notes to the Pro Forma Financial Statements).
“Action” means any action, claim, complaint, investigation, audit, petition, hearing, inquiry, suit, arbitration or other proceeding, whether civil or criminal, at law or in equity by or before any Governmental Authority.
“Adjustment Amount” which may be positive or negative, means the sum of (i) the Net Cash Adjustment, (ii) the Net Working Capital Adjustment, (iii) the Cash Earnings Adjustment and (iv) the Exhibit O Adjustment Amount, minus any Seller Transaction Expenses. An example of the calculation of the Adjustment Amount (including the components thereto) is set forth in Exhibit A.
“Affiliate” of any Person means, as of any date, any Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person. A Person shall be deemed to control another Person if such first Person possesses, directly or indirectly, the power to direct, or cause the direction of, the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise.
“Aggregate Cash Earnings” which may be positive or negative, means EBITDA less CAPEX (with CAPEX expressed as a positive number) of the Devices & Services Business, calculated as set forth in the Accounting Principles, from the date hereof through the Closing Date.
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“Ancillary Agreements” means the Guarantee, the Location Services Agreement, the Transition Services Agreement, the Term Sheet for Camera and Imaging Assets Agreement, the Trademark License Agreement, the Software License Agreement, each Bill of Sale, each Assignment and Assumption Agreement, each Local Asset Transfer Agreement and each Local Share Transfer Agreement.
“Asset Selling Entity” means each Subsidiary of Seller that is selling, conveying, assigning, transferring and delivering Purchased Assets to Buyer, with each such entity listed as such on Section 1.1(c) of the Seller Disclosure Letter, and all such entities shall be referred to collectively as the “Asset Selling Entities”.
“Assignment and Assumption Agreement” means an assignment and assumption agreement for each jurisdiction in which Purchased Assets or Assumed Liabilities are located, substantially in the form appended hereto as Exhibit B, with only such deviations therefrom as are required by applicable local Law or agreed to by the parties hereto.
“Assumed Intercompany Payables” means the intercompany payables due and owing among Transferred Subsidiaries and Asset Selling Entities and any of their respective Affiliates for goods and services bought and sold in the ordinary course of the Devices & Services Business.
“Assumed Intercompany Receivables” means the intercompany receivables due and owing among Transferred Subsidiaries and Asset Selling Entities and any of their respective Affiliates for goods and services bought and sold in the ordinary course of the Devices & Services Business.
“Assumed Plan” means each Employee Benefit Plan that is contributed to, sponsored, maintained or entered into by Seller, an Asset Selling Entity or any other Affiliate of Seller that is listed on Section 1.1(d) of the Seller Disclosure Letter; provided, that Section 1.1(d) of the Seller Disclosure Letter may be revised by Seller between the date of this Agreement and thirty (30) days prior to Closing to include Employee Benefit Plans that do not, individually or in the aggregate, include material accrued Liabilities.
“Bill of Sale” means a bill of sale substantially in the form attached hereto as Exhibit C, with only such deviations therefrom as are required by applicable local Law or agreed to by the parties hereto.
“Bond Purchase Agreement” means the Bond Purchase Agreement, dated as of September 2, 2013, between Seller and Buyer.
“Brazilian Tax Deposits” means Tax deposits made and/or Tax guarantees given in Brazil for pending Tax litigation, amounting to approximately EUR 44,223,000 as of June 30, 2013.
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“Business Day” means any day other than a Saturday, a Sunday or a day on which banks are required to be closed in New York, New York, Helsinki, Finland or Geneva, Switzerland.
“Business Employee” means any individual who (i) is listed on Section 1.1(e) of the Seller Disclosure Letter, (“Scheduled Business Employees”), (ii) immediately prior to the Closing is an employee of an Seller or an Asset Selling Entity or another Affiliate of Seller other than a Transferred Subsidiary and who (a) in the ordinary course has performed services primarily on behalf of the Devices & Services Business or (b) otherwise is required by Law or TUPE Regulations to be transferred with some or all of the Purchased Assets or Assumed Liabilities (“Asset Selling Entity Business Employees”), (iii) is a former employee of Seller or an Asset Selling Entity or another Affiliate of Seller who (a) immediately prior to termination of employment with Seller or such Asset Selling Entity or Affiliate, in the ordinary course was performing services primarily on behalf of the Devices & Services Business (or any predecessor business) or (b) liability for whom is otherwise required by applicable Law or TUPE Regulations to be transferred with some or all of the Purchased Assets or Assumed Liabilities (the “Former Business Employees”), (iv) is a current employee of a Transferred Subsidiary and who in the ordinary course performs services primarily on behalf of the Devices & Services Business (“Transferred Subsidiary Business Employees”) or (v) on or prior to the Closing Date receives from Seller or an Asset Selling Entity or another Affiliate of Seller an offer to be employed with Seller or such Asset Selling Entity or Affiliate to perform services exclusively on behalf of the Devices & Services Business but who as of the Closing Date has not commenced such employment (any individual described in this clause (v), an “Offeree”). For the avoidance of doubt, “Business Employee” shall include any individual described in clauses (i), (ii), (iv) or (v) who is absent on the Closing Date because of illness or being on short-term or long-term disability (including maternity disability), workers’ compensation, vacation, parental leave of absence or other absence or leave of absence.
“Buyer Entities” means, collectively, Buyer and its relevant Affiliates that are party to any Ancillary Agreements, if any, and each of the Buyer Entities shall be referred to individually as a “Buyer Entity”.
“Business Materials” means all (i) lists of customers, vendors, suppliers, contractors, and service providers; (ii) business and financial files, information, documents, books and records (including billing, payment and dispute histories, credit information, preference settings and similar data) of customers, vendors, suppliers, contractors or service providers; (iii) other business and financial records, information, files, books and documents; (iv) Software, source code, documentation and similar items; and (v) advertising, marketing, sales and promotional materials in any media (including online, mobile and social media), each of the items in (i)-(iv), whether in hard copy or computer or any other format. For clarity, “Business Materials” means solely the physical or tangible assets or media embodying any of the foregoing items and not any of the Intellectual Property covering or incorporated in same.
“Camera and Imaging Assets Agreement” means the Camera and Imaging Assets Agreement, dated as of the Closing Date, containing the terms substantially set forth in Exhibit D hereto.
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“CAPEX” shall have the meaning set forth on Section 1.1(b) of the Seller Disclosure Letter.
“Cash” shall have the meaning set forth in Section 1.1(b) of the Seller Disclosure Letter.
“Cash Earnings Adjustment” as of any time of determination, means an amount, which may be positive or negative, equal to 50% of the extent by which Aggregate Cash Earnings either (i) exceeds Target Cash Earnings by more than 20% of Target Cash Earnings, in which case such excess shall be expressed as a negative number, or (ii) is less than Target Cash Earnings by more than 20% of Target Cash Earnings, in which case such shortfall shall be expressed as a positive number. For clarity, if at such time of determination, the Aggregate Cash Earnings does not exceed Target Cash Earnings by more than 20% of Target Cash Earnings and is not less than Target Cash Earnings by more than 20% of Target Cash Earnings, the Cash Earnings Adjustment shall equal zero (0). In no event shall the absolute value of the Cash Earnings Adjustment be greater than €100 million per calendar quarter (pro-rated for any portion thereof) from the date hereof to the Closing Date.
“Closing Valued Subsidiaries” means each entity listed on Section 1.1(f) of the Seller Disclosure Letter.
“Code” means the Internal Revenue Code of 1986, as amended and the rules and regulations promulgated thereunder.
“Competition Law” means the HSR Act and any other applicable U.S. or foreign Law intended to prohibit, restrict or regulate actions having an anticompetitive effect or purposes, including competition, restraint of trade, anti-monopolization, antitrust, merger control or investment Laws.
“Contest” means any audit, adjustment, assessment, examination or proceeding (whether judicial or administrative) commenced or initiated by any Taxing Authority.
“Contract” means any written contract, agreement, instrument, commitment, deed, franchise, indenture, understanding, undertaking, commitment lease, license or obligation.
“CTO” means the Chief Technology Office organization of Seller, which (i) is headed by Seller’s Chief Technology Officer, who as of the date hereof reports directly to the Chief Executive Officer of Seller, (ii) works to create future assets and competencies in technology areas and thereby is a major contributor to Seller’s patents, (iii) works on longer-term, advanced technology development (including emerging products and platforms), (iv) includes Seller’s research unit, the Nokia Research Center, as well as the compatibility and industrial collaboration unit and (v) operates in a number of locations, including sites in Finland, the United States, the United Kingdom and China.
“Devices & Services Business” means Seller’s and its Subsidiaries’ devices and services business segment which includes smart devices and mobile phones business units, operations, design and sales and marketing business units as well as spare parts, accessories and care services related to smart devices and mobile phones and which, for the avoidance of doubt, includes the design, development, manufacture, administration and corporate services,
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operations, marketing and sale of smartphones, mass market entry and feature phones and tablets, Asha phones and all related applications and services (including entertainment, imaging, social/sharing services, and application stores, but excluding the HERE Business applications and services), as conducted by Seller and its Subsidiaries as of the date hereof. For the avoidance of doubt, the Seller Retained Businesses, and any portion thereof, are not included in the Devices & Services Business.
“Direct Transferred Subsidiaries” means each Subsidiary of Seller listed on Section 1.1(m) of the Seller Disclosure Letter.
“Dormant Subsidiary” means each entity listed on Section 1.1(n) of the Seller Disclosure Letter.
“EBITDA” shall have the meaning set forth on Section 1.1(b) of the Seller Disclosure Letter.
“Employee Benefit Plan” means each “employee benefit plan” (within the meaning of Section 3(3) of ERISA), including any plan of a similar nature in jurisdictions outside of the United States and which are not subject to ERISA, and all employment agreements or similar agreements and each pension, profit sharing, severance, termination, redundancy, medical, welfare, disability, deferred compensation, stock purchase, stock option or other equity or equity-related, change-in-control, retention, commission, retirement, compensation, fringe benefit, bonus, incentive or other employee benefit plan, program, policy, agreement or other arrangement, including any collective bargaining agreement or similar agreement and/or any government-mandated plan, benefit or pension, that is (i) sponsored or maintained by, or contributed to or required to be contributed to by, Seller, any Transferred Subsidiary or Asset Selling Entity or any of their respective ERISA Affiliates for the benefit of any Business Employees or (ii) under which Business Employees participate, derive a benefit, or may become eligible to participate.
“Encumbrance” means any lien, encumbrance, security interest, pledge, mortgage, deed of trust, hypothecation, encroachment, easement, use restriction, right-of-way, charge, attachment, option or other right to acquire an interest, right of first refusal or conditional sale or similar restriction on transfer of title or voting.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.
“ERISA Affiliate” means any entity which is a member of a “controlled group of corporations” with, under “common control” with, or otherwise required to be aggregated with Seller or any Asset Selling Entity as set forth in Sections 414(b), (c), (m) and (o) of the Code.
“Equity Selling Entity” means each entity listed as such on Section 1.1(g) of the Seller Disclosure Letter, and all such entities shall be referred to collectively as the “Equity Selling Entities”.
“Excluded Representations” means the representations and warranties of Seller set forth in Section 1.1(o) of the Seller Disclosure Letter.
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“Existing Commercial Agreement” means the Windows Phone Strategic Collaboration Agreement dated April 21, 2011 between Seller, Parent, and Microsoft Ireland Operations Limited.
“Governmental Authority” means any national, central, federal, state, provincial, municipal, local or other domestic, foreign or supranational governmental, legislative, regulatory or self-regulatory authority, agency, court, arbitration tribunal, board, department, commission or other governmental, regulatory or self-regulatory entity, including any competent governmental authority responsible for the determination, assessment or collection of Taxes.
“HERE Business” means Seller’s business, as conducted by the HERE Entities as of the date hereof, designing, developing, manufacturing, marketing and selling mapping and location-based applications and services, including content, data, and platform services, which includes HERE Holding Corporation and each of its direct and indirect Subsidiaries and controlled Affiliates (HERE Holding Corporation, its Subsidiaries and its controlled Affiliates, the “HERE Entities”). Section 1.1(h) of the Seller Disclosure Letter sets forth the HERE Entities on the date hereof.
“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.
“IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Board, applied in accordance with the consistency requirements thereof and in conformity with International Financial Reporting Standards as adopted by the European Union.
“Indebtedness” means, with respect to any Person, without duplication: (i) all principal and accrued interest, and any penalties or premiums payable in connection with repayment of, indebtedness of such Person for borrowed money; (ii) all obligations of such Person under letters of credit, bank guarantees or similar facilities or instruments that are due and payable; (iii) all intercompany loans between Seller or a division or an Affiliate of Seller (other than a Transferred Subsidiary), on the one hand and any of the Transferred Subsidiaries, on the other hand and (iv) obligations under financing and capital leases; provided, that “Indebtedness” shall not include obligations under operating leases or trade payables in the ordinary course of business, any (x) standby letters of credit, performance bonds, performance guarantees, surety bonds, security deposits and similar contingent liabilities, (y) any Seller Guaranties or (z) the letters of credit, bank guarantees and other facilities or instruments listed in Schedule 1.1(w), in each case that are not due and payable.
“Independent Accounting Firm” means one of the “big four” internationally recognized firms of independent certified public accountants agreed upon by Seller and Buyer (or, if they cannot agree on such a firm, they shall each select such a firm and cause their respective selected firms to select such a firm, which firm shall become the Independent Accounting Firm).
“Intellectual Property” means all intellectual property, industrial and proprietary rights in any jurisdiction, including: (i) copyrights and copyrightable subject matter (including all copyrights in Software, databases, compilations and documentation) and the right to transfer the
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copyrights and the right to alter the works protected by copyrights (“Copyrights”); (ii) trademarks, service marks, brand names, trade dress and similar rights, logos, and slogans, and other similar designations of source or origin, together with the goodwill symbolized by any of the foregoing and all common-law rights relating thereto (“Trademarks”); (iii) Internet domain names and numbers (“Domain Names”); (iv) patents, invention disclosures and all related continuations, continuations-in-part, divisionals, reissues, re-examinations, substitutions and extensions thereof (“Patents”); (v) design rights (including e.g., U.S. design patens and EU registered design rights) (“Designs”); (vi) database rights (other than copyrights), whether under common law or otherwise (“Database Rights”); (vii) trade secret and proprietary rights in and to know-how (including processes, procedures, research and development, concepts, algorithms and specifications) (“Trade Secrets”); and (viii) registrations and applications relating to any of the foregoing.
“Intellectual Property Licenses” means all Contracts pursuant to which Seller or any of its Subsidiaries (i) licenses or grants any current or contingent (e.g., Software source code escrow agreements) rights in or to use any Intellectual Property to any Third Party or (ii) receives a license or any current or contingent right in or to use Intellectual Property from any Third Party; excluding for (i and ii) all Contracts entered into solely or primarily for the purpose of granting a license or licenses to Patents (“Patent Licenses”).
“Internal Restructuring” means each of the restructuring activities described on Exhibit E hereto, and any other changes thereto that are permitted in accordance with this Agreement, and any action that is reasonably required or advisable to fully carry out such restructuring activities.
“IPR Business” means all Intellectual Property of Seller and its Subsidiaries (other than the non-Patent Intellectual Property of Transferred Subsidiaries) and the Intellectual Property business of Seller and its Subsidiaries (other than the Transferred Subsidiaries) that includes, without limitation, its (i) entire portfolio of Patents and Patent applications; (ii) Copyrights; (iii) Trade Secrets; (iv) Trademarks; (v) development (including filing and prosecution), licensing, investment, monetization and enforcement activities relating to Intellectual Property assets; (vi) management of Intellectual Property related regulatory and standardization matters; and (vii) generation of Intellectual Property related royalties and other revenues; provided, that, as of the Closing Date the IPR Business does not include the Transferred IP or the Transferred IT Assets (or any rights in or under either of the foregoing) or the Transferred Licenses (or any rights in or under same, except as otherwise specified in this Agreement). For the avoidance of doubt, Transferred Subsidiaries shall not on Closing Date include any Patents or Patent applications.
“Knowledge of Buyer” means the actual knowledge, after reasonable inquiry, of Steve Ballmer, Amy Hood, Brad Smith and Terry Myerson.
“Knowledge of Seller” means the actual knowledge, after reasonable inquiry, of Timo Ihamuotila, Louise Pentland, Kristian Pullola, Ilkka Rahnasto.
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“Law” means any law (including common law), statute, code, rule, regulation, order, writ, ordinance, judgment, decree, treaty, or other pronouncement of any Governmental Authority having the effect of law.
“Liability” means any liability, Indebtedness, claim, loss, damage, deficiency, commitment, responsibility or obligation (whether fixed or unfixed, whether choate or inchoate, whether secured or unsecured, whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, whether due or to become due).
“Local Asset Transfer Agreement” means local asset transfer agreements for each jurisdiction in which Purchased Assets or Assumed Liabilities are located, substantially in the form appended hereto as Exhibit F, with only such deviations therefrom as are required by applicable local Law or agreed to by the parties hereto.
“Local Share Transfer Agreement” means share transfer agreements for each jurisdiction in which Equity Interests are located, substantially in the form appended hereto as Exhibit G, with only such deviations therefrom as are required by applicable local Law or agreed to by the parties hereto.
“Losses” means all Liabilities, losses, damages, settlement payments, awards, judgments, fines, costs and expenses (including reasonable fees and expenses of counsel and consultants incurred in connection with the investigation and defense of any Action).
“Material Adverse Effect” means any event, condition, change, occurrence or effect that, individually or in the aggregate with other events, conditions, changes, occurrences or effects has had, or would reasonably be expected to have, a material adverse effect on the business, results of operations, financial condition, assets or Liabilities of the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole, other than any change or event to the extent resulting from (i) any change in general economic, political or regulatory conditions in any of the geographical areas in which Seller and its Affiliates operate the Devices & Services Business; (ii) any change in the financial, banking, currency or capital markets in general (whether in Finland, the United States or any other country or in any international market), including changes in interest rates; (iii) any change in conditions generally affecting businesses in the same or similar industries as the Devices & Services Business; (iv) acts of God, natural disasters, national or international political or social conditions, including the engagement in hostilities, whether commenced before or after the date hereof, and whether or not pursuant to the declaration of a national emergency or war (including any escalation or worsening of war), or the occurrence of any military or terrorist attack; (v) any action taken by Buyer or any of its Affiliates (other than the entry into this Agreement or the Ancillary Agreements or the consummation of the transactions contemplated hereby or thereby); (vi) the public announcement of Buyer or its Affiliates as the prospective acquirer of the Devices & Services Business, or any public communication by or on behalf of Buyer regarding Buyer’s plans or intentions with respect to the Devices & Services Business (including the impact of any such announcements or communications on relationships with customers, suppliers, employees or regulators); (vii) any changes in IFRS (or other applicable accounting regulations) or accounting principles (or interpretations thereof) or any changes in applicable Laws or the
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interpretation thereof, in each case, generally applicable to business in the same or similar industries as the Devices & Services Business; (vii) any action taken, or failure to take action, to which Buyer has consented in advance in writing; or (viii) any failure by Seller, with regard to the Devices & Services Business, to meet internal or other estimates or financial projections or changes in credit ratings (but not the events, conditions, facts, changes, occurrences or effects underlying any such failure unless they fall within some other exception herein); provided, however, that the exceptions in clauses (i) through (iv) and (vii) shall not apply if such events, conditions, facts, changes, occurrences or effects have a disproportionate effect on the Devices & Services Business relative to businesses in the same or similar industries as the Devices & Services Business.
“Monthly Period End” means the monthly period end dates set forth on Section 1.1(v) of the Seller Disclosure Letter.
“Net Cash Adjustment” which may be positive or negative, means, as of the applicable date, an amount equal to all Cash, in accordance with the Accounting Principles, of the Devices & Services Business at Closing, minus all Indebtedness in accordance with the Accounting Principles and Exhibit H, of the Devices & Services Business at Closing; provided, however, that any Unreinvested Proceeds at the Closing Date shall not be deemed to be Cash for purposes of this definition; provided, further, that the parties agree to take the actions set forth on Exhibit H.
“Net Working Capital” which may be positive or negative, means, with respect to the Devices & Services Business, as of the applicable date, without duplication, the Total Operative Net Working Capital as specified in Section 1.1(b) of the Seller Disclosure Letter, subject to and in accordance with the Accounting Principles. A historical itemized chart of Net Working Capital is set forth on Exhibit R.
“Net Working Capital Adjustment” as of any time of determination, means an amount, which may be positive or negative, equal to the extent by which Net Working Capital either (i) exceeds the upper limit of the Target Net Working Capital, or (ii) is less than the lower limit of the Target Net Working Capital. For clarity, if at such time of determination, the Net Working Capital does not exceed the upper limit of Target Net Working Capital and is not less than the lower limit of Target Net Working Capital, the Net Working Capital Adjustment shall be zero Euro (€0).
“Nokia’s Subscriber Device Business” has the meaning set forth in Section 15.3 of the Third Party License Agreement.
“NSN” means Nokia Solutions and Networks BV, and each of its direct and indirect Subsidiaries and controlled Affiliates. Section 1.1(i) of the Seller Disclosure Letter sets forth such entities as of the date of this Agreement.
“Permitted Encumbrance” means (i) mechanics’, carriers’, workers’, repairers’, materialmen’s, warehousemen’s and other similar Encumbrances which have arisen in the ordinary course of business consistent with past practice; (ii) Encumbrances for Taxes (x) that are not yet due and payable or (y) that are being contested in good faith and for which appropriate reserves have been established in accordance with the Accounting Principles; (iii)
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zoning regulations, permits and licenses and similar laws imposed or promulgated by Law or any Governmental Authority with respect to real property and improvements; (iv) easements, covenants, conditions, restrictions, rights of way, licenses or claims of the same, overlaps, encroachments, Encumbrances and other similar matters affecting title to any real property which are recorded in the real property records or which would be disclosed by an inspection of such real property which do not and are not reasonably likely to materially and adversely impair the continued use of the asset or property to which they relate, as used on the date hereof; (v) statutory liens of landlords, lessors or renters for amounts not yet due or payable or that are being contested in good faith; (vi) liens arising under conditional sales contracts and equipment leases with Third Parties entered into in the ordinary course of business consistent with past practice; (vii) covenants not to sue or non-exclusive licenses or sublicenses with respect to Intellectual Property or confidentiality undertakings and similar obligations that (A) were entered into in the ordinary course of business consistent with past practice, (B) are entered into in connection with a customer agreement or other customer or end user relationship and (C) have terms substantially similar to the forms provided to Buyer; or (viii) Encumbrances listed on Section 1.1(j) of the Seller Disclosure Letter.
“Person” means an association, a corporation, an individual, a partnership, a limited liability company, a trust, or any other entity or organization, including a Governmental Authority.
“Post-Closing Tax Period” means any taxable year or period that begins after the Closing Date.
“Pre-Closing Tax Period” means any taxable year or period that ends on or before the Closing Date.
“Product Liability Claim” means any Action involving or alleging personal injury, wrongful death or property damage relating to or involving any product distributed or sold by the Devices & Services Business prior to the Closing Date.
“Product Recall” means any directive or order by any Governmental Authority that any product distributed or sold by the Devices & Services Business prior to the Closing Date be recalled or any voluntary recall by any Seller Entity or Transferred Subsidiary of any product distributed or sold by the Devices & Services Business prior to the Closing Date.
“Restricted Software” means Software included in the Transferred Business Materials that is subject to conditions or limitations imposed by a technology licensor or other suppliers and that requires consent prior to its disclosure or assignment to third parties.
“Seller Disclosure Letter” means the letter delivered by Seller to Buyer concurrently with the execution and delivery of this Agreement, setting forth, among other things, items the disclosure of which is required under this Agreement, either in response to an express disclosure requirement contained in this Agreement or as an exception to one or more of the representations, warranties, covenants or agreements contained in this Agreement; provided, that the inclusion of an item in the Seller Disclosure Letter as an exception to a representation or warranty will not be deemed an admission by Seller that such item represents a material
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exception or fact, event or circumstance, that such item has had, or is expected to result in, a Material Adverse Effect, or that such item actually constitutes noncompliance with, or a violation of, any Law, Permit or Contract or other topic to which such disclosure is applicable.
“Seller Entities” means, collectively, Seller, the Equity Selling Entities and the Asset Selling Entities, and each of the Seller Entities shall be referred to individually as a “Seller Entity”.
“Seller Equity Plan” means any equity incentive plan maintained by Seller or any of its Affiliates that provides for the grant of Seller Stock Options, Seller RSUs, Seller PSUs or any other equity or equity-related award with respect to Seller Shares, and listed on Section 1.1(k) of the Seller Disclosure Letter.
“Seller Retained Businesses” means (i) the capital stock of NSN and any assets, related to or used by NSN, (ii) the stock of the HERE Entities and any assets owned by the HERE Entities related to or used in the HERE Business, (iii) any assets related to or used in the activities of the CTO, (iv) the IPR Business, and (v) all Intellectual Property of Seller and its Affiliates (other than the Transferred Subsidiaries) as of the Closing Date, other than the Transferred IP and the Transferred IT Assets (and any rights in or under either of the foregoing) and the Transferred Licenses (and any rights in or under the same), except as otherwise specified in this Agreement.
“Seller PSU” means performance share units denominated in Seller Shares granted pursuant to any Seller Equity Plan and held by a Transferred Employee as of immediately prior to the Closing.
“Seller RSU” means restricted share units denominated in Seller Shares granted pursuant to any Seller Equity Plan and held by a Transferred Employee as of immediately prior to the Closing.
“Seller Share” means an ordinary share of Seller trading on the NASDAQ OMX Helsinki.
“Seller Stock Options” means stock options to purchase Seller Shares granted pursuant to any Seller Equity Plan and held by a Transferred Employee as of immediately prior to the Closing.
“Seller Transaction Expenses” means all fees and expenses payable to third parties or any Seller Entity by any Transferred Subsidiary, if any, relating to services provided to Seller or any of its Affiliates, including the Transferred Subsidiaries, in connection with the transactions contemplated by this Agreement (including investment banking, accounting and attorneys’ fees and expenses).
“Shared Contract” means all Contracts of Seller or an Asset Selling Entity relating in part to the Devices & Services Business, but not primarily related to, or primarily used in, the Devices & Services Business, and not otherwise an Assumed Contract.
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“Software” means computer programs and applications (whether in source code, object code or other form) and documentation, including specifications, related to the foregoing.
“Straddle Period” means any taxable year or period that begins on or before the Closing Date and ends after the Closing Date.
“Subsidiary” of any Person means, as of any date, any Person of which securities or other ownership interests representing more than fifty percent of the equity or more than fifty percent of the ordinary voting power or, in the case of a partnership, more than fifty percent of the general partnership ownership interests are, as of such date, owned, controlled or held by, or a majority of such entity’s gains or losses is entitled to be allocated to, the applicable Person or one or more subsidiaries of such Person.
“Target Cash Earnings” means, at any time of determination, the amount set forth on Exhibit I for such time of determination (pro-rated as described therein).
“Target Net Working Capital” means, at any time of determination, the amount set forth on Exhibit J for such time of determination (pro-rated as described therein).
“Tax” or “Taxes” means any and all taxes, including any interest, penalties or other additions to tax that may become payable in respect thereof, imposed by any Governmental Authority, which taxes shall include all income, profits, capital gain, alternative minimum, estimated, payroll, withholding, social security, sales, use, ad valorem, real and personal property, value added, excise, franchise, premium, gross receipts, stamp, transfer, license, net worth, and other taxes, fees, duties, levies (but excluding copyright levies), customs, tariffs, imposts, assessments, obligations and charges of the same or of a similar nature to any of the foregoing.
“Tax Returns” means any and all returns, reports, statements, certificates, schedules or claims for refund of or with respect to any Tax which is supplied to any Governmental Authority, including any and all attachments, amendments and supplements thereto.
“Taxing Authority” means a Governmental Authority or any subdivision, agency, commission or authority thereof, or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection or imposition of any Tax.
“Third Party” means any Person other than Seller, Buyer or any of their respective Affiliates.
“Third Party License Agreement” means the Intellectual Property Agreement accessible on the date of this Agreement at Section 5.2.5 of the electronic data room hosted by Merrill Corporation dated July 22, 2008 that is material to the conduct of the Devices & Services Business.
“Third Party License” means the royalty-bearing, personal, non-exclusive, worldwide patent license granted to Seller under the Third Party License Agreement.
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“Transfer Taxes” means any and all transfer Taxes (excluding Taxes measured in whole or in part by income, gain, or similar Taxes), including custom duties, sales, use, goods, services, business, excise, gross receipts, registration, real estate, stamp, documentary, notarial, filing, recording, permit, license, authorization and similar Taxes, but excluding VAT.
“Transferred Plan” means the Assumed Plans and each Employee Benefit Plan that is sponsored, maintained or entered into by a Transferred Subsidiary (which, for the avoidance of doubt, shall exclude the pension plan arrangements (including all assets, liabilities and obligations thereunder, including the Pforzheim pension) (“U-GmbH”) associated with Nokia Unterstutzungsgesellschaft GmbH).
“Transferred Subsidiaries” means those entities listed on Section 1.1(l) of the Seller Disclosure Letter, and each of the Transferred Subsidiaries shall be referred to individually as a “Transferred Subsidiary”.
“Transition Services Agreement” means the transition services agreement, dated as of the Closing Date, by and between Seller and Buyer, in a form attached hereto as Exhibit K, with only such deviations therefrom as are agreed to by the parties hereto.
“TUPE Regulations” means (i) all laws of any EU Member State implementing the EU Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses, and (ii) any similar laws in any jurisdiction providing for an automatic transfer, by operation of law, to the transferee of employment in the event of a transfer of business.
“Unreinvested Proceeds” means the net cash proceeds of insurance received by Seller or any of its Subsidiaries in respect of the Devices & Services Business for any Casualty Loss.
“VAT” means in relation to any jurisdiction within the European Union, the value added tax provided for in Directive 2006/112/EC and charged under the provisions of any national legislation implementing that directive or Directive 77/388/EEC together with legislation supplemental thereto and, in relation to any other jurisdiction, the equivalent Tax (if any) in that jurisdiction.
ARTICLE II
PURCHASE AND SALE OF THE DEVICES & SERVICES BUSINESS
Section 2.1 Purchase and Sale of Equity Interests.
(a) Upon the terms and subject to the satisfaction or waiver, if permissible under applicable Law, of the conditions set forth in Article VI hereof, at the Closing, in exchange for the payment of the Closing Payment pursuant to Section 2.8, Buyer (or one of its Affiliates) shall purchase from Seller and the Equity Selling Entities, and Seller shall, and shall cause Equity Selling Entities to, sell, convey, transfer, assign and deliver to Buyer (or one of its Affiliates), all of Seller’s and such Equity Selling Entity’s right, title and interest in and to the Direct Transferred Subsidiaries and, indirectly, all of the other Equity Interests, in each case free
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and clear of Encumbrances (other than Encumbrances arising pursuant to the terms of this Agreement or Encumbrances created by Buyer or any of its Affiliates ), which (except as set forth in Section 2.1 of the Seller Disclosure Letter) shall represent all of the outstanding equity or other membership interests in the Transferred Subsidiaries.
(b) The parties agree to take the actions set forth on Section 2.1(b) of the Seller Disclosure Letter. Notwithstanding the foregoing, as provided in Section 2.1(b) of the Seller Disclosure Letter, the Person identified therein may, prior to Closing, be designated a Transferred Subsidiary, in which case such Person shall be deemed to be a Transferred Subsidiary for all purposes under this Agreement and shall be included in the Equity Interests to be sold, conveyed, transferred, assigned and delivered to Buyer (or one of its Affiliates) pursuant to Section 2.1(a).
Section 2.2 Purchase and Sale of the Purchased Assets. In addition to the purchase of the Equity Interests on the terms and conditions described in Section 2.1 above, upon the terms and subject to the satisfaction or waiver, if permissible under applicable Law, of the conditions set forth in Article VI hereof, at the Closing, in exchange for the payment of the Closing Payment pursuant to Section 2.8, Seller shall, and shall cause each of its relevant Subsidiaries (other than the Transferred Subsidiaries) to, sell, convey, assign, transfer and deliver to Buyer (or one of its Affiliates), and Buyer (or one of its Affiliates) shall purchase, acquire and accept from Seller and each such Subsidiary, free and clear of all Encumbrances (other than Permitted Encumbrances), all of Seller’s and such Subsidiary’s right, title and interest in and to all of the assets, properties, claims, and rights primarily related to or primarily used or held for use by Seller or any of its Affiliates (other than any such assets, property, claims and rights held by any of the Transferred Subsidiaries) in the Devices & Services Business of every kind, nature, character and description, tangible and intangible, real, personal or mixed, wherever located, including all of the assets, properties, claims and rights of the types set forth or described below, but excluding the Excluded Assets (collectively, the “Purchased Assets”):
(a) the leasehold interests in all real property primarily related to, or primarily used in, the Devices & Services Business, including (x) any prepaid rent, security deposits and options to purchase in connection therewith and (y) right, title or interest in and to any fixtures, structures or improvements appurtenant to such real property, including as set forth on Section 2.2(a) of the Seller Disclosure Letter;
(b) all tangible personal property and interests therein, including all the equipment, vehicles, machinery, tools, spare parts, furniture and other tangible personal property and primarily related to, or primarily used in, the Devices & Services Business (other than information technology assets which are addressed in Section 2.2(e)) (collectively, the “Equipment”, with the leases relating to any Equipment so leased being referred to herein as the “Equipment Leases”);
(c) all Contracts primarily related to, or primarily used in, the Devices & Services Business (other than the Real Property Leases, Equipment Leases, and excluding Intellectual Property Licenses) (collectively, the “Assumed Contracts”), and all outstanding purchase orders primarily related to the Devices & Services Business (other than such purchase orders to the extent relating to the Excluded Assets);
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(d) all inventory of the Devices & Services Business including all raw materials, work-in-process and finished goods (including in transit, on consignment or in the possession of any third Person) and all accounts receivable of the Devices & Services Business;
(e) the information technology assets primarily related to or primarily used in the Devices & Services Business, including those assets set forth on Section 2.2(e) of the Seller Disclosure Letter (the “Transferred IT Assets”);
(f) subject to Section 5.20 herein, (i) all Intellectual Property (other than Patents; with registered Trademarks and Domain Names assigned solely to the extent set out below in this Section 2.2(f)) exclusively or primarily related to, or exclusively or primarily used in, the Devices & Services Business, including without limitation (x) the applicable Designs included on Section 2.2(f)(i) of the Seller Disclosure Letter (the exhaustive list to be agreed by the parties in accordance with Section 5.20(d)), (y) all unregistered Trademarks exclusively or primarily used in the Devices & Services Business, and Domain Names set forth on Section 2.2(f)(i)(y) of the Seller Disclosure Letter, (z) any other Intellectual Property set forth on Section 2.2(f)(i)(z) of the Seller Disclosure Letter and (ii) the registered Trademarks set forth on Section 2.2(f)(ii) of the Seller Disclosure Schedule (collectively, the “Transferred IP”);
(g) Permits owned, utilized, held or maintained by or licensed to Seller or the Asset Selling Entities (subject to the terms of such Permits) primarily related to, or primarily used in, the Devices & Services Business, except to the extent such Permits are not transferrable under applicable Law;
(h) (i) sole ownership of all Business Materials that are (a) owned or controlled by the Transferred Subsidiaries or (b) owned or controlled by Seller and its Affiliates (other than the Transferred Subsidiaries) and relate exclusively to, or are used exclusively in, the Devices & Services Business (including without limitation those items set forth on Section 5.20(b) of the Seller Disclosure Letter), and all originals and copies of the foregoing (provided that counsel for the Seller Entities and their Subsidiaries may keep one copy, solely to the extent such retention is required by applicable Law or for audit or evidentiary purposes, provided that use of and access to same shall be limited to the above purposes); (ii) co-ownership (with the right to use same without the consent of Seller) of all Business Materials that are owned or controlled by Seller and its Affiliates (other than the Transferred Subsidiaries, the HERE Entities or NSN) and that otherwise relate to, or are otherwise used in, the Devices & Services Business and a copy of all of same in a mutually-agreed format and media (subject to Section 5.20(e) on delivery timing); (the items in Sections 2.2(h)(i)- (ii), collectively, “Transferred Business Materials”) and (iii) the right to retain and use, subject to Section 5.4 and provided that such use does not violate any privacy or other Laws, a copy (but not co-ownership of) all items in subsections (i) and (ii) of the definition of “Business Materials” that are owned by the HERE Entities or NSN and, notwithstanding the representation in Section 3.4(d), are used in the Devices & Services Business as of the Closing Date; provided that, for clarity, this Section 2.2(h) addresses ownership of the physical or tangible assets or media embodying any of the foregoing items and not any of the Intellectual Property covering or incorporated in same;
(i) the Assumed Intercompany Receivables;
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(j) all prepaid expenses and deposits and refunds primarily related to, or primarily used in, the Devices & Services Business (other than prepaid insurance with respect to any insurance policies not transferring to Buyer in connection with the transactions contemplated by this Agreement);
(k) all claims, causes of action (at any time or in any manner arising or existing, whether choate or inchoate, known or unknown, contingent or noncontingent) against Third Parties to the extent resulting from the conduct of the Devices & Services Business and/or any of the Purchased Assets or defenses and rights of offset or counterclaim relating to the Assumed Liabilities to be conveyed to and/or assumed by Buyer and the right to retain all proceeds and monies therefrom;
(l) the goodwill of the Devices & Services Business;
(m) all rights and claims under any and all warranties extended by suppliers, vendors, contractors, manufacturers and licensors in favor of Seller, the Asset Selling Entities and the Transferred Subsidiaries in relation to any of the Purchased Assets or otherwise for the benefit of the Devices & Services Business and, with respect to any insurance policies, all Unreinvested Proceeds with respect to any Casualty Loss to the extent relating to any Purchased Assets or the Devices & Services Business (provided, that the insurance policies themselves of Seller and the Asset Selling Entities may be Excluded Assets as provided in Section 2.3);
(n) all assets of the Transferred Plans with respect to the Transferred Employees or Former Business Employees;
(o) all assets that relate to any Liabilities with respect to Transferred Employees or Former Business Employees;
(p) (i) all Intellectual Property Licenses primarily related to or primarily used in the Devices & Services Business, including those set forth in Section 2.2(p)(i) of the Seller Disclosure Letter; and (ii) all in-bound Patent Licenses, or rights, licenses and corresponding obligations thereof, as and to the extent set forth in Section 2.2(p)(ii) of the Seller Disclosure Letter; (collectively the “Transferred Licenses” and each a “Transferred License”);
(q) all other assets set forth on Section 2.2(q) of the Seller Disclosure Letter; and
(r) except to the extent not primarily related to the Devices & Services Business, all rights to receive administrative and corporate (overhead, shared and other) services and benefits of the kind provided to the Devices & Services Business by the Seller Entities, either directly or indirectly through third-party service providers, prior to the Closing Date, and all assets of Seller or an Asset Selling Entity to the extent related thereto, including (i) computer and information processing services, (ii) finance, accounting and payroll services, (iii) facilities management services (including environmental, health and safety), (iv) treasury services (including banking, insurance, administration, taxation and internal audit), (v) general and administrative services, (vi) executive and management services, (vii) legal services, (viii) human resources services, (ix) risk management services, (x) group purchasing services, (xi) corporate marketing, strategy and development services, (xii) corporate travel and aircraft services, and (xiii) investor relations services.
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Section 2.3 Excluded Assets of the Devices & Services Business.
(a) Notwithstanding any provision in this Agreement to the contrary, Buyer is not purchasing from Seller or any of the Asset Selling Entities any of the following (collectively, the “Excluded Assets”), and shall acquire no right to or interest in any Excluded Assets under this Agreement or as a result of the transactions contemplated hereby:
(i) except to the extent otherwise provided in this Agreement, Cash, in accordance with the Accounting Principles;
(ii) subject to the Ancillary Agreements and Section 5.20(a), all Intellectual Property of Seller or any of its Affiliates (other than the Transferred Subsidiaries), other than the Transferred IP, the Transferred IT Assets and the Transferred Licenses;
(iii) (x) the corporate charter, seal, minute books, stock record books, and other similar documents relating to the organization, maintenance and existence of Seller or any other Asset Selling Entity and (y) the books and records of Seller and the Asset Selling Entities, other than the Business Materials;
(iv) all intercompany receivables in respect of the Devices & Services Business, other than Assumed Intercompany Receivables;
(v) all current and prior insurance policies and all rights of any nature with respect thereto except to the extent such rights are Purchased Assets;
(vi) other than the Transferred Plans, any Employee Benefit Plan that is sponsored, maintained or entered into by Seller or any of its Affiliates and any assets relating thereto (including the Seller Equity Plans and all awards thereunder except as provided in Section 5.2(g) of this Agreement and U-GmbH);
(vii) the “Nokia” and “Nokia Corporation” Trademarks, and subject to Section 5.20(g), any other Trademark set forth on Section 2.3(a)(vii) of the Seller Disclosure Letter, and all goodwill associated with the corporate name of Seller or any other Asset Selling Entity, in each case, subject to the Trademark License Agreement;
(viii) all loans and other advances owing to Seller or any Asset Selling Entity by each Business Employee who does not become a Transferred Employee;
(ix) the Tax records (including Tax Returns and supporting workpapers) covering any period or portion thereof ending, or any transaction of Seller or any Asset Selling Entity occurring, on or prior to the Closing Date;
(x) the personnel records (including all human resources and other records) of Seller or an Asset Selling Entity relating to employees of Seller or an Asset Selling Entity, in either case, other than Transferred Employees;
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(xi) all of the rights and interests and obligations of Seller or any Asset Selling Entity in and to the Contracts specified in Section 2.3(a)(xi) of the Seller Disclosure Letter;
(xii) any assets and associated claims arising out of the Retained Liabilities;
(xiii) all claims, causes of action, defenses and rights of offset or counterclaim (at any time or in any manner arising or existing, whether choate or inchoate, known or unknown, contingent or noncontingent) not included in the Purchased Assets under Section 2.2(k) and the right to retain all proceeds and monies therefrom;
(xiv) all of the rights and interests of Seller and its Affiliates (including the Seller Entities) in and to all correspondence, records, analyses and documents, including the confidentiality agreements entered into by Seller or any of its Affiliates, in connection with the sale of the Devices & Services Business;
(xv) any legal or beneficial interest in the share capital of the entities and other assets listed on Section 2.3(a)(xv) of the Seller Disclosure Letter, notwithstanding the fact that such entities or assets are related directly and predominantly to the Devices & Services Business;
(xvi) subject to the Trademark License Agreement and to Section 5.20(g), any legal or beneficial interest in the Internet Domain Names listed on Section 2.3(a)(xvi) of the Seller Disclosure Letter notwithstanding the fact that such sites are related directly and predominantly to the Devices & Services Business;
(xvii) all Refunds and credits of Taxes and Tax deposits to the extent due to Seller or any of its Affiliates pursuant to Section 8.7;
(xviii) all other assets set forth on Section 2.3(a)(xviii) of the Seller Disclosure Letter;
(xix) any and all Business Materials other than Transferred Business Materials;
(xx) the Intellectual Property Licenses and Patent Licenses (in each case, other than the Transferred Licenses); and
(xxi) all of Seller’s or any of the Asset Selling Entities’ recoveries to the extent resulting from Actions, the Liabilities in respect of which constitute Retained Liabilities.
Section 2.4 Assumption of Certain Obligations of the Devices & Services Business. Upon the terms and subject to the satisfaction or waiver, if permissible under applicable Law, of the conditions set forth in Article VI hereof, at the Closing, in exchange for the payment of the Closing Payment pursuant to Section 2.8, Buyer agrees, effective at the Closing, to assume and to satisfy, pay, perform and discharge when due all Liabilities solely to the extent primarily relating to the ownership, use or operation of the Purchased Assets or primarily relating to, or primarily used in, the Devices & Services Business, whether arising prior to or after the Closing, and whether accrued or fixed, known or unknown, absolute or contingent, matured or unmatured
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or determined or determinable as of the Closing Date, but excluding the Retained Liabilities, which shall be retained by Seller and the Asset Selling Entities and not assumed by Buyer, including the following (all of the foregoing liabilities and obligations to be so assumed, satisfied or discharged being herein collectively called the “Assumed Liabilities”):
(a) all Actions to the extent resulting from the conduct of the Devices & Services Business or the Purchased Assets prior to, at or after the Closing, including Actions pursuant to which any Third Party alleges that the conduct of the Devices & Services Business infringes upon, misappropriates, or otherwise violates such Third Party’s Intellectual Property rights;
(b) to the extent primarily related to the Devices & Services Business, all Liabilities, including all Actions arising from the design, construction, testing, marketing, service, operation or sale of the products and services of the Devices & Services Business prior to, at or after the Closing, including indemnification or warranty obligations and irrespective of any legal theory asserted;
(c) all Liabilities and other obligations under the Real Property Leases, Equipment Leases and the Assumed Contracts and all purchase orders in respect thereof included in the Purchased Assets (to the extent the foregoing are conveyed to Buyer);
(d) all accounts payable (including the Assumed Intercompany Payables) and other accrued expenses or payment obligations of the Devices & Services Business, and all Liabilities to suppliers for products and services primarily relating to the Devices & Services Business prior to, at or after the Closing;
(e) all Liabilities arising prior to, at or after the Closing under any Contracts that are assigned to Buyer pursuant to Section 2.2 or Section 2.6 at or subsequent to the Closing;
(f) all other Liabilities set forth in Section 2.4(f) of the Seller Disclosure Letter;
(g) all Liabilities arising prior to, at or after the Closing under any Environmental Law, arising out of the Purchased Assets, the Devices & Services Business, any Asset Selling Entity or its predecessors (in each case, to the extent relating to the Purchased Assets or primarily related to the Devices & Services Business), or any property or assets now owned, leased or operated by any Asset Selling Entity (in each case, to the extent primarily relating to, or used for, the Purchased Assets or the Devices & Services Business), it being understood that such Liabilities do not include: Liabilities arising out of any property or assets that were previously owned, leased or operated by Seller or any Asset Selling Entity or its predecessors but are not Purchased Assets, and Liabilities that arise out of any off-site disposal of waste on or prior to the Closing;
(h) all Liabilities with respect to the Transferred Plans with respect to Transferred Employees and the Former Business Employees;
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(i) all Liabilities with respect to the Transferred Employees and the Former Business Employees;
(j) 50% of any Liabilities with respect to severance pay to Transferred Employees who have a statutory right to severance pay solely as a result of the transactions contemplated by this Article II but continue as employees of Buyer or its Affiliates immediately following Closing; and
(k) all Liabilities for or with respect to Taxes for which Buyer bears responsibility pursuant to Article VIII.
Section 2.5 Retained Liabilities of the Devices & Services Business.
Notwithstanding any provision in this Agreement, at the Closing, Seller and its Subsidiaries (other than the Transferred Subsidiaries) shall retain and shall expressly agree to pay or otherwise perform or otherwise discharge and be responsible for all Liabilities (i) to the extent not arising out of, in respect of or relating to the Devices & Services Business or the Purchased Assets, including with respect to the Seller Retained Business and any Subsidiaries of Seller or (ii) to the extent set forth in this Section 2.5, including the following (collectively, the “Retained Liabilities”):
(a) Liabilities for which Seller or any Asset Selling Entity expressly has responsibility pursuant to the terms of this Agreement;
(b) Liabilities to the extent related to the Excluded Assets or not primarily related to the Devices & Services Business or the Purchased Assets;
(c) intercompany Liabilities of Seller or the Asset Selling Entities, other than the Assumed Intercompany Payables and Liabilities related to the Assumed Intercompany Receivables;
(d) except as otherwise provided for herein, any costs or expenses incurred by Seller or any Asset Selling Entity in connection with this Agreement or the transactions contemplated hereby;
(e) any Liabilities of Seller or any Asset Selling Entity (i) to pay any Indebtedness incurred prior to the Closing Date or (ii) relating to foreign exchange, hedging, derivative or similar arrangements;
(f) all Liabilities with respect to the Transferred Plans, except with respect to Transferred Employees and the Former Business Employees;
(g) all Liabilities with respect to employees of Seller and its Affiliates, other than with respect to Transferred Employees and the Former Business Employees;
(h) all Liabilities for or with respect to Taxes for which Seller bears responsibility pursuant to Article VIII;
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(i) all payables related to the value added Taxes or similar Taxes of Seller and its Subsidiaries (other than the Transferred Subsidiaries);
(j) all Liabilities arising from or relating to any Action (i) involving Seller or any of its directors or officers relating to or arising from this Agreement or the transactions contemplated hereby or (ii) set forth on Section 2.5(j) of the Seller Disclosure Letter;
(k) all Liabilities arising from or relating to any discontinued operations, including in the jurisdictions and pursuant to the Agreements set forth on Section 2.5(k) of the Seller Disclosure Letter;
(l) all Liabilities arising from or relating to Seller’s or its Subsidiaries’ use or distribution prior to the Closing Date of Software that is subject to an “open source” license, including without limitation those Liabilities set forth on Section 2.5(l) of the Seller Disclosure Letter, until such date in which Buyer notifies Seller that it is willing to assume all or part of such Liabilities, in which case Buyer will only assume those liabilities expressly indicated;
(m) all Liabilities relating to any confidentiality agreements entered into by Seller or any of its Affiliates, in connection with the sale of the Devices & Services Business;
(n) 50% of any Liabilities with respect to severance pay to Transferred Employees who have a statutory right to severance pay solely as a result of the transactions contemplated by this Article II but continue as employees of Buyer or its Affiliates immediately following Closing;
(o) all Liabilities and other obligations, including any warranty or similar obligations, of Seller and its Affiliates, including relating to the Devices & Services Business, to the extent relating to or arising out of sales to customers or other third parties in Iran, Cuba, Sudan and Syria;
(p) all other Liabilities set forth in Section 2.5(p) of the Seller Disclosure Letter; and
(q) all Liabilities with respect to U-GmbH.
Section 2.6 Consents.
(a) Notwithstanding anything to the contrary in this Agreement, any Real Property Lease, Equipment Lease, Transferred License, Restricted Software, Permit, Assumed Contract, Contract or right which is not assignable or transferable without the consent of any Person other than Seller, the Asset Selling Entities, the Transferred Subsidiaries or any other Subsidiary of Seller or Buyer shall not be transferred to Buyer at the Closing, to the extent that such consent shall not have been given prior to the Closing; provided, however, that each of the Seller Entities and Buyer shall have the continuing obligation after the Closing to use reasonable best efforts at Seller’s sole cost and expense to obtain all necessary consents to the assignment or transfer thereof. Upon obtaining the requisite third-party consents thereto, Seller
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shall, and shall cause each applicable Asset Selling Entity to, promptly sell, convey, assign, transfer and deliver to Buyer such Real Property Leases, Equipment Leases, Transferred Licenses, Restricted Software, Permits, Assumed Contracts, Contracts or rights, if otherwise includable in the Purchased Assets or the transactions contemplated hereby.
(b) With respect to any Real Property Lease, Equipment Lease, Transferred License, Permit, Assumed Contract, Contract or right that is included in the Purchased Assets but not assigned to Buyer at the Closing by reason of Section 2.6(a), after the Closing, and for at least two (2) years thereafter, Seller and Buyer shall cooperate with each other, upon written request of Buyer, in endeavoring to obtain for Buyer, a lawful and reasonable arrangement with respect thereto to provide for Buyer substantially comparable benefits (including economics) therein, including, if applicable, Buyer conducting operations in a leased facility of Seller prior to obtaining consent to assignment of the lease for such facility. In any such arrangement, (x) Buyer will solely to the extent of Buyer’s use, or receipt of benefits, thereof (i) bear the sole responsibility for completion of the work or provision of goods and services, (ii) bear all Taxes with respect thereto or arising therefrom, (iii) be solely entitled to all benefits thereof, economic or otherwise, and (iv) be solely responsible for any warranty or breach thereof, any repurchase, indemnity and service obligations thereof, and (v) promptly reimburse the reasonable costs and expenses of the Seller and its Affiliates arising from Buyer’s use, or receipt of the benefits, thereof, and (y) Seller will, and will cause each Asset Selling Entity to, enforce the rights granted to Buyer under this Section 2.6.
(c) Buyer acknowledges that certain consents to the transactions contemplated by this Agreement may be required from parties to the Real Property Leases, Equipment Leases, Transferred Licenses, Permits, Assumed Contracts, Contracts or rights and that such consents may not be obtained. Subject to Seller’s compliance with the terms of this Agreement, including Sections 2.6(a) and 2.6(b), and without limiting Seller’s representations and warranties in Article III hereof, Buyer agrees that neither the Seller nor any of its Affiliates shall have any liability whatsoever solely arising out of the failure to obtain any consents that may be required in connection with the transactions contemplated by this Agreement or solely because of the default under, or acceleration of, any Real Property Lease, Equipment Lease, Transferred License, Permit, Assumed Contract, Contract or right, as a result thereof.
(d) Within ninety (90) days after the execution of this Agreement, Seller shall provide the Buyer with a list of all Shared Contracts, indicating which of such Shared Contracts may be assigned in part, pursuant to its terms, without the consent of the counterparty thereto or other conditions, including the payment of a transfer or other fee (the “Assignable Shared Contracts”). Within thirty (30) days after receipt thereof, the Buyer will provide the Seller with written notice of those Assignable Shared Contracts that the Buyer desires to assume in part. Each such Assignable Shared Contract for which the Buyer provides written notice of its desire to assume in part shall thereafter be deemed to be an Assumed Contract hereunder and the Seller shall partially assign to the Buyer as of the Closing such Contract in accordance with its terms.
(e) With respect to each Shared Contract identified pursuant to the first sentence of subsection (d) above that is not an Assignable Shared Contract (the “Non-Assignable Shared Contracts”), the Buyer will also, within thirty (30) days after receipt
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thereof, provide the Seller with written notice of those Non-Assignable Shared Contracts that the Buyer desires to assume in part. Each party shall use its reasonable best efforts prior to the Closing to cause the counterparty to each such Non-Assignable Shared Contract to consent to the partial assignment of such Non-Assignable Shared Contract to the Buyer, or to otherwise enter into a new Contract with the Buyer on substantially the same terms as exist under the applicable Shared Contract, in each case as of the Closing. Each such Non-Assignable Shared Contract for which the parties have received consent to the partial assignment shall thereafter be deemed to be an Assumed Contract hereunder and the Seller shall partially assign to the Buyer as of the Closing such Contract in accordance with its terms. The Seller shall not take any action to terminate prior to its expiration any Non-Assignable Shared Contract which has been identified by the Buyer as one it desires to assume pursuant to this subsection (e), or take any action or fail to take any action that would permit the other party to any such Non-Assignable Shared Contract to terminate prior to its expiration such Shared Contract, in each case, prior to the date that is twelve (12) months after the Closing Date. Notwithstanding the foregoing, the Seller shall not be required to partially assign to the Buyer at the Closing any of the Non-Assignable Shared Contracts for which consent has not been obtained.
(f) With respect to each Non-Assignable Shared Contract for which the arrangements described in subsection (e) above could not be entered into prior to the Closing, Seller agrees to continue to use its reasonable best efforts from and after the Closing Date until the date that is two (2) years following the Closing Date to cause the counterparty to each such Non-Assignable Shared Contract to consent to the partial assignment of such Non-Assignable Shared Contract to the Buyer, or to otherwise enter into a new Contract with the Buyer on substantially the same terms as exist under the applicable Shared Contract. Until any such consent or new Contract is obtained, the Seller and the Buyer will use reasonable best efforts to cooperate for two (2) years following the Closing, in any lawful and reasonable arrangement, to the extent such cooperation would not result in a breach of the terms of such Non-Assignable Shared Contract, and not prohibited under applicable law, which will provide the Buyer the obligations and benefits of any such Non-Assignable Shared Contract with respect to the Devices & Services Business, including subcontracting, licensing, sublicensing, leasing or subleasing to the Buyer any or all of the Seller’s rights and obligations with respect to such Non-Assignable Shared Contract with respect to the Devices & Services Business. In any such arrangement, (x) Buyer will solely to the extent of Buyer’s use, or receipt of benefits, thereof (i) bear the sole responsibility for completion of the work or provision of goods and services, (ii) bear all Taxes with respect thereto or arising therefrom, (iii) be solely entitled to all benefits thereof, economic or otherwise, and (iv) be solely responsible for any warranty or breach thereof, any repurchase, indemnity and service obligations thereof, and (v) promptly reimburse the reasonable costs and expenses of the Seller and its Affiliates arising from Buyer’s use, or receipt of the benefits, thereof, and (y) Seller will, and will cause each Asset Selling Entity to, enforce the rights granted to Buyer under this Section 2.6(f). If and when such consents or approvals are obtained or such other required actions have been taken, the partial assignment of such Non-Assignable Shared Contract will be effected in accordance with the terms of this Agreement.
Section 2.7 Further Assurances. Subject to Section 5.7, each of the parties hereto shall use reasonable best efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things necessary, proper or advisable under applicable Law, and execute and deliver such documents and other papers, as may be required to consummate the transactions
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contemplated by this Agreement, including to obtain any required consents or waivers of termination or provide any required notifications (within the required notice periods) under any Real Property Lease, Equipment Lease, Transferred License, Permit, Assumed Contract or other Contract prior to the Closing. Without limiting the foregoing, after the Closing Date (A) Buyer and Seller at the reasonable request of the other shall execute and deliver, or cause to be executed and delivered, to or as directed by, and at the reasonable expense of, the requesting party (i) such assignments, deeds, bills of sale and other instruments of transfer as either party reasonably may request as necessary or desirable in order to effect or further evidence the sale and assignment of the Purchased Assets to Buyer and the retention of the Excluded Assets by Seller and the Asset Selling Entities as specified in Sections 2.2 and 2.3, and (ii) such assumption agreements (including assumption agreements in relation to specific Assumed Contracts (including such assumption agreements expressly for the benefit of the counterparties thereto)) and other instruments of assumption as either party reasonably may request as necessary or desirable in order to effect or further evidence the assumption of, and agreement to pay, perform and discharge when due, the Assumed Liabilities and the Retained Liabilities, all as specified in Sections 2.4 and 2.5, or to obtain releases of Seller and the Asset Selling Entities from any liability or obligation with respect to the Assumed Liabilities or to obtain releases of Buyer and its Affiliates from any liability or obligation with respect to the Retained Liabilities and (B) Seller shall use reasonable best efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things necessary, proper or advisable under applicable Law, and execute and deliver such documents and other papers, as may be required to complete any of the Internal Restructuring that is not completed as of the Closing. To the extent that, from time to time after the Closing, Seller and/or Buyer shall identify assets of the Devices & Services Business that are in the possession of Seller or its Affiliates, or assets of the Seller Retained Businesses that are in the possession of Buyer or its Affiliates, whether as a result of the Internal Restructuring not being completed prior to the Closing or otherwise, each party shall use reasonable best efforts to take such action as is necessary to put (x) Buyer or its Subsidiaries, including the applicable Transferred Subsidiary, in the case of assets of the Devices & Services Business, or (y) Seller or its Subsidiaries, in the case of assets of the Seller Retained Businesses, in actual possession thereof and otherwise to put such party into the same economic position as if such action had been taken on or prior to the Closing Date.
Section 2.8 Purchase Price.
(a) In consideration of the sale and transfer of the Equity Interests and the Purchased Assets and the assumption of the Assumed Liabilities, Buyer agrees to (i) purchase (or cause one of its Affiliates to purchase) from Seller and the Equity Selling Entities the Equity Interests and (ii) purchase (or cause one of its Affiliates to Purchase) from Seller and the Asset Selling Entities the Purchased Assets for an aggregate purchase price of Three Billion Seven Hundred and Ninety Million Euros (€3,790,000,000.00) (the “Initial Purchase Price”). The Initial Purchase Price is subject to adjustment prior to the Closing pursuant to Section 2.10(b) (as so adjusted, the “Closing Payment”). The Closing Payment is subject to adjustment following the Closing as set forth in Section 2.10(g).
(b) If prior to the Closing, Buyer purchases Nokia Securities from Seller, then simultaneous with the Closing Buyer will surrender all of such Nokia Securities (the “Surrendered Securities”) to Seller for purchase or redemption by Seller. Upon surrender of the
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Nokia Securities, in lieu of payment to Buyer of the redemption or purchase price therefor, which for the avoidance of doubt shall be an amount equal to the principal plus accrued interest thereon (such amounts, in aggregate, the “Redemption Amount”), the Closing Payment will be reduced by the Redemption Amount. The amount of the Closing Payment less the Redemption Amount, if any, shall be the “Closing Cash Payment”.
(c) To the extent that Buyer is required under applicable Law to make local payment for the Equity Interests or the Purchased Assets in any particular jurisdiction directly to a Seller Entity, such payment will be made in Euros, if permissible under applicable Law.
(d) Buyer shall be entitled to deduct and withhold from consideration otherwise payable or deemed payable pursuant to this Agreement such amounts as are required to be deducted and withheld and with respect to the making of such payment under the Code, or any provision of state, local or foreign Tax law. To the extent that amounts are so withheld and are properly paid to the relevant Taxing Authority, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to Seller (or the relevant Asset Selling Entity or Equity Selling Entity) in respect of which such deduction and withholding was made; provided, that, to the extent that any such deduction or withholding is made on account of any Transferred IP, Transferred IT Assets or Transferred Licenses which are transferred directly by Seller, the amount of consideration payable by Buyer pursuant to this Agreement shall be increased such that Seller shall receive a net amount after giving effect to any required deduction or withholding equal to the amount that Seller would have received had no such deduction or withholding been made. If Buyer determines that it or its Affiliates are required to deduct and withhold any amount as described in this Section 2.8(d), Buyer shall notify Seller of any such requirement as soon as reasonably practicable after such determination is made by Buyer.
Section 2.9 Closing.
(a) The closing of the transactions contemplated by this Agreement (the “Closing”) shall be held at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, located at 525 University Avenue, Suite 1400, Palo Alto, California, 94301, at 6:00 a.m. local time, on the third Business Day following the satisfaction or waiver, if permissible, of the conditions set forth in Article VI (other than conditions which by their nature are to be satisfied or waived at the Closing and subject to such satisfaction or waiver at the Closing) (such date, the “Closing Date”), unless another date is agreed to in writing by Buyer and Seller. The effective time of the Closing for tax, operational and all other matters will be deemed to be 11:59 p.m. local time in each jurisdiction on the Closing Date. The parties will between signing and Closing jointly consider in good faith the treatment of possible inconsistencies resulting from Closing mid-month as it relates to the treatment of Net Working Capital and the corresponding adjustments under the terms of this Agreement. For example, the parties may mutually agree to extend the date upon which they would otherwise be obligated to effect the Closing pursuant to this Section 2.9 if it would otherwise be scheduled to occur within a short period from a month end.
(b) At the Closing, Seller shall deliver, or cause to be delivered, to Buyer:
(i) evidence of the transfer and assignment to Buyer of the Equity Interests;
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(ii) possession or control of the Purchased Assets;
(iii) the certificate provided for in Section 6.1(a)(iii);
(iv) except to the extent requested by Buyer, resignations of the directors, or in the case of entities that have one or more managers in lieu of a board of directors, the resignation of such manager(s), of the Transferred Subsidiaries, effective upon the Closing;
(v) Seller’s and any applicable Affiliate’s duly executed counterparts of each Ancillary Agreement; and
(vi) such other specific instruments of sale, transfer, conveyance and assignment, perfection and recordation as Buyer may reasonably request and all other documents required to be delivered by Seller or the Equity Selling Entities on or prior to the Closing Date pursuant to this Agreement;
(vii) the organizational books and records of each of the Transferred Subsidiaries, including for each, the corporate minute book, stock ledger book, corporate charters and minutes (or equivalent under applicable Law) of each Transferred Subsidiary;
(viii) all physical and tangible materials embodying any of the Transferred IP in the possession of Seller or its Subsidiaries and their respective third party agents; and
(ix) with respect to any U.S. Person that is a Transferred Subsidiary, a certificate in the form of Exhibit L that the applicable Seller Entity is not a “foreign person” as defined in Section 1445(f)(3), and the rules and regulations promulgated thereunder, or a “disregarded entity” as defined in Treasury Regulation Section 1.1445-2(b)(2)(iii).
(c) At the Closing, Buyer shall deliver, or cause to be delivered, to Seller:
(i) all Surrendered Securities, with such instruments of transfer as required pursuant thereto;
(ii) the Closing Cash Payment, by wire transfer of immediately available funds, to an account or accounts designated by Seller prior to Closing (such account or accounts to be set forth on a letter on Seller’s letterhead and executed by an authorized officer of Seller);
(iii) the certificate provided for in Section 6.2(a)(iii);
(iv) Buyer’s and any applicable Affiliate’s duly executed counterparts of each Ancillary Agreement.
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Section 2.10 Purchase Price Adjustment.
(a) Seller shall prepare and deliver to Buyer, no later than five (5) Business Days prior to the Closing Date the following:
(i) a combined balance sheet of the Devices & Services Business, as of the Seller’s previous Monthly Period End (the “Estimated Closing Balance Sheet”), prepared by Seller in accordance with the Accounting Principles;
(ii) a combined EBITDA and CAPEX statement for the Devices & Services Business, as of the Seller’s previous Monthly Period End (the “Estimated Closing Cash Earnings”), prepared by Seller and in accordance with the Accounting Principles;
(iii) a detailed calculation by Seller of the Adjustment Amount (including the Net Cash Adjustment, Net Working Capital Adjustment, Cash Earnings Adjustment and Seller Transaction Expenses and the Exhibit O Adjustment Amount) as of the Seller’s previous Monthly Period End based on the Estimated Closing Balance Sheet and the Estimated Closing Cash Earnings (the “Estimated Adjustment Amount”) (an illustrative example of which is set forth on Exhibit A), together with such schedules and data as may be appropriate to support such calculation; and
(iv) a certificate of the chief executive officer or chief financial officer of Seller certifying that the Estimated Closing Balance Sheet, Estimated Closing Cash Earnings and Estimated Adjustment Amount have been prepared in accordance with the Accounting Principles.
(b) In connection with Buyer’s review of the Estimated Closing Balance Sheet, Estimated Closing Cash Earnings and calculation of the Estimated Adjustment Amount, Buyer and its Representatives shall have reasonable access, during normal business hours and upon reasonable notice, to all relevant work papers, schedules, memoranda and other documents prepared by Seller or any of its Affiliates or any of their respective Representatives in connection with preparation of the Estimated Closing Balance Sheet, the Estimated Closing Cash Earnings and/or calculation of Estimated Adjustment Amount, and to finance personnel of Seller or any of its Affiliates and any other information which Buyer reasonably requests, and Seller shall, and shall cause its Subsidiaries and Representatives to, cooperate reasonably with Buyer and its Representatives in connection therewith. Buyer shall have until two (2) Business Days prior to the Closing Date to provide Seller any comments on the statement of the Estimated Adjustment Amount and the data and calculations set forth therein, which comments shall be considered by Seller in good faith (and if revised by Seller in response to Buyer’s comments, the revised statement shall be the statement of the Adjustment Amount hereunder).
(c) The Initial Purchase Price shall be (i) increased by the absolute value of the Estimated Adjustment Amount if it is positive, or (ii) decreased by the absolute value of the Estimated Adjustment Amount if it is negative.
(d) Within seventy-five (75) days following the Closing Date, Buyer shall deliver to Seller the following (collectively, the “Preliminary Adjustment Statement”):
(i) a combined balance sheet of the Devices & Services Business as of the Closing (the “Preliminary Closing Balance Sheet”), prepared by Buyer in accordance with the Accounting Principles;
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(ii) a combined EBITDA and CAPEX statement for the Devices & Services Business as of the Closing (the “Preliminary Closing Cash Earnings”), prepared by Buyer and in accordance with the Accounting Principles;
(iii) a detailed calculation by Buyer of the Adjustment Amount (including the Net Cash Adjustment, Net Working Capital Adjustment, and Cash Earnings Adjustment and the Exhibit O Adjustment Amount) as of the Closing based on the Preliminary Closing Balance Sheet and the Preliminary Closing Cash Earnings (the “Preliminary Adjustment Amount”), together with such schedules and data as may be appropriate to support such calculation; and
(iv) a certificate of the chief executive officer or chief financial officer of Buyer certifying that the Preliminary Closing Balance Sheet and Preliminary Closing Cash Earnings have been prepared in accordance with the Accounting Principles; and
(e) Seller shall have sixty (60) days following receipt of the Preliminary Adjustment Statement to review the Preliminary Closing Balance Sheet, the Preliminary Closing Cash Earnings and the calculation of Preliminary Adjustment Amount and to notify Buyer in writing of any dispute regarding the amount of the Preliminary Adjustment Amount set forth on the Preliminary Adjustment Statement (the “Dispute Notice”), specifying the reasons therefor in reasonable detail. If no Dispute Notice is delivered by Seller within such sixty (60) day review period or if Seller delivers a written acceptance of the Preliminary Closing Balance Sheet, the Preliminary Closing Cash Earnings and the Preliminary Adjustment Amount during such sixty (60) day period, then such Preliminary Closing Balance Sheet, Preliminary Closing Cash Earnings and Preliminary Adjustment Amount shall be (i) conclusive and binding on the parties in all respects and (ii) final and non-appealable for all purposes hereunder, as of the end of the sixty (60) day review period or the date of receipt by Buyer of such written acceptance, as applicable. Any item set forth in the Preliminary Closing Balance Sheet, the Preliminary Closing Cash Earnings or the calculation of Preliminary Adjustment Amount and not specifically objected to by Seller within such sixty (60) day period shall be deemed (i) conclusive and binding on the parties in all respects and (ii) final and non-appealable for all purposes hereunder.
(f) In connection with Seller’s review, Seller and its Representatives shall have reasonable access, during normal business hours and upon reasonable notice, to all relevant work papers, schedules, memoranda and other documents prepared by Buyer, the Transferred Subsidiaries or any of their Affiliates, or any of their respective Representatives in connection with preparation of the Preliminary Closing Balance Sheet, the Preliminary Closing Cash Earnings and/or its calculation of Preliminary Adjustment Amount, and to finance personnel of Buyer, the Transferred Subsidiaries or any of their Affiliates and any other information which Seller reasonably requests, and Buyer shall, and shall cause the Transferred Subsidiaries and its other Affiliates to, cooperate reasonably with Seller and its Representatives in connection therewith.
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(g) If Seller delivers a Dispute Notice to Buyer, Buyer and Seller shall cooperate in good faith to resolve such dispute as promptly as practicable and, upon such resolution, if any, any adjustments to the Preliminary Closing Balance Sheet, Preliminary Closing Cash Earnings and Preliminary Adjustment Amount shall be made as agreed upon by Buyer and Seller. If Buyer and Seller are unable to resolve any such dispute within twenty (20) Business Days (or such longer period as Buyer and Seller shall mutually agree in writing) of Seller’s delivery of such Dispute Notice, such dispute shall be resolved by the Independent Accounting Firm, and such determination by the Independent Accounting Firm shall be (x) conclusive and binding on the parties in all respects and (y) final and non-appealable for all purposes hereunder; provided, however, that such determination may be reviewed, corrected or set aside by a court of competent jurisdiction, but only if and to the extent that the Independent Accounting Firm is found by such court of competent jurisdiction to have made mathematical errors with respect to its ruling or failed to follow the provisions of this Agreement; provided, further, that (i) the Independent Accounting Firm may consider only those items and amounts (and related items and amounts) as to which Buyer and Seller have disagreed within the time periods and on the terms specified above, (ii) the Independent Accounting Firm shall be bound by the provisions of this Section 2.10(g) and (iii) the Independent Accounting Firm’s determination of the Preliminary Adjustment Amount may neither be less than the lower, nor more than the higher, of Buyer’s and Seller’s respective calculations of the Preliminary Adjustment Amount. Any expenses relating to the engagement of the Independent Accounting Firm in respect of its services pursuant to this Section 2.10(g) shall be borne by Buyer and Seller in a manner that is inversely proportionate to the relative difference between the calculation of Preliminary Adjustment Amount proposed by each of Buyer and Seller and the Preliminary Adjustment Amount as finally determined by the Independent Accounting Firm. The Independent Accounting Firm shall be instructed to use commercially reasonable efforts to make its final determination within thirty (30) days of submission by the parties hereto of the dispute to it and, in any case, as promptly as practicable after such submission. Buyer and Seller shall each furnish the Independent Accounting Firm (such work papers and other documents and information relating to the disputed issues as the Independent Accounting Firm shall request). The Preliminary Adjustment Amount, (i) if deemed final in accordance with Section 2.10(d), as originally submitted by Buyer, or (ii) if a Dispute Notice has been timely delivered by Seller in accordance with this Section 2.10(g), as determined pursuant to the resolution of such dispute in accordance with this Section 2.10(g), shall be the “Final Adjustment Amount”.
(h) The “Purchase Price” shall be equal to the Closing Payment, as adjusted below:
(i) if the Final Adjustment Amount is greater than the Estimated Adjustment Amount (either of which may have been positive or negative), Buyer shall pay Seller the amount by which the Final Adjustment Amount is greater than the Estimated Adjustment Amount (in accordance with the Purchase Price Apportionment);
(ii) if the Final Adjustment Amount is less than the Estimated Adjustment Amount (either of which may have been positive of negative), Seller shall pay to Buyer the amount by which the Final Adjustment Amount is less than the Estimated Adjustment Amount (in accordance with the Purchase Price Apportionment).
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Buyer or Seller, as the case may be, shall, as promptly as reasonably practicable (but in any event within five (5) Business Days) after the determination of the Final Adjustment Amount pursuant to Section 2.10(g), make payment (or cause an Affiliate to make payment) in accordance with this Section 2.10(h) by wire transfer in immediately available funds of the amount payable by Buyer or Seller, as the case may be.
Section 2.11 Purchase Price Allocation.
(a) Prior to the Closing, Buyer and Seller shall in good faith use their reasonable best efforts to agree upon an allocation of the portions of the Purchase Price paid by Buyer (or each of its relevant assignees) to Seller, any Asset Selling Entity and/or any Equity Selling Entity with respect to any Transferred Subsidiary, Purchased Assets and (to the extent applicable) any transfer or other transaction under any of the Ancillary Agreements (the “Purchase Price Apportionment”).
(b) If Seller and Buyer fail to agree on the Purchase Price Apportionment within one hundred (100) days following the date of this Agreement in the case of Closing Valued Subsidiaries or within thirty (30) days of the Closing in the case of any other Transferred Subsidiary, Purchased Asset or (to the extent applicable) any transfer or other transaction under any of the Ancillary Agreements, such matter shall be referred to a law firm or accounting firm (the “Arbiter”) for binding arbitration pursuant to the procedures set forth below. Seller and Buyer shall mutually agree on an Arbiter that is independent of both Seller and Buyer. If Seller and Buyer cannot agree on an Arbiter within five (5) days, Seller and Buyer each shall select a law firm or an accounting firm, and the two (2) firms selected shall mutually select a third law firm or accounting firm, independent of both Seller and Buyer, to act as the Arbiter; provided, that with respect to any jurisdiction in which local law requires a valuation substantiated by a firm other than the Arbiter, a firm qualified under local law shall be mutually selected under the processes hereunder and the decisions of such qualified firm shall govern with respect to that jurisdiction. The choice of an Arbiter by the two (2) firms pursuant to the preceding sentence shall be binding on the parties. Within ten (10) days of the selection of the Arbiter, Seller and Buyer shall deliver to the Arbiter copies of any schedules or documentation that may reasonably be required by the Arbiter to make its determination. Each of Buyer and Seller shall be entitled to submit to the Arbiter a memorandum setting forth its position with respect to such arbitration. The Arbiter shall render a determination with respect to any Closing Valued Subsidiary at least five (5) days prior to Closing and in the case of any other Transferred Subsidiary, Purchased Asset or (to the extent applicable) any transfer or other transaction under any of the Ancillary Agreements as soon as reasonably possible (which for the avoidance of doubt may be following the Closing Date). In rendering its determination of the Purchase Price Apportionment, the Arbiter shall apply valuation principles in accordance with arm’s-length principles. The determination of the Arbiter shall be final and binding on all parties and shall be the conclusive Purchase Price Apportionment (the “Final Purchase Price Apportionment”) for purposes of this Agreement, and Buyer and Seller shall (or shall cause its Affiliates to) take all actions necessary to amend any Local Share Transfer Agreement, Local Asset Transfer Agreement or any similar document to be consistent with the Final Purchase Price Apportionment. The costs incurred in retaining the Arbiter shall be shared equally, fifty percent (50%) by Seller and fifty percent (50%) by Buyer.
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(c) Each of Seller, Buyer and their respective Affiliates shall (x) be bound by the Purchase Price Apportionment (or Final Purchase Price Apportionment) for purposes of determining any Taxes; (y) prepare and file, and cause its Affiliates to prepare and file, its Tax Returns on a basis consistent with the Purchase Price Apportionment (or Final Purchase Price Apportionment) and (z) take no position, and cause its Affiliates to take no position, inconsistent with the Purchase Price Apportionment (or Final Purchase Price Apportionment) on any applicable Tax Return or in any proceeding before any Taxing Authority. If the Purchase Price Apportionment (or Final Purchase Price Apportionment) is disputed by any Taxing Authority, the party receiving notice of the dispute shall promptly notify the other party hereto, and Seller and Buyer agree to use their commercially reasonable efforts to defend such Purchase Price Apportionment in any Contest. To the extent that the Purchase Price as finally determined pursuant to Section 2.10 may differ from the Closing Payment, the Purchase Price Apportionment (or Final Purchase Price Apportionment) shall be updated to reflect such difference in an appropriate and equitable manner consistent with the requirements of applicable Law to the maximum extent possible and as mutually agreed to by Seller and Buyer. For the avoidance of doubt, (i) the sum of the Purchase Price Apportionment shall not exceed the Purchase Price, and (ii) nothing in this Section 2.11 shall impact the Buyer’s ability to allocate purchase price among the assets of a Transferred Subsidiary for U.S. federal or state income tax purposes.
(d) To the extent any Taxing Authority successfully disputes the applied Purchase Price Apportionment, each party is entitled to reflect such difference in an appropriate and equitable manner in its tax filings consistent with the requirement of applicable Law.
Section 2.12 Proceedings at Closing. All proceedings to be taken, all documents to be executed and delivered, and all payments to be made and consideration to be delivered at the Closing shall be deemed to have been taken, executed, delivered and made simultaneously, and, except as provided hereunder, no proceedings shall be deemed taken nor any documents executed or delivered until all have been taken, executed and delivered.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth in the Seller Disclosure Letter (it being agreed that an item included on a particular schedule referenced in any section or subsection of this Article III is deemed to relate to each other section or subsection of this Article III to the extent that it is reasonably apparent on its face to a reader of such disclosure that it also qualifies or applies to such other sections and subsections); provided, that no disclosure in the Seller Disclosure Letter shall be deemed to qualify or apply to the first sentence of Section 3.12 unless expressly set forth on Section 3.12 of the Seller Disclosure Letter, Seller represents and warrants to Buyer as follows:
Section 3.1 Due Organization of Seller Entities. Seller is duly incorporated, validly existing under the Laws of Finland. Each other Seller Entity is a corporation or a limited liability company duly organized, validly existing and, where applicable, in good standing under the Laws of the jurisdiction of its organization. Each of the Seller Entities is qualified or otherwise authorized to do business and is in good standing (where applicable) under the Laws of every
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other jurisdiction in which such qualification or authorization is necessary under applicable Law, except where the failure to be so qualified or otherwise authorized would not be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole. Each of the Seller Entities has all requisite limited liability company power and authority to own, lease and operate its respective properties and to carry on its respective business as now conducted, except where the failure to have such power and authority would not be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole.
Section 3.2 Authorization of Transaction by Seller. Seller has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the Ancillary Agreements and, subject to the Requisite Shareholder Approval, to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by Seller of this Agreement and the Ancillary Agreements and the consummation by Seller of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action on the part of Seller other than the Requisite Shareholder Approval, and no other corporate proceedings on the part of Seller are necessary to authorize the execution, delivery and performance by Seller of this Agreement and the Ancillary Agreements or to consummate the transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by Seller and, assuming due authorization, execution and delivery by Buyer, constitutes, and each Ancillary Agreement, when executed and delivered by Seller or the applicable Seller Entity (assuming due authorization and delivery by Buyer) shall constitute, a valid and binding obligation of Seller or the applicable Seller Entity, enforceable against Seller or the applicable Seller Entity in accordance with its terms, except as may be limited by bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization, preference or similar Laws of general applicability relating to or affecting the rights of creditors generally and subject to general principles of equity (regardless of whether enforcement is sought in equity or at law).
Section 3.3 Due Organization and Good Standing of Transferred Subsidiaries. Each of the Transferred Subsidiaries is duly incorporated or formed, validly existing, and in good standing (where applicable) under the Laws of the jurisdiction of its incorporation or formation. Each of the Transferred Subsidiaries is qualified or otherwise authorized to do business and is in good standing (where applicable) under the Laws of every other jurisdiction in which such qualification or authorization is necessary under applicable Law, except where the failure to be so qualified or otherwise authorized would not (i) be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole or (ii) reasonably be expected to prevent the performance by Seller, the Equity Selling Entities and/or the Asset Selling Entities of their respective obligations under this Agreement or the consummation of the transactions contemplated hereby. Each of the Transferred Subsidiaries has all requisite corporate or limited liability company power and authority to own, lease and operate its respective properties and to carry on its respective business as now conducted, except where the failure to have such power and authority would not be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole.
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Section 3.4 Title to Tangible Assets; Sufficiency of Assets.
(a) Either Seller or the Asset Selling Entities, together, own, or in the case of leased assets, have valid leasehold interests in, all of the tangible personal property included in the Purchased Assets free and clear of all Encumbrances, other than Permitted Encumbrances.
(b) The deeds, endorsements, assignments and other instruments to be executed and delivered by Seller and the Asset Selling Entities to Buyer at the Closing will effectively vest in Buyer ownership of all of the Purchased Assets to be transferred to Buyer by Seller and the Asset Selling Entities pursuant to and as contemplated by this Agreement free and clear of all Encumbrances, other than Permitted Encumbrances.
(c) The Purchased Assets, the rights under the Ancillary Agreements and the assets of the Transferred Subsidiaries as of the Closing will include all assets necessary for Buyer to operate and conduct the Devices & Services Business immediately following the Closing in all material respects as currently conducted, except as set forth in Section 3.4(c) of the Seller Disclosure Letter; provided that the foregoing representation is not a representation of non-infringement of Third Party Intellectual Property rights and no representations are provided by Seller with respect to sufficiency of rights secured to Third Party Intellectual Property rights necessary for the purposes of conducting the Devices & Services Business following the Closing; provided, that nothing herein is intended to modify or limit the representations and warranties made in Section 3.17(c)(i).
(d) None of the HERE Entities or NSN are engaged in the Devices & Services Business, except for cloud hosting services provided by the HERE Entities and any ordinary course commercial arrangements such Persons may have with the Devices & Services Business (excluding solely for purposes of this Section 3.4(d), the last sentence of the definition thereof).
Section 3.5 Governmental Filings. No filing or registration with, notification to, or authorization, consent, expiration of waiting period or approval of any Governmental Authority (collectively, “Governmental Filings”) are required in connection with the execution, delivery and performance of this Agreement or the Ancillary Agreements by the Seller Entities or any of the Transferred Subsidiaries, except for (a) the Governmental Filings set forth in Section 3.5 of the Seller Disclosure Letter or Exhibit M, or (b) such other Governmental Filings the failure of which to be obtained or made would not (i) be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole or (ii) reasonably be expected to prevent the performance by Seller, the Equity Selling Entities and/or the Asset Selling Entities of their respective obligations under this Agreement or the consummation of the transactions contemplated hereby.
Section 3.6 Capital Structure. All of the issued and outstanding Equity Interests of the Transferred Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable (to the extent such concepts are recognized in the jurisdiction of organization of such Transferred Subsidiary), have been issued in compliance with applicable Law, and have not been issued in violation of any preemptive rights, rights of first offer, rights of first refusal or similar rights. Set forth in Section 3.6 of the Seller Disclosure Letter is the jurisdiction of incorporation or legal organization and the share capital, membership interests or other equity interests of each
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of the Transferred Subsidiaries and, except as set forth in Section 3.6 of the Seller Disclosure Letter, there are no other authorized, issued or outstanding shares of capital stock, membership interests or other equity interests of the Transferred Subsidiaries. Except as set forth in Section 3.6 of the Seller Disclosure Letter, the Transferred Subsidiaries have no other equity securities authorized, issued or outstanding, other than the Equity Interests, and there are no agreements, options, warrants, calls, rights or any other instruments or agreements relating to the sale, issuance, redemption or voting of any shares of capital stock, membership interests or other equity interests of the Transferred Subsidiaries, or any securities or other instruments convertible into, exchangeable for, evidencing the right to purchase, or otherwise requiring any Transferred Subsidiary to make a payment or otherwise provide value or benefits in respect of the value of, any shares of capital stock, membership interests or other equity interests in the Transferred Subsidiaries. Except as set forth in Section 3.6 of the Seller Disclosure Letter, there are no stock appreciation, phantom stock, profit participation or similar rights with respect to Equity Interests of the Transferred Subsidiaries. Except as set forth in Section 3.6 of the Seller Disclosure Letter, Seller and the Equity Selling Entities are the beneficial and legal owner of the Equity Interests of the Transferred Subsidiaries, in each case free and clear of all Encumbrances, and, at the Closing, except as set forth in Section 3.6 of the Seller Disclosure Letter, the Equity Interests purchased by Buyer shall constitute all of the issued and outstanding equity securities of the Transferred Subsidiaries. Upon the transfer and payment for the Equity Interests of the Transferred Subsidiaries as contemplated herein, each Equity Selling Entity will transfer to Buyer valid title to the Equity Interest of the Transferred Subsidiaries, free and clear of any Encumbrances. Except as disclosed in Section 3.6 of the Seller Disclosure Letter, as of the Closing, none of the Transferred Subsidiaries have any Indebtedness material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole. Except as set forth in Section 3.6 of the Seller Disclosure Letter, there are no stockholders’ agreements or voting trusts, proxies or other agreements or understandings to which any Equity Selling Entity is a party or by which Seller is bound with respect to the voting, transfer or other disposition of the Equity Interests of the Transferred Subsidiaries or otherwise related to any Equity Interest of any Transferred Subsidiary.
Section 3.7 Financial Statements.
(a) Seller has furnished with the Securities Exchange Commission (the “SEC”) audited consolidated financial statements for the fiscal years ended December 31, 2012 (the “2012 Financial Statements”) and December 31, 2011 and has furnished with the SEC unaudited consolidated financial statements for the six months ended June 30, 2013 (the “June 30 Financial Statements”), each of which include segment reporting for the Devices & Services business segment (together with the 2012 Financial Statements, the “SEC Financial Statements”). The June 30 Financial Statements do not include all of the information and notes required for complete financial statements. All adjustments, consisting of normal recurring items, necessary to state fairly the results of the interim periods have been included in the June 30 Financial Statements. Attached as Section 3.7 of the Seller Disclosure Letter are the unaudited pro forma carve-out balance sheet and statement of income for the Devices & Services Business as at June 30, 2013 after giving effect to the transactions contemplated by this Agreement (the “Pro Forma Financial Statements”). The SEC Financial Statements, solely as they relate to the Devices & Services business segment, present fairly in all material respects the financial position and results of operations of the Devices & Services business segment, and have been prepared in
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accordance with IFRS applied on a consistent basis (other than customary exclusions for the June 30 Financial Statements as described therein). The Pro Forma Financial Statements present fairly in all material respects the financial position and results of operations of the Transferred Subsidiaries, Purchased Assets and Assumed Liabilities, and have been prepared on a consistent basis with and in accordance with the Accounting Principles. The Devices & Services Business is not subject to any liabilities required by the Accounting Principles to be set forth on the Pro Forma Financial Statements, except for liabilities (i) disclosed in the Pro Forma Financial Statements or notes hereto, (ii) disclosed in the Seller Disclosure Letter, (iii) incurred in connection with or contemplated by this Agreement or the transactions contemplated hereby, (iv) incurred after the date of the Pro Forma Financial Statements in the ordinary course of business, or (v) that would not be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole.
(b) (i) Seller has established and maintains disclosure controls and procedures over financial reporting (as such terms are defined in paragraphs (e) and (f), respectively, of Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended, including the rules and regulations promulgated thereunder (the “Exchange Act”)) as required by Rule 13a-15 promulgated under the Exchange Act and (ii) the Seller’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the Seller’s periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the required time periods.
Section 3.8 No Conflict or Violation. Except as set forth in Section 3.8 of the Seller Disclosure Letter, and assuming all Governmental Filings described or listed in Section 3.5 of the Seller Disclosure Letter have been obtained or made (and any applicable waiting period has expired or terminated), the execution, delivery and performance by the Seller Entities of this Agreement and the Ancillary Agreements to which they are a party, and the consummation by the Seller Entities of the transactions contemplated hereby and thereby, do not (a) violate or result in a breach of any Law to which any of the Seller Entities or Transferred Subsidiaries or any of their respective properties, rights or assets is subject; (b) subject to Section 2.6, result in a violation or breach of, constitute a default (or create an event which, with notice or lapse of time or both, would constitute a default) under, result in the acceleration, termination or maturity of, create in any party the right to accelerate, terminate, modify, amend or cancel, require any consent of any Person pursuant to, or result in the loss of a benefit or increase in any fee, Liability, or other obligation under, any Material Contract; or (c) violate, conflict with or result in a breach of the certificate of incorporation, by-laws or other organizational documents of any Seller Entity or any Transferred Subsidiary; except with respect to the foregoing clauses (a) or (b) as would not (i) be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole or (ii) reasonably be expected to prevent the performance by Seller, the Equity Selling Entities and/or the Asset Selling Entities of their respective obligations under this Agreement or the consummation of the transactions contemplated hereby.
Section 3.9 Legal Proceedings. Except as set forth in Section 3.9 of the Seller Disclosure Letter, there are no Actions pending or, to the Knowledge of Seller, threatened in the last three (3) years against the Seller Entities or the Transferred Subsidiaries, which, if adversely determined, would (i) be material to the Devices & Services Business, the Transferred
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Subsidiaries and/or the Purchased Assets, taken as a whole or (ii) reasonably be expected to prevent the performance by Seller, the Equity Selling Entities and/or the Asset Selling Entities of their respective obligations under this Agreement or the consummation of the transactions contemplated hereby. Except as set forth in Section 3.9 of the Seller Disclosure Letter, the Seller Entities and the Transferred Subsidiaries are not subject to, and to the Knowledge of Seller there is not threatened, any judgment, decree, injunction or order of any Governmental Authority which (i) has been or would be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole or (ii) would reasonably be expected to prevent the performance by Seller, the Equity Selling Entities and/or the Asset Selling Entities of their respective obligations under this Agreement or the consummation of the transactions contemplated hereby.
Section 3.10 Real Property.
(a) Section 3.10(a) of the Seller Disclosure Letter sets forth a true and complete list of the street locations of all real property owned, directly or indirectly, by the Seller Entities or any of the Transferred Subsidiaries with book value in excess of €25,000,000 and that are primarily used in the Devices & Services Business (collectively, whether or not listed on Section 3.10(a) of the Seller Disclosure Letter, the “Owned Real Property”). The Seller Entities or one of the Transferred Subsidiaries has good and marketable title in fee simple (or equivalent title under the Law of the jurisdiction where the Owned Real Property is located) to each parcel of Owned Real Property, free and clear of all Encumbrances, except for Permitted Encumbrances. Seller has delivered or made available to Buyer true and complete copies of all vesting deeds, title reports or similar documents in its possession or control evidencing ownership by the Seller Entities or one of the Transferred Subsidiaries of such Owned Real Property.
(b) Section 3.10(b) of the Seller Disclosure Letter sets forth a true and complete list of (i) the street location of all real property and interests in real property leased, subleased, licensed or otherwise occupied by the Seller Entities or any of the Transferred Subsidiaries with aggregate remaining lease payment in excess of €25,000,000 for the remainder of the applicable term (without any extensions thereof) and that are primarily used in the Devices & Services Business (collectively, whether or not listed on Section 3.10(b) of the Seller Disclosure Letter, the “Leased Real Property”, with the leases relating to such Leased Real Property being collectively referred to herein as the “Real Property Leases”) leased to the Seller Entities or any of the Transferred Subsidiaries pursuant to a lease, sublease, license or other similar agreement under which the Seller Entities or any of the Transferred Subsidiaries is the lessee or sublessee and (ii) a list of all Real Property Leases. With respect to the Real Property Leases and except as would not otherwise be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole, (1) each Real Property Lease is in full force and effect, valid and binding, and enforceable against one of the Seller Entities or Transferred Subsidiaries, as applicable, in accordance with its terms; and (2) the Seller Entities’ and the Transferred Subsidiaries’ possession and quiet enjoyment of the Leased Real Property under such Real Property Lease has not been disturbed, and there are no material disputes with respect to such Real Property Lease and no material defaults or breaches exist under any Real Property Lease (or any occurrence or event that with the passage of notice or time or both would result in a material default or breach).
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(c) Except in the ordinary course of business or as permitted under Section 5.1 or as set forth in Section 3.10(c) of the Seller Disclosure Letter, neither the Seller Entities nor any of the Transferred Subsidiaries have assigned, subleased, transferred, conveyed, mortgaged, deeded in trust or otherwise encumbered any interest in the Owned Real Property or Leased Real Property.
(d) There are no pending or, to the Knowledge of Seller, threatened condemnation or similar proceedings against or otherwise relating to any of the Owned Real Property or Leased Real Property.
Section 3.11 Taxes.
(a) All income and other material Tax Returns required to be filed by the Transferred Subsidiaries or with respect to the Devices & Services Business or the Purchased Assets have been timely filed and all such Tax Returns were true, correct and complete in all material respects.
(b) All material Taxes, whether or not shown as due on such Tax Returns, due and payable by each of the Transferred Subsidiaries, with respect to the Devices & Services Business and with respect to the Purchased Assets have been timely paid when due.
(c) There are no audits, claims or assessments regarding material Taxes ongoing, pending or threatened in writing against any Transferred Subsidiary or with respect to the Devices & Services Business or the Purchased Assets other than as set forth on Section 3.11(c) of the Seller Disclosure Letter.
(d) There are no liens for Taxes against any Purchased Asset or the assets of any Transferred Subsidiary, other than Permitted Encumbrances.
(e) Each Transferred Subsidiary has withheld all material Taxes (such Taxes being material either individually or in the aggregate) required to have been withheld and, to the extent required, has remitted such Taxes on a timely basis to the appropriate Taxing Authority.
(f) Each Transferred Subsidiary has collected all material sales, use, value added, and similar Taxes (such Taxes being material either individually or in the aggregate) required to be collected and has remitted on a timely basis such Taxes to the appropriate Taxing Authority.
(g) No written notice of a claim or pending investigation has been received from any state, local or foreign jurisdiction with which any Transferred Subsidiary currently does not file Tax Returns, alleging that such Transferred Subsidiary has a duty to file Tax Returns and pay Taxes or is otherwise subject to the taxing authority of such jurisdiction.
(h) No Transferred Subsidiary is a party to, is bound by, or has any obligation under any Tax sharing or Tax indemnity agreement, similar contract, or arrangement, other than as set forth in Section 3.11(h) of the Seller Disclosure Letter.
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(i) Other than as set forth in Section 3.11(i) of the Seller Disclosure Letter, no Transferred Subsidiary is or has ever been a member of any “affiliated group” of corporations within the meaning of Code Section 1504 (or any similar affiliated, combined, consolidated, or unitary group or arrangement for group relief for state, local, or foreign Tax purposes). No Transferred Subsidiary has any liability for Taxes of any Person under Treasury Regulation Section 1.1502-6 (or any analogous provision of state, local or foreign law), as transferee or successor, by contract, or otherwise.
(j) None of the Transferred Subsidiaries other than a U.S. Subsidiary (as defined in Section 8.2(c)) (i) owns, directly or indirectly, any “United States real property interest” within the meaning of Section 897(c)(1) of the Code, (ii) has filed an election under Section 897(i) of the Code, or (iii) owns, directly or indirectly, any “United States Property” within the meaning of Section 956(c) of the Code.
Section 3.12 Absence of Certain Changes. Except as set forth in Section 3.12 of the Seller Disclosure Letter, since December 31, 2012, there has not occurred any Material Adverse Effect. Except as set forth in Section 3.12 of the Seller Disclosure Letter, from June 30, 2013 through the date of this Agreement, the Seller has conducted the Devices & Services Business in the ordinary course consistent with past practice in all material respects.
Section 3.13 Material Contracts.
(a) Section 3.13(a) of the Seller Disclosure Letter sets forth a complete list as of the date of this Agreement of each of the following Contracts to which Seller or any of its Affiliates (in respect of the Devices & Services Business) or Transferred Subsidiary is a party or by which any of them is bound (collectively, Contracts of such type whether or not listed on Section 3.13(a) of the Seller Disclosure Letter, the “Material Contracts”); provided, however, that a Contract referenced by more than one description need only be listed once on Section 3.13(a) of the Seller Disclosure Letter if the applicability of another subsection of Section 3.13(a) to such Contract is reasonably apparent on its face:
(i) any Contract evidencing Indebtedness in excess of €25,000,000, or under which any Transferred Subsidiary has issued any note, bond, indenture, mortgage, security interest or other evidence of Indebtedness, or has directly or indirectly guaranteed Indebtedness of any Person, excluding, in each case, any intercompany Indebtedness between two or more Transferred Subsidiaries;
(ii) any guarantees of the obligations of other Persons or agreements of indemnity, surety or similar contracts, whether direct or indirect, involving the potential expenditure by the Transferred Subsidiaries after the date of this Agreement of more than €3,000,000 in any instance;
(iii) any Contract involving payment by or to any Seller Entity or Transferred Subsidiary of at least €75,000,000 in the current calendar year and any Contract with any Material Customer;
(iv) any Contract for the purchase of products or services involving payment of at least €75,000,000 in the current calendar year that cannot be terminated within ninety (90) days after giving notice of termination without resulting in any material Liability, costs or penalty and any Contract with any Material Supplier;
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(v) any Contract that materially restricts (or purports to materially restrict) the ability of any Seller Entity (with respect to the Devices & Services Business) or any Transferred Subsidiary or any of their respective Affiliates from engaging in business in any geographic area, competing with any Person or soliciting customers or employees of any Person, in each case in a manner that is or would be adverse to the parties thereto or their Affiliates or any Contract involving payment by or to any Seller Entity or Transferred Subsidiary of at least €75,000,000 in the current calendar year that contains or grants any “most favored nations” or similar terms;
(vi) any material joint venture or partnership agreement, Contract for or relating to any material investment (whether through the acquisition of an equity interest, the making of a loan or advance or otherwise) in any other Person , or any material Contract relating to the joint development or joint ownership or joint licensing of Transferred IP;
(vii) any Real Property Lease;
(viii) any franchise, sale (other than purchase orders) or commission agreement or similar Contract, in each case under which any of the Seller Entities or Transferred Subsidiaries is obligated to pay an amount in excess of €25,000,000 during any calendar year in the aggregate;
(ix) any Intellectual Property License under which rights in or to Transferred IP are granted, other than (i) non-exclusive Software licenses entered into in the ordinary course of business, or (ii) with respect to Designs, Trademarks or Domain Names, any agreements described in subsection (vii) of the definition of “Permitted Encumbrances”;
(x) any Contract under which any of the Transferred Subsidiaries or Seller Entities in respect of the Devices & Services Business, has contingent liabilities or ongoing obligations (including for indemnification or “earn outs” or similar deferred purchase price obligations) after the date of this Agreement relating to the acquisition or sale of any business or assets (other than acquisitions of assets in the ordinary course of business);
(xi) any material Contract to which a Transferred Subsidiary and a Seller Entity or one of its Affiliates (other than a Transferred Subsidiary) and another Person is party and any material Contracts pursuant to which a Seller Entity or one of its Affiliates (other than a Transferred Subsidiary) and another Person is party (but not a Transferred Subsidiary) related to the Devices & Services Business (other than the Contracts);
(xii) any Transferred License; and
(xiii) any outstanding written commitment to enter into any Contract of the type described in subsections (i) through (xii) of this Section 3.13(a).
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(b) True, correct and materially complete copies of all Material Contracts listed in Section 3.13(a) of the Seller Disclosure Letter, including all material amendments, modifications, supplements, exhibits, schedules, addenda and restatements thereto and thereof, in each case to the extent in the possession of Seller and its Subsidiaries, have been made available to Buyer. Except as set forth in Section 3.13(b) of the Seller Disclosure Letter, (x) assuming each such Material Contract is binding and enforceable against the other parties thereto, each Material Contract constitutes a valid and binding obligation of the Seller Entity or Transferred Subsidiary party thereto and is enforceable against the Seller Entity or Transferred Subsidiary party thereto in accordance with its terms (except as may be limited by bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization, preference or similar Laws of general applicability relating to or affecting the rights of creditors generally and subject to general principles of equity (regardless of whether enforcement is sought in equity or at law)), and (y) no event has occurred that, with or without notice or lapse of time or both, would result in a breach of or default under any Material Contract by any Seller Entity or Transferred Subsidiary or, to the Knowledge of Seller, any other Person party thereto, except, in each case set forth in clauses (x) and (y), where such failure to be so valid, binding and enforceable, or such breach or default, would not be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole. Except as would not be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole: no Seller Entity or Transferred Subsidiary has received any written notice or claim of default under any Material Contract and no Seller Entity or Transferred Subsidiary has received any written notice of an intention to terminate or challenge the validity or enforceability of any such Material Contract from a counterparty thereto and, to the Knowledge of Seller, no such action is threatened.
(c) Seller hereby represents that the Transferred Subsidiaries and the Purchased Assets include all or substantially all of Nokia’s Subscriber Device Business.
Section 3.14 Labor. No material labor strike, work stoppage or lockout (i) against any Transferred Subsidiary or (ii) involving the Seller Entities or any Transferred Subsidiary on one hand, and any Business Employees on the other hand, in each case with respect to the Devices & Services Business is pending or, to the Knowledge of Seller, threatened as of the date of this Agreement, and the Devices & Services Business has experienced no such material strike, work stoppage or lockout in the preceding three years. To the Knowledge of Seller, as of the date of this Agreement Seller has not received notice of any union organizing being conducted with respect to the Devices & Services Business. Except as set forth in Section 3.14 of the Seller Disclosure Letter, the Seller Entities and the Transferred Subsidiaries are not subject to any pending or, to the Knowledge of Seller, threatened arbitration, lawsuit or administrative proceeding alleging breach of any express or implied contract of employment or any applicable Law governing hiring, employment, or the termination thereof, or alleging any other discriminatory, retaliatory, wrongful or tortious conduct in connection with the employment relationship, or arising out of compensation or benefits practices, or relating to the proper classification of employees as exempt or non-exempt from overtime pay requirements, the provision of meal or rest breaks and pay for all working time, and the proper classification of individuals as non-employee contractors or consultants, all with respect to the Devices & Services Business (the “Employment Claims”), which, if decided adversely to such Seller Entity or such Transferred Subsidiary, individually or in the aggregate of related Employment
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Claims, would be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole. Except as set forth in Section 3.14 of the Seller Disclosure Letter or to the extent that would not be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole, with respect to the Devices & Services Business, the Seller Entities and the Transferred Subsidiaries are in compliance with all applicable laws, agreements, contracts, policies, plans, and programs relating to employment, employment practices, compensation, benefits, hours, terms and conditions of employment, and the termination of employment, including any obligations pursuant to the Worker Adjustment and Retraining Notification Act of 1988 (and similar applicable Laws in other jurisdictions), the classification of employees as exempt or non-exempt from overtime pay requirements, the provision of meal and rest breaks and pay for all working time, and the proper classification of individuals as non-employee contractors or consultants. Except as set forth in Section 3.14 of the Seller Disclosure Letter, there are no labor unions, works councils or, to the Knowledge of Seller, other employee representative groups in place at the Seller Entities or the Transferred Subsidiaries with respect to the Devices & Services Business. Except as set forth in Section 3.14 of the Seller Disclosure Letter, to the Knowledge of Seller, the Seller Entities and the Transferred Subsidiaries are not a party to or bound by a collective bargaining or works council agreement with respect to the Devices & Services Business and as of the date of this Agreement there are no such agreements currently being negotiated or renegotiated.
Section 3.15 Compliance With Law; Permits.
(a) Except for Laws relating to internal controls, Taxes, employee benefits, Intellectual Property, labor, environmental, anti-bribery Laws and OFAC and product liability matters to the extent the following representations relate to compliance with Laws with respect to such matters: Section 3.7(b), Section 3.11, Section 3.14, Section 3.16, Section 3.17, Section 3.19, Section 3.22 and Section 3.23, respectively, and except as set forth in Section 3.15(a) of the Seller Disclosure Letter, the Seller Entities and the Transferred Subsidiaries are, and since June 30, 2011 have been, operating the Purchased Assets and the Devices & Services Business in compliance with all Laws applicable to them and their respective properties, rights and assets and with all posted or internal agreements or policies with respect to customer, user, private or personal data, except to the extent any non-compliance therewith would not be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole.
(b) Except as set forth in Section 3.15(b) of the Seller Disclosure Letter, (i) all approvals, permits, franchises, registrations, waivers, consents, licenses and other governmental authorizations (collectively, “Permits”) required to conduct the Devices & Services Business as currently conducted, and as conducted since the beginning of the most recently completed fiscal year, are in the possession of the applicable Seller Entity or Transferred Subsidiary, and are in full force and effect, and shall be transferable to Buyer, and the Devices & Services Business is being operated in compliance therewith, and (ii) there is no reasonable basis for revoking, adversely modifying, or not renewing any such Permits, or for any such Permits not being transferred to or under the control of Buyer as contemplated by this Agreement, other than exceptions to any of the foregoing that would not be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole. No Seller Entity or Transferred Subsidiary has received any written notification from any Governmental Authority threatening to revoke any Permit.
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Section 3.16 Employee Benefit Plans.
(a) Section 3.16(a) of the Seller Disclosure Letter sets forth a list of all material Employee Benefit Plans. With respect to each Employee Benefit Plan (i) each such Employee Benefit Plan has been established and administered in material compliance with its terms and applicable Law, (ii) there are no material underfunded liabilities not disclosed in the Financial Statements, (iii) each such Employee Benefit Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities, and (iv) to the Knowledge of Seller, any Employee Benefit Plan required to have been approved by any foreign Governmental Authority has been so approved, no such approval has been revoked (nor, to the Knowledge of Seller, has revocation been threatened) and no event has occurred since the date of the most recent approval or application therefor relating to any such Employee Benefit Plan that would reasonably be expected to materially affect any such approval relating thereto or materially increase the costs relating thereto, except as would not, in the case of (i), (ii), (iii) or (iv), be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole. With respect to each Employee Benefit Plan, no Action is pending or, to the Knowledge of Seller, threatened other than claims for benefits in the ordinary course. Each Employee Benefit Plan, which is intended to be qualified within the meaning of Section 401 of the Code, has received a favorable determination letter as to its qualification, and to the Knowledge of Seller nothing has occurred that could reasonably be expected to adversely affect such qualification.
(b) Except as contemplated by Section 5.2 or as set forth in Section 3.16(b) of the Seller Disclosure Letter, the consummation of the transactions alone contemplated by this Agreement shall not (i) entitle any Transferred Employee to severance, retention or change in control or any other payment or benefit, (ii) accelerate the time of payment or vesting, or increase the amount of compensation due any such employee or officer, or (iii) require any contributions or payments to fund any obligations under any Transferred Plan.
(c) With respect to each Transferred Plan, Seller or the Asset Selling Entities have used commercially reasonable best efforts to make available to Buyer or its Representatives a current copy of (or, where no document exists, a written description thereof) including all material existing or material proposed amendments thereto, and to the extent applicable and existing as of the date hereof, (i) any related trust agreement or other funding instrument, (ii) the most recent U.S. Internal Revenue Service favorable determination letter, (iii) any summary plan description and (iv) the most current actuarial report, (v) most recent Form 5500 and attached schedules, and (vi) any material filings made with a Governmental Authority within the last year.
(d) Except as set forth in Section 3.16(d) of the Seller Disclosure Letter, none of any Seller, the Asset Selling Entities, the Transferred Subsidiaries or any of their ERISA Affiliates (i) contributes or has ever contributed to, or had any obligation to contribute to, or withdrawn in a complete or partial withdrawal from, within the last six years, a multiemployer plan as defined in Section 4001(a)(3) or Section 3(37) of ERISA or (ii) has any fixed or
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contingent liability under Section 4204 of ERISA. None of Seller, the Asset Selling Entities, the Transferred Subsidiaries or any of their ERISA Affiliates has incurred any material liability, directly or indirectly, for breach of any provision of ERISA or has engaged in or is a successor or parent corporation to an entity that has engaged in a transaction described in Section 4069 of ERISA.
(e) Except as set forth in Section 3.16(e) of the Seller Disclosure Letter, or as specifically contemplated by this Agreement, as of the date of this Agreement, none of Seller or the Asset Selling Entities, the Transferred Subsidiaries or ERISA Affiliates has communicated to any Business Employee any intention or commitment to materially modify any Employee Benefit Plan or to establish or implement any other employee or retiree benefit or compensation plan or arrangement (other than as required by applicable Laws or any collective bargaining agreement).
(f) No Employee Benefit Plan provides for the payment to any Business Employee of any amount that would reasonably be expected to be an excess parachute payment pursuant to Section 280G of the Code. To the Knowledge of Seller, any “nonqualified deferred compensation plan”, within the meaning of Code Section 409A(d)(1), between Seller or any Asset Selling Entity and a “service provider” that, if employed, would be a Business Employee is in good faith compliance with Code Section 409A and published guidance thereunder.
Section 3.17 Intellectual Property.
(a) Section 3.17(a) of the Seller Disclosure Letter sets forth a list of the registrations and applications for registration included in the Transferred IP, other than registered Copyrights. The foregoing registrations and applications are subsisting and in compliance with all procedural requirements necessary to avoid expiration, and, except as otherwise noted in Section 3.17(a) of the Seller Disclosure Letter, no Action is pending challenging the validity, enforceability or Seller’s ownership of any Transferred IP, and to the Knowledge of Seller, there are no valid grounds for any such challenge, provided however that the foregoing shall not be construed as a representation as to the future granting of any registration for any filed application included in the Transferred IP.
(b) Except as set forth in Section 3.17(b) of the Seller Disclosure Letter, and subject to the Intellectual Property Licenses and Patent Licenses, either Seller or the Asset Selling Entities owns all right, title, and interest in and to all of the Transferred IP, free and clear of Encumbrances, other than Permitted Encumbrances.
(c) (i) The conduct of the Devices & Services Business, as conducted by the Seller as of the Closing Date, does not materially infringe, misappropriate or violate any rights in or to the Intellectual Property (other than Patents) of any Person. (ii) Except as set forth in Section 3.17(c)(ii) of the Seller Disclosure Letter, no material Action is pending, or to the Knowledge of Seller, threatened in writing, against the Seller Entities or the Transferred Subsidiaries alleging that the conduct of the Devices & Services Business infringes, misappropriates or violates the Patents of any Person. (iii) Except as set forth in Section 3.17(c)(iii) of the Seller Disclosure Letter, no Person is, to the Knowledge of Seller, materially infringing, misappropriating or violating any material Transferred IP.
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(d) Seller and each Seller Entity has taken commercially reasonable steps to protect and maintain (i) the confidentiality of the material Trade Secrets and material confidential information included in the Transferred IP (including by directly or indirectly ensuring either the execution of non-disclosure agreements or the requirement to obtain a confidentiality undertaking with all Third Parties who have accessed material confidential Transferred IP) and (ii) the security, operation and integrity of their material IT systems and Software included in the Purchased Assets, and, to the Knowledge of Seller, there have been no material breaches, interruptions or violations of same.
(e) All Persons who invented or created material Intellectual Property on behalf of Seller or its Subsidiaries that is included in the Transferred IP or Transferred IT Assets owned by Seller or its Subsidiaries have assigned such material Intellectual Property to Seller or a Seller Entity, to the extent such rights do not vest automatically in Seller by operation of law.
(f) Except as set forth in Section 3.17(f) of the Seller Disclosure Letter (i) no Third Party has, prior to the date hereof, accessed or possessed (or has a current or contingent right to access or possess) any material Software source code that is owned by the Transferred Subsidiaries or that is owned by Seller or its Affiliates and included in the Purchased Assets, and (ii) Seller and its Subsidiaries are not party to or bound by any Contract that will require Buyer or any of its Affiliates (other than the Transferred Subsidiaries) after the Closing Date to license, grant a covenant or otherwise give a Third Party rights in or to use any of Buyer and such Affiliates’ Intellectual Property (other than the Transferred IP). To the Knowledge of the Seller, the Software included in the Purchased Assets does not contain any viruses, malware or other disabling, corrupting or disrupting devices.
(g) Except as set forth in Section 3.17(h) of the Seller Disclosure Letter, the Seller Entities and the Transferred Subsidiaries are, and since June 30, 2011 have been, using the Purchased Assets and operating the Devices & Services Business in compliance with Laws applicable to customer, user, private or personally identifiable information, except to the extent any non-compliance therewith would not be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole.
Section 3.18 Brokers’ Fees. No broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with this Agreement or the Ancillary Agreements or the transactions contemplated hereby and thereby based upon arrangements made by or on behalf of Seller, other than J.P. Morgan Limited, which is acting as financial advisor to Seller in connection with the transactions contemplated by this Agreement, the fees of whom are payable solely by Seller.
Section 3.19 Environmental Matters. Except as would not be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole: (a) the Devices & Services Business, the Seller Entities with respect thereto, and the Transferred Subsidiaries are in compliance with all, and none of them nor, to the Knowledge of Seller, any of their predecessors has violated any, applicable Laws which violation remains outstanding governing pollution or the protection of the environment, or of human health and safety with respect to the use of Materials of Environmental Concern (as defined below) (“Environmental
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Laws”); (b) (i) all Permits required under any applicable Environmental Law to conduct the Devices & Services Business as currently conducted, and as conducted since the beginning of the most recently completed fiscal year, are in the possession of the applicable Seller Entity or Transferred Subsidiary and are in full force and effect, and the Devices & Services Business is being operated in compliance therewith, and (ii) there are no proceedings pending or, to the Knowledge of Seller, threatened, to revoke, adversely modify, or not renew any such Permits; (c) none of the Seller Entities with respect to the Devices & Services Business, nor any of the Transferred Subsidiaries (i) has received written notice from a Governmental Authority that remains outstanding alleging that such Seller Entity with respect thereto or Transferred Subsidiary is in violation of, or has any liability under, any Environmental Law, or (ii) is subject to any judicial or administrative decree, order, or other similar enforceable directive that remains outstanding under any Environmental Law or for any Materials of Environmental Concern; (d) there are no Actions pending against or, to the Knowledge of Seller, threatened against or adversely affecting, any of the Seller Entities with respect to the Devices & Services Business or any of the Transferred Subsidiaries, under any Environmental Laws or alleging liability for any Materials of Environmental Concern; and (e) Materials of Environmental Concern (i) have not been used, managed, stored, treated, handled, or disposed of by the Devices & Services Business, any Seller Entities with respect thereto, or any Transferred Subsidiaries or, to the knowledge of Seller, any of their predecessors, and (ii) to the Knowledge of Seller, have not been released, in either case of (i) or (ii) above, so as to subject the Devices & Services Business, any Seller Entities with respect thereto, or any Transferred Subsidiaries to any obligation to investigate or remediate such Materials of Environmental Concern that has not been resolved, or so as to adversely interfere with the operation of the Devices & Services Business. Seller has made available to Buyer copies of all material non-privileged reports and similar summaries of any assessments, audits, reviews or similar evaluations containing material information regarding compliance with or Liability under Environmental Laws or Liability for Materials of Environmental Concern (which compliance or Liability has not been resolved) affecting the Devices & Services Business, any Seller Entity with respect thereto, or any Transferred Subsidiary, to the extent such reports and summaries are in Seller’s possession or control. As used in the Agreement, “Materials of Environmental Concern” means any hazardous or toxic substances, wastes, petroleum or petroleum products, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutants, contaminants, radon or other radioactive material, toxic mold, and any other substances regulated by any Governmental Authority for the protection of the environment, or of human health and safety with respect to exposure to such substances.
Section 3.20 Customers and Suppliers.
(a) Section 3.20(a) of the Seller Disclosure Letter sets forth the names of the ten (10) largest suppliers (the “Material Suppliers”) of the Devices & Services Business measured by the value in Euros of purchases for the fiscal year ended December 31, 2012. Except as would not be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole, none of the suppliers listed on Section 3.20(a) of the Seller Disclosure Letter has notified Seller or any of its Affiliates in writing that (i) it is canceling or terminating or intends to cancel or terminate its relationship with Seller and its Affiliates or (ii) that it is reducing or planning to reduce its planned sales to Seller or its Affiliates.
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(b) Section 3.20(b) of the Seller Disclosure Letter sets forth the names of the twenty-five (25) largest customers (the “Material Customers”) of the Devices & Services Business measured by the value in Euros of sales for the fiscal year ended December 31, 2012. Except as would not be material to the Devices & Services Business, the Transferred Subsidiaries and/or the Purchased Assets, taken as a whole, none of the customers listed on Section 3.20(b) of the Seller Disclosure Letter has notified Seller or its Affiliates in writing that (i) it is canceling or terminating or intends to cancel or terminate its relationship with Seller or its Affiliates or (ii) that it is reducing or planning to reduce its planned purchases from Seller or its Affiliates.
Section 3.21 Shareholder Vote. The confirmation and approval of this Agreement by an Extraordinary General Meeting of the Seller by a majority of the votes given (the “Requisite Shareholder Approval”) is the only vote of holders of equity securities of the Seller that is required in connection with the consummation of any of the transactions contemplated hereby.
Section 3.22 Anti-Bribery/OFAC.
(a) To the Knowledge of Seller, since June 30, 2008, none of Seller or its Affiliates or any of their respective directors, officers, agents, employees, affiliates, or other persons that act for or on behalf of Seller or its Affiliates with respect to the Devices & Services Business (individually and collectively, “Company Representatives”) has taken any act that would violate the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010, or any other applicable anti-bribery law, nor is Seller aware of any other conduct by a Company Representative that would violate the anti-bribery provisions of the FCPA if it so applied, except as set forth in Section 3.22(a) of the Seller Disclosure Letter.
(b) To the Knowledge of Seller, with respect to the Devices & Services Business, the Seller has in place adequate procedures designed to prevent Company Representatives from bribing another person (within the meaning given in section 7(3) of the U.K. Bribery Act 2010) in the conduct of business for the Seller, or otherwise at any time engaging in any activity, practice, or conduct which would constitute an offense under the U.K. Bribery Act 2010.
(c) To the Knowledge of Seller, with respect to the Devices & Services Business, no Company Representative is or, since June 30, 2008, has been the subject of any investigation, inquiry, or enforcement proceedings by any governmental, administrative, or regulatory body regarding any offense or alleged offense under the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010, or any other anti-bribery law, and no such investigation, inquiry, or proceedings have been threatened or are pending.
(d) None of Seller nor, to the Knowledge of Seller, any of its Affiliates or any other Company Representatives has, since June 30, 2008, taken any action, directly or indirectly, with respect to the Devices & Services Business that would result in a violation of laws and regulations imposing U.S. or E.U. or U.K. economic sanctions measures, including but not limited to any sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”) and the Bureau of Industry Security of the U.S. Department of Commerce, and any sanctions measures under the International Emergency Economic Powers
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Act, the Trading with the Enemy Act, or the Iran Sanctions Act, all as amended, and any executive order, directive, or regulation pursuant to the authority of any of the foregoing, or any orders or licenses issued thereunder (collectively “Sanctions”). None of Seller nor, to the Knowledge of Seller, any of its Affiliates or any other Company Representatives is a Person that is the subject or target of Sanctions or designated as a Specially Designated National or Blocked Person by OFAC.
(e) To the Knowledge of Seller, the Devices & Services Business had (i) no sales to Cuba in 2012, and (ii) net sales to customers in Iran, Sudan and Syria that were less than Seller’s total net sales to those countries, which were approximately 0.9% or EUR 262 million in 2012; approximately 1.4%, or EUR 545 million, in 2011; and approximately 1.3% or EUR 542 million, in 2010. As of Closing there will be no assets of the Devices & Services Business located in Cuba, Iran, Syria and Sudan.
(f) To the Knowledge of Seller, since June 30, 2011, the Devices & Services Business has been and is in material compliance with all applicable export controls, regulations, and laws. Since June 30, 2011, none of Seller or any of its Affiliates has received any written notice from any Governmental Authority of material noncompliance with any such applicable export controls, regulations, or laws with respect to the Devices & Services Business.
Section 3.23 Product Liability. Except as set forth in Section 3.23 of the Seller Disclosure Letter, no Seller Entity or Transferred Subsidiary has received any written notice of any Product Liability Claim or any Product Recall with respect to any product distributed or sold by the Devices & Services Business alleging damages of, or having reasonably expected costs to the Seller Entities or the Transferred Subsidiaries of more than €25,000,000.
Section 3.24 Internal Restructuring. As of the Closing Date, the Internal Restructuring will be complete in all material respects, except as otherwise consented to by Buyer.
Section 3.25 Disclaimer of Warranties. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, SELLER IS NOT MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY OR REPRESENTATION AS TO THE VALUE, CONDITION, MERCHANTABILITY OR SUITABILITY AS TO ANY OF THE TRANSFERRED SUBSIDIARIES OR ANY OF THE PURCHASED ASSETS OR ASSUMED LIABILITIES), BEYOND THOSE MADE BY SELLER IN THIS AGREEMENT OR ANY CERTIFICATE DELIVERED PURSUANT TO SECTION 6.1(a)(iii) OF THIS AGREEMENT AND, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, IT IS UNDERSTOOD THAT BUYER TAKES THE EQUITY INTERESTS, PURCHASED ASSETS AND ASSUMED LIABILITIES AND THE DEVICES & SERVICES BUSINESS REPRESENTED THEREBY AS IS AND WHERE IS WITH ALL FAULTS AS OF THE CLOSING DATE AND WITH ANY AND ALL DEFECTS. IT IS UNDERSTOOD THAT ANY ESTIMATES, FORECASTS, PROJECTIONS OR OTHER PREDICTIONS AND ANY OTHER INFORMATION OR MATERIALS THAT HAVE BEEN OR SHALL HEREAFTER BE PROVIDED OR MADE AVAILABLE TO BUYER OR ANY OF ITS AFFILIATES OR ITS OR THEIR RESPECTIVE REPRESENTATIVES (INCLUDING IN ANY DUE DILIGENCE REPORT FROM ANY THIRD PARTY, OR ANY PRESENTATION BY SELLER OR ITS AFFILIATES, OR THE
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MANAGEMENT OF SELLER OR ITS AFFILIATES OR OTHERWISE) ARE NOT, AND SHALL NOT BE DEEMED TO BE, REPRESENTATIONS AND WARRANTIES OF SELLER OR ANY OF ITS AFFILIATES OR ANY OF THEIR RESPECTIVE REPRESENTATIVES EXCEPT TO THE EXTENT PROVIDED IN THIS AGREEMENT OR ANY CERTIFICATE DELIVERED PURSUANT TO SECTION 6.1(a)(iii) OF THIS AGREEMENT.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
Section 4.1 Due Organization and Good Standing of Buyer. Buyer is duly incorporated, validly existing under the Laws of the jurisdiction in which it is incorporated or organized. Each other Buyer Entity is a corporation or a limited liability company duly organized, validly existing and, where applicable, in good standing under the Laws of the jurisdiction of its organization. Each of the Buyer Entities is qualified or otherwise authorized to do business and is in good standing (where applicable) under the Laws of every other jurisdiction in which such qualification or authorization is necessary under applicable Law, except where the failure to be so qualified or otherwise authorized would not reasonably be expected to prevent or materially delay the performance by Buyer of its obligations under this Agreement or consummation of the transactions contemplated hereby. Each of the Buyer Entities has all requisite corporate, limited liability company or similar power and authority to own, lease and operate its respective properties and to carry on its respective business as now conducted, except where the failure to have such power and authority would not reasonably be expected to prevent or materially delay the performance by Buyer of its obligations under this Agreement or consummation of the transactions contemplated hereby.
Section 4.2 Authorization of Transaction by Buyer. Buyer has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the Ancillary Agreements and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by Buyer of this Agreement and the Ancillary Agreements and the consummation by Buyer of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action on the part of Buyer, and no other corporate proceedings on the part of Buyer are necessary to authorize the execution, delivery and performance by Buyer of this Agreement and the Ancillary Agreements or to consummate the transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by Buyer and, assuming due authorization, execution and delivery by Seller, constitutes, and each Ancillary Agreement, when executed and delivered by Buyer or the applicable Buyer Entity (assuming due authorization and delivery by the other parties thereto) shall constitute, a valid and binding obligation of Buyer or the applicable Buyer Entity, enforceable against Buyer or the applicable Buyer Entity in accordance with its terms, except as may be limited by bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization, preference or similar Laws of general applicability relating to or affecting the rights of creditors generally and subject to general principles of equity (regardless of whether enforcement is sought in equity or at law).
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Section 4.3 Governmental Filings. No Governmental Filings are required in connection with the execution, delivery and performance of this Agreement by Buyer, except (a) the Governmental Filings set forth on Section 3.5 of the Seller Disclosure Letter or Exhibit M or (b) such other Governmental Filings the failure of which to be obtained or made would not, and would not reasonably be expected to, prevent or materially delay the performance by Buyer of its obligations under this Agreement or the consummation of the transactions contemplated hereby.
Section 4.4 No Conflict or Violation. Assuming all Governmental Filings listed in Section 3.5 of the Seller Disclosure Letter have been obtained or made (and any applicable waiting period has expired or terminated), the execution, delivery and performance by the Buyer Entities of this Agreement and the Ancillary Agreements to which they are a party, and the consummation by the Buyer Entities of the transactions contemplated hereby and thereby do not (a) violate or result in a breach of any Law to which any of the Buyer Entities or any of their respective properties, rights or assets is subject; (b) result in a violation or breach of, constitute a default (or create an event which, with notice or lapse of time or both, would constitute a default) under, result in the acceleration, termination or maturity of, create in any party the right to accelerate, terminate, modify, amend or cancel, require any consent of any Person pursuant to, or result in the loss of a benefit or increase in any fee, Liability, or other obligation under, any material contract to which any Buyer Entity is a party or (c) violate, conflict with or result in a breach of the certificate of incorporation, by-laws or other organizational documents of any Buyer Entity, except with respect to the foregoing clauses (b) and (c) as would not, and would not reasonably be expected to, prevent or materially delay the performance by the Buyer Entities of their obligations under this Agreement and the Ancillary Agreements to which they are a party, or the consummation by the Buyer Entities of the transactions contemplated hereby.
Section 4.5 Legal Proceedings. As of the date of this Agreement, there are no Actions pending or, to the Knowledge of Buyer, threatened which would, if adversely determined, prevent or materially delay the performance by Buyer of its obligations under this Agreement or the Ancillary Agreements or the consummation of the transactions contemplated hereby or thereby. Buyer is not subject to any judgment, decree, injunction or order of any Governmental Authority which would materially impair or delay Buyer’s ability to consummate the transactions contemplated hereby on a timely basis.
Section 4.6 Funding. Buyer will have at the Closing, sufficient funds to enable Buyer to consummate the transactions contemplated by this Agreement and the Ancillary Agreements, including payment of the Purchase Price and fees and expenses relating to the transactions contemplated by this Agreement and the Ancillary Agreements and to satisfy its obligations hereunder and thereunder. Buyer acknowledges and agrees that its obligations hereunder are not subject to any conditions regarding Buyer’s or any other Person’s ability to obtain financing for the consummation of the transactions contemplated by this Agreement.
Section 4.7 Brokers’ Fees. No broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with this Agreement or the Ancillary Agreement or the transactions contemplated hereby or thereby based upon arrangements made by or on behalf of Buyer or any of its Affiliates for which Seller could be liable.
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Section 4.8 No Buyer Stockholder Vote Required. No vote or other action of the stockholders of Buyer or its Affiliates (other than any approval that will be obtained as of the date hereof) is required pursuant to any requirement of Law, the organizational documents of Buyer or its Affiliates or otherwise in order for Buyer or its applicable Affiliates to consummate the transactions contemplated by this Agreement and the Ancillary Agreements.
Section 4.9 No Reliance. Buyer acknowledges that it has conducted to its satisfaction an independent investigation of the financial condition, liabilities and results of operations of Seller and its Subsidiaries with respect to the Devices & Services Business and the nature and condition of its and their properties and assets and, in making the determination to proceed with the transactions contemplated by this Agreement and the Ancillary Agreements, has relied solely on the results of its own independent investigation and the representations and warranties set forth in this Agreement and any certificate delivered pursuant to Section 6.2(a)(iii) of this Agreement. Buyer acknowledges that none of the Seller Entities, the Transferred Subsidiaries or any other Person, has made any representation or warranty, express or implied, as to the accuracy or completeness of any information regarding the Seller Entities, the Transferred Subsidiaries, the Purchased Assets or Assumed Liabilities, the Devices & Services Business or other matters except as expressly provided in this Agreement and any certificate delivered pursuant to Section 6.2(a)(iii) of this Agreement. Without limiting the generality of the foregoing, Buyer hereby acknowledges and agrees that (x) none of the Seller Entities, the Transferred Subsidiaries, or any other Person, has made a representation or warranty to Buyer with respect to (i) any forecasts, predictions, projections or estimates for the Devices & Services Business or business plan information of the Devices & Services Business, the Seller Entities or any Transferred Subsidiary, or (ii) any materials, documents or information relating to the Devices & Services Business, the Seller Entities, any Transferred Subsidiary, or the transactions contemplated hereby, whether written or oral, made available to Buyer or its Representatives in any data room, confidential descriptive memorandum, presentation by any Seller Entity or Transferred Subsidiary or the management of the Devices & Services Business, due diligence report, discussion or otherwise, except as covered by a representation or warranty set forth in this Agreement and any certificate delivered pursuant to Section 6.2(a)(iii) of this Agreement.
ARTICLE V
COVENANTS
Section 5.1 Conduct of Seller’s Business.
(a) Seller agrees that, during the period from the date of this Agreement until the earlier of the Closing or the termination of this Agreement in accordance with its terms, except as (i) required by applicable Law, (ii) set forth in Section 5.1(a) of the Seller Disclosure Letter, (iii) expressly contemplated by this Agreement (including in connection with the Internal Restructuring) or (iv) consented to by Buyer in writing (which consent shall not be unreasonably withheld, delayed or conditioned), Seller shall, and shall cause its Subsidiaries to, conduct the Devices & Services Business in the ordinary course of business consistent with past practice and Seller shall, and shall cause its Subsidiaries to, use commercially reasonable efforts, consistent with past practices, to preserve substantially intact the Devices & Services Business, to keep the Purchased Assets in good repair in the manner currently kept, to maintain the Devices &
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Services Business’ Permits, to preserve the good relations of the suppliers, customers and other with whom the Devices & Services Business has business relations, and to keep available in all material respects the services of the present officers, employees contractors and agents of the Devices & Services Business as presently conducted.
(b) Without limiting the generality of the foregoing, Seller agrees that, during the period from the date of this Agreement until the earlier of the Closing or the termination of this Agreement in accordance with its terms, except as (i) required by applicable Law, (ii) set forth in Section 5.1(b) of the Seller Disclosure Letter, (iii) expressly contemplated by this Agreement (including in connection with the Internal Restructuring) or (iv) consented to by Buyer in writing (which consent shall not be unreasonably withheld, delayed or conditioned), Seller shall not, and shall not permit any Seller Entity or Transferred Subsidiary to:
(i) authorize or effect any amendment to or change to the organizational documents of any Transferred Subsidiary;
(ii) create any new Subsidiary with regard to the Devices & Services Business;
(iii) (A) change the authorized or issued equity interests or issue or authorize the issuance of, deliver, grant, award, encumber or sell any securities of any Transferred Subsidiary, any securities that are convertible into or exchangeable for equity interests of any Transferred Subsidiary or any direct or indirect rights in respect of the equity interests of any Transferred Subsidiary, including options, warrants, appreciation, phantom stock, profit participation or similar rights or (B) reclassify, combine, split, subdivide, redeem or purchase or otherwise acquire, directly or indirectly, any of the outstanding equity interests of any Transferred Subsidiary or (C) otherwise dispose of any of such equity securities;
(iv) declare, authorize, make or pay any dividend or other distribution (payable in stock, property or otherwise) with respect to the equity interests of a Transferred Subsidiary, except for lawful cash dividends and distributions, and except for any lawful dividends or distributions solely of any Excluded Assets;
(v) with regard to any Transferred Subsidiary, issue any note, bond, or other debt security, or create, incur, assume or guarantee any Indebtedness or any material capitalized lease obligation other than intercompany debt that will be extinguished as of the Closing;
(vi) enter into any material Contract with any Affiliate of Seller, or materially amend or modify or terminate any existing Contract with any Affiliate of Seller, other than the entry into, amendments or modifications of, or terminations of Contracts in the ordinary course of business and on arm’s-length terms, provided, however, Seller may terminate any existing Contracts between the Seller or its Affiliates, and any Transferred Subsidiary to the extent required pursuant to this Agreement;
(vii) (x) encumber, sell, assign, lease, license (or grant a covenant not to sue or similar rights under), sublicense transfer, allow to lapse or expire, pledge, abandon,
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discontinue, fail to maintain or otherwise dispose of any property, rights or assets, excluding Intellectual Property (including by merger, consolidation, acquisition of stock or assets), owned by a Transferred Subsidiary or constituting Purchased Assets, other than distributions solely of cash or Excluded Assets to Seller or any of its Affiliates or sales, dispositions or transfers of inventory or obsolete or worn-out equipment in the ordinary course of business consistent with past practice, or otherwise (y) permit, allow or suffer any property, rights or assets (excluding Intellectual Property) to be subjected to any Encumbrance (other than Permitted Encumbrances);
(viii) (A) encumber, sell, assign, license (or grant a covenant not to sue or similar rights under), sublicense, transfer, allow to lapse or expire, pledge, abandon, discontinue, fail to maintain or otherwise dispose of any Transferred IP (including by merger, consolidation, acquisition of stock or assets), other than non-exclusive licenses in the ordinary course of business consistent with past practice or (B) allow any Third Party to access or possess (on a current or contingent basis) any material Software source code that is owned by the Transferred Subsidiaries or owned by Seller or its other Affiliates and included in the Purchased Assets, except in each case, in the ordinary course of business consistent with past practice and subject to reasonable and customary confidentiality agreements;
(ix) sell, assign or exclusively license any Intellectual Property, other than Patents, in the Excluded Assets, including the Licensed Marks (as defined in the Trademark License Agreement), the Licensed Code and the HERE Navigation Apps (each as defined in the Software License Agreement), except for any sale, assignment or exclusive license in which the buyer, assignee or exclusive licensee expressly assumes all of Seller and its Affiliates’ obligations under the applicable Ancillary Agreements and, if applicable, Section 5.20;
(x) except in the ordinary course of business consistent with past practice, enter into, modify, amend, or terminate (or fail to extend or renew) any Material Contract (or any Contract that would have been a Material Contract if in effect on the date hereof) or cancel, compromise or settle any material claim, or intentionally waive or release any material right with respect to any Material Contract or the Devices & Services Business;
(xi) except in the ordinary course of business or to the extent required (a) pursuant to any applicable Employee Benefit Plan, (b) under any applicable collective bargaining agreement, in each case, as it exists on the date hereof or (c) under applicable Law, (i) enter into any negotiation in respect of any collective bargaining agreement covering Business Employees or, with respect to any Business Employee adopt, enter into, amend or terminate any Employee Benefit Plan or employment, severance, retirement, employee benefit, termination, profit-sharing, bonus, deferred compensation, savings, insurance, pension, or other agreement or plan, or employment policy that is maintained, sponsored or contributed to by Seller or any of its Affiliates for the benefit of any Business Employee or (ii) grant any increase in the wages, salary, bonus or other compensation, remuneration or benefits of any Business Employee or make any change in the compensation, severance or termination benefits payable or to become payable to any Business Employee;
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(xii) make any material change in the key management structure of the Devices & Services Business, including the hiring of senior managerial personnel, at or above the level of vice-president (“Senior Managerial Personnel”), the termination of any Senior Managerial Personnel other than for cause or transfer of Senior Managerial Personnel in or out of the Devices & Services Business such that a Business Employee ceases to be a Business Employee (or, other than in the ordinary course of business, a non-Business Employee becomes a Business Employee);
(xiii) grant any new Seller Stock Options, U.S. Seller Stock Options, Seller RSUs or Seller PSUs;
(xiv) fail to maintain any Transferred Plan in accordance with applicable Laws;
(xv) solely with respect to the Devices & Services Business, acquire or agree to acquire, by merger, consolidation stock or asset purchase, or otherwise, any business or corporation, partnership, limited liability company, association or other business organization or division thereof or all or substantially all of the assets thereof, other than purchases of inventory in the ordinary course of business consistent with past practice;
(xvi) make, incur or authorize any individual capital expenditures or commitment for capital expenditures that would exceed the Seller’s total capital expenditure budget for the Devices & Services Business set forth on Exhibit N from the date of the Agreement to the Closing Date;
(xvii) make any changes to its accounting principles, procedures, methods or practices, other than as may be required by IFRS or any other applicable accounting principles or regulations;
(xviii) make, change or revoke any Tax election or method of Tax accounting with respect to any Transferred Subsidiary, enter into any written agreement with a Governmental Authority with respect to Taxes of any Transferred Subsidiary or any of the Purchased Assets, settle any material claim or assessment or surrender any right to claim a refund for material Taxes or consent to any extension or waiver of the limitations period applicable to any claim or assessment for material Taxes, in each case with respect to any Transferred Subsidiary;
(xix) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization;
(xx) fail to keep current and in full force and effect in all material respects, apply for or renew any material Permits necessary for the operation of the Devices & Services Business as presently conducted;
(xxi) compromise or settle any material Action affecting the Devices & Services Business or any Purchased Assets or the Transferred Subsidiaries;
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(xxii) initiate any Action against any customer, supplier or vendor of the Devices & Services Business with claims in excess of €25,000,000 or which seeks an injunction or other non-monetary remedy, except in connection with the Seller Retained Businesses;
(xxiii) solely with respect to the Devices & Services Business, make or agree to make any loans, or advances or investments in any Person, or agree to guarantee any loans or advances to, or investments in, any Person, other than extensions of credit to customers in the ordinary course of business consistent with past practices;
(xxiv) accelerate or alter in any material respect practices and policies relating to the rate of collection of accounts receivable or payment of accounts payable, or fail to pay or satisfy any Liabilities or obligations when due and payable, except for such Liabilities and obligations being contested in good faith by any Transferred Subsidiary;
(xxv) except in the ordinary course of business consistent with past practice or as required by applicable Law, enter into or materially amend or terminate any collective bargaining agreement or other agreement with any representative of any of the employees of the Devices & Services Business; or
(xxvi) authorize, commit or agree to take any of the actions prohibited by the foregoing clauses (i) through (xxv).
Other than the right to consent or withhold consent with respect to the foregoing matters (which consent shall not be unreasonably withheld, delayed or conditioned), nothing contained in this Agreement shall give to Buyer, directly or indirectly, any right to control or direct the operation of the Devices & Services Business prior to the Closing. Subject to the foregoing sentence and consistent with the terms of this Agreement, prior to the Closing, Seller and its Subsidiaries shall control the operation of the Devices & Services Business.
Section 5.2 Employment Matters.
(a) No later than thirty (30) days prior to the Closing Date or no later than five (5) days following any applicable hire date that occurs after such thirtieth (30th) day, Buyer or one of its Affiliates shall provide, or shall cause an Affiliate to provide, an offer of employment to each Scheduled Business Employee, Asset Selling Entity Business Employee, and Offeree to the extent that the employment of such Scheduled Business Employee, Asset Selling Entity Business Employee or Offeree would not transfer to Buyer (or an Affiliate of Buyer, including after the Closing, a Transferred Subsidiary) under the TUPE Regulations or would not otherwise automatically transfer to Buyer (or an Affiliate of Buyer, including after the Closing, a Transferred Subsidiary), which offer of employment shall be consistent with the terms of Section 5.2(c). Notwithstanding the foregoing, the parties acknowledge that the purchase and sale of the Devices & Services Business would constitute a “transfer of an undertaking” under the Finnish Employment Contracts Act and similar laws in other jurisdictions in which the TUPE Regulations are applicable. Consequently, Business Employees who would be required under the TUPE Regulations to transfer to Buyer or any Affiliate thereof, shall automatically transfer to Buyer (or an Affiliate) at the Closing in accordance with applicable Law, without the need for a separate offer. Each (i) Scheduled Business Employee, Asset Selling Entity Business Employee,
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Offeree, in each case, who has accepted an offer of employment from Buyer or an Affiliate of Buyer and commences employment with Buyer or an Affiliate of Buyer at the Closing, and (ii) Transferred Subsidiary Business Employee shall become a “Transferred Employee”.
(b) Seller shall use, and shall cause each of its applicable Affiliates to use, its or their reasonable best efforts to comply with respect to all requirements of applicable Law regarding advance notice, consultation with works councils, labor unions and similar employee representative organizations, as well as any applicable collective bargaining agreements or similar such agreements pertaining to the Business Employees.
(c) Subject to Buyer and its applicable Affiliates’ obligations pursuant (i) to applicable Law (including but not limited to the TUPE Regulations) or (ii) or any collective bargaining agreement or other agreement with a works council or other employee representative group, for the twelve (12) month period following the Closing (the “Continuation Period”), Buyer shall provide each Transferred Employee who remains employed by Buyer or any of its Affiliates with compensation and employee benefits that are no less favorable in the aggregate than the compensation and employee benefits being provided by Seller and its Affiliates to such Transferred Employee as of the Closing Date (excluding for such purposes payments made pursuant to any retention arrangement or other payment made upon and in connection with the transactions contemplated by this Agreement). Notwithstanding the foregoing, nothing contemplated by this Agreement shall be construed as requiring Buyer or its Affiliates to (i) be obligated to continue the employment of any Transferred Employee for any period of time after the Closing or (ii) maintain any specific employee benefit plan, arrangement or program, except as may be required by applicable Law.
(d) Buyer shall, or shall cause an Affiliate to, provide to each Transferred Employee who remains employed by Buyer or any Affiliate full credit for such Transferred Employee’s service with any of the Seller Entities or Transferred Subsidiaries, or any of their respective Affiliates prior to the Closing for all purposes, including for purposes of eligibility, vesting, benefit accruals and determination of the level of benefits (including, for purposes of vacation, severance and retirement benefits, but excluding for purposes of long-term service awards and sabbatical program), under any benefit plan in which such Transferred Employee participates on or following the Closing to the same extent recognized by any of the Seller Entities or Transferred Subsidiaries or any of their respective Affiliates immediately prior to the Closing; provided, however, that such service shall not be recognized to the extent that such recognition would result in a duplication of benefits or additional accruals under any defined benefit plan. Buyer shall, or shall cause an Affiliate to: waive any limitation on health and welfare coverage of such Transferred Employees due to pre-existing conditions, waiting periods, active employment requirements, and requirements to show evidence of good health under any applicable health and welfare plan of Buyer or any Affiliate to the extent such Transferred Employees were covered under a similar benefit plan of the Seller Entities, Transferred Subsidiaries or any of their respective Affiliates and (ii) use commercially reasonable efforts to credit each such Transferred Employee with all deductible payments, co-payments and co-insurance paid by such employee under any benefit plan of any Seller Entity or Transferred Subsidiary, or any of their respective Affiliates, prior to the Closing during the year in which the Closing occurs for the purpose of determining the extent to which any such employee has satisfied any applicable deductible and whether such employee has reached the
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out-of-pocket maximum under any benefit plan of Buyer or any Affiliate for such year, provided that Seller shall have provided to Buyer or an Affiliate of Buyer information in a timely manner sufficient for Buyer to determine the amounts of such payments and, provided further, that in lieu of such credit Buyer shall be permitted to provide to such Transferred Employees payments or benefits having an equivalent value to such payments. Buyer shall recognize and credit, and cause its Affiliates to recognize and credit, the vacation days and paid time off accrued by such Transferred Employees prior to the Closing.
(e) During the Continuation Period, Buyer and its Affiliates shall provide each Transferred Employee who is involuntarily terminated by Buyer without “cause” during the Continuation Period with severance and termination benefits, to the extent applicable, in an amount equal to the severance and termination benefits that would be due under the comparable applicable severance and termination benefit plans, programs, policies, agreements or arrangements of Seller and its Affiliates in effect on the date hereof (“Seller Severance Arrangements”) had such Transferred Employee’s involuntary termination occurred on the date hereof (contingent upon delivery of a legally binding general release if permitted by applicable Law); provided that if a Transferred Employee is entitled to, and is provided, upon his involuntary termination a severance and termination benefit pursuant to applicable Law or Contract (including a collective bargaining agreement) other than a Seller Severance Arrangement, then the amount of severance and termination benefits provided to such Transferred Employee based on the Seller Severance Arrangements shall be reduced by the amount of severance and termination benefits received by the Transferred Employee under such Contract or applicable Law. Without limiting the foregoing, in the event that Buyer or any Affiliate, without a Transferred Employee’s prior consent, (i) reduces the wage rate or base salary of any Transferred Employee as in effect for such Transferred Employee immediately prior to the Closing or (ii) relocates a Transferred Employee’s principal place of employment to a facility or location that is more than fifty (50) kilometers (or such shorter distance as may be required pursuant to applicable Law) from the Transferred Employee’s principal place of employment as of immediately prior to the Closing (either clause (i) or (ii), “Good Reason”), in either case during the Continuation Period, such Transferred Employee shall be entitled (for a period not to exceed thirty (30) days following the event giving rise to Good Reason) to terminate his or her employment and receive severance consistent with the terms of the previous sentence. For purposes of this Section 5.2(e), “cause” shall mean a good faith determination by the Buyer that any of the following has occurred: (i) willful and gross misconduct or gross neglect of employee’s material duties (ii) commission by employee of a misdemeanor with moral turpitude or a felony under the law of the jurisdiction in which such employee works; (iii) commission by employee of fraud, theft or dishonesty in connection with the Buyer or its Affiliates; or (iv) material breach by employee of the Buyer’s written policies or any agreement with the Buyer that results in injury to the Buyer or its Affiliates.
(f) Buyer shall, or shall cause an Affiliate to, reasonably cooperate with Seller in any notification or consultation obligation with any labor union, works council or other employee representative group.
(g) Replacement of Seller Stock Options, Seller RSUs, and Seller PSUs; U.S. Seller Stock Options.
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(i) Replacement of Seller Stock Options. Except as set forth in (ii) below, at the Closing, each unvested Seller Stock Option held by Transferred Employees that has an exercise price per share that is less than the last reported trading price of Seller Shares on the NASDAQ OMX Helsinki on the trading date immediately preceding the Closing Date (the “Seller Share Reference Price”) and is outstanding immediately prior to the Closing, shall be canceled at Closing and replaced by Parent following the Closing with an award of a number of restricted stock units denominated in the common stock of Parent (“Parent RSU”), par value $0.00000625 per share (the “Parent Common Stock”) having substantially similar vesting terms and conditions as the Seller Stock Option (each, a “Replacement Special RSU”), except that upon vesting, each such Replacement Special RSU will entitle the holder to that number of whole shares of the Parent Common Stock equal to the number of Seller Shares subject to the unvested Seller Stock Option immediately prior to the Closing multiplied by the quotient of (A) the excess of Seller Share Reference Price over the exercise price per Seller Share under the canceled unvested Seller Stock Option, divided by (B) the last reported trading price of Parent Common Stock on the NASDAQ on the trading date immediately preceding the Closing Date (the “Parent Share Reference Price”), and rounding such product down to the nearest whole number of shares of Parent Common Stock. “Equity Award Exchange Ratio” shall mean the Seller Share Reference Price divided by the Parent Share Reference Price (after converting both prices into a common currency using an agreed upon foreign exchange formula). As soon as reasonably practicable, Parent will issue to each Transferred Employee who holds a Replacement Special RSU a document evidencing the foregoing replacement of such Seller Stock Options by Parent with Parent RSUs.
(ii) U.S. Seller Stock Options. At the Closing, each unvested Seller Stock Option held by a Transferred Employee who is a U.S. taxpayer that has an exercise price per share that is less than the Seller Share Reference Price and is outstanding immediately prior to the Closing (a “U.S. Seller Stock Option”), shall be canceled at Closing in exchange for a cash payment in U.S. Dollars by Buyer or one of its Affiliates (including, after Closing, a Transferred Subsidiary) on the Closing equal to (i) the aggregate number of unvested Seller Shares subject to the U.S. Seller Stock Option as of immediately prior to the Closing, multiplied (ii) by the excess of (A) Seller Share Reference Price, over (B) the per share exercise price applicable such U.S. Seller Stock Option immediately prior to the Closing.
(iii) Replacement of Seller RSUs. At the Closing, each unvested Seller RSU held by Transferred Employees that is outstanding immediately prior to the Closing shall be canceled at Closing and replaced by Parent after the Closing with an award of restricted stock units denominated in Parent Common Stock having substantially similar vesting terms and conditions as the corresponding Seller RSUs (each, a “Replacement RSU”), except that upon vesting, each such Replacement RSU will entitle the holder to that number of whole shares of the Parent Common Stock equal to the product of (X) the number of shares of Seller Shares that were issuable with regard to such Seller RSU immediately prior to the Closing, multiplied by (Y) the Equity Award Exchange Ratio, and rounding such product down to the nearest whole number of shares of Parent Common Stock. As soon as reasonably practicable following Closing, Parent will issue to each Transferred Employee who holds a Replacement RSU a document evidencing the foregoing replacement of such Seller RSUs with Parent RSUs.
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(iv) Replacement of Seller PSUs. At the Closing, each unvested Seller PSU held by Transferred Employees that is outstanding immediately prior to the Closing shall be canceled at Closing and replaced by Parent after the Closing with an award of restricted stock units denominated in Parent Common Stock having substantially similar time vesting terms and conditions (but no performance vesting conditions) as the corresponding Seller PSUs (each, a “Replacement PSU”), except that upon vesting, each such Replacement PSU will entitle the holder to that number of whole shares of the Parent Common Stock equal to the product of (X) 50% of the number of shares of Seller Shares that were issuable with regard to such Seller PSU immediately prior to the Closing, multiplied by (Y) the Equity Award Exchange Ratio, and rounding such product down to the nearest whole number of shares of Parent Common Stock. As soon as reasonably practicable following Closing, Parent will issue to each Transferred Employee who holds a Replacement PSU a document evidencing the foregoing replacement of such Seller PSUs with Replacement PSUs.
(v) Buyer shall prepare and file with the Securities and Exchange Commission a registration statement on Form S-8 with respect to the shares of Parent Common Stock issuable upon exercise of the Replacement Special RSUs, Replacement RSUs and Replacement PSUs promptly following the Closing, and Buyer shall exercise its commercially reasonable efforts to maintain the effectiveness of such registration statement for so long as such Replacement Special RSUs, Replacement RSUs and Replacement PSUs remain outstanding.
(vi) For the avoidance of doubt, Buyer and its Affiliates (including, after Closing, the Transferred Subsidiaries) shall have no obligation in respect of Seller Stock Options that are vested as of the Closing Date and, furthermore, no obligation in respect of any employee’s equity-based awards unless the employee is a Transferred Employee, in which case the foregoing provisions shall govern.
(h) The provisions of this Section 5.2 are solely for the benefit of the parties to this Agreement, and no Business Employee, Transferred Employee or any other employee of Seller, Buyer or any of their respective Affiliates (including any beneficiary or dependent thereof) shall be regarded for any purpose as a third-party beneficiary of this Agreement, and no provision of this Section 5.2 shall create such rights in any such persons. Subject to any requirement of applicable Law, nothing herein shall (i) guarantee employment for any period of time or preclude the ability of Buyer or its Affiliates to terminate the employment of any Transferred Employee at any time and for any reason, (ii) require Buyer or any of its Affiliates to continue any Transferred Plans, or other employee benefit plans or arrangements or prevent the amendment, modification or termination thereof after the Closing, or (iii) amend any Transferred Plan or other employee benefit plans or arrangements.
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Section 5.3 Publicity.
(a) Buyer and Seller agree to cooperate with each other prior to any public disclosure of or regarding the transactions contemplated by this Agreement or the Ancillary Agreements. Buyer and Seller agree that the initial press release announcing the execution and delivery of this Agreement and the transactions contemplated by this Agreement shall be a joint release. Buyer and Seller agree that no public release or announcement concerning the terms or status of the transactions contemplated hereby or thereby shall be issued by any party without the prior consent of Buyer and Seller (not to be unreasonably withheld, conditioned or delayed), as applicable, except as such release or announcement may be required by Law or the rules and regulations of any stock exchange upon which the securities of Seller or Buyer, or Buyer’s direct or indirect parent entity, are listed, or the requirements of any self-regulatory body, in which case the party required to make the release or announcement shall, to the extent practicable, allow the other parties reasonable time to comment on such release or announcement in advance of such issuance.
(b) At Buyer’s request, for 180 days after the Closing Date, Seller and its Affiliates shall display on their websites and in social media, in the locations previously addressing the Devices & Services Business, a mutually-agreed statement about the transactions contemplated hereby and a link to all websites and other social media venues designated by Buyer prior to the Closing.
Section 5.4 Confidentiality.
(a) Buyer and its Representatives shall treat all nonpublic information obtained in connection with this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby as confidential in accordance with the terms of the letter agreement as to confidentiality and other matters, dated as of April 20, 2013, by and between Seller and Buyer (the “Confidentiality Agreement”). In the event of a conflict or inconsistency between the terms of this Agreement and the Confidentiality Agreement, the terms of this Agreement will govern. For the avoidance of doubt, prior to the Closing, and also in the event this Agreement terminates prior to the Closing, the Confidentiality Agreement shall continue in full force and effect in accordance with its terms. The parties agree that Section 9 of that certain letter agreement between Seller and Microsoft Corporation dated July 24, 2013 shall be of no further force and effect, and nothing in the Confidentiality Agreement, including any use or disclosure restrictions or other similar limitations set forth therein, shall limit, restrict or prohibit Microsoft Corporation or its Subsidiaries, in any respect, from taking any of the actions described in such Section 9.
(b) From and after the Closing, Buyer shall not, and shall cause its Affiliates and its and its Affiliates’ Representatives not to, disclose to any other Person any Seller Confidential Information; provided, that Buyer or its Affiliates may disclose Seller Confidential Information (i) to the extent required by Law, in any report, statement, testimony or other submission to any Governmental Authority having jurisdiction over Buyer or its Affiliates, as applicable, (ii) as may be reasonably necessary in connection with any Tax Returns, accounting records or financial reporting obligations or any audit or (iii) in order to comply with any Law or the rules and regulations of any stock exchange applicable to Buyer its Affiliates, as applicable, or in response to any summons, subpoena or other legal process or formal or informal investigative demand issued to Buyer or its Affiliates, as applicable, in the course of any
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litigation, investigation or administrative proceeding; provided, further, that, if Buyer or any of its Affiliates is legally obligated by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar judicial or administrative process to disclose any Seller Confidential Information, Buyer shall provide Seller with prompt prior written notice of such requirement and, to the extent reasonably practicable, cooperate with Seller and Seller’s Affiliates (at Seller’s sole cost and expense) to obtain a protective order or similar remedy to cause Seller Confidential Information not to be disclosed. If such protective order or other similar remedy is not obtained, Buyer or its applicable Affiliates shall furnish only that portion of Seller Confidential Information that, based on the advice of counsel, Buyer or its Affiliates is legally obligated to disclose, and shall exercise its commercially reasonable efforts (at Seller’s sole cost and expense) to obtain assurance that confidential treatment will be accorded such disclosed Seller Confidential Information. Buyer hereby agrees, and shall cause its Affiliates and its and its Affiliates’ Representatives, to protect the Seller Confidential Information by using the same degree of care, but no less than a reasonable degree of care, to prevent the unauthorized disclosure of Seller Confidential Information as Buyer uses to protect its own confidential information of a like nature.
(c) From and after the Closing, Seller shall not, and shall cause its Affiliates and its Affiliates’ Representatives not to, disclose to any other Person any Business Confidential Information; provided, that Seller or its Affiliates may disclose Business Confidential Information (i) to the extent required by Law, in any report, statement, testimony or other submission to any Governmental Authority having jurisdiction over Seller or its Affiliates, as applicable, (ii) as may be reasonably necessary in connection with any Tax Returns, accounting records or financial reporting obligations or any audit or (iii) in order to comply with any Law applicable to Seller or its Affiliates, as applicable, or in response to any summons, subpoena or other legal process or formal or informal investigative demand issued to Seller or its Affiliates, as applicable, in the course of any litigation, investigation or administrative proceeding; provided, further, that, if Seller or any of its Affiliates becomes legally compelled by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar judicial or administrative process to disclose any Business Confidential Information, Seller shall provide Buyer with prompt prior written notice of such requirement and, to the extent reasonably practicable, cooperate with Buyer and Buyer’s Affiliates (subject to payment of Seller’s reasonable and documented out-of-pocket costs and expenses) to obtain a protective order or similar remedy to cause Business Confidential Information not to be disclosed, including interposing all available objections thereto, such as objections based on settlement privilege. If such protective order or other similar remedy is not obtained, Seller or its applicable Affiliates shall furnish only that portion of Business Confidential Information that has been legally compelled, and shall exercise its reasonable best efforts to obtain assurance that confidential treatment will be accorded such disclosed Business Confidential Information. Seller hereby agrees, and shall cause its Affiliates and its and its Affiliates’ Representatives, to protect the Business Confidential Information by using the same degree of care, but no less than a reasonable degree of care, to prevent the unauthorized disclosure of Business Confidential Information as Seller uses to protect its own confidential information of a like nature.
(d) “Seller Confidential Information” means all non-public information disclosed prior to the Closing by Seller or its Affiliates or their respective Representatives (including information disclosed in the course of negotiation of this Agreement
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or the Ancillary Agreements) to Buyer or any of its Affiliates or their respective Representatives regarding Seller or its Affiliates (other than the Transferred Subsidiaries); provided, that “Seller Confidential Information” shall not include Business Confidential Information or information which (i) becomes available to the public through no fault or negligence of Buyer or its Affiliates, (ii) was already known to Buyer or its Affiliates (other than by previous disclosure by Seller, its Affiliates or any Representatives of Seller or its Affiliates) as of the date hereof and, to the Knowledge of Buyer, not subject to any duty of confidentiality to Seller or any of its Affiliates, (iii) is independently developed by Buyer or its Affiliates without reference to any Seller Confidential Information or (iv) is made available or known to Buyer or its Affiliates by a Person not connected with Seller or its Affiliates, as applicable, or their respective Representatives and, to the Knowledge of Buyer, without an obligation of confidence to such party, directly or indirectly. “Business Confidential Information” means all non-public information of Buyer and its Affiliates embodied in the Purchased Assets, Assumed Liabilities or Transferred Subsidiaries; provided, that “Business Confidential Information” shall not include information which (1) becomes available to the public through no fault or negligence of Seller or its Affiliates, (2) is independently developed by Seller or its Affiliates after the Closing Date without reference to any Business Confidential Information or (3) after the Closing is made available or known to Seller or its Affiliates by a Person not connected with Buyer or its Affiliates, as applicable, or their respective Representatives and, to the Knowledge of Seller, without an obligation of confidence to such party, directly or indirectly.
(e) For clarity, the Parties agree that (i) any permitted assignment or sublicense under an Ancillary Agreement or Section 5.20 or (ii) disclosure made in accordance with Section 5.20(a) or (b) will not violate this Section 5.4.
Section 5.5 Access to Information. Subject to Section 5.4 hereof and applicable Law, prior to the earlier of Closing or termination of this Agreement pursuant to Article VII, upon reasonable prior notice, Seller shall cause its officers, managers, directors, employees, auditors and other agents or representatives to afford the officers, managers, directors, employees, auditors and other agents or representatives (collectively, “Representatives”) of Buyer reasonable access during normal business hours to the books and records, officers, directors, employees, agents, properties, offices and other facilities of the Seller Entities and the Transferred Subsidiaries with respect to the Devices & Services Business, and shall furnish Buyer with such financial, operating and other data and information with respect to the Devices & Services Business, as Buyer, through its Representatives, may reasonably request. In exercising its rights hereunder, Buyer shall conduct itself so as not to unreasonably interfere in or disrupt the conduct of the business of the Seller Entities or any of the Transferred Subsidiaries prior to Closing. Buyer acknowledges and agrees that any contact by Buyer and its agents and Representatives with officers, employees or agents of Seller or any Affiliate hereunder shall be arranged and supervised by designated Representatives of Seller, unless Seller otherwise expressly consents with respect to any specific contact. Notwithstanding anything to the contrary set forth in this Agreement, neither Seller nor any of its Affiliates (including the Transferred Subsidiaries) shall be required to disclose to Buyer or any agent or Representative thereof any information if doing so (A) would violate any Law to which Seller or any of its Affiliates (including any Transferred Subsidiary) is subject, (B) it believes in good faith could result in a loss of the ability to successfully assert a claim of privilege (including the attorney-client and work product privileges) or (C) would result in the public disclosure of any competitively
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sensitive information of Seller or of any of its Affiliates unrelated to the Devices & Services Business; provided, that the parties will make appropriate substitute arrangements under circumstances in which the foregoing limitations apply. For the avoidance of doubt, no investigation or receipt of information pursuant to this Section 5.5 (or otherwise) shall affect or be deemed to modify any representation, warranty or covenant of Seller herein or any Person’s right to indemnification, or any other remedy, hereunder with respect to any breaches thereof. Seller shall, promptly upon availability and in any event within fifteen (15) days of the end of each month, make available to Buyer the monthly internal financial reports and any other management financial reports customarily prepared for management of the Devices & Services Business and a report that sets forth the calculation of Aggregate Cash Earnings as of the end of such month.
Section 5.6 Post-Closing Access.
(a) Each of Seller and Buyer shall, and Seller shall cause its Affiliates (other than the Transferred Subsidiaries) to, and Buyer shall cause its Affiliates to, preserve and keep all books and records and all information relating to the accounting, legal, Tax, regulatory, business and financial affairs that are retained by Seller or any Affiliates or are obtained by Buyer or any Affiliates, as the case may be, which information relates to the Devices & Services Business, for not less than six (6) years after the Closing Date, or for any longer period as may be (i) required by Law (including any statute of limitations and applicable extensions thereof) or any Governmental Authority or (ii) reasonably necessary with respect to the prosecution or defense of any audit or Action that is then pending or threatened and with respect to which the requesting party has notified the other parties as to the need to retain such books, records or information. Each of Seller and Buyer shall provide the other with written notice sixty (60) Business Days prior to transferring, destroying, or discarding the last copy of any records, books, work papers, reports, correspondence and other similar materials and the other parties shall have the right, at its expense, to copy or take any such materials, provided, however, that such other party provides written notice stating its intent to copy or take such materials no later than thirty (30) Business Days after having received notice that such materials are to be transferred, destroyed, or discarded.
(b) Following the Closing, for so long as such information is retained by Buyer in accordance with Section 5.6(a), Buyer and its Affiliates shall provide Seller and its Affiliates and its and their authorized Representatives copies at Seller’s sole expense during normal business hours, upon reasonable prior notice to Buyer, to the information described in Section 5.6(a) to the extent that such copies may be reasonably required in connection with (i) the preparation of any Tax Return, accounting records or with any audits or similar proceedings, (ii) any Action relating to the Purchased Assets, Assumed Liabilities or any of the Transferred Subsidiaries or the Devices & Services Business, (iii) any Governmental Filing, (iv) the prosecution or defense of any audit or Action that is then pending or threatened, (v) compliance with this Agreement or (vi) compliance with applicable Law.
(c) Following the Closing, for so long as such information is retained by Seller or its Affiliates in accordance with Section 5.6(a), Seller shall provide Buyer and its authorized Representatives copies at Buyer’s sole expense during normal business hours, upon reasonable prior notice to Seller, to the information described in Section 5.6(a) to the extent that
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such copies may be reasonably required in connection with (i) the preparation of any Tax Return, accounting records or with any audits or similar proceedings,(ii) any Action relating to the Purchased Assets, Assumed Liabilities, the Transferred Subsidiaries or the Devices & Services Business, (iii) any Governmental Filing, (iv) the prosecution or defense of any audit or Action that is then pending or threatened (v) compliance with this Agreement or (v) compliance with applicable Law.
Section 5.7 Appropriate Actions.
(a) Upon the terms and subject to the conditions set forth in this Agreement, each of the parties hereto shall (and shall cause their applicable Affiliates to) use its respective reasonable best efforts promptly to (i) take, or to cause to be taken, all actions, and to do, or to cause to be done, and to assist and cooperate with the other party in doing all things necessary, proper or advisable under applicable Law to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements in the most expeditious manner practicable; (ii) obtain from any Governmental Authorities any actions, non-actions, clearances, waivers, consents, approvals, permits or orders required to be obtained by Seller, Buyer or any of their respective Affiliates in connection with the authorization, execution, delivery and performance of this Agreement, the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby; (iii) make all Governmental Filings (in each case, promptly after the date of this Agreement) which are necessary or advisable, and thereafter promptly make any other required submissions and responses, with respect to the transactions contemplated hereby and thereby, required under (A) Competition Law (such Governmental Filings shall be made as soon as required, practicable or otherwise as agreed to by the parties) and (B) any other applicable Law; (iv) furnish all information reasonably required for any Governmental Filings to be made pursuant to any applicable Law in connection with the transactions contemplated by this Agreement; (v) act in good faith and reasonably cooperate with the other party in connection with any Governmental Filings (including, to provide copies of all such Governmental Filings to outside counsel for the non-filing party and, if requested by the other party, to accept all reasonable additions, deletions or changes suggested by the other party); (vi) keep the other party informed in all material respects of any material communication received by such party from, or given by such party to, any Governmental Authority, in each case, relating to Governmental Filings made in connection with the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements; (vii) provide the other party, to the extent practicable, with prior notice of any communication with, and any proposed understanding, undertaking or agreement with, any Governmental Authority regarding any such Governmental Filings; (viii) consult and cooperate with each other party in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any party in connection with proceedings relating to or arising out of such Governmental Filings; and (ix) not participate independently in any meeting, or engage in any substantive conversation, with any Governmental Authority in respect of any such Governmental Filings or any investigations or other inquiries relating thereto without giving the other party prior notice of the meeting or conversation and, unless prohibited by such Governmental Authority, the opportunity to attend or participate. Neither party to this Agreement shall consent to any voluntary delay of the consummation of the transactions contemplated hereby at the request of any Governmental Authority without the consent of the other party to this Agreement (not to be unreasonably withheld, conditioned or delayed).
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(b) The parties agree to use reasonable best efforts to avoid or eliminate each and every impediment under Competition Law that may be asserted by any Governmental Authority with respect to the transactions contemplated by this Agreement and the Ancillary Agreements so as to enable the consummation of the transactions contemplated hereby and thereby to occur as soon as reasonably possible (and in any event, no later than the Outside Date), including if necessary committing to any consent decree, hold separate order, divestiture or restriction on the operation of business; provided, that notwithstanding anything to the contrary in this Agreement:
(i) in no event will Buyer be required to proffer or agree to any consent decree, hold separate order, sale, divestiture, lease, license, transfer, disposal, Encumbrance or operating restriction with respect to the businesses, product lines, assets, permits, operations, rights, or interest therein of Buyer or any of its Affiliates;
(ii) in no event will Seller be required to proffer or agree to any consent decree, hold separate order, sale, divestiture, lease, license, transfer, disposal, Encumbrance or operating restriction with respect to the businesses, product lines, assets, permits, operations, rights, or interest therein of Seller or its Affiliates (as constituted post-Closing); and
(iii) in no event will Buyer be required to proffer or agree to any consent decree, hold separate order, sale, divestiture, lease, license, transfer, disposal, Encumbrance or operating restriction with respect to the businesses, product lines, assets, permits, operations, rights or interests therein of the Devices & Services Business if such action would have a Material Adverse Effect on the Devices & Services Business (as constituted post-Closing).
Section 5.8 Ancillary Agreements.
(a) Trademark License Agreement. On or before Closing, Buyer and Seller shall, enter into the Trademark License Agreement, effective as of the Closing, in a form attached hereto as Exhibit P (the “Trademark License Agreement”).
(b) Software License Agreement. On or before Closing, Buyer and Seller shall, enter into the Software License Agreement, effective as of the Closing, in a form attached hereto as Exhibit J (the “Software License Agreement”).
(c) Transition Services Agreement. At Closing the parties shall enter into the Transition Services Agreement in the form attached hereto as Exhibit K. The applicable service recipient will pay the applicable service provider for transition services at cost (such cost to include actual costs of both the primary contract party and actual costs paid by the primary contract party to any third parties utilized by the primary party in the provision of the transition services).
(d) Camera and Imaging Assets Agreement. On or before Closing, Buyer and Seller shall enter into the Camera and Imaging Assets Agreement.
(e) Mutual Termination Amendment. On or before Closing, Seller, Microsoft Corporation and Microsoft Ireland Operations Limited shall enter into the Mutual Termination Amendment, substantially in the form attached hereto as Exhibit Q.
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Section 5.9 Seller Guaranties.
(a) With respect to each Seller Guaranty (as defined below), Buyer shall use its reasonable best efforts to arrange for the release or replacement, effective as of the Closing, of Seller and its Affiliates from their respective obligations under each such Seller Guaranty, and Seller shall cooperate with such efforts. “Seller Guaranty” means any guaranty or surety bond set forth on Section 5.9(a) of the Seller Disclosure Letter (or issued after the date hereof in the ordinary course of business) issued by Seller or any of its Affiliates (other than the Transferred Subsidiaries) on behalf of any Transferred Subsidiary, including any keep well, net worth maintenance agreement, letter of credit, reimbursement obligation or letter of comfort imposing any obligations on Seller or its Affiliates (other than the Transferred Subsidiaries), it being the intention of the parties that neither Seller nor any of its Affiliates shall from and after the Closing have any obligation whatsoever arising from or in connection with the Seller Guaranties. In the event that any such Seller Guaranty remains outstanding as of the Closing Date, Buyer shall indemnify Seller and its applicable Affiliates and hold them harmless against any Losses that Seller or any of its applicable Affiliates may incur under any such Seller Guaranties from and after the Closing.
(b) To the extent Buyer is unable to terminate or replace a Seller Guaranty or obtain the beneficiary’s consent to the substitution thereof prior to the Closing, Buyer shall have a continuing obligation after the Closing Date to use its reasonable best efforts to have any such Seller Guaranty terminated or replaced. To the extent that Seller or any of its Affiliates has performance obligations under any such Seller Guaranty during such period (other than as a result of any action or inaction by Seller or any of its Affiliates), Buyer and its Affiliates shall use their respective reasonable best efforts to perform such obligations on behalf of such party or otherwise take such action as reasonably requested by Seller so as to put such party in the same position as if Buyer (or its Affiliates), and not such party, had performed or were performing such obligations. Neither Seller nor any of its Affiliates shall have any obligation to extend the term, or otherwise agree to any amendment or waiver, of any Seller Guaranty that remains outstanding after the Closing.
Section 5.10 Termination of Intercompany Agreements. Except as otherwise contemplated by this Agreement or the Ancillary Agreements, Seller shall, and shall cause its Affiliates to, effective upon the Closing, execute and deliver such releases, termination agreements and discharges as are necessary to terminate, eliminate and release, as applicable (by way of capital contribution, cash settlement or otherwise), each of the arrangements, commitments, receivables, payables, claims, demands, rights, loans and Contracts between any Transferred Subsidiary, on the one hand, and Seller or any of its Affiliates (other than a Transferred Subsidiary), on the other hand, other than those that are set forth in Section 5.10 of the Seller Disclosure Letter and other than payables and receivables for goods and services bought and sold in the ordinary course of business (collectively, “Terminating Intercompany Agreements”). Seller shall and shall cause its Affiliates (other than the Transferred Subsidiaries), on the one hand, to and Buyer shall cause its Affiliates (including the Transferred
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Subsidiaries), on the other hand, to, fully and finally waive and release, effective as of the Closing Date, any claims, causes of action, losses, liabilities or other rights arising under any Terminating Intercompany Agreement (including such claims, causes of action, losses, liabilities or other rights that may arise as a result of the termination of such Terminating Intercompany Agreement), other than as set forth in Section 5.10 of the Seller Disclosure Letter. Nothing in this Section 5.10 shall require Seller to, and Seller shall not without Buyer’s consent, terminate or cancel any intercompany obligations exclusively between or among any of the Transferred Subsidiaries. If a Terminating Intercompany Agreement is not paid and satisfied on or prior to the Closing Date, as promptly as practicable following the Closing (or as promptly as practicable as such outstanding Terminating Intercompany Agreement is identified) the parties will return each party to the same economic position such party would have been in had such Terminating Intercompany Agreement been paid and satisfied on or prior to the Closing Date.
Section 5.11 Insurance. Buyer acknowledges that all insurance coverage for the Devices & Services Business under policies of Seller and its Affiliates (other than policies of any Transferred Subsidiary) shall except as provided in this Section 5.11 terminate as of the Closing and except as provided in this Section 5.11, following the Closing, no claims may be brought by a Transferred Subsidiary against any such policy. Notwithstanding the foregoing or any other provision of this Agreement or any Ancillary Agreement, to the extent that any Transferred Subsidiary or any of their respective officers, directors, employees or agents (each an “Insured Party”) has any insurable claim based on any fact, action, failure to act or circumstance existing or occurring on or prior to Closing Date under any insurance policy or program of Seller or any of its Affiliates in effect as of the Closing (whether self-insurance or captive insurance, or insurance provided by third parties) such Insured Party’s rights to coverage under such policy or program will continue with respect to such claims (subject to the terms and conditions of such policies or programs, including the requirement that any such claim under any “claims made” policy or program shall have been made on or prior to the Closing Date) without the assessment of any charges or charge-back fees to such Insured Party or any requirement that such Insured Party make any payment with respect thereto or reimburse Seller or any of its Affiliates or insurers with respect thereto (including, for the avoidance of doubt, any obligation to reimburse Seller or any of its Affiliates with respect to any self-insurance programs, self-insured retention amounts or similar amounts). In furtherance of the foregoing, if, between the date hereof and the Closing Date, there shall occur any physical damage to or destruction of, or theft or similar loss of, any of the tangible assets of Seller or any of its Subsidiaries (solely with respect to the Devices & Services Business), the Transferred Subsidiaries (solely with respect to the Devices & Services Business) or any tangible Purchased Asset in excess of €5,000,000 (a “Casualty Loss”), then (i) Seller shall promptly give notice to Buyer thereof and of Seller’s good faith estimate of the amount of casualty insurance, if any, payable in respect thereof and (ii) Seller shall use its commercially reasonable efforts to replace or repair (as applicable) the asset or property related to such Casualty Loss. Seller shall use all reasonable best efforts to collect amounts due (if any) under insurance policies or programs in respect of any Casualty Loss.
Section 5.12 Non-Solicitation; No Hire.
(a) For a period of one (1) year following the Closing Date, without the prior written consent of Seller, neither Buyer nor any of its Affiliates shall, directly or indirectly, employ or solicit any employee of the Seller or any of its Subsidiaries to terminate his or her
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employment with the Seller or any of its Subsidiaries, or to seek or accept employment with Buyer or any of its Affiliates, provided that the restriction in the immediately preceding clause shall not apply to solicitation or hiring of any employee who (i) initially and entirely independently contacted Buyer or any of its Affiliates (X) on his or her own initiative, without any solicitation or encouragement (directly or indirectly) by Buyer or any of its Affiliates, or (Y) in response to a general solicitation through advertisement, recruitment firm or similar means that were not targeted specifically at such employee, the Seller or any of its Subsidiaries; or (ii) was terminated by the Seller or an Affiliate, or terminated their employment with the Seller or an Affiliate with “good reason” or at least six (6) months prior to such solicitation or hiring.
(b) For a period of one (1) year following the Closing Date, without the prior written consent of Buyer, neither Seller nor any of its Affiliates shall, directly or indirectly, employ or solicit any employee of Buyer or any of Parent’s Subsidiaries, including the Transferred Employee to terminate his or her employment with the Buyer or any of Parent’s Subsidiaries, or to seek or accept employment with Seller or any of its Affiliates, provided that the restriction in the immediately preceding clause shall not apply to solicitation or hiring of any employee who (i) initially and entirely independently contacted Seller or any of its Affiliates (X) on his or her own initiative, without any solicitation or encouragement (directly or indirectly) by Seller or any of its Affiliates, or (Y) in response to a general solicitation through advertisement, recruiting firm or similar means that were not targeted specifically at such employee, the Buyer or any of Parent’s Subsidiaries; or (ii) was terminated by the Buyer or an Affiliate, or terminated their employment with the Buyer or an Affiliate with “good reason” or at least six (6) months prior to such solicitation or hiring.
Section 5.13 Seller Extraordinary General Meeting. Seller will use all reasonable best efforts, in accordance with applicable Law and its organizational documents and the customary proxy process, to convene a meeting of its shareholders (the “Extraordinary General Meeting”) on or prior to November 19, 2013, and in any event such Extraordinary General Meeting shall be no later than November 30, 2013, to consider and vote upon the confirmation and approval of the transactions contemplated by this Agreement. Notwithstanding anything to the contrary contained in this Agreement, Seller and its board of directors may not, without Buyer’s prior written consent, adjourn or postpone, or make a proposal to adjourn or postpone, the Extraordinary General Meeting. Subject to Section 5.14(c), (i) the initial press release announcing the execution of this Agreement and the transactions contemplated by this Agreement and (ii) any materials furnished or mailed to Seller’s shareholders with respect to the Extraordinary General Meeting, will include a statement to the effect that Seller’s board of directors has committed to the transactions contemplated by this Agreement and that Seller’s board of directors recommends that Seller’s shareholders vote to confirm and approve the transactions contemplated by this Agreement at the Extraordinary General Meeting (the “Seller Recommendation”). Prior to filing or mailing any procedures or materials with respect to the Extraordinary General Meeting or responding to any communications with NASDAQ OMX Helsinki Ltd. and the Finnish Financial Supervisory Authority with respect thereto, Seller shall provide Buyer a reasonable opportunity to review and to propose comments on such document or response and Seller shall consider in good faith any such reasonably proposed comments. Subject to the provisions of this Agreement, Seller will use reasonable best efforts to solicit from Seller’s shareholders proxies and/or votes in favor of the confirmation and approval of this Agreement and the confirmation and approval of the transactions contemplated hereby. Seller shall permit Buyer or its Representatives to participate, to the extent reasonably practicable, at the Extraordinary General Meeting.
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Section 5.14 Competing Proposals.
(a) Except as otherwise provided in this Agreement, from the date of this Agreement until the Closing or, if earlier, the termination of this Agreement in accordance with its terms, Seller shall not, and Seller shall cause its Representatives not to, directly or indirectly, (i) solicit, discuss, knowingly encourage or facilitate, negotiate or accept any proposals, offers or inquiries from, or enter into any agreement, including any non-disclosure agreement, with, any Person other than Buyer (or its Affiliates) relating to or in connection with, or that could reasonably be expected to lead to, any Competing Proposal or (ii) have any discussions or negotiations with or provide any confidential information or data to any Person relating to a Competing Proposal, or engage in any negotiations concerning a Competing Proposal, or otherwise cooperate with or assist or participate in, or facilitate such inquiries, proposals, discussions or negotiations or any effort or attempt to make or effectuate a Competing Proposal; provided, that, notwithstanding the foregoing, the Seller shall be permitted to grant a waiver of or terminate any “standstill” or similar obligation of any Third Party with respect to the Seller or any of its Subsidiaries to allow such Third Party to submit a Competing Proposal. In furtherance of the foregoing, Seller will not disclose, or cause to be disclosed, any non-public information relating to Seller or the Devices & Services Business or afford access to the properties, books, records or representatives of Seller or the Devices & Services Business, to any Person (other than Buyer and its Representatives) concerning or in connection with a Competing Proposal.
(b) Notwithstanding anything to the contrary in this Agreement, at any time prior to the date that the Requisite Shareholder Approval is obtained at the Extraordinary General Meeting, but not after, in the event that the Seller receives a bona fide unsolicited Competing Proposal from any Person, (i) the Seller and its Representatives may contact such Person solely to clarify the terms and conditions thereof and (ii) the Seller and its board of directors and its Representatives may engage in negotiations or substantive discussions with, and furnish any information and other access to, any Person making such Competing Proposal and its Representatives or potential sources of financing if the Seller’s board of directors determines in good faith (after consultation with its outside legal and financial advisors) that such Competing Proposal either constitutes a Superior Proposal or could reasonably be expected to result in a Superior Proposal; provided that (x) prior to furnishing any material nonpublic information concerning the Seller and its Subsidiaries, the Seller receives from such Person, to the extent such Person is not already subject to a confidentiality agreement with the Seller the terms of which are not materially less favorable to the Seller than those contained in the Confidentiality Agreement, an executed confidentiality agreement containing confidentiality terms that are not materially less favorable to the Seller than those contained in the Confidentiality Agreement (it being understood and agreed that such confidentiality agreement need not restrict the making of Competing Proposals (and related communications) to the Seller or the Seller’s board of directors); provided further Seller and its Representatives shall withhold from such Person such portions of documents or information, or provide pursuant to customary “clean-room” or other appropriate procedures, to the extent relating to any pricing or other matters that are highly sensitive or competitive in nature if the exchange of such information could reasonably be likely
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to be harmful to the operation of the Devices & Services Business in any material respect and (y) any such material nonpublic information so furnished shall be promptly made available to Buyer to the extent it was not previously made available to Buyer or its Representatives. Seller agrees that it and its Subsidiaries will not enter into any confidentiality agreement or other agreement with any Person which prohibits Seller from providing any information to Buyer in accordance with this Section 5.14(b).
(c) Except as otherwise provided in this Agreement, the board of directors of the Seller shall not (i) (A) withdraw, qualify or modify, or propose publicly to withdraw, qualify or modify, in a manner adverse to Buyer, the Seller Recommendation, (B) approve or recommend, or propose publicly to recommend, to the Seller’s shareholders any Competing Proposal, (C) fail to include the Seller Recommendation in the initial press release announcing the execution of this Agreement and the transactions contemplated by this Agreement or any materials furnished or mailed to Seller’s shareholders with respect to the Extraordinary General Meeting or (D) fail to recommend against acceptance of a tender or exchange offer for any outstanding shares of Seller that constitutes a Competing Proposal (any action described in this clause (i) being referred to as an “Adverse Recommendation Change”) or (ii) approve or recommend, or allow the Seller or any of its Subsidiaries to execute or enter into, any letter of intent, memorandum of understanding, agreement in principle, or definitive purchase or similar agreement with respect to any Competing Proposal (other than a confidentiality agreement referred to in Section 5.14(b)). Notwithstanding anything in this Agreement to the contrary, at any time prior to receipt of the Requisite Shareholder Approval, but not after, the board of directors of the Seller may make an Adverse Recommendation Change if, but only if, the Seller has received a bona fide unsolicited Competing Proposal that the board of directors of the Seller has determined in good faith (after consultation with its legal counsel and financial advisors) constitutes a Superior Proposal; provided, however, that no Adverse Recommendation Change may be made until after the third (3rd) Business Day following Buyer’s receipt of a written notice from the Seller advising Buyer that the board of directors of the Seller intends to make an Adverse Recommendation Change (a “Notice of Adverse Recommendation”) and specifying the reasons therefor, including, the terms and conditions of any such Superior Proposal (including the identity of the party making such Superior Proposal) and furnishing to Parent a copy of the relevant proposed transaction agreements with the party making such Superior Proposal and all other material documents. During such three (3) Business Day period, Seller shall negotiate, and shall have caused its financial and legal advisors to negotiate, with Buyer in good faith (to the extent Buyer desires to negotiate) to make such adjustments in the terms and conditions of this Agreement so that such Competing Proposal ceases to constitute a Superior Proposal. Any amendment to the financial terms or any other material amendment of such Superior Proposal shall require a new Notice of Adverse Recommendation Change and the Seller shall be required to comply again with the requirements of this Section 5.14(c); provided, however, that references to the foregoing three (3) Business Day period shall be deemed to be references to a two (2) Business Day period In determining whether to make an Adverse Recommendation Change or in determining whether a Competing Proposal constitutes a Superior Proposal, the board of directors of the Seller shall take into account any changes to the terms of this Agreement timely proposed by Buyer in response to a Notice of Adverse Recommendation or otherwise. Notwithstanding any Adverse Recommendation Change, unless earlier terminated under Section 7.1, the transactions contemplated under this Agreement shall be submitted to Seller’s shareholders at the Extraordinary General Meeting for the purpose of adopting this Agreement and nothing contained herein shall be deemed to relieve Seller of such obligation.
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(d) Seller shall promptly, and in any event within two (2) Business Days, advise Buyer of any Competing Proposal, the material terms and conditions of any such Competing Proposal and the identity of the Person making any such Competing Proposal. Seller shall keep Buyer reasonably informed on a reasonably current basis of the status and material details (including any material change to the terms thereof) of any such Competing Proposal and any discussions and negotiations concerning the material terms and conditions thereof.
(e) Nothing in this Agreement shall restrict the Seller or the board of directors of the Seller from taking or disclosing a position to comply with applicable Law (it being agreed that a factually accurate public statement by the Seller that solely describes the Seller’s receipt of a Competing Proposal, the main contents of such Competing Proposal and the operation of this Agreement with respect thereto shall not be deemed to be an Adverse Recommendation Change or give rise to a Buyer termination right pursuant to Section 7.1(g) so long as such statement explicitly reaffirms the Seller Recommendation).
(f) For purposes of this Agreement:
(i) “Competing Proposal” shall mean any proposal, offer or inquiry made by any Person or group of Persons (other than Buyer or any Affiliate thereof) to purchase or otherwise acquire, directly or indirectly, in one transaction or a series of transactions, (i) control of twenty percent (20%) or more of any class of equity securities of Seller (by way of merger, stock purchase, asset purchase, license, lease or otherwise) or (ii) all or any material portion of the Devices & Services Business. For the avoidance of doubt, and without limitation, a Competing Proposal does not encompass any actions solely to the extent related to NSN or its Subsidiaries (other than actions related to offers, inquiries, or proposals to acquire control of 20% or more of any equity class of securities of Seller).
(ii) “Superior Proposal” shall mean a bona fide, written unsolicited Competing Proposal (with all percentages in the definition of Competing Proposal increased to seventy-five percent (75%)) on terms that the board of directors of the Seller determines in good faith (after consultation with its legal counsel and financial advisors) and considering such factors as the board of directors of the Seller considers to be appropriate (including regulatory, financing, timing and other relevant factors (including any break-up fees, expense reimbursement provisions and conditions to consummation)), is more favorable to the Seller’s shareholders from a financial perspective than the transactions contemplated by this Agreement (including any changes to the terms of this Agreement committed to by Buyer to the Seller in writing in response to such Competing Proposal under the provisions of Section 5.14(c)) and is reasonably capable of being completed on the terms proposed on a timely basis.
Section 5.15 Wrong Pocket. If any Seller Entity receives any payment related to any Purchased Asset after the Closing, Seller agrees to promptly remit (or cause to be promptly remitted) such funds to Buyer to the extent related to such Purchased Asset, and Buyer shall reimburse Seller for its reasonable expenses incurred in connection therewith. If Buyer or any
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Affiliate of Buyer (including, for the avoidance of doubt, the Transferred Subsidiaries) receives any payment related to any Excluded Asset after the Closing, Buyer agrees to promptly remit (or cause to be promptly remitted) such funds to Seller to the extent related to such Excluded Asset, and Seller shall reimburse Buyer for its reasonable expenses incurred in connection therewith.
Section 5.16 Collection of Receivables. Buyer shall have the right and authority, from and after the Closing, to collect for its own account all receivables of the Devices & Services Business included in the Purchased Assets and any of the receivables of a Transferred Subsidiary relating to the Devices & Services Business (the “Closing Receivables”) and to endorse with the name of any Seller Entity any checks or drafts received with respect to any Closing Receivables. The Seller Entities shall (i) deliver to Buyer such documentation of, and information relating to, the Closing Receivables as Buyer shall reasonably request and (ii) promptly deliver to Buyer any cash or other property received by them in respect of any Closing Receivables, and Buyer shall reimburse the Seller Entities for their expenses incurred in connection therewith.
Section 5.17 Restructuring; Dormant Subsidiaries; Director Shares. Seller shall use reasonable best efforts to consummate the Internal Restructuring on or prior to the Closing Date. Seller shall provide Buyer with prompt notice of any deviations therefrom; provided, that to the extent material deviations from the Internal Restructuring (i) would reasonably be expected to result in any incremental cost or expense in excess of $10,000,000 being incurred by the Devices & Services Business prior to the Closing, or (ii) would have more than a de minimis (non-monetary) adverse effect on the Devices & Services Business or Buyer or any of its Affiliates or would reasonably be expected to result in any incremental cost or expense in excess of $1,000,000 being incurred by the Devices & Services Business or Buyer or any of its Affiliates after the Closing, such deviations shall be subject to the written consent of Buyer. Seller shall bear all costs related to the Internal Restructuring, including costs incurred in connection with obtaining any consent required for purposes of consummating the Internal Restructuring. Seller shall keep Buyer apprised of the status of the Internal Restructuring on no less than a monthly basis. Seller shall use its reasonable best efforts to fully liquidate each of the Dormant Subsidiaries prior to Closing or to otherwise cause the Transferred Subsidiaries that are not Dormant Subsidiaries to dispose of their common stock or other equity interests in such Dormant Subsidiaries prior to Closing. To the extent that any shares of common stock or other equity interests in any Transferred Subsidiary are currently held by a director, officer or employee of Seller or any of its Subsidiaries and such director, officer or employee will not be a Transferred Employee, Seller will use its reasonable best efforts to have such shares transferred, at Buyer’s direction, to a Person who will be a Transferred Employee.
Section 5.18 Repayment of Indebtedness. The Seller Entities shall use (i) reasonable best efforts to cause all Indebtedness of the type described in clauses (i) and (ii) of the definition thereof of the Transferred Subsidiaries, if any, to be paid off and (ii) cause all Encumbrances on the Transferred Subsidiaries assets relating thereto to be released at or prior to the Closing and at the Closing shall deliver to Buyer evidence thereof in a form reasonably acceptable to Buyer.
Section 5.19 Labor Matters. Seller shall use reasonable best efforts to give all required notifications to, and engage in any required consultations with, the employees, employee representatives, work councils, unions, labor boards and relevant government agencies (as applicable) concerning the transactions contemplated hereby with respect to the employees of the Transferred Subsidiaries and Buyer shall provide such information and assistance in connection therewith as required by applicable Law or as may be reasonably requested by Seller.
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Section 5.20 Additional IP Licenses to Copyrights, Database Rights and Trade Secrets.
(a) Seller, on behalf of itself and its Affiliates (other than the Transferred Subsidiaries) grants, effective on the Closing Date, to Buyer and its Affiliates a worldwide, perpetual, irrevocable, royalty-free, fully paid-up, non-exclusive license under all rights under Copyrights, Database Rights and Trade Secrets that are owned by Seller and such Affiliates (other than NSN or HERE Entities) on the Closing Date (“Seller Residual IP”), for the life of the Seller Residual IP, to use, copy, create derivative works of, distribute, perform or display any Business Materials that are included in the Excluded Assets and are used in the Devices & Services Business on the date hereof or the Closing Date, including without limitation all items set forth in Section 5.20(a) of the Seller Disclosure Letter. The above license is provided on an “as-is” basis, without warranty by Seller or its Affiliates of any kind, and does not include any rights under any Third-Party Copyrights, Database Rights and Trade Secrets or any Copyrights, Database Rights or Trade Secrets created or acquired by Seller or its Affiliates after the Closing Date. Buyer and its Affiliates shall treat any confidential materials included in the Seller Residual IP with the same degree of care it provides to its own similar confidential materials. Buyer and its Affiliates may (i) sublicense this license to vendors and others in the supply and distribution chain in connection with the above activities and (ii) assign such license, in whole or in part, in connection with the sale of the Devices & Services Business or any business included therein, provided that any successor or acquirer is not covered by the above license with respect to its other Affiliates or businesses. Other than as expressly set forth in this Section 5.20(a), no rights or licenses are granted under Section 5.20(a) under any Intellectual Property of Seller or its Affiliates, whether by implication, estoppel or otherwise.
(b) Buyer, on behalf of itself and its Affiliates, grants, effective on the Closing Date, to Seller and its Affiliates a worldwide, perpetual, irrevocable, royalty-free, fully paid-up, non-exclusive license under all rights under Copyrights, Database Rights and Trade Secrets, in each case, included in Transferred IP as on the Closing Date, but excluding such rights and/or items set forth on Schedule 5.20(b) (“Buyer Residual IP”), for the life of the Buyer Residual IP, to use, copy, create derivative works of, distribute, perform or display any Business Materials that are (i) included in the Purchased Assets (or owned by the Transferred Subsidiaries) and (ii) used in the businesses of Seller and its Affiliates (other than the Transferred Subsidiaries) other than the Devices & Services Business on the date hereof or the Closing Date. The above license is provided on an “as-is” basis, without warranty by Buyer or its Affiliates of any kind, and does not include any Third-Party Copyrights, Database Rights and Trade Secrets or any Copyrights, Database Rights or Trade Secrets created or acquired by Buyer or its Affiliates after the Closing Date. Seller and its Affiliates shall treat any confidential materials included in the Buyer Residual IP with the same degree of care it provides to its own similar confidential materials. Seller and its Affiliates may (i) sublicense this license to vendors and others in the supply and distribution chain in connection with the above activities and (ii) assign such license, in whole or in part, in connection with the sale of any such other businesses, provided that any successor or acquirer is not covered by the above license with respect to its other Affiliates or businesses. Other than as expressly set forth in this Section 5.20(b), no rights or licenses are granted under Section 5.20(b) under any Intellectual Property of Buyer or its Affiliates, whether by implication, estoppel or otherwise.
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(c) For clarity, the above licenses do not limit or modify any provisions of Section 5.4 herein, but any (i) permitted sublicense or assignment under Section 5.20(a) or Section 5.20(b) or (ii) disclosure by Seller or Buyer or their Affiliates in compliance with the penultimate sentences in Sections 5.20(a) or 5.20(b) as applicable, in each case, will not violate Section 5.4.
(d) Prior to the Closing Date, the Parties shall review in good faith the list of Designs on Section 2.2(f)(i)(x) of the Seller Disclosure Letter (which Seller will supplement as necessary prior to the Closing) to select those Designs that are exclusively or primarily related to or exclusively or primarily used in the Devices & Services Business. As of Closing, such mutually-agreed list shall be the final list of Designs included in the Purchased Assets.
(e) Seller and its Affiliates shall use commercially reasonable efforts to deliver to Buyer on the Closing Date, in mutually-agreed format and media, all items included in subsection (v) of “Business Materials” that are used in connection with the Devices & Services Business (but not primarily or exclusively used in connection with same, the delivery of which such items shall occur on the Closing Date). Any such items that are not delivered to Buyer on the Closing Date shall be delivered to Buyer within a reasonable time thereafter on mutually-agreed terms and conditions.
(f) At Buyer’s request, the Parties shall cooperate between the date hereof and the Closing Date, and for a reasonable time after the Closing Date, to redirect Internet and social media users from websites and social media pages owned or controlled by Seller and its Affiliates that relate to the Devices & Services Business to websites and social media pages designated by Buyer. Without limiting the generality of the foregoing, at Buyer’s request, Seller will place a mutually-agreed statement on the above websites and social media pages that references the transactions contemplated by this Agreement and the new owner of the Devices & Services Business and a mutually-agreed link to websites and social media pages designated by Buyer.
(g) If there are registered Trademarks (or applications thereof) that are retained by Seller, but are used in products or services sold by the Devices & Services Business on the Closing Date, Seller hereby grants Buyer and its Affiliates a non-exclusive license to continue to use such Trademarks solely for such a specific product or service for 24 months from the Closing Date. For avoidance of doubt, the license in this Section 5.20(g) does not apply to any Trademarks that are primarily used by HERE Entities or NSN, or that are primarily used by Seller as so called “housemarks” (such as NOKIA, any Trademarks having Nokia as an ingredient, Connecting People, Nokia arrows, or to similar marks that are not device-specific, the “Housemarks”).
(h) With respect to those products and services that use Housemarks (other than NOKIA as licensed under the Trademark License Agreement) on the Closing Date, Seller grants a non-exclusive license to continue to use such Housemarks for ninety (90) days
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from the Closing Date in the same manner and scope as prior to the Closing Date, with an intent to ensure uninterrupted supply of existing products and services. Further, if Buyer identifies prior to Closing Date other Trademarks that are needed for continued supply of Devices & Services Business products or services, the Parties will discuss in good faith the appropriate way to deal with such Trademarks.
Section 5.21 Certain Open Source Matters.
(a) The Parties agree to take the following actions in respect of the Linux-based Asha phones not yet released by Seller and its Affiliates: (i) the AoL Platform will on the Closing Date be licensed under Section 5.20(a); (ii) between signing and closing, the Parties will cooperate in good faith to determine the most effective manner to minimize the risks to Buyer and its Affiliates derived from their use and distribution of “open source” software in connection with phones using the AoL Platform, including, at Buyer’s request, transferring a copy of AoL Platform into a separate affiliate of Seller; (iii) at Closing, Buyer will have the option to (A) effective as of the Closing, have Seller transfer a copy of the AoL Platform into a separate entity controlled by Seller and designated by Buyer, or (B) at any time prior to Closing, request Seller in writing to, within thirty (30) days of such request, place a copy of the AoL Platform into a separate Seller-controlled entity designated by Buyer, which entity would then be transferred to Buyer’s control at Closing.
(b) With respect to “open source” Software, between signing and closing, Seller and Buyer will use their reasonable best efforts and cooperate in good faith to agree on the most effective manner to minimize the risks and encumbrances to Buyer and its Affiliates arising from their use and distribution of “open source” licensed software in connection with the Purchased Assets, including completing a source code scan of the Software included in the Purchased Assets and transferring any Purchased Assets into a separate entity designated by Buyer, if so requested by Buyer.
Section 5.22 In-Bound Patent Licenses.
(a) Between the date of this Agreement and the Closing Date, the Seller will perform good faith due diligence on Seller and its Affiliates’ in-bound patent licenses with respect to the Devices & Services Business for the purposes of revising Section 2.2(p)(ii) of the Seller Disclosure Letter to correctly identify the details of the rights, licenses and corresponding obligations being assigned, including the possibility of adding (but not removing) new Patent Licenses to Section 2.2(p)(ii) of the Seller Disclosure Letter; provided, however, that Seller shall be under no obligation to include any in-bound Patent Licenses that are revenue-generating in any such additions to such section of the Seller Disclosure Letter.
(b) For a period of three (3) years from the Closing Date, Buyer may reasonably inquire as to whether Seller or its Affiliates are permitted to assign (in whole or in part) any in-bound Patent License (or the rights, licenses and corresponding obligations thereof) that was not included in Section 2.2(p)(ii) of the Seller Disclosure Letter on Closing Date, and Seller shall cooperate in good faith in responding to any such inquiry; provided, however, that Seller shall not be required to incur any costs or expenses or make any payments that are not fully
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reimbursed by Buyer or provide any value (directly or indirectly) to the Buyer; provided, however, that Seller shall be under no obligation to include any in-bound Patent Licenses that are revenue-generating.
ARTICLE VI
CONDITIONS TO CLOSING
Section 6.1 Conditions to Obligations of Buyer. The obligations of Buyer to effect the Closing shall be subject to the following conditions, except if waived in writing, if permissible under applicable Law, by Buyer:
(a) Representations and Warranties and Covenants of Seller.
(i) The representations and warranties of Seller contained in Section 3.1 (Due Organization of Seller Entities), Section 3.2 (Authorization of Transaction by Seller), Section 3.6 (Capital Structure) (other than the last two sentences thereof), the first sentence of Section 3.12 (Absence of Certain Changes) and Section 3.18 (Brokers’ Fees) shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date. The representations and warranties of Seller contained in Article III of this Agreement (other than those representations and warranties referred to in the immediately preceding sentence), without giving effect to any materiality or Material Adverse Effect qualifications therein, shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except for representations and warranties that expressly speak as of an earlier date, which representations and warranties shall be true as of such specified date), except for such failures to be true and correct as would not reasonably be expected to have a Material Adverse Effect;
(ii) Seller shall have in all material respects performed all obligations and complied with all covenants required by this Agreement to be performed or complied with by it at or prior to the Closing; and
(iii) Seller shall have delivered to Buyer a certificate of Seller, dated the Closing Date, certifying to the fulfillment of the conditions specified in the foregoing clauses (i) and (ii).
(b) Requisite Regulatory Approvals. All approvals and authorizations under the Competition Laws and other Laws set forth in Exhibit M of this Agreement shall have been so obtained or any applicable waiting period thereunder shall have expired or been terminated.
(c) No Prohibition. No statute, rule or regulation shall have been enacted or promulgated by any Governmental Authority that enjoins or otherwise prohibits the consummation of the transactions contemplated hereby; there shall be no order or injunction of a court of competent jurisdiction in effect preventing the consummation of the transactions contemplated hereby; and no Action shall have been commenced by any Governmental Authority that seeks to enjoin or otherwise prohibits the consummation of the transactions contemplated hereby.
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(d) Requisite Shareholder Approval. The Requisite Shareholder Approval shall have been obtained.
(e) Internal Restructuring. The Internal Restructuring shall have been completed in all material respects.
(f) Closing Deliverables. Seller or its applicable Affiliates shall have executed and delivered (or caused to be delivered) to Buyer each item described in Section 2.9(b) hereof.
Section 6.2 Conditions to Obligations of Seller. The obligations of Seller to effect the Closing shall be subject to the following conditions except if waived in writing, if permissible under applicable Law, by Seller:
(a) Representations and Warranties and Covenants of Buyer.
(i) The representations and warranties of Buyer contained in Article IV of this Agreement, without giving effect to any materiality or similar qualifications therein, shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except for representations and warranties that expressly speak as of an earlier date, which representations and warranties shall be true as of such specified date), except for such failures to be true and correct as would not materially impair or prevent Buyer’s ability to consummate the transactions contemplated by this Agreement;
(ii) Buyer shall have in all material respects performed all obligations and complied with all covenants required by this Agreement to be performed or complied with by it at or prior to the Closing; and
(iii) Buyer shall have delivered to Seller a certificate of Buyer, dated the Closing Date certifying to the fulfillment of the conditions specified in the foregoing clauses (i) and (ii).
(b) Requisite Regulatory Approvals. All approvals and authorizations under the Competition Laws and other Laws set forth in Exhibit M of this Agreement shall have been so obtained or any applicable waiting period thereunder shall have expired or been terminated.
(c) No Prohibition. No statute, rule or regulation shall have been enacted or promulgated by any Governmental Authority, which enjoins or otherwise prohibits the consummation of the transactions contemplated hereby; there shall be no order or injunction of a court of competent jurisdiction in effect preventing the consummation of the transactions contemplated hereby; and no Action shall have been commenced by any Governmental Authority that seeks to enjoin or otherwise prohibits the consummation of the transactions contemplated hereby.
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(d) Requisite Shareholder Approval. The Requisite Shareholder Approval shall have been obtained.
(e) Closing Deliverables. Buyer shall have executed and delivered (or caused to be delivered) to Seller each item described in Section 2.9(c) hereof.
ARTICLE VII
TERMINATION
Section 7.1 Termination of Agreement. This Agreement may be terminated at any time prior to the Closing Date as follows:
(a) by mutual written consent of Buyer and Seller;
(b) by either Seller or Buyer, if the Closing shall not have occurred on or before September 3, 2014 (the “Outside Date”); provided, that, if on the Outside Date all of the conditions set forth in Section 6.1 and Section 6.2 have been satisfied (or, with respect to the conditions that by their terms must be satisfied at the Closing would have been so satisfied if the Closing would have occurred) other than the conditions set forth in Sections 6.1(b) and 6.2(b), then either Seller or Buyer may extend the Outside Date for an additional ninety (90) days by delivery of written notice of such extension to the other party not less than three (3) Business Days prior to the Outside Date; provided, further, however, that the right to terminate this Agreement under this Section 7.1(b) shall not be available to the party seeking to terminate this Agreement if its material breach of any covenant in this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to such date;
(c) by Seller if (i) Buyer shall have breached any of the covenants or agreements contained in this Agreement to be performed by Buyer such that the condition set forth in Section 6.2(a)(ii) would not be satisfied, or (ii) there exists a breach of any representation or warranty of Buyer contained in this Agreement such that the condition set forth in Section 6.2(a)(i) would not be satisfied and, in the case of clauses (i) or (ii), such breach has not been cured (or is incapable of being cured) by Buyer within thirty (30) days following its receipt of notice from Seller of such breach;
(d) by Buyer if (i) Seller shall have breached any of the covenants or agreements contained in this Agreement to be performed by Seller such that the condition set forth in Section 6.1(a)(ii) would not be satisfied, or (ii) there exists a breach of any representation or warranty of Seller contained in this Agreement such that the condition set forth in Section 6.1(a)(i) would not be satisfied and, in the case of clauses (i) or (ii) such breach has not been cured (or is incapable of being cured) by Seller within thirty (30) days following its receipt of notice from Buyer of such breach;
(e) by either Buyer or Seller, if any Governmental Authority having jurisdiction over Seller, Buyer or any of their respective Affiliates shall have issued an order or injunction or taken any other action, in each case permanently enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement, and such order or injunction or other action shall have become final and non-appealable; provided, however, that
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the right to terminate this Agreement under this Section 7.1(e) shall not be available to any party whose failure to fulfill any obligation in any material respect under this Agreement has been the primary cause of, or primarily resulted in, such order, injunction or action, and provided, further, that the party seeking to terminate this Agreement under this Section 7.1(e) shall have complied with Section 5.7 to the extent applicable to cause any such order, injunction or action to be vacated or lifted or to ameliorate the effects thereof;
(f) by either Seller or Buyer, if the Requisite Shareholder Approval shall not have been obtained at the Extraordinary General Meeting duly convened therefor or at any adjournment or postponement thereof at which this Agreement and the transactions contemplated hereby have been voted upon; or
(g) by Buyer, if the board of directors of the Seller shall have made an Adverse Recommendation Change.
Section 7.2 Effect of Termination. In the event of termination of this Agreement by a party hereto pursuant to and in accordance with Section 7.1 hereof, written notice thereof shall forthwith be given by the terminating party to the other party hereto in accordance with Section 9.5, and this Agreement shall thereupon terminate and become void and have no force or effect, and the transactions contemplated hereby and by the Ancillary Agreements shall be abandoned without further action by the parties hereto, except that the provisions of Section 5.4, this Section 7.2, Section 7.3 and Article IX and the Confidentiality Agreement shall survive the termination of this Agreement; provided, however, that no party shall be relieved or released from any liabilities or damages (which the parties hereby acknowledge and agree shall not be limited to reimbursement of expenses or out-of-pocket costs and, in the case of liabilities or damages payable by Buyer or Seller, may include the benefit of the bargain lost by Seller or Buyer, as applicable, taking into consideration relevant matters) arising out of (i) fraud or any willful breach of its obligations under this Agreement or (ii) any breach by Buyer of its obligations under Section 4.6 of this Agreement. For purposes of this Agreement, “willful” shall mean a breach that is a consequence of an act taken by the breaching party, or the failure by the breaching party to take an act it is required to take under this Agreement, with the actual knowledge that the taking of, or the failure to take, such act would, or would be reasonably expected to, cause a breach of this Agreement.
Section 7.3 Fees and Expenses.
(a) Except as otherwise set forth in this Agreement, each of the parties shall bear its own costs and expenses (including investment banking and legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby; provided, that Buyer and Seller shall be jointly responsible for all Transfer Taxes (as well as the preparation and filing of all Tax Returns with respect thereto) in accordance with Section 8.1.
(b) If this Agreement is terminated by Seller or Buyer pursuant to Section 7.1(b) and at the time of such termination, each of the conditions set forth in Sections 6.1 and 6.2 has been satisfied other than the conditions set forth in Sections 6.1(b) and 6.2(b) and the conditions that by their terms must be satisfied at the Closing, Buyer shall, within five (5) Business Days after such termination, pay to Seller a fee of Seven Hundred and Fifty Million
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Dollars (USD$750,000,000) in cash (such amount, the “Reverse Termination Fee”). Seller agrees that in no event shall Seller or any of its Affiliates be entitled to receive more than one Reverse Termination Fee in accordance with this Section 7.3(b) and if Buyer pays to Seller such Reverse Termination Fee, Buyer shall have no further liability to Seller or any of its Affiliates arising out of this Agreement or any of the Ancillary Agreements or any termination of this Agreement or abandonment or termination of the Ancillary Agreements, except in the case of fraud. In addition, as further set forth in the Existing Commercial Agreement and Bond Purchase Agreement, respectively, upon such termination, Seller shall have the right to terminate the Existing Commercial Agreement without any penalty on 60 days’ prior written notice and the lock-up period on the Nokia Securities will terminate on the same day that the termination becomes effective. Seller acknowledges and agrees on behalf of itself and its Affiliates that its right to receive the Reverse Termination Fee under the circumstances in which such Reverse Termination Fee is payable pursuant to this Section 7.3(b) shall constitute the sole and exclusive remedy under this Agreement of Seller and each of its Affiliates, and such Reverse Termination Fee shall be deemed to be liquidated damages (and not a penalty) for any and all losses or damages suffered or incurred by Seller, any of its Affiliates and any other Person in connection with this Agreement (and the termination hereof), the Ancillary Agreements and each of the transactions contemplated hereby and thereby (and the abandonment or termination thereof) or any matter forming the basis for such termination or abandonment, and none of Seller, its Affiliates or any other Person shall be entitled to bring or maintain any legal proceeding against Buyer or its Affiliates arising out of or in connection with this Agreement, the Ancillary Agreements and each of the transactions contemplated hereby and thereby (or the abandonment or termination thereof).
(c) If, but only if, this Agreement is terminated by:
(i) Either Seller or Buyer pursuant to Section 7.1(f), then Seller shall, within five (5) Business Days after such termination, pay to Buyer (or its designees) a fee of Thirty Seven Million Nine Hundred Thousand Euros (EUR€37,900,000) in cash (such amount, the “Damages Fee”);
(ii) Buyer pursuant to Section 7.1(g), then Seller shall, within five (5) Business Days after such termination, pay to Buyer (or its designees) a fee of One Hundred and Thirteen Million Seven Hundred Thousand Euros (EUR€113,700,000) in cash (such amount, the “Termination Fee”); or
(iii) (x) Either Seller or Buyer pursuant to Section 7.1(f), and (y) Seller (A) receives or has received a Competing Proposal that has been publicly announced and not withdrawn prior to the termination of this Agreement, and (B) within twelve (12) months of the termination of this Agreement, enters into a definitive agreement with respect to any Competing Proposal that is later consummated or consummates a transaction regarding any Competing Proposal, then Seller shall, concurrently with the consummation of such Competing Proposal, pay to Buyer the Termination Fee less the amount of the Damages Fee if previously paid to Buyer in full pursuant to Section 7.3(c)(i).
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(d) Buyer agrees that in no event shall Buyer or any of its Affiliates be entitled to receive more than one Damages Fee or more than one Termination Fee, or the Damages Fee after having been paid the Termination Fee in accordance with Section 7.3(d).
(e) Buyer acknowledges and agrees on behalf of itself and its Affiliates that, notwithstanding anything herein to the contrary, its right to receive the Damages Fee or Termination Fee specified in Section 7.3(c), if any, shall constitute the sole and exclusive monetary remedy under this Agreement in the circumstances in which such Damages Fee and/or Termination Fee is payable of Buyer and each of its Affiliates, and such receipt shall be deemed to be liquidated damages (and not a penalty) for any and all losses or damages suffered or incurred by any Buyer, any of its Affiliates and any other Person in connection with any such termination of this Agreement.
(f) In the event of an Action relating to the enforceability of the agreements between Buyer and Seller under Section 7.3(c), Seller hereby agrees to vigorously defend such Action and agrees to accept Buyer’s input with respect to the defense of such Action. However, in the event that such Action described in the preceding sentence is concluded in a final non-appealable order, judgment, injunction, decree or decision of a court of competent jurisdiction declaring that the agreements between Buyer and Seller represented by Section 7.3(c) are unenforceable under applicable Law, then Buyer hereby agrees to (i) promptly remit to Seller the portion of the Termination Fee that such court has determined is unenforceable under applicable Law, if Seller had paid such Termination Fee to Buyer, or the portion of the Damages Fee that such court has determined is unenforceable under applicable Law, if Seller had paid such Damages Fee to Buyer, in each case, net of any reasonable out-of-pocket expenses of Buyer, its Affiliates or their respective Representative, and (ii) indemnify any current member of the board of directors of Seller for any Losses for personal liability to the extent arising out of the Seller having agreed to pay the Termination Fee or Damages Fee, as applicable, and, should the Termination Fee or Damages Fee, as applicable, have been paid to Buyer, the payment such fee, in each case, net of any insurance proceeds and indemnification amounts receivable by such member of the board of directors from Seller. In respect of such Losses, the members of the board of directors of Seller shall not be entitled to recover, in the aggregate, more than the Termination Fee received by Seller or Damages Fee received by Seller, as applicable. At Buyer’s option, Buyer shall be entitled to assume and control the defense of any such Action referred to in this Section 7.3(f).
ARTICLE VIII
TAX MATTERS
Section 8.1 Transfer Taxes.
(a) Each of Buyer and Seller shall be jointly responsible for the timely payment of all Transfer Taxes, which shall be borne equally among Buyer and Seller, arising out of or in connection with the transactions contemplated by this Agreement and the Ancillary Agreements, except for Transfer Taxes imposed in connection with the Internal Restructuring, which shall be borne solely by Seller. Buyer shall (unless mandatory applicable Law prohibits Buyer to do so, in which case the party that is required under applicable Law shall), at the joint
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expense of Buyer and Seller, prepare and file all such necessary Tax Returns with respect to all such Transfer Taxes, promptly provide the other party such Tax Returns and any related documentation and, to the extent required by applicable Law, each party shall, and shall cause its Affiliates to, join in the preparation and execution of any such Tax Returns. To the extent Buyer or Seller (as the case may be) or any of their Affiliates files such Tax Returns with respect to Transfer Taxes and pays such Transfer Taxes, the other party shall indemnify and hold harmless and, within ten days of a written request therefor, reimburse the paying party for one half of such Transfer Taxes and one half of any out-of-pocket expenses incurred in connection with the preparation and filing of such Tax Returns. Buyer and Seller shall cooperate in using commercially reasonable efforts to minimize any applicable Transfer Taxes.
(b) All sums or other consideration payable by Buyer to Seller or its Affiliates pursuant to or in connection with this Agreement are exclusive of VAT which, if properly chargeable, shall be payable by the Buyer in addition at the appropriate rate.
(c) The parties intend that the Purchased Assets and the Devices & Services Business shall be sold as a going concern for VAT purposes and accordingly shall cooperate to seek that satisfactory confirmation is obtained as soon as possible thereafter from the relevant Taxing Authority that the sale is to be so treated or (if applicable) to provide another exception to the applicability of VAT with respect to any Purchased Assets; provided, that the parties shall equally share any out of pocket expenses incurred in connection with this Section 8.1(c) to the extent that such expense shall exceed EUR 100,000. To the extent that VAT is so chargeable despite attempts to qualify for relief then Buyer shall, against delivery of a VAT invoice in addition to any amount expressed in the Agreement to be payable by Buyer, pay to Seller or its Affiliates such VAT (including any penalties and interest, other than penalties or interest arising solely from the failure of Seller or its Affiliates to account promptly for VAT to any relevant Taxing Authority following delivery of the appropriate amount of funds for that purpose by Buyer). Buyer and Seller shall cooperate in using commercially reasonable efforts to minimize any applicable VAT.
Section 8.2 Preparation and Filing of Tax Returns. Except as otherwise provided in Section 8.1:
(a) Seller shall prepare and timely file or shall cause to be prepared and timely filed all Tax Returns of the Transferred Subsidiaries for any taxable year or period that ends on or before the Closing Date; provided, that (i) such Tax Returns shall be prepared and all elections with respect to such Tax Returns shall be made in a manner consistent with past practices of the applicable Transferred Subsidiary, and (ii) Seller shall submit such Tax Returns at least thirty (30) days prior to the last date for timely filing such Tax Return (giving effect to any valid extensions thereof) to Buyer for its review and comment. Any disputes with respect to such Tax Returns shall be governed by Section 8.9. Seller shall timely remit, or cause to be timely remitted, all Taxes due in respect of such Tax Returns.
(b) Buyer shall prepare or cause to be prepared and shall timely file or cause to be timely filed all Tax Returns required to be filed by or in respect of the Transferred Subsidiaries for all taxable years or periods ending after the Closing Date and shall timely remit, or cause to be timely remitted, all Taxes due in respect of such Tax Returns; provided, that,
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except as otherwise required by Law with respect to any such Tax Returns for a Straddle Period, such Tax Returns shall be prepared and all elections with respect to such Tax Returns shall be made in a manner consistent with past practices of the applicable Transferred Subsidiary. Before filing any Straddle Period Tax Return, Buyer shall provide Seller with a copy of such Tax Return at least thirty (30) days prior to the last date for timely filing such Tax Return (giving effect to any valid extensions thereof) accompanied by a statement calculating in reasonable detail Seller’s indemnification obligation, if any, pursuant to Section 8.3 for Seller’s review, comment and approval. Seller shall timely remit, or cause to be timely remitted, Seller’s share of all Taxes due in respect of such Tax Returns to Buyer no later than ten (10) days prior to the due date for filing such Tax Return. Any disputes with respect to such Tax Returns shall be governed by Section 8.9. Except as otherwise required by Law or by Section 8.9, Buyer shall not withdraw, amend, refile or otherwise modify, or cause or permit to be withdrawn, amended, refiled or otherwise modified, any Tax Return filed by any Transferred Subsidiary for any taxable year or period beginning on or before the Closing Date without Seller’s prior consent, not to be unreasonably withheld.
(c) Buyer may, in Buyer’s sole and absolute discretion, make an election under Section 338 of the Code (or any analogous provision of US state or local law) in respect of the sale and purchase of any Transferred Subsidiary, other than a Transferred Subsidiary that is subject to tax as a corporation for U.S. federal income tax purposes (a “U.S. Subsidiary”), or direct a Transferred Subsidiary, other than a Transferred Subsidiary that is a U.S. Subsidiary, to make an election with respect to any Transferred Subsidiary on U.S. Internal Revenue Service Form 8832 for such Transferred Subsidiary to be treated, prior to the Closing Date, as a partnership or disregarded entity for U.S. federal income tax purposes pursuant to U.S. Treasury Regulations Section 301.7701-3. Seller shall fully cooperate with Buyer in connection with any of the foregoing elections. No such elections shall be made with respect to U.S. Subsidiaries, and no such elections shall be made on U.S. Internal Revenue Service Form 8832 with an effective date on or prior to the Closing with respect to any Transferred Subsidiary that is owned in whole or part by a U.S. Subsidiary.
(d) To the extent permitted by law, the Transferred Subsidiaries shall elect to carry forward any Tax attribute (including without limitation any net operating loss, charitable contribution, or other item) arising after the Closing Date that could otherwise be carried back into a Pre-Closing Tax Period.
Section 8.3 Tax Indemnification.
(a) Seller shall indemnify, defend and hold Buyer and its Affiliates (including after the Closing, the Transferred Subsidiaries) harmless from and against any liability for, without duplication, (i) Taxes imposed on or with respect to any Transferred Subsidiary, the Devices & Services Business or any of the Purchased Assets for any Pre-Closing Tax Period and the portion of any Straddle Period ending on the Closing Date (as determined pursuant to Section 8.3(c)) (ii) Taxes imposed on or with respect to any Transferred Subsidiary as a result of the membership of such Transferred Subsidiary in an affiliated, consolidated, combined, unitary, or similar group with respect to any affiliation in existence at any time prior to the Closing (other than with respect to another Transferred Subsidiary); (iii) Taxes imposed on any Transferred Subsidiary as transferee or successor, by Contract or otherwise as a result of a relationship or
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contractual arrangement entered into or in existence prior to the Closing, except to the extent that the liability for such Taxes is to another Transferred Subsidiary or to the Buyer or its Affiliates; (iv) Taxes imposed with respect to any Excluded Assets; (v) Seller’s share of any Transfer Taxes; (vi) Taxes (other than Transfer Taxes) imposed with respect to the Internal Restructuring (or any deviations therefrom); (vii) Taxes (other than Transfer Taxes) arising as a result of the sale of any of the Transferred Subsidiaries, the Devices & Services Business or any of the Purchased Assets pursuant to this Agreement; and (viii) any Losses incurred in connection with items specified in clauses (i) through (vii) of this Section 8.3(a). The obligations of Seller pursuant to this Section 8.3(a) shall survive until the later of (i) the expiration of the applicable statute of limitations (giving effect to any valid extensions) plus 30 days and (ii) the final resolution of any applicable Tax Claim. Notwithstanding the foregoing, no indemnification shall be required pursuant to this Section 8.3(a) with respect to (i) a Tax to the extent that such Tax was taken into account in calculating Net Working Capital, and (ii), when taken into account, such Tax reduced the Purchase Price pursuant to Section 2.10(h).
(b) Buyer shall indemnify, defend and hold Seller and its Affiliates harmless, from and against, without duplication, (i) any liability imposed by any Taxing Authority against Seller or any of its Affiliates for Taxes of any Transferred Subsidiary, the Devices & Services Business or any Purchased Asset with respect to any Post-Closing Tax Period and the portion of any Straddle Period beginning after the Closing Date (as determined pursuant to Section 8.3(c)); (ii) Buyer’s share of any Transfer Taxes; (iii) any refunds or credits due pursuant to Section 8.7; and (iv) any Losses incurred in connection with the items specified in clauses (i) and (ii) of this Section 8.3(b). The obligations of Buyer pursuant to this Section 8.3(b) shall survive until the later of (i) expiration of the applicable statute of limitations (giving effect to any valid extensions) plus 30 days and (ii) the final resolution of any applicable Tax Claim.
(c) Where it is necessary for purposes of this Agreement to apportion between Seller and Buyer the Taxes of a Transferred Subsidiary for a Straddle Period, such liability shall be apportioned between the period deemed to end at the close of the Closing Date and the period deemed to begin at the beginning of the day following the Closing Date on the basis of an interim closing of the books, except that Taxes (such as real or personal property Taxes) imposed on a periodic basis shall be allocated on a daily basis.
Section 8.4 Purchase Price Adjustment. Any payment required to be made under this Article VIII shall be treated as an adjustment to the Purchase Price for all Tax purposes unless otherwise required by applicable Law.
Section 8.5 Tax Sharing Agreements. On or before the Closing Date, all Tax sharing agreements and arrangements between (i) the Transferred Subsidiaries, on the one hand, and (ii) any other Person (other than the Transferred Subsidiaries), on the other hand, shall be terminated, with respect to the Transferred Subsidiaries, effective as of or prior to the Closing Date and have no further effect after the Closing Date.
Section 8.6 Cooperation, Exchange of Information and Record Retention. The parties recognize that each party may need access, from time to time, after the Closing Date, to certain accounting and Tax records and information of the Companies held by Seller or its Affiliates or
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Buyer or its Affiliates; therefore, from and after the Closing Date, each party shall, and shall cause its applicable Affiliates (including the Transferred Subsidiaries), officers, employees, agents, auditors and representatives to, (A) retain and maintain all such records including all Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Transferred Subsidiaries for each Pre-Closing Tax Period and any Straddle Period until the later of (i) the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents relate (giving effect to any valid extensions) or (ii) six years following the due date for such Tax Returns (giving effect to any valid extensions), (B) allow the other parties, their Affiliates and their agents and representatives (and agents or representatives of any of their Affiliates), upon reasonable notice and at mutually convenient times, to access employees and to inspect, review and make copies of such records (at the expense of the party requesting the records) as such parties may deem reasonably necessary or appropriate from time to time and (C) as reasonably requested by any party, cooperate and make employees available to provide additional information or explanation of materials or documents. Each of Seller and Buyer shall provide the other with written notice thirty (30) calendar days prior to the transfer, destruction or disposal of the last copy of any records, books, work papers, reports, correspondence and other similar materials and the other party shall have the right, at its expense, to copy or take any such materials. Any information obtained under this Section 8.6 shall be kept confidential except as may be otherwise necessary in connection with the filing of Tax Returns or claims for refund or in conducting an audit or other proceeding. Notwithstanding the foregoing or anything else to the contrary in this Agreement, (i)Buyer, its Affiliates and its agents and representatives (and agents or representatives of any of its Affiliates) shall have no access to or right to review or obtain any consolidated, combined, affiliated or unitary Tax Return which includes Seller or any of its Affiliates; and (ii) Seller, its Affiliates and its agents and representatives (and agents or representatives of any of its Affiliates) shall have no access to or right to review or obtain any consolidated, combined, affiliated or unitary Tax Return which includes Buyer or any of its Affiliates, except in each case to the extent such information relates to the Transferred Subsidiaries or Purchased Assets.
Section 8.7 Tax Refunds. Other than with respect to any refunds or credits of Taxes which arise by reason of the carryback of losses from a Post-Closing Tax Period, the portion of any Straddle Period beginning after the Closing Date, or with respect to any refunds or credits of VAT (which, for the avoidance of doubt, shall not include any Brazilian Tax Deposits to the extent not taken into account in calculating Net Working Capital) or social security or similar taxes, Buyer shall pay or cause the Transferred Subsidiaries to pay to Seller the amount of any refunds or credits of Taxes or refund of Tax deposits received by (or credited to) a Transferred Subsidiary, plus any interest received with respect thereto from the applicable Taxing Authority for (i) any Pre-Closing Tax Period and (ii) the portion of such Straddle Period ending on the Closing Date (in each case, net of any Taxes imposed on such amount, including any Taxes imposed in connection with the repayment of such amounts) within thirty (30) Business Days after the relevant Transferred Subsidiary receives (or is credited with) such refund or claims such credit. Any refunds or credits of Taxes of a Transferred Subsidiary for any Straddle Period shall be apportioned between the period deemed to end at the close of the Closing Date and the period deemed to begin at the beginning of the day following the Closing Date in a manner consistent with Section 8.3(c). Buyer agrees to use commercially reasonable efforts to claim or cause to be claimed any such refund or to utilize or cause to be utilized any such credits as soon as reasonably possible and to inform Seller within 30 days after any such refund is claimed or credit is utilized.
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Section 8.8 Tax Contests.
(a) If a claim for Taxes (including notice of a pending audit) is made by any Taxing Authority in writing (a “Tax Claim”), which, if successful, might result in an indemnity payment pursuant to Section 8.3, the party seeking indemnification (the “Tax Indemnified Party”) shall notify the other party (the “Tax Indemnifying Party”) in writing of the Tax Claim within thirty (30) Business Days of the receipt of such Tax Claim; provided that, if notice of a Tax Claim is not given to the Tax Indemnifying Party within such period or in detail sufficient to apprise the Tax Indemnifying Party of the nature of the Tax Claim (to the extent reasonably available to the Tax Indemnified Party), the Tax Indemnifying Party shall not be liable to the Tax Indemnified Party to the extent that the Tax Indemnifying Party is materially prejudiced as a result thereof.
(b) Subject to Sections 8.8(c) and 8.8(d), the Tax Indemnifying Party shall control all proceedings and may make all decisions taken in connection with such Tax Claim (including selection of counsel) and, subject to the condition in the following sentence, may in its sole discretion pursue or forego any and all administrative appeals, proceedings, hearings and conferences with any Taxing Authority with respect thereto, and may either pay the Tax claimed and sue for a refund where applicable Law permits such refund suits or contest the Tax Claim in any permissible manner; provided, however, that the Tax Indemnifying Party must first consult, in good faith with the Tax Indemnified Party before taking any action with respect to the conduct of such Tax Claim. Notwithstanding the foregoing, the Tax Indemnifying Party shall not settle such Tax Claim without the prior written consent of the Tax Indemnified Party (not to be unreasonably withheld), and the Tax Indemnifying Party, and counsel of its own choosing, shall (subject to Section 8.8(e)) have the right to participate fully in all aspects of the prosecution or defense of such Tax Claim.
(c) With respect to any Tax Claim for a Straddle Period, Buyer and Seller shall jointly control and participate in all proceedings taken in connection with any Tax Claim, and shall bear their own respective costs and expenses. Neither Seller nor Buyer shall settle any such Tax Claim without the prior written consent of the other (not to be unreasonably withheld).
(d) If a Tax Claim involves issues (A) relating to a potential adjustment for which the Tax Indemnifying Party has liability and (B) that are required to be dealt with in a proceeding that also involves separate issues that could affect the Taxes of the Tax Indemnified Party, to the extent permitted by applicable Law, (x) the Tax Indemnifying Party shall have the right at its expense to control the Tax Claim solely with respect to the former issues and subject to the rights of the Tax Indemnified Party contained in Section 8.8(b) and (y) the Tax Indemnified Party shall have the right at its expense to control the Tax Claim but only with respect to the latter issues.
(e) Notwithstanding any other provision of this Agreement to the contrary, (i) neither Buyer nor any of its Affiliates shall be entitled to participate in any Tax
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Claim relating to any consolidated, combined, affiliated, unitary or similar Tax Return which includes Seller or any of its Affiliates, and (ii) neither Seller nor any of its Affiliates shall be entitled to participate in any Tax Claim relating to any consolidated, combined, affiliated, unitary or similar Tax Return which includes Buyer or any of its Affiliates.
(f) The party controlling any Tax Claim shall defend such Tax Claim diligently in good faith and in accordance with applicable Law.
Section 8.9 Tax Dispute Resolution. With respect to any dispute or a disagreement relating to Taxes among the parties (“Tax Dispute”), the parties shall cooperate to resolve such Tax Dispute between them; but if for any reason the parties are unable to resolve such dispute within ninety (90) days of receipt by a party of written notice of a Tax Dispute, the Independent Accounting Firm shall select within 10 days an independent and impartial partner from such firm with significant experience related to tax disputes, to serve as arbitrator. The individual arbitrator so selected shall be referred to herein as the “Tax Arbitrator”. The Tax Arbitrator shall make its determinations in respect of the Tax Dispute in accordance with the terms and conditions of this Agreement. The Tax Arbitrator shall deliver to Seller and Buyer, as promptly as practicable and in any event within 60 days after his or her appointment, a written award setting forth the Tax Arbitrator’s determination of the Tax Dispute, as determined in accordance with the terms of this Agreement. Such award shall constitute an award under the Federal Arbitration Act, Title 9 of the U.S. Code and the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and shall be final and binding on the parties to the fullest extent permitted by applicable Law and may be entered and enforced in any court having jurisdiction. The 60-day period for delivering the written award may be extended by the mutual written consent of the parties or by the Tax Arbitrator for up to an additional 30 days for good cause shown. Notwithstanding anything else contained herein, the parties agree that no party may assert that any award issued by the Tax Arbitrator is unenforceable because it has not been timely rendered. To the extent necessary, the parties shall file or shall cause to be filed amended Tax Returns reflecting the award of the Tax Arbitrator. Notwithstanding anything in this Agreement to the contrary, each of Buyer and Seller shall bear its own costs and fees in connection with this arbitration, except that Buyer and Seller shall bear the fees and expenses of the Tax Arbitrator in proportion to their respective liability for the portion of the Taxes in dispute, as determined by the Tax Arbitrator.
Section 8.10 Subrogation. Upon making any payment to a Tax Indemnified Party for any indemnification claim pursuant to this Article VIII, the Tax Indemnifying Party shall be subrogated, to the extent of such payment, to any rights which the Tax Indemnified Party or its Affiliates may have against any other Persons with respect to the subject matter underlying such indemnification claim, and the Tax Indemnified Party shall take such actions as the Tax Indemnifying Party may reasonably require to perfect such subrogation or to pursue such rights against such other Persons as the Tax Indemnified Party or its Affiliates may have; provided, that the Tax Indemnifying Party shall not, and the Tax Indemnified Party shall not be required to, take any action that is reasonably likely to have an adverse effect on the Tax Indemnified Party.
Section 8.11 Certain Actions. In the event that the Closing Date shall be a date prior to January 1, 2014, Buyer shall not undertake, or cause or permit any of its Affiliates to undertake, an alteration of the allocation of income or assets for Tax purposes among branches and head office of Nokia Sales International Oy during a Straddle Period in a manner inconsistent with past practices applied for the legal entities merged into Nokia Sales International Oy.
Section 8.12 Exclusivity. This Article VIII shall govern all matters, including indemnification claims, with respect to Taxes.
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ARTICLE IX
MISCELLANEOUS
Section 9.1 Survival. The representations and warranties of the parties contained in this Agreement or in any certificate delivered pursuant to Section 6.1(a)(iii) or Section 6.2(a)(iii), will survive the Closing and will remain in full force and effect thereafter until the date that is eighteen (18) months after the Closing; provided, that (i) the Fundamental Representations shall survive indefinitely, (ii) the representations and warranties shall survive beyond the respective periods set forth in this Section 9.1 with respect to any breach thereof if written notice thereof shall have been duly given prior to the expiration of the respective time period set forth in this Section 9.1 and (iii) the Excluded Representations shall not survive the Closing. The obligations of Seller and its Affiliates with respect to Section 10.1(a)(v) shall survive until the later of (i) five years after the Closing and (ii) with respect to any Losses thereto, the final resolution of any such Losses.
Section 9.2 Assignment; Binding Effect. This Agreement and the rights hereunder are not assignable by either party unless such assignment is consented to in writing by the other parties hereto; provided, that Buyer may, without the consent of Seller, assign any or all of its rights or obligations hereunder to any wholly-owned Subsidiary of Parent (although no such assignment shall relieve Buyer of its obligations to Seller hereunder). Subject to the preceding sentence, this Agreement and all the provisions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.
Section 9.3 Choice of Law. This Agreement shall be governed by and construed in accordance with the Laws of the State of New York applicable to agreements made and to be performed entirely within such State, without regard to any conflict of laws principles that might provide for the application of the law of any other jurisdiction.
Section 9.4 Jurisdiction and Service of Process. With respect to any action, suit or other proceeding resulting from, relating to or arising out of this Agreement, each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York, or if such court will not accept jurisdiction, any court of competent civil jurisdiction sitting within the Southern District of New York. In any such action, suit or proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise (i) any claim that it is not subject to the jurisdiction of the above courts, (ii) that its property is exempt or immune from attachment or execution, (iii) that such action, suit or proceeding is brought in an inconvenient forum, (iv) that the venue of such action, suit or proceeding is improper, (v) that such action, suit or proceeding should be transferred or removed to any court other than one of the above-named courts, or should be stayed by reason of the pendency of some other proceeding in any other
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court other than one of the above-named courts, or that this Agreement or the subject matter hereof may not be enforced in or by such courts. Each of the parties hereto hereby agrees not to commence any such action, suit or proceeding other than before one of the above-named courts. Each of the parties hereto also hereby agrees that any final and non-appealable judgment against a party in connection with any such action, suit or proceeding shall be conclusive and binding on such party and that such judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. With respect to any action, suit or proceeding for which it has submitted to jurisdiction pursuant to this Section 9.4, each party irrevocably consents to service of process in the manner provided for the giving of notices pursuant to Section 9.5 of this Agreement. Nothing in this Section 9.4 shall affect the right of any party to serve process in any other manner permitted by Law. The foregoing consent to jurisdiction shall not (a) constitute submission to jurisdiction or general consent to service of process in the State of New York for any purpose except with respect to any action, suit or proceeding resulting from, relating to or arising out of this Agreement or (b) be deemed to confer rights on any Person other than the respective parties to this Agreement.
Section 9.5 Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given when delivered personally, when sent by confirmed facsimile, when sent by electronic mail (if confirmed by reply electronic mail that is not automated), one Business Day after being sent by overnight courier service (providing written proof of delivery) or three Business Days after being mailed by certified or registered mail, return receipt requested, with postage prepaid to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
If to Buyer, to:
Microsoft International Holdings B.V.
Telestone 8 – Teleport
Naritaweg 165
1043 BW
Amsterdam
Netherlands
Attention: Keith R. Dolliver, Director
Fax: (425) 706-7329
Email: keithd@microsoft.com
with copies, in the case of notice to Buyer, to:
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017
Attn: Alan M. Klein, Esq.
Fax: (212) 455-2502
Email: aklein@stblaw.com
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If to Seller, to:
Nokia Corporation
Keilalahdentie 2-4
P.O. Box 226
FI-00045 Nokia Group
Finland
| Attn: | General Counsel | |
| Fax: | 358 7180 38503 |
with copies, in the case of notice to Seller, to
Skadden, Arps, Slate, Meagher & Flom LLP
525 University Avenue, Suite 1400
Palo Alto, CA 94301
| Attn: | Kenton J. King | |
| Fax: | (650) 798-6527 | |
| Email: | Kenton.King@Skadden.com | |
| Attn: | Michael J. Mies | |
| Fax: | (650) 798-6510 | |
| Email: | Michael.Mies@Skadden.com | |
Section 9.6 Headings. The headings contained in this Agreement are inserted for convenience only and shall not be considered in interpreting or construing any of the provisions contained in this Agreement.
Section 9.7 Entire Agreement. This Agreement, the Seller Disclosure Letter, and the Ancillary Agreements, constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings between the parties with respect to such subject matter, provided, however, this Agreement shall not supersede the terms and provisions of the Confidentiality Agreement, which shall survive and remain in effect until expiration or termination thereof in accordance with its terms and this Agreement.
Section 9.8 Interpretation.
(a) When a reference is made to an Article, Section, Schedule or Exhibit, such reference shall be to an Article, Section, Schedule of, or Exhibit to, this Agreement unless otherwise indicated.
(b) Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”.
(c) Unless the context requires otherwise, words using the singular or plural number also include the plural or singular number, respectively, the use of any gender
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herein shall be deemed to include the other genders, words denoting natural persons shall be deemed to include business entities and vice versa and references to a Person are also to its permitted successors and assigns.
(d) References to “Euro” or “€” are to the currency of the European Monetary Union.
(e) References to “Dollar” or “$” are to the currency of the United States.
(f) The terms “hereof,” “herein,” “hereby,” “hereto” and derivative or similar words refer to this entire Agreement.
(g) References to any statute shall be deemed to refer to such statute as amended from time to time and to any rules or regulations promulgated thereunder (provided, that for purposes of any representations and warranties contained in this Agreement that are made as of a specific date or dates, references to any statute shall be deemed to refer to such statute, as amended, and to any rules or regulations promulgated thereunder, in each case, as of such date).
Section 9.9 Disclosure. Any matter disclosed in any Section of the Seller Disclosure Letter shall be considered disclosed with respect to each other Section of such Seller Disclosure Letter to which such matter would reasonably pertain to the extent that it is reasonably apparent on its face to a reader of such disclosure that it also qualifies or applies to such other Section.
Section 9.10 Waiver and Amendment. This Agreement may be amended, modified or supplemented only by a written mutual agreement executed and delivered by Seller and Buyer. Except as otherwise provided in this Agreement, any failure of any party to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligations, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.
Section 9.11 Third-Party Beneficiaries. This Agreement is not intended to and shall not confer any rights or remedies upon any person other than the parties hereto and their permitted successors and assigns, other than any person under Section 7.3(f) pursuant to the provisions of this Agreement.
Section 9.12 Specific Performance. The parties hereby expressly recognize and acknowledge that immediate, extensive and irreparable damage would result, no adequate remedy at law would exist and damages would be difficult to determine if any provision of this Agreement is not performed in accordance with its specific terms or otherwise breached. It is hereby agreed that the parties shall be entitled to specific performance of the terms hereof and immediate injunctive relief and other equitable relief, without the necessity of proving the inadequacy of money damages as a remedy, and the parties further hereby agree to waive any requirement for the securing or posting of a bond in connection with the obtaining of such injunctive or other equitable relief. Such remedies, and any and all other remedies provided for
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in this Agreement, shall, however, be cumulative in nature and not exclusive and shall be in addition to any other remedies whatsoever which any party may otherwise have. Each of the parties hereby acknowledges that the existence of any other remedy contemplated by this Agreement does not diminish the availability of specific performance of the obligations hereunder or any other injunctive relief. Each of the parties further acknowledges and agrees that injunctive relief and/or specific performance will not cause an undue hardship to such party.
Section 9.13 Severability. If any provision of this Agreement or the application of any such provision to any Person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof.
Section 9.14 Negotiation of Agreement. Each of Buyer and Seller acknowledges that it has been represented by independent counsel of its choice throughout all negotiations that have preceded the execution of this Agreement. Each party and its counsel cooperated in the drafting and preparation of this Agreement and the Ancillary Agreements and any other documents relating to the transaction described herein, and any and all drafts relating thereto shall be deemed the work product of the parties and may not be construed against any party by reason of its preparation. Accordingly, any rule of law or any legal decision that would require interpretation of any ambiguities in this Agreement against the party that drafted it is of no application and is hereby expressly waived. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intentions of the parties and this Agreement.
Section 9.15 Counterparts; Facsimile Signatures. This Agreement may be executed in any number of counterparts, each of which when executed, shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument binding upon all of the parties hereto notwithstanding the fact that all parties are not signatory to the original or the same counterpart. For purposes of this Agreement, facsimile signatures shall be deemed originals.
Section 9.16 Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, THE PARTIES HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY IN ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS AND WILL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
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ARTICLE X
INDEMNIFICATION
Section 10.1 Indemnification by Seller.
(a) Subject to the limits set forth in this Article X, from and after the Closing, Seller agrees to indemnify, defend and hold harmless Buyer and its Affiliates (including, after the Closing, the Transferred Subsidiaries) and their respective officers, directors, stockholders, employees, agents and representatives (the “Buyer Indemnified Persons”) against and in respect of any and all Losses that they may incur arising out of or relating to (i) any breach of any representation or warranty of Seller contained in this Agreement or in any certificate delivered pursuant to Section 6.1(a)(iii) other than the Excluded Representations (provided, that for any representation or warranty that is limited by “materiality”, “Material Adverse Effect” or similar materiality qualifiers, the amount of damages will be determined as if the “materiality”, “Material Adverse Effect” or similar materiality qualifiers were not included therein), (ii) any failure of Seller to perform any covenant or other agreement of Seller contained in this Agreement, (iii) the Seller Retained Businesses, (iv) out-of-pocket costs of the Internal Restructuring (and any deviations therefrom) (other than with respect to Taxes which are addressed separately in the Tax indemnity set forth in Article VIII) and (v) any Excluded Asset, Retained Liability or other Liability not primarily related to the Devices & Services Business.
(b) Anything to the contrary contained herein notwithstanding, in respect of all Losses and claims under clause (i) of Section 10.1(a) (other than with respect to any breach of the representation and warranties contained in Section 3.1 (Due Organization of the Seller Entities), Section 3.2 (Authorization of Transaction by Seller), Section 3.3 (Due Organization and Good Standing of Transferred Subsidiaries) and Section 3.13(c) (Material Contracts) (the “Fundamental Representations”)) and clause (iv) of Section 10.1(a), none of the Buyer Indemnified Persons shall be entitled to recover from Seller any Losses until the total of all Losses, regardless of amount, collectively exceed €37,900,000.00 (the “Basket”) but then the Buyer Indemnified Persons shall be entitled to recover from Seller the full amount of such Losses.
(c) Anything to the contrary contained herein notwithstanding, in respect of all Losses and claims under clause (i) of Section 10.1(a) (other than with respect to any breach of any Fundamental Representation) and clause (iv) of Section 10.1(a), the Buyer Indemnified Persons shall not be entitled to recover more, in the aggregate, than €284,250,000 (the “Cap”) from Seller with respect to all such Losses.
(d) Anything to the contrary contained herein notwithstanding, the Buyer Indemnified Persons shall not be entitled to recover any amount for any individual Loss and claim or series of related Losses or claims under clause (i) of Section 10.1(a) (other than with respect to any breach of any Fundamental Representation) and clause (iv) of Section 10.1(a), that is or are less than €200,000 (the “De Minimis Amount”).
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(e) For the avoidance of doubt, it is understood and agreed that the Basket, the Cap and the De Minimis Amount shall in no event apply to any Losses or claims under clauses (ii), (iii) and (v) of Section 10.1(a).
(f) Anything to the contrary contained herein notwithstanding, in respect of all Losses and claims under clause (v) of Section 10.1(a) none of the Buyer Indemnified Persons shall be entitled to recover from Seller any Losses until the total of all Losses, regardless of amount, collectively exceed €18,950,000.00 but then the Buyer Indemnified Persons shall be entitled to recover from Seller the full amount of such Losses.
(g) Anything to the contrary contained herein notwithstanding, in respect of all Losses and claims under clause (v) of Section 10.1(a), the Buyer Indemnified Persons shall not be entitled to recover more, in the aggregate, than €284,250,000 from Seller with respect to all such Losses.
Section 10.2 Indemnification by Buyer. Subject to the limits set forth in this Article X, from and after the Closing, Buyer agrees to indemnify, defend and hold Seller and each of its Affiliates and their respective officers, directors, stockholders, employees, agents and representatives (the “Seller Indemnified Persons”) harmless from and in respect of any and all Losses that they may incur arising out of or relating to (i) any failure of Buyer to perform any covenant or other agreement of Buyer contained in this Agreement, (ii) any breach of Buyer’s representations and warranties contained in this Agreement or in any certificates delivered pursuant to Section 6.2(a)(iii) and (iii) any Purchased Asset or Assumed Liability. Notwithstanding the foregoing, in no event shall Buyer be required to indemnify or hold harmless any Seller Indemnified Persons with respect to that portion of any Losses for which the Buyer Indemnified Person is, or, in the absence of the limitations in Sections 10.1(b), 10.1(c) or 10.1(d), would be, entitled to indemnification from Seller under this Agreement.
Section 10.3 Indemnification as Exclusive Remedy. Except as otherwise expressly provided in Article VII, and except for claims or actions for fraud, the indemnification provided in this Article X, subject to the limitations set forth herein, shall be the exclusive post-Closing remedy available to any party in connection with any Losses arising out of or resulting from this Agreement or the transactions contemplated hereby. The foregoing notwithstanding, nothing in this Section 10.3 shall limit or restrict the ability or right of any party hereto to seek injunctive or other equitable relief for any breach or alleged breach of any provision of Articles II, V, VI or IX of this Agreement; provided, that any procedures in respect of and limitations on Losses or liabilities in this Article X shall in no event be diminished or circumvented by such relief.
Section 10.4 Indemnification Calculations. The amount of any Losses for which indemnification is provided under this Agreement shall be computed net of (i) any insurance proceeds actually received by the indemnified party in connection with such Losses (calculated net of any out-of-pocket expenses related to the receipt of such recovery, including any incremental insurance premium costs) or (ii) any amounts received through claims of indemnification, reimbursement, offset or recovery in connection with such Losses. If an indemnified party receives insurance proceeds or indemnification, reimbursement, offset or recovery in connection with Losses for which it has received indemnification, reimbursement, offset or recovery, such party shall refund to the Indemnifying Party the amount of such
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insurance proceeds or indemnification when received, up to the amount of indemnification reimbursement, offset or recovery received (net of any out-of-pocket documented reasonable expenses related to the receipt of such recovery, including any incremental insurance premium costs). The parties agree that any indemnification payments made pursuant to this Agreement shall be treated for Tax purposes as an adjustment to the Purchase Price, unless otherwise required by applicable Law. The amount of any Losses for which indemnification is provided under this Agreement shall be reduced to the extent that the party seeking indemnification shall have received the benefit of an adjustment pursuant to Section 2.10 due to the fact that the item that is the subject of the indemnification claim was specifically taken into account in the Final Adjustment Amount.
Section 10.5 Notice and Opportunity to Defend. If there occurs an event which a party asserts is an indemnifiable event pursuant to Sections 10.1 or 10.2, the party or parties seeking indemnification shall notify the other party or parties obligated to provide indemnification (the “Indemnifying Party”) promptly. If such event involves any claim or the commencement of any Action by a third person, the party seeking indemnification will give such Indemnifying Party prompt written notice of such claim or the commencement of such action or Action. However, the failure to provide prompt notice as provided herein will relieve the Indemnifying Party of its obligations hereunder only if, and to the extent that, such failure actually and materially prejudices the Indemnifying Party hereunder. If any such action shall be brought against any party seeking indemnification, the Indemnifying Party shall be entitled to assume the defense thereof, by notice to the indemnified party delivered within ten (10) Business Days of the receipt of notice of such third party claim which includes an acknowledgement of the Indemnifying Party’s obligation to indemnify the indemnified party or parties hereunder against any Losses that may result from such claim, with counsel selected by the Indemnifying Party. The Indemnifying Party shall not be liable to the party or parties seeking indemnification hereunder for any legal expenses of other counsel or any other expenses subsequently incurred by such party or parties in connection with the defense thereof if such defense is assumed by the Indemnifying Party; provided, that the indemnified party or parties shall have the right to employ separate counsel at the Indemnifying Party’s expense if the named parties to any Action include both such indemnified party or parties and the Indemnifying Party or such indemnified party or parties shall have been advised by counsel that there would be an actual or potential conflict of interest if the same counsel were to represent such indemnified party or parties and the Indemnifying Party. If the Indemnifying Party assumes the defense of such an Action by a third person, the Indemnifying Party shall control the defense, negotiation or settlement of any such action or asserted liability. The party or parties seeking indemnification shall have the right to participate at their own expense in the defense of such action or asserted liability and to employ at their own expense separate counsel not reasonably objected to by the Indemnifying Party. If the Indemnifying Party assumes the defense of an Action by a third person, the indemnified party shall agree to any settlement, compromise or discharge of such Action, to the extent the only award or relief is monetary, that the Indemnifying Party may recommend that (A) provides for full settlement and complete release, without any equitable award or relief and (B) by its terms (or pursuant to a binding commitment of the Indemnifying Party) obligates the Indemnifying Party to pay the full amount of the liability in connection with such Action (in each case subject to the provisions of Section 10.1 or 10.2 as the case may be). Whether or not the Indemnifying Party assumes the defense of an Action by a third person, the indemnified party shall not admit liability with respect to, or settle, compromise or discharge such Action without the Indemnifying Party’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed).
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Section 10.6 Tax Indemnity. Indemnification with respect to Taxes shall be governed exclusively by Article VIII.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the day and year first above written.
| NOKIA CORPORATION | ||||
| By: |
| |||
| Name: | ||||
| Title: | ||||
| By: |
| |||
| Name: | ||||
| Title: | ||||
| MICROSOFT INTERNATIONAL HOLDINGS B.V. | ||||
| By: |
| |||
| Name: | ||||
| Title: | ||||
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Exhibit 8
Continuing Nokia Group Companies
| Company | Country of Incorporation | |
| Nokia Solutions and Networks B.V. | The Netherlands | |
| Nokia Solutions and Networks Oy | Finland | |
| Nokia Solutions and Networks US LLC | United States | |
| Nokia Solutions and Networks Japan Corp | Japan | |
| Nokia Solutions and Networks India Private Limited | India | |
| Nokia Solutions and Networks System Technology (Beijing) Co., Ltd | China | |
| Nokia Solutions and Networks Branch Operations Oy | Finland | |
| Nokia Solutions and Networks Korea Ltd | South Korea | |
| Nokia Solutions and Networks do Brasil Telecomunicações Ltda | Brazil | |
| Nokia Solutions and Networks Technology Service Co., Ltd | China | |
| HERE Holding Corporation | United States | |
| HERE Global B.V. | The Netherlands | |
| HERE Europe B.V. | The Netherlands | |
| HERE North America LLC | United States | |
| HERE Deutschland GmbH | Germany | |
| Nokia Finance International B.V. | The Netherlands | |
Discontinued Nokia Group Companies
| Company | Country of Incorporation | |
| Nokia Sales International Oy | Finland | |
| Nokia India Pvt. Ltd. | India | |
| OOO Nokia | Russia | |
| Nokia (China) Investment Co., Ltd. | China | |
| Nokia Telecommunications Ltd. | China | |
| Nokia Inc. | United States | |
| Nokia UK Limited | United Kingdom | |
| Nokia do Brasil Technologia Ltda | Brazil | |
| Nokia TMC Limited | South Korea | |
| Nokia (Thailand) Ltd. | Thailand | |
Exhibit 12.1
CERTIFICATION
I, Risto Siilasmaa, certify that:
| 1. | I have reviewed this annual report on Form 20-F of Nokia Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
Date: April 30, 2014
| /s/ RISTO SIILASMAA |
| Risto Siilasmaa Chairman and interim Chief Executive Officer |
Exhibit 12.2
CERTIFICATION
I, Timo Ihamuotila, certify that:
| 1. | I have reviewed this annual report on Form 20-F of Nokia Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
Date: April 30, 2014
| /s/ TIMO IHAMUOTILA |
| Timo Ihamuotila |
| Chief Financial Officer and interim President |
Exhibit 13
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Nokia Corporation (the “Company”) on Form 20-F for the period ending December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certify that to the best of our knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: April 30, 2014 | /s/ RISTO SIILASMAA | |||||
| Name: | Risto Siilasmaa | |||||
| Title: | Chairman and interim Chief Executive Officer | |||||
| Date: April 30, 2014 | /s/ TIMO IHAMUOTILA | |||||
| Name: | Timo Ihamuotila | |||||
| Title: | Chief Financial Officer and interim President | |||||
Exhibit 15.(a)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-179982, 333-173974, 333-173064, 333-165433, 333-157795, 333-152445, 333-149830, 333-142662, 333-141674, 333-132846 and 333-124700) of Nokia Corporation of our report dated April 30, 2014 relating to the consolidated financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 20-F.
| /s/ PRICEWATERHOUSECOOPERS OY |
| Helsinki, Finland |
| April 30, 2014 |