Nokia 2008 Annual Report Download - page 68

contract revenue and the cost to complete the contract can be estimated reliably, it is probable that
economic benefits associated with the contract will flow to the Group, and the stage of contract
completion can be measured. When we are not able to meet those conditions, the policy is to
recognize revenues only equal to costs incurred to date, to the extent that such costs are expected to
be recovered. Completion is measured by reference to costs incurred to date as a percentage of
estimated total project costs using the costtocost method.
The percentage of completion method relies on estimates of total expected contract revenue and
costs, as well as the dependable measurement of the progress made towards completing the
particular project. Recognized revenues and profit are subject to revisions during the project in the
event that the assumptions regarding the overall project outcome are revised. The cumulative impact
of a revision in estimates is recorded in the period such revisions become likely and estimable. Losses
on projects in progress are recognized in the period they become likely and estimable.
Nokia Siemens Networks’ current sales and profit estimates for projects may change due to the early
stage of a longterm project, new technology, changes in the project scope, changes in costs, changes
in timing, changes in customers’ plans, realization of penalties, and other corresponding factors.
Customer Financing
We have provided a limited amount of customer financing and agreed extended payment terms with
selected customers. In establishing credit arrangements, management must assess the
creditworthiness of the customer and the timing of cash flows expected to be received under the
arrangement. However, should the actual financial position of our customers or general economic
conditions differ from our assumptions, we may be required to reassess 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. The Group endeavors to mitigate this risk through the 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. See also Note 35(b) to our consolidated
financial statements included in Item 18 of this annual report for a further discussion of longterm
loans to customers and other parties.
Allowances for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the subsequent
inability of our customers to make required payments. If the financial conditions of our customers
were to deteriorate, resulting in an impairment of their ability to make payments, additional
allowances may be required in future periods. Management specifically analyzes accounts receivables
and historical bad debt, customer concentrations, customer creditworthiness, current economic trends
and changes in our customer payment terms when evaluating the adequacy of the allowance for
doubtful accounts.
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.
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
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