Nokia 2008 Annual Report Download - page 71

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. In assessing goodwill,
these discounted cash flows are prepared at a cash generating unit level. Amounts estimated could
differ materially from what will actually occur in the future.
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, currency options and embedded derivatives) are determined using 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 financing
transaction of the target companies, (3) analysis of market prospects and operating performance of
the 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 the future periods.
Income Taxes
The Group is subject to income taxes both in Finland and in numerous other jurisdictions. Significant
judgment is required in determining the provision for income taxes and 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 and unused tax losses can be utilized. We have considered future taxable
income and tax planning strategies in making this assessment. We recognize tax provisions 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.
If the final outcome of these matters differs from the amounts initially recorded, differences may
positively or negatively impact the income tax and deferred tax provisions in the period in which
such determination is made.
Pensions
The determination of our pension benefit obligation and expense for defined benefit pension plans is
dependent on our selection of certain assumptions used by actuaries in calculating such amounts.
Those assumptions are described in Note 5 to our consolidated financial statements included in Item
18 of this annual report and include, among others, the discount rate, expected longterm rate of
return on plan assets and annual rate of increase in future compensation levels. A portion of our plan
assets is invested in equity securities. The equity markets have experienced volatility, which has
affected the value of our pension plan assets. This volatility may make it difficult to estimate the
longterm rate of return on plan assets. Actual results that differ from our assumptions are
accumulated and amortized over future periods and therefore generally affect our recognized expense
and recorded obligation in such future periods. Our assumptions are based on actual historical
experience and external data regarding compensation and discount rate trends. While we believe that
our assumptions are appropriate, significant differences in our actual experience or significant
changes in our assumptions may materially affect our pension obligation and our future expense.
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