Nokia 2011 Annual Report Download - page 112

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 reasonable 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 any impairment based on discounted projected cash flows.
This review is based upon our projections of anticipated discounted future cash flows. The most
significant variables in determining cash flows 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 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.
Goodwill is allocated to the Group’s cash-generating units (CGU) and discounted cash flows are
prepared at CGU level for the purpose of impairment testing. The allocation of goodwill to our 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 each of our acquisitions. Accordingly,
goodwill has been allocated to the Group’s reportable segments; Smart Devices CGU, Mobile Phones
CGU, Location & Commerce CGU and Nokia Siemens Networks CGU. For the purposes of the
Group’s 2011 annual impairment testing, the amount of goodwill previously allocated in 2010 to the
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