Nokia 2012 Annual Report Download - page 223

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 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-off 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.
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
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.
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, or 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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