Nokia 2013 Annual Report Download - page 108

NOKIA IN 2013
106
Fair value less cost of disposal for the HERE CGU, Radio
Access Networks and Global Services groups of CGUs are
determined using post-tax valuation assumptions including
projected cash fl ows and the discount rate.
The discount rates applied in the impairment testing for the
above noted CGUs or groups of CGUs refl ect current assess-
ments of the time value of money and relevant market risk
premiums. Risk premiums included in the determination of
the discount rate refl ect risks and uncertainties for which the
future cash fl ow estimates have not been adjusted.
In the fourth quarter of  the Group recorded an impair-
ment loss t of EUR   million to reduce the carrying amount
of the HERE CGU to its at that time recoverable amount. The
impairment loss was allocated in its entirety to the carrying
amount for goodwill. As a result of the impairment loss, the
amount of goodwill allocated to HERE CGU was reduced to EUR
  million at December , . The Group’s goodwill im-
pairment testing did not result in impairment charges for the
years ended December ,  and . An impairment loss
was recorded with respect to the Group’s HERE CGU in , as
noted above.
The recoverable amount of the HERE CGU exceeds its carry-
ing 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 . percentage point or long-term growth decline
in excess of . 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 off er-
ings, projected value of the services sold to Microsoft and
assumptions regarding pricing as well as continued focus on
cost effi ciency are the main drivers for the HERE net cash fl ow
projections. The Group’s cash fl ow forecasts refl ect the cur-
rent 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 soft-
ware and services and monetized via license fees, transactions
fees and advertising, will grow in the future as more custom-
ers 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 mate-
rial 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 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  to our consolidated fi nancial statements in-
cluded in Item  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 fi nancial 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: () the current market value of similar instruments,
() prices established from a recent arm’s length transactions,
() 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  the Group
received distributions of EUR  million (EUR million in )
included in other fi nancial income from a private fund held as
non-current available-for-sale. Due to a reduction in estimated
future cash fl ows the Group also recognized an impairment
loss of EUR  million in  for the fund included in other fi -
nancial expenses. See also note  to our consolidated fi nancial
statements included in item  of this annual report.
INCOME TAXES
The Group is subject to income taxes both in Finland and in nu-
merous other jurisdictions. Signifi cant judgment is required in
determining income tax expense, uncertain tax positions, de-
ferred tax assets and liabilities recognized in the consolidated
fi nancial statements. We recognize deferred tax assets to the
extent that it is probable that suffi cient taxable income will be
available in the future against which the temporary diff erences,
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  Nokia
taxes continued to be unfavorably aff ected by NSN taxes as
no tax benefi ts are recognized for certain Nokia Solutions and
Networks deferred tax items. Additionally Nokia taxes were
adversely aff ected by allowances related to Devices & Services’
Finnish deferred tax assets and discontinuation of recognizing
tax benefi ts for Devices & Services’ Finnish deferred tax items
due to uncertainty of utilization of these items.
At December , , the Group had tax losses carry
forward, temporary diff erences and tax credits of EUR  
million (EUR   million in ) for which no deferred tax
assets were recognized in the consolidated fi nancial state-
ments 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 ongo-
ing tax investigations in multiple jurisdictions, including India.
If the fi nal outcome of these matters diff ers from the amounts
initially recorded, diff erences may positively or negatively
impact the current taxes and deferred taxes in the period in
which such determination is made.