Nokia 2007 Annual Report Download - page 176

7. Impairment (Continued)
that does not exceed the longterm average growth rates for the industry and economies in which
the CGU operates.
The goodwill of EUR 803 million arising from the formation of Nokia Siemens Networks was allocated
to that CGU for the purpose of impairment testing. Management expects moderate market share
growth in this industry segment will drive moderate revenue growth. Increased volumes and cost
savings derived from the business combination are expected to drive operating profit margins to
improve to prevailing levels in this industry. Cash flows beyond the explicit forecast period are
extrapolated using an estimated residual growth rate of 2.5%. The pretax cash flow projections are
discounted using a pretax discount rate of 16%.
Goodwill amounting to EUR 240 million was allocated to the Intellisync CGU, which is included in the
Enterprise Solutions segment. Management expects that moderate market share growth in a high
growth industry segment will drive strong revenue growth. Increased volume is expected to cause
operating profit margins to improve to prevailing levels in the industry. Cash flows beyond the
explicit forecast period are extrapolated using an estimated terminal growth rate of 5%. The pretax
cash flow projections are discounted using a pretax discount rate of 20%.
The aggregate carrying amount of goodwill allocated across multiple CGUs amounts to EUR 341 million
and the amount allocated to each individual CGU is not individually significant.
8. Acquisitions
Acquisitions completed in 2007
The Group and Siemens AG (“Siemens”) completed a transaction to form Nokia Siemens Networks on
April 1, 2007. Nokia and Siemens contributed to Nokia Siemens Networks certain tangible and
intangible assets and certain business interests that comprised Nokia’s networks business and
Siemens’ carrierrelated operations. This transaction combined the worldwide mobile and fixedline
telecommunications network equipment businesses of Nokia and Siemens. Nokia and Siemens each
own approximately 50% of Nokia Siemens Networks. Nokia has the ability to appoint key officers and
the majority of the members of the Board of Directors. Accordingly, for accounting purposes, Nokia is
deemed to have control and thus consolidates the results of Nokia Siemens Networks in its financial
statements.
The transfer of Nokia’s networks business to Nokia Siemens Networks was treated as a partial sale to
the minority shareholders of Nokia Siemens Networks. Accordingly, the Group recognized a non
taxable gain on the partial sale amounting to EUR 1 879 million. The gain was determined as the
Group’s ownership interest relinquished for the difference between the fair value and book value of
the net assets contributed by the Group to Nokia Siemens Networks. Upon closing of the transaction,
Nokia and Siemens contributed net assets with book values amounting to EUR 1 742 million and
EUR 2 385 million respectively. The Group’s contributed networks business was valued at EUR 5
500 million. In addition, the Group incurred costs directly attributable to the acquisition of EUR
51 million.
The table below presents the reported results of Nokia Networks prior to the formation of Nokia
Siemens Networks and the reported results of Nokia Siemens Networks since inception.
F33
Notes to the Consolidated Financial Statements (Continued)