General Motors 2010 Annual Report Download - page 107

GENERAL MOTORS COMPANY AND SUBSIDIARIES
The WACCs considered various factors including bond yields, risk premiums, and tax rates; the terminal values were determined
using a growth model that applied a reporting unit’s long-term growth rate to its projected cash flows beyond 2014; and industry sales
and a market share for each reporting unit included annual estimates through 2014, except for GME which is through 2015.
Our fair value estimates assume the achievement of the future financial results contemplated in our forecasted cash flows, and there
can be no assurance that we will realize that value. The estimates and assumptions used are subject to significant uncertainties, many
of which are beyond our control, and there is no assurance that anticipated financial results will be achieved.
In calculating the fair values of our more significant reporting units during our 2010 annual goodwill impairment testing, keeping
all other assumptions constant, the carrying values of these reporting units would still exceed their estimated fair values had our
WACC increased by 16.5 percentage points for GMNA, 7 percentage points for GME, 11 percentage points for GM Daewoo, 13.5
percentage points for Holden and 8.7 percentage points for GM Mercosur.
In the three months ended June 30, 2010 there were event-driven changes in circumstances within our GME reporting unit that
warranted the testing of goodwill for impairment. In the three months ended June 30, 2010 anticipated competitive pressure on our
margins in the near- and medium-term led us to believe that the goodwill associated with our GME reporting unit may be impaired.
Utilizing the best available information at June 30, 2010, the date of impairment measurement, we performed a Step 1 goodwill
impairment test for our GME reporting unit, and concluded that goodwill was not impaired. The fair value of our GME reporting unit
was estimated to be approximately $325 million over its carrying amount. If we had not passed Step 1, we believe the amount of any
goodwill impairment would approximate $140 million representing the net decrease, from July 9, 2009 through June 30, 2010, in the
fair value-to-U.S. GAAP differences attributable to those assets and liabilities that gave rise to goodwill.
Refer to Notes 13 and 26 to our consolidated financial statements for additional information on goodwill impairments.
Impairment of Long-Lived Assets
The carrying amount of long-lived assets and finite-lived intangible assets to be held and used in the business are evaluated when
events and circumstances warrant. If the carrying amount of a long-lived asset group is considered impaired, a loss is recorded based
on the amount by which the carrying amount exceeds the fair value for the asset group to be held and used. Product-specific long-
lived assets are tested for impairment at the platform level. Non-product line specific long-lived assets are tested for impairment on a
segment basis in GMNA, GME, and GM Financial and tested at or within our various reporting units within GMIO and GMSA
segments. Assets classified as held for sale are recorded at the lower of carrying amount or fair value less cost to sell. Fair value is
determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. We develop
anticipated cash flows from historical experience and internal business plans. A considerable amount of management judgment and
assumptions are required in performing the long-lived asset impairment tests, principally in determining the fair value of the asset
groups and the assets’ average estimated useful life. While we believe our judgments and assumptions are reasonable, a change in
assumptions underlying these estimates could result in a material effect to the consolidated financial statements. Long-lived assets
could become impaired in the future as a result of declines in profitability due to significant changes in volume, pricing or costs. Refer
to Note 26 to our consolidated financial statements for additional information on impairments of long-lived assets and intangibles.
Valuation of Cost and Equity Method Investments
When events and circumstances warrant, equity investments accounted for under the cost or equity method of accounting are
evaluated for impairment. An impairment charge would be recorded whenever a decline in value of an equity investment below its
carrying amount is determined to be other than temporary. In determining if a decline is other than temporary we consider and Old
GM considered such factors as the length of time and extent to which the fair value of the investment has been less than the carrying
amount of the equity affiliate, the near-term and longer-term operating and financial prospects of the affiliate and the intent and ability
to hold the investment for a period of time sufficient to allow for any anticipated recovery.
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