Tesla 2011 Annual Report Download - page 124

Table of Contents
total potential costs to remediate pre-existing contamination. Based on management’s best estimate, we estimated the fair value of the
environmental liabilities that we assumed to be $5.3 million. The fair value of these liabilities was determined based on an expected value
analysis of the related potential costs to investigate, remediate and manage various environmental conditions that were identified as part of
NUMMI
’s facility decommissioning activities as well as our own diligence efforts. As NUMMI continues with its decommissioning activities
and we continue with our planned construction and operating activities, it is reasonably possible that our estimate of environmental liabilities
may change materially. We have reached an agreement with NUMMI in terms of how we and NUMMI will take responsibility for any costs
related to governmentally-required remediation activities for contamination that existed prior to the completion of the facility and land purchase
for any known or unknown environmental conditions (see Note 14).
The purchase consideration for the Fremont facility consisted of cash paid of $48.5 million and liabilities assumed of $5.3 million for an
aggregate purchase price of $53.8 million. The aggregate purchase price of $53.8 million was allocated to land, building, site improvements and
emission credits based on their relative fair values as the total estimated fair values of these assets were greater than the total purchase price. The
following table summarizes the allocation of the purchase price to the tangible and intangible assets purchased as of the date of purchase (in
thousands):
Building and site improvements are classified within construction in progress and together with land, are recorded in property, plant and
equipment, net, on the consolidated balance sheet. The estimated fair value of land was determined using the market approach. Although the
market approach compares the subject asset purchase to similar transactions which would otherwise classify these inputs within Level II of the
fair value hierarchy, adjustments we made to comparable sales both qualitatively and quantitatively caused us to classify these inputs within
Level III of the fair value hierarchy. The fair value of the building and site improvements were estimated using the cost approach and therefore,
the inputs are classified within Level III of the fair value hierarchy. Incremental due diligence costs of $0.7 million related to the purchase of the
land have been capitalized to land.
Emission credits are classified as intangible assets and are recorded in other noncurrent assets on the consolidated balance sheet. The
estimated fair value of emission credits was determined using market data related to traded emission credits and as such, these inputs are
classified within Level I of the fair value hierarchy. The utility of the emission credits are related to the operation of the purchased facility and
therefore, will be amortized over the same useful life. As the facility is not yet ready for its intended use, we have not yet commenced the
depreciation of the facility or the amortization the emission credits. We currently estimate that building and building improvements, as well as
the emission credits, will have an estimated useful life of 25 years.
Manufacturing Assets
In August 2010, we entered into a separate purchase agreement with NUMMI for the purchase of certain manufacturing equipment and
spare parts located at the Fremont facility. This purchase agreement was subsequently amended to include additional manufacturing equipment
and spare parts. In October 2010, we completed this purchase concurrent with the completion of the facility purchase. The aggregate purchase
price for these assets was $16.7 million reflecting the estimated fair value of these assets. As these manufacturing assets and spare parts are not
yet ready for their intended use, they are classified within construction in progress and recorded in property, plant and equipment, net, on the
consolidated balance sheet. We have not yet commenced the depreciation of these assets. We currently estimate that manufacturing and related
assets will have an estimated useful life of 15 years.
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Building and site improvements
$
13,556
Land
25,736
Emission credits
14,508
$
53,800