General Motors 2011 Annual Report Download - page 113

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
incremental ownership interest in Ally Financial depending upon Ally Financial’s equity value at the time of a successful public
offering or private sale. These contractual provisions could result in significant dilution of our ownership interest. Based on an
evaluation of the duration and severity of this decline in fair value, we have concluded the impairment is other than temporary. As a
result we have recorded an impairment charge of $555 million in Interest income and other non-operating income, net to reduce our
investment to its current estimated fair value of $403 million.
In March 2011 our investment in Ally Financial preferred stock was sold through a public offering for net proceeds of $1.0 billion.
The gain of $0.3 billion related to the sale was recorded in Interest income and other non-operating income, net.
We calculated the fair value of our investment in Ally Financial preferred stock as of December 31, 2010 using a discounted cash
flow approach. The present value of the cash flows was determined using assumptions regarding the expected receipt of dividends on
Ally Financial preferred stock and the expected call date.
The following table summarizes the carrying amount and estimated fair value of Ally Financial common and preferred stock
(dollars in millions):
Successor
December 31, 2011 December 31, 2010
Common stock
Carrying amount ................................................................ $403 $ 964
Fair value ...................................................................... $403 $1,031
Preferred stock
Carryingamount ................................................................ $ 665
Fair value ...................................................................... $1,055
At December 31, 2009 we determined that indicators were present that suggested our investments in Ally Financial common and
preferred stock could be impaired. Such indicators included the continuing deterioration in Ally Financial’s mortgage operations, as
evidenced by the strategic actions Ally Financial took in December 2009 to position itself to sell certain mortgage assets. These
actions resulted in Ally Financial recording an increase in its provision for loan losses of $2.4 billion in the three months ended
December 31, 2009. These indicators also included Ally Financial’s receipt of $3.8 billion of additional financial support from the
UST on December 30, 2009. As a result of these impairment indicators, we evaluated the fair value of our investments in Ally
Financial common and preferred stock and recorded an impairment charge of $270 million related to our Ally Financial common
stock to record the investment at its estimated fair value of $970 million.
Old GM
In January 2009 Old GM received a loan from the UST to purchase 190,921 Class B Common Membership Interests in Ally
Financial. The UST had the option to convert outstanding amounts under the loan into a maximum of 190,921 shares of Ally
Financial’s Class B Common Membership Interests on a pro rata basis. In May 2009 the UST exercised this option, the outstanding
principal and interest under the loan was extinguished, and Old GM recorded a net gain of $483 million. The net gain was comprised
of a gain on the disposition of Ally Financial Common Membership Interests of $2.5 billion recorded in Equity in income of and
disposition of interest in Ally Financial and a loss on extinguishment of the loan of $2.0 billion recorded in Loss on extinguishment of
debt. After the exchange, Old GM’s ownership was reduced to 24.5% of Ally Financial’s Common Membership Interests.
Ally Financial converted its status to a C corporation effective June 30, 2009. At that date, Old GM began to account for its
investment in Ally Financial using the cost method rather than the equity method as Old GM could not exercise significant influence
over Ally Financial. Prior to converting to a C corporation, Old GM’s investment in Ally Financial was accounted for in a manner
similar to an investment in a limited liability partnership and the equity method was applied because Old GM’s influence was more
than minor. In connection with Ally Financial’s conversion into a C corporation, each unit of each class of Ally Financial Membership
Interests was converted into shares of capital stock of Ally Financial with substantially the same rights and preferences as such
Membership Interests.
General Motors Company 2011 Annual Report 111