General Motors 2012 Annual Report Download - page 111

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
GMIO
Based on our annual goodwill impairment testing we determined that goodwill was impaired for our GM Korea reporting unit at
October 1, 2011, as the fair value of GM Korea decreased below its carrying amount. We performed event-driven goodwill
impairment tests for GM Korea for each three month period ended subsequent to October 1, 2011. The decrease in 2011 of GM
Korea’s fair value was driven by a higher level of anticipated economic weakness in certain markets to which GM Korea exports
coupled with lower forecasted margins resulting from higher raw material costs and unfavorable foreign exchange rates. Subsequent
to our 2011 annual impairment testing we reversed a deferred tax asset valuation allowance for our GM Holden, Ltd. (Holden)
reporting unit that resulted in the carrying amount of this reporting unit exceeding its fair value. At December 31, 2011 Holden’s
goodwill balance was $0. At October 1, 2012 based on our annual goodwill impairment testing we determined that the fair value of
GM South Africa decreased below its carrying amount. Based on the results of our annual and event-driven goodwill impairment
tests, we recorded total Goodwill impairment charges of $156 million and $270 million in the years ended December 31, 2012 and
2011 within our GMIO segment. At December 31, 2012 GM South Africa’s goodwill balance was $0.
Impairment Charges
The impairment charges recorded as a result of the initial adoption of ASU 2010-28 and the annual and event-driven goodwill
impairment tests in the years ended December 31, 2012 and 2011 represent the net decreases in implied goodwill resulting primarily
from decreases in the fair value-to-U.S. GAAP differences attributable to those assets and liabilities that gave rise to goodwill upon
our application of fresh-start reporting. The net decreases resulted primarily from the reversal of our deferred tax asset valuation
allowances for certain reporting units thus resulting in the recorded amount for deferred taxes exceeding their fair values. The net
decreases also resulted from improvements in our nonperformance risk and in our incremental borrowing rates since July 10, 2009. At
certain of the testing dates the net decrease was also due to an increase in the high quality corporate bond rates utilized to measure our
employee benefit obligations and a decrease in credit spreads between high quality corporate bond rates and market interest rates for
companies with similar nonperformance risk. For the purpose of deriving an implied goodwill balance, deterioration in the business
outlook for GME resulted in a reduction in the fair value of certain tax attributes and an increase in estimated employee benefit
obligations. The amount of implied goodwill derived from GM Korea decreased primarily from a reduction in the fair value of certain
tax attributes. The amount of implied goodwill derived from GMNA and Holden decreased primarily due to the recorded amount of
deferred taxes exceeding the fair values of the tax attributes.
Fair Value Measurements
When performing our goodwill impairment testing, the fair values of our reporting units were determined based on valuation
techniques using the best available information, primarily discounted cash flow projections. We make significant assumptions and
estimates about the extent and timing of future cash flows, growth rates, market share and discount rates that represent unobservable
inputs into our valuation methodologies. The cash flows are estimated over a significant future period of time, which makes those
estimates and assumptions subject to a high degree of uncertainty. Where available and as appropriate, comparative market multiples
and the quoted market price of our common stock are used to corroborate the results of the discounted cash flow method.
Assumptions used in our discounted cash flow analysis that have the most significant effect on the estimated fair value of our
reporting units (excluding GM Financial) include:
• Our estimated WACC;
• Our estimated long-term growth rates; and
• Our estimate of industry volumes and our market share.
The valuation methodologies utilized to perform our goodwill impairment testing were consistent with those used in our application
of fresh-start reporting on July 10, 2009 and in any subsequent annual or event-driven goodwill impairment tests and utilized Level 3
General Motors Company 2012 ANNUAL REPORT108