General Motors 2012 Annual Report Download - page 170

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Ally Financial Common and Preferred Stock
In December 2010 the UST agreed to convert 110 million shares of preferred securities into 532,000 shares of common stock. This
resulted in the dilution of our investment in Ally Financial common stock from 16.6% to 9.9%, of which 4.0% was held directly and
5.9% was held indirectly through an independent trust. In May 2011 we transferred the 4.0% of shares we owned directly to the
independent trust. In December 2011 in response to a letter from the trustee requesting that the life of the trust be extended, the
Federal Reserve agreed to extend the trust from December 2011 to December 2013. Pursuant to previous commitments to reduce
influence over and ownership in Ally Financial, the trustee, who is independent of us, has the sole authority to vote and is required to
dispose of all Ally Financial common stock held in the trust by December 24, 2013. We can cause the trustee to return any Ally
Financial common stock to us to hold directly, so long as our directly held voting and total common equity interests remain below
10.0%. At December 31, 2012 and 2011 our equity ownership in Ally Financial was 9.9%.
Fair Value of Ally Financial Common Stock
We estimated the fair value of Ally Financial common stock using a market approach that applies the average price to tangible
book value multiples of comparable companies to the consolidated Ally Financial tangible book value. The significant inputs used in
our fair value analyses included Ally Financial’s December 31, 2012 and 2011 financial statements, financial statements and price to
tangible book value multiples of comparable companies in the banking and finance industry, and the effects of certain Ally Financial
shareholder rights. The measurement of Ally Financial common stock is a Level 3 fair value measurement.
At December 31, 2011 we determined the carrying amount of our investment in Ally Financial common stock exceeded our
estimate of its fair value. Our estimate of fair value resulted from broader macroeconomic uncertainties and volatility in the financial
markets including the Eurozone debt crisis, continued heightened risk of recession and concerns about Ally Financial’s mortgage
related operations. Our estimate considered the potential effect of contractual provisions held by the UST who may receive
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 concluded the impairment was other-than-temporary. As a
result we recorded an impairment charge of $555 million in Interest income and other non-operating income, net to reduce our
investment to its estimated fair value of $403 million.
The following table summarizes the carrying amount and estimated fair value of Ally Financial common stock (dollars in millions):
December 31, 2012 December 31, 2011
Common stock
Carrying amount ................................................................ $ 399 $403
Fair value ...................................................................... $1,268 $403
Ally Financial Preferred Stock
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 $339 million related to the sale was recorded in Interest income and other non-operating income, net.
General Motors Company 2012 ANNUAL REPORT 167