Property, net
The following table summarizes the components of Property, net (dollars in millions):
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| | | | | | | | | |
| Estimated Useful Lives in Years | | December 31, 2013 | | December 31, 2012 |
Land |
| | $ | 1,868 |
| | $ | 2,107 |
|
Buildings and improvements | 5-40 | | 4,971 |
| | 4,601 |
|
Machinery and equipment | 3-27 | | 15,222 |
| | 12,720 |
|
Construction in progress |
| | 2,644 |
| | 3,018 |
|
Real estate, plants and equipment | | | 24,705 |
| | 22,446 |
|
Less: accumulated depreciation | | | (6,787 | ) | | (5,556 | ) |
Real estate, plants and equipment, net | | | 17,918 |
| | 16,890 |
|
Special tools, net | 1-15 | | 7,949 |
| | 7,306 |
|
Total property, net | | | $ | 25,867 |
| | $ | 24,196 |
|
The amount of interest capitalized and excluded from Automotive interest expense related to Property, net was $81 million, $117 million and $91 million in the years ended December 31, 2013, 2012 and 2011.
The following table summarizes the amount of capitalized software included in Property, net (dollars in millions):
|
| | | | | | | |
| December 31, 2013 | | December 31, 2012 |
Capitalized software in use, net | $ | 580 |
| | $ | 465 |
|
Capitalized software in the process of being developed | $ | 50 |
| | $ | 108 |
|
The following table summarizes depreciation, impairment charges and amortization expense related to Property, net, recorded in Automotive cost of sales, GM Financial operating and other expenses, and Automotive selling, general and administrative expense (dollars in millions):
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
Depreciation and amortization expense | $ | 3,959 |
| | $ | 3,888 |
| | $ | 3,604 |
|
Impairment charges(a) | 901 |
| | 3,793 |
| | 81 |
|
Depreciation, impairment charges and amortization expense | $ | 4,860 |
| | $ | 7,681 |
| | $ | 3,685 |
|
| | | | | |
Capitalized software amortization expense(b) | $ | 244 |
| | $ | 209 |
| | $ | 203 |
|
__________
| |
(a) | Includes GMIO assets whose fair value was $131 million at December 31, 2013. Includes GME assets whose fair value was $408 million at December 31, 2012. Also includes other assets whose fair value was determined to be $0 in the years ended December 31, 2013, 2012 and 2011 measured utilizing Level 3 inputs. Fair value measurements of the non-GMIO and non-GME asset group long-lived assets utilized projected cash flows discounted at a rate commensurate with the perceived business risks related to the assets involved. |
| |
(b) | Included in total depreciation, impairment charges and amortization expense. |
Impairment Charges
Year Ended December 31, 2013
GM India
In the three months ended December 31, 2013 we performed a strategic assessment of GM India in response to lower than expected sales performance of our current product offerings in India, higher raw material costs, unfavorable foreign exchange rates and recent deterioration in local market conditions. Our strategic review indicated that the existing long-lived assets of the GM India asset group were not recoverable. In the three months ended December 31, 2013 we recorded asset impairment charges of $280 million to adjust the carrying amount of GM India’s real and personal property to fair value of $45 million. These charges were recorded in our GMIO segment in Automotive cost of sales. Our recoverability test of the GM India asset group also included Intangible assets, net and Goodwill resulting in additional impairment charges of $103 million, for total impairment charges of $383 million. The noncontrolling interest portion of these charges was $35 million based on our 90.8% ownership of GM India. Refer to Note 11 for additional information regarding the impairment of Intangible assets, net and Note 10 for additional information regarding the impairment of Goodwill.
GM Holden Ltd. (Holden)
In December 2013 we announced plans to cease manufacturing and reduce engineering at our Holden subsidiary in Australia by the end of 2017. As a result we recorded asset impairment charges of $477 million to adjust the carrying amounts of certain long-lived assets of our Holden asset group to fair value of $71 million. These charges were recorded in our GMIO segment in Automotive cost of sales. Refer to Note 19 for additional information on the actions taken at Holden.
Year Ended December 31, 2012
During the second half of 2011 and continuing into 2012 the European automotive industry was severely affected by the ongoing sovereign debt crisis, high unemployment and a lack of consumer confidence coupled with overcapacity and we began to experience deterioration in cash flows. In response we formulated a plan to implement various actions to strengthen our operations and increase our competitiveness. During the fourth quarter of 2012 our industry outlook deteriorated further and our forecast of 2013 cash flows declined notwithstanding our actions. As a result we performed a recoverability test of the GME asset group by weighting various undiscounted cash flow scenarios and concluded the GME asset group was not recoverable. Accordingly we recorded asset impairment charges of $3.7 billion at December 31, 2012 to adjust the carrying amount of the GME real and personal property to fair value of $0.4 billion. These charges were recorded in our GME segment with $3.5 billion recorded in Automotive cost of sales and $0.2 billion recorded in Automotive selling, general and administrative expense. Our recoverability test of the GME asset group also included Intangible assets, net and other long-lived assets resulting in additional impairment charges of $1.8 billion, for total impairment charges of $5.5 billion. Refer to Note 11 for additional information regarding the impairment of Intangible assets, net.
Fair Value Measurements
To determine the estimated fair value of real and personal property, the cost approach, market approach and income approach were considered. Under the cost approach, the determination of fair value considered the estimates of the cost to construct or purchase a new asset of equal utility at current prices with adjustments in value for physical deterioration, functional obsolescence, and economic obsolescence. Under the market approach, the determination of fair value considered the market prices in transactions for similar assets and certain direct market values based on quoted prices from brokers and secondary market participants for similar assets. Under the income approach, the determination of fair value considered the estimate of the present worth of future benefits derived from ownership, usually measured through the capitalization of a specific level of income which can be derived from the subject asset with adjustments in value for demolition costs and for the effect of an estimated holding period. Under the income approach, it was assumed fair value could not exceed the present value of the net cash flows discounted at a rate commensurate with the level of risk inherent in the subject asset. An in-exchange premise was determined to be the highest and best use.
The following table summarizes the significant Level 3 inputs for real and personal property measurements:
|
| | | | | |
| Valuation Technique(s) | | Unobservable Input(s) | | Range |
GM India personal property | Market approach | | Economic obsolescence(a) | | 72% - 100% |
Holden real property | Income approach | | Holding period(b) | | 0 - 3 years |
| | | Discount rate(c) | | 11% - 12% |
GME real property | Market approach | | Demolition costs(d) | | 6% - 23% |
| Cost approach | | Holding period(b) | | 0 - 4 years |
| Income approach | | Discount rate(c) | | 11.2% - 14.5% |
GME personal property | Market approach | | Physical deterioration(e) | | 52% - 69% |
| Cost approach | | Functional obsolescence(f) | | 8% - 28% |
| | | Economic obsolescence(a) | | 17% - 23% |
__________
| |
(a) | Represents estimated loss in asset value caused by factors external to the asset such as legislative enactments, changes in use, social change and change in supply and demand. |
| |
(b) | Represents estimated marketing period for each property which dictates the amount of property specific holding costs to be incurred such as real estate taxes. |
| |
(c) | Represents the discount rate for the specific property based on local market sources and available benchmarking data. |
| |
(d) | Represents estimated gross cost to demolish and clear the structures on the property as a percentage of replacement cost new. |
| |
(e) | Represents estimated loss in asset value due to wear and tear, action of the elements and other physical factors that reduce the life and serviceability of the asset. |
| |
(f) | Represents estimated loss in asset value caused by inefficiencies and inadequacies of the asset itself. |
The personal property in our Holden asset group was determined to have a nominal fair value because of anticipated losses during the wind-down period and limited to no salvage value given the decline in the automotive manufacturing base in Australia.
The fair value estimates for GM India, Holden and GME real and personal property are based on a valuation premise that assumes the assets' highest and best use are different than their current use based on the forecasted financial results of the asset groups.
