Intangible Assets, net
The following table summarizes the components of Intangible assets, net (dollars in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2013 | | December 31, 2012 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Technology and intellectual property | $ | 8,210 |
| | $ | 7,308 |
| | $ | 902 |
| | $ | 7,775 |
| | $ | 6,320 |
| | $ | 1,455 |
|
Brands | 4,466 |
| | 559 |
| | 3,907 |
| | 4,464 |
| | 431 |
| | 4,033 |
|
Dealer network and customer relationships | 1,108 |
| | 364 |
| | 744 |
| | 1,375 |
| | 327 |
| | 1,048 |
|
Favorable contracts and other | 345 |
| | 326 |
| | 19 |
| | 384 |
| | 286 |
| | 98 |
|
Total amortizing intangible assets | 14,129 |
| | 8,557 |
| | 5,572 |
| | 13,998 |
| | 7,364 |
| | 6,634 |
|
Nonamortizing in process research and development | 96 |
| | | | 96 |
| | 175 |
| | | | 175 |
|
Total intangible assets | $ | 14,225 |
| | $ | 8,557 |
| | $ | 5,668 |
| | $ | 14,173 |
| | $ | 7,364 |
| | $ | 6,809 |
|
In December 2012 we entered into a product development agreement with PSA to collaborate on the development of certain vehicle platforms, components and modules. As a result of this agreement, in the three months ended March 31, 2013 we acquired the rights to certain technology and intellectual property for total consideration of $642 million. Consideration of $201 million was paid in cash in May 2013 with the remaining consideration to be paid by May 2018. The acquired rights were recorded at the present value of the total payments to be made as technology and intellectual property of $594 million.
In December 2013 we agreed with PSA to mutually cancel development of one of the vehicle programs and reduce the amount of remaining consideration to be paid, resulting in a net charge of $49 million recorded in Automotive cost of sales in GMNA. The net charge consisted of an impairment of the associated intellectual property of $211 million and a reduction of total consideration from $642 million to $480 million.
The following table summarizes the amortization expense and impairment charges related to Intangible assets, net (dollars in millions):
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| | | | | | | | | | | |
| Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
Amortization expense | $ | 1,281 |
| | $ | 1,568 |
| | $ | 1,804 |
|
Impairment charges | $ | 523 |
| | $ | 1,755 |
| | $ | — |
|
The following table summarizes estimated amortization expense related to Intangible assets, net in each of the next five years (dollars in millions):
|
| | | | | | | | | | | | | | | | | | | |
| 2014 | | 2015 | | 2016 | | 2017 | | 2018 |
Estimated amortization expense | $ | 672 |
| | $ | 330 |
| | $ | 310 |
| | $ | 305 |
| | $ | 300 |
|
Impairment Charges
Year Ended December 31, 2013
GM India
In the three months ended December 31, 2013 we recorded impairment charges of $48 million to adjust the carrying amounts of Intangible assets, net, primarily favorable contract intangibles, to fair value of $0, because of a lack of economic support associated with GM India's declining operations. These charges were recorded in our GMIO segment primarily in Automotive cost of sales. Refer to Note 9 for additional information regarding the triggering events of the impairment charge in India and information on the impairment of Property, net.
Withdrawal of the Chevrolet Brand from Europe
In the three months ended December 31, 2013 we recorded impairment charges of $264 million to adjust the carrying amounts of Intangible assets, net, primarily dealer network intangibles, to fair value because we are winding down the dealer network in 2014 and we expect to incur losses during the wind-down period. These charges were recorded in our GMIO segment in Automotive cost of sales. Refer to Note 19 for additional information on the withdrawal of the Chevrolet brand from Europe.
Year Ended December 31, 2012
We adjusted the carrying amount of the GME intangible assets to their fair value of $139 million and recorded asset impairment charges of $1.8 billion at December 31, 2012. These charges were recorded in our GME segment with $1.6 billion recorded in Automotive selling, general and administrative expense and $0.2 billion recorded in Automotive cost of sales. The fair value estimates for GME's intangible assets are based on a valuation premise that assumes the assets' highest and best use are different than their current use due to the overall European macro-economic environment.
Our recoverability test of the GME asset group includes real and personal property, resulting in additional impairment charges of $3.7 billion, for total impairment charges of $5.5 billion. Refer to Note 9 for additional information regarding the impairment of real and personal property.
To determine the estimated fair value of the brand intangible assets we used the relief from royalty method which is a form of the income approach. Under this approach revenue associated with the brand is projected over the expected remaining useful life of the asset. A royalty rate is then applied to estimate the royalty savings. The royalty rate used was based on an analysis of empirical, market-derived royalty rates for guideline intangible assets and a profit split analysis to determine a rate that is economically supported by GME's forecasted profitability. The net after-tax royalty savings are calculated for each year during the remaining economic life of the asset and discounted to present value.
To determine the estimated fair value of the dealer network we used the cost approach with adjustments in value for the overcapacity of dealers and the sales environment in the region. We determined the fair value to be $0.
The following table summarizes the significant Level 3 inputs for brand intangible assets measurements:
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| | | | | | |
| | Valuation Technique | | Unobservable Input(s) | | Percentage |
Brand intangible assets | | Income approach | | Long-term growth rate | | 0.50% |
| | | | Pre-tax royalty rate(a) | | 0.14% |
| | | | Discount rate(b) | | 21.25% |
__________
| |
(a) | Represents estimated savings realized from owning the asset or having the royalty-free right to use the asset. |
| |
(b) | Represents WACC adjusted for perceived business risks related to these intangible assets. |
