Notes to Consolidated Financial Statements
Note 11. Other Assets
Other assets consisted of:
December 31, ($ in millions) |
2006 |
2005 |
||||
Premises and equipment at cost |
$ |
1,645 |
$ |
2,899 |
||
Accumulated depreciation |
(1,067 |
) |
(1,145 |
) |
||
Net premises and equipment |
578 |
1,754 |
||||
Cash reserve deposits held for securitization trusts(a) |
2,623 |
2,907 |
||||
Fair value of derivative contracts in receivable position |
2,544 |
3,000 |
||||
Real estate and other investments(b) |
3,068 |
1,855 |
||||
Restricted cash collections for securitization trusts(c) |
1,858 |
1,871 |
||||
Goodwill, net of accumulated amortization |
1,827 |
2,446 |
||||
Deferred policy acquisition cost |
1,740 |
1,696 |
||||
Accrued interest and rent receivable |
1,315 |
1,163 |
||||
Repossessed and foreclosed assets, net |
1,215 |
689 |
||||
Debt issuance costs |
643 |
726 |
||||
Servicer advances |
606 |
499 |
||||
Securities lending |
445 |
– |
||||
Investment in used vehicles held for sale, at lower of cost or market |
423 |
503 |
||||
Subordinated note receivable |
250 |
– |
||||
Intangible assets, net of accumulated amortization(d) |
||||||
Customer lists and contracts |
48 |
16 |
||||
Trademarks and other |
11 |
15 |
||||
Receivables related to taxes |
9 |
774 |
||||
Other assets |
4,293 |
2,528 |
||||
Total other assets |
$ |
23,496 |
$ |
22,442 |
||
(a) Represents credit enhancement in the form of cash reserves for various securitization transactions we have executed. On November 22, 2006, $710 of cash reserve deposits were transferred to GM as part of a distribution of certain securitized U.S. lease assets. Refer to Note 18 to our Consolidated Financial Statements for further description of the distribution. |
(b) Includes residential real estate investments of $2 billion and $1.3 billion and related accumulated depreciation of $13 and $9 for years ended December 31, 2006 and 2005, respectively. |
(c) Represents cash collection from customer payments on securitized receivables. These funds are distributed to investors as the related secured debt matures. |
(d) Aggregate amortization expense on intangible assets was $16 and $17, including $1 and $8 for Capmark, for the years ended December 31, 2006 and 2005, respectively. Amortization expense is expected to average $10 per year over the next five fiscal years. In addition, during 2006, our Commercial Finance Group had $13 of intangible assets that were deemed impaired and subsequently written off during the third quarter of 2006. |
The changes in the carrying amounts of goodwill for the periods indicated were as follows:
($ in millions) |
North American Operations |
International Operations |
ResCap |
Insurance |
Other |
Total |
||||||||||||
Goodwill at beginning of 2005 |
$ |
14 |
$ |
515 |
$ |
455 |
$ |
666 |
$ |
1,624 |
$ |
3,274 |
||||||
Goodwill acquired |
– |
3 |
16 |
3 |
– |
22 |
||||||||||||
Impairment losses(a) |
– |
– |
– |
– |
(712 |
) |
(712 |
) |
||||||||||
Other |
– |
– |
(4 |
) |
– |
(18 |
) |
(22 |
) |
|||||||||
Foreign currency translation effect |
– |
(14 |
) |
(7 |
) |
– |
(36 |
) |
(57 |
) |
||||||||
Transfers to assets held for sale(b) |
– |
– |
– |
– |
(59 |
) |
(59 |
) |
||||||||||
Goodwill at beginning of 2006 |
$ |
14 |
$ |
504 |
$ |
460 |
$ |
669 |
$ |
799 |
$ |
2,446 |
||||||
Goodwill acquired |
– |
– |
3 |
148 |
– |
151 |
||||||||||||
Impairment losses(c) |
– |
– |
– |
– |
(827 |
) |
(827 |
) |
||||||||||
Other |
– |
3 |
1 |
– |
– |
4 |
||||||||||||
Foreign currency translation effect |
– |
16 |
7 |
2 |
28 |
53 |
||||||||||||
Goodwill at end of 2006 |
$ |
14 |
$ |
523 |
$ |
471 |
$ |
819 |
$ |
– |
$ |
1,827 |
||||||
(a) During the fourth quarter of 2005, we completed our goodwill impairment analysis of our Commercial Finance Group (CFG) reporting unit in accordance with SFAS 142. The CFG reporting unit’s goodwill related primarily to its 1999 acquisition of The Bank of New York’s commercial finance business. With the assistance of a third party, management performed an assessment of the fair value of the CFG reporting unit. The fair value of the CFG reporting unit was determined using the average of an internally developed discounted cash flow methodology and a valuation derived from recent market precedent transactions. Based on this assessment, it was determined that indicators of impairment existed as the carrying amount of the CFG reporting unit including goodwill exceeded its fair value. These indicators were largely attributed to current competitive conditions in the industry in which CFG operates, the relative level of liquidity in its market and the CFG reporting unit experiencing declining margins and a more difficult environment for growth than anticipated in previous forecasts. Because the carrying amount of the CFG reporting unit, including goodwill, as a whole exceeded its fair value, management assessed the fair value of the CFG reporting unit’s individual assets, including identifiable intangible assets and liabilities, to derive an implied fair value of the CFG reporting unit’s goodwill. Based on this assessment, we recorded an impairment charge of $648 in the fourth quarter of 2005 as it was determined that the carrying value of the CFG reporting unit’s goodwill was greater than its implied fair value. In addition, other includes impairment losses of $64 related to the former GMAC Commercial Mortgage business. |
(b) At December 31, 2005, $59 of goodwill in the former GMAC Commercial Mortgage business was transferred to assets held for sale in our Consolidated Balance Sheet. |
(c) Following attrition of key personnel around the middle of the year, our Commercial Finance reporting unit initiated a goodwill impairment test, in accordance with SFAS 142, outside the normal fourth quarter cycle. A necessary precedent to such test was a thorough review of the business by new leadership, with a particular focus on long-term strategy. As a result of the review the operating divisions were reorganized and the decision was made to implement a different exit strategy for the workout portfolio and to exit product lines with lower returns. These decisions had a significant impact on expected asset levels and growth rate assumptions used to estimate the fair value of the business. In particular, the analysis performed during the third quarter incorporates management’s decision to discontinue activity in the equipment finance business, which had a portfolio of over $1 billion, representing approximately 20% of Commercial Finance business’s average commercial loan portfolio during 2006. Consistent with the prior analysis, the fair value of the Commercial Finance business was determined using an internally developed discounted cash flow analysis based on five-year projected net income and a market driven terminal value multiple. Based upon the results of the assessment, we concluded that the carrying value of goodwill exceeded its fair value, resulting in an impairment loss of $827 during 2006. |