AutoNation 2006 Annual Report Download - page 59

Table of Contents
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Lease Commitments
The Company leases real property, equipment and software under various operating leases most of which have terms from one to
twenty years. The Company accounts for leases under SFAS No. 13, “Accounting for Leases”, and other related authoritative literature.
Expenses under real property, equipment and software leases were $60.7 million, $59.8 million and $56.7 million for the years
ended December 31, 2006, 2005 and 2004, respectively. The leases require payment of real estate taxes, insurance and common area
maintenance in addition to rent. Most of the leases contain renewal options and escalation clauses. Lease expense is recognized on a
straight-line basis over the term of the lease, including any option periods, as appropriate. The same lease term is used for lease
classification, the amortization period of related leasehold improvements and the estimation of future lease commitments.
Future minimum lease obligations under non-cancelable real property, equipment and software leases with initial terms in excess of
one year at December 31, 2006 are as follows:
Year Ending December 31:
2007 $ 60.7
2008 54.7
2009 47.7
2010 41.2
2011 36.9
Thereafter 263.5
504.7
Less: sublease rentals (14.0)
$ 490.7
Other Matters
The Company, acting through its subsidiaries, is the lessee under many real estate leases that provide for the use by the Company’s
subsidiaries of their respective dealership premises. Pursuant to these leases, the Company’s subsidiaries generally agree to indemnify the
lessor and other related parties from certain liabilities arising as a result of the use of the leased premises, including environmental
liabilities, or a breach of the lease by the lessee. Additionally, from time to time, the Company enters into agreements with third parties in
connection with the sale of assets or businesses in which it agrees to indemnify the purchaser or related parties from certain liabilities or
costs arising in connection with the assets or business. Also, in the ordinary course of business in connection with purchases or sales of
goods and services, the Company enters into agreements that may contain indemnification provisions. In the event that an indemnification
claim is asserted, liability would be limited by the terms of the applicable agreement.
From time to time, primarily in connection with dispositions of automotive stores, the Company’s subsidiaries assign or sublet to
the dealership purchaser the subsidiaries’ interests in any real property leases associated with such stores. In general, the Company’s
subsidiaries retain responsibility for the performance of certain obligations under such leases to the extent that the assignee or sublessee
does not perform, whether such performance is required prior to or following the assignment or subletting of the lease. Additionally, the
Company and its subsidiaries generally remain subject to the terms of any guarantees made by the Company and its subsidiaries in
connection with such leases. Although the Company generally has indemnification rights against the assignee or sublessee in the event of
non-performance under these leases, as well as certain defenses, and the Company presently has no reason to believe that it or its
subsidiaries will be called on to perform under any such assigned leases or subleases, the Company estimates that lessee rental payment
obligations during the remaining terms of
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