Ford 2006 Annual Report Download - page 105

103
Notes to the Financial Statements
103
NOTE 27. COMMITMENTS AND CONTINGENCIES
Lease Commitments
We lease land, buildings and equipment under agreements that expire in various years. Minimum rental commitments
under non-cancellable operating leases were as follows (in millions):
      7KHUHDIWHU 7RWDO
$XWRPRWLYH6HFWRU 

              
)LQDQFLDO6HUYLFHV6HFWRU 

            
Rental expense was as follows (in billions):
  
5HQWDOH[SHQVH 
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     
Guarantees
The fair values of guarantees and indemnifications during 2006 and 2005 are recorded in the financial statements. At
December 31, 2006 and 2005, the following guarantees and indemnifications were issued and outstanding:
Guarantees related to affiliates and third parties. We guarantee debt and lease obligations of certain joint ventures, as
well as certain financial obligations of outside third parties to support business and economic growth. Expiration dates
vary, and guarantees will terminate on payment and/or cancellation of the obligation. A payment by us would be triggered
by failure of the guaranteed party to fulfill its obligation covered by the guarantee. In some circumstances, we are entitled
to recover from the third party amounts paid by us under the guarantee. However, our ability to enforce these rights is
sometimes stayed until the guaranteed party is paid in full, and may be limited in the event of insolvency of the third party
or other circumstances. The maximum potential payments under these guarantees total $100 million for 2006 and
$113 million for 2005, the majority of which relates to the Automotive sector.
In December 2005, we completed the sale of Hertz. As part of this transaction, we provided cash-collateralized letters
of credit in an aggregate amount of $200 million to support the asset-backed portion of the buyer's financing for the
transaction. Our commitment to provide the letters of credit expires no later than December 21, 2011 and supports the
payment obligations of Hertz Vehicle Finance LLC under one or more series of asset-backed notes ("asset-backed
notes"). The letters of credit can be drawn upon on any date funds allocated to pay interest on the asset-backed notes
are insufficient to pay scheduled interest payments, principal amounts due on the legal final maturity date, or when the
balance of assets supporting the asset-backed notes is less than the outstanding balance of the asset-backed notes. The
carrying value of our deferred gain related to the letters of credit was $23 million for 2006 and $27 million for 2005, which
represents the estimated fair value of our guarantee.
In 1996, we issued $500 million of 7.25% Notes due October 1, 2008. In 1999, we entered into a de-recognition
transaction to defease our obligation as primary obligor with respect to the principal of these notes. As part of this
transaction, we placed certain financial assets into an escrow trust for the benefit of the noteholders, and the trust became
the primary obligor with respect to the principal (we became secondarily liable for the entire principal amount).
We also have guarantees outstanding associated with a subsidiary trust, Trust II. For further discussion of Trust II, see
Notes 15 and 20.
Indemnifications. In the ordinary course of business, we execute contracts involving indemnifications standard in the
industry and indemnifications specific to a transaction, such as the sale of a business. These indemnifications might
include claims against any of the following: environmental, tax, and shareholder matters;