AutoNation 2005 Annual Report Download - page 60

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Table of Contents
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
assert available defenses in connection with the TADA lawsuits. Further, the Company may have certain rights of indemnification with
respect to certain aspects of these lawsuits. However, an adverse resolution of the TADA lawsuits could result in the payment of significant
costs and damages and negatively impact the Company’s ability to itemize and pass through to the customer the cost of the tax in the future,
which could have a material adverse effect on the Company’s business, results of operations, financial condition, cash flows and prospects.
In addition to the foregoing cases, the Company is also a party to numerous other legal proceedings that arose in the conduct of its
business. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its results of
operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable
resolution of one or more of these matters could have a material adverse effect on its financial condition, results of operations and cash flows.
Lease Commitments
The Company leases real property, equipment and software under various operating leases most of which have terms from one to twenty
years.
Expenses under real property, equipment and software leases were $64.0 million, $60.8 million and $71.8 million for the years ended
December 31, 2005, 2004 and 2003, 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.
Future minimum lease obligations under non-cancelable real property, equipment and software leases with initial terms in excess of one
year at December 31, 2005 are as follows:
Year Ending December 31:
2006 $61.6
2007 53.3
2008 49.4
2009 41.5
2010 35.4
Thereafter 246.2
487.4
Less: sublease rentals (16.9)
$470.5
In September 2005, the EITF reached a consensus on issue EITF 05-06, “Determining the Amortization Period for Leasehold
Improvements Purchased after Lease Inception or Acquired in a Business Combination.” EITF 05-06 requires that leasehold improvements
that are placed in service significantly after and not contemplated at or near the beginning of the lease term or that are acquired in the
business combination should be amortized over the shorter of the useful life of the assets or a term that includes the required lease periods
and renewals that are deemed to be reasonable assured as of the date the leasehold improvements are purchased or the date of acquisition,
as applicable. EITF 05-06 is effective the first reporting period beginning after June 29, 2005. The adoption of EITF 05-06 did not have a
material impact on the Company’s consolidated financial statements.
In October 2005, the FASB issued FASB Staff Position (“FSP”) No. FAS 13-1, “Accounting for Rental Costs Incurred during a
Construction Period.” FSP No. FAS 13-1 requires rental costs associated with
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