AutoNation 2007 Annual Report Download - page 54

Table of Contents
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Inventory
Inventory consists primarily of new and used vehicles held for sale, valued at the lower of cost or market using the specific identification
method. Cost includes acquisition, reconditioning, dealer installed accessories, and transportation expenses. Parts and accessories are valued at
the lower of cost (first-in, first-out) or market.
Investments
Investments in marketable securities are included in Other Assets in the accompanying Consolidated Balance Sheets and relate to our self-
insurance programs. Restricted investments, included in Other Assets, consist primarily of marketable corporate and government debt
securities. Marketable securities include investments in debt and equity securities and are primarily classified as available-for-sale. Investments
in debt securities include investment grade corporate bonds, government securities, and other instruments with maturities ranging from 2008 to
2036. Marketable securities are stated at fair value with unrealized gains and losses included in Accumulated Other Comprehensive Income
(Loss) in our Consolidated Balance Sheets. Other-than-temporary declines in investment values are recorded as a component of Other Expenses
(Income), Net in the Consolidated Income Statements. Fair value is estimated based on quoted market prices.
Property and Equipment, net
Property and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and improvements are
capitalized, while minor replacements, maintenance, and repairs are charged to expense as incurred. When property is retired or otherwise
disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in Other Expenses
(Income), Net in the Consolidated Income Statements.
Depreciation is provided over the estimated useful lives of the assets involved using the straight-line method. Leasehold improvements are
amortized over the estimated useful life of the asset or the respective lease term used in determining lease classification, whichever is shorter. The
estimated useful lives are: five to forty years for buildings and improvements and three to ten years for furniture, fixtures, and equipment.
We continually evaluate property and equipment, including leasehold improvements, to determine whether events and circumstances have
occurred that may warrant revision of the estimated useful life or whether the remaining balance should be evaluated for possible impairment.
We use an estimate of the related undiscounted cash flows over the remaining life of the property and equipment in assessing whether an asset
has been impaired. We measure impairment losses based upon the amount by which the carrying amount of the asset exceeds the fair value. Fair
values generally are estimated using prices for similar assets and/or discounted cash flows.
Goodwill and Other Intangible Assets, net
We account for acquisitions using the purchase method of accounting. Goodwill consists of the cost of acquired businesses in excess of the
fair value of the net assets acquired. Additionally, other intangible assets are separately recognized if the benefit of the intangible asset is obtained
through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of our
intent to do so.
Our principal identifiable intangible assets are rights under franchise agreements with vehicle manufacturers. We generally expect our
franchise agreements to survive for the foreseeable future and, when the agreements do not have indefinite terms, anticipate routine renewals of
the agreements without substantial cost. The contractual terms of our franchise agreements provide for various durations, ranging from one year
to no expiration date, and in certain cases, manufacturers have undertaken to renew such franchises upon expiration so long as the dealership is
in compliance with the terms of the agreement. However, in general, the
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