AutoNation 2007 Annual Report Download - page 55

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states in which we operate have automotive dealership franchise laws that provide that, notwithstanding the terms of any franchise agreement, it
is unlawful for a manufacturer to terminate or not renew a franchise unless “good cause” exists. It is generally difficult for a manufacturer to
terminate, or not renew, a franchise under these franchise laws, which were designed to protect dealers. In addition, in our experience and
historically in the automotive retail industry, dealership franchise agreements are rarely involuntarily terminated or not renewed by the
manufacturer. Accordingly, we believe that our franchise agreements will contribute to cash flows for the foreseeable future and have indefinite
lives. Other intangibles are amortized using a straight-line method over their useful lives, generally ranging from three to sixteen years.
Goodwill and franchise rights assets are tested for impairment annually at June 30 or more frequently when events or circumstances indicate
that impairment may have occurred. We completed impairment tests of goodwill and franchise rights as of June 30, 2007, and June 30, 2006.
The goodwill test includes determining the fair value of our single reporting unit and comparing it to the carrying value of the net assets allocated
to the reporting unit. No goodwill impairment charges resulted from the required goodwill impairment tests. The test for franchise rights assets
requires the comparison of estimated fair value to its carrying value by store. Fair values of rights under franchise agreements are estimated by
discounting expected future cash flows of the store. We recorded $2.2 million ($1.4 million, net of tax) of impairment charges related to rights
under a Jaguar store’s franchise agreement to reduce the carrying value of that store’s franchise agreement to estimated fair value. The decline in
the fair value of rights under this store’s franchise agreement reflects the negative impact of historical performance of the store since our
acquisition of it, as well as our expectations for the store’s future prospects. These factors resulted in a reduction in forecasted cash flows and
growth rates used to estimate fair value. This non-cash impairment charge is classified as Other Expenses (Income), Net in the accompanying
Consolidated Income Statements for the year ended December 31, 2007.
Other Assets
Other assets consist of various items, including, among other items, service loaner and rental vehicle inventory, net, investments in
marketable securities, the cash surrender value of corporate-owned life insurance held in a Rabbi Trust for deferred compensation participants,
property held for sale, notes receivable, restricted assets, and debt issuance costs. Debt issuance costs are amortized to Other Interest Expense in
the accompanying Consolidated Income Statements using the effective interest method through maturity.
We had property held for sale of $10.9 million at December 31, 2007, and $18.7 million at December 31, 2006.
Other Current Liabilities
Other current liabilities consist of various items payable within one year including, among other items, accruals for payroll and benefits,
sales taxes, finance and insurance chargeback liabilities, deferred revenue, accrued expenses, and customer deposits. Other current liabilities
also includes other tax accruals, totaling $72.2 million at December 31, 2007, and $58.7 million at December 31, 2006. See Note 11, Income
Taxes, of the Notes to Consolidated Financial Statements for additional discussion of income taxes.
Employee Savings Plan
We offer a 401(k) plan to all of our employees and provide a matching contribution to certain employees that participate. The matching
contribution expensed totaled $5.1 million in 2007, $5.3 million in 2006, and $5.8 million in 2005.
In 2005, we established a deferred compensation plan (the “Plan”) to provide certain employees with the opportunity to accumulate assets
for retirement on a tax-deferred basis commencing in 2006. Participants in the Plan are allowed to defer a portion of their compensation and are
100% vested in their respective deferrals
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