Chipotle 2005 Annual Report Download - page 37

percentage of total revenue, these expenses decreased due primarily to the effect of higher average
store sales on a partially fixed-cost base.
Depreciation and Amortization. Depreciation and amortization increased primarily due to stores
opened in 2005 and in late 2004. As a percentage of total revenue, depreciation and amortization
remained relatively consistent at 4.5% in 2005 and 4.6% in 2004.
Pre-Opening Costs. Pre-opening costs decreased principally because there were fewer store
openings in 2005 than in 2004.
In October 2005, the Financial Accounting Standards Board (‘‘FASB’’) issued FASB Staff Position
No. FAS 13-1, Accounting for Rental Costs Incurred during a Construction Period (‘‘FSP 13-1’’). FSP 13-1
requires rental costs associated with ground or building operating leases incurred during a construction
period to be recognized as expense. FSP 13-1 applies to reporting periods beginning after
December 15, 2005. Retroactive application is permitted, but not required. Had FSP 13-1 been effective
in 2005, we would have recognized additional pre-opening costs of approximately $4.2 million. We
expect pre-opening costs to increase as we begin to recognize this expense in 2006.
Loss on Disposal of Assets. The increase in loss on disposal of assets was largely due to additional
write-offs associated with investigating potential store sites that we considered but subsequently
rejected, as well as write-offs of obsolete equipment as a result of software upgrades.
Net Interest Expense. The increase in interest expense (net of interest income) was due to higher
average borrowings from McDonald’s in 2005 than in the comparable 2004 period, as McDonald’s did
not make any equity contributions in 2005.
Benefit for Income Taxes. During 2005, we determined that it was more likely than not that we
would realize our deferred tax assets and we reversed our valuation allowance of $20.3 million. The
benefit from the reduction of the valuation allowance was partially offset by our current tax expense of
$12.8 million, which resulted in the realization of a net tax benefit of $7.5 million. The $20.3 million tax
benefit was a one-time tax benefit and we expect to incur tax expense prospectively.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
The table below presents our operating results for the years ended December 31, 2004 and 2003
and the related year-to-year changes:
Year
Ended
December 31, Increase/ % Increase/
2004 2003 (Decrease) (Decrease)
(in millions, except percentages)
Restaurant sales .................................. $468.6 $314.0 $154.6 49.2%
Food, beverage and packaging costs .................... 154.1 104.9 49.2 46.9
Labor costs ..................................... 139.5 94.0 45.5 48.4
Occupancy costs .................................. 36.2 25.6 10.6 41.5
Other operating costs .............................. 64.3 43.5 20.8 47.7
General and administrative expenses ................... 44.8 34.2 10.6 31.1
Depreciation and amortization. ....................... 21.8 15.1 6.7 44.5
Pre-opening costs ................................. 2.2 1.6 0.6 34.4
Loss on disposal of assets ........................... 1.7 4.5 (2.8) (62.7)
Net interest income ............................... — 0.2 (0.2) n/m*
* not meaningful
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