Chipotle 2006 Annual Report Download - page 34

The total tax provision for 2006 of $26.8 million represents a 39.3% effective tax rate. During 2005, we
determined that it was more likely than not we would realize our deferred tax assets and we reversed our
valuation allowance of $20.3 million resulting in a $7.5 million tax benefit and an effective tax rate benefit of
24.7%. Excluding the $20.3 million non-recurring tax benefit, the effective tax rate for 2005 would have been
42.6%. The decrease in the effective tax rate is largely due to a decrease in the estimated statutory state rate for
enacted changes in state tax laws, the favorable impact of changes in our state tax footprint due to growth, the
declining impact of meals and entertainment disallowance as taxable income increases, our investing in
tax-exempt securities and a permanent difference related to stock-based compensation in 2005.
Quarterly Financial Data/Seasonality
The following table presents consolidated statement of income data for each of the eight quarters ended
December 31, 2006. The operating results for any quarter are not necessarily indicative of the results for any
subsequent quarter.
2006 Quarters Ended
Mar. 31 June 30 Sept. 30 Dec. 31
(dollars in millions)
Revenue .................................................. $187.0 $204.9 $211.3 $219.7
Operating income ........................................... $ 12.7 $ 15.9 $ 17.9 $ 15.5
Net income ................................................ $ 8.0 $ 10.8 $ 11.8 $ 10.8
Number of restaurants opened in quarter ......................... 15 14 30 35
Comparable restaurant sales increase ........................... 19.7% 14.5% 11.6% 10.1%
2005 Quarters Ended
Mar. 31 June 30 Sept. 30 Dec. 31
(dollars in millions)
Revenue .................................................. $133.4 $156.3 $164.7 $173.3
Operating income ........................................... $ 4.4 $ 9.3 $ 9.5 $ 7.7
Net income ................................................ $ 2.6 $ 25.7 $ 5.1 $ 4.3
Number of restaurants opened in quarter ......................... 18 17 17 28
Comparable restaurant sales increase ........................... 4.1% 9.6% 11.5% 14.3%
Seasonal factors cause our profitability to fluctuate from quarter to quarter. Historically, our restaurant sales
are lower in the first and fourth quarters due, in part, to the holiday season and because fewer people eat out
during periods of inclement weather (the winter months) than during periods of mild or warm weather (the
spring, summer and fall months). Other factors also have a seasonal effect on our results. For example,
restaurants located near colleges and universities generally do more business during the academic year. The
number of trading days in a quarter can also affect our results. Overall, on an annual basis, changes in trading
dates do not have a significant impact on our results.
Our quarterly results are also affected by other factors such as the number of new restaurants opened in a
quarter and unanticipated events. New restaurants typically have lower margins following opening as a result of
the expenses associated with opening new restaurants and their operating inefficiencies in the months
immediately following opening. Because we have tended to open more new restaurants later in the fiscal year,
our fourth quarter net income may be lower than in other quarters. In addition, unanticipated events also impact
our results. For example, in the second quarter of 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, resulting in a net
tax benefit of $16.7 million in that quarter. Accordingly, results for a particular quarter are not necessarily
indicative of results to be expected for any other quarter or for any year.
Liquidity and Capital Resources
Our primary liquidity and capital requirements are for new restaurant construction, working capital and
general corporate needs. Until our initial public offering, we had financed these requirements primarily through
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