Chipotle 2006 Annual Report Download - page 35

equity sales to McDonald’s and others as well as through cash flows from operations. In January 2006 we
completed our initial public offering of class A common stock, receiving net proceeds of approximately
$120.9 million. We expect to use the net proceeds from the offering, together with cash flow from operations, to
provide additional long-term capital to support the growth of our business (primarily through opening
restaurants), to continue to maintain our existing restaurants and for general corporate purposes.
In October 2006, we entered into a revolving line of credit with a principal amount of $10 million which
expires in August 2007. The line of credit is for support of letters of credit we issue in the normal course of
business and bears interest at our option at the Prime rate, a fixed rate determined by the bank or an adjusted
LIBOR rate.
We haven’t required significant working capital because customers pay using cash or credit cards and
because our operations do not require significant receivables, nor do they require significant inventories due, in
part, to our use of various fresh ingredients. In addition, we generally have the right to pay for the purchase of
food, beverage and supplies some time after the receipt of those items, generally within ten days, thereby
reducing the need for incremental working capital to support growth.
Operating Activities. Net cash provided by operating activities was $103.6 million for 2006 compared to
$77.4 million for 2005. The $26.2 million increase was primarily attributable to a $24.1 million improvement in
net income, excluding the $20.3 million one-time non-cash tax benefit from the reversal of the valuation
allowance. The increase in net income was driven by higher average restaurant sales, higher restaurant margins
and significantly more restaurants in operation. Net cash provided by operating activities was $77.4 million for
2005 compared to $39.7 million for 2004. The $37.8 million increase was primarily attributable to a $31.6
million improvement in net income driven by higher average restaurant sales, higher restaurant margins and
significantly more restaurants in operation.
Investing Activities. Net cash used in investing activities was $97.3 million for 2006 compared to
$83.0 million for 2005. The $14.3 million increase related to higher capital expenditures in 2006 as we opened 94
restaurants in 2006, compared with 80 restaurants in 2005. Net cash used in investing activities was $83.0 million
for 2005 compared to $95.6 million in 2004. The $12.6 million decrease related to lower capital expenditures in
2005 as we opened 80 restaurants in 2005, compared with 104 restaurants in 2004.
We categorize our restaurants as either end-caps (at the end of a line of restaurants), in-lines (in a line of
restaurants), free-standing or urban. As we expand into central urban areas, our average costs to open new
restaurants will increase due to more significant reconstruction work that often needs to be done on those sites. Our
total capital expenditures for 2006 were $97.3 million, and we expect to incur capital expenditures of about
$115 million in 2007, relating primarily to our construction of new restaurants in both periods. In 2006, we spent on
average about $860,000 in development and construction costs per restaurant, with end-caps costing about
$680,000, in-lines costing about $795,000, free-standing costing about $1.3 million and urban costing about
$2.2 million (in each case, reduced for landlord reimbursements). The average development and construction costs
per restaurant decreased from $910,000 in 2005 due to a decline in the number of free-standing restaurants, adding
smaller stores to the mix and a focus on cost control. In 2007, we expect average development and construction
costs to be approximately $900,000 per restaurant as a result of developing in higher cost markets such as Boston
and Philadelphia, a slight increase in free-standing restaurants as well as inflation in construction costs.
Financing Activities. Net cash provided by financing activities was $147.3 million in 2006 compared to
$5.7 million in 2005. The $141.6 million increase was attributable to $120.9 million net proceeds from our initial
public offering and the $19.5 million tax sharing payment received from McDonalds. Net cash provided by
financing activities was $5.7 million in 2005 compared to $55.9 million in 2004. The $50.3 million decrease was
attributable to decreased financing requirements as a result of improvements in net cash provided by operating
activities and fewer restaurant openings in 2005 as compared to 2004.
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