Chipotle 2006 Annual Report Download - page 36

Liquidity and Capital Expenditures. We expect to use the proceeds from the initial public offering to
provide additional long-term capital to support the growth of our business (primarily through opening
restaurants) and to continue to maintain our existing restaurants and for general corporate purposes. In
accordance with a tax allocation agreement we have with McDonald’s, McDonald’s agreed to compensate us for
NOLs and tax credits it used that were attributable to our operations. We expect to receive payment for the
federal and some state NOLs that we have not utilized on a stand-alone basis as we make estimated tax
payments, but no later than the first quarter of 2008. As of December 31, 2006, the amount owed by McDonald’s
totaled $8.8 million.
We believe that cash from operations, together with the net proceeds from the initial public offering will be
enough to meet ongoing capital expenditures, working capital requirements and other cash needs over at least the
next 24 months.
Contractual Obligations
Our contractual obligations as of December 31, 2006 were as follows:
Payments Due by Period
Total 1 year 2-3 years 4-5 years
After
5 years
(in thousands)
Operating leases ............................. $1,086,224 $61,641 $124,490 $123,616 $776,477
Deemed landlord financing ..................... 7,756 371 742 775 5,868
Other contractual obligations(1) .................. 13,361 13,266 95 — —
Total contractual cash obligations ................ $1,107,341 $75,278 $125,327 $124,391 $782,345
(1) We enter into various purchase obligations in the ordinary course of business. Those that are binding
primarily relate to amounts owed under contractor and subcontractor agreements and orders submitted for
equipment for restaurants under construction.
We’re obligated under non-cancelable leases for our restaurants and administrative offices. Our leases
generally have initial terms of either five to ten years with two or more five-year extensions, for end-cap and
in-line restaurants, or 15 to 20 years with several five-year extensions, for free-standing restaurants. Our leases
generally require us to pay a proportionate share of real estate taxes, insurance, common charges and other
operating costs. Some restaurant leases provide for contingent rental payments based on sales thresholds,
although we generally do not expect to pay significant contingent rent on these properties based on the thresholds
in those leases.
Off-Balance Sheet Arrangements
As of December 31, 2006 and 2005, we had no off-balance sheet arrangements or obligations.
Inflation
The primary areas of our operations affected by inflation are food, fuel, labor, insurance, and utility costs
and materials used in the construction of our restaurants. Although almost all of our crew members make more
than the minimum wage, increases in the applicable federal or state minimum wage will have an impact on our
labor costs. Additionally, many of our leases require us to pay taxes, maintenance, utilities and insurance, all of
which are generally subject to inflationary increases.
Critical Accounting Estimates
We describe our significant accounting policies in Note 1 of our consolidated financial statements. Critical
accounting estimates are those that we believe are both significant and that require us to make difficult,
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