Chipotle 2006 Annual Report Download - page 38

respect to certain customer credit and debit card data, and we’ve incurred and may continue to incur substantial
costs as a result of this matter. We may also incur costs resulting from other security risks we may face in
connection with our electronic processing and transmission of confidential customer information.”
Recent Accounting Pronouncements
In September 2006, the Emerging Issues Task Force (“EITF”) issued EITF Issue No. 06-2, Accounting for
Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43 Accounting for Compensated
Absences (“EITF 06-2”). The EITF concluded that sabbatical leave accumulates pursuant to the criteria of FASB
Standard No. 43 Accounting for Compensated Absences (“FAS 43”) and therefore the benefit should be accrued
if the remaining criteria of FAS 43 are met. EITF 06-2 is effective for fiscal years beginning after December 15,
2006. EITF 06-2 can be applied as a change in accounting principle either as a cumulative-effect adjustment to
beginning retained earnings in the year of adoption or as retrospective application to all prior periods. We have
elected to adopt EITF 06-2 as a cumulative-effect adjustment to beginning retained earnings. The actuarially
determined estimated accrued sabbatical balance as of December 31, 2006, is $2.6 million.
In September 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 prescribes a recognition threshold and
measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax
return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. The interpretation is effective for fiscal years beginning after
December 15, 2006. The cumulative effect upon adoption of applying the provision shall be reported as an
adjustment to the opening balance of retained earnings for that fiscal year, presented separately. We do not
expect the adoption of FIN 48 to have a material impact on our financial statements.
In September 2006, the FASB issued FASB Staff Position AUG AIR-1, Accounting for Planned Major
Maintenance Activities (“FSP AUG-1”). FSP AUG-1 prohibits the use of the accrue-in-advance method of
accounting for costs of planned major maintenance projects. The statement is effective for fiscal years beginning
after December 15, 2006. We do not utilize the accrue-in-advance method and therefore do not expect the
adoption of FSP AUG-1 to have a material impact on our financial statements.
In September 2006, the FASB issued FASB Standard No. 157, Fair Value Measurements (“FAS 157”). FAS
157 provides a definition of fair value and acceptable methods of measuring fair value. We do not expect the
adoption of FAS 157 to have a material impact on our financial statements.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB
108 provides guidance on how prior year misstatements should be taken into consideration when quantifying
misstatements in current year financial statements for purposes of determining whether the current year’s
financial statements are materially misstated. SAB 108 permits registrants to record the cumulative effect of
initial adoption by recording the necessary “correcting” adjustments to the carrying values of assets and liabilities
as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained
earnings only if material under the dual method. SAB 108 is effective for fiscal years ending on or after
November 15, 2006. We have assessed the effect of adopting this guidance and has determined that there will be
no impact on our consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Changing Interest Rates
We’re exposed to interest rate risk through the investment of our cash and cash equivalents. Since the
completion of our initial public offering we have invested our cash in short-term investments with maturities of
three months or less. Changes in interest rates affect the interest income we earn, and therefore impact our cash
flows and results of operations. As of December 31, 2006, we had $150.0 million deposited in short-term
investments bearing a weighted-average interest rate of 4.61%.
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