Chipotle 2006 Annual Report Download - page 47

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Chipotle Mexican Grill, Inc.
Notes to Consolidated Financial Statements—(Continued)
(dollar and share amounts in thousands, unless otherwise specified)
Cash and Cash Equivalents
The Company considers all highly liquid investment instruments purchased with an initial maturity of three
months or less to be cash equivalents.
Accounts Receivable
Accounts receivable consists of tenant improvement receivables, credit card receivables, and miscellaneous
receivables. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable
credit losses in the Company’s existing accounts receivable based on a specific review of account balances.
Account balances are charged off against the allowance after all means of collection have been exhausted and the
potential for recoverability is considered remote.
Inventory
Inventory, consisting principally of food, beverages, and supplies, is valued at the lower of first-in, first-out
cost or market. The Company has no minimum purchase commitments with its vendors. The Company purchases
certain key ingredients (steak, chicken, pork and tortillas) from a small number of suppliers.
Leasehold Improvements, Property and Equipment
Leasehold improvements, property and equipment are stated at cost. Internal costs directly associated with
the acquisition, development and construction of a restaurant are capitalized. Expenditures for major renewals
and improvements are capitalized while expenditures for minor replacements, maintenance and repairs are
expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of
the assets. Leasehold improvements are amortized over the shorter of the lease term, which generally includes
reasonably assured option periods, or the estimated useful lives of the assets. Upon retirement or disposal of
assets, the accounts are relieved of cost and accumulated depreciation and the related gain or loss is reflected in
earnings.
The estimated useful lives are:
Leasehold improvements and buildings ................................ 3-20 years
Furniture and fixtures .............................................. 3-10 years
Equipment ....................................................... 3-7years
Goodwill
Goodwill represents the excess of cost over fair value of net assets of the business acquired. Goodwill
resulted from McDonald’s purchases of the Company. Goodwill determined to have an indefinite life is not
subject to amortization, but instead is tested for impairment at least annually in accordance with the provision of
FASB Standard No. 142, Goodwill and Other Intangible Assets (“FAS 142”). In accordance with FAS 142, the
Company is required to make any necessary impairment adjustments. Impairment is measured as the excess of
the carrying value over the fair value of the goodwill. Based on the Company’s analysis, no impairment charges
were recognized for the years ended December 31, 2006, 2005 and 2004.
Other Assets
Other assets consist primarily of transferable liquor licenses which are carried at the lower of fair value or cost.
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