Chipotle 2006 Annual Report Download - page 50

Chipotle Mexican Grill, Inc.
Notes to Consolidated Financial Statements—(Continued)
(dollar and share amounts in thousands, unless otherwise specified)
ended December 31, 2006, $3,793 of pre-opening rent was included in pre-opening costs. Tenant incentives used
to fund leasehold improvements are recorded in deferred rent and amortized as reductions of rent expense over
the term of the lease.
Additionally, certain of the Company’s operating leases contain clauses that provide additional contingent
rent based on a percentage of sales greater than certain specified target amounts. The Company recognizes
contingent rent expense prior to the achievement of the specified target that triggers contingent rent, provided the
achievement of that target is considered probable.
Foreign Currency Translation
Currently, the Company has no operations outside the United States, but has created an international
subsidiary to hold international trademarks. The Company’s international entity uses its local currency as the
functional currency. Assets and liabilities are translated at exchange rates in effect as of the balance sheet date.
Income and expense accounts are translated at the average monthly exchange rates during the year. Resulting
translation adjustments are recorded as a separate component of accumulated other comprehensive income in
shareholders’ equity.
Reclassifications and Comparability
Certain prior period amounts have been reclassified to conform to the 2006 presentation. In conjunction
with the Disposition, McDonald’s is no longer a related-party. As such, amounts due to McDonald’s are included
in accrued liabilities in the consolidated balance sheet. The tax receivable from McDonald’s has been reclassified
as notes receivable—McDonald’s Corporation as of the Disposition while the prior period balance of the tax
receivable remains in shareholders’ equity.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily
of cash and cash equivalents and account receivables. The Company invests its cash and cash equivalents with
financial institutions consistent with its investment policy. The Company’s cash balances may exceed federally
insured limits. As of December 31, 2006, $135 million of the Company’s cash equivalents were invested
primarily with two major financial institutions. Concentration of credit risk related to accounts receivables are
limited, as the Company’s receivables are primarily with its landlords for the reimbursements of tenant
improvements.
2. Recently Issued Accounting Standards
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
Statement of Accounting 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. The Company offers sabbatical leave to employees who have provided ten years of services.
The actuarially determined estimated accrued sabbatical balance as of December 31, 2006, is $2.6 million which the
Company will recognize as a cumulative-effect adjustment to beginning retained earnings in 2007.
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