Chipotle 2006 Annual Report Download - page 53

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Chipotle Mexican Grill, Inc.
Notes to Consolidated Financial Statements—(Continued)
(dollar and share amounts in thousands, unless otherwise specified)
The effective tax rate differs from the statutory tax rates as follows:
Years ended December 31
2006 2005 2004
Statutory U.S. federal income tax rate ................................ 35.0% 35.0% 35.0%
State income tax, net of related federal income tax benefit ............... 4.3 4.8 4.8
Meals and entertainment .......................................... 0.2 0.6 2.1
Tax exempt interest income ........................................ (0.2) — —
Other ......................................................... — 2.2 0.7
Valuation allowance ............................................. — (67.3) (42.6)
Effective income tax rates ......................................... 39.3% (24.7)% 0.0%
Deferred income tax liabilities are taxes the Company expects to pay in future periods. Similarly, deferred
income tax assets are recorded for expected reductions in taxes payable in future periods. Deferred income taxes
arise because of the differences in the book and tax bases of certain assets and liabilities. Deferred income tax
liabilities and assets consist of the following:
December 31,
2006 2005
Long-term deferred income tax liability:
Leasehold improvements, property and equipment ....................... $29,015 $28,627
Total long-term deferred income tax liability ........................... 29,015 28,627
Long-term deferred income tax asset:
Post-acquisition net operating loss carryforwards ........................ — 34,743
Deferred rent .................................................... 7,986 6,162
Separate state net operating loss carryforwards .......................... 111 471
Stock compensation and other employee benefits ........................ 2,237 837
Total long-term deferred income tax asset ............................. 10,334 42,213
Net long-term deferred income tax asset (liability) ....................... (18,681) 13,586
Current deferred income tax liability:
Prepaid assets and other ............................................ 748 296
Total current deferred income tax liability ............................. 748 296
Current deferred income tax asset:
Allowances, reserves and other ...................................... 1,673 975
Stock compensation and other employee benefits ........................ 5 844
AMT tax credit ................................................... — 823
Total current deferred income tax asset ................................ 1,678 2,642
Net current deferred tax asset ....................................... 930 2,346
Total deferred tax asset (liability) .................................... $(17,751) $15,932
At the consummation of the Company’s initial public offering, the Company exited McDonald’s
consolidated tax group for federal and some state tax purposes. At the consummation of the Disposition, the
Company exited McDonald’s consolidated tax group for the remaining states. Due to the exit from McDonald’s
47