Chipotle 2006 Annual Report Download - page 58

Chipotle Mexican Grill, Inc.
Notes to Consolidated Financial Statements—(Continued)
(dollar and share amounts in thousands, unless otherwise specified)
were $111 and are included in other long-term liabilities in the consolidated balance sheet. The Company
matches 100% of the first 3% of pay contributed by each eligible employee and 50% on the next 2% of pay
contributed once the 401K contribution limits are reached. For the year ended December 31, 2006 the Company
made deferred compensation matches of $25 to the Deferred Plan. Prior to October 2006, eligible Chipotle
employees were participants of a deferred compensation plan sponsored by McDonald’s.
10. Related-Party Transactions
Prior to the Disposition, the Company was a majority-owned subsidiary of McDonald’s. Transactions
through the date of separation are considered related-party transactions and are discussed below.
The Company previously entered into short-term agreements with McDonald’s to provide the Company
with temporary capital. The Company had a line of credit with McDonald’s, which was for $30,000, due on
demand and expired June 30, 2006. The line of credit bore interest at the prime rate plus 100 basis points (8.25%
as of December 31, 2005). The weighted-average interest rate was 6.72% and 5.00% for the years ended
December 31, 2005 and 2004, respectively. Interest was added to the outstanding principal monthly. For the
years ended December 31, 2005 and 2004, interest expense was $691 and $191, respectively.
The Company previously invested its excess cash under short-term agreements with McDonald’s. The
agreement in place provided for interest at the 30-day Commercial Paper rate plus 50 basis points, was due on
demand and expired April 14, 2005. The Company did not have an agreement in place after April 15, 2005, but
had been operating under the terms of the previous agreement until the Company’s initial public offering in
January 2006. Interest was added to the principal monthly. For the years ended December 31, 2005 and 2004,
interest income related to this investment was $12 and $205, respectively. As of December 31, 2005, the
Company had $2,248 deposited under this arrangement.
The consolidated statement of income reflects charges from McDonald’s of $8,667, $8,790 and $7,711 for
the years ended December 31, 2006, 2005 and 2004, respectively. These charges primarily related to
reimbursements of payroll and related expenses for certain McDonald’s employees that performed services for
the Company, insurance coverage, software maintenance agreements and non-income based taxes. The charges
were specifically identifiable to the Company. The Company cannot estimate with any reasonable certainty what
these charges would have been on a stand-alone basis. However, the Company feels that these charges are
indicative of what it could have incurred on a stand-alone basis.
The Company leases office and restaurant space from McDonald’s and its affiliates. Rent expense was $276,
$404 and $306 for such leases for the years ended December 31, 2006, 2005 and 2004, respectively.
11. Leases
The Company generally operates its restaurants in leased premises. Lease terms for traditional shopping
center or building leases generally include combined initial and option terms of 20-25 years. Ground leases
generally include combined initial and option terms of 30-50 years. The option terms in each of these leases are
typically in five-year increments. Typically, the lease includes rent escalation terms every five years including
fixed rent escalations, escalations based on inflation indexes, and fair market value adjustments. Certain leases
contain contingent rental provisions based upon the sales of the underlying restaurants. The leases generally
provide for the payment of common area maintenance, property taxes, insurance and various other use and
occupancy costs by the Company. In addition, the Company is the lessee under non-cancelable leases covering
certain offices and vehicles.
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