Chipotle 2012 Annual Report Download - page 46

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CHIPOTLE MEXICAN GRILL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollar and share amounts in thousands, unless otherwise specified)
1. Description of Business and Summary of Significant Accounting Policies
Chipotle Mexican Grill, Inc. (the “Company”), a Delaware corporation, develops and operates fast-casual,
fresh Mexican food restaurants throughout the United States. The Company also has five restaurants in Canada,
five in London, England, and one in Paris, France. Further, the Company operates one ShopHouse Southeast
Asian Kitchen, serving fast-casual, Asian inspired cuisine. The Company manages its operations based on six
regions and has aggregated its operations to one reportable segment.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All
intercompany balances and transactions have been eliminated.
Management Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates
under different assumptions or conditions.
Revenue Recognition
Revenue from restaurant sales is recognized when food and beverage products are sold. The Company
reports revenue net of sales and use taxes collected from customers and remitted to governmental taxing
authorities.
The Company sells gift cards which do not have an expiration date and it does not deduct non-usage fees
from outstanding gift card balances. The Company recognizes revenue from gift cards when: (i) the gift card is
redeemed by the customer; or (ii) the Company determines the likelihood of the gift card being redeemed by the
customer is remote (gift card breakage) and there is not a legal obligation to remit the unredeemed gift cards to
the relevant jurisdiction. The determination of the gift card breakage rate is based upon Company-specific
historical redemption patterns. During the fourth quarter of 2012, the Company revised its estimated breakage
rate from 5% to 4% of gift card sales. Gift card breakage is recognized in revenue as the gift cards are used on a
pro rata basis over a six month period beginning at the date of the gift card sale. Gift card breakage is included in
revenue in the consolidated statement of income and comprehensive income. Breakage recognized during the
years ended December 31, 2012, 2011 and 2010 was $2,070, $1,524 and $1,188, respectively.
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 primarily consists of tenant improvement receivables, payroll-related tax receivables,
receivables from third party gift card distributors, vendor rebates, and receivables arising from the normal course
of business. 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.
44
Annual Report