Chipotle 2013 Annual Report Download - page 47

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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. As of December 31, 2013, the Company operated 1,572 Chipotle restaurants
throughout the United States. The Company also has seven restaurants in Canada, six in England, two in France,
and one in Germany. Further, the Company operates six ShopHouse Southeast Asian Kitchen restaurants, serving
fast-casual, Asian inspired cuisine, as well as is an investor in a consolidated entity that owns and operates one
Pizzeria Locale, a fast casual pizza concept. The Company manages its operations based on seven regions and
has aggregated its operations to one reportable segment.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company, including wholly owned
subsidiaries and investees that the Company controls. All intercompany balances and transactions have been
eliminated.
Certain amounts in prior periods have been reclassified to conform to the current year presentation. During
the first quarter of 2013, the Company reclassified amounts related to lease financing liabilities from deemed
landlord financing to other liabilities, and from current portion of deemed landlord financing to accrued
liabilities. Such reclassifications did not have a material effect on the Company’s consolidated financial position
or results of operations.
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 which did not have a material impact on revenue. 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 and is included in revenue in the consolidated statement of income and comprehensive
income. Breakage recognized during the years ended December 31, 2013, 2012 and 2011 was $1,976, $2,070 and
$1,524, 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.
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Annual Report