Chipotle 2013 Annual Report Download - page 49

Other Assets
Other assets consist primarily of restricted cash assets of $23,810 and $24,799 as of December 31, 2013 and
2012, respectively, a rabbi trust as described further in Note 6, transferable liquor licenses which are carried at
the lower of fair value or cost, and a prepaid tax asset related to an intercompany transfer of international
intellectual property. Restricted cash assets are primarily insurance related restricted trust assets.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. For the purpose of reviewing restaurant assets to be held
and used for potential impairment, assets are grouped together at the market level, or in the case of a potential
relocation or closure, at the restaurant level. The Company manages its restaurants as a group with significant
common costs and promotional activities; as such, an individual restaurant’s cash flows are not generally
independent of the cash flows of others in a market. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment
charge is recognized as the amount by which the carrying amount of the asset exceeds the fair value of the asset.
During the years ended December 31, 2013, 2012 and 2011, an aggregate impairment charge of $1,220, $0 and
$380, respectively, was recognized in loss on disposal of assets in the consolidated statement of income and
comprehensive income. The impairment charges resulted primarily from potential restaurant relocations or office
closures. Fair value of the restaurants was determined using Level 3 inputs (as described below under “Fair
Value Measurements”) based on a discounted cash flows method through the estimated date of closure.
Income Taxes
The Company recognizes deferred tax assets and liabilities at enacted income tax rates for the temporary
differences between the financial reporting bases and the tax bases of its assets and liabilities. Any effects of
changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment.
The deferred income tax impacts of investment tax credits are recognized as an immediate adjustment to income
tax expense. When it is more likely than not that a portion or all of a deferred tax asset will not be realized in the
future, the Company provides a corresponding valuation allowance against the deferred tax asset. When it is
more likely than not that a position will be sustained upon examination by a tax authority that has full knowledge
of all relevant information, the Company measures the amount of tax benefit from the position and records the
largest amount of tax benefit that is greater than 50% likely of being realized after settlement with a tax authority.
The Company’s policy is to recognize interest to be paid on an underpayment of income taxes in interest expense
and any related statutory penalties in the provision for income taxes in the consolidated statement of income and
comprehensive income.
Restaurant Pre-Opening Costs
Pre-opening costs, including rent, wages, benefits and travel for the training and opening teams, food and
other restaurant operating costs, are expensed as incurred prior to a restaurant opening for business.
Insurance Liability
The Company maintains various insurance policies including workers’ compensation, employee health,
general liability, automobile, and property damage. Pursuant to these policies, the Company is responsible for
losses up to certain limits and is required to estimate a liability that represents the ultimate exposure for
aggregate losses below those limits. This liability is based on management’s estimates of the ultimate costs to be
incurred to settle known claims and, where applicable, claims not reported as of the balance sheet date. The
estimated liability is not discounted and is based on a number of assumptions and factors, including historical
trends, actuarial assumptions, and economic conditions. If actual trends differ from the estimates, the financial
results could be impacted. As of December 31, 2013 and 2012, $24,819 and $22,540, respectively, of the
estimated liability was included in accrued payroll and benefits and $6,749 and $5,220, respectively, was
included in accrued liabilities in the consolidated balance sheet.
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Annual Report