Chipotle 2008 Annual Report Download - page 35

Contractual Obligations
Our contractual obligations as of December 31, 2008 were as follows:
Payments Due by Period
Total 1 year 2-3 years 4-5 years
After
5 years
(in thousands)
Operating leases ........................... $1,523,183 $ 88,119 $176,929 $178,998 $1,079,137
Deemed landlord financing .................. 7,029 366 764 788 5,111
Other contractual obligations(1) ............... 22,108 21,578 530 — —
Total contractual cash obligations ............. $1,552,320 $110,063 $178,223 $179,786 $1,084,248
(1) We enter into various purchase obligations in the ordinary course of business. Those that are binding
primarily relate to amounts owed under contractor and subcontractor agreements, orders submitted for
equipment for restaurants under construction, and corporate sponsorships.
We’re obligated under non-cancelable leases for our restaurants and administrative offices. Our leases
generally have initial terms of either five to ten years with two or more five-year extensions, for end-cap and
in-line restaurants, or 15 to 20 years with several five-year extensions, for free-standing restaurants. Our leases
generally require us to pay a proportionate share of real estate taxes, insurance, common charges and other
operating costs. Some restaurant leases provide for contingent rental payments based on sales thresholds,
although we generally do not expect to pay significant contingent rent on these properties based on the thresholds
in those leases.
Off-Balance Sheet Arrangements
As of December 31, 2008 and 2007, we had no off-balance sheet arrangements or obligations.
Inflation
The primary areas of our operations affected by inflation are food, labor, fuel, insurance, utility costs and
materials used in the construction of our restaurants. Although almost all of our crew members make more than
the minimum wage, increases in the applicable federal or state minimum wage will have an impact on our labor
costs. Additionally, many of our leases require us to pay taxes, maintenance, utilities and insurance, all of which
are generally subject to inflationary increases.
Critical Accounting Estimates
We describe our significant accounting policies in Note 1 of our consolidated financial statements. Critical
accounting estimates are those that we believe are both significant and that require us to make difficult,
subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters.
We base our estimates and judgments on historical experiences and various other factors that we believe to be
appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain
different estimates if we used different assumptions or factors. We believe the following critical accounting
estimates affect our more significant judgments and estimates used in the preparation of our financial statements:
Leases
We lease most of our restaurant locations. Our leases contain escalating rentals over the lease term as well
as optional renewal periods. We account for our leases under FASB Statement No. 13, Accounting for Leases
(“FAS 13”) which requires rent to be recognized on a straight-line basis over the lease term including reasonably
assured renewal periods. We have estimated that our lease term, including reasonably assured renewal periods, is
the lesser of the lease term or 20 years. If the estimate of our reasonably assured lease terms were changed our
depreciation and rent expense could differ materially.
33
Annual Report