Chipotle 2008 Annual Report Download - page 44

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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 in 33 states throughout the United States, the District of Columbia and Ontario,
Canada. As of December 31, 2008 and 2007, the Company operated 837 and 704 restaurants, respectively. The
Company manages its operations based on five regions and has aggregated its operations to one reportable
segment and one reporting unit.
Initial Public Offering
In January 2006, the Company completed its offering of 6,061 shares of class A common stock, $0.01 par
value, in its initial public offering at a per share price of $22.00 receiving net proceeds of approximately
$120.9 million (the “initial public offering”). McDonald’s Corporation (“McDonald’s”) sold an additional 3,000
shares, including the underwriters’ over-allotment shares, in the initial public offering.
McDonald’s Disposition
From 2000 to October 2006, McDonald’s was the controlling shareholder of the Company’s voting and
economic interest. During 2006, through the initial public offering in January 2006, a secondary offering in May
2006 and a tax-free exchange offer in October 2006 (the “Disposition”), McDonald’s disposed of its interest in
the Company and no longer holds any voting or economic interest in the Company.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-
company 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 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 likelihood of the gift card being redeemed by the customer is remote (gift card breakage) and the
Company determines that 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. The Company completed its analysis of unredeemed electronic gift card liabilities during
the quarter ended December 31, 2008 and recognized $2,263 ($1,387 net of tax, or $0.04 per diluted share) to
revenue as a one-time cumulative adjustment. Gift card breakage will be recognized in revenue as the gift cards
are used. Gift card breakage is included in total revenue in the consolidated statement of income.
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Annual Report