Chipotle 2008 Annual Report Download - page 45

Fees from franchised restaurants included continuing rent and service fees, initial fees and royalties.
Continuing fees and royalties were recognized in the period earned. Initial fees were recognized upon opening a
restaurant, which is when the Company performed substantially all initial services required by the franchise
arrangement. The Company purchased its eight franchised restaurants in 2007 and there are no longer any
Company franchised restaurants.
The Company reports revenue net of sales and use taxes collected from customers and remitted to
governmental taxing authorities.
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 consists of tenant improvement receivables, credit card receivables, and miscellaneous
receivables. 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.
Inventory
Inventory, consisting principally of food, beverages, and supplies, is valued at the lower of first-in, first-out
cost or market. The Company has no minimum purchase commitments with its vendors. Certain key ingredients
(beef, pork, chicken, beans, rice, sour cream, and tortillas) are purchased from a small number of suppliers.
Available-for-Sale Securities
Investments classified as available-for-sale securities are carried at fair market value based on quoted
market prices in active markets for identical securities with unrealized gains and losses, net of tax, included as a
component of other comprehensive income. The Company recognizes impairment charges on available-for-sale
securities in the consolidated statement of income when management believes the decline in the investment value
is other-than-temporary. No impairment charges were recognized during the years ended December 31, 2008,
2007 and 2006. The available-for-sale securities held at December 31, 2008 consist of U.S. Treasuries and
mature in February 2009.
Leasehold Improvements, Property and Equipment
Leasehold improvements, property and equipment are stated at cost. Internal costs directly associated with
the acquisition, development and construction of a restaurant are capitalized and were $6,740, $7,083, and $5,849
for the years ended December 31, 2008, 2007 and 2006, respectively. Expenditures for major renewals and
improvements are capitalized while expenditures for minor replacements, maintenance and repairs are expensed
as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the lease term, which generally includes reasonably
assured option periods, or the estimated useful lives of the assets. Upon retirement or disposal of assets, the
accounts are relieved of cost and accumulated depreciation and the related gain or loss is reflected in earnings.
The estimated useful lives are:
Leasehold improvements and buildings ................................ 3-20 years
Furniture and fixtures .............................................. 3-10 years
Equipment ....................................................... 3-7years
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Annual Report