Chipotle 2008 Annual Report Download - page 46

Goodwill
Goodwill represents the excess of cost over fair value of net assets of the business acquired. Goodwill
resulted from McDonald’s purchases of the Company and the Company’s acquisitions of franchises. Goodwill
determined to have an indefinite life is not subject to amortization, but instead is tested for impairment at least
annually in accordance with the provision of Financial Accounting Standards Board (“FASB”) Standard No. 142,
Goodwill and Other Intangible Assets (“FAS 142”). In accordance with FAS 142, the Company is required to
make any necessary impairment adjustments. Impairment is measured as the excess of the carrying value over
the fair value of the goodwill. Based on the Company’s analysis, no impairment charges were recognized for the
years ended December 31, 2008, 2007 and 2006.
Other Assets
Other assets consist primarily of 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.
Impairment of Long-Lived Assets
In accordance with FASB Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived
Asset (“FAS 144”), 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 for potential impairment, assets are grouped together at the market 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, 2008, 2007, and 2006, an
aggregate impairment charge of $822, $187, and $693, respectively, was recognized in loss on disposition of
assets in the consolidated statement of income. The impairment charges resulted from restaurant closures due to
city or landlord long-term construction or redevelopment projects, poor site performance and structural damage.
Fair value of the restaurants was determined using the expected cash flows method of anticipated cash flows
through the estimated date of closure.
Fair Value of Financial Instruments
The carrying value of the Company’s financial assets and liabilities, because of their short-term nature,
approximates fair value.
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.
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 provision for income taxes in the consolidated statement of income.
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Annual Report