Chipotle 2009 Annual Report Download - page 43

Download and view the complete annual report

Please find page 43 of the 2009 Chipotle annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 112

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112

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 35 states throughout the United States, the District of Columbia and Ontario,
Canada. As of December 31, 2009 and 2008, the Company operated 956 and 837 restaurants, respectively. The
Company manages its operations based on five regions and has aggregated its operations to one reportable
segment.
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;
and (ii) the Company determines the likelihood of the gift card being redeemed by the customer is remote (gift
card breakage) and 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 has determined that 5% of gift card sales will not be redeemed and will be retained by the
Company. Gift card breakage is recognized in revenue as the gift cards are used on a pro rata basis over a six
month period beginning at the date of the gift card sale. Gift card breakage is included in total revenue in the
consolidated statement of income. Breakage recognized during the year ended December 31, 2009 was $878. In
the year ended December 31, 2008, the Company completed the initial analysis of unredeemed electronic gift
card liabilities and recognized $2,263 ($1,387 net of tax, or $0.04 per diluted share) to revenue as a one-time
cumulative adjustment.
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.
41
Annual Report