Chipotle 2009 Annual Report Download - page 44

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Accounts Receivable
Accounts receivable primarily consists of tenant improvement 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. 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 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, 2009, 2008 and 2007.
As of December 31, 2009, available-for-sale securities were measured at fair market value on a recurring
basis based on Level 2 inputs (as described below under “Fair Value Measurements”) and consisted of CDARS,
certificate of deposit products. As of December 31, 2008 available-for-sale securities consisted of U.S. Treasuries
and were measured at fair market value using Level 1 inputs.
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 $6,916, $6,740, and $7,083
for the years ended December 31, 2009, 2008 and 2007, 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.
At least annually, the Company evaluates, and adjusts when necessary, the estimated useful lives. The
changes in estimated useful lives did not have a material impact on depreciation in any period. The estimated
useful lives are:
Leasehold improvements and buildings ................................ 3-20 years
Furniture and fixtures .............................................. 3-10 years
Equipment ....................................................... 3-7years
Goodwill
Goodwill represents the excess of cost over fair value of net assets of the business acquired. Goodwill is not
subject to amortization, but instead is tested for impairment at least annually, and the Company is required to
record 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, 2009, 2008 and 2007.
42
Annual Report