Chipotle 2013 Annual Report Download - page 48

Accounts Receivable
Accounts receivable primarily consists of receivables from third party gift card distributors, tenant
improvement receivables, payroll-related tax receivables, vendor rebates, and receivables arising from the normal
course of business. 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, cheese, and tortillas) are
purchased from a small number of suppliers.
Investments
The Company’s investments consist of U.S. treasury notes and CDARS, certificates of deposit placed
through an account registry service, with maturities up to approximately two years and classified as held-to-
maturity. Held-to-maturity securities are carried at amortized cost, which the Company has determined
approximates fair value as of December 31, 2013 and 2012. Fair market value of U.S. treasury notes is measured
on a recurring basis based on Level 1 inputs and fair market value of CDARS is measured on a recurring basis
based on Level 2 inputs (level inputs are described below under “Fair Value Measurements”). The Company
recognizes impairment charges on its investments in the consolidated statement of income and comprehensive
income when management believes the decline in the fair value of the investment is other-than-temporary. No
impairment charges were recognized on the Company’s investments for the years ended December 31, 2013,
2012 and 2011.
Leasehold Improvements, Property and Equipment
Leasehold improvements, property and equipment are recorded at cost. Internal costs directly associated
with the acquisition, development and construction of a restaurant are capitalized and were $9,024, $10,038 and
$9,616 for the years ended December 31, 2013, 2012 and 2011, 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, if any, is
reflected in loss on disposal of assets in the consolidated statement of income and comprehensive income.
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 ............................................. 4-10 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 on
goodwill for the years ended December 31, 2013, 2012 and 2011.
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Annual Report