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SEC Filings

CHIPOTLE MEXICAN GRILL INC filed this Form S-1/A on 12/23/2005
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learn about the quality of our ingredients and preparation methods. We include the cost of the food we give away in our other operating costs.


        Our revenue fluctuates as a result of seasonal and other factors. See "—Quarterly Financial Data" below.

    Franchise Royalties and Fees

        We have three franchisees that, in the aggregate, operate eight of our stores. Franchise royalties and fees represented less than 1% of our revenue in each of the last three years and first nine months of 2005. Although franchising is currently not an important component of our strategy, we constantly try to improve our performance and we may decide to license more stores to franchisees in the future. In the near term, however, we do not expect that we'll have significant increases in these revenues. In addition, if McDonald's ceases to own a majority of our outstanding common voting stock or if we cease to be an affiliate of McDonald's, under the terms of our franchise agreements, our franchisees (each of whom is also a McDonald's franchisee) must either sell either their Chipotle franchise to someone who agrees to perform their obligations under the franchise agreements (at fair market value determined in the manner provided in the franchise agreements) or sell their McDonald's franchise within 24 months after the relevant triggering event. If our franchisees don't sell either franchise within the 24-month period, their franchise agreements with McDonald's will terminate automatically.

How We Spend Money: Food, Beverage and Packaging Costs, Labor, Other Restaurant Operating Costs and Other Expenses

        We have four basic types of expense: food, beverage and packaging costs; labor; other restaurant operating costs (consisting of occupancy costs and other operating costs); and other expenses (consisting of general and administrative expenses, depreciation and amortization, pre-opening costs and gains or losses on asset disposals). As we do more business, open more stores and hire more people, our food, beverage and packaging costs, labor and other restaurant operating costs increase. We've grown considerably over the last three years, and our combined food, beverage and packaging costs, labor and other restaurant operating costs have followed pace, increasing from $182.7 million in 2002 to $268.0 million in 2003, and to $394.1 million in 2004. These expenses for the first nine months of 2005 were $370.5 million, 29.8% higher than the same period in 2004. Our other expenses have also increased, from $39.6 million in 2002 to $55.4 million in 2003, and to $70.5 million in 2004. Other expenses for the first nine months of 2005 were $60.7 million. As we continue to grow, we expect that other expenses will also increase, but may decline as a percentage of revenue.

    Food, Beverage and Packaging Costs

        Food, beverage and packaging costs are the largest component of our expenses and represented about 33.1% of total revenue in 2002, 33.3% in 2003, 32.7% in 2004 and 32.3% in the first nine months of 2005. The most important factor affecting our food, beverage and packaging costs is the price volatility of our key ingredients. Our food, beverage and packaging costs change as a result of fluctuations in commodity and material costs, but also depend in part on the success of our cost management efforts. Since we use higher-quality ingredients that we purchase from carefully selected suppliers, and are increasing our use of more expensive, naturally raised and sustainably grown ingredients, our expenses are often higher than those of other restaurants that use a higher proportion of commodity-priced ingredients.

        Like the rest of the restaurant industry, our expenses fluctuate from time to time due to external events. In 2003, our food expense was affected by higher avocado prices reflecting a poor growing season due to inclement weather and pestilence. In 2004, prices for chicken (our most-used meat ingredient) rose significantly due to a ban by Asian countries on their chicken exports following outbreaks of avian flu. The


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