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SEC Filings

S-1/A
CHIPOTLE MEXICAN GRILL INC filed this Form S-1/A on 12/23/2005
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we and McDonald's have agreed that the fees for certain of the services will increase in the event that McDonald's ceases to hold more than 50% of the combined voting power of our outstanding stock and neither we nor McDonald's exercise our option to terminate the services agreement. We believe that the payments we'll make to McDonald's are reasonable. However, these payments are not necessarily indicative of, and it is not practical for us to estimate, the level of expenses we might incur in procuring these services from alternative sources. See "Risk Factors—Risks Related to Our Business and Industry—As we increase our independence from McDonald's, we may face difficulties replacing services it currently provides to us and entering into new or modified arrangements with existing or new suppliers or service providers."

Benefits of the McDonald's Relationship

        As a majority-owned subsidiary of McDonald's, we also benefit from our relationship with McDonald's when we buy supplies or distribution or other services. If McDonald's ownership interest declines significantly, as we expect it will, we'll lose an increasing amount of the benefits of our relationship with McDonald's, many of which will not be covered by the services agreement. For example, we currently obtain beneficial pricing from certain suppliers and service providers, and pay McDonald's for the costs they incur in administering our 401(k) plan and providing certain health benefits, including workers compensation, for our employees. If McDonald's ceases to own more than 80% of the combined voting power of our outstanding stock, we'll need to administer our 401(k) plan and provide these health benefits on a stand-alone basis and could incur increased costs as a result. If McDonald's ceases to own more than 50% of the combined voting power of our outstanding stock, we may have to pay more for processing our credit and debit cards and our gift cards, our audit fees, our property insurance, our umbrella and excess liability premiums and our banking services. In some cases, these benefits, such as the use of McDonald's distribution network, are not contractually tied to the level of McDonald's ownership, and the relevant suppliers and service providers could decide to stop giving us beneficial pricing even if McDonald's still owns a substantial equity stake in us. However, because we currently have not begun to negotiate new or amended contracts with suppliers and service providers, we cannot now quantify with greater certainty potential increases in our expenses. Furthermore, as a public company, in each of 2006 and future years we expect to incur a few million dollars of legal, accounting and other expenses that we did not previously incur as a subsidiary of McDonald's. See "Risk Factors—Risks Related to Our Business and Industry—As we increase our independence from McDonald's, we may face difficulties replacing services it currently provides to us and entering into new or modified arrangements with existing or new suppliers or service providers."

Tax Allocation Agreement

        McDonald's has filed federal income tax returns and certain state income tax returns with us on a consolidated basis since June 2000. In connection with this consolidation, the allocation of federal and state tax liabilities to us was based on the liability that would have been calculated had we operated on a stand-alone basis. Prior to the consummation of this offering, we entered into a tax allocation agreement with McDonald's which provides that we'll make distributions to McDonald's, and McDonald's will make contributions to us, such that we'll incur the expense for taxes generated by our business on the same basis as if we were not part of McDonald's consolidated tax returns. Assuming McDonald's economic interest in our outstanding common stock falls to less than 80%, following this offering we expect that we will become a separate taxable entity for federal and some state income tax purposes. McDonald's has agreed that any amounts owed to us by McDonalds' on account of unreimbursed tax attributes will be paid to us following deconsolidation. The tax allocation agreement will continue to apply to, and govern, the sharing of tax liabilities between McDonald's and us for state tax purposes for those states in which we and McDonald's will continue to file tax returns on a combined basis following the offering.

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