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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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1.     Description of Business and Summary of Significant Accounting Policies (Continued)

        The estimated fair value of stock options granted in 2002 and 2003 was $2.09 and $2.27 per share, respectively, using the Black Scholes option-pricing model with the following assumptions:

 
  2002
  2003
 
Risk-free interest rate   4.5 % 2.9 %
Expected life (years)   5.5   5.5  
Expected dividend yield   0.0 % 0.0 %
Volatility   37.0 % 37.0 %

        The estimated fair value of stock appreciation rights (SARs) granted in 2004 at September 30, 2005 was $2.19 per share, using the Black Scholes option-pricing model with the following assumptions:

 
  2005
 
 
  (unaudited)

 
Risk-free interest rate   3.9 %
Expected remaining life (years)   5.0  
Expected dividend yield   0.0 %
Volatility   37.0 %

        The volatility factor was estimated based on competitor information and the Company's annual independent stock valuation. The full term of the options and SARs (share units) was used for the expected life since the share units are granted to senior management where turnover was expected to be low and since it was expected they would hold options for the full term to obtain the maximum benefit, including time value of money.

Restaurant Pre-Opening Costs

        Pre-opening costs are expensed as incurred. These costs include wages, benefits and travel for the training and opening teams, and food, beverage and other restaurant operating costs incurred prior to a restaurant opening for business.

Insurance Liability

        The Company maintains various insurance policies for workers' compensation, employee health, general liability and property damage. Pursuant to these policies, the Company is responsible for losses up to certain limits for general liability and property damage insurance and is required to estimate a liability that represents the ultimate exposure for aggregate losses below those limits. This liability is based on management's estimates of the ultimate costs to be incurred to settle known claims and claims not reported as of the balance sheet date. The estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions, and economic conditions. If actual trends differ from the estimates, the financial results could be impacted.

Advertising Costs

        Advertising is expensed as incurred and aggregated $5,135, $6,231 and $8,715 for the years ended December 31, 2002, 2003 and 2004, respectively.

F-11


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