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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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4.     Income Taxes (Continued)

        As of December 31, 2004, the Company has incurred total net operating losses (NOLs) of approximately $139,434 since inception as a C Corporation on January 1, 1996. Approximately $118,041 of these losses were incurred subsequent to the majority acquisition of the Company by McDonald's. The remaining $21,393 in losses relates to separate return limitation year (SRLY) losses prior to the majority acquisition by McDonald's, which will begin to expire in 2012. Through December, 31, 2004, a valuation allowance had been recorded to offset the deferred tax assets, including those related to the NOLs, net of deferred tax liabilities. During the nine months ended September 30, 2005, the Company determined that it was more likely than not that we would realize our deferred tax assets and a valuation allowance was no longer required. When the SRLY losses are realized, the tax benefit for those items reduces goodwill. During the nine months ended September 30, 2005, the Company realized $8,505 (unaudited) of SRLY losses which reduced goodwill.

        In accordance with the tax allocation agreement between McDonald's and the Company, the Company's tax liability is computed based on a separate return basis. The Company shall pay McDonald's for its allocated tax liability or if it benefited from net losses or tax credits of other members of the consolidated tax return. Likewise, McDonald's will compensate the Company if it has a net operating loss or tax credit during the tax year that is used by other members of McDonald's consolidated return. To the extent the Company generates taxable income, it will first be allocated to the SRLY losses. Once the SRLY losses have either been fully utilized or expire, the taxable income will be offset against the tax attributes/deferred tax assets previously used by McDonald's.

        The losses incurred subsequent to the majority acquisition of $118,041 have been utilized by McDonalds, as a reduction of taxable income in its consolidated return. No tax benefit was reflected in the consolidated statement of operations for McDonald's utilization of the Company's NOLs, but rather was treated as a capital contribution. At December 31, 2003 and 2004 and September 30, 2005, the Company has recorded a receivable from McDonald's in shareholder's equity in the consolidated balance sheet of $37,112, $45,985 and $38,596 (unaudited), respectively, for these unreimbursed tax attributes.

        If the Company were to exit the consolidated group, it would be reimbursed for any remaining unreimbursed tax attributes. The tax effect of all changes in the tax bases of assets and liabilities, such as the elimination of the deferred tax asset related to the post-acquisition net operating loss carryforwards, will be recorded in equity.

5.     Shareholders' Equity

        The Company is authorized to issue 40,000,000 shares of preferred stock with a $0.01 par value. The preferred stock consists of 8,034,009 shares designated as Series B convertible preferred stock issued on March 2, 1998 at a per share price of $2.01, 4,975,125 shares designated as Series C junior convertible preferred stock issued on September 1, 1998 at a per share price of $2.01 and 8,510,639 shares designated as Series D junior convertible preferred stock issued on September 1, 1999 at a per share price of $2.35. The remaining preferred shares authorized have not been designated.

F-16


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