Chipotle 2005 Annual Report Download - page 23

We could be party to litigation that could adversely affect us by distracting management, increasing our
expenses or subjecting us to material money damages and other remedies.
Our customers occasionally file complaints or lawsuits against us alleging that we’re responsible for
some illness or injury they suffered at or after a visit to our stores, or that we have problems with food
quality or operations. We’re also subject to a variety of other claims arising in the ordinary course of
our business, including personal injury claims, contract claims and claims alleging violations of federal
and state law regarding workplace and employment matters, discrimination and similar matters, and we
could become subject to class action or other lawsuits related to these or different matters in the
future. For example, we’re currently investigating issues that may arise in connection with the possible
theft of certain credit and debit card data. We’re also subject to ‘‘dram shop’’ statutes, which generally
allow persons injured by intoxicated people to recover damages from the place that wrongfully served
those people alcohol. Regardless of whether any claims against us are valid, or whether we’re ultimately
held liable, claims may be expensive to defend and may divert time and money away from our
operations and hurt our performance. A judgment significantly in excess of our insurance coverage for
any claims could materially and adversely affect our financial condition or results of operations. Any
adverse publicity resulting from these allegations may also materially and adversely affect our
reputation or prospects, which in turn could adversely affect our results.
In addition, the restaurant industry has been subject to a growing number of claims based on the
nutritional content of food products they sell and disclosure and advertising practices. We may also be
subject to this type of proceeding in the future and, even if not, publicity about these matters
(particularly directed at the quick-service and fast-casual segments of the industry) may harm our
reputation or prospects and adversely affect our results.
We will incur increased costs as a result of being a public company.
As a public company, we will incur significant legal, accounting and other expenses that we did not
incur as a private company. The U.S. Sarbanes-Oxley Act of 2002 and related rules of the U.S.
Securities and Exchange Commission, or SEC, and the New York Stock Exchange regulate corporate
governance practices of public companies. Compliance with the requirements applicable to a public
company will increase our costs and make some activities more time-consuming. For example, we have
created new board committees and adopted new internal controls and disclosure controls and
procedures. In addition, we will incur additional expenses associated with our SEC reporting
requirements. A number of those requirements will require us to carry out activities we have not done
previously. For example, under Section 404 of the Sarbanes-Oxley Act, for our annual report on
Form 10-K for the year ending December 31, 2007, we’ll need to document and test our internal
control procedures, our management will need to assess and report on our internal control over
financial reporting and our independent accountants will need to issue an opinion on that assessment
and the effectiveness of those controls. Furthermore, if we identify any issues in complying with those
requirements (for example, if we or our accountants identified a material weakness or significant
deficiency in our internal control over financial reporting), we could incur additional costs rectifying
those issues, and the existence of those issues could adversely affect us, our reputation or investor
perceptions of us. Costs to obtain director and officer liability insurance are generally greater for public
companies, and we will incur substantially higher costs to obtain coverage. As a result of the associated
liability, it may be more difficult for us to attract and retain qualified persons to serve on our board of
directors or as executive officers. Advocacy efforts by shareholders and third parties may also prompt
even more changes in governance and reporting requirements. We cannot predict or estimate the
amount of additional costs we may incur or the timing of such costs.
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