Chipotle 2005 Annual Report Download - page 27

ITEM 3. LEGAL PROCEEDINGS
We’re involved in various claims and legal actions that arise in the ordinary course of business. We
do not believe that the ultimate resolution of these actions will have a material adverse effect on our
financial position, results of operations, liquidity or capital resources. However, a significant increase in
the number of these claims or an increase in amounts owing under successful claims could materially
and adversely affect our business, financial condition, results of operation and cash flows.
In addition, we’re involved in claims relating to the possible theft of our customers’ credit and
debit card data. Through the end of February 2006, we have received claims through the acquiring
bank with respect to fewer than 2,000 purportedly fraudulent credit and debit card charges allegedly
arising out of this matter in an aggregate amount of about $1.3 million. We’ve also incurred
$1.3 million of expense in connection with fines imposed by the Visa and MasterCard card associations
on the acquiring bank. In 2004, we recorded charges of $4.0 million to establish a reserve for claims
seeking reimbursement for purportedly fraudulent credit and debit card charges, the cost of replacing
cards, monitoring expenses and fees, and fines imposed by Visa and MasterCard. All of the
reimbursement claims are being disputed, although we’ve not formally protested all of the charges. As
of December 31, 2005, after charging these expenses against the reserve, the remaining reserve was
$1.8 million, which does not take into account an unpaid fine of $0.4 million assessed by MasterCard in
December 2005 that we expect to apply against the reserve in 2006. In addition to the reserve, we’ve
also incurred about $1.5 million of additional expenses in this matter, including $1.3 million for legal
fees, bringing our total expense relating to this matter to $5.5 million. We have not reserved any
additional amounts to date in 2006.
We may in the future become subject to additional claims for purportedly fraudulent transactions
arising out of this matter. We have no way to predict the level of claims or the number or nature of
proceedings that may be asserted against us, nor can we quantify the costs that we may incur in
connection with investigating, responding to and defending any of them. If we litigate these matters, we
may not be able to defend against penalties successfully. The ultimate outcome of this matter could
differ materially from the amounts we’ve recorded in our reserve and could have a material adverse
effect on our financial results and condition. See Item 1A ‘‘Risk Factors—We may have experienced a
security breach with respect to certain customer credit and debit card data, and we’ve incurred and may
continue to incur substantial costs as a result of this matter. We may also incur costs resulting from
other security risks we may face in connection with our electronic processing and transmission of
confidential customer information.’’
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders of Chipotle Mexican Grill, Inc.
through solicitation of proxies or otherwise during the fourth quarter of the Company’s fiscal year
ended December 31, 2005.
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