Chipotle 2006 Annual Report Download - page 23

Download and view the complete annual report

Please find page 23 of the 2006 Chipotle annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 68

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68

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 December 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 $1.4 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, 2006, after charging these expenses against the reserve, the remaining reserve was
$1.2 million. In addition to the reserve, we’ve also incurred about $1.5 million of additional expenses in this
matter, including $1.4 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 2007.
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 our security holders through solicitation of proxies or
otherwise, during the fourth quarter of our fiscal year ended December 31, 2006.
17