Chipotle 2006 Annual Report Download - page 32

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Other Operating Costs
For the years ended
December 31,
%
increase
2006 over
2005
%
increase
2005 over
20042006 2005 2004
(dollars in millions)
Other operating costs ............................... $102.7 $83.0 $64.3 23.8% 29.1%
As a percentage of revenue .......................... 12.5% 13.2% 13.7%
Other operating costs as a percentage of revenue declined primarily due to the effect of higher average
restaurant sales on a partially fixed-cost base and operating efficiencies that are realized as we both grow in size
and become more experienced. We also realized a benefit in 2006 related to our promote from within strategy
which reduced the dollars we spent on training external hires.
General and Administrative Expenses
For the years ended
December 31,
%
increase
2006 over
2005
%
increase
2005 over
20042006 2005 2004
(dollars in millions)
General and administrative expense .................... $65.3 $52.0 $44.8 25.6% 15.9%
As a percentage of revenue ........................... 7.9% 8.3% 9.5%
The increase in general and administrative expenses in 2006 primarily resulted from increased employee
related expenses driven by hiring more employees over the past two years, increase in stock based compensation
expense resulting from the one-time broad based option grant in conjunction with our initial public offering,
incremental legal and audit costs due to growth and becoming a public company, costs incurred in conjunction
with the secondary and exchange offers related to McDonald’s disposition of its interest in us, and increases in
severance expense. The increase in general and administrative expenses in 2005 primarily resulted from hiring
more employees as we grew and an increase in stock based compensation expense resulting from the adoption of
FASB Statement No. 123(R), Stock-based Compensation (“FAS 123R”). The increase in expense in 2005 was
offset by the $4.0 million charge in 2004 to establish a reserve related to potential credit card liabilities. As a
percentage of total revenue, general and administrative expenses decreased in 2006 and 2005 due primarily to the
effect of higher restaurant sales on a partially fixed-cost base.
Depreciation and amortization
For the years ended
December 31,
%
increase
2006 over
2005
%
increase
2005 over
20042006 2005 2004
(dollars in millions)
Depreciation and amortization ......................... $34.3 $28.0 $21.8 22.2% 28.5%
As a percentage of revenue ........................... 4.2% 4.5% 4.6%
Depreciation and amortization increased in 2006 and 2005 primarily due to the 278 total restaurants
openings from January 1, 2004 to December 31, 2006. In addition, in 2006 we accelerated depreciation on certain
restaurant and office locations as a result of relocations or closures which have occurred or will occur. As a
percentage of total revenue, depreciation and amortization has decreased as a result of higher average restaurant
sales on a partially fixed-cost base.
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