Chipotle 2006 Annual Report Download - page 55

Chipotle Mexican Grill, Inc.
Notes to Consolidated Financial Statements—(Continued)
(dollar and share amounts in thousands, unless otherwise specified)
8. Stock Based Compensation
Effective with the Company’s initial public offering the Company adopted the Chipotle Mexican Grill, Inc.
2006 Stock Incentive Plan (the “Plan”). Under the Plan, 2,200 shares of class A common stock have been
authorized and reserved for issuances to eligible employees, of which 1,335 represents shares that were
authorized for issuance, but not issued under the Plan at December 31, 2006. The Plan is administered by the
Compensation Committee of the Board of Directors, which has the authority to select the individuals to whom
awards will be granted and to determine when the awards are to be granted, the number of shares to be covered
by each award, the vesting schedule and all other terms and conditions of the awards. The exercise price for
options granted under the Plan cannot be less than fair market value at the date of grant.
In conjunction with the initial public offering, the Company granted a one-time grant of 774 options to
purchase shares of class A common stock to all of its salaried employees. The exercise price of the options was
set at the grant date fair value, the initial public offering price, of $22.00 per share. The options granted vest three
years from the date of grant and expire after seven years. Compensation expense is generally recognized equally
over the three year vesting period. Compensation expense related to employees eligible to retire and retain full
rights to the awards is recognized over six months which coincides with the notice period. During the year ended
December 31, 2006, the vesting on 49 options were accelerated upon the termination of two employees which
resulted in additional stock-based compensation expense of $1,115 recognized in the year.
In 2005, the Company granted 153 shares of non-vested class B common stock with a grant-date fair value
of $19.50 per share (a related party contemporaneous valuation) which vest in three equal installments on each
anniversary of the grant date. During the year ended December 31, 2006, 51 shares vested and no shares were
forfeited. Compensation expense is recognized over the vesting period.
The Company granted stock appreciation rights (“SARs”) on 167 shares of common stock of which 18 were
forfeited during 2005. Effective with the Company’s initial public offering, all SARs outstanding as of
January 25, 2006 were converted into options to purchase 149 shares of class A common stock. The options,
which have terms consistent with the original SARs, have an exercise price of $22.35 per share, vest three years
from the date of grant (vesting in full in July 2007) and expire five years and six months after the original grant
date. Upon conversion, the options were remeasured to the then fair value. The portion of the incremental
compensation costs related to service periods that were completed as of the conversion date, of $149, was
recognized immediately. Until converted, the SARs were accounted for as a liability, and compensation expense
was revalued each reporting period and recognized over the remaining vesting period. The liability was included
in other liabilities in the consolidated balance sheet as of December 31, 2005.
Stock-based compensation, including options, restricted shares and SARs, was $5,293 ($3,218 net of tax) in
2006, $2,103 ($1,266 net of tax) in 2005, and $193 ($193 net of tax) in 2004. For the year ended December 31,
2006, $100 of stock-based compensation was recognized as capitalized development and is included in property,
plant and equipment in the consolidated balance sheet. Unearned compensation as of December 31, 2006 was
$3,473 for options and $540 for non-vested stock. The remaining vesting period as of December 31, 2006 for
unvested options was between 0.5 and 2.1 years and for non-vested stock was 1.2 years.
49