Chipotle 2008 Annual Report Download - page 53

During 2008, certain grants were made subject to shareholder approval. The value of grants subject to
shareholder approval, were determined on the date of approval. The following table reflects the average
assumptions utilized in the Black-Scholes option-pricing model to value stock options and SARs awards granted:
2008 2007 2006
Risk-free interest rate .............................................. 3.1% 4.7% 4.4%
Expected life (years) ............................................... 4.8 5.0 5.0
Expected dividend yield ............................................ 0.0% 0.0% 0.0%
Volatility ........................................................ 35% 35% 40.0%
Weighted Average Black-Scholes fair value per share at date of grant ........ $29.01 $24.80 $9.21
The risk-free interest rate is based upon U.S. Treasury Rates for instruments with similar terms. The
expected life was derived utilizing the short-cut method allowed for a vanilla option grant under Staff
Accounting Bulletin No. 107, in which the expected life is assumed to be the average of the vesting period and
the contractual life of the option. The Company has not paid dividends to date and does not plan to pay dividends
in the near future. The volatility assumptions were derived from the Company’s actual and implied volatilities
and historical volatilities of competitors whose shares are traded in the public markets and are adjusted to reflect
anticipated behavior specific to the Company.
6. Employee Benefit Plans
In October 2006, effective upon consummation of the Disposition, the Company adopted the Chipotle
Mexican Grill 401(k) plan (the “401(k) plan”). Prior to October 2006, eligible Chipotle employees were
participants of a 401(k) plan sponsored by McDonald’s. The Company matches 100% of the first 3% of pay
contributed by each eligible employee and 50% on the next 2% of pay contributed. Employees become eligible to
receive matching contributions after one year of service with the Company. For the years ended December 31,
2008, 2007 and 2006, Company matching contributions totaled approximately $1,402, $1,234 and $1,070,
respectively.
As a result of the Disposition, the Company adopted the Chipotle Mexican Grill, Inc. Supplemental
Deferred Investment Plan (the “Deferred Plan”) which covers eligible employees of the Company. The Deferred
Plan is a non-qualified, unfunded plan that allows participants to make tax-deferred contributions that cannot be
made under the 401(k) plan because of Internal Revenue Service limitations. Participants’ earnings on
contributions made to the Deferred Plan fluctuate with the actual earnings and losses of a variety of available
investment choices selected by the participant. Total liabilities under the Deferred Plan as of December 31, 2008
and 2007 were $1,790 and $800, respectively, and are included in other long-term liabilities in the consolidated
balance sheet. The Company matches 100% of the first 3% of pay contributed by each eligible employee and
50% on the next 2% of pay contributed once the 401(k) contribution limits are reached. For the years ended
December 31, 2008, 2007 and 2006, the Company made deferred compensation matches of $252, $137 and $25
respectively, to the Deferred Plan. Prior to October 2006, eligible Chipotle employees were participants of a
deferred compensation plan sponsored by McDonald’s.
7. Related-Party Transactions
Prior to the Disposition, the Company was a wholly-owned subsidiary of McDonald’s. Transactions through
the date of separation are considered related-party transactions and are discussed below.
The consolidated statement of income reflects charges from McDonald’s of $8,667 for the year ended
December 31, 2006. These charges primarily related to reimbursements of payroll and related expenses for
certain McDonald’s employees that performed services for the Company, insurance coverage, software
maintenance agreements and non-income based taxes. The charges were specifically identifiable to the Company.
The Company cannot estimate with any reasonable certainty what these charges would have been on a stand-
alone basis. However, the Company feels that these charges are indicative of what it could have incurred on a
stand-alone basis.
51
Annual Report