Chipotle 2009 Annual Report Download - page 21

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Seasonal factors also cause our operating results to fluctuate from quarter to quarter. Our restaurant sales are
typically lower during the winter months and the holiday season and during periods of inclement weather
(because fewer people are eating out) and higher during the spring, summer and fall months (for the opposite
reason). Our revenue will also vary as a result of the number of trading days, that is, the number of days in a
quarter when a restaurant is open.
As a result of these factors, results for any one quarter are not necessarily indicative of results to be expected
for any other quarter or for any year. Average restaurant sales or comparable restaurant sales in any particular
future period may decrease. In the future, operating results may fall below the expectations of securities analysts
and investors, which could cause our stock price to fall. We believe the market price of our common stock
reflects high market expectations for our future operating results, and as a result , if we fail to meet market
expectations for our operating results in the future, any resulting decline in the price of our common stock could
be significant.
Restrictions and indemnities in connection with the tax treatment of the exchange offer through which
we separated from McDonald’s could adversely affect us.
We understand that the exchange offer McDonald’s completed in October 2006 to dispose of its interest in
us was generally tax-free to McDonald’s and its shareholders. In order to protect the tax-free status of the
exchange offer, in the separation agreement we entered into with McDonald’s in connection with the separation
we agreed among other things to indemnify McDonald’s for taxes and related losses it incurs as a result of the
exchange failing to qualify as a tax-free transaction in certain situations, if the taxes and related losses are
attributable to (i) certain direct or indirect acquisitions of our stock or assets (regardless of whether we consent to
such acquisitions); (ii) negotiations, understandings, agreements or arrangements in respect of such acquisitions;
or (iii) any amendment to our certificate of incorporation that affects the relative voting rights of any separate
classes of our common stock. In December 2009, following completion of an extensive due diligence process, we
completed a share conversion eliminating the existence of our class B common stock, and with it the superior
voting rights of the class B common stock. In the event the share conversion is deemed to result in the
McDonald’s exchange offer failing to qualify as a tax-free transaction, we may have an indemnification
obligation under the provision described above. We currently estimate that the indemnification obligation to
McDonald’s could exceed $450 million, and this estimate does not take into account related losses and depends
upon several factors that are beyond our control. As a consequence, the indemnity to McDonald’s could vary
substantially from the estimate and may be much greater.
Our anti-takeover provisions may delay or prevent a change in control of us, which could adversely affect
the price of our common stock.
Certain provisions in our corporate documents and Delaware law may delay or prevent a change in control
of us, which could adversely affect the price of our common stock. Our amended and restated certificate of
incorporation and amended and restated bylaws contain some provisions that may make the acquisition of control
of us without the approval of our board of directors more difficult, including provisions relating to the
nomination, election and removal of directors, the structure of the board of directors and limitations on actions by
our shareholders. In addition, Delaware law also imposes some restrictions on mergers and other business
combinations between us and any holder of 15% or more of our outstanding common stock. Any of these
provisions, as well as the provisions of our separation agreement with McDonald’s described above under
“Restrictions and indemnities in connection with the tax treatment of McDonald’s exchange offer could
adversely affect us,” may discourage a potential acquirer from proposing or completing a transaction that may
have otherwise presented a premium to our shareholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
19
Annual Report