SEC Info℠

Home

Search

My Interests

Help

Sign In

Please Sign In

Chipotle Mexican Grill Inc – ‘424B1’ on 5/19/06

On:  Friday, 5/19/06, at 2:35pm ET   ·   Accession #:  1193125-6-116241   ·   File #:  333-133912

Previous ‘424B1’:  None   ·   Next & Latest:  ‘424B1’ on 10/5/06

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

 Text Wildcards:  ? (any letter/digit),  * (many).  Search Logic:  for Documents:  & (and),  | (or);  for Text:  | (anywhere),  "(&)" (near).  Details... 

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 5/19/06  Chipotle Mexican Grill Inc        424B1                  1:2.6M                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 424B1       Prospectus                                          HTML   1.39M 

Table of Contents

Filed Pursuant to Rule 424(b)(1)

Commission File No. 333-133912

PROSPECTUS

4,197,331 Shares

CLASS A COMMON STOCK

McDonald’s Ventures, LLC is offering 4,100,000 shares of our class A common stock and the other selling shareholders named in this prospectus are offering 97,331 shares of our class A common stock. We will not receive any proceeds from the sale of our class A common stock by the selling shareholders.

Our class A common stock is listed on the New York Stock Exchange under the symbol “CMG.” On May 18, 2006, the closing sale price of our common stock as reported by the NYSE Consolidated Tape was $62.69 per share.

Investing in our class A common stock involves risks. See “ Risk Factors” beginning on page 9.

PRICE $61.50 A SHARE

McDonald’s Ventures, LLC has granted the underwriters the right to purchase an additional 629,599 shares of class A common stock to cover over-allotments. The underwriters expect to deliver the shares of common stock to purchasers on May 24, 2006.

The U.S. Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

May 18, 2006

Table of Contents

Table of Contents

TABLE OF CONTENTS

No one is authorized to provide you with information that conflicts with information in the registration statement we have filed with the Securities and Exchange Commission. The selling shareholders are offering to sell, and seeking offers to buy, shares of our class A common stock only where those offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of when this prospectus is delivered or any sale of our class A common stock occurs.

Neither we nor the selling shareholders have taken any action to permit a public offering of the shares of our class A common stock outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our class A common stock and the distribution of this prospectus outside of the United States.

Except as the context otherwise requires, “Chipotle,” the “Company,” “we,” “our” or “us” refer to Chipotle Mexican Grill, Inc. and its consolidated subsidiaries. “McDonald’s” refers to McDonald’s Corporation or, as the context requires, McDonald’s Ventures, LLC.

“Chipotle,” “Chipotle Mexican Grill,” “Chipotle Mexican Grill (in stylized font),” “Unburritable,” “Food With Integrity,” “Fresh Is Not Enough Anymore,” “The Gourmet Restaurant Where You Eat With Your Hands,” the Chili Pepper Logo design, the Foil Burrito design and the Chipotle Medallion design are U.S. registered trademarks of Chipotle.

i

Table of Contents

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. It does not contain all of the information that may be important to you in making your investment decision. You should read the entire prospectus carefully, including the section describing the risks of investing in our class A common stock entitled “Risk Factors” and our financial statements and related notes included elsewhere in this prospectus, before deciding to buy our class A common stock.

CHIPOTLE MEXICAN GRILL, INC.

When a Chain Isn’t a “Chain”

When Chipotle (pronounced chi-POAT-lay) opened its first restaurant in 1993, the idea was simple: demonstrate that food served fast didn’t have to be a “fast-food” experience. We use high-quality raw ingredients, classic cooking methods and a distinctive interior design, and have friendly people to take care of each customer—features that are more frequently found in the world of fine dining. When we opened, there wasn’t an industry category to describe what we were doing. Some 12 years and more than 500 company-operated and franchised restaurants later, we compete in a category of dining now called “fast-casual,” the fastest growing segment of the restaurant industry, where customers expect food quality that’s more in line with full-service restaurants, coupled with the speed and convenience of fast food.

Our revenue was $627.7 million in 2005, a 33.3% increase from 2004 and a 98.9% increase from 2003, driven by new restaurant openings and increased average restaurant sales. Our revenue was $187.0 million in the first three months of 2006 compared to $133.4 million for the same period last year, or a 40.2% increase. Since 2003, we have grown from 298 to 496 company-operated restaurants as of March 31, 2006. This increase was driven by 103 openings in 2004, 80 in 2005 and 15 in the first three months of 2006. Average restaurant sales, which we define as the average trailing 12-month sales for company-owned restaurants in operation for at least 12 full months, also grew from $1.274 million for 2003 to $1.361 million for 2004, $1.440 million for 2005 and $1.502 million for the trailing 12-month period ended March 31, 2006, reflecting the growing consumer awareness of our brand as well as our focus on improving customer service time. Our net income (loss) improved from a loss of $(7.7) million in 2003 to income of $6.1 million in 2004, $37.7 million (inclusive of a non-recurring $20.3 million tax benefit) in 2005 and $8.0 million for the first three months of 2006, and our earnings before interest, taxes, depreciation and amortization, or EBITDA, was $7.2 million in 2003, $27.9 million in 2004, $59.0 million in 2005 and $20.7 million for the first three months of 2006.

What We Do Really Well

We do just a few things but try to do them really well, and we plan to keep this intentionally focused strategy as we grow. We elevate basic raw ingredients into food that’s more sophisticated with layers of flavor through our recipes and cooking techniques. Similarly, our restaurant design transforms simple materials in distinctive ways, giving our restaurants a style that’s more architectural in nature and less dependent on standardized design elements. We respect our employees and invite them to share their ideas, which we think inspires them to take pride in their work and increases their dedication to our customers and our company.

“Food With Integrity”

Our focus has always been on using the kinds of higher-quality ingredients and cooking techniques used in high-end restaurants to make great food accessible at reasonable prices. But our vision has evolved. While using a variety of fresh ingredients remains the foundation of our menu, we believe that “fresh is not enough, anymore.” Now we want to know where all of our ingredients come from, so that we can be sure they are as

1

Table of Contents

flavorful as possible while understanding the environmental and societal impact of our business. We call this idea “food with integrity,” and it guides how we run our business.

We believe that our focus on “food with integrity” will resonate with customers as the public becomes increasingly aware of, and concerned about, what they eat.

Our Employees Set Us Apart

We believe that our front-line crew differentiates the Chipotle experience. Virtually all of what our crew does is in view of customers, and because the person who prepares the food is often the same person who serves it, our employees have a strong sense of pride in their work. We think this and our crew’s commitment to our vision contribute to better execution and service and are reflected in our crew turnover rate, which we believe is lower than the average in our industry.

No Two Restaurants Are The Same

The design of each Chipotle restaurant reflects the same idea as our food: a limited number of basic materials used in creative ways. We design each restaurant individually to suit the space. Even the design of our chairs and artwork is unique to Chipotle. The design of our serving line and our open kitchens also exemplify our vision, demonstrating our commitment to cooking fresh food.

Customers Who Sell For Us

We believe the best and most recognizable brands aren’t built through advertising or promotional campaigns alone, but rather through deeply held beliefs evident in how a company runs its business. By adhering to this principle, we believe that Chipotle is becoming a highly recognized brand. We believe the single greatest contributor to our success has been word-of-mouth, with our customers learning about us and telling others. For example, some of our customers have gone so far as to develop websites about Chipotle. Our advertising has a low-key and irreverent tone that has been popular with customers. Our approach has captured the attention of some of the country’s most renowned news media, including the Washington Post, Food and Wine magazine, the New York Times, and several well-regarded food critics, which we think is unusual in our segment of the restaurant industry.

Rapidly Improving Financial Performance

Our simple but effective approach has helped us build a sizeable and loyal customer base and resulted in rapidly improving financial performance over the last five years. Our revenue was $627.7 million in 2005, a 98.9% increase from 2003, driven by new restaurant openings and increased average restaurant sales. Our revenue was $187.0 million in the first three months of 2006, a 40.2% increase from the same period last year. During 2003, 2004, 2005 and the first three months of 2006, we opened 275 restaurants in total. Increases in average restaurant sales have occurred partly because the time it takes for our new restaurants to achieve planned

2

Table of Contents

sales volumes, or ramp up, has consistently shortened as we’ve grown and customers have learned about our brand, enabling new restaurants to open with higher average sales. We’ve also had strong growth in comp restaurant sales, which we define as period-over-period sales comparisons for company-owned restaurants in operation at least 12 full months (disregarding the portion of a month in which a restaurant first begins operating), due mainly to an increase in the number of transactions.

Management’s Passion, Not Just Experience

Our senior management is comprised of people who bring a mix of restaurant and business experience to their work. But most importantly, the team is committed to making Chipotle’s vision a part of all facets of our business. Steve Ells, our founder, Chairman and Chief Executive Officer, holds a degree from the Culinary Institute of America. Monty Moran, our President and Chief Operating Officer, joined Chipotle in March 2005, previously serving as chief executive officer of a private law firm, and as general counsel of Chipotle for much of our history. Jack Hartung, our Chief Finance and Development Officer, joined Chipotle in 2002, after spending 18 years with McDonald’s, where he held a variety of management positions, including vice president and chief financial officer for McDonald’s Partner Brands group. Bob Wilner, our Chief Administrative Officer, joined Chipotle in 2002, and previously served as vice president of human resources for McDonald’s Partner Brands group. Together, our senior management team will beneficially own about 5% of the combined voting power of our outstanding stock and 4% of the economic interest in our outstanding common stock after this offering.

Where We Go From Here

We believe that our growth has been driven by the appeal of our food, the clarity of our vision, the increasing strength of our brand and our commitment to constantly improving our customer experience. We anticipate that our growth plans for the foreseeable future will continue to be rooted in these fundamentals as we bring the Chipotle experience to more people.

Focusing On Our Vision to Appeal to Customers

Our menu is intentionally simple. By focusing on just a few menu items, we can concentrate our effort on doing a few things very well. We believe that by focusing on the details of quality, service and the Chipotle experience, we’ll be able to bring great food and our vision to new customers and keep existing customers coming back. We believe that consumers’ increasing concern about the food they eat will foster demand for higher-quality foods. We believe this, in turn, will attract the interest and capital investment of larger farms and suppliers, and help us make our food more accessible, although we’ll continue to balance our interest in advancing “food with integrity” with our desire to provide great food at reasonable prices.

Expanding Our Operations and Sales

We plan to increase both sales and profits by opening new restaurants and increasing comp restaurant sales:

3

Table of Contents

Risks of Investing in Chipotle

Our business involves various risks, including the rapid increase in the number of our restaurants; various aspects of our relationship with McDonald’s, including our ability to manage relationships and obtain services McDonald’s currently manages or obtains on our behalf, particularly in light of McDonald’s announcement that it will dispose of its remaining interest in us by year-end 2006 as described below; our lack of independent operating history as a large company; our ability to continue to grow and to manage our growth effectively; our ability to maintain and grow comp restaurant sales; our ability to open new restaurants as planned; our expansion into new markets; continued competitive pressures; health and safety concerns about the ingredients we use; credit and debit card fraud; sabotage of our information systems; and our ability to continue inspiring pride in our restaurant managers and crews and to maintain our culture. In addition, after this offering, McDonald’s will continue to be able to exert a controlling influence over all matters requiring shareholder approval, including the election of directors and significant business transactions. You should carefully consider the risks discussed in “Risk Factors” before deciding to invest in our class A common stock.

Dispositions by McDonald’s

After the completion of this offering, McDonald’s will beneficially own common stock representing 82.7% of the combined voting power of our outstanding stock and 52.2% of the economic interest in our outstanding common stock (or 81.9% and 50.2%, respectively, if the underwriters’ over-allotment option is exercised in full). McDonald’s has announced that it intends to dispose of its remaining interest in us through a tax-free exchange offer to its shareholders by year-end 2006. Any such exchange would be subject to various conditions, including receipt of any necessary regulatory or other approvals, the existence of satisfactory market conditions and McDonald’s receipt of a private letter ruling from the Internal Revenue Service and/or an opinion of counsel that the exchange would be tax-free to McDonald’s and its shareholders. The conditions to McDonald’s planned exchange offer may not be satisfied, or McDonald’s may decide not to consummate the exchange, to pursue a different transaction or to continue to hold its interest. McDonald’s has no obligation to pursue any further dispositions of its interest in us by any specified date or at all. Dispositions by McDonald’s of substantial amounts of our common stock could depress the price of our class A common stock.

Incorporation and Principal Executive Offices

The first Chipotle restaurant opened in 1993. We have been a subsidiary of McDonald’s since February 1998, and prior to this offering, McDonald’s beneficially owned common stock representing 87% of the combined voting power of our outstanding stock and 65% of the economic interest in our outstanding common stock. McDonald’s acquired a controlling stake in us at the same time that our predecessor, World Foods Inc., a Colorado corporation formed in 1996, merged with Chipotle Mexican Grill, Inc., a Delaware corporation. Chipotle Mexican Grill, Inc., was the surviving entity in the merger. Our main office is located at 1543 Wazee Street, Suite 200, Denver, Colorado, and our telephone number is (303) 595-4000.

4

Table of Contents

THE OFFERING

Class A common stock offered by the

Common stock to be outstanding immediately after this offering:

Common stock voting rights immediately after this offering:

New York Stock Exchange trading

The total number of shares of common stock that will be outstanding after this offering is based on 32,541,604 shares outstanding as of March 31, 2006, including non-vested shares subject to forfeiture, and excludes:

Except as otherwise indicated, all information in this prospectus assumes no exercise of the underwriters’ option to purchase up to an additional 629,599 shares of class A common stock from McDonald’s Ventures, LLC to cover over-allotments.

5

Table of Contents

SUMMARY CONSOLIDATED FINANCIAL DATA

Our summary consolidated financial data shown below should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. The summary consolidated statements of operations data for the years ended December 31, 2003, 2004 and 2005 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our consolidated financial statements for the years ended December 31, 2003, 2004 and 2005 have been audited and reported upon by Ernst & Young LLP, an independent registered public accounting firm. The summary consolidated statements of operations data for the three months ended March 31, 2005 and 2006 and the balance sheet data as of March 31, 2006 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus, and include all adjustments consisting only of normal recurring adjustments necessary for a fair presentation of the results of the interim periods. The data shown below are not necessarily indicative of future results.

6

Table of Contents

7

Table of Contents

8

Table of Contents

RISK FACTORS

An investment in our class A common stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information contained in this prospectus, before deciding to buy our class A common stock. Any of the risks we describe below could adversely affect our business, financial condition or operating results. The market price of our class A common stock could decline if one or more of these risks and uncertainties develop into actual events. You could lose all or part of your investment.

Risks Related to Our Business and Industry

The planned rapid increase in the number of our restaurants may make our future results unpredictable.

There were 504 Chipotle restaurants as of March 31, 2006, 275 of which have opened since January 1, 2003. We plan to increase the number of our restaurants significantly in the next three years. This growth strategy and the substantial investment associated with the development of each new restaurant (as well as the impact of our new restaurants on the sales of existing restaurants) may cause our operating results to fluctuate and be unpredictable or adversely affect our profits. Our future results depend on various factors, including successful selection of new markets and restaurant locations, market acceptance of the Chipotle experience, consumer recognition of the quality of our food and willingness to pay our prices (which reflect our often higher ingredient costs), the quality of our operations and general economic conditions. What’s more, as has happened when other fast-casual restaurant concepts have tried to expand nationally, we may find that the Chipotle concept has limited or no appeal to customers in certain new markets or we may experience a decline in the popularity of the Chipotle experience. Newly opened restaurants may not succeed, future markets and restaurants may not be successful and, even if we’re successful, our average restaurant sales may not increase at historical rates.

We may face difficulties replacing services McDonald’s provides to us and entering into new or modified arrangements with existing or new suppliers or service providers.

We’ve benefited from our relationship with McDonald’s. For example, McDonald’s has provided us, directly or through its own vendor relationships, with accounting services, insurance policy coverage, banking services, health and other insurance benefits for our employees and employee benefit plans, as well as with its expertise in certain areas of our operations, such as real estate. We also benefit from our relationship with McDonald’s when we buy supplies or distribution or other services. For example, McDonald’s relationship with Coca-Cola has helped us contain our beverage costs, and we’ve relied on the same distribution network as McDonald’s.

In connection with our initial public offering we entered into a services agreement with McDonald’s to clarify our relationship in light of McDonald’s ability to dispose of its interest in us. After this offering, McDonald’s will beneficially own about 82.7% of the combined voting power of our common stock, assuming no exercise of the underwriters’ over-allotment option, and McDonald’s has announced its intention to dispose of its remaining interest in us through a tax-free exchange offer to McDonald’s shareholders by year-end 2006, subject to market conditions.

As McDonald’s ownership interest in us declines, we’ll lose an increasing amount of the benefits of our relationship with McDonald’s. For example, we currently obtain beneficial pricing and/or service levels from certain suppliers and service providers, and pay McDonald’s for the costs they incur in administering our 401(k) plan and providing certain benefits, including health and workers compensation insurance, for our employees. McDonald’s is entitled to provide notice of termination of these services such that the termination is effective on the date when McDonald’s owns 80% or less of the combined voting power of our outstanding stock. It has the same right in connection with certain insurance services it provides directly or through its vendors. In some cases, current benefits, such as the use of the distribution network that McDonald’s also uses, are not contractually tied to the level of McDonald’s ownership, and the relevant suppliers and service providers could decide to stop giving us beneficial pricing and/or service levels or terminate their relationship with us at any time.

9

Table of Contents

In light of McDonald’s plans, we have begun to evaluate alternatives to ensure that our separation from McDonald’s will occur without any material disruption in the services of or our relationships with the suppliers or service providers described above. We have not made final determinations in this respect, and we may encounter difficulties or be unable to negotiate pricing or other terms as favorable as those we currently enjoy, which could harm our business and operating results. We have begun discussions with suppliers and service providers regarding new or amended contracts, but cannot now quantify the potential impact on our expenses. See “Certain Relationships and Related Party Transactions.”

We have a limited independent operating history as a large company, which makes our future business prospects difficult to evaluate.

We have been a subsidiary of McDonald’s since 1998, which has affected the way we operate and manage our business. Because we have a limited independent operating history as a large company, our historical results may not be indicative of our future performance. Our future results depend on various factors, including those identified in these risk factors. We may not remain profitable.

Our sales growth rate depends primarily on our ability to open new restaurants and is subject to many unpredictable factors.

We may not be able to open new restaurants as quickly as planned. We’ve experienced delays in opening some restaurants and that could happen again. Delays or failures in opening new restaurants could materially and adversely affect our growth strategy and our expected results. As we operate more restaurants, our rate of expansion relative to the size of our restaurant base will decline. In addition, one of our biggest challenges is locating and securing an adequate supply of suitable new restaurant sites. Competition for those sites in our target markets is intense, and lease costs are increasing (particularly for urban locations). Our ability to open new restaurants also depends on other factors, including:

Although we plan to open a total of between 80 and 90 restaurants in 2006, including the 15 restaurants we opened during the first quarter of 2006, we may not be able to do so for the reasons described in this risk factor. In addition, our progress in opening new restaurants from quarter to quarter may occur at an uneven rate.

Our sales and profit growth could be adversely affected if comp restaurant sales are less than we expect.

While future sales growth will depend substantially on our plans for new restaurant openings, the level of comp restaurant sales will also affect our sales growth and will continue to be a critical factor affecting profit growth. This is because the profit margin on comp restaurant sales is generally higher than the profit margin on new restaurant sales, as comp restaurant sales increases enable fixed costs to be spread over a higher sales base. While we don’t expect comp restaurant sales growth to continue at historical levels, our plans do incorporate

10

Table of Contents

positive comp restaurant sales. Our ability to increase comp restaurant sales depends in part on our ability to successfully implement our initiatives to increase the speed at which our crew serves each customer, and expanded use of fax service lines and online ordering, which we may not be able to do. It is possible that we will not achieve our targeted comp restaurant sales growth or that the change in comp restaurant sales could be negative. If this were to happen, sales and profit growth would be adversely affected. We recently announced that we expect quarterly comp restaurant sales increases to decelerate throughout the year as sequential comparisons become more difficult.

Our failure to manage our growth effectively could harm our business and operating results.

Our plans call for a significant number of new restaurants. Our existing restaurant management systems, financial and management controls and information systems may be inadequate to support our expansion. Managing our growth effectively will require us to continue to enhance these systems, procedures and controls and to hire, train and retain restaurant managers and crew. We may not respond quickly enough to the changing demands that our expansion will impose on our management, crew and existing infrastructure. We also place a lot of importance on our culture, which we believe has been an important contributor to our success. As we grow, however, we may have difficulty maintaining our culture or adapting it sufficiently to meet the needs of our operations. Our failure to manage our growth effectively could harm our business and operating results.

New restaurants, once opened, may not be profitable, and the increases in average restaurant sales and comp restaurant sales that we’ve experienced in the past may not be indicative of future results.

Historically, our new restaurants have opened with an initial ramp-up period typically lasting 24 months or more, during which they generated sales and income below the levels at which we expect them to normalize. This is in part due to the time it takes to build a customer base in a new market, higher fixed costs relating to increased construction and occupancy costs and other start-up inefficiencies that are typical of new restaurants. New restaurants may neither be profitable nor have results comparable to our existing restaurants. In addition, our average restaurant sales and comp restaurant sales likely will not continue to increase at the rates achieved over the past several years. Our ability to operate new restaurants profitably and increase average restaurant sales and comp restaurant sales will depend on many factors, some of which are beyond our control, including:

If we fail to open restaurants as quickly as planned, or if new restaurants don’t perform as planned, our business and future prospects could be harmed. In addition, changes in our average restaurant sales or comp restaurant sales could cause our operating results to vary adversely from expectations, which could cause the price of our common stock to fluctuate substantially.

Our expansion into new markets may present increased risks due to our unfamiliarity with those areas.

Some of our new restaurants are planned for markets where we have little or no operating experience. Those markets may have different competitive conditions, consumer tastes and discretionary spending patterns than our

11

Table of Contents

existing markets. As a result, those new restaurants may be less successful than restaurants in our existing markets. Consumers in a new market may not be familiar with the Chipotle brand, and we may need to build brand awareness in that market through greater investments in advertising and promotional activity than we originally planned. We may find it more difficult in new markets to hire, motivate and keep qualified employees who can project our vision, passion and culture. Restaurants opened in new markets may also have lower average restaurant sales than restaurants opened in existing markets, and may have higher construction, occupancy or operating costs than restaurants in existing markets. What’s more, we may have difficulty finding reliable suppliers or distributors or ones that can provide us, either initially or over time, with adequate supplies of ingredients meeting our quality standards. Sales at restaurants opened in new markets may take longer to ramp up and reach expected sales and profit levels, and may never do so, thereby affecting our overall profitability.

We may not persuade customers of the benefits of paying our prices for higher-quality food.

Our success depends in large part on our ability to persuade customers that food made with higher-quality ingredients is worth the prices they will pay at our restaurants relative to prices offered by some of our competitors, particularly those in the quick-service segment. We may not successfully educate customers about the quality of our food, and they may not care even if they do understand our approach. That could require us to change our pricing, advertising or promotional strategies, which could materially and adversely affect our results or the brand identity that we’ve tried to create.

Changes in customer tastes and preferences, spending patterns and demographic trends could cause sales to decline.

Changes in customer preferences, general economic conditions, discretionary spending priorities, demographic trends, traffic patterns and the type, number and location of competing restaurants affect the restaurant industry. Our success depends to a significant extent on consumer confidence, which is influenced by general economic conditions and discretionary income levels. Our sales may decline during economic downturns, which can be caused by various economic factors such as high gasoline prices, or during periods of uncertainty, such as those that followed the terrorist attacks on the United States in 2001. In addition, projected high gasoline prices in the spring and summer of 2006 may adversely impact consumer confidence and could have a negative impact on our sales. Any material decline in consumer confidence or a decline in family “food away from home” spending could cause our sales, operating results, profits, business or financial condition to decline. If we fail to adapt to changes in customer preferences and trends, we may lose customers and our sales may deteriorate.

Competition from other restaurant companies could adversely affect us.

We operate in the fast-casual segment of the restaurant industry. This segment is highly competitive with respect to, among other things, taste, price, food quality and presentation, service, location and the ambience and condition of each restaurant. We also compete with restaurants in the quick-service and casual dining segments. Our competition includes a variety of locally owned restaurants and national and regional chains. Our competitors offer dine-in, carry-out and delivery services. Many of our competitors have existed longer and often have a more established market presence with substantially greater financial, marketing, personnel and other resources than Chipotle. Our controlling shareholder, McDonald’s, operates in the quick-service segment of the restaurant industry. Among our main competitors are a number of multi-unit, multi-market Mexican food or burrito restaurant concepts, some of which are expanding nationally. As we expand further in existing markets, our existing restaurants may face competition from our new restaurants that begin operating in those markets.

Several of our competitors compete by offering menu items that are specifically identified as low in carbohydrates, better for customers or otherwise targeted at particular consumer preferences. Many of our competitors in the fast-casual and quick-service segments of the restaurant industry also emphasize lower-cost, “value meal” menu options, a strategy we don’t pursue. Our sales may be adversely affected by these products and price competition.

12

Table of Contents

Moreover, new companies may enter our markets and target our customers. For example, additional competitive pressures have come more recently from the deli sections and in-store cafés of several major grocery store chains, including those targeted at customers who want higher-quality food, as well as from convenience stores and casual dining outlets. These competitors may have, among other things, lower operating costs, better locations, better facilities, better management, more effective marketing and more efficient operations than we have.

All of these competitive factors may adversely affect us and reduce our sales and profits.

Additional instances of avian flu or of “mad cow” disease or other food-borne illnesses could adversely affect the price and availability of chicken, beef or other meat, cause the temporary closure of some restaurants and result in negative publicity, thereby resulting in a decline in our sales.

Asian and European countries have experienced and continue to experience outbreaks of avian flu. Incidents of “mad cow” disease have occurred in Canadian and U.S. cattle herds. These problems, food-borne illnesses (such as e. coli, hepatitis A, trichinosis or salmonella) and injuries caused by food tampering have in the past, and could in the future, adversely affect the price and availability of affected ingredients and cause customers to shift their preferences, particularly if we choose to pass any higher ingredient costs along to consumers. As a result, our sales may decline.

Instances of food-borne illnesses, real or perceived, whether at our restaurants or those of our competitors, could also result in negative publicity about us or the restaurant industry, which could adversely affect sales. If we react to negative publicity by changing our menu or other key aspects of the Chipotle experience, we may lose customers who do not accept those changes, and may not be able to attract enough new customers to produce the revenue needed to make our restaurants profitable. In addition, we may have different or additional competitors for our intended customers as a result of making these changes and may not be able to compete successfully against those competitors. If our customers become ill from food-borne illnesses, we could be forced to temporarily close some restaurants. For example, in June 2004, Texas health officials investigated reports that customers and employees had become ill with flu-like symptoms after spending time in one of our restaurants, and we closed that restaurant for less than a week. A decrease in customer traffic as a result of these health concerns or negative publicity, or as a result of a change in our menu or dining experience or a temporary closure of any of our restaurants, could materially harm our business.

Changes in food and supply costs could adversely affect our results of operations.

Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs. Any increase in the prices of the ingredients most critical to our menu, such as beef, chicken, cheese, avocados, beans, tomatoes and pork, could adversely affect our operating results. Although we try to manage the impact that these fluctuations have on our operating results, we remain susceptible to increases in food costs as a result of factors beyond our control, such as general economic conditions, seasonal fluctuations, weather conditions, demand, food safety concerns, generalized infectious diseases, product recalls and government regulations. For example, higher diesel prices have in some cases resulted in the imposition of surcharges on the delivery of commodities to our distributors, which they have generally passed on to us to the extent permitted under our arrangements with them. In 2004, hurricanes in some parts of the United States damaged tomato crops and drove prices higher. Similarly, in 2005, hurricane Katrina destroyed a number of chickens raised by one of our chicken suppliers and increased our short-term chicken prices. Higher diesel and gasoline prices forecast for the spring and summer of 2006 are likely to affect our supply costs and near-term construction costs for our new restaurants. In addition, in 2004, prices for chicken rose significantly due to a ban by Asian countries on their chicken exports following outbreaks of avian flu. Avian flu continues to spread and could potentially impact our cost for chicken in the future. We do not have long-term supply contracts or guaranteed purchase amounts. As a result, we may not be able to anticipate or react to changing food costs by adjusting our purchasing practices or menu prices, which could cause our operating results to deteriorate. In addition, because we provide moderately priced food, we may choose not to, or be unable to, pass along commodity price increases to our customers.

13

Table of Contents

We may have experienced a security breach with respect to certain customer credit and debit card data, and we have 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.

In August 2004, the merchant bank that processes our credit and debit card transactions, which we refer to as the acquiring bank, informed us that we may have been the victim of a possible theft of credit and debit card data. Together with two forensic auditing firms, we investigated the alleged theft and reviewed our information systems and information security procedures. We also reported the problem to federal law enforcement authorities and have cooperated in their investigation. While to date we have not discovered conclusive evidence that a theft occurred, we identified some restaurant practices that may have made information systems at our restaurants vulnerable during periods before August 2004. Notably, without our knowledge, the card processing software we used inadvertently retained credit and debit card “Track 2” data, consisting of, among other items, the customer’s name, card number, card expiration date and card verification number. In addition, the internet gateways on our computers in some restaurants may not have been fully secure at all times. As a result, outside parties may have gained access to stored information. It is possible that all of the cards we processed since we began accepting them in 1999 may have been vulnerable. In the three months prior to being notified of the problem, we processed between 1.3 million and 1.5 million credit and debit card charges each month.

Through the end of March 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 March 31, 2006, after charging these expenses against the reserve, the remaining reserve was $1.3 million. In addition to the reserve, we’ve also incurred about $1.5 million of additional expenses in this matter, including $1.3 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 2006.

We may in the future become subject to additional claims for purportedly fraudulent transactions arising out of this matter. As long as a credit or debit card is active, fraudulent charges may be made using that card until the card’s expiration date. We may also be subject to lawsuits or other proceedings by various interested parties, including banks and credit unions that issue cards, cardholders (either individually or as part of a class action lawsuit) and federal and state regulators. The statutes of limitation for pursuing some of these potential claims may extend for six years or more in some cases, depending on the circumstances. Moreover, the application of the law and the rules and procedures of the major card associations in these circumstances is generally untested. Any lawsuit or other proceeding will likely be complex, costly and protracted, which could in turn divert financial and management resources from execution of our business plan. 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. Consumer perception of our brand could also be negatively affected by these events, which could further adversely affect our results and prospects.

Despite the changes we’ve made to our information systems as a result of this matter, we still need to periodically upgrade our software. We rely on commercially available software and other technologies to provide security for processing and transmission of customer credit card data. During 2005 and the first quarter of 2006, approximately half of our sales were attributable to credit card transactions, and we expect credit card usage to increase. Our systems could be compromised in the future, which could result in the misappropriation of customer information or the disruption of our systems. Either of those consequences could have a material adverse effect on our reputation and business or subject us to additional liabilities.

14

Table of Contents

We engaged Internet Security Systems, or ISS, to perform our Visa Payment Card Industry audit. ISS submitted our full Report on Compliance, or ROC, on December 30, 2005. The ROC stated that ISS felt Chipotle had controls that were either “in place” or “in place with compensating controls” for every section of the ROC. We are awaiting a response from Visa either accepting our ROC or requesting further clarification.

Failure to receive frequent deliveries of higher-quality food ingredients and other supplies could harm our operations.

Our ability to maintain our menu depends in part on our ability to acquire ingredients that meet our specifications from reliable suppliers. Shortages or interruptions in the supply of ingredients caused by unanticipated demand, problems in production or distribution, food contamination, inclement weather or other conditions could adversely affect the availability, quality and cost of our ingredients, which could harm our operations. If any of our distributors or suppliers performs inadequately, or our distribution or supply relationships are disrupted for any reason, our business, financial condition, results of operations or cash flows could be adversely affected. We currently depend on three or four suppliers for our pork, chicken and beef supplies. It could be more difficult to replace our pork suppliers if we were no longer able to rely on them due to the unique nature of the products we receive from them. We do not have long-term contracts with any of our suppliers. In addition, we’ve relied on the same distribution network as McDonald’s. In light of McDonald’s announced intention to dispose of its remaining interest in us by year-end 2006, subject to market conditions, certain of our current suppliers and service providers could decide to stop giving us beneficial pricing and/or service levels or terminate their relationship with us at any time. We may have to seek new suppliers and service providers with pricing or other terms less favorable than those we currently enjoy. If we cannot replace or engage distributors or suppliers who meet our specifications in a short period of time, that could increase our expenses and cause shortages of food and other items at our restaurants, which could cause a restaurant to remove items from its menu. If that were to happen, affected restaurants could experience significant reductions in sales during the shortage or thereafter, if our customers change their dining habits as a result. Our focus on a limited menu would make the consequences of a shortage of a key ingredient more severe.

In addition, our approach to competing in the restaurant industry depends in large part on our continued ability to adhere to the principle of “food with integrity.” We use a substantial amount of naturally raised and sustainably grown ingredients, and try to make our food as fresh as we can, in light of pricing considerations. As we increase our use of these ingredients, the ability of our suppliers to expand output or otherwise increase their supplies to meet our needs may be constrained. Our inability to obtain a sufficient and consistent supply of these ingredients on a cost-effective basis, or at all, could cause us difficulties in aligning our brand with the principle of “food with integrity.” That could make us less popular among our customers and cause sales to decline.

Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to various factors.

Our quarterly operating results may fluctuate significantly because of various factors, including:

15

Table of Contents

Seasonal factors also cause our profitability to fluctuate from quarter to quarter. Our average 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 comp restaurant sales in any particular future period may decrease. In the future, operating results may fall below the expectations of securities analysts and investors. In that event, the price of our common stock would likely decrease.

Our success depends substantially upon the continued retention of certain key personnel.

We believe that our success has depended and continues to depend to a significant extent on the efforts and abilities of our senior management team. The members of our management team currently are employed by us on an “at-will” basis and may resign from our employment at any time, subject in certain cases to the forfeiture of options or unvested shares they may hold. Our failure to retain members of that team could materially and adversely affect our ability to build on the efforts they’ve undertaken with respect to our business. In particular, the loss of Steve Ells, our founder and Chief Executive Officer, Monty Moran, our President and Chief Operating Officer, Jack Hartung, our Chief Finance and Development Officer, or Bob Wilner, our Chief Administrative Officer, could materially and adversely affect us.

Our business could be adversely affected by increased labor costs or difficulties in finding the right teams for our restaurants.

Labor is a primary component of our operating costs, and we believe good managers and crew are a key part of our success. We devote significant resources to recruiting and training our restaurant managers and crew. Increased labor costs due to factors like competition, increased minimum wage requirements and employee benefits would adversely impact our operating costs. Our success also depends in part on the energy and skills of our employees and our ability to hire, motivate and keep qualified employees, including especially restaurant managers and crew members. Our failure to find and keep enough employees who are a good fit with our culture could delay planned restaurant openings, result in higher employee turnover or require us to change our culture, any of which could have a material adverse effect on our business and results of operations. Restaurant operators have traditionally experienced relatively high employee turnover rates. Any increase in our turnover rates for managers or crew could be costly.

Our franchisees could take actions that harm our reputation and reduce our royalty revenues.

We do not exercise control over the day-to-day operations of our franchised restaurants. While we try to ensure that franchised restaurants meet the same operating standards that we demand of company-operated restaurants, one or more franchised restaurants may not do so. Any operational shortcomings of our franchised restaurants are likely to be attributed to our system-wide operations and could adversely affect our reputation and have a direct negative impact on the royalty revenues we receive from those restaurants.

16

Table of Contents

We expect to need capital in the future, and we may not be able to raise that capital on acceptable terms.

Developing our business will require significant capital in the future. Prior to our initial public offering, we funded our operations and growth primarily through capital investments by McDonald’s and, to a lesser degree, our minority shareholders, and in some cases short-term borrowings from McDonald’s that we repaid through private placements of our equity securities. However, McDonald’s has no obligation to continue providing us with capital nor do we intend to seek additional capital from McDonald’s in the future. To meet our capital needs, we expect to rely on our cash flow from operations and the proceeds from our initial public offering. Should we need additional funding, third party financing may not be available on terms favorable to us, or at all. Our ability to obtain additional funding will be subject to various factors, including market conditions, our operating performance, lender sentiment and our ability to incur debt in compliance with then-existing contractual restrictions. These factors may make the timing, amount, terms and conditions of additional financings unattractive. Our inability to raise capital could impede our growth.

We’re subject to all of the risks associated with leasing space subject to long-term non-cancelable leases and, with respect to the real property that we own, owning real estate.

Our leases generally have initial terms of between five and 20 years, and generally can be extended only in five-year increments (at increased rates) if at all. All of our leases require a fixed annual rent, although some require the payment of additional rent if restaurant sales exceed a negotiated amount. Generally, our leases are “net” leases, which require us to pay all of the cost of insurance, taxes, maintenance and utilities. We generally cannot cancel these leases. Additional sites that we lease are likely to be subject to similar long-term non-cancelable leases. If an existing or future restaurant is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. In addition, as each of our leases expires, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close restaurants in desirable locations. Also, because we purchase real property for various restaurant locations from time to time, we’re subject to all of the risks generally associated with owning real estate, including changes in the investment climate for real estate, demographic trends and supply or demand for the use of the restaurants, which may result from competition from similar restaurants in the area as well as strict, joint and several liability for environmental contamination at or from the property, regardless of fault.

Governmental regulation may adversely affect our ability to open new restaurants or otherwise adversely affect our existing and future operations and results.

We are subject to various federal, state and local regulations. Each of our restaurants is subject to state and local licensing and regulation by health, alcoholic beverage, sanitation, food and workplace safety and other agencies. We may experience material difficulties or failures in obtaining the necessary licenses or approvals for new restaurants, which could delay planned restaurant openings. In addition, stringent and varied requirements of local regulators with respect to zoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations.

We are subject to the U.S. Americans with Disabilities Act and similar state laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas. We may in the future have to modify restaurants, for example by adding access ramps or redesigning certain architectural fixtures, to provide service to or make reasonable accommodations for disabled persons. The expenses associated with these modifications could be material.

Our operations are also subject to the U.S. Fair Labor Standards Act, which governs such matters as minimum wages, overtime and other working conditions, along with the U.S. Americans with Disabilities Act, family leave mandates and a variety of similar laws enacted by the states that govern these and other employment law matters. In addition, federal proposals to introduce a system of mandated health insurance and flexible work time and other similar initiatives could, if implemented, adversely affect our operations.

17

Table of Contents

In recent years, there has been an increased legislative, regulatory and consumer focus on nutrition and advertising practices in the food industry. Restaurants operating in the quick-service and fast-casual segments have been a particular focus. As a result, we may in the future become subject to initiatives in the area of nutrition disclosure or advertising, such as requirements to provide information about the nutritional content of our food, that could increase our expenses.

We are subject to federal, state and local environmental laws and regulations concerning the discharge, storage, handling, release and disposal of hazardous or toxic substances (“environmental laws”). These environmental laws provide for significant fines, penalties and liabilities, sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of the hazardous or toxic substances. Third parties may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of, or actual or alleged exposure to, such substances. We cannot predict what environmental laws will be enacted in the future, how existing or future environmental laws will be administered or interpreted, or the amount of future expenditures that we may need to make to comply with, or to satisfy claims relating to, environmental laws. We have not conducted a comprehensive environmental review of our properties or operations. We have, however, conducted investigations of some of our properties and identified contamination caused by third-party operations which we believe have been or should be addressed by the third party. If the relevant third party does not or has not addressed the identified contamination properly or completely, then under certain environmental laws, we could be held liable as an owner and operator to address any remaining contamination. Any such liability could be material. Further, we may not have identified all of the potential environmental liabilities at our properties, and any such liabilities could have a material adverse effect on our operations or results of operations.

We may not be able to adequately protect our intellectual property, which could harm the value of our brands and adversely affect our business.

Our intellectual property is material to the conduct of our business. Our ability to implement our business plan successfully depends in part on our ability to further build brand recognition using our trademarks, service marks, trade dress and other proprietary intellectual property, including our name and logos and the unique ambience of our restaurants. If our efforts to protect our intellectual property are inadequate, or if any third party misappropriates or infringes on our intellectual property, either in print or on the internet, the value of our brands may be harmed, which could have a material adverse effect on our business and might prevent our brands from achieving or maintaining market acceptance. We may also encounter claims from prior users of similar intellectual property in areas where we operate or intend to conduct operations. This could harm our image, brand or competitive position and cause us to incur significant penalties and costs.

We could be party to litigation that could adversely affect us by distracting management, increasing our expenses or subjecting us to material money damages and other remedies.

Our customers occasionally file complaints or lawsuits against us alleging that we’re responsible for some illness or injury they suffered at or after a visit to our restaurants, or that we have problems with food quality or operations. We’re also subject to a variety of other claims arising in the ordinary course of our business, including personal injury claims, contract claims and claims alleging violations of federal and state law regarding workplace and employment matters, discrimination and similar matters, and we could become subject to class action or other lawsuits related to these or different matters in the future. For example, we’re currently investigating issues that may arise in connection with the possible theft of certain credit and debit card data. We’re also subject to “dram shop” statutes, which generally allow persons injured by intoxicated people to recover damages from the place that wrongfully served those people alcohol. Regardless of whether any claims against us are valid, or whether we’re ultimately held liable, claims may be expensive to defend and may divert time and money away from our operations and hurt our performance. A judgment significantly in excess of our insurance coverage for any claims could materially and adversely affect our financial condition or results of operations. Any adverse publicity resulting from these allegations may also materially and adversely affect our reputation or prospects, which in turn could adversely affect our results.

18

Table of Contents

In addition, the restaurant industry has been subject to a growing number of claims based on the nutritional content of food products they sell and disclosure and advertising practices. We may also be subject to this type of proceeding in the future and, even if not, publicity about these matters (particularly directed at the quick-service and fast-casual segments of the industry) may harm our reputation or prospects and adversely affect our results.

As a result of being a public company, our costs will increase.

As a public company, we incur significant legal, accounting and other expenses associated with compliance-related and other activities that we did not incur as a private company. In each of 2006 and future years, we expect to incur a few million dollars of such expenses that we were not previously required to incur as a subsidiary of McDonald’s. The U.S. Sarbanes-Oxley Act of 2002 and related rules of the U.S. Securities and Exchange Commission, or SEC, and the New York Stock Exchange regulate corporate governance practices of public companies. Compliance with these requirements will increase our costs and make some activities more time-consuming. For example, in connection with our initial public offering we created new board committees and adopted new internal controls and disclosure controls and procedures. In addition, we incur additional expenses associated with our SEC reporting requirements. A number of those requirements require us to carry out activities we had not done previously as a private company. For example, under Section 404 of the Sarbanes-Oxley Act, for our annual report on Form 10-K for the year ending December 31, 2007, we will need to document and test our internal control procedures, our management will need to assess and report on our internal control over financial reporting and our independent accountants will need to issue an opinion on that assessment and the effectiveness of those controls. Furthermore, if we identify any issues in complying with those requirements (for example, if we or our accountants identified a material weakness or significant deficiency in our internal control over financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect us, our reputation or investor perceptions of us. Costs to obtain director and officer liability insurance are generally greater for public companies and contribute to our increased costs. As a result of the associated liability, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. Advocacy efforts by shareholders and third parties may also prompt even more changes in governance and reporting requirements. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

Risks Relating to Our Affiliation with McDonald’s

We’re controlled by McDonald’s, whose interests may conflict with yours.

Upon completion of this offering, McDonald’s will own no shares of our class A common stock, but will own about 88.4% of our outstanding class B common stock, representing 82.7% of the combined voting power of our outstanding stock and 52.2% of the economic interest in our outstanding common stock (or 81.9% and 50.2%, respectively, if the underwriters’ over-allotment option is exercised in full). Although McDonald’s has announced its intention to dispose of its remaining interest in us by year-end 2006, subject to market conditions, it has no obligation to do so and may not be able to implement its plan. Accordingly, pending any further disposition by McDonald’s of a substantial portion of its remaining interest in us, McDonald’s will continue to be able to exercise significant influence over our business policies and affairs, including the composition of our board of directors and any action requiring the approval of our shareholders such as the adoption of amendments to our certificate of incorporation, the issuance of additional shares of equity securities, the payment of dividends and the approval of mergers or a sale of substantially all of our assets. The concentration of ownership may also make some transactions, including mergers or other changes in control, more difficult or impossible without the support of McDonald’s. McDonald’s interests may conflict with your interests as a shareholder. For additional information about our relationships with McDonald’s, you should read the information under the headings “Principal and Selling Shareholders” and “Certain Relationships and Related Party Transactions.”

Conflicts of interest between McDonald’s and us could be resolved in a manner unfavorable to us.

Various conflicts of interest between McDonald’s and us could arise. Many of our officers own stock in McDonald’s, in some cases possibly more than the amount of Chipotle common stock they own. In addition, one

19

Table of Contents

of our directors, Mats Lederhausen, is Managing Director of our controlling shareholder, McDonald’s Ventures, LLC. Ownership interests of directors or officers of McDonald’s in the common stock of Chipotle, or a person’s service as either a director or officer of both companies, could create or appear to create potential conflicts of interest when those directors and officers are faced with decisions that could have different implications for McDonald’s and Chipotle. These decisions could, for example, relate to:

Potential conflicts of interest could also arise if we enter into any new commercial arrangements with McDonald’s while it remains one of our principal shareholders. One of our directors is also an employee of McDonald’s and may face conflicts of interest with regard to the allocation of his time between McDonald’s and Chipotle or in fulfilling his obligations to both McDonald’s and Chipotle. Our restated certificate of incorporation includes the following provisions relating to corporate opportunities for us and McDonald’s, which will remain in effect for so long as McDonald’s owns shares representing at least 5% of the voting power of our outstanding common stock or at least one person who is a director or officer of us is also a director or officer of McDonald’s:

Prior to our initial public offering, our tax allocation agreement with McDonald’s provided that McDonald’s as our parent had the sole authority to file federal income tax returns and most state income tax returns on our behalf and that McDonald’s would be responsible for administering that agreement until the consummation of the initial public offering. This arrangement terminated for federal and some state income tax purposes for taxable periods following the initial public offering. However, the tax allocation agreement remains in effect for taxable years prior to the initial public offering and for some state returns. Consequently, this may result in

20

Table of Contents

conflicts of interest between McDonald’s and us. For example, McDonald’s may choose to contest, compromise or settle any adjustment or deficiency proposed by the relevant taxing authority in a manner that may be beneficial to McDonald’s and detrimental to us and for which we may be required to reimburse McDonald’s under the tax allocation agreement. The tax allocation agreement will continue to apply to, and govern, the sharing of tax liabilities between McDonald’s and us for state tax purposes for those states in which we and McDonald’s will continue to file tax returns on a combined basis.

Future sales or distributions of our shares by McDonald’s could depress our class A common stock price.

After this offering, McDonald’s will beneficially own about 52.2% of our outstanding common stock, assuming no exercise of the underwriters’ over-allotment option, and McDonald’s has announced its intention to dispose of its remaining interest in us through a tax-free exchange offer to McDonald’s shareholders to be completed by year-end 2006, subject to market conditions. In addition, McDonald’s has the right, subject to some conditions, to require us to file registration statements covering its shares or to include its shares in other registration statements that we may file. McDonald’s has agreed, subject to certain exceptions, not to sell shares of our common stock for a period of 90 days following this offering. However, the underwriters may waive this restriction, just as Morgan Stanley & Co. Incorporated and Cowen and Company, LLC, on behalf of the underwriters of our initial public offering, waived the provisions of a comparable lock-up agreement to permit this offering. Dispositions by McDonald’s of substantial amounts of our common stock, or the perception that these dispositions might occur, could depress the price of our class A common stock.

Restrictions and indemnities in connection with the tax treatment of a future exchange of our shares by McDonald’s could adversely affect us.

As discussed above, McDonald’s has announced that it intends to dispose of its remaining interest in us through a tax-free exchange offer to its shareholders to be completed by year-end 2006, subject to market conditions. It is expected that McDonald’s will obtain a private letter ruling from the Internal Revenue Service and/or an opinion of counsel confirming the tax-free status of this transaction, and that such ruling and/or opinion will rely on certain representations and undertakings from us regarding the past and future conduct of our business and other matters, the incorrectness or violation of which could affect the tax-free status of the transaction. In addition, current tax law generally creates a presumption that a tax-free exchange of the type contemplated by McDonald’s would be taxable to McDonald’s, but not to its shareholders, if we or our shareholders were to engage in a transaction that would result in a 50% or greater change by vote or by value in our stock ownership during the four-year period beginning two years before the exchange, unless it is established that the exchange and the transaction are not part of a plan or series of related transactions to effect such a change in ownership. As a consequence of the foregoing, we expect to enter into an amended tax allocation agreement with McDonald’s, under which we expect to:

21

Table of Contents

We expect that the indemnity described above will cover corporate level taxes and related losses suffered by McDonald’s in the event of a 50% or greater change in our stock ownership, as well as taxes and related losses suffered by both McDonald’s and its shareholders if, due to any of our representations or undertakings being incorrect or violated, the exchange is determined to be taxable for other reasons. We currently estimate that, to the extent the tax allocation agreement is amended as described above, the indemnification obligation to McDonald’s for taxes due in the event of a 50% or greater change in our stock ownership could exceed $450 million. This estimate, which does not take into account related losses, depends upon several factors that are beyond our control, including the fair market value of our stock on the exchange date. As a consequence, the indemnity to McDonald’s could vary substantially from the estimate. Furthermore, the estimate does not address the potential indemnification obligation to both McDonald’s and its shareholders in the event that, due to any of our representations or undertakings being incorrect or violated, the exchange is determined to be taxable for other reasons. In that event, the total indemnification obligation would likely be much greater.

Risks Related to Ownership of Our Class A Common Stock

Our class A common stock price has been and may continue to be volatile and you may lose all or part of your investment.

We completed our initial public offering in January 2006. An active trading market for our class A common stock may not continue to develop or be sustained. Since our initial public offering, the price of our class A common stock as reported by the New York Stock Exchange has ranged from a low of $39.51 on January 26, 2006 to a high of $67.77 on May 9, 2006.

Some specific factors that may have a significant effect on our class A common stock market price include:

In addition, in recent years the stock market has experienced significant price and volume fluctuations. These fluctuations may be unrelated to the operating performance of particular companies. These broad market fluctuations may cause declines in the market price of our class A common stock. The price of our class A common stock could fluctuate based upon factors that have little or nothing to do with our company or its performance, and those fluctuations could materially reduce our class A common stock price.

22

Table of Contents

Because holders of the shares of class B common stock will control the majority of the voting power of our common stock, investors in this offering will not be able to determine the outcome of shareholder votes with respect to most events.

Our class A common stock has one vote per share, and our class B common stock has ten votes per share, other than with respect to a limited number of matters specified in our amended certificate of incorporation (such as approval of transactions by which a third party might acquire control of us). Following this offering, holders of shares of class B common stock will collectively control 93.5% of the combined voting power of our outstanding common stock other than with respect to those matters. For example, the holders of shares of class B common stock will be able to direct the election of all of the members of our board of directors, who will determine our strategic plans, approve major financing decisions and appoint top management. In addition, the holders of the class B common stock may seek to cause us to take courses of action that, in their judgment, could enhance their investment in us, but which might involve risks to holders of our class A common stock or adversely affect us or other investors, including investors in this offering. Although substantially all of our class B common stock will be beneficially owned by McDonald’s following the offering, McDonald’s has announced its intention to dispose of its remaining interest in us through a tax-free exchange offer to McDonald’s shareholders to be completed by year-end 2006, subject to market conditions. Any shares of class B common stock disposed of by McDonald’s in the exchange offer will not be subject to transfer restrictions.

Future sales of our common stock, or the perception that such sales might occur, could depress our class A common stock price.

Sales of a substantial number of shares of our common stock, or the perception that such sales might occur, following this offering could depress the market price of our class A common stock. This would include sales by McDonald’s, as detailed above under “—Future sales or distributions of our shares by McDonald’s could depress our class A common stock price.” We, all of our executive officers and directors and McDonald’s and the other selling shareholders have agreed, subject to certain exceptions, not to offer, sell, dispose of or hedge any shares of our common stock for a period of 90 days following this offering. However, the underwriters may waive this restriction to, among other things, permit McDonald’s to complete its planned disposition of the remainder of its interest in us. See “Underwriters.”

We do not intend to pay dividends for the foreseeable future.

We’ve never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our class A common stock. See “Common Stock Price Range and Dividends.”

Provisions in our charter documents and Delaware law may delay or prevent our acquisition by a third party.

Our certificate of incorporation and bylaws contain several provisions that may make it more difficult for a third party to acquire control of us without the approval of our board of directors. These provisions may make it more difficult or expensive for a third party to acquire a majority of our outstanding common stock. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our shareholders’ receiving a premium over the market price for their common stock. See “Description of Capital Stock.”

23

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This prospectus, including particularly the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “What We Do,” contains forward-looking statements. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements. Our forward-looking statements include the discussions of our business strategies and our expectations concerning future operations, margins, profitability, liquidity, and capital resources. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “thinks,” “estimates,” “seeks,” “expects,” “predicts,” “potential” and similar expressions. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those in the future that are implied by these forward-looking statements. These risks and other factors include those listed under “Risk Factors” and elsewhere in this prospectus. Those factors, among others, could cause our actual results and performance to differ materially from the results and performance projected in, or implied by, the forward-looking statements. As you read and consider this prospectus, you should carefully understand that the forward-looking statements are not guarantees of performance or results.

All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. New risks and uncertainties arise from time to time, and we cannot predict those events or how they may affect us. We assume no obligation to update any forward-looking statements after the date of this prospectus as a result of new information, future events or developments, except as required by the federal securities laws.

Industry data and other statistical information used in this prospectus are based on independent publications, government publications, reports by market research firms or other published independent sources. Some data are also based on our good faith estimates, derived from our review of internal surveys and the independent sources listed above. Although we believe these sources are reliable, we’ve not independently verified the information.

24

Table of Contents

USE OF PROCEEDS

We will not receive any proceeds from the sale of our class A common stock by the selling shareholders.

COMMON STOCK PRICE RANGE AND DIVIDENDS

Our class A common stock is listed on the New York Stock Exchange under the symbol “CMG.” Trading of our common stock commenced on January 26, 2006 in connection with our initial public offering. The following table sets forth, for the periods indicated, the high and low sales prices for our common stock as reported by the NYSE Consolidated Tape.

A recent reported closing sale price for our class A common stock is set forth on the cover page of this prospectus.

Computershare Investor Services, LLC is the transfer agent and registrar for our class A common stock. On March 31, 2006, we had approximately 225 holders of record of our class A common stock.

We did not declare or pay any cash dividends on our common stock in 2004, 2005 or 2006. We anticipate that we will retain any future earnings for the operation and expansion of our business. Accordingly, we do not anticipate declaring or paying any cash dividends on our common stock for the foreseeable future.

Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

25

Table of Contents

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our consolidated capitalization as of March 31, 2006. You should read this table in conjunction with “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

26

Table of Contents

SELECTED CONSOLIDATED FINANCIAL DATA

Our selected consolidated financial data shown below should be read together with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. The selected consolidated statements of operations data for the years ended December 31, 2003, 2004 and 2005 and the consolidated balance sheet data as of December 31, 2004 and 2005 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statement of operations for the year ended December 31, 2002 and the selected consolidated balance sheet data as of December 31, 2002 and 2003 have been derived from audited consolidated financial statements not included in this prospectus. Our consolidated financial statements for the years ended December 31, 2003, 2004 and 2005 have been audited and reported upon by Ernst & Young LLP, an independent registered public accounting firm. The selected consolidated statement of operations data for the year ended December 31, 2001 and the consolidated balance sheet data as of December 31, 2001 have been derived from unaudited financial statements not included in this prospectus. The selected consolidated statements of operations data for the three months ended March 31, 2005 and 2006 and the balance sheet data as of March 31, 2006 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus and include all adjustments consisting only of normal recurring adjustments necessary for a fair presentation of the results of the interim periods. The data shown below are not necessarily indicative of future results.