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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________

FORM 10-K

______________________

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20202022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to

Commission File Number: 1-32731

______________________

CHIPOTLE MEXICAN GRILL, INC.

(Exact name of registrant as specified in its charter)

______________________

Delaware

84-1219301

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

610 Newport Center Drive, Suite 13001100 Newport Beach, CA

92660

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (949) 524-4000

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

CMG

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

______________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes      No  

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No  .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

 Large accelerated filer

 Accelerated filer

 Non-accelerated filer

 Smaller reporting company

 Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes     No  

As of June 30, 2020,2022, the aggregate market value of the registrant’s outstanding common equity held by non-affiliates was $20.941$29.362 billion, based on the closing price of the registrant’s common stock on June 30, 2020,2022, the last trading day of the registrant’s most recently completed second fiscal quarter. For purposes of this calculation, shares of common stock held by each executive officer and director and by holders of 5% or more of the outstanding common stock have been excluded since those persons may under certain circumstances be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of February 5, 2021,6, 2023, there were 28,144,06527,621,847 shares of the registrant’s common stock, par value of $0.01 per share outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the registrant’s definitive proxy statement for the 20212023 annual meeting of shareholders, which will be filed no later than 120 days after the close of the registrant’s fiscal year ended December 31, 2020.2022.

 



Table of Contents

 

TABLE OF CONTENTS

 

PART I

Item 1.

Business

3

Item 1A.

Risk Factors

89

Item 1B.

Unresolved Staff Comments

1718

Item 2.

Properties

1719

Item 3.

Legal Proceedings

1719

Item 4.

Mine Safety Disclosures

19

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

1820

Item 6.

Selected Financial DataReserved

2022

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2122

Item 7A.

Quantitative and Qualitative Disclosure About Market Risk

2930

Item 8.

Financial Statements and Supplementary Data

30

Index to Consolidated Financial Statements

3031

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)

31

Consolidated Balance Sheets as of December 31, 2022 and 2021

33

Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2022, 2021 and 2020

34

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2022, 2021 and 2020

35

Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020

36

Notes to Consolidated Financial Statements

37

Note 1 – Description of Business and Summary of Significant Accounting Policies

37

Note 2 – Supplemental Balance Sheet Information

42

Note 3 – Revenue Recognition

43

Note 4 – Fair Value of Financial Instruments

44

Note 5 – Equity Investments

46

Note 6 – Income Taxes

46

Note 7 – Shareholders’ Equity

49

Note 8 – Stock-Based Compensation and Employee Benefit Plans

49

Note 9 – Leases

53

Note 10 – Earnings Per Share

54

Note 11 – Commitments and Contingencies

54

Note 12 – Debt

55

Note 13 – Related Party Transactions

55

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

5655

Item 9A.

Controls and Procedures

5655

Item 9B.

Other Information

58

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

58

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

58

Item 11.

Executive Compensation

58

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

58

Item 13.

Certain Relationships and Related Transactions, and Director Independence

58

Item 14.

Principal Accounting Fees and Services

5859

PART IV

Item 15.

Exhibits, Financial Statement Schedules

5960

Item 16.

Form 10-K Summary

6162

Signatures

6263

 

 


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PART I

Cautionary Note Regarding Forward-Looking Statements

This report includes “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995.1995, including projected cash from operations, expected capital expenditures for 2023 and all other statements that are not historical facts. We use words such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “think,” “estimate,” “seek,” “expect,” “predict,” “could,” “project,” “potential” and other similar terms and phrases, including references to assumptions, to identify forward-looking statements. These forward-looking statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Our actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, the risks and uncertainties described in this report under the heading “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” so you should not place undue reliance on forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the statements, including: uncertainty regarding the potential future impactduration and severity of the ongoing COVID-19 pandemic, the resurgence of COVID-19 infections, the circulation of novel variants of COVID-19 and its ultimate impact on our resultsbusiness; the ability of operations,our third-party suppliers and business partners to fulfill their responsibilities and commitments; increasing supply chain or liquidity;costs (including beef, avocados and packaging); risks of food safety incidents and food-borne illnesses and other health concerns about our food;illnesses; risks associated with our reliance on certain information technology systems and potential failures or interruptions; potential negative impacts of privacy andor cyber security risks related toincidents, including through our acceptancedigital app; material failures of electronic payments or electronic processing of confidential customer or employee information;our information technology systems; the impact of competition, including from sources outside the restaurant industry; the increasingly competitive labor market and changes in the availability and cost of labor and the impact of any union organizing efforts and our abilityresponses to attract and retain qualified employees;such efforts; the financial impact of increasing our average hourly wage; the impact of federal, state or local government regulations relating to our employees, employment practices, restaurant design and construction, orand the sale of food or alcoholic beverages; our ability to achieve our planned growth, such as the availability of suitable new restaurant sites;sites and the equipment needed to fully outfit new restaurants; the uncertainty of our ability to achieve expected levels of comparable restaurant sales due to factors such as changes in consumers' perceptions of our brand, including as a result of actual or rumored food safety concerns or other negative publicity, decreased overall consumer spending, including as a result of high inflation, fears of possible recession and higher energy costs, or the inability to increase menu prices or realize the benefits of menu price increases; risks associated with our digital business, including risks arising from our reliance on third party delivery services; risks relating to litigation, including possible governmental actions related to food safety incidents and potential class action litigation regarding employment laws, advertising claims or other matters; and increases in ingredient and other operating costs due to our Food With Integrity philosophy, tariffs or trade restrictions and supply shortages. We are including this Cautionary Note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statements after the date of this report as a result of new information, future events or other developments, except as required by applicable laws and regulations.

ITEM 1.  BUSINESS

General

Chipotle Mexican Grill, Inc., a Delaware corporation, together with its subsidiaries (“Chipotle,” “we,” “us,” or “our”) owns and operates Chipotle Mexican Grill restaurants, which feature a relevant menu of burritos, burrito bowls (a burrito without the tortilla), quesadillas, tacos, and salads. We strive to cultivate a better world by serving responsibly sourced, classically cooked, real food with wholesome ingredients and without artificial colors, flavors or preservatives. We are passionate about providing a great guest experience and making our food more accessible to everyone while continuing to be a brand with a demonstrated purpose. Steve Ells, founder and former executive chairman,Our first opened Chipotle with a single restaurant opened in Denver, Colorado in 1993. Over 25Nearly 30 years later, our devotion to seeking out the very besthigh-quality ingredients, raised with respect for animals, farmers, and the environment, remains at the core of our commitment to Food With Integrity.

As of December 31, 2020,2022, we owned and operated 2,7243,129 Chipotle restaurants throughout the United States, 4053 international Chipotle restaurants, and fourfive non-Chipotle restaurants. We manage our operations based on eight regions and have aggregated our operations to one reportable segment. Our revenue is derived from sales by company-ownedour restaurants.

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Business Strategy

We are a brand with a demonstrated purpose of cultivatingCultivating a better world.Better World. Our mission is to win today while creating a bright future by focusing on five key fundamental strategies:

Making the brand more visible and loved;

Utilizing a disciplined approach to creativity and innovation;

Leveraging digital capabilities to drive productivity and expand access, convenience and engagement;

Engaging with customers through our loyalty program; and

Running successful restaurants with a strongpeople accountable culture that provides great food with integrityFood With Integrity while delivering exceptional in-restaurant and digital experiences.experiences;

Sustaining world class people leadership by developing and retaining diverse talent at every level;

Amplifying technology and innovation to drive digital growth and productivity at our restaurants and support centers;

Making the brand visible, relevant, and loved to improve overall guest engagement;

And expanding access and convenience by accelerating new restaurant openings.

Food withWith Integrity

Serving high quality food while still charging reasonable prices is critical to ensuring guests enjoy wholesome food at a great value. In all of our Chipotle restaurants, we endeavorstrive to serve only meats that are raised in accordance with criteria we have established in an effort to improve sustainability and promote animal welfare, and without the use of non-therapeutic antibiotics or added growth hormones. We brand these meats as “Responsibly Raised®.” One of our primary goals is for all of Chipotle restaurants to serve meats raised to our standards, but we have and expect to continue to face challenges in doing so. For example, some of our restaurants periodically serve conventionally raised chicken or beef due to supply constraints for our Responsibly Raised brand meats or stop

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serving one or more menu items due to additional supply constraints. When we become aware of such an issue, we clearly and specifically disclose this temporary change on signage in each affected restaurant so that guests can adjust their orders if they choose to do so. We also seek to use responsibly grown produce, by which we mean produce grown by suppliers whose practices conform to our Food With Integrity standards and our priorities with respect to environmental considerations and employee welfare. Some of the beans we serve are organically grown or grown using conservation tillage methods that improve soil conditions, reduce erosion,For more information about our sustainability and help preserve the environment in which the beans are grown. We call these beans “transitional.” Some of the other produce items we serve are organically grown as well as we continueanimal welfare initiatives, see our commitment to find high quality ingredients.biennial Sustainability Report and interim Update Report on our website www.chipotle.com/about-us/sustainability.

Purchasing

Maintaining the high levels of quality and safety we demand in our restaurants depends in part on our ability to acquire high-quality, fresh ingredients and other necessary supplies that meet our specifications from reliable suppliers. Our 2426 independently owned and operated regional distribution centers purchase from various suppliers we carefully select based on quality, price, availability, and the suppliers’ understanding of and adherence ofto our mission.mission and Food With Integrity standards. We’ve also sought to increase, where practical, the number of suppliers for our ingredients to help mitigate pricing volatility and reduce our reliance on one or several suppliers, which could create supply shortages. In addition, we closely monitor industry news, trade tariffs, weather, exchange rates, foreign demand, crises and other world events that may affect our ingredient prices. Certain key ingredients (certain cuts of beef, tomatoes, tortillas and adobo) are purchased from a small number of suppliers.

Quality Assurance and Food Safety

We are committed to serving only safe, high quality food. Our food safety and quality assurance teams work to ensure compliance with our food safety programs and practices, components of which include:

supplier interventions (steps to mitigate food safety risks before ingredients reach Chipotle)natural inhibitors (to prevent microbial growth in ingredients);

advanced technologies (tools that reduce or eliminate pathogens while maintaining food quality);

small grower support and training;support;

enhanced restaurant procedures (protocols for handling ingredients and sanitizing surfaces in our restaurants);

food safety certifications;

internal and third-party restaurant inspections;

supplier interventions (steps to mitigate food safety risks before ingredients reach Chipotle); and

ingredient traceability.

These and other food safety practices underscore our commitment to be a leader in food safety while continuing to serve high quality food that our guests love. Our food safety and quality assurance teams establish and monitor our quality and food safety programs and work closely with suppliers to ensure our high standards are met throughout the supply chain. We maintain a limited list of approved suppliers, many of whom are among the top suppliers in the industry. In addition, we have a team approach where our training, operations, culinary, legal and restaurant food safety security and risk managementquality assurance departments develop and implement operating standards for food quality, food preparation, restaurant cleanliness, employee health protocols, and safety in the restaurants. Our food safety programs are also intended to ensure that we not only continue to comply with applicable federal, state and local food safety regulations, but also establish Chipotle as an industry leader in food safety. To help achieve this goal, we have a Food Safety Advisory Council comprised of some of the nation’s foremost food safety authorities. The Food Safety Advisory Council is charged with evaluating our programs both in practice and implementation, and advising us on ways to elevate our already high standards for food safety. Our food safety and quality assurance team members hold board seats and participate in technical working groups with several associations. This gives us the opportunity to learn and share our knowledge and expertise with other food safety professionals and regulatory agencies.

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Digital Business

Our digital platform continues to be a strategic driver of our growth. In the past year,recent years we have significantly upgraded our capabilities by digitizing almost all of our restaurant digital-make lines,kitchens, expanding our partnerships with third-party delivery services and building more Chipotlanes, which is our drive through format for customer pick-up of digital orders. Digital sales, which represent food and beverage revenue generated through the Chipotle website, Chipotle app or third-party delivery aggregators includes deliveryrevenue deferrals associated with Chipotle Rewards, represented 39.4% of food and customer pick-up, accounted for 46.2% of our total salesbeverage revenue in 2020,2022, compared to 10.9%45.0% of total salesfood and beverage revenue in 2019.2021. Our strong digital platform gave us a competitive advantage during the peaks of the COVID-19 pandemic, as more guests preferpreferred to eat their meals at home and in-restaurant dining was prohibited or restricted. We have made digital ordering convenient with enhancements to the Chipotle Appapp and website, such as unlimited customization, contactless delivery, and group ordering.

Human Capital

As of December 31, 2020,2022, Chipotle employed nearly 88,000104,958 people worldwide. In the United States, we employed 85,314 people in our restaurants and approximately 1,367 people in our Restaurant Support Centers (RSCs) and field support organizations; approximately 87,000worldwide, of which 103,345 individuals are employed in the U.S. and approximately 1,0001,613 are employed in Canada, France, Germany and

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the United Kingdom. In the United States, we employed 102,219 people in our restaurants and 1,126 people in our Restaurant Support Centers and field support organizations. In 2022 only one restaurant voted to form a union, and we believe that our relationship with our employees is good. We do not currently have any employees represented by unions. Wealso believe our efforts to manage our workforce have been effective, as evidenced by a strong culture and our employees’ demonstrated commitment to living our purpose and values.

Culture, Values & Diversity, Equity & Inclusion

As a people-first company rooted in values, our purpose of Cultivating a Better World extends beyond serving nutritious food using real ingredients. It means hiring world-class individuals dedicated to investing in their future and partnering together to positively impact the communities they serve. Most notably, it means fosteringour diversity and inclusion strategy is to foster a culture that values and champions diversity, ensures equity,while leveraging the individual talents of all team members to grow our business and celebrates inclusion.Cultivate a Better World.

As of December 31, 2020, more than2022, approximately 50% of our U.S.-based employee population iswas female and approximately 66%70% of our U.S basedU.S.-based employee population iswas comprised of racial and ethnic minorities. U.S. diversity statistics were as follows:

Picture 2

Our most recent EEO-1 consolidated report is posted on the Investors page of our website at www.ir.chipotle.com under Corporate Governance – Human Capital Information and additional details about the demographics of our employee population is included there and in our biennial Sustainability Report and interim Update Report on our website www.chipotle.com/about-us/sustainability.

Maintaining a diverse, equitable and inclusive work environment is critical to our business success. Therefore, we have undertaken several actions to ensure that our diversity strategy is effective. Since December 2021, we have been participating in Management Leadership for Tomorrow’s Black Equity at Work Certification Program, which establishes a comprehensive aggregate measurement system and provides a rigorous, results-oriented approach that accelerates progress toward Black equity internally, amongst our employees, and externally by supporting Black equity within our business partners and in the communities where we operate. In addition to the Black Equity at Work Certification Program, in early 2023 we engaged an independent third-party consultant to conduct a Talent Management Equity Audit, which aims to identify where in the talent management cycle we may need to debias or create more equitable policies, practices, and procedures, identify potential blockers and new opportunities to creating and sustaining equity in talent management, and identify key strengths and pockets of risk. We plan to disclose key results and action plans from these initiatives in our Sustainability Report.

Gender

Race/Ethnicity

Female

54%

Hispanic or Latino

38%

Male

45%

White

31%

Not Indicated

1%

Black or African American

18%

Asian

5%

Two or More Races

4%

Not Indicated/Specified

3%

American Indian/Alaskan Native

1%

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We also retain an independent third-party compensation consultant each year to conduct a pay equity analysis of our U.S. workforce, including factors of pay (e.g., grade level, tenure in role, most recent promotion) and external market conditions (e.g., geographic location) to ensure consistency and equitable treatment amongst our employees. In 2022, our review included 99% of our U.S. employee population, excluding only approximately 50 of our most senior management employees, and the results did not identify preferential treatment to any class of employee; however, we identified several isolated discrepancies between actual compensation and our policies and we quickly made pay adjustments to close all identified gaps.

Talent Development

We believe that our people and culture give us a competitive advantage in our business. In 2022, we had approximately 22,000 internal promotions. Additionally, 90% of all restaurant management roles were internal promotions including 100% of US Regional Vice President roles, 81% of Team Directors, and 74% of Field Leader positions. We provide opportunities for our employees various learning opportunities to drive our Diversity, Equity & Inclusion (DE&I) strategyensure that we maintain a diverse pipeline of talent available to regularly promote employees to leadership positions, including the following:

Our Leadership Evolution and Development Program focuses on preparing a cross-functional cohort of mid-level managers for the future of work and leadership. During the 9-month program, participants learn the critical capabilities of leading oneself, to leading others, to leading the business with topics designed to stretch capabilities and improve decision-making skills.

Our Executive Development Program, which focuses on developing eleven high potential Team Directors by creating programs that raise awareness, allowing courageous conversationsproviding them with opportunities to develop in areas such as leadership, marketing, business and a more inclusive culture. These programs empower our employee-driven Employee Resource Groups (ERGs) to challengefinance, data and analytics, ESG and hospitality, as well as gain an in-depth understanding of various functions within the company.

Online executive coaching for mid- and senior level leaders throughout the organization.

Coordinated talent calibration across the organization to consider additional opportunitiesidentify a diverse pipeline of emerging leaders, matching these leaders with the appropriate development programs to Cultivate A Better World inensure we have a slate of ‘ready now’ internal talent for critical roles within the DE&I space. Our current ERGs are as follows: organization.

Employee Resource Groups

Year Established

HUSTLE: Humans Uniting to Support the Ladies’ Experience Supporting our Female Community

2019

PRIDE: People Respecting Inclusivity, Diversity and Education Supporting our LGBTQ Community

2019

SERVES: Community Outreach Supporting the Communities we Serve

2019

WELLNESS: Employee Wellbeing Supporting our employee’s mental, physical and financial wellbeing

2019

UNIFIED: United Network or Influencers Furthering Inclusion and Ethnic Diversity Supporting our Communities of Color

2020

Development courses and programs that focus on creating an inclusive culture.

Total Rewards

The financial, physical and mental wellness of our employees remains our top priority. We conducted an independentpriority and we believe we have compelling compensation packages and incentive programs and a robust suite of benefit offerings that enables us to engage current team members and attract new team members:

Our commitment to pay equity analysis of our U.S. workforce to identify risks and pay gaps in our organization by gender and race/ethnicity. The results did not identify preferential treatment to any class of employee, which supports our commitment to ensuring we pay our employees equally across gender and race/ethnicity. This commitment is evidenced by our investment in our compensation packages, including competitive wages and robust suite of benefit offeringsindustry leading incentive programs, such as:as our annual and quarterly bonus programs, that allow us to attract and retain the top talent in the industry.

Eligible Crew members who workOur Debt-Free Degree program that now provides Chipotle employees access to nearly 100 degrees at locations that meet team sales and output goals may qualify for a quarterly Crew Bonus (equivalent to one week’s worth of pay on average). In addition to quarterly performance bonuses, full-time crew members with at least one continuous year of service may be eligible for an annual bonus. In 2020, we paid out approximately $4 million across these bonus programs.10 universities, completely tuition debt free.

Debt-Free Degrees are offeredNew Career Certificates, which further enhances our Tuition Assistance benefits by providing on-demand certificate programs to those eligiblehelp Chipotle team members advance their careers in as little as eight weeks.

In 2023, we launched a program that provides our medically enrolled employees and their families with a Health Pro who work toward Associate's and Bachelor's Business and Technology degrees through six specified colleges. The program covers 100% of tuition costs upfront.can help them navigate the complex healthcare environment, helping them understand how their health benefits cover their care, how to save money, as well as get expert, high-quality medical care.

Personalized mental health assistance is available to all Chipotle employees and their family members through a partnership with Health Advocate. SupportAdvocate; support is available 24/7 via in-person, phone, or virtual visits with a licensed counselor.

Following ten years of uninterrupted service, our restaurant General Managers and Support Staff employees are eligible for a paid eight-week sabbatical.

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Our Response to COVID-19

The health and well-being of our employees and guests has always been and continues to be our top priority. To ensure the health and well-being of all of our employees during the COVID-19 pandemic, we also provided the following incremental COVID-19 benefits:

Expanded our paid emergency leave benefits to accommodate employees directly affected by COVID-19

Provided 30-day personal leave with automatic approval for any COVID-19 related reason.

Extended access to telemedicine coverage to employees and their families.

Expanded Employee Assistance Program coverage and Concierge Service with a focus on mental health support for employees and their families.

Removed the minimum hours worked requirement for access to our Tuition Assistance & Debt-free-degree programs.

Provided hourly assistance pay: 10% increase to all hourly base wages.

Discretionary Bonus: Provided a minimum bonus for our salaried restaurant managers during each quarter.

Assistance Pay Bonus: Provided an additional bonus to our salaried restaurant managers.

Implemented work from home for our support centers.

Government Regulation and Environmental Matters

We are subject to various federal, state and local laws and regulations that govern aspects of our business operations, including those governing:

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the preparation, sale and labeling of food, including regulations of the Food and Drug Administration, which oversees the safety of the entire food system, including inspections and mandatory food recalls, menu labeling and nutritional content;

employment practices and working conditions, such asincluding minimum wage rates, wage and hour practices, requirements to provide mealfair workweek and rest periods, Fair Workweek“just cause” legislation, employment of minors, anti-discrimination, anti-harassment,discrimination, harassment, classification of employees, paid and family leave, workplace safety, accommodations to certain employees, immigration and overtime pay, among others;

data privacy and datastandards for the protection of personal information, including social security numbers, financial information (including credit card numbers), and health information, including state laws governingsuch as the collection, maintenanceCalifornia Privacy Rights Act (“CPRA”) and useCCPA in California as well as new privacy-related legislation in Virginia, Colorado, Connecticut, Utah and a growing number of information regarding employeesother states, and guestsinternational laws such as GDPR in the European Union and consumer credit protectionthe Personal Information Protection and fraud;Electronic Documents Act (“PIPEDA”) in Canada, and payment card industry standards and requirements;

compliance with the Americans with Disabilities Acthealth, sanitation, safety and similar laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas;

environmental practices, such as the discharge, storage, handling, release and disposal of hazardous or toxic substances, and regulations restricting the use of straws, utensilsfire standards and the typessale of packaging we can use in our restaurants;alcoholic beverages;

building and zoning requirements, including state and local licensing and regulation governing the design and operation of facilities and land use;

public accommodations and safety conditions, including the Americans with Disabilities Act and similar state laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations, online resources and other areas;

environmental matters, such as emissions and air quality, water consumption, the discharge, storage, handling, release, and disposal of hazardous or toxic substances, and local ordinances restricting the types of packaging we can use in our restaurants; and

licensingpublic company compliance, disclosure and regulation by health, alcoholic beverage, sanitation, foodgovernance matters, including accounting and other agencies.tax regulations, SEC and NYSE disclosure requirements.

ComplianceWhile costs associated with compliance with these laws and regulation hasregulations have increased as the number and scope of the laws have increased, the total costs incurred have not had, and isare not expected to have, a material effect on our capital expenditures, results of operations or competitive position. See “Risk Factors” in Item 1A for a discussion of risks relating to federal, state, local and international laws and regulations applicable to our business and our Deferred Prosecution Agreement with the U.S. Attorney’s Office for the Central District of California and the United States Department of Justice’s Consumer Protection Branch.business.

Seasonality

Seasonal factors influencing our business are described under the heading “Quarterly Financial Data/Seasonality” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Competition

The fast-casual, quick-service, and casual dining segments of the restaurant industry are highly competitive with respect to, among other things, taste, price, food quality and presentation, service, location, convenience, brand reputation, cleanliness, and ambience of each restaurant. Our competition includes a variety of restaurants in each of these segments, including locally-owned restaurants, as well as national and regional chains. Competition from food delivery services, which offer meals from a wide variety of restaurants, also has increased in recent years, particularly during COVID-19, and is expected to continue to increase. Many of our competitors also offer dine-in, carry-out, online, catering, and delivery services. Among our main competitors are restaurant formats that claim to serve higher quality ingredients without artificial flavors, colors and preservatives, and that serve food quickly and at a reasonable price.

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Our Intellectual Property and Trademarks

“Chipotle,” “Chipotle Mexican Grill,” “Food With Integrity,” “Responsibly Raised,” “Chipotle Rewards,” and a number of other marks and related designs and logos are U.S. registered trademarks of Chipotle. We have filed trademark applications for a number of additional marks in the U.S. as well. In addition to our U.S. registrations, we have registered trademarks for “Chipotle” and a number of other marks in Canada, the European Union and various other countries, and have filed trademark applications for “Chipotle Mexican Grill,” “Chipotle” and a number of other marks in additional countries. We also believe that the design of our restaurants is our proprietary trade dress and have registered elements of our restaurant design for trade dress protection in the U.S. as well.

From time to time, we have taken action against other restaurants that we believe are misappropriating our trademarks, restaurant designs or advertising. Although our policy is to protect and defend vigorously our rights to our intellectual property, we may not be able to adequately protect our intellectual property, which could harm the value of our brand and adversely affect our business.

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Available Information

We maintain a website at www.chipotle.com, including an investor relations section at ir.chipotle.com, on which we routinely post important information, such as webcasts of quarterly earnings calls and other investor events in which we participate or host, and any related materials. Our Code of Ethics and our Code of Conduct for Suppliers also are available in this section of our website. You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as well as other reports relating to us that are filed with or furnished to the SEC, free of charge in the investor relations section of our website as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.

The contents of the websites mentioned above and elsewhere in this report are not incorporated into and should not be considered a part of this report. The references to the URLs for these websites are intended to be inactive textual references only.

 

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ITEM 1A. RISK FACTORS

You should carefully consider the risks described below in addition to the other information set forth in this Annual Report on Form 10-K, including the Management’s“Management’s Discussion and Analysis of Financial Conditions and Results of OperationsOperations” section and the consolidated financial statements and related notes. If any of the risks and uncertainties described below actually occur or continue to occur, our business, financial condition and results of operations, and the trading price of our common stock could be materially and adversely affected. The risks and uncertainties described below are those that we have identified as material but are not the only risks and uncertainties we face. Our business is also subject to general risks and uncertainties that affect many other companies, including, but not limited to, overall economic and industry conditions and additionalconditions. Additional risks not currently known to us or that we presently deem immaterial may arise or become material and may negatively impact our business, reputation, financial condition, results of operations or the trading price of our common stock.

Risks Related to the Nature of our Restaurant Business and Operating in the Restaurant Industry

Food safety and food-borne illness concerns may have an adverse effect on our business by decreasing sales and increasing costs.

Food safety is our top priority, and we dedicate appropriatesignificant resources to ensuring that our guests enjoy safe, high-quality food products. EvenHowever, even with strong preventative controls and interventions, food safety risks cannot be completely eliminated in every restaurant. Incidents of food-borne illnesses continue to occur in the restaurant industry because food safety risks cannot be completely eliminated in any restaurant. Incidentsand may result from the failure of restaurant crew membersemployees or suppliers to follow our food safety policies and procedures, or from employees or guests entering our restaurant while ill and contaminating food ingredients or surfaces. Although we monitor and audit all ofcompliance with our programs,program, we cannot guarantee that each and every individual food item is safely and properly maintained during distribution throughoutfrom the start of the supply chain. Regardless of the sourcechain through guest consumption. Any report, legitimate or cause, any reportrumored, of food-borne illness such as E. coli, hepatitis A, norovirus or salmonella, andor other food safety issues, includingissue, such as food tampering or contamination, at one of our restaurants could adversely affect our reputation and have a negative impact on our sales. In addition, instances of food-borne illness food tampering or food contaminationsafety issues that occur solely at competitors’ restaurants could result in negative publicity about the restaurant industry and adversely impact our sales. Social media has dramatically increased the rate atspeed with which negative publicity, including actual or perceived food safety incidents, can beis disseminated before there is any meaningful opportunity to investigate, respond to and address an issue. The occurrence of food-borne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, resulting in higher costs and lower margins.

We may be more susceptible than our competitors to significant adversenegative consequences arising from food safety incidents due to several highly publicized food safety events in our restaurants and failure to adhere to our food safety standards. From 2015 to 2017, illnesses caused byincidents involving E. coli, C. perfringens bacteria and norovirus that were connected to a number of our restaurants and, in 2018, illnesses believedbetween 2015 to be caused by C. perfringens bacteria were connected to the food in one of our restaurants. As a result of these2018. These incidents and the related negative publicity had a significant negative impact on our sales and profitability were severely impacted throughout 2016 and from time to time through 2018.for those years. Because of consumer perceptions of our restaurants in the wake of these food safety incidents, any future food safety incidents associated with our restaurants—even incidents that would be considered minor at other restaurants—our competitors—may have a more significant negative impact on our sales and our ability to regainretain guests. In addition, we may be at a higher risk for food safety incidents than some competitors due to our greater use of fresh, unprocessed produce, handling of raw chicken in our restaurants, our reliance on employees cooking with traditional methods rather than automation, and our avoidance of frozen ingredients. The risk of illnesses associated with our food also may increase due to the growth of our delivery or catering businesses, in which our food is transported, stored and/or served in transportation conditions that are not under our control. All of these factors could have an adverse impact on our ability to attract and retain guests, which could in turn have a material adverse effect on our growth and profitability.

Our digital business, which accounted for a significant portion of our 2022 total revenue, is subject to risks.

In 2022, 39.4% of our food and beverage revenue was derived from digital orders, which includes third-party delivery and customer pickup in-restaurant and through our Chipotlanes. Approximately 19% of our 2022 food and beverage revenue consisted of delivery orders for which we are reliant on third-party delivery companies. Depending on which ordering platform a guest uses – our platform or the platform of a third-party delivery service – the delivery fee we collect from the guest may be less than the actual delivery cost, which has a negative impact on our profitability. In 2022, we implemented several menu price increases to partially offset the increases in delivery, labor and other costs; however, our higher menu prices may cause some guests to shift their purchases to other restaurants offered on the platform. These delivery companies maintain control over data regarding our guests who use their platform and over the guest experience. If a third-party delivery driver fails to make timely deliveries or fails to deliver the complete order, our guests may attribute the bad customer experience to Chipotle and could stop ordering from us. The ordering and payment platforms used by these third parties, our mobile app or our online ordering site has been and could again be interrupted by technological failures, user errors, cyber-attacks or other factors, which could adversely impact sales through these channels and negatively impact our overall sales and reputation. If the third-party delivery companies we utilize increase their fees or give greater priority or promotions on their platforms to other restaurants, our delivery business and our sales may be negatively impacted. The delivery business has been consolidating and may continue to consolidate, which may give third-party delivery companies more leverage in negotiating the terms and pricing of contracts, which in turn could negatively impact our profits from this channel.

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The restaurant industry is highly competitive. If we are not able to compete successfully, our business, financial condition and results of operations would be adversely affected.

The restaurant industry is highly competitive with respect to taste preferences, price, food quality and selection, customer service, brand reputation, digital engagement, advertising levels and promotional initiatives, and the location, attractiveness and maintenance of restaurants. We also compete with a number of non-traditional market participants, such as convenience stores, grocery stores, coffee shops, meal kit delivery services, and “ghost” or dark“dark” kitchens, where meals are prepared at separate takeaway premises rather than a restaurant. Competition from food delivery services, which promote a wide variety of restaurant options on their sites, also has also increased in recent years, particularly during the COVID-19 and is expected to continue to increase.pandemic. Increased competition could have an adverse effect on our sales, profitability and development plans. If consumer or dietary preferences change, if our marketing efforts are unsuccessful, or if our restaurants are unable to compete successfully with other restaurant outlets, our business could be adversely affected.

We continue to believe that our commitment to higher-quality and responsibly sourced ingredients resonates with guests and gives us a competitive advantage; however, moremany of our competitors have madealso make claims related to the quality of their ingredients and lack of artificial flavors, colors and preservatives. The increasing use of these claims by competitors, regardless of the accuracy of such claims, may lessen our differentiation and make it more difficult for us to compete. If we are unable to continue to maintain our distinctiveness and compete effectively, our business, financial condition and results of operations could be adversely affected.

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Our digital business, which accounted for almost half of revenues in 2020, is subject to risks.

In 2020, 46.2% of our revenue was derived from digital orders, which includes delivery and customer pickup, compared to 18% of our revenues in 2019. The growth in digital orders is attributable to more guests dining at home due to COVID-19, our expanded partnerships with multiple third-party delivery services and our expansion of Chipotlanes, which is our drive through format for digital order pickups. Depending on which ordering platform a digital order is placed - our platform or the platform of a third-party delivery service – the delivery fee we collect from the guest may be less than the actual delivery cost, which has a negative impact on our profitability. In the fall of 2020, we implemented a menu price increase to partially offset higher delivery costs; however, our higher menu prices may cause some guests to shift their purchases to other restaurants offered on the platform. As our digital business grows, we are increasingly reliant on third-party delivery companies, which maintain control over data regarding guests that use their platform and over the customer experience. If a third-party delivery company driver fails to make timely deliveries or fails to deliver the complete order, our guests may attribute the bad customer experience to Chipotle and could stop ordering from us. The ordering and payment platforms used by these third-parties, or our mobile app or online ordering system, could be interrupted by technological failures, user errors, cyber-attacks or other factors, which could adversely impact sales through these channels and negatively impact our overall sales and reputation. The third-party delivery business is intensely competitive, with a number of players competing for market share, online traffic capital, and delivery drivers. If the third-party delivery companies we utilize cease or curtail operations, increase their fees, or give greater priority or promotions on their platforms to our competitors, our delivery business and our sales may be negatively impacted. The delivery business has been consolidating and may continue to consolidate, and fewer third-party delivery companies may give them more leverage in negotiating the terms and pricing of contracts, which could negatively impact our profits from delivery orders.

Our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could have a material adverse impact on our business.

Social media and internet-based communications, including video-sharing, social networking and messaging platforms, give users immediate access to a broad audience. These platforms have dramatically increased the speed of dissemination and accessibility of information, including negative publicity related to food safety incidents and negative guest and employee experiences. Accurate and inaccurate or misleading information can be widely disseminated before there is any meaningful opportunity to respond or address an issue. As a result of our highly publicized food safety incidents in 2015 - 2018, negative social media posts about our business may generate a disproportionately negative response than would be the results at other companies without a similar history. It is impossible to for us to fully predict or control social media backlash to potential issues, which could harm our business, prospects, financial condition, and results of operations, regardless of the information’s accuracy.

Use of social media platforms is an important element of our marketing efforts and became increasingly more important during the COVID-19 pandemic. New social media platforms are developing rapidly, and we need to continuously innovate and evolve our social media strategies in order to maintain broad appeal with guests and brand relevance. We also continue to invest in other digital marketing initiatives to reach our guests and build their awareness of, engagement with, and loyalty to us, including our national loyalty program called Chipotle Rewards. These initiatives may not be successful, resulting in expenses incurred without the benefit of higher revenues, increased employee engagement or brand recognition. Other risks associated with the use of social media include improper disclosure of proprietary information, negative comments about us, exposure of personally identifiable information, fraud, hoaxes or malicious dissemination of false information. The inappropriate use of social media by our guests or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation.

If we do not continue to persuade consumers of the benefits of paying higher prices for our higher-quality food, our sales and results of operations could be hurt.

Our success depends in large part on our ability to persuade consumers that food made with ingredients that were raised or grown in accordance withaccording to our Food With Integrity principles is worth paying a higher price at our restaurants relative to prices of some of our competitors, particularly quick-service restaurant competitors.restaurants. Under our Food With Integrity principles, for example, animals must be responsibly raised, and the milk in our sour cream, cheese and queso must come from cows that have not been treated with rBGH, practices which practices typically are more costly than conventional farming. If we are not able to successfully persuade consumers that consuming food made consistentin accordance with our Food With Integrity principles is better for them and the environment, or if consumers are not willing to pay the prices we charge, our sales could be adversely affected, which would negatively impact our results of operations.

Risks RelatedOur inability or failure to recognize, respond to and effectively manage the COVID-19 Pandemic

The novel coronavirus (COVID-19) pandemic has adversely affected and could continue to adversely affect our financial results, operations and outlook for an extended periodimmediacy of time.

The novel coronavirus (COVID-19) pandemic, and restrictions imposed by federal, state and local governments in response to the outbreak, have disrupted and will continue to disrupt our business. During 2020, individuals in many areas where we operate our

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restaurants were required to practice social distancing, restricted from gathering in groups and/or mandated to “stay home” except for “essential” purposes. In response to the COVID-19 outbreak and government restrictions, we were required to close some of our restaurants, close many of our dining rooms and offer only takeout and delivery, and/or implement modified work hours. The mobility restrictions, fear of contracting the coronavirus and the sharp increase in unemployment caused by the closure of businesses in response to the COVID-19 outbreak, have adversely affected and will continue to adversely affect our guest traffic, which in turn adversely impacts our liquidity, financial condition or results of operations. Even as and when the mobility restrictions are loosened or lifted, guests may still be reluctant to return to in-restaurant dining and the impact of lost wages due to COVID-19 related unemployment may dampen consumer spending for the foreseeable future.

Our restaurant operations have been and could continue to be disrupted by employees who are unable or unwilling to work, whether because of illness, quarantine, fear of contracting COVID-19 or caring for family members due to COVID-19 disruptions or illness. Restaurant closures, limited service options or modified hours of operation due to staffing shortages could materially adversely affect our liquidity, financial condition or results of operations. To protect the health and safety of our employees and guests, we provide face coverings for all restaurant employees, offer enhanced health and welfare benefits, provided temporary wage increases during the initial onset of the pandemic, provide 14 days of paid emergency leave for COVID-related concerns, paid discretionary bonuses to restaurant employees, purchased additional sanitation supplies and personal protective materials, implemented a tamper evident packaging seal for all digital orders, and created a new steward role to sanitize high-traffic restaurant areas. These measures have increased our operating costs and adversely affected our liquidity.

The COVID-19 outbreak also has affected and may continue to adversely affect the ability of certain of our suppliers to fulfill their obligations to us, which may negatively affect our restaurant operations. These suppliers include third parties that supply and/or prepare our ingredients, packaging, paper and cleaning products and other necessary operating materials, distribution centers, and logistics and transportation services providers. If our suppliers are unable to fulfill their obligations to us, we could face shortages of food items or other supplies at our restaurants, and our operations and sales could be adversely impacted.

We also modified our plans for opening new restaurants and remodeling existing restaurants due to the COVID-19 outbreak. To preserve liquidity, we delayed new restaurant construction and restaurant remodels that were scheduled to begin during the first half of the year, and we limited restaurant remodels to restaurants that do not have a digital make line or Chipotlane. These changes may materially adversely affect our ability to grow our business, particularly if these construction projects are delayed for a significant amount of time.

We cannot predict how long the COVID-19 outbreak will last or if it will reoccur even after the vaccines are widely administered, when government restrictions and mandates will be imposed or lifted, or how quickly, if at all, guests will return to their pre-COVID-19 purchasing behaviors, so we cannot predict how long our results of operations and financial performance will be adversely impacted.

Risks Related to Labor and Supply Chain

Increase in ingredient and other operating costs,including those caused by climate and/or other sustainability risks, could adversely affect our results of operations.

Our profitability depends in part on our ability to anticipate and react to changes in commodity costs, including ingredients, paper, supplies, fuel, utilities and distribution, and other operating costs, including leasing costs and labor. Any volatility in key commodity prices or fluctuation in labor costs could adversely affect our operating results by impacting restaurant profitability. The markets for some of the ingredients we use, such as beef, avocado and chicken, are particularly volatile due to factors such as limited sources, seasonal shifts, climate conditions, industry demand, including as a result of animal disease outbreaks in other parts of the world, international commodity markets, food safety concerns, product recalls and government regulation. Increasing weather volatility or other long-term changes in global weather patterns, including related to global climate change, could have a significant impact on the price or availability of some of our ingredients. These factors are beyond our control and, in many instances, unpredictable. Volatility in prices or disruptions in supply also may result from governmental actions, such as changes in trade-related tariffs or controls, sanctions and counter sanctions, government-mandated closure of our suppliers’ operations, and asset seizures. The cost and disruption of responding to governmental investigations or inquiries, whether or not they have merit, or the impact of these other measures, may impact our results and could cause reputational or other harm.

In addition, our supply chain is subject to increased costs arising from the effects of climate change, greenhouse gases and diminishing energy and water resources. The ongoing and long-term costs of these impacts related to climate change and other sustainability related issuesmedia could have a material adverse effectimpact on our business.

Social media and internet-based communications, including video-sharing, social networking, and gaming and messaging platforms, give users immediate access to a broad audience. These platforms have dramatically increased the speed and scale of dissemination and accessibility of information, including negative publicity related to food safety incidents and negative guest and employee experiences. Accurate and inaccurate or misleading information can be widely disseminated before there is any meaningful opportunity to respond or address an issue. As a result of our highly publicized food safety incidents in 2015 – 2018, negative social media posts about our business andmay generate a disproportionately negative response than would be experienced by other companies without a similar history. It is impossible for us to fully predict or control social media backlash, which could harm our business, prospects, financial condition, if not properly mitigated.and results of operations, regardless of the information’s accuracy.

Use of social media is an important element of our marketing efforts. New social media and internet-based communication platforms are developing rapidly, and we need to continuously innovate and evolve our marketing strategies to maintain our brand relevance and broad appeal to guests. We also couldcontinue to invest in other digital marketing initiatives to reach our guests and build their awareness of, engagement with, and loyalty to us, including our “Chipotle Rewards” loyalty program. These initiatives may not be adversely impacted by price increases specific to meats raisedsuccessful, resulting in accordanceexpenses incurred without the benefit of higher revenues, increased customer engagement or brand recognition. Other risks associated with our sustainabilityuse of social media and animal welfare criteria,internet-based communication platforms include association with influencers or online celebrities who become embroiled in controversy, platforms and ingredients grownbusiness partners who experience challenges, improper disclosure of proprietary information, negative comments about us, exposure of personally identifiable information, fraud, hoaxes or malicious dissemination of false information. The inappropriate use of social media by our guests or employees could lead to litigation or result in accordance withnegative publicity that could damage our Food With Integrity specifications, the markets for which are generally smaller and more concentrated than the markets for conventionally raised or grown ingredients. Any increase in the prices of the ingredients most critical to our menu, such as chicken, beef, dairy (for cheese and sour cream), avocados, beans, rice, tomatoes andreputation.

 

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pork, would have a particularly adverse effectRisks Related to Human Capital

If we are not able to hire, develop and retain qualified restaurant employees and/or appropriately plan our workforce, our growth plan and profitability could be adversely affected.

We rely on our operating results. If the cost of one or more ingredients significantly increases, we may chooserestaurant-level employees to temporarily suspend serving the menu items that use those ingredients, such as guacamole or one of our proteins, rather than pay the increased cost. Any such changesconsistently provide high-quality food and positive experiences to our available menuguests. In addition, our ability to continue to open new restaurants depends on us attracting, hiring, developing and retaining high-quality employees to manage and work in our restaurants. Maintaining appropriate staffing in our restaurants requires precise workforce planning, which planning has become more complex due to predictive scheduling laws (also called “fair workweek” or “secure scheduling”) and “just cause” termination legislation in certain geographic areas where we operate, and the so-called “great resignation” trend. The market for qualified talent continues to be competitive and we must ensure that we continue to offer competitive wages, benefits and workplace conditions to retain qualified employees. We have experienced and may continue to experience challenges in hiring and retaining restaurant employees and in maintaining full restaurant staffing in various locations, which has resulted in longer wait times for guest orders, temporary closures of the digital make line and decreased employee satisfaction. In one instance, we permanently closed a restaurant due to lack of necessary staff after a prolonged recruiting effort. A shortage of qualified candidates who meet all legal work authorization requirements, failure to hire and retain new restaurant employees in a timely manner or higher than expected turnover levels could affect our ability to open new restaurants, grow sales at existing restaurants or meet our labor cost objectives. In addition, failure to adequately monitor and proactively respond to employee dissatisfaction could lead to poor guest satisfaction, higher turnover, litigation and unionization efforts, which could negatively impact our restaurant trafficability to meet our growth targets. We have experienced labor union efforts to organize groups of our employees from time to time and, could adversely impactif successful, those organizational efforts may decrease our salesoperational flexibility and brand. We can only partially address future price risk through forward contracts, careful planning and other activities, and therefore increases in commodity costs could have an adverse impact ondisrupt our profitability.

Shortages or interruptions in the supply of ingredientsnormal operations, which could adversely affect our operating results.business.

Our business is dependent on frequent and consistent deliveries of ingredients that comply with our Food With Integrity specifications. We may experience shortages, delays or interruptions in the supply of ingredients and other supplies to our restaurants due to inclement weather, natural disasters, labor issues or other operational disruptions at our suppliers, distributors or transportation providers, or other conditions beyond our control. In addition, we have a single or a limited number of suppliers for some of our ingredients, including certain cuts of beef, tomatoes, tortillas and adobo. Although we believe we have potential alternative suppliers and sufficient reserves of ingredients, shortages or interruptions in our supply of ingredients could adversely affect our financial results.

If we fail to comply with various applicable federal, state and statelocal employment and labor laws and regulations, it could have a material, adverse impact on our business.

Various federal, state and statelocal employment and labor laws and regulations govern our relationships with our employees, and similar laws and regulations apply to our operations outside of the U.S. These laws and regulations relate to matters such as employment discrimination, wage and hour laws, predictive scheduling (“fair workweek”) and “just cause” termination laws, requirements to provide and document meal and rest periods or other benefits, family leave mandates, requirements regarding working conditions and accommodations to certain employees, citizenship or work authorization and related requirements, insurance and workers’ compensation rules, healthcare laws and anti-discrimination and anti-harassment laws. ComplyingWe incur substantial costs to comply with these laws and regulations subjects us to substantial expense and non-compliance could expose us to significant liabilities. For example, previously a number of lawsuits previously have been filed against us alleging violations of federal and state laws regarding employee wages and payment of overtime, meal and rest breaks, employee classification, employee record-keeping and related practices with respect to our employees. We incur legal costs to defend these cases, and we could sufferincur losses from these and similar cases, and the amount of such losses or costs could be significant. In addition, several states and localities in which we operate, and the federal government have from time to time enacted minimum wage increases, changes to eligibility for overtime pay, paid sick leave and mandatory vacation accruals, and similar requirements. These changes have increased our labor costs and may have a further negative impact on our labor costs in the future.material.

In addition, several jurisdictions, including New York City, Philadelphia, Chicago, Seattle, Oregon, San Francisco, and San Jose and Berkeley have implemented fair workweek or “secure scheduling” legislation, which impose complex requirements related to scheduling for certain restaurant and retail employees. Otheremployees, and additional jurisdictions where we operate are considering enacting similar legislation. Several jurisdictions also have implemented sick pay/pay and paid time off legislation, which requires employers to provide paid time off to employees, and “just cause” termination legislation, which restricts companies’ ability to terminate employees or reduce employees’ hours unless they can prove “just cause” or a “bona fide economic reason” for the termination.termination or reduction in hours. All of these regulations impose additional obligations on us and could increase our costs of doing business. Our failure to comply with any of these laws and regulations could lead to higher employee turnover and negative publicity, and subject us to penalties and other legal liabilities, which could adversely affect our business and results of operations and potentially cause us to close or reduce operating hours of some restaurants in these jurisdictions.

In addition, For example, we previously reported the settlement of a significant numbercomplaint alleging that we violated New York City’s Fair Workweek law and Earned Safe and Sick Time Act. We also have been and are undergoing several audits of our restaurant crew are paid at rates impacted by the applicable minimum wage. To the extent implemented, federal, state and local proposals that increase minimum wagecompliance with employment law requirements or mandatein other employee matters could, to the extent implemented, materially increase our labor and other costs. Several states in which we operate have approved minimum wage increases that are above the federal minimum. As more jurisdictions implement minimum wage increases, we expect our labor costs will continue to increase. Our ability to respond to minimum wage increases by increasing menu prices depends on willingness of our guests to pay the higher prices and our perceived value relative to competitors. Our distributors and suppliers could also be affected by higher minimum wage, benefit standards and compliance costs,cities, which could result in additional liabilities. Our liability exposure for these employment laws and regulations may be higher costs for goodsthan our restaurant peers because we are one of the largest restaurant companies that owns and services supplied to us.

Additionally,operates all our restaurants, while most of our employees are not currently covered by any collective bargaining agreements, union organizers have engaged in efforts to organize our employees and those of other restaurant companies. Ifpeers franchise some or a significant portion of our employees were to become covered by collective bargaining agreements, our labor costs could increase, and it could negatively impact our culture and reduce our flexibility to attract and retain top performing employees.their operations. Labor unions have attempted, and likely will continue to attempt, to attract media attention to their organizing efforts in our restaurants, and their organizing efforts include claims that Chipotle mistreats or undervalues its employees. Despite our efforts to provide more accurate information about our policies and practices, these messages may dissuade guests from patronizing our restaurants.

 

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If we are not ableIncreases in the cost of labor could adversely impact our business and profitability.

Our business has been and could continue to hire, train, reward and retain qualified restaurant crew and/or if we are not able to appropriately plan our workforce, our growth plan and profitability could be adversely affected.

We rely on our restaurant-level employeesimpacted by increases in labor costs caused by factors such as federal, state and local laws governing matters such as minimum wages, meal and rest breaks and changes to consistently provide high-quality foodeligibility for overtime pay; regulations regarding scheduling and positive experiencesbenefits; increased health care and workers’ compensation insurance costs; higher wages and costs of other benefits necessary to our guests. In addition, our ability to continue to open new restaurants depends on our ability to recruit, trainattract, hire and retain high-quality crew membersemployees with the right skill sets in a highly competitive job market; and increased wages, benefits and costs related to manage and work in our restaurants. Maintaining appropriate staffing in our existing restaurants and hiring and training staff for our new restaurants requires precise workforce planning, which has become more complex due to predictive scheduling (“fair workweek”) laws and “just cause” termination legislation. If we fail to appropriately plan our workforce, it could adversely impact guest satisfaction, operational efficiency and restaurant profitability. the COVID-19 pandemic. In addition, if we failstate and local laws such as the recently passed California AB 257 (the “FAST Act”) may require wage increases and working hour and working condition standards that would restrict our flexibility to adequately monitor and proactively respond to employee dissatisfaction,market conditions and increase our costs without corresponding benefits. Although the FAST Act is stayed pending a referendum in 2024, it could lead to poor guest satisfaction, higher turnover, litigationis possible that ultimately it will be enforced, and unionization efforts. The COVID-19 pandemic has exacerbated staffing complexities for us andthat other restaurant operators, and during 2020 we were forced to temporarily close some restaurants or limit operating hours due to employee illnesses, fear of contracting COVID or caregiving responsibilities among our restaurant crew. COVID-19 has also resulted in aggressive competition for talent, wage inflation and pressure to improve benefits and workplace conditions to remain competitive.jurisdictions will pass similar laws. Our failure to recruit and retain new restaurant crew members in a timely manner or higher employee turnover levels all could affect our ability to open new restaurantsoffset higher labor costs by increasing menu prices depends on the willingness of our guests to pay the higher prices and grow sales at existing restaurants, and wethe perceived value of our meals relative to competitors. If competitive or inflationary pressures or other factors prevent us from offsetting higher labor costs by increased menu prices, our profitability may experience higher than projected labor costs.decline.

Risks Related to IT Systems, Cybersecurity and Data Privacy

Cybersecurity breachesBreaches or other privacy or data security incidents could result in unauthorized access, theft, modification or destruction of guest and/or employee personal, confidential guest, personal employee andor other material confidential information that is stored in our systems or by third parties on our behalf which maycould adversely affect our business.

A cyberWe could experience a cybersecurity or privacy incident, which generally refers to any intentional attack or an unintentional event that results in unauthorized access to personal information or systems to disrupt operations, corrupt data or steal or expose confidential information or intellectual property. A cyberproperty, or a ransomware attack, which is a type of malicious software that infects a computer and restricts users' access to it until a ransom is paid. Any such incident that compromises the information of our guests or employees or disrupts our business operations could result in widespread negative publicity, damage to our reputation, a loss of guests, disruption of our business and legal liabilities. If any of our critical suppliers is the target of a cybersecurity or ransomware attack, we could experience a significant disruption in our supply chain and possibly shortages of key ingredients. In the past year, a ransomware attack on one of our key vendors required us to reperform manual processes, which resulted in delays and reduced efficiencies.

As our reliance on technology has grown, the scope and severity of risks posed to our systems from cyber threats has increased. In addition, as more business activities have shifted online and more people are working remotely, including as a result of COVID-19, we have experienced an increase in cybersecurity threats and attempts to breach our security networks. The techniques and sophistication used to conduct cyber-attacks and breaches of information technology systems, as well as the sources and targets of these attacks, change frequently and are often not recognized until attacks are launched or have been in place for a period of time. We continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, malware and other events that could have a security impact; however, there can be no assurance that these measures will be effective.

The majority of our restaurant sales are made by credit or debit cards, and we also maintain personal information regarding our employees and guests, and confidential information about our guests and suppliers. We segment our card data environment and employ a cyber security protection program that is based on proven industry frameworks. This program includes but is not limited toframeworks, including cyber security techniques, tactics and procedures includingsuch as the deployment of a robust set of security controls, continuous monitoring and detection programs, network protections, vendor selection criteria, secure software development programs and ongoing employee training, awareness and incident response preparedness. In addition, we continuously scan our environment for any vulnerabilities, perform penetration testing, engage third parties to assess effectiveness of our security measures and collaborate with members of the cyber security community. However, there are no assurances that such programs will preventbe effective in detecting or detect cyber securitypreventing cybersecurity breaches.

From time to time we have been, and likely will continue to be, the target of cyber and other security threats. For example, some of our guests have experienced account takeover fraud, in which guests use the same log in credentials on multiple websites and, when a third party fraudulently obtains those credentials from one website, they can gain unauthorized access to theirthe guests’ accounts on our website and charge food orders to the credit card linked to thetheir account (without accessing credit card data). We may in the future become subject to other legal proceedings or governmental investigations for purportedly fraudulent transactions arising out of the actual or alleged theft of our consumers’ credit or debit card informationdata or if consumerguest or employee information is obtained by unauthorized persons or used inappropriately. Any such claim or proceeding, or any adverse publicity resulting from such an event, may have a material adverse effect on our business and we may incur significant remediation costs.

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We may incur increased costs to comply with privacy and data protection laws and, if we fail to comply, we could result in a violation of applicable U.S.be subject to government enforcement actions, private litigation and adverse publicity.

Complex local, state, federal and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data. These privacy and otherdata protection laws and regulations are quickly evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject us to private consumer, business partner,new or securities litigationdifferent interpretations and governmental investigations and proceedings, any of which could result in our exposure to material civil or criminal liability.enforcement. For example, the European Union’s General Data Protection Regulation (“GDPR”) requires companies to meet certain requirements regarding the handling of personal data, including its use, protection and transfer and the ability of persons whose data is stored to correct or delete such data about themselves. Failurethemselves, and failure to meet the GDPR requirements could result in penalties of up to 4% of annual worldwide revenue. Additionally, the California Consumer Privacy Act of 2018 (“CCPA”), which became effective on January 1, 2020, provides a private right of action for data breaches and requires companies that process the personal information onof California residents to make new disclosures to consumers about their data collection, use and sharing practices, allow consumers to opt out of certain data sharing with third parties and the right for consumers to request deletion of

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personal information (subject to certain exceptions). Virginia, Colorado, Connecticut and Utah have enacted similar data privacy legislation that will take effect in 2023, and several other states and countries are considering expanding or passing privacy laws in the near term. If we fail, or are perceived to have failed, to properly respond to security breaches of our or a third party’s information technology systems or fail to properly respond to or honor consumer requests under any of the CCPA,foregoing privacy laws, we could experience reputational damage, adverse publicity, loss of consumer confidence, reduced sales and profits, complications in executing our growth initiatives and regulatory and legal risk, including criminalregulatory fines and penalties, orand in some cases civil liabilities.liabilities where individuals have been provided with a private right of action.

Compliance with the GDPR, the CCPA and other current and future applicable internationalprivacy and U.S. privacy, cybersecurity and relateddata protection laws can be costly and time-consuming. We make significant investments in technology, third-party servicestime-consuming and internal personnel to develop and implement systems and processes that are designed to anticipate cyber-attacks and to prevent or minimize breaches of our information technology systems or data loss, but these security measures cannot providethere is no assurance that weour compliance efforts will be successful in preventing such breaches or data loss. In addition, media or other reports of existing or perceived security vulnerabilities in our systems or those of our third-party business partners or service providers can also adversely impact our brand and reputation and materially impact our business, even if no breach has been attempted or has occurred.

We may incur increased costsOur failure to comply with privacy and data protectionapplicable laws and ifregulations or other obligations to which we fail to comply, we couldmay be subject relating to governmentpersonal data, or to protect personal data from unauthorized access, use or other processing, could result in enforcement actions private litigation and regulatory investigations against us, claims for damages by customers and other affected individuals, fines or damage to our brand reputation, any of which could have a material adverse publicity.effect on our operations, financial performance and business.

The regulatory environment related to data privacy and cybersecuritydata security is changing at an ever-increasing pace, with new and increasingly rigorous requirements applicable to our business. Complying with newly developedIn addition, the issues regulated by privacy laws (such as advertising and regulations, whichmarketing, children, biometric, employee, and health related information) have expanded, as have the number of city, state, federal and international governmental bodies and agencies that have recently passed or are subjectcurrently considering privacy legislation or regulatory rulemaking. Where not limited by preemption, many states have passed or are considering adopting stricter versions of federal privacy laws (e.g., state level statutes similar to changethe Telephone Consumer Protection Act of 1991 (“TCPA”), the Health Insurance Portability and uncertain interpretationsAccountability Act, and may be inconsistent from statethe Children’s Online Privacy Protection Act of 1998 (“COPPA”)). Private service providers also have implemented mandatory privacy requirements impacting businesses, like Chipotle, that wish to state or countryutilize services available on their platforms. Taken together, Chipotle faces rapidly increasing compliance costs in order to country, may lead to a decline in guest engagement or cause us to incur substantial costs or modifications to ourmodify its operations orand business practices to comply.comply with applicable laws, regulations and other requirements.

We are subject to the European Union’s GDPR, which requires companies to meet certain requirements regarding the handling of personal data, including its use, protection and transfer and the ability of persons whose data is stored to correct or delete such data about themselves. Failure to meet the GDPR requirements could result in penalties of up to 4% of annual worldwide revenue. Additionally, in July 2020, the European Court of Justice’s invalidation of cross-border data transfer mechanisms such as the U.S.-E.U. Privacy Shield and the Standard Contractual Clauses has imposed new uncertainty in privacy compliance and an adverse impact on operational efficiency with our third-party vendors.

The Federal Trade Commission and many State Attorneys General are also interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination and security of data. Maintaining our compliance with those requirements may limit our ability to obtain data used to provide a more personalized guest experience. The CCPA provides a private right of action for data breaches and requires companies that process information on California residents to make new disclosures to consumers about their data collection, use and sharing practices, allows consumers to opt-out of certain data sharing with third parties and gives consumers the right to request deletion of personal information (subject to certain exceptions). If we fail, or are perceived to have failed, to properly respond to security breaches of our or third party’s information technology systems or fail to properly respond to consumer requests under the CCPA, we could experience regulatory fines, reputational damage, adverse publicity, loss of consumer confidence, reduced sales and profits, complications in executing our growth initiatives and regulatory and legal risk, including criminal penalties or civil liabilities.

We rely heavily on information technology systems and failures or interruptions in our IT systems could harm our ability to effectively operate our business and/or result in the loss of guests or employees.

We rely heavily on information technology systems, including the point-of-sale and payment processing system in our restaurants, technologies supporting our online ordering, digital and delivery business, technologies that tracebacktrace ingredients back to suppliers and growers and manage our supply chain, our rewards program, technologies that facilitate marketing initiatives, employee engagement and payroll processing, and various other processes and transactions. Our ability to effectively manage our business and coordinate the procurement, production, distribution, safety and sale of our products depends significantly on the availability, reliability and security of these systems. Many of these critical systems are provided and managed by third parties, and we are reliant on these third-party providers to implement protective measures that ensure the security and availability of their systems. Although we have operational safeguards in place, these safeguards may not be effective in preventing the failure of these third-party systems or platforms to operate effectively and be available. Failures may be caused by various factors, including power outages, catastrophic events, physical theft, computer and network failures, inadequate or ineffective redundancy, problems with transitioning to upgraded or replacement systems or platforms, flaws in third-party software or services, errors or improper use by our employees or the third-party service providers. If any of our critical IT systems were to become unreliable, unavailable, compromised or otherwise fail, and we were unable to recover in a timely manner, we could experience an interruption in our operations that could have a material adverse impact on our profitability.

 

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Our inability or failure to execute on a comprehensive business continuity plan at our restaurant support centers following a disaster or force majeure event could have a material adverse impact on our business.

Many of our corporate systems and processes and corporate support for our restaurant operations are centralized at one location. We have disaster recovery procedures and business continuity plans in place to address crisis-level events, including hurricanes and other natural disasters, and back up and off-site locations for recovery of electronic and other forms of data and information, and the COVID-19 pandemic has provided a limited test of our ability to manage our business remotely. However, if we are unable to fully implement our disaster recovery plans, we may experience delays in recovery of data, inability to perform vital corporate functions, tardiness in required reporting and compliance, failures to adequately support field operations and other breakdowns in normal communication and operating procedures that could have a material adverse effect on our financial condition, results of operation and exposure to administrative and other legal claims. In addition, these threats are constantly evolving, which increases the difficulty of accurately and timely predicting, planning for and protecting against the threat. As a result, our disaster recovery procedures and business continuity plans security may not adequately address all threats we face or protect us from loss.

Risks Related to Supply Chain

Increases in the costs of ingredient and other materials, including increases caused by inflation, global conflicts, the COVID-19 pandemic and climate risks, could adversely affect our results of operations.

Supply chain risk could increase our costs and limit the availability of ingredients and supplies that are critical to our restaurant operations. The markets for some of our ingredients, such as beef, avocado and other produce, are particularly volatile due to factors beyond our control such as limited sources, seasonal shifts, climate conditions, recent inflationary trends, military and geopolitical conflicts and industry demand, including as a result of animal disease outbreaks, international commodity markets, food safety concerns, product recalls and government regulation. In addition, for certain of our ingredients and other materials, we have a limited number of suppliers and distributors. We remain in regular contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain; however, in 2022 costs for certain supplies and ingredients, such as avocados, packaging, dairy, tortillas, beef and chicken increased materially and rapidly, and inflationary pressures could continue and/or spread to more categories as inflation increases continue across the global supply chain. Our efforts to mitigate future price risk through forward contracts, strong partnerships with key suppliers, careful planning and other activities may not fully insulate us from increases in commodity costs, which could have an adverse impact on our profitability.

We also could be adversely impacted by price increases specific to meats raised in accordance with our Responsibly Raised animal welfare criteria, and ingredients grown in accordance with our Food With Integrity specifications, the markets for which are generally smaller and more concentrated than the markets for conventionally raised or grown ingredients. Any increase in the prices of the ingredients most critical to our menu, such as chicken, beef, dairy (for cheese, sour cream and queso), avocados, beans, rice, tomatoes and pork, would have a particularly adverse effect on our operating results. If the cost of one or more ingredients significantly increases, we may choose to temporarily suspend serving menu items that use those ingredients, such as guacamole or one of our proteins, rather than pay the increased cost. Any such changes to our available menu may negatively impact our restaurant traffic and could adversely impact our sales and brand.

Shortages or interruptions in the supply of ingredients could adversely affect our operating results.

Our business is dependent on frequent and consistent deliveries of ingredients that comply with our Food With Integrity specifications. We may experience shortages, delays or interruptions in the supply of ingredients and other supplies to our restaurants due to inclement weather, natural disasters, labor issues or other operational disruptions at our suppliers, distributors or transportation providers, or other conditions beyond our control. In addition, we have a single or a limited number of suppliers for some of our ingredients, including salt, certain cuts of beef, tomatoes, tortillas and adobo. Although we believe we have potential alternative suppliers and sufficient reserves of ingredients, shortages or interruptions in our supply of ingredients could adversely affect our financial results.

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Legal and Regulatory Risks

A violation of Chipotle’s Deferred Prosecution Agreement could have an adverse effect on our business and reputation.

In April 2020, Chipotle signed a Deferred Prosecution Agreement (the “DPA”), which was filed in the U.S. District Court for the Central District of California, to settle an official criminal investigation conducted by the U.S. Attorney’s Office for the Central District of California, in conjunction with the U.S. Food and Drug Administration’s Office of Criminal Investigations (collectively, the “DOJ”), into company-wide food safety matters that occurred in our restaurants dating back to January 1, 2013. Pursuant to the DPA, the DOJ filed a two-count Class A Misdemeanor Information in the United States District Court for the Central District of California charging Chipotle with adulterating and causing food to be adulterated within the meaning of the Federal Food, Drug and Cosmetic Act (“FDCA”) while such food was held for sale. Under the DPA, Chipotle paid a $25 million fine and is required to enhance and maintain a comprehensive compliance program that is designed to ensure Chipotle complies with all applicable federal and state food safety laws. The DOJ agreed that ifIf Chipotle is in full compliance with all of its obligations under the DPA at the conclusion of the three-year deferred prosecution term, which ends in April 2023, the DOJ willagreed to move to dismiss the two-count informationInformation filed against Chipotle. Full compliance with the DPA requires, among other things, Chipotle to conduct a root cause analysis of the historic food safety matters, maintain and annually update a comprehensive food safety plan and comply with applicable provisions of the FDCA.

Chipotle owns and operates over 2,7003,100 restaurants and we dedicate substantial resources to our food safety program; however, even with strong preventative controls and interventions, food safety risks cannot be completely eliminated in any restaurant. Food safety risks may arise due to possible failures by restaurant crewemployees or suppliers to follow food safety policies and procedures, employees or guests coming to the restaurant while ill or serving contaminated ingredients in the food ingredients.we sell. If Chipotle is found to have breached the terms of the DPA, the DOJ may elect to prosecute, or bring a civil action against the companyus for conduct alleged in the DPA’s Statement of Facts, which could result in additional fines, penalties, and have material adverse impacts on our results of operations. In addition, further action by the DOJ may significantlyoperations and adversely affect our brand and reputation, especially in light of our highly publicized food safety incidents in 2015 – 2017.reputation.

We could be party to litigation or other legal proceedings that could adversely affect our business, results of operations and reputation.

We have been and in the future, we likely will continue to be subject to litigation and other legal proceedings that may adversely affect our business. These legal proceedings may involve claims brought by employees, guests, government agencies, suppliers, shareholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. These legal proceedings may involve allegations of illegal, unfair or inconsistent employment practices, including those governing wage and hour, employment of minors, discrimination, harassment, wrongful termination, and vacation and family leave laws; food safety issues including food-borne illness, food contamination and adverse health effects from consumption of our food products; data security or privacy breaches; guest discrimination; personal injury in our restaurants; trademark infringement;marketing and advertising claims, including claims that our Food With Integrity or other sustainability claims are misleading or inaccurate; infringement of patent, copyright or other intellectual property rights; violation of the federal securities laws or other concerns. For example,In 2022, a number of lawsuits have beenwere filed against us and governmental audits initiated alleging violations of federal and state employment laws, including wage and hour claims;claims, and in 2020 we settled an official criminal investigation by the U.S. Attorney’s Office for the Central District of California, in conjunction with the U.S. Food and Drug Administration’s Office of Criminal Investigations, related to company-wide food safety matters dating back to 2013. We could be involved in similar or even more significant litigation and legal proceedings in the future. Even if the allegations against us in current or future legal matters are unfounded or we ultimately are held not held liable, the costs to defend ourselves may be significant and the litigation may subject us to substantial settlements, fines, penalties or judgments against us and may divert management's attention away from operating our business, all of which could negatively impact our financial condition and results of operations. Litigation also may generate negative publicity, regardless of whether the allegations are valid, or we ultimately are not liable, which could damage our reputation, and adversely impact our sales and our relationship with our employees and guests.

 

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We are subject to extensive laws, government regulation, and other legal requirements and our failure to comply with existing or new laws and regulations could adversely affect our operational efficiencies, ability to attract and retain talent and results of operations.

Our business is subject to extensive federal, state, local and international laws and regulations, including those relating to:

preparation, sale and labeling of food, including regulations of the Food and Drug Administration, which oversees the safety of the entire food system, including inspections and mandatory food recalls, menu labeling and nutritional content;

employment practices and working conditions, including minimum wage rates, wage and hour practices, Fair Workweekfair workweek/secure scheduling and “just cause” legislation, employment of minors, discrimination, harassment, classification of employees, paid and family leave, workplace safety, immigration and overtime among others;

data privacy and standards for the protection of personal information, including social security numbers, financial information (including credit card numbers), and health information, including state laws such as CPRA and CCPA in California as well as new privacy-related legislation in Virginia, Colorado, Connecticut, Utah and a growing number of other states, privacy laws aimed at protecting children, such as TCPA and COPPA, and international laws such as GDPR in the European Union and PIPEDA in Canada, and payment card industry standards and requirements;

health, sanitation, safety and fire standards and the sale of alcoholic beverages;

building and zoning requirements, including state and local licensing and regulation governing the design and operation of facilities and land use;

public accommodations and safety conditions, including the Americans with Disabilities Act and similar state laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations, online resources and other areas;

data privacy laws and standards for the protection of personal information, including social security numbers, financial information (including credit card numbers), and health information, and payment card industry standards and requirements;

environmental matters, such as emissions and air quality, water consumption, the discharge, storage, handling, release, and disposal of hazardous or toxic substances, and local ordinances restricting the types of packaging we can use in our restaurants; and

public company compliance, disclosure and governance matters, including accounting and tax regulations, SEC and NYSE disclosure requirements.

Compliance with these laws and regulations, and future new laws or changes in these laws or regulations that impose additional requirements, can be costly. Any failure or perceived failure to comply with these laws or regulations could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability.

Risks Related to Our Growth and Business Strategy

If we are unable to meet our projections for new restaurant openings, or efficiently maintain the attractiveness of our existing restaurants, our profitability could suffer.

Our growth strategy depends on our ability to continue to open new restaurants and operate them profitably. Historically,Since 2020, COVID-19 related disruptions in the global supply chain have increased the cost and decreased the availability of construction materials and restaurant equipment needed to open and operate our restaurants, which can delay the openings of new restaurants. In addition, we incur substantial startup expenses each time we open a new restaurant, and it can take up to 24 months to ramp up the sales and profitability of a new restaurant. During the ramp-up phase, the restaurant’s sales and income are below the levels atrestaurant, during which we expect them to normalize andtime costs may be higher as we train new employees and adjust our food deliveries and preparation to sales trends.build up a customer base. If we are unable to build the customer base that we expect or fail to overcome the initial higher costsstartup expenses associated with new restaurants, our new restaurants may not be as profitable as our existing restaurants. Our ability to open and profitably operate new restaurants also is subject to various risks, such as the identification and availability of economically viable locations,desirable locations; the negotiation of acceptable lease terms, the ability to operate with a Chipotlane,terms; the need to obtain all required governmental permits (including zoning approvals and liquor licenses) and to comply with other regulatory requirements,requirements; the availability of capable contractors and subcontractors,subcontractors; increases in the ability to meet construction schedulescost and budgets,decreases in the ability to manage labor activities that could delay construction, increases inavailability of labor and building material costs,material; changes in weather, natural disasters, pandemics or other acts of God that could result indelay construction delays and adversely affect the results of one or more restaurants for an indeterminate amount of time,guest traffic; our ability to hire and train qualified management personneland restaurant employees; and general economic and business conditions. At each potential location, we compete with other restaurants and retail businesses for desirable development sites, construction contractors, management personnel, hourly employees and other resources. If we are unable to successfully manage these risks, we could face increased costs and lower than anticipated sales and earnings in future periods.

In addition, in an effort to increase same-restaurant sales and improve our operating performance, we continue to improve our existing restaurants through remodels, upgrades and regular upkeep. If the costs associated with remodels, upgrades or regular upkeep are higher than anticipated, restaurants are closed for remodeling for longer periods than planned or remodeled restaurants do not perform as expected, we may not realize our projected desired return on investment, which could have a negative effect on our operating results.

 

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Substantially all of our restaurants operate in leased properties subject to long-term leases. If we are unable to secure new leases on favorable terms, terminate unfavorable leases or renew or extend favorable leases, our profitability may suffer.

We operate substantially all of our restaurants in leased facilities. It is becoming increasing challenging to locate and secure favorable lease facilities for new restaurants as competition for restaurant sites in our target markets is intense. Development and leasing costs are increasing, particularly for urban locations. These factors could negatively impact our ability to manage our occupancy costs, which may adversely impact our profitability. In addition, any of these factors may be exacerbated by economic factors, which may result in an increased demand for developers and contractors that could drive up our construction and leasing costs. Also, as we open and operate more restaurants, our rate of expansion relative to the size of our existing restaurant base will decline, making it increasingly difficult to achieve levels of sales and profitability growth that we achieved in prior years.

From time to time we may close or relocate a restaurant if a current location becomes less profitable as a result of adverse economic conditions or local regulatory compliance in the area. We also have closed some restaurants where the impact of COVID-19 was severe. If the closures continue for a long period of time we may not be able to recover our investment due to the high rental rates. Because substantially all of our restaurants operate in leased facilities, we may incur significant lease termination expenses when we close or relocate a restaurant and are often obligated to continue rent and other lease related payments after restaurant closure. We also may incur significant asset impairment and other charges in connection with closures and relocations. If the lease termination cost is significant, we may decide to keep underperforming restaurants open. Ongoing lease obligations at closed or underperforming restaurant locations could decrease our results of operations. In addition, we may be unable to renew a lease without substantial additional cost at the end of the lease term and expiration of all renewal periods. As a result, we may be required to close or relocate a restaurant, which could subject us to construction and other costs and risks that may have an adverse effect on our operating performance.

Our failure to effectively manage and support our growth could have a negative adverse effect on our business and financial results.

As of December 31, 2020,2022, we owned and operated 2,764over 3,100 Chipotle restaurants and we plan to open a significant number of new restaurants in the next several years. Our existing restaurant management systems, back office technology systems and processes, financial and management controls, information systems and personnel may not be adequate to support our continued growth. To effectively manage a larger number of restaurants, we may need to upgrade and expand our infrastructure and information systems, automate more processes that currently are manual or require manual intervention and hire, train and retainretrain restaurant crewemployees and corporate support staff, all of which may result in increased costs and at least temporary inefficiencies. We also place a lot of importance on our culture, which we believe has been an important contributor to our success, and as we continue to grow it may be increasingly difficult to maintain our culture. Our failure to sufficiently invest in our infrastructure and information systems and maintain our strong staffing and culture could harm our brand and operating results.

A failure to recruit, develop and retain effective leaders or the loss or shortage of personnel with key capacities and skills could impact our strategic growth plans and jeopardize our ability to meet our business performance expectations and growth targets.

Our ability to continue to grow our business depends substantially on the contributions and abilities of our executive leadership team and other key management personnel. Changes in senior management could expose us to significant changes in strategic direction and initiatives. A failure to maintain appropriate organizational capacity and capability to support our strategic initiatives or to build adequate bench strength with key skillsets required for seamless succession of leadership, could jeopardize our ability to meet our business performance expectations and growth targets. If we are unable to attract, develop, retain and incentivize sufficiently experienced and capable management personnel, our business and financial results may suffer.

The market price of our common stock may be more volatile than the market price of our peers.

We believe the market price of our common stock generally has traded at a higher price-earnings ratio than stocks of most of our peer companies as well as the overall market, which typically has reflected market expectations for higher future operating results. At any given point in time, our price-earnings ratio may trade at more than twice the price-earnings ratio of the S&P 500. Also, the trading market for our common stock has been volatile at times, including as a result of adverse publicity events. 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.

Risks Related to Environmental, Social and Governance Factors

If we are unable to achieve our social and environmental sustainability goals, our reputation and results of operations could be adversely affected.

In addition to financial performance, companies increasingly are being judged by their performance on a variety of environmental, social and governance (“ESG”) factors. Investors, governmental agencies and self-regulatory organizations, including the SEC, the NYSE and the Financial Accounting Standards Board (the “FASB”), have increasingly focused on social and environmental sustainability achievements and disclosures, including with respect to climate change, energy use, packaging and waste, human rights, sustainable supply chain practices, animal health and welfare and water use. Our mission is to Cultivate a Better World by serving responsibly sourced, classically-cooked, real food with wholesome ingredients without artificial colors, flavors or preservative. We strive to be a leader in responsible and sustainable food production and, in November 2021, we announced that we had set science-based targets validated by the Science Based Targets initiative to reduce absolute Scope 1, 2 and 3 greenhouse gas emissions 50% by 2030 from a 2019 base year. Execution of our mission and achievement of these goals are subject to risks and uncertainties, many of which are outside of our control and may prove to be more difficult and costly than we anticipate. These risks and uncertainties include, but are not limited to, our ability to execute on our mission and achieve our ESG goals within currently projected costs and expected timeframes; unforeseen design, operational and technological difficulties; the outcome of research efforts and future technology developments; the success of our collaboration with our suppliers and other third parties; and competitive pressures. There is no assurance that we will be able to successfully execute on our mission and fully achieve our ESG goals. Failure to achieve our goals could damage our reputation and relationships with our guests, investors and other stakeholders, which could have an adverse effect on our business, results of operations and stock price.

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Climate change and volatile adverse weather conditions could adversely affect our restaurant sales or results of operations.

There is growing concern that climate change and global warming has caused and may continue to cause more severe, volatile weather or extended droughts, which could increase the frequency and duration of weather impacts on our operations. Adverse weather conditions have in the past and may again impact guest traffic at our restaurants and, in more severe cases such as hurricanes, tornadoes, wildfires or other natural disasters, cause temporary restaurant closures, all of which negatively impact our restaurant sales. In addition, our supply chain is subject to increased costs caused by the effects of climate change, greenhouse gases and diminishing energy and water resources. Increasing weather volatility and changes in global weather patterns can reduce crop size and crop quality, or destroy crops altogether, which could result in decreased availability or higher pricing for our produce and other ingredients. We may be forced to source ingredients from new geographic regions, which could impact quality and increase costs. These factors are beyond our control and, in many instances, unpredictable. Climate change and government regulation relating to climate change also could result in construction delays for new restaurants and interruptions to the availability or increases in the cost of utilities. The ongoing and long-term costs of these impacts related to climate change and other sustainability-related issues could have a material adverse effect on our business and financial condition if we are not able to mitigate them.

General Risk Factors

Economic and business factors that are largely beyond our control may adversely affect consumer behavior and the results of our operations.

Restaurant dining generally is dependent upon consumer discretionary spending, which may be affected by general economic conditions that are beyond our control. For example,Increasing or prolonged high inflation, international, domestic and regional economic conditions, consumer income levels, financial market volatility, a slow or stagnant pace of economic growth, mass layoffs, rising energy costs, rising interest rates, social unrest, military conflicts and governmental, political and budget concerns or divisions may have a negative effect on consumer confidence and discretionary

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spending. In addition,The rapid increase in inflation during 2022 and widespread concern about a new presidential and legislative administration recently took office, and it is not yet known what changes the new administration will makeprolonged economic downturn may lead consumers to economic or tax policies and how those policies will impact the economy or consumerdecrease their discretionary spending. AnyA significant decrease in our guest traffic or average transactions would negatively impact our financial performance. AnyThe actual or perceived threat of a pandemic or communicable disease, terrorist attack, mass shooting, heightened security requirements, including cybersecurity, or a failure to protect information systems for critical infrastructure, such as the electrical grid and telecommunications systems, could harm our operations, the economy or consumer confidence generally. Any of the above factors or other unfavorable changes in business and economic conditions affecting our guests could increase our costs, reduce traffic in some or all of our restaurants or limit our ability to increase pricing, any of which could lower our profit margins and have a material adverse effect on our sales, financial condition and results of operations. These factors also could cause us to, among other things, reduce the number and frequency of new restaurant openings, close restaurants or delay remodeling of our existing restaurant locations. Further, poor economic conditions may force nearby businesses to shut down, which could reduce traffic to our restaurants or cause our restaurant locations to be less attractive.

Our quarterly financial results may fluctuate significantly, including due to factors that are not in our control.

Our quarterly financial results may fluctuate significantly and could fail to meet investors’ expectations for various reasons, including:

negative publicity about the safety of our food, employment-related issues, litigation or other issues involving our restaurants;

fluctuations in supply costs, particularly for our most significant ingredients, and our inability to offset the higher cost with price increases without adversely impacting guest traffic;

labor availability and wages of restaurant management and crew;employees;

increases in marketing or promotional expenses;

the timing of new restaurant openings and related revenues and expenses, and the operating costs at newly opened restaurants;

the impact of inclement weather and natural disasters, such as freezes and droughts, which could decrease guest traffic and increase the costs of ingredients;

the amount and timing of stock-based compensation;

litigation, settlement costs and related legal expenses;

tax expenses, asset impairment charges and non-operating costs; and

variations in general economic conditions, including the impact of decliningrising inflation and the impact of rising interest rates on our interest income.consumer demand trends.

As a result of any 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.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

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ITEM 2. PROPERTIESPROPERTIES

As of December 31, 2020,2022, there were 2,7683,187 restaurants operated by Chipotle and our consolidated subsidiaries, 2,7643,182 of which were Chipotle restaurants. Our main office is located at 610 Newport Center Drive, Newport Beach, CA 92660 and our telephone number is (949) 524-4000. We lease our main office and substantially all of the properties on which we operate restaurants. We own 17 properties and operate restaurants on all of them. For additional information regarding the lease terms and provisions, see Note 10.1. “Description of Business and Summary of Significant Accounting Policies” and Note 9. “Leases” in our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

ITEM 3.  LEGAL PROCEEDINGS

For information regarding legal proceedings, see Note 12.11. “Commitments and Contingencies” in our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

 

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PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on the New York Stock Exchange under the symbol “CMG.”

As of February 8, 2021,7, 2023, there were approximately 9351,313 shareholders of record. This does not include persons whose stock is in nominee or “street name” accounts through brokers.

Purchases of Equity Securities by the Issuer

On March 20, 2020,The table below reflects shares of common stock we temporarily suspended our stockrepurchased during the fourth quarter of 2022.

Total Number of Shares Purchased

Average Price Paid Per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)

Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs

October

45,448

$

1,512.59

45,448

$

344,061,582

Purchased 10/1 through 10/31

November

53,236

$

1,464.22

53,236

$

266,112,344

Purchased 11/1 through 11/30

December

35,071

$

1,487.43

35,071

$

413,946,701

Purchased 12/1 through 12/31

Total

133,755

$

1,486.74

133,755

(1) Shares were repurchased pursuant to repurchase programs announced on July 26, 2022.

(2) The December total includes an additional $200 million in authorized repurchases approved on December 7, 2022 and announced February 7, 2023. There is no expiration date for this program. The total remaining dollar valueauthorization to repurchase shares will end when we have repurchased the maximum amount of shares that may yet be purchased under our stock repurchase program is $115.0 million as of December 31, 2020.authorized, or we have determined to discontinue such repurchases.

Dividend Policy

We are not required to pay any dividends and have not declared or paid any cash dividends on our common stock. We intend to continue to retain earnings for use in the operation and expansion of our business and to repurchase shares of common stock (subject to market conditions), and therefore do not anticipate paying any cash dividends on our common stock in the foreseeable future.


 

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COMPARISON OF CUMULATIVE TOTAL RETURN

The following graph compares the cumulative annual stockholders return on our common stock from December 31, 2015,2017, through December 31, 2020,2022, to that of the total return index for the S&P 500 and the S&P 500 Restaurants Index assuming an investment of $100 on December 31, 2015.2017. In calculating total annual stockholder return, reinvestment of dividends, if any, is assumed. The indices are included for comparative purposes only. They do not necessarily reflect management’s opinion that such indices are an appropriate measure of the relative performance of our common stock. The values shown are neither indicative nor determinative of future performance. This graph is not “soliciting material,” is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference in any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

Chart, line chart

Description automatically generatedChart, line chart

Description automatically generated

Company/Index

Dec. 31, 2015

Dec. 30, 2016

Dec. 30, 2017

Dec. 30, 2018

Dec. 30, 2019

Dec. 29, 2020

2017

2018

2019

2020

2021

2022

Chipotle Mexican Grill, Inc.

$

100

$

79

$

60

$

90

$

174

$

289

$

100

$

149

$

290

$

480

605

$

480

S&P 500

100

110

131

123

158

184

100

94

121

140

178

144

S&P 500 Restaurants

100

101

124

134

163

188

100

108

132

152

184

166

*$100 invested on December 31, 20152017, in stock or index, including reinvestment of dividends.

Fiscal year ending December 31.31, 2022.

Source data: S&P Capital IQFactSet

 


 

1921


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ITEM 6.  SELECTED FINANCIAL DATA

Our selected consolidated financial data shown below should be read together with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and respective notes included in Item 8. “Financial Statements and Supplementary Data.” The data shown below is not necessarily indicative of results to be expected for any future period (dollar and share amounts in thousands, except per share data).

Year ended December 31,

2020

2019

2018

2017

2016

Statement of Income:

Food and beverage revenue

$

5,920,545

$

5,561,036

$

4,860,626

$

4,476,412

$

3,904,384

Delivery service revenue

64,089

25,333

4,359

-

-

Total revenue

5,984,634

5,586,369

4,864,985

4,476,412

3,904,384

Food, beverage and packaging costs

1,932,766

1,847,916

1,600,760

1,535,428

1,365,580

Labor costs

1,593,013

1,472,060

1,326,079

1,205,992

1,105,001

Occupancy costs

387,762

363,072

347,123

327,132

293,636

Other operating costs

1,030,012

760,831

680,031

651,644

641,953

General and administrative expenses

466,291

451,552

375,460

296,388

276,240

Depreciation and amortization

238,534

212,778

201,979

163,348

146,368

Pre-opening costs

15,515

11,108

8,546

12,341

17,162

Impairment, closure costs and asset disposals

30,577

23,094

66,639

13,345

23,877

Total operating expenses

5,694,470

5,142,411

4,606,617

4,205,618

3,869,817

Income from operations

290,164

443,958

258,368

270,794

34,567

Interest and other income, net

3,617

14,327

10,068

4,949

4,172

Income before income taxes

293,781

458,285

268,436

275,743

38,739

Benefit/(provision) for income taxes

61,985

(108,127)

(91,883)

(99,490)

(15,801)

Net income

$

355,766

$

350,158

$

176,553

$

176,253

$

22,938

Earnings per share:

Basic

$

12.74

$

12.62

$

6.35

$

6.19

$

0.78

Diluted

$

12.52

$

12.38

$

6.31

$

6.17

$

0.77

Weighted average common shares: outstanding

Basic

27,917

27,740

27,823

28,491

29,265

Diluted

28,416

28,295

27,962

28,561

29,770

December 31,

2020

2019

2018

2017

2016

Balance Sheet Data:

Total current assets

$

1,420,237

$

1,072,204

$

814,794

$

629,535

$

522,374

Total assets

$

5,982,896

$

5,104,604

$

2,265,518

$

2,045,692

$

2,026,103

Total current liabilities

$

822,199

$

666,593

$

449,990

$

323,893

$

281,793

Total liabilities

$

3,962,761

$

3,421,578

$

824,179

$

681,247

$

623,610

Total shareholders’ equity

$

2,020,135

$

1,683,026

$

1,441,339

$

1,364,445

$

1,402,493


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RESERVED

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with Item 6. “Selected Financial Data” and our consolidated financial statements and related notes included in Item 8. “Financial Statements and Supplementary Data.” This section of the Form 10-K generally discusses 2020 and 20192022 items and year-to-year comparisons of 20202022 to 2019.2021. Discussions of 20182020 items and year-to-year comparisons of 20192021 and 20182020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 on our Annual Report on Form 10-K for the year ended December 31, 2019.2021. The discussion contains forward-looking statements involving risks, uncertainties and assumptions that could cause our results to differ materially from expectations. See “Cautionary Note Regarding Forward-Looking Statements.” Factors that might cause such differences include those described in Item 1A. “Risk Factors” and elsewhere in this report.

Overview

As of December 31, 2020,2022, we operated 2,7243,129 Chipotle restaurants throughout the United States, 4053 international Chipotle restaurants, and fourfive non-Chipotle restaurants. We are committedmanage our U.S. operations based on eight regions and have aggregated our operations to making good food more accessible to everyone while continuing to be a brand with a demonstrated purpose.one reportable segment.

OverviewThroughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” we commonly discuss the Impact of COVID-19

The COVID-19 pandemic has adversely affected, andfollowing key operating metrics which we believe will continue to adversely affect, our operations and financial results for the foreseeable future. In response to COVID-19, we temporarily closed some restaurants and dining rooms in our restaurants. We continue to follow guidance from health officials in determining the appropriate restrictions to put in place for each restaurant. As of December 31, 2020, the majority of our restaurants have been reopened for dine-in with restrictions, such as social distancing and mask requirements for all customers, to ensure the health and safety of our guests and employees. Certain restaurants only offer take-out, digital order ahead and delivery services in accordance with local guidance and regulations. For a further discussion of the impacts that COVID-19 has had ondrive our financial results referand long-term growth model. We believe these metrics areuseful to investors because management uses these metrics to assess the “Resultsgrowth of Operations.”our business and the effectiveness of our marketing and operational strategies:

We remain in regular contact with our major suppliers and while to date we have not experienced significant disruptions in our supply chain, we could see future disruptions should the impacts of COVID-19 extend for a considerable amount of time. Within our restaurants, we have taken a number of steps to enhance our robust food safety protocols including the creation of the steward role which is focused on sanitization in high-touch and high-traffic areas, providing masks for all employees, and having a tamper evident packaging seal for all digital orders. To support our employees, we have eliminated non-essential travel, implemented work from home for our support centers, and significantly expanded employee benefits. We remain focused on reducing non-essential controllable costs and judiciously spending on return generating projects to preserve liquidity. We suspended our stock buyback program during the first quarter of 2020. If our business continues to improve and the economy continues to stabilize, we may begin buying again in the first or second quarter of 2021.Comparable restaurant sales

2020 Financial HighlightsRestaurant operating costs as a percentage of total revenue

New restaurant openings

2022 Financial Highlights, year-over-year:

Total revenue increased 7.1%14.4% to $6.0$8.6 billion in 2020 compared to $5.6 billion in 2019

Comparable restaurant sales increased 1.8%8.0%

Diluted earnings per share (“diluted EPS”) for 2020 increased to $12.52,was $32.04, a 39.9% increase from $22.90, which included an income tax benefit of $3.79, offset byincludes a $2.00$0.74 after-tax impact from expenses related to certain legal proceedings, expenses related to the 2018 performance share COVID-19 related modification, corporate restructuring costs, employee separation costs, restaurant asset impairment and closure costs, and certain other costs, a 1.1% increase from $12.38 in 2019.partially offset by an unrealized gain on investments

Sales Trends. AverageComparable restaurant sales were $2.223 millionincreased 8.0% for the year ended December 31, 2020,2022. The increase is primarily attributable to an increase from $2.205 million for the year ended December 31, 2019. We define average restaurant sales as the average trailing 12-month foodin menu prices and, beverage sales for restaurants in operation for at least 12 full calendar months.

Total revenue was $6.0 billion in 2020,to a lesser extent, an increase in transactions, partially offset by a decrease in group size from the continued resurgence of 7.1% from $5.6 billion in 2019. The increase was attributable to new restaurant openings and increased comparable restaurant sales. Comparable restaurant sales increased 1.8% for the full year 2020.our in-restaurant business. Comparable restaurant sales represent the change in period-over-period sales or transactionstotal revenue for restaurants in operation for at least 13 full calendar months.

We continueIn-restaurant sales increased 26.4% for the year ended December 31, 2022 compared to investthe year ended December 31, 2021. The increase was primarily due to menu price increases, a shift in improving ourconsumer behaviors related to COVID-19 from digital platformssales to in-restaurant sales across the country, and have significantly upgraded our capabilities by digitizing almost allnew restaurant openings. In-restaurant sales represent food and beverage revenue generated on-premise and include revenue deferrals associated with Chipotle Rewards.

Digital sales represented 39.4% of our digital-make lines, expanding our partnerships with multiplefood and beverage revenue for the year ended December 31, 2022, compared to 45.0% of food and beverage revenue for the year ended December 31, 2021. The decrease in digital sales as a percentage of food and beverage revenue is primarily related to the increase of in-restaurant sales discussed above. Digital sales represent food and beverage revenue generated through the Chipotle website, Chipotle app or third-party delivery servicesaggregators and building more Chipotlanes, which is our drive through format for digital order pickups. Digital sales, which includes delivery and customer pick-up, increased 174.1% year over year and accounted for 46.2%revenue deferrals associated with Chipotle Rewards. We updated the definition of 2020 sales, compared to 10.9% of 2019 sales. The shift to digital sales accelerated in March 2020the first quarter of 2022 to include revenue deferrals related to Chipotle Rewards. We made this change to allow for a reconciliation to total food and beverage revenue as a result of the COVID-19 pandemic.

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we now present in-restaurant sales.

Restaurant Operating Costs. During the year ended December 31, 2020,2022, our restaurant operating costs (food, beverage and packaging; labor; occupancy; and other operating costs) were 82.6%76.1% of total revenue, an increasea decrease from 79.5% in 2019. 77.4% during the year ended December 31, 2021. The increasedecrease was driven primarily by COVID-19 related impacts including increasedsales leverage and, to a lesser extent, lower delivery expenses assistance and exclusion pay, elevated beef prices, increased incidenceassociated with lower volume of steak, and fewer sales of high margin beverages. The increase wasdelivery transactions, partially offset by benefitswage inflation and higher commodity inflation primarily from menu price increases, lower avocado pricingavocados, packaging, dairy, beef and improved labor efficiency realized from digital enhancements to the restaurants.chicken.

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Restaurant Development. ForDuring the full year 2020,ended December 31, 2022, we opened 161236 new restaurants, which included 100202 restaurants with a Chipotlane. We expect to open approximately 200255-285 new restaurants in 2021.2023 (including 10 to 15 relocations), which assumes utility, construction, permit and material supply delays do not worsen. We expect that at least 80% of our new restaurants will include a Chipotlane.

Cultivate Next Fund. In April 2022 we announced the formation of the Cultivate Next Fund, a venture that will make early-stage investments into strategically aligned companies that further our mission to Cultivate a Better World. The venture fund has an initial size of $50.0 million and will be financed almost entirely by Chipotle. As of December 31, 2022, we have made $11.0 million in investments through this fund.

Restaurant Activity

The following table details restaurant unit data for the years indicated.

Year ended December 31,

Year ended December 31,

2020

2019

2018

2022

2021

Beginning of period

2,622

2,491

2,408

2,966

2,768

Chipotle openings

160

139

137

235

215

Pizzeria Locale openings

1

1

-

1

-

Chipotle permanent closures

(9)

(7)

(43)

(3)

(10)

Chipotle relocations

(6)

(2)

(5)

(12)

(7)

Pizzeria Locale closures

-

-

(5)

TastyMade closures

-

-

(1)

Total restaurants at end of period

2,768

2,622

2,491

3,187

2,966

Results of Operations

Our results of operations as a percentage of total revenue and period-over-period change are discussed in the following section.

Revenue

Year ended December 31,

Percentage change

Year ended December 31,

Percentage

2020

2019

2018

2020/2019

2019/2018

2022

2021

change

(dollars in millions)

(dollars in millions)

Food and beverage revenue

$

5,920.5

$

5,561.0

$

4,860.6

6.5%

14.4%

$

8,558.0

$

7,457.2

14.8%

Delivery service revenue

64.1

25.3

4.4

153.0%

475.8%

76.7

89.9

(14.7%)

Total revenue

$

5,984.6

$

5,586.4

$

4,865.0

7.1%

14.8%

$

8,634.7

$

7,547.1

14.4%

Average restaurant sales (1)

$

2.2

$

2.2

$

2.0

(1.0%)

10.8%

$

2.8

$

2.6

6.1%

Comparable restaurant sales increase (decrease)

1.8%

11.1%

4.0%

Comparable restaurant sales increase

8.0%

19.3%

(1) Average restaurant sales refer to the average trailing 12-month food and beverage sales for restaurants in operation for at least 12 full calendar months.

(1) Average restaurant sales refer to the average trailing 12-month food and beverage sales for restaurants in operation for at least 12 full calendar months.

(1) Average restaurant sales refer to the average trailing 12-month food and beverage sales for restaurants in operation for at least 12 full calendar months.

The significant factors contributing to the total revenue increase in 2020for the year ended December 31, 2022 compared to the year ended December 31, 2021, were new restaurant openings and comparable restaurant sales increases. Comparableincreases and new restaurant openings. Total revenue increased due to comparable restaurant sales increased $77.7increase of $568.6 million and revenue from restaurants not yet in the comparable restaurant base contributed $319.9of $519.4 million, to the total revenue increase, of which $126.4$210.5 million was attributabledue to restaurants opened in 2020.2022.

Food, Beverage and Packaging Costs 

Year ended December 31,

Percentage change

Year ended December 31,

Percentage

2020

2019

2018

2020/2019

2019/2018

2022

2021

change

(dollars in millions)

(dollars in millions)

Food, beverage and packaging

$

1,932.8

$

1,847.9

$

1,600.8

4.6%

15.4%

$

2,602.2

$

2,308.6

12.7%

As a percentage of total revenue

32.3%

33.1%

32.9%

(0.8%)

0.2%

30.1%

30.6%

(0.5%)

Food, beverage and packaging costs decreased as a percentage of total revenue in 2020 primarily due to menu price increases taken in the second half of 2020, favorable avocado pricing and better waste control. These benefits were partially offset by fewer sales of high margin beverages, COVID-19 related mix shifts, elevated beef pricing due to plant shutdowns in the summer of 2020, and higher dairy pricing.

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Labor Costs

Year ended December 31,

Percentage change

2020

2019

2018

2020/2019

2019/2018

(dollars in millions)

Labor costs

$

1,593.0

$

1,472.1

$

1,326.1

8.2%

11.0%

As a percentage of total revenue

26.6%

26.4%

27.3%

0.2%

(0.9%)

Labor costs increased as a percentage of total revenue in 2020 primarily due to COVID-19 related labor costs, which included assistance pay for restaurant employees and expansion of our emergency leave benefits to accommodate those directly affected by COVID-19. Our assistance pay program ended on June 7, 2020, while the expansion of emergency leave benefits remains in place as of December 31, 2020. These COVID-19 related increases were partially offset by the benefits of menu price increases taken in the second half of 2020 and improved labor efficiency realized from digital enhancements to the restaurants.

Occupancy Costs

Year ended December 31,

Percentage change

2020

2019

2018

2020/2019

2019/2018

(dollars in millions)

Occupancy costs

$

387.8

$

363.1

$

347.1

6.8%

4.6%

As a percentage of total revenue

6.5%

6.5%

7.1%

0.0%

(0.6%)

Occupancy costs as a percentage of total revenue remained consistent in 2020 as compared to 2019. COVID-19 had an immaterial impact on occupancy costs for the year ended December 31, 2020.

Other Operating Costs

Year ended December 31,

Percentage change

2020

2019

2018

2020/2019

2019/2018

(dollars in millions)

Other operating costs

$

1,030.0

$

760.8

$

680.0

35.4%

11.9%

As a percentage of total revenue

17.2%

13.6%

14.0%

3.6%

(0.4%)

Other operating costs include, among other items, marketing and promotional costs, delivery expenses, bank and credit card processing fees, and restaurant utilities and maintenance costs. Other operating costs increased as a percentage of total revenue in 2020 primarily due to increased delivery expenses caused by the significant increase in delivery sales in 2020.

As a result of COVID-19, we are adapting our restaurant operations2022 compared to the changing environment and are reducing non-essential controllable costs. Sales shifted towards delivery after we temporarily closed our dining rooms to help control the spread of COVID-19. We reprioritized marketing efforts by offering free delivery several times in 2020.

General and Administrative Expenses

Year ended December 31,

Percentage change

2020

2019

2018

2020/2019

2019/2018

(dollars in millions)

General and administrative expense

$

466.3

$

451.6

$

375.5

3.3%

20.3%

As a percentage of total revenue

7.8%

8.1%

7.7%

(0.3%)

0.4%

General and administrative expenses increased in dollar terms in 2020,year ended December 31, 2021, primarily due to the following: a $20.1 million increase in outside service expense related to company initiatives to support digital and restaurant growth; a $15.8 million increase in wages and benefits primarily due to headcount increase; and $3.8 million increasebenefit of lease costsmenu price increases. This decrease was partially offset by inflation across the menu, primarily related to our previous corporate headquarters. These increases were partially offset by a $10.7 million decrease in non-cash stock-based compensation expense, primarily related to performance share awards,higher costs for avocados, packaging, dairy, beef and a $7.1 million decrease in travel expense related to our decision to halt non-essential employee travel due to the COVID-19 pandemic.chicken.

 

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Other than the impact on travel expenses and stock-based compensation discussed above, COVID-19 had a minimal impact on general and administrative expenses. We will continue to assess additional planned general and administrative investments as we better understand the length and severity of the COVID-19 impacts.

Depreciation and AmortizationLabor Costs

Year ended December 31,

Percentage change

Year ended December 31,

Percentage

2020

2019

2018

2020/2019

2019/2018

2022

2021

change

(dollars in millions)

(dollars in millions)

Depreciation and amortization

$

238.5

$

212.8

$

202.0

12.1%

5.3%

Labor costs

$

2,198.0

$

1,917.8

14.6%

As a percentage of total revenue

4.0%

3.8%

4.2%

0.2%

(0.4%)

25.5%

25.4%

0.1%

Depreciation and amortizationLabor costs increased as a percentage of total revenue in 2020for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to accelerated depreciation associated with our website, mobile app and other technology, new restaurant openings and equipment upgrades inwage inflation, mostly offset by sales leverage.

Occupancy Costs

Year ended December 31,

Percentage

2022

2021

change

(dollars in millions)

Occupancy costs

$

460.4

$

416.6

10.5%

As a percentage of total revenue

5.3%

5.5%

(0.2%)

Occupancy costs decreased as a percentage of total revenue for the restaurantsyear ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to support the growth in our digital business. This increase wassales leverage, partially offset by sales leverage on a partially fixed-cost base.increased rent expense associated with new restaurants.

Impairment, ClosureOther Operating Costs and Asset Disposals

Year ended December 31,

Percentage change

Year ended December 31,

Percentage

2020

2019

2018

2020/2019

2019/2018

2022

2021

change

(dollars in millions)

(dollars in millions)

Impairment, closure costs, and asset disposals

$

30.6

$

23.1

$

66.6

32.4%

(65.3%)

Other operating costs

$

1,311.9

$

1,197.1

9.6%

As a percentage of total revenue

0.5%

0.4%

1.4%

0.1%

(1.0%)

15.2%

15.9%

(0.7%)

Impairment, closureOther operating costs include, among other items, marketing and promotional costs, delivery expense, bank and credit card processing fees, restaurant utilities, technology costs, and asset disposalsmaintenance costs. Other operating costs decreased as a percentage of total revenue for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to lower delivery expenses associated with lower volume of delivery transactions and, to a lesser extent, sales leverage. These decreases were partially offset by higher costs across several expenses, most notably higher utilities primarily related to inflation in natural gas and electricity and higher maintenance costs.

General and Administrative Expenses

Year ended December 31,

Percentage

2022

2021

change

(dollars in millions)

General and administrative expense

$

564.2

$

606.9

(7.0%)

As a percentage of total revenue

6.5%

8.0%

(1.5%)

General and administrative expenses decreased in dollar terms for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to the following: a $81.5 million decrease in stock-based compensation and related taxes, primarily attributable to the timing of vesting of the December 2020 modification of 2018 performance awards related to COVID-19; a $13.7 million decrease in performance bonuses and related taxes; and a $12.4 million decrease in litigation expense in 2022 compared to 2021. These decreases were partially offset by a $21.5 million increase in employee wages primarily due to headcount growth; $20.5 million increase in outside services expense related to corporate initiatives; and $12.5 million associated with the biennial All Managers’ Conference that was held in March 2022.

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Table of Contents

Depreciation and Amortization

Year ended December 31,

Percentage

2022

2021

change

(dollars in millions)

Depreciation and amortization

$

286.8

$

254.7

12.6%

As a percentage of total revenue

3.3%

3.4%

(0.1%)

Depreciation and amortization decreased as a percentage of total revenue for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to sales leverage, partially offset by increased depreciation expense associated with new restaurants.

Pre-opening costs

Year ended December 31,

Percentage

2022

2021

change

Pre-opening costs

$

29.6

$

21.3

39.0%

As a percentage of total revenue

0.3%

0.3%

0.0%

Pre-opening costs increased in dollar terms in 2020for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to impairmentshigher wages and rent on increased openings of leasehold improvements, property236 new restaurants of in 2022 compared to 215 in 2021.

Interest and equipmentOther Income, Net

Year ended December 31,

Percentage

2022

2021

change

Interest and other income (expense), net

$

21.1

$

7.8

170.2%

As a percentage of total revenue

0.2%

0.1%

0.1%

Interest and operating lease assets. COVID-19 hadother income (expense), net increased for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to a negative impactgain on our assumptions for future near-term restaurant level cash flows which resultedinvestments in elevated impairment charges.Tractor Beverages, Inc. of $10.4 recognized in the second quarter of 2022, and, to a lesser extent, increased interest income on our investments in US Treasury securities, money market funds and time deposits due to increased interest rates in 2022 as compared to 2021.

Benefit/(Provision) for Income Taxes

Year ended December 31,

Percentage change

Year ended December 31,

Percentage

2020

2019

2018

2020/2019

2019/2018

2022

2021

change

(dollars in millions)

(dollars in millions)

Benefit/(provision) for income taxes

$

62.0

$

(108.1)

$

(91.9)

(157.3%)

17.7%

$

(282.4)

$

(159.8)

76.8%

Effective tax rate

(21.1%)

23.6%

34.2%

(44.7%)

(10.6%)

Effective income tax rate

23.9%

19.7%

n/m*

*Not meaningful

The effective income tax rate for the year ended December 31, 20202022, was lowerhigher than the effective income tax rate for the year ended December 31, 2019,2021, primarily due to the federala decrease in tax benefits related to option exercises and equity vesting, a reduction in return to provision benefits, and a net operating loss that is estimated forincrease in uncertain tax year 2020, which we expect to carryback to tax years 2015-2017. The tax benefit is due to the federal income tax rate differential between the 2020 statutory federal income tax rate of 21% and the 2015-2017 statutory federal income tax rate of 35%.position reserves.

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Table of Contents

Quarterly Financial Data/Seasonality

See Note 15. “Quarterly Financial Data (Unaudited)” for a table presenting data from the consolidated statements of income for each of the eight quarters in the period ended December 31, 2020.

Seasonal factors cause our profitability to fluctuate from quarter to quarter. Historically, our average daily restaurant sales and net income are lower in the first and fourth quarters due, in part, to the holiday season and because fewer people eat out during periods of inclement weather (the winter months) than during periods of mild or warm weather (the spring, summer and fall months). Other factors also have a seasonal effect on our results. For example, restaurants located near colleges and universities generally do more business during the academic year. Seasonal factors, however, might be moderated or outweighed by other factors that may influence our quarterly results, such as unexpected publicity impacting our business in a positive or negative way, worldwide health pandemics, fluctuations in food or packaging costs, or the timing of menu price increases or promotional activities and other marketing initiatives. The number of trading days in a quarter can also affect our results, although, on an overall annual basis, changes in trading days do not have a significant impact.

Our quarterly results are also affected by other factors such as the amount and timing of non-cash stock-based compensation expense and related tax rate impacts, litigation, settlement costs and related legal expenses, impairment charges and non-operating costs, timing of marketing or promotional expenses, the number and timing of new restaurants opened in a quarter, and closure of restaurants. New restaurants typically have lower marginshigher operating costs following opening because of the expenses associated with their opening

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and operating inefficiencies in the months immediately following opening. Accordingly, results for a particular quarter are not necessarily indicative of results to be expected for any other quarter or for any year.

Liquidity and Capital Resources

Historically, our primary liquidity and capital requirements are for new restaurant construction, initiatives to improve the guest experience in our restaurants, working capital and general corporate needs. As of December 31, 2020,2022, we had a cash and marketable investments balance of $1.1$1.2 billion, excluding restricted cash of $27.8$25.0 million and non-marketable investments of $55.8 million. WeAfter funding the current operations in our restaurants and support centers, the first planned use of our cash flow from operations is to provide capital for the continued investment in new restaurant construction. In addition to continuing to invest in our restaurant expansion, we expect to utilize cash flow from operations to: repurchase additional shares of our common stock subject to continue investmentsmarket conditions; invest in, new restaurant construction, remodels primarilymaintain, and refurbish our existing restaurants; and for restaurants that do not have a digital make line or Chipotlane and technology.general corporate purposes. As of December 31, 2022, $413.9 million remained available for repurchases of shares of our common stock, which includes the $200.0 million additional authorization approved by our Board of Directors on December 7, 2022. Under the remaining repurchase authorizations, shares may be purchased from time to time in open market transactions, subject to market conditions. Additionally, as of December 31, 2020,2022, we had $600.0$500.0 million of undrawn borrowing capacity under a line of credit facility, which expires in May 2021.facility.

As sales fell quickly from the impact of COVID-19, we proactively implemented several actions to reduce cash outlays and expenses. As part of our cash preservation strategy, in March 2020 we temporarily suspended our stock buyback program. In our restaurants, we are working to minimize waste, effectively schedule labor hours, and reduce non-essential controllable costs. We halted all non-essential travel and expenses. We believe that cash from operations, together with our cash and investment balances, will be sufficient to meet ongoing capital expenditures, working capital requirements and other cash needs for the foreseeable future. Assuming no significant declines in comparable restaurant sales, we expect that we will generate positive cash flow throughfor the foreseeable future. Should our business deteriorate due to changing conditions, there are other actions we can take to further conserve liquidity.

We have not required significant working capital because customers generally pay using cash or credit and debit cards and because our operations do not require significant receivables, nor do they require significant inventories due, in part, to our use of various fresh ingredients. In addition, we generally have the right to pay for the purchase of food, beverages and supplies sometime after the receipt of those items, generally within ten days, thereby reducing the need for incremental working capital to support our growth.

Our total capital expenditures for 20202022 were $373.4$479.2 million. In 2020,2022, we spent on average about $1.1$1.2 million in development and construction costs per new restaurant, or about $1.0$1.1 million net of landlord reimbursements of $0.1 million. In 2021,2023, we expect to incur about $390$485 million in total capital expenditures. We expect approximately $220$350 million in capital expenditures related to our construction of new restaurants, before any reductions for landlord reimbursements. For new restaurants to be opened in 2021,2023, we anticipate average development costs will remain higher than the historical averageconsistent with 2022 due to a significant portion including Chipotlanes. We expect approximately $120$135 million in capital expenditures related to investments in existing restaurants including updated equipment, technology, remodeling and similar improvements.improvements, new equipment and hardware, technology to optimize efficiencies. Finally, we expect a portion of our incurred capital expenditures for the year to be incurred for additional corporate initiatives including building corporate offices, upgrading our mobile app,investments in technology to boost innovation, enhance the guest experience, and other projects.improve operations.

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Our contractual obligationsThe following table summarizes current and long-term material cash requirements as of December 31, 2020 were as follows:2022, which we expect to fund primarily with operating cash flows:

Payments Due by Fiscal Year

Payments Due by Fiscal Year

Total

2021

2022-2023

2024-2025

Thereafter

Total

2023

2024-2025

2026-2027

Thereafter

(dollars in millions)

(dollars in millions)

Operating leases(1)

$

4,502

$

332

$

715

$

679

$

2,776

$

5,430

$

394

$

842

$

815

$

3,379

Purchase obligations(2)

1,862

584

359

454

465

2,174

870

663

641

-

Deemed landlord financing(1)

2

-

1

1

-

Total

$

6,366

$

916

$

1,075

$

1,134

$

3,241

$

7,604

$

1,264

$

1,505

$

1,456

$

3,379

(1)See Note 10.9. “Leases” of our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.” This includes commitments related to reasonably certain renewal periods.

(2)Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms. We have excluded agreements that are cancelable without penalty. The majority of our purchase obligations relate to amounts owed for producefood, beverage and other ingredients and supplies, orders submitted for equipment for restaurants under construction and planned remodels,packaging, capital projects, information technology, and marketing initiatives and corporate sponsorships.

sponsorships, and other miscellaneous items.

The above table does not include income tax liabilities for uncertain tax positions for which we are not able to make a reasonably reliable estimate of the amount and period of related future payments. Additionally, we have excluded our estimated loss contingencies, due to uncertainty regarding the timing and amount of payment. See Note 12.11. “Commitments and Contingencies” of our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

Cash Flows

25Cash provided by operating activities was $1.32 billion for the year ended December 31, 2022, compared to $1.28 billion for the year ended December 31, 2021.


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The increase was primarily due to higher net earnings partially offset by net cash used by changes in operating assets and liabilities.

Off-Balance Sheet ArrangementsCash used in investing activities was $830.0 million for the year ended December 31, 2022, compared to $522.0 million for the year ended December 31, 2021. The change was primarily associated with a $267.3 million increase in U.S. Treasury security purchases net of U.S. Treasury security maturities and, to a lesser extent, increased capital expenditures of $36.7 million primarily related to costs associated with new restaurant development.

As of December 31, 2020 and 2019, we had no material off-balance sheet arrangements or obligations.

Inflation

The primary areas of our operations affected by inflation are food, labor, rent, healthcare costs, fuel, utility costs, and materialsCash used in financing activities was $929.4 million for the constructionyear ended December 31, 2022, compared to $548.6 million for the year ended December 31, 2021. The change was primarily due to increased treasury stock repurchases of our restaurants. Although$363.7 million and, to a significant majoritylesser extent, $19.1 million of our crew members make more thanelevated payments of tax withholdings related to stock compensation for the federal and applicable state and local minimum wage, increases in the applicable federal or state minimum wage may have an impact on our labor costs by causing wage inflation above the minimum wage level. Additionally, many of our leases require us to pay property taxes, maintenance, and utilities, all of which are generally subject to inflationary increases. In the past we have largely been able to offset inflationary increases with menu price increases. If we do raise menu prices in the future, general competitive pressures or negative consumer responses may limit our ability to completely recover cost increases attributable to inflation.year ended December 31, 2022.

Critical Accounting Estimates

We describe our significant accounting policies in Note 1. “Description of Business and Summary of Significant Accounting Policies” of our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.” Critical accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or factors.

Leases

We determine if a contract contains a lease at inception. Our material operating leases consist of restaurant locations and office space. Our leases generally have remaining terms of 1-20 years and most include options to extend the leases for additional 5-year periods. Generally, the lease term is the minimum of the noncancelable period of the lease or the lease term inclusive of reasonably certain renewal periods up to a term of 20 years. If the estimate of our reasonably certain lease term was changed, our depreciation and rent expense could differ materially.

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Operating lease assets and liabilities are recognized at time of lease inception. Operating lease liabilities represent the present value of lease payments not yet paid. We made the policy election to combine lease and non-lease components, we also consider fixed common area maintenance (“CAM”) part of our fixed future lease payments. Fixed CAM is also included in our operating lease liability. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments, or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental borrowing rates corresponding to the reasonably certain lease term. As we have no outstanding debt nor committed credit facilities, secured or otherwise, we estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment. If the estimate of our incremental borrowing rate was changed, our operating lease assets and liabilities could differ materially.

Deferred Revenue

Chipotle Rewards Loyalty Program

Eligible customers who enroll in the Chipotle Rewards loyalty program generally earn points for every dollar spent. After accumulating a certainthe required number of points, the customer earnsmay select a reward that can be redeemed for a free entrée.reward. Earned rewards generally expire one to two months after they are issued, and points generally expire if an account is inactive for a period of six months.

The estimation of the standalone selling price of points and other rewards issued to customers involves several assumptions, primarily the estimated value of product for which the reward is expected to be redeemed and the probability that the points or reward will expire. Our estimate of points and other rewards we expect to be redeemed is based on historical company specific data. These inputs are subject to change over time due to factors such as menu price increases, changes in point redemption options and changes in customer behavior.A relative increase of 100 basis points in our estimated ultimate redemption rate for future redemptions would have resulted in a reduction of food and beverage revenue on our consolidated statement of income and comprehensive income of approximately $0.7 million for the year ended December 31, 2022.

Gift Cards

We sell gift cards, which do not have expiration dates, and we do not deduct non-usage fees from outstanding gift card balances. Gift card balances are initially recorded as unearned revenue. We recognize revenue from gift cards when the gift card is redeemed by the customer. Historically, the majority of gift cards are redeemed within one year. In addition, a portion of gift cards are not expected to be redeemed and will be recognized as breakage over time in proportion to gift card redemptions (“gift card breakage rate”). The gift card breakage rate is based on company and program specific information, including historical redemption patterns, and expected remittance to government agencies under unclaimed property laws, if applicable.We evaluate our gift card breakage rate estimate annually, or more frequently as circumstances warrant, and apply that rate to gift card redemptions. A relative decrease of 100 basis points to our gift card breakage rate would have resulted in a reduction of food and beverage revenue on our consolidated statement of income and comprehensive income of approximately $0.5 million for the year ended December 31, 2022.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For the purpose of reviewing restaurant assets to be held and used for potential impairment, assets are grouped together at the market level, or in the case of a potential relocation or closure, at the restaurant level. We manage our restaurants as a group with significant common costs and promotional activities; as such, an individual restaurant’s cash flows are not generally independent of the cash flows of others in a market.

The fair value measurement for asset impairment is generally based on Level 3 inputs. We first compare the carrying value of the asset (or asset group, referred interchangeably throughout as asset) to the asset’s estimated future undiscounted cash flows. If the estimated

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undiscounted future cash flows are less than the carrying value of the asset, we determine if we have an impairment loss by comparing the carrying value of the asset to the asset's estimated fair value. The estimated fair value of the asset is generally determined using the income approach to measure the fair value, which is based on the present value of estimated future cash flows. Key inputs to the income approach for restaurant assets include the discount rate, projected revenue and expenses, and sublease income if we are closing the restaurant. In certain cases, management uses other market information, when available, to estimate the fair value of an asset. The impairment charges represent the excess of each asset’s carrying amount over its estimated fair value and are allocated among the long-lived asset or assets of the group.

Our estimates of future revenues and expenses are highly subjective judgments based on internal projections and knowledge of our operations, historical performance, and trends in sales and restaurant operating costs, and can be significantly impacted by changes in our business or economic conditions. The determination of asset fair value is also subject to significant judgment and utilizes valuation techniques including discounting estimated future cash flows and market-based analyses to determine fair value. If our estimates or underlying assumptions, including discount rate and sublease income change in the future, our operating results may be materially impacted.

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Stock-based Compensation

We recognize compensation expense for equity awards over the requisite service period based on the award’s fair value. We use the Black-Scholes valuation model to determine the fair value of our stock-only stock appreciation rights (“SOSARs”), and we use the Monte Carlo simulation model to determine the fair value of stock awards that contain market conditions. Both of these models require assumptions to be made regarding our stock price volatility, the expected life of the award and expected dividend rates. The volatility assumption was based on our historical data and implied volatility, and the expected life assumptions were based on our historical data. Similarly, the compensation expense of performance share awards is based in part on the estimated probability of achieving levels of performance associated with particular levels of payout for performance shares. We determine the probability of achievement of future levels of performance by comparing the relevant performance level with our internal estimates of future performance. Those estimates are based on a number of assumptions, including but not limited to growth in restaurant cash flow dollars, growth in comparable restaurant sales and average restaurant level margin, and different assumptions may have resulted in different conclusions regarding the probability of our achieving future levels of performance relevant to the payout levels for the awards. Had we arrived at different assumptions of stock price volatility or expected lives of our SOSARs, or if we changed our assumptions regarding the probability of our achieving future levels of performance with respect to performance share awards, our stock-based compensation expense and results of operations may be materially different. A relative increase of 100 basis points in our performance payout percentage estimates for all active performance share awards as of December 31, 2022 would have resulted in increased general and administrative expense on our consolidated statement of income and comprehensive income of approximately $0.8 million for the year ended December 31, 2022.

Insurance Liability

We are self-insured for a significant portion of our employee health benefits programs, andprograms. We carry significant retentions for risks and associated liabilities with respect to workers’ compensation, general liability, property and auto damage, employment practices liability, cyber liability and directorsdirectors’ and officer’sofficers’ liability. Predetermined loss limits have been arranged with third-party insurance companies to limit exposure to these claims. We record a liability that represents our estimated cost of claims incurred and unpaid as of the balance sheet date. Our estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions and economic conditions, and is closely monitored and adjusted when warranted by changing circumstances. If a greater amount of claims occurs compared to what we have estimated, or if medical costs increase beyond what we expected, our accrued liabilities might not be sufficient and we may be required to record additional expense.sufficient. Actual claims experience could also be more favorable than estimated, which would result in expense reductions.estimated. Unanticipated changes may produce materially different amounts of expense than that reported under these programs.

Reserves/Contingencies for Litigation and Other Matters

We are involved in various claims and legal actions that arise in the ordinary course of business. We record an accrual for legal contingencies when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the loss. Although we have recorded liabilities related to a number of legal actions, our estimates used to determine the amount of these liabilities may not be accurate, and there are other legal actions for which we have not recorded a liability. As a result, in the event legal actions for which we have not accrued a liability or for which our accrued liabilities are not accurate are resolved, such resolution may affect our operating results and cash flows.

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Income Taxes

Our benefit/(provision)provision for income taxes, deferred tax assets and liabilities includingand any related valuation allowance requires the use of estimates based on our management’s interpretation and application of complex tax laws and accounting guidance. We are primarily subject to income taxes in the United States. We establish reserves for uncertain tax positions for material, known tax exposures in accordance with Accounting Standards Codification (“ASC”) 740 relating to deductions, transactions and other matters involving some uncertainty as to the measurement and recognition of the item. We may adjust these reserves when our judgment changes as a result of the evaluation of new information not previously available and will be reflected in the period in which the new information is available.available, or due to the expiration of any applicable statute of limitations. While we believe that our reserves are adequate, issues raised by a tax authority may be resolved at an amount different than the related reserve and could materially increase or decrease our income tax provision in future periods.

 

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ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Commodity Price Risks

We are exposed to commodity price risks. Many of the ingredients we use to prepare our food, as well as our packaging materials and utilities to run our restaurants, are ingredients or commodities that are affected by the price of other commodities, exchange rates, foreign demand, weather, seasonality, production, availability and other factors outside our control. We work closely with our suppliers and use a mix of forward pricing protocols under which we agree with our supplier on fixed prices for deliveries at some time in the future, fixed pricing protocols under which we agree on a fixed price with our supplier for the duration of that protocol, formula pricing protocols under which the prices we pay are based on a specified formula related to the prices of the goods, such as spot prices or based on changes in industry indices, and range forward protocols under which we agree on a price range for the duration of that protocol. Generally, our pricing protocols with suppliers can remain in effect for periods ranging from one to 3624 months, depending on the outlook for prices of the particular ingredient. In some cases, we have minimum purchase obligations. We have tried to increase, where practical, the number of suppliers for our ingredients, which we believe can help mitigate pricing volatility, and we follow industry news, trade issues, exchange rates, foreign demand, weather, crises and other world events that may affect our ingredient prices. Increases in ingredient prices could adversely affect our results if we choose for competitive or other reasons not to increase menu prices at the same rate at which ingredient costs increase, or if menu price increases result in customer resistance. We also could experience shortages of key ingredients if our suppliers need to close or restrict operations due to the impact of the COVID-19 outbreak.due to industry-wide shipping and freight delays.

Changing Interest Rates

We are exposed to interest rate risk through fluctuations of interest rates on our investments. As of December 31, 2022, we had $1.3 billion in cash and cash equivalents, current and long-term investments, and restricted cash, nearly all of which are interest bearing. Changes in interest rates affect the interest income we earn, and therefore impact our cash flows and results of operations. As of December 31, 2020, we had $1.0 billion in investments and interest-bearing cash accounts, including insurance-related restricted trust accounts classified in restricted cash, and $59.7 million in accounts with an earnings credit we classify as interest and other income, which combined earned a weighted average interest rate of 0.20%.

Foreign Currency Exchange Risk

A portion of our operations consist of activities outside of the U.S. and we have currency risk on the transactions in other currencies and translation adjustments resulting from the conversion of our international financial results into the U.S. dollar. However, a substantial majority of our operations and investment activities are transacted in the U.S., and therefore our foreign currency risk is not material at this date.

 

 

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ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

1

Report of Independent Registered Public Accounting Firm

31

Consolidated Balance Sheets as of December 31, 2020 and 2019

33

Consolidated Statements of Income and Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018

34

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018

35

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018

36

Notes to Consolidated Financial Statements

37

Note 1 – Description of Business and Summary of Significant Accounting Policies

37

Note 2 – Supplemental Balance Sheet Information

43

Note 3 – Revenue Recognition

43

Note 4 – Fair Value of Financial Instruments

44

Note 5 – Corporate Restructuring Costs

45

Note 6 – Income Taxes

45

Note 7 – Shareholders’ Equity

48

Note 8 – Stock-Based Compensation

48

Note 9 – Employee Benefit Plans

51

Note 10 – Leases

52

Note 11 – Earnings Per Share

53

Note 12 – Commitments and Contingencies

54

Note 13 - Debt

55

Note 14 – Related Party Transactions

55

Note 15 – Quarterly Financial Data (Unaudited)

55


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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Chipotle Mexican Grill, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Chipotle Mexican Grill, Inc. (the Company) as of December 31, 20202022 and 2019,2021, the related consolidated statements of income and comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2020,2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20202022 and 2019,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 9, 20218, 2023 expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

As discussed in Note 10 to the consolidated financial statements, the Company changed its method for accounting for leases in 2019.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

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Valuation and accounting for stock-based compensation

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Description of the Matter

The Company incurred $84.5$99.8 million in stock-based compensation expense during the year ended December 31, 2020.2022. Approximately 229,000116,000 of the Company’s vested and non-vested stock awards were subject to service and performance conditions during the year ended December 31, 2020.2022. As described in Notes 1 and 8 of the consolidated financial statements, the Company estimates the grant date fair value of the stock awards and expenses the fair value of stock awards subject to service conditions over the respective vesting period. Stock-based compensation expense of stock awards subject to performance conditions is based on the estimated probability of achieving levels of performance associated with particular levels of payout. Additionally, at each reporting period, the Company evaluates the probable outcome of the performance conditions including consideration of significant assumptions and as applicable, recognizes the cumulative effect of the change in estimate in the period of the change.

Auditing the grant date fair value and the appropriateness of the accounting treatment of the Company’s stock awards subject to service and performance conditions was complex and judgmental. In particular, the fair value estimate for stock awards subject to service and performance conditions is sensitive to significant assumptions including management’s internal estimates of the Company’s future performance.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over stock-based compensation. We tested controls over management’s review of the valuation model methodology and assumptions used with regards to the service and performance conditions. We also tested management's controls to validate that data used in management’s internal estimates of the valuation modelCompany’s future performance was complete and accurate.

Our substantive audit procedures included, among others, testing the significant assumptions underlying the performance conditions (e.g., certain targets related to growth in comparable restaurant sales, and average restaurant margin)margin, and cumulative restaurant cash flow dollars) and testing the completeness and accuracy of the underlying data. We evaluated management’s significant assumptions by comparing the assumptions to current market and economic trends, historical results of the Company’sCompany's business, and to other relevant factors. We additionally performed a sensitivity analysis of the significant assumptions to evaluate the change in the fair value of the stock awards subject to performance conditions resulting from changes in the assumptions. We also evaluated the adequacy of the Company’s stock-based compensation disclosures included in Notes 1 and 8 of the consolidated financial statements in relation to these matters.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1997.

Irvine, California

February 9, 20218, 2023

 

 

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CHIPOTLE MEXICAN GRILL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

December 31,

December 31,

2020

2019

2022

2021

Assets

Current assets:

Cash and cash equivalents

$

607,987

$

480,626

$

384,000

$

815,374

Accounts receivable, net

104,500

80,545

106,880

99,599

Inventory

26,445

26,096

35,668

32,826

Prepaid expenses and other current assets

54,906

57,076

86,412

78,756

Income tax receivable

282,783

27,705

47,741

94,064

Investments

343,616

400,156

515,136

260,945

Total current assets

1,420,237

1,072,204

1,175,837

1,381,564

Leasehold improvements, property and equipment, net

1,584,311

1,458,690

1,951,147

1,769,278

Long-term investments

102,328

0

388,055

274,311

Restricted cash

27,849

27,855

24,966

30,856

Operating lease assets

2,767,185

2,505,466

3,302,402

3,118,294

Other assets

59,047

18,450

63,158

56,716

Goodwill

21,939

21,939

21,939

21,939

Total assets

$

5,982,896

$

5,104,604

$

6,927,504

$

6,652,958

Liabilities and shareholders' equity

Current liabilities:

Accounts payable

$

121,990

$

115,816

$

184,566

$

163,161

Accrued payroll and benefits

203,054

126,600

170,456

162,405

Accrued liabilities

164,649

155,843

147,539

173,052

Unearned revenue

127,750

95,195

183,071

156,351

Current operating lease liabilities

204,756

173,139

236,248

218,713

Total current liabilities

822,199

666,593

921,880

873,682

Commitments and contingencies (Note 12)

 

 

Commitments and contingencies (Note 11)

 

 

Long-term operating lease liabilities

2,952,296

2,678,374

3,495,162

3,301,601

Deferred income tax liabilities

149,422

37,814

98,623

141,765

Other liabilities

38,844

38,797

43,816

38,536

Total liabilities

3,962,761

3,421,578

4,559,481

4,355,584

Shareholders' equity:

Preferred stock, $0.01 par value, 600,000 shares authorized, 0 shares issued as of December 31, 2020 and 2019, respectively

0

0

Common stock, $0.01 par value, 230,000 shares authorized, 36,704 and 36,323 shares issued as of December 31, 2020 and 2019, respectively

367

363

Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of December 31, 2022 and December 31, 2021, respectively

-

-

Common stock, $0.01 par value, 230,000 shares authorized, 37,320 and 37,132 shares issued as of December 31, 2022 and December 31, 2021, respectively

373

371

Additional paid-in capital

1,549,909

1,465,697

1,829,304

1,729,312

Treasury stock, at cost, 8,703 and 8,568 common shares as of December 31, 2020 and 2019, respectively

(2,802,075)

(2,699,119)

Treasury stock, at cost, 9,693 and 9,052 common shares as of December 31, 2022 and December 31, 2021, respectively

(4,282,014)

(3,356,102)

Accumulated other comprehensive loss

(4,229)

(5,363)

(7,888)

(5,354)

Retained earnings

3,276,163

2,921,448

4,828,248

3,929,147

Total shareholders' equity

2,020,135

1,683,026

2,368,023

2,297,374

Total liabilities and shareholders' equity

$

5,982,896

$

5,104,604

$

6,927,504

$

6,652,958

See accompanying notes to consolidated financial statements.

 

 

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CHIPOTLE MEXICAN GRILL, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(in thousands, except per share data)

Year ended December 31,

2020

2019

2018

Food and beverage revenue

$

5,920,545

$

5,561,036

$

4,860,626

Delivery service revenue

64,089

25,333

4,359

Total revenue

5,984,634

5,586,369

4,864,985

Restaurant operating costs (exclusive of depreciation and amortization shown separately below):

Food, beverage and packaging

1,932,766

1,847,916

1,600,760

Labor

1,593,013

1,472,060

1,326,079

Occupancy

387,762

363,072

347,123

Other operating costs

1,030,012

760,831

680,031

General and administrative expenses

466,291

451,552

375,460

Depreciation and amortization

238,534

212,778

201,979

Pre-opening costs

15,515

11,108

8,546

Impairment, closure costs, and asset disposals

30,577

23,094

66,639

Total operating expenses

5,694,470

5,142,411

4,606,617

Income from operations

290,164

443,958

258,368

Interest and other income, net

3,617

14,327

10,068

Income before income taxes

293,781

458,285

268,436

Benefit/(provision) for income taxes

61,985

(108,127)

(91,883)

Net income

$

355,766

$

350,158

$

176,553

Earnings per share:

Basic

$

12.74

$

12.62

$

6.35

Diluted

$

12.52

$

12.38

$

6.31

Weighted-average common shares outstanding:

Basic

27,917

27,740

27,823

Diluted

28,416

28,295

27,962

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

Year ended December 31,

Year ended December 31,

2020

2019

2018

2022

2021

2020

Food and beverage revenue

$

8,558,001

$

7,457,169

$

5,920,545

Delivery service revenue

76,651

89,892

64,089

Total revenue

8,634,652

7,547,061

5,984,634

Restaurant operating costs (exclusive of depreciation and amortization shown separately below):

Food, beverage and packaging

2,602,245

2,308,631

1,932,766

Labor

2,197,958

1,917,761

1,593,013

Occupancy

460,425

416,606

387,762

Other operating costs

1,311,905

1,197,054

1,030,012

General and administrative expenses

564,191

606,854

466,291

Depreciation and amortization

286,826

254,657

238,534

Pre-opening costs

29,560

21,264

15,515

Impairment, closure costs, and asset disposals

21,139

19,291

30,577

Total operating expenses

7,474,249

6,742,118

5,694,470

Income from operations

1,160,403

804,943

290,164

Interest and other income, net

21,128

7,820

3,617

Income before income taxes

1,181,531

812,763

293,781

Benefit/(provision) for income taxes

(282,430)

(159,779)

61,985

Net income

$

355,766

$

350,158

$

176,553

$

899,101

$

652,984

$

355,766

Earnings per share:

Basic

$

32.28

$

23.21

$

12.74

Diluted

$

32.04

$

22.90

$

12.52

Weighted-average common shares outstanding:

Basic

27,851

28,132

27,917

Diluted

28,062

28,511

28,416

Other comprehensive income (loss), net of income taxes:

Foreign currency translation adjustments

1,134

726

(2,736)

$

(2,534)

$

(1,125)

1,134

Unrealized gain on available-for-sale securities, net of income taxes

0

147

159

Other comprehensive income (loss), net of income taxes

1,134

873

(2,577)

Comprehensive income

$

356,900

$

351,031

$

173,976

$

896,567

$

651,859

$

356,900

See accompanying notes to consolidated financial statements.

 

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Table of Contents

 

CHIPOTLE MEXICAN GRILL, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

Common Stock

Treasury Stock

Accumulated Other Comprehensive Income (Loss)

Common Stock

Treasury Stock

Shares

Amount

Additional
Paid-In
Capital

Shares

Amount

Retained
Earnings

Available-for-Sale Securities

Foreign Currency Translation

Total

Shares

Amount

Additional
Paid-In
Capital

Shares

Amount

Retained
Earnings

Accumulated Other Comprehensive Loss

Total

Balance, December 31, 2017

35,852 

$

359 

$

1,305,090 

7,826 

$

(2,334,409)

$

2,397,064 

$

(306)

$

(3,353)

$

1,364,445 

Stock-based compensation

0

0

69,947 

0

0

0

0

0

69,947 

Stock plan transactions and other

121 

(883)

0

0

0

0

0

(882)

Acquisition of treasury stock

0

0

0

450 

(166,147)

0

0

0

(166,147)

Net income

0

0

0

0

0

176,553 

0

0

176,553 

Other comprehensive income (loss), net of income taxes

0

0

0

0

0

0

159 

(2,736)

(2,577)

Balance, December 31, 2018

35,973 

$

360 

$

1,374,154 

8,276 

$

(2,500,556)

$

2,573,617 

$

(147)

$

(6,089)

$

1,441,339 

Adoption of ASU No. 2016-02, Leases (Topic 842)

0

0

0

0

0

(2,327)

0

0

(2,327)

Stock-based compensation

0

0

92,062 

0

0

0

0

0

92,062 

Stock plan transactions and other

350 

(519)

0

0

0

0

0

(516)

Acquisition of treasury stock

0

0

0

292

(198,563)

0

0

0

(198,563)

Net income

0

0

0

0

0

350,158 

0

0

350,158 

Other comprehensive income (loss), net of income taxes

0

0

0

0

0

0

147 

726 

873 

Balance, December 31, 2019

36,323 

$

363 

$

1,465,697 

8,568

$

(2,699,119)

$

2,921,448 

$

0

$

(5,363)

$

1,683,026 

36,323 

$

363 

$

1,465,697 

8,568 

$

(2,699,119)

$

2,921,448 

$

(5,363)

$

1,683,026 

Adoption of ASU No. 2016-13, Financial Instrument-Credit Losses (Topic 326)

0

0

0

0

0

(1,051)

0

0

(1,051)

-

-

-

-

-

(1,051)

-

(1,051)

Stock-based compensation

0

0

84,463

0

0

0

0

0

84,463

-

-

84,463 

-

-

-

-

84,463 

Stock plan transactions and other

381 

(251)

0

0

0

0

0

(247)

381 

(251)

-

-

-

-

(247)

Acquisition of treasury stock

0

0

0

135

(102,956)

0

0

0

(102,956)

-

-

-

135 

(102,956)

-

-

(102,956)

Net income

0

0

0

0

0

355,766

0

0

355,766

-

-

-

-

-

355,766 

-

355,766 

Other comprehensive income (loss), net of income taxes

0

0

0

0

0

0

0

1,134

1,134

-

-

-

-

-

-

1,134 

1,134 

Balance, December 31, 2020

36,704 

$

367 

$

1,549,909

8,703

$

(2,802,075)

$

3,276,163

$

0

$

(4,229)

$

2,020,135

36,704 

$

367 

$

1,549,909 

8,703 

$

(2,802,075)

$

3,276,163 

$

(4,229)

$

2,020,135 

Stock-based compensation

-

-

178,703 

-

-

-

-

178,703 

Stock plan transactions and other

428 

700 

-

-

-

-

704 

Acquisition of treasury stock

-

-

-

349 

(554,027)

-

-

(554,027)

Net income

-

-

-

-

-

652,984 

-

652,984 

Other comprehensive income (loss), net of income taxes

-

-

-

-

-

-

(1,125)

(1,125)

Balance, December 31, 2021

37,132 

$

371 

$

1,729,312 

9,052 

$

(3,356,102)

$

3,929,147 

$

(5,354)

$

2,297,374 

Stock-based compensation

-

-

99,821

-

-

-

-

99,821

Stock plan transactions and other

188 

171

-

-

-

-

173

Acquisition of treasury stock

-

-

-

641 

(925,912)

-

-

(925,912)

Net income

-

-

-

-

-

899,101

-

899,101

Other comprehensive income (loss), net of income taxes

-

-

-

-

-

-

(2,534)

(2,534)

Balance, December 31, 2022

37,320 

$

373 

$

1,829,304 

9,693 

$

(4,282,014)

$

4,828,248

$

(7,888)

$

2,368,023

See accompanying notes to consolidated financial statements.

 

 

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Table of Contents

 

CHIPOTLE MEXICAN GRILL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year ended December 31,

Year ended December 31,

2020

2019

2018

2022

2021

2020

Operating activities

Net income

$

355,766

$

350,158

$

176,553

$

899,101

$

652,984

$

355,766

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

238,534

212,778

201,979

286,826

254,657

238,534

Amortization of operating lease assets

184,538

163,952

0

Deferred income tax provision

108,350

29,962

10,585

(43,195)

(12,357)

108,350

Impairment, closure costs, and asset disposals

28,874

15,402

61,987

20,738

17,086

28,874

Provision for credit losses

164

33

125

(760)

493

164

Stock-based compensation expense

82,626

91,396

69,164

98,030

176,392

82,626

Other

3,643

(10,592)

(2,918)

(16,202)

(4,599)

3,643

Changes in operating assets and liabilities:

Accounts receivable

3,010

(2,630)

(8,298)

(14,026)

(1,687)

3,010

Inventory

(394)

(4,530)

(1,722)

(3,011)

(6,392)

(394)

Prepaid expenses and other current assets

(11,442)

(23,066)

(3,811)

(14,660)

(26,826)

(11,442)

Operating lease assets

234,273

223,837

184,538

Other assets

(26,577)

2,818

(2,005)

(346)

3,993

(26,577)

Accounts payable

(3,859)

(973)

32,080

18,208

21,440

(3,859)

Accrued payroll and benefits

76,683

11,759

29,568

9,864

(44,555)

76,683

Accrued liabilities

5,596

36,543

14,831

(27,964)

10,997

5,596

Unearned revenue

36,958

30,400

6,829

33,374

34,387

36,958

Income tax payable/receivable

(255,251)

(32,083)

14,439

46,262

193,379

(255,251)

Deferred rent

-

-

21,297

Operating lease liabilities

(165,154)

(151,557)

0

(207,186)

(207,164)

(165,154)

Other long-term liabilities

1,782

1,862

869

3,853

(3,984)

1,782

Net cash provided by operating activities

663,847

721,632

621,552

1,323,179

1,282,081

663,847

Investing activities

Purchases of leasehold improvements, property and equipment

(373,352)

(333,912)

(287,390)

(479,164)

(442,475)

(373,352)

Purchases of investments

(468,418)

(448,754)

(485,188)

(614,416)

(429,350)

(468,418)

Maturities of investments

419,078

476,723

385,000

263,548

345,748

419,078

Proceeds from sale of equipment

-

13,969

-

-

4,035

-

Acquisitions of equity method investments

(10,025)

-

-

-

-

(10,025)

Net cash used in investing activities

(432,717)

(291,974)

(387,578)

(830,032)

(522,042)

(432,717)

Financing activities

Acquisition of treasury stock

(54,401)

(190,617)

(160,937)

(830,140)

(466,462)

(54,401)

Tax withholding on stock-based compensation awards

(48,555)

(10,420)

(5,411)

(98,970)

(79,870)

(48,555)

Other financing activities

(1,895)

(698)

(187)

(294)

(2,274)

(1,895)

Net cash used in financing activities

(104,851)

(201,735)

(166,535)

(929,404)

(548,606)

(104,851)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

1,076

406

(1,457)

(1,007)

(1,039)

1,076

Net change in cash, cash equivalents, and restricted cash

127,355

228,329

65,982

(437,264)

210,394

127,355

Cash, cash equivalents, and restricted cash at beginning of year

508,481

280,152

214,170

846,230

635,836

508,481

Cash, cash equivalents, and restricted cash at end of year

$

635,836

$

508,481

$

280,152

$

408,966

$

846,230

$

635,836

Supplemental disclosures of cash flow information

Income taxes paid

$

85,010

$

109,571

$

67,053

Income taxes paid (refunded)

$

275,796

$

(17,831)

$

85,010

Purchases of leasehold improvements, property, and equipment accrued in accounts payable and accrued liabilities

$

46,975

$

36,886

$

30,870

$

72,021

$

63,802

$

46,975

Acquisition of treasury stock accrued in accounts payable and accrued liabilities

$

0

$

0

$

2,474

$

4,497

$

7,695

$

-

See accompanying notes to consolidated financial statements.

 

36


Table of Contents

 

CHIPOTLE MEXICAN GRILL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar and share amounts in thousands, unless otherwise specified)

 

1. Description of Business and Summary of Significant Accounting Policies

In this annual report on Form 10-K, Chipotle Mexican Grill, Inc., a Delaware corporation, together with its subsidiaries, is collectively referred to as “Chipotle,” “we,” “us,” or “our.”

We develop and operate restaurants that serve a relevant menu of burritos, burrito bowls, quesadillas, tacos, and salads, made using fresh, high-quality ingredients. As of December 31, 2020,2022, we operated 2,7243,187 restaurants, including 3,129 Chipotle restaurants throughoutwithin the United States, as well as 4053 international Chipotle restaurants, and five Pizzeria Locale restaurants. We are also an investor inPizzeria Locale is a fast casual pizza concept that is owned and operated by a consolidated entity that owns and operates 4 Pizzeria Locale restaurants, a fast-casual pizza concept.we are an investor in. We manage our U.S. operations based on 8eight regions and have aggregated our operations to 1one reportable segment.

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include our accounts, and our wholly and majority owned subsidiaries and investees we control after elimination of all intercompany accounts and transactions. Certain prior-year amounts have been reclassified to conform to the current year presentation.

Management Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates under different assumptions or conditions.

Cash and Cash Equivalents

We consider highly liquid investment instruments purchased with an initial maturity of three months or less to be cash equivalents. Amounts receivable from credit card companies are also considered cash equivalents as they are both short term and highly liquid in nature. We maintain cash and cash equivalent balances that exceed federally-insured limits with a number of financial institutions.

Restricted Cash

We maintain certain cash balances restricted as to withdrawal or use. Restricted cash assets are primarily insurance-related restricted trust assets.

Accounts Receivable

Accounts receivable primarily consists of receivables from third party gift card distributors, tenant improvement receivables from landlords,delivery partners, insurance liabilities covered by third-party insurance carriers and vendor rebates, delivery receivables and interest receivables.rebates.

Allowance for Credit Losses

We closely monitor accounts receivable and held to maturity investment balances and estimate the allowance for credit losses.losses when lifetime credit losses are expected by management. Our estimate is based on historical collection experience, external market data and other factors, including those related to current market conditions and events. OurWe do not recognize a reserve for expected credit losses associated with accounts receivablerelated to our U.S. Treasury security investments as management has concluded there is no risk of non-payment.

As of December 31, 2022 and held-to-maturity investments have not historically been material. We adopted Accounting Standards Update (“ASU”) 2016-13 using the modified retrospective approach on January 1, 2020. The2021, our allowance for credit losses was $1,588 as of December 31, 2020. The allowance for doubtful accounts was $7 as of December 31, 2019.$1,180 and $1,950, respectively.

Inventory

Inventory, consisting principally of food, beverages, and supplies, is valued at the lower of first-in, first-out cost or net realizable value.

 

37


Table of Contents

 

Equity Method Investments

Investments are accounted for under the equity method if we are able to exercise significant influence, but not control, over an investee. Our share of the earnings or losses as reported by the investees is classified as income from equity investees on our consolidated statements of income and comprehensive income. The investments are evaluated for impairment annually and when facts and circumstances indicate that the carrying value may not be recoverable. If a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in interest income and other income, net on our consolidated statements of income and comprehensive income.

Investments

Investments classified as trading securities are carried at fair value with any unrealized gain or loss being recorded in the consolidated statements of income and comprehensive income. Investments classified as available-for-sale are carried at fair value with unrealized gains and losses, net of tax, included as a component of other comprehensive income (loss), net of income taxes on the consolidated statements of income and comprehensive income. Held-to-maturity securities are carried at amortized cost. Non-marketable equity investments are measured at cost, less impairments, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.

Impairment charges on investments are recognized in interest and other income, net on the consolidated statements of income and comprehensive income when management believes the decline in the fair value of the investment is other-than-temporary.

Fair Value Measurements

Fair value is the price we would receive to sell an asset or pay to transfer a liability (exit price) in an orderly transaction between market participants. For assets and liabilities recorded or disclosed at fair value, we determine fair value based on the following:

Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.

Level 3: Unobservable inputs for the asset or liability. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Foreign Currency Translation

Our international operations use the local currency as the functional currency. Assets and liabilities are translated at exchange rates in effect as of the balance sheet date. Income and expense accounts are translated monthly using average monthly exchange rates. Resulting translation adjustments are recorded as a separate component of other comprehensive income (loss), net of income taxes on the consolidated statement of income and comprehensive income.

Leasehold Improvements, Property and Equipment

Leasehold improvements, property and equipment are recorded at cost. Internal costs directly associated with the acquisition, development and construction of a restaurant are capitalized. During the years ended December 31, 2020, 20192022, 2021 and 2018,2020, we capitalized $9,268, $6,735,$12,695, $10,870, and $6,285$9,268 of internal cost,costs, respectively. Expenditures for refurbishments and improvements that significantly add to the productivity capacity or extend the useful life are capitalized, while expenditures for maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the lease term, which generally includes option periods that are reasonably certain, or the estimated useful lives of the assets. Upon retirement or disposal of assets, the accounts are relieved of cost and accumulated depreciation and any related gain or loss is reflected in impairment, closure costs, and asset disposals in the consolidated statements of income.income and comprehensive income. Assets to be disposed of are reported at the lower of their carrying amount or fair value less estimated costs to sell.

At least annually, or when impairment indicators are present, we evaluate, and adjust when necessary, the estimated useful lives of leasehold improvements, property and equipment. The changes in estimated useful lives did not have a material impact on depreciation in any period. The estimated useful lives are:

Leasehold improvements and buildings

3-20 years

Furniture and fixtures

4-7 years

Equipment

3-10 years

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Table of Contents

Leases

The majority of our operating leases consist of restaurant locations and office space. We determine if a contract contains a lease at inception. Our material operating leases consist of restaurant locations and office space. Our leases generally have remaining terms of 1-20 years and most include options to extend the leases for additional 5-year periods. Generally, the lease term is the minimum of the noncancelable period of the lease or the lease term inclusive of reasonably certain renewal periods up to a term of 20 years.

38


TableWe recognize an operating lease asset and operating lease liability for each lease with a contractual term greater than 12 months at the time of Contents

lease inception. We do not record leases with an initial term of 12 months or less on our consolidated balance sheet but continue to record rent expense on a straight-line basis over the lease term.

Operating lease assets and liabilities are recognized at the lease commencement date, which is the date we take possessioncontrol the use of the property. Operating lease liabilities represent the present value of lease payments not yet paid. OperatingWe made the policy election to combine lease assets representand non-lease components. We consider fixed CAM part of our right to use an underlying asset and are based upon the operatingfixed future lease liabilities adjusted for prepayments or accruedpayments; therefore, fixed CAM is also included in our lease payments, initial direct costs, lease incentives, and impairment of operating lease assets.liability. To determine the present value of lease payments not yet paid, we estimate incremental borrowing rates corresponding to the lease term including reasonably certain renewal periods. As we have 0no outstanding debt nor committed credit facilities, secured or otherwise, we estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment.

OurTotal lease costs recorded primarily as occupancy costs include fixed operating lease costs, variable lease costs and short-term lease costs. Most of our real estate leases typically contain rent escalations overrequire we pay certain expenses, such as CAM costs, real estate taxes and insurance, of which the fixed portion is included in operating lease term.costs. We recognize expense for these leasesoperating lease costs on a straight-line basis over the lease term. In addition to the above costs, variable lease costs also include amounts based on a percentage of gross sales in excess of specified levels and are recognized when probable and are not included in determining the present value of our operating lease liability.

Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments, initial direct costs, lease incentives, and impairment of operating lease assets. For operating leases, operating lease assets are reduced over the lease term by the recognized straight-line lease expense less the amount of accretion of the lease liability. Additionally, tenant incentives used to fund leasehold improvements are generally recognized when earned and reduce our right-of-use asset related to the lease. These are amortized through the operating lease asset as reductions of expense over the lease term.

Some of our leases include rent escalations based on inflation indexes and fair market value adjustments. Certain leases contain contingent rental provisions that include a fixed base rent plus an additional percentage of the restaurant’s sales, generally in excess of a stipulated amount. Operating lease liabilities are calculated using the prevailing index or rate at lease commencement. Subsequent escalations in the index or rate and contingent rental payments are recognized as variable lease expenses. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.We have not entered into any leases with related parties.

Goodwill

Goodwill is not subject to amortization, but instead is tested for impairment at least annually in the fourth quarter, or more frequently when impairment indicators are present, and we are required to record any necessary impairment adjustments. Impairment is measured as the excess of the carrying value over the fair value of the goodwill. NaNNo impairment charges were recognized on goodwill for the years ended December 31, 2020, 2019,2022, 2021, and 2018.2020.

Other Assets

Other assets consist primarily of a rabbi trust as described further in Note 9. “Employee Benefit Plans,4. “Fair Value of Financial Instruments,” software as a service implementation costs where the service period is greater than one year, transferable liquor licenses which are carried at the lower of fair value or cost, rental deposits related to leased properties and an equity method investment described further in Note 4. “Fair Value of Financial Instruments.”5. “Equity Investments” and transferable liquor licenses.

Insurance Liability

We are self-insured for a significant portion of our employee health benefits programs, and carry significant retentions for risks and associated liabilities with respect to workers’ compensation, general liability, property and auto damage, employment practices liability, cyber liability and directorsdirectors’ and officer’sofficers’ liability. Predetermined loss limits have been arranged with third party insurance companies to limit exposure to these claims. We record a liability that represents our estimated cost of claims incurred and unpaid as of the balance sheet date. Our estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions and economic conditions, and is closely monitored and adjusted when warranted by changing circumstances.

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Reserves/Contingencies for Litigation and Other Matters

We are involved in various claims and legal actions that arise in the ordinary course of business. We record an accrual for legal contingencies when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the loss.

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Income Taxes

We compute income taxes using the asset and liability method, under which deferred income tax assets and liabilities are recognized based on the differences between the financial reporting bases and the respective tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which we expect the temporary differences to reverse. Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period that includes the enactment date.

We routinely assess the realizability of our deferred tax assets by jurisdiction and may record a valuation allowance if, based on all available positive and negative evidence, we determine that some portion of the deferred tax assets may not be realized prior to expiration. If we determine that we may be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes during the period in which the determination was made that the deferred tax asset can be realized.

We evaluate our tax filing positions and recognize a tax benefit from an uncertain tax position only if it is more likely than not that based on its technical merits the tax position will be sustained upon examination by the relevant taxing authorities, including resolutions of any related appeals or litigation processes. The tax benefits recognized in the financial statements from such a position are measured based on the largest tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority. For uncertain tax positions that do not meet this threshold, we record a related tax reserve in the period in which it arises. We adjust our unrecognized tax benefit liability and provision for income taxes in the period in which the uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new information becomes available that requires a change in recognition and/or measurement of the liability.

We recognize interest to be paid on an underpayment of income taxes in interest expense and any related statutory penalties in the provision for income taxes in our consolidated statements of income.income and comprehensive income. Accrued interest and penalties are included within the related tax reserve on our consolidated balance sheets.

Revenue Recognition

We generally recognize revenue, net of discounts and incentives, when payment is tendered at the point of sale. We report revenue net of sales-related taxes collected from customers and remitted to governmental taxing authorities. Beginning with the quarter ended September 30, 2020, we modified the presentation in our consolidated statements of income to disaggregate total revenue between foodFood and beverage revenue primarily relates to the sale of food and delivery service revenue.beverages. Delivery service revenue is comprised of delivery and related service fees charged to customers on sales made through Chipotle’s app and website. Food and beverage revenue primarily relates to the sale of food and beverages. Prior year balances have been reclassified to conform with current year presentation.

Delivery

We offer our customers delivery in almost all of our geographic regions. Delivery services are fulfilled by third-party service providers. In some cases, we make delivery sales through our website Chipotle.com or the Chipotle App (“White Label Sales”). In other cases, we make delivery sales through a non-Chipotle owned channel, such as the delivery partner’s website or mobile app (“Marketplace Sales”). With respect to White Label Sales, we control the delivery services and generally recognize revenue, including delivery fees, when the delivery partner transfers food to the customer. For these sales, we receive payment directly from the customer at the time of sale. With respect to Marketplace Sales, we generally recognize revenue, excluding delivery fees collected by the delivery partner, when control of the food is transferred to the delivery partner. We receive payment from the delivery partner subsequent to the transfer of food and the payment terms are short-term in nature.

Gift Cards

We sell gift cards, which do not have expiration dates and we do not deduct non-usage fees from outstanding gift card balances. Gift card balances are initially recorded as unearned revenue. We recognize revenue from gift cards when the gift card is redeemed by the customer. Historically, the majority of gift cards are redeemed within one year. In addition, based on historical redemption rates, a portion of gift cards are not expected to be redeemed and will be recognized as breakage over time in proportion to gift card redemptions (“gift card breakage rate”). The gift card breakage rates arerate is based on company and program specific information, including historical redemption patterns, and expected remittance to government agencies under unclaimed property laws, if applicable. We evaluate our gift card breakage rate estimate annually, or more frequently as circumstances warrant, and apply that rate to gift card redemptions. Gift card liability balances are typically highest at the end of each calendar year following increased gift card sales during the holiday season; accordingly, revenue recognized from gift card liability balances is highest in the first quarter of each calendar year.

 

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Chipotle Rewards

We have a loyalty program called Chipotle Rewards. Eligible customers who enroll in the Chipotle Rewards loyalty program generally earn points for every dollar spent. After accumulatingIn June 2021, we enhanced Chipotle Rewards and introduced a certain number ofnew redemption feature we call the “Rewards Exchange” that provides loyalty members multiple redemption options. Previously, Chipotle Rewards points the customer earns a reward that can bewere automatically redeemed for a free entrée. e when the customer obtained the required number of points. The change in the Chipotle Rewards program did not have a material impact on our consolidated financial statements.

We may also periodically offer promotions, which typically provide the customer with the opportunity to earn bonus points or free food vouchers (“Bonus Vouchers”).other rewards. Earned rewards generally expire one month to two months after they are issued, and points generally expire if an account is inactive for a period of six months.

We defer revenue associated with the estimated selling price of points or Bonus Vouchersrewards earned by customers as each point or Bonus Voucherreward is earned, net of points or rewards we do not expect to be redeemed. The estimated selling price of each point or Bonus Voucherreward earned is based on the estimated value of the product for which the reward is expected to be redeemed. Our estimate of points and Bonus Vouchersrewards we expect to be redeemed is based on historical and other company specific data. The costcosts associated with rewards and Bonus Vouchers redeemed are primarily included in food, beverage, and packaging expense on our consolidated statements of income and comprehensive income.

We evaluate Chipotle Rewards point breakage annually, or more frequently as circumstances warrant. We completed our most recent breakage assessment as of October 31, 2022, which resulted in a reduction in revenue recognized of $6,070 during the three months ended December 31, 2022. The reduction in revenue recognized was primarily the result of a change in our ultimate redemption rate estimate as program data indicated a higher redemption trend than previously estimated.

We recognize loyalty revenue within food and beverage revenue on the consolidated statements of income and comprehensive income when a customer redeems an earned reward. Deferred revenue associated with Chipotle Rewards is included in unearned revenue on our consolidated balance sheets.

Advertising, Marketing and MarketingPromotional Costs

Advertising, marketing and marketingpromotional costs are expensed as incurred and totaled $158,570, $141,567$250,673, $222,091 and $111,695$222,820 for the years ended December 31, 2020, 20192022, 2021 and 2018,2020, respectively. Advertising, marketing and marketingpromotional costs include costs related to free food which a customer does not need to make a purchase to earn. Advertising and marketingThese costs are included in other operating costs on the consolidated statements of income and comprehensive income.

Stock-Based Compensation

We issueDuring 2022, we issued shares as part of employee compensation pursuant to the Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan (the “2011 Incentive Plan”), which was replaced on May 18, 2022 by the Chipotle Mexican Grill, Inc. 2022 Stock Incentive Plan (the “2022 Incentive Plan”). Stock-only stock appreciation rights, or “SOSARs”,SOSARs and stock awards generally vest equally over two and three years and expire after seven years. Stock-based compensation expense is generally recognized on a straight-line basis for each separate vesting portion. Compensation expense related to employees eligible to retire and retain full rights to the awards is recognized over 12 months which coincides with the service period required to earn the full award. We estimate forfeitures based on historical data when determining the amount of stock-based compensation costs to be recognized in each period. We have also granted stock awards with performance vesting conditions and/or market vesting conditions. Stock awards with performance or market vesting conditions generally vest based on our achievement versus stated targets or criteria over a three-year performance and service period. Compensation expense for stock awards subject to performance conditions is recognized over the longer of the estimated performance goal attainment period or time vesting period. Compensation expense on stock awards subject to performance conditions, which is based on the quantity of awards we have determined are probable of vesting, is recognized over the longer of the estimated performance goal attainment period or time vesting period. Compensation expense is recognized ratably for awards subject to market conditions regardless of whether the market condition is satisfied, provided that the requisite service has been provided. Some stock-based compensation awards are made to employees involved in our new restaurant development activities, and expense for these awards is recognized as capitalized development and included in leasehold improvements, property and equipment, net, on the consolidated balance sheets.

Restaurant Pre-Opening Costs

Pre-opening costs, including rent, wages, benefits and travel for training and opening teams, food and other restaurant operating costs, are expensed as incurred prior to a restaurant opening for business, and are included in operating expenses on the consolidated statements of income.income and comprehensive income.

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Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For the purpose of reviewing restaurant assets to be held and used for potential impairment, assets are grouped together at the market level, or in the case of a potential relocation or closure, at the restaurant level. We manage our restaurants as a group with significant common costs and promotional activities; as such, an individual restaurant’s cash flows are not generally independent of the cash flows of others in a market.

The fair value measurement for asset impairment is generally based on Level 3 inputs. See “Fair Value Measurements” above for a description of level inputs. We first compare the carrying value of the asset (or asset group, referred interchangeably throughout as asset) to the asset’s estimated future undiscounted cash flows. If the estimated undiscounted future cash flows are less than the carrying value of the asset, we determine if we have an impairment loss by comparing the carrying value of the asset to the asset's

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estimated fair value. The estimated fair value of the asset is generally determined using the income approach to measure the fair value, which is based on the present value of estimated future cash flows. Key inputs to the income approach for restaurant assets include the discount rate, projected restaurant revenues and expenses, and sublease income if we are closing the restaurant. In certain cases, management uses other market information, when available, to estimate the fair value of an asset. The impairment charges represent the excess of each asset’s carrying amount over its estimated fair value and are allocated among the long-lived asset or assets of the group.

Earnings per Share

Basic earnings per share is calculated by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share (“diluted EPS”) is calculated using income available to common shareholders divided by diluted weighted-average shares of common stock outstanding during each period. Potentially dilutive securities include shares of common stock underlying SOSARs and non-vested stock awards (collectively “stock awards”). Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect. Stock awards are excluded from the calculation of diluted EPS in the event they are subject to performance conditions or are antidilutive.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In December 2019,March 2020, the Financial Accounting Standards Board (“FASB”)FASB issued ASU No. 2019-12, “Simplifying2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Accounting for Income Taxes (Topic 740)Effects of Reference Rate Reform on Financial Reporting., which modifies certain technical guidelines for The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting for income taxes.to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2024 (the sunset date was extended from December 31, 2022 to December 31, 2024 by the issuance of ASU 2019-12 is effective for reporting periods beginning afterNo. 2022-06 in December 15, 2020, and early adoption is permitted.2022). We will adopt ASU 2019-12 inare evaluating the fiscal year beginning January 1, 2021 andimpact of the transition from LIBOR to alternative reference rates but do not expect the adoption of ASU 2019-12 will result in a material changesignificant impact to our consolidated financial statements.

We reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the consolidated financial statements.

Recently Adopted Accounting Standards

On January 1, 2020 we adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326)”, along with related clarifications and improvements. This pronouncement requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We adopted the standard using the modified-retrospective approach as of the effective date and therefore, we have not applied the standard to the comparative periods presented in our consolidated financial statements. The modified-retrospective approach requires an entity to recognize a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which this guidance is effective. As of January 1, 2020, the adoption of this standard resulted in a net increase to the allowance for credit losses of $1,414, a decrease to our deferred income tax liability of $363, and a decrease to retained earnings of $1,051.

On January 1, 2020 we adopted ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40)”: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”), which clarifies the accounting for implementation costs in cloud computing arrangements. We adopted the standard prospectively on January 1, 2020. Prior to the adoption of ASU 2018-15, we capitalized implementation costs incurred during the application development phase of cloud computing arrangements to leasehold improvements, property and equipment, net on our consolidated balance sheets and have recognized expense over the useful life of the related asset within depreciation and amortization on our consolidated statements of income. Subsequent to the adoption of ASU 2018-15, we capitalize such costs within prepaid expenses and other current assets or other assets on our consolidated balance sheets and recognize expenses over the expected contract term within general and administrative expenses or other operating costs on our consolidated statements of income, consistent with where the expenses associated with the hosting element of the arrangement are presented. The adoption of ASU 2018-15 did not result in a material change to our consolidated financial statements.

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2. Supplemental Balance Sheet Information

Leasehold improvements, property and equipment, net were as follows:

December 31,

December 31,

2020

2019

2022

2021

Land

$

12,943

$

12,943

$

12,943

$

12,943

Leasehold improvements and buildings

1,921,371

1,765,464

2,317,277

2,094,227

Furniture and fixtures

198,387

182,391

242,166

222,774

Equipment

755,003

653,909

989,895

868,435

Construction in Progress

76,317

45,422

123,453

107,222

Leasehold improvements, property and equipment

2,964,021

2,660,129

Leasehold improvements, property and equipment, gross

3,685,734

3,305,601

Accumulated depreciation

(1,379,710)

(1,201,439)

(1,734,587)

(1,536,323)

Leasehold improvements, property and equipment, net

$

1,584,311

$

1,458,690

$

1,951,147

$

1,769,278

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Accrued payroll and benefits were as follows:

December 31,

December 31,

2020

2019

2022

2021

Workers' compensation liability

$

27,630

$

29,837

$

27,531

$

27,456

Accrued payroll

41,784

31,188

Accrued employer payroll taxes, deferred pursuant to the CARES Act

70,812

0

Accrued payroll and bonuses

109,190

107,799

Other accrued payroll and benefits

62,828

65,575

33,735

27,150

Accrued payroll and benefits

$

203,054

$

126,600

$

170,456

$

162,405

Accrued liabilities were as follows:

December 31,

December 31,

2020

2019

2022

2021

Sales and use tax payable

$

26,419

$

26,484

$

35,567

$

32,004

Legal reserve liability

51,214

45,721

15,227

48,098

Other accrued liabilities

87,016

83,638

96,745

92,950

Accrued liabilities

$

164,649

$

155,843

$

147,539

$

173,052

 

3. Revenue Recognition

Gift Cards

The gift card liability included in unearned revenue on the consolidated balance sheets was as follows:

December 31,

December 31,

2020

2019

Gift card liability

$

105,413

$

84,611

December 31,

2022

2021

Gift card liability

$

145,014

$

130,779

Revenue recognized from the redemption of gift cards that was included in unearned revenue at the beginning of the year was as follows:

Year ended

December 31,

2020

2019

2018

Revenue recognized from gift card liability balance at the beginning of the year

$

39,612

$

37,386

$

36,094

Year ended December 31,

2022

2021

2020

Revenue recognized from gift card liability balance at the beginning of the year

$

59,175

$

48,605

$

39,612

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Chipotle Rewards

Changes in our Chipotle Rewards liability included in unearned revenue on the consolidated balance sheets were as follows:

Year ended

December 31,

2020

2019

2018

Chipotle Rewards liability, beginning balance

$

10,584

$

0

$

0

Revenue deferred

87,259

44,666

0

Revenue recognized

(75,506)

(34,082)

0

Chipotle Rewards liability, ending balance

$

22,337

$

10,584

$

0

Year ended December 31,

2022

2021

2020

Chipotle Rewards liability, beginning balance

$

25,572

$

22,337

$

10,584

Revenue deferred

121,406

106,759

87,259

Revenue recognized

(108,921)

(103,524)

(75,506)

Chipotle Rewards liability, ending balance

$

38,057

$

25,572

$

22,337

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4. Fair Value of FinancialFinancial Instruments

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The carrying value of our cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value because of their short-term nature.

Our held-to-maturity investments consistare comprised of U.S. Treasury notessecurities and a corporate debt security, which are held at amortized cost. We also have an investment in a convertible note receivable which is held at fair-value. Additionally, we maintain a deferred compensation plan with maturitiesrelated assets held in a rabbi trust.

The following tables show our cash, cash equivalents, and debt investments by significant investment category as of up to 16 months, with $343,616 maturing within one year from December 31, 2020. Fair2022 and 2021:

December 31, 2022

Adjusted cost

Unrealized Gains

Unrealized Losses

Fair Value

Cash and Cash Equivalents

Current Investments

Long-term Investments

Cash

$

75,829

$

-

$

-

$

75,829

$

75,829

$

-

$

-

Level 1(1)

Money market funds

232,477

-

-

232,477

232,477

-

-

Time deposits

75,694

-

-

75,694

75,694

-

-

U.S. Treasury securities

847,354

63

14,355

833,062

-

515,136

332,218

Subtotal

1,155,525

63

14,355

1,141,233

308,171

515,136

332,218

Level 3

Corporate debt security(2)

17,900

-

700

17,200

-

-

17,900

Note receivable(3)

4,860

222

-

5,082

-

-

5,082

Subtotal

22,760

222

700

22,282

-

-

22,982

Total

$

1,254,114

$

285

$

15,055

$

1,239,344

$

384,000

$

515,136

$

355,200

December 31, 2021

Adjusted cost

Unrealized Gains

Unrealized Losses

Fair Value

Cash and Cash Equivalents

Current Investments

Long-term Investments

Cash

$

119,639

$

-

$

-

$

119,639

$

119,639

$

-

$

-

Level 1(1)

Money market funds

547,530

-

-

547,530

547,530

-

-

Time deposits

148,205

-

-

148,205

148,205

-

-

U.S. Treasury securities

501,288

-

1,116

500,172

-

260,945

240,343

Subtotal

1,197,023

-

1,116

1,195,907

695,735

260,945

240,343

Level 3

Corporate debt security(2)

18,000

-

-

18,000

-

-

18,000

Note receivable(3)

-

-

-

-

-

-

-

Subtotal

18,000

-

-

18,000

-

-

18,000

Total

$

1,334,662

$

-

$

1,116

$

1,333,546

$

815,374

$

260,945

$

258,343

(1) Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

(2)The fair value of investmentsthe corporate debt security is measured using Level 13 (unobservable) inputs. We determined the fair value for the corporate debt security using an internally-developed valuation model and unobservable inputs(quoted prices for identical assets in active markets). We designate the appropriate classification of our investments at the time of purchase based upon the intended holding period. include credit and liquidity spreads and effective maturity.

Investments, all(3) We have elected to measure our investment in a convertible note receivable of which are classified as held-to-maturity, are carrieda private company at amortized cost.fair value under the fair value option. The fair value of these investments was less than the amortized cost by $117 as of December 31, 2020.note receivable is measured using Level 3 (unobservable) inputs. We recognize a reserve for expected credit losses when lifetime credit losses are expected by management. As of December 31, 2020, management has concluded that there is no risk of non-payment. NaN impairment charges were recognized on our investmentsdetermined the fair value for the year ended December 31, 2020note receivable using an internally-developed valuation model and 2019.unobservable inputs include estimates of the equity value of the underlying business and the timing and probability of future financing events.

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Rabbi Trust

We have elected to fund certain deferred compensation obligations, as described further in Note 8. “Stock-Based Compensation and Employee Benefit Plans”, through a rabbi trust, the assets of which are designated as trading securities,. The rabbi trust is subject to creditor claims in the event of insolvency, but the assets held in the rabbi trust are not available for general corporate purposes. Amounts in the rabbi trust are invested in mutual funds, consistent with the investment choices selected by participants in their Deferred Plan accounts, which are designated as described furthertrading securities, carried at fair value, and are included in Note 9. “Employee Benefit Plans.”other assets on the consolidated balance sheets. We record trading gains and losses, along with the offsetting amount related to the increase or decrease in deferred compensation to reflect our exposure to liabilities for payment under the deferred plan in general and administrative expenses on the consolidated statements of income and comprehensive income.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as leasehold improvements, property and equipment, certain long-term investments, operating lease assets, other assets, and goodwill. These assets are measured at fair value whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or if there has been an observable price change of a non-marketable equity security.

The following table summarizes our restaurant and office assets measured at fair value by hierarchy level on a nonrecurring basis:

December 31,

Level

2022

2021

Leasehold improvements, property and equipment, net

3

$

264

$

1,041

Operating lease assets

3

713

2,791

Total

$

977

$

3,832

Fair value of these assets arewas measured using Level 3 inputs (unobservable inputs for the asset or liability). Unobservable inputs include the discount rate, projected restaurant revenues and expenses, and sublease income if we are closing the restaurant and intending to sublease the restaurant. These assets are measured at fair value whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Carrying value after impairment approximates fair value.

The following table summarizes our assets measured at fair value by hierarchy level on a nonrecurring basis:

Carrying Value

December 31,

Level

2020

2019

Leasehold improvements, property and equipment, net

3

$

4,682

$

1,411

Operating lease assets

3

10,372

4,270

Total

$

15,054

$

5,681

For the years ended December 31, 2020, 20192022, 2021 and 20182020 we recorded asset impairments related to restaurants and offices of $2,387, $4,727 and $16,683, $2,897respectively. Costs are recorded within impairment, closure costs, and $56,093 respectively.asset disposals on the consolidated statements of income and comprehensive income. Carrying value after the impairment charges approximates fair value.

Equity Method Investment

On April 16, 2020, we acquired approximately 10% of the common stock of a supplier in exchange for cash consideration of $7,500. On August 6, 2020, we acquired an additional 3.2% of the common stock of a supplier in exchange for cash consideration of $2,500. As of December 31, 2020, we own approximately 12.9% of the supplier’s common stock and have invested total cash

 

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5. Equity Investments

December 31,

2022

2021

Equity method investments

$

11,697

$

9,251

Other investments

32,855

15,968

Total

$

44,552

$

25,219

Equity Method Investments

As of December 31, 2022, we owned 4,325 shares of common stock of Tractor Beverages, Inc. (“Tractor”). Our investment represents ownership of approximately 10.3% of Tractor, and we have invested total cash consideration of $10,000. As we are a significant customer of the supplierTractor and maintain board representation, we are accounting for our investment under the equity method. There were no impairment charges for the year ended December 31, 2022 or 2021 associated with this equity method investment. The investment in common stock is included within other assets on the consolidated balance sheet as of December 31, 2020,sheets with a carrying value of $9,529.$11,697 and $9,251 as of December 31, 2022 and December 31, 2021, respectively. Refer to Note 13. “Related Party Transactions” for related party disclosures.

5. Corporate Restructuring CostsOther Investments

In May 2018,As of December 31, 2022, we announced that we would openhold warrants (the “Tractor Warrants”) to purchase 3,772 shares of common stock of Tractor. Tractor is a headquarters office in Newport Beach, California, consolidate certain corporate administrative functions into our existing office in Columbus, Ohio,privately held company, and close our existing headquarters offices in Denver, Colorado, as well as additional corporate offices in New York, New York. All affected employees were either offered an opportunity to continue insuch, the new organization or were offered a severance package. We record severance as a one-time termination benefit and recognize the expense ratably over the employees’ required future service period.

All other costs, including other employee transition costs, recruitment and relocation costs, office asset impairment and other office closure costs, and third-party and other costs, are recognized in the period incurred.

Corporate restructuring costs consist of the following:

Year ended December 31,

2020

2019

2018

Employee severance and other employee transition costs(1)

$

303

$

1,768

$

6,919

Recruitment and relocation costs(1)

874

6,231

9,952

Office asset impairment and other office closure costs(2)

0

1,719

15,571

Third-party and other costs(1)

5,222

4,324

8,836

Stock-based compensation(1)

0

134

1,345

Total corporate restructuring costs

$

6,399

$

14,176

$

42,623

__________________

(1)Recorded in general and administrative expenses on the consolidated statements of income.

(2)Recorded in impairment, closure costs, and asset disposals on the consolidated statements of income.

Upon the adoption of Accounting Standards Codification Topic 842 on January 1, 2019, lease termination and other closure liabilities of $14,716 were reclassified into operating lease assets and are no longerTractor Warrants represent non-marketable equity securities. The investment is included within the scope of ASC 420, Exit or Disposal Cost Obligations.

Changes in our corporate restructuring liabilities which are included in accrued liabilitieslong-term investments on the consolidated balance sheets werewith a carrying value of $10,747 and $0 as follows:of December 31, 2022 and December 31, 2021.

As of December 31, 2022, we own 766 shares of the Series C Preferred Stock of Nuro, Inc. (“Nuro”). Our investment represents a minority interest and we have determined that we do not have significant influence over Nuro. Nuro is a privately held company, and as such, the preferred shares comprising our investment are illiquid and fair value is not readily determinable. As of December 31, 2022, we have recognized a cumulative gain of $5,968 related to our investment in Nuro due to observable transactions in prior periods. The investment is included within long-term investments on the consolidated balance sheets with a carrying value of $15,968 as of December 31, 2022 and December 31, 2021.

December 31, 2019

Charges

Payments

December 31, 2020

Employee severance and other employee transition costs

$

0

$

303

$

(303)

$

0

Recruitment and relocation costs

30

874

(904)

0

Third-party and other costs

0

5,222

(5,222)

0

Total restructuring liability

$

30

$

6,399

$

(6,429)

$

0

As of December 31, 2022, we held additional investments in other entities through the Cultivate Next Fund. We do not have significant influence over these entities. These additional investments are included within long-term investments on the consolidated balance sheets with a carrying value of $6,140 and $0 as of December 31, 2022 and December 31, 2021.

6. Income Taxes

Income before income taxes, classified by source of income, was as follows:

Year ended December 31,

Year ended December 31,

2020

2019

2018

2022

2021

2020

Domestic

$

311,021

$

465,253

$

279,955

$

1,192,004

$

818,057

$

311,021

Foreign

(17,240)

(6,968)

(11,519)

(10,473)

(5,294)

(17,240)

Income before income taxes

$

293,781

$

458,285

$

268,436

$

1,181,531

$

812,763

$

293,781

 

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The components of the benefit/(provision) for income taxes were as follows:

Year ended December 31,

Year ended December 31,

2020

2019

2018

2022

2021

2020

Current tax:

U.S. Federal

$

204,063

$

(57,020)

$

(58,878)

$

(246,210)

$

(156,447)

$

204,063

U.S. State

(32,684)

(20,499)

(21,780)

(79,041)

(15,351)

(32,684)

Foreign

(1,044)

(646)

(637)

(374)

(338)

(1,044)

170,335

(78,165)

(81,295)

(325,625)

(172,136)

170,335

Deferred tax:

U.S. Federal

(120,066)

(27,231)

(10,541)

23,502

33,004

(120,066)

U.S. State

11,507

(2,740)

(479)

19,940

(20,404)

11,507

Foreign

7,158

2,685

2,261

(3,771)

7,229

7,158

(101,401)

(27,286)

(8,759)

39,671

19,829

(101,401)

Valuation allowance

(6,949)

(2,676)

(1,829)

3,524

(7,472)

(6,949)

Benefit/(provision) for income taxes

$

61,985

$

(108,127)

$

(91,883)

$

(282,430)

$

(159,779)

$

61,985

The effective tax rate differs from the statutory tax rates as follows:

Year ended December 31,

Year ended December 31,

2020

2019

2018

2022

2021

2020

Statutory U.S. federal income tax rate

21.0

%

21.0

%

21.0

%

21.0

%

21.0

%

21.0

%

State income tax, net of related federal income tax benefit

4.2

4.1

6.6

3.8

3.5

4.2

Federal credits

(3.5)

(1.7)

(2.1)

Federal tax credits

(1.0)

(1.6)

(3.5)

Executive compensation disallowed

2.9

2.0

1.4

0.8

2.9

2.9

Meals and entertainment

0.1

0.1

0.1

-

-

0.1

Enhanced deduction for food donation

(0.1)

0

(0.1)

-

-

(0.1)

Valuation allowance

1.6

0.5

0.7

0.2

0.3

1.6

Uncertain tax position reserves

0.3

-

-

Other

1.8

0.8

3.5

0.6

-

1.8

Return to provision and other discrete items

2.1

0.1

1.1

(0.1)

0.1

2.1

Equity compensation related adjustments

(13.5)

(3.3)

2.0

(1.7)

(4.7)

(13.5)

Federal net operating loss

(37.7)

-

-

-

(1.8)

(37.7)

Effective income tax rate

(21.1)

%

23.6

%

34.2

%

23.9

%

19.7

%

(21.1)

%

The effective tax rate for the year ended December 31, 2020,2022, was lowerhigher than the effective tax rate for the year ended December 31, 2019,2021, primarily due to stock-based compensation, partially offset by current year increasesa decrease in non-deductible executive compensationexcess tax benefits related to option exercises and net excessequity vesting, fewer benefits generated from thea federal net operating loss (“NOL”) generatedand a net increase in the current year that will be carried back touncertain tax years 2015-2017.

We have estimated a federal NOL for the year ended December 31, 2020. We expect to carryback the federal NOL generated in the current year to tax years 2015-2017 when the corporate federal income tax rate was 35%. As a result, for the year ended December 31, 2020, we recorded an income tax benefit of $110,765 due to the federal income tax rate differential in 2020 of 21% versus 2015-2017 of 35%.position reserves.

 

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The components of the deferred income tax assets and liabilities for continuing operations were as follows:

December 31,

December 31,

2020

2019

2022

2021

Deferred income tax liability:

Leasehold improvements, property and equipment

$

298,225

$

162,291

Leasehold improvements, property and equipment, net

$

263,444

$

279,586

Goodwill and other assets

1,628

1,537

1,754

1,728

Prepaid assets and other

(350)

1,290

(4,685)

106

Operating lease asset

752,864

686,333

Operating lease assets

901,058

851,324

Total deferred income tax liability

1,052,367

851,451

1,161,571

1,132,744

Deferred income tax asset:

Gift card liability

3,849

6,185

15,893

9,699

Capitalized transaction costs

324

323

323

324

Stock-based compensation and other employee benefits

34,709

41,270

45,129

45,261

Foreign net operating loss carry-forwards

21,598

13,796

24,799

27,446

State credits

4,452

4,170

3,151

3,595

Operating lease liabilities

812,699

741,120

962,815

909,528

Allowances, reserves and other

25,981

22,973

15,688

24,179

Capitalized research costs

17,415

-

State net operating loss carry-forwards

22,482

-

4,832

1,568

Valuation allowance

(23,149)

(16,200)

(27,097)

(30,621)

Total deferred income tax asset

902,945

813,637

1,062,948

990,979

Deferred income tax liabilities

$

149,422

$

37,814

$

98,623

$

141,765

Gross foreign NOLs were $98,710$114,727 and $68,169$108,324 for the year ended December 31, 20202022 and 2019,2021, respectively. Our foreign NOLs can be carried forward indefinitely.

Gross state NOLs generatedavailable across all jurisdictions in which we operate were $340,259$73,327 and $0 for the years ended$50,467 as of December 31, 20202022 and 2019,2021, respectively. Our state NOLs expire over varying intervals in the future.

We had gross valuation allowances against certain foreign deferred tax assets of $104,820$124,609 and $77,191$119,741 as of December 31, 20202022 and 2019,2021, respectively. The increasedecrease in the valuation allowance was primarily due to the recording of a valuation allowanceimmaterial tax rate changes on various foreign tax attributes.

Unrecognized Tax Benefits

A reconciliation of the unrecognized tax benefits was as follows:

Year ended December 31,

Year ended December 31,

2020

2019

2018

2022

2021

2020

Beginning of year

$

15,028

$

9,360

$

8,937

$

5,262

$

10,859

$

15,028

(Decrease)/Increase resulting from prior year tax position

(2,853)

5,855

0

Increase/(Decrease) resulting from prior year tax position

3,937

(151)

(2,853)

Increase resulting from current year tax position

1,870

758

751

312

1,387

1,870

Settlements with taxing authorities

0

(736)

0

-

-

-

Lapsing of statutes of limitations

(3,186)

(209)

(328)

(609)

(6,833)

(3,186)

End of year

$

10,859

$

15,028

$

9,360

$

8,902

$

5,262

$

10,859

Interest expense related to uncertain tax positions is recognized in interest and other income, net on the consolidated statements of income and comprehensive income. Penalties related to uncertain tax positions are recognized in benefit/(provision) for income taxes on the consolidated statements of income and comprehensive income. For the years ended December 31, 2020, 20192022, 2021 and 2018,2020, we recognized $554, $1,853$384, $180 and $536,$554, respectively, in interest expense related to uncertain tax positions. These are gross amounts before any tax benefits and are included in other liabilities on the consolidated balance sheets. As of December 31, 20202022 and 2019,2021, we have accrued interest of $2,185$589 and $3,054,$356, respectively.

WeThe Internal Revenue Service (“IRS”) commenced an examination of our U.S. income tax returns for the tax year ended December 31, 2020 in the fourth quarter of 2022 that is anticipated to be completed within 18 months. As of December 31, 2022, the IRS has not proposed any adjustments to our tax positions.

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Our tax returns are no longer subject to U.S. federal tax examinationscurrently under audit by tax authoritiesthe State of Pennsylvania for the tax years before 2016.ended December 31, 2019, December 31, 2020 and December 31, 2021. As of December 31, 2022, the State of Pennsylvania has not proposed any adjustments to our tax positions. For the majority of states where we have a significant presence, we are no longer subject to tax examinations by tax authorities for tax years before 2016.2018. Currently, we expect expirations of statutes of limitations, excluding indemnified amounts, on reserves of approximately $6,316$573 within the next twelve months.

It is reasonably possible the amount of the unrecognized benefit with respect to certain unrecognized positions could significantly increase or decrease within the next twelve months and would have an impact on net income.

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TableInflation Reduction Act of Contents

Coronavirus Aid, Relief and Economic Security Act (“CARES Act”)2022

On March 27, 2020,August 16, 2022, President TrumpBiden signed into law the CARES Act. IntendedInflation Reduction Act of 2022, which includes a 15% minimum tax on the adjusted financial statement income of corporations with a three taxable year average annual adjusted financial statement income in excess of $1 billion, a 1% excise tax on net stock repurchases made by publicly traded US corporations and several tax incentives to provide economic relief to those impacted by the COVID-19 pandemic, the CARES Act includes provisions, among others, addressing the carryback of NOLs for specific periods, refunds ofpromote clean energy. The alternative minimum tax credits, temporary modifications to the limitations placed on the tax deductibility of net interest expenses, and technical amendments for qualified improvement property (“QIP”). Additionally, the CARES Act, in efforts to enhance business’ liquidity, provides for refundable employee retention tax credits and the deferral of the employer-paid portion of social security taxes.

The CARES Act provides for the deferral of the employer-paid portion of social security payroll taxes. We have elected to defer the employer-paid portion of social security payroll taxes through December 31, 2020, of $70,812 and will remit such amounts during calendar year 2021.

We acceleratedexcise tax depreciation expenses due to the technical amendments made by the CARES Act to QIP. As of December 31, 2020, accelerated tax depreciation expenses of $60,376 represents a temporary book-to-tax timing difference (i.e., 0are effective tax rate impact) for income tax purposes and is in deferred income tax liabilities and income tax receivable on the consolidated balance sheet.

The CARES Act provides refundable employee retention credits, which can be used to offset payroll tax liabilities. For the year ended December 31, 2020, we recorded a benefit of $3,403, which primarily offsets payroll tax expense. Additionally, as a result of the Canada Emergency Wage Subsidy, for our Canadian employees, we recognized a benefit of $2,028 for the year ended December 31, 2020, which primarily offset labor expense.

Tax Cuts and Jobs Act

Effective for taxtaxable years beginning after December 31, 2017, the U.S. corporate income2022. While these tax rate is 21% pursuantlaw changes have no immediate effect and are not expected to the Tax Cuts have a material adverse effect on our results of operations going forward, we will continue to evaluate its impact as further information becomes available.and Jobs Act (“TCJA”), that was signed into law December 2017. As of December 31, 2018, we completed our accounting for the tax effects of the TCJA and recorded cumulative tax adjustments of $6,446 in accordance with SAB 118 guidance.

7. Shareholders’ Equity

We have had a stock repurchase program in place since 2008. ThroughAs of December 31, 2020, 2022, we had announced authorizations$413,947 authorized for repurchasing shares of our common stock, which includes the $200,000 additional authorization approved by our Board of Directors to repurchases shares of common stock which, in the aggregate, authorized expenditures of up to $2,800,000. As ofon December 31, 2020, $115,018 was available to be repurchased under announced repurchase authorizations.7, 2022. Shares we repurchased are being held in treasury stock until they are reissued or retired at the discretion of theour Board of Directors. On March 20, 2020, we temporarily suspended our share buyback program in the midst of the COVID-19 pandemic.

During the years ended December 31, 2020, 2019,2022, 2021, and 2018,2020, shares of common stock at a total cost of $48,555, $10,420,$98,970, $79,870, and $5,411,$48,555, respectively, were netted and surrendered as payment for minimum statutory withholding obligations in connection with the vesting of outstanding stock awards. Shares surrendered by the participants in accordance with the applicable award agreements and plan are deemed repurchased by us but are not part of publicly announced share repurchase programs.

8. Sto

8. Stock-Basedck-Based Compensation and Employee Benefit Plans

Pursuant to the 2022 and 2011 Stock Incentive Plan,Plans, we grant stock options, SOSARs, restricted stock units (“RSUs”), or performance and/or market based restricted stock units (“PSUs”) to employees and non-employee directors. We issue shares of common stock upon the exercise of SOSARs and the vesting of RSUs and PSUs.

Under the 2011 Incentive Plan, 6,830 shares of common stock have been authorized and reserved for issuance to eligible participants, of which 2,114 shares were authorized for issuance but not issued both plans, for subject to outstanding awards as of December 31, 2020. For purposes of calculating the available shares remaining, each share issuable pursuant to outstanding full value awards, such as RSUs and PSUs, counts as two shares, and each share underlying a stock option or SOSAR count as one share.

We also have an employee stock purchase plan (“ESPP”), Defined Contribution Plan, and a Deferred Compensation Plan.

Stock-Based Compensation

Under the 2011 Stock Incentive Plan, 6,830 shares of common stock were authorized and reserved for issuance to eligible participants. As of December 31, 2021 there were 2,141 shares of common stock that remained available for future issuances under this plan. On March 23, 2022, the Board approved the 2022 Stock Incentive Plan, which was then approved by the shareholders on May 18, 2022. Once the shareholders approved the 2022 Stock Incentive plan, the remaining shares available for issuance under the 2011 Stock Incentive plan were terminated. The numbers of shares authorized for issuance under the 2022 Stock Incentive Plan will not exceed 2,431. There were 2,318 shares that were authorized for issuance but not issued or subject to outstanding awards as of December 31, 2022.

 

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The following table sets forth total stock-based compensation expense:

Year ended December 31,

Year ended December 31,

2020

2019

2018

2022

2021

2020

Stock-based compensation

$

84,463

$

92,062

$

69,947

$

99,821

$

178,703

$

84,463

Stock-based compensation, net of income taxes

$

69,904

$

73,866

$

51,544

$

84,928

$

159,972

$

69,904

Total capitalized stock-based compensation included in net leasehold improvements, property and equipment on the consolidated balance sheets

$

1,837

$

666

$

783

Excess tax benefit (deficit) on stock-based compensation recognized in provision for income taxes

$

49,690

$

16,203

$

(6,162)

Total capitalized stock-based compensation included in leasehold improvements, property and equipment, net on the consolidated balance sheets

$

1,791

$

2,311

$

1,837

Excess tax benefit on stock-based compensation recognized in benefit/(provision) for income taxes on the consolidated statements of income and comprehensive income

$

24,689

$

47,958

$

49,690

SOSARs

A summary of SOSAR activity was as follows (in thousands, except years and per share data):

Shares

Weighted-Average Exercise Price per Share

Weighted-Average Remaining Contractual Life (Years)

Aggregate Intrinsic Value

Outstanding, January 1, 2020

1,132

$

457.14

$

430,595

Granted

116

874.14

Exercised

(470)

433.10

Forfeited or cancelled

(30)

513.19

Outstanding, December 31, 2020

748

533.71

3.9

637,905

Exercisable, December 31, 2020

235

476.68

1.6

213,697

Vested and expected to vest, December 31, 2020

728

528.03

3.9

625,050

Shares

Weighted-Average Exercise Price per Share

Weighted-Average Remaining Contractual Life (Years)

Aggregate Intrinsic Value

Outstanding, January 1, 2022

364

$

838.62

$

331,352

Granted

98

1,556.14

Exercised

(84)

626.94

Forfeited or cancelled

(23)

1,361.84

Outstanding, December 31, 2022

355

1,053.84

4.4

142,916

Exercisable, December 31, 2022

149

593.52

3.0

118,514

Vested and expected to vest, December 31, 2022

344

1,038.25

4.3

142,743

The total intrinsic value of SOSARs exercised during the years ended December 31, 2022, 2021, and 2020, 2019was $77,124, $498,399, and 2018, was $236,573, $219,984, and $35,907, respectively. Unrecognized stock-based compensation expense for SOSARs as of December 31, 20202022 was $22,612$29,474 and is expected to be recognized over a weighted average period of 1.41.6 years. SOSARs expire 7 years after the day they were granted.

The weighted average assumptions utilized in the Black-Scholes option-pricing model to estimate the fair value of SOSARs granted each year were as follows:

2020

2019

2018

2022

2021

2020

Risk-free interest rate

1.3

%

2.4

%

2.4

%

2.1

%

0.3

%

1.3

%

Expected life (years)

3.8

3.9

3.9

3.6

3.7

3.8

Expected dividend yield

0.0

%

0.0

%

0.0

%

0.0

%

0.0

%

0.0

%

Volatility

32.4

%

34.7

%

32.2

%

36.0

%

35.2

%

32.4

%

Weighted-average Black-Scholes fair value per share at date of grant

$

231.52

$

176.79

$

77.61

$

456.44

$

403.01

$

231.52

The risk-free interest rate is based on U.S. Treasury rates for instruments with similar terms, and the expected life assumption is based on our historical data. We have not paid dividends to date and do not plan to pay dividends in the near future. The volatility assumption is based on our historical data and implied volatility.

 

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Non-Vested Stock Awards (RSUs)

A summary of RSU award activity was as follows (in thousands, except per share data):

Shares

Weighted-Average Grant Date Fair Value per Share

Shares

Weighted-Average Grant Date Fair Value per Share

Outstanding, January 1, 2020

121

$

408.56

Outstanding, January 1, 2022

58

$

1,064.67

Granted

42

905.96

30

1,559.73

Vested

(60)

381.71

(24)

798.11

Forfeited or cancelled

(11)

619.11

(9)

1,369.09

Outstanding, December 31, 2020

92

631.66

Vested and expected to vest, December 31, 2020

84

618.08

Outstanding, December 31, 2022

55

1,396.78

Vested and expected to vest, December 31, 2022

50

1,382.72

The weighted average grant date fair value per RSU granted during the years ended December 31, 20192021 and 2018,2020, was $627.94$1,492.15 and $299.25,$905.96, respectively. Unrecognized stock-based compensation expense for non-vested RSU stock awards we have determined are probable of vesting was $21,221$26,881 as of December 31, 2022, and is expected to be recognized over a weighted average period of 1.5 years. The fair value of shares earned as of the vesting date during the years ended December 31, 2022, 2021, and 2020, was $33,959, $73,540, and $47,649, respectively.

Non-Vested Performance Stock Awards (PSUs)

A summary of PSU award activity was as follows (in thousands, except per share data):

Shares

Weighted-Average Grant Date Fair Value per Share

Outstanding, January 1, 2022

105

$

928.28

Granted

24

1,569.39

Vested

(54)

791.65

Expired

(6)

1,117.45

Outstanding, December 31, 2022

69

1,194.80

Vested and expected to vest, December 31, 2022

116

1,097.75

The weighted average fair value per PSU granted during the years ended December 31, 2021 and 2020, was $1,479.55 and $853.03, respectively. The unrecognized stock-based compensation expense for non-vested PSU stock awards we have determined are probable of vesting was $29,792 as of December 31, 2022, and is expected to be recognized over a weighted average period of 1.3 years. The fair value of shares earned as of the vesting date during the years ended December 31, 2022, 2021, and 2020, 2019,was $177,293, $97,496, and 2018, was $47,649, $27,197, and $4,192,$60,081, respectively.

Non-Vested Performance Stock Awards (PSUs)

A summary of PSU award activity was as follows (in thousands, except per share data):

Shares

Weighted-Average Grant Date Fair Value per Share

Outstanding, January 1, 2020

103

$

479.83

Granted

27

853.03

Vested

(29)

466.22

Expired

(1)

605.39

Outstanding, December 31, 2020

100

583.46

Vested and expected to vest, December 31, 2020

229

765.23

The weighted average fair value per PSU granted duringDuring the yearsyear ended December 31, 20192022, we awarded performance share awards that are subject to service, market, and 2018, was $583.13 and $327.58, respectively.performance vesting conditions. The Unrecognized stock-based compensation expense for non-vested PSU stock awards we have determined are probablequantity of vesting was $112,767 asshares that will vest will range from 0% to 300% of December 31, 2020, and is expectedthe target number of shares based on performance factors related to be recognizedrestaurant cash flow dollars earned over a weighted averagethree-year period of 1.3 years. The fair value ofbeginning on January 1, 2022. If the defined minimum targets are not met, then no shares earned aswill vest. Further, in no event may more than 100% of the vesting date duringtarget number of PSUs vest if our 3-year total shareholder return is below the years25th percentile of the constituent companies comprising the S&P 500 on the day of the grant.

During the year ended December 31, 2020, 2019,2021, we awarded performance share awards that are subject to service, market, and 2018, was $60,081, $0,performance vesting conditions. The quantity of shares that will vest will range from 0% to 300% of the target number of shares based on performance factors related to our growth in comparable restaurant sales and $9,317, respectively.average restaurant margin over a three-year period beginning on January 1, 2021. If the defined minimum targets are not met, then no shares will vest. Further, in no event may more than 100% of the target number of PSUs vest if our 3-year total shareholder return is below the 25th percentile of the constituent companies comprising the S&P 500 on the day of the grant.

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Table of Contents

During the year ended December 31, 2020, we awarded performance share awards that are subject to service, market, and performance vesting conditions. The quantity of shares that will vest will range from 0% to 300% of the target number of shares based on performance factors related to our growth in comparable restaurant sales and average restaurant margin over a three yearthree-year period beginning on January 1, 2020. If the defined minimum targets are not met, then no shares will vest. Further, in no event may more than 100% of the target number of PSUs vest if our 3 year3-year total shareholder return is below the 25th percentile of the constituent companies comprising the S&P 500 on the day of the grant.

DuringThe information contained in this paragraph describing the year ended December 31, 2019, we awarded 2 types of performance share awards that are subject to service and performance vesting conditions. The quantity of shares that will vest range from 0% to 300%modification of the targeted number of shares for both awards. The first award, consisting of 33 shares, will vest based on our growth2018 Performance Share Awards is included in comparable restaurant sales and average restaurant margin over a three-year period beginning on January 1, 2019. The second award, consisting of 13 shares, will vest based on performance conditions based on achievement of certain targets related to digital sales, general and administrative expenses as a percentage of revenue, and successful completion of a defined number of strategic initiatives in 2019 and 2020. These awards will vest 40% on the third anniversary of the grant date and 60% on the fourth anniversary of the grant date provided required service is completed through these dates.

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During the year ended December 31, 2018, we awarded performance share awards that are subject to service and performance vesting conditions. The quantity of shares that will vest range from 0% to 300% of the targeted number of shares based on performance factors related to our growth in comparable restaurant sales and average restaurant margin over a three year period beginning on January 1, 2018. If the defined minimum targets are not met, then no shares will vest.

PSU table above. On December 30, 2020, due to the impact that the COVID-19 pandemic had on the growth in comparable restaurant sales and restaurant margin relative to the trajectory of both of these performance factors prior to the pandemic, and also due to the significant shareholder value created over the performance period of the original award, the Compensation Committee of the Board of Directors modified the 2018 PSU award. This modification pertained to all 7seven recipients of this award, and resulted in incremental compensation expense of $71,441, of which $466 has been$7,255 was recognized during the year ended December 31, 2020. To receive all incremental shares generated through the modification the employees must remain employed through2022, and $0 remains unamortized as of December 31, 2022, and the incremental shares will vest in four installments over this period. The remaining expense will be recognized over this requisite service period.2022. The incremental compensation cost is calculated by multiplying the number of incremental shares generated though the modification by the stock price on the modification date. The stock price on the modification date of December 30, 2020 was $1,374.17. To receive all incremental shares generated through the modification, the employees had to remain employed through December 31, 2022, and the incremental shares vested in four installments over this period. The first two installments of the modification vested during 2021, which included the vesting of 33 PSUs, and the second two installments of the modification vested during 2022, which included the vesting of 16 PSUs. One employee terminated employment during July 2022, which resulted in the forfeiture of 1 PSU.

On July 27, 2022, we modified certain equity awards of an employee in connection with a separation agreement to allow short-term extension of vesting of these certain equity awards that would have otherwise vested within eight months of the separation date. This modification impacted one individual and resulted in incremental compensation expense of $6,701, which was recognized in July 2022.

9. ESPP

On May 18, 2022, the shareholders of Chipotle approved a new employee stock purchase plan, or “2022 ESPP”, to replace the prior ESPP which expired in early 2022. A total of 250 shares are authorized for issuance under the 2022 ESPP.

Similar to the previous ESPP, the 2022 ESPP contains eligibility requirements of one year of service with Chipotle and a maximum contribution of 15% of an employee’s earnings, subject to an annual maximum dollar amount. However, under the previous ESPP the offering period was monthly and the purchase price for our common stock was 95% of the fair market value on the last trading day of the offering period, while the 2022 ESPP offering period is quarterly and the purchase price for our common stock is 92.5% of the lower of the fair market value on the first and last trading days of each offering period.

During the years ended December 31, 2022, 2021, and 2020, the number of shares issued each year under the ESPP were less than one. There were 249 shares available for issuance under the ESPP as of December 31, 2022.

Employee Benefit Plans

Defined Contribution Plan—Plan

We maintain the Chipotle Mexican Grill 401(k) Plan (“401(k) Plan”). for eligible U.S.-based employees. The 401(k) Plan allows participants to make cash contributions from payroll deductions. Employees become eligible to receive matching contributions after one year, and at least 1,000 hours, of service with Chipotle. We match 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 Chipotle.contributed each pay period (with an annual true-up) through cash contributions. For the years ended December 31, 2020, 2019,2022, 2021, and 2018,2020, matching contributions totaled approximately $8,490, $6,968$12,923, $10,527 and $6,090,$8,490, respectively and are included in general and administrative expenses on the consolidated statements of income.income and comprehensive income. Certain subsidiaries outside the U.S. also offer other similar benefits and are immaterial to the consolidated statements of income and comprehensive income.

Deferred Compensation Plan—Plan

We also maintain the Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan (the “Deferred Plan”) which covers ourfor eligible employees. The Deferred Plan is a non-qualified 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 liabilitiesobligations under the Deferred Plan as of December 31, 20202022 and 2019,2021, were $15,296$21,140 and $12,811,$19,330, respectively, and are included in other liabilities on the consolidated balance sheets.sheets and was fully funded as of December 31, 2021. We match 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.

We have elected to fund our deferred compensation obligation through a rabbi trust. The rabbi trust is subject to creditor claims in the event of insolvency, but the assets held in the rabbi trust are not available for general corporate purposes. Amounts in the rabbi trust are invested in mutual funds, consistent with the investment choices selected by participants in their Deferred Plan accounts, which are designated as trading securities, carried at fair value, and are included in other assets on the consolidated balance sheets. Fair value of rabbi trust investments in mutual funds is measured using Level 1 inputs. The fair value of the investments in the rabbi trust was $15,296 and $12,811 as of December 31, 2020 and 2019, respectively. We record trading gains and losses in general and administrative expenses on the consolidated statements of income, along with the offsetting amount related to the increase or decrease in deferred compensation to reflect our exposure to liabilities for payment under the deferred plan.

Employee Stock Purchase Plan—We also offer an employee stock purchase plan (“ESPP”). Employees become eligible to participate after one year of service with Chipotle and may contribute up to 15% of their base earnings, subject to an annual maximum dollar amount, toward the monthly purchase of our common stock. The purchase price is 95% of the fair market value of the stock on the last trading date of the monthly exercise period. Under the ESPP, 250 shares of common stock have been authorized and reserved for issuances to eligible employees, of which 245 represent shares that were authorized for issuance but not issued at December 31, 2020. For the years ended December 31, 2020, 2019, and 2018, the number of shares issued each year under the ESPP was less than 1.

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10. Leases

Related to the adoption of Topic 842, and for leases executed subsequent to the adoption of Topic 842 our policy elections are as follows:

Separation of lease and non-lease components

We elected this expedient to account for lease and non-lease components as a single component for our entire population of operating lease assets.

Short-term policy

We have elected the short-term lease recognition exemption for all applicable classes of underlying assets. Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that we are reasonably certain to exercise, are not recorded on the consolidated balance sheets.

The weighted average remaining lease term and discount rate were as follows:

December 31,

December 31,

2020

2019

Weighted average remaining lease term (years)

13.4

13.4

Weighted average discount rate

4.92%

5.19%

The components of lease cost were as follows:

Year ended

December 31,

Classification

2020

2019

Operating lease cost

Occupancy, Other operating costs, General and administrative expenses and Pre-opening costs

$

333,878

$

308,586

Short-term lease cost

Other operating costs

36

3,238

Variable lease cost

Occupancy

37,860

36,828

Sublease income

General and administrative expenses

(3,588)

(3,385)

Total lease cost

$

368,186

$

345,267

As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting, rental expense for the year ended December 31, 2018 was $297,568.

Supplemental disclosures of cash flow information related to leases were as follows:

Year ended

December 31,

2020

2019

Cash paid for operating lease liabilities

$

316,249

$

295,113

Operating lease assets obtained in exchange for operating lease liabilities(1)

$

484,888

$

2,702,778

Derecognition of operating lease assets due to terminations or impairment

$

20,242

$

17,740

(1) Amounts for the year ended December 31, 2019, include the transition adjustment for the adoption of Topic 842 discussed in Note 1. “Description of Business and Summary of Significant Accounting Policies” on Annual Report on Form 10-K for the year ended December 31, 2019.

 

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The following table summarizes estimated current and long-term material cash requirements for our deferred compensation plan as of December 31, 2022:

Maturities of lease liabilities were as follows as of December 31, 2020:

Operating Leases

2021

$

318,990

2022

344,902

2023

340,328

2024

329,819

2025

321,444

Thereafter

2,660,361

Total lease payments

4,315,844

Less: imputed interest

1,158,792

Present value of lease liabilities

$

3,157,052

Payments Due by Fiscal Year

Total

2023

2024-2025

2026-2027

Thereafter

Deferred compensation(1)

$

21,140

$

4,153

$

5,074

$

4,665

$

7,248

(1)Includes scheduled payments from our deferred compensation plan where payment dates are determinable for employed participants in accordance with the account’s election, and the assumption that active participants will retire at the age of 65 and begin distributions from their accounts at that time. This does not include future contributions, investment earnings, or future participants. Timing and amounts of payments may vary significantly.

9. Leases

The weighted average remaining lease term and discount rate were as follows:

December 31,

December 31,

2022

2021

Weighted average remaining lease term (years)

13.8

13.8

Weighted average discount rate

4.77%

4.56%

The components of lease cost were as follows:

Year ended December 31,

Classification

2022

2021

2020

Operating lease cost

Occupancy, Other operating costs, General and administrative expenses and Pre-opening costs

$

397,112

$

364,314

$

333,878

Short-term lease cost

Other operating costs

633

256

36

Variable lease cost

Occupancy, Other operating costs, General and administrative expenses and Pre-opening costs

102,636

92,145

37,860

Sublease income

General and administrative expenses

(5,444)

(4,930)

(3,588)

Total lease cost

$

494,937

$

451,785

$

368,186

Supplemental disclosures of cash flow information related to leases were as follows:

Year ended December 31,

2022

2021

2020

Cash paid for operating lease liabilities

$

386,238

$

359,391

$

316,249

Operating lease assets obtained in exchange for operating lease liabilities

$

425,243

$

577,273

$

484,888

Derecognition of operating lease assets due to terminations or impairment

$

14,718

$

5,765

$

20,242

Maturities of lease liabilities were as follows as of December 31, 2022:

Operating Leases

2023

$

375,174

2024

404,139

2025

396,777

2026

389,276

2027

382,790

Thereafter

3,212,975

Total lease payments

5,161,131

Less: imputed interest

1,429,721

Operating lease liabilities (Current and Long-Term)

$

3,731,410

As of December 31, 2020,2022, the total lease payments include $2,117,481$2,401,022 related to options to extend lease terms that are reasonably certain of being exercised, and exclude approximately $184,358$445,913 of legally binding minimum lease payments for leases signed but not yet commenced and $14,735$16,994 of future sublease income.

In April 2020, the FASB issued guidance allowing entities to make a policy election whether to account for lease concessions related to the COVID-19 pandemic as lease modifications. The election applies to any lessor-provided lease concession related to the impact

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Table of the COVID-19 pandemic, provided the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee. During the year ended December 31, 2020, we have received non-substantial concessions from certain landlords in the form of rent deferrals and abatements. We have elected to not account for these rent concessions as lease modifications. The recognition of rent concessions did not have a material impact on our consolidated financial statements as of December 31, 2020.Contents

We have 6six sale and leaseback transactions, which do not qualify for sale leaseback accounting due to fixed price renewal options prohibiting sale accounting. These transactions are accounted for under the financing method. Under the financing method, the assets remain on the consolidated balance sheets and the proceeds from the transactions are recorded as a financing liability. A portion of lease payments are applied as payments of deemed principal and imputed interest. The deemed landlord financing liability was $1,845$1,158 and $2,131$1,515 as of December 31, 2020,2022, and 2019,2021, respectively, with the current portion of the liability included in accrued liabilities, and the remaining portion included in other liabilities on the consolidated balance sheets.

 

11.10. Earnings Per Share

The following table sets forth the computations of basic and diluted earnings per share:

Year ended December 31,

Year ended December 31,

2020

2019

2018

2022

2021

2020

Net income

$

355,766

$

350,158

$

176,553

$

899,101

$

652,984

$

355,766

Shares:

Weighted-average number of common shares outstanding (for basic calculation)

27,917

27,740

27,823

27,851

28,132

27,917

Dilutive stock awards

499

555

139

211

379

499

Weighted-average number of common shares outstanding (for diluted calculation)

28,416

28,295

27,962

28,062

28,511

28,416

Basic earnings per share

$

12.74

$

12.62

$

6.35

$

32.28

$

23.21

$

12.74

Diluted earnings per share

$

12.52

$

12.38

$

6.31

$

32.04

$

22.90

$

12.52

The following stock awards were excluded from the calculation of diluted earnings per share:

Year ended December 31,

Year ended December 31,

2020

2019

2018

2022

2021

2020

Stock awards subject to performance conditions

87

81

95

54

66

87

Stock awards that were antidilutive

57

139

1,741

163

34

57

Total stock awards excluded from diluted earnings per share

144

220

1,836

217

100

144

 

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12.11. Commitments and Contingencies

Purchase Obligations

We enter into various purchase obligations in the ordinary course of business, generally of a short-term nature. Those that are binding primarily relate to commitments for food purchases and supplies, amounts owed under contractor and subcontractor agreements, orders submitted for equipment for restaurants under construction, and marketing initiatives and corporate sponsorships.

Litigation

Settlement of DOJ InvestigationNew York Legal Proceedings

On January 28, 2016, we were served with a Federal Grand Jury Subpoena fromAs reported in our previous SEC filings, on September 10, 2019, the U.S. DistrictNew York City Department of California relating to an official criminal investigation being conducted by the U.S. Attorney’s Office for the Central District of California, in conjunction with the U.S. FoodConsumer and Drug Administration’s Office of Criminal Investigations (collectively, the “DOJ”Worker Protection (“DCWP”). The subpoena required the production of documents and information related to company-wide food safety matters dating back to January 1, 2013. On April 21, 2020, we announced that we have signed a Deferred Prosecution Agreement to resolve this investigation. Pursuant to the Agreement, the DOJ has agreed to take no legal action relating to these past incidents for three years provided that Chipotle complies with its obligations under the Agreement, which include payment of a $25,000 fine (of which $10,000 was paid on June 1, 2020, and $15,000 was paid in the third quarter of 2020) and enhancing and maintaining our existing comprehensive compliance program which is designed to ensure that we comply with all applicable federal and state food safety laws.

Shareholder Class Action

On January 8, 2016, Susie Ong filed a complaint in the U.S. District Court for the Southern DistrictCity of New York on behalfOffice of Administrative Trials and Hearings alleging violations at five Chipotle restaurants of New York City’s Fair Work Week law (“FWW”) and Earned Safe and Sick Time Act (“ESTA”) between November 2017 and September 2019. On April 28, 2021, DCWP amended the complaint to cover purported violations of FWW and ESTA at substantially all Chipotle restaurants in New York City, through the date the amended complaint was filed. In August 2022, Chipotle signed an agreement with New York City to resolve the proceedings and related audits. Under the settlement agreement, Chipotle paid a purported class$1.0 million civil penalty to New York City and will pay up to approximately $20 million in compensation to individuals who were hourly employees of purchasers of shares of our common stock between February 4, 2015 and January 5, 2016. The complaint purports to state claims against us, each ofChipotle restaurants covered by the co-Chief Executive Officers servingsettlement agreement during the claimed class periodrelevant time period. We have accrued a liability that represents the total estimated amount we expect to pay under the settlement agreement, and we do not expect any additional losses above the Chief Financial Officer under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and related rules, based onamount accrued to be material to our alleged failure during the claimed class period to disclose material information about our quality controls and safeguards in relation to consumer and employee health. The complaint asserts that those failures and related public statements were false and misleading and that, as a result, the market price of our stock was artificially inflated during the claimed class period. The complaint seeks damages on behalf of the purported class in an unspecified amount, interest, and an award of reasonable attorneys’ fees, expert fees, and other costs. On March 22, 2018, the court granted our motion to dismiss, with prejudice. On April 20, 2018, the plaintiffs filed a motion for relief from the judgment and seeking leave to file a third amended complaint, and on November 20, 2018, the court denied the motion. On December 20, 2018, the plaintiff initiated an appeal to the U.S. Court of Appeals for the Second Circuit, and on October 1, 2020, the court denied the plaintiffs' motion for an consolidated financial statements.en banc

 rehearing.

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Other

We are involved in various other claims and legal actions, such as wage and hour, wrongful termination and other employment-related claims, slip and fall and other personal injury claims, advertising and consumer claims, and lease, construction and other commercial disputes, that arise in the ordinary course of business, some of which may be covered by insurance. The outcomes of these actions are not predictable, but we do not believe that the ultimate resolution of these actions will have a material adverse effect on our financial position, results of operations, liquidity, or capital resources. However, if there is a significant increase in the number of these claims, or one or more successful claims under whichif we incur greater liabilities than we currently anticipate under one or more claims, it could materially and adversely affect our business, financial condition, results of operations and cash flows.

Accrual for Estimated Liability

AsIn relation to various legal matters as of December 31, 2020,2022, we had aan accrued legal liability balance of $53,242$15,227 included within accrued liabilities on the consolidated balance sheets. The settlements are part of our plan to resolve longstandingsheet. Included in this amount is the accrued loss for the DCWP legal proceedings whenever appropriate to better allow us to focus on our strategic priorities.

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matter discussed above.

13.12. Debt

On May 8, 2020,As of December 31, 2022, we entered intohad a $600,000$500,000 revolving credit facility with JPMorgan Chase Bank (“JPMorgan”) as administrative agent, which expiresagent. Borrowings on May 7, 2021. We pay a commitment fee of 0.625% per year for unused amounts under the credit facility. Interest on borrowings currentlyfacility bear interest at a rate equal to the London Interbank Offered Rate (LIBOR)LIBOR plus 1.50%1.375%, which mayis subject to increase due to changes in our total leverage ratio as defined in the credit agreement. We are also obligated to pay a commitment fee of 0.175% per year for unused amounts under the credit facility, which also may increase due to changes in our total leverage ratio. Further, we are subject to certain covenants defined in the credit agreement, which include (i) maintaining a total leverage ratio of less than 3.0x, (ii) maintaining a consolidated fixed charge coverage ratio of greater than 1.5x, and (iii) limiting us from making investments and capital expendituresincurring additional indebtedness in certain circumstances. We had 0no outstanding borrowings under the credit facility and were in compliance with all covenants as of December 31, 2020.2022 and December 31, 2021.

On February 1, 2023, we amended our revolving credit facility to replace the reference rate for borrowings from LIBOR to the Secured Overnight Financing Rate (“SOFR”) plus a credit spread adjustment of 0.10%, in anticipation of the market transition noted under Recently Issued Accounting Standards.  No borrowings were outstanding as of the date of the amendment.

14. 13. Related Party Transactions

In April 2020, we acquired common stock of a supplier. As of December 31, 2020,2022, we ownowned approximately 12.9%10.3% of the common stock outstanding of a supplier.Tractor. As we are a significant customer of the supplierTractor and maintain board representation, we are accounting for our investment under the equity method. Accordingly, we have identified the supplierTractor as a related party. We purchase product from the supplier which we sellfor sale to customers in our restaurants. During the yearyears ended December 31, 2022, 2021 and 2020, purchases from the supplier were $11,931.$37,015, $29,400, and $11,931 respectively.

15. Quarterly Financial Data (Unaudited)

The following table presents summarized unaudited quarterly financial data from the consolidated statements of income for each of the eight quarters in the periods ended December 31, 2020 and December 31, 2019. The operating results for any quarter are not necessarily indicative of the results for any subsequent quarter. Basic and diluted net income per share calculations for each quarter is based on the weighted average diluted shares outstanding for that quarter and may not sum to the full year total amount as presented on our consolidated statements of income:

2020

    March 31    

    June 30    

September 30

December 31

Total Revenue

$

1,410,772

$

1,364,738

$

1,601,414

$

1,607,710

Income (loss) from operations

$

71,121

$

(4,939)

$

107,096

$

116,886

Net income

$

76,388

$

8,175

$

80,244

$

190,959

Basic earnings per share

$

2.75

$

0.29

$

2.87

$

6.82

Diluted earnings per share

$

2.70

$

0.29

$

2.82

$

6.69

2019

    March 31    

    June 30    

September 30

December 31

Total Revenue

$

1,308,217

$

1,434,231

$

1,403,697

$

1,440,224

Income from operations

$

110,161

$

120,020

$

115,621

$

98,156

Net income

$

88,132

$

91,028

$

98,582

$

72,416

Basic earnings per share

$

3.18

$

3.28

$

3.55

$

2.61

Diluted earnings per share

$

3.13

$

3.22

$

3.47

$

2.55


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ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.  CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial and Administrative Officer, as appropriate, to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures

As of December 31, 2020,2022, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial and Administrative Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial and Administrative Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.

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Changes in Internal Control over Financial Reporting

There were no changes during the fiscal quarter ended December 31, 2020,2022, in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting

The management of Chipotle Mexican Grill, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020,2022, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (the “2013 framework”). Based on that assessment, management concluded that, as of December 31, 2020,2022, our internal control over financial reporting was effective based on the criteria established in the 2013 framework.

Our independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2020.2022. This report follows.

 


 

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Chipotle Mexican Grill, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Chipotle Mexican Grill, Inc.’s internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal ControlControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Chipotle Mexican Grill, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20202022 and 2019,2021, the related consolidated statements of income and comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020,2022, and the related notes and our report dated February 9, 20218, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Irvine, California

February 9, 20218, 2023


 

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ITEM 9B.  OTHER INFORMATION

None.

ITEM 9C.  DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Incorporated by reference from the definitive proxy statement for our 20212023 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2020.2022.

ITEM 11.  EXECUTIVE COMPENSATION

Incorporated by reference from the definitive proxy statement for our 20212023 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2020.2022.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Securities AuthorizedIncorporated by reference from the definitive proxy statement for Issuance Under Equity Compensation Plans

The following table presents information regarding options and rights outstanding under our equity compensation plans as2023 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2020. All options/SOSARs reflected are options to purchase common stock.2022.

(a)
Number of Securities
to be Issued Upon
Exercise of Outstanding
Options and Rights(1)

(b)
Weighted-Average
Exercise Price of
Outstanding Options and
Rights(1)

(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding securities
reflected in column (a))(2)

(a)
Number of Securities
to be Issued Upon
Exercise of Outstanding
Options and Rights(1)

(b)
Weighted-Average
Exercise Price of
Outstanding Options and
Rights(1)

(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding securities
reflected in column (a))(2)

Equity Compensation Plans Approved by Security Holders

939,823

$

533.71

2,359,635

479,281

$

1,053.84

2,567,366

Equity Compensation Plans Not Approved by Security Holders

None

N/A

None

None

N/A

None

Total

939,823

$

533.71

2,359,635

479,281

$

1,053.84

2,567,366

__________________

(1)Includes shares issuable in connection with awards with performance and market conditions, which will be issued based on achievement of performance criteria associated with the awards, with the number of shares issuable dependent on our level of performance. The weighted-average exercise price in column (b) includes the weighted-average exercise price of SOSARs only.

(2)Includes 2,114,2792,317,950 shares remaining available under the Amended and Restated Chipotle Mexican Grill, Inc. 20112022 Stock Incentive Plan, and 245,356249,416 shares remaining available under the Chipotle Mexican Grill, Inc. Employee Stock Purchase Plan. In addition to being available for future issuance upon exercise of SOSARs or stock options that may be granted after December 31, 2020,2022, all of the shares available for grant under the Amended and Restated Chipotle Mexican Grill, Inc. 20112022 Stock Incentive Plan, may instead be issued in the form of restricted stock, restricted stock units, performance shares or other equity-based awards. Each share underlying a full value award such as restricted stock, restricted stock units or performance shares counts as two shares used against the total number of securities authorized under the plan. 

Additional information for this item is incorporated by reference from the definitive proxy statement for our 20212023 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2020.2022.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Incorporated by reference from the definitive proxy statement for our 20212023 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2020.2022.

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Table of Contents

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

Incorporated by reference from the definitive proxy statement for our 20212023 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2020.2022.

 

 

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PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES

1. All Financial statements

ConsolidatedThe following consolidated financial statements filed as part of this report are listed underincluded in Part II, Item 8. “Financial Statements and Supplementary Data.”Data” of this 10-K:

Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2022, 2021 and 2020;

Consolidated Balance Sheets as of December 31, 2022 and 2021;

Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020;

Consolidated Statements of Equity for the years ended December 31, 2022, 2021 and 2020;

Notes to Consolidated Financial Statements; and

Reports of Independent Registered Public Accounting Firm

2. Financial statement schedules

No schedules are required because either the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto.

3. Exhibits

Description of Exhibit Incorporated Herein by Reference

Exhibit Number

Exhibit Description

Form

File No.

Filing Date

Exhibit Number

Filed Herewith

3.1

Amended and Restated Certificate of Incorporation of Chipotle Mexican Grill, Inc.

10-Q

001-32731

October 26, 2016

3.1

3.2

Chipotle Mexican Grill, Inc. Amended and Restated Bylaws

8-K

001-32731

October 6, 2016

3.1

4.1

Form of Stock Certificate for Shares of Common Stock

10-K

001-32731

February 10, 2012

4.1

4.2

Description of Chipotle Securities

10-K

001-32731

February 5, 2020

4.2

10.1†

Form of 2019 Performance Share Unit Agreement

10-Q

001-32731

April 25, 2019

10.1

10.2†

Form of 2019 Transformation Performance Share Unit Agreement (1)

-

-

-

-

X

10.3†

Change in Control Severance Plan, effective June 1, 2019

10-Q

001-32731

July 24, 2019

10.1

10.4†

Form of Participation and Restrictive Covenant Agreement for Change in Control Severance Plan

10-Q

001-32731

July 24, 2019

10.2

10.5†

Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan

8-K

001-32731

May 24, 2018

10.1

10.6†

Form of Stock Appreciation Rights Agreement

10-Q

001-32731

April 20, 2012

10.1

10.7†

Form of 2014 Stock Appreciation Rights Agreement

10-K

001-32731

February 7, 2017

10.2.4

10.8†

Form of 2014 Performance-Based Stock Appreciation Rights Agreement

10-K

001-32731

February 7, 2017

10.2.5

10.9†

Form of 2016 Stock Appreciation Rights Agreement

10-Q

001-32731

April 27, 2016

10.1

10.10†

Retention Agreement, dated January 9, 2018, between Jack Hartung and Chipotle Mexican Grill, Inc.

8-K

001-32731

January 12, 2018

10.1

10.11†

Amended and Restated Registration Rights Agreement dated January 31, 2006 among Chipotle Mexican Grill, Inc., McDonald’s Corporation and certain shareholders

10-K

001-32731

March 17, 2006

10.6

10.12†

Retention Agreement, dated January 9, 2018, between Scott Boatwright and Chipotle Mexican Grill, Inc.

10-Q

001-32731

April 26, 2018

10.4

10.13†

Supplemental Deferred Investment Plan

10-Q

001-32731

July 27, 2018

10.3

10.14†

Retention Agreement, dated January 9, 2018, between Curt Garner and Chipotle Mexican Grill, Inc.

10-Q

001-32731

April 26, 2018

10.5

10.15†

Form of Director and Officer Indemnification Agreement

8-K

001-32731

March 21, 2007

10.1

10.16†

Offer Letter, dated February 11, 2018, between Brian R. Niccol and Chipotle Mexican Grill, Inc.

8-K

001-32731

February 15, 2018

10.1

10.17†

Chipotle Mexican Grill, Inc. Employee Stock Purchase Plan

10-K

001-32731

February 10, 2012

10.11

Description of Exhibit Incorporated Herein by Reference

Exhibit Number

Exhibit Description

Form

File No.

Filing Date

Exhibit Number

Filed Herewith

3.1

Amended and Restated Certificate of Incorporation of Chipotle Mexican Grill, Inc.

10-Q

001-32731

October 26, 2016

3.1

3.2

Chipotle Mexican Grill, Inc. Amended and Restated Bylaws

8-K

001-32731

December 9, 2022

3.1

4.1

Form of Stock Certificate for Shares of Common Stock

10-K

001-32731

February 10, 2012

4.1

4.2

Description of Chipotle Securities

10-K

001-32731

February 5, 2020

4.2

10.1†

Form of 2019 Transformation Performance Share Unit Agreement (1)

10-K

001-32731

February 10, 2020

10.2

10.2†

Change in Control Severance Plan, effective June 1, 2019

10-Q

001-32731

July 24, 2019

10.1

10.3†

Form of Participation and Restrictive Covenant Agreement for Change in Control Severance Plan

10-Q

001-32731

July 24, 2019

10.2

10.4†

Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan

8-K

001-32731

May 24, 2018

10.1

10.5†

Form of 2016 Stock Appreciation Rights Agreement

10-Q

001-32731

April 27, 2016

10.1

10.6†

Amended and Restated Registration Rights Agreement dated January 31, 2006 among Chipotle Mexican Grill, Inc., McDonald’s Corporation and certain shareholders

10-K

001-32731

March 17, 2006

10.6

10.7†

Form of Director and Officer Indemnification Agreement

8-K

001-32731

March 21, 2007

10.1

10.8†

Offer Letter, dated February 11, 2018, between Brian R. Niccol and Chipotle Mexican Grill, Inc.

8-K

001-32731

February 15, 2018

10.1

10.9†

Non-Plan Inducement SOSARs Agreement between Brian R. Niccol and Chipotle Mexican Grill, Inc.

S-8

33-223467

March 6, 2018

4.3

10.10†

Non-Plan Inducement RSUs Agreement between Brian R. Niccol and Chipotle Mexican Grill, Inc.

S-8

33-223467

March 6, 2018

4.4

10.11

Investor Agreement dated December 14, 2016 between Chipotle Mexican Grill, Inc. and Pershing Square Capital Management, L.P.

8-K

001-32731

December 19, 2016

10.1

10.12†

Form of 2018 CEO SOSARs Agreement

8-K/A

001-32731

April 3, 2018

10.2

10.13†

Form of 2018 Premium-priced SOSARs Agreement

8-K/A

001-32731

April 3, 2018

10.3

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10.18†

Non-Plan Inducement SOSARs Agreement between Brian R. Niccol and Chipotle Mexican Grill, Inc.

S-8

33-223467

March 6, 2018

4.3

10.19†

Non-Plan Inducement RSUs Agreement between Brian R. Niccol and Chipotle Mexican Grill, Inc.

S-8

33-223467

March 6, 2018

4.4

10.20

Investor Agreement dated December 14, 2016 between Chipotle Mexican Grill, Inc. and Pershing Square Capital Management, L.P.

8-K

001-32731

December 19, 2016

10.1

10.21

Registration Rights Agreement dated February 3, 2017, between Chipotle Mexican Grill, Inc. and Pershing Square Capital Management, L.P.

10-K

001-32731

February 7, 2017

10.11

10.22†

Form of 2018 CEO SOSARs Agreement

8-K/A

001-32731

April 3, 2018

10.2

10.23†

Executive Agreement dated May 29, 2017 between Chipotle Mexican Grill, Inc. and Scott Boatwright

8-K

001-32731

September 15, 2017

10.1

10.24†

Form of 2018 Premium-priced SOSARs Agreement

8-K/A

001-32731

April 3, 2018

10.3

10.25†

Executive Chairman Agreement dated November 28, 2017 between Chipotle Mexican Grill, Inc. and Steve Ells

8-K

001-32731

December 1, 2017

10.1

10.26†

Offer Letter, dated March 9, 2018, between Christopher Brandt and Chipotle Mexican Grill, Inc.

10-Q

001-32731

April 26, 2018

10.13

10.27†

Form of 2018 Stock Appreciation Rights Agreement

10-Q

001-32731

April 26, 2018

10.14

10.28†

Form of 2018 Restricted Stock Units Agreement

10-Q

001-32731

April 26, 2018

10.15

10.29†

Form of 2019 Director Restricted Stock Unit Agreement

10-K

001-32731

February 5, 2020

10.34

10.30†

Amendment No. 1 dated March 5, 2020 to the Executive Chairman Agreement dated November 28, 2017 between Chipotle Mexican Grill, Inc. and Steve Ells

10-Q

001-32731

April 29, 2020

10.1

10.31†

Deferred Prosecution Agreement dated April 20, 2020 between Chipotle Mexican Grill, Inc. and the United States Attorney’s Office for the Central District of California and the United States Department of Justice’s Consumer Protection Branch

8-K

001-32731

April 21, 2020

10.1

10.32

364-Day Revolving Credit Agreement dated May 8, 2020, among Chipotle Mexican Grill, Inc. and JPMorgan Chase Bank, N.A., Administrative Agent, and other lenders party to the Agreement

8-K

001-32731

May 8, 2020

10.1

10.33

Director Compensation Program and Stock Ownership Guidelines

-

-

-

-

X

10.34†

Form of 2020 Performance Share Agreement

-

-

-

-

X

10.35†

Form of 2020 Restricted Stock Units Agreement

-

-

-

-

X

10.36†

Form of 2020 Stock Appreciation Rights Agreement

-

-

-

-

X

21.1

Subsidiaries of Chipotle Mexican Grill, Inc.

-

-

-

-

X

23.1

Consent of Ernst & Young LLP (as the independent registered public accounting firm of Chipotle Mexican Grill, Inc.)

-

-

-

-

X

24.1

Power of Attorney (included on signature page of this report)

-

-

-

-

X

31.1

Certification of Chief Executive Officer of Chipotle Mexican Grill, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

-

-

-

-

X

31.2

Certification of Chief Financial Officer of Chipotle Mexican Grill, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

-

-

-

-

X

32.1

Certification of Chief Executive Officer and Chief Financial Officer of Chipotle Mexican Grill, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

-

-

-

-

X

 

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Table of Contents

 

10.14†

Executive Chairman Agreement dated November 28, 2017 between Chipotle Mexican Grill, Inc. and Steve Ells

8-K

001-32731

December 1, 2017

10.1

10.15†

Offer Letter, dated March 9, 2018, between Christopher Brandt and Chipotle Mexican Grill, Inc.

10-Q

001-32731

April 26, 2018

10.13

10.16†

Form of 2018 Stock Appreciation Rights Agreement

10-Q

001-32731

April 26, 2018

10.14

10.17†

Form of 2021 Director Restricted Stock Unit Agreement

10-Q

001-32731

July 23, 2021

10.2

10.18†

Amendment No. 1 dated March 5, 2020 to the Executive Chairman Agreement dated November 28, 2017 between Chipotle Mexican Grill, Inc. and Steve Ells

10-Q

001-32731

April 29, 2020

10.1

10.19†

Deferred Prosecution Agreement dated April 20, 2020 between Chipotle Mexican Grill, Inc. and the United States Attorney’s Office for the Central District of California and the United States Department of Justice’s Consumer Protection Branch

8-K

001-32731

April 21, 2020

10.1

10.20

Revolving Credit Agreement dated April 13, 2021, among Chipotle Mexican Grill, Inc. and JPMorgan Chase Bank, N.A., Administrative Agent, and other lenders party to the Agreement

8-K

001-32731

April 16, 2021

10.1

10.21†

Form of 2020 Performance Share Agreement

10-K

001-32731

February 10, 2021

10.34

10.22†

Form of 2020 Restricted Stock Units Agreement

10-K

001-32731

February 10, 2021

10.35

10.23†

Form of 2020 Stock Appreciation Rights Agreement

10-K

001-32731

February 10, 2021

10.36

10.24†

Form of 2021 Performance Share Unit Agreement

10-Q

001-32731

April 29, 2021

10.2

10.25†

Form of Amended and Restated 2018 Performance Share Unit Agreement

10-Q

001-32731

April 29, 2021

10.3

10.26†

Form of 2022 Restricted Stock Unit Agreement

10-Q

001-32731

April 28, 2022

10.1

10.27†

Form of 2022 Stock Appreciation Rights Agreement

10-Q

001-32731

April 28, 2022

10.2

10.28†

Form of 2022 Performance Share Agreement

10-Q

001-32731

April 28, 2022

10.3

10.29†

Form of 2022 Stock Option Agreement (Canada)

10-Q

001-32731

April 28, 2022

10.4

10.30†

Director Compensation Program and Stock Ownership Guidelines (Revised May 18, 2022)

10-Q

001-32731

July 27, 2022

10.1

10.31†

Chipotle Mexican Grill, Inc. 2022 Stock Incentive Plan

10-Q

001-32731

July 27, 2022

10.2

10.32†

Chipotle Mexican Grill, Inc. Employee Stock Purchase Plan

10-Q

001-32731

July 27, 2022

10.3

10.33†

Supplemental Deferred Investment Plan

X

21.1

Subsidiaries of Chipotle Mexican Grill, Inc.

-

-

-

-

X

23.1

Consent of Ernst & Young LLP (as the independent registered public accounting firm of Chipotle Mexican Grill, Inc.)

-

-

-

-

X

31.1

Certification of Chief Executive Officer of Chipotle Mexican Grill, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

-

-

-

-

X

31.2

Certification of Chief Financial and Administrative Officer of Chipotle Mexican Grill, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

-

-

-

-

X

32.1

Certification of Chief Executive Officer and Chief Financial and Administrative Officer of Chipotle Mexican Grill, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

-

-

-

-

X

101.INS

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

-

-

-

-

X

101.SCH

Inline XBRL Taxonomy Extension Schema Document

-

-

-

-

X

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Table of Contents

101.INS

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

-

-

-

-

X

101.SCH

Inline XBRL Taxonomy Extension Schema Document

-

-

-

-

X

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

-

-

-

-

X

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

-

-

-

-

X

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

-

-

-

-

X

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

-

-

-

-

X

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

-

-

-

-

X

(1) Portions of this exhibit have been omitted as permitted by applicable regulations.

†- Management contracts and compensatory plans or arrangements required to be filed as exhibits.

ITEM 16.  FORM 10-K SUMMARY

None.

 

 

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Table of Contents

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CHIPOTLE MEXICAN GRILL, INC.

 

By:

/s/    JOHN R. HARTUNG

Name:

John R. Hartung

Title:

Chief Financial and Administrative Officer

Date: February 9, 20218, 2023

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Brian Niccol and John Hartung, and each of them, his or her true and lawful attorneys-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Date

Title

/s/    BRIAN NICCOL

February 9, 20218, 2023

Chief Executive Officer and Chairman of the Board of Directors

(principal executive officer)

Brian Niccol

/s/    JOHN R. HARTUNG

February 9, 20218, 2023

Chief Financial and Administrative Officer

(principal financial and accounting officer)

John R. Hartung

/s/    ALBERT S. BALDOCCHI

February 9, 20218, 2023

Director

Albert S. Baldocchi

/s/ MATTHEW A. CAREY

February 8, 2023

Director

Matthew A. Carey

/s/    GREGG L. ENGLES

February 9, 20218, 2023

Director

Gregg L. Engles

/s/    PATRICIA FILI-KRUSHEL

February 9, 20218, 2023

Director

Patricia Fili-Krushel

/s/ NEIL W. FLANZRAICHMAURICIO GUTIERREZ

February 9, 20218, 2023

Director

Neil W. FlanzraichMauricio Gutierrez

/s/    ROBIN S. HICKENLOOPER

February 9, 20218, 2023

Director

Robin S. Hickenlooper

/s/    SCOTT MAW

February 9, 20218, 2023

Director

Scott Maw

/s/ ALI NAMVAR

February 9, 2021

Director

Ai Namvar

/s/  MARY A. WINSTON

February 9, 20218, 2023

Director

Mary A. Winston

 

 

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