~~Chipotle Mexican Grill, Inc.~~

~~Condensed Consolidated Statement of Income~~CHIPOTLE MEXICAN GRILL, INC.

~~(unaudited)~~CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)



	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Food and beverage revenue	$	1,869,365	$	1,350,188	$	3,585,355	$	2,752,305
Delivery service revenue		23,173		14,550		48,758		23,205
Total revenue		1,892,538		1,364,738		3,634,113		2,775,510
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Food, beverage and packaging		574,478		454,756		1,097,149		917,055
Labor		464,506		385,266		898,175		778,831
Occupancy		103,430		95,576		205,199		190,855
Other operating costs		287,242		262,378		581,952		473,140
General and administrative expenses		146,044		102,647		301,147		209,117
Depreciation and amortization		62,082		60,024		125,204		118,398
Pre-opening costs		4,965		3,644		8,386		7,210
Impairment, closure costs, and asset disposals		4,266		5,386		9,934		14,722
Total operating expenses		1,647,013		1,369,677		3,227,146		2,709,328
Income (loss) from operations		245,525		(4,939)		406,967		66,182
Interest and other income (expense), net		851		623		(1,317)		3,366
Income (loss) before income taxes		246,376		(4,316)		405,650		69,548
Benefit/(provision) for income taxes		(58,402)		12,491		(90,575)		15,015
Net income	$	187,974	$	8,175	$	315,075	$	84,563
Earnings per share:
Basic	$	6.68	$	0.29	$	11.20	$	3.04
Diluted	$	6.60	$	0.29	$	11.04	$	2.99
Weighted-average common shares outstanding:
Basic		28,134		27,911		28,130		27,851
Diluted		28,501		28,333		28,542		28,328
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustments	$	305	$	1,055	$	42	$	(786)
Comprehensive income	$	188,279	$	9,230	$	315,117	$	83,777

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016
Revenue
$
1,128,074

$
1,036,982

$
3,366,312

$
2,869,824
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):

Food, beverage and packaging

394,567

363,900

1,155,514

999,968
Labor

306,862

286,144

900,564

820,751
Occupancy

83,199

74,201

242,482

217,147
Other operating costs

162,312

166,045

476,606

473,390
General and administrative expenses

99,182

78,405

238,698

211,171
Depreciation and amortization

41,546

37,434

121,906

108,296
Pre-opening costs

2,792

4,490

9,764

13,044
Loss on disposal and impairment of assets

6,747

16,637

10,013

22,040
Total operating expenses

1,097,207

1,027,256

3,155,547

2,865,807
Income from operations

30,867

9,726

210,765

4,017
Interest and other income, net

1,275

672

3,512

3,584
Income before income taxes

32,142

10,398

214,277

7,601
Provision for income taxes

(12,532)

(2,599)

(81,817)

(638)
Net income
$
19,610

$
7,799

$
132,460

$
6,963
Earnings per share:

Basic
$
0.69

$
0.27

$
4.63

$
0.24
Diluted
$
0.69

$
0.27

$
4.62

$
0.23
Weighted average common shares outstanding:

Basic

28,415

29,063

28,604

29,387
Diluted

28,439

29,171

28,696

29,792

~~Condensed Consolidated Statement of Comprehensive Income~~

~~(unaudited)~~

~~(in thousands)~~

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016
Net income
$
19,610

$
7,799

$
132,460

$
6,963
Other comprehensive income (loss), net of income taxes:

Foreign currency translation adjustments

1,778

(203)

4,589

961
Unrealized gain (loss) on available-for-sale securities

272

(882)

(99)

3,051
Tax benefit (expense)

(104)

346

27

(1,185)
Other comprehensive income (loss), net of income taxes

1,946

(739)

4,517

2,827
Comprehensive income
$
21,556

$
7,060

$
136,977

$
9,790

See accompanying notes to condensed consolidated financial statements.

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~~Chipotle Mexican Grill, Inc.~~CHIPOTLE MEXICAN GRILL, INC.

~~Condensed Consolidated Statement of Cash Flows~~CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

~~(unaudited)~~

(in thousands)

(unaudited)


	Common Stock					Treasury Stock
	Shares	Amount		Additional ‎Paid-In ‎Capital		Shares	Amount		Retained ‎Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance, December 31, 2019	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		(1,051)
Stock-based compensation	0		0		17,708	0		0		0		0		17,708
Stock plan transactions and other	194		2		(181)	0		0		0		0		(179)
Acquisition of treasury stock	0		0		0	134		(102,031)		0		0		(102,031)
Net income	0		0		0	0		0		76,388		0		76,388
Other comprehensive income (loss), net of income tax	0		0		0	0		0		0		(1,841)		(1,841)
Balance, March 31, 2020	36,517	$	365	$	1,483,224	8,702	$	(2,801,150)	$	2,996,785	$	(7,204)	$	1,672,020
Stock-based compensation	-		-		23,676	-		-		-		-		23,676
Stock plan transactions and other	150		2		(115)	-		-		-		-		(113)
Acquisition of treasury stock	-		-		-	1		(317)		-		-		(317)
Net income	-		-		-	-		-		8,175		-		8,175
Other comprehensive income (loss), net of income tax	-		-		-	-		-		-		1,055		1,055
Balance, June 30, 2020	36,667	$	367	$	1,506,785	8,703	$	(2,801,467)	$	3,004,960	$	(6,149)	$	1,704,496

Balance, December 31, 2020	36,704	$	367	$	1,549,909	8,703	$	(2,802,075)	$	3,276,163	$	(4,229)	$	2,020,135
Stock-based compensation	0		0		55,960	0		0		0		0		55,960
Stock plan transactions and other	232		2		632	0		0		0		0		634
Acquisition of treasury stock	0		0		0	74		(106,036)		0		0		(106,036)
Net income	0		0		0	0		0		127,101		0		127,101
Other comprehensive income (loss), net of income tax	0		0		0	0		0		0		(263)		(263)
Balance, March 31, 2021	36,936	$	369	$	1,606,501	8,777	$	(2,908,111)	$	3,403,264	$	(4,492)	$	2,097,531
Stock-based compensation	-		-		47,670	-		-		-		-		47,670
Stock plan transactions and other	52		1		24	-		-		-		-		25
Acquisition of treasury stock	-		-		-	113		(159,347)		-		-		(159,347)
Net income	-		-		-	-		-		187,974		-		187,974
Other comprehensive income (loss), net of income tax	-		-		-	-		-		-		305		305
Balance, June 30, 2021	36,988	$	370	$	1,654,195	8,890	$	(3,067,458)	$	3,591,238	$	(4,187)	$	2,174,158

Nine months ended September 30,

2017

2016
Operating activities

Net income
$
132,460

$
6,963
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

121,906

108,296
Deferred income tax (benefit) provision

(11,323)

380
Loss on disposal and impairment of assets

10,013

22,040
Bad debt allowance

181

99
Stock-based compensation expense

54,596

48,389
Excess tax benefit on stock-based compensation

-

(1,888)
Other

(126)

(224)
Changes in operating assets and liabilities:

Accounts receivable

16,477

16,084
Inventory

(7,023)

(3,442)
Prepaid expenses and other current assets

(4,890)

(5,362)
Other assets

(1,382)

1,509
Accounts payable

14,771

(11,938)
Accrued liabilities

35,514

36,245
Income tax payable/receivable

(7,810)

36,026
Deferred rent

22,410

27,319
Other long-term liabilities

3,060

576
Net cash provided by operating activities

378,834

281,072
Investing activities

Purchases of leasehold improvements, property and equipment

(165,506)

(192,252)
Purchases of investments

(120,084)

-
Maturities of investments

140,000

45,000
Proceeds from sale of investments

-

540,648
Net cash provided by (used in) investing activities

(145,590)

393,396
Financing activities

Acquisition of treasury stock

(209,585)

(771,354)
Excess tax benefit on stock-based compensation

-

1,888
Stock plan transactions and other financing activities

10

23
Net cash used in financing activities

(209,575)

(769,443)
Effect of exchange rate changes on cash and cash equivalents

1,931

1,098
Net change in cash and cash equivalents

25,600

(93,877)
Cash and cash equivalents at beginning of period

87,880

248,005
Cash and cash equivalents at end of period
$
113,480

$
154,128

See accompanying notes to condensed consolidated financial statements.

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~~Chipotle Mexican Grill, Inc.~~CHIPOTLE MEXICAN GRILL, INC.

~~Notes~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Six months ended
	June 30,
	2021		2020
Operating activities
Net income	$	315,075	$	84,563
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		125,204		118,398
Amortization of operating lease assets		105,485		88,139
Deferred income tax provision		(15,884)		55,122
Impairment, closure costs, and asset disposals		8,235		13,747
Provision for credit losses		(220)		82
Stock-based compensation expense		102,680		40,762
Other		2,467		1,670
Changes in operating assets and liabilities:
Accounts receivable		37,286		22,598
Inventory		1,309		2,029
Prepaid expenses and other current assets		(18,186)		(6,250)
Other assets		117		(8,574)
Accounts payable		12,525		40,530
Accrued payroll and benefits		21,068		3,264
Accrued liabilities		(20,102)		(8,120)
Unearned revenue		(11,487)		(4,027)
Income tax payable/receivable		(1,851)		(70,119)
Operating lease liabilities		(101,818)		(69,468)
Other long-term liabilities		955		587
Net cash provided by operating activities		562,858		304,933
Investing activities
Purchases of leasehold improvements, property and equipment		(212,123)		(165,455)
Purchases of investments		(190,920)		(101,104)
Maturities of investments		162,045		198,578
Proceeds from sale of equipment		2,885		0
Acquisitions of equity method investments		0		(7,525)
Net cash used in investing activities		(238,113)		(75,506)
Financing activities
Acquisition of treasury stock		(203,151)		(54,401)
Tax withholding on stock-based compensation awards		(58,860)		(47,947)
Other financing activities		(2,208)		(1,855)
Net cash used in financing activities		(264,219)		(104,203)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(216)		(104)
Net change in cash, cash equivalents, and restricted cash		60,310		125,120
Cash, cash equivalents, and restricted cash at beginning of period		635,836		508,481
Cash, cash equivalents, and restricted cash at end of period	$	696,146	$	633,601
Supplemental disclosures of cash flow information
Income taxes paid	$	108,247	$	657
Purchases of leasehold improvements, property, and equipment accrued in accounts payable and accrued liabilities	$	50,403	$	41,504
Acquisition of treasury stock accrued in accounts payable and accrued liabilities	$	3,372	$	0

See accompanying notes to ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements.

~~(unaudited)~~
‎

~~(dollar~~

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CHIPOTLE MEXICAN GRILL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

1. Basis of Presentation and Update to Accounting Policies

In this quarterly report on Form 10-Q, 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 ~~focused~~relevant menu of burritos, ~~tacos,~~ burrito bowls, quesadillas, tacos, and salads, made using fresh, high-quality ingredients. As of ~~September~~June 30, ~~2017,~~2021, we operated ~~2,330~~2,808 Chipotle restaurants throughout the United States as well as 3641 international Chipotle ~~restaurants and 8 non-Chipotle~~ restaurants. We ~~managed~~are also an investor in a consolidated entity that owns and operates 4 Pizzeria Locale restaurants, a fast-casual pizza concept. We manage our operations based on 118 regions ~~during the third quarter of 2017~~ and have aggregated our operations to ~~one~~1 reportable segment.

Certain prior-year amounts have been reclassified to conform to the current year presentation.

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of our financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by U.S. generally accepted accounting principles for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, ~~2016.~~2020.

2. ~~Recent Accounting Standards~~

Recently Issued Accounting Standards

In ~~February 2016,~~March 2020, the Financial Accounting Standards Board ~~(“FASB”~~(the “FASB”) issued ~~Accounting Standards Update (“ASU”) 2016-02, “Leases~~ASU No. 2020-04, “Reference Rate Reform (Topic ~~842).~~848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The pronouncement ~~requires lessees~~provides temporary optional expedients and exceptions to ~~recognize a liability for lease obligations, which represent~~ the ~~discounted obligation~~current guidance on contract modifications and hedge accounting to ~~make future minimum lease payments,~~ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and ~~a corresponding right-of-use asset on the balance sheet.~~other interbank offered rates to alternative reference rates. The guidance ~~requires disclosure of key information about leasing arrangements which are intended~~was effective upon issuance and generally can be applied to give financial statement users the ability to assess the amount, timing, and potential uncertainty of cash flows related to leases. We expect to adopt the requirements of the new lease standard effective January 1, 2019, using a modified retrospective adoption method. applicable contract modifications through December 31, 2022. We are currently evaluating the ~~provisions~~impact of the ~~new lease standard, including optional practical expedients, and assessing our existing lease portfolio in order~~transition from LIBOR to ~~determine the~~alternative reference rates but do not expect a significant impact to our ~~accounting systems, processes and internal control over financial reporting.~~ The adoption of ASU 2016-02 will have a significant impact on our consolidated balance sheet because we will record material assets and obligations for current operating leases. We are still assessing the expected impact on our consolidated statements of income and cash flows.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” as amended by multiple standards updates. This guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, this guidance will require us to enhance our disclosures, including disclosing performance obligations to customers arising from gift cards and certain promotional activity. The pronouncement is effective for reporting periods beginning after December 15, 2017. The adoption is not expected to have an impact on our consolidated financial ~~position or results of operations.~~ 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 onto the condensed consolidated financial statements.

Recently Adopted Accounting Standards

~~In March 2016,~~On January 1, 2021, we adopted ASU 2019-12, “Simplifying the ~~FASB issued ASU 2016-09, “Compensation-Stock Compensation~~Accounting for Income Taxes (Topic ~~718).~~740)” ~~The pronouncement was issued to simplify several aspects of the~~, which modified certain technical guidelines for accounting for ~~share-based payment transactions,~~income taxes. The adoption of ASU 2019-12 did not result in a material change to our condensed consolidated financial statements.

3. Revenue Recognition

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. Gift card liability balances are typically highest at the ~~income tax consequences, classification~~end of ~~awards as either equity or liabilities and classification~~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.

Table of Contents

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



	June 30,		December 31,
	2021		2020
Gift card liability	$	87,964	$	105,413

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



	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Revenue recognized from gift card liability balance at the beginning of the year	$	8,628	$	4,064	$	39,494	$	32,134

Chipotle Rewards

We ~~adopted ASU 2016-09 on January 1, 2017, prospectively (prior periods~~ have ~~not been restated). The primary impact of adoption was the recognition during the three months ended September 30, 2017, of~~ a $77 tax deficiency, which increases our provision for income taxes and for the nine months ended September 30, 2017, an excess tax benefit of $587, which reduces our provision for income taxes and the classification of these excess tax benefits in operating activitiesnational loyalty program called Chipotle Rewards. Eligible customers who enroll in the ~~condensed consolidated statement~~program generally earn points for every dollar spent. After accumulating the required number of ~~cash flows instead~~points, the customer may select a reward. We may also periodically offer promotions, which typically provide the customer with the opportunity to earn bonus points or other rewards. 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 ~~financing activities.~~

~~Table~~six months. In June 2021, we enhanced Chipotle Rewards and introduced a new redemption feature we call the “Rewards Exchange” that provides loyalty members multiple redemption options. Previously, Chipotle Rewards points were automatically redeemed for a free entrée when the customer obtained the required number of ~~Contents~~

points. The ~~presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact to any of the periods presented~~change in the ~~condensed consolidated statement of cash flows, since such cash flows~~Chipotle Rewards program did not have historically been presented in financing activities. We also elected to continue estimating forfeitures when determining the amount of stock-based compensation costs to be recognized in each period. No other provisions of ASU 2016-09 had a material impact on our condensed consolidated financial statements.

We defer revenue associated with the estimated selling price of points or rewards earned by customers as each point or reward is earned, net of points or rewards we do not expect to be redeemed. The estimated selling price of each point or reward earned is based on the estimated value of the product for which the point or reward is expected to be redeemed. Our estimate of points and rewards we expect to be redeemed (“rewards breakage rate”) is based on historical and other company specific data. The change in the Chipotle Rewards program in June 2021 did not materially impact our estimate of the stand-alone selling price or breakage rate of each point. The costs associated with rewards redeemed are primarily included in food, beverage, and packaging expense on our condensed consolidated statements ~~or disclosures.~~of income and comprehensive income.

3. We recognize loyalty revenue within food and beverage revenue on the condensed 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 condensed consolidated balance sheets.

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


	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Chipotle Rewards liability, beginning balance	$	23,925	$	13,484	$	22,337	$	10,584
Revenue deferred		26,509		25,226		52,370		40,443
Revenue recognized		(25,382)		(18,698)		(49,655)		(31,015)
Chipotle Rewards liability, ending balance	$	25,052	$	20,012	$	25,052	$	20,012

4. Fair Value of Financial Instruments

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

Our investments are comprised of held-to-maturity U.S. Treasury securities, non-marketable equity securities and an equity method investment. We also maintain a deferred compensation plan with related assets held in a rabbi trust.

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Held-to-Maturity Investments ~~are carried at~~

We invest in U.S. Treasury securities with maturities of up to 19 months, with $322,460 maturing within one year from June 30, 2021. The fair value ~~and are classified as available-for-sale. Investments consist~~ of ~~U.S. treasury notes with maturities up to approximately one year. Fair value of~~our held-to-maturity investments is measured using Level 1 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.

All held-to-maturity investments are carried at amortized cost. The ~~following is~~amortized costs of these investments exceeded the fair value by $140 and $117 as of June 30, 2021 and December 31, 2020, respectively. We recognize a ~~summary of available-for-sale securities:~~

September 30,

December 31,

2017

2016
Amortized cost
$
435,193

$
455,109
Unrealized gains (losses)

(316)

(218)
Fair market value
$
434,877

$
454,891

~~The following is a summary of unrealized gains (losses) on available-for-sale securities recorded in other comprehensive income (loss) in the condensed consolidated statement of comprehensive income:~~

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016
Unrealized gains (losses) on available-for-sale securities
$
272

$
(882)

$
(99)

$
3,051
Unrealized gains (losses) on available-for-sale securities, net of tax
$
168

$
(536)

$
(72)

$
1,866

~~Realized gains and losses on available-for-sale securities are recorded in interest and other income, net on the condensed consolidated statement of income. We had no realized gains or losses~~reserve for the ~~three and nine months ended September~~expected credit losses when lifetime credit losses are expected by management. As of June 30, ~~2017, and we had $0 and $547~~2021, management has concluded there is no risk of ~~realized gains on available-for-sale securities for the three and nine months ended September 30, 2016.~~non-payment.

Rabbi Trust

We ~~also~~ maintain a rabbi trust to fund obligations under a deferred compensation plan. Amounts in the rabbi trust are invested in mutual funds, which are designated as trading securities ~~and~~ carried at fair value and are included in other assets inon the condensed consolidated balance ~~sheet.~~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 ~~$19,157~~$18,418 and ~~$17,843~~$15,296 as of ~~September~~June 30, ~~2017,~~2021 and December 31, ~~2016,~~2020, respectively. We record trading gains and losses in general and administrative expenses inon the condensed consolidated ~~statement~~statements of income and comprehensive 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.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets recognized or disclosed at fair value on the condensed consolidated financial statements on a nonrecurring basis include items such as leasehold improvements, property and equipment, operating lease assets, investments in non-marketable equity securities, 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.

The following table ~~sets forth unrealized gains (losses)~~summarizes our assets measured at fair value by hierarchy level on ~~trading securities held in~~a nonrecurring basis:



		Carrying Value
		June 30,
	Level	2021		2020
Leasehold improvements, property and equipment, net	3	$	893	$	2,096
Operating lease assets	3		2,839		3,977
Total		$	3,732	$	6,073

Fair value of these assets was measured using Level 3 inputs (unobservable inputs for the ~~rabbi trust:~~

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016
Unrealized gains (losses) on trading securities held in rabbi trust
$
335

$
391

$
1,157

$
677

~~4. Impairment of Long-Lived Assets~~

asset or liability). Unobservable inputs include the discount rate, projected restaurant revenues and expenses, and sublease income if we are closing the restaurant. During the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2021 and 2020 we ~~recognized non-cash~~recorded asset impairments related to restaurants and offices of $519 and $2,380, respectively. During the six months ended June 30, 2021 and 2020 we recorded asset impairments related to restaurants and offices of $3,228 and $10,029, respectively. Carrying value after the impairment charges ~~of $2,427 and $4,441 ($1,475 and $2,699 net of tax, respectively), representing substantially all~~approximates fair value.

Non-Marketable Equity Securities

On March 23, 2021, we acquired 766 shares of the Series C Preferred Stock of Nuro, Inc. (“Nuro”) in exchange for cash consideration of $10,000. 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 their fair value is not readily determinable. We have elected to measure our investment in the non-marketable equity securities of Nuro 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 ~~long-lived assets~~same issuer.

Equity Method Investment

On April 16, 2020, we acquired approximately 10% of the common stock of a ~~small number~~supplier in exchange for cash consideration of ~~underperforming Chipotle restaurants,~~$7,500. On August 6, 2020, we acquired an additional 3.2% of the common stock of the same supplier in ~~loss on disposal~~exchange for cash consideration of $2,500. As of June 30, 2021, we own approximately 12.7% of the supplier’s common stock and ~~impairment~~have invested total cash consideration of $10,000. As we are a significant customer of the supplier and maintain board representation, we are accounting for our investment under the equity method. The investment is included within other assets on the condensed consolidated ~~statement~~balance sheet as of ~~income ($0.05 and $0.09 per basic and diluted earnings per share).~~June 30, 2021, with a carrying value of $9,109. The investment would be impaired if the carrying value exceeds the fair value of the ~~impaired restaurants was determined using Level 3 inputs (unobservable inputs) based on a discounted cash flow method.~~ investment.

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5. Shareholders’ Equity

~~Through September~~We have had a stock repurchase program in place since 2008. As of June 30, ~~2017,~~2021, we had ~~announced authorizations~~$208,498 authorized for repurchasing shares of our common stock, which includes the $200,000 additional authorization approved by our Board of Directors ~~of repurchases of shares of common stock, which in the aggregate authorized expenditures of up to $2.3 billion. On October 24, 2017,~~and announced on July 20, 2021. Shares we announced that our Board of Directors authorized the expenditure of an additional $100,000 to repurchase shares of common stock. Under the remaining repurchase authorizations, shares may be purchased from time to time in open market transactions, subject to market conditions.

During the nine months ended September 30, 2017, we repurchased 545 shares of common stock under authorized programs, for a total cost of $207,159. The cumulative shares repurchased under authorized programs as of September 30, 2017, were 7,408 for a total cost of $2,204,968. As of September 30, 2017, $95,425 was available to repurchase shares under the announced repurchase authorizations.~~Shares~~ repurchased are being held in treasury stock until ~~such time as~~ they are reissued or retired at the discretion of ~~the~~our Board of Directors.

~~6. Stock-based Compensation~~

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, 40 shares of common stock at a total cost of $58,860 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.

6. Stock-Based Compensation

For the six months ended June 30, 2021, we granted stock only stock appreciation rights (“SOSARs”) on ~~304~~74 shares of our common stock to eligible employees. The ~~weighted average~~weighted-average grant date fair value of the SOSARs was ~~$105.97~~$393.61 per share with a ~~weighted average~~weighted-average exercise price of ~~$426.70~~$1,479.31 per ~~share based on the closing price of common stock on the date of grant.~~share. The SOSARs vest in two equal installments on the second and third anniversary of the grant date. ~~During~~For the ~~nine~~six months ended ~~September~~June 30, ~~2017, 32~~2021, 291 SOSARs were exercised, and ~~124~~8 SOSARs were forfeited.

~~During~~For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, we granted restricted stock units (“RSUs”) on 8924 shares of our common stock to eligible employees. The ~~weighted average~~weighted-average grant date fair value of the RSUs was ~~$427.30~~$1,472.07 per share. The RSUs generally vest in two equal installments on the second and third anniversary of the grant date. For the six months ended June 30, 2021, 44 RSUs vested and 5 RSUs were forfeited.

~~During~~For the ~~first quarter of 2017,~~six months ended June 30, 2021, we awarded 36 performance ~~shares~~share units (“PSUs”) ~~that~~on 18 shares of our common stock at target performance to eligible employees. These PSUs are subject to service, market and performance vesting conditions. ~~Two-thirds of the PSUs had a~~The weighted-average grant date fair value of ~~$485.53~~the PSUs was $1,479.55 per share, and vest based on the price of our common stock reaching certain targets for a consecutive number of days during the three-year period starting on the grant date and the quantity of shares that will vest range from 0% to 350% of the targeted number of shares. The remaining one-third of PSUs had a grant date fair value of $427.61 and vest based on reaching certain comparable restaurant sales increases during the three-year period starting on January 1, 2017, and the quantity of shares that will vest range from 0% to 300% of the targeted number of shares. If the defined minimum targets are not met, then no shares will vest. Further, in 0 event may more than 100% of the target number of PSUs vest if our 3 year total shareholder return is below the 25^th percentile of the constituent companies comprising the S&P 500 on the day of grant.

~~During~~On December 30, 2020, due to the ~~nine~~impact that the novel coronavirus (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 three-year performance period of the original award, the Compensation Committee of our Board of Directors modified the 2018 PSU award. This modification pertained to all 7 recipients of this award, and resulted in an incremental compensation expense of $71,441, of which $47,827 was recognized during the six months ended ~~September~~June 30, ~~2017, 20 stock awards that~~2021, and $23,148 remains unamortized as of June 30, 2021. Based on the terms of the modification, 29 PSUs vested on March 15, 2021, pursuant to the original performance condition of the 2018 PSU award. To receive all incremental shares generated through the modification, the recipients of this award must remain employed through December 31, 2022, and the incremental shares will vest in four installments over this period. The first of the four installments vested on June 30, 2021, which included the vesting of 17 PSUs. The remaining expense will be recognized over this requisite service period. For the six months ended June 30, 2021, 0 other PSUs vested, and 0 PSUs were ~~subject to service and performance or market conditions were~~ forfeited.

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



	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Stock-based compensation	$	47,670	$	23,676	$	103,630	$	41,384
Stock-based compensation, net of income taxes	$	42,722	$	20,007	$	93,187	$	34,512
Total capitalized stock-based compensation included in leasehold improvements, property and equipment, net on the condensed consolidated balance sheets	$	380	$	309	$	950	$	622
Excess tax benefit on stock-based compensation recognized in benefit/(provision) for income taxes on the condensed consolidated statements of income and comprehensive income	$	9,421	$	15,708	$	24,446	$	39,339

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7. Income Taxes

The effective tax rate for the three months ended June 30, 2021, was a provision of 23.7%, a change from a benefit of 289.4% for the three months ended June 30, 2020. The change is primarily due to the proportionality of the excess tax benefits from option exercises and equity vesting relative to profit or loss before tax in each respective quarter.

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016
Stock based compensation expense
$
18,069

$
18,636

$
55,545

$
49,357
Stock based compensation expense, net of tax
$
10,983

$
10,971

$
33,760

$
29,056
Stock based compensation expense recognized as capitalized development
$
319

$
285

$
949

$
968
Excess tax benefit (deficiency) on stock based compensation recognized in provision for income taxes
$
(77)

$
-

$
587

$
-

~~7. Earnings Per Share~~

~~Basic earnings per share~~The effective income tax rate for the six months ended June 30, 2021, was a provision of 22.3%, a change from a benefit of 21.6% for the six months ended June 30, 2020. The change is ~~calculated by dividing income available~~primarily due 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 common sharesincreased profit before tax and fewer excess tax benefits related to ~~SOSARs~~option exercises and ~~non-vested stock awards (collectively “stock awards”~~equity vesting in the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

On March 11, 2021, President Biden signed the American Rescue Plan Act (“ARPA”). ~~Diluted EPS considers~~The ARPA includes several provisions, such as measures that extend and expand the employee retention credit, previously enacted under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), through December 31, 2021. For the quarter ended June 30, 2021, we did 0t record a tax benefit related to the employee retention credit. We are still evaluating the ARPA and we do not expect that it will have a material impact on our condensed consolidated financial statements.

8. 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.

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



	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Cash paid for operating lease liabilities	$	89,134	$	66,595	$	177,942	$	144,484
Operating lease assets obtained in exchange for operating lease liabilities	$	150,561	$	102,113	$	294,663	$	239,079
Derecognition of operating lease assets due to terminations or impairment	$	432	$	12,410	$	1,979	$	14,417

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 of ~~potentially dilutive securities except~~the COVID-19 pandemic, provided the concession does not result in ~~periods~~a substantial increase in ~~which there is a loss because~~ the ~~inclusion~~rights of the ~~potential common shares would have an antidilutive effect. Stock awards are excluded from the calculation of diluted EPS~~lessor or in the ~~event they are subject~~obligations of the lessee. In 2020, we received non-substantial concessions from certain landlords in the form of rent deferrals and abatements related to ~~performance conditions or are antidilutive.~~the COVID-19 pandemic. 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 condensed consolidated financial statements as of June 30, 2021.

9. Earnings Per Share

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



	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Net income	$	187,974	$	8,175	$	315,075	$	84,563
Shares:
Weighted-average number of common shares outstanding (for basic calculation)		28,134		27,911		28,130		27,851
Dilutive stock awards		367		422		412		477
Weighted-average number of common shares outstanding (for diluted calculation)		28,501		28,333		28,542		28,328
Basic earnings per share	$	6.68	$	0.29	$	11.20	$	3.04
Diluted earnings per share	$	6.60	$	0.29	$	11.04	$	2.99

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



									Three months ended				Six months ended
	Three months ended September 30,				Nine months ended September 30,				June 30,				June 30,
	2017		2016		2017		2016		2021		2020		2021		2020
Stock awards subject to performance conditions		245		226		244		276		76		100		73		95
Stock awards that were antidilutive		1,738		1,356		1,567		1,312		76		117		62		110
Total stock awards excluded from diluted earnings per share		1,983		1,582		1,811		1,588		152		217		135		205

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

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016
Net income
$
19,610

$
7,799

$
132,460

$
6,963
Shares:

Weighted average number of common shares outstanding

28,415

29,063

28,604

29,387
Dilutive stock awards

24

108

92

405
Diluted weighted average number of common shares outstanding

28,439

29,171

28,696

29,792
Basic earnings per share
$
0.69

$
0.27

$
4.63

$
0.24
Diluted earnings per share
$
0.69

$
0.27

$
4.62

$
0.23

8. 10. Commitments and Contingencies

~~Data Security Incident~~Purchase Obligations

In April 2017, our information security team detected unauthorized activity on the network that supports payment processing for our restaurants, and immediately began an investigation with the help of leading computer security firms. We also self-reported the issue to payment card processors and law enforcement. Our investigation detected malware designed to access payment card data from cards used at point-of-sale devices at most Chipotle restaurants, primarilyenter into various purchase obligations in the ~~period from March 24, 2017 through April 18, 2017. The malware searched~~ordinary course of business, generally of a short-term nature. Those that are binding primarily relate to commitments for ~~track data, which may include cardholder name, card number, expiration date,~~food purchases and ~~internal verification codes; however, no other customer information was affected. We have removed~~supplies, amounts owed under contractor and subcontractor agreements, orders submitted for equipment for restaurants under construction, and marketing initiatives and corporate sponsorships.

Litigation

New York Legal Proceedings

On September 10, 2019, the ~~malware from our systems~~New York City Department of Consumer and continue to evaluate ways to enhance our security measures. We expect that substantially all of our investigation costs will be covered by insurance; however, we may incur legal expenses in excess of our insurance coverage limits associated with the data security incident in future periods. We will recognize these expenses as services are received.

During the three months ended September 30, 2017, we recorded an expense of $30,000 ($18,234 after tax), or $0.64 per basic and diluted earnings per share, as an estimate of potential liabilities associated with anticipated claims and assessments by payment card networks in connection with the data security incident. We may ultimately be subject to liabilities greater than or less than the amount accrued. The expense is recorded in general and administrative expenses in our condensed consolidated statement of income and a corresponding liability in accrued liabilities on our condensed consolidated balance sheet.

~~Litigation Arising from Security Incident~~

~~On May 4, 2017, Bellwether Community Credit Union~~Worker Protection (“DCWP”) filed a ~~purported class action~~ complaint in the ~~United States District Court for~~City of New York Office of Administrative Trials and Hearings alleging violations at 5 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 ~~District of Colorado alleging that we negligently failed~~complaint to provide adequate security to protect the payment card information of customers of the plaintiffs and those of other similarly situated credit unions, banks and other financial institutions alleged to be part of the putative class, causing those institutions to suffer financial losses. The complaint also claims we were negligent per se based on allegedcover purported violations of ~~Section 5 of~~FWW and ESTA at substantially all Chipotle restaurants in New York City, through the Federal Trade Commission Act and similar state laws. The plaintiff seeks monetary damages, injunctive relief and attorneys’ fees. On May 26, 2017, Alcoa Community Credit Union filed a purported class actiondate the amended complaint in the U. S. District Court for the District of Colorado making substantially the same allegations as the Bellwether complaint and seeking substantially the same relief. The Bellwether and Alcoa cases have been consolidated and will proceed as a single action.

On June 9, 2017, Todd Gordon filed a purported class action complaint in the U. S. District Court for the District of Colorado alleging that we negligently failed to provide adequate security to protect the payment card information of the plaintiff and other similarly situated customers alleged to be part of the putative class, causing such customers to suffer financial losses. The complaint also claims we were negligent per se

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based on alleged violations of Section 5 of the Federal Trade Commission Act and similar state laws, and also alleges breach of contract, unjust enrichment, and violations of the Arizona Consumer Fraud Act. Additionally, on August 21, 2017, Greg Lawson and Judy Conard filed a purported class action complaint in the U. S. District Court for the District of Colorado making allegations substantially similar to those in the Gordon complaint, and stating substantially similar claims as well as claims under the Colorado Consumer Protection Act. The plaintiffs in the Gordon casewas filed. Chipotle and the ~~Lawson and Conard case~~DCWP have ~~notified~~engaged in mediation proceedings, which are ongoing. In the ~~court of their agreement~~event the parties are not able to ~~consolidate their cases and file an amended consolidated complaint for~~resolve the ~~consolidated matter.~~

~~We intend~~matter, Chipotle intends to vigorously defend ~~each of~~against the ~~aforementioned cases,~~ ~~but~~allegations, and it is not possible at this time to reasonably estimate the outcome of or any potential liability from ~~these cases.~~ Although certain fees and costs associated with the data security incident and the aforementioned litigation to date have been paid or reimbursed by our cyber liability insurer, the ultimate amount of liabilities arising from the litigation may be in excess of the limits of our applicable insurance coverage.this matter.

~~Receipt of Grand Jury Subpoenas~~Other

~~On January 28, 2016~~, we were served with a Federal Grand Jury Subpoena from the U.S. District Court for the Central District of California in connection with 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. Food and Drug Administration’s Office of Criminal Investigations. The subpoena requires the production of documents and information related to company-wide food safety matters dating back to January 1, 2013. We received a follow-up subpoena on July 19, 2017 requesting information related to illness incidents associated with a single Chipotle restaurant in Sterling, Virginia. We intend to continue to fully cooperate in the investigation. It is not possible at this time to determine whether we will incur, or to reasonably estimate the amount of, any fines or penalties in connection with the investigation pursuant to which the subpoena was issued.

~~Shareholder Derivative Actions~~

On April 6, 2016, Uri Skorski filed a shareholder derivative action in Colorado state court in Denver, Colorado, alleging that our Board of Directors and officers breached their fiduciary duties in connection with our alleged failure to disclose material information about our food safety policies and procedures, and also alleging that our Board of Directors and officers breached their fiduciary duties in connection with allegedly excessive compensation awarded from 2011 to 2015 under our stock incentive plan. On April 14, 2016, Mark Arnold and Zachary Arata filed a shareholder derivative action in Colorado state court in Denver, Colorado, making largely the same allegations as the Skorski complaint. On May 26, 2016, the court issued an order consolidating the Skorski and Arnold/Arata actions into a single case. On August 8, 2016, Sean Gubricky filed a shareholder derivative action in the U.S. District Court for the District of Colorado, alleging that our Board of Directors and certain officers failed to institute proper food safety controls and policies, issued materially false and misleading statements in violation of federal securities laws, and otherwise breached their fiduciary duties to us. On September 1, 2016, Ross Weintraub filed a shareholder derivative action in Colorado state court in Denver, Colorado, making largely the same allegations as the Gubricky complaint. ~~On March 27, 2017, the Weintraub case was consolidated with the Skorski and Arnold/Arata action into a single case.~~ On December 27, 2016, Cyrus Lashkari filed a shareholder derivative action in the U.S. District Court for the District of Colorado, making largely the same allegations as the foregoing shareholder derivative complaints. Each of these actions purports to state a claim for damages on our behalf, and is based on statements in our SEC filings and related public disclosures, as well as media reports and company records. We have reached an agreement to settle the foregoing actions, and the proposed settlement has been preliminarily approved by the U.S. District Court for the District of Colorado.

On July 28, 2017, Mark Blau filed a shareholder derivative action in the U.S. District Court for the District of Colorado, making allegations similar to those of the several shareholder derivative actions described above, and adding further allegations related to the Board’s investigation of the foregoing matters, as well as customer illnesses and operational issues associated with two Chipotle restaurants in July 2017. The action purports to state claims for damages on our behalf, and is based on statements in our SEC filings and related public disclosures, as well as media reports and company records. We intend to defend this case vigorously, but it is not possible at this time to reasonably estimate the outcome of or any potential liability from the case.

~~Shareholder Class Actions~~

On January 8, 2016, Susie Ong filed a complaint in the U.S. District Court for the Southern District of New York on behalf of a purported class 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 of the co-Chief Executive Officers serving during the claimed class period and the Chief Financial Officer under Sections 10(b) and 20(a) of the Exchange Act and related rules, based on 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 8, 2017, the court granted our motion to dismiss the complaint, with leave to amend. The plaintiff filed an amended complaint on April 7, 2017. ~~Additionally, on~~ July 20, 2017, Elizabeth Kelly filed a complaint in the U.S. District Court for the District of Colorado on behalf of a purported class of purchasers of shares of our common stock between February 5, 2016 and July 19, 2017,

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with claims and factual allegations similar to the Ong complaint, based primarily on media reports regarding illnesses associated with a Chipotle restaurant in Sterling, Virginia. We intend to defend these cases vigorously, but it is not possible at this time to reasonably estimate the outcome of or any potential liability from the cases.

~~Miscellaneous~~

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 and other commercial disputes, that arise in the ordinary course of ~~business. We~~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 which~~if 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

As of June 30, 2021, we had an accrued legal liability balance of $29,517 included within accrued liabilities on the condensed consolidated balance sheet.

11. Debt

On May 8, 2020, we entered into a $600,000 revolving credit facility with JPMorgan Chase Bank (“JPMorgan”) as administrative agent. On April 13, 2021 we terminated this facility, which we did not borrow on at any time over the period of which it was active.

Concurrently, on April 13, 2021, we entered into a new 5-year $500,000 revolving credit facility, with JPMorgan as administrative agent. Borrowings on the new credit facility bear interest at a rate equal to LIBOR plus 1.375%, which is 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 maintaining a total leverage ratio of less than 3.0x, maintaining a consolidated fixed charge coverage ratio of greater than 1.5x, and limiting us from incurring additional indebtedness in certain circumstances. We had 0 outstanding borrowings under the credit facility as of June 30, 2021.

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12. Related Party Transactions

As of June 30, 2021, we owned approximately 12.7% of the common stock outstanding of a supplier. As we are a significant customer of the supplier and maintain board representation, we are accounting for our investment under the equity method. Accordingly, we have identified the supplier as a related party. We purchase product from the supplier for sale to customers in our restaurants. During the three and six months ended June 30, 2021, purchases from the supplier were $7,401 and $13,143 respectively.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this report, including ~~projections~~the potential future impact of COVID-19 on our results of operations, supply chain or liquidity, the potential impact of actions we have taken to mitigate the impact of COVID-19, the expected ~~comparable restaurant sales increases for 2017, projected new restaurant openings for 2017 and 2018, discussion~~benefit of the ~~potential impacts~~CARES Act or the ARPA on our taxes and tax rate, the number of new restaurants we expect to open this year, our ~~roll-out~~expectation to generate positive cash flow for the foreseeable future, our plans for continuing stock buybacks and the period of ~~queso~~time during which our cash and ~~of menu price increases, projections of expected changes in food, beverage and packaging costs and marketing and promotional spend, estimates of~~short-term investment will fund our ~~effective tax rates, and discussion of liabilities associated with the recent data security incident,~~operations are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. We use words such as ~~“anticipate”, “believe”, “could”, “should”, “estimate”, “expect”, “intend”, “may”, “predict”, “project”, “target”,~~“anticipate,” “believe,” “could,” “should,” “estimate,” “expect,” “intend,” “may,” “predict,” “project,” “target,” “remain confident” and similar terms and phrases, including references to assumptions, to identify forward-looking statements. These forward-looking statements are based on information available to us as of the date any such statements are made, and we assume no obligation to update these 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. These risks and uncertainties include, but are not limited to, the risk factors described in our annual report on Form 10-K for the year ended December 31, ~~2016, as updated~~2020, this Quarterly Report on Form 10-Q and in ~~Part II, Item 1A. of this report.~~

~~Overview~~

~~Steve Ells, our founder, Chairman and CEO, started Chipotle~~other reports filed subsequently with the ~~idea that food served fast did not~~SEC.

Overview of the Impact of COVID-19

The COVID-19 pandemic has adversely affected, and may continue to adversely affect, our operations and financial results for the foreseeable future. We continue to follow guidance from health officials in determining the appropriate restrictions to put in place for each restaurant. Our restaurant operations have been and could continue to be ~~a typical fast food experience. Today, Chipotle continues~~disrupted by employees who are unable or unwilling to ~~offer a focused menu~~work, because of ~~burritos, tacos, burrito bowls,~~illness, quarantine, fear of contracting COVID-19 or caring for family members due to COVID-19, or for other reasons. We remain in regular contact with our major suppliers and ~~salads made from fresh, high-quality raw ingredients, prepared using classic cooking methods and served in an interactive style allowing our customers~~while to get what they want. Chipotle seeks out extraordinary ingredients that are not only fresh, but that are raised responsibly, with respect for the animals, land, and people who produce them. Chipotle prepares its food using real, whole ingredients and without the use of added colors, flavors or other additives typically found in fast food.

~~Throughout our history as a public company,~~date we have ~~pursued~~not experienced significant disruptions in our supply chain, we could see future disruptions should the impacts of COVID-19 extend for a ~~mission~~considerable amount of time.

For a further discussion of the impacts that COVID-19 has had on our financial results, refer to ~~change the way people think about and eat fast food. We have expanded our mission to:~~ ~~Ensure that better food, prepared from whole, unprocessed ingredients is accessible~~“Results of Operations” below.

Second Quarter 2021 Financial Highlights, year-over-year:

Total revenue increased 38.7% to ~~everyone~~. Additionally, our focus during 2017 is to return to sales and profitability growth and restore our restaurant economic model. To do so, we have a renewed focus on ensuring that every guest in every one of our restaurants is provided with an excellent customer experience.$1.9 billion

~~2017 Highlights~~

~~Sales Trends.~~ Comparable restaurant sales ~~increases were 1.0%~~increased 31.2%

Diluted earnings per share was $6.60, which included an $0.86 after-tax impact from expenses related to the 2018 PSU modification related to COVID-19, restaurant asset impairment and ~~8.3%~~closure costs, certain legal expenses, as well as other costs

Sales Trends. Comparable restaurant sales increased 31.2% for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017, respectively. Our~~2021, which included a 27.4% increase in transactions. We believe lapping the peak of the pandemic from last year, on-going strength in digital sales, ~~comparisons~~the strong recovery of in-restaurant sales, as well as positive guest reception for ~~the first nine months of 2017 were lapping an easier comparison due~~our quesadillas contributed to ~~lower~~second quarter growth.

Digital sales ~~levels in the first six months of 2016. Additionally, sales comparisons~~grew 10.5% to $916.5 million for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017, benefitted~~2021, as compared to the three months ended June 30, 2020 and represented 48.5% of sales. Just over half of the digital sales were from ~~lower revenue in~~order ahead transactions.

Loyalty. In June 2021 we enhanced the ~~comparable periods of 2016 due to revenue deferrals for outstanding rewards under our limited-time Chiptopia Summer~~Chipotle Rewards program ~~(though~~and introduced a new Rewards Exchange. This feature gives multiple redemption options and provides members with greater flexibility to redeem rewards and allows them to earn rewards faster. Members will continue to earn points for every dollar of eligible spend, and we will continue to defer revenue associated with the ~~first quarter 2017 also benefitted from the recognition~~estimated selling price of ~~a portion~~points earned, net of the deferred revenue). During the third quarter of 2017, increases in comparable restaurant sales were offset by adverse company-wide sales impacts resulting from news regarding a norovirus incident in Sterling, Virginia, and to a lesser extent due to restaurant closures and lower customer traffic resulting from Hurricanes Harvey and Irma. Wepoints we do not expect ~~full year 2017 comparable restaurant sales increases~~ to be ~~around 6.5% including impacts from~~redeemed.

Wage Increases. In May 2021 we announced that we are increasing restaurant wages resulting in a ~~menu price~~$15.00 average hourly wage as we look to continue to provide industry-leading benefits and accelerated growth opportunities for our restaurant employees. This wage increase ~~planned for the fourth quarter of 2017 and the roll-out of queso. Comparable restaurant sales represent the change in period-over-period sales for~~was implemented across all restaurants beginning in their 13th full calendar month of operation. Average restaurant sales were $1.948 million as of September 30, 2017, increasing from $1.914 million as of September 30, 2016, but a decrease from $1.957 million as ofby June 30, ~~2017. We define average restaurant sales as the average trailing 12-month sales for restaurants in operation for at least 12 full calendar months.~~2021.

Restaurant Operating Costs. Our restaurant operating costs (food, beverage and packaging; labor; occupancy; and other operating costs) as a percentage of total revenue decreased 1,230 basis points to 82.4% in the first nine months of 2017, as compared to 87.5% in the first nine months of 2016. The decrease was primarily due to lower marketing and promotional spend, sales leverage, labor efficiencies, and lower food costs. Food costs were lower in the first nine months of 2017 despite significantly higher pricing of avocados during the third quarter of 2017.

~~Restaurant Development~~. As of September 30, 2017, we had 2,374 restaurants in operation, including 2,330 Chipotle restaurants throughout the United States, 36 international Chipotle restaurants and 8 non-Chipotle restaurants. We opened 145 restaurants and we closed or relocated 21 restaurants during the nine months ended September 30, 2017, including the closure of all 15 ShopHouse Southeast Asian Kitchen restaurants. We expect new restaurant openings75.5% for the full year 2017 to be slightly below the low end of our previously-disclosed range of 195 to 210. For 2018, we expect new restaurant openings in a range of approximately 130 to 150, as we focus our resources for the next 12 to 18 months on improving our operations and delivering an outstanding experience to every one of our guests.

~~Data Security Incident.~~ As previously reported, in April 2017, our information security team detected unauthorized activity on the network that supports payment processing for our restaurants, and immediately began an investigation with the help of leading computer security firms. The investigation detected malware designed to access payment card data from cards used at point-of-sale devices at most Chipotle restaurants.

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The malware searched for track data, which may include cardholder name, card number, expiration date, and internal verification codes; however, no other customer information was affected. We have removed the malware from our systems and continue to evaluate ways to enhance our security measures.

~~During~~ the three months ended ~~September~~June 30, ~~2017, we recorded~~2021, as compared to 87.8% for the three months ended June 30, 2020. The improvement was driven primarily by leverage from the comparable restaurant sales including menu price increases, and to a ~~liability of $30.0 million ($18.2 million after tax) or $0.64 per basic~~lesser extent lower promotional activity and ~~diluted earnings per share, as an estimate of potential losses~~beef prices. The decreases are partially offset by higher costs associated with ~~anticipated claims~~new menu items, wage inflation for one month of the second quarter, and ~~assessments by payment card networks.~~ avocados.

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Restaurant Development. We ~~may ultimately be subject~~opened 56 new restaurants including one relocation, and closed five restaurants during the three months ended June 30, 2021. Of the 56 new restaurants, 45 included Chipotlanes. The Chipotlane format continues to ~~liabilities greater or less~~perform very well and is helping enhance guest access and convenience, as well as increase new restaurant sales, margins, and returns. We remain confident in the long-term opportunity to more than double the ~~amount accrued. In addition, legal claims have been made against~~number of Chipotle restaurants in North America. We believe our strong financial position will allow us ~~related~~ to ~~this matter, and are further discussed in Note8. “Commitments and Contingencies”~~ ~~withinItem 1.~~ ~~“Financial Statements.”~~build a robust new unit development pipeline.

Restaurant Activity

The following table details restaurant unit data for the periods ~~indicated:~~indicated.

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016
Beginning of period
2,339

2,124

2,250

2,010
Openings
38

55

145

171
Relocations/closures
(3)

(1)

(6)

(3)
ShopHouse closures
-

-

(15)

-
Total restaurants at end of period
2,374

2,178

2,374

2,178



	Three months ended		Six months ended
	June 30,		June 30,
	2021	2020	2021	2020
Beginning of period	2,803	2,638	2,768	2,622
Chipotle openings	56	37	96	56
Chipotle permanent closures	(5)	(3)	(10)	(5)
Chipotle relocations	(1)	(3)	(1)	(4)
Total restaurants at end of period	2,853	2,669	2,853	2,669

Results of Operations

Our results of operations as a percentage of total revenue and period-over-period ~~changes~~change are discussed in the following section. ~~As our business grows and we open more restaurants and hire more employees, our aggregate restaurant operating costs and depreciation and amortization generally increase.~~

Revenue

Three months ended September 30,

%

Nine months ended September 30,

%

2017

2016

increase

2017

2016

increase

(dollars in millions)

(dollars in millions)

Revenue
$
1,128.1

$
1,037.0

8.8%

$
3,366.3

$
2,869.8

17.3%
Average restaurant sales
$
1.948

$
1.914

1.8%

$
1.948

$
1.914

1.8%
Comparable restaurant sales increases (decreases)

1.0%

(21.9%)

8.3%

(24.9%)

Number of restaurants as of the end of the period

2,374

2,178

9.0%

2,374

2,178

9.0%
Number of restaurants opened in the period

38

55

145

171



	Three months ended					Six months ended
	June 30,				Percentage	June 30,				Percentage
	2021		2020		change	2021		2020		change
	(dollars in millions)					(dollars in millions)
Food and beverage revenue	$	1,869.4	$	1,350.2	38.5%	$	3,585.4	$	2,752.3	30.3%
Delivery service revenue		23.2		14.6	59.3%		48.8		23.2	110.1%
Total revenue	$	1,892.5	$	1,364.7	38.7%	$	3,634.1	$	2,775.5	30.9%
Average restaurant sales ⁽¹⁾	$	2.5	$	2.2	14.3%	$	2.5	$	2.2	14.3%
Comparable restaurant sales increase		31.2%		(9.8%)			24.1%		(3.5%)

⁽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 ~~most~~ significant ~~factor~~factors contributing to the total revenue increase ~~in revenue~~ for the three months ended ~~September~~June 30, ~~2017, was $84.9~~2021 compared to the three months ended June 30, 2020, were comparable restaurant sales increases of $420.1 million, and to a lesser extent, increases in total revenue from restaurants not yet in the comparable base of $107.6 million, of which ~~$46.1~~$33.3 million was attributable to restaurants opened in ~~2017. Comparable~~2021.

The significant factors contributing to the total revenue increase for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, were comparable restaurant sales ~~increased $6.2 million. For the nine months ended September 30, 2017,~~increases of $654.5 million, and to a lesser extent, increases in total revenue from restaurants not yet in the comparable ~~restaurant~~ base ~~contributed $268.0~~of $203.7 million, ~~to the revenue increase,~~ of which ~~$91.3~~$41.9 million was attributable to restaurants opened in 2017, and comparable restaurant sales increased $228.4 million. For the nine months ended September 30, 2017, the increase in comparable restaurant sales was attributable to an increase in the number of paid transactions and an increase in paid average check due to fewer promotions during the first nine months of 2017. 2021.

Food, Beverage and Packaging Costs



											Three months ended					Six months ended
	Three months ended September 30,				%	Nine months ended September 30,					June 30,				Percentage	June 30,				Percentage
	2017		2016		increase	2017		2016		% increase	2021		2020		change	2021		2020		change
	(dollars in millions)					(dollars in millions)					(dollars in millions)					(dollars in millions)
Food, beverage and packaging	$	394.6	$	363.9	8.4%	$	1,155.5	$	1,000.0	15.6%	$	574.5	$	454.8	26.3%	$	1,097.1	$	917.1	19.6%
As a percentage of revenue		35.0%		35.1%			34.3%		34.8%
As a percentage of total revenue												30.4%		33.3%	(2.9%)		30.2%		33.0%	(2.8%)

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Food, beverage and packaging costs ~~remained consistent~~decreased as a percentage of total revenue for the three months ended ~~September~~June 30, ~~2017. The~~2021 compared to the three months ended June 30, 2020, primarily due to the benefit of ~~the~~ menu price increases, ~~taken in select restaurants during the second quarter of 2017~~ and ~~decreased paper cost and usage~~to a lesser extent, lower beef prices. These decreases were partially offset by higher costs associated with new menu items, like quesadillas, and, to a lesser extent, avocado ~~and beef prices, as well as steak making up a higher portion~~costs.

Table of ~~our product mix compared to the third quarter of 2016. The decrease in food,~~Contents

Food, beverage and ~~packing~~packaging costs decreased as a percentage of total revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2017, was~~2021 compared to the six months ended June 30, 2020, primarily due ~~primarily bringing the preparation of lettuce and bell peppers back into our restaurants after using pre-cut produce during portions of 2016, reduced testing and waste costs, and~~to the benefit of ~~the~~ menu price ~~increase that went into effect during the second quarter of 2017. The~~increases, and to a lesser extent, lower beef prices. This decrease was partially offset by higher ~~avocado prices. Lower projected avocado prices are expected~~costs associated with cauliflower rice and fewer sales of high margin beverages.

COVID-19 had an immaterial direct impact on food, beverage and packaging costs for the three and six months ended June 30, 2021.

Labor Costs



	Three months ended					Six months ended
	June 30,				Percentage	June 30,				Percentage
	2021		2020		change	2021		2020		change
	(dollars in millions)					(dollars in millions)
Labor costs	$	464.5	$	385.3	20.6%	$	898.2	$	778.8	15.3%
As a percentage of total revenue		24.5%		28.2%	(3.7%)		24.7%		28.1%	(3.4%)

Labor costs decreased as a percentage of total revenue for the three and six months ended June 30, 2021 compared to ~~drive decreased food~~the three and six months ended June 30, 2020, primarily due to sales leverage. This decrease was partially offset by restaurant wage increases implemented in June 2021 and to a lesser extent higher bonus expense.

COVID-19 increased labor costs as a percentage of total revenue ~~during the fourth quarter of 2017, and we expect food costs~~ for the ~~full year~~three and six months ended June 30, 2021, by 0.2% and 0.3%, respectively. This was due to ~~be consistent with the first nine months of 2017.~~our emergency leave benefits to accommodate employees directly affected by COVID-19.

Occupancy Costs

~~Labor Costs~~

Three months ended September 30,

%

Nine months ended September 30,

2017

2016

increase

2017

2016

% increase

(dollars in millions)

(dollars in millions)

Labor costs
$
306.9

$
286.1

7.2%

$
900.6

$
820.8

9.7%
As a percentage of revenue

27.2%

27.6%

26.8%

28.6%



	Three months ended					Six months ended
	June 30,				Percentage	June 30,				Percentage
	2021		2020		change	2021		2020		change
	(dollars in millions)					(dollars in millions)
Occupancy costs	$	103.4	$	95.6	8.2%	$	205.2	$	190.9	7.5%
As a percentage of total revenue		5.5%		7.0%	(1.5%)		5.6%		6.9%	(1.3%)

~~Labor~~Occupancy costs decreased as a percentage of total revenue ~~decreased~~ for the three and six months ended ~~September~~June 30, ~~2017,~~2021 compared to the three and six months ended June 30, 2020, primarily due to labor efficiencies resulting from more efficient crew deployment and fewer managers in each of our restaurants, partially offset by wage inflation. Labor costs as a percentage of revenue decreased for the nine months ended September 30, 2017 due to labor efficiencies from more efficient crew deployment and fewer managers in each of our restaurants, as well as sales leverage, partially offset by ~~wage inflation. Labor efficiencies in~~increased rent expense associated with new restaurants.

COVID-19 had an immaterial impact on occupancy costs for the three and ~~nine~~six months ended ~~September~~June 30, 2017 benefitted from abnormally high labor expenses in the comparable 2016 periods as a result of being fully staffed during the heavy sales promotional activity we were conducting during those periods.2021.

~~Occupancy Costs~~

Three months ended September 30,

%

Nine months ended September 30,

2017

2016

increase

2017

2016

% increase

(dollars in millions)

(dollars in millions)

Occupancy costs
$
83.2

$
74.2

12.1%

$
242.5

$
217.1

11.7%
As a percentage of revenue

7.4%

7.2%

7.2%

7.6%

Occupancy costs as a percentage of revenue increased for the three months ended September 30, 2017, primarily due to lower average daily restaurant sales due to new restaurants opening at lower sales volumes than restaurants in the comparable base, and those sales volumes being applied across a partially fixed-cost base. Occupancy costs as a percentage of revenue decreased for the nine months ended September 30, 2017, primarily due to sales leverage on a partially fixed-cost base.

Other Operating Costs



											Three months ended					Six months ended
	Three months ended September 30,				%	Nine months ended September 30,					June 30,				Percentage	June 30,				Percentage
	2017		2016		decrease	2017		2016		% increase	2021		2020		change	2021		2020		change
	(dollars in millions)					(dollars in millions)					(dollars in millions)					(dollars in millions)
Other operating costs	$	162.3	$	166.0	(2.2%)	$	476.6	$	473.4	0.7%	$	287.2	$	262.4	9.5%	$	582.0	$	473.1	23.0%
As a percentage of revenue		14.4%��		16.0%			14.2%		16.5%
As a percentage of total revenue												15.2%		19.2%	(4.0%)		16.0%		17.0%	(1.0%)

Other operating costs include, among other items, marketing and promotional costs, delivery expense, bank and credit card processing fees, ~~and~~ restaurant utilities, and maintenance costs. Other operating costs decreased as a percentage of total revenue ~~decreased~~ for the three ~~and nine~~ months ended ~~September~~June 30, 2017 due primarily to decreased marketing and promotional spend, and decreased kitchen supplies expense. While marketing and promotional spend decreased to 3.4% of revenue for the first nine months of 2017, as2021 compared to ~~5.2% for~~ the ~~first nine~~three months ~~of 2016, it remains above historical levels as we continue our efforts~~ended June 30, 2020, primarily due to ~~drive customer traffic. We expect~~sales leverage and lower delivery expenses primarily due to ~~increase marketing and advertising expenses in the fourth quarter of 2017 as we continue national television advertising, and as a result, we expect full year 2017 other~~free delivery campaigns last year.

Other operating costs decreased as a percentage of total revenue for the six months ended June 30, 2021 compared to bethe six months ended June 30, 2020, primarily due to sales leverage and lower promotions due to free delivery campaigns last year. The decrease in other operating costs was partially offset by higher delivery expenses associated with increased delivery sales.

As a result of COVID-19, sales shifted towards delivery after we temporarily closed our dining rooms in ~~the fourth quarter~~response to COVID-19 and ~~the full year 2017 than they were in the first nine months of 2017, but lower than the full year 2016.~~delivery sales have remained elevated from pre-pandemic levels. We are also continuing to limit non-essential controllable costs.

~~For the three months ended September 30, 2017, depreciation and amortization remained relatively consistent as a percent of revenue. For the nine months ended September 30, 2017, depreciation~~Depreciation and amortization decreased as a percentage of total revenue for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020, primarily due to the benefit of sales ~~leverage~~leverage.

COVID-19 had an immaterial impact on ~~a partially fixed-cost base.~~ depreciation and amortization for the three and six months ended June 30, 2021.

~~Loss on disposal~~closure costs, and ~~impairment of assets~~asset disposals decreased in dollar terms for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017~~2021 compared to the three months ended June 30, 2020, primarily due to a ~~non-cash impairment charge~~comparison against elevated impairments of operating lease assets and leasehold improvements in 2020. These elevated impairments in 2020 were primarily the ~~third quarter of 2016 to write-down substantially all~~result of the ~~value of~~COVID-19 pandemic negatively impacting our near-term restaurant level cash flow forecasts. The decrease in impairment, closure costs, and assets disposals is partially offset by asset impairment charges for restaurant equipment, and certain corporate equipment.

Impairment, closure costs, and asset disposals decreased in dollar terms for the ~~long-lived assets of our ShopHouse restaurants that occurred during the third quarter of 2016. In 2017, we recorded losses related~~six months ended June 30, 2021 compared to the ~~closure of a small number of underperforming Chipotle restaurants, the replacement of certain kitchen equipment, and assets that were damaged by natural disasters occurring during the quarter.~~

~~For the full year 2017, we estimate our effective tax rate will be approximately 39.1% compared to 40.8% for the full year 2016. The lower 2017 estimated annual effective tax rate is~~six months ended June 30, 2020, primarily due to a ~~decrease~~comparison against elevated impairments of leasehold improvements and operating lease assets in 2020. These elevated impairments in 2020 were primarily the result of the COVID-19 pandemic negatively impacting our near-term restaurant level cash flow forecasts.

While the majority of our restaurants and markets have returned to pre-pandemic restaurant level cash flow levels, COVID-19 continues to have a negative impact on our assumptions for future near-term restaurant level cash flows for certain markets or restaurants.

The effective income tax rate changed from a benefit of 289.4% for the three months ended June 30, 2020, to a provision of 23.7% for the three months ended June 30, 2021. The change is primarily due to the proportionality of the excess tax benefits from option exercises and equity vesting relative to the profit or loss before tax in each respective quarter.

The effective income tax rate changed from a benefit of 21.6% for the six months ended June 30, 2020, to a provision of 22.3% for the six months ended June 30, 2021. The increase is primarily due to increased profit before tax and fewer excess tax benefits related to option exercise and equity vesting in the ~~state tax rate. The effective~~six months ended June 30, 2021 compared to the six months ended June 30, 2020.

COVID-19, the CARES Act and the ARPA did not have a material impact on our tax rate for the ~~nine~~three or six months ended ~~September~~June 30, ~~2017, is lower than the estimated annual rate due to non-recurring adjustments related to state income taxes and excess tax~~2021.

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~~deductions for stock compensation. The adoption on January 1, 2017, of ASU 2016-09 will subject our tax rate to quarterly volatility from the effect of stock award exercises and vesting activities.~~

Seasonality

Seasonal factors cause our profitability to fluctuate from quarter to quarter. Historically, our average daily restaurant sales ~~are lower~~ and net income ~~has generally been~~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, ~~as well as~~worldwide health pandemics, fluctuations in food or packaging costs, or the timing of menu price ~~increases.~~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 ~~anticipated and unanticipated events.~~closure of restaurants. New restaurants typically have lower margins following opening ~~as a result~~because of the expenses associated with their opening ~~new restaurants~~ and ~~their~~ 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

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 ~~September~~June 30, ~~2017, w~~e2021, we had a cash and ~~short-term investment~~marketable investments balance of ~~$548.4 million that we~~$1.1 billion, excluding restricted cash of $27.9 million. We expect to utilize ~~along with~~ cash flow from operations to provide capital for the continued investment in new restaurant construction and to ~~support the growth of our business (primarily through opening restaurants),~~remodel restaurants, primarily those that do not have a digital kitchen or Chipotlane, to repurchase additional shares of our common stock subject to market conditions, ~~to maintain our existing restaurants~~ and for general corporate purposes. As of ~~September~~June 30, ~~2017, $95.4~~2021, $208.5 million remained available for repurchases of shares of our common stock under ~~previously-announced~~previously announced repurchase authorizations.~~On October 24, 2017, we announced that our Board of Directors authorized the expenditure of an additional $100 million to repurchase shares of common stock.~~ Under the remaining repurchase authorizations, shares may be purchased from time to time in open market transactions, subject to market conditions. Additionally, as of June 30, 2021, we had $500.0 million of undrawn borrowing capacity under 5-year revolving credit facility.

In our restaurants, we are working to minimize waste and effectively schedule labor hours. We believe that cash from operations, together with our cash and investment balances, will be ~~enough~~sufficient to meet ongoing capital expenditures, working capital requirements and other cash needs for the foreseeable ~~future~~.future. Assuming no significant declines in comparable restaurant sales, we expect we will generate positive cash flow for the foreseeable future. Should our business deteriorate due to changing conditions, there are other actions we can take to further conserve liquidity.

We ~~haven’t~~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, ~~beverage~~beverages and supplies ~~some time~~sometime after the receipt of those items, generally within ten days, thereby reducing the need for incremental working capital to support our growth.

Off-Balance Sheet Arrangements

As of ~~September~~June 30, ~~2017,~~2021, and December 31, 2020, we had no material off-balance sheet arrangements or obligations.

Critical Accounting Estimates

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. We had no significant changes into our critical accounting estimates ~~since our last annual report. Our critical accounting estimates are identified and~~as described in our annual report on Form 10-K for the year ended December 31, ~~2016.~~2020.

ITEM 3.QUANTITATIVE AND QUALITATIVE ~~DISCLOSURES~~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 ~~as well as~~and utilities to run our restaurants, are ~~commodities~~ingredients or ~~ingredients~~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, ~~and~~ 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. However, a majority of the dollar value of goods~~prices, and range forward protocols under which we agree on

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~~purchased by us is effectively at spot prices.~~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 2436 months, depending on the outlook for prices of the particular ingredient. In ~~several~~some cases, we have minimum purchase obligations. We have tried to increase, where ~~necessary,~~practical, the number of suppliers for our ingredients, which we believe can help mitigate pricing ~~volatility. We~~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.

Changing Interest Rates

We are ~~also~~ exposed to interest rate risk through fluctuations of interest rates on our investments. Changes in interest rates affect the interest income we earn, and therefore impact our cash flows and results of operations. As of ~~September~~June 30, ~~2017,~~2021, we had ~~$475.4 million~~$1.1 billion in ~~investments and~~ interest-bearing cash accounts, including insurance-related restricted trust accounts classified in ~~other assets,~~restricted cash, and ~~$66.8~~U.S. treasury securities. We had $67.2 million in accounts with an earnings credit we classify as interest ~~income, which combined~~and other income. Combined these earned a weighted-average interest rate of ~~0.87%~~0.09%.

Foreign Currency Exchange Risk

A portion of our operations ~~consists~~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.

ITEM 4.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 Officer, as appropriate, to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures

As of ~~September~~June 30, ~~2017,~~2021, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial 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 Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes during the ~~three months~~fiscal quarter ended ~~September~~June 30, ~~2017,~~2021, 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.

PART II

ITEM 1.LEGAL PROCEEDINGS

For information regarding legal proceedings, see Note ~~8. “Commitments~~10. “Commitments and ~~Contingencies~~”Contingencies” in our ~~notes to the~~ condensed consolidated financial statements included in Item 1. “~~Financial Statements”~~. “Financial Statements.”

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ITEM 1A.RISK FACTORS

~~There have been no material changes in our~~The risk factor below updates the risk factors ~~since~~contained in Item 1A of our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, ~~2016, except as set forth below.~~2020.

WeOur Bylaws contain exclusive forum provisions that may increase the costs for our shareholders to initiate certain types of legal disputes, discourage our shareholders from initiating such disputes, or limit our shareholders’ ability to obtain a favorable judicial forum for such disputes.

Our Amended and Restated Bylaws (the “Bylaws”) provide that, unless we consent in writing to an alternative forum, the sole and exclusive forum for certain legal actions specified in the Bylaws is the Court of Chancery of the State of Delaware (or another state or federal court located within the State of Delaware, if the Court of Chancery does not have subject matter jurisdiction) (collectively, “Delaware Courts”). These Bylaws provisions may limit a shareholder’s ability to initiate a dispute with us or our directors, officers or other employees in a judicial forum of their choosing, which may discourage these types of legal actions, and may increase the costs for the shareholder plaintiff, particularly if they do not reside in or near Delaware. The Delaware Courts may reach different results than would other courts, including courts where a shareholder would otherwise choose to initiate the legal action, and such results may be ~~harmed by security risks~~more favorable to us than to our shareholders. Our Bylaws also provide that, unless we ~~face in connection with our electronic processing~~consent to an alternative forum, the federal district courts of the United States of America shall be the sole and ~~transmission~~exclusive forum for the resolution of ~~confidential customer and employee information.~~

~~We accept electronic payment cards for payment in our restaurants. During 2016 approximately 70%~~any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. This provision does not relieve us of our sales were attributable to credit and debit card transactions, and credit and debit card usage could continue to increase. A number of retailers have experienced actual or potential security breaches in which credit and debit card information may have been stolen, including a number of highly publicized incidents with well-known retailers in recent years.

~~Table of Contents~~

devices at most Chipotle restaurants, primarily in the period from March 24, 2017 through April 18, 2017. We have removed the malware from our systems and continue to evaluate ways to enhance our security measures. However, we expect to be subject to payment card network assessments and may incur regulatory fines or penalties, for which our insurance coverage is limited, and as a result, we recorded a $30 million estimated liability. We may ultimately be subject to liabilities greater than or less than the amount accrued. See Note 8. “Commitments and Contingencies” within Item 1. “Financial Statements,” for further discussion of potential liabilities and pending litigation filed against us in connection with this incident.

We may be subject to additional lawsuits or other proceedings in the future relating to the incident or any future incidents in which payment card data may have been compromised. Proceedings related to theft of credit or debit card information may be brought by payment card providers, banks and credit unions that issue cards, cardholders (either individually or as part of a class action lawsuit), or federal and state regulators. Any such proceedings could distract our management from running our business and cause us to incur significant unplanned losses and expenses. Consumer perception of our brand could also be negatively affected by these events, which could further adversely affect our results and prospects.

We are also required to collect and maintain personal information about our employees, and we collect information about customers as part of some of our marketing programs as well. The collection and use of such information is regulated at the federal and state levels, by the European Union and its member states, and the regulatory environment related to information security and privacy is increasingly demanding. At the same time, we are increasingly relying on cloud computing and other technologies that result in third parties holding significant amounts of customer or employee information on our behalf. We have seen an increase over the past several years in the frequency and sophistication of attempts to compromise the security of several of these systems. If the security and information systems that we or our outsourced third party providers use to store or process such information are compromised or if we, or such third parties, otherwise failobligation to comply with the federal securities laws and the rules and regulations thereunder, and our shareholders will not be deemed to have waived our compliance with these laws, rules and regulations, we could face litigation and the imposition of penalties that could adversely affect our financial performance. Our reputation as a brand or as an employer could also be adversely affected fromregulations; however this provision may discourage these types of ~~security breaches~~legal actions.

A court might determine that these Bylaws provisions are inapplicable or ~~regulatory violations,~~unenforceable in any particular legal action, in which case we may incur additional litigation-related expenses in such legal action, and the legal action may result in outcomes unfavorable to us, which could ~~impair~~have a material adverse impact on our ~~sales or ability to attract~~reputation, business operations and ~~keep qualified employees~~.financial results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer

The table below reflects shares of common stock we repurchased during the ~~third~~second quarter of ~~2017.~~2021.

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(2)
July

111,385

$
375.36

111,385

$
156,117,762

Purchased 7/1 through 7/31

August

156,772

$
322.73

156,772

$
105,521,981

Purchased 8/1 through 8/31

September

32,405

$
311.59

32,405

$
95,424,817

Purchased 9/1 through 9/30

Total

300,562

$
341.03

300,562

$
95,424,817


		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⁽²⁾
April		25,876	$	1,496.89	25,876	$	115,058,860
	Purchased 4/1 through 4/30
May		39,109	$	1,367.64	39,109	$	261,571,846
	Purchased 5/1 through 5/31
June		38,208	$	1,389.08	38,208	$	208,497,826
	Purchased 6/1 through 6/30
Total		103,193	$	1,407.99	103,193

(1) Shares were repurchased pursuant to repurchase programs announced on February 4, 2020 and April 21, 2021.

(2) This column includes an additional $200 million in authorized repurchases approved on May 17, 2021 and announced July 20, 2021. There is no expiration date for this program, and the authorization to repurchase shares will end when we have repurchased the maximum amount of shares authorized, or our Board of Directors have determined to discontinue such repurchases.

‎

~~(1)~~

~~Shares were repurchased pursuant to repurchase programs announced on January 11, 2017 and May 23, 2017.~~

~~(2)~~

This column does not include an additional $100 million in authorized repurchases announced on October 24, 2017. Each repurchase program has no expiration date. Authorization of repurchase programs may be modified, suspended or discontinued at any time.

~~ITEM 3.DEFAULTS UPON SENIOR SECURITIES~~

~~None.~~

~~ITEM 4.MINE SAFETY DISCLOSURES~~

~~Not applicable.~~

~~ITEM 5.OTHER INFORMATION~~

~~None.~~

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ITEM 6.EXHIBITS

EXHIBIT INDEX

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

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
101
The following financial statements, formatted in XBRL: (i) Condensed Consolidated Balance Sheet as of September 30, 2017 and December 31, 2016, (ii) Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2017 and 2016, (iii) Condensed Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016, (iv) Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2017 and 2016; and (v) Notes to the Condensed Consolidated Financial Statements
-
-
-
-
X



		Description of Exhibit Incorporated Herein by Reference
Exhibit Number	Exhibit Description	Form	File No.	Filing Date	Exhibit Number	Filed Herewith
10.1†	Director Compensation Program and Stock Ownership Guidelines (revised May 18, 2021)	-	-	-	-	X
10.2†	Form of 2021 Director Restricted Stock Unit Agreement	-	-	-	-	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	Certificate 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
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


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

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SIGNATURES

Pursuant to the requirements 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
~~Name:~~Title:	~~John R. Hartung~~
~~Title:~~	Chief Financial Officer (principal financial officer and duly authorized signatory for the registrant)

Date: July 23, 2021

~~Date: October 24, 2017~~



Delaware	84-1219301
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

~~1401 Wynkoop St.,~~610 Newport Center Drive, Suite ~~500 Denver, CO~~1400 Newport Beach, CA	~~80202~~92660
(Address of Principal Executive Offices)	(Zip Code)


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



Large accelerated filer	☒ Accelerated filer	~~Accelerated~~ Non-accelerated filer	☐

~~Non-accelerated filer~~	~~☐ (Do not check if a smaller reporting company)~~	Smaller reporting company	☐
 Emerging growth company	☐



	PART I
Item 1.	Financial Statements (Unaudited)	1
~~Item 2.~~	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income and Comprehensive Income	2
	Condensed Consolidated Statements of Shareholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
	Note 1 - Basis of Presentation and Update to Accounting Policy	5
	Note 2 - Recently Issued Accounting Standards	5
	Note 3 - Revenue Recognition	5
	Note 4 - Fair Value of Financial Instruments	6
	Note 5 - Shareholders' Equity	8
	Note 6 - Stock-Based Compensation	8
	Note 7 - Income Taxes	9
	Note 8 - Leases	9
	Note 9 - Earnings Per Share	9
	Note 10 - Commitments and Contingencies	10
	Note 11 - Debt	10
	Note 12 - Related Party Transactions	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10 12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
~~Item 4.~~	~~Controls and Procedures~~	15
	~~PART II~~	17
Item 1.4.	~~Legal Proceedings~~Controls and Procedures	15 18
	PART II
Item ~~1A.~~1.	~~Risk Factors~~Legal Proceedings	15 18
Item 2.1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16 19
Item 3.6.	~~Defaults Upon Senior Securities~~Exhibits	16 20
~~Item 4.~~	~~Mine Safety Disclosures~~Signatures	16
~~Item 5.~~21	~~Other Information~~	16
~~Item 6.~~	~~Exhibits~~	17
	~~Signatures~~	18



	September 30,		December 31,		June 30,		December 31,
	2017		2016		2021		2020
	(unaudited)				(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	113,480	$	87,880	$	668,269	$	607,987
Accounts receivable, net of allowance for doubtful accounts of $39 and $259 as of September 30, 2017 and December 31, 2016, respectively		23,870		40,451
Accounts receivable, net						75,697		104,500
Inventory		21,634		15,019		25,159		26,445
Prepaid expenses and other current assets		49,089		44,080		71,613		54,906
Income tax receivable		12,986		5,108		284,612		282,783
Investments		434,877		329,836		322,460		343,616
Total current assets		655,936		522,374		1,447,810		1,420,237
Leasehold improvements, property and equipment, net		1,331,786		1,303,558		1,666,184		1,584,311
Long term investments		-		125,055
Long-term investments						150,814		102,328
Restricted cash						27,877		27,849
Operating lease assets						2,945,912		2,767,185
Other assets		54,716		53,177		59,918		59,047
Goodwill		21,939		21,939		21,939		21,939
Total assets	$	2,064,377	$	2,026,103	$	6,320,454	$	5,982,896
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	86,705	$	78,363	$	140,251	$	121,990
Accrued payroll and benefits		108,120		76,301		225,104		203,054
Accrued liabilities		128,577		127,129		143,469		164,649
Unearned revenue						113,016		127,750
Current operating lease liabilities						213,646		204,756
Total current liabilities		323,402		281,793		835,486		822,199
Deferred rent		309,446		288,927
Deferred income tax liability		7,577		18,944
Commitments and contingencies (Note 10)
Long-term operating lease liabilities						3,134,555		2,952,296
Deferred income tax liabilities						133,510		149,422
Other liabilities		36,826		33,946		42,745		38,844
Total liabilities		677,251		623,610		4,146,296		3,962,761
Shareholders' equity:
Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of September 30, 2017 and December 31, 2016, respectively		-		-
Common stock $0.01 par value, 230,000 shares authorized, and 35,851 and 35,833 shares issued as of September 30, 2017 and December 31, 2016, respectively		359		358
Preferred stock, $0.01 par value, 600,000 shares authorized, 0 shares issued as of June 30, 2021 and December 31, 2020, respectively						0		0
Common stock, $0.01 par value, 230,000 shares authorized, 36,988 and 36,704 shares issued as of June 30, 2021 and December 31, 2020, respectively						370		367
Additional paid-in capital		1,294,315		1,238,875		1,654,195		1,549,909
Treasury stock, at cost, 7,564 and 7,019 common shares at September 30, 2017 and December 31, 2016, respectively		(2,257,174)		(2,049,389)
Accumulated other comprehensive income (loss)		(3,645)		(8,162)
Treasury stock, at cost, 8,890 and 8,703 common shares as of June 30, 2021 and December 31, 2020, respectively						(3,067,458)		(2,802,075)
Accumulated other comprehensive loss						(4,187)		(4,229)
Retained earnings		2,353,271		2,220,811		3,591,238		3,276,163
Total shareholders' equity		1,387,126		1,402,493		2,174,158		2,020,135
Total liabilities and shareholders' equity	$	2,064,377	$	2,026,103	$	6,320,454	$	5,982,896