UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________

FORM 10-Q

______________________________

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

For the quarterly period ended ~~June 30, 2020~~March 31, 2021

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

For the transition period from to

Commission File Number: 1-32731

______________________________

CHIPOTLE MEXICAN GRILL, INC.

(Exact name of registrant as specified in its charter)

______________________________



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

610 Newport Center Drive, Suite 1300 Newport Beach, CA	92660
(Address of Principal Executive Offices)	(Zip Code)

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

______________________________

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	CMG	New York Stock Exchange

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

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

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


 Large accelerated filer	 Accelerated filer	 Non-accelerated filer	 Smaller reporting company	 Emerging growth company

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

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

As of ~~July 24, 2020,~~April 26, 2021, there were ~~27,967,625~~28,150,479 shares of the registrant’s common stock, par value of $0.01 per share outstanding.

Table of Contents

TABLE OF CONTENTS



	PART I
Item 1.	Financial Statements	1
	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 - ~~Recent~~Recently Issued Accounting Standards	5
	Note 3 - Revenue Recognition	65
	Note 4 - Fair Value of Financial Instruments	76
	Note 5 - Shareholders' Equity	78
	Note 6 - Stock-Based Compensation	78
	Note 7 - Income Taxes	8
	Note 8 - Leases	89
	Note 9 - Earnings Per Share	9
	Note 10 - Commitments and Contingencies	109
	Note 11 - Debt	10
	Note 12 - Related Party Transactions	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	1716
	PART II
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 6.	Exhibits	18
	Signatures	19

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS

CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)



	June 30,		December 31,		March 31,		December 31,
	2020		2019		2021		2020
	(unaudited)				(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	605,622	$	480,626	$	694,776	$	607,987
Accounts receivable, net		68,006		80,545		68,449		104,500
Inventory		24,178		26,096		24,304		26,445
Prepaid expenses and other current assets		53,656		57,076		61,615		54,906
Income tax receivable		97,840		27,705		244,122		282,783
Investments		301,041		400,156		363,585		343,616
Total current assets		1,150,343		1,072,204		1,456,851		1,420,237
Leasehold improvements, property and equipment, net		1,498,048		1,458,690		1,613,670		1,584,311
Long-term investments						110,928		102,328
Restricted cash		27,979		27,855		27,863		27,849
Operating lease assets		2,634,165		2,505,466		2,858,345		2,767,185
Other assets		37,655		18,450		59,463		59,047
Goodwill		21,939		21,939		21,939		21,939
Total assets	$	5,370,129	$	5,104,604	$	6,149,059	$	5,982,896
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	160,523	$	115,816	$	147,417	$	121,990
Accrued payroll and benefits		130,306		126,600		221,677		203,054
Accrued liabilities		146,229		155,843		145,627		164,649
Unearned revenue		88,924		95,195		110,197		127,750
Current operating lease liabilities		197,196		173,139		209,086		204,756
Total current liabilities		723,178		666,593		834,004		822,199
Commitments and contingencies (Note 10)
Long-term operating lease liabilities		2,809,178		2,678,374		3,040,176		2,952,296
Deferred income tax liabilities		96,502		37,814		135,929		149,422
Other liabilities		36,775		38,797		41,419		38,844
Total liabilities		3,665,633		3,421,578		4,051,528		3,962,761
Shareholders' equity:
Preferred stock, $0.01 par value, 600,000 shares authorized, 0 shares issued as of June 30, 2020 and December 31, 2019, respectively		-		-
Common stock, $0.01 par value, 230,000 shares authorized, 36,667 and 36,323 shares issued as of June 30, 2020 and December 31, 2019, respectively		367		363
Preferred stock, $0.01 par value, 600,000 shares authorized, 0 shares issued as of March 31, 2021 and December 31, 2020, respectively						0		0
Common stock, $0.01 par value, 230,000 shares authorized, 36,936 and 36,704 shares issued as of March 31, 2021 and December 31, 2020, respectively						369		367
Additional paid-in capital		1,506,785		1,465,697		1,606,501		1,549,909
Treasury stock, at cost, 8,703 and 8,568 common shares as of June 30, 2020 and December 31, 2019, respectively		(2,801,467)		(2,699,119)
Treasury stock, at cost, 8,777 and 8,703 common shares as of March 31, 2021 and December 31, 2020, respectively						(2,908,111)		(2,802,075)
Accumulated other comprehensive loss		(6,149)		(5,363)		(4,492)		(4,229)
Retained earnings		3,004,960		2,921,448		3,403,264		3,276,163
Total shareholders' equity		1,704,496		1,683,026		2,097,531		2,020,135
Total liabilities and shareholders' equity	$	5,370,129	$	5,104,604	$	6,149,059	$	5,982,896

See accompanying notes to condensed consolidated financial statements.

Table of Contents

CHIPOTLE MEXICAN GRILL, INC.

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,
2020
2019
2020
2019
Revenue
$
1,364,738
$
1,434,231
$
2,775,510
$
2,742,448
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Food, beverage and packaging
454,756
483,284
917,055
904,651
Labor
385,266
368,053
778,831
716,895
Occupancy
95,576
89,923
190,855
178,693
Other operating costs
262,378
193,309
473,140
368,052
General and administrative expenses
102,647
121,395
209,117
224,066
Depreciation and amortization
60,024
51,642
118,398
105,423
Pre-opening costs
3,644
2,118
7,210
3,058
Impairment, closure costs, and asset disposals
5,386
4,487
14,722
11,429
Total operating expenses
1,369,677
1,314,211
2,709,328
2,512,267
Income (loss) from operations
(4,939)
120,020
66,182
230,181
Interest and other income, net
623
3,947
3,366
7,076
Income (loss) before income taxes
(4,316)
123,967
69,548
237,257
Benefit (provision) for income taxes
12,491
(32,939)
15,015
(58,097)
Net income
$
8,175
$
91,028
$
84,563
$
179,160
Earnings per share:
Basic
$
0.29
$
3.28
$
3.04
$
6.47
Diluted
$
0.29
$
3.22
$
2.99
$
6.35
Weighted-average common shares outstanding:
Basic
27,911
27,720
27,851
27,708
Diluted
28,333
28,300
28,328
28,209

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(in thousands)~~

~~(unaudited)~~



	Three months ended				Six months ended				Three months ended
	June 30,				June 30,				March 31,
	2020		2019		2020		2019		2021		2020
Food and beverage revenue									$	1,715,990	$	1,402,117
Delivery service revenue										25,585		8,655
Total revenue										1,741,575		1,410,772
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Food, beverage and packaging										522,671		462,299
Labor										433,669		393,565
Occupancy										101,769		95,279
Other operating costs										294,710		210,762
General and administrative expenses										155,103		106,470
Depreciation and amortization										63,122		58,374
Pre-opening costs										3,421		3,566
Impairment, closure costs, and asset disposals										5,668		9,336
Total operating expenses										1,580,133		1,339,651
Income from operations										161,442		71,121
Interest and other income (expense), net										(2,168)		2,743
Income before income taxes										159,274		73,864
Benefit/(provision) for income taxes										(32,173)		2,524
Net income	$	8,175	$	91,028	$	84,563	$	179,160	$	127,101	$	76,388
Earnings per share:
Basic									$	4.52	$	2.75
Diluted									$	4.45	$	2.70
Weighted-average common shares outstanding:
Basic										28,125		27,792
Diluted										28,582		28,323
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustments		1,055		555		(786)		833	$	(263)	$	(1,841)
Unrealized gain on available-for-sale securities, net of income taxes		-		42		-		142
Other comprehensive income (loss), net of income taxes		1,055		597		(786)		975
Comprehensive income	$	9,230	$	91,625	$	83,777	$	180,135	$	126,838	$	74,547

See accompanying notes to condensed consolidated financial statements.

Table of Contents

CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

(unaudited)


	Common Stock					Treasury Stock					Accumulated Other Comprehensive Income (Loss)						Common Stock					Treasury Stock
	Shares	Amount		Additional ‎Paid-In ‎Capital		Shares	Amount		Retained ‎Earnings		Available-for-Sale Securities			Foreign Currency Translation	Total
Balance, December 31, 2018	35,973	$	360	$	1,374,154	8,276	$	(2,500,556)	$	2,573,617	$	(147)	$	(6,089)	$	1,441,339
Adoption of ASU No. 2016-02, Leases (Topic 842)	-		-		-	-		-		(2,327)		-		-		(2,327)
Stock-based compensation	-		-		19,342	-		-		-		-		-		19,342
Stock plan transactions and other	135		1		(212)	-		-		-		-		-		(211)
Acquisition of treasury stock	-		-		-	110		(62,854)		-		-		-		(62,854)
Net income	-		-		-	-		-		88,132		-		-		88,132
Other comprehensive income (loss), net of income tax	-		-		-	-		-		-		100		278		378
Balance, March 31, 2019	36,108	$	361	$	1,393,284	8,386	$	(2,563,410)	$	2,659,422	$	(47)	$	(5,811)	$	1,483,799
Stock-based compensation	-		-		21,322	-		-		-		-		-		21,322
Stock plan transactions and other	85		1		(186)	-		-		-		-		-		(185)
Acquisition of treasury stock	-		-		-	83		(58,512)		-		-		-		(58,512)
Net income	-		-		-	-		-		91,028		-		-		91,028
Other comprehensive income (loss), net of income tax	-		-		-	-		-		-		42		555		597
Balance, June 30, 2019	36,193	$	362	$	1,414,420	8,469	$	(2,621,922)	$	2,750,450	$	(5)	$	(5,256)	$	1,538,049
																	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	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)	-		-		-	-		-		(1,051)		-		-		(1,051)	0		0		0	0		0		(1,051)		0		(1,051)
Stock-based compensation	-		-		17,708	-		-		-		-		-		17,708	0		0		17,708	0		0		0		0		17,708
Stock plan transactions and other	194		2		(181)	-		-		-		-		-		(179)	194		2		(181)	0		0		0		0		(179)
Acquisition of treasury stock	-		-		-	134		(102,031)		-		-		-		(102,031)	0		0		0	134		(102,031)		0		0		(102,031)
Net income	-		-		-	-		-		76,388		-		-		76,388	0		0		0	0		0		76,388		0		76,388
Other comprehensive income (loss), net of income tax	-		-		-	-		-		-		-		(1,841)		(1,841)	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	36,517	$	365	$	1,483,224	8,702	$	(2,801,150)	$	2,996,785	$	(7,204)	$	1,672,020

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	-		-		23,676	-		-		-		-		-		23,676	0		0		55,960	0		0		0		0		55,960
Stock plan transactions and other	150		2		(115)	-		-		-		-		-		(113)	232		2		632	0		0		0		0		634
Acquisition of treasury stock	-		-		-	1		(317)		-		-		-		(317)	0		0		0	74		(106,036)		0		0		(106,036)
Net income	-		-		-	-		-		8,175		-		-		8,175	0		0		0	0		0		127,101		0		127,101
Other comprehensive income (loss), net of income tax	-		-		-	-		-		-		-		1,055		1,055	0		0		0	0		0		0		(263)		(263)
Balance, June 30, 2020	36,667	$	367	$	1,506,785	8,703	$	(2,801,467)	$	3,004,960	$	-	$	(6,149)	$	1,704,496
Balance, March 31, 2021																	36,936	$	369	$	1,606,501	8,777	$	(2,908,111)	$	3,403,264	$	(4,492)	$	2,097,531

See accompanying notes to condensed consolidated financial statements.

Table of Contents

CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Six months ended				Three months ended
	June 30,				March 31,
	2020		2019		2021		2020
Operating activities
Net income	$	84,563	$	179,160	$	127,101	$	76,388
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		118,398		105,423		63,122		58,374
Amortization of operating lease assets		88,139		77,438		49,269		42,961
Deferred income tax provision		55,122		(6,349)		(13,482)		27,343
Impairment, closure costs, and asset disposals		13,747		4,944		4,937		8,805
Provision for credit losses		82		85		(275)		(90)
Stock-based compensation expense		40,762		40,321		55,390		17,395
Other		1,670		(2,588)		2,180		707
Changes in operating assets and liabilities:
Accounts receivable		22,598		18,275		32,175		25,967
Inventory		2,029		421		2,148		2,734
Prepaid expenses and other current assets		(6,250)		(13,617)		(8,756)		(4,158)
Other assets		(8,574)		2,907		(186)		(5,133)
Accounts payable		40,530		(10,319)		19,446		20,245
Accrued payroll and benefits		3,264		(16,526)		18,188		5,839
Accrued liabilities		(8,120)		7,659		(17,869)		(9,389)
Unearned revenue		(4,027)		(8,681)		(15,606)		(15,924)
Income tax payable/receivable		(70,119)		(4,593)		38,640		(29,179)
Operating lease liabilities		(69,468)		(74,346)		(50,902)		(40,918)
Other long-term liabilities		587		901		453		104
Net cash provided by operating activities		304,933		300,515		305,973		182,071
Investing activities
Purchases of leasehold improvements, property and equipment		(165,455)		(142,002)		(86,619)		(77,653)
Purchases of investments		(101,104)		(208,253)		(90,477)		(80,746)
Maturities of investments		198,578		220,000		60,593		99,037
Acquisitions of equity method investments		(7,525)		-
Net cash used in investing activities		(75,506)		(130,255)		(116,503)		(59,362)
Financing activities
Acquisition of treasury stock		(54,401)		(111,542)		(57,229)		(54,401)
Tax withholding on stock-based compensation awards		(47,947)		(10,398)		(44,810)		(47,630)
Other financing activities		(1,855)		(510)		(221)		(69)
Net cash used in financing activities		(104,203)		(122,450)		(102,260)		(102,100)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(104)		494		(407)		(819)
Net change in cash, cash equivalents, and restricted cash		125,120		48,304		86,803		19,790
Cash, cash equivalents, and restricted cash at beginning of period		508,481		280,152		635,836		508,481
Cash, cash equivalents, and restricted cash at end of period	$	633,601	$	328,456	$	722,639	$	528,271
Supplemental disclosures of cash flow information
Income taxes paid	$	657	$	69,075
Income taxes paid (refunded)					$	6,909	$	(14)
Purchases of leasehold improvements, property, and equipment accrued in accounts payable and accrued liabilities	$	41,504	$	27,119	$	54,868	$	33,757
Acquisition of treasury stock accrued in accounts payable and accrued liabilities	$	-	$	1,900	$	3,997	$	0

See accompanying notes to condensed consolidated financial statements.

‎

Table of Contents

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 ~~Policy~~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 relevant menu of burritos, burrito bowls, quesadillas, tacos, and salads, made using fresh, high-quality ingredients. As of ~~June 30, 2020,~~March 31, 2021, we operated ~~2,626~~2,759 Chipotle restaurants throughout the United States as well as 40 international Chipotle restaurants. We are also an investor in a consolidated entity that owns and operates 34 Pizzeria Locale restaurants, a fast-casual pizza concept. We manage our operations based on 8 regions and have aggregated our operations to 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, ~~2019.~~

~~Updates to Significant Accounting Policies~~

O~~n January 1, 2020 we adopted~~ ~~Accounting Standards Update (“ASU”) 2016-13,~~ “~~Financial Instruments – Credit Losses (Topic 326)”, along with related clarifications and improvements.~~ As a result, we updated our significant accounting policies for the measurement of credit losses below. Refer to Note 2. “Recent Accounting Standards” for information related to the impact of the adoption of Topic 326 on our condensed consolidated financial statements.

~~Allowance for Credit Losses~~

We closely monitor accounts receivable and held to maturity investment balances and estimate the allowance for credit losses. Our estimate is based on historical collection experience, external market data and other factors, including those related to current market conditions and events. Our credit losses associated with accounts receivable and held to maturity investments have not historically been material.2020.

2. ~~Recent~~Recently Issued Accounting Standards

Recently Issued Accounting Standards

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

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

Recently Adopted Accounting Standards

On January 1, ~~2020~~2021, we adopted ASU ~~2016-13,~~ “Financial Instruments – Credit Losses (Topic 326)”, along with related clarifications and improvements. This pronouncement requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We adopted2019-12, “Simplifying the standard using the modified-retrospective approach as of the effective date and therefore, we have not applied the standard to the comparative periods presented in our condensed consolidated financial statements. The modified-retrospective approach requires an entity to recognize a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which this guidance is effective. As of January 1, 2020, the adoption of this standard resulted in a net increase to the allowance for credit losses of $1,414, a decrease to our deferred income tax liability of $363, and a decrease to retained earnings of $1,051.

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~~On January 1, 2020 we adopted~~ ~~ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40)”: Customer’s~~ Accounting for ~~Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”)~~Income Taxes (Topic 740)”, which ~~clarifies the~~modified certain technical guidelines for accounting for implementation costs in cloud computing arrangements. We adopted the standard prospectively on January 1, 2020. Prior to the adoption of ASU 2018-15, we capitalized implementation costs incurred during the application development phase of cloud computing arrangements to leasehold improvements, property and equipment, net on our consolidated balance sheets and have recognized expense over the useful life of the related asset within depreciation and amortization on our condensed consolidated statements of income. Subsequent to the adoption of ASU 2018-15, we capitalize such costs within prepaid expenses and other current assets or other assets on our condensed consolidated balance sheets and recognize expense over the expected contract term within general and administrative expenses or other operating costs on our condensed consolidated statements of income ~~consistent with where the expense associated with the hosting element of the arrangement are presented.~~taxes. The adoption of ASU ~~2018-15~~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, based on historical redemption rates, a portion of gift cards are not expected to be redeemed and will be recognized as breakage over time in proportion to gift card redemptions. The breakage rates are 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 breakage rate estimate annually, or more frequently as circumstances warrant, and apply that rate to gift card redemptions. Gift card liability balances are typically highest at the end of each calendar year following increased gift card sales during the holiday season; accordingly, revenue recognized from gift card liability balances is highest in the first quarter of each calendar year.

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

June 30,
December 31,
2020
2019
Gift card liability
$
68,912
$
84,611



	March 31,		December 31,
	2021		2020
Gift card liability	$	86,272	$	105,413

Revenue recognized from the redemption of 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,
2020
2019
2020
2019
Revenue recognized from gift card liability balance at the beginning of the year
$
4,064
$
6,615
$
32,134
$
31,318



	Three months ended
	March 31,
	2021		2020
Revenue recognized from gift card liability balance at the beginning of the year	$	30,866	$	28,070

Chipotle Rewards

~~During the first quarter of 2019, we launched~~We have a national loyalty program called Chipotle Rewards. Eligible customers who enroll in the program generally earn points for every dollar spent. After accumulating a certain number of points, the customer earns a reward that can be redeemed for a free entrée. We may also periodically offer promotions, which typically provide the customer with the opportunity to earn bonus points or free food vouchers (“Bonus Vouchers”). Earned rewards generally expire one to two months after they are issued, and points generally expire if an account is inactive for a period of six months.

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

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.

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


	Three months ended
	March 31,
	2021		2020
Chipotle Rewards liability, beginning balance	$	22,337	$	10,584
Revenue deferred		25,861		15,217
Revenue recognized		(24,273)		(12,317)
Chipotle Rewards liability, ending balance	$	23,925	$	13,484

Three months ended
Six months ended
June 30,
June 30,
2020
2019
2020
2019
Chipotle Rewards liability, beginning balance
$
13,484
$
3,466
$
10,584
$
-
Revenue deferred
25,226
13,984
40,443
19,727
Revenue recognized
(18,698)
(8,873)
(31,015)
(11,150)
Chipotle Rewards liability, ending balance
$
20,012
$
8,577
$
20,012
$
8,577

4. Fair Value of Financial Instruments

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

Our investments ~~consist~~are comprised of held-to-maturity U.S. ~~treasury notes~~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

We invest in U.S. Treasury securities with maturities of ~~less than~~up to 17 months, with $363,585 maturing within one ~~year. Fair~~year from March 31, 2021. The 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.

~~Investments, all of which are classified as~~All held-to-maturity investments are carried at amortized cost. The ~~fair value~~amortized costs of these investments exceeded the ~~amortized cost~~fair value by ~~$1,374~~$94 and $117 as of ~~June 30, 2020.~~March 31, 2021 and December 31, 2020, respectively. We recognize a reserve for the expected credit losses when lifetime credit losses are expected by management. As of ~~June 30, 2020, our investment portfolio consisted entirely of U.S. Treasury securities for which~~March 31, 2021, management has concluded ~~that~~ there is no risk of non-payment. ~~NaN impairment charges were recognized on our investments for the three and six months ended June 30, 2020 and 2019.~~

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 carried at fair value and are included in other assets on the condensed consolidated balance sheets. Fair value of rabbi trust investments in mutual funds is measured using Level 1 inputs. The fair value of the investments in the rabbi trust was ~~$14,253~~$17,505 and ~~$12,811~~$15,296 as of ~~June 30, 2020,~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. We record trading gains and losses in general and administrative expenses on the condensed consolidated 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, ~~goodwill,~~ and ~~other intangible assets.~~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 summarizes our assets measured at fair value by hierarchy level on a nonrecurring basis:



		Carrying Value
		March 31,
	Level	2021		2020
Leasehold improvements, property and equipment, net	3	$	1,087	$	978
Operating lease assets	3		566		1,461
Total		$	1,653	$	2,439

Fair value of these assets was measured using Level 3 inputs (unobservable inputs for the asset or liability). Unobservable inputs include the discount rate, projected restaurant revenues and expenses, and sublease income if we are closing the restaurant. During the three months ended March 31, 2021 and 2020 we recorded asset impairments related to restaurants and offices of $2,709 and $7,650, respectively. Carrying value after the impairment charges 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 ~~be impaired.~~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 same issuer.

Equity Method Investment

On April 16, 2020, we acquired approximately 10% of the common stock of a supplier in exchange for cash consideration of $7,500. On August 6, 2020, we acquired an additional 3.2% of the common stock of the same supplier in exchange for cash consideration of $2,500. As of March 31, 2021, we own approximately 12.7% of the supplier’s common stock and 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 balance sheet as of ~~June 30, 2020.~~March 31, 2021, with a carrying value of $9,202. The investment would be impaired if the carrying value exceeds the fair value of the investment.

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5. Shareholders’ Equity

We have had a stock repurchase program in place since 2008. Through ~~June 30, 2020, we had announced authorizations by~~March 31, 2021, our Board of Directors ~~of repurchases of~~had authorized us to repurchase shares of our common stock ~~which in the~~with an aggregate ~~authorized expenditures~~purchase price of up to ~~$2,800,000.~~$2,900,000, which includes the most recent authorization of $100,000 announced on April 21, 2021. As of ~~June 30, 2020, $115,018 was~~March 31, 2021, $153,792 remained available ~~to be repurchased~~for share repurchases under ~~announced repurchase~~these authorizations. Shares we repurchased are being held in treasury stock until they are reissued or retired at the discretion of ~~the~~our Board of Directors.

During the ~~six~~three months ended ~~June 30, 2020, 58~~March 31, 2021, 31 shares of common stock at a total cost of ~~$47,947~~$44,810 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~~three months ended ~~June 30, 2020,~~March 31, 2021, we granted stock only stock appreciation rights (“SOSARs”) on ~~109~~72 shares of our common stock to eligible employees. The weighted-average grant date fair value of the SOSARs was ~~$225.06~~$393.58 per share with a weighted-average exercise price

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~~of $852.68~~$1,479.55 per share. The SOSARs vest in two equal installments on the second and third anniversary of the grant date. For the ~~six~~three months ended ~~June 30, 2020, 413~~March 31, 2021, 247 SOSARs were exercised, and 202 SOSARs were forfeited.

For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, we granted restricted stock units (“RSUs”) on 3523 shares of our common stock to eligible employees. The weighted-average grant date fair value of the RSUs was ~~$860.88~~$1,479.55 per share. The RSUs generally vest in two equal installments on the second and third anniversary of the grant date. For the ~~six~~three months ended ~~June 30, 2020, 58~~March 31, 2021, 40 RSUs vested and ~~6 RSUs were~~1 RSU was forfeited.

For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, we awarded ~~a total of 27~~ 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. The weighted-average grant date fair value of the PSUs was ~~$853.03~~$1,479.55 per share, 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.

On December 30, 2020, due to the 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 $24,366 was recognized during the three months ended March 31, 2021, and $46,609 remains unamortized as of March 31, 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 remaining expense will be recognized over this requisite service period. For the ~~six~~three months ended ~~June 30, 2020, 71~~March 31, 2021, 0 other PSUs vested, and 20 PSUs were forfeited.

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



	Three months ended				Six months ended				Three months ended
	June 30,				June 30,				March 31,
	2020		2019		2020		2019		2021		2020
Stock-based compensation	$	23,676	$	21,322	$	41,384	$	40,664	$	55,960	$	17,708
Stock-based compensation, net of income taxes	$	20,007	$	15,689	$	34,512	$	30,091	$	50,465	$	14,505
Total capitalized stock-based compensation included in net leasehold improvements, property and equipment on the condensed consolidated balance sheets	$	309	$	155	$	622	$	343
Excess tax benefit on stock-based compensation recognized in benefit (provision) for income taxes	$	15,708	$	5,264	$	39,339	$	10,698
Total capitalized stock-based compensation included in leasehold improvements, property and equipment, net on the condensed consolidated balance sheets									$	570	$	313
Excess tax benefit on stock-based compensation recognized in benefit/(provision) for income taxes on the condensed consolidated statements of income and comprehensive income									$	15,025	$	23,631

7. Income Taxes

The effective tax rate for the three months ended March 31, 2021, was 20.2%, an increase from negative 3.4% for the three months ended March 31, 2020. The increase was primarily due to increased profit before tax and fewer excess tax benefits related to option exercises and equity vesting in the three months ended March 31, 2021, as compared to the three months ended March 31, 2020.

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On March ~~27, 2020,~~11, 2021, President ~~Trump~~Biden signed ~~into law~~the American Rescue Plan Act (“ARPA”). 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”)~~. Intended~~, through December 31, 2021. For the quarter ended March 31, 2021, we did 0t record a tax benefit related to provide economic relief to those impacted by the coronavirus (COVID-19) pandemic, the CARES Act includes provisions, among others, addressing the carryback of net operating losses for specific periods, refunds of alternative minimum tax credits, temporary modifications to the limitations placed on the tax deductibility of net interest expenses, and technical amendments for qualified improvement property (“QIP”). Additionally, the CARES Act, in efforts to enhance business’ liquidity, provides for refundable employee retention tax credits and the deferral of the employer-paid portion of social security taxes.

As of June 30, 2020, we have elected to defer the employer-paid portion of social security taxes. Additionally, because of the technical amendments made by the CARES Act to QIP, we have refined our estimation of the acceleration of depreciation expenses. These accelerated tax depreciation expenses of $31,754, in addition to the deferral of employer-paid social security taxes of $6,214, represent temporary book-to-tax timing differences (i.e., 0 effective tax rate impact) for income tax purposes and are recorded as components within our deferred income tax liabilities and income tax receivable on the condensed consolidated balance sheets.

We intend to claim the refundable employee retention tax credits provided under the CARES Act, which can be used to partially offset payroll tax liabilities. As of June 30, 2020, we estimated the benefit of the employee retention ~~tax credit to be $2,294.~~credit. We are ~~continuing to examine additional impacts~~still evaluating the ARPA and we do not expect that ~~the CARES Act may~~it will have a material impact on our ~~U.S. business, and we are currently evaluating the potential tax-related incentives offered in Canada, France, Germany and the United Kingdom, where our operations have also been impacted by COVID-19.~~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.

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~~The components of lease cost were as follows:~~

Three months ended
Six months ended
June 30,
June 30,
Classification
2020
2019
2020
2019
Operating lease cost
Occupancy, Other operating costs, General and administrative expenses and Pre-opening costs
$
82,706
$
74,701
$
163,802
$
151,506
Short-term lease cost
Other operating costs
-
737
36
1,474
Variable lease cost
Occupancy
8,780
9,276
17,936
18,380
Sublease income
General and administrative expenses
(812)
(909)
(1,649)
(1,675)
Total lease cost
$
90,674
$
83,805
$
180,125
$
169,685

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

Three months ended
Six months ended
June 30,
June 30,
2020
2019
2020
2019
Cash paid for operating lease liabilities
$
66,595
$
73,572
$
144,484
$
145,404
Operating lease assets obtained in exchange for operating lease liabilities⁽¹⁾
$
102,113
$
64,807
$
239,079
$
2,466,046
Derecognition of operating lease assets due to terminations or impairment
$
12,410
$
3,103
$
14,417
$
13,859

~~(1) Amounts for the six months ended June 30, 2019 include the transition adjustment for the adoption of Topic 842 discussed in our annual report on Form 10-K for the year ended December 31, 2019.~~



	Three months ended
	March 31,
	2021		2020
Cash paid for operating lease liabilities	$	88,808	$	77,889
Operating lease assets obtained in exchange for operating lease liabilities	$	144,102	$	136,966
Derecognition of operating lease assets due to terminations or impairment	$	1,547	$	2,007

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 the COVID-19 pandemic, provided the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee. ~~During the three months ended June 30,~~In 2020, we ~~have~~ received non-substantial concessions from certain landlords in the form of rent deferrals and ~~abatements.~~abatements related to 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, 2020.~~March 31, 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				Three months ended
	June 30,				June 30,				March 31,
	2020		2019		2020		2019		2021		2020
Net income	$	8,175	$	91,028	$	84,563	$	179,160	$	127,101	$	76,388
Shares:
Weighted-average number of common shares outstanding (for basic calculation)		27,911		27,720		27,851		27,708		28,125		27,792
Dilutive stock awards		422		580		477		501		457		531
Weighted-average number of common shares outstanding (for diluted calculation)		28,333		28,300		28,328		28,209		28,582		28,323
Basic earnings per share	$	0.29	$	3.28	$	3.04	$	6.47	$	4.52	$	2.75
Diluted earnings per share	$	0.29	$	3.22	$	2.99	$	6.35	$	4.45	$	2.70

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



	Three months ended				Six months ended				Three months ended
	June 30,				June 30,				March 31,
	2020		2019		2020		2019		2021		2020
Stock awards subject to performance conditions		100		84		95		83		69		90
Stock awards that were antidilutive		117		175		110		259		48		103
Total stock awards excluded from diluted earnings per share		217		259		205		342		117		193

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10. Commitments and Contingencies

Purchase Obligations

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

~~Litigation~~

~~Settlement of DOJ Investigation~~

~~On January 28, 2016, we were served with a Federal Grand Jury Subpoena from the U.S. District~~9

Table of California relating to an official criminal investigation being conducted by the U.S. Attorney’s Office for the Central District of California, in conjunction with the U.S. Food and Drug Administration’s Office of Criminal Investigations (collectively, the “DOJ”). The subpoena required the production of documents and information related to company-wide food safety matters dating back to January 1, 2013. On April 21, 2020, we announced that we have signed a Deferred Prosecution Agreement to resolve this investigation. Pursuant to the Agreement, the DOJ has agreed to take no legal action relating to these past incidents for three years provided that Chipotle complies with its obligations under the Agreement, which include payment a $25,000 fine (consisting of a $10,000 payment that was made on June 1, 2020, followed by 3 separate payments of $5,000 each to be paid every 30 days after the first payment) and enhancing and maintaining our existing comprehensive compliance program which is designed to ensure that it complies with all applicable federal and state food safety laws.Contents

~~Shareholder Class Action~~

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 Securities Exchange Act of 1934, as amended, 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 22, 2018, the court granted our motion to dismiss, with prejudice. On April 20, 2018, the plaintiffs filed a motion for relief from the judgment and seeking leave to file a third amended complaint, and on November 20, 2018, the court denied the motion. On December 20, 2018, the plaintiff initiated an appeal to the U.S. Court of Appeals for the Second Circuit. We intend to continue vigorously defending the case, but it is not possible at this time to reasonably estimate the outcome of or any potential liability from the case.

~~Miscellaneous~~Litigation

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, 2020,~~March 31, 2021, we had aan accrued legal liability balance of ~~$31,385~~$29,082 included within accrued liabilities on the condensed consolidated balance ~~sheets. We ultimately may be subject~~sheet. The settlements are part of our plan to ~~liabilities greater or less than the amount accrued.~~resolve longstanding legal proceedings whenever appropriate to better allow us to focus on our strategic priorities.

11. Debt

On May 8, 2020, we entered into a $600,000 revolving credit facility with JPMorgan Chase Bank (“JPMorgan”) as administrative ~~agent, which expires on May 7, 2021.~~agent. We pay a commitment fee of 0.625% per year for unused amounts under the credit facility. Interest on borrowings ~~currently~~would bear interest at a rate equal to the ~~London Interbank Offered Rate (LIBOR)~~LIBOR plus 1.50%, which ~~may~~was subject to increase due to changes in our total leverage ratio as defined in the credit agreement. Further, we ~~are~~were subject to certain covenants, which ~~include~~included (i) maintaining a total leverage ratio of less than 3.0x, (ii) maintaining a consolidated fixed charge coverage ratio of greater than 1.5x and (iii) limiting us from making investments and capital expenditures in certain circumstances. We had 0 outstanding borrowings under the credit facility as of ~~June 30, 2020.~~March 31, 2021.

On April 13, 2021, we terminated the above referenced credit facility and 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 (i) maintaining a total leverage ratio of less than 3.0x, (ii) maintaining a consolidated fixed charge coverage ratio of greater than 1.5x, and (iii) limiting us from incurring additional indebtedness in certain circumstances.

12. Related Party Transactions

In April 2020, we acquired common stock of a supplier. As of March 31, 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 months ended March 31, 2021, purchases from the supplier were $5,742.

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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 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 benefit of the CARES Act or the ARPA on our ~~liquidity~~taxes and tax rate, the number of new restaurants we expect to open this year, our expectation to generate positive cash flow for the foreseeable future, our plans for continuing stock buybacks and the period of time during which our cash and short-term investment will fund our 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,” “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, ~~2019, as updated in our Form 10-Q for the quarter ended March 31,~~ 2020, and in other reports filed subsequently with the SEC.

Overview of the Impact of COVID-19

The COVID-19 pandemic has adversely affected, and ~~will~~may continue to adversely affect, our operations and financial results for the foreseeable future. In response to COVID-19, we temporarily closed some restaurants and dining rooms in our restaurants. We continue to follow guidance from health officials in determining the appropriate restrictions to put in place for each restaurant. As of ~~June 30, 2020, the majority~~March 31, 2021, most of our restaurants ~~have been reopened~~were open for dine-in with restrictions, such as social distancing and mask requirements for all customers and employees, to ensure the health and safety of our guests and employees. ~~Certain~~Some restaurants only offer take-out, digital order ahead and delivery services in accordance with local guidance and regulations. ~~About 30 restaurants remain temporarily closed, mainly inside malls~~Our restaurant operations have been and ~~shopping centers.~~could continue to be disrupted by employees who are unable or unwilling to work, because of illness, quarantine, fear of contracting COVID-19 or caring for family members due to COVID-19, or for other reasons. For a further discussion of the impacts that COVID-19 has had on our financial results, refer to “Results of Operations” below.

We remain in regular contact with our major suppliers and while to date we have not experienced significant disruptions in our supply chain, we could see future disruptions should the impacts of COVID-19 extend for a considerable amount of time. Within our restaurants, we have taken a number of steps to enhance our robust food safety protocols including the creation of the steward role which is focused on sanitization in high-touch and high-traffic areas, providing masks for all employees, and having a tamper evident packaging seal for all digital orders. To support our employees, we ~~have eliminated~~are limiting non-essential travel, ~~implemented~~continuing to work ~~from home~~remotely for our support centers, and ~~significantly~~offering expanded employee benefits. We remain focused on ~~reducing~~limiting non-essential controllable costs and judiciously spending on return generating projects to preserve liquidity. We ~~did not make~~resumed our stock buyback program in February 2021, which may be modified, suspended, or discontinued at any ~~stock buybacks during the second quarter and do not expect to do so until the economic environment stabilizes.~~time. Refer to the “Liquidity and Capital Resources” below for further detail.

Given the on-going uncertainty surrounding the future impact of COVID-19 on the broader US economy and any specific impact to our company, we are not providing fiscal 2020 guidance related to comparable restaurant sales growth, new restaurant openings, and effective full year tax rate.

~~Second~~First Quarter ~~2020~~2021 Financial Highlights, ~~which incorporate the impact of COVID-19, year over year:~~year-over-year:

~~Revenue decreased 4.8%~~Total revenue increased 23.4% to ~~$1.4~~$1.7 billion

Comparable restaurant sales ~~declined 9.8%~~increased 17.2%

Diluted earnings per share was ~~$0.29,~~$4.45, which included ~~the~~a $0.91 after-tax impact from expenses related to the 2018 PSU modification to account for the unplanned effects of COVID-19, restaurant asset impairment and closure costs, ~~and~~as well as corporate restructuring ~~charges of $0.11~~

Sales Trends. ~~With changes in consumer behavior resulting~~Comparable restaurant sales increased 17.2% for the three months ended March 31, 2021. This increase is primarily attributable to a higher average check from ~~COVID-19, we have seen~~menu price increases and an increase in entrees ~~per transaction, due in part to a shift towards digital group orders. Comparable restaurant sales decreased 9.8% with a 13.7% decrease in comparable entrees~~sold, and a ~~3.9% increase in average comparable check. The decrease in comparable restaurant sales was most severe in April 2020, with~~higher attachment to sides. We believe effective marketing, the release of new menu items and government stimulus payments to consumers had a ~~24.4% decrease in year over year comparable restaurant sales. Sales trends improved meaningfully in May and June 2020, with a 7.0% decrease and a 2.0% increase in year over year comparable restaurant sales, respectively.~~positive impact on sales.

Digital sales grew ~~216.3%~~133.9% to ~~$829.3~~$869.8 million for the three months ended ~~June 30, 2020~~March 31, 2021, as compared to the three months ended ~~June 30, 2019~~March 31, 2020 and represented ~~60.7%~~50.1% of sales. ~~Contributing to this result was increased~~Just over half of the digital awareness via advertising, new delivery partnerships with Uber Eats, growth in Chipotle Rewards, as well as the expansion of our digital capabilities into Canada. These initiatives are attracting new customers and increasing convenient access. Notably, partnering with the major third-party delivery aggregators has led to an increase in orders, a reduction in delivery time and cancellations, and an improvement in overall customer ratings.

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sales were from order ahead transactions.

Restaurant Operating Costs. Our restaurant operating costs (food, beverage and packaging; labor; occupancy; and other operating costs) as a percentage of total revenue ~~increased 870~~decreased 470 basis points to ~~87.8%~~77.7% for the three months ended ~~June 30, 2020,~~March 31, 2021, as compared to ~~79.1%~~82.4% for the three months ended ~~June 30, 2019.~~ March 31, 2020. The ~~increase in restaurant operating costs as a percentage of revenue~~improvement was driven primarily by ~~higher delivery expense associated with increased delivery~~leverage from the comparable restaurant sales ~~sales deleverage, several temporary investments in our business as a result of COVID-19 including assistance pay, and increased delivery promotions. These~~ increases, ~~in expenses were~~ partially offset by ~~lower avocado prices~~increased delivery expense and ~~the benefit from menu price increases in late 2019.~~wage inflation.

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Restaurant Development. We opened 3740 new restaurants ~~including three relocations,~~ and closed ~~three~~five restaurants during the three months ended ~~June 30, 2020.~~March 31, 2021. Of the 3740 new restaurants, 2126 included ~~a drive through format which we call a “Chipotlane.” We recently announced a milestone with the opening of our 100th Chipotlane.~~Chipotlanes. The Chipotlane format continues to 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 number of Chipotle restaurants in the U.S. We believe our strong financial position will allow us to build a robust new unit development pipeline. ~~As a result, we expect to see an acceleration in the number of units opened in 2021.~~

Restaurant Activity

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



	Three months ended		Six months ended		Three months ended
	June 30,		June 30,		March 31,
	2020	2019	2020	2019	2021	2020
Beginning of period	2,638	2,504	2,622	2,491	2,768	2,622
Chipotle openings	37	20	56	35	40	19
Chipotle permanent closures	(3)	(1)	(5)	(3)	(5)	(2)
Chipotle relocations	(3)	-	(4)	-	-	(1)
Total restaurants at end of period	2,669	2,523	2,669	2,523	2,803	2,638

Results of Operations

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

Revenue

Three months ended
Six months ended
June 30,
Percentage
June 30,
Percentage
2020
2019
change
2020
2019
change
(dollars in millions)
(dollars in millions)
Revenue
$
1,364.7
$
1,434.2
(4.8%)
$
2,775.5
$
2,742.4
1.2%
Average restaurant sales ⁽¹⁾
$
2.2
$
2.1
5.6%
$
2.2
$
2.1
5.6%
Comparable restaurant sales increase (decrease)
(9.8%)
10.0%
(3.5%)
10.0%
⁽¹⁾ Average restaurant sales refer to the average trailing 12-month sales for restaurants in operation for at least 12 full calendar months.



	Three months ended
	March 31,				Percentage
	2021		2020		change
	(dollars in millions)
Food and beverage revenue	$	1,716.0	$	1,402.1	22.4%
Delivery service revenue		25.6		8.7	195.6%
Total revenue	$	1,741.6	$	1,410.8	23.4%
Average restaurant sales ⁽¹⁾	$	2.313	$	2.217	4.3%
Comparable restaurant sales increase		17.2%		3.3%

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

~~Revenue decreased~~The significant factors contributing to the total revenue increase for the three months ended ~~June 30, 2020,~~March 31, 2021 compared to ~~June 30, 2019, primarily due to~~March 31, 2020, were comparable restaurant sales ~~decreases~~increases of ~~$144.4~~$234.4 million, ~~partially offset by~~and to a lesser extent, increases in total revenue from restaurants not yet in the comparable base of ~~$74.9~~$96.1 million, of which ~~$57.1~~$8.6 million ~~is due~~was attributable to restaurants opened in ~~2019.~~2021.

~~Revenue increased~~Food, Beverage and Packaging Costs



	Three months ended
	March 31,				Percentage
	2021		2020		change
	(dollars in millions)
Food, beverage and packaging	$	522.7	$	462.3	13.1%
As a percentage of total revenue		30.0%		32.8%	(2.8%)

Food, beverage and packaging costs decreased as a percentage of total revenue for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021 compared to ~~June 30, 2019,~~ March 31, 2020, primarily due to ~~revenue from restaurants not yet in~~ the ~~comparable base~~benefit of ~~$137.1 million, of which $117.6 million is due~~menu price increases, and to ~~restaurants opened in 2019,~~a lesser extent, a mix shift towards higher margin proteins and ~~was~~lower waste. These decreases were partially offset by ~~comparable restaurant~~costs associated with cauliflower rice and fewer sales ~~decreases~~ of ~~$104.0 million.~~high margin beverages.

COVID-19 ~~negatively impacted comparable restaurant sales~~had an immaterial direct impact on food, beverage and packaging costs for the three ~~and six~~ months ended ~~June 30, 2020, due to~~ ~~restrictions put in place for restaurants. Comparable restaurant~~March 31, 2021. Indirect impacts included a lower incidence of beverage sales ~~for the months ended April 30, 2020, May 31, 2020, and June 30, 2020 were a 24.4% decrease, a 7.0% decrease, and a 2.0% increase, respectively.~~from pre-pandemic levels.

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~~Food, Beverage and Packaging~~Labor Costs

Three months ended
Six months ended
June 30,
Percentage
June 30,
Percentage
2020
2019
change
2020
2019
change
(dollars in millions)
(dollars in millions)
Food, beverage and packaging
$
454.8
$
483.3
(5.9%)
$
917.1
$
904.7
1.4%
As a percentage of revenue
33.3%
33.7%
(0.4%)
33.0%
33.0%
0.0%



	Three months ended
	March 31,				Percentage
	2021		2020		change
	(dollars in millions)
Labor costs	$	433.7	$	393.6	10.2%
As a percentage of total revenue		24.9%		27.9%	(3.0%)

~~Food, beverage and packaging~~Labor costs decreased as a percentage of total revenue for the three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~June 30, 2019,~~ March 31, 2020, primarily due to ~~lower avocado costs, the benefit of menu price increases in late 2019,~~sales leverage and to a lesser extent ~~lower waste, freight, and paper costs. These decreases were~~improved labor efficiency realized from digital enhancements to the restaurants. This decrease was partially offset by~~elevated beef prices and increased incidence of steak, bottled beverages, and burritos.~~

~~Food, beverage and packaging costs remained flat as a percentage of revenue for the six months ended June 30, 2020 compared to June 30, 2019,~~ ~~primarily~~ ~~due to the benefit of menu price increases in late 2019, lower avocado costs, and, to a lesser extent, lower paper costs. These decreases were offset by~~ ~~higher costs of several ingredients including beef and dairy; and increased incidence of steak ,bottled beverages, and burritos;~~ ~~as well as free food costs associated with Chipotle Rewards and digital ordering incentives.~~

COVID-19 increased food, beverage and packaging costs as a percentage of revenue for the three and six months ended June 30, 2020 compared to June 30, 2019, as beef prices were elevated due to COVID-19 related shut down of processing plants, increased incidence of bottled beverages and burritos, and to a lesser extent, increased spoilage due to right sizing food purchases to align with the new sales level.

~~Labor Costs~~

Three months ended
Six months ended
June 30,
Percentage
June 30,
Percentage
2020
2019
change
2020
2019
change
(dollars in millions)
(dollars in millions)
Labor costs
$
385.3
$
368.1
4.7%
$
778.8
$
716.9
8.6%
As a percentage of revenue
28.2%
25.7%
2.5%
28.1%
26.1%
2.0%

~~Labor costs increased as a percentage of revenue for the three and six months ended June 30, 2020 compared to June 30, 2019, primarily due to~~ increased crew wages including ~~temporary assistance pay for our crew working during COVID-19, lower sales, and more managers per store, partially offset~~expanded emergency leave benefits to accommodate employees directly affected by ~~labor efficiencies with the digital make line and closed dining rooms.~~COVID-19.

COVID-19 increased labor costs as a percentage of total revenue for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 compared to ~~June 30, 2019,~~March 31, 2020, by ~~1.4% and 0.8%, respectively, as we made additional employee investments in the form of assistance pay and expanded~~0.2%. This increase was primarily due to our emergency leave benefits to accommodate ~~those~~employees directly affected by ~~COVID-19. Our~~COVID-19, partially offset by a comparison against temporary assistance pay ~~program ended June 7,~~that we provided during March 2020.

Occupancy Costs



	Three months ended					Six months ended					Three months ended
	June 30,				Percentage	June 30,				Percentage	March 31,				Percentage
	2020		2019		change	2020		2019		change	2021		2020		change
	(dollars in millions)					(dollars in millions)					(dollars in millions)
Occupancy costs	$	95.6	$	89.9	6.3%	$	190.9	$	178.7	6.8%	$	101.8	$	95.3	6.8%
As a percentage of revenue		7.0%		6.3%	0.7%		6.9%		6.5%	0.4%
As a percentage of total revenue												5.8%		6.8%	(1.0%)

Occupancy costs ~~increased~~decreased as a percentage of total revenue for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 compared to ~~June 30, 2019,~~March 31, 2020, primarily due to sales leverage, partially offset by increased rent expense associated with new ~~restaurants and to a lesser extent the impact by change in revenue.~~restaurants.

COVID-19 had an immaterial impact on occupancy costs for the three ~~and six~~ months ended ~~June 30, 2020.~~

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March 31, 2021.

Other Operating Costs



	Three months ended					Six months ended					Three months ended
	June 30,				Percentage	June 30,				Percentage	March 31,				Percentage
	2020		2019		change	2020		2019		change	2021		2020		change
	(dollars in millions)					(dollars in millions)					(dollars in millions)
Other operating costs	$	262.4	$	193.3	35.7%	$	473.1	$	368.1	28.6%	$	294.7	$	210.8	39.8%
As a percentage of revenue		19.2%		13.5%	5.7%		17.0%		13.4%	3.6%
As a percentage of total revenue												16.9%		14.9%	2.0%

Other operating costs include, among other items, marketing and promotional costs, delivery expense, bank and credit card processing fees, restaurant utilities, and maintenance costs. Other operating costs increased as a percentage of total revenue for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 compared to ~~June 30, 2019,~~March 31, 2020, primarily due to higher delivery expenses associated with increased delivery ~~sales and increased delivery promotions which decreased revenue.~~sales.

As a result of COVID-19, ~~we are adapting our restaurant operations to the changing environment and are reducing non-essential controllable costs. Sales~~sales shifted towards delivery after we temporarily closed our dining rooms to help control the spread of ~~COVID-19.~~COVID-19 and delivery sales have remained elevated from pre-pandemic levels. We ~~reprioritized marketing efforts by offering free delivery from March 15, 2020 through May 10, 2020, and discounted delivery beginning May 11, 2020.~~are also continuing to limit non-essential controllable costs.

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General and Administrative Expenses



	Three months ended					Six months ended					Three months ended
	June 30,				Percentage	June 30,				Percentage	March 31,				Percentage
	2020		2019		change	2020		2019		change	2021		2020		change
	(dollars in millions)					(dollars in millions)					(dollars in millions)
General and administrative expense	$	102.6	$	121.4	(15.4%)	$	209.1	$	224.1	(6.7%)	$	155.1	$	106.5	45.7%
As a percentage of revenue		7.5%		8.5%	(1.0%)		7.5%		8.2%	(0.7%)
As a percentage of total revenue												8.9%		7.5%	1.4%

General and administrative ~~expenses decreased~~expense increased in dollar terms for the three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~June 30, 2019,~~March 31, 2020, primarily due to a ~~reduction~~$36.9 million increase in stock based compensation, $24.4 million of which relates to the ~~following: $19.2~~modification of 2018 PSUs to account for the unplanned effects of COVID-19, a $7.4 million in ~~estimated loss contingencies related to a number of legal matters~~ ~~and legal expenses, $2.4 million in travel expense, and $2.1 million in expense associated with the corporate restructuring. These decreases were partially offset by increases of $2.8 million~~ increase in outside ~~service~~services expense related to ~~company~~ initiatives to support restaurant growth, ~~including digitizing our restaurant experience~~ and ~~$2.1~~a $4.1 million increase in ~~other expenses.~~

~~General~~payroll taxes due to the vesting and exercises of stock awards. The increase in general and administrative ~~expenses decreased~~expense was partially offset by a $2.2 million decrease in ~~dollar terms for the six months ended June 30, 2020 compared to June 30, 2019, primarily due to~~legal contingencies and settlements and a ~~reduction in the following: $25.8~~$1.7 million in ~~estimated loss contingencies related to a number of legal matters~~ ~~and legal expenses, $5.0 million in expense associated with the corporate restructuring, and $2.0 million~~decrease in travel expense~~. These decreases were partially offset by increases of $7.0 million~~ in outside service expense related to company initiatives to support restaurant growth, including digitizing our restaurant experience, $5.2 million due to severance and stock modification charges associated with the departure of our former Executive Chairman, and $1.0 million in other expenses. In addition, the prior period included a $4.6 million reduction to an estimated liability associated with the data security incident, which is inflating general and administrative expenses in the current year as compared to the prior year. resulting from COVID-19.

Other than the impact on travel expenses and stock-based compensation discussed above, COVID-19 had a minimal impact on general and administrative expenses for the three ~~and six~~ months ended ~~June 30, 2020. We will continue to assess additional planned general and administrative investments as we better understand the length and severity of the COVID-19 impacts.~~March 31, 2021.

Depreciation and Amortization



	Three months ended					Six months ended					Three months ended
	June 30,				Percentage	June 30,				Percentage	March 31,				Percentage
	2020		2019		change	2020		2019		change	2021		2020		change
	(dollars in millions)					(dollars in millions)					(dollars in millions)
Depreciation and amortization	$	60.0	$	51.6	16.2%	$	118.4	$	105.4	12.3%	$	63.1	$	58.4	8.1%
As a percentage of revenue		4.4%		3.6%	0.8%		4.3%		3.8%	0.5%
As a percentage of total revenue												3.6%		4.1%	(0.5%)

Depreciation and amortization ~~increased~~decreased as a percentage of total revenue for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 compared to ~~June 30, 2019,~~March 31, 2020, primarily due to ~~an increase~~the benefit of sales leverage, which was partially offset by increases in depreciation expense associated with new restaurants, upgrading equipment in our restaurants primarily to support the growth in our digital business, and depreciation associated with our website and mobile app.

COVID-19 had an immaterial impact on depreciation and amortization for the three months ended March 31, 2021.

Impairment, Closure Costs, and Asset Disposals



	Three months ended
	March 31,				Percentage
	2021		2020		change
	(dollars in millions)
Impairment, closure costs, and asset disposals	$	5.7	$	9.3	(39.3%)
As a percentage of total revenue		0.3%		0.7%	(0.4%)

Impairment, closure costs, and asset disposals decreased in dollar terms for the three months ended March 31, 2021 compared to March 31, 2020, primarily due to a comparison against elevated impairments of leasehold improvements, operating lease assets, and property and equipment. These elevated impairments 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.

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~~Impairment, Closure Costs, and Asset Disposals~~

Three months ended
Six months ended
June 30,
Percentage
June 30,
Percentage
2020
2019
change
2020
2019
change
(dollars in millions)
(dollars in millions)
Impairment, closure costs, and asset disposals
$
5.4
$
4.5
20.0%
$
14.7
$
11.4
28.8%
As a percentage of revenue
0.4%
0.3%
0.1%
0.5%
0.4%
0.1%

Impairment, closure costs, and asset disposals increased in dollar terms for the three months ended June 30, 2020 compared to June 30, 2019, primarily due to charges related to the replacement of certain kitchen equipment and leasehold improvements, and, to a lesser extent, impairments on restaurants and equipment.

Impairment, closure costs, and asset disposals increased in dollar terms for the six months ended June 30, 2020 compared to June 30, 2019, primarily due to impairments on restaurants and equipment, and to a lesser extent charges related to the replacement of certain kitchen equipment and leasehold improvements.

COVID-19 had a negative impact on our assumptions for future restaurant level cash flows. These changes in assumptions resulted in elevated impairment charges for the three and six months ended June 30, 2020.

~~Benefit~~ Benefit/(Provision) for Income Taxes



	Three months ended					Six months ended					Three months ended
	June 30,				Percentage	June 30,				Percentage	March 31,				Percentage
	2020		2019		change	2020		2019		change	2021		2020		change
	(dollars in millions)					(dollars in millions)					(dollars in millions)
Benefit (provision) for income taxes	$	12.5	$	(32.9)	(137.9%)	$	15.0	$	(58.1)	(125.8%)
Benefit/(provision) for income taxes											$	(32.2)	$	2.5	(1,374.7%)
Effective tax rate		289.4%		26.6%			(21.6%)		24.5%			20.2%		(3.4%)	23.6%

The effective income tax rate for the three months ended March 31, 2021 was 20.2%, an increase from an effective income tax rate of negative 3.4% for the three months ended March 31, 2020. The increase was primarily due to increased profit before tax and fewer excess tax benefits related to option exercises and equity vesting in the quarter.

The effective tax rate for the three months ended ~~June 30, 2020, was a benefit~~March 31, 2021 of ~~289.4%, a change from an~~20.2% is lower than our expected effective income ~~tax provision of 26.6% for the three months ended June 30, 2019, primarily due to excess tax benefits related to option exercises in the quarter, along with a decrease in income before tax.~~

~~The effective~~ tax rate for the ~~six months ended June 30, 2020, was a benefit of -21.6%, a change from an effective income tax provision of 24.5% for the six months ended June 30, 2019,~~full year 2021, primarily due to elevated excess tax benefits related to option exercises and equity vesting ~~along with a decrease~~ in ~~income before tax.~~the first quarter.

~~The~~COVID-19, the CARES Act and the ARPA did not have a material impact on our tax rate for the three ~~or six~~ months ended ~~June 30, 2020.~~March 31, 2021.

Seasonality

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

Our quarterly results are also affected by other factors such as the amount and timing of non-cash stock-based compensation expense and related tax rate impacts, litigation, settlement costs and related legal expenses, impairment charges and non-operating costs, timing of marketing or promotional expenses, the number and timing of new restaurants opened in a quarter, and closure of restaurants. New restaurants typically have lower margins following opening because of the expenses associated with their opening and operating inefficiencies in the months immediately following opening. Accordingly, results for a particular quarter are not necessarily indicative of results to be expected for any other quarter or for any year.

Liquidity and Capital Resources

Historically, our primary liquidity and capital requirements are for new restaurant construction, initiatives to improve the guest experience in our restaurants, working capital and general corporate needs. As of ~~June 30, 2020,~~March 31, 2021, we had a cash and ~~short-term investment~~marketable investments balance of

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~~$906.6 million,~~ $1.2 billion, excluding restricted cash of ~~$28.0~~$27.9 million. We also expect to see a liquidity benefit of about $100 million primarily from deferring social security tax payments and accelerating tax depreciation in previous income tax returns as allowed by the CARES Act. We expect to utilize ~~this, along with~~ cash flow from operations to ~~continue investments~~provide capital for the continued investment in new ~~store~~restaurant construction ~~remodels for~~and to remodel restaurants, primarily those that do not have a digital ~~make line~~kitchen or Chipotlane, to repurchase additional shares of our common stock subject to market conditions, and ~~technology.~~for general corporate purposes. Additionally, as of ~~June 30, 2020,~~March 31, 2021, we had $600.0 million of undrawn borrowing capacity under 365-day revolving credit facility. On April 13, 2021, we terminated this credit facility and entered into a ~~line of~~new $500.0 million revolving credit facility with ~~JPMorgan Chase bank.~~a term of five years.

As sales fell quickly from the impact of COVID-19, we proactively implemented several actions to reduce cash outlays and expenses. As part of our cash preservation strategy, in March 2020 we temporarily suspended our stock buyback program. We resumed our stock buyback program in February 2021, which may be modified, suspended, or discontinued at any time. In our restaurants, we are working to minimize waste, effectively schedule labor hours, and ~~reduce~~limit non-essential controllable costs. We ~~halted~~continue to limit all non-essential travel and expenses. ~~We are delaying non-essential reinvestments, including deferring all remodels except for those that involve a digital make line or the addition of a Chipotlane.~~ We believe that cash from operations, together with our cash and investment balances, will be sufficient to meet ongoing capital expenditures, working capital requirements and other cash needs for the foreseeable future. Assuming ~~our~~no significant declines in comparable restaurant sales, ~~improvement continues,~~ we expect ~~that~~ we ~~may be able to~~will generate positive cash flow ~~through~~for the ~~balance of the year.~~foreseeable future. Should our business ~~take longer~~deteriorate due to ~~recover than we currently anticipate,~~changing conditions, there are other actions we can take to further conserve liquidity.

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

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Off-Balance Sheet Arrangements

As of ~~June 30, 2020~~March 31, 2021, and December 31, ~~2019,~~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 to our critical accounting estimates as described in our annual report on Form 10-K for the year ended December 31, ~~2019.~~2020.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Commodity Price Risks

We are exposed to commodity price risks. Many of the ingredients we use to prepare our food, as well as our packaging materials and utilities to run our restaurants, are ingredients or commodities that are affected by the price of other commodities, exchange rates, foreign demand, weather, seasonality, production, availability and other factors outside our control. We work closely with our suppliers and use a mix of forward pricing protocols under which we agree with our supplier on fixed prices for deliveries at some time in the future, fixed pricing protocols under which we agree on a fixed price with our supplier for the duration of that protocol, formula pricing protocols under which the prices we pay are based on a specified formula related to the prices of the goods, such as spot prices, and range forward protocols under which we agree on a price range for the duration of that protocol. Generally, our pricing protocols with suppliers can remain in effect for periods ranging from one to 36 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 practical, the number of suppliers for our ingredients, which we believe can help mitigate pricing volatility, and we follow industry news, trade issues, exchange rates, foreign demand, weather, crises and other world events that may affect our ingredient prices. Increases in ingredient prices could adversely affect our results if we choose for competitive or other reasons not to increase menu prices at the same rate at which ingredient costs increase, or if menu price increases result in customer resistance. We also could experience shortages of key ingredients if our suppliers need to close or restrict operations due to the impact of the COVID-19 outbreak.

Changing Interest Rates

We are 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 ~~June 30, 2020,~~March 31, 2021, we had ~~$827.7 million~~$1.1 billion in ~~investments and~~ interest-bearing cash accounts, including insurance-related restricted trust accounts classified in restricted cash, and ~~$87.7~~U.S. treasury securities. We had $81.0 million in accounts with an earnings credit we classify as interest and other ~~income, which combined~~income. Combined these earned a weighted-average interest rate of ~~0.66%~~0.10%.

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Foreign Currency Exchange Risk

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

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 ~~June 30, 2020,~~March 31, 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.

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Changes in Internal Control over Financial Reporting

There were no changes ~~for~~during the ~~three months~~fiscal quarter ended ~~June 30, 2020,~~March 31, 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 10. “Commitments and Contingencies” in our condensed consolidated financial statements included in Item 1. “Financial ~~Statements~~.Statements.”

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31,~~ 2020.

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

Purchases of Equity Securities by the Issuer

OnThe table below reflects shares of common stock we repurchased during the first quarter of 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⁾
January		-	$	-	-	$	115,017,912
	Purchased 1/1 through 1/31
February		12,536	$	1,435.45	12,536	$	97,023,165
	Purchased 2/1 through 2/28
March		30,432	$	1,420.57	30,432	$	153,792,369
	Purchased 3/1 through 3/31
Total		42,968	$	1,424.91	42,968

(1) Shares were repurchased pursuant to repurchase programs announced on July 23, 2019 and February 4, 2020.

(2) This column includes an additional $100 million in authorized repurchases approved on March ~~20, 2020,~~31, 2021 and announced April 21, 2021. There is no expiration date for this program, and the authorization to repurchase shares will end when we ~~temporarily suspended our stock repurchase program. The total remaining dollar value~~have repurchased the maximum amount of shares ~~that may yet be purchased under~~authorized, or our ~~stock repurchase program is $115,018 as~~Board of ~~June 30, 2020.~~Directors have determined to discontinue such repurchases.

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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
10.1	Revolving Credit Agreement dated April 13, 2021, among Chipotle Mexican Grill, Inc. and JPMorgan Chase Bank, N.A., Administrative Agent, and other lenders party to the Agreement	8-K	1-32731	April 16, 2021	10.1
10.2†	Form of 2021 Performance Share Unit Agreement	-	-	-	-	X
10.3†	Form of Amended and Restated 2018 Performance Share 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


			†-
		~~Description of Exhibit Incorporated Herein by Reference~~
~~Exhibit Number~~	~~Exhibit Description~~	~~Form~~	~~File No.~~	~~Filing Date~~	~~Exhibit Number~~	~~Filed Herewith~~
~~31.1~~	~~Certification of Chief Executive Office of Chipotle Mexican Grill, Inc. pursuant~~Management contracts and compensatory plans or arrangements required 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~~be filed as ~~inline XBRL and contained in Exhibit 101)~~	-	-	-	-	Xexhibits.

~~Test~~

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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
Title:	Chief Financial Officer (principal financial officer and duly authorized signatory for the registrant)

Date: ~~July~~April 28, ~~2020~~2021