TABLE OF CONTENTS

PART I

1. Basis of Presentation

Chipotle Mexican Grill, Inc. (the “Company”), a Delaware corporation, develops and operates fast-casual, fresh Mexican food restaurants in 2526 states throughout the United States and in the District of Columbia. As of September 30, 2006,March 31, 2007, the Company operated 539605 restaurants and had eightfour restaurants operated by franchisees. As of September 30, 2006, McDonald’s Corporation (“McDonald’s”) was the majority owner of the Company with 83.3% of the combined voting power of the Company’s outstanding common stock and 50.7% of the economic interest of the Company. McDonald’s disposed of its interest in the Company via a tax-free exchange of shares of the Company’s class B common stock for McDonald’s stock effective October 12, 2006 (the “Disposition”).

franchisee. The Company manages its operations based on three regions and has aggregated its operations to one reportable segment and one reporting unit.segment.

The accompanying unaudited consolidated financial statements of the Company have been prepared 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 consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of its 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 the Company’s annual report on Form 10-K for the year ended December 31, 2005.2006.

2. Adoption of New Accounting Principle                 Initial Public Offering

InEffective January 2006,1, 2007, the Company completed its initial public offeringadopted Emerging Issue Task Force (“EITF”) Issue No. 06-2,Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43 Accounting for Compensated Absences (“EITF 06-2”). The EITF concluded that sabbatical leave accumulates pursuant to the criteria of 6,061 sharesStatement of Class AAccounting Standard (“SFAS”) No. 43,Accounting for Compensated Absences (“FAS 43”) and therefore the benefit should be accrued if the remaining criteria of FAS 43 are met. The Company offers sabbatical leave to employees who have provided ten years of service. The actuarially determined accrued sabbatical balance as of December 31, 2006 was $2,600, which the Company recognized as a cumulative-effect accounting adjustment to beginning retained earnings on January 1, 2007. During the three months ended March 31, 2007, the Company accrued $141 of sabbatical expense.

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48,Accounting for Uncertainty in Income Taxes(“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Adoption of FIN 48 did not have an impact on the Company’s consolidated financial statements.

The Company’s policy is to recognize interest to be paid on an underpayment of income taxes in interest expense and any related statutory penalties in provision for income taxes in the consolidated statement of income. The Company is open to federal and state tax audits until the applicable statute of limitations expire. Tax audits by their very nature are often complex and can require several years to complete. The Company is no longer subject to U.S. federal tax examinations by tax authorities for tax years before 2003. For the majority of states where the Company has a significant presence, it is no longer subject to tax examinations by tax authorities for tax years before 2002.

3. Franchise Acquisitions

On March 7, 2007, the Company acquired two franchised restaurants. The results of operations have been included in the Company’s financial results from the date of acquisition. On March 31, 2007, the Company acquired two additional franchised restaurants. These acquisitions resulted from the franchisees’ obligation to dispose of either their Chipotle franchise or their McDonald’s Corporation (McDonald’s) franchise within 24 months after McDonald’s ceased to own a majority of the outstanding common stock $0.01 parof Chipotle, which occurred on October 12, 2006. The acquisitions were accounted for using the purchase method as defined in SFAS No. 141,Business Combinations. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. Goodwill will not be amortized, but instead will be tested for impairment at a per shareleast annually. The aggregate purchase price of $22.00 with net proceeds to$2,488 for the Company of approximately $120.9 million (the “initial public offering”). McDonald’s sold an additional 3,000 shares including the underwriters’ over-allotment shares. In connection with the initial public offering, the Company filed a restated certificate of incorporation effecting the reclassification of all outstanding shares of Series B convertible preferred stock and Series C and Series D junior convertible preferred stock and all outstanding shares of common stock into one-third share of Class B common stock (the “Reclassification”). The accompanying unaudited consolidated financial statements and related notes reflect the effect of the Reclassification retroactively.four restaurants acquired has been allocated as follows:

The restated certificate of incorporation authorizes the issuance of an aggregate 230,000 shares of common stock consisting of 30,000 shares of Class B common stock, par value $0.01 per share, and 200,000 shares of Class A common stock par value $0.01. Shares of Class B common stock participate equally in dividends with shares of Class A common stock. Shares of Class B common stock have ten votes per share whereas shares of Class A common stock have one vote per share, except for purposes of approving a merger, consolidation, or similar transactions, a sale of substantially all of the Company’s property, or a dissolution of the Company. In any of those events, each share of Class A and Class B common stock has only one vote. The Class A and Class B common stock votes together as a single class. Prior to the

Chipotle Mexican Grill, Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

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

Disposition, each share4. Stock Based Compensation

In February 2007, the Company issued 275 options to purchase shares of Class B common stock was convertible at the option of the shareholder into one share of Classits class A common stock to eligible employees with a grant date fair value of $24.80 per share and eachan exercise price of $63.89 per share which vest on the third anniversary of Class B common stockthe grant date. Compensation expense is generally recognized equally over the three year vesting period. Compensation expense related to employees eligible to retire and retain rights to the awards is recognized over six months which coincides with the notice period. The Company also converted into one sharegranted to executive officers 120 shares of Classnon-vested class A common stock ifwith a transfergrant date fair value of ownership occurred. As a result$63.89 which vests in two equal installments on the second and third anniversary of the Disposition, shares of Class B common stock are no longer convertible, beginning October 12, 2006.

3.                 Adoption of New Accounting Principle

Effective January 1, 2006grant. Compensation expense is recognized on a prospectivestraight-line basis the Company adopted Financial Accounting Standards Board’s (“FASB”) Staff Position No. FAS 13-1, Accounting for Rental Costs Incurred during a Construction Period (“FSP 13-1”)each separate vesting portion (graded vesting). Under FSP 13-1, rental costs associated with ground or building operating leases incurred during the construction period (“pre-opening rent”) are to be expensed. Accordingly, the Company recognized additional pre-opening expense of $1,112

Stock-based compensation, including options and $2,830non-vested shares, was $1,644 ($669 and $1,704,1,001 net of tax) forin the three months ended March 31, 2007 and nine$1,520 ($915 net of tax) in the three months ended September 30, 2006, respectively. Prior to adoptionMarch 31, 2006. For the three months ended March 31, 2007, $76 of FSP 13-1, pre-opening rentstock-based compensation was recognized as capitalized development and is included in leasehold improvements, property and equipment in the consolidated balance sheet. Had pre-opening rent been accounted for under FSP 13-1 in 2005, $859 and $2,655 ($517 and $1,598, net of tax) of additional pre-opening costs would have been recognized as expense inDuring the three months ended March 31, 2007, 23 options to purchase class A common shares were exercised, 13 options were forfeited and nine months ended September 30, 2005, respectively.52 class B shares vested.

4.5. Earnings Per Share

Basic earnings per share is calculated by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is calculated using income available to common shareholders divided by diluted weighted-average shares of common stock outstanding during each period. Potentially dilutive securities include potential common shares related to stock options and non-vested stock. There were no anti-dilutive securities for the three months and nine months ended September 30, 2006 or 2005.

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

Chipotle Mexican Grill, Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
(dollar6. Commitments and share amounts in thousands, unless otherwise specified)Contingencies

5.                 Stock-based Compensation

Effective with the Company’s initial public offering the Company adopted the Chipotle Mexican Grill, Inc. 2006 Stock Incentive Plan (the “2006 Incentive Plan”). Under the 2006 Incentive Plan, 2,200 shares of Class A common stock have been authorized and reserved for issuances to eligible employees. In conjunction with the initial public offering, the Company made a one-time grant of 774 options to purchase shares of its Class A common stock to all of its salaried employees. The exercise price of the options was set at the grant date fair value of $22.00 per share. These options vest three years after the grant date and expire after seven years. Compensation expense for these options will be recognized equally over the three-year vesting period. Also during the nine months ended September 30, 2006, the Company modified certain options of terminated employees to accelerate vesting resulting in additional compensation expense. Total stock-based compensation expense, inclusive of stock options, stock grants and stock appreciation rights, was $783 and $3,811 ($471 and $2,294, net of tax) for the three months and nine months ended September 30, 2006, respectively, and was $605 and $1,493 ($364 and $899, net of tax) for the three months and nine months ended September 30, 2005, respectively. As of September 30, 2006, there was $4,811 of unrecognized compensation expense related to unvested options that is expected to be recognized over the remaining vesting period, which is generally 28 months.

In the nine months ended September 30, 2006, options to purchase an aggregate of 127 shares of the Company’s Class A common stock were exercised.

6.                 Income Taxes

At the consummation of the Company’s initial public offering, the Company exited McDonald’s consolidated tax group for federal and some state tax purposes and will be reimbursed for the remaining tax attributes in accordance with the tax sharing agreement. At the consummation of the Disposition, Chipotle exited McDonald’s consolidated tax group for the remaining states. Due to the exit from McDonald’s consolidated federal tax group, the Company eliminated the deferred tax asset related to the post-acquisition net operating loss carryforwards of $32,859 and alternative minimum tax credits of $918 through equity. As a result, the Company converted to a net long-term deferred tax liability position which was $15,740 as of September 30, 2006. There were no other significant changes to the Company’s deferred tax balances as a result of the tax deconsolidation.

During the second quarter of 2006, the Company adjusted its deferred tax assets and liabilities for enacted changes in state tax laws, which resulted in a $150 benefit, or a 0.2% reduction of the effective tax rate, for the nine months ended September 30, 2006.

7.                 Related-Party Transactions

The consolidated statement of operations reflects charges from McDonald’s of $2,098 and $2,445 for the three months ended September 30, 2006 and 2005, respectively, and $7,819 and $6,833 for the nine months ended September 30, 2006 and 2005, respectively, primarily related to reimbursements of insurance coverage, 401(k) matching contributions, payroll and related expenses for certain McDonald’s employees who performed services for the Company, software maintenance agreements and non-income

Chipotle Mexican Grill, Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
(dollar and share amounts in thousands, unless otherwise specified)

based taxes. The charges were specifically identifiable to the Company. As a result of the Disposition, the services provided by McDonald’s have been, or will be, terminated.

The Company leases restaurant space from McDonald’s and its affiliates. Rent expense was $75 and $123 for such leases for the three months ended September 30, 2006 and 2005, respectively, and was $254 and $318 for the nine months ended September 30, 2006 and 2005, respectively.

Until the initial public offering, the Company invested its excess cash under short-term agreements with McDonald’s. The Company did not have an agreement in place, but had been operating under the terms of the previous agreement which expired April 14, 2005. Interest was added to the principal monthly. As of September 30, 2006, no amount was outstanding. As of December 31, 2005, $2,248 was on deposit under this agreement.

The Company entered into short-term agreements with McDonald’s to provide the Company with temporary capital. The line of credit bearing interest at the Prime rate plus 100 basis points expired June 30, 2006 and was not renewed. For the three months and nine months ended September 30, 2005, interest expense was $213 and $629, respectively. No amounts were outstanding as of December 31, 2005.

8.                 Contingencies

In the normal course of business, the Company is subject to proceedings, lawsuits and other claims. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, the Company is unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters as of September 30, 2006.March 31, 2007. These matters could affect the operating results of any one quarter when resolved in future periods. However, management believes after final disposition,Management does not believe that any monetary liability or financial impact to the Company would notas a result of currently known proceedings or claims will be material to the Company’s annual consolidated financial statements. However, a significant increase in the number of these claims, or one or more successful claims resulting in greater liabilities than the Company currently anticipates, could materially and adversely affect the Company’s business, financial condition, results of operation or cash flows.

Chipotle Mexican Grill, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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

In addition,August 2004, the merchant bank that processes the Company’s credit and debit card transactions informed the Company is involved in claims relating toit may have been the victim of a possible theft of its customers’ credit and debit card data. ThroughTogether with two forensic auditing firms, the end of September 2006,Company investigated the alleged theft and reviewed its information systems and information security procedures. The Company also reported the problem to federal law enforcement authorities and has been cooperating in their investigation. While to date the Company has received claims throughnot discovered conclusive evidence that a theft occurred, the bank that processesCompany has upgraded its credit and debit cards with respect to fewer than 2,000 purportedly fraudulent credit and debit card charges allegedly arising out of this matter in an aggregate amount of about $1,442. The Company also incurred $1,346 of expense in connection with fines imposed byinformation security systems, including remediating the Visa and MasterCard card associations onspecific problems identified during the acquiring bank. Inforensic audits. During 2004, the Company recorded a reserve for the potential exposure for losses and fines of $4,000. Through September 30, 2006,March 31, 2007, the Company utilized $2,788$2,789 of the reserve to cover fines and losses. As the situation develops and more information becomes available, the amount of the reserve may increase or decrease accordingly.

9.7. Subsequent Events                 Recently Issued Accounting Standards

In September 2006,On April 30, 2007, the Emerging Issues Task Force (“EITF”) issued EITF Issue No. 06-2, Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43 Accounting for Compensated Absences (“EITF 06-2”). The EITF concluded that sabbatical leave accumulates pursuant to the criteria of Statement of Accounting Standard No. 43 Accounting for Compensated Absences (“FAS 43”) and therefore the benefit should be accrued ifCompany acquired the remaining criteriafour franchised restaurants at a purchase price of FAS 43 are met. EITF 06-2 is effective for fiscal years beginning after December 15, 2006. EITF 06-2 can be applied as a change in$3,150 plus the inventory value.

Chipotle Mexican Grill, Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
(dollar and share amounts in thousands, unless otherwise specified)

accounting principle either as a cumulative-effect adjustment to beginning retained earnings in the year of adoption or as retrospective application to all prior periods. The Company offers sabbatical leave to employees who have provided ten years of services. The Company is assessing the impact of EITF 06-2 on its results and therefore cannot estimate the impact on its financial statements.

In September 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The interpretation is effective for fiscal years beginning after December 15, 2006. The cumulative effect upon adoption of applying the provision shall be reported as an adjustment to the opening balance of retained earnings for that fiscal year, presented separately. The Company does not expect the adoption of FIN 48 to have a material impact on its financial statements.

In September 2006, the FASB issued FASB Staff Position AUG AIR-1, Accounting for Planned Major Maintenance Activities (“FSP AUG-1”). FSP AUG-1 prohibits the use of the accrue-in-advance method of accounting for costs of planned major maintenance projects. The statement is effective for fiscal years beginning after December 15, 2006. The Company does not utilize the accrue-in-advance method and therefore does not expect the adoption of FSP AUG-1 to have a material impact on its financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standard No. 157, Fair Value Measurements (“FAS 157”). FAS 157 provides a definition of fair value, establishes acceptable methods of measuring fair value and expands disclosures for fair value measurements. The principles apply under accounting pronouncements which require measurement of fair value. The Company does not expect the adoption of FAS 157 to have a material impact on its financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 provides guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the current year’s financial statements are materially misstated. SAB 108 permits registrants to record the cumulative effect of initial adoption by recording the necessary “correcting” adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings only if material under the dual method. SAB 108 is effective for fiscal years ending on or after November 15, 2006. The Company has assessed the effect of adopting this guidance and has determined that there will be no impact on the Company’s consolidated financial statements.

10.          Subsequent Events

McDonald’s Disposition

McDonald’s completed the Disposition on October 12, 2006. Under the terms of the Disposition, McDonald’s distributed 16,539,967 shares of the Company’s class B common stock in a tax-free exchange

Chipotle Mexican Grill, Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
(dollar and share amounts in thousands, unless otherwise specified)

offer, representing approximately 83.3% of the voting interest and 50.7% of the economic interest of the Company as of September 30, 2006. McDonald’s accepted 18,628,187 shares of its common stock in exchange for the shares of the Company’s class B common stock. McDonald’s no longer owns any voting or economic interest in the Company.

Line of Credit

In October 2006, the Company entered into a revolving line of credit with a principal amount of $10 million which expires in August 2007. The line of credit is for support of letters of credit issued by the Company in the normal course of business and bears interest at the Company’s option at either the Prime rate, a fixed rate determined by the bank or an adjusted LIBOR rate.

10

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 our projectionsestimates of the number of restaurants we intend to open and the effect on us of McDonald’s disposition of its interest in us, as well as our expectationsprojections regarding futurepotential changes in comparable restaurant sales increases,during 2007 and beyond and in the amount of certain expected expenses for 2007, 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”, 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, 2005 and in Item 1A, “Risk Factors,” in Part II of this report.2005.

Overview

We operate fast-casual,Chipotle operates fast casual, fresh Mexican food restaurants serving burritos, tacos, burrito bowls (a burrito without the tortilla) and salads. We began with a simple philosophy: demonstrate that food served fast doesn’t have to be a traditional “fast-food” experience. Over the years, that vision has evolved. Today, we’re working to change the way people think about and eat fast food. We do this by avoiding a formulaic approach when creating our restaurant experience, looking to fine-dining restaurants for inspiration. We use high-quality raw ingredients, classic cooking methods and a distinctive interior design, and have friendly people to take care of each customer—features that are more frequently found in 25the world of fine dining. Our approach is also guided by our belief in an idea we call “Food With Integrity”— which to us means finding the best raw ingredients from the best sources to include in the food we serve. Quite simply, we combine these ideas in a way that continues making Chipotle better all the time.

2007 Highlights

Restaurant Development. As of March 31, 2007, we had 609 restaurants in 26 states throughout the United States and in the District of Columbia. Our total revenue, generated primarily throughColumbia, including four restaurants operated by a franchisee. New restaurants have contributed substantially to our restaurant sales of food and beverages, was $603.2 million forgrowth. We opened 28 company-operated restaurants during the ninethree months ended September 30,March 31, 2007. We expect to open between 110 and 120 total restaurants in 2007.

Sales Growth.In addition to growing our number of restaurants, we have experienced increases in our average restaurant sales from $1.502 million as of March 31, 2006 a 32.8% increase from the same period in 2005. The increase wasto $1.631 million as of March 31, 2007, driven primarily by strong comparable restaurant sales increases of 15.0% for the nine months ended September 30, 2006 andincreases. Comparable restaurant sales reflect positive period-to-period growth due mainly to an increase in revenue from restaurants not yet in the comparable base.number of transactions processed at our registers. We expect 2006 full year comparabledefine average restaurant sales increaseas the average trailing 12-month sales for company-owned restaurants in the low double-digits with the fourth quarter being the lowestoperation for the year as its prior year comparison is the most difficult. We expect 2007 full year comparable restaurant sales in the low to mid single digits.at least 13 months. Comparable restaurant sales include company-owned restaurants only and represent the change in period-over-period sales for the comparable restaurant base. A restaurant becomes comparablerestaurants beginning in itstheir 13th full month of operation.operation. We expect our average restaurant sales to continue to increase in 2007, driven by comparable restaurant sales increases in the mid-to-high single digits. Our comparable restaurant sales increase for the first quarter of 2007 was 8.3%. As a result of nine years of double-digit comparable restaurant sales increases, we believe that comparable restaurant sales likely will not continue to increase at the rates we have achieved over the past several years.

SeveralFood Costs.We expect cost pressures in the second and third quarters of 2007 as a result of the winter freeze in California and the southwestern U.S., which impacted citrus and avocado crops. Additionally, due to increased demand for ethanol the cost of corn has increased substantially, which has increased the cost of corn-sourced ingredients as well as wheat, soybeans and rice. We expect this will lead to upward pricing pressures on many of our raw ingredients including chicken, beef and pork.

Labor.Labor costs as a percentage of revenue decreased primarily due to improved employee efficiency and more effective management of staffing partially offset by continued incremental staffing costs as we transition to our new restaurant structure described below.

We continue to focus on ensuring our employee practices are as exceptional as our food. In order to achieve this, we initiated the Restaurateur program in early 2006. The Restaurateur program is designed to encourage the restaurant manager position as a career opportunity for our top performing managers. In addition to excelling in providing quality food and customer service, restaurant

managers are expected to contribute substantially to the development of their crew. We also launched a new restaurant management structure in the second quarter of 2006 to facilitate the development of crew members into restaurant managers. One primary goal of the new restaurant structure is to increase the number of restaurant managers hired from within our company and lower restaurant turnover. While still early in both programs, we continue to see positive results through increased internal promotions and decreased turnover.

Food With Integrity.During the first quarter of 2007, we made progress on delivering Food With Integrity by increasing the amount of naturally raised beef and chicken served in our restaurants. In addition, in all our restaurants we now use unbleached napkins made from 90% post-consumer recycled paper. We also continue to investigate the use of more sustainably grown produce and produce that is locally grown.

Throughput. We deliver our best customer service and hottest food when the line moves efficiently. Through implementation and execution of our new restaurant structure, we continue to increase the number of customers we serve during our busiest hours. In addition, change machines were installed in approximately 400 restaurants during the first quarter of 2007, and we continue to review other equipment configurations, technological process improvements and kitchen design modifications to improve the speed of service.

Franchise Acquisitions.In March 2007, we completed the acquisition of four franchised restaurants from two franchisees for an aggregate purchase price of $2.5 million. The remaining four franchised restaurants were acquired on April 30, 2007 for a purchase price of $3.2 million.

Restaurant Activity

The following table details restaurant unit data for our company-owned and franchised locations for the years indicated.