UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-K
______________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-32731
______________________
CHIPOTLE MEXICAN GRILL, INC.
(Exact name of registrant as specified in its charter)
______________________
Delaware
(State or other jurisdiction of
incorporation or organization)
610 Newport Center Drive, Suite 1300 Newport Beach, CA
(Address of Principal Executive Offices)
84-1219301
(IRS Employer
Identification No.)
92660
(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
Common stock, par value $0.01 per share
Trading Symbol(s)
CMG
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
______________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes No .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer Accelerated filer
Non-accelerated filer
Smaller reporting
company
Emerging growth
company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm
that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of June 30, 2020, the aggregate market value of the registrant’s outstanding common equity held by non-affiliates was $20.941 billion, based
on the closing price of the registrant’s common stock on June 30, 2020, the last trading day of the registrant’s most recently completed second fiscal
quarter. For purposes of this calculation, shares of common stock held by each executive officer and director and by holders of 5% or more of the
outstanding common stock have been excluded since those persons may under certain circumstances be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other purposes.
As of February 5, 2021, there were 28,144,065 shares of the registrant’s common stock, par value of $0.01 per share outstanding.
Part III incorporates certain information by reference from the registrant’s definitive proxy statement for the 2021 annual meeting of
shareholders, which will be filed no later than 120 days after the close of the registrant’s fiscal year ended December 31, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Item 8. Financial Statements and Supplementary Data
PART II
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
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Cautionary Note Regarding Forward-Looking Statements
PART I
This report includes “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995.
We use words such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “think,” “estimate,” “seek,”
“expect,” “predict,” “could,” “project,” “potential” and other similar terms and phrases, including references to assumptions, to
identify forward-looking statements. These forward-looking statements are based on currently available operating, financial and
competitive information and are subject to various risks and uncertainties. Our actual future results and trends may differ materially
depending on a variety of factors, including, but not limited to, the risks and uncertainties described in this report under the heading
“Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” so you should not
place undue reliance on forward-looking statements. These statements are subject to risks and uncertainties that could cause actual
results to differ materially from those described in the statements, including: the potential future impact of COVID-19 on our results
of operations, supply chain or liquidity; risks of food safety and food-borne illnesses and other health concerns about our food; risks
associated with our reliance on certain information technology systems and potential failures or interruptions; privacy and cyber
security risks related to our acceptance of electronic payments or electronic processing of confidential customer or employee
information; the impact of competition, including from sources outside the restaurant industry; the increasingly competitive labor
market and our ability to attract and retain qualified employees; the impact of federal, state or local government regulations relating
to our employees, restaurant design and construction, or the sale of food or alcoholic beverages; our ability to achieve our planned
growth, such as the availability of suitable new restaurant sites; and increases in ingredient and other operating costs due to our
Food With Integrity philosophy, tariffs or trade restrictions and supply shortages. We are including this Cautionary Note to make
applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-
looking statements. We expressly disclaim any obligation to update or revise any forward-looking statements after the date of this
report as a result of new information, future events or other developments, except as required by applicable laws and regulations.
ITEM 1. BUSINESS
General
Chipotle Mexican Grill, Inc., a Delaware corporation, together with its subsidiaries (“Chipotle,” “we,” “us,” or “our”) owns and
operates Chipotle Mexican Grill restaurants, which feature a relevant menu of burritos, burrito bowls (a burrito without the tortilla),
tacos, and salads. We strive to cultivate a better world by serving responsibly sourced, classically cooked, real food with wholesome
ingredients and without artificial colors, flavors or preservatives. We are passionate about providing a great guest experience and
making our food more accessible to everyone while continuing to be a brand with a demonstrated purpose. Steve Ells, founder and
former executive chairman, first opened Chipotle with a single restaurant in Denver, Colorado in 1993. Over 25 years later, our
devotion to seeking out the very best ingredients, raised with respect for animals, farmers, and the environment, remains at the core of
our commitment to Food With Integrity.
As of December 31, 2020, we owned and operated 2,724 Chipotle restaurants throughout the United States, 40 international
Chipotle restaurants, and four non-Chipotle restaurants. We manage our operations based on eight regions and have aggregated our
operations to one reportable segment. Our revenue is derived from sales by company-owned restaurants.
Business Strategy
We are a brand with a demonstrated purpose of cultivating a better world. Our mission is to win today while creating a bright
future by focusing on five key fundamental strategies:
• Making the brand more visible and loved;
• Utilizing a disciplined approach to creativity and innovation;
• Leveraging digital capabilities to drive productivity and expand access, convenience and engagement;
• Engaging with customers through our loyalty program; and
• Running successful restaurants with a strong culture that provides great food with integrity while delivering exceptional in-
restaurant and digital experiences.
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Food with Integrity
Serving high quality food while still charging reasonable prices is critical to ensuring guests enjoy wholesome food at a great
value. In all of our Chipotle restaurants, we endeavor to serve only meats that are raised in accordance with criteria we have
established in an effort to improve sustainability and promote animal welfare, and without the use of non-therapeutic antibiotics or
added hormones. We brand these meats as “Responsibly Raised®.” One of our primary goals is for all of Chipotle restaurants to serve
meats raised to our standards, but we have and expect to continue to face challenges in doing so. For example, some of our restaurants
periodically serve conventionally raised chicken or beef due to supply constraints for our Responsibly Raised brand meats or stop
serving one or more menu items due to additional supply constraints. When we become aware of such an issue, we clearly and
specifically disclose this temporary change on signage in each affected restaurant so that guests can adjust their orders if they choose
to do so. We also seek to use responsibly grown produce, by which we mean produce grown by suppliers whose practices conform to
our priorities with respect to environmental considerations and employee welfare. Some of the beans we serve are organically grown
or grown using conservation tillage methods that improve soil conditions, reduce erosion, and help preserve the environment in which
the beans are grown. We call these beans “transitional.” Some of the other produce items we serve are organically grown as well as we
continue our commitment to find high quality ingredients.
Purchasing
Maintaining the high levels of quality and safety we demand in our restaurants depends in part on our ability to acquire high-
quality, fresh ingredients and other necessary supplies that meet our specifications from reliable suppliers. Our 24 independently
owned and operated regional distribution centers purchase from various suppliers we carefully select based on quality, price,
availability, and the suppliers’ understanding and adherence of our mission. We’ve also sought to increase, where practical, the
number of suppliers for our ingredients to help mitigate pricing volatility and reduce our reliance on one or several suppliers, which
could create supply shortages. In addition, we closely monitor industry news, trade tariffs, weather, exchange rates, foreign demand,
crises and other world events that may affect our ingredient prices. Certain key ingredients (certain cuts of beef, tomatoes, tortillas and
adobo) are purchased from a small number of suppliers.
Quality Assurance and Food Safety
We are committed to serving only safe, high quality food. Our food safety and quality assurance teams work to ensure
compliance with our food safety programs and practices, components of which include:
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supplier interventions (steps to mitigate food safety risks before ingredients reach Chipotle);
advanced technologies (tools that reduce or eliminate pathogens while maintaining food quality);
small grower support and training;
enhanced restaurant procedures (protocols for handling ingredients and sanitizing surfaces in our restaurants);
food safety certifications;
internal and third-party restaurant inspections; and
ingredient traceability.
These and other food safety practices underscore our commitment to be a leader in food safety while continuing to serve high
quality food that our guests love. Our food safety and quality assurance teams establish and monitor our quality and food safety
programs and work closely with suppliers to ensure our high standards are met throughout the supply chain. We maintain a limited list
of approved suppliers, many of whom are among the top suppliers in the industry. In addition, we have a team approach where
our training, operations, culinary, legal and safety, security and risk management departments develop and implement operating
standards for food quality, food preparation, restaurant cleanliness, employee health protocols, and safety in the restaurants. Our food
safety programs are also intended to ensure that we not only continue to comply with applicable federal, state and local food safety
regulations, but also establish Chipotle as an industry leader in food safety. To help achieve this goal, we have a Food Safety Advisory
Council comprised of some of the nation’s foremost food safety authorities. The Food Safety Advisory Council is charged with
evaluating our programs, both in practice and implementation, and advising us on ways to elevate our already high standards for food
safety. Our food safety and quality assurance team members hold board seats and participate in technical working groups with several
associations. This gives us the opportunity to learn and share our knowledge and expertise with other food safety professionals and
regulatory agencies.
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Digital Business
Our digital platform continues to be a strategic driver of our growth. In the past year, we significantly upgraded our capabilities
by digitizing almost all of our restaurant digital-make lines, expanding our partnerships with third-party delivery services and building
more Chipotlanes, which is our drive through format for customer pick-up of digital orders. Digital sales, which includes delivery and
customer pick-up, accounted for 46.2% of our total sales in 2020, compared to 10.9% of total sales in 2019. Our strong digital
platform gave us a competitive advantage during the COVID-19 pandemic, as more guests prefer to eat their meals at home and in-
restaurant dining was prohibited or restricted. We have made digital ordering convenient with enhancements to the Chipotle App and
website, such as unlimited customization, contactless delivery, and group ordering.
Human Capital
As of December 31, 2020, Chipotle employed nearly 88,000 people worldwide. In the United States, we employed 85,314
people in our restaurants and approximately 1,367 people in our Restaurant Support Centers (RSCs) and field support organizations;
approximately 87,000 individuals are employed in the U.S. and approximately 1,000 are employed in Canada, France, Germany and
the United Kingdom. We do not currently have any employees represented by unions. We believe our efforts to manage our workforce
have been effective, as evidenced by a strong culture and our employees’ demonstrated commitment to living our purpose and values.
Culture, Values & Diversity, Equity & Inclusion
As a people-first company rooted in values, our purpose of Cultivating a Better World extends beyond serving nutritious food
using real ingredients. It means hiring world-class individuals dedicated to investing in their future and partnering together to
positively impact the communities they serve. Most notably, it means fostering a culture that champions diversity, ensures equity, and
celebrates inclusion.
As of December 31, 2020, more than 50% of our U.S.-based employee population is female and approximately 66% of our U.S
based employee population is comprised of racial and ethnic minorities. U.S. diversity statistics were as follows:
Gender
Female
Male
Not Indicated
54%
45%
1%
Race/Ethnicity
38%
Hispanic or Latino
31%
White
18%
Black or African American
5%
Asian
4%
Two or More Races
Not Indicated/Specified
3%
American Indian/Alaskan Native 1%
We provide opportunities for our employees to drive our Diversity, Equity & Inclusion (DE&I) strategy by creating programs
that raise awareness, allowing courageous conversations and a more inclusive culture. These programs empower our employee-driven
Employee Resource Groups (ERGs) to challenge the organization to consider additional opportunities to Cultivate A Better World in
the DE&I space. Our current ERGs are as follows:
Employee Resource Groups
HUSTLE: Humans Uniting to Support the Ladies’ Experience
Supporting our Female Community
PRIDE: People Respecting Inclusivity, Diversity and Education
Supporting our LGBTQ Community
SERVES: Community Outreach Supporting the Communities we
Serve
WELLNESS: Employee Wellbeing Supporting our employee’s
mental, physical and financial wellbeing
UNIFIED: United Network or Influencers Furthering Inclusion
and Ethnic Diversity Supporting our Communities of Color
Year Established
2019
2019
2019
2019
2020
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Total Rewards
The financial, physical and mental wellness of our employees remains our top priority. We conducted an independent pay
equity analysis of our U.S. workforce to identify risks and pay gaps in our organization by gender and race/ethnicity. The results did
not identify preferential treatment to any class of employee, which supports our commitment to ensuring we pay our employees
equally across gender and race/ethnicity. This commitment is evidenced by our investment in our compensation packages and robust
suite of benefit offerings such as:
• Eligible Crew members who work at locations that meet team sales and output goals may qualify for a quarterly Crew
Bonus (equivalent to one week’s worth of pay on average). In addition to quarterly performance bonuses, full-time crew
members with at least one continuous year of service may be eligible for an annual bonus. In 2020, we paid out
approximately $4 million across these bonus programs.
• Debt-Free Degrees are offered to those eligible Chipotle employees who work toward Associate's and Bachelor's Business
and Technology degrees through six specified colleges. The program covers 100% of tuition costs upfront.
• Personalized mental health assistance is available to all Chipotle employees and their family members through a partnership
with Health Advocate. Support is available 24/7 via in-person, phone or virtual visits with a licensed counselor.
• Following ten years of uninterrupted service, our restaurant General Managers and Support Staff employees are eligible for
a paid eight-week sabbatical.
Our Response to COVID-19
The health and well-being of our employees and guests has always been and continues to be our top priority. To ensure the
health and well-being of all of our employees during the COVID-19 pandemic, we also provided the following incremental COVID-
19 benefits:
• Expanded our paid emergency leave benefits to accommodate employees directly affected by COVID-19
• Provided 30-day personal leave with automatic approval for any COVID-19 related reason.
• Extended access to telemedicine coverage to employees and their families.
• Expanded Employee Assistance Program coverage and Concierge Service with a focus on mental health support for
employees and their families.
• Removed the minimum hours worked requirement for access to our Tuition Assistance & Debt-free-degree programs.
• Provided hourly assistance pay: 10% increase to all hourly base wages.
• Discretionary Bonus: Provided a minimum bonus for our salaried restaurant managers during each quarter.
• Assistance Pay Bonus: Provided an additional bonus to our salaried restaurant managers.
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Implemented work from home for our support centers.
Government Regulation and Environmental Matters
We are subject to various federal, state and local laws and regulations that govern aspects of our business operations, including
those governing:
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the preparation, sale and labeling of food, including regulations of the Food and Drug Administration, which oversees the
safety of the entire food system, including inspections and mandatory food recalls, menu labeling and nutritional content;
employment practices and working conditions, such as minimum wage rates, wage and hour practices, requirements to
provide meal and rest periods, Fair Workweek legislation, employment of minors, anti-discrimination, anti-harassment,
classification of employees, paid and family leave, workplace safety accommodations to certain employees, immigration
and overtime pay, among others;
privacy and data security, laws governing the collection, maintenance and use of information regarding employees and
guests and consumer credit protection and fraud;
compliance with the Americans with Disabilities Act and similar laws that give civil rights protections to individuals with
disabilities in the context of employment, public accommodations and other areas;
environmental practices, such as the discharge, storage, handling, release and disposal of hazardous or toxic substances, and
regulations restricting the use of straws, utensils and the types of packaging we can use in our restaurants;
building and zoning requirements, including state and local licensing and regulation governing the design and operation of
facilities and land use; and
licensing and regulation by health, alcoholic beverage, sanitation, food and other agencies.
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Compliance with these laws and regulation has not had, and is not expected to have, a material effect on our capital
expenditures, results of operations or competitive position. See “Risk Factors” in Item 1A for a discussion of risks relating to federal,
state, local and international laws and regulations applicable to our business and our Deferred Prosecution Agreement with the U.S.
Attorney’s Office for the Central District of California and the United States Department of Justice’s Consumer Protection Branch.
Seasonality
Seasonal factors influencing our business are described under the heading “Quarterly Financial Data/Seasonality” in Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Competition
The fast-casual, quick-service, and casual dining segments of the restaurant industry are highly competitive with respect to,
among other things, taste, price, food quality and presentation, service, location, convenience, brand reputation, cleanliness, and
ambience of each restaurant. Our competition includes a variety of restaurants in each of these segments, including locally-owned
restaurants, as well as national and regional chains. Competition from food delivery services, which offer meals from a wide variety of
restaurants, also has increased in recent years, particularly during COVID-19, and is expected to continue to increase. Many of our
competitors also offer dine-in, carry-out, online, catering, and delivery services. Among our main competitors are restaurant formats
that claim to serve higher quality ingredients without artificial flavors, colors and preservatives, and that serve food quickly and at a
reasonable price.
Our Intellectual Property and Trademarks
“Chipotle,” “Chipotle Mexican Grill,” “Food With Integrity,” “Responsibly Raised,” “Chipotle Rewards,” and a number of
other marks and related designs and logos are U.S. registered trademarks of Chipotle. We have filed trademark applications for a
number of additional marks in the U.S. as well. In addition to our U.S. registrations, we have registered trademarks for “Chipotle” and
a number of other marks in Canada, the European Union and various other countries, and have filed trademark applications for
“Chipotle Mexican Grill,” “Chipotle” and a number of other marks in additional countries. We also believe that the design of our
restaurants is our proprietary trade dress and have registered elements of our restaurant design for trade dress protection in the U.S. as
well.
From time to time, we have taken action against other restaurants that we believe are misappropriating our trademarks,
restaurant designs or advertising. Although our policy is to protect and defend vigorously our rights to our intellectual property, we
may not be able to adequately protect our intellectual property, which could harm the value of our brand and adversely affect our
business.
Available Information
We maintain a website at www.chipotle.com, including an investor relations section at ir.chipotle.com, on which we routinely
post important information, such as webcasts of quarterly earnings calls and other investor events in which we participate or host, and
any related materials. Our Code of Ethics and our Code of Conduct for Suppliers also are available in this section of our website. You
may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports, as well as other reports relating to us that are filed with or furnished to the SEC, free of charge in the investor relations section
of our website as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The SEC also
maintains a website that contains reports, proxy and information statements and other information regarding issuers that file
electronically with the SEC at www.sec.gov.
The contents of the websites mentioned above are not incorporated into and should not be considered a part of this report. The
references to the URLs for these websites are intended to be inactive textual references only.
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ITEM 1A. RISK FACTORS
You should carefully consider the risks described below in addition to the other information set forth in this Annual Report on
Form 10-K, including the Management’s Discussion and Analysis of Financial Conditions and Results of Operations section and the
consolidated financial statements and related notes. If any of the risks and uncertainties described below actually occur or continue to
occur, our business, financial condition and results of operations, and the trading price of our common stock could be materially and
adversely affected. The risks and uncertainties described below are those that we have identified as material but are not the only risks
and uncertainties we face. Our business is also subject to general risks and uncertainties that affect many other companies, including,
but not limited to, overall economic and industry conditions and additional risks not currently known to us or that we presently deem
immaterial may arise or become material and may negatively impact our business, reputation, financial condition, results of operations
or the trading price of our common stock.
Risks Related to the Nature of our Restaurant Business and Operating in the Restaurant Industry
Food safety and food-borne illness concerns may have an adverse effect on our business by decreasing sales and increasing
costs.
Food safety is our top priority, and we dedicate appropriate resources to ensuring that our guests enjoy safe, high-quality food
products. Even with strong preventative controls and interventions, food-borne illnesses continue to occur in the restaurant industry
because food safety risks cannot be completely eliminated in any restaurant. Incidents may result from the failure of restaurant crew
members or suppliers to follow our food safety policies and procedures, or from employees or guests entering our restaurant while ill
and contaminating food ingredients or surfaces. Although we monitor and audit all of our programs, we cannot guarantee that each
and every individual food item is safely and properly maintained during distribution throughout the supply chain. Regardless of the
source or cause, any report of food-borne illness such as E. coli, hepatitis A, norovirus or salmonella, and other food safety issues,
including food tampering or contamination, at one of our restaurants could adversely affect our reputation and have a negative impact
on our sales. In addition, instances of food-borne illness, food tampering or food contamination that occur solely at competitors’
restaurants could result in negative publicity about the restaurant industry and adversely impact our sales. Social media has
dramatically increased the rate at which negative publicity, including actual or perceived food safety incidents, can be disseminated
before there is any meaningful opportunity to investigate, respond and address an issue. The occurrence of food-borne illnesses or
food safety issues could also adversely affect the price and availability of affected ingredients, resulting in higher costs and lower
margins.
We may be more susceptible than our competitors to significant adverse consequences arising from food safety incidents due to
several highly publicized food safety events in our restaurants and failure to adhere to our food safety standards. From 2015 to 2017,
illnesses caused by E. coli bacteria and norovirus were connected to a number of our restaurants and, in 2018, illnesses believed to be
caused by C. perfringens bacteria were connected to the food in one of our restaurants. As a result of these incidents and the related
negative publicity, our sales and profitability were severely impacted throughout 2016 and from time to time through 2018. Because
of consumer perceptions in the wake of these food safety incidents, any future food safety incidents associated with our restaurants—
even incidents that would be considered minor at other restaurants—may have a more significant negative impact on our sales and our
ability to regain guests. In addition, we may be at a higher risk for food safety incidents than some competitors due to our greater use
of fresh, unprocessed produce, handling of raw chicken, our reliance on employees cooking with traditional methods rather than
automation, and our avoidance of frozen ingredients. The risk of illnesses associated with our food also may increase due to the
growth of our delivery or catering businesses, in which our food is transported and/or served in transportation conditions that are not
under our control. All of these factors could have an adverse impact on our ability to attract and retain guests, which could in turn have
a material adverse effect on our growth and profitability.
The restaurant industry is highly competitive. If we are not able to compete successfully, our business, financial condition
and results of operations would be adversely affected.
The restaurant industry is highly competitive with respect to taste preferences, price, food quality and selection, customer
service, brand reputation, digital engagement, advertising levels and promotional initiatives, and the location, attractiveness and
maintenance of restaurants. We also compete with a number of non-traditional market participants, such as convenience stores,
grocery stores, coffee shops, meal kit delivery services, and “ghost” or dark kitchens, where meals are prepared at separate takeaway
premises rather than a restaurant. Competition from food delivery services has also increased in recent years, particularly during
COVID-19, and is expected to continue to increase. Increased competition could have an adverse effect on our sales, profitability and
development plans. If consumer or dietary preferences change, if our marketing efforts are unsuccessful, or if our restaurants are
unable to compete successfully with other restaurant outlets, our business could be adversely affected.
We continue to believe that our commitment to higher-quality and responsibly sourced ingredients gives us a competitive
advantage; however, more competitors have made claims related to the quality of their ingredients and lack of artificial flavors, colors
and preservatives. The increasing use of these claims by competitors, regardless of the accuracy of such claims, may lessen our
differentiation and make it more difficult for us to compete. If we are unable to continue to maintain our distinctiveness and compete
effectively, our business, financial condition and results of operations could be adversely affected.
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Our digital business, which accounted for almost half of revenues in 2020, is subject to risks.
In 2020, 46.2% of our revenue was derived from digital orders, which includes delivery and customer pickup, compared to 18%
of our revenues in 2019. The growth in digital orders is attributable to more guests dining at home due to COVID-19, our expanded
partnerships with multiple third-party delivery services and our expansion of Chipotlanes, which is our drive through format for digital
order pickups. Depending on which ordering platform a digital order is placed - our platform or the platform of a third-party delivery
service – the delivery fee we collect from the guest may be less than the actual delivery cost, which has a negative impact on our
profitability. In the fall of 2020, we implemented a menu price increase to partially offset higher delivery costs; however, our higher
menu prices may cause some guests to shift their purchases to other restaurants offered on the platform. As our digital business grows,
we are increasingly reliant on third-party delivery companies, which maintain control over data regarding guests that use their
platform and over the customer experience. If a third-party delivery company driver fails to make timely deliveries or fails to deliver
the complete order, our guests may attribute the bad customer experience to Chipotle and could stop ordering from us. The ordering
and payment platforms used by these third-parties, or our mobile app or online ordering system, could be interrupted by technological
failures, user errors, cyber-attacks or other factors, which could adversely impact sales through these channels and negatively impact
our overall sales and reputation. The third-party delivery business is intensely competitive, with a number of players competing for
market share, online traffic capital, and delivery drivers. If the third-party delivery companies we utilize cease or curtail operations,
increase their fees, or give greater priority or promotions on their platforms to our competitors, our delivery business and our sales
may be negatively impacted. The delivery business has been consolidating and may continue to consolidate, and fewer third-party
delivery companies may give them more leverage in negotiating the terms and pricing of contracts, which could negatively impact our
profits from delivery orders.
Our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could have a
material adverse impact on our business.
Social media and internet-based communications, including video-sharing, social networking and messaging platforms, give
users immediate access to a broad audience. These platforms have dramatically increased the speed of dissemination and accessibility
of information, including negative publicity related to food safety incidents and negative guest and employee experiences. Accurate
and inaccurate or misleading information can be widely disseminated before there is any meaningful opportunity to respond or address
an issue. As a result of our highly publicized food safety incidents in 2015 - 2018, negative social media posts about our business may
generate a disproportionately negative response than would be the results at other companies without a similar history. It is impossible
to for us to fully predict or control social media backlash to potential issues, which could harm our business, prospects, financial
condition, and results of operations, regardless of the information’s accuracy.
Use of social media platforms is an important element of our marketing efforts and became increasingly more important during
the COVID-19 pandemic. New social media platforms are developing rapidly, and we need to continuously innovate and evolve our
social media strategies in order to maintain broad appeal with guests and brand relevance. We also continue to invest in other digital
marketing initiatives to reach our guests and build their awareness of, engagement with, and loyalty to us, including our national
loyalty program called Chipotle Rewards. These initiatives may not be successful, resulting in expenses incurred without the benefit of
higher revenues, increased employee engagement or brand recognition. Other risks associated with the use of social media include
improper disclosure of proprietary information, negative comments about us, exposure of personally identifiable information, fraud,
hoaxes or malicious dissemination of false information. The inappropriate use of social media by our guests or employees could
increase our costs, lead to litigation or result in negative publicity that could damage our reputation.
If we do not continue to persuade consumers of the benefits of paying higher prices for our higher-quality food, our sales
and results of operations could be hurt.
Our success depends in large part on our ability to persuade consumers that food made with ingredients that were raised or
grown in accordance with our Food With Integrity principles is worth paying a higher price at our restaurants relative to prices of
some of our competitors, particularly quick-service restaurant competitors. Under our Food With Integrity principles, for example,
animals must be responsibly raised, and the milk in our sour cream, cheese and queso must come from cows that have not been treated
with rBGH, which practices typically are more costly than conventional farming. If we are not able to successfully persuade
consumers that consuming food made consistent with our Food With Integrity principles is better for them and the environment, or if
consumers are not willing to pay the prices we charge, our sales could be adversely affected, which would negatively impact our
results of operations.
Risks Related to the COVID-19 Pandemic
The novel coronavirus (COVID-19) pandemic has adversely affected and could continue to adversely affect our financial
results, operations and outlook for an extended period of time.
The novel coronavirus (COVID-19) pandemic, and restrictions imposed by federal, state and local governments in response to
the outbreak, have disrupted and will continue to disrupt our business. During 2020, individuals in many areas where we operate our
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restaurants were required to practice social distancing, restricted from gathering in groups and/or mandated to “stay home” except for
“essential” purposes. In response to the COVID-19 outbreak and government restrictions, we were required to close some of our
restaurants, close many of our dining rooms and offer only takeout and delivery, and/or implement modified work hours. The mobility
restrictions, fear of contracting the coronavirus and the sharp increase in unemployment caused by the closure of businesses in
response to the COVID-19 outbreak, have adversely affected and will continue to adversely affect our guest traffic, which in turn
adversely impacts our liquidity, financial condition or results of operations. Even as and when the mobility restrictions are loosened or
lifted, guests may still be reluctant to return to in-restaurant dining and the impact of lost wages due to COVID-19 related
unemployment may dampen consumer spending for the foreseeable future.
Our restaurant operations have been and could continue to be disrupted by employees who are unable or unwilling to work,
whether because of illness, quarantine, fear of contracting COVID-19 or caring for family members due to COVID-19 disruptions or
illness. Restaurant closures, limited service options or modified hours of operation due to staffing shortages could materially adversely
affect our liquidity, financial condition or results of operations. To protect the health and safety of our employees and guests, we
provide face coverings for all restaurant employees, offer enhanced health and welfare benefits, provided temporary wage increases
during the initial onset of the pandemic, provide 14 days of paid emergency leave for COVID-related concerns, paid discretionary
bonuses to restaurant employees, purchased additional sanitation supplies and personal protective materials, implemented a tamper
evident packaging seal for all digital orders, and created a new steward role to sanitize high-traffic restaurant areas. These measures
have increased our operating costs and adversely affected our liquidity.
The COVID-19 outbreak also has affected and may continue to adversely affect the ability of certain of our suppliers to fulfill
their obligations to us, which may negatively affect our restaurant operations. These suppliers include third parties that supply and/or
prepare our ingredients, packaging, paper and cleaning products and other necessary operating materials, distribution centers, and
logistics and transportation services providers. If our suppliers are unable to fulfill their obligations to us, we could face shortages of
food items or other supplies at our restaurants, and our operations and sales could be adversely impacted.
We also modified our plans for opening new restaurants and remodeling existing restaurants due to the COVID-19 outbreak. To
preserve liquidity, we delayed new restaurant construction and restaurant remodels that were scheduled to begin during the first half of
the year, and we limited restaurant remodels to restaurants that do not have a digital make line or Chipotlane. These changes may
materially adversely affect our ability to grow our business, particularly if these construction projects are delayed for a significant
amount of time.
We cannot predict how long the COVID-19 outbreak will last or if it will reoccur even after the vaccines are widely
administered, when government restrictions and mandates will be imposed or lifted, or how quickly, if at all, guests will return to their
pre-COVID-19 purchasing behaviors, so we cannot predict how long our results of operations and financial performance will be
adversely impacted.
Risks Related to Labor and Supply Chain
Increase in ingredient and other operating costs, including those caused by climate and/or other sustainability risks, could
adversely affect our results of operations.
Our profitability depends in part on our ability to anticipate and react to changes in commodity costs, including ingredients,
paper, supplies, fuel, utilities and distribution, and other operating costs, including leasing costs and labor. Any volatility in key
commodity prices or fluctuation in labor costs could adversely affect our operating results by impacting restaurant profitability. The
markets for some of the ingredients we use, such as beef, avocado and chicken, are particularly volatile due to factors such as limited
sources, seasonal shifts, climate conditions, industry demand, including as a result of animal disease outbreaks in other parts of the
world, international commodity markets, food safety concerns, product recalls and government regulation. Increasing weather
volatility or other long-term changes in global weather patterns, including related to global climate change, could have a significant
impact on the price or availability of some of our ingredients. These factors are beyond our control and, in many instances,
unpredictable. Volatility in prices or disruptions in supply also may result from governmental actions, such as changes in trade-related
tariffs or controls, sanctions and counter sanctions, government-mandated closure of our suppliers’ operations, and asset seizures. The
cost and disruption of responding to governmental investigations or inquiries, whether or not they have merit, or the impact of these
other measures, may impact our results and could cause reputational or other harm.
In addition, our supply chain is subject to increased costs arising from the effects of climate change, greenhouse gases and
diminishing energy and water resources. The ongoing and long-term costs of these impacts related to climate change and other
sustainability related issues could have a material adverse effect on our business and financial condition if not properly mitigated.
We also could be adversely impacted by price increases specific to meats raised in accordance with our sustainability and
animal welfare criteria, and ingredients grown in accordance with our Food With Integrity specifications, the markets for which are
generally smaller and more concentrated than the markets for conventionally raised or grown ingredients. Any increase in the prices of
the ingredients most critical to our menu, such as chicken, beef, dairy (for cheese and sour cream), avocados, beans, rice, tomatoes and
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pork, would have a particularly adverse effect on our operating results. If the cost of one or more ingredients significantly increases,
we may choose to temporarily suspend serving the menu items that use those ingredients, such as guacamole or one of our proteins,
rather than pay the increased cost. Any such changes to our available menu may negatively impact our restaurant traffic and could
adversely impact our sales and brand. We can only partially address future price risk through forward contracts, careful planning and
other activities, and therefore increases in commodity costs could have an adverse impact on our profitability.
Shortages or interruptions in the supply of ingredients could adversely affect our operating results.
Our business is dependent on frequent and consistent deliveries of ingredients that comply with our Food With Integrity
specifications. We may experience shortages, delays or interruptions in the supply of ingredients and other supplies to our restaurants
due to inclement weather, natural disasters, labor issues or other operational disruptions at our suppliers, distributors or transportation
providers, or other conditions beyond our control. In addition, we have a single or a limited number of suppliers for some of our
ingredients, including certain cuts of beef, tomatoes, tortillas and adobo. Although we believe we have potential alternative suppliers
and sufficient reserves of ingredients, shortages or interruptions in our supply of ingredients could adversely affect our financial
results.
If we fail to comply with various applicable federal and state employment and labor laws and regulations, it could have a
material, adverse impact on our business.
Various federal and state employment and labor laws and regulations govern our relationships with our employees, and similar
laws and regulations apply to our operations outside of the U.S. These laws and regulations relate to matters such as employment
discrimination, wage and hour laws, predictive scheduling (“fair workweek”) and “just cause” termination laws, requirements to
provide meal and rest periods or other benefits, family leave mandates, requirements regarding working conditions and
accommodations to certain employees, citizenship or work authorization and related requirements, insurance and workers’
compensation rules, healthcare laws and anti-discrimination and anti-harassment laws. Complying with these laws and regulations
subjects us to substantial expense and non-compliance could expose us to significant liabilities. For example, previously a number of
lawsuits have been filed against us alleging violations of federal and state laws regarding employee wages and payment of overtime,
meal and rest breaks, employee classification, employee record-keeping and related practices with respect to our employees. We incur
legal costs to defend, and we could suffer losses from, these and similar cases, and the amount of such losses or costs could be
significant. In addition, several states and localities in which we operate, and the federal government have from time to time enacted
minimum wage increases, changes to eligibility for overtime pay, paid sick leave and mandatory vacation accruals, and similar
requirements. These changes have increased our labor costs and may have a further negative impact on our labor costs in the future.
In addition, several jurisdictions, including New York City, Philadelphia, Chicago, Seattle, Oregon, San Francisco and San Jose,
have implemented fair workweek legislation, which impose complex requirements related to scheduling for certain restaurant and
retail employees. Other jurisdictions where we operate are considering enacting similar legislation. Several jurisdictions also have
implemented sick pay/paid time off legislation, which requires employers to provide paid time off to employees, and “just cause”
termination legislation, which restricts companies’ ability to terminate employees unless they can prove “just cause” or a “bona fide
economic reason” for the termination. All of these regulations impose additional obligations on us and could increase our costs of
doing business. Our failure to comply with any of these laws and regulations could lead to higher employee turnover and negative
publicity, and subject us to penalties and other legal liabilities, which could adversely affect our business and results of operations and
potentially cause us to close some restaurants in these jurisdictions.
In addition, a significant number of our restaurant crew are paid at rates impacted by the applicable minimum wage. To the
extent implemented, federal, state and local proposals that increase minimum wage requirements or mandate other employee matters
could, to the extent implemented, materially increase our labor and other costs. Several states in which we operate have approved
minimum wage increases that are above the federal minimum. As more jurisdictions implement minimum wage increases, we expect
our labor costs will continue to increase. Our ability to respond to minimum wage increases by increasing menu prices depends on
willingness of our guests to pay the higher prices and our perceived value relative to competitors. Our distributors and suppliers could
also be affected by higher minimum wage, benefit standards and compliance costs, which could result in higher costs for goods and
services supplied to us.
Additionally, while our employees are not currently covered by any collective bargaining agreements, union organizers have
engaged in efforts to organize our employees and those of other restaurant companies. If a significant portion of our employees were
to become covered by collective bargaining agreements, our labor costs could increase, and it could negatively impact our culture and
reduce our flexibility to attract and retain top performing employees. Labor unions have attempted, and likely will continue to attempt,
to attract media attention to their organizing efforts in our restaurants, and their organizing efforts include claims that Chipotle
mistreats or undervalues its employees. Despite our efforts to provide more accurate information about our policies and practices,
these messages may dissuade guests from patronizing our restaurants.
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If we are not able to hire, train, reward and retain qualified restaurant crew and/or if we are not able to appropriately plan
our workforce, our growth plan and profitability could be adversely affected.
We rely on our restaurant-level employees to consistently provide high-quality food and positive experiences to our guests. In
addition, our ability to continue to open new restaurants depends on our ability to recruit, train and retain high-quality crew members
to manage and work in our restaurants. Maintaining appropriate staffing in our existing restaurants and hiring and training staff for our
new restaurants requires precise workforce planning, which has become more complex due to predictive scheduling (“fair workweek”)
laws and “just cause” termination legislation. If we fail to appropriately plan our workforce, it could adversely impact guest
satisfaction, operational efficiency and restaurant profitability. In addition, if we fail to adequately monitor and proactively respond to
employee dissatisfaction, it could lead to poor guest satisfaction, higher turnover, litigation and unionization efforts. The COVID-19
pandemic has exacerbated staffing complexities for us and other restaurant operators, and during 2020 we were forced to temporarily
close some restaurants or limit operating hours due to employee illnesses, fear of contracting COVID or caregiving responsibilities
among our restaurant crew. COVID-19 has also resulted in aggressive competition for talent, wage inflation and pressure to improve
benefits and workplace conditions to remain competitive. Our failure to recruit and retain new restaurant crew members in a timely
manner or higher employee turnover levels all could affect our ability to open new restaurants and grow sales at existing restaurants,
and we may experience higher than projected labor costs.
Risks Related to IT Systems, Cybersecurity and Data Privacy
Cybersecurity breaches or other privacy or data security incidents could result in unauthorized access, theft, modification or
destruction of confidential guest, personal employee and other material, confidential information that is stored in our systems or by
third parties on our behalf, which may adversely affect our business.
A cyber incident generally refers to any intentional attack or an unintentional event that results in unauthorized access to
systems to disrupt operations, corrupt data or steal or expose confidential information or intellectual property. A cyber incident that
compromises the information of our guests or employees could result in widespread negative publicity, damage to our reputation, a
loss of guests, disruption of our business and legal liabilities. As our reliance on technology has grown, the scope and severity of risks
posed to our systems from cyber threats has increased. In addition, as more business activities have shifted online and more people are
working remotely, including as a result of COVID-19, we have experienced an increase in cybersecurity threats and attempts to breach
our security networks. The techniques and sophistication used to conduct cyber-attacks and breaches of information technology
systems, as well as the sources and targets of these attacks, change frequently and are often not recognized until attacks are launched
or have been in place for a period of time. We continuously monitor and develop our information technology networks and
infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, malware and other events that could
have a security impact; however there can be no assurance that these measures will be effective.
The majority of our restaurant sales are made by credit or debit cards, and we also maintain personal information regarding our
employees and confidential information about our guests and suppliers. We segment our card data environment and employ a cyber
security protection program that is based on proven industry frameworks. This program includes but is not limited to cyber security
techniques, tactics and procedures, including the deployment of a robust set of security controls, continuous monitoring and detection
programs, network protections, vendor selection criteria, secure software development programs and ongoing employee training,
awareness and incident response preparedness. In addition, we continuously scan our environment for any vulnerabilities, perform
penetration testing, engage third parties to assess effectiveness of our security measures and collaborate with members of the cyber
security community. However, there are no assurances that such programs will prevent or detect cyber security breaches.
From time to time we have been, and likely will continue to be, the target of cyber and other security threats. For example, some
of our guests have experienced account takeover fraud, in which guests use the same log in credentials on multiple websites and, when
a third party fraudulently obtains those credentials, they can gain unauthorized access to their accounts and charge food orders to the
credit card linked to the account (without accessing credit card data). We may in the future become subject to other legal proceedings
or governmental investigations for purportedly fraudulent transactions arising out of the actual or alleged theft of our consumers’
credit or debit card information or if consumer or employee information is obtained by unauthorized persons or used inappropriately.
Any such claim or proceeding, or any adverse publicity resulting from such an event, may have a material adverse effect on our
business and we may incur significant remediation costs.
Cybersecurity breaches also could result in a violation of applicable U.S. and international privacy and other laws, and subject
us to private consumer, business partner, or securities litigation and governmental investigations and proceedings, any of which could
result in our exposure to material civil or criminal liability. For example, the European Union’s General Data Protection Regulation
(“GDPR”) requires companies to meet certain requirements regarding the handling of personal data, including its use, protection and
transfer and the ability of persons whose data is stored to correct or delete such data about themselves. Failure to meet the GDPR
requirements could result in penalties of up to 4% of annual worldwide revenue. Additionally, the California Privacy Act of 2018
(“CCPA”), which became effective on January 1, 2020, provides a private right of action for data breaches and requires companies
that process information on California residents to make new disclosures to consumers about their data collection, use and sharing
practices, allow consumers to opt out of certain data sharing with third parties and the right for consumers to request deletion of
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personal information (subject to certain exceptions). If we fail, or are perceived to have failed, to properly respond to security breaches
of our or third party’s information technology systems or fail to properly respond to consumer requests under the CCPA, we could
experience reputational damage, adverse publicity, loss of consumer confidence, reduced sales and profits, complications in executing
our growth initiatives and regulatory and legal risk, including criminal penalties or civil liabilities.
Compliance with the GDPR, the CCPA and other current and future applicable international and U.S. privacy, cybersecurity and
related laws can be costly and time-consuming. We make significant investments in technology, third-party services and internal
personnel to develop and implement systems and processes that are designed to anticipate cyber-attacks and to prevent or minimize
breaches of our information technology systems or data loss, but these security measures cannot provide assurance that we will be
successful in preventing such breaches or data loss. In addition, media or other reports of existing or perceived security vulnerabilities
in our systems or those of our third-party business partners or service providers can also adversely impact our brand and reputation
and materially impact our business, even if no breach has been attempted or has occurred.
We may incur increased costs to comply with privacy and data protection laws and, if we fail to comply, we could be subject
to government enforcement actions, private litigation and adverse publicity.
The regulatory environment related to data privacy and cybersecurity is changing at an ever-increasing pace, with new and
increasingly rigorous requirements applicable to our business. Complying with newly developed laws and regulations, which are
subject to change and uncertain interpretations and may be inconsistent from state to state or country to country, may lead to a decline
in guest engagement or cause us to incur substantial costs or modifications to our operations or business practices to comply.
We are subject to the European Union’s GDPR, which requires companies to meet certain requirements regarding the
handling of personal data, including its use, protection and transfer and the ability of persons whose data is stored to correct or delete
such data about themselves. Failure to meet the GDPR requirements could result in penalties of up to 4% of annual worldwide
revenue. Additionally, in July 2020, the European Court of Justice’s invalidation of cross-border data transfer mechanisms such as the
U.S.-E.U. Privacy Shield and the Standard Contractual Clauses has imposed new uncertainty in privacy compliance and an adverse
impact on operational efficiency with our third-party vendors.
The Federal Trade Commission and many State Attorneys General are also interpreting federal and state consumer protection
laws to impose standards for the online collection, use, dissemination and security of data. Maintaining our compliance with those
requirements may limit our ability to obtain data used to provide a more personalized guest experience. The CCPA provides a private
right of action for data breaches and requires companies that process information on California residents to make new disclosures to
consumers about their data collection, use and sharing practices, allows consumers to opt-out of certain data sharing with third parties
and gives consumers the right to request deletion of personal information (subject to certain exceptions). If we fail, or are perceived to
have failed, to properly respond to security breaches of our or third party’s information technology systems or fail to properly respond
to consumer requests under the CCPA, we could experience regulatory fines, reputational damage, adverse publicity, loss of consumer
confidence, reduced sales and profits, complications in executing our growth initiatives and regulatory and legal risk, including
criminal penalties or civil liabilities.
We rely heavily on information technology systems and failures or interruptions in our IT systems could harm our ability to
effectively operate our business and/or result in the loss of guests or employees.
We rely heavily on information technology systems, including the point-of-sale and payment processing system in our
restaurants, technologies supporting our online ordering, digital and delivery business, technologies that traceback ingredients to
suppliers and growers and manage our supply chain, our rewards program, technologies that facilitate marketing initiatives, employee
engagement and payroll processing, and various other processes and transactions. Our ability to effectively manage our business and
coordinate the procurement, production, distribution, safety and sale of our products depends significantly on the availability,
reliability and security of these systems. Many of these critical systems are provided and managed by third parties, and we are reliant
on these third-party providers to implement protective measures that ensure the security and availability of their systems. Although we
have operational safeguards in place, these safeguards may not be effective in preventing the failure of these third-party systems or
platforms to operate effectively and be available. Failures may be caused by various factors, including power outages, catastrophic
events, physical theft, computer and network failures, inadequate or ineffective redundancy, problems with transitioning to upgraded
or replacement systems or platforms, flaws in third-party software or services, errors or improper use by our employees or the third-
party service providers. If any of our critical IT systems were to become unreliable, unavailable, compromised or otherwise fail, and
we were unable to recover in a timely manner, we could experience an interruption in our operations that could have a material
adverse impact on our profitability.
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Our inability or failure to execute on a comprehensive business continuity plan at our restaurant support centers following a
disaster or force majeure event could have a material adverse impact on our business.
Many of our corporate systems and processes and corporate support for our restaurant operations are centralized at one
location. We have disaster recovery procedures and business continuity plans in place to address crisis-level events, including
hurricanes and other natural disasters, and back up and off-site locations for recovery of electronic and other forms of data and
information, and the COVID-19 pandemic has provided a limited test of our ability to manage our business remotely. However, if we
are unable to fully implement our disaster recovery plans, we may experience delays in recovery of data, inability to perform vital
corporate functions, tardiness in required reporting and compliance, failures to adequately support field operations and other
breakdowns in normal communication and operating procedures that could have a material adverse effect on our financial condition,
results of operation and exposure to administrative and other legal claims. In addition, these threats are constantly evolving, which
increases the difficulty of accurately and timely predicting, planning for and protecting against the threat. As a result, our disaster
recovery procedures and business continuity plans security may not adequately address all threats we face or protect us from loss.
Legal and Regulatory Risks
A violation of Chipotle’s Deferred Prosecution Agreement could have an adverse effect on our business and reputation.
In April 2020, Chipotle signed a Deferred Prosecution Agreement (the “DPA”), which was filed in the U.S. District Court for
the Central District of California, to settle an official criminal investigation conducted by the U.S. Attorney’s Office for the Central
District of California, in conjunction with the U.S. Food and Drug Administration’s Office of Criminal Investigations (collectively,
the “DOJ”), into company-wide food safety matters that occurred in our restaurants dating back to January 1, 2013. Pursuant to the
DPA, the DOJ filed a two-count Class A Misdemeanor Information in the United States District Court for the Central District of
California charging Chipotle with adulterating and causing food to be adulterated within the meaning of the Federal Food, Drug and
Cosmetic Act (“FDCA”) while such food was held for sale. Under the DPA, Chipotle paid a $25 million fine and is required to
enhance and maintain a comprehensive compliance program that is designed to ensure Chipotle complies with all applicable federal
and state food safety laws. The DOJ agreed that if Chipotle is in full compliance with all of its obligations under the DPA at the
conclusion of the three-year deferred prosecution term, the DOJ will move to dismiss the two-count information filed against Chipotle.
Full compliance with the DPA requires, among other things, Chipotle to conduct a root cause analysis of the historic food safety
matters, maintain and annually update a comprehensive food safety plan and comply with applicable provisions of the FDCA.
Chipotle owns and operates over 2,700 restaurants and we dedicate substantial resources to our food safety program; however,
even with strong preventative controls and interventions, food safety risks cannot be completely eliminated in any restaurant. Food
safety risks may arise due to possible failures by restaurant crew or suppliers to follow food safety policies and procedures, employees
or guests coming to the restaurant while ill or serving contaminated food ingredients. If Chipotle is found to have breached the terms
of the DPA, the DOJ may elect to prosecute, or bring a civil action against the company for conduct alleged in the DPA’s Statement of
Facts, which could result in additional fines, penalties, and have material adverse impacts on our results of operations. In addition,
further action by the DOJ may significantly and adversely affect our brand and reputation, especially in light of our highly publicized
food safety incidents in 2015 – 2017.
We could be party to litigation or other legal proceedings that could adversely affect our business, results of operations and
reputation.
We have been and, in the future, we likely will be subject to litigation and other legal proceedings that may adversely affect our
business. These legal proceedings may involve claims brought by employees, guests, government agencies, suppliers, shareholders or
others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. These legal proceedings
may involve allegations of illegal, unfair or inconsistent employment practices, including wage and hour, employment of minors,
discrimination, wrongful termination, and vacation and family leave laws; food safety issues including food-borne illness, food
contamination and adverse health effects from consumption of our food products; data security or privacy breaches; guest
discrimination; personal injury in our restaurants; trademark infringement; violation of the federal securities laws or other concerns.
For example, a number of lawsuits have been filed against us alleging violations of federal and state employment laws, including wage
and hour claims; and in 2020 we settled an official criminal investigation by the U.S. Attorney’s Office for the Central District of
California, in conjunction with the U.S. Food and Drug Administration’s Office of Criminal Investigations, related to company-wide
food safety matters dating back to 2013. We could be involved in similar or even more significant litigation and legal proceedings in
the future. Even if the allegations against us in current or future legal matters are unfounded or we ultimately are not held liable, the
costs to defend ourselves may be significant and the litigation may subject us to substantial settlements, fines, penalties or judgments
against us and may divert management's attention away from operating our business, all of which could negatively impact our
financial condition and results of operations. Litigation also may generate negative publicity, regardless of whether the allegations are
valid, or we ultimately are liable, which could damage our reputation, and adversely impact our sales and our relationship with our
employees and guests.
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We are subject to extensive laws, government regulation, and other legal requirements and our failure to comply with
existing or new laws and regulations could adversely affect our operational efficiencies, ability to attract and retain talent and
results of operations.
Our business is subject to extensive federal, state, local and international laws and regulations, including those relating to:
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preparation, sale and labeling of food, including regulations of the Food and Drug Administration, which oversees the
safety of the entire food system, including inspections and mandatory food recalls, menu labeling and nutritional content;
employment practices and working conditions, including minimum wage rates, wage and hour practices, Fair Workweek
legislation, employment of minors, discrimination, harassment, classification of employees, paid and family leave,
workplace safety, immigration and overtime among others;
health, sanitation, safety and fire standards and the sale of alcoholic beverages;
building and zoning requirements, including state and local licensing and regulation governing the design and operation of
facilities and land use;
public accommodations and safety conditions, including the Americans with Disabilities Act and similar state laws that give
civil rights protections to individuals with disabilities in the context of employment, public accommodations, and other
areas;
data privacy laws and standards for the protection of personal information, including social security numbers, financial
information (including credit card numbers), and health information, and payment card industry standards and
requirements;
environmental matters, such as emissions and air quality, water consumption, the discharge, storage, handling, release, and
disposal of hazardous or toxic substances, and local ordinances restricting the types of packaging we can use in our
restaurants; and
public company compliance, disclosure and governance matters, including accounting and tax regulations, SEC and NYSE
disclosure requirements.
Compliance with these laws and regulations, and future new laws or changes in these laws or regulations that impose additional
requirements, can be costly. Any failure or perceived failure to comply with these laws or regulations could result in, among other
things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability.
Risks Related to Our Growth and Business Strategy
If we are unable to meet our projections for new restaurant openings, or efficiently maintain the attractiveness of our
existing restaurants, our profitability could suffer.
Our growth strategy depends on our ability to continue to open new restaurants and operate them profitably. Historically, it can
take up to 24 months to ramp up the sales and profitability of a new restaurant. During the ramp-up phase, the restaurant’s sales and
income are below the levels at which we expect them to normalize and costs may be higher as we train new employees and adjust our
food deliveries and preparation to sales trends. If we are unable to build the customer base that we expect or overcome the initial
higher costs associated with new restaurants, our new restaurants may not be as profitable as our existing restaurants. Our ability to
open and profitably operate new restaurants also is subject to various risks, such as the identification and availability of economically
viable locations, the negotiation of acceptable lease terms, the ability to operate with a Chipotlane, the need to obtain all required
governmental permits (including zoning approvals and liquor licenses) and to comply with other regulatory requirements, the
availability of capable contractors and subcontractors, the ability to meet construction schedules and budgets, the ability to manage
labor activities that could delay construction, increases in labor and building material costs, changes in weather or other acts of God
that could result in construction delays and adversely affect the results of one or more restaurants for an indeterminate amount of time,
our ability to hire and train qualified management personnel and general economic and business conditions. At each potential location,
we compete with other restaurants and retail businesses for desirable development sites, construction contractors, management
personnel, hourly employees and other resources. If we are unable to successfully manage these risks, we could face increased costs
and lower than anticipated sales and earnings in future periods.
In addition, in an effort to increase same-restaurant sales and improve our operating performance, we continue to improve our
existing restaurants through remodels, upgrades and regular upkeep. If the costs associated with remodels, upgrades or regular upkeep
are higher than anticipated, restaurants are closed for remodeling for longer periods than planned or remodeled restaurants do not
perform as expected, we may not realize our projected desired return on investment, which could have a negative effect on our
operating results.
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Substantially all of our restaurants operate in leased properties subject to long-term leases. If we are unable to secure new
leases on favorable terms, terminate unfavorable leases or renew or extend favorable leases, our profitability may suffer.
We operate substantially all of our restaurants in leased facilities. It is becoming increasing challenging to locate and secure
favorable lease facilities for new restaurants as competition for restaurant sites in our target markets is intense. Development and
leasing costs are increasing, particularly for urban locations. These factors could negatively impact our ability to manage our
occupancy costs, which may adversely impact our profitability. In addition, any of these factors may be exacerbated by economic
factors, which may result in an increased demand for developers and contractors that could drive up our construction and leasing costs.
Also, as we open and operate more restaurants, our rate of expansion relative to the size of our existing restaurant base will decline,
making it increasingly difficult to achieve levels of sales and profitability growth that we achieved in prior years.
From time to time we may close or relocate a restaurant if a current location becomes less profitable as a result of adverse
economic conditions or local regulatory compliance in the area. We also have closed some restaurants where the impact of COVID-19
was severe. If the closures continue for a long period of time we may not be able to recover our investment due to the high rental rates.
Because substantially all of our restaurants operate in leased facilities, we may incur significant lease termination expenses when we
close or relocate a restaurant and are often obligated to continue rent and other lease related payments after restaurant closure. We also
may incur significant asset impairment and other charges in connection with closures and relocations. If the lease termination cost is
significant, we may decide to keep underperforming restaurants open. Ongoing lease obligations at closed or underperforming
restaurant locations could decrease our results of operations. In addition, we may be unable to renew a lease without substantial
additional cost at the end of the lease term and expiration of all renewal periods. As a result, we may be required to close or relocate a
restaurant, which could subject us to construction and other costs and risks that may have an adverse effect on our operating
performance.
Our failure to effectively manage our growth could have a negative adverse effect on our business and financial
results.
As of December 31, 2020, we owned and operated 2,764 Chipotle restaurants and we plan to open a significant number of new
restaurants in the next several years. Our existing restaurant management systems, back office technology systems and processes,
financial and management controls, information systems and personnel may not be adequate to support our continued growth. To
effectively manage a larger number of restaurants, we may need to upgrade and expand our infrastructure and information systems,
automate more processes that currently are manual or require manual intervention and hire, train and retain restaurant crew and
corporate support staff, all of which may result in increased costs and at least temporary inefficiencies. We also place a lot of
importance on our culture, which we believe has been an important contributor to our success, and as we continue to grow, it may be
increasingly difficult to maintain our culture. Our failure to sufficiently invest in our infrastructure and information systems and
maintain our strong staffing and culture could harm our brand and operating results.
A failure to recruit, develop and retain effective leaders or the loss or shortage of personnel with key capacities and skills
could impact our strategic growth plans and jeopardize our ability to meet our business performance expectations and growth
targets.
Our ability to continue to grow our business depends substantially on the contributions and abilities of our executive leadership
team and other key management personnel. Changes in senior management could expose us to significant changes in strategic
direction and initiatives. A failure to maintain appropriate organizational capacity and capability to support our strategic initiatives or
to build adequate bench strength with key skillsets required for seamless succession of leadership, could jeopardize our ability to meet
our business performance expectations and growth targets. If we are unable to attract, develop, retain and incentivize sufficiently
experienced and capable management personnel, our business and financial results may suffer.
The market price of our common stock may be more volatile than the market price of our peers.
We believe the market price of our common stock generally has traded at a higher price-earnings ratio than stocks of most of our
peer companies as well as the overall market, which typically has reflected market expectations for higher future operating results. At
any given point in time, our price-earnings ratio may trade at more than twice the price-earnings ratio of the S&P 500. Also, the trading
market for our common stock has been volatile at times, including as a result of adverse publicity events. As a result, if we fail to meet
market expectations for our operating results in the future, any resulting decline in the price of our common stock could be significant.
General Risk Factors
Economic and business factors that are largely beyond our control may adversely affect consumer behavior and the results
of our operations.
Restaurant dining generally is dependent upon consumer discretionary spending, which may be affected by general economic
conditions that are beyond our control. For example, international, domestic and regional economic conditions, consumer income
levels, financial market volatility, a slow or stagnant pace of economic growth, rising energy costs, rising interest rates, social unrest,
and governmental, political and budget concerns or divisions may have a negative effect on consumer confidence and discretionary
16
spending. In addition, a new presidential and legislative administration recently took office, and it is not yet known what changes the
new administration will make to economic or tax policies and how those policies will impact the economy or consumer discretionary
spending. Any significant decrease in our guest traffic or average transactions would negatively impact our financial performance.
Any actual or perceived threat of a pandemic or communicable disease, terrorist attack, mass shooting, heightened security
requirements, including cybersecurity, or a failure to protect information systems for critical infrastructure, such as the electrical grid
and telecommunications systems, could harm our operations, the economy or consumer confidence generally. Any of the above
factors or other unfavorable changes in business and economic conditions affecting our guests could increase our costs, reduce traffic
in some or all of our restaurants or limit our ability to increase pricing, any of which could lower our profit margins and have a
material adverse effect on our sales, financial condition and results of operations. These factors also could cause us to, among other
things, reduce the number and frequency of new restaurant openings, close restaurants or delay remodeling of our existing restaurant
locations. Further, poor economic conditions may force nearby businesses to shut down, which could reduce traffic to our restaurants
or cause our restaurant locations to be less attractive.
Our quarterly financial results may fluctuate significantly, including due to factors that are not in our control.
Our quarterly financial results may fluctuate significantly and could fail to meet investors’ expectations for various reasons,
including:
•
•
•
•
•
•
•
•
•
•
negative publicity about the safety of our food, employment-related issues, litigation or other issues involving our
restaurants;
fluctuations in supply costs, particularly for our most significant ingredients, and our inability to offset the higher cost with
price increases without adversely impacting guest traffic;
labor availability and wages of restaurant management and crew;
increases in marketing or promotional expenses;
the timing of new restaurant openings and related revenues and expenses, and the operating costs at newly opened
restaurants;
the impact of inclement weather and natural disasters, such as freezes and droughts, which could decrease guest traffic and
increase the costs of ingredients;
the amount and timing of stock-based compensation;
litigation, settlement costs and related legal expenses;
tax expenses, asset impairment charges and non-operating costs; and
variations in general economic conditions, including the impact of declining interest rates on our interest income.
As a result of any of these factors, results for any one quarter are not necessarily indicative of results to be expected for any
other quarter or for any year. Average restaurant sales or comparable restaurant sales in any particular future period may decrease.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of December 31, 2020, there were 2,768 restaurants operated by Chipotle and our consolidated subsidiaries, 2,764 of which
were Chipotle restaurants. Our main office is located at 610 Newport Center Drive, Newport Beach, CA 92660 and our telephone
number is (949) 524-4000. We lease our main office and substantially all of the properties on which we operate restaurants. We own
17 properties and operate restaurants on all of them. For additional information regarding the lease terms and provisions, see Note 10.
“Leases” in our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”
ITEM 3. LEGAL PROCEEDINGS
For information regarding legal proceedings, see Note 12. “Commitments and Contingencies” in our consolidated financial
statements included in Item 8. “Financial Statements and Supplementary Data.”
17
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock trades on the New York Stock Exchange under the symbol “CMG.”
As of February 8, 2021, there were approximately 935 shareholders of record. This does not include persons whose stock is in
nominee or “street name” accounts through brokers.
Purchases of Equity Securities by the Issuer
On March 20, 2020, we temporarily suspended our stock repurchase program. The total remaining dollar value of shares that
may yet be purchased under our stock repurchase program is $115.0 million as of December 31, 2020.
Dividend Policy
We are not required to pay any dividends and have not declared or paid any cash dividends on our common stock. We intend to
continue to retain earnings for use in the operation and expansion of our business and to repurchase shares of common stock (subject
to market conditions), and therefore do not anticipate paying any cash dividends on our common stock in the foreseeable future.
18
COMPARISON OF CUMULATIVE TOTAL RETURN
The following graph compares the cumulative annual stockholders return on our common stock from December 31, 2015,
through December 31, 2020, to that of the total return index for the S&P 500 and the S&P 500 Restaurants Index assuming an
investment of $100 on December 31, 2015. In calculating total annual stockholder return, reinvestment of dividends, if any, is
assumed. The indices are included for comparative purposes only. They do not necessarily reflect management’s opinion that
such indices are an appropriate measure of the relative performance of our common stock. The values shown are neither
indicative nor determinative of future performance. This graph is not “soliciting material,” is not deemed filed with the Securities
and Exchange Commission and is not to be incorporated by reference in any of our filings under the Securities Act or the
Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such
filing.
Company/Index
Chipotle Mexican Grill, Inc. $
S&P 500
S&P 500 Restaurants
Dec. 31, 2015 Dec. 30, 2016 Dec. 30, 2017 Dec. 30, 2018 Dec. 30, 2019 Dec. 29, 2020
289
184
188
100 $
100
100
174 $
158
163
123
134
131
124
110
101
79 $
90 $
60 $
*$100 invested on December 31, 2015 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Source data: S&P Capital IQ
19
ITEM 6. SELECTED FINANCIAL DATA
Our selected consolidated financial data shown below should be read together with Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and respective notes included in
Item 8. “Financial Statements and Supplementary Data.” The data shown below is not necessarily indicative of results to be expected
for any future period (dollar and share amounts in thousands, except per share data).
Statement of Income:
Food and beverage revenue
Delivery service revenue
Total revenue
Food, beverage and packaging costs
Labor costs
Occupancy costs
Other operating costs
General and administrative expenses
Depreciation and amortization
Pre-opening costs
Impairment, closure costs and asset
disposals
Total operating expenses
Income from operations
Interest and other income, net
Income before income taxes
Benefit/(provision) for income taxes
Net income
Earnings per share:
Basic
Diluted
Weighted average common shares:
outstanding
Basic
Diluted
Balance Sheet Data:
Total current assets
Total assets
Total current liabilities
Total liabilities
Total shareholders’ equity
$
2020
5,920,545
64,089
5,984,634
1,932,766
1,593,013
387,762
1,030,012
466,291
238,534
15,515
Year ended December 31,
2018
2019
2017
$
5,561,036
25,333
5,586,369
1,847,916
1,472,060
363,072
760,831
451,552
212,778
11,108
$
4,860,626
4,359
4,864,985
1,600,760
1,326,079
347,123
680,031
375,460
201,979
8,546
$
4,476,412
-
4,476,412
1,535,428
1,205,992
327,132
651,644
296,388
163,348
12,341
30,577
5,694,470
290,164
3,617
293,781
61,985
355,766 $
23,094
5,142,411
443,958
14,327
458,285
(108,127)
350,158 $
66,639
4,606,617
258,368
10,068
268,436
(91,883)
176,553 $
13,345
4,205,618
270,794
4,949
275,743
(99,490)
176,253 $
2016
3,904,384
-
3,904,384
1,365,580
1,105,001
293,636
641,953
276,240
146,368
17,162
23,877
3,869,817
34,567
4,172
38,739
(15,801)
22,938
12.74
12.52
$
$
12.62 $
12.38 $
6.35 $
6.31 $
6.19 $
6.17 $
0.78
0.77
27,917
28,416
27,740
28,295
27,823
27,962
28,491
28,561
29,265
29,770
2020
2019
December 31,
2018
2017
2016
1,420,237
5,982,896
822,199
3,962,761
2,020,135
$
$
$
$
$
1,072,204
5,104,604
666,593
3,421,578
1,683,026
$
$
$
$
$
814,794
2,265,518
449,990
824,179
1,441,339
$
$
$
$
$
629,535
2,045,692
323,893
681,247
1,364,445
$
$
$
$
$
522,374
2,026,103
281,793
623,610
1,402,493
$
$
$
$
$
$
$
$
$
20
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion together with Item 6. “Selected Financial Data” and our consolidated financial
statements and related notes included in Item 8. “Financial Statements and Supplementary Data.” This section of the Form 10-K
generally discusses 2020 and 2019 items and year-to-year comparisons of 2020 to 2019. Discussions of 2018 items and year-to-year
comparisons of 2019 and 2018 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in Part II, Item 7 on our Annual Report on Form 10-K for the year ended
December 31, 2019. The discussion contains forward-looking statements involving risks, uncertainties and assumptions that could
cause our results to differ materially from expectations. See “Cautionary Note Regarding Forward-Looking Statements.” Factors that
might cause such differences include those described in Item 1A. “Risk Factors” and elsewhere in this report.
Overview
As of December 31, 2020, we operated 2,724 Chipotle restaurants throughout the United States, 40 international Chipotle
restaurants, and four non-Chipotle restaurants. We are committed to making good food more accessible to everyone while continuing
to be a brand with a demonstrated purpose.
Overview of the Impact of COVID-19
The COVID-19 pandemic has adversely affected, and will continue to adversely affect, our operations and financial results for
the foreseeable future. In response to COVID-19, we temporarily closed some restaurants and dining rooms in our restaurants. We
continue to follow guidance from health officials in determining the appropriate restrictions to put in place for each restaurant. As of
December 31, 2020, the majority of our restaurants have been reopened for dine-in with restrictions, such as social distancing and
mask requirements for all customers, to ensure the health and safety of our guests and employees. Certain restaurants only offer take-
out, digital order ahead and delivery services in accordance with local guidance and regulations. For a further discussion of the
impacts that COVID-19 has had on our financial results refer to the “Results of Operations.”
We remain in regular contact with our major suppliers and while to date we have not experienced significant disruptions in our
supply chain, we could see future disruptions should the impacts of COVID-19 extend for a considerable amount of time. Within our
restaurants, we have taken a number of steps to enhance our robust food safety protocols including the creation of the steward role
which is focused on sanitization in high-touch and high-traffic areas, providing masks for all employees, and having a tamper evident
packaging seal for all digital orders. To support our employees, we have eliminated non-essential travel, implemented work from
home for our support centers, and significantly expanded employee benefits. We remain focused on reducing non-essential
controllable costs and judiciously spending on return generating projects to preserve liquidity. We suspended our stock buyback
program during the first quarter of 2020. If our business continues to improve and the economy continues to stabilize, we may begin
buying again in the first or second quarter of 2021.
2020 Financial Highlights
• Total revenue increased 7.1% to $6.0 billion in 2020 compared to $5.6 billion in 2019
• Comparable restaurant sales increased 1.8%
• Diluted earnings per share (“diluted EPS”) for 2020 increased to $12.52, which included an income tax benefit of $3.79,
offset by a $2.00 after-tax impact from expenses related to legal, corporate restructuring, restaurant closure costs, and
certain other costs, a 1.1% increase from $12.38 in 2019.
Sales Trends. Average restaurant sales were $2.223 million for the year ended December 31, 2020, an increase from
$2.205 million for the year ended December 31, 2019. We define average restaurant sales as the average trailing 12-month food and
beverage sales for restaurants in operation for at least 12 full calendar months.
Total revenue was $6.0 billion in 2020, an increase of 7.1% from $5.6 billion in 2019. The increase was attributable to new
restaurant openings and increased comparable restaurant sales. Comparable restaurant sales increased 1.8% for the full year 2020.
Comparable restaurant sales represent the change in period-over-period sales or transactions for restaurants in operation for at least 13
full calendar months.
We continue to invest in improving our digital platforms and have significantly upgraded our capabilities by digitizing almost
all of our digital-make lines, expanding our partnerships with multiple third-party delivery services and building more Chipotlanes,
which is our drive through format for digital order pickups. Digital sales, which includes delivery and customer pick-up, increased
174.1% year over year and accounted for 46.2% of 2020 sales, compared to 10.9% of 2019 sales. The shift to digital sales accelerated
in March 2020 as a result of the COVID-19 pandemic.
21
Restaurant Operating Costs. During the year ended December 31, 2020, our restaurant operating costs (food, beverage and
packaging; labor; occupancy; and other operating costs) were 82.6% of total revenue, an increase from 79.5% in 2019. The increase
was driven primarily by COVID-19 related impacts including increased delivery expenses, assistance and exclusion pay, elevated beef
prices, increased incidence of steak, and fewer sales of high margin beverages. The increase was partially offset by benefits from
menu price increases, lower avocado pricing and improved labor efficiency realized from digital enhancements to the restaurants.
Restaurant Development. For the full year 2020, we opened 161 new restaurants, which included 100 restaurants with a
Chipotlane. We expect to open approximately 200 new restaurants in 2021.
Restaurant Activity
The following table details restaurant unit data for the years indicated.
Year ended December 31,
2019
2020
2018
Beginning of period
Chipotle openings
Pizzeria Locale openings
Chipotle permanent closures
Chipotle relocations
Pizzeria Locale closures
TastyMade closures
Total restaurants at end of period
Results of Operations
2,622
160
1
(9)
(6)
-
-
2,768
2,491
139
1
(7)
(2)
-
-
2,622
2,408
137
-
(43)
(5)
(5)
(1)
2,491
Our results of operations as a percentage of total revenue and period-over-period change are discussed in the following section.
Revenue
Food and beverage revenue
Delivery service revenue
Total revenue
Average restaurant sales (1)
Comparable restaurant sales increase (decrease)
$
$
$
2020
Year ended December 31,
2019
(dollars in millions)
5,561.0 $
25.3
5,586.4 $
2.2 $
5,920.5 $
64.1
5,984.6 $
2.2 $
1.8%
11.1%
2018
Percentage change
2020/2019
2019/2018
4,860.6
4.4
4,865.0
2.0
4.0%
6.5%
153.0%
7.1%
(1.0%)
14.4%
475.8%
14.8%
10.8%
(1) Average restaurant sales refer to the average trailing 12-month food and beverage sales for restaurants in operation for at least 12
full calendar months.
The significant factors contributing to the total revenue increase in 2020 were new restaurant openings and comparable
restaurant sales increases. Comparable restaurant sales increased $77.7 million and revenue from restaurants not yet in the comparable
restaurant base contributed $319.9 million to the total revenue increase, of which $126.4 million was attributable to restaurants opened
in 2020.
Food, Beverage and Packaging Costs
Food, beverage and packaging
As a percentage of total revenue
$
2020
Year ended December 31,
2019
(dollars in millions)
1,847.9 $
33.1%
1,932.8 $
32.3%
Percentage change
2018
2020/2019
2019/2018
1,600.8
32.9%
4.6%
(0.8%)
15.4%
0.2%
Food, beverage and packaging costs decreased as a percentage of total revenue in 2020 primarily due to menu price increases
taken in the second half of 2020, favorable avocado pricing and better waste control. These benefits were partially offset by fewer
sales of high margin beverages, COVID-19 related mix shifts, elevated beef pricing due to plant shutdowns in the summer of 2020,
and higher dairy pricing.
22
Labor Costs
Labor costs
As a percentage of total revenue
$
2020
Year ended December 31,
2019
(dollars in millions)
1,472.1 $
26.4%
1,593.0 $
26.6%
2018
Percentage change
2020/2019
2019/2018
1,326.1
27.3%
8.2%
0.2%
11.0%
(0.9%)
Labor costs increased as a percentage of total revenue in 2020 primarily due to COVID-19 related labor costs, which included
assistance pay for restaurant employees and expansion of our emergency leave benefits to accommodate those directly affected by
COVID-19. Our assistance pay program ended on June 7, 2020, while the expansion of emergency leave benefits remains in place as
of December 31, 2020. These COVID-19 related increases were partially offset by the benefits of menu price increases taken in the
second half of 2020 and improved labor efficiency realized from digital enhancements to the restaurants.
Occupancy Costs
Occupancy costs
As a percentage of total revenue
$
2020
Year ended December 31,
2019
(dollars in millions)
363.1 $
6.5%
387.8 $
6.5%
2018
Percentage change
2020/2019
2019/2018
347.1
7.1%
6.8%
0.0%
4.6%
(0.6%)
Occupancy costs as a percentage of total revenue remained consistent in 2020 as compared to 2019. COVID-19 had an
immaterial impact on occupancy costs for the year ended December 31, 2020.
Other Operating Costs
Other operating costs
As a percentage of total revenue
$
2020
Year ended December 31,
2019
(dollars in millions)
760.8 $
13.6%
1,030.0 $
17.2%
2018
Percentage change
2020/2019
2019/2018
680.0
14.0%
35.4%
3.6%
11.9%
(0.4%)
Other operating costs include, among other items, marketing and promotional costs, delivery expenses, bank and credit card
processing fees, and restaurant utilities and maintenance costs. Other operating costs increased as a percentage of total revenue in
2020 primarily due to increased delivery expenses caused by the significant increase in delivery sales in 2020.
As a result of COVID-19, we are adapting our restaurant operations to the changing environment and are reducing non-essential
controllable costs. Sales shifted towards delivery after we temporarily closed our dining rooms to help control the spread of COVID-
19. We reprioritized marketing efforts by offering free delivery several times in 2020.
General and Administrative Expenses
General and administrative expense
As a percentage of total revenue
$
2020
Year ended December 31,
2019
(dollars in millions)
451.6 $
8.1%
466.3 $
7.8%
2018
Percentage change
2020/2019
2019/2018
375.5
7.7%
3.3%
(0.3%)
20.3%
0.4%
General and administrative expenses increased in dollar terms in 2020, primarily due to the following: a $20.1 million increase
in outside service expense related to company initiatives to support digital and restaurant growth; a $15.8 million increase in wages
and benefits primarily due to headcount increase; and $3.8 million increase of lease costs primarily related to our previous corporate
headquarters. These increases were partially offset by a $10.7 million decrease in non-cash stock-based compensation expense,
primarily related to performance share awards, and a $7.1 million decrease in travel expense related to our decision to halt non-
essential employee travel due to the COVID-19 pandemic.
23
Other than the impact on travel expenses and stock-based compensation discussed above, COVID-19 had a minimal impact on
general and administrative expenses. We will continue to assess additional planned general and administrative investments as we
better understand the length and severity of the COVID-19 impacts.
Depreciation and Amortization
Depreciation and amortization
As a percentage of total revenue
$
2020
Year ended December 31,
2019
(dollars in millions)
212.8 $
3.8%
238.5 $
4.0%
2018
Percentage change
2020/2019
2019/2018
202.0
4.2%
12.1%
0.2%
5.3%
(0.4%)
Depreciation and amortization increased as a percentage of total revenue in 2020 due to accelerated depreciation associated with
our website, mobile app and other technology, new restaurant openings and equipment upgrades in the restaurants primarily to support
the growth in our digital business. This increase was partially offset by sales leverage on a partially fixed-cost base.
Impairment, Closure Costs, and Asset Disposals
Impairment, closure costs, and asset disposals
As a percentage of total revenue
$
2020
Year ended December 31,
2019
(dollars in millions)
23.1 $
0.4%
30.6 $
0.5%
2018
Percentage change
2020/2019
2019/2018
66.6
1.4%
32.4%
0.1%
(65.3%)
(1.0%)
Impairment, closure costs, and asset disposals increased in dollar terms in 2020 primarily due to impairments of leasehold
improvements, property and equipment and operating lease assets. COVID-19 had a negative impact on our assumptions for future
near-term restaurant level cash flows which resulted in elevated impairment charges.
Benefit/(Provision) for Income Taxes
Benefit/(provision) for income taxes
Effective tax rate
$
2020
Year ended December 31,
2019
(dollars in millions)
(108.1) $
23.6%
62.0 $
(21.1%)
2018
Percentage change
2020/2019
2019/2018
(91.9)
34.2%
(157.3%)
(44.7%)
17.7%
(10.6%)
The effective income tax rate for the year ended December 31, 2020 was lower than the effective income tax rate for the year
ended December 31, 2019, primarily due to the federal net operating loss that is estimated for tax year 2020, which we expect to
carryback to tax years 2015-2017. The tax benefit is due to the federal income tax rate differential between the 2020 statutory federal
income tax rate of 21% and the 2015-2017 statutory federal income tax rate of 35%.
Quarterly Financial Data/Seasonality
See Note 15. “Quarterly Financial Data (Unaudited)” for a table presenting data from the consolidated statements of income for
each of the eight quarters in the period ended December 31, 2020.
Seasonal factors cause our profitability to fluctuate from quarter to quarter. Historically, our average daily restaurant sales and
net income are lower in the first and fourth quarters due, in part, to the holiday season and because fewer people eat out during periods
of inclement weather (the winter months) than during periods of mild or warm weather (the spring, summer and fall months). Other
factors also have a seasonal effect on our results. For example, restaurants located near colleges and universities generally do more
business during the academic year. Seasonal factors, however, might be moderated or outweighed by other factors that may influence
our quarterly results, such as unexpected publicity impacting our business in a positive or negative way, worldwide health pandemics,
fluctuations in food or packaging costs, or the timing of menu price increases or promotional activities and other marketing initiatives.
The number of trading days in a quarter can also affect our results, although, on an overall annual basis, changes in trading days do not
have a significant impact.
Our quarterly results are also affected by other factors such as the amount and timing of non-cash stock-based compensation
expense and related tax rate impacts, litigation, settlement costs and related legal expenses, impairment charges and non-operating
costs, timing of marketing or promotional expenses, the number and timing of new restaurants opened in a quarter, and closure of
restaurants. New restaurants typically have lower margins following opening because of the expenses associated with their opening
24
and operating inefficiencies in the months immediately following opening. Accordingly, results for a particular quarter are not
necessarily indicative of results to be expected for any other quarter or for any year.
Liquidity and Capital Resources
Historically, our primary liquidity and capital requirements are for new restaurant construction, initiatives to improve the guest
experience in our restaurants, working capital and general corporate needs. As of December 31, 2020, we had a cash and marketable
investments balance of $1.1 billion, excluding restricted cash of $27.8 million. We expect to utilize cash flow from operations to
continue investments in new restaurant construction, remodels primarily for restaurants that do not have a digital make line or
Chipotlane and technology. Additionally, as of December 31, 2020, we had $600.0 million of undrawn borrowing capacity under a
line of credit facility, which expires in May 2021.
As sales fell quickly from the impact of COVID-19, we proactively implemented several actions to reduce cash outlays and
expenses. As part of our cash preservation strategy, in March 2020 we temporarily suspended our stock buyback program. In our
restaurants, we are working to minimize waste, effectively schedule labor hours, and reduce non-essential controllable costs. We
halted all non-essential travel and expenses. We believe that cash from operations, together with our cash and investment balances,
will be sufficient to meet ongoing capital expenditures, working capital requirements and other cash needs for the foreseeable future.
Assuming no significant declines in comparable restaurant sales, we expect that we will generate positive cash flow through the
foreseeable future. Should our business deteriorate due to changing conditions, there are other actions we can take to further conserve
liquidity.
We have not required significant working capital because customers generally pay using cash or credit and debit cards and
because our operations do not require significant receivables, nor do they require significant inventories due, in part, to our use of
various fresh ingredients. In addition, we generally have the right to pay for the purchase of food, beverages and supplies sometime
after the receipt of those items, generally within ten days, thereby reducing the need for incremental working capital to support our
growth.
Our total capital expenditures for 2020 were $373.4 million. In 2020, we spent on average about $1.1 million in development
and construction costs per new restaurant, or about $1.0 million net of landlord reimbursements of $0.1 million. In 2021, we expect to
incur about $390 million in total capital expenditures. We expect approximately $220 million in capital expenditures related to our
construction of new restaurants, before any reductions for landlord reimbursements. For new restaurants to be opened in 2021, we
anticipate average development costs will remain higher than the historical average due to a significant portion including Chipotlanes.
We expect approximately $120 million in capital expenditures related to investments in existing restaurants, including updated
equipment, technology, remodeling and similar improvements. Finally, we expect a portion of our capital expenditures for the year to
be incurred for additional corporate initiatives including building corporate offices, upgrading our mobile app, and other projects.
Contractual Obligations
Our contractual obligations as of December 31, 2020 were as follows:
Operating leases(1)
Purchase obligations(2)
Deemed landlord financing(1)
Total
Total
$
$
4,502
1,862
2
6,366
$
$
2021
Payments Due by Fiscal Year
2022-2023
(dollars in millions)
$
$
332
584
-
916
715
359
1
1,075
$
$
2024-2025
Thereafter
679
454
1
1,134
$
$
2,776
465
-
3,241
(1) See Note 10. “Leases” of our consolidated financial statements included in Item 8. “Financial Statements and Supplementary
Data.” This includes commitments related to reasonably certain renewal periods.
(2) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that
specify all significant terms. We have excluded agreements that are cancelable without penalty. The majority of our purchase
obligations relate to amounts owed for produce and other ingredients and supplies, orders submitted for equipment for
restaurants under construction and planned remodels, information technology, and marketing initiatives and corporate
sponsorships.
The above table does not include income tax liabilities for uncertain tax positions for which we are not able to make a
reasonably reliable estimate of the amount and period of related future payments. Additionally, we have excluded our estimated loss
contingencies, due to uncertainty regarding the timing and amount of payment. See Note 12. “Commitments and Contingencies” of
our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”
25
Off-Balance Sheet Arrangements
As of December 31, 2020 and 2019, we had no material off-balance sheet arrangements or obligations.
Inflation
The primary areas of our operations affected by inflation are food, labor, rent, healthcare costs, fuel, utility costs, and materials
used in the construction of our restaurants. Although a significant majority of our crew members make more than the federal and
applicable state and local minimum wage, increases in the applicable federal or state minimum wage may have an impact on our labor
costs by causing wage inflation above the minimum wage level. Additionally, many of our leases require us to pay property taxes,
maintenance, and utilities, all of which are generally subject to inflationary increases. In the past we have largely been able to offset
inflationary increases with menu price increases. If we do raise menu prices in the future, general competitive pressures or negative
consumer responses may limit our ability to completely recover cost increases attributable to inflation.
Critical Accounting Estimates
We describe our significant accounting policies in Note 1. “Description of Business and Summary of Significant Accounting
Policies” of our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.” Critical
accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex
judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on
historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ
from these estimates, and we might obtain different estimates if we used different assumptions or factors.
Leases
We determine if a contract contains a lease at inception. Our material operating leases consist of restaurant locations and office
space. Our leases generally have remaining terms of 1-20 years and most include options to extend the leases for additional 5-year
periods. Generally, the lease term is the minimum of the noncancelable period of the lease or the lease term inclusive of reasonably
certain renewal periods up to a term of 20 years. If the estimate of our reasonably certain lease term was changed, our depreciation and
rent expense could differ materially.
Operating lease assets and liabilities are recognized at time of lease inception. Operating lease liabilities represent the present
value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the
operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of
operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental borrowing rates
corresponding to the reasonably certain lease term. As we have no outstanding debt nor committed credit facilities, secured or
otherwise, we estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and
management judgment. If the estimate of our incremental borrowing rate was changed, our operating lease assets and liabilities could
differ materially.
Chipotle Rewards Loyalty Program
Eligible customers who enroll in the Chipotle Rewards loyalty 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. Earned rewards generally
expire one to two months after they are issued, and points generally expire if an account is inactive for a period of six months.
The estimation of the standalone selling price of points and other rewards issued to customers involves several assumptions,
primarily the estimated value of product for which the reward is expected to be redeemed and the probability that the points or reward
will expire. Our estimate of points and other rewards we expect to be redeemed is based on historical company specific data. These
inputs are subject to change over time due to factors such as menu price increases, changes in point redemption options and changes in
customer behavior.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. For the purpose of reviewing restaurant assets to be held and used for potential impairment, assets
are grouped together at the market level, or in the case of a potential relocation or closure, at the restaurant level. We manage our
restaurants as a group with significant common costs and promotional activities; as such, an individual restaurant’s cash flows are not
generally independent of the cash flows of others in a market.
26
The fair value measurement for asset impairment is based on Level 3 inputs. We first compare the carrying value of the asset (or
asset group, referred interchangeably throughout as asset) to the asset’s estimated future undiscounted cash flows. If the estimated
undiscounted future cash flows are less than the carrying value of the asset, we determine if we have an impairment loss by comparing
the carrying value of the asset to the asset's estimated fair value. The estimated fair value of the asset is generally determined using the
income approach to measure the fair value, which is based on the present value of estimated future cash flows. Key inputs to the
income approach for restaurant assets include the discount rate, projected revenue and expenses, and sublease income if we are closing
the restaurant. In certain cases, management uses other market information, when available, to estimate the fair value of an asset. The
impairment charges represent the excess of each asset’s carrying amount over its estimated fair value and are allocated among the
long-lived asset or assets of the group.
Our estimates of future revenues and expenses are highly subjective judgments based on internal projections and knowledge of
our operations, historical performance, and trends in sales and restaurant operating costs, and can be significantly impacted by changes
in our business or economic conditions. The determination of asset fair value is also subject to significant judgment and utilizes
valuation techniques including discounting estimated future cash flows and market-based analyses to determine fair value. If our
estimates or underlying assumptions, including discount rate and sublease income change in the future, our operating results may be
materially impacted.
Stock-based Compensation
We recognize compensation expense for equity awards over the requisite service period based on the award’s fair value. We use
the Black-Scholes valuation model to determine the fair value of our stock-only stock appreciation rights (“SOSARs”), and we use the
Monte Carlo simulation model to determine the fair value of stock awards that contain market conditions. Both of these models
require assumptions to be made regarding our stock price volatility, the expected life of the award and expected dividend rates. The
volatility assumption was based on our historical data and implied volatility, and the expected life assumptions were based on our
historical data. Similarly, the compensation expense of performance share awards is based in part on the estimated probability of
achieving levels of performance associated with particular levels of payout for performance shares. We determine the probability of
achievement of future levels of performance by comparing the relevant performance level with our internal estimates of future
performance. Those estimates are based on a number of assumptions, including but not limited to growth in comparable restaurant
sales and average restaurant level margin, and different assumptions may have resulted in different conclusions regarding the
probability of our achieving future levels of performance relevant to the payout levels for the awards. Had we arrived at different
assumptions of stock price volatility or expected lives of our SOSARs, or if we changed our assumptions regarding the probability of
our achieving future levels of performance with respect to performance share awards, our stock-based compensation expense and
results of operations may be materially different.
Insurance Liability
We are self-insured for a significant portion of our employee health benefits programs, and carry significant retentions for risks
and associated liabilities with respect to workers’ compensation, general liability, property and auto damage, employment practices
liability, cyber liability and directors and officer’s liability. Predetermined loss limits have been arranged with third-party insurance
companies to limit exposure to these claims. We record a liability that represents our estimated cost of claims incurred and unpaid as
of the balance sheet date. Our estimated liability is not discounted and is based on a number of assumptions and factors, including
historical trends, actuarial assumptions and economic conditions, and is closely monitored and adjusted when warranted by changing
circumstances. If a greater amount of claims occurs compared to what we have estimated, or if medical costs increase beyond what we
expected, our accrued liabilities might not be sufficient and we may be required to record additional expense. Actual claims
experience could also be more favorable than estimated, which would result in expense reductions. Unanticipated changes may
produce materially different amounts of expense than that reported under these programs.
Reserves/Contingencies for Litigation and Other Matters
We are involved in various claims and legal actions that arise in the ordinary course of business. We record an accrual for legal
contingencies when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the
loss. Although we have recorded liabilities related to a number of legal actions, our estimates used to determine the amount of these
liabilities may not be accurate, and there are other legal actions for which we have not recorded a liability. As a result, in the event
legal actions for which we have not accrued a liability or for which our accrued liabilities are not accurate are resolved, such
resolution may affect our operating results and cash flows.
27
Income Taxes
Our benefit/(provision) for income taxes, deferred tax assets and liabilities including valuation allowance requires the use of
estimates based on our management’s interpretation and application of complex tax laws and accounting guidance. We are primarily
subject to income taxes in the United States. We establish reserves for uncertain tax positions for material, known tax exposures in
accordance with Accounting Standards Codification (“ASC”) 740 relating to deductions, transactions and other matters involving
some uncertainty as to the measurement and recognition of the item. We may adjust these reserves when our judgment changes as a
result of the evaluation of new information not previously available and will be reflected in the period in which the new information is
available. While we believe that our reserves are adequate, issues raised by a tax authority may be resolved at an amount different than
the related reserve and could materially increase or decrease our income tax provision in future periods.
28
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Commodity Price Risks
We are exposed to commodity price risks. Many of the ingredients we use to prepare our food, as well as our packaging
materials and utilities to run our restaurants, are ingredients or commodities that are affected by the price of other commodities,
exchange rates, foreign demand, weather, seasonality, production, availability and other factors outside our control. We work closely
with our suppliers and use a mix of forward pricing protocols under which we agree with our supplier on fixed prices for deliveries at
some time in the future, fixed pricing protocols under which we agree on a fixed price with our supplier for the duration of that
protocol, formula pricing protocols under which the prices we pay are based on a specified formula related to the prices of the goods,
such as spot prices, 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 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 December 31, 2020, we had $1.0 billion
in investments and interest-bearing cash accounts, including insurance-related restricted trust accounts classified in restricted cash, and
$59.7 million in accounts with an earnings credit we classify as interest and other income, which combined earned a weighted average
interest rate of 0.20%.
Foreign Currency Exchange Risk
A portion of our operations consist of activities outside of the U.S. and we have currency risk on the transactions in other
currencies and translation adjustments resulting from the conversion of our international financial results into the U.S. dollar.
However, a substantial majority of our operations and investment activities are transacted in the U.S., and therefore our foreign
currency risk is not material at this date.
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
1
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Income and Consolidated Statements of Comprehensive Income for the years ended
December 31, 2020, 2019 and 2018
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Note 1 Description of Business and Summary of Significant Accounting Policies
Note 2 Supplemental Balance Sheet Information
Note 3 Revenue Recognition
Note 4 Fair Value of Financial Instruments
Note 5 Corporate Restructuring Costs
Note 6
Income Taxes
Note 7 Shareholders’ Equity
Note 8 Stock Based Compensation
Note 9 Employee Benefit Plans
Note 10 Leases
Note 11 Earnings Per Share
Note 12 Commitments and Contingencies
Note 13 Debt
Note 14 Related Party Transactions
Note 15 Quarterly Financial Data (Unaudited)
31
33
34
35
36
37
37
43
43
44
45
45
48
48
51
52
53
54
55
55
55
30
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Chipotle Mexican Grill, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Chipotle Mexican Grill, Inc. (the Company) as of December 31,
2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of
the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework), and our report dated February 9, 2021 expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 10 to the consolidated financial statements, the Company changed its method for accounting for leases in 2019.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the
critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not,
by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or
disclosure to which it relates.
Valuation and accounting for stock-based compensation
Description of the
Matter
The Company incurred $84.5 million in stock-based compensation expense during the year ended
December 31, 2020. Approximately 229,000 of the Company’s vested and non-vested stock awards were
subject to service and performance conditions during the year ended December 31, 2020. As described in
Notes 1 and 8 of the consolidated financial statements, the Company estimates the grant date fair value of the
stock awards and expenses the fair value of stock awards subject to service conditions over the respective
vesting period. Stock-based compensation expense of stock awards subject to performance conditions is based
on the estimated probability of achieving levels of performance associated with particular levels of payout.
Additionally, at each reporting period, the Company evaluates the probable outcome of the performance
conditions including consideration of significant assumptions and as applicable, recognizes the cumulative
effect of the change in estimate in the period of the change.
31
Auditing the grant date fair value and the appropriateness of the accounting treatment of the Company’s stock
awards was complex and judgmental. In particular, the fair value estimate for stock awards subject to
performance conditions is sensitive to significant assumptions including management’s internal estimates of
the Company’s future performance.
How We Addressed
the Matter in Our
Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s
controls over stock-based compensation. We tested controls over management’s review of the valuation model
methodology and assumptions used with regards to the service and performance conditions. We also tested
management's controls to validate that data used in the valuation model was complete and accurate.
Our substantive audit procedures included, among others, testing the significant assumptions underlying the
performance conditions (e.g., certain targets related to growth in comparable restaurant sales and average
restaurant margin) and testing the completeness and accuracy of the underlying data. We evaluated
management’s significant assumptions by comparing the assumptions to current market and economic trends,
historical results of the Company’s business, and to other relevant factors. We additionally performed a
sensitivity analysis of the significant assumptions to evaluate the change in the fair value of the stock awards
subject to performance conditions resulting from changes in the assumptions. We also evaluated the adequacy
of the Company’s stock-based compensation disclosures included in Notes 1 and 8 of the consolidated
financial statements in relation to these matters.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1997.
Irvine, California
February 9, 2021
32
CHIPOTLE MEXICAN GRILL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventory
Prepaid expenses and other current assets
Income tax receivable
Investments
Total current assets
Leasehold improvements, property and equipment, net
Long-term investments
Restricted cash
Operating lease assets
Other assets
Goodwill
Total assets
Liabilities and shareholders' equity
Current liabilities:
Accounts payable
Accrued payroll and benefits
Accrued liabilities
Unearned revenue
Current operating lease liabilities
Total current liabilities
Commitments and contingencies (Note 12)
Long-term operating lease liabilities
Deferred income tax liabilities
Other liabilities
Total liabilities
Shareholders' equity:
Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of
December 31, 2020 and 2019, respectively
Common stock, $0.01 par value, 230,000 shares authorized, 36,704 and 36,323 shares issued
as of December 31, 2020 and 2019, respectively
Additional paid-in capital
Treasury stock, at cost, 8,703 and 8,568 common shares as of December 31, 2020 and 2019,
respectively
Accumulated other comprehensive loss
Retained earnings
Total shareholders' equity
Total liabilities and shareholders' equity
See accompanying notes to consolidated financial statements.
33
$
$
$
December 31,
2020
2019
607,987 $
104,500
26,445
54,906
282,783
343,616
1,420,237
1,584,311
102,328
27,849
2,767,185
59,047
21,939
5,982,896 $
121,990 $
203,054
164,649
127,750
204,756
822,199
2,952,296
149,422
38,844
3,962,761
480,626
80,545
26,096
57,076
27,705
400,156
1,072,204
1,458,690
-
27,855
2,505,466
18,450
21,939
5,104,604
115,816
126,600
155,843
95,195
173,139
666,593
2,678,374
37,814
38,797
3,421,578
-
-
367
1,549,909
363
1,465,697
(2,802,075)
(4,229)
3,276,163
2,020,135
5,982,896 $
(2,699,119)
(5,363)
2,921,448
1,683,026
5,104,604
$
CHIPOTLE MEXICAN GRILL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Food and beverage revenue
Delivery service revenue
Total revenue
Restaurant operating costs (exclusive of depreciation and amortization shown separately
below):
Food, beverage and packaging
Labor
Occupancy
Other operating costs
General and administrative expenses
Depreciation and amortization
Pre-opening costs
Impairment, closure costs, and asset disposals
Total operating expenses
Income from operations
Interest and other income, net
Income before income taxes
Benefit/(provision) for income taxes
Net income
Earnings per share:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
2020
Year ended December 31,
2019
$ 5,920,545 $ 5,561,036 $ 4,860,626
4,359
5,586,369 4,864,985
64,089
5,984,634
25,333
2018
1,932,766
1,593,013
387,762
1,030,012
466,291
238,534
15,515
30,577
5,694,470
290,164
3,617
293,781
61,985
355,766 $
363,072
760,831
451,552
212,778
11,108
23,094
1,847,916 1,600,760
1,472,060 1,326,079
347,123
680,031
375,460
201,979
8,546
66,639
5,142,411 4,606,617
258,368
10,068
268,436
(91,883)
176,553
443,958
14,327
458,285
(108,127)
350,158 $
12.74 $
12.52 $
12.62 $
12.38 $
6.35
6.31
27,917
28,416
27,740
28,295
27,823
27,962
$
$
$
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustments
Unrealized gain on available-for-sale securities, net of income taxes
Other comprehensive income (loss), net of income taxes
Comprehensive income
$
$
Year ended December 31,
2019
350,158 $
2020
355,766 $
2018
176,553
1,134
-
1,134
356,900 $
726
147
873
351,031 $
(2,736)
159
(2,577)
173,976
See accompanying notes to consolidated financial statements.
34
Balance, December 31, 2017
Stock-based compensation
Stock plan transactions and other
Acquisition of treasury stock
Net income
Other comprehensive income
(loss), net of income taxes
Balance, December 31, 2018
Adoption of ASU No. 2016-02,
Leases (Topic 842)
Stock-based compensation
Stock plan transactions and other
Acquisition of treasury stock
Net income
Other comprehensive income
(loss), net of income taxes
Balance, December 31, 2019
Adoption of ASU No. 2016-13,
Financial Instrument-Credit
Losses (Topic 326)
Stock-based compensation
Stock plan transactions and other
Acquisition of treasury stock
Net income
Other comprehensive income
(loss), net of income taxes
Balance, December 31, 2020
CHIPOTLE MEXICAN GRILL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
Common Stock
Treasury Stock
Shares
Amount
Additional
Paid-In
Capital
Shares
Amount
Retained
Earnings
Accumulated Other
Comprehensive Income
(Loss)
Available-
for-Sale
Securities
Foreign
Currency
Translation
Total
35,852 $
-
121
-
-
359 $ 1,305,090
69,947
(883)
-
-
-
1
-
-
-
35,973 $
-
-
360 $ 1,374,154
7,826 $ (2,334,409) $ 2,397,064 $
-
-
-
176,553
-
-
(166,147)
-
-
-
450
-
-
-
8,276 $ (2,500,556) $ 2,573,617 $
-
(306) $
-
-
-
-
(3,353) $ 1,364,445
69,947
(882)
(166,147)
176,553
-
-
-
-
159
(147) $
(2,736)
(2,577)
(6,089) $ 1,441,339
-
-
350
-
-
-
-
3
-
-
-
92,062
(519)
-
-
-
-
-
292
-
-
-
-
(198,563)
-
(2,327)
-
-
-
350,158
-
-
-
-
-
-
-
-
-
-
(2,327)
92,062
(516)
(198,563)
350,158
-
36,323 $
-
-
363 $ 1,465,697
-
-
8,568 $ (2,699,119) $ 2,921,448 $
-
147
- $
726
873
(5,363) $ 1,683,026
-
-
381
-
-
-
-
4
-
-
-
84,463
(251)
-
-
-
-
-
135
-
-
-
-
(102,956)
-
(1,051)
-
-
-
355,766
-
-
-
-
-
-
-
-
-
-
(1,051)
84,463
(247)
(102,956)
355,766
-
36,704 $
-
367 $
-
1,549,909
-
-
8,703 $ (2,802,075) $
-
3,276,163 $
-
- $
1,134
1,134
(4,229) $ 2,020,135
See accompanying notes to consolidated financial statements.
35
CHIPOTLE MEXICAN GRILL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
Depreciation and amortization
Amortization of operating lease assets
Deferred income tax provision
Impairment, closure costs, and asset disposals
Provision for credit losses
Stock-based compensation expense
Other
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued payroll and benefits
Accrued liabilities
Unearned revenue
Income tax payable/receivable
Deferred rent
Operating lease liabilities
Other long-term liabilities
Net cash provided by operating activities
Investing activities
Purchases of leasehold improvements, property and equipment
Purchases of investments
Maturities of investments
Proceeds from sale of equipment
Acquisitions of equity method investments
Net cash used in investing activities
Financing activities
Acquisition of treasury stock
Tax withholding on stock-based compensation awards
Other financing activities
Net cash used in financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net change in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of year
Cash, cash equivalents, and restricted cash at end of year
Supplemental disclosures of cash flow information
Income taxes paid
Purchases of leasehold improvements, property, and equipment accrued in
accounts payable and accrued liabilities
$
Acquisition of treasury stock accrued in accounts payable and accrued liabilities $
$
$
Year ended December 31,
2019
2020
2018
355,766 $
350,158 $
176,553
238,534
184,538
108,350
28,874
164
82,626
3,643
3,010
(394)
(11,442)
(26,577)
(3,859)
76,683
5,596
36,958
(255,251)
-
(165,154)
1,782
663,847
(373,352)
(468,418)
419,078
-
(10,025)
(432,717)
212,778
163,952
29,962
15,402
33
91,396
(10,592)
(2,630)
(4,530)
(23,066)
2,818
(973)
11,759
36,543
30,400
(32,083)
-
(151,557)
1,862
721,632
(333,912)
(448,754)
476,723
13,969
-
(291,974)
(54,401)
(48,555)
(1,895)
(104,851)
1,076
127,355
508,481
635,836 $
(190,617)
(10,420)
(698)
(201,735)
406
228,329
280,152
508,481 $
201,979
-
10,585
61,987
125
69,164
(2,918)
(8,298)
(1,722)
(3,811)
(2,005)
32,080
29,568
14,831
6,829
14,439
21,297
-
869
621,552
(287,390)
(485,188)
385,000
-
-
(387,578)
(160,937)
(5,411)
(187)
(166,535)
(1,457)
65,982
214,170
280,152
85,010 $
109,571 $
67,053
46,975 $
- $
36,886 $
- $
30,870
2,474
See accompanying notes to consolidated financial statements.
36
CHIPOTLE MEXICAN GRILL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollar and share amounts in thousands, unless otherwise specified)
1. Description of Business and Summary of Significant Accounting Policies
In this annual report on Form 10-K, Chipotle Mexican Grill, Inc., a Delaware corporation, together with its subsidiaries, is
collectively referred to as “Chipotle,” “we,” “us,” or “our.”
We develop and operate restaurants that serve a relevant menu of burritos, burrito bowls, tacos, and salads, made using fresh,
high-quality ingredients. As of December 31, 2020, we operated 2,724 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 four Pizzeria Locale
restaurants, a fast-casual pizza concept. We manage our operations based on eight regions and have aggregated our operations to one
reportable segment.
Principles of Consolidation and Basis of Presentation
Our consolidated financial statements include our accounts and our wholly and majority owned subsidiaries after elimination of
all intercompany accounts and transactions. Certain prior-year amounts have been reclassified to conform to the current year
presentation.
Management Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates under different assumptions or conditions.
Cash and Cash Equivalents
We consider highly liquid investment instruments purchased with an initial maturity of three months or less to be cash
equivalents. We maintain cash and cash equivalent balances that exceed federally-insured limits with a number of financial
institutions.
Restricted Cash
We maintain certain cash balances restricted as to withdrawal or use. Restricted cash assets are primarily insurance-related
restricted trust assets.
Accounts Receivable
Accounts receivable primarily consists of receivables from third party gift card distributors, tenant improvement receivables
from landlords, vendor rebates, delivery receivables and interest receivables.
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. We adopted Accounting Standards Update (“ASU”) 2016-13 using the modified retrospective approach on
January 1, 2020. The allowance for credit losses was $1,588 as of December 31, 2020. The allowance for doubtful accounts was $7 as
of December 31, 2019.
Inventory
Inventory, consisting principally of food, beverages, and supplies, is valued at the lower of first-in, first-out cost or net realizable
value.
37
Investments
Investments classified as trading securities are carried at fair value with any unrealized gain or loss being recorded in the
consolidated statements of income. Investments classified as available-for-sale are carried at fair value with unrealized gains and
losses, net of tax, included as a component of other comprehensive income (loss), net of income taxes on the consolidated statements
of comprehensive income. Held-to-maturity securities are carried at amortized cost. Impairment charges on investments are
recognized in interest and other income, net on the consolidated statements of income when management believes the decline in the
fair value of the investment is other-than-temporary.
Fair Value Measurements
Fair value is the price we would receive to sell an asset or pay to transfer a liability (exit price) in an orderly transaction between
market participants. For assets and liabilities recorded or disclosed at fair value, we determine fair value based on the following:
Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in
active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that
are observable or can be corroborated with observable market data.
Level 3: Unobservable inputs for the asset or liability. This includes certain pricing models, discounted cash flow
methodologies and similar techniques that use significant unobservable inputs.
Foreign Currency Translation
Our international operations use the local currency as the functional currency. Assets and liabilities are translated at exchange
rates in effect as of the balance sheet date. Income and expense accounts are translated monthly using average monthly exchange rates.
Resulting translation adjustments are recorded as a separate component of other comprehensive income (loss), net of income taxes on
the consolidated statement of comprehensive income.
Leasehold Improvements, Property and Equipment
Leasehold improvements, property and equipment are recorded at cost. Internal costs directly associated with the acquisition,
development and construction of a restaurant are capitalized. During the years ended December 31, 2020, 2019 and 2018, we
capitalized $9,268, $6,735, and $6,285 of internal cost, respectively. Expenditures for refurbishments and improvements that
significantly add to the productivity capacity or extend the useful life are capitalized, while expenditures for maintenance and repairs
are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the lease term, which generally includes option periods that are reasonably
certain, or the estimated useful lives of the assets. Upon retirement or disposal of assets, the accounts are relieved of cost and
accumulated depreciation and any related gain or loss is reflected in impairment, closure costs, and asset disposals in the consolidated
statements of income. Assets to be disposed of are reported at the lower of their carrying amount or fair value less estimated costs to
sell.
At least annually, or when impairment indicators are present, we evaluate, and adjust when necessary, the estimated useful lives
of leasehold improvements, property and equipment. The changes in estimated useful lives did not have a material impact on
depreciation in any period. The estimated useful lives are:
Leasehold improvements and buildings
Furniture and fixtures
Equipment
Leases
3-20 years
4-7 years
3-10 years
We determine if a contract contains a lease at inception. Our material operating leases consist of restaurant locations and office
space. Our leases generally have remaining terms of 1-20 years and most include options to extend the leases for additional 5-year
periods. Generally, the lease term is the minimum of the noncancelable period of the lease or the lease term inclusive of reasonably
certain renewal periods up to a term of 20 years.
38
Operating lease assets and liabilities are recognized at the lease commencement date, which is the date we take possession of the
property. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our
right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments,
initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet
paid, we estimate incremental borrowing rates corresponding to the lease term including reasonably certain renewal periods. As we
have no outstanding debt nor committed credit facilities, secured or otherwise, we estimate this rate based on prevailing financial
market conditions, comparable company and credit analysis, and management judgment.
Our leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis
over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce our
right-of-use asset related to the lease. These are amortized through the operating lease asset as reductions of expense over the lease
term.
Some of our leases include rent escalations based on inflation indexes and fair market value adjustments. Certain leases contain
contingent rental provisions that include a fixed base rent plus an additional percentage of the restaurant’s sales, generally in excess of
a stipulated amount. Operating lease liabilities are calculated using the prevailing index or rate at lease commencement. Subsequent
escalations in the index or rate and contingent rental payments are recognized as variable lease expenses. Our lease agreements do not
contain any material residual value guarantees or material restrictive covenants.
Goodwill
Goodwill is not subject to amortization, but instead is tested for impairment at least annually, or when impairment indicators are
present, and we are required to record any necessary impairment adjustments. Impairment is measured as the excess of the carrying
value over the fair value of the goodwill. No impairment charges were recognized on goodwill for the years ended December 31,
2020, 2019, and 2018.
Other Assets
Other assets consist primarily of a rabbi trust as described further in Note 9. “Employee Benefit Plans,” software as a service
implementation costs where the service period is greater than one year, transferable liquor licenses which are carried at the lower of
fair value or cost, rental deposits related to leased properties and an equity method investment described further in Note 4. “Fair Value
of Financial Instruments.”
Insurance Liability
We are self-insured for a significant portion of our employee health benefits programs, and carry significant retentions for risks
and associated liabilities with respect to workers’ compensation, general liability, property and auto damage, employment practices
liability, cyber liability and directors and officer’s liability. Predetermined loss limits have been arranged with third party insurance
companies to limit exposure to these claims. We record a liability that represents our estimated cost of claims incurred and unpaid as
of the balance sheet date. Our estimated liability is not discounted and is based on a number of assumptions and factors, including
historical trends, actuarial assumptions and economic conditions, and is closely monitored and adjusted when warranted by changing
circumstances.
Reserves/Contingencies for Litigation and Other Matters
We are involved in various claims and legal actions that arise in the ordinary course of business. We record an accrual for legal
contingencies when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the
loss.
39
Income Taxes
We compute income taxes using the asset and liability method, under which deferred income tax assets and liabilities are
recognized based on the differences between the financial reporting bases and the respective tax bases of assets and liabilities.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which we
expect the temporary differences to reverse. Any effects of changes in income tax rates or tax laws are included in the provision for
income taxes in the period that includes the enactment date.
We routinely assess the realizability of our deferred tax assets by jurisdiction and may record a valuation allowance if, based on
all available positive and negative evidence, we determine that some portion of the deferred tax assets may not be realized prior to
expiration. If we determine that we may be able to realize our deferred tax assets in the future in excess of their net recorded amount,
we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes
during the period in which the determination was made that the deferred tax asset can be realized.
We evaluate our tax filing positions and recognize a tax benefit from an uncertain tax position only if it is more likely than not
that based on its technical merits the tax position will be sustained upon examination by the relevant taxing authorities, including
resolutions of any related appeals or litigation processes. The tax benefits recognized in the financial statements from such a position
are measured based on the largest tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing
authority. For uncertain tax positions that do not meet this threshold, we record a related tax reserve in the period in which it arises.
We adjust our unrecognized tax benefit liability and provision for income taxes in the period in which the uncertain tax position is
effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new
information becomes available that requires a change in recognition and/or measurement of the liability.
We recognize interest to be paid on an underpayment of income taxes in interest expense and any related statutory penalties in
the provision for income taxes in our consolidated statements of income. Accrued interest and penalties are included within the related
tax reserve on our consolidated balance sheets.
Revenue Recognition
We generally recognize revenue, net of discounts and incentives, when payment is tendered at the point of sale. We report
revenue net of sales-related taxes collected from customers and remitted to governmental taxing authorities. Beginning with the
quarter ended September 30, 2020, we modified the presentation in our consolidated statements of income to disaggregate total
revenue between food and beverage revenue and delivery service revenue. Delivery service revenue is comprised of delivery and
related service fees charged to customers on sales made through Chipotle’s app and website. Food and beverage revenue primarily
relates to the sale of food and beverages. Prior year balances have been reclassified to conform with current year presentation.
Delivery
We offer our customers delivery in almost all of our geographic regions. Delivery services are fulfilled by third-party service
providers. In some cases, we make delivery sales through our website Chipotle.com or the Chipotle App (“White Label Sales”). In
other cases, we make delivery sales through a non-Chipotle owned channel, such as the delivery partner’s website or mobile app
(“Marketplace Sales”). With respect to White Label Sales, we control the delivery services and generally recognize revenue, including
delivery fees, when the delivery partner transfers food to the customer. For these sales, we receive payment directly from the customer
at the time of sale. With respect to Marketplace Sales, we generally recognize revenue, excluding delivery fees collected by the
delivery partner, when control of the food is transferred to the delivery partner. We receive payment from the delivery partner
subsequent to the transfer of food and the payment terms are short-term in nature.
Gift Cards
We sell gift cards, which do not have expiration dates and we do not deduct non-usage fees from outstanding gift card balances.
Gift card balances are initially recorded as unearned revenue. We recognize revenue from gift cards when the gift card is redeemed by
the customer. Historically, the majority of gift cards are redeemed within one year. In addition, based on historical redemption rates, a
portion of gift cards are not expected to be redeemed and will be recognized as breakage over time in proportion to gift card
redemptions. 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.
40
Chipotle Rewards
Eligible customers who enroll in the Chipotle Rewards loyalty 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 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 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 consolidated statements of income.
We recognize loyalty revenue within food and beverage revenue on the consolidated statements of income when a customer
redeems an earned reward. Deferred revenue associated with Chipotle Rewards is included in unearned revenue on our consolidated
balance sheets.
Advertising and Marketing Costs
Advertising and marketing costs are expensed as incurred and totaled $158,570, $141,567 and $111,695 for the years ended
December 31, 2020, 2019 and 2018, respectively. Advertising and marketing costs include costs related to free food which a customer
does not need to make a purchase to earn. Advertising and marketing costs are included in other operating costs on the consolidated
statements of income.
Stock-Based Compensation
We issue shares as part of employee compensation pursuant to the Amended and Restated Chipotle Mexican Grill, Inc. 2011
Stock Incentive Plan (the “2011 Incentive Plan”). Stock-only stock appreciation rights, or “SOSARs”, and stock awards generally vest
equally over two and three years and expire after seven years. Stock-based compensation expense is generally recognized on a
straight-line basis for each separate vesting portion. Compensation expense related to employees eligible to retire and retain full rights
to the awards is recognized over 12 months which coincides with the service period required to earn the full award. We estimate
forfeitures based on historical data when determining the amount of stock-based compensation costs to be recognized in each period.
We have also granted stock awards with performance vesting conditions and/or market vesting conditions. Stock awards with
performance or market vesting conditions generally vest based on our achievement versus stated targets or criteria over a three-year
performance and service period. Compensation expense for stock awards subject to performance conditions is recognized over the
longer of the estimated performance goal attainment period or time vesting period. Compensation expense on stock awards subject to
performance conditions, which is based on the quantity of awards we have determined are probable of vesting, is recognized over the
longer of the estimated performance goal attainment period or time vesting period. Compensation expense is recognized ratably for
awards subject to market conditions regardless of whether the market condition is satisfied, provided that the requisite service has
been provided. Some stock-based compensation awards are made to employees involved in our new restaurant development activities,
and expense for these awards is recognized as capitalized development and included in leasehold improvements, property and
equipment, net, on the consolidated balance sheets.
Restaurant Pre-Opening Costs
Pre-opening costs, including rent, wages, benefits and travel for training and opening teams, food and other restaurant operating
costs, are expensed as incurred prior to a restaurant opening for business, and are included in operating expenses on the consolidated
statements of income.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. For the purpose of reviewing restaurant assets to be held and used for potential impairment, assets
are grouped together at the market level, or in the case of a potential relocation or closure, at the restaurant level. We manage our
restaurants as a group with significant common costs and promotional activities; as such, an individual restaurant’s cash flows are not
generally independent of the cash flows of others in a market.
41
The fair value measurement for asset impairment is based on Level 3 inputs. See “Fair Value Measurements” above for a
description of level inputs. We first compare the carrying value of the asset (or asset group, referred interchangeably throughout as
asset) to the asset’s estimated future undiscounted cash flows. If the estimated undiscounted future cash flows are less than the
carrying value of the asset, we determine if we have an impairment loss by comparing the carrying value of the asset to the asset's
estimated fair value. The estimated fair value of the asset is generally determined using the income approach to measure the fair value,
which is based on the present value of estimated future cash flows. Key inputs to the income approach for restaurant assets include the
discount rate, projected restaurant revenues and expenses, and sublease income if we are closing the restaurant. In certain cases,
management uses other market information, when available, to estimate the fair value of an asset. The impairment charges represent
the excess of each asset’s carrying amount over its estimated fair value and are allocated among the long-lived asset or assets of the
group.
Earnings per Share
Basic earnings per share is calculated by dividing income available to common shareholders by the weighted-average number of
shares of common stock outstanding during each period. Diluted earnings per share (“diluted EPS”) is calculated using income
available to common shareholders divided by diluted weighted-average shares of common stock outstanding during each period.
Potentially dilutive securities include shares of common stock underlying SOSARs and non-vested stock awards (collectively “stock
awards”). Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the
inclusion of the potential common shares would have an anti-dilutive effect. Stock awards are excluded from the calculation of diluted
EPS in the event they are subject to performance conditions or are antidilutive.
Recently Issued Accounting Standards
Recently Issued Accounting Standards
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, “Simplifying the
Accounting for Income Taxes (Topic 740)”, which modifies certain technical guidelines for accounting for income taxes. ASU 2019-
12 is effective for reporting periods beginning after December 15, 2020, and early adoption is permitted. We will adopt ASU 2019-12
in the fiscal year beginning January 1, 2021 and do not expect the adoption of ASU 2019-12 will result in a material change to our
consolidated financial statements.
We reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not
expected to have a significant impact to the consolidated financial statements.
Recently Adopted Accounting Standards
On January 1, 2020 we adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326)”, along with related
clarifications and improvements. This pronouncement requires companies to measure credit losses utilizing a methodology that
reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform
credit loss estimates. We adopted the standard using the modified-retrospective approach as of the effective date and therefore, we
have not applied the standard to the comparative periods presented in our consolidated financial statements. The modified-
retrospective approach requires an entity to recognize a cumulative-effect adjustment to retained earnings as of the beginning of the
first reporting period in which this guidance is effective. As of January 1, 2020, the adoption of this standard resulted in a net increase
to the allowance for credit losses of $1,414, a decrease to our deferred income tax liability of $363, and a decrease to retained earnings
of $1,051.
On January 1, 2020 we adopted ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40)”:
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU
2018-15”), which clarifies the accounting for implementation costs in cloud computing arrangements. We adopted the standard
prospectively on January 1, 2020. Prior to the adoption of ASU 2018-15, we capitalized implementation costs incurred during the
application development phase of cloud computing arrangements to leasehold improvements, property and equipment, net on our
consolidated balance sheets and have recognized expense over the useful life of the related asset within depreciation and amortization
on our consolidated statements of income. Subsequent to the adoption of ASU 2018-15, we capitalize such costs within prepaid
expenses and other current assets or other assets on our consolidated balance sheets and recognize expenses over the expected contract
term within general and administrative expenses or other operating costs on our consolidated statements of income, consistent with
where the expenses associated with the hosting element of the arrangement are presented. The adoption of ASU 2018-15 did not result
in a material change to our consolidated financial statements.
42
2. Supplemental Balance Sheet Information
Leasehold improvements, property and equipment, net were as follows:
Land
Leasehold improvements and buildings
Furniture and fixtures
Equipment
Construction in Progress
Leasehold improvements, property and equipment
Accumulated depreciation
Leasehold improvements, property and equipment, net
Accrued payroll and benefits were as follows:
Workers' compensation liability
Accrued payroll
Accrued employer payroll taxes, deferred pursuant to the CARES Act
Other accrued payroll and benefits
Accrued payroll and benefits
Accrued liabilities were as follows:
Sales and use tax payable
Legal reserve liability
Other accrued liabilities
Accrued liabilities
3. Revenue Recognition
Gift Cards
December 31,
2020
$
12,943 $
1,921,371
198,387
755,003
76,317
2,964,021
(1,379,710)
$
1,584,311 $
2019
12,943
1,765,464
182,391
653,909
45,422
2,660,129
(1,201,439)
1,458,690
December 31,
2020
2019
27,630 $
41,784
70,812
62,828
203,054 $
29,837
31,188
-
65,575
126,600
December 31,
2020
2019
26,419 $
51,214
87,016
164,649 $
26,484
45,721
83,638
155,843
$
$
$
$
The gift card liability included in unearned revenue on the consolidated balance sheets was as follows:
Gift card liability
December 31,
2020
105,413 $
$
December 31,
2019
84,611
Revenue recognized from the redemption of gift cards that was included in unearned revenue at the beginning of the year was as
follows:
Revenue recognized from gift card liability balance at the beginning of the year $
39,612 $
37,386 $
36,094
Year ended
December 31,
2019
2020
2018
43
Chipotle Rewards
Changes in our Chipotle Rewards liability included in unearned revenue on the consolidated balance sheets were as follows:
Chipotle Rewards liability, beginning balance
Revenue deferred
Revenue recognized
Chipotle Rewards liability, ending balance
4. Fair Value of Financial Instruments
Year ended
December 31,
2019
2020
2018
$
$
10,584 $
87,259
(75,506)
22,337 $
- $
44,666
(34,082)
10,584 $
-
-
-
-
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The carrying value of our cash and cash equivalents, accounts receivable and accounts payable approximate fair value because
of their short-term nature.
Our investments consist of U.S. Treasury notes with maturities of up to 16 months, with $343,616 maturing within one year
from December 31, 2020. Fair value of 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 held-to-maturity, are carried at amortized cost. The fair value of these investments
was less than the amortized cost by $117 as of December 31, 2020. We recognize a reserve for expected credit losses when lifetime
credit losses are expected by management. As of December 31, 2020, management has concluded that there is no risk of non-payment.
No impairment charges were recognized on our investments for the year ended December 31, 2020 and 2019.
We have elected to fund certain deferred compensation obligations through a rabbi trust, the assets of which are designated as
trading securities, as described further in Note 9. “Employee Benefit Plans.”
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such
as leasehold improvements, property and equipment, operating lease assets, other assets and goodwill. Fair value of these assets are
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. These assets are measured at fair value
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Carrying value
after impairment approximates fair value.
The following table summarizes our assets measured at fair value by hierarchy level on a nonrecurring basis:
Leasehold improvements, property and equipment, net
Operating lease assets
Total
Carrying Value
December 31,
Level
2020
2019
3 $
3
$
4,682 $
10,372
15,054 $
1,411
4,270
5,681
For the years ended December 31, 2020, 2019 and 2018 we recorded asset impairments related to restaurants and offices of
$16,683, $2,897 and $56,093 respectively.
Equity Method Investment
On April 16, 2020, we acquired approximately 10% of the common stock of a supplier in exchange for cash consideration of
$7,500. On August 6, 2020, we acquired an additional 3.2% of the common stock of a supplier in exchange for cash consideration of
$2,500. As of December 31, 2020, we own approximately 12.9% of the supplier’s common stock and have invested total cash
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 consolidated balance sheet as of
December 31, 2020, with a carrying value of $9,529.
44
5. Corporate Restructuring Costs
In May 2018, we announced that we would open a headquarters office in Newport Beach, California, consolidate certain
corporate administrative functions into our existing office in Columbus, Ohio, and close our existing headquarters offices in Denver,
Colorado, as well as additional corporate offices in New York, New York. All affected employees were either offered an opportunity
to continue in the new organization or were offered a severance package. We record severance as a one-time termination benefit and
recognize the expense ratably over the employees’ required future service period.
All other costs, including other employee transition costs, recruitment and relocation costs, office asset impairment and other
office closure costs, and third-party and other costs, are recognized in the period incurred.
Corporate restructuring costs consist of the following:
Year ended December 31,
2019
2020
2018
Employee severance and other employee transition costs(1)
Recruitment and relocation costs(1)
Office asset impairment and other office closure costs(2)
Third-party and other costs(1)
Stock-based compensation(1)
Total corporate restructuring costs
__________________
(1) Recorded in general and administrative expenses on the consolidated statements of income.
(2) Recorded in impairment, closure costs, and asset disposals on the consolidated statements of income.
303 $
874
-
5,222
-
6,399 $
$
$
1,768 $
6,231
1,719
4,324
134
14,176 $
6,919
9,952
15,571
8,836
1,345
42,623
Upon the adoption of Accounting Standards Codification Topic 842 on January 1, 2019, lease termination and other closure
liabilities of $14,716 were reclassified into operating lease assets and are no longer within the scope of ASC 420, Exit or Disposal
Cost Obligations.
Changes in our corporate restructuring liabilities which are included in accrued liabilities on the consolidated balance sheets
were as follows:
Employee severance and other employee transition costs
Recruitment and relocation costs
Third-party and other costs
Total restructuring liability
$
$
-
30
-
30
$
$
303 $
874
5,222
6,399 $
(303) $
(904)
(5,222)
(6,429) $
-
-
-
-
December 31,
2019
Charges
Payments
December 31,
2020
6. Income Taxes
Income before income taxes, classified by source of income, was as follows:
Domestic
Foreign
Income before income taxes
Year ended December 31,
2019
465,253 $
(6,968)
458,285 $
2020
311,021 $
(17,240)
293,781 $
2018
279,955
(11,519)
268,436
$
$
45
The components of the benefit/(provision) for income taxes were as follows:
Current tax:
U.S. Federal
U.S. State
Foreign
Deferred tax:
U.S. Federal
U.S. State
Foreign
Valuation allowance
Benefit/(provision) for income taxes
The effective tax rate differs from the statutory tax rates as follows:
Statutory U.S. federal income tax rate
State income tax, net of related federal income tax benefit
Federal credits
Executive compensation disallowed
Meals and entertainment
Enhanced deduction for food donation
Valuation allowance
Other
Return to provision and other discrete items
Equity compensation related adjustments
Federal net operating loss
Effective income tax rate
Year ended December 31,
2019
2020
2018
$
$
204,063 $
(32,684)
(1,044)
170,335
(120,066)
11,507
7,158
(101,401)
(6,949)
61,985 $
(57,020) $
(20,499)
(646)
(78,165)
(27,231)
(2,740)
2,685
(27,286)
(2,676)
(108,127) $
(58,878)
(21,780)
(637)
(81,295)
(10,541)
(479)
2,261
(8,759)
(1,829)
(91,883)
Year ended December 31,
2019
2020
2018
21.0 %
4.2
(3.5)
2.9
0.1
(0.1)
1.6
1.8
2.1
(13.5)
(37.7)
(21.1) %
21.0 %
4.1
(1.7)
2.0
0.1
-
0.5
0.8
0.1
(3.3)
-
23.6 %
21.0 %
6.6
(2.1)
1.4
0.1
(0.1)
0.7
3.5
1.1
2.0
-
34.2 %
The effective tax rate for the year ended December 31, 2020, was lower than the effective tax rate for the year ended
December 31, 2019, primarily due to stock-based compensation, partially offset by current year increases in non-deductible executive
compensation and net excess benefits from the federal net operating loss (“NOL”) generated in the current year that will be carried
back to tax years 2015-2017.
We have estimated a federal NOL for the year ended December 31, 2020. We expect to carryback the federal NOL generated in
the current year to tax years 2015-2017 when the corporate federal income tax rate was 35%. As a result, for the year ended
December 31, 2020, we recorded an income tax benefit of $110,765 due to the federal income tax rate differential in 2020 of 21%
versus 2015-2017 of 35%.
46
The components of the deferred income tax assets and liabilities were as follows:
Deferred income tax liability:
Leasehold improvements, property and equipment
Goodwill and other assets
Prepaid assets and other
Operating lease asset
Total deferred income tax liability
Deferred income tax asset:
Gift card liability
Capitalized transaction costs
Stock-based compensation and other employee benefits
Foreign net operating loss carry-forwards
State credits
Operating lease liabilities
Allowances, reserves and other
State net operating loss carry-forwards
Valuation allowance
Total deferred income tax asset
Deferred income tax liabilities
December 31,
2020
2019
$
298,225 $
1,628
(350)
752,864
1,052,367
3,849
324
34,709
21,598
4,452
812,699
25,981
22,482
(23,149)
902,945
149,422 $
$
162,291
1,537
1,290
686,333
851,451
6,185
323
41,270
13,796
4,170
741,120
22,973
-
(16,200)
813,637
37,814
Gross foreign NOLs were $98,710 and $68,169 for the year ended December 31, 2020 and 2019, respectively. Our foreign
NOLs can be carried forward indefinitely.
Gross state NOLs generated across all jurisdictions in which we operate were $340,259 and $0 for the years ended
December 31, 2020 and 2019, respectively. Our state NOLs expire over varying intervals in the future.
We had gross valuation allowances against certain foreign deferred tax assets of $104,820 and $77,191 as of December 31, 2020
and 2019, respectively. The increase in the valuation allowance was primarily due to the recording of a valuation allowance on various
foreign tax attributes.
Unrecognized Tax Benefits
A reconciliation of the unrecognized tax benefits was as follows:
Beginning of year
(Decrease)/Increase resulting from prior year tax position
Increase resulting from current year tax position
Settlements with taxing authorities
Lapsing of statutes of limitations
End of year
Year ended December 31,
2019
2020
2018
$
$
15,028 $
(2,853)
1,870
-
(3,186)
10,859 $
9,360 $
5,855
758
(736)
(209)
15,028 $
8,937
-
751
-
(328)
9,360
Interest expense related to uncertain tax positions is recognized in interest and other income, net on the consolidated statements
of income. Penalties related to uncertain tax positions are recognized in benefit/(provision) for income taxes on the consolidated
statements of income. For the years ended December 31, 2020, 2019 and 2018, we recognized $554, $1,853 and $536, respectively, in
interest expense related to uncertain tax positions. These are gross amounts before any tax benefits and are included in other liabilities
on the consolidated balance sheets. As of December 31, 2020 and 2019, we have accrued interest of $2,185 and $3,054, respectively.
We are no longer subject to U.S. federal tax examinations by tax authorities for tax years before 2016. For the majority of states
where we have a significant presence, we are no longer subject to tax examinations by tax authorities for tax years before 2016.
Currently, we expect expirations of statutes of limitations, excluding indemnified amounts, on reserves of approximately $6,316
within the next twelve months.
It is reasonably possible the amount of the unrecognized benefit with respect to certain unrecognized positions could
significantly increase or decrease within the next twelve months and would have an impact on net income.
47
Coronavirus Aid, Relief and Economic Security Act (“CARES Act”)
On March 27, 2020, President Trump signed into law the CARES Act. Intended to provide economic relief to those impacted by
the COVID-19 pandemic, the CARES Act includes provisions, among others, addressing the carryback of NOLs for specific periods,
refunds 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.
The CARES Act provides for the deferral of the employer-paid portion of social security payroll taxes. We have elected to defer
the employer-paid portion of social security payroll taxes through December 31, 2020, of $70,812 and will remit such amounts during
calendar year 2021.
We accelerated tax depreciation expenses due to the technical amendments made by the CARES Act to QIP. As of
December 31, 2020, accelerated tax depreciation expenses of $60,376 represents a temporary book-to-tax timing difference (i.e., no
effective tax rate impact) for income tax purposes and is in deferred income tax liabilities and income tax receivable on the
consolidated balance sheet.
The CARES Act provides refundable employee retention credits, which can be used to offset payroll tax liabilities. For the year
ended December 31, 2020, we recorded a benefit of $3,403, which primarily offsets payroll tax expense. Additionally, as a result of
the Canada Emergency Wage Subsidy, for our Canadian employees, we recognized a benefit of $2,028 for the year ended
December 31, 2020, which primarily offset labor expense.
Tax Cuts and Jobs Act
Effective for tax years beginning after December 31, 2017, the U.S. corporate income tax rate is 21% pursuant to the Tax Cuts
and Jobs Act (“TCJA”), that was signed into law December 2017. As of December 31, 2018, we completed our accounting for the tax
effects of the TCJA and recorded cumulative tax adjustments of $6,446 in accordance with SAB 118 guidance.
7. Shareholders’ Equity
We have had a stock repurchase program in place since 2008. Through December 31, 2020, we had announced authorizations
by our Board of Directors to repurchases shares of common stock which, in the aggregate, authorized expenditures of up to
$2,800,000. As of December 31, 2020, $115,018 was available to be repurchased under announced repurchase authorizations. Shares
repurchased are being held in treasury stock until they are reissued or retired at the discretion of the Board of Directors. On March 20,
2020, we temporarily suspended our share buyback program in the midst of the COVID-19 pandemic.
During the years ended December 31, 2020, 2019, and 2018, shares of common stock at a total cost of $48,555, $10,420, and
$5,411, respectively, were netted and surrendered as payment for minimum statutory withholding obligations in connection with the
vesting of outstanding stock awards. Shares surrendered by the participants in accordance with the applicable award agreements and
plan are deemed repurchased by us but are not part of publicly announced share repurchase programs.
8. Stock-Based Compensation
Pursuant to the 2011 Incentive Plan, we grant stock options, SOSARs, restricted stock units (“RSUs”), or performance and/or
market based restricted stock units (“PSUs”) to employees and non-employee directors. We issue shares of common stock upon the
exercise of SOSARs and the vesting of RSUs and PSUs.
Under the 2011 Incentive Plan, 6,830 shares of common stock have been authorized and reserved for issuance to eligible
participants, of which 2,114 shares were authorized for issuance but not issued or subject to outstanding awards as of December 31,
2020. For purposes of calculating the available shares remaining, each share issuable pursuant to outstanding full value awards, such
as RSUs and PSUs, counts as two shares, and each share underlying a stock option or SOSAR count as one share.
48
The following table sets forth total stock-based compensation expense:
Stock-based compensation
Stock-based compensation, net of income taxes
Total capitalized stock-based compensation included in net leasehold
improvements, property and equipment on the consolidated balance sheets
Excess tax benefit (deficit) on stock-based compensation recognized in provision
for income taxes
$
$
$
$
Year ended December 31,
2019
2020
2018
84,463 $
69,904 $
92,062 $
73,866 $
69,947
51,544
1,837 $
666 $
783
49,690 $
16,203 $
(6,162)
SOSARs
A summary of SOSAR activity was as follows (in thousands, except years and per share data):
Weighted-
Average
Exercise Price
per Share
Weighted-
Average
Remaining
Contractual
Life (Years)
Shares
Outstanding, January 1, 2020
Granted
Exercised
Forfeited or cancelled
Outstanding, December 31, 2020
Exercisable, December 31, 2020
Vested and expected to vest, December 31, 2020
$
1,132
116
(470)
(30)
748
235
728
457.14
874.14
433.10
513.19
533.71
476.68
528.03
Aggregate
Intrinsic Value
430,595
$
3.9
1.6
3.9
637,905
213,697
625,050
The total intrinsic value of SOSARs exercised during the years ended December 31, 2020, 2019 and 2018, was $236,573,
$219,984, and $35,907, respectively. Unrecognized stock-based compensation expense for SOSARs as of December 31, 2020 was
$22,612 and is expected to be recognized over a weighted average period of 1.4 years. SOSARs expire 7 years after the day they were
granted.
The weighted average assumptions utilized in the Black-Scholes option-pricing model to estimate the fair value of SOSARs
granted each year were as follows:
Risk-free interest rate
Expected life (years)
Expected dividend yield
Volatility
Weighted-average Black-Scholes fair value per share at date of grant
2020
2019
2018
1.3 %
3.8
0.0 %
32.4 %
2.4 %
3.9
0.0 %
34.7 %
2.4 %
3.9
0.0 %
32.2 %
$
231.52
$
176.79
$
77.61
The risk-free interest rate is based on U.S. Treasury rates for instruments with similar terms, and the expected life assumption is
based on our historical data. We have not paid dividends to date and do not plan to pay dividends in the near future. The volatility
assumption is based on our historical data and implied volatility.
49
Non-Vested Stock Awards (RSUs)
A summary of RSU award activity was as follows (in thousands, except per share data):
Outstanding, January 1, 2020
Granted
Vested
Forfeited or cancelled
Outstanding, December 31, 2020
Vested and expected to vest, December 31, 2020
Weighted-
Average
Grant Date
Fair Value per
Share
Shares
$
121
42
(60)
(11)
92
84
408.56
905.96
381.71
619.11
631.66
618.08
The weighted average grant date fair value per RSU granted during the years ended December 31, 2019 and 2018, was $627.94
and $299.25, respectively. Unrecognized stock-based compensation expense for non-vested RSU stock awards we have determined
are probable of vesting was $21,221 as of December 31, 2020, and is expected to be recognized over a weighted average period of 1.3
years. The fair value of shares earned as of the vesting date during the years ended December 31, 2020, 2019, and 2018, was $47,649,
$27,197, and $4,192, respectively.
Non-Vested Performance Stock Awards (PSUs)
A summary of PSU award activity was as follows (in thousands, except per share data):
Outstanding, January 1, 2020
Granted
Vested
Expired
Outstanding, December 31, 2020
Vested and expected to vest, December 31, 2020
Weighted-
Average
Grant Date
Fair Value per
Share
Shares
$
103
27
(29)
(1)
100
229
479.83
853.03
466.22
605.39
583.46
765.23
The weighted average fair value per PSU granted during the years ended December 31, 2019 and 2018, was $583.13 and
$327.58, respectively. The Unrecognized stock-based compensation expense for non-vested PSU stock awards we have determined
are probable of vesting was $112,767 as of December 31, 2020, and is expected to be recognized over a weighted average period of
1.3 years. The fair value of shares earned as of the vesting date during the years ended December 31, 2020, 2019, and 2018, was
$60,081, $0, and $9,317, respectively.
During the year ended December 31, 2020 we awarded performance share awards that are subject to service, market, and
performance vesting conditions. The quantity of shares that will vest will range from 0% to 300% of the target number of shares based
on performance factors related to our growth in comparable restaurant sales and average restaurant margin over a three year period
beginning on January 1, 2020. If the defined minimum targets are not met, then no shares will vest. Further, in no event may more
than 100% of the target number of PSUs vest if our 3 year total shareholder return is below the 25th percentile of the constituent
companies comprising the S&P 500 on the day of the grant.
During the year ended December 31, 2019, we awarded two types of performance share awards that are subject to service and
performance vesting conditions. The quantity of shares that will vest range from 0% to 300% of the targeted number of shares for both
awards. The first award, consisting of 33 shares, will vest based on our growth in comparable restaurant sales and average restaurant
margin over a three-year period beginning on January 1, 2019. The second award, consisting of 13 shares, will vest based on
performance conditions based on achievement of certain targets related to digital sales, general and administrative expenses as a
percentage of revenue, and successful completion of a defined number of strategic initiatives in 2019 and 2020. These awards will vest
40% on the third anniversary of the grant date and 60% on the fourth anniversary of the grant date provided required service is
completed through these dates.
50
During the year ended December 31, 2018, we awarded performance share awards that are subject to service and performance
vesting conditions. The quantity of shares that will vest range from 0% to 300% of the targeted number of shares based on
performance factors related to our growth in comparable restaurant sales and average restaurant margin over a three year period
beginning on January 1, 2018. If the defined minimum targets are not met, then no shares will vest.
On December 30, 2020, due to the impact that the COVID-19 pandemic had on the growth in comparable restaurant sales and
restaurant margin relative to the trajectory of both of these performance factors prior to the pandemic, and also due to the significant
shareholder value created over the performance period of the original award, the Compensation Committee of the Board of Directors
modified the 2018 PSU award. This modification pertained to all seven recipients of this award, and resulted in incremental
compensation expense of $71,441, of which $466 has been recognized during the year ended December 31, 2020. To receive all
incremental shares generated through the modification the employees 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. The incremental compensation cost is calculated by multiplying the number of incremental shares generated though the
modification by the stock price on the modification date. The stock price on the modification date of December 30, 2020 was
$1,374.17.
9. Employee Benefit Plans
Defined Contribution Plan—We maintain the Chipotle Mexican Grill 401(k) Plan (“401(k) Plan”). We match 100% of the first
3% of pay contributed by each eligible employee and 50% on the next 2% of pay contributed. Employees become eligible to receive
matching contributions after one year of service with Chipotle. For the years ended December 31, 2020, 2019, and 2018, matching
contributions totaled approximately $8,490, $6,968 and $6,090, respectively and are included in general and administrative expenses
on the consolidated statements of income.
Deferred Compensation Plan—We also maintain the Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan (the
“Deferred Plan”) which covers our eligible employees. The Deferred Plan is a non-qualified plan that allows participants to make tax-
deferred contributions that cannot be made under the 401(k) Plan because of Internal Revenue Service limitations. Participants’
earnings on contributions made to the Deferred Plan fluctuate with the actual earnings and losses of a variety of available investment
choices selected by the participant. Total liabilities under the Deferred Plan as of December 31, 2020 and 2019, were $15,296 and
$12,811, respectively, and are included in other liabilities on the consolidated balance sheets. We match 100% of the first 3% of pay
contributed by each eligible employee and 50% on the next 2% of pay contributed once the 401(k) contribution limits are reached.
We have elected to fund our deferred compensation obligation through a rabbi trust. The rabbi trust is subject to creditor claims
in the event of insolvency, but the assets held in the rabbi trust are not available for general corporate purposes. Amounts in the rabbi
trust are invested in mutual funds, consistent with the investment choices selected by participants in their Deferred Plan accounts,
which are designated as trading securities, carried at fair value, and are included in other assets on the consolidated balance sheets.
Fair value of rabbi trust investments in mutual funds is measured using Level 1 inputs. The fair value of the investments in the rabbi
trust was $15,296 and $12,811 as of December 31, 2020 and 2019, respectively. We record trading gains and losses in general and
administrative expenses on the consolidated statements of income, along with the offsetting amount related to the increase or decrease
in deferred compensation to reflect our exposure to liabilities for payment under the deferred plan.
Employee Stock Purchase Plan—We also offer an employee stock purchase plan (“ESPP”). Employees become eligible to
participate after one year of service with Chipotle and may contribute up to 15% of their base earnings, subject to an annual maximum
dollar amount, toward the monthly purchase of our common stock. The purchase price is 95% of the fair market value of the stock on
the last trading date of the monthly exercise period. Under the ESPP, 250 shares of common stock have been authorized and reserved
for issuances to eligible employees, of which 245 represent shares that were authorized for issuance but not issued at December 31,
2020. For the years ended December 31, 2020, 2019, and 2018, the number of shares issued each year under the ESPP was less than
one.
51
10. Leases
Related to the adoption of Topic 842, and for leases executed subsequent to the adoption of Topic 842 our policy elections are
as follows:
Separation of lease and non-lease
components
Short-term policy
We elected this expedient to account for lease and non-lease components as a single
component for our entire population of operating lease assets.
We have elected the short-term lease recognition exemption for all applicable classes of
underlying assets. Short-term disclosures include only those leases with a term greater than
one month and 12 months or less, and expense is recognized on a straight-line basis over
the lease term. Leases with an initial term of 12 months or less, that do not include an
option to purchase the underlying asset that we are reasonably certain to exercise, are not
recorded on the consolidated balance sheets.
The weighted average remaining lease term and discount rate were as follows:
Weighted average remaining lease term (years)
Weighted average discount rate
The components of lease cost were as follows:
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
Classification
Occupancy, Other operating costs, General and administrative
expenses and Pre-opening costs
Other operating costs
Occupancy
General and administrative expenses
December 31, December 31,
2020
2019
13.4
4.92%
13.4
5.19%
Year ended
December 31,
2020
2019
$
$
333,878
36
37,860
(3,588)
368,186
$
$
308,586
3,238
36,828
(3,385)
345,267
As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting, rental expense for
the year ended December 31, 2018 was $297,568.
Supplemental disclosures of cash flow information related to leases were as follows:
Cash paid for operating lease liabilities
Operating lease assets obtained in exchange for operating lease liabilities(1)
Derecognition of operating lease assets due to terminations or impairment
Year ended
December 31,
2020
316,249 $
484,888 $
20,242 $
2019
295,113
2,702,778
17,740
$
$
$
(1) Amounts for the year ended December 31, 2019, include the transition adjustment for the adoption of Topic 842 discussed in Note
1. “Description of Business and Summary of Significant Accounting Policies” on Annual Report on Form 10-K for the year ended
December 31, 2019.
52
Maturities of lease liabilities were as follows as of December 31, 2020:
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: imputed interest
Present value of lease liabilities
Operating
Leases
318,990
344,902
340,328
329,819
321,444
2,660,361
4,315,844
1,158,792
3,157,052
$
$
As of December 31, 2020, the total lease payments include $2,117,481 related to options to extend lease terms that are
reasonably certain of being exercised, and exclude approximately $184,358 of legally binding minimum lease payments for leases
signed but not yet commenced and $14,735 of future sublease income.
In April 2020, the FASB issued guidance allowing entities to make a policy election whether to account for lease concessions
related to the COVID-19 pandemic as lease modifications. The election applies to any lessor-provided lease concession related to the
impact of the COVID-19 pandemic, provided the concession does not result in a substantial increase in the rights of the lessor or in the
obligations of the lessee. During the year ended December 31, 2020, we have received non-substantial concessions from certain
landlords in the form of rent deferrals and abatements. We have elected to not account for these rent concessions as lease
modifications. The recognition of rent concessions did not have a material impact on our consolidated financial statements as of
December 31, 2020.
We have six sale and leaseback transactions, which do not qualify for sale leaseback accounting due to fixed price renewal
options prohibiting sale accounting. These transactions are accounted for under the financing method. Under the financing method, the
assets remain on the consolidated balance sheets and the proceeds from the transactions are recorded as a financing liability. A portion
of lease payments are applied as payments of deemed principal and imputed interest. The deemed landlord financing liability was
$1,845 and $2,131 as of December 31, 2020, and 2019, respectively, with the current portion of the liability included in accrued
liabilities, and the remaining portion included in other liabilities on the consolidated balance sheets.
11. Earnings Per Share
The following table sets forth the computations of basic and diluted earnings per share:
Net income
Shares:
Weighted-average number of common shares outstanding (for basic calculation)
Dilutive stock awards
Weighted-average number of common shares outstanding (for diluted
calculation)
Basic earnings per share
Diluted earnings per share
$
$
$
Year ended December 31,
2019
350,158 $
2020
355,766 $
2018
176,553
27,917
499
27,740
555
28,416
12.74 $
12.52 $
28,295
12.62 $
12.38 $
27,823
139
27,962
6.35
6.31
The following stock awards were excluded from the calculation of diluted earnings per share:
Stock awards subject to performance conditions
Stock awards that were antidilutive
Total stock awards excluded from diluted earnings per share
Year ended December 31,
2019
2020
2018
87
57
144
81
139
220
95
1,741
1,836
53
12. 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 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 of a $25,000 fine (of which $10,000 was paid on June 1, 2020, and $15,000
was paid in the third quarter of 2020) and enhancing and maintaining our existing comprehensive compliance program which is
designed to ensure that we comply with all applicable federal and state food safety laws.
Shareholder Class Action
On January 8, 2016, Susie Ong filed a complaint in the U.S. District Court for the Southern 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, and on October 1, 2020,
the court denied the plaintiffs' motion for an en banc rehearing.
Miscellaneous
We are involved in various other claims and legal actions, such as wage and hour, wrongful termination and other employment-
related claims, slip and fall and other personal injury claims, and lease and other commercial disputes, that arise in the ordinary course
of business, some of which may be covered by insurance. The outcomes of these actions are not predictable, but we do not believe that
the ultimate resolution of these actions will have a material adverse effect on our financial position, results of operations, liquidity, or
capital resources. However, a significant increase in the number of these claims, or one or more successful claims under which we
incur greater liabilities than we currently anticipate, could materially and adversely affect our business, financial condition, results of
operations and cash flows.
Accrual for Estimated Liability
As of December 31, 2020, we had a balance of $53,242 included within accrued liabilities on the consolidated balance sheets.
The settlements are part of our plan to resolve longstanding legal proceedings whenever appropriate to better allow us to focus on our
strategic priorities.
54
13. Debt
On May 8, 2020, we entered into a $600,000 revolving credit facility with JPMorgan Chase Bank as administrative agent, which
expires on May 7, 2021. We pay a commitment fee of 0.625% per year for unused amounts under the credit facility. Interest on
borrowings currently bear interest at a rate equal to the London Interbank Offered Rate (LIBOR) plus 1.50%, which may increase due
to changes in our total leverage ratio as defined in the credit agreement. Further, we are subject to certain covenants, which include (i)
maintaining a total leverage ratio of less than 3.0x, (ii) maintaining a consolidated fixed charge coverage ratio of greater than 1.5x and
(iii) limiting us from making investments and capital expenditures in certain circumstances. We had no outstanding borrowings under
the credit facility as of December 31, 2020.
14. Related Party Transactions
In April 2020, we acquired common stock of a supplier. As of December 31, 2020, we own approximately 12.9% of the
common stock 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, which we sell to customers in our restaurants. During the year ended December 31, 2020, purchases from the supplier
were $11,931.
15. Quarterly Financial Data (Unaudited)
The following table presents summarized unaudited quarterly financial data from the consolidated statements of income for each
of the eight quarters in the periods ended December 31, 2020 and December 31, 2019. The operating results for any quarter are not
necessarily indicative of the results for any subsequent quarter. Basic and diluted net income per share calculations for each quarter is
based on the weighted average diluted shares outstanding for that quarter and may not sum to the full year total amount as presented
on our consolidated statements of income:
Total Revenue
Income (loss) from operations
Net income
Basic earnings per share
Diluted earnings per share
Total Revenue
Income from operations
Net income
Basic earnings per share
Diluted earnings per share
2020
March 31
$
$
$
$
$
1,410,772
71,121
76,388
2.75
2.70
June 30
1,364,738
(4,939)
8,175
0.29
0.29
$
$
$
$
$
September 30
1,601,414
$
107,096
$
80,244
$
2.87
$
2.82
$
December 31
1,607,710
$
116,886
$
190,959
$
6.82
$
6.69
$
2019
March 31
$
$
$
$
$
1,308,217
110,161
88,132
3.18
3.13
June 30
1,434,231
120,020
91,028
3.28
3.22
$
$
$
$
$
September 30
1,403,697
$
115,621
$
98,582
$
3.55
$
3.47
$
December 31
1,440,224
$
98,156
$
72,416
$
2.61
$
2.55
$
55
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in Exchange Act
reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As of December 31, 2020, 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 annual report.
Changes in Internal Control over Financial Reporting
There were no changes during the fiscal quarter ended December 31, 2020, in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our
internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
The management of Chipotle Mexican Grill, Inc. is responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. Our internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts
and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material
effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020, based on the
framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated
Framework (the “2013 framework”). Based on that assessment, management concluded that, as of December 31, 2020, our internal
control over financial reporting was effective based on the criteria established in the 2013 framework.
Our independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on the effectiveness of
our internal control over financial reporting as of December 31, 2020. This report follows.
56
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Chipotle Mexican Grill, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Chipotle Mexican Grill, Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, Chipotle Mexican Grill, Inc. (the Company) maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets as of December 31, 2020 and 2019, the related consolidated statements of income,
comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and
the related notes and our report dated February 9, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Irvine, California
February 9, 2021
57
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated by reference from the definitive proxy statement for our 2021 annual meeting of shareholders, which will be filed
no later than 120 days after December 31, 2020.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the definitive proxy statement for our 2021 annual meeting of shareholders, which will be filed
no later than 120 days after December 31, 2020.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents information regarding options and rights outstanding under our equity compensation plans as of
December 31, 2020. All options/SOSARs reflected are options to purchase common stock.
(a)
Number of Securities
to be Issued Upon
Exercise of Outstanding
Options and Rights(1)
(b)
Weighted-Average
Exercise Price of
Outstanding Options and
Rights(1)
(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans
(excluding securities
reflected in column (a))(2)
Equity Compensation Plans Approved by Security Holders
Equity Compensation Plans Not Approved by Security
Holders
Total
939,823
$
None
939,823
$
533.71
N/A
533.71
2,359,635
None
2,359,635
__________________
(1)
(2)
Includes shares issuable in connection with awards with performance and market conditions, which will be issued based on
achievement of performance criteria associated with the awards, with the number of shares issuable dependent on our level of
performance. The weighted-average exercise price in column (b) includes the weighted-average exercise price of SOSARs only.
Includes 2,114,279 shares remaining available under the Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock
Incentive Plan, and 245,356 shares remaining available under the Chipotle Mexican Grill, Inc. Employee Stock Purchase Plan.
In addition to being available for future issuance upon exercise of SOSARs or stock options that may be granted after
December 31, 2020, all of the shares available for grant under the Amended and Restated Chipotle Mexican Grill, Inc. 2011
Stock Incentive Plan may instead be issued in the form of restricted stock, restricted stock units, performance shares or other
equity-based awards. Each share underlying a full value award such as restricted stock, restricted stock units or performance
shares counts as two shares used against the total number of securities authorized under the plan.
Additional information for this item is incorporated by reference from the definitive proxy statement for our 2021 annual
meeting of shareholders, which will be filed no later than 120 days after December 31, 2020.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Incorporated by reference from the definitive proxy statement for our 2021 annual meeting of shareholders, which will be filed
no later than 120 days after December 31, 2020.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated by reference from the definitive proxy statement for our 2021 annual meeting of shareholders, which will be filed
no later than 120 days after December 31, 2020.
58
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
1. All Financial statements
PART IV
Consolidated financial statements filed as part of this report are listed under Item 8. “Financial Statements and Supplementary
Data.”
2. Financial statement schedules
No schedules are required because either the required information is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is included in the consolidated financial statements or the notes
thereto.
3. Exhibits
Exhibit
Number
Exhibit Description
Amended and Restated Certificate of Incorporation
of Chipotle Mexican Grill, Inc.
Chipotle Mexican Grill, Inc. Amended and Restated
Bylaws
Form of Stock Certificate for Shares of Common
Stock
3.1
3.2
4.1
4.2 Description of Chipotle Securities
10.3†
10.2†
10.1† Form of 2019 Performance Share Unit Agreement
Form of 2019 Transformation Performance Share
Unit Agreement (1)
Change in Control Severance Plan, effective June 1,
2019
Form of Participation and Restrictive Covenant
Agreement for Change in Control Severance Plan
Amended and Restated Chipotle Mexican Grill, Inc.
2011 Stock Incentive Plan
10.4†
10.5†
Description of Exhibit Incorporated Herein by Reference
Form
File No.
Filing Date
10-Q
001-32731 October 26, 2016
8-K
001-32731 October 6, 2016
Exhibit
Number Filed Herewith
3.1
3.1
10-K
001-32731 February 10, 2012
4.1
10-K
10-Q
-
001-32731 February 5, 2020
001-32731 April 25, 2019
-
-
10-Q
001-32731 July 24, 2019
10-Q
001-32731 July 24, 2019
8-K
001-32731 May 24, 2018
4.2
10.1
-
10.1
10.2
10.1
X
10.6† Form of Stock Appreciation Rights Agreement
10.7† Form of 2014 Stock Appreciation Rights Agreement
10-Q
10-K
001-32731 April 20, 2012
001-32731 February 7, 2017
10.1
10.2.4
10.8†
Form of 2014 Performance-Based Stock
Appreciation Rights Agreement
10.10†
10.9† Form of 2016 Stock Appreciation Rights Agreement
Retention Agreement, dated January 9, 2018,
between Jack Hartung and Chipotle Mexican Grill,
Inc.
Amended and Restated Registration Rights
Agreement dated January 31, 2006 among Chipotle
Mexican Grill, Inc., McDonald’s Corporation and
certain shareholders
Retention Agreement, dated January 9, 2018,
between Scott Boatwright and Chipotle Mexican
Grill, Inc.
10.12†
10.11†
10.14†
10.15†
10.16†
10.17†
Retention Agreement, dated January 9, 2018,
between Curt Garner and Chipotle Mexican Grill,
Inc.
Form of Director and Officer Indemnification
Agreement
Offer Letter, dated February 11, 2018, between
Brian R. Niccol and Chipotle Mexican Grill, Inc.
Chipotle Mexican Grill, Inc. Employee Stock
Purchase Plan
10-K
001-32731 February 7, 2017
10.2.5
10-Q
001-32731 April 27, 2016
10.1
8-K
001-32731 January 12, 2018
10.1
10-K
001-32731 March 17, 2006
10.6
10-Q
001-32731 April 26, 2018
10.4
10.3
10.5
10-Q
001-32731 April 26, 2018
8-K
001-32731 March 21, 2007
10.1
8-K
001-32731 February 15, 2018
10.1
10-K
001-32731 February 10, 2012
10.11
59
10.13† Supplemental Deferred Investment Plan
10-Q
001-32731 July 27, 2018
10.18†
10.19†
10.20
10.21
Non-Plan Inducement SOSARs Agreement between
Brian R. Niccol and Chipotle Mexican Grill, Inc.
Non-Plan Inducement RSUs Agreement between
Brian R. Niccol and Chipotle Mexican Grill, Inc.
Investor Agreement dated December 14, 2016
between Chipotle Mexican Grill, Inc. and Pershing
Square Capital Management, L.P.
Registration Rights Agreement dated February 3,
2017, between Chipotle Mexican Grill, Inc. and
Pershing Square Capital Management, L.P.
S-8
33-223467 March 6, 2018
S-8
33-223467 March 6, 2018
4.3
4.4
8-K
001-32731 December 19, 2016 10.1
10-K
001-32731 February 7, 2017
10.11
10.22† Form of 2018 CEO SOSARs Agreement
8-K/A
001-32731 April 3, 2018
10.2
10.23†
Executive Agreement dated May 29, 2017 between
Chipotle Mexican Grill, Inc. and Scott Boatwright
8-K
001-32731 September 15, 2017 10.1
10.24† Form of 2018 Premium-priced SOSARs Agreement
8-K/A
001-32731 April 3, 2018
10.3
10.25†
Executive Chairman Agreement dated
November 28, 2017 between Chipotle Mexican
Grill, Inc. and Steve Ells
Offer Letter, dated March 9, 2018, between
Christopher Brandt and Chipotle Mexican Grill, Inc.
10.27† Form of 2018 Stock Appreciation Rights Agreement
10.28† Form of 2018 Restricted Stock Units Agreement
10.26†
10.29†
10.30†
10.31†
10.32
10.33
Form of 2019 Director Restricted Stock Unit
Agreement
Amendment No. 1 dated March 5, 2020 to the
Executive Chairman Agreement dated
November 28, 2017 between Chipotle Mexican
Grill, Inc. and Steve Ells
Deferred Prosecution Agreement dated April 20,
2020 between Chipotle Mexican Grill, Inc. and the
United States Attorney’s Office for the Central
District of California and the United States
Department of Justice’s Consumer Protection
Branch
364-Day Revolving Credit Agreement dated May 8,
2020, among Chipotle Mexican Grill, Inc. and
JPMorgan Chase Bank, N.A., Administrative Agent,
and other lenders party to the Agreement
Director Compensation Program and Stock
Ownership Guidelines
10.34† Form of 2020 Performance Share Agreement
10.35† Form of 2020 Restricted Stock Units Agreement
10.36† Form of 2020 Stock Appreciation Rights Agreement
21.1 Subsidiaries of Chipotle Mexican Grill, Inc.
23.1
24.1
31.1
31.2
32.1
Consent of Ernst & Young LLP (as the independent
registered public accounting firm of Chipotle
Mexican Grill, Inc.)
Power of Attorney (included on signature page of
this report)
Certification of Chief Executive Officer of Chipotle
Mexican Grill, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer of Chipotle
Mexican Grill, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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
8-K
001-32731 December 1, 2017
10.1
10-Q
001-32731 April 26, 2018
10-Q
10-Q
001-32731 April 26, 2018
001-32731 April 26, 2018
10.13
10.14
10.15
10-K
001-32731 February 5, 2020
10.34
10-Q
001-32731 April 29, 2020
10.1
8-K
001-32731 April 21, 2020
10.1
8-K
001-32731 May 8, 2020
10.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
X
X
X
X
X
X
X
X
X
X
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
60
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
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)
Inline XBRL Taxonomy Extension Schema
Document
Inline XBRL Taxonomy Extension Calculation
Linkbase Document
Inline XBRL Taxonomy Extension Definition
Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase
Document
Inline XBRL Taxonomy Extension Presentation
Linkbase Document
Cover Page Interactive Data File (formatted as
inline XBRL and contained in Exhibit 101)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
X
X
X
X
X
X
X
(1) Portions of this exhibit have been omitted as permitted by applicable regulations.
†- Management contracts and compensatory plans or arrangements required to be filed as exhibits.
ITEM 16. FORM 10-K SUMMARY
None.
61
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CHIPOTLE MEXICAN GRILL, INC.
By:
Name:
Title:
/s/ JOHN R. HARTUNG
John R. Hartung
Chief Financial Officer
Date: February 9, 2021
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Brian Niccol and John Hartung, and each of them, his or her true and lawful attorneys-in-fact, each with full power of substitution, for
him or her in any and all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Date
Title
/s/ BRIAN NICCOL
Brian Niccol
/s/ JOHN R. HARTUNG
John R. Hartung
/s/ ALBERT S. BALDOCCHI
Albert S. Baldocchi
/s/ GREGG L. ENGLES
Gregg L. Engles
/s/ PATRICIA FILI-KRUSHEL
Patricia Fili-Krushel
/s/ NEIL W. FLANZRAICH
Neil W. Flanzraich
/s/ ROBIN S. HICKENLOOPER
Robin S. Hickenlooper
/s/ SCOTT MAW
Scott Maw
/s/ ALI NAMVAR
Ai Namvar
February 9, 2021
(principal executive officer)
Chief Executive Officer and Chairman of the Board of Directors
February 9, 2021
(principal financial and accounting officer)
Chief Financial Officer
February 9, 2021
Director
February 9, 2021
Director
February 9, 2021
Director
February 9, 2021
Director
February 9, 2021
Director
February 9, 2021
Director
February 9, 2021
Director
/s/ MARY A. WINSTON
Mary Winston
February 9, 2021
Director
62