Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	40
Consolidated Balance Sheet as of December 31, 2015 and 2014	41
Consolidated Statement of Income and Comprehensive Income for the years ended December 31, 2015, 2014 and 2013	42
Consolidated Statement of Shareholders’ Equity for the years ended December 31, 2015, 2014 and 2013	43
Consolidated Statement of Cash Flows for the years ended December 31, 2015, 2014 and 2013	44
Notes to Consolidated Financial Statements	45

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

Chipotle Mexican Grill, Inc.

We have audited the accompanying consolidated balance sheets of Chipotle Mexican Grill, Inc. (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of income and comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Chipotle Mexican Grill, Inc. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, 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), Chipotle Mexican Grill, Inc.’s internal control over financial reporting as of December 31, 2015, 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 4, 2016 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Denver, Colorado

February 4, 2016

CHIPOTLE MEXICAN GRILL, INC.

CONSOLIDATED BALANCE SHEET

(in thousands, except per share data)

	December 31,
	2015			2014
				(as adjusted)
Assets
Current assets:
Cash and cash equivalents	$	248,005		$	419,465
Accounts receivable, net of allowance for doubtful accounts of $1,176 and $1,199 as of December 31, 2015 and December 31, 2014, respectively		38,283			34,839
Inventory		15,043			15,332
Prepaid expenses and other current assets		39,965			34,795
Income tax receivable		58,152			16,488
Investments		415,199			338,592
Total current assets		814,647			859,511
Leasehold improvements, property and equipment, net		1,217,220			1,106,984
Long term investments		622,939			496,106
Other assets		48,321			42,777
Goodwill		21,939			21,939
Total assets	$	2,725,066		$	2,527,317
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	85,709		$	69,613
Accrued payroll and benefits		64,958			73,894
Accrued liabilities		129,275			102,203
Total current liabilities		279,942			245,710
Deferred rent		251,962			219,414
Deferred income tax liability		32,305			21,561
Other liabilities		32,883			28,263
Total liabilities		597,092			514,948
Shareholders' equity:
Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of December 31, 2015 and December 31, 2014, respectively		-			-
Common stock $0.01 par value, 230,000 shares authorized, and 35,790 and 35,394 shares issued as of December 31, 2015 and December 31, 2014, respectively		358			354
Additional paid-in capital		1,172,628			1,038,932
Treasury stock, at cost, 5,206 and 4,367 common shares at December 31, 2015 and December 31, 2014, respectively		(1,234,612)			(748,759)
Accumulated other comprehensive income (loss)		(8,273)			(429)
Retained earnings		2,197,873			1,722,271
Total shareholders' equity		2,127,974			2,012,369
Total liabilities and shareholders' equity	$	2,725,066		$	2,527,317

See accompanying notes to consolidated financial statements.

CHIPOTLE MEXICAN GRILL, INC.

CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME

(in thousands, except per share data)

	Year ended December 31,
	2015			2014			2013
Revenue	$	4,501,223		$	4,108,269		$	3,214,591
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Food, beverage and packaging		1,503,835			1,420,994			1,073,514
Labor		1,045,726			904,407			739,800
Occupancy		262,412			230,868			199,107
Other operating costs		514,963			434,244			347,401
General and administrative expenses		250,214			273,897			203,733
Depreciation and amortization		130,368			110,474			96,054
Pre-opening costs		16,922			15,609			15,511
Loss on disposal of assets		13,194			6,976			6,751
Total operating expenses		3,737,634			3,397,469			2,681,871
Income from operations		763,589			710,800			532,720
Interest and other income (expense), net		6,278			3,503			1,751
Income before income taxes		769,867			714,303			534,471
Provision for income taxes		(294,265)			(268,929)			(207,033)
Net income	$	475,602		$	445,374		$	327,438
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustments		(6,322)			(2,049)			596
Unrealized loss on investments, net of income taxes of $946, $0, and $0		(1,522)			-			-
Other comprehensive income (loss), net of income taxes		(7,844)			(2,049)			596
Comprehensive income	$	467,758		$	443,325		$	328,034
Earnings per share:
Basic	$	15.30		$	14.35		$	10.58
Diluted	$	15.10		$	14.13		$	10.47
Weighted average common shares outstanding:
Basic		31,092			31,038			30,957
Diluted		31,494			31,512			31,281

See accompanying notes to consolidated financial statements.

CHIPOTLE MEXICAN GRILL, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(in thousands)

	Common Stock					Additional			Treasury Stock								Accumulated Other
	Shares		Amount			Paid-In Capital			Shares		Amount			Retained Earnings			Comprehensive Income (Loss)			Total
Balance, December 31, 2012	34,912		$	349		$	816,612		3,819		$	(521,518)		$	949,459		$	1,024		$	1,245,926
Stock-based compensation							64,781														64,781
Stock plan transactions and other	333			3			97														100
Excess tax benefit on stock-based compensation, net of utilization of $29							38,350														38,350
Acquisition of treasury stock									393			(138,903)									(138,903)
Net income															327,438						327,438
Other comprehensive income (loss), net of income tax																		596			596
Balance, December 31, 2013	35,245		$	352		$	919,840		4,212		$	(660,421)		$	1,276,897		$	1,620		$	1,538,288
Stock-based compensation							97,618														97,618
Stock plan transactions and other	149			2			(193)														(191)
Excess tax benefit on stock-based compensation							21,667														21,667
Acquisition of treasury stock									155			(88,338)									(88,338)
Net income															445,374						445,374
Other comprehensive income (loss), net of income tax																		(2,049)			(2,049)
Balance, December 31, 2014	35,394		$	354		$	1,038,932		4,367		$	(748,759)		$	1,722,271		$	(429)		$	2,012,369
Stock-based compensation							59,465														59,465
Stock plan transactions and other	396			4			(211)														(207)
Excess tax benefit on stock-based compensation							74,442														74,442
Acquisition of treasury stock									839			(485,853)									(485,853)
Net income															475,602						475,602
Other comprehensive income (loss), net of income tax																		(7,844)			(7,844)
Balance, December 31, 2015	35,790		$	358		$	1,172,628		5,206		$	(1,234,612)		$	2,197,873		$	(8,273)		$	2,127,974

See accompanying notes to consolidated financial statements.

CHIPOTLE MEXICAN GRILL, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

	Year ended December 31,
	2015			2014			2013
Operating activities
Net income	$	475,602		$	445,374		$	327,438
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		130,368			110,474			96,054
Deferred income tax (benefit) provision		11,666			(20,671)			2,103
Loss on disposal of assets		13,194			6,976			6,751
Bad debt allowance		(23)			9			19
Stock-based compensation expense		57,911			96,440			63,657
Excess tax benefit on stock-based compensation		(74,442)			(21,667)			(38,379)
Other		582			104			507
Changes in operating assets and liabilities:
Accounts receivable		(3,504)			(10,966)			(7,238)
Inventory		262			(2,307)			(1,950)
Prepaid expenses and other current assets		(5,259)			(658)			(6,806)
Other assets		(5,619)			1,071			(1,354)
Accounts payable		19,525			2,168			2,052
Accrued liabilities		(7,440)			35,019			12,020
Income tax payable/receivable		32,756			8,831			44,334
Deferred rent		32,911			27,025			25,715
Other long-term liabilities		4,826			4,845			3,857
Net cash provided by operating activities		683,316			682,067			528,780
Investing activities
Purchases of leasehold improvements, property and equipment		(257,418)			(252,590)			(199,926)
Purchases of investments		(559,372)			(521,004)			(387,639)
Maturities of investments		352,650			254,750			159,250
Net cash used in investing activities		(464,140)			(518,844)			(428,315)
Financing activities
Acquisition of treasury stock		(460,675)			(88,338)			(138,903)
Excess tax benefit on stock-based compensation		74,442			21,667			38,379
Stock plan transactions and other financing activities		(207)			(66)			173
Net cash used in financing activities		(386,440)			(66,737)			(100,351)
Effect of exchange rate changes on cash and cash equivalents		(4,196)			(224)			536
Net change in cash and cash equivalents		(171,460)			96,262			650
Cash and cash equivalents at beginning of year		419,465			323,203			322,553
Cash and cash equivalents at end of year	$	248,005		$	419,465		$	323,203
Supplemental disclosures of cash flow information
Income taxes paid	$	248,547		$	280,687		$	160,973
Increase (decrease) in purchases of leasehold improvements, property and equipment accrued in accounts payable and accrued liabilities	$	(2,870)		$	9,424		$	(1,736)
Increase in acquisition of treasury stock accrued in accrued liabilities	$	25,178		$	-		$	-

See accompanying notes to consolidated financial statements.

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

Chipotle Mexican Grill, Inc., a Delaware corporation, together with its subsidiaries (collectively the “Company”) develops and operates fast-casual, fresh Mexican food restaurants. As of December 31, 2015, the Company operated 1,971 Chipotle restaurants throughout the United States. The Company also has 11 restaurants in Canada, seven in England, four in France, and one in Germany. Further, the Company operated 13 ShopHouse Southeast Asian Kitchen restaurants, serving fast-casual, Asian inspired cuisine, as well as is an investor in a consolidated entity that owned and operated three Pizzeria Locale restaurants, a fast casual pizza concept. The Company manages its operations based on nine regions and has aggregated its operations to one reportable segment.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company, including wholly and majority owned subsidiaries. All intercompany balances and transactions have been eliminated.

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 disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates under different assumptions or conditions.

Revenue Recognition

Revenue from restaurant sales is recognized when payment is tendered at the point of sale. The Company reports revenue net of sales and use taxes collected from customers and remitted to governmental taxing authorities.

The Company sells gift cards which do not have an expiration date and it does not deduct non-usage fees from outstanding gift card balances. The Company recognizes revenue from gift cards when: (i) the gift card is redeemed by the customer; or (ii) the Company determines the likelihood of the gift card being redeemed by the customer is remote (gift card breakage) and there is not a legal obligation to remit the unredeemed gift cards to the relevant jurisdiction. The determination of the gift card breakage rate is based upon Company-specific historical redemption patterns. Gift card breakage is recognized in revenue as the gift cards are used on a pro rata basis over a six month period beginning at the date of the gift card sale and is included in revenue in the consolidated statement of income and comprehensive income. The Company has determined that 4% of gift card sales will not be redeemed and will be retained by the Company. Breakage recognized during the years ended December 31, 2015, 2014 and 2013 was $4,226, $3,146 and $1,976, respectively.

Cash and Cash Equivalents

The Company considers all highly liquid investment instruments purchased with an initial maturity of three months or less to be cash equivalents. The Company maintains cash and cash equivalent balances with financial institutions that exceed federally-insured limits. The Company has not experienced any losses related to these balances and believes the risk to be minimal.

Accounts Receivable

Accounts receivable primarily consists of receivables from third party gift card distributors, tenant improvement receivables, payroll-related tax receivables, vendor rebates, and receivables arising from the normal course of business. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable based on a specific review of account balances. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recoverability is considered remote.

Inventory

Inventory, consisting principally of food, beverages, and supplies, is valued at the lower of first-in, first-out cost or market. Certain key ingredients (beef, pork, chicken, beans, rice, sour cream, cheese, and tortillas) are purchased from a small number of suppliers.

Investments

Investments classified as “trading” securities are carried at fair value with any unrealized gain or loss being recorded in the consolidated statement of income and comprehensive income. Investments classified as “available-for-sale” are carried at fair market value with unrealized gains and losses, net of tax, included as a component of other comprehensive income (loss). Held-to-maturity securities are carried at amortized cost. The Company recognizes impairment charges on its investments in the consolidated statement of income and comprehensive income when management believes the decline in the fair value of the investment is other-than-temporary.

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 and were $9,554, $7,756 and $9,024 for the years ended December 31, 2015, 2014 and 2013, respectively. Expenditures for major renewals and improvements are capitalized while expenditures for minor replacements, 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 reasonably assured option periods, or the estimated useful lives of the assets. Upon retirement or disposal of assets, the accounts are relieved of cost and accumulated depreciation and the related gain or loss, if any, is reflected in loss on disposal of assets in the consolidated statement of income and comprehensive income.

At least annually, the Company evaluates, and adjusts when necessary, the estimated useful lives of leasehold improvements, property and equipment. The changes in estimated useful lives did not have a material impact on depreciation in any period. The estimated useful lives are:

Leasehold improvements and buildings	3-20 years
Furniture and fixtures	4-7 years
Equipment	3-10 years

Goodwill

Goodwill represents the excess of cost over fair value of net assets of the business acquired. Goodwill is not subject to amortization, but instead is tested for impairment at least annually, and the Company is required to record any necessary impairment adjustments. Impairment is measured as the excess of the carrying value over the fair value of the goodwill. Based on the Company’s analysis, no impairment charges were recognized on goodwill for the years ended December 31, 2015, 2014 and 2013.

Other Assets

Other assets consist primarily of restricted cash assets of $22,572 and $19,889 as of December 31, 2015 and 2014, respectively, a rabbi trust as described further in Note 7, “Employee Benefit Plans,” transferable liquor licenses which are carried at the lower of fair value or cost, and rental deposits related to leased properties. Restricted cash assets are primarily insurance related restricted trust assets.

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. The Company manages its 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. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds the fair value of the asset. During the years ended December 31, 2015, 2014 and 2013, an aggregate impairment charge of $6,675, $0 and $1,220, respectively, was recognized in loss on disposal of assets in the consolidated statement of income and comprehensive income. During the year ended December 31, 2015, the impairment charges resulted from an internally developed software program that the Company chose not to implement and the related hardware, the

discontinued use of certain kitchen equipment from the Company’s restaurants, as well as restaurant relocations. Impairment charges for software and equipment write-offs were equal to the net book value of assets on the balance sheet. Fair value of relocated restaurants was determined using Level 3 inputs (as described below under “Fair Value Measurements”) based on a discounted cash flows method through the estimated date of closure.

Income Taxes

The Company recognizes deferred tax assets and liabilities at enacted income tax rates for the temporary differences between the financial reporting bases and the tax bases of its assets and liabilities. Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment. The deferred income tax impacts of investment tax credits are recognized as an immediate adjustment to income tax expense. When it is more likely than not that a portion or all of a deferred tax asset will not be realized in the future, the Company provides a corresponding valuation allowance against the deferred tax asset. When it is more likely than not that a position will be sustained upon examination by a tax authority that has full knowledge of all relevant information, the Company measures the amount of tax benefit from the position and records the largest amount of tax benefit that is greater than 50% likely of being realized after settlement with a tax authority. The Company’s policy is to recognize interest to be paid on an underpayment of income taxes in interest expense and any related statutory penalties in the provision for income taxes in the consolidated statement of income and comprehensive income.

Restaurant Pre-Opening Costs

Pre-opening costs, including rent, wages, benefits and travel for the training and opening teams, food and other restaurant operating costs, are expensed as incurred prior to a restaurant opening for business.

Insurance Liability

The Company maintains various insurance policies including workers’ compensation, employee health, general liability, automobile, and property damage. Pursuant to these policies, the Company is responsible for losses up to certain limits and is required to estimate a liability that represents the ultimate exposure for aggregate losses below those limits. This liability is based on management’s estimates of the ultimate costs to be incurred to settle known claims and, where applicable, claims not reported as of the balance sheet date. The estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions, and economic conditions. If actual trends differ from the estimates, the financial results could be impacted. As of December 31, 2015 and 2014, $28,391 and $25,596, respectively, of the estimated liability was included in accrued payroll and benefits and $11,898 and $8,359, respectively, was included in accrued liabilities in the consolidated balance sheet.

Advertising and Marketing Costs

Advertising and marketing costs are expensed as incurred and totaled $69,257, $57,290 and $44,389 for the years ended December 31, 2015, 2014 and 2013, respectively. Advertising and marketing costs are included in other operating costs in the consolidated statement of income and comprehensive income.

Rent

Rent expense for the Company’s leases, which generally have escalating rentals over the term of the lease, is recorded on a straight-line basis over the lease term. The lease term is the lesser of 20 years inclusive of reasonably assured renewal periods, or the lease term. The lease term begins when the Company has the right to control the use of the property, which is typically before rent payments are due under the lease. The difference between the rent expense and rent paid is recorded as deferred rent in the consolidated balance sheet. Pre-opening rent is included in pre-opening costs in the consolidated income statement. Tenant incentives used to fund leasehold improvements are recorded in deferred rent and amortized as reductions of rent expense over the term of the lease.

Additionally, certain of the Company’s operating leases contain clauses that provide additional contingent rent based on a percentage of sales greater than certain specified target amounts. The Company recognizes contingent rent expense provided the achievement of that target is considered probable.

Fair Value of Financial Instruments

The carrying value of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of their short-term nature.

Fair Value Measurements

Fair value is the price the Company 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 on a recurring basis, the Company determines 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 that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Foreign Currency Translation

The Company’s international operations generally 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 at the average monthly exchange rates during the year. Resulting translation adjustments are recorded as a separate component of other comprehensive income (loss) in the consolidated statement of income and comprehensive income.

Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The pronouncement was issued to clarify the principles for recognizing revenue and to develop a common revenue standard and disclosure requirements for U.S. GAAP and IFRS. The pronouncement is effective for reporting periods beginning after December 15, 2017. The expected adoption method of ASU 2014-09 is being evaluated by the Company and the adoption is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.

In June 2014, the FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718).” The pronouncement was issued to clarify the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The pronouncement is effective for reporting periods beginning after December 15, 2015. The adoption of ASU 2014-12 is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40).” The pronouncement was issued to provide guidance concerning accounting for fees in a cloud computing arrangement. The pronouncement is effective for reporting periods beginning after December 15, 2015. The adoption of ASU 2015-05 is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330).” The pronouncement was issued to simplify the measurement of inventory and changes the measurement from lower of cost or market to lower of cost and net realizable value. This pronouncement is effective for reporting periods beginning after December 15, 2016. The adoption of ASU 2015-11 is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities." The pronouncement requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. These changes become effective for the Company's fiscal year beginning January 1, 2018. The expected adoption method of ASU 2016-01 is being evaluated by the Company and the adoption is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.

Recently Adopted Accounting Standard

In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes” which requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. Prior to the issuance of the standard, deferred tax liabilities and assets were required to be separately classified into a current amount and a noncurrent amount in the balance sheet. The new accounting guidance represents a change in accounting principle and the standard is required to be adopted in annual periods beginning after December 15, 2016. Early adoption is permitted and the Company elected to early adopt this guidance as of December 31, 2015 and to apply the guidance retrospectively to all periods presented. Accordingly, the Company reclassified the prior period amount of $18,968 related to its deferred tax asset from current to noncurrent, resulting in an offset to the noncurrent deferred income tax liability for the same amount for that period, according to the requirement to offset and present as a single amount. Because the application of this guidance affects classification only, such reclassifications did not have a material effect on the Company’s consolidated financial position or results of operations.

2. Supplemental Financial Information

Leasehold improvements, property and equipment were as follows:
	December 31,
	2015			2014
Land	$	13,052		$	11,062
Leasehold improvements and buildings		1,419,418			1,267,108
Furniture and fixtures		142,825			127,260
Equipment		362,800			315,230
		1,938,095			1,720,660
Accumulated depreciation		(720,875)			(613,676)
	$	1,217,220		$	1,106,984

Accrued liabilities were as follows:
	December 31,
	2015			2014
Gift card liability	$	51,055		$	48,105
Transaction tax payable		15,634			22,929
Treasury stock liability		25,178			0
Other accrued expenses		37,408			31,169
	$	129,275		$	102,203

3. Investments

As of December 31, 2015, the Company’s investments, consisting of U.S. treasury notes with maturities up to approximately two years, were classified as available-for-sale. As of December 31, 2014, the Company’s investments consisted of U.S. treasury notes and CDARS, certificates of deposit placed through an account registry service, with maturities up to approximately two years, and were classified as held-to-maturity. Fair market value of U.S. treasury notes is measured on a recurring basis based on Level 1 inputs and fair market value of CDARS is measured on a recurring basis based on Level 2 inputs (level inputs are described in Note 1 under “Fair Value Measurements”).

The Company designates the appropriate classification of its investments at the time of purchase based upon the intended holding period. During the year ended December 31, 2015, the Company transferred the classification of its investments from held-to-maturity to available-for-sale due to anticipated liquidity needs related to increased repurchases of shares of the Company’s common stock. The carrying value of held-to-maturity securities transferred to available-for-sale during the year ended December 31, 2015 was $1,040,850 and the fair market value of those securities was determined to be $1,038,138, resulting in an unrealized holding loss of $2,712. As a result, the Company recorded $2,468 ($1,522, net of tax) of unrealized holding losses in other comprehensive income (loss), and an other-than-temporary impairment charge of $244 in interest and other income (expense), in the consolidated statement

of income and comprehensive income. The Company determined its investments approximated fair value as of December 31, 2014, and no impairment charges were recognized on the Company’s investments for the years ended December 31, 2014 and 2013.

The Company has 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 7. “Employee Benefit Plans.”

4. Income Taxes

The components of the provision for income taxes are as follows:

	Year ended December 31,
	2015			2014			2013
Current tax:
U.S. Federal	$	244,470		$	248,219		$	165,731
U.S. State		37,957			41,225			39,136
Foreign		172			156			63
		282,599			289,600			204,930
Deferred tax:
U.S. Federal		11,000			(13,890)			5,238
U.S. State		699			(6,740)			(3,105)
Foreign		(2,288)			(3,075)			(1,330)
		9,411			(23,705)			803
Valuation allowance		2,255			3,034			1,300
Provision for income taxes	$	294,265		$	268,929		$	207,033

Actual taxes paid for each tax period were less than the current tax expense due to the excess tax benefit on stock-based compensation of $74,442, $21,667, and $38,379 during the years ended December 31, 2015, 2014, and 2013, respectively.

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

		Year ended December 31,
		2015			2014			2013
Statutory U.S. federal income tax rate		35.0	%		35.0	%		35.0	%
State income tax, net of related federal income tax benefit		3.6			3.7			4.2
Other		(0.4)			(1.1)			(0.5)
Effective income tax rate		38.2	%		37.6	%		38.7	%

In 2015 and 2014, the effective tax rate was lower than 2013 because there was a decrease in the state tax rate. Additionally, 2014 included a benefit from filing the 2013 tax returns, which included a non-recurring change in the estimate of usable employer credits.

Deferred income tax liabilities are taxes the Company expects to pay in future periods. Similarly, deferred income tax assets are recorded for expected reductions in taxes payable in future periods. Deferred income taxes arise because of the differences in the book and tax bases of certain assets and liabilities. Deferred income tax liabilities and assets consist of the following:

				December 31,
				2015			2014
							(as adjusted)
Long-term deferred income tax liability:
Leasehold improvements, property and equipment				$	192,125		$	175,808
Goodwill and other assets					1,696			1,519
Prepaid assets and other					8,297			6,091
Total long-term deferred income tax liability					202,118			183,418
Long-term deferred income tax asset:
Deferred rent					57,716			52,147
Gift card liability					3,171			1,451
Capitalized transaction costs					502			503
Stock-based compensation and other employee benefits					83,058			87,713
Foreign net operating loss carry-forwards					11,407			8,618
State credits					4,783			4,281
Allowances, reserves and other					18,577			14,656
Valuation allowance					(9,401)			(7,512)
Total long-term deferred income tax asset					169,813			161,857
Net long-term deferred income tax liability				$	32,305		$	21,561

As described in Note 1, the Company elected to early adopt FASB guidance ASU 2015-17 “Income Taxes” as of December 31, 2015 and to apply the guidance retrospectively to all periods presented related to the classification of current and noncurrent deferred tax assets and liabilities. Accordingly, the Company reclassified the prior period amount of $18,968 related to its net deferred tax asset from current to noncurrent, resulting in an offset to the noncurrent deferred income tax liability for the same amount for that period.

The unrecognized tax benefits are as follows:

	2015			2014			2013
Beginning of year		1,342			-			-
Increase resulting from prior year tax position		402			-			-
Increase resulting from current year tax position		2,032			1,342			-
End of year	$	3,776		$	1,342		$	-

The Company is open to federal and state tax audits until the applicable statutes of limitations expire. Tax audits by their very nature are often complex and can require several years to complete. The Company is no longer subject to U.S. federal tax examinations by tax authorities for tax years before 2012. For the majority of states where the Company has a significant presence, it is no longer subject to tax examinations by tax authorities for tax years before 2012. Some of the Company’s foreign net operating losses began expiring in 2015.

5. Shareholders’ Equity

Through December 31, 2015, the Company announced authorizations by its Board of Directors of the expenditure of an aggregate of up to $1,300,000 to repurchase shares of the Company’s common stock. The Company announced that its Board of Directors authorized the expenditure of up to an additional $300,000 on January 6, 2016 and $300,000 on February 2, 2016 to repurchase shares of its common stock. Under the remaining repurchase authorization, shares may be purchased from time to time in open market transactions, subject to market conditions.

The shares of common stock repurchased under authorized programs were 839, 154 and 336 for a total cost of $485,841, $87,996 and $109,987 during 2015, 2014 and 2013, respectively. As of December 31, 2015, $116,394 was available to be repurchased under the authorized programs. The Company repurchased 609 shares of common stock for a total cost of $270,013 from January 1, 2016 through February 3, 2016 under programs announced on December 4, 2015 and January 6, 2016. The shares repurchased are being held in treasury until such time as they are reissued or retired, at the discretion of the Board of Directors.

During 2015, 2014, and 2013, shares of common stock were netted and surrendered as payment for minimum statutory tax withholding obligations in connection with the exercise and vesting of outstanding stock awards. Shares surrendered by the participants in accordance with the applicable award agreements and plan are deemed repurchased by the Company but are not part of publicly announced share repurchase programs. For the years ended December 31, 2015, 2014, and 2013, the Company’s repurchases in connection with such netting and surrender were less than 1 share, 1 share, and 57 shares for a total cost of $12, $342, and $28,916 respectively.

6. Stock Based Compensation

The Company issues shares pursuant to the Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan (the “2011 Incentive Plan”), approved at the annual shareholders’ meeting on May 13, 2015. Shares issued pursuant to awards granted prior to the 2011 Incentive Plan were issued subject to previous stock plans. For purposes of counting the shares remaining available under the 2011 Incentive Plan, each share issuable pursuant to outstanding full value awards, such as restricted stock units and performance shares, will count as two shares used, whereas each share underlying a stock appreciation right or stock option will count as one share used. Under the 2011 Incentive Plan, 5,560 shares of common stock have been authorized and reserved for issuance to eligible participants, of which 2,988 represent shares that were authorized for issuance but not issued or subject to outstanding awards at December 31, 2015. The 2011 Incentive Plan is administered by the Compensation Committee of the Board of Directors, which has the authority to select the individuals to whom awards will be granted or to delegate its authority under the plan to the Company’s executive officers to make grants to non-executive officer level employees, to determine the type of awards and when the awards are to be granted, the number of shares to be covered by each award, the vesting schedule and all other terms and conditions of the awards. The exercise price for stock awards granted under the 2011 Incentive Plan cannot be less than fair market value at the date of grant.

Stock only stock appreciation rights (“SOSARs”) 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 six months which coincides with the notice period. The Company has also granted SOSARs and stock awards with performance vesting conditions and/or market vesting conditions. Compensation expense on SOSARs 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 the Company has 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.

Stock-based compensation recognized as capitalized development is included in leasehold improvements, property and equipment in the consolidated balance sheet. The following table sets forth stock-based compensation expense, including SOSARs and stock awards:

	Year ended December 31,
	2015			2014			2013
Stock-based compensation expense	$	59,465		$	97,618		$	64,781
Stock-based compensation expense, net of tax		36,666			60,084			39,465
Stock-based compensation expense recognized as capitalized development		1,554			1,178			1,124

The tables below summarize the option and SOSAR activity under the stock incentive plans (in thousands, except years and per share data):

	2015					2014					2013
	Shares		Weighted-Average Exercise Price Per Share			Shares		Weighted-Average Exercise Price Per Share			Shares		Weighted-Average Exercise Price Per Share
Outstanding, beginning of year	2,087		$	395.46		1,690		$	312.44		1,449		$	274.92
Granted	379		$	659.12		764		$	545.66		672		$	320.21
Exercised	(716)		$	297.25		(315)		$	310.32		(369)		$	176.23
Forfeited	(56)		$	554.73		(52)		$	419.74		(62)		$	329.76
Outstanding, end of year	1,694		$	490.70		2,087		$	395.46		1,690		$	312.44

	Shares		Weighted-Average Exercise Price Per Share			Weighted-Average Remaining Years of Contractual Life		Aggregate Intrinsic Value
Outstanding as of December 31, 2015	1,694		$	490.70		4.9		$	92,773
Vested and expected to vest as of December 31, 2015	1,640		$	486.10		4.8		$	92,622
Exercisable as of December 31, 2015	321		$	339.72		3.5		$	45,112

During the years ended December 31, 2014, and 2013, the Company granted SOSARs that include performance conditions, in amounts totaling 220 and 191 shares, respectively. No SOSARs that include performance conditions were granted during 2015. As of December 31, 2015, 426 SOSARs that include performance conditions were outstanding, of which 316 awards had met the performance conditions. In addition to time vesting described above, the shares vest upon achieving a targeted cumulative cash flow from operations. The total intrinsic value of options and SOSARs exercised during the years ended December 31, 2015, 2014 and 2013 was $260,466, $88,245 and $91,178. Unearned compensation as of December 31, 2015 was $40,298 for SOSAR awards, and is expected to be recognized over a weighted average period of 1.5 years.

The following table reflects the average assumptions utilized in the Black-Scholes option-pricing model to value SOSAR awards granted for each year:

		2015				2014				2013
Risk-free interest rate			1.1	%			0.8	%			0.5	%
Expected life (years)			3.4				3.4				3.4
Expected dividend yield			0.0	%			0.0	%			0.0	%
Volatility			30.8	%			33.3	%			35.4	%
Weighted-average Black-Scholes fair value per share at date of grant		$	156.32			$	136.18			$	82.51

The Company has not paid dividends to date and does not plan to pay dividends in the near future. The risk-free interest rate is based upon U.S. Treasury rates for instruments with similar terms. The volatility assumption was based on the Company’s historical data and implied volatility, and the expected life assumptions were based on the Company’s historical data.

A summary of non-vested stock award activity under the stock incentive plans is as follows (in thousands, except per share data):

	2015					2014					2013
	Shares		Grant Date Fair Value Per Share			Shares		Grant Date Fair Value Per Share			Shares		Grant Date Fair Value Per Share
Outstanding, beginning of year	70		$	525.60		71		$	520.27		120		$	218.34
Granted	47		$	785.32		2		$	495.92		68		$	527.45
Vested	(1)		$	413.07		(2)		$	284.11		(117)		$	215.76
Forfeited	-		$	534.55		(1)		$	410.55		—		$	—
Outstanding, end of year	116		$	511.88		70		$	525.60		71		$	520.27

At December 31, 2015, 106 of the outstanding non-vested stock awards were subject to performance and/or market conditions, in addition to service vesting conditions. During the year ended December 31, 2013, the Company granted 66 stock awards that were subject to both service and performance vesting conditions (“the 2013 stock awards”). The quantity of shares that ultimately vest is determined based on the cumulative cash flow from operations reached during the three year period ending on September 30, 2016. The quantity of shares awarded ranges from 0% to 100% based on the level of achievement of the performance conditions. If the cumulative cash flow from operations during the three year period does not reach a specified level, no shares will vest. During the year ended December 31, 2015, the Company reduced its estimate of the number of the 2013 stock awards that it expects will vest, which resulted in a cumulative adjustment to expense of $10,851 ($6,691 net of tax as well as $.22 to basic and $.21 diluted earnings per share).

During the year ended December 31, 2015, the Company awarded 40 performance shares that were subject to service, performance, and market vesting conditions (“the 2015 stock awards”). The quantity of shares that will ultimately vest is determined based on Chipotle’s relative performance versus a restaurant industry peer group in the annual average of: revenue growth, net income growth, and total shareholder return. The quantity of shares awarded ranges from 0% to 200% based on the level of achievement of the performance and market conditions. If minimum targets are not met, then no shares will vest. Each performance and market measure will be weighted equally, and performance is calculated over a three year period beginning January 1, 2015 through December 31, 2017. During the year ended December 31, 2015, the Company reduced its estimate of the number of the 2015 stock awards that it expects will vest, which resulted in a cumulative adjustment to expense of $1,344 ($829 net of tax and $.03 to basic and diluted earnings per share).

The Company’s measurement of the grant date fair value of the 2015 stock awards included using a Monte Carlo simulation model, which incorporates into the fair-value determination the possibility that the market condition may not be satisfied, using the following assumptions:

										2015
Risk-free interest rate											1.0	%
Expected life (years)											2.9
Expected dividend yield											0.0	%
Volatility											33.7	%

Unearned compensation as of December 31, 2015 was $19,511 for non-vested stock awards the Company has determined are probable of vesting, and is expected to be recognized over a weighted average period of 1.6 years. The fair value of shares earned as of the vesting date during the year ended December 31, 2015, 2014, and 2013 was $634, $783, and $58,941, respectively.

7. Employee Benefit Plans

The Company maintains the Chipotle Mexican Grill 401(k) Plan (the “401(k) Plan”). The Company matches 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 the Company. For the years ended December 31, 2015, 2014, and 2013, Company matching contributions totaled approximately $4,995, $3,881 and $2,644, respectively.

The Company also offers an employee stock purchase plan (“ESPP”). Employees become eligible to contribute after one year of service with the Company and may contribute up to 15% of their base earnings, subject to an annual maximum dollar amount, toward the monthly purchase of the Company’s common stock. Under the ESPP, 250 shares of common stock have been authorized and reserved for issuances to eligible employees, of which 248 represent shares that were authorized for issuance but not issued at December 31, 2015. For each of the years ended December 31, 2015, 2014, and 2013, the number of shares issued under the ESPP were less than 1.

The Company also maintains the Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan (the “Deferred Plan”) which covers eligible employees of the Company. 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, 2015 and 2014 were $18,331 and $16,147, respectively, and are included in other long-term liabilities in the consolidated balance sheet. The Company matches 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. For the years ended December 31, 2015, 2014, and 2013, the Company made deferred compensation matches of $617, $536 and $201 respectively, to the Deferred Plan.

The Company has elected to fund its deferred compensation obligations 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, as selected by participants, which are designated as trading securities and carried at fair value, and are included in other assets in the consolidated balance sheet. Fair value of mutual funds is measured using Level 1 inputs (quoted prices for identical assets in active markets), and the fair values of the investments in the rabbi trust were $18,331 and $16,147 as of December 31, 2015 and 2014, respectively. The Company records trading gains and losses in general and administrative expenses in the consolidated statement of income and comprehensive income, along with the offsetting amount related to the increase or decrease in deferred compensation to reflect its exposure of the Deferred Plan liability. The following table sets forth unrealized gains and losses on investments held in the rabbi trust:

				Year ended December 31,
				2015			2014			2013
Unrealized gains (losses) on investments held in rabbi trust				$	(571)		$	184		$	722

8. Leases

The Company generally operates its restaurants in leased premises. Lease terms for traditional shopping center or building leases generally include combined initial and option terms of 20-25 years. Ground leases generally include combined initial and option terms of 30-40 years. The option terms in each of these leases are typically in five-year increments. Typically, the lease includes rent escalation terms every five years including fixed rent escalations, escalations based on inflation indexes, and fair market value adjustments. Certain leases contain contingent rental provisions based upon the sales of the underlying restaurants. The leases generally provide for the payment of common area maintenance, property taxes, insurance and various other use and occupancy costs by the Company. In addition, the Company is the lessee under non-cancelable leases covering certain offices.

Future minimum lease payments required under existing operating leases as of December 31, 2015 are as follows:

2016	$	239,683
2017		241,366
2018		244,698
2019		245,251
2020		239,933
Thereafter		2,257,081
Total minimum lease payments	$	3,468,012

Minimum lease payments have not been reduced by minimum sublease rentals of $6,217 due in the future under non-cancelable subleases.

Rental expense consists of the following:

	Year ended December 31,
	2015			2014			2013
Minimum rentals	$	227,602		$	200,575		$	178,395
Contingent rentals	$	4,542		$	4,616		$	2,719
Sublease rental income	$	(1,879)		$	(1,838)		$	(1,726)

The Company has six sales and leaseback transactions. These transactions do not qualify for sale leaseback accounting because of the Company’s deemed continuing involvement with the buyer-lessor due to fixed price renewal options, which results in the transaction being recorded under the financing method. Under the financing method, the assets remain on the consolidated balance sheet 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 $3,060 and $3,233 as of December 31, 2015, and 2014, respectively, with the current portion of the liability included in accrued liabilities, and the remaining portion included in other liabilities in the consolidated balance sheet.

9. 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 antidilutive. The following stock awards were excluded from the calculation of diluted EPS:

		Year ended December 31,
		2015			2014			2013
Stock awards subject to performance conditions			266			385			381
Stock awards that were antidilutive			289			232			393
Total stock awards excluded from diluted earnings per share			555			617			774

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

		Year ended December 31,
		2015			2014			2013
Net income		$	475,602		$	445,374		$	327,438
Shares:
Weighted average number of common shares outstanding			31,092			31,038			30,957
Dilutive stock awards			402			474			324
Diluted weighted average number of common shares outstanding			31,494			31,512			31,281
Basic earnings per share		$	15.30		$	14.35		$	10.58
Diluted earnings per share		$	15.10		$	14.13		$	10.47

10. Commitments and Contingencies

Purchase Obligations

The Company enters into various purchase obligations in the ordinary course of business, generally of 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

Receipt of Grand Jury Subpoenas

In December 2015, the Company was served with a Federal Grand Jury Subpoena from the U.S. District Court for the Central District of California in connection with an official criminal investigation being conducted by the U.S. Attorney’s Office for the Central District of California, in conjunction with the U.S. Food and Drug Administration’s Office of Criminal Investigations. The subpoena required the Company to produce a broad range of documents related to a Chipotle restaurant in Simi Valley, California, that experienced an isolated norovirus incident during August 2015. On January 28, 2016, the Company was served with an additional subpoena broadening the investigation and requiring the production of documents and information related to company-wide food safety matters dating back to January 1, 2013. The Company has been informed that this subpoena supersedes the subpoena served in December 2015, which has been withdrawn. The Company intends to fully cooperate in the investigation. It is not possible at this time to determine whether the Company will incur, or to reasonably estimate the amount of, any fines or penalties in connection with the investigation pursuant to which the subpoena was issued.

Shareholder 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 the Company’s common stock between February 4, 2015 and January 5, 2016. The complaint purports to state claims against the Company, each of its co-Chief Executive Officers and its Chief Financial Officer under Sections 10(b) and 20(a) of the Exchange Act and related rules, based on the Company’s alleged failure during the claimed class period to disclose material information about the Company’s 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 the Company’s 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. The Company intends to defend this case vigorously, but it is not possible at this time to reasonably estimate the outcome of or any potential liability from the case.

Notices of Inspection of Work Authorization Documents and Related Civil and Criminal Investigations

Following an inspection during 2010 by the U.S. Department of Homeland Security, or DHS, of the work authorization documents of the Company’s restaurant employees in Minnesota, the Immigration and Customs Enforcement arm of DHS, or ICE, issued to the Company a Notice of Suspect Documents identifying a large number of employees who, according to ICE and notwithstanding the Company’s review of work authorization documents for each employee at the time they were hired, appeared not to be authorized to work in the U.S. The Company approached each of the named employees to explain ICE’s determination and afforded each employee an opportunity to confirm the validity of their original work eligibility documents, or provide valid work eligibility documents. Employees who were unable to provide valid work eligibility documents were terminated in accordance with the law. In December 2010, the Company was also requested by DHS to provide the work authorization documents of restaurant employees in the District of Columbia and Virginia, and the Company provided the requested documents in January 2011. The Company subsequently received requests from the office of the U.S. Attorney for the District of Columbia for work authorization documents covering all of the Company’s employees since 2007, plus employee lists and other documents concerning work authorization. The Company believes its practices with regard to the work authorization of its employees, including the review and retention of work authorization documents, are in compliance with applicable law. However, the termination of large numbers of employees in a short period of time does disrupt restaurant operations and results in a temporary increase in labor costs as new employees are trained.

In May 2012, the U.S. Securities and Exchange Commission notified the Company that it is conducting a civil investigation of the Company’s compliance with employee work authorization verification requirements and its related disclosures and statements, and the office of the U.S. Attorney for the District of Columbia advised the Company that its investigation has broadened to include a parallel criminal and civil investigation of the Company’s compliance with federal securities laws. The Company intends to continue

to fully cooperate in the government’s investigations. It is not possible at this time to determine whether the Company will incur, or to reasonably estimate the amount of, any fines, penalties or further liabilities in connection with these matters.

Miscellaneous

The Company is involved in various other claims and legal actions that arise in the ordinary course of business. The Company does not believe that the ultimate resolution of these actions will have a material adverse effect on the Company’s 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 the Company incurs greater liabilities than the Company currently anticipates, could materially and adversely affect the Company’s business, financial condition, results of operations and cash flows.

11. Quarterly Financial Data (Unaudited)

Summarized unaudited quarterly financial data:

					2015
					March 31			June 30			September 30			December 31
Revenue					$	1,089,043		$	1,197,783		$	1,216,890		$	997,507
Operating income					$	197,801		$	227,416		$	234,759		$	103,613
Net income					$	122,641		$	140,204		$	144,883		$	67,874
Basic earnings per share					$	3.95		$	4.51		$	4.65		$	2.19
Diluted earnings per share					$	3.88		$	4.45		$	4.59		$	2.17
					2014
					March 31			June 30			September 30			December 31
Revenue					$	904,163		$	1,050,073		$	1,084,222		$	1,069,811
Operating income					$	135,650		$	179,842		$	207,436		$	187,872
Net income					$	83,069		$	110,270		$	130,801		$	121,234
Basic earnings per share					$	2.67		$	3.55		$	4.22		$	3.91
Diluted earnings per share					$	2.64		$	3.50		$	4.15		$	3.84