Chipotle Mexican Grill (CMG) 10-K risk factor changes: FY2016 vs FY2015

Risks Related to Food Safety Incidents that Occurred During 2015

Our system-wide restaurant sales were adversely impacted beginning in the fourth quarter of 2015 by food safety incidents associated with our restaurants, and we may not be able to regain lost sales.

During late October and early November 2015, illnesses caused by E. coli bacteria were connected to a number of our restaurants, initially in Washington and Oregon, and subsequently to small numbers of our restaurants in as many as 12 other states.

As a result of these reported illnesses and related restaurant closures for remediation, our company-wide sales were adversely impacted, with significant declines in our comparable restaurant sales in the days immediately following announcements related to the incidents.

During the week of December 7, 2015, an unrelated incident involving norovirus was reported at a Chipotle restaurant in Brighton, Massachusetts, which worsened the adverse financial and operating impacts we experienced from the earlier E. coli incident.

As a result, comparable restaurant sales (which represent the change in period-over-period sales for restaurants beginning in their 13th full month of operations) declined 14.6% for the fourth quarter of 2015, including a 30% decline in December 2015.

Subsequent announcements and publicity regarding food safety incidents in our restaurants and the related criminal investigation described in Note 10.

“Commitments and Contingencies” in our consolidated financial statements included in Item 8.

“Financial Statements and Supplementary Data” had an additional negative impact on our sales trends, with comparable restaurant sales declining over 36% in January 2016.

We believe the impact of these incidents on our sales has been exacerbated in part by the high expectations many customers have for us as a result of our Food With Integrity mission, and our failure to meet those expectations may make recovery more difficult for us.

Additionally, the significant amount of media coverage regarding these incidents and the impact of social media (which was not in existence during many past food safety incidents involving other restaurant chains) in increasing the awareness of these incidents may also negatively impact our ability to recover from these incidents.

As a result of the foregoing factors, it may take longer for our sales, and customer perception of our brand, to recover than has been the case during past food safety incidents associated with other restaurant chains, and our sales may not recover at all.

Even if we are able to regain lost customers, we may not recover to the same average restaurant sales we were achieving prior to the fourth quarter of 2015.

We define average restaurant sales as the average trailing 12-month sales for restaurants in operation for at least 12 full calendar months.

In an effort to invite customers back into our restaurants, we are planning a number of marketing and promotional activities beginning in the first quarter of 2016, including distributing a large number of promotional offers for free or discounted food.

The costs associated with these and other marketing activities will negatively impact our profitability.

Additionally, these activities may not entice customers to visit our restaurants, and even if they do they may not result in customers returning for subsequent visits, and therefore may not be successful in helping us restore lost sales.

Declines in comparable restaurant sales have a significant adverse impact on our profitability, as described further under “Risks Related to our Growth Strategy and Future Expansion – Our sales and profitability will be adversely affected if comparable restaurant sales continue to decline or otherwise fail to meet expectations in the future.”

Changes we have made in our operations, or that we make in the future, to further enhance the safety of the food we serve will adversely impact our financial performance and may negatively impact customer perception of our brand.

As a result of the food safety incidents associated with our restaurants during 2015, we have implemented a number of enhancements to our food safety protocols, and intend to make additional enhancements, to ensure that our food is as safe as it can be.

Many of our new procedures, which go beyond the industry-standard food safety practices that we were previously following, will increase the cost of some ingredients or the amount of labor required to prepare and serve our food.

If we aren’t able to increase sales to offset the increased costs resulting from these changes, our margins will fall well short of levels we have historically achieved.

Even if we were to restore sales to levels we were achieving prior to the food safety incidents, the increased costs from these changes will result in lower margins than we were able to achieve in the past.

Additionally, some of the enhanced food safety procedures we have introduced or may introduce in the future rely on increased use of centralized food preparation, additional in-restaurant preparation steps, or new ingredients, some or all of which may be inconsistent with previous customer perceptions of our restaurant operations.

To the extent customers perceive any of these developments as a move away from our Food With Integrity strategy and/or towards a more traditional fast food experience, our ability to win back customers may be adversely impacted and our sales may decline or recover more slowly than they otherwise would have.

Regulatory actions and litigation related to food safety incidents that impacted us beginning in the fourth quarter of 2015 may adversely impact us.

We are facing ongoing government investigations into the food safety incidents that occurred in 2015, including the criminal investigation described in Note 10.

“Commitments and Contingencies” in our consolidated financial statements included in Item 8.

“Financial Statements and Supplementary Data.” We also have received numerous claims from customers who were or claim to have been impacted by these incidents, and a number of those claimants have filed lawsuits against us.

We are cooperating in the government investigations and with many of the customers impacted by these incidents, but will incur significant legal and other costs in doing so.

We have also been sued in a shareholder class action lawsuit in connection with the decline in our stock price in the wake of the food safety incidents, and defending this lawsuit will subject us to significant legal expense.

Additionally, the liabilities from customer claims and related litigation expenses may be greater than we anticipate due to the uncertainties inherent in litigation.

All of these costs, liabilities and expenses will negatively impact our operating results.

Moreover, publicity regarding any legal proceedings related to food safety incidents may increase or prolong consumer awareness of the incidents or otherwise negatively impact perceptions of our brand, which may hamper our ability to regain lost sales or attract new customers to our restaurants.

Any further instances of food-borne or localized illnesses associated with our restaurants would result in increased negative publicity and further adverse impact on customer perceptions of our brand, which would likely result in further declines in our sales.

Because of customer perceptions about our restaurants and brand in the wake of the food safety incidents described above, any future occurrence of food-borne illness associated with our restaurants would likely have an even more significant negative impact on our sales and our ability to regain customers.

Although we have followed industry standard food safety protocols in the past and are further enhancing our food safety procedures to ensure that our food is as safe as it can be, we may still be at a higher risk for food-borne illness occurrences than some competitors due to our greater use of fresh, unprocessed produce and meats, our reliance on employees cooking with traditional methods rather than automation, and our avoiding frozen ingredients.

And in any event, no food safety protocols can completely eliminate the risk of food-borne illness in any restaurant, so our enhanced food safety protocols may not be successful in preventing a food-borne illness incident in the future.

The risk of illnesses associated with our food might also increase in connection with an expansion of our catering business or other situations in which our food is served in conditions we cannot control.

Even if food-borne illnesses arise from conditions outside of our control, the negative impact from any such illnesses is likely to be significant.

[removed: 2015] [added: 2016] Highlights and Trends

[removed: Beginning in the fourth quarter] [added: Our sales and profitability were adversely impacted throughout 2016 as a result] of [removed: 2015, significant publicity regarding] a number of food-borne illness incidents associated with Chipotle restaurants in as many as 15 [removed: states had a severe adverse impact on our sales] [added: states, which were widely reported during the fourth quarter of 2015] and [removed: profitability.][added: the first quarter of 2016.]

[removed: As] [added: Additionally, as] part of our response to the food-borne illness incidents, we [removed: are implementing] [added: have implemented] enhanced food safety procedures in our supply chain and restaurants that [removed: we expect to increase] [added: have increased] our food costs as a percentage of revenue.

We [removed: expect] [added: anticipate that] the ongoing [removed: net] impact of the enhanced food safety procedures on our food [removed: and labor] costs as a percentage of revenue [removed: to] [added: will] be approximately [removed: 2% when fully implemented and after our operations are normalized.][added: 1% compared to pre-crisis levels.]

Average restaurant sales were [removed: $2.424] [added: $1.868] million as of December 31, [removed: 2015,] [added: 2016,] decreasing from [removed: $2.472] [added: $2.424] million as of December 31, [removed: 2014.][added: 2015.]

We define average restaurant sales as the average trailing 12-month sales for restaurants in operation for at least 12 full calendar [removed: months, and as a result, the foregoing average restaurant sales include approximately 10 months of operations prior to the adverse impact of the food-borne illness incidents described above.][added: months.]

In accordance with stock repurchases authorized by our Board of Directors, we purchased shares of our common stock during [removed: 2015] [added: 2016] with an aggregate total repurchase price of [removed: $485.8] [added: $813.9] million.

As of December 31, [removed: 2015, $116.4] [added: 2016, $102.6] million was available for stock repurchases under the [removed: authorization] [added: authorizations] announced on [removed: December 4, 2015.][added: May 11, 2016 and October 25, 2016.]

[removed: We] [added: On January 10, 2017, we] also announced authorizations by our Board of Directors of up to an additional [removed: $300] [added: $100] million in common stock [removed: repurchases on January 6, 2016 and up to another additional $300 million on February 2, 2016.][added: repurchases.]

| | [removed: 2015] [added: 2016] | | [removed: 2014] [added: 2015] | | [removed: 2013] [added: 2014] |

| Beginning of [removed: year] [added: period] | [removed: 1,783] [added: 2,010] | | [removed: 1,595] [added: 1,783] | | [removed: 1,410] [added: 1,595] |

| Openings | [removed: 229] [added: 243] | | [removed: 192] [added: 229] | | [removed: 185] [added: 192] |

| [removed: Relocations] [added: Relocations/closures] | [removed: (2)] [added: (3)] | | [removed: (4)] [added: (2)] | | [removed: \-] [added: (4)] |

| Total restaurants at end of [removed: year] [added: period] | [removed: 2,010] [added: 2,250] | | [removed: 1,783] [added: 2,010] | | [removed: 1,595] [added: 1,783] |

| | Year ended December 31, | | | | | | | | | % [removed: increase] [added: increase/] (decrease) | | % [removed: increase] [added: increase/ (decrease)] |

| | [removed: 2015] [added: 2016] | | | [removed: 2014] [added: 2015] | | | [removed: 2013] [added: 2014] | | | [removed: 2015] [added: 2016] over [removed: 2014] [added: 2015] | | [removed: 2014] [added: 2015] over [removed: 2013] [added: 2014] |

| Revenue | $ | [removed: 4,501.2] [added: 3,904.4] | | $ | [removed: 4,108.3] [added: 4,501.2] | | $ | [removed: 3,214.6] [added: 4,108.3] | | [removed: 9.6%] [added: (13.3%)] | | [removed: 27.8%] [added: 9.6%] |

| Average restaurant sales | $ | [removed: 2.424] [added: 1.868] | | $ | [removed: 2.472] [added: 2.424] | | $ | [removed: 2.169] [added: 2.472] | | [removed: (1.9%)] [added: (22.9%)] | | [removed: 14.0%] [added: (1.9%)] |

| Comparable restaurant sales [removed: increases] | | [removed: 0.2%] [added: (20.4%)] | | | [removed: 16.8%] [added: 0.2%] | | | [removed: 5.6%] [added: 16.8%] | | | | |

| Number of restaurants as of the end of the period | | [removed: 2,010] [added: 2,250] | | | [removed: 1,783] [added: 2,010] | | | [removed: 1,595] [added: 1,783] | | [removed: 12.7%] [added: 11.9%] | | [removed: 11.8%] [added: 12.7%] |

| Number of restaurants opened in the period, net of [removed: relocations] [added: relocations/closures] | | [removed: 227] [added: 240] | | | [removed: 188] [added: 227] | | | [removed: 185] [added: 188] | | | | |

Revenue from restaurants not yet in the comparable base contributed $390.4 million of the increase in sales in 2015, of which $183.6 million was attributable to restaurants opened during [removed: the year.][added: 2015.]

[removed: Restaurant] [added: Comparable restaurant] sales [added: decreased $914.7 million while revenue] from restaurants not yet in the comparable [added: restaurant] base contributed [removed: $364.7 million of the increase in sales in 2014,] [added: $323.9 million,] of which [removed: $173.9] [added: $156.2] million was attributable to restaurants opened [removed: during the year.][added: in 2016.]

| | Year ended December 31, | | | | | | | | | % increase | | % [removed: increase] [added: decrease] |

| Food, beverage and packaging | $ | [removed: 1,503.8] [added: 1,365.6] | | $ | [removed: 1,421.0] [added: 1,503.8] | | $ | [removed: 1,073.5] [added: 1,421.0] | | [removed: 5.8%] [added: (9.2%)] | | [removed: 32.4%] [added: 5.8%] |

| As a percentage of revenue | | [removed: 33.4%] [added: 35.0%] | | | [removed: 34.6%] [added: 33.4%] | | | [removed: 33.4%] [added: 34.6%] | | | | |

| Labor costs | $ | [removed: 1,045.7] [added: 1,105.0] | | $ | [removed: 904.4] [added: 1,045.7] | | $ | [removed: 739.8] [added: 904.4] | | [removed: 15.6%] [added: 5.7%] | | [removed: 22.3%] [added: 15.6%] |

| As a percentage of revenue | | [removed: 23.2%] [added: 28.3%] | | | [removed: 22.0%] [added: 23.2%] | | | [removed: 23.0%] [added: 22.0%] | | | | |

Labor costs as a percentage of revenue increased in 2015 [added: compared to full year 2014] due primarily to wage inflation and an increased number of crew and managers in each of our restaurants caused by scheduling inefficiencies occurring earlier in the year.

| Occupancy costs | $ | [removed: 262.4] [added: 293.6] | | $ | [removed: 230.9] [added: 262.4] | | $ | [removed: 199.1] [added: 230.9] | | [removed: 13.7%] [added: 11.9%] | | [removed: 16.0%] [added: 13.7%] |

| As a percentage of revenue | | [removed: 5.8%] [added: 7.5%] | | | [removed: 5.6%] [added: 5.8%] | | | [removed: 6.2%] [added: 5.6%] | | | | |

[removed: Occupancy] [added: In 2015, occupancy] costs [added: increased] as a percentage of revenue [removed: increased in 2015] primarily due to higher average rents for new locations.

[removed: In 2014, occupancy] [added: Occupancy] costs [removed: decreased] as a percentage of revenue [added: increased in 2016] primarily due to [removed: the benefit of higher] [added: lower] average restaurant sales on a partially fixed-cost base.

| Other operating costs | $ | [removed: 515.0] [added: 642.0] | | $ | [removed: 434.2] [added: 515.0] | | $ | [removed: 347.4] [added: 434.2] | | [removed: 18.6%] [added: 24.7%] | | [removed: 25.0%] [added: 18.6%] |

| As a percentage of revenue | | [removed: 11.4%] [added: 16.4%] | | | [removed: 10.6%] [added: 11.4%] | | | [removed: 10.8%] [added: 10.6%] | | | | |

Other operating costs increased [added: as a percentage of revenue] in 2015 due primarily to a change in the classification of kitchen gloves out of food, beverage, and packaging costs beginning in 2015, and higher marketing and promotional costs.

| General and administrative expense | $ | [removed: 250.2] [added: 276.2] | | $ | [removed: 273.9] [added: 250.2] | | $ | [removed: 203.7] [added: 273.9] | | [removed: (8.6%)] [added: 10.4%] | | [removed: 34.4%] [added: (8.6%)] |

| As a percentage of revenue | | [removed: 5.6%] [added: 7.1%] | | | [removed: 6.7%] [added: 5.6%] | | | [removed: 6.3%] [added: 6.7%] | | | | |

The decrease in general and administrative expenses in dollar terms [removed: for] [added: in] 2015 primarily resulted from decreased non-cash stock-based compensation expense, lower bonus expense, and decreased expense associated with our biennial All Managers’ [removed: Conference, or AMC,] [added: Conference] held [removed: in the third quarter of 2014.][added: during 2014, partially offset by higher payroll costs as we grew.]

[removed: The decrease was] [added: Stock-based compensation expense decreased $39.4 million] primarily due to a change in the structure of our executive compensation, as well as a decrease in our estimate of non-vested performance stock awards that we expect to [removed: vest, resulting in a cumulative adjustment during the fourth quarter of 2015 reducing expense by $12.2 million.][added: vest.]

Steve Ells, our founder, Chairman and CEO, started Chipotle with the idea that food served fast did not have to be a typical fast food experience.

Today, Chipotle continues to offer a focused menu of burritos, tacos, burrito bowls, and salads made from fresh, high-quality raw ingredients, prepared using classic cooking methods and served in an interactive style allowing people to get what they want.

Chipotle seeks out extraordinary ingredients that are not only fresh, but that are raised responsibly, with respect for the animals, land, and people who produce them.

Chipotle prepares its food using whole, unprocessed ingredients and without the use of added colors, flavors or other additives typically found in fast food.

Chipotle opened with a single restaurant in Denver in 1993 and as of December 31, 2016, operated 2,250 restaurants.

Our focus during 2017 is to return to sales and profitability growth and restore our restaurant economic model.

To do so, we have a renewed focus on ensuring that every guest in every one of our restaurants is provided with an excellent customer experience.

Operating Results.

Our comparable restaurant sales trends have improved sequentially for each quarter during 2016 as shown below:

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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | |

| | 2016 | | | | | | | | | | | | | |

| | | Mar. 31 | | | Jun. 30 | | | Sep. 30 | | | Dec. 31 | | | Full year |

| Comparable restaurant sales declines | | (29.7%) | | | (23.6%) | | | (21.9%) | | | (4.8%) | | | (20.4%) |

| Impact of deferred revenue on comparable restaurant sales | | \- | | | \- | | | (0.8%) | | | 0.5% | | | (0.1%) |

Our sales comparisons were lapping an easier compare in the fourth quarter due to lower sales levels in November and December 2015 as a result of the food-borne illness incidents.

Comparable restaurant sales decreases were driven primarily by a 14.4% decrease in the number of transactions for the full year 2016, and to a lesser extent by decreases in average check.

During the full year 2016, our restaurant operating costs (food, beverage and packaging; labor; occupancy; and other operating costs) as a percent of revenue increased 13.3% as compared to the full year 2015.

About 6.2% of the increase was attributable to sales deleveraging, while incremental marketing and promotional spend aimed at regaining our customers, combined with additional labor to support the sales promotions, contributed about 3.1% to the increase.

As of December 31, 2016, we had 2,250 restaurants in operation, including 2,198 Chipotle restaurants throughout the United States, with an additional 29 international Chipotle restaurants and 23 non-Chipotle restaurants that were consolidated into our financial results.

We opened 240 restaurants in 2016, net of relocations and closures, which contributed $156.2 million to revenue.

In the fourth quarter of 2016, we announced that we were exploring strategic alternatives for our 15 ShopHouse Southeast Asian Kitchen restaurants, and as a result, we recognized a non-cash impairment charge of $14.5 million.

Management and Governance Enhancements.

In the fourth quarter of 2016, we announced that our Board of Directors named Steve Ells as our sole chief executive officer, and that Monty Moran, formerly our co-Chief Executive Officer, had stepped down from his officer and board positions and will retire effective June 9, 2017.

On December 19, 2016, we also announced the appointment of four new members to our Board of Directors, two of whom were nominated by Pershing Square Capital Management, L.P., which, together with its affiliates, we believe to be our largest shareholder.

2017 Outlook

We are targeting comparable restaurant sales increases in the high single digits for the full year 2017 as comparisons become easier in the first half of 2017, and based on our plans to attract more customers with a variety of marketing activities and improvements to our digital ordering platforms, and by improving the quality of the customer experience we provide in our restaurants.

Restaurant Operating Costs.

We expect to reduce restaurant level operating costs as a percent of revenue for the full year 2017.

Our expectation is based in part on the increased sales we are anticipating and the resulting leverage in fixed operating costs, but we are forecasting additional improvements as well.

We expect food, beverage and packaging costs to decrease as a percent of revenue due to relief in avocado prices and more efficient food management.

We also believe that other operating expenses will decline compared to 2016 as we reduce marketing and promotional spend as a percent of revenue from the elevated levels of 2016, although we still plan for these expenses in 2017 to be above historical levels.

Other Expense Items and Restaurant Development Plans.

We expect that general and administrative expenses will increase in 2017 due to higher non-cash stock-based compensation expense and higher bonuses, although underlying general and administrative expenses for the year should remain relatively consistent with 2016.

The expected increase in stock based compensation is primarily a result of lower expense in 2016 due to an expense reversal for performance-based stock awards that did not vest, as well as higher expense in 2017 due to a planned retention award for non-executive employees and broadening the group of non-executive employees eligible for awards.

We expect to realize cost efficiencies in the development of our restaurants in 2017 by simplifying our restaurant design, and choosing real estate sites, such as end-caps, that can more easily and cost-efficiently be converted into Chipotle restaurants.

We intend to open between 195 and 210 restaurants for the full year 2017.

Most of our 2017 restaurant openings are planned in markets that are proven or already have a Chipotle presence established.

Tax Rates.

Chipotle operates fresh Mexican food restaurants serving burritos, tacos, burrito bowls (a burrito without the tortilla) and salads.

We began with a simple philosophy: demonstrate that food served fast doesn’t have to be a traditional “fast-food” experience.

We do this by avoiding a formulaic approach when creating our restaurant experience, looking to fine dining restaurants for inspiration.

We use high-quality raw ingredients, classic cooking methods and distinctive interior design, and have friendly people to take care of each customer—features that are more frequently found in the world of fine dining.

Our approach is also guided by our belief in an idea we call “Food With Integrity.” Our objective is to find the highest quality, safest ingredients we can—ingredients that are grown or raised with respect for the environment, animals, and people who grow or raise the food.

A similarly focused people culture, with an emphasis on identifying and empowering top-performing employees, enables us to develop future leaders from within.

We believe that these fundamental principles can be adapted to other cuisines as well.

Food-Borne Illness Incidents.

As a result of these incidents, comparable restaurant sales declined 14.6% for the fourth quarter of 2015, including a decline of 30% for the month of December, and the decline worsened to over 36% in January 2016.

We anticipate some improvement in sales trends as a result of the announcement on February 1, 2016 by the U.S. Centers for Disease Control and Prevention that it has closed its investigation into the E. coli incidents that first led to the significant decline in our comparable restaurant sales.

However, due to the uncertainties created by the food-borne illness incidents, we are unable to provide estimates of any future movements in comparable restaurant sales.

We plan to increase marketing and promotional spending considerably during the first half of 2016, including significant use of free and discounted food promotions, in an effort to attract customers back to our restaurants and reverse negative sales trends.

In addition to the impact on sales, the food-borne illness incidents resulted in non-recurring expenses in the fourth quarter of 2015 of approximately $16.0 million, which includes food waste, impairment charges for kitchen equipment that will no longer be used, insurance claim estimates, increased marketing expenses, lab analysis of food samples and environmental swabs, and retaining expert advisory services related to epidemiology and food safety.

Some of these changes are expected to result in fewer labor hours being required in our restaurants, but we do not expect to see the benefit until free and discounted food promotions return to normal levels.

Additionally, we expect that our restaurant operating costs as a percentage of revenue will continue to be significantly impacted due to expected lower average restaurant sales, as well as increased costs to support marketing initiatives.

As a result of the sales impact from the food-borne illness incidents and the additional costs described above, we believe that our net income will be at approximately break-even levels in the first quarter of 2016.

Accordingly, average restaurant sales will decrease further for as long as we continue to post comparable restaurant sales declines.

Our comparable restaurant sales increases were 0.2% for the full year 2015.

Comparable restaurant sales increases in 2015 were driven primarily by the impact of menu price increases taken nationwide in the second quarter of 2014 and in selected restaurants in the second half of 2015, offset by lower average number of transactions and group size, primarily in the fourth quarter.

Menu price increases accounted for a 3.5% increase in our comparable restaurant sales increases for 2015.

As of December 31, 2015, we had 2,010 restaurants in operation, including 1,971 Chipotle restaurants throughout the United States, with an additional 11 in Canada, seven in England, four in France, and one in Germany.

Our restaurants include 13 ShopHouse Southeast Asian Kitchen restaurants, serving Asian-inspired cuisine, and we are an investor in a consolidated entity that owns and operates three Pizzeria Locale restaurants, a fast casual pizza concept.

New restaurants have contributed substantially to our restaurant sales growth and we opened 229 restaurants in 2015, and expect to open between 220 and 235 restaurants in 2016, including a small number of Chipotle restaurants outside of the U.S. and ShopHouse and Pizzeria Locale restaurants within the U.S.

Food With Integrity.

In all of our restaurants, we endeavor to serve only meats that were raised without the use of non-therapeutic antibiotics or added hormones, and in accordance with criteria we’ve established in an effort to improve sustainability and promote animal welfare.

We brand these meats as “Responsibly Raised TM.” In addition, a portion of some of the produce items we served was organically grown, and/or sourced locally when in season (by which we mean within 350 miles of the restaurant where it was served).

A portion of the beans we serve is organically grown and a portion is grown using conservation tillage methods that improve soil conditions, reduce erosion and help preserve the environment in which they are grown.

The sour cream and cheese we buy is made with milk that comes from cows that are not given rBGH.

Milk used to make much of our cheese and sour cream is sourced from pasture-based dairies that provide an even higher standard of animal welfare by providing outdoor access for their cows.

Further, we have achieved our goal of eliminating (as further described on our website) genetically modified organisms, or GMOs, from the ingredients in our food (not including beverages) in U.S. Chipotle restaurants, as well as ShopHouse Southeast Asian Kitchen.

While the meat and poultry we serve is not genetically modified, the animals are likely fed a diet containing GMOs.

We will continue to search for quality ingredients that not only taste delicious, but also benefit local farmers or the environment, or otherwise benefit or improve the sustainability of our supply chain.

One of our primary goals is for all of our restaurants to continue serving meats that are raised to meet our standards, but we have and will continue to face challenges in doing so.

In January 2015, through an ongoing audit of our suppliers, we identified a pork supplier that was not meeting our standards related to the size and condition of the housing offered to some of the pigs, so we suspended our purchases from this supplier.

Without this supply, we were unable to get enough pork to meet our standards for all of our restaurants, and were not able to serve carnitas in many of our U.S. restaurants for a portion of the year.

During the third quarter of 2015, we began introducing carnitas from a new pork supplier in the United Kingdom, and this new pork supply allowed us to serve carnitas in all of our restaurants by the end of 2015.

Additionally, some of our restaurants may periodically serve conventionally raised beef or chicken or stop serving one or more menu items in the future due to supply constraints.

When we become aware that one or more of our restaurants will serve conventionally raised meat, we clearly and specifically disclose this temporary change on signage in each affected restaurant, so that customers can avoid those meats if they choose to do so.

We have purchased $270.0 million of our common stock under these authorizations from January 1, 2016 through February 3, 2016.

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Many of the ingredients we use to prepare our food, [added: our packaging materials,] as well as [added: utilities to run] our [removed: packaging materials,] [added: restaurants] are commodities or ingredients that are affected by the price of other commodities, exchange rates, foreign demand, weather, seasonality, production, availability and other factors outside our control.

Generally our pricing protocols with suppliers can remain in effect for periods ranging from one to [removed: 18] [added: 24] months, depending on the outlook for prices of the particular ingredient.

As of December 31, [removed: 2015,] [added: 2016,] we had [removed: $1,084.2] [added: $500.5] million in investments and interest-bearing cash accounts, including [removed: an insurance related] [added: insurance-related] restricted trust [removed: account] [added: accounts] classified in other assets, and [removed: $199.1] [added: $37.6] million in accounts with an earnings credit we classify as interest income, which combined earned a weighted average interest rate of [removed: 0.62%.][added: 0.71%.]

However, a substantial majority of our operations and investment activities are transacted in the U.S. and therefore our foreign currency risk is [removed: limited] [added: not material] at this date.

We focus on finding the highest quality ingredients we can to make great tasting food; on building a [removed: special] [added: strong] people culture that is centered on [removed: creating a team of top performers empowered to achieve high standards;] [added: providing an excellent guest experience;] on building restaurants that are operationally efficient and aesthetically pleasing; and on doing all of this with the highest regard for the safety of our customers and increasing awareness and respect for the environment.

We have grown substantially over the past five years, and expect to open between [removed: 220] [added: 195] and [removed: 235] [added: 210] additional restaurants in [removed: 2016, including a small number of Chipotle restaurants outside the U.S. and ShopHouse and Pizzeria Locale restaurants within the U.S.][added: 2017.]

[removed: Our vision is] [added: Throughout our history as a public company, we have pursued a mission] to change the way people think about and eat fast food.

We manage our operations and restaurants based on [removed: nine] [added: 11] regions that aggregate into one reportable segment.

Financial information about our operations, including our revenues and net income for the years ended December 31, [added: 2016,] 2015, [removed: 2014,] and [removed: 2013,] [added: 2014,] and our total assets as of December 31, [removed: 2015] [added: 2016] and [removed: 2014,] [added: 2015,] is included in our consolidated financial statements and accompanying notes in Item 8.

“Financial Statements and Supplementary Data.” Substantially all of our revenues are generated and assets are located in the U.S. For a discussion of risks related to our international operations, see [removed: “Risks] [added: Risks] Related to Our [removed: Growth Strategy] [added: Plans to Return to Sales] and [removed: Future]

[removed: Expansion –] Our expansion into international markets may present increased risks due to lower customer awareness of our brand, our unfamiliarity with those markets and other [removed: factors” in Item 1A.][added: factors.]

Quality and food safety measures are [removed: found] [added: integrated] throughout our supply chain, from the farms that supply our food all the way through to our front [removed: line.][added: line and into our customers’ hands.]

Our quality assurance department establishes and monitors our quality and food safety [removed: programs for] [added: programs, and works closely with] our [added: suppliers to ensure our high standards are met throughout the] supply chain.

Our training, operations, and risk management departments develop and implement operating standards for food quality, preparation, [removed: cleanliness] [added: cleanliness, employee health protocols,] and safety in the restaurants.

Our food safety programs are also designed to ensure that we [added: not only continue to] comply with applicable federal, state and local food safety [removed: regulations.][added: regulations, but establish Chipotle as an industry leader in food safety.]

While our food safety programs have always been carefully designed and have been in conformance with applicable industry standards, [removed: in response to food safety incidents during 2015 that impacted hundreds] [added: over the last year our Executive Director] of [removed: customers we have recently undertaken] [added: Food Safety,] a [added: respected expert in the industry, has led a] comprehensive assessment [added: and enhancement] of our food safety programs and practices.

[removed: As part of our Food With Integrity philosophy, we] [added: We] believe that purchasing fresh ingredients [added: and preparing them from scratch in our restaurants] is not enough, so we spend time on farms and in the field to understand where our food comes from and how it is raised.

Because our menu is so focused, we can concentrate on the sources of each ingredient, and this has become a cornerstone of our continuous effort to improve [removed: our food.][added: the food we serve.]

In all of our [added: Chipotle] restaurants, we endeavor to serve only meats that were raised [removed: without the use of non-therapeutic antibiotics or added hormones, and] in accordance with criteria we’ve established in an effort to improve sustainability and promote animal [removed: welfare.][added: welfare, and without the use of non-therapeutic antibiotics or added hormones.]

We brand these meats as “Responsibly Raised [removed: TM.”] [added: ®.”] One of our primary goals is for all of our restaurants to serve meats raised to meet our standards, but we have and will continue to face challenges in doing so.

For example, some of our restaurants did not serve carnitas for a portion of 2015, and some of our restaurants [removed: served] [added: periodically serve] conventionally raised chicken [removed: for periods during 2015,] [added: or beef from time to time] due to supply constraints for our Responsibly Raised meats.

Our commitment to [removed: Food With Integrity] [added: better ingredients] also extends to the dairy products we serve.

[removed: The] [added: We started 2017 with all the] sour cream and cheese we buy [removed: is] [added: for our U.S. Chipotle restaurants] made with milk that comes from cows that are not given rBGH (recombinant bovine growth [removed: hormone).][added: hormone) and sourced from pasture-based dairies that provide an even higher standard of animal welfare by providing outdoor access for their cows.]

While the meat and poultry we serve is not genetically modified, the animals are likely fed a diet [added: of grains] containing GMOs.

[removed: With respect to beverages,] [added: Additionally,] some of the beverages we serve are sweetened with corn-based sweeteners, which are typically made with genetically modified corn.

We [removed: do occasionally] [added: do, however,] face challenges associated with pursuing [removed: our] Food With Integrity [removed: mission.][added: philosophy.]

[removed: In addition to the supply challenges noted above, there can be] [added: There are] higher costs and other risks associated with purchasing ingredients grown or raised with an emphasis on quality, [removed: environmental] sustainability and other responsible practices.

Growth rate and weight gain can be lower for chickens, cattle and pigs that are not fed [removed: non-therapeutic] [added: sub-therapeutic] antibiotics and for cattle that are not given growth hormones.

Given the costs associated with what we believe are [added: more] responsible farming practices, [added: as well as uncertainty regarding demand due to changing customer perceptions, economic trends and other factors,] many large suppliers have not found it economical to pursue business in this area.

Chipotle restaurants [removed: serve] [added: list] only a few [removed: things:] [added: entree items:] burritos, burrito bowls, tacos and salads.

But because customers can choose from [removed: four] [added: five] different meats or tofu, two types of beans and a variety of extras such as salsas, guacamole, cheese and lettuce, there’s enough variety to extend our menu to provide thousands of choices.

We plan to keep a simple menu, but [removed: we’ll] [added: will] consider additions that we think make sense.

[removed: In preparing our food, we] [added: We] use stoves and grills, pots and pans, cutting knives and other kitchen utensils, walk-in refrigerators stocked with a variety of fresh ingredients, herbs and spices and dry goods such as rice.

Ingredients we use include [removed: chicken and] [added: chicken,] steak [added: and chorizo] that is [removed: marinated and] grilled in our restaurants, carnitas (seasoned and braised pork), barbacoa (spicy shredded [removed: beef)] [added: beef), Sofritas (organic braised tofu)] and vegetarian pinto and black beans.

We add our rice, which is tossed with lime [removed: juice and] [added: juice,] freshly chopped cilantro, [added: and a pinch of salt,] as well as freshly shredded cheese, sour cream, lettuce, peppers and onions, [added: to our entrees] depending on each customer’s request.

We also [removed: provide] [added: make] a variety of extras such as guacamole, salsas and tortilla chips seasoned with fresh lime juice and salt.

In addition to sodas, fruit [added: and tea] drinks and organic milk, most of our restaurants also offer a selection of beer and margaritas.

Our food is prepared from [removed: scratch, with] [added: scratch from whole ingredients,] some [added: of which is] prepared in our restaurants and some [added: is] prepared with the same fresh ingredients in larger batches in commissaries.

Each restaurant typically has a general manager or Restaurateur (a position we’ve characterized as the most important in the company), an apprentice manager (in [removed: most] [added: a majority] of our restaurants), and we aim to have two or three hourly service managers, one or two hourly kitchen managers and an average of 23 full and part-time crew [removed: members.][added: members, though our busier restaurants tend to have slightly more employees.]

We [added: also] cross-train our people so that each can work a variety of stations, allowing us to work efficiently during our busiest times, while giving our people the opportunity to develop a wider array of skills.

[removed: Consistent with our emphasis on] customer service, we encourage our general managers and crew members to welcome and interact with customers throughout the day.

In addition to the employees serving our customers at each restaurant, we also have a field support system that includes apprentice team leaders, team leaders or area managers, team directors, executive team directors, [added: executive regional directors] and restaurant support officers.

Our 24 independently owned and operated regional distribution centers purchase from various suppliers we carefully select based on quality and [removed: their] [added: the suppliers’] understanding of our [removed: mission, and we seek to develop mutually beneficial long-term relationships with suppliers.][added: mission.]

We [removed: work closely with our suppliers and] use a mix of forward, fixed and formula pricing protocols, and our distribution centers purchase within the pricing guidelines and protocols we have established with the suppliers.

As of December 31, 2016, we operated 2,198 Chipotle restaurants throughout the United States, as well as 29 international Chipotle restaurants, and we also had 23 restaurants in operation in other non-Chipotle concepts.

The fast food landscape has changed dramatically over Chipotle’s 23-year history.

The changes in the industry suggest that we may have achieved our mission, with a number of concepts built using service and sourcing formats that closely resemble ours – with more selective sourcing, food prepared onsite, and a service model that allows customers to choose exactly what they eat.

Looking at what we have accomplished, we have expanded our mission.

Today, we are working to Ensure that better food, prepared from whole, unprocessed ingredients is accessible to everyone.

We are also aiming to simplify our business focus, to emphasize only those things that result in an excellent guest experience in our restaurants.

Profitability Growth and Restore Our Economic Model – Our expansion into international markets may present increased risks due to lower customer awareness of our brand… ” in Item 1A.

Our Focus on Safe and Delicious Food Made with Better Ingredients

A decidedly focused menu.

For example, in 2014 we introduced Sofritas, a vegetarian protein option, and in 2016 we introduced chorizo, a spicy ground sausage made from chicken and pork.

In preparing our food, we use classic cooking methods.

Our restaurants do not have microwaves or freezers.

Better Food.

Serving high quality food while still charging reasonable prices is critical to our mission to ensure that better food is accessible to everyone.

We're all about simple, fresh food without artificial flavors or fillers—just genuine raw ingredients and their individual, delectable flavors.

We also seek to use more 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.

In addition, none of the ingredients in our food (not including beverages) in U.S. Chipotle restaurants contain genetically modified organisms, or GMOs.

We work closely with our suppliers and seek to develop mutually beneficial long-term relationships with them.

We’ve also tried to increase,

Our business was severely impacted beginning in the fourth quarter of 2015 by food safety incidents that were associated with a number of our restaurants.

More discussion of these incidents can be found in “Risks Related to Our Plans to Return to Sales and Profitability Growth and Restore Our Economic Model – We may continue to be negatively impacted by food safety incidents associated with our restaurants beginning in the fourth quarter of 2015.

” in Item 1A.

“Risk Factors.” In the wake of these incidents, strengthening trust among our customers and in our brand has become essential to restoring our business results and achieving our mission.

This begins with our commitment to serving safe, high quality food.

We maintain a limited list of approved suppliers, many of which are among the top suppliers in the industry.

Components of our enhanced food safety programs include:

| | |

| --- | --- |

|  | supplier interventions (steps to avoid food safety risks before ingredients reach Chipotle); |

|  | advanced technology (tools that eliminate pathogens while maintaining food quality); |

|  | farmer support and training; |

|  | enhanced restaurant procedures (protocols for handling ingredients and sanitizing surfaces in our restaurants); |

|  | food safety certification; |

|  | internal and third party restaurant inspections; and |

|  | ingredient traceability. |

To be sure that our food safety programs continue to evolve in ways that will help maintain leadership in this important area, we have established a Food Safety Advisory Council that is 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.

Delivering an Excellent Guest Experience

There is nothing more important than treating our guests to an excellent experience every time they visit one of our restaurants.

We believe that restaurants that deliver a consistently great experience attract customers more frequently and engender greater customer loyalty.

As of December 31, 2015, we operated 1,971 Chipotle restaurants throughout the United States, as well as 11 in Canada, seven in England, four in France, and one in Germany.

Additionally, our restaurants included 13 ShopHouse Southeast Asian Kitchen restaurants, serving Asian-inspired cuisine, and we are an investor in a consolidated entity that owned and operated three Pizzeria Locale restaurants, a fast casual pizza concept, resulting in a total of 2,010 restaurants as of December 31, 2015.

We do this by avoiding a formulaic approach when creating our restaurant experience, looking to fine-dining restaurants for inspiration.

We use high-quality raw ingredients, classic cooking methods and a distinctive interior design and have friendly people to take care of each customer—features that are more frequently found in the world of fine dining.

Our approach is also guided by our belief in an idea we call “Food With Integrity.” Our objective is to find the highest quality ingredients we can—ingredients that are grown or raised with respect for the environment, animals and people who grow or raise the food.

“Risk Factors.”

Our Menu and Food Preparation

We are committed to serving safe, high quality food to our customers.

We have established close relationships with some of the top suppliers in the industry, and we actively maintain a limited list of approved suppliers from whom our distributors must purchase.

Using the assistance of highly respected experts we performed a review of the ingredients we use, with a goal of designing an industry-leading food safety program.

Components of the new program include DNA-based testing of many ingredients designed to ensure the quality and safety of ingredients before they are shipped to our restaurants, changes to food preparation and food handling practices, including washing and cutting some produce items (such as tomatoes and romaine lettuce) in central kitchens, blanching of some produce items (including avocados, onions, jalapenos and citrus) in our restaurants before cutting them, and new protocols for marinating meats.

We are also working to enhance our internal controls surrounding food safety by utilizing the Food and Drug Administration’s Hazard Analysis Critical Control Point (HACCP) management system.

Additionally, we are focused on internal training programs to ensure that all employees thoroughly understand our high standards for food safety and food handling, and we offer paid sick leave to employees to reduce incentives for employees to work while sick.

Food With Integrity.

Serving high quality food while still charging reasonable prices is critical to our vision to change the way people think about and eat fast food.

We also seek to use more responsibly grown produce, meaning produce grown by suppliers who we believe respect the environment and their employees.

Also, milk used to make much of our cheese and sour cream is sourced from pasture-based dairies that provide an even higher standard of animal welfare by providing outdoor access for their cows.

In the spring of 2015, we announced we have reached our goal of eliminating (as further described on our website) genetically modified organisms, or GMOs, from the ingredients in our food (not including beverages) in U.S. Chipotle restaurants, as well as ShopHouse Southeast Asian Kitchen.

However, we believe that in addition to seeking great tasting and nutritious food, consumers are increasingly concerned about where their food comes from and how it is raised.

And we believe that as consumers become more educated about better animal welfare and farming practices as well as social accountability, they will foster greater demand for responsibly grown foods in the long term.

We believe that increased demand over the long term for the types of meat and produce items we strive to serve will continue to attract the interest and capital investment of larger farms and suppliers.

We also understand that we’ll continue to be at the forefront of this trend and must balance our interest in advancing Food With Integrity with our desire to provide great food at reasonable prices.

If we are able to continue growing while focusing on Food With Integrity, we believe our sourcing flexibility will improve over time, though we expect that most of these ingredients and other raw materials will remain more expensive than conventionally raised, commodity-priced equivalents.

A Few Things, Thousands of Ways.

Food Served Fast … So That Customers Can Enjoy It Slowly.

Our food is made slowly and carefully, but each customer order can be ready in seconds.

Customers select exactly what they want and how they want it by speaking directly to the employees that prepared the food and are assembling the order.

While we think our customers return because of the great-tasting food, we also think they like getting food served fast without having a typical “fast-food” experience.

And while our restaurants often have lines, we try to serve customers as quickly as possible.

We do this by focusing on what we call the “four pillars” of throughput: having a dedicated expeditor, who works just before the cashier to get drink and side orders and bag to-go orders; a dedicated linebacker, to make sure the serving line is stocked with all our ingredients so the employees on the line can focus on each customer’s order; proper mise en place, or putting everything in its place before starting food preparation; and ensuring that we have “aces in their places,” or well-trained employees at each position during all of our peak periods.

When we do this well, our customers are served quickly without feeling rushed.

We’ve even been able to serve more than 300 customers an hour at some locations.

The natural flow of our restaurant layout, including the floor plan and the design of our serving line, are designed to make the food ordering process intuitive and, we believe, more efficient.

And we constantly strive to improve the speed of service in all of our restaurants, so that we can accommodate more customers and larger orders without disrupting restaurant traffic.

However, we’ve also introduced a number of additional ways to serve our customers.

For instance, our restaurants accept orders online or through an iPhone or Android ordering application to provide a more convenient experience by allowing customers to avoid standing in line.

We’ve also introduced catering in all U.S. Chipotle restaurants except in New York City, and we offer delivery service through a number of third party services with whom we’ve partnered.

By emphasizing speed of service without compromising the genuine interactions between our customers and our crews, and by expanding ways for customers to enjoy Chipotle, we believe that we can provide a high quality experience to more and more customers.

Restaurant Management and Operations

Culture of Top Performers.

For the fiscal year ended December 31, [removed: 2015][added: 2016]

As of June 30, [removed: 2015,] [added: 2016,] the aggregate market value of the registrant’s outstanding common equity held by non-affiliates was [removed: $11.2] [added: $6.6] billion, based on the closing price of the registrant’s common stock on such date, the last trading day of the registrant’s most recently completed second fiscal quarter.

As of January [removed: 29, 2016,] [added: 31, 2017,] there were [removed: 30,044,250] [added: 28,772,830] 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 [removed: 2016] [added: 2017] 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, [removed: 2015.][added: 2016.]

| Item 1A. | [Risk Factors](#Item_1A) | [removed: 10] [added: 9] |

| Item 1B. | [Unresolved Staff Comments](#Item_1B) | [removed: 24] [added: 23] |

| Item 2. | [Properties](#Item_2) | [removed: 25] [added: 24] |

| Item 3. | [Legal Proceedings](#Item_3) | [removed: 26] [added: 25] |

| Item 4. | [Mine Safety Disclosures](#Item_4) | [removed: 26] [added: 25] |

| Item 5. | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](#Item_5) | [removed: 27] [added: 26] |

| Item 6. | [Selected Financial Data](#Item_6) | [removed: 29] [added: 28] |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#Item_7) | [removed: 30] [added: 29] |

| Item 7A. | [Quantitative and Qualitative Disclosures About Market Risk](#Item_7A) | [removed: 38] [added: 37] |

| Item 8. | [Financial Statements and Supplementary Data](#Item_8) | [removed: 39] [added: 38] |

| Item 13. | [Certain Relationships and Related Transactions, and Director Independence](#Item_13) | [removed: 61] [added: 62] |

| Item 14. | [Principal Accounting Fees and Services](#Item_14) | [removed: 61] [added: 62] |

| Item 15. | [Exhibits, Financial Statement Schedules](#Item_15) | [removed: 62] [added: 63] |

| | [Signatures](#Signatures) | [removed: 63] [added: 64] |

Forward-looking statements include statements regarding the effectiveness of enhanced food safety procedures we [removed: are implementing] [added: have implemented; the impact of catering] and [added: delivery offerings and technology initiatives;] the expected impact of [removed: those] [added: food safety] enhancements on our [added: restaurant operating costs; projections of comparable restaurant sales increases and sales trends we expect for 2017; forecasts of trends in] food, [removed: labor] [added: beverage] and [added: packaging costs,] other [added: operating] costs, [removed: our projections] [added: general and administrative expenses and other cost items for 2017; forecasts] of the number [removed: and type] of restaurants we expect to open in [removed: 2016,] [added: 2017; expected effective tax rates for the year;] statements about possible repurchases of our common [removed: stock, expectations for occupancy costs and marketing and promotional spending as a percentage of revenue in 2016, forecasts of general and administrative expenses in 2016, projections of our effective tax rate for the year,] [added: stock;] projections of restaurant development [removed: costs and other expenses,] [added: costs;] and other statements of our expectations and plans.

10-K 1 cmg-20161231x10k.htm 10-K

| Item 16. | [Form 10-K Summary](#Item_16) | 63 |

10-K 1 cmg-20151231x10k.htm 10-K

[added: | As of December 31, 2016, there were 2,250 restaurants operated by Chipotle and our consolidated subsidiaries, 2,227 of which were Chipotle restaurants.] The table below sets forth the locations (by state or country) of all restaurants in operation. [added: | |]

| Alabama | [removed: 11] [added: 12] |

| Arizona | [removed: 74] [added: 78] |

| Arkansas | [removed: 5] [added: 6] |

| Connecticut | [removed: 19] [added: 22] |

| Delaware | [removed: 4] [added: 6] |

| District of Columbia | [removed: 22] [added: 23] |

| Georgia | [removed: 36] [added: 44] |

| Idaho | [removed: 4] [added: 7] |

| Indiana | [removed: 30] [added: 34] |

| Iowa | [removed: 8] [added: 11] |

| Kansas | [removed: 24] [added: 26] |

| Kentucky | [removed: 16] [added: 18] |

| Louisiana | [removed: 6] [added: 8] |

| Maine | [removed: 4] [added: 5] |

| Maryland | [removed: 70] [added: 82] |

| Massachusetts | [removed: 45] [added: 50] |

| Michigan | [removed: 24] [added: 31] |

| Minnesota | [removed: 58] [added: 61] |

| Missouri | [removed: 36] [added: 37] |

| Montana | [removed: 2] [added: 3] |

| Nevada | [removed: 24] [added: 25] |

| New Hampshire | [removed: 5] [added: 6] |

| New Jersey | [removed: 45] [added: 50] |

| New York | [removed: 115] [added: 127] |

| North Carolina | [removed: 39] [added: 45] |

| Oklahoma | [removed: 10] [added: 11] |

| Oregon | [removed: 20] [added: 26] |

| Pennsylvania | [removed: 61] [added: 73] |

| South Carolina | [removed: 16] [added: 20] |

| Tennessee | [removed: 15] [added: 18] |

| Utah | [removed: 8] [added: 10] |

| Virginia | [removed: 84] [added: 89] |

| Washington | [removed: 30] [added: 35] |

| Wisconsin | [removed: 18] [added: 19] |

| Wyoming | [removed: 1] [added: 2] |

| Canada | [removed: 11] [added: 17] |

| France | [removed: 4] [added: 5] |

| United Kingdom | [removed: 7] [added: 6] |

Of our restaurants in operation as of December 31, [removed: 2015,] [added: 2016,] we had [removed: 1,231] [added: 1,396] end-cap locations, [removed: 337] [added: 370] free-standing units, [removed: 311] [added: 346] in-line locations, and [removed: 131] [added: 138] other locations.

| California | 384 |

| Florida | 135 |

| Illinois | 130 |

| Ohio | 168 |

| Texas | 181 |

| Total | 2,250 |

As of December 31, 2015, there were 2,010 Chipotle and other concept restaurants in operation.

| | |

| --- | --- |

| California | 351 |

| Florida | 116 |

| Illinois | 120 |

| Ohio | 159 |

| Texas | 149 |

| Total | 2,010 |

As of January [removed: 29, 2016,] [added: 26, 2017,] there were approximately [removed: 1,030] [added: 1,233] holders of our common stock, as determined by counting our record holders and the number of participants reflected in a security position listing provided to us by the Depository Trust Company.

Because such “DTC participants” are brokers and other institutions holding shares of our common stock on behalf of their customers, [added: we do not know] the actual number of unique shareholders represented by these record [removed: holders is not known.][added: holders.]

The table below reflects shares of common stock we repurchased during the fourth quarter of [removed: 2015.][added: 2016.]

(2)This column includes [removed: $300] [added: $100] million in authorized repurchases announced on [removed: December 4, 2015,] [added: October 25, 2016,] but does not include an additional [removed: $300] [added: $100] million in authorized repurchases announced on January [removed: 6, 2016, and $300 million in authorized repurchases announced on February 2, 2016.][added: 10, 2017.]

[removed: Authorization of] [added: Our authorized] repurchase programs [added: have no expiration date, but] may be modified, suspended, or discontinued at any time.

We intend to continue to retain earnings for use in the operation and expansion of our business and [added: 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.

The following graph compares the cumulative annual stockholders return on our common stock from December 31, [removed: 2010] [added: 2011] through December 31, [removed: 2015] [added: 2016] 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, [removed: 2010.][added: 2011.]

][added: 1](https://www.sec.gov/Archives/edgar/data/1058090/000105809017000009/cmg-20161231x10kg001.jpg)]

| 2016 | | | | | |

| First Quarter | $ | 542.50 | | $ | 399.14 |

| Second Quarter | $ | 473.17 | | $ | 384.77 |

| Third Quarter | $ | 444.13 | | $ | 386.10 |

| Fourth Quarter | $ | 440.00 | | $ | 352.96 |

| October | | | 49,969 | | $ | 403.18 | | 49,969 | | $ | 149,060,523 |

| November | | | 57,640 | | $ | 391.17 | | 57,640 | | $ | 126,513,735 |

| December | | | 62,268 | | $ | 384.56 | | 62,268 | | $ | 102,567,759 |

| Total | | | 169,877 | | $ | 392.28 | | 169,877 | | $ | 102,567,759 |

(1)Shares were repurchased pursuant to a repurchase program announced on May 11, 2016.

| 2014 | | | | | |

| First Quarter | $ | 622.90 | | $ | 480.87 |

| Second Quarter | $ | 602.21 | | $ | 472.41 |

| Third Quarter | $ | 697.93 | | $ | 575.92 |

| Fourth Quarter | $ | 696.56 | | $ | 607.55 |

| October | | | 41,301 | | $ | 665.27 | | 41,301 | | $ | 127,630,875 |

| November | | | 166,807 | | $ | 599.47 | | 166,807 | | $ | 27,635,641 |

| December | | | 401,137 | | $ | 526.61 | | 401,137 | | $ | 116,394,274 |

| Total | | | 609,245 | | $ | 555.95 | | 609,245 | | $ | 116,394,274 |

(1)Shares were repurchased pursuant to repurchase programs announced on February 3, 2015, July 21, 2015 and December 4, 2015.

Each repurchase program has no expiration date.

[removed: “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 are not necessarily indicative of results to be expected for any future period (in thousands, except per share data).

| | [added: 2016 | | |] 2015 | | | 2014 | | | 2013 | | | 2012 | | [removed: | 2011 | |]

| Revenue | $ | [removed: 4,501,223] [added: 3,904,384] | | $ | [removed: 4,108,269] [added: 4,501,223] | | $ | [removed: 3,214,591] [added: 4,108,269] | | $ | [removed: 2,731,224] [added: 3,214,591] | | $ | [removed: 2,269,548] [added: 2,731,224] |

| Food, beverage and packaging costs | | [added: 1,365,580 | | |] 1,503,835 | | | 1,420,994 | | | 1,073,514 | | | 891,003 | [removed: | | 738,720 |]

| Labor costs | | [added: 1,105,001 | | |] 1,045,726 | | | 904,407 | | | 739,800 | | | 641,836 | [removed: | | 543,119 |]

| Occupancy costs | | [added: 293,636 | | |] 262,412 | | | 230,868 | | | 199,107 | | | 171,435 | [removed: | | 147,274 |]

| Other operating costs | | [added: 641,953 | | |] 514,963 | | | 434,244 | | | 347,401 | | | 286,610 | [removed: | | 251,208 |]

| General and administrative expenses | | [added: 276,240 | | |] 250,214 | | | 273,897 | | | 203,733 | | | 183,409 | [removed: | | 149,426 |]

| Depreciation and amortization | | [added: 146,368 | | |] 130,368 | | | 110,474 | | | 96,054 | | | 84,130 | [removed: | | 74,938 |]

| Pre-opening costs | | [added: 17,162 | | |] 16,922 | | | 15,609 | | | 15,511 | | | 11,909 | [removed: | | 8,495 |]

| Loss on disposal of assets | | [added: 23,877 | | |] 13,194 | | | 6,976 | | | 6,751 | | | 5,027 | [removed: | | 5,806 |]

| Total operating expenses | | [added: 3,869,817 | | |] 3,737,634 | | | 3,397,469 | | | 2,681,871 | | | 2,275,359 | [removed: | | 1,918,986 |]

| Income from operations | | [added: 34,567 | | |] 763,589 | | | 710,800 | | | 532,720 | | | 455,865 | [removed: | | 350,562 |]

| Interest and other income (expense), net | | [added: 4,172 | | |] 6,278 | | | 3,503 | | | 1,751 | | | 1,820 | [removed: | | (857) |]

| Income before income taxes | | [added: 38,739 | | |] 769,867 | | | 714,303 | | | 534,471 | | | 457,685 | [removed: | | 349,705 |]

| Provision for income taxes | | [added: (15,801) | | |] (294,265) | | | (268,929) | | | (207,033) | | | (179,685) | [removed: | | (134,760) |]

| Net income | $ | [removed: 475,602] [added: 22,938] | | $ | [removed: 445,374] [added: 475,602] | | $ | [removed: 327,438] [added: 445,374] | | $ | [removed: 278,000] [added: 327,438] | | $ | [removed: 214,945] [added: 278,000] |

| Basic | $ | [removed: 15.30] [added: 0.78] | | $ | [removed: 14.35] [added: 15.30] | | $ | [removed: 10.58] [added: 14.35] | | $ | [removed: 8.82] [added: 10.58] | | $ | [removed: 6.89] [added: 8.82] |

| Diluted | $ | [removed: 15.10] [added: 0.77] | | $ | [removed: 14.13] [added: 15.10] | | $ | [removed: 10.47] [added: 14.13] | | $ | [removed: 8.75] [added: 10.47] | | $ | [removed: 6.76] [added: 8.75] |

| Basic | | [added: 29,265 | | |] 31,092 | | | 31,038 | | | 30,957 | | | 31,513 | [removed: | | 31,217 |]

| Diluted | | [added: 29,770 | | |] 31,494 | | | 31,512 | | | 31,281 | | | 31,783 | [removed: | | 31,775 |]

| | [added: 2016 | | |] 2015 | | | 2014 [removed: (1)] | | | 2013 [removed: (1)] | | | 2012 [removed: (1)] | | [removed: | 2011 (1) | |]

| Total current assets | $ | [removed: 814,647] [added: 522,374] | | $ | [removed: 859,511] [added: 814,647] | | $ | [removed: 653,095] [added: 859,511] | | $ | [removed: 537,745] [added: 653,095] | | $ | [removed: 494,954] [added: 537,745] |

| Total assets | $ | [removed: 2,725,066] [added: 2,026,103] | | $ | [removed: 2,527,317] [added: 2,725,066] | | $ | [removed: 1,996,068] [added: 2,527,317] | | $ | [removed: 1,659,805] [added: 1,996,068] | | $ | [removed: 1,419,070] [added: 1,659,805] |

| Total current liabilities | $ | [removed: 279,942] [added: 281,793] | | $ | [removed: 245,710] [added: 279,942] | | $ | [removed: 199,228] [added: 245,710] | | $ | [removed: 186,852] [added: 199,228] | | $ | [removed: 157,453] [added: 186,852] |

| Total liabilities | $ | [removed: 597,092] [added: 623,610] | | $ | [removed: 514,948] [added: 597,092] | | $ | [removed: 457,780] [added: 514,948] | | $ | [removed: 413,879] [added: 457,780] | | $ | [removed: 374,844] [added: 413,879] |

| Total shareholders’ equity | $ | [removed: 2,127,974] [added: 1,402,493] | | $ | [removed: 2,012,369] [added: 2,127,974] | | $ | [removed: 1,538,288] [added: 2,012,369] | | $ | [removed: 1,245,926] [added: 1,538,288] | | $ | [removed: 1,044,226] [added: 1,245,926] |

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and respective notes included in Item 8.

(1) Balances were adjusted because we adopted Financial Accounting Standards Board Accounting Standards Update No. 2015-17, “Income Taxes” which requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet, as discussed in further detail in Note 1.

“Description of the Business and Summary of Significant Accounting Policies” in our consolidated financial statements included in Item 8.

“Financial Statements and Supplementary Data.”

| [Report of Independent Registered Public Accounting Firm](#Report_of_Independent) | [removed: 40] [added: 39] |

| [Consolidated Balance Sheet as of December 31, [removed: 2015] [added: 2016] and [removed: 2014](#Consolidated_BS)] [added: 2015](#Consolidated_BS)] | [removed: 41] [added: 40] |

| [Consolidated Statement of Income and Comprehensive Income for the years ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013](#Consolidated_IS)] [added: 2014](#Consolidated_IS)] | [removed: 42] [added: 41] |

| [Consolidated Statement of Shareholders’ Equity for the years ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013](#Consolidated_SOE)] [added: 2014](#Consolidated_SOE)] | [removed: 43] [added: 42] |

| [Consolidated Statement of Cash Flows for the years ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013](#Consolidated_SCF)] [added: 2014](#Consolidated_SCF)] | [removed: 44] [added: 43] |

| [Notes to Consolidated Financial Statements](#Notes_to_FS) | [removed: 45] [added: 44] |

We have audited the accompanying consolidated balance sheets of Chipotle Mexican Grill, Inc. (the “Company”) as of December 31, [removed: 2015] [added: 2016] and [removed: 2014,] [added: 2015,] 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, [removed: 2015.][added: 2016.]

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, [removed: 2015] [added: 2016] and [removed: 2014,] [added: 2015,] and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2015,] [added: 2016,] 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, [removed: 2015,] [added: 2016,] 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 [removed: 4, 2016] [added: 6, 2017] expressed an unqualified opinion thereon.

| | [added: 2016 | | |] 2015 | | | 2014 | |

| Cash and cash equivalents [added: at end of year] | $ | [added: 87,880 | | $ |] 248,005 | | $ | 419,465 |

| Accounts receivable, net of allowance for doubtful accounts of [removed: $1,176] [added: $259] and [removed: $1,199] [added: $1,176] as of December 31, [removed: 2015] [added: 2016] and [removed: December 31, 2014,] [added: 2015,] respectively | | [removed: 38,283] [added: 40,451] | | | [removed: 34,839] [added: 38,283] |

| Inventory | | [removed: 15,043] [added: 15,019] | | | [removed: 15,332] [added: 15,043] |

| Prepaid expenses and other current assets | | [removed: 39,965] [added: 44,080] | | | [removed: 34,795] [added: 39,965] |

| Income tax receivable | | [removed: 58,152] [added: 5,108] | | | [removed: 16,488] [added: 58,152] |

| Investments | | [removed: 415,199] [added: 329,836] | | | [removed: 338,592] [added: 415,199] |

| Total current assets | | [removed: 814,647] [added: 522,374] | | | [removed: 859,511] [added: 814,647] |

| Leasehold improvements, property and equipment, net | | [removed: 1,217,220] [added: 1,303,558] | | | [removed: 1,106,984] [added: 1,217,220] |

| Long term investments | | [removed: 622,939] [added: 125,055] | | | [removed: 496,106] [added: 622,939] |

| Other assets | | [removed: 48,321] [added: 53,177] | | | [removed: 42,777] [added: 48,321] |

| Total assets | $ | [removed: 2,725,066] [added: 2,026,103] | | $ | [removed: 2,527,317] [added: 2,725,066] |

| Accounts payable | $ | [removed: 85,709] [added: 78,363] | | $ | [removed: 69,613] [added: 85,709] |

| Accrued payroll and benefits | | [removed: 64,958] [added: 76,301] | | | [removed: 73,894] [added: 64,958] |

| Accrued liabilities | | [removed: 129,275] [added: 127,129] | | | [removed: 102,203] [added: 129,275] |

| Total current liabilities | | [removed: 279,942] [added: 281,793] | | | [removed: 245,710] [added: 279,942] |

| Deferred rent | | [removed: 251,962] [added: 288,927] | | | [removed: 219,414] [added: 251,962] |

| Deferred income tax liability | | [removed: 32,305] [added: 18,944] | | | [removed: 21,561] [added: 32,305] |

| Other liabilities | | [removed: 32,883] [added: 33,946] | | | [removed: 28,263] [added: 32,883] |

| Total liabilities | | [removed: 597,092] [added: 623,610] | | | [removed: 514,948] [added: 597,092] |

| Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of December 31, [removed: 2015] [added: 2016] and [removed: December 31, 2014,] [added: 2015,] respectively | | \- | | | \- |

| Common stock $0.01 par value, 230,000 shares authorized, and [removed: 35,790] [added: 35,833] and [removed: 35,394] [added: 35,790] shares issued as of December 31, [removed: 2015] [added: 2016] and [removed: December 31, 2014,] [added: 2015,] respectively | | 358 | | | [removed: 354] [added: 358] |

| Additional paid-in capital | | [removed: 1,172,628] [added: 1,238,875] | | | [removed: 1,038,932] [added: 1,172,628] |

| Treasury stock, at cost, [removed: 5,206] [added: 7,019] and [removed: 4,367] [added: 5,206] common shares at December 31, [removed: 2015] [added: 2016] and [removed: December 31, 2014,] [added: 2015,] respectively | | [removed: (1,234,612)] [added: (2,049,389)] | | | [removed: (748,759)] [added: (1,234,612)] |

| Accumulated other comprehensive income (loss) | | [removed: (8,273)] [added: (8,162)] | | | [removed: (429)] [added: (8,273)] |

| Retained earnings | | [removed: 2,197,873] [added: 2,220,811] | | | [removed: 1,722,271] [added: 2,197,873] |

| Total shareholders' equity | | [removed: 2,127,974] [added: 1,402,493] | | | [removed: 2,012,369] [added: 2,127,974] |

| Total liabilities and shareholders' equity | $ | [removed: 2,725,066] [added: 2,026,103] | | $ | [removed: 2,527,317] [added: 2,725,066] |

| | [removed: 2015] [added: 2016] | | | [removed: 2014] [added: 2015] | | | [removed: 2013] [added: 2014] | |

| Revenue | $ | [removed: 4,501,223] [added: 3,904,384] | | $ | [removed: 4,108,269] [added: 4,501,223] | | $ | [removed: 3,214,591] [added: 4,108,269] |

| Food, beverage and packaging | | [removed: 1,503,835] [added: 1,365,580] | | | [removed: 1,420,994] [added: 1,503,835] | | | [removed: 1,073,514] [added: 1,420,994] |

February 6, 2017

| | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | Shares | | Amount | | | Additional Paid-In Capital | | | Shares | | Amount | | | Retained Earnings | | | Available-for-Sale Securities | | | | Foreign Currency Translation | | Total | |

| Acquisition of treasury stock | | | | | | | | | 1,813 | | | (814,777) | | | | | | | | | | | | (814,777) |

| Balance, December 31, 2016 | 35,833 | | $ | 358 | | $ | 1,238,875 | | 7,019 | | $ | (2,049,389) | | $ | 2,220,811 | | $ | (120) | | $ | (8,042) | | $ | 1,402,493 |

| Depreciation and amortization | | 146,368 | | | 130,368 | | | 110,474 |

| Loss on disposal and impairment of assets | | 23,877 | | | 13,194 | | | 6,976 |

| Proceeds from sale of investments | | 540,648 | | | \- | | | \- |

The Company recognizes a liability for offers of free food by estimating the cost to satisfy the offer based on company–specific historical redemption patterns for similar promotions.

These costs are recognized in other operating costs in the consolidated statement of income and comprehensive income and in accrued liabilities in the consolidated balance sheet.

During the year ended December 31, 2016, the Company introduced a limited-time frequency program that awarded free food or merchandise to customers based on frequency of monthly visits.

The Company deferred revenue reflecting the portion of original sales allocated to the rewards that were earned by program participants and not redeemed at the end of the year, and recorded a corresponding liability in accrued liabilities on its consolidated balance sheet.

The portion of revenue allocated to the rewards was based on the estimated value of the award earned and takes into consideration company-specific historical redemption patterns for similar promotions.

Rewards expire according to the loyalty awards terms and conditions.

The Company recognizes revenue when awards are redeemed or expire.

Other assets consist primarily of restricted cash assets of $28,490 and $22,572 as of December 31, 2016 and 2015, respectively, a rabbi trust as described further in Note 7.

Impairment charges recognized during the year ended December 31, 2016 resulted primarily from the Company’s determination that its ShopHouse Southeast Asian Kitchen restaurants were impaired and the recognition of a non-cash impairment charge of $14,505 ($8,014 net of tax), representing substantially all of the value of long-lived assets of ShopHouse.

The decision to impair the assets was based on an analysis of each restaurant’s past and present operating performance, including a significant change from comparable restaurant sales increases to decreases, and projected future cash flows expected to be generated by the restaurant assets.

The Company has decided not to invest further in developing and growing the ShopHouse brand and is pursuing strategic alternatives.

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-18, “Statement of Cash Flows (Topic 230)”, which provides guidance on the classification of restricted cash to be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts on the statement of cash flows.

This pronouncement is effective for reporting periods beginning after December 15, 2017 using a retrospective adoption method and early adoption is permitted.

For the years ended December 31, 2016, 2015 and 2014, $28,490, $22,572 and $19,889, respectively, of restricted cash would have been included in cash and cash equivalents and changes in the balance excluded from net cash provided by operating activities in the consolidated statement of cash flows if this new guidance had been adopted as of the respective dates.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718).” The pronouncement was issued to simplify the accounting for share-based payment transactions, including income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows.

The guidance will be applied either prospectively, retrospectively or using a modified retrospective transition method, depending on the area covered in this update.

Upon adoption, any future excess tax benefits or deficiencies will be recorded to the provision for income taxes in the consolidated statement of income, instead of additional paid-in capital in the consolidated balance sheet.

For the years ended December 31, 2016, 2015 and 2014, $1,320, $74,442 and $21,667, respectively, of excess tax benefits were recorded to additional paid-in capital that would have been recorded as a reduction to the provision for income taxes if this new guidance had been adopted as of the respective dates.

Additionally, excess tax benefits will be classified as operating activities in the consolidated statement of cash flow instead of in financing activities as required under the current guidance.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The pronouncement requires the recognition of a liability for lease obligations and a corresponding right-of-use asset on the balance sheet and disclosure of key information about leasing arrangements.

The Company’s adoption of ASU No. 2016-02 will have a significant impact on its consolidated balance sheet as it will record material assets and obligations for current operating leases.

The Company is evaluating the impact that adoption will have on its consolidated statement of income.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” as amended by multiple standards updates.

The Company 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.

| | 2016 | | | 2015 | |

| Leasehold improvements, property and equipment | | 2,149,027 | | | 1,938,095 |

| Leasehold improvements, property and equipment, net | $ | 1,303,558 | | $ | 1,217,220 |

Accrued payroll and benefits were as follows:

| | | | | | |

| | 2016 | | | 2015 | |

| Worker's compensation liability | $ | 33,038 | | $ | 26,408 |

February 4, 2016

| | | | | (as adjusted) | |

| | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | 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 |

| Acquisition of treasury stock | | | | | | | | | 393 | | | (138,903) | | | | | | | | | (138,903) |

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.

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.

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.

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.

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.

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.

| | | 1,938,095 | | | 1,720,660 |

| | $ | 1,217,220 | | $ | 1,106,984 |

| | $ | 129,275 | | $ | 102,203 |

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.

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.

| | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Other | | (0.4) | | | (1.1) | | | (0.5) | |

In 2015 and 2014, the effective tax rate was lower than 2013 because there was a decrease in the state tax rate.

| | | | | | | | (as adjusted) | |

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.

Some of the Company’s foreign net operating losses began expiring in 2015.

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.

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 [removed: co-Chief] [added: Chief] Executive [removed: Officers] [added: Officer] and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of December 31, [removed: 2015,] [added: 2016,] we carried out an evaluation, under the supervision and with the participation of our management, including our [removed: co-Chief] [added: Chief] Executive [removed: Officers] [added: Officer] and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.

Based on the foregoing, our [removed: co-Chief] [added: Chief] Executive [removed: Officers] [added: 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.

There were no [removed: other] changes during the fiscal quarter ended December 31, [removed: 2015] [added: 2016] 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 assessed the effectiveness of our internal control over financial reporting as of December 31, [removed: 2015,] [added: 2016,] 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, [removed: 2015,] [added: 2016,] 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, [removed: 2015.][added: 2016.]

We have audited Chipotle Mexican Grill, Inc.’s internal control over financial reporting as of December 31, [removed: 2015,] [added: 2016,] 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. maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2015,] [added: 2016,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Chipotle Mexican Grill, Inc. as of December 31, [removed: 2015] [added: 2016] and [removed: 2014,] [added: 2015,] 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, [removed: 2015] [added: 2016] and our report dated February [removed: 4, 2016] [added: 6, 2017] expressed an unqualified opinion thereon.

February 6, 2017

During the quarter ended March 31, 2015, we implemented a new human resource information and payroll system.

We continued to integrate the software with our processes, systems, and controls in the quarter ended December 31, 2015.

February 4, 2016

On February 3, 2017, we entered into a Registration Rights Agreement with Pershing Square Capital Management, L.P., and certain affiliates thereof.

Pursuant to the Registration Rights Agreement, the Pershing Square shareholders may make up to four requests that we file a registration statement to register the sale of shares of our common stock that the Pershing Square shareholders beneficially own, subject to the limitations and conditions provided in the Registration Rights Agreement.

The Registration Rights Agreement also provides that we will file and keep effective, subject to certain limitations, a shelf registration statement covering shares of our common stock beneficially owned by the Pershing Square shareholders, and also provides certain piggyback registration rights to the Pershing Square shareholders.

The registration rights provided in the agreement terminate as to any Pershing Square shareholder upon the earliest of (i) the date on which such shares are disposed of pursuant to an effective registration statement, (ii) the date on which such securities are sold pursuant to Rule 144, and (iii) such shareholder ceasing to beneficially own at least 5% of our outstanding common stock, provided such shareholder no longer has a representative serving on our Board of Directors, and is permitted to sell shares of common stock beneficially owned by such shareholder under Rule 144(b)(1) of the Securities Act.

The Registration Rights Agreement also contains customary indemnification provisions.

The foregoing description of the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Registration Rights Agreement which is filed as Exhibit 10.11 to this Annual Report on Form 10-K and is incorporated by reference herein.

None.

Incorporated by reference from the definitive proxy statement for our [removed: 2016] [added: 2017] annual meeting of shareholders, which will be filed no later than 120 days after December 31, [removed: 2015.][added: 2016.]

Incorporated by reference from the definitive proxy statement for our [removed: 2016] [added: 2017] annual meeting of shareholders, which will be filed no later than 120 days after December 31, [removed: 2015.][added: 2016.]

The following table presents information regarding options and rights outstanding under our equity compensation plans as of December 31, [removed: 2015.][added: 2016.]

(2)Includes [removed: 2,988,301] [added: 2,165,105] shares remaining available under the Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan, and [removed: 247,812] [added: 247,000] 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, [removed: 2015,] [added: 2016,] 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.

Additional information for this item is incorporated by reference from the definitive proxy statement for our [removed: 2016] [added: 2017] annual meeting of shareholders, which will be filed no later than 120 days after December 31, [removed: 2015.][added: 2016.]

| Equity Compensation Plans Approved by Security Holders | 2,042,317 | $490.06 | 2,412,105 |

| Total | 2,042,317 | $490.06 | 2,412,105 |

| Equity Compensation Plans Approved by Security Holders | 1,810,275 | $490.70 | 3,236,113 |

| Total | 1,810,275 | $490.70 | 3,236,113 |

Incorporated by reference from the definitive proxy statement for our [removed: 2016] [added: 2017] annual meeting of shareholders, which will be filed no later than 120 days after December 31, [removed: 2015.][added: 2016.]

Incorporated by reference from the definitive proxy statement for our [removed: 2016] [added: 2017] annual meeting of shareholders, which will be filed no later than 120 days after December 31, [removed: 2015.][added: 2016.]

SIGNATURES

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.

| | |

| --- | --- |

| CHIPOTLE MEXICAN GRILL, INC. | |

| By: | /s/ JOHN R. HARTUNG |

| Name: | John R. Hartung |

| Title: | Chief Financial Officer |

Date: February 4, 2016

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Steve Ells, Montgomery Moran 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/ STEVE ELLS | | February 4, 2016 | | Co-Chief Executive Officer and Chairman of the Board of Directors (principal executive officer) | |

| Steve Ells | | | | | |

| /s/ MONTGOMERY F. MORAN | | February 4, 2016 | | Co-Chief Executive Officer (principal executive officer) | |

| Montgomery F. Moran | | | | | |

| /s/ JOHN R. HARTUNG | | February 4, 2016 | | Chief Financial Officer (principal financial and accounting officer) | |

| John R. Hartung | | | | | |

| /s/ ALBERT S. BALDOCCHI | | February 4, 2016 | | Director | |

| Albert S. Baldocchi | | | | | |

| /s/ JOHN S. CHARLESWORTH | | February 4, 2016 | | Director | |

| John S. Charlesworth | | | | | |

| /s/ NEIL W. FLANZRAICH | | February 4, 2016 | | Director | |

| Neil W. Flanzraich | | | | | |

| /s/ PATRICK J. FLYNN | | February 4, 2016 | | Director | |

| Patrick J. Flynn | | | | | |

| /s/ DARLENE J. FRIEDMAN | | February 4, 2016 | | Director | |

| Darlene J. Friedman | | | | | |

| /s/ STEPHEN GILLETT | | February 4, 2016 | | Director | |

| Stephen Gillett | | | | | |

| /s/ KIMBAL MUSK | | February 4, 2016 | | Director | |

| Kimbal Musk | | | | | |

EXHIBIT INDEX

| | | | | | | |

| --- | --- | --- | --- | --- | --- | --- |

| | | Description of Exhibit Incorporated Herein by Reference | | | | |

| Exhibit Number | Exhibit Description | Form | File No. | Filing Date | Exhibit Number | Filed Herewith |

| 3.1 | Amended and Restated Certificate of Incorporation | 8-A/A | 001-32731 | December 16, 2009 | 3.1 | |

None.

SIGNATURES

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.

| | |

| --- | --- |

| | |

| CHIPOTLE MEXICAN GRILL, INC. | |

| | |

| By: | /s/ JOHN R. HARTUNG |

| Name: | John R. Hartung |

| Title: | Chief Financial Officer |

Date: February 6, 2017

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Steve Ells 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/ STEVE ELLS | | February 6, 2017 | | Chief Executive Officer and Chairman of the Board of Directors (principal executive officer) | |

| Steve Ells | | | | | |

| /s/ JOHN R. HARTUNG | | February 6, 2017 | | Chief Financial Officer (principal financial and accounting officer) | |

| John R. Hartung | | | | | |

| /s/ ALBERT S. BALDOCCHI | | February 6, 2017 | | Director | |

| Albert S. Baldocchi | | | | | |

| /s/ JOHN S. CHARLESWORTH | | February 6, 2017 | | Director | |

| John S. Charlesworth | | | | | |

| /s/ NEIL W. FLANZRAICH | | February 6, 2017 | | Director | |

| Neil W. Flanzraich | | | | | |

| /s/ PATRICK J. FLYNN | | February 6, 2017 | | Director | |

| Patrick J. Flynn | | | | | |

| /s/ DARLENE J. FRIEDMAN | | February 6, 2017 | | Director | |

| Darlene J. Friedman | | | | | |

| /s/ STEPHEN GILLETT | | February 6, 2017 | | Director | |

| Stephen Gillett | | | | | |

| /s/ ROBIN S. HICKENLOOPER | | February 6, 2017 | | Director | |

| Robin S. Hickenlooper | | | | | |

| /s/ KIMBAL MUSK | | February 6, 2017 | | Director | |

| Kimbal Musk | | | | | |

| /s/ MATTHEW PAULL | | February 6, 2017 | | Director | |

| Matthew Paull | | | | | |

EXHIBIT INDEX