Chipotle Mexican Grill (CMG) 10-K risk factor changes: FY2017 vs FY2016

Today, [removed: Chipotle continues] [added: we continue] 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.

[removed: Chipotle seeks] [added: We seek] out extraordinary ingredients that are not only fresh, but that are raised responsibly, with respect for the animals, land, and people who produce them.

[removed: Chipotle prepares its] [added: We prepare our] food using [removed: whole, unprocessed] [added: real, wholesome] ingredients and without the use of [removed: added colors, flavors] [added: artificial colors] or [removed: other additives] [added: flavors] typically found in fast food.

Chipotle opened with a single restaurant in Denver in 1993 and as of December 31, [removed: 2016,] [added: 2017, we] operated [removed: 2,250] [added: 2,408] restaurants.

Average restaurant sales were [removed: $1.868] [added: $1.940] million as of December 31, [removed: 2016, decreasing] [added: 2017, increasing] from [removed: $2.424] [added: $1.868] million as of December 31, [removed: 2015.][added: 2016.]

During the full year [removed: 2016,] [added: 2017,] our restaurant operating costs (food, beverage and packaging; labor; occupancy; and other operating costs) as a percent of revenue [removed: increased 13.3% as] [added: decreased 4.1%] compared to the full year [removed: 2015.][added: 2016.]

As of December 31, [removed: 2016,] [added: 2017,] we had [removed: 2,250] [added: 2,408] restaurants in operation, including [removed: 2,198] [added: 2,363] Chipotle restaurants throughout the United States, with an additional [removed: 29] [added: 37] international Chipotle restaurants and [removed: 23] [added: eight] non-Chipotle restaurants that were consolidated into our financial results.

Management and [removed: Governance Enhancements.][added: Governance.]

Most of our [removed: 2017] [added: 2018] restaurant openings are planned in markets that [removed: are proven or] already have a Chipotle presence established.

[removed: However, as] [added: As] discussed in Note 1.

“Description of Business and Summary of Significant Accounting [removed: Policies,”] [added: Policies”] included in Item 8.

“Financial Statements and Supplementary [removed: Data”] [added: Data,”] the adoption of ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718)” will subject our tax rate to quarterly volatility from the effect of stock award exercise and vesting activities.

| | [removed: 2016] [added: 2017] | | [removed: 2015] [added: 2016] | | [removed: 2014] [added: 2015] |

| Beginning of period | [removed: 2,010] [added: 2,250] | | [removed: 1,783] [added: 2,010] | | [removed: 1,595] [added: 1,783] |

| Openings | [removed: 243] [added: 183] | | [removed: 229] [added: 243] | | [removed: 192] [added: 229] |

| Relocations/closures | [removed: (3)] [added: (10)] | | [removed: (2)] [added: (3)] | | [removed: (4)] [added: (2)] |

| Total restaurants at end of period | [removed: 2,250] [added: 2,408] | | [removed: 2,010] [added: 2,250] | | [removed: 1,783] [added: 2,010] |

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

| | [removed: 2016] [added: 2017] | | | [removed: 2015] [added: 2016] | | | [removed: 2014] [added: 2015] | | | [removed: 2016] [added: 2017] over [removed: 2015] [added: 2016] | | [removed: 2015] [added: 2016] over [removed: 2014] [added: 2015] |

| Revenue | $ | [removed: 3,904.4] [added: 4,476.4] | | $ | [removed: 4,501.2] [added: 3,904.4] | | $ | [removed: 4,108.3] [added: 4,501.2] | | [removed: (13.3%)] [added: 14.7%] | | [removed: 9.6%] [added: (13.3%)] |

| Average restaurant sales | $ | [removed: 1.868] [added: 1.940] | | $ | [removed: 2.424] [added: 1.868] | | $ | [removed: 2.472] [added: 2.424] | | [removed: (22.9%)] [added: 3.9%] | | [removed: (1.9%)] [added: (22.9%)] |

| Comparable restaurant sales [added: increases (decreases)] | | [removed: (20.4%)] [added: 6.4%] | | | [removed: 0.2%] [added: (20.4%)] | | | [removed: 16.8%] [added: 0.2%] | | | | |

| Number of restaurants as of the end of the [removed: period] [added: year] | | [removed: 2,250] [added: 2,408] | | | [removed: 2,010] [added: 2,250] | | | [removed: 1,783] [added: 2,010] | | [removed: 11.9%] [added: 7.0%] | | [removed: 12.7%] [added: 11.9%] |

| Number of restaurants opened in the [removed: period,] [added: quarter,] net of relocations/closures | | [removed: 240] | [added: 41] | | [removed: 227] | [added: 48] | | [removed: 188] | [added: 35] | | | [added: 34] |

In 2016, the decrease in revenue was attributable to a decline in comparable restaurant sales, [added: which we attribute primarily to the impact of food safety incidents beginning in late 2015,] partially offset by new restaurant openings.

Revenue from restaurants not yet in the comparable [added: restaurant] base contributed [removed: $390.4] [added: $338.8] million [removed: of] [added: to] the [removed: increase in sales in 2015,] [added: revenue increase,] of which [removed: $183.6] [added: $149.1] million was attributable to restaurants opened [removed: during 2015.][added: in 2017, and comparable restaurant sales increased $233.2 million.]

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

| Food, beverage and packaging | $ | [removed: 1,365.6] [added: 1,535.4] | | $ | [removed: 1,503.8] [added: 1,365.6] | | $ | [removed: 1,421.0] [added: 1,503.8] | | [removed: (9.2%)] [added: 12.4%] | | [removed: 5.8%] [added: (9.2%)] |

| As a percentage of revenue | | [removed: 35.0%] [added: 34.3%] | | | [removed: 33.4%] [added: 35.0%] | | | [removed: 34.6%] [added: 33.4%] | | | | |

Food, beverage and packaging costs decreased as a percentage of revenue in [removed: 2015] [added: 2017] primarily due to the benefit of the [removed: nation-wide] menu price increases taken in [added: select restaurants during] the second [removed: quarter of 2014] and [removed: relief in dairy and avocado costs.][added: fourth quarters of 2017.]

The decrease was partially offset by [removed: inflation on beef costs.][added: wage inflation.]

| Labor costs | $ | [removed: 1,105.0] [added: 1,206.0] | | $ | [removed: 1,045.7] [added: 1,105.0] | | $ | [removed: 904.4] [added: 1,045.7] | | [removed: 5.7%] [added: 9.1%] | | [removed: 15.6%] [added: 5.7%] |

| As a percentage of revenue | | [removed: 28.3%] [added: 26.9%] | | | [removed: 23.2%] [added: 28.3%] | | | [removed: 22.0%] [added: 23.2%] | | | | |

| Occupancy costs | $ | [removed: 293.6] [added: 327.1] | | $ | [removed: 262.4] [added: 293.6] | | $ | [removed: 230.9] [added: 262.4] | | [removed: 11.9%] [added: 11.4%] | | [removed: 13.7%] [added: 11.9%] |

| As a percentage of revenue | | [removed: 7.5%] [added: 7.3%] | | | [removed: 5.8%] [added: 7.5%] | | | [removed: 5.6%] [added: 5.8%] | | | | |

Occupancy costs as a percentage of revenue increased in 2016 primarily due to lower average restaurant sales on a [removed: partially] [added: largely] fixed-cost base.

| Other operating costs | $ | [removed: 642.0] [added: 651.6] | | $ | [removed: 515.0] [added: 642.0] | | $ | [removed: 434.2] [added: 515.0] | | [removed: 24.7%] [added: 1.5%] | | [removed: 18.6%] [added: 24.7%] |

| As a percentage of revenue | | [removed: 16.4%] [added: 14.6%] | | | [removed: 11.4%] [added: 16.4%] | | | [removed: 10.6%] [added: 11.4%] | | | | |

| General and administrative expense | $ | [removed: 276.2] [added: 296.4] | | $ | [removed: 250.2] [added: 276.2] | | $ | [removed: 273.9] [added: 250.2] | | [removed: 10.4%] [added: 7.3%] | | [removed: (8.6%)] [added: 10.4%] |

| As a percentage of revenue | | [removed: 7.1%] [added: 6.6%] | | | [removed: 5.6%] [added: 7.1%] | | | [removed: 6.7%] [added: 5.6%] | | | | |

Our sales and profitability improved during 2017 as compared to 2016.

Comparable restaurant sales increased 6.4% as a result of an increase in the average check, including a 1.2% benefit from menu price increases implemented in about 500 restaurants during the second quarter of 2017 and 900 restaurants during the fourth quarter of 2017.

We expect comparable restaurant sales increases in the low single digits for the full year 2018, including the benefit from extending menu price increases to almost 950 additional restaurants in January 2018.

Sales growth from new restaurant openings, however, will be lower in 2018 than in the past due to our planned decrease in new restaurant openings during the year, as discussed below under “Restaurant Development.”

During 2017, we invested in improving our digital platforms, including significant improvements to our mobile application and online ordering platform, and equipping select restaurants with an upgraded second make line dedicated to fulfilling out-of-restaurant orders.

Sales from out-of-restaurant orders represented 8.3% of our revenue during the year ended December 31, 2017, up from 6.4% of revenue during the year ended December 31, 2016.

Additionally, in September 2017 we introduced an all-natural queso, which was ordered in approximately 10% of our transactions in January 2018.

The decrease was attributable to sales leverage, including the benefit of the menu price increases, lower marketing and promotional spend as a percent of revenue, and labor efficiencies, partially offset by higher wages paid to crew and managers.

We opened 183 restaurants in 2017, including two relocations, and closed 23 additional restaurants (including 15 ShopHouse Southeast Asian Kitchen restaurants).

We intend to open between 130 and 150 restaurants for the full year 2018, as we focus our resources on improving our operations and delivering an outstanding experience to every one of our guests.

Tax Law Changes.

In December 2017, the Tax Cuts and Jobs Act was signed into law, and among other changes, the Act lowered the U.S. corporate income tax rate from 35% to 21% beginning in 2018.

As a result, we recognized a $6.0 million benefit in our provision for income taxes related to the remeasurement of our deferred tax position at the lower rate.

We expect our 2018 annual effective tax rate to be in the range of 30% to 31%, which includes an underlying effective tax rate of 27% to 28%, and around 3% to 4% related to stock awards.

Additionally, we have deferred tax assets related to outstanding non-vested stock awards that contain market conditions.

If market conditions are not achieved, then we may not realize the benefit of these deferred tax assets, which would result in a higher effective tax rate in future periods.

We believe the stock awards granted in 2015 and 2016 that contain market conditions will increase our tax rate in the first and fourth quarters of 2018, respectively.

During 2018, we expect to use a portion of the savings from the lower federal corporate income tax rate to provide enhanced benefits to our employees, including by making all restaurant managers and crew eligible for a one-time cash bonus, awarding one-time stock bonuses to a broad group of staff employees, and enhancing a number of other benefits such as parental leave and short-term disability.

Additionally, we will use a portion of the savings by investing in our existing restaurants.

We expect these initiatives to increase labor, other operating, and general and administrative expenses, and to result in higher capital expenditures than we have typically incurred.

During the second quarter of 2017, we announced that we hired Scott Boatwright as Chief Restaurant Officer, and Scott has assumed oversight of operations for all North American Chipotle restaurants.

In the fourth quarter of 2017, we announced that Steve Ells, our Chairman and CEO, will become Executive Chairman following the completion of a search to identify a new CEO.

For risks associated with our planned installation of a new CEO, see “Risks Related to our Unique Business Strategy – Our success may depend on the continued service and availability of key personnel, and upcoming changes in our management team may not provide the benefits we expect” in Item 1A.

“Risk Factors.”

Data Security Incident.

In April 2017, we detected malware on the network that supports payment processing for our restaurants, and subsequently determined that the malware searched for track data, which may include cardholder name, card number, expiration date, and internal verification codes.

We removed the malware from our systems and continue to evaluate ways to enhance our security measures.

See “General Business Risks—We may be harmed by security risks we face in connection with our electronic processing and transmission of confidential customer and employee information” in Item 1A.

“Risk Factors,” as well as Note 10.

“Commitments and Contingencies” in Item 8.

“Financial Statements and Supplementary Data,” for further discussion of the payment card security incident and related legal proceedings.

During the year ended December 31, 2017, we recorded a liability of $30.0 million ($18.2 million after tax), or $0.64 per basic and diluted earnings per share, as an estimate of potential losses associated with anticipated claims and assessments by payment card networks.

We may ultimately be subject to liabilities greater or less than the amount accrued.

| ShopHouse closures | (15) | | \- | | |

As we open more restaurants and hire more employees, our aggregate restaurant operating costs and depreciation and amortization generally increase.

| Number of restaurants opened in the year | | 183 | | | 243 | | | 229 | | | | |

The significant factors contributing to the increase in revenue in 2017 were new restaurant openings and comparable restaurant sales increases.

The increase in comparable restaurant sales was attributable to an increase in average check, including a 1.2% benefit from menu price increases.

| | 2017 | | | 2016 | | | 2015 | | | 2017 over 2016 | | 2016 over 2015 |

Food, beverage and packaging costs also benefitted from bringing the preparation of lettuce and bell peppers back into our restaurants after using pre-cut produce during portions of 2016, and cost savings initiatives resulting in lower prices and usage of paper and packaging products.

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.

2016 Highlights and Trends

Operating Results.

Our sales and profitability were adversely impacted throughout 2016 as a result of a number of food-borne illness incidents associated with Chipotle restaurants in as many as 15 states, which were widely reported during the fourth quarter of 2015 and the first quarter of 2016.

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

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

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

| | 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.

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.

Additionally, as part of our response to the food-borne illness incidents, we have implemented enhanced food safety procedures in our supply chain and restaurants that have increased our food costs as a percentage of revenue.

We anticipate that the ongoing impact of the enhanced food safety procedures on our food costs as a percentage of revenue will be approximately 1% compared to pre-crisis levels.

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.

Stock Repurchases.

In accordance with stock repurchases authorized by our Board of Directors, we purchased shares of our common stock during 2016 with an aggregate total repurchase price of $813.9 million.

As of December 31, 2016, $102.6 million was available for stock repurchases under the authorizations announced on May 11, 2016 and October 25, 2016.

On January 10, 2017, we also announced authorizations by our Board of Directors of up to an additional $100 million in common stock repurchases.

We have entered into an agreement with a broker under SEC rule 10b5-1(c), authorizing the broker to make open market purchases of common stock from time to time, subject to market conditions.

The existing repurchase agreement and the Board’s authorizations of the repurchases may be modified, suspended, or discontinued at any time.

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.

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.

Tax Rates.

We expect the 2017 full year effective tax rate to be between 39.0% and 39.5%.

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

We work closely with our suppliers and use a mix of forward pricing protocols under which we agree with our supplier on fixed prices for deliveries at some time in the future, fixed pricing protocols under which we agree on a fixed price with our supplier for the duration of that protocol, [removed: and] formula pricing protocols under which the prices we pay are based on a specified formula related to the prices of the goods, such as spot [removed: prices.][added: prices, and range forward protocols under which we agree on a price range for the duration of that protocol.]

However, a majority of the dollar value of [removed: goods purchased by us] [added: our purchases] is effectively at spot prices.

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

We’ve tried to increase, where [removed: necessary,] [added: practical,] the number of suppliers for our ingredients, which we believe can help mitigate pricing volatility, and we follow industry news, trade issues, exchange rates, foreign demand, weather, crises and other world events that may affect our ingredient prices.

As of December 31, [removed: 2016,] [added: 2017,] we had [removed: $500.5] [added: $362.1] million in investments and interest-bearing cash accounts, including insurance-related restricted trust accounts classified in other assets, and [removed: $37.6] [added: $129.3] million in accounts with an earnings credit we classify as interest income, which combined earned a weighted average interest rate of [removed: 0.71%.][added: 0.97%.]

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

Chipotle Mexican Grill, Inc., a Delaware corporation, together with its subsidiaries (“Chipotle”, [removed: the “Company”,] [added: “we”, “us”,] or [removed: “we”)] [added: “our”)] operates Chipotle Mexican Grill restaurants, which serve a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads, made using fresh ingredients.

As of December 31, [removed: 2016,] [added: 2017,] we operated [removed: 2,198] [added: 2,363] Chipotle restaurants throughout the United States, as well as [removed: 29] [added: 37] international Chipotle restaurants, and we also had [removed: 23 restaurants in operation in other] [added: eight] non-Chipotle [removed: concepts.][added: restaurants.]

We focus on finding [removed: the highest quality] [added: fresh, high-quality raw] ingredients [removed: we can] to make great tasting [removed: food;] [added: food prepared using classic cooking methods;] on building [removed: a] strong [removed: people culture] [added: restaurant teams] that [removed: is] [added: are] centered on 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 [removed: increasing] [added: with a continuing] awareness [added: of] and respect for the environment.

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

The [removed: changes in the industry suggest] [added: fast food landscape has changed dramatically over Chipotle’s 24-year history suggesting] that we may have achieved [removed: our] [added: this] mission, with a number of concepts built using service and sourcing formats that closely resemble ours – with more selective sourcing, food prepared [removed: onsite,] [added: on-site,] and a service model that allows customers to choose exactly what they eat.

We [removed: manage] [added: transitioned the management of] our [removed: operations and] restaurants [removed: based on 11] [added: from eleven to nine] regions [removed: that] [added: during the fourth quarter of 2017 and we] aggregate [added: our operations] into one reportable segment.

Financial information about our operations, including our revenues and net income for the years ended December 31, [added: 2017,] 2016, [removed: 2015,] and [removed: 2014,] [added: 2015,] and our total assets as of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] 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 [removed: operations, see Risks Related to Our Plans to Return to Sales and]

[added: operations, see “Risks Related to Our Plans to Improve Our Sales and] Profitability [removed: Growth] and Restore Our Economic Model – Our expansion into international markets [added: has been limited, and] may present increased risks due to lower customer awareness of our brand… ” in Item 1A.

[removed: A decidedly focused menu.][added: Focused Menu.]

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

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

[removed: We] [added: In preparing our food, we employ classic cooking methods and] 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 [removed: spices] [added: spices,] and dry goods such as rice.

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

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

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

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

Serving high quality food while still charging reasonable prices is critical to our [removed: mission to ensure] [added: purpose so] that [removed: better] [added: guests can enjoy wholesome] food [removed: is accessible to everyone.][added: every day.]

We [removed: believe that purchasing fresh ingredients 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.

We're all about simple, fresh food without [added: the use of] artificial [removed: flavors] [added: colors] or [removed: fillers—just] [added: flavors typically found in fast food—just] genuine raw ingredients and their individual, delectable flavors.

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

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

[removed: More] [added: In the future, more] of our restaurants may periodically serve conventionally raised meats or stop serving one or more menu items [removed: in the future] due to additional supply constraints.

[removed: A portion] [added: Most] of [removed: our] [added: the] beans [removed: is] [added: we serve are] organically grown [removed: and a portion is] [added: or] grown using conservation tillage methods that improve soil conditions, reduce erosion, and help preserve the environment in which the beans are grown.

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

[added: We’ve also tried to increase,] where [removed: necessary,] [added: practical,] the number of suppliers for our ingredients, which we believe can help mitigate pricing volatility and supply shortages, and we follow industry news, trade tariffs and other issues, weather, exchange rates, foreign demand, crises and other world [removed: events that may affect our ingredient prices.]

[removed: This begins with our commitment] [added: We are committed] to serving safe, high quality food.

Our [added: Executive Director of Food Safety directs a] quality assurance department [added: that] establishes and monitors our quality and food safety programs, and works closely with our suppliers to ensure our high standards are met throughout the supply chain.

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

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

These and other [removed: enhancements] [added: food safety practices] underscore our commitment to becoming a leader in food safety while we continue to serve high quality food that our customers love.

To be sure that our food safety programs continue to evolve in ways that will help maintain leadership in this important area, we have [removed: established] a Food Safety Advisory Council [removed: that is] comprised of some of the nation’s foremost food safety authorities.

[removed: There] [added: We believe there] is nothing more important than treating our guests to an excellent experience every time they visit one of our [removed: restaurants.][added: restaurants, and expect that doing so will help us attract customers more frequently and engender greater customer loyalty.]

Creating an excellent guest experience starts with hiring great people, [added: creating great teams, and] training them on our high [removed: standards, and creating great teams in our restaurants.][added: standards.]

Each restaurant typically has a general manager or Restaurateur (a [removed: position we’ve characterized as the most important in the company),] [added: high-performing general manager),] an apprentice manager (in 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 [removed: 23] [added: 22] full and part-time crew members, though our busier restaurants tend to have slightly more employees.

[added: 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 [removed: apprentice team leaders, team] [added: field] leaders [removed: or area managers,] [added: and] team directors, [added: as well as] executive team [removed: directors, executive regional] directors [removed: and restaurant support officers.][added: who report to our Chief Restaurant Officer.]

We are prioritizing the development of technological and other innovations, such as digital/mobile ordering platforms, and delivery and catering choices, that allow our guests to engage with [removed: Chipotle] [added: us] in whatever fashion is most convenient for them.

By allowing our customers to order and receive their food in a variety of ways, we believe we can attract more customers and [removed: help] encourage customers to choose us more frequently.

[removed: In order to successfully deliver a great experience for customers, we are emphasizing the optimization of our second make-lines, which] [added: These initiatives] allow us to fulfill catering or online orders without disrupting throughput on our main service line.

We have grown substantially over the past five years, and expect to open between 130 and 150 new restaurants in 2018, representing a slight reduction in our rate of new openings as we focus our resources on improving our operations and delivering an outstanding experience to every one of our guests.

Looking at what we have accomplished, we have reenvisioned our purpose, and are working to Cultivate nourished communities where wholesome food is enjoyed every day.

Wholesome Food.

We insist on preparing, cooking, and serving nutritious food made from natural ingredients and animals that are raised or grown with care and with respect for the environment.

events that may affect our ingredient prices.

Our Executive Director of Food Safety, a respected expert in the industry, oversees our food safety programs and practices, components of which include:

We have also renewed our commitment to focusing on our restaurant operations and training to elevate the experience we are providing, and ensuring greater consistency throughout all of our restaurants.

We have re-tooled our restaurant compensation systems to place greater emphasis on the strength of operations and the guest experience, and revamped our training programs to better support these priorities.

In order to successfully deliver a great experience for more customers, we are

emphasizing the optimization of second make lines and expanding the ability to pay using Apple Pay or Android Pay.

Recent digital ordering innovations have allowed us to increase digital order volumes to the highest levels we’ve ever achieved, and we believe continued improvements in these areas will allow us to achieve even better results.

Our marketing program is divided into three categories: top-of-mind advertising, brand advertising and local marketing.

Each of these serves a different purpose, but together they are intended to differentiate us from the competition.

Top-of-mind advertising is intended to keep current and new customers coming into our restaurants; brand advertising is directed at existing customers and seeks to build deeper connections to our brand; and local advertising aims to help connect our restaurants to local communities and the customers who live there.

Our top-of-mind advertising has generally included print, outdoor, social, digital and radio advertising, but we have also incorporated some national television advertising.

For a discussion of risks related to our marketing, see “Risks Related to Our Plans to Improve Our Sales and Profitability and Restore Our Economic Model – Our marketing and advertising strategies may not be successful, or may pose risks that could adversely impact our business” in Item 1A.

“Risk Factors.”

Meal kit delivery companies and other eat-at-home options also present some degree of competition for our restaurants.

available information on competitors and other restaurants.

For a discussion of risks related to our expansion into new real estate types, see “Risks Related to Our Plans to Improve Our Sales and Profitability and Restore Our Economic Model – Our new restaurants, once opened, may not be profitable, and may adversely impact the sales of our existing restaurants” in Item 1A.

“Risk Factors.”

We also previously operated ShopHouse Southeast Asian Kitchen restaurants, but closed all of the ShopHouse locations in early 2017.

In April 2017, our information security team detected unauthorized activity on the network that supports payment processing for our restaurants, and immediately began an investigation with the help of leading computer security firms.

The investigation detected malware designed to access payment card data from cards used at the point-of-sale system at most of our restaurants.

The malware searched for track data, which may include cardholder name, card number, expiration date, and internal verification codes; however, no other customer information was affected.

We removed the malware from our systems and have been working to further enhance the security of our payment card network.

“Risk Factors,” as well as Note 10.

“Commitments and Contingencies” in Item 8.

“Financial Statements and Supplementary Data,” for further discussion of the payment card security incident in 2017, related legal proceedings, and other risks associated with our information systems.

The following risk factors could materially affect our business, financial condition and results of operations, and should be carefully considered in evaluating our business or making an investment decision involving our common stock.

The risks and uncertainties described below are those that we have identified as material, but are not the only risks and uncertainties we face.

Our business is also subject to general risks and uncertainties that affect many other companies, including overall economic and industry conditions.

Additional risks and uncertainties not currently known to us or that we currently believe are not material also may materially affect our business, financial condition and results of operations.

Any future declines in comparable restaurant sales or failure to meet

We had 2,408 restaurants in operation as of December 31, 2017, and we plan to increase the number of our restaurants significantly.

In 2018 we plan to open between 130 and 150 new restaurants, significantly fewer than in prior years.

We expect this effect to be more pronounced through at least 2018, given our plan to decrease the number of new restaurants we open during the year as compared to years past.

This trend may continue into 2018 and beyond.

These types of sites may become more important to our restaurant growth strategy as we find fewer opportunities to open in traditional sites, given our past growth.

Many of these site types may involve additional costs that we do not incur in our more traditional restaurant sites, which will adversely impact the profitability of restaurants in these types of sites.

We have grown substantially over the past five years, and expect to open between 195 and 210 additional restaurants in 2017.

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

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 plan to keep a simple menu, but will consider additions that we think make sense.

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.

Better Food.

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.

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

While our food safety programs have always been carefully designed and have been in conformance with applicable industry standards, over the last year our Executive Director of Food Safety, a respected expert in the industry, has led a comprehensive assessment and enhancement of our food safety programs and practices.

Components of our enhanced food safety programs include:

| --- | --- |

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

We have identified 13 characteristics of top performing employees, and use these characteristics as a guide to help us identify the very best people for our restaurants.

Then, we invest in properly training each employee so that they can seamlessly deliver an excellent experience that our guests will enjoy.

Our restaurant training focuses on the guest experience by ensuring we are serving safe and delicious food quickly, in a clean and hospitable environment.

Consistent with our emphasis on

We are also integrating technology into our applications that provides customers with more precise and earlier pick-up times, which help our restaurants fill digital orders more quickly and accurately, improving the experience for customers who use these platforms.

A great dining experience in our restaurants has always been our most powerful marketing.

But there is still a need to introduce our brand to new customers and engage with existing ones in other ways, by helping them understand what makes Chipotle different.

Our advertising and promotional programs and in-store communications all help to communicate what differentiates Chipotle from typical fast food.

Whether it’s engaging with Chipotle via our various social media channels, participating in our local events, or simply eating a burrito at one of our restaurants, each customer interaction affords us an important opportunity to build our brand.

On the heels of the safety-related incidents, we redoubled our efforts to attract customers to our restaurants and to provide a restaurant experience that helps keep them as or convert them into loyal, repeat customers.

Generating new customers and enhancing customer frequency will be a central objective of our marketing efforts in 2017.

Our advertising has generally included print, outdoor, transit, and radio ads, but we also incorporate digital advertising into the mix, and conduct strategic promotions that demonstrate our commitment to our Food With Integrity philosophy while connecting us to like-minded individuals or organizations.

Our first new restaurant concept was ShopHouse Southeast Asian Kitchen, which we opened in 2011 and grew to a total of 15 restaurants.

ShopHouse was not able to achieve a level of sales and profitability that made it attractive to us for future investment, and we announced in the fourth quarter of 2016 that we are exploring strategic alternatives for the concept.

We will continue to invest in our applications and systems to support our continued expansion.

“Risk Factors,” for a discussion of risks associated with our information systems.

In order to increase our sales, one of our primary goals is to increase comparable restaurant sales.

Additionally, if we fail to significantly increase comparable restaurant sales in 2017 and beyond, the price of our common stock is likely to be adversely impacted.

As a result, it may take longer for our sales to recover than has been the case during past food safety incidents associated with other restaurant chains, and we may not fully recover all of our lost sales.

We had 2,250 restaurants in operation as of December 31, 2016.

We plan to increase the number of our restaurants significantly, and plan to open between 195 and 210 new restaurants in 2017.

Similarly, our growth strategy and the substantial investment associated with the development of each new restaurant (as well as the impact of our new restaurants on the sales of our existing restaurants) may cause our operating results to fluctuate and be unpredictable or adversely affect our profits.

For the fiscal year ended December 31, [removed: 2016][added: 2017]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, [removed: or] a smaller reporting [added: company, or an emerging growth] company.

See the definitions of “large accelerated filer,” “accelerated filer,” [removed: and] “smaller reporting [added: company,” and “emerging growth] company” in Rule 12b-2 of the Exchange Act (check one):

| ☒ Large accelerated filer | ☐ Accelerated filer | ☐ Non-accelerated filer (do not check if a smaller reporting company) | ☐ Smaller reporting company | [added: ☐ Emerging growth company |]

As of June 30, [removed: 2016,] [added: 2017,] the aggregate market value of the registrant’s outstanding common equity held by non-affiliates was [removed: $6.6] [added: $7.075] 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 [removed: January 31, 2017,] [added: February 6, 2018,] there were [removed: 28,772,830] [added: 27,930,272] 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: 2017] [added: 2018] 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: 2016.][added: 2017.]

| Item 1B. | [Unresolved Staff Comments](#Item_1B) | [removed: 23] [added: 25] |

| Item 2. | [Properties](#Item_2) | [removed: 24] [added: 26] |

| Item 3. | [Legal Proceedings](#Item_3) | [removed: 25] [added: 27] |

| Item 4. | [Mine Safety Disclosures](#Item_4) | [removed: 25] [added: 27] |

| Item 5. | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](#Item_5) | [removed: 26] [added: 28] |

| Item 6. | [Selected Financial Data](#Item_6) | [removed: 28] [added: 30] |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#Item_7) | [removed: 29] [added: 31] |

| Item 7A. | [Quantitative and Qualitative Disclosures About Market Risk](#Item_7A) | [removed: 37] [added: 39] |

| Item 8. | [Financial Statements and Supplementary Data](#Item_8) | [removed: 38] [added: 40] |

| Item 9. | [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](#Item_9) | [removed: 59] [added: 62] |

| Item 9A. | [Controls and Procedures](#Item_9A) | [removed: 59] [added: 62] |

| Item 9B. | [Other Information](#Item_9B) | [removed: 61] [added: 64] |

| Item 10. | [Directors, Executive Officers and Corporate Governance](#Item_10) | [removed: 61] [added: 64] |

| Item 11. | [Executive Compensation](#Item_11) | [removed: 61] [added: 64] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#Item_12) | [removed: 61] [added: 64] |

| Item 13. | [Certain Relationships and Related Transactions, and Director Independence](#Item_13) | [removed: 62] [added: 64] |

| Item 14. | [Principal Accounting Fees and Services](#Item_14) | [removed: 62] [added: 65] |

| Item 15. | [Exhibits, Financial Statement Schedules](#Item_15) | [removed: 63] [added: 66] |

| Item 16. | [Form 10-K Summary](#Item_16) | [removed: 63] [added: 67] |

| | [Signatures](#Signatures) | [removed: 64] [added: 68] |

This report includes statements of our expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of [removed: 1934] [added: 1934,] and [added: that] are intended to come within the safe harbor protection provided by those sections.

Forward-looking statements [removed: include] [added: include, among others, forecasts of the number of restaurants we expect to open in 2018;] statements regarding the effectiveness of [removed: enhanced] [added: our] food safety [removed: procedures we have implemented;] [added: systems and procedures; statements about] the [added: potential] impact of catering and delivery offerings and technology initiatives; [removed: the expected impact of food safety enhancements on our restaurant operating costs;] projections of comparable restaurant sales increases and sales trends we expect for [removed: 2017;] [added: 2018;] forecasts of trends in [removed: food, beverage and packaging costs, other operating costs,] general and administrative [removed: expenses] [added: expenses, restaurant development costs,] and other [removed: cost items] [added: expenses] for [removed: 2017; forecasts of the number] [added: 2018; estimates] of [removed: restaurants we expect to open in 2017;] expected effective tax rates for the year; statements about possible repurchases of our common stock; projections of [removed: restaurant development costs;] [added: planned capital expenditures;] and other statements of our expectations and plans.

These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to [removed: uncertainties,] risks and [removed: factors] [added: uncertainties] relating to our operations and business environments, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed or implied by these forward-looking statements.

Such risks and [removed: other factors] [added: uncertainties] include those listed in Item 1A.

10-K 1 cmg-20171231x10k.htm 10-K

| | | | | |

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

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

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

| | | | |

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

[removed: | 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. [removed: | |]

| Alabama | [removed: 12] [added: 14] |

| Arizona | [removed: 78] [added: 79] |

| Connecticut | [removed: 22] [added: 24] |

| District of Columbia | [removed: 23] [added: 20] |

| Georgia | [removed: 44] [added: 47] |

| Idaho | [removed: 7] [added: 8] |

| Indiana | [removed: 34] [added: 36] |

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

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

| Maryland | [removed: 82] [added: 84] |

| Massachusetts | [removed: 50] [added: 53] |

| Michigan | [removed: 31] [added: 35] |

| Minnesota | [removed: 61] [added: 62] |

| Missouri | [removed: 37] [added: 38] |

| Nevada | [removed: 25] [added: 27] |

| New Hampshire | [removed: 6] [added: 7] |

| New Jersey | [removed: 50] [added: 57] |

| New Mexico | [removed: 4] [added: 7] |

| New York | [removed: 127] [added: 138] |

| North Carolina | [removed: 45] [added: 54] |

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

| Oregon | [removed: 26] [added: 30] |

| Pennsylvania | [removed: 73] [added: 82] |

| South Carolina | [removed: 20] [added: 22] |

| Tennessee | [removed: 18] [added: 20] |

| Utah | [removed: 10] [added: 12] |

| Virginia | [removed: 89] [added: 97] |

| Washington | [removed: 35] [added: 39] |

| Canada | [removed: 17] [added: 24] |

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

Of our restaurants in operation as of December 31, [removed: 2016,] [added: 2017,] we had [removed: 1,396] [added: 1,523] end-cap locations, [removed: 370] [added: 391] free-standing units, [removed: 346] [added: 356] in-line locations, and 138 other locations.

The average restaurant size is about 2,500 square feet and seats about [removed: 57] [added: 56] people.

For additional information regarding the lease terms and provisions, see [removed: Item 7.][added: Note 8.]

As of December 31, 2017, there were 2,408 restaurants operated by Chipotle and our consolidated subsidiaries, 2,400 of which were Chipotle restaurants.

| | |

| California | 408 |

| Florida | 149 |

| Illinois | 134 |

| Mississippi | 1 |

| Ohio | 174 |

| Texas | 195 |

| Total | 2,408 |

| California | 384 |

| Florida | 135 |

| Illinois | 130 |

| Ohio | 168 |

| Texas | 181 |

| Total | 2,250 |

“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations,” as well as Note 8.

As of [removed: January 26, 2017,] [added: February 1, 2018,] there were approximately [removed: 1,233] [added: 948] 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.

The table below reflects shares of common stock we repurchased during the fourth quarter of [removed: 2016.][added: 2017.]

(1)Shares were repurchased pursuant to a [added: $100 million] repurchase program announced on May [removed: 11, 2016.][added: 23, 2017.]

(2)This column includes $100 million in [removed: authorized repurchases announced on October 25, 2016, but does not include an] additional [removed: $100 million in] authorized repurchases announced on [removed: January 10,] [added: October 24,] 2017.

The following graph compares the cumulative annual stockholders return on our common stock from December 31, [removed: 2011] [added: 2012] through December 31, [removed: 2016] [added: 2017] 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: 2011.][added: 2012.]

| 2017 | | | | | |

| First Quarter | $ | 453.08 | | $ | 372.87 |

| Second Quarter | $ | 499.00 | | $ | 410.98 |

| Third Quarter | $ | 419.73 | | $ | 295.11 |

| Fourth Quarter | $ | 333.33 | | $ | 263.00 |

| October | | | 81,953 | | $ | 303.31 | | 81,953 | | $ | 170,567,974 |

| November | | | 91,427 | | $ | 279.97 | | 91,427 | | $ | 144,971,147 |

| December | | | 86,775 | | $ | 307.66 | | 86,775 | | $ | 118,274,235 |

| Total | | | 260,155 | | $ | 296.56 | | 260,155 | | $ | 118,274,235 |

![A close up of a map

Description generated with very high confidence](https://www.sec.gov/Archives/edgar/data/1058090/000105809018000018/cmg-20171231x10kg001.gif)

| 2015 | | | | | |

| First Quarter | $ | 727.97 | | $ | 647.28 |

| Second Quarter | $ | 699.03 | | $ | 598.04 |

| Third Quarter | $ | 758.61 | | $ | 597.33 |

| Fourth Quarter | $ | 757.00 | | $ | 477.97 |

| 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 |


“Financial Statements and Supplementary Data.” The data shown below are not necessarily indicative of results to be expected for any future period [removed: (in] [added: (dollar and share amounts in] thousands, except per share data).

| | [added: 2017 | | |] 2016 | | | 2015 | | | 2014 | | | 2013 | | [removed: | 2012 | |]

| Revenue | $ | [removed: 3,904,384] [added: 4,476,412] | | $ | [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] |

| Food, beverage and packaging costs | | [added: 1,535,428 | | |] 1,365,580 | | | 1,503,835 | | | 1,420,994 | | | 1,073,514 | [removed: | | 891,003 |]

| Labor costs | | [added: 1,205,992 | | |] 1,105,001 | | | 1,045,726 | | | 904,407 | | | 739,800 | [removed: | | 641,836 |]

| Occupancy costs | | [added: 327,132 | | |] 293,636 | | | 262,412 | | | 230,868 | | | 199,107 | [removed: | | 171,435 |]

| Other operating costs | | [added: 651,644 | | |] 641,953 | | | 514,963 | | | 434,244 | | | 347,401 | [removed: | | 286,610 |]

| General and administrative expenses | | [added: 296,388 | | |] 276,240 | | | 250,214 | | | 273,897 | | | 203,733 | [removed: | | 183,409 |]

| Depreciation and amortization | | [added: 163,348 | | |] 146,368 | | | 130,368 | | | 110,474 | | | 96,054 | [removed: | | 84,130 |]

| Pre-opening costs | | [added: 12,341 | | |] 17,162 | | | 16,922 | | | 15,609 | | | 15,511 | [removed: | | 11,909 |]

| Loss on disposal of assets | | [added: 13,345 | | |] 23,877 | | | 13,194 | | | 6,976 | | | 6,751 | [removed: | | 5,027 |]

| Total operating expenses | | [added: 4,205,618 | | |] 3,869,817 | | | 3,737,634 | | | 3,397,469 | | | 2,681,871 | [removed: | | 2,275,359 |]

| Income from operations | | [added: 270,794 | | |] 34,567 | | | 763,589 | | | 710,800 | | | 532,720 | [removed: | | 455,865 |]

| Interest and other [removed: income (expense),] [added: income,] net | | [added: 4,949 | | |] 4,172 | | | 6,278 | | | 3,503 | | | 1,751 | [removed: | | 1,820 |]

| Income before income taxes | | [added: 275,743 | | |] 38,739 | | | 769,867 | | | 714,303 | | | 534,471 | [removed: | | 457,685 |]

| Provision for income taxes | | [added: (99,490) | | |] (15,801) | | | (294,265) | | | (268,929) | | | (207,033) | [removed: | | (179,685) |]

| Net income | $ | [removed: 22,938] [added: 176,253] | | $ | [removed: 475,602] [added: 22,938] | | $ | [removed: 445,374] [added: 475,602] | | $ | [removed: 327,438] [added: 445,374] | | $ | [removed: 278,000] [added: 327,438] |

| Basic | $ | [removed: 0.78] [added: 6.19] | | $ | [removed: 15.30] [added: 0.78] | | $ | [removed: 14.35] [added: 15.30] | | $ | [removed: 10.58] [added: 14.35] | | $ | [removed: 8.82] [added: 10.58] |

| Diluted | $ | [removed: 0.77] [added: 6.17] | | $ | [removed: 15.10] [added: 0.77] | | $ | [removed: 14.13] [added: 15.10] | | $ | [removed: 10.47] [added: 14.13] | | $ | [removed: 8.75] [added: 10.47] |

| Basic | | [added: 28,491 | | |] 29,265 | | | 31,092 | | | 31,038 | | | 30,957 | [removed: | | 31,513 |]

| Diluted | | [added: 28,561 | | |] 29,770 | | | 31,494 | | | 31,512 | | | 31,281 | [removed: | | 31,783 |]

| Total current assets | $ | [removed: 522,374] [added: 629,535] | | $ | [removed: 814,647] [added: 522,374] | | $ | [removed: 859,511] [added: 814,647] | | $ | [removed: 653,095] [added: 859,511] | | $ | [removed: 537,745] [added: 653,095] |

| Total assets | $ | [removed: 2,026,103] [added: 2,045,692] | | $ | [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] |

| Total current liabilities | $ | [removed: 281,793] [added: 323,893] | | $ | [removed: 279,942] [added: 281,793] | | $ | [removed: 245,710] [added: 279,942] | | $ | [removed: 199,228] [added: 245,710] | | $ | [removed: 186,852] [added: 199,228] |

| Total liabilities | $ | [removed: 623,610] [added: 681,247] | | $ | [removed: 597,092] [added: 623,610] | | $ | [removed: 514,948] [added: 597,092] | | $ | [removed: 457,780] [added: 514,948] | | $ | [removed: 413,879] [added: 457,780] |

| Total shareholders’ equity | $ | [removed: 1,402,493] [added: 1,364,445] | | $ | [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] |

| | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |

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

| [Consolidated Balance Sheet as of December 31, [removed: 2016] [added: 2017] and [removed: 2015](#Consolidated_BS)] [added: 2016](#Consolidated_BS)] | [removed: 40] [added: 42] |

| [Consolidated Statement of Income and [added: Consolidated Statement of] Comprehensive Income for the years ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014](#Consolidated_IS)] [added: 2015](#Consolidated_IS)] | [removed: 41] [added: 43] |

| [Consolidated Statement of Shareholders’ Equity for the years ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014](#Consolidated_SOE)] [added: 2015](#Consolidated_SOE)] | [removed: 42] [added: 44] |

| [Consolidated Statement of Cash Flows for the years ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014](#Consolidated_SCF)] [added: 2015](#Consolidated_SCF)] | [removed: 43] [added: 45] |

| [Notes to Consolidated Financial Statements](#Notes_to_FS) | [removed: 44] [added: 46] |

[removed: The] [added: To the Shareholders and] Board of Directors [removed: and Shareholders] of [added: Chipotle Mexican Grill, Inc.]

We have audited the accompanying consolidated balance [removed: sheets] [added: sheet] of Chipotle Mexican Grill, Inc. (the [removed: “Company”)] [added: Company),] as of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] and the related consolidated statements of [removed: income and] [added: income,] comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, [removed: 2016.][added: 2017, and the related notes (collectively referred to as the “financial statements”).]

Our responsibility is to express an opinion on [removed: these] [added: the Company’s] financial statements based on our audits.

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material [removed: misstatement.][added: misstatement, whether due to error or fraud.]

[removed: An audit includes] [added: Such procedures included] examining, on a test basis, evidence [removed: supporting] [added: regarding] the amounts and disclosures in the financial statements.

[removed: An audit] [added: Our audits] also [removed: includes assessing] [added: included evaluating] the accounting principles used and significant estimates made by management, as well as evaluating the overall [added: presentation of the] financial [removed: statement presentation.][added: statements.]

In our opinion, the financial statements [removed: referred to above] present fairly, in all material respects, the consolidated financial position of [removed: Chipotle Mexican Grill, Inc.] [added: the Company] at December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2016,] [added: 2017,] in conformity with U.S. generally accepted accounting principles.

We [removed: also] have [added: also] audited, in accordance with the standards of the Public Company Accounting Oversight Board (United [removed: States), Chipotle Mexican Grill, Inc.’s] [added: Stated) (PCAOB), the Company’s] internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] 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: 6, 2017] [added: 8, 2018] expressed an unqualified opinion thereon.

| | December 31, | | | [added: December 31,] | |

| | [added: 2017 | | |] 2016 | | | 2015 | |

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

| Accounts receivable, net of allowance for doubtful accounts of [removed: $259] [added: $0] and [removed: $1,176] [added: $259] as of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] respectively | | [removed: 40,451] [added: 40,453] | | | [removed: 38,283] [added: 40,451] |

| Inventory | | [removed: 15,019] [added: 19,860] | | | [removed: 15,043] [added: 15,019] |

| Prepaid expenses and other current assets | | [removed: 44,080] [added: 50,918] | | | [removed: 39,965] [added: 44,080] |

| Income tax receivable | | [removed: 5,108] [added: 9,353] | | | [removed: 58,152] [added: 5,108] |

| Investments | | [removed: 329,836] [added: 324,382] | | | [removed: 415,199] [added: 329,836] |

| Total current assets | | [removed: 522,374] [added: 629,535] | | | [removed: 814,647] [added: 522,374] |

| Leasehold improvements, property and equipment, net | | [removed: 1,303,558] [added: 1,338,366] | | | [removed: 1,217,220] [added: 1,303,558] |

| Long term investments | | [removed: 125,055] [added: \-] | | | [removed: 622,939] [added: 125,055] |

| Other assets | | [removed: 53,177] [added: 55,852] | | | [removed: 48,321] [added: 53,177] |

| Total assets | $ | [removed: 2,026,103] [added: 2,045,692] | | $ | [removed: 2,725,066] [added: 2,026,103] |

| Accounts payable | $ | [removed: 78,363] [added: 82,028] | | $ | [removed: 85,709] [added: 78,363] |

| Accrued payroll and benefits | | [removed: 76,301] [added: 82,541] | | | [removed: 64,958] [added: 76,301] |

| Accrued liabilities | | [removed: 127,129] [added: 159,324] | | | [removed: 129,275] [added: 127,129] |

| Total current liabilities | | [removed: 281,793] [added: 323,893] | | | [removed: 279,942] [added: 281,793] |

| Deferred rent | | [removed: 288,927] [added: 316,498] | | | [removed: 251,962] [added: 288,927] |

| Deferred income tax liability | | [removed: 18,944] [added: 814] | | | [removed: 32,305] [added: 18,944] |

| Other liabilities | | [removed: 33,946] [added: 40,042] | | | [removed: 32,883] [added: 33,946] |

| Total liabilities | | [removed: 623,610] [added: 681,247] | | | [removed: 597,092] [added: 623,610] |

| Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] respectively | | \- | | | \- |

| Common stock $0.01 par value, 230,000 shares authorized, and [removed: 35,833] [added: 35,852] and [removed: 35,790] [added: 35,833] shares issued as of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] respectively | | [removed: 358] [added: 359] | | | 358 |

| Additional paid-in capital | | [removed: 1,238,875] [added: 1,305,090] | | | [removed: 1,172,628] [added: 1,238,875] |

| Treasury stock, at cost, [removed: 7,019] [added: 7,826] and [removed: 5,206] [added: 7,019] common shares at December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] respectively | | [removed: (2,049,389)] [added: (2,334,409)] | | | [removed: (1,234,612)] [added: (2,049,389)] |

Opinion on the Financial Statements

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We have served as the Company’s auditor since 1997.

February 8, 2018

| | 2017 | | | 2016 | |

| Cash and cash equivalents | $ | 184,569 | | $ | 87,880 |

CONSOLIDATED STATEMENT OF INCOME

| Net income | $ | 176,253 | | $ | 22,938 | | $ | 475,602 |

| Unrealized gain (loss) on available-for-sale securities | | (274) | | | 2,251 | | | (2,468) |

| Tax benefit (expense) | | 88 | | | (849) | | | 946 |

| Stock-based compensation | | | | | | | 66,396 | | | | | | | | | | | | | | | | | 66,396 |

| Acquisition of treasury stock | | | | | | | | | 807 | | | (285,020) | | | | | | | | | | | | (285,020) |

| Net income | | | | | | | | | | | | | | | 176,253 | | | | | | | | | 176,253 |

| Balance, December 31, 2017 | 35,852 | | $ | 359 | | $ | 1,305,090 | | 7,826 | | $ | (2,334,409) | | $ | 2,397,064 | | $ | (306) | | $ | (3,353) | | $ | 1,364,445 |

(in thousands)

| Net income | $ | 176,253 | | $ | 22,938 | | $ | 475,602 |

| Depreciation and amortization | | 163,348 | | | 146,368 | | | 130,368 |

| Loss on disposal and impairment of assets | | 13,345 | | | 23,877 | | | 13,194 |

In this annual report on Form 10-K, Chipotle Mexican Grill, Inc., a Delaware corporation, together with its subsidiaries, is collectively referred to as “Chipotle,” “we,” “us,” or “our.”

During the quarter ended December 31, 2017, we revised the period over which we recognize gift card breakage from six months to eight months from the date of the gift card sale in the consolidated statement of income.

Deferred revenue related to the frequency program was $0 and $5,489 as of December 31, 2017 and December 31, 2016, respectively, and the entire amount that was deferred as of December 31, 2016 was recognized during 2017.

During the year ended December 31, 2017, the impairment charges resulted primarily from the closure of a small number of underperforming Chipotle restaurants.

See “Fair Value Measurements” below for a description of level inputs.

We are self-insured for a significant portion of our risks and associated liabilities with respect to workers’ compensation, employee health, general liability, automobile, and property damage.

We estimate forfeitures based on historical data when determining the amount of stock-based compensation costs to be recognized in each period.

Stock awards with performance or market vesting conditions generally vest based on our achievement versus stated targets or criteria over a three\-year performance and service period.

We will be adopting this pronouncement on January 1, 2018, using a retrospective adoption method.

The guidance requires disclosure of key information about leasing arrangements which are intended to give financial statement users the ability to assess the amount, timing, and potential uncertainty of cash flows related to leases.

We expect to adopt the requirements of the new lease standard effective January 1, 2019.

We are currently evaluating the provisions of the new lease standard, including optional practical expedients, and assessing our existing lease portfolio in order to determine the impact to our accounting systems, processes and internal control over financial reporting.

We are still assessing the expected impact on our consolidated statements of income and cash flows.

This guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Additionally, this guidance will require us to enhance our disclosures, including disclosing performance obligations to customers arising from gift cards and certain promotional activity.

Recently Adopted Accounting Standard

We adopted ASU 2016-09 on January 1, 2017, prospectively (prior periods have not been restated).

The primary impact of adoption was the recognition for the year ended December 31, 2017, of an excess tax benefit of $448, which reduces our provision for income taxes and the classification of these excess tax benefits in operating activities in the consolidated statement of cash flows instead of financing activities.

The presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact to any of the periods presented in the consolidated statement of cash flows, since such cash flows have historically been presented in financing activities.

We also elected to continue estimating forfeitures when determining the amount of stock-based compensation costs to be recognized in each period.

Chipotle Mexican Grill, Inc.

February 6, 2017

| Unrealized gain (loss) on investments, net of income taxes of $(849), $946, and $0 | | 1,402 | | | (1,522) | | | \- |

| Balance, December 31, 2013 | 35,245 | | $ | 352 | | $ | 919,840 | | 4,212 | | $ | (660,421) | | $ | 1,276,897 | | $ | \- | | | 1,620 | | $ | 1,538,288 |

| Acquisition of treasury stock | | | | | | | | | 155 | | | (88,338) | | | | | | | | | | | | (88,338) |

| Net income | | | | | | | | | | | | | | | 445,374 | | | | | | | | | 445,374 |

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

The Company recognizes revenue when awards are redeemed or expire.

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.

The Company maintains various insurance policies including workers’ compensation, employee health, general liability, automobile, and property damage.

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

This pronouncement is effective for reporting periods beginning after December 15, 2016.

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.

The Company has not selected a transition method, and except as described above, does not expect the provisions of ASU 2016-09 to have an impact on the Company’s consolidated financial position or results of operations.

This pronouncement is effective for reporting periods beginning after December 15, 2018 using a modified retrospective adoption method.

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

The pronouncement was issued to clarify the principles for recognizing revenue and to develop a common revenue standard and disclosure requirements for U.S. GAAP and IFRS.

Additionally, the adoption of accounting pronouncements during 2016 did not have an impact on the Company’s consolidated financial position or results of operations.

| Treasury stock liability | | 2,300 | | | 25,178 |

| Other accrued expenses | | 44,956 | | | 37,408 |

The Company designates the appropriate classification of its investments at the time of purchase based upon the intended holding period.

During the year ended December 31, 2015, the Company transferred the classification of its investments from held-to-maturity to available-for-sale due to anticipated liquidity needs related to increased repurchases of shares of the Company’s common stock.

The carrying value of held-to-maturity securities transferred to available-for-sale during the year ended December 31, 2015 was $1,040,850 and the fair market value of those securities was determined to be $1,038,138, resulting in an unrealized holding loss of $2,712.

As a result, the Company recorded $2,468 ($1,522, net of tax) of unrealized holding losses in other comprehensive income (loss), and an other-than-temporary impairment charge of $244 in interest and other income (expense), in the consolidated statement of income and comprehensive income.

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

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

| Realized gains (losses) from sale of available-for-sale securities | | | | $ | 547 | | $ | \- | | $ | \- |

| Other-than-temporary impairment | | | | $ | \- | | $ | 244 | | $ | \- |

Additionally, 2014 included a benefit from filing the 2013 tax returns, which included a non-recurring change in the estimate of usable employer credits resulting in a lower effective tax rate than 2015.

During the year ending December 31, 2016, $430 of interest was accrued for uncertain tax positions.

Through December 31, 2016, the Company announced authorizations by its Board of Directors of the expenditure of an aggregate of up to $2,100,000 to repurchase shares of the Company’s common stock.

On January 10, 2017, the Company announced that its Board of Directors authorized the expenditure of up to an additional $100,000 to repurchase shares of its common stock.

The shares of common stock repurchased under authorized programs were 1,811 during the year ended December 31, 2016, 839 during the year ended December 31, 2015 and 154 during the year ended December 31, 2014, for a total cost of $813,881, $485,841 and $87,996 during 2016, 2015 and 2014, respectively.

Shares issued pursuant to awards granted prior to the 2011 Incentive Plan were issued subject to previous stock plans that were also approved by shareholders.

| Outstanding as of December 31, 2016 | 1,917 | | $ | 490.06 | | 4.4 | | $ | 22,040 |

| Vested and expected to vest as of December 31, 2016 | 1,851 | | $ | 489.18 | | 4.3 | | $ | 22,040 |

As of December 31, [removed: 2016,] [added: 2017,] we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.

There were no changes during the fiscal quarter ended December 31, [removed: 2016] [added: 2017] 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: 2016,] [added: 2017,] 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: 2016,] [added: 2017,] 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: 2016.][added: 2017.]

[removed: The] [added: To the Shareholders and] Board of Directors [removed: and Shareholders] of [added: Chipotle Mexican Grill, Inc.]

We have audited Chipotle Mexican Grill, Inc.’s internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] 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).

[removed: Chipotle Mexican Grill, Inc.’s] [added: The Company’s] management is responsible for maintaining effective internal control over financial [removed: reporting,] [added: reporting] and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

We conducted our audit in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

In our opinion, Chipotle Mexican Grill, Inc. [added: (the Company)] maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United [removed: States),] [added: States) (PCAOB),] the consolidated balance sheets [removed: of Chipotle Mexican Grill, Inc.] as of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] and the related consolidated statements of [removed: income and] [added: income,] comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, [removed: 2016] [added: 2017,] and [added: the related notes, of the Company and] our report dated February [removed: 6, 2017] [added: 8, 2018] expressed an unqualified opinion thereon.

Opinion on Internal Control over Financial Reporting

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Definition and Limitations of Internal Control Over Financial Reporting

February 8, 2018

Chipotle Mexican Grill, Inc.

February 6, 2017

None.

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.

Incorporated by reference from the definitive proxy statement for our [removed: 2017] [added: 2018] annual meeting of shareholders, which will be filed no later than 120 days after December 31, [removed: 2016.][added: 2017.]

Incorporated by reference from the definitive proxy statement for our [removed: 2017] [added: 2018] annual meeting of shareholders, which will be filed no later than 120 days after December 31, [removed: 2016.][added: 2017.]

The following table presents information regarding options and rights outstanding under our equity compensation plans as of December 31, [removed: 2016.][added: 2017.]

| | (a) Number of Securities to be Issued Upon Exercise of Outstanding Options and Rights(1) | [added: | |] (b) Weighted-Average Exercise Price of Outstanding Options and Rights(1) | [added: |] (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a))(2) |

| Equity Compensation Plans [added: Not] Approved by Security Holders | [removed: 2,042,317] [added: None] | [removed: $490.06] | [removed: 2,412,105] | [added: N/A | | None |]

| Equity Compensation Plans [removed: Not] Approved by Security Holders | [removed: None] [added: 2,211,600] | [removed: N/A] | [removed: None] [added: $] | [added: 480.09 | | 2,032,484 |]

(2)Includes [removed: 2,165,105] [added: 1,786,198] shares remaining available under the Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan, and [removed: 247,000] [added: 246,286] 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: 2016,] [added: 2017,] 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: 2017] [added: 2018] annual meeting of shareholders, which will be filed no later than 120 days after December 31, [removed: 2016.][added: 2017.]

| | | | | | | |

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

| | | | | | | |

| Total | 2,211,600 | | $ | 480.09 | | 2,032,484 |

| | | | |

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

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

Incorporated by reference from the definitive proxy statement for our [removed: 2017] [added: 2018] annual meeting of shareholders, which will be filed no later than 120 days after December 31, [removed: 2016.][added: 2017.]

Incorporated by reference from the definitive proxy statement for our [removed: 2017] [added: 2018] annual meeting of shareholders, which will be filed no later than 120 days after December 31, [removed: 2016.][added: 2017.]

| | | | | | | |

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

| | | | | | | |

| | | | | | | |

| | | 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 of Chipotle Mexican Grill, Inc.](http://www.sec.gov/Archives/edgar/data/1058090/000105809016000088/cmg-20160930xex3_1.htm) | 10-Q | 001-32731 | October 26, 2016 | 3.1 | |

| 3.2 | [Chipotle Mexican Grill, Inc. Amended and Restated Bylaws](http://www.sec.gov/Archives/edgar/data/1058090/000119312516732859/d256990dex31.htm) | 8-K | 001-32731 | October 6, 2016 | 3.1 | |

| 4.1 | [Form of Stock Certificate for Shares of Common Stock](http://www.sec.gov/Archives/edgar/data/1058090/000119312512052969/d280751dex41.htm) | 10-K | 001-32731 | February 10, 2012 | 4.1 | |

| 10.1† | [Amended and Restated Chipotle Mexican Grill, Inc. 2006 Stock Incentive Plan](http://www.sec.gov/Archives/edgar/data/1058090/000119312511039010/dex102.htm) | 10-K | 001-32731 | February 17, 2011 | 10.2 | |

| 10.1.1† | [Form of 2011 Stock Appreciation Rights Agreement](http://www.sec.gov/Archives/edgar/data/1058090/000119312511039010/dex10210.htm) | 10-K | 001-32731 | February 17, 2011 | 10.2.10 | |

| 10.1.2† | [Form of 2011 Performance-Based Stock Appreciation Rights Agreement](http://www.sec.gov/Archives/edgar/data/1058090/000119312511039010/dex10211.htm) | 10-K | 001-32731 | February 17, 2011 | 10.2.11 | |

| 10.2† | [Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan](http://www.sec.gov/Archives/edgar/data/1058090/000105809016000088/cmg-20160930xex10_1.htm) | 10-Q | 001-32731 | October 26, 2016 | 10.1 | |

| 10.2.1† | [Form of Board Restricted Stock Units Agreement](http://www.sec.gov/Archives/edgar/data/1058090/000119312514274455/d760141dex101.htm) | 10-Q | 001-32731 | July 22, 2014 | 10.1 | |

| 10.2.2† | [Form of Stock Appreciation Rights Agreement](http://www.sec.gov/Archives/edgar/data/1058090/000119312512170975/d329098dex101.htm) | 10-Q | 001-32731 | April 20, 2012 | 10.1 | |

| 10.2.3† | [Form of Performance-Based Stock Appreciation Rights Agreement](http://www.sec.gov/Archives/edgar/data/1058090/000119312512170975/d329098dex102.htm) | 10-Q | 001-32731 | April 20, 2012 | 10.2 | |

| 10.2.4† | [Form of 2014 Stock Appreciation Rights Agreement](http://www.sec.gov/Archives/edgar/data/1058090/000105809017000009/cmg-20161231xex10_24.htm) | 10-K | 001-32731 | February 7, 2017 | 10.2.4 | |

| 10.2.5† | [Form of 2014 Performance-Based Stock Appreciation Rights Agreement](http://www.sec.gov/Archives/edgar/data/1058090/000105809017000009/cmg-20161231xex10_25.htm) | 10-K | 001-32731 | February 7, 2017 | 10.2.5 | |

| 10.2.6† | [Form of 2015 Performance Share Agreement](http://www.sec.gov/Archives/edgar/data/1058090/000105809015000012/cmg-20150331ex10244a0ea.htm) | 10-Q | 001-32731 | April 22, 2015 | 10.2 | |

| 10.2.7† | [Form of 2016 Stock Appreciation Rights Agreement](http://www.sec.gov/Archives/edgar/data/1058090/000105809016000069/cmg-20160331xex10_1.htm) | 10-Q | 001-32731 | April 27, 2016 | 10.1 | |

| 10.2.8† | [Form of 2016 Performance Share Agreement](http://www.sec.gov/Archives/edgar/data/1058090/000119312517104111/d365751dex101.htm) | 10-Q | 001-32731 | April 27, 2016 | 10.2 | |

| 10.2.8.1† | [Amendment to 2016 Performance Share Agreement](http://www.sec.gov/Archives/edgar/data/1058090/000119312517104111/d365751d8k.htm) | 8-K | 001-32731 | March 30, 2017 | 10.1 | |

| 10.2.9† | [Form of 2017 Stock Appreciation Rights Agreement](https://www.sec.gov/Archives/edgar/data/1058090/000105809018000018/cmg-20171231xex10_29.htm) | \- | \- | \- | \- | X |

| 10.2.10† | [Form of 2017 Restricted Stock Units Agreement](https://www.sec.gov/Archives/edgar/data/1058090/000105809018000018/cmg-20171231xex10_210.htm) | \- | \- | \- | \- | X |

| 10.2.11† | [Form of 2017 Performance Share Agreement](http://www.sec.gov/Archives/edgar/data/1058090/000105809017000033/cmg-20170630xex10_2.htm) | 10-Q | 001-32731 | July 26, 2017 | 10.2 | |

| 10.2.12† | [Form of Staff Restricted Stock Units Agreement](https://www.sec.gov/Archives/edgar/data/1058090/000105809018000018/cmg-20171231xex10_212.htm) | \- | \- | \- | \- | X |

| 10.3 | [Amended and Restated Registration Rights Agreement dated January 31, 2006 among Chipotle Mexican Grill, Inc., McDonald’s Corporation and certain shareholders](http://www.sec.gov/Archives/edgar/data/1058090/000104746906003640/a2168474zex-10_6.htm) | 10-K | 001-32731 | March 17, 2006 | 10.6 | |

| 10.4† | [Board Pay Policies](http://www.sec.gov/Archives/edgar/data/1058090/000105809017000033/cmg-20170630xex10_1.htm) | 10-Q | 001-32731 | July 26, 2017 | 10.1 | |

| 10.5† | [Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan](http://www.sec.gov/Archives/edgar/data/1058090/000119312507038325/dex1011.htm) | 10-K | 001-32731 | February 23, 2007 | 10.11 | |

| 10.5.1† | [Amendment No. 1 to Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan](http://www.sec.gov/Archives/edgar/data/1058090/000119312507166908/dex101.htm) | 10-Q | 001-32731 | August 1, 2007 | 10.1 | |

| 10.5.2† | [Amendment No. 2 to Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan](http://www.sec.gov/Archives/edgar/data/1058090/000119312507231213/dex101.htm) | 10-Q | 001-32731 | October 31, 2007 | 10.1 | |

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

| 10.6† | [Form of Director and Officer Indemnification Agreement](http://www.sec.gov/Archives/edgar/data/1058090/000119312507060643/dex101.htm) | 8-K | 001-32731 | March 21, 2007 | 10.1 | |

| 10.7† | [Chipotle Mexican Grill, Inc. Employee Stock Purchase Plan](http://www.sec.gov/Archives/edgar/data/1058090/000119312512052969/d280751dex1011.htm) | 10-K | 001-32731 | February 10, 2012 | 10.11 | |

| 10.8† | [Chipotle Mexican Grill, Inc. 2014 Cash Incentive Plan](http://www.sec.gov/Archives/edgar/data/1058090/000119312513294535/d540633dex101.htm) | 10-Q | 001-32731 | July 19, 2013 | 10.1 | |

| 10.10 | [Investor Agreement dated December 14, 2016 between Chipotle Mexican Grill, Inc. and Pershing Square Capital Management, L.P.](http://www.sec.gov/Archives/edgar/data/1058090/000105809016000091/cmg-20161219xex10_1.htm) | 8-K | 001-32731 | December 19, 2016 | 10.1 | |

| 10.11 | [Registration Rights Agreement dated February 3, 2017, between Chipotle Mexican Grill, Inc. and Pershing Square Capital Management, L.P.](http://www.sec.gov/Archives/edgar/data/1058090/000105809017000009/cmg-20161231xex10_11.htm) | 10-K | 001-32731 | February 7, 2017 | 10.11 | |

| 10.12 | [Executive Agreement dated May 29, 2017 between Chipotle Mexican Grill, Inc. and Scott Boatwright](http://www.sec.gov/Archives/edgar/data/1058090/000105809017000037/cmg-20170915xex10_1.htm) | 8-K | 001-32731 | September 15, 2017 | 10.1 | |

| 10.13 | [Executive Chairman Agreement dated November 28, 2017 between Chipotle Mexican Grill, Inc. and Steve Ells](http://www.sec.gov/Archives/edgar/data/1058090/000105809017000047/cmg-20171201xex10_1.htm) | 8-K | 001-32731 | December 1, 2017 | 10.1 | |

| 21.1 | [Subsidiaries of Chipotle Mexican Grill, Inc.](https://www.sec.gov/Archives/edgar/data/1058090/000105809018000018/cmg-20171231xex21_1.htm) | \- | \- | \- | \- | X |

The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this report.

Date: February [removed: 6, 2017][added: 8, 2018]

| /s/ STEVE ELLS | | February [removed: 6, 2017] [added: 8, 2018] | | Chief Executive Officer and Chairman of the Board of Directors (principal executive officer) | |

| /s/ JOHN R. HARTUNG | | February [removed: 6, 2017] [added: 8, 2018] | | Chief Financial Officer (principal financial and accounting officer) | |

| /s/ ALBERT S. BALDOCCHI | | February [removed: 6, 2017] [added: 8, 2018] | | Director | |

| /s/ NEIL W. FLANZRAICH | | February [removed: 6, 2017] [added: 8, 2018] | | Director | |

| /s/ ROBIN S. HICKENLOOPER | | February [removed: 6, 2017] [added: 8, 2018] | | Director | |

| /s/ KIMBAL MUSK | | February [removed: 6, 2017] [added: 8, 2018] | | Director | |

| /s/ MATTHEW PAULL | | February [removed: 6, 2017] [added: 8, 2018] | | Director | |

POWER OF ATTORNEY

| /s/ PAUL CAPPUCCIO | | February 8, 2018 | | Director | |

| Paul Cappuccio | | | | | |

| /s/ ALI NAMVAR | | February 8, 2018 | | Director | |

| Ali Namvar | | | | | |

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

| John S. Charlesworth | | | | | |

| /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 | | | | | |

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 of Chipotle Mexican Grill, Inc. | 10-Q | 001-32731 | October 26, 2016 | 3.1 | |

| 3.2 | Chipotle Mexican Grill, Inc. Amended and Restated Bylaws | 8-K | 001-32731 | October 6, 2016 | 3.1 | |

| 4.1 | Form of Stock Certificate for Shares of Common Stock | 10-K | 001-32731 | February 10, 2012 | 4.1 | |

| 10.1† | Amended and Restated Chipotle Mexican Grill, Inc. 2006 Stock Incentive Plan | 10-K | 001-32731 | February 17, 2011 | 10.2 | |

| 10.1.1† | Form of 2009 Stock Appreciation Rights Agreement | 10-K | 001-32731 | February 19, 2009 | 10.2.7 | |

| 10.1.2† | Form of 2011 Stock Appreciation Rights Agreement | 10-K | 001-32731 | February 17, 2011 | 10.2.10 | |

| 10.1.3† | Form of 2011 Performance-Based Stock Appreciation Rights Agreement | 10-K | 001-32731 | February 17, 2011 | 10.2.11 | |

| 10.2† | Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan | 10-Q | 001-32731 | October 26, 2016 | 10.1 | |

| 10.2.1† | Form of Board Restricted Stock Units Agreement | 10-Q | 001-32731 | July 22, 2014 | 10.1 | |

| 10.2.2† | Form of Stock Appreciation Rights Agreement | 10-Q | 001-32731 | April 20, 2012 | 10.1 | |

| 10.2.3† | Form of Performance-Based Stock Appreciation Rights Agreement | 10-Q | 001-32731 | April 20, 2012 | 10.2 | |

| 10.2.4† | Form of 2014 Stock Appreciation Rights Agreement | \- | \- | \- | \- | X |

| 10.2.5† | Form of 2014 Performance-Based Stock Appreciation Rights Agreement | \- | \- | \- | \- | X |

| 10.2.6† | Form of 2015 Performance Share Agreement | 10-Q | 001-32731 | April 22, 2015 | 10.2 | |

| 10.2.7† | Form of 2016 Stock Appreciation Rights Agreement | 10-Q | 001-32731 | April 27, 2016 | 10.1 | |

| 10.2.8† | Form of 2016 Performance Share Agreement | 10-Q | 001-32731 | April 27, 2016 | 10.2 | |

| 10.3 | Amended and Restated Registration Rights Agreement dated January 31, 2006 among Chipotle Mexican Grill, Inc., McDonald’s Corporation and certain shareholders | 10-K | 001-32731 | March 17, 2006 | 10.6 | |

| 10.4† | Board Pay Policies | 10-Q | 001-32731 | April 22, 2015 | 10.1 | |

| 10.5† | Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan | 10-K | 001-32731 | February 23, 2007 | 10.11 | |

| 10.5.1† | Amendment No. 1 to Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan | 10-Q | 001-32731 | August 1, 2007 | 10.1 | |

| 10.5.2† | Amendment No. 2 to Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan | 10-Q | 001-32731 | October 31, 2007 | 10.1 | |

| 10.6† | Form of Director and Officer Indemnification Agreement | 8-K | 001-32731 | March 21, 2007 | 10.1 | |

| 10.7† | Chipotle Mexican Grill, Inc. Employee Stock Purchase Plan | 10-K | 001-32731 | February 10, 2012 | 10.11 | |

| 10.8† | Chipotle Mexican Grill, Inc. 2014 Cash Incentive Plan | 10-Q | 001-32731 | July 19, 2013 | 10.1 | |

| 10.9† | Retirement and Non-Competition Agreement dated December 9, 2016 between Chipotle Mexican Grill, Inc. and Montgomery F. Moran | 8-K | 001-32731 | December 12, 2016 | 10.1 | |

| 10.10 | Investor Agreement dated December 14, 2016 between Chipotle Mexican Grill, Inc. and Pershing Square Capital Management, L.P. | 8-K | 001-32731 | December 19, 2016 | 10.1 | |

| 10.11 | Registration Rights Agreement dated February 3, 2017, between Chipotle Mexican Grill, Inc. and Pershing Square Capital Management, L.P. | \- | \- | \- | \- | X |