Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Chipotle Mexican Grill, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Chipotle Mexican Grill, Inc. (the Company) as of December 31, 2025 and 2024, the related consolidated statements of income and comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 4, 2026 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Evaluation of stock-based compensation performance condition assumptions
Description of the MatterThe Company incurred $121.4 million in stock-based compensation expense during the year ended December 31, 2025. Approximately 2,190,000 of the Company’s vested and non-vested stock awards were subject to performance conditions during the year ended December 31, 2025. As described in Notes 1 and 8 of the consolidated financial statements, the Company records the grant date fair value of the performance stock awards and expenses the fair value of the performance stock awards subject to service conditions over the respective vesting period. Stock-based compensation expense of stock awards subject to performance conditions is based on the estimated probability of achieving levels of performance associated with particular levels of payout. Additionally, at each reporting period, the Company evaluates the probable outcome of the performance conditions including consideration of significant assumptions and as applicable, recognizes the cumulative effect of the change in estimate in the period of the change. Auditing the estimated quantity of awards the Company determined are probable of vesting for the Company’s stock awards subject to performance conditions was complex and judgmental. In particular, the stock compensation expense is sensitive to significant assumptions including management’s internal estimates of the Company’s future performance. Those estimates are based on certain targets relating to growth in cumulative base restaurant cash flow dollars.
How We Addressed the Matter in Our AuditWe obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over stock-based compensation. We tested controls over management’s review of the assumptions used with regards to the performance conditions. We also tested management's controls to validate that data used in management’s internal estimates of the Company’s future performance was complete and accurate. Our substantive audit procedures included, among others, testing the significant assumptions underlying the performance conditions (e.g., certain targets related to growth in cumulative base restaurant cash flow dollars) and testing the completeness and accuracy of the underlying data. We evaluated management’s significant assumptions by comparing the assumptions to current market and economic trends, historical results of the Company's business, and to other relevant factors. We additionally performed a sensitivity analysis of the significant assumptions to evaluate the change in the expense to be recognized for the stock awards subject to performance conditions. We also evaluated the adequacy of the Company’s stock-based compensation disclosures included in Notes 1 and 8 of the consolidated financial statements in relation to these matters.

/s/ Ernst & Young LLP

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

Irvine, California

February 4, 2026

CHIPOTLE MEXICAN GRILL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

December 31,
20252024
Assets
Current assets:
Cash and cash equivalents$350,545$748,537
Accounts receivable, net156,466143,963
Inventory49,50848,942
Prepaid expenses and other current assets120,45097,538
Income tax receivable91,39367,229
Investments698,591674,378
Total current assets1,466,9531,780,587
Leasehold improvements, property and equipment, net2,679,3612,390,126
Long-term investments197,123868,025
Restricted cash35,36429,842
Operating lease assets4,463,0104,000,127
Other assets130,781113,728
Goodwill21,93921,939
Total assets$8,994,531$9,204,374
Liabilities and shareholders' equity
Current liabilities:
Accounts payable$212,813$210,695
Accrued payroll and benefits250,126261,913
Accrued liabilities182,448179,747
Unearned revenue240,375238,577
Current operating lease liabilities302,380277,836
Total current liabilities1,188,1421,168,768
Commitments and contingencies (Note 11)
Long-term operating lease liabilities4,773,4344,262,782
Deferred income tax liabilities125,67446,208
Other liabilities76,67471,070
Total liabilities6,163,9245,548,828
Shareholders' equity:
Common stock, $0.01 par value, 11,500,000 shares authorized, 1,304,360 and 1,358,751 shares issued as of December 31, 2025 and 2024, respectively13,04413,586
Additional paid-in capital2,204,9442,078,010
Accumulated other comprehensive loss(7,289)(10,282)
Retained earnings619,9081,574,232
Total shareholders' equity2,830,6073,655,546
Total liabilities and shareholders' equity$8,994,531$9,204,374

See accompanying notes to consolidated financial statements.

CHIPOTLE MEXICAN GRILL, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(in thousands, except per share data)

Year ended December 31,
202520242023
Food and beverage revenue$11,866,051$11,247,384$9,804,124
Delivery service revenue59,55066,46967,525
Total revenue11,925,60111,313,8539,871,649
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Food, beverage and packaging3,526,9923,374,5162,912,564
Labor2,991,6802,789,7892,440,982
Occupancy624,898563,374503,264
Other operating costs1,755,8241,568,4821,428,747
General and administrative expenses652,017697,483633,584
Depreciation and amortization361,382335,030319,394
Pre-opening costs49,50741,89736,931
Impairment, closure costs, and asset disposals27,50326,94938,370
Total operating expenses9,989,8039,397,5208,313,836
Income from operations1,935,7981,916,3331,557,813
Interest and other income, net73,72193,89762,693
Income before income taxes2,009,5192,010,2301,620,506
Provision for income taxes473,758476,120391,769
Net income$1,535,761$1,534,110$1,228,737
Earnings per share:
Basic$1.15$1.12$0.89
Diluted$1.14$1.11$0.89
Weighted-average common shares outstanding:
Basic1,337,3361,368,3431,377,768
Diluted1,342,6161,376,5551,385,500
Other comprehensive income/(loss), net of income taxes:
Foreign currency translation adjustments$2,993$(3,625)1,231
Comprehensive income$1,538,754$1,530,485$1,229,968

See accompanying notes to consolidated financial statements.

CHIPOTLE MEXICAN GRILL, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

Common StockTreasury Stock
SharesAmountAdditional Paid-In CapitalSharesAmountRetained EarningsAccumulated Other Comprehensive LossTotal
Balance, December 31, 20221,865,992$18,660$1,811,017484,651$(4,282,014)$4,828,248$(7,888)$2,368,023
Stock-based compensation--126,686----126,686
Stock plan transactions and other8,1478191----172
Repurchase of common stock---18,192(662,642)--(662,642)
Net income-----1,228,737-1,228,737
Other comprehensive income/(loss), net of income taxes------1,2311,231
Balance, December 31, 20231,874,13918,7411,937,794502,843(4,944,656)6,056,985(6,657)3,062,207
Stock-based compensation--134,635----134,635
Stock plan transactions and other6,284625,581----5,643
Repurchase of common stock(14,506)(145)-4,323(249,540)(827,739)-(1,077,424)
Retirement of treasury stock(507,166)(5,072)(507,166)5,194,196(5,189,124)-
Net income-----1,534,110-1,534,110
Other comprehensive income/(loss), net of income taxes------(3,625)(3,625)
Balance, December 31, 20241,358,75113,5862,078,010--1,574,232(10,282)3,655,546
Stock-based compensation--121,372----121,372
Stock plan transactions and other2,441265,562----5,588
Repurchase of common stock(56,832)(568)---(2,490,085)-(2,490,653)
Net income-----1,535,761-1,535,761
Other comprehensive income/(loss), net of income taxes------2,9932,993
Balance, December 31, 20251,304,360$13,044$2,204,944-$-$619,908$(7,289)$2,830,607

See accompanying notes to consolidated financial statements.

CHIPOTLE MEXICAN GRILL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year ended December 31,
202520242023
Operating activities
Net income$1,535,761$1,534,110$1,228,737
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization361,382335,030319,394
Deferred income tax provision79,483(42,937)(9,505)
Impairment, closure costs, and asset disposals26,57624,58237,025
Provision for credit losses(657)2151,570
Stock-based compensation expense119,543131,730124,016
Other(14,661)(3,472)(13,080)
Changes in operating assets and liabilities:
Accounts receivable(11,383)(29,274)(11,216)
Inventory(710)(9,797)(3,649)
Prepaid expenses and other current assets(33,042)9,244(39,211)
Operating lease assets332,685285,587254,241
Other assets(5,155)(17,690)4,204
Accounts payable(7,449)8,4675,313
Accrued payroll and benefits(12,113)34,85757,048
Accrued liabilities(10,499)27,2843,188
Unearned revenue40,71046,13935,685
Income tax payable/receivable(24,125)(14,363)(5,237)
Operating lease liabilities(258,228)(217,894)(214,477)
Other long-term liabilities(4,192)3,2589,431
Net cash provided by operating activities2,113,9262,105,0761,783,477
Investing activities
Purchases of leasehold improvements, property and equipment(666,336)(593,603)(560,731)
Purchases of investments(28,222)(986,673)(1,115,131)
Maturities of investments659,476722,637729,853
Proceeds from sale of equipment-20,113-
Net cash used in investing activities(35,082)(837,526)(946,009)
Financing activities
Repurchase of common stock(2,425,516)(1,001,559)(592,349)
Tax withholding on stock-based compensation awards(49,458)(74,229)(69,146)
Other financing activities4,0762,089843
Net cash used in financing activities(2,470,898)(1,073,699)(660,652)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(416)(1,635)381
Net change in cash, cash equivalents, and restricted cash(392,470)192,216177,197
Cash, cash equivalents, and restricted cash at beginning of year778,379586,163408,966
Cash, cash equivalents, and restricted cash at end of year$385,909$778,379$586,163
Supplemental disclosures of cash flow information
Income taxes paid$423,481$532,862$400,229
Purchases of leasehold improvements, property and equipment accrued in accounts payable and accrued liabilities$89,429$82,636$76,415
Repurchase of common stock accrued in accounts payable and accrued liabilities$22,958$7,279$5,643

See accompanying notes to consolidated financial statements.

CHIPOTLE MEXICAN GRILL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1. Description of Business and Summary of Significant Accounting Policies

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

We develop and operate restaurants that serve a relevant menu of burritos, burrito bowls, quesadillas, tacos, and salads, made using fresh, high-quality ingredients. As of December 31, 2025, we own 4,042 restaurants including 3,938 Chipotle restaurants within the United States, and 104 international Chipotle restaurants. Additionally, we had 14 international partner-operated restaurants. We manage our U.S. operations based on 11 regions and aggregate our operations to one reportable segment. Additional details on the nature of our business and our reportable operating segment are included in Note 14. "Segment Reporting".

On June 26, 2024, we effected a 50-for-1 stock split of our common stock and proportionately increased the number of authorized shares of common stock. All share and per share information, including share-based compensation, throughout this Annual Report on Form 10-K has been retroactively adjusted to reflect the stock split. The shares of common stock retain a par value of $0.01 per share. Accordingly, an amount equal to the par value of the additional shares issued in the stock split was reclassified from capital in excess of par value to common stock. In the second quarter of 2024, we retired all treasury stock owned, which was recognized as a deduction from common stock for the shares' par value and the excess of cost over par as a deduction from retained earnings. All shares of common stock that we repurchase are immediately retired and not held as treasury stock.

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include our accounts, our wholly and majority owned subsidiaries, and investees we control after elimination of all intercompany accounts and transactions.

Management Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates under different assumptions or conditions.

Cash and Cash Equivalents

We consider highly liquid investment instruments purchased with an initial maturity of three months or less to be cash equivalents. Amounts receivable from credit card companies are also considered cash equivalents as they are both short-term and highly liquid in nature. We maintain cash and cash equivalent balances that exceed federally-insured limits with a number of financial institutions.

Restricted Cash

We maintain certain cash balances restricted as to withdrawal or use. Restricted cash assets are primarily insurance-related restricted trust assets.

Accounts Receivable

Accounts receivable primarily consists of receivables from third party gift card distributors, delivery partners, interest receivable, insurance liabilities covered by third-party insurance carriers, and vendor rebates.

Allowance for Credit Losses

We closely monitor accounts receivable and held to maturity investment balances and estimate the allowance for credit losses when lifetime credit losses are expected by management. Our estimate is based on historical collection experience, external market data and other factors, including those related to current market conditions and events. We do not recognize a reserve for expected credit losses related to our U.S. Treasury security investments as management has concluded there is no risk of non-payment.

As of December 31, 2025 and 2024, our allowance for credit losses was $1,670 and $2,953, respectively.

Inventory

Inventory, consisting principally of food, beverages, and supplies, is valued at the lower of first-in, first-out cost or net realizable value.

Equity Method Investments

Investments in common stock or in-substance common stock are accounted for under the equity method if we are able to exercise significant influence, but not control, over an investee. Our share of the earnings or losses as reported by the investees is included in interest and other income, net on the consolidated statements of income and comprehensive income. The investments are evaluated for impairment annually and when facts and circumstances indicate that the carrying value may not be recoverable. If a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in interest income and other income, net on our consolidated statements of income and comprehensive income.

Investments

Investments classified as trading securities are carried at fair value with any unrealized gain or loss being recorded in interest and other income, net on the consolidated statements of income and comprehensive income. Investments classified as available-for-sale are carried at fair value with unrealized gains and losses, net of tax, included as a component of other comprehensive income (loss), net of income taxes on the consolidated statements of income and comprehensive income. Held-to-maturity securities are carried at amortized cost. Non-marketable equity investments are measured at cost, less impairments, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. These gains or losses are included in interest and other income, net on the consolidated statements of income and comprehensive income.

Our held-to-maturity investments are comprised of U.S. Treasury securities and corporate debt securities, which are held at amortized cost. We also have investments in notes receivable. Convertible notes are held at fair value.

We have elected to fund certain deferred compensation plan obligations, as described further in Note 8. “Stock-Based Compensation and Employee Benefit Plans”, through a rabbi trust, the assets of which are designated as trading securities. The rabbi trust is subject to creditor claims in the event of insolvency, but the assets held in the rabbi trust are not available for general corporate purposes. Amounts in the rabbi trust are invested in mutual funds, consistent with the investment choices selected by participants in their Deferred Plan accounts, which are designated as trading securities, carried at fair value, and are included in other assets on the consolidated balance sheets. We record trading gains and losses, along with the offsetting amount related to the increase or decrease in deferred compensation to reflect our exposure to liabilities for payment under the deferred plan in general and administrative expenses on the consolidated statements of income and comprehensive income.

Fair Value Measurements

Fair value is the price we would receive to sell an asset or pay to transfer a liability (exit price) in an orderly transaction between market participants. For assets and liabilities recorded or disclosed at fair value, we determine fair value based on the following:

Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.

Level 3: Unobservable inputs for the asset or liability. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Foreign Currency Translation

The functional currency of our foreign entities is the currency of the primary economic environment in which the entity operates. The operations, assets, and liabilities of our entities outside the U.S. are initially measured using the functional currency of that entity. Gains and losses arising from the impact of foreign currency exchange rate fluctuations on transactions in foreign currency are included as a separate component of other comprehensive income (loss), net of income taxes on the consolidated statements of income and comprehensive income. Assets and liabilities of these foreign entities are translated at exchange rates in effect as of the balance sheet date. Income and expense accounts are translated monthly using average monthly exchange rates. Resulting translation adjustments are recorded in accumulated other comprehensive loss on the consolidated balance sheets.

Leasehold Improvements, Property and Equipment

Leasehold improvements, property and equipment are recorded at cost. Internal costs directly associated with the acquisition, development and construction of a restaurant are capitalized. During the years ended December 31, 2025, 2024 and 2023, we capitalized $18,625, $17,624 and $15,385 of internal costs, respectively. Expenditures for refurbishments and improvements that significantly add to the productivity capacity or extend the useful life are capitalized, while expenditures for maintenance and repairs are expensed as incurred.

Capitalized software includes the costs of developing or obtaining internal-use software, such as external direct costs of materials and services, payroll and benefits costs, additional functionality, and costs to develop or obtain software that allows for access or conversion of historical data by new systems. We capitalize costs when the preliminary project stage is complete, management has authorized and committed to funding the software project, it is probable that the software project will be completed, and it is probable that the software will be used to perform the intended function.

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the lease term, which generally includes option periods that are reasonably certain, or the estimated useful lives of the assets.

Upon retirement or disposal of assets, asset cost and accumulated depreciation are derecognized and any related gain or loss is reflected in impairment, closure costs, and asset disposals in the consolidated statements of income and comprehensive income. Assets to be disposed of are reported at the lower of their carrying amount or fair value less estimated costs to sell.

At least annually, or when impairment indicators are present, we evaluate, and adjust when necessary, the estimated useful lives of leasehold improvements, property and equipment. The changes in estimated useful lives did not have a material impact on depreciation in any period. The estimated useful lives are:

Leasehold improvements and buildings3-20 years
Furniture and fixtures4-7 years
Equipment3-10 years

Leases

The majority of our operating leases consist of restaurant locations and office space. We determine if a contract contains a lease at inception. Our leases generally have remaining terms of 1-20 years and most include options to extend the leases for additional 5-year periods. Generally, the lease term is the minimum of the noncancelable period of the lease or the lease term inclusive of reasonably certain renewal periods up to a term of 20 years.

We recognize an operating lease asset and operating lease liability for each lease with a contractual term greater than 12 months at the time of lease inception. We do not record leases with an initial term of 12 months or less on our consolidated balance sheet but continue to record rent expense on a straight-line basis over the lease term.

Operating lease assets and liabilities are recognized at the lease commencement date, which is the date we control the use of the property. Operating lease liabilities represent the present value of lease payments not yet paid. We made the policy election to combine lease and non-lease components. We consider fixed CAM as part of our fixed future lease payments; therefore, fixed CAM is also included in our lease liability. To determine the present value of lease payments not yet paid, we estimate incremental borrowing rates corresponding to the lease term including reasonably certain renewal periods. As we have no outstanding debt, we estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment.

Total lease costs, which are recorded primarily as occupancy costs, include fixed operating lease costs, variable lease costs and short-term lease costs. Most of our real estate leases require we pay certain expenses, such as CAM costs, real estate taxes and insurance, of which the fixed portion is included in operating lease costs. We recognize operating lease costs on a straight-line basis over the lease term. In addition to the above costs, variable lease costs also include amounts based on a percentage of gross sales in excess of specified levels and are recognized when probable and are not included in determining the present value of our operating lease liability.

Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for lease payments made at or before the lease commencement date, initial direct costs, lease incentives, and impairment of operating lease assets. For operating leases, operating lease assets are reduced over the lease term by the recognized straight-line lease expense less the amount of accretion of the lease liability. Additionally, tenant incentives used to fund leasehold improvements are generally recognized when earned and reduce our right-of-use asset related to the lease. These are amortized through the operating lease asset as reductions of expense over the lease term.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We have not entered into any leases with related parties.

Goodwill

Goodwill is not subject to amortization, but instead is tested for impairment annually in the fourth quarter, or more frequently when impairment indicators are present and we are required to record any necessary impairment adjustments. Impairment is measured as the excess of the carrying value over the fair value of the goodwill. No impairment charges were recognized on goodwill for the years ended December 31, 2025, 2024 and 2023.

Insurance Liability

We are self-insured for a significant portion of our employee health benefits programs, and carry significant retentions for risks and associated liabilities with respect to workers’ compensation, general liability, property and auto damage, employment practices liability, cyber liability and directors’ and officers’ liability. Predetermined loss limits have been arranged with third party insurance companies to limit exposure to these claims. We record a liability that represents our estimated cost of claims incurred and unpaid as of the balance sheet date. Our estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions and economic conditions, and is closely monitored and adjusted when warranted by changing circumstances.

Reserves/Contingencies for Litigation and Other Matters

We are involved in various claims and legal actions that arise in the ordinary course of business. We record an accrual for legal contingencies when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the loss.

Income Taxes

We compute income taxes using the asset and liability method, under which deferred income tax assets and liabilities are recognized based on the differences between the financial reporting bases and the respective tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which we expect the temporary differences to reverse. Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period that includes the enactment date.

We routinely assess the realizability of our deferred tax assets by jurisdiction and may record a valuation allowance if, based on all available positive and negative evidence, we determine that some portion of the deferred tax assets may not be realized prior to expiration. If we determine that we may be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes during the period in which the determination was made that the deferred tax asset can be realized.

We evaluate our tax filing positions and recognize a tax benefit from an uncertain tax position only if, based on its technical merits, it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authorities, including resolutions of any related appeals or litigation processes. The tax benefits recognized in the financial statements from such a position are measured based on the largest tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority. For uncertain tax positions that do not meet this threshold, we record a related tax reserve in the period in which it arises. We adjust our unrecognized tax benefit liability and provision for income taxes in the period in which the uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new information becomes available that requires a change in recognition and/or measurement of the liability.

We recognize interest to be paid on an underpayment of income taxes in interest expense and any related statutory penalties in the provision for income taxes in our consolidated statements of income and comprehensive income. Accrued interest and penalties are included within the related tax reserve on our consolidated balance sheets.

We may acquire certain nonrefundable income tax credits from unrelated parties pursuant to applicable U.S. federal credit transfer provisions. Amounts paid to purchase such credits are recorded as an asset until the credits are applied to reduce our U.S. federal income tax liability. Consistent with the governing tax rules, the purchase price of acquired credits is not deductible for income tax purposes, and transferred credits do not qualify for refundable treatment. We recognize the benefit of these acquired credits as a reduction of our current provision for income taxes in the period in which the credits are utilized. Because acquired nonrefundable credits do not arise from temporary differences between the financial reporting bases and tax bases of assets or liabilities, we do not record deferred tax assets or liabilities related to these transactions.

Revenue Recognition

We generally recognize revenue, net of discounts and incentives, when payment is tendered at the point of sale. We report revenue net of sales-related taxes collected from guests and remitted to governmental taxing authorities. Food and beverage revenue primarily relates to the sale of food and beverages. Delivery service revenue is comprised of delivery and related service fees charged to guests on sales made through Chipotle’s app and website.

Delivery

Delivery services are fulfilled by third-party service providers. In some cases, we make delivery sales through our website Chipotle.com or the Chipotle App (“White Label Sales”). In other cases, we make delivery sales through a non-Chipotle owned channel, such as the delivery partner’s website or mobile app (“Marketplace Sales”). With respect to White Label Sales, we control the delivery services and generally recognize revenue, including delivery fees, when the delivery partner transfers food to the guest. For these sales, we receive payment directly from the guest at the time of sale. With respect to Marketplace Sales, we generally recognize revenue, excluding delivery fees collected by the delivery partner, when control of the food is transferred to the guest. We receive payment from the delivery partner subsequent to the transfer of food and the payment terms are short-term in nature.

Gift Cards

We sell gift cards that generally do not expire and we do not deduct non-usage fees from outstanding gift card balances. Gift card balances are initially recorded as unearned revenue. We recognize revenue from gift cards when the gift card is redeemed by the guest. Historically, the majority of gift cards are redeemed within one year. In addition, a portion of gift cards are not expected to be redeemed and will be recognized as breakage over time in proportion to gift card redemptions. The gift card breakage rate is based on company and program specific information, including historical redemption patterns, and expected remittance to government agencies under unclaimed property laws, if applicable. We evaluate our gift card breakage rate estimate annually, or more frequently as circumstances warrant, and apply that rate to gift card redemptions. For the years ended December 31, 2025, 2024 and 2023, we recognized gift card breakage revenue of $27,877, $7,760 and $1,162, respectively. Gift card liability balances are typically highest at the end of each calendar year following increased gift card sales during the holiday season; accordingly, revenue recognized from gift card liability balances is highest in the first quarter of each calendar year.

Chipotle Rewards

We have a loyalty program called Chipotle Rewards. Guests who enroll in the program generally earn points for every dollar spent.

We may also periodically offer promotions, which typically provide the guest with the opportunity to earn bonus points or other rewards. Guests may redeem earned points for various rewards, which are primarily comprised of free food and beverage items. Earned rewards generally expire one to two months after they are issued, and points generally expire if an account is inactive for a period of six months.

We defer revenue associated with the estimated selling price of points or rewards, when earned by guests, net of points or rewards we do not expect to be redeemed. The estimated selling price of each point or reward earned is based on the estimated value of the product for which the reward is expected to be redeemed. Our estimate of points and rewards we expect to be redeemed is based on historical and other company specific data. The costs associated with rewards redeemed are primarily included in food, beverage, and packaging on our consolidated statements of income and comprehensive income.

We evaluate Chipotle Rewards point breakage annually, or more frequently as circumstances warrant.

We recognize revenue associated with Chipotle Rewards within food and beverage revenue on the consolidated statements of income and comprehensive income when a guest redeems an earned reward. Deferred revenue associated with Chipotle Rewards is included in unearned revenue on our consolidated balance sheets.

Food, Beverage and Packaging Costs

Food, beverage and packaging costs include inventory, warehousing and related purchasing and distribution costs.

Other Operating Costs

Other operating costs include marketing and promotional costs, delivery expense, bank and credit card processing fees, restaurant utilities, technology costs, maintenance costs and other costs that directly support the operation and sales-related activities of our restaurants.

Consideration Received from Vendors

We receive consideration for a variety of vendor-sponsored programs, such as volume rebates and promotions. Vendor consideration is recorded as a reduction of food, beverage and packaging or other operating costs on our consolidated statements of income and comprehensive income depending on the classification of the related costs.

Advertising, Marketing and Promotional Costs

Advertising, marketing and promotional costs are expensed as incurred and totaled $364,160, $286,044 and $264,085 for the years ended December 31, 2025, 2024 and 2023, respectively. Advertising, marketing and promotional costs include costs related to free food which a guest does not need to make a purchase to earn. These costs are included in other operating costs on the consolidated statements of income and comprehensive income.

Stock-Based Compensation

RSUs and SOSARs generally vest equally on the second and third anniversaries of the grant date, and SOSARs expire after seven years. PSUs generally vest on the third anniversary of the grant date, depending on performance levels achieved relative to the target market and performance factors in each PSU agreement. Stock-based compensation expense is generally recognized on a straight-line basis for each separate vesting portion. The grant date fair value of RSUs is based on the closing price of Chipotle common stock on the award date. The grant date fair value of PSUs that contain only performance conditions is based on the closing price of Chipotle common stock on the award date, where the grant date fair value of PSUs that also contain market conditions consider the output of the Monte Carlo simulation in the grant date fair value, as applicable. The grant date fair value of SOSARs is determined using the Black-Scholes valuation model.

Compensation expense related to employees eligible to retire and retain full rights to the awards is recognized over 12 months which coincides with the service period required to earn the full award. We estimate forfeitures based on historical data when determining the amount of stock-based compensation costs to be recognized in each period. PSUs 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. Performance goals are determined by the Board and include measures such as average restaurant operating margin, restaurant cash flow dollars, new restaurant unit growth, adjusted operating income and total shareholder return relative to our peer group. Compensation expense on stock awards subject to performance conditions, which is based on the quantity of awards we have determined are probable of vesting, is recognized over the longer of the estimated performance goal attainment period or time vesting period. Compensation expense is recognized ratably for awards subject to market conditions regardless of whether the market condition is satisfied, provided that the requisite service has been met. Some stock-based compensation awards are made to employees involved in our new restaurant development activities, and expense for these awards is recognized as capitalized development and included in leasehold improvements, property and equipment, net, on the consolidated balance sheets.

Restaurant Pre-Opening Costs

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

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For restaurant assets, we test impairment at the individual restaurant asset group level, which includes leasehold improvements, property and equipment and operating lease assets.

The fair value measurement for asset impairment is generally based on Level 3 inputs. See “Fair Value Measurements” above for a description of level inputs. We first compare the carrying value of the asset (or asset group, referred interchangeably throughout as asset) to the asset’s estimated future undiscounted cash flows. If the estimated undiscounted future cash flows are less than the carrying value of the asset, we determine if we have an impairment loss by comparing the carrying value of the asset to the asset's estimated fair value. The estimated fair value of the asset is generally determined using the income approach to measure the fair value, which is based on the present value of estimated future cash flows. Key inputs to the income approach for restaurant assets include the discount rate, projected restaurant revenues and expenses, and sublease income if we are closing the restaurant. In certain cases, management uses other market information, when available, to estimate the fair value of an asset. The impairment charges represent the excess of each asset’s carrying amount over its estimated fair value and are allocated among the long-lived asset or assets of the group.

Earnings per Share

Basic earnings per share is calculated by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share (“diluted EPS”) is calculated using income available to common shareholders divided by diluted weighted-average shares of common stock outstanding during each period. Potentially dilutive securities include shares of common stock underlying SOSARs and non-vested stock awards (collectively “stock awards”). Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect. Stock awards are excluded from the calculation of diluted EPS in the event they are subject to performance conditions or are antidilutive.

Recently Issued Accounting Standards

Recently Adopted Accounting Pronouncement

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The ASU includes amendments requiring enhanced income tax disclosures, primarily related to standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. We have adopted and applied the guidance under the ASU for our year ended December 31, 2025, using the prospective transition method. See Note 6. "Income Taxes" in the accompanying notes to the consolidated financial statements for further detail.

Recent Accounting Pronouncements Not Yet Adopted

In November 2024, the FASB issued ASU No. 2024-03, "Disaggregation of Income Statement Expenses (Subtopic 220-40)." The ASU requires public entities to disaggregate, in a tabular presentation, certain income statement expenses into different categories, such as purchases of inventory, employee compensation, depreciation, and intangible asset amortization. The guidance is effective for fiscal years beginning after December 15, 2026, with early adoption permitted, and may be applied retrospectively. We are currently evaluating the impact of adopting the new ASU on our disclosures.

In September 2025, the FASB issued ASU No. 2025-06, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements for Internal-Use Software" to modernize the accounting guidance for the costs incurred to obtain or develop software for internal use. The ASU removes all the references to various stages of a software development project. Under the new guidance, public entities shall begin capitalizing software costs when 1) management has authorized and committed to funding the software project and 2) it is probable that the project will be completed and the software will be used to perform the function intended. The guidance is effective for fiscal years beginning after December 15, 2027, with early adoption permitted, and can be applied on a prospective, retrospective, or modified prospective basis. We are currently evaluating the impact of adopting the new accounting guidance on our consolidated financial statements.

We reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the consolidated financial statements.

2. Supplemental Balance Sheet Information

Prepaid expenses and other current assets were as follows:

December 31,
20252024
Prepaid expenses$98,100$80,253
Other current assets22,35017,285
Prepaid expenses and other current assets$120,450$97,538

Leasehold improvements, property and equipment, net were as follows:

December 31,
20252024
Land$12,943$12,943
Leasehold improvements and buildings3,260,5332,918,408
Furniture and fixtures321,426293,841
Equipment1,447,1931,221,290
Construction in Progress168,583192,945
Leasehold improvements, property and equipment, gross5,210,6784,639,427
Accumulated depreciation(2,531,317)(2,249,301)
Leasehold improvements, property and equipment, net$2,679,361$2,390,126

Accrued payroll and benefits were as follows:

December 31,
20252024
Workers' compensation liability$44,266$35,242
Accrued payroll, bonuses and taxes177,471195,660
Other accrued payroll and benefits28,38931,011
Accrued payroll and benefits$250,126$261,913

Accrued liabilities were as follows:

December 31,
20252024
Sales and use tax payable$47,525$47,206
General, product and automobile insurance reserves39,14934,404
Other accrued liabilities95,77498,137
Accrued liabilities$182,448$179,747

3. Revenue Recognition

Gift Cards

The gift card liability included in unearned revenue on the consolidated balance sheets was as follows:

December 31,
20252024
Gift card liability$174,600$181,771

Revenue recognized from the redemption of gift cards that was included in unearned revenue at the beginning of the year was as follows:

Year ended December 31,
202520242023
Revenue recognized from gift card liability balance at the beginning of the year$108,757$80,067$61,389

Chipotle Rewards

Changes in our Chipotle Rewards liability included in unearned revenue on the consolidated balance sheets were as follows:

Year ended December 31,
202520242023
Chipotle Rewards liability, beginning balance$56,806$44,750$38,057
Revenue deferred183,617164,986135,490
Revenue recognized(176,624)(152,930)(128,797)
Chipotle Rewards liability, ending balance$63,799$56,806$44,750

Deferred Licensing Revenue

The deferred licensing revenue included in unearned revenue on the condensed consolidated balance sheets was as follows:

December 31, 2025December 31, 2024
Deferred licensing revenue$1,976$-

4. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The carrying value of our cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value because of their short-term nature.

The following tables show our cash, cash equivalents, and debt investments by significant investment category:

December 31, 2025
Adjusted costUnrealized GainsUnrealized LossesFair ValueCash and Cash EquivalentsCurrent InvestmentsLong-term Investments
Cash$62,637$-$-$62,637$62,637$-$-
Level 1
Money market funds208,871--208,871208,871--
Time deposits79,037--79,03779,037--
U.S. Treasury securities776,2723,655-779,927-676,81699,456
Corporate debt securities13,44620-13,466-13,446-
Subtotal1,077,6263,675-1,081,301287,908690,26299,456
Level 3
Corporate debt security(1)14,40133-14,434-3,80010,601
Notes receivable(2)13,946583-14,529-4,52910,000
Subtotal28,347616-28,963-8,32920,601
Total$1,168,610$4,291$-$1,172,901$350,545$698,591$120,057
December 31, 2024
Adjusted costUnrealized GainsUnrealized LossesFair ValueCash and Cash EquivalentsCurrent InvestmentsLong-term Investments
Cash$95,969$-$-$95,969$95,969$-$-
Level 1
Money market funds574,689--574,689574,689--
Time deposits77,879--77,87977,879--
U.S. Treasury securities1,404,7774,8316931,408,915-635,392769,385
Corporate debt securities48,210116-48,326-34,73613,474
Subtotal2,105,5554,9476932,109,809652,568670,128782,859
Level 3
Corporate debt security(1)16,40111-16,412-2,00014,401
Notes receivable(2)3,763250-4,013-2,2501,763
Subtotal20,164261-20,425-4,25016,164
Total$2,221,688$5,208$693$2,226,203$748,537$674,378$799,023

(1)The fair value of the corporate debt security is measured using Level 3 (unobservable) inputs. We determined the fair value for the corporate debt security using an internally-developed valuation model and unobservable inputs include credit and liquidity spreads and effective maturity.

(2)We have elected to measure our investment in convertible notes receivable of private companies at fair value under the fair value option. The fair value of the notes receivable are measured using Level 3 (unobservable) inputs. We determined the fair value for the notes receivable using an internally-developed valuation model and unobservable inputs include estimates of the equity value of the underlying business and the timing and probability of future financing events.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as leasehold improvements, property and equipment, certain long-term investments, operating lease assets, other assets, and goodwill. These assets are measured at fair value whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or if there has been an observable price change of a non-marketable equity security.

For the years ended December 31, 2025, 2024 and 2023, nonrecurring fair value measurements resulting in asset impairments were not material.

5. Equity Investments

December 31,
20252024
Equity method investments$28,216$28,097
Other investments77,06669,002
Total$105,282$97,099

Equity Method Investments

As of December 31, 2025 and 2024, we owned 6,487 shares of common stock of Tractor Beverages, Inc. (“Tractor”). As of December 31, 2025, our investment represents ownership of approximately 13.5% of Tractor, and we have invested total cash consideration of $14,872. As we are a significant customer of Tractor and maintain board representation, we are accounting for our investment under the equity method. As of December 31, 2025, there were no impairment charges associated with this equity method investment. The investment in common stock is included within other assets on the consolidated balance sheets with a carrying value of $15,996 and $18,097 as of December 31, 2025 and 2024, respectively. Refer to Note 13. “Related Party Transactions” for related party disclosures.

Other Investments

As of December 31, 2025, we held 5,819 shares of the Series B Preferred Stock of Hyphen. Hyphen is a privately held company, and as such, the preferred shares comprising our investment are illiquid and fair value is not readily determinable. As of December 31, 2025, we have recognized a cumulative gain of $6,782 related to our investment in Hyphen. The investment in Series B Preferred Stock is included within long-term investments on the consolidated balance sheet with a carrying value of $31,782 as of December 31, 2025 and 2024, respectively.

As of December 31, 2025, we owned 766 shares of the Series C Preferred Stock of Nuro, Inc. (“Nuro”). Our investment represents a minority interest and we have determined that we do not have significant influence over Nuro. Nuro is a privately held company, and as such, the preferred shares comprising our investment are illiquid and fair value is not readily determinable. As of December 31, 2025, we have recognized a cumulative net loss of $200 related to our investment in Nuro due to observable transactions. The investment is included within long-term investments on the consolidated balance sheets with a carrying value of $9,800 and $15,968 as of December 31, 2025 and 2024, respectively.

As of December 31, 2025, we held additional investments in other entities through the Cultivate Next Fund. These additional investments are included within long-term investments on the consolidated balance sheets with a carrying value of $35,484 and $21,252 as of December 31, 2025 and 2024, respectively.

6. Income Taxes

Income before income taxes, classified by source of income, was as follows:

Year ended December 31,
202520242023
Domestic$2,017,473$2,031,759$1,637,756
Foreign(7,954)(21,529)(17,250)
Income before income taxes$2,009,519$2,010,230$1,620,506

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

Year ended December 31,
202520242023
Current tax:
U.S. Federal$298,983$412,943$314,757
U.S. State and Local94,210104,47885,355
Foreign1,0821,6361,162
394,275519,057401,274
Deferred tax:
U.S. Federal72,237(32,751)(7,992)
U.S. State and Local6,639(10,195)(1,532)
Foreign607919
79,483(42,937)(9,505)
Provision for income taxes$473,758$476,120$391,769

A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows:

Year ended December 31,
2025
AmountPercent
Statutory U.S. federal income tax rate$421,99921.0%
State and Local income tax, net of related federal income tax benefit(1)79,1744.0
Foreign Tax Effects3,4130.2
Effect of Changes in Tax Law or Rates Enacted in the Current Period--
Effect of Cross-Border Tax Laws(1,096)(0.1)
Tax Credits(23,466)(1.2)
Changes in Valuation Allowances--
Nontaxable or Nondeductible Items584-
Changes in Unrecognized Tax Benefits(418)-
Other Adjustments(6,432)(0.3)
Effective income tax rate$473,75823.6%

(1) State and Local taxes in California, New York state and city, New Jersey, and Illinois made up the majority (greater than 50 percent) of the tax effect in this category.

A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes for years prior to the adoption of ASU 2023-09 is as follows:

Year ended December 31,
20242023
Statutory U.S. federal income tax rate21.0%21.0%
State and local income tax, net of related federal income tax benefit3.74.0
Federal tax credits(0.9)(1.0)
Executive compensation disallowed0.50.8
Valuation allowance0.30.3
Uncertain tax position reserves-0.4
Other0.20.2
Return to provision and other discrete items(0.1)(0.2)
Equity compensation related adjustments(1.0)(1.3)
Effective income tax rate23.7%24.2%

The effective tax rate for the year ended December 31, 2025, was lower than the effective tax rate for the year ended December 31, 2024, primarily due to increases in U.S. federal income tax credits and a decrease in nondeductible expenses, partially offset with a reduction in excess tax benefits related to option exercises and equity vesting.

The components of the deferred income tax assets and liabilities for continuing operations were as follows:

December 31,
20252024
Deferred income tax liability:
Leasehold improvements, property and equipment, net$324,163$262,692
Goodwill and other assets1,7681,753
Operating lease assets1,217,1241,088,934
Total deferred income tax liability1,543,0551,353,379
Deferred income tax asset:
Gift card liability15,90619,087
Capitalized transaction costs323323
Stock-based compensation and other employee benefits68,07361,574
Foreign net operating loss carry-forwards43,14835,215
State credits701872
Operating lease liabilities1,293,6311,159,788
Allowances, reserves and other25,24926,105
Capitalized research costs(80)29,122
Prepaid assets and other11,68910,334
State net operating loss carry-forwards4,1293,867
Valuation allowance(45,388)(39,116)
Total deferred income tax asset1,417,3811,307,171
Deferred income tax liabilities$125,674$46,208

Gross foreign net operating losses (“NOLs”) were $205,074 and $165,085 as of December 31, 2025 and 2024, respectively. Our foreign NOLs can be carried forward indefinitely.

Gross state NOLs available across all jurisdictions in which we operate were $68,896 and $52,950 as of December 31, 2025 and 2024, respectively. Our state NOLs expire over varying intervals in the future.

We had valuation allowances against certain foreign deferred tax assets of $45,065 and $38,792 as of December 31, 2025 and 2024, respectively. The increase in the valuation allowances were primarily related to net operating losses of consolidated foreign subsidiaries.

Unrecognized Tax Benefits

A reconciliation of the unrecognized tax benefits was as follows:

Year ended December 31,
202520242023
Beginning of year$16,888$16,488$8,902
Increase resulting from prior year tax positions3,1553,7377,561
Decrease resulting from prior year tax positions(56)(3,748)(295)
Increase resulting from current year tax positions462916783
Settlements with taxing authorities(7,286)-(6)
Lapsing of statutes of limitations(3,035)(505)(457)
End of year$10,128$16,888$16,488

Interest expense related to uncertain tax positions is recognized in interest and other income, net on the consolidated statements of income and comprehensive income. Penalties related to uncertain tax positions are recognized in provision for income taxes on the consolidated statements of income and comprehensive income. For the years ended December 31, 2025, 2024 and 2023, we recognized $726, $1,441 and $1,541, respectively, in interest expense related to uncertain tax positions. These are gross amounts before any tax benefits and are included in other liabilities on the consolidated balance sheets. As of December 31, 2025 and 2024, we have accrued interest of $1,560 and $2,959, respectively.

For the majority of states where we have a significant presence, we are no longer subject to tax examinations by tax authorities for tax years before 2021.

Income Taxes Paid

Income taxes paid (net of refunds) are as follows:

Year ended December 31, 2025
U.S. Federal$345,279
State & Local77,045
Foreign1,157
Total$423,481

The income taxes paid for the years ended December 31, 2024, and 2023 were $532,862 and $400,229, respectively.

Enactment of H.R.1

On July 4, 2025, H.R.1, commonly referred to as the One Big Beautiful Bill Act, was enacted in the U.S., which includes a broad range of tax reform provisions, including extending and modifying certain key Tax Cuts and Jobs Act provisions (both domestic and international), and provisions allowing accelerated tax deductions for qualified property and research expenditures. The legislation has multiple effective dates, with certain provisions effective in 2025 and others to be implemented through 2027. The legislation’s enactment did not materially impact our effective income tax rate or cash tax position for the year ended December 31, 2025.

7. Shareholders’ Equity

We have had a stock repurchase program in place since 2008. During the years ended December 31, 2025, 2024, and 2023 we repurchased $2,417,673, $995,765, and $589,840 of stock at an average price per share of $42.54, $57.21, and $36.55, respectively. As of December 31, 2025, we had $1,710,669 authorized for repurchasing shares of our common stock. All shares of common stock that we repurchase are immediately retired and not held as treasury stock.

Shares of common stock are netted and surrendered as payment for minimum statutory withholding obligations in connection with the vesting of outstanding stock awards. Shares surrendered by the participants in accordance with the applicable award agreements and plan are deemed repurchased by us but are not part of publicly announced share repurchase programs. During the years ended December 31, 2025, 2024, and 2023, these shares had a total cost of $49,458, $74,229, and $69,146, respectively.

8. Stock-Based Compensation and Employee Benefit Plans

Pursuant to the 2022 Stock Incentive Plan, we grant stock options, SOSARs, RSUs, or PSUs to employees and non-employee directors. We issue shares of common stock upon the exercise of stock options and SOSARs and the vesting of RSUs and PSUs.

We also have an employee stock purchase plan (“ESPP”), 401(k) Defined Contribution Plan, and a Deferred Compensation Plan.

Stock-Based Compensation

Under the 2022 Stock Incentive Plan, 121,571 shares of common stock have been authorized and reserved for issuance to eligible participants, of which 102,111 shares were authorized for issuance but not issued or subject to outstanding awards as of December 31, 2025. For purposes of calculating the available shares remaining, each share issuable pursuant to outstanding full value awards, such as RSUs and PSUs, count as two shares, and each share underlying a stock option or SOSAR count as one share.

On August 31, 2024, our former CEO terminated employment with the company and forfeited all of his unvested equity awards, resulting in a reversal of expense of $27,863. In response to the departure of our former CEO, we granted retention RSUs to key executives. These awards have various vesting terms, and vest over one, two or three years from the grant date. During the year ended December 31, 2025 and 2024, expense recognized for the retention RSUs was $34,759 and $17,080, respectively. The impact of these employee retention awards are reflected in the tables below.

Total stock-based compensation expense was as follows:

Year ended December 31,
202520242023
Stock-based compensation$121,372$134,635$126,686
Stock-based compensation, net of income taxes$100,091$109,996$107,210
Total capitalized stock-based compensation included in leasehold improvements, property and equipment, net on the consolidated balance sheets$1,829$2,905$2,670
Excess tax benefit on stock-based compensation recognized in provision for income taxes on the consolidated statements of income and comprehensive income$12,947$23,419$25,437

SOSARs

A summary of SOSAR award activity was as follows (in thousands, except per share data):

SharesWeighted-Average Exercise Price per ShareWeighted-Average Remaining Contractual Life (Years)Aggregate Intrinsic Value
Outstanding, January 1, 202510,414$32.534.2$289,373
Granted2,37855.53
Exercised(1,807)22.77
Forfeited(387)47.86
Outstanding, December 31, 202510,59838.804.053,211
Exercisable, December 31, 20255,27028.052.647,664
Vested and expected to vest, December 31, 202510,33638.423.953,136

The total intrinsic value of SOSARs exercised during the years ended December 31, 2025, 2024 and 2023, was $44,568, $177,274, and $142,830, respectively. Unrecognized stock-based compensation expense for SOSARs as of December 31, 2025 was $28,091 and is expected to be recognized over a weighted-average period of 1.5 years. SOSARs expire 7 years after the day they were granted.

The weighted-average assumptions utilized in the Black-Scholes option-pricing model to estimate the fair value of SOSARs granted each year were as follows:

202520242023
Risk-free interest rate4.2%4.2%4.1%
Expected life (years)3.63.63.6
Expected dividend yield0.0%0.0%0.0%
Volatility35.2%35.7%36.4%
Weighted-average Black-Scholes fair value per share at date of grant$17.55$16.98$10.60

The risk-free interest rate is based on U.S. Treasury rates for instruments with similar terms, and the expected life assumption is based on our historical data. We have not paid dividends to date and do not plan to pay dividends in the near future. The volatility assumption is based on our historical data and implied volatility.

Non-Vested Stock Awards (RSUs)

A summary of RSU award activity was as follows (in thousands, except per share data):

SharesWeighted-Average Grant Date Fair Value per Share
Outstanding, January 1, 20254,347$44.54
Granted1,52252.69
Vested(1,902)40.39
Forfeited(324)49.76
Outstanding, December 31, 20253,64349.64
Vested and expected to vest, December 31, 20253,34649.44

The weighted-average grant date fair value per RSU granted during the years ended December 31, 2024 and 2023, was $53.67 and $33.32, respectively. Unrecognized stock-based compensation expense for non-vested RSU stock awards we have determined are probable of vesting was $61,592 as of December 31, 2025, and is expected to be recognized over a weighted-average period of 1.4 years. The fair value of shares earned as of the vesting date during the years ended December 31, 2025, 2024 and 2023, was $97,766, $49,672, and $39,464, respectively.

Non-Vested Performance Stock Awards (PSUs)

A summary of PSU award activity was as follows (in thousands, except per share data):

SharesWeighted-Average Grant Date Fair Value per Share
Outstanding, January 1, 20252,045$38.32
Granted75957.27
Vested(411)31.56
Forfeited(305)35.94
Outstanding, December 31, 20252,08846.89
Vested and expected to vest, December 31, 2025*2,19033.53

*The vested and expected to vest total above represents outstanding base PSUs, adjusted for expected payout amounts in line with current and future estimated performance levels.

The weighted-average fair value per PSU granted during the years ended December 31, 2024 and 2023, was $52.90 and $32.14, respectively. The unrecognized stock-based compensation expense for non-vested PSU stock awards we have determined are probable of vesting was $5,171 as of December 31, 2025, and is expected to be recognized over a weighted-average period of 1.1 years. The fair value of shares earned as of the vesting date during the years ended December 31, 2025, 2024 and 2023, was $23,485, $113,181, and $110,794, respectively.

During the years ended December 31, 2025, 2024 and 2023, we awarded performance stock unit awards that are subject to service, market, and performance vesting conditions. The quantity of shares that vest will range from 0% to 300% of the targeted number of shares based on performance factors related to restaurant cash flow dollars earned over three-year periods beginning on January 1, 2025, 2024 and 2023, and gross new restaurant openings over the same three-year periods. If the defined minimum targets are not met, then no shares will vest. Further, in no event may more than 100% of the target number of PSUs vest if our 3-year total shareholder return is below the 25th percentile of the constituent companies comprising the S&P 500 on the days of the grants.

Employee Stock Purchase Plan

We also offer an ESPP. Employees become eligible to participate in the program after one year of service with Chipotle and may contribute up to 15% of their earnings, subject to an annual maximum dollar amount. The ESPP provides a quarterly offering period to purchase our common stock at a price of 92.5% of the lower of the fair market value on the first and last trading days of each offering period. A total of 12,500 shares were authorized for issuance within the ESPP, of which 12,209 were available for issuance as of December 31, 2025. For the years ended December 31, 2025, 2024 and 2023, the number of shares issued under the ESPP were 134, 78, and 79, respectively.

Employee Benefit Plans

401(k) Defined Contribution Plan

We maintain the Chipotle Mexican Grill 401(k) Plan (“401(k) Plan”) for eligible U.S.-based employees. The 401(k) Plan allows participants to make cash contributions from payroll deductions. Employees become eligible to receive matching contributions after one year, and at least 1,000 hours, of service with Chipotle. We match 100% of the first 3% of pay contributed by each eligible employee and 50% on the next 2% of pay contributed each pay period (with an annual true-up) through cash contributions. For the years ended December 31, 2025, 2024 and 2023, matching contributions totaled approximately $20,009, $16,523, and $13,821, respectively, and are included in general and administrative expenses and labor dependent on employee classification on the consolidated statements of income and comprehensive income. Certain subsidiaries outside the U.S. also offer other similar benefits and are immaterial to the consolidated statements of income and comprehensive income.

Deferred Compensation Plan

We also maintain the Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan (the “Deferred Plan”) for eligible employees. The Deferred Plan is a non-qualified plan that allows participants to make tax-deferred contributions that cannot be made under the 401(k) Plan because of Internal Revenue Service limitations. Participants’ earnings on contributions made to the Deferred Plan fluctuate with the actual earnings and losses of a variety of available investment choices selected by the participant. Total obligations under the Deferred Plan as of December 31, 2025 and 2024 were $46,468 and $36,509, respectively, and are included in other liabilities on the consolidated balance sheets and were fully funded as of December 31, 2025. We match 100% of the first 3% of pay contributed by each eligible employee and 50% on the next 2% of pay contributed once the 401(k) contribution limits are reached.

The following table summarizes estimated current and long-term material cash requirements for our deferred compensation plan as of December 31, 2025:

Payments Due by Fiscal Year
Total20262027-20282029-2030Thereafter
Deferred compensation(1)$46,468$9,128$11,154$10,253$15,933

(1)Includes scheduled payments from our deferred compensation plan where payment dates are determinable for employed participants in accordance with the account’s election, and the assumption that active participants will retire at the age of 65 and begin distributions from their accounts at that time. This does not include future contributions, investment earnings, or future participants. Timing and amounts of payments may vary significantly**.**

9. Leases

The weighted-average remaining lease term and discount rate were as follows:

December 31,
20252024
Weighted-average remaining lease term (years)14.113.9
Weighted-average discount rate5.48%5.30%

The components of lease cost were as follows:

Year ended December 31,
Classification202520242023
Operating lease costOccupancy, Other operating costs, General and administrative expenses and Pre-opening costs$544,367$486,598$436,313
Short-term lease costOther operating costs989572519
Variable lease costOccupancy, Other operating costs, General and administrative expenses and Pre-opening costs129,310120,948111,896
Sublease incomeGeneral and administrative expenses(3,576)(3,559)(4,765)
Total lease cost$671,090$604,559$543,963

Supplemental disclosures of cash flow information related to leases were as follows:

Year ended December 31,
202520242023
Cash paid for operating lease liabilities$520,277$466,171$421,591
Operating lease assets obtained in exchange for operating lease liabilities$751,614$692,684$521,759
Derecognition of operating lease assets due to terminations or impairment$6,127$6,899$6,862

Maturities of lease liabilities were as follows as of December 31, 2025:

Operating Leases
2026$521,413
2027569,200
2028553,401
2029536,731
2030513,146
Thereafter4,780,639
Total lease payments7,474,530
Less: imputed interest2,398,716
Operating lease liabilities (Current and Long-Term)$5,075,814

As of December 31, 2025, the total lease payments include $3,008,534 related to options to extend lease terms that are reasonably certain of being exercised and exclude approximately $834,442 of legally binding lease payments for leases signed but not yet commenced and $15,501 of future sublease income.

10. Earnings Per Share

The following table sets forth the computations of basic and diluted earnings per share (in thousands, except per share data):

Year ended December 31,
202520242023
Net income$1,535,761$1,534,110$1,228,737
Shares:
Weighted-average number of common shares outstanding (for basic calculation)1,337,3361,368,3431,377,768
Dilutive stock awards5,2808,2127,732
Weighted-average number of common shares outstanding (for diluted calculation)1,342,6161,376,5551,385,500
Basic earnings per share$1.15$1.12$0.89
Diluted earnings per share$1.14$1.11$0.89

The following stock awards were excluded from the calculation of diluted earnings per share:

Year ended December 31,
202520242023
Stock awards subject to performance conditions2,0542,1792,517
Stock awards that were antidilutive4,2902,2103,565
Total stock awards excluded from diluted earnings per share6,3444,3896,082

11. Commitments and Contingencies

Purchase Obligations

We enter into various purchase obligations in the ordinary course of business, generally of a short-term nature. Those that are binding primarily relate to commitments for food purchases and supplies, capital projects, corporate assets, information technology, marketing initiatives and corporate sponsorships, and other miscellaneous items.

Litigation

We are involved in various claims and legal actions, such as wage and hour, wrongful termination and other employment-related claims, slip and fall and other personal injury claims, advertising and consumer claims, privacy claims, and lease, construction and other commercial disputes, that arise in the ordinary course of business, some of which may be covered by insurance. The outcomes of these actions are not predictable, but we do not believe that the ultimate resolution of any pending or threatened actions of these types will have a material adverse effect on our financial position, results of operations, liquidity, or capital resources. However, if there is a significant increase in the number of these claims, or if we incur greater liabilities than we currently anticipate under one or more claims, it could materially and adversely affect our business, financial condition, results of operations and cash flows.

Shareholder Actions

As reported in previous SEC filings, Chipotle and several of its executive officers are defendants in Michael Stradford v. Chipotle et. al., a purported shareholder class action in the U.S. District Court for the Central District of California, alleging that statements and omissions by Chipotle regarding portion sizes were materially false and misleading, resulting in the market price of Chipotle’s stock being artificially inflated during the claimed class period, as well as allegations regarding purportedly improper insider trading by the individual defendants in the case. The case seeks damages on behalf of the purported class in an unspecified amount, interest, an award of reasonable costs and attorneys’ fees, and other relief as determined to be appropriate by the court. On December 18, 2025, the court issued an order granting Chipotle’s motion to dismiss the first amended complaint, with leave to amend, and on January 20, 2026, plaintiffs filed a second amended complaint repeating substantially the same allegations as the original complaints. Chipotle intends to file a motion to dismiss the second amended complaint.

Also as reported in previous SEC filings, two shareholder derivative actions were filed in the U.S. District Court for the Central District of California alleging that members of Chipotle’s Board of Directors and one of its executive officers breached their fiduciary duties by making or allowing Chipotle to make the allegedly false and misleading statements that are the subject of the Stradford matter described above. The complaint further alleges that the defendants breached their fiduciary duties by causing Chipotle to repurchase stock at inflated prices and by engaging in improper insider sales of Chipotle stock. The shareholder derivative actions have been consolidated into a single lawsuit captioned In re Chipotle Mexican Grill, Inc. Stockholder Derivative Litigation, and seeks damages in an unspecified amount as well as interest, an award of reasonable costs and attorneys’ fees, and other relief as determined to be appropriate by the court. The consolidated derivative action has been stayed pending further proceedings in the Stradford matter.

Chipotle intends to continue to defend these cases vigorously, but it is not possible at this time to reasonably estimate the outcome of or any potential liability from these cases.

Accrual for Estimated Liability

In relation to various legal matters, we had an accrued legal liability balance of $11,438 and $19,465 included within accrued liabilities on the consolidated balance sheets as of December 31, 2025 and 2024, respectively.

12. Debt

As of December 31, 2025, we had a $500,000 revolving credit facility with JPMorgan Chase Bank as administrative agent. Borrowings on the credit facility bear interest at a rate equal to the Secured Overnight Financing Rate (“SOFR”) plus 1.125%, which is subject to increase based on changes in our total leverage ratio as defined in the credit agreement. We are also obligated to pay a commitment fee of 0.115% per year for unused amounts under the credit facility, which also may increase based on changes in our total leverage ratio. We are subject to certain covenants defined in the credit agreement, which include maintaining a total leverage ratio of less than 3.0x, maintaining a minimum consolidated fixed charge coverage ratio of 1.5x, and limiting us from incurring additional indebtedness in certain circumstances. We had no outstanding borrowings under the credit facility and were in compliance with all covenants as of December 31, 2025 and 2024, respectively.

13. Related Party Transactions

As of December 31, 2025, we owned approximately 13.5% of the common stock outstanding of Tractor. As we are a significant customer of Tractor and maintain board representation, we are accounting for our investment under the equity method. Accordingly, we have identified Tractor as a related party. We purchase product from the supplier for sale to guests in our restaurants. During the years ended December 31, 2025, 2024 and 2023, purchases from the supplier were $51,953, $49,323, and $43,555, respectively.

We are an investor in Vebu Inc. (“Vebu”), a developer of restaurant automation technology. As we are a significant customer of Vebu and maintain board representation, we have determined that Vebu is a related party. Our investment, which is comprised of preferred shares, is accounted for as a non-marketable equity investment and is included within long-term investments on the consolidated balance sheets. During the years ended December 31, 2025, 2024 and 2023, purchases from Vebu were $5,561, $957, and $991, respectively.

14. Segment Reporting

Segment information is prepared on the same basis that our CEO, who is our Chief Operating Decision Maker ("CODM"), manages our segments, evaluates financial results, and makes key operating decisions. We have one reportable operating segment: U.S.

The U.S. reportable operating segment is comprised of all 11 operating segments located in the United States, which we have aggregated to a single operating segment in consideration of the aggregation criteria set forth in ASC 280. All other operating segments, which comprise our operations in Canada, Europe and international partner-operated restaurants do not meet the quantitative thresholds for determining reportable segments.

The U.S. reportable segment derives its revenue from company-owned restaurants located in the United States, which serve a relevant menu of burritos, burrito bowls (a burrito without the tortilla), quesadillas, tacos, and salads. No customer accounts for 10% or more of our revenues. The accounting policies of the U.S. reportable segment are the same as those described in Note 1. "Description of Business and Summary of Significant Accounting Policies". Our CODM uses income from operations to evaluate performance and make key operating decisions, such as deciding the rate at which we invest resources into the U.S segment versus other parts of the Company. The CODM is not provided asset information by reportable segment as asset information is provided to the CODM on a consolidated basis.

The following tables present selected financial information with respect to our single reportable segment:

Year ended December 31,
U.S. segment202520242023
Food and beverage revenue$11,620,085$11,045,450$9,652,976
Delivery service revenue59,33266,28267,393
U.S. segment total revenue11,679,41711,111,7329,720,369
Reconciliation:
All other revenue(1)246,184202,121151,280
Total consolidated revenue$11,925,601$11,313,853$9,871,649
Year ended December 31,
202520242023
U.S. segment total revenue$11,679,417$11,111,732$9,720,369
Less:
Food, beverage and packaging3,433,7663,299,2952,853,651
Labor2,931,4652,741,5902,402,964
Occupancy606,900548,688491,757
Marketing361,357283,053261,358
Other operating costs, excluding marketing1,358,3981,254,5121,141,850
Depreciation and amortization328,490300,513282,521
Other segment items(2)71,53455,48264,150
U.S. segment income from operations2,587,5072,628,5992,222,118
Reconciliation:
Corporate and other unallocated expenses(3)660,428709,426657,134
Other income/(loss) from operations(4)8,719(2,840)(7,171)
Interest and other income, net73,72193,89762,693
Total consolidated income before income taxes$2,009,519$2,010,230$1,620,506

(1)All other revenue represents sales within our company-owned restaurants in Canada, Europe and royalty revenue from international partner-operated restaurants.

(2)Other segment items consist of pre-opening costs, impairment, closure costs, and asset disposals related to the U.S. segment.

(3)Corporate and other unallocated expenses represent corporate overhead expenses that have not been allocated to our reportable segment including general and administrative expenses.

(4)Amounts reflect the net income/(loss) from operations related to our operations in Canada, Europe and international partner-operated restaurants.

Our long-lived tangible assets, including our operating lease assets recognized on the consolidated balance sheets were located as follows:

December 31,
20252024
United States$6,934,590$6,247,406
International$207,781$142,847

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