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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________

FORM 10-Q

______________________________

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

or

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to

Commission File Number: 1-32731

______________________________

CHIPOTLE MEXICAN GRILL, INC.

(Exact name of registrant as specified in its charter)

______________________________

 

Delaware

84-1219301

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

610 Newport Center Drive, Suite 1300 Newport Beach, CA

92660

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (949524-4000

______________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

CMG

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes       No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

 

 

 

 

 Large accelerated filer

 Accelerated filer

 Non-accelerated filer

 Smaller reporting company

 Emerging growth company

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

As of April 24, 2020, there were 27,890,741 shares of the registrant’s common stock, par value of $0.01 per share outstanding.

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I

Item 1.

Financial Statements

1

Notes to Condensed Consolidated Financial Statements

5

Note 1 - Basis of Presentation and Update to Accounting Policy

5

Note 2 - Recent Accounting Standards

5

Note 3 - Revenue Recognition

6

Note 4 - Fair Value of Financial Instruments

7

Note 5 - Shareholders' Equity

7

Note 6 - Stock-Based Compensation

7

Note 7 - Income Taxes

8

Note 8 - Leases

8

Note 9 - Earnings Per Share

9

Note 10 - Commitments and Contingencies

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

11

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

16

Item 4.

Controls and Procedures

16

PART II

Item 1.

Legal Proceedings

17

Item 1A.

Risk Factors

17

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

18

Item 6.

Exhibits

19

 

Signatures

20


Table of Contents

PART I

ITEM 1.  FINANCIAL STATEMENTS

CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

March 31,

December 31,

2020

2019

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$

500,315

$

480,626

Accounts receivable, net

63,461

80,545

Inventory

23,335

26,096

Prepaid expenses and other current assets

50,781

57,076

Income tax receivable

56,631

27,705

Investments

380,978

400,156

Total current assets

1,075,501

1,072,204

Leasehold improvements, property and equipment, net

1,465,666

1,458,690

Restricted cash

27,956

27,855

Operating lease assets

2,591,416

2,505,466

Other assets

24,010

18,450

Goodwill

21,939

21,939

Total assets

$

5,206,488

$

5,104,604

Liabilities and shareholders' equity

Current liabilities:

Accounts payable

$

130,423

$

115,816

Accrued payroll and benefits

132,273

126,600

Accrued liabilities

147,242

155,843

Unearned revenue

77,499

95,195

Current operating lease liabilities

178,358

173,139

Total current liabilities

665,795

666,593

Commitments and contingencies (Note 10)

 

 

Long-term operating lease liabilities

2,764,778

2,678,374

Deferred income tax liabilities

64,851

37,814

Other liabilities

39,044

38,797

Total liabilities

3,534,468

3,421,578

Shareholders' equity:

Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of March 31, 2020 and December 31, 2019, respectively

-

-

Common stock, $0.01 par value, 230,000 shares authorized, 36,517 and 36,323 shares issued as of March 31, 2020 and December 31, 2019, respectively

365

363

Additional paid-in capital

1,483,224

1,465,697

Treasury stock, at cost, 8,702 and 8,568 common shares as of March 31, 2020 and December 31, 2019, respectively

(2,801,150)

(2,699,119)

Accumulated other comprehensive loss

(7,204)

(5,363)

Retained earnings

2,996,785

2,921,448

Total shareholders' equity

1,672,020

1,683,026

Total liabilities and shareholders' equity

$

5,206,488

$

5,104,604

See accompanying notes to condensed consolidated financial statements.

1


Table of Contents

CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

Three months ended

March 31,

2020

2019

Revenue

$

1,410,772

$

1,308,217

Restaurant operating costs (exclusive of depreciation and amortization shown separately below):

Food, beverage and packaging

462,299

421,367

Labor

393,565

348,842

Occupancy

95,279

88,770

Other operating costs

210,762

174,743

General and administrative expenses

106,470

102,671

Depreciation and amortization

58,374

53,781

Pre-opening costs

3,566

940

Impairment, closure costs, and asset disposals

9,336

6,942

Total operating expenses

1,339,651

1,198,056

Income from operations

71,121

110,161

Interest and other income, net

2,743

3,129

Income before income taxes

73,864

113,290

Benefit (provision) for income taxes

2,524

(25,158)

Net income

$

76,388

$

88,132

Earnings per share:

Basic

$

2.75

$

3.18

Diluted

$

2.70

$

3.13

Weighted-average common shares outstanding:

Basic

27,792

27,696

Diluted

28,323

28,118

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

Three months ended

March 31,

2020

2019

Net income

$

76,388

$

88,132

Other comprehensive income (loss), net of income taxes:

Foreign currency translation adjustments

(1,841)

278

Unrealized gain on available-for-sale securities, net of income taxes

-

100

Other comprehensive income (loss), net of income taxes

(1,841)

378

Comprehensive income

$

74,547

$

88,510

See accompanying notes to condensed consolidated financial statements.

2


Table of Contents

CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

(unaudited)

Common Stock

Treasury Stock

Accumulated Other Comprehensive Income (Loss)

Shares

Amount

Additional
Paid-In
Capital

Shares

Amount

Retained
Earnings

Available-for-Sale Securities

Foreign Currency Translation

Total

Balance, December 31, 2018

35,973 

$

360 

$

1,374,154 

8,276 

$

(2,500,556)

$

2,573,617 

$

(147)

$

(6,089)

$

1,441,339 

Adoption of ASU No. 2016-02, Leases (Topic 842)

-

-

-

-

-

(2,327)

-

-

(2,327)

Stock-based compensation

-

-

19,342 

-

-

-

-

-

19,342 

Stock plan transactions and other

135 

1 

(212)

-

-

-

-

-

(211)

Acquisition of treasury stock

-

-

-

110 

(62,854)

-

-

-

(62,854)

Net income

-

-

-

-

-

88,132 

-

-

88,132 

Other comprehensive income (loss), net of income tax

-

-

-

-

-

-

100 

278 

378 

Balance, March 31, 2019

36,108 

$

361 

$

1,393,284 

8,386 

$

(2,563,410)

$

2,659,422 

$

(47)

$

(5,811)

$

1,483,799 

Balance, December 31, 2019

36,323 

$

363 

$

1,465,697 

8,568 

$

(2,699,119)

$

2,921,448 

$

-

$

(5,363)

$

1,683,026 

Adoption of ASU No. 2016-13, Financial Instrument-Credit Losses (Topic 326)

-

-

-

-

-

(1,051)

-

-

(1,051)

Stock-based compensation

-

-

17,708 

-

-

-

-

-

17,708 

Stock plan transactions and other

194 

2 

(181)

-

-

-

-

-

(179)

Acquisition of treasury stock

-

-

-

134 

(102,031)

-

-

-

(102,031)

Net income

-

-

-

-

-

76,388 

-

-

76,388 

Other comprehensive income (loss), net of income tax

-

-

-

-

-

-

-

(1,841)

(1,841)

Balance, March 31, 2020

36,517 

$

365 

$

1,483,224 

8,702 

$

(2,801,150)

$

2,996,785 

$

-

$

(7,204)

$

1,672,020 

See accompanying notes to condensed consolidated financial statements.

3


Table of Contents

CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three months ended March 31,

2020

2019

Operating activities

Net income

$

76,388

$

88,132

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

58,374

53,781

Amortization of operating lease assets

42,961

38,105

Deferred income tax provision

27,343

1,772

Impairment, closure costs, and asset disposals

8,805

4,085

Provision for credit losses

(90)

206

Stock-based compensation expense

17,395

19,154

Other

707

(1,269)

Changes in operating assets and liabilities:

Accounts receivable

25,967

15,946

Inventory

2,734

2,781

Prepaid expenses and other current assets

(4,158)

(3,712)

Other assets

(5,133)

242

Accounts payable

20,245

(4,256)

Accrued payroll and benefits

5,839

5,853

Accrued liabilities

(9,389)

(4,773)

Unearned revenue

(15,924)

(13,386)

Income tax payable/receivable

(29,179)

16,054

Operating lease liabilities

(40,918)

(36,492)

Other long-term liabilities

104

358

Net cash provided by operating activities

182,071

182,581

Investing activities

Purchases of leasehold improvements, property and equipment

(77,653)

(64,226)

Purchases of investments

(80,746)

(89,111)

Maturities of investments

99,037

60,000

Net cash used in investing activities

(59,362)

(93,337)

Financing activities

Acquisition of treasury stock

(54,401)

(52,886)

Tax withholding on stock-based compensation awards

(47,630)

(10,368)

Stock plan transactions and other financing activities

(69)

(277)

Net cash used in financing activities

(102,100)

(63,531)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(819)

178

Net change in cash, cash equivalents, and restricted cash

19,790

25,891

Cash, cash equivalents, and restricted cash at beginning of period

508,481

280,152

Cash, cash equivalents, and restricted cash at end of period

$

528,271

$

306,043

Supplemental disclosures of cash flow information

Income taxes paid (refunded)

$

(14)

$

7,361

Purchases of leasehold improvements, property, and equipment accrued in accounts payable and accrued liabilities

$

33,757

$

22,386

Acquisition of treasury stock accrued in accounts payable and accrued liabilities

$

-

$

1,600

See accompanying notes to condensed consolidated financial statements.


4


Table of Contents

CHIPOTLE MEXICAN GRILL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

1. Basis of Presentation and Update to Accounting Policy

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

We develop and operate restaurants that serve a relevant menu of burritos, burrito bowls, tacos and salads, made using fresh, high-quality ingredients. As of March 31, 2020, we operated 2,595 Chipotle restaurants throughout the United States as well as 40 international Chipotle restaurants. We are also an investor in a consolidated entity that owns and operates three Pizzeria Locale restaurants, a fast-casual pizza concept. We manage our operations based on eight regions and have aggregated our operations to one reportable segment.

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of our financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by U.S. generally accepted accounting principles for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2019.

Updates to Significant Accounting Policies

On January 1, 2020 we adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326)”, along with related clarifications and improvements. As a result, we updated our significant accounting policies for the measurement of credit losses below. Refer to Note 2. “Recent Accounting Standards” for information related to the impact of the adoption of Topic 326 on our condensed consolidated financial statements.

Allowance for Credit Losses

We closely monitor accounts receivable and held to maturity investment balances and estimate the allowance for credit losses. Our estimate is based on historical collection experience, external market data and other factors, including those related to current market conditions and events. Our credit losses associated with accounts receivable and held to maturity investments have not historically been material.

2. Recent Accounting Standards

Recently Issued Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740)”, which simplifies the accounting for income taxes. ASU 2019-12 is effective for reporting periods beginning after December 15, 2020, and early adoption is permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements, but do not expect the adoption of ASU 2019-12 will result in a material change to our consolidated financial statements.

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

Recently Adopted Accounting Standards

On January 1, 2020 we adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326)”, along with related clarifications and improvements. This pronouncement requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We adopted the standard using the modified-retrospective approach as of the effective date and therefore, we have not applied the standard to the comparative periods presented in our condensed consolidated financial statements. The modified-retrospective approach requires an entity to recognize a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which this guidance is effective. As of January 1, 2020, the adoption of this standard resulted in a net increase to the allowance for credit losses of $1,414, a decrease to our deferred income tax liability of $363, and a decrease to retained earnings of $1,051.