HRE REAL WORLD Refer to the financial information for Chipotle reproduced at the back of the book and identify where each of the following users of accounting information would first look to answer their re- spective questions about Chipotle. 1. Investors How much did the company earn for each share of stock that I own? Were any div- idends paid, and how much was reinvested in the company? 2. Potential investors: What amount of earnings can I expect to see from Chipotle in the near future? 3. Suppliers: Should I extend credit to Chipotle? Does it have sufficient cash or cashlike assets to repay accounts payable? 4. IRS: How much does Chipotle owe for taxes? 5. Bankers: What is Chipotle's long-term debt? Should I make a new loan to the company? Year ended December 31, 2013 2014 2012 2011 2015 Statement of Income: Revenue $ 4,501,223 Food, beverage and packaging costs 1,503,835 Labor costs 1,045,726 Occupancy costs 262,412 Other operating costs 514,963 General and administrative expenses 250,214 Depreciation and amortization 130,368 Pre-opening costs 16,922 Loss on disposal of assets 13,194 Total operating expenses 3,737,634 Income from operations 763,589 Interest and other income (expense), net 6,278 Income before income taxes 769,867 Provision for income taxes (294,265) Net income $ 475,602 Earnings per share Basic $ 15.30 Diluted 15.10 Weighted average common shares outstanding Basic 31,092 Diluted 31,494 $ 4,108,269 $ 3,214,591 $ 2,731,224 1,420,994 1,073,514 891,003 904,407 739,800 641,836 230,868 199,107 171,435 434,244 347,401 286,610 273,897 203,733 183,409 110,474 96,054 84,130 15,609 15,511 11,909 6,976 6,751 5,027 3,397,469 2,681,871 2,275,359 710,800 532,720 455,865 3,503 1,751 1,820 714,303 534,471 457,685 (268,929) (207,033) (179,685) $ 445,374 5 327,438 278,000 $ 2,269,548 738,720 543,119 147,274 251,208 149,426 74,938 8,495 5,806 1,918,986 350,562 (857) 349,705 (134,760) $ 214.945 $ $ 14.35 14.13 $ $ 10.58 10.47 $ $ 8.82 8.75 $ $ 6.89 6.76 31,038 31,512 30,957 31,281 31,513 31,783 31,217 31,775 December 31, 2014" 201310 2015 2012 2011 Balance Sheet Data: Total current assets Total assets Total current liabilities Total liabilities Total shareholders' equity $814,647 $ 2,725,066 $ 279,942 $ 597,092 $2,127,974 $ 859,511 $ 2,527,317 $ 245,710 $ 514,948 $ 2,012,369 S 653,095 $ 1,996,068 S 199,228 $ 457,780 $ 1,538,288 $ 537,745 $ 1,659,805 $ 186,852 S 413,879 $ 1,245,926 $ 494,954 $ 1,419,070 $ 157,453 $ 374,844 $ 1,044,226 CHIPOTLE MEXICAN GRILL, INC. CONSOLIDATED BALANCE SHEET (in thousands, except per share data) December 31, 2015 2014 (as adjusted) Assets Current assets: Cash and cash equivalents 248,005 $ 419,465 Accounts receivable, net of allowance for doubtful accounts of $1,176 and S1,199 as of December 31, 2015 and December 31, 2014, respectively 38,283 34,839 Inventory 15,043 15,332 Prepaid expenses and other current assets 39.965 34,795 Income tax recivable 58,152 16,488 Investments 415,199 338,592 Total current assets 814,647 859,511 Leasehold improvements, property and equipment, net 1,217,220 1,106,984 Long term investments 622,939 496,106 Other assets 48,321 42,777 Goodwill 21,939 21,939 Total assets S 2.725.066 $ 2.527,317 Liabilities and shareholders' equity Current liabilities: Accounts payable 85,709 S 69,613 Accrued payroll and benefits 64,958 73,894 Accrued liabilities 129,275 102,203 Total current liabilities 279,942 245,710 Deferred rent 251,962 219,414 Deferred income tax liability 32,305 21,561 Other liabilities 32.883 28,263 Total liabilities 597,092 514,948 Shareholders' equity: Preferred stock, S0.01 par value, 600,000 shares authorized, no shares issued as of December 31, 2015 and December 31, 2014, respectively Common stock $0.01 par value, 230,000 shares authorized, and 35,790 and 35,394 shares issued as of December 31, 2015 and December 31, 2014, respectively 358 354 Additional paid-in capital 1,172,628 1,038,932 Treasury stock, at cost, 5,206 and 4,367 common shares at December 31, 2015 and December 31, 2014, respectively (1.234,612) (748,759) Accumulated other comprehensive income (loss) (8,273) (429) Retained carings 2,197,873 1,722,271 Total shareholders' equity 2.127.974 2.012.369 Total liabilities and shareholders' equity 2,725,066 $ 2.527,317 See accompanying notes to consolidated financial statements. S s CHIPOTLE MEXICAN GRILL, INC. CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (in thousands, except per share data) Year ended December 31, 2015 2014 2013 Revenue $ 4,501,223 $ 4,108,269 $ 3,214,591 Restaurant operating costs (exclusive of depreciation and amortization shown separately below) Food, beverage and packaging 1,503,835 1,420,994 1,073,514 Labor 1,045,726 904,407 739,800 Occupancy 262,412 230,868 199,107 Other operating costs 514,963 434,244 347,401 General and administrative expenses 250,214 273,897 203,733 Depreciation and amortization 130,368 110,474 96,054 Pre-opening costs 16,922 15,609 15,511 Loss on disposal of assets 13,194 6,976 6,751 Total operating expenses 3,737,634 3,397,469 2,681,871 Income from operations 763,589 710,800 532,720 Interest and other income (expense), net 6,278 3,503 1,751 Income before income taxes 769,867 714,303 534,471 Provision for income taxes (294,265) (268,929) (207,033) Net income $ 475,602 $ 445,374 5 327,438 Other comprehensive income (loss), net of income taxes: Foreign currency translation adjustments (6,322) (2,049) 596 Unrealized loss on investments, net of income taxes of $946, $0, and SO (1,522) Other comprehensive income (loss), net of income taxes (7,844) (2,049) 596 Comprehensive income $ 467,758 $ 443,325 $ 328,034 Earnings per share: 15.30 $ 14.35 S 10.58 Diluted 15.10 $ 14.13 S 10.47 Weighted average common shares outstanding: Basic 31,092 31,038 30,957 Diluted 31,494 31,512 31,281 Basic EL S CHIPOTLE MEXICAN GRILL, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (in thousands) Total 2 Accumulated Common Stock Additional Treasury Stock Other Paid-In Retained Comprehensive Shares Amount Capital Shares Amount Earnings Income (Loss) Balance, December 31, 2012 34,912 S 349 $ 816,612 3,819 $ (521,518) $ 949,459 $ 1,024 S 1,245,926 Stock-based compensation 64,781 64,781 Stock plan transactions and other 333 3 97 100 Excess tax benefit on stock-based compensation, net of utilization of $29 38,350 38,350 Acquisition of treasury stock 393 (138,903) (138,903) Net income 327,438 327,438 Other comprehensive income (loss), net of income tax 596 596 Balance, December 31, 2013 35,245 $352 s 919,840 4,212 S (660,421) $ 1,276,897 s 1,620 S 1,538,288 Stock-based compensation 97,618 97,618 Stock plan transactions and other 149 2 (193) (191) Excess tax benefit on stock-based compensation 21,667 21.667 Acquisition of treasury stock (88,338) (88,338) Net income 445,374 445,374 Other comprehensive income (loss), net of income tax (2,049) (2,049) Balance, December 31, 2014 35,394 $ 354 s 1,038,932 4,367 S (748,759) S 1,722,271 (429) S 2,012,369 Stock-based compensation 59,465 59,465 Stock plan transactions and other 396 (211) (207) Excess tax benefit on stock-based compensation 74,442 74,442 Acquisition of treasury stock 839 (485,853) (485,853) Net income 475,602 475,602 Other comprehensive income (Loss), net of income tax (7,844) (7,844) Balance, December 31, 2015 35,790 S 358 S 1,172,628 5,206 S (1.234,612) $ 2,197,873 S (8,273) S 2.127,974 155 35,790 CHIPOTLE MEXICAN GRILL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) Year ended December 31, 2015 2014 2013 $475,602 5 445,374 S 327,438 130,368 11,666 13,194 (23) 57,911 (74,442) 582 110,474 (20,671) 6,976 9 96,440 (21,667) 104 96,054 2,103 6,751 19 63,657 (38,379) 507 Operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Deferred income tax (benefit) provision Loss on disposal of assets Bad debt allowance Stock-based compensation expense Excess tax benefit on stock-based compensation Other Changes in operating assets and liabilities: Accounts receivable Inventory Prepaid expenses and other current assets Other assets Accounts payable Accrued liabilities Income tax payable receivable Deferred rent Other long-term liabilities Net cash provided by operating activities Investing activities Purchases of leasehold improvements, property and equipment Purchases of investments Maturities of investments Net cash used in investing activities Financing activities Acquisition of treasury stock Excess tax benefit on stock-based compensation Stock plan transactions and other financing activities Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental disclosures of cash flow information Income taxes paid Increase (decrease) in purchases of leasehold improvements, property and cquipment accrued in accounts payable and accrued liabilities Increase in acquisition of treasury stock accrued in accrued liabilities (3,504) 262 (5,259) (5.619) 19,525 (7,440) 32,756 32,911 4.826 683,316 (10.966) (2,307) (658) 1,071 2,168 35,019 8,831 27,025 4,845 682,067 (7,238) (1.950) (6,806) (1,354) 2.052 12,020 44,334 25,715 3.857 528,780 (257,418) (252,590) (199.926) (559,372) (521,004) (387,639) 352,650 254,750 159,250 (464,140) (518,844) (428,315) (460,675) (88,338) (138,903) 74,442 21,667 38,379 (207) (66) 173 (386,440) (66,737) (100.351) (4,196) (224) 536 (171,460) 96,262 650 419,465 323.203 322,553 $ 248,005 S 419,465 S 323.203 248,547 S 280,687 160,973 s (2,870) S 9,424 s (1,736) s 25,178 S Leasehold improvements, property and equipment were as follows: Land Leasehold improvements and buildings Furniture and fixtures Equipment December 31, 2015 2014 $ 13,052 S 11,062 1,419,418 1,267,108 142,825 127.260 362,800 315,230 1,938,095 1,720,660 (720,875) (613,676) $1,217,220 $1,106,984 Accumulated depreciation Accrued liabilities were as follows: Gift card liability Transaction tax payable Treasury stock liability Other accrued expenses December 31, 2015 2014 $ 51,055 $ 48,105 15,634 22,929 25,178 37.408 31,169 $ 129,275 $ 102,203 Year ended December 31, 2015 2014 2013 Current tax: U.S. Federal $ 244,470 $ 248,219 $ 165,731 U.S. State 37,957 41,225 39,136 Foreign 172 156 63 282,599 289,600 204,930 Deferred tax: U.S. Federal 11,000 (13,890) 5,238 U.S. State 699 (6,740) (3,105) Foreign (2,288) (3,075) (1,330) 9,411 (23,705) 803 Valuation allowance 2,25$ 3,034 1,300 Provision for income taxes $ 294,265 $ 268,929 $ 207,033 Actual taxes paid for each tax period were less than the current tax expense due to the excess tax benefit on stock-based compensation of $74,442, $21,667, and $38,379 during the years ended December 31, 2015, 2014, and 2013, respectively. The effective tax rate differs from the statutory tax rates as follows: Statutory U.S. federal income tax rate State income tax, net of related federal income tax benefit Other Effective income tax rate Year ended December 31, 2015 2014 2013 35.0% 35.0 % 35.0 % 3.6 3.7 4.2 (0.4) (1.1) (0.5) 38.2 % 37.6% 38.7 % 2015 2014 (as adjusted) $ 192,125 1,696 8,297 202,118 $ 175,808 1,519 6,091 183,418 Long-term deferred income tax liability: Leasehold improvements, property and equipment Goodwill and other assets Prepaid assets and other Total long-term deferred income tax liability Long-term deferred income tax asset: Deferred rent Gift card liability Capitalized transaction costs Stock-based compensation and other employee benefits Foreign net operating loss carry-forwards State credits Allowances, reserves and other Valuation allowance Total long-term deferred income tax asset Net long-term deferred income tax liability 57,716 3,171 502 83,058 11,407 4,783 18,577 (9.401) 169,813 32,305 52,147 1,451 503 87,713 8,618 4,281 14,656 (7,512) 161,857 21,561 s $ I As described in Note 1, the Company elected to early adopt FASB guidance ASU 2015-17 "Income Taxes" as of December 31, 2015 and to apply the guidance retrospectively to all periods presented related to the classification of current and noncurrent deferred tax assets and liabilities. Accordingly, the Company reclassified the prior period amount of $18,968 related to its net deferred tax asset from current to noncurrent, resulting in an offset to the noncurrent deferred income tax liability for the same amount for that period. The unrecognized tax benefits are as follows: 2015 2014 2013 Beginning of year 1,342 Increase resulting from prior year tax position 402 Increase resulting from current year tax position 2,032 End of year S 3.776 S 1.342 S Stock-based compensation expense Stock-based compensation expense, net of tax Stock-based compensation expense recognized as capitalized development Year ended December 31, 2015 2014 2013 $ 59,465 $ 97,618 S 64,781 36,666 60,084 39,465 1,554 1,178 1,124 per share data) 2014 2013 2015 Weighted-Average Exercise Price Per Share Weighted-Average Exercise Price Per Share Weighted-Average Exercise Price Per Share Shares Shares Shares Outstanding, beginning of year Granted Exercised Forfeited Outstanding, end of year 2,087 $ 379 $ (716) S (56) $ 1.694 $ 395.46 659.12 297.25 554.73 490.70 1,690 $ 764 S (315) $ (52) $ 2,087 $ 312.44 545.66 310.32 419.74 395.46 1.449 $ 672 $ (369) $ (62) 1,690 $ 274.92 320.21 176.23 329.76 312.44 Weighted Average Exercise Price Per Shares Share 1,694 $ 490.70 Weighted-Average Remaining Years of Aggregate Contractual Life Intrinsie Value 4.9 S 92,773 Outstanding as of December 31, 2015 Vested and expected to vest as of December 31, 2015 Exercisable as of December 31, 2015 1,640 S 321 S 486.10 339.72 4.8 S 3.5 S 92,622 45,112 Risk-free interest rate Expected life (years) Expected dividend yield Volatility Weighted-average Black-Scholes fair value per share at date of grant 2015 1.1 % 3.4 0.0% 30.8% S 156.32 2014 0.8 % 3.4 0.0% 33.3 % $ 136.18 2013 0.5% 3.4 0.0% 35.4% 82.51 $