# CHIPOTLE MEXICAN GRILL INC (CMG) Informational only - not investment advice. CIK: 0001058090 SIC: 5812 Retail-Eating Places SIC breadcrumb: [Retail Trade](/division/G/) > [Eating And Drinking Places](/major-group/58/) > [SIC 5812 Retail-Eating Places](/industry/5812/) Latest 10-K filed: 2026-02-04 SEC page: https://www.sec.gov/edgar/browse/?CIK=1058090 Filing source: https://www.sec.gov/Archives/edgar/data/1058090/000105809026000009/cmg-20251231.htm ## Selected Fundamentals | Metric | Value | Unit | FY | Filed | | --- | ---: | --- | ---: | --- | | Revenue | 11925601000 | USD | 2025 | 2026-02-04 | | Net income | 1535761000 | USD | 2025 | 2026-02-04 | | Assets | 8994531000 | USD | 2025 | 2026-02-04 | ## Financials Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-04. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001058090.json. Derived margins are computed from the extracted annual SEC facts. | Metric | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Revenue | 3,904,384,000 | 4,476,412,000 | 4,864,985,000 | 5,586,369,000 | 5,984,634,000 | 7,547,061,000 | 8,634,652,000 | 9,871,649,000 | 11,313,853,000 | 11,925,601,000 | | Net income | 22,938,000 | 176,253,000 | 176,553,000 | 350,158,000 | 355,766,000 | 652,984,000 | 899,101,000 | 1,228,737,000 | 1,534,110,000 | 1,535,761,000 | | Operating income | 34,567,000 | 270,794,000 | 258,368,000 | 443,958,000 | 290,164,000 | 804,943,000 | 1,160,403,000 | 1,557,813,000 | 1,916,333,000 | 1,935,798,000 | | Diluted EPS | 0.77 | 6.17 | 6.31 | 12.38 | 12.52 | 22.90 | 0.64 | 0.89 | 1.11 | 1.14 | | Assets | 2,026,103,000 | 2,045,692,000 | 2,265,518,000 | 5,104,604,000 | 5,982,896,000 | 6,652,958,000 | 6,927,504,000 | 8,044,362,000 | 9,204,374,000 | 8,994,531,000 | | Liabilities | 623,610,000 | 681,247,000 | 824,179,000 | 3,421,578,000 | 3,962,761,000 | 4,355,584,000 | 4,559,481,000 | 4,982,155,000 | 5,548,828,000 | 6,163,924,000 | | Stockholders' equity | 1,402,493,000 | 1,364,445,000 | 1,441,339,000 | 1,683,026,000 | 2,020,135,000 | 2,297,374,000 | 2,368,023,000 | 3,062,207,000 | 3,655,546,000 | 2,830,607,000 | | Cash and cash equivalents | 87,880,000 | 184,569,000 | 249,953,000 | 480,626,000 | 607,987,000 | 815,374,000 | 384,000,000 | 560,609,000 | 748,537,000 | 350,545,000 | | Net margin | 0.59% | 3.94% | 3.63% | 6.27% | 5.94% | 8.65% | 10.41% | 12.45% | 13.56% | 12.88% | | Operating margin | 0.89% | 6.05% | 5.31% | 7.95% | 4.85% | 10.67% | 13.44% | 15.78% | 16.94% | 16.23% | ## Macro Cross-References - [CPIAUCSL](/indicator/CPIAUCSL/): Consumer Price Index for All Urban Consumers: All Items in U.S. City Average - [UNRATE](/indicator/UNRATE/): Unemployment Rate - [FEDFUNDS](/indicator/FEDFUNDS/): Federal Funds Effective Rate - [CES0500000003](/indicator/CES0500000003/): Average Hourly Earnings of All Employees, Total Private - [DFEDTARU](/indicator/DFEDTARU/): Federal Funds Target Range - Upper Limit - [DFEDTARL](/indicator/DFEDTARL/): Federal Funds Target Range - Lower Limit - [DGS3MO](/indicator/DGS3MO/): Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity - [DGS2](/indicator/DGS2/): Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity - [DGS10](/indicator/DGS10/): Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity - [DGS30](/indicator/DGS30/): Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity - [T10Y2Y](/indicator/T10Y2Y/): 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity - [CPILFESL](/indicator/CPILFESL/): Consumer Price Index for All Urban Consumers: All Items Less Food and Energy - [CPIUFDSL](/indicator/CPIUFDSL/): Consumer Price Index for All Urban Consumers: Food - [CPIENGSL](/indicator/CPIENGSL/): Consumer Price Index for All Urban Consumers: Energy - [CUSR0000SAH1](/indicator/CUSR0000SAH1/): Consumer Price Index for All Urban Consumers: Shelter - [PCEPI](/indicator/PCEPI/): Personal Consumption Expenditures: Chain-type Price Index - [PCEPILFE](/indicator/PCEPILFE/): Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index - [PPIACO](/indicator/PPIACO/): Producer Price Index by Commodity: All Commodities - [T10YIE](/indicator/T10YIE/): 10-Year Breakeven Inflation Rate - [U6RATE](/indicator/U6RATE/): Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons - [PAYEMS](/indicator/PAYEMS/): All Employees, Total Nonfarm - [CIVPART](/indicator/CIVPART/): Labor Force Participation Rate - [EMRATIO](/indicator/EMRATIO/): Employment-Population Ratio - [UNEMPLOY](/indicator/UNEMPLOY/): Unemployed - [CE16OV](/indicator/CE16OV/): Employment Level - [ICSA](/indicator/ICSA/): Initial Claims - [JTSJOL](/indicator/JTSJOL/): Job Openings: Total Nonfarm - [JTSQUR](/indicator/JTSQUR/): Quits: Total Nonfarm - [GDPC1](/indicator/GDPC1/): Real Gross Domestic Product - [A191RL1Q225SBEA](/indicator/A191RL1Q225SBEA/): Real Gross Domestic Product: Percent Change from Preceding Period - [INDPRO](/indicator/INDPRO/): Industrial Production: Total Index - [TCU](/indicator/TCU/): Capacity Utilization: Total Index - [HOUST](/indicator/HOUST/): New Privately-Owned Housing Units Started: Total Units - [PERMIT](/indicator/PERMIT/): New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units - [RSAFS](/indicator/RSAFS/): Advance Retail Sales: Retail Trade - [PCE](/indicator/PCE/): Personal Consumption Expenditures - [DSPIC96](/indicator/DSPIC96/): Real Disposable Personal Income - [PSAVERT](/indicator/PSAVERT/): Personal Saving Rate - [M2SL](/indicator/M2SL/): M2 - [BOPGSTB](/indicator/BOPGSTB/): U.S. International Trade in Goods and Services: Balance ## Latest 10-K MD&A Extracted between Item 7 and the next Item 7A/8 heading after HTML sanitization. Confidence: high ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion together with our consolidated financial statements and related notes included in Item 8. “Financial Statements and Supplementary Data.” This section of the Form 10-K generally discusses 2025 items and year-to-year comparisons of 2025 to 2024. Discussions of 2023 items and year-to-year comparisons of 2024 and 2023 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 on our Annual Report on Form 10-K for the year ended December 31, 2024. The discussion contains forward-looking statements involving risks, uncertainties and assumptions that could cause our results to differ materially from expectations. See “Cautionary Note Regarding Forward-Looking Statements.” Factors that might cause such differences include those described in Item 1A. “Risk Factors”, 7A. "Quantitative and Qualitative Disclosure About Market Risk", and elsewhere in this report. Overview As of December 31, 2025, we owned 3,938 Chipotle restaurants throughout 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. Throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” we discuss the following key operating metrics which we believe will drive our financial results and long-term growth model. We believe these metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies: •Comparable restaurant sales •Food, beverage, and packaging as a percentage of total revenue •Labor as a percentage of total revenue •Occupancy as a percentage of total revenue •Other operating costs as a percentage of total revenue •New restaurant openings 2025 Financial Highlights, year-over-year: •Total revenue increased 5.4% to $11.9 billion •Comparable restaurant sales decreased 1.7% •Diluted earnings per share was $1.14, a 2.7% increase from $1.11 Sales Trends. Comparable restaurant sales decreased 1.7% for the year ended December 31, 2025. The decrease is attributable to lower transactions of 2.9%, partially offset by a 1.2% increase in average check. Comparable restaurant sales represent the change in period-over-period total revenue for company-owned restaurants in operation for at least 13 full calendar months. Digital sales represented 36.7% of total food and beverage revenue. For 2026, management is anticipating comparable restaurant sales to be about flat. Restaurant Development. During the year ended December 31, 2025, we opened 334 company-owned restaurants, which included 257 restaurants with a Chipotlane. We expect to open approximately 350 to 370 restaurants in 2026, which includes 10 to 15 international partner-operated restaurants. We expect around 80% of our new company-owned restaurants will include a Chipotlane. Partner-Operated Restaurants. During the year ended December 31, 2025, 11 partner-operated restaurants were opened in the Middle East. 24 Table of Contents Restaurant Activity The following table details company-owned restaurant unit data for the years indicated. Year ended December 31, 2025 2024 Beginning of period 3,726 3,437 Openings 334 304 Permanent closures (13) (7) Relocations (5) (8) Total at end of period 4,042 3,726 The following table details partner-operated restaurant unit data for the years indicated. Year ended December 31, 2025 2024 Beginning of period 3  -  Openings 11  3  Total at end of period 14  3  Results of Operations Our results of operations as a percentage of total revenue and period-over-period change are discussed in the following section. Revenue Year ended December 31, Percentage 2025 2024 change (dollars in millions) Food and beverage revenue $ 11,866.1 $ 11,247.4 5.5% Delivery service revenue 59.6 66.5 (10.4 %) Total revenue $ 11,925.6 $ 11,313.9 5.4% Average restaurant sales (1) $ 3.104 $ 3.213 (3.4%) Comparable restaurant sales increase/(decrease) (1.7%) 7.4% Transactions (2.9%) 5.3% Average check 1.2% 2.1% Menu price increase 2.1% 2.9% Check mix (0.9 %) (0.8 %) (1)Average restaurant sales refers to the average trailing 12-month food and beverage revenue for company-owned restaurants in operation for at least 12 full calendar months. 25 Table of Contents The following is a summary of the change in restaurant sales for the period indicated: Year ended (dollars in millions) For the period ended December 31, 2024 $ 11,313.9  Change from: Comparable restaurant sales (191.3) Restaurants not yet in comparable base opened in 2025 327.0  Restaurants not yet in comparable base opened in 2024 481.8  Closures (31.6) Other (1) 25.8  For the period ended December 31, 2025 $ 11,925.6  (1)Other includes the impact of gift card breakage adjustments, as $20.1 million of additional gift card breakage revenue was recorded during the year ended December 31, 2025 as compared to the year ended December 31, 2024. Food, Beverage and Packaging Costs Year ended December 31, Percentage 2025 2024 change (dollars in millions) Food, beverage and packaging $ 3,527.0 $ 3,374.5 4.5% As a percentage of total revenue 29.6% 29.8% (0.2 %) Food, beverage and packaging costs decreased 0.2% as a percentage of total revenue for the year ended December 31, 2025 compared to the year ended December 31, 2024. The decrease was primarily due to a 0.6% benefit from menu price increases and, to a lesser extent, cost of sales efficiencies. These decreases were partially offset by 0.4% of inflation, primarily beef and chicken, and a 0.2% impact from tariffs enacted in 2025. We estimate that the tariffs enacted in 2025 will impact food, beverage and packaging costs by about 15 basis points on an ongoing basis. These estimates could vary based on future tariff policy changes. Labor Costs Year ended December 31, Percentage 2025 2024 change (dollars in millions) Labor costs $ 2,991.7 $ 2,789.8 7.2% As a percentage of total revenue 25.1% 24.7% 0.4 % Labor costs increased 0.4% as a percentage of total revenue for the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase was primarily due to a 0.7% impact from lower sales volumes and 0.4% from restaurant wage inflation. This increase is partially offset by a 0.5% benefit from menu price increases. 26 Table of Contents Occupancy Costs Year ended December 31, Percentage 2025 2024 change (dollars in millions) Occupancy costs $ 624.9 $ 563.4 10.9% As a percentage of total revenue 5.2% 5.0% 0.2 % Occupancy costs increased 0.2% as a percentage of total revenue for the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase was due to the impact from lower sales volumes, as a 0.1% benefit from menu price increases was offset by expenses associated with new restaurants. Other Operating Costs Year ended December 31, Percentage 2025 2024 change (dollars in millions) Other operating costs $ 1,755.8 $ 1,568.5 11.9% As a percentage of total revenue 14.7% 13.9% 0.8 % Other operating costs increased 0.8% as a percentage of total revenue for the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase was due to the impact from several items, primarily 0.5% of higher marketing and promotional activities, 0.2% of lower sales volumes, and 0.2% of inflation in natural gas and electricity. This increase was partially offset by a 0.2% benefit from menu price increases. General and Administrative Expenses Year ended December 31, Percentage 2025 2024 change (dollars in millions) General and administrative expenses $ 652.0 $ 697.5 (6.5%) As a percentage of total revenue 5.5% 6.2% (0.7 %) 27 Table of Contents The following is a summary of the change in general and administrative expenses for the period indicated: Year ended (dollars in millions) For the period ended December 31, 2024 $ 697.5  Change from: Stock-based compensation, excluding August 2024 retention awards (31.8) Performance bonuses (28.0) Legal contingencies (22.5) Conferences, primarily biennial All Managers’ Conference (16.2) Legal services 4.3  Outside services related to corporate initiatives 11.1  Wages 17.6 Stock-based compensation, August 2024 retention awards 17.7  Other 2.4  For the period ended December 31, 2025 $ 652.0  Depreciation and Amortization Year ended December 31, Percentage 2025 2024 change (dollars in millions) Depreciation and amortization $ 361.4 $ 335.0 7.9% As a percentage of total revenue 3.0% 3.0% - % Depreciation and amortization remained flat as a percentage of total revenue for the year ended December 31, 2025 compared to the year ended December 31, 2024. Increased depreciation expense associated with existing restaurants and the impact from lower sales volumes was offset by the benefit of menu price increases. Interest and Other Income, Net Year ended December 31, Percentage 2025 2024 change (dollars in millions) Interest and other income, net $ 73.7 $ 93.9 (21.5%) As a percentage of total revenue 0.6% 0.8% (0.2%) Interest and other income, net decreased in dollar terms for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily due to lower investment balances in U.S. Treasury securities and money market funds and decreased interest income due to lower interest rates in the current year. 28 Table of Contents Provision for Income Taxes Year ended December 31, Percentage 2025 2024 change (dollars in millions) Provision for income taxes $ 473.8  $ 476.1  (0.5%) Effective income tax rate 23.6% 23.7% (0.1%) The effective income tax rate decreased 0.1% for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily due to increases in U.S. federal income tax credits of 0.3% and lower nondeductible expenses of 0.2%. These decreases were partially offset by a 0.4% reduction in tax benefits related to option exercises and equity vesting. Quarterly Financial Data/Seasonality Seasonal factors cause our profitability to fluctuate from quarter to quarter. Historically, our average daily restaurant sales and net income are lower in the first and fourth quarters due, in part, to the holiday season and because fewer people eat out during periods of inclement weather (the winter months) than during periods of mild or warm weather (the spring, summer and fall months). Other factors also have a seasonal effect on our results. For example, restaurants located near colleges and universities generally do more business during the academic year. Seasonal factors, however, might be moderated or outweighed by other factors that may influence our quarterly results, such as unexpected publicity impacting our business in a positive or negative way, disease outbreak, epidemic or endemic, the impact of inflation and consumer sentiment on consumer spending, fluctuations in food or packaging costs, the timing of holidays, or the timing of menu price increases or promotional activities and other marketing initiatives. The number of trading days in a quarter can also affect our results, although, on an overall annual basis, changes in trading days do not have a significant impact. Our quarterly results are also affected by other factors such as the amount and timing of non-cash stock-based compensation expense and related tax rate impacts, litigation, settlement costs and related legal expenses, impairment charges and non-operating costs, timing of marketing or promotional expenses, the number and timing of new restaurants opened in a quarter, and closure of restaurants. New restaurants typically have higher operating costs following opening because of the expenses associated with their opening and operating inefficiencies in the months immediately following opening. Accordingly, results for a particular quarter are not necessarily indicative of results to be expected for any other quarter or for any year. Liquidity and Capital Resources Cash and Investments As of December 31, 2025, we had a cash and marketable investments balance of $1.1 billion, non-marketable investments of $106.0 million, and $35.4 million of restricted cash. After funding the current operations in our restaurants and support centers, the first planned use of our cash flow from operations is to provide capital for the continued investment in new restaurant construction. In addition to continuing to invest in our restaurant expansion, we expect to utilize cash flow from operations to: repurchase additional shares of our common stock subject to market conditions; invest in, maintain, and refurbish our existing restaurants; and for general corporate purposes. As of December 31, 2025, $1.7 billion remained available for repurchases of shares of our common stock. Under the remaining repurchase authorizations, shares may be purchased from time to time in open market transactions, subject to market conditions. Borrowing Capacity As of December 31, 2025, we had $500.0 million of undrawn borrowing capacity under a revolving credit facility. Use of Cash We believe that cash from operations, together with our cash and investment balances, will be sufficient to meet ongoing capital expenditures, working capital requirements and other cash needs for the foreseeable future. Assuming no significant declines in comparable restaurant sales, we expect we will generate positive cash flow for the foreseeable future. 29 Table of Contents We have not required significant working capital because guests generally pay using cash or credit and debit cards and because our operations do not require significant receivables or significant inventories, partly due to our use of various fresh ingredients. In addition, we generally have the right to pay for the purchase of food, beverages and supplies sometime after the receipt of those items, generally within ten days, thereby reducing the need for incremental working capital to support our growth. Our total capital expenditures for 2025 were $666.3 million. In 2025, we spent on average about $1.5 million in development and construction costs per new restaurant, or about $1.3 million net of landlord reimbursements of $0.2 million. In 2026, we expect to incur about $834.1 million in total capital expenditures. We expect approximately $531.8 million in capital expenditures related to our construction of new restaurants, before any reductions for landlord reimbursements. We expect the average investment cost for new restaurants opening in 2026 will be slightly higher than the average investment costs for those opened in 2025. We expect approximately $266.9 million in capital expenditures related to investments in existing restaurants including remodeling and similar improvements, new equipment and hardware, and technology to optimize efficiencies. Finally, we expect a portion of our incurred capital expenditures to be for additional corporate initiatives including investments in technology to boost innovation, enhance the guest experience, and improve operations. The following table summarizes current and long-term material cash requirements as of December 31, 2025, which we expect to fund primarily with operating cash flows: Payments Due by Fiscal Year Total 2026 2027-2028 2029-2030 Thereafter (dollars in millions) Operating leases(1) $ 8,309  $ 569  $ 1,228  $ 1,157  $ 5,355  Purchase obligations(2) 1,887  1,135  701  34  17  Total $ 10,196  $ 1,704  $ 1,929  $ 1,191  $ 5,372  (1)See Note 9. “Leases” of our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.” This includes commitments related to reasonably certain renewal periods for leases that have commenced and includes legally binding lease payments for leases signed but not yet commenced. (2)Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms. We have excluded agreements that are cancellable without penalty. The majority of our purchase obligations relate to food, beverage and packaging, capital projects, information technology, marketing initiatives and corporate sponsorships, and other miscellaneous items. The above table does not include income tax liabilities for uncertain tax positions for which we are not able to make a reasonably reliable estimate of the amount and period of related future payments. Additionally, we have excluded our estimated loss contingencies, due to uncertainty regarding the timing and amount of payment. See Note 11. “Commitments and Contingencies” of our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.” Cash Flows Cash provided by operating activities was $2.1 billion for the year ended December 31, 2025, compared to $2.1 billion for the year ended December 31, 2024. The balance was flat as an increase in operating cash flows due to the timing of tax-related payments, including the impacts of H.R.1 - One Big Beautiful Bill Act, was offset by other changes in non-tax operating assets and liabilities. Cash used in investing activities was $35.1 million for the year ended December 31, 2025, compared to $837.5 million for the year ended December 31, 2024. The change was primarily associated with an $895.3 million decrease in investment purchases net of investment maturities. This was partially offset by increased capital expenditures of $72.7 million primarily related to costs associated with new restaurant development. Cash used in financing activities was $2.5 billion for the year ended December 31, 2025, compared to $1.1 billion for the year ended December 31, 2024. The change was primarily due to increased repurchases of common stock of $1.4 billion. 30 Table of Contents Critical Accounting Estimates We describe our significant accounting policies in Note 1. “Description of Business and Summary of Significant Accounting Policies” of our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.” Critical accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or factors. 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. If the estimate of our reasonably certain lease term was changed, our depreciation and rent expense could differ materially. 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 common area maintenance (“CAM”) part of our fixed future lease payments; therefore, fixed CAM is also included in 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 initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental borrowing rates corresponding to the reasonably certain lease term. As we have no outstanding debt, we estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment. If the estimate of our incremental borrowing rate was changed, our operating lease assets and liabilities could differ materially. 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. 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 revenue and expenses, and sublease income to the extent applicable. 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. Our estimates of future revenues and expenses are highly subjective judgments based on internal projections and knowledge of our operations, historical performance, and trends in sales and restaurant operating costs, and can be significantly impacted by changes in our business or economic conditions. The determination of asset fair value is also subject to significant judgment and utilizes valuation techniques including discounting estimated future cash flows and market-based analyses to determine fair value. If our estimates or underlying assumptions, including discount rate and sublease income change in the future, our operating results may be materially impacted. 31 Table of Contents Stock-based Compensation We recognize compensation expense for equity awards over the requisite service period based on the award’s fair value. Under our stock incentive plans, we issue stock-only stock appreciation rights ("SOSARs"), restricted stock units ("RSUs"), and performance stock units ("PSUs"). We use the Black-Scholes valuation model to determine the fair value of our SOSARs, and we use a Monte Carlo simulation model to determine the fair value of PSUs that contain market conditions. Both of these models require assumptions to be made regarding our stock price volatility, the expected life of the award and expected dividend rates. The volatility and the expected life assumptions are based on our historical data. Similarly, the compensation expense of PSUs is based in part on the estimated probability of achieving levels of performance associated with particular levels of payout for PSUs. We determine the probability of achievement of future levels of performance by comparing the relevant performance level with our internal estimates of future performance. Those estimates are based on a number of assumptions, including but not limited to growth in restaurant cash flow dollars, average restaurant level operating margin, and growth in new restaurant openings, and different assumptions may have resulted in different conclusions regarding the probability of achieving future levels of performance relevant to the payout levels for the awards. If we change our estimates of stock price volatility or expected lives of our SOSARs, or if we change our assumptions regarding the probability of achieving future levels of performance with respect to PSUs, our stock-based compensation expense and results of operations may be materially impacted. Income Taxes Our provision for income taxes, deferred tax assets and liabilities and any related valuation allowance requires the use of estimates based on our management’s interpretation and application of complex tax laws and accounting guidance. The majority of our income tax liability is incurred in the U.S. We establish reserves for uncertain tax positions for material, known tax exposures relating to deductions, transactions and other matters involving some uncertainty as to the measurement and recognition of the item. We may adjust these reserves when our judgment changes as a result of the evaluation of new information not previously available and will be reflected in the period in which the new information is available, or due to the expiration of any applicable statute of limitations. While we believe that our reserves are adequate, issues raised by a tax authority may be resolved at an amount different than the related reserve and could materially increase or decrease our income tax provision in future periods.