UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2009March 31, 2010

or

For the transition period fromto

Commission File Number: 1-32731

CHIPOTLE MEXICAN GRILL, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (303) 595-4000

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 ofor 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    ¨  Yes    ¨  No

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

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 October 23, 2009April 20, 2010 there were 15,091,89531,461,675 shares of the registrant’s Class A common stock, par value of $0.01 per share, and 16,601,646 shares of the registrant’s Class B common stock, par value of $0.01 per share outstanding.

TABLE OF CONTENTS

PART I

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Chipotle Mexican Grill, Inc.

Consolidated Balance Sheet

(in thousands, except per share data)

See accompanying notes to consolidated financial statements.

Chipotle Mexican Grill, Inc.

Consolidated Statement of Income

(unaudited)

(in thousands, except per share data)

See accompanying notes to consolidated financial statements.

Chipotle Mexican Grill, Inc.

Consolidated Statement of Cash Flows

(unaudited)

(in thousands)

See accompanying notes to consolidated financial statements.

Chipotle Mexican Grill, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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

1. Basis of Presentation

Chipotle Mexican Grill, Inc. (the “Company”), a Delaware corporation, develops and operates fast-casual, fresh Mexican food restaurants in 3435 states throughout the United States, the District of Columbia and Ontario, Canada. As of September 30, 2009March 31, 2010, the Company operated 911976 restaurants. The Company manages its operations based on five regions and has aggregated its operations to one reportable segment.

The accompanying unaudited consolidated financial statements of the Company have been prepared 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 consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of its 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 the Company’s annual report on Form 10-K for the year ended December 31, 2008.2009.

Financial Accounting Standards Board Topic No. 855,Subsequent Events, (“Topic 855”) is effective for financial statements ending after June 15, 2009. Topic 855 establishes general standards of accounting for and disclosure of subsequent events that occur after the balance sheet date. Entities are also required to disclose the date through which subsequent events have been evaluated and the basis for that date. The Company has evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through the date of issuance, October 27, 2009.day the financial statements are issued.

2. Adoption of New Accounting Principle

Effective January 1, 2010, the Company adopted amendments in Accounting Standards Update 2010-06 (“ASU 2010-06”) requiring new fair value disclosures. The adoption of ASU 2010-06 did not have a significant impact to the Company’s consolidated financial statements.

3. Comprehensive Income

The following table presents comprehensive income for the three and nine months ended September 30, 2009March 31, 2010 and 2008.2009:

3. Credit Facility4. Fair Value of Financial Instruments

In February 2009, the Company entered into an unsecured revolving credit facility with BankThe carrying value of America, N.A. with an initial principal amount of $25 million and an additional $25 million accordion feature. Borrowings under the credit facility will bear interest at a rate set, at the Company’s option,cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of their short-term nature. Available-for-sale securities were measured at either (i) a rate equal to an adjusted LIBOR rate plus a margin ranging from 0.75% to 2.0% dependingfair market value on a lease-adjusted leverage ratio, or (ii) a daily rate equal to (a) the highest of the federal funds rate plus 0.5%, the bank’s published prime rate, or one-month LIBOR plus 1.0%, plus (b) a margin ranging from 0.0% to 1.0% depending on a lease-adjusted leverage ratio. The facility includes a commitment fee on the unused balance ranging from 0.25% to 0.5%,recurring basis based on the lease-adjusted leverage ratio. Availabilitylevel 2 inputs (quoted prices for identical assets in markets that are not active) and consisted of borrowings under the facility is conditioned on the Company’s compliance with specified covenants including a maximum lease-adjusted leverage ratio and a minimum fixed charge coverage ratio. The facility expires in February 2014, but can be terminated or decreased at the Company’s option prior to expiration. The Company intends to use the credit facility, if at all, for lettersCDARS, certificate of credit issued in the normal course of business and normal short-term working capital needs. As of September 30, 2009, there were no loans outstanding and available borrowings were $19,700.deposit products.

4. Shareholders’5. Shareholder’s Equity

During 2008, the Company’s Boardfirst quarter of Directors approved2010, the expenditure of up to $100 million to repurchaseCompany purchased shares of class B common stock.stock under an authorized share repurchase program. The shares may be purchased from time to time in open market transactions, subject to market conditions. The Company repurchased 1,131150 shares for $70,001 during the nine months ended September 30, 2009. The Company completed the repurchase$15,680 during the three months ended September 30, 2009, havingMarch 31, 2010. The cumulative shares repurchased 1,823 shares atunder authorized programs as of March 31, 2010 are 2,140 for a total cost of $100,228.$129,996. The 1,823 shares are being held in treasury stock until such time as they are reissued or retired at the discretion of the Board of Directors.

The Company has repurchased shares of common stock from participants of the Amended and Restated Chipotle Mexican Grill, Inc. 2006 Stock Incentive Plan (“the Plan”), which are netted and surrendered as payment for applicable tax withholding on the vesting of their restricted stock. Shares surrendered by the participants in accordance with the Plan and the applicable award agreements are deemed repurchased by the Company but are not part of publicly announced share repurchase programs. In the three months ended March 31, 2010, the Company repurchased 20 shares for a total cost of $2,118.

5. Stock-basedChipotle Mexican Grill, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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

6. Stock Based Compensation

In January 2009, the Company granted 14 shares of class A common stock subject to performance conditions with a grant date fair value of $62.55.

In February 2009,2010, the Company granted stock only stock appreciation rights (“SARs”) on 578556 shares of its class A common stock to eligible employees. The grant date fair value of the SARs was $18.85$39.35 per share with an exercise price of $53.36$103.79 per share based on the closing price of class A common stock on the date of grant. The SARs vest in two equal installments on the second and third anniversary of the grant date.

Also in February 2009, the Company granted 73 restricted stock units of class A common stock with a grant date fair value of $53.36 which vest on the third anniversary of the grant.

Stock-based compensation, including SARs, options and non-vested stock awards, was $3,944 and $12,009$4,936 ($2,418 and $7,3643,045 net of tax) for the three and nine months ended September 30, 2009, respectivelyMarch 31, 2010 and was $3,903 and $9,006$3,530 ($2,412 and $5,5662,165 net of tax) for the three and nine months ended September 30, 2008, respectively.March 31, 2009. For the three and nine months ended September 30,March 31, 2010 and 2009, $249 and 2008, $176, $530, $156 and $466,$158, respectively, of stock-based compensation was recognized as capitalized development and is included in leasehold improvements, property and equipment in the consolidated balance sheet. During the ninethree months ended September 30, 2009, 518March 31, 2010, 86 options to purchase shares of class A common stock were exercised, 1 option expired, and 6 options or SARs were forfeited or expired, 460 shares of performance-contingent restricted stock units were issued to non-employee directors, and 60 class A common shares vested.

6.7. Related Party Transactions

The Company’s Chief Marketing Officer (“CMO”), served as Creative Director for Sequence, LLC (“Sequence”), a strategic design and marketing consulting firm he co-founded, prior to joining the Company in January 2009. In connection with the CMO’s separation from Sequence, the parties entered into certain agreements that remain in effect. Sequence has provided the Company with a variety of marketing consulting services totaling $1,046$243 and $268 for the ninethree months ended September 30, 2009.March 31, 2010 and 2009, respectively.

7.8. Earnings Per Share

Basic earnings per share is calculated by dividing income available to common shareholders by the weighted averageweighted-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 averageweighted-average shares of common stock outstanding during each period. Potentially dilutive securities include potential common shares related to stock options, SARs and non-vested stock awards.stock. 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 had an anti-dilutive effect. SARs and options to purchase 322877 and 6021,164 shares of common stock were excluded from the calculation of diluted EPS for the threefirst quarters of 2010 and nine months ended September 30, 2009, and 329 and 253 were excluded for the three and nine months ended September 30, 2008,respectively, because they were anti-dilutive. In addition, 119 stock awards subject to performance conditions were excluded from the calculation of diluted EPS for the threefirst quarters of 2010 and nine months ended September 30, 2009 while 226 and 128 were excluded for the three and nine months ended September 30, 2008, respectively.2009.

The following table sets forth the computations of basic and diluted earnings per share:

8.9. Commitments and Contingencies

A lawsuit has been filed against the Company in California alleging violations of state laws regarding employee record-keeping, meal and rest breaks, payment of overtime and related practices with respect to its employees. The case originally sought damages, penalties and attorney’s fees on behalf of a purported class of the Company’s present and former employees. The court denied the plaintiff’s motion to certify the purported class, and as a result the action can proceed, if at all, as an action by a single plaintiff. The plaintiff has appealed the court’s denial of class certification, and the appeal remains pending. Although the Company has various defenses, it is not possible at this time to reasonably estimate the outcome of or any potential liability from this case.

In the normal course of business, the Company is subject to other proceedings, lawsuits and claims. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, the Company is unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters as of September 30, 2009.March 31, 2010. These matters could affect the operating results of any one quarter when resolved in future periods. Management does not believe that any monetary liability or financial impact to the Company as a result of these proceedings or claims will be material to the Company’s annual consolidated financial statements. However, a significant increase in the number of these claims, or one or more successful claims resulting in greater liabilities than the Company currently anticipates, could materially and adversely affect the Company’s business, financial condition, results of operation or cash flows.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this report, including our estimates of the number of restaurants we intend to open and expected new restaurant return on investment,as well as projections regarding the costs and operating expenses of certain new restaurants, potential changes in comparable restaurant sales expectations regarding operating costs as a percentageduring 2010 and the timing and amount of revenuemarketing and profit margins, and forecasts of future effective tax rates,promotional spending in 2010, are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. We use words such as “anticipate”, “believe”, “could”, “should”, “estimate”, “expect”, “intend”, “may”, “predict”, “project”, “target”, and similar terms and phrases, including references to assumptions, to identify forward-looking statements. These forward-looking statements are based on information available to us as of the date any such statements are made, and we assume no obligation to update these forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the statements. These risks and uncertainties include, but are not limited to, the risk factors described in our annual report on Form 10-K for the year ended December 31, 2008, as updated in Part II, Item 1.A.2009.

Overview

Chipotle operates fresh Mexican food restaurants serving burritos, tacos, burrito bowls (a burrito without the tortilla) and salads. We began with a simple philosophy: demonstrate that food served fast doesn’t have to be a traditional “fast-food” experience. Over the years, that vision has evolved. Today, our vision is to change the way the world thinks about and eats fast food. We do this by avoiding a formulaic approach when creating our restaurant experience, looking to fine-dining restaurants for inspiration. We use high-quality raw ingredients, classic cooking methods and a distinctive interior design, and have friendly people to take care of each customer—features that are more frequently found in the world of fine dining. Our approach is also guided by our belief in an idea we call “Food With Integrity”. Our objective is to find the highest quality ingredients we can—ingredients that are grown or raised with respect for the environment, animals and people who grow or raise the food.

20092010 Highlights

Restaurant Development.Development. As of September 30, 2009,March 31, 2010, we had 911976 restaurants in 3435 states throughout the United States, the District of Columbia and Ontario, Canada. New restaurants have contributed substantially to our restaurant salesrevenue growth. We opened 26 and 76 company-operated20 restaurants during the three and nine months ended September 30, 2009.March 31, 2010. We expect to open between 120 and 130 restaurants in 2009.

Sales Growth.Average restaurant sales were $1.736 million as of September 30, 2009. We define average restaurant sales as the average trailing 12-month sales for restaurants2010, including one in operation for at least 12 full calendar months. Our comparable restaurant sales increase for the first nine months of 2009 was 2.2% driven primarily by menu price increases, partially offset by a decrease in customer visits and our average check not increasing by the full amount of the menu price increases. We believe the decrease in customer visits and impact on our average check resulted primarily from the adverse macroeconomic environment as well as potentially some customer reaction to our menu price increases late last year. We generally increase our prices to be at or slightly below direct competitor pricing for comparable items. Comparable restaurant sales represent the change in period-over-period sales for restaurants beginning in their 13th full month of operation. We expect our 2009 full year comparable restaurant sales increases to be in the low single digits driven primarily by menu price increases implemented in the fourth quarter of 2008, partially or fully offset by a decrease in customer visits.

Food With Integrity.In addition to continuing to serve naturally raised pork in all our restaurants, we now serve naturally raised chicken in all of our restaurants and naturally raised beef in about 60%. However, current economic conditions have led to periodic natural chicken supply shortages. As a result, we have on occasion temporarily suspended serving naturally raised chicken in certain limited restaurants for short periods of time. We define naturally raised as coming from animals that are fed a pure vegetarian diet, never given antibiotics or hormones, and raised humanely in open pastures or deeply bedded pens-which is more stringent than the USDA’s standard for naturally raised marketing claims. In 2009, 35% of all the beans we buy are organically grown, up from 30% in 2008. In 2009 we expect to purchase at least 35% of at least one produce item while in season for each of our markets from local farmers. Currently, approximately 30% of the milk used in our cheese comes from cows raised in pastures and 100% of the cheese and sour cream is made from milk that comes from cows that are not given rBGH.

Marketing. We continue to review our entire marketing strategy and messaging approach to make it more effective. One component of that effort is to develop our advertising so that it more effectively communicates how Chipotle is different than other restaurant concepts, and so that it resonates more with our customers. In addition, we are continuing to test an expanded menu in the Denver market that is designed to broaden the appeal of our restaurants to families and to customers who are unfamiliar with Chipotle or are seeking lower-priced eating options but still value high-quality ingredients and great taste. Based on the results thus far, we’ve expanded the test of the kid’s meal portion of the expanded menu to a total of 7 markets.

Stock Repurchase.During the third quarter of 2009, we completed the repurchase of 1.823 million shares of Class B common stock at a total cost of $100.2 million.

Cash and Securities.As of September 30, 2009, we had cash and securities of $238.4 million. Given the recent financial turmoil, we have focused on capital preservation and our cash equivalent holdings consist of highly-rated money market funds or FDIC insured accounts.

2010 Outlook.We expect to open between 120 and 130 restaurants in 2010.London. Up to 25% of these openings will be what we are calling “A Model” restaurants. These sitesrestaurants will be constructedlocated in well established markets with high levels of brand awareness. A Model locations will be built primarily in secondary trade areas which have attractive demographics but are typically characterized by lower occupancy costs. We expect that A Model locations will be constructed for substantially lower investment costs and have lower operating expenses than our recent traditional restaurant openings. We expect that A Model locations will generate approximately the same or higher levels of return on investment than our recent traditional restaurant openings. While the economic environment has put pressure on the commercial real estate market and developers, reducing the number of new real estate developments available to us, which have historically accounted for a majority of our new restaurants, we expect that A Model allowslocations will allow us to pursue additional opportunities and continue to open 120-130 restaurants next year.in 2010.

Sales Growth. Average restaurant sales were $1.736 million as of March 31, 2010. We define average restaurant sales as the average trailing 12-month sales for restaurants in operation for at least 12 full calendar months. Our comparable restaurant sales increase for the first quarter of 2010 was 4.3% driven primarily by an increase in customer visits. Comparable restaurant sales represent the change in period-over-period sales for restaurants beginning in their 13^th full month of operation. We expect our 2010 full year comparable restaurant sales are expectedincreases to be flat.in the mid single digits.

Food With Integrity.We face challenges associated with pursuing Food With Integrity, including the availability of naturally raised meats. We define naturally raised as coming from animals that are fed a pure vegetarian diet, never given antibiotics or hormones, and raised humanely in open pastures or deeply bedded pens-which is more stringent than the USDA’s standard for naturally raised marketing claims. We continue to serve naturally raised pork in all our restaurants, and we serve naturally raised beef in about 60% of our restaurants. We expect this percentage to increase as we begin serving 100% naturally raised barbacoa in May. During the first quarter we served naturally raised chicken in all of our restaurants, although we had to temporarily suspend serving naturally raised chicken in a limited number of restaurants for a short period of time. As a result of thisongoing supply challenges we expect to serve naturally raised chicken in about 80% of our restaurants until additional supply of chicken that meets our naturally raised protocols becomes available. In 2010, 40% of all the beans we buy are organically grown, up from 35% in 2009. Currently, 45% of the cheese used in our restaurants is made using milk from cows that are given access to pasture, as opposed to being kept in confinement like most dairy cows. Additionally, more than 50% of cilantro used in our restaurants is organically grown.

Stock Repurchase. In November 2009, we announced that our Board of Directors approved the expenditure of up to $100 million to repurchase shares of our common stock. We have entered into an agreement with a broker under SEC rule 10b5-1(c), authorizing the broker to make open market purchases of common stock from time to time, subject to market conditions. The repurchase agreement and normal inflationary pressures, we anticipate our restaurant operating costs as a percentagethe Board’s authorization of revenue to increase inthe repurchase program may be modified, suspended, or discontinued at any time. We purchased stock with an aggregate total repurchase price of $15.7 million under the authorized program during the three months ended March 31, 2010. Lastly, we estimate our 2010 annual effective tax rate will be 38.5%.

Restaurant ActivityCount

The following table details restaurant unit data for the periods indicated.

Results of Operations

Our results of operations as a percentage of revenue and period-over-period variances are discussed in the following section. As our business grows, as we open more restaurants and hire more employees, our aggregate restaurant operating costs increase.

Restaurant SalesRevenue

The significant factors contributing to our increase in salesrevenue for the three and nine months ended September 30, 2009first quarter of 2010 were restaurant openings and comparable restaurant sales performance. Restaurant sales for the three and nine months ended September 30, 2009increases. Revenue for restaurants not in the comparable restaurant base contributed to $38.0 million and $123.7$40.4 million of the increase, in sales, respectively, of which $21.1 million and $40.9$4.0 million was attributable to restaurants opened in 2009.2010. Comparable restaurant sales increases contributed to $8.9$14.8 million of the increase in restaurant sales for the third quarter of 2009, and $20.0 million of the increaserevenue in restaurant sales for the first nine months of 2009. Comparable restaurant sales growth was due2010, primarily to menu pricedriven by increases partially offset by a decrease in customer visits and our average check not increasing by the full amount of the menu price increases.visits.

Food Beverage and Packaging Costs

Food, beverage and packaging costs decreased as a percentage of revenue in the three months ended September 30, 2009first quarter of 2010 primarily due to the impact of menu price increases and decreased ingredientfavorable food costs, primarily cheese,rice, avocados and steak.

Food, beverage and packaging costs decreased as a percentage of revenue in the nine months ended September 30, 2009 due primarily to the impact of menu price increases.cheese.

Labor Costs

Labor costs as a percentage of revenue decreased in the three and nine months ended September 30, 2009primarily due to the impact of menu price increasesefficiencies in crew and management labor, efficiencies, partially offset by lower transaction volumes and increased average wage rates.

Occupancy Costs

Occupancy costs increasedremained flat as a percentage of revenue in the three and nine months ended September 30, 2009 primarily due to higher rents for new locations as we open proportionately moreoffset by the impact of higher average restaurant sales for comparable restaurants in more expensive urban areas.on a partially fixed-cost base.

Other Operating Costs

Other operating costs decreased as a percentage of revenue due primarily to decreased promotional spend, decreased insurance costs and continued cost containment efforts of other operating expenses in the three and nine months ended September 30, 2009 primarily due to menu price increases and decreasedfirst quarter of 2010. We expect the marketing and promotional spend.promotion spend as a percentage of revenue to increase significantly for the full year 2010 compared to 2009, with the highest spend in the second and third quarters.

General and Administrative Expenses

The increase in general and administrative expenses in 2009 primarily resulted from an increase in performance related bonus accruals, an increase in stock-based compensation, expense, wage inflationincreased travel expenses and hiring more employees as we grew, partially offset by careful management of expenses, primarily travel costs, and an all manager conference held during the third quarter of 2008.

increased performance-related bonus accruals. As a percentage of total revenue, the decrease in general and administrative expenses wasdecreased primarily due primarily to the impact of menu price increases.higher average restaurant sales for comparable restaurants on a partially fixed-cost base, partially offset by increased stock-based compensation.

Depreciation and Amortization

Depreciation and amortization increased primarily due to restaurants opened in 20092010 and 2008.2009. As a percentage of total revenue, depreciation and amortization increased in the nine months ended September 30, 2009decreased as a result of newthe impact of higher average restaurant openings increasing the average per store depreciablesales for comparable restaurants on a partially fixed-cost base.

Pre-opening Costs

For the three months ended September 30, 2009, the decrease in pre-opening costs resulted primarily from a decrease in the number of restaurants under construction in the third quarter of 2009, partially offset by an increase in rent expense recognized during the construction period due to higher rents for more expensive locations and an increase in the number of restaurants opened.

For the nine months ended September 30, 2009, theThe decrease in pre-opening costs is a result of improved management of cash preopening costs and a decrease in the number of restaurants opened and under construction in 2009, partially offset by an increase in rent expense recognized during the construction period due to higher rents for more expensive locations.period.

Loss on Disposal of Assets

The decrease in loss on disposal of assets for the three and nine months ended September 30, 2009 wasdecreased as a percentage of revenue primarily due to morea decrease in the number of remodels during 2008.and asset retirements in the first quarter of 2010. The decrease in asset retirements is a result of comprehensive maintenance and repair programs instituted over the last couple of years and continued assessment of, and in some cases adjustments to, our estimated useful lives.

Interest and Other Income

InterestIn the first three months of 2010 interest and other income decreasedincreased primarily due to lower yields on our investmentshigher average cash equivalent and short term investment balances compared to the same periodsperiod in 2008.2009.

Provision for Income Taxes

The 2009 annual effective tax rate is estimated to be 38.1% and includes a 0.5% benefit for one-time adjustments forremained consistent with the prior period meals and entertainment deductions and 2008 federal tax return adjustments. The 2009 annual rate decreased from the second quarter estimate as a result of an increase in projected tax credits. The third quarter rate is impacted by the year-to-date adjustment of the annual tax rate and the 2008 federal tax return adjustments.year.

Seasonality

Seasonal factors cause our profitability to fluctuate from quarter to quarter. Historically, our average daily restaurant sales and operating marginsnet 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. The number of trading days can also affect our results. Overall, on an annual basis, changes in trading days do not have a significant impact on our results. We expect the profit margins achieved this quarter will decrease for the fourth quarter of the year in conjunction with sales seasonality.

Our quarterly results are also affected by other factors such as the number of new restaurants opened in a quarter, timing of marketing and promotional spend and both planned and unanticipated events. New restaurants typically have lower margins following opening as a result of the expenses associated with opening new restaurants and their operating inefficiencies in the months immediately following opening. In addition, unanticipated events also impact our results. 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

Our primary liquidity and capital requirements are for new restaurant construction, working capital and general corporate needs. We have a cash and short-term investment balance of $238.4$298.0 million that we expect to utilize, along with cash flow from operations, to provide capital to support the growth of our business (primarily through opening restaurants), to repurchase up to an additional $70.2 million of our common stock subject to market conditions, to continue to maintain our existing restaurants and for general corporate purposes. We believe that cash from operations, together with our cash balance, will be enough to meet ongoing capital expenditures, working capital requirements and other cash needs over at least the next 24 months.

We haven’t required significant working capital because customers pay using cash or credit cards and because our operations do not require significant receivables, nor do they require significant inventories due, in part, to our use of various fresh ingredients. In addition, we generally have the right to pay for the purchase of food, beverage and supplies some time after the receipt of those items, generally within ten days, thereby reducing the need for incremental working capital to support growth.

In February 2009, we entered intoWe have an unsecured revolving credit facility with Bank of America, N.A. with an initial principal amount of $25 million and an additional $25 million accordion feature. Borrowings under the credit facility will bear interest at a rate set, at our option, at either (i) a rate equal to an adjusted LIBOR rate plus a margin ranging from 0.75% to 2.0% depending on a lease-adjusted leverage ratio, or (ii) a daily rate equal to (a) the highest of the federal funds rate plus 0.5%, the bank’s published prime rate, or one-month LIBOR plus 1.0%, plus (b) a margin ranging from 0.0% to 1.0% depending on a lease-adjusted leverage ratio. The facility includes a commitment fee on the unused balance ranging from 0.25% to 0.5%, based on the lease-adjusted leverage ratio. Availability of borrowings under the facility is conditioned on our compliance with specified covenants including a maximum lease-adjusted leverage ratio and a minimum fixed charge coverage ratio. The facility expires in February 2014, but can be terminated or decreased at our option prior to expiration. We intend to use the credit facility, if at all, for letters of credit issued in the normal course of business and normal short-term working capital needs. As of September 30, 2009,March 31, 2010, there were no loans outstanding and available borrowings were $19,700.$19.7 million.

Off-Balance Sheet Arrangements

As of September 30, 2009March 31, 2010 and December 31, 2008,2009, we had no off-balance sheet arrangements or obligations.

Critical Accounting Estimates

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 conditions. We had no significant changes in our critical accounting estimates since our last annual report. Our critical accounting estimates are containedidentified and described in our annual report on Form 10-K for the year ended December 31, 2008.2009.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Changing Interest Rates

We’re exposed to interest rate risk through the investment of our cash, cash equivalents and available-for-sale securities. Changes in interest rates affect the interest income we earn, and therefore impact our cash flows and results of operations. As of September 30, 2009,March 31, 2010, we had $167.8$105.0 million deposited in short-term investmentsavailable-for-sale securities and $65.5$184.3 million in FDIC insured accounts with an earnings credit we classify as interest income, which combined earnbear a weighted averageweighted-average interest rate of 0.33% (approximately 0.46% tax equivalent)0.6%.

Commodity Price Risks

We are also exposed to commodity price risks. Many of the ingredients we use to prepare our food, as well as our packaging materials, are commodities or ingredients that are affected by the price of other commodities, exchange rates, foreign demand, weather, seasonality, production, availability and other factors outside our control. We work closely with our suppliers and use a mix of forward pricing protocols under which we agree with our supplier on fixed prices for deliveries at some time in the future, fixed pricing protocols under which we agree on a fixed price with our supplier for the duration of that protocol, and formula pricing protocols under which the prices we pay are based on a specified formula related to the prices of the goods, such as spot prices. However, a portion of the dollar value of goods purchased by us areis effectively at spot prices. Generally our pricing protocols with suppliers can remain in effect for periods ranging from one to 18 months, depending on the outlook for prices of the particular ingredient. In several cases, we have minimum purchase obligations. We’ve tried to increase, where necessary, the number of suppliers for our ingredients, which we believe can help mitigate pricing volatility, and we follow industry news, trade issues, exchange rates, foreign demand, weather, crises and other world events that may affect supplyour ingredient prices. Increases in ingredient prices could adversely affect our results if we choose not to increase menu prices at the same pace for competitive or other reasons.

Counterparty Risks

Some of our suppliers and other vendors have been adversely impacted by tightening of the credit markets, fluctuations in commodity prices and other consequences of the economic downturn. Some vendors have sought to change the terms on which they do business with us in order to lessen the impact of the economic downturn on their business. If we are forced to find alternative vendors for key services, whether due to demands from the vendor or the vendor’s bankruptcy or ceasing operations, that could be a distraction to us and adversely impact our business. Changing vendors could also result in our inability to obtain business terms as favorable to us as the terms on which we currently operate. In addition, our restaurant expansion strategy relies in part on the development of new retail centers and similar projects, and if developers do not proceed with projects in which we plan to locate restaurants, our expansion plans may be hampered.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of September 30, 2009,March 31, 2010, we carried out an evaluation, under the supervision and with the participation of our management, including our Co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Co-Chief Executive Officers and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There were no changes during the three months ended September 30, 2009March 31, 2010 in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

A lawsuit has been filed against us in California alleging violations of state laws regarding employee record-keeping, meal and rest breaks, payment of overtime and related practices with respect to our employees. The case originally sought damages, penalties and attorney’s fees on behalf of a purported class of our present and former employees. The court denied the plaintiff’s motion to certify the purported class, and as a result the action can proceed, if at all, as an action by a single plaintiff. The plaintiff has appealed the court’s denial of class certification, and the appeal remains pending. Although we have various defenses, it is not possible at this time to reasonably estimate the outcome of or any potential liability from this case.case

We’re involved in various claims and legal actions that arise in the ordinary course of business. We do not believe that the ultimate resolution of these actions will have a material adverse effect on our financial position, results of operations, liquidity or capital resources. However, a significant increase in the number of these claims, or one or more successful claims under which we incur greater liabilities than we currently anticipate could materially and adversely affect our business, financial condition, results of operation and cash flows.

ITEM 1A. RISK FACTORS

The following updates toThere have been no material changes in our risk factors should be read in conjunction with the risk factors included insince our annual report on Form 10-K for the year ended December 31, 2008.2009.

We plan to broaden our real estate strategy during 2010, which may result in lower new restaurant sales volumes and potentially lower operating margins.

In 2010 we plan to broaden the site selection criteria we use to determine new restaurant locations, allowing us to open restaurants outside of the trade areas that we have typically sought while still achieving our targeted economic returns. These trade areas may have lower population densities or local traffic or less favorable demographic profiles than the trade areas we have typically sought out for new locations. We expect that as many as 25% of our new restaurant openings will be in these types of locations in 2010. This could adversely impact our operating margins notwithstanding the lower development, occupancy and operational costs we expect for these locations. In addition, because we have less experience opening restaurants in these types of trade areas there can be no assurance that restaurants opened in these locations will generate the sales volumes we expect, and failure to reach those sales volumes would adversely impact our profitability.

Changes in food and supply costs could adversely affect our results of operations.

Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs. Like all restaurant companies, we are susceptible to increases in food costs as a result of factors beyond our control, such as general economic conditions, seasonal fluctuations, weather conditions, demand, food safety concerns, generalized infectious diseases, fluctuations of the U.S. dollar, product recalls and government regulations. The cost of many basic foods for humans and animals, including corn, wheat, rice and oil increased during 2008, which resulted in upward pricing pressures on almost all of our raw ingredients including chicken, beef, tortillas and rice, increasing our food costs. Although some food prices eased near the end of 2008 and the first nine months of 2009, we expect that there may be pricing pressures on some of our key ingredients for the remainder of 2009. We expect our food costs as a percentage of revenue for the remainder of 2009 to remain consistent with the first half of the year, subject to any unforeseen significant commodity price changes. However, any increase in the prices of the ingredients most critical to our menu, such as beef, chicken, cheese, avocados, beans, rice, tomatoes and pork, could adversely affect our operating results. Alternatively, in the event of cost increases with respect to one or more of our raw ingredients, we may choose to suspend serving menu items, such as guacamole, rather than paying the increased cost for the ingredients. Any such changes to our available menu may negatively impact our restaurant traffic and comparable restaurant sales.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer

The table below reflects shares of class B common stock we repurchased during the thirdfirst quarter of 2009.

		Total Number of Shares Purchased(1)		Average Price Paid Per Share			Cumulative Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2)
July		153,540		$	73.92		1,809,370		$	1,128,589
Purchased 7/1 through 7/31
August		13,674		$	82.53		1,823,044		$	—
Purchased 8/3 through 8/4

ITEM3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

On October 26, 2009, Steve Ells,April 23, 2010, Jack Hartung, our Chairman and Co-Chief ExecutiveChief Financial Officer, adopted a sales plan designed to comply with Rule 10b5-1(c)10b5-1 under the Exchange Act, and on October 27, 2009, Jack Hartung, our Chief Financial Officer, also adopted sales plans designed to comply with Rule 10b5-1(c) .Act. The sales plans,plan, which wereMr. Hartung adopted in compliance with restrictions imposed by our Insider Trading Policy, areis intended to facilitate the diversification of Mr. Ells’s and Mr. Hartung’s personal assets.

Mr. Ells’s The plan provides for the salesales of up to 100,000 shares of class B common stock owned by Mr. Hartung, subject to specified minimum market pricesprices. Total sales on Mr. Hartung’s behalf under the datesales plan are limited to an aggregate of each sale. Mr. Ells beneficially owns 55,100 shares10,000 shares. In the event all of class A common stock and 403,250 shares of class B common stock (including the shares subject to the sales plan), and has additionalplan are sold, Mr. Hartung would continue to beneficially own 35,941 shares of our common stock, including 25,000 shares underlying vested stock options but excluding 137,300 shares underlying unvested stock option,options and stock appreciation rightrights and 15,000 unvested performance share awards totaling 362,100 shares of class A common stock.shares.

Mr. Hartung’s plans provide for the exercise of up to 18,000 vested options to purchase shares of class A common stock and sale of the underlying shares, as well as for the sale of up to 10,000 additional shares of class A common stock, in each case subject to minimum market prices on the date of each sale. Mr. Hartung beneficially owns 53,712 shares of class A common stock (including the shares and shares underlying the options subject to the sales plans) and 229 shares of class B common stock, and has additional unvested stock option, stock appreciation right and performance share awards totaling 145,300 shares of class A common stock.

ITEM 6. EXHIBITS

The exhibits listed in the exhibit index following the signature page are furnished as part of this report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: October 27, 2009April 23, 2010

Exhibit Index

18