Annual Statements Open main menu

CHIPOTLE MEXICAN GRILL INC - Quarter Report: 2019 June (Form 10-Q)

cmg-20190630x10q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________

FORM 10-Q

______________________________

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

For the quarterly period ended June 30, 2019

or

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

For the transition period from             to

Commission File Number: 1-32731

______________________________

CHIPOTLE MEXICAN GRILL INC

(Exact name of registrant as specified in its charter)

______________________________

 

Delaware

84-1219301

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

610 Newport Center Drive, Suite 1300 Newport Beach, CA

92660

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (303595-4000

______________________________

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

CMG

New York Stock Exchange

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

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

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

 

 

Large accelerated filer

x

Accelerated filer

¨

Non-accelerated filer

¨ 

Smaller reporting company

¨

Emerging growth company

¨

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

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

As of July 19, 2019, there were 27,722,812 shares of the registrant’s common stock, par value of $0.01 per share outstanding.

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I

Item 1.

Financial Statements

1

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

19

Item 4.

Controls and Procedures

20

PART II

Item 1.

Legal Proceedings

20

Item 1A.

Risk Factors

20

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

20

Item 3.

Defaults Upon Senior Securities

20

Item 4.

Mine Safety Disclosures

20

Item 5.

Other Information

21

Item 6.

Exhibits

22

 

Signatures

23


Table of Contents

PART I

ITEM 1.  FINANCIAL STATEMENTS

Chipotle Mexican Grill, Inc.

Condensed Consolidated Balance Sheet

(in thousands, except per share data)

June 30,

December 31,

2019

2018

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$

299,913

$

249,953

Accounts receivable, net of allowance for doubtful accounts of $81 and $0 as of June 30, 2019 and December 31, 2018, respectively

49,362

62,312

Inventory

21,144

21,555

Prepaid expenses and other current assets

44,116

54,129

Investments

417,867

426,845

Total current assets

832,402

814,794

Leasehold improvements, property and equipment, net

1,387,896

1,379,254

Restricted cash

28,543

30,199

Operating lease assets

2,370,710

-

Other assets

17,817

19,332

Goodwill

21,939

21,939

Total assets

$

4,659,307

$

2,265,518

Liabilities and shareholders' equity

Current liabilities:

Accounts payable

$

99,007

$

113,071

Accrued payroll and benefits

98,800

113,467

Accrued liabilities

126,879

147,849

Unearned revenue

61,794

70,474

Current operating lease liabilities

161,253

-

Income tax payable

535

5,129

Total current liabilities

548,268

449,990

Commitments and contingencies (Note 11)

 

 

Deferred rent

-

330,985

Long-term operating lease liabilities

2,534,769

-

Deferred income tax liabilities

4,407

11,566

Other liabilities

33,814

31,638

Total liabilities

3,121,258

824,179

Shareholders' equity:

Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of June 30, 2019 and December 31, 2018, respectively

-

-

Common stock, $0.01 par value, 230,000 shares authorized, 36,193 and 35,973 shares issued as of June 30, 2019 and December 31, 2018, respectively

362

360

Additional paid-in capital

1,414,420

1,374,154

Treasury stock, at cost, 8,469 and 8,276 common shares at June 30, 2019 and December 31, 2018, respectively

(2,621,922)

(2,500,556)

Accumulated other comprehensive loss

(5,261)

(6,236)

Retained earnings

2,750,450

2,573,617

Total shareholders' equity

1,538,049

1,441,339

Total liabilities and shareholders' equity

$

4,659,307

$

2,265,518

See accompanying notes to condensed consolidated financial statements.

 

1


Table of Contents

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Income

(unaudited)

(in thousands, except per share data)

Three months ended

Six months ended

June 30,

June 30,

2019

2018

2019

2018

Revenue

$

1,434,231

$

1,266,520

$

2,742,448

$

2,414,917

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

Food, beverage and packaging

483,284

413,096

904,651

785,011

Labor

368,053

341,842

716,895

660,705

Occupancy

89,923

86,772

178,693

172,028

Other operating costs

193,309

175,171

368,052

323,240

General and administrative expenses

121,395

85,153

224,066

162,216

Depreciation and amortization

51,642

49,193

105,423

96,108

Pre-opening costs

2,118

2,014

3,058

4,663

Impairment, closure costs, and asset disposals

4,487

45,322

11,429

50,181

Total operating expenses

1,314,211

1,198,563

2,512,267

2,254,152

Income from operations

120,020

67,957

230,181

160,765

Interest and other income, net

3,947

2,323

7,076

3,717

Income before income taxes

123,967

70,280

237,257

164,482

Provision for income taxes

(32,939)

(23,396)

(58,097)

(58,152)

Net income

$

91,028

$

46,884

$

179,160

$

106,330

Earnings per share:

Basic

$

3.28

$

1.69

$

6.47

$

3.82

Diluted

$

3.22

$

1.68

$

6.35

$

3.81

Weighted-average common shares outstanding:

Basic

27,720

27,819

27,708

27,865

Diluted

28,300

27,935

28,209

27,942

 

Condensed Consolidated Statement of Comprehensive Income

(unaudited)

(in thousands)

Three months ended

Six months ended

June 30,

June 30,

2019

2018

2019

2018

Net income

$

91,028

$

46,884

$

179,160

$

106,330

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

Foreign currency translation adjustments

555

(1,580)

833

(1,448)

Unrealized gain (loss) on available-for-sale securities, net of tax

42

82

142

(19)

Other comprehensive income (loss), net of income taxes

597

(1,498)

975

(1,467)

Comprehensive income

$

91,625

$

45,386

$

180,135

$

104,863

See accompanying notes to condensed consolidated financial statements.

2


Table of Contents

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Shareholders’ Equity

(unaudited)

(in thousands)

Common Stock

Treasury Stock

Accumulated Other Comprehensive Income (Loss)

Shares

Amount

Additional
Paid-In
Capital

Shares

Amount

Retained
Earnings

Available-for-Sale Securities

Foreign Currency Translation

Total

Balance, December 31, 2017

35,852 

$

359 

$

1,305,090 

7,826 

$

(2,334,409)

$

2,397,064 

$

(306)

$

(3,353)

$

1,364,445 

Stock-based compensation

-

-

12,376 

-

-

-

-

-

12,376 

Stock plan transactions and other

31 

-

(228)

-

-

-

-

-

(228)

Acquisition of treasury stock

-

-

-

231 

(72,025)

-

-

-

(72,025)

Net income

-

-

-

-

-

59,446 

-

-

59,446 

Other comprehensive income (loss), net of income tax

-

-

-

-

-

-

(101)

132 

31 

Balance, March 31, 2018

35,883 

$

359 

$

1,317,238 

8,057 

$

(2,406,434)

$

2,456,510 

$

(407)

$

(3,221)

$

1,364,045 

Stock-based compensation

-

-

11,660 

-

-

-

-

-

11,660 

Stock plan transactions and other

62 

-

(409)

-

-

-

-

-

(409)

Acquisition of treasury stock

-

-

-

76 

(28,675)

-

-

-

(28,675)

Net income

-

-

-

-

-

46,884 

-

-

46,884 

Other comprehensive income (loss), net of income tax

-

-

-

-

-

-

82 

(1,580)

(1,498)

Balance, June 30, 2018

35,945 

$

359 

$

1,328,489 

8,133 

$

(2,435,109)

$

2,503,394 

$

(325)

$

(4,801)

$

1,392,007 

Balance, December 31, 2018

35,973 

$

360 

$

1,374,154 

8,276 

$

(2,500,556)

$

2,573,617 

$

(147)

$

(6,089)

$

1,441,339 

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

-

-

-

-

-

(2,327)

-

-

(2,327)

Stock-based compensation

-

-

19,342 

-

-

-

-

-

19,342 

Stock plan transactions and other

135 

1 

(212)

-

-

-

-

-

(211)

Acquisition of treasury stock

-

-

-

110 

(62,854)

-

-

-

(62,854)

Net income

-

-

-

-

-

88,132 

-

-

88,132 

Other comprehensive income, net of income tax

-

-

-

-

-

-

100 

278 

378 

Balance, March 31, 2019

36,108 

$

361 

$

1,393,284 

8,386 

$

(2,563,410)

$

2,659,422 

$

(47)

$

(5,811)

$

1,483,799 

Stock-based compensation

-

-

21,322 

-

-

-

-

-

21,322 

Stock plan transactions and other

85 

1 

(186)

-

-

-

-

-

(185)

Acquisition of treasury stock

-

-

-

83 

(58,512)

-

-

-

(58,512)

Net income

-

-

-

-

-

91,028 

-

-

91,028 

Other comprehensive income, net of income tax

-

-

-

-

-

-

42 

555 

597 

Balance, June 30, 2019

36,193 

$

362 

$

1,414,420 

8,469 

$

(2,621,922)

$

2,750,450 

$

(5)

$

(5,256)

$

1,538,049 

See accompanying notes to condensed consolidated financial statements.

3


Table of Contents

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Cash Flows

(unaudited)

(in thousands)

Six months ended

June 30,

2019

2018

Operating activities

Net income

$

179,160

$

106,330

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

Depreciation and amortization

105,423

96,108

Amortization of operating lease assets

77,438

-

Deferred income tax (benefit) provision

(6,349)

16,948

Impairment, closure costs, and asset disposals

4,944

50,181

Bad debt allowance

85

106

Stock-based compensation expense

40,321

23,645

Other

(2,588)

(1,228)

Changes in operating assets and liabilities:

Accounts receivable

18,275

16,621

Inventory

421

(1,007)

Prepaid expenses and other current assets

(13,617)

(19,490)

Other assets

2,907

3,776

Accounts payable

(10,319)

14,451

Accrued payroll and benefits

(16,526)

15,400

Accrued liabilities

7,659

7,100

Unearned revenue

(8,681)

(18,516)

Income tax payable/receivable

(4,593)

(23,003)

Deferred rent

-

11,455

Operating lease liabilities

(74,346)

-

Other long-term liabilities

901

(3,459)

Net cash provided by operating activities

300,515

295,418

Investing activities

Purchases of leasehold improvements, property and equipment

(142,002)

(128,505)

Purchases of investments

(208,253)

(208,294)

Maturities of investments

220,000

185,000

Net cash used in investing activities

(130,255)

(151,799)

Financing activities

Acquisition of treasury stock

(111,542)

(97,528)

Tax withholding on share-based compensation awards

(10,398)

(4,273)

Stock plan transactions and other financing activities

(510)

(55)

Net cash used in financing activities

(122,450)

(101,856)

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

494

(715)

Net change in cash, cash equivalents, and restricted cash

48,304

41,048

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

280,152

214,170

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

$

328,456

$

255,218

Supplemental disclosures of cash flow information

Income taxes paid

$

69,075

$

64,184

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

$

27,119

$

26,154

Acquisition of treasury stock accrued in accounts payable and accrued liabilities

$

1,900

$

635

See accompanying notes to condensed consolidated financial statements.


4


Table of Contents

Chipotle Mexican Grill, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

1. Basis of Presentation

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

We develop and operate restaurants that serve a focused menu of burritos, burrito bowls, tacos and salads, made using fresh, high-quality ingredients. As of June 30, 2019, we operated 2,482 Chipotle restaurants throughout the United States as well as 39 international Chipotle restaurants. We are also an investor in a consolidated entity that owns and operates two Pizzeria Locale restaurants, a fast-casual pizza concept. We manage our operations based on eight regions and have aggregated our operations to one reportable segment.

Certain prior year amounts have been reclassified for consistency with the current year presentation.

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of our financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by U.S. generally accepted accounting principles for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2018.

2. Recent Accounting Standards

Recently Issued Accounting Standards

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”, which clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for us in the first quarter of fiscal 2020, and early adoption is permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

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

Recently Adopted Accounting Standards

On January 1, 2019, we adopted ASU 2016-02, “Leases (Topic 842),” along with related clarifications and improvements. This pronouncement requires lessees to recognize a liability for lease obligations, which represents the discounted obligation to make future lease payments, and a corresponding right-of-use asset on the balance sheet. The guidance requires disclosure of key information about leasing arrangements that is intended to give financial statement users the ability to assess the amount, timing, and potential uncertainty of cash flows related to leases. We elected the optional transition method to apply the standard as of the effective date and therefore, we have not applied the standard to the comparative periods presented on our condensed consolidated financial statements.

Our practical expedients were as follows:

Implications as of January 1, 2019

Practical expedient package

We have not reassessed whether any expired or existing contracts are, or contain, leases.

We have not reassessed the lease classification for any expired or existing leases.

We have not reassessed initial direct costs for any expired or existing leases.

Hindsight practical expedient

We have not elected the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of operating lease assets.

5


Table of Contents

The impact on the consolidated balance sheet is as follows:

December 31, 2018

Adjustments Due to the Adoption of Topic 842

January 1, 2019

Assets

Current assets:

Cash and cash equivalents

$

249,953

$

-

$

249,953

Accounts receivable

62,312

-

62,312

Inventory

21,555

-

21,555

Prepaid expenses and other current assets

54,129

(23,653)

30,476

Investments

426,845

-

426,845

Total current assets

814,794

(23,653)

791,141

Leasehold improvements, property and equipment, net

1,379,254

(15,167)

1,364,087

Restricted cash

30,199

-

30,199

Operating lease assets

-

2,363,020

2,363,020

Other assets

19,332

-

19,332

Goodwill

21,939

-

21,939

Total assets

$

2,265,518

$

2,324,200

$

4,589,718

Liabilities and shareholders' equity

Current liabilities:

Accounts payable

$

113,071

$

-

$

113,071

Accrued payroll and benefits

113,467

-

113,467

Accrued liabilities

147,849

(23,860)

123,989

Unearned revenue

70,474

-

70,474

Income tax payable

5,129

-

5,129

Total current liabilities

449,990

(23,860)

426,130

Commitments and contingencies

Deferred rent

330,985

(330,985)

-

Current and long-term operating lease liabilities

-

2,682,203

2,682,203

Deferred income tax liabilities

11,566

(831)

10,735

Other liabilities

31,638

-

31,638

Total liabilities

824,179

2,326,527

3,150,706

Shareholders' equity:

Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of December 31, 2018 and 2017, respectively

-

-

-

Common stock, $0.01 par value, 230,000 shares authorized, 35,973 and 35,852 shares issued as of December 31, 2018 and 2017, respectively

360

-

360

Additional paid-in capital

1,374,154

-

1,374,154

Treasury stock, at cost, 8,276 and 7,826 common shares at December 31, 2018 and 2017, respectively

(2,500,556)

-

(2,500,556)

Accumulated other comprehensive loss

(6,236)

-

(6,236)

Retained earnings

2,573,617

(2,327)

2,571,290

Total shareholders' equity

1,441,339

(2,327)

1,439,012

Total liabilities and shareholders' equity

$

2,265,518

$

2,324,200

$

4,589,718

6


Table of Contents

3. Revenue Recognition

We recognize revenue, net of discounts and incentives, when payment is tendered at the point of sale. We report revenue net of sales-related taxes collected from customers and remitted to government taxing authorities.

We sell gift cards which do not have expiration dates and we do not deduct non-usage fees from outstanding gift card balances. We recognize revenue from gift cards when: (i) the gift card is redeemed by the customer; or (ii) we determine the likelihood of the gift card being redeemed by the customer is remote (gift card breakage) and there is not a legal obligation to remit the unredeemed gift cards to the relevant jurisdiction. Gift card breakage is recognized in revenue as the gift cards are used on a pro rata basis over an eight-month period beginning at the date of the gift card sale and is included in revenue on the condensed consolidated statement of income. We have determined that 4% of gift card sales will not be redeemed and will be retained by us. Gift card liability balances are typically highest at the end of each calendar year following increased gift card sales during the holiday season; accordingly, revenue recognized from gift card liability balances is highest in the first quarter of each calendar year. The gift card liability included in unearned revenue on the condensed consolidated balance sheet is $53,217 and $70,474 as of June 30, 2019 and December 31, 2018, respectively. Revenue recognized on the condensed consolidated statement of income for the redemption of gift cards that were included in accrued liabilities at the beginning of the year is as follows:

Three months ended

Six months ended

June 30,

June 30,

2019

2018

2019

2018

Revenue recognized from gift card liability balance at the beginning of the year

$

6,615

$

6,289

$

31,318

$

30,529

During the first quarter of 2019 we launched a national loyalty program called Chipotle Rewards. Eligible customers who enroll in the program generally earn points for every dollar spent. After accumulating a certain number of points, the customer earns a reward that can be redeemed for a free entrée. We may also periodically offer promotions, which provide the customer with the opportunity to earn bonus points or free food vouchers (“Bonus Vouchers”). Earned rewards generally expire one to two months after they are issued, and points generally expire if an account is inactive for a period of six months.

We defer revenue associated with the estimated selling price of points or Bonus Vouchers earned by program members as each point or Bonus Voucher is earned, net of points we do not expect to be redeemed. The estimated selling price of each point or Bonus Voucher earned is based on the estimated value of product for which the reward is expected to be redeemed. Our estimate of points and Bonus Vouchers we expect to be redeemed is based on historical company specific data.

We recognize loyalty revenue when a customer redeems an earned reward. Deferred revenue associated with Chipotle Rewards is included in unearned revenue on our condensed consolidated balance sheet. The Chipotle Rewards loyalty liability included in unearned revenue on the condensed consolidated balance sheet is $8,577 and $0 as of June 30, 2019 and December 31, 2018, respectively.

Revenue recognized on the condensed consolidated statement of income for the three and six months ended June 30, 2019, was $8,873 and $11,150, respectively. No revenue was recognized for the three and six months ended June 30, 2018 related to the Chipotle Rewards program because the program launched in 2019.

4. Fair Value of Financial Instruments

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

Our investments consist of U.S. treasury notes with maturities of up to one year. Fair value of investments is measured using Level 1 inputs (quoted prices for identical assets in active markets). We designate the appropriate classification of our investments at the time of purchase based upon the intended holding period.

Investments, all of which are classified as held-to-maturity, are carried at amortized cost and approximated fair value as of June 30, 2019. We recognize impairment charges when management believes the decline in the fair value of the investment below the carrying value is other-than-temporary. No impairment charges were recognized on our investments for the three and six months ended June 30, 2019 and 2018.

As of September 30, 2018, we transferred the classification of our investments from available-for-sale to held-to-maturity. The unrealized holding loss and offsetting discount, created as a result of this reclassification, will be amortized to interest and other income on the condensed consolidated statement of income over the remaining life of the securities and will be fully amortized by September 30, 2019.

7


Table of Contents

We also maintain a rabbi trust to fund obligations under a deferred compensation plan. Amounts in the rabbi trust are invested in mutual funds, which are designated as trading securities carried at fair value and are included in other assets on the condensed consolidated balance sheet. Fair value of mutual funds is measured using Level 1 inputs. The fair value of the investments in the rabbi trust was $12,283 and $10,872 as of June 30, 2019, and December 31, 2018, respectively. We record trading gains and losses in general and administrative expenses on the condensed consolidated statement of income, along with the offsetting amount related to the increase or decrease in deferred compensation to reflect our exposure to liabilities for payment under the deferred plan.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets recognized or disclosed at fair value on the condensed consolidated financial statements on a nonrecurring basis include items such as leasehold improvements, property and equipment, operating lease assets, goodwill, and other intangible assets. These assets are measured at fair value if determined to be impaired.

Other than as disclosed in Note 5. “Corporate Restructuring Costs” and Note 9. “Leases” as of June 30, 2019 and December 31, 2018, we had no non-financial assets or liabilities that were measured using Level 3 inputs.

5. Corporate Restructuring Costs

In May 2018, we announced that we would open a headquarters office in Newport Beach, California, consolidate certain corporate administrative functions into our existing office in Columbus, Ohio, and close our existing headquarters offices in Denver, Colorado, as well as additional corporate offices in New York, New York. All affected employees were either offered an opportunity to continue in the new organization or were offered a severance package. We record severance as a one-time termination benefit and recognize the expense ratably over the employees’ required future service period. We evaluate our operating lease assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the operating lease asset (or asset group that includes the operating lease asset, referred to interchangeably throughout as an “operating lease asset”) may not be recoverable. We first compare the carrying value of the operating lease asset to the operating lease asset’s estimated future undiscounted cash flows. If the estimated undiscounted future cash flows are less than the carrying value of the operating lease assets, we determine if we have an impairment loss by comparing the carrying value of the operating lease asset to the operating lease asset's estimated fair value. The estimated fair value of the operating lease assets is generally determined using a discounted cash flow projection model, using Level 3 inputs. The impairment charges represent the excess of each operating lease asset’s carrying amount over its estimated fair value. All other costs, including other employee transition costs, recruitment and relocation costs, other office closure costs, and third-party costs are recognized in the period incurred.

Corporate restructuring costs consist of the following:

Three months ended

Six months ended

June 30,

June 30,

2019

2018

2019

2018

Employee severance and other employee transition costs(1)

$

460

$

493

$

1,506

$

493

Recruitment and relocation costs(1)

2,107

207

4,200

207

Operating lease impairment and other office closure costs(2)

324

16,299

1,719

16,299

Third-party and other costs(1)

1,031

3,200

2,038

3,200

Stock-based compensation(1)

-

(6,426)

134

(6,426)

Total restructuring costs

$

3,922

$

13,773

$

9,597

$

13,773

(1) Recorded in general and administrative expenses on the condensed consolidated statement of income.

(2) Recorded in impairment, closure costs, and asset disposals on the condensed consolidated statement of income.

Changes in our corporate restructuring liability which are included in accrued liabilities on the condensed consolidated balance sheet were as follows:

December 31, 2018

Charges

Payments

June 30, 2019

Employee severance and other employee transition costs

$

2,722

$

1,506

$

(4,206)

$

22

Recruitment and relocation costs

224

4,200

(4,374)

50

Third-party and other costs

554

2,038

(2,592)

-

Total restructuring liability

$

3,500

$

7,744

$

(11,172)

$

72

 

8


Table of Contents

6. Shareholders’ Equity

Through June 30, 2019, we had announced authorizations by our Board of Directors of repurchases of shares of common stock, which in the aggregate, authorized expenditures of up to $2.6 billion. As of June 30, 2019, $46,589 was available to repurchase shares under the previously announced repurchase authorizations. On July 23, 2019, we announced that our Board of Directors authorized the expenditure of an additional $100,000 to repurchase shares of our common stock. Shares repurchased are being held in treasury stock until they are reissued or retired at the discretion of the Board of Directors.

During the six months ended June 30, 2019, 17 shares of common stock at a total cost of $10,398 were netted and surrendered as payment for minimum statutory withholding obligations in connection with the vesting of outstanding stock awards. Shares surrendered by the participants in accordance with the applicable award agreements and plan are deemed repurchased by us but are not part of publicly announced share repurchase programs.

7. Stock-Based Compensation

During the six months ended June 30, 2019, we granted stock only stock appreciation rights (“SOSARs”) on 190 shares of our common stock to eligible employees. The weighted-average grant date fair value of the SOSARs was $173.96 per share with a weighted-average exercise price of $590.60 per share. The SOSARs vest in two equal installments on the second and third anniversary of the grant date. During the six months ended June 30, 2019, 736 SOSARs were exercised, 23 SOSARs were forfeited, and 50 SOSARs expired.

During the six months ended June 30, 2019, we granted restricted stock units (“RSUs”) on 23 shares of our common stock to eligible employees. The weighted-average grant date fair value of the RSUs was $599.06 per share. The RSUs generally vest in two equal installments on the second and third anniversary of the grant date. During the six months ended June 30, 2019, 45 RSUs vested and 11 RSUs were forfeited.

During the six months ended June 30, 2019, we awarded a total of 46 performance shares (“PSUs”) that are subject to service and performance vesting conditions. The weighted-average grant date fair value of the PSUs was $583.13 per share, and the quantity of shares that will vest range from 0% to 300% of the targeted number of shares. If the defined minimum targets are not met, then no shares will vest. During the six months ended June 30, 2019, there were two different PSU awards granted with different terms.

The first award, consisting of 33 PSUs, will vest based on our growth in comparable restaurant sales and average restaurant margin over defined periods. These PSU awards will vest fully on the third anniversary of the grant date.

The second award, consisting of 13 PSUs, will vest based on achievement of certain targets related to digital sales, general and administrative expenses as a percentage of revenue, and successful completion of a defined number of strategic initiatives. These PSU awards will vest 40% on the third anniversary of the grant date and 60% on the fourth anniversary of the grant date.

During the six months ended June 30, 2019, 12 PSUs that were subject to service and market conditions were forfeited for failure to meet the specified performance levels or service requirements.

The following table sets forth total stock-based compensation expense:

Three months ended

Six months ended

June 30,

June 30,

2019

2018

2019

2018

Stock-based compensation expense

$

21,322

$

11,660

$

40,664

$

24,036

Stock-based compensation expense, net of tax

$

15,689

$

8,575

$

30,091

$

17,676

Total capitalized stock-based compensation included in net property, plant and equipment on the condensed consolidated balance sheet

$

155

$

112

$

343

$

391

Excess tax benefit (deficit) on stock-based compensation recognized in provision for income taxes

$

5,264

$

(431)

$

10,698

$