Chipotle 2010 Annual Report Download

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F
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đ SINCE 1993 đ
ANNUAL REPORT
& PROXY STATEMENT
2010

Table of contents

  • Page 1
    2010 ANNUAL REPORT & PROXY STATEMENT FOOD WITH INTEGRITY Ä' SINCE 1993 Ä'

  • Page 2
    ... a high performing, empowered team of restaurant managers and crew can accomplish. They set the standard of how our restaurants should operate. They hire and develop our future leaders, proudly serve great tasting food, and treat our customers to the best service and overall dining experience they...

  • Page 3
    ... (Address of Principal Executive Offices) 80202 (Zip Code) Registrant's telephone number, including area code: (303) 595-4000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common stock, par value $0.01 per share New York...

  • Page 4
    ... Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...PART III Item 10. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 5
    ... are located in the U.S. Chipotle Mexican Grill, Inc. is a Delaware corporation. Our business was founded in Colorado in 1993, and McDonald's Corporation made a series of equity investments in us beginning in February 1998, becoming our majority shareholder in 2000. We completed our initial public...

  • Page 6
    ... percentage during 2011. Annual Report We do, however, face challenges associated with pursuing Food With Integrity. For example, current economic conditions have led to natural chicken and steak supply shortages. It can take longer to identify and secure relationships with suppliers meeting our...

  • Page 7
    ...in the restaurants. Our food safety programs are also designed to ensure that we comply with applicable federal, state and local food safety regulations. Restaurant Management and Operations Culture of High Performers. We value the individuality of our company, our employees and our customers, which...

  • Page 8
    ... serving our customers at each restaurant, we also have a field support system that includes apprentice team leaders, team leaders or area managers, team or operations directors and regional directors. Provisions and Supplies Close Relationships With Suppliers. Maintaining the high levels of quality...

  • Page 9
    ... where our restaurants are located or are planned to be located. We believe we're well-positioned to continue to grow our market position in existing and new markets given current consumer trends, including the increasing impact of Hispanic culture on food, the growth of the Mexican food segment and...

  • Page 10
    ... that area, and available information on competitors. Based on this analysis, including utilization of predictive modeling using proprietary formulas, we determine projected sales and targeted return on investment. We have been successful in a number of different types of locations, such as in-line...

  • Page 11
    ... food we serve at Chipotle. In order to see how our model works when we use different ingredients and a different style of food, we plan to open one Asian-inspired restaurant during 2011. Our focus, however, will remain on thoughtfully growing the Chipotle brand. Available Information Annual Report...

  • Page 12
    ... to update any forwardlooking statements after the date of this report as a result of new information, future events or developments, except as required by applicable laws and regulations. Increasing our sales and profitability depends substantially on our ability to open new restaurants, which is...

  • Page 13
    ..., which can affect local labor costs and prices we pay for the ingredients and other supplies we use; executing our strategies effectively, including our development strategy, our marketing and branding strategies, our initiatives to increase the speed at which our crew serves each customer, and...

  • Page 14
    ... and comparable restaurant sales. Our business could be adversely affected by increased labor costs or difficulties in finding the right employees for our restaurants. Labor is a primary component of our operating costs, and we believe good managers and crew are a key part of our success. We devote...

  • Page 15
    ... of affected ingredients. If we react to these problems by changing our menu or other key aspects of the Chipotle experience, we may lose customers who do not accept those changes, and may not be able to attract enough new customers to generate sufficient revenue to make our restaurants profitable...

  • Page 16
    ... or operating costs than restaurants in existing markets. We may also have difficulty finding reliable suppliers or distributors or ones that can provide us, either initially or over time, with adequate supplies of ingredients meeting our quality standards. Sales at restaurants opened in new markets...

  • Page 17
    .... For example, the State of California, New York City and a growing number of other jurisdictions around the U.S. have adopted regulations requiring that chain restaurants include calorie information on their menu boards or make other nutritional information available. The U.S. health care reform...

  • Page 18
    ...-service segments of the restaurant industry also emphasize lower-cost, "value meal" menu options, a strategy we do not currently pursue. Our sales may be adversely affected by these products and price competition. Moreover, new companies may enter our markets and target our customers. For example...

  • Page 19
    ... and our sales may deteriorate. Our failure to manage our growth effectively could harm our business and operating results. Our plans call for a significant number of new restaurants. Our existing restaurant management systems, financial and management controls and information systems may be...

  • Page 20
    ... or a new management team were to change or be unsuccessful in implementing our strategy, our growth prospects or future operating results may be adversely impacted. Our new marketing and branding strategies may not be successful, which could adversely impact our business. Over the past two years we...

  • Page 21
    ...our major suppliers or a large number of other suppliers suspend or cease operations, we may not be able to further our Food With Integrity initiative and may have difficulty keeping our restaurants fully supplied with the high quality ingredients we require. If we were forced to suspend serving one...

  • Page 22
    ... or for any year. Average restaurant sales or comparable restaurant sales in any particular future period may decrease. In the future, operating results may fall below the expectations of securities analysts and investors, which could cause our stock price to fall. We believe the market price of our...

  • Page 23
    ... that may make the acquisition of control of us without the approval of our board of directors more difficult, including provisions relating to the nomination, election and removal of directors, the structure of the board of directors and limitations on actions by our shareholders. In addition...

  • Page 24
    ... the end of a line of retail outlets), in-lines (in a line of retail outlets), free-standing or other. Of our restaurants in operation as of December 31, 2010, we had 212 freestanding units, 663 end-cap locations, 174 in-line locations and 35 other. The average restaurant size is about 2,590 square...

  • Page 25
    ... the review and retention of work authorization documents, are in compliance with applicable law. However, the termination of large numbers of employees does disrupt our operations and results in a temporary increase in labor costs as we train new employees. It is not possible at this time to...

  • Page 26
    ...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 operations and cash flows. ITEM 4. (REMOVED AND RESERVED) Annual Report...

  • Page 27
    ... the per share range of high and low sales prices for shares of our common stock for the quarterly periods indicated, as reported by the New York Stock Exchange ("NYSE"). Our common stock trades under the symbol "CMG." High Low 2009 First Quarter ...Second Quarter ...Third Quarter ...Fourth Quarter...

  • Page 28
    ..., whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Chipotle Mexican Grill, Inc, the S&P 500 Index and S&P SmallCap 600 Restaurants Annual Report $700 $600 $500 $400 $300 $200...

  • Page 29
    ... to be expected for any future period (in thousands, except per share data). 2010 For the years ended December 31, 2009 2008 2007 2006 Statements of Income: Total revenue ...$ Food, beverage and packaging costs ...Labor costs ...Occupancy costs ...Other operating costs ...General and administrative...

  • Page 30
    ... report. 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...

  • Page 31
    ... section. As our business grows, as we open more restaurants and hire more employees, our restaurant operating costs and depreciation and amortization increase. Revenue % increase 2010 over 2009 % increase (decrease) 2009 over 2008 For the years ended December 31, 2010 2009 2008 (dollars in...

  • Page 32
    ... primarily due to the benefit of higher average restaurant sales, partially offset by increased average wage rates and increased insurance costs. Labor costs decreased as a percentage of revenue in 2009 primarily due to the impact of menu price increases and labor efficiencies partially offset by...

  • Page 33
    ... manager conference, and hiring more employees as we grew. As a percentage of revenue, general and administrative expenses remained consistent with 2009 due primarily to the benefit of higher average restaurant sales on a partially fixed-cost base, offset by the expenses listed above. The increase...

  • Page 34
    ... of 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. Pre-opening costs include non-cash straight-line rent expense of $4.2 million...

  • Page 35
    ... 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 in a quarter can also affect our results. Overall, on an annual basis, changes in trading dates do not have a significant impact...

  • Page 36
    ...and short-term investment balance of $349.6 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 $70.1 million of our common stock subject to market...

  • Page 37
    ... of the lease term or 20 years. If the estimate of our reasonably assured lease terms were changed our depreciation and rent expense could differ materially. Stock-based Compensation We recognize compensation expense for equity awards over the vesting period based on the award's fair value. We use...

  • Page 38
    ... liability or financial impact with respect to these matters as of December 31, 2010 and 2009. Once resolved, however, these actions may affect our operating results and cash flows. Annual Report Sabbatical Liability We offer our employees a sabbatical leave after each ten years of service they...

  • Page 39
    .... 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...

  • Page 40
    ... TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheet as of December 31, 2010 and 2009 ...Consolidated Statement of Income for the years ended December 31, 2010, 2009 and 2008 ...Consolidated Statement of Shareholders' Equity and...

  • Page 41
    ...three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Chipotle Mexican Grill, Inc.'s internal control over financial...

  • Page 42
    CHIPOTLE MEXICAN GRILL, INC. CONSOLIDATED BALANCE SHEET (in thousands, except per share data) December 31 2010 2009 Annual Report Assets Current assets: Cash and cash equivalents ...Accounts receivable, net of allowance for doubtful accounts of $102 and $339 as of December 31, 2010 and 2009, ...

  • Page 43
    CHIPOTLE MEXICAN GRILL, INC. CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data) 2010 Years ended December 31 2009 2008 Revenue ...Restaurant operating costs (exclusive of depreciation and amortization shown separately below): Food, beverage and packaging ...Labor ...Occupancy ...

  • Page 44
    CHIPOTLE MEXICAN GRILL, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (in thousands) Additional Common Stock Paid-in Shares Amount Capital Treasury Stock Shares Amount Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Annual Report Balance, ...

  • Page 45
    ... Stock-based compensation ...21,381 14,992 11,374 Excess tax benefit on stock-based compensation ...(14,526) (10,435) (284) Other ...- 222 (226) Changes in operating assets and liabilities: Accounts receivable ...(743) (875) 1,290 Inventory ...(1,481) (825) (457) Prepaid expenses and other current...

  • Page 46
    ... FINANCIAL STATEMENTS (dollar and share amounts in thousands, unless otherwise specified) 1. Description of Business and Summary of Significant Accounting Policies Chipotle Mexican Grill, Inc. (the "Company"), a Delaware corporation, develops and operates fast-casual, fresh Mexican food restaurants...

  • Page 47
    ... improvements, property and equipment are stated at cost. Internal costs directly associated with the acquisition, development and construction of a restaurant are capitalized and were $8,167, $6,916, and $6,740 for the years ended December 31, 2010, 2009 and 2008, respectively. Expenditures for...

  • Page 48
    ..., benefits and travel for the training and opening teams, food and other restaurant operating costs, are expensed as incurred prior to a restaurant opening for business. Insurance Liability The Company maintains various insurance policies including workers' compensation, employee health, general...

  • Page 49
    ...of cash and cash equivalents, investments and accounts receivables. The Company's cash and investment balances may exceed federally insured limits. Credit card transactions at the Company's restaurant are processed by one service provider. Concentration of credit risk related to accounts receivables...

  • Page 50
    ... did not have an impact to the Company's consolidated financial statements. 2. Supplemental Financial Information Annual Report Leasehold improvements, property and equipment were as follows: December 31 2010 2009 Land ...Leasehold improvements and buildings ...Furniture and fixtures ...Equipment...

  • Page 51
    ...513 688 (36) 13,165 89 Annual Report $ 110,080 $ 77,380 $ 49,004 2010 Years ended December 31 2009 2008 Statutory U.S. federal income tax rate ...State income tax, net of related federal income tax benefit ...Other ...Effective income tax rates ... 35.0% 3.5 (0.4) 38.1% 35.0% 3.4 (0.5) 37...

  • Page 52
    ...Gift card liability ...Capitalized transaction costs ...Stock-based compensation and other employee benefits ...Foreign net operating loss carry-forwards ...Valuation allowance ...Total long-term deferred income tax asset ...Net long-term deferred income tax liability ...Current deferred income tax...

  • Page 53
    ... but are not part of publicly announced share repurchase programs. In the year ended December 31, 2010, the Company repurchased 67 shares for a total cost of $10,717. 6. Stock Based Compensation The Incentive Plan was approved at the Company's annual meeting of shareholders on May 21, 2008. Under...

  • Page 54
    ... not plan to pay dividends in the near future. The riskfree interest rate is based upon U.S. Treasury rates for instruments with similar terms. For the 2009 and 2010 awards, the expected life and volatility assumptions were based on Company-specific historical data. For the 2008 stock option awards...

  • Page 55
    ... had share option exercise experience that did not represent a sufficiently large sample to provide a reasonable basis for an estimate of expected life due to limited grants prior to its initial public offering in 2006. 7. Employee Benefit Plans The Company maintains the Chipotle Mexican Grill 401...

  • Page 56
    ... dilutive earnings per share: 2010 Year ended December 31 2009 2008 Net income ...Shares: Weighted average number of common shares outstanding ...Dilutive stock options and SARs ...Dilutive non-vested stock awards ...Diluted weighted-average number of common shares outstanding ...Basic earnings per...

  • Page 57
    ... 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...

  • Page 58
    ... the Company will incur any fines, penalties or further liabilities in connection with these matters. 11. Quarterly Financial Data (Unaudited) Annual Report Summarized unaudited quarterly financial data: March 31 June 30 2010 September 30 December 31 Revenue ...Operating income ...Net income...

  • Page 59
    ... 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 annual report. Changes in Internal Control over Financial Reporting There were no changes during the fiscal quarter ended December...

  • Page 60
    ... Registered Public Accounting Firm The Board of Directors and Shareholders of Chipotle Mexican Grill, Inc. We have audited Chipotle Mexican Grill, Inc.'s (the "Company") internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated...

  • Page 61
    ... closing market price of our common stock on the grant date, and a seven year term. One half of the SOSARs granted to each executive officer have performance based vesting conditions requiring that, in order for the awards to vest, we achieve specified levels of operating income over certain periods...

  • Page 62
    ... sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. 3. Exhibits Annual Report The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this...

  • Page 63
    ..., the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHIPOTLE MEXICAN GRILL, INC. By: Name: Title: /s/ JOHN R. HARTUNG John R. Hartung Chief Financial Officer Date: February 17, 2011 KNOW ALL PERSONS BY THESE PRESENTS, that each...

  • Page 64
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  • Page 65
    ... invited to attend the annual meeting of shareholders of Chipotle Mexican Grill, Inc., which will be held on May 25, 2011 at 8:00 a.m. local time at The Westin Tabor Center, 1672 Lawrence Street, Denver, Colorado. Details of the business to be conducted at the annual meeting are given in the...

  • Page 66
    ..., each to serve a three-year term (Proposal A); Approval of the Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan (Proposal B); Approval of the Chipotle Mexican Grill, Inc. Employee Stock Purchase Plan (Proposal C); An advisory vote on the compensation of our executive officers as disclosed in...

  • Page 67
    ... Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan. Proposal C - Approval of the Chipotle Mexican Grill, Inc. Employee Stock Purchase Plan. Proposal D - An advisory vote on the compensation of our executive officers as disclosed in this proxy statement ("say-on-pay"). Proxy Statement Proposal...

  • Page 68
    ... annual meeting. If you receive hard copy materials and sign and return your proxy card without specifying choices, your shares will be voted as recommended by the Board of Directors. Will my shares held in street name be voted if I do not provide voting instructions? Under the rules of the New York...

  • Page 69
    ...mail in future years, please follow the instructions on the Notice of Internet Availability of Proxy Materials, or enroll on the Investors page of our web site at www.chipotle.com. Delivering future notices by e-mail will help us reduce the cost and environmental impact of our annual meeting. Who is...

  • Page 70
    ...directors and executive officers as a group (10 people) (14) ...* Less than one percent (1 percent) Proxy Statement (1) Based solely on a report on Schedule 13G filed on February 3, 2011. The address of BlackRock, Inc. is 40 East 52nd Street, New York, New York, 10022. (2) Based solely on a report...

  • Page 71
    ...% of the total outstanding common stock at March 30, 2011. The address of FMR LLC is 82 Devonshire Street, Boston, Massachusetts 02109. (4) Based solely on a report on Schedule 13G/A filed on February 14, 2011. Shares beneficially owned by T. Rowe Price Associates, Inc. (Price Associates) are owned...

  • Page 72
    ...are currently serving as Class III directors and are the nominees for election as directors to serve for a three year term expiring at the 2014 annual meeting of shareholders. Each of the nominees was nominated by the Board upon the recommendation of the Nominating and Corporate Governance Committee...

  • Page 73
    ...and diverse employee workforce similar in many ways to Chipotle's, and also gave him a detailed knowledge of restaurant operations, site selection and related matters. He also has developed strong financial acumen through his experience at McDonald's as well as running his own business interests. He...

  • Page 74
    ... terms expire at the 2012 annual meeting of shareholders Director Since Proxy Statement Steve Ells ... Mr. Ells founded Chipotle in 1993. He is CoChief Executive Officer and was appointed Chairman of the Board in 2005. Prior to launching Chipotle, Mr. Ells worked for two years at Stars restaurant...

  • Page 75
    ...-level restaurant industry executive, Mr. Flynn developed strong capabilities in guiding corporate strategy, and tremendous knowledge of the operational aspects of the restaurant business as well. He also has past experience as a director of a publicly-held financial institution, and this experience...

  • Page 76
    ..., served in various capacities at Syntex Corporation, a pharmaceutical company. Mr. Flanzraich's past executive experience helped him develop outstanding skills in leading and managing strong teams of employees, and in oversight of the growth and financing of businesses in a rapidlyevolving market...

  • Page 77
    ... contained in the rules of the NYSE. Based on that review, in March 2011 the Board determined that none of our directors have any relationships, transactions or arrangements that would compromise their independence, except Messrs. Ells and Moran, our Co-Chief Executive Officers. In particular, the...

  • Page 78
    ... and post-service arrangements for executive officers; review our compensation programs generally to confirm that those plans provide reasonable benefits to us; recommend compensation to be paid to our outside directors; review disclosures to be filed with the SEC and distributed to our shareholders...

  • Page 79
    ... stock units representing shares of common stock, based on the closing price of the stock on the grant date, which is the date of our annual shareholders meeting each year. Each director who is not an employee of Chipotle also receives a $2,000 cash payment for each meeting of the Board of Directors...

  • Page 80
    ...; our Board committee charters; the Chipotle Mexican Grill Code of Conduct, which applies to all Chipotle officers, directors and employees; and separate Codes of Ethics for our directors, our Co-Chief Executive Officers and our Chief Financial Officer/principal accounting officer. The Corporate...

  • Page 81
    ... group, or any individual director or directors, by writing to the intended recipient(s) in care of Chipotle Mexican Grill, Inc., 1401 Wynkoop Street, Suite 500, Denver, CO 80202, Attention: Corporate Secretary. Any communication to report potential issues regarding accounting, internal controls and...

  • Page 82
    ... in light of our principal business and strategies; Their independence from management, including under requirements of applicable law and listing standards; and Relevant provisions of our Corporate Governance Guidelines. These factors may be weighted differently depending on the individual being...

  • Page 83
    ...increase in the number of directors). Policies and Procedures for Review and Approval of Transactions with Related Persons We recognize that transactions in which our executive officers, directors or principal shareholders, or family members or other associates of our executive officers or directors...

  • Page 84
    ... the committee from allowing stock options awarded under the plan from being transferred for value, subject to certain limited exceptions; The Stock Incentive Plan expands the list of performance measures specified for purposes of qualifying compensation payable under the plan as "performance-based...

  • Page 85
    The Stock Incentive Plan is designed to meet this purpose by providing these employees and eligible non-employee directors with a proprietary interest in pursuing our long-term growth, profitability and financial success. Eligible Participants and Types of Awards The Stock Incentive Plan provides ...

  • Page 86
    ...Incentive Plan will entitle the holder to purchase a specified number of shares of common stock. The exercise price of each option must be at least equal to 100% of the fair market value of a share on the date on which the option is granted. Options may have terms up to ten years and vesting periods...

  • Page 87
    ...return on investment; (xxxii) return on revenue; (xxxiii) net or gross revenue; (xxxiv) comparable restaurant sales; (xxxv) new restaurant openings; (xxxvi) market share; (xxxvii) economic value added; (xxxviii) cost of capital; (xxxix) expense reduction levels; (xl) safety record; (xli) stock price...

  • Page 88
    ...price. Upon disposition of the shares, any additional gain or loss realized by the recipient will be taxed as a capital gain or loss, long-term or short-term, based upon how long the shares are held. For stock options that qualify for treatment as "incentive stock options" under the Internal Revenue...

  • Page 89
    ... difference between the amount received upon such disposition and the fair market value of such shares on the date the recipient realizes ordinary income will be treated as a capital gain or loss, long-term or short-term, based upon how long the shares are held. Withholding The Stock Incentive Plan...

  • Page 90
    ...we elect to implement the Purchase Plan, we expect that the Board of Directors will appoint the Compensation Committee to administer the plan, to have the authority to interpret the plan, to prescribe, amend and rescind rules and regulations relating to the plan, and to make all other determinations...

  • Page 91
    ... Plan accrue at a rate which exceeds $25,000 of the fair market value of stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time (or such lesser amount as is determined by the committee in its discretion). As of March 31, 2011...

  • Page 92
    ... Plan at any time. The committee may also amend the Purchase Plan at any time. We will get shareholder approval of any amendment if and to the extent required under Section 423 of the Internal Revenue Code, the Securities Exchange Act of 1934, or any other applicable law, regulation, or listing...

  • Page 93
    ... first day of the exercise period over the purchase price paid on the exercise date will constitute ordinary income in the year of death. Proxy Statement New Plan Benefits Participation in the Purchase Plan, if we choose to implement it, will be voluntary. Accordingly, future awards to be received...

  • Page 94
    ... stock. (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a)) (2) (a) Number of Securities to be Issued Upon Exercise of Outstanding Options and Rights(1) (b) Weighted-Average Exercise Price of Outstanding...

  • Page 95
    ... Chipotle, has structured and implemented executive compensation programs that encourage achievement of our core objectives, which we believe will build long-term shareholder value. During 2010, we grew significantly and generated extremely strong financial performance. Our achievement of both sales...

  • Page 96
    ... in relation to our compensation decisions and in designing long-term incentives such as performance shares (which are designed with a targeted three year performance period) and SOSARs (which vest over a three year period). Therefore, we believe that holding a say-on-pay vote every three years best...

  • Page 97
    ... our consolidated financial statements for the year ending December 31, 2011 and to perform other permissible, pre-approved services. The committee has adopted a policy which sets out procedures that the committee must follow when retaining the independent auditor to perform audit, review and attest...

  • Page 98
    ... on the review and discussions described above, the Audit Committee recommended to our Board of Directors that our audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 for filing with the SEC. The Audit Committee: Albert S. Baldocchi...

  • Page 99
    ... of the services. The committee periodically reviews a schedule of fees paid and payable to the independent auditor by type of covered service being performed or expected to be provided. Our Chief Financial Officer is also required to report to the committee any non-compliance with this policy of...

  • Page 100
    ... officers a meaningful share of the shareholder value created by our company over time. Our performance in 2010 also resulted in payouts under our Annual Incentive Plan that were well above target. Our strong net income growth during 2009 and 2010 also resulted in achievement of the performance goal...

  • Page 101
    ... evaluating each executive officer's performance. See "-Overview of Executive Compensation Determinations-Market Data" below. In structuring and approving our executive compensation programs, as well as policies and procedures relating to compensation throughout our company, the committee also...

  • Page 102
    ...all publicly-traded companies in the Global Industry Classification Standard, or GICS, restaurant industry with annual revenues greater than $600 million, excluding McDonald's Corporation due to its substantially greater size than us. At the time the committee made its initial executive compensation...

  • Page 103
    ... operations and financial performance, and therefore to the creation of shareholder value. Early in each year, we set a target AIP bonus for each eligible employee, including approval by the committee of the target bonus for each executive officer. Consistent with our overall compensation policies...

  • Page 104
    ... of our employees, including our executive officers, with those of our shareholders by reserving a portion of shareholder value creation for our employees. SOSARs also closely tie compensation to corporate performance because these awards do not offer value unless our stock price increases. We also...

  • Page 105
    ...the executive officers in February of each year. In making these decisions, the committee references our company performance primarily by comparing our sales growth, net income growth and total shareholder return over the preceding three-year period to the same measures for the restaurant peer group...

  • Page 106
    ... structure results in the AIP rewarding our top performers, consistent with our goal of building shareholder value. To determine the company and team performance factors for each year, during the first quarter of the year the committee approves targeted performance levels for a number of financial...

  • Page 107
    ...average daily sales, comparable restaurant sales increases of 2.35 percent, and 2,824 new weeks of operation. Consistent with our pay-for-performance philosophy these targets represented stretch goals, the achievement of which would have generally resulted in our financial results exceeding the base...

  • Page 108
    ... each executive officer other than Mr. Blessing), and 175 percent for corporate employees in our development group (including Mr. Blessing). The development team performance factor was higher due to our strong performance on restaurant development costs and new restaurant average daily sales, which...

  • Page 109
    ... by the executive officer team as compared to our shareholders as a whole, with the precise award levels varying to take into account the committee's review of each executive officer's performance for the prior year, the individual's position, and the survey data on competitive market practice. As...

  • Page 110
    ... as a targeted number of shares to be owned, are presented below. The guidelines are reviewed for possible adjustment each year and may be adjusted by the committee at any time. Position # of shares Co-Chief Executive Officers ...Chief Financial Officer ...Other executive officers ... 50,000...

  • Page 111
    ... to our executive officers. Accounting Rules Various rules under generally accepted accounting principles determine the manner in which we account for equity-based compensation in our financial statements. The committee may consider the accounting treatment under Financial Accounting Standards Board...

  • Page 112
    ... of the performance shares awarded in 2008. The value reported is the full value of the award based on the closing price of our common stock on the date of grant. This amount is recognized as compensation expense over the service period under FASB Topic 718. (3) Amounts under Option Awards represent...

  • Page 113
    ...shares of common stock, and are granted under the Amended and Restated Chipotle Mexican Grill, Inc. 2006 Stock Incentive Plan. (3) See Note 6 to our financial statements for the year ended December 31, 2010, which are included in our Annual Report on Form 10-K filed with the SEC on February 17, 2011...

  • Page 114
    ... these performance shares as an exhibit to our Annual Report on Form 10-K filed on February 17, 2011. OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2010 Option Awards Stock Awards Equity Incentive Market Equity Incentive Plan Awards: Number of Number of Value of Plan Awards: Market or Securities Shares...

  • Page 115
    ... of the options. (2) Based upon the closing price of our common stock on the vesting dates. NON-QUALIFIED DEFERRED COMPENSATION FOR 2010 Our Supplemental Deferred Investment Plan permits eligible management employees who elect to participate in the plan, including our executive officers, to make...

  • Page 116
    ... from McDonald's in October 2006, our executive officers and other key employees were permitted to participate in non-qualified deferred compensation plans maintained by McDonald's. The McDonald's Excess Non-Qualified Plan and Non-Qualified Supplemental Plan provide substantially similar benefits to...

  • Page 117
    ... executive's termination. The terms of the equity-based awards made to our executive officers do provide for post-employment benefits in certain circumstances. The table below reflects the dollar value, based on the closing price of our common stock on December 31, 2010, of the amount of each listed...

  • Page 118
    ...a corporation" under applicable U.S. Treasury Regulations, the performance shares remain outstanding and vesting will accelerate (with payout at target level performance) in the event the employment of the holder is terminated without cause or by the holder for good reason within two years following...

  • Page 119
    ...him based on his service from his start date through December 31, 2010. (7) The dollar values reflected in the table are based on the excess of the closing price of our common stock on December 31, 2010 over the exercise price of the applicable SOSARs. Equity Award Vesting Upon Change in Control In...

  • Page 120
    ... in control under the plan as of December 31, 2010, if the outstanding performance share awards were not replaced with a replacement award meeting the criteria specified above, the executive officers would have had vesting accelerated on awards with the following dollar values as of that date: Value...

  • Page 121
    ...1934 requires our officers and directors and holders of greater than 10 percent of our outstanding common stock to file initial reports of their ownership of our equity securities and reports of changes in ownership with the SEC. Based solely on a review of the copies of such reports furnished to us...

  • Page 122
    ...in the first two months of 2011. Registration Rights Prior to our initial public offering, certain of our current shareholders, including Steve Ells, our Chairman and Co-Chief Executive Officer, Monty Moran, our Co-Chief Executive Officer and member of our Board of Directors, and Albert S. Baldocchi...

  • Page 123
    ... the date of our 2012 annual meeting is more than 30 days before or after May 25, 2012, in which case the proposal must be received a reasonable time before we begin to print and send our proxy materials. All proposals should be addressed to Chipotle Mexican Grill, Inc., 1401 Wynkoop Street, Suite...

  • Page 124
    ... to you, or if you are a holder of record and have received a proxy card, via telephone as explained on the proxy card. We will appreciate your prompt response. By order of the Board of Directors /s/ Monty Moran Co-Chief Executive Officer, Secretary and Director April 7, 2011 Proxy Statement 58

  • Page 125
    ... Mexican Grill, Inc. 2011 Stock Incentive Plan is intended to promote the interests of the Company and its shareholders by providing the employees of the Company and eligible non-employee directors of Chipotle, who are largely responsible for the management, growth and protection of the business...

  • Page 126
    ... as a Change in Control would cause any tax to become due under Section 409A of the Code. (e) "Chipotle" means Chipotle Mexican Grill, Inc., a Delaware corporation, and any successor thereto. (f) "Code" means the Internal Revenue Code of 1986, as amended from time to time, and all regulations...

  • Page 127
    ... other committee as the Board of Directors shall appoint from time to time to administer the Plan and to otherwise exercise and perform the authority and functions assigned to the Committee under the terms of the Plan. (h) "Common Stock" means Chipotle's Common Stock, $0.01 par value per share, or...

  • Page 128
    ... this Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan, as it may be amended from time to time. (y) "Qualifying Termination" means a Participant's termination of employment by the Company Without Cause or for Good Reason, in either case during the period commencing on a Change in Control and...

  • Page 129
    ... of Treasury Regulation Section 1.162-27(e)(3) and as "independent" within the meaning of the rules of any applicable stock exchange or similar regulatory authority. The Committee shall, consistent with the terms of the Plan, from time to time designate those employees and non-employee directors who...

  • Page 130
    ... of the Plan as the Committee may deem necessary or appropriate (including without limitation the adoption or amendment of rules or regulations applicable to the grant, vesting or exercise of Incentive Awards issued to employees located outside the United States). Without limiting the generality of...

  • Page 131
    ... and exercisable on such date or dates, during such period and for such number of shares of Common Stock as shall be determined by the Committee on or after the date such Option is granted (including without limitation in accordance with terms and conditions relating to the vesting or exercisability...

  • Page 132
    ... are exercisable for the first time by a Participant during any calendar year under the Plan and any other stock option plan of the Company (or any "subsidiary" as such term is defined in Section 424 of the Code of Chipotle) shall not exceed $100,000. Such Fair Market Value shall be determined as of...

  • Page 133
    ... revenue; comparable restaurant sales; new restaurant openings; market share; economic value added; cost of capital; expense reduction levels; safety record; stock price; productivity; customer satisfaction; employee satisfaction; and total shareholder return. For any Plan Year, Performance Measures...

  • Page 134
    absolute basis or relative to internal goals or relative to levels attained in years prior to such Plan Year or related to other companies or indices or as ratios expressing relationships between two or more Performance Measures. Performance Periods may be equal to or longer than, but not less than,...

  • Page 135
    ... Chipotle or corporate change other than those specifically referred to in paragraphs (b), (c) or (d), the Committee may, in its discretion, make such adjustments in the number and class of shares subject to Incentive Awards outstanding on the date on which such change occurs and in such other terms...

  • Page 136
    ...the Plan or the agreement evidencing the grant of an Option or Other Stock-Based Award, no issuance by Chipotle of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of...

  • Page 137
    ... or Termination of the Plan The Board of Directors may at any time suspend or discontinue the Plan or revise or amend it in any respect whatsoever; provided, however, that to the extent any applicable law, regulation or rule of a stock exchange requires shareholder approval in order for any such...

  • Page 138
    ... and the terms and conditions of the applicable plan, program or arrangement) the amount that would otherwise be payable to the Participant under any compensatory plan, program or arrangement maintained by the Company, (iii) by withholding payment of future increases in compensation (including the...

  • Page 139
    ... Committee is appointed, the Board. (e) "Common Stock" means the Company's Class A Common Stock, par value $0.01 per share. (f) "Company" means Chipotle Mexican Grill, Inc, a Delaware Corporation. (g) "Compensation" means, with respect to each Participant for each pay period, the full base salary...

  • Page 140
    ... and the rules and regulations promulgated thereunder. (r) "Participant" means an Employee who has elected to participate in the Plan by filing an enrollment agreement with the Company as provided in Section 5 hereof. (s) "Plan" means the Chipotle Mexican Grill, Inc. Employee Stock Purchase Plan, as...

  • Page 141
    ... Except as otherwise determined by the Committee under rules applicable to all Participants, the change in rate or amount shall be effective as of the earliest administratively practicable payroll period that begins on or after the date the Company receives the new enrollment agreement. Additionally...

  • Page 142
    ... all employee stock purchase plans of the Company and its Subsidiaries intended to qualify under Section 423 of the Code accrue at a rate which exceeds $25,000 of Fair Market Value of stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at...

  • Page 143
    ... of options to purchase shares under the Plan, and the Company's obligation to sell and deliver shares upon the exercise of options to purchase shares shall be subject to compliance with all applicable federal, state and foreign laws, rules and regulations and the requirements of any stock exchange...

  • Page 144
    ... share purchase price and the number of shares purchased. (c) Withdrawal of Account Balance Following Exercise Date. A Participant may elect at any time within the first thirty (30) days following any Exercise Period, or at such other time as the Committee may from time to time prescribe, to receive...

  • Page 145
    ...14(b) below, the maximum number of shares of the Company's Common Stock that shall be made available for sale under the Plan shall be 250,000 shares. Shares of Common Stock subject to the Plan may be newly issued shares or shares reacquired in private transactions or open market purchases. If and to...

  • Page 146
    ... consideration to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by the holders of Common Stock in the Sale Transaction. (iv) In all cases, the Committee shall have sole...

  • Page 147
    ... taxes applicable to participation in the Plan may be charged to the account of such Participant by the Company. 19. No Employment Rights. The Plan does not, directly or indirectly, create any right for the benefit of any employee or class of employees to purchase any shares under the Plan, or...

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  • Page 151
    ...exhibits), including our audited financial statements, as well as other reports we file with the SEC, at no cost on the investor relations page of our website at ir.chipotle.com, or by writing to the Corporate Secretary, Chipotle Mexican Grill, Inc., 1401 Wynkoop Street, Suite 500, Denver, CO 80202...

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    FOOD WITH INTEGRITY Our commitment to finding the very best ingredients raised with respect for the animals, the environment and the farmers. 10%