Chipotle 2014 Annual Report Download

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2014 ANNUAL REPORT
AND PROXY STATEMENT

Table of contents

  • Page 1
    2014 ANNUAL REPORT AND PROXY STATEMENT

  • Page 2
    ... traditional fast food and casual dining chains as customers look for better Tuality food ser Yed in a conYenient format  7he companies that haYe lost the greatest number of customers oYer the past decade are traditional fast food chains, where the biggest gains go to fast casual restaurants (Yen...

  • Page 3
    ... was $11.4 billion, based on the closing price of the registrant's common stock on such date, the last trading day of the registrant's most recently completed second fiscal quarter. For purposes of this calculation, shares of common stock held by each executive officer and director and by holders of...

  • Page 4
    ... Statements and Supplementary Data Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation...

  • Page 5
    ... food. We manage our operations and restaurants based on eight regions that aggregate into one reportable segment. Financial information about our operations, including our revenues and net income for the years ended December 31, 2014, 2013, and 2012, and our total assets as of 2014 Annual Report...

  • Page 6
    ...of our revenues are generated and assets are located in the U.S. For a discussion of risks related to our international operations, see "Risks Related to Our Growth Strategy and Future Expansion - Our expansion into international markets may present increased risks due to lower customer awareness of...

  • Page 7
    ... quality assurance department establishes and monitors our quality and food safety programs for our supply chain. Our training and risk management departments develop and implement operating standards for food quality, preparation, cleanliness and safety in the restaurants. Our 2014 Annual Report...

  • Page 8
    ... the day. They work in kitchens that more closely resemble those of high-end restaurants than they do a typical fast-food place. Despite our more labor-intensive method of food preparation, our focused Supply Chain Close Relationships with Suppliers. Maintaining the high levels of quality we...

  • Page 9
    ... of the restaurant industry also emphasize lower-cost, "value meal" menu options, a strategy we do not currently pursue. Moreover, we may also compete with companies outside the fast casual and quick service and casual dining segments of the restaurant industry. For example, 2014 Annual Report 7

  • 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
    ... to adequately protect our intellectual property, which could harm the value of our brand and adversely affect our business. federal and state levels, and the regulatory environment related to information security and privacy is increasingly demanding. A number of retailers have experienced actual...

  • Page 12
    ... our new restaurants instead; • 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, expanded use of fax service lines and online and other electronic ordering...

  • Page 13
    ... base will decline, which will make it increasingly difficult to maintain our past rates of sales and profitability growth. Our progress in opening new restaurants from quarter to quarter may also occur at an uneven rate, which may result in quarterly sales and profit growth falling short of market...

  • Page 14
    ... difficult for us to increase comparable restaurant sales and profitability. Existing restaurants could also make it more difficult to build the customer base for newly-opened restaurants in the same market. need to make greater investments in advertising and promotional activity than we originally...

  • Page 15
    ... meet the needs of our operations. Our failure to foster and maintain our corporate culture could also harm our business and operating results. Risks Related to Operating in the Restaurant Industry Changes in food and supply costs could adversely affect our results of operations. Our profitability...

  • Page 16
    ...which our food is served in conditions we cannot control. On a small number of occasions one or more Chipotle restaurants have been associated with customer illness, and on those occasions our sales have sometimes been adversely impacted, at times even in markets beyond those 14 2014 Annual Report

  • Page 17
    ... our sales and profitability. Asian Kitchen and Pizzeria Locale, operate in markets in which there are numerous competitors, including a number of large and well-known brands. A number of other companies or individuals in the restaurant industry have recently opened or invested in fast-casual pizza...

  • Page 18
    ...general economic conditions and discretionary income levels. Our average restaurant sales may decline during economic downturns or periods of uncertainty, which can be caused by various factors such as high unemployment, increasing taxes, interest rates, or other changes in fiscal or monetary policy...

  • Page 19
    ... levels on the food industry including nutrition and advertising practices. Restaurants operating in the quick-service and fast-casual segments have been a particular focus. For example, the State of California, New York City and a number of other jurisdictions around the 2014 Annual Report...

  • Page 20
    ... they move through the line, decreasing our throughput. These initiatives may also change customer buying habits in a way that adversely impacts our sales. of packaging we can use in our restaurants. We have not conducted a comprehensive environmental review of our properties or operations. We have...

  • Page 21
    ... throughout 2009 that we attribute in part to customer resistance to menu price increases. If customers are not persuaded that we offer a good value for their money, our restaurant transaction counts could be adversely affected, which would negatively impact our business results. 2014 Annual Report...

  • Page 22
    ..., our co-Chief Executive Officer, and Jack Hartung, our Chief Financial Officer, have also served with us for several years and much of our growth has occurred under their direction as well. We believe our executive officers, each of whom is an at-will employee without any 20 2014 Annual Report

  • Page 23
    ...-of-restaurant sales options also introduce new operating procedures to our restaurants and we may not successfully execute these procedures, which could adversely impact the customer experience in our restaurants and thereby harm our sales and customer perception of our brand. 2014 Annual Report...

  • Page 24
    ... our reputation among employees and potential employees, which could make it more difficult for us to attract and retain top-performing employees. That could adversely impact the quality of the customer experience we can offer and our operations generally, and may increase our labor costs as well...

  • Page 25
    ... in labor costs as a result of large-scale changes in workforce; • negative publicity about the ingredients we use or the occurrence of food-borne illnesses or other problems at our restaurants; • the timing of new restaurant openings and related revenues and expenses; • operating costs at...

  • Page 26
    ... we operate restaurants. For additional information regarding the lease terms and provisions, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations," as well as Note 7. "Leases" in our consolidated financial statements included...

  • Page 27
    ... MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The following table describes 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...

  • Page 28
    .../12 12/13 12/14 Chipotle Mexican Grill, Inc S&P Restaurants S&P 500 *$100 invested on 12/31/09 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2015 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. 26 2014 Annual Report

  • Page 29
    ... period (in thousands, except per share data). For the years ended December 31 2014 2013 2012 2011 2010 Statement of Income: Revenue Food, beverage and packaging costs Labor costs Occupancy costs Other operating costs General and administrative expenses Depreciation and amortization Pre-opening...

  • Page 30
    ... month of operation. Comparable restaurant sales increases in 2014 were driven primarily by an increase in customer visits, and to a lesser extent from an increase in average check, including the impact of a menu price increase during the second quarter of 2014 at all U.S. Chipotle locations. Menu...

  • Page 31
    ... business grows, as we open more restaurants and hire more employees, our restaurant operating costs and depreciation and amortization increase. Revenue Years ended December 31 2014 2013 2012 (dollars in millions) % increase 2014 over 2013 % increase 2013 over 2012 Revenue Average restaurant sales...

  • Page 32
    ... of revenue decreased in 2014 due primarily to the benefit of higher average restaurant sales, including the impact of menu price increases, partially offset by an increased number of managers and crew in our restaurants and normal wage inflation. In 2015, we expect labor costs to increase slightly...

  • Page 33
    ... to the benefit of higher average restaurant sales on a partially fixed-cost base. We expect marketing and promotional spend as a percentage of revenue for 2015 to remain consistent with the full year 2014 or increase slightly. Other operating costs increased as a percentage of revenue in 2013 due...

  • Page 34
    ... generally do more business during the academic year. Seasonal factors, however, might be moderated or outweighed by other factors that may influence our quarterly results, such as fluctuations in food or packaging costs or the timing of menu price increases. The number of trading days in a quarter...

  • Page 35
    ... 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 our growth. While operations continue to provide cash, our primary use of cash is in new restaurant development. Our total capital...

  • Page 36
    ... our food, beverage, and packaging costs as a percentage of revenue for the past three years. These increases have been partially offset with menu price increases. Critical Accounting Estimates We describe our significant accounting policies in Note 1 of our consolidated financial statements...

  • Page 37
    ..., 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...

  • Page 38
    ... FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Balance Sheet as of December 31, 2014 and 2013 Consolidated Statement of Income and Comprehensive Income for the years ended December 31, 2014, 2013 and 2012 Consolidated Statement of Shareholders' Equity...

  • Page 39
    ... with the standards of the Public Company Accounting Oversight Board (United States), Chipotle Mexican Grill, Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring...

  • Page 40
    ... 4,212 common shares at December 31, 2014 and December 31, 2013, respectively Accumulated other comprehensive income Retained earnings Total shareholders' equity Total liabilities and shareholders' equity See accompanying notes to consolidated financial statements. 38 2014 Annual Report - 354 1,038...

  • Page 41
    ...share data) Years ended December 31 2014 2013 2012 Revenue Restaurant operating costs (exclusive of depreciation and amortization shown separately below): Food, beverage and packaging Labor Occupancy Other operating costs General and administrative expenses Depreciation and amortization Pre-opening...

  • Page 42
    ...) CHIPOTLE MEXICAN GRILL, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (in thousands) Common Stock Shares Amount Additional Paid-In Capital Treasury Stock Shares Amount Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Balance, December 31, 2011 Stock-based compensation...

  • Page 43
    ...) Years ended December 31 2014 2013 2012 Operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Deferred income tax (benefit) provision Loss on disposal of assets Bad debt allowance Stock-based compensation...

  • Page 44
    ...of food, beverages, and supplies, is valued at the lower of first-in, first-out cost or market. Certain key ingredients (beef, pork, chicken, beans, rice, sour cream, cheese, and tortillas) are purchased from a small number of suppliers. Investments Revenue Recognition Revenue from restaurant sales...

  • Page 45
    ...No impairment charges were recognized on the Company's investments for the years ended December 31, 2014, 2013 and 2012. transferable liquor licenses which are carried at the lower of fair value or cost, and rental deposits related to leased properties. Restricted cash assets are primarily insurance...

  • Page 46
    ...-opening costs in the consolidated income statement. 44 2014 Annual Report Foreign Currency Translation The Company's international operations generally use the local currency as the functional currency. Assets and liabilities are translated at exchange rates in effect as of the balance sheet date...

  • Page 47
    ... consolidated financial position or results of operations. In June 2014, the FASB issued ASU No. 2014-12, "Compensation-Stock Compensation (Topic 718)." The pronouncement was issued to clarify the accounting for share-based payments when the terms of an award provide that a performance target could...

  • Page 48
    ... liability Capitalized transaction costs Stock-based compensation and other employee benefits Foreign net operating loss carryforwards State credits Other Valuation allowance Total long-term deferred income tax asset Net long-term deferred income tax liability Current deferred income tax liability...

  • Page 49
    ... Compensation Committee of the Board of Directors, which has the authority to select the individuals to whom awards will be granted or to delegate its authority under the plan to the Company's executive officers to make grants to non-executive officer level employees, to determine the type of awards...

  • Page 50
    ...operations. The total intrinsic value of options and SOSARs exercised during the years ended December 31, 2014, 2013 and 2012 was $88,245, $91,178 and $183,097. Unearned compensation as of December 31, 2014 was $43,757 for SOSAR awards, and is expected to be recognized over a weighted average period...

  • Page 51
    ...-Scholes option-pricing model to value SOSAR awards granted for each year: 2014 2013 2012 contribute after one year of service with the Company and may contribute up to 15% of their base earnings, subject to an annual maximum dollar amount, toward the monthly purchase of the Company's common stock...

  • Page 52
    ... of the following: For the years ended December 31 2014 2013 2012 Net income Shares: Weighted average number of common shares outstanding Dilutive stock awards Diluted weighted average number of common shares outstanding Basic earnings per share Diluted earnings per share $445,374 $327,438 $278...

  • Page 53
    ..., the termination of large numbers of employees in a short period of time does disrupt restaurant operations and results in a temporary increase in labor costs as new employees are trained. In May 2012, the U.S. Securities and Exchange Commission notified the Company that it is conducting a civil...

  • Page 54
    ... 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 annual report. Changes in Internal Control...

  • Page 55
    ...accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Chipotle Mexican Grill, Inc. as of December 31, 2014 and 2013, and the related consolidated statements of income and comprehensive income, shareholders' equity, and cash...

  • Page 56
    PART II (continued) ITEM 9B. OTHER INFORMATION None. 54 2014 Annual Report

  • Page 57
    ... ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Incorporated by reference from the definitive proxy statement for our 2015 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2014. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference...

  • Page 58
    ...require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. 3. Exhibits The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this report. 56 2014 Annual Report

  • Page 59
    ... Securities Exchange Act of 1934, 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 4, 2015 KNOW ALL PERSONS...

  • Page 60
    ... 31, 2006 among Chipotle Mexican Grill, Inc., McDonald's Corporation and certain shareholders.(13) Board Pay Policies.(14) Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan.(7) Amendment No. 1 to Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan.(15) Amendment No...

  • Page 61
    ...to Chipotle Mexican Grill, Inc.'s Registration Statement on Form 8-A/A filed with the Securities and Exchange Commission on December 16, 2009 (File No. 001-32731). (2) Incorporated by reference to Chipotle Mexican Grill, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, filed...

  • Page 62
    ...of shareholders of Chipotle Mexican Grill, Inc., which will be held on May 13, 2015 at 8:00 a.m. local time at The Westin Denver Downtown, 1672 Lawrence Street, Denver, Colorado. Details of the business to be conducted at the annual meeting are given in the notice of meeting and proxy statement that...

  • Page 63
    ... date for the meeting has been fixed by the Board of Directors as the close of business on March 16, 2015. Shareholders of record at that time are entitled to vote at the meeting. By order of the Board of Directors /s/ Monty Moran Co-Chief Executive Officer, Secretary and Director March 26, 2015...

  • Page 64
    ... This is the second year of our phasing out of the classification of the Board of Directors. At the annual meeting occurring in 2016, all directors will be reelected annually. 2. Say on Pay (p. 18) For See below under "Performance" and "Compensation" for additional discussion. 3. Ratification...

  • Page 65
    ... 31, 2014. Performance Versus Peer Group - One, Three and Five Year Periods Ended December 31, 2014 100 99th 87th 97th 94th 86th 76th 76th 100th 80 56th Percentile 60 Total Shareholder Return Net Income Growth Sales Growth 40 20 0 5 years 3 years 1 year Moreover, our stock price performance...

  • Page 66
    ... annual meeting in May 2014 declined steeply from prior years. In response, our Compensation Committee and management team had extensive dialogue with our shareholders, including contacting shareholders representing nearly two-thirds of our outstanding common stock. Changes we made in our executive...

  • Page 67
    ...Board stock ownership requirements. No shareholder rights plan or "poison pill." See also page 53 for significant compensation policies and procedures we employ to motivate our employees to build shareholder value, while protecting the interests of all our shareholders. iv NOTICE OF ANNUAL MEETING...

  • Page 68
    ...Registered Public Accounting Firm Audit Committee Report Policy for Pre-Approval of Audit and Permitted Non-Audit Services 18 19 20 20 Proposal 4 - A Proposal to Approve the Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan to Increase the Number of Shares of Common Stock...

  • Page 69
    ... on a Shareholder Proposal Requesting Chipotle to Issue an Annual Sustainability Report Meeting Specified Criteria Statement in Opposition by our Board of Directors 44 47 48 48 64 64 65 66 66 67 67 69 Executive Officers Compensation Discussion and Analysis Letter From the Compensation Committee of...

  • Page 70
    Proxy Statement ANNUAL MEETING INFORMATION This proxy statement contains information related to the annual meeting of shareholders of Chipotle Mexican Grill, Inc. to be held on Wednesday, May 13, 2015, beginning at 8:00 a.m. at The Westin Denver Downtown, 1672 Lawrence Street, Denver, Colorado. ...

  • Page 71
    ... the acceleration of vesting of equity awards in the event of a change in control. PROPOSAL 12 - A shareholder proposal, if properly presented at the meeting, requesting Chipotle to issue an annual sustainability report meeting specified criteria. The Board of Directors is not aware of any...

  • Page 72
    ... meeting in order to be approved. Because the say-on-pay vote and the vote on the shareholder proposals are advisory, they will not be binding on the Board or Chipotle. However, the Board will review the voting results and take them into consideration when making future decisions regarding executive...

  • Page 73
    ... regular mail in future years, please follow the instructions on the notice, 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 bearing the cost of this proxy...

  • Page 74
    ...listed in the Summary Compensation Table appearing later in this proxy statement; • each of our directors; and • all of our current executive officers and directors as a group. The number of shares beneficially owned by each shareholder is determined under SEC rules and generally includes shares...

  • Page 75
    ... 2013. Directors are expected to own shares of common stock having a total value of five times the annual cash retainer payable to outside directors within five years of being elected to the Board. (16) See Notes (6) through (15). 6 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2015 PROXY STATEMENT

  • Page 76
    ...our Board, the directors elected at this year's annual meeting will be elected for a one year term as Class I directors ending at the annual meeting of shareholders in 2016. The current term of office of the previously-serving Class II directors will also end at the annual meeting in 2016. Therefore...

  • Page 77
    ... I DIRECTORS WHOSE TERMS EXPIRE AT THE 2015 ANNUAL MEETING OF SHAREHOLDERS AND WHO ARE NOMINEES FOR TERMS EXPIRING AT THE 2016 ANNUAL MEETING Kimbal Musk Mr. Musk is an entrepreneur and restaurateur who has founded and advised several companies and non-profits including: The Kitchen Restaurant Group...

  • Page 78
    Proposal 1 (continued) CLASS I DIRECTORS WHOSE TERMS EXPIRE AT THE 2015 ANNUAL MEETING OF SHAREHOLDERS AND WHO ARE NOMINEES FOR TERMS EXPIRING AT THE 2016 ANNUAL MEETING Steve Ells Mr. Ells founded Chipotle in 1993. He is Co-Chief Executive Officer and was appointed Chairman of the Board in 2005. ...

  • Page 79
    ... of the Operating and Executive Committees of Syntex Corporation, an international pharmaceutical company. Mr. Flanzraich's executive experience has helped him develop outstanding skills in leading and managing strong teams of employees, and in oversight of the growth and financing of businesses in...

  • Page 80
    ... all directors serving on the Board on the date of the 2014 annual meeting of shareholders attended the meeting. sets forth the committee's role and responsibilities and provides for an annual evaluation of its performance. The charters of all three standing committees are available on the Investors...

  • Page 81
    ...: review and make recommendations to the Board with respect to the establishment of any new incentive compensation and equity-based plans; review and approve the terms of written employment agreements and post-service arrangements for executive officers; review our compensation programs generally to...

  • Page 82
    ... regarding succession plans for positions held by executive officers. The Nominating and Corporate Governance Committee held three meetings in 2014. The members of the committee are Mr. Flynn (Chairperson) and Ms. Friedman. Director Compensation Directors who are also employees of Chipotle do...

  • Page 83
    ... GOVERNANCE Our Board of Directors has adopted a number of policies to support our values and provide for good corporate governance, including our Corporate Governance Guidelines, which set forth our principles of corporate governance; our Board committee charters; the Chipotle Mexican Grill, Inc...

  • Page 84
    ...the Board as nominees by the Nominating and Corporate Governance Committee. The committee considers candidates suggested by its members, other directors, senior management and shareholders. During 2014, we also paid fees to two third NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2015 PROXY STATEMENT

  • Page 85
    ...expected retirements 16 Role of the Board of Directors in Risk Oversight While our executive officers and various other members of management are responsible for the day-to-day management of risk, the Board of Directors exercises an NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2015 PROXY STATEMENT

  • Page 86
    .... The Co-Chief Executive Officers' in-depth understanding of these matters and levels of involvement in the day-to-day management of Chipotle allow them to promptly identify and raise key risks to the Board, call special meetings of the Board when necessary to address critical issues, and focus...

  • Page 87
    ... Compensation Committee and Board will review the voting results and take them into consideration when making future decisions regarding executive compensation. The Board of Directors recommends a vote FOR the sayon-pay proposal. 18 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2015 PROXY STATEMENT

  • Page 88
    ... and regulatory proceedings. The Board of Directors recommends a vote FOR the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2015. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2015 PROXY STATEMENT 19

  • Page 89
    ... LLP their independence. Based on the review and discussions described above, the Audit Committee recommended to our Board of Directors that our audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 for filing with the...

  • Page 90
    ... the best interests of shareholders and Chipotle, as equity awards granted under this plan help to attract, motivate, and retain key talent, align employee and shareholder interests, link employee compensation to company performance and maintain a culture based on employee stock ownership. Equity is...

  • Page 91
    ... No Liberal Share Recycling: Shares used to pay the exercise price or withholding taxes related to an equity award under the plan, unissued shares resulting from the net settlement of any such equity awards, and shares purchased by us in the open market using the proceeds of option exercises do not...

  • Page 92
    ...specific terms of the plan. Types of Awards The 2011 Stock Incentive Plan authorizes the Compensation Committee to grant non-qualified and incentive stock options, stock appreciation rights and Full Value Awards, including restricted stock, restricted stock units, performance shares, deferred share...

  • Page 93
    ... (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; (xlii) productivity...

  • Page 94
    ... Compensation Committee will equitably adjust the number and kind of shares available for grant under the 2011 Stock Incentive Plan, the number and kind of shares subject to the award limitations set forth in the 2011 Stock Incentive NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2015 PROXY STATEMENT...

  • Page 95
    ... under current United States federal income tax laws in connection with equity awards under the 2011 Stock Incentive Plan. This summary omits the tax laws of any municipality, state, or foreign country in which a participant resides. Stock Appreciation Rights; Performance Shares In general, (a) the...

  • Page 96
    ... applicable year. A higher burn rate indicates an increased number of equity awards being granted to employees and/or directors. The burn rate is usually compared to industry data, particularly data furnished by various shareholder services groups. "Total Potential Overhang" is the number of shares...

  • Page 97
    ... under this plan after the date of our 2015 Annual Meeting are within the discretion of the Compensation Committee, subject to limits on the maximum amounts that may be awarded to any individual as described above. As of March 16, 2015, the closing price of a share of Chipotle common stock was $678...

  • Page 98
    ... and Restated Certificate of Incorporation of Chipotle Mexican Grill, Inc. to Remove a Requirement for the Election of Directors to be by Plurality Vote In response to requests submitted by a number of shareholders in 2013 and 2014, we are asking that shareholders approve an amendment to our Amended...

  • Page 99
    ... Amendment attached to this proxy statement as Appendix C. The Board of Directors recommends a vote FOR the proposed amendment to our Amended and Restated Certificate of Incorporation to remove supermajority voting requirements. 30 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2015 PROXY STATEMENT

  • Page 100
    ... to join together to list a nominee in our proxy materials, while helping to provide assurance that proxy access will not be subject to abuse by short-term investors or investors without a substantial investment in our company; NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2015 PROXY STATEMENT 31

  • Page 101
    ... help avoid a shareholder or group of shareholders having a level of influence on the makeup of our Board that is disproportionate to the level of share ownership of such shareholder or group of shareholders; • Proxy access is a very recent development in the corporate governance of U.S. companies...

  • Page 102
    ... no earlier than 150 days and no later than 120 days before the anniversary of the date that we issued our proxy statement for the previous year's annual meeting of shareholders. Information required of all nominating shareholders. Each shareholder seeking to include a director nominee in our proxy...

  • Page 103
    ..., as amended, the rules and listing standards of the principal U.S. exchanges upon which our common stock is traded, or any applicable state or federal law, rule or regulation; • who is or has been, within the past three years, an officer or director of a competitor, as defined in Section 8 of...

  • Page 104
    ... increased shareholder value. The CFA Institute's 2014 assessment of pertinent academic studies and the use of proxy access in other markets similarly concluded that proxy access: • Would "benefit both the markets and corporate boardrooms, with little cost or disruption." NOTICE OF ANNUAL MEETING...

  • Page 105
    ...: Shareholders of Chipotle Mexican Grill (the "Company") urge the Compensation Committee ("Committee") to adopt a policy that all equity compensation plans submitted to shareholders for approval under Section 162(m) of the Internal Revenue Code will specify the awards to senior executive officers...

  • Page 106
    ...) The Company's current Stock Plan provides awards may be subject to a potpourri of 45 metrics including but not limited to: (i) revenue growth; (ii) cash flow; (iii) cash flow from operations; (iv) net income; (v) net income before equity compensation expense; (vi) earnings per share, diluted...

  • Page 107
    ... equity compensation terms could adversely impact the committee's ability, for example, to make awards to top-performing executive officers as an incentive to remain with Chipotle rather than pursuing other opportunities, or to attract qualified candidates for open officer positions at Chipotle...

  • Page 108
    ... and the Company. A 2009 report by the Conference Board Task Force on Executive Compensation observed that such hold-through-retirement requirements give executives "an ever growing incentive to focus on long-term stock price performance as the equity subject to the policy increases" (available at...

  • Page 109
    ...ownership of each officer, as of March 16, 2015 in both number of shares and in dollar value. These numbers exclude the value of shares underlying equity compensation awards held by the officers, which further increase each officer's financial interest in Chipotle's success. Officer Name Steve Ells...

  • Page 110
    ... awards made under equity incentive plans or plan amendments that shareholders approve after the date of the 2015 annual meeting. Supporting Statement: Chipotle Mexican Grill ("Company") allows executives to receive an accelerated award of unearned equity under certain conditions after a change...

  • Page 111
    ... of a Compensation Committee that is intimately familiar with our executive officer team and our business. At our annual meeting in 2013, shareholders agreed, with holders of nearly two-thirds of the shares voted at that meeting rejecting an identical shareholder proposal. Accordingly, the Board...

  • Page 112
    ..., to make awards to top-performing executive officers as an incentive to remain with Chipotle rather than pursuing other opportunities, or to attract qualified candidates for open officer positions at Chipotle. For these reasons, the Board and the Compensation Committee believe that a blanket policy...

  • Page 113
    ... ingredients its uses from sustainable sources", has very limited information on its policies and progress toward achieving these objectives. Resolved: Shareholders request Chipotle issue an annual sustainability report describing the company's short- and long-term responses to ESG-related issues...

  • Page 114
    ... project partners. Statement in Opposition Through our constant efforts to expand our Food With Integrity mission, we believe Chipotle is driving more positive change in the nation's food supply than any other restaurant company. Today, we serve more meat that has been raised responsibly (by which...

  • Page 115
    ... that can have direct benefits on the profitability and sustainability of our business, such as opening new restaurants, continuing to build and improve our supply chain, and making improvements in our restaurant design and operations. Moreover, we believe we would gain little from such a diversion...

  • Page 116
    ... IT; safety, security and risk; and compensation and benefits. Mr. Hartung joined Chipotle after spending 18 years at McDonald's where he held a variety of management positions, most recently as Vice President and Chief Financial Officer of its Partner Brands Group. Mr. Hartung has a Bachelor of...

  • Page 117
    ..., our management team has also delivered total shareholder returns of 1,456% since our IPO in 2006 and 676% for the five years ended December 31, 2014. After our executive team delivered another year of outstanding performance in 2013, with sales and net income growth and shareholder returns all...

  • Page 118
    ... vesting based on achievement levels of cumulative aggregrate operating income. • For 2015, following the say-on-pay vote registered at our 2014 annual meeting of shareholders and extensive dialogue with investors, altered officers' equity compensation to consist solely of performance share awards...

  • Page 119
    ... executive compensation programs have contributed significantly to our tremendous growth and strong business performance, highlights of which are reflected below for the past five years. ANNUAL COMPANY PERFORMANCE TOTAL RESTAURANTS INCREASE FROM PRIOR YEAR SALES INCREASE FROM PRIOR YEAR NET INCOME...

  • Page 120
    ...) Our performance relative to our restaurant industry peer group (the composition of which is further described below under "Overview of Executive Compensation Decisions - Market Data") has also generally been strong in the areas of sales growth, net income growth, and total shareholder return. The...

  • Page 121
    ... executive officers as disclosed in the proxy statement for the 2014 annual meeting. In response, our Compensation Committee and management team had extensive dialogue with our shareholders, including contacting shareholders representing nearly twothirds of our outstanding common stock, and meeting...

  • Page 122
    ... In setting compensation for our executive officers, the committee assesses numerous factors, including the following primary considerations: • company performance, focusing in particular on our sales growth, net income growth and total shareholder return in relation to other companies in our...

  • Page 123
    ... executive officer in each year since the officer started work with us (or since 1998 in the case of Mr. Ells, our Chairman and Co-Chief Executive Officer), as well as the accumulated value of all cash and equity-based compensation awarded to each executive officer; and • competitive market pay...

  • Page 124
    ...excluding companies serving a substantially different market or client base than we do. At the time the committee made its initial executive compensation decisions for 2014, the companies included in the peer group were as follows: COMPANY 2013 ANNUAL REVENUES(1) MARKET CAPITALIZATION(1)(2) Biglari...

  • Page 125
    ... the market. Individual targeted amounts can also be increased or decreased based on subjective individual considerations such as level of responsibility, experience and internal equity issues. Following completion of our year-end financial statements and each executive officer's annual performance...

  • Page 126
    ... to make awards to employees other than the executive officers. The committee also sets the standard terms for awards under the plans each year. In light of the say-on-pay vote received in 2014, our Compensation Committee completely redesigned our officer equity award structure for 2015. See...

  • Page 127
    ... awards to, the executive officers during the first quarter of each year, generally in February. In making these decisions, the committee references our company performance primarily by comparing our sales growth, net income growth and total shareholder return versus the restaurant peer group...

  • Page 128
    ... 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 or operating measures (on...

  • Page 129
    ... 2014, as with past years, the four measures the committee selected to be used in determining the company and team performance factors were income from operations (prior to accrual for AIP payouts), new restaurant average daily sales, comparable restaurant sales increases, and new restaurant weeks...

  • Page 130
    ... To determine the number of SOSARs to award to each executive officer, the committee considered our performance versus the restaurant industry peer group on the basis of sales growth, net income growth and total shareholder return over the one, three and five year periods ended December 31, 2013, as...

  • Page 131
    ..., in response to the say-on-pay vote at our 2014 annual meeting of shareholders and following extensive engagement with shareholders representing more than one-half of our shares outstanding, the committee made long-term incentive awards to each executive officer in the form of new performance share...

  • Page 132
    ...equity compensation grants to our executive officers. The accounting treatment of such grants, however, is not generally determinative of the type, timing, or amount of any particular grant of equity-based compensation the committee determines to make. 63 Shares underlying unvested restricted stock...

  • Page 133
    ... the 2014 say-on-pay vote. SUMMARY COMPENSATION TABLE NAME AND PRINCIPAL POSITION YEAR SALARY STOCK AWARDS(1) OPTION AWARDS(2) NON-EQUITY INCENTIVE PLAN COMPENSATION(3) ALL OTHER COMPENSATION(4) TOTAL STEVE ELLS Chairman and Co-Chief Executive Officer MONTY MORAN Co-Chief Executive Officer JACK...

  • Page 134
    ... we use to value SOSAR awards pursuant to FASB Topic 718. The grant date fair value of SOSAR awards is included in the "Option Awards" columns of the Summary Compensation Table above for each executive officer for 2014. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2015 PROXY STATEMENT 65

  • Page 135
    ... Report on Form 10-Q filed with the SEC on April 20, 2012. OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2014 OPTION AWARDS STOCK AWARDS EQUITY INCENTIVE PLAN AWARDS: NUMBER OF UNEARNED SHARES, UNITS OR OTHER RIGHTS THAT HAVE NOT VESTED 5,000(8) EQUITY INCENTIVE PLAN AWARDS: MARKET OR PAYOUT VALUE...

  • Page 136
    ... exceeded the exercise price of the SOSARs. NON-QUALIFIED DEFERRED COMPENSATION FOR 2014 The Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan permits eligible management employees who elect to participate in the plan, including our executive officers, to make contributions to...

  • Page 137
    ... to pay the value of the accounts to the participants at times determined under the plan. The table below presents contributions by each executive officer, and our matching contributions, to the Supplemental Deferred Investment Plan during 2014, as well as each executive officer's earnings under...

  • Page 138
    ... 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, 2014, of the value of each listed type of equity award that...

  • Page 139
    ... be paid out on the payout date, with the number of shares issuable to be based on actual performance over the performance period and pro-rated in an amount equal to the period of the holder's service with us following the grant of the award as a percentage of the time period from the grant of the...

  • Page 140
    ... be listed on a national securities exchange. In the event of a change in control under the plan as of December 31, 2014, if SOSARs outstanding on that date were not replaced with replacement awards meeting the criteria specified above, the executive officers as of that Performance Shares The award...

  • Page 141
    ... to be listed on a national securities exchange. In the event of such a change in control under the plan as of December 31, 2014, if the outstanding performance share awards were not replaced with a replacement award meeting the criteria specified above, the executive officers as of that date would...

  • Page 142
    ... current shareholders, including Steve Ells, our Chairman and CoChief Executive Officer, Monty Moran, our Co-Chief Executive Officer and member of our Board of Directors, and Albert S. Baldocchi and Darlene J. Friedman, members NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2015 PROXY STATEMENT 73

  • Page 143
    ... single copy, please contact Chipotle investor relations by phone at (303) 6051042, by writing to Investor Relations, Chipotle Mexican Grill, Inc., 1401 Wynkoop Street, Suite 500, Denver, Colorado, or by email to [email protected]. 74 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2015 PROXY STATEMENT

  • Page 144
    ... 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 March 26, 2015 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2015 PROXY STATEMENT 75

  • Page 145
    ... long-term growth, profitability and financial success of the Company. 2. Definitions As used in the Plan or in any instrument governing the terms of any Incentive Award, the following definitions apply to the terms indicated below: (a) "Board of Directors" means the Board of Directors of Chipotle...

  • Page 146
    ... 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 147
    ..., that the Committee may, in its discretion, determine the Fair Market Value of a share of Common Stock on the basis of the opening, closing, or average of the high and low sale prices of a share of Common Stock on such date or the preceding trading day, the actual sale price of a Share, any other...

  • Page 148
    ... the terms of the Plan. (r) "Option" means an option to purchase shares of Common Stock granted to a Participant pursuant to Section 6. (s) "Other Stock-Based Award" means an equity or equity-related award granted to a Participant pursuant to Section 7. (t) "Participant" means a Director, consultant...

  • Page 149
    ... in connection with the assumption, replacement, conversion or adjustment of outstanding equity-based awards in the context of a corporate acquisition or merger (within the meaning of Section 303A.08 of the New York Stock Exchange Listed Company Manual or any successor provision) shall not count as...

  • Page 150
    ... omission or determination relating to the Plan, unless, in either case, such action, omission or determination was taken or made by such member, director or employee in bad faith and without reasonable belief that it was in the best interests of the Company. A-6 APPENDIX A TO 2015 PROXY STATEMENT

  • Page 151
    ... 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 152
    ... of a Director's service and shall remain exercisable until its expiration, termination or cancellation pursuant to the terms of the Plan and the agreement evidencing such Option. (e) Special Rules for Incentive Stock Options (1) The aggregate Fair Market Value of shares of Common Stock with respect...

  • Page 153
    ... United States, and (v) be designed to qualify as Performance-Based Compensation. Notwithstanding the foregoing, any Other Stock-Based Award that is a stock appreciation right (i) shall have a base price of not less than 100% of the Fair Market Value of a share of Common Stock on the date on which...

  • Page 154
    ...-level operating margin; profit margin; assets; debt; working capital; return on equity; return on net assets; return on total assets; return on capital; return on investment; return on revenue; net or gross revenue; comparable restaurant sales; new restaurant openings; market share; economic value...

  • Page 155
    ...not, make such adjustments in the number and class of shares of Common Stock with respect to which Incentive Awards may be granted as the Committee may deem appropriate. (b) Increase or Decrease in Issued Shares Without Consideration Subject to any required action by the shareholders of Chipotle, in...

  • Page 156
    ... 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 157
    ... the issuance or transfer of shares of Common Stock pursuant to any Incentive Award pending or to ensure compliance under federal or state securities laws or the rules or regulations of any exchange on which the Shares are then listed for trading. Chipotle shall inform the Participant in writing of...

  • Page 158
    ...of an Incentive Award, the Participant may tender to Chipotle a number of shares of Common Stock (subject to any minimum holding period as the Committee may determine) having a fair market value at the tender date determined by the Committee to be sufficient to satisfy the minimum federal, state and...

  • Page 159
    ... respect to any Participant; provided, however that only the Committee (or a subcommittee) thereof shall be authorized to grant Incentive Awards or otherwise provide additional benefits to a member of the Board or officer (as defined under SEC Rule 16a-1). APPENDIX A TO 2015 PROXY STATEMENT A-15

  • Page 160
    ... 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Chipotle Mexican Grill, Inc. has caused this Certificate to be executed by its duly authorized officer on this day of , 2015. CHIPOTLE MEXICAN GRILL, INC. By: Name: Office: APPENDIX B TO 2015 PROXY STATEMENT B-1

  • Page 161
    ... 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Chipotle Mexican Grill, Inc. has caused this Certificate to be executed by its duly authorized officer on this day of , 2015. CHIPOTLE MEXICAN GRILL, INC. By: Name: Office: APPENDIX C TO 2015 PROXY STATEMENT C-1

  • Page 162
    ... notice shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the first anniversary of the preceding year's annual meeting; provided, however...

  • Page 163
    ... any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (b) Special Meetings...

  • Page 164
    ... completed and signed questionnaire, representation and agreement required by Section 10 of this Bylaw) shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to the date of such special meeting and not...

  • Page 165
    ... guidelines of the Corporation. Section 11. Opening of Polls. The date and time of the opening and the closing of the polls for each matter upon which the shareholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board of Directors may adopt...

  • Page 166
    ...but before the date of the annual meeting and the Board of Directors resolves to reduce the size of the Board in connection therewith, the maximum number of Shareholder Nominees included in the Corporation's proxy materials shall be calculated based on the number of directors in office as so reduced...

  • Page 167
    ... owns, and has owned continuously for the Minimum Holding Period, the Required Shares, and the Eligible Shareholder's agreement to provide, within five business days after the record date for the annual meeting, written statements from the record holder and intermediaries verifying the Eligible...

  • Page 168
    ..., the rules and listing standards of the principal U.S. exchanges upon which the common stock of the Corporation is traded, or any applicable state or federal law, rule or regulation, (vi) who is or has been within the past three years, an officer or director of a competitor, as defined in Section...

  • Page 169
    ... any person to the Board of Directors pursuant to and in accordance with Section 9 of this Bylaw. (k) This Section 12 of this Article shall be the exclusive method for shareholders to include nominees for Director in the Corporation's proxy materials. D-8 APPENDIX D TO 2015 PROXY STATEMENT

  • Page 170
    ...hibit s), including our audited onancial statements, as well as other reports we ole with the S(&, at no cost on the inYestor relations page of our website at irchipotlecom, or by writing to the &orporate Secretary, &hipotle 0e[ican Grill, ,nc, 1 401Wynkoop Street, Suite 500, 'enYer, &2 0 0 

  • Page 171
    ... THE MOST DELICIOUS INGREDIENTS WE CAN FIND. This includes meats raised responsibly without the use of antibiotics or added hormones, dairy from cows raised on pasture, and seasonal local produce. We then prepare these ingredients using classic cooking techniques, without added sugars, artificial...