Chipotle 2015 Annual Report Download

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2015 ANNUAL REPORT
AND PROXY STATEMENT

Table of contents

  • Page 1
    2015 ANNUAL REPORT AND PROXY STATEMENT

  • Page 2
    ... goals. Building teams of top performers has always helped drive our business - preparing and serving delicious food, providing the best customer experience we can, and delivering strong unit economics - and we are confident that our teams will continue to execute these new food safety programs and...

  • Page 3
    ... 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 5% or more of the outstanding...

  • Page 4
    ... About Market Risk Item 8. Financial 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...

  • Page 5
    ... or raise the food. We manage our operations and restaurants based on nine regions that aggregate into one reportable segment. Financial information about our operations, including our revenues and net income for the years ended December 31, 2015, 2014, and 2013, and our total assets as of December...

  • Page 6
    ... system. Additionally, we are focused on internal training programs to ensure that all employees thoroughly understand our high standards for food safety and food handling, and we offer paid sick leave to employees to reduce incentives for employees to work while sick. These 4 2015 Annual Report

  • Page 7
    ...to make sure the serving line is stocked with all our ingredients so the employees on the line can focus on each customer's order; proper mise en place, or putting everything in its place before starting food preparation; and ensuring that we have "aces in their places," or well-trained employees at...

  • Page 8
    ... and managers who are committed to work hard, provide great customer service and have the ability to lead and empower a team of top performers. We provide hands on, shoulder-to-shoulder training, along with career path training materials, to develop the full potential of our restaurant employees. We...

  • Page 9
    ...have established with the suppliers. We've tried to increase, where necessary, the number of suppliers for our ingredients, which we believe can help mitigate pricing volatility and supply shortages, and we follow industry news, trade issues, weather, exchange rates, foreign demand, crises and other...

  • Page 10
    ...experience - can be adapted to cuisines other than the 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 opened our first ShopHouse Southeast Asian Kitchen during 2011 and we now have a total of 13 ShopHouse restaurants...

  • Page 11
    ... corporate infrastructure. The services available within our systems and applications include restaurant operations, supply chain, inventory, scheduling, training, human capital management, financial tools, and data protection services. The restaurant structure is based primarily on a point-of-sales...

  • Page 12
    ... comparable restaurant sales in the days immediately following announcements related to the incidents. During the week of December 7, 2015, an unrelated incident involving norovirus was reported at a Chipotle restaurant in Brighton, Massachusetts, which worsened the adverse financial and operating...

  • Page 13
    ... strategy, our marketing and branding strategies, our initiatives to increase the speed at which our crews serve each customer, expanded use of online and other electronic ordering, increasing sales from our Any further instances of food-borne or localized illnesses associated with our restaurants...

  • Page 14
    ...as opposed to the double-digit comparable restaurant sales increases we reported for the third quarter of 2014), the price of our common stock declined nearly 7% on the following trading day. Any future deceleration in or failure to meet market expectations for our comparable 12 2015 Annual Report

  • Page 15
    ..., food courts, or on military sites. The risks relating to building a customer base and managing development and operating costs may be more significant in some or all of these types of trade areas or restaurant sites, which could have an unexpected negative impact on our new restaurant operating...

  • Page 16
    ... dining experience-can be adapted to cuisines other than the 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 opened ShopHouse Southeast Asian Kitchen during 2011 and now have a total of 13 ShopHouse restaurants, in...

  • Page 17
    ... "Financial Statements and Supplementary Data." Termination of a significant number of employees in specific markets or across our company due to work authorization or other regulatory issues would disrupt our operations including slowing our throughput, Risks Related to Operating in the Restaurant...

  • Page 18
    ... paying the increased cost for the ingredients. Any such changes to our available menu may negatively impact our restaurant traffic and comparable restaurant sales, and could also have an adverse impact on our brand. Changes in food and supply costs could adversely affect our results of operations...

  • Page 19
    ... targeted at particular consumer preferences. Many of our competitors in the fastcasual and quick-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...

  • Page 20
    ... serving carnitas for a number of months during 2015. We believe our comparable restaurant sales were adversely impacted as a result as customers chose to eat elsewhere rather than substituting a different one of our menu items for carnitas. sales, operating results, profits, business or financial...

  • Page 21
    ... 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 U.S. have adopted regulations requiring that chain restaurants include calorie information on their menu boards...

  • Page 22
    ... could delay or prevent development of new restaurants in particular locations. The effect of recent changes to U.S. healthcare laws may increase our healthcare costs and negatively impact our financial results. We offer eligible full-time and part-time U.S. employees the opportunity to enroll...

  • Page 23
    ...the number of many of the foregoing types of claims has increased as our business has grown and we have become more visible to potential plaintiffs and their Risks Related to our Unique Business Strategy We may not persuade customers of the benefits of paying our prices for higher-quality food. Our...

  • Page 24
    ... purchases of pork from this supplier. Without this supply, we did not have enough pork meeting our specifications for all of our restaurants and a large number of our restaurants were not serving carnitas for a number of months during 2015. We believe our comparable restaurant sales were adversely...

  • Page 25
    ... out-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. highly publicized...

  • Page 26
    ...brand. In addition to the damage to our reputation from well-publicized food safety incidents during 2015 as described elsewhere in this report, we may experience negative publicity from time to time relating to food quality, customer complaints, restaurant facilities, advertising and other business...

  • Page 27
    ...large-scale changes in workforce; • our ability to raise menu prices without adversely impacting customer traffic, particularly if food and labor costs continue to increase; • the timing of new restaurant openings and related revenues and expenses; • operating costs at newly opened restaurants...

  • Page 28
    ... Carolina Tennessee 26 2015 Annual Report 11 74 5 351 76 19 4 22 116 36 4 120 30 8 24 16 6 4 70 45 24 58 36 2 9 24 5 45 4 115 39 1 159 10 20 61 7 16 15 For information regarding legal proceedings, see Note 10. "Commitments and Contingencies" in our consolidated financial statements included in Item...

  • Page 29
    ... 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 on the NYSE under the symbol "CMG." High Low 2014 First Quarter Second Quarter Third Quarter Fourth Quarter $622.90...

  • Page 30
    .../12 12/13 12/14 12/15 Chipotle Mexican Grill, Inc S&P 500 S&P Restaurants *$100 invested on 12/31/10 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2016 S&P, a division of McGraw Hill Financial. All rights reserved. 28 2015 Annual Report

  • Page 31
    ... Year ended December 31, 2015 2014 2013 2012 2011 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 costs Loss on disposal of assets Total operating expenses...

  • Page 32
    ...as increased costs to support marketing initiatives. As a result of the sales impact from the food-borne illness incidents and the additional costs described above, we believe that our net income will be at approximately break-even levels in the first quarter of 2016. Sales. Average restaurant sales...

  • Page 33
    ... average number of transactions and group size, primarily in the fourth quarter. Menu price increases accounted for a 3.5% increase in our comparable restaurant sales increases for 2015. Restaurant Development. As of December 31, 2015, we had 2,010 restaurants in operation, including 1,971 Chipotle...

  • Page 34
    ... revenue were comparable restaurant sales and new restaurant openings. Comparable revenue increases contributed $530.0 million of the increase in restaurant sales, due primarily to increases in customer visits, and an increase in average check amount, including the benefit from menu price increases...

  • Page 35
    ... 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. Occupancy Costs Year ended December 31, 2015 2014 2013...

  • Page 36
    ... decreased as a percentage of revenue as a result of the benefit of higher average restaurant sales on a partially fixed-cost base. Loss on Disposal of Assets Year ended December 31, 2015 2014 2013 (dollars in millions) % increase 2015 over 2014 % increase 2014 over 2013 Loss on disposal of assets...

  • Page 37
    ... 2015 around food-borne illness incidents associated with our restaurants, as well as fluctuations in food or packaging costs or the timing of menu price increases. The number of trading days in a quarter can also affect our results, although, on an overall annual basis, changes in trading dates...

  • Page 38
    ...the right to pay for the purchase of food, beverage and supplies some time after the receipt of those items, generally within ten days, thereby reducing the need for incremental working capital to support our growth. One of our primary uses of cash is in new restaurant development. Our total capital...

  • Page 39
    ... results of operations could have been different. Awards that contain service, performance and market conditions ultimately vest based on Chipotle's relative performance versus a restaurant industry peer group in the annual averages of revenue growth, net income growth, and total shareholder return...

  • Page 40
    ...cases, we have minimum purchase obligations. We've tried to increase, where necessary, the number of suppliers for our ingredients, which we believe can help mitigate pricing volatility, and we follow industry news, trade issues, exchange rates, foreign demand, weather, crises and other world events...

  • Page 41
    ... CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Balance Sheet as of December 31, 2015 and 2014 Consolidated Statement of Income and Comprehensive Income for the years ended December 31, 2015, 2014 and 2013 Consolidated Statement of Shareholders...

  • Page 42
    ... of the Public Company Accounting Oversight Board (United States), Chipotle Mexican Grill, Inc.'s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the...

  • Page 43
    ... 4,367 common shares at December 31, 2015 and December 31, 2014, respectively Accumulated other comprehensive income (loss) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity See accompanying notes to consolidated financial statements. 2015 Annual Report 41 - 358...

  • Page 44
    ... (continued) CHIPOTLE MEXICAN GRILL, INC. CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (in thousands, except per share data) Year ended December 31, 2015 2014 2013 Revenue Restaurant operating costs (exclusive of depreciation and amortization shown separately below): Food, beverage and...

  • Page 45
    ...) 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, 2012 Stock-based compensation...

  • Page 46
    ...) Year ended December 31, 2015 2014 2013 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 47
    ...key ingredients (beef, pork, chicken, beans, rice, sour cream, cheese, and tortillas) are purchased from a small number of suppliers. Revenue Recognition Revenue from restaurant sales is recognized when payment is tendered at the point of sale. The Company reports revenue net of sales and use taxes...

  • Page 48
    ...the Company's analysis, no impairment charges were recognized on goodwill for the years ended December 31, 2015, 2014 and 2013. Income Taxes The Company recognizes deferred tax assets and liabilities at enacted income tax rates for the temporary differences between the financial reporting bases and...

  • Page 49
    ..., 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 50
    ... 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. Income and expense accounts are translated at the average monthly exchange rates during the year...

  • Page 51
    ...31, 2015 was $1,040,850 and the fair Actual taxes paid for each tax period were less than the current tax expense due to the excess tax benefit on stockbased compensation of $74,442, $21,667, and $38,379 during the years ended December 31, 2015, 2014, and 2013, respectively. 2015 Annual Report 49

  • Page 52
    ... tax rate differs from the statutory tax rates as follows: Year ended December 31, 2015 2014 2013 Statutory U.S. federal income tax rate State income tax, net of related federal income tax benefit Other Effective income tax rate Deferred income tax liabilities are taxes the Company expects to pay...

  • Page 53
    ..., and 57 shares for a total cost of $12, $342, and $28,916 respectively. 6. Stock Based Compensation The Company issues shares pursuant to the Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan (the "2011 Incentive Plan"), approved at the annual shareholders' meeting on May...

  • Page 54
    ... outstanding, of which 316 awards had met the performance conditions. In addition to time vesting described above, the shares vest upon achieving a targeted cumulative cash flow from operations. The total intrinsic value of options and SOSARs exercised during the years ended December 31, 2015, 2014...

  • Page 55
    ..., performance, and market vesting conditions ("the 2015 stock awards"). The quantity of shares that will ultimately vest is determined based on Chipotle's relative performance versus a restaurant industry peer group in the annual average of: revenue growth, net income growth, and total shareholder...

  • Page 56
    ...2013, Company matching contributions totaled approximately $4,995, $3,881 and $2,644, respectively. The Company also offers an employee stock purchase plan ("ESPP"). Employees become eligible to contribute after one year of service with the Company and may contribute up to 15% of their base earnings...

  • Page 57
    ... for food purchases and supplies, amounts owed under contractor and subcontractor agreements, 2015 Annual Report 55 9. Earnings Per Share Basic earnings per share is calculated by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding...

  • Page 58
    ... of shares of the Company's common stock between February 4, 2015 and January 5, 2016. The complaint purports to state claims against the Company, each of its co-Chief Executive Officers and its Chief Financial Officer under Sections 10(b) and 20(a) of the Exchange Act and related rules, based on...

  • Page 59
    ... the Company's business, financial condition, results of operations and cash flows. 11. Quarterly Financial Data (Unaudited) Summarized unaudited quarterly financial data: 2015 March 31 June 30 September 30 December 31 Revenue Operating income Net income Basic earnings per share Diluted earnings...

  • Page 60
    ... 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 During the quarter ended March 31, 2015, we implemented a new...

  • Page 61
    ...the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Chipotle Mexican Grill, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of income and comprehensive income, shareholders' equity and cash flows for each of the three years...

  • Page 62
    PART II (continued) ITEM 9B. OTHER INFORMATION None. 60 2015 Annual Report

  • Page 63
    ... stock, restricted stock units or performance shares counts as two shares used against the total number of securities authorized under the plan. Additional information for this item is incorporated by reference from the definitive proxy statement for our 2016 annual meeting of shareholders...

  • Page 64
    ...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. 62 2015 Annual Report

  • Page 65
    ...this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Date Title / S/ STEVE ELLS Steve Ells February 4, 2016 Co-Chief Executive Officer and Chairman of the Board of Directors (principal executive officer...

  • Page 66
    ...-Based Stock Appreciation Rights Agreement Amendment No. 1 to Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan Amended and Restated Registration Rights Agreement dated January 31, 2006 among Chipotle Mexican Grill, Inc., McDonald's Corporation and certain shareholders 001-32731 July 19, 2013...

  • Page 67
    ... of Co-Chief Executive Officers and Chief Financial Officer of Chipotle Mexican Grill, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The following financial statements, formatted in XBRL: (i) Consolidated Balance Sheet as of December 31, 2015 and December 31, 2014, (ii) Consolidated...

  • Page 68
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 69
    ... meeting of shareholders of Chipotle Mexican Grill, Inc., which will be held on May 11, 2016 at 8:00 a.m. local time at the Grand Hyatt Denver, 1750 Welton Street, Denver, Colorado. Details of the business to be conducted at the annual meeting are given in the notice of meeting and proxy statement...

  • Page 70
    ... fixed by the Board of Directors as the close of business on March 14, 2016. 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 24, 2016 Please execute your vote promptly...

  • Page 71
    Proxy Statement Summary MATTERS TO BE VOTED ON AT THE ANNUAL MEETING AND BOARD RECOMMENDATIONS 1. Election of Directors (p. 7) Name Years of Service Independent Board Recommendation Albert Baldocchi Darlene Friedman John Charlesworth Kimbal Musk Monty Moran Neil Flanzraich Pat Flynn Stephen Gillett...

  • Page 72
    ... in building long-term shareholder value. The graph below reflects the growth of an investment in our common stock at the close of the first day of trading following our initial public offering in January 2006, versus the performance of the S&P 500 and Russell 2000 indexes over a comparable 10 year...

  • Page 73
    ... 25% of our outstanding common stock to call special meetings of shareholders. Board is recommending adoption of proxy access for qualifying long-term shareholders. For significant compensation policies and procedures we employ to motivate our employees to build shareholder value, while protecting...

  • Page 74
    ... Independent Committees of the Board Director Compensation i 1 5 7 7 7 11 11 13 Corporate Governance Chairman of the Board Lead Director How to Contact the Board of Directors Executive Sessions Director Nomination Process Policies and Procedures for Review and Approval of Transactions with Related...

  • Page 75
    ... our Board of Directors 35 Executive Officers Compensation Discussion and Analysis Letter From the Compensation Committee of our Board of Directors Compensation Committee Report Summary Compensation Table Grants of Plan-Based Awards in 2015 Terms of 2015 Performance Share Awards Outstanding Equity...

  • Page 76
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 77
    ... Denver, 1750 Welton Street, Denver, Colorado. This proxy statement was prepared under the direction of Chipotle's Board of Directors to solicit your proxy for use at the annual meeting. It will be made available to shareholders on or about March 24, 2016. Who is entitled to vote and how many votes...

  • Page 78
    ...of a stock retention policy for senior executives. PROPOSAL 8 - A shareholder proposal, if properly presented at the meeting, requesting that the Board of Directors implement changes to Chipotle's governing documents to allow shareholders owning an aggregate of 10% of our outstanding common stock to...

  • Page 79
    ... first come first served, and due to space constraints we can't guarantee seating for all attendees. What constitutes a quorum? A quorum is necessary to conduct business at the annual meeting. At any meeting of our shareholders, the holders of a majority in voting power of our outstanding shares of...

  • Page 80
    ... 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. making these proxy materials available on the Internet and providing hard copies of the materials to shareholders who request...

  • Page 81
    ...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 82
    ... 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. Excludes 70 shares underlying unvested restricted stock units which will vest on September 1, 2016...

  • Page 83
    ...included responsibility for managing a large and diverse employee workforce similar in many ways to Chipotle's, and also gave him a detailed knowledge of restaurant operations and food safety, site selection and related matters. He also has developed strong financial acumen through his experience at...

  • Page 84
    ...an asset to our Board. Mr. Musk is a member of the board of directors of Tesla Motors, Inc. (Nasdaq:TSLA) as well as a number of privately-held companies and charitable organizations. He has served as an Adjunct Professor at New York University, and is a graduate of Queen's Business School in Canada...

  • Page 85
    ..., he served as Executive Vice President and Chief Operating Officer of Symantec Corporation (Nasdaq: SYMC) until December 31, 2014. In this role, he was responsible for corporate strategy, business segment management, eBusiness, IT, marketing, communications, sales and marketing operations, customer...

  • Page 86
    ... Vice President and Chief Counsel and member 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...

  • Page 87
    ... meeting. written charter adopted by our Board of Directors which sets forth the committee's roles and responsibilities and provides for an annual evaluation of its performance. The charters of all three standing committees are available on the Investors page of our corporate website at ir.chipotle...

  • Page 88
    ... similar committees of publicly held companies, including Chipotle, in 2015. A report of the Audit Committee is found under the heading "Audit Committee Report" on page 21. Stock Incentive Plan and to make awards under the plan, including as described below under "Executive Officers and Compensation...

  • Page 89
    ...established by our bylaws. The committee oversees the annual evaluation of the performance of the Board and its committees and reviews and makes recommendations regarding succession plans for positions held by executive officers. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2016 PROXY STATEMENT 13

  • Page 90
    ... sessions without employee directors or other employees being present, and also consults with the Chairman, the Co-Chief Executive Officers and the Chief Financial Officer on business issues and with the Nominating and Corporate Governance Committee on Board management. Other responsibilities of the...

  • Page 91
    ... to which directors understand Chipotle's products, markets and business initiatives; (ii) the extent to which individual director experience, information and insight contribute to the effectiveness of the Board; and (iii) the availability of training and development opportunities, if necessary...

  • Page 92
    ...election as a director at this year's annual meeting, and was recommended to the Board as a nominee by the Nominating and Corporate Governance Committee. The committee considers candidates suggested by its members, other directors, senior management and shareholders. The committee is also authorized...

  • Page 93
    ... impact on our business during 2015 and into 2016, the Audit Committee and management agreed on additional procedures to enhance the committee's oversight over food safety risks. This enhanced oversight will involve increased reporting to the Audit Committee regarding food safety-related matters, as...

  • Page 94
    .... 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 95
    ... and related downturn in our business can be found beginning on page 39. 2015 Executive Compensation In response to the say-on-pay vote held at our annual meeting in May 2014 and prior to making decisions regarding executive compensation for 2015, our Compensation Committee and management team had...

  • Page 96
    ... auditors to audit our consolidated financial statements for the year ending December 31, 2016 and to perform other permissible, pre-approved services. As a matter of good corporate governance, we are requesting that shareholders ratify the Audit Committee's appointment of Ernst & Young LLP...

  • Page 97
    ... 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, 2015 for filing with the...

  • Page 98
    ... to call special meetings is viewed by many shareholders as a corporate governance best practice. The Board also believes, however, that special meetings of shareholders would likely result in our incurring substantial expenses, and may be disruptive to our business operations and therefore counter...

  • Page 99
    ...the Board or the shareholders. In that case, we will file the Amended and Restated Bylaws, as amended to include these provisions, as an exhibit to the Current Report on Form 8-K filed to report the results of the annual meeting. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2016 PROXY STATEMENT 23

  • Page 100
    ... proxy materials will 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; 24 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2016 PROXY STATEMENT

  • Page 101
    ... for further development of market practices in this rapidly evolving area; • Our long-term company performance has been outstanding, and it is not in the best interests of shareholders to facilitate potentially disruptive changes to a Board that has overseen consistently strong business results...

  • Page 102
    ... U.S. exchange upon which our common stock is listed, any applicable rules of the SEC and any publicly disclosed standards used by our Board in determining and disclosing independence of our directors, in each case as determined by our Board; NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2016 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
    ...-quarter limit. Supporting statement: We believe proxy access is a fundamental shareholder right that will make directors more accountable and enhance shareholder value. A 2014 CFA Institute study concluded that proxy access would "benefit both the markets and corporate boardrooms, with little cost...

  • Page 105
    ... OF A STOCK RETENTION POLICY FOR SENIOR EXECUTIVES Resolved: Shareholders of Chipotle Mexican Grill, Inc. (the "Company") urge the Compensation Committee of the Board of Directors (the "Committee") to adopt a policy requiring that senior executives retain a significant percentage of shares acquired...

  • Page 106
    ... both hedging and pledging of shares of our stock by our officers and the members of our Board of Directors. This approach to executive share ownership is consistent with a vast majority of publicly-traded companies in the U.S. 30 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2016 PROXY STATEMENT

  • Page 107
    ... impact our board's current power to call a special meeting. Supporting Statement: Delaware law allows 10% of company shares to call a special meeting. A shareholder right to call a special meeting is a way to bring an important matter to the attention of both management and shareholders outside the...

  • Page 108
    ...9 AN ADVISORY VOTE ON A SHAREHOLDER PROPOSAL REQUESTING CHIPOTLE TO ISSUE AN ANNUAL SUSTAINABILITY REPORT MEETING SPECIFIED CRITERIA Whereas: Managing and reporting environmental, social and governance (ESG) business practices helps companies compete in a business environment characterized by finite...

  • Page 109
    ..., be prepared at a reasonable cost, omit proprietary information, and be made available to shareholders by October 2016. Supporting Statement: The report should address relevant policies, practices, metrics and goals on topics such as: greenhouse gas emissions, pesticide use management, food safety...

  • Page 110
    ... average of 3,154 kWh per site per month. This program also allows us to gather meaningful data that we have used to create best practices at all of our restaurants, thus expanding the impact of the pilot. In 2015 we continued to refine the restaurant water usage baseline developed in 2014, through...

  • Page 111
    ... 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...

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    ... growth. The Glass Lewis report Greening the Green 2014: Linking Executive Pay to Sustainability, finds a "mounting body of research showing that firms that operate in a more responsible manner may perform better financially...Moreover, these companies were also more likely to tie top executives...

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    ... for Chipotle. But our ultimate goals are to grow our business responsibly and thereby create long-term shareholder value, and the Compensation Committee, its advisors and our Board are confident that our existing incentive compensation programs create strong incentives for our executive officers to...

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    ... heading "Information Regarding the Board of Directors," our executive officers as of March 14, 2016, are as follows: John R. (Jack) Hartung, 58, is Chief Financial Officer and has served in this role since 2002. In addition to having responsibility for all of our financial and reporting functions...

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    ... executive officers. Letter from the Compensation Committee of our Board of Directors Dear Fellow Shareholder, 2015 was a year marked by both highs and lows. On August 5th, the price of our common stock reached an all-time high of $758.61 per share. However, beginning in the fourth quarter of 2015...

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    ... say-on-pay vote registered at our 2014 annual meeting of shareholders and extensive dialogue with investors, we introduced a new equity program for our executive officers consisting solely of performance share awards with vesting based on relative achievement of three different performance measures...

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    ... business in 2015, the challenges we faced in the second half of the year adversely impacted our sales and income growth as compared to past years. ANNUAL COMPANY PERFORMANCE TOTAL RESTAURANTS INCREASE FROM PRIOR YEAR SALES (000's) INCREASE FROM PRIOR YEAR NET INCOME (000's) INCREASE FROM PRIOR YEAR...

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    ... 60 56th 48th 44th Total Shareholder Return Net Income Growth Sales Growth 40 20 15th 0 7 years 5 years 3 years 1 year Key Outcomes and Changes Related to Executive Officer Compensation for 2015 and 2016 To respond to our 2014 say-on-pay vote, in early 2015 we engaged in significant...

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    ... $5,000 $0 2014 2015 Base Salary Annual Incen ve LTI 2014 2015 SIGNIFICANT COMPENSATION POLICIES AND PRACTICES We pay for performance; the vast majority of total compensation is tied to performance measures or stock price performance. We use multiple performance metrics, multi-year vesting...

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    ... on our sales growth, net income growth and total shareholder return in relation to other companies in our industry over the prior one, three and five years; • individual officer performance, including discussions with our Co-Chief Executive Officers regarding the 44 NOTICE OF ANNUAL MEETING OF...

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    ... companies, based on revenues and on market capitalization. Compensation Strategies, the committee's independent executive compensation consultant prior to September 2015, performed this analysis at the time of compensation decisions made for 2015. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2016...

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    ... 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 evaluation, actual bonuses are...

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    ... of the companies with which we compete for executive talent provide a similar plan to their key employees. The committee's policy has generally been to make equity compensation awards to officers only on an annual basis, within five business days following our public release of financial results...

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    ... 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...

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    ... the committee selected to be used in determining the company and team performance factors were income from operations (prior to accrual for AIP payouts and stock compensation expense), new restaurant average daily sales, comparable restaurant sales increases, and new restaurant weeks of operation...

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    ...-year performance-contingent vesting period based on Chipotle's relative performance return versus a restaurant industry peer group in three equally-weighted measures average revenue growth, net income growth, and total shareholder return. The awards will pay out at the target number of shares...

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    ... and analysis, for 2016, the Compensation Committee decided to continue using performance shares for the executive officer equity compensation program. However, the 2016 performance shares will be tied solely to highly-challenging absolute stock price performance goals over a three-year performance...

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    ... to comply. All of our executive officers meet the stock ownership guidelines. We also have adopted a policy prohibiting our directors and certain employees, including all of the executive officers, from hedging their Chipotle 52 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2016 PROXY STATEMENT

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    ... treatment under COMPENSATION COMMITTEE REPORT The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis included in this Proxy Statement with management. Based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the...

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    ... rules of the Internal Revenue Service. • Commuting expenses, which include air fare, airport parking and ground transportation relating to travel between home and our company headquarters, for Mr. Hartung totaling $38,604. 54 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2016 PROXY STATEMENT

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    ...be based on Chipotle's relative performance versus our restaurant industry peer group in revenue growth, net income growth, and total shareholder return, with each performance measure to be weighted equally. The awards will pay out at the target number of shares set forth in the Grants of Plan-Based...

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    ... under 2013 performance share awards, assuming achievement at the threshold level of cumulative adjusted cash flow from operations, subject to certain adjustments for stock-based compensation expense and for one-time or unusual items, through September 30, 2016. (7) Based on the closing stock price...

  • Page 133
    ... income in the year the distribution is made. Amounts credited to participants' deferral accounts are unsecured general obligations of ours to pay the value of the accounts to the participants at times determined under the plan. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2016 PROXY STATEMENT...

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    ... Incentive Plan Compensation" for 2015. (2) These amounts are reported in the Summary Compensation Table as part of each executive's "All Other Compensation" for 2015. (3) These amounts are not reported as compensation in the Summary Compensation Table because none of the earnings are "above market...

  • Page 135
    ... 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, 2015, of the value of each listed type of equity award that...

  • Page 136
    ... following completion of the performance period. (5) The dollar values reflected in the table are based on the excess of the closing price of our common stock on December 31, 2015 over the exercise price of the applicable SOSARs. 60 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2016 PROXY STATEMENT

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    ... securities exchange. In the event of a change in control under the plan as of December 31, 2015, if SOSARs outstanding on that date were not replaced with replacement awards meeting the criteria specified above, the executive officers as of that NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2016...

  • Page 138
    ... ceasing to be listed on a national securities exchange. In the event of such a change in control under the plan as of December 31, 2015, if the outstanding performance share awards were not replaced with a replacement award meeting the criteria specified above, the executive officers as of that...

  • Page 139
    ... Relationships and Related Party Transactions Registration Rights Prior to our initial public offering, certain of our 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...

  • Page 140
    ... and Corporate Governance Committee, and any reports of beneficial ownership of our common stock filed by executive officers, directors and beneficial owners of more than 10 percent of the outstanding shares of either class of our common stock are posted on and may be obtained on the Investors page...

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    ... 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 24, 2016 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2016 PROXY STATEMENT 65

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    ... 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 , 2016. CHIPOTLE MEXICAN GRILL, INC. By: Name: Office: APPENDIX A TO 2016 PROXY STATEMENT A-1

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    ..., a shareholder's 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...

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    ... 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 147
    ...a new time period for the giving of a shareholder's notice as described above. (c) General. (i) Only such persons who are nominated in accordance with the procedures set forth in this Bylaw shall be eligible to serve as directors and only such business shall be conducted at a meeting of shareholders...

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    ... director of the Corporation, and will comply with, all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation. Section 11. Opening of Polls. The date and time of the opening and the closing...

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    ...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 150
    ... at any time by the shareholder. The terms "owned," "owning" and other variations of the word "own" shall have correlative meanings. Whether outstanding shares of the common stock of the Corporation are "owned" for these purposes shall be determined by the Board of Directors or any committee thereof...

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    ..., 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...

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    ... 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. B-8 APPENDIX B TO 2016 PROXY STATEMENT

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    ... the Kitchen STOCK EXCHANGE LISTING New York Stock Exchange Symbol: CMG AUDITORS Ernst & Young LLP Denver, Colorado STOCK TRANSFER AGENT By mail: Wells Fargo Shareowner Services 1110 Centre Pointe Curve, Suite 101, Mendota Heights, MN 55120 By phone: 1-800-401-1957 Online: www.shareowneronline...

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    FOOD WITH INTEGRITY We prepare our delicious ingredients simply, using classic cooking techniques, without added sugar, artificial sweeteners, ï¬,avors, or colors. This includes meat raised without antibiotics or added hormones, pasture-raised dairy, and only non-GMO ingredients.