Chipotle 2012 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... for future growth in Europe and Canada, where we currently operate 12 restaurants, and with our ShopHouse Southeast Asian Kitchen concept, which is currently open in Washington, DC. In 2012, our marketing focused on building the Chipotle brand and engaging with our customers in ways that create...

  • Page 3
    ... common stock, par value of $0.01 per share outstanding. DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates certain information by reference from the registrant's definitive proxy statement for the 2013 annual meeting of shareholders, which will be filed no later than 120 days after the close...

  • Page 4
    ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accounting Fees and Services ...PART IV Item 15. Exhibits, Financial Statement Schedules...

  • Page 5
    ... all of this with increasing awareness and respect for the environment. We have grown substantially over the past five years, and expect to open between 165 and 180 additional restaurants in 2013. Annual Report Our vision is to change the way people think about and eat fast food. We do this by...

  • Page 6
    .... A Few Things, Thousands of Ways. Chipotle restaurants serve only a few things: burritos, burrito bowls, tacos and salads. But because customers can choose from four different meats, two types of beans and a variety of extras such as salsas, guacamole, cheese and lettuce, there's enough variety...

  • Page 7
    ... typically found in fine dining restaurants. The Front Line is Key. Our restaurant and kitchen designs intentionally place crew members up front with customers to reinforce our focus on service, and our open kitchen design allows customers to see that we prepare our food fresh, each and every day...

  • Page 8
    ...we also have a field support system that includes apprentice team leaders, team leaders or area managers, team directors, executive team directors or regional directors, and restaurant support officers. Supply Chain Close Relationships with Suppliers. Maintaining the high levels of quality we expect...

  • Page 9
    ... grocery store chains. The number, size and strength of competitors vary by region, market and even restaurant. Competitors to our restaurants compete based on a number of factors, including taste, quality, speed of service, price and value, name recognition, location, menu variety, customer service...

  • Page 10
    ... harm the value of our brand and adversely affect our business. Information Systems Chipotle uses an integrated information system to manage the flow of information within each restaurant and between the restaurants and the corporate office. This system includes a point-of-sales local area network...

  • Page 11
    ...2013, statements about potential menu price increases in 2013, projections of restaurant development costs and other expenses, statements of our intention to open restaurants in one or more specified locations, statements regarding the potential impact of ongoing economic uncertainty on our business...

  • 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, and...

  • Page 13
    ... new restaurants, which is subject to many unpredictable factors. We operated 1,410 restaurants as of December 31, 2012. We plan to increase the number of our restaurants significantly in the next three years, and plan to open between 165 and 180 new restaurants in 2013. However, we have in the past...

  • Page 14
    ...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. Annual Report In addition, we have now opened restaurants in nearly all major metropolitan areas across the U.S. New...

  • Page 15
    ...restaurant sales. Our business could be adversely affected by increased labor costs or difficulties in finding the right employees for our restaurants and the right field leaders. Labor is a primary component of our operating costs, and we believe good managers and crew are a key part of our success...

  • Page 16
    ... on our business and results of operations. Restaurant operators have traditionally experienced relatively high employee turnover rates. Any increase in our turnover rates for managers or crew could be costly. Various states in which we operate are considering or have already adopted new immigration...

  • Page 17
    ...lower operating costs, better locations, better facilities, better management, more effective marketing and more efficient operations than we have. Any of these competitive factors may adversely affect us and reduce our sales and profits. Failure to receive frequent deliveries of higher-quality food...

  • Page 18
    ... policy, high gasoline prices, declining home prices, tight credit markets or foreign political or economic unrest. Any material decline in consumer confidence or a decline in family "food away from home" spending could cause our sales, operating results, profits, business or financial condition...

  • Page 19
    ... more extensive health benefits to employees than we currently do could have an adverse effect on our results of operations and financial position, as well as the restaurant industry in general. The most significant increase in costs will likely begin in 2014. Such increases will likely be large...

  • Page 20
    ... federal, state and municipal levels on the food industry including nutrition and advertising practices. Restaurants operating in the quickservice 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...

  • Page 21
    ... in California. We are also undergoing government investigations as described elsewhere in this report, including under "Risks Related to Operating in the Restaurant Industry-Our business could be adversely affected by increased labor costs or difficulties in finding the right employees for...

  • Page 22
    ..., 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 have created an employee culture, food culture and business strategy at our company that has been critical to our success and...

  • Page 23
    ... such information is regulated at the federal and state levels, and the regulatory environment related to information security and privacy is increasingly demanding. If the security and information systems of ours or of outsourced third party providers we use to store or process such information are...

  • Page 24
    ... various factors, including changes in comparable restaurant sales and customer visits, including as a result of declining consumer confidence or the introduction of new menu items; the timing of new restaurant openings and related revenues and expenses; operating costs at newly opened restaurants...

  • Page 25
    ... from McDonald's could adversely affect us. McDonald's Corporation was our majority owner from 2000 until October 2006. We understand that the exchange offer McDonald's completed in October 2006 to dispose of its interest in us was generally tax-free to McDonald's and its shareholders. In order to...

  • Page 26
    ITEM 2. PROPERTIES As of December 31, 2012, we operated 1,410 restaurants. The table below sets forth the locations (by state or country) of all of our restaurants in operation. Alabama ...Arizona ...Arkansas ...California ...Colorado ...Connecticut ...Delaware ...District of Columbia ...Florida ......

  • Page 27
    ...which 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 28
    ...shares of common stock we repurchased during the fourth quarter of 2012. Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)(3) Total Number of Shares Purchased(1) Average Price...

  • Page 29
    ...whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Chipotle Mexican Grill, Inc, the S&P 500 Index, and the S&P Restaurants Index Annual Report $250 $200 $150 $100 $50 $0 12...

  • Page 30
    ... per share data). 2012 2011 For the years ended December 31 2010 2009 2008 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...

  • Page 31
    ... described in Item 1A. "Risk Factors" and elsewhere in this report. Overview Chipotle operates fresh Mexican food restaurants serving burritos, tacos, burrito bowls (a burrito without the tortilla) and salads. We began with a simple philosophy: demonstrate that food served fast doesn't have to be...

  • Page 32
    ...to pressure food costs, we may, after taking into account the general economic environment, consumer confidence, and our sales trends, raise menu prices later in 2013. Annual Report Stock Repurchases. In accordance with stock repurchases authorized by our Board of Directors we purchased stock with...

  • Page 33
    ...restaurant sales growth in 2012 and 2011 was due primarily to increases in customer visits, as well as the impact of menu price increases. Food, Beverage and Packaging Costs For the years ended December 31 2012 2011 2010 (dollars in millions) % increase 2012 over 2011 % increase 2011 over 2010 Food...

  • Page 34
    ... stock-based compensation expense due to awards granted in 2012 with a higher stock price on the date of grant and additional expense related to non-vested stock awards subject to performance conditions, and costs from our biennial All Managers' Conference which we held during the year. The increase...

  • Page 35
    ...of the benefit of higher average restaurant sales on a partially fixed-cost base. Income Tax Provision For the years ended December 31 2011 (dollars in millions) % increase 2012 over 2011 % increase 2011 over 2010 2012 2010 Annual Report Provision for income taxes ...$ Effective tax rate ... 179...

  • Page 36
    ... 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 37
    ... critical accounting estimates affect our more significant judgments and estimates used in the preparation of our financial statements: Leases We lease most of our restaurant locations. Our leases contain escalating rentals over the lease term as well as optional renewal periods. We account for...

  • Page 38
    ... our food, as well as our packaging materials, are commodities or ingredients that are affected by the price of other commodities, exchange rates, foreign demand, weather, seasonality, production, availability and other factors outside our control. We work closely with our suppliers and use a mix...

  • Page 39
    ... adjustments resulting from the conversion of our international financial results into the U.S. dollar. However, a substantial majority of our operations and investment activities are transacted in the U.S. and therefore our foreign currency risk is limited at this date. Annual Report 37

  • Page 40
    ... FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheet as of December 31, 2012 and 2011 ...Consolidated Statement of Income and Comprehensive Income for the years ended December 31, 2012, 2011 and 2010 ...Consolidated Statement of Shareholders...

  • Page 41
    ... 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, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring...

  • Page 42
    CHIPOTLE MEXICAN GRILL, INC. CONSOLIDATED BALANCE SHEET (in thousands, except per share data) December 31 2012 2011 Annual Report Assets Current assets: Cash and cash equivalents ...Accounts receivable, net of allowance for doubtful accounts of $1,187 and $208 as of December 31, 2012 and 2011, ...

  • Page 43
    CHIPOTLE MEXICAN GRILL, INC. CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (in thousands, except per share data) 2012 Years ended December 31 2011 2010 Revenue ...Restaurant operating costs (exclusive of depreciation and amortization shown separately below): Food, beverage and packaging...

  • Page 44
    ... MEXICAN GRILL, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (in thousands) Common Stock Additional Treasury Stock Paid-In Shares Amount Capital Shares Amount Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Balance, December 31, 2009 ...Stock-based compensation...

  • Page 45
    ... Bad debt allowance ...1,046 Stock-based compensation expense ...64,276 Excess tax benefit on stock-based compensation ...(73,210) Other ...522 Changes in operating assets and liabilities: Accounts receivable ...(9,438) Inventory ...(2,180) Prepaid expenses and other current assets ...(5,954) Other...

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

  • Page 47
    ... principally 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 The Company's investments consist...

  • Page 48
    ... 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 liability, automobile...

  • Page 49
    ... 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 50
    ... impact on the Company's consolidated financial position or results of operations. 2. Supplemental Financial Information Leasehold improvements, property and equipment were as follows: December 31 2012 2011 Annual Report Land ...Leasehold improvements and buildings ...Furniture and fixtures...

  • Page 51
    ...10,064 415 Annual Report $ 179,685 $ 134,760 $ 110,080 Actual taxes paid for each tax period were less than the current tax expense due to the excess tax benefit on stock-based compensation of $73,210, $38,786, and $14,526 during the years ended December 31 2012, 2011, and 2010, respectively...

  • Page 52
    ... its Board of Directors of six separate plans to repurchase shares of common stock, which in the aggregate authorized expenditures of up to $600 million. The shares may be purchased from time to time in open market transactions, subject to market conditions. On November 20, 2012 the Company entered...

  • Page 53
    ... the year ended 2012, the Company repurchased 28 shares for a total cost of $10,698, and in the year ended 2010, the Company repurchased 67 shares for a total cost of $10,717. 5. Stock Based Compensation The Company issues shares pursuant to the Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan...

  • Page 54
    ...compensation as of December 31, 2012 was $6,671 for non-vested stock awards the Company has determined are probable of vesting, and is expected to be recognized over a weighted average period of 0.7 years. The fair value of shares earned as of the vesting date during the year ended December 31, 2012...

  • Page 55
    ... 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. During 2012, there were 1 shares issued under the ESPP. The Company also maintains the Chipotle Mexican Grill...

  • Page 56
    ... covering certain offices. Future minimum lease payments required under existing operating leases as of December 31, 2012 are as follows: 2013 ...2014 ...2015 ...2016 ...2017 ...Thereafter ...Total minimum lease payments ...$ 158,981 161,042 161,971 162,451 163,511 1,658,347 2,466,303 Annual Report...

  • Page 57
    ...earnings per share: 2012 Year ended December 31 2011 2010 Net income ...$ Shares: Weighted average number of common shares outstanding ...Dilutive stock options and SOSARs ...Dilutive non-vested stock awards ...Diluted weighted average number of common shares outstanding ...Basic earnings per share...

  • Page 58
    ... work authorization compliance matters. On September 21, 2012, Joanne Nelson filed a shareholder derivative action in the same court alleging that the members of the Company's Board of Directors and the Company's Chief Financial Officer breached their fiduciary duties, caused waste of corporate...

  • Page 59
    ... 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 and regulations, based on the Company's alleged failure during the claimed class period to disclose material information about the Company's business...

  • Page 60
    ...such information is accumulated and communicated to our management, including our co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Evaluation of Disclosure Controls and Procedures Annual Report As of December 31, 2012...

  • Page 61
    ... Accounting Firm The Board of Directors and Shareholders of Chipotle Mexican Grill, Inc. We have audited Chipotle Mexican Grill, Inc.'s (the "Company") internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued...

  • Page 62
    ... INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Incorporated by reference from the definitive proxy statement for our 2013 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2012. ITEM 11. EXECUTIVE COMPENSATION...

  • Page 63
    ...13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Incorporated by reference from the definitive proxy statement for our 2013 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2012. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES...

  • Page 64
    ... to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. 3. Exhibits Annual Report The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this report. 62

  • Page 65
    ... Date Title Annual Report /s/ STEVE ELLS Steve Ells February 8, 2013 Co-Chief Executive Officer and Chairman of the Board of Directors (principal executive officer) Co-Chief Executive Officer (principal executive officer) Chief Financial Officer (principal financial and accounting officer...

  • Page 66
    ... Purchase Plan.(3) Subsidiaries of Chipotle Mexican Grill, Inc. Consent of Ernst & Young LLP (as the independent registered public accounting firm of Chipotle Mexican Grill, Inc.). Power of Attorney (included on signature page of this report). Certification of Chairman and Co-Chief Executive Officer...

  • Page 67
    ... for the years ended December 31, 2012, 2011 and 2010; and (v) Notes to the Consolidated Financial Statements. †- denotes management contract or compensatory plan or arrangement. (1) Incorporated by reference to Chipotle Mexican Grill, Inc.'s Registration Statement on Form 8-A/A filed with the...

  • Page 68
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  • Page 69
    ...of shareholders of Chipotle Mexican Grill, Inc., which will be held on May 17, 2013 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 70
    ... date for the meeting has been fixed by the Board of Directors as the close of business on March 21, 2013. Shareholders of record at that time are entitled to vote at the meeting. By order of the Board of Directors Proxy Statement /s/ Monty Moran Co-Chief Executive Officer, Secretary and Director...

  • Page 71
    ... the compensation of our executive officers as disclosed in this proxy statement ("say-on-pay"). Ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2013. A proposal to approve the Chipotle Mexican Grill 2014 Cash...

  • Page 72
    ... proxy statement. The method by which you vote will not limit your right to vote in person at the annual meeting. If you receive hard copy materials and sign and return your proxy card without specifying choices, your shares will be voted as recommended by the Board of Directors. Will my shares held...

  • Page 73
    ... public accounting firm for the year ending December 31, 2013, approval of the Chipotle Mexican Grill 2014 Cash Incentive Plan, and approval of the shareholder proposal (if properly presented at the meeting) each require the affirmative vote of a majority of the votes cast at the annual meeting...

  • Page 74
    ...; 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 for which the holder has voting or investment power. The information does not necessarily indicate beneficial...

  • Page 75
    ... Capital Management, LLC is 1101 Wilson Blvd. Suite 2300, Arlington, Virginia, 22209. (3) Based solely on a report on Schedule 13G/A filed on February 11, 2013. Shares beneficially owned by T. Rowe Price Associates, Inc. (Price Associates) are owned by various individual and institutional investors...

  • Page 76
    ... this year's annual meeting of shareholders. The current term of office of our Class III directors will end at the annual meeting in 2014 and the term of our Class I directors will end at the annual meeting in 2015. If the amendments to our certificate of incorporation as proposed in proposal E are...

  • Page 77
    ... capacities at Syntex Corporation, a 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 a rapidlyevolving market. His legal background...

  • Page 78
    Class II directors whose terms expire at the 2013 annual meeting of shareholders and who are nominees for terms expiring at the 2016 annual meeting Age Director Since Darlene J. Friedman ... Prior to retiring in 1995, Ms. Friedman spent 19 years at Syntex Corporation, a pharmaceutical company, ...

  • Page 79
    Class III directors whose terms expire at the 2014 annual meeting of shareholders Age Director Since Montgomery F. (Monty) Moran ... Mr. Moran is our Co-Chief Executive Officer. He was appointed to this position on January 1, 2009, after serving as President and Chief Operating Officer since ...

  • Page 80
    ...of the Partner Brands group of McDonald's Corporation (of which Chipotle was a part) during 2001. Mr. Kindler serves as a board member for a number of civic, charitable, educational and other organizations. He brings leadership, extensive business, operating, legal and policy, and corporate strategy...

  • Page 81
    ... of our disclosure controls and procedures, and the evaluation and management of risk issues, and also acts to ensure open lines of communication among our independent auditors, accountants, internal audit and financial management. The committee's responsibilities also include review of the...

  • Page 82
    ... to our outside directors; review disclosures to be filed with the SEC and distributed to our shareholders regarding executive compensation and recommend to the Board the filing of such disclosures; assist the Board with its functions relating to our compensation and benefits programs generally; and...

  • Page 83
    ... 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. The Nominating and Corporate Governance Committee held three meetings in 2012. The members of the committee...

  • Page 84
    ... our Board committee charters; the Chipotle Mexican Grill, Inc. Code of Conduct, which applies to all Chipotle officers, directors and employees; and separate Codes of Ethics for our directors, our CoChief Executive Officers and our Chief Financial Officer/principal accounting officer. The Corporate...

  • Page 85
    ...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. Mr. Baldocchi's term as Lead Director was renewed in December 2009 by...

  • Page 86
    ... and experience and industry background, particularly in light of our principal business and strategies; Their independence from management, including under requirements of applicable law and listing standards; and Relevant provisions of our Corporate Governance Guidelines. These factors may...

  • Page 87
    ... proxy statement for election by the shareholders at the annual meeting (or, if between annual meetings, one or more nominees may be elected by the Board itself if needed to fill vacancies, including vacancies resulting from an increase in the number of directors). Policies and Procedures for Review...

  • Page 88
    ... 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 the Board's attention on areas of concern. This is effectively balanced by...

  • Page 89
    ...of base salaries and long-term incentive awards for 2012 were made early in the year and were formulated in light of our past performance, including in particular our extremely strong company and stock price performance during 2011, when our sales growth and total shareholder return were at or above...

  • Page 90
    ...of the executive officers of Chipotle Mexican Grill, Inc. as disclosed pursuant to the Securities and Exchange Commission's compensation disclosure rules, including the Compensation Discussion and Analysis section, compensation tables and related material in the company's proxy statement, are hereby...

  • Page 91
    ... REGISTERED PUBLIC ACCOUNTING FIRM The Audit Committee has engaged Ernst & Young LLP as independent auditors to audit our consolidated financial statements for the year ending December 31, 2013 and to perform other permissible, pre-approved services. As a matter of good corporate governance...

  • Page 92
    .... 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, 2012 for filing with the SEC. The Audit Committee...

  • Page 93
    .... The committee periodically reviews a schedule of fees paid and payable to the independent auditor by type of covered service being performed or expected to be provided. Our Chief Financial Officer is also required to report to the committee any non-compliance with this policy of which he becomes...

  • Page 94
    ... of Compensation-Annual Incentives") may qualify as performance-based compensation that is fully deductible for federal income tax purposes. If approved by shareholders at the meeting, bonuses to be paid to our executive officers and key employees under the AIP, beginning with our 2014 fiscal year...

  • Page 95
    ... for non-US dollar denominated net sales and operating earnings; (iii) the effects of changes to generally accepted accounting standards required by the Financial Accounting Standards Board; (iv) the effects to any statutory adjustments to corporate tax rates and (v) the impact of any "extraordinary...

  • Page 96
    ...2012 fiscal year, as determined under the terms of the AIP, are set forth below. Name and Position Dollar Value Proxy Statement Steve Ells, Chairman and Co-Chief Executive Officer ...Monty Moran, Co-Chief Executive Officer ...Jack Hartung, Chief Financial Officer ...Bob Blessing, Chief Development...

  • Page 97
    ... and provide for an annual election of all directors beginning with the 2016 annual meeting of shareholders. Our existing certificate of incorporation provides for our Board to be divided into three classes. Each director serves a three year term and continues in office until a successor has been...

  • Page 98
    ... implemented so as not affect any contractual rights in existence on the date this proposal is adopted. Supporting Statement Chipotle Mexican Grill allows senior executives to receive an accelerated award of unearned equity under certain conditions after a change of control of the Company. We do not...

  • Page 99
    ...growth. Taking these considerations into account, our Board does not believe that the inflexible policy being advanced in this proposal should displace the careful, deliberate, expertly-informed business judgment of a Compensation Committee that is intimately familiar with our executive officer team...

  • Page 100
    ...compensation awards that could occur from consummation of the change in control transaction. Such transactions are in many cases in the best interests of a company's shareholders as a whole, and in the committee's view it would be unwise to create disincentives for the executive officer team to work...

  • Page 101
    ...; 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 Science degree in accounting and...

  • Page 102
    ... growth and strong business performance. The following table demonstrates our performance on key growth and profitability measures over the past three years: Total Restaurants Increase from Prior Year Annual Company Performance Increase from Sales Prior Year Net Income Increase from Prior Year 2012...

  • Page 103
    ...compensation system for all of our employees, including our executive officers, the total compensation of each executive officer is weighted heavily towards atrisk elements of compensation: annual AIP bonuses, SOSAR awards, and performance shares. For 2012, these performance-based elements accounted...

  • Page 104
    ...in favor of our executive compensation as disclosed in the proxy statement for the meeting. The Compensation Committee believes the level of support evidenced by the 2012 say-on-pay vote reflects a belief by the holders of a majority of our outstanding common stock that our compensation programs are...

  • Page 105
    ... reference to market practice, in order to promote our pay-forperformance philosophy. Proxy Statement Base Salaries We pay a base salary to compensate our executive officers for services rendered during the year, and also to provide them with income regardless of our stock price performance, which...

  • Page 106
    ... our executive officers, with those of our shareholders by reserving a portion of shareholder value creation for our employees. SOSARs also closely tie compensation to corporate performance because these awards do not offer value unless our stock price increases. We also believe that the terms the...

  • Page 107
    ... the performance share awards to each executive officer. Payout of the awards will be determined following completion of the third quarter of 2013. The committee's policy is generally to make SOSAR grants only on an annual basis, within five business days following our public release of financial...

  • Page 108
    ... executive officer level as well as to the level of impact of the contributions made by the Co-Chief Executive Officers to our success. Proxy Statement Annual Incentives-AIP Structure The formula to determine payouts under the AIP consists of a company performance factor, a team performance factor...

  • Page 109
    ... executive officer during the first quarter of 2012, based in part by reference to the historical compensation of each officer, each officer's performance during the year, and median target bonuses for comparable positions within the restaurant industry peer group. While the AIP parameters generally...

  • Page 110
    ... 2012, 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 111
    ... with respect to new restaurant sales and new restaurant reinvestment costs led to a team performance factor of 118 percent for corporate employees in our development group (including Mr. Blessing). The committee determined the individual performance factor for each executive officer in view of...

  • Page 112
    ... as a targeted number of shares to be owned, are presented below. The guidelines are reviewed for possible adjustment each year and may be adjusted by the committee at any time. Position # of shares Proxy Statement Co-Chief Executive Officers ...Chief Financial Officer ...Other executive officers...

  • Page 113
    ... 2013 plan year. Accounting Rules Various rules under generally accepted accounting principles determine the manner in which we account for equity-based compensation in our financial statements. The committee may consider the accounting treatment under Financial Accounting Standards Board Accounting...

  • Page 114
    ... Officer Compensation Decisions-Annual Incentives-AIP Structure" and "-2012 AIP Payouts." (4) Amounts under "All Other Compensation" for 2012 include the following: Proxy Statement • Matching contributions we made on the executive officers' behalf to the Chipotle Mexican Grill, Inc. 401(K) plan...

  • Page 115
    ... we use to value SOSAR and performance share awards pursuant to FASB Topic 718. The grant date fair value of equity awards is included in the "Stock Awards" or "Option Awards" columns of the Summary Compensation Table above for each executive officer for 2012. Proxy Statement Terms of 2012 Equity...

  • Page 116
    ... threshold level of cumulative total cash flow from operations through September 30, 2013. (3) Based on the closing stock price of our common stock on December 31, 2012 of $297.46 per share. (4) One half of these SOSARs vested on February 11, 2013; the remaining half will vest on February 11, 2014...

  • Page 117
    ... on the closing price of our common stock on the date of vesting. NON-QUALIFIED DEFERRED COMPENSATION FOR 2012 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...

  • Page 118
    ... in part to service as one of our employees. The table below presents, for Mr. Hartung, our only executive officer with a balance remaining in any McDonald's non-qualified deferred compensation plan, his aggregate earnings under and aggregate withdrawals from the McDonald's plans during 2012, as...

  • Page 119
    ...payments to the executive officers in the event their employment terminates. In addition, payouts under the AIP are conditioned on the employee being employed as of the end of the year for which the payout relates. We have in the past paid severance to executives or other key employees who have left...

  • Page 120
    ... for good reason, in each case as defined in the plan, the award will vest. A change in control would generally be deemed to occur under the plan in the event any person or group acquires shares of our common stock representing greater than 25 percent of the combined voting power of our outstanding...

  • Page 121
    ... executive officer assumes that the performance shares actually paid out at target. (5) The dollar values reflected in the table are based on the excess of the closing price of our common stock on December 31, 2012 over the exercise price of the applicable SOSARs. Equity Award Vesting Upon Change...

  • Page 122
    .... In the event of a change in control under the plan as of December 31, 2012, if SOSARs outstanding on that date were not replaced with replacement awards meeting the criteria specified above, the executive officers would have had vesting accelerated on awards with the following dollar values as of...

  • Page 123
    ... change in control under the plan as of December 31, 2012, if the outstanding performance share awards were not replaced with a replacement award meeting the criteria specified above, the executive officers would have had vesting accelerated on awards with the following dollar values as of that date...

  • Page 124
    ... during 2012, and in 2013 Sequence has billed us a total of $129,408 in fees through March 22. Registration Rights Prior to our initial public offering, certain of our current shareholders, including Steve Ells, our Chairman and Co-Chief Executive Officer, Monty Moran, our Co-Chief Executive Officer...

  • Page 125
    ... statement and form of proxy/voting instruction card for the 2014 annual meeting of shareholders pursuant to SEC Rule 14a-8 must be received by us no later than November 27, 2013, unless the date of our 2014 annual meeting is more than 30 days before or after May 17, 2014, in which case the proposal...

  • Page 126
    ... to you, or if you are a holder of record and have received a proxy card, via telephone as explained on the proxy card. We will appreciate your prompt response. By order of the Board of Directors /s/ Monty Moran Co-Chief Executive Officer, Secretary and Director March 27, 2013 Proxy Statement 56

  • Page 127
    ... key employees of the Company with incentive to assist the Company in meeting and exceeding its business goals. The Plan provides opportunities for Participants (as defined in Section 3 below) to earn financial rewards for their role in assisting Chipotle to meet its annual performance targets...

  • Page 128
    ... for non-US dollar denominated net sales and operating earnings; (iii) the effects of changes to generally accepted accounting standards required by the Financial Accounting Standards Board; (iv) the effects to any statutory adjustments to corporate tax rates and (v) the impact of any "extraordinary...

  • Page 129
    ... Company's rights pursuant to this Section 7 shall terminate on the effective date of a Change in Control (as defined in the Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan) and no Recovery Period shall extend beyond that date except with respect to any Participant for which the Board prior...

  • Page 130
    ... with any financial reporting requirements under the securities laws, then the Participant shall return to Chipotle, or forfeit if not yet paid, the amount of any payment received with respect to an Award under the Plan during the three-year period preceding the date on which Chipotle is required...

  • Page 131
    ... any rights to receive payments hereunder from the Company, such rights shall be no greater than those of an unsecured creditor. (f) Effective Date; Amendment. The Plan shall become effective on January 1, 2014 if approved by Chipotle's stockholders at Chipotle's 2013 annual stockholder meeting. The...

  • Page 132
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  • Page 133
    ... vote of a majority of the total number of directors then in office. From the filing and effectiveness of this Certificate of Amendment with the Secretary of State of the State of Delaware (the "Effective Time") until the election of directors at the 2014 annual meeting of shareholders (each annual...

  • Page 134
    ...than 66 2/3% of the voting power of the outstanding Common Stock." Proxy Statement IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment on this May, 2013. CHIPOTLE MEXICAN GRILL, INC. By: day of Name: Montgomery Moran Title: Co-Chief Executive Officer and Secretary B-2

  • Page 135
    ...for the year ended December 31, 2012 (exclusive of exhibits), including our audited financial statements, as well as other reports we file with the SEC, at no cost on the investor relations page of our website at ir.chipotle.com, or by writing to the Corporate Secretary, Chipotle Mexican Grill, Inc...

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