filings.toolsChipotle Mexican Grill 10-K 2014-12-31
Filed 2015-02-04. 21 sections, 263K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
10-K 1 d861905d10k.htm FORM 10-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|
For the fiscal year ended December 31, 2014
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|
For the transition period from to
Commission File Number: 1-32731
CHIPOTLE MEXICAN GRILL, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 84-1219301 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
| 1401 Wynkoop Street, Suite 500 Denver, CO | 80202 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (303) 595-4000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| Common stock, par value $0.01 per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
| x Large accelerated filer | ¨ Accelerated filer | ¨ Non-accelerated filer (do not check if a smaller reporting company) | ¨ Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
As of June 30, 2014, the aggregate market value of the registrant’s outstanding common equity held by non-affiliates 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 5% or more of the outstanding common stock have been excluded since those persons may under certain circumstances be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of January 30, 2015, there were 31,022,319 shares of the registrant’s 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 2015 annual meeting of shareholders, which will be filed no later than 120 days after the close of the registrant’s fiscal year ended December 31, 2014.
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PART I
Cautionary Note Regarding Forward-Looking Statements
This report includes statements of our expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are intended to come within the safe harbor protection provided by those sections. These statements, which involve risks and uncertainties, relate to the discussion of our business strategies and our expectations concerning future operations, margins, profitability, trends, liquidity and capital resources and to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. Forward-looking statements include our projections of the number and type of restaurants we expect to open in 2015, our expected comparable restaurant sales results during 2015, our expectations for food cost inflation and food costs as a percentage of revenue in 2015, our expectations for changes in labor costs as a percentage of revenue in 2015, projections of restaurant development costs and other expenses, statements regarding the potential impact of economic uncertainty on our business, statements about possible repurchases of our common stock, forecasts of marketing and promotional spending as a percentage of revenue in 2015, projections of our effective tax rate for 2015, and other statements of our expectations and plans. We have used words such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “think,” “estimate,” “seek,” “expect,” “predict,” “could,” “project,” “potential” and other similar terms and phrases, including references to assumptions, in this report to identify forward-looking statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to uncertainties, risks and factors relating to our operations and business environments, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed or implied by these forward-looking statements. Such risks and other factors include those listed in Item 1A. “Risk Factors,” and elsewhere in this report.
When considering forward-looking statements in this report or that we make in other reports or statements, you should keep in mind the cautionary statements in this report and future reports we file with the SEC. New risks and uncertainties arise from time to time, and we cannot predict when they may arise or how they may affect us. We assume no obligation to update any forward-looking statements after the date of this report as a result of new information, future events or other developments, except as required by applicable laws and regulations.
Item 1. BUSINESS
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General
Chipotle Mexican Grill, Inc. and its subsidiaries (“Chipotle”, the “Company”, or “we”) operate Chipotle Mexican Grill restaurants, which serve a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads, made using fresh ingredients. As of December 31, 2014, we operated 1,755 Chipotle restaurants throughout the United States, as well as seven in Canada, six in England, three in France, and one in Germany. Additionally, our restaurants include nine ShopHouse Southeast Asian Kitchen restaurants, serving Asian-inspired cuisine, and we are an investor in a consolidated entity that owns and operates two Pizzeria Locale restaurants, a fast casual pizza concept, resulting in a total of 1,783 restaurants as of December 31, 2014. We focus on trying to find the highest quality ingredients we can to make great tasting food; on building a special people culture that is centered on creating a team of top performers empowered to achieve high standards; on building restaurants that are operationally efficient and aesthetically pleasing; and on doing 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 190 and 205 additional restaurants in 2015, including a small number of ShopHouse and Pizzeria Locale restaurants.
Our vision is to change the way people think about and eat fast food. We do this by avoiding a formulaic approach when creating our restaurant experience, looking to fine-dining restaurants for inspiration. We use high-quality raw ingredients, classic cooking methods and a distinctive interior design and have friendly people
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to take care of each customer—features that are more frequently found in the world of fine dining. Our approach is also guided by our belief in an idea we call “Food With Integrity.” Our objective is to find the highest quality ingredients we can—ingredients that are grown or raised with respect for the environment, animals and people who grow or raise the 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 December 31, 2014 and 2013, is included in our consolidated financial statements and accompanying notes in Item 8. “Financial Statements and Supplementary Data.” Substantially all 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 our brand, our unfamiliarity with those markets and other factors” in Item 1A. “Risk Factors.”
Our Menu and Food Preparation
Food With Integrity. Serving high quality food while still charging reasonable prices is critical to our vision to change the way people think about and eat fast food. As part of our Food With Integrity philosophy, we believe that purchasing fresh ingredients and preparing them by hand are not enough, so we spend time on farms and in the field to understand where our food comes from and how it is raised. Because our menu is so focused, we can concentrate on the sources of each ingredient, and this has become a cornerstone of our continuous effort to improve our food.
In all of our restaurants, we endeavor to serve only meats that were raised without the use of non-therapeutic antibiotics or added hormones, and in accordance with criteria we’ve established in an effort to improve sustainability and promote animal welfare. We brand these meats as “Responsibly Raised TM.” One of our primary goals is for all of our restaurants to serve meats raised to meet our standards, but we have and will continue to face challenges in doing so. In January 2015, through an ongoing audit of our suppliers, we identified a pork supplier that was not meeting our standards related to the size and condition of the housing offered to some of the pigs, so we suspended our purchases from this supplier. Without this supply, we cannot get enough pork that meets our standards for all of our restaurants and we will not be able to serve carnitas in about one-third of our U.S. restaurants until we can find additional sources which meet our standards to make up the shortfall. In addition, some of our restaurants served conventionally raised beef and chicken for periods during 2014, and we expect some to serve conventionally raised beef in 2015, due to supply constraints for our Responsibly Raised meats. More of our restaurants may periodically serve conventionally raised meats in the future due to additional supply constraints. When we become aware that one or more of our restaurants will serve conventionally raised meat, we clearly and specifically disclose this temporary change on signage in each affected restaurant so that customers can avoid those meats if they choose to do so.
We also seek to use more responsibly grown produce, meaning produce grown by suppliers who we believe respect the environment and their employees. A portion of some of the produce items we serve is organically grown, and/or sourced locally while in season (by which we mean grown within 350 miles of the restaurant where it is served). A portion of our beans is organically grown and a portion is grown using conservation tillage methods that improve soil conditions, reduce erosion, and help preserve the environment in which the beans are grown. Our commitment to Food With Integrity extends to the dairy products we serve as well. The sour cream and cheese we buy is made with milk that comes from cows that are not given rBGH (recombinant bovine growth hormone). Also, milk used to make much of our cheese and all our sour cream is sourced from pasture-based dairies that provide an even higher standard of animal welfare by providing outdoor access for their cows. Further, we disclose on our website which ingredients contain genetically modified organisms, or GMOs, and we are working to replace ingredients containing GMOs in our food (not including beverages) with non-GMO ingredients. While the meat and poultry we serve is not genetically modified, the animals are likely fed a diet containing GMOs. Because of the prevalence of GMOs in a number of important feed crops, most grains used as animal feed in the U.S. are genetically modified.
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We do face challenges associated with pursuing Food With Integrity. In addition to the supply challenges noted above, there can be higher costs and other risks associated with purchasing ingredients grown or raised with an emphasis on quality, environmental sustainability and other responsible practices. Growth rate and weight gain can be lower for chickens, cattle and pigs that are not fed non-therapeutic antibiotics and for cattle that are not given growth hormones. Crops grown organically or using other responsible practices can take longer to grow and crop yields can be lower. It can take longer to identify and secure relationships with suppliers that are able to meet our criteria for meat, dairy and produce ingredients. Given the costs associated with what we believe are responsible farming practices, many large suppliers have not found it economical to pursue business in this area. However, we believe that in addition to seeking great tasting and nutritious food, consumers are increasingly concerned about where their food comes from and how it is raised. And we believe that as consumers become more educated about better animal welfare and farming practices as well as social accountability, they will foster greater demand for responsibly grown foods in the long term. We believe that increased demand over the long term for the types of meat and produce items we strive to serve will continue to attract the interest and capital investment of larger farms and suppliers. We also understand that we’ll continue to be at the forefront of this trend and must balance our interest in advancing Food With Integrity with our desire to provide great food at reasonable prices. If we are able to continue growing while focusing on Food With Integrity, we believe our sourcing flexibility will improve over time, though we expect that most of these ingredients and other raw materials will remain more expensive than conventionally raised, commodity-priced equivalents.
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 or tofu, two types of beans and a variety of extras such as salsas, guacamole, cheese and lettuce, there’s enough variety to extend our menu to provide countless choices. We plan to keep a simple menu, but we’ll consider additions that we think make sense, such as the recent introduction in all U.S. and Canadian markets of Sofritas, our vegan protein option made with braised organic tofu. And if customers can’t find something on the menu that’s quite what they’re after, we encourage them to let us know. If we can make it from the ingredients we have, we’ll do it.
In preparing our food, we use stoves and grills, pots and pans, cutting knives, wire whisks and other kitchen utensils, walk-in refrigerators stocked with a variety of fresh ingredients, herbs and spices and dry goods such as rice. Ingredients we use include chicken and steak that is marinated and grilled in our restaurants, carnitas (seasoned and braised pork), barbacoa (spicy shredded beef) and vegetarian pinto and black beans. We add our rice, which is tossed with lime juice and freshly chopped cilantro, as well as freshly shredded cheese, sour cream, lettuce, peppers and onions, depending on each customer’s request. We use various herbs, spices and seasonings to prepare our meats and vegetables. We also provide a variety of extras such as guacamole, salsas and tortilla chips seasoned with fresh lime juice and kosher salt. In addition to sodas, fruit drinks and organic milk, most of our restaurants also offer a selection of beer and margaritas. Our food is prepared from scratch, with the majority prepared in our restaurants while some is prepared with the same fresh ingredients in larger batches in commissaries.
Food Served Fast … So That Customers Can Enjoy It Slowly. Our employees spend hours preparing our food on-site, but each customer order can be ready in seconds. Customers select exactly what they want and how they want it by speaking directly to the employees that prepared the food and are assembling the order. While we think that our customers return because of the great-tasting food, we also think that they like getting food served fast without having a typical “fast-food” experience. And while our restaurants often have lines, we try to serve customers as quickly as possible. We do this by focusing on what we call the “four pillars” of throughput. The four pillars are having a dedicated expeditor, who works just before the cashier to get drink and side orders and bag to-go orders; a dedicated linebacker, 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; and ensuring that we have “aces in their places,” or the best employees at each position during all of our peak periods. When we do this our customers are served quickly without feeling rushed. We’ve even been able to serve more than 300 customers an hour at some locations. The natural flow of our restaurant layout, including the floor plan and the design of our serving line, are designed to make the food ordering process intuitive and, we believe, more efficient. And we constantly strive to improve the speed of service in all of our restaurants, so that we can accommodate more
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customers and larger orders without disrupting restaurant traffic. For instance, our restaurants accept orders by fax, online or through an iPhone or Android ordering application in order to provide a more convenient experience by allowing customers to avoid standing in line. By emphasizing speed of service without compromising the genuine interactions between our customers and our crews, and by continually making improvements to our restaurant operations, we believe that we can provide a high quality experience to more and more customers.
Quality Assurance and Food Safety. We are committed to serving safe, high quality food to our customers. Quality and food safety are integrated throughout our supply chain and everything we do; from the farms that supply our food all the way through to our front line. We have established close relationships with some of the top suppliers in the industry, and we actively maintain a limited list of approved suppliers from whom our distributors must purchase. Our 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 food safety programs are also designed to ensure that we comply with applicable federal, state and local food safety regulations.
Restaurant Management and Operations
Culture of Top Performers. In addition to our focus on the food we serve, we have a similarly focused people culture with an emphasis on identifying, hiring and empowering top performing employees. We are committed to creating a performance based culture that leads to the best restaurant experience possible for our employees and our customers. The foundation of that culture starts with hiring the best people in our restaurants. We make an effort to hire employees who share a passion for food and who will operate our restaurants in a way that is consistent with our high standards, yet allows each of their unique personalities and strengths to contribute to our success. We believe we provide attractive career opportunities to crew 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 to develop the full potential of our restaurant employees. We are committed to developing our people and promoting from within, with about 90% of salaried management and about 98% of hourly management coming from internal promotions. Our best general managers, who run great restaurants and develop strong, empowered restaurant teams, are promoted to Restaurateur and in that role can earn bonuses for developing people. We’ve leveraged our outstanding Restaurateurs’ leadership by giving many Restaurateurs responsibility for mentoring one or more nearby restaurants. This provides an opportunity for Restaurateurs to develop into field leadership roles one restaurant at a time. Restaurateurs who have shown they can successfully run four restaurants by developing teams of empowered top performers (including at least one Restaurateur), thereby creating a culture of high standards, constant improvement and empowerment in each of their restaurants, can be promoted to apprentice team leaders.
Importance of Methods and Culture. Although we have many restaurants, we believe that our departure from the automated cooking techniques and microwaves used by many traditional fast-food and fast-casual restaurants helps to set us apart. Our crews use classic cooking methods: they marinate and grill meats, hand-cut produce and herbs, make fresh salsa and guacamole, and cook rice in small batches throughout 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 menu creates efficiencies which allow us to serve high quality food made from ingredients 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 throughout each and every day. All of our restaurant employees are encouraged to interact with customers no matter their job, whether preparing food or serving customers during our busiest period. We focus on attracting and retaining people who can deliver that experience for each customer. We provide each customer with individual attention and make every effort to respond to customer suggestions and concerns in a personal and hospitable way. We believe our focus on creating a positive and interactive experience helps build loyalty and enthusiasm for our brand among general managers, crew members and customers alike.
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Restaurant Team_._ Each restaurant typically has a general manager or Restaurateur (a position we’ve characterized as the most important in the company), an apprentice manager (in most of our restaurants), and we aim to have one to three hourly service managers, one or two hourly kitchen managers and an average of 24 full and part-time crew members. We generally have two shifts at our restaurants, which simplifies scheduling and provides stability for our employees. We tend to have more employees in our busier restaurants. We cross-train our people so that each can work a variety of stations, allowing us to work efficiently during our busiest times, while giving our people the opportunity to develop a wider array of skills. Consistent with our emphasis on customer service, we encourage our general managers and crew members to welcome and interact with customers throughout the day. In addition to the employees serving our customers at each restaurant, 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 in our restaurants depends in part on our ability to acquire high-quality, fresh ingredients and other necessary supplies that meet our specifications from reliable suppliers. Our 22 independently owned and operated regional distribution centers purchase from various suppliers we carefully select based on quality and their understanding of our mission, and we seek to develop mutually beneficial long-term relationships with suppliers. We work closely with our suppliers and use a mix of forward, fixed and formula pricing protocols, and our distribution centers purchase within the pricing guidelines and protocols we 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 world events that may affect our ingredient prices. Certain key ingredients (beef, pork, chicken, beans, rice, sour cream, cheese, and tortillas) are purchased from a small number of suppliers. For a discussion of risks related to our supply chain, see “Risks Related to Operating in the Restaurant Industry—Failure to receive frequent deliveries of higher-quality food ingredients and other supplies meeting our specifications could harm our operations” and “Risks Related to our Unique Business Strategy—Our Food With Integrity philosophy subjects us to risks” in Item 1A. “Risk Factors.”
Distribution Arrangements. Ingredients and other supplies are delivered to our restaurants by our independently owned and operated regional distribution centers.
Marketing
A great dining experience in our restaurants is our most powerful marketing of all. But there is still a need to introduce our brand to consumers in other ways, and to help them understand what makes Chipotle different than other restaurants. Our advertising and promotional programs, in-store communications, and other design elements all help to communicate something about what differentiates Chipotle from other fast food companies. Whether it’s engaging with our company via social media, participating in our local events or simply eating a burrito at one of our restaurants, each customer interaction affords us an important opportunity to build our brand.
Our advertising has generally included print, outdoor, transit and radio ads, but we also incorporate online advertising into the mix, and conduct strategic promotions that demonstrate our Food With Integrity mission while connecting us to like-minded individuals or organizations. Beyond these traditional channels, we are continuing to explore and pioneer new avenues of branded content aimed at making consumers more curious about issues that are important to us, and explaining why and how we are working to drive positive change in the nation’s food supply. In addition, we continue to generate considerable media coverage, with scores of publications writing favorably about our food, restaurant concept and business.
We also recognize the need for our marketing to evolve, much as we have evolved our unique food and people cultures. To this end, we have been developing more “owned media,” including new video and music programs, a more visible event strategy that includes our “Cultivate” food, music and ideas festivals, and participation in relevant events in markets around the country. Many of these newer programs allow us to tell our
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story with more nuance than is afforded by traditional advertising, and help forge stronger emotional connections with our customers. We have also increased our use of digital, mobile, and social media in our overall marketing mix, giving customers greater opportunity to access Chipotle in ways that are convenient for them and broadening our ability to engage with our customers individually.
Collectively, these efforts and our excellent restaurant teams have helped us create considerable word-of-mouth publicity as our customers learn more about us and share with others. This approach allows us to build awareness and loyalty with relatively low advertising expenditures, even in a competitive category, and to differentiate Chipotle as a company that is committed to doing the right thing in every facet of our business.
Competition
The fast-casual, quick-service and casual dining segments of the restaurant industry are highly competitive with respect to, among other things, taste, price, food quality and presentation, service, location, and the ambience and condition of each restaurant. Our competition includes a variety of restaurants in each of these segments, including locally-owned restaurants and national and regional chains. Many of our competitors offer dine-in, carry-out and delivery services. Among our main competitors are a number of multi-unit, multi-market Mexican food or burrito restaurant concepts, some of which are expanding nationally. Unlike Chipotle, a number of our competitors grow through franchising.
Several of our competitors compete by offering menu items that are specifically identified as lower in fat, carbohydrates, or calories or otherwise better for customers, or targeted at particular dietary preferences. Many of our competitors in the fast-casual and quick-service segment 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, competitive pressures can come from deli sections and in-store cafés of major grocery store chains, including those targeted at customers who seek higher-quality food, as well as from convenience stores, cafeterias and other dining outlets. These competitors may have, among other things, a more diverse menu, lower operating costs, better locations, better facilities, better management, more effective marketing and more efficient operations than we do. For more information, see “Risks Related to Operating in the Restaurant Industry—Competition could adversely affect us” in Item 1A. “Risk Factors.”
We believe we are well-positioned to continue to grow our market position in existing and new markets given current consumer trends, including increasing awareness and concern among consumers about what they eat and how it is prepared as well as the increasing prevalence of the fast-casual segment. Some of our competitors have formats that might resemble ours, but we believe that Chipotle has become one of the most recognized restaurants in the U.S. We also believe we are known for our focus on having teams of top-performing employees using classic cooking techniques to prepare food made from high-quality whole ingredients in an open restaurant kitchen to create delicious food, as well as our commitment to “Food With Integrity.” We think this unique combination adds up to an excellent customer experience in our restaurants, which we believe represents a significant competitive advantage in the segment in which we operate.
Restaurant Site Selection
We believe site selection is critical to our success and thus we devote substantial time and effort to evaluating each potential location. Our site selection process includes the use of external real estate brokers with expertise in specific markets, taking direction from our internal team of real estate managers. Locations proposed by real estate managers are reviewed by development management as part of a formal site ride, as well as in a written real estate package. We study the surrounding trade area, demographic and business information within 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 or end-cap locations in strip or power centers, in regional malls and downtown business districts, free-standing buildings, food courts, and airports. Our
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new restaurant development activity has broadened to incorporate trade areas or restaurant sites in which we have little or no prior experience, including smaller or more economically mixed communities, highway sites, outlet centers, and on military bases.
ShopHouse Southeast Asian Kitchen and Pizzeria Locale
We believe that the fundamental principles on which our restaurants are based—finding the very best sustainably raised ingredients, prepared and cooked using classical methods in front of the customer, and served in an interactive format by special people dedicated to providing a great 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 our first ShopHouse Southeast Asian Kitchen during 2011 and we now have a total of nine ShopHouse restaurants. ShopHouse serves a menu that, like at Chipotle, is focused; main dishes consist of rice or noodle bowls made with steak, chicken, meatballs made with pork and chicken, or tofu. Further, during 2013, we invested in a consolidated entity that now owns and operates two Pizzeria Locale restaurants, a fast casual pizza concept serving a menu that includes classic pizzas and salads, from a selection of high-quality ingredients.
Notwithstanding our opening of ShopHouse and investment in Pizzeria Locale, and our plans in 2015 for a small number of additional ShopHouse and Pizzeria Locale restaurants, our immediate focus will remain on thoughtfully growing the Chipotle brand.
Seasonality
Seasonal factors cause our profitability to fluctuate from quarter to quarter. Historically, our average daily restaurant sales and profits are lower in the first and fourth quarters due, in part, to the holiday season and because fewer people eat out during periods of inclement weather (the winter months) than during periods of mild or warm weather (the spring, summer and fall months). Other factors also have a seasonal effect on our results. For example, restaurants located near colleges and universities 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.
Our Intellectual Property and Trademarks
“Chipotle,” “Chipotle Mexican Grill,” “Unburritable,” “Food With Integrity,” “Fresh Is Not Enough, Anymore,” “The Gourmet Restaurant Where You Eat With Your Hands,” “Responsibly Raised,” “ShopHouse” and a number of related designs and logos are U.S. registered trademarks of Chipotle. We have filed trademark applications for a number of other marks in the U.S. In addition to our U.S. registrations, we have registered trademarks for “Chipotle” and a number of other marks in Canada, the European Union and various other countries, and have filed trademark applications for “Chipotle Mexican Grill,” “Chipotle” and a number of other marks in various countries as well.
We also believe that the design of our restaurants is our proprietary trade dress. From time to time we have taken action against other restaurants that we believe are misappropriating our trademarks, restaurant designs or advertising. Although our policy is to protect and defend vigorously our rights to our intellectual property, we may not be able to adequately protect our intellectual property, which could harm the value of our brand and adversely affect our business.
Information Systems
We use an integrated architecture of applications and systems to manage the flow of information within each restaurant, and within our centralized corporate infrastructure. The restaurant structure includes a point-of-sales system that operates locally at the restaurant and is integrated with other functions necessary to restaurant operations. It records sales transactions, receives out of store orders, and authorizes, batches and transmits credit card transactions. The system also allows employees to enter time clock information and to produce a variety of
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management reports. Select information that is captured from this system at each restaurant is collected in the central corporate infrastructure, which enables management to continually monitor operating results. The services available within this infrastructure include supply chain, inventory, scheduling, training, human capital management, financial tools, and data protection services. We believe that our current systems will be an adequate platform to support our continued expansion.
In addition to processing payment card transactions and collecting and storing information about our employees, we also collect and store information about customers as part of some of our marketing programs. We are relying increasingly on cloud computing and other technologies that result in third parties holding significant amounts of employee or customer information on our behalf. The collection and use of such information is regulated at the federal and state levels, and the regulatory environment related to information security and privacy is increasingly demanding. A number of retailers have experienced actual or potential security breaches in which information may have been stolen, including a number of highly publicized incidents with well-known retailers in recent years. See “General Business Risks—We may incur costs resulting from security risks we face in connection with our electronic processing and transmission of confidential customer and employee information” in Item 1A. “Risk Factors,” for a discussion of risks associated with our information systems.
Employees
As of December 31, 2014, we had about 53,090 employees, including about 4,590 salaried employees and about 48,500 hourly employees. None of our employees are unionized or covered by a collective bargaining agreement.
Available Information
We maintain a website at www.chipotle.com, including an investor relations section at ir.chipotle.com in which we routinely post important information, such as webcasts of quarterly earnings calls and other investor events in which we participate or host, and any related materials. Our Code of Conduct is also available in this section of our website. You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as well as other reports relating to us that are filed with or furnished to the SEC, free of charge in the investor relations section of our website as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The public may also read and copy materials we file with the SEC at the SEC’s Public Reference Room, which is located at 100 F Street, NE, Room 1580, Washington, DC 20549. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.
The contents of the websites mentioned above are not incorporated into and should not be considered a part of this report. The references to the URLs for these websites are intended to be inactive textual references only.
Item 1A. RISK FACTORS
| --- | --- |
Risks Related to our Growth Strategy and Future Expansion
Our sales and profit growth could be adversely affected if comparable restaurant sales increases are less than we expect, and we may not successfully increase comparable restaurant sales or they may decrease.
While future sales growth will depend to an extent on our opening new restaurants, changes in comparable restaurant sales (which represent the change in period-over-period sales for restaurants beginning in their 13th full month of operations) will also affect our sales growth and will continue to be a critical factor affecting profit growth. This is because the profit margin on comparable restaurant sales is generally higher, as comparable restaurant sales increases enable fixed costs to be spread over a higher sales base. Conversely, declines in comparable restaurant sales can have a significant adverse effect on profitability due to the loss of the positive impact on profit margins associated with comparable restaurant sales increases. We expect 2015 full year
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comparable restaurant sales increases to be in the low to mid-single digit range as comparisons become more difficult, particularly during the final three quarters of the year as we begin to overlap nationwide menu price increases implemented in 2014.
Our ability to increase comparable restaurant sales depends on many factors, including:
| • | changes in consumer preferences and discretionary spending, including weaker consumer spending during periods of economic difficulty or uncertainty; |
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| • | consumer understanding and acceptance of the Chipotle experience and perceptions of the Chipotle brand; |
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| • | our ability to increase menu prices without adversely impacting transaction counts to such a degree that the impact from lower transactions equals or exceeds the benefit of the menu price increase and without “trade down” by customers or other reduction in average check in response to price increases; |
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| • | competition, either from our competitors in the restaurant industry, or from our own restaurants in the event customers who frequent one of our restaurants begin to visit one of our new restaurants instead; |
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| • | 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 introductions of catering options and new menu items, each of which we may not be able to accomplish or which may not have the impact we expect; |
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| • | initial sales performance of new restaurants, and potential adverse impact of new restaurants on existing restaurant sales, which are further described below under “Our new restaurants, once opened, may not be profitable, and may adversely impact the sales of our existing restaurants”; |
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| • | weather, road construction and other factors limiting access to our restaurants; and |
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| • | changes in government regulation. |
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As a result of these factors it is possible that we will not achieve our targeted or expected comparable restaurant sales or that the change in comparable restaurant sales could be negative. A number of these factors are beyond our control, and therefore we cannot assure that we will be able to sustain comparable restaurant sales increases.
Past declines in our comparable restaurant sales increases have significantly impacted our stock price. Beginning in the second quarter of 2012, prior to which we had been experiencing strong comparable restaurant sales growth momentum, our comparable restaurant sales increases decelerated and the price of our stock declined significantly in the wake of this deceleration, including a decline of nearly 22% on the trading day following our second quarter 2012 earnings release. Moreover, even the expectation of declining comparable restaurant sales increases has had a significant impact on our stock price in the past. For example, when we announced in October 2014 that we expect comparable restaurant sales for 2015 in the low to mid-single digit range (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 restaurant sales increases would likely result in another significant decline in the price of our common stock.
Increasing our sales and profitability depends substantially on our ability to open new restaurants in sites and on terms attractive to us, which is subject to many unpredictable factors.
We had 1,783 restaurants in operation as of December 31, 2014. We plan to increase the number of our restaurants significantly in the next three years, and plan to open between 190 and 205 new restaurants in 2015. However, we have in the past experienced delays in opening some restaurants and that could happen again as a result of any one or more of the following factors:
| • | our potential inability to locate and secure new restaurant sites in locations that we believe to be attractive; |
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| • | obstacles to hiring and training qualified operating personnel in the local market; |
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| • | delay or cancellation of new site development by developers and landlords, which may become increasingly common during periods of economic uncertainty or tight credit; |
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| • | difficulty managing construction and development costs of new restaurants at affordable levels, particularly in competitive markets and when real estate development activity is robust; |
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| • | difficulty ramping up the growth of our international business or new restaurant concepts, including for the reasons described below under “—Our expansion into international markets may present increased risks due to lower customer awareness of our brand, our unfamiliarity with those markets and other factors” and “—ShopHouse Southeast Asian Kitchen and Pizzeria Locale may not contribute to our growth”; |
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| • | difficulty negotiating leases with acceptable terms; |
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| • | any shortages of construction materials and labor; |
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| • | lack of availability of, or inability to obtain, adequate supplies of ingredients that meet our quality standards; |
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| • | failures or delays in securing required governmental approvals (including construction, parking and other permits); and |
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| • | the impact of inclement weather, natural disasters and other calamities. |
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One of our biggest challenges in opening new restaurants is staffing. We seek to hire only top-performing employees and to promote general managers from our crew, which may make it more difficult for us to staff all the restaurants we intend to open. Constraints on our hiring new employees are described further below 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 our restaurants and the right field leaders.”
Another significant challenge is locating and securing an adequate supply of suitable new restaurant sites. Competition for suitable new restaurant sites in our target markets can be intense, and development an
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Item 1B. UNRESOLVED STAFF COMMENTS
Item 2. PROPERTIES
| --- | --- |
As of December 31, 2014, there were 1,783 Chipotle and other concept restaurants in operation. The table below sets forth the locations (by state or country) of all restaurants in operation.
| Alabama | 9 | |||
| Arizona | 64 | |||
| Arkansas | 4 | |||
| California | 325 | |||
| Colorado | 74 | |||
| Connecticut | 14 | |||
| Delaware | 3 | |||
| District of Columbia | 19 | |||
| Florida | 99 | |||
| Georgia | 32 | |||
| Idaho | 3 | |||
| Illinois | 109 | |||
| Indiana | 25 | |||
| Iowa | 7 | |||
| Kansas | 21 | |||
| Kentucky | 13 | |||
| Louisiana | 4 | |||
| Maine | 3 | |||
| Maryland | 65 | |||
| Massachusetts | 41 | |||
| Michigan | 19 | |||
| Minnesota | 57 | |||
| Missouri | 35 | |||
| Nebraska | 8 | |||
| Nevada | 19 | |||
| New Hampshire | 5 | |||
| New Jersey | 39 | |||
| New Mexico | 3 | |||
| New York | 97 | |||
| North Carolina | 32 | |||
| Ohio | 152 | |||
| Oklahoma | 10 | |||
| Oregon | 17 | |||
| Pennsylvania | 52 | |||
| Rhode Island | 5 | |||
| South Carolina | 13 | |||
| Tennessee | 14 | |||
| Texas | 134 | |||
| Utah | 4 | |||
| Vermont | 1 | |||
| Virginia | 74 | |||
| Washington | 23 | |||
| West Virginia | 2 | |||
| Wisconsin | 16 | |||
| Wyoming | 1 | |||
| Canada | 7 | |||
| France | 3 | |||
| Germany | 1 | |||
| United Kingdom | 6 | |||
| Total | 1,783 |
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We categorize our restaurants as either end-caps (at the end of a line of retail outlets), in-lines (in a line of retail outlets), free-standing or other. Of our restaurants in operation as of December 31, 2014, we had 1,081 end-cap locations, 283 in-line locations, 315 free-standing units, and 104 other. The average restaurant size is about 2,550 square feet and seats about 58 people. Many of our restaurants also feature outdoor patio space.
Our main office is located at 1401 Wynkoop Street, Suite 500, Denver, Colorado, 80202 and our telephone number is (303) 595-4000. We lease our main office and substantially all of the properties on 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 in Item 8. “Financial Statements and Supplementary Data.”
We own sixteen properties and operate restaurants on all of them.
Item 3. LEGAL PROCEEDINGS
| --- | --- |
For information regarding legal proceedings, see Note 9. “Commitments and Contingencies” in our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”
Item 4. MINE SAFETY DISCLOSURES
Item 5. 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 (“NYSE”). Our common stock trades on the NYSE under the symbol “CMG.”
| High | Low | |||||||
| 2013 | ||||||||
| First Quarter | $ | 334.89 | $ | 266.02 | ||||
| Second Quarter | $ | 379.15 | $ | 316.87 | ||||
| Third Quarter | $ | 429.78 | $ | 362.30 | ||||
| Fourth Quarter | $ | 550.28 | $ | 420.20 | ||||
| High | Low | |||||||
| 2014 | ||||||||
| First Quarter | $ | 622.90 | $ | 480.87 | ||||
| Second Quarter | $ | 602.21 | $ | 472.41 | ||||
| Third Quarter | $ | 697.93 | $ | 575.92 | ||||
| Fourth Quarter | $ | 696.56 | $ | 607.55 |
As of January 26, 2015, there were approximately 1,062 holders of our common stock, as determined by counting our record holders and the number of participants reflected in a security position listing provided to us by the Depository Trust Company. Because such “DTC participants” are brokers and other institutions holding shares of our common stock on behalf of their customers, the actual number of unique shareholders represented by these record holders is not known.
Purchases of Equity Securities by the Issuer
The table below reflects shares of common stock we repurchased during the fourth quarter of 2014.
| Total Number of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2) | |||||||||||||
| October | 13,250 | $ | 638.83 | 13,250 | $ | 118,335,698 | ||||||||||
| Purchased 10/1 through 10/31 | ||||||||||||||||
| November | 14,000 | $ | 654.33 | 14,000 | $ | 109,175,068 | ||||||||||
| Purchased 11/1 through 11/30 | ||||||||||||||||
| December | 10,566 | $ | 659.16 | 10,566 | $ | 102,210,371 | ||||||||||
| Purchased 12/1 through 12/31 | ||||||||||||||||
| Total | 37,816 | $ | 650.25 | 37,816 | $ | 102,210,371 |
| (1) | Shares were repurchased pursuant to a repurchase program announced on February 5, 2013. Repurchases under the program were limited to $100 million in total repurchase price, and there was no expiration date. Repurchases under this program were completed in January 2015. |
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| (2) | This column includes $100 million in authorized repurchases announced on April 17, 2014, but does not include an additional $100 million in authorized repurchases announced on February 3, 2015. These repurchase programs have no expiration date. Authorization of repurchase programs may be modified, suspended, or discontinued at any time. |
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Dividend Policy
We are not required to pay any dividends and have not declared or paid any cash dividends on our common stock. We intend to continue to retain earnings for use in the operation and expansion of our business and therefore do not anticipate paying any cash dividends on our common stock in the foreseeable future.
COMPARISON OF CUMULATIVE TOTAL RETURN
The following graph compares the cumulative annual stockholders return on our common stock from December 31, 2009 through December 31, 2014 to that of the total return index for the S&P 500 and the S&P 500 Restaurants Index assuming an investment of $100 on December 31, 2009. In calculating total annual stockholder return, reinvestment of dividends, if any, is assumed. The indices are included for comparative purposes only. They do not necessarily reflect management’s opinion that such indices are an appropriate measure of the relative performance of our common stock. This graph is not “soliciting material,” is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference in any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
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Item 6. SELECTED FINANCIAL DATA
| --- | --- |
Our selected consolidated financial data shown below should be read together with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and respective notes included in Item 8. “Financial Statements and Supplementary Data.” The data shown below are not necessarily indicative of results to be expected for any future period (in thousands, except per share data).
| For the years ended December 31 | ||||||||||||||||||||
| 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
| Statement of Income: | ||||||||||||||||||||
| Revenue | $ | 4,108,269 | $ | 3,214,591 | $ | 2,731,224 | $ | 2,269,548 | $ | 1,835,922 | ||||||||||
| Food, beverage and packaging costs | 1,420,994 | 1,073,514 | 891,003 | 738,720 | 561,107 | |||||||||||||||
| Labor costs | 904,407 | 739,800 | 641,836 | 543,119 | 453,573 | |||||||||||||||
| Occupancy costs | 230,868 | 199,107 | 171,435 | 147,274 | 128,933 | |||||||||||||||
| Other operating costs | 434,244 | 347,401 | 286,610 | 251,208 | 202,904 | |||||||||||||||
| General and administrative expenses | 273,897 | 203,733 | 183,409 | 149,426 | 118,590 | |||||||||||||||
| Depreciation and amortization | 110,474 | 96,054 | 84,130 | 74,938 | 68,921 | |||||||||||||||
| Pre-opening costs | 15,609 | 15,511 | 11,909 | 8,495 | 7,767 | |||||||||||||||
| Loss on disposal of assets | 6,976 | 6,751 | 5,027 | 5,806 | 6,296 | |||||||||||||||
| Total operating expenses | 3,397,469 | 2,681,871 | 2,275,359 | 1,918,986 | 1,548,091 | |||||||||||||||
| Income from operations | 710,800 | 532,720 | 455,865 | 350,562 | 287,831 | |||||||||||||||
| Interest and other income (expense), net | 3,503 | 1,751 | 1,820 | (857 | ) | 1,230 | ||||||||||||||
| Income before income taxes | 714,303 | 534,471 | 457,685 | 349,705 | 289,061 | |||||||||||||||
| Provision for income taxes | (268,929 | ) | (207,033 | ) | (179,685 | ) | (134,760 | ) | (110,080 | ) | ||||||||||
| Net income | $ | 445,374 | $ | 327,438 | $ | 278,000 | $ | 214,945 | $ | 178,981 | ||||||||||
| Earnings per share | ||||||||||||||||||||
| Basic | $ | 14.35 | $ | 10.58 | $ | 8.82 | $ | 6.89 | $ | 5.73 | ||||||||||
| Diluted | $ | 14.13 | $ | 10.47 | $ | 8.75 | $ | 6.76 | $ | 5.64 | ||||||||||
| Weighted average common shares outstanding | ||||||||||||||||||||
| Basic | 31,038 | 30,957 | 31,513 | 31,217 | 31,234 | |||||||||||||||
| Diluted | 31,512 | 31,281 | 31,783 | 31,775 | 31,735 | |||||||||||||||
| As of December 31 | ||||||||||||||||||||
| 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
| Balance Sheet Data: | ||||||||||||||||||||
| Total current assets | $ | 878,479 | $ | 666,307 | $ | 546,607 | $ | 501,192 | $ | 406,221 | ||||||||||
| Total assets | $ | 2,546,285 | $ | 2,009,280 | $ | 1,668,667 | $ | 1,425,308 | $ | 1,121,605 | ||||||||||
| Total current liabilities | $ | 245,710 | $ | 199,228 | $ | 186,852 | $ | 157,453 | $ | 123,054 | ||||||||||
| Total liabilities | $ | 533,916 | $ | 470,992 | $ | 422,741 | $ | 381,082 | $ | 310,732 | ||||||||||
| Total shareholders’ equity | $ | 2,012,369 | $ | 1,538,288 | $ | 1,245,926 | $ | 1,044,226 | $ | 810,873 |
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| --- | --- |
You should read the following discussion together with Item 6. “Selected Financial Data” and our consolidated financial statements and related notes included in Item 8. “Financial Statements and Supplementary Data.” The discussion contains forward-looking statements involving risks, uncertainties and assumptions that could cause our results to differ materially from expectations. Factors that might cause such differences include those 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 a traditional “fast-food” experience. We do this by avoiding a formulaic approach when creating our restaurant experience, looking to fine dining restaurants for inspiration. We use high-quality raw ingredients, classic cooking methods and distinctive interior design, and have friendly people to take care of each customer—features that are more frequently found in the world of fine dining. Our approach is also guided by our belief in an idea we call “Food With Integrity.” Our objective is to find the highest quality ingredients we can—ingredients that are grown or raised with respect for the environment, animals, and people who grow or raise the food. A similarly focused people culture, with an emphasis on identifying and empowering top performing employees, enables us to develop future leaders from within.
2014 Highlights and Trends
Restaurant Development. As of December 31, 2014, we had 1,783 restaurants in operation, including 1,755 Chipotle restaurants throughout the United States, with an additional seven in Canada, six in England, three in France, and one in Germany. Our restaurants include nine ShopHouse Southeast Asian Kitchen restaurants, serving Asian-inspired cuisine, and we are an investor in a consolidated entity that owns and operates two Pizzeria Locale restaurants, a fast casual pizza concept. New restaurants have contributed substantially to our restaurant sales growth and we opened 192 restaurants in 2014, and expect to open between 190 and 205 restaurants in 2015, including a small number of ShopHouse and Pizzeria Locale restaurants.
Sales Growth. Average restaurant sales were $2.472 million as of December 31, 2014, increasing from $2.169 million as of December 31, 2013. We define average restaurant sales as the average trailing 12-month sales for restaurants in operation for at least 12 full calendar months. Our comparable restaurant sales increases were 16.8% in 2014. Comparable restaurant sales represent the change in period-over-period sales for restaurants beginning in their 13th full calendar 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 price increases accounted for 3.8% of our comparable restaurant sales increases for 2014. We expect 2015 comparable restaurant sales to be in the low to mid-single digits as comparisons become more difficult, particularly during the final three quarters of the year.
During 2013, we launched our catering service in Chipotle restaurants throughout the U.S, except New York City. Catering represented approximately 1.3% of revenue for the year ended 2014.
Food With Integrity. In all of our restaurants, we endeavor to serve only meats that were raised without the use of non-therapeutic antibiotics or added hormones, and in accordance with criteria we’ve established in an effort to improve sustainability and promote animal welfare. We brand these meats as “Responsibly Raised TM.” In addition, a portion of some of the produce items we serve is organically grown, and/or sourced locally when in season (by which we mean within 350 miles of the restaurant where it is served), and a portion of the beans we serve is organically grown and a portion is grown using conservation tillage methods that improve soil conditions, reduce erosion and help preserve the environment in which they are grown. The sour cream and cheese we buy is made with milk that comes from cows that are not given rBGH. Milk used to make much of our
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cheese and all of our sour cream is sourced from pasture-based dairies that provide an even higher standard of animal welfare by providing outdoor access for their cows. Further, we disclose on our website which ingredients contain genetically modified organisms, or GMOs, and we are working to replace ingredients containing GMOs in our food (not including beverages) with non-GMO ingredients. While the meat and poultry we serve is not genetically modified, the animals are likely fed a diet containing GMOs. We will continue to search for quality ingredients that not only taste delicious, but also benefit local farmers or the environment, or otherwise benefit or improve the sustainability of our supply chain.
One of our primary goals is for all of our restaurants to continue serving meats that are raised to meet our standards, but we have and will continue to face challenges in doing so. In January 2015, through an ongoing audit of our suppliers, we identified a pork supplier that was not meeting our standards related to the size and condition of the housing offered to some of the pigs, so we suspended our purchases from this supplier. Without this supply, we cannot get enough pork that meets our standards for all of our restaurants, and we will not be able to serve carnitas in about one-third of our U.S. restaurants until we can find additional sources which meet our standards to make up the shortfall. Because we have elected to remove all affected pork from our supply chain, including our distribution centers, and—because the meat is food safe but does not meet our rigorous standards—we disposed of it, primarily through donations to local food banks. Some of our restaurants served conventionally raised beef and chicken for periods during 2014 and we expect to serve conventionally raised beef in 2015, due to supply constraints for our Responsibly Raised meats. More of our restaurants may periodically serve conventionally raised meats in the future due to supply constraints. When we become aware that one or more of our restaurants will serve conventionally raised meat, we clearly and specifically disclose this temporary change on signage in each affected restaurant, so that customers can avoid those meats if they choose to do so.
Our food costs increased as a percentage of revenue in 2014 as a result of inflationary pressures on many of our ingredients, primarily beef, avocados, and dairy. The increase was partially offset by the impact of the menu price increase in the second quarter. We expect that food costs as a percentage of revenue in 2015 will remain consistent with the full year 2014 or will increase slightly.
Stock Repurchases. In accordance with stock repurchases authorized by our Board of Directors we purchased shares of our common stock with an aggregate total repurchase price of $88.0 million during 2014. As of December 31, 2014, $102.2 million was available to be repurchased under the current repurchase authorizations announced on February 5, 2013 and April 17, 2014. On February 3, 2015 we announced that our Board of Directors authorized the expenditure of up to an additional $100 million to repurchase shares of our common stock. We have entered into an agreement with a broker under SEC rule 10b5-1(c), authorizing the broker to make open market purchases of common stock from time to time, subject to market conditions. The existing repurchase agreement and the Board’s authorization of the repurchases may be modified, suspended, or discontinued at any time.
Restaurant Openings, Relocations and Closures
The following table details restaurant unit data for the years indicated.
| Years ended December 31 | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
| Beginning of period | 1,595 | 1,410 | 1,230 | |||||||||
| Openings | 192 | 185 | 183 | |||||||||
| Relocations | (4 | ) | — | (3 | ) | |||||||
| Total restaurants at end of period | 1,783 | 1,595 | 1,410 | |||||||||
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Results of Operations
Our results of operations as a percentage of revenue and period-over-period variances are discussed in the following section. As our 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 | % increase 2014 over 2013 | % increase 2013 over 2012 | ||||||||||||||||||
| 2014 | 2013 | 2012 | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Revenue | $ | 4,108.3 | $ | 3,214.6 | $ | 2,731.2 | 27.8 | % | 17.7 | % | ||||||||||
| Average restaurant sales | $ | 2.472 | $ | 2.169 | $ | 2.113 | 14.0 | % | 2.7 | % | ||||||||||
| Comparable restaurant sales increases | 16.8 | % | 5.6 | % | 7.1 | % | ||||||||||||||
| Number of restaurants as of the end of the period | 1,783 | 1,595 | 1,410 | 11.8 | % | 13.1 | % | |||||||||||||
| Number of restaurants opened in the period, net of relocations | 188 | 185 | 180 |
In 2014, the significant factors contributing to our increases in sales were comparable restaurant sales and new restaurant openings. Comparable restaurant sales increases contributed $530.0 million of the increase in restaurant sales, due primarily to increases in customer visits, and an increase in average check price, including the benefit from menu price increases. Restaurant sales from restaurants not yet in the comparable base contributed $364.7 million of the increase in sales in 2014, of which $173.9 million was attributable to restaurants opened during the year.
In 2013, the significant factors contributing to our increases in sales were new restaurant openings and comparable restaurant sales. Restaurant sales from restaurants not yet in the comparable restaurant base contributed $333.9 million of the increase in sales, of which $156.6 million was attributable to restaurants opened in 2013. Comparable restaurant sales increases contributed $150.3 million of the increase in restaurant sales, due primarily to increases in customer visits.
Food, Beverage and Packaging Costs
| Years ended December 31 | % increase 2014 over 2013 | % increase 2013 over 2012 | ||||||||||||||||||
| 2014 | 2013 | 2012 | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Food, beverage and packaging | $ | 1,421.0 | $ | 1,073.5 | $ | 891.0 | 32.4 | % | 20.5 | % | ||||||||||
| As a percentage of revenue | 34.6 | % | 33.4 | % | 32.6 | % |
Food, beverage and packaging costs increased as a percentage of revenue in 2014 due to inflation on many food items, primarily beef, avocados, and dairy. The increase was partially offset by the impact of menu price increases. We expect that food costs as a percentage of revenue in 2015 will remain consistent with the full year 2014 or will increase slightly.
Food, beverage and packaging costs increased as a percentage of revenue in 2013 due to inflation on many food items, particularly salsa ingredients, as well as dairy, cooking oils, and chicken.
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Labor Costs
| For the Years ended December 31 | % increase 2014 over 2013 | % increase 2013 over 2012 | ||||||||||||||||||
| 2014 | 2013 | 2012 | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Labor costs | $ | 904.4 | $ | 739.8 | $ | 641.8 | 22.3 | % | 15.3 | % | ||||||||||
| As a percentage of revenue | 22.0 | % | 23.0 | % | 23.5 | % |
Labor costs as a percentage 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 as a percentage of revenue due to the Affordable Care Act and minimum wage increases in a number of jurisdictions.
Labor costs as a percentage of revenue decreased in 2013 due primarily to the benefit of higher average restaurant sales.
Occupancy Costs
| For the Years ended December 31 | % increase 2014 over 2013 | % increase 2013 over 2012 | ||||||||||||||||||
| 2014 | 2013 | 2012 | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Occupancy costs | $ | 230.9 | $ | 199.1 | $ | 171.4 | 16.0 | % | 16.1 | % | ||||||||||
| As a percentage of revenue | 5.6 | % | 6.2 | % | 6.3 | % |
Occupancy costs decreased as a percentage of revenue in 2014 and in 2013 primarily due to the benefit of higher average restaurant sales on a partially fixed-cost base.
Other Operating Costs
| For the Years ended December 31 | % increase 2014 over 2013 | % increase 2013 over 2012 | ||||||||||||||||||
| 2014 | 2013 | 2012 | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Other operating costs | $ | 434.2 | $ | 347.4 | $ | 286.6 | 25.0 | % | 21.2 | % | ||||||||||
| As a percentage of revenue | 10.6 | % | 10.8 | % | 10.5 | % |
Other operating costs include, among other items, marketing and promotional costs, bank and credit card fees, and restaurant utilities and maintenance costs. Other operating costs decreased in 2014 due primarily 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 primarily to higher spend on marketing and promotions.
General and Administrative Expenses
| For the Years ended December 31 | % increase 2014 over 2013 | % increase 2013 over 2012 | ||||||||||||||||||
| 2014 | 2013 | 2012 | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| General and administrative expense | $ | 273.9 | $ | 203.7 | $ | 183.4 | 34.4 | % | 11.1 | % | ||||||||||
| As a percentage of revenue | 6.7 | % | 6.3 | % | 6.7 | % |
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The increase in general and administrative expenses in dollar terms in 2014 primarily resulted from increased non-cash stock-based compensation expense, higher payroll and bonus costs as we grew, as well costs from our biennial All Managers’ Conference, or AMC, held in the third quarter of 2014.
The increase in general and administrative expenses in dollar terms in 2013 primarily resulted from increased payroll and benefits costs as we grew and increased legal costs, partially offset by costs from our biennial AMC held during 2012, as well as a decrease in 2013 in non-cash stock based compensation expense due to expenses in 2012 related to non-vested stock awards subject to performance conditions.
Depreciation and Amortization
| For the Years ended December 31 | % increase 2014 over 2013 | % increase 2013 over 2012 | ||||||||||||||||||
| 2014 | 2013 | 2012 | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Depreciation and amortization | $ | 110.5 | $ | 96.1 | $ | 84.1 | 15.0 | % | 14.2 | % | ||||||||||
| As a percentage of revenue | 2.7 | % | 3.0 | % | 3.1 | % |
As a percentage of revenue, depreciation and amortization decreased in 2014 and 2013 as a result of the benefit of higher average restaurant sales on a partially fixed-cost base.
Income Tax Provision
| For the Years ended December 31 | % increase 2014 over 2013 | % increase 2013 over 2012 | ||||||||||||||||||
| 2014 | 2013 | 2012 | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Provision for income taxes | $ | 268.9 | $ | 207.0 | $ | 179.7 | 29.9 | % | 15.2 | % | ||||||||||
| Effective tax rate | 37.6 | % | 38.7 | % | 39.3 | % |
The 2014 effective tax rate decreased by 1.1% from 2013 due to a decrease in the state tax rate and filing the 2013 tax returns, which included a change in the estimate of usable employer credits.
The 2013 effective tax rate decreased by 0.6% from 2012 due primarily to certain federal tax credits that were extended in 2013, for both 2013 and 2012, which benefited the rate by 1.1%. This decrease was partially offset by non-recurring adjustments related to state income taxes.
We estimate our 2015 annual effective tax rate will be 39.0%, increasing from 2014 due to the expiration of certain federal tax credits.
Quarterly Financial Data/Seasonality
The following table presents data from the consolidated statement of income and comprehensive income for each of the eight quarters in the period ended December 31, 2014. The operating results for any quarter are not necessarily indicative of the results for any subsequent quarter.
| 2014 Quarters Ended | ||||||||||||||||
| March 31 | June 30 | September 30 | December 31 | |||||||||||||
| Revenue | $ | 904.2 | $ | 1,050.1 | $ | 1,084.2 | $ | 1,069.8 | ||||||||
| Operating income | $ | 135.7 | $ | 179.8 | $ | 207.4 | $ | 187.9 | ||||||||
| Net income | $ | 83.1 | $ | 110.3 | $ | 130.8 | $ | 121.2 | ||||||||
| Number of restaurants opened in quarter | 44 | 45 | 43 | 60 | ||||||||||||
| Comparable restaurant sales increase | 13.4 | % | 17.3 | % | 19.8 | % | 16.1 | % |
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| 2013 Quarters Ended | ||||||||||||||||
| March 31 | June 30 | September 30 | December 31 | |||||||||||||
| Revenue | $ | 726.8 | $ | 816.8 | $ | 826.9 | $ | 844.1 | ||||||||
| Operating income | $ | 120.0 | $ | 146.4 | $ | 137.2 | $ | 129.1 | ||||||||
| Net income | $ | 76.6 | $ | 87.9 | $ | 83.4 | $ | 79.6 | ||||||||
| Number of restaurants opened in quarter | 48 | 44 | 37 | 56 | ||||||||||||
| Comparable restaurant sales increase | 1.0 | % | 5.5 | % | 6.2 | % | 9.3 | % |
Seasonal factors cause our profitability to fluctuate from quarter to quarter. Historically, our average daily restaurant sales and net income are lower in the first and fourth quarters due, in part, to the holiday season and because fewer people eat out during periods of inclement weather (the winter months) than during periods of mild or warm weather (the spring, summer and fall months). Other factors also have a seasonal effect on our results. For example, restaurants located near colleges and universities 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 can also affect our results. Overall, on an annual basis, changes in trading dates do not have a significant impact on our results.
Our quarterly results are also affected by other factors such as the amount and timing of non-cash stock-based compensation expense, the number of new restaurants opened in a quarter and unanticipated events. New restaurants typically have lower margins following opening as a result of the expenses associated with opening new restaurants and their operating inefficiencies in the months immediately following opening. In addition, unanticipated events also impact our results. Accordingly, results for a particular quarter are not necessarily indicative of results to be expected for any other quarter or for any year.
Liquidity and Capital Resources
Our primary liquidity and capital requirements are for new restaurant construction, working capital and general corporate needs. We have a cash and short-term investment balance of $758.1 million that we expect to utilize, along with cash flow from operations, to provide capital to support the growth of our business (primarily through opening restaurants), to repurchase additional shares of our common stock subject to market conditions (including up to $102.2 million in repurchases under programs authorized as of December 31, 2014 and an additional $100 million program announced on February 3, 2015), to maintain our existing restaurants and for general corporate purposes. We also have a long term investments balance of $496.1 million, which consists of U.S. treasury notes and certificate of deposit products with maturities of 13 months to approximately 2 years. We believe that cash from operations, together with our cash and investment balances, will be enough to meet ongoing capital expenditures, working capital requirements and other cash needs for the foreseeable future.
We haven’t required significant working capital because customers generally pay using cash or credit and debit cards and because our operations do not require significant receivables, nor do they require significant inventories due, in part, to our use of various fresh ingredients. In addition, we generally have 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.
While operations continue to provide cash, our primary use of cash is in new restaurant development. Our total capital expenditures for 2014 were $252.6 million, which included the purchase of a corporate aircraft for a total cost of approximately $24 million; the majority of that amount was paid during 2014. We expect to incur capital expenditures of about $235 million in 2015, of which about $180 million relates to our construction of new restaurants before any reductions for landlord reimbursements, and the remainder primarily relates to restaurant reinvestments. In 2014, for Chipotle restaurants in the U.S., we spent on average about $843,000 in development and construction costs per restaurant, net of landlord reimbursements of approximately $60,000, and for all restaurants including international locations we spent on average about $849,000, net of landlord reimbursements of approximately $66,000. For new restaurants to be opened in 2015, we anticipate average development costs will slightly decrease due primarily to the mix of locations and categories.
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Contractual Obligations
Our contractual obligations as of December 31, 2014 were as follows:
| 2014 | ||||||||||||||||||||
| Total | 1 year | 2-3 years | 4-5 years | After 5 years | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Operating leases | $ | 3,044,197 | $ | 206,413 | $ | 417,338 | $ | 423,587 | $ | 1,996,859 | ||||||||||
| Deemed landlord financing | $ | 4,717 | $ | 401 | $ | 844 | $ | 846 | $ | 2,626 | ||||||||||
| Other contractual obligations(1) | $ | 221,584 | $ | 218,191 | $ | 3,393 | $ | — | $ | — | ||||||||||
| Total contractual cash obligations | $ | 3,270,498 | $ | 425,005 | $ | 421,575 | $ | 424,433 | $ | 1,999,485 | ||||||||||
| (1) | We enter into various purchase obligations in the ordinary course of business. Those that are binding primarily relate to amounts owed for orders related to produce and other ingredients and supplies, construction contractor and subcontractor agreements, orders submitted for equipment for restaurants under construction, and marketing initiatives and corporate sponsorships. |
|---|
We’re obligated under non-cancelable leases for our restaurants and administrative offices. Our leases generally have initial terms of either five to ten years with two or more five-year extensions, for end-cap and in-line restaurants, or 15 to 20 years with several five-year extensions, for free-standing restaurants. Our leases generally require us to pay a proportionate share of real estate taxes, insurance, common charges and other operating costs. Some restaurant leases provide for contingent rental payments based on sales thresholds, although we generally do not expect to pay significant contingent rent on these properties based on the thresholds in those leases.
Off-Balance Sheet Arrangements
As of December 31, 2014 and 2013, we had no off-balance sheet arrangements or obligations.
Inflation
The primary areas of our operations affected by inflation are food, healthcare costs, labor, fuel, utility costs, materials used in the construction of our restaurants, and insurance. Although almost all of our crew members make more than the federal and applicable state and local minimum wage, increases in the applicable federal or state minimum wage may have an impact on our labor costs. Additionally, many of our leases require us to pay taxes, maintenance, utilities and insurance, all of which are generally subject to inflationary increases. Inflationary increases have increased 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 included in Item 8. “Financial Statements and Supplementary Data.” Critical accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or factors. We believe the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our financial statements:
Leases
We lease nearly all of our restaurant locations. Our leases typically contain escalating rentals over the lease term as well as optional renewal periods. We have estimated that our lease term, including reasonably assured renewal periods, is the lesser of the lease term or 20 years. We account for our leases by recognizing rent expense
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on a straight-line basis over the reasonably assured lease term. The majority of our leasehold improvements are also depreciated over the reasonably assured lease term. If the estimate of our reasonably assured lease term was changed, our depreciation and rent expense could differ materially.
Stock-based Compensation
We recognize compensation expense for equity awards over the vesting period based on the award’s fair value. We use the Black-Scholes valuation model to determine the fair value of our stock-only stock appreciation rights, or SOSARs, which requires assumptions to be made regarding our stock price volatility, the expected life of the award and expected dividend rates. The volatility assumption was based on our historical data and implied volatility, and the expected life assumptions were based on our historical data. Similarly, the compensation expense of performance share awards and SOSARs with performance-based vesting conditions is based in part on the estimated probability of our achieving levels of performance associated with particular levels of payout for performance shares and with vesting for performance SOSARs. We determine the probability of achievement of future levels of performance by comparing the relevant performance level with our internal estimates of future performance. Those estimates are based on a number of assumptions, and different assumptions may have resulted in different conclusions regarding the probability of our achieving future levels of performance relevant to the payout levels for the awards. Had we arrived at different assumptions of stock price volatility or expected lives of our SOSARs, or different assumptions regarding the probability of our achieving future levels of performance with respect to performance share awards and performance SOSARs, our stock-based compensation expense and results of operations could have been different.
Insurance Liability
We maintain various insurance policies for workers’ compensation, general liability and auto damage with varying deductibles as high as $1 million, and for property which generally has a $1.5 million deductible. We are self insured for employee health but have third party insurance coverage to limit exposure to these claims. We record a liability that represents our estimated cost of claims incurred and unpaid as of the balance sheet date. Our estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions and economic conditions, and is closely monitored and adjusted when warranted by changing circumstances. In addition, our history of claims experience is short and our significant growth rate could affect the accuracy of estimates based on historical experience. Should a greater amount of claims occur compared to what was estimated or medical costs increase beyond what was expected, our accrued liabilities might not be sufficient and additional expenses may be recorded. Actual claims experience could also be more favorable than estimated, which would result in expense reductions. Unanticipated changes may produce materially different amounts of expense than that reported under these programs. The total estimated insurance liabilities as of December 31, 2014 were $34.0 million.
Reserves/Contingencies for Litigation and Other Matters
We are involved in various claims and legal actions that arise in the ordinary course of business. These actions are subject to many uncertainties, and we cannot predict the outcomes with any degree of certainty. Consequently, we were unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters as of December 31, 2014 and 2013. Although we have recorded liabilities related to a number of legal actions, our estimates used to determine the amount of these liabilities may not be accurate, and there are other legal actions for which we have not recorded a liability. As a result, in the event legal actions for which we have not accrued a liability or for which our accrued liabilities are not accurate are resolved, such resolution may affect our operating results and cash flows.
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
| --- | --- |
Commodity Price Risks
We are also exposed to commodity price risks. Many of the ingredients we use to prepare 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 of forward pricing protocols under which we agree with our supplier on fixed prices for deliveries at some time in the future, fixed pricing protocols under which we agree on a fixed price with our supplier for the duration of that protocol, and formula pricing protocols under which the prices we pay are based on a specified formula related to the prices of the goods, such as spot prices. However, a majority of the dollar value of goods purchased by us is effectively at spot prices. Generally our pricing protocols with suppliers can remain in effect for periods ranging from one to 18 months, depending on the outlook for prices of the particular ingredient. In several cases, we have minimum purchase obligations. We’ve tried to increase, where necessary, the number of suppliers 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 may affect our ingredient prices. Increases in ingredient prices could adversely affect our results if we choose for competitive or other reasons not to increase menu prices at the same rate at which ingredient costs increase, or if menu price increases result in customer resistance.
Changing Interest Rates
We are exposed to interest rate risk through fluctuations of interest rates on our investments. Changes in interest rates affect the interest income we earn, and therefore impact our cash flows and results of operations. As of December 31, 2014, we had $981.1 million in investments and interest-bearing cash accounts, including an insurance related restricted trust account classified in other assets, and $262.2 million in accounts with an earnings credit we classify as interest income, which combined earned a weighted average interest rate of 0.43%.
Foreign Currency Exchange Risk
A portion of our operations consist of activities outside of the U.S. and we have currency risk on the transactions in other currencies and translation 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.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| --- | --- |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Chipotle Mexican Grill, Inc.
We have audited the accompanying consolidated balance sheets of Chipotle Mexican Grill, Inc. (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of income and comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Chipotle Mexican Grill, Inc. at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Chipotle Mexican Grill, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 4, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Denver, Colorado
February 4, 2015
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CHIPOTLE MEXICAN GRILL, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
| December 31 | ||||||||
| 2014 | 2013 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 419,465 | $ | 323,203 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $1,199 and $1,190 as of December 31, 2014 and December 31, 2013, respectively | 34,839 | 24,016 | ||||||
| Inventory | 15,332 | 13,044 | ||||||
| Current deferred tax asset | 18,968 | 13,212 | ||||||
| Prepaid expenses and other current assets | 34,795 | 34,204 | ||||||
| Income tax receivable | 16,488 | 3,657 | ||||||
| Investments | 338,592 | 254,971 | ||||||
| Total current assets | 878,479 | 666,307 | ||||||
| Leasehold improvements, property and equipment, net | 1,106,984 | 963,238 | ||||||
| Long term investments | 496,106 | 313,863 | ||||||
| Other assets | 42,777 | 43,933 | ||||||
| Goodwill | 21,939 | 21,939 | ||||||
| Total assets | $ | 2,546,285 | $ | 2,009,280 | ||||
| Liabilities and shareholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 69,613 | $ | 59,022 | ||||
| Accrued payroll and benefits | 73,894 | 67,195 | ||||||
| Accrued liabilities | 102,203 | 73,011 | ||||||
| Total current liabilities | 245,710 | 199,228 | ||||||
| Deferred rent | 219,414 | 192,739 | ||||||
| Deferred income tax liability | 40,529 | 55,434 | ||||||
| Other liabilities | 28,263 | 23,591 | ||||||
| Total liabilities | 533,916 | 470,992 | ||||||
| Shareholders’ equity: | ||||||||
| Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of December 31, 2014 and December 31, 2013, respectively | — | — | ||||||
| Common stock $0.01 par value, 230,000 shares authorized, and 35,394 and 35,245 shares issued as of December 31, 2014 and December 31, 2013, respectively | 354 | 352 | ||||||
| Additional paid-in capital | 1,038,932 | 919,840 | ||||||
| Treasury stock, at cost, 4,367 and 4,212 common shares at December 31, 2014 and December 31, 2013, respectively | (748,759 | ) | (660,421 | ) | ||||
| Accumulated other comprehensive income | (429 | ) | 1,620 | |||||
| Retained earnings | 1,722,271 | 1,276,897 | ||||||
| Total shareholders’ equity | 2,012,369 | 1,538,288 | ||||||
| Total liabilities and shareholders’ equity | $ | 2,546,285 | $ | 2,009,280 | ||||
See accompanying notes to consolidated financial statements.
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CHIPOTLE MEXICAN GRILL, INC.
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
| Years ended December 31 | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
| Revenue | $ | 4,108,269 | $ | 3,214,591 | $ | 2,731,224 | ||||||
| Restaurant operating costs (exclusive of depreciation and amortization shown separately below): | ||||||||||||
| Food, beverage and packaging | 1,420,994 | 1,073,514 | 891,003 | |||||||||
| Labor | 904,407 | 739,800 | 641,836 | |||||||||
| Occupancy | 230,868 | 199,107 | 171,435 | |||||||||
| Other operating costs | 434,244 | 347,401 | 286,610 | |||||||||
| General and administrative expenses | 273,897 | 203,733 | 183,409 | |||||||||
| Depreciation and amortization | 110,474 | 96,054 | 84,130 | |||||||||
| Pre-opening costs | 15,609 | 15,511 | 11,909 | |||||||||
| Loss on disposal of assets | 6,976 | 6,751 | 5,027 | |||||||||
| Total operating expenses | 3,397,469 | 2,681,871 | 2,275,359 | |||||||||
| Income from operations | 710,800 | 532,720 | 455,865 | |||||||||
| Interest and other income (expense), net |
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
| --- | --- |
None.
Item 9A. CONTROLS AND PROCEDURES
| --- | --- |
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that 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
As of December 31, 2014, we carried out an evaluation, under the supervision and with the participation of our management, including our co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of the design 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 over Financial Reporting
There were no changes during the fiscal quarter ended December 31, 2014 in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
The management of Chipotle Mexican Grill, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (the “2013 framework”). Based on that assessment, management concluded that, as of December 31, 2014, our internal control over financial reporting was effective based on the criteria established in the 2013 framework.
Our independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2014. This report follows.
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Chipotle Mexican Grill, Inc.
We have audited 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 Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Chipotle Mexican Grill, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Chipotle Mexican Grill, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.
We also have audited, in 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 flows for each of the three years in the period ended December 31, 2014, and our report dated February 4, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Denver, Colorado
February 4, 2015
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Item 9B. OTHER INFORMATION
| --- | --- |
None.
PART III
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 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 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
| --- | --- |
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents information regarding options and rights outstanding under our equity compensation plans as of December 31, 2014. All options/SOSARs reflected are options to purchase common stock.
| (a) Number of Securities to be Issued Upon Exercise of Outstanding Options and Rights(1) | (b) Weighted-Average Exercise Price of Outstanding Options and Rights(1) | (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a))(2) | ||||||||||
| Equity Compensation Plans Approved by Security Holders: | 2,157,461 | $ | 395.46 | 1,536,207 | ||||||||
| Equity Compensation Plans Not Approved by Security Holders: | None. | N/A | None. | |||||||||
| Total | 2,157,461 | $ | 395.46 | 1,536,207 |
| (1) | Includes shares issuable in connection with performance shares, which will be issued based on achievement of performance criteria associated with the awards, with the number of shares issuable dependent on our level of performance. The weighted-average exercise price in column (b) includes the weighted-average exercise price of SOSARs only. |
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| (2) | Includes 1,287,972 shares remaining available under the Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan, and 248,235 shares remaining available under the Chipotle Mexican Grill, Inc. Employee Stock Purchase Plan. In addition to being available for future issuance upon exercise of SOSARs or stock options that may be granted after December 31, 2014, all of the shares available for grant under the Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan may instead be issued in the form of restricted stock, restricted stock units, performance shares or other equity-based awards. Each share underlying a full value award such as restricted stock, restricted stock units or performance shares counts as two shares used against the total number of securities authorized under the plan. |
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Additional information for this item is 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 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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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.
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Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
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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.
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PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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1. All Financial statements
Consolidated financial statements filed as part of this report are listed under Item 8. “Financial Statements and Supplementary Data.”
2. Financial statement schedules
No schedules are required because either the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto.
3. Exhibits
The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the 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: | /s/ JOHN R. HARTUNG | |
| Name: | John R. Hartung | |
| Title: | Chief Financial Officer |
Date: February 4, 2015
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Steve Ells, Montgomery Moran and John Hartung, and each of them, his or her true and lawful attorneys-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, 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, 2015 | Co-Chief Executive Officer and Chairman of the Board of Directors (principal executive officer) | ||
| /S/ MONTGOMERY F. MORAN Montgomery F. Moran | February 4, 2015 | Co-Chief Executive Officer (principal executive officer) | ||
| /S/ JOHN R. HARTUNG John R. Hartung | February 4, 2015 | Chief Financial Officer (principal financial and accounting officer) | ||
| /S/ ALBERT S. BALDOCCHI Albert S. Baldocchi | February 4, 2015 | Director | ||
| /S/ JOHN S. CHARLESWORTH John S. Charlesworth | February 4, 2015 | Director | ||
| /S/ NEIL W. FLANZRAICH Neil W. Flanzraich | February 4, 2015 | Director | ||
| /S/ PATRICK J. FLYNN Patrick J. Flynn | February 4, 2015 | Director | ||
| /S/ DARLENE J. FRIEDMAN Darlene J. Friedman | February 4, 2015 | Director | ||
| /S/ KIMBAL MUSK Kimbal Musk | February 4, 2015 | Director |
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EXHIBIT INDEX
| Exhibit Number | Description of Exhibit | |
| 3.1 | Amended and Restated Certificate of Incorporation.(1) | |
| 3.2 | Certificate of Amendment of Amended and Restated Certificate of Incorporation of Chipotle Mexican Grill, Inc.(2) | |
| 3.3 | Amended and Restated Bylaws.(3) | |
| 4.1 | Form of Stock Certificate for Shares of Common Stock.(4) | |
| 10.2† | Amended and Restated Chipotle Mexican Grill, Inc. 2006 Stock Incentive Plan.(6) | |
| 10.2.2† | Form of 2008 Stock Appreciation Rights Agreement.(8) | |
| 10.2.3† | Form of 2009 Stock Appreciation Rights Agreement.(9) | |
| 10.2.4† | Form of 2011 Stock Appreciation Rights Agreement.(6) | |
| 10.2.5† | Form of 2011 Performance-Based Stock Appreciation Rights Agreement.(6) | |
| 10.3† | Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan.(10) | |
| 10.3.1† | Form of Board Restricted Stock Units Agreement.(11) | |
| 10.3.2† | Form of Performance Share Agreement.(5) | |
| 10.3.3† | Form of Stock Appreciation Rights Agreement.(12) | |
| 10.3.4† | Form of Performance-Based Stock Appreciation Rights Agreement.(12) | |
| 10.3.5† | Amendment No. 1 to Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan.(4) | |
| 10.4 | Amended and Restated Registration Rights Agreement dated January 31, 2006 among Chipotle Mexican Grill, Inc., McDonald’s Corporation and certain shareholders.(13) | |
| 10.5† | Board Pay Policies.(14) | |
| 10.6† | Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan.(7) | |
| 10.6.1† | Amendment No. 1 to Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan.(15) | |
| 10.6.2† | Amendment No. 2 to Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan.(16) | |
| 10.7† | Form of Director and Officer Indemnification Agreement.(17) | |
| 10.8† | Chipotle Mexican Grill, Inc. Employee Stock Purchase Plan.(4) | |
| 10.9† | Chipotle Mexican Grill, Inc. 2014 Cash Incentive Plan.(2) | |
| 21.1 | Subsidiaries of Chipotle Mexican Grill, Inc. | |
| 23.1 | Consent of Ernst & Young LLP (as the independent registered public accounting firm of Chipotle Mexican Grill, Inc.). | |
| 24.1 | Power of Attorney (included on signature page of this report). | |
| 31.1 | Certification of Chairman and Co-Chief Executive Officer of Chipotle Mexican Grill, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of Co-Chief Executive Officer of Chipotle Mexican Grill, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.3 | Certification of Chief Financial Officer of Chipotle Mexican Grill, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| 32.1 | Certification 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. | |
| 101 | The following financial statements, formatted in XBRL: (i) Consolidated Balance Sheet as of December 31, 2014 and December 31, 2013, (ii) Consolidated Statement of Income and Comprehensive Income for the years ended December 31, 2014, 2013 and 2012, (iii) Consolidated Statement of Shareholders’ Equity for the years ended December 31, 2014, 2013 and 2012, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012; and (v) Notes to the Consolidated Financial Statements. |
| †- | denotes management contract or compensatory plan or arrangement. |
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| (1) | Incorporated by reference 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). |
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| (2) | Incorporated by reference to Chipotle Mexican Grill, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, filed with the Securities and Exchange Commission on July 19, 2013 (File No. 001-32731). |
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| (3) | Incorporated by reference to Chipotle Mexican Grill, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 5, 2009 (File No. 001-32731). |
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| (4) | Incorporated by reference to Chipotle Mexican Grill, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission on February 10, 2012 (File No. 001-32731). |
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| (5) | Incorporated by reference to Chipotle Mexican Grill, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 23, 2008 (File No. 001-32731). |
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| (6) | Incorporated by reference to Chipotle Mexican Grill, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission on February 17, 2011 (File No. 001-32731). |
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| (7) | Incorporated by reference to Chipotle Mexican Grill, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on February 23, 2007 (File No. 001-32731) |
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| (8) | Incorporated by reference to Chipotle Mexican Grill, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007, filed with the Securities and Exchange Commission on February 26, 2008 (File No. 001-32731) |
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| (9) | Incorporated by reference to Chipotle Mexican Grill, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission on February 19, 2009 (File No. 001-32731). |
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| (10) | Incorporated by reference to Chipotle Mexican Grill, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 26, 2011 (File No. 001-32731). |
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| (11) | Incorporated by reference to Chipotle Mexican Grill, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, filed with the Securities and Exchange Commission on July 22, 2014 (File No. 001-32731). |
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| (12) | Incorporated by reference to Chipotle Mexican Grill, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed with the Securities and Exchange Commission on April 20, 2012 (File No. 001-32731). |
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| (13) | Incorporated by reference to Chipotle Mexican Grill, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2005, filed with the Securities and Exchange Commission on March 17, 2006 (File No. 001-32731). |
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| (14) | Incorporated by reference to Chipotle Mexican Grill, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed with the Securities and Exchange Commission on April 17, 2014 (File No. 001-32731). |
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| (15) | Incorporated by reference to Chipotle Mexican Grill, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, filed with the Securities and Exchange Commission on August 1, 2007 (File No. 001-32731). |
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| (16) | Incorporated by reference to Chipotle Mexican Grill, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, filed with the Securities and Exchange Commission on October 31, 2007 (File No. 001-32731). |
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| (17) | Incorporated by reference to Chipotle Mexican Grill, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 21, 2007 (File No. 001-32731). |
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