Chipotle Management Team

It was a hot Saturday afternoon and Francine was thinking that the beach was a good option to the lonely hot office but she wanted to advance and knew that long hours were required in the investment business. . Francine is a junior analyst and has just passed CFA Level III.  She works 14 hour days looking for investment opportunities and has been following Chipotle Mexican Grill Inc

Francine Hoyt was wondering if she should make a pitch to the investment team at Downunder Hedge Fund to take an activist stake in Chipotle Mexican Grill (CMG-NYSE). As she was reviewing stock charts of companies she investigated whether the company was in a “death spiral” or whether it would rebound.

 

 

 

 

Chipotle Management Team

 

 

Steve  Ells
Founder, Chairman, and Chief Executive Officer

Steve Ells founded Chipotle in 1993. He is Chief Executive Officer and was appointed Chairman of the Board in 2005, and has served as a director since 1996. Prior to launching Chipotle, Mr. Ells worked for two years at Stars restaurant in San Francisco. He is Chairman and a member of the board of directors of the Chipotle Cultivate Foundation. Mr. Ells graduated from the University of Colorado with a Bachelor of Arts degree in art history, and is also a 1990 Culinary Institute of America graduate

John R. Hartung
Chief Financial Officer

John R. (Jack) Hartung is Chief Financial Officer. Mr. Hartung joined Chipotle in 2002 after spending 18 years at McDonald’s where he held a variety of management positions, most recently as Vice President and Chief Financial Officer of its Partner Brands Group. Mr. Hartung has a Bachelor of Science degree in accounting and economics as well as an MBA from Illinois State University.

Mark Crumpacker
Chief Marketing and Development Officer

Mark Crumpacker was appointed Chief Marketing Officer in January 2009 and as Chief Development Officer in October 2013. From December 2002 until December 2008 he was Creative Director for Sequence, LLC, a strategic design and marketing consulting firm he co-founded in 2002, and prior to that served as creative director and in other leadership roles for a variety of design and media companies. Mr. Crumpacker attended the University of Colorado and received his B.F.A. from the Art College of Design in Pasadena, California.

Curt Garner
Chief Digital and Information Officer

Curt Garner was appointed Chief Digital and Information Officer in March 2017. Mr. Garner joined Chipotle in November 2015 as Chief Information Officer, and prior to that had worked for Starbucks Corp. for 17 years, most recently serving as Executive Vice President and Chief Information Officer. Mr. Garner has a Bachelor of Arts degree in economics from The Ohio State University. He serves as a director of Aerohive Networks, Inc. (NYSE: HIVE).

 

Chipotle Board of Directors

Steve  Ells
Founder, Chairman, and Chief Executive Officer

Albert S. Baldocchi
Director

Mr. Baldocchi has been self-employed since 2000 as a financial consultant and strategic advisor for a variety of privately-held companies, with a specialization in multi-unit restaurant companies. His extensive involvement with restaurant companies over a period of 17 years has given Mr. Baldocchi an in-depth knowledge of restaurant company finance, operations and strategy. He also has considerable experience with high-growth companies in the restaurant industry and in other industries, and his experience as a senior investment banker at a number of prominent institutions, including Morgan Stanley, Solomon Brothers and Montgomery Securities has helped him develop tremendous capabilities in accounting and finance as well. Mr. Baldocchi holds a Bachelor of Science degree in chemical engineering from the University of California at Berkeley and an MBA from Stanford University.

Paul Cappuccio Director Mr. Cappuccio has served as Executive Vice President and General Counsel of Time Warner since 2001. In this capacity, he oversees the worldwide management of Time Warner’s legal functions, collaborating with all of its operating businesses. From 1999 to 2001, Mr. Cappuccio was Senior Vice President and General Counsel at America Online. Before joining AOL, he was a Partner at the Washington, DC office of law firm Kirkland & Ellis, where he specialized in telecommunications law, appellate litigation, and negotiation with government agencies. From 1991 to 1993, Mr. Cappuccio was Associate Deputy Attorney General at the United States Department of Justice, where he advised Attorney General William P. Barr on matters relating to judicial selection, civil litigation, antitrust and civil rights. Prior to his service at the DOJ, Mr. Cappuccio served as law clerk at the United States Supreme Court for Justices Antonin Scalia and Anthony M. Kennedy, and as a law clerk to Judge Alex Kozinski of the United States Court of Appeals for the Ninth Circuit in Pasadena, Calif. He earned his law degree from Harvard Law School in 1986, and a Bachelor’s degree from Georgetown University in 1983. Mr. Cappuccio brings significant large public company experience to the board, including significant transactional, financial, strategic, and corporate governance experience.

 

Neil W. Flanzraich
Lead Director

Neil Flanzraich has been a private investor since February 2006. He is also the Executive Chairman of Cantex Pharmaceuticals, Inc. (formerly ParinGenix, Inc.), a privately-owned biotech company. From 1998 through its sale in January 2006 to TEVA Pharmaceuticals Industries, Ltd., he served as Vice Chairman and President of IVAX Corporation, an international pharmaceutical company. From 1995 to 1998, Neil served as Chairman of the Life Sciences Legal Practice Group of Heller Ehrman LLP, a law firm, and from 1981 to 1994, served as the Senior Vice President and Chief Counsel and member of the Operating and Executive Committees of Syntex Corporation, an international pharmaceutical company.

Neil’s executive experience has helped him develop outstanding skills in leading and managing strong teams of employees, and in oversight of the growth and financing of businesses in a rapidly-evolving market. His legal background also is valuable to us in the risk management area, and Neil brings to us extensive experience serving as an independent director of other public and privately-held companies. He is a director of Equity One Inc. (NYSE:EQY). Neil was a director of BELLUS Health Inc. until May 2012, a director of Continucare Corporation until October 2011, and a director of Javelin Pharmaceuticals, Inc. until July 2010.

Neil received an A.B. from Harvard College and a J.D. from Harvard Law School.

		Robin Hickenlooper Director Mrs. Hickenlooper, Senior Vice President of Corporate Development at Liberty Media, has served in senior corporate development roles at Liberty since 2010. Prior to joining Liberty in 2008, she worked in the strategic planning and business development group at Del Monte Foods and in investment banking at Thomas Weisel Partners. Mrs. Hickenlooper holds a Master’s degree in Business Administration from the Kellogg School of Management, and a Bachelor’s degree in Public Policy from Duke University. Mrs. Hickenlooper brings to the board significant corporate development, governance, and financial expertise.

 

Kimbal Musk Director Mr. Musk is an entrepreneur and restaurateur who has founded and advised several companies and non-profits including: The Kitchen, a restaurant company with restaurants in Boulder and Denver, CO; The Kitchen Community; Zip2 Corporation (acquired by Compaq Computer Corporation); PayPal, Inc. (acquired by eBay Inc.); Everdream Corporation (acquired by Dell Inc.); Tesla Motors, Inc.; Space Exploration Technologies Corp. (SpaceX); OneRiot (acquired by Wal Mart Stores, Inc.) and SolarCity Corporation. After success in the technology business, Mr. Musk decided to pursue his passion for food and cooking and attended the French Culinary Institute in New York City. His extensive experience with fast-growing and innovative companies as well as restaurants and other retail operations, and his experience on numerous boards of directors, are an asset to our Board. Mr. Musk is a member of the board of directors of Tesla Motors, Inc. (Nasdaq:TSLA) as well as a number of privately-held companies and charitable organizations. He has served as an Adjunct Professor at New York University, and is a graduate of Queen’s Business School in Canada and the French Culinary Institute.

Ali Namvar
Director

Mr. Namvar is a Partner at Pershing Square Capital Management, L.P., a registered investment advisor with more than $11 billion in assets under management and currently Chipotle’s largest investor. Mr. Namvar joined Pershing Square in 2006 and has been a major contributor to the firm’s growth. He brings more than a decade of experience investing in publicly traded, branded consumer products and restaurant companies. Mr. Namvar has played an instrumental role in a number of Pershing Square investments over the years, including its significant equity stakes in Fortune Brands, Beam, McDonald’s, Procter & Gamble, Wendy’s International, Kraft Foods and Mondelez International, among others. Prior to joining Pershing Square, Mr. Namvar served as a Vice President at the Blackstone Group in its corporate advisory practice, where he advised corporate boards and investment firms on a wide range of shareholder value-enhancing transactions. Prior to joining Blackstone, Mr. Namvar worked in the investment banking division at Goldman Sachs. He graduated magna cum laude with a Bachelor of Arts degree from Columbia University, New York, and earned his Master’s degree in Business Administration from the Wharton School at the University of Pennsylvania. Mr. Namvar brings to the board a significant understanding of strategy, governance and finance within the restaurant industry.

Matthew Paull
Director

Mr. Paull was Senior Vice President and Chief Financial Officer of McDonald’s Corp. from 2001 until he retired from that position in 2008. Before joining McDonald’s in 1993, Mr. Paull was a Partner at Ernst & Young, where he managed a variety of financial practices over the course of his 18-year career, and consulted with a number of notable multinational companies. Mr. Paull currently serves as a member of the board of Air Products, where he chairs the Audit and Finance Committee and is a member of the Corporate Governance and Nominating Committee and the Executive Committee, a member of the board of Canadian Pacific where he chairs the Audit Committee and is a member of the Finance Committee, a member of the board of KapStone Paper and Packaging Corp., and was a former member of the board of WMS Industries and Best Buy Co. Mr. Paull previously served on Chipotle’s Board when it was owned by McDonald’s. He currently serves on the advisory board of Pershing Square Capital Management, L.P. Mr. Paull holds a Bachelor’s degree and a Master’s degree in Accounting from the University of Illinois. Mr. Paull brings to the board significant experience in the restaurant industry and financial expertise, including deep understanding of financial markets, corporate finance, accounting and controls, and investor relations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Cash Flows

(unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHIPOTLE MEXICAN GRILL, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

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, brand reputation, 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, catering, 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.

Some of our competitors have formats that might resemble ours, and many competitors are moving towards higher quality food to compete with us.  A number of these competitors have sought to differentiate themselves with a focus that overlaps with many facets of our Food With Integrity mission.  Additionally, 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, 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.

We believe we are well-positioned versus many of our competitors given current consumer trends, including increasing awareness and concern among consumers about what they eat and how it is prepared.. We also believe that we’re known for our focus on having teams of top-performing employees using classic cooking techniques to prepare food made from high-quality ingredients in an open restaurant kitchen—resulting in 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. However, we will need to re-establish customer trust in light of the food safety incidents that negatively impacted us beginning in the fourth quarter of 2015, and doing so in the competitive environment in which we operate will be one of our key challenges in 2016 and beyond.

Regulatory actions and litigation related to food safety incidents that impacted us beginning in the fourth quarter of 2015 may adversely impact us.

We are facing ongoing government investigations into the food safety incidents that occurred in 2015, including the criminal investigation described in Note 10. “Commitments and Contingencies” in our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”  We also have received numerous claims from customers who were or claim to have been impacted by these incidents, and a number of those claimants have filed lawsuits against us.  We are cooperating in the government investigations and with many of the customers impacted by these incidents, but will incur significant legal and other costs in doing so. We have also been sued in a shareholder class action lawsuit in connection with the decline in our stock price in the wake of the food safety incidents, and defending this lawsuit will subject us to significant legal expense.  Additionally, the liabilities from customer claims and related litigation expenses may be greater than we anticipate due to the uncertainties inherent in litigation.  All of these costs, liabilities and expenses will negatively impact our operating results. Moreover, publicity regarding any legal proceedings related to food safety incidents may increase or prolong consumer awareness of the incidents or otherwise negatively impact perceptions of our brand, which may hamper our ability to regain lost sales or attract new customers to our restaurants.

Any further instances of food-borne or localized illnesses associated with our restaurants would result in increased negative publicity and further adverse impact on customer perceptions of our brand, which would likely result in further declines in our sales.

 

 

 

Because of customer perceptions about our restaurants and brand in the wake of the food safety incidents described above, any future occurrence of food-borne illness associated with our restaurants would likely have an even more significant negative impact on our sales and our ability to regain customers.  Although we have followed industry standard food safety protocols in the past and are further enhancing our food safety procedures to ensure that our food is as safe as it can be, we may still be at a higher risk for food-borne illness occurrences than some competitors due to our greater use of fresh, unprocessed produce and meats, our reliance on employees cooking with traditional methods rather than automation, and our avoiding frozen ingredients. And in any event, no food safety protocols can completely eliminate the risk of food-borne illness in any restaurant, so our enhanced food safety protocols may not be successful in preventing a food-borne illness incident in the future.  The risk of illnesses associated with our food might also increase in connection with an expansion of our catering business or other situations in which our food is served in conditions we cannot control.  Even if food-borne illnesses arise from conditions outside of our control, the negative impact from any such illnesses is likely to be significant.

 

 

 

 

 

Q1

Does the Board of Directors have the depth of knowledge and ability to oversee the company. Their issues exceed competition. Explain your answer.

Q2

The Chairman/CEO is the founder but is he still the right person to lead the company? Why or Why Not?

 

Q3

Do you think that Chipotle employees think about risk?  How do you make sure that they do. Explain

 

Q4

What course of action would you recommend that the company take to deal with the norovirus, ecoli and rodent issues

 

Q5

How do you convince customers to return (as well as get new customers)?

 

Q6

Should Francine recommend that they invest in Chipotle as a Enterprise Risk Management turnaround situation

 

Q7

Any other key points not addressed above