What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-26 compared with 2020-02-24 · 550 added, 453 removed, 937 unchanged (52% of the section changed)

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Management's Report

Reports of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

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Management is responsible for the preparation, integrity and objectivity of the accompanying consolidated financial statements and related financial information.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and necessarily include certain amounts that are based on estimates and informed judgments.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and necessarily include certain amounts that are based on estimates and informed judgments.

Our management also prepared the related financial information included in this Annual Report on Form 10-K and is responsible for its accuracy and consistency with the consolidated financial statements.

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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 30, 2020, as stated in their report herein.

Randy Garutti

Chief Executive Officer and Director

President and Chief Financial Officer

(duly authorized and principal executive officer)

(duly authorized and principal financial officer)

Randy Garutti Tara Comonte

Chief Executive Officer and Director President and Chief Financial Officer

(duly authorized and principal executive officer) (duly authorized and principal financial officer)

Shake Shack Inc.

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2016-02, Leases (“ASC 842”) and the amendments in ASUs 2018-01, 2018-10, and 2018-11.

As explained below, auditing the Company’s adoption of ASC 842 was a critical audit matter.

Adoption of ASU No.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method for recognizing revenue effective December 28, 2017 due to the adoption of ASU No.

2014-09, Revenue from Contracts with Customers (Topic 606), and the amendments in ASUs 2015-14, 2016-08, 2016-10 and 2016-12.

Basis for Opinion

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(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Shake Shack Inc.

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the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Measurement of deferred tax assets related to the Company’s investment in SSE Holdings LLC

Description of the Matter

As discussed in Notes 12 and 15 of the consolidated financial statements, the noncontrolling interest holders of SSE Holdings LLC (“LLC”) may redeem their equity interests in SSE Holdings LLC (“LLC interests”) for shares of the Company’s Class A common stock.

Description of the Matter As discussed in Notes 12 and 15 of the consolidated financial statements, the noncontrolling interest holders of SSE Holdings LLC (“LLC”) may redeem their equity interests in SSE Holdings LLC (“LLC interests”) for shares of the Company’s Class A common stock.

For income tax purposes, these redemptions are treated as direct purchases of LLC equity and are recorded at their fair market value upon the date of the redemption.

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Auditing management’s accounting for the basis differences in its investment in LLC is especially complex and challenging as the Company’s accounting requires timely identification of all historical basis differences and subsequent adjustments related to the redemptions, described above, and the related tax receivable agreement (“TRA”) payments to the LLC holders, discussed below.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for determining the completeness and measurement of the Company’s basis differences in the investment in LLC.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for determining the completeness and measurement of the Company’s basis differences in the investment in LLC.

For example, we tested management’s review controls over the calculation of the change in tax basis resulting from the redemptions, including the determination of fair market value.

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Measurement of the Tax Receivable Agreement liability

Description of the Matter

As discussed in Note 15 of the consolidated financial statements, the Company has a Tax Receivable Agreement (“TRA”) with certain current and historical holders of LLC interests, which is a contractual commitment to distribute 85% of any tax benefits (“TRA Payment”), realized or deemed to be realized by the Company to the parties to the TRA.

Description of the Matter As discussed in Note 15 of the consolidated financial statements, the Company has a Tax Receivable Agreement (“TRA”) with certain current and historical holders of LLC interests, which is a contractual commitment to distribute 85% of any tax benefits (“TRA Payment”), realized or deemed to be realized by the Company to the parties to the TRA.

The TRA payments are contingent upon, among other things, the generation of future taxable income over the term of the TRA and future changes in tax laws.

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How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for determining the measurement of the Company’s TRA obligation.

This included management review controls over the computation of the TRA liability, which is based on several inputs including the Company’s share of the tax basis in the LLC, as discussed above, as well as the estimate of future qualified taxable income over the term of the TRA.

Such controls include management review controls over the computation of the TRA liability, which is based on several inputs including the Company’s share of the tax basis in the LLC, as discussed above, as well as the estimate of future qualified taxable income over the term of the TRA.

We also tested management review control over the calculation of the TRA liability in accordance with the terms set out in the TRA.

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To test the Company’s position that there is sufficient future taxable income to realize the tax benefits related to the redemptions discussed above, we evaluated the assumptions used by management to develop the projections of future taxable income.

For example, we compared the projections of future taxable income with the actual results of prior periods, as well as management’s consideration of current industry and economic trends.

For example, we compared management’s projections of future taxable income with the actual results of prior periods, as well as management’s consideration of current industry and economic trends.

We also assessed the historical accuracy of management’s projections and reconciled the projections of future taxable income with other forecasted financial information prepared by the Company.

We also recalculated the TRA liability and verified the calculation of the TRA liability was in accordance with the terms set out in the TRA.

Lease accounting, including the adoption of ASC 842

Description of the Matter

As discussed above and in Note 10 of the consolidated financial statements, on December 27, 2018, the Company adopted ASC 842, using a modified retrospective approach, and recorded $229 million in operating lease assets, $277 million in long-term operating lease liabilities and derecognized all landlord funded assets and deemed landlord financing liabilities that existed as of December 26, 2018.

The resulting net impact to retained earnings was $4 million.

At December 25, 2019, the Company’s right-of-use assets and lease liability is $280 million and $340 million, respectively.

Auditing management’s accounting and presentation for leases, including the adoption of ASC 842, was especially complex and challenging as the Company’s accounting for the right-of-use asset, the lease liability, and the related transition adjustment involved the compilation and review of a large volume of leases as well as the determination of the incremental borrowing rate.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for determining the classification, valuation and completeness of the right-of-use asset and the lease liability.

This included controls over management’s review of the completeness of the population of leases, and the accuracy of the computation of the right-of-use asset, the lease liability, and the related transition adjustment, including the determination of the incremental borrowing rate.

We tested the completeness of the lease population through the evidence obtained from Company departmental inquiries and an assessment of leases on a location-by-location basis based upon our knowledge of the Company’s openings of new Shake Shack restaurants and the related equipment leased for each location.

Lease accounting, including impairment of right-of-use assets

Description of the Matter As discussed in Note 10 of the consolidated financial statements, domestic Company-operated Shacks are located on leased premises and the related equipment are leased assets on the premises.

As of December 30, 2020, the Company’s right-of-use assets and lease liability is $312 million and $385 million, respectively.

Auditing management’s accounting and presentation for leases was especially complex and challenging as the Company’s accounting for the right-of-use asset, and the lease liability involved the compilation and review of the details associated with the population of non-uniform leases as well as the determination of the incremental borrowing rate and the evaluation of impairment of the right-of-use assets.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for determining the classification, valuation and completeness of the right-of-use asset and the lease liability.

Such controls include management’s review of the completeness of the population of leases, including lease modifications, verification of the accuracy of the computation of the right-of-use asset and lease liability, including the determination of the incremental borrowing rate, and the evaluation of impairment of the right-of-use assets.

We tested the completeness of the lease population through the evidence obtained from inquiries of Company personnel and an assessment of leases on a location-by-location basis based upon our knowledge of the Company’s openings of new Shake Shack restaurants and the related equipment leased for each location.

For a sample of leases, we tested the accuracy of the data used in the calculation of the right-of-use asset and the lease liability by agreeing the underlying inputs, such as possession date, lease term and payment terms, to source documents, such as lease contracts.

With the support of a valuation specialist, we recalculated the right-of-use asset and the lease liability and evaluated the key assumptions and methodologies used in the Company’s selection of the incremental borrowing rate by developing a comparative calculation.

We recalculated the right-of-use asset and the lease liability and, with the support of a valuation specialist, we evaluated the key assumptions and methodologies used in the Company’s selection of the incremental borrowing rate by developing a comparative calculation.

We tested the Company’s impairment evaluation, we involved our valuation specialists to assist in evaluating significant assumptions, including market rent assumptions, lease terms, and discount rate, used to estimate the fair value of right-of-use assets, and valuation methodologies used in the Company’s models.

We have served as the Company's auditor since 2014.

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(in thousands, except share and per share amounts)

2020 December 25

Current assets:

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Marketable securities 36,887 36,508

Accounts receivable

Accounts receivable, net 9,464 9,970

Inventories 2,888 2,221

Prepaid expenses and other current assets 7,074 1,877

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Deferred income taxes, net 287,007 279,817

Other assets 12,297 11,488

TOTAL ASSETS $ 1,145,348 $ 968,268

LIABILITIES AND STOCKHOLDERS' EQUITY

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Total current liabilities 109,705 99,392

Deemed landlord financing

Deferred rent

Long-term operating lease liabilities 343,736 304,914

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Total stockholders' equity attributable to Shake Shack Inc.

407,321 298,817

Non-controlling interests 27,172 23,168

Total equity 434,493 321,985

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,145,348 $ 968,268

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Fiscal Year Ended

2020 December 25

2019 December 26

Shack sales $ 506,339 $ 574,625 $ 445,589

Licensing revenue 16,528 19,894 13,721

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Pre-opening costs 8,580 14,834 12,279

Loss on disposal of property and equipment

Impairment and loss on disposal of assets 10,151 1,352 917

TOTAL EXPENSES 566,743 568,834 427,599

OPERATING INCOME

Other income, net

OPERATING INCOME (LOSS) ( 43,876 ) 25,685 31,711

Other income (expense), net ( 786 ) 2,263 1,514

Interest expense ( 815 ) ( 434 ) ( 2,415 )

INCOME BEFORE INCOME TAXES

INCOME (LOSS) BEFORE INCOME TAXES ( 45,477 ) 27,514 30,810

Income tax expense 57 3,386 8,862

net income attributable to non-controlling interests

NET INCOME (LOSS) ( 45,534 ) 24,128 21,948

net income (loss) attributable to non-controlling interests ( 3,376 ) 4,301 6,769

NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.

$ ( 42,158 ) $ 19,827 $ 15,179

Earnings (loss) per share of Class A common stock:

Basic $ ( 1.14 ) $ 0.63 $ 0.54

Diluted $ ( 1.14 ) $ 0.61 $ 0.52

Weighted-average shares of Class A common stock outstanding:

Basic 37,129 31,381 28,299

Diluted 37,129 32,251 29,179

See accompanying Notes to Consolidated Financial Statements.

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Fiscal Year Ended

Other comprehensive income (loss), net of tax (1) :

2020 December 25

2019 December 26

Net income (loss) $ ( 45,534 ) $ 24,128 $ 21,948

Other comprehensive income, net of tax (1) :

Change in foreign currency translation adjustment 1 2 —

Available-for-sale securities:

Equity securities:

Change in net unrealized holding losses

reclassification adjustments for net realized losses included in net income — — 16

OTHER COMPREHENSIVE INCOME (LOSS)

COMPREHENSIVE INCOME

comprehensive income attributable to non-controlling interests

OTHER COMPREHENSIVE INCOME 1 2 13

COMPREHENSIVE INCOME (LOSS) ( 45,533 ) 24,130 21,961

comprehensive income (loss) attributable to non-controlling interests ( 3,376 ) 4,301 6,772

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.

$ ( 42,157 ) $ 19,829 $ 15,189

(1) Net of tax benefit of $ 0 for fiscal years ended December 30, 2020, December 25, 2019 and December 26, 2018 .

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(in thousands, except share amounts)

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Retained Earnings Accumulated Other Comprehensive Income (Loss) Non-

Shares Amount Shares Amount

BALANCE, DECEMBER 27, 2017 26,527,477 27 10,250,007 10 153,105 16,399 ( 49 ) 54,987 224,479

Net income (loss)

Other comprehensive loss:

Net unrealized losses related to available-for-sale securities

Cumulative effect of accounting changes ( 1,174 ) 39 ( 439 ) ( 1,574 )

Net income 15,179 6,769 21,948

Other comprehensive income:

Net change related to equity securities 10 3 13

Equity-based compensation 6,250 6,250

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Cumulative effect of accounting changes 4,136 1,059 5,195

Net income 19,827 4,301 24,128

Other comprehensive income:

Net change related to available-for-sale securities

Net change in foreign currency translation adjustment 2 — 2

Equity-based compensation 7,700 7,700

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Redemption of LLC interests 1,721,887 2 ( 1,721,887 ) ( 2 ) 11,934 ( 11,934 ) —

Effect of GTC Merger 2,690,263 3 ( 2,690,263 ) ( 3 ) 19,218 ( 19,218 ) —

Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis 5,408 5,408

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BALANCE, DECEMBER 25, 2019 34,417,302 35 3,145,197 3 244,410 54,367 2 23,168 321,985

Cumulative effect of accounting changes

Net loss ( 42,158 ) ( 3,376 ) ( 45,534 )

Other comprehensive income:

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Redemption of LLC interests 194,009 — ( 194,009 ) — 1,723 ( 1,723 ) —

Effect of GTC Merger

Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis 1,707 1,707

Distributions paid to non-controlling interest holders ( 478 ) ( 478 )

Issuance of Class A common stock sold in equity offerings, net of underwriting discounts, commissions and offering costs 3,649,537 3 135,718 9,276 144,997

BALANCE, DECEMBER 30, 2020 38,717,790 $ 39 2,951,188 $ 3 $ 395,067 $ 12,209 $ 3 $ 27,172 $ 434,493

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Fiscal Year Ended

2020 December 25

2019 December 26

OPERATING ACTIVITIES

Net income (including amounts attributable to non-controlling interests)

Adjustments to reconcile net income to net cash provided by operating activities:

Net income (loss) (including amounts attributable to non-controlling interests) $ ( 45,534 ) $ 24,128 $ 21,948

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation expense

48,801 40,392 29,000

Amortization of cloud computing asset 1,444 312 —

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Equity-based compensation

5,560 7,505 6,143

Deferred income taxes

( 1,356 ) ( 6,064 ) 788

Non-cash interest expense

Loss on sale of marketable securities

Loss on disposal of property and equipment

(Gain) loss on sale of marketable securities ( 79 ) ( 22 ) 16

Impairment and loss on disposal of assets 10,151 1,352 917

Other non-cash expense (income)

Unrealized gain on available-for-sale securities

1,937 ( 338 ) ( 78 )

Unrealized (gain) loss on equity securities 59 ( 194 ) —

Net loss on sublease

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Accounts receivable

1,006 10,726 5,530

( 667 ) ( 472 ) ( 491 )

Prepaid expenses and other current assets

( 5,197 ) 134 ( 270 )

( 2,940 ) ( 8,245 ) ( 2,726 )

Accounts payable

4,626 4,248 3,156

Accrued expenses

2,170 9,856 7,979

Accrued wages and related liabilities

( 1,010 ) 799 4,424

Other current liabilities

1,752 1,438 860

Deferred rent

Long-term operating lease liabilities

( 33,724 ) ( 37,308 ) —

Other long-term liabilities

5,375 1,372 6,208

NET CASH PROVIDED BY OPERATING ACTIVITIES 37,350 89,857 85,395

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Purchases of property and equipment

( 69,038 ) ( 106,507 ) ( 87,525 )

Purchases of marketable securities

( 20,359 ) ( 1,179 ) ( 1,223 )

Sales of marketable securities 20,000 27,000 2,144

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FINANCING ACTIVITIES

Proceeds from Revolving Credit Facility

Payments on Revolving Credit Facility

( 50,000 ) — —

Proceeds from deemed landlord financing

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Deferred financing costs

( 64 ) ( 286 ) —

Proceeds from issuance of Class A common stock sold in equity offerings, net of underwriting discounts, commissions and offering costs 144,997 — —

Payments on principal of finance leases ( 2,206 ) ( 1,926 ) —

Distributions paid to non-controlling interest holders

( 478 ) ( 1,708 ) ( 751 )

Payments under tax receivable agreement ( 6,643 ) ( 707 ) —

Proceeds from stock option exercises

Net proceeds from stock option exercises 8,033 9,201 5,472

Employee withholding taxes related to net settled equity awards ( 1,818 ) ( 1,396 ) ( 949 )

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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

37,099 24,750 21,507

CASH AND CASH EQUIVALENTS AT END OF PERIOD

Supplemental cash flow information and non-cash investing and financing activities are further described in the accompany notes.

$ 146,873 $ 37,099 $ 24,750

Supplemental cash flow information and non-cash investing and financing activities are further described in the accompanying notes.

See accompanying Notes to Consolidated Financial Statements.

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Equity-Based Compensation

Earnings Per Share

Earnings (Loss) Per Share

Supplemental Cash Flow Information

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Geographic Information

Quarterly Financial Information (Unaudited)

Selected Quarterly Financial Data (Unaudited)

Shake Shack Inc.

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NATURE OF OPERATIONS

Sha ke Shack Inc.

was formed on September 23, 2014 as a Delaware corporation for the purpose of facilitating an initial public offering and other related tran sactions in order to carry on the business of SSE Holdings, LLC and its subsidiaries.

Unless the context otherwise requires, references to "we," "us," "our," "Shake Shack" and the "Company" refer to Shake Shack Inc.

and its subsidiaries, including SSE Holdings, LLC, which we refer to as "SSE Holdings."

Shake Shack Inc.

was formed on September 23, 2014 as a Delaware corporation for the purpose of facilitating an initial public offering and other related transactions in order to carry on the business of SSE Holdings, LLC and its subsidiaries ("SSE Holdings").

We are the sole managing member of SSE Holdings and, as sole managing member, we operate and control all of the business and affairs of SSE Holdings.

As a result, we consolidate the financial results of SSE Holdings and report a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings.

As of December 30, 2020 we owned 92.9 % of SSE Holdings.

Unless the context otherwise requires, "we," "us," "our," "Shake Shack," the "Company" and other similar references, refer to Shake Shack Inc.

and, unless otherwise stated, all of its subsidiaries, including SSE Holdings.

We operate and license Shake Shack restaurants ("Shacks"), which serve hamburgers, hot dogs, chicken, crinkle cut fries, shakes, frozen custard, beer, wine and more.

As of December 30, 2020, there were 311 Shacks in operation, system-wide, of which 183 were domestic Company-operated Shacks, 22 were domestic licensed Shacks and 106 were international licensed Shacks.

As of December 30, 2020, two domestic Company-operated Shacks and 17 licensed Shacks were temporarily closed primarily due to COVID-19.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and include our accounts and the accounts of our subsidiaries.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include our accounts and the accounts of our subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

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The assets of SSE Holdings are subject to certain restrictions in SSE Holdings' revolving credit agreements.

See Note 9 for more information.

See Note 9, Debt, for more information.

We operate on a 52/53 week fiscal year ending on the last Wednesday in December.

Fiscal years 2019 , 2018 and 2017 each contained 52 weeks and ended on December 25, 2019 , December 26, 2018 and December 27, 2017 , respectively.

Fiscal year 2020 contained 53 weeks and ended on December 30, 2020 ("fiscal 2020").

Fiscal years 2019 and 2018 each contained 52 weeks and ended on December 25, 2019 ("fiscal 2019") and December 26, 2018 ("fiscal 2018"), respectively.

Unless otherwise stated, references to years in this report relate to fiscal years.

Use of Estimates

The preparation of these consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reporting period.

The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reporting period.

Significant estimates inherent in the preparation of the consolidated financial statements include useful lives and impairments of long-lived tangible and intangible assets, accounting for income taxes and related uncertain tax positions, the valuation of equity-based compensation and awards, and reserves for litigation and other contingencies, amongst others.

Actual results could differ from those estimates.

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Segment Reporting

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As the CODMs review financial performance and allocate resources at a consolidated level on a recurring basis, we have one operating segment and one reportable segment.

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Fair Value Measurements

We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

When determining the fair value measurements for assets and liabilities that are required to be recorded at fair value, we assume the highest and best use of the asset by market participants in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.

Assets and liabilities are classified using a fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels, and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 - Quoted prices in active markets for identical assets or liabilities

We categorize our assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below.

The three levels of the hierarchy are defined as follows:

▪ Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities

▪ Level 2 — Observable inputs other than quoted prices in active markets for identical assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

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Cash equivalents are stated at cost, which approximates fair value.

Cash equivalents consist primarily of money market funds.

Accounts Receivable

In fiscal 2019, cash equivalents consist primarily of money market funds.

Marketable Securities

Marketable securities consist of mutual funds that primarily invest in corporate bonds, certificates of deposits, asset-backed securities, commercial paper, U.S.

Treasury obligations, and foreign government securities.

Marketable securities are recorded at fair value, with unrealized gains and losses recorded in Other income, net.

Dividend and interest income are recognized when earned and are recorded in Other income (expense), net on the consolidated statements of income (loss).

Accounts Receivable, Net

Accounts receivable consist primarily of receivables from our licensees for licensing revenue and related reimbursements, credit card receivables and vendor rebates.

We evaluate the collectibility of our accounts receivable based on a variety of factors, including historical experience, current economic conditions and other factors.

Inventories, which consist of food, beer, wine, other beverages and retail merchandise, are stated at the lower of cost or net realizable value with cost determined on a first-in, first-out basis.

Inventories, which consist of food, paper goods, beverages, beer, wine and retail merchandise, are valued at the lower of weighted-average cost or net realizable value.

No adjustment is deemed necessary to reduce inventory to net realizable value due to the rapid turnover and high utilization of inventory.

Property and Equipment

Property and equipment is stated at historical cost less accumulated depreciation.

Property and equipment is depreciated based on the straight-line method over the estimated useful lives of the assets, generally ranging from two to seven years for equipment, furniture and fixtures, and computer equipment and software.

Property and Equipment, Net

Property and equipment, net is stated at historical cost less accumulated depreciation.

Property and equipment is depreciated based on the straight-line method over the estimated useful lives of the assets, generally ranging from five to seven years for both equipment, and furniture and fixtures, and two to five years for computer equipment and software.

Leasehold improvements are depreciated over the shorter of their estimated useful lives or the related lease terms.

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Costs incurred when constructing Shacks are capitalized.

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Costs for refurbishments and improvements that significantly increase the productive capacity or extend the useful life of the asset are capitalized.

When assets are disposed of, the resulting gain or loss is recognized on the Consolidated Statements of Income (Loss).

We assess potential impairments to our long-lived assets, which includes property and equipment and operating lease assets, whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of an asset is measured by a comparison of the carrying amount of an asset group to its estimated undiscounted future cash flows expected to be generated by the asset.

If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, an

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impairment charge is recognized as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

There were no impairment charges recorded in fiscal 2019 , 2018 and 2017 .

When assets are disposed of, the resulting gain or loss is recognized in Impairment and loss on disposal of assets on the Consolidated Statements of Income (Loss).

Valuation of Long-lived Assets

We assess potential impairments to our long-lived assets, which includes property and equipment and operating lease right-of-use assets, whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of an asset is measured by a comparison of the carrying amount of the asset group to the estimated undiscounted future cash flows expected to be generated by the asset group.

If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds the fair value of the asset, considering external market participant assumptions.

Since the determination of future cash flows is an estimate of future performance, there may be future impairments in the event that future cash flows do not meet expectations.

Refer to Note 4, Fair Value Measurements, for further details.

Deferred Financing Costs

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Deferred financing costs are included in Other assets on the Consolidated Balance Sheets.

Other assets consist primarily of capitalized implementation costs from cloud computing arrangements, long-term marketable securities, security deposits, transferable liquor licenses and certain custom furniture pre-ordered for future Shacks and yet to be placed in service.

Other assets consist primarily of capitalized implementation costs from cloud computing arrangements, transferable liquor licenses, certain custom furniture pre-ordered for future Shacks and yet to be placed in service and security deposits.

The costs of obtaining non-transferable liquor licenses that are directly issued by local government agencies for nominal fees are expensed as incurred.

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Annual liquor license renewal fees are expensed over the renewal term.

As of December 25, 2019 and December 26, 2018 , indefinite-lived intangible assets relating to transferable liquor licenses totaled $ 1,437 and $ 1,159 , respectively.

As of both December 30, 2020 and December 25, 2019, indefinite-lived intangible assets relating to transferable liquor licenses totaled $ 1,437 .

We evaluate our indefinite-lived intangible assets for impairment annually during our fiscal fourth quarter, and whenever events or changes in circumstances indicate that an impairment may exist.

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In addition, we continuously monitor and may revise our intangible asset useful lives if and when facts and circumstances change.

Revenue Recognition

Revenue consists of Shack sales and licensing revenue.

Generally, revenue is recognized as promised goods or services transfer to the guest or customer in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Shack revenues are recognized when payment is tendered at the point of sale as the performance obligation has been satisfied.

Revenue from Shack sales is presented net of discounts and recognized when food, beverage and retail products are sold.

Sales tax collected from customers is excluded from Shack sales and the obligation is included in sales tax payable until the taxes are remitted to the appropriate taxing authorities.

Revenue from our gift cards is deferred and recognized upon redemption.

Licensing revenues include initial territory fees, Shack opening fees and ongoing sales-based royalty fees from licensed Shacks.

Generally, the licenses granted to develop, open and operate each Shack in a specified territory are the predominant goods or services transferred to the licensee in our contracts, and represent distinct performance obligations.

Ancillary promised services,

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such as training and assistance during the initial opening of a Shack, are typically combined with the licenses and considered as one performance obligation per Shack.

We determine the transaction price for each contract, which is comprised of the initial territory fee and an estimate of the total Shack opening fees we expect to be entitled to.

The calculation of total Shack opening fees included in the transaction price requires judgment, as it is based on an estimate of the number of Shacks we expect the licensee to open.

The transaction price is then allocated equally to each Shack expected to open.

The performance obligations are satisfied over time, starting when a Shack opens, through the end of the term of the license granted to the Shack.

Because we are transferring licenses to access our intellectual property during a contractual term, revenue is recognized on a straight-line basis over the license term.

Generally, payment for the initial territory fee is received upon execution of the licensing agreement and payment for the Shack opening fees are received either in advance of or upon opening the related Shack.

These payments are initially deferred and recognized as revenue as the performance obligations are satisfied, which occurs over a long-term period.

Revenue from sales-based royalties is recognized as the related sales occur.

Equity-based Compensation

Equity-based compensation expense is measured based on fair value.

Equity-based compensation expense is measured based on the grant-date fair value of those awards.

For awards with graded-vesting features and service conditions only, compensation expense is recognized on a straight-line basis over the total requisite service period for the entire award.

For awards with graded-vesting features and a combination of service and performance conditions, compensation expense is recognized using a graded-vesting attribution method over the vesting period based on the most probable outcome of the performance conditions.

Actual distributed shares are calculated upon conclusion of the service and performance periods.

For stock option awards, the grant-date fair value of the awards is determined using the Black-Scholes option pricing model and involves several assumptions, including the expected term of the option, expected volatility and risk-free interest rate.

Forfeitures are recognized as they occur for all equity awards.

Equity-based compensation expense is included within General and administrative expenses and Labor and related expenses on the Consolidated Statements of Income (Loss).

On December 27, 2018 we adopted ASU 2016-02, Leases (Topic 842) , using a modified retrospective approach.

The cost of advertising is expensed as incurred.

Advertising costs amounted to $ 1,449 , $ 857 and $ 399 in fiscal 2020, fiscal 2019 and fiscal 2018, respectively, and are included in General and administrative expense and Other operating expenses on the Consolidated Statements of Income (Loss).

On December 27, 2018 we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) , using a modified retrospective approach.

Refer to Note 10, Leases, for further details.

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Lease expense incurred before a Shack opens is recorded in Pre-opening costs.

Once a Shack opens, we record the straight-line lease

Once a Shack opens, we record the straight-line lease expense and any contingent rent, if applicable, in Occupancy and related expenses on the Consolidated Statements of Income.

Many of our leases also require us to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in Occupancy and related expenses on the Consolidated Statements of Income (Loss).

We calculate operating lease assets and lease liabilities as the present value of fixed lease payments over the reasonably certain lease term beginning at the commencement date.

We measure the lease liability by discounting the future fixed

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expense and any contingent rent, if applicable, in occupancy and related expenses on the Consolidated Statements of Income.

Many of our leases also require us to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in occupancy and related expenses on the Consolidated Statements of Income (Loss) .

We measure the lease liability by discounting the future fixed contractual payments included in the lease agreement, using our incremental borrowing rate (“IBR”).

contractual payments included in the lease agreement, using our incremental borrowing rate (“IBR”).

There are no explicit rates provided in our leases.

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We determined our credit rating based on a comparison of the financial information of SSE Holdings to other public companies and then used their respective credit ratings to develop our own.

For operating leases, fixed lease payments are recognized as operating lease cost on a straight-line basis over the lease term.

For finance leases, the asset is depreciated on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability.

For leases with a lease term of 12 months or less ("short-term lease"), any fixed lease payments are recognized on a straight-line basis over such term, and are not recognized on the Consolidated Balance Sheets.

Variable lease cost for both operating and finance leases, if any, is recognized as incurred.

We expend cash for leasehold improvements to build out and equip our leased premises.

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We include these amounts in the measurement of the initial operating lease liability, which are also reflected as a reduction to the initial measurement of the right-of-use asset.

Revenue Recognition

Revenue consists of Shack sales and licensing revenue.

Generally, revenue is recognized as promised goods or services transfer to the guest or customer in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services.

Revenue from Shack sales is presented net of discounts and recognized when food, beverage and retail products are sold.

Sales tax collected from customers is excluded from Shack sales and the obligation is included in sales tax payable until the taxes are remitted to the appropriate taxing authorities.

Revenue from our gift cards is deferred and recognized upon redemption.

Licensing revenues include initial territory fees, Shack opening fees, and ongoing sales-based royalty fees from licensed Shacks.

Pre-opening Costs

Pre-opening costs are expensed as incurred and consist primarily of occupancy, manager and employee wages, legal fees, travel and related training costs, cookware and marketing expenses incurred prior to the opening of a Shack.

We account for income taxes pursuant to the asset and liability method which requires the recognition of deferred income tax assets and liabilities related to the expected future tax consequences arising from temporary differences between the carrying amounts and tax bases of assets and liabilities based on enacted statutory tax rates applicable to the periods in which the temporary differences are expected to reverse.

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A valuation allowance is recognized if we determine it is more likely than not that all or a portion of a deferred tax asset will not be recognized.

Pre-Opening Costs

Pre-opening costs are expensed as incurred and consist primarily of legal fees, marketing expenses, occupancy, manager and employee wages, travel and related training costs incurred prior to the opening of a Shack.

The cost of advertising is expensed as incurred.

Advertising costs amounted to $ 857 , $ 399 and $ 357 in fiscal 2019 , 2018 and 2017 , respectively, and are included in general and administrative expense and other operating expenses on the Consolidated Statements of Income (Loss) .

In making such determination, the Company considers all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent and expected future results of operation.

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Recently Adopted Accounting Pronouncements

We adopted the Accounting Standards Updates (“ASUs”) summarized below in fiscal 2019.

Accounting Standards Update (“ASU”)

(ASU's 2016-02, 2018-01, 2018-10, 2018-11)

This standard establishes a new lease accounting model, which introduces the recognition of lease assets and liabilities for those leases classified as operating leases under previous GAAP.

We adopted this standard using a modified retrospective approach as of the adoption date, to those lease contracts for which the Company had taken possession of on or prior to December 26, 2018.

See Note 10 Leases for more information.

We adopted the Accounting Standards Update ("ASU") summarized below in fiscal 2020.

ASU Description Date

Measurement of Credit Losses on Financial Instruments

(ASU 2016-13)

This standard replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The adoption of this standard did not have a material impact to our consolidated financial statements.

December 26, 2019

Facilitation of the Effects of Reference Rate Reform on Financial Reporting

(ASU 2020-04) This standard provides optional guidance for a limited time to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued.

The adoption of this standard did not have a material impact to our consolidated financial statements.

Effective upon issuance (March 12, 2020)

Recently Issued Accounting Pronouncements

Accounting Standards Update (“ASU”)

Expected Impact

Effective Date

ASU Description Expected Impact Effective Date

Simplifying the Accounting for Income Taxes

(ASU 2019-12)

This standard removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods.

It also adds guidance in certain areas, including the recognition of franchise taxes, recognition of deferred taxes for tax goodwill, allocation of taxes to members of a consolidated group, computation of annual effective tax rates related to enacted changes in tax laws, and minor improvements related to emloyee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method.

We are currently evaluating the impact of ASU 2019-12 on our consolidated financial statements and related disclosures.

This standard simplifies various aspects related to accounting for income taxes by removing certain exceptions to the general principles in ASC 740, “Income Taxes”, and clarifying certain aspects of the current guidance to promote consistency among reporting entities.

The adoption of this standard is not expected to have a material impact on our consolidated financial statements.

December 31, 2020

Early adoption is permitted.

Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own

Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity's Own Equity.

(ASU 2020-06) This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related earnings per share guidance for both Subtopics.

We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.

December 30, 2021

Early adoption is permitted.

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On December 28, 2017 we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , using the modified retrospective method applied to those contracts which were not completed as of December 28, 2017.

Results for reporting periods beginning on or after December 28, 2017 are presented under Accounting Standards Codification Topic 606 ("ASC 606").

Prior period amounts were not revised and continue to be reported in accordance with ASC Topic 605 ("ASC 605"), the accounting standard then in effect.

Revenue Recognition

Revenue consists of Shack sales and licensing revenue.

Generally, revenue is recognized as promised goods or services transferred to the guest or customer in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services.

Revenue from Shack sales is presented net of discounts and recognized when food, beverage and retail products are sold.

Sales tax collected from customers is excluded from Shack sales and the obligation is included in sales tax payable until the taxes are remitted to the appropriate taxing authorities.

Revenue from our gift cards is deferred and recognized upon redemption.

Licensing revenues include initial territory fees, Shack opening fees and ongoing sales-based royalty fees from licensed Shacks.

Ancillary promised services, such as training and assistance during the initial opening of a Shack, are typically combined with the licenses and considered as one performance obligation per Shack.

We determine the transaction price for each contract, which is comprised of the initial territory fee and an estimate of the total Shack opening fees we expect to be entitled to.

The calculation of total Shack opening fees included in the transaction price requires judgment, as it is based on an estimate of the number of Shacks we expect the licensee to open.

The transaction price is then allocated equally to each Shack expected to open.

The performance obligations are satisfied over time, starting when a Shack opens, through the end of the term of the license granted to the Shack.

Because we are transferring licenses to access our intellectual property during a contractual term, revenue is recognized on a straight-line basis over the license term.

These payments are initially deferred and recognized as revenue as the performance obligations are satisfied, which occurs over a long-term period.

Revenue from sales-based royalties is recognized as the related sales occur.

Revenue recognized during fiscal 2019 and 2018 (under ASC 606) and 2017 (under ASC 605) disaggregated by type is as follows:

Revenue recognized during fiscal 2020, fiscal 2019 and fiscal 2018 disaggregated by type is as follows:

2020 2019 2018

Shack sales $ 506,339 $ 574,625 $ 445,589

Licensing revenue:

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We expect to recognize this amount as revenue over a long-term period, as the license term for each Shack ranges from 5 to 20 years.

These amounts exclude any variable consideration related to sales-based royalties.

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This amount excludes any variable consideration related to sales-based royalties.

Contract Balances

Opening and closing balances of contract liabilities and receivables from contracts with customers is as follows:

2020 December 25

Shack sales receivables $ 5,373 $ 4,265

Licensing receivables

Licensing receivables, net of allowance for doubtful accounts 2,647 4,510

Gift card liability 2,637 2,258

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Deferred revenue, long-term 12,151 11,310

Revenue recognized during fiscal 2019 and 2018 that was included in their respective liability balances at the beginning of the period is as follows:

Revenue recognized during fiscal 2020 and fiscal 2019 that was included in their respective liability balances at the beginning of the period is as follows:

Gift card liability $ 537 $ 524

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The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis as of December 30, 2020 and December 25, 2019, and indicate the classification within the fair value hierarchy.

Refer to Note 2 for further information.

Cash, Cash Equivalents and Marketable Securities

The following tables summarize our cash, cash equivalents and marketable securities by significant investment categories as of December 25, 2019 and December 26, 2018 :

December 25, 2019

Gross Unrealized Gains

Gross Unrealized Losses

Cash and Cash Equivalents

Marketable Securities

Money market funds

Refer to Note 2, Summary of Significant Accounting Policies, for further information.

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Cash and Cash Equivalents and Marketable Securities

The following tables summarize our Cash and cash equivalents and Marketable securities by significant investment categories as of December 30, 2020 and December 25, 2019:

December 30, 2020

Gross Unrealized Gains

Gross Unrealized Losses

Cash and Cash Equivalents

Marketable Securities

Cost Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents Marketable Securities

Cash $ 146,873 $ — $ — $ 146,873 $ 146,873 $ —

Money market funds — — — — — —

On December 28, 2017, we adopted ASU 2016-01, which requires certain equity investments to be measured at fair value with changes in fair value recognized in net income.

Net un realized gains on equity securities totaling $ 194 were included on the Consolidated Statements of Income during fiscal 2019 .

Net un realized losses on equity securities totaling $ 61 were included on the Consolidated Statements of Income during fiscal 2018 .

A summary of other income from equity securities recognized during fiscal 2019 , 2018 and 2017 is as follows:

Mutual funds 36,874 13 — 36,887 — 36,887

Total $ 183,747 $ 13 $ — $ 183,760 $ 146,873 $ 36,887

December 25, 2019

Cost Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents Marketable Securities

Cash $ 32,094 $ — $ — $ 32,094 $ 32,094 $ —

Money market funds 5,005 — — 5,005 5,005 —

Mutual funds 36,436 72 36,508 — 36,508

Total $ 73,535 $ 72 $ — $ 73,607 $ 37,099 $ 36,508

A summary of other income from equity securities recognized during fiscal 2020, fiscal 2019 and fiscal 2018 is as follows:

2020 2019 2018

Equity securities:

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Realized gain (loss) on sale of investments 79 22 ( 3 )

Unrealized gain (loss) on available-for-sale equity securities

Total other income, net

A summary of equity securities sold and gross realized gains and losses recognized during fiscal 2019 , 2018 and 2017 is as follows:

Unrealized gain (loss) on equity securities ( 59 ) 194 ( 61 )

Total $ 379 $ 1,460 $ 1,337

A summary of equity securities sold and gross realized gains and losses recognized during fiscal 2020, fiscal 2019 and fiscal 2018 is as follows:

2020 2019 2018

Equity securities:

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Cost basis of sales and redemptions 19,921 26,978 2,160

Gross realized gains included in net income

Gross realized losses included in net income

Gross realized gains included in net income (loss) 79 36 2

Gross realized losses included in net income (loss) — ( 14 ) ( 18 )

Amounts reclassified out of accumulated other comprehensive loss — — 16

Realized gains and losses are determined on a specific identification method and are included in other income, net on the Consolidated Statements of Income (Loss) .

Realized gains and losses are determined on a specific identification method and are included in Other income (expense), net on the Consolidated Statements of Income (Loss).

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We periodically review our marketable securities for other-than-temporary impairment.

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The carrying value of our financial instruments, including accounts receivable, accounts payable and accrued expenses as of December 30, 2020 and December 25, 2019 approximated their fair value due to the short-term nature of these financial instruments.

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Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Assets and liabilities that are measured at fair value on a non-recurring basis include our long-lived assets and indefinite-lived intangible assets.

There were no impairments recognized during fiscal 2019 , 2018 and 2017 .

Assets and liabilities that are measured at fair value on a non-recurring basis include our long-lived assets, operating lease right-of-use assets and indefinite-lived intangible assets.

When the Company evaluates its long-lived assets for impairment, the assessment is performed for the related asset group that represents the lowest level for which identifiable cash flows are independent of the cash flows of other assets.

This determination requires judgment, and is dependent on the Company's overall operating strategy.

During fiscal 2020, we recognized an impairment charge of $ 7,644 at two Shacks, as well as our home office.

Of the total impairment charge, $ 5,698 was attributed to operating lease right-of-use assets, $ 1,893 was attributed to property and equipment held and used, and $ 53 was attributed to finance lease right-of-use assets.

The asset impairment charge is included in Impairment and loss on disposal of assets on the Consolidated Statement of Income (Loss).

The fair values of assets were determined using an income-based approach and are classified as Level 3 within the fair value hierarchy.

Significant inputs include projections of future cash flows, discount rates, Shack sales and profitability.

There were no impairments recognized during fiscal 2019 and fiscal 2018.

ACCOUNTS RECEIVABLE

The components of accounts receivable as of December 30, 2020 and December 25, 2019 are as follows:

Landlord receivables

2020 December 25

Licensing receivables $ 2,675 $ 4,510

Credit card receivables 2,989 3,417

Delivery receivables 2,229 722

Other receivables 1,599 1,321

Accounts receivable

As of December 25, 2019 and December 26, 2018 , no allowance for doubtful accounts was recorded based on our evaluation of collectibility.

Inventories consisted of the following:

Retail merchandise

Allowance for doubtful accounts ( 28 ) —

Accounts receivable, net $ 9,464 $ 9,970

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Inventories consisted of the following:

2020 December 25

Food $ 1,947 $ 1,738

Beverages 218 233

Retail merchandise 74 29

Paper goods 463 —

Inventories $ 2,888 $ 2,221

PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

2020 December 25

Leasehold improvements $ 342,724 $ 302,204

Landlord funded assets

Equipment 60,064 54,404

Furniture and fixtures 20,178 18,082

Computer equipment and software 30,477 24,226

Financing equipment lease assets

Financing equipment lease right-of-use assets 9,622 7,442

Construction in progress 39,632 30,290

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Property and equipment, net $ 336,541 $ 314,862

( 1) Construction in progress as of December 26, 2018 includes landlord funded assets under construction.

Depreciation expense was $ 40,392 , $ 29,000 and $ 21,704 for fiscal 2019 , 2018 and 2017 , respectively.

Depreciation expense was $ 48,801 , $ 40,392 and $ 29,000 for fiscal 2020, fiscal 2019 and fiscal 2018, respectively.

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SUPPLEMENTAL BALANCE SHEET INFORMATION

The components of other current liabilities as of December 30, 2020 and December 25, 2019 are as follows:

2020 December 25

Sales tax payable $ 4,285 $ 4,086

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Current portion of financing equipment lease liabilities 1,998 1,873

Other 5,280 3,505

Other current liabilities $ 14,200 $ 19,499

The components of other long-term liabilities as of December 30, 2020 and December 25, 2019 are as follows:

2020 December 25

Deferred licensing revenue $ 12,151 $ 11,310

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Other long-term liabilities $ 24,460 $ 15,328

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In August 2019, we terminated our previous revolving credit facility and entered into a new revolving credit facility pursuant to a Credit Agreement.

Our Credit Agreement provides for a revolving credit facility of $ 50,000 , of which the entire commitment is available immediately, with the ability to increase available borrowings up to an additional $ 100,000 , to be made available subject to satisfaction of certain conditions.

The Credit Agreement will mature and all amounts outstanding will be due and payable in August 2024 and permits the issuance of letters of credit upon our request of up to $ 15,000 .

Borrowings under the facility will bear interest at either:

(1) As of December 30, 2020, Other included $ 3,182 of deferred lease incentive liabilities related to leases with variable lease cost as well as $ 5,214 of deferred social security taxes associated with the CARES Act.

For further information relating to the Coronavirus Aid, Relief, and Economic Security Act (" CARES Act"), see Note 15, Income Taxes.

Revolving Credit Facility

In August 2019, we terminated our previous revolving credit facility and entered into a new revolving credit facility agreement ("Revolving Credit Facility"), which permits borrowings up to $ 50,000 , of which the entire amount is available immediately, with the ability to increase available borrowings up to an additional $ 100,000 , to be made available subject to satisfaction of certain conditions.

The Revolving Credit Facility will mature and all amounts outstanding will be due and payable in August 2024.

The Revolving Credit Facility also permits the issuance of letters of credit upon our request of up to $ 15,000 .

Borrowings under the Revolving Credit Facility will bear interest at either:

(i) LIBOR plus a percentage ranging from 1.0 % to 1.5 % or (ii) the base rate plus a percentage ranging from 0.0 % to 0.5 %, in each case depending on our net lease adjusted leverage ratio.

To the extent the LIBOR reference rate is no longer available, the administrative agent, in consultation with us, will determine a replacement rate which will be generally in accordance with similar transactions in which it serves as administrative agent.

As of December 25, 2019 , no amounts were outstanding under the revolving credit facility.

As of December 26, 2018 , no amounts were outstanding under the previous facility.

The obligations under the Credit Agreement are secured by a first-priority security interest in substantially all of the assets of SSE Holdings and the guarantors.

The obligations under the Credit Agreement were guaranteed by each of SSE Holdings' direct and indirect subsidiaries (with certain exceptions).

The Credit Agreement requires us to comply with maximum net lease adjusted leverage and minimum fixed charge coverage ratios.

In addition, the Credit Agreement contains other customary affirmative and negative covenants, including those which (subject to certain exceptions and dollar thresholds) limit our ability to incur debt;

The obligations under the Revolving Credit Facility are secured by a first-priority security interest in substantially all of the assets of SSE Holdings and the guarantors.

The obligations under the Revolving Credit Facility are guaranteed by each of SSE Holdings' direct and indirect subsidiaries (with certain exceptions).

The Revolving Credit Facility requires us to comply with maximum net lease adjusted leverage and minimum fixed charge coverage ratios.

We are not subject to these coverage ratios for a period of time due to the First Amendment to the Revolving Credit Facility described below.

In addition, the Revolving Credit Facility contains other customary affirmative and negative covenants, including those which (subject to certain exceptions and dollar thresholds) limit our ability to incur debt;

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make investments;

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As of December 30, 2020 we were in compliance with all covenants.

As of December 26, 2018 we had deemed landlord financing liabilities of $ 20,846 , for certain leases where we were involved in the construction of leased assets and were considered the accounting owner of the construction project.

Upon adoption of ASU 2016-02, Leases (Topic 842) on December 27, 2018, we were no longer considered to be the accounting owner of these construction projects and had no deemed landlord financing liabilities on the Condensed Consolidated Balance Sheets as of December 25, 2019 .

As of December 25, 2019 we had $ 334,916 of operating lease liabilities and $ 5,516 of finance lease liabilities on the Condensed Consolidated Balance Sheets.

Refer to Note 10 for further details.

Total interest costs incurred were $ 434 , $ 2,572 and $ 1,806 in fiscal 2019 , 2018 and 2017 , respectively.

Amounts capitalized into property and equipment were $ 157 and $ 164 during fiscal 2018 and 2017 , respectively.

No amounts were capitalized into property and equipment during fiscal 2019 .

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Effect of Standard Adoption

On December 27, 2018 we adopted ASU 2016-02, Leases (Topic 842) , using a modified retrospective approach.

We elected the package of practical expedients permitted under the transition guidance within Accounting Standards Codification Topic 842 ("ASC 842") which, among other items, allowed us to carry forward historical lease classifications.

As such, we applied the modified retrospective approach as of the adoption date to those lease contracts for which we had taken possession of the property as of December 26, 2018.

As part of the transition, we derecognized all landlord funded assets and deemed landlord financing liabilities as of December 26, 2018 and determined the classification as either operating or finance leases.

In addition to the aforementioned practical expedient, we have also elected to:

Adopt the short-term lease exception for leases with terms of twelve months or less and account for them as if they were operating leases under ASC 840;

Apply the practic al expedient of combining lease and non-lease components.

Results for reporting periods beginning on or after December 27, 2018 are presented under ASC 842.

Prior period amounts were not revised and continue to be reported in accordance with ASC Topic 840 ("ASC 840"), the accounting standard then in effect.

Upon transition, on December 27, 2018, we recorded the following increases (decreases) to the respective line items on the Consolidated Balance Sheet:

Adjustment as of

December 27, 2018

Prepaid expenses and other current assets

Property and equipment, net

Operating lease assets

Deferred income taxes, net

Deemed landlord financing

Deferred rent

Long-term operating lease liabilities

Other long-term liabilities

Retained earnings

Non-controlling interests

In May 2020, we entered into a first amendment to the Revolving Credit Facility ("First Amendment"), which, among other things, provides for modified financial covenant compliance requirements for a period of time.

The First Amendment requires us to maintain minimum liquidity of $ 25,000 through July 1, 2021 and outstanding borrowings during the applicable period covered by the First Amendment bear interest at either:

(i) LIBOR plus a percentage ranging from 1.0 % to 2.5 % or (ii) the base rate plus a percentage ranging from 0.0 % to 1.5 %, in each case depending on our net lease adjusted leverage ratio.

In March 2020, we drew down the full $ 50,000 available under the Revolving Credit Facility to enhance liquidity and financial flexibility given the uncertain market conditions created by the COVID-19 pandemic.

We repaid this amount in full, plus interest, in June 2020.

As of December 30, 2020 and December 25, 2019, no amounts were outstanding under the revolving credit facility.

Total interest costs incurred were $ 815 , $ 434 and $ 2,572 in fiscal 2020, fiscal 2019 and fiscal 2018, respectively.

Amounts capitalized into property and equipment were $ 157 during fiscal 2018.

No amounts were capitalized into property and equipment during fiscal 2020 and fiscal 2019, respectively.

Paycheck Protection Program

In April 2020, we entered into a $ 10,000 note payable with J.P.

Morgan pursuant to the Paycheck Protection Program (“PPP Loan”) under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and returned the entire outstanding balance plus interest in April 2020.

Nature of Leases

We lease all of our domestic company-operated Shacks, our Home Office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2036.

We currently lease all of our domestic Company-operated Shacks, our home office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2037.

We evaluate contracts entered into to determine whether the contract involves the use of property or equipment, which is either explicitly or implicitly identified in the contract.

We evaluate whether we control the use of the asset, which is determined by assessing whether we obtain substantially all economic benefits from the use of the asset, and whether we have the right to direct the use of the asset.

If these criteria are met and we have identified a lease, we account for the contract under the requirements of ASC 842.

If these criteria are met and we have identified a lease, we account for the contract under the requirements of Accounting Standards Codification Topic 842 ("ASC 842").

Upon the possession of a leased asset, we determine its classification as an operating or finance lease.

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Generally, our real estate leases have initial terms ranging from 10 to 15 years and typically include two five -year renewal options.

Renewal options are generally not recognized as part of the right-of-use assets and lease liabilities as it is not reasonably certain at commencement date that we

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would exercise the options to extend the lease.

Renewal options are generally not recognized as part of the right-of-use assets and lease liabilities as it is not reasonably certain at commencement date that we would exercise the options to extend the lease.

Our real estate leases typically provide for fixed minimum rent payments and/or contingent rent payments based upon sales in excess of specified thresholds.

When the achievement of such sales thresholds are deemed to be probable, contingent rent is accrued in proportion to the sales recognized during the period.

For operating leases that include rent holidays and rent escalation clauses, we recognize lease expense on a straight-line basis over the lease term from the date we take possession of the leased property.

Lease expense incurred before a Shack opens is recorded in pre-opening costs.

Fixed minimum rent payments are recognized on a straight-line basis over the lease term from the date we take possession of the leased property.

Lease expense incurred before a Shack opens is recorded in Pre-opening costs on the Consolidated Statements of Income (Loss).

Once a domestic Company-operated Shack opens, we record the straight-line lease expense and any contingent rent, if applicable, in Occupancy and related expenses on the Consolidated Statements of Income (Loss).

As there were no explicit rates provided in our leases, we used our incremental borrowing rate in determining the present value of future lease payments.

The discount rate used to measure the lease liability was derived from the average of the yield curves obtained from using the notching method and the recovery rate method.

The most significant assumption in calculating the incremental borrowing rate is our credit rating and subject to judgment.

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As there are no explicit rates provided in our leases, we use our incremental borrowing rate in determining the present value of future lease payments.

The discount rate used to measure the lease liability is derived from the average of the yield curves obtained from using the notching method and the recovery rate method.

The most significant assumption in calculating the incremental borrowing rate is our credit rating and is subject to judgment.

We determined our credit rating based on a comparison of the financial information of SSE Holdings to other public companies and then used their respective credit ratings to develop our own.

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We include these amounts in the measurement of the initial operating lease liability, which are also reflected as a reduction to the initial measurement of the right-of-use asset.

A summary of finance and operating lease right-of-use assets and liabilities as of December 25, 2019 is as follows:

Classification

December 25, 2019

Finance leases

Property and equipment, net

Operating leases

Operating lease assets

A summary of finance and operating lease right-of-use assets and liabilities as of December 30, 2020 and December 25, 2019 is as follows:

Classification December 30, 2020 December 25, 2019

Finance leases Property and equipment, net $ 5,409 $ 5,444

Operating leases Operating lease assets 306,317 274,426

Total right-of-use assets $ 311,726 $ 279,870

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Form 10-K | 102

The components of lease cost for the fiscal year ended December 25, 2019 were as follows:

Classification

The components of lease expense for fiscal 2020 and fiscal 2019 are as follows:

Classification December 30

2020 December 25

Finance lease cost:

Amortization of right-of-use assets

Depreciation expense

Interest on lease liabilities

Interest expense

Operating lease cost

Occupancy and related expenses

General and administrative expenses

Amortization of right-of-use assets Depreciation expense $ 2,257 $ 1,998

Interest on lease liabilities Interest expense 213 193

Operating lease cost Occupancy and related expenses

Pre-opening costs

Short-term lease cost

Occupancy and related expenses

Variable lease cost

Occupancy and related expenses

General and administrative expenses

44,910 40,068

Short-term lease cost Occupancy and related expenses 494 394

Variable lease cost Occupancy and related expenses

Other operating expenses

Pre-opening costs

General and administrative expenses 13,766 16,060

Total lease cost $ 61,640 $ 58,713

As of December 30, 2020, future minimum lease payments for finance and operating leases consisted of the following:

Finance Leases

Operating Leases

Finance Leases Operating Leases

2021 $ 2,169 $ 45,961

2022 1,633 53,114

2023 1,078 55,055

2024 584 54,404

2025 347 53,042

Thereafter 172 234,731

Total minimum payments 5,983 496,307

1 unchanged sentence

Total lease liabilities $ 5,584 $ 379,393

As of December 25, 2019 we had additional operating lease commitments of $ 67,760 for non-cancelable leases without a possession date, which will begin to commence in 2020 .

These lease commitments are consistent with the leases that we have executed thus far and include a number of real estate leases where we are involved in the construction and design.

A summary of lease terms and discount rates for finance and operating leases as of December 25, 2019 is as follows:

As of December 30, 2020 we had additional operating lease commitments of $ 36,788 for non-cancelable leases without a possession date, which will begin to commence in fiscal 2021.

These lease commitments are consistent with the leases that we have executed thus far.

A summary of lease terms and discount rates for finance and operating leases as of December 30, 2020 and December 25, 2019 is as follows:

2020 December 25

Weighted-average remaining lease term (years):

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Form 10-K | 103

Supplemental cash flow information related to leases as of December 25, 2019 is as follows:

Supplemental cash flow information related to leases as of December 30, 2020 and December 25, 2019 is as follows:

2020 December 25

Cash paid for amounts included in the measurement of lease liabilities:

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We match 100 % of participants' contributions for the first 3 % of eligible compensation contributed and 50 % of contributions made in excess of 3 % of eligible compensation up to 5 % of eligible compensation.

Employer contributions totaled $ 772 , $ 509 and $ 389 for fiscal 2019 , 2018 and 2017 , respectively.

Employer contributions totaled $ 895 , $ 772 and $ 509 for fiscal 2020, fiscal 2019 and fiscal 2018, respectively.

STOCKHOLDERS' EQUITY

Equity Offering

On April 17, 2020, we announced an “at-the-market” equity offering program (the “ATM Program”), under which we may offer and sell shares of our Class A common stock having an aggregate price of up to $ 75,000 from time to time.

On April 21, 2020, we completed the sale of 233,467 shares of our Class A common stock pursuant to the ATM Program and received $ 9,794 of proceeds, net of commissions.

The proceeds were used to purchase newly-issued LLC Interests.

On April 21, 2020, we completed an underwritten offering of 3,416,070 shares of our Class A common stock, resulting in $ 135,857 of proceeds, net of underwriting discounts and commissions.

The proceeds were used to purchase newly-issued LLC Interests.

Redemptions of LLC Interests

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In connection with any redemption or exchange, we receive a corresponding number of LLC Interests, increasing our total ownership interest in SSE Holdings.

Simultaneously, and in connection with a redemption, the corresponding number of shares of Class B common stock are surrendered and canceled.

Simultaneously, and in connection with a redemption, the corresponding number of shares of Class B common stock are surrendered and cancelled.

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The following table summarizes redemptions of LLC Interests activity during fiscal 2019 , 2018 and 2017 .

The following table summarizes redemptions of LLC Interests activity during fiscal 2020, fiscal 2019 and fiscal 2018:

2020 2019 2018

Redemption and acquisition of LLC Interests

2 unchanged sentences

Number of LLC Interests received by Shake Shack Inc.

194,009 4,412,150 2,692,660

Issuance of Class A common stock

2 unchanged sentences

Cancellation of Class B common stock

Shares of Class B common stock surrendered and canceled

Shares of Class B common stock surrendered and canceled in connection with the Gramercy Tavern Merger

Shares of Class B common stock surrendered and cancelled 194,009 1,721,887 2,692,660

Shares of Class B common stock surrendered and cancelled in connection with the Gramercy Tavern Merger — 2,690,263 —

Stock Compensation Plan Activity

We received an aggregate of 484,319 , 300,696 and 372,508 LLC Interests in connection with the activity under our stock compensation plan during fiscal 2019 , 2018 and 2017 , respectively.

We received an aggregate of 456,942 , 484,319 and 300,696 LLC Interests in connection with the activity under our stock compensation plan during fiscal 2020, fiscal 2019 and fiscal 2018, respectively.

Dividend Restrictions

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As of December 30, 2020, essentially all of the net assets of SSE Holdings were restricted.

See Note 9 for more information regarding the covenants and restrictions set forth in the Revolving Credit Facility.

See Note 9, Debt, for more information regarding the covenants and restrictions set forth in the Revolving Credit Facility.

Gramercy Tavern Corp.

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Meyer, the Daniel H.

Meyer 2012 Gift Trust dtd 10/31/12 (the "Gift Trust"), other affiliates (collectively, the "Meyer Stockholders") and other parties thereto, the Meyer Stockholders had the right to cause all of the shares of Gramercy Tavern Corp.

Meyer 2012 Gift Trust, now known as the DHM Gift Trust (the "Gift Trust"), other affiliates (collectively, the "Meyer Stockholders") and other parties thereto, the Meyer Stockholders had the right to cause all of the shares of Gramercy Tavern Corp.

("GTC") to be exchanged for shares of our Class A common stock pursuant to a tax-free reorganization.

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The stockholders of GTC, received on a one-for-one basis, 2,690,263 shares of Class A common stock based upon the amount of shares of GTC held by the stockholders;

all of the shares of Class B common stock held by GTC were canceled;

all of the shares of Class B common stock held by GTC were cancelled;

and all of the LLC Interests held by GTC were transferred to us.

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We report a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings.

The SSE Holdings LLC Agreement provides that holders of LLC Interests may, from time to time, require SSE Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one -for-one basis.

The Third Amended and Restated Limited Liability Company Agreement, as further amended, (the "LLC Agreement") of SSE Holdings provides that holders of LLC Interests may, from time to time, require SSE Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one -for-one basis.

In connection with any redemption or exchange, we will receive a corresponding number of LLC Interests, increasing our total ownership interest in SSE Holdings.

Changes in our ownership interest in SSE Holdings while we retain our controlling interest in SSE Holdings will be accounted for as equity transactions.

As such, future redemptions or direct exchanges of LLC Interests in SSE Holdings by the other

As such, future redemptions or direct exchanges of LLC Interests in SSE Holdings by the

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Form 10-K | 105

members of SSE Holdings will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital.

other members of SSE Holdings will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital.

The following table summarizes the ownership interest in SSE Holdings as of December 30, 2020 and December 25, 2019:

LLC Interests

LLC Interests Ownership % LLC Interests Ownership %

Number of LLC Interests held by Shake Shack Inc.

38,717,790 92.9 % 34,417,302 91.6 %

Number of LLC Interests held by non-controlling interest holders 2,951,188 7.1 % 3,145,197 8.4 %

Total LLC Interests outstanding 41,668,978 100.0 % 37,562,499 100.0 %

The weighted average ownership percentages for the applicable reporting periods are used to attribute net income and other comprehensive income (loss) between Shake Shack Inc.

The weighted average ownership percentages for the applicable reporting periods are used to attribute net income (loss) and other comprehensive income (loss) to Shake Shack Inc.

and the non-controlling interest holders.

The non-controlling interest holders' weighted average ownership percentage for fiscal 2019 and 2018 was 15.9 % and 23.4 % , respectively.

The following table summarizes the effects of changes in ownership in SSE Holdings on our equity during fiscal 2019 , 2018 and 2017 .

The non-controlling interest holders' weighted average ownership percentage for fiscal 2020 and fiscal 2019 was 7.7 % and 15.9 %, respectively.

The following table summarizes the effects of changes in ownership in SSE Holdings on our equity during fiscal 2020, fiscal 2019 and fiscal 2018.

2020 2019 2018

Net income (loss) attributable to Shake Shack Inc.

$ ( 42,158 ) $ 19,827 $ 15,179

Other comprehensive income (loss):

Unrealized holding gains (losses) on available-for-sale securities

Unrealized holding gains on equity securities — — 10

Unrealized gain on foreign currency translation adjustment 1 2 —

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Increase in additional paid-in capital as a result of activity under the stock compensation plan and the related income tax effect 5,909 4,517 2,509

Increase in additional paid-in-capital as a result of the issuance of Class A common stock sold in equity offerings 135,718 — —

Total effect of changes in ownership interest on equity attributable to Shake Shack Inc.

During fiscal 2019 , an aggregate of 4,412,150 LLC Interests were redeemed by the non-controlling interest holders for newly-issued shares of Class A common stock, of which 2,690,263 were received through the Gramercy Tavern Merger as described in Note 12, and we received 4,412,150 LLC Interests, increasing our total ownership interest in SSE Holdings to 91.6 % .

During 2018 , an aggregate of 2,692,660 LLC Interests were redeemed by the non-controlling interest holders, and we received 2,692,660 LLC Interests, increasing our total ownership interest in SSE Holdings to 79.6 % .

We received an aggregate of 484,319 and 300,696 LLC Interests in connection with the activity under our stock compensation plans during fiscal 2019 and 2018 , respectively.

EQUITY-BASED COMPENSATION

A summary of equity-based compensation expense recognized during fiscal 2019 , 2018 and 2017 is as follows:

$ 101,193 $ 55,498 $ 32,900

During fiscal 2020, an aggregate of 194,009 LLC Interests were redeemed by the non-controlling interest holders for newly-issued shares of Class A common stock, and we received 194,009 LLC Interests, increasing our total ownership interest in SSE Holdings to 92.9 %.

During fiscal 2019, an aggregate of 4,412,150 LLC Interests were redeemed by the non-controlling interest holders for newly-issued shares of Class A common stock, of which 2,690,263 were received through the Gramercy Tavern Merger as described in Note 12, Stockholders' Equity, and we received 4,412,150 LLC Interests, increasing our total ownership interest in SSE Holdings to 91.6 %.

We received an aggregate of 456,942 and 484,319 LLC Interests in connection with the activity under our stock compensation plans during fiscal 2020 and fiscal 2019, respectively.

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Form 10-K | 106

EQUITY-BASED COMPENSATION

A summary of equity-based compensation expense recognized during fiscal 2020, fiscal 2019 and fiscal 2018 is as follows:

2020 2019 2018

Stock options $ 322 $ 2,626 $ 3,039

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Total income tax benefit recognized related to equity-based compensation $ 204 $ 188 $ 172

Equity-based compensation expense is allocated to general and administrative expenses and labor and related expenses on the Consolidated Statements of Income (Loss) during fiscal 2019 , 2018 and 2017 as follows:

Equity-based compensation expense is allocated to General and administrative expenses and Labor and related expenses on the Consolidated Statements of Income (Loss) during fiscal 2020, fiscal 2019 and fiscal 2018 as follows:

2020 2019 2018

General and administrative expenses $ 5,039 $ 7,189 $ 5,991

1 unchanged sentence

Equity-based compensation expense $ 5,560 $ 7,505 $ 6,143

We capitalized $ 195 , $ 107 and $ 109 of equity-based compensation expense associated with the construction cost of our Shacks and our enterprise-wide system upgrade, Project Concrete, during fiscal 2019 , 2018 and 2017 , respectively.

We capitalized $ 40 , $ 195 and $ 107 of equity-based compensation expense associated with the construction cost of our Shacks and our enterprise-wide system upgrade, Project Concrete, during fiscal 2020, fiscal 2019 and fiscal 2018, respectively.

Stock Options

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The fair value of stock option awards was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions:

2020 2019 2018

Expected term (years) (1)

Expected volatility (2)

42.3 % 42.2 % 42.5 %

Risk-free interest rate (3)

0.7 % 2.4 % 2.8 %

Dividend yield (4)

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(2) Expected volatility is based on the historical volatility of a selected peer group over a period equivalent to the expected term.

The risk-free rate rate is an interpolation of yields on U.S.

(3) The risk-free rate is an interpolation of yields on U.S.

Treasury securities with maturities equivalent to the expected term.

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Form 10-K | 107

A summary of stock option activity for fiscal years 2019 , 2018 and 2017 is as follows:

Aggregate Intrinsic Value

Weighted Average Remaining Contractual Life (Years)

Outstanding as of December 28, 2016

Outstanding as of December 27, 2017

A summary of stock option activity for fiscal years 2020 is as follows:

Aggregate Intrinsic Value Weighted Average Remaining Contractual Life (Years)

Outstanding as of December 25, 2019 890,267 $ 21.44

Granted 6,170 35.89

Exercised ( 405,688 ) 21.20

Forfeited ( 1,725 ) ( 21.00 )

Outstanding as of December 30, 2020 489,024 $ 21.83 $ 30,824 4.2

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As of December 30, 2020, total unrecognized compensation expense related to unvested stock options was $ 223 , which is expected to be recognized over a weighted-average period of 3.2 years.

The total intrinsic value of stock options exercised during fiscal 2019 , 2018 and 2017 was $ 16,905 , $ 5,786 and $ 8,333 , respectively.

C ash received from stock option exercises was $ 9,201 for fiscal 2019 .

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A summary of unvested stock option activity for fiscal years 2019 , 2018 and 2017 is as follows:

Grant-Date Fair Value

Unvested as of December 28, 2016

Unvested as of December 27, 2017

Unvested as of December 26, 2018

Unvested as of December 25, 2019

The total fair value of stock options vested during fiscal 2019 , 2018 and 2017 was $ 2,950 , $ 3,483 and $ 4,458 , respectively.

The weighted-average grant date fair value of options granted during fiscal 2020, fiscal 2019 and fiscal 2018 was $ 16.21 , $ 26.42 , $ 19.86 , respectively.

The total intrinsic value of stock options exercised during fiscal 2020, fiscal 2019 and fiscal 2018 was $ 25,824 , $ 16,905 and $ 5,786 , respectively.

Cash received from stock option exercises was $ 8,224 and the cash tax benefit realized for the tax deductions from these option exercises was $229 for fiscal 2020.

The total fair value of stock options vested during fiscal 2020, fiscal 2019 and fiscal 2018 was $ 2,674 , $ 2,950 and $ 3,483 , respectively.

The following table summarizes information about stock options outstanding and exercisable as December 30, 2020:

Options Outstanding

Options Exercisable

Number Outstanding at December 25, 2019

Weighted Average Remaining Contractual Life (Years)

Weighted Average Exercise Price

Number Exercisable at December 25, 2019

Weighted Average Remaining Contractual Life (Years)

Weighted Average Exercise Price

Options Outstanding Options Exercisable

Number Outstanding at December 30, 2020 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Exercisable at December 30, 2020 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price

Exercise Price

$21.00 466,225 4.1 $ 21.00 466,225 4.1 $ 21.00

$34.62 7,411 5.4 $ 34.62 7,411 5.4 $ 34.62

$36.41 1,108 5.9 $ 36.41 1,108 5.9 $ 36.41

$38.91 2,060 6.4 $ 38.91 — — $ —

$39.91 3,022 7.2 $ 39.91 — — $ —

$54.36 3,028 8.2 $ 54.36 — — $ —

$35.89 6,170 9.2 $ 35.89 — — $ —

Performance Stock Units

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The actual number of equity awards earned is based on the level of performance achieved over a predetermined performance period, relative to established financial goals, none of which are considered market conditions.

For performance stock units granted during fiscal 2019 , the amount of awards that can be earned ranges from 0 % to 125 % of the number of performance stock units granted, based on the achievement of approved financial goals over a 1 -year performance period.

In addition to the performance conditions, performance stock units are also subject to a requisite service period and the awards vest ratably over four years.

The fair value of performance stock units is determined based on the closing market price of

For performance stock units granted during fiscal 2020, the amount of awards that can be earned ranges from 0 % to 125 % of the number of performance stock units granted, based on the achievement of approved financial goals over a one -year performance

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our Class A common stock on the date of grant.

In addition to the performance conditions, performance stock units are also subject to a requisite service period and the awards vest ratably over four years.

The fair value of performance stock units is determined based on the closing market price of our Class A common stock on the date of grant.

Compensation expense related to the performance stock units is recognized using a graded-vesting attribution method over the vesting period based on the most probable outcome of the performance conditions.

A summary of performance stock unit activity for fiscal years 2019 , 2018 and 2017 is as follows:

A summary of unvested performance stock unit activity for fiscal year 2020, is as follows:

Grant Date Fair Value

Outstanding as of December 25, 2019 117,517 $ 51.97

Performance achievement (1)

Outstanding as of December 27, 2017

Performance achievement (1)

Outstanding as of December 26, 2018

Granted 79,388 57.20

Performance achievement (1)

Vested ( 50,242 ) 49.34

Forfeited ( 17,234 ) 54.45

Outstanding as of December 30, 2020 137,221 $ 55.67

1 unchanged sentence

As of December 30, 2020, there were 137,221 performance stock units outstanding, of which none were vested.

The weighted average grant date fair value of share awards granted during fiscal 2020, fiscal 2019 and fiscal 2018 were $ 57.20 , $ 52.47 , and $ 58.46 , respectively.

The total fair value of awards that vested during fiscal 2020, fiscal 2019 and fiscal 2018 was $ 2,730 , $ 3,456 and $ 2,310 , respectively.

As of December 30, 2020, total unrecognized compensation expense related to unvested performance stock units was $ 966 , which is expected to be recognized over a weighted-average period of 1.9 years.

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The restricted stock units granted generally vest equally over periods ranging from one to five years.

T he fair value of restricted stock units is determined based on the closing market price of our Class A common stock on the date of grant.

The fair value of restricted stock units is determined based on the closing market price of our Class A common stock on the date of grant.

Compensation expense related to the restricted stock units is recognized using a straight-line attribution method over the vesting period.

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Form 10-K | 110

A summary of restricted stock unit activity for fiscal years 2019 , 2018 and 2017 is as follows:

A summary of unvested restricted stock unit activity for fiscal year 2020 is as follows:

Grant Date Fair Value

Outstanding as of December 25, 2019 152,098 $ 49.87

Outstanding as of December 27, 2017

Outstanding as of December 26, 2018

Granted 170,528 57.41

Vested ( 41,974 ) 50.66

Forfeited ( 22,159 ) 54.46

Outstanding as of December 30, 2020 258,493 $ 54.33

As of December 30, 2020, there were 258,493 restricted stock units outstanding, of which none were vested.

The weighted average grant date fair value of share awards granted during fiscal 2020, fiscal 2019 and fiscal 2018 were $ 57.41 , $ 52.51 , and $ 49.12 , respectively.

The total fair value of shares vested during fiscal 2020, fiscal 2019 and fiscal 2018 was $2,463, $947 and $867, respectively.

As of December 30, 2020, total unrecognized compensation expense related to unvested restricted stock units was $ 10,654 , which is expected to be recognized over a weighted-average period of 2.8 years.

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We are the sole managing member of SSE Holdings, and as a result, consolidate the financial results of SSE Holdings.

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Income Tax Expense

The components of income before income taxes are follows:

Income before income taxes

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The components of income (loss) before income taxes are follows:

2020 2019 2018

Domestic $ ( 59,873 ) $ 11,797 $ 21,595

Foreign 14,396 15,717 9,215

Income (loss) before income taxes $ ( 45,477 ) $ 27,514 $ 30,810

The components of income tax expense are as follows:

2020 2019 2018

Current income taxes:

Federal $ — $ 2,984 $ 5,281

State and local 190 4,283 858

Foreign 1,223 2,183 1,935

Total current income taxes 1,413 9,450 8,074

Deferred income taxes:

Federal ( 12,638 ) ( 5,643 ) ( 210 )

State and local 11,282 ( 421 ) 998

1 unchanged sentence

Income tax expense $ 57 $ 3,386 $ 8,862

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Reconciliations of income tax expense computed at the U.S.

1 unchanged sentence

statutory income tax rate to our effective tax rates are as follows:

2020 2019 2018

Expected U.S.

2 unchanged sentences

Foreign withholding taxes 1,223 ( 2.7 ) % 2,183 7.9 % 1,935 6.3 %

Tax credits ( 1,533 ) 3.4 % ( 3,007 ) ( 10.9 ) % ( 2,151 ) ( 7.0 ) %

Non-controlling interest 537 ( 1.2 ) % ( 1,405 ) ( 5.1 ) % ( 1,908 ) ( 6.2 ) %

Remeasurement of deferred tax assets in connection with the enactment of the TCJA

Remeasurement of deferred tax assets in connection with other tax rate changes 5,433 ( 11.9 ) % 208 0.8 % 3,794 12.3 %

Remeasurement of liabilities under tax receivable agreement in connection with the enactment of the TCJA

Change in valuation allowance ( 2,264 ) 5.0 % ( 4,669 ) ( 17.0 ) % — — %

Other 435 ( 1.0 ) % 374 1.4 % ( 75 ) ( 0.2 ) %

Income tax expense $ 57 ( 0.1 ) % $ 3,386 12.3 % $ 8,862 28.8 %

Our effective income tax rates for fiscal 2019 , 2018 and 2017 were 12.3 % , 28.8 % and 94.5 % , respectively.

The decrease in our effective income tax rate from fiscal 2018 to fiscal 2019 was primarily due higher tax credits, an increase in windfall benefits from equity-based compensation and a decrease in valuation allowance, partially offset by an increase in our ownership of SSE Holdings, which increases our share of taxable income of SSE Holdings.

The decrease in our effective income tax rate from fiscal 2017 to fiscal 2018 was primarily due to the remeasurement of deferred tax assets resulting from the enactment of the Tax Cuts and Jobs Act of 2017 (the "TCJA") in fiscal 2017.

In December 2017, the TCJA was enacted into law and provided for significant changes to the U.S.

Internal Revenue Code of 1986, as amended, including the reduction of the U.S.

federal corporate income tax rate from 35% to 21%, among other provisions.

We calculated our best estimate of the impact of the TCJA based on current interpretations and understanding of the TCJA and recognized an additional $ 138,636 of income tax expense in fiscal 2017, in accordance with Staff Accounting Bulletin No.

118 ("SAB 118"), relating to the remeasurement of our deferred tax assets.

During fiscal 2018 the Company finalized its calculations related to the impacts of the TCJA with no adjustment to the Company’s previously recorded provisional tax expense.

Our effective income tax rates for fiscal 2020, fiscal 2019 and fiscal 2018 were ( 0.1 )%, 12.3 % and 28.8 %, respectively.

The decrease in our effective income tax rate from fiscal 2019 to fiscal 2020 was primarily driven by lower tax rates for foreign and state taxes mainly in connection with lower pre-tax book income and remeasurement of deferred tax assets, partially offset by lower tax credits and an increase in valuation allowance.

The decrease in our effective income tax rate from fiscal 2018 to fiscal 2019 was primarily due to higher tax credits, an increase in windfall benefits from equity-based compensation and a decrease in valuation allowance, partially offset by an increase in our ownership of SSE Holdings, which increases our share of taxable income of SSE Holdings.

Shake Shack Inc.

2 unchanged sentences

The components of deferred tax assets and liabilities are as follows:

2020 December 25

Deferred tax assets:

1 unchanged sentence

Tax Receivable Agreement 63,853 65,679

Deferred rent

Operating lease liability 3,470 4,768

1 unchanged sentence

Deferred revenue 141 199

Stock-based compensation

Equity-based compensation 331 347

Net operating loss carryforwards 75,522 26,058

Tax credits 9,610 8,419

Other assets 457 398

Total gross deferred tax assets 292,814 285,309

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If not utilized $ 40,695 of our state net operating loss carryforwards can be carried forward indefinitely, and the remainder will begin to expire in 2023.

As described in Note 12, we acquired an aggregate of 4,896,469 LLC Interests during fiscal 2019 through redemptions of LLC Interests, the GT Merger and activity under stock-based compensation plans.

As of December 30, 2020, we had federal tax credit carryforwards of $ 9,002 which will begin to expire in 2025 and state tax credits of $ 608 which have an indefinite carryforward period.

As described in Note 12, Stockholders' Equity, we acquired an aggregate of 650,951 LLC Interests during fiscal 2020 through redemptions of LLC Interests and activity under stock-based compensation plans.

We recognized a deferred tax asset in the amount of $ 8,609 associated with the basis difference in our investment in SSE Holdings upon acquiring these LLC Interests.

As of December 30, 2020, the total deferred tax asset related to the basis difference in our investment in SSE Holdings was $ 139,379 .

These were partially offset by reductions in basis due to the utilization of $ 14,101 of amortization.

However, a portion of the total basis difference will only reverse upon the eventual sale of our interest in SSE Holdings, which we expect would result in a capital gain.

During fiscal 2019 , we also recognized $ 8,999 of deferred tax assets, and other income of $ 808 , related to additional tax basis changes generated from expected future payments under the Tax Receivable Agreement and related deductions for imputed interest on such payments.

However, a portion of the total basis difference will only reverse upon the eventual sale of our interest in SSE Holdings, which we expect would result in a capital loss.

During fiscal 2020, the total valuation allowance established against this deferred tax asset to which it relates was $ 77 .

During fiscal 2020, we also recognized $ 1,106 of deferred tax assets, and other loss of $ 1,147 , related to additional tax basis changes generated from expected future payments under the Tax Receivable Agreement and related deductions for imputed interest on such payments.

See "—Tax Receivable Agreement" for more information.

We evaluate the realizability of our deferred tax assets on a quarterly basis and establish valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized.

As of December 25, 2019 , we concluded, based on the weight of all available positive and negative evidence, that all of our deferred tax assets are more likely than not to be realized, except for certain tax credits we no longer expect to utilize before expiration .

As such, a valuation allowance in the amount of $ 954 was recognized.

The net change in valuation allowance for fiscal 2019 was a decrease of $ 5,971 .

As of December 30, 2020, we concluded, based on the weight of all available positive and negative evidence, that all of our deferred tax assets (except for those deferred tax assets described above relating to basis differences that expected to result in a capital loss upon the eventual sale of our interest in SSE Holdings) are more likely than not to be realized, except for tax credits related to New York City UBT and certain foreign

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tax credits no longer expected to be utilized before expiration.

As such, a valuation allowance in the amount of $ 2,579 was recognized.

The net change in valuation allowance for fiscal 2020 was an increase of $ 1,625 .

Uncertain Tax Positions

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was formed in September 2014 and did not engage in any operations prior to the IPO and Organizational Transactions.

Shake Shack Inc.

first filed tax returns for tax year 2014, which is the first tax year subject to examination by taxing authorities for U.S.

federal and state income tax purposes.

The statute of limitations remains open for tax years beginning in 2015 for Shake Shack Inc.

Additionally, although SSE Holdings is treated as a partnership for U.S.

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During fiscal 2020 payments of $ 6,643 , inclusive of interest, were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement.

No payments were made to members of SSE Holdings pursuant to the Tax Receivable Agreement during fiscal 2018 .

As of December 25, 2019 , the total amount of TRA Payments due under the Tax Receivable Agreement was $ 234,426 , of which $ 7,777 was included in other current liabilities on the Consolidated Balance Sheet.

See Note 18 for more information relating to our liabilities under the Tax Receivable Agreement.

EARNINGS PER SHARE

Basic earnings per share of Class A common stock is computed by dividing net income attributable to Shake Shack Inc.

by the weighted-average number of shares of Class A common stock outstanding during the period.

Diluted earnings per share of Class A common stock is computed by dividing net income attributable to Shake Shack Inc.

by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.

Payments of $707 were made to members of SSE Holdings pursuant to the Tax Receivable Agreement during fiscal 2019.

As of December 30, 2020, the total amount of TRA Payments due under the Tax Receivable Agreement was $ 232,954 , of which no amount was included in Other current liabilities on the Consolidated Balance Sheet.

See Note 18, Commitments and Contingencies, for more information relating to our liabilities under the Tax Receivable Agreement.

On March 27, 2020, the U.S.

government enacted the CARES Act to provide certain relief as a result of the COVID-19 pandemic.

The CARES Act provides tax relief, along with other stimulus measures, including a retroactive technical correction of prior tax legislation for tax depreciation of certain qualified improvement property, among other changes.

During fiscal 2020, we recognized accelerated tax depreciation deductions of $ 351 related to qualified improvement property assets placed in service in fiscal 2020, and are recorded as components within our Deferred income taxes, net on the Consolidated Balance Sheets.

In addition, subsequent to the second quarter of 2020, we began deferring the employer-paid portion of social security taxes as permitted by the CARES Act.

Shake Shack Inc.

Form 10-K | 113

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock for fiscal 2019 , 2018 and 2017 .

net income attributable to non-controlling interests

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share of Class A common stock is computed by dividing net income (loss) attributable to Shake Shack Inc.

by the weighted-average number of shares of Class A common stock outstanding during the period.

Diluted earnings (loss) per share of Class A common stock is computed by dividing net income (loss) attributable to Shake Shack Inc.

by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings (loss) per share of Class A common stock for fiscal 2020, fiscal 2019 and fiscal 2018.

2020 2019 2018

Net income (loss) $ ( 45,534 ) $ 24,128 $ 21,948

net income (loss) attributable to non-controlling interests ( 3,376 ) 4,301 6,769

Net income (loss) attributable to Shake Shack Inc.

$ ( 42,158 ) $ 19,827 $ 15,179

Weighted-average shares of Class A common stock outstanding—basic 37,129 31,381 28,299

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Shares of our Class B common stock do not share in the earnings or losses of Shake Shack and are therefore not participating securities.

As such, separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been presented.

The following table presents potentially dilutive securities excluded from the computations of diluted earnings per share of Class A common stock for fiscal 2019 , 2018 and 2017 .

As such, separate presentation of basic and diluted earnings (loss) per share of Class B common stock under the two-class method has not been presented.

The following table presents potentially dilutive securities, as of the end of the period, excluded from the computations of diluted earnings (loss) per share of Class A common stock for fiscal 2020, fiscal 2019 and fiscal 2018.

2020 2019 2018

Stock options 489,024 (1) 946 (2) —

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Shares of Class B common stock 2,951,188 (4) 3,145,197 (4) 7,557,347 (4)

Weighted-average number of securities excluded from the computation of diluted earnings per share of Class A common stock because the exercise price of the stock options exceeded the average market price of our Class A common stock during the period ("out-of-the-money").

Represents number of instruments outstanding at the end of the period that were excluded from the computation of diluted earnings per share of Class A common stock because the effect would have been anti-dilutive.

Weighted-average number of securities excluded from the computation of diluted earnings per share of Class A common stock because the performance conditions were not met for a portion of the fiscal year.

Shares of our Class B common stock are considered potentially dilutive shares of Class A common stock.

Amounts have been excluded from the computations of diluted earnings per share of Class A common stock because the effect would have been anti-dilutive under the if-converted and two-class methods.

(1) Represents number of instruments outstanding at the end of the period that were excluded from the computation of diluted earnings (loss) per share of Class A common stock because the effect would have been anti-dilutive.

(2) Weighted-average number of securities excluded from the computation of diluted earnings (loss) per share of Class A common stock because the exercise price of the stock options exceeded the average market price of our Class A common stock during the period ("out-of-the-money").

(3) Weighted-average number of securities excluded from the computation of diluted earnings (loss) per share of Class A common stock because the performance conditions associated with these awards were not met for a portion of the fiscal year.

(4) Shares of our Class B common stock outstanding as of the end of the period are considered potentially dilutive shares of Class A common stock.

Amounts have been excluded from the computations of diluted earnings (loss) per share of Class A common stock because the effect would have been anti-dilutive under the if-converted and two-class methods.

Shake Shack Inc.

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SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth supplemental cash flow information for fiscal 2019 , 2018 and 2017 :

The following table sets forth supplemental cash flow information for fiscal 2020, fiscal 2019 and fiscal 2018:

2020 2019 2018

Cash paid for:

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We are obligated under various operating leases for Shacks and our home office space, expiring in various years through 2037.

Under certain of these leases, we are liable for contingent rent based on a percentage of sales in excess of specified thresholds and are responsible for our proportionate share of real estate taxes, common area maintenance charges and utilities.

See Note 10, Leases.

As security under the terms of one of our leases, we are obligated under a letter of credit totaling $ 130 as of December 25, 2019 , which expires on February 28, 2026 .

As security under the terms of one of our leases, we are obligated under a letter of credit totaling $ 130 as of December 30, 2020, which expires in February 2026.

Additionally, in September 2017, we entered into a letter of credit in conjunction with our new home office lease in the amount of $ 603 , which expires in August 2021 and renews automatically for one-year periods through January 31, 2034.

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Liabilities under Tax Receivable Agreement

As described in Note 15, we are a party to the Tax Receivable Agreement under which we are contractually committed to pay the non-controlling interest holders 85 % of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of certain transactions.

As described in Note 15, Income Taxes, we are a party to the Tax Receivable Agreement under which we are contractually committed to pay the non-controlling interest holders 85 % of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of certain transactions.

We are not obligated to make any payments under the Tax Receivable Agreement until the tax benefits associated the transaction that gave rise to the payment are realized.

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The Chairman of our Board of Directors serves as the Chief Executive Officer of Union Square Hospitality Group, LLC.

As a result, Union Square Hospitality Group, LLC and its subsidiaries are considered related parties.

Effective January 2015, we entered into an Amended and Restated Management Services Agreement with USHG, LLC ("USHG"), in which USHG agreed to provide, at our election, certain management services to SSE Holdings.

The initial term of the Amended and Restated Management Services Agreement is through December 31, 2019, and SSE Holdings notified USHG of its intention not to renew the term thereafter.

As a result, Union Square Hospitality Group, LLC and its subsidiaries, set forth below, are considered related parties.

Hudson Yards Sports and Entertainment

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Classification 2020 2019 2018

Amounts received from HYC

Licensing revenue

Amounts received from HYC Licensing revenue $ 67 $ 571 $ 420

Classification December 30

2020 December 25

Amounts due from HYC Accounts receivable $ 8 $ 47

Shake Shack Inc.

Form 10-K | 116

Classification

Amounts due from HYC

Accounts Receivable

Prepaid expenses and other current assets

Madison Square Park Conservancy

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Classification 2020 2019 2018

Amounts paid to MSP Conservancy

Occupancy and related expenses

Classification

Amounts due to MSP Conservancy

Accrued expenses

Amounts paid to MSP Conservancy Occupancy and related expenses $ 846 $ 964 $ 877

Classification December 30

2020 December 25

Amounts due to MSP Conservancy Accrued expenses $ — $ 53

Share Our Strength

The Chairman of our Board of Directors serves as a director of Share Our Strength, for which Shake Shack holds the "Great American Shake Sale" every year to raise money and awareness for childhood hunger.

The Chairman of our Board of Directors serves as a director of Share Our Strength, for which Shake Shack has held the "Great American Shake Sale" to raise money and awareness for childhood hunger.

During the Great American Shake Sale, we encourage guests to donate money to Share Our Strength's No Kid Hungry campaign in exchange for a coupon for a free shake.

All of the guest donations we collect are remitted directly to Share Our Strength.

All of the guest donations we collect go directly to Share Our Strength.

No amounts were due to Share Our Strength as of both December 30, 2020 and December 25, 2019.

Classification 2020 2019 2018

Amounts raised through donations — $ — $ 190 $ 343

Costs incurred for free shakes redeemed

General and administrative expenses

Mobo Systems, Inc.

The Chairman of our Board of Directors serves as a director of Mobo Systems, Inc.

(also known as "Olo"), a platform we use in connection with our mobile ordering application.

No amounts were due to Olo as of December 25, 2019 and December 26, 2018 , respectively.

Costs incurred for free shakes redeemed General and administrative expenses $ — $ 30 $ 53

The Chairman of our Board of Directors serves as a director of Olo, Inc.

(formerly known as "Mobo Systems, Inc."), a platform we use in connection with our mobile ordering application.

No amounts were due to Olo as of both December 30, 2020 and December 25, 2019.

Classification 2020 2019 2018

Amounts paid to Olo

Other operating expenses

Amounts paid to Olo Other operating expenses $ 242 $ 170 $ 111

Our Chief Executive Officer is a member of the Board of Directors of Square, Inc.

We currently use certain point-of-sale applications, payment processing services, hardware and other enterprise platform services in connection with the processing of a limited amount of sales at certain of our locations, sales for certain off-site events and in connection with our kiosk technology.

Additionally, we partnered with Caviar, Square’s food ordering delivery service, to allow guests to order Shake Shack in select markets as well as participated in Square’s new Boost offers, providing assets and permission for Square to run select offers to their cash card users.

No amounts were due to Square as of December 25, 2019 and December 26, 2018 , respectively.

No amounts were due to Square as of both December 30, 2020 and December 25, 2019.

Classification 2020 2019 2018

Amounts paid to Square

Other operating expenses

Amounts paid to Square Other operating expenses $ 1,697 $ 1,692 $ 445

USHG Acquisition Corp.

Our Chief Executive Officer has been appointed to the board of directors of USHG Acquisition Corp.

in which the Chairman of our Board of Directors serves as the chairman of the board of directors of USHG Acquisition Corp.

USHG Acquisition Corp.

is a newly organized blank check company incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities.

No amounts were due to or due from USHG Acquisition Corp as of both December 30, 2020 and December 25, 2019.

Shake Shack Inc.

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Tax Receivable Agreement

In connection with our IPO, we entered into a Tax Receivable Agreement with certain non-controlling interest holders that provides for the payment by us to the non-controlling holders of 85 % of the amount of any tax benefits that Shake Shack actually realizes or in some cases is deemed to realize as a result of (i) increases in the tax basis of the net assets of SSE Holdings resulting from any redemptions or exchanges of LLC Interests and (ii) certain other tax benefits related to our making payments under the Tax Receivable Agreement.

See Note 15 for further information.

Classification

Amounts paid to members (inclusive of interest)

Other current liabilities

As described in Note 15, Income Taxes, we entered into a Tax Receivable Agreement with certain members of SSE Holdings that provides for the payment by us of 85% of the amount of tax benefits, if any, that Shake Shack actually realizes or in some cases is deemed to realize as a result of certain transactions.

Classification 2020 2019 2018

Amounts due under the Tax Receivable Agreement

Other current liabilities

Amounts paid to members (inclusive of interest) Other current liabilities $ 6,643 $ 707 $ —

Classification December 30

2020 December 25

Amounts due under the Tax Receivable Agreement Other current liabilities

Liabilities under Tax Receivable Agreement, net of current portion $ 232,954 $ 234,426

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Classification 2020 2019 2018

Amounts paid to non-controlling interest holders

Non-controlling interests

Amounts paid to non-controlling interest holders Non-controlling interests $ 478 $ 1,708 $ 751

Gramercy Tavern Corp.

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See Note 12 for more information.

Shake Shack Inc.

Form 10-K | 119

GEOGRAPHIC INFORMATION

Revenue by geographic area for fiscal 2019 , 2018 and 2017 is as follows:

Revenue by geographic area for fiscal 2020, fiscal 2019 and fiscal 2018 is as follows:

2020 2019 2018

United States $ 508,292 $ 578,702 $ 447,575

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Revenues are shown based on the geographic location of our customers and licensees.

All of our long-lived assets are located in the United States.

Our long-lived assets are primarily located in the United States.

Shake Shack Inc.

Form 10-K | 118

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table sets forth certain unaudited financial information for each quarter of fiscal 2019 and 2018 .

The following table sets forth certain unaudited financial information for each quarter of fiscal 2020 and fiscal 2019.

The unaudited quarterly information includes all adjustments (consisting of normal recurring adjustments) that, in the opinion of management, are necessary for the fair presentation of the information presented.

Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.

First Second Third Fourth

Quarter Quarter Quarter Quarter

Total revenue $ 143,170 $ 91,786 $ 130,401 $ 157,510

Operating income

Net income (loss)

Net income (loss) attributable to Shake Shack Inc.

Earnings (loss) per share (1) :

Operating loss ( 787 ) ( 24,075 ) ( 6,798 ) ( 12,216 )

Net loss ( 1,079 ) ( 18,031 ) ( 6,110 ) ( 20,314 )

Net loss attributable to Shake Shack Inc.

( 960 ) ( 16,211 ) ( 5,559 ) ( 19,428 )

Loss per share (1) :

Basic $ ( 0.03 ) $ ( 0.43 ) $ ( 0.15 ) $ ( 0.50 )

Diluted $ ( 0.03 ) $ ( 0.43 ) $ ( 0.15 ) $ ( 0.50 )

First Second Third Fourth

Quarter Quarter Quarter Quarter

Total revenue $ 132,609 $ 152,713 $ 157,762 $ 151,435

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Net income (loss) attributable to Shake Shack Inc.

2,546 9,030 10,344 ( 2,093 )

Earnings (loss) per share (1) :

Basic and diluted earnings per share are computed independently for each of the quarters presented.

Therefore, the sum of quarterly basic and diluted earnings per share amounts may not equal annual basic and diluted earnings per share amounts.

Basic $ 0.09 $ 0.30 $ 0.32 $ ( 0.06 )

Diluted $ 0.08 $ 0.29 $ 0.31 $ ( 0.06 )

(1) Basic and diluted earnings (loss) per share are computed independently for each of the quarters presented.

Therefore, the sum of quarterly basic and diluted earnings (loss) per share amounts may not equal annual basic and diluted earnings (loss) per share amounts.

Shake Shack Inc.

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(in thousands, except share and per share amounts)

2020 December 25

Current assets:

Cash $ 9,469 $ 9,223

Accounts receivable — 1

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Investment in subsidiaries 356,497 247,372

TOTAL ASSETS $ 653,691 $ 542,938

LIABILITIES AND STOCKHOLDERS' EQUITY

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Retained earnings 12,209 54,367

Accumulated other comprehensive loss 3 —

Total stockholders' equity 407,321 298,815

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Fiscal Year Ended

2020 December 25

2019 December 26

Intercompany revenue $ 1,560 $ 2,018 $ 2,055

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OPERATING INCOME (LOSS) ( 619 ) 335 122

Equity in net income of subsidiaries

Equity in net income (loss) of subsidiaries ( 41,152 ) 19,831 21,537

Other income (loss) ( 1,147 ) 808 78

Interest expense — ( 150 ) ( 14 )

INCOME BEFORE INCOME TAXES

Income tax expense

INCOME (LOSS) BEFORE INCOME TAXES ( 42,918 ) 20,824 21,723

Income tax expense (benefit) ( 760 ) 997 6,544

NET INCOME (LOSS) $ ( 42,158 ) $ 19,827 $ 15,179

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Fiscal Year Ended

2020 December 25

2019 December 26

Net income (loss) $ ( 42,158 ) $ 19,827 $ 15,179

Other comprehensive income (loss), net of tax (1) :

Available-for-sale securities:

Other comprehensive income, net of tax (1) :

Change in foreign currency translation adjustment 1 — —

Equity securities:

Change in net unrealized holding losses

reclassification adjustments for net realized losses included in net income — — 13

OTHER COMPREHENSIVE INCOME (LOSS)

OTHER COMPREHENSIVE INCOME 1 — 10

COMPREHENSIVE INCOME (LOSS) $ ( 42,157 ) $ 19,827 $ 15,189

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Fiscal Year Ended

2020 December 25

2019 December 26

OPERATING ACTIVITIES

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Other current liabilities — — 14

Income taxes payable

NET CASH USED IN OPERATING ACTIVITIES ( 1,144 ) ( 4,957 ) ( 6,827 )

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FINANCING ACTIVITIES

Proceeds from issuance of Class A common stock sold in equity offerings, net of underwriting discounts, commissions and offering costs 144,861 — —

Proceeds from issuance of Class A common stock to SSE Holdings upon settlement of equity awards 26,319 29,481 11,142

Proceeds from stock option exercises

8,033 9,201 5,472

Payments under tax receivable agreement ( 6,643 ) ( 707 ) —

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(in thousands, except share and per share amounts)

Sha ke Shack Inc.

Shake Shack Inc.

(the "Parent Company") was formed on September 23, 2014 as a Delaware corporation and is a holding company with no direct operations.

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The Parent Company's cash inflows are primarily from cash dividends or distributions and other transfers from SSE Holdings.

The amounts available to the Parent Company to fulfill cash commitments and pay cash dividends on its common stock are subject to certain restrictions in SSE Holdings' revolving credit agreement.

See Note 9 to the consolidated financial statements.

The amounts available to the Parent Company to fulfill cash commitments and pay cash dividends on its common stock are subject to certain restrictions in SSE Holdings' Revolving Credit Facility.

See Note 9, Debt, to the Company's consolidated financial statements.

BASIS OF PRESENTATION

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Certain intercompany balances presented in these condensed Parent Company financial statements are eliminated in the consolidated financial statements.

As of December 25, 2019 , $ 9,652 of intercompany payables were eliminated in consolidation and $ 3,534 of intercompany payables were eliminated in consolidation as of December 26, 2018 .

For fiscal 2019 , $ 2,018 and $ 19,831 of intercompany revenue and equity in net income of subsidiaries, respectively, was eliminated in consolidation.

Intercompany receivables of $ 2,103 and $ 7,124 were eliminated in consolidation as of December 30, 2020 and December 25, 2019, respectively.

Intercompany payables of $ 13,288 and $ 9,652 were eliminated in consolidation as of December 30, 2020 and December 25, 2019, respectively.

For fiscal 2020, $ 1,560 and $ 41,152 of intercompany revenue and equity in net loss of subsidiaries, respectively, was eliminated in consolidation.

For fiscal 2019, $ 2,018 and $ 19,831 of intercompany revenue and equity in net income of subsidiaries, respectively, was eliminated in consolidation.

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On February 4, 2015, the Parent Company entered into a tax receivable agreement with the non-controlling interest holders that provides for payments to the non-controlling interest holders of 85 % of the amount of any tax benefits that the Parent Company actually realizes, or in some cases is deemed to realize, as a result of certain transactions.

S ee Note 15 to the consolidated financial statements for more information regarding the Parent Company's tax receivable agreement.

As described in Note 18 to the consolidated financial statements, a mounts payable under the tax receivable agreement are contingent upon, among other things, (i) generation of future taxable income of Shake Shack Inc.

See Note 15, Income Taxes, to the consolidated financial statements for more information regarding the Parent Company's Tax Receivable Agreement.

As described in Note 18, Commitments and Contingencies, to the consolidated financial statements, amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income of Shake Shack Inc.

over the term of the Tax Receivable Agreement and (ii) future changes in tax laws.

As of December 25, 2019 and December 26, 2018 , liabilities under the tax receivable agreement totaled $ 234,426 and $ 203,725 , respectively.

Shake Shack Inc.

Form 10-K | 124

As of December 30, 2020 and December 25, 2019, liabilities under the tax receivable agreement totaled $ 232,954 and $ 234,426 , respectively.

SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth supplemental cash flow information for fiscal 2019 , 2018 and 2017 :

The following table sets forth supplemental cash flow information for fiscal 2020, fiscal 2019 and fiscal 2018:

2020 2019 2018

Cash paid for:

Income taxes $ 124 $ 233 $ 185

Non-cash investing activities:

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Valuation and Qualifying Accounts

Balance at beginning of period

Balance at end of period

(in thousands)

Charged to costs and expenses

Charged to other accounts

Balance at beginning of period Additions Reductions Balance at end of period

(in thousands) Charged to costs and expenses Charged to other accounts

Deferred tax asset valuation allowance:

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Fiscal year ended December 30, 2020 $ 954 $ ( 2,610 ) $ 4,312 (1) $ — $ 2,656

Fiscal year ended December 27, 2017

Fiscal year ended December 26, 2018

Fiscal year ended December 25, 2019

(1) Amount relates to a valuation allowance established on deferred tax assets related to our investment in SSE Holdings.

Amount includes a $ 4,780 remeasurement adjustment related to the enactment of the TCJA, which was recognized through earnings.

Shake Shack Inc.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data