What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-18 compared with 2021-02-26 · 394 added, 373 removed, 1114 unchanged (41% of the section changed)

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Management's Report

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

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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 29, 2021, as stated in their report herein.

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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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 29, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 18, 2022 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for the recognition, measurement, presentation and disclosure of leases effective December 27, 2018 due to the adoption of Accounting Standards Update (ASU) No.

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

Basis for Opinion

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Further, to test the measurement of the deferred tax asset, for a selection of redemptions, we recalculated the change in tax basis resulting from the redemptions, including the determination of fair value.

Measurement of the valuation allowance against deferred tax assets

Description of the Matter As discussed in Notes 2 and 14 of the consolidated financial statements, a valuation allowance is recognized if the Company determines it is more likely than not that all or a portion of a deferred tax asset will not be recognized.

In making such determination, the Company considers all available evidence, including scheduled reversals of deferred tax liabilities, tax planning strategies and recent and forecasted results of operations.

As of December 29, 2021, the Company is in a three-year cumulative book loss position, and is looking to its forecasted future U.S.

federal taxable income to conclude that it is more likely than not that these deferred tax assets, except for certain local unincorporated business tax and foreign tax credits, will be fully realized prior to their expiration.

At December 29, 2021, the Company had a net deferred tax asset balance for U.S.

federal income taxes of $299 million, for which a valuation allowance of $5 million was provided.

Auditing management’s analysis of the realizability of these U.S.

federal deferred tax assets is highly judgmental because it requires the evaluation of positive evidence to support the position that the Company will generate sufficient future U.S.

federal taxable income to realize their deferred tax assets as tax deductions on future income tax returns.

The Company’s forecasted financial information, which is inherently subjective is a significant component of management’s analysis.

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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 income tax process, including the review of deferred taxes and the evaluation of valuation allowances.

In addition, we obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s financial forecasting process.

Such controls include management’s review of forecasted pretax income, including the significant assumptions such as projected Shack openings and operating margins, and operating costs, among others.

In our testing surrounding the assessment of the valuation allowance as described above, we performed audit procedures that included, among others, evaluating the conclusions reached by the Company regarding the realizability of deferred tax assets, which involved performing procedures over (i) the scheduled reversal of deferred taxes and (ii) forecasted financial information.

In order to test management’s financial forecasts, we assessed the historical accuracy of management’s forecasts and compared the significant assumptions used to current industry and economic trends and changes to the Company’s operations.

In addition, we performed sensitivity analyses to evaluate the impact of changes in assumptions to future taxable income and ultimately, realizability of deferred tax assets.

Measurement of the Tax Receivable Agreement liability

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Significant changes in estimates could have a material effect on the Company’s results of operations.

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Form 10-K | 81

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.

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

We tested the measurement of the Company’s TRA liability by performing procedures on the redemptions, as described above, and recalculating the Company’s share of the tax basis in the net assets of LLC, as discussed above.

We tested the measurement of the Company’s TRA liability by performing audit procedures that included, among others, procedures on the redemptions, as described above, and recalculating the Company’s share of the tax basis in the net assets of LLC, as discussed above.

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 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 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.

Shake Shack Inc.

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Lease accounting

Description of the Matter As discussed in Note 9 of the consolidated financial statements, domestic Company-operated Shacks are located on leased premises.

As of December 29, 2021, the Company’s right-of-use assets and lease liability is $347 million and $436 million, respectively.

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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.

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.

For a sample of leases, we performed audit procedures that included, among others, testing 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.

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 tested the Company’s impairment assessment, by 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.

/s/ Ernst & Young LLP

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

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We have audited Shake Shack Inc.’s (the Company’s) internal control over financial reporting as of December 29, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30, 2020, based on the COSO criteria.

In our opinion, Shake Shack Inc.

(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 29, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 29, 2021 and December 30, 2020, the related consolidated statements of income (loss), comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 29, 2021, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”) and our report dated February 18, 2022 expressed an unqualified opinion thereon.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

New York, New York

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Total current assets 409,676 203,186

Property and equipment, net 336,541 314,862

Property and equipment, net of accumulated depreciation of $ 222,768 and $ 166,156 , respectively

389,386 336,541

Operating lease assets 347,277 306,317

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Total current liabilities 121,497 109,705

Long-term debt 243,542 —

Long-term operating lease liabilities 400,113 343,736

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Total liabilities 1,021,970 710,855

Commitments and contingencies

Commitments and contingencies (Note 17)

Stockholders' equity:

Preferred stock, no par value—10,000,000 shares authorized;

none issued and outstanding as of December 30, 2020 and December 25, 2019, respectively.

none issued and outstanding as of December 29, 2021 and December 30, 2020.

Class A common stock, $0.001 par value—200,000,000 shares authorized;

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General and administrative expenses 85,996 64,250 65,649

Depreciation expense 48,801 40,392 29,000

Depreciation and amortization expense 58,991 48,801 40,392

Pre-opening costs 13,291 8,580 14,834

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TOTAL EXPENSES 755,746 566,743 568,834

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

INCOME (LOSS) FROM OPERATIONS ( 15,853 ) ( 43,876 ) 25,685

Other income (expense), net 95 ( 786 ) 2,263

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INCOME (LOSS) BEFORE INCOME TAXES ( 17,335 ) ( 45,477 ) 27,514

Income tax expense 57 3,386 8,862

Income tax expense (benefit) ( 7,224 ) 57 3,386

NET INCOME (LOSS) ( 10,111 ) ( 45,534 ) 24,128

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Net income (loss) $ ( 10,111 ) $ ( 45,534 ) $ 24,128

Other comprehensive income, net of tax (1) :

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

Change in foreign currency translation adjustment ( 2 ) 1 2

Equity securities:

Change in net unrealized holding losses

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

OTHER COMPREHENSIVE INCOME 1 2 13

Net change ( 2 ) 1 2

OTHER COMPREHENSIVE INCOME (LOSS) ( 2 ) 1 2

COMPREHENSIVE INCOME (LOSS) ( 10,113 ) ( 45,533 ) 24,130

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Other comprehensive income:

Net change related to equity securities 10 3 13

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 4,136 1,059 5,195

Net income 19,827 4,301 24,128

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 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 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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Distributions paid to non-controlling interest holders ( 968 ) ( 968 )

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 29, 2021 39,142,397 $ 39 2,921,587 $ 3 $ 405,940 $ 3,554 $ 1 $ 26,063 $ 435,600

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

Depreciation expense

48,801 40,392 29,000

Depreciation and amortization expense 58,991 48,801 40,392

Amortization of debt issuance costs 867 — —

Amortization of cloud computing asset 1,245 1,444 312

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Unrealized (gain) loss on equity securities 277 59 ( 194 )

Net loss on sublease

Changes in operating assets and liabilities:

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( 1,166 ) 1,752 1,438

Deferred rent

Long-term operating lease liabilities

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FINANCING ACTIVITIES

Proceeds from issuance of convertible notes, net of discount 243,750 — —

Proceeds from Revolving Credit Facility

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— ( 50,000 ) —

Proceeds from deemed landlord financing

Payments on deemed landlord financing — — ( 702 )

Deferred financing costs

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( 968 ) ( 478 ) ( 1,708 )

Debt issuance costs ( 1,075 ) — —

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

Nature of Operations

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Geographic Information

Selected Quarterly Financial Data (Unaudited)

Shake Shack Inc.

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As of December 29, 2021, there were 369 Shacks in operation, system-wide, of which 218 were domestic Company-operated Shacks, 25 were domestic licensed Shacks and 126 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 (“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 the accounts of Shake Shack Inc.

and its subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

Certain reclassifications have been made to prior period amounts to conform to the current year presentation.

SSE Holdings is considered a variable interest entity.

SSE Holdings is a variable interest entity.

Shake Shack Inc.

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As of December 29, 2021 and December 30, 2020, the net assets of SSE Holdings were $ 376,857 and $ 383,669 , respectively.

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

See Note 9, Debt, for more information.

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

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

Refer to Note 8, Debt, for additional information.

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

Fiscal year 2021 contained 52 weeks and ended on December 29, 2021 ("fiscal 2021").

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

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

Fiscal year 2019 contained 52 weeks and ended on December 25, 2019 ("fiscal 2019").

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

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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

We own and operate Shacks in the United States.

We also have domestic and international licensed operations.

Our chief operating decision makers (the "CODMs") are our Chief Executive Officer and our President and Chief Financial Officer.

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.

Our chief operating decision maker (the "CODM") is the Chief Executive Officer.

We have determined we have one operating segment and one reportable segment, as the CODM regularly reviews Shack operations and financial performance at a consolidated level to allocate resources.

Fair Value Measurements

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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 1 — 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 and Cash Equivalents

Cash and cash equivalents consist primarily of cash on hand, deposits with banks, and short-term, highly liquid investments that have original maturities of three months or less.

Cash and cash equivalents consist primarily of cash on hand, deposits with banks, money market funds and short-term, highly liquid investments that have original maturities of three months or less.

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

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

Marketable Securities

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Treasury obligations, and foreign government securities.

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

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

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

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

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.

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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.

The cost of repairs and maintenance are expensed when incurred.

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

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

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asset are capitalized.

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.

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

If the carrying value of the asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying value 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.

Refer to Note 4, Fair Value Measurements, for additional information.

Deferred Financing Costs

Deferred financing costs incurred in connection with the issuance of long-term debt and establishing credit facilities are capitalized and amortized to interest expense based on the related debt agreements.

Deferred financing costs incurred in connection with the issuance of long-term debt and establishing credit facilities are capitalized and amortized in Interest expense based on the related debt agreements.

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, transferable liquor licenses, certain custom furniture pre-ordered for future Shacks and yet to be placed in service and security deposits.

Other assets consist primarily of capitalized implementation costs from cloud computing arrangements, certain custom pre-ordered furniture, fixtures and equipment for future and existing Shacks, transferable liquor licenses, and security deposits.

Implementation costs associated with cloud computing arrangements hosted by third party vendors are capitalized when incurred during the application development phase.

Amortization is calculated on a straight-line basis over the contractual term of the cloud computing arrangement and is recorded within General and administrative expenses on the Consolidated Statements of Income (Loss).

As of December 29, 2021 and December 30, 2020, capitalized implementation costs from cloud computing arrangements totaled $ 6,431 and $ 6,497 , respectively, net of accumulated amortization.

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

The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of authorized liquor licenses are capitalized as indefinite-lived intangible assets.

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

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.

When evaluating intangible assets for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that an intangible asset group is impaired.

If we do not perform the qualitative assessment, or if we determine that it is not more likely than not that the fair value of the intangible asset group exceeds its carrying amount, we calculate the estimated fair value of the intangible asset group.

If the carrying amount of the intangible asset group exceeds the estimated fair value, an impairment charge is recorded to reduce the carrying value to the estimated fair value.

Annual liquor license renewal fees, for both types of licenses, are expensed over the renewal term.

As of December 29, 2021 and December 30, 2020, indefinite-lived intangible assets relating to transferable liquor licenses totaled $ 1,461 and $ 1,437 , respectively.

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

When evaluating intangible assets for impairment, we first perform a qualitative assessment to determine whether it is more likely than not that an intangible asset group is impaired.

If we determine that it is more likely than not that the carrying value of the intangible asset group exceeds its fair value, we perform a quantitative assessment to derive the fair value of the intangible asset group.

If the carrying value of the intangible asset group exceeds the estimated fair value, an impairment charge is recorded to reduce the carrying value to the estimated fair value.

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

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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,

Revenue from Shack sales is recognized when payment is tendered at the point of sale, net of discounts as the performance obligation has been satisfied.

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

Revenue from gift cards is deferred and recognized upon redemption.

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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.

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 good or service transferred to the licensee in our contracts, and represent distinct performance obligations.

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.

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Equity-based Compensation

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

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

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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).

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

The cost of advertising is expensed as incurred.

Advertising costs amounted to $ 5,677 , $ 1,449 and $ 857 in fiscal 2021, fiscal 2020 and fiscal 2019, 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.

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 2038.

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

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

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.

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

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

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

There are no explicit rates provided in our leases.

The IBR 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.

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.

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

The IBR 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 IBR is our credit rating and is subject to judgment.

The credit rating used to develop the IBR is determined by utilizing the credit ratings of other public companies with similar financial information as SSE Holdings.

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.

Finance leases are recognized in depreciation expense 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.

For both operating and finance leases that contain lease and non-lease components, the components are combined and accounted for as a single lease component.

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.

Generally, a portion of the leasehold improvements and building costs are reimbursed by our landlords as landlord incentives pursuant to agreed-upon terms in our lease agreements.

Generally, a portion of the leasehold improvements and building costs are reimbursed by our landlords through landlord incentives pursuant to agreed-upon terms in our lease agreements.

If obtained, landlord incentives usually take the form of up-front cash, full or partial credits against our future minimum or contingent rents otherwise payable by us, or a combination thereof.

In most cases, landlord incentives are received after we take possession of the property, as we meet required milestones during the construction of the property.

In most cases, landlord incentives are received after we take possession of the property and as we meet required milestones during the construction of the property.

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.

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.

Pre-opening costs are expensed as incurred and consist primarily of occupancy, manager and team member 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 values 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.

Any effects of changes in income tax rates or laws are included in Income tax expense in the period of enactment.

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.

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.

Shake Shack Inc.

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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

ASU Description Expected Impact Effective Date

Simplifying the Accounting for Income Taxes

(ASU 2019-12)

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.

(ASU 2019-12) This standard simplifies various aspects related to accounting for income taxes by removing certain exceptions to the general principles in ASC 740, “Income Taxes” (“ASC 740”), and clarifying certain aspects of the current guidance to promote consistency among reporting entities.

The adoption of this standard did not have a material impact to the Company's 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

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(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.

The Company elected to early adopt this standard, beginning December 31, 2020.

The guidance of this ASU is applicable to the convertible notes issued in March 2021.

As a result, the convertible notes are accounted for as a single liability measured at amortized cost.

The if-converted earnings per share ("EPS") method is used, with the effect of potential share settlement included in diluted EPS.

Refer to Note 8, Debt, and Note 15, Earnings Per Share, for additional information.

December 31, 2020

Early adoption is permitted.

Recently Issued Accounting Pronouncements

ASU Description Effective Date

Government Assistance (Topic 832)—Disclosures by Business Entities about Government Assistance

(ASU 2021-10) This ASU requires disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model to increase transparency about the types of transactions, the accounting for the transactions and the effect of the transactions on an entity’s financial statements.

This ASU is effective for fiscal years beginning after December 15, 2021 and can be applied either prospectively or retrospectively with early adoption permitted.

As this ASU is primarily around disclosure of transactions, the Company does not expect this to have a material impact on the financial statements.

December 30, 2021

Shake Shack Inc.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

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, Summary of Significant Accounting Policies, for further information.

The carrying value of the Company's Cash and cash equivalents, Accounts receivable, net, Accounts payable and Accrued expenses approximate their fair value due to the short-term nature of these financial instruments.

As of December 29, 2021 and December 30, 2020, the Company held certain assets that are required to be measured at fair value on a recurring basis including Marketable securities, which consist of investments in equity securities.

Fair value of these

Shake Shack Inc.

Form 10-K | 97

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

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 — — — — — —

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

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

investments is measured using Level 1 inputs.

The carrying value of these investments in equity securities approximates fair value.

Assets measured at fair value on a recurring basis as of December 29, 2021 and December 30, 2020 were as follows:

Fair Value Measurements

2021 December 30

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 —

Level 1 Level 1

Equity securities:

Mutual funds $ 80,000 $ 36,887

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

Total Marketable securities $ 80,000 $ 36,887

Refer to Note 6, Debt, for additional information relating to the fair value of the Company's outstanding debt instruments.

A summary of other income from equity securities recognized during fiscal 2021, fiscal 2020 and fiscal 2019 is as follows:

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Dividend income $ 301 $ 359 $ 1,244

Interest income — — 9

Realized gain (loss) on sale of investments ( 5 ) 79 22

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Total $ 19 $ 379 $ 1,460

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:

Gross proceeds from sales and redemptions $ 20,000 $ 27,000 $ 2,144

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

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 (expense), net on the Consolidated Statements of Income (Loss).

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Form 10-K | 97

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

We consider factors such as the duration, severity and the reason for the decline in value, the potential recovery period and our intent to sell.

As of December 30, 2020 and December 25, 2019, the declines in the market value of our marketable securities investment portfolio are considered to be temporary in nature.

Other Financial Instruments

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.

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, 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.

There were no impairment charges recognized during fiscal 2021.

During 2020, the Company recognized an impairment charge of $ 7,644 at two Shacks, as well as the 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 impairment charge was 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:

There were no impairment charges recognized during fiscal 2019.

ACCOUNTS RECEIVABLE, NET

The components of Accounts receivable, net as of December 29, 2021 and December 30, 2020 are as follows:

2021 December 30

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Form 10-K | 98

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:

PROPERTY AND EQUIPMENT, NET

The components of Property and equipment, net as of December 29, 2021 and December 30, 2020 are as follows:

2021 December 30

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Depreciation expense was $ 58,961 , $ 48,801 and $ 40,392 for fiscal 2021, fiscal 2020 and fiscal 2019, respectively.

Shake Shack Inc.

Form 10-K | 99

SUPPLEMENTAL BALANCE SHEET INFORMATION

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Sales tax payable $ 4,575 $ 4,285

Current portion of liabilities under tax receivable agreement — 7,777

Gift card liability 3,297 2,637

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Other long-term liabilities $ 22,773 $ 24,460

(1) As of December 29, 2021, Other included $ 3,334 of deferred lease incentive liabilities related to leases with variable lease cost as well as $ 2,182 of deferred social security taxes associated with the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

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.

Refer to Note 14, Income Taxes, for additional information relating to the CARES Act .

Shake Shack Inc.

Form 10-K | 99

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.

In August 2019, we entered into a 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 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:

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.

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.

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.

In March 2021, the Company entered into a second amendment to the Revolving Credit Facility (“Second Amendment”).

The Second Amendment modified the applicable covenants and restrictions in the Revolving Credit Facility to permit the incurrence of the Convertible Notes (as defined below), including obligations and transactions in connection therewith.

In addition, the Second Amendment, among other things, (i) permit minimum liquidity to be less than $ 25,000 through July 1, 2022;

(ii) extended the period applicable to the increased interest rate margin as set forth in the First Amendment;

(iii) shortened the maturity date of the Revolving Credit Facility from August 2024 to September 2022 and (iv) added mechanics relating to the transition from the use of LIBOR to the Secured Overnight Financing Rate ("SOFR") upon the discontinuance or unavailability of LIBOR.

Subsequently, and also in March 2021, the Company entered into a third amendment to the Revolving Credit Facility (“Third Amendment”) as Wells Fargo Bank resigned as administrative agent under the Revolving Credit Facility and assigned its commitments thereunder to JPMorgan Bank, N.A.

The Third Amendment appoints JPMorgan Bank, N.A.

as administrative agent under the Revolving Credit Facility.

In addition, the Third Amendment, among other things, extends the maturity date of the Revolving Credit Facility from September 2022 to March 2026.

As of December 29, 2021 and December 30, 2020, no amounts were outstanding under the Revolving Credit Facility.

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;

Shake Shack Inc.

Form 10-K | 100

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

The Company is not subject to these coverage ratios for a period of time due to the Second Amendment to the Revolving Credit Facility described above.

make investments;

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make distributions on or repurchase equity securities;

pay dividends;

engage in transactions with affiliates;

and prohibits us, with certain exceptions, from engaging in any line of business not related to our current line of business.

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

(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.

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.

and prohibits the Company, with certain exceptions, from engaging in any line of business not related to its current line of business.

As of December 29, 2021, the Company was in compliance with all covenants.

As of December 29, 2021, the Revolving Credit Facility had unamortized deferred financing costs of $ 82 , and was included in Other assets on the Consolidated Balance Sheets.

Total interest expense related to the Revolving Credit Facility was $ 479 , $ 531 and $ 49 , respectively, for fiscal 2021, fiscal 2020 and fiscal 2019.

Interest expense for fiscal 2021 primarily included the write-off of previously capitalized costs on the Revolving Credit Facility.

Shake Shack Inc.

Form 10-K | 100

Convertible Notes

In March 2021, the Company issued $ 225,000 aggregate principal amount of 0% Convertible Senior Notes due 2028 (“Convertible Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933.

The Company granted an option to the initial purchasers to purchase up to an additional $ 25,000 aggregate principal amount of Convertible Notes to cover over-allotments, which was subsequently fully exercised during March 2021, resulting in a total issuance of $ 250,000 aggregate principal amount of Convertible Notes.

The Convertible Notes will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in certain circumstances.

Upon conversion, the Company pays or delivers, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company's election.

The Convertible Notes are convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding December 1, 2027, only under the following circumstances:

(1) during any fiscal quarter commencing after the fiscal quarter ending on June 30, 2021 (and only during such fiscal quarter), if the last reported sale price of the Company's Class A common stock, par value $ 0.001 per share, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the Convertible Notes on each applicable trading day;

(2) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per one thousand dollar principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Class A common stock and the conversion rate for the Convertible Notes on each such trading day;

(3) if the Company calls such Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Convertible Notes called (or deemed called) for redemption;

and (4) upon the occurrence of specified corporate events as set forth in the Indenture.

On or after December 1, 2027, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Convertible Notes may convert all or any portion of their Convertible Notes at any time, regardless of the foregoing circumstances.

The Convertible Notes had an initial conversion rate of 5.8679 shares of Class A common stock per one thousand dollar principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $ 170.42 per share of Class A common stock.

Shake Shack may not redeem the Convertible Notes prior to March 6, 2025.

The Company may redeem for cash all or any portion of the Convertible Notes, at the Company's option, on or after March 6, 2025 if the last reported sale price of Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date.

In addition, if Shake Shack undergoes a fundamental change (as defined in the indenture governing the Convertible Notes), subject to certain conditions, holders may require it to repurchase for cash all or any portion of their Convertible Notes at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date.

In addition, following certain corporate events that occur prior to the maturity date of the Convertible Notes or if the Company delivers a notice of redemption in respect of some or all of the Convertible Notes, the Company will, in certain circumstances, increase the conversion rate of the Convertible Notes for a holder who elects to convert the Convertible Notes in connection with such a corporate event or convert the Convertible Notes called (or deemed called) for redemption during the related redemption period, as the case may be.

Contemporaneously with the issuance of the Convertible Notes, Shake Shack Inc.

entered into an intercompany note with SSE Holdings (“Intercompany Note”).

SSE Holdings promises to pay Shake Shack Inc., for value received, the principal amount with interest of the Intercompany Note in March 2028.

Shake Shack Inc.

will exercise its right to convert the Intercompany Note to maintain at all times a one-to-one ratio between the number of common units, directly or indirectly, held by Shake Shack Inc.

and the aggregate number of outstanding shares of common stock.

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Form 10-K | 101

As of December 29, 2021, the Convertible Notes had a gross principal balance of $ 250,000 and a balance of $ 243,542 , net of unamortized discount and debt issuance costs of $ 6,458 .

As of December 29, 2021, the unamortized balance of discount and debt issuance costs was recorded as a contra-liability and netted with Long-term debt on the Consolidated Balance Sheets and was being amortized as interest expense using the effective interest method.

Total amortization expense was $ 867 and was included in Interest expense in the Consolidated Statements of Income (Loss).

In connection with the issuance of the Convertible Notes, the Company also incurred consulting and advisory fees of $ 231 as of December 29, 2021 and was included in General and administrative expenses in the Consolidated Statements of Income (Loss).

At December 29, 2021, the fair value of the Convertible Notes was approximately $ 206,018 , based on external pricing data, including available quoted market prices of these instruments, and consideration of comparable debt instruments with similar interest rates and trading frequency, among other factors, and is classified as a Level 2 measurement within the fair value hierarchy.

Nature of Leases

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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 Accounting Standards Codification Topic 842 ("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.

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

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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).

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

Shake Shack Inc.

Form 10-K | 101

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.

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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.

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

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

Generally, a portion of the leasehold improvements and building costs are reimbursed by our landlords as landlord incentives pursuant to agreed-upon terms in our lease agreements.

Generally, a portion of the leasehold improvements and building costs are reimbursed by our landlords through landlord incentives pursuant to agreed-upon terms in our lease agreements.

If obtained, landlord incentives usually take the form of cash, full or partial credits against our future minimum or contingent rents otherwise payable by us or a combination thereof.

In most cases, landlord incentives are received after we take possession of the property, as we meet required milestones during the construction of the property.

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 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

In most cases, landlord incentives are received after we take possession of the property and as we meet required milestones during the construction of the property.

Shake Shack Inc.

Form 10-K | 102

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 operating and finance lease right-of-use assets and liabilities as of December 29, 2021 and December 30, 2020 is as follows:

Classification December 29

2021 December 30

Operating leases Operating lease assets $ 347,277 $ 306,317

Finance leases Property and equipment, net 6,810 5,409

Total right-of-use assets $ 354,087 $ 311,726

Finance leases:

Other current liabilities $ 1,998 $ 1,873

Other long-term liabilities 3,586 3,643

Operating leases:

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Long-term operating lease liabilities 400,113 343,736

Finance leases:

Other current liabilities 2,711 1,998

Other long-term liabilities 4,303 3,586

Total lease liabilities $ 442,646 $ 384,977

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2021 December 30

Finance lease cost:

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

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$ 50,888 $ 44,910

Short-term lease cost Occupancy and related expenses 494 394

Finance lease cost:

Amortization of right-of-use assets Depreciation and amortization expense 2,719 2,257

Interest on lease liabilities Interest expense 207 213

Variable lease cost Occupancy and related expenses

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General and administrative expenses 13,019 13,766

Short-term lease cost Occupancy and related expenses 290 494

Total lease cost $ 67,123 $ 61,640

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

Finance Leases Operating Leases

As of December 29, 2021, future minimum lease payments for operating and finance leases consisted of the following:

Operating Leases Finance Leases

$ 50,444 $ 2,886

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Total lease liabilities $ 428,029 $ 7,015

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.

(1) Operating leases are net of certain tenant allowance receivables that were reclassified to Other current assets as of December 29, 2021.

As of December 29, 2021 we had additional operating lease commitments of $ 77,955 for non-cancelable leases without a possession date, which begin to commence in fiscal 2022.

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:

A summary of lease terms and discount rates for operating and finance leases as of December 29, 2021 and December 30, 2020 is as follows:

2021 December 30

Weighted average remaining lease term (years):

Finance leases 5.2 5.1

Operating leases 9.5 9.7

Weighted-average discount rate:

Finance leases 5.4 5.2

Weighted average discount rate:

Operating leases 3.9 % 4.2 %

Finance leases 3.1 % 3.6 %

Shake Shack Inc.

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

Operating cash flows from finance leases $ 213 $ 193

Operating cash flows from operating leases $ 49,079 $ 42,144

Operating cash flows from finance leases 207 213

Financing cash flows from finance leases 2,694 2,206

Right-of-use assets obtained in exchange for lease obligations:

Finance leases 2,298 2,831

Operating leases 66,959 59,969

Finance leases 4,119 2,298

EMPLOYEE BENEFIT PLANS

Defined Contribution Plan

Our employees are eligible to participate in a defined contribution savings plan maintained by Shake Shack.

The plan is funded by employee and employer contributions.

Our team members are eligible to participate in a defined contribution savings plan maintained by Shake Shack.

The plan is funded by participant and employer contributions.

We pay our share of the employer contributions directly to the third party trustee.

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

Employer contributions totaled $ 1,337 , $ 895 and $ 772 , respectively, for fiscal 2021, fiscal 2020 and fiscal 2019.

STOCKHOLDERS' EQUITY

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Number of LLC Interests redeemed by non-controlling interest holders 29,601 194,009 1,721,887

Number of LLC Interests acquired in connection with the Gramercy Tavern Merger — 2,690,263 —

Number of LLC Interests acquired in connection with the Gramercy Tavern Corp.

Merger — — 2,690,263

Number of LLC Interests received by Shake Shack Inc.

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Shares of Class A common stock issued in connection with redemptions of LLC Interests 29,601 194,009 1,721,887

Shares of Class A common stock issued in connection with the Gramercy Tavern Merger — 2,690,263 —

Shares of Class A common stock issued in connection with the Gramercy Tavern Corp.

Merger — — 2,690,263

Cancellation of Class B common stock

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As of December 29, 2021, essentially all of the net assets of SSE Holdings were restricted.

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

Refer to Note 8, Debt, for additional information relating to the covenants and restrictions set forth in the Revolving Credit Facility.

Gramercy Tavern Corp.

Pursuant to a Stockholders Agreement, dated as of February 4, 2015, as amended, by and among Daniel H.

Pursuant to a Stockholders Agreement, dated February 4, 2015, as amended, by and among Daniel H.

Meyer, the Daniel H.

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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

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

Shake Shack Inc.

Form 10-K | 106

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.

Changes in our ownership interest in SSE Holdings while we retain a 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 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 29, 2021 and December 30, 2020:

7 unchanged sentences

The non-controlling interest holders' weighted average ownership percentage for fiscal 2021 and fiscal 2020 was 7.0 % and 7.7 %, respectively.

During fiscal 2021, an aggregate of 29,601 LLC Interests were redeemed by the non-controlling interest holders for newly-issued shares of Class A common stock, and we received 29,601 LLC Interests, increasing our total ownership interest in SSE Holdings to 93.1 %.

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 %.

The following table summarizes the effects of changes in ownership in SSE Holdings on our equity during fiscal 2021, fiscal 2020 and fiscal 2019.

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Other comprehensive income (loss):

Unrealized holding gains on equity securities — — 10

Unrealized gain on foreign currency translation adjustment 1 2 —

Unrealized gain (loss) on foreign currency translation adjustment ( 2 ) 1 2

Transfers (to) from non-controlling interests:

5 unchanged sentences

$ ( 6,795 ) $ 101,193 $ 55,498

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 395,006 and 456,942 LLC Interests in connection with the activity under our stock compensation plans during fiscal 2021 and fiscal 2020, respectively.

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Total income tax benefit recognized related to equity-based compensation $ 223 $ 204 $ 188

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:

Equity-based compensation expense is recorded in General and administrative expenses and Labor and related expenses on the Consolidated Statements of Income (Loss) during fiscal 2021, fiscal 2020 and fiscal 2019 as follows:

2021 2020 2019

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Stock Options

In January 2015, we adopted the 2015 Incentive Award Plan (the "2015 Plan") under which we may grant up to 5,865,522 stock options and other equity-based awards to employees, directors and officers.

In January 2015, we adopted the 2015 Incentive Award Plan (the "2015 Plan") under which we may grant up to 5,865,522 stock options and other equity-based awards to team members, directors and officers.

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

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Form 10-K | 108

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

A summary of stock option activity for fiscal year 2021 is as follows:

Aggregate Intrinsic Value Weighted Average Remaining Contractual Life (Years)

6 unchanged sentences

Options expected to vest as of December 29, 2021 — $ — $ — —

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.

As of December 29, 2021, total unrecognized compensation expense related to unvested stock options was nil.

Cash received from stock options exercised was $ 6,731 and the cash tax benefit realized for the tax deductions from these option exercises was $ 365 for fiscal 2021.

The weighted average grant date fair value of options granted during fiscal 2021, fiscal 2020 and fiscal 2019 was $ 58.92 , $ 16.21 , $ 26.42 , respectively.

The total intrinsic value of stock options exercised during fiscal 2021, fiscal 2020 and fiscal 2019 was $ 30,533 , $ 25,824 and $ 16,905 , 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 2021, fiscal 2020 and fiscal 2019 was $ 60 , $ 2,674 and $ 2,950 , respectively.

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 29, 2021:

5 unchanged sentences

$ 36.41 1,108 4.9 $ 36.41 1,108 4.9 $ 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 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

For performance stock units granted during fiscal 2021, the amount of awards that can be earned ranges from 0 % to 200 % of the number of performance stock units granted, based on the achievement of approved financial goals over a one -year or three -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 or cliff vest over three 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 either a graded-vesting attribution method or straight-line over the vesting period based on the most probable outcome of the performance conditions.

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Form 10-K | 109

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

A summary of performance stock unit activity for fiscal year 2021, is as follows:

Grant Date Fair Value

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Performance achievement (1)

( 74,137 ) 57.20

Vested ( 29,892 ) 55.24

7 unchanged sentences

Restricted Stock Units

Under the 2015 Plan, we may grant restricted stock units to employees, directors and officers.

Under the 2015 Plan, we may grant restricted stock units to team members, directors and officers.

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

1 unchanged sentence

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

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

A summary of restricted stock unit activity for fiscal year 2021 is as follows:

Grant Date Fair Value

8 unchanged sentences

As of December 29, 2021, total unrecognized compensation expense related to unvested restricted stock units was $ 14,984 , which is expected to be recognized over a weighted average period of 2.9 years.

Shake Shack Inc.

Form 10-K | 109

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

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federal and certain state and local income taxes.

Any taxable income or loss generated by SSE Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis.

Any taxable income or loss generated by

Shake Shack Inc.

Form 10-K | 110

SSE Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis.

We are subject to U.S.

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Income (loss) before income taxes $ ( 17,335 ) $ ( 45,477 ) $ 27,514

The components of income tax expense are as follows:

The components of Income tax expense (benefit) are as follows:

2021 2020 2019

8 unchanged sentences

Total deferred income taxes ( 10,379 ) ( 1,356 ) ( 6,064 )

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

Shake Shack Inc.

Form 10-K | 110

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

federal statutory income tax rate to the recognized income tax expense and the U.S.

Income tax expense (benefit) $ ( 7,224 ) $ 57 $ 3,386

Reconciliations of Income tax expense (benefit) computed at the U.S.

federal statutory income tax rate to the recognized Income tax expense (benefit) and the U.S.

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

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Other 28 ( 0.2 ) % 435 ( 1.0 ) % 374 1.4 %

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

Income tax expense (benefit) $ ( 7,224 ) 41.7 % $ 57 ( 0.1 ) % $ 3,386 12.3 %

Our effective income tax rates for fiscal 2021 , fiscal 2020 and fiscal 2019 were 41.7 %, ( 0.1 )% and 12.3 %, 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.

The increase in our effective income tax rate from fiscal 2020 to fiscal 2021 was primarily driven by the increase in the income tax benefit from the release of the valuation allowance and higher tax credits, partially offset by higher foreign tax expense.

Shake Shack Inc.

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If not utilized $ 41,271 of our state net operating loss carryforwards can be carried forward indefinitely, and the remainder will begin to expire in 2023.

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 of December 29, 2021, we had federal tax credit carryforwards of $ 12,689 which will begin to expire in 2025 and gross state tax credits of $ 770 which will begin to expire in 2022.

As described in Note 11, Stockholders' Equity, we acquired an aggregate of 424,607 LLC Interests during fiscal 2021 through redemptions of LLC Interests and activity under stock-based compensation plans.

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During fiscal 2021, the total valuation allowance established against this deferred tax asset to which it relates was $ 361 .

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.

During fiscal 2021, we also recognized other income of $2, 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.

Refer to "Tax Receivable Agreement", herein for additional 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.

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The net change in valuation allowance for fiscal 2021 was an increase of $ 2,517 .

See "Schedule II " for details.

Uncertain Tax Positions

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We recognized an additional liability in the amount of $ 1,093 for the TRA Payments due to the redeeming members, representing 85 % of the aggregate tax benefits we expect to realize from the tax basis increases related to the redemption of LLC Interests, after concluding it was probable that such TRA Payments would be paid based on our estimates of future taxable income.

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

During fiscal 2021, inclusive of interest, no payments were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement.

Payments of $ 6,643 were made to members of SSE Holdings pursuant to the Tax Receivable Agreement during fiscal 2020.

As of December 29, 2021, the total amount of TRA Payments due under the Tax Receivable Agreement was $ 234,045 , 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.

Refer to Note 17, Commitments and Contingencies, for additional information relating to our liabilities under the Tax Receivable Agreement.

On March 27, 2020, the U.S.

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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.

The CARES Act allows for a five-year carryback of federal NOLs generated in 2018 through 2020 and eliminates the 80% taxable income limitation by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018 through 2020.

Shake Shack Inc.

Form 10-K | 113

Subsequent to the second quarter of 2020, we began deferring the employer-paid portion of social security taxes;

50% of this was recognized at the end of 2021 required by the CARES Act.

EARNINGS (LOSS) PER SHARE

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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.

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 (in thousands, except per share amounts) for fiscal 2021, fiscal 2020 and fiscal 2019.

2021 2020 2019

Net income (loss) attributable to Shake Shack Inc.—basic $ ( 8,655 ) $ ( 42,158 ) $ 19,827

Net income (loss) attributable to Shake Shack Inc.—diluted $ ( 8,655 ) $ ( 42,158 ) $ 19,827

Weighted average shares of Class A common stock outstanding—basic 39,085 37,129 31,381

6 unchanged sentences

Earnings (loss) per share of Class A common stock—diluted $ ( 0.22 ) $ ( 1.14 ) $ 0.61

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

Shares of 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 (loss) per share of Class B common stock under the two-class method has not been presented.

However, shares of Class B common stock outstanding for the period are considered potentially dilutive shares of Class A common stock under application of the if-converted method and are included in the computation of diluted earnings (loss) per share, except when the effect would be anti-dilutive.

The effect of potential share settlement of the Convertible Notes outstanding for the period is included as potentially dilutive shares of Class A common stock under application of the if-converted method in the computation of diluted earnings (loss) per share, except when the effect would be anti-dilutive.

Refer to Note 8, Debt, for additional information.

Shake Shack Inc.

Form 10-K | 114

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 2021, fiscal 2020 and fiscal 2019.

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Shares of Class B common stock 2,921,587 (1) 2,951,188 (1) 3,145,197 (1)

(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.

Form 10-K | 114

Convertible notes 1,466,975 (1) — —

(1) Number of securities 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 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 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.

SUPPLEMENTAL CASH FLOW INFORMATION

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Accrued purchases of property and equipment 22,241 15,515 12,620

Capitalized landlord assets for leases where we are deemed the accounting owner — — 5,443

Capitalized equity-based compensation 66 37 101

Non-cash financing activities:

Establishment of liabilities under tax receivable agreement 1,093 4,024 32,065

Class A common stock issued in connection with the redemption of LLC Interests — — 2

2 unchanged sentences

Cancellation of Class B common stock in connection with the GTC Merger — — ( 3 )

Establishment of liabilities under tax receivable agreement 4,024 32,065 44,338

COMMITMENTS AND CONTINGENCIES

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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 costs and other occupancy costs.

See Note 10, Leases.

Refer to Note 9, Leases, for additional information.

Shake Shack Inc.

Form 10-K | 115

As security under the terms of one of our leases, we are obligated under a letter of credit totaling $ 130 as of December 29, 2021, which expires in February 2026.

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We also enter into long-term, exclusive contracts with certain vendors to supply us with food, beverages and paper goods, obligating us to purchase specified quantities.

Shake Shack Inc.

Form 10-K | 115

Legal Contingencies

We are involved with ongoing regulatory and private matters involving New York City's predictive scheduling laws.

We intend to defend against these claims and it is not possible at this time to reasonably estimate the outcome of or any potential liability from these matters.

No amounts have been accrued as of December 29, 2021 and December 30, 2020.

In March 2020, a claim was filed against Shake Shack alleging certain violations of the Fair Labor Standards Act.

At a mediation between the parties, we agreed to settle the matter with the plaintiff and other team members who elect to participate in the settlement for $ 560 .

We initially accrued for this matter during the thirteen weeks ended March 31, 2021 with an additional accrual established during fiscal 2021, and paid in full as of December 29, 2021.

In February 2018, a claim was filed against Shake Shack in California state court alleging certain violations of the California Labor Code.

At a mediation between the parties, we agreed to settle the matter with the plaintiff and all other California employees who elected to participate in the settlement for $ 1,200 .

As of December 30, 2020, an accrual in the amount of $ 1,180 was recorded for this matter and related expenses.

At a mediation between the parties, we agreed to settle the matter with the plaintiff and all other California team members who elected to participate in the settlement for $ 1,200 .

We accrued for this matter during the fiscal 2018, and paid in full as of December 29, 2021.

We are subject to various legal proceedings, claims and liabilities, such as employment-related claims and slip and fall cases, which arise in the ordinary course of business and are generally covered by insurance.

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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, set forth below, are considered related parties.

Shake Shack Inc.

Form 10-K | 116

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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2021 December 30

Amounts due from HYC Accounts receivable $ 8 $ 47

Shake Shack Inc.

Form 10-K | 116

Amounts due from HYC Accounts receivable, net $ 90 $ 8

Madison Square Park Conservancy

The Chairman of our Board of Directors serves as a director of the Madison Square Park Conservancy ("MSP Conservancy"), with which we have a license agreement and pay license fees to operate our Madison Square Park Shack.

No amounts were due to MSP Conservancy as of both December 29, 2021 and December 30, 2020.

Classification 2021 2020 2019

Amounts paid to MSP Conservancy Occupancy and related expenses $ 863 $ 846 $ 964

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 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 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 $ — $ 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 2021 2020 2019

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.

Amounts paid to Olo, Inc.

Other operating expenses $ 406 $ 242 $ 170

Classification December 29

2021 December 30

Amounts due to Olo, Inc.

Accounts payable $ 33 $ —

Our Chief Executive Officer is a member of the board of directors of Block, Inc.

(formerly known as "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.

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

Classification 2021 2020 2019

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

Amounts paid to Block, Inc.

Other operating expenses $ 2,844 $ 1,697 $ 1,692

Shake Shack Inc.

Form 10-K | 117

Classification December 29

2021 December 30

Amounts due to Block, Inc.

Accounts payable $ 52 $ —

USHG Acquisition Corp.

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No amounts were due to or due from USHG Acquisition Corp as of both December 29, 2021 and December 30, 2020.

Shake Shack Inc.

Form 10-K | 117

No amounts were paid to USHG Acquisition Corp during fiscal 2021, fiscal 2020 and fiscal 2019.

Tax Receivable Agreement

11 unchanged sentences

Amounts paid to non-controlling interest holders Non-controlling interests $ 968 $ 478 $ 1,708

Share Our Strength

The Chairman of our Board of Directors served as a director of Share Our Strength in fiscal 2019, for which Shake Shack held the "Great American Shake Sale" to raise money and awareness for childhood hunger.

During the Great American Shake Sale, we encouraged 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 collected went directly to Share Our Strength.

No amounts were due to Share Our Strength as of both December 29, 2021 and December 30, 2020.

Classification 2021 2020 2019

Amounts raised through donations — $ — $ — $ 190

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

Shake Shack Inc.

Form 10-K | 118

Gramercy Tavern Corp.

9 unchanged sentences

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

See Note 12 for more information.

Refer to Note 11, Stockholders' Equity, for additional information.

GEOGRAPHIC INFORMATION

8 unchanged sentences

Form 10-K | 119

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

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 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

Operating income 5,162 11,871 8,164 488

Net income (loss) 3,607 11,171 11,423 ( 2,073 )

Net income (loss) attributable to Shake Shack Inc.

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

Earnings (loss) per share (1) :

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.

Form 10-K | 119

Condensed Financial Information of Registrant

6 unchanged sentences

Cash $ 7,821 $ 9,469

Accounts receivable — 1

Prepaid expenses 64 45

2 unchanged sentences

Deferred income taxes, net 304,442 285,577

Investment in subsidiaries 356,497 247,372

Investment in SSE Holdings 350,794 356,497

Note receivable from SSE Holdings 201,080 —

Note receivable - conversion option 16,000 —

TOTAL ASSETS $ 882,236 $ 653,691

4 unchanged sentences

Due to SSE Holdings 14,109 13,288

Current portion of liabilities under tax receivable agreement — 7,777

Total current liabilities 14,340 13,416

Long-term debt 243,542 —

Liabilities under tax receivable agreement, net of current portion 234,045 232,954

3 unchanged sentences

Preferred stock, no par value—10,000,000 shares authorized;

none issued and outstanding as of December 30, 2020 and December 25, 2019, respectively.

none issued and outstanding as of December 29, 2021 and December 30, 2020.

Class A common stock, $0.001 par value—200,000,000 shares authorized;

3 unchanged sentences

Additional paid-in capital 405,940 395,067

Retained earnings 12,209 54,367

Accumulated other comprehensive loss 3 —

Retained earnings (accumulated deficit) ( 15,674 ) 12,209

Accumulated other comprehensive income 1 3

Total stockholders' equity 390,309 407,321

15 unchanged sentences

TOTAL EXPENSES 2,491 2,179 1,683

OPERATING INCOME (LOSS) ( 619 ) 335 122

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

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

INCOME (LOSS) FROM OPERATIONS 387 ( 619 ) 335

Equity in net income (loss) from SSE Holdings ( 19,393 ) ( 41,152 ) 19,831

Other income (expense), net ( 25,593 ) ( 1,147 ) 808

Interest expense ( 867 ) — ( 150 )

16 unchanged sentences

Change in foreign currency translation adjustment ( 2 ) 1 —

Equity securities:

Change in net unrealized holding losses

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

OTHER COMPREHENSIVE INCOME 1 — 10

Change in net unrealized holding gains — — —

Net change ( 2 ) 1 —

OTHER COMPREHENSIVE INCOME (LOSS) ( 2 ) 1 —

COMPREHENSIVE INCOME (LOSS) $ ( 27,885 ) $ ( 42,157 ) $ 19,827

13 unchanged sentences

Net income (loss) $ ( 27,883 ) $ ( 42,158 ) $ 19,827

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

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

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Equity in net (income) loss from SSE Holdings 19,393 41,152 ( 19,831 )

Amortization of debt issuance costs 867 — —

Equity-based compensation 526 555 279

1 unchanged sentence

Non-cash interest expense — — 151

Other non-cash income 1,147 ( 808 ) ( 78 )

Unrealized loss on Note receivable - conversion option 32,200 — —

Other non-cash (income) expense ( 6,609 ) 1,147 ( 808 )

Changes in operating assets and liabilities:

1 unchanged sentence

Prepaid expenses and other current assets ( 19 ) 161 ( 71 )

Due to/from SSE Holdings ( 1,254 ) ( 5,190 ) ( 7,103 )

Due to SSE Holdings ( 8,229 ) ( 1,254 ) ( 5,190 )

Accounts payable 6 2 1

Accrued expenses 118 ( 29 ) 6,003

Other current liabilities — — 14

NET CASH USED IN OPERATING ACTIVITIES ( 7,213 ) ( 1,144 ) ( 4,957 )

1 unchanged sentence

Purchases of LLC Interests from SSE Holdings ( 41,875 ) ( 171,180 ) ( 29,481 )

Return of investment in SSE Holdings — — 2,053

Loan to SSE Holdings ( 243,750 ) — —

NET CASH USED IN INVESTING ACTIVITIES ( 285,625 ) ( 171,180 ) ( 29,481 )

FINANCING ACTIVITIES

Proceeds from issuance of convertible notes, net of discount 243,750 — —

Debt issuance costs ( 1,075 ) — —

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

1 unchanged sentence

Proceeds from stock option exercises 6,640 8,033 9,201

8,033 9,201 5,472

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

NET CASH PROVIDED BY FINANCING ACTIVITIES 291,190 172,570 37,975

INCREASE IN CASH 246 3,537 698

INCREASE (DECREASE) IN CASH ( 1,648 ) 246 3,537

CASH AT BEGINNING OF PERIOD 9,469 9,223 5,686

13 unchanged sentences

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.

Refer to Note 8, Debt, in the accompanying Consolidated Financial Statements, for additional information.

BASIS OF PRESENTATION

4 unchanged sentences

Intercompany revenue consists of these reimbursement payments and is recognized when the corresponding expense to which it relates is recognized.

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

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.

Related party amounts that were not eliminated in the consolidated financial statements include the Parent Company's liabilities under the tax receivable agreement, which totaled $ 232,954 and $ 234,426 as of December 30, 2020 and December 25, 2019, respectively.

Certain intercompany balances presented in these Condensed Parent Company financial statements are eliminated in the Company's Consolidated Financial Statements.

The following table presents amounts in the Parent Company's Condensed Balance Sheets that were eliminated in consolidation as of December 29, 2021 and December 30, 2020:

2021 December 30

Due from SSE Holdings $ 2,035 $ 2,103

Deferred income taxes, net 7,234 —

Note receivable from SSE Holdings 201,080 —

Note receivable - conversion option 16,000 —

Due to SSE Holdings 14,109 13,288

Related party amounts that were not eliminated in the Company's Consolidated Financial Statements include the Parent Company's liabilities under the tax receivable agreement, which totaled $ 234,045 and $ 232,954 as of December 29, 2021 and December 30, 2020, respectively.

Shake Shack Inc.

Form 10-K | 124

The following table presents amounts in the Parent Company's Condensed Statements of Income (Loss) that were eliminated in consolidation during fiscal 2021, fiscal 2020 and fiscal 2019:

2021 2020 2019

Intercompany revenue $ 2,878 $ 1,560 $ 2,018

Equity in net income (loss) from SSE Holdings ( 19,393 ) ( 41,152 ) 19,831

Other income (expense), net ( 25,595 ) — —

Income tax expense (benefit) ( 7,234 ) — —

NOTE RECEIVABLE FROM SSE HOLDINGS

In March 2021, contemporaneously with the issuance of the Convertible Notes described in Note 4, Debt, below, the Parent Company entered into a $ 250,000 intercompany note with SSE Holdings (the "Intercompany Note").

SSE Holdings promises to pay the Parent Company, for value received, the principal amount with interest of the Intercompany Note in March 2028.

The Parent Company will exercise its right to convert the Intercompany Note to maintain at all times a one-to-one ratio between the number of common units, directly or indirectly, held by the Parent Company and the aggregate number of outstanding shares of Class A common stock.

The Parent Company's right to convert the Intercompany Note into common units of SSE Holdings (the "Conversion Option") is required to be bifurcated from the Intercompany Note and shown separately on the Parent Company's Condensed Balance Sheets.

The Conversion Option is to be recorded at fair value and remeasured at each subsequent reporting date.

On the date of issuance, the Conversion Option was determined to be an asset with a fair value of $ 48,200 .

As of December 29, 2021, the fair value of the Conversion Option was $ 16,000 .

The Parent Company recorded an unrealized loss of $ 32,200 in fiscal 2021 within Other income (expense), net due to the change in fair value of the Conversion Option during the year.

As of December 29, 2021, the balance of the Note receivable from SSE Holdings was $ 201,080 , net of accretion.

The Parent Company recognized interest income of $ 6,605 in fiscal 2021 within Other income (expense), net associated primarily with the accretion of the Conversion Option value at issuance.

In March 2021, the Parent Company issued $ 225,000 aggregate principal amount of 0% Convertible Senior Notes due 2028 (“Convertible Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933.

The Parent Company granted an option to the initial purchasers to purchase up to an additional $ 25,000 aggregate principal amount of Convertible Notes to cover over-allotments, which was subsequently fully exercised during March 2021, resulting in a total issuance of $ 250,000 aggregate principal amount of Convertible Notes.

The Convertible Notes will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in certain circumstances.

Upon conversion, the Company pays or delivers, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company's election.

Refer to Note 8, Debt, in the accompanying Consolidated Financial Statements, for additional information relating to the Convertible Notes.

COMMITMENTS AND CONTINGENCIES

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.

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.

Refer to Note 14, Income Taxes, to the Company's Consolidated Financial Statements for additional information relating to the Parent Company's Tax Receivable Agreement.

As described in Note 17, Commitments and Contingencies, to the Company's 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 29, 2021 and December 30, 2020, liabilities under the tax receivable agreement totaled $ 234,045 and $ 232,954 , respectively.

Shake Shack Inc.

Form 10-K | 125

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

26 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