What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-18 · 362 added, 471 removed, 1037 unchanged (45% of the section changed)

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Consolidated Balance Sheets

Consolidated Statements of Income (Loss)

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Loss

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Stockholders' Equity

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

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

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

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

We also tested management's 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 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.

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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.

As of December 28, 2022, the Company’s right-of-use assets and lease liabilities are $367 million and $469 million, respectively.

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

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.

Such controls include management’s review of the completeness of the population of leases and 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 for each location.

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 tested automated system controls over the computation and recording of right-of-use assets, lease liabilities, amortization, and interest.

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.

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Additional paid-in capital 415,611 405,940

Retained earnings 3,554 12,209

Retained earnings (accumulated deficit) ( 20,537 ) 3,554

Accumulated other comprehensive income — 1

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SHAKE SHACK INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

CONSOLIDATED STATEMENTS OF LOSS

(in thousands, except per share amounts)

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TOTAL EXPENSES 927,380 755,746 566,743

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

LOSS FROM OPERATIONS ( 26,894 ) ( 15,853 ) ( 43,876 )

Other income (expense), net 4,127 95 ( 786 )

Interest expense ( 1,518 ) ( 1,577 ) ( 815 )

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

LOSS BEFORE INCOME TAXES ( 24,285 ) ( 17,335 ) ( 45,477 )

Income tax expense (benefit) 1,682 ( 7,224 ) 57

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

Net income (loss) attributable to non-controlling interests ( 1,456 ) ( 3,376 ) 4,301

NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.

NET LOSS ( 25,967 ) ( 10,111 ) ( 45,534 )

Net loss attributable to non-controlling interests ( 1,876 ) ( 1,456 ) ( 3,376 )

NET LOSS ATTRIBUTABLE TO SHAKE SHACK INC.

$ ( 24,091 ) $ ( 8,655 ) $ ( 42,158 )

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

Loss per share of Class A common stock:

Basic $ ( 0.61 ) $ ( 0.22 ) $ ( 1.14 )

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SHAKE SHACK INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

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2021 December 30

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

Net loss $ ( 25,967 ) $ ( 10,111 ) $ ( 45,534 )

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

Change in foreign currency translation adjustment ( 1 ) ( 2 ) 1

Net change ( 2 ) 1 2

OTHER COMPREHENSIVE INCOME (LOSS) ( 1 ) ( 2 ) 1

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

Comprehensive income (loss) attributable to non-controlling interests ( 1,456 ) ( 3,376 ) 4,301

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.

COMPREHENSIVE LOSS ( 25,968 ) ( 10,113 ) ( 45,533 )

Comprehensive loss attributable to non-controlling interests ( 1,876 ) ( 1,456 ) ( 3,376 )

COMPREHENSIVE LOSS ATTRIBUTABLE TO SHAKE SHACK INC.

$ ( 24,092 ) $ ( 8,657 ) $ ( 42,157 )

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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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OPERATING ACTIVITIES

Net income (loss) (including amounts attributable to non-controlling interests) $ ( 10,111 ) $ ( 45,534 ) $ 24,128

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

Net loss (including amounts attributable to non-controlling interests) $ ( 25,967 ) $ ( 10,111 ) $ ( 45,534 )

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

Depreciation and amortization expense 72,796 58,991 48,801

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( 1 ) ( 4 ) 1,937

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

Unrealized loss on equity securities 158 277 59

Changes in operating assets and liabilities:

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8,541 ( 1,166 ) 1,752

Long-term operating lease liabilities

( 43,417 ) ( 33,724 ) ( 37,308 )

Operating lease liabilities ( 61,364 ) ( 43,417 ) ( 33,724 )

Other long-term liabilities

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Employee withholding taxes related to net settled equity awards ( 2,242 ) ( 3,554 ) ( 1,818 )

NET CASH PROVIDED BY FINANCING ACTIVITIES 242,021 141,821 3,178

INCREASE IN CASH AND CASH EQUIVALENTS 155,533 109,774 12,349

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ( 5,202 ) 242,021 141,821

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ( 71,885 ) 155,533 109,774

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

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

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

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

As of December 29, 2021 we owned 93.1 % of SSE Holdings.

Shake Shack Inc.

is the sole managing member of SSE Holdings and, as sole managing member, the Company operates and controls all of the business and affairs of SSE Holdings.

As a result, the Company consolidates the financial results of SSE Holdings and reports a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings.

As of December 28, 2022 the Company owned 93.2 % of SSE Holdings.

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

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

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

The Company operates and licenses Shake Shack restaurants ("Shacks"), which serve burgers, chicken, hot dogs, crinkle cut fries, shakes, frozen custard, beer, wine and more.

As of December 28, 2022, there were 436 Shacks in operation, system-wide, of which 254 were domestic Company-operated Shacks, 33 were domestic licensed Shacks and 149 were international licensed Shacks.

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

SSE Holdings is a variable interest entity.

SSE Holdings is considered a variable interest entity.

Shake Shack Inc.

is the primary beneficiary as we have the majority economic interest in SSE Holdings and, as the sole managing member, have decision making authority that significantly affects the economic performance of the entity, while the limited partners have no substantive kick-out or participating rights.

As a result, we will continue to consolidate SSE Holdings.

The assets and liabilities of SSE Holdings represent substantially all of our consolidated assets and liabilities with the exception of certain deferred taxes and liabilities under the Tax Receivable Agreement.

is the primary beneficiary as the Company has the majority economic interest in SSE Holdings and, as the sole managing member, has decision making authority that significantly affects the economic performance of the entity, while the limited partners have no substantive kick-out or participating rights.

As a result, the Company consolidates SSE Holdings.

The assets and liabilities of SSE Holdings represent substantially all of the Company's consolidated assets and liabilities with the exception of certain deferred taxes and liabilities under the Tax Receivable Agreement.

As of December 28, 2022 and December 29, 2021, the net assets of SSE Holdings were $ 362,571 and $ 376,857 , respectively.

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.

Refer to Note 8, Debt, and Note 14, Income Taxes, for additional information.

The Company operates on a 52/53 week fiscal year ending on the last Wednesday of December.

Fiscal year 2022 contained 52 weeks and ended on December 28, 2022 ("fiscal 2022").

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Segment Reporting

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.

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

The Company determined it has 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

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

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

Assets and liabilities are categorized based on the priority of the inputs to the valuation technique into a three-level fair value hierarchy as set forth below.

▪ 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

▪ Level 3 — Inputs that are both unobservable and significant to the overall fair value measurements reflecting an entity's estimates of assumptions that market participants would use in pricing the asset or liability.

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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).

Dividend and interest income are recognized when earned and are recorded in Other income (expense), net on the Consolidated Statements of Loss.

Accounts Receivable, Net

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.

The collectability of accounts receivable is evaluated 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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Property and equipment, net is stated at historical cost less accumulated depreciation.

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

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

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

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Form 10-K | 89

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).

assets are capitalized.

When assets are disposed, the resulting gain or loss is recognized in Impairment and loss on disposal of assets on the Consolidated Statements of 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 value of an asset may not be recoverable.

The Company assesses potential impairments to our long-lived assets, which include property and equipment and operating lease right-of-use assets, whenever events or circumstances indicate that the carrying value of an asset may not be recoverable.

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.

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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 28, 2022 and December 29, 2021, capitalized implementation costs from cloud computing arrangements totaled $ 6,212 and $ 6,431 , respectively, net of accumulated amortization.

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As of December 28, 2022 and December 29, 2021, indefinite-lived intangible assets relating to transferable liquor licenses totaled $ 1,837 and $ 1,461 , 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.

Indefinite-lived intangible assets are evaluated for impairment annually during the fourth quarter, and whenever events or circumstances indicate that an impairment may exist.

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

If determined that it is more likely than not that the carrying value of the intangible asset group exceeds its fair value, the Company performs 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.

In addition, the Company continuously monitors and may revise the useful lives of intangible assets when facts and circumstances change.

Revenue Recognition

Revenue consists of Shack sales and Licensing revenue.

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

Revenue primarily consists of Shack sales and Licensing revenue.

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

Revenue from gift cards is deferred and recognized over time as redemptions occur.

Shake Shack Inc.

Form 10-K | 90

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.

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

Delivery services are fulfilled by third-party delivery partners whether ordered through the Shack app and website ("Company-owned platforms") or though third-party delivery partners.

Revenue from orders through Company-owned platforms includes delivery fees and is recognized when the delivery partner transfers the order to the guest as the Company controls the delivery.

For these sales, the Company receives payment directly from the guest at the time of sale.

Revenue from orders through third-party delivery partners is recognized when the order is transferred to the third-party delivery partner and excludes delivery fees collected by the delivery partner as the Company does not control the delivery.

The Company receives payment from the delivery partner subsequent to the transfer of order and the payment terms are short-term in nature.

For all delivery sales, the Company is considered the principal and recognizes the revenue on a gross basis.

During fiscal 2022, the Company concluded it has accumulated a sufficient level of historical data from a large pool of homogeneous transactions to allow it to reasonably and objectively determine an estimated gift card breakage rate and the pattern of actual gift card redemptions.

Accordingly, the Company recognizes breakage income and reduces the related gift card liability for unredeemed gift cards in proportion to actual redemptions of gift cards.

The Company will continue to review historical gift card redemption information at each reporting period to assess the continued appropriateness of the gift card breakage rate and pattern of redemption.

In accordance with ASC 250, Accounting Changes and Error Corrections, the Company concluded that this accounting change represented a change in accounting estimate.

As a result, a cumulative catch-up adjustment was recorded during fiscal 2022 that resulted in $ 1,281 of gift card breakage income.

Inclusive of this cumulative catch-up, $ 1,472 of gift card breakage income was recognized during fiscal 2022.

Gift card breakage income is included in Shack sales in the Consolidated Statements of Loss.

Licensing revenue includes 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 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 license and considered one performance obligation per Shack.

The Company determines the transaction price for each contract, which is comprised of the initial territory fee and an estimate of the total Shack opening fees the Company expects to be entitled to.

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

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

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

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

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

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

The performance obligation is satisfied over time, starting when a Shack opens through the end of the license term for the related Shack therefore revenue is recognized on a straight-line basis over the license term.

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

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

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

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

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

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

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

Forfeitures are recognized as they occur for all equity awards.

Equity-based compensation expense is included 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).

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.

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

All of our real estate leases are classified as operating leases and most of our equipment leases are classified as finance leases.

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

Renewal options are typically not included in the lease term as it is not reasonably certain at commencement date that we would exercise the options to extend the lease.

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

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

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 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).

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

Most advertising costs are expensed as incurred, with the exception of advertising production costs, which are expensed at the time the advertising first takes place.

Advertising costs amounted to $ 12,376 , $ 5,677 and $ 1,449 in fiscal 2022, fiscal 2021 and fiscal 2020, respectively, and are included in General and administrative expense and Other operating expenses on the Consolidated Statements of Loss.

Shake Shack Inc.

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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.

Shake Shack currently leases all of its domestic Company-operated Shacks, the home office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2044.

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

The Company evaluates whether it controls the use of the asset, which is determined by assessing whether substantially all economic benefits from the use of the asset is obtained, and whether the Company has the right to direct the use of the asset.

If these criteria are met and the Company has identified a lease, a right of use asset and lease liability are recorded on the Consolidated Balance Sheets.

Upon possession of a leased asset, the Company determines whether the lease is an operating or finance lease.

All of the Company's real estate leases are classified as operating leases and most equipment leases are classified as finance leases.

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

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

Real estate leases typically contain fixed minimum rent payments and/or contingent rent payments which are based upon sales in excess of specified thresholds.

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

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

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

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

Many of the leases also require the Company 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 Loss.

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 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 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.

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

The Company calculates 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.

The Company uses its incremental borrowing rate (“IBR”) in determining the present value of future lease payments as there are no explicit rates provided in the leases.

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 the Company's 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.

The Company expends cash for leasehold improvements to build out and equip leased properties.

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

Landlord incentives usually take the form of cash, full or partial credits against future minimum or contingent rents otherwise payable by the Company, or a combination thereof.

In most cases, landlord incentives are received after the Company takes possession of the property and as milestones are met during the construction of the property.

The Company includes 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 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 operations.

Pre-opening costs are expensed as incurred and consist primarily of occupancy, manager and team member wages, cookware, travel and lodging costs for the opening training team and other supporting team members, marketing expenses, legal fees, and inventory costs incurred prior to the opening of a Shack.

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Income taxes are accounted for 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 on the Consolidated Statements of Loss 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.

Recently Adopted Accounting Pronouncements

We adopted the Accounting Standards Update ("ASU") summarized below in fiscal 2021 .

Accounting Standards Updates ("ASU") adopted in fiscal 2022 are summarized below.

ASU Description 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” (“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

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

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

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

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.

Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 This amendment updates the sunset date of the reference rate relief guidance during the transition period for the discontinuation of the UK Financial Conduct Authority (FCA) publishing of the LIBOR rate which originally was announced to be December 31, 2021 but was deferred to June 30, 2023.

Topic 848 now has a new sunset date of December 31, 2024.

December 21, 2022

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

The Company reviewed all recently issued accounting pronouncements and concluded that they were not applicable or not expected to have a significant impact on the Consolidated Financial Statements.

Shake Shack Inc.

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Revenue Recognition

Revenue recognized during fiscal 2021, fiscal 2020 and fiscal 2019 disaggregated by type is as follows:

Revenue disaggregated by type was as follows:

2022 2021 2020

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Total revenue $ 900,486 $ 739,893 $ 522,867

The aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of December 29, 2021 is $ 17,633 .

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

The aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of December 28, 2022 was $ 20,721 .

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

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

Contract Balances

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

Contract liabilities and receivables from contracts with customers were as follows:

2022 December 29

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Deferred revenue, long-term 14,340 12,669

Revenue recognized during fiscal 2021 and fiscal 2020 that was included in their respective liability balances at the beginning of the period is as follows:

Revenue recognized during fiscal 2022 and fiscal 2021 included in the respective liability balances at the beginning of the period were as follows:

Gift card liability (1)

$ 1,781 $ 456

Deferred revenue 954 716

(1) For fiscal 2022, amount includes the cumulative catch-up adjustment that resulted in $ 1,281 of gift card breakage income.

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

FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

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

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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:

As of December 28, 2022 and December 29, 2021, 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.

Assets measured at fair value on a recurring basis were as follows:

Fair Value Measurements

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Refer to Note 8, 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:

A summary of other income (expense) from equity securities was as follows:

2022 2021 2020

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

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

Unrealized loss on equity securities ( 158 ) ( 277 ) ( 59 )

Total $ 875 $ 19 $ 379

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.

Assets and liabilities measured at fair value on a non-recurring basis include long-lived assets, operating lease right-of-use assets and indefinite-lived intangible assets.The Company performs its impairment analysis at least annually or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

During fourth quarter of fiscal 2022, the Company recognized an impairment charge of $ 99 related to one Shack.

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

During fiscal 2020, the Company recognized an impairment charge of $ 7,644 related to two Shacks and the home office which was primarily attributed to operating lease right-of-use assets.

These impairment charges were included in Impairment and loss on disposal of assets on the Consolidated Statement of 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 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:

The components of Accounts receivable, net were as follows:

2022 December 29

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Other receivables 1,657 3,008

Allowance for doubtful accounts — ( 28 )

Accounts receivable, net $ 13,877 $ 13,657

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PROPERTY AND EQUIPMENT, NET

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

The components of Property and equipment, net were as follows:

2022 December 29

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SUPPLEMENTAL BALANCE SHEET INFORMATION

The components of Other current liabilities as of December 29, 2021 and December 30, 2020 are as follows:

The components of Other current liabilities were as follows:

2022 December 29

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Current portion of financing equipment lease liabilities 2,546 2,711

Legal Reserve 6,285 533

Other 3,073 3,385

Other current liabilities $ 19,552 $ 14,501

The components of Other long-term liabilities as of December 29, 2021 and December 30, 2020 are as follows:

The components of Other long-term liabilities were as follows:

2022 December 29

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Long-term portion of financing equipment lease liabilities 3,909 4,303

Other 2,438 5,801

Other long-term liabilities $ 20,687 $ 22,773

(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.

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

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Revolving Credit Facility

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 .

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.

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 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.

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

make investments;

engage in mergers, consolidations, liquidations or acquisitions;

dispose of assets;

make distributions on or repurchase equity securities;

pay dividends;

engage in transactions with affiliates;

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.

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The components of Long-term debt were as follows:

2022 December 29

2021 Convertible Notes $ 250,000 $ 250,000

Discount and debt issuance costs, net of amortization ( 5,411 ) ( 6,458 )

Total Long-term debt $ 244,589 $ 243,542

Convertible Notes

In March 2021, the Company issued $ 250,000 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.

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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 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.

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

Shake Shack Inc.

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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.

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and the aggregate number of outstanding shares of common stock.

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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

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.

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

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

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

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

Our real estate leases are classified as operating leases and most of our equipment leases are classified as finance leases.

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

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

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

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

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

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

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

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

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

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

We determined our credit rating based on a comparison of the financial information of SSE Holdings to other public companies and then 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 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 and as we meet required milestones during the construction of the property.

Total amortization expense was $ 1,047 and $ 867 , respectively, for fiscal 2022 and fiscal 2021, and was included in Interest expense in the Consolidated Statements of Loss.

In connection with the issuance of the Convertible Notes, the Company also incurred consulting and advisory fees of $ 231 during fiscal 2021 and was included in General and administrative expenses in the Consolidated Statements of Loss.

No amounts for consulting and advisory fees were incurred during fiscal 2022.

The fair value of the Convertible Notes was approximately $ 162,500 and $ 206,018 , respectively, as of December 28, 2022 and December 29, 2021, 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.

Revolving Credit Facility

The Company maintains a revolving credit facility agreement ("Revolving Credit Facility") which permits borrowings up to $ 50 million and issuance of letters of credit upon the Company's request of up to $ 15 million.

As of December 28, 2022 and December 29, 2021, no amounts were outstanding under the Revolving Credit Facility.

In August 2022, the Company entered into an irrevocable standby letter of credit to secure obligations under the workers' compensation insurance coverage in the amount of $ 1,260 , which expires in July 2023 and renews automatically for one-year periods.

As of December 28, 2022, the Company maintained $ 1,863 of letters of credit in connection with the Revolving Credit Facility.

The Company maintained a letter of credit of $ 603 in connection with the Revolving Credit Facility as of December 29, 2021.

As of December 28, 2022, the Revolving Credit Facility had unamortized deferred financing costs of $ 62 which were included in Other assets on the Consolidated Balance Sheets.

Total interest expense related to the Revolving Credit Facility was $ 82 , $ 479 and $ 531 , respectively, for fiscal 2022, fiscal 2021 and fiscal 2020.

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

The Revolving Credit Facility requires the Company to comply with maximum net lease adjusted leverage and minimum fixed charge coverage ratios, as well as other customary affirmative and negative covenants.

As of December 28, 2022, the Company was in compliance with all covenants.

Shake Shack Inc.

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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:

A summary of operating and finance lease assets and lease liabilities were as follows:

Classification December 28

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Total lease liabilities $ 475,920 $ 442,646

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Form 10-K | 103

The components of lease expense for fiscal 2021 and fiscal 2020 are as follows:

The components of lease expense were as follows:

Classification December 28

2022 December 29

2021 December 30

Operating lease cost Occupancy and related expenses

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Variable lease cost Occupancy and related expenses

Other operating expenses

Pre-opening costs

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Total lease cost $ 77,976 $ 67,123 $ 61,640

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Form 10-K | 99

As of December 28, 2022, future minimum lease payments for operating and finance leases consisted of the following:

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(1) Operating leases are net of certain tenant allowance receivables that were reclassified to Other current assets as of December 28, 2022.

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 operating and finance leases as of December 29, 2021 and December 30, 2020 is as follows:

As of December 28, 2022 the Company had additional operating lease commitments of $ 160,464 for non-cancelable leases without a possession date, which begin to commence in 2023.

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

A summary of lease terms and discount rates for operating and finance leases were as follows:

2022 December 29

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Finance leases 4.0 % 3.1 %

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Supplemental cash flow information related to leases as of December 29, 2021 and December 30, 2020 is as follows:

Supplemental cash flow information related to leases was as follows:

2022 December 29

2021 December 30

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

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Finance leases 2,415 4,119 2,298

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Form 10-K | 100

EMPLOYEE BENEFIT PLANS

Defined Contribution Plan

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

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.

Employer contributions to the plan are at our discretion.

We make contributions matching a portion of participants' contributions.

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 are paid directly to the third party trustee and are at the Company's discretion.

Employer contributions are based on matching a portion of participants' contributions.

The Company matches 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 $ 1,553 , $ 1,337 and $ 895 , respectively, for fiscal 2022, fiscal 2021 and fiscal 2020.

STOCKHOLDERS' EQUITY

Equity Offering

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

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

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

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

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

Redemptions of LLC Interests

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

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

In connection with any redemption or exchange, the Company receives a corresponding number of LLC Interests, increasing its total ownership interest in SSE Holdings.

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

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The following table summarizes redemptions of LLC Interests activity during fiscal 2021, fiscal 2020 and fiscal 2019:

A summary of activity related to redemptions of LLC Interests were as follows:

2022 2021 2020

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Number of LLC Interests redeemed by non-controlling interest holders 52,074 29,601 194,009

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 52,074 29,601 194,009

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

Merger — — 2,690,263

Cancellation of Class B common stock

Shares of Class B common stock surrendered and cancelled 52,074 29,601 194,009

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

Stock Compensation Plan Activity

We received an aggregate of 395,006 , 456,942 and 484,319 LLC Interests in connection with the activity under our stock compensation plan during fiscal 2021, fiscal 2020 and fiscal 2019, respectively.

The Company received an aggregate of 90,527 , 395,006 and 456,942 LLC Interests in connection with the activity under the stock compensation plan during fiscal 2022, fiscal 2021 and fiscal 2020, respectively.

Dividend Restrictions

We are a holding company with no direct operations.

As a result, our ability to pay cash dividends on our common stock, if any, is dependent upon cash dividends, distributions or other transfers from SSE Holdings.

The amounts available to us to pay cash dividends are subject to certain covenants and restrictions set forth in the Revolving Credit Facility.

Shake Shack Inc.

is a holding company with no direct operations.

As a result, its ability to pay cash dividends on its common stock, if any, is dependent upon cash dividends, distributions or other transfers from SSE Holdings.

The amounts available to pay cash dividends are subject to certain covenants and restrictions set forth in the Revolving Credit Facility.

As of December 28, 2022, essentially all of the net assets of SSE Holdings were restricted.

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 February 4, 2015, as amended, by and among Daniel H.

Meyer, the Daniel H.

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

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

In August 2019, the Meyer Stockholders exercised their right with respect to GTC (the "GTC Merger").

To effect the GTC Merger, a newly-formed wholly-owned subsidiary of Shake Shack Inc.

merged with and into GTC, with GTC as the surviving entity, which was then merged with and into Shake Shack Inc.

Prior to the GTC Merger, GTC owned 2,690,263 LLC Interests and an equivalent number of shares of our Class B common stock.

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

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

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

NON-CONTROLLING INTERESTS

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

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

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

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

NON-CONTROLLING INTERESTS

Shake Shack is the primary beneficiary and sole managing member of SSE Holdings and, as a result, consolidates the financial results of SSE Holdings.

The Company reports a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings.

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

Changes in the ownership interest in SSE Holdings while the Company retains its 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:

The following table summarizes the ownership interest in SSE Holdings:

LLC Interests Ownership % LLC Interests Ownership %

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Total LLC Interests outstanding 42,154,511 100.0 % 42,063,984 100.0 %

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

The weighted average ownership percentages for the applicable reporting periods are used to attribute Net loss and Other comprehensive loss to Shake Shack Inc.

and the non-controlling interest holders.

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.

The non-controlling interest holders' weighted average ownership percentage for fiscal 2022, fiscal 2021 and fiscal 2020 was 6.9 %, 7.0 % and 7.7 % respectively.

During fiscal 2022, an aggregate of 52,074 LLC Interests were redeemed by the non-controlling interest holders for newly-issued shares of Class A common stock, and the Company received 52,074 LLC Interests, increasing its total ownership interest in SSE Holdings to 93.2 %.

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 the Company received 29,601 LLC Interests, increasing its total ownership interest in SSE Holdings to 93.1 %.

The following table summarizes the effects of changes in ownership of SSE Holdings on the Company's equity:

2022 2021 2020

Net income (loss) attributable to Shake Shack Inc.

Net loss attributable to Shake Shack Inc.

$ ( 24,091 ) $ ( 8,655 ) $ ( 42,158 )

Other comprehensive income (loss):

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

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

Transfers (to) from non-controlling interests:

Increase in additional paid-in capital as a result of the redemption of LLC Interests 313 33 1,723

Increase in additional paid-in-capital as a result of the GTC Merger — — 19,218

Increase in additional paid-in capital as a result of activity under the stock compensation plan and the related income tax effect 1,829 5,909 4,517

Increase (decrease) in additional paid-in capital as a result of stock option exercises and the related income tax effect ( 2,978 ) 1,829 5,909

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

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$ ( 26,757 ) $ ( 6,795 ) $ 101,193

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.

Shake Shack Inc.

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EQUITY-BASED COMPENSATION

A summary of equity-based compensation expense recognized during fiscal 2021, fiscal 2020 and fiscal 2019 is as follows:

A summary of equity-based compensation expense recognized was as follows:

2022 2021 2020

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Total income tax benefit recognized related to equity-based compensation $ 302 $ 223 $ 204

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:

Equity-based compensation expense was as follows:

2022 2021 2020

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Equity-based compensation expense $ 13,326 $ 8,703 $ 5,560

We capitalized $ 100 , $ 40 and $ 195 of equity-based compensation expense associated with the construction cost of our Shacks and our enterprise-wide system upgrade, Project Concrete, during fiscal 2021, fiscal 2020 and fiscal 2019, respectively.

The Company capitalized $ 192 , $ 100 and $ 40 of equity-based compensation expense associated with the construction cost of our Shacks and certain digital and technology projects, during fiscal 2022, fiscal 2021 and fiscal 2020, respectively.

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 team members, directors and officers.

In January 2015, the Company adopted the 2015 Incentive Award Plan (the "2015 Plan") under which it 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 .

We do not use cash to settle any of our equity-based awards, and we issue new shares of Class A common stock upon the exercise of stock options.

The Company does not use cash to settle any of the equity-based awards, and issues new shares of Class A common stock upon the exercise of stock options.

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

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Treasury securities with maturities equivalent to the expected term.

(4) We have assumed a dividend yield of zero as we have no plans to declare dividends in the foreseeable future.

(4) A dividend yield of zero was used as the Company have no plans to declare dividends in the foreseeable future.

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Form 10-K | 103

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

A summary of stock option activity was as follows:

Aggregate Intrinsic Value Weighted Average Remaining Contractual Life (Years)

Outstanding as of December 29, 2021 154,231 $ 21.77

Granted 1,698 119.39

Exercised ( 20,200 ) 21.00

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Cash received from stock options exercised was $ 424 and the cash tax benefit realized for the tax deductions from these option exercises was $ 26 for fiscal 2022.

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 weighted average grant date fair value of options granted during fiscal 2022, fiscal 2021 and fiscal 2020 was nil , $ 58.92 , $ 16.21 , respectively.

The total intrinsic value of stock options exercised during fiscal 2022, fiscal 2021 and fiscal 2020 was $ 631 , $ 30,533 and $ 25,824 , respectively.

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 2022, fiscal 2021 and fiscal 2020 was nil , $ 60 and $ 2,674 , respectively.

The following table summarizes information about stock options outstanding and exercisable as December 28, 2022:

Options Outstanding Options Exercisable

Number Outstanding at December 29, 2021 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Exercisable at December 29, 2021 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price

Options Outstanding and Exercisable

Number Outstanding at December 28, 2022 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price

Exercise Price

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Performance Stock Units

Under the 2015 Plan, we may grant performance stock units and other types of performance-based equity awards that vest based on the outcome of certain performance criteria that are established and approved by the Compensation Committee of the Board of Directors.

Under the 2015 Plan, the Company may grant performance stock units and other types of performance-based equity awards that vest based on the outcome of certain performance criteria that are established and approved by the Compensation Committee of the Board of Directors.

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 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 .

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 years or cliff vest over three years .

No performance stock units were granted during fiscal 2022.

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.

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Form 10-K | 104

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

A summary of performance stock unit activity was as follows:

Grant Date Fair Value

Outstanding as of December 29, 2021 186,159 $ 90.31

Granted 165,263 98.87

Performance achievement (1)

( 74,137 ) 57.20

Vested ( 26,949 ) 88.18

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As of December 28, 2022, there were 159,822 performance stock units outstanding, of which none were vested.

The weighted average grant date fair value of share awards granted during fiscal 2021, fiscal 2020 and fiscal 2019 were $ 98.87 , $ 57.20 , and $ 52.47 , respectively.

The weighted average grant date fair value of share awards granted during fiscal 2022, fiscal 2021 and fiscal 2020 was nil , $ 98.87 , and $ 57.20 , respectively.

The total fair value of awards that vested during fiscal 2022, fiscal 2021 and fiscal 2020 was $ 1,869 , $ 3,083 and $ 2,730 , respectively.

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Restricted Stock Units

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

Under the 2015 Plan, the Company 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 .

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

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

A summary of restricted stock unit activity was as follows:

Grant Date Fair Value

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As of December 28, 2022, total unrecognized compensation expense related to unvested restricted stock units was $ 22,519 , which is expected to be recognized over a weighted average period of 2.83 years.

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

Shake Shack is the sole managing member of SSE Holdings and, as a result, consolidates the financial results of SSE Holdings.

SSE Holdings is treated as a partnership for U.S.

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federal and certain state and local income taxes.

Any taxable income or loss generated by

Any taxable income or loss

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Form 10-K | 105

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.

federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of SSE Holdings, as well as any stand-alone income or loss generated by Shake Shack Inc.

We are also subject to withholding taxes in foreign jurisdictions.

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

The Company is subject to U.S.

federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of SSE Holdings, as well as any stand-alone income or loss generated by Shake Shack Inc.

The Company is also subject to withholding taxes in foreign jurisdictions.

Income Tax Expense

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

The components of Loss before income taxes were as follows:

2022 2021 2020

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Foreign 25,169 21,498 14,396

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

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

Loss before income taxes $ ( 24,285 ) $ ( 17,335 ) $ ( 45,477 )

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

2022 2021¹ 2020

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Income tax expense (benefit) $ 1,682 $ ( 7,224 ) $ 57

(1) For fiscal 2021, certain amounts were reclassified for consistent presentation with the current year.

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:

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

2022 2021¹ 2020

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Income tax expense (benefit) $ 1,682 ( 6.9 ) % $ ( 7,224 ) 41.7 % $ 57 ( 0.1 ) %

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

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.

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 credit and an increase in valuation allowance.

(1) For fiscal 2021, certain amounts were reclassified for consistent presentation with the current year.

Shake Shack's effective income tax rates for fiscal 2022, fiscal 2021 and fiscal 2020 were ( 6.9 )%, 41.7 % and ( 0.1 )%, respectively.

The decrease in our effective income tax rate from fiscal 2021 to fiscal 2022 was primarily driven by additional expense related to an increase in valuation allowance, increase in foreign tax expense, net expense related to equity-based

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Form 10-K | 106

compensation, partially offset by higher tax credits.

Deferred Tax Assets and Liabilities

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

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

2022 December 29 2021 (1)

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Financing lease right-of-use asset ( 58 ) ( 61 )

Other liabilities ( 7 ) ( 5 )

Total gross deferred tax liabilities ( 3,648 ) ( 3,208 )

Net deferred tax assets $ 300,538 $ 298,668

As of December 29, 2021, our federal and state net operating loss carryforwards for income tax purposes were $ 448,833 and $ 237,691 .

If not utilized, $ 396,966 of our federal net operating losses can be carried forward indefinitely, and the remainder will begin to expire in 2035.

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 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.

We recognized a deferred tax asset in the amount of $ 9,609 associated with the basis difference in our investment in SSE Holdings upon acquiring these LLC Interests.

As of December 29, 2021, the total deferred tax asset related to the basis difference in our investment in SSE Holdings was $ 116,639 .

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

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

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.

As of December 29, 2021, we concluded, based on the weight of all available positive and negative evidence, that all of our deferred tax assets (except for those deferred tax assets described above relating to basis differences that expected to result in a capital loss upon the eventual sale of our interest in SSE Holdings) are more likely than not to be realized, except for tax credits related to New York City UBT and certain foreign

(1) For fiscal 2021, certain amounts were reclassified for consistent presentation with the current year.

As of December 28, 2022, the Company's federal and state net operating loss carryforwards for income tax purposes were $ 558,397 and $ 303,323 .

If not utilized, $ 506,530 of the Company's federal net operating losses can be carried forward indefinitely, and the remainder will begin to expire in 2035.

If not utilized $ 48,587 of the Company's state net operating loss carryforwards can be carried forward indefinitely, and the remainder will begin to expire in 2023.

As of December 28, 2022, the Company had federal tax credit carryforwards of $ 18,660 which will begin to expire in 2025 and gross state tax credits of $ 756 which will begin to expire in 2023.

As described in Note 11, Stockholders' Equity, the Company acquired an aggregate of 142,601 LLC Interests in connection with the redemption of LLC Interests and activity relating to its stock compensation plan during fiscal 2022.

The Company recognized a deferred tax liability in the amount of $ 1,137 associated with the basis difference in its investment in SSE Holdings upon acquisition of these LLC Interests.

As of December 28, 2022, the total deferred tax asset related to the basis difference in the Company's investment in SSE Holdings was $ 89,660 .

The Company evaluates the realizability of its deferred tax assets on a quarterly basis and establishes valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized.

As of December 28, 2022, the Company concluded, based on the weight of all available positive and negative evidence, that all of its deferred tax assets are

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Form 10-K | 107

tax credits no longer expected to be utilized before expiration.

more likely than not to be realized, except New York City UBT and certain foreign tax credits no longer expected to be utilized before expiration.

As such, a valuation allowance in the amount of $ 9,560 was recognized.

The net change in valuation allowance for fiscal 2022 was an increase of $ 4,387 .

See "Schedule II " for details.

Refer to Schedule II, Valuation and Qualifying Accounts for additional information.

Uncertain Tax Positions

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Tax Receivable Agreement

Pursuant to our election under Section 754 of the Internal Revenue Code (the "Code"), we expect to obtain an increase in our share of the tax basis in the net assets of SSE Holdings when LLC Interests are redeemed or exchanged by the non-controlling interest holders and other qualifying transactions.

We plan to make an election under Section 754 of Code for each taxable year in which a redemption or exchange of LLC Interest occurs.

We intend to treat any redemptions and exchanges of LLC Interests by the non-controlling interest holders as direct purchases of LLC Interests for U.S.

Pursuant to the Company's election under Section 754 of the Internal Revenue Code (the "Code"), the Company expects to obtain an increase in its share of the tax basis in the net assets of SSE Holdings when LLC Interests are redeemed or exchanged by the other members of SSE Holdings.

The Company plans to make an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC Interest occurs.

The Company intends to treat any redemptions and exchanges of LLC Interests as direct purchases of LLC Interests for U.S.

federal income tax purposes.

These increases in tax basis may reduce the amounts that we would otherwise pay in the future to various tax authorities.

These increases in tax basis may reduce the amounts that would otherwise be paid in the future to various tax authorities.

They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

On February 4, 2015, we entered into a tax receivable agreement with the then-existing non-controlling interest holders (the "Tax Receivable Agreement") that provides for the payment by us to the non-controlling interest holders of 85 % of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of (i) increases in our share of the tax basis in the net assets of SSE Holdings resulting from any redemptions or exchanges of LLC Interests, (ii) tax basis increases attributable to payments made under the Tax Receivable Agreement, and (iii) deductions attributable to imputed interest pursuant to the Tax Receivable Agreement (the "TRA Payments").

We expect to benefit from the remaining 15 % of any tax benefits that we may actually realize.

The TRA Payments are not conditioned upon any continued ownership interest in SSE Holdings or us.

The rights of each non-controlling interest holder under the Tax Receivable Agreement are assignable to transferees of its LLC Interests.

During fiscal 2021, we acquired an aggregate of 29,601 LLC Interests in connection with the redemption of LLC Interests that resulted in an increase in the tax basis of our investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement.

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 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.

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

On February 4, 2015, the Company entered into a tax receivable agreement with certain of the then-existing members of SSE Holdings (the "Tax Receivable Agreement") that provides for the payment by the Company of 85 % of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of (i) increases in the Company's share of the tax basis in the net assets of SSE Holdings resulting from any redemptions or exchanges of LLC Interests, (ii) tax basis increases attributable to payments made under the Tax Receivable Agreement, and (iii) deductions attributable to imputed interest pursuant to the Tax Receivable Agreement (the "TRA Payments").

The Company expects to benefit from the remaining 15 % of any tax benefits that may actually realize.

The TRA Payments are not conditioned upon any continued ownership interest in SSE Holdings or the Company.

The rights of each member of SSE Holdings that is a party to the Tax Receivable Agreement, are assignable to transferees of their respective LLC Interests.

During fiscal 2022, the Company acquired an aggregate of 52,074 LLC Interests in connection with the redemption of LLC Interests, which resulted in an increase in the tax basis of its investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement.

The Company recognized an additional liability in the amount of $ 844 for the TRA Payments due to the redeeming members, representing 85 % of the aggregate tax benefits the Company expects 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 estimates of future taxable income.

No payments were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement in fiscal 2022 and fiscal 2021.

As of December 28, 2022, the total amount of TRA Payments due under the Tax Receivable Agreement was $ 234,893 , of which no amount was included in Other current liabilities on the Consolidated Balance Sheets.

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

On March 27, 2020, the U.S.

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

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

government enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") to provide certain relief as a result of the COVID-19 pandemic.

The CARES Act provides tax relief, along with other stimulus measures, including a provision for an Employee Retention Credit ("ERC") and retroactive technical correction of prior tax legislation for tax depreciation of certain qualified improvement property, among other changes.

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.

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Form 10-K | 108

As there is no authoritative guidance under U.S.

GAAP on accounting for government assistance to for-profit business entities, the Company accounts for the ERC by analogy to International Accounting Standard ("IAS") 20, Accounting for Government Grants and Disclosure of Government Assistance.

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.

50% of this was recognized at the end of 2021 and the other 50% and the end of 2022 as required by the CARES Act.

Inflation Reduction Act

On August 16, 2022, the U.S.

government enacted the Inflation Reduction Act (“IRA”) into law.

The IRA, among other things, enacted a 15% corporate minimum tax effective for tax years after December 31, 2022, a 1% tax on share repurchases after December 31, 2022, and created and extended certain tax-related energy incentives.

The Company currently does not expect the tax-related provisions of the IRA to have a material impact on our financial results.

EARNINGS (LOSS) PER SHARE

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

Basic loss per share of Class A common stock is computed by dividing Net loss attributable to Shake Shack Inc.

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

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

Diluted loss per share of Class A common stock is computed by dividing Net loss attributable to Shake Shack Inc.

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

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings (loss) per share of Class A common stock (in thousands, except per share amounts) for fiscal 2021, fiscal 2020 and fiscal 2019.

2022 2021 2020

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

Net loss attributable to Shake Shack Inc.—basic $ ( 24,091 ) $ ( 8,655 ) $ ( 42,158 )

Net loss attributable to Shake Shack Inc.—diluted $ ( 24,091 ) $ ( 8,655 ) $ ( 42,158 )

Weighted average shares of Class A common stock outstanding—basic 39,237 39,085 37,129

Effect of dilutive securities:

Stock options — — 743

Performance stock units — — 70

Restricted stock units — — 57

Weighted average shares of Class A common stock outstanding—diluted 39,237 39,085 37,129

Earnings (loss) per share of Class A common stock—basic $ ( 0.22 ) $ ( 1.14 ) $ 0.63

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

Loss per share of Class A common stock—basic $ ( 0.61 ) $ ( 0.22 ) $ ( 1.14 )

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

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.

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

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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.

Refer to Note 8, Debt, for additional information.

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Form 10-K | 109

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.

The following table presents potentially dilutive securities excluded from the computations of diluted loss per share of Class A common stock:

2022 2021 2020

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Convertible notes 1,466,975 (1) 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.

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

SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth supplemental cash flow information for fiscal 2021, fiscal 2020 and fiscal 2019:

The following table sets forth supplemental cash flow information:

2022 2021 2020

7 unchanged sentences

Establishment of liabilities under tax receivable agreement 844 1,093 4,024

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

Class A common stock issued in connection with the GTC Merger — — 3

Cancellation of Class B common stock in connection with the redemption of LLC Interests — — ( 2 )

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

COMMITMENTS AND CONTINGENCIES

Lease Commitments

We are obligated under various operating leases for Shacks and our home office space, expiring in various years through 2038.

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.

The Company is obligated under various operating leases for Shacks and the home office space, expiring in various years through 2044.

Under certain of these leases, the Company is liable for contingent rent based on a percentage of sales in excess of specified thresholds and typically responsible for its proportionate share of real estate taxes, common area maintenance costs and other occupancy costs.

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.

Additionally, in September 2017, we entered into a letter of credit in conjunction with our new home office lease in the amount of $ 603 , which expires in August 2022 and renews automatically for one-year periods through January 31, 2034.

Certain leases require the Company to obtain letters of credit.

As of December 28, 2022, the Company held two letters of credit, one for $ 130 , which expires in February 2026 and the second for $ 603 , which expires in August 2023 and renews automatically for one-year periods through January 31, 2034.

Purchase Commitments

1 unchanged sentence

These obligations are generally short-term in nature and are recorded as liabilities when the related goods are received or services rendered.

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.

The Company also enters into long-term,

Shake Shack Inc.

Form 10-K | 110

exclusive contracts with certain vendors to supply food, beverages and paper goods, obligating the Company to purchase specified quantities.

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 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.

In December 2022, the Company refined the liability estimate related to settling both a private action and a regulatory action relating to New York City’s predictive scheduling laws based on additional information received in the period.

The previous accrual of $ 6,750 has been reduced by $ 1,400 as of December 28, 2022.

In November 2022, the Company mediated a matter alleging certain violations of the California Labor Code which was settled and an accrual in the amount of $ 1,360 has been recorded as of December 28, 2022.

The Company is subject to various legal proceedings, claims and liabilities, involving employees and guests alike, which arise in the ordinary course of business and are generally covered by insurance.

As of December 28, 2022, the amount of the ultimate liability with respect to these matters was not material.

Liabilities under Tax Receivable Agreement

As described in Note 14, Income Taxes, we are a party to the Tax Receivable Agreement under which we are contractually committed to pay the non-controlling interest holders 85 % of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of certain transactions.

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

As described in Note 14, Income Taxes, the Company is a party to the Tax Receivable Agreement under which it is contractually committed to pay certain of the members of SSE Holdings 85 % of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of certain transactions.

The Company is not obligated to make any payments under the Tax Receivable Agreement until the tax benefits associated with the transactions that gave rise to the payments are realized.

Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws.

If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the related TRA Payments.

As of December 29, 2021, we recognized $ 234,045 of liabilities relating to our obligations under the Tax Receivable Agreement, after concluding that it was probable that we would have sufficient future taxable income to utilize the related tax benefits.

There were no transactions subject to the Tax Receivable Agreement for which we did not recognize the related liability, as we concluded that we would have sufficient future taxable income to utilize all of the related tax benefits generated by all transactions that occurred in fiscal 2021.

If the Company does not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then it would not be required to make the related TRA Payments.

As of December 28, 2022 and December 29, 2021, the Company recognized liabilities totaling $ 234,893 and $ 234,045 , respectively, relating to the obligations under the Tax Receivable Agreement, after concluding that it was probable that it would have sufficient future taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits.

There were no transactions subject to the Tax Receivable Agreement for which the Company did not recognize the related liability, as the Company concluded that it would have sufficient future taxable income to utilize all of the related tax benefits generated by all transactions that occurred in fiscal 2022.

RELATED PARTY TRANSACTIONS

Union Square Hospitality Group

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

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Form 10-K | 116

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

The Chairman of the 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 subsidiary, set forth below, are considered related parties.

Hudson Yards Sports and Entertainment

In fiscal 2011, we entered into a Master License Agreement (as amended, "MLA") with Hudson Yards Sports and Entertainment LLC ("HYSE") to operate Shake Shack branded limited menu concession stands in sports and entertainment venues within the United States.

In fiscal 2011, Shake Shack entered into a Master License Agreement (as amended, "MLA") with Hudson Yards Sports and Entertainment LLC ("HYSE") to operate Shake Shack branded limited menu concession stands in sports and entertainment venues within the United States.

In February 2019, the agreement was assigned to Hudson Yards Catering ("HYC"), the parent of HYSE.

The agreement expires in January 2027 and includes five consecutive five-year renewal options at HYC's option.

As consideration for these rights, HYC pays us a license fee based on a percentage of net food sales, as defined in the MLA.

HYC also pays us a percentage of profits on sales of branded beverages, as defined in the MLA.

As consideration for these rights, HYC pays the Company a license fee based on a percentage of net food sales, as defined in the MLA.

HYC also pays a percentage of profits on sales of branded beverages, as defined in the MLA.

Classification 2022 2021 2020

Amounts received from HYC Licensing revenue $ 802 $ 320 $ 67

Shake Shack Inc.

Form 10-K | 111

Classification December 28

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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.

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

Classification 2022 2021 2020

Amounts paid to MSP Conservancy Occupancy and related expenses

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.

General and administrative expenses $ 1,224 $ 863 $ 846

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

(formerly known as "Mobo Systems, Inc."), a platform the Company uses in connection with its mobile ordering application.

Classification 2022 2021 2020

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Accounts payable $ 39 $ 33

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

The Company's 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.

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

Classification 2022 2021 2020

1 unchanged sentence

Other operating expenses $ 4,337 $ 2,844 $ 1,697

Shake Shack Inc.

Form 10-K | 117

Classification December 28

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USHG Acquisition Corp.

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

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

The Company's Chief Executive Officer served on the board of directors of USHG Acquisition Corp.

in 2022, in which the Company's Chairman of the Board of Directors serves as the chairman of the board of directors of USHG Acquisition Corp.

USHG Acquisition Corp.

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

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

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

No amounts were paid to USHG Acquisition Corp.

during fiscal 2022, fiscal 2021 and fiscal 2020.

No amounts were due to or due from USHG Acquisition Corp.

as of both December 28, 2022 and December 29, 2021.

Shake Shack Inc.

Form 10-K | 112

Tax Receivable Agreement

As described in Note 14, Income Taxes, we entered into a Tax Receivable Agreement with certain members of SSE Holdings that provides for the payment by us of 85 % of the amount of tax benefits, if any, that Shake Shack actually realizes or in some cases is deemed to realize as a result of certain transactions.

The Company entered into a Tax Receivable Agreement that provides for the payment by the Company of 85 % of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of certain transactions.

Refer to Note 14, Income Taxes, for additional information.

Classification 2022 2021 2020

9 unchanged sentences

Amounts paid to non-controlling interest holders Non-controlling interests $ 410 $ 968 $ 478

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.

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

Meyer, the Daniel H.

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

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

In August 2019, the Meyer Stockholders exercised their right with respect to GTC (the "GTC Merger").

To effect the GTC Merger, a newly-formed wholly-owned subsidiary of Shake Shack Inc.

merged with and into GTC, with GTC as the surviving entity, which was then merged with and into Shake Shack Inc.

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

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

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

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

GEOGRAPHIC INFORMATION

Revenue by geographic area for fiscal 2021, fiscal 2020 and fiscal 2019 is as follows:

Revenue by geographic area was as follows:

2022 2021 2020

2 unchanged sentences

Total revenue $ 900,486 $ 739,893 $ 522,867

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

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

Revenues are shown based on the geographic location of the Company's customers and licensees.

The Company's long-lived assets are primarily located in the United States.

Shake Shack Inc.

34 unchanged sentences

Additional paid-in capital 415,611 405,940

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

Accumulated deficit ( 41,808 ) ( 15,674 )

Accumulated other comprehensive income — 1

6 unchanged sentences

SHAKE SHACK INC.

CONDENSED STATEMENTS OF INCOME (LOSS)

CONDENSED STATEMENTS OF LOSS

(PARENT COMPANY ONLY)

6 unchanged sentences

General and administrative expenses 3,132 2,491 2,179

Intercompany expenses 67 — —

TOTAL EXPENSES 3,199 2,491 2,179

INCOME (LOSS) FROM OPERATIONS ( 906 ) 387 ( 619 )

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

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

Equity in net loss from SSE Holdings ( 25,335 ) ( 19,393 ) ( 41,152 )

Other expense, net ( 1,767 ) ( 25,593 ) ( 1,147 )

Interest expense ( 1,047 ) ( 867 ) —

INCOME (LOSS) BEFORE INCOME TAXES ( 45,466 ) ( 42,918 ) 20,824

Income tax expense (benefit) ( 17,583 ) ( 760 ) 997

NET INCOME (LOSS) $ ( 27,883 ) $ ( 42,158 ) $ 19,827

LOSS BEFORE INCOME TAXES ( 29,055 ) ( 45,466 ) ( 42,918 )

Benefit from income taxes ( 2,921 ) ( 17,583 ) ( 760 )

NET LOSS $ ( 26,134 ) $ ( 27,883 ) $ ( 42,158 )

See accompanying Notes to Condensed Financial Statements.

3 unchanged sentences

SHAKE SHACK INC.

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(PARENT COMPANY ONLY)

3 unchanged sentences

2021 December 30

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

Other comprehensive income, net of tax (1) :

Net loss $ ( 26,134 ) $ ( 27,883 ) $ ( 42,158 )

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

Change in foreign currency translation adjustment ( 1 ) ( 2 ) 1

Change in net unrealized holding gains — — —

Net change ( 2 ) 1 —

OTHER COMPREHENSIVE INCOME (LOSS) ( 1 ) ( 2 ) 1

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

COMPREHENSIVE LOSS $ ( 26,135 ) $ ( 27,885 ) $ ( 42,157 )

(1) Net of tax benefit of $ 0 for fiscal years ended December 28, 2022, December 29, 2021 and December 30, 2020.

11 unchanged sentences

OPERATING ACTIVITIES

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

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 )

Net loss $ ( 26,134 ) $ ( 27,883 ) $ ( 42,158 )

Adjustments to reconcile net loss to net cash used in operating activities:

Equity in net loss from SSE Holdings 25,335 19,393 41,152

Amortization of debt issuance costs 1,047 867 —

1 unchanged sentence

Deferred income taxes ( 4,126 ) ( 17,583 ) ( 721 )

Non-cash interest expense — — 151

Unrealized loss on Note receivable - conversion option 9,700 32,200 —

32 unchanged sentences

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

The Parent Company's assets consist primarily of its equity interest in SSE Holdings, LLC ("SSE Holdings") and certain deferred tax assets.

The Parent Company's assets consist primarily of its equity interest in SSE Holdings, LLC ("SSE Holdings"), certain deferred tax assets and its note receivable from SSE Holdings.

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

3 unchanged sentences

These Condensed Parent Company financial statements should be read in conjunction with the Consolidated Financial Statements of Shake Shack Inc.

and the accompanying notes thereto, included in this Annual Report on Form 10-K.

and the accompanying notes thereto, included in Part II, Item 8.

For purposes of these condensed financial statements, the Parent Company's interest in SSE Holdings is recorded based upon its proportionate share of SSE Holdings' net assets (similar to presenting them on the equity method).

2 unchanged sentences

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:

The following table presents amounts in the Parent Company's Condensed Balance Sheets that were eliminated in consolidation:

2022 December 29

4 unchanged sentences

Due to SSE Holdings 16,975 14,109

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.

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 $ 234,893 and $ 234,045 , respectively as of December 28, 2022 and December 29, 2021.

Shake Shack Inc.

Form 10-K | 118

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:

The following table presents amounts in the Parent Company's Condensed Statements of Loss that were eliminated in consolidation:

2022 2021 2020

10 unchanged sentences

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.

As of December 28, 2022 and December 29, 2021, the fair value of the Conversion Option was $ 6,300 and $ 16,000 , respectively.

The Parent Company recorded unrealized losses of $ 9,700 and $ 32,200 , respectively in fiscal 2022 and fiscal 2021, within Other income (expense), net due to the change in fair value of the Conversion Option.

As of December 28, 2022 and December 29, 2021, the balance of the Note receivable from SSE Holdings was $ 209,013 and $ 201,080 , respectively, net of accretion.

The Parent Company recognized interest income of $ 7,933 and $ 6,605 , respectively, in fiscal 2022 and fiscal 2021, within Other income (expense), net primarily associated 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.

2 unchanged sentences

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.

Refer to Note 8, Debt, in the Company's Consolidated Financial Statements, included in Part II, Item 8, 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.

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.

Refer to Note 14, Income Taxes, to the Company's Consolidated Financial Statements included in Part II, Item 8, 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.

over the term of the Tax Receivable Agreement and (ii) future

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changes in tax laws.

As of December 28, 2022 and December 29, 2021, liabilities under the tax receivable agreement totaled $ 234,893 and $ 234,045 , respectively.

SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth supplemental cash flow information for fiscal 2021, fiscal 2020 and fiscal 2019:

The following table sets forth supplemental cash flow information:

2022 2021 2020

4 unchanged sentences

Class A common stock issued in connection with the acquisition of LLC Interests upon redemption by the non-controlling interest holders 313 33 1,723

Class A common stock issued in connection with the GTC merger — — 19,218

Non-cash contribution made in connection with equity awards granted to employees of SSE Holdings 6,988 11,468 5,193

Non-cash financing activities:

Cancellation of Class B common stock in connection with the redemption of LLC Interests — — ( 2 )

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

Establishment of liabilities under tax receivable agreement 844 1,093 4,024

13 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