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Risks Related to Our Growth Strategies and Operations
−Removed: ▪ Pandemics or disease outbreaks, such as the COVID-19 pandemic, have disrupted, and may continue to disrupt our business, and have materially affected our business, results of operations and our financial condition.
▪ Our long-term success is dependent on the selection, design and execution of appropriate business strategies.
+Added: ▪ Our investments to enhance the customer experience through expanding the availability of our drive-thru options has required and will continue to require significant capital expenditures and may not generate the expected returns.
▪ Our primary growth strategy is highly dependent on the availability of suitable locations and our ability to develop and open new Shacks on a timely basis and on terms attractive to us.
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▪ Incidents involving food safety and food-borne illnesses could adversely affect guests' perception of our brand, result in lower sales and increase operating costs.
−Removed: ▪ The digital and delivery business, related expenses, execution and expansion thereof, is uncertain and subject to risk.
▪ Rising labor costs and difficulties recruiting and retaining the right team members could adversely affect our business.
▪ Increased food commodity and energy costs could decrease our Shack-level operating profit margins or cause us to limit or otherwise modify our menu, which could adversely affect our business.
−Removed: ▪ Shortages or interruptions in the supply or delivery of food products could adversely affect our operating results.
+Added: ▪ The digital and delivery business, related expenses, execution and expansion thereof, is uncertain and subject to risk.
▪ We face significant competition for guests, and if we are unable to compete effectively, our business could be adversely affected.
−Removed: ▪ Inflationary environment poses a new risk to broader demand for restaurants, including ours.
+Added: ▪ Shortages or interruptions in the supply or delivery of food products could adversely affect our operating results.
+Added: ▪ Inflationary environment poses a risk to broader demand for restaurants, including ours.
+Added: ▪ Pandemics or disease outbreaks, such as the COVID-19 pandemic, have disrupted, and may continue to disrupt our business, and have materially affected our business, results of operations and our financial condition.
▪ The increasing focus on environmental sustainability and social initiatives could increase our costs, harm our reputation and adversely impact our financial results.
−Removed: ▪ Our international licensed Shacks import many of our proprietary and other core ingredients from the United States and other countries.
−Removed: If this international supply chain is interrupted, our international licensed operations could encounter supply shortages and incur higher costs.
−Removed: ▪ We are subject to risks associated with leasing property subject to long-term, non-cancelable leases.
Shake Shack Inc.
Form 10-K | 20
+Added: ▪ Our international licensed Shacks import many of our proprietary and other core ingredients from the United States and other countries.
+Added: If this international supply chain is interrupted, our international licensed operations could encounter supply shortages and incur higher costs.
+Added: ▪ We are subject to risks associated with leasing property subject to long-term leases.
▪ Restaurant companies have been the target of class action lawsuits and other proceedings that are costly, divert management attention and, if successful, could result in our payment of substantial damages or settlement costs.
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Regulatory and Legal Risks
+Added: ▪ We have identified a material weakness in our internal control over financial reporting.
▪ We are subject to many federal, state, local and foreign laws and regulations, as well as other statutory and regulatory requirements, with which compliance is both costly and complex.
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▪ Changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results of operations and financial condition.
−Removed: ▪ If we fail to maintain effective internal controls over financial reporting, our ability to produce timely and accurate financial information or comply with Section 404 of the Sarbanes-Oxley Act of 2002 could be impaired, which could have a material adverse effect on our business and stock price.
Risks Related to Our Organizational Structure
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▪ The non-controlling interest holders have the right to have their LLC Interests redeemed or exchanged into shares of Class A common stock, which may cause volatility in our stock price.
−Removed: ▪ We will continue to incur relatively outsized costs as a result of becoming a public company and in the administration of our complex organizational structure.
+Added: ▪ We will continue to incur relatively outsized costs as a result of being a public company and in the administration of our complex organizational structure.
▪ Our anti-takeover provisions could prevent or delay a change in control of our Company, even if such change in control would be beneficial to our stockholders.
−Removed: ▪ The provision of our certificate of incorporation requiring exclusive venue in the Court of Chancery in the State of Delaware for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.
▪ We do not currently expect to pay any cash dividends.
Risks Related to Our Tax Receivable Agreement ("TRA")
+Added: ▪ We will continue to incur relatively outsized costs as a result of our complex organizational structure.
▪ We are a holding company and our principal asset is our interest in SSE Holdings, and, accordingly, we will depend on distributions from SSE Holdings to pay our taxes and expenses, including payments under the TRA.
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RISKS RELATED TO OUR GROWTH STRATEGIES AND OPERATIONS
−Removed: Pandemics or disease outbreaks, such as the COVID-19 pandemic, have disrupted, and may continue to disrupt our business, and may continue to materially affect our operations, results of operations and our financial condition.
−Removed: COVID-19 was officially declared a global pandemic by the World Health Organization in March 2020.
−Removed: While the United States has announced that it will let the coronavirus health emergency expire in May of 2023, the prevalence of the virus has continued to impact the United States and the global economy, resulting in varying levels of restrictions and shutdowns implemented by international, national, state, and local authorities, and has impacted, and may continue to impact, travel and work patterns as employees continue to work from home more frequently and commuting, leisure, vacation and other activities continue to be disrupted.
−Removed: We continue to follow public health guidelines to ensure the health and safety of our teams and guests.
−Removed: An increase in restrictions or a return to shutdowns imposed by governmental authorities may have a material impact to our business, financial condition and results of operations.
−Removed: Viruses such as COVID-19 may be transmitted through human contact and airborne delivery, and the risk of contracting viruses could cause team members or guests to avoid gathering in public places.
−Removed: Additionally, government authorities, from time to time, may impose curfews, restrictions on public gatherings, human interactions and restaurant operations which may impact our ability to offer all sales channels at all Shacks, and employees in many jurisdictions continue to work from home at a higher rate.
−Removed: These restrictions and changing travel patterns have adversely effected our guest traffic and the ability to adequately staff our Shacks.
−Removed: Throughout the pandemic, state and local governments in the U.S.
−Removed: and throughout the world have alternated between removing and easing certain restrictions on the one hand, and reintroducing restrictions on businesses, including restaurants, on the other hand, depending on the severity of local or regional outbreaks.
−Removed: Additionally, different jurisdictions have seen varying levels of outbreaks or resurgences in outbreaks, and corresponding differences in government responses, which may continue to make it, difficult for us to plan or forecast an appropriate response.
−Removed: For example, a material portion of our licensed revenue comes from Asia, a region which has seen more severe restrictions from rising COVID-19 cases than the United States.
−Removed: In many jurisdictions, the pandemic has continued to disrupt consumer activity and negatively impact the foot traffic in our Shacks, as employees continue to work from home more frequently, and leisure and travel activities have not yet returned to pre-pandemic levels.
−Removed: While we cannot predict the duration or scope of the COVID-19 pandemic or the ongoing response from governing authorities, the pandemic and the response to the pandemic has negatively impacted our business and such impact may be material to our business, financial condition and results of operations.
−Removed: The significance of the operational and financial impact on us will depend on how long and widespread the disruptions caused by COVID-19, and the corresponding response to contain the virus and treat those affected by it prove to be.
−Removed: Further uncertain or changing economic and market conditions, including prolonged periods of high unemployment, staffing issues, inflation, deflation or prolonged weak consumer demand or a decrease in consumer discretionary spending, or political or other changes resulting from the pandemic or other factors would continue to impact our business, sales and operating results.
−Removed: Additionally, if a significant percentage of our workforce or the workforce of our business partners are unable to work due to reasons including illness or travel restrictions in connection with pandemics or disease outbreaks, our operations may be negatively impacted, which could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 24
Our long-term success is dependent on the selection, design and execution of appropriate business strategies.
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Our current strategies include:
+Added: ▪ Global unit expansion and the refinement of future Shacks to increase our total addressable market and to build an efficient and more standardized operation.
+Added: This will include developing new prototypes and standards throughout our future Shack classes, as well as our continued focus on increasing our licensed Shack presence, both domestically and abroad, particularly in Asia.
▪ Enhancing our omnichannel guest experience.
This will occur through leveraging our digital tools to build more frictionless ways to serve our guests and to continue integration of our data platforms enabling segmentation and targeted marketing strategies.
−Removed: ▪ Global unit expansion and the expansion of Shack formats to increase our total addressable market and incorporate increased convenience and frequency.
−Removed: This will include the pursuit of top-tier real estate in both urban and suburban markets that can incorporate diverse formats, including drive-thrus and significant capital expenditures to expand the number of drive-thrus at our existing and future Shacks, as well as our focus on increasing our licensed Shack presence, both domestically and abroad, particularly in Asia.
−Removed: ▪ Menu innovation, with a focus on LTOs, collaborations and the expansion of existing menu items including expanding the options for premium add-ons.
−Removed: We may experience challenges in achieving the goals we have set and we may be unsuccessful in executing on our strategies once identified and we will be required to make significant capital expenditures to pursue these goals.
+Added: ▪ Menu innovation, with a focus on LTOs and collaborations which may lead to the expansion of existing menu items.
+Added: We may experience challenges in achieving the goals we have set and we may be unsuccessful in executing our strategies once identified and we will be required to make significant capital expenditures to pursue these goals.
Conversely, we may also execute on poorly designed strategies that prove to be ineffective or require us to make substantial changes to our strategies in order to produce the desired results.
Our strategies may expose us to additional risks, and strategies that have been successful for us in the past may fail to be so in the future or may be more expensive than we currently anticipate.
−Removed: We may incur significant costs and damage our brand if we are unable to identify, develop and execute on appropriate business strategies, which could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Our investments to enhance the customer experience through expanding the availability of our drive-thru options will require significant capital expenditures and may not generate the expected returns.
−Removed: Our expansion strategies include adding additional drive-thru options at our existing Shacks, and opening new Shacks at locations and on real estate that is suitable for drive-thru availability, both of which will require significant capital expenditures.
+Added: We may incur significant costs and damage our brand if we are unable to identify, develop and execute appropriate business strategies, which could have a material adverse effect on our business, financial condition and results of operations.
+Added: Our investments to enhance the customer experience through expanding the availability of our drive-thru options has required and will continue to require significant capital expenditures and may not generate the expected returns.
+Added: Our expansion strategies include opening new drive-thru Shacks at desirable locations which will require significant capital expenditures.
Our drive-thru formats are larger than our traditional Shacks, which can result in higher real estate costs, and require additional infrastructure and construction costs.
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We may not be able to open our planned new Shacks within budget or on a timely basis, if at all, given the uncertainty of these factors, which could adversely affect our business, financial condition and results of operations.
−Removed: As we operate more Shacks, our rate of expansion relative to the size of our Shack base will eventually decline.
+Added: As we operate more Shacks, our rate of expansion relative to the size of our Shack base will decline.
+Added: Shake Shack Inc.
+Added: Form 10-K | 22
The number and timing of new Shacks opened during any given period may be negatively impacted by a number of factors including:
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▪ our ability to control construction and development costs of new Shacks, particularly in the current inflationary environment;
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 25
▪ competition in new markets, including competition for appropriate sites;
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▪ cost and availability of capital to fund construction costs and pre-opening costs;
−Removed: ▪ COVID-19 related factors such as longer permitting cycles and availability of construction and restaurant equipment and services.
+Added: ▪ COVID-19 or pandemic related factors such as longer permitting cycles and availability of construction and restaurant equipment and services.
Accordingly, we cannot assure you that we will be able to successfully expand as we may not correctly analyze the suitability of a location or anticipate all of the challenges imposed by expanding our operations.
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If the costs of funding new Shacks or renovations or enhancements to existing Shacks exceed budgeted amounts, and/or the time for building or renovation is longer than anticipated, our profits could be reduced.
−Removed: Additionally, recent inflation of material and labor costs in addition to our new, larger drive-thru formats have resulted in higher construction costs.
+Added: Additionally, recent inflation of material and labor costs in addition to our larger drive-thru formats have resulted in higher construction costs.
If we cannot access the capital we need, we may not be able to execute our growth strategy, take advantage of future opportunities or respond to competitive pressures.
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New markets may have competitive conditions, consumer tastes and discretionary spending patterns that are more difficult to predict or satisfy than our existing markets.
−Removed: We may need to make greater investments than we originally planned in advertising and promotional activity in new markets to build brand awareness.
+Added: We may need to make greater
+Added: Shake Shack Inc.
+Added: Form 10-K | 23
+Added: investments than we originally planned in advertising and promotional activity in new markets to build brand awareness.
We may find it more difficult in new markets to hire, motivate and retain qualified team members who share our values.
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If we do not successfully execute our plans to enter new markets, our business, financial condition or results of operations could be adversely affected.
−Removed: In addition, we plan to continue to expand our international presence, which can pose similar and additional challenges in opening new Shacks.
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 26
Our failure to manage our growth effectively could harm our business and operating results.
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Our existing personnel, management systems, financial and management controls and information systems may not be adequate to support our planned expansion.
+Added: See the risk captioned “We have identified a material weakness in our internal control over financial reporting” included below in this Item 1A of this Annual Report on Form 10-K.
Our ability to manage our growth effectively will require us to continue to enhance these systems, procedures and controls and to locate, hire, train and retain management and operating personnel, particularly in new markets.
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New Shacks, once opened, may not be profitable, and may negatively affect Shack sales at our existing Shacks.
−Removed: Our results have been, and in the future may continue to be, significantly impacted by the timing of new Shack openings (often dictated by factors outside of our control), including landlord, construction and permitting delays, associated Shack pre-opening costs and operating inefficiencies, as well as changes in our geographic concentration due to the opening of new Shacks.
+Added: Our results have been, and in the future may continue to be, significantly impacted by the timing of new Shack openings (often dictated by factors outside of our control), including landlord, construction and permitting delays, associated Shack pre-opening costs and operating inefficiencies, as well as changes in our geographic concentration.
We typically incur the most significant portion of pre-opening costs associated with a given Shack within the several months preceding the opening of the Shack.
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If we are unable to maintain and grow Shack sales at our existing Shacks, our financial performance could be adversely affected.
−Removed: The level of same-Shack sales growth, which represents the change in year-over-year revenues for domestic Company-operated Shacks open for 24 full months or longer, could affect our Shack sales growth.
+Added: The level of same-Shack sales growth, which represents the change in year-over-year revenues for domestic Company-operated Shacks open for 24 full months or longer, could affect our overall Shack sales growth.
Our ability to increase same-Shack sales depends, in part, on our ability to successfully implement our initiatives to build Shack sales.
It is possible such initiatives will not be successful, that we will not achieve our target same-Shack sales growth or that same-Shack sales growth could be negative, which may cause a decrease in Shack sales and profit growth that would adversely affect our business, financial condition or results of operations.
+Added: Shake Shack Inc.
+Added: Form 10-K | 24
Our mission to Stand For Something Good subjects us to risks.
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We pride ourselves on sourcing premium ingredients from like-minded producers — 100% all-natural proteins with no added hormones or antibiotics that are humanely raised and source verified.
−Removed: We are dedicated to using sustainable materials and equipment whenever possible, and distinctive furniture and fixtures that advance our sustainability and diversity initiatives, as
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 27
−Removed: well as being committed to achieving ethical and humane practices for the animals in our supply chain.
+Added: We are dedicated to using sustainable materials and equipment whenever possible, and distinctive furniture and fixtures that advance our sustainability and diversity initiatives, as well as being committed to achieving ethical and humane practices for the animals in our supply chain.
We also strive to be the best employer and a good citizen in each community we call home.
We do, however, face many challenges in carrying out our mission to Stand For Something Good.
−Removed: We incur higher costs and other risks associated with paying highly competitive compensation to our team members and purchasing high quality ingredients grown or raised with an emphasis on quality and responsible practices.
+Added: We incur higher costs and other risks associated with purchasing high quality ingredients grown or raised with an emphasis on quality and responsible practices and paying highly competitive compensation to our team members.
As a result, our food and labor costs may be significantly higher than other companies who do not source high quality ingredients or pay above minimum wage.
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Our mission to Stand For Something Good also exposes us to criticism from special interest groups who have different opinions regarding certain food issues or who believe we should pursue different strategies and goals.
−Removed: Any adverse publicity that results from such criticism could damage our brand and adversely affect customer traffic.
+Added: Any adverse publicity that results from such criticism could damage our brand and adversely affect guest traffic.
We believe that our Stand For Something Good philosophy has been a major contributing factor in our past success because we believe consumers are increasingly focused on where their food comes from and how it is made, and that consumers want to associate themselves with brands whose ethos matches that of their own.
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We have a limited number of suppliers for our major ingredients, including beef patties, chicken, potato buns, custard, portobello mushrooms and cheese sauce.
−Removed: In fiscal 2022, we purchased all of our (i) ground beef patties from 10 approved beef processors, with approximately 42% of our ground beef patties supplied from one supplier;
+Added: In fiscal 2023, we purchased all of our (i) ground beef patties from 10 approved ground beef processors, with approximately 41% of our ground beef patties from one supplier;
(ii) chicken breasts from two suppliers;
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As of December 27, 2023, approximately 95% of certain food and beverage ingredients, including chicken, fries and custard, collectively representing 47% of our purchases, were processed through our broadline distributor for distribution and delivery to each Shack.
−Removed: As of December 28, 2022, we utilized 20 affiliated distribution centers and each distribution center carries two to three weeks of inventory for our core ingredients.
−Removed: In the event of a catastrophe, such as a fire, our broadline distributor can supply the Shacks affected by their respective distribution center from another affiliated distribution center.
−Removed: If a catastrophe, such as a fire, were to occur at the distribution center that services the Shacks located in New York and northern New Jersey, we would be at immediate risk of product shortages because that distribution center supplies 21% of our domestic Company-operated Shacks as of December 28, 2022, which collectively represented 26% of our Shack sales for fiscal 2022.
−Removed: The other 19 distribution centers collectively supply the other approximately 79% of our domestic Company-operated Shacks, which represented the remaining 74% of our Shack sales.
+Added: As of December 27, 2023, we utilized 20 affiliated distribution centers and each
Shake Shack Inc.
Form 10-K | 25
+Added: distribution center carries two to three weeks of inventory for our core ingredients.
+Added: In the event of a catastrophe, such as a fire, our broadline distributor can supply the Shacks affected by their respective distribution center from another affiliated distribution center.
+Added: If a catastrophe, such as a fire, were to occur at the distribution center that services the Shacks located in New York and northern New Jersey, we would be at immediate risk of product shortages because that distribution center supplies approximately 21% of our domestic Company-operated Shacks as of December 27, 2023, which collectively represented 25% of our Shack sales for fiscal 2023.
+Added: The other 19 distribution centers collectively supply the other 79% of our domestic Company-operated Shacks, which represented the remaining 75% of our Shack sales.
Although we believe that alternative supply and distribution sources are available, there can be no assurance that we will continue to be able to identify or negotiate with such sources on terms that are commercially reasonable to us.
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We rely, in part, on our licensees and the manner in which they operate their Shacks to develop and promote our business.
−Removed: As of December 28, 2022, ten licensees operated all of our domestic licensed Shacks and six licensees operated all of our international licensed Shacks, with one such licensee operating 38% of our international licensed Shacks.
+Added: As of December 27, 2023, 10 licensees operated all of our domestic licensed Shacks and six licensees operated all of our international licensed Shacks, with one such licensee operating 36% of our international licensed Shacks and one such licensee operating 28% of our domestic licensed Shacks.
Our licensees are required to operate their Shacks according to the specific guidelines we set forth, which are essential to maintaining brand integrity and reputation, all laws and regulations applicable to Shake Shack and its subsidiaries, and all laws and regulations applicable in the countries in which Shake Shack operates.
We provide training to these licensees to integrate them into our operating strategy and culture.
−Removed: However, since we do not have day-to-day control over all of these Shacks, we cannot give assurance that there will not be differences in product and service quality, operations, labor law enforcement, marketing or that there will be adherence to all of our guidelines and applicable laws at these Shacks.
+Added: However, since we do not have day-to-day control over these Shacks, we cannot give assurance that there will not be differences in product and service quality, operations, labor law enforcement, marketing or that there will be adherence to all of our guidelines and applicable laws at these Shacks.
In addition, if our licensees fail to make investments necessary to maintain or improve their Shacks, guest preference for the Shake Shack brand could suffer.
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The success of our licensed operations depends on our ability to establish and maintain good relationships with our licensees.
−Removed: The value of our brand and the rapport that we maintain with our licensees are important factors for potential licensees considering doing business with us.
+Added: The value of our brand and the rapport that we maintain with our licensees are important factors for potential licensees
+Added: Shake Shack Inc.
+Added: Form 10-K | 26
+Added: considering doing business with us.
If we are unable to maintain good relationships with licensees, we may be unable to renew license agreements and opportunities for developing new relationships with additional licensees may be adversely affected.
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Although we have developed criteria to evaluate and screen prospective developers and licensees, we cannot be certain that the developers and licensees we select will have the business acumen necessary to open and operate successful licensed Shacks in their territory.
−Removed: Our licensees compete for guests with other restaurants in their geographic markets, and the ability of our licensees to compete for guests directly impacts our business, financial condition and results of operations, as well as the
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 29
−Removed: desirability of our brand to prospective licensees.
+Added: Our licensees compete for guests with other restaurants in their geographic markets, and the ability of our licensees to compete for guests directly impacts our business, financial condition and results of operations, as well as the desirability of our brand to prospective licensees.
+Added: Our licensees also complete for employees and may not be able to recruit a sufficient number of individuals to meet their needs or retain qualified individuals to maintain operations.
Licensees may not have access to the financial or management resources that they need to open the Shacks contemplated by their agreements with us or to be able to find suitable sites on which to develop them, or they may elect to cease development for other reasons.
1 unchanged sentence
Additionally, financing from banks and other financial institutions may not always be available to licensees to construct and open new Shacks.
−Removed: Any of these problems could slow our growth from licensing operations and reduce our licensing revenues.
+Added: Any of these problems could slow our growth from licensed operations and reduce our licensing revenues.
If we fail to maintain our corporate culture, our relationships with our team members and guests could be negatively affected.
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Additionally, the risk of food-borne illness may also increase whenever our food is served outside of our control, such as by third-party delivery services.
−Removed: We are further exposed to this risk from our sales through unaffiliated third-party delivery services, as well as through any third-party delivery partners we use.
Regardless of the source or cause, any report of food-borne illnesses or food safety issues, whether or not accurate, at one or more of our Shacks, including Shacks operated by our licensees, could adversely affect our brand and reputation, which in turn could result in reduced guest traffic and lower sales.
−Removed: Additionally, we believe that, because our mission to Stand For Something Good promotes the use of higher quality ingredients, our guests have high expectations of us and we could be more severely affected by incidents of food-borne illnesses or food safety issues than some of our competitors who do not promote such standards.
+Added: Additionally, we believe that, because our mission to Stand For Something Good promotes the use of premium ingredients, our guests have high expectations of us and we could be more severely affected by incidents of food-borne illnesses or food safety issues than some of our competitors who do not promote such standards.
We may also have a more difficult time recovering from a food-borne illness incident and may be required to incur significant costs to repair our reputation.
If any of our guests become ill from food-borne illnesses, we could be forced to temporarily close one or more Shacks or choose to close as a preventative measure if we suspect there was a pathogen in our Shacks.
−Removed: Furthermore, any instances of food contamination, whether or not at our Shacks, could subject us or our suppliers to voluntary or involuntary food recalls and the costs to conduct such recalls could be significant and could interrupt our supply to unaffected Shacks or increase the cost of our ingredients.
+Added: Furthermore, any instances of food contamination, whether or not at our Shacks, could subject us or our suppliers to voluntary or involuntary food recalls and the
+Added: Shake Shack Inc.
+Added: Form 10-K | 27
+Added: costs to conduct such recalls could be significant and could interrupt our supply to unaffected Shacks or increase the cost of our ingredients.
Additionally, consumer preferences could be affected by health concerns about the consumption of beef, our key ingredient.
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A negative report or negative publicity surrounding such an incident, whether related to one of our Shacks or to a competitor in the industry, may have an adverse impact on demand for our food and could result in a material decrease in guest traffic and lower sales.
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 30
−Removed: The digital and delivery business, related expenses, execution and expansion thereof, is uncertain and subject to risk.
−Removed: Digital innovation and growth remains a key focus for us.
−Removed: We continue to execute upon our digital strategy, including the continued integration of our data platforms enabling segmentation and targeted marketing strategies.
−Removed: Furthermore, in fiscal 2022 delivery was available across all our native digital platforms with the launch of the new Androrid experience early in the fiscal year.
−Removed: We believe these digital investments to be a critical differentiator for our business, creating the opportunity to drive greater engagement and frequency with both new and existing guests.
−Removed: As the digital space around us continues to evolve, our technology needs to evolve concurrently to stay competitive with the industry.
−Removed: If we do not maintain and innovate our digital systems that are competitive with the industry, and as we face execution risks around upgrades of existing and new digital platforms, our digital business may be adversely affected and could damage our sales as well as profitability.
−Removed: We rely on third party service providers for our ordering and payment platforms relating to our mobile app and kiosks.
−Removed: Such services performed by these third parties could be damaged or interrupted by technological issues, which could then result in a loss of sales for a period of time.
−Removed: We also could see higher costs from our digital partners which we may not be able to fully offset by price.
−Removed: Information processed by these third parties could also be impacted by cyber attacks, which could not only negatively impact our sales, but also harm our brand image.
−Removed: Recognizing the rise in delivery services offered throughout the restaurant industry, we understand the importance of providing such services to meet our guests wherever and whenever they want.
−Removed: We have invested in marketing to promote our delivery partnerships, which could negatively impact our profitability if the business does not continue to expand.
−Removed: We rely on third party service providers to fulfill delivery orders timely and in a fashion that will satisfy our guests.
−Removed: Errors in providing adequate delivery services may result in guest dissatisfaction, which could also result in loss of guest retention, loss in sales and damage to our brand image.
−Removed: Additionally, as with any third party handling food, such delivery services increase the risk of food tampering while in transit.
−Removed: We developed sealed packaging to provide some deterrence against such potential food tampering.
−Removed: We are also subject to risk if there is a shortage of delivery drivers, which could result in a failure to meet our guests' expectations.
−Removed: Third-party delivery services within the restaurant industry is a competitive environment and includes a number of players competing for market share.
−Removed: If our third-party delivery partners fail to effectively compete with other third-party delivery providers in the sector, our delivery business may suffer resulting in a loss of sales.
−Removed: If any third-party delivery provider we partner with experiences damage to their brand image, we may also see ramifications due to our partnership with them.
−Removed: Additionally, some of our competitors have greater financial resources to spend on marketing and advertising around their digital and delivery campaigns than we are able to at this time.
−Removed: Should our competitors increase their spend in these areas, or if our advertising and promotions be less effective than our competitors, there could be an adverse impact on our business in this space.
−Removed: Third-party delivery services within the restaurant industry typically charge restaurants a fee per order.
−Removed: We currently have contracts with our major delivery service providers for a fixed period of time.
−Removed: However, there is uncertainty as to how these fees will evolve.
−Removed: In 2021, we implemented menu price inflation on our third-party delivery platforms to help offset a portion of this fee;
−Removed: the higher menu prices could result in loss of sales.
−Removed: As delivery, as well as the partnerships we have made in connection with delivery, is still a growing business for us, it is difficult for us to anticipate its impact to our sales as well as the challenges we may face in the future.
Rising labor costs and difficulties recruiting and retaining the right team members could adversely affect our business.
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Additionally, several states in which we operate have enacted minimum wage increases and it is possible that other states or the federal government could also enact minimum wage increases, scheduling and benefit changes and increased health care and workers' compensation insurance costs.
−Removed: Such increases have and may continue to cause an increase to our labor and related expenses and cause our
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 31
−Removed: Shack-level operating profit margins to decline.
+Added: Such increases have and may continue to cause an increase to our labor and related expenses and cause our Shack-level operating profit margins to decline.
In the event there are additional minimum wage increases, increases in employee turnover or other legislation related to employee benefits are enacted or changed, such as the Affordable Care Act, we may be required to implement additional pay increases or provide additional benefits in the future in order to continue to recruit, reward and retain the most qualified people, which may put further pressure on our operating margins by increasing costs.
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Furthermore, increasing weather volatility or other long-term changes in global weather patterns, including any changes associated with global climate change, could have a significant impact on the price or availability of some of our ingredients.
−Removed: These events, combined with other more general economic and demographic conditions, could impact our pricing and negatively affect our Shack sales and Shack-level operating profit margins.
+Added: These events, combined with other more general economic and demographic conditions, could impact our pricing and negatively affect our Shack sales
+Added: Shake Shack Inc.
+Added: Form 10-K | 28
+Added: and Shack-level operating profit margins.
While we have been able to partially offset inflation and other changes in the costs of core operating resources by increasing menu prices, coupled with more efficient purchasing practices, productivity improvements and greater economies of scale, there can be no assurance that we will be able to continue to do so in the future.
12 unchanged sentences
Shortened windows of certainty can impact our ability to plan our business from a supply and profitability perspective and we face greater risk of margin volatility.
+Added: The digital and delivery business, related expenses, execution and expansion thereof, is uncertain and subject to risk.
+Added: Digital innovation and growth remains a key focus for us.
+Added: We continue to execute upon our digital strategy, including the continued integration of our data platforms enabling segmentation and targeted marketing strategies.
+Added: We believe these digital investments to be a critical differentiator for our business, creating the opportunity to drive greater engagement and frequency with both new and existing guests.
+Added: As the digital space around us continues to evolve, our technology needs to evolve concurrently to stay competitive with the industry.
+Added: If we do not maintain and innovate our digital systems that are competitive with the industry, and as we face execution risks around upgrades of existing and new digital platforms, our digital business may be adversely affected and could damage our sales as well as profitability.
+Added: We rely on third-party service providers for our ordering and payment platforms relating to our mobile app and kiosks.
+Added: Such services performed by these third parties could be damaged or interrupted by technological issues, which could then result in a loss of sales for a period of time.
+Added: We also could see higher costs from our digital partners which we may not be able to fully offset by price.
+Added: Information processed by these third parties could also be impacted by cyber attacks, which could not only negatively impact our sales, but also harm our brand image.
+Added: Recognizing the rise in delivery services offered throughout the restaurant industry, we understand the importance of providing such services to meet our guests wherever and whenever they want.
+Added: We have invested in marketing to promote our delivery partnerships, which could negatively impact our profitability if the business does not continue to expand.
+Added: We rely on third-party service providers to fulfill delivery orders timely and in a fashion that will satisfy our guests.
+Added: Errors in providing adequate delivery services may result in guest dissatisfaction, which could also result in loss of guest retention, loss in sales and damage to our brand image.
+Added: Additionally, as with any third party handling food, such delivery services increase the risk of food tampering while in transit.
+Added: We developed sealed packaging to provide some deterrence against such potential food tampering.
+Added: We are also subject to risk if there is a shortage of delivery drivers, which could result in a failure to meet our guests' expectations.
+Added: Third-party delivery services within the restaurant industry is a competitive environment and includes a number of players competing for market share.
+Added: If our third-party delivery partners fail to effectively compete with other third-party delivery providers in the sector, our delivery business may suffer resulting in a loss of sales.
+Added: If any third-party delivery provider we partner with experiences damage to their brand image, we may also see ramifications due to our partnership with them.
+Added: Additionally, some of our competitors have greater financial resources to spend on marketing and advertising around their digital and delivery campaigns than we are able to at this time.
+Added: Should our competitors increase their spend in these areas, or if our advertising and
Shake Shack Inc.
Form 10-K | 29
−Removed: Shortages or interruptions in the supply or delivery of food products could adversely affect our operating results.
−Removed: We are dependent on frequent deliveries of food products that meet our exact specifications.
−Removed: Shortages or interruptions in the supply of food products caused by problems in production or distribution, inclement weather, unanticipated demand or other conditions could adversely affect the availability, quality and cost of ingredients, which would adversely affect our operating results.
−Removed: Our burgers depend on the availability of our proprietary ground beef blend.
−Removed: Availability of our blend depends on two different components:
−Removed: raw material supplied by the slaughterhouses and ground and formed beef patties supplied by regional grinders who further process and convert whole muscle purchased from the slaughterhouses.
−Removed: The primary risk we face is with our regional grinders.
−Removed: If there is an interruption of operation at any one of our regional grinder's facilities, we face an immediate risk because each Shack typically has less than three days of beef patty inventory on hand.
−Removed: However, we have agreements with our regional grinders to provide an alternate back-up supply in the event of a disruption in their operations.
−Removed: In addition, our second largest regional grinder can, in an emergency, supply us in the event of a disruption of operations at one of our beef grinders through our broadline distributor's network, but there would be a delay in availability due to production and shipping.
−Removed: We currently have nine approved raw beef suppliers and ten approved beef processors in the United States.
−Removed: If there is a supply issue with all U.S.
−Removed: raw beef, we have eight approved raw beef suppliers and nine approved beef processors in other countries.
−Removed: The risks to using international suppliers are shipping lead time, shipping costs, potential import duties and U.S.
−Removed: It is unknown at this time how long it would take and at what cost the raw material would be to import from any such other country, but the delay and cost would likely be adverse to our business.
+Added: promotions be less effective than our competitors, there could be an adverse impact on our business in this space.
+Added: Third-party delivery services within the restaurant industry typically charge restaurants a fee per order.
+Added: We currently have contracts with our major delivery service providers for a fixed period of time.
+Added: However, there is uncertainty as to how these fees will evolve.
+Added: In 2021, we implemented menu price inflation on our third-party delivery platforms to help offset a portion of this fee;
+Added: the higher menu prices could result in loss of sales.
We face significant competition for guests, and if we are unable to compete effectively, our business could be adversely affected.
9 unchanged sentences
Our competition continues to intensify as new competitors enter the burger, fast casual, quick service and casual dining segments.
−Removed: Many of our competitors emphasize low cost "value meal" menu items or other programs that provide price discounts on their menu items, a strategy we have yet to pursue.
+Added: Many of our competitors emphasize low cost "value meal" menu items or other programs that provide price discounts on their menu items, a strategy we have just begun to test.
We also face increasing competitive pressures from some of our competitors who have announced initiatives to offer better quality ingredients, such as antibiotic-free meat.
4 unchanged sentences
Additionally, as we continue to expand upon our digital strategy and offer more ways to reach our guests through digital channels, such as the app, web ordering and delivery, we compete with other competitors who currently, or are beginning to, offer the same options as well as new and improved technologies.
−Removed: With these digital channels, there is also an increased opportunity for customer credit card fraud to occur, which could result in increased credit card fees for us.
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 33
+Added: With these digital channels, there is also an increased opportunity for customer credit card fraud to occur, which may have a negative impact on guest traffic and our reputation temporarily.
Our continued success depends, in part, on the continued popularity of our menu and the experience we offer guests at our Shacks.
If we are unable to continue to compete effectively on any of the factors mentioned above, our traffic, Shack sales and Shack-level operating profit margins could decline and our business, financial condition and results of operations would be adversely affected.
−Removed: Inflationary environment poses a new risk to broader demand for restaurants, including ours.
+Added: Shortages or interruptions in the supply or delivery of food products could adversely affect our operating results.
+Added: We are dependent on frequent deliveries of food products that meet our exact specifications.
+Added: Shortages or interruptions in the supply of food products caused by problems in production or distribution, inclement weather, unanticipated demand or other conditions could adversely affect the availability, quality and cost of ingredients, which would adversely affect our operating results.
+Added: Our burgers depend on the availability of our proprietary ground beef blend.
+Added: Availability of our blend depends on two different components:
+Added: raw material supplied by the slaughterhouses and ground and formed beef patties supplied by regional grinders
+Added: Shake Shack Inc.
+Added: Form 10-K | 30
+Added: who further process and convert whole muscle purchased from the slaughterhouses.
+Added: The primary risk we face is with our regional grinders.
+Added: If there is an interruption of operation at any one of our regional grinder's facilities, we face an immediate risk because each Shack typically has less than three days of beef patty inventory on hand.
+Added: However, we have agreements with our regional grinders to provide an alternate back-up supply in the event of a disruption in their operations.
+Added: In addition, our second largest regional grinder can, in an emergency, supply us in the event of a disruption of operations at one of our beef grinders through our broadline distributor's network, but there would be a delay in availability due to production and shipping.
+Added: We currently have nine approved raw beef suppliers and 10 approved beef processors in the United States.
+Added: If there is a supply issue with all U.S.
+Added: raw beef, we have 12 approved raw beef suppliers and nine approved beef processors in other countries.
+Added: The risks to using international suppliers are shipping lead time, shipping costs, potential import duties and U.S.
+Added: It is unknown at this time how long it would take and at what cost the raw material would be to import from any such other country, but the delay and cost would likely be adverse to our business.
+Added: Inflationary environment poses a risk to broader demand for restaurants, including ours.
Our continued success depends on our guests' ability and willingness to pay for rising menu prices across our channels.
The restaurant industry broadly has faced widespread inflation over the past two years, and is likely to continue to face inflationary pressures for the foreseeable future.
−Removed: In a bid to help offset these additional cost pressures, many restaurants have raised menu prices as well as charging a premium price through third-party delivery channels.
−Removed: As of December 2022, the US Bureau of Labor and Statistics reported increases in year-on-year inflation of 8.3% in the Food Away From Home index and 6.6% in the Limited-Service Meals index.
−Removed: Shake Shack as a young and growing brand, has historically been conservative on price, typically raising price by 1%-2% a year.
−Removed: However, we implemented a 3.5%-4.5% menu price increase in March 2022, inclusive of bringing our third party delivery platforms to a premium menu price of 15%, and a second menu price increase of 7% in October 2022 to partially offset the persistent, above average inflationary pressures across the business.
−Removed: We anticipate additional price increases in 2023 beyond the normal pricing pattern as inflationary pressures warrant.
−Removed: However, there is risk that consumer demand suffers as a result of our more aggressive price increases.
+Added: In a bid to help offset these additional cost pressures, many restaurants have raised menu prices as well as charge a premium price through third-party delivery channels.
+Added: There is risk that guests may not absorb our price increases, resulting in changes to their visit frequencies or purchasing patterns.
+Added: As of December 2023 and December 2022, the U.S.
+Added: Bureau of Labor and Statistics reported increases in year-on-year inflation of 5.2% and 8.3%, respectively in the Food Away From Home index and 5.9% and 6.6%, respectively in the Limited-Service Meals index.
+Added: Pandemics or disease outbreaks, such as the COVID-19 pandemic, have disrupted, and may continue to disrupt our business, results of operations and our financial condition.
+Added: The World Health Organization officially declared the COVID-19 health emergency a global pandemic in March 2020 and subsequently declared an end to the health emergency in May 2023, more than three years after its original declaration.
+Added: However, the COVID-19 pandemic may continue to impact the United States and the global economy, including impacts to travel, work patterns, commuting, leisure, vacation and other activities in the future.
+Added: We continue to follow public health guidelines to ensure the health and safety of our teams and guests.
+Added: An increase in restrictions or a return to shutdowns imposed by governmental authorities may have a material impact to our business, financial condition and results of operations.
+Added: Throughout the COVID-19 pandemic, state and local governments in the U.S.
+Added: and throughout the world have alternated between removing and easing certain restrictions and reintroducing restrictions on businesses, such as imposing curfews, restrictions on public gatherings, human interactions and restaurant operation, depending on the severity of local or regional outbreaks.
+Added: Additionally, different jurisdictions have seen varying levels of outbreaks or resurgences in outbreaks, and corresponding differences in government responses, which may continue to make it difficult for us to plan or forecast an appropriate response.
+Added: For example, a material portion of our licensed revenue comes from Asia, a region which has seen more severe restrictions from rising COVID-19 pandemic cases than the United States.
+Added: In many jurisdictions, the pandemic has continued to disrupt consumer activity and negatively impact the foot traffic in our Shacks, as employees continue to work from home more frequently.
+Added: The significance of the operational and financial impact on the Company will depend on how long and widespread the disruptions caused by the COVID-19 pandemic, and the corresponding response to contain the virus and treat those affected by it prove to be.
+Added: Further uncertain or changing economic and market conditions, including prolonged periods of high unemployment, staffing issues, inflation, deflation or prolonged weak consumer demand or a decrease in consumer discretionary spending, or political or other changes resulting from the pandemic or other factors would continue to impact our business, sales and operating results.
+Added: Viruses such as COVID-19 may be transmitted through human contact and airborne delivery, and the risk of contracting viruses could cause team members or guests to avoid gathering in public places.
+Added: Additionally, government authorities, from time to time, may impose curfews, restrictions on public gatherings, human interactions and restaurant operations which may impact our ability to offer all sales channels at all Shacks, and employees in many jurisdictions continue to work from home at a higher rate.
+Added: These restrictions and changing travel patterns may adversely affect our guest traffic and the ability to adequately staff our Shacks.
+Added: Shake Shack Inc.
+Added: Form 10-K | 31
+Added: Additionally, if a significant percentage of our workforce or the workforce of our business partners are unable to work due to reasons including illness or travel restrictions in connection with pandemics or disease outbreaks, our operations may be negatively impacted, which could have a material adverse effect on our business, financial condition and results of operations.
The increasing focus on environmental, sustainability, social and governance matters could increase our costs, harm our reputation and adversely impact our business and financial results.
2 unchanged sentences
We experience pressure to make commitments relating to sustainability matters that affect companies in our industry, including the design and implementation of specific risk mitigation strategic initiatives relating to sustainability and the environment.
−Removed: If we are not effective in addressing environmental, sustainability and social matters affecting our industry, or setting and meeting relevant environmental, sustainability or social goals, our brand image may suffer, which could lead to a loss of revenue.
−Removed: Certain investors may choose not to invest in our securities if we do not meet their relevant ESG expectations..
+Added: If we are not effective in addressing environmental, sustainability and social matters affecting our industry, or setting and meeting relevant environmental, sustainability or social goals and meeting evolving stakeholder expectations, our brand image may suffer, which could lead to a loss of revenue.
+Added: Certain investors may choose not to invest in our securities if we do not meet their relevant ESG expectations, which may continue to evolve over time.
We may also experience increased costs in order to execute upon our ESG goals and measure achievement of those goals and our ability to achieve any stated goal, target, or objective is subject to numerous factors and conditions, many of which are outside of our control.
−Removed: Any failure to achieve our ESG goals or a perception of our failure to act appropriately with respect to environmental, sustainability, social or governance matters could adversely affect our business and impact our reputation with investors, guests and other business partners and impact our ability to attract and retain team members.
+Added: Any failure to achieve our ESG goals or meeting evolving stakeholder expectations, or a perception of our failure to act appropriately with respect to environmental, sustainability, social or governance matters could adversely affect our business and impact our reputation with investors, guests and other business partners and impact our ability to attract and retain team members.
Standards for tracking and reporting on ESG have not been harmonized and continue to evolve.
−Removed: Additionally, this increased focus on ESG may result in new laws, regulations and requirements that, if promulgated, could cause us to experience increased reporting or implementation or require us to make changes to our operations to comply with those laws, regulations and requirements.
+Added: Additionally, this increased focus on ESG has resulted in and may result in new laws, regulations and requirements that could cause us to experience increased reporting or implementation costs or require us to make changes to our operations to comply with those laws, regulations and requirements.
These increased costs could have an adverse impact on our business, financial condition and results of operations.
4 unchanged sentences
We have worked to expand our international supply chain with secondary suppliers for various key ingredients across Turkey, Japan, South Korea and China.
−Removed: While we have established secondary supply solutions for some of these ingredients, we have not acquired secondary
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 34
−Removed: suppliers for all of them.
−Removed: Most of our suppliers around the world have experienced difficulties and delays in acquiring ingredients to make our products.
+Added: While we have established secondary supply solutions for some of these ingredients, we have not acquired secondary suppliers for all of them.
Due to the increasingly long lead time and general volatility in the supply chain and global ocean freight disruptions, the third-party logistic providers for our international licensed Shacks carry at least three months of inventory to allow for delays or interruptions in the supply chain.
2 unchanged sentences
If our international licensed Shacks are unable to obtain our proprietary ingredients in the necessary amounts in a timely fashion as a result of logistics issues, sanctions or other challenges, it could harm its business and adversely affect the licensing revenue we receive, adversely impacting our business, financial condition and results of operations.
−Removed: We are subject to risks associated with leasing property subject to long-term, non-cancelable leases.
+Added: We are subject to risks associated with leasing property subject to long-term leases.
We do not own any real property and all of our domestic Company-operated Shacks are located on leased premises.
The leases for our Shacks generally have initial terms ranging from 10 to 15 years and typically include two five-year renewal options.
−Removed: However, the license agreement for our Madison Square Park Shack can be terminated by the New York City Commissioner of Parks for any reason on 25 days' written notice.
+Added: Shake Shack Inc.
+Added: Form 10-K | 32
Generally, our leases are net leases that require us to pay our share of the costs of real estate taxes, utilities, building operating expenses, insurance and other charges in addition to rent.
10 unchanged sentences
A number of these lawsuits have resulted in the payment of substantial damages by the defendants.
−Removed: Similar lawsuits have been instituted from time to time alleging violations of various federal and state wage and hour laws regarding, among other things, employee meal deductions, overtime eligibility of assistant managers and failure to pay for all hours worked.
−Removed: Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to one of our Shacks, including actions seeking damages resulting from food-borne illness or accidents in our Shacks.
+Added: Similar lawsuits have been instituted from time to time alleging violations of various federal and state wage and hour laws regarding, among other things, employee meal-time deductions, overtime eligibility of exempt managers and failure to pay for all hours worked.
+Added: Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for an alleged illness or injury they suffered at or after a visit to one of our Shacks, including actions seeking damages resulting from alleged food-borne illness or accidents in our Shacks.
We are also subject to a variety of other claims from third parties arising in the ordinary course of our business, including contract claims.
−Removed: The restaurant industry has also been subject to a growing number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their customers.
+Added: The restaurant industry has also been subject to claims that the menus and actions of restaurant chains have led to the obesity of certain of their customers.
Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations.
1 unchanged sentence
Although we maintain what we believe to be adequate levels of insurance to cover any of these liabilities, insurance may not be available at all or in sufficient amounts with respect to these or other matters.
−Removed: A judgment or other liability
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 35
−Removed: in excess of our insurance coverage for any claims or any adverse publicity resulting from claims could adversely affect our business, financial condition and results of operations.
+Added: A judgment or other liability in excess of our insurance coverage for any claims or any adverse publicity resulting from claims could adversely affect our business, financial condition and results of operations.
Our business is subject to risks related to our sale of alcoholic beverages.
We serve beer and wine at most of our Shacks.
−Removed: Alcoholic beverage control regulations generally require our Shacks to apply to a state authority and, in certain locations, county or municipal authorities for a license that must be renewed annually and may be revoked or suspended for cause at any time.
+Added: Alcoholic beverage control regulations generally require our Shacks to apply to a state authority and, in certain locations, county or municipal authorities for a license that must be renewed annually, or as required, and may be revoked or suspended for cause at any time.
Alcoholic beverage control regulations relate to numerous aspects of daily operations of our Shacks, including minimum age of patrons and team members, hours of operation, advertising, trade practices, wholesale purchasing, other relationships with alcohol manufacturers, wholesalers and distributors, inventory control and handling, storage and dispensing of alcoholic beverages.
2 unchanged sentences
We carry liquor liability coverage as part of our existing comprehensive general liability insurance.
−Removed: Recent litigation against restaurant chains has resulted in significant judgments and settlements under dram shop statutes.
+Added: Litigation against restaurant chains has resulted in significant judgments and settlements under dram shop statutes.
Because these cases often seek punitive damages, which may not be covered by insurance, such litigation could have an adverse impact on our business, financial condition and results of operations.
1 unchanged sentence
A judgment significantly in excess of our insurance coverage or not covered by insurance could have a material adverse effect on our business, financial condition and results of operations.
+Added: Shake Shack Inc.
+Added: Form 10-K | 33
GENERAL BUSINESS AND ECONOMIC RISKS
10 unchanged sentences
▪ third-party service providers, particularly related to delivery services and information technology, and potential guest dissatisfaction from circumstances out of our control relating to third-party service providers;
+Added: ▪ concerns over our reported financial results;
▪ employment-related claims relating to alleged employment discrimination, wage and hour violations, labor standards or health care and benefit issues;
5 unchanged sentences
Information concerning us may be posted on such platforms at any time.
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 36
Information posted may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects or business.
2 unchanged sentences
Changes in economic conditions, both domestically and internationally, could materially affect our business, financial condition and results of operations.
−Removed: The restaurant industry depends on consumer discretionary spending, and any economic downturn or disruptions in the overall economy, including political unrest and protests, high inflation rates, high unemployment and financial market volatility and unpredictability, may cause a related reduction in consumer confidence, which negatively affects the restaurant industry.
+Added: The restaurant industry depends on consumer discretionary spending, and any economic downturn or disruptions in the overall economy, including high inflation rates, high unemployment, financial market volatility and unpredictability, and political unrest and protests, may cause a related reduction in consumer confidence, which negatively affects the restaurant industry.
These factors, as well as national, regional and local regulatory and economic conditions, gasoline prices, energy and other utility costs, conditions in the residential real estate and mortgage markets, health care costs, access to credit, disposable consumer income and consumer confidence, affect discretionary consumer spending.
3 unchanged sentences
Prolonged negative trends in sales could cause us and our licensees to, among other things, reduce the number and frequency of new Shack openings, close Shacks, delay remodeling of our existing Shacks or recognize asset impairment charges.
+Added: Shake Shack Inc.
+Added: Form 10-K | 34
Because many of our domestic Company-operated Shacks are concentrated in local or regional areas, we are susceptible to economic and other trends and developments, including adverse weather conditions, in these areas.
2 unchanged sentences
Our urban Shacks make up approximately 39% of our total domestic Company-operated Shacks as of December 27, 2023.
−Removed: Additionally, our financial performance is highly dependent on Shacks located in the Northeast and the New York City metropolitan area, which comprised approximately 31% (or 79 out of 254) of our total domestic Company-operated Shacks as of December 28, 2022.
+Added: Additionally, our financial performance is highly dependent on Shacks located along both the East and West Coasts.
As a result, adverse economic conditions in any of these markets or regions could have a material adverse effect on our overall results of operations.
7 unchanged sentences
Like many other retail companies, and because of the prominence of our brand, we have experienced, and will likely continue to experience, attempts to compromise our information technology systems.
−Removed: Additionally, the techniques and sophistication used to conduct cyber-attacks and breaches of information technology systems, as well as the sources and targets of these attacks,
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 37
−Removed: change frequently and are often not recognized until such attacks are launched or have been in place for a period of time.
+Added: Additionally, the techniques and sophistication used to conduct cyber-attacks and breaches of information technology systems, as well as the sources and targets of these attacks, change frequently and are often not recognized until such attacks are launched or have been in place for a period of time.
While we continue to make significant investment in physical and technological security measures, team member training, and third-party services designed to anticipate cyber-attacks and prevent breaches, our information technology networks and infrastructure or those of our third-party vendors and other service providers could be vulnerable to damage, disruptions, shutdowns or breaches of confidential information due to criminal conduct, team member error or malfeasance, utility failures, natural disasters or other catastrophic events.
2 unchanged sentences
Our systems may not be able to satisfy these changing requirements and guest and team member expectations, or may require significant additional investments or time in order to do so.
−Removed: Efforts to hack or breach security measures, failures of systems or software to operate as designed or intended, viruses, operator error or inadvertent releases of data all threaten our and our service providers' information systems and records.
+Added: Efforts to hack or breach security measures, failures of systems or software to operate as designed or intended, viruses, operator error or inadvertent releases of data all threaten our information systems and records and that of our service providers.
A breach in the security of our information technology systems or those of our service providers could lead to an interruption in the operation of our systems, resulting in operational inefficiencies and a loss of profits.
1 unchanged sentence
If we are unable to maintain and update our information technology systems to meet the needs of our business, our business could be adversely impacted.
−Removed: We rely heavily on information systems, including point-of-sale processing in our Shacks, for management of our supply chain, accounting, payment of obligations, collection of cash, credit and debit card transactions, digital ordering and other processes and procedures.
+Added: We rely heavily on information systems, including point-of-sale processing in our Shacks, for management of our supply chain, accounting, payment of obligations, collection of cash, credit and debit card transactions, digital ordering and other processes
+Added: Shake Shack Inc.
+Added: Form 10-K | 35
+Added: and procedures.
As a rapidly growing business, our current information technology infrastructure may not be adequately suited to handle the increasing volume of data and additional information needs of our organization.
5 unchanged sentences
Our operations depend upon our ability to protect our computer equipment, kiosks and systems against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses and other disruptive problems.
−Removed: The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms, expanding our systems as we grow or a breach in security of these systems could result in interruptions to or delays in our business and guest service and reduce efficiency in our operations.
+Added: The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms, expanding our systems as we grow or a breach in security of these systems could result in loss of sales, interruptions to or delays in our business and guest service and reduce efficiency in our operations.
If our information technology systems fail and our redundant systems or disaster recovery plans are not adequate to address such failures, or if our business interruption insurance does not sufficiently compensate us for any losses that we may incur, our revenues and profits could be reduced and the reputation of our brand and our business could be materially adversely affected.
2 unchanged sentences
We may be adversely affected if any of our third-party service providers experience any interruptions in their systems, which could potentially impact the services we receive from them and cause a material failure or interruption in our own systems.
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 38
Because a component of our strategy is to continue to grow our licensed business internationally, the risks of doing business internationally could lower our revenues, increase our costs, reduce our profits or disrupt our business.
−Removed: 149 of our 182 licensed Shacks as of December 28, 2022 are located outside the United States and we expect to continue to expand our licensed operations internationally.
+Added: As of December 27, 2023, 184 of our 223 licensed Shacks are located outside the United States and we expect to continue to expand our licensed operations internationally.
As a result, we are and will be, on an increasing basis, subject to the risks of doing business outside the United States, including:
3 unchanged sentences
▪ inability to achieve international tax treaty status with select licensed partners;
−Removed: ▪ the presence and acceptance of business corruption in various international markets;
+Added: ▪ the possibility of business corruption in various international markets;
▪ the ability to comply with, or impact of complying with, complex and changing laws, regulations and policies of foreign governments that may affect investments or operations, including foreign ownership restrictions, import and export controls, tariffs, embargoes, intellectual property, licensing requirements and regulations and changes in applicable tax laws;
+Added: ▪ the enforceability of contract rights;
▪ the difficulties involved in managing an organization doing business in many different countries;
5 unchanged sentences
▪ political, social and economic instability.
−Removed: Any or all of these factors may adversely affect the performance of and revenues we receive from our licensed Shacks located in international markets.
−Removed: Our international licensed Shacks operate in several volatile regions that are subject to geopolitical and socio-political factors that pose risk to our business operations.
−Removed: If political, social or business conditions were to change we may need to temporarily suspend or cease operations in a particular region or country entirely, closing our existing Shacks and suspending our expansion activities.
+Added: Shake Shack Inc.
+Added: Form 10-K | 36
+Added: Any or all of these factors may adversely affect the performance of and revenues we receive from our licensed Shacks located in international markets or cause delays to the licensees' opening timelines.
+Added: We may also face a loss of sales, globally, related to negative sentiment towards American brands.
+Added: Our international licensed Shacks operate in several volatile regions that are subject to geopolitical and sociopolitical factors that pose risk to our business operations.
+Added: If political, social or business conditions were to change we may need to temporarily suspend or cease operations in a particular region or country entirely, close our existing Shacks and suspend our expansion activities.
Also, the economy of any region in which our Shacks are located may be adversely affected to a greater degree than that of other areas of the country or the world by certain developments affecting industries concentrated in that region or country.
11 unchanged sentences
We may not be able to adequately protect our trademarks and service marks, and our competitors and others may successfully challenge the validity and/or enforceability of our trademarks and service marks and other intellectual property.
−Removed: Additionally, we may be prohibited from entering into certain
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 39
−Removed: new markets due to restrictions surrounding competitors' trademarks.
+Added: Additionally, we may be prohibited from entering into certain new markets due to restrictions surrounding competitors' trademarks.
In addition, the laws of some foreign countries do not protect intellectual property to the same extent as the laws of the United States.
8 unchanged sentences
We depend on the leadership and experience of key members of our executive management team.
−Removed: The loss of the services of any of our executive management team members could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all.
+Added: As previously announced, our Chief Executive Officer, Randy Garutti, has informed the Company's Board of Directors that he will retire from the Company in 2024.
+Added: Garutti will serve as an advisor to the Company following his resignation to ensure a proper transition to his successor.
+Added: The loss of the services of any of our executive management team members, including Mr.
+Added: Garutti prior to and during
+Added: Shake Shack Inc.
+Added: Form 10-K | 37
+Added: his planned transition period, could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all.
We do not maintain key person life insurance policies on any of our executive officers.
7 unchanged sentences
Such losses could have a material adverse effect on our business and results of operations.
−Removed: Additionally, we are self-insured for our team member medical plan and we recognize a liability that represents our estimated cost of claims incurred but not reported as of the balance sheet date.
+Added: Additionally, we are self-insured for our team member medical plan and partially self-insured for our workers' compensation coverage.
+Added: We recognize a liability that represents our estimated cost of claims incurred but not reported as of the balance sheet date.
Our estimated liability is based on a number of assumptions and factors, including actuarial assumptions and historical trends.
2 unchanged sentences
REGULATORY AND LEGAL RISKS
+Added: We have identified a material weakness in our internal control over financial reporting.
+Added: If our remediation of the material weakness is not effective or if we fail to develop and maintain effective internal controls over financial reporting, our ability to produce timely and accurate financial information or comply with Section 404 of the Sarbanes-Oxley Act of 2002 could be impaired, which could have a material adverse effect on our business and stock price.
+Added: As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), the Sarbanes-Oxley Act of 2002, as amended (the "Sarbanes-Oxley Act"), and the listing standards of the New York Stock Exchange.
+Added: The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting.
+Added: It also requires management to perform an annual assessment of the effectiveness of our internal control over financial reporting and disclosure of any material weaknesses in such controls.
+Added: We are required to have our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting.
+Added: We have identified a material weakness in our internal control over financial reporting in connection with management review internal controls over the calculation of state deferred taxes and the related income tax expense (benefit).
+Added: Refer to Note 3, Restatement of Previously Issued Consolidated Financial Statements, in the Consolidated Financial Statements in Part II, Item 8 for additional information.
+Added: Any failure to remediate the identified material weakness, or to develop or maintain effective controls, or any difficulties encountered in the implementation or improvement of such controls, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods, such as the restatement of our previously issued consolidated financial statements described in more detail in this Annual Report on Form 10-K.
+Added: Any failure to remediate the identified material weakness, or to implement and maintain effective internal control over financial reporting also could adversely affect the results of management evaluations and independent registered public accounting firm audits of our internal control over financial reporting that we are required to include in our periodic reports that will be filed with the SEC.
+Added: We can provide no assurance that the measures we are taking and plan to take in the future will remediate the material weakness identified in connection with the restatement, or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls.
+Added: In addition, even if we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.
+Added: We continue to evaluate steps to
+Added: Shake Shack Inc.
+Added: Form 10-K | 38
+Added: remediate the material weakness.
+Added: These remediation measures may be time consuming and costly, and there is no assurance that these initiatives will ultimately have the intended effects.
+Added: Any failure to maintain effective internal control over financial reporting could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis.
+Added: If our financial statements are not accurate, investors may not have a complete understanding of our operations.
+Added: Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the NYSE, the SEC or other regulatory authorities, or other potential claims or litigation.
+Added: Ineffective internal control over financial reporting could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
+Added: The SEC has proposed new rules which, if adopted, would impose significant new disclosure obligations related to climate change, and has recently adopted new rules relating to cybersecurity which have required us to develop and implement effective controls with respect to these new obligations.
+Added: Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which may have a negative effect on the trading price of our Class A common stock.
+Added: In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the New York Stock Exchange.
We are subject to many federal, state, local and foreign laws and regulations, as well as other statutory and regulatory requirements, with which compliance is both costly and complex.
1 unchanged sentence
We are subject to extensive federal, state, local and foreign laws and regulations, as well as other statutory and regulatory requirements, including those related to:
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 40
−Removed: ▪ Nutritional content labeling and disclosure requirements - There has been increased legislative, regulatory and consumer focus on the food industry including nutritional and advertising practices.
+Added: ▪ Nutritional content labeling and disclosure requirements - There are various legislative, regulatory and consumer-focused requirements on the food industry including nutritional and advertising practices.
These changes have resulted in, and may continue to result in, the enactment of laws and regulations that impact the ingredients and nutritional content of our menu items, or laws and regulations requiring us to disclose the nutritional content of our food offerings.
9 unchanged sentences
Difficulties or failure to maintain or obtain the required licenses, permits and approvals could adversely affect our existing Shacks and delay or result in our decision to cancel the opening of new Shacks, which would adversely affect our business.
+Added: Shake Shack Inc.
+Added: Form 10-K | 39
▪ Employment regulations - We are subject to various federal and state laws governing our employment practices, including laws relating to minimum wage requirements, employee classifications as exempt or non-exempt, payroll and unemployment tax laws, requirements to provide meal and rest periods or other benefits, family leave mandates, requirements regarding working conditions and accommodations to certain employees, citizenship and work authorization requirements, insurance and workers' compensation rules, scheduling notification requirements and anti-discrimination laws.
1 unchanged sentence
For example, the Fair Workweek legislation implemented in New York City requires fast food employers to provide employees with specified notice in scheduling changes and pay premiums for changes made to employees' schedules, among other requirements.
−Removed: Similar legislation may be enacted in other jurisdictions in which we operate as well, and in turn, could result in increased costs.
+Added: Similar legislation has been and may be enacted in other jurisdictions in which we operate as well, and in turn, could result in increased costs.
Additionally, we may suffer losses from or incur significant costs to defend claims alleging non-compliance.
−Removed: Although none of our employees are currently covered under collective bargaining agreements, our employees may elect to be represented by labor unions in the future.
+Added: Although none of our employees are currently covered under collective bargaining agreements, certain employees of other companies in our industry have recently become unionized, and our employees may elect to be represented by labor unions in the future.
If a significant number of our employees were to become unionized and collective bargaining agreement terms were significantly different from our current compensation arrangements, it could adversely affect our business, financial condition or results of operations.
1 unchanged sentence
Further, if we enter into a new market with unionized construction companies, or the construction companies in our current markets become unionized, construction and build costs for new Shacks in such markets could materially increase.
−Removed: ▪ The Affordable Care Act - We are required to provide affordable coverage to substantially all full-time employees, or otherwise be subject to potential excise tax penalties based on the affordability criteria in the Act.
+Added: ▪ The Affordable Care Act - We are required to provide affordable coverage to substantially all full-time employees, or otherwise be subject to potential excise tax penalties based on the affordability criteria in the Affordable Care Act.
Additionally, some states and localities have passed state and local laws mandating the provision of certain levels of health benefits by some employers.
1 unchanged sentence
▪ The Americans with Disabilities Act ("ADA") and similar state laws - We are subject to the ADA and similar state laws, which, among other things, prohibits discrimination in employment and public accommodations on the basis of disability.
−Removed: Under the ADA, our Shacks are required to meet federally mandated requirements for the disabled and we could be required to incur expenses to modify our Shacks to provide service to, or make reasonable accommodations
+Added: Under the ADA, our Shacks are required to meet federally mandated requirements for the disabled and we could be required to incur expenses to modify our Shacks to provide service to, or make reasonable accommodations for the employment of, disabled persons.
+Added: The expenses associated with these modifications, or any damages, legal fees and costs associated with resolving ADA-related complaints could be material.
Shake Shack Inc.
Form 10-K | 40
−Removed: for the employment of, disabled persons.
−Removed: The expenses associated with these modifications, or any damages, legal fees and costs associated with resolving ADA-related complaints could be material.
▪ Privacy and cybersecurity - Our business requires the collection, transmission and retention of large volumes of guest and team member data, including credit and debit card numbers and other personally identifiable information.
−Removed: The collection and use of such information is regulated at the federal and state levels, as well as by the European Union (EU).
+Added: The collection and use of such information is regulated at the federal and state levels, as well as internationally.
Regulatory requirements, both domestic and abroad, have been changing with increasing regulation relating to the privacy, security and protection of data.
20 unchanged sentences
If not utilized, $49.9 million of our state NOL carryforwards can be carried forward indefinitely, and the remainder will begin to expire in 2024.
−Removed: Federal NOLs incurred in taxable years beginning after December 31, 2017 can be carried forward indefinitely, but the deductibility of federal NOLs in taxable years beginning after December 31, 2020, is subject to certain limitations.
+Added: As of December 27, 2023, the Company had federal tax credit carryforwards of $25.7 million which will begin to expire in 2025 and gross state tax credit carryforwards of $0.4 million which will begin to expire in 2024.
In addition, under Section 382 of the Internal Revenue Code (“IRC”) of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” its ability to use its pre-change NOLs to offset its post-change income may be limited.
1 unchanged sentence
Similar rules may apply under state tax laws.
−Removed: We may experience ownership changes in the
+Added: We may experience ownership changes in the future, some of which are outside our control.
+Added: This could limit the amount of NOLs that we can utilize annually to offset future taxable income or tax liabilities.
+Added: Subsequent statutory or regulatory changes in respect of the utilization of NOLs for federal or
Shake Shack Inc.
Form 10-K | 41
−Removed: future, including subsequent changes in our stock ownership, some of which are outside our control.
−Removed: This could limit the amount of NOLs that we can utilize annually to offset future taxable income or tax liabilities.
−Removed: Subsequent statutory or regulatory changes in respect of the utilization of NOLs for federal or state purposes, such as suspensions on the use of NOLs or limitations on the deductibility of NOLs carried forward, or other unforeseen reasons, may result in our existing NOLs expiring or otherwise being unavailable to offset future income tax liabilities.
+Added: state purposes, such as suspensions on the use of NOLs or limitations on the deductibility of NOLs carried forward, or other unforeseen reasons, may result in our existing NOLs expiring or otherwise being unavailable to offset future income tax liabilities.
Changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results of operations and financial condition.
16 unchanged sentences
federal income tax purposes and thus would be subject to entity-level tax on its taxable income, which could have a material adverse effect on our results of operations, financial position and cash flows.
−Removed: If we fail to maintain effective internal controls over financial reporting, our ability to produce timely and accurate financial information or comply with Section 404 of the Sarbanes-Oxley Act of 2002 could be impaired, which could have a material adverse effect on our business and stock price.
−Removed: As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), the Sarbanes-Oxley Act of 2002, as amended (the "Sarbanes-Oxley Act"), and the listing standards of the New York Stock Exchange.
−Removed: The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting.
−Removed: It also requires management to perform an annual assessment of the effectiveness of our internal control over financial reporting and disclosure of any material weaknesses in such controls.
−Removed: We are required to have our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting.
−Removed: Any failure to develop or maintain effective controls, or any difficulties encountered in the implementation or improvement of such controls, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.
−Removed: Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of management evaluations and independent registered public accounting firm audits of our internal control over financial reporting that we are required to include in our periodic reports that will be filed with the SEC.
−Removed: The SEC has proposed new rules which, if adopted, would impose significant new disclosure obligations related to climate change and cybersecurity which would require us to develop and implement effective controls with respect to these new obligations.
−Removed: Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which may have a negative effect on the trading price of our Class A common stock.
−Removed: In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the New York Stock Exchange.
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 43
RISKS RELATED TO OUR ORGANIZATIONAL STRUCTURE
2 unchanged sentences
The non-controlling interest holders, for the foreseeable future, have influence over corporate management and affairs, as well as matters requiring stockholder approval.
−Removed: The non-controlling interest holders are able to, subject to applicable laws and the voting arrangements, participate in the election of a majority of the members of our Board of Directors and actions to be taken by us and our Board of Directors, including amendments to our certificate of incorporation and bylaws and approval of significant corporate transactions, including mergers and sales of substantially all of our assets.
+Added: The non-controlling interest holders are able to, subject to applicable law and the voting arrangements, participate in the election of majority of the members of our Board of Directors and actions to be taken by us and our Board of Directors, including amendments to our certificate of incorporation and bylaws and approval of significant corporate transactions, including mergers and sales of substantially all of our assets.
The directors so elected will have the authority, subject to the terms of our indebtedness and applicable rules and regulations, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions.
3 unchanged sentences
In addition, the determination of future tax reporting positions, the structuring of future transactions and the handling of any future challenges by any taxing authorities to our tax reporting positions may take into consideration these non-controlling interest holders' tax or other considerations, which may differ from the considerations of us or our other stockholders.
+Added: Shake Shack Inc.
+Added: Form 10-K | 42
In addition, certain of the non-controlling interest holders are in the business of making or advising on investments in companies and may hold, and may from time to time in the future acquire interests in or provide advice to businesses that directly or indirectly compete with certain portions of our business or the business of our suppliers.
8 unchanged sentences
Payments under the Tax Receivable Agreement are not conditioned on any non-controlling interest holders continued ownership of LLC Interests or our Class A common stock.
−Removed: The actual amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of redemptions or exchanges by the holders of LLC Interests, the amount of gain recognized by such
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 44
−Removed: holders of LLC Interests, the amount and timing of the taxable income we generate in the future, and the federal tax rates then applicable.
+Added: The actual amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of redemptions or exchanges by the holders of LLC Interests, the amount of gain recognized by such holders of LLC Interests, the amount and timing of the taxable income we generate in the future, and the federal tax rates then applicable.
The non-controlling interest holders have the right to have their LLC Interests redeemed or exchanged into shares of Class A common stock, which may cause volatility in our stock price.
3 unchanged sentences
Sales or distributions of substantial amounts of our Class A common stock, including shares issued in connection with an acquisition, or the perception that such sales or distributions could occur, may cause the market price of our Class A common stock to decline.
+Added: Our organizational structure, including our Tax Receivable Agreement, is very complex and we require the expertise of various tax, legal and accounting advisers to ensure compliance with applicable laws and regulations.
+Added: We have and will continue to incur significant expenses in connection with the administration of our organizational structure.
+Added: As a result, our expenses for legal, tax and accounting compliance may be significantly greater than other companies of our size that do not have a similar organizational structure or a tax receivable agreement in place.
+Added: Shake Shack Inc.
+Added: Form 10-K | 43
We will continue to incur relatively outsized costs as a result of being a public company and in the administration of our complex organizational structure.
As a public company, we incur significant legal, accounting, insurance and other expenses that we would not incur as a private company, including costs associated with public company reporting requirements.
−Removed: We have also incurred and will continue to incur costs associated with compliance with the Sarbanes-Oxley Act and related rules implemented by the SEC.
−Removed: The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing, and the SEC has proposed new rules which, if adopted, would impose significant new disclosure obligations on us related to climate change and cybersecurity.
+Added: We have also incurred and will continue to incur costs associated with compliance with the Sarbanes-Oxley Act and related rules implemented by the SEC, and will incur additional costs in connection with remediating the material weakness we have identified in our internal control over financial reporting.
+Added: Refer to Note 3, Restatement of Previously Issued Consolidated Financial Statements, in the Consolidated Financial Statements in Part II, Item 8 for additional information.
+Added: The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing, and the SEC has proposed new rules which, if adopted, would impose significant new disclosure obligations on us related to climate change, and has adopted new rules relating to cybersecurity.
These rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming.
1 unchanged sentence
Furthermore, if we are unable to continue to satisfy our obligations as a public company, we would be subject to delisting our common stock, fines, sanctions and other regulatory action and potentially civil litigation.
−Removed: Our organizational structure, including our Tax Receivable Agreement, is very complex and we require the expertise of various tax, legal and accounting advisers to ensure compliance with applicable laws and regulations.
+Added: Our organizational structure, including our Tax Receivable Agreement, is very complex and we require the expertise of various tax, legal and accounting advisers to ensure compliance with applicable laws and regulations, and we have identified a material weakness in our internal control over financial reporting in connection with internal controls over the calculation of state deferred taxes and the related income tax expense (benefit).
We have and will continue to incur significant expenses in connection with the administration of our organizational structure.
10 unchanged sentences
▪ our advance notice and duration of ownership requirements for nominations for election to the Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 45
These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take other corporate actions you desire.
1 unchanged sentence
In addition, the Delaware General Corporation Law (the "DGCL"), to which we are subject, prohibits us, except under specified circumstances, from engaging in any mergers, significant sales of stock or assets or business combinations with any stockholder or group of stockholders who owns at least 15% of our common stock.
−Removed: The provision of our certificate of incorporation requiring exclusive venue in the Court of Chancery in the State of Delaware for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.
−Removed: Our amended and restated certificate of incorporation requires, to the fullest extent permitted by law, that (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or the bylaws or (iv) any action asserting a claim against us governed by the internal affairs doctrine will have to be brought only in the Court of Chancery in the State of Delaware.
−Removed: Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.
+Added: Shake Shack Inc.
+Added: Form 10-K | 44
We do not currently expect to pay any cash dividends.
8 unchanged sentences
RISKS RELATED TO OUR TAX RECEIVABLE AGREEMENT
+Added: We will continue to incur relatively outsized costs as a result of our complex organizational structure.
+Added: Our organizational structure, including our Tax Receivable Agreement, is very complex and we require the expertise of various tax, legal and accounting advisers to ensure compliance with applicable laws and regulations.
+Added: We have and will continue to incur significant expenses in connection with the administration of our organizational structure.
+Added: As a result, our expenses for legal, tax and accounting compliance may be significantly greater than other companies of our size that do not have a similar organizational structure or a tax receivable agreement in place.
We are a holding company and our principal asset is our interest in SSE Holdings, and, accordingly, we will depend on distributions from SSE Holdings to pay our taxes and expenses, including payments under the Tax Receivable Agreement.
9 unchanged sentences
Under the terms of the SSE Holdings LLC Agreement, SSE Holdings is obligated to make tax distributions to its members, including us.
−Removed: In addition to tax expenses, we will also incur expenses related to our operations, including payments under the Tax Receivable Agreement, which we expect will be
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 46
+Added: In addition to tax expenses, we will also incur expenses related to our operations, including payments under the Tax Receivable Agreement, which we expect will be significant.
We intend, as its managing member, to cause SSE Holdings to make cash distributions to its members in an amount sufficient to (i) fund all or part of their tax obligations in respect of taxable income allocated to them and (ii) cover our operating expenses, including payments under the Tax Receivable Agreement.
4 unchanged sentences
In addition, if SSE Holdings does not have sufficient funds to make distributions, our ability to declare and pay cash dividends will also be restricted or impaired.
+Added: Shake Shack Inc.
+Added: Form 10-K | 45
In certain cases, payments under the Tax Receivable Agreement to the non-controlling interest holders may be accelerated or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the Tax Receivable Agreement.
10 unchanged sentences
However, we might not determine that we have effectively made an excess cash payment to a non-controlling interest holder for a number of years following the initial time of such payment and, if any of our tax reporting positions are challenged by a taxing authority, we will not be permitted to reduce any future cash payments under the Tax Receivable Agreement until any such challenge is finally settled or determined.
−Removed: As a result, payments could be made under
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 47
−Removed: the Tax Receivable Agreement in excess of the tax savings that we realize in respect of the tax attributes with respect to non-controlling interest holders that are the subject of the Tax Receivable Agreement.
+Added: As a result, payments could be made under the Tax Receivable Agreement in excess of the tax savings that we realize in respect of the tax attributes with respect to non-controlling interest holders that are the subject of the Tax Receivable Agreement.
RISKS RELATED TO OUR CONVERTIBLE NOTES
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.
−Removed: Our ability to make scheduled payments of the principal of, to pay special interest on or to refinance our indebtedness, including the $250.0 million 0% Convertible Senior Notes due 2028 (the “Notes”), depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.
+Added: Our ability to make scheduled payments of the principal of, to pay special interest on or to refinance our indebtedness, including the $250.0 million 0% Convertible Senior Notes due in 2028 (the “Notes”), depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.
Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures.
If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive.
−Removed: Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time.
+Added: Our ability to refinance our indebtedness will depend on
+Added: Shake Shack Inc.
+Added: Form 10-K | 46
+Added: the capital markets and our financial condition at such time.
We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
13 unchanged sentences
Such additional costs may have the effect of delaying or preventing a takeover of us that would otherwise be beneficial to investors.
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 48
−Removed: Unresolved Staff Comments.
−Removed: Shake Shack Inc.
−Removed: Form 10-K | 49
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.