Shake Shack Inc. 10-K

Item 8. Financial Statements and Supplementary Data. INDEX TO FINANCIAL STATEMENTS Page Management's Report 76 Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 78 Consolidated Balance Sheets 83 Consolidated Statements of Income ( Loss ) 84 Consolidated Statements of Comprehensive In come ( Loss ) 85 Consolidated Statements of Stockholders' Equity 86 Consolidated Statements of Cash Flows 87 Notes to Consolidated Financial Statements 88 Shake Shack Inc. Form 10-K | 75 MANAGEMENT'S REPORT Management's Annual Report on the Consolidated Financial Statements Management is responsible for the preparation, integrity and objectivity of the accompanying Consolidated Financial Statements and related financial information. The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and necessarily include certain amounts that are based on estimates and informed judgments. Our management also prepared the related financial information included in this Annual Report on Form 10-K and is responsible for its accuracy and consistency with the Consolidated Financial Statements. Ernst & Young LLP, our independent registered public accounting firm, has audited the Consolidated Financial Statements as of December 27, 2023, as stated in their report herein. Management's Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Prior to filing, management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework. Based on this assessment, our management identified a material weakness in management review controls over the calculation of state deferred taxes and the related income tax expense (benefit). During the compilation of the annual financial statements for Shake Shack Inc., management identified a material weakness in internal controls over the calculation of state deferred taxes and the related income tax expense (benefit). We identified material errors in the computation of deferred tax assets that originated at the inception of the Up-C structure. When the Company recorded its deferred taxes, it failed to account for differences between federal and state tax depreciation. The resulting error caused an overstatement of income tax expense and understatement of deferred tax assets during the impacted periods. Material Weakness A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness in our internal control resulted in the restatement of the Company's Consolidated Financial Statements as of and for the years ended December 28, 2022 and December 29, 2021 included in this report. The material weakness did not result in any identified material misstatements in the Consolidated Financial Statements as of and for the year ended December 27, 2023. As a result of the material weakness noted above, management has concluded that our internal control over financial reporting was not effective as of December 27, 2023. Ernst & Young LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Annual Report on Form 10-K and, as part of its audit, has issued an attestation report, included herein, on the effectiveness of our internal control over financial reporting. The material weakness described above, which related to internal controls over the calculation of state deferred taxes and the related income tax expense (benefit), was identified during the performance of our year-end control procedures. Shake Shack Inc. Form 10-K | 76 We have implemented certain remedial measures including, but not limited to, a review of all existing accounting for income taxes to ensure that it was in compliance with GAAP prior to filing the Consolidated Financial Statements as of and for the year ended December 27, 2023. In addition, we are in the process of developing enhanced control procedures designed to ensure proper accounting for our tax related accounts and balances, which will include adding technical resources to perform and oversee income tax accounting. Based on additional procedures and post-closing review, management concluded that the Consolidated Financial Statements included in this report present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented, in conformity with GAAP. The material weakness cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Changes in Internal Control over Financial Reporting Except as otherwise discussed above, there were no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect such controls, including any corrective actions with regard to significant deficiencies and material weaknesses. Shake Shack Inc. Form 10-K | 77 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Shake Shack Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Shake Shack Inc. (the Company) as of December 27, 2023 and December 28, 2022, the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 27, 2023, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 27, 2023 and December 28, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 27, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 27, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 29, 2024 expressed an adverse opinion thereon. Restatement of 2022 and 2021 Financial Statements As discussed in Note 3 to the consolidated financial statements, the consolidated financial statements as of December 28, 2022 and for the years ended December 28, 2022 and December 29, 2021 have been restated to correct misstatements. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Shake Shack Inc. Form 10-K | 78 Measurement of the valuation allowance against deferred tax assets Description of the Matter As discussed in Notes 2 and 15 of the consolidated financial statements, a valuation allowance is recognized if the Company determines it is more likely than not that all or a portion of a deferred tax asset will not be recognized. In making such determination, the Company considers all available evidence, including scheduled reversals of deferred tax liabilities, tax planning strategies and recent and forecasted results of operations. As of December 27, 2023, the Company is in a three-year cumulative book loss position and is looking to its forecasted future U.S. taxable income to conclude that it is more likely than not that these deferred tax assets, except for certain local unincorporated business tax credits and state loss carryforwards, will be fully realized prior to their expiration. As of December 27, 2023, the Company had a net deferred tax asset balance for U.S. income taxes of $326.2 million, for which a valuation allowance of $0.4 million was provided. Auditing management’s analysis of the realizability of these U.S. deferred tax assets is highly judgmental because it requires the evaluation of positive and negative evidence to support the position that the Company will generate sufficient future U.S. taxable income to realize the deferred tax assets as tax deductions on future income tax returns. The Company’s forecasted financial information, which is inherently subjective, is a significant component of management’s analysis. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s evaluation of deferred tax asset realizability. In addition, we obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s financial forecasting process. Such controls include management’s review of forecasted pretax income, including significant assumptions such as projected Shack openings, operating margins, and operating costs, among others. In our testing of management’s assessment of deferred tax asset realizability as described above, we performed audit procedures that included, among others, evaluating the conclusions reached by the Company regarding the realizability of deferred tax assets, which involved performing procedures over (i) the scheduled reversal of deferred taxes and (ii) forecasted financial information. In order to test management’s financial forecasts, we assessed the historical accuracy of management’s forecasts and compared the significant assumptions used to current industry and economic trends and changes to the Company’s operations. In addition, we performed sensitivity analyses to evaluate the impact of changes in assumptions to future taxable income and ultimately, realizability of deferred tax assets. Measurement of the Tax Receivable Agreement liability Description of the Matter As discussed in Note 15 of the consolidated financial statements, the Company has a Tax Receivable Agreement (“TRA”) with certain current and historical holders of LLC interests, which is a contractual commitment to distribute 85% of any tax benefits (“TRA Payment”), realized or deemed to be realized by the Company to the parties to the TRA. The TRA payments are contingent upon, among other things, the generation of future taxable income over the term of the TRA and future changes in tax laws. As of December 27, 2023, the Company’s liability due to the holders of LLC interests under the TRA (“TRA liability”), was $235.6 million. Auditing management’s accounting for the TRA liability is especially complex and judgmental as the Company’s calculation of the TRA liability requires estimates of its future qualified taxable income over the term of the TRA as a basis to determine if the related tax benefits are expected to be realized. Significant changes in estimates could have a material effect on the Company’s results of operations. Shake Shack Inc. Form 10-K | 79 How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for determining the measurement of the Company’s TRA obligation. Such controls include management review controls over the computation of the TRA liability, which is based on several inputs including the Company’s share of the tax basis in the LLC, as discussed above, as well as the estimate of future qualified taxable income over the term of the TRA. We also tested management’s review control over the calculation of the TRA liability in accordance with the terms set out in the TRA. We tested the measurement of the Company’s TRA liability by performing audit procedures that included, among others, evaluating the reasonableness and existence of the redemption activity, and recalculating the Company’s share of the tax basis in the net assets of LLC.. To test the Company’s position that there is sufficient future taxable income to realize the tax benefits related to the redemptions discussed above, we evaluated the assumptions used by management to develop the projections of future taxable income. For example, we compared management’s projections of future taxable income with the actual results of prior periods, as well as management’s consideration of current industry and economic trends. We also recalculated the TRA liability and verified the calculation of the TRA liability was in accordance with the terms set out in the TRA. /s/ Ernst & Young LLP We have served as the Company's auditor since 2014. New York, New York February 29, 2024 Shake Shack Inc. Form 10-K | 80 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Shake Shack Inc. Opinion on Internal Control Over Financial Reporting We have audited Shake Shack Inc.’s (the Company’s) internal control over financial reporting as of December 27, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, Shake Shack Inc. (the Company) has not maintained effective internal control over financial reporting as of December 27, 2023, based on the COSO criteria. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management has identified a material weakness in internal controls over the calculation of state deferred taxes and the related income tax expense (benefit). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 27, 2023 and December 28, 2022, the related consolidated statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 27, 2023, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”) and our report dated February 29, 2024 expressed an unqualified opinion thereon. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report dated February 29, 2024, which expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Shake Shack Inc. Form 10-K | 81 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP New York, New York February 29, 2024 Shake Shack Inc. Form 10-K | 82 SHAKE SHACK INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) (As Restated) December 27 2023 December 28 2022 ASSETS Current assets: Cash and cash equivalents $ 224,653 $ 230,521 Marketable securities 68,561 80,707 Accounts receivable, net 16,847 13,877 Inventories 5,404 4,184 Prepaid expenses and other current assets 18,967 14,699 Total current assets 334,432 343,988 Property and equipment, net of accumulated depreciation of $ 376,760 and $ 290,362 , respectively 530,995 467,031 Operating lease assets 398,296 367,488 Deferred income taxes, net 326,208 317,626 Other assets 15,926 15,817 TOTAL ASSETS $ 1,605,857 $ 1,511,950 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 22,273 $ 20,407 Accrued expenses 54,742 47,945 Accrued wages and related liabilities 20,945 17,576 Operating lease liabilities, current 49,004 42,238 Other current liabilities 17,103 19,552 Total current liabilities 164,067 147,718 Long-term debt 245,636 244,589 Long-term operating lease liabilities 464,533 427,227 Liabilities under tax receivable agreement, net of current portion 235,613 234,893 Other long-term liabilities 26,638 20,687 Total liabilities 1,136,487 1,075,114 Commitments and contingencies (Note 18) Stockholders' equity: Preferred stock, no par value—10,000,000 shares authorized; none issued and outstanding as of December 27, 2023 and December 28, 2022. — — Class A common stock, $0.001 par value—200,000,000 shares authorized; 39,474,315 and 39,284,998 shares issued and outstanding as of December 27, 2023 and December 28, 2022, respectively. 39 39 Class B common stock, $0.001 par value—35,000,000 shares authorized; 2,834,513 and 2,869,513 shares issued and outstanding as of December 27, 2023 and December 28, 2022, respectively. 3 3 Additional paid-in capital 426,601 415,649 Retained earnings (accumulated deficit) 16,777 ( 3,487 ) Accumulated other comprehensive loss ( 3 ) — Total stockholders' equity attributable to Shake Shack Inc. 443,417 412,204 Non-controlling interests 25,953 24,632 Total equity 469,370 436,836 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,605,857 $ 1,511,950 See accompanying Notes to Consolidated Financial Statements. Shake Shack Inc. Form 10-K | 83 SHAKE SHACK INC. CONSOLIDATED STATEMENTS OF INCOME (LOSS) (in thousands, except per share amounts) Fiscal Year Ended (As Restated) (As Restated) December 27 2023 December 28 2022 December 29 2021 Shack sales $ 1,046,819 $ 869,270 $ 714,989 Licensing revenue 40,714 31,216 24,904 TOTAL REVENUE 1,087,533 900,486 739,893 Shack-level operating expenses: Food and paper costs 305,041 261,584 218,262 Labor and related expenses 304,254 257,358 215,114 Other operating expenses 149,449 129,650 102,032 Occupancy and related expenses 79,846 68,508 59,228 General and administrative expenses 129,542 120,009 87,196 Depreciation and amortization expense 91,242 72,796 58,991 Pre-opening costs 19,231 15,050 13,291 Impairment and loss on disposal of assets 3,007 2,425 1,632 TOTAL EXPENSES 1,081,612 927,380 755,746 INCOME (LOSS) FROM OPERATIONS 5,921 ( 26,894 ) ( 15,853 ) Other income, net 12,776 4,127 95 Interest expense ( 1,717 ) ( 1,518 ) ( 1,577 ) INCOME (LOSS) BEFORE INCOME TAXES 16,980 ( 24,285 ) ( 17,335 ) Income tax benefit ( 4,010 ) ( 1,180 ) ( 11,318 ) NET INCOME (LOSS) 20,990 ( 23,105 ) ( 6,017 ) Less: Net income (loss) attributable to non-controlling interests 726 ( 1,876 ) ( 1,456 ) NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. $ 20,264 $ ( 21,229 ) $ ( 4,561 ) Earnings (loss) per share of Class A common stock: Basic $ 0.51 $ ( 0.54 ) $ ( 0.12 ) Diluted $ 0.48 $ ( 0.54 ) $ ( 0.12 ) Weighted average shares of Class A common stock outstanding: Basic 39,419 39,237 39,085 Diluted 43,899 39,237 39,085 See accompanying Notes to Consolidated Financial Statements. Shake Shack Inc. Form 10-K | 84 SHAKE SHACK INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Fiscal Year Ended (As Restated) (As Restated) December 27 2023 December 28 2022 December 29 2021 Net income (loss) $ 20,990 $ ( 23,105 ) $ ( 6,017 ) Other comprehensive loss, net of tax (1) : Change in foreign currency translation adjustment ( 3 ) ( 1 ) ( 2 ) OTHER COMPREHENSIVE LOSS ( 3 ) ( 1 ) ( 2 ) COMPREHENSIVE INCOME (LOSS) 20,987 ( 23,106 ) ( 6,019 ) Less: Comprehensive income (loss) attributable to non-controlling interests 726 ( 1,876 ) ( 1,456 ) COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. $ 20,261 $ ( 21,230 ) $ ( 4,563 ) (1) Net of tax benefit of $ 0 for fiscal years ended December 27, 2023, December 28, 2022 and December 29, 2021. See accompanying Notes to Consolidated Financial Statements. Shake Shack Inc. Form 10-K | 85 SHAKE SHACK INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share amounts) Class A Common Stock Class B Common Stock Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Non- Controlling Interest Total Equity Shares Amount Shares Amount BALANCE DECEMBER 30, 2020 (As Reported) 38,717,790 $ 39 2,951,188 $ 3 $ 395,067 $ 12,209 $ 3 $ 27,172 $ 434,493 Effect of restatement — — — — — 10,094 — — 10,094 BALANCE DECEMBER 30, 2020 (As Restated) 38,717,790 39 2,951,188 3 395,067 22,303 3 27,172 444,587 Net loss — — — — — ( 4,561 ) — ( 1,456 ) ( 6,017 ) Other comprehensive income: Net change in foreign currency translation adjustment — — — — — — ( 2 ) — ( 2 ) Equity-based compensation — — — — 8,803 — — — 8,803 Activity under stock compensation plan 395,006 — — — 1,829 — — 1,348 3,177 Redemption of LLC interests 29,601 — ( 29,601 ) — 33 — — ( 33 ) — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — 225 — — — 225 Distributions paid to non-controlling interest holders — — — — — — — ( 968 ) ( 968 ) BALANCE DECEMBER 29, 2021 (As Restated) 39,142,397 39 2,921,587 3 405,957 17,742 1 26,063 449,805 Net loss — — — — — ( 21,229 ) — ( 1,876 ) ( 23,105 ) Other comprehensive income: Net change in foreign currency translation adjustment — — — — — — ( 1 ) — ( 1 ) Equity-based compensation — — — — 13,518 — — — 13,518 Activity under stock compensation plan 90,527 — — — ( 2,978 ) — — 1,168 ( 1,810 ) Redemption of LLC interests 52,074 — ( 52,074 ) — 313 — — ( 313 ) — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — ( 1,161 ) — — — ( 1,161 ) Distributions paid to non-controlling interest holders — — — — — — — ( 410 ) ( 410 ) BALANCE DECEMBER 28, 2022 (As Restated) 39,284,998 39 2,869,513 3 415,649 ( 3,487 ) — 24,632 436,836 Net income — — — — — 20,264 — 726 20,990 Other comprehensive income: Net change in foreign currency translation adjustment — — — — — — ( 3 ) — ( 3 ) Equity-based compensation — — — — 15,174 — — — 15,174 Activity under stock compensation plan 154,317 — — — ( 3,271 ) — — 1,022 ( 2,249 ) Redemption of LLC interests 35,000 — ( 35,000 ) — 265 — — ( 265 ) — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — ( 1,216 ) — — — ( 1,216 ) Distributions paid to non-controlling interest holders — — — — — — — ( 162 ) ( 162 ) BALANCE DECEMBER 27, 2023 39,474,315 $ 39 2,834,513 $ 3 $ 426,601 $ 16,777 $ ( 3 ) $ 25,953 $ 469,370 See accompanying Notes to Consolidated Financial Statements. Shake Shack Inc. Form 10-K | 86 SHAKE SHACK INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Fiscal Year Ended (As Restated) (As Restated) December 27 2023 December 28 2022 December 29 2021 OPERATING ACTIVITIES Net income (loss) (including amounts attributable to non-controlling interests) $ 20,990 $ ( 23,105 ) $ ( 6,017 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization expense 91,242 72,796 58,991 Amortization of debt issuance costs 1,047 1,047 867 Amortization of cloud computing asset 1,798 1,500 1,245 Non-cash operating lease cost 67,781 58,801 50,888 Equity-based compensation 14,888 13,326 8,703 Deferred income taxes ( 9,074 ) ( 5,014 ) ( 14,473 ) Non-cash interest expense 116 218 353 (Gain) loss on sale of marketable securities ( 81 ) — 5 Net amortization of discount on held-to-maturity securities ( 1,620 ) — — Impairment and loss on disposal of assets 3,007 2,425 1,632 Other non-cash income — — ( 2 ) Unrealized loss on equity securities — 158 277 Changes in operating assets and liabilities: Accounts receivable ( 2,970 ) 9,139 ( 4,193 ) Inventories ( 1,220 ) ( 334 ) ( 962 ) Prepaid expenses and other current assets ( 2,253 ) ( 2,473 ) 4,913 Other assets ( 6,307 ) ( 8,065 ) ( 2,722 ) Accounts payable 687 3,541 ( 6,450 ) Accrued expenses 9,513 3,502 7,175 Accrued wages and related liabilities 3,328 2,859 4,200 Other current liabilities ( 2,809 ) 8,541 ( 1,166 ) Operating lease liabilities ( 58,216 ) ( 61,364 ) ( 43,417 ) Other long-term liabilities 2,292 ( 756 ) ( 1,443 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 132,139 76,742 58,404 INVESTING ACTIVITIES Purchases of property and equipment ( 146,167 ) ( 142,559 ) ( 101,495 ) Purchases of held-to-maturity securities ( 94,019 ) — — Maturities of held-to-maturity securities 27,078 — — Purchases of equity securities ( 690 ) ( 865 ) ( 47,399 ) Sales of equity securities 81,478 — 4,004 NET CASH USED IN INVESTING ACTIVITIES ( 132,320 ) ( 143,424 ) ( 144,890 ) FINANCING ACTIVITIES Proceeds from issuance of convertible notes, net of discount — — 243,750 Deferred financing costs — — ( 169 ) Payments on principal of finance leases ( 3,272 ) ( 2,974 ) ( 2,694 ) Distributions paid to non-controlling interest holders ( 162 ) ( 410 ) ( 968 ) Debt issuance costs — — ( 1,075 ) Net proceeds from stock option exercises 744 424 6,731 Employee withholding taxes related to net settled equity awards ( 2,994 ) ( 2,242 ) ( 3,554 ) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ( 5,684 ) ( 5,202 ) 242,021 Effect of exchange rate changes on cash and cash equivalents ( 3 ) ( 1 ) ( 2 ) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ( 5,868 ) ( 71,885 ) 155,533 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 230,521 302,406 146,873 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 224,653 $ 230,521 $ 302,406 Supplemental cash flow information and non-cash investing and financing activities are further described in the accompanying notes. See accompanying Notes to Consolidated Financial Statements. Shake Shack Inc. Form 10-K | 87 SHAKE SHACK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) Page Note 1 Nature of Operations 89 Note 2 Summary of Significant Accounting Policies 89 N ote 3 Restatement of Previously Issued Consolidated Financial Statements 94 Note 4 Revenue 106 Note 5 Fair Value Measurements 108 Note 6 Accounts Receivable 109 Note 7 Property and Equipment 109 Note 8 Supplemental Balance Sheet Information 109 Note 9 Debt 110 Note 10 Leases 112 Note 11 Employee Benefit Plans 114 Note 12 Stockholders' Equity 114 Note 13 Non-Controlling Interests 115 Note 14 Equity-Based Compensation 116 Note 15 Income Taxes 119 Note 16 Earnings (Loss) Per Share 123 Note 17 Supplemental Cash Flow Information 124 Note 18 Commitments and Contingencies 124 Note 19 Related Party Transactions 125 Note 20 Geographic Information 127 Shake Shack Inc. Form 10-K | 88 NOTE 1: NATURE OF OPERATIONS Shake Shack Inc. was formed on September 23, 2014 as a Delaware corporation for the purpose of facilitating an initial public offering and other related transactions in order to carry on the business of SSE Holdings, LLC and its subsidiaries ("SSE Holdings"). Shake Shack Inc. is the sole managing member of SSE Holdings and, as sole managing member, the Company operates and controls all of the business and affairs of SSE Holdings. As a result, the Company consolidates the financial results of SSE Holdings and reports a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings. As of December 27, 2023 the Company owned 93.3 % of SSE Holdings. Unless the context otherwise requires, "we," "us," "our," "Shake Shack," the "Company" and other similar references, refer to Shake Shack Inc. and, unless otherwise stated, all of its subsidiaries, including SSE Holdings. The Company operates and licenses Shake Shack restaurants ("Shacks"), which serve burgers, chicken, hot dogs, crinkle cut fries, shakes, frozen custard, beer, wine and more. As of December 27, 2023, there were 518 Shacks in operation, system-wide, of which 295 were domestic Company-operated Shacks, 39 were domestic licensed Shacks and 184 were international licensed Shacks. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of Shake Shack Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period amounts to conform to the current year presentation. The Company has elected to reclassify certain marketing expenses for prior periods to conform with the presentation for the fiscal year ended December 27, 2023. These reclassifications had no effect on previously reported Net Income (Loss). For the fiscal year ended December 28, 2022 and December 29, 2021, the Company reclassified $ 1,219 and $ 1,200 , respectively from Other operating expenses to General and administrative expenses in the accompanying Consolidated Statements of Income (Loss). SSE Holdings is considered a variable interest entity. Shake Shack Inc. is the primary beneficiary as the Company has the majority economic interest in SSE Holdings and, as the sole managing member, has decision making authority that significantly affects the economic performance of the entity, while the limited partners have no substantive kick-out or participating rights. As a result, the Company consolidates SSE Holdings. The assets and liabilities of SSE Holdings represent substantially all of the Company's consolidated assets and liabilities with the exception of certain deferred taxes and liabilities under the Tax Receivable Agreement. As of December 27, 2023 and December 28, 2022, the net assets of SSE Holdings were $ 388,250 and $ 362,571 , respectively. The assets of SSE Holdings are subject to certain restrictions in SSE Holdings' revolving credit agreement. Refer to Note 9, Debt, and Note 15, Income Taxes, for additional information. Fiscal Year The Company operates on a 52/53 week fiscal year ending on the last Wednesday of December. Fiscal 2023 contained 52 weeks and ended on December 27, 2023 ("fiscal 2023"). Fiscal 2022 contained 52 weeks and ended on December 28, 2022 ("fiscal 2022"). Fiscal 2021 contained 52 weeks and ended on December 29, 2021 ("fiscal 2021"). Unless otherwise stated, references to years in this report relate to fiscal years. Use of Estimates The preparation of these Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the Shake Shack Inc. Form 10-K | 89 date of the financial statements, and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. Segment Reporting The chief operating decision maker (the "CODM") is the Chief Executive Officer. The Company determined it has one operating segment and one reportable segment, as the CODM regularly reviews Shack operations and financial performance at a consolidated level to allocate resources. Fair Value Measurements The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Assets and liabilities are categorized based on the priority of the inputs to the valuation technique into a three-level fair value hierarchy as set forth below. ▪ Level 1 — Quoted prices in active markets for identical assets or liabilities. ▪ Level 2 — Observable inputs other than quoted prices in active markets for identical assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. ▪ Level 3 — Inputs that are both unobservable and significant to the overall fair value measurements reflecting an entity's estimates of assumptions that market participants would use in pricing the asset or liability. Cash and Cash Equivalents Cash and cash equivalents consist primarily of cash on hand, deposits with banks, money market funds and short-term, highly liquid investments that have original maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value. Marketable Securities Marketable securities classified as available-for-sale securities consist of mutual funds that primarily invest in corporate bonds, certificates of deposits, asset-backed securities, commercial paper, U.S. Treasury obligations, and foreign government securities. Available-for-sale securities are recorded at fair value, with unrealized gains and losses recorded in Other income, net. Dividend and interest income are recognized when earned and are recorded in Other income, net on the Consolidated Statements of Income (Loss). Held-to-maturity securities consist of U.S. Treasuries for which the Company has the ability and intent to hold to maturity and are reported at amortized cost, net of a valuation allowance for credit losses. Interest income and the amortization of discounts and premiums are recorded in Other income, net on the Consolidated Statements of Income (Loss). No expected credit losses were recognized as of December 27, 2023. Accounts Receivable, Net Accounts receivable, net consist primarily of receivables from our licensees for licensing revenue and related reimbursements, credit card receivables and vendor rebates. The collectability of accounts receivable is evaluated based on a variety of factors, including historical experience, current economic conditions and other factors. Inventories Inventories, which consist of food, paper goods, beverages, beer, wine and retail merchandise, are valued at the lower of weighted average cost or net realizable value. No adjustment is deemed necessary to reduce inventory to net realizable value due to the rapid turnover and high utilization of inventory. Shake Shack Inc. Form 10-K | 90 Property and Equipment, Net Property and equipment, net is stated at historical cost less accumulated depreciation. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which generally range from five to seven years for equipment, furniture and fixtures, and two to five years for computer equipment and software. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the related lease terms. Costs incurred when constructing Shacks are capitalized. The cost of repairs and maintenance are expensed when incurred. Costs for refurbishments and improvements that significantly increase the productive capacity or extend the useful life of the assets are capitalized. When assets are disposed, the resulting gain or loss is recognized in Impairment and loss on disposal of assets on the Consolidated Statements of Income (Loss). Valuation of Long-lived Assets The Company assesses potential impairments to its long-lived assets, which include property and equipment and operating and finance lease right-of-use assets, whenever events or circumstances indicate that the carrying value of an asset may not be recoverable. The recoverability evaluation is first performed at the market service area level ("MSA"). If the carrying value of the MSA exceeds its estimated undiscounted future cash flows, a secondary recoverability test is performed for all individual Shacks within the identified MSA. An impairment charge is recognized when the carrying amount of the asset exceeds the fair value of the asset, considering external market participant assumptions, and is allocated across all assets of the impaired Shack. Since the determination of future cash flows is an estimate of future performance, there may be future impairments in the event that future cash flows do not meet expectations. Refer to Note 5, Fair Value Measurements, for additional information. Deferred Financing Costs Deferred financing costs incurred in connection with the issuance of long-term debt and establishing credit facilities are capitalized and amortized in Interest expense based on the related debt agreements. Deferred financing costs are included in Other assets on the Consolidated Balance Sheets. Other Assets Other assets consist primarily of capitalized implementation costs from cloud computing arrangements, certain custom pre-ordered furniture, fixtures and equipment for future and existing Shacks, transferable liquor licenses, and security deposits. Implementation costs associated with cloud computing arrangements hosted by third-party vendors are capitalized when incurred during the application development phase. Amortization is calculated on a straight-line basis over the contractual term of the cloud computing arrangement and is recorded within General and administrative expenses on the Consolidated Statements of Income (Loss). As of December 27, 2023 and December 28, 2022, capitalized implementation costs from cloud computing arrangements totaled $ 5,572 and $ 6,212 , respectively, net of accumulated amortization. The costs of obtaining non-transferable liquor licenses that are directly issued by local government agencies for nominal fees are expensed as incurred. The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of authorized liquor licenses are capitalized as indefinite-lived intangible assets. Annual liquor license renewal fees, for both types of licenses, are expensed over the renewal term. As of December 27, 2023 and December 28, 2022, indefinite-lived intangible assets relating to transferable liquor licenses totaled $ 1,903 and $ 1,837 , respectively. Indefinite-lived intangible assets are evaluated for impairment at least annually during the fourth quarter, and whenever events or circumstances indicate that an impairment may exist. When evaluating intangible assets for impairment, the Company first performs a qualitative assessment to determine whether it is more likely than not that an intangible asset group is impaired. If determined that it is more likely than not that the carrying value of the intangible asset group exceeds its fair value, the Company performs a quantitative assessment to derive the fair value of the intangible asset group. If the carrying value of the intangible asset group exceeds the estimated fair value, an impairment charge is recorded to reduce the carrying value to the estimated fair value. In addition, the Company continuously monitors and may revise the useful lives of intangible assets when facts and circumstances change. Shake Shack Inc. Form 10-K | 91 Revenue Recognition Revenue primarily consists of Shack sales and Licensing revenue. Generally, revenue is recognized as promised goods or services transfer to the guest or customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Shack Sales Revenue from Shack sales is recognized when payment is tendered at the point of sale, net of discounts, as the performance obligation has been satisfied at that time. Sales tax collected from guests is excluded from Shack sales and the obligation is included as sales tax payable until the taxes are remitted to the appropriate taxing authorities. Delivery services are fulfilled by third-party delivery partners whether ordered through the Shack app, website ("Company-owned platforms") or through third-party delivery platforms. Revenue from orders through Company-owned platforms includes delivery fees and is recognized when the delivery partner transfers the order to the guest as the Company controls the delivery. For these sales, the Company receives payment directly from the guest at the time of sale. Revenue from orders through third-party delivery partners is recognized when the order is transferred to the third-party delivery partner and excludes delivery fees collected by the delivery platforms as the Company does not control the delivery. The Company receives payment from the delivery partner subsequent to the transfer of the order and the payment terms are short-term in nature. For all delivery sales, the Company is considered the principal and recognizes revenue on a gross basis. The Company sells gift cards which do not have expiration dates. Revenue from gift cards is recognized when gift cards are redeemed by the customer or, in the event a gift card is not expected to be redeemed, in proportion to actual redemptions of gift cards ("gift card breakage"). The gift card breakage rate is determined from historical gift card redemption patterns. Gift card breakage income for fiscal 2023 and 2022 was $ 327 and $ 1,472 , respectively. During fiscal 2022, the Company concluded it had accumulated a sufficient level of historical data from a large pool of homogeneous transactions to allow it to reasonably and objectively determine an estimated gift card breakage rate and the pattern of actual gift card redemptions. In accordance with ASC 250, Accounting Changes and Error Corrections, the Company concluded that this accounting change represented a change in accounting estimate. As a result, a cumulative catch-up adjustment was recorded during fiscal 2022 that resulted in $ 1,281 of gift card breakage income. Gift card breakage income is included in Shack sales in the Consolidated Statements of Income (Loss). Licensing Revenue Licensing revenue includes initial territory fees, Shack opening fees and ongoing sales-based royalty fees from licensed Shacks. Generally, the licenses granted to develop, open and operate each Shack in a specified territory are the predominant good or service transferred to the licensee and represent distinct performance obligations. Ancillary promised services, such as training and assistance during the initial opening of a Shack, are typically combined with the license and considered one performance obligation per Shack. The Company determines the transaction price for each contract, which is comprised of the initial territory fee and an estimate of the total Shack opening fees the Company expects to be entitled to. The calculation of total Shack opening fees requires judgment, as it is based on an estimated number of Shacks the Company expects the licensee to open. The transaction price is then allocated equally to each Shack expected to open. The performance obligation is satisfied over time, starting when a Shack opens through the end of the license term for the related Shack therefore revenue is recognized on a straight-line basis over the license term. Generally, payment for the initial territory fee is received upon execution of the license agreement and payment for the Shack opening fees is received either in advance of or upon opening the related Shack. These payments are initially deferred and recognized in revenue as the performance obligations are satisfied. Revenue from sales-based royalties is recognized as the related sales occur. Equity-based Compensation Equity-based compensation expense is measured based on the grant-date fair value of the awards. For awards with graded-vesting features and service conditions only, compensation expense is recognized on a straight-line basis over the total requisite Shake Shack Inc. Form 10-K | 92 service period for the entire award. For awards with graded-vesting features and a combination of service and performance conditions, compensation expense is recognized using a graded-vesting attribution method over the vesting period based on the most probable outcome of the performance conditions. For awards with cliff vesting features and a combination of service and performance conditions, compensation expense is recognized on a straight-line basis over the total requisite service period for the entire award. Actual distributed shares are calculated upon conclusion of the service and performance periods. Forfeitures are recognized as they occur for all equity awards. Equity-based compensation expense is included in General and administrative expenses and Labor and related expenses on the Consolidated Statements of Income (Loss). Advertising Most advertising costs are expensed as incurred, with the exception of advertising production costs, which are expensed at the time the advertising first takes place. Advertising costs totaled $ 12,437 , $ 12,376 and $ 5,677 in fiscal 2023, fiscal 2022 and fiscal 2021, respectively, and are included in General and administrative expense and Other operating expenses on the Consolidated Statements of Income (Loss). Leases Shake Shack currently leases all of its domestic Company-operated Shacks, the home office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2045. The Company evaluates contracts entered into to determine whether the contract involves the use of property or equipment, which is either explicitly or implicitly identified in the contract. The Company evaluates whether it controls the use of the asset, which is determined by assessing whether substantially all economic benefit from the use of the asset is obtained, and whether the Company has the right to direct the use of the asset. If these criteria are met, the Company has identified a lease, within the contract, and therefore a right of use asset and lease liability are recorded on the Consolidated Balance Sheets. Upon possession of a leased asset, the Company determines whether the lease is an operating or finance lease. All of the Company's real estate leases are classified as operating leases and most equipment leases are classified as finance leases. Generally, real estate leases have initial terms ranging from 10 to 15 years and typically include two five-year renewal options. Renewal options are generally not recognized as part of the right-of-use assets and lease liabilities as it is not reasonably certain at commencement date that the Company would exercise the renewal options. Real estate leases typically contain fixed minimum rent payments and/or contingent rent payments which are based upon sales in excess of specified thresholds. When the achievement of such sales thresholds are deemed to be probable, contingent rent is accrued in proportion to the sales recognized during the period. For operating leases, fixed lease payments are recognized as operating lease costs on a straight-line basis over the lease term within the Consolidated Statements of Income (Loss) in the following line items. Lease expense incurred before a Shack opens is recorded in Pre-opening costs. Once a domestic Company-operated Shack opens, the straight-line lease expense and contingent rent, if applicable, are recorded in Occupancy and related expenses. Many of these leases also require the Company to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in Occupancy and related expenses. Finance leases are recognized in depreciation expense on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability. For both operating and finance leases that contain lease and non-lease components, the components are combined and accounted for as a single lease component. Variable lease costs for both operating and finance leases, if any, are recognized as incurred. Leases with a term of 12 months or less are deemed short-term and are not recognized on the Consolidated Balance Sheets. Fixed lease payments for short-term leases are recognized on a straight-line basis over the lease term. The Company calculates operating lease assets and lease liabilities as the present value of fixed lease payments over the reasonably certain lease term beginning at the commencement date. The Company uses its incremental borrowing rate (“IBR”) in determining the present value of future lease payments as there are no explicit rates provided in the leases. The IBR used to measure the lease liability is derived from the average of the yield curves obtained from using the notching method and the recovery rate method. The most significant assumption in calculating the IBR is the Company's credit rating and is subject to judgment. The credit rating used to develop the IBR is determined by utilizing the credit ratings of other public companies with similar financial information as SSE Holdings. Shake Shack Inc. Form 10-K | 93 The Company expends cash for leasehold improvements to build out and equip leased properties. Generally, a portion of the leasehold improvements and building costs are reimbursed by the landlords through landlord incentives pursuant to agreed-upon terms in the lease agreements. Landlord incentives usually take the form of cash, full or partial credits against future minimum or contingent rents otherwise payable by the Company, or a combination thereof. In most cases, landlord incentives are received after the Company takes possession of the property and as milestones are met during the construction of the property. The Company includes these amounts in the measurement of the initial operating lease liability, and lease asset. Pre-opening Costs Pre-opening costs are expensed as incurred and consist primarily of occupancy, manager and team member wages, cookware, travel and lodging costs for the opening training team and other supporting team members, marketing expenses, legal fees, and inventory costs incurred prior to the opening of a Shack. Income Taxes Income taxes are accounted for pursuant to the asset and liability method which requires the recognition of deferred income tax assets and liabilities related to the expected future tax consequences arising from temporary differences between the carrying values and tax bases of assets and liabilities based on enacted statutory tax rates applicable to the periods in which the temporary differences are expected to reverse. Any effects of changes in income tax rates or laws are included in Income tax expense on the Consolidated Statements of Income (Loss) in the period of enactment. A valuation allowance is recognized if we determine it is more likely than not that all or a portion of a deferred tax asset will not be recognized. In making such determination, the Company considers all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent and expected future results of operations. Recently Issued Accounting Pronouncements Accounting standards updates ("ASU") applicable to the Company that were issued in 2023 are summarized below. ASU Description Effective Date Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07) This ASU requires that an entity report segment information in accordance with Topic 280, Segment Reporting. The amendment in the ASU is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. Early adoption is permitted. The adoption of this standard is not expected to have a material impact to our consolidated financial statements. Fiscal years beginning after December 15, 2023 Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09) This ASU requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. Early adoption is permitted. The Company is currently evaluating the impact this standard will have on our consolidated financial statements and related disclosures. Fiscal years beginning after December 15, 2024 All other ASUs issued but not yet effective are not applicable or not expected to have a material impact on the Company’s future Consolidated Financial Statements. NOTE 3: RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS In connection with the preparation of the Company's Consolidated Financial Statements as of and for the fiscal year ended December 27, 2023, the Company discovered that in prior years it had not appropriately accounted for the deferred tax asset associated with its investment in SSE Holdings, primarily due to incorrect accounting for state tax depreciation. The error resulted in an overstatement of income tax expense of approximately $ 2,862 for the fiscal year ended December 28, 2022 and an understatement of income tax benefit of $ 4,094 for the fiscal year ended December 29, 2021 and deferred tax assets were Shake Shack Inc. Form 10-K | 94 understated for the impacted periods. The error also resulted in an understatement of retained earnings and deferred tax assets as of December 26, 2020 of approximately $ 10,094 related to prior periods. The error did not impact total revenue or loss before income taxes for the fiscal years ended December 28, 2022 and December 29, 2021. The misstatements were material to the previously issued financial statements of the Company and as a result, the Company has restated its Consolidated Balance Sheets, Consolidated Statements of Loss, Consolidated Statements of Comprehensive Loss, Consolidated Statements of Stockholder's Equity, and Consolidated Statements of Cash Flows as of and for the fiscal years ended December 28, 2022 and December 29, 2021 presented herein. The restatement includes adjustments to Deferred income taxes, net, Additional paid-in capital, Retained earnings (accumulated deficit), Income tax expense (benefit), Net income (loss), Net income (loss) attributable to Shake Shack Inc., and Earnings (loss) per share. The impact of the correction of the misstatements is summarized below: As of December 28, 2022 As of December 29, 2021 CORRECTED CONSOLIDATED BALANCE SHEETS As previously reported Impact of Adjustment As Restated As previously reported Impact of Adjustment As Restated Deferred income taxes, net $ 300,538 $ 17,088 $ 317,626 $ 298,668 $ 14,205 $ 312,873 Total assets 1,494,862 17,088 1,511,950 1,457,570 14,205 1,471,775 Additional paid-in capital 415,611 38 415,649 405,940 17 405,957 Retained earnings (accumulated deficit) ( 20,537 ) 17,050 ( 3,487 ) 3,554 14,188 17,742 Total equity 419,748 17,088 436,836 435,600 14,205 449,805 Total liabilities and stockholders' equity 1,494,862 17,088 1,511,950 1,457,570 14,205 1,471,775 For the Fiscal Year Ended December 28, 2022 For the Fiscal Year Ended December 29, 2021 CORRECTED CONSOLIDATED STATEMENTS OF LOSS As previously reported Impact of Adjustment As Restated As previously reported Impact of Adjustment As Restated Income tax expense (benefit) $ 1,682 $ ( 2,862 ) $ ( 1,180 ) $ ( 7,224 ) $ ( 4,094 ) $ ( 11,318 ) Net loss ( 25,967 ) 2,862 ( 23,105 ) ( 10,111 ) 4,094 ( 6,017 ) Net loss attributable to Shake Shack Inc. ( 24,091 ) 2,862 ( 21,229 ) ( 8,655 ) 4,094 ( 4,561 ) Loss per share of Class A common stock: Basic $ ( 0.61 ) $ 0.07 $ ( 0.54 ) $ ( 0.22 ) $ 0.10 $ ( 0.12 ) Diluted $ ( 0.61 ) $ 0.07 $ ( 0.54 ) $ ( 0.22 ) $ 0.10 $ ( 0.12 ) For the Fiscal Year Ended December 28, 2022 For the Fiscal Year Ended December 29, 2021 CORRECTED CONSOLIDATED STATEMENTS OF CASH FLOWS As previously reported Impact of Adjustment As Restated As previously reported Impact of Adjustment As Restated Net income (loss) (including amounts attributable to non-controlling interests) $ ( 25,967 ) $ 2,862 $ ( 23,105 ) $ ( 10,111 ) $ 4,094 $ ( 6,017 ) Deferred income taxes ( 3,357 ) ( 1,657 ) ( 5,014 ) ( 10,379 ) ( 4,094 ) ( 14,473 ) Accrued expenses 4,707 ( 1,205 ) 3,502 7,175 — 7,175 Net cash provided by Operating activities 76,742 — 76,742 58,404 — 58,404 Shake Shack Inc. Form 10-K | 95 Additional Paid-In Capital Retained Earnings (Accumulated Deficit) CORRECTED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY As previously reported Impact of Adjustment As Restated As previously reported Impact of Adjustment As Restated BALANCE AT DECEMBER 30, 2020 $ 395,067 $ — $ 395,067 $ 12,209 $ 10,094 $ 22,303 Net loss — — — ( 8,655 ) 4,094 ( 4,561 ) Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis 208 17 225 — — — BALANCE AT DECEMBER 29, 2021 405,940 17 405,957 3,554 14,188 17,742 Net loss — — — ( 24,091 ) 2,862 ( 21,229 ) Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis ( 1,182 ) 21 ( 1,161 ) — — — BALANCE AT DECEMBER 28, 2022 $ 415,611 $ 38 $ 415,649 $ ( 20,537 ) $ 17,050 $ ( 3,487 ) All referenced amounts for prior periods in these financial statements and the notes herein reflect the balances and amounts on a restated basis. Restatement of Interim Financial Information (Unaudited) The Company has restated its unaudited Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Stockholder's Equity for the quarterly periods ended March 30, 2022, June 29, 2022, September 28, 2022, March 29, 2023, June 28, 2023 and September 27, 2023. The Condensed Consolidated Statements of Income (Loss) and Condensed Consolidated Statements of Cash Flows for the periods ended March 30, 2022, June 29, 2022, September 28, 2022, March 29, 2023, June 28, 2023 and September 27, 2023 were not impacted by the misstatement. Shake Shack Inc. Form 10-K | 96 As of March 29, 2023 As of March 30, 2022 CORRECTED CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) As previously reported Impact of Adjustment As Restated As previously reported Impact of Adjustment As Restated ASSETS Current assets: Cash and cash equivalents $ 293,430 $ — $ 293,430 $ 279,251 $ — $ 279,251 Marketable securities — — — 79,676 — 79,676 Accounts receivable, net 14,175 — 14,175 11,755 — 11,755 Inventories 4,394 — 4,394 3,780 — 3,780 Prepaid expenses and other current assets 18,075 — 18,075 12,155 — 12,155 Total current assets 330,074 — 330,074 386,617 — 386,617 Property and equipment, net of accumulated depreciation of $ 310,939 and $ 236,933 , respectively 479,617 — 479,617 398,971 — 398,971 Operating lease assets 379,475 — 379,475 346,128 — 346,128 Deferred income taxes, net 301,538 17,088 318,626 304,166 14,205 318,371 Other assets 16,211 — 16,211 13,846 — 13,846 TOTAL ASSETS $ 1,506,915 $ 17,088 $ 1,524,003 $ 1,449,728 $ 14,205 $ 1,463,933 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 16,002 $ — $ 16,002 $ 13,395 $ — $ 13,395 Accrued expenses 45,677 — 45,677 38,997 — 38,997 Accrued wages and related liabilities 18,678 — 18,678 16,032 — 16,032 Operating lease liabilities, current 44,578 — 44,578 36,951 — 36,951 Other current liabilities 18,117 — 18,117 20,586 — 20,586 Total current liabilities 143,052 — 143,052 125,961 — 125,961 Long-term debt 244,851 — 244,851 243,804 — 243,804 Long-term operating lease liabilities 441,554 — 441,554 399,487 — 399,487 Liabilities under tax receivable agreement, net of current portion 235,361 — 235,361 234,273 — 234,273 Other long-term liabilities 22,192 — 22,192 20,944 — 20,944 Total liabilities 1,087,010 — 1,087,010 1,024,469 — 1,024,469 Commitments and contingencies Stockholders' equity: Preferred stock, no par value— 10,000,000 shares authorized; none issued and outstanding as of March 29, 2023 and March 30, 2022. — — — — — — Class A common stock, $ 0.001 par value— 200,000,000 shares authorized; 39,404,905 and 39,218,290 shares issued and outstanding as of March 29, 2023 and March 30, 2022, respectively. 39 — 39 39 — 39 Class B common stock, $ 0.001 par value— 35,000,000 shares authorized; 2,844,513 and 2,911,587 shares issued and outstanding as of March 29, 2023 and March 30, 2022, respectively. 3 — 3 3 — 3 Additional paid-in capital 417,451 38 417,489 406,981 17 406,998 Retained earnings (accumulated deficit) ( 22,071 ) 17,050 ( 5,021 ) ( 6,608 ) 14,188 7,580 Accumulated other comprehensive loss ( 4 ) — ( 4 ) — — — Total stockholders' equity attributable to Shake Shack Inc. 395,418 17,088 412,506 400,415 14,205 414,620 Non-controlling interests 24,487 — 24,487 24,844 — 24,844 Total equity 419,905 17,088 436,993 425,259 14,205 439,464 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,506,915 $ 17,088 $ 1,524,003 $ 1,449,728 $ 14,205 $ 1,463,933 Shake Shack Inc. Form 10-K | 97 As of June 28, 2023 As of June 29, 2022 CORRECTED CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) As previously reported Impact of Adjustment As Restated As previously reported Impact of Adjustment As Restated ASSETS Current assets: Cash and cash equivalents $ 203,697 $ — $ 203,697 $ 278,332 $ — $ 278,332 Marketable securities 91,537 — 91,537 79,625 — 79,625 Accounts receivable, net 14,332 — 14,332 11,936 — 11,936 Inventories 4,674 — 4,674 3,955 — 3,955 Prepaid expenses and other current assets 15,278 — 15,278 13,727 — 13,727 Total current assets 329,518 — 329,518 387,575 — 387,575 Property and equipment, net of accumulated depreciation of $ 331,571 and $ 254,291 , respectively 500,085 — 500,085 411,018 — 411,018 Operating lease assets 385,386 — 385,386 361,522 — 361,522 Deferred income taxes, net 302,025 17,088 319,113 305,230 14,205 319,435 Other assets 15,802 — 15,802 14,735 — 14,735 TOTAL ASSETS $ 1,532,816 $ 17,088 $ 1,549,904 $ 1,480,080 $ 14,205 $ 1,494,285 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 17,005 $ — $ 17,005 $ 16,420 $ — $ 16,420 Accrued expenses 50,588 — 50,588 40,013 — 40,013 Accrued wages and related liabilities 18,221 — 18,221 18,440 — 18,440 Operating lease liabilities, current 46,490 — 46,490 38,775 — 38,775 Other current liabilities 17,881 — 17,881 20,261 — 20,261 Total current liabilities 150,185 — 150,185 133,909 — 133,909 Long-term debt 245,113 — 245,113 244,066 — 244,066 Long-term operating lease liabilities 448,580 — 448,580 418,010 — 418,010 Liabilities under tax receivable agreement, net of current portion 235,361 — 235,361 234,862 — 234,862 Other long-term liabilities 22,218 — 22,218 21,597 — 21,597 Total liabilities 1,101,457 — 1,101,457 1,052,444 — 1,052,444 Commitments and contingencies Stockholders' equity: Preferred stock, no par value— 10,000,000 shares authorized; none issued and outstanding as of June 28, 2023 and June 29, 2022. — — — — — — Class A common stock, $ 0.001 par value— 200,000,000 shares authorized; 39,449,246 and 39,266,670 shares issued and outstanding as of June 28, 2023 and June 29, 2022, respectively. 39 — 39 39 — 39 Class B common stock, $ 0.001 par value— 35,000,000 shares authorized; 2,844,513 and 2,871,513 shares issued and outstanding as of June 28, 2023 and June 29, 2022, respectively. 3 — 3 3 — 3 Additional paid-in capital 421,356 38 421,394 410,520 17 410,537 Retained earnings (accumulated deficit) ( 15,123 ) 17,050 1,927 ( 7,796 ) 14,188 6,392 Accumulated other comprehensive loss ( 4 ) — ( 4 ) ( 1 ) — ( 1 ) Total stockholders' equity attributable to Shake Shack Inc. 406,271 17,088 423,359 402,765 14,205 416,970 Non-controlling interests 25,088 — 25,088 24,871 — 24,871 Total equity 431,359 17,088 448,447 427,636 14,205 441,841 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,532,816 $ 17,088 $ 1,549,904 $ 1,480,080 $ 14,205 $ 1,494,285 Shake Shack Inc. Form 10-K | 98 As of September 27, 2023 As of September 28, 2022 CORRECTED CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) As previously reported Impact of Adjustment As Restated As previously reported Impact of Adjustment As Restated ASSETS Current assets: Cash and cash equivalents $ 190,020 $ — $ 190,020 $ 256,998 $ — $ 256,998 Marketable securities 94,957 — 94,957 80,015 — 80,015 Accounts receivable, net 13,889 — 13,889 11,800 — 11,800 Inventories 4,608 — 4,608 3,996 — 3,996 Prepaid expenses and other current assets 19,762 — 19,762 14,246 — 14,246 Total current assets 323,236 — 323,236 367,055 — 367,055 Property and equipment, net of accumulated depreciation of $ 353,303 and $ 271,938 , respectively 525,557 — 525,557 441,870 — 441,870 Operating lease assets 397,870 — 397,870 370,536 — 370,536 Deferred income taxes, net 302,156 17,088 319,244 306,976 14,205 321,181 Other assets 16,037 — 16,037 15,330 — 15,330 TOTAL ASSETS $ 1,564,856 $ 17,088 $ 1,581,944 $ 1,501,767 $ 14,205 $ 1,515,972 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 21,251 $ — $ 21,251 $ 17,210 $ — $ 17,210 Accrued expenses 47,630 — 47,630 49,387 — 49,387 Accrued wages and related liabilities 18,164 — 18,164 17,758 — 17,758 Operating lease liabilities, current 47,610 — 47,610 40,690 — 40,690 Other current liabilities 17,522 — 17,522 19,497 — 19,497 Total current liabilities 152,177 — 152,177 144,542 — 144,542 Long-term debt 245,375 — 245,375 244,328 — 244,328 Long-term operating lease liabilities 463,370 — 463,370 429,165 — 429,165 Liabilities under tax receivable agreement, net of current portion 235,614 — 235,614 234,892 — 234,892 Other long-term liabilities 26,322 — 26,322 20,588 — 20,588 Total liabilities 1,122,858 — 1,122,858 1,073,515 — 1,073,515 Commitments and contingencies Stockholders' equity: Preferred stock, no par value— 10,000,000 shares authorized; none issued and outstanding as of September 27, 2023 and September 28, 2022. — — — — — — Class A common stock, $ 0.001 par value— 200,000,000 shares authorized; 39,466,268 and 39,279,699 shares issued and outstanding as of September 27, 2023 and September 28, 2022, respectively. 39 — 39 39 — 39 Class B common stock, $ 0.001 par value— 35,000,000 shares authorized; 2,834,513 and 2,869,513 shares issued and outstanding as of September 27, 2023 and September 28, 2022, respectively. 3 — 3 3 — 3 Additional paid-in capital 423,811 38 423,849 413,274 17 413,291 Retained earnings (accumulated deficit) ( 7,496 ) 17,050 9,554 ( 9,820 ) 14,188 4,368 Accumulated other comprehensive loss ( 3 ) — ( 3 ) ( 1 ) — ( 1 ) Total stockholders' equity attributable to Shake Shack Inc. 416,354 17,088 433,442 403,495 14,205 417,700 Non-controlling interests 25,644 — 25,644 24,757 — 24,757 Total equity 441,998 17,088 459,086 428,252 14,205 442,457 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,564,856 $ 17,088 $ 1,581,944 $ 1,501,767 $ 14,205 $ 1,515,972 Shake Shack Inc. Form 10-K | 99 Thirteen Weeks Ended CONDENSED CONSOLIDATED STATEMENTS OF LOSS (UNAUDITED) March 29 2023 March 30 2022 Shack sales $ 244,254 $ 196,791 Licensing revenue 9,024 6,600 TOTAL REVENUE 253,278 203,391 Shack-level operating expenses: Food and paper costs 71,772 59,884 Labor and related expenses 74,264 60,465 Other operating expenses 34,936 30,171 Occupancy and related expenses 18,583 16,276 General and administrative expenses 31,311 31,386 Depreciation and amortization expense 21,322 16,855 Pre-opening costs 3,557 2,712 Impairment and loss on disposal of assets 722 577 TOTAL EXPENSES 256,467 218,326 LOSS FROM OPERATIONS ( 3,189 ) ( 14,935 ) Other income (expense), net 2,837 ( 289 ) Interest expense ( 403 ) ( 355 ) LOSS BEFORE INCOME TAXES ( 755 ) ( 15,579 ) Income tax expense (benefit) 867 ( 4,297 ) NET LOSS ( 1,622 ) ( 11,282 ) Less: Net loss attributable to non-controlling interests ( 88 ) ( 1,120 ) NET LOSS ATTRIBUTABLE TO SHAKE SHACK INC. $ ( 1,534 ) $ ( 10,162 ) Loss per share of Class A common stock: Basic $ ( 0.04 ) $ ( 0.26 ) Diluted $ ( 0.04 ) $ ( 0.26 ) Weighted average shares of Class A common stock outstanding: Basic 39,332 39,163 Diluted 39,332 39,163 Shake Shack Inc. Form 10-K | 100 Thirteen Weeks Ended CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) June 28 2023 June 29 2022 Shack sales $ 261,810 $ 223,054 Licensing revenue 9,995 7,698 TOTAL REVENUE 271,805 230,752 Shack-level operating expenses: Food and paper costs 75,800 65,987 Labor and related expenses 75,158 65,851 Other operating expenses 36,109 32,151 Occupancy and related expenses 19,801 16,657 General and administrative expenses 31,476 29,487 Depreciation and amortization expense 22,252 18,087 Pre-opening costs 5,577 2,823 Impairment and loss on disposal of assets 884 528 TOTAL EXPENSES 267,057 231,571 INCOME (LOSS) FROM OPERATIONS 4,748 ( 819 ) Other income, net 3,227 538 Interest expense ( 405 ) ( 315 ) INCOME (LOSS) BEFORE INCOME TAXES 7,570 ( 596 ) Income tax expense 347 707 NET INCOME (LOSS) 7,223 ( 1,303 ) Less: Net income (loss) attributable to non-controlling interests 275 ( 115 ) NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. $ 6,948 $ ( 1,188 ) Earnings (loss) per share of Class A common stock: Basic $ 0.18 $ ( 0.03 ) Diluted $ 0.16 $ ( 0.03 ) Weighted average shares of Class A common stock outstanding: Basic 39,416 39,227 Diluted 43,886 39,227 Shake Shack Inc. Form 10-K | 101 Thirteen Weeks Ended CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) September 27 2023 September 28 2022 Shack sales $ 264,980 $ 219,501 Licensing revenue 11,227 8,313 TOTAL REVENUE 276,207 227,814 Shack-level operating expenses: Food and paper costs 77,180 67,774 Labor and related expenses 76,233 64,638 Other operating expenses 37,307 33,680 Occupancy and related expenses 20,300 17,337 General and administrative expenses 30,939 26,931 Depreciation and amortization expense 23,130 18,647 Pre-opening costs 4,969 3,041 Impairment and loss on disposal of assets 492 592 TOTAL EXPENSES 270,550 232,640 INCOME (LOSS) FROM OPERATIONS 5,657 ( 4,826 ) Other income, net 3,441 1,482 Interest expense ( 433 ) ( 475 ) INCOME (LOSS) BEFORE INCOME TAXES 8,665 ( 3,819 ) Income tax expense (benefit) 529 ( 1,508 ) NET INCOME (LOSS) 8,136 ( 2,311 ) Less: Net income (loss) attributable to non-controlling interests 509 ( 287 ) NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. $ 7,627 $ ( 2,024 ) Earnings (loss) per share of Class A common stock: Basic $ 0.19 $ ( 0.05 ) Diluted $ 0.19 $ ( 0.05 ) Weighted average shares of Class A common stock outstanding: Basic 39,460 39,274 Diluted 43,978 39,274 Shake Shack Inc. Form 10-K | 102 CORRECTED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) For the Thirteen Weeks Ended March 30, 2022 Class A Common Stock Class B Common Stock Additional Paid-In Capital Retained Earnings (Accumulated deficit) Accumulated Other Comprehensive Income (Loss) Non- Controlling Interest Total Equity Shares Amount Shares Amount BALANCE DECEMBER 29, 2021 (As Reported) 39,142,397 $ 39 2,921,587 $ 3 $ 405,940 $ 3,554 $ 1 $ 26,063 $ 435,600 Effect of restatement — — — — 17 14,188 — — 14,205 BALANCE DECEMBER 29, 2021 (As Restated) 39,142,397 39 2,921,587 3 405,957 17,742 1 26,063 449,805 Net loss — — — — — ( 10,162 ) — ( 1,120 ) ( 11,282 ) Other comprehensive income: Net change in foreign currency translation adjustment — — — — — — ( 1 ) — ( 1 ) Equity-based compensation — — — — 3,224 — — — 3,224 Activity under stock compensation plan 65,893 — — — ( 2,276 ) — — 252 ( 2,024 ) Redemption of LLC interests 10,000 — ( 10,000 ) — 49 — — ( 49 ) — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — 44 — — — 44 Distributions paid to non-controlling interest holders — — — — — — — ( 302 ) ( 302 ) BALANCE MARCH 30, 2022 (As Restated) 39,218,290 $ 39 2,911,587 $ 3 $ 406,998 $ 7,580 $ — $ 24,844 $ 439,464 For the thirteen weeks ended June 29, 2022 and September 28, 2022, the effect of the restatement is included in the beginning balances as of March 30, 2022 and June 29, 2022, respectively. As such, only the restated Condensed Consolidated Statements of Stockholders' Equity are shown below. CORRECTED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) For the Thirteen Weeks Ended June 29, 2022 Class A Common Stock Class B Common Stock Additional Paid-In Capital Retained Earnings (Accumulated deficit) Accumulated Other Comprehensive Income (Loss) Non- Controlling Interest Total Equity Shares Amount Shares Amount BALANCE MARCH 30, 2022 (As Restated) 39,218,290 $ 39 2,911,587 $ 3 $ 406,998 $ 7,580 $ — $ 24,844 $ 439,464 Net loss — — — — — ( 1,188 ) — ( 115 ) ( 1,303 ) Other comprehensive income: . Net change in foreign currency translation adjustment — — — — — — ( 1 ) — ( 1 ) Equity-based compensation — — — — 3,501 — — — 3,501 Activity under stock compensation plan 8,306 — — — ( 332 ) — — 421 89 Redemption of LLC interests 40,074 — ( 40,074 ) — 257 — — ( 257 ) — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — 113 — — — 113 Distributions paid to non-controlling interest holders — — — — — — — ( 22 ) ( 22 ) BALANCE JUNE 29, 2022 (As Restated) 39,266,670 $ 39 2,871,513 $ 3 $ 410,537 $ 6,392 $ ( 1 ) $ 24,871 $ 441,841 Shake Shack Inc. Form 10-K | 103 CORRECTED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) For the Thirteen Weeks Ended September 28, 2022 Class A Common Stock Class B Common Stock Additional Paid-In Capital Retained Earnings (Accumulated deficit) Accumulated Other Comprehensive Income (Loss) Non- Controlling Interest Total Equity Shares Amount Shares Amount BALANCE JUNE 29, 2022 (As Restated) 39,266,670 $ 39 2,871,513 $ 3 $ 410,537 $ 6,392 $ ( 1 ) $ 24,871 $ 441,841 Net loss — — — — — ( 2,024 ) — ( 287 ) ( 2,311 ) Other comprehensive income: . Net change in foreign currency translation adjustment — — — — — — — — — Equity-based compensation — — — — 3,570 — — — 3,570 Activity under stock compensation plan 11,029 — — — ( 182 ) — — 245 63 Redemption of LLC interests 2,000 — ( 2,000 ) — 7 — — ( 7 ) — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — ( 641 ) — — — ( 641 ) Distributions paid to non-controlling interest holders — — — — — — — ( 65 ) ( 65 ) BALANCE SEPTEMBER 28, 2022 (As Restated) 39,279,699 $ 39 2,869,513 $ 3 $ 413,291 $ 4,368 $ ( 1 ) $ 24,757 $ 442,457 Shake Shack Inc. Form 10-K | 104 CORRECTED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) For the Thirteen Weeks Ended March 29, 2023 Class A Common Stock Class B Common Stock Additional Paid-In Capital Retained Earnings (Accumulated deficit) Accumulated Other Comprehensive Income (Loss) Non- Controlling Interest Total Equity Shares Amount Shares Amount BALANCE DECEMBER 28, 2022 (As Reported) 39,284,998 $ 39 2,869,513 $ 3 $ 415,611 $ ( 20,537 ) $ — $ 24,632 $ 419,748 Effect of restatement — — — — 38 17,050 — — 17,088 BALANCE DECEMBER 28, 2022 (As Restated) 39,284,998 39 2,869,513 3 415,649 ( 3,487 ) — 24,632 436,836 Net loss — — — — — ( 1,534 ) — ( 88 ) ( 1,622 ) Other comprehensive loss: Net change in foreign currency translation adjustment — — — — — — ( 4 ) — ( 4 ) Equity-based compensation — — — — 3,864 — — — 3,864 Activity under stock compensation plan 94,907 — — — ( 2,699 ) — — 186 ( 2,513 ) Redemption of LLC interests 25,000 — ( 25,000 ) — 194 — — ( 194 ) — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — 481 — — — 481 Distributions paid to non-controlling interest holders — — — — — — — ( 49 ) ( 49 ) BALANCE MARCH 29, 2023 (As Restated) 39,404,905 $ 39 2,844,513 $ 3 $ 417,489 $ ( 5,021 ) $ ( 4 ) $ 24,487 $ 436,993 For the thirteen weeks ended June 28, 2023 and September 27, 2023, the effect of the restatement is included in the beginning balances as of March 29, 2023 and June 28, 2023, respectively. As such, only the restated Condensed Consolidated Statements of Stockholders' Equity are shown below. CORRECTED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) For the Thirteen Weeks Ended June 28, 2023 Class A Common Stock Class B Common Stock Additional Paid-In Capital Retained Earnings (Accumulated deficit) Accumulated Other Comprehensive Income (Loss) Non- Controlling Interest Total Equity Shares Amount Shares Amount BALANCE MARCH 29, 2023 (As Restated) 39,404,905 $ 39 2,844,513 $ 3 $ 417,489 $ ( 5,021 ) $ ( 4 ) $ 24,487 $ 436,993 Net income — — — — — 6,948 — 275 7,223 Other comprehensive income (loss): Net change in foreign currency translation adjustment — — — — — — — — — Equity-based compensation — — — — 4,011 — — — 4,011 Activity under stock compensation plan 44,341 — — — 145 — — 329 474 Redemption of LLC interests — — — — — — — — — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — ( 251 ) — — — ( 251 ) Distributions paid to non-controlling interest holders — — — — — — — ( 3 ) ( 3 ) BALANCE JUNE 28, 2023 (As Restated) 39,449,246 $ 39 2,844,513 $ 3 $ 421,394 $ 1,927 $ ( 4 ) $ 25,088 $ 448,447 Shake Shack Inc. Form 10-K | 105 CORRECTED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) For the Thirteen Weeks Ended September 27, 2023 Class A Common Stock Class B Common Stock Additional Paid-In Capital Retained Earnings (Accumulated deficit) Accumulated Other Comprehensive Income (Loss) Non- Controlling Interest Total Equity Shares Amount Shares Amount BALANCE JUNE 28, 2023 (As Restated) 39,449,246 $ 39 2,844,513 $ 3 $ 421,394 $ 1,927 $ ( 4 ) $ 25,088 $ 448,447 Net income — — — — — 7,627 — 509 8,136 Other comprehensive income: . Net change in foreign currency translation adjustment — — — — — — 1 — 1 Equity-based compensation — — — — 3,563 — — — 3,563 Activity under stock compensation plan 7,022 — — — ( 469 ) — — 197 ( 272 ) Redemption of LLC interests 10,000 — ( 10,000 ) — 71 — — ( 71 ) — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — ( 710 ) — — — ( 710 ) Distributions paid to non-controlling interest holders — — — — — — — ( 79 ) ( 79 ) BALANCE SEPTEMBER 27, 2023 (As Restated) 39,466,268 $ 39 2,834,513 $ 3 $ 423,849 $ 9,554 $ ( 3 ) $ 25,644 $ 459,086 NOTE 4: REVENUE Revenue Recognition Revenue disaggregated by type was as follows: 2023 2022 2021 Shack sales $ 1,046,819 $ 869,270 $ 714,989 Licensing revenue: Sales-based royalties 39,853 30,204 24,150 Initial territory and opening fees 861 1,012 754 Total revenue $ 1,087,533 $ 900,486 $ 739,893 The aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of December 27, 2023 was $ 23,690 . The Company expects to recognize this amount as revenue over a long-term period, as the license term for each Shack ranges from 5 to 20 years. This amount excludes any variable consideration related to sales-based royalties. Shake Shack Inc. Form 10-K | 106 Contract Balances Contract liabilities and receivables from contracts with customers were as follows: December 27 2023 December 28 2022 Shack sales receivables $ 9,884 $ 8,779 Licensing receivables, net of allowance for doubtful accounts 4,610 3,918 Gift card liability 2,603 2,285 Deferred revenue, current 1,192 969 Deferred revenue, long-term 17,157 14,340 Revenue recognized that was included in the respective liability balances at the beginning of the period was as follows: 2023 2022 Gift card liability (1) $ 634 $ 1,781 Deferred revenue 1,103 954 (1) For fiscal 2022, amount includes the cumulative catch-up adjustment of $ 1,281 for gift card breakage income. Refer to Note 2, Summary of Significant Accounting Policies, for additional information. Shake Shack Inc. Form 10-K | 107 NOTE 5: FAIR VALUE MEASUREMENTS Assets and Liabilities Measured at Fair Value on a Recurring Basis The carrying values of the Company's Cash and cash equivalents, Accounts receivable, net, Accounts payable and Accrued expenses approximate fair value due to the short-term nature of these financial instruments. The Company's marketable securities were as follows: December 27 2023 December 28 2022 Equity securities $ — $ 80,707 Held-to-maturity securities 68,561 — Total marketable securities $ 68,561 $ 80,707 The Company classified its available-for-sale and held-to-maturity securities as Level 1 measurements within the fair value hierarchy. Refer to Note 9, Debt, for additional information relating to the fair value of the Company's outstanding debt instruments. The Company's held-to-maturity securities were as follows: December 27, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value U.S. Treasuries $ 68,561 $ 481 $ — $ 69,042 As of December 27, 2023, the contractual maturities of held-to-maturity securities were less than 12 months. Any expected credit losses would not be material to the Consolidated Statements of Income (Loss). A summary of other income from investments was as follows: 2023 2022 2021 Income from investments $ 2,885 $ 1,033 $ 301 Realized gain (loss) on sale of equity securities 81 — ( 5 ) Unrealized loss on equity securities — ( 158 ) ( 277 ) Total $ 2,966 $ 875 $ 19 Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis Assets and liabilities measured at fair value on a non-recurring basis include long-lived assets, operating lease right-of-use assets and indefinite-lived intangible assets. The Company performs its impairment analysis at least annually or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. No impairment charges were recognized during fiscal 2023. During fiscal 2022, the Company recognized an impairment charge of $ 99 related to one Shack. These impairment charges were included in Impairment and loss on disposal of assets on the Consolidated Statements of Income (Loss). There were no impairment charges recognized during fiscal 2021. The fair values of assets were determined using an income-based approach and are classified as Level 3 within the fair value hierarchy. Significant inputs include projections of future cash flows, discount rates, Shack sales and profitability. Shake Shack Inc. Form 10-K | 108 NOTE 6: ACCOUNTS RECEIVABLE, NET The components of Accounts receivable, net were as follows: December 27 2023 December 28 2022 Licensing receivables $ 4,610 $ 3,918 Credit card receivables 6,360 5,549 Delivery receivables 3,039 2,753 Other receivables 2,838 1,657 Accounts receivable, net $ 16,847 $ 13,877 NOTE 7: PROPERTY AND EQUIPMENT, NET The components of Property and equipment, net were as follows: December 27 2023 December 28 2022 Leasehold improvements $ 594,024 $ 494,212 Equipment 98,780 77,737 Furniture and fixtures 31,469 27,519 Computer equipment and software 101,822 70,667 Financing equipment lease right-of-use assets 25,127 16,155 Construction in progress 56,533 71,103 Property and equipment, gross 907,755 757,393 Less: accumulated depreciation ( 376,760 ) ( 290,362 ) Property and equipment, net $ 530,995 $ 467,031 Depreciation expense was $ 91,216 , $ 72,770 and $ 58,961 for fiscal 2023, fiscal 2022 and fiscal 2021, respectively. NOTE 8: SUPPLEMENTAL BALANCE SHEET INFORMATION The components of Prepaid expenses and other current assets were as follows: December 27 2023 December 28 2022 Prepaid expenses $ 5,641 $ 3,815 Tenant allowance receivables 12,136 10,121 Other 1,190 763 Prepaid expenses and other current assets $ 18,967 $ 14,699 Shake Shack Inc. Form 10-K | 109 The components of Other current liabilities were as follows: December 27 2023 December 28 2022 Sales tax payable $ 6,076 $ 5,363 Current portion of financing equipment lease liabilities 3,435 2,546 Gift card liability 2,603 2,285 Legal reserve 679 6,285 Other 4,310 3,073 Other current liabilities $ 17,103 $ 19,552 The components of Other long-term liabilities were as follows: December 27 2023 December 28 2022 Deferred licensing revenue $ 17,157 $ 14,340 Long-term portion of financing equipment lease liabilities 8,721 3,909 Other 760 2,438 Other long-term liabilities $ 26,638 $ 20,687 NOTE 9: DEBT Convertible Notes The Company's $ 250,000 aggregate principal amount of 0 % Convertible Senior Notes due 2028 (“Convertible Notes”) will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in certain circumstances. Upon conversion, the Company pays or delivers, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company's election. The Convertible Notes are convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding December 1, 2027, only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on June 30, 2021 (and only during such fiscal quarter), if the last reported sale price of the Company's Class A common stock, par value $ 0.001 per share, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price for the Convertible Notes on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per one thousand dollar principal amount of the Convertible Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of Class A common stock and the conversion rate for the Convertible Notes on each such trading day; (3) if the Company calls such Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Convertible Notes called (or deemed called) for redemption; and (4) upon the occurrence of specified corporate events as set forth in the Indenture. On or after December 1, 2027, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Convertible Notes may convert all or any portion of their Convertible Notes at any time, regardless of the foregoing circumstances. The Convertible Notes had an initial conversion rate of 5.8679 shares of Class A common stock per one thousand dollar principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $ 170.42 per share of Class A common stock. The fair value of the Convertible Notes was approximately $ 205,000 and $ 162,500 , respectively, as of December 27, 2023 and December 28, 2022, based on external pricing data, including available quoted market prices of these Shake Shack Inc. Form 10-K | 110 instruments, and consideration of comparable debt instruments with similar interest rates and trading frequency, among other factors, and is classified as a Level 2 measurement within the fair value hierarchy. The Company may not redeem the Convertible Notes prior to March 6, 2025. The Company may redeem for cash all or any portion of the Convertible Notes, at the Company's option, on or after March 6, 2025 if the last reported sale price of Class A common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 % of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date. In addition, if Shake Shack undergoes a fundamental change (as defined in the indenture governing the Convertible Notes), subject to certain conditions, holders may require it to repurchase for cash all or any portion of their Convertible Notes at a repurchase price equal to 100 % of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the maturity date of the Convertible Notes or if the Company delivers a notice of redemption in respect of some or all of the Convertible Notes, the Company will, in certain circumstances, increase the conversion rate of the Convertible Notes for a holder who elects to convert the Convertible Notes in connection with such a corporate event or convert the Convertible Notes called (or deemed called) for redemption during the related redemption period, as the case may be. Contemporaneously with the issuance of the Convertible Notes, Shake Shack Inc. entered into an intercompany note with SSE Holdings (“Intercompany Note”). SSE Holdings promises to pay Shake Shack Inc., for value received, the principal amount with interest of the Intercompany Note in March 2028. Shake Shack Inc. will exercise its right to convert the Intercompany Note to maintain at all times a one-to-one ratio between the number of common units, directly or indirectly, held by Shake Shack Inc. and the aggregate number of outstanding shares of common stock. Classification December 27 2023 December 28 2022 Amortization expense on Convertible Notes Interest expense $ 1,047 $ 1,047 December 27 2023 December 28 2022 Convertible Notes $ 250,000 $ 250,000 Discount and debt issuance costs, net of amortization ( 4,364 ) ( 5,411 ) Long-term debt $ 245,636 $ 244,589 Revolving Credit Facility The Company maintains a revolving credit facility agreement ("Revolving Credit Facility") which permits borrowings up to $ 50,000 with the ability to increase available borrowings up to an additional $ 100,000 , subject to satisfaction of certain conditions. The Revolving Credit Facility has a maturity date of March 5, 2026. In fiscal 2023, the Company entered into the fourth amendment to the Revolving Credit Facility ("Fourth Amendment"), which, among other things, modified the benchmark interest rate to either: (i) the base rate plus applicable margin ranging from 0.0 % to 1.5 % or (ii) the Secured Overnight Financing Rate (“SOFR”) plus applicable margin ranging from 1.0 % to 2.5 %, in each case depending on the net lease adjusted leverage ratio. As of December 27, 2023 and December 28, 2022, no amounts were outstanding under the Revolving Credit Facility. The obligations under the Revolving Credit Facility are secured by a first-priority security interest in substantially all of the assets of SSE Holdings and the guarantors. The obligations under the Revolving Credit Facility are guaranteed by each of SSE Holdings' direct and indirect subsidiaries, with certain exceptions. The Revolving Credit Facility requires the Company to comply Shake Shack Inc. Form 10-K | 111 with maximum net lease adjusted leverage and minimum fixed charge coverage ratios, as well as other customary affirmative and negative covenants. As of December 27, 2023, the Company was in compliance with all covenants. The Revolving Credit Facility also permits the issuance of letters of credit upon our request of up to $ 15,000 . As of December 27, 2023 and December 28, 2022, the Company had outstanding letters of credit of $ 3,147 and $ 1,863 , respectively, in connection with the Revolving Credit Facility. Classification December 27 2023 December 28 2022 December 29 2021 (1) Interest expense on Revolving Credit Facility Interest expense $ 74 $ 82 $ 479 (1) Interest expense for fiscal 2021 primarily included the write-off of previously capitalized costs on the Revolving Credit Facility. Classification December 27 2023 December 28 2022 Unamortized deferred financing costs on Revolving Credit Facility Other assets $ 42 $ 62 NOTE 10: LEASES A summary of operating and finance right-of-use assets and lease liabilities were as follows: Classification December 27 2023 December 28 2022 Operating leases Operating lease assets $ 398,296 $ 367,488 Finance leases Property and equipment, net 11,801 6,152 Total right-of-use assets $ 410,097 $ 373,640 Operating leases: Operating lease liabilities, current $ 49,004 $ 42,238 Long-term operating lease liabilities 464,533 427,227 Finance leases: Other current liabilities 3,435 2,546 Other long-term liabilities 8,721 3,909 Total lease liabilities $ 525,693 $ 475,920 Shake Shack Inc. Form 10-K | 112 The components of lease expense were as follows: Classification December 27 2023 December 28 2022 December 29 2021 Operating lease cost Occupancy and related expenses Pre-opening costs General and administrative expenses $ 67,781 $ 58,788 $ 50,888 Finance lease cost: Amortization of right-of-use assets Depreciation and amortization expense 3,324 3,071 2,719 Interest on lease liabilities Interest expense 476 226 207 Variable lease cost Occupancy and related expenses Pre-opening costs General and administrative expenses 18,305 15,973 13,855 Short-term lease cost Occupancy and related expenses 938 580 290 Total lease cost $ 90,824 $ 78,638 $ 67,959 As of December 27, 2023, future minimum lease payments for operating and finance leases consisted of the following: Operating Leases Finance Leases 2024 (1) $ 65,677 $ 4,068 2025 82,915 3,440 2026 79,377 2,658 2027 74,717 2,213 2028 70,343 1,192 Thereafter 293,237 142 Total minimum payments 666,266 13,713 Less: imputed interest 164,865 1,557 Total lease liabilities $ 501,401 $ 12,156 (1) Operating leases are net of certain tenant allowance receivables that were reclassified to Other current assets as of December 27, 2023. As of December 27, 2023 the Company had additional operating lease commitments of $ 154,198 for non-cancelable leases without a possession date, which commence in 2024 or later. These lease commitments are materially consistent with the leases that have been executed thus far. A summary of lease terms and discount rates for operating and finance leases were as follows: December 27 2023 December 28 2022 Weighted average remaining lease term (years): Operating leases 8.9 8.9 Finance leases 4.7 5.1 Weighted average discount rate: Operating leases 6.2 % 5.7 % Finance leases 5.6 % 4.0 % Shake Shack Inc. Form 10-K | 113 Supplemental cash flow information related to leases was as follows: December 27 2023 December 28 2022 December 29 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 72,128 $ 61,114 $ 49,079 Operating cash flows from finance leases 476 226 207 Financing cash flows from finance leases 3,272 2,974 2,694 Right-of-use assets obtained in exchange for lease obligations: Operating leases 72,403 56,578 66,959 Finance leases 8,972 2,415 4,119 NOTE 11: EMPLOYEE BENEFIT PLANS Defined Contribution Plan Team members are eligible to participate in a defined contribution savings plan maintained by Shake Shack. The plan is funded by participant and employer contributions. Employer contributions are paid directly to the third-party trustee and are at the Company's discretion. Employer contributions are based on matching a portion of certain participants' contributions. The Company matches 100 % of certain participants' contributions for the first 3 % of eligible compensation contributed and 50 % of contributions made in excess of 3 % of eligible compensation up to 5 % of eligible compensation. Employer contributions totaled $ 1,888 , $ 1,553 and $ 1,337 , respectively, for fiscal 2023, fiscal 2022 and fiscal 2021. NOTE 12: STOCKHOLDERS' EQUITY Redemptions of LLC Interests The SSE Holdings LLC Agreement provides that holders of LLC Interests may, from time to time, require SSE Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one-for-one basis. In connection with any redemption or exchange, the Company receives a corresponding number of LLC Interests, increasing its total ownership interest in SSE Holdings. Simultaneously, and in connection with a redemption, the corresponding number of shares of Class B common stock are surrendered and cancelled. A summary of activity related to redemptions of LLC Interests were as follows: 2023 2022 2021 Redemption and acquisition of LLC Interests Number of LLC Interests redeemed by non-controlling interest holders 35,000 52,074 29,601 Number of LLC Interests received by Shake Shack Inc. 35,000 52,074 29,601 Issuance of Class A common stock Shares of Class A common stock issued in connection with redemptions of LLC Interests 35,000 52,074 29,601 Cancellation of Class B common stock Shares of Class B common stock surrendered and cancelled 35,000 52,074 29,601 Shake Shack Inc. Form 10-K | 114 Stock Compensation Plan Activity The Company received an aggregate of 154,317 , 90,527 and 395,006 LLC Interests in connection with the activity under the stock compensation plan during fiscal 2023, fiscal 2022 and fiscal 2021, respectively. Dividend Restrictions Shake Shack Inc. is a holding company with no direct operations. As a result, its ability to pay cash dividends on its common stock, if any, is dependent upon cash dividends, distributions or other transfers from SSE Holdings. The amounts available to pay cash dividends are subject to certain covenants and restrictions set forth in the Revolving Credit Facility. As of December 27, 2023, essentially all of the net assets of SSE Holdings were restricted. NOTE 13: NON-CONTROLLING INTERESTS Shake Shack is the primary beneficiary and sole managing member of SSE Holdings and, as a result, consolidates the financial results of SSE Holdings. The Company reports a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings. The Third Amended and Restated Limited Liability Company Agreement, as further amended, (the "LLC Agreement") of SSE Holdings provides that holders of LLC Interests may, from time to time, require SSE Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one -for-one basis. In connection with any redemption or exchange, the Company will receive a corresponding number of LLC Interests, increasing the total ownership interest in SSE Holdings. Changes in the ownership interest in SSE Holdings while the Company retains its controlling interest in SSE Holdings will be accounted for as equity transactions. As such, future redemptions or direct exchanges of LLC Interests in SSE Holdings by the other members of SSE Holdings will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital. The following table summarizes the ownership interest in SSE Holdings: 2023 2022 LLC Interests Ownership % LLC Interests Ownership % Number of LLC Interests held by Shake Shack Inc. 39,474,315 93.3 % 39,284,998 93.2 % Number of LLC Interests held by non-controlling interest holders 2,834,513 6.7 % 2,869,513 6.8 % Total LLC Interests outstanding 42,308,828 100.0 % 42,154,511 100.0 % The weighted average ownership percentages for the applicable reporting periods are used to attribute Net income (loss) and Other comprehensive income (loss) to the non-controlling interest holders. 2023 2022 2021 Non-controlling interest holders' weighted average ownership percentages 6.7 % 6.9 % 7.0 % Shake Shack Inc. Form 10-K | 115 The following table summarizes the effects of changes in ownership of SSE Holdings on the Company's equity: (As Restated) (As Restated) 2023 2022 2021 Net income (loss) attributable to Shake Shack Inc. $ 20,264 $ ( 21,229 ) $ ( 4,561 ) Other comprehensive income (loss): Unrealized holding loss on foreign currency translation adjustment ( 3 ) ( 1 ) ( 2 ) Transfers (to) from non-controlling interests: Increase in additional paid-in capital as a result of the redemption of LLC Interests 265 313 33 Increase (decrease) in additional paid-in capital as a result of activity under stock compensation plan ( 3,271 ) ( 2,978 ) 1,829 Total effect of changes in ownership interest on equity (loss) attributable to Shake Shack Inc. $ 17,255 $ ( 23,895 ) $ ( 2,701 ) The following table summarizes the LLC Interests activity: 2023 2022 2021 LLC Interests activity under the Company's stock compensation plan Number of LLC Interests received by Shake Shack Inc. 154,317 90,527 395,006 Redemption and acquisition of LLC Interests Number of LLC Interests redeemed by non-controlling interest holders 35,000 52,074 29,601 Number of LLC Interests received by Shake Shack Inc. 35,000 52,074 29,601 Issuance of Class A common stock Shares of Class A common stock issued in connection with redemptions of LLC Interests 35,000 52,074 29,601 Cancellation of Class B common stock Shares of Class B common stock surrendered and canceled 35,000 52,074 29,601 NOTE 14: EQUITY-BASED COMPENSATION A summary of equity-based compensation expense by award type was as follows: 2023 2022 2021 Stock options $ — $ — $ 3 Performance stock units 3,149 4,199 3,471 Restricted stock units 11,739 9,127 5,229 Equity-based compensation expense $ 14,888 $ 13,326 $ 8,703 Total income tax benefit recognized related to equity-based compensation $ 391 $ 302 $ 223 Equity-based compensation expense recognized was as follows: 2023 2022 2021 General and administrative expenses $ 13,587 $ 12,305 $ 7,907 Labor and related expenses 1,301 1,021 796 Equity-based compensation expense $ 14,888 $ 13,326 $ 8,703 Shake Shack Inc. Form 10-K | 116 The Company capitalized $ 286 , $ 192 and $ 100 of equity-based compensation expense associated with the construction cost of our Shacks and certain digital and technology projects, during fiscal 2023, fiscal 2022 and fiscal 2021, respectively. Restricted Stock Units In January 2015, the Company adopted the 2015 Incentive Award Plan (the "2015 Plan") under which it may grant up to 5,865,522 restricted stock units and other equity-based awards to team members, directors and officers. The restricted stock units granted generally vest equally over periods ranging from one to five years . The fair value of restricted stock units is determined based on the closing market price of our Class A common stock on the date of grant. Compensation expense related to the restricted stock units is recognized using a straight-line attribution method over the vesting period. A summary of restricted stock unit activity was as follows: Restricted Stock Units Weighted Average Grant Date Fair Value Outstanding as of December 28, 2022 395,853 $ 76.82 Granted 326,692 58.26 Vested ( 147,163 ) 70.29 Forfeited ( 63,838 ) 68.94 Outstanding as of December 27, 2023 511,544 $ 67.82 As of December 27, 2023, there were 511,544 restricted stock units outstanding, of which none were vested. The weighted average grant date fair value of share awards granted during fiscal 2023, fiscal 2022 and fiscal 2021 were $ 58.26 , $ 71.25 , and $ 117.39 , respectively. The total fair value of shares vested during fiscal 2023, fiscal 2022 and fiscal 2021 was $ 10,382 , $ 5,936 and $ 8,385 , respectively. As of December 27, 2023, total unrecognized compensation expense related to unvested restricted stock units was $ 25,159 , which is expected to be recognized over a weighted average period of 2.6 years. Performance Stock Units Under the 2015 Plan, the Company may grant performance stock units and other types of performance-based equity awards that vest based on the outcome of certain performance criteria that are established and approved by the Compensation Committee of the Board of Directors. The actual number of equity awards earned is based on the level of performance achieved over a predetermined performance period, relative to established financial goals, none of which are considered market conditions. For performance stock units granted during fiscal 2022, the amount of awards that can be earned ranges from 0 % to 200 % of the number of performance stock units granted, based on the achievement of approved financial goals over a 1-year or 3-year performance period. In addition to the performance conditions, performance stock units are also subject to a requisite service period and the awards vest ratably over 4 years years or cliff vest over 3 years. No performance stock units were granted during fiscal 2023. The fair value of performance stock units is determined based on the closing market price of our Class A common stock on the date of grant. Compensation expense related to the performance stock units is recognized using either a graded-vesting attribution method or straight-line over the vesting period based on the most probable outcome of the performance conditions. Shake Shack Inc. Form 10-K | 117 A summary of performance stock unit activity was as follows: Performance Stock Units Weighted Average Grant Date Fair Value Outstanding as of December 28, 2022 159,822 $ 92.22 Granted — — Performance achievement (1) — — Vested ( 25,494 ) 91.36 Forfeited ( 12,903 ) 88.70 Outstanding as of December 27, 2023 121,425 $ 92.77 (1) Represents the incremental awards earned and/or awards forfeited based on the achievement of performance conditions. As of December 27, 2023, there were 121,425 performance stock units outstanding, of which none were vested. The weighted average grant date fair value of share awards granted during fiscal 2023, fiscal 2022 and fiscal 2021 was nil , nil , and $ 98.87 , respectively. The total fair value of awards that vested during fiscal 2023, fiscal 2022 and fiscal 2021 was $ 1,441 , $ 1,869 and $ 3,083 , respectively. As of December 27, 2023, total unrecognized compensation expense related to unvested performance stock units was $ 3,147 , which is expected to be recognized over a weighted average period of 1.1 years. Stock Options Under the 2015 Plan, the Company may grant stock options to team members, directors and officers. The stock options granted generally vest equally over periods ranging from one to five years . The Company does not use cash to settle any of the equity-based awards, and issues new shares of Class A common stock upon the exercise of stock options. The fair value of stock option awards was determined on the grant date using the Black-Scholes valuation model based on the following weighted average assumptions: 2023 2022 2021 Expected term (years) (1) 0 0 7.5 Expected volatility (2) — % — % 45.4 % Risk-free interest rate (3) — % — % 1.4 % Dividend yield (4) — % — % — % (1) Expected term represents the estimated period of time until an award is exercised and was determined using the simplified method. (2) Expected volatility is based on the historical volatility of a selected peer group over a period equivalent to the expected term. (3) The risk-free rate is an interpolation of yields on U.S. Treasury securities with maturities equivalent to the expected term. (4) A dividend yield of zero was used as the Company have no plans to declare dividends in the foreseeable future. Shake Shack Inc. Form 10-K | 118 A summary of stock option activity was as follows: Stock Options Weighted Average Exercise Price Aggregate Intrinsic Value Weighted Average Remaining Contractual Life (Years) Outstanding as of December 28, 2022 134,031 $ 21.88 Granted — — Exercised ( 33,406 ) 22.39 Forfeited — — Outstanding as of December 27, 2023 100,625 $ 21.71 $ 5,457 1.2 Options vested and exercisable as of December 27, 2023 100,625 $ 21.71 $ 5,457 1.2 Options expected to vest as of December 27, 2023 — $ — $ — — As of December 27, 2023, total unrecognized compensation expense related to unvested stock options was nil . Cash received from stock options exercised was $ 744 and the cash tax benefit realized for the tax deductions from these option exercises was $ 203 for fiscal 2023. The weighted average grant date fair value of options granted during fiscal 2023, fiscal 2022 and fiscal 2021 was nil , nil , $ 58.92 , respectively. The total intrinsic value of stock options exercised during fiscal 2023, fiscal 2022 and fiscal 2021 was $ 1,426 , $ 631 and $ 30,533 , respectively. The total fair value of stock options vested during fiscal 2023, fiscal 2022 and fiscal 2021 was nil , nil and $ 60 , respectively. The following table summarizes information about stock options outstanding and exercisable as December 27, 2023: Options Outstanding and Exercisable Number Outstanding at December 27, 2023 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Exercise Price $ 21.00 95,511 1.1 $ 21.00 $ 34.62 4,006 2.4 $ 34.62 $ 36.41 1,108 2.9 $ 36.41 NOTE 15: INCOME TAXES Shake Shack is the sole managing member of SSE Holdings and, as a result, consolidates the financial results of SSE Holdings. SSE Holdings is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, SSE Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by SSE Holdings is passed through to and included in the taxable income or loss of its members, including the Company, on a pro rata basis. The Company is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of SSE Holdings, as well as any stand-alone income or loss generated by Shake Shack Inc. The Company is also subject to withholding taxes in foreign jurisdictions. Shake Shack Inc. Form 10-K | 119 Income Tax Expense The components of Income (loss) before income taxes were as follows: (As Restated) (As Restated) 2023 2022 2021 Domestic $ ( 13,427 ) $ ( 49,454 ) $ ( 38,833 ) Foreign 30,407 25,169 21,498 Income (loss) before income taxes $ 16,980 $ ( 24,285 ) $ ( 17,335 ) The components of Income tax benefit were as follows: (As Restated) (As Restated) 2023 2022 2021 Current income taxes: Federal $ — $ — $ — State and local 1,271 222 275 Foreign 3,793 3,612 2,880 Total current income taxes 5,064 3,834 3,155 Deferred income taxes: Federal ( 12,427 ) ( 4,176 ) ( 10,732 ) State and local 3,353 ( 838 ) ( 3,741 ) Total deferred income taxes ( 9,074 ) ( 5,014 ) ( 14,473 ) Income tax benefit $ ( 4,010 ) $ ( 1,180 ) $ ( 11,318 ) Reconciliations of Income tax benefit computed at the U.S. federal statutory income tax rate to the recognized Income tax benefit and the U.S. statutory income tax rate to our effective tax rates were as follows: (As Restated) (As Restated) 2023 2022 2021 Expected U.S. federal income taxes at statutory rate $ 3,565 21.0 % $ ( 5,100 ) 21.0 % $ ( 3,641 ) 21.0 % State and local income taxes, net of federal benefit 2,429 14.3 % ( 759 ) 3.1 % ( 1,578 ) 9.1 % Foreign withholding taxes 3,792 22.3 % 3,612 ( 14.9 ) % 2,880 ( 16.6 ) % Tax credits ( 7,060 ) ( 41.5 ) % ( 5,969 ) 24.6 % ( 3,655 ) 21.1 % Non-controlling interest 517 3.0 % 122 ( 0.5 ) % ( 350 ) 2.0 % Remeasurement of deferred tax assets in connection with other tax rate changes 1,547 9.1 % 225 ( 0.9 ) % 1,034 ( 6.0 ) % Reserve for uncertain tax positions 154 0.9 % — — % — — % Change in valuation allowance ( 9,195 ) ( 54.2 ) % 4,955 ( 20.4 ) % ( 6,059 ) 35.0 % Other 241 1.4 % 1,734 ( 7.1 ) % 51 ( 0.3 ) % Income tax benefit $ ( 4,010 ) ( 23.6 ) % $ ( 1,180 ) 4.9 % $ ( 11,318 ) 65.3 % Shake Shack's effective income tax rates for fiscal 2023, fiscal 2022 and fiscal 2021 were ( 23.6 )%, 4.9 % and 65.3 %, respectively. The decrease in the effective income tax rate from fiscal 2022 to fiscal 2023 was primarily driven by additional benefit related to a decrease in valuation allowance and higher tax credits, partially offset by an increase in foreign tax expense and the revaluation of deferred tax assets as a result of a reduction in certain state income tax rates. The decrease in the effective income tax rate from fiscal 2021 to fiscal 2022 was primarily driven by additional expense related to an increase in valuation allowance, an increase in foreign tax expense, and net expense related to equity-based compensation, partially offset by higher tax credits. Shake Shack Inc. Form 10-K | 120 Deferred Tax Assets and Liabilities The components of deferred tax assets and liabilities were as follows: (As Restated) December 27 2023 December 28 2022 Deferred tax assets: Investment in partnership $ 90,419 $ 109,870 Tax Receivable Agreement 64,076 64,218 Operating lease liability 4,713 4,376 Financing lease liability 114 61 Deferred revenue 196 167 Equity-based compensation 360 380 Net operating loss carryforwards 144,144 131,867 Tax credits 26,048 19,257 Other assets 947 638 Total gross deferred tax assets 331,017 330,834 Valuation allowance ( 357 ) ( 9,560 ) Total deferred tax assets, net of valuation allowance 330,660 321,274 Deferred tax liabilities: Property and equipment ( 599 ) ( 95 ) Operating lease right-of-use asset ( 3,735 ) ( 3,488 ) Financing lease right-of-use asset ( 111 ) ( 58 ) Other liabilities ( 7 ) ( 7 ) Total gross deferred tax liabilities ( 4,452 ) ( 3,648 ) Net deferred tax assets $ 326,208 $ 317,626 As of December 27, 2023, the Company's federal and state net operating loss carryforwards for income tax purposes were $ 596,347 and $ 327,152 , respectively. If not utilized, $ 544,480 of the Company's federal net operating losses can be carried forward indefinitely, and the remainder will begin to expire in 2035. If not utilized $ 49,912 of the Company's state net operating loss carryforwards can be carried forward indefinitely, and the remainder will begin to expire in 2024. As of December 27, 2023, the Company had federal tax credit carryforwards of $ 25,727 which will begin to expire in 2025 and gross state tax credit carryforwards of $ 406 which will begin to expire in 2024. As described in Note 12, Stockholders' Equity, the Company acquired an aggregate of 189,317 LLC Interests during fiscal 2023 through redemption of LLC Interests and activity under stock-based compensation plans. The Company recognized a deferred tax liability in the amount of $ 720 associated with the basis difference in its investment in SSE Holdings upon acquisition of these LLC Interests. As of December 27, 2023, the total deferred tax asset related to the basis difference in the Company's investment in SSE Holdings was $ 90,419 . The Company evaluates the realizability of its deferred tax assets on a quarterly basis and establishes valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized. As of December 27, 2023, the Company concluded, based on the weight of all available positive and negative evidence, that all of its deferred tax assets are more likely than not to be realized, except certain state attributes that are not expected to be utilized before expiration. As such, a valuation allowance in the amount of $ 357 was recognized. The net change in valuation allowance for fiscal 2023 was a decrease of $ 9,201 primarily related to the change in realizability of foreign tax credits. Refer to Schedule II, Valuation and Qualifying Accounts for additional information. Shake Shack Inc. Form 10-K | 121 Uncertain Tax Positions As of December 27, 2023, the Company assessed its tax positions by applying the two-step recognition and measurement model pursuant to ASC 740 and considering the applicable unit of account. Pursuant to ASC 740-10-25-6, the Company recognizes the financial statement effects of a tax position only when it is more likely than not that the position will be sustained upon examination. At the conclusion of the Company's examination in New York City for tax years 2015 -2017, a reserve of $ 207 was recognized based on a settlement with the taxing authority. In addition, the Company recognized an uncertain tax reserve of $ 195 for tax years 2018-2022. Reconciliations of uncertain tax positions were as follows: (As Restated) (As Restated) 2023 2022 2021 Beginning balance $ — $ — $ — Additions based on tax positions related to the current year — — — Additions for tax positions of prior years 263 — — Reductions for tax positions of prior years — — — Reductions for lapse of applicable statute of limitations — — — Settlements ( 116 ) — — Ending balance $ 147 $ — $ — The Company does not expect a significant increase or decrease in unrecognized tax benefits within the next twelve months. The $ 147 of unrecognized tax benefits, if recognized, would favorably affect the Company’s effective tax rate. Interest and penalties, if any, related to income tax liabilities are included in income tax expense. During the fiscal year ended December 27, 2023, the Company recognized $ 139 in interest expense. As of December 27, 2023, the Company accrued $ 48 of interest expense. Shake Shack Inc. was formed in September 2014 and did not engage in any operations prior to the IPO and other transactions completed in connection with the IPO. The statute of limitations remains open for tax years beginning in 2015 for Shake Shack Inc. Additionally, although SSE Holdings is treated as a partnership for U.S. federal and state income taxes purposes, it is still required to file an annual U.S. Return of Partnership Income, which is subject to examination by the Internal Revenue Service ("IRS"). The statute of limitations has expired for tax years through 2019 for SSE Holdings. Tax Receivable Agreement Pursuant to the Company's election under Section 754 of the Internal Revenue Code (the "Code"), the Company expects to obtain an increase in its share of the tax basis in the net assets of SSE Holdings when LLC Interests are redeemed or exchanged by the other members of SSE Holdings. The Company plans to make an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC Interest occurs. The Company intends to treat any redemptions and exchanges of LLC Interests as direct purchases of LLC Interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that would otherwise be paid in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets. On February 4, 2015, the Company entered into a tax receivable agreement with certain of the then-existing members of SSE Holdings (the "Tax Receivable Agreement") that provides for the payment by the Company of 85 % of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of (i) increases in the Company's share of the tax basis in the net assets of SSE Holdings resulting from any redemptions or exchanges of LLC Interests, (ii) tax basis increases attributable to payments made under the Tax Receivable Agreement, and (iii) deductions attributable to imputed interest pursuant to the Tax Receivable Agreement (the "TRA Payments"). The Company expects to benefit from the remaining 15 % of any tax benefits that may actually realize. The TRA Payments are not conditioned upon any continued ownership interest in SSE Holdings or the Company. The rights of each member of SSE Holdings that is a party to the Tax Receivable Agreement, are assignable to transferees of their respective LLC Interests. Shake Shack Inc. Form 10-K | 122 During fiscal 2023, the Company acquired an aggregate of 35,000 LLC Interests in connection with the redemption of LLC Interests, which resulted in an increase in the tax basis of its investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement. The Company recognized an additional liability in the amount of $ 720 for the TRA Payments due to the redeeming members, representing 85 % of the aggregate tax benefits the Company expects to realize from the tax basis increases related to the redemption of LLC Interests, after concluding it was probable that such TRA Payments would be paid based on estimates of future taxable income. No payments were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement in fiscal 2023 and fiscal 2022. As of December 27, 2023, the total amount of TRA Payments due under the Tax Receivable Agreement was $ 235,613 , of which no amount was included in Other current liabilities on the Consolidated Balance Sheets. Refer to Note 18, Commitments and Contingencies, for additional information relating to the liabilities under the Tax Receivable Agreement. NOTE 16: EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share of Class A common stock is computed by dividing Net income (loss) attributable to Shake Shack Inc. by the weighted average number of shares of Class A common stock outstanding during the period. Diluted earnings (loss) per share of Class A common stock is computed by dividing Net income (loss) attributable to Shake Shack Inc. by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities. The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings (loss) per share of Class A common stock (in thousands, except per share amounts): (As Restated) (As Restated) 2023 2022 2021 Numerator: Net income (loss) attributable to Shake Shack Inc.—basic $ 20,264 $ ( 21,229 ) $ ( 4,561 ) Reallocation of net income attributable to non-controlling interests from the assumed conversion of Class B shares 726 — — Net income (loss) attributable to Shake Shack Inc.—diluted $ 20,990 $ ( 21,229 ) $ ( 4,561 ) Denominator: Weighted average shares of Class A common stock outstanding—basic 39,419 39,237 39,085 Effect of dilutive securities: Stock options 75 — — Performance stock units 11 — — Restricted stock units 85 — — Convertible Notes 1,467 — — Shares of Class B common stock 2,842 — — Weighted average shares of Class A common stock outstanding—diluted 43,899 39,237 39,085 Earnings (loss) per share of Class A common stock—basic $ 0.51 $ ( 0.54 ) $ ( 0.12 ) Earnings (loss) per share of Class A common stock—diluted $ 0.48 $ ( 0.54 ) $ ( 0.12 ) The effect of potential share settlement of the Convertible Notes outstanding for the period is included as potentially dilutive shares of Class A common stock under application of the if-converted method in the computation of diluted earnings (loss) per share, except when the effect would be anti-dilutive. Refer to Note 9, Debt, for additional information. Shares of Class B common stock do not share in the earnings or losses of Shake Shack and are therefore not participating securities. As such, separate presentation of basic and diluted earnings (loss) per share of Class B common stock under the two-class method has not been presented. However, shares of Class B common stock outstanding for the period are considered Shake Shack Inc. Form 10-K | 123 potentially dilutive shares of Class A common stock under application of the if-converted method and are included in the computation of diluted earnings (loss) per share, except when the effect would be anti-dilutive. The following table presents potentially dilutive securities excluded from the computations of diluted earnings (loss) per share of Class A common stock: 2023 2022 2021 Stock options — 134,031 (2) 154,231 (2) Performance stock units 99,718 (1) 159,822 (2) 186,159 (2) Restricted stock units — 395,853 (2) 231,429 (2) Shares of Class B common stock — 2,869,513 (2) 2,921,587 (2) Convertible notes — 1,466,975 (2) 1,466,975 (2) (1) Number of securities outstanding at the end of the period that were excluded from the computation of diluted earnings (loss) per share of Class A common stock because the performance conditions associated with these awards were not met assuming the end of the reporting period was the end of the performance period. (2) Number of securities outstanding at the end of the period that were excluded from the computation of diluted earnings (loss) per share of Class A common stock because the effect would have been anti-dilutive. NOTE 17: SUPPLEMENTAL CASH FLOW INFORMATION The following table sets forth supplemental cash flow information: 2023 2022 2021 Cash paid for: Income taxes, net of refunds $ 4,056 $ 3,731 $ 2,808 Interest, net of amounts capitalized 537 252 252 Non-cash investing activities: Accrued purchases of property and equipment 24,999 26,591 22,241 Capitalized equity-based compensation 181 126 66 Non-cash financing activities: Establishment of liabilities under tax receivable agreement 720 844 1,093 NOTE 18: COMMITMENTS AND CONTINGENCIES Lease Commitments The Company is obligated under various operating leases for Shacks and the home office space, expiring in various years through 2045. Under certain of these leases, the Company is liable for contingent rent based on a percentage of sales in excess of specified thresholds and typically responsible for its proportionate share of real estate taxes, common area maintenance costs and other occupancy costs. Refer to Note 10, Leases, for additional information. Certain leases require the Company to obtain letters of credit. As of December 27, 2023, the Company held two letters of credit, one for $ 130 , which expires in February 2026 and the second for $ 402 , which expires in August 2024 and renews automatically for one-year periods through January 31, 2034. Shake Shack Inc. Form 10-K | 124 Purchase Commitments Purchase obligations include legally binding contracts, including commitments for the purchase, construction or remodeling of real estate and facilities, firm minimum commitments for inventory purchases, equipment purchases, marketing-related contracts, software acquisition/license commitments and service contracts. These obligations are generally short-term in nature and are recorded as liabilities when the related goods are received or services rendered. The Company also enters into long-term, exclusive contracts with certain vendors to supply food, beverages and paper goods, obligating the Company to purchase specified quantities. Legal Contingencies In May 2022, a claim was filed against Shake Shack alleging certain violations of the Fair Labor Standards Act relating to the classification of exempt managers. The matter was settled with a maximum payment of $ 900 . An accrual of $ 900 was recorded for this matter during the thirteen weeks ended March 29, 2023. Subsequently, the accrual was reduced by $ 385 during the thirteen weeks ended December 27, 2023. The Company is subject to various legal proceedings, claims and liabilities, involving employees and guests alike, which arise in the ordinary course of business and are generally covered by insurance. As of December 27, 2023, the amount of the ultimate liability with respect to these matters was not material. Liabilities under Tax Receivable Agreement As described in Note 15, Income Taxes, the Company is a party to the Tax Receivable Agreement under which it is contractually committed to pay certain of the members of SSE Holdings 85 % of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of certain transactions. The Company is not obligated to make any payments under the Tax Receivable Agreement until the tax benefits associated with the transactions that gave rise to the payments are realized. Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws. If the Company does not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then it would not be required to make the related TRA Payments. As of December 27, 2023 and December 28, 2022, the Company recognized liabilities totaling $ 235,613 and $ 234,893 , respectively, relating to the obligations under the Tax Receivable Agreement, after concluding that it was probable that it would have sufficient future taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits. There were no transactions subject to the Tax Receivable Agreement for which the Company did not recognize the related liability, as the Company concluded that it would have sufficient future taxable income to utilize all of the related tax benefits generated by all transactions that occurred in fiscal 2023. NOTE 19: RELATED PARTY TRANSACTIONS Union Square Hospitality Group The Chairman of the Board of Directors serves as the Executive Chairman of Union Square Hospitality Group, LLC. As a result, Union Square Hospitality Group, LLC and its subsidiary, set forth below, are considered related parties. Hudson Yards Sports and Entertainment In fiscal 2011, Shake Shack entered into a Master License Agreement (as amended, "MLA") with Hudson Yards Sports and Entertainment LLC ("HYSE") to operate Shake Shack branded limited menu concession stands in sports and entertainment venues within the United States. In February 2019, the agreement was assigned to Hudson Yards Catering ("HYC"), the parent of HYSE. The agreement expires in January 2027 and includes five consecutive five-year renewal options at HYC's option. As consideration for these rights, HYC pays the Company a license fee based on a percentage of net food sales, as defined in the MLA. HYC also pays a percentage of profits on sales of branded beverages, as defined in the MLA. Shake Shack Inc. Form 10-K | 125 Classification 2023 2022 2021 Amounts received from HYC Licensing revenue $ 988 $ 802 $ 320 Classification December 27 2023 December 28 2022 Amounts due from HYC Accounts receivable, net $ 57 $ 69 Madison Square Park Conservancy The Chairman of the Board of Directors serves as a director of the Madison Square Park Conservancy ("MSP Conservancy"), with which Shake Shack has a license agreement and pays license fees to operate the Madison Square Park Shack. No amounts were due to MSP Conservancy as of December 27, 2023 and December 28, 2022. Classification 2023 2022 2021 Amounts paid to MSP Conservancy Occupancy and related expenses $ 898 $ 1,224 $ 863 Olo, Inc. The Chairman of the Board of Directors serves as a director of Olo, Inc. (formerly known as "Mobo Systems, Inc."), a platform the Company uses in connection with its mobile ordering application. Classification 2023 2022 2021 Amounts paid to Olo, Inc. Other operating expenses $ 595 $ 431 $ 406 Classification December 27 2023 December 28 2022 Amounts due to Olo, Inc. Accounts payable Accrued expenses $ 116 $ 39 Block, Inc. The Company's Chief Executive Officer is a member of the board of directors of Block, Inc. (formerly known as "Square, Inc."). The Company currently uses certain point-of-sale applications, payment processing services, hardware and other enterprise platform services in connection with its kiosk technology, sales for certain off-site events and the processing of a limited amount of sales at certain locations. Classification 2023 2022 2021 Amounts paid to Block, Inc. Other operating expenses $ 8,688 $ 4,337 $ 2,844 Classification December 27 2023 December 28 2022 Amounts due to Block, Inc. Accounts payable Accrued expenses $ 59 $ 55 Shake Shack Inc. Form 10-K | 126 Tax Receivable Agreement The Company entered into a Tax Receivable Agreement that provides for the payment by the Company of 85 % of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of certain transactions. Refer to Note 15, Income Taxes, for additional information. No payments were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement during fiscal 2023, fiscal 2022 and fiscal 2021. Classification December 27 2023 December 28 2022 Amounts due under the Tax Receivable Agreement Other current liabilities Liabilities under Tax Receivable Agreement, net of current portion $ 235,613 $ 234,893 Distributions to Members of SSE Holdings Under the terms of the SSE Holdings LLC Agreement, SSE Holdings is obligated to make tax distributions to its members. No tax distributions were payable to non-controlling interest holders as of December 27, 2023 and December 28, 2022. Classification 2023 2022 2021 Amounts paid to non-controlling interest holders Non-controlling interests $ 162 $ 410 $ 968 NOTE 20: GEOGRAPHIC INFORMATION Revenue by geographic area was as follows: 2023 2022 2021 United States $ 1,056,753 $ 875,047 $ 718,128 Other countries 30,780 25,439 21,765 Total revenue $ 1,087,533 $ 900,486 $ 739,893 Revenues are shown based on the geographic location of the Company's customers and licensees. The Company's long-lived assets are primarily located in the United States. Shake Shack Inc. Form 10-K | 127 Schedule I: Condensed Financial Information of Registrant SHAKE SHACK INC. CONDENSED BALANCE SHEETS (PARENT COMPANY ONLY) (in thousands, except share and per share amounts) (As Restated) December 27 2023 December 28 2022 ASSETS Current assets: Cash $ 6,672 $ 7,152 Prepaid expenses 63 62 Total current assets 6,735 7,214 Deferred income taxes, net 328,870 324,113 Investment in SSE Holdings 362,296 337,939 Note receivable from SSE Holdings 216,946 209,013 Note receivable - conversion option 12,900 6,300 Due from SSE Holdings 8,213 2,963 TOTAL ASSETS $ 935,960 $ 887,542 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable 146 39 Accrued expenses 621 113 Due to SSE Holdings 22,027 16,975 Total current liabilities 22,794 17,127 Long-term debt 245,636 244,589 Liabilities under tax receivable agreement, net of current portion 235,613 234,893 Total liabilities 504,043 496,609 Commitments and contingencies Stockholders' equity: Preferred stock, no par value—10,000,000 shares authorized; none issued and outstanding as of December 27, 2023 and December 28, 2022. — — Class A common stock, $0.001 par value—200,000,000 shares authorized; 39,474,315 and 39,284,998 shares issued and outstanding as of December 27, 2023 and December 28, 2022, respectively. 39 39 Class B common stock, $0.001 par value—35,000,000 shares authorized; 2,834,513 and 2,869,513 shares issued and outstanding as of December 27, 2023 and December 28, 2022, respectively. 3 3 Additional paid-in capital 426,601 415,649 Retained earnings (accumulated deficit) 5,277 ( 24,758 ) Accumulated other comprehensive loss ( 3 ) — Total stockholders' equity 431,917 390,933 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 935,960 $ 887,542 See accompanying Notes to Condensed Financial Statements. Shake Shack Inc. Form 10-K | 128 Schedule I: Condensed Financial Information of Registrant (continued) SHAKE SHACK INC. CONDENSED STATEMENTS OF INCOME (LOSS) (PARENT COMPANY ONLY) (in thousands) Fiscal Year Ended (As Restated) (As Restated) December 27 2023 December 28 2022 December 29 2021 Intercompany revenue $ 7,971 $ 2,293 $ 2,878 TOTAL REVENUE 7,971 2,293 2,878 General and administrative expenses 6,663 3,132 2,491 Intercompany expenses 54 67 — TOTAL EXPENSES 6,717 3,199 2,491 INCOME (LOSS) FROM OPERATIONS 1,254 ( 906 ) 387 Equity in net income (loss) from SSE Holdings 10,091 ( 25,335 ) ( 19,393 ) Other income (expense), net 14,533 ( 1,767 ) ( 25,593 ) Interest expense ( 1,047 ) ( 1,047 ) ( 867 ) INCOME (LOSS) BEFORE INCOME TAXES 24,831 ( 29,055 ) ( 45,466 ) Income tax benefit ( 5,203 ) ( 5,783 ) ( 21,677 ) NET INCOME (LOSS) $ 30,034 $ ( 23,272 ) $ ( 23,789 ) See accompanying Notes to Condensed Financial Statements. Shake Shack Inc. Form 10-K | 129 Schedule I: Condensed Financial Information of Registrant (continued) SHAKE SHACK INC. CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (PARENT COMPANY ONLY) (in thousands) Fiscal Year Ended (As Restated) (As Restated) December 27 2023 December 28 2022 December 29 2021 Net income (loss) $ 30,034 $ ( 23,272 ) $ ( 23,789 ) Other comprehensive loss, net of tax (1) : Change in foreign currency translation adjustment ( 3 ) ( 1 ) ( 2 ) OTHER COMPREHENSIVE LOSS ( 3 ) ( 1 ) ( 2 ) COMPREHENSIVE INCOME (LOSS) $ 30,031 $ ( 23,273 ) $ ( 23,791 ) (1) Net of tax benefit of $ 0 for fiscal years ended December 27, 2023, December 28, 2022 and December 29, 2021. See accompanying Notes to Condensed Financial Statements. Shake Shack Inc. Form 10-K | 130 Schedule I: Condensed Financial Information of Registrant (continued) SHAKE SHACK INC. CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY) (in thousands) Fiscal Year Ended (As Restated) (As Restated) December 27 2023 December 28 2022 December 29 2021 OPERATING ACTIVITIES Net income (loss) $ 30,034 $ ( 23,272 ) $ ( 23,789 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Equity in net (income) loss from SSE Holdings ( 10,091 ) 25,335 19,393 Amortization of debt issuance costs 1,047 1,047 867 Equity-based compensation 894 614 526 Deferred income taxes ( 5,249 ) ( 5,783 ) ( 21,677 ) (Gain) loss on note receivable - conversion option ( 6,600 ) 9,700 32,200 Other non-cash income ( 7,933 ) ( 7,934 ) ( 6,609 ) Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 1 ) 2 ( 19 ) Due to SSE Holdings ( 3,944 ) ( 728 ) ( 8,229 ) Accounts payable 107 30 6 Accrued expenses 512 ( 104 ) 118 NET CASH USED IN OPERATING ACTIVITIES ( 1,224 ) ( 1,093 ) ( 7,213 ) INVESTING ACTIVITIES Purchases of LLC Interests from SSE Holdings ( 11,731 ) ( 7,619 ) ( 41,875 ) Loan to SSE Holdings — — ( 243,750 ) NET CASH USED IN INVESTING ACTIVITIES ( 11,731 ) ( 7,619 ) ( 285,625 ) FINANCING ACTIVITIES Proceeds from issuance of convertible notes, net of discount — — 243,750 Debt issuance costs — — ( 1,075 ) Proceeds from issuance of Class A common stock to SSE Holdings upon settlement of equity awards 11,731 7,619 41,875 Proceeds from stock option exercises 744 424 6,640 NET CASH PROVIDED BY FINANCING ACTIVITIES 12,475 8,043 291,190 DECREASE IN CASH ( 480 ) ( 669 ) ( 1,648 ) CASH AT BEGINNING OF PERIOD 7,152 7,821 9,469 CASH AT END OF PERIOD $ 6,672 $ 7,152 $ 7,821 See accompanying Notes to Condensed Financial Statements. Shake Shack Inc. Form 10-K | 131 Schedule I: Condensed Financial Information of Registrant (continued) SHAKE SHACK INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (PARENT COMPANY ONLY) (in thousands, except share and per share amounts) NOTE 1: ORGANIZATION Shake Shack Inc. (the "Parent Company") was formed on September 23, 2014 as a Delaware corporation and is a holding company with no direct operations. The Parent Company's assets consist primarily of its equity interest in SSE Holdings, LLC ("SSE Holdings"), certain deferred tax assets and its note receivable from SSE Holdings. The Parent Company's cash inflows are primarily from cash dividends or distributions and other transfers from SSE Holdings. The amounts available to the Parent Company to fulfill cash commitments and pay cash dividends on its common stock are subject to certain restrictions in SSE Holdings' Revolving Credit Facility. Refer to Note 9, Debt, in the accompanying Consolidated Financial Statements, for additional information. NOTE 2: BASIS OF PRESENTATION These Condensed Parent Company financial statements should be read in conjunction with the Consolidated Financial Statements of Shake Shack Inc. and the accompanying notes thereto, included in Part II, Item 8. For purposes of these condensed financial statements, the Parent Company's interest in SSE Holdings is recorded based upon its proportionate share of SSE Holdings' net assets (similar to presenting them on the equity method). The Parent Company is the sole managing member of SSE Holdings, and pursuant to the Third Amended and Restated LLC Agreement of SSE Holdings (the “SSE Holdings LLC Agreement”), receives compensation in the form of reimbursements for all costs associated with being a public company and maintaining its existence. Intercompany revenue consists of these reimbursement payments and is recognized when the corresponding expense to which it relates is recognized. Certain intercompany balances presented in these Condensed Parent Company financial statements are eliminated in the Company's Consolidated Financial Statements. The following table presents amounts in the Parent Company's Condensed Balance Sheets that were eliminated in consolidation: (As Restated) December 27 2023 December 28 2022 Assets Due from SSE Holdings $ 8,213 $ 2,963 Deferred income taxes, net 4,289 8,004 Note receivable from SSE Holdings 216,946 209,013 Note receivable - conversion option 12,900 6,300 Liabilities Due to SSE Holdings 22,027 16,975 Shake Shack Inc. Form 10-K | 132 Related party amounts that were not eliminated in the Company's Consolidated Financial Statements include the Parent Company's liabilities under the tax receivable agreement, which totaled $ 235,613 and $ 234,893 , respectively as of December 27, 2023 and December 28, 2022. The following table presents amounts in the Parent Company's Condensed Statements of Income (Loss) that were eliminated in consolidation: (As Restated) (As Restated) 2023 2022 2021 Intercompany revenue $ 7,971 $ 2,293 $ 2,878 Equity in net income (loss) from SSE Holdings 10,091 ( 25,335 ) ( 19,393 ) Other income (expense), net 14,533 ( 1,767 ) ( 25,593 ) Income tax expense (benefit) 3,715 ( 769 ) ( 7,234 ) NOTE 3: RESTATEMENT OF PREVIOUSLY ISSUED CONDENSED FINANCIAL STATEMENTS In connection with the preparation of the Company's Consolidated Financial Statements as of and for the fiscal year ended December 27, 2023, the Company discovered that in prior years it had not appropriately accounted for the deferred tax asset associated with its investment in SSE Holdings, primarily due to incorrect accounting for state tax depreciation. The error resulted in an overstatement of income tax expense of approximately $ 2,862 for the fiscal year ended December 28, 2022 and an understatement of income tax benefit of $ 4,094 for the fiscal year ended December 29, 2021 and deferred tax assets were understated for the impacted periods. The error also resulted in an understatement of retained earnings and deferred tax assets as of December 26, 2020 of approximately $ 10,094 related to prior periods. The error did not impact total revenue or loss before income taxes for the fiscal years ended December 28, 2022 and December 29, 2021. Refer to Note 3, Restatement of Previously Issued Consolidated Financial Statements, to the Company's Consolidated Financial Statements included in Part II, Item 8, for additional information. The impact of the correction of the misstatements is summarized below: December 28, 2022 December 29, 2021 CORRECTED CONDENSED BALANCE SHEETS As previously reported Impact of Adjustment As Restated As previously reported Impact of Adjustment As Restated Deferred income taxes, net $ 307,025 $ 17,088 $ 324,113 $ 304,442 $ 14,205 $ 318,647 Additional paid-in capital 415,611 38 415,649 405,940 17 405,957 Retained earnings (accumulated deficit) ( 41,808 ) 17,050 ( 24,758 ) ( 15,674 ) 14,188 ( 1,486 ) December 28, 2022 December 29, 2021 CORRECTED CONDENSED STATEMENTS OF LOSS As previously reported Impact of Adjustment As Restated As previously reported Impact of Adjustment As Restated Income tax benefit $ ( 2,921 ) $ ( 2,862 ) $ ( 5,783 ) $ ( 17,583 ) $ ( 4,094 ) $ ( 21,677 ) Net loss ( 26,134 ) 2,862 ( 23,272 ) ( 27,883 ) 4,094 ( 23,789 ) Shake Shack Inc. Form 10-K | 133 December 28, 2022 December 29, 2021 CORRECTED CONDENSED STATEMENTS OF CASH FLOWS As previously reported Impact of Adjustment As Restated As previously reported Impact of Adjustment As Restated Net income (loss) $ ( 26,134 ) $ 2,862 $ ( 23,272 ) $ ( 27,883 ) $ 4,094 $ ( 23,789 ) Deferred income taxes ( 4,126 ) ( 1,657 ) ( 5,783 ) ( 17,583 ) ( 4,094 ) ( 21,677 ) Accrued expenses (1) 1,101 ( 1,205 ) ( 104 ) 118 — 118 Net cash used in Operating activities ( 1,093 ) — ( 1,093 ) ( 7,213 ) — ( 7,213 ) (1) The prior impact of adjustments have been updated to conform with the current year presentation. These updates are not a part of the restatements above. All referenced amounts for prior periods in this Schedule I and the notes herein reflect the balances and amounts on a restated basis. NOTE 4: NOTE RECEIVABLE FROM SSE HOLDINGS In March 2021, contemporaneously with the issuance of the Convertible Notes described in Note 4, Debt, below, the Parent Company entered into a $ 250,000 intercompany note with SSE Holdings (the "Intercompany Note"). The Intercompany Note will mature in March 2028 unless the Parent Company exercises its right to convert the Intercompany Note to maintain at all times a one-to-one ratio between the number of common units, directly or indirectly, held by the Parent Company and the aggregate number of outstanding shares of Class A common stock. As of December 27, 2023 and December 28, 2022, the balance of the Note receivable from SSE Holdings was $ 216,946 and $ 209,013 , respectively, net of accretion. The Parent Company's right to convert the Intercompany Note into common units of SSE Holdings (the "Conversion Option") is required to be bifurcated from the Intercompany Note and shown separately on the Parent Company's Condensed Balance Sheets. The Conversion Option is to be recorded at fair value and remeasured at each subsequent reporting date. As of December 27, 2023 and December 28, 2022, the fair value of the Conversion Option was $ 12,900 and $ 6,300 , respectively. The following table presents amounts in the Parent Company's Condensed Statements of Income (Loss) related to the change in value and accretion on the Conversion Option: Classification 2023 2022 2021 Unrealized gain (loss) Other income (expense), net $ 6,600 $ ( 9,700 ) $ ( 32,200 ) Interest income Other income (expense), net $ 7,933 $ 7,933 $ 6,605 NOTE 5: DEBT In March 2021, the Parent Company issued $ 250,000 aggregate principal amount of 0 % Convertible Senior Notes (“Convertible Notes”) which will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in certain circumstances. Upon conversion, the Parent Company pays or delivers, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company's election. Refer to Note 9, Debt, in the Company's Consolidated Financial Statements, included in Part II, Item 8, for additional information relating to the Convertible Notes. NOTE 6: COMMITMENTS AND CONTINGENCIES On February 4, 2015, the Parent Company entered into a tax receivable agreement with the non-controlling interest holders that provides for payments to the non-controlling interest holders of 85 % of the amount of any tax benefits that the Parent Company actually realizes, or in some cases is deemed to realize, as a result of certain transactions. Refer to Note 15, Income Taxes, to the Company's Consolidated Financial Statements included in Part II, Item 8, for additional information relating to the Parent Company's Tax Receivable Agreement. As described in Note 18, Commitments and Contingencies, to the Company's Consolidated Financial Statements, amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income of Shake Shack Inc. over the term of the Tax Receivable Agreement and (ii) future Shake Shack Inc. Form 10-K | 134 changes in tax laws. As of December 27, 2023 and December 28, 2022, liabilities under the tax receivable agreement totaled $ 235,613 and $ 234,893 , respectively. NOTE 7: SUPPLEMENTAL CASH FLOW INFORMATION The following table sets forth supplemental cash flow information: (As Restated) (As Restated) 2023 2022 2021 Cash paid for: Income taxes $ 9 $ — $ 19 Non-cash investing activities: Accrued contribution related to stock option exercises 744 424 6,731 Class A common stock issued in connection with the acquisition of LLC Interests upon redemption by the non-controlling interest holders 265 313 33 Non-cash contribution made in connection with equity awards granted to employees of SSE Holdings 10,305 6,988 11,468 Non-cash financing activities: Establishment of liabilities under tax receivable agreement 720 844 1,093 Shake Shack Inc. Form 10-K | 135 Schedule II: Valuation and Qualifying Accounts Balance at beginning of period Additions Reductions Balance at end of period (in thousands) Charged to costs and expenses Charged to other accounts Deferred tax asset valuation allowance: Fiscal year ended December 29, 2021 (As Restated) $ 2,656 $ ( 6,063 ) $ 8,580 $ — $ 5,173 Fiscal year ended December 28, 2022 (As Restated) $ 5,173 $ 4,955 $ ( 568 ) (1) $ — $ 9,560 Fiscal year ended December 27, 2023 $ 9,560 $ ( 9,203 ) $ — $ — $ 357 (1) Amount relates to a valuation allowance established on deferred tax assets related to our investment in SSE Holdings. Shake Shack Inc. Form 10-K | 136 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.