Shake Shack Inc. 10-Q

Item 4. Controls and Procedures. DISCLOSURE CONTROLS AND PROCEDURES Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based upon the evaluation of our disclosure controls and procedures as of March 27, 2024, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to the existence of the material weakness in our internal control over financial reporting identified in fiscal 2023, as described below. Shake Shack Inc. Form 10-Q | 39 Table of Contents PREVIOUSLY REPORTED MATERIAL WEAKNESS As previously disclosed in Item 9A. “Controls and Procedures” on Form 10-K for the year ended December 27, 2023, management identified a material weakness in our internal control over financial reporting related to the calculation of state deferred taxes and the related income tax expense (benefit). Specifically, the internal controls in place with respect to the calculation of state deferred taxes and the related income tax expense (benefit) were not designed appropriately. The material weakness existed as of December 27, 2023 and prior periods. Management identified and reported this weakness to both our audit committee and Ernst & Young LLP, our independent registered public accounting firm, immediately upon identification. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under potential future conditions, regardless of how remote. REMEDIATION STATUS OF MATERIAL WEAKNESS We are designing and implementing measures to remediate the material weakness noted above and to enhance our internal control over financial reporting. As of the filing of this Quarterly Report on Form 10-Q, we have established a Steering Committee with representatives from key departments within our Finance organization as well as representatives from IT and Securities Counsel and began remediation activities. We have hired a Head of Tax with over 20 years of tax leadership experience including working with Up-C structures, enhancing controls, processes, and tax technology. Additionally, we are currently supplementing our tax resources through the use of third-party tax consultants and intend to utilize the third-party tax consultants, under the supervision of management, throughout the remediation process. In addition, we are in the process of developing enhanced management review control procedures over the calculation of state deferred taxes and the related income tax expense (benefit). The actions that we are taking are subject to ongoing senior management review, as well as oversight of the audit committee of our board of directors. 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. We will continue to monitor the design and effectiveness of these and other processes, procedures and controls and make any further changes management deems appropriate. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING Except as described above, there were no changes to our internal control over financial reporting that occurred during the quarter ended March 27, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 40 | Shake Shack Inc. Form 10-Q Table of Contents PART II – OTHER INFORMATION Item 1. Legal Proceedings. The information required by this Item is incorporated by reference to Part I, Item 1, Note 13, Commitments and Contingencies. Item 1A. Risk Factors. There have been no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 27, 2023. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None.