NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
8
|
Shake Shack Inc.
Form 10-Q
NOTE 1: NATURE OF OPERATIONS
Shake Shack Inc. ("we," "us," "our," "Shake Shack" and the "Company") 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").
On February 4, 2015, we completed an initial public offering ("IPO") of
5,750,000
shares of our Class A common stock at a public offering price of
$21.00
per share. We used the net proceeds from the IPO to purchase newly-issued membership interests from SSE Holdings ("LLC Interests"). Following the organizational transactions completed in connection with the IPO, we became the sole managing member of SSE Holdings. As sole managing member, we operate and control all of the business and affairs of SSE Holdings and, as a result, consolidate the financial results of SSE Holdings. We report a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings. As of
June 28, 2017
we owned
70.7%
of SSE Holdings. Unless the context otherwise requires, "we," "us," "our," "Shake Shack," the "Company" and other similar references, refer to Shake Shack Inc. and, unless otherwise stated, all of its subsidiaries, including SSE Holdings.
We operate and license Shake Shack restaurants ("Shacks"), which serve hamburgers, chicken sandwiches, hot dogs, crinkle-cut fries, shakes, frozen custard, beer, wine and more. As of
June 28, 2017
, there were
134
Shacks in operation, system-wide, of which
75
were domestic company-operated Shacks,
nine
were domestic licensed Shacks and
50
were international licensed Shacks.
NOTE
2
: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Shake Shack Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. These interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and on a basis consistent in all material respects with the accounting policies described in our Annual Report on Form 10-K for the fiscal year ended
December 28, 2016
, as amended ("2016 Form 10-K"). In our opinion, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of our financial position and results of operation have been included. Certain reclassifications have been made to prior period amounts to conform to the current year presentation. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.
The accompanying Condensed Consolidated Balance Sheet as of
December 28, 2016
has been derived from the audited financial statements at that date but does not include all of the disclosures required by GAAP. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our 2016 Form 10-K.
SSE Holdings is considered a VIE. Shake Shack Inc. is the primary beneficiary as we have the majority economic interest in SSE Holdings and, as the sole managing member, have decision making authority that significantly affects the economic performance of the entity, while the limited partners have no substantive kick-out or participating rights. As a result, we consolidate SSE Holdings. The assets and liabilities of SSE Holdings represent substantially all of our consolidated assets and liabilities with the exception of certain deferred taxes and liabilities under the Tax Receivable Agreement. As of
June 28, 2017
and
December 28, 2016
, the net assets of SSE Holdings were
$177,437
and
$158,845
, respectively. The assets of SSE Holdings are subject to certain restrictions in SSE Holdings' revolving credit agreements. See
Note 7
for more information.
Shake Shack Inc.
Form 10-Q
|
9
Fiscal Year
We operate on a 52/53 week fiscal year ending on the last Wednesday in December. Fiscal
2017
contains
52
weeks and ends on
December 27, 2017
. Fiscal
2016
contained
52
weeks and ended on
December 28, 2016
. Unless otherwise stated, references to years in this report relate to fiscal years.
Use of Estimates
The preparation of these condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates.
Recently Adopted Accounting Pronouncements
We adopted the Accounting Standards Updates (“ASUs”) summarized below in fiscal 2017. The effects of adoption did not have a material impact on our consolidated financial statements.
|
|
|
|
Accounting Standards Update (“ASU”)
|
Description
|
Date
Adopted
|
Improvements to Employee Share-Based Payment Accounting
(ASU 2016-09)
|
This standard simplifies certain aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, certain classifications on the statement of cash flows, and an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur. Upon adoption, we made such policy election. The adoption methodology applied varied based on each applicable provision of the standard, and none of the provisions had a material impact on our consolidated financial statements.
|
December 29, 2016
|
Simplifying the Measurement of Inventory (ASU 2015-11)
|
This standard applies to inventory measured using methods other than last-in, first-out (LIFO) or the retail method, and requires entities to measure such inventory at the lower of cost or net realizable value. It was applied prospectively.
|
December 29, 2016
|
Recently Issued Accounting Pronouncements
|
|
|
|
|
Accounting Standards Update (“ASU”)
|
Description
|
Expected Impact
|
Effective Date
|
Statement of Cash Flows: Classification of Certain Cash Receipts and Payments (ASU 2016-15)
|
This standard provides guidance on eight specific cash flow issues with the objective of reducing diversity in practice. It should be applied retrospectively to each period presented, subject to certain conditions.
|
We are currently evaluating the impact this standard will have on our consolidated financial statements.
|
December 28, 2017
|
10
|
Shake Shack Inc.
Form 10-Q
|
|
|
|
|
Accounting Standards Update (“ASU”)
|
Description
|
Expected Impact
|
Effective Date
|
Recognition and Measurement of Financial Assets and Financial Liabilities
(ASU 2016-01)
|
For public business entities, this standard requires: (i) certain equity investments to be measured at fair value with changes in fair value recognized in net income; (ii) a qualitative assessment to identify impairment of equity investments without readily determinable fair values; (iii) elimination of the requirement to disclose the method(s) and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet; (iv) use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (v) separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vi) separate presentation of financial assets and liabilities by measurement category and form of financial asset in the financial statements; and (vii) an entity to evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The standard should be applied by means of a cumulative-effect adjustment to the balance sheet at the beginning of the fiscal year of adoption. Early adoption is permitted, subject to certain conditions resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value.
|
We are currently evaluating the impact this standard will have on our consolidated financial statements.
|
December 28, 2017
|
Revenue from Contracts with Customers and related standards
(ASU’s 2014-09, 2015-14, 2016-08, 2016-10, 2016-12, 2015-20)
|
This standard supersedes the existing revenue recognition guidance and provides a new framework for recognizing revenue. The core principle of the standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new standard also requires significantly more comprehensive disclosures than the existing standard. Guidance subsequent to ASU 2014-09 has been issued to clarify various provisions in the standard, including principal versus agent considerations, identifying performance obligations, licensing transactions, as well as various technical corrections and improvements. This standard may be adopted using either a retrospective or modified retrospective method. Early adoption is permitted.
|
We are currently in the process of evaluating the impact this standard is expected to have on our consolidated financial statements. It is still too early in our process to determine the magnitude of the potential impact. However, based on our preliminary assessment, we believe that further evaluation of the fixed fees associated with our licensing agreements (such as the initial territory fees) may reveal differences in the timing of revenue recognition from current policy, but that it is likely that recognition of sales-based royalties will not significantly change. In addition to further evaluating each of our licensing agreements, we are in the process of assessing whether any sales promotions or discounts we currently offer related to our Shack sales could be considered separate performance obligations. As we continue our evaluation, we will further clarify the expected impact of the adoption of the standard.
We plan to adopt the standard on December 28, 2017, and we have not yet selected a transition method.
|
December 28, 2017
|
Leases
(ASU 2016-02)
|
This standard establishes a new lease accounting model, which introduces the recognition of lease assets and liabilities for those leases classified as operating leases under previous GAAP. It should be applied using a modified retrospective approach, with the option to elect various practical expedients. Early adoption is permitted.
|
We are currently evaluating the impact this standard will have on our consolidated financial statements.
|
December 27, 2018
|
Shake Shack Inc.
Form 10-Q
|
11
NOTE
3
: FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis as of
June 28, 2017
and
December 28, 2016
, and indicate the classification within the fair value hierarchy.
Cash, Cash Equivalents and Marketable Securities
The following tables summarize our cash, cash equivalents and marketable securities by significant investment categories as of
June 28, 2017
and
December 28, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2017
|
|
|
Cost Basis
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
|
Cash and Cash Equivalents
|
|
|
Marketable Securities
|
|
Cash
|
$
|
17,417
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,417
|
|
|
$
|
17,417
|
|
|
$
|
—
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
5,019
|
|
|
—
|
|
|
—
|
|
|
5,019
|
|
|
5,019
|
|
|
—
|
|
|
Mutual funds
|
60,566
|
|
|
—
|
|
|
—
|
|
|
60,566
|
|
|
—
|
|
|
60,566
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
(1)
|
2,570
|
|
|
2
|
|
|
(32
|
)
|
|
2,540
|
|
|
—
|
|
|
2,540
|
|
Total
|
$
|
85,572
|
|
|
$
|
2
|
|
|
$
|
(32
|
)
|
|
$
|
85,542
|
|
|
$
|
22,436
|
|
|
$
|
63,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2016
|
|
|
Cost Basis
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
|
Cash and Cash Equivalents
|
|
|
Marketable Securities
|
|
Cash
|
$
|
6,322
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,322
|
|
|
$
|
6,322
|
|
|
$
|
—
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
5,285
|
|
|
—
|
|
|
—
|
|
|
5,285
|
|
|
5,285
|
|
|
—
|
|
|
Mutual funds
|
60,232
|
|
|
—
|
|
|
—
|
|
|
60,232
|
|
|
—
|
|
|
60,232
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
(1)
|
2,473
|
|
|
3
|
|
|
(30
|
)
|
|
2,446
|
|
|
—
|
|
|
2,446
|
|
Total
|
$
|
74,312
|
|
|
$
|
3
|
|
|
$
|
(30
|
)
|
|
$
|
74,285
|
|
|
$
|
11,607
|
|
|
$
|
62,678
|
|
|
|
(1)
|
Corporate debt securities were measured at fair value using a market approach utilizing observable prices for identical securities or securities with similar characteristics and inputs that are observable or can be corroborated by observable market data.
|
Net unrealized losses on available-for-sale securities totaling
$30
and
$27
were included in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheet as of
June 28, 2017
and
December 28, 2016
, respectively.
12
|
Shake Shack Inc.
Form 10-Q
The following tables summarize the gross unrealized losses and fair values for those investments that were in an unrealized loss position as of
June 28, 2017
and
December 28, 2016
, aggregated by investment category and the length of time that individual securities have been in a continuous loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2017
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
Fair Value
|
|
|
Unrealized Loss
|
|
|
Fair Value
|
|
|
Unrealized Loss
|
|
|
Fair Value
|
|
|
Unrealized Loss
|
|
|
Money market funds
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Mutual funds
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Corporate debt securities
|
1,445
|
|
|
(8
|
)
|
|
455
|
|
|
(24
|
)
|
|
1,900
|
|
|
(32
|
)
|
Total
|
$
|
1,445
|
|
|
$
|
(8
|
)
|
|
$
|
455
|
|
|
$
|
(24
|
)
|
|
$
|
1,900
|
|
|
$
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2016
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
Fair Value
|
|
|
Unrealized Loss
|
|
|
Fair Value
|
|
|
Unrealized Loss
|
|
|
Fair Value
|
|
|
Unrealized Loss
|
|
|
Money market funds
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Mutual funds
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Corporate debt securities
|
1,244
|
|
|
(10
|
)
|
|
540
|
|
|
(20
|
)
|
|
1,784
|
|
|
(30
|
)
|
Total
|
$
|
1,244
|
|
|
$
|
(10
|
)
|
|
$
|
540
|
|
|
$
|
(20
|
)
|
|
$
|
1,784
|
|
|
$
|
(30
|
)
|
A summary of other income from available-for-sale securities recognized during the
thirteen and twenty-six weeks ended
June 28, 2017
and
June 29, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
|
June 28
2017
|
|
|
June 29
2016
|
|
|
June 28
2017
|
|
|
June 29
2016
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
Dividend income
|
$
|
191
|
|
|
$
|
—
|
|
|
$
|
369
|
|
|
$
|
—
|
|
|
Interest income
|
19
|
|
|
23
|
|
|
39
|
|
|
46
|
|
|
Loss on investments
|
(12
|
)
|
|
—
|
|
|
(15
|
)
|
|
—
|
|
Total other income, net
|
$
|
198
|
|
|
$
|
23
|
|
|
$
|
393
|
|
|
$
|
46
|
|
A summary of available-for-sale securities sold and gross realized gains and losses recognized during the
thirteen and twenty-six weeks ended
June 28, 2017
and
June 29, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
|
June 28
2017
|
|
|
June 29
2016
|
|
|
June 28
2017
|
|
|
June 29
2016
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
Gross proceeds from sales and redemptions
|
$
|
473
|
|
|
$
|
322
|
|
|
$
|
628
|
|
|
$
|
322
|
|
|
Cost basis of sales and redemptions
|
484
|
|
|
322
|
|
|
642
|
|
|
322
|
|
|
Gross realized gains included in net income
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
Gross realized losses included in net income
|
(12
|
)
|
|
(1
|
)
|
|
(15
|
)
|
|
(1
|
)
|
|
Amounts reclassified out of accumulated other comprehensive loss
|
11
|
|
|
—
|
|
|
14
|
|
|
—
|
|
Shake Shack Inc.
Form 10-Q
|
13
Realized gains and losses are determined on a specific identification method and are included in other income, net on the Condensed Consolidated Statements of
Income
.
The estimated fair value of our investments in corporate debt securities that are accounted for as available-for-sale securities are all due within one year and are included within marketable securities on the Condensed Consolidated Balance Sheets.
We periodically review our marketable securities for other-than-temporary impairment. We consider factors such as the duration, severity and the reason for the decline in value, the potential recovery period and our intent to sell. For our debt securities, we also consider whether (i) it is more likely than not that we will be required to sell the debt securities before recovery of their amortized cost basis, and (ii) the amortized cost basis cannot be recovered as a result of credit losses. As of
June 28, 2017
and
December 28, 2016
, the declines in the market value of our marketable securities investment portfolio were considered to be temporary in nature.
Other Financial Instruments
The carrying value of our other financial instruments, including accounts receivable, accounts payable, and accrued expenses as of
June 28, 2017
and
December 28, 2016
approximated their fair value due to the short-term nature of these financial instruments.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Assets and liabilities that are measured at fair value on a non-recurring basis include our long-lived assets and indefinite-lived intangible assets. There were
no
impairments recognized during the
thirteen and twenty-six weeks ended
June 28, 2017
and
June 29, 2016
.
Inventories as of
June 28, 2017
and
December 28, 2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 28
2017
|
|
|
December 28
2016
|
|
Food
|
$
|
578
|
|
|
$
|
543
|
|
Wine
|
56
|
|
|
47
|
|
Beer
|
71
|
|
|
58
|
|
Beverages
|
93
|
|
|
79
|
|
Retail merchandise
|
170
|
|
|
79
|
|
Inventories
|
$
|
968
|
|
|
$
|
806
|
|
14
|
Shake Shack Inc.
Form 10-Q
NOTE
5
: PROPERTY AND EQUIPMENT
Property and equipment as of
June 28, 2017
and
December 28, 2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 28
2017
|
|
|
December 28
2016
|
|
Leasehold improvements
|
$
|
139,252
|
|
|
$
|
120,629
|
|
Landlord funded assets
|
4,644
|
|
|
—
|
|
Equipment
|
27,069
|
|
|
23,194
|
|
Furniture and fixtures
|
8,535
|
|
|
7,342
|
|
Computer equipment and software
|
10,057
|
|
|
8,710
|
|
Construction in progress (includes assets under construction from deemed landlord financing)
|
18,067
|
|
|
13,510
|
|
Property and equipment, gross
|
207,624
|
|
|
173,385
|
|
Less: accumulated depreciation
|
47,241
|
|
|
37,121
|
|
Property and equipment, net
|
$
|
160,383
|
|
|
$
|
136,264
|
|
NOTE
6
: SUPPLEMENTAL BALANCE SHEET INFORMATION
The components of other current liabilities as of
June 28, 2017
and
December 28, 2016
are as follows:
|
|
|
|
|
|
|
|
|
|
June 28
2017
|
|
|
December 28
2016
|
|
Sales tax payable
|
$
|
1,601
|
|
|
$
|
1,324
|
|
Current portion of liabilities under tax receivable agreement
|
3,110
|
|
|
4,580
|
|
Gift card liability
|
1,105
|
|
|
1,153
|
|
Deferred compensation
|
2,455
|
|
|
—
|
|
Other
|
1,981
|
|
|
3,116
|
|
Other current liabilities
|
$
|
10,252
|
|
|
$
|
10,173
|
|
In January 2015, we executed a Third Amended and Restated Credit Agreement, which became effective on February 4, 2015 (together with the prior agreements and amendments, and as further amended, the "Revolving Credit Facility"), which provides for a revolving total commitment amount of
$50,000
, of which
$20,000
is available immediately. The Revolving Credit Facility will mature and all amounts outstanding will be due and payable
five
years from the effective date. The Revolving Credit Facility permits the issuance of letters of credit upon our request of up to
$10,000
. Borrowings under the Revolving Credit Facility bear interest at either: (i) LIBOR plus a percentage ranging from
2.3%
to
3.3%
or (ii) the prime rate plus a percentage ranging from
0.0%
to
0.8%
, depending on the type of borrowing made under the Revolving Credit Facility. As of
June 28, 2017
and
December 28, 2016
, there were
no
amounts outstanding under the Revolving Credit Facility. As of
June 28, 2017
, we had
$19,920
of availability under the Revolving Credit Facility, after giving effect to
$80
in outstanding letters of credit.
The Revolving Credit Facility is 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' wholly-owned domestic subsidiaries (with certain exceptions).
Shake Shack Inc.
Form 10-Q
|
15
The Revolving Credit Facility contains a number of covenants that, among other things, limit our ability to, subject to specified exceptions, incur additional debt; incur additional liens and contingent liabilities; sell or dispose of assets; merge with or acquire other companies; liquidate or dissolve ourselves; pay dividends or make distributions; engage in businesses that are not in a related line of business; make loans, advances or guarantees; engage in transactions with affiliates; and make investments. In addition, the Revolving Credit Facility contains certain cross-default provisions. We are required to maintain a specified consolidated fixed-charge coverage ratio and a specified funded net debt to adjusted EBITDA ratio, both as defined under the Revolving Credit Facility. As of
June 28, 2017
, we were in compliance with all covenants.
As of
June 28, 2017
and
December 28, 2016
we had deemed landlord financing liabilities of
$11,166
and
$2,007
, respectively, for certain leases where we are involved in the construction of leased assets and are considered the accounting owner of the construction project.
Total interest costs incurred were
$409
and
$733
for the
thirteen and twenty-six weeks ended
June 28, 2017
, respectively, and
$91
and
$178
for the
thirteen and twenty-six weeks ended
June 29, 2016
, respectively. Total amounts capitalized into property and equipment were
$43
and
$64
for the
thirteen and twenty-six weeks ended
June 28, 2017
, respectively.
No
amounts were capitalized for the
thirteen and twenty-six weeks ended
June 29, 2016
.
NOTE
8
: NON-CONTROLLING INTERESTS
We are the sole managing member of SSE Holdings and, as a result, consolidate the financial results of SSE Holdings. We report a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings.
The Third Amended and Restated Limited Liability Company Agreement, as further amended, (the "LLC Agreement") of SSE Holdings provides that holders of LLC Interests may, from time to time, require SSE Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one-for-one basis. In connection with any redemption or exchange, we will receive a corresponding number of LLC Interests, increasing our total ownership interest in SSE Holdings.
Changes in our ownership interest in SSE Holdings while we retain our controlling interest in SSE Holdings will be accounted for as equity transactions. As such, future redemptions or direct exchanges of LLC Interests in SSE Holdings by the other members of SSE Holdings will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital.
The following table summarizes the ownership interest in SSE Holdings as of
June 28, 2017
and
December 28, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2017
|
|
|
December 28, 2016
|
|
|
LLC Interests
|
|
|
Ownership %
|
|
|
LLC Interests
|
|
|
Ownership %
|
|
Number of LLC Interests held by Shake Shack Inc.
|
25,939,866
|
|
|
70.7
|
%
|
|
25,151,384
|
|
|
69.1
|
%
|
Number of LLC Interests held by non-controlling interest holders
|
10,770,992
|
|
|
29.3
|
%
|
|
11,253,592
|
|
|
30.9
|
%
|
Total LLC Interests outstanding
|
36,710,858
|
|
|
100.0
|
%
|
|
36,404,976
|
|
|
100.0
|
%
|
The weighted average ownership percentages for the applicable reporting periods are used to attribute net income and other comprehensive income (loss) to Shake Shack Inc. and the non-controlling interest holders. The non-controlling interest holders' weighted average ownership percentage for the
thirteen and twenty-six weeks ended
June 28, 2017
was
29.6%
and
30.0%
, respectively.
The non-controlling interest holders' weighted average ownership percentage for the
thirteen and twenty-six weeks ended
June 29, 2016
was
37.9%
and
40.9%
, respectively.
16
|
Shake Shack Inc.
Form 10-Q
The following table summarizes the effects of changes in ownership of SSE Holdings on our equity during the
thirteen and twenty-six weeks ended
June 28, 2017
and
June 29, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
|
June 28
2017
|
|
|
June 29
2016
|
|
|
June 28
2017
|
|
|
June 29
2016
|
|
Net income attributable to Shake Shack Inc.
|
$
|
4,879
|
|
|
$
|
3,298
|
|
|
$
|
7,146
|
|
|
$
|
4,760
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on available-for-sale securities
|
2
|
|
|
(4
|
)
|
|
(2
|
)
|
|
(5
|
)
|
Transfers (to) from non-controlling interests:
|
|
|
|
|
|
|
|
|
Increase in additional paid-in capital as a result of the redemption of LLC Interests
|
720
|
|
|
5,736
|
|
|
2,042
|
|
|
10,378
|
|
|
Increase in additional paid-in capital as a result of activity under stock compensation plans
|
632
|
|
|
161
|
|
|
3,502
|
|
|
404
|
|
Total effect of changes in ownership interest on equity attributable to Shake Shack Inc.
|
$
|
6,233
|
|
|
$
|
9,191
|
|
|
$
|
12,688
|
|
|
$
|
15,537
|
|
During the
twenty-six weeks ended
June 28, 2017
and
June 29, 2016
, an aggregate of
482,600
and
3,477,145
LLC Interests, respectively, were redeemed by non-controlling interest holders for newly-issued shares of Class A common stock, and we received
482,600
and
3,477,145
LLC Interests in connection with these redemptions for the
twenty-six weeks ended
June 28, 2017
and
June 29, 2016
, respectively, increasing our total ownership interest in SSE Holdings.
During the
twenty-six weeks ended
June 28, 2017
and
June 29, 2016
, we received an aggregate of
305,882
and
77,935
LLC Interests, respectively, in connection with the activity under our stock compensation plan.
NOTE
9
: EQUITY-BASED COMPENSATION
A summary of equity-based compensation expense recognized during the
thirteen and twenty-six weeks ended
June 28, 2017
and
June 29, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
June 28
2017
|
|
|
June 29
2016
|
|
|
June 28
2017
|
|
|
June 29
2016
|
|
Stock options
|
$
|
863
|
|
|
$
|
1,053
|
|
|
$
|
1,827
|
|
|
$
|
2,083
|
|
Performance stock units
|
399
|
|
|
157
|
|
|
684
|
|
|
157
|
|
Restricted stock units
|
23
|
|
|
—
|
|
|
23
|
|
|
—
|
|
Equity-based compensation expense
|
$
|
1,285
|
|
|
$
|
1,210
|
|
|
$
|
2,534
|
|
|
$
|
2,240
|
|
Total income tax benefit recognized related to equity-based compensation
|
$
|
44
|
|
|
$
|
33
|
|
|
$
|
95
|
|
|
$
|
64
|
|
Amounts are included in general and administrative expense and labor and related expenses on the Condensed Consolidated Statements of
Income
.
Shake Shack Inc.
Form 10-Q
|
17
We are the sole managing member of SSE Holdings and, as a result, consolidate 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 us, on a pro rata basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of SSE Holdings, as well as any stand-alone income or loss generated by Shake Shack Inc. We are also subject to withholding taxes in foreign jurisdictions.
Income Tax Expense
A reconciliation of income tax expense computed at the U.S. federal statutory income tax rate to the recognized income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
|
June 28
2017
|
|
|
June 29
2016
|
|
|
June 28
2017
|
|
|
June 29
2016
|
|
Expected U.S. federal income taxes at statutory rate
|
$
|
4,050
|
|
35.0
|
%
|
|
$
|
3,014
|
|
34.0
|
%
|
|
$
|
5,982
|
|
35.0
|
%
|
|
$
|
4,595
|
|
34.0
|
%
|
State and local income taxes, net of federal benefit
|
659
|
|
5.7
|
%
|
|
472
|
|
5.3
|
%
|
|
1,008
|
|
5.9
|
%
|
|
744
|
|
5.5
|
%
|
Foreign withholding taxes
|
227
|
|
2.0
|
%
|
|
117
|
|
1.3
|
%
|
|
413
|
|
2.4
|
%
|
|
357
|
|
2.6
|
%
|
Tax credits
|
(248
|
)
|
(2.1
|
)%
|
|
(87
|
)
|
(1.0
|
)%
|
|
(378
|
)
|
(2.2
|
)%
|
|
(126
|
)
|
(0.9
|
)%
|
Non-controlling interest
|
(1,303
|
)
|
(11.3
|
)%
|
|
(1,200
|
)
|
(13.5
|
)%
|
|
(1,982
|
)
|
(11.6
|
)%
|
|
(1,955
|
)
|
(14.5
|
)%
|
Income tax expense
|
$
|
3,385
|
|
29.3
|
%
|
|
$
|
2,316
|
|
26.1
|
%
|
|
$
|
5,043
|
|
29.5
|
%
|
|
$
|
3,615
|
|
26.7
|
%
|
Our effective income tax rates for the
thirteen weeks ended
June 28, 2017
and
June 29, 2016
were
29.3%
and
26.1%
, respectively. The increase in our effective income tax rate for the period is primarily due to an increase in our ownership interest in SSE Holdings. As our ownership interest in SSE Holdings increases, our share of the taxable income of SSE Holdings also increases. Our weighted-average ownership interest in SSE Holdings was
70.4%
and
62.1%
for the
thirteen weeks ended
June 28, 2017
and
June 29, 2016
, respectively. The impact to the effective income tax rate related to the increase in ownership was partially offset by higher tax credits.
Our effective income tax rates for the
twenty-six weeks ended
June 28, 2017
and
June 29, 2016
were
29.5%
and
26.7%
, respectively. The increase in our effective income tax rate for the period is primarily due to an increase in our ownership interest in SSE Holdings. As our ownership interest in SSE Holdings increases, our share of the taxable income of SSE Holdings also increases. Our weighted-average ownership interest in SSE Holdings was
70.0%
and
59.1%
for the
twenty-six weeks ended
June 28, 2017
and
June 29, 2016
, respectively. The impact to the effective income tax rate related to the increase in ownership was partially offset by higher tax credits.
Deferred Tax Assets and Liabilities
During the
twenty-six weeks ended
June 28, 2017
, we acquired an aggregate of
788,482
LLC Interests in connection with the redemption of LLC Interests and activity relating to our stock compensation plan. We recognized a deferred tax asset in the amount of
$7,876
associated with the basis difference in our investment in SSE Holdings upon acquisition of these LLC Interests. As of
June 28, 2017
, the total deferred tax asset related to the basis difference in our investment in SSE Holdings was
$215,457
. However, a portion of the total basis difference will only reverse upon the eventual sale of our interest in SSE Holdings, which we expect would result in a capital loss. As of
June 28, 2017
, the total valuation allowance established against the deferred tax asset to which this portion relates was
$16,334
.
During the
twenty-six weeks ended
June 28, 2017
, we also recognized
$3,801
of deferred tax assets related to additional tax basis increases generated from expected future payments under the Tax Receivable Agreement and related deductions for imputed interest on such payments. See "—Tax Receivable Agreement" for more information.
18
|
Shake Shack Inc.
Form 10-Q
We evaluate the realizability of our deferred tax assets on a quarterly basis and establish valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized. As of
June 28, 2017
, we concluded, based on the weight of all available positive and negative evidence, that all of our deferred tax assets (except for those deferred tax assets described above relating to basis differences that are expected to result in a capital loss upon the eventual sale of our interest in SSE Holdings) are more likely than not to be realized. As such, no additional valuation allowance was recognized.
Uncertain Tax Positions
No
uncertain tax positions existed as of
June 28, 2017
. Shake Shack Inc. was formed in September 2014 and did not engage in any operations prior to the IPO and related organizational transactions. Shake Shack Inc. first filed tax returns for tax year 2014, which is the first tax year subject to examination by taxing authorities for U.S. federal and state income tax purposes. 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 2012 for SSE Holdings.
Tax Receivable Agreement
Pursuant to our election under Section 754 of the Internal Revenue Code (the "Code"), we expect to obtain an increase in our share of the tax basis in the net assets of SSE Holdings when LLC Interests are redeemed or exchanged by the other members of SSE Holdings. We plan to make an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC Interest occurs. We intend to treat any redemptions and exchanges of LLC Interests as direct purchases of LLC Interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that we would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
On February 4, 2015, we entered into a tax receivable agreement with certain of the then-existing members of SSE Holdings (the "Tax Receivable Agreement") that provides for the payment by us of
85%
of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of (i) increases in our share of the tax basis in the net assets of SSE Holdings resulting from any redemptions or exchanges of LLC Interests, (ii) tax basis increases attributable to payments made under the Tax Receivable Agreement, and (iii) deductions attributable to imputed interest pursuant to the Tax Receivable Agreement (the "TRA Payments"). We expect to benefit from the remaining
15%
of any tax benefits that we may actually realize. The TRA Payments are not conditioned upon any continued ownership interest in SSE Holdings or us. The rights of each member of SSE Holdings, that is a party to the Tax Receivable Agreement, are assignable to transferees of their respective LLC Interests.
During the
twenty-six weeks ended
June 28, 2017
, we acquired an aggregate of
482,600
LLC Interests in connection with the redemption of LLC Interests, which resulted in an increase in the tax basis of our investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement. We recognized an additional liability in the amount of
$9,413
for the TRA Payments due to the redeeming members, representing
85%
of the aggregate tax benefits we expect to realize from the tax basis increases related to the redemption of LLC Interests, after concluding it was probable that such TRA Payments would be paid based on our estimates of future taxable income. During the
twenty-six weeks ended
June 28, 2017
, payments of
$1,471
, inclusive of interest, were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement.
No
amounts were paid to the members during the
twenty-six weeks ended
June 29, 2016
. As of
June 28, 2017
, the total amount of TRA Payments due under the Tax Receivable Agreement, was
$280,426
, of which
$3,110
was included in other current liabilities on the Condensed Consolidated Balance Sheet. See
Note 13
for more information relating to our liabilities under the Tax Receivable Agreement.
Shake Shack Inc.
Form 10-Q
|
19
NOTE
11
: EARNINGS PER SHARE
Basic earnings per share of Class A common stock is computed by dividing net income available to Shake Shack Inc. by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted earnings per share of Class A common stock is computed by dividing net income available 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 per share of Class A common stock for the
thirteen and twenty-six weeks ended
June 28, 2017
and
June 29, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
|
June 28
2017
|
|
|
June 29
2016
|
|
|
June 28
2017
|
|
|
June 29
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income
|
$
|
8,184
|
|
|
$
|
6,549
|
|
|
$
|
12,046
|
|
|
$
|
9,900
|
|
|
Less: net income attributable to non-controlling interests
|
3,305
|
|
|
3,251
|
|
|
4,900
|
|
|
5,140
|
|
|
Net income attributable to Shake Shack Inc.
|
$
|
4,879
|
|
|
$
|
3,298
|
|
|
$
|
7,146
|
|
|
$
|
4,760
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares of Class A common stock outstanding—basic
|
25,798
|
|
|
22,553
|
|
|
25,587
|
|
|
21,453
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock options
|
494
|
|
|
497
|
|
|
523
|
|
|
478
|
|
|
|
Performance stock units
|
20
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
Weighted-average shares of Class A common stock outstanding—diluted
|
26,312
|
|
|
23,050
|
|
|
26,133
|
|
|
21,931
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of Class A common stock—basic
|
$
|
0.19
|
|
|
$
|
0.15
|
|
|
$
|
0.28
|
|
|
$
|
0.22
|
|
Earnings per share of Class A common stock—diluted
|
$
|
0.19
|
|
|
$
|
0.14
|
|
|
$
|
0.27
|
|
|
$
|
0.22
|
|
Shares of our 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 per share of Class B common stock under the two-class method has not been presented.
20
|
Shake Shack Inc.
Form 10-Q
The following table presents potentially dilutive securities excluded from the computations of diluted earnings per share of Class A common stock for the
thirteen and twenty-six weeks ended
June 28, 2017
and
June 29, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-Six Weeks Ended
|
|
|
|
June 28
2017
|
|
|
|
June 29
2016
|
|
|
|
June 28
2017
|
|
|
|
June 29
2016
|
|
|
Stock options
|
6,258
|
|
(1)
|
|
—
|
|
|
|
6,258
|
|
(1)
|
|
—
|
|
|
Performance stock units
|
84,755
|
|
(2)
|
|
63,200
|
|
(2)
|
|
84,755
|
|
(2)
|
|
63,200
|
|
(2)
|
Shares of Class B common stock
|
10,770,992
|
|
(3)
|
|
12,983,596
|
|
(3)
|
|
10,770,992
|
|
(3)
|
|
12,983,596
|
|
(3)
|
|
|
(1)
|
Excluded from the computation of diluted earnings per share of Class A common stock because the exercise price of the stock options exceeded the average market price of our Class A common stock during the period ("out-of-the-money").
|
|
|
(2)
|
Excluded from the computation of diluted earnings per share of Class A common stock because the performance conditions associated with these awards were not met assuming the end of the reporting period was the end of the performance period.
|
|
|
(3)
|
Shares of our Class B common stock are considered potentially dilutive shares of Class A common stock. Amounts have been excluded from the computations of diluted earnings per share of Class A common stock because the effect would have been anti-dilutive under the if-converted and two-class methods.
|
NOTE
12
: SUPPLEMENTAL CASH FLOW INFORMATION
The following table sets forth supplemental cash flow information for the
twenty-six weeks ended
June 28, 2017
and
June 29, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
June 28
2017
|
|
|
June 29
2016
|
|
Cash paid for:
|
|
|
|
|
Income taxes, net of refunds
|
$
|
1,595
|
|
|
$
|
1,325
|
|
|
Interest, net of amounts capitalized
|
357
|
|
|
28
|
|
Non-cash investing activities:
|
|
|
|
|
Accrued purchases of property and equipment
|
7,690
|
|
|
3,059
|
|
|
Capitalized landlord assets for leases where we are deemed the accounting owner
|
7,634
|
|
|
—
|
|
|
Accrued purchases of marketable securities
|
80
|
|
|
—
|
|
|
Capitalized equity-based compensation
|
78
|
|
|
62
|
|
Non-cash financing activities:
|
|
|
|
|
Class A common stock issued in connection with the redemption of LLC Interests
|
—
|
|
|
3
|
|
|
Cancellation of Class B common stock in connection with the redemption of LLC Interests
|
—
|
|
|
(3
|
)
|
|
Establishment of liabilities under tax receivable agreement
|
9,413
|
|
|
65,356
|
|
|
Accrued distributions payable to non-controlling interest holders
|
—
|
|
|
607
|
|
Shake Shack Inc.
Form 10-Q
|
21
NOTE
13
: COMMITMENTS AND CONTINGENCIES
Lease Commitments
We are obligated under various operating leases for Shacks and our home office space, expiring in various years through 2035. Under certain of these leases, we are liable for contingent rent based on a percentage of sales in excess of specified thresholds and are typically responsible for our proportionate share of real estate taxes, common area maintenance charges and utilities.
As security under the terms of several of our leases, we are obligated under letters of credit totaling
$160
as of
June 28, 2017
. The letters of credit expire in April 2018 and February 2026. In addition, in December 2013, we entered into an irrevocable standby letter of credit in conjunction with our home office lease in the amount of
$80
. The letter of credit expires in September 2017 and renews automatically for
one
-year periods through September 2019.
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. We also enter into
long-term, exclusive contracts with certain vendors to supply us with food, beverages and paper goods, obligating us to purchase specified quantities.
Legal Contingencies
In November 2015, we participated in a voluntary mediation with counsel representing
two
former Shake Shack managers, who alleged that we improperly classified our restaurant managers as exempt from overtime protections. At the conclusion of the mediation, the parties mutually agreed to fully and finally resolve the matter by settling, rather than litigating. In connection with the settlement, the parties entered into a memorandum of understanding, pursuant to which we agreed to create a settlement fund in the amount of
$750
and, in exchange for their participation in the settlement fund, all participating employees (current and former) were required to release Shake Shack from all federal and/or state wage and hour claims that may have existed through the settlement date. In March 2016, the parties entered into a settlement agreement in the amount of
$750
million. In May 2017, we paid to the claims administrator
$774
in full satisfaction of the amounts owed by us under the settlement agreement and related expenses.
We are subject to various legal and regulatory proceedings, claims and liabilities, such as employment-related claims and slip and fall cases, which arise in the ordinary course of business and are generally covered by insurance. As of
June 28, 2017
, the amount of ultimate liability with respect to these matters was not material.
Liabilities under Tax Receivable Agreement
As described in
Note 10
, we are a party to the Tax Receivable Agreement under which we are contractually committed to pay certain of the members of SSE Holdings
85%
of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of certain transactions. We are not obligated to make any payments under the Tax Receivable Agreement until the tax benefits associated with the transactions that gave rise to the payments are realized. Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the related TRA Payments. During the
twenty-six weeks ended
June 28, 2017
and
June 29, 2016
, we recognized liabilities totaling
$9,413
and
$65,356
, respectively, relating to our obligations under the Tax Receivable Agreement, after concluding that it was probable that we would have sufficient future taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits. As of
June 28, 2017
and
December 28, 2016
, our total obligations under the Tax Receivable Agreement, including accrued interest, were
$280,426
and
$272,482
, respectively. There were no transactions subject to the Tax Receivable Agreement for which we did not recognize the related liability, as we concluded that we would have sufficient future taxable income to utilize all of the related tax benefits.
22
|
Shake Shack Inc.
Form 10-Q
NOTE
14
: RELATED PARTY TRANSACTIONS
Union Square Hospitality Group
The Chairman of our Board of Directors serves as the Chief Executive Officer of Union Square Hospitality Group, LLC. As a result, Union Square Hospitality Group, LLC and its subsidiaries are considered related parties.
USHG, LLC
Effective January 2015, we entered into an Amended and Restated Management Services Agreement with USHG, LLC ("USHG"), in which USHG provides reduced management services to SSE Holdings comprised of executive leadership from members of its senior management, advisory and development services and limited leadership development and human resources services. The initial term of the Amended and Restated Management Services Agreement is through December 31, 2019, with renewal periods.
Total amounts paid to USHG for general corporate expenses were
$1
and
$6
for the
thirteen and twenty-six weeks ended
June 28, 2017
. For the
thirteen and twenty-six weeks ended
June 29, 2016
total amounts paid to USHG for general corporate expenses were
$1
and
$6
, respectively. These amounts are included in general and administrative expenses on the Condensed Consolidated Statements of
Income
.
No
amounts were payable to USHG as of
June 28, 2017
. Total amounts payable to USHG as of
December 28, 2016
were
$1
, which is included in other current liabilities on the Condensed Consolidated Balance Sheets.
No
amounts were due from USHG as of
June 28, 2017
and
December 28, 2016
.
Daily Provisions
In May 2017 we began purchasing coffee cake from Daily Provisions, a restaurant owned by Union Square Hospitality Group, to offer as a breakfast item at our Madison Square Park Shack.
No
amounts were paid to Daily Provisions during the
thirteen and twenty-six weeks ended
June 28, 2017
and
June 29, 2016
. Total amounts payable to Daily Provisions as of
June 28, 2017
were
$1
, which are included in accounts payable on the Condensed Consolidated Balance Sheets.
No
amounts were payable to Daily provisions as of
December 28, 2016
.
Hudson Yards Sports and Entertainment
In fiscal 2011, we entered into a Master License Agreement (as amended, "MLA") with Hudson Yards Sports and Entertainment LLC ("HYSE") to operate Shake Shack branded limited menu concession stands in sports and entertainment venues within the United States. The agreement expires in January 2027 and includes
five
consecutive
five
-year renewal options at HYSE's option. As consideration for these rights, HYSE pays us a license fee based on a percentage of net food sales, as defined in the MLA. HYSE also pays us a percentage of profits on sales of branded beverages, as defined in the MLA. Amounts paid to us by HYSE for the
thirteen and twenty-six weeks ended
June 28, 2017
were
$115
and
$135
, respectively. For both the
thirteen and twenty-six weeks ended
June 29, 2016
a
mounts paid to us by HYSE in the
were
$103
.
These amounts are included in licensing revenue on the Condensed Consolidated Statements of
Income
.
Total amounts due from HYSE as of
June 28, 2017
and
December 28, 2016
were
$58
and
$11
, which are included in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets
.
Madison Square Park Conservancy
The Chairman of our Board of Directors serves as a director of the Madison Square Park Conservancy ("MSP Conservancy"), with which we have a license agreement and pay license fees to operate our Madison Square Park Shack. Amounts paid to Madison Square Park Conservancy as rent amounted to
$133
and
$332
for the
thirteen and twenty-six weeks ended
June 28, 2017
, respectively.
Amounts paid to Madison Square Park Conservancy as rent amounted to
$195
and
$390
for the
thirteen and twenty-six weeks ended
June 29, 2016
, respectively. These amounts are included in occupancy and related expenses on the Condensed Consolidated Statements of
Income
.Total amounts due to MSP Conservancy as of
June 28, 2017
and
December 28, 2016
were
$79
and
$1
, respectively. These amounts are included in accrued expenses on the Condensed Consolidated Balance Sheets.
Additionally, we received tenant improvement allowances from MSP Conservancy related to a reconstruction project which ended in 2015.
No
amounts were paid to us from MSP Conservancy during the
thirteen weeks ended
June 28, 2017
. During the
twenty-six weeks ended
June 28, 2017
amounts paid to us from MSP Conservancy totaled
$200
.
No
amounts were paid to us during the
thirteen and twenty-six weeks ended
June 29, 2016
.
No
amounts were due to us from MSP Conservancy as of
June 28, 2017
.
Shake Shack Inc.
Form 10-Q
|
23
Total amounts due from MSP Conservancy as of
December 28, 2016
were
$200
, which are included in accounts receivable on the Condensed Consolidated Balance Sheets.
Share Our Strength
The Chairman of our Board of Directors serves as a director of Share Our Strength, for which Shake Shack holds the "Great American Shake Sale" every year during the month of May to raise money and awareness for childhood hunger. During the Great American Shake Sale, we encourage guests to donate money to Share Our Strength's No Kid Hungry campaign in exchange for a coupon for a free cake-themed shake. All of the guest donations we collect go directly to Share Our Strength.
During the
thirteen and twenty-six weeks ended
June 28, 2017
the Great American Shake Sale raised
$631
for Share Our Strength, which was payable to Share Our Strength as of
June 28, 2017
and included in accounts payable on the Condensed Consolidated Balance Sheets. Amounts paid to Share Our Strength for both the
thirteen and twenty-six weeks ended
June 29, 2016
were
$587
.
We incurred costs of approximately
$119
for both the
thirteen and twenty-six weeks ended
June 28, 2017
and
$98
for both the
thirteen and twenty-six weeks ended
June 29, 2016
. These costs represent the cost of the free shakes redeemed and are included in general and administrative expenses on the Condensed Consolidated Statements of Income.
Mobo Systems, Inc.
The Chairman of our Board of Directors serves as a director of Mobo Systems, Inc. (also known as "Olo"), a platform we use in connection with our mobile ordering application. Amounts paid to Olo during the
thirteen and twenty-six weeks ended
June 28, 2017
were
$20
and
$38
, respectively, which are included in other operating expenses on the
Condensed Consolidated Statements of
Income
.
No
amounts were paid to Olo for the
thirteen and twenty-six weeks ended
June 29, 2016
.
No
amounts were payable to Olo as of
June 28, 2017
and
December 28, 2016
.
Square, Inc.
On July 20, 2017, our Chief Executive Officer joined the Board of Directors of Square, Inc ("Square"). Square provides point-of-sale solutions and other business management tools. Square also owns Caviar, a food ordering service. We currently use the Square payment application to process a limited number of sales at our Shacks and sales for certain off-site events. In March 2017, we partnered with Caviar for a limited-time delivery promotion.
Tax Receivable Agreement
As described in
Note 10
, we entered into a tax receivable agreement with certain members of SSE Holdings that provides for the payment by us
of
85%
of the amount of tax benefits, if any, that Shake Shack actually realizes or in some cases is deemed to realize as a result of certain transactions.
No
payments were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement during the
thirteen weeks ended
June 28, 2017
. During the
twenty-six weeks ended
June 28, 2017
, payments of
$1,471
, inclusive of interest, were made to the members.
No
amounts were paid to the members during the
thirteen and twenty-six weeks ended
June 29, 2016
. As of
June 28, 2017
and
December 28, 2016
, total amounts due under the Tax Receivable Agreement were
$280,426
and
$272,482
, respectively.
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
. During the
thirteen and twenty-six weeks ended
June 28, 2017
distributions paid to non-controlling interest holders were
$2,024
and
$2,379
, respectively. For the
thirteen and twenty-six weeks ended
June 29, 2016
tax distributions of
$1,602
were paid to non-controlling interest holders.
No
tax distributions were payable to non-controlling interest holders as of
June 28, 2017
. As of
December 28, 2016
tax distributions of
$607
were payable to non-controlling interest holders.
24
|
Shake Shack Inc.
Form 10-Q