Business Context and Reporting Period
Company: Shake Shack Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: February 13, 2024
Subject: Non-reliance on previously issued financial statements for fiscal years ended December 28, 2022, and December 29, 2021, due to accounting errors regarding deferred tax assets.
Key Financial Metrics and Adjustments
The filing details non-cash accounting errors related to state tax depreciation for an investment in SSE Holdings, LLC. These errors resulted in an overstatement of income tax expense and an understatement of deferred tax assets. The filing explicitly states that these errors do not impact results of operations or key operational metrics such as Shack sales, Total revenue, Shack-level operating profit, or Adjusted EBITDA.
| Period | Adjustment to Income Tax Expense (Benefit) | Impact on Net Income (Loss) |
|---|---|---|
| Fiscal 2022 | $3.0 million (favorable) | $3.0 million (improvement) |
| Fiscal 2021 | $4.1 million (favorable) | $4.1 million (improvement) |
| Pre-2021 (Opening Retained Earnings) | N/A | $10.1 million (adjustment) |
Note: All estimated amounts are unaudited and subject to change.
Material Changes and Restatement
The Audit Committee concluded that the previously issued audited consolidated financial statements for fiscal years 2022 and 2021 should no longer be relied upon. The Company is preparing restatements to be included in the upcoming Annual Report on Form 10-K for the fiscal year ended December 27, 2023. The errors were unintentional and relate specifically to the accounting treatment of deferred tax assets associated with the SSE Holdings, LLC investment.
Outlook, Risks, and Management Commentary
Management and the Audit Committee have discussed the matter with Ernst & Young LLP, the independent registered public accounting firm. The Company expects to file the 2023 Form 10-K on a timely basis. The filing includes standard forward-looking statement disclaimers, noting risks such as the impact of the COVID-19 pandemic, supply chain interruptions, labor costs, inflation, and the potential impact of material weaknesses in internal controls over financial reporting identified in connection with this restatement.
Investor Verification Checklist
- Verify the final restated figures for fiscal years 2021 and 2022 in the upcoming 2023 Form 10-K.
- Confirm the status of the material weakness in internal controls over financial reporting.
- Review the detailed breakdown of the $10.1 million opening adjustment to retained earnings for periods prior to fiscal 2021.
- Monitor the timeline for the filing of the 2023 Form 10-K to ensure it meets the SEC deadline.