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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Sep. 26, 2018
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 27, 2017 ("2017 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 27, 2017 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 2017 Form 10-K.
SSE Holdings is considered a variable interest entity. 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 September 26, 2018 and December 27, 2017, the net assets of SSE Holdings were $228,773 and $197,301, respectively. The assets of SSE Holdings are subject to certain restrictions in SSE Holdings' revolving credit agreements. See Note 8 for more information.
Fiscal Year
We operate on a 52/53 week fiscal year ending on the last Wednesday in December. Fiscal 2018 contains 52 weeks and ends on December 26, 2018. Fiscal 2017 contained 52 weeks and ended on December 27, 2017. 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 2018.
Accounting Standards Update (“ASU”)
Description
Date
Adopted
Revenue from Contracts with Customers and related standards
(ASU’s 2014-09, 2015-14, 2016-08, 2016-10, 2016-12, 2016-20)

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.

See Note 3 for more information.
December 28, 2017
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 adoption of this standard did not have a material impact to our consolidated financial statements.

December 28, 2017
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.

The adoption of this standard did not have a material impact to our consolidated financial statements.
December 28, 2017
Recently Issued Accounting Pronouncements       
Accounting Standards Update (“ASU”)
Description
Expected Impact
Effective Date
Leases

(ASU's 2016-02, 2018-01, 2018-10, 2018-11)
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 applied either at the beginning of the earliest period presented, or at the adoption date, with the option to elect various practical expedients. Early adoption is permitted.
We plan to adopt the standard on December 27, 2018, electing the optional transition method to apply the standard as of the transition date. As a result, we will not apply the standard to the comparative periods presented.

We plan to elect the transition package of three practical expedients permitted under the new standard, which among other things, allows us to carryforward our historical lease classifications. We also made certain preliminary accounting policy elections for new leases post-transition, including the election to combine components. We are further evaluating other optional practical expedients and policy elections, as well as the impact of the standard to our processes, disclosures and internal control over financial reporting.

It is likely that the adoption will have a significant impact to our consolidated balance sheet given the extent of our real estate lease portfolio. We are completing our estimate of the impact, which is dependent on a number of key assumptions and factors, such as the discount rate as of the transition date, and the number of leases we will take possession of by the end of the year. Additionally, we expect that substantially all of our landlord funded assets and deemed landlord financing liabilities will be fully derecognized upon transition.

While we are continuing to assess all impacts of the standard, we currently do not expect our existing operating leases to have a material impact on our statement of income. For those leases where we are involved in construction and deemed to be the accounting owner, we will determine their lease classification. If they result in operating leases, we expect an increase to occupancy and related expenses, and a decrease to interest and depreciation expense post-transition.

We believe our real estate portfolio represents a significant portion of our overall lease portfolio, however, we are still in the process of evaluating other leases, such as equipment and embedded leases.
December 27, 2018

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

(ASU 2018-15)
This standard provides additional guidance on accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. The standard aligns the requirements for capitalizing implementation costs of such arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard also clarifies the presentation and classification of the capitalized costs, amortization expense, and the associated treatment in the statement of cash flows by aligning these items with the same treatment for costs of the hosting service itself. Early adoption is permitted, including adoption in any interim period, utilizing either a prospective or retrospective adoption methodology.

We intend on early adopting this standard during the fourth quarter 2018, on a prospective basis. We are in the early stages of an implementation of an enterprise-wide system initiative, therefore, we expect to be able to capitalize some implementation costs related to this initiative that previously would have been expensed as incurred.

September 27, 2018