Shake Shack 2015 Annual Report Download - page 24

Table of Contents
We cannot make any assurances regarding our ability to effectively respond to changes in consumer health perceptions or our ability to successfully implement the nutrient content
disclosure requirements and to adapt our menu offerings to trends in eating habits. The imposition of menu-
labeling laws could have an adverse effect on our results of operations and
financial position, as well as the hospitality industry in general.
Our insurance may not provide adequate levels of coverage against claims.
We believe that we maintain insurance customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe
are not economically reasonable to insure. Such losses could have a material adverse effect on our business and results of operations.
Because a component of our strategy is to continue to grow our licensed business internationally, the risks of doing business internationally could lower our revenues, increase our
costs, reduce our profits or disrupt our business.
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seven of our 32 licensed Shacks as of December 31, 2014 are located outside the United States and we expect to continue to expand our licensed Shacks internationally. As a
result, we are and will be, on an increasing basis, subject to the risks of doing business outside the United States, including:
Any or all of these factors may adversely affect the performance of and licensing fees we receive from our licensed Shacks located in international markets. Our international licensed
Shacks operate in several volatile regions that are subject to geopolitical and socio-
political factors that pose risk to our business operations. In particular, our licensee has been
negatively impacted by currency devaluation in Russia and we have seen a reduction in licensing revenue from our two Russian Shacks. If conditions persist or worsen, it is possible
that our licensee may choose to close one or both Shacks. In addition, the economy of any region in which our Shacks are located may be adversely affected to a greater degree than
that of other areas of the country or the world by certain developments affecting industries concentrated in that region or country. While these factors and the impact of these factors are
difficult to predict, any one or more of them could lower our revenues, increase our costs, reduce our profits or disrupt our business, and, as our international licensed operations
increase, these risks will become more pronounced.
Because of our international licensed operations, we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti
-
bribery and
anti-kickback laws.
A significant portion of our licensed operations are located outside the United States. The U.S. Foreign Corrupt Practices Act, and other similar anti-bribery and anti-
kickback laws and
regulations, generally prohibit companies and their intermediaries from making improper payments to non-
U.S. officials for the purpose of obtaining or retaining business. While our
license agreements mandate compliance with applicable law, we cannot assure you that we will be successful in preventing our employees or other agents from taking actions in
violation of these laws or regulations. Such violations, or allegations of such violations, could disrupt our business and result in a material adverse effect on our financial condition,
results of operations and cash flows.
Changes in statutory, regulatory, accounting, and other legal requirements could potentially impact our operating and financial results.
We are subject to numerous statutory, regulatory and legal requirements, domestically and abroad. Our operating results could be negatively impacted by developments in these areas
due to the costs of compliance in addition to possible government penalties and litigation in the event of deemed noncompliance. Changes in the regulatory environment in the area of
food safety, privacy and information security, wage and hour laws, among others, could potentially impact our operations and financial results.
We lease all of our domestic company-
operated Shacks, and each is classified as an operating lease. The Financial Accounting Standards Board has issued an exposure draft that will
revise lease accounting and require many leases currently considered to be operating leases to instead be classified as capital leases. The primary impact to this exposure draft would be
that such leases would be recorded on the balance sheet as debt, and they
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▪
changes in foreign currency exchange rates or currency restructurings and hyperinflation or deflation in the countries in which we operate;
▪ the imposition of restrictions on currency conversion or the transfer of funds or limitations on our ability to repatriate non-
U.S. earnings in a tax effective manner;
▪
the presence and acceptance of varying levels of business corruption in international markets;
▪
the ability to comply with, or impact of complying with, complex and changing laws, regulations and policies of foreign governments that may affect investments or
operations, including foreign ownership restrictions, import and export controls, tariffs, embargoes, intellectual property, licensing requirements and regulations, increase in
taxes paid and other changes in applicable tax laws;
▪
the difficulties involved in managing an organization doing business in many different countries;
▪
the ability to comply with, or impact of complying with, complex and changing laws, regulations and economic political policies of the U.S. government, including U.S. laws
and regulations relating to economic sanctions, export controls and anti-boycott requirements;
▪ increase in an anti-
American sentiment and the identification of the licensed brand as an American brand;
▪
the effect of disruptions caused by severe weather, natural disasters, outbreak of disease or other events that make travel to a particular region less attractive or more difficult;
and
▪
political and economic stability.