Shake Shack 2015 Annual Report Download - page 70

Table of Contents
SSE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except unit, share, per unit and per share amounts)
NOTE 15 : COMMITMENTS AND CONTINGENCIES
Lease Commitments
We are obligated under various operating leases for Shacks and our home office space, expiring in various years through 2031. Under certain of these leases, we are liable for
contingent rent based on a percentage of sales in excess of a specified threshold and are responsible for our proportionate share of real estate taxes and utilities. See Note 8 , Leases.
As security under the terms of several of our leases, we are obligated under letters of credit totaling $160 as of December 31, 2014. The letters of credit expire on April 23, 2015 and
February 28, 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 2015 and renews automatically for one-year periods through September 30, 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. These volume commitments are not subject to any time limit and there are no material financial
penalties associated with these agreements in the event of early termination.
Legal Contingencies
We are subject to various legal 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 December 31, 2014, the amount of ultimate liability with respect to these matters was not material.
NOTE 16 : RELATED PARTY TRANSACTIONS
Amounts due to affiliates include management fees, health costs and amounts advanced for other general operating expenses by USHG, LLC, another subsidiary of USHG and a related
party under common control (the " Management Company "). The amounts are temporary and non-interest bearing in nature.
Under the terms of the management agreement with the Management Company, as amended, in fiscal 2012 and 2013, we paid a 3.0% management fee to the Management Company
based on sales. Commencing in fiscal 2014, management fees were reduced to 2.5%. In addition, in fiscal 2013, there was an additional $5 management fee per month between April-
August, for a total of $25 in additional management fee expense. Management fees on Shack sales, which are included in general and administrative expenses, amounted to $2,801,
$2,383 and $1,670 for fiscal 2014, 2013 and 2012, respectively. We also paid a management fee to the Management Company based on licensing net income generated from the license
agreements with unaffiliated entities. Management fees on licensing net income, included in general and administrative expenses, amounted to $126, $72 and $22 in fiscal 2014, 2013
and 2012, respectively. Amounts payable to the Management Company as of December 31, 2014 and December 25, 2013 were $238 and $300, respectively.
Previously, we sub-leased office space from the Management Company on a month-to-
month basis. Amounts paid to the Management Company totaled $38, $236 and $60 for fiscal
2014, 2013 and 2012, respectively. These amounts are included in general and administrative expense on the Consolidated Statements of Income.
We are included in the Management Company's self-
insurance health plan and pay our portion of the plan costs on a monthly basis. In fiscal 2014, 2013 and 2012, the amounts paid to
the Management Company for these health costs were $1,306, $865 and $546, respectively. These amounts are included in labor and related expenses and general and administrative
expenses on the Consolidated Statements of Income.
In fiscal 2009, we began leasing space from Hudson Yards Catering LLC (" HYC "), a related party, on a month-to-
month basis, which terminated on October 31, 2012. Included in
occupancy and related expenses is rent paid to HYC that amounted to $49 in fiscal 2012.
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