Shake Shack 2016 Annual Report Download - page 57

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Table of Contents
General and Administrative Expenses
General and administrative expenses consist of costs associated with corporate and administrative functions that support Shack development and operations, as
well as equity-based compensation expense.
General and administrative expenses were $37.8 million for fiscal 2015 compared to $18.2 million for fiscal 2014 , an increase of $19.6 million or 108.0% . As a
percentage of total revenue, general and administrative expenses increase d to 19.8% in fiscal 2015 from 15.3% in fiscal 2014 . This increase was primarily due to
$10.1 million of incremental expenses incurred in connection with the Company’s initial public offering, $4.2 million of stock based compensation, $0.8 million
related to a legal settlement, and increased payroll expense associated with new home office personnel hired to support future growth, offset by a decrease of $2.9
million for management fees.
General and administrative expenses were $18.2 million for fiscal 2014 compared to $12.5 million for fiscal 2013 , an increase of $5.7 million or 46.0% . As a
percentage of total revenue, general and administrative expenses increase d to 15.3% in fiscal 2014 from 15.1% in fiscal 2013 . This increase was primarily due to
$2.7 million of incremental expenses incurred in connection with the Company’s initial public offering, and increased payroll expense associated with new home
office personnel hired to support future growth. Partially offsetting these increases, was a $2.1 million decrease in deferred compensation expense related to a one-
time charge incurred in fiscal 2013 related a deferred bonus payable to a member of our executive team.
Depreciation Expense
Depreciation expense consists of the depreciation of fixed assets, including leasehold improvements and equipment.
Depreciation expense was $10.2 million for fiscal 2015 compared to $5.8 million for fiscal 2014 , an increase of $4.4 million or 76.0% . This increase was due
primarily to depreciation of capital expenditures related to the opening of 13 new domestic company-operated Shacks during fiscal 2015 . As a percentage of total
revenue, depreciation expense increase d to 5.4% in fiscal 2015 compared to 4.9% in fiscal 2014 due to the introduction of more target-volume Shacks.
Depreciation expense was $5.8 million million for fiscal 2014 compared to $3.5 million for fiscal 2013 , an increase of $2.3 million or 64.0% . This increase was
due primarily to depreciation of capital expenditures related to the opening of 10 new domestic company-operated Shacks during fiscal 2014 . As a percentage of
total revenue, depreciation expense increase d to 4.9% in fiscal 2014 compared to 4.3% in fiscal 2013 due to the introduction of more target-volume Shacks.
Pre-Opening Costs
Pre-opening costs consist primarily of legal fees, rent, managers’ salaries, training costs, employee payroll and related expenses, all costs to relocate and
compensate Shack management teams prior to an opening and wages, travel and lodging costs for our opening training team and other support team members. All
such costs incurred prior to the opening of a domestic company-operated Shack are expensed in the period in which the expense is incurred. Pre-opening costs can
fluctuate significantly from period to period, based on the number and timing of domestic company-operated Shack openings and the specific pre-opening costs
incurred for each domestic company-operated Shack. Additionally, domestic company-operated Shack openings in new geographic market areas will initially
experience higher pre-opening costs than our established geographic market areas, such as the New York City metropolitan area, where we have greater economies
of scale and incur lower travel and lodging costs for our training team.
Pre-opening costs were $5.4 million in fiscal 2015 , including $1.3 million of deferred rent expense, compared to $6.1 million in fiscal 2014 , a decrease of $0.7
million or 11.1% , primarily due to a decrease in deferred rent expense and the timing of new domestic company-operated Shacks expected to open.
Pre-opening costs were $6.1 million in fiscal 2014 , including $2.1 million of deferred rent expense, compared to $2.3 million in fiscal 2013 , an increase of $3.8
million or 161.6% , primarily the result of an increase in the number of new domestic company-operated Shacks opened in fiscal 2014 as well as an increase in the
number of new domestic company-operated Shacks opened in new geographic markets during fiscal 2014 and planned openings in the first quarter of fiscal 2015 .
55 | Shake Shack Inc. Form 10-K