Shake Shack 2016 Annual Report Download - page 58

Table of Contents
Loss on Disposal of Property and Equipment
Loss on disposal of property and equipment represents the net book value of assets that have been retired and consists primarily of furniture and fixtures that were
replaced in the normal course of business.
For all periods presented, the loss on disposal of property and equipment was not material.
Interest Expense
Interest expense primarily consists of interest on the Revolving Credit Facility as well as the amortization of deferred financing costs incurred in connection with
the Revolving Credit Facility.
Interest expense was $0.3 million in fiscal 2015 compared to $0.4 million in fiscal 2014 , a decrease of $0.1 million or 10.5% .
Interest expense was $0.4 million in fiscal 2014 compared to $0.1 million in fiscal 2013 , an increase of $0.3 million or 598.1% . This increase was the result of
additional borrowings under our revolving credit facility.
Income Tax Expense
As a result of the IPO and Organizational Transactions, we became the sole managing member of SSE Holdings, which is treated as a partnership for U.S. federal
and most applicable state and local income tax purposes. As a partnership, SSE Holdings is not subject to U.S. federal and certain state and local income taxes.
Any taxable income or loss generated by SSE Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata
basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of
SSE Holdings, as well as any stand-alone income or loss generated by Shake Shack Inc. We are also subject to withholding taxes in foreign jurisdictions. For fiscal
2014 and 2013 , the reported income tax expense reflects that of SSE Holdings, our predecessor for financial reporting purposes, and relates solely to foreign
withholding taxes and certain LLC entity-level taxes.
Income tax expense was $3.3 million in fiscal 2015 compared to $0.7 million in fiscal 2014 . Our effective income tax rate increased to 51.4% in fiscal 2015 from
23.8% in fiscal 2014 . The increase in both the amount of income tax expense and our effective income tax rate is primarily due to the IPO and Organizational
Transactions. In fiscal 2014, we were only subject to certain LLC entity-level taxes and foreign withholding taxes, whereas in fiscal 2015 we were also subject to
U.S. federal, state and local income taxes on our allocable share of any taxable income or loss generated by SSE Holdings subsequent to the IPO and
Organizational Transactions. As the non-recurring compensation expenses and other IPO-related expenses were incurred in the period prior to the Organizational
Transactions, we are not entitled to any tax benefits related to those expenses. This resulted in a high effective tax rate when compared to our consolidated pre-tax
income for fiscal 2015 .
Income tax expense was $0.7 million in fiscal 2014 compared to $0.5 million in fiscal 2013 . Our effective income tax rate increased to 23.8% in fiscal 2014 from
7.8% in fiscal 2013 , primarily due to increased foreign withholding taxes resulting from increased licensing revenue.
Net Income Attributable to Non-controlling Interests
Although we had a minority economic interest in SSE Holdings as a result of the IPO and Organizational Transactions, we became the sole managing member of
SSE Holdings and have the sole voting power in, and control the management of, SSE Holdings. Accordingly, we began consolidating the financial results of SSE
Holdings and reporting a non-controlling interest on our Consolidated Statement of Income, representing the portion of net income attributable to the Continuing
SSE Equity Owners.
In connection with the IPO and Organizational Transactions, the SSE Holdings LLC Agreement was amended to, among other things, (i) provide for a new single
class of common membership interests in SSE Holdings, the LLC Interests, and (ii) exchange all of the then-existing membership interests of the Original SSE
Equity Owners for LLC Interests. The LLC Agreement also provides that holders of LLC Interests may, from time to time, require SSE Holdings to redeem all or a
portion of their LLC Interests for newly-issued shares of Class A common stock on a one-for-one basis. In connection with any redemption or exchange, we will
receive a corresponding number of LLC Interests, increasing our total ownership interest in SSE Holdings. Following the completion of the Organizational
Transactions, we owned 33.3% of SSE Holdings. The Continuing SSE Equity Owners subsequent to the Merger
Shake Shack Inc. Form 10-K | 56