Shake Shack 2016 Annual Report Download - page 62

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Table of Contents
Adjusted Pro Forma Net Income (Loss) and Adjusted Pro Forma Earnings Per Fully Exchanged and Diluted Share
Adjusted pro forma net income represents net income attributable to Shake Shack Inc. assuming the full exchange of all outstanding SSE Holdings, LLC Interests
for shares of Class A common stock, adjusted for certain non-recurring items that we don't believe directly reflect our core operations. Adjusted pro forma earnings
per fully exchanged and diluted share is calculated by dividing adjusted pro forma net income by the weighted-average shares of Class A common stock
outstanding, assuming the full exchange of all outstanding LLC Interests, after giving effect to the dilutive effect of outstanding stock options.
Adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share are supplemental measures of operating performance that do
not represent and should not be considered alternatives to net income and earnings per share, as determined by GAAP. We believe adjusted pro forma net income
and adjusted pro forma earnings per fully exchanged and diluted share supplement GAAP measures and enables us to more effectively evaluate our performance
period-over-period and relative to our competitors. A reconciliation of adjusted pro forma net income to net income (loss) attributable to Shake Shack Inc., the
most directly comparable GAAP measure, and the computation of adjusted pro forma earnings per fully exchanged and diluted share are set forth below.
(in thousands, except per share amounts) 2015
2014 (1)
2013
Numerator:
Net income (loss) attributable to Shake Shack Inc. $ (8,776)
$ 2,118
$ 5,423
Adjustments:
Reallocation of net income attributable to non-controlling interests from the assumed exchange of LLC
Interests (2) 11,900
—
—
Non-recurring compensation expenses incurred in connection with the IPO (3) 12,818
—
—
IPO-related expenses (4) 635
2,675
—
Legal settlement (5) 770
—
—
Income tax expense (6) (5,302)
(67)
—
Adjusted pro forma net income $ 12,045
$ 4,726
$ 5,423
Denominator:
Weighted-average shares of Class A common stock outstanding—diluted 13,588
30,122
30,018
Adjustments:
—
Assumed exchange of LLC Interests for shares of Class A common stock (2) 22,635
—
—
Assumed issuance of shares in connection with the IPO and settlement of outstanding unit appreciation
rights (7) —
6,089
6,089
Dilutive effect of stock options 987
—
—
Adjusted pro forma fully exchanged weighted-average shares of Class A common stock outstanding—diluted 37,210
36,211
36,107
Adjusted pro forma earnings per fully exchanged share—diluted $ 0.32
$ 0.13
$ 0.15
(1) The Company operates on a 52/53 week fiscal year that ends on the last Wednesday of the calendar year. Fiscal year 2014 was a 53-week year. Fiscal 2015 and 2013 each
contained 52 weeks.
(2) Assumes the exchange of all outstanding LLC Interests for shares of Class A common stock, resulting in the elimination of the non-controlling interest and recognition of
the net income attributable to non-controlling interests.
(3) Non-recurring compensation expense incurred in connection with the IPO. Includes expense recognized in settlement of outstanding awards under our Unit Appreciation
Rights Plan, the related employer withholding taxes and the accelerated vesting of outstanding restricted Class B units. See Note 13 to the consolidated financial statements
included in Item 8 of this Form 10-K.
(4) Costs incurred in connection with our IPO, including legal, accounting and other related expenses.
(5) Expense incurred to establish an accrual related to the settlement of a legal matter. See Note 17 to the consolidated financial statements included in Item 8 of this Form 10-
K.
(6) For fiscal 2015, amount represents the tax effect of the aforementioned adjustments and a pro forma adjustment to reflect corporate income taxes at assumed an effective
tax rate of 41.7% , which include provisions for U.S. federal income taxes, certain LLC entity-level taxes and foreign withholding taxes, assuming the highest statutory
rates apportioned to each applicable state, local and foreign jurisdiction. For fiscal 2014 and 2013, amounts represent the tax effect of the aforementioned adjustments at
assumed effective tax rates of 13.4% and 7.8% , respectively, and include provisions for certain LLC entity-level taxes and foreign withholding taxes.
(7) Adjustment to give effect to (i) 5,750,000 shares issued to investors in the Company's IPO and (ii) 339,306 shares issued to participants of the Company's Unit Appreciation
Rights Plan, both of which were not retrospectively applied in the computations of earnings per share for fiscal 2014 and 2013.
Shake Shack Inc. Form 10-K | 60