Shake Shack 2016 Annual Report Download - page 80

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Table of Contents
Segment Reporting
We own and operate Shacks in the United States. We also have domestic and international licensed operations. Our chief operating decision maker (the "CODM")
is our Chief Executive Officer. As the CODM reviews financial performance and allocates resources at a consolidated level on a recurring basis, we have one
operating segment and one reportable segment.
Fair Value Measurements
We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the
financial statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities that are required to be
recorded at fair value, we assume the highest and best use of the asset by market participants in which we would transact and the market-based risk measurements
or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.
Assets and liabilities are classified using a fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels, and bases the categorization
within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
*Level 1 - Quoted prices in active markets for identical assets or liabilities
* Level 2 - Observable inputs other than quoted prices in active markets for identical assets or liabilities, quoted prices for identical assets or liabilities in
inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or
liabilities
* Level 3 - Inputs that are both unobservable and significant to the overall fair value measurements reflecting an entity's estimates of assumptions that
market participants would use in pricing the asset or liability
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash on hand, deposits with banks, and short-term, highly liquid investments that have original maturities of three
months or less. Cash equivalents are stated at cost, which approximates fair value. Cash equivalents consist primarily of money market funds.
Accounts Receivable
Accounts receivable consist primarily of receivables from landlords for tenant improvement allowances, receivables from our licensees for licensing revenue and
related reimbursements, credit card receivables and vendor rebates. We evaluate the collectibility of our accounts receivable based on a variety of factors, including
historical experience, current economic conditions and other factors.
Inventories
Inventories, which consist of food, beer, wine, other beverages and retail merchandise, are stated at the lower of cost or market with cost determined on a first-in,
first-out basis. No adjustment is deemed necessary to reduce inventory to the lower of cost or market value due to the rapid turnover and high utilization of
inventory.
Property and Equipment
Property and equipment is stated at historical cost less accumulated depreciation. Property and equipment is depreciated based on the straight-line method over the
estimated useful lives of the assets, generally ranging from three to seven years for equipment, furniture and fixtures, and computer equipment and software.
Leasehold improvements are depreciated over the shorter of their estimated useful life or the related lease life, generally ranging from 10 to 20 years. For leases
with renewal periods at our option, we use the original lease term, excluding renewal option periods, to determine estimated useful lives.
Shake Shack Inc. Form 10-K | 78