 Hello, everyone. In this recording, I'm going to discuss why Shake Shack returned 10 million dollars to the government as part of the payment protection plan. By the way, Shake Shack is one of my favorite burgers. So let's take a look at what happened. First of all, to qualify for the loan for this payment protection plan, a business could have no more than 500 employees at any single location. So simply put, any business, any restaurant technically will qualify because no restaurant will have at any particular location 500 people. Simply put, Shake Shack and that's their location in New York City, their original location, they qualify for the loan. So as qualification, they qualify. Now, the founder and the CEO, Mayor and Guarity, said they decided to apply the loan to protect as many employees as possible. So that's the intent of the loan. So you get the money, you'll use this money to pay for the employees. So that's the whole thing. It's like, in a sense, you are in a sense, believe it or not, if you don't need your employees, if your business is closing and you're getting this money and passing it to your employees, the business is really working as an agent. Simply put, getting the money from the government and passing this money to the US from the government to the employees. It's like your, the business is a bank. That's all where it is. But they did not realize, according to them, that the program was underfunded and that many who needed most have not getting any assistance. Now they're saying the reason they returned the money, because they did not know that the fund ran out of money. And that's why they return the money. Okay. So there was no fine print. That's what they're saying. Anywhere that suggested, apply now, or we'll run out of money by the time you finally get in the line. Well, basically, really, you don't have to worry about this because today, the US government just added 251 billion to the program. So hey, look, Shake Shack, if that's your concern, you can go back and apply. 10 million is a drop in a bucket for 251 billion. If that's the reason that you did not take this money. But let's go back two, three days. And by the way, Shake Shack do need the money. And we know this because they issued stocks for 150 million. So they need the money to operate. So they don't need the money. But that's what they're saying. That's why they return it. Now, a few days earlier, today is what today April the 20, you know, you lose time when you're in quarantine today April the 21st. So a few days ago, when they reported their numbers, when they reported their numbers, they stated they they laid off 1000 workers. So given the reduced operation enclosure, the company has for low or laid off more than 1000, it's closer to 2000 really equivalent employees. But we're going to go with 1000, just to make the point, okay, with remaining home office and executive seem taken a pay cut until further notice, the general manager at Shake Shack will continue to receive their pay, even if their location are close. So that's not a problem. So that's what they're saying. They are expecting to lose or to burn in order to survive 1.3 million to 1.5 million per week to survive with 800,000 and rent payment under discussion, it's still negotiating. So they're looking at $2 million per week, burning this money to stay afloat during this Coronavirus, which is, which is the 10 million, let's assume they use it for their operation would last them what five weeks for that, but that's not the point. So let's take a look at little bit of the let's take a look a little bit at the numbers and see what the payment protection plan requires you to do. Okay, so one of the main condition of the payment protection plan is to maintain your employee headcount. So if you notice here, under disclosure, not under disclosure, under press conference on April the 17th, they said they already laid off 1000. I'm telling you, it's more than 1000, but let's assume it's 1000 employees. So what they have to do now, they have to call back all those employees and this payment production plan is supposed to pay for eight weeks. So it will help you to pay your employees for eight weeks. Then again, what would Shake Shack will have to do after those eight weeks, they will have to lay off the employees again, if we are still in a lockdown. So simply put, if they took the 10 million, divide the 10 million by eight weeks, they will get 1.25 million per week, which translates for 1000 workers, it will translate into $1,250 per employee per week. So if they're paying that much for the employee, they can get this money from the government and give it to the employee. Now, most likely then not. Most employees at Shake Shack don't make $1,250 per week. Well, I'm making this assumption, but you let me know otherwise, if they make more than $1,250. If you're working, if you're flipping burgers, nothing wrong with flipping burgers, just simply put, you don't make $1,250. That's $1,250 means you are making over $52,000 per year, closer to $55,000 per year. That's more likely than not. So employees simply put those employees that were laid off, they're earning the same amount of money from unemployment and they don't have to worry about working. So simply put, the employees don't want to go back to work and Shake Shack don't have a need for those employees because if they have them, they can get the money from the government, but all what's going to happen, Shake Shack is a conduit. It's basically an agency that's taking this money and passing it to the employee. And no one is visiting Shake Shack because the store is closed, there is less revenue, there is no need for them. And here's what's going to happen, the forgiveness. So they will give you this money, they will give you this 10 million, but the forgiveness of this, it's a forgivable loan. It's a loan that can be forgiven is if used properly, is reduced on a pro-rata basis. So let's assume the rehire rate is 50%. Think about the employees who don't want to go back to work because they're afraid of the coronavirus and they're making the same amount of money. Why would I go back to work? Assuming that's the case, Shake Shack will be on the hook for 10, for 5 million, of the 10 million, they'll be on the hook for 5 million. The interest rate is nothing, 1% on this loan. And you have to pay it within one year or you could defer it for two years. So you could defer the payment. Now also, Shake Shack could also kind of bet that the Federal Reserve might forgive everything eventually and the money is there. So if Shake Shack wants to go back for the money, the money is there. And as long as the federal government is willing to pump money into the system, you know, Shake Shack should not worry about this, but here's what it boils down to. So if they took the money, 50% of it was forgivable and the other 50 was not forgivable. I did the quick computation on my Excel sheet and what I find out, you have to pay it back within one year. And if you're talking about a 5 million loan, you have to pay it back within one year, which is a monthly payment. You have to pay back $439,000, let's say, rounded to $440,000 a month for 12 months. Now here's the problem. Are you going to have the revenue? Can you guarantee that you're going to have revenue in the next 12 months or 24 months to repay the loan? So I believe Shake Shack made the right decision not to take the loan and issue stocks in order to raise money for their business. Now you might think you're in a 5 million, 1%, what's the big deal? Well, it's not a big deal. If you are talking about 30 years or let's make it not 36 months, 360 months. If you are repaying the loan over 360 months, that's not a problem. Then your payment is $50,000. It should not be an issue for Shake Shack. But if you have to come up with $440 a month, that could put cash flow pressure on your company, especially coming out of the coronavirus, where they're burning $2 million a year. So that's why I believe Shake Shack gave back the money back to the government. That's a smart move. That's also a smart PR move on their end. Anyway, if you are an accounting student or you're a CPA candidate or if you're interested in accounting or tax topic, visit my website, forhatlectures.com, subscribe, stay safe, and good luck.