UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022March 31, 2023
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___ to ___
Commission file number 001-38477
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BIGLARI HOLDINGS INC. |
(Exact name of registrant as specified in its charter) |
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Indiana | | 82-3784946 |
(State or other jurisdiction of incorporation) | | (I.R.S. Employer Identification No.) |
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19100 Ridgewood Parkway | Suite 1200 | | |
San Antonio, | TXTexas | | 78259 |
(Address of principal executive offices) | | (Zip Code) |
(210) 344-3400
Registrant’s telephone number, including area code
17802 IH 10 West, Suite 400, San Antonio, TX 78257Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbols | Name of each exchange on which registered |
Class A Common Stock, no par value | BH.A | New York Stock Exchange |
Class B Common Stock, no par value | BH | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and an “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☐ | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
Number of shares of common stock outstanding as of November 1, 2022:May 3, 2023:
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Class A common stock – | 206,864 | |
Class B common stock – | 2,068,640 | |
BIGLARI HOLDINGS INC.
INDEX
PART 1 – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIGLARI HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands) | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| (Unaudited) | | |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 64,842 | | | $ | 42,349 | |
Investments | 70,032 | | | 83,061 | |
Receivables | 25,826 | | | 28,508 | |
Inventories | 3,704 | | | 3,803 | |
Other current assets | 13,147 | | | 7,088 | |
Total current assets | 177,551 | | | 164,809 | |
Property and equipment | 414,497 | | | 349,351 | |
Operating lease assets | 38,539 | | | 42,538 | |
Goodwill and other intangible assets | 75,933 | | | 77,010 | |
Investment partnerships | 144,864 | | | 250,399 | |
Other assets | 10,761 | | | 10,700 | |
Total assets | $ | 862,145 | | | $ | 894,807 | |
Liabilities and shareholders’ equity | | | |
Liabilities | | | |
Current liabilities: | | | |
Accounts payable and accrued expenses | $ | 101,503 | | | $ | 100,467 | |
Loss and loss adjustment expenses | 14,613 | | | 14,609 | |
Unearned premiums | 12,493 | | | 11,667 | |
Current portion of lease obligations | 17,093 | | | 16,898 | |
Total current liabilities | 145,702 | | | 143,641 | |
Lease obligations | 95,980 | | | 104,479 | |
Line of credit | 30,000 | | | — | |
Deferred taxes | 28,515 | | | 46,533 | |
Asset retirement obligations | 14,721 | | | 10,389 | |
Other liabilities | 1,819 | | | 2,069 | |
Total liabilities | 316,737 | | | 307,111 | |
Shareholders’ equity | | | |
Common stock | 1,138 | | | 1,138 | |
Additional paid-in capital | 381,788 | | | 381,788 | |
Retained earnings | 566,455 | | | 608,528 | |
Accumulated other comprehensive loss | (3,777) | | | (1,907) | |
Treasury stock, at cost | (409,119) | | | (401,851) | |
Biglari Holdings Inc. shareholders’ equity | 536,485 | | | 587,696 | |
Noncontrolling interests | 8,923 | | | — | |
Total shareholders' equity | 545,408 | | | 587,696 | |
Total liabilities and shareholders’ equity | $ | 862,145 | | | $ | 894,807 | |
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| March 31, 2023 | | December 31, 2022 |
| (Unaudited) | | |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 39,363 | | | $ | 37,467 | |
Investments | 79,652 | | | 69,466 | |
Receivables | 27,044 | | | 29,375 | |
Inventories | 3,755 | | | 3,851 | |
Other current assets | 13,542 | | | 10,495 | |
Total current assets | 163,356 | | | 150,654 | |
Property and equipment | 392,904 | | | 400,725 | |
Operating lease assets | 33,532 | | | 34,739 | |
Goodwill and other intangible assets | 76,672 | | | 76,550 | |
Investment partnerships | 230,843 | | | 155,794 | |
Other assets | 9,911 | | | 10,012 | |
Total assets | $ | 907,218 | | | $ | 828,474 | |
Liabilities and shareholders’ equity | | | |
Liabilities | | | |
Current liabilities: | | | |
Accounts payable and accrued expenses | $ | 79,244 | | | $ | 78,616 | |
Unpaid losses and loss adjustment expenses | 15,514 | | | 16,805 | |
Unearned premiums | 13,445 | | | 12,495 | |
Current portion of lease obligations | 16,109 | | | 16,981 | |
Line of credit | 6,500 | | | 10,000 | |
Total current liabilities | 130,812 | | | 134,897 | |
Lease obligations | 90,135 | | | 91,844 | |
Deferred taxes | 49,809 | | | 31,343 | |
Asset retirement obligations | 14,240 | | | 14,068 | |
Other liabilities | 1,024 | | | 754 | |
Total liabilities | 286,020 | | | 272,906 | |
Shareholders’ equity | | | |
Common stock | 1,138 | | | 1,138 | |
Additional paid-in capital | 381,788 | | | 381,788 | |
Retained earnings | 641,396 | | | 576,510 | |
Accumulated other comprehensive loss | (2,458) | | | (2,790) | |
Treasury stock, at cost | (409,919) | | | (409,680) | |
Biglari Holdings Inc. shareholders’ equity | 611,945 | | | 546,966 | |
Noncontrolling interests | 9,253 | | | 8,602 | |
Total shareholders’ equity | 621,198 | | | 555,568 | |
Total liabilities and shareholders’ equity | $ | 907,218 | | | $ | 828,474 | |
See accompanying Notes to Consolidated Financial Statements.
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts) | | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | First Nine Months |
| 2022 | | 2021 | | 2022 | | 2021 |
| (Unaudited) | | (Unaudited) |
Revenues | | | | | | | |
Restaurant operations | $ | 59,437 | | | $ | 59,144 | | | $ | 179,608 | | | $ | 196,424 | |
Insurance premiums and other | 16,312 | | | 14,723 | | | 47,745 | | | 43,729 | |
Oil and gas | 14,380 | | | 7,353 | | | 38,632 | | | 24,310 | |
Licensing and media | 1,905 | | | 863 | | | 3,788 | | | 2,695 | |
| 92,034 | | | 82,083 | | | 269,773 | | | 267,158 | |
Cost and expenses | | | | | | | |
Restaurant cost of sales | 36,162 | | | 41,694 | | | 107,469 | | | 129,297 | |
Insurance losses and underwriting expenses | 13,245 | | | 10,672 | | | 40,812 | | | 31,733 | |
Oil and gas production costs | 4,090 | | | 2,050 | | | 11,752 | | | 6,957 | |
Licensing and media costs | 345 | | | 880 | | | 1,975 | | | 1,749 | |
Selling, general and administrative | 15,469 | | | 16,889 | | | 48,275 | | | 50,848 | |
Impairments | — | | | — | | | 20 | | | 559 | |
Depreciation, depletion, and amortization | 8,456 | | | 7,682 | | | 24,127 | | | 22,239 | |
Interest expense on leases | 1,372 | | | 1,462 | | | 4,169 | | | 4,619 | |
Interest expense on borrowings | 67 | | | — | | | 67 | | | 1,121 | |
| 79,206 | | | 81,329 | | | 238,666 | | | 249,122 | |
Other income | | | | | | | |
Investment gains (losses) | (849) | | | 4,534 | | | (4,184) | | | 6,465 | |
Investment partnership gains (losses) | 29,658 | | | (20,231) | | | (82,244) | | | 27,344 | |
Total other income (expenses) | 28,809 | | | (15,697) | | | (86,428) | | | 33,809 | |
Earnings (loss) before income taxes | 41,637 | | | (14,943) | | | (55,321) | | | 51,845 | |
Income tax expense (benefit) | 9,598 | | | (4,274) | | | (13,282) | | | 11,544 | |
Net earnings (loss) | 32,039 | | | (10,669) | | | (42,039) | | | 40,301 | |
Earnings attributable to noncontrolling interest | 34 | | | — | | | 34 | | | — | |
Net earnings (loss) attributable to Biglari Holdings Inc. shareholders | $ | 32,005 | | | $ | (10,669) | | | $ | (42,073) | | | $ | 40,301 | |
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Net earnings (loss) per equivalent Class A share * | $ | 109.13 | | | $ | (33.74) | | | $ | (140.30) | | | $ | 125.79 | |
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| First Quarter |
| 2023 | | 2022 |
| (Unaudited) |
Revenues | | | |
Restaurant operations | $ | 61,129 | | | $ | 59,847 | |
Insurance premiums and other | 16,229 | | | 15,079 | |
Oil and gas | 12,223 | | | 9,812 | |
Licensing and media | 595 | | | 634 | |
Total revenues | 90,176 | | | 85,372 | |
Costs and expenses | | | |
Restaurant cost of sales | 32,738 | | | 35,352 | |
Insurance losses and underwriting expenses | 13,013 | | | 13,774 | |
Oil and gas production costs | 5,471 | | | 3,819 | |
Licensing and media costs | 452 | | | 953 | |
Selling, general and administrative | 17,263 | | | 16,224 | |
Impairments | 776 | | | — | |
Depreciation, depletion, and amortization | 9,940 | | | 7,871 | |
Interest expense on leases | 1,307 | | | 1,412 | |
Interest expense on borrowings | 167 | | | — | |
Total costs and expenses | 81,127 | | | 79,405 | |
Other income | | | |
Investment gains | 3,638 | | | 225 | |
Investment partnership gains (losses) | 72,588 | | | (6,661) | |
Total other income (expenses) | 76,226 | | | (6,436) | |
Earnings (loss) before income taxes | 85,275 | | | (469) | |
Income tax expense (benefit) | 19,738 | | | (171) | |
Net earnings (loss) | 65,537 | | | (298) | |
Earnings attributable to noncontrolling interest | 651 | | | — | |
Net earnings (loss) attributable to Biglari Holdings Inc. shareholders | $ | 64,886 | | | $ | (298) | |
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Net earnings (loss) per average equivalent Class A share* | $ | 222.28 | | | $ | (0.98) | |
*Net earnings (loss) per average equivalent Class B share outstanding are one-fifth of the average equivalent Class A share or $21.83 and $(28.06)$44.46 for the thirdfirst quarter of 2023 and first nine months of 2022, respectively, and $(6.75) and $25.16$(0.20) for the thirdfirst quarter and first nine months of 2021, respectively.2022.
See accompanying Notes to Consolidated Financial Statements.
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
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| First Quarter | | |
| 2023 | | 2022 | | | | |
| (Unaudited) | | |
Net earnings (loss) | $ | 65,537 | | | $ | (298) | | | | | |
Foreign currency translation | 332 | | | (231) | | | | | |
Comprehensive income (loss) | 65,869 | | | (529) | | | | | |
Comprehensive income attributable to noncontrolling interest | 651 | | | — | | | | | |
Total comprehensive income (loss) attributable to Biglari Holdings Inc. shareholders | $ | 65,218 | | | $ | (529) | | | | | |
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| Third Quarter | | First Nine Months | | |
| 2022 | | 2021 | | 2022 | | 2021 | | | | |
| (Unaudited) | | (Unaudited) | | |
Net earnings (loss) | $ | 32,039 | | | $ | (10,669) | | | $ | (42,039) | | | $ | 40,301 | | | | | |
Foreign currency translation | (618) | | | (49) | | | (1,870) | | | (378) | | | | | |
Comprehensive income (loss) | 31,421 | | | (10,718) | | | (43,909) | | | 39,923 | | | | | |
Comprehensive income attributable to noncontrolling interests | 34 | | | — | | | 34 | | | — | | | | | |
Total comprehensive income (loss) attributable to Biglari Holdings Inc. shareholders | $ | 31,387 | | | $ | (10,718) | | | $ | (43,943) | | | $ | 39,923 | | | | | |
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars in thousands)
(Unaudited)
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| Biglari Holdings Inc. Shareholders’ Equity | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Non-controlling Interests | | Total |
For the first quarter of 2023 | | | | | | | | | | | | | |
Balance at December 31, 2022 | $ | 1,138 | | | $ | 381,788 | | | $ | 576,510 | | | $ | (2,790) | | | $ | (409,680) | | | $ | 8,602 | | | $ | 555,568 | |
Net earnings (loss) | | | | | 64,886 | | | | | | | 651 | | | 65,537 | |
Other comprehensive income | | | | | | | 332 | | | | | | | 332 | |
Adjustment for holdings in investment partnerships | | | | | | | | | (239) | | | | | (239) | |
Balance at March 31, 2023 | $ | 1,138 | | | $ | 381,788 | | | $ | 641,396 | | | $ | (2,458) | | | $ | (409,919) | | | $ | 9,253 | | | $ | 621,198 | |
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For the first quarter of 2022 | | | | | | | | | | | | | |
Balance at December 31, 2021 | $ | 1,138 | | | $ | 381,788 | | | $ | 608,528 | | | $ | (1,907) | | | $ | (401,851) | | | $ | — | | | $ | 587,696 | |
Net earnings (loss) | | | | | (298) | | | | | | | | | (298) | |
Other comprehensive loss | | | | | | | (231) | | | | | | | (231) | |
Adjustment for holdings in investment partnerships | | | | | | | | | 130 | | | | | 130 | |
Balance at March 31, 2022 | $ | 1,138 | | | $ | 381,788 | | | $ | 608,230 | | | $ | (2,138) | | | $ | (401,721) | | | $ | — | | | $ | 587,297 | |
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See accompanying Notes to Consolidated Financial Statements.
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
| | | First Nine Months | | First Quarter |
| | 2022 | | 2021 | | 2023 | | 2022 |
| | (Unaudited) | | (Unaudited) |
Operating activities | Operating activities | | | | Operating activities | | | |
Net earnings (loss) | Net earnings (loss) | $ | (42,039) | | | $ | 40,301 | | Net earnings (loss) | $ | 65,537 | | | $ | (298) | |
Adjustments to reconcile net earnings (loss) to operating cash flows: | Adjustments to reconcile net earnings (loss) to operating cash flows: | | Adjustments to reconcile net earnings (loss) to operating cash flows: | |
Depreciation, depletion, and amortization | Depreciation, depletion, and amortization | 24,127 | | | 22,239 | | Depreciation, depletion, and amortization | 9,940 | | | 7,871 | |
Provision for deferred income taxes | Provision for deferred income taxes | (22,289) | | | 16,625 | | Provision for deferred income taxes | 18,450 | | | (4,750) | |
Asset impairments and other non-cash expenses | 20 | | | 696 | | |
Gains on disposal of assets | (905) | | | (306) | | |
Investment and investment partnership (gains) losses | 86,428 | | | (34,461) | | |
Asset impairments | | Asset impairments | 776 | | | — | |
Gains on sale of assets | | Gains on sale of assets | (1,590) | | | (133) | |
Investment and investment partnerships (gains) losses | | Investment and investment partnerships (gains) losses | (76,226) | | | 6,436 | |
Distributions from investment partnerships | Distributions from investment partnerships | 51,200 | | | 172,420 | | Distributions from investment partnerships | — | | | 4,500 | |
Changes in receivables, inventories and other assets | Changes in receivables, inventories and other assets | 7,240 | | | 3,608 | | Changes in receivables, inventories and other assets | 2,006 | | | 4,633 | |
Changes in accounts payable and accrued expenses | Changes in accounts payable and accrued expenses | (4,028) | | | (9,877) | | Changes in accounts payable and accrued expenses | 1,030 | | | 2,833 | |
Net cash provided by operating activities | Net cash provided by operating activities | 99,754 | | | 211,245 | | Net cash provided by operating activities | 19,923 | | | 21,092 | |
Investing activities | Investing activities | | | | Investing activities | | | |
Capital expenditures | Capital expenditures | (23,437) | | | (46,486) | | Capital expenditures | (5,929) | | | (9,293) | |
Proceeds from property and equipment disposals | Proceeds from property and equipment disposals | 2,201 | | | 2,749 | | Proceeds from property and equipment disposals | 2,140 | | | 109 | |
Acquisition of a business, net of cash acquired | (54,899) | | | — | | |
Purchases of limited partner interests | (23,886) | | | (4,800) | | |
Purchases of interests in limited partnerships | | Purchases of interests in limited partnerships | (2,700) | | | (3,000) | |
Purchases of investments | Purchases of investments | (110,837) | | | (81,923) | | Purchases of investments | (27,255) | | | (50,086) | |
Sales of investments and redemptions of fixed maturity securities | Sales of investments and redemptions of fixed maturity securities | 108,394 | | | 74,678 | | Sales of investments and redemptions of fixed maturity securities | 21,009 | | | 46,193 | |
Net cash used in investing activities | Net cash used in investing activities | (102,464) | | | (55,782) | | Net cash used in investing activities | (12,735) | | | (16,077) | |
Financing activities | Financing activities | | | | Financing activities | | | |
Proceeds from revolving credit facility | 30,000 | | | — | | |
Principal payments on long-term debt | — | | | (149,952) | | |
Repayments of borrowings | | Repayments of borrowings | (3,500) | | | — | |
Principal payments on direct financing lease obligations | Principal payments on direct financing lease obligations | (4,647) | | | (4,634) | | Principal payments on direct financing lease obligations | (1,550) | | | (1,564) | |
Net cash provided by (used in) financing activities | 25,353 | | | (154,586) | | |
Effect of exchange rate changes on cash | (150) | | | (85) | | |
Net cash used in financing activities | | Net cash used in financing activities | (5,050) | | | (1,564) | |
Effects of foreign currency exchange rate changes | | Effects of foreign currency exchange rate changes | 8 | | | (23) | |
Increase in cash, cash equivalents and restricted cash | Increase in cash, cash equivalents and restricted cash | 22,493 | | | 792 | | Increase in cash, cash equivalents and restricted cash | 2,146 | | | 3,428 | |
Cash, cash equivalents and restricted cash at beginning of year | Cash, cash equivalents and restricted cash at beginning of year | 43,687 | | | 29,666 | | Cash, cash equivalents and restricted cash at beginning of year | 38,805 | | | 43,687 | |
Cash, cash equivalents and restricted cash at end of third quarter | $ | 66,180 | | | $ | 30,458 | | |
Cash, cash equivalents and restricted cash at end of first quarter | | Cash, cash equivalents and restricted cash at end of first quarter | $ | 40,951 | | | $ | 47,115 | |
| | | First Nine Months | | First Quarter |
| | 2022 | | 2021 | | 2023 | | 2022 |
| | (Unaudited) | | (Unaudited) |
Cash and cash equivalents | Cash and cash equivalents | $ | 64,842 | | | $ | 27,795 | | Cash and cash equivalents | $ | 39,363 | | | $ | 45,777 | |
Restricted cash in other long-term assets | Restricted cash in other long-term assets | 1,338 | | | 2,663 | | Restricted cash in other long-term assets | 1,588 | | | 1,338 | |
Cash, cash equivalents and restricted cash at end of third quarter | $ | 66,180 | | | $ | 30,458 | | |
Cash, cash equivalents and restricted cash at end of first quarter | | Cash, cash equivalents and restricted cash at end of first quarter | $ | 40,951 | | | $ | 47,115 | |
See accompanying Notes to Consolidated Financial Statements.
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(dollars in thousands)
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| Biglari Holdings Inc. Shareholders’ Equity | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Non-controlling Interests | | Total |
Balance at December 31, 2021 | $ | 1,138 | | | $ | 381,788 | | | $ | 608,528 | | | $ | (1,907) | | | $ | (401,851) | | | $ | — | | | $ | 587,696 | |
Net earnings (loss) | | | | | (298) | | | | | | | | | (298) | |
Other comprehensive loss | | | | | | | (231) | | | | | | | (231) | |
Adjustment to treasury stock for holdings in investment partnerships | | | | | | | | | 130 | | | | | 130 | |
Balance at March 31, 2022 | $ | 1,138 | | | $ | 381,788 | | | $ | 608,230 | | | $ | (2,138) | | | $ | (401,721) | | | $ | — | | | $ | 587,297 | |
Net earnings (loss) | | | | | (73,780) | | | | | | | | | (73,780) | |
Other comprehensive loss | | | | | | | (1,021) | | | | | | | (1,021) | |
Adjustment to treasury stock for holdings in investment partnerships | | | | | | | | | (6,760) | | | | | (6,760) | |
Balance at June 30, 2022 | $ | 1,138 | | | $ | 381,788 | | | $ | 534,450 | | | $ | (3,159) | | | $ | (408,481) | | | $ | — | | | $ | 505,736 | |
Net earnings | | | | | 32,005 | | | | | | | 34 | | | 32,039 | |
Other comprehensive loss | | | | | | | (618) | | | | | | | (618) | |
Adjustment to treasury stock for holdings in investment partnerships | | | | | | | | | (638) | | | | | (638) | |
Transactions with noncontrolling interests | | | | | | | | | | | 8,889 | | | 8,889 | |
Balance at September 30, 2022 | $ | 1,138 | | | $ | 381,788 | | | $ | 566,455 | | | $ | (3,777) | | | $ | (409,119) | | | $ | 8,923 | | | $ | 545,408 | |
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| Biglari Holdings Inc. Shareholders’ Equity | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Non-controlling interests | | Total |
Balance at December 31, 2020 | $ | 1,138 | | | $ | 381,788 | | | $ | 573,050 | | | $ | (1,531) | | | $ | (389,617) | | | $ | — | | | $ | 564,828 | |
Net earnings | | | | | 71,707 | | | | | | | | | 71,707 | |
Other comprehensive loss | | | | | | | (444) | | | | | | | (444) | |
Adjustment to treasury stock for holdings in investment partnerships | | | | | | | | | 3,049 | | | | | 3,049 | |
Balance at March 31, 2021 | $ | 1,138 | | | $ | 381,788 | | | $ | 644,757 | | | $ | (1,975) | | | $ | (386,568) | | | $ | — | | | $ | 639,140 | |
Net earnings (loss) | | | | | (20,737) | | | | | | | | | (20,737) | |
Other comprehensive income | | | | | | | 115 | | | | | | | 115 | |
Adjustment to treasury stock for holdings in investment partnerships | | | | | | | | | (5,026) | | | | | (5,026) | |
Balance at June 30, 2021 | $ | 1,138 | | | $ | 381,788 | | | $ | 624,020 | | | $ | (1,860) | | | $ | (391,594) | | | $ | — | | | $ | 613,492 | |
Net earnings (loss) | | | | | (10,669) | | | | | | | | | (10,669) | |
Other comprehensive loss | | | | | | | (49) | | | | | | | (49) | |
Adjustment to treasury stock for holdings in investment partnerships | | | | | | | | | (4,208) | | | | | (4,208) | |
Balance at September 30, 2021 | $ | 1,138 | | | $ | 381,788 | | | $ | 613,351 | | | $ | (1,909) | | | $ | (395,802) | | | $ | — | | | $ | 598,566 | |
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See accompanying Notes to Consolidated Financial Statements.
BIGLARI HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022March 31, 2023
(dollars in thousands, except share and per share data)
Note 1. Summary of Significant Accounting Policies
Description of Business
The accompanying unaudited consolidated financial statements of Biglari Holdings Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) applicable to interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In our opinion, all adjustments considered necessary to present fairly the results of the interim periods have been included and consist only of normal recurring adjustments. The results for the interim periods shown are not necessarily indicative of results for the entire fiscal year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2021.2022.
Biglari Holdings Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities, including property and casualty insurance, licensing and media, restaurants, and oil and gas. The Company’s largest operating subsidiaries are involved in the franchising and operating of restaurants. Biglari Holdings is founded and led by Sardar Biglari, Chairman and Chief Executive Officer of the Company.
Biglari Holdings’ management system combines decentralized operations with centralized financefinancial decision-making. Operating decisions for the various business units are made by their respective managers. All major investment and capital allocation decisions are made for the Company and its subsidiaries by Mr. Biglari.
As of September 30, 2022,March 31, 2023, Mr. Biglari beneficially owns shares of the Company that represent approximately 66.3% of the economic interest and approximately 70.4% of the voting interest.
Business Acquisition
On September 14, 2022, the Company completed the purchase of 685,505 shares ofpurchased Series A Preferred Stock (the "Preferred Shares"“Preferred Shares”) of Abraxas Petroleum Corporation ("Abraxas Petroleum") for a purchase price of $80,000.$80 million. On October 26, 2022, the Company convertedexchanged the preferred stock toPreferred Shares for 90% of the outstanding common stock of Abraxas Petroleum. We have concluded that Abraxas Petroleum is a consolidated entity and have recorded noncontrolling interests attributable to the interest held by other shareholders. The Company used working capital including its line of credit to fund the purchase of the Preferred Shares. Abraxas Petroleum operates oil and natural gas properties in the Permian Basin. The Company’s financial results include the results of Abraxas Petroleum from the acquisition date to the end of the third quarter. The revenues and operating results for Abraxas Petroleum were not significant to the Company for the third quarter.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries, including Steak n Shake Inc., Western Sizzlin Corporation, First Guard Insurance Company, Maxim Inc., Southern Pioneer Property & Casualty Insurance Company, Southern Oil Company, and Abraxas Petroleum.Petroleum Corporation. Intercompany accounts and transactions have been eliminated in consolidation.
Note 2. Earnings Per Share
Earnings per share of common stock is based on the weighted averageweighted-average number of shares outstanding during the year. The shares of Company stock attributable to our limited partner interest in The Lion Fund, L.P., and The Lion Fund II, L.P., (collectively, the “investment partnerships”) — based on our proportional ownership during this period — are considered treasury stock on the consolidated balance sheet and thereby deemed not to be included in the calculation of weighted averageweighted-average common shares outstanding. However, these shares are legally outstanding.
On June 8, 2022, The Lion Fund II, L.P. transferred 83,465following table presents shares of Biglari Holdings’ Class A common stockauthorized, issued and 890,272 shares of Biglari Holdings’ Class B common stock to The Lion Fund, L.P.outstanding on March 31, 2023 and December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Class A | | Class B | | Class A | | Class B |
Common stock authorized | 500,000 | | | 10,000,000 | | | 500,000 | | | 10,000,000 | |
Common stock issued and outstanding | 206,864 | | | 2,068,640 | | | 206,864 | | | 2,068,640 | |
Note 2. Earnings Per Share (continued)
The following table presents shares authorized, issued and outstanding on September 30, 2022 and December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Class A | | Class B | | Class A | | Class B |
Common stock authorized | 500,000 | | | 10,000,000 | | | 500,000 | | | 10,000,000 | |
Common stock issued and outstanding | 206,864 | | | 2,068,640 | | | 206,864 | | | 2,068,640 | |
The Company has applied the “two-class method” of computing earnings per share as prescribed in Accounting Standards Codification (“ASC”) 260, “Earnings Per Share”. (Class B shares are economically equivalent to one-fifth of a Class A share.) The equivalent Class A common stock applied for computing earnings per share excludes the proportional shares of Biglari Holdings’ stock held by the investment partnerships. In the tabulation below is the weighted averageweighted-average equivalent Class A common stock for earnings per share. There are no dilutive securities outstanding.
| | | Third Quarter | | First Nine Months | | | | | | | | | | |
| | 2022 | | 2021 | | 2022 | | 2021 | | March 31, 2023 | | March 31, 2022 |
Equivalent Class A common stock outstanding | Equivalent Class A common stock outstanding | 620,592 | | | 620,592 | | | 620,592 | | | 620,592 | | Equivalent Class A common stock outstanding | 620,592 | | | 620,592 | |
Proportional ownership of Company stock held by investment partnerships | Proportional ownership of Company stock held by investment partnerships | 327,317 | | | 304,356 | | | 320,711 | | | 300,215 | | Proportional ownership of Company stock held by investment partnerships | 328,681 | | | 316,020 | |
Equivalent Class A common stock for earnings per share | Equivalent Class A common stock for earnings per share | 293,275 | | | 316,236 | | | 299,881 | | | 320,377 | | Equivalent Class A common stock for earnings per share | 291,911 | | | 304,572 | |
Note 3. Investments
We classify investments in fixed maturity securities at the acquisition date as either available-for-sale or held-to-maturity and re-evaluate the classification at each balance sheet date. Securities classified as held-to-maturity are carried at amortized cost, reflecting the ability and intent to hold the securities to maturity.available-for-sale. Realized gains and losses on disposals of investments are determined on a specific identification basis. Dividends earned on investments are reported as investment income by our insurance companies. We consider investment income as a component of our aggregate insurance operating result. However, we consider investment gains and losses, whether realized or unrealized, as non-operating.
Investment lossesgains for the thirdfirst quarter of 2023 and first nine months of 2022 were $849$3,638 and $4,184, respectively. Investment gains in the third quarter and first nine months of 2021 were $4,534 and $6,465,$225, respectively.
Note 4. Investment Partnerships
The Company reports on the limited partnership interests in investment partnerships under the equity method of accounting. We record our proportional share of equity in the investment partnerships but exclude Company common stock held by said partnerships. The Company’s pro-rata share of its common stock held by the investment partnerships is recorded as treasury stock even though these shares are legally outstanding. The Company records gains/losses from investment partnerships (inclusive of the investment partnerships’ unrealized gains and losses on their securities) in the consolidated statements of earnings based on our carrying value of these partnerships. The fair value is calculated net of the general partner’s accrued incentive fees. Gains and losses on Company common stock included in the earnings of these partnerships are eliminated because they are recorded as treasury stock.
Biglari Capital Corp. is the general partner of the investment partnerships andpartnerships. Biglari Capital Corp. is an entity solely owned by Mr. Biglari.
Note 4. Investment Partnerships(continued)
The fair value and adjustment for Company common stock held by the investment partnerships to determine the carrying value of our partnership interest are presented below.
| | | | | | | | | | | | | | | | | |
| Fair Value | | Company Common Stock | | Carrying Value |
Partnership interest at December 31, 2021 | $ | 474,201 | | | $ | 223,802 | | | $ | 250,399 | |
Investment partnership gains (losses) | (119,864) | | | (37,620) | | | (82,244) | |
Distributions (net of contributions) | (16,023) | | | | | (16,023) | |
Changes in proportionate share of Company stock held | | | 7,268 | | | (7,268) | |
Partnership interest at September 30, 2022 | $ | 338,314 | | | $ | 193,450 | | | $ | 144,864 | |
| | | | | | | | | | | | | | | | | |
| Fair Value | | Company Common Stock | | Carrying Value |
Partnership interest at December 31, 2022 | $ | 383,004 | | | $ | 227,210 | | | $ | 155,794 | |
Investment partnership gains (losses) | 121,795 | | | 49,207 | | | 72,588 | |
Contributions | 2,700 | | | | | 2,700 | |
Changes in proportionate share of Company stock held | | | 239 | | | (239) | |
Partnership interest at March 31, 2023 | $ | 507,499 | | | $ | 276,656 | | | $ | 230,843 | |
| | | Fair Value | | Company Common Stock | | Carrying Value | | Fair Value | | Company Common Stock | | Carrying Value |
Partnership interest at December 31, 2020 | $ | 590,926 | | | $ | 171,376 | | | $ | 419,550 | | |
Partnership interest at December 31, 2021 | | Partnership interest at December 31, 2021 | $ | 474,201 | | | $ | 223,802 | | | $ | 250,399 | |
Investment partnership gains (losses) | Investment partnership gains (losses) | 110,690 | | | 83,346 | | | 27,344 | | Investment partnership gains (losses) | (909) | | | 5,752 | | | (6,661) | |
Distributions (net of contributions) | Distributions (net of contributions) | (167,620) | | | (167,620) | | Distributions (net of contributions) | (1,500) | | | (1,500) | |
Changes in proportionate share of Company stock held | Changes in proportionate share of Company stock held | | 6,185 | | | (6,185) | | Changes in proportionate share of Company stock held | | (130) | | | 130 | |
Partnership interest at September 30, 2021 | $ | 533,996 | | | $ | 260,907 | | | $ | 273,089 | | |
Partnership interest at March 31, 2022 | | Partnership interest at March 31, 2022 | $ | 471,792 | | | $ | 229,424 | | | $ | 242,368 | |
Note 4. Investment Partnerships(continued)
The carrying value of the investment partnerships net of deferred taxes is presented below.
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Carrying value of investment partnerships | Carrying value of investment partnerships | $ | 144,864 | | | $ | 250,399 | | Carrying value of investment partnerships | $ | 230,843 | | | $ | 155,794 | |
Deferred tax liability related to investment partnerships | Deferred tax liability related to investment partnerships | (22,176) | | | (44,532) | | Deferred tax liability related to investment partnerships | (40,410) | | | (23,643) | |
Carrying value of investment partnerships net of deferred taxes | Carrying value of investment partnerships net of deferred taxes | $ | 122,688 | | | $ | 205,867 | | Carrying value of investment partnerships net of deferred taxes | $ | 190,433 | | | $ | 132,151 | |
Because of a transaction that occurred between The Lion Fund, L.P., and The Lion Fund II, L.P., in 2022, we expect that a majority of the $40,410 deferred tax liability enumerated above will not become due until the dissolution of the investment partnerships. In effect, the tax-basis cost increased for the common stock of certain unaffiliated securities held by the investment partnerships.
The Company’s proportionate share of Company stock held by investment partnerships at cost was $409,119$409,919 and $401,851 at September 30, 2022$409,680 as of March 31, 2023 and December 31, 2021, respectively, and was recorded as treasury stock.2022, respectively.
The carrying value of the partnership interest approximates fair value adjusted by the value of held Company stock. Fair value of our partnership interest is assessed according to our proportional ownership interest of the fair value of investments held by the investment partnerships. Unrealized gains and losses on marketable securities held by the investment partnerships affect our net earnings.
Gains/losses from investment partnerships recorded in the Company’s consolidated statements of earnings are presented below.
| | | Third Quarter | | First Nine Months | | | First Quarter | |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | |
Gains (losses) from investment partnerships | Gains (losses) from investment partnerships | $ | 29,658 | | | $ | (20,231) | | | $ | (82,244) | | | $ | 27,344 | | | Gains (losses) from investment partnerships | $ | 72,588 | | | $ | (6,661) | | |
Tax expense (benefit) | Tax expense (benefit) | 6,601 | | | (4,946) | | | (20,153) | | | 6,175 | | | Tax expense (benefit) | 16,559 | | | (1,860) | | |
Contribution to net earnings (loss) | $ | 23,057 | | | $ | (15,285) | | | $ | (62,091) | | | $ | 21,169 | | | |
Contribution to net earnings | | Contribution to net earnings | $ | 56,029 | | | $ | (4,801) | | |
On December 31 of each year, the general partner of the investment partnerships, Biglari Capital Corp., will earn an incentive reallocation fee for the Company’s investments equal to 25% of the net profits above an annual hurdle rate of 6% over the previous high-water mark. Our policy is to accrue an estimated incentive fee throughout the year. The total incentive reallocation from Biglari Holdings to Biglari Capital Corp. includes gains on the Company’s common stock. Gains and losses on the Company’s common stock and the related incentive reallocations are eliminated in our financial statements.
There were no incentive reallocations from Biglari Holdings to Biglari Capital Corp.accrued during the first nine monthsquarters of 20222023 and 2021.2022.
Note 4. Investment Partnerships (continued)
Summarized financial information for The Lion Fund, L.P., and The Lion Fund II, L.P., is presented below.
| | | | | | | | | | | |
| Equity in Investment Partnerships |
| Lion Fund | | Lion Fund II |
Total assets as of September 30, 2022 | $ | 247,357 | | | $ | 307,446 | |
Total liabilities as of September 30, 2022 | $ | 9,973 | | | $ | 162,520 | |
Revenue for the first nine months of 2022 | $ | (46,341) | | | $ | (88,378) | |
Earnings for the first nine months of 2022 | $ | (46,544) | | | $ | (89,771) | |
Biglari Holdings’ ownership interest as of September 30, 2022 | 88.2 | % | | 87.7 | % |
| | | |
Total assets as of December 31, 2021 | $ | 114,749 | | | $ | 564,022 | |
Total liabilities as of December 31, 2021 | $ | 7,763 | | | $ | 130,417 | |
Revenue for the first nine months of 2021 | $ | 35,639 | | | $ | 94,078 | |
Earnings for the first nine months of 2021 | $ | 35,584 | | | $ | 93,548 | |
Biglari Holdings’ ownership interest as of September 30, 2021 | 62.4 | % | | 93.9 | % |
| | | | | | | | | | | |
| Equity in Investment Partnerships |
| Lion Fund | | Lion Fund II |
Total assets as of March 31, 2023 | $ | 348,606 | | | $ | 415,057 | |
Total liabilities as of March 31, 2023 | $ | 10,373 | | | $ | 173,731 | |
Revenue for the first quarter of 2023 | $ | 63,558 | | | $ | 78,592 | |
Earnings for the first quarter of 2023 | $ | 63,404 | | | $ | 76,341 | |
Biglari Holdings’ ownership interest as of March 31, 2023 | 88.6 | % | | 86.1 | % |
| | | |
Total assets as of December 31, 2022 | $ | 285,071 | | | $ | 330,832 | |
Total liabilities as of December 31, 2022 | $ | 10,517 | | | $ | 167,847 | |
Revenue for the first quarter of 2022 | $ | 969 | | | $ | (1,249) | |
Earnings for the first quarter of 2022 | $ | 926 | | | $ | (1,581) | |
Biglari Holdings’ ownership interest as of March 31, 2022 | 62.5 | % | | 93.9 | % |
Revenue in the financial information of the investment partnerships, summarized above, includes investment income and unrealized gains and losses on investments.
Note 5. Property and Equipment
Property and equipment is composed of the following.
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Land | Land | $ | 142,813 | | | $ | 144,605 | | Land | $ | 139,705 | | | $ | 143,313 | |
Buildings | Buildings | 151,138 | | | 148,605 | | Buildings | 149,081 | | | 151,627 | |
Land and leasehold improvements | Land and leasehold improvements | 147,765 | | | 147,349 | | Land and leasehold improvements | 154,641 | | | 151,496 | |
Equipment | Equipment | 230,712 | | | 224,581 | | Equipment | 215,715 | | | 222,661 | |
Oil and gas properties | Oil and gas properties | 140,916 | | | 74,147 | | Oil and gas properties | 144,692 | | | 144,888 | |
Construction in progress | Construction in progress | 5,744 | | | 2,815 | | Construction in progress | 900 | | | 2,238 | |
| | 819,088 | | | 742,102 | | | 804,734 | | | 816,223 | |
Less accumulated depreciation, depletion, and amortization | Less accumulated depreciation, depletion, and amortization | (404,591) | | | (392,751) | | Less accumulated depreciation, depletion, and amortization | (411,830) | | | (415,498) | |
Property and equipment, net | Property and equipment, net | $ | 414,497 | | | $ | 349,351 | | Property and equipment, net | $ | 392,904 | | | $ | 400,725 | |
Depletion expense related to oil and gas properties was $4,345$2,648 and $5,875$1,380 during the first nine monthsquarter of 20222023 and 2021,2022, respectively.
The Company recorded an impairment to restaurant long-lived assets of $559$776 in the first nine monthsquarter of 20212023 related to underperforming stores. The fair value of the long-lived assets was determined based on Level 3 inputs using a discounted cash flow model and quoted prices for the properties. There were no impairments in the first quarter of property2022.
Property and equipment held for sale of $8,012 and $4,700 are recorded in 2022.
Asother current assets as of September 30,March 31, 2023 and December 31, 2022, $5,002 of property and equipment is recordedrespectively. The assets classified as held for sale within other current assets.include seven properties owned by Steak n Shake, which were previously operated restaurants, and Abraxas Petroleum’s office building.
During the first quarter of 2023, Steak n Shake sold the property of a former company-operated restaurant for a gain of $1,431.
Note 6. Goodwill and Other Intangible Assets
Goodwill
Goodwill consists of the excess of the purchase price over the fair value of the net assets acquired in connection with business acquisitions.
A reconciliation of the change in the carrying value of goodwill is as follows.
| | | | | |
| Goodwill |
Goodwill at December 31, 20212022 | |
Goodwill | $ | 53,54753,813 | |
Accumulated impairment losses | (300) | |
| $ | 53,513 | |
Change in foreign exchange rates during the first nine monthsquarter of 20222023 | (83)9 | |
Goodwill at September 30, 2022March 31, 2023 | $ | 53,46453,522 | |
We evaluate goodwillGoodwill and any indefinite-lived intangible assets forasset impairment annually, or more frequently if circumstances indicate impairment may have occurred. Goodwill impairment occurs whenreviews include determining the estimated fair valuevalues of goodwillour reporting units and indefinite-lived intangible assets. The key assumptions and inputs used in such determinations may include forecasting revenues and expenses, cash flows and capital expenditures, as well as an appropriate discount rate and other inputs. Significant judgment by management is less than its carrying value. GAAP allows entities testing for impairment the option of performing a qualitative assessment before calculatingrequired in estimating the fair value of a reporting unit forand in performing impairment reviews. Due to the goodwill impairment test. We use both qualitativeinherent subjectivity and quantitative assessments. The valuation methodologyuncertainty in forecasting future cash flows and underlying financial information included in our quantitative determinationearnings over long periods of time, actual results may differ materially from the forecasts. If the carrying value of the indefinite-lived intangible asset exceeds fair value, require significant management judgments. We use both market and income approachesthe excess is charged to deriveearnings as an impairment loss. If the carrying value of a reporting unit exceeds the estimated fair value of the reporting units utilizing a quantitative assessment. The judgments in these two approaches include, but are notunit, then the excess, limited to comparable market multiples, long-term projectionsthe carrying amount of future financial performance, and the selection of appropriate discount rates usedgoodwill, will be charged to determine the present value of future cash flows. Changes in such estimates or the application of alternative assumptions could produce significantly different results. Noearnings as an impairment loss. There was no impairment recorded infor goodwill during the first nine monthsquarters of 20222023 or 2021. Western Sizzlin has experienced a decline in its franchised units for several years. If Western Sizzlin’s franchised units continue to decline, an impairment of its goodwill may be necessary.2022.
Other Intangible Assets
Intangible assets with indefinite lives are composed of the following.
| | | | | | | | | | | | | | | | | |
| Trade Names | | Lease Rights | | Total |
Balance at December 31, 2021 | $ | 15,876 | | | $ | 7,587 | | | $ | 23,463 | |
Impairment to lease rights | — | | | (20) | | | (20) | |
Change in foreign exchange rates during the first nine months of 2022 | — | | | (974) | | | (974) | |
Balance at September 30, 2022 | $ | 15,876 | | | $ | 6,593 | | | $ | 22,469 | |
Intangible assets with indefinite lives consist of trade names and lease rights. Fair values were determined using Level 3 inputs and available market data. | | | | | | | | | | | | | | | | | |
| Trade Names | | Lease Rights | | Total |
Balance at December 31, 2022 | | | | | |
Intangibles | $ | 15,876 | | | $ | 10,889 | | | $ | 26,765 | |
Accumulated impairment losses | — | | | (3,728) | | | (3,728) | |
| $ | 15,876 | | | $ | 7,161 | | | $ | 23,037 | |
Change in foreign exchange rates during the first quarter of 2023 | — | | | 113 | | | 113 | |
Balance at March 31, 2023 | $ | 15,876 | | | $ | 7,274 | | | $ | 23,150 | |
Note 7. Restaurant Operations Revenues
Restaurant operations revenues were as follows.
| | | Third Quarter | | First Nine Months | | | First Quarter | |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | |
Net sales | Net sales | $ | 37,448 | | | $ | 41,916 | | | $ | 113,345 | | | $ | 146,269 | | | Net sales | $ | 36,894 | | | $ | 38,216 | | |
Franchise partner fees | Franchise partner fees | 15,880 | | | 11,508 | | | 47,929 | | | 31,744 | | | Franchise partner fees | 17,912 | | | 15,624 | | |
Franchise royalties and fees | Franchise royalties and fees | 5,089 | | | 4,865 | | | 15,472 | | | 14,594 | | | Franchise royalties and fees | 4,258 | | | 5,146 | | |
Other | Other | 1,020 | | | 855 | | | 2,862 | | | 3,817 | | | Other | 2,065 | | | 861 | | |
| | $ | 59,437 | | | $ | 59,144 | | | $ | 179,608 | | | $ | 196,424 | | | | $ | 61,129 | | | $ | 59,847 | | |
Net Sales
Net sales are composed of retail sales of food through company-operated stores. Company-operated store revenues are recognized, net of discounts and sales taxes, when our obligation to perform is satisfied at the point of sale. Sales taxes related to these sales are collected from customers and remitted to the appropriate taxing authority and are not reflected in the Company’s consolidated statements of earnings as revenue.
Note 7. Restaurant Operations Revenues (continued)
Franchise Partner Fees
Franchise partner fees are composed of up to 15% of sales as well as 50% of profits. We are therefore fully affected by the operating results of the business, unlike in a traditional franchising arrangement, where the franchisor obtains a royalty fee based on sales only. We generate most of our revenue from our share of the franchise partners’ profits. An initial franchise fee of ten thousand dollars is recognized during the yearwhen the operator becomes a franchise partner. The Company recognizes franchise partner fees monthly as underlying restaurant sales occur.
The Company leases or subleases property and equipment to franchise partners under lease arrangements. Both real estate and equipment rental payments are charged to franchise partners and are recognized in accordance with ASC 842, “Leases”. During the thirdfirst quarter of 20222023 and 2021,2022, restaurant operations recognized $5,362$5,575 and $4,277, respectively, in franchise partner fees related to rental income. During the first nine months ended September 30, 2022 and September 30, 2021, restaurant operations recognized $15,193 and $10,910,$4,774, respectively, in franchise partner fees related to rental income.
Franchise Royalties and Fees
Franchise royalties and fees from Steak n Shake and Western Sizzlin franchisees are based upon a percentage of sales of the franchise restaurant and are recognized as earned. Franchise royalties are billed on a monthly basis. Initial franchise fees when a new restaurant opens or at the start of a new franchise term are recorded as deferred revenue when received and recognized as revenue over the term of the franchise agreement.
Other Revenue
Restaurant operations sells gift cards to customers which can be redeemed for retail food sales within our stores. Gift cards are recorded as a liabilitydeferred revenue when issued and are subsequently recorded as net sales upon redemption. Restaurant operations estimates breakage related to gift cards when the likelihood of redemption is remote. This estimate utilizes historical trends based on the vintage of the gift card. Breakage on gift cards is recorded as other revenue in proportion to the rate of gift card redemptions by vintage.
Note 8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses include the following.
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Accounts payable | Accounts payable | $ | 34,288 | | | $ | 36,684 | | Accounts payable | $ | 30,932 | | | $ | 28,431 | |
Gift card and other marketing | Gift card and other marketing | 15,985 | | | 19,244 | | Gift card and other marketing | 10,640 | | | 12,028 | |
Insurance accruals | Insurance accruals | 5,971 | | | 6,428 | | Insurance accruals | 2,479 | | | 6,012 | |
Salaries, wages and vacation | 6,902 | | | 5,905 | | |
Salaries and wages | | Salaries and wages | 6,602 | | | 4,400 | |
Deferred revenue | Deferred revenue | 4,831 | | | 6,683 | | Deferred revenue | 5,835 | | | 4,445 | |
Taxes payable | Taxes payable | 21,583 | | | 11,392 | | Taxes payable | 15,500 | | | 14,896 | |
Professional fees | 1,998 | | | 11,731 | | |
Oil and gas payable | Oil and gas payable | 5,586 | | | 1,936 | | Oil and gas payable | 4,641 | | | 3,877 | |
Other | Other | 4,359 | | | 464 | | Other | 2,615 | | | 4,527 | |
Accounts payable and accrued expenses | Accounts payable and accrued expenses | $ | 101,503 | | | $ | 100,467 | | Accounts payable and accrued expenses | $ | 79,244 | | | $ | 78,616 | |
Note 9. Line of Credit and Note Payable
BigariBiglari Holdings Line of Credit
On September 13, 2022, Biglari Holdings entered into a line of credit in an aggregate principal amount of up to $30,000. The line of credit will be available on a revolving basis until September 12, 2024. The line of credit includes customary covenants, as well as financial maintenance covenants. The balance of the line of credit on September 30, 2022 was $30,000.
Steak n Shake Credit Facility
On March 19, 2014, Steak n Shake$6,500 and its subsidiaries entered into a credit agreement which provided for a senior secured term loan facility in an aggregate principal amount of $220,000. The term loan was scheduled to mature$10,000 on March 19, 2021.31, 2023 and December 31, 2022, respectively. Our interest rate was 7.3% on March 31, 2023. The Company repaid the balanceline of Steak n Shake’s term facility on February 19, 2021.credit was paid in full in April 2023.
Western Sizzlin Revolver
Western Sizzlin’s available line of credit is $500. As of March 31, 2023 and December 31, 2022, Western Sizzlin had no debt outstanding under its revolver.
Note 10. Unpaid losses and loss adjustment expenses
Our liabilities for unpaid losses and loss adjustment expenses (also referred to as “claim liabilities”) under insurance contracts are based upon estimates of the ultimate claim costs associated with claim occurrences as of the balance sheet date and include estimates for incurred-but-not-reported (“IBNR”) claims. A reconciliation of the changes in claim liabilities, net of reinsurance, for each of the three-month periods ending March 31, 2023 and 2022 follows.
| | | | | | | | | | | |
| 2023 | | 2022 |
Balances at beginning of year: | | | |
Gross liabilities | $ | 17,520 | | | $ | 14,993 | |
Reinsurance recoverable on unpaid losses | (715) | | | (1,892) | |
Net liabilities | 16,805 | | | 13,101 | |
Incurred losses and loss adjustment expenses: | | | |
Current accident year | 10,247 | | | 9,721 | |
Prior accident years | (1,651) | | | (133) | |
Total | 8,596 | | | 9,588 | |
Paid losses and loss adjustment expenses: | | | |
Current accident year | 4,433 | | | 5,577 | |
Prior accident years | 5,454 | | | 3,977 | |
Total | 9,887 | | | 9,554 | |
Balances at March 31: | | | |
Net liabilities | 15,514 | | | 13,135 | |
Reinsurance recoverable on unpaid losses | 2,207 | | | 890 | |
Gross liabilities | $ | 17,721 | | | $ | 14,025 | |
Incurred loss and loss adjustment expenses of $8,596 and $9,588 in the first quarter of 2023 and 2022, respectively, were recorded in earnings and related to insured events occurring in the current period and events occurring in all prior periods. Incurred and paid loss and loss adjustment expenses are net of reinsurance recoveries. We recorded net reductions of estimated ultimate liabilities for prior accident years of $1,651 and $133 in the first quarter of 2023 and 2022, respectively, which produced corresponding reductions in incurred losses and loss adjustment expenses in those periods. These reductions as a percentage of the net liabilities at the beginning of each year, were 9.8% in 2023 and 1.0% in 2022.
Note 10.11. Lease Assets and Obligations
Lease obligations include the following.
| Current portion of lease obligations | Current portion of lease obligations | September 30, 2022 | | December 31, 2021 | Current portion of lease obligations | March 31, 2023 | | December 31, 2022 |
Finance lease liabilities | Finance lease liabilities | $ | 1,214 | | | $ | 1,414 | | Finance lease liabilities | $ | 1,242 | | | $ | 1,237 | |
Finance obligations | Finance obligations | 5,119 | | | 4,944 | | Finance obligations | 5,139 | | | 5,161 | |
Operating lease liabilities | Operating lease liabilities | 10,760 | | | 10,540 | | Operating lease liabilities | 9,728 | | | 10,583 | |
Total current portion of lease obligations | Total current portion of lease obligations | $ | 17,093 | | | $ | 16,898 | | Total current portion of lease obligations | $ | 16,109 | | | $ | 16,981 | |
| Long-term lease obligations | Long-term lease obligations | | Long-term lease obligations | |
Finance lease liabilities | Finance lease liabilities | $ | 4,431 | | | $ | 5,347 | | Finance lease liabilities | $ | 3,779 | | | $ | 4,129 | |
Finance obligations | Finance obligations | 60,009 | | | 63,119 | | Finance obligations | 58,428 | | | 58,868 | |
Operating lease liabilities | Operating lease liabilities | 31,540 | | | 36,013 | | Operating lease liabilities | 27,928 | | | 28,847 | |
Total long-term lease obligations | Total long-term lease obligations | $ | 95,980 | | | $ | 104,479 | | Total long-term lease obligations | $ | 90,135 | | | $ | 91,844 | |
Note 11. Lease Assets and Obligations (continued)
Nature of Leases
Steak n Shake and Western Sizzlin operate restaurants that are located on sites owned by us or leased from third parties. In addition, they own sites and lease sites from third parties that are leased and/or subleased to franchise partners and franchisees.
Lease Costs
A significant portion of our operating and finance lease portfolio includes restaurant locations. We recognize fixed lease expense for operating leases on a straight-line basis over the lease term. For finance leases, we recognize amortization expense on the right-of-use asset and interest expense on the lease liability over the lease term.
Total lease cost consists of the following.
| | | Third Quarter | | First Nine Months | | | First Quarter | |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | |
Finance lease costs: | Finance lease costs: | | | | | | | | | Finance lease costs: | | | | |
Amortization of right-of-use assets | Amortization of right-of-use assets | $ | 309 | | | $ | 404 | | | $ | 1,023 | | | $ | 1,205 | | | Amortization of right-of-use assets | $ | 242 | | | $ | 363 | | |
Interest on lease liabilities | Interest on lease liabilities | 102 | | | 126 | | | 325 | | | 399 | | | Interest on lease liabilities | 91 | | | 115 | | |
Operating and variable lease costs | Operating and variable lease costs | 3,577 | | | 4,011 | | | 10,782 | | | 11,189 | | | Operating and variable lease costs | 3,167 | | | 3,612 | | |
Sublease income | Sublease income | (2,895) | | | (3,771) | | | (8,487) | | | (9,786) | | | Sublease income | (3,091) | | | (4,069) | | |
Total lease costs | Total lease costs | $ | 1,093 | | | $ | 770 | | | $ | 3,643 | | | $ | 3,007 | | | Total lease costs | $ | 409 | | | $ | 21 | | |
Supplemental cash flow information related to leases is as follows.
| | | First Nine Months | | First Quarter |
| | 2022 | | 2021 | | 2023 | | 2022 |
Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | | | Cash paid for amounts included in the measurement of lease liabilities: | | | |
Financing cash flows from finance leases | Financing cash flows from finance leases | $ | 1,116 | | | $ | 1,226 | | Financing cash flows from finance leases | $ | 344 | | | $ | 421 | |
Operating cash flows from finance leases | Operating cash flows from finance leases | $ | 324 | | | $ | 384 | | Operating cash flows from finance leases | $ | 91 | | | $ | 115 | |
Operating cash flows from operating leases | Operating cash flows from operating leases | $ | 9,347 | | | $ | 9,806 | | Operating cash flows from operating leases | $ | 3,355 | | | $ | 3,067 | |
Note 10. Lease Assets and Obligations (continued)
Supplemental balance sheet information related to leases is as follows.
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Finance leases: | Finance leases: | | | | Finance leases: | | | |
Property and equipment, net | Property and equipment, net | $ | 4,619 | | | $ | 5,634 | | Property and equipment, net | $ | 3,656 | | | $ | 4,352 | |
Weighted-average lease terms and discount rates are as follows.
| | | | | |
| September 30,March 31,
20222023 |
Weighted-average remaining lease terms: | |
Finance leases | 4.564.11 years |
Operating leases | 4.904.68 years |
| |
Weighted-average discount rates: | |
Finance leases | 7.0 | % |
Operating leases | 7.0 | % |
Maturities of lease liabilities as of September 30, 2022 are as follows.
| | | | | | | | | | | | | | |
Year | | Operating Leases | | Finance Leases |
2022 | | $ | 4,215 | | | $ | 394 | |
2023 | | 11,781 | | | 1,551 | |
2024 | | 9,985 | | | 1,534 | |
2025 | | 8,290 | | | 1,298 | |
2026 | | 5,671 | | | 959 | |
After 2026 | | 9,967 | | | 855 | |
Total lease payments | | 49,909 | | | 6,591 | |
Less interest | | 7,609 | | | 946 | |
Total lease liabilities | | $ | 42,300 | | | $ | 5,645 | |
Lease Income
The components of lease income recorded in restaurant operations are as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | First Nine Months | | |
| 2022 | | 2021 | | 2022 | | 2021 | | | | |
Operating lease income | $ | 4,085 | | | $ | 3,211 | | | $ | 11,737 | | | $ | 8,471 | | | | | |
Variable lease income | 1,556 | | | 1,370 | | | 4,312 | | | 3,375 | | | | | |
Total lease income | $ | 5,641 | | | $ | 4,581 | | | $ | 16,049 | | | $ | 11,846 | | | | | |
Note 10.11. Lease Assets and Obligations (continued)
Maturities of lease liabilities as of March 31, 2023 are as follows.
| | | | | | | | | | | | | | |
Year | | Operating Leases | | Finance Leases |
Remainder of 2023 | | $ | 9,210 | | | $ | 1,134 | |
2024 | | 10,228 | | | 1,534 | |
2025 | | 8,437 | | | 1,298 | |
2026 | | 5,868 | | | 959 | |
2027 | | 3,503 | | | 623 | |
After 2027 | | 7,028 | | | 232 | |
Total lease payments | | 44,274 | | | 5,780 | |
Less interest | | 6,618 | | | 759 | |
Total lease liabilities | | $ | 37,656 | | | $ | 5,021 | |
Lease Income
The components of lease income are as follows.
| | | | | | | | | | | | | | | |
| First Quarter | | |
| 2023 | | 2022 | | | | |
Operating lease income | $ | 4,085 | | | $ | 4,724 | | | | | |
Variable lease income | 1,784 | | | 313 | | | | | |
Total lease income | $ | 5,869 | | | $ | 5,037 | | | | | |
The following table displays the Company’s future minimum rental receipts for non-cancelable leases and subleases as of September 30, 2022.March 31, 2023. Franchise partner leases and subleases are short-term leases and have been excluded from the table.
| | | | | | | | | | | | | | |
| | Operating Leases |
Year | | Subleases | | Owned Properties |
2022 | | $ | 228 | | | $ | 62 | |
2023 | | 767 | | | 247 | |
2024 | | 503 | | | 247 | |
2025 | | 454 | | | 250 | |
2026 | | 134 | | | 247 | |
After 2026 | | 241 | | | 805 | |
Total future minimum receipts | | $ | 2,327 | | | $ | 1,858 | |
| | | | |
Note 11. Accumulated Other Comprehensive Income
Accumulated other comprehensive income decreased by $618 and $49 during the third quarters of 2022 and 2021, respectively. During the first nine months of 2022, accumulated other comprehensive income decreased by $1,870 and $378 in the first nine months of 2021. There were no reclassifications from accumulated other comprehensive loss to earnings during the first nine months of 2022 and 2021. All changes in accumulated other comprehensive loss were due to foreign currency translation adjustments. | | | | | | | | | | | | | | |
| | Operating Leases |
Year | | Subleases | | Owned Properties |
Remainder of 2023 | | $ | 520 | | | $ | 119 | |
2024 | | 503 | | | 265 | |
2025 | | 454 | | | 265 | |
2026 | | 134 | | | 275 | |
2027 | | 116 | | | 275 | |
After 2027 | | 125 | | | 2,315 | |
Total future minimum receipts | | $ | 1,852 | | | $ | 3,514 | |
| | | | |
Note 12. Income Taxes
In determining the quarterly provision for income taxes, the Company used an estimated annual effective tax rate for the first nine monthsquarter of 20222023 and a discrete effective tax rate method based on statutory tax rates for the first nine months of 2021.2022. Our periodic effective income tax rate is affected by the relative mix of pre-tax earnings or losses and underlying income tax rates applicable to the various taxing jurisdictions.
Income tax expense for the thirdfirst quarter of 20222023 was $9,598$19,738 compared to an income tax benefit of $4,274 for the third quarter of 2021. Income tax benefit$171 for the first nine monthsquarter of 2022 was $13,282 compared to an income tax expense of $11,544 for the first nine months of 2021.2022. The variance in income taxes between 2023 and 2022 and 2021 is primarily attributable to taxes on income generated by the investment partnerships. Investment partnership pre-tax gains were $29,658$72,588 during the thirdfirst quarter of 20222023 compared to pre-tax losses of $20,231 during the third quarter of 2021. Investment partnership pre-tax losses were $82,244$6,661 during the first nine monthsquarter of 2022 compared to pre-tax gains2022.
Note 13. Commitments and Contingencies
We are involved in various legal proceedings and have certain unresolved claims pending. We believe, based on examination of these matters and experiences to date, that the ultimate liability, if any, in excess of amounts already provided in our consolidated financial statements is not likely to have a material effect on our results of operations, financial position or cash flow.
Note 14. Fair Value of Financial Assets
The fair values of substantially all of our financial instruments were measured using market or income approaches. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, the fair values presented are not necessarily indicative of the amounts that could be realized in an actual current market exchange. The use of alternative market assumptions and/or estimation methodologies may have a material effect on the estimated fair value.
Note 14. Fair Value of Financial Assets (continued)
The hierarchy for measuring fair value consists of Levels 1 through 3, which are described below.
•Level 1 – Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets.
•Level 2 – Inputs include directly or indirectly observable inputs (other than Level 1 inputs) such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that may be considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Pricing evaluations generally reflect discounted expected future cash flows, which incorporate yield curves for instruments with similar characteristics, such as credit ratings, estimated durations and yields for other instruments of the issuer or entities in the same industry sector.
•Level 3 – Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities and we may be unable to corroborate the related observable inputs. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in pricing assets or liabilities.
The following methods and assumptions were used to determine the fair value of each class of the following assets recorded at fair value in the consolidated balance sheets:
Cash equivalents: Cash equivalents primarily consist of money market funds which are classified as Level 1 of the fair value hierarchy.
Equity securities: The Company’s investments in equity securities are classified as LevelsLevel 1 and 2 of the fair value hierarchy.
Bonds: The Company’s investments in bonds consist of both corporate and government debt. Bonds are classified as Level l or Level 2 of the fair value hierarchy.
Non-qualified deferred compensation plan investments: The assets of the non-qualified plan are set up in a rabbi trust. They represent mutual funds and publicly traded securities, each of which are classified as Level 1 of the fair value hierarchy.
Derivative instruments: Options related to equity securities are marked to market each reporting period and are classified as Level 2 of the fair value hierarchy depending on the instrument.
Note 14. Fair Value of Financial Assets (continued)
As of September 30, 2022March 31, 2023 and December 31, 2021,2022, the fair values of financial assets were as follows.
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | Assets | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | |
Cash equivalents | Cash equivalents | $ | 16,389 | | | $ | — | | | $ | — | | | $ | 16,389 | | | $ | 18,447 | | | $ | — | | | $ | — | | | $ | 18,447 | | Cash equivalents | $ | 25,209 | | | $ | — | | | $ | — | | | $ | 25,209 | | | $ | 17,608 | | | $ | — | | | $ | — | | | $ | 17,608 | |
Equity securities | Equity securities | | Equity securities | |
Consumer goods | Consumer goods | 16,266 | | | 932 | | | — | | | 17,198 | | | 10,775 | | | 2,368 | | | — | | | 13,143 | | Consumer goods | 22,337 | | | — | | | — | | | 22,337 | | | 17,274 | | | — | | | — | | | 17,274 | |
Insurance | 49 | | | — | | | — | | | 49 | | | 6,513 | | | — | | | — | | | 6,513 | | |
Technology | 1,832 | | | — | | | — | | | 1,832 | | | 2,887 | | | — | | | — | | | 2,887 | | |
Other | | Other | 2,555 | | | — | | | — | | | 2,555 | | | 2,031 | | | — | | | — | | | 2,031 | |
Bonds | Bonds | | Bonds | |
Government | Government | 44,914 | | | — | | | — | | | 44,914 | | | 54,584 | | | — | | | — | | | 54,584 | | Government | 53,663 | | | — | | | — | | | 53,663 | | | 48,456 | | | — | | | — | | | 48,456 | |
Corporate | Corporate | 3,003 | | | — | | | — | | | 3,003 | | | 4,512 | | | — | | | — | | | 4,512 | | Corporate | 1,603 | | | — | | | — | | | 1,603 | | | 2,199 | | | — | | | — | | | 2,199 | |
Options on equity securities | — | | | 3,531 | | | — | | | 3,531 | | | — | | | 2,095 | | | — | | | 2,095 | | |
Non-qualified deferred compensation plan investments | Non-qualified deferred compensation plan investments | 1,299 | | | — | | | — | | | 1,299 | | | 1,607 | | | — | | | — | | | 1,607 | | Non-qualified deferred compensation plan investments | 684 | | | — | | | — | | | 684 | | | 699 | | | — | | | — | | | 699 | |
Total assets at fair value | Total assets at fair value | $ | 83,752 | | | $ | 4,463 | | | $ | — | | | $ | 88,215 | | | $ | 99,325 | | | $ | 4,463 | | | $ | — | | | $ | 103,788 | | Total assets at fair value | $ | 106,051 | | | $ | — | | | $ | — | | | $ | 106,051 | | | $ | 88,267 | | | $ | — | | | $ | — | | | $ | 88,267 | |
There were no changes in our valuation techniques used to measure fair values on a recurring basis.
Note 15. Related Party Transactions
Service Agreement
The Company is party to a service agreement with Biglari Enterprises LLC and (“Biglari Capital Corp. (collectively, the “Biglari Entities”Enterprises”) under which the Biglari Entities provideEnterprises provides business and administrative related services to the Company. The Biglari Entities areEnterprises is owned by Mr. Biglari.
The Company paid Biglari Enterprises $6,300$2,100 in service fees during the first nine monthsquarters of 20222023 and 2021.2022. The service agreement does not alter the hurdle rate connected with the incentive reallocation paid to Biglari Capital Corp.
Incentive Agreement
The Incentive Agreement establishes a performance-based annual incentive payment for Mr. Biglari contingent upon the growth in adjusted equity in each year attributable to our operating businesses. In order for Mr. Biglari to receive any incentive, our operating businesses must achieve an annual increase in shareholders’ equity in excess of 6% (the “Hurdle Rate”“hurdle rate”) above the previous highest level (the “High Water Mark”“high-water mark”). Mr. Biglari will receive 25% of any incremental book value created above the High Water Markhigh-water mark plus the Hurdle Rate. In any year in which book value declines, our operating businesses must completely recover their deficit from the previous High Water Mark, along with attaining the Hurdle Rate, before Mr. Biglari becomes eligible to receive any further incentive payment.hurdle rate.
Note 16. Business Segment Reporting
Our reportable business segments are organized in a manner that reflects how management views those business activities. Our restaurant operations include Steak n Shake and Western Sizzlin. Our insurance operations include First Guard and Southern Pioneer. Our oil and gas operations include Southern Oil and Abraxas Petroleum. The Company also reports segment information for Maxim. Other business activities not specifically identified with reportable business segments are presented in corporate. We report our earnings from investment partnerships separate from our corporate expenses. We assess and measure segment operating results based on segment earnings as disclosed below. Segment earnings from operations are neither necessarily indicative of cash available to fund cash requirements, nor synonymous with cash flow from operations. The tabular information that follows shows data of our reportable segments reconciled to amounts reflected in the consolidated financial statements.
A disaggregation of our consolidated data for the third quarters and first nine months of 2022 and 2021 is presented in the tables which follow.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue |
| Third Quarter | | First Nine Months | | |
| 2022 | | 2021 | | 2022 | | 2021 | | | | |
Operating Businesses: | | | | | | | | | | | |
Restaurant Operations: | | | | | | | | | | | |
Steak n Shake | $ | 56,949 | | | $ | 56,993 | | | $ | 172,444 | | | $ | 190,517 | | | | | |
Western Sizzlin | 2,488 | | | 2,151 | | | 7,164 | | | 5,907 | | | | | |
Total Restaurant Operations | 59,437 | | | 59,144 | | | 179,608 | | | 196,424 | | | | | |
| | | | | | | | | | | |
Insurance Operations: | | | | | | | | | | | |
Underwriting | | | | | | | | | | | |
First Guard | 9,112 | | | 8,458 | | | 26,858 | | | 24,760 | | | | | |
Southern Pioneer | 6,004 | | | 5,443 | | | 17,653 | | | 16,406 | | | | | |
Investment income and other | 1,196 | | | 822 | | | 3,234 | | | 2,563 | | | | | |
Total Insurance Operations | 16,312 | | | 14,723 | | | 47,745 | | | 43,729 | | | | | |
| | | | | | | | | | | |
Oil and Gas Operations: | | | | | | | | | | | |
Southern Oil | 12,688 | | | 7,353 | | | 36,940 | | | 24,310 | | | | | |
Abraxas Petroleum | 1,692 | | | — | | | 1,692 | | | — | | | | | |
Total Oil and Gas Operations | 14,380 | | | 7,353 | | | 38,632 | | | 24,310 | | | | | |
| | | | | | | | | | | |
Maxim | 1,905 | | | 863 | | | 3,788 | | | 2,695 | | | | | |
| $ | 92,034 | | | $ | 82,083 | | | $ | 269,773 | | | $ | 267,158 | | | | | |
Note 16. Business Segment Reporting (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings (Losses) Before Income Taxes |
| Third Quarter | | First Nine Months | | |
| 2022 | | 2021 | | 2022 | | 2021 | | | | |
Operating Businesses: | | | | | | | | | | | |
Restaurant Operations: | | | | | | | | | | | |
Steak n Shake | $ | 3,964 | | | $ | (2,959) | | | $ | 11,777 | | | $ | 5,733 | | | | | |
Western Sizzlin | 369 | | | 247 | | | 997 | | | 707 | | | | | |
Total Restaurant Operations | 4,333 | | | (2,712) | | | 12,774 | | | 6,440 | | | | | |
| | | | | | | | | | | |
Insurance Operations: | | | | | | | | | | | |
Underwriting: | | | | | | | | | | | |
First Guard | 2,354 | | | 2,832 | | | 4,800 | | | 7,922 | | | | | |
Southern Pioneer | (483) | | | 397 | | | (1,101) | | | 1,511 | | | | | |
Investment income and other | 1,221 | | | 613 | | | 3,188 | | | 1,965 | | | | | |
Total Insurance Operations | 3,092 | | | 3,842 | | | 6,887 | | | 11,398 | | | | | |
| | | | | | | | | | | |
Oil and Gas Operations: | | | | | | | | | | | |
Southern Oil | 6,795 | | | 2,982 | | | 19,137 | | | 9,047 | | | | | |
Abraxas Petroleum | 446 | | | — | | | 446 | | | — | | | | | |
Total Oil and Gas Operations | 7,241 | | | 2,982 | | | 19,583 | | | 9,047 | | | | | |
| | | | | | | | | | | |
Maxim | 1,534 | | | (56) | | | 1,699 | | | 867 | | | | | |
Interest expense not allocated to segments | (67) | | | — | | | (67) | | | (1,121) | | | | | |
Total Operating Businesses | 16,133 | | | 4,056 | | | 40,876 | | | 26,631 | | | | | |
| | | | | | | | | | | |
Corporate and other | (3,305) | | | (3,302) | | | (9,769) | | | (8,595) | | | | | |
Investment gains (losses) | (849) | | | 4,534 | | | (4,184) | | | 6,465 | | | | | |
Investment partnership gains (losses) | 29,658 | | | (20,231) | | | (82,244) | | | 27,344 | | | | | |
| $ | 41,637 | | | $ | (14,943) | | | $ | (55,321) | | | $ | 51,845 | | | | | |
A disaggregation of our consolidated data for the first quarters of 2023 and 2022 is presented in the tables which follow.
| | | | | | | | | | | | | | | |
| Revenues |
| First Quarter | | |
| 2023 | | 2022 | | | | |
Operating Businesses: | | | | | | | |
Restaurant Operations: | | | | | | | |
Steak n Shake | $ | 58,487 | | | $ | 57,753 | | | | | |
Western Sizzlin | 2,642 | | | 2,094 | | | | | |
Total Restaurant Operations | 61,129 | | | 59,847 | | | | | |
| | | | | | | |
Insurance Operations: | | | | | | | |
Underwriting: | | | | | | | |
First Guard | 8,899 | | | 8,731 | | | | | |
Southern Pioneer | 5,865 | | | 5,438 | | | | | |
Investment income and other | 1,465 | | | 910 | | | | | |
Total Insurance Operations | 16,229 | | | 15,079 | | | | | |
| | | | | | | |
Oil and Gas Operations: | | | | | | | |
Abraxas Petroleum | 7,252 | | | — | | | | | |
Southern Oil | 4,971 | | | 9,812 | | | | | |
Total Oil and Gas Operations | 12,223 | | | 9,812 | | | | | |
| | | | | | | |
Maxim | 595 | | | 634 | | | | | |
| $ | 90,176 | | | $ | 85,372 | | | | | |
Note 16. Business Segment Reporting (continued)
| | | | | | | | | | | | | | | |
| Earnings (Losses) Before Income Taxes |
| First Quarter | | |
| 2023 | | 2022 | | | | |
Operating Businesses: | | | | | | | |
Restaurant Operations: | | | | | | | |
Steak n Shake | $ | 7,325 | | | $ | 4,198 | | | | | |
Western Sizzlin | 472 | | | 232 | | | | | |
Total Restaurant Operations | 7,797 | | | 4,430 | | | | | |
| | | | | | | |
Insurance Operations: | | | | | | | |
Underwriting: | | | | | | | |
First Guard | 1,862 | | | 732 | | | | | |
Southern Pioneer | (111) | | | (337) | | | | | |
Investment income and other | 1,036 | | | 969 | | | | | |
Total Insurance Operations | 2,787 | | | 1,364 | | | | | |
| | | | | | | |
Oil and Gas Operations: | | | | | | | |
Abraxas Petroleum | 1,209 | | | — | | | | | |
Southern Oil | 894 | | | 3,921 | | | | | |
Total Oil and Gas Operations | 2,103 | | | 3,921 | | | | | |
| | | | | | | |
Maxim | 122 | | | (336) | | | | | |
Interest expense not allocated to segments | (167) | | | — | | | | | |
Total Operating Businesses | 12,642 | | | 9,379 | | | | | |
| | | | | | | |
Corporate and other | (3,593) | | | (3,412) | | | | | |
Investment gains | 3,638 | | | 225 | | | | | |
Investment partnership gains (losses) | 72,588 | | | (6,661) | | | | | |
| | | | | | | |
| $ | 85,275 | | | $ | (469) | | | | | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data)
Overview
Biglari Holdings Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities, including property and casualty insurance, licensing and media, restaurants, and oil and gas. The Company’s largest operating subsidiaries are involved in the franchising and operating of restaurants. Biglari Holdings is founded and led by Sardar Biglari, Chairman and Chief Executive Officer of the Company.
Biglari Holdings’ management system combines decentralized operations with centralized financefinancial decision-making. Operating decisions for the various business units are made by their respective managers. All major investment and capital allocation decisions are made for the Company and its subsidiaries by Mr. Biglari.
As of September 30, 2022,March 31, 2023, Mr. Biglari beneficially owns shares of the Company that represent approximately 66.3% of the economic interest and 70.4% of the voting interest.
On September 14, 2022, the Company completed the purchase of 685,505 shares ofpurchased Series A Preferred Stock (the "Preferred Shares"“Preferred Shares”) of Abraxas Petroleum Corporation ("Abraxas Petroleum") for a purchase price of $80,000.$80 million. On October 26, 2022, the Company convertedexchanged the preferred stock toPreferred Shares for 90% of the outstanding common stock of Abraxas Petroleum. We have concluded that Abraxas Petroleum is a consolidated entity and have recorded noncontrolling interests attributable to the interest held by other shareholders. The Company used working capital including its line of credit to fund the purchase of the Preferred Shares. Abraxas Petroleum operates oil and natural gas properties in the Permian Basin. The Company’s financial results include the results of Abraxas Petroleum from the acquisition date to the end of the third quarter. The revenues and operating results for Abraxas Petroleum were not significant to the Company for the third quarter.
Net earnings (loss) attributable to Biglari Holdings Inc. shareholders are disaggregated in the table that follows. Amounts are recorded after deducting income taxes.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | First Nine Months | | |
| 2022 | | 2021 | | 2022 | | 2021 | | | | |
Operating businesses: | | | | | | | | | | | |
Restaurant | $ | 3,320 | | | $ | (1,515) | | | $ | 9,588 | | | $ | 5,146 | | | | | |
Insurance | 2,389 | | | 2,985 | | | 5,292 | | | 8,902 | | | | | |
Oil and gas | 5,574 | | | 2,325 | | | 14,867 | | | 7,016 | | | | | |
Brand licensing | 1,150 | | | (43) | | | 1,274 | | | 662 | | | | | |
Interest expense | (52) | | | — | | | (52) | | | (841) | | | | | |
Corporate and other | (2,742) | | | (2,526) | | | (7,630) | | | (6,649) | | | | | |
Total operating businesses | 9,639 | | | 1,226 | | | 23,339 | | | 14,236 | | | | | |
Investment gains | (657) | | | 3,390 | | | (3,287) | | | 4,896 | | | | | |
Investment partnership gains (losses) | 23,057 | | | (15,285) | | | (62,091) | | | 21,169 | | | | | |
| 32,039 | | | (10,669) | | | (42,039) | | | 40,301 | | | | | |
Earnings attributable to noncontrolling interest | 34 | | | — | | | 34 | | | — | | | | | |
| $ | 32,005 | | | $ | (10,669) | | | $ | (42,073) | | | $ | 40,301 | | | | | |
| | | | | | | | | | | | | | | |
| First Quarter | | |
| 2023 | | 2022 | | | | |
Operating businesses: | | | | | | | |
Restaurant | $ | 5,840 | | | $ | 3,262 | | | | | |
Insurance | 2,169 | | | 1,044 | | | | | |
Oil and gas | 1,670 | | | 2,924 | | | | | |
Brand licensing | 91 | | | (251) | | | | | |
Interest expense | (129) | | | — | | | | | |
Corporate and other | (2,998) | | | (2,651) | | | | | |
Total operating businesses | 6,643 | | | 4,328 | | | | | |
Investment partnership gains (losses) | 56,029 | | | (4,801) | | | | | |
Investment gains | 2,865 | | | 175 | | | | | |
Net earnings (loss) | 65,537 | | | (298) | | | | | |
Earnings attributable to noncontrolling interest | 651 | | | — | | | | | |
Net earnings (loss) attributable to Biglari Holdings Inc. shareholders | $ | 64,886 | | | $ | (298) | | | | | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Restaurants
Our restaurant businesses, which include Steak n Shake and Western Sizzlin, comprise 552532 company-operated and franchise restaurants as of September 30, 2022.March 31, 2023.
| | | Steak n Shake | | Western Sizzlin | | Steak n Shake | | Western Sizzlin |
| | | Company- operated | | Franchise Partner | | Traditional Franchise | | Company- operated | | Franchise | | Total |
Total stores as of December 31, 2022 | | Total stores as of December 31, 2022 | 177 | | | 175 | | | 154 | | | 3 | | | 36 | | | 545 | |
Corporate stores transitioned | | Corporate stores transitioned | (3) | | | 3 | | | — | | | — | | | — | | | — | |
Net restaurants opened (closed) | | Net restaurants opened (closed) | (2) | | | — | | | (11) | | | — | | | — | | | (13) | |
Total stores as of March 31, 2023 | | Total stores as of March 31, 2023 | 172 | | | 178 | | | 143 | | | 3 | | | 36 | | | 532 | |
| | Company- operated | | Franchise Partner | | Traditional Franchise | | Company- operated | | Franchise | | Total | | | | | | | | | | | | |
Total stores as of December 31, 2021 | Total stores as of December 31, 2021 | 199 | | | 159 | | | 178 | | | 3 | | | 38 | | | 577 | | Total stores as of December 31, 2021 | 199 | | | 159 | | | 178 | | | 3 | | | 38 | | | 577 | |
Corporate stores transitioned | Corporate stores transitioned | (12) | | | 12 | | | — | | | — | | | — | | | — | | Corporate stores transitioned | (12) | | | 12 | | | — | | | — | | | — | | | — | |
Net restaurants opened (closed) | Net restaurants opened (closed) | (6) | | | — | | | (19) | | | — | | | — | | | (25) | | Net restaurants opened (closed) | (3) | | | — | | | 1 | | | — | | | — | | | (2) | |
Total stores as of September 30, 2022 | 181 | | | 171 | | | 159 | | | 3 | | | 38 | | | 552 | | |
| Total stores as of December 31, 2020 | 276 | | | 86 | | | 194 | | | 3 | | | 39 | | | 598 | | |
Corporate stores transitioned | (54) | | | 54 | | | — | | | — | | | — | | | — | | |
Net restaurants opened (closed) | (1) | | | — | | | (15) | | | — | | | (1) | | | (17) | | |
Total stores as of September 30, 2021 | 221 | | | 140 | | | 179 | | | 3 | | | 38 | | | 581 | | |
Total stores as of March 31, 2022 | | Total stores as of March 31, 2022 | 184 | | | 171 | | | 179 | | | 3 | | | 38 | | | 575 | |
As of September 30, 2022, 39March 31, 2023, 36 of the 181172 company-operated Steak n Shake stores were closed. We planSteak n Shake has contracted to sell seven of the 36 closed stores. An additional seventeen closed stores are listed with brokers for lease or sale. Steak n Shake plans to refranchise a majority of ourthe remaining closed company-operated restaurants.
During the first quarter of 2023, Steak n Shake reopened two stores and sold one property; all were closed as of December 31, 2022.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Restaurant operations are summarized below.
| | | Third Quarter | | First Nine Months | | | | First Quarter | | |
| | 2022 | | 2021 | | 2022 | | 2021 | | | | 2023 | | 2022 | | |
Revenue | Revenue | | | | | | | | | | Revenue | | | | | |
Net sales | Net sales | $ | 37,448 | | | $ | 41,916 | | | $ | 113,345 | | | $ | 146,269 | | | | Net sales | $ | 36,894 | | | $ | 38,216 | | | |
Franchise partner fees | Franchise partner fees | 15,880 | | | 11,508 | | | 47,929 | | | 31,744 | | | | Franchise partner fees | 17,912 | | | 15,624 | | | |
Franchise royalties and fees | Franchise royalties and fees | 5,089 | | | 4,865 | | | 15,472 | | | 14,594 | | | | Franchise royalties and fees | 4,258 | | | 5,146 | | | |
Other revenue | Other revenue | 1,020 | | | 855 | | | 2,862 | | | 3,817 | | | | Other revenue | 2,065 | | | 861 | | | |
Total revenue | Total revenue | 59,437 | | | 59,144 | | | 179,608 | | | 196,424 | | | | Total revenue | 61,129 | | | 59,847 | | | |
| Restaurant cost of sales | Restaurant cost of sales | | | Restaurant cost of sales | | |
Cost of food | Cost of food | 11,359 | | | 30.3 | % | | 13,123 | | | 31.3 | % | | 33,684 | | | 29.7 | % | | 43,404 | | | 29.7 | % | | Cost of food | 10,448 | | | 28.3 | % | | 10,960 | | | 28.7 | % | |
Restaurant operating costs | Restaurant operating costs | 20,745 | | | 55.4 | % | | 24,496 | | | 58.4 | % | | 61,127 | | | 53.9 | % | | 71,751 | | | 49.1 | % | | Restaurant operating costs | 18,457 | | | 50.0 | % | | 20,032 | | | 52.4 | % | |
Occupancy costs | Occupancy costs | 4,058 | | | 10.8 | % | | 4,075 | | | 9.7 | % | | 12,658 | | | 11.2 | % | | 14,142 | | | 9.7 | % | | Occupancy costs | 3,833 | | | 10.4 | % | | 4,360 | | | 11.4 | % | |
Total cost of sales | Total cost of sales | 36,162 | | | 41,694 | | | 107,469 | | | 129,297 | | | | Total cost of sales | 32,738 | | | 35,352 | | | |
| Selling, general and administrative | Selling, general and administrative | | | Selling, general and administrative | | |
General and administrative | General and administrative | 9,556 | | | 16.1 | % | | 9,255 | | | 15.6 | % | | 28,327 | | | 15.8 | % | | 27,416 | | | 14.0 | % | | General and administrative | 10,463 | | | 17.1 | % | | 8,650 | | | 14.5 | % | |
Marketing | Marketing | 2,758 | | | 4.6 | % | | 2,302 | | | 3.9 | % | | 9,589 | | | 5.3 | % | | 10,212 | | | 5.2 | % | | Marketing | 2,953 | | | 4.8 | % | | 3,744 | | | 6.3 | % | |
Other expenses | (825) | | | (1.4) | % | | 1,332 | | | 2.3 | % | | (1,141) | | | (0.6) | % | | 2,266 | | | 1.2 | % | | |
Other expenses (income) | | Other expenses (income) | (1,612) | | | (2.6) | % | | 45 | | | 0.1 | % | |
Total selling, general and administrative | Total selling, general and administrative | 11,489 | | | 19.3 | % | | 12,889 | | | 21.8 | % | | 36,775 | | | 20.5 | % | | 39,894 | | | 20.3 | % | | Total selling, general and administrative | 11,804 | | | 19.3 | % | | 12,439 | | | 20.8 | % | |
| Impairments | Impairments | — | | | — | | | (20) | | | (559) | | | | Impairments | (776) | | | — | | | |
Depreciation and amortization | Depreciation and amortization | (6,081) | | | (5,811) | | | (18,401) | | | (15,615) | | | | Depreciation and amortization | (6,707) | | | (6,214) | | | |
Interest on finance leases and obligations | Interest on finance leases and obligations | (1,372) | | | (1,462) | | | (4,169) | | | (4,619) | | | | Interest on finance leases and obligations | (1,307) | | | (1,412) | | | |
| Earnings (loss) before income taxes | Earnings (loss) before income taxes | 4,333 | | | (2,712) | | | 12,774 | | | 6,440 | | | | Earnings (loss) before income taxes | 7,797 | | | 4,430 | | | |
| Income tax expense (benefit) | Income tax expense (benefit) | 1,013 | | | (1,197) | | | 3,186 | | | 1,294 | | | | Income tax expense (benefit) | 1,957 | | | 1,168 | | | |
| Contribution to net earnings (loss) | $ | 3,320 | | | $ | (1,515) | | | $ | 9,588 | | | $ | 5,146 | | | | |
Contribution to net earnings | | Contribution to net earnings | $ | 5,840 | | | $ | 3,262 | | | |
Cost of food, restaurant operating costs, and occupancy costs are expressed as a percentage of net sales.
General and administrative, marketing and other expenses are expressed as a percentage of total revenue.
The novel coronavirus (“COVID-19”), declared a pandemic by the World Health Organization in March 2020, caused governments to impose restrictive measures to contain its spread. The COVID-19 pandemic adversely affected our restaurant operations and financial results. Our restaurants were required to close their dining rooms during the first quarter of 2020. The majority of Steak n Shake’s dining rooms were reopened during 2021, and in doing so a self-service model has been implemented.
Net sales for the third quarter and first nine months of 20222023 were $37,448 and $113,345, respectively,$36,894, representing a decrease of $4,468$1,322 or 10.7% and $32,924 or 22.5%,3.5% compared to the third quarter and first nine months of 2021, respectively.2022. The decrease in revenue of company-owned restaurants is primarily due to the shift of company units to franchise partner units. For company-operated units, sales to the end customer are recorded as revenue generated by the Company, but for franchise partner units, only our share of the restaurant’s profits, along with certain fees, are recorded as revenue. Because we derive most of our revenue from our share of the profits, revenue will continue to decline as we transition from company-operated units to franchise partner units.
Our franchise partner fees were $17,912 during the first quarter of 2023, as compared to $15,624 during the first quarter of 2022.As of March 31, 2023, there were 178 franchise partner units, compared to 171 franchise partner units as of March 31, 2022. Included in franchise partner fees were $5,575 and $4,774 of rental income during the first quarter of 2023 and 2022, respectively. Franchise partners rent buildings and equipment from Steak n Shake.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Franchise partner fees were $15,880 during the third quarter of 2022, as compared to $11,508 during the third quarter of 2021.Franchise partner fees were $47,929 and $31,744 during the first nine months of 2022 and 2021, respectively. As of September 30, 2022, there were 171 franchise partner units, compared to 140 franchise partner units as of September 30, 2021. For a franchise partner to be awarded a restaurant, he or she must demonstrate the gold standard in service.
The franchise royalties and fees generated by the traditional franchising business were $5,089$4,258 during the thirdfirst quarter of 2022,2023, as compared to $4,865$5,146 during the thirdfirst quarter of 2021. Franchise2022. The decrease in franchise royalties and fees during the first nine monthswas primarily because of 2022reduced marketing by franchisees. There were $15,472143 Steak n Shake traditional units open on March 31, 2023, as compared to $14,594 during the first nine months of 2021.
179 units open on March 31, 2022.
The cost of food at company-operated units during the first quarter of 2023 was $10,448 or 28.3% of net sales, as compared to $10,960 or 28.7% of net sales during the first quarter of 2022. The cost of food expressed as a percentage of net sales remained relatively consistent.
The operating costs at company-operated restaurants during the thirdfirst quarter and first nine months of 2022 was 30.3% and 29.7%, respectively,2023 were $18,457 or 50.0% of net sales, as compared to 31.3% and 29.7%$20,032 or 52.4% of net sales during the third quarter and first nine months of 2021, respectively. Cost of food as a percentage of net sales were lower during the third quarter of 2022 compared to 2021 primarily because of higher menu prices.
Restaurant2022. The decrease in operating costs as a percentage of net sales was mainly attributable to lower labor costs.
General and administrative expenses during the thirdfirst quarter of 20222023 were 55.4%,$10,463 or 17.1% of total revenue, as compared to 58.4%$8,650 or 14.5% of net sales in the third quarter of 2021.Restaurant operating coststotal revenue during the first nine monthsquarter of 2022 were 53.9% of net sales, as compared2022. The increase in general and administrative expenses was mainly attributable to 49.1% of net sales in 2021. The increaseincreased support for franchise partnerships.
Marketing expense decreased by $791 during the first nine monthsquarter of 2023 compared to the first quarter of 2022. The decrease was primarily the result of higher wages.attributable to reduced marketing by traditional franchisees.
Selling, general and administrative costs duringDuring the thirdfirst quarter and first nine months of 2022 were $11,489 and $36,775, respectively, compared to $12,889 and $39,894 in the third quarter and first nine months of 2021, respectively.2023, Steak n Shake recorded gains onsold the disposalproperty of assetsa former company-operated restaurant for a gain of $1,084 and $1,749 in the third quarter and first nine months of 2022, respectively.$1,431.
The Company recorded no impairment charges in the third quarter and $20of $776 in the first nine monthsquarter of 2022. The Company recorded2023 related to underperforming stores. There were no impairment charges in the third quarter and $559impairments in the first nine monthsquarter of 2021, respectively. Impairments2022.
Depreciation and amortization expense was $6,707 during 2021 are related2023 versus $6,214 during 2022. The year-over-year increase is primarily attributable to underperforming stores.higher capital expenditures incurred in 2022 and 2021.
Interest on obligations under leases was $1,307 during 2023 versus $1,412 during 2022. The year-over-year decrease in interest expense is primarily attributable to the maturity and retirement of lease obligations.
Insurance
We view our insurance businesses as possessing two activities: underwriting and investing. Underwriting decisions are the responsibility of the unit managers, whereas investing decisions are the responsibility of our Chairman and CEO, Sardar Biglari. Our business units are operated under separate local management. Biglari Holdings’ insurance operations consist of First Guard and Southern Pioneer.
Underwriting results of our insurance operations are summarized below.
| | | Third Quarter | | First Nine Months | | | First Quarter | |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | |
Underwriting gain (loss) attributable to: | | | | | | | | | |
Underwriting gain attributable to: | | Underwriting gain attributable to: | | | | |
First Guard | First Guard | $ | 2,354 | | | $ | 2,832 | | | $ | 4,800 | | | $ | 7,922 | | | First Guard | $ | 1,862 | | | $ | 732 | | |
Southern Pioneer | Southern Pioneer | (483) | | | 397 | | | (1,101) | | | 1,511 | | | Southern Pioneer | (111) | | | (337) | | |
Pre-tax underwriting gain | Pre-tax underwriting gain | 1,871 | | | 3,229 | | | 3,699 | | | 9,433 | | | Pre-tax underwriting gain | 1,751 | | | 395 | | |
Income tax expense | Income tax expense | 392 | | | 681 | | | 776 | | | 1,984 | | | Income tax expense | 368 | | | 83 | | |
Net underwriting gain | Net underwriting gain | $ | 1,479 | | | $ | 2,548 | | | $ | 2,923 | | | $ | 7,449 | | | Net underwriting gain | $ | 1,383 | | | $ | 312 | | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Earnings of our insurance operations are summarized below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | First Nine Months | | |
| 2022 | | 2021 | | 2022 | | 2021 | | | | |
Premiums earned | $ | 15,116 | | | $ | 13,901 | | | $ | 44,511 | | | $ | 41,166 | | | | | |
Insurance losses | 8,814 | | | 6,657 | | | 27,646 | | | 20,040 | | | | | |
Underwriting expenses | 4,431 | | | 4,015 | | | 13,166 | | | 11,693 | | | | | |
Pre-tax underwriting gain | 1,871 | | | 3,229 | | | 3,699 | | | 9,433 | | | | | |
Other income and expenses | | | | | | | | | | | |
Investment income | 362 | | | 195 | | | 832 | | | 652 | | | | | |
Other income (expenses) | 859 | | | 418 | | | 2,356 | | | 1,313 | | | | | |
Total other income | 1,221 | | | 613 | | | 3,188 | | | 1,965 | | | | | |
Earnings before income taxes | 3,092 | | | 3,842 | | | 6,887 | | | 11,398 | | | | | |
Income tax expense | 703 | | | 857 | | | 1,595 | | | 2,496 | | | | | |
Contribution to net earnings (loss) | $ | 2,389 | | | $ | 2,985 | | | $ | 5,292 | | | $ | 8,902 | | | | | |
| | | | | | | | | | | | | | | |
| First Quarter | | |
| 2023 | | 2022 | | | | |
Premiums earned | $ | 14,764 | | | $ | 14,169 | | | | | |
| | | | | | | |
Insurance losses | 8,596 | | | 9,588 | | | | | |
Underwriting expenses | 4,417 | | | 4,186 | | | | | |
Pre-tax underwriting gain | 1,751 | | | 395 | | | | | |
Other income and expenses | | | | | | | |
Investment income | 585 | | | 213 | | | | | |
Other income (expenses) | 451 | | | 756 | | | | | |
Total other income | 1,036 | | | 969 | | | | | |
Earnings before income taxes | 2,787 | | | 1,364 | | | | | |
Income tax expense | 618 | | | 320 | | | | | |
Contribution to net earnings | $ | 2,169 | | | $ | 1,044 | | | | | |
Insurance premiums and other on the consolidated statement of earnings includes premiums earned, investment income, other income, and commissions.
First Guard
First Guard is a direct underwriter of commercial truck insurance, selling physical damage and nontrucking liability insurance to truckers. First Guard’s insurance products are marketed primarily through direct response methods via the Internet or by telephone. First Guard’s cost-efficient direct response marketing methods enable it to be a low-cost insurer. A summary of First Guard’s underwriting results follows.
| | | Third Quarter | | First Nine Months | | | First Quarter | |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | |
| | Amount | | % | | Amount | | % | | Amount | | % | | Amount | | % | | | Amount | | % | | Amount | | % | |
Premiums earned | Premiums earned | $ | 9,112 | | | 100.0 | % | | $ | 8,458 | | | 100.0 | % | | $ | 26,858 | | | 100.0 | % | | $ | 24,760 | | | 100.0 | % | | Premiums earned | $ | 8,899 | | | 100.0 | % | | $ | 8,731 | | | 100.0 | % | |
| Insurance losses | Insurance losses | 4,815 | | | 52.8 | % | | 3,935 | | | 46.5 | % | | 16,468 | | | 61.3 | % | | 11,746 | | | 47.4 | % | | Insurance losses | 5,244 | | | 58.9 | % | | 6,188 | | | 70.9 | % | |
Underwriting expenses | Underwriting expenses | 1,943 | | | 21.3 | % | | 1,691 | | | 20.0 | % | | 5,590 | | | 20.8 | % | | 5,092 | | | 20.6 | % | | Underwriting expenses | 1,793 | | | 20.1 | % | | 1,811 | | | 20.7 | % | |
Total losses and expenses | Total losses and expenses | 6,758 | | | 74.1 | % | | 5,626 | | | 66.5 | % | | 22,058 | | | 82.1 | % | | 16,838 | | | 68.0 | % | | Total losses and expenses | 7,037 | | | 79.0 | % | | 7,999 | | | 91.6 | % | |
Pre-tax underwriting gain | $ | 2,354 | | | | | $ | 2,832 | | | | | $ | 4,800 | | | | | $ | 7,922 | | | | | |
Pretax underwriting gain | | Pretax underwriting gain | $ | 1,862 | | | | | $ | 732 | | | | |
First Guard’s ratio of losses and loss adjustment expenses to premiums earned was 58.9% during the first quarter of 2023 as compared to 70.9% during the first quarter of 2022. First Guard’s underwriting results in 2023 were in line with its historical performance despite cost inflation in property and physical damage claims, which began to accelerate in 2022.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Southern Pioneer
Southern Pioneer underwrites garage liability and commercial property insurance, as well as homeowners and dwelling fire insurance. A summary of Southern Pioneer’s underwriting results follows.
| | | Third Quarter | | First Nine Months | | | First Quarter | |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | |
| | Amount | | % | | Amount | | % | | Amount | | % | | Amount | | % | | | Amount | | % | | Amount | | % | |
Premiums earned | Premiums earned | $ | 6,004 | | | 100.0 | % | | $ | 5,443 | | | 100.0 | % | | $ | 17,653 | | | 100.0 | % | | $ | 16,406 | | | 100.0 | % | | Premiums earned | $ | 5,865 | | | 100.0 | % | | $ | 5,438 | | | 100.0 | % | |
| Insurance losses | Insurance losses | 3,999 | | | 66.6 | % | | 2,722 | | | 50.0 | % | | 11,178 | | | 63.3 | % | | 8,294 | | | 50.6 | % | | Insurance losses | 3,352 | | | 57.2 | % | | 3,400 | | | 62.5 | % | |
Underwriting expenses | Underwriting expenses | 2,488 | | | 41.4 | % | | 2,324 | | | 42.7 | % | | 7,576 | | | 42.9 | % | | 6,601 | | | 40.2 | % | | Underwriting expenses | 2,624 | | | 44.7 | % | | 2,375 | | | 43.7 | % | |
Total losses and expenses | Total losses and expenses | 6,487 | | | 108.0 | % | | 5,046 | | | 92.7 | % | | 18,754 | | | 106.2 | % | | 14,895 | | | 90.8 | % | | Total losses and expenses | 5,976 | | | 101.9 | % | | 5,775 | | | 106.2 | % | |
Pre-tax underwriting gain (loss) | $ | (483) | | | | | $ | 397 | | | | | $ | (1,101) | | | | | $ | 1,511 | | | | | |
Pretax underwriting gain (loss) | | Pretax underwriting gain (loss) | $ | (111) | | | | | $ | (337) | | | | |
Item 2. Management’s Discussionlosses and Analysisloss adjustment expenses to premiums earned was 57.2% during the first quarter of Financial Condition and Results2023 as compared to 62.5% during the first quarter of Operations (continued)
Insurance - Investment Income2022. Southern Pioneer’s underwriting losses were primarily attributable to a higher expense ratio, an increase caused by information technology projects related to the implementation of a new policy administration system.
A summary of net investment income attributable to our insurance operations follows.
| | | Third Quarter | | First Nine Months | | First Quarter |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 |
Interest, dividends and other investment income: | Interest, dividends and other investment income: | | | | | | | | Interest, dividends and other investment income: | | | |
First Guard | First Guard | $ | 202 | | | $ | 54 | | | $ | 398 | | | $ | 84 | | First Guard | $ | 387 | | | $ | 74 | |
Southern Pioneer | Southern Pioneer | 160 | | | 141 | | | 434 | | | 568 | | Southern Pioneer | 198 | | | 139 | |
Pre-tax investment income | Pre-tax investment income | 362 | | | 195 | | | 832 | | | 652 | | Pre-tax investment income | 585 | | | 213 | |
Income tax expense | Income tax expense | 76 | | | 41 | | | 175 | | | 137 | | Income tax expense | 123 | | | 45 | |
Net investment income | Net investment income | $ | 286 | | | $ | 154 | | | $ | 657 | | | $ | 515 | | Net investment income | $ | 462 | | | $ | 168 | |
We consider investment income as a component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized, as non-operating.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Oil and Gas
A summary of revenues and earnings of our oil and gas operations follows.
| | | | | | | | | | | | | | | |
| First Quarter | | |
| 2023 | | 2022 | | | | |
Oil and gas revenues | $ | 12,223 | | | $ | 9,812 | | | | | |
| | | | | | | |
Oil and gas production costs | 5,471 | | | 3,819 | | | | | |
Depreciation, depletion and accretion | 2,850 | | | 1,519 | | | | | |
General and administrative expenses | 1,799 | | | 553 | | | | | |
Earnings before income taxes | 2,103 | | | 3,921 | | | | | |
Income tax expense | 433 | | | 997 | | | | | |
Contribution to net earnings | $ | 1,670 | | | $ | 2,924 | | | | | |
Our oil and gas business is highly dependent on oil and natural gas prices. The average West Texas Intermediate price per barrel for the first quarter of 2023 was approximately $76.11 as compared to approximately $94.82 in the first quarter of 2022. It is expected that the prices of oil and gas commodities will remain volatile, which will be reflected in our financial results.
Southern Oil
Southern Oil primarily operates oil and natural gas properties offshore in the shallow waters of the Gulf of Mexico. Earnings for Southern Oil are summarized below.
| | | Third Quarter | | First Nine Months | | | First Quarter | |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | |
Oil and gas revenue | $ | 12,688 | | | $ | 7,353 | | | $ | 36,940 | | | $ | 24,310 | | | |
Oil and gas revenues | | Oil and gas revenues | $ | 4,971 | | | $ | 9,812 | | |
| Oil and gas production costs | Oil and gas production costs | 3,484 | | | 2,050 | | | 11,146 | | | 6,957 | | | Oil and gas production costs | 2,340 | | | 3,819 | | |
Depreciation, depletion and accretion | Depreciation, depletion and accretion | 1,873 | | | 1,717 | | | 4,926 | | | 6,286 | | | Depreciation, depletion and accretion | 1,184 | | | 1,519 | | |
General and administrative expenses | General and administrative expenses | 536 | | | 604 | | | 1,731 | | | 2,020 | | | General and administrative expenses | 553 | | | 553 | | |
Earnings before income taxes | Earnings before income taxes | 6,795 | | | 2,982 | | | 19,137 | | | 9,047 | | | Earnings before income taxes | 894 | | | 3,921 | | |
Income tax expense | Income tax expense | 1,564 | | | 657 | | | 4,613 | | | 2,031 | | | Income tax expense | 155 | | | 997 | | |
Contribution to net earnings | Contribution to net earnings | $ | 5,231 | | | $ | 2,325 | | | $ | 14,524 | | | $ | 7,016 | | | Contribution to net earnings | $ | 739 | | | $ | 2,924 | | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Abraxas Petroleum
Abraxas Petroleum operates oil and gas properties in the Permian Basin.Basin of West Texas. Earnings for Abraxas Petroleum from the date of acquisition on September 14, 2022 are summarized below.
| | | | | | | | | |
| ThirdFirst Quarter | | |
| 20222023 | | | | |
Oil and gas revenuerevenues | $ | 1,6927,252 | | | |
| |
Oil and gas production costs | 6063,131 | | | | | |
Depreciation, depletion and accretion | 3601,666 | | | | | |
General and administrative expenses | 2801,246 | | | | | |
Earnings before income taxes | 4461,209 | | | | | |
Income tax expense | 103278 | | | | | |
Contribution to net earnings | 343 | | | | | |
Earnings attributable to noncontrolling interests | 34 | | | | | |
Net earnings attributable to Biglari Holdings Inc. shareholders | $ | 309931 | | | | | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Brand Licensing
Maxim’s business lies principally in licensing and media. Earnings of operations are summarized below.
| | | Third Quarter | | First Nine Months | | | First Quarter | |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | |
Licensing and media revenue | $ | 1,905 | | | $ | 863 | | | $ | 3,788 | | | $ | 2,695 | | | |
Licensing and media revenues | | Licensing and media revenues | $ | 595 | | | $ | 634 | | |
| Licensing and media costs | Licensing and media costs | 345 | | | 880 | | | 1,975 | | | 1,749 | | | Licensing and media costs | 452 | | | 953 | | |
General and administrative expenses | General and administrative expenses | 26 | | | 39 | | | 114 | | | 79 | | | General and administrative expenses | 21 | | | 17 | | |
Earnings (loss) before income taxes | 1,534 | | | (56) | | | 1,699 | | | 867 | | | |
Earnings before income taxes | | Earnings before income taxes | 122 | | | (336) | | |
Income tax expense (benefit) | Income tax expense (benefit) | 384 | | | (13) | | | 425 | | | 205 | | | Income tax expense (benefit) | 31 | | | (85) | | |
Contribution to net earnings (loss) | $ | 1,150 | | | $ | (43) | | | $ | 1,274 | | | $ | 662 | | | |
Contribution to net earnings | | Contribution to net earnings | $ | 91 | | | $ | (251) | | |
We acquired Maxim with the idea of transforming its business model. The magazine developed the Maxim brand, a franchise we are utilizing to generate nonmagazine revenue, notably through licensing, a cash-generating business related to consumer products, services, and events.
Investment Gains and Investment Partnership Gains
Investment losses net of tax for the third quarter of 2022 were $657 compared to investment gains net of tax for the third quarter of 2021 of $3,390. Investment losses net of tax for the first nine months of 2022 were $3,287 compared to investment gains net of tax for the first nine monthsquarter of 2021 of $4,896.2023 and 2022 were $2,865 and $175, respectively. Dividends earned on investments are reported as investment income by our insurance companies. We consider investment income as a component of our aggregate insurance operating results.However, we consider investment gains and losses, whether realized or unrealized, as non-operating.
Investment Partnership Gains
Earnings (loss) from our investments in partnerships are summarized below.
| | | Third Quarter | | First Nine Months | | | First Quarter | |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | |
Investment partnership gains (losses) | Investment partnership gains (losses) | $ | 29,658 | | | $ | (20,231) | | | $ | (82,244) | | | $ | 27,344 | | | Investment partnership gains (losses) | $ | 72,588 | | | $ | (6,661) | | |
Tax expense (benefit) | Tax expense (benefit) | 6,601 | | | (4,946) | | | (20,153) | | | 6,175 | | | Tax expense (benefit) | 16,559 | | | (1,860) | | |
Contribution to net earnings (loss) | $ | 23,057 | | | $ | (15,285) | | | $ | (62,091) | | | $ | 21,169 | | | |
Contribution to net earnings | | Contribution to net earnings | $ | 56,029 | | | $ | (4,801) | | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Investment partnership gains include gains/losses from changes in market values of underlying investments and dividends earned by the partnerships. Dividend income has a lower effective tax rate than income from capital gains. These gains and losses have caused and will continue to cause significant volatility in our periodic earnings.
The investment partnerships hold the Company’s common stock as investments. The Company’s pro-rata share of its common stock held by the investment partnerships is recorded as treasury stock even though these shares are legally outstanding. Gains and losses on Company common stock included in the earnings of the partnerships are eliminated in the Company’s consolidated financial results.
Item 2. Management’s DiscussionInvestment gains and Analysis of Financial Conditionlosses in 2023 and Results of Operations (continued)
2022 were mainly derived from our investments in equity securities and included unrealized gains and losses from market price changes during the period. We believe that investment and derivative gains/losses are generally meaningless for analytical purposes in understanding our reported quarterly and annual results.
Interest Expense
The Company’s interest expense is summarized below.
| | | Third Quarter | | First Nine Months | | | First Quarter | |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | |
Interest expense on notes payable | $ | 67 | | | $ | — | | | $ | 67 | | | $ | 1,121 | | | |
Interest expense on line of credit | | Interest expense on line of credit | $ | 167 | | | $ | — | | |
Tax benefit | Tax benefit | 15 | | | — | | | 15 | | | 280 | | | Tax benefit | 38 | | | — | | |
Interest expense net of tax | Interest expense net of tax | $ | 52 | | | $ | — | | | $ | 52 | | | $ | 841 | | | Interest expense net of tax | $ | 129 | | | $ | — | | |
On September 13, 2022, Biglari Holdings entered into a line of credit in an aggregate principal amount of up to $30,000. The balance of the line of credit was $6,500 and $10,000 on March 31, 2023 and December 31, 2022, respectively. Our interest rate was 7.3% on March 31, 2023.
Corporate and Other
Corporate expenses exclude the activities of the restaurant, insurance, brand licensing, and oil and gas businesses. Corporate and other net losses during the thirdfirst quarter and first nine months of 20222023 were relatively flat comparedconsistent to the same period in 2021.during 2022.
Income Taxes
Income tax expense for the thirdfirst quarter of 20222023 was $9,598$19,738 compared to an income tax benefit of $4,274 for the third quarter of 2021. Income tax benefit$171 for the first nine monthsquarter of 2022 was $13,282 compared to an income tax expense of $11,544 for the first nine months of 2021.2022. The variance in income taxes between 20222023 and 20212022 is attributable to taxes on income generated by the investment partnerships. Investment partnership pre-taxpretax gains were $29,658 during the third quarter of 2022 compared to pre-tax losses of $20,231 during the third quarter of 2021. Investment partnership pre-tax losses were $82,244$72,588 during the first nine monthsquarter of 20222023 compared to pre-tax gainspretax losses of $27,344$6,661 during the first nine monthsquarter of 2021.2022.
Financial Condition
Consolidated cash and investments are summarized below.
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Cash and cash equivalents | Cash and cash equivalents | $ | 64,842 | | | $ | 42,349 | | Cash and cash equivalents | $ | 39,363 | | | $ | 37,467 | |
Investments | Investments | 70,032 | | | 83,061 | | Investments | 79,652 | | | 69,466 | |
Fair value of interest in investment partnerships | Fair value of interest in investment partnerships | 338,314 | | | 474,201 | | Fair value of interest in investment partnerships | 507,499 | | | 383,004 | |
Total cash and investments | Total cash and investments | 473,188 | | | 599,611 | | Total cash and investments | 626,514 | | | 489,937 | |
Less: portion of Company stock held by investment partnerships | Less: portion of Company stock held by investment partnerships | (193,450) | | | (223,802) | | Less: portion of Company stock held by investment partnerships | (276,656) | | | (227,210) | |
Carrying value of cash and investments on balance sheet | Carrying value of cash and investments on balance sheet | $ | 279,738 | | | $ | 375,809 | | Carrying value of cash and investments on balance sheet | $ | 349,858 | | | $ | 262,727 | |
Unrealized gains/losses of Biglari Holdings’ stock held by the investment partnerships are eliminated in the Company’s consolidated financial results.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Liquidity
Our balance sheet continues to maintain significant liquidity. Consolidated cash flow activities are summarized below.
| | | First Nine Months | | First Quarter |
| | 2022 | | 2021 | | 2023 | | 2022 |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 99,754 | | | $ | 211,245 | | Net cash provided by operating activities | $ | 19,923 | | | $ | 21,092 | |
Net cash used in investing activities | Net cash used in investing activities | (102,464) | | | (55,782) | | Net cash used in investing activities | (12,735) | | | (16,077) | |
Net cash provided by (used in) financing activities | 25,353 | | | (154,586) | | |
Net cash used in financing activities | | Net cash used in financing activities | (5,050) | | | (1,564) | |
Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | (150) | | | (85) | | Effect of exchange rate changes on cash | 8 | | | (23) | |
Increase in cash, cash equivalents and restricted cash | Increase in cash, cash equivalents and restricted cash | $ | 22,493 | | | $ | 792 | | Increase in cash, cash equivalents and restricted cash | $ | 2,146 | | | $ | 3,428 | |
Cash provided by operating activitiesThe increase in cash during 2023 was $99,754 during 2022$2,146 compared to $211,245 in 2021. The decrease in cash provided by operating activities is mainly attributable to distributions from investment partnerships of $51,200 for 2022 and $172,420 for 2021. The distributions$3,428 during 2021 were primarily used to repay Steak n Shake’s debt.
Cash used in investing activities during 2022 was $102,464 compared to $55,782 in 2021. Capital expenditures were lower during 2022 by $23,049 compared to 2021. Steak n Shake incurred higher capital expenditures during 2021 for its transition to a self-service model.
Cash provided by financing activities was $25,353 in 2022 compared to $154,586 used in 2021. The Company repaid Steak n Shake’s debt during 2021.
2022. We intend to meet the working capital needs of our operating subsidiaries principally through anticipated cash flows generated from operations and cash on hand. We continually review available financing alternatives.
Biglari Holdings Line of Credit
On September 13, 2022, Biglari Holdings entered into a line of credit in an aggregate principal amount of up to $30,000. The line of credit will be available on a revolving basis until September 12, 2024. The line of credit includes customary covenants, as well as financial maintenance covenants. As of September 30, 2022, we were in compliance with all covenants. The balance ofon the line of credit on September 30, 2022March 31, 2023 was $30,000.$6,500. The line of credit was paid in full in April 2023.
Steak n Shake Credit FacilityWestern Sizzlin Revolver
OnWestern Sizzlin’s available line of credit is $500. As of March 19, 2014, Steak n Shake and31, 2023, Western Sizzlin had no debt outstanding on its subsidiaries entered into a credit agreement which provided for a senior secured term loan facility in an aggregate principal amount of $220,000. The term loan was scheduled to mature on March 19, 2021. The Company repaid the balance of Steak n Shake’s term facility on February 19, 2021.revolver.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Critical Accounting Policies
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Certain accounting policies require management to make estimates and judgments concerning transactions that will be settled several years in the future. Amounts recognized in our consolidated financial statements from such estimates are necessarily based on numerous assumptions involving varying and potentially significant degrees of judgment and uncertainty. Accordingly, the amounts currently reflected in our consolidated financial statements will likely increase or decrease in the future as additional information becomes available. There have been no material changes to critical accounting policies previously disclosed in our annual report on Form 10-K for the year ended December 31, 2021.2022.
Recently Issued Accounting Pronouncements
No recently issued accounting pronouncements were applicable for this Quarterly Report on Form 10-Q.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Cautionary Note Regarding Forward-Looking Statements
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In general, forward-looking statements include estimates of future revenues, cash flows, capital expenditures, or other financial items, and assumptions underlying any of the foregoing. Forward-looking statements reflect management’s current expectations regarding future events and use words such as “anticipate,” “believe,” “expect,” “may,” and other similar terminology. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. Investors should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. These forward-looking statements are all based on currently available operating, financial, and competitive information and are subject to various risks and uncertainties. Our actual future results and trends may differ materially depending on a variety of factors, many beyond our control, including, but not limited to, the risks and uncertainties described in Item 1A, Risk Factors of our annual report on Form 10-K and Item 1A of this report. We undertake no obligation to publicly update or revise them, except as may be required by law.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The majority of our investments are conducted through investment partnerships which generally hold common stocks. We also hold marketable securities directly. Through investment partnerships we hold concentrated positions. A significant decline in the general stock market or in the prices of major investments may produce a large net loss and decrease in our consolidated shareholders’ equity. Decreases in values of equity investments can have a materially adverse effect on our earnings and on consolidated shareholders’ equity.
We prefer to hold equity investments for very long periods of time so we are not troubled by short-term price volatility with respect to our investments. Market prices for equity securities are subject to fluctuation. Consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. A hypothetical 10% increase or decrease in the market price of our investments would result in a respective increase or decrease in the carrying value of our investments of $21,490 along with a corresponding change in shareholders’ equity of approximately 3%.
We have had minimal exposure to foreign currency exchange rate fluctuations in the first nine months of 2022 and 2021.
Our oil and natural gas business is fundamentally a commodity business. This means our operations and earnings may be significantly affected by changes in oil and gas prices. Such commodity prices depend on local, regional and global events or conditions that affect supply and demand for oil and gas. Any material decline in crude oil or natural gas prices could have a material adverse effect on our operations.Not applicable.
Item 4. Controls and Procedures
Based on an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), our Chief Executive Officer and Controller have concluded that our disclosure controls and procedures were effective as of September 30, 2022.March 31, 2023.
There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2022March 31, 2023 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information in response to this Item is included in Note 13 to the Consolidated Financial Statements included in Part 1, Item 1 of this Form 10-Q and is incorporated herein by reference.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors as previously disclosed in Item 1A to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| | | | | | | | |
Exhibit Number | | Description |
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| | |
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| | |
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101 | | Interactive Data Files. |
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104 | | Cover page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101) |
_________________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| Biglari Holdings Inc. | |
| | | |
Date: November 4, 2022May 5, 2023 | By: | /s/ BRUCE LEWIS | |
| | Bruce Lewis | |
| | Controller | |