| Note 1. Summary of Significant Accounting Policies | Description of Business Biglari Holdings Inc. is a holding company
owning subsidiaries engaged in a number of diverse business activities, including property and casualty insurance, media and licensing,
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. The Company’s
long-term objective is to maximize per-share intrinsic value. All major investment and capital allocation decisions are made for
the Company and its subsidiaries by Mr. Biglari. As of December 31, 2019, Mr. Biglari’s
beneficial ownership was approximately 64.4% of the Company’s outstanding Class A common stock and 55.4% of the Company’s
outstanding Class B common stock. Business Acquisition On September 9, 2019, a wholly-owned
subsidiary of the Company, Southern Oil Company, acquired the stock of Southern Oil of Louisiana Inc. (collectively “Southern
Oil”) for $51,505 in cash. Southern Oil primarily operates oil and natural gas properties offshore in the shallow waters
of the Gulf of Mexico. The Company’s financial results include the results of Southern Oil from the acquisition date to
the end of the year. Acquired assets included oil and gas
properties of $69,881 and accounts receivable of $6,735. Acquired liabilities included asset retirement obligations of $10,542,
income taxes payable of $4,302, deferred tax liabilities of $5,671 and accounts payable of $3,949. Acquisition related expenses
were recorded as general and administrative expenses. Principles of Consolidation The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries including Steak n Shake Inc. (“Steak n Shake”),
Western Sizzlin Corporation (“Western Sizzlin”), Maxim Inc. (“Maxim”), First Guard Insurance Company and
its agency, 1st Guard Corporation (collectively “First Guard”) and Southern Oil. Intercompany accounts and transactions
have been eliminated in consolidation. Cash, Cash Equivalents and Restricted
Cash Cash equivalents primarily consist of
U.S. Government securities and money market accounts, all of which have original maturities of three months or less. Cash equivalents
are carried at fair value. The statement of cash flows includes restricted cash with cash and cash equivalents. Cash as reported on the statements of
cash flows consists of the following.
December 31,
2019 2018 2017
Cash and cash equivalents $ 67,772 $ 48,557 $ 58,577
Restricted cash included in other long-term assets 2,924 6,453 8,653
Cash, cash equivalents and restricted cash $ 70,696 $ 55,010 $ 67,230 Investments Our investments are carried at fair value
with net unrealized gains or losses reported in the statements of earnings. Realized gains and losses on disposals of investments
are determined by the specific identification of cost of investments sold. Investment Partnerships The Company holds a limited interest
in The Lion Fund, L.P. and The Lion Fund II, L.P. (collectively the “investment partnerships”). Biglari Capital Corp.
(“Biglari Capital”), an entity solely owned by Mr. Biglari, is the general partner of the investment partnerships.
Our interests in the investment partnerships are accounted as equity method investments because of our retained limited partner
interests. The Company records investment partnership gains (inclusive of the investment partnerships’ unrealized gains and
losses on their securities) as a component of other income based on our proportional ownership interest in the partnerships. The
investment partnerships are, for purposes of generally accepted accounting principles (“GAAP”), investment companies
under the AICPA Audit and Accounting Guide Investment Companies. Concentration of Equity Price Risk
The majority of our investments are conducted
through investment partnerships which generally hold common stocks. We also hold marketable securities directly. Through the investment
partnerships we hold a concentrated position in the common stock of Cracker Barrel Old Country Store, Inc. A significant decline
in the general stock market or in the prices of major investments may have a materially adverse effect on our earnings and on consolidated
shareholders’ equity. Receivables Our accounts receivable balance consists
primarily of franchisee, customer, and other receivables. We carry our accounts receivable at cost less an allowance for doubtful
accounts, which is based on a history of past write-offs and collections and current credit conditions. Allowance for doubtful
accounts was $4,857 and $3,901 at December 31, 2019 and 2018, respectively. Inventories Inventories are valued at the lower of
cost (first-in, first-out method) or market, and consist primarily of restaurant food items and supply inventory. Property and Equipment Restaurants Property and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation and amortization are recognized on the straight-line method over
the estimated useful lives of the assets (10 to 30 years for buildings and land improvements, and 3 to 10 years for equipment).
Leasehold improvements are amortized on the straight-line method over the shorter of the estimated useful lives of the improvements
or the term of the related leases. Interest costs associated with the construction of new restaurants are capitalized. Major improvements
are also capitalized while repairs and maintenance are expensed as incurred. We review our long-lived restaurant assets whenever
events or changes in circumstances indicate that their carrying amounts may not be recoverable. For purposes of this assessment,
assets are evaluated at the lowest level for which there are identifiable cash flows which is generally at the individual restaurant
level. Assets included in the impairment assessment generally consist of property, equipment and leasehold improvements directly
associated with an individual restaurant as well as any related finance or operating lease assets. If the future undiscounted
cash flows of an asset are less than the recorded value, an impairment is recorded for the difference between the carrying value
and the estimated fair value of the asset. Oil and Gas Properties The successful efforts method is used
for crude oil and natural gas exploration and production activities. All costs for development wells, related plant and equipment,
proved mineral interests in crude oil and natural gas properties, and related asset retirement obligation assets are capitalized.
Costs of exploratory wells are capitalized pending determination of whether the wells found proved reserves. Costs of wells that
are assigned proved reserves remain capitalized. Costs also are capitalized for exploratory wells that have found crude oil and
natural gas reserves even if the reserves cannot be classified as proved when the drilling is completed, provided the exploratory
well has found a sufficient quantity of reserves to justify its completion as a producing well and the company is making sufficient
progress assessing the reserves and the economic and operating viability of the project. All other exploratory wells and costs
are expensed. There were no capitalized costs for exploratory activities during 2019. The Company continues to capitalize
exploratory well costs after the completion of drilling when (a) the well has found a sufficient quantity of reserves to
justify completion as a producing well, and (b) whether sufficient progress has been made in assessing the reserves and the
economic and operating viability of the project. If either condition is not met or if the Company obtains information that raises
substantial doubt about the economic or operational viability of the project, the exploratory well would be assumed to be impaired,
and its costs, net of any salvage value, would be charged to expense. Asset retirement obligations Asset retirement obligations relate
to future costs associated with the plugging and abandonment of oil and gas wells, the removal of equipment and facilities from
leased acreage, and the return of such land to its original condition. The Company determines its asset retirement obligation
amounts by calculating the present value of the estimated future cash outflows associated with its plug and abandonment obligations.
The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred, and the cost
of such liability increases the carrying amount of the related long-lived asset by the same amount. The liability is accreted
each period through charges to depreciation, depletion and amortization expense, and the capitalized cost is depleted on a unit-of-production
basis over the proved developed reserves of the related asset. If an asset retirement obligation is settled for an amount other
than the recorded amount, a gain or loss is recognized. Goodwill and Other Intangible Assets Goodwill and indefinite life
intangible assets are not amortized, but are tested for potential impairment on an annual basis, or more often if events or
circumstances change that could cause goodwill or indefinite life intangible assets to become impaired. Other purchased
intangible assets are amortized over their estimated useful lives, generally on a straight-line basis. We perform reviews for
impairment of intangible assets whenever events or changes in circumstances indicate that the carrying value of an asset may
not be recoverable. An impairment loss is recognized when estimated future cash flows expected to result from the use of the
asset and its eventual disposition are less than its carrying value. When an impairment is identified, we reduce the carrying
value of the asset to its estimated fair value. No impairments were recorded on goodwill or intangible assets during 2019,
2018 or 2017. Refer to Note 7 for information regarding our goodwill and other intangible assets. Dual Class Common Stock Beginning in 2018, the Company has
two classes of common stock, designated Class A common stock and Class B common stock. Each Class A common share is entitled to
one vote. Class B common stock possesses economic rights equal to one-fifth (1/5 th The following table presents shares authorized,
issued and outstanding.
December 31, 2019 December 31, 2018
Class A Class B Class A Class B December 31, 2017
Common stock authorized 500,000 10,000,000 500,000 10,000,000 2,500,000
Common stock issued 206,864 2,068,640 206,864 2,068,640 2,142,202
Treasury stock held by the Company — — — — (74,589 )
Outstanding shares 206,864 2,068,640 206,864 2,068,640 2,067,613 On an equivalent Class A common stock
basis, there were 620,592 shares outstanding as of December 31, 2019 and 2018, and 620,284 shares outstanding as of December 31,
2017. Earnings Per Share Earnings per share of common stock
is based on the weighted average number of shares outstanding during the year. The shares of Company stock attributable to our
limited partner interest in 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
average common shares outstanding. However, these shares are legally outstanding. The Company has applied the “two-class
method” of computing earnings per share as prescribed in Accounting Standards Codification (“ASC”) 260, “ Earnings
Per Share Revenue Recognition In May 2014, the Financial Accounting Standards
Board (‘‘FASB’') issued Accounting Standards Update (“ASU’') 2014-09, Revenue from Contracts with Customers
(Topic 606). On January 1, 2018, we adopted Accounting Standards Codification Topic 606 (“ASC 606”). In
accordance with ASC 606, we changed certain characteristics of our revenue recognition accounting policy as described below.
ASC 606 was applied using the modified retrospective method, where the cumulative effect of the initial application is
recognized as an adjustment to opening retained earnings at January 1, 2018. Comparative prior periods have not been
adjusted. The impact of ASC 606 on the Company’s balance sheet
as of December 31, 2018 was not material. The cumulative change in retained earnings as of January 1, 2018 was $90. Upon adoption
of ASC 606, the Company changed its restaurant operations accounting policies for the recognition of franchise fees, recording
of advertising arrangements, and recognition of gift card revenue. The adoption of ASC 606 did not have any significant impact
on our insurance or media/licensing businesses. Restaurant operations Restaurant operations revenues were disaggregated
as follows.
2019 2018 2017
Net sales $ 578,164 $ 740,922 $ 781,856
Franchise royalties and fees 27,189 30,998 20,773
Other 4,867 3,770 4,524
$ 610,220 $ 775,690 $ 807,153 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. Franchise royalties and fees are composed
of royalties and fees from Steak n Shake and Western Sizzlin franchisees. Royalties 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. During the years ended December 31, 2019
and 2018, restaurant operations recognized $1,725 and $3,096, respectively, in revenue related to initial franchise fees. As of
December 31, 2019 and 2018, restaurant operations had deferred revenue recorded in accrued expenses related to franchise fees of
$7,976 and $9,075, respectively. Restaurant operations expects to recognize approximately $928 in 2020 and the balance in the years
2021 through 2040. Our advertising arrangements with franchisees
are reported in franchise royalties and fees. During the years ended December 31, 2019 and 2018, restaurant operations recognized
$7,815 and $9,675, respectively, in revenue related to franchisee advertising fees. As of December 31, 2019 and 2018, restaurant
operations had deferred revenue recorded in accrued expenses related to franchisee advertising fees of $3,043 and $2,255, respectively.
Restaurant operations expects to recognize approximately $1,522 of deferred revenue during 2020 and the balance in 2021. Restaurant operations sells gift cards
to customers which can be redeemed for retail food sales within our stores. Gift cards are recorded as deferred 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. For the years ended December 31, 2019
and 2018, restaurant operations recognized $22,869 and $27,081, respectively, of revenue from gift card redemptions. As of December
31, 2019 and 2018, restaurant operations had deferred revenue recorded in accrued expenses related to unredeemed gift cards of
$20,730 and $22,685, respectively. The Company expects to recognize approximately $15,931 in 2020 and the balance in the years
2021 through 2023. Insurance premiums and commissions Insurance premiums are earned over the
terms of the related policies. Expenses incurred in connection with acquiring new insurance business, including acquisition costs,
are charged to operations as incurred. Premiums earned are stated net of amounts ceded to reinsurer. Oil and gas Revenues are derived from the sale of
produced oil and natural gas. Revenue is recognized when the performance obligation is satisfied, which typically occurs at
the point in time when control of the product transfers to the customer. Payment is due within 30 days of delivery. Media advertising and other Magazine subscription and advertising
revenues are recognized at the magazine cover date. The unearned portion of magazine subscriptions is deferred until the magazine’s
cover date, at which time a proportionate share of the gross subscription price is recognized as revenues, net of any commissions
paid to subscription agents. Also included in subscription revenues are revenues generated from single-copy sales of magazines
through retail outlets such as newsstands, supermarkets, convenience stores and drugstores and on certain digital devices, which
may or may not result in future subscription sales. Revenues from retail outlet sales are recognized based on gross sales less
a provision for estimated returns. License revenue is recognized when earned. We derive value and revenues from intellectual property
assets through a range of licensing and business activities, including licensing and syndication of our trademarks and copyrights
in the United States and internationally. Restaurant Cost of Sales Cost of sales includes the cost of food,
restaurant operating costs and restaurant rent expense. Cost of sales excludes depreciation and amortization, which is presented
as a separate line item on the consolidated statement of earnings. Insurance Losses and Underwriting
Expenses Liabilities for estimated unpaid losses
and loss adjustment expenses with respect to claims occurring on or before the balance sheet date are established under insurance
contracts issued by our insurance subsidiaries. Such estimates include provisions for reported claims or case estimates, provisions
for incurred but not reported claims and legal and administrative costs to settle claims. The estimates of unpaid losses and amounts
recoverable under reinsurance are established and continually reviewed by using a variety of actuarial, statistical and analytical
techniques. Reinsurance contracts do not relieve the ceding company of its obligations to indemnify policyholders with respect
to the underlying insurance contracts. Liabilities for insurance losses of $3,211 and $1,891 are included in accrued expenses in
the consolidated balance sheet as of December 31, 2019 and 2018, respectively. Oil and Gas Production Costs Oil and gas production costs are composed
of lease operating expenses and production taxes. Marketing Expense Advertising costs are charged to expense
at the later of the date the expenditure is incurred or the date the promotional item is first communicated. Marketing expense
is included in selling, general and administrative expenses in the consolidated statement of earnings. Insurance Reserves We self-insure a significant portion
of expected losses under our workers’ compensation, general liability, auto, directors and officers liability, and medical
liability insurance programs, and record a reserve for our estimated losses on all unresolved open claims and our estimated incurred
but not reported claims at the anticipated cost to us. Insurance reserves are recorded in accrued expenses in the consolidated
balance sheet. Savings Plans Several of our subsidiaries also sponsor
deferred compensation and defined contribution retirement plans, such as 401(k) or profit sharing plans. Employee contributions
to the plans are subject to regulatory limitations and the specific plan provisions. Some of the plans allow for discretionary
contributions as determined by management. Employer contributions expensed with respect to these plans were not material. Foreign Currency Translation The Company has certain subsidiaries
located in foreign jurisdictions. For subsidiaries whose functional currency is other than the U.S. dollar, the translation
of functional currency statements to U.S. dollar statements uses end-of-period exchange rates for assets and liabilities, weighted
average exchange rates for revenue and expenses, and historical rates for equity. The resulting currency translation adjustment
is recorded in accumulated other comprehensive income, as a component of equity. Use of Estimates Preparation of the consolidated financial
statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could differ from the estimates. New Accounting Standards In June 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments In February 2016, the FASB issued ASU
2016-02, Leases Leases Leases In adopting and applying ASC 842, we
elected the package of practical expedients permitted under the transition guidance within the new standard which, among other
things, allows us to carry forward the historical lease classification. In addition, we elected certain practical expedients and
accounting policies, including an accounting policy election to keep leases with an initial term of 12 months or less from the
balance sheet. We recognize those lease payments in the consolidated statements of earnings on a straight-line basis over the
lease term. |
