| 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 media, property and casualty insurance, and restaurants.
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 Biglari Holdings and its major operating subsidiaries.
The Company’s long-term objective is to maximize per-share intrinsic value. All major operating, investment, and capital
allocation decisions are made for the Company and its subsidiaries by Mr. Biglari. As of December 31, 2017, Mr. Biglari’s
beneficial ownership of the Company’s outstanding common stock was approximately 52.6%. The Company plans to implement a
dual class structure. A special meeting of the shareholders will be held in the near future to approve the
recapitalization of Biglari Holdings. If adopted our common stock will be designated “Class A” common stock and
“Class B” common stock. To effect the creation of two classes of stock, current shareholders will receive, for
every ten shares of existing common stock they own, (i) ten shares of Class B common stock and (ii) one share of Class A
Common stock. A share of Class B common stock has economic rights equivalent to 1/5th of a share of Class A common stock,
however, Class B common stock has no voting rights. We expect both shares to trade on the New York Stock Exchange (“NYSE”). 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”)
and Western Sizzlin Corporation (“Western”). The consolidated financial statements also include the accounts of Maxim
Inc. (“Maxim”) and First Guard Insurance Company and its agency, 1st Guard Corporation (collectively “First Guard”). Intercompany
accounts and transactions have been eliminated in consolidation. This form 10-K includes an audited statement
of earnings, statement of comprehensive income, statement of cash flows and statement of changes in shareholders’ equity
for the years ended December 31, 2017, 2016 and 2015 and an audited balance sheet as of December 31, 2017 and 2016. 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. In November 2016, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2016-18, Statement of Cash Flows: Restricted Cash Cash as reported on the statements of
cash flows consists of the following.
December 31,
2017 2016 2015
Cash and cash equivalents $ 58,577 $ 75,808 $ 56,523
Restricted cash included in other long-term assets 8,653 25 25
Cash, cash equivalents and restricted cash $ 67,230 $ 75,833 $ 56,548 Investments Our investments consist of available-for-sale
securities. Available-for-sale securities are carried at fair value with net unrealized gains or losses reported as a component
of accumulated other comprehensive income in shareholders’ equity. Realized gains and losses on disposals of investments
are determined by specific identification of cost of investments sold and are included in investment gains/losses, a component
of other income. 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 $2,298 and $1,734 at December 31, 2017 and 2016, 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 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 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. 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. Goodwill and Other Intangible Assets Goodwill and indefinite life intangibles
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 2017, 2016 or 2015. Refer to Note 6 for information
regarding our goodwill and other intangible assets. Operating Leases The Company leases certain property under
operating leases. Many of these lease agreements contain rent holidays, rent escalation clauses and/or contingent rent provisions.
Rent expense is recognized on a straight-line basis over the expected lease term, including cancellable option periods when failure
to exercise such options would result in an economic penalty. In addition, the rent commencement date of the lease term is the
earlier due date when we become legally obligated for the rent payments, the date when we take access to the property, or the grounds
for build out. Common Stock and Treasury Stock The Company’s common stock is $0.50
stated value. The following table presents shares authorized, issued and outstanding.
December 31, 2017 December 31, 2016 December 31, 2015
Common stock authorized 2,500,000 2,500,000 2,500,000
Common stock issued 2,142,202 2,142,202 2,142,202
Treasury stock held by the Company (74,589) (75,009) (75,511)
Outstanding shares 2,067,613 2,067,193 2,066,691
Proportional ownership of the Company's
common stock in the investment partnerships (866,935) (834,889) (807,069)
Net outstanding shares for financial reporting purposes 1,200,678 1,232,304 1,259,622 Purchases of Equity Securities Shares of the Company’s common
stock acquired by the investment partnerships are presented below.
2017 2016 2015
The Lion Fund, L.P. - - 45,305
The Lion Fund II, L.P. 26,679 37,925 616,312
26,679 37,925 661,617 Revenue Recognition Restaurant operations We record revenue from restaurant sales
at the time of sale, net of discounts. Revenue from the sale of gift cards is deferred at the time of sale and recognized either
upon redemption by the customer or at expiration of the gift cards. Sales revenues are presented net of sales taxes. Unit franchise
fees and area development fees are recorded as revenue when said-related restaurant begins operations. Royalty fees and administrative
services fees based on franchise sales are recognized as revenue as earned. License revenue and rental revenues are recognized
as revenue when earned. Restaurant operations revenues were as
follows.
2017 2016 2015
Net sales $ 781,856 $ 795,322 $ 799,660
Franchise royalties and fees 20,773 18,794 16,428
Other 4,524 3,798 3,650
$ 807,153 $ 817,914 $ 819,738 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. 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 $1,907 and $1,937 are included in accrued expenses in
the consolidated balance sheet as of December 31, 2017 and 2016, respectively. 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 following table presents a reconciliation
of basic and diluted weighted average common shares.
2017 2016 2015
Basic earnings per share:
Weighted average common shares 1,227,166 1,222,261 1,556,039
Diluted earnings per share:
Weighted average common shares 1,227,166 1,222,261 1,556,039
Dilutive effect of stock awards 937 1,355 -
Weighted average common and incremental shares 1,228,103 1,223,616 1,556,039
Anti-dilutive stock awards excluded from the calculation
of earning per share - - 5,218 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’ 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 January 2017, FASB issued ASU 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. In November 2016, the FASB issued ASU
2016-18, Statement of Cash Flows: Restricted Cash In October 2016, the FASB issued ASU
2016-17, Interests Held through Related Parties That Are under Common Control. In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. In June 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments In February 2016, the FASB issued ASU
2016-02 Leases In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606) |
