| 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 CompanyÂ’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 CompanyÂ’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. 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”)
from the dates of their respective acquisitions during 2014. In addition to consolidating wholly-owned entities we consolidate
entities if we have a controlling interest in the general partner. Intercompany accounts and transactions have been eliminated
in consolidation. Prior to July 2013, the consolidated
financial statements included the accounts of the Company, its wholly-owned subsidiaries (including Biglari Capital Corp. [“Biglari
Capital”]), and investment related limited partnerships The Lion Fund, L.P. and Western Acquisitions, L.P. (collectively
the “consolidated affiliated partnerships”), in which we had a controlling interest. In July 2013 the Company liquidated the
partnersÂ’ interest in Western Acquisitions, L.P. by distributing assets of the partnership to the partners and Biglari Holdings
sold all of the outstanding shares of Biglari Capital to Mr. Biglari. Biglari Capital is the general partner of The Lion Fund,
L.P. and The Lion Fund II, L.P. (collectively the “investment partnerships"), which are limited partnerships that operate
as private investment funds. As a result of the sale of Biglari Capital
and the related liquidation of Western Acquisitions, L.P. the Company ceased to have a controlling interest in Biglari Capital
and the consolidated affiliated partnerships. Accordingly, Biglari Capital and the consolidated affiliated partnerships are
no longer consolidated in the CompanyÂ’s consolidated financial statements. Fiscal Year In 2014, the CompanyÂ’s Board of
Directors approved a change in the CompanyÂ’s fiscal year-end moving from the last Wednesday in September to December 31 of
each year. This form 10-K includes an audited statement of earnings, statement of comprehensive income, statement of cash flows
and statement of shareholdersÂ’ equity for the year ended December 31, 2015, transition period for September 25, 2014 to December
31, 2014 (“the “2014 transition period”) and fiscal years ended September 24, 2014 and September 25, 2013, and
an audited balance sheet as of December 31, 2015 and 2014. Fiscal years 2014 and 2013 each contained 52 weeks. For comparative
purposes, an unaudited statement of earnings, statement of comprehensive income and statement of cash flows have been included
for September 26, 2013 to December 31, 2013 (the “2013 transition period”). The comparative transition period has not
been audited and is derived from the books and records of the Company. In the opinion of management, the comparative transition
period reflects all adjustments necessary to present the financial position and results of operations in accordance with accounting
principles generally accepted in the United States (“GAAP”). Purchases of Equity Securities On April 20, 2015, The Lion
Fund, L.P. completed a Rule 10b5-1 Trading Plan purchasing 62,000 shares of the CompanyÂ’s common stock from December
18, 2014 through April 20, 2015. On July 1, 2015, The Lion Fund II, L.P. completed a tender offer for common stock of Biglari
Holdings purchasing 616,312 shares of the CompanyÂ’s common stock. On December 17, 2015, The Lion Fund II, L.P.
initiated a Rule 10b5-1 Trading Plan thereby purchasing 24,000 shares of the CompanyÂ’s common stock from January 4,
2016 through February 3, 2016. As of February 3, 2016, Mr. BiglariÂ’s beneficial ownership of the outstanding common
stock was approximately 50.6%. Business Acquisitions On February 27, 2014 the Company acquired
certain assets and liabilities of Maxim. Maxim is a brand management company whose business lies in media, both in print and in
digital, and in licensing of products and services. On March 19, 2014, the Company acquired the stock of First Guard, a direct
underwriter of commercial trucking insurance, selling physical damage and nontrucking liability insurance to truckers. These acquisitions
were not material, individually or in aggregate, to the Company. The fair value of the assets and liabilities acquired —
other than investments, goodwill and intangibles — was not material. Cash and Cash Equivalents 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. Investments Our investments consist of available-for-sale
securities and held-to-maturity 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 shareholdersÂ’ equity. Held-to-maturity securities
are carried at amortized cost, reflecting the ability and intent to hold the securities to maturity. 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 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 partnershipsÂ’ 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 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
shareholdersÂ’ 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 $2,378 at December 31, 2015 and $1,608 at December 31, 2014. Amounts charged to expense and deductions from the allowance
totaled $1,426 and $662 in 2015. Amounts charged to expense and deductions from the allowance in the 2014 and 2013 transition periods
and in fiscal years 2014 and 2013 were insignificant. 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. Refer to Note 3 for information regarding asset impairments. Goodwill and Other Intangible Assets Goodwill and indefinite life intangibles
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 intangibles 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 indefinite life intangibles during 2015, the 2014 and 2013 transition periods, or during fiscal year
2014. During fiscal year 2013, the Company recorded an impairment related to the trade name of WesternÂ’s company-operated
stores. Refer to Note 8 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 CompanyÂ’s common stock is $0.50
stated value. The following table presents shares authorized, issued and outstanding.
December 31, 2015 December 31, 2014 September 24, 2014 September 25, 2013
Common stock authorized 2,500,000 2,500,000 2,500,000 2,500,000
Common stock issued 2,142,202 2,142,202 2,142,202 1,797,941
Treasury stock held by the Company (75,511 ) (76,616 ) (76,636 ) (77,159 )
Outstanding shares 2,066,691 2,065,586 2,065,566 1,720,782
Proportional ownership of the Company's
common stock in the investment partnerships (807,069 ) (197,533 ) (187,109 ) (132,406 )
Net outstanding shares for financial reporting purposes 1,259,622 1,868,053 1,878,457 1,588,376 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.
Transition Period Fiscal Year
2015 2014 2013 2014 2013
(unaudited)
Net sales $ 799,660 $ 210,256 $ 200,407 $ 759,889 $ 736,968
Franchise royalties and fees 16,428 4,076 3,177 15,032 11,741
Other 3,650 1,316 858 3,234 3,210
$ 819,738 $ 215,648 $ 204,442 $ 778,155 $ 751,919 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. Commissions, gains and investment
income for 2015, the 2014 transition period and fiscal year 2014 were not significant. 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 magazineÂ’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. Other revenue Other revenue represents realized and
unrealized gains/losses on investments held by consolidated affiliated partnerships. Realized gains/losses from the disposal of
investments held by consolidated affiliated partnerships are determined by specific identification of cost of investments sold. 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. Earnings Per Share Earnings per share of common stock is
based on the weighted average number of shares outstanding during the year. In fiscal years 2014 and 2013, Biglari Holdings completed
offerings of transferable subscription rights. The offerings were oversubscribed and 344,261 and 286,767 new shares of common stock
were issued, respectively. The Company received net proceeds of $85,873 and $75,595 from the offerings, respectively. Earnings
per share for the 2013 transition period and fiscal year 2013 have been retroactively restated to account for the rights offerings. For periods after July 1, 2013, 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. For financial reporting purposes during
periods before July 1, 2013, all The following table presents a reconciliation
of basic and diluted weighted average common shares.
Transition Period Fiscal Year
2015 2014 2013 2014 2013
(unaudited)
Basic earnings per share:
Weighted average common shares 1,556,039 1,877,723 1,714,727 1,709,621 1,543,370
Diluted earnings per share:
Weighted average common shares 1,556,039 1,877,723 1,714,727 1,709,621 1,543,370
Dilutive effect of stock awards — 1,691 3,534 3,154 3,295
Weighted average common and incremental shares 1,556,039 1,879,414 1,718,261 1,712,775 1,546,665
Number of share-based awards excluded from the calculation of earning per share as the awards’ exercise prices were greater than the average market price of the Company's common stock, or because they were anti-dilutive due to the Company's net loss in 2015 5,218 2,637 — — 705 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 on the consolidated statement of earnings. Insurance Losses Liabilities for losses and loss adjustment
expenses are established under insurance contracts issued by our insurance subsidiaries. These losses and loss adjustment expenses
include an amount for reported losses and an amount for losses incurred but not reported. Reserves for incurred but not reported
losses are estimates based upon past experience. 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 $2,796 and $779
are included in accrued expenses in the consolidated balance sheet as of December 31, 2015 and December 31, 2014, respectively. Insurance Reserves We self-insure a significant portion
of expected losses under our workersÂ’ compensation, general liability, auto, directorsÂ’ and officersÂ’ 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. 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 November 2015, the FASB issued Accounting
Standards Update (“ASU”) 2015-17, Balance Sheet Classification of Deferred Taxes In April 2015,
the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance
Costs In February
2015, the FASB issued ASU 2015-02, Amendments to the Consolidations Analysis In August 2014,
the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern In May 2014, FASB issued ASU 2014-09, Revenue from Contracts
with Customers (Topic 606), In April 2014, the FASB issued ASU 2014-08,
Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity |
