NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2016
(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. (“Biglari Holdings” or the “Company”) 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, 2015.
Biglari Holdings 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.
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”), 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.
Note 2. New Accounting Standards
In October 2016, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-17,
Interests Held through
Related Parties That Are under Common Control.
ASU 2016-17 amends the consolidation guidance in ASU 2015-02 regarding the treatment
of indirect interests held through related parties that are under common control. We are currently assessing the impact of ASU
2016-17, effective for annual reporting periods beginning after December 15, 2016 and interim periods within those years.
In August 2016, the FASB issued ASU
2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.
The objective of
the update is to reduce diversity in how certain transactions are classified in the statement of cash flows. The amendments in
this update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years. The Company is currently evaluating the impact the adoption of ASU 2016-15 will have on its consolidated
financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. Topic 326
amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For
available for sale debt securities, credit losses should be measured in a manner similar to current GAAP; however Topic 326 will
require that credit losses be presented as an allowance rather than as a write-down. The amendments in this update are effective
for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.
The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and
related disclosures.
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic 842)
, which amends the FASB Accounting Standards Codification. The objective of the update
is to improve financial reporting by increasing transparency and comparability among organizations by recognizing lease assets
and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. It is effective for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments
is permitted for all entities. The Company is currently evaluating the impact that this amended guidance will have on its consolidated
financial statements and related disclosures.
In November 2015, the FASB issued ASU
2015-17,
Balance Sheet Classification of Deferred Taxes
. The new guidance requires that all deferred tax assets and liabilities,
along with any related valuation allowance, be classified as noncurrent deferred tax asset or liability. The amendments in this
update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within
those fiscal years. Early application is permitted. The Company does not believe the adoption of ASU 2015-17 will have a material
effect on its consolidated financial statements.
In April
2015, the FASB issued ASU 2015-03,
Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation
of Debt Issuance Costs
. The update requires debt issuance costs related to a recognized debt liability to be presented in
the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The
recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The
amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim
periods within those fiscal years. The Company adopted ASU 2015-03 on January 1, 2016. As of December 31, 2015, the Company
reclassified $688 from other current assets to current portion of notes payable and other borrowings. The Company also
reclassified $2,888 from other assets to other borrowings and long-term notes payable
to conform to the current year classification.
In February
2015, the FASB issued ASU 2015-02,
Amendments to the Consolidations Analysis
. The amendments in this update provide guidance
under GAAP about limited partnerships, which will be variable interest entities, unless the limited partners have either substantive
kick-out rights or participation rights. It also changes the effect that fees paid to a decision maker or service provider have
on the consolidation analysis and amends how variable interests held by related parties affect the consolidation conclusion. The
amendments in this update are effective for the annual periods, and interim periods within those annual periods, beginning after
December 15, 2015. The Company adopted the provisions of ASU 2015-02 on January 1, 2016. The adoption of this update has no material
effect on the Company’s financial statements.
In August 2014,
the FASB issued ASU 2014-15,
Presentation of Financial Statements-Going Concern
. The amendments in this update provide guidance
in GAAP about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue
as a going concern and to provide related footnote disclosures. In doing so, the amendments should reduce diversity in the timing
and content of footnote disclosures. The amendments in this update are effective for the annual periods ending after December 15,
2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is evaluating the effect,
if any, on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
. This update provides a comprehensive new revenue recognition model that
requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the
consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about
the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In July 2015, the FASB voted
to defer the effective date of this ASU by one year, which would make the guidance effective for our first quarter fiscal year
2018 financial statements using either of two acceptable adoption methods: (i) retrospective adoption to each prior reporting period
presented with the option to elect certain practical expedients; or (ii) adoption with the cumulative effect of initially applying
the guidance recognized at the date of initial application and providing certain additional disclosures. We currently expect to
adopt ASU 2014-09 as of January 1, 2018 under the modified retrospective method where the cumulative effect is recognized at the
date of initial application. Our evaluation of ASU 2014-09 is ongoing and not complete. The FASB has issued and may issue in the
future, interpretative guidance, which may cause our evaluation to change. While we anticipate some changes to revenue recognition
for certain transactions, we do not currently believe ASU 2014-09 will have a material effect on our consolidated financial statements.
Note 3. 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 Lion Fund, L.P. and The Lion Fund II, L.P. — 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.
From December 18, 2014 to September
30, 2016, The Lion Fund, L.P. and The Lion Fund II, L.P. (collectively, the “investment partnerships”) purchased an
aggregate of 716,237 shares of the Company’s common stock pursuant to Rule 10b5-1 Trading Plans and a tender offer, of which
37,925 shares were purchased during the first nine months of 2016. All of the shares purchased by the investment partnerships remain
legally outstanding. As of September 30, 2016, Mr. Biglari’s beneficial ownership of the Company’s outstanding common
stock was approximately 51.3%.
Note 3. Earnings Per Share
(continued)
The following table presents a reconciliation
of basic and diluted weighted average common shares.
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
1,215,296
|
|
|
|
1,263,320
|
|
|
|
1,227,624
|
|
|
|
1,655,532
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
1,215,296
|
|
|
|
1,263,320
|
|
|
|
1,227,624
|
|
|
|
1,655,532
|
|
Dilutive effect of stock awards
|
|
|
—
|
|
|
|
2,008
|
|
|
|
1,311
|
|
|
|
2,254
|
|
Weighted average common and incremental shares
|
|
|
1,215,296
|
|
|
|
1,265,328
|
|
|
|
1,228,935
|
|
|
|
1,657,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of share-based awards excluded from the
calculation of earning per share (shares were anti-dilutive due to the Company's net loss in the third quarter of
2016)
|
|
|
3,177
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
The Company’s common stock is $0.50 stated value. The
following table presents shares authorized, issued and outstanding.
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Common stock authorized
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
|
|
|
2,142,202
|
|
|
|
2,142,202
|
|
Treasury stock held by the Company
|
|
|
(75,237
|
)
|
|
|
(75,511
|
)
|
Outstanding shares
|
|
|
2,066,965
|
|
|
|
2,066,691
|
|
Proportional ownership of the Company's
common stock in investment
partnerships
|
|
|
(861,028
|
)
|
|
|
(807,069
|
)
|
Net outstanding shares for financial reporting purposes
|
|
|
1,205,937
|
|
|
|
1,259,622
|
|
Note 4. Investments
Investments consisted of the following.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cost
|
|
$
|
22,831
|
|
|
$
|
24,842
|
|
Gross unrealized gains
|
|
|
26
|
|
|
|
10
|
|
Gross unrealized losses
|
|
|
(155
|
)
|
|
|
(1,102
|
)
|
Fair value
|
|
$
|
22,702
|
|
|
$
|
23,750
|
|
Investment gains/losses are recognized
when investments are sold (as determined on a specific identification basis) or as otherwise required by GAAP. The timing of realized
gains and losses from sales can have a material effect on periodic earnings. However, such realized gains or losses usually have
little, if any, impact on total shareholders’ equity because the investments are carried at fair value with any unrealized
gains/losses included as a component of accumulated other comprehensive income in shareholders’ equity. We believe
that realized investment gains/losses are often meaningless in terms of understanding reported results. Short-term investment gains/losses
have caused and may continue to cause volatility in our results.
Investments in equity securities and
a related put option of $4,464 are included in other assets and recorded at fair value.
Note 5. 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 they 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.
The fair value and adjustment for Company
common stock held by the investment partnerships to determine carrying value of our partnership interest is presented below.
|
|
Fair Value
|
|
|
Company
Common Stock
|
|
|
Carrying Value
|
|
Partnership interest at December 31, 2015
|
|
$
|
734,668
|
|
|
$
|
262,979
|
|
|
$
|
471,689
|
|
Investment partnership gains
|
|
|
114,088
|
|
|
|
92,180
|
|
|
|
21,908
|
|
Contributions (net of distributions) to investment partnerships
|
|
|
(10,896
|
)
|
|
|
|
|
|
|
(10,896
|
)
|
Increase in proportionate share of Company stock held
|
|
|
|
|
|
|
19,807
|
|
|
|
(19,807
|
)
|
Partnership interest at September 30, 2016
|
|
$
|
837,860
|
|
|
$
|
374,966
|
|
|
$
|
462,894
|
|
|
|
Fair Value
|
|
|
Company
Common Stock
|
|
|
Carrying Value
|
|
Partnership interest at December 31, 2014
|
|
$
|
776,899
|
|
|
$
|
78,917
|
|
|
$
|
697,982
|
|
Investment partnership gains
|
|
|
(16,313
|
)
|
|
|
(39,023
|
)
|
|
|
22,710
|
|
Contributions (net of distributions) to investment partnerships
|
|
|
73,500
|
|
|
|
|
|
|
|
73,500
|
|
Increase in proportionate share of Company stock held
|
|
|
|
|
|
|
255,272
|
|
|
|
(255,272
|
)
|
Partnership interest at September 30, 2015
|
|
$
|
834,086
|
|
|
$
|
295,166
|
|
|
$
|
538,920
|
|
The fair value of the investment partnerships
net of deferred taxes is presented below.
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Fair value of investment partnerships
|
|
$
|
837,860
|
|
|
$
|
734,668
|
|
Deferred tax liability related to investment partnerships
|
|
|
(116,097
|
)
|
|
|
(115,952
|
)
|
Fair value of investment partnerships net of deferred taxes
|
|
$
|
721,763
|
|
|
$
|
618,716
|
|
The Company’s proportionate share
of Company stock held by investment partnerships at cost is $352,634 and $332,827 at September 30, 2016 and December 31, 2015,
respectively, and is recorded as treasury stock.
The carrying value of the partnership
interest approximates fair value adjusted by changes in the value of held Company stock. Fair value is according to our proportional
ownership interest of the fair value of investments held by the investment partnerships. The fair value measurement is classified
as level 3 within the fair value hierarchy.
Note 5. Investment Partnerships
(continued)
Gains from investment partnerships recorded in the Company’s
consolidated statements of earnings are presented below.
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Investment partnership gains (losses)
|
|
$
|
(108,614
|
)
|
|
$
|
5,302
|
|
|
$
|
21,908
|
|
|
$
|
22,710
|
|
Loss on contribution of securities to investment partnership
|
|
|
—
|
|
|
|
—
|
|
|
|
(306
|
)
|
|
|
—
|
|
Investment partnership gains (losses)
|
|
|
(108,614
|
)
|
|
|
5,302
|
|
|
|
21,602
|
|
|
|
22,710
|
|
Tax expense (benefit)
|
|
|
(44,383
|
)
|
|
|
(1,688
|
)
|
|
|
2,373
|
|
|
|
3,163
|
|
Contribution to net earnings (loss)
|
|
$
|
(64,231
|
)
|
|
$
|
6,990
|
|
|
$
|
19,229
|
|
|
$
|
19,547
|
|
Non-cash investments were $1,219 (net
of non-cash distributions) for the first nine months of 2016.
As the general partner of the investment
partnerships, Biglari Capital Corp. (“Biglari Capital”) on December 31 of each year will earn an incentive reallocation
fee for the Company’s investments equal to 25% of the net profits over an annual hurdle rate of 6% above the previous high-water
mark. Our policy is to accrue an estimated incentive fee throughout the year; however, no fees are reallocated until the end
of the calendar year. As of September 30, 2016 and 2015, the Company accrued incentive fees for Biglari Capital of $191 and $413,
respectively. Our investments in these partnerships are committed on a rolling 5-year basis. Mr. Biglari is the sole owner of Biglari
Capital.
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, 2016
|
|
$
|
203,507
|
|
|
$
|
917,197
|
|
Total liabilities as of September 30, 2016
|
|
$
|
710
|
|
|
$
|
174,601
|
|
Revenue for the first nine months ending September 30, 2016
|
|
$
|
23,926
|
|
|
$
|
112,715
|
|
Earnings for the first nine months ending September 30, 2016
|
|
$
|
23,792
|
|
|
$
|
108,327
|
|
Biglari Holdings’ Ownership Interest
|
|
|
64.9%
|
|
|
|
95.2%
|
|
|
|
|
|
|
|
|
|
|
Total assets as of December 31, 2015
|
|
$
|
165,996
|
|
|
$
|
819,323
|
|
Total liabilities as of December 31, 2015
|
|
$
|
409
|
|
|
$
|
141,274
|
|
Revenue for the first nine months ending September 30, 2015
|
|
$
|
(14,112
|
)
|
|
$
|
(6,634
|
)
|
Earnings for the first nine months ending September 30, 2015
|
|
$
|
(14,199
|
)
|
|
$
|
(8,389
|
)
|
Biglari Holdings’ Ownership Interest
|
|
|
60.9%
|
|
|
|
93.5%
|
|
Revenue in the above summarized financial
information of the investment partnerships includes investment income and unrealized gains and losses on investments. The investments
held by the investment partnerships are largely concentrated in the common stock of one investee, Cracker Barrel Old Country Store,
Inc.
Note 6. Property and Equipment
Property and equipment is composed of
the following.
|
|
September 30,
2016
|
|
|
December 31, 2015
|
|
Land
|
|
$
|
161,578
|
|
|
$
|
160,697
|
|
Buildings
|
|
|
156,748
|
|
|
|
156,909
|
|
Land and leasehold improvements
|
|
|
164,121
|
|
|
|
165,042
|
|
Equipment
|
|
|
199,790
|
|
|
|
199,934
|
|
Construction in progress
|
|
|
3,207
|
|
|
|
3,478
|
|
|
|
|
685,444
|
|
|
|
686,060
|
|
Less accumulated depreciation and amortization
|
|
|
(365,952
|
)
|
|
|
(353,736
|
)
|
Property and equipment, net
|
|
$
|
319,492
|
|
|
$
|
332,324
|
|
Note 7. Goodwill and Other Intangibles
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.
|
|
Restaurants
|
|
|
Other
|
|
|
Total
|
|
Goodwill at December 31, 2015
|
|
$
|
28,109
|
|
|
$
|
11,913
|
|
|
$
|
40,022
|
|
Change in foreign exchange rates during first nine months 2016
|
|
|
19
|
|
|
|
—
|
|
|
|
19
|
|
Goodwill at September 30, 2016
|
|
$
|
28,128
|
|
|
$
|
11,913
|
|
|
$
|
40,041
|
|
We are required to assess goodwill and
any indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have
occurred. The analysis of potential impairment of goodwill requires a two-step approach. The first is the estimation of fair value
of each reporting unit. If step one indicates that impairment potentially exists, the second step is performed to measure the amount
of impairment, if any. Goodwill impairment occurs when the estimated fair value of goodwill is less than its carrying value.
The valuation methodology and underlying
financial information included in our determination of fair value require significant management judgments. We use both market
and income approaches to derive fair value. The judgments in these two approaches include, but are not limited to, comparable market
multiples, long-term projections of future financial performance, and the selection of appropriate discount rates used to determine
the present value of future cash flows. Changes in such estimates or the application of alternative assumptions could produce significantly
different results. No impairment charges for goodwill were recorded in the first nine months of 2016 or 2015.
Other Intangibles
Other intangibles are composed of the
following.
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
|
Gross carrying amount
|
|
|
|
Accumulated amortization
|
|
|
|
Total
|
|
|
|
Gross carrying amount
|
|
|
|
Accumulated amortization
|
|
|
|
Total
|
|
Franchise agreement
|
|
$
|
5,310
|
|
|
$
|
(3,452
|
)
|
|
$
|
1,858
|
|
|
$
|
5,310
|
|
|
$
|
(3,054
|
)
|
|
$
|
2,256
|
|
Other
|
|
|
810
|
|
|
|
(697
|
)
|
|
|
113
|
|
|
|
810
|
|
|
|
(667
|
)
|
|
|
143
|
|
Total
|
|
|
6,120
|
|
|
|
(4,149
|
)
|
|
|
1,971
|
|
|
|
6,120
|
|
|
|
(3,721
|
)
|
|
|
2,399
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
15,876
|
|
|
|
—
|
|
|
|
15,876
|
|
|
|
15,876
|
|
|
|
—
|
|
|
|
15,876
|
|
Other assets with indefinite lives
|
|
|
3,516
|
|
|
|
—
|
|
|
|
3,516
|
|
|
|
3,398
|
|
|
|
—
|
|
|
|
3,398
|
|
Total intangible assets
|
|
$
|
25,512
|
|
|
$
|
(4,149
|
)
|
|
$
|
21,363
|
|
|
$
|
25,394
|
|
|
$
|
(3,721
|
)
|
|
$
|
21,673
|
|
Note 7. Goodwill and Other Intangibles
(continued)
Intangible assets subject to amortization
consist of franchise agreements connected with the purchase of Western as well as rights to favorable leases related to prior acquisitions.
These intangible assets are being amortized over their estimated weighted average of useful lives ranging from eight to twelve
years.
Amortization expense for the first nine
months of 2016 and 2015 was $428 and $431, respectively. Total annual amortization expense for years 2017 through 2019 will approximate
$559 per year. The Company’s intangible assets with definite lives will fully amortize in 2020.
Intangible assets with indefinite lives
consist of trade names, franchise rights as well as lease rights.
Note 8. Restaurant Operations Revenues
Restaurant operations revenues were
as follows.
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net sales
|
|
$
|
203,701
|
|
|
$
|
203,503
|
|
|
$
|
603,850
|
|
|
$
|
601,951
|
|
Franchise royalties and fees
|
|
|
4,962
|
|
|
|
4,017
|
|
|
|
14,096
|
|
|
|
12,093
|
|
Other
|
|
|
782
|
|
|
|
828
|
|
|
|
2,503
|
|
|
|
2,671
|
|
|
|
$
|
209,445
|
|
|
$
|
208,348
|
|
|
$
|
620,449
|
|
|
$
|
616,715
|
|
Note 9. Borrowings
Notes payable and other borrowings include the following.
Current portion of notes payable and other borrowings
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Notes payable
|
|
$
|
2,200
|
|
|
$
|
2,200
|
|
Unamortized original issue discount
|
|
|
(305
|
)
|
|
|
(296
|
)
|
Unamortized debt issuance costs
|
|
|
(705
|
)
|
|
|
(688
|
)
|
Obligations under leases
|
|
|
5,538
|
|
|
|
5,787
|
|
Western revolver
|
|
|
432
|
|
|
|
786
|
|
Total current portion of notes payable and other borrowings
|
|
$
|
7,160
|
|
|
$
|
7,789
|
|
|
|
|
|
|
|
|
|
|
Long-term notes payable and other borrowings
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
201,448
|
|
|
$
|
210,175
|
|
Unamortized original issue discount
|
|
|
(1,172
|
)
|
|
|
(1,403
|
)
|
Unamortized debt issuance costs
|
|
|
(2,356
|
)
|
|
|
(2,888
|
)
|
Obligations under leases
|
|
|
86,357
|
|
|
|
90,178
|
|
Total long-term notes payable and other borrowings
|
|
$
|
284,277
|
|
|
$
|
296,062
|
|
ASU 2015-03 requires debt issuance costs
to be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability. As of December 31, 2015,
the Company reclassified unamortized debt issuance costs from other assets to notes payable and other borrowings.
Steak n Shake Credit Facility
On March 19, 2014, Steak n Shake and
its subsidiaries entered into a new credit agreement. This credit agreement provides for a senior secured term loan facility in
an aggregate principal amount of $220,000 and a senior secured revolving credit facility in an aggregate principal amount of up
to $30,000.
The term loan is scheduled to mature
on March 19, 2021. It amortizes at an annual rate of 1.0% in equal quarterly installments, beginning June 30, 2014, at 0.25% of
the original principal amount of the term loan, subject to mandatory prepayments from excess cash flow, asset sales and other events
described in the credit agreement. The balance will be due at maturity. The revolver will be available on a revolving basis until
March 19, 2019.
Note 9. Borrowings
(continued)
Steak n Shake has the right to request
an incremental term loan facility from participating lenders and/or eligible assignees at any time, up to an aggregate total principal
amount not to exceed $70,000 if certain customary conditions within the credit agreement are met.
Borrowings bear interest at a rate per
annum equal to a base rate or a Eurodollar rate (minimum of 1%) plus an applicable margin. Interest on the term loan is based on
a Eurodollar rate plus an applicable margin of 3.75% or on the prime rate plus an applicable margin of 2.75%. Interest on loans
under the revolver is based on a Eurodollar rate plus an applicable margin ranging from 2.75% to 4.25% or on the prime rate plus
an applicable margin ranging from 1.75% to 3.25%. The applicable margins on revolver loans are contingent on Steak n Shake’s
total leverage ratio. The revolver also carries a commitment fee ranging from 0.40% to 0.50% per annum, depending on Steak n Shake’s
total leverage ratio, on the unused portion of the revolver.
The interest rate on the term loan was
4.75% as of September 30, 2016.
The credit agreement includes customary
affirmative and negative covenants and events of default, as well as a financial maintenance covenant, solely with respect to the
revolver, relating to the maximum total leverage ratio. Steak n Shake’s credit facility contains restrictions on its ability
to pay dividends to Biglari Holdings.
Both the term loan and the revolver
have been secured by first priority security interests in substantially all the assets of Steak n Shake. Biglari Holdings is not
a guarantor under the credit facility. As of September 30, 2016, $203,648 was outstanding under the term loan, and no amount was
outstanding under the revolver.
Steak n Shake had $10,188 in standby
letters of credit outstanding as of September 30, 2016 and December 31, 2015.
Western Revolver
As of September 30, 2016, Western has
$432 due December 13, 2016.
Fair Value of Debt
The carrying amounts for debt reported
in the consolidated balance sheet did not differ materially from their fair values at September 30, 2016 and December 31, 2015.
The fair value was determined to be a Level 3 fair value measurement.
Note 10. Accumulated Other Comprehensive
Income
During the first nine months of 2016
and 2015, the changes in the balances of each component of accumulated other comprehensive income, net of tax, were as follows.
|
|
Nine months ended September 30, 2016
|
|
|
Nine months ended September 30, 2015
|
|
|
|
|
Foreign Currency Translation Adjustments
|
|
|
|
Investment Gain (Loss)
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
|
Foreign Currency Translation Adjustments
|
|
|
|
Investment Gain (Loss)
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Beginning Balance
|
|
$
|
(2,992
|
)
|
|
$
|
(687
|
)
|
|
$
|
(3,679
|
)
|
|
$
|
(620
|
)
|
|
$
|
(163
|
)
|
|
$
|
(783
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
163
|
|
|
|
405
|
|
|
|
568
|
|
|
|
(1,760
|
)
|
|
|
(348
|
)
|
|
|
(2,108
|
)
|
Reclassification to (earnings) loss
|
|
|
—
|
|
|
|
193
|
|
|
|
193
|
|
|
|
—
|
|
|
|
41
|
|
|
|
41
|
|
Ending Balance
|
|
$
|
(2,829
|
)
|
|
$
|
(89
|
)
|
|
$
|
(2,918
|
)
|
|
$
|
(2,380
|
)
|
|
$
|
(470
|
)
|
|
$
|
(2,850
|
)
|
Note 10. Accumulated Other Comprehensive
Income
(continued)
Reclassifications made from accumulated
other comprehensive income to the consolidated statement of earnings during the first nine months of 2016 and 2015 were as follows.
Reclassifications from Accumulated Other Comprehensive Income
|
|
2016
|
|
|
2015
|
|
|
Affected Line Item in the
Consolidated Statement of Earnings
|
Investment gain
|
|
$
|
—
|
|
|
$
|
(62
|
)
|
|
Insurance premiums and other
|
|
|
|
(306
|
)
|
|
|
—
|
|
|
Investment partnership gains (losses)
|
|
|
|
(113
|
)
|
|
|
(21
|
)
|
|
Income tax expense (benefit)
|
|
|
$
|
(193
|
)
|
|
$
|
(41
|
)
|
|
Net of tax
|
During the third quarters of 2016 and 2015, the changes in
the balances of each component of accumulated other comprehensive income, net of tax, were as follows.
|
|
Third Quarter 2016
|
|
|
Third Quarter 2015
|
|
|
|
|
Foreign Currency Translation Adjustments
|
|
|
|
Investment Gain (Loss)
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
|
Foreign Currency Translation Adjustments
|
|
|
|
Investment Gain (Loss)
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Beginning Balance
|
|
$
|
(2,871
|
)
|
|
$
|
(126
|
)
|
|
$
|
(2,997
|
)
|
|
$
|
(492
|
)
|
|
$
|
(470
|
)
|
|
$
|
(962
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
42
|
|
|
|
37
|
|
|
|
79
|
|
|
|
(1,888
|
)
|
|
|
(5
|
)
|
|
|
(1,893
|
)
|
Reclassification to (earnings) loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
5
|
|
Ending Balance
|
|
$
|
(2,829
|
)
|
|
$
|
(89
|
)
|
|
$
|
(2,918
|
)
|
|
$
|
(2,380
|
)
|
|
$
|
(470
|
)
|
|
$
|
(2,850
|
)
|
Reclassifications made from accumulated
other comprehensive income to the consolidated statement of earnings during the third quarters of 2016 and 2015 were as follows.
Reclassifications from Accumulated Other Comprehensive Income
|
|
Third Quarter 2016
|
|
|
Third Quarter 2015
|
|
|
Affected Line Item in the
Consolidated Statement of Earnings
|
Investment gain
|
|
$
|
—
|
|
|
$
|
(7
|
)
|
|
Insurance premiums and other
|
|
|
|
—
|
|
|
|
—
|
|
|
Investment partnership gains (losses)
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
Income tax expense (benefit)
|
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
Net of tax
|
Note 11. Income Taxes
In determining the quarterly provision
for income taxes, the Company uses an estimated annual effective tax rate based on expected annual income, statutory tax rates,
and available tax planning opportunities in the various jurisdictions in which the Company operates. Unusual or infrequently occurring
items are separately recognized during the quarter in which they occur.
Income tax for the third quarter of
2016 was a benefit of $44,129 compared to a benefit of $248 for the third quarter of 2015. Income tax expense for the
first nine months of 2016 was $5,011 compared to $4,739 for the first nine months of 2015. The variance in income taxes between
the third quarters of 2016 and 2015 is primarily attributable to taxes on income and losses from investment partnerships.
As of September 30, 2016 and December
31, 2015, we had approximately $366 and $413, respectively, of unrecognized tax benefits, which are included in other liabilities
in the consolidated balance sheets.
Note 12. 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 flows.
In 2013 two shareholders of the
Company filed derivative actions putatively on behalf of the Company against the members of our Board of Directors in the United
States District Courts for the Southern District of Indiana and the Western District of Texas. The actions were consolidated
in the Southern District of Indiana in 2014. On March 18, 2015, the United States District Court for the Southern District
of Indiana granted a motion to dismiss the derivative actions in favor of the Company. In addition, the Court issued judgment
on all counts in favor of the Company and its directors.
The two shareholders appealed the Southern
District of Indiana Court’s March 18, 2015 decision. On February 17, 2016, the United States Court of Appeals for the Seventh
Circuit affirmed the decision of the District Court dismissing, in their entirety, all claims made against the Company and its
Board of Directors.
Note 13. Fair Value of Financial Assets and Liabilities
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. 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 and liabilities recorded at fair value in the consolidated
balance sheet:
Cash equivalents:
Cash equivalents
primarily consist of money market funds which are classified within Level 1 of the fair value hierarchy.
Equity securities:
The Company’s
investments in equity securities are classified within Level 1 of the fair value hierarchy.
Bonds:
The Company’s investments
in bonds are classified within 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 are classified
within Level 1 of the fair value hierarchy.
Derivative instruments:
Options
related to equity securities and interest rate swaps are marked to market each reporting period and are classified within Level
2 of the fair value hierarchy.
Note 13. Fair Value of Financial
Assets and Liabilities
(continued)
As of September 30, 2016 and December
31, 2015, the fair values of financial assets and liabilities were as follows.
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
153
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
153
|
|
|
$
|
700
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
700
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,046
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,046
|
|
Consumer goods
|
|
|
2,337
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,337
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Bonds
|
|
|
—
|
|
|
|
25,307
|
|
|
|
—
|
|
|
|
25,307
|
|
|
|
—
|
|
|
|
21,304
|
|
|
|
—
|
|
|
|
21,304
|
|
Options on equity securities
|
|
|
—
|
|
|
|
2,127
|
|
|
|
—
|
|
|
|
2,127
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Non-qualified deferred compensation plan investments
|
|
|
2,599
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,599
|
|
|
|
2,203
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,203
|
|
Total assets at fair value
|
|
$
|
5,089
|
|
|
$
|
27,434
|
|
|
$
|
—
|
|
|
$
|
32,523
|
|
|
$
|
7,949
|
|
|
$
|
21,304
|
|
|
$
|
—
|
|
|
$
|
29,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2
|
|
Total liabilities at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2
|
|
There were no changes in our valuation
techniques used to measure fair values on a recurring basis.
Note 14. Related Party Transactions
In 2013 Biglari Holdings entered into
the following agreements with Mr. Biglari, its Chairman and Chief Executive Officer: (i) a Stock Purchase Agreement for the sale
of Biglari Capital to Mr. Biglari (the “Biglari Capital Transaction”); (ii) a Shared Services Agreement with Biglari
Capital, and (iii) a First Amendment to the Amended and Restated Incentive Agreement with Mr. Biglari (the “Incentive Agreement
Amendment”). The transactions contemplated thereby were unanimously approved by the independent Governance, Compensation
and Nominating Committee of the Board of Directors of the Company (the “Committee”), which retained separate counsel,
tax/accounting advisors, an independent compensation consultant, and a financial advisor to assist the Committee in the structuring,
evaluation, and negotiation of such transactions. Mr. Biglari is the sole owner of Biglari Capital.
Shared Services Agreement
Connected with the Biglari Capital
Transaction, Biglari Holdings and Biglari Capital entered into the Shared Services Agreement pursuant to which Biglari Holdings
provides certain services to Biglari Capital in exchange for a 6% hurdle rate for Biglari Holdings and its subsidiaries (as compared
to a 5% hurdle rate for all other limited partners) in order to determine the incentive reallocation to Biglari Capital, as general
partner of The Lion Fund, L.P. and The Lion Fund II, L.P., under their respective partnership agreements. The incentive reallocation
to Biglari Capital is equal to 25% of the net profits allocated to the limited partners in excess of their applicable hurdle rate
above the previous high-water mark. The Shared Services Agreement runs for an initial five-year term, and automatically renews
for successive five-year periods, unless terminated by either party effective at the end of the initial or the renewed term, as
applicable. The term of the Shared Services Agreement coincides with the lock-up period for the Company’s investments in
The Lion Fund, L.P. and The Lion Fund II, L.P. under their respective partnership agreements. The Company provided services for
Biglari Capital under the Shared Services Agreement costing an aggregate of $494 for the third quarter of 2016 and $152 for the
third quarter of 2015, and $1,145 for the first nine months of 2016 and $3,943 for the first nine months of 2015.
Investments in The Lion Fund,
L.P. and The Lion Fund II, L.P.
As of September 30, 2016, the Company’s investments in The Lion Fund, L.P. and The Lion Fund II, L.P. had a fair value of
$837,860.
Note 14. Related Party Transactions
(continued)
As the general partner of the investment
partnerships, Biglari Capital on December 31 of each year will earn an incentive reallocation fee for the Company’s investments
equal to 25% of the net profits over an annual hurdle rate of 6% above the previous high-water mark. Our policy is to accrue
an estimated incentive fee throughout the year; however, no fees are reallocated until the end of the calendar year. The Company
accrued $191 and $413 in incentive fees for Biglari Capital during the first nine months of 2016 and 2015, respectively.
Incentive Agreement Amendment
Also in connection with the Biglari
Capital Transaction, Biglari Holdings and Mr. Biglari entered into the Incentive Agreement Amendment which amends the Amended and
Restated Incentive Agreement with Mr. Biglari to reflect and give effect to the Biglari Capital Transaction, which excludes earnings
by the investment partnerships from the calculation of Mr. Biglari’s incentive bonus.
Under the Amended and Restated Incentive
Agreement Mr. Biglari would receive a payment of approximately $17,000 if an event occurred entitling him to a severance payment.
License Agreement
In 2013 the Company entered into a Trademark
License Agreement (the “License Agreement”) with Mr. Biglari. The License Agreement was unanimously approved by the
Committee. In addition, the license under the License Agreement is provided on a royalty-free basis in the absence of specified
extraordinary events described below. Accordingly, the Company and its subsidiaries have paid no royalties to Mr. Biglari under
the License Agreement since its inception.
Under the License Agreement, Mr. Biglari
granted to the Company an exclusive license to use the Biglari and Biglari Holdings names (the “Licensed Marks”) in
association with various products and services (collectively the “Products and Services”). Upon (a) the expiration
of twenty years from the date of the License Agreement (subject to extension as provided in the License Agreement), (b) Mr. Biglari’s
death, (c) the termination of Mr. Biglari’s employment by the Company for Cause (as defined in the License Agreement), or
(d) Mr. Biglari’s resignation from his employment with the Company absent an Involuntary Termination Event (as defined in
the License Agreement), the Licensed Marks for the Products and Services will transfer from Mr. Biglari to the Company, without
any compensation, if the Company is continuing to use the Licensed Marks in the ordinary course of its business. Otherwise, the
rights will revert to Mr. Biglari.
If (i) a Change of Control (as defined
in the License Agreement) of the Company; (ii) the termination of Mr. Biglari’s employment by the Company without Cause;
or (iii) Mr. Biglari’s resignation from his employment with the Company due to an Involuntary Termination Event (each, a
“Triggering Event”) were to occur, Mr. Biglari would be entitled to receive a 2.5% royalty on “Revenues”
with respect to the “Royalty Period.” The royalty payment to Mr. Biglari would not apply to all revenues received by
Biglari Holdings and its subsidiaries nor would it apply retrospectively (
i.e.
, to revenues received with respect to the
period prior to the Triggering Event). The royalty would apply to revenues recorded by the Company on an accrual basis under GAAP,
solely with respect to the defined period of time after the Triggering Event equal to the Royalty Period, from a covered Product,
Service or business that (1) has used the Biglari Holdings or Biglari name at any time during the term of the License Agreement,
whether prior to or after a Triggering Event, or (2) the Company has specifically identified, prior to a Triggering Event, will
use the name Biglari or Biglari Holdings.
“Revenues” means all revenues
received, on an accrual basis under GAAP, by the Company, its subsidiaries and affiliates from the following: (1) all Products
and Services covered by the License Agreement bearing or associated with the names Biglari and Biglari Holdings at any time (whether
prior to or after a Triggering Event). This category would include, without limitation, the use of Biglari or Biglari Holdings
in the public name of a business providing any covered Product or Service; and (2) all covered Products, Services and businesses
that the Company has specifically identified, prior to a Triggering Event, will bear, use or be associated with the name Biglari
or Biglari Holdings.
The Committee unanimously approved the
association of the Biglari name and mark with all of Steak n Shake’s restaurants (including Company operated and franchised
locations), products and brands. On May 14, 2013, the Company, Steak n Shake, LLC and Steak n Shake Enterprises, Inc. entered into
a Trademark Sublicense Agreement in connection therewith. Accordingly, revenues received by the Company, its subsidiaries and affiliates
from Steak n Shake’s restaurants, products and brands would come within the definition of Revenues for purposes of the License
Agreement.
Note 14. Related Party Transactions
(continued)
The “Royalty Period” is
a defined period of time, after the Triggering Event, calculated as follows: (i) if, following three months after a Triggering
Event, the Company or any of its subsidiaries or affiliates continues to use the Biglari or Biglari Holdings name in connection
with any covered product or service, or continues to use Biglari as part of its corporate or public company name, then the “Royalty
Period” will equal (a) the period of time during which the Company or any of its subsidiaries or affiliates continues any
such use, plus (b) a period of time after the Company, its subsidiaries and affiliates have ceased all uses of the names Biglari
and Biglari Holdings equal to the length of the term of the License Agreement prior to the Triggering Event, plus three years.
As an example, if a Triggering Event occurs five years after the date of the License Agreement, and the Company ceases all uses
of the Biglari and Biglari Holdings names two years after the Triggering Event, the Royalty Period will equal a total of ten years
(the sum of two years after the Triggering Event during which the Biglari and Biglari Holdings names are being used, plus a period
of time equal to the five years prior to the Triggering Event, plus three years); or (ii) if the Company, its subsidiaries and
affiliates cease all uses of the Biglari and Biglari Holdings names within three months after a Triggering Event, then the “Royalty
Period” will equal the length of the term of the License Agreement prior to the Triggering Event, plus three years. As an
example, if a Triggering Event occurs five years after the date of the License Agreement, and the Company ceases all uses of the
Biglari and Biglari Holdings names two months after the Triggering Event, the Royalty Period will equal a total of eight years
(the sum of the period of time equal to the five years prior to the Triggering Event, plus three years). Notwithstanding the above
methods of determining the Royalty Period, the minimum Royalty Period is five years after a Triggering Event.
The Company and its subsidiaries have
paid no royalties to Mr. Biglari under the License Agreement since its execution.
The actual amount of royalties paid
to Mr. Biglari following the occurrence of a Triggering Event (as defined in the License Agreement) would depend on the Company’s
revenues during the applicable period following the Triggering Event, and, therefore, depends on material assumptions and estimates
regarding future operations and revenues. Assuming for purposes of illustration a Triggering Event occurred on December 31, 2015,
using revenue from fiscal year 2015 as an estimate of future revenue and calculated according to terms of the License Agreement,
Mr. Biglari would receive approximately $20,500 in royalty payments annually. At a minimum, the royalties would be earned on revenue
generated from January 1, 2016 through December 19, 2021. Royalty payments beyond the minimum period would be subject to the licensee's
continued use of the licensed marks.
Note 15. Business Segment Reporting
Our reportable business segments are
organized in a manner that reflects how management views those business activities.
Our restaurant operations includes Steak
n Shake and Western. As a result of the acquisitions of First Guard and Maxim, the Company reports segment information for these
businesses. Prior to the fourth quarter of 2015, other business activities not specifically identified with reportable business
segments were presented in corporate expenses. Such other business activities are now presented in “other” within
total operating businesses. Prior periods have been reclassified to conform to the current presentation. 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.
Note 15. Business Segment Reporting
(continued)
Revenue by segment for the third quarters
and first nine months of 2016 and 2015 were as follows.
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Operating Businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steak n Shake
|
|
$
|
206,248
|
|
|
$
|
204,837
|
|
|
$
|
609,974
|
|
|
$
|
606,138
|
|
Western
|
|
|
3,197
|
|
|
|
3,511
|
|
|
|
10,475
|
|
|
|
10,577
|
|
Total Restaurant Operations
|
|
|
209,445
|
|
|
|
208,348
|
|
|
|
620,449
|
|
|
|
616,715
|
|
First Guard
|
|
|
5,841
|
|
|
|
4,391
|
|
|
|
17,071
|
|
|
|
11,762
|
|
Maxim
|
|
|
1,446
|
|
|
|
5,704
|
|
|
|
6,567
|
|
|
|
17,750
|
|
|
|
$
|
216,732
|
|
|
$
|
218,443
|
|
|
$
|
644,087
|
|
|
$
|
646,227
|
|
Earnings (loss) before income taxes
by segment for the third quarters and first nine months of 2016 and 2015 were as follows.
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Operating Businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steak n Shake
|
|
$
|
10,443
|
|
|
$
|
10,826
|
|
|
$
|
30,949
|
|
|
$
|
30,876
|
|
Western
|
|
|
542
|
|
|
|
708
|
|
|
|
1,965
|
|
|
|
1,806
|
|
Total Restaurant Operations
|
|
|
10,985
|
|
|
|
11,534
|
|
|
|
32,914
|
|
|
|
32,682
|
|
First Guard
|
|
|
1,177
|
|
|
|
1,302
|
|
|
|
4,602
|
|
|
|
3,101
|
|
Maxim
|
|
|
(2,810
|
)
|
|
|
(4,211
|
)
|
|
|
(9,646
|
)
|
|
|
(14,270
|
)
|
Other
|
|
|
139
|
|
|
|
108
|
|
|
|
404
|
|
|
|
255
|
|
Total Operating Businesses
|
|
|
9,491
|
|
|
|
8,733
|
|
|
|
28,274
|
|
|
|
21,768
|
|
Corporate and Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
(2,304
|
)
|
|
|
(2,019
|
)
|
|
|
(7,688
|
)
|
|
|
(11,463
|
)
|
Investment partnership gains (losses)
|
|
|
(108,614
|
)
|
|
|
5,302
|
|
|
|
21,602
|
|
|
|
22,710
|
|
Total Corporate and Investments
|
|
|
(110,918
|
)
|
|
|
3,283
|
|
|
|
13,914
|
|
|
|
11,247
|
|
Interest expense on notes payable and other borrowings
|
|
|
(2,831
|
)
|
|
|
(2,966
|
)
|
|
|
(8,626
|
)
|
|
|
(8,969
|
)
|
|
|
$
|
(104,258
|
)
|
|
$
|
9,050
|
|
|
$
|
33,562
|
|
|
$
|
24,046
|
|