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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from ___ to ___
Commission file number 001-38477
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BIGLARI HOLDINGS INC. |
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(Exact name of registrant as specified in its charter) |
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Indiana |
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82-3784946 |
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(State or other jurisdiction of incorporation) |
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(I.R.S. Employer Identification No.) |
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17802 IH 10 West,
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Suite 400
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San Antonio, |
TX |
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78257 |
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(Address of principal executive offices) |
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(Zip Code) |
(210) 344-3400
Registrant’s telephone number, including area code
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading Symbols |
Name of each exchange on which registered |
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Class A Common Stock, no par value |
BH.A |
New York Stock Exchange |
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Class B Common Stock, no par value |
BH |
New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes x
No
¨
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (Section 232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Yes x
No
¨
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See
the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and an “emerging growth company”
in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
☒ |
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Non-accelerated filer |
☐ |
Smaller reporting company |
☐ |
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Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
¨
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
☐ No
x
Number of shares of common stock outstanding as of November 2,
2021:
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Class A common stock – |
206,864 |
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Class B common stock – |
2,068,640 |
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BIGLARI HOLDINGS INC.
INDEX
PART 1 – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIGLARI HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
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September 30,
2021 |
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December 31,
2020 |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
27,795 |
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$ |
24,503 |
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Investments |
99,006 |
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94,861 |
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Receivables |
23,885 |
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19,185 |
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Inventories |
3,102 |
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2,737 |
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Other current assets |
6,763 |
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6,492 |
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Total current assets |
160,551 |
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147,778 |
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Property and equipment |
352,822 |
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316,122 |
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Operating lease assets |
44,598 |
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42,832 |
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Goodwill and other intangible assets |
77,179 |
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77,661 |
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Investment partnerships |
273,089 |
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419,550 |
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Other assets |
11,132 |
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14,025 |
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Total assets |
$ |
919,371 |
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$ |
1,017,968 |
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Liabilities and shareholders’ equity |
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Liabilities |
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Current liabilities: |
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Accounts payable and accrued expenses |
$ |
100,898 |
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$ |
90,892 |
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Loss and loss adjustment expenses |
13,401 |
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14,652 |
|
|
Unearned premiums |
11,303 |
|
|
13,277 |
|
|
Current portion of lease obligations |
17,230 |
|
|
17,365 |
|
|
Current portion of notes payable |
— |
|
|
152,261 |
|
|
Total current liabilities |
142,832 |
|
|
288,447 |
|
|
Lease obligations |
107,949 |
|
|
111,645 |
|
|
Deferred taxes |
57,910 |
|
|
41,346 |
|
|
Asset retirement obligations |
10,314 |
|
|
10,022 |
|
|
Other liabilities |
1,800 |
|
|
1,680 |
|
|
Total liabilities |
320,805 |
|
|
453,140 |
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
Common stock |
1,138 |
|
|
1,138 |
|
|
Additional paid-in capital |
381,788 |
|
|
381,788 |
|
|
Retained earnings |
613,351 |
|
|
573,050 |
|
|
Accumulated other comprehensive loss |
(1,909) |
|
|
(1,531) |
|
|
Treasury stock, at cost |
(395,802) |
|
|
(389,617) |
|
|
Biglari Holdings Inc. shareholders’ equity |
598,566 |
|
|
564,828 |
|
|
Total liabilities and shareholders’ equity |
$ |
919,371 |
|
|
$ |
1,017,968 |
|
See accompanying Notes to Consolidated Financial
Statements.
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
(Unaudited) |
|
(Unaudited) |
|
Revenues |
|
|
|
|
|
|
|
|
Restaurant operations |
$ |
59,144 |
|
|
$ |
79,674 |
|
|
$ |
196,424 |
|
|
$ |
272,582 |
|
|
Insurance premiums and other |
14,723 |
|
|
14,413 |
|
|
43,729 |
|
|
38,692 |
|
|
Oil and gas |
7,353 |
|
|
6,029 |
|
|
24,310 |
|
|
19,554 |
|
|
Media and licensing |
863 |
|
|
1,719 |
|
|
2,695 |
|
|
3,209 |
|
|
|
82,083 |
|
|
101,835 |
|
|
267,158 |
|
|
334,037 |
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
Restaurant cost of sales |
41,694 |
|
|
54,062 |
|
|
129,297 |
|
|
194,737 |
|
|
Insurance losses and underwriting expenses |
10,672 |
|
|
11,290 |
|
|
31,733 |
|
|
28,866 |
|
|
Oil and gas production costs |
2,050 |
|
|
2,171 |
|
|
6,957 |
|
|
6,570 |
|
|
Media and licensing costs |
880 |
|
|
548 |
|
|
1,749 |
|
|
1,491 |
|
|
Selling, general and administrative |
16,889 |
|
|
19,902 |
|
|
50,848 |
|
|
54,974 |
|
|
Impairments |
— |
|
|
3,698 |
|
|
559 |
|
|
21,817 |
|
|
Depreciation and amortization |
7,682 |
|
|
7,275 |
|
|
22,239 |
|
|
24,284 |
|
|
Interest expense on leases |
1,462 |
|
|
1,593 |
|
|
4,619 |
|
|
4,679 |
|
|
Interest expense on notes payable |
— |
|
|
2,150 |
|
|
1,121 |
|
|
6,973 |
|
|
|
81,329 |
|
|
102,689 |
|
|
249,122 |
|
|
344,391 |
|
|
Other income |
|
|
|
|
|
|
|
|
Investment gains |
4,534 |
|
|
354 |
|
|
6,465 |
|
|
1,863 |
|
|
Investment partnership gains (losses) |
(20,231) |
|
|
27,218 |
|
|
27,344 |
|
|
(89,276) |
|
|
|
(15,697) |
|
|
27,572 |
|
|
33,809 |
|
|
(87,413) |
|
|
Earnings (loss) before income taxes |
(14,943) |
|
|
26,718 |
|
|
51,845 |
|
|
(97,767) |
|
|
Income tax expense (benefit) |
(4,274) |
|
|
5,617 |
|
|
11,544 |
|
|
(23,449) |
|
|
Net earnings (loss) |
$ |
(10,669) |
|
|
$ |
21,101 |
|
|
$ |
40,301 |
|
|
$ |
(74,318) |
|
|
Earnings per share |
|
|
|
|
|
|
|
|
Net earnings (loss) per equivalent Class A share * |
$ |
(33.74) |
|
|
$ |
60.07 |
|
|
$ |
125.79 |
|
|
$ |
(213.31) |
|
*Net earnings (loss) per equivalent Class B share outstanding are
one-fifth of the equivalent Class A share or $(6.75) and $25.16 for
the third quarter and first nine months of 2021, respectively, and
$12.01 and $(42.66) for the third quarter and first nine months of
2020, respectively.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
(Unaudited) |
|
(Unaudited) |
|
Net earnings (loss) |
$ |
(10,669) |
|
|
$ |
21,101 |
|
|
$ |
40,301 |
|
|
$ |
(74,318) |
|
|
Foreign currency translation |
(49) |
|
|
344 |
|
|
(378) |
|
|
834 |
|
|
Total comprehensive income (loss) |
$ |
(10,718) |
|
|
$ |
21,445 |
|
|
$ |
39,923 |
|
|
$ |
(73,484) |
|
See accompanying Notes to Consolidated Financial
Statements.
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months |
|
2021 |
|
2020 |
|
(Unaudited) |
|
Operating activities |
|
|
|
|
Net earnings (loss) |
$ |
40,301 |
|
|
$ |
(74,318) |
|
|
Adjustments to reconcile net earnings (loss) to operating cash
flows: |
|
|
|
|
Depreciation and amortization |
22,239 |
|
|
24,284 |
|
|
Provision for deferred income taxes |
16,625 |
|
|
(23,755) |
|
|
Asset impairments and other non-cash expenses |
696 |
|
|
22,545 |
|
|
Gains on disposal of assets |
(306) |
|
|
(1,251) |
|
|
Investment gains and investment partnership
gains/losses |
(34,461) |
|
|
87,413 |
|
|
Distributions from investment partnerships |
172,420 |
|
|
97,330 |
|
|
Changes in receivables, inventories and other assets |
3,608 |
|
|
10,919 |
|
|
Changes in accounts payable and accrued expenses |
(9,877) |
|
|
(36,800) |
|
|
Net cash provided by operating activities |
211,245 |
|
|
106,367 |
|
|
Investing activities |
|
|
|
|
Capital expenditures |
(46,486) |
|
|
(13,297) |
|
|
Proceeds from property and equipment disposals |
2,749 |
|
|
3,914 |
|
|
Acquisition of business, net of cash acquired |
— |
|
|
(34,240) |
|
|
Purchases of limited partner interests |
(4,800) |
|
|
(69,330) |
|
|
Purchases of investments |
(81,923) |
|
|
(240,351) |
|
|
Redemptions of fixed maturity securities |
74,678 |
|
|
241,223 |
|
|
Net cash used in investing activities |
(55,782) |
|
|
(112,081) |
|
|
Financing activities |
|
|
|
|
Proceeds from revolving credit facility |
— |
|
|
500 |
|
|
Principal payments on long-term debt |
(149,952) |
|
|
(22,729) |
|
|
Principal payments on direct financing lease
obligations |
(4,634) |
|
|
(4,152) |
|
|
Net cash used in financing activities |
(154,586) |
|
|
(26,381) |
|
|
Effect of exchange rate changes on cash |
(85) |
|
|
(13) |
|
|
Increase (decrease) in cash, cash equivalents and restricted
cash |
792 |
|
|
(32,108) |
|
|
Cash, cash equivalents and restricted cash at beginning of
year |
29,666 |
|
|
70,696 |
|
|
Cash, cash equivalents and restricted cash at end of third
quarter |
$ |
30,458 |
|
|
$ |
38,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months |
|
2021 |
|
2020 |
|
(Unaudited) |
|
Cash and cash equivalents |
$ |
27,795 |
|
|
$ |
33,164 |
|
|
Restricted cash in other long-term assets |
2,663 |
|
|
5,424 |
|
|
Cash, cash equivalents and restricted cash at end of third
quarter |
$ |
30,458 |
|
|
$ |
38,588 |
|
See accompanying Notes to Consolidated Financial
Statements.
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
(Unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock |
|
Additional Paid-In
Capital |
|
Retained
Earnings |
|
Accumulated
Other
Comprehensive
Income (Loss) |
|
Treasury
Stock |
|
Total |
|
Balance at December 31, 2020 |
$ |
1,138 |
|
|
$ |
381,788 |
|
|
$ |
573,050 |
|
|
$ |
(1,531) |
|
|
$ |
(389,617) |
|
|
$ |
564,828 |
|
|
Net earnings |
|
|
|
|
71,707 |
|
|
|
|
|
|
71,707 |
|
|
Other comprehensive loss |
|
|
|
|
|
|
(444) |
|
|
|
|
(444) |
|
|
Adjustment to treasury stock for holdings in investment
partnerships |
|
|
|
|
|
|
|
|
3,049 |
|
|
3,049 |
|
|
Balance at March 31, 2021 |
$ |
1,138 |
|
|
$ |
381,788 |
|
|
$ |
644,757 |
|
|
$ |
(1,975) |
|
|
$ |
(386,568) |
|
|
$ |
639,140 |
|
|
Net earnings (loss) |
|
|
|
|
(20,737) |
|
|
|
|
|
|
(20,737) |
|
|
Other comprehensive income |
|
|
|
|
|
|
115 |
|
|
|
|
115 |
|
|
Adjustment to treasury stock for holdings in investment
partnerships |
|
|
|
|
|
|
|
|
(5,026) |
|
|
(5,026) |
|
|
Balance at June 30, 2021 |
$ |
1,138 |
|
|
$ |
381,788 |
|
|
$ |
624,020 |
|
|
$ |
(1,860) |
|
|
$ |
(391,594) |
|
|
$ |
613,492 |
|
|
Net earnings (loss) |
|
|
|
|
(10,669) |
|
|
|
|
|
|
(10,669) |
|
|
Other comprehensive loss |
|
|
|
|
|
|
(49) |
|
|
|
|
(49) |
|
|
Adjustment to treasury stock for holdings in investment
partnerships |
|
|
|
|
|
|
|
|
(4,208) |
|
|
(4,208) |
|
|
Balance at September 30, 2021 |
$ |
1,138 |
|
|
$ |
381,788 |
|
|
$ |
613,351 |
|
|
$ |
(1,909) |
|
|
$ |
(395,802) |
|
|
$ |
598,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock |
|
Additional
Paid-In
Capital |
|
Retained
Earnings |
|
Accumulated
Other
Comprehensive
Income (Loss) |
|
Treasury
Stock |
|
Total |
|
Balance at December 31, 2019 |
$ |
1,138 |
|
|
$ |
381,788 |
|
|
$ |
611,039 |
|
|
$ |
(2,810) |
|
|
$ |
(374,857) |
|
|
$ |
616,298 |
|
|
Net earnings (loss) |
|
|
|
|
(137,885) |
|
|
|
|
|
|
(137,885) |
|
|
Other comprehensive loss |
|
|
|
|
|
|
(312) |
|
|
|
|
(312) |
|
|
Adjustment to treasury stock for holdings in investment
partnerships |
|
|
|
|
|
|
|
|
1,089 |
|
|
1,089 |
|
|
Balance at March 31, 2020 |
$ |
1,138 |
|
|
$ |
381,788 |
|
|
$ |
473,154 |
|
|
$ |
(3,122) |
|
|
$ |
(373,768) |
|
|
$ |
479,190 |
|
|
Net earnings |
|
|
|
|
42,466 |
|
|
|
|
|
|
42,466 |
|
|
Other comprehensive income |
|
|
|
|
|
|
802 |
|
|
|
|
802 |
|
|
Adjustment to treasury stock for holdings in investment
partnerships |
|
|
|
|
|
|
|
|
92 |
|
|
92 |
|
|
Balance at June 30, 2020 |
$ |
1,138 |
|
|
$ |
381,788 |
|
|
$ |
515,620 |
|
|
$ |
(2,320) |
|
|
$ |
(373,676) |
|
|
$ |
522,550 |
|
|
Net earnings (loss) |
|
|
|
|
21,101 |
|
|
|
|
|
|
21,101 |
|
|
Other comprehensive income |
|
|
|
|
|
|
344 |
|
|
|
|
344 |
|
|
Adjustment to treasury stock for holdings in investment
partnerships |
|
|
|
|
|
|
|
|
(5,777) |
|
|
(5,777) |
|
|
Balance at September 30, 2020 |
$ |
1,138 |
|
|
$ |
381,788 |
|
|
$ |
536,721 |
|
|
$ |
(1,976) |
|
|
$ |
(379,453) |
|
|
$ |
538,218 |
|
See accompanying Notes to Consolidated Financial
Statements.
BIGLARI HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(dollars in thousands, except share and per share
data)
Note 1. Summary of Significant Accounting Policies
Description of Business
The accompanying unaudited consolidated financial statements of
Biglari Holdings Inc. have been prepared in accordance with
accounting principles generally accepted in the United States of
America (“GAAP”) applicable to interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and
notes required by GAAP for complete financial statements. In our
opinion, all adjustments considered necessary to present fairly the
results of the interim periods have been included and consist only
of normal recurring adjustments. The results for the interim
periods shown are not necessarily indicative of results for the
entire fiscal year. The financial statements contained herein
should be read in conjunction with the consolidated financial
statements and notes thereto included in our annual report on Form
10-K for the year ended December 31, 2020.
Biglari Holdings 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 was
founded and is 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 September 30, 2021, Mr.
Biglari beneficially owns shares of the Company that represent
approximately 65.0% of the economic interest and 70.3% of the
voting interest.
Overview of the Impact of COVID-19
The novel coronavirus (“COVID-19”) was declared a pandemic by the
World Health Organization in March of 2020. Government and private
sector responses to contain its spread began to affect our
operating businesses significantly that same month. The COVID-19
pandemic has adversely affected nearly all of our
operations, although the effects are varying significantly. The
risks and uncertainties resulting from the pandemic may continue to
affect our future earnings, cash flows and financial condition. The
extent of such effects over the long term cannot be reasonably
estimated at this time.
Business Acquisition
On March 9, 2020, Biglari Holdings acquired the stock of Southern
Pioneer Property & Casualty Insurance Company, and its agency,
Southern Pioneer Insurance Agency, Inc. (collectively “Southern
Pioneer”). Southern Pioneer underwrites garage liability insurance,
commercial property, as well as homeowners and dwelling fire
insurance. The financial results for Southern Pioneer are included
from the date of acquisition.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries including Steak n Shake
Inc., Western Sizzlin Corporation, First Guard Insurance Company,
Maxim Inc., Southern Pioneer, and Southern Oil Company.
Intercompany accounts and transactions have been eliminated in
consolidation.
Change in Presentation
Gain on debt extinguishment of $0 and $5,713 during the third
quarter and first nine months of 2020, respectively, have been
reclassified from other income to selling, general and
administrative expenses. Loss and loss adjustment expenses and
unearned premiums are reflected separately from accrued expenses on
the consolidated balance sheet.
Note 2. 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. (collectively, the
“investment partnerships”) — based on our proportional ownership
during this period — are considered treasury stock on the
consolidated balance sheet and thereby deemed not to be included in
the calculation of weighted average common shares
outstanding. However, these shares are legally
outstanding.
Note 2. Earnings Per Share
(continued)
The following table presents shares authorized, issued and
outstanding on September 30, 2021 and December 31,
2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
December 31, 2020 |
|
|
Class A |
|
Class B |
|
Class A |
|
Class B |
|
Common stock authorized |
500,000 |
|
|
10,000,000 |
|
|
500,000 |
|
|
10,000,000 |
|
|
Common stock issued and outstanding |
206,864 |
|
|
2,068,640 |
|
|
206,864 |
|
|
2,068,640 |
|
On an equivalent Class A common stock basis, there were 620,592
shares outstanding as of September 30, 2021 and
December 31, 2020. The Company has applied the
"two-class method" of computing earnings per share as prescribed in
Accounting Standards Codification ("ASC") 260, "Earnings Per
Share". The equivalent Class A common stock applied for computing
earnings per share excludes the proportional shares of Biglari
Holdings' stock held by the investment partnerships. The equivalent
Class A common stock for the earnings per share calculation during
the third quarters of 2021 and 2020 was 316,236 and 351,288,
respectively. The equivalent Class A common stock for the
earnings per share calculation during the first nine months of 2021
and 2020 was 320,377 and 348,396, respectively.
Note 3. Investments
Investments were $99,006 and $94,861 as of September 30, 2021
and December 31, 2020, respectively. We classify
investments in fixed maturity securities at the acquisition date as
either available-for-sale or held-to-maturity and re-evaluate the
classification at each balance sheet date. Securities classified as
held-to-maturity are carried at amortized cost, reflecting the
ability and intent to hold the securities to maturity. Realized
gains and losses on disposals of investments are determined on a
specific identification basis. Dividends earned on investments are
reported as investment income by our insurance companies. We
consider investment income as a component of our aggregate
insurance operating results. However, we consider investment gains
and losses, whether realized or unrealized, as
non-operating.
Investment gains for the third quarter and first nine months of
2021 were $4,534 and $6,465, respectively, which include a $5,047
gain on the sale of real estate. The Company purchased 26 acres of
land in Murfreesboro, Tennessee in 2014 for $2,145 and sold it in
the third quarter of 2021. Investment gains for the third quarter
and first nine months of 2020 were $354 and $1,863,
respectively.
Note 4. Investment Partnerships
The Company reports on the limited partnership interests in
investment partnerships under the equity method of
accounting. We record our proportional share of equity in the
investment partnerships but exclude Company common stock held by
said partnerships. The Company’s pro-rata share of its common
stock held by the investment partnerships is recorded as treasury
stock even though 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. Biglari Capital Corp. (“Biglari Capital”) is
the general partner of the investment partnerships and is an entity
solely owned by Mr. Biglari.
The fair value and adjustment for Company common stock held by the
investment partnerships to determine the carrying value of our
partnership interest is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
Company
Common Stock |
|
Carrying Value |
|
Partnership interest at December 31, 2020 |
$ |
590,926 |
|
|
$ |
171,376 |
|
|
$ |
419,550 |
|
|
Investment partnership gains (losses) |
110,690 |
|
|
83,346 |
|
|
27,344 |
|
|
Distributions (net of contributions) |
(167,620) |
|
|
|
|
(167,620) |
|
|
Increase in proportionate share of Company stock held |
|
|
6,185 |
|
|
(6,185) |
|
|
Partnership interest at September 30, 2021 |
$ |
533,996 |
|
|
$ |
260,907 |
|
|
$ |
273,089 |
|
Note 4. Investment Partnerships
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
Company
Common Stock |
|
Carrying Value |
|
Partnership interest at December 31, 2019 |
$ |
666,123 |
|
|
$ |
160,581 |
|
|
$ |
505,542 |
|
|
Investment partnership gains (losses) |
(123,524) |
|
|
(34,248) |
|
|
(89,276) |
|
|
Distributions (net of contributions) |
(28,000) |
|
|
|
|
(28,000) |
|
|
Decrease in proportionate share of Company stock held |
|
|
4,596 |
|
|
(4,596) |
|
|
Partnership interest at September 30, 2020 |
$ |
514,599 |
|
|
$ |
130,929 |
|
|
$ |
383,670 |
|
The carrying value of the investment partnerships net of deferred
taxes is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021 |
|
December 31, 2020 |
|
Carrying value of investment partnerships |
$ |
273,089 |
|
|
$ |
419,550 |
|
|
Deferred tax liability related to investment
partnerships |
(54,432) |
|
|
(44,805) |
|
|
Carrying value of investment partnerships net of deferred
taxes |
$ |
218,657 |
|
|
$ |
374,745 |
|
The Company’s proportionate share of Company stock held by
investment partnerships at cost is $395,802 and $389,617 at
September 30, 2021 and December 31, 2020, respectively,
and is recorded as treasury stock.
The carrying value of the partnership interest approximates fair
value adjusted by the value of held Company stock. Fair value
of our partnership interests is assessed according to our
proportional ownership interest of the fair value of investments
held by the investment partnerships. Unrealized gains and losses on
marketable securities held by the investment partnerships affect
our net earnings.
Gains/losses from investment partnerships recorded in the Company’s
consolidated statements of earnings are presented
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Gains (losses) on investment partnership |
$ |
(20,231) |
|
|
$ |
27,218 |
|
|
$ |
27,344 |
|
|
$ |
(89,276) |
|
|
Tax expense (benefit) |
(4,946) |
|
|
6,163 |
|
|
6,175 |
|
|
(21,337) |
|
|
Contribution to net earnings |
$ |
(15,285) |
|
|
$ |
21,055 |
|
|
$ |
21,169 |
|
|
$ |
(67,939) |
|
On December 31 of each year, the general partner of the
investment partnerships, Biglari Capital, will earn an incentive
reallocation fee for the Company’s investments equal to 25% of the
net profits above an annual hurdle rate of 6% over the previous
high-water mark. Our policy is to accrue an estimated
incentive fee throughout the year. The total incentive reallocation
from Biglari Holdings to Biglari Capital includes gains on the
Company’s common stock. Gains and losses on the Company’s common
stock and the related incentive reallocations are eliminated in our
consolidated financial statements.
There were no incentive reallocations from Biglari Holdings to
Biglari Capital during the first nine months of 2021 and
2020.
Note 4. Investment Partnerships
(continued)
Summarized financial information for The Lion Fund, L.P. and The
Lion Fund II, L.P. is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in Investment Partnerships |
|
|
Lion Fund |
|
Lion Fund II |
|
Total assets as of September 30, 2021 |
$ |
132,351 |
|
|
$ |
583,989 |
|
|
Total liabilities as of September 30, 2021 |
$ |
1,490 |
|
|
$ |
101,956 |
|
|
Revenue for the first nine months of 2021 |
$ |
35,639 |
|
|
$ |
94,078 |
|
|
Earnings for the first nine months of 2021 |
$ |
35,584 |
|
|
$ |
93,548 |
|
|
Biglari Holdings' ownership interest as of September 30,
2021 |
62.4 |
% |
|
93.9 |
% |
|
|
|
|
|
|
Total assets as of December 31, 2020 |
$ |
112,970 |
|
|
$ |
566,663 |
|
|
Total liabilities as of December 31, 2020 |
$ |
189 |
|
|
$ |
25,453 |
|
|
Revenue for the first nine months of 2020 |
$ |
(18,941) |
|
|
$ |
(119,644) |
|
|
Earnings for the first nine months of 2020 |
$ |
(18,992) |
|
|
$ |
(120,849) |
|
|
Biglari Holdings' ownership interest as of September 30,
2020 |
66.2 |
% |
|
95.3 |
% |
Revenue in the above summarized financial information of the
investment partnerships includes investment income and unrealized
gains and losses on investments.
Note 5. Property and Equipment
Property and equipment is composed of the following.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021 |
|
December 31,
2020 |
|
Land |
$ |
144,774 |
|
|
$ |
142,601 |
|
|
Buildings |
147,947 |
|
|
138,734 |
|
|
Land and leasehold improvements |
148,296 |
|
|
141,351 |
|
|
Equipment |
223,815 |
|
|
192,735 |
|
|
Oil and gas properties |
73,752 |
|
|
75,900 |
|
|
Construction in progress |
2,482 |
|
|
1,032 |
|
|
|
741,066 |
|
|
692,353 |
|
|
Less accumulated depreciation and amortization |
(388,244) |
|
|
(376,231) |
|
|
Property and equipment, net |
$ |
352,822 |
|
|
$ |
316,122 |
|
Depletion expense related to oil and gas properties was $5,875 and
$9,249 during the first nine months of 2021 and 2020, respectively,
and is included in depreciation and amortization within the
consolidated statement of earnings.
During the first nine months of 2021, the Company recorded
impairment charges of $559 related to closed stores. The Company
recorded impairment charges of $18,117 in the first nine months of
2020. The fair value of the long-lived assets was determined based
on Level 3 inputs using a discounted cash flow model and quoted
prices for the properties.
Note 6. Goodwill and Other Intangible Assets
Goodwill
Goodwill consists of the excess of the purchase price over the fair
value of the net assets acquired in connection with business
acquisitions.
Note 6. Goodwill and Other Intangible Assets
(continued)
A reconciliation of the change in the carrying value of goodwill is
as follows.
|
|
|
|
|
|
|
|
Goodwill |
|
Goodwill at December 31, 2020
|
$ |
53,596 |
|
|
Change in foreign exchange rates during the first nine months of
2021 |
(36) |
|
|
Goodwill at September 30, 2021
|
$ |
53,560 |
|
We evaluate goodwill and any indefinite-lived intangible assets for
impairment annually, or more frequently if circumstances indicate
impairment may have occurred. 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. In response to the adverse effects of the COVID-19
pandemic, during 2020 we considered whether goodwill needed to be
evaluated for impairment for certain restaurant reporting units. We
considered the available facts and made qualitative assessments and
judgments for what we believed represented reasonably possible
outcomes.
No impairment charges for goodwill were recorded in the first nine
months of 2021 or 2020.
Western Sizzlin has experienced a decline in its franchised units
for several years. If Western Sizzlin's franchised units continue
to decline, an impairment of its goodwill may be
necessary.
Other Intangible Assets
Intangible assets with indefinite lives are composed of the
following.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Names |
|
Lease Rights |
|
Total |
|
Balance at December 31, 2020
|
$ |
15,876 |
|
|
$ |
8,189 |
|
|
$ |
24,065 |
|
|
Change in foreign exchange rates during the first nine months of
2021 |
— |
|
|
(446) |
|
|
(446) |
|
|
Balance at September 30, 2021
|
$ |
15,876 |
|
|
$ |
7,743 |
|
|
$ |
23,619 |
|
During the first nine months of 2020, the Company recorded
impairment charges of $3,700 on lease rights related to our
international restaurant operations.
Fair values were determined using Level 3 inputs and available
market data.
Note 7. Restaurant Operations Revenues
Restaurant operations revenues were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Net sales |
$ |
41,916 |
|
|
$ |
67,617 |
|
|
$ |
146,269 |
|
|
$ |
241,832 |
|
|
Franchise partner fees |
11,508 |
|
|
6,894 |
|
|
31,744 |
|
|
14,775 |
|
|
Franchise royalties and fees |
4,865 |
|
|
4,421 |
|
|
14,594 |
|
|
13,704 |
|
|
Other |
855 |
|
|
742 |
|
|
3,817 |
|
|
2,271 |
|
|
|
$ |
59,144 |
|
|
$ |
79,674 |
|
|
$ |
196,424 |
|
|
$ |
272,582 |
|
Net Sales
Net sales are composed of retail sales of food through
company-operated stores. Company-operated store revenues are
recognized, net of discounts and sales taxes, when our obligation
to perform is satisfied at the point of sale. Sales taxes related
to these sales are collected from customers and remitted to the
appropriate taxing authority and are not reflected in the Company’s
consolidated statements of earnings as revenue.
Note 7. Restaurant Operations Revenues
(continued)
Franchise Partner Fees
Franchise partner fees are composed of up to 15% of sales as well
as 50% of profits. We are therefore fully affected by the operating
results of the business, unlike in a traditional franchising
arrangement, where the franchisor obtains a royalty fee based on
sales only. We generate most of our revenue from our share of the
franchise partners’ profits. An initial franchise fee of ten
thousand dollars is recognized when the operator becomes a
franchise partner. The Company recognizes franchise partner fees
monthly as underlying restaurant sales occur.
The Company leases or subleases property and equipment to
franchisees under lease arrangements. Both real estate and
equipment rental payments are charged to franchisees and are
recognized in accordance with ASC 842, "Leases". During the third
quarter of 2021 and 2020, restaurant operations recognized $4,277
and $1,606, respectively, in franchise partner fees related to
rental fees. During the nine months ended September 30, 2021,
and September 30, 2020, restaurant operations recognized $10,910
and $3,617, respectively, in franchise partner fees related to
rental fees.
Franchise Royalties and Fees
Franchise royalties and fees from Steak n Shake and Western Sizzlin
franchisees are based upon a percentage of sales of the franchise
restaurant and are recognized as earned. Franchise royalties are
billed on a monthly basis. Initial franchise fees when a new
restaurant opens or at the start of a new franchise term are
recorded as deferred revenue when received and recognized as
revenue over the term of the franchise agreement.
Other Revenue
Restaurant operations sells gift cards to customers which can be
redeemed for retail food sales within our stores. Gift cards are
recorded as 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.
Note 8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses include the
following.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021 |
|
December 31,
2020 |
|
Accounts payable |
$ |
42,307 |
|
|
$ |
26,537 |
|
|
Gift card liability |
21,174 |
|
|
21,822 |
|
|
Insurance accruals |
6,221 |
|
|
6,559 |
|
|
Salaries, wages and vacation |
8,378 |
|
|
8,285 |
|
|
Deferred revenue |
7,546 |
|
|
9,324 |
|
|
Taxes payable |
4,317 |
|
|
10,922 |
|
|
Professional fees |
6,169 |
|
|
5,882 |
|
|
Other |
4,786 |
|
|
1,561 |
|
|
Accounts payable and accrued expenses |
$ |
100,898 |
|
|
$ |
90,892 |
|
Note 9. Notes Payable and Lease Obligations
Steak n Shake Credit Facility
On March 19, 2014, Steak n Shake and its subsidiaries entered into
a credit agreement which provided for a senior secured term
loan facility in an aggregate principal amount of $220,000. The
term loan was scheduled to mature on March 19, 2021. As of
December 31, 2020, $152,506 was outstanding. The Company
repaid Steak n Shake's outstanding balance in full on February 19,
2021.
Note 9. Notes Payable and Lease Obligations
(continued)
Lease obligations include the following.
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of lease obligations |
September 30,
2021 |
|
December 31,
2020 |
|
Finance lease liabilities |
$ |
1,536 |
|
|
$ |
1,897 |
|
|
Finance obligations |
4,948 |
|
|
4,854 |
|
|
Operating lease liabilities |
10,746 |
|
|
10,614 |
|
|
Total current portion of lease obligations |
$ |
17,230 |
|
|
$ |
17,365 |
|
|
|
|
|
|
|
Long-term lease obligations |
|
|
|
|
Finance lease liabilities |
$ |
5,627 |
|
|
$ |
7,034 |
|
|
Finance obligations |
64,315 |
|
|
68,148 |
|
|
Operating leases liabilities |
38,007 |
|
|
36,463 |
|
|
Total long-term lease obligations |
$ |
107,949 |
|
|
$ |
111,645 |
|
Note 10. Leased Assets and Lease Commitments
Nature of Leases
The Company operates restaurants that are located on sites owned by
us and leased from third parties. In addition, the Company owns
sites and leases sites from third parties that are leased and/or
subleased to franchisees.
Company as Lessee
A significant portion of our operating and finance lease portfolio
includes restaurant locations. Operating lease expense and finance
lease depreciation expense are recognized on a straight-line basis
over the lease term.
Total lease cost consists of the following.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Finance lease costs: |
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
$ |
404 |
|
|
$ |
279 |
|
|
$ |
1,205 |
|
|
$ |
1,087 |
|
|
Interest on lease liabilities |
126 |
|
|
136 |
|
|
399 |
|
|
392 |
|
|
Operating lease costs * |
240 |
|
|
2,096 |
|
|
1,403 |
|
|
8,321 |
|
|
Total lease costs |
$ |
770 |
|
|
$ |
2,511 |
|
|
$ |
3,007 |
|
|
$ |
9,800 |
|
*Includes short-term leases, variable lease costs and sublease
income.
Note 10. Leased Assets and Lease Commitments
(continued)
Supplemental cash flow information related to leases is as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months |
|
|
2021 |
|
2020 |
|
Cash paid for amounts included in the measurement of lease
liabilities: |
|
|
|
|
Financing cash flows from finance leases |
$ |
1,226 |
|
|
$ |
1,132 |
|
|
Operating cash flows from finance leases |
$ |
384 |
|
|
$ |
463 |
|
|
Operating cash flows from operating leases |
$ |
9,806 |
|
|
$ |
10,382 |
|
|
Right-of-use assets obtained in exchange for lease
obligations: |
|
|
|
|
Operating lease liabilities |
$ |
— |
|
|
$ |
73 |
|
Supplemental balance sheet information related to leases is as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021 |
|
December 31,
2020 |
|
Finance leases: |
|
|
|
|
Property and equipment, net |
$ |
6,005 |
|
|
$ |
6,501 |
|
Weighted-average lease terms and discount rates are as
follows.
|
|
|
|
|
|
|
September 30,
2021 |
|
Weighted-average remaining lease terms: |
|
|
Finance leases |
5.2 years |
|
Operating leases |
5.3 years |
|
|
|
|
Weighted-average discount rates: |
|
|
Finance leases |
7.0 |
% |
|
Operating leases |
6.9 |
% |
Maturities of lease liabilities as of September 30, 2021 are
as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
Operating
Leases |
|
Finance
Leases |
|
2021 |
|
$ |
4,217 |
|
|
$ |
543 |
|
|
2022 |
|
12,457 |
|
|
1,816 |
|
|
2023 |
|
11,204 |
|
|
1,551 |
|
|
2024 |
|
9,244 |
|
|
1,534 |
|
|
2025 |
|
7,605 |
|
|
1,298 |
|
|
After 2025 |
|
13,699 |
|
|
1,814 |
|
|
Total lease payments |
|
58,426 |
|
|
8,556 |
|
|
Less interest |
|
9,673 |
|
|
1,393 |
|
|
Total lease liabilities |
|
$ |
48,753 |
|
|
$ |
7,163 |
|
Note 10. Leased Assets and Lease Commitments
(continued)
Company as Lessor
The components of lease income are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Operating lease income |
$ |
3,211 |
|
|
$ |
1,428 |
|
|
$ |
8,471 |
|
|
$ |
3,259 |
|
|
Variable lease income |
1,370 |
|
|
449 |
|
|
3,375 |
|
|
1,183 |
|
|
Total lease income |
$ |
4,581 |
|
|
$ |
1,877 |
|
|
$ |
11,846 |
|
|
$ |
4,442 |
|
The following table displays the Company's future minimum rental
receipts for non-cancelable leases and subleases as of
September 30, 2021. Franchise partner leases and subleases are
short-term leases and have been excluded from the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases |
|
Year |
|
Subleases |
|
Owned Properties |
|
2021 |
|
$ |
190 |
|
|
$ |
62 |
|
|
2022 |
|
725 |
|
|
247 |
|
|
2023 |
|
537 |
|
|
247 |
|
|
2024 |
|
454 |
|
|
247 |
|
|
2025 |
|
454 |
|
|
250 |
|
|
After 2025 |
|
1,916 |
|
|
1,052 |
|
|
Total future minimum receipts |
|
$ |
4,276 |
|
|
$ |
2,105 |
|
|
|
|
|
|
|
Note 11. Accumulated Other Comprehensive Income
Accumulated other comprehensive loss increased $49 and decreased
$344 during the third quarters of 2021 and 2020, respectively.
During the first nine months of 2021, accumulated other
comprehensive loss increased by $378 and decreased by $834 during
the first nine months of 2020. As of September 30, 2021
and 2020, the balances in accumulated other comprehensive loss were
$1,909 and $1,976, respectively. There were no
reclassifications from accumulated other comprehensive loss to
earnings during the first nine months of 2021 and 2020. All
changes in accumulated other comprehensive loss were due
to foreign currency translation adjustments.
Note 12. Income Taxes
In determining the quarterly provision for income taxes, the
Company used a discrete effective tax rate method based on
statutory tax rates for the first nine months of 2021 and 2020. Our
periodic effective income tax rate is affected by the relative mix
of pre-tax earnings or losses and underlying income tax rates
applicable to the various taxing jurisdictions.
Income tax benefit for the third quarter of 2021 was $4,274
compared to an income tax expense of $5,617 for the third quarter
of 2020. Income tax expense for the first nine months of 2021
was $11,544 compared to a benefit of $23,449 for the first nine
months of 2020. The variance in income taxes between 2021 and
2020 is attributable to taxes on income generated by the investment
partnerships. Investment partnership pretax gains were
$27,344 during the first nine months of 2021 compared to pretax
losses of $89,276 during the first nine months of
2020.
Note 13. Commitments and Contingencies
We are involved in various legal proceedings and have certain
unresolved claims pending. We believe, based on examination of
these matters and experiences to date, that the ultimate liability,
if any, in excess of amounts already provided in our consolidated
financial statements is not likely to have a material effect on our
results of operations, financial position or cash
flow.
Note 14. Fair Value of Financial Assets
The fair values of substantially all of our financial instruments
were measured using market or income approaches. Considerable
judgment may be required in interpreting market data used to
develop the estimates of fair value. Accordingly, the fair values
presented are not necessarily indicative of the amounts that could
be realized in an actual current market exchange. The use of
alternative market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value.
The hierarchy for measuring fair value consists of Levels 1 through
3, which are described below.
•Level
1 – Inputs represent unadjusted quoted prices for identical assets
or liabilities exchanged in active markets.
•Level
2 – Inputs include directly or indirectly observable inputs (other
than Level 1 inputs) such as quoted prices for similar assets or
liabilities exchanged in active or inactive markets; quoted prices
for identical assets or liabilities exchanged in inactive markets;
other inputs that may be considered in fair value determinations of
the assets or liabilities, such as interest rates and yield curves,
volatilities, prepayment speeds, loss severities, credit risks and
default rates; and inputs that are derived principally from or
corroborated by observable market data by correlation or other
means. Pricing evaluations generally reflect discounted expected
future cash flows, which incorporate yield curves for instruments
with similar characteristics, such as credit ratings, estimated
durations and yields for other instruments of the issuer or
entities in the same industry sector.
•Level
3 – Inputs include unobservable inputs used in the measurement of
assets and liabilities. Management is required to use its own
assumptions regarding unobservable inputs because there is little,
if any, market activity in the assets or liabilities and we may be
unable to corroborate the related observable inputs. Unobservable
inputs require management to make certain projections and
assumptions about the information that would be used by market
participants in pricing assets or liabilities.
The following methods and assumptions were used to determine the
fair value of each class of the following assets recorded at fair
value in the consolidated balance sheets:
Cash equivalents:
Cash equivalents primarily consist of money market funds which are
classified within Level 1 of the fair value hierarchy.
Equity securities:
The Company’s investments in equity securities are classified
within Levels 1 and 2 of the fair value
hierarchy.
Bonds:
The Company’s investments in bonds consist of both corporate and
government debt. Bonds are classified within Level l or Level 2 of
the fair value hierarchy.
Non-qualified deferred compensation plan investments:
The assets of the non-qualified plan are set up in a rabbi trust.
They represent mutual funds and publicly traded securities, each of
which are classified within Level 1 of the fair value
hierarchy.
Derivative instruments:
Options related to equity securities are marked to market each
reporting period and are classified within Level 2 of the fair
value hierarchy depending on the instrument.
Note 14. Fair Value of Financial Assets
(continued)
As of September 30, 2021 and December 31, 2020, the fair
values of financial assets were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
December 31, 2020 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
$ |
25,575 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
25,575 |
|
|
$ |
23,885 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
23,885 |
|
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer goods |
8,349 |
|
|
2,810 |
|
|
— |
|
|
11,159 |
|
|
7,274 |
|
|
5,652 |
|
|
— |
|
|
12,926 |
|
|
Insurance |
4,536 |
|
|
— |
|
|
— |
|
|
4,536 |
|
|
261 |
|
|
— |
|
|
— |
|
|
261 |
|
|
Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government |
52,876 |
|
|
— |
|
|
— |
|
|
52,876 |
|
|
39,472 |
|
|
14,043 |
|
|
— |
|
|
53,515 |
|
|
Corporate |
6,947 |
|
|
— |
|
|
— |
|
|
6,947 |
|
|
— |
|
|
5,406 |
|
|
— |
|
|
5,406 |
|
|
Options on equity securities |
— |
|
|
1,653 |
|
|
— |
|
|
1,653 |
|
|
— |
|
|
2,911 |
|
|
— |
|
|
2,911 |
|
|
Non-qualified deferred compensation plan investments |
1,596 |
|
|
— |
|
|
— |
|
|
1,596 |
|
|
1,368 |
|
|
— |
|
|
— |
|
|
1,368 |
|
|
Total assets at fair value |
$ |
99,879 |
|
|
$ |
4,463 |
|
|
$ |
— |
|
|
$ |
104,342 |
|
|
$ |
72,260 |
|
|
$ |
28,012 |
|
|
$ |
— |
|
|
$ |
100,272 |
|
There were no changes in our valuation techniques used to measure
fair values on a recurring basis.
Note 15. Related Party Transactions
Service Agreement
The Company is party to a service agreement with Biglari
Enterprises LLC and Biglari Capital Corp. (collectively, the
“Biglari Entities”) under which the Biglari Entities provide
services to the Company. The service agreement has a
five-year term, effective on October 1, 2017. The
Company paid Biglari Enterprises $6,300 in service fees during the
first nine months of 2021 and 2020. The service agreement does not
alter the hurdle rate connected with the incentive reallocation
paid to Biglari Capital Corp. The Biglari Entities are owned
by Mr. Biglari.
Incentive Agreement
The Incentive Agreement establishes a performance-based annual
incentive payment for Mr. Biglari contingent upon the growth in
adjusted equity in each year attributable to our operating
businesses. In order for Mr. Biglari to receive any incentive, our
operating businesses must achieve an annual increase in
shareholders’ equity in excess of 6% (the “Hurdle Rate”) above the
previous highest level (the “High Water Mark”). Mr. Biglari will
receive 25% of any incremental book value created above the High
Water Mark plus the Hurdle Rate. In any year in which book value
declines, our operating businesses must completely recover their
deficit from the previous High Water Mark, along with attaining the
Hurdle Rate, before Mr. Biglari becomes eligible to receive any
further incentive payment.
Note 16. Business Segment Reporting
Our reportable business segments are organized in a manner that
reflects how management views those business activities. Our
restaurant operations include Steak n Shake and Western Sizzlin.
Our insurance operations include First Guard and Southern
Pioneer. The Company also reports segment information for
Maxim and Southern Oil. Other business activities not specifically
identified with reportable business segments are presented in
corporate. We report our earnings from investment partnerships
separate from our corporate expenses. We assess and measure segment
operating results based on segment earnings as disclosed below.
Segment earnings from operations are neither necessarily indicative
of cash available to fund cash requirements, nor synonymous with
cash flow from operations. The tabular information that follows
shows data of our reportable segments reconciled to amounts
reflected in the consolidated financial statements.
Note 16. Business Segment Reporting
(continued)
A disaggregation of our consolidated data for the third quarters
and first nine months of 2021 and 2020 is presented in the tables
that follow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
Third Quarter |
|
First Nine Months |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Operating Businesses: |
|
|
|
|
|
|
|
|
Restaurant Operations: |
|
|
|
|
|
|
|
|
Steak n Shake |
$ |
56,993 |
|
|
$ |
78,313 |
|
|
$ |
190,517 |
|
|
$ |
267,637 |
|
|
Western Sizzlin |
2,151 |
|
|
1,361 |
|
|
5,907 |
|
|
4,945 |
|
|
Total Restaurant Operations |
59,144 |
|
|
79,674 |
|
|
196,424 |
|
|
272,582 |
|
|
Insurance Operations: |
|
|
|
|
|
|
|
|
First Guard |
8,656 |
|
|
7,898 |
|
|
25,250 |
|
|
23,194 |
|
|
Southern Pioneer |
6,067 |
|
|
6,515 |
|
|
18,479 |
|
|
15,498 |
|
|
Total Insurance Operations |
14,723 |
|
|
14,413 |
|
|
43,729 |
|
|
38,692 |
|
|
Southern Oil |
7,353 |
|
|
6,029 |
|
|
24,310 |
|
|
19,554 |
|
|
Maxim |
863 |
|
|
1,719 |
|
|
2,695 |
|
|
3,209 |
|
|
|
$ |
82,083 |
|
|
$ |
101,835 |
|
|
$ |
267,158 |
|
|
$ |
334,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Losses) Before Income Taxes |
|
|
Third Quarter |
|
First Nine Months |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Operating Businesses: |
|
|
|
|
|
|
|
|
Restaurant Operations: |
|
|
|
|
|
|
|
|
Steak n Shake |
$ |
(2,959) |
|
|
$ |
(63) |
|
|
$ |
5,733 |
|
|
$ |
(6,362) |
|
|
Western Sizzlin |
247 |
|
|
(396) |
|
|
707 |
|
|
(937) |
|
|
Total Restaurant Operations |
(2,712) |
|
|
(459) |
|
|
6,440 |
|
|
(7,299) |
|
|
Insurance Operations: |
|
|
|
|
|
|
|
|
First Guard |
2,934 |
|
|
2,152 |
|
|
8,204 |
|
|
7,193 |
|
|
Southern Pioneer |
908 |
|
|
518 |
|
|
3,194 |
|
|
1,458 |
|
|
Total Insurance Operations |
3,842 |
|
|
2,670 |
|
|
11,398 |
|
|
8,651 |
|
|
Southern Oil |
2,982 |
|
|
592 |
|
|
9,047 |
|
|
1,355 |
|
|
Maxim |
(56) |
|
|
1,150 |
|
|
867 |
|
|
1,605 |
|
|
Interest expense not allocated to segments |
— |
|
|
(2,150) |
|
|
(1,121) |
|
|
(6,973) |
|
|
Total Operating Businesses |
4,056 |
|
|
1,803 |
|
|
26,631 |
|
|
(2,661) |
|
|
Corporate and Investments: |
|
|
|
|
|
|
|
|
Corporate and other |
(3,302) |
|
|
(2,657) |
|
|
(8,595) |
|
|
(7,693) |
|
|
Investment gains |
4,534 |
|
|
354 |
|
|
6,465 |
|
|
1,863 |
|
|
Investment partnership gains (losses) |
(20,231) |
|
|
27,218 |
|
|
27,344 |
|
|
(89,276) |
|
|
Total Corporate and Investments |
(18,999) |
|
|
24,915 |
|
|
25,214 |
|
|
(95,106) |
|
|
|
$ |
(14,943) |
|
|
$ |
26,718 |
|
|
$ |
51,845 |
|
|
$ |
(97,767) |
|
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(dollars in thousands except per share data)
Overview
Biglari Holdings 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 was
founded and is 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 September 30, 2021, Mr.
Biglari beneficially owns shares of the Company that represent
approximately 65.0% of the economic interest and 70.3% of the
voting interest.
On March 9, 2020, Biglari Holdings acquired the stock of Southern
Pioneer Property & Casualty Insurance Company and its agency,
Southern Pioneer Insurance Agency, Inc. (collectively “Southern
Pioneer”). The Company's financial results include the results of
Southern Pioneer from the date of acquisition.
Net earnings (loss) attributable to Biglari Holdings shareholders
are disaggregated in the table that follows. Amounts are recorded
after deducting income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Operating businesses: |
|
|
|
|
|
|
|
|
Restaurant |
$ |
(1,515) |
|
|
$ |
(15) |
|
|
$ |
5,146 |
|
|
$ |
(6,199) |
|
|
Insurance |
2,985 |
|
|
2,204 |
|
|
8,902 |
|
|
6,819 |
|
|
Oil and gas |
2,325 |
|
|
389 |
|
|
7,016 |
|
|
1,278 |
|
|
Media and licensing |
(43) |
|
|
885 |
|
|
662 |
|
|
1,236 |
|
|
Interest expense |
— |
|
|
(1,612) |
|
|
(841) |
|
|
(5,219) |
|
|
Total operating businesses |
3,752 |
|
|
1,851 |
|
|
20,885 |
|
|
(2,085) |
|
|
Corporate and other |
(2,526) |
|
|
(2,081) |
|
|
(6,649) |
|
|
(5,762) |
|
|
Investment gains |
3,390 |
|
|
276 |
|
|
4,896 |
|
|
1,468 |
|
|
Investment partnership gains (losses) |
(15,285) |
|
|
21,055 |
|
|
21,169 |
|
|
(67,939) |
|
|
|
$ |
(10,669) |
|
|
$ |
21,101 |
|
|
$ |
40,301 |
|
|
$ |
(74,318) |
|
Restaurant businesses include Steak n Shake Inc. and Western
Sizzlin Corporation. Steak n Shake and Western Sizzlin are
engaged in the ownership, operation, and franchising of
restaurants.
Insurance businesses are composed of First Guard Insurance Company
("First Guard") and Southern Pioneer. First Guard is a direct
underwriter of commercial trucking insurance, selling physical
damage and nontrucking liability insurance to truckers.
Southern Pioneer underwrites garage liability insurance, commercial
property, as well as homeowners and dwelling fire
insurance.
Oil and gas business is composed of Southern Oil Company ("Southern
Oil").
Media and licensing business is composed of Maxim Inc.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Restaurants
Steak n Shake and Western Sizzlin comprise 581 company-operated and
franchise restaurants as of September 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steak n Shake |
|
Western Sizzlin |
|
|
Company-
operated |
|
Franchise
Partner |
|
Traditional
Franchise |
|
Company-
operated |
|
Franchise |
|
Total |
|
Total stores as of December 31, 2020
|
276 |
|
|
86 |
|
|
194 |
|
|
3 |
|
|
39 |
|
|
598 |
|
|
Corporate stores transitioned |
(54) |
|
|
54 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Net restaurants opened (closed) |
(1) |
|
|
— |
|
|
(15) |
|
|
— |
|
|
(1) |
|
|
(17) |
|
|
Total stores as of September 30, 2021
|
221 |
|
|
140 |
|
|
179 |
|
|
3 |
|
|
38 |
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stores as of December 31, 2019
|
368 |
|
|
29 |
|
|
213 |
|
|
4 |
|
|
48 |
|
|
662 |
|
|
Corporate stores transitioned |
(41) |
|
|
40 |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
Net restaurants opened (closed) |
(67) |
|
|
— |
|
|
(15) |
|
|
(1) |
|
|
(9) |
|
|
(92) |
|
|
Total stores as of September 30, 2020
|
260 |
|
|
69 |
|
|
199 |
|
|
3 |
|
|
39 |
|
|
570 |
|
As of September 30, 2021, 42 of the 221 company-operated Steak
n Shake stores were temporarily closed.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Earnings of our restaurant operations are summarized
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
First Nine Months |
|
|
|
2021 |
|
|
|
2020 |
|
|
|
2021 |
|
|
|
2020 |
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
41,916 |
|
|
|
|
$ |
67,617 |
|
|
|
|
$ |
146,269 |
|
|
|
|
$ |
241,832 |
|
|
|
|
Franchise partner fees |
11,508 |
|
|
|
|
6,894 |
|
|
|
|
31,744 |
|
|
|
|
14,775 |
|
|
|
|
Franchise royalties and fees |
4,865 |
|
|
|
|
4,421 |
|
|
|
|
14,594 |
|
|
|
|
13,704 |
|
|
|
|
Other revenue |
855 |
|
|
|
|
742 |
|
|
|
|
3,817 |
|
|
|
|
2,271 |
|
|
|
|
Total revenue |
59,144 |
|
|
|
|
79,674 |
|
|
|
|
196,424 |
|
|
|
|
272,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of food |
13,123 |
|
|
31.3 |
% |
|
19,508 |
|
|
28.9 |
% |
|
43,404 |
|
|
29.7 |
% |
|
70,880 |
|
|
29.3 |
% |
|
Restaurant operating costs |
24,496 |
|
|
58.4 |
% |
|
30,451 |
|
|
45.0 |
% |
|
71,751 |
|
|
49.1 |
% |
|
110,903 |
|
|
45.9 |
% |
|
Occupancy costs |
4,075 |
|
|
9.7 |
% |
|
4,103 |
|
|
6.1 |
% |
|
14,142 |
|
|
9.7 |
% |
|
12,954 |
|
|
5.4 |
% |
|
Total cost of sales |
41,694 |
|
|
|
|
54,062 |
|
|
|
|
129,297 |
|
|
|
|
194,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
9,255 |
|
|
15.6 |
% |
|
12,059 |
|
|
15.1 |
% |
|
27,416 |
|
|
14.0 |
% |
|
30,146 |
|
|
11.1 |
% |
|
Marketing |
2,302 |
|
|
3.9 |
% |
|
3,891 |
|
|
4.9 |
% |
|
10,212 |
|
|
5.2 |
% |
|
18,406 |
|
|
6.8 |
% |
|
Other expenses |
1,332 |
|
|
2.3 |
% |
|
454 |
|
|
0.6 |
% |
|
2,266 |
|
|
1.2 |
% |
|
1,721 |
|
|
0.6 |
% |
|
Total selling, general and administrative |
12,889 |
|
|
21.8 |
% |
|
16,404 |
|
|
20.6 |
% |
|
39,894 |
|
|
20.3 |
% |
|
50,273 |
|
|
18.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments |
— |
|
|
|
|
(3,698) |
|
|
|
|
(559) |
|
|
|
|
(21,817) |
|
|
|
|
Depreciation and amortization |
(5,811) |
|
|
|
|
(4,376) |
|
|
|
|
(15,615) |
|
|
|
|
(14,088) |
|
|
|
|
Gain on debt extinguishment |
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
5,713 |
|
|
|
|
Interest on finance leases and obligations |
(1,462) |
|
|
|
|
(1,593) |
|
|
|
|
(4,619) |
|
|
|
|
(4,679) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
(2,712) |
|
|
|
|
(459) |
|
|
|
|
6,440 |
|
|
|
|
(7,299) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
(1,197) |
|
|
|
|
(444) |
|
|
|
|
1,294 |
|
|
|
|
(1,100) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to net earnings |
$ |
(1,515) |
|
|
|
|
$ |
(15) |
|
|
|
|
$ |
5,146 |
|
|
|
|
$ |
(6,199) |
|
|
|
Cost of food, restaurant operating costs and occupancy costs are
expressed as a percentage of net sales.
General and administrative, marketing and other expenses are
expressed as a percentage of total revenue.
The novel coronavirus (“COVID-19”) was declared a pandemic by the
World Health Organization in March of 2020. Government and private
sector responses to contain its spread began to affect our
operating businesses significantly that same month. The COVID-19
pandemic has adversely affected our restaurant operations, as our
restaurants were required to close their dining rooms during the
first quarter of 2020.
The majority of Steak n Shake’s dining rooms remained closed
through the end of 2020. Steak n Shake has been reopening its
dining rooms this year, and in doing so has implemented a
self-service model. The transformation has resulted in higher
capital expenditures in 2021 as compared to 2020. In the first nine
months of 2021, Steak n Shake spent $29,708 in capital expenditures
related to the conversion of table-service restaurants to
self-service restaurants.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Net sales for the third quarter and first nine months of 2021 were
$41,916 and $146,269, respectively, representing a decrease of
$25,701 or 38.0%, and $95,563 or 39.5%, compared to the third
quarter and first nine months of 2020, respectively. The
year-over-year decrease in revenue of company-operated restaurants
is primarily due to the shift of company units to franchise partner
units. For company-operated units, sales to the end customer are
recorded as revenue generated by the Company, but for franchise
partner units, only our share of the restaurants’ profits, along
with certain fees, are recorded as revenue. Because we derive most
of our revenue from our share of the profits, revenue will continue
to decline with each transition of a company-operated unit to a
franchise partner unit.
Franchise partner fees were $11,508 during the third quarter of
2021, compared to $6,894 during the third quarter of 2020.
Franchise partner fees were $31,744 during the first nine months of
2021, compared to $14,775 during the first nine months of
2020.
As of September 30, 2021, there were 140 franchise partner
units, compared to 69 franchise partner units as of
September 30, 2020.
The cost of food during the third quarter and first nine months of
2021 was $13,123, and $43,404, respectively, compared to $19,508,
and $70,880 in the third quarter and first nine months of 2020,
respectively. Restaurant operating costs during the third quarter
of 2021 were $24,496, compared to $30,451 in the third quarter of
2020. Restaurant operating costs during the first nine months of
2021 were $71,751, compared to $110,903 in the first nine months of
2020.
The decreases in cost of food and operating costs are mainly
attributable to the transitioning of company-operated units to
franchise partner units. The increase in operating costs as a
percentage of net sales is mainly attributable to increasing wages.
The Company expects to increase menu prices in the fourth quarter
to improve margins.
General and administrative costs during the third quarter and first
nine months of 2021 were $9,255 and $27,416, respectively, compared
to $12,059 and $30,146 in the third quarter and first nine months
of 2020, respectively.
The year-over-year general and administrative costs were lower in
2021 primarily because of legal and professional fees incurred
during the third quarter of 2020.
Marketing expenses during the third quarter and first nine months
of 2021 were $2,302 and $10,212, respectively, compared to $3,891
and $18,406 during the third quarter and first nine months of 2020,
respectively. Marketing expenses decreased primarily due to the
decision to shift to a digital marketing strategy.
Our restaurants recorded an impairment to long-lived assets of $0
and $3,698 in the third quarters of 2021 and 2020, respectively,
and $559 and $21,817 in the first nine months of 2021 and 2020,
respectively. The 2021 impairments are primarily attributable to
Steak n Shake store closures. The 2020 impairments were connected
to dining room closures during the pandemic.
Insurance
We view our insurance businesses as possessing two activities:
underwriting and investing. Underwriting decisions are the
responsibility of the unit managers, whereas investing decisions
are the responsibility of our Chairman and CEO, Sardar Biglari.
Business units are operated under separate local management.
Biglari Holdings’ insurance operations consist of First Guard and
Southern Pioneer.
Underwriting results of our insurance operations are summarized
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Underwriting gain attributable to: |
|
|
|
|
|
|
|
|
First Guard |
$ |
2,832 |
|
|
$ |
2,077 |
|
|
$ |
7,922 |
|
|
$ |
6,953 |
|
|
Southern Pioneer |
397 |
|
|
60 |
|
|
1,511 |
|
|
(229) |
|
|
Pre-tax underwriting gain |
3,229 |
|
|
2,137 |
|
|
9,433 |
|
|
6,724 |
|
|
Income tax expense |
681 |
|
|
449 |
|
|
1,984 |
|
|
1,412 |
|
|
Net underwriting gain |
$ |
2,548 |
|
|
$ |
1,688 |
|
|
$ |
7,449 |
|
|
$ |
5,312 |
|
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Earnings of our insurance operations are summarized
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Premiums written |
$ |
13,901 |
|
|
$ |
13,427 |
|
|
$ |
41,166 |
|
|
$ |
35,590 |
|
|
Insurance losses |
6,657 |
|
|
7,419 |
|
|
20,040 |
|
|
18,494 |
|
|
Underwriting expenses |
4,015 |
|
|
3,871 |
|
|
11,693 |
|
|
10,372 |
|
|
Pre-tax underwriting gain |
3,229 |
|
|
2,137 |
|
|
9,433 |
|
|
6,724 |
|
|
Other income and expenses |
|
|
|
|
|
|
|
|
Investment income and commissions |
646 |
|
|
817 |
|
|
2,033 |
|
|
2,749 |
|
|
Other expenses |
(33) |
|
|
(284) |
|
|
(68) |
|
|
(822) |
|
|
Total other income |
613 |
|
|
533 |
|
|
1,965 |
|
|
1,927 |
|
|
Earnings before income taxes |
3,842 |
|
|
2,670 |
|
|
11,398 |
|
|
8,651 |
|
|
Income tax expense |
857 |
|
|
466 |
|
|
2,496 |
|
|
1,832 |
|
|
Contribution to net earnings |
$ |
2,985 |
|
|
$ |
2,204 |
|
|
$ |
8,902 |
|
|
$ |
6,819 |
|
Insurance premiums and other on the consolidated statement of
earnings includes premiums earned, investment income, other income
and commissions.
First Guard
First Guard is a direct underwriter of commercial truck insurance,
selling physical damage and nontrucking liability insurance to
truckers. First Guard’s insurance products are marketed primarily
through direct response methods via the internet or by telephone.
First Guard’s cost-efficient direct response marketing methods
enable it to be a low-cost insurer. A summary of First Guard’s
underwriting results follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Amount |
|
% |
|
Amount |
|
% |
|
Amount |
|
% |
|
Amount |
|
% |
|
Premiums written |
$ |
8,458 |
|
|
100.0 |
% |
|
$ |
7,505 |
|
|
100.0 |
% |
|
$ |
24,760 |
|
|
100.0 |
% |
|
$ |
22,195 |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance losses |
3,935 |
|
|
46.5 |
% |
|
3,736 |
|
|
49.8 |
% |
|
11,746 |
|
|
47.4 |
% |
|
10,268 |
|
|
46.3 |
% |
|
Underwriting expenses |
1,691 |
|
|
20.0 |
% |
|
1,692 |
|
|
22.5 |
% |
|
5,092 |
|
|
20.6 |
% |
|
4,974 |
|
|
22.4 |
% |
|
Total losses and expenses |
5,626 |
|
|
66.5 |
% |
|
5,428 |
|
|
72.3 |
% |
|
16,838 |
|
|
68.0 |
% |
|
15,242 |
|
|
68.7 |
% |
|
Pre-tax underwriting gain |
$ |
2,832 |
|
|
|
|
$ |
2,077 |
|
|
|
|
$ |
7,922 |
|
|
|
|
$ |
6,953 |
|
|
|
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Southern Pioneer
Southern Pioneer underwrites garage liability insurance, commercial
property, as well as homeowners and dwelling fire insurance.
The financial results for Southern Pioneer are from the date of
acquisition March 9, 2020. A summary of Southern Pioneer’s
underwriting results follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Amount |
|
% |
|
Amount |
|
% |
|
Amount |
|
% |
|
Amount |
|
% |
|
Premiums written |
$ |
5,443 |
|
|
100.0 |
% |
|
$ |
5,922 |
|
|
100.0 |
% |
|
$ |
16,406 |
|
|
100.0 |
% |
|
$ |
13,395 |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance losses |
2,722 |
|
|
50.0 |
% |
|
3,683 |
|
|
62.2 |
% |
|
8,294 |
|
|
50.6 |
% |
|
8,226 |
|
|
61.4 |
% |
|
Underwriting expenses |
2,324 |
|
|
42.7 |
% |
|
2,179 |
|
|
36.8 |
% |
|
6,601 |
|
|
40.2 |
% |
|
5,398 |
|
|
40.3 |
% |
|
Total losses and expenses |
5,046 |
|
|
92.7 |
% |
|
5,862 |
|
|
99.0 |
% |
|
14,895 |
|
|
90.8 |
% |
|
13,624 |
|
|
101.7 |
% |
|
Pre-tax underwriting gain |
$ |
397 |
|
|
|
|
$ |
60 |
|
|
|
|
$ |
1,511 |
|
|
|
|
$ |
(229) |
|
|
|
Insurance - Investment Income
A summary of net investment income attributable to our insurance
operations follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Interest, dividends and other investment income: |
|
|
|
|
|
|
|
|
First Guard |
$ |
54 |
|
|
$ |
75 |
|
|
$ |
84 |
|
|
$ |
246 |
|
|
Southern Pioneer |
141 |
|
|
121 |
|
|
568 |
|
|
821 |
|
|
Pre-tax investment income |
195 |
|
|
196 |
|
|
652 |
|
|
1,067 |
|
|
Income tax expense |
41 |
|
|
41 |
|
|
137 |
|
|
224 |
|
|
Net investment income |
$ |
154 |
|
|
$ |
155 |
|
|
$ |
515 |
|
|
$ |
843 |
|
We consider investment income as a component of our aggregate
insurance operating results. However, we consider investment gains
and losses, whether realized or unrealized, as
non-operating.
Oil and Gas
Southern Oil primarily operates oil and natural gas properties
offshore in the shallow waters of the Gulf of Mexico.
Earnings for Southern Oil are summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Oil and gas revenue |
$ |
7,353 |
|
|
$ |
6,029 |
|
|
$ |
24,310 |
|
|
$ |
19,554 |
|
|
Oil and gas production costs |
2,050 |
|
|
2,171 |
|
|
6,957 |
|
|
6,570 |
|
|
Depreciation, depletion and accretion |
1,717 |
|
|
2,804 |
|
|
6,286 |
|
|
9,651 |
|
|
General and administrative expenses |
604 |
|
|
462 |
|
|
2,020 |
|
|
1,978 |
|
|
Earnings before income taxes |
2,982 |
|
|
592 |
|
|
9,047 |
|
|
1,355 |
|
|
Income tax expense |
657 |
|
|
203 |
|
|
2,031 |
|
|
77 |
|
|
Contribution to net earnings |
$ |
2,325 |
|
|
$ |
389 |
|
|
$ |
7,016 |
|
|
$ |
1,278 |
|
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (continued)
The COVID-19 pandemic caused oil demand to significantly decrease
in early 2020, creating oversupplied markets that
resulted in lower commodity prices and margins. However, crude
oil prices increased in mid-2020 in response to the lifting of
COVID-19 restrictions.
Media and Licensing
Maxim's business lies principally in media and licensing. Earnings
of our media and licensing operations are summarized
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Media and licensing revenue |
$ |
863 |
|
|
$ |
1,719 |
|
|
$ |
2,695 |
|
|
$ |
3,209 |
|
|
|
|
|
|
|
|
|
|
|
Media and licensing costs |
880 |
|
|
548 |
|
|
1,749 |
|
|
1,491 |
|
|
General and administrative expenses |
39 |
|
|
21 |
|
|
79 |
|
|
113 |
|
|
Earnings before income taxes |
(56) |
|
|
1,150 |
|
|
867 |
|
|
1,605 |
|
|
Income tax expense (benefit) |
(13) |
|
|
265 |
|
|
205 |
|
|
369 |
|
|
Contribution to net earnings |
$ |
(43) |
|
|
$ |
885 |
|
|
$ |
662 |
|
|
$ |
1,236 |
|
We acquired Maxim with the idea of transforming its business
model. The magazine developed the Maxim brand, a franchise we
are utilizing to generate nonmagazine revenue, notably through
licensing, a cash-generating business related to consumer products,
services, and events.
Investment Gains and Investment Partnership Gains
Investment gains net of tax for the third quarter and first nine
months of 2021 were $3,390 and $4,896, respectively. Investment
gains net of tax were $276 and $1,468 during the third quarter and
first nine months of 2020, respectively. Investment gains during
the third quarter of 2021 included a gain from the sale of real
estate of $3,785, net of tax.
Dividends earned on investments are reported as other income by our
insurance companies. We consider investment income as a component
of our aggregate insurance operating results.
However, we consider investment gains and losses, whether realized
or unrealized, as non-operating.
Earnings (loss) from our investments in partnerships are summarized
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Investment partnership gains (losses) |
$ |
(20,231) |
|
|
$ |
27,218 |
|
|
$ |
27,344 |
|
|
$ |
(89,276) |
|
|
Tax expense (benefit) |
(4,946) |
|
|
6,163 |
|
|
6,175 |
|
|
(21,337) |
|
|
Contribution to net earnings |
$ |
(15,285) |
|
|
$ |
21,055 |
|
|
$ |
21,169 |
|
|
$ |
(67,939) |
|
Investment partnership gains include gains/losses from changes in
market values of underlying investments and dividends earned by the
partnerships. Dividend income has a lower effective tax rate
than income from capital gains. Changes in the market values
of investments can be highly volatile.
The investment partnerships hold the Company’s common stock as
investments. The Company’s pro-rata share of its common stock held
by the investment partnerships is recorded as treasury stock even
though these shares are legally outstanding. Gains and losses on
Company common stock included in the earnings of the partnerships
are eliminated.
Investments affect our reported quarterly earnings based on their
carrying value. We do not regard the quarterly or annual
fluctuations in our investments to be meaningful in understanding
the operating results of our businesses.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Interest Expense
The Company’s interest expense is summarized below.
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Third Quarter |
|
First Nine Months |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
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Interest expense on notes payable |
$ |
— |
|
|
$ |
2,150 |
|
|
$ |
1,121 |
|
|
$ |
6,973 |
|
|
Tax benefit |
— |
|
|
538 |
|
|
280 |
|
|
1,754 |
|
|
Interest expense net of tax |
$ |
— |
|
|
$ |
1,612 |
|
|
$ |
841 |
|
|
$ |
5,219 |
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Steak n Shake’s term loan was scheduled to mature on March 19,
2021. As of December 31, 2020, $152,506 was outstanding. The
Company repaid Steak n Shake's outstanding balance in full on
February 19, 2021.
Corporate and Other
Corporate expenses exclude the activities in the restaurant, media
and licensing, insurance, and oil and gas businesses.
Corporate net losses during the third quarter and first
nine months of 2021 were relatively flat compared to the
same period during 2020.
Income Taxes
Income tax benefit for the third quarter of 2021 was $4,274
compared to an income tax expense of $5,617 for the third quarter
of 2020. Income tax expense for the first nine months of 2021
was $11,544 compared to a benefit of $23,449 for the first nine
months of 2020. The variance in income taxes between 2021 and
2020 is attributable to taxes on income generated by the investment
partnerships. Investment partnership pretax gains were
$27,344 during the first nine months of 2021 compared to pretax
losses of $89,276 during the first nine months of
2020.
Financial Condition
Consolidated cash and investments are summarized
below.
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September 30,
2021 |
|
December 31,
2020 |
|
Cash and cash equivalents |
$ |
27,795 |
|
|
$ |
24,503 |
|
|
Investments |
99,006 |
|
|
94,861 |
|
|
Fair value of interest in investment partnerships |
533,996 |
|
|
590,926 |
|
|
Total cash and investments |
660,797 |
|
|
710,290 |
|
|
Less: portion of Company stock held by investment
partnerships |
(260,907) |
|
|
(171,376) |
|
|
Carrying value of cash and investments on balance sheet |
$ |
399,890 |
|
|
$ |
538,914 |
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Liquidity
Our balance sheet continues to maintain significant
liquidity. Consolidated cash flow activities are summarized
below.