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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, 2022
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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19100 Ridgewood Parkway,
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Suite 1200
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San Antonio, |
TX |
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78259 |
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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
17802 IH 10 West, Suite 400, San Antonio, TX 78257
(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 1,
2022:
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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,
2022 |
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December 31,
2021 |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
64,842 |
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$ |
42,349 |
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Investments |
70,032 |
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83,061 |
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Receivables |
25,826 |
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28,508 |
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Inventories |
3,704 |
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3,803 |
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Other current assets |
13,147 |
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7,088 |
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Total current assets |
177,551 |
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164,809 |
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Property and equipment |
414,497 |
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349,351 |
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Operating lease assets |
38,539 |
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42,538 |
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Goodwill and other intangible assets |
75,933 |
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77,010 |
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Investment partnerships |
144,864 |
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250,399 |
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Other assets |
10,761 |
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10,700 |
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Total assets |
$ |
862,145 |
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$ |
894,807 |
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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 |
$ |
101,503 |
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$ |
100,467 |
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Loss and loss adjustment expenses |
14,613 |
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14,609 |
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Unearned premiums |
12,493 |
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11,667 |
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Current portion of lease obligations |
17,093 |
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16,898 |
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Total current liabilities |
145,702 |
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143,641 |
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Lease obligations |
95,980 |
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104,479 |
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Line of credit |
30,000 |
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— |
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Deferred taxes |
28,515 |
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46,533 |
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Asset retirement obligations |
14,721 |
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10,389 |
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Other liabilities |
1,819 |
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2,069 |
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Total liabilities |
316,737 |
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307,111 |
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Shareholders’ equity |
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Common stock |
1,138 |
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1,138 |
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Additional paid-in capital |
381,788 |
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381,788 |
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Retained earnings |
566,455 |
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608,528 |
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Accumulated other comprehensive loss |
(3,777) |
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(1,907) |
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Treasury stock, at cost |
(409,119) |
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(401,851) |
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Biglari Holdings Inc. shareholders’ equity |
536,485 |
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587,696 |
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Noncontrolling interests |
8,923 |
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— |
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Total shareholders' equity |
545,408 |
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587,696 |
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Total liabilities and shareholders’ equity |
$ |
862,145 |
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$ |
894,807 |
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See accompanying Notes to Consolidated Financial
Statements.
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts)
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Third Quarter |
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First Nine Months |
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2022 |
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2021 |
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2022 |
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2021 |
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(Unaudited) |
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(Unaudited) |
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Revenues |
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Restaurant operations |
$ |
59,437 |
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$ |
59,144 |
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$ |
179,608 |
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$ |
196,424 |
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Insurance premiums and other |
16,312 |
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14,723 |
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47,745 |
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43,729 |
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Oil and gas |
14,380 |
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7,353 |
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38,632 |
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24,310 |
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Licensing and media |
1,905 |
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863 |
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3,788 |
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2,695 |
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92,034 |
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82,083 |
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269,773 |
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267,158 |
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Cost and expenses |
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Restaurant cost of sales |
36,162 |
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41,694 |
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107,469 |
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129,297 |
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Insurance losses and underwriting expenses |
13,245 |
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10,672 |
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40,812 |
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31,733 |
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Oil and gas production costs |
4,090 |
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2,050 |
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11,752 |
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6,957 |
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Licensing and media costs |
345 |
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880 |
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1,975 |
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1,749 |
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Selling, general and administrative |
15,469 |
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16,889 |
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48,275 |
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50,848 |
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Impairments |
— |
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— |
|
|
20 |
|
|
559 |
|
|
Depreciation, depletion, and amortization |
8,456 |
|
|
7,682 |
|
|
24,127 |
|
|
22,239 |
|
|
Interest expense on leases |
1,372 |
|
|
1,462 |
|
|
4,169 |
|
|
4,619 |
|
|
Interest expense on borrowings |
67 |
|
|
— |
|
|
67 |
|
|
1,121 |
|
|
|
79,206 |
|
|
81,329 |
|
|
238,666 |
|
|
249,122 |
|
|
Other income |
|
|
|
|
|
|
|
|
Investment gains (losses) |
(849) |
|
|
4,534 |
|
|
(4,184) |
|
|
6,465 |
|
|
Investment partnership gains (losses) |
29,658 |
|
|
(20,231) |
|
|
(82,244) |
|
|
27,344 |
|
|
Total other income (expenses) |
28,809 |
|
|
(15,697) |
|
|
(86,428) |
|
|
33,809 |
|
|
Earnings (loss) before income taxes |
41,637 |
|
|
(14,943) |
|
|
(55,321) |
|
|
51,845 |
|
|
Income tax expense (benefit) |
9,598 |
|
|
(4,274) |
|
|
(13,282) |
|
|
11,544 |
|
|
Net earnings (loss) |
32,039 |
|
|
(10,669) |
|
|
(42,039) |
|
|
40,301 |
|
|
Earnings attributable to noncontrolling interest |
34 |
|
|
— |
|
|
34 |
|
|
— |
|
|
Net earnings (loss) attributable to Biglari Holdings Inc.
shareholders |
$ |
32,005 |
|
|
$ |
(10,669) |
|
|
$ |
(42,073) |
|
|
$ |
40,301 |
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per equivalent Class A share * |
$ |
109.13 |
|
|
$ |
(33.74) |
|
|
$ |
(140.30) |
|
|
$ |
125.79 |
|
*Net earnings (loss) per equivalent Class B share outstanding are
one-fifth of the equivalent Class A share or $21.83 and $(28.06)
for the third quarter and first nine months of 2022, respectively,
and $(6.75) and $25.16 for the third quarter and first nine months
of 2021, respectively.
See accompanying Notes to Consolidated Financial
Statements.
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
|
(Unaudited) |
|
(Unaudited) |
|
|
|
Net earnings (loss) |
$ |
32,039 |
|
|
$ |
(10,669) |
|
|
$ |
(42,039) |
|
|
$ |
40,301 |
|
|
|
|
|
|
Foreign currency translation |
(618) |
|
|
(49) |
|
|
(1,870) |
|
|
(378) |
|
|
|
|
|
|
Comprehensive income (loss) |
31,421 |
|
|
(10,718) |
|
|
(43,909) |
|
|
39,923 |
|
|
|
|
|
|
Comprehensive income attributable to noncontrolling
interests |
34 |
|
|
— |
|
|
34 |
|
|
— |
|
|
|
|
|
|
Total comprehensive income (loss) attributable to Biglari Holdings
Inc. shareholders |
$ |
31,387 |
|
|
$ |
(10,718) |
|
|
$ |
(43,943) |
|
|
$ |
39,923 |
|
|
|
|
|
See accompanying Notes to Consolidated Financial
Statements.
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months |
|
2022 |
|
2021 |
|
(Unaudited) |
|
Operating activities |
|
|
|
|
Net earnings (loss) |
$ |
(42,039) |
|
|
$ |
40,301 |
|
|
Adjustments to reconcile net earnings (loss) to operating cash
flows: |
|
|
|
|
Depreciation, depletion, and amortization |
24,127 |
|
|
22,239 |
|
|
Provision for deferred income taxes |
(22,289) |
|
|
16,625 |
|
|
Asset impairments and other non-cash expenses |
20 |
|
|
696 |
|
|
Gains on disposal of assets |
(905) |
|
|
(306) |
|
|
Investment and investment partnership (gains) losses |
86,428 |
|
|
(34,461) |
|
|
Distributions from investment partnerships |
51,200 |
|
|
172,420 |
|
|
Changes in receivables, inventories and other assets |
7,240 |
|
|
3,608 |
|
|
Changes in accounts payable and accrued expenses |
(4,028) |
|
|
(9,877) |
|
|
Net cash provided by operating activities |
99,754 |
|
|
211,245 |
|
|
Investing activities |
|
|
|
|
Capital expenditures |
(23,437) |
|
|
(46,486) |
|
|
Proceeds from property and equipment disposals |
2,201 |
|
|
2,749 |
|
|
Acquisition of a business, net of cash acquired |
(54,899) |
|
|
— |
|
|
Purchases of limited partner interests |
(23,886) |
|
|
(4,800) |
|
|
Purchases of investments |
(110,837) |
|
|
(81,923) |
|
|
Sales of investments and redemptions of fixed maturity
securities |
108,394 |
|
|
74,678 |
|
|
Net cash used in investing activities |
(102,464) |
|
|
(55,782) |
|
|
Financing activities |
|
|
|
|
Proceeds from revolving credit facility |
30,000 |
|
|
— |
|
|
Principal payments on long-term debt |
— |
|
|
(149,952) |
|
|
Principal payments on direct financing lease
obligations |
(4,647) |
|
|
(4,634) |
|
|
Net cash provided by (used in) financing activities |
25,353 |
|
|
(154,586) |
|
|
Effect of exchange rate changes on cash |
(150) |
|
|
(85) |
|
|
Increase in cash, cash equivalents and restricted cash |
22,493 |
|
|
792 |
|
|
Cash, cash equivalents and restricted cash at beginning of
year |
43,687 |
|
|
29,666 |
|
|
Cash, cash equivalents and restricted cash at end of third
quarter |
$ |
66,180 |
|
|
$ |
30,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months |
|
2022 |
|
2021 |
|
(Unaudited) |
|
Cash and cash equivalents |
$ |
64,842 |
|
|
$ |
27,795 |
|
|
Restricted cash in other long-term assets |
1,338 |
|
|
2,663 |
|
|
Cash, cash equivalents and restricted cash at end of third
quarter |
$ |
66,180 |
|
|
$ |
30,458 |
|
See accompanying Notes to Consolidated Financial
Statements.
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
(Unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biglari Holdings Inc. Shareholders’ Equity |
|
|
|
|
|
Common
Stock |
|
Additional Paid-In
Capital |
|
Retained
Earnings |
|
Accumulated Other Comprehensive Income (Loss) |
|
Treasury
Stock |
|
Non-controlling Interests |
|
Total |
|
Balance at December 31, 2021 |
$ |
1,138 |
|
|
$ |
381,788 |
|
|
$ |
608,528 |
|
|
$ |
(1,907) |
|
|
$ |
(401,851) |
|
|
$ |
— |
|
|
$ |
587,696 |
|
|
Net earnings (loss) |
|
|
|
|
(298) |
|
|
|
|
|
|
|
|
(298) |
|
|
Other comprehensive loss |
|
|
|
|
|
|
(231) |
|
|
|
|
|
|
(231) |
|
|
Adjustment to treasury stock for holdings in investment
partnerships |
|
|
|
|
|
|
|
|
130 |
|
|
|
|
130 |
|
|
Balance at March 31, 2022 |
$ |
1,138 |
|
|
$ |
381,788 |
|
|
$ |
608,230 |
|
|
$ |
(2,138) |
|
|
$ |
(401,721) |
|
|
$ |
— |
|
|
$ |
587,297 |
|
|
Net earnings (loss) |
|
|
|
|
(73,780) |
|
|
|
|
|
|
|
|
(73,780) |
|
|
Other comprehensive loss |
|
|
|
|
|
|
(1,021) |
|
|
|
|
|
|
(1,021) |
|
|
Adjustment to treasury stock for holdings in investment
partnerships |
|
|
|
|
|
|
|
|
(6,760) |
|
|
|
|
(6,760) |
|
|
Balance at June 30, 2022 |
$ |
1,138 |
|
|
$ |
381,788 |
|
|
$ |
534,450 |
|
|
$ |
(3,159) |
|
|
$ |
(408,481) |
|
|
$ |
— |
|
|
$ |
505,736 |
|
|
Net earnings |
|
|
|
|
32,005 |
|
|
|
|
|
|
34 |
|
|
32,039 |
|
|
Other comprehensive loss |
|
|
|
|
|
|
(618) |
|
|
|
|
|
|
(618) |
|
|
Adjustment to treasury stock for holdings in investment
partnerships |
|
|
|
|
|
|
|
|
(638) |
|
|
|
|
(638) |
|
|
Transactions with noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
8,889 |
|
|
8,889 |
|
|
Balance at September 30, 2022 |
$ |
1,138 |
|
|
$ |
381,788 |
|
|
$ |
566,455 |
|
|
$ |
(3,777) |
|
|
$ |
(409,119) |
|
|
$ |
8,923 |
|
|
$ |
545,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biglari Holdings Inc. Shareholders’ Equity |
|
|
|
|
|
Common
Stock |
|
Additional Paid-In Capital |
|
Retained
Earnings |
|
Accumulated
Other
Comprehensive
Income (Loss) |
|
Treasury
Stock |
|
Non-controlling interests |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial
Statements.
BIGLARI HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(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, 2021.
Biglari Holdings is a holding company owning subsidiaries engaged
in a number of diverse business activities, including property and
casualty insurance, licensing and media, restaurants, and oil and
gas. The Company’s largest operating subsidiaries are involved in
the franchising and operating of restaurants. Biglari Holdings is
founded and led by Sardar Biglari, Chairman and Chief Executive
Officer of the Company.
Biglari Holdings’ management system combines decentralized
operations with centralized finance decision-making. Operating
decisions for the various business units are made by their
respective managers. All major investment and capital allocation
decisions are made for the Company and its subsidiaries by Mr.
Biglari.
As of September 30, 2022, Mr. Biglari beneficially owns shares
of the Company that represent approximately 66.3% of the economic
interest and approximately 70.4% of the voting
interest.
Business Acquisition
On September 14, 2022, the Company completed the purchase of
685,505 shares of Series A Preferred Stock (the "Preferred Shares")
of Abraxas Petroleum Corporation ("Abraxas Petroleum") for a
purchase price of $80,000. On October 26, 2022, the Company
converted the preferred stock to 90% of the outstanding common
stock of Abraxas Petroleum. We have concluded that Abraxas
Petroleum is a consolidated entity and have recorded noncontrolling
interests attributable to the interest held by other shareholders.
The Company used working capital including its line of credit to
fund the purchase of the Preferred Shares. Abraxas Petroleum
operates oil and natural gas properties in the Permian Basin. The
Company’s financial results include the results of Abraxas
Petroleum from the acquisition date to the end of the third
quarter. The revenues and operating results for Abraxas Petroleum
were not significant to the Company for the third
quarter.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries,
including Steak n Shake Inc., Western Sizzlin Corporation, First
Guard Insurance Company, Maxim Inc., Southern Pioneer Property
& Casualty Insurance Company, Southern Oil Company and Abraxas
Petroleum. Intercompany accounts and transactions have been
eliminated in consolidation.
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.
On June 8, 2022, The Lion Fund II, L.P. transferred 83,465 shares
of Biglari Holdings’ Class A common stock and 890,272 shares of
Biglari Holdings’ Class B common stock to The Lion Fund,
L.P.
Note 2. Earnings Per Share
(continued)
The following table presents shares authorized, issued and
outstanding on September 30, 2022 and December 31,
2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
December 31, 2021 |
|
|
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 |
|
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. In the tabulation below
is the weighted average equivalent Class A common stock for
earnings per share. There are no dilutive securities
outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Equivalent Class A common stock outstanding |
620,592 |
|
|
620,592 |
|
|
620,592 |
|
|
620,592 |
|
|
Proportional ownership of Company stock held by investment
partnerships |
327,317 |
|
|
304,356 |
|
|
320,711 |
|
|
300,215 |
|
|
Equivalent Class A common stock for earnings per share |
293,275 |
|
|
316,236 |
|
|
299,881 |
|
|
320,377 |
|
Note 3. Investments
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 result. However, we consider
investment gains and losses, whether realized or unrealized, as
non-operating.
Investment losses for the third quarter and first nine months of
2022 were $849 and $4,184, respectively. Investment gains in the
third quarter and first nine months of 2021 were $4,534 and $6,465,
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 these shares 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. is the general partner of the investment
partnerships and is an entity solely owned by Mr.
Biglari.
Note 4. Investment Partnerships
(continued)
The fair value and adjustment for Company common stock held by the
investment partnerships to determine the carrying value of our
partnership interest are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
Company
Common Stock |
|
Carrying Value |
|
Partnership interest at December 31, 2021 |
$ |
474,201 |
|
|
$ |
223,802 |
|
|
$ |
250,399 |
|
|
Investment partnership gains (losses) |
(119,864) |
|
|
(37,620) |
|
|
(82,244) |
|
|
Distributions (net of contributions) |
(16,023) |
|
|
|
|
(16,023) |
|
|
Changes in proportionate share of Company stock held |
|
|
7,268 |
|
|
(7,268) |
|
|
Partnership interest at September 30, 2022 |
$ |
338,314 |
|
|
$ |
193,450 |
|
|
$ |
144,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
|
Changes in proportionate share of Company stock held |
|
|
6,185 |
|
|
(6,185) |
|
|
Partnership interest at September 30, 2021 |
$ |
533,996 |
|
|
$ |
260,907 |
|
|
$ |
273,089 |
|
The carrying value of the investment partnerships net of deferred
taxes is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31, 2021 |
|
Carrying value of investment partnerships |
$ |
144,864 |
|
|
$ |
250,399 |
|
|
Deferred tax liability related to investment
partnerships |
(22,176) |
|
|
(44,532) |
|
|
Carrying value of investment partnerships net of deferred
taxes |
$ |
122,688 |
|
|
$ |
205,867 |
|
The Company’s proportionate share of Company stock held by
investment partnerships at cost was $409,119 and $401,851 at
September 30, 2022 and December 31, 2021, respectively,
and was 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 interest 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 |
|
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
Gains (losses) from investment partnerships |
$ |
29,658 |
|
|
$ |
(20,231) |
|
|
$ |
(82,244) |
|
|
$ |
27,344 |
|
|
|
|
|
|
Tax expense (benefit) |
6,601 |
|
|
(4,946) |
|
|
(20,153) |
|
|
6,175 |
|
|
|
|
|
|
Contribution to net earnings (loss) |
$ |
23,057 |
|
|
$ |
(15,285) |
|
|
$ |
(62,091) |
|
|
$ |
21,169 |
|
|
|
|
|
On December 31 of each year, the general partner of the
investment partnerships, Biglari Capital Corp., 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 Corp. 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 financial statements.
There were no incentive reallocations from Biglari Holdings to
Biglari Capital Corp. during the first nine months of 2022 and
2021.
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, 2022 |
$ |
247,357 |
|
|
$ |
307,446 |
|
|
Total liabilities as of September 30, 2022 |
$ |
9,973 |
|
|
$ |
162,520 |
|
|
Revenue for the first nine months of 2022 |
$ |
(46,341) |
|
|
$ |
(88,378) |
|
|
Earnings for the first nine months of 2022 |
$ |
(46,544) |
|
|
$ |
(89,771) |
|
|
Biglari Holdings’ ownership interest as of September 30,
2022 |
88.2 |
% |
|
87.7 |
% |
|
|
|
|
|
|
Total assets as of December 31, 2021 |
$ |
114,749 |
|
|
$ |
564,022 |
|
|
Total liabilities as of December 31, 2021 |
$ |
7,763 |
|
|
$ |
130,417 |
|
|
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 |
% |
Revenue in the financial information of the investment
partnerships, summarized above, 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,
2022 |
|
December 31,
2021 |
|
Land |
$ |
142,813 |
|
|
$ |
144,605 |
|
|
Buildings |
151,138 |
|
|
148,605 |
|
|
Land and leasehold improvements |
147,765 |
|
|
147,349 |
|
|
Equipment |
230,712 |
|
|
224,581 |
|
|
Oil and gas properties |
140,916 |
|
|
74,147 |
|
|
Construction in progress |
5,744 |
|
|
2,815 |
|
|
|
819,088 |
|
|
742,102 |
|
|
Less accumulated depreciation, depletion, and
amortization |
(404,591) |
|
|
(392,751) |
|
|
Property and equipment, net |
$ |
414,497 |
|
|
$ |
349,351 |
|
Depletion expense related to oil and gas properties was $4,345 and
$5,875 during the first nine months of 2022 and 2021,
respectively.
The Company recorded an impairment to restaurant long-lived assets
of $559 in the first nine months of 2021 related to underperforming
stores. 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. There were no impairments of
property and equipment in 2022.
As of September 30, 2022, $5,002 of property and equipment is
recorded as held for sale within other current assets.
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.
A reconciliation of the change in the carrying value of goodwill is
as follows.
|
|
|
|
|
|
|
|
Goodwill |
|
Goodwill at December 31, 2021
|
$ |
53,547 |
|
|
Change in foreign exchange rates during the first nine months of
2022 |
(83) |
|
|
Goodwill at September 30, 2022
|
$ |
53,464 |
|
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.
GAAP allows entities testing for impairment the option of
performing a qualitative assessment before calculating the fair
value of a reporting unit for the goodwill impairment test. We use
both qualitative and quantitative assessments. The valuation
methodology and underlying financial information included in our
quantitative determination of fair value require significant
management judgments. We use both market and income approaches to
derive fair value of reporting units utilizing a quantitative
assessment. 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 was recorded in the first nine months of 2022 or
2021. 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, 2021
|
$ |
15,876 |
|
|
$ |
7,587 |
|
|
$ |
23,463 |
|
|
Impairment to lease rights |
— |
|
|
(20) |
|
|
(20) |
|
|
Change in foreign exchange rates during the first nine months of
2022 |
— |
|
|
(974) |
|
|
(974) |
|
|
Balance at September 30, 2022
|
$ |
15,876 |
|
|
$ |
6,593 |
|
|
$ |
22,469 |
|
Intangible assets with indefinite lives consist of trade names and
lease rights. 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 |
|
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
Net sales |
$ |
37,448 |
|
|
$ |
41,916 |
|
|
$ |
113,345 |
|
|
$ |
146,269 |
|
|
|
|
|
|
Franchise partner fees |
15,880 |
|
|
11,508 |
|
|
47,929 |
|
|
31,744 |
|
|
|
|
|
|
Franchise royalties and fees |
5,089 |
|
|
4,865 |
|
|
15,472 |
|
|
14,594 |
|
|
|
|
|
|
Other |
1,020 |
|
|
855 |
|
|
2,862 |
|
|
3,817 |
|
|
|
|
|
|
|
$ |
59,437 |
|
|
$ |
59,144 |
|
|
$ |
179,608 |
|
|
$ |
196,424 |
|
|
|
|
|
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 during the year 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 franchise
partners under lease arrangements. Both real estate and equipment
rental payments are charged to franchise partners and are
recognized in accordance with ASC 842, “Leases”.
During the third quarter of 2022 and 2021, restaurant operations
recognized $5,362 and $4,277, respectively, in franchise partner
fees related to rental income. During the first nine months ended
September 30, 2022 and September 30, 2021, restaurant
operations recognized $15,193 and $10,910, respectively, in
franchise partner fees related to rental income.
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 a liability 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,
2022 |
|
December 31,
2021 |
|
Accounts payable |
$ |
34,288 |
|
|
$ |
36,684 |
|
|
Gift card and other marketing |
15,985 |
|
|
19,244 |
|
|
Insurance accruals |
5,971 |
|
|
6,428 |
|
|
Salaries, wages and vacation |
6,902 |
|
|
5,905 |
|
|
Deferred revenue |
4,831 |
|
|
6,683 |
|
|
Taxes payable |
21,583 |
|
|
11,392 |
|
|
Professional fees |
1,998 |
|
|
11,731 |
|
|
Oil and gas payable |
5,586 |
|
|
1,936 |
|
|
Other |
4,359 |
|
|
464 |
|
|
Accounts payable and accrued expenses |
$ |
101,503 |
|
|
$ |
100,467 |
|
Note 9. Line of Credit and Note Payable
Bigari Holdings Line of Credit
On September 13, 2022, Biglari Holdings entered into a line of
credit in an aggregate principal amount of up to $30,000. The line
of credit will be available on a revolving basis until September
12, 2024. The line of credit includes customary covenants, as well
as financial maintenance covenants. The balance of the line of
credit on September 30, 2022 was $30,000.
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. The Company
repaid the balance of Steak n Shake’s term facility on February 19,
2021.
Note 10. Lease Assets and Obligations
Lease obligations include the following.
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of lease obligations |
September 30,
2022 |
|
December 31,
2021 |
|
Finance lease liabilities |
$ |
1,214 |
|
|
$ |
1,414 |
|
|
Finance obligations |
5,119 |
|
|
4,944 |
|
|
Operating lease liabilities |
10,760 |
|
|
10,540 |
|
|
Total current portion of lease obligations |
$ |
17,093 |
|
|
$ |
16,898 |
|
|
|
|
|
|
|
Long-term lease obligations |
|
|
|
|
Finance lease liabilities |
$ |
4,431 |
|
|
$ |
5,347 |
|
|
Finance obligations |
60,009 |
|
|
63,119 |
|
|
Operating lease liabilities |
31,540 |
|
|
36,013 |
|
|
Total long-term lease obligations |
$ |
95,980 |
|
|
$ |
104,479 |
|
Nature of Leases
Steak n Shake and Western Sizzlin operate restaurants that are
located on sites owned by us or leased from third parties. In
addition, they own sites and lease sites from third parties that
are leased and/or subleased to franchise partners and
franchisees.
Lease Costs
A significant portion of our operating and finance lease portfolio
includes restaurant locations. We recognize fixed lease expense for
operating leases on a straight-line basis over the lease term. For
finance leases, we recognize amortization expense on the
right-of-use asset and interest expense on the lease liability over
the lease term.
Total lease cost consists of the following.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
Finance lease costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
$ |
309 |
|
|
$ |
404 |
|
|
$ |
1,023 |
|
|
$ |
1,205 |
|
|
|
|
|
|
Interest on lease liabilities |
102 |
|
|
126 |
|
|
325 |
|
|
399 |
|
|
|
|
|
|
Operating and variable lease costs |
3,577 |
|
|
4,011 |
|
|
10,782 |
|
|
11,189 |
|
|
|
|
|
|
Sublease income |
(2,895) |
|
|
(3,771) |
|
|
(8,487) |
|
|
(9,786) |
|
|
|
|
|
|
Total lease costs |
$ |
1,093 |
|
|
$ |
770 |
|
|
$ |
3,643 |
|
|
$ |
3,007 |
|
|
|
|
|
Supplemental cash flow information related to leases is as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months |
|
|
2022 |
|
2021 |
|
Cash paid for amounts included in the measurement of lease
liabilities: |
|
|
|
|
Financing cash flows from finance leases |
$ |
1,116 |
|
|
$ |
1,226 |
|
|
Operating cash flows from finance leases |
$ |
324 |
|
|
$ |
384 |
|
|
Operating cash flows from operating leases |
$ |
9,347 |
|
|
$ |
9,806 |
|
Note 10. Lease Assets and Obligations
(continued)
Supplemental balance sheet information related to leases is as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
|
Finance leases: |
|
|
|
|
Property and equipment, net |
$ |
4,619 |
|
|
$ |
5,634 |
|
Weighted-average lease terms and discount rates are as
follows.
|
|
|
|
|
|
|
September 30,
2022 |
|
Weighted-average remaining lease terms: |
|
|
Finance leases |
4.56 years |
|
Operating leases |
4.90 years |
|
|
|
|
Weighted-average discount rates: |
|
|
Finance leases |
7.0 |
% |
|
Operating leases |
7.0 |
% |
Maturities of lease liabilities as of September 30, 2022 are
as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
Operating
Leases |
|
Finance
Leases |
|
2022 |
|
$ |
4,215 |
|
|
$ |
394 |
|
|
2023 |
|
11,781 |
|
|
1,551 |
|
|
2024 |
|
9,985 |
|
|
1,534 |
|
|
2025 |
|
8,290 |
|
|
1,298 |
|
|
2026 |
|
5,671 |
|
|
959 |
|
|
After 2026 |
|
9,967 |
|
|
855 |
|
|
Total lease payments |
|
49,909 |
|
|
6,591 |
|
|
Less interest |
|
7,609 |
|
|
946 |
|
|
Total lease liabilities |
|
$ |
42,300 |
|
|
$ |
5,645 |
|
Lease Income
The components of lease income recorded in restaurant operations
are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
Operating lease income |
$ |
4,085 |
|
|
$ |
3,211 |
|
|
$ |
11,737 |
|
|
$ |
8,471 |
|
|
|
|
|
|
Variable lease income |
1,556 |
|
|
1,370 |
|
|
4,312 |
|
|
3,375 |
|
|
|
|
|
|
Total lease income |
$ |
5,641 |
|
|
$ |
4,581 |
|
|
$ |
16,049 |
|
|
$ |
11,846 |
|
|
|
|
|
Note 10. Lease Assets and Obligations
(continued)
The following table displays the Company’s future minimum rental
receipts for non-cancelable leases and subleases as of
September 30, 2022. Franchise partner leases and subleases are
short-term leases and have been excluded from the
table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases |
|
Year |
|
Subleases |
|
Owned Properties |
|
2022 |
|
$ |
228 |
|
|
$ |
62 |
|
|
2023 |
|
767 |
|
|
247 |
|
|
2024 |
|
503 |
|
|
247 |
|
|
2025 |
|
454 |
|
|
250 |
|
|
2026 |
|
134 |
|
|
247 |
|
|
After 2026 |
|
241 |
|
|
805 |
|
|
Total future minimum receipts |
|
$ |
2,327 |
|
|
$ |
1,858 |
|
|
|
|
|
|
|
Note 11. Accumulated Other Comprehensive Income
Accumulated other comprehensive income decreased by $618 and $49
during the third quarters of 2022 and 2021, respectively. During
the first nine months of 2022, accumulated other comprehensive
income decreased by $1,870 and $378 in the first nine months of
2021. There were no reclassifications from accumulated other
comprehensive loss to earnings during the first nine months of 2022
and 2021. 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 an estimated annual effective tax rate for the first
nine months of 2022 and a discrete effective tax rate method based
on statutory tax rates for the first nine months of 2021. 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 expense for the third quarter of 2022 was $9,598
compared to an income tax benefit of $4,274 for the third quarter
of 2021. Income tax benefit for the first nine months of 2022
was $13,282 compared to an income tax expense of $11,544 for the
first nine months of 2021. The variance in income taxes between
2022 and 2021 is attributable to taxes on income generated by the
investment partnerships. Investment partnership pre-tax gains
were $29,658 during the third quarter of 2022 compared to pre-tax
losses of $20,231 during the third quarter of 2021. Investment
partnership pre-tax losses were $82,244 during the first nine
months of 2022 compared to pre-tax gains of $27,344 during the
first nine months of 2021.
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.
Note 14. Fair Value of Financial Assets
(continued)
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 as Level 1 of the fair value hierarchy.
Equity securities:
The Company’s investments in equity securities are classified as
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 as 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 as Level 1 of the fair value
hierarchy.
Derivative instruments:
Options related to equity securities are marked to market each
reporting period and are classified as Level 2 of the fair value
hierarchy depending on the instrument.
Note 14. Fair Value of Financial Assets
(continued)
As of September 30, 2022 and December 31, 2021, the fair
values of financial assets were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
December 31, 2021 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
$ |
16,389 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
16,389 |
|
|
$ |
18,447 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
18,447 |
|
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer goods |
16,266 |
|
|
932 |
|
|
— |
|
|
17,198 |
|
|
10,775 |
|
|
2,368 |
|
|
— |
|
|
13,143 |
|
|
Insurance |
49 |
|
|
— |
|
|
— |
|
|
49 |
|
|
6,513 |
|
|
— |
|
|
— |
|
|
6,513 |
|
|
Technology |
1,832 |
|
|
— |
|
|
— |
|
|
1,832 |
|
|
2,887 |
|
|
— |
|
|
— |
|
|
2,887 |
|
|
Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government |
44,914 |
|
|
— |
|
|
— |
|
|
44,914 |
|
|
54,584 |
|
|
— |
|
|
— |
|
|
54,584 |
|
|
Corporate |
3,003 |
|
|
— |
|
|
— |
|
|
3,003 |
|
|
4,512 |
|
|
— |
|
|
— |
|
|
4,512 |
|
|
Options on equity securities |
— |
|
|
3,531 |
|
|
— |
|
|
3,531 |
|
|
— |
|
|
2,095 |
|
|
— |
|
|
2,095 |
|
|
Non-qualified deferred compensation plan investments |
1,299 |
|
|
— |
|
|
— |
|
|
1,299 |
|
|
1,607 |
|
|
— |
|
|
— |
|
|
1,607 |
|
|
Total assets at fair value |
$ |
83,752 |
|
|
$ |
4,463 |
|
|
$ |
— |
|
|
$ |
88,215 |
|
|
$ |
99,325 |
|
|
$ |
4,463 |
|
|
$ |
— |
|
|
$ |
103,788 |
|
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
business and administrative related services to the Company. The
Biglari Entities are owned by Mr. Biglari.
The Company paid Biglari Enterprises $6,300 in service fees during
the first nine months of 2022 and 2021. The service agreement does
not alter the hurdle rate connected with the incentive reallocation
paid to Biglari Capital Corp.
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. Our oil and gas operations include Southern Oil and
Abraxas Petroleum. The Company also reports segment information for
Maxim. 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.
A disaggregation of our consolidated data for the third quarters
and first nine months of 2022 and 2021 is presented in the tables
which follow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
Third Quarter |
|
First Nine Months |
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
Operating Businesses: |
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Steak n Shake |
$ |
56,949 |
|
|
$ |
56,993 |
|
|
$ |
172,444 |
|
|
$ |
190,517 |
|
|
|
|
|
|
Western Sizzlin |
2,488 |
|
|
2,151 |
|
|
7,164 |
|
|
5,907 |
|
|
|
|
|
|
Total Restaurant Operations |
59,437 |
|
|
59,144 |
|
|
179,608 |
|
|
196,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting |
|
|
|
|
|
|
|
|
|
|
|
|
First Guard |
9,112 |
|
|
8,458 |
|
|
26,858 |
|
|
24,760 |
|
|
|
|
|
|
Southern Pioneer |
6,004 |
|
|
5,443 |
|
|
17,653 |
|
|
16,406 |
|
|
|
|
|
|
Investment income and other |
1,196 |
|
|
822 |
|
|
3,234 |
|
|
2,563 |
|
|
|
|
|
|
Total Insurance Operations |
16,312 |
|
|
14,723 |
|
|
47,745 |
|
|
43,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and Gas Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Southern Oil |
12,688 |
|
|
7,353 |
|
|
36,940 |
|
|
24,310 |
|
|
|
|
|
|
Abraxas Petroleum |
1,692 |
|
|
— |
|
|
1,692 |
|
|
— |
|
|
|
|
|
|
Total Oil and Gas Operations |
14,380 |
|
|
7,353 |
|
|
38,632 |
|
|
24,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maxim |
1,905 |
|
|
863 |
|
|
3,788 |
|
|
2,695 |
|
|
|
|
|
|
|
$ |
92,034 |
|
|
$ |
82,083 |
|
|
$ |
269,773 |
|
|
$ |
267,158 |
|
|
|
|
|
Note 16. Business Segment Reporting
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Losses) Before Income Taxes |
|
|
Third Quarter |
|
First Nine Months |
|
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
Operating Businesses: |
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Steak n Shake |
$ |
3,964 |
|
|
$ |
(2,959) |
|
|
$ |
11,777 |
|
|
$ |
5,733 |
|
|
|
|
|
|
Western Sizzlin |
369 |
|
|
247 |
|
|
997 |
|
|
707 |
|
|
|
|
|
|
Total Restaurant Operations |
4,333 |
|
|
(2,712) |
|
|
12,774 |
|
|
6,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting: |
|
|
|
|
|
|
|
|
|
|
|
|
First Guard |
2,354 |
|
|
2,832 |
|
|
4,800 |
|
|
7,922 |
|
|
|
|
|
|
Southern Pioneer |
(483) |
|
|
397 |
|
|
(1,101) |
|
|
1,511 |
|
|
|
|
|
|
Investment income and other |
1,221 |
|
|
613 |
|
|
3,188 |
|
|
1,965 |
|
|
|
|
|
|
Total Insurance Operations |
3,092 |
|
|
3,842 |
|
|
6,887 |
|
|
11,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and Gas Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Southern Oil |
6,795 |
|
|
2,982 |
|
|
19,137 |
|
|
9,047 |
|
|
|
|
|
|
Abraxas Petroleum |
446 |
|
|
— |
|
|
446 |
|
|
— |
|
|
|
|
|
|
Total Oil and Gas Operations |
7,241 |
|
|
2,982 |
|
|
19,583 |
|
|
9,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maxim |
1,534 |
|
|
(56) |
|
|
1,699 |
|
|
867 |
|
|
|
|
|
|
Interest expense not allocated to segments |
(67) |
|
|
— |
|
|
(67) |
|
|
(1,121) |
|
|
|
|
|
|
Total Operating Businesses |
16,133 |
|
|
4,056 |
|
|
40,876 |
|
|
26,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other |
(3,305) |
|
|
(3,302) |
|
|
(9,769) |
|
|
(8,595) |
|
|
|
|
|
|
Investment gains (losses) |
(849) |
|
|
4,534 |
|
|
(4,184) |
|
|
6,465 |
|
|
|
|
|
|
Investment partnership gains (losses) |
29,658 |
|
|
(20,231) |
|
|
(82,244) |
|
|
27,344 |
|
|
|
|
|
|
|
$ |
41,637 |
|
|
$ |
(14,943) |
|
|
$ |
(55,321) |
|
|
$ |
51,845 |
|
|
|
|
|
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(dollars in thousands except per share data)
Overview
Biglari Holdings Inc. is a holding company owning subsidiaries
engaged in a number of diverse business activities, including
property and casualty insurance, licensing and media, restaurants,
and oil and gas. The Company’s largest operating subsidiaries are
involved in the franchising and operating of restaurants. Biglari
Holdings is founded and led by Sardar Biglari, Chairman and Chief
Executive Officer of the Company.
Biglari Holdings’ management system combines decentralized
operations with centralized finance decision-making. Operating
decisions for the various business units are made by their
respective managers. All major investment and capital allocation
decisions are made for the Company and its subsidiaries by Mr.
Biglari.
As of September 30, 2022, Mr. Biglari beneficially owns shares
of the Company that represent approximately 66.3% of the economic
interest and 70.4% of the voting interest.
On September 14, 2022, the Company completed the purchase of
685,505 shares of Series A Preferred Stock (the "Preferred Shares")
of Abraxas Petroleum Corporation ("Abraxas Petroleum") for a
purchase price of $80,000. On October 26, 2022, the Company
converted the preferred stock to 90% of the outstanding common
stock of Abraxas Petroleum. We have concluded that Abraxas
Petroleum is a consolidated entity and have recorded noncontrolling
interests attributable to the interest held by other shareholders.
The Company used working capital including its line of credit to
fund the purchase of the Preferred Shares. Abraxas Petroleum
operates oil and natural gas properties in the Permian Basin. The
Company’s financial results include the results of Abraxas
Petroleum from the acquisition date to the end of the third
quarter. The revenues and operating results for Abraxas Petroleum
were not significant to the Company for the third
quarter.
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 |
|
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
Operating businesses: |
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant |
$ |
3,320 |
|
|
$ |
(1,515) |
|
|
$ |
9,588 |
|
|
$ |
5,146 |
|
|
|
|
|
|
Insurance |
2,389 |
|
|
2,985 |
|
|
5,292 |
|
|
8,902 |
|
|
|
|
|
|
Oil and gas |
5,574 |
|
|
2,325 |
|
|
14,867 |
|
|
7,016 |
|
|
|
|
|
|
Brand licensing |
1,150 |
|
|
(43) |
|
|
1,274 |
|
|
662 |
|
|
|
|
|
|
Interest expense |
(52) |
|
|
— |
|
|
(52) |
|
|
(841) |
|
|
|
|
|
|
Corporate and other |
(2,742) |
|
|
(2,526) |
|
|
(7,630) |
|
|
(6,649) |
|
|
|
|
|
|
Total operating businesses |
9,639 |
|
|
1,226 |
|
|
23,339 |
|
|
14,236 |
|
|
|
|
|
|
Investment gains |
(657) |
|
|
3,390 |
|
|
(3,287) |
|
|
4,896 |
|
|
|
|
|
|
Investment partnership gains (losses) |
23,057 |
|
|
(15,285) |
|
|
(62,091) |
|
|
21,169 |
|
|
|
|
|
|
|
32,039 |
|
|
(10,669) |
|
|
(42,039) |
|
|
40,301 |
|
|
|
|
|
|
Earnings attributable to noncontrolling interest |
34 |
|
|
— |
|
|
34 |
|
|
— |
|
|
|
|
|
|
|
$ |
32,005 |
|
|
$ |
(10,669) |
|
|
$ |
(42,073) |
|
|
$ |
40,301 |
|
|
|
|
|
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Restaurants
Our restaurant businesses, which include Steak n Shake and Western
Sizzlin, comprise 552 company-operated and franchise restaurants as
of September 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steak n Shake |
|
Western Sizzlin |
|
|
Company-
operated |
|
Franchise
Partner |
|
Traditional
Franchise |
|
Company-
operated |
|
Franchise |
|
Total |
|
Total stores as of December 31, 2021
|
199 |
|
|
159 |
|
|
178 |
|
|
3 |
|
|
38 |
|
|
577 |
|
|
Corporate stores transitioned |
(12) |
|
|
12 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Net restaurants opened (closed) |
(6) |
|
|
— |
|
|
(19) |
|
|
— |
|
|
— |
|
|
(25) |
|
|
Total stores as of September 30, 2022
|
181 |
|
|
171 |
|
|
159 |
|
|
3 |
|
|
38 |
|
|
552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
As of September 30, 2022, 39 of the 181 company-operated Steak
n Shake stores were closed. We plan to refranchise a majority of
our closed company-operated restaurants.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Restaurant operations are summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
First Nine Months |
|
|
|
|
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
37,448 |
|
|
|
|
$ |
41,916 |
|
|
|
|
$ |
113,345 |
|
|
|
|
$ |
146,269 |
|
|
|
|
|
|
|
|
|
|
|
|
Franchise partner fees |
15,880 |
|
|
|
|
11,508 |
|
|
|
|
47,929 |
|
|
|
|
31,744 |
|
|
|
|
|
|
|
|
|
|
|
|
Franchise royalties and fees |
5,089 |
|
|
|
|
4,865 |
|
|
|
|
15,472 |
|
|
|
|
14,594 |
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue |
1,020 |
|
|
|
|
855 |
|
|
|
|
2,862 |
|
|
|
|
3,817 |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
59,437 |
|
|
|
|
59,144 |
|
|
|
|
179,608 |
|
|
|
|
196,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of food |
11,359 |
|
|
30.3 |
% |
|
13,123 |
|
|
31.3 |
% |
|
33,684 |
|
|
29.7 |
% |
|
43,404 |
|
|
29.7 |
% |
|
|
|
|
|
|
|
|
|
Restaurant operating costs |
20,745 |
|
|
55.4 |
% |
|
24,496 |
|
|
58.4 |
% |
|
61,127 |
|
|
53.9 |
% |
|
71,751 |
|
|
49.1 |
% |
|
|
|
|
|
|
|
|
|
Occupancy costs |
4,058 |
|
|
10.8 |
% |
|
4,075 |
|
|
9.7 |
% |
|
12,658 |
|
|
11.2 |
% |
|
14,142 |
|
|
9.7 |
% |
|
|
|
|
|
|
|
|
|
Total cost of sales |
36,162 |
|
|
|
|
41,694 |
|
|
|
|
107,469 |
|
|
|
|
129,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
9,556 |
|
|
16.1 |
% |
|
9,255 |
|
|
15.6 |
% |
|
28,327 |
|
|
15.8 |
% |
|
27,416 |
|
|
14.0 |
% |
|
|
|
|
|
|
|
|
|
Marketing |
2,758 |
|
|
4.6 |
% |
|
2,302 |
|
|
3.9 |
% |
|
9,589 |
|
|
5.3 |
% |
|
10,212 |
|
|
5.2 |
% |
|
|
|
|
|
|
|
|
|
Other expenses |
(825) |
|
|
(1.4) |
% |
|
1,332 |
|
|
2.3 |
% |
|
(1,141) |
|
|
(0.6) |
% |
|
2,266 |
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
Total selling, general and administrative |
11,489 |
|
|
19.3 |
% |
|
12,889 |
|
|
21.8 |
% |
|
36,775 |
|
|
20.5 |
% |
|
39,894 |
|
|
20.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments |
— |
|
|
|
|
— |
|
|
|
|
(20) |
|
|
|
|
(559) |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
(6,081) |
|
|
|
|
(5,811) |
|
|
|
|
(18,401) |
|
|
|
|
(15,615) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on finance leases and obligations |
(1,372) |
|
|
|
|
(1,462) |
|
|
|
|
(4,169) |
|
|
|
|
(4,619) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
4,333 |
|
|
|
|
(2,712) |
|
|
|
|
12,774 |
|
|
|
|
6,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
1,013 |
|
|
|
|
(1,197) |
|
|
|
|
3,186 |
|
|
|
|
1,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to net earnings (loss) |
$ |
3,320 |
|
|
|
|
$ |
(1,515) |
|
|
|
|
$ |
9,588 |
|
|
|
|
$ |
5,146 |
|
|
|
|
|
|
|
|
|
|
|
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”), declared a pandemic by the
World Health Organization in March 2020, caused governments to
impose restrictive measures to contain its spread. The COVID-19
pandemic adversely affected our restaurant operations and financial
results. Our restaurants were required to close their dining rooms
during the first quarter of 2020. The majority of Steak n Shake’s
dining rooms were reopened during 2021, and in doing so a
self-service model has been implemented.
Net sales for the third quarter and first nine months of 2022 were
$37,448 and $113,345, respectively, representing a decrease of
$4,468 or 10.7% and $32,924 or 22.5%, compared to the third quarter
and first nine months of 2021, respectively. The decrease in
revenue of company-owned 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 restaurant’s 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 as we transition from
company-operated units to franchise partner units.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Franchise partner fees were $15,880 during the third quarter of
2022, as compared to $11,508 during the third quarter of
2021.
Franchise partner fees were $47,929 and $31,744 during the first
nine months of 2022 and 2021, respectively. As of
September 30, 2022, there were 171 franchise partner units,
compared to 140 franchise partner units as of September 30,
2021. For a franchise partner to be awarded a restaurant, he or she
must demonstrate the gold standard in service.
The franchise royalties and fees generated by the traditional
franchising business were $5,089 during the third quarter of 2022,
as compared to $4,865 during the third quarter of 2021. Franchise
royalties and fees during the first nine months of 2022 were
$15,472 compared to $14,594 during the first nine months of
2021.
The cost of food as a percentage of net sales during the third
quarter and first nine months of 2022 was 30.3% and 29.7%,
respectively, as compared to 31.3% and 29.7% of net sales during
the third quarter and first nine months of 2021, respectively. Cost
of food as a percentage of net sales were lower during the third
quarter of 2022 compared to 2021 primarily because of higher menu
prices.
Restaurant operating costs as a percentage of net sales during the
third quarter of 2022 were 55.4%, as compared to 58.4% of net sales
in the third quarter of 2021.
Restaurant operating costs during the first nine months of 2022
were 53.9% of net sales, as compared to 49.1% of net sales in 2021.
The increase during the first nine months was primarily the result
of higher wages.
Selling, general and administrative costs during the third quarter
and first nine months of 2022 were $11,489 and $36,775,
respectively, compared to $12,889 and $39,894 in the third quarter
and first nine months of 2021, respectively. Steak n Shake recorded
gains on the disposal of assets of $1,084 and $1,749 in the third
quarter and first nine months of 2022, respectively.
The Company recorded no impairment charges in the third quarter and
$20 in the first nine months of 2022. The Company recorded no
impairment charges in the third quarter and $559 in the first nine
months of 2021, respectively. Impairments during 2021 are related
to underperforming stores.
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. Our
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 |
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
Underwriting gain (loss) attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
First Guard |
$ |
2,354 |
|
|
$ |
2,832 |
|
|
$ |
4,800 |
|
|
$ |
7,922 |
|
|
|
|
|
|
Southern Pioneer |
(483) |
|
|
397 |
|
|
(1,101) |
|
|
1,511 |
|
|
|
|
|
|
Pre-tax underwriting gain |
1,871 |
|
|
3,229 |
|
|
3,699 |
|
|
9,433 |
|
|
|
|
|
|
Income tax expense |
392 |
|
|
681 |
|
|
776 |
|
|
1,984 |
|
|
|
|
|
|
Net underwriting gain |
$ |
1,479 |
|
|
$ |
2,548 |
|
|
$ |
2,923 |
|
|
$ |
7,449 |
|
|
|
|
|
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 |
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
Premiums earned |
$ |
15,116 |
|
|
$ |
13,901 |
|
|
$ |
44,511 |
|
|
$ |
41,166 |
|
|
|
|
|
|
Insurance losses |
8,814 |
|
|
6,657 |
|
|
27,646 |
|
|
20,040 |
|
|
|
|
|
|
Underwriting expenses |
4,431 |
|
|
4,015 |
|
|
13,166 |
|
|
11,693 |
|
|
|
|
|
|
Pre-tax underwriting gain |
1,871 |
|
|
3,229 |
|
|
3,699 |
|
|
9,433 |
|
|
|
|
|
|
Other income and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Investment income |
362 |
|
|
195 |
|
|
832 |
|
|
652 |
|
|
|
|
|
|
Other income (expenses) |
859 |
|
|
418 |
|
|
2,356 |
|
|
1,313 |
|
|
|
|
|
|
Total other income |
1,221 |
|
|
613 |
|
|
3,188 |
|
|
1,965 |
|
|
|
|
|
|
Earnings before income taxes |
3,092 |
|
|
3,842 |
|
|
6,887 |
|
|
11,398 |
|
|
|
|
|
|
Income tax expense |
703 |
|
|
857 |
|
|
1,595 |
|
|
2,496 |
|
|
|
|
|
|
Contribution to net earnings (loss) |
$ |
2,389 |
|
|
$ |
2,985 |
|
|
$ |
5,292 |
|
|
$ |
8,902 |
|
|
|
|
|
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 |
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
Amount |
|
% |
|
Amount |
|
% |
|
Amount |
|
% |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
Premiums earned |
$ |
9,112 |
|
|
100.0 |
% |
|
$ |
8,458 |
|
|
100.0 |
% |
|
$ |
26,858 |
|
|
100.0 |
% |
|
$ |
24,760 |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance losses |
4,815 |
|
|
52.8 |
% |
|
3,935 |
|
|
46.5 |
% |
|
16,468 |
|
|
61.3 |
% |
|
11,746 |
|
|
47.4 |
% |
|
|
|
|
|
|
|
|
|
Underwriting expenses |
1,943 |
|
|
21.3 |
% |
|
1,691 |
|
|
20.0 |
% |
|
5,590 |
|
|
20.8 |
% |
|
5,092 |
|
|
20.6 |
% |
|
|
|
|
|
|
|
|
|
Total losses and expenses |
6,758 |
|
|
74.1 |
% |
|
5,626 |
|
|
66.5 |
% |
|
22,058 |
|
|
82.1 |
% |
|
16,838 |
|
|
68.0 |
% |
|
|
|
|
|
|
|
|
|
Pre-tax underwriting gain |
$ |
2,354 |
|
|
|
|
$ |
2,832 |
|
|
|
|
$ |
4,800 |
|
|
|
|
$ |
7,922 |
|
|
|
|
|
|
|
|
|
|
|
Southern Pioneer
Southern Pioneer underwrites garage liability and commercial
property insurance, as well as homeowners and dwelling fire
insurance.
A summary of Southern Pioneer’s underwriting results
follows.