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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 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
BIGLARI HOLDINGS INC.
(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, |
Suite 1200 |
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San
Antonio, |
Texas |
78259 |
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(Address of principal executive offices) |
(Zip Code) |
(210) 344-3400
Registrant’s telephone number, including area code
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 |
Securities registered pursuant to Section 12(g) of the
Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes ¨
No
x
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
¨ No
x
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 “emerging growth company” in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer |
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Accelerated filer |
x
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Non-accelerated filer |
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Smaller reporting company |
x
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Emerging growth company |
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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 has filed a report on
and attestation to its management’s assessment of the effectiveness
of internal control over financial reporting under Section 404(b)
of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit
report.
x
If securities are registered pursuant to Section 12(b) of the Act,
indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an
error to previously issued financial statements.
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Indicate by check mark whether any of those error corrections are
restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant's executive officers
during the relevant recovery period pursuant to §
240.10D-1(b).
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
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No
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The aggregate market value of the voting and non-voting common
stock held by non-affiliates of the registrant as of June 30, 2022
was approximately $125,207,808.
Number of shares of common stock outstanding as of
February 21, 2023:
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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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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive Proxy Statement to be filed
for its 2023 Annual Meeting of Shareholders are incorporated by
reference into Part III of this Form 10-K.
Table of Contents
Part I
Item 1. Business
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 financial 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 December 31, 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.
Restaurant Operations
The Company’s restaurant operations are conducted through two
subsidiaries: Steak n Shake Inc. (“Steak n Shake”) and Western
Sizzlin Corporation (“Western Sizzlin”) for a combined 545 units.
As of December 31, 2022, Steak n Shake had 177
company-operated restaurants, 175 franchise partner units, and 154
traditional franchise units. Of the 177 company-operated units, 39
are currently closed but Steak n Shake intends to refranchise a
majority of them. Western Sizzlin had 3 company-operated
restaurants and 36 franchise units.
Founded in 1934 in Normal, Illinois, on Route 66, Steak n Shake is
a classic American brand serving premium burgers and milkshakes.
Steak n Shake is headquartered in Indianapolis,
Indiana.
Founded in 1962 in Augusta, Georgia, Western Sizzlin is a steak and
buffet concept serving signature steak dishes as well as other
classic American menu items. Western Sizzlin also operates two
other concepts: Great American Steak & Buffet, and Wood Grill
Buffet. Western Sizzlin is headquartered in Roanoke,
Virginia.
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. In response to
COVID-19, our restaurants were required to close their dining rooms
in the first quarter of 2020, and the majority of those dining
rooms remained closed during 2020. Steak n Shake reopened the
majority of dining rooms during 2021, and in doing so has
implemented a self-service model. Our restaurant operations
followed the guidance of health officials in determining the
appropriate restrictions to put in place for each
restaurant.
Company-Operated Restaurants
A typical company-operated restaurant management team consists of a
general manager, a restaurant manager, and other managers,
depending on the sales volume of the restaurant. Each restaurant’s
general manager has primary responsibility for the day-to-day
operations of his or her unit. Restaurant operations obtain food
products and supplies from independent national distributors.
Purchases are centrally negotiated to ensure uniformity in product
quality.
Franchise Partner Restaurants
Steak n Shake offers a franchise partner program to transition
company-operated restaurants to franchise partnerships. The
franchise agreement stipulates that the franchisee make an upfront
investment totaling ten thousand dollars. Steak n Shake, as the
franchisor, assesses a fee of up to 15% of sales as well as 50% of
profits. Potential franchise partners are screened based on
entrepreneurial attitude and ability, but they become franchise
partners based on achievement. Each must meet the gold standard in
service. Franchise partners are single-unit
owner-operators.
Traditional Franchise Restaurants
Restaurant operations’ traditional franchising program extends the
brands to areas in which there are no current development plans for
company stores. The expansion plans include seeking qualified new
franchisees and expanding relationships with current franchisees.
Restaurant operations typically seek franchisees with both the
financial resources necessary to fund successful development and
significant experience in the restaurant/retail business. Both
restaurant chains assist franchisees with the development and
ongoing operation of their restaurants. In addition, personnel
assist franchisees with site selection, approve restaurant sites,
and provide prototype plans, construction support, and
specifications. Restaurant operations staff provides both on-site
and off-site instruction to franchise restaurant management and
associates.
International
We have a corporate office in Monaco and an international
organization with personnel in various functions to support our
international business. Similar to our traditional domestic
franchise agreements, a typical international franchise development
agreement includes development and franchise fees in addition to
subsequent royalty fees based on the gross sales of each
restaurant.
Competition
The restaurant business is one of the most intensely competitive
industries. As there are virtually no barriers to entry into the
restaurant business, competitors may include national, regional,
and local establishments. Restaurant businesses compete on the
basis of price, convenience, service, experience, menu variety, and
product quality. The restaurant business is often affected by
changes in consumer tastes and by national, regional, and local
economic conditions. The performance of individual restaurants may
be impacted by factors such as traffic patterns, demographic
trends, weather conditions, and competing restaurants.
Government Regulations
The Company is subject to various global, federal, state, and local
laws affecting its restaurant operations. Each of the restaurants
must comply with licensing and regulation by a number of
governmental authorities, i.e., health, sanitation, safety, and
fire agencies in the jurisdiction in which the restaurant is
located.
Various federal and state labor laws govern our relationship with
our employees, e.g., minimum wage, overtime pay, unemployment tax,
health insurance, and workers’ compensation. Federal, state, and
local government agencies have established regulations requiring
that we disclose nutritional information.
Trademark and Licenses
The name and reputation of Steak n Shake is a material asset, and
management protects it and other service marks through appropriate
registrations.
Insurance Business
Biglari Holdings’ insurance activities are conducted through two
insurance entities, First Guard Insurance Company and its
affiliated agency, 1st Guard Corporation (collectively “First
Guard”), and Southern Pioneer Property & Casualty Insurance
Company and its affiliated agency, Southern Pioneer Insurance
Agency, Inc. (collectively “Southern Pioneer”). Our insurance
businesses provide insurance of property and casualty.
The insurance business is stringently regulated by state insurance
departments. Insurers based in the United States are subject to
regulation by their states of domicile and by those states in which
they are licensed to write policies on an admitted basis. First
Guard and Southern Pioneer operate under licenses issued by various
state insurance authorities. The primary focus of regulation is to
ensure that insurers are financially solvent and that policyholder
interests are otherwise protected. States establish minimum capital
levels for insurance companies and establish guidelines for
permissible business and investment activities. States have the
authority to suspend or revoke a company’s authority to do business
as conditions warrant. States regulate the payment of dividends by
insurance companies to their shareholders and other transactions
with affiliates. Dividends, capital distributions, and other
transactions of extraordinary amounts are subject to prior
regulatory approval. Insurers may market, sell, and service
insurance policies in the states where they are licensed. These
insurers are referred to as admitted insurers. Admitted insurers
are generally required to obtain regulatory approval of their
policy forms and premium rates. Except for regulatory
considerations, there are virtually no barriers to entry into the
insurance industry.
First Guard is a direct underwriter of commercial truck insurance,
selling physical damage and nontrucking liability insurance to
truckers. The commercial truck insurance business is highly
competitive in the areas of price and service. Vigorous competition
is provided by large, well-capitalized companies and by small
regional insurers. 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. First Guard uses its
own claim staff to manage claims. Seasonal variations in First
Guard’s insurance business are not significant. However,
extraordinary weather conditions or other factors may have a
significant effect upon the frequency or severity of claims. First
Guard is headquartered in Venice, Florida.
Southern Pioneer underwrites garage liability and commercial
property as well as homeowners and dwelling fire insurance on an
admitted basis. Insurance coverages are offered nationwide,
primarily through insurance agents. Southern Pioneer competes with
large companies and local insurers. Southern Pioneer is
headquartered in Jonesboro, Arkansas.
Biglari Holdings’ insurance operations may be affected by
extraordinary weather conditions or other factors, any of which may
have a significant effect upon the frequency or severity of
claims.
Oil and Gas Business
The Company's oil and gas operations are conducted through two
entities, Southern Oil Company (“Southern Oil”) and Abraxas
Petroleum Corporation (“Abraxas Petroleum”). Southern Oil primarily
operates oil and natural gas properties offshore in the shallow
waters of the Gulf of Mexico. Abraxas Petroleum operates oil and
natural gas wells in the Permian Basin.
On September 14, 2022, the Company purchased Series A Preferred
Stock (the “Preferred Shares”) of Abraxas Petroleum for a purchase
price of $80 million. On October 26, 2022, the Company exchanged
the Preferred Shares for 90% of the outstanding common stock of
Abraxas Petroleum.
The oil and gas industry is fundamentally a commodity business.
Southern Oil’s and Abraxas Petroleum’s operations and earnings,
therefore, may be significantly affected by changes in oil and
natural gas prices. The COVID-19 pandemic caused oil demand to
decrease significantly during the second and third quarters of
2020, which created oversupplied markets and lower commodity prices
and margins. In response, the Company cut production and expenses
in its oil and natural gas business during 2020. However, the
significant increase in average crude oil and natural gas prices in
2021 and 2022 as compared to 2020 resulting from the lifting of
COVID-19 restrictions, the resumption of normal economic activity,
and the resulting improvement in supply and demand fundamentals
caused Southern Oil to return to full production during 2021 and
2022. Biglari Holdings’ oil and gas operations compete with fully
integrated, major global petroleum companies, as well as
independent and national petroleum companies. In addition, our
companies are subject to a variety of risks inherent in the oil and
gas business, including a wide range of local, state, and federal
regulations.
Southern Oil is headquartered in Madisonville, Louisiana, and
Abraxas Petroleum is headquartered in San Antonio,
Texas.
Brand Licensing Business
Maxim’s business lies principally in brand licensing. Maxim is
headquartered in New York, New York.
Maxim competes for licensing business with other companies. The
nature of the licensing business is predicated on projects that
materialize with irregularity. In addition, publishing is a highly
competitive business.
Maxim products are marketed under various registered brand names,
including, but not limited to, “MAXIM®” and “Maxim®.”
Investments
The Company and its subsidiaries have invested in The Lion Fund,
L.P., and The Lion Fund II, L.P. (collectively, “the investment
partnerships”). The investment partnerships operate as private
investment funds. As of December 31, 2022, the fair value of
the investments was $383.0 million. These investments are subject
to a rolling five-year lock-up period under the terms of the
respective partnership agreements.
Employees
As of December 31, 2022, the Company employed 2,559 persons.
When hiring personnel, we do not consider circumstances of birth,
race, gender, ethnicity, religion, or any other factor unrelated to
talent. The factor of prime importance to us, talent, is invariably
found across a wide spectrum of humanity. We seek to associate with
people of high character and competence.
Additional information with respect to Biglari Holdings’
businesses
Information related to our reportable segments may be found in Part
II, Item 8 of this Form 10-K.
Biglari Holdings maintains a website (biglariholdings.com)
where its annual reports, press releases, interim shareholder
reports, and links to its subsidiaries’ websites can be found.
Biglari Holdings’ periodic reports filed with the Securities and
Exchange Commission (the “SEC”), which include Form 10-K, Form
10-Q, Form 8-K, and amendments thereto, may be accessed by the
public free of charge from the SEC and through Biglari Holdings’
website. In addition, corporate governance documents such as
Corporate Governance Guidelines, Code of Conduct, Compensation
Committee Charter, and Audit Committee Charter are posted on the
Company’s website. The documents are also available without charge
upon written request. The Company’s website and the information
contained therein or connected thereto are not intended to be
incorporated into this report on Form 10-K.
Item 1A. Risk Factors
Biglari Holdings and its subsidiaries (referred to herein as “we,”
“us,” “our,” or similar expressions) are subject to certain risks
and uncertainties in their business operations, which are described
below. The risks and uncertainties described below are not the only
risks we face. Additional risks and uncertainties not presently
known or that are currently deemed immaterial may also impair our
business operations.
Risks relating to Biglari Holdings
We are dependent on our Chairman and CEO.
Our success depends on the services of Sardar Biglari, Chairman and
Chief Executive Officer. All major investment and capital
allocation decisions are made for the Company and its subsidiaries
by Mr. Biglari. If for any reason the services of Mr. Biglari were
to become unavailable, a material adverse effect on our business
could occur.
Sardar Biglari, Chairman and CEO, beneficially owns over 50% of our
outstanding shares of common stock, enabling Mr. Biglari to exert
control over matters requiring shareholder approval.
Mr. Biglari has the ability to control the outcome of matters
submitted to our shareholders for approval, including the election
or removal of directors, the amendment of our articles of
incorporation or bylaws, and other significant transactions. In
addition, Mr. Biglari has the ability to control the management and
affairs of the Company. This control position may conflict with the
interests of some or all of the Company’s passive shareholders, and
reduce the possibility of a merger proposal, tender offer, or proxy
contest for the removal of directors.
We are a “controlled company” within the meaning of the New York
Stock Exchange rules and thus can rely on exemptions from certain
corporate governance requirements.
Because Mr. Biglari beneficially owns more than 50% of the
Company’s outstanding voting stock, we are considered a “controlled
company” pursuant to New York Stock Exchange rules. As a result, we
are not required to comply with certain director independence and
board committee requirements. The Company does not have a
governance and nominating committee.
Biglari Holdings’ access to capital is subject to restrictions that
may adversely affect its ability to satisfy its cash
requirements.
We are a holding company and are largely dependent upon dividends
and other sources of funds from our subsidiaries in order to meet
our needs. The ability of our insurance subsidiaries to pay
dividends to Biglari Holdings is regulated by state insurance laws,
which limit the amount of, and in certain circumstances may
prohibit the payment of, cash dividends. Furthermore, as a result
of our substantial investments in The Lion Fund, L.P., and The Lion
Fund II, L.P., investment partnerships controlled by Mr. Biglari,
our access to capital is restricted by the terms of their
respective partnership agreements. There is also a high likelihood
that we will make additional investments in these investment
partnerships.
Competition and technology may result in lower
earnings.
Our operating businesses face intense competition within their
markets, and many factors, including technological changes, may
erode or prevent the strengthening of their competitive advantages.
Accordingly, our future operating results will depend to some
degree on our operating units successfully enhancing their
competitive advantages. If our operating businesses are
unsuccessful in these efforts, our periodic operating results may
decline in the future. We also highlight certain competitive risks
in the sections below.
Deterioration of general economic conditions may significantly
reduce our operating earnings.
Our operating businesses are subject to normal economic cycles,
which affect the general economy or the specific industries in
which they operate. Significant deterioration of economic
conditions over a prolonged period could produce a material adverse
effect on one or more of our significant operations.
Our operating businesses face a variety of risks associated with
doing business in foreign markets.
There is no assurance that our international operations will remain
profitable. Our international operations are subject to all of the
risks associated with our domestic operations, as well as a number
of additional risks, varying substantially country by country.
These include,
inter alia,
international economic and political conditions, corruption,
terrorism, social and ethnic unrest, foreign currency fluctuations,
differing cultures, and consumer preferences.
In addition, we may become subject to foreign governmental
regulations that impact the way we do business with our
international franchisees and vendors. These include antitrust and
tax requirements, anti-boycott regulations, international trade
regulations, the USA Patriot Act, the Foreign Corrupt Practices
Act, Office of Foreign Assets Control regulations, and
applicable local laws. Failure to comply with any such legal
requirements could subject us to monetary liabilities and other
sanctions, which could harm our business and our financial
condition.
Epidemics, pandemics, or other outbreaks, including COVID-19, could
hurt our operating businesses and investments.
The outbreak of COVID-19 adversely affected our operations and
investments, and in the future it or other epidemics, pandemics, or
outbreaks may do the same. This is or may be due to closures or
restrictions requested or mandated by governmental authorities,
disruption to supply chains and workforce, reduction of demand for
our products and services, credit losses when customers and other
counterparties fail to satisfy their obligations to us, and
volatility in global equity securities markets, among other
factors.
Potential changes in laws or regulations may have a negative impact
on our Class A common stock and Class B common
stock.
In prior years, bills have been introduced in Congress that, if
enacted, would have prohibited the listing of common stock on a
national securities exchange if such common stock were part of a
class of securities that has no voting rights or carries
disproportionate voting rights. Although these bills have not been
acted upon by Congress, there can be no assurance that such a bill
(or a modified version thereof) will not be introduced in Congress
in the future. Legislation or other regulatory developments could
make the shares of Class A common stock and Class B
common stock ineligible for trading on the NYSE or other national
securities exchanges.
Litigation could have a material adverse effect on our financial
position, cash flows, and results of operations.
We are or may be from time to time a party to various legal
actions, investigations, and other proceedings brought by
employees, consumers, policyholders, suppliers, shareholders,
government agencies, or other third parties in connection with
matters pertaining to our business, including those related to our
investment activities. The outcome of such matters is often
difficult to assess or quantify, and the cost to defend future
proceedings may be significant. Even if a claim is unsuccessful or
is not fully pursued, the negative publicity surrounding any
allegation regarding the Company, our business, or our products
could adversely affect our reputation. While we believe that the
ultimate outcome of routine legal proceedings, individually and in
the aggregate, will not have a material impact on our financial
position, we cannot assure that an adverse outcome on, or
reputational damage from, any of these matters would not, in fact,
materially impact our business and results of operations for the
period after these matters are completed or otherwise
resolved.
Risks Relating to Our Restaurant Operations
Our restaurant operations face intense competition from a wide
range of industry participants.
The restaurant business is one of the most intensely competitive
industries. As there are virtually no barriers to entry into the
restaurant business, competitors may include national, regional,
and local establishments. Restaurant businesses compete on the
basis of price, convenience, service, experience, menu variety, and
product quality. The restaurant business is often affected by
changes in consumer tastes and by national, regional, and local
economic conditions. The performance of individual restaurants may
be impacted by factors such as traffic patterns, demographic
trends, weather conditions, and competing restaurants. Additional
factors that may adversely affect the restaurant industry include,
but are not limited to, food and wage inflation, safety, and
food-borne illness.
Changes in economic conditions may have an adverse impact on our
restaurant operations.
Our restaurant operations are subject to normal economic cycles
affecting the economy in general or the restaurant industry in
particular. The restaurant industry has been affected by economic
factors, including the deterioration of global, national, regional,
and local economic conditions, declines in employment levels, and
shifts in consumer spending patterns. Declines in consumer
restaurant spending could be harmful to our financial position and
results of operations. As a result, decreased cash flow generated
from our business may adversely affect our financial position and
our ability to fund our operations. In addition, macroeconomic
disruptions could adversely impact the availability of financing
for our franchisees’ expansions and operations.
Fluctuations in commodity and energy prices and the availability of
commodities, including beef and dairy, could affect our restaurant
business.
The cost, availability, and quality of ingredients restaurant
operations use to prepare their food are subject to a range of
factors, many of which are beyond their control. A significant
component of our restaurant business costs is related to food
commodities, including beef and dairy products, which can be
subject to significant price fluctuations due to seasonal shifts,
climate conditions, industry demand, changes in commodity markets,
inflation, and other factors. If there is a substantial increase in
prices for these food commodities, our results of operations may be
negatively affected. In addition, our restaurants are dependent
upon frequent deliveries of perishable food products that meet
certain specifications. Shortages or interruptions in the supply of
perishable food products caused by unanticipated demand, problems
in production or distribution, disease or food-borne illnesses,
inclement weather, or other conditions could adversely affect the
availability, quality, and cost of
ingredients, which would likely lower revenues, damage our
reputation, or otherwise harm our business. We cannot predict
whether we will continue to be able to anticipate and react to
changing food costs by adjusting our purchasing practices, menu
offerings, and menu prices, and a failure to do so could adversely
affect our operating results.
Adverse weather conditions or losses due to casualties could
negatively impact our operating performance.
Property damage caused by casualties and natural disasters,
instances of inclement weather, flooding, hurricanes, fire, and
other acts of nature can adversely impact sales in several ways.
Many of Steak n Shake’s and Western Sizzlin’s restaurants are
located in the Midwest and Southeast portions of the United States.
During the first and fourth quarters, restaurants in the Midwest
may face harsh winter weather conditions. During the third and
fourth quarters, restaurants in the Southeast may experience
hurricanes or tropical storms. Our sales and operating results may
be negatively affected by these harsh weather conditions, which
could make it more difficult for guests to visit our restaurants,
necessitate the closure of restaurants, cause physical damage, or
lead to a shortage of employees.
Changes in the availability of and the cost of labor could
adversely affect our restaurant business.
Our restaurant business depends substantially on our ability to
recruit and retain high-quality staff. Maintaining adequate
staffing in our restaurants requires workforce planning and
knowledge of the relevant labor market. The market for the most
qualified talent continues to be competitive, and we must provide
competitive wages, benefits, and workplace conditions. We have
experienced, and may continue to experience, challenges in
recruiting and retaining associates in various locations. A
shortage of qualified candidates, failure to recruit and retain new
associates in a timely manner, or higher than expected turnover
levels could all affect our ability to grow sales at existing
restaurants or meet our labor cost objectives.
We are subject to health, employment, environmental, and other
government regulations, and failure to comply with existing or
future government regulations could expose us to litigation or
penalties, damage our reputation, and lower profits.
We are subject to various global, federal, state, and local laws
and regulations affecting our restaurant operations. Changes in
existing laws, rules, and regulations applicable to us, or
increased enforcement by governmental authorities, may require us
to incur additional costs and expenses necessary for compliance. If
we fail to comply with any of these laws, we may be subject to
governmental action or litigation, and our reputation could be
harmed accordingly. Injury to our reputation would, in turn, likely
reduce revenues and profits.
The development and construction of restaurants is subject to
compliance with applicable zoning, land use, and environmental
regulations. Difficulties in obtaining, or failure to obtain, the
required licenses or approvals could delay or prevent the
development of a new restaurant in a particular area.
Restaurant operations are also subject to regulatory initiatives in
the area of nutrition disclosure or advertising, such as
requirements to provide information about the nutritional content
of our food products. The operation of the Steak n Shake and
Western Sizzlin franchise systems is also subject to franchise laws
and regulations enacted by a number of states, and to rules
promulgated by the U.S. Federal Trade Commission. Any future
legislation regulating franchise relationships may negatively
affect our operations, particularly our relationships with
franchisees. Failure to comply with new or existing franchise laws
and regulations in any jurisdiction, or to obtain required
government approvals, could result in a ban or temporary suspension
on future franchise sales. Further national, state, and local
government initiatives, such as mandatory health insurance coverage
or increases in minimum wage rates, could adversely affect our
business.
Risks Relating to Our Investment Activities
The majority of our investment activities are conducted through
outside investment partnerships, The Lion Fund, L.P., and The Lion
Fund II, L.P., which are controlled by Mr. Biglari.
Our investment activities are conducted mainly through these
outside investment partnerships. Under the terms of their
partnership agreements, each contribution made by the Company to
the investment partnerships is subject to a five-year lock-up
period, and any distribution upon our withdrawal of funds will be
paid out over a two-year period (and may be paid in-kind rather
than in cash, thus increasing the difficulty of liquidating these
investments). As a result of these provisions and our consequent
inability to access this capital for a defined period, the capital
we have invested in the investment partnerships may be subject to
an increased risk of loss of all or a significant portion of its
value, and we may become unable to meet our capital requirements.
There is a high likelihood that we will make additional investments
in these investment partnerships in the future.
We have a services agreement with Biglari Capital Corp., the
general partner of the investment partnerships (“Biglari Capital”),
and Biglari Enterprises LLC (collectively, the “Biglari Entities”),
in which the Company pays a fixed fee to the Biglari Entities for
business and administrative-related services. The Biglari Entities
are owned by Mr. Biglari. There can be no assurance that the fees
paid will be commensurate with the benefits received.
The incentive allocation to which Mr. Biglari, as Chairman and
Chief Executive Officer of Biglari Capital, is entitled with
respect to our investments under the terms of the respective
partnership agreements is equal to 25% of the net profits allocated
to the limited partners in excess of a 6% hurdle rate over the
previous high-water mark.
Our investments may be concentrated, and fair values are subject to
a loss in value.
The majority of our investments are held through the investment
partnerships, which generally invest in common stocks. These
investments may be largely concentrated in the common stocks of a
few investees. A significant decline in the values of these
investments may produce a large decrease in our consolidated
shareholders’ equity and can have a material adverse effect on our
consolidated book value per share and earnings.
We are subject to the risk of possibly becoming an investment
company under the Investment Company Act of 1940.
We run the risk of inadvertently becoming an investment company,
which would require us to register under the Investment Company Act
of 1940, as amended (the “Investment Company Act”). Registered
investment companies are subject to extensive, restrictive, and
potentially adverse regulations relating to, among other things,
operating methods, management, capital structure, dividends, and
transactions with affiliates. Registered investment companies are
not permitted to operate their business in the manner in which we
operate our business, nor are registered investment companies
permitted to have many of the relationships that we have with our
affiliated companies.
To avoid becoming and registering as an investment company under
the Investment Company Act, we operate as an ongoing enterprise,
with approximately 2,500 employees, along with an asset base from
which to pursue acquisitions. Furthermore, Section 3(c)(3) of the
Investment Company Act excludes insurance companies from the
definition of “investment company.” Because we monitor the value of
our investments and structure transactions accordingly, we may
structure transactions in a less advantageous manner than if we did
not have Investment Company Act concerns, or we may avoid otherwise
economically desirable transactions due to those concerns. In
addition, adverse developments with respect to our ownership of
certain of our operating subsidiaries, including significant
appreciation or depreciation in the market value of certain of our
publicly traded holdings, could result in our inadvertently
becoming an investment company. If it were established that we were
an investment company, there would be a risk, among other material
adverse consequences, that we could become subject to monetary
penalties or injunctive relief, or both, in an action brought by
the SEC, that we would be unable to enforce contracts with third
parties, or that third parties could seek to obtain rescission of
transactions with us undertaken during the period in which it was
established that we were an unregistered investment
company.
Risks Relating to Our Insurance Business
Our success depends on our ability to underwrite risks accurately
and to charge adequate rates to policyholders.
Our results of operations depend on our ability to underwrite and
set rates accurately for risks assumed. A primary role of the
pricing function is to ensure that rates are adequate to generate
sufficient premiums to pay losses, loss adjustment expenses, and
underwriting expenses.
Our insurance business is vulnerable to significant catastrophic
property loss, which could have an adverse effect on its financial
condition and results of operations.
Our insurance business faces a significant risk of loss in the
ordinary course of its business for property damage resulting from
natural disasters, man-made catastrophes, and other catastrophic
events. These events typically increase the frequency and severity
of commercial property claims. Because catastrophic loss events are
by their nature unpredictable, historical results of operations may
not be indicative of future results of operations, and the
occurrence of claims from catastrophic events may result in
significant volatility in our insurance business’s financial
condition and results of operations from period to period. We
attempt to manage our exposure to these events through reinsurance
programs, although there is no assurance we will be successful in
doing so.
Our insurance business is subject to extensive existing state,
local, and foreign governmental regulations that restrict its
ability to do business and generate revenues.
Our insurance business is subject to regulation in the
jurisdictions in which it operates. These regulations may relate
to, among other things, the types of business that can be written,
the rates that can be charged for coverage, the level of capital
and reserves that must be maintained, and restrictions on the types
and size of investments that can be held. Regulations may also
restrict the timing and amount of dividend payments. Accordingly,
existing or new regulations related to these or other matters, or
regulatory actions imposing restrictions on our insurance business,
may adversely impact its results of operations.
Risks Relating to Our Brand Licensing Business
Licensing opportunities for the Maxim brand may be difficult to
maintain.
Maxim’s success depends to a significant degree upon licensing
agreements. These licensing agreements mature from time to time,
and we may be unable to secure favorable terms for future licensing
arrangements. Future licensing partners may also fail to honor
their contractual obligations or take other actions that can
diminish the value of the Maxim brand. Disputes could arise that
prevent or delay our ability to collect licensing revenues under
these arrangements. If any of these developments occur or our
licensing efforts are otherwise not successful, the value and
recognition of the Maxim brand, as well as the prospects of our
media business, could be materially, adversely
affected.
Risks Relating to Our Oil and Gas Business
Our oil and gas business is exposed to the effects of volatile
commodity prices.
The single largest variable that affects our oil and gas results of
operations is the price of crude oil and natural gas. The price we
receive for our oil and natural gas production heavily influences
our oil and gas business’s revenue and profitability. Extended
periods of low prices for crude oil or natural gas can have a
material adverse impact on our results of operations.
Our oil and gas business is subject to disruption by factors beyond
its control.
Any disruption of the extractive business of either of our oil and
gas subsidiaries would adversely affect our revenues and
profitability. Our oil and gas operations are therefore subject to
disruption from natural or human causes beyond their control,
including physical risks from hurricanes, severe storms, and other
forms of system failures, any of which could result in suspension
of operations or harm to people or the natural
environment.
Our oil and gas business can be adversely affected by political or
regulatory developments affecting our operations.
Our oil and gas operations can be affected by changing economic,
regulatory, and political environments. Litigation or changes in
national, state, or local environmental regulations or laws,
including those designed to stop or impede the development or
production of oil and natural gas, could adversely affect our
operations and profitability.
Item 1B. Unresolved Staff
Comments
None.
Item 2. Properties
Restaurant Properties
As of December 31, 2022, restaurant operations included 545
company-operated and franchise locations. Restaurant operations own
the land and building for 155 restaurants; they also own 9 other
properties. The following table lists the locations of the
restaurants, as of December 31, 2022.
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Steak n Shake |
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Western Sizzlin |
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|
Company
Operated |
|
Franchise
Partner |
|
Traditional
Franchise |
|
Company
Operated |
|
Franchise |
|
Total |
|
Domestic: |
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|
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|
|
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|
|
|
Alabama |
1 |
|
|
1 |
|
|
4 |
|
|
— |
|
|
5 |
|
|
11 |
|
|
Arkansas |
— |
|
|
— |
|
|
4 |
|
|
— |
|
|
7 |
|
|
11 |
|
|
California |
— |
|
|
— |
|
|
2 |
|
|
— |
|
|
— |
|
|
2 |
|
|
Colorado |
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
|
Delaware |
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
1 |
|
|
Florida |
20 |
|
|
57 |
|
|
7 |
|
|
— |
|
|
— |
|
|
84 |
|
|
Georgia |
7 |
|
|
12 |
|
|
11 |
|
|
— |
|
|
4 |
|
|
34 |
|
|
Illinois |
37 |
|
|
18 |
|
|
9 |
|
|
— |
|
|
— |
|
|
64 |
|
|
Indiana |
39 |
|
|
21 |
|
|
1 |
|
|
— |
|
|
— |
|
|
61 |
|
|
Iowa |
2 |
|
|
1 |
|
|
1 |
|
|
— |
|
|
— |
|
|
4 |
|
|
Kansas |
— |
|
|
— |
|
|
4 |
|
|
— |
|
|
— |
|
|
4 |
|
|
Kentucky |
1 |
|
|
11 |
|
|
9 |
|
|
— |
|
|
— |
|
|
21 |
|
|
Louisiana |
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
1 |
|
|
Maryland |
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
1 |
|
|
2 |
|
|
Michigan |
13 |
|
|
4 |
|
|
1 |
|
|
— |
|
|
— |
|
|
18 |
|
|
Mississippi |
— |
|
|
— |
|
|
6 |
|
|
— |
|
|
1 |
|
|
7 |
|
|
Missouri |
10 |
|
|
11 |
|
|
22 |
|
|
— |
|
|
— |
|
|
43 |
|
|
Nebraska |
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
1 |
|
|
Nevada |
— |
|
|
— |
|
|
8 |
|
|
— |
|
|
— |
|
|
8 |
|
|
North Carolina |
1 |
|
|
5 |
|
|
2 |
|
|
— |
|
|
6 |
|
|
14 |
|
|
Ohio |
30 |
|
|
19 |
|
|
1 |
|
|
— |
|
|
1 |
|
|
51 |
|
|
Oklahoma |
— |
|
|
— |
|
|
2 |
|
|
— |
|
|
2 |
|
|
4 |
|
|
Pennsylvania |
4 |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
5 |
|
|
South Carolina |
— |
|
|
1 |
|
|
2 |
|
|
— |
|
|
2 |
|
|
5 |
|
|
Tennessee |
1 |
|
|
7 |
|
|
10 |
|
|
— |
|
|
3 |
|
|
21 |
|
|
Texas |
6 |
|
|
7 |
|
|
13 |
|
|
— |
|
|
1 |
|
|
27 |
|
|
Virginia |
— |
|
|
— |
|
|
4 |
|
|
2 |
|
|
3 |
|
|
9 |
|
|
Washington, D.C. |
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
1 |
|
|
West Virginia |
— |
|
|
— |
|
|
2 |
|
|
1 |
|
|
— |
|
|
3 |
|
|
International: |
|
|
|
|
|
|
|
|
|
|
|
|
France |
2 |
|
|
— |
|
|
23 |
|
|
— |
|
|
— |
|
|
25 |
|
|
Monaco |
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
|
Spain |
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
|
Total |
177 |
|
|
175 |
|
|
154 |
|
|
3 |
|
|
36 |
|
|
545 |
|
As of December 31, 2022, 39 of the 177 Steak n Shake
company-operated stores were closed. The Company intends to
refranchise the majority of its closed stores.
Other Properties
Southern Oil primarily operates oil and natural gas wells in
Louisiana. Its operations are primarily offshore in the shallow
waters of the Gulf of Mexico.
Abraxas Petroleum operates oil and natural gas wells in the Permian
Basin.
First Guard owns the land and building of its office in Venice,
Florida. Southern Pioneer owns the land and building of its office
in Jonesboro, Arkansas.
The Company owns Steak n Shake’s office building in Indianapolis,
Indiana, along with two other undeveloped properties in other
states.
Item 3. Legal Proceedings
Refer to Commitments and Contingencies - Note 15 to the
Consolidated Financial Statements included in Item 8 for a
discussion of legal proceedings.
Item 4. Mine Safety
Disclosures
Not applicable.
Part II
Item 5. Market for Registrant’s Common
Equity, Related Stockholder Matters, and Issuer Purchases of
Equity
Securities
Market Information
Biglari Holdings’ Class A common stock and Class B common stock are
listed for trading on the NYSE, trading symbol: BH.A and BH,
respectively.
Shareholders
Biglari Holdings had 1,692 beneficial shareholders of its Class A
common stock and 3,506 beneficial shareholders of its Class B
common stock as of February 1, 2023.
Dividends
Biglari Holdings has never declared a dividend.
Item 6. Selected Financial
Data
(dollars in thousands, except per-share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
Restaurant operations |
$ |
241,568 |
|
|
$ |
271,290 |
|
|
$ |
350,666 |
|
|
$ |
610,220 |
|
|
$ |
775,690 |
|
|
Insurance premiums and other |
64,540 |
|
|
58,609 |
|
|
52,679 |
|
|
30,083 |
|
|
27,628 |
|
|
Oil and gas |
57,546 |
|
|
33,004 |
|
|
26,255 |
|
|
24,436 |
|
|
— |
|
|
Licensing and media |
4,577 |
|
|
3,203 |
|
|
4,083 |
|
|
4,099 |
|
|
6,576 |
|
|
Total revenues |
$ |
368,231 |
|
|
$ |
366,106 |
|
|
$ |
433,683 |
|
|
$ |
668,838 |
|
|
$ |
809,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings: |
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Biglari Holdings Inc.
shareholders |
$ |
(32,018) |
|
|
$ |
35,478 |
|
|
$ |
(37,989) |
|
|
$ |
45,380 |
|
|
$ |
19,392 |
|
|
Net earnings (loss) per equivalent Class A share |
$ |
(107.43) |
|
|
$ |
111.83 |
|
|
$ |
(110.05) |
|
|
$ |
131.64 |
|
|
$ |
55.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-end data: |
|
|
|
|
|
|
|
|
|
|
Total assets |
$ |
828,474 |
|
|
$ |
894,807 |
|
|
$ |
1,017,968 |
|
|
$ |
1,139,309 |
|
|
$ |
1,029,493 |
|
|
Notes payable and other borrowings |
$ |
10,000 |
|
|
$ |
— |
|
|
$ |
152,261 |
|
|
$ |
180,264 |
|
|
$ |
181,521 |
|
|
Biglari Holdings Inc. shareholders’ equity |
$ |
546,966 |
|
|
$ |
587,696 |
|
|
$ |
564,828 |
|
|
$ |
616,298 |
|
|
$ |
570,455 |
|
Earnings per share of common stock is based on the weighted-average
number of shares outstanding during the period. The Company has
applied the “two-class method” of computing earnings per share as
prescribed in Accounting Standards Codification 260, “Earnings Per
Share.”
Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
(dollars in thousands, except per-share data)
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 financial 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 December 31, 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 Acquisitions
On September 14, 2022, the Company purchased 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
Shares to 90% of the outstanding common stock of Abraxas Petroleum.
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
preliminary purchase price allocation includes $70,200 of oil and
gas properties, cash of $21,726, and liabilities, net of other
assets, of $11,926. The Company’s financial results include the
results of Abraxas Petroleum from the acquisition date to the end
of the calendar year. The revenues and operating results for
Abraxas Petroleum were not significant to the Company.
On March 9, 2020, Biglari Holdings acquired the stock of Southern
Pioneer Property & Casualty Insurance Company and its
affiliated agency, Southern Pioneer Insurance Agency, Inc.
(collectively “Southern Pioneer”). Southern Pioneer underwrites
garage liability and commercial property as well as homeowners and
dwelling fire insurance coverage. The Company’s financial results
include the results of Southern Pioneer from the date of
acquisition.
Discussion of Operations
Net earnings attributable to Biglari Holdings Inc. shareholders are
disaggregated in the table that follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
2020 |
|
Operating businesses: |
|
|
|
|
|
|
Restaurant |
$ |
9,383 |
|
|
$ |
11,235 |
|
|
$ |
(4,961) |
|
|
Insurance |
7,662 |
|
|
11,290 |
|
|
9,840 |
|
|
Oil and gas |
19,091 |
|
|
7,528 |
|
|
1,890 |
|
|
Brand licensing |
1,313 |
|
|
2,364 |
|
|
1,374 |
|
|
Interest expense |
(305) |
|
|
(841) |
|
|
(6,940) |
|
|
Corporate and other |
(9,806) |
|
|
(9,829) |
|
|
(9,563) |
|
|
Total operating businesses |
27,338 |
|
|
21,747 |
|
|
(8,360) |
|
|
Investment partnership gains (losses) |
(56,961) |
|
|
8,899 |
|
|
(32,506) |
|
|
Investment gains (losses) |
(2,682) |
|
|
4,832 |
|
|
2,877 |
|
|
Net earnings (loss) |
(32,305) |
|
|
35,478 |
|
|
(37,989) |
|
|
Earnings (loss) attributable to noncontrolling interest |
(287) |
|
|
— |
|
|
— |
|
|
Net earnings (loss) attributable to Biglari Holdings Inc.
shareholders |
$ |
(32,018) |
|
|
$ |
35,478 |
|
|
$ |
(37,989) |
|
The following discussion should be read in conjunction with
Item 1, Business and our Consolidated Financial Statements and
the notes thereto included in this Form 10-K. The following
discussion should also be read in conjunction with the “Cautionary
Note Regarding Forward-Looking Statements” and the risks and
uncertainties described in Item 1A, Risk Factors, set forth
above.
Our Management Discussion and Analysis generally discusses 2022 and
2021 items. Discussions of 2020 items can be found in “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” in Part II, Item 7 of our Annual Report on Form 10-K
for the year ended December 31, 2021, filed with the SEC on
February 28, 2022.
Investment gains and losses in 2022 and 2021 were mainly derived
from our investments in equity securities and included unrealized
gains and losses from market price changes during the period. We
believe that investment and derivative gains/losses are generally
meaningless for analytical purposes in understanding our reported
quarterly and annual results. These gains and losses have caused
and will continue to cause significant volatility in our periodic
earnings.
Through our subsidiaries, we engage in numerous diverse business
activities. We operate on a decentralized management structure. The
business segment data (Note 17 to the accompanying Consolidated
Financial Statements) should be read in conjunction with this
discussion.
Restaurants
Our restaurant businesses, which include Steak n Shake and Western
Sizzlin, comprise 545 company-operated and franchise restaurants as
of December 31, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steak n Shake |
|
Western Sizzlin |
|
|
|
Company-
operated |
|
Franchise
Partner |
|
Traditional
Franchise |
|
Company-
operated |
|
Franchise |
|
Total |
|
Stores open on December 31, 2019 |
368 |
|
|
29 |
|
|
213 |
|
|
4 |
|
|
48 |
|
|
662 |
|
|
Corporate stores transitioned |
(58) |
|
|
57 |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
Net restaurants opened (closed) |
(34) |
|
|
— |
|
|
(20) |
|
|
(1) |
|
|
(9) |
|
|
(64) |
|
|
Stores open on December 31, 2020 |
276 |
|
|
86 |
|
|
194 |
|
|
3 |
|
|
39 |
|
|
598 |
|
|
Corporate stores transitioned |
(73) |
|
|
73 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Net restaurants opened (closed) |
(4) |
|
|
— |
|
|
(16) |
|
|
— |
|
|
(1) |
|
|
(21) |
|
|
Stores open on December 31, 2021 |
199 |
|
|
159 |
|
|
178 |
|
|
3 |
|
|
38 |
|
|
577 |
|
|
Corporate stores transitioned |
(16) |
|
|
16 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Net restaurants opened (closed) |
(6) |
|
|
— |
|
|
(24) |
|
|
— |
|
|
(2) |
|
|
(32) |
|
|
Stores open on December 31, 2022 |
177 |
|
|
175 |
|
|
154 |
|
|
3 |
|
|
36 |
|
|
545 |
|
As of December 31, 2022, 39 of the 177 company-operated Steak
n Shake stores were closed. We plan to refranchise a majority of
our closed company-operated restaurants.
Management’s Discussion and Analysis (continued)
Restaurant operations for 2022, 2021, and 2020 are summarized
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2020 |
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
149,184 |
|
|
|
|
$ |
187,913 |
|
|
|
|
$ |
306,577 |
|
|
|
|
Franchise partner fees |
63,853 |
|
|
|
|
55,641 |
|
|
|
|
22,213 |
|
|
|
|
Franchise royalties and fees |
19,678 |
|
|
|
|
21,736 |
|
|
|
|
18,794 |
|
|
|
|
Other revenue |
8,853 |
|
|
|
|
6,000 |
|
|
|
|
3,082 |
|
|
|
|
Total revenue |
241,568 |
|
|
|
|
271,290 |
|
|
|
|
350,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of food |
44,461 |
|
|
29.8 |
% |
|
55,315 |
|
|
29.4 |
% |
|
88,698 |
|
|
28.9 |
% |
|
Restaurant operating costs |
79,921 |
|
|
53.6 |
% |
|
92,543 |
|
|
49.2 |
% |
|
137,574 |
|
|
44.9 |
% |
|
Occupancy costs |
15,882 |
|
|
10.6 |
% |
|
19,633 |
|
|
10.4 |
% |
|
20,383 |
|
|
6.6 |
% |
|
Total cost of sales |
140,264 |
|
|
|
|
167,491 |
|
|
|
|
246,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
40,206 |
|
|
16.6 |
% |
|
39,940 |
|
|
14.7 |
% |
|
35,922 |
|
|
10.2 |
% |
|
Marketing |
13,921 |
|
|
5.8 |
% |
|
13,923 |
|
|
5.1 |
% |
|
21,507 |
|
|
6.1 |
% |
|
Other expenses (income) |
(2,294) |
|
|
(0.9) |
% |
|
3,323 |
|
|
1.2 |
% |
|
2,972 |
|
|
0.8 |
% |
|
Total selling, general and administrative |
51,833 |
|
|
21.5 |
% |
|
57,186 |
|
|
21.1 |
% |
|
60,401 |
|
|
17.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments |
3,520 |
|
|
1.5 |
% |
|
4,635 |
|
|
1.7 |
% |
|
23,646 |
|
|
6.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
27,496 |
|
|
11.4 |
% |
|
21,484 |
|
|
7.9 |
% |
|
19,042 |
|
|
5.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on finance leases and obligations |
5,493 |
|
|
|
|
6,039 |
|
|
|
|
6,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
12,962 |
|
|
|
|
14,455 |
|
|
|
|
(5,352) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
3,579 |
|
|
|
|
3,220 |
|
|
|
|
(391) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to net earnings |
$ |
9,383 |
|
|
|
|
$ |
11,235 |
|
|
|
|
$ |
(4,961) |
|
|
|
Cost of food, restaurant operating costs, and occupancy costs are
expressed as a percentage of net sales.
General and administrative, marketing, other expenses, impairments,
and depreciation and amortization are expressed as a percentage of
total revenue.
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 remained closed through the end of
2020 but reopened during 2021, and in doing so implemented a
self-service model.
Net sales during 2022 were $149,184 as compared to $187,913 during
2021. 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.
Management’s Discussion and Analysis (continued)
To better convey the underlying economics of the franchise
partnership model, the table below shows the average unit sales,
the cost of food, and the labor costs of franchise partners. The
average was based on 137 comparable franchise partner units, out of
a total of 175. To be included as a comparable franchise partner
unit, a unit had to be operated by a franchise partner for all of
2022, and had to be open in 2021 as either a company-operated or a
franchise partner unit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
|
2021 |
|
|
|
Net sales |
$ |
1,819 |
|
|
|
|
$ |
1,595 |
|
|
|
|
Cost of food |
502 |
|
|
27.6 |
% |
|
448 |
|
|
28.1 |
% |
|
Labor costs |
500 |
|
|
27.5 |
% |
|
435 |
|
|
27.3 |
% |
Our franchise partner fees were $63,853 during 2022 as compared to
$55,641 during 2021. As of December 31, 2022, there were 175
franchise partner units as compared to 159 franchise partner units
as of December 31, 2021. Included in franchise partner fees
were $20,426 and $15,483 of rental income during 2022 and 2021,
respectively. Franchise partners rent buildings and equipment from
Steak n Shake.
The franchise royalties and fees generated by the traditional
franchising business were $19,678 during 2022 as compared to
$21,736 during 2021. The decrease in franchise royalties and fees
was primarily due to the closing of certain traditional franchise
stores. There were 190 traditional units open on December 31, 2022,
as compared to 216 units open on December 31, 2021.
Other revenue in 2022 was $8,853 as compared to $6,000 in 2021. The
increase was primarily a result of gift card breakage, as our
restaurants have seen fewer gift card redemptions since the onset
of the pandemic.
The cost of food at company-operated units in 2022 was $44,461, or
29.8% of net sales as compared to $55,315, or 29.4% of net sales in
2021. The decreases in the cost of food and operating costs are
mainly attributable to the transitioning of company-operated units
to franchise partner units. The cost of food expressed as a
percentage of net sales remained consistent with 2021.
The operating costs at company-operated restaurants during 2022
were $79,921, or 53.6% of net sales as compared to $92,543, or
49.2% of net sales in 2021. As we transition to franchise partner
units, the remaining company-operated units generate lower average
unit volumes and correspondingly higher operating costs (including
higher wages) as a percentage of net sales.
Selling, general and administrative expenses during 2022 were
$51,833, or 21.5% of total revenue as compared to $57,186, or 21.1%
of total revenue during 2021. Selling, general and administrative
expenses decreased during 2022 as compared to 2021 primarily
because of lower professional costs.
Asset impairments decreased $1,115 during 2022 as compared to 2021.
Higher asset impairments were recorded in 2021 primarily because a
large number of underperforming stores were affected by the
pandemic.
Depreciation and amortization expense increased $6,012 during 2022
as compared to 2021. The year-over-year increase is primarily
attributable to higher capital expenditures in 2021.
Interest on obligations under leases was $5,493 during 2022 versus
$6,039 during 2021. The year-over-year decrease in interest expense
is primarily attributable to the maturity and retirement of lease
obligations.
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.
Management’s Discussion and Analysis (continued)
Underwriting results of our insurance operations are summarized
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
2020 |
|
Underwriting gain (loss) attributable to: |
|
|
|
|
|
|
First Guard |
$ |
6,578 |
|
|
$ |
10,573 |
|
|
$ |
9,379 |
|
|
Southern Pioneer |
(1,277) |
|
|
1,744 |
|
|
620 |
|
|
Pre-tax underwriting gain |
5,301 |
|
|
12,317 |
|
|
9,999 |
|
|
Income tax expense |
1,113 |
|
|
2,587 |
|
|
2,100 |
|
|
Net underwriting gain |
$ |
4,188 |
|
|
$ |
9,730 |
|
|
$ |
7,899 |
|
Earnings of our insurance operations are summarized
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
2020 |
|
Premiums earned |
$ |
59,949 |
|
|
$ |
55,411 |
|
|
$ |
49,220 |
|
|
Insurance losses |
37,187 |
|
|
27,649 |
|
|
24,828 |
|
|
Underwriting expenses |
17,461 |
|
|
15,445 |
|
|
14,393 |
|
|
Pre-tax underwriting gain |
5,301 |
|
|
12,317 |
|
|
9,999 |
|
|
Other income and expenses |
|
|
|
|
|
|
Investment income |
1,380 |
|
|
704 |
|
|
1,212 |
|
|
Other income |
3,223 |
|
|
1,414 |
|
|
1,220 |
|
|
Total other income |
4,603 |
|
|
2,118 |
|
|
2,432 |
|
|
Earnings before income taxes |
9,904 |
|
|
14,435 |
|
|
12,431 |
|
|
Income tax expense |
2,242 |
|
|
3,145 |
|
|
2,591 |
|
|
Contribution to net earnings |
$ |
7,662 |
|
|
$ |
11,290 |
|
|
$ |
9,840 |
|
Insurance premiums and other on the consolidated statement of
earnings includes premiums earned, investment income, other income,
and commissions. Commissions are in other income in the above
table.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
2020 |
|
|
Amount |
|
% |
|
Amount |
|
% |
|
Amount |
|
% |
|
Premiums earned |
|
$ |
35,914 |
|
|
100.0 |
% |
|
$ |
33,521 |
|
|
100.0 |
% |
|
$ |
30,210 |
|
|
100.0 |
% |
|
Insurance losses |
|
22,299 |
|
|
62.1 |
% |
|
16,338 |
|
|
48.7 |
% |
|
14,031 |
|
|
46.5 |
% |
|
Underwriting expenses |
|
7,037 |
|
|
19.6 |
% |
|
6,610 |
|
|
19.7 |
% |
|
6,800 |
|
|
22.5 |
% |
|
Total losses and expenses |
|
29,336 |
|
|
81.7 |
% |
|
22,948 |
|
|
68.4 |
% |
|
20,831 |
|
|
69.0 |
% |
|
Pre-tax underwriting gain |
|
$ |
6,578 |
|
|
|
|
$ |
10,573 |
|
|
|
|
$ |
9,379 |
|
|
|
First Guard’s ratio of losses and loss adjustment expenses to
premiums earned was 62.1% during 2022 as compared to 48.7% during
2021. First Guard’s underwriting results in 2022 were in line with
its historical performance despite cost inflation in property and
physical damage claims, which began to accelerate in 2022. However,
2021 was an abnormally favorable year with low claim frequency
despite a return to pre-pandemic traffic patterns.
Management’s Discussion and Analysis (continued)
Southern Pioneer
Southern Pioneer underwrites garage liability and commercial
property insurance, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
2020 |
|
|
Amount |
|
% |
|
Amount |
|
% |
|
Amount |
|
% |
|
Premiums earned |
|
$ |
24,035 |
|
|
100.0 |
% |
|
$ |
21,890 |
|
|
100.0 |
% |
|
$ |
19,010 |
|
|
100.0 |
% |
|
Insurance losses |
|
14,888 |
|
|
61.9 |
% |
|
11,311 |
|
|
51.7 |
% |
|
10,797 |
|
|
56.8 |
% |
|
Underwriting expenses |
|
10,424 |
|
|
43.4 |
% |
|
8,835 |
|
|
40.4 |
% |
|
7,593 |
|
|
39.9 |
% |
|
Total losses and expenses |
|
25,312 |
|
|
105.3 |
% |
|
20,146 |
|
|
92.1 |
% |
|
18,390 |
|
|
96.7 |
% |
|
Pre-tax underwriting gain (loss) |
|
$ |
(1,277) |
|
|
|
|
$ |
1,744 |
|
|
|
|
$ |
620 |
|
|
|
Southern Pioneer’s ratio of losses and loss adjustment expenses to
premiums earned was 61.9% during 2022 as compared to 51.7% during
2021. Southern Pioneer’s 2022 performance was primarily
attributable to higher claim frequency and severity (mainly related
to adverse weather) in several niche lines.
Insurance – Investment Income
A summary of net investment income attributable to our insurance
operations follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
2020 |
|
Interest, dividends, and other investment income: |
|
|
|
|
|
|
|
First Guard |
|
$ |
751 |
|
|
$ |
133 |
|
|
$ |
285 |
|
|
Southern Pioneer |
|
629 |
|
|
571 |
|
|
927 |
|
|
Pre-tax investment income |
|
1,380 |
|
|
704 |
|
|
1,212 |
|
|
Income tax expense |
|
289 |
|
|
148 |
|
|
255 |
|
|
Net investment income |
|
$ |
1,091 |
|
|
$ |
556 |
|
|
$ |
957 |
|
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.
Management’s Discussion and Analysis (continued)
Oil and Gas
Biglari Holdings’ oil and gas operations consist of Southern Oil
and Abraxas Petroleum.
Southern Oil
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
2020 |
|
Oil and gas revenue |
$ |
46,091 |
|
|
$ |
33,004 |
|
|
$ |
26,255 |
|
|
|
|
|
|
|
|
|
Oil and gas production costs |
13,355 |
|
|
10,470 |
|
|
8,700 |
|
|
Depreciation, depletion, and accretion |
5,503 |
|
|
8,073 |
|
|
12,527 |
|
|
General and administrative expenses |
2,694 |
|
|
4,748 |
|
|
3,010 |
|
|
Earnings before income taxes |
24,539 |
|
|
9,713 |
|
|
2,018 |
|
|
Income tax expense |
5,946 |
|
|
2,185 |
|
|
128 |
|
|
Contribution to net earnings |
$ |
18,593 |
|
|
$ |
7,528 |
|
|
$ |
1,890 |
|
Our oil and gas business is highly dependent on oil and natural gas
prices. Demand for petroleum grew in 2022, with our financial
results benefiting from stronger prices and margins. The average
West Texas Intermediate price per barrel for the year ended
December 31, 2022, was approximately $94.53 as compared to
approximately $68.17 for the year ended December 31, 2021. It is
expected that the prices of oil and gas commodities will remain
volatile, which will be reflected in our financial results.
Depreciation, depletion, and accretion expense during 2022
decreased $2,570 as compared to 2021, primarily due to temporarily
shutting in producing wells.
Abraxas Petroleum
Abraxas Petroleum operates oil and natural gas properties in the
Permian Basin. Earnings for Abraxas Petroleum from the date of
acquisition, September 14, 2022, are summarized below.
|
|
|
|
|
|
|
2022 |
|
Oil and gas revenue |
$ |
11,455 |
|
|
|
|
|
Oil and gas production costs |
4,487 |
|
|
Depreciation, depletion, and accretion |
2,510 |
|
|
General and administrative expenses |
3,806 |
|
|
Earnings before income taxes |
652 |
|
|
Income tax expense |
154 |
|
|
Contribution to net earnings |
$ |
498 |
|
Management’s Discussion and Analysis (continued)
Brand Licensing
Maxim’s business lies principally in licensing and media. Earnings
of operations are summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
2020 |
|
Licensing and media revenue |
$ |
4,577 |
|
|
$ |
3,203 |
|
|
$ |
4,083 |
|
|
|
|
|
|
|
|
|
Licensing and media cost |
2,695 |
|
|
2,275 |
|
|
2,156 |
|
|
General and administrative expenses |
122 |
|
|
114 |
|
|
143 |
|
|
Earnings before income taxes |
1,760 |
|
|
814 |
|
|
1,784 |
|
|
Income tax expense |
447 |
|
|
(1,550) |
|
|
410 |
|
|
Contribution to net earnings |
$ |
1,313 |
|
|
$ |
2,364 |
|
|
$ |
1,374 |
|
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 losses were $3,393 ($2,682 net of tax) in 2022 as
compared to investment gains of $6,401 ($4,832 net of tax) in 2021.
Investment gains in 2021 included a gain from the sale of real
estate of $5,047 ($3,785 net of tax). 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.
Earnings from our investments in partnerships are summarized
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
2020 |
|
Investment partnership gains (losses) |
$ |
(75,953) |
|
|
$ |
10,953 |
|
|
$ |
(43,032) |
|
|
Tax expense (benefit) |
(18,992) |
|
|
2,054 |
|
|
(10,526) |
|
|
Contribution to net earnings |
$ |
(56,961) |
|
|
$ |
8,899 |
|
|
$ |
(32,506) |
|
Investment partnership gains include gains/losses from changes in
the market values of underlying investments and dividends earned by
the partnerships. Dividend income has a lower effective tax rate
than income from capital gains. These gains and losses have caused
and will continue to cause significant volatility in our periodic
earnings.
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 in the Company’s consolidated financial
results.
Investment gains and losses in 2022 and 2021 were mainly derived
from our investments in equity securities and included unrealized
gains and losses from market price changes during the period. We
believe that investment and derivative gains/losses are generally
meaningless for analytical purposes in understanding our reported
quarterly or annual results. These gains and losses have caused and
will continue to cause significant volatility in our periodic
earnings.
Management’s Discussion and Analysis (continued)
Interest Expense
The Company’s interest expense is summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
2020 |
|
Interest expense on notes payable and other borrowings |
$ |
(399) |
|
|
$ |
(1,121) |
|
|
$ |
(9,262) |
|
|
Tax benefit |
(94) |
|
|
(280) |
|
|
(2,322) |
|
|
Interest expense net of tax |
$ |
(305) |
|
|
$ |
(841) |
|
|
$ |
(6,940) |
|
The Company paid Steak n Shake’s outstanding credit facility in
full in February 2021. On September 13, 2022, Biglari Holdings
entered into a line of credit in an aggregate principal amount of
up to $30,000. The balance on the line of credit was $10,000 on
December 31, 2022.
Income Taxes
The consolidated income tax benefit was $10,722 in 2022 versus an
expense of $6,789 in 2021. The change in income tax expense was
primarily due to a tax benefit of $18,992 for investment
partnership losses in 2022.
Corporate and Other
Corporate expenses exclude the activities of the restaurant,
insurance, brand licensing, and oil and gas businesses. Corporate
and other net losses for 2022 remained consistent with the
preceding year.
Financial Condition
Our consolidated shareholders’ equity on December 31, 2022,
was $546,966, a decrease of $40,730 as compared to the
December 31, 2021 balance. The decrease in shareholders’
equity was primarily due to a net loss of $32,018 and an increase
in treasury stock of $7,829.
Consolidated cash and investments are summarized
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2022 |
|
2021 |
|
Cash and cash equivalents |
$ |
37,467 |
|
|
$ |
42,349 |
|
|
Investments |
69,466 |
|
|
83,061 |
|
|
Fair value of interest in investment partnerships |
383,004 |
|
|
474,201 |
|
|
Total cash and investments |
489,937 |
|
|
599,611 |
|
|
Less: portion of Company stock held by investment
partnerships |
(227,210) |
|
|
(223,802) |
|
|
Carrying value of cash and investments on balance sheet |
$ |
262,727 |
|
|
$ |
375,809 |
|
Unrealized gains/losses of Biglari Holdings’ stock held by the
investment partnerships are eliminated in the Company’s
consolidated financial results.
Liquidity
Our balance sheet continues to maintain significant
liquidity. Consolidated cash flow activities are summarized
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
2020 |
|
Net cash provided by operating activities |
$ |
127,825 |
|
|
$ |
228,767 |
|
|
$ |
117,556 |
|
|
Net cash used in investing activities |
(136,605) |
|
|
(58,525) |
|
|
(129,487) |
|
|
Net cash provided by (used in) financing activities |
3,860 |
|
|
(156,157) |
|
|
(29,109) |
|
|
Effect of exchange rate changes on cash |
38 |
|
|
(64) |
|
|
10 |
|
|
Increase (decrease) in cash, cash equivalents, and restricted
cash |
$ |
(4,882) |
|
|
$ |
14,021 |
|
|
$ |
(41,030) |
|
Management’s Discussion and Analysis (continued)
In 2022, cash from operating activities decreased by $100,942 as
compared to 2021. The change was primarily attributable to a
decrease in distributions from investment partnerships from
$180,170 in 2021 to $70,700 in 2022. The distributions during 2022
were primarily used to acquire Abraxas Petroleum, and the
distributions during 2021 were primarily used to repay Steak n
Shake’s term loan.
Net cash used in investing activities increased during 2022 by
$78,080 as compared to 2021. The change was primarily due to the
acquisition of Abraxas Petroleum of $58,274, net of cash acquired,
as well as purchases of limited partner interests of $48,570 during
2022.
Cash provided by financing activities of $3,860 during 2022 was
primarily because of the $10,000 draw on the Company’s line of
credit. Cash used in financing activities of $156,157 during 2021
was primarily attributable to the repayment of Steak n Shake’s
outstanding balance of its term debt.
We intend to meet the working capital needs of our operating
subsidiaries, principally through cash flows generated from
operations and cash on hand. We continually review available
financing alternatives.
Biglari 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. As of December 31, 2022, we
were in compliance with all covenants. The balance of the line of
credit on December 31, 2022, was $10,000. Our interest rate was
6.53% on December 31, 2022, which is based on the 30-day Secured
Overnight Financing Rate plus 2.728%.
Steak n Shake Credit Facility
On March 19, 2014, Steak n Shake and its subsidiaries entered into
a credit agreement that 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
Steak n Shake’s outstanding balance in full on February 19,
2021.
Western Sizzlin Revolver
Western Sizzlin’s available line of credit is $500. As of
December 31, 2022 and 2021, Western Sizzlin had no debt
outstanding under its revolver.
Critical Accounting Policies
Certain accounting policies require us to make estimates and
judgments in determining the amounts reflected in the consolidated
financial statements. Such estimates and judgments necessarily
involve varying, and possibly significant, degrees of uncertainty.
Accordingly, certain amounts currently recorded in the financial
statements will likely be adjusted in the future based on new
available information and changes in other facts and circumstances.
A discussion of our principal accounting policies that required the
application of significant judgments as of December 31, 2022,
follows.
Consolidation
The consolidated financial statements include the accounts of
Biglari Holdings Inc. and the wholly owned subsidiaries of Biglari
Holdings Inc. The analysis as to whether to consolidate an entity
is subject to a significant amount of judgment. All intercompany
accounts and transactions are eliminated in
consolidation.
Our interests in the investment partnerships are accounted for as
equity method investments because of our retained limited partner
interest in the investment partnerships. The Company records gains
from the investment partnerships (inclusive of the investment
partnerships’ unrealized gains and losses on their securities) in
the consolidated statement of earnings based on our proportional
ownership interest in the investment partnerships.
Impairment of Restaurant Long-lived Assets
We review company-operated restaurants for impairment on a
restaurant-by-restaurant basis when events or circumstances
indicate a possible impairment. Assets included in the impairment
assessment generally consist of property, equipment, and leasehold
improvements directly associated with an individual restaurant as
well as any related finance or operating lease assets. We test for
impairment by comparing the carrying value of the asset to the
undiscounted future cash flows expected to be generated by the
asset. If the total estimated future cash flows are less than the
carrying amount of the asset, the carrying value is written down to
the estimated fair value, and a loss is recognized in earnings.
Determining the future cash flows expected to be generated by an
asset requires significant judgment regarding future performance of
the asset, fair market value if the asset were to be sold, and
other financial and economic assumptions.
Management’s Discussion and Analysis (continued)
Oil and Natural Gas Reserves
Crude oil and natural gas reserves are estimates of future
production that impact certain asset and expense accounts. Proved
reserves are the estimated quantities of oil and gas that
geoscience and engineering data demonstrate with reasonable
certainty to be economically producible in the future under
existing economic conditions, operating methods, and government
regulations. Proved reserves include both developed and undeveloped
volumes. Proved developed reserves represent volumes expected to be
recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are volumes expected
to be recovered from new wells on undrilled proved acreage, or from
existing wells where expenditure is required for recompletion. We
estimate our proved oil and natural gas reserves in accordance with
the guidelines established by the SEC. Due to the inherent
uncertainties and the limited nature of reservoir data, estimates
of reserves are subject to change as additional information becomes
available.
Income Taxes
We record deferred tax assets or liabilities, which are based on
differences between financial reporting and the tax basis of assets
and liabilities and are measured using the currently enacted rates
and laws that will be in effect when the differences are expected
to reverse. We record deferred tax assets to the extent we believe
there will be sufficient future taxable income to utilize those
assets prior to their expiration. To the extent deferred tax assets
are unable to be utilized, we would record a valuation allowance
against the unrealizable amount and record that amount as a charge
against earnings. Due to changing tax laws and state income tax
rates, significant judgment is required to estimate the effective
tax rate applicable to tax differences arising from reversal in the
future. We must also make estimates about the sufficiency of
taxable income in future periods to offset any deductions related
to deferred tax assets currently recorded.
Goodwill and Other Intangible Assets
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
managerial judgment. Based on a review of the qualitative factors,
if we determine it is not more likely than not that the fair value
is less than the carrying value, we may bypass the quantitative
impairment test. We may also elect not to perform the qualitative
assessment for the reporting unit or intangible assets and perform
a quantitative impairment test instead.
Leases
We determine whether a contract is or contains a lease at contract
inception based on the presence of identified assets and our right
to obtain substantially all of the economic benefit from, or to
direct the use of, such assets. When we determine a lease exists,
we record a right-of-use asset and corresponding lease liability on
our consolidated balance sheets. Right-of-use assets represent our
right to use an underlying asset for the lease term. Lease
liabilities represent our obligation to make lease payments arising
from the lease. Right-of-use assets are recognized at the
commencement date at the value of the lease liability and are
adjusted for any prepayments, lease incentives received, and
initial direct costs incurred. Lease liabilities are recognized at
the lease commencement date based on the present value of remaining
lease payments over the lease term. As the discount rate implicit
in the lease is not readily determinable in most of our leases, we
use our incremental borrowing rate based on the information
available at the commencement date in determining the present value
of lease payments. Our lease terms include options to extend or
terminate the lease when it is reasonably certain that we will
exercise that option. We do not record lease contracts with a term
of 12 months or less on our consolidated balance sheets. 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.
Cautionary Note Regarding Forward-Looking Statements
This report includes forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. In
general, forward-looking statements include estimates of future
revenues, cash flows, capital expenditures, or other financial
items, and assumptions underlying any of the foregoing.
Forward-looking statements reflect management’s current
expectations regarding future events and use words such as
“anticipate,” “believe,” “expect,” “may,” and other similar
terminology. A forward-looking statement is neither a prediction
nor a guarantee of future events or circumstances, and those future
events or circumstances may not occur. Investors should not place
undue reliance on the forward-looking statements, which speak only
as of the date of this report. These forward-looking statements are
all based on currently available operating, financial, and
competitive information and are subject to various risks and
uncertainties. Our actual future results and trends may differ
materially depending on a variety of factors, many beyond our
control, including, but not limited to, the risks and uncertainties
described in Item 1A, Risk Factors, set forth above. We undertake
no obligation to publicly update or revise them, except as may be
required by law.
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and
Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the shareholders and the Board of Directors of Biglari Holdings
Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
Biglari Holdings Inc. and subsidiaries (the “Company”) as of
December 31, 2022 and 2021, the related consolidated statements of
earnings, comprehensive income, changes in shareholders’ equity,
and cash flows for each of the three years in the period ended
December 31, 2022, and the related notes (collectively referred to
as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2022 and 2021, and the
results of its operations and its cash flows for each of the three
years in the period ended December 31, 2022, in conformity with
accounting principles generally accepted in the United States of
America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States) (PCAOB),
the Company’s internal control over financial reporting as of
December 31, 2022, based on criteria established in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 25, 2023 expressed an
unqualified opinion on the Company’s internal control over
financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Emphasis of a Matter
As discussed in Note 4 and Note 14 to the consolidated financial
statements, the Company and its subsidiaries have invested in
investment partnerships in the form of limited partnership
interests. These investment partnerships represent related parties,
and such investments are subject to a rolling five-year lock up
period under the terms of the respective partnership agreements for
the investment partnerships. The value of these investments
reported in the Company’s consolidated balance sheets as of
December 31, 2022 and 2021 totals $155,794,000 and $250,399,000,
respectively. Our opinion is not modified with respect to this
matter.
Critical Audit Matter
The critical audit matter communicated below is a matter arising
from the current-period audit of the financial statements that was
communicated or required to be communicated to the audit committee
and that (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Property and Equipment — Refer to Notes 1 and 6 to the financial
statements
Critical Audit Matter Description
Company-operated restaurants and associated long-lived assets are
evaluated for impairment on a restaurant-by-restaurant basis when
events or circumstances indicate a possible impairment may have
occurred. The Company’s evaluation of potential impairment of
long-lived assets involves the comparison of undiscounted future
cash flows expected to be generated by the asset group, generally
an individual restaurant, over the expected remaining useful life
of that asset group, to the respective carrying amount. The Company
also applied a market analysis for certain properties. The
Company’s undiscounted future cash flows analysis requires
management to make estimates and assumptions related to future
revenues, labor costs and planned operating periods. To the extent
that the undiscounted cash flows are not sufficient to recover the
related assets, the Company estimates the fair value of the related
assets using a discounted cash flow model to assess the amount of
any impairment.
We identified the impairment of company-operated restaurant
long-lived assets as a critical audit matter because of the
estimates and assumptions required by management to evaluate the
potential impairment of these asset groups. This required a high
degree of auditor judgment and an increased extent of effort when
performing audit procedures to evaluate the reasonableness of
certain assumptions, in management’s undiscounted and discounted
future cash flows analyses, including revenue growth, food costs,
labor costs, and planned operating periods of
restaurants.
How the Critical Audit Matter Was Addressed in the
Audit
Our audit procedures related to the undiscounted and discounted
future cash flows analysis and the assessment of the expected
remaining holding period included the following, among
others:
•We
tested the effectiveness of controls over management’s evaluation
of the recoverability of long-lived assets, including those over
revenue, food costs, labor costs and the planned operating period
for the store.
•We
evaluated the undiscounted future cash flows analysis, including
estimates of revenue growth, labor costs and planned operating
periods of restaurants by (1) evaluating the underlying source
information and assumptions used by management (2) performing
sensitivity analyses and (3) testing the mathematical accuracy of
the undiscounted future cash flows analysis.
•We
evaluated the reasonableness of management’s undiscounted future
cash flows analysis by comparing management’s projections to the
Company’s historical results and available market
data.
•With
the assistance of our fair value specialists, for the properties
where management applied a market analysis, we evaluated the
reasonableness of the valuation methodology and used comparable
current market data to develop a range of independent estimates and
compare our estimates to those used by management.
•We
evaluated the discount rates used by management in the performance
of discounted cash flow analyses by testing management’s
calculation, performing sensitivity analyses, comparing components
to external market information as applicable, and assessed the
mathematical accuracy of the Company’s calculations of potential
impairment.
/s/ DELOITTE & TOUCHE LLP
Austin, Texas
February 25, 2023
We have served as the Company’s auditor since 2003.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the shareholders and the Board of Directors of Biglari Holdings
Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of
Biglari Holdings Inc. and subsidiaries (the “Company”) as of
December 31, 2022, based on criteria established in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). In our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2022, based on criteria
established in
Internal Control — Integrated Framework (2013)
issued by COSO.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States) (PCAOB),
the consolidated financial statements as of and for the year ended
December 31, 2022, of the Company and our report dated February 25,
2023, expressed an unqualified opinion on those financial
statements and included an emphasis of a matter paragraph relating
to the Company’s investment in related party investment
partnerships.
As described in Management’s Report on Internal Control Over
Financial Reporting, management excluded from its assessment the
internal control over financial reporting at Abraxas Petroleum,
which was acquired on September 14, 2022, and whose financial
statements constitute approximately 9.8% of total assets, 3.1% of
revenues, and 2.5% of net earnings of the consolidated financial
statement amounts as of and for the year ended December 31, 2022.
Accordingly, our audit did not include the internal control over
financial reporting at Abraxas Petroleum.
Basis for Opinion
The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express
an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial
Reporting
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Austin, Texas
February 25, 2023
BIGLARI HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2022 |
|
2021 |
|
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
$ |
37,467 |
|
|
$ |
42,349 |
|
|
Investments |
69,466 |
|
|
83,061 |
|
|
Receivables |
29,375 |
|
|
28,508 |
|
|
Inventories |
3,851 |
|
|
3,803 |
|
|
Other current assets |
10,495 |
|
|
7,088 |
|
|
Total current assets |
150,654 |
|
|
164,809 |
|
|
Property and equipment |
400,725 |
|
|
349,351 |
|
|
Operating lease assets |
34,739 |
|
|
42,538 |
|
|
Goodwill |
53,513 |
|
|
53,547 |
|
|
Other intangible assets |
23,037 |
|
|
23,463 |
|
|
Investment partnerships |
155,794 |
|
|
250,399 |
|
|
Other assets |
10,012 |
|
|
10,700 |
|
|
Total assets |
$ |
828,474 |
|
|
$ |
894,807 |
|
|
|
|
|
|
|
Liabilities and shareholders’ equity |
|
|
|
|
Liabilities |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable and accrued expenses |
$ |
78,616 |
|
|
$ |
101,975 |
|
|
Loss and loss adjustment expenses |
16,805 |
|
|
13,101 |
|
|
Unearned premiums |
12,495 |
|
|
11,667 |
|
|
Current portion of lease obligations |
16,981 |
|
|
16,898 |
|
|
Current portion of line of credit |
10,000 |
|
|
— |
|
|
Total current liabilities |
134,897 |
|
|
143,641 |
|
|
Lease obligations |
91,844 |
|
|
104,479 |
|
|
Deferred taxes |
31,343 |
|
|
46,533 |
|
|
Asset retirement obligations |
14,068 |
|
|
10,389 |
|
|
Other liabilities |
754 |
|
|
2,069 |
|
|
Total liabilities |
272,906 |
|
|
307,111 |
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
Common stock |
1,138 |
|
|
1,138 |
|
|
Additional paid-in capital |
381,788 |
|
|
381,788 |
|
|
Retained earnings |
576,510 |
|
|
608,528 |
|
|
Accumulated other comprehensive loss |
(2,790) |
|
|
(1,907) |
|
|
Treasury stock, at cost |
(409,680) |
|
|
(401,851) |
|
|
Biglari Holdings Inc. shareholders’ equity |
546,966 |
|
|
587,696 |
|
|
Noncontrolling interests |
8,602 |
|
|
— |
|
|
Total shareholders’ equity |
555,568 |
|
|
587,696 |
|
|
Total liabilities and shareholders’ equity |
$ |
828,474 |
|
|
$ |
894,807 |
|
See accompanying Notes to Consolidated Financial
Statements.
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
2022 |
|
2021 |
|
2020 |
|
Revenues |
|
|
|
|
|
|
Restaurant operations |
$ |
241,568 |
|
|
$ |
271,290 |
|
|
$ |
350,666 |
|
|
Insurance premiums and other |
64,540 |
|
|
58,609 |
|
|
52,679 |
|
|
Oil and gas |
57,546 |
|
|
33,004 |
|
|
26,255 |
|
|
Licensing and media |
4,577 |
|
|
3,203 |
|
|
4,083 |
|
|
|
368,231 |
|
|
366,106 |
|
|
433,683 |
|
|
Cost and expenses |
|
|
|
|
|
|
Restaurant cost of sales |
140,264 |
|
|
167,491 |
|
|
246,655 |
|
|
Insurance losses and underwriting expenses |
54,648 |
|
|
43,094 |
|
|
39,221 |
|
|
Oil and gas production costs |
17,842 |
|
|
10,470 |
|
|
8,700 |
|
|
Licensing and media costs |
2,695 |
|
|
2,275 |
|
|
2,156 |
|
|
Selling, general and administrative |
70,608 |
|
|
76,018 |
|
|
76,360 |
|
|
Impairments |
3,520 |
|
|
4,635 |
|
|
23,646 |
|
|
Depreciation, depletion, and amortization |
36,443 |
|
|
30,050 |
|
|
32,222 |
|
|
Interest expense on leases |
5,493 |
|
|
6,039 |
|
|
6,274 |
|
|
Interest expense on debt |
399 |
|
|
1,121 |
|
|
9,262 |
|
|
|
331,912 |
|
|
341,193 |
|
|
444,496 |
|
|
Other income (expenses) |
|
|
|
|
|
|
Investment gains (losses) |
(3,393) |
|
|
6,401 |
|
|
3,644 |
|
|
Investment partnership gains (losses) |
(75,953) |
|
|
10,953 |
|
|
(43,032) |
|
|
Total other income (expenses) |
(79,346) |
|
|
17,354 |
|
|
(39,388) |
|
|
Earnings (loss) before income taxes |
(43,027) |
|
|
42,267 |
|
|
(50,201) |
|
|
Income tax expense (benefit) |
(10,722) |
|
|
6,789 |
|
|
(12,212) |
|
|
Net earnings (loss) |
(32,305) |
|
|
35,478 |
|
|
(37,989) |
|
|
Earnings (loss) attributable to noncontrolling interest |
(287) |
|
|
— |
|
|
— |
|
|
Net earnings (loss) attributable to Biglari Holdings Inc.
shareholders |
$ |
(32,018) |
|
|
$ |
35,478 |
|
|
$ |
(37,989) |
|
|
|
|
|
|
|
|
|
Net earnings (loss) per equivalent Class A share
* |
$ |
(107.43) |
|
|
$ |
111.83 |
|
|
$ |
(110.05) |
|
* Net earnings (loss) per equivalent Class B share outstanding are
one-fifth of the equivalent Class A share or ($21.49) for 2022,
$22.37 for 2021, and ($22.01) for 2020.
See accompanying Notes to Consolidated Financial
Statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
2022 |
|
2021 |
|
2020 |
|
Net earnings (loss) |
$ |
(32,305) |
|
|
$ |
35,478 |
|
|
$ |
(37,989) |
|
|
Foreign currency translation |
(883) |
|
|
(376) |
|
|
1,279 |
|
|
Comprehensive income (loss) |
(33,188) |
|
|
35,102 |
|
|
(36,710) |
|
|
Comprehensive income (loss) attributable to noncontrolling
interest |
(287) |
|
|
— |
|
|
— |
|
|
Total comprehensive income (loss) attributable to Biglari Holdings
Inc. shareholders |
$ |
(32,901) |
|
|
$ |
35,102 |
|
|
$ |
(36,710) |
|
See accompanying Notes to Consolidated Financial
Statements.
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
2022 |
|
2021 |
|
2020 |
|
Operating activities |
|
|
|
|
|
|
Net earnings (loss) |
$ |
(32,305) |
|
|
$ |
35,478 |
|
|
$ |
(37,989) |
|
|
Adjustments to reconcile net earnings (loss) to operating cash
flows: |
|
|
|
|
|
|
Depreciation and amortization |
36,443 |
|
|
30,050 |
|
|
32,222 |
|
|
Provision for deferred income taxes |
(15,582) |
|
|
5,269 |
|
|
(12,216) |
|
|
Asset impairments and other non-cash expenses |
3,520 |
|
|
4,772 |
|
|
24,636 |
|
|
Losses on disposal of assets |
(1,578) |
|
|
(25) |
|
|
(868) |
|
|
Investment (gains) losses |
3,393 |
|
|
(6,214) |
|
|
(4,856) |
|
|
Investment partnership (gains) losses |
75,953 |
|
|
(10,953) |
|
|
43,032 |
|
|
Distributions from investment partnerships |
70,700 |
|
|
180,170 |
|
|
98,330 |
|
|
Changes in receivables and inventories |
3,339 |
|
|
(9,324) |
|
|
7,014 |
|
|
Changes in other assets |
8,523 |
|
|
136 |
|
|
733 |
|
|
Changes in accounts payable and accrued expenses |
(24,581) |
|
|
(592) |
|
|
(32,482) |
|
|
Net cash provided by operating activities |
127,825 |
|
|
228,767 |
|
|
117,556 |
|
|
Investing activities |
|
|
|
|
|
|
Capital expenditures |
(29,746) |
|
|
(64,549) |
|
|
(20,702) |
|
|
Proceeds from property and equipment disposals |
5,318 |
|
|
10,101 |
|
|
4,415 |
|
|
Acquisition of business, net of cash acquired |
(58,274) |
|
|
— |
|
|
(36,187) |
|
|
Purchases of limited partner interests |
(48,569) |
|
|
(12,300) |
|
|
(70,130) |
|
|
Purchases of investments |
(134,451) |
|
|
(110,199) |
|
|
(299,950) |
|
|
Sales of investments and redemptions of fixed maturity
securities |
129,117 |
|
|
118,422 |
|
|
293,067 |
|
|
Net cash used in investing activities |
(136,605) |
|
|
(58,525) |
|
|
(129,487) |
|
|
Financing activities |
|
|
|
|
|
|
Payments on line of credit |
(20,000) |
|
|
— |
|
|
(500) |
|
|
Proceeds from line of credit |
30,000 |
|
|
— |
|
|
500 |
|
|
Principal payments on long-term debt |
— |
|
|
(149,952) |
|
|
(23,279) |
|
|
Principal payments on direct financing lease
obligations |
(6,140) |
|
|
(6,205) |
|
|
(5,830) |
|
|
Net cash provided by (used in) financing activities |
3,860 |
|
|
(156,157) |
|
|
(29,109) |
|
|
Effect of exchange rate changes on cash |
38 |
|
|
(64) |
|
|
10 |
|
|
Increase (decrease) in cash, cash equivalents, and restricted
cash |
(4,882) |
|
|
14,021 |
|
|
(41,030) |
|
|
Cash, cash equivalents, and restricted cash at beginning of
period |
43,687 |
|
|
29,666 |
|
|
70,696 |
|
|
Cash, cash equivalents, and restricted cash at end of
period |
$ |
38,805 |
|
|
$ |
43,687 |
|
|
$ |
29,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
2022 |
|
2021 |
|
2020 |
|
Cash and cash equivalents |
$ |
37,467 |
|
|
$ |
42,349 |
|
|
$ |
24,503 |
|
|
Restricted cash included in other long-term assets |
1,338 |
|
|
1,338 |
|
|
5,163 |
|
|
Cash, cash equivalents, and restricted cash at end of
period |
$ |
38,805 |
|
|
$ |
43,687 |
|
|
$ |
29,666 |
|
See accompanying Notes to Consolidated Financial
Statements.
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biglari Holdings Inc. Shareholder’s Equity
|
|
|
|
|
|
Common Stock |
|
Additional Paid-
In Capital |
|
Retained
Earnings |
|
Accumulated
Other
Comprehensive
Income (Loss) |
|
Treasury Stock |
|
Non-controlling interest |
|
Total |
|
Balance at December 31, 2019 |
$ |
1,138 |
|
|
$ |
381,788 |
|
|
$ |
611,039 |
|
|
$ |
(2,810) |
|
|
$ |
(374,857) |
|
|
$ |
— |
|
|
$ |
616,298 |
|
|
Net earnings (loss) |
|
|
|
|
(37,989) |
|
|
|
|
|
|
|
|
(37,989) |
|
|
Other comprehensive income, net |
|
|
|
|
|
|
1,279 |
|
|
|
|
|
|
1,279 |
|
|
Adjustment to treasury stock for holdings in investment
partnerships |
|
|
|
|
|
|
|
|
(14,760) |
|
|
|
|
(14,760) |
|
|
Balance at December 31, 2020 |
$ |
1,138 |
|
|
$ |
381,788 |
|
|
$ |
573,050 |
|
|
$ |
(1,531) |
|
|
$ |
(389,617) |
|
|
$ |
— |
|
|
$ |
564,828 |
|
|
Net earnings |
|
|
|
|
35,478 |
|
|
|
|
|
|
|
|
35,478 |
|
|
Other comprehensive income, net |
|
|
|
|
|
|
(376) |
|
|
|
|
|
|
(376) |
|
|
Adjustment to treasury stock for holdings in investment
partnerships |
|
|
|
|
|
|
|
|
(12,234) |
|
|
|
|
(12,234) |
|
|
Balance at December 31, 2021 |
$ |
1,138 |
|
|
$ |
381,788 |
|
|
$ |
608,528 |
|
|
$ |
(1,907) |
|
|
$ |
(401,851) |
|
|
$ |
— |
|
|
$ |
587,696 |
|
|
Net earnings (loss) |
|
|
|
|
(32,018) |
|
|
|
|
|
|
(287) |
|
|
(32,305) |
|
|
Other comprehensive income, net |
|
|
|
|
|
|
(883) |
|
|
|
|
|
|
(883) |
|
|
Adjustment to treasury stock for holdings in investment
partnerships |
|
|
|
|
|
|
|
|
(7,829) |
|
|
|
|
(7,829) |
|
|
Transactions with noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
8,889 |
|
|
8,889 |
|
|
Balance at December 31, 2022 |
$ |
1,138 |
|
|
$ |
381,788 |
|
|
$ |
576,510 |
|
|
$ |
(2,790) |
|
|
$ |
(409,680) |
|
|
$ |
8,602 |
|
|
$ |
555,568 |
|
See accompanying Notes to Consolidated Financial
Statements.
BIGLARI HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years Ended December 31, 2022, 2021, and 2020)
(dollars in thousands, except share and per-share
data)
Note 1. Summary of Significant Accounting
Policies
Description of Business
Biglari Holdings Inc. is a holding company owning subsidiaries
engaged in a number of diverse business activities, including
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 financial 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 December 31, 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.
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 Property & Casualty Insurance
Company, Southern Oil Company, and Abraxas Petroleum
Corporation. Intercompany accounts and transactions have been
eliminated in consolidation.
Change in Presentation
Loss and loss adjustment expenses of $1,508 were reclassified to
accounts payable and accrued expenses as of December 31, 2021 to
conform to current year presentation.
Cash, Cash Equivalents, and Restricted Cash
Cash equivalents primarily consist of U.S. Government securities
and money market accounts, all of which have original maturities of
three months or less. Cash equivalents are carried at fair value.
The statement of cash flows includes restricted cash with cash and
cash equivalents.
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. As of December 31, 2022 and 2021, all investments
were classified as available-for-sale and carried at fair value
with net unrealized gains or losses reported in the statements of
earnings. Realized gains and losses on disposals of investments are
determined by the specific identification of the cost of
investments sold. 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 Partnerships
The Company holds a limited interest in The Lion Fund, L.P., and
The Lion Fund II, L.P. (collectively the “investment
partnerships”). Biglari Capital Corp. (“Biglari Capital”), an
entity solely owned by Mr. Biglari, is the general partner of the
investment partnerships. Our interests in the investment
partnerships are accounted as equity method investments because of
our retained limited partner interests. The Company records
investment partnership gains (inclusive of the investment
partnerships’ unrealized gains and losses on their securities) as a
component of other income based on our proportional ownership
interest in the partnerships. The investment partnerships are, for
purposes of generally accepted accounting principles (“GAAP”),
investment companies under the AICPA Audit and Accounting
Guide
Investment Companies.
Concentration of Equity Price Risk
The majority of our investments are conducted through investment
partnerships that generally hold common stocks. We also hold
marketable securities directly. We concentrate a high percentage of
the investments in a small number of equity
securities.
Note 1. Summary of Significant Accounting
Policies
(continued)
A significant decline in the general stock market or in the prices
of our major investments may have a materially adverse effect on
our earnings and on consolidated shareholders’ equity.
Receivables
Our accounts receivable balance consists primarily of franchisee,
customer, and other receivables. We carry our accounts receivable
at cost less an allowance for doubtful accounts, which is based on
a history of past write-offs and collections and current credit
conditions. Allowance for doubtful accounts was $1,151 and $505 at
December 31, 2022 and 2021, respectively.
Inventories
Inventories are valued at the lower of cost (first-in, first-out
method) or market, and consist primarily of restaurant food items
and supply inventory.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
recognized on the straight-line method over the estimated useful
lives of the assets (10 to 30 years for buildings and land
improvements, and 3 to 10 years for equipment). Leasehold
improvements are amortized on the straight-line method over the
shorter of the estimated useful lives of the improvements or the
term of the related leases. Interest costs associated with the
construction of new restaurants are capitalized. Major improvements
are also capitalized, while repairs and maintenance are expensed as
incurred. We review our long-lived restaurant assets whenever
events or changes in circumstances indicate that their carrying
amounts may not be recoverable. For purposes of this assessment,
assets are evaluated at the lowest level for which there are
identifiable cash flows, which is generally at the individual
restaurant level. Assets included in the impairment assessment
generally consist of property, equipment, and leasehold
improvements directly associated with an individual restaurant as
well as any related finance or operating lease assets. If the
future undiscounted cash flows of an asset are less than the
recorded value, an impairment is recorded for the difference
between the carrying value and the estimated fair value of the
asset.
Oil and Gas Properties
The successful efforts method is used for crude oil and natural gas
exploration and production activities. All costs for development
wells, related plant and equipment, proved mineral interests in
crude oil and natural gas properties, and related asset retirement
obligation assets are capitalized. Costs of exploratory wells are
capitalized pending determination of whether the wells found proved
reserves. Costs of wells that are assigned proved reserves remain
capitalized. Costs are also capitalized for exploratory wells that
have found crude oil and natural gas reserves, even if the reserves
cannot be classified as proved when the drilling is completed,
provided the exploratory well has found a sufficient quantity of
reserves to justify its completion as a producing well and the
company is making sufficient progress assessing the reserves and
the economic and operating viability of the project. All other
exploratory wells and costs are expensed. We did not have any
property acquisition or exploration activities during 2022, and our
development costs were nominal.
Asset Retirement Obligations
Asset retirement obligations relate to future costs associated with
the plugging and abandonment of oil and gas wells, the removal of
equipment and facilities from leased acreage, and the return of
such land to its original condition. The Company determines
its asset retirement obligation amounts by calculating the present
value of the estimated future cash outflows associated with its
plug and abandonment obligations. The fair value of a
liability for an asset retirement obligation is recorded in the
period in which it is incurred, and the cost of such liability
increases the carrying amount of the related long-lived asset by
the same amount. The liability is accreted each period through
charges to depreciation, depletion, and amortization expense, and
the capitalized cost is depleted on a unit-of-production basis over
the proved developed reserves of the related asset. If an asset
retirement obligation is settled for an amount other than the
recorded amount, a gain or loss is recognized.
Goodwill and Other Intangible Assets
Goodwill and indefinite life intangible assets are not amortized,
but are tested for potential impairment on an annual basis using
either a qualitative or quantitative approach, or more often if
events or circumstances change that could cause goodwill or
indefinite life intangible assets to become impaired. Other
purchased intangible assets are amortized over their estimated
useful lives, generally on a straight-line basis. We perform
reviews for impairment of intangible assets whenever events or
changes in circumstances indicate that the carrying value of an
asset may not be recoverable. An
impairment loss is recognized when estimated
future cash flows expected to result from the use of the asset and
its eventual disposition are less than its carrying value. When an
impairment is identified, we reduce the carrying value of the asset
to its estimated fair value. During 2022 and 2021, no impairments
were recorded to goodwill and other intangible assets. During 2020,
we recorded an impairment to goodwill of $300 and an impairment to
indefinite life intangible assets of $3,728. Refer to Note 8 for
information regarding our goodwill and other intangible
assets.
Note 1. Summary of Significant Accounting
Policies
(continued)
Dual Class Common Stock
The Company has two classes of common stock, designated Class A
common stock and Class B common stock. Each Class A common share is
entitled to one vote. Class B common stock possesses economic
rights equal to one-fifth (1/5th) of such rights of Class A common
stock; however, Class B common stock has no voting
rights.
The following table presents shares authorized, issued, and
outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
December 31, 2021 |
|
December 31, 2020 |
|
Class A |
|
Class B |
|
Class A |
|
Class B |
|
Class A |
|
Class B |
|
Common stock authorized |
500,000 |
|
|
10,000,000 |
|
|
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 |
|
|
206,864 |
|
|
2,068,640 |
|
Earnings Per Share
Earnings per share of common stock is based on the weighted-average
number of shares outstanding during the year. The shares of Company
stock attributable to our limited partner interest in the
investment partnerships — based on our proportional ownership
during this period — are considered treasury stock on the
consolidated balance sheet and thereby deemed not to be included in
the calculation of weighted-average common shares
outstanding. However, these shares are legally
outstanding.
The 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 equivalent Class A common stock for earnings per share.
There are no dilutive securities outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
2020 |
|
Equivalent Class A common stock outstanding |
620,592 |
|
|
620,592 |
|
|
620,592 |
|
|
Proportional ownership of Company stock held by investment
partnerships |
322,561 |
|
|
303,341 |
|
|
275,400 |
|
|
Equivalent Class A common stock for earnings per share |
298,031 |
|
|
317,251 |
|
|
345,192 |
|
Revenue Recognition
Restaurant operations
Restaurant operations revenues were disaggregated as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
2020 |
|
Net sales |
$ |
149,184 |
|
|
$ |
187,913 |
|
|
$ |
306,577 |
|
|
Franchise partner fees |
63,853 |
|
|
55,641 |
|
|
22,213 |
|
|
Franchise royalties and fees |
19,678 |
|
|
21,736 |
|
|
18,794 |
|
|
Other |
8,853 |
|
|
6,000 |
|
|
3,082 |
|
|
|
$ |
241,568 |
|
|
$ |
271,290 |
|
|
$ |
350,666 |
|
Note 1. Summary of Significant Accounting
Policies
(continued)
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.
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 the majority 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 years ended 2022, 2021, and 2020, restaurant operations
recognized $20,426, $15,483, and $5,675, 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.
During the years ended December 31, 2022, 2021, and 2020,
restaurant operations recognized $1,810, $2,033, and $1,879,
respectively, in revenue related to initial franchise fees. As of
December 31, 2022 and 2021, restaurant operations had deferred
revenue recorded in accrued expenses related to franchise fees of
$3,484 and $5,199, respectively. Restaurant operations expect to
recognize approximately $703 of deferred revenue during
2023.
Our advertising arrangements with franchisees are reported in
franchise royalties and fees. During the years ended
December 31, 2022, 2021, and 2020, restaurant operations
recognized $6,386, $6,829, and $5,193, respectively, in revenue
related to franchisee advertising fees. As of December 31,
2022 and 2021, restaurant operations had deferred revenue recorded
in accrued expenses related to franchisee advertising fees of
$2,748 and $4,151, respectively. Restaurant operations expect to
recognize approximately $2,061 of deferred revenue during
2023.
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.
For the years ended December 31, 2022, 2021, and 2020,
restaurant operations recognized $5,395, $5,903, and $9,201,
respectively, of revenue from gift card redemptions. As of
December 31, 2022 and 2021, restaurant operations had deferred
revenue recorded in accrued expenses related to unredeemed gift
cards of $9,279 and $15,059, respectively. Restaurant operations
expect to recognize approximately $5,975 of deferred revenue during
2023.
Insurance Premiums and Commissions
Insurance premiums are earned over the terms of the related
policies. Expenses incurred in connection with acquiring new
insurance business, including acquisition costs, are charged to
operations as incurred. Premiums earned are stated net of amounts
ceded to reinsurer.
Oil and Gas
Revenues are derived from the sale of produced oil and natural
gas. Revenue is recognized when the performance obligation is
satisfied, which typically occurs at the point in time when control
of the product transfers to the customer. Payment is due within 30
days of delivery.
Note 1. Summary of Significant Accounting
Policies
(continued)
Licensing Revenue and Other
Licensing revenue is recognized when earned. We derive value and
revenues from intellectual property assets through a range of
licensing and business activities, including licensing and
syndication of our trademarks and copyrights in the United States
and internationally. Magazine subscription and advertising revenues
are recognized at the magazine cover date. The unearned portion of
magazine subscriptions is deferred until the magazine’s cover date,
at which time a proportionate share of the gross subscription price
is recognized as revenue.
Restaurant Cost of Sales
Cost of sales includes the cost of food, restaurant operating
costs, and restaurant occupancy costs. Cost of sales excludes
depreciation and amortization, which is presented as a separate
line item on the consolidated statement of earnings.
Insurance Losses and Underwriting Expenses
Liabilities for estimated unpaid losses and loss adjustment
expenses with respect to claims occurring on or before the balance
sheet date are established under insurance contracts issued by our
insurance subsidiaries. Such estimates include provisions for
reported claims or case estimates, provisions for incurred but not
reported claims, and legal and administrative costs to settle
claims. The estimates of unpaid losses and amounts recoverable
under reinsurance are established and continually reviewed by using
a variety of actuarial, statistical, and analytical techniques.
Reinsurance contracts do not relieve the ceding company of its
obligations to indemnify policyholders with respect to the
underlying insurance contracts.
Oil and Gas Production Costs
Oil and gas production costs are costs incurred to operate and
maintain wells and related equipment and facilities, including
lease operating expenses and production taxes.
Marketing Expense
Advertising costs are charged to expense at the later of the date
the expenditure is incurred or the date the promotional item is
first communicated. Marketing expense is included in selling,
general and administrative expenses in the consolidated statement
of earnings.
Savings Plans
Several of our subsidiaries also sponsor defined contribution
retirement plans, such as 401(k) or profit-sharing plans. Employee
contributions to the plans are subject to regulatory limitations
and the specific plan provisions. Some of the plans allow for
discretionary contributions as determined by management. Employer
contributions expensed with respect to these plans were not
material.
Foreign Currency Translation
The Company has certain subsidiaries located in foreign
jurisdictions. For subsidiaries whose functional currency is
other than the U.S. dollar, the translation of functional currency
statements to U.S. dollar statements uses end-of-period exchange
rates for assets and liabilities, weighted-average exchange rates
for revenue and expenses, and historical rates for equity. The
resulting currency translation adjustment is recorded in
accumulated other comprehensive income, as a component of
equity.
Use of Estimates
Preparation of the consolidated financial statements in accordance
with GAAP requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from
the estimates.
Note 2. Business
Acquisitions
On September 14, 2022, the Company purchased the Series A Preferred
Stock (the “Preferred Shares”) of Abraxas Petroleum for a purchase
price of $80,000. On October 26, 2022, the Company exchanged the
Preferred Shares for 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 year.
The purchase price allocation is provisional and subject to
revision as the related valuations are completed.
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September 14, 2022 |
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Cash and cash equivalents |
$ |
21,726 |
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Receivables and other assets |
6,518 |
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Property and equipment |
75,400 |
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Total identifiable assets acquired |
103,644 |
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|
|
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Accounts payable and accrued expenses |
(10,719) |
|
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Asset retirement obligations |
(3,587) |
|
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Deferred taxes |
(449) |
|
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Total liabilities assumed |
(14,755) |
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|
|
|
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Minority interest |
(8,889) |
|
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Total consideration |
$ |
80,000 |
|
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
and commercial property coverage, homeowners and dwelling fire
insurance coverage, among other lines. The financial results for
Southern Pioneer are included from the date of acquisition.
Pro-forma financial information of Southern Pioneer is not
material.
Note 3. Investments
Investments were $69,466 and $83,061 as of December 31, 2022
and 2021, 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 losses in 2022 were $3,393. Investment gains in 2021
were $6,401, which includes 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 were $3,644 in 2020.
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 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.
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Fair Value |
|
Company Common Stock |
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Carrying
Value |
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Partnership interest at December 31, 2019 |
$ |
666,123 |
|
|
$ |
160,581 |
|
|
$ |
505,542 |
|
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Investment partnership gains (losses) |
(46,997) |
|
|
(3,965) |
|
|
(43,032) |
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Distributions (net of contributions) |
(28,200) |
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|
(28,200) |
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Increase in proportionate share of Company stock held |
|
|
14,760 |
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|
(14,760) |
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Partnership interest at December 31, 2020 |
$ |
590,926 |
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|
$ |
171,376 |
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|
$ |
419,550 |
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Investment partnership gains (losses) |
51,145 |
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|
40,192 |
|
|
10,953 |
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Distributions (net of contributions) |
(167,870) |
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|
(167,870) |
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Increase in proportionate share of Company stock held |
|
|
12,234 |
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|
(12,234) |
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Partnership interest at December 31, 2021 |
$ |
474,201 |
|
|
$ |
223,802 |
|
|
$ |
250,399 |
|
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Investment partnership gains (losses) |
(80,374) |
|
|
(4,421) |
|
|
(75,953) |
|
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Distributions (net of contributions) |
(10,823) |
|
|
|
|
(10,823) |
|
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Increase in proportionate share of Company stock held |
|
|
7,829 |
|
|
(7,829) |
|
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Partnership interest at December 31, 2022 |
$ |
383,004 |
|
|
$ |
227,210 |
|
|
$ |
155,794 |
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The carrying value of the investment partnerships net of deferred
taxes is presented below.