Company Quick10K Filing
Biglari
Price1.00 EPS-74,223,000
Shares-0 P/E-0
MCap-0 P/FCF-0
Net Debt154 EBIT91
TEV154 TEV/EBIT2
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-10
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-02-24
10-Q 2019-09-30 Filed 2019-11-01
10-Q 2019-06-30 Filed 2019-08-02
10-Q 2019-03-31 Filed 2019-05-03
10-K 2018-12-31 Filed 2019-02-25
10-Q 2018-09-30 Filed 2018-11-02
10-Q 2018-06-30 Filed 2018-08-03
10-Q 2018-03-31 Filed 2018-05-04
8-K 2020-08-07 Earnings, Exhibits
8-K 2020-06-25 Shareholder Vote, Other Events
8-K 2020-05-08
8-K 2020-02-22
8-K 2019-11-01
8-K 2019-10-31
8-K 2019-09-09
8-K 2019-08-02
8-K 2019-05-03
8-K 2019-04-25
8-K 2019-02-23
8-K 2018-11-02
8-K 2018-08-03
8-K 2018-05-04

BH 10Q Quarterly Report

Part 1 - Financial Information
Item 1. Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. New Accounting Standards
Note 3. Earnings per Share
Note 4. Investments
Note 5. Investment Partnerships
Note 6. Property and Equipment
Note 7. Goodwill and Other Intangible Assets
Note 8. Restaurant Operations Revenues
Note 9. Accounts Payable and Accrued Expenses
Note 10. Notes Payable and Other Borrowings
Note 11. Leased Assets and Lease Commitments
Note 12. Accumulated Other Comprehensive Income
Note 13. Income Taxes
Note 14. Commitments and Contingencies
Note 15. Fair Value of Financial Assets
Note 16. Related Party Transactions
Note 17. Business Segment Reporting
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.01 bh_ex311.htm
EX-31.02 bh_ex312.htm
EX-32.01 bh_ex321.htm

Biglari Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
1.21.00.70.50.20.02016201720182020
Assets, Equity
0.30.20.10.1-0.0-0.12016201720182020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12016201720182020
Ops, Inv, Fin

bh_10q.htm

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2020

 

or

 

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)

   

Indiana

 

82-3784946

(State or other jurisdiction of incorporation)

 

(I.R.S. Employer Identification No.)

 

17802 IH 10 West, Suite 400

San Antonio, Texas

 

 

78257

(Address of principal executive offices)

 

(Zip Code)

 

(210) 344-3400

Registrant’s telephone number, including area code

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbols

 

Name of each exchange on which registered

 Class A, Common Stock, no par value

Class B, Common Stock, no par value

 

BH.A

BH

 

New York Stock Exchange

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No o

 

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 ☒     No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and an “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No ☒

 

Number of shares of common stock outstanding as of August 5, 2020:

Class A common stock -

 

206,864

Class B common stock -

 

2,068,640

  

 

 

 

 

BIGLARI HOLDINGS INC.

INDEX

 

 

 

 

Page No.

Part I - Financial Information

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets - June 30, 2020 and December 31, 2019

 

1

 

 

 

 

 

 

 

Consolidated Statements of Earnings - Second Quarter and First Six Months 2020 and 2019

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income - Second Quarter and First Six Months 2020 and 2019

 

2

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows - First Six Months 2020 and 2019

 

3

 

 

 

 

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity - First Six Months 2020 and 2019

 

4

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

5

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

17

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

25

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

25

 

 

 

 

 

 

Part II - Other Information

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

26

 

 

 

 

 

 

Item 1A.

Risk Factors

 

26

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

26

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

26

 

 

 

 

 

 

Item 5.

Other Information

 

26

 

 

 

 

 

 

Item 6.

Exhibits

 

27

 

 

 

 

 

 

Signatures

 

28

 

   

 

Table of Contents

 

PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

BIGLARI HOLDINGS INC. 

 

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

 

 

 

June 30,
2020

 

 

December 31,
2019

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$36,438

 

 

$67,772

 

Investments

 

 

84,785

 

 

 

44,856

 

Receivables

 

 

18,066

 

 

 

21,640

 

Inventories

 

 

3,019

 

 

 

4,674

 

Other current assets

 

 

7,213

 

 

 

6,449

 

Total current assets

 

 

149,521

 

 

 

145,391

 

Property and equipment

 

 

328,758

 

 

 

350,627

 

Operating lease assets

 

 

53,403

 

 

 

59,719

 

Goodwill and other intangible assets

 

 

75,307

 

 

 

67,389

 

Investment partnerships

 

 

369,129

 

 

 

505,542

 

Other assets

 

 

12,700

 

 

 

10,641

 

Total assets

 

$988,818

 

 

$1,139,309

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$129,460

 

 

$121,079

 

Current portion of operating lease liabilities

 

 

12,050

 

 

 

11,635

 

Current portion of notes payable and other borrowings

 

 

160,083

 

 

 

7,103

 

Total current liabilities

 

 

301,593

 

 

 

139,817

 

Long-term notes payable and other borrowings

 

 

77,927

 

 

 

263,182

 

Operating lease liabilities

 

 

46,493

 

 

 

53,271

 

Deferred taxes

 

 

28,798

 

 

 

54,230

 

Asset retirement obligations

 

 

9,772

 

 

 

10,447

 

Other liabilities

 

 

1,685

 

 

 

2,064

 

Total liabilities

 

 

466,268

 

 

 

523,011

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

 

Common stock

 

 

1,138

 

 

 

1,138

 

Additional paid-in capital

 

 

381,788

 

 

 

381,788

 

Retained earnings

 

 

515,620

 

 

 

611,039

 

Accumulated other comprehensive loss

 

 

(2,320)

 

 

(2,810)

Treasury stock, at cost

 

 

(373,676)

 

 

(374,857)

Biglari Holdings Inc. shareholders’ equity

 

 

522,550

 

 

 

616,298

 

Total liabilities and shareholders’ equity

 

$988,818

 

 

$1,139,309

 

 

See accompanying Notes to Consolidated Financial Statements.

 

 
1

Table of Contents

 

BIGLARI HOLDINGS INC.

 

CONSOLIDATED STATEMENTS OF EARNINGS

(dollars in thousands except per share amounts)

  

 

 

 Second Quarter

 

 

 First Six Months

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant operations

 

$78,764

 

 

$160,061

 

 

$192,908

 

 

$333,836

 

Insurance premiums and other

 

 

14,605

 

 

 

7,417

 

 

 

24,279

 

 

 

14,624

 

Oil and gas

 

 

2,151

 

 

 

-

 

 

 

13,525

 

 

 

-

 

Media and licensing

 

 

982

 

 

 

865

 

 

 

1,490

 

 

 

1,742

 

 

 

 

96,502

 

 

 

168,343

 

 

 

232,202

 

 

 

350,202

 

Cost and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant cost of sales

 

 

50,759

 

 

 

131,750

 

 

 

140,675

 

 

 

284,199

 

Insurance losses and underwriting expenses

 

 

11,264

 

 

 

5,498

 

 

 

17,576

 

 

 

11,158

 

Oil and gas production costs

 

 

1,323

 

 

 

-

 

 

 

4,399

 

 

 

-

 

Media and licensing costs

 

 

437

 

 

 

641

 

 

 

943

 

 

 

1,589

 

Selling, general and administrative

 

 

19,212

 

 

 

25,985

 

 

 

40,785

 

 

 

58,941

 

Impairments

 

 

7,819

 

 

 

438

 

 

 

18,119

 

 

 

2,338

 

Depreciation and amortization

 

 

6,947

 

 

 

5,206

 

 

 

17,009

 

 

 

10,677

 

Interest expense

 

 

3,635

 

 

 

5,153

 

 

 

7,909

 

 

 

10,220

 

 

 

 

101,396

 

 

 

174,671

 

 

 

247,415

 

 

 

379,122

 

Other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on debt extinguishment

 

 

1,367

 

 

 

-

 

 

 

5,713

 

 

 

-

 

Investment gains

 

 

1,509

 

 

 

-

 

 

 

1,509

 

 

 

-

 

Investment partnership gains (losses)

 

 

59,248

 

 

 

34,198

 

 

 

(116,494)

 

 

68,352

 

 

 

 

62,124

 

 

 

34,198

 

 

 

(109,272)

 

 

68,352

 

Earnings (loss) before income taxes

 

 

57,230

 

 

 

27,870

 

 

 

(124,485)

 

 

39,432

 

Income tax expense (benefit)

 

 

14,764

 

 

 

5,896

 

 

 

(29,066)

 

 

7,640

 

Net earnings (loss)

 

$42,466

 

 

$21,974

 

 

$(95,419)

 

$31,792

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss) per equivalent Class A share *

 

$121.51

 

 

$63.50

 

 

$(275.04)

 

$91.85

 

 

*Net earnings (loss) per equivalent Class B share outstanding are one-fifth of the equivalent Class A share or $24.30 and $(55.01) for the second quarter and first six months of 2020, respectively, and $12.70 and $18.37 for the second quarter and first six months of 2019, respectively.

  

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands)

 

 

 

Second Quarter

 

 

First Six Months

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$42,466

 

 

$21,974

 

 

$(95,419)

 

$31,792

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

802

 

 

 

196

 

 

 

490

 

 

 

(108)

Other comprehensive income (loss), net

 

 

802

 

 

 

196

 

 

 

490

 

 

 

(108)

Total comprehensive income (loss)

 

$43,268

 

 

$22,170

 

 

$(94,929)

 

$31,684

 

 

See accompanying Notes to Consolidated Financial Statements.

 

 
2

Table of Contents

 

BIGLARI HOLDINGS INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

 

 

 

 First Six Months

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

Operating activities

 

 

 

 

 

 

Net earnings (loss)

 

$(95,419)

 

$31,792

 

Adjustments to reconcile net earnings (loss) to operating cash flows:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

17,009

 

 

 

10,677

 

Provision for deferred income taxes

 

 

(25,062)

 

 

(12,184)

Asset impairments and other non-cash expenses

 

 

18,607

 

 

 

3,442

 

Gains on disposal of assets

 

 

(1,066)

 

 

(663)

Gain on debt extinguishment

 

 

(5,713)

 

 

-

 

Investment (gains) losses

 

 

(1,509)

 

 

-

 

Investment partnership (gains) losses

 

 

116,494

 

 

 

(68,352)

Distributions from investment partnerships

 

 

83,830

 

 

 

2,490

 

Changes in receivables and inventories

 

 

7,860

 

 

 

9,272

 

Changes in other assets

 

 

745

 

 

35

 

Changes in accounts payable and accrued expenses

 

 

(17,091

)

 

 

15,196

 

Net cash provided by (used in) operating activities

 

 

98,685

 

 

 

(8,295)

Investing activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(10,040)

 

 

(6,238)

Proceeds from property and equipment disposals

 

 

1,824

 

 

 

390

 

Acquisition of business, net of cash acquired

 

 

(34,240)

 

 

-

 

Distributions from investment partnerships

 

 

-

 

 

 

40,000

 

Purchases of limited partner interests

 

 

(62,730)

 

 

(40,000)

Purchases of investments

 

 

(180,819)

 

 

(56,321)

Redemptions of fixed maturity securities

 

 

182,645

 

 

 

53,550

 

Net cash used in investing activities

 

 

(103,360)

 

 

(8,619)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from revolving credit facility

 

 

440

 

 

 

-

 

Principal payments on long-term debt

 

 

(22,179)

 

 

(1,100)

Principal payments on direct financing lease obligations

 

 

(2,417)

 

 

(2,884)

Net cash used in financing activities

 

 

(24,156)

 

 

(3,984)

Effect of exchange rate changes on cash

 

 

(3

 

 

3

 

Decrease in cash, cash equivalents and restricted cash

 

 

(28,834)

 

 

(20,895)

Cash, cash equivalents and restricted cash at beginning of year

 

 

70,696

 

 

 

55,010

 

Cash, cash equivalents and restricted cash at end of second quarter

 

$41,862

 

 

$34,115

 

 

See accompanying Notes to Consolidated Financial Statements.

 

 
3

Table of Contents

 

BIGLARI HOLDINGS INC.

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(dollars in thousands)

 

 

 

Common Stock

 

 

Additional Paid-In Capital

 

 

Retained Earnings

 

 

Accumulated
Other Comprehensive Income (Loss)

 

 

Treasury Stock

 

 

Total

 

Balance at December 31, 2019

 

$1,138

 

 

$381,788

 

 

$611,039

 

 

$(2,810)

 

$(374,857)

 

$616,298

 

Net earnings (loss)

 

 

 

 

 

 

 

 

 

 

(137,885)

 

 

 

 

 

 

 

 

 

 

(137,885)

Other comprehensive income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(312)

 

 

 

 

 

 

(312)

Adjustment to treasury stock for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

holdings in investment partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,089

 

 

 

1,089

 

Balance at March 31, 2020

 

$1,138

 

 

$381,788

 

 

$473,154

 

 

$(3,122)

 

$(373,768)

 

$479,190

 

Net earnings

 

 

 

 

 

 

 

 

 

 

42,466

 

 

 

 

 

 

 

 

 

 

 

42,466

 

Other comprehensive income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

802

 

 

 

 

 

 

 

802

 

Adjustment to treasury stock for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

holdings in investment partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

92

 

 

 

92

 

Balance at June 30, 2020

 

$1,138

 

 

$381,788

 

 

$515,620

 

 

$(2,320)

 

$(373,676)

 

$522,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional Paid-In Capital

 

 

Retained Earnings

 

 

Accumulated
Other
Comprehensive Income (Loss)

 

 

Treasury Stock

 

 

Total

 

Balance at December 31, 2018

 

$1,138

 

 

$381,904

 

 

$564,160

 

 

$(2,516)

 

$(374,231)

 

$570,455

 

Net earnings

 

 

 

 

 

 

 

 

 

 

9,818

 

 

 

 

 

 

 

 

 

 

 

9,818

 

Adoption of accounting standards

 

 

 

 

 

 

 

 

 

 

1,499

 

 

 

 

 

 

 

 

 

 

 

1,499

 

Other comprehensive income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(304)

 

 

 

 

 

 

(304)

Adjustment to treasury stock for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

holdings in investment partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(114)

 

 

(114)

Balance at March 31, 2019

 

$1,138

 

 

$381,904

 

 

$575,477

 

 

$(2,820)

 

$(374,345)

 

$581,354

 

Net earnings

 

 

 

 

 

 

 

 

 

 

21,974

 

 

 

 

 

 

 

 

 

 

 

21,974

 

Other comprehensive income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

196

 

 

 

 

 

 

 

196

 

Adjustment to treasury stock for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

holdings in investment partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,162)

 

 

(1,162)

Balance at June 30, 2019

 

$1,138

 

 

$381,904

 

 

$597,451

 

 

$(2,624)

 

$(375,507)

 

$602,362

 

 

See accompanying Notes to Consolidated Financial Statements.

 

 
4

Table of Contents

 

BIGLARI HOLDINGS INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(dollars in thousands, except share and per share data)

 

Note 1. Summary of Significant Accounting Policies

 

Description of Business

The accompanying unaudited consolidated financial statements of Biglari Holdings Inc. (“Biglari Holdings” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) applicable to interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In our opinion, all adjustments considered necessary to present fairly the results of the interim periods have been included and consist only of normal recurring adjustments. The results for the interim periods shown are not necessarily indicative of results for the entire fiscal year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2019.

 

Biglari Holdings is a holding company owning subsidiaries engaged in a number of diverse business activities, including property and casualty insurance, media and licensing, restaurants, and oil and gas. The Company’s largest operating subsidiaries are involved in the franchising and operating of restaurants. Biglari Holdings is founded and led by Sardar Biglari, Chairman and Chief Executive Officer of the Company. The Company’s long-term objective is to maximize per-share intrinsic value. All major investment and capital allocation decisions are made for the Company and its subsidiaries by Mr. Biglari.

 

As of June 30, 2020, Mr. Biglari’s beneficial ownership was approximately 64.4% of the Company’s outstanding Class A common stock and 55.4% of the Company’s outstanding Class B common stock.

 

The novel coronavirus (“COVID-19”) was declared a pandemic by the World Health Organization, which caused governments to contain its spread, thereby significantly affecting our operating businesses beginning in March and has adversely affected nearly all of our operations in the second quarter. The risks and uncertainties resulting from the pandemic may continue to affect our future earnings, cash flows and financial condition.

 

Business Acquisition

On March 9, 2020, Biglari Holdings acquired the stock of Southern Pioneer Property & Casualty Insurance Company, and its agency, Southern Pioneer Insurance Agency, Inc. (collectively “Southern Pioneer”). Southern Pioneer underwrites specialty insurance products including garage liability insurance, commercial property coverage, as well as homeowners and dwelling fire insurance coverages. The financial results for Southern Pioneer from the acquisition date to the end of the second quarter are included in the Company’s consolidated financial statements. The acquisition date fair values of assets and liabilities of Southern Pioneer are provisional and subject to revision as the related valuations are completed. Pro-forma financial information of Southern Pioneer is not material.

 

On September 9, 2019, a wholly-owned subsidiary of the Company, Southern Oil Company, acquired the stock of Southern Oil of Louisiana Inc. (collectively “Southern Oil”). Southern Oil primarily operates oil and natural gas properties offshore in the shallow waters of the Gulf of Mexico. Pro-forma financial information of Southern Oil is not material.

 

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries including Steak n Shake Inc. (“Steak n Shake”), Western Sizzlin Corporation (“Western Sizzlin”), Maxim Inc. (“Maxim”), Southern Oil, First Guard Insurance Company (“First Guard”), and Southern Pioneer. Intercompany accounts and transactions have been eliminated in consolidation.

     

Change in Presentation

Interest expense on finance leases and obligations has been combined with interest expense in the current period and has been reclassified as a component of cost and expenses in the consolidated statement of earnings. Prior period balances have been adjusted to conform to the change in presentation.

 

 
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Note 2. New Accounting Standards

 

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP; however, ASU 2016-13 requires that credit losses be presented as an allowance rather than as a write-down. The amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2019.The Company adopted ASU 2016-13 effective January 1, 2020.The impact of this standard is not material to the Company’s financial statements and related disclosures.

 

Note 3. Earnings Per Share

 

Earnings per share of common stock is based on the weighted average number of shares outstanding during the year. The shares of Company stock attributable to our limited partner interest in The Lion Fund, L.P. and The Lion Fund II, L.P. (collectively, the “investment partnerships”) - based on our proportional ownership during this period - are considered treasury stock on the consolidated balance sheet and thereby deemed not to be included in the calculation of weighted average common shares outstanding. However, these shares are legally outstanding.

 

The following table presents shares authorized, issued and outstanding on June 30, 2020 and December 31, 2019. 

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

Class A

 

 

Class B

 

 

Class A

 

 

Class B

 

Common stock authorized

 

 

500,000

 

 

 

10,000,000

 

 

 

500,000

 

 

 

10,000,000

 

Common stock issued and outstanding

 

 

206,864

 

 

 

2,068,640

 

 

 

206,864

 

 

 

2,068,640

 

 

The Company has applied the “two-class method” of computing earnings per share as prescribed in ASC 260, “Earnings Per Share.”

 

On an equivalent Class A common stock basis, there were 620,592 shares outstanding as of June 30, 2020 and December 31, 2019. There are no dilutive securities outstanding.

 

For financial reporting purposes, the proportional ownership of the Company’s common stock owned by the investment partnerships is excluded in the earnings per share calculation. After giving effect for the investment partnerships’ proportional ownership of common stock, the equivalent Class A weighted average number of common shares during the second quarters of 2020 and 2019 were 349,478 and 346,034, respectively. The equivalent Class A weighted average number of common shares during the first six months of 2020 and 2019 were 346,934 and 346,129, respectively.

 

Note 4. Investments

  

Available for sale investments were $80,322 and $40,393 as of June 30, 2020 and December 31, 2019, respectively.Investments in equity securities and a related derivative position of $4,463 are also included in investments. The investments are recorded at fair value. The fair value of investments acquired with Southern Pioneer was $36,876. The Company recorded $1,509 in investment gains during the second quarter of 2020.The Company did not have investment gains/losses during the first quarter of 2020 and during the first six months of 2019. Interest and dividends earned on investments are reported as other income by our insurance companies. We consider investment income as a component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized, as non-operating.

 

Note 5. Investment Partnerships

 

The Company reports on the limited partnership interests in investment partnerships under the equity method of accounting. We record our proportional share of equity in the investment partnerships but exclude Company common stock held by said partnerships. The Company’s pro-rata share of its common stock held by the investment partnerships is recorded as treasury stock even though they are legally outstanding. The Company records gains/losses from investment partnerships (inclusive of the investment partnerships’ unrealized gains and losses on their securities) in the consolidated statements of earnings based on our carrying value of these partnerships. The fair value is calculated net of the general partner’s accrued incentive fees. Gains and losses on Company common stock included in the earnings of these partnerships are eliminated because they are recorded as treasury stock. Biglari Capital Corp. (“Biglari Capital”) is the general partner of the investment partnerships and is an entity solely owned by Mr. Biglari.

 

 
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Note 5. 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 is presented below.

 

 

 

Fair Value

 

 

Company

Common Stock

 

 

Carrying Value

 

Partnership interest at December 31, 2019

 

$

666,123

 

 

$

160,581

 

 

$

505,542

 

Investment partnership gains (losses)

 

 

(183,096

)

 

 

(66,602

)

 

 

(116,494

)

Distributions (net of contributions) to investment partnerhips

 

 

(21,100

)

 

 

 -

 

 

 

(21,100

)

Increase in proportionate share of Company stock held

 

 

 -

 

 

 

(1,181

)

 

 

1,181

 

Partnership interest at June 30, 2020

 

$

461,927

 

 

$

92,798

 

 

$

369,129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value

 

 

Company

Common Stock

 

 

Carrying Value

 

Partnership interest at December 31, 2018

 

$

715,102

 

 

$

157,622

 

 

$

557,480

 

Investment partnership gains

 

 

54,374

 

 

 

(13,978

)

 

 

68,352

 

Distributions (net of contributions) to investment partnerships

 

 

(2,490

)

 

 

 -

 

 

 

(2,490

)

Increase in proportionate share of Company stock held

 

 

 -

 

 

 

1,276

 

 

 

(1,276

)

Partnership interest at June 30, 2019

 

$

766,986

 

 

$

144,920

 

 

$

622,066

 

 

The carrying value of the investment partnerships net of deferred taxes is presented below.

 

 

 

June 30, 2020

 

 

December 31, 2019

 

Carrying value of investment partnerships

 

$369,129

 

 

$505,542

 

Deferred tax liability related to investment partnerships

 

 

(33,182)

 

 

(56,518)

Carrying value of investment partnerships net of deferred taxes

 

$335,947

 

 

$449,024

 

 

The Company’s proportionate share of Company stock held by investment partnerships at cost is $373,676 and $374,857 at June 30, 2020 and December 31, 2019, respectively, and is recorded as treasury stock.

 

The carrying value of the partnership interest approximates fair value adjusted by the value of held Company stock.Fair value is according to our proportional ownership interest of the fair value of investments held by the investment partnerships. The fair value measurement is classified as level 3 within the fair value hierarchy.

 

Gains/losses from investment partnerships recorded in the Company’s consolidated statements of earnings are presented below.

 

 

 

 Second Quarter

 

 

 First Six Months

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Gains (losses) on investment partnership

 

$

59,248

 

 

$

34,198

 

 

$

(116,494

)

 

$

68,352

 

Tax expense (benefit)

 

 

13,883

 

 

 

7,944

 

 

 

(27,500

)

 

 

15,861

 

Net earnings (loss)

 

$

45,365

 

 

$

26,254

 

 

$

(88,994

)

 

$

52,491

 

 

On December 31 of each year, the general partner of the investment partnerships, Biglari Capital, will earn an incentive reallocation fee for the Company’s investments equal to 25% of the net profits above an annual hurdle rate of 6% over the previous high-water mark. Our policy is to accrue an estimated incentive fee throughout the year. The total incentive reallocation from Biglari Holdings to Biglari Capital includes gains on the Company’s common stock. Gains and losses on the Company’s common stock and the related incentive reallocations are eliminated in our financial statements. Our investments in these partnerships are committed on a rolling 5-year basis.

 

There were no incentive reallocations from Biglari Holdings to Biglari Capital during the first six months of 2020 and 2019.

 
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Note 5. Investment Partnerships (continued)

 

Summarized financial information for The Lion Fund, L.P. and The Lion Fund II, L.P. is presented below.

 

 

 

Equity in Investment Partnerships

 

 

 

Lion Fund

 

 

Lion Fund II

 

Total assets as of June 30, 2020

 

$

82,884

 

 

$

464,710

 

Total liabilities as of June 30, 2020

 

$

391

 

 

$

26,343

 

Revenue for the first six months of 2020

 

$

(34,461

)

 

$

(172,022

)

Earnings for the first six months of 2020

 

$

(34,495

)

 

$

(173,174

)

Biglari Holdings’ ownership interest as of June 30, 2020

 

 

66.1

%

 

 

92.9

%

 

 

 

 

 

 

 

 

 

Total assets as of December 31, 2019

 

$

117,135

 

 

$

758,663

 

Total liabilities as of December 31, 2019

 

$

158

 

 

$

114,639

 

Revenue for the first six months of 2019

 

$

121

 

 

$

62,499

 

Earnings for the first six months of 2019

 

$

88

 

 

$

58,068

 

Biglari Holdings’ ownership interest as of June 30, 2019

 

 

66.1

%

 

 

93.4

%

 

Revenue in the above summarized financial information of the investment partnerships includes investment income and unrealized gains and losses on investments.

 

Note 6. Property and Equipment

   

Property and equipment is composed of the following.

 

 

June 30, 2020

 

 

December 31, 2019

 

Land

 

$

147,186

 

 

$

150,147

 

Buildings

 

 

139,046

 

 

 

144,243

 

Land and leasehold improvements

 

 

144,267

 

 

 

157,141

 

Equipment

 

 

193,468

 

 

 

196,264

 

Oil and gas properties

 

 

78,586

 

 

 

77,475

 

Construction in progress

 

 

2,730

 

 

 

3,789

 

 

 

 

705,283

 

 

 

729,059

 

Less accumulated depreciation and amortization

 

 

(376,525

)

 

 

(378,432

)

Property and equipment, net

 

$

328,758

 

 

$

350,627

 

 

Depletion expense related to oil and gas properties was $6,578 during the first six months of 2020 and is included in depreciation and amortization within the consolidated statement of earnings.

 

The COVID-19 pandemic had an adverse effect on our restaurant operations, thereby resulting in the evaluation of company-operated restaurants for recoverability. Consequently, the Company recorded impairment charges of $14,419 for the first six months of 2020 mainly because of the decision to permanently close some Steak n Shake restaurants as well as to close the dining rooms of all company-operated restaurants. The Company recorded an impairment to long-lived assets of $2,338 in the first six months of 2019 primarily related to Steak n Shake closed stores. The fair value of the long-lived assets was determined based on Level 3 inputs using a discounted cash flow model. Moreover, we also applied a market analysis for certain properties.

     

The COVID-19 pandemic has caused oil demand to significantly decrease, creating oversupplied markets, and resulting in lower commodity prices and margins. The Company evaluated the potential impact on its oil and gas properties, but concluded they were not impaired during the first six months of 2020.However, protracted low commodity prices may require impairments in future periods.

 

The duration and extent of the COVID-19 pandemic cannot be reasonably estimated at this time. The risks and uncertainties resulting from the pandemic may lead to future impairment of long-lived assets including right-of-use assets. In addition, significant estimates and assumptions used in the evaluation of long-lived assets for impairment may be subject to significant adjustments in future periods.

 

 
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Note 7. Goodwill and Other Intangible Assets

  

Goodwill

Goodwill consists of the excess of the purchase price over the fair value of the net assets acquired in connection with business acquisitions. The Company purchased Southern Pioneer on March 9, 2020. The preliminary purchase price allocation reflects goodwill of $11,865.

 

A reconciliation of the change in the carrying value of goodwill is as follows.

 

 

 

 June 30,

2020

 

Balance at beginning of year

 

$

40,040

 

Goodwill from acquisition

 

 

11,865

 

Change in foreign exchange rates during the first six months of 2020

 

 

1

 

Balance at end of period

 

$

51,906

 

 

We evaluate goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. Goodwill impairment occurs when the estimated fair value of goodwill is less than its carrying value. The valuation methodology and underlying financial information included in our determination of fair value require significant management judgments. We use both market and income approaches to derive fair value. The judgments in these two approaches include, but are not limited to, comparable market multiples, long-term projections of future financial performance, and the selection of appropriate discount rates used to determine the present value of future cash flows. Changes in such estimates or the application of alternative assumptions could produce significantly different results. No impairment charges for goodwill were recorded in the first six months of 2020 or 2019.

     

In response to the adverse effects of the COVID-19 pandemic, we considered whether goodwill needed to be evaluated for impairment as of June 30, 2020, specifically related to goodwill for certain restaurant reporting units. Making estimates of the fair value of reporting units at this time are significantly affected by assumptions on the severity, duration and long-term effects of the pandemic on the reporting unit’s operations. We considered the available facts and made qualitative assessments and judgments for what we believed represent reasonably possible outcomes. Although the fair values of certain of these reporting units declined since the time that the most recent annual impairment tests were conducted, we concluded it is more likely than not that goodwill was not impaired as of June 30, 2020. However, COVID-19 pandemic events will continue to evolve and the negative effects on our operations could prove to be worse than we currently estimate. The pandemic could have a negative impact on Western Sizzlin’s operations, which may require the Company to record goodwill impairment charges in future periods.

 

Other Intangible Assets

Other intangible assets are composed of the following.

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

Gross carrying

amount

 

 

Accumulated amortization

 

 

Total

 

 

Gross carrying

amount

 

 

Accumulated amortization

 

 

Total

 

Franchise agreement

 

$

5,310

 

 

$

(5,310

)

 

$

-

 

 

$

5,310

 

 

$

(5,178

)

 

$

132

 

Other

 

 

810

 

 

 

(801

)

 

 

9

 

 

 

810

 

 

 

(792

)

 

 

18

 

Total

 

 

6,120

 

 

 

(6,111

)

 

 

9

 

 

 

6,120

 

 

 

(5,970

)

 

 

150

 

Intangible assets with indefinite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names

 

 

15,876

 

 

 

-

 

 

 

15,876

 

 

 

15,876

 

 

 

-

 

 

 

15,876

 

Other assets with indefinite lives

 

 

7,516

 

 

 

-

 

 

 

7,516

 

 

 

11,323

 

 

 

-

 

 

 

11,323

 

Total intangible assets

 

$

29,512

 

 

$

(6,111

)

 

$

23,401

 

 

$

33,319

 

 

$

(5,970

)

 

$

27,349

 

 

Intangible assets with indefinite lives consist of trade names, franchise rights as well as lease rights.  During the first six months of 2020, the Company recorded impairment charges of $3,700 on lease rights related to our international restaurant operations because of the adverse effects of the COVID-19 pandemic.  The impairment and fair value were determined using Level 3 inputs and available market data. Amortization expense for the first six months of 2020 and 2019 was $141 and $274, respectively. The Company’s intangible assets with definite lives will fully amortize in 2020.

 

 
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Note 8. Restaurant Operations Revenues

 

Restaurant operations revenues were as follows.

 

 

Second Quarter

 

 

First Six Months

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net sales

 

$

69,487

 

 

$

152,062

 

 

$

174,215

 

 

$

317,693

 

Franchise royalties and fees

 

 

4,072

 

 

 

6,725

 

 

 

9,283

 

 

 

13,379

 

Franchise partner fees

 

 

4,537

 

 

 

421

 

 

 

7,881

 

 

 

679

 

Other

 

 

668

 

 

 

853

 

 

 

1,529

 

 

 

2,085

 

 

 

$

78,764

 

 

$

160,061

 

 

$

192,908

 

 

$

333,836

 

 

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 royalties and fees

Franchise royalties and fees are composed of royalties and fees from Steak n Shake and Western Sizzlin franchisees. Royalties 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. Our advertising arrangements with franchisees are reported in franchise royalties and fees.

 

Franchise partner fees

Steak n Shake is in the process of transitioning company-operated restaurants to franchise partners. The franchise agreement stipulates that the franchisee make an upfront investment totaling ten thousand dollars. 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 required to be hands-on operators. We limit a franchisee to a single location. As the franchisor Steak n Shake assesses a fee of up to 15% of sales as well as 50% of profits.

 

Gift card revenue

Restaurant operations sells gift cards to customers which can be redeemed for retail food sales within our stores. Gift cards are recorded as deferred revenue when issued and are subsequently recorded as net sales upon redemption. Restaurant operations estimates breakage related to gift cards when the likelihood of redemption is remote. This estimate utilizes historical trends based on the vintage of the gift card. Breakage on gift cards is recorded as other revenue in proportion to the rate of gift card redemptions by vintage.

 

Note 9. Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses include the following.

 

June 30,

2020

December 31,

2019

Accounts payable$

30,028

$

32,626

Gift and liability

 

 

16,783

 

 

 

20,745

 

Salaries, wages, and vacation

 

 

6,715

 

 

 

10,667

 

Taxes payable

 

 

21,882

 

 

 

29,275

 

Insurance accruals

 

 

33,149

 

 

 

11,070

 

Deferred revenue

 

 

11,896

 

 

 

10,454

 

Other

 

 

9,007

 

 

 

6,242

 

Accounts payable and accrued expenses

 

$129,460

 

 

$121,079

 

 

 
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Note 10. Notes Payable and Other Borrowings

 

Notes payable and other borrowings include the following.

 

Current portion of notes payable and other borrowings

 

June 30,
2020

 

 

December 31,
2019

 

Notes payable

 

$153,606

 

 

$2,200

 

Unamortized original issue discount and debt issuance costs

 

 

(746)

 

 

(982)

Western Sizzlin revolver

 

 

440

 

 

 

-

 

Finance obligations

 

 

5,168

 

 

 

4,252

 

Finance lease liabilities

 

 

1,615

 

 

 

1,633

 

Total current portion of notes payable and other borrowings

 

$160,083

 

 

$7,103

 

 

 

 

 

 

 

 

 

 

Long-term notes payable and other borrowings

 

 

 

 

 

 

 

 

Notes payable

 

$-

 

 

$179,298

 

Unamortized original issue discount and debt issuance costs

 

 

-

 

 

 

(252)

Finance obligations

 

 

71,074

 

 

 

74,497

 

Finance leases liabilities

 

 

6,853

 

 

 

9,639

 

Total long-term notes payable and other borrowings

 

$77,927

 

 

$263,182

 

 

Steak n Shake Credit Facility

On March 19, 2014, Steak n Shake and its subsidiaries entered into a credit agreement which provided for a senior secured term loan facility in an aggregate principal amount of $220,000. The term loan is scheduled to mature on March 19, 2021. As of June 30, 2020, $153,606 was outstanding. The Company is evaluating refinancing options. Alternative financing may not be available on terms commensurate with its current financing arrangement. In addition, the duration of the pandemic could have a material adverse effect on financing options or Steak n Shake’s ability to comply with the terms of its credit agreement. Biglari Holdings is not a guarantor under the credit facility.

 

The term loan amortizes in equal quarterly installments at an annual rate of 1.0% of the original principal amount of the term loan, subject to mandatory prepayments from excess cash flow, asset sales and other events described in the credit agreement. The balance will be due at maturity.

 

Interest on the term loan is based on a Eurodollar rate plus an applicable margin of 3.75% or on the prime rate plus an applicable margin of 2.75%.The interest rate on the term loan was 4.75% as of June 30, 2020.

 

The credit agreement includes customary affirmative and negative covenants and events of default. Steak n Shake’s credit facility contains restrictions on its ability to pay dividends to Biglari Holdings.

 

The term loan is secured by first priority security interests in substantially all the assets of Steak n Shake. Disruptions in debt capital markets that restrict access to funding when needed could adversely affect the results of operations, liquidity and capital resources of Steak n Shake.

 

The fair value of long-term debt, excluding capitalized lease obligations, was approximately $80,000 at June 30, 2020.The fair value of our debt was estimated based on quoted market prices. The fair value was determined to be a Level 3 fair value measurement.

 

The Company retired $26,792 of debt during the first six months of 2020.

 

Interest expense is summarized as follows.

 

 

Second Quarter

 

 

First Six Months

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Interest expense

 

$2,349

 

 

$3,150

 

 

$4,823

 

 

$6,208

 

Interest on finance leases and obligations

 

 

1,286

 

 

 

2,003

 

 

 

3,086

 

 

 

4,012

 

 

 

$3,635

 

 

$5,153

 

 

$7,909

 

 

$10,220

 

 

Western Sizzlin Revolver

Western Sizzlin had $440 and $0 of debt outstanding under its revolver as of June 30, 2020 and December 31, 2019, respectively.

 

 
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Note 11. Leased Assets and Lease Commitments

 

A significant portion of our operating and finance lease portfolio includes restaurant locations. The Company’s operating leases with a term of 12 months or greater were recognized as operating right-of-use assets and liabilities and recorded as operating lease assets and operating lease liabilities. Historical capital leases and certain historical build-to-suit leases were reclassified from obligations under leases to finance lease assets and liabilities. Finance lease assets are recorded in property and equipment and finance lease liabilities are recorded in notes payable and other borrowings. Historical sale-and-leaseback transactions in which the Company is deemed to have a continued interest in the leased asset are recorded as property and equipment and as finance obligations. Finance obligations are recorded in notes payable and other borrowings.

 

Operating lease expense and finance lease depreciation expense are recognized on a straight-line basis over the lease term.

 

During the quarter, the Company negotiated lease concessions on certain lease arrangements related to the COVID-19 pandemic and has accounted for these under the ASC 842 COVID-19 Election.

 

Total lease cost consists of the following.

 

 

 

Second Quarter

 

 

First Six Months

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Finance lease costs:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of right-of-use assets

 

$329

 

 

$487

 

 

$808

 

 

$979

 

Interest on lease liabilities

 

 

78

 

 

 

215

 

 

 

256

 

 

 

422

 

Operating lease costs *

 

 

2,489

 

 

 

4,003

 

 

 

6,225

 

 

 

7,860

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total lease costs

 

$2,896

 

 

$4,705

 

 

$7,289

 

 

$9,261

 

 

*Includes short-term leases, variable lease costs and sublease income, which are immaterial.

 

Supplemental cash flow information related to leases is as follows.

 

 

 

First Six Months

 

 

 

2020

 

 

2019

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

Financing cash flows from finance leases

 

$733

 

 

$797

 

Operating cash flows from finance leases

 

$320

 

 

$422

 

Operating cash flows from operating leases

 

$6,863

 

 

$8,375

 

Right-of-use assets obtained in exchange for lease obligations:

 

 

 

 

 

 

Finance lease liabilities

 

$-

 

 

$1,097

 

Operating lease liabilities

 

$73

 

 

$8,919

 

 

Supplemental balance sheet information related to leases is as follows. 

 

 

 

June 30,
2020

 

 

December 31,
2019

 

Finance leases:

 

 

 

 

 

 

Property and equipment, net

 

$6,779

 

 

$10,783

 

 

 

 

 

 

 

 

 

 

Current portion of notes payable and other borrowings

 

$1,615

 

 

$1,633

 

Long-term notes payable and other borrowings

 

 

6,853

 

 

 

9,639

 

Total finance lease liabilities

 

$8,468

 

 

$11,272

 

 

Weighted-average lease terms and discount rates are as follows. 

 

 

 

June 30,
2020

 

Weighted-average remaining lease terms:

 

 

 

Finance leases

 

 6.1 years

 

Operating leases

 

 5.9 years

 

 

 

 

 

Weighted-average discount rates:

 

 

 

Finance leases

 

7.1%

Operating leases

 

6.9%

 

 
12

Table of Contents

 

Note 11. Leased Assets and Lease Commitments (continued)

 

Maturities of lease liabilities as of June 30, 2020 are as follows.

 

Year

 

Operating

Leases

 

 

Finance
Leases

 

2020

 

$8,357

 

 

$1,086

 

2021

 

 

14,607

 

 

 

2,135

 

2022

 

 

12,501

 

 

 

1,614

 

2023

 

 

10,698

 

 

 

1,410

 

2024

 

 

8,638

 

 

 

1,374

 

After 2024

 

 

16,727

 

 

 

2,756

 

Total lease payments

 

 

71,528

 

 

 

10,375

 

  Less interest

 

 

12,985

 

 

 

1,907

 

Total lease liabilities

 

$58,543

 

 

$8,468

 

 

Note 12. Accumulated Other Comprehensive Income

 

During the second quarter of 2020 and 2019, accumulated other comprehensive losses decreased by $802 and $196, respectively, due to changes in foreign currency translation adjustments. During the first six months of 2020 accumulated other comprehensive losses decreased by $490 and increased by $108 during the first six months of 2019.As of June 30, 2020 and 2019, the balances in accumulated other comprehensive loss were $2,320 and $2,624, respectively. There were no reclassifications from accumulated other comprehensive income to earnings during the first six months of 2020 and 2019.

 

Note 13. Income Taxes

    

In determining the quarterly provision for income taxes, the Company used a discrete effective tax rate method based on statutory tax rates for the first six months of 2020 and 2019. Our periodic effective income tax rate is affected by the relative mix of pre-tax earnings or losses and underlying income tax rates applicable to the various taxing jurisdictions.

 

Income tax expense for the second quarter of 2020 was $14,764 compared to $5,896 for the second quarter of 2019. Income tax benefit for the first six months of 2020 was $29,066 compared to an income tax expense of $7,640 for the first six months of 2019.The variance in income taxes between 2020 and 2019 is attributable to taxes on income generated by the investment partnerships. Investment partnership pretax losses were $116,494 during the first six months of 2020, compared to pretax gains of $68,352 during the first six months of 2019.

 

As of June 30, 2020 and December 31, 2019, we had $348 of unrecognized tax benefits, which are included in other liabilities in the consolidated balance sheets.

 

Note 14. Commitments and Contingencies

     

We are involved in various legal proceedings and have certain unresolved claims pending. We believe, based on examination of these matters and experiences to date, that the ultimate liability, if any, in excess of amounts already provided in our consolidated financial statements is not likely to have a material effect on our results of operations, financial position or cash flow.

 

On January 29, 2018, a shareholder of the Company filed a purported class action complaint against the Company and the members of our Board of Directors in the Superior Court of Hamilton County, Indiana. The shareholder generally alleges claims of breach of fiduciary duty by the members of our Board of Directors and unjust enrichment to Mr. Biglari as a result of the dual class structure.

 

On March 26, 2018, a shareholder of the Company filed a purported class action complaint against the Company and the members of our Board of Directors in the Superior Court of Hamilton County, Indiana. This shareholder generally alleges claims of breach of fiduciary duty by the members of our Board of Directors. This shareholder sought to enjoin the shareholder vote on April 26, 2018 to approve the dual class structure. On April 16, 2018, the shareholder withdrew the motion to enjoin the shareholder vote on April 26, 2018.

 

 
13

Table of Contents

 

Note 14. Commitments and Contingencies (continued)

 

On May 17, 2018, the shareholders who filed the January 29, 2018 complaint and the March 26, 2018 complaint filed a new, consolidated complaint against the Company and the members of our Board of Directors in the Superior Court of Hamilton County, Indiana. The shareholders generally allege claims of breach of fiduciary duty by the members of our Board of Directors and unjust enrichment to Mr. Biglari arising out of the dual class structure, including the ability to vote the Company’s shares that are eliminated for financial reporting purposes. The shareholders seek, for themselves and on behalf of all other shareholders as a class, a declaration that the defendants breached their duty to the shareholders and the class, and to recover unspecified damages, pre-judgment and post-judgment interest, and an award of their attorneys’ fees and other costs.

 

On December 14, 2018, the judge of the Superior Court of Hamilton County, Indiana issued an order granting the Company’s motion to dismiss the shareholders’ lawsuits. On January 11, 2019, the shareholders filed an appeal of the judge’s order dismissing the lawsuits. On December 4, 2019, the Indiana Court of Appeals issued a unanimous decision affirming the trial court’s decision to dismiss the shareholder litigation. On January 20, 2020, the shareholders filed a petition to transfer with the Indiana Supreme Court seeking review of the decision of the Court of Appeals. The Company opposed the petition. On April 7, 2020, the Indiana Supreme Court denied the petition to transfer. All of the cases referenced above are completed and each case was concluded in the Company’s favor.

 

Note 15. Fair Value of Financial Assets

     

The fair values of substantially all of our financial instruments were measured using market or income approaches. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, the fair values presented are not necessarily indicative of the amounts that could be realized in an actual current market exchange. The use of alternative market assumptions and/or estimation methodologies may have a material effect on the estimated fair value.

 

The hierarchy for measuring fair value consists of Levels 1 through 3, which are described below.

 

 

·

Level 1 - Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets.

 

 

 

 

·

Level 2 - Inputs include directly or indirectly observable inputs (other than Level 1 inputs) such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that may be considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Pricing evaluations generally reflect discounted expected future cash flows, which incorporate yield curves for instruments with similar characteristics, such as credit ratings, estimated durations and yields for other instruments of the issuer or entities in the same industry sector.

 

 

 

 

·

Level 3 - Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities and we may be unable to corroborate the related observable inputs. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in pricing assets or liabilities.

 

The following methods and assumptions were used to determine the fair value of each class of the following assets recorded at fair value in the consolidated balance sheets:

 

Cash equivalents: Cash equivalents primarily consist of money market funds which are classified within Levels 1 and 2 of the fair value hierarchy.

 

Equity securities: The Company’s investments in equity securities are classified within Levels 1 and 2 of the fair value hierarchy.

 

Bonds: The Company’s investments in bonds are classified within Level 1 of the fair value hierarchy.

 

Non-qualified deferred compensation plan investments: The assets of the non-qualified plan are set up in a rabbi trust. They represent mutual funds and publicly traded securities, each of which are classified within Level 1 of the fair value hierarchy.

 

Derivative instruments: Options related to equity securities are marked to market each reporting period and are classified within Level 2 of the fair value hierarchy depending on the instrument.

 

 
14

Table of Contents

 

Note 15. Fair Value of Financial Assets (continued)

 

As of June 30, 2020 and December 31, 2019, the fair values of financial assets were as follows.

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$18,632

 

 

$-

 

 

$-

 

 

$18,632

 

 

$43,095

 

 

$-

 

 

$-

 

 

$43,095

 

Equity securities

 

 

6,178

 

 

 

5,800

 

 

 

-

 

 

 

11,978

 

 

 

25

 

 

 

6,397

 

 

 

-

 

 

 

6,422

 

Bonds

 

 

51,692

 

 

 

2,500

 

 

 

-

 

 

 

54,192

 

 

 

38,911

 

 

 

-

 

 

 

-

 

 

 

38,911

 

Options on equity securities

 

 

-

 

 

 

2,763

 

 

 

-

 

 

 

2,763

 

 

 

-

 

 

 

2,166

 

 

 

-

 

 

 

2,166

 

Non-qualified deferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

investments

 

 

1,257

 

 

 

-

 

 

 

-

 

 

 

1,257

 

 

 

2,175

 

 

 

-

 

 

 

-

 

 

 

2,175

 

Total assets at fair value

 

$77,759

 

 

$11,063

 

 

$-

 

 

$88,822

 

 

$84,206

 

 

$8,563

 

 

$-

 

 

$92,769

 

 

There were no changes in our valuation techniques used to measure fair values on a recurring basis.

 

 

Note 16. Related Party Transactions

   

Services Agreement

During 2017, the Company entered into a services agreement with Biglari Enterprises LLC and Biglari Capital Corp. (collectively, the “Biglari Entities”) under which the Biglari Entities provide services to the Company. The services agreement has a five-year term, effective on October 1, 2017. The fixed fee of $700 per month can be adjusted annually. The monthly fee will remain at $700 during 2020. The Company paid Biglari Enterprises $4,200 in service fees during the first six months of 2020 and 2019. The services agreement does not alter the hurdle rate connected with the incentive reallocation paid to Biglari Capital Corp. The Biglari Entities are owned by Mr. Biglari.

 

Incentive Agreement Amendment

The Incentive Agreement was amended on March 26, 2019 to remove the annual limitation on Mr. Biglari’s incentive compensation, as well as the requirement of Mr. Biglari to use 30% of his incentive payments to purchase shares of the Company. In connection with the amendment, the change of control and severance provisions contained in the Incentive Agreement were eliminated and the License Agreement was terminated. The amendment became effective in 2019.

 

Note 17. Business Segment Reporting

 

Our reportable business segments are organized in a manner that reflects how management views those business activities. Our restaurant operations include Steak n Shake and Western Sizzlin. Our insurance operations include First Guard and Southern Pioneer. The Company also reports segment information for Maxim and Southern Oil. Other business activities not specifically identified with reportable business segments are presented in corporate. We report our earnings from investment partnerships separate from our corporate expenses. We assess and measure segment operating results based on segment earnings as disclosed below. Segment earnings from operations are neither necessarily indicative of cash available to fund cash requirements, nor synonymous with cash flow from operations. The tabular information that follows shows data of our reportable segments reconciled to amounts reflected in the consolidated financial statements.

 

 
15

Table of Contents

 

Note 17. Business Segment Reporting (continued)

 

A disaggregation of our consolidated data for the second quarters and first six months of 2020 and 2019 is presented in the tables which follow.

 

 

 

 Revenue

 

 

 

Second Quarter

 

 

First Six Months

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating Businesses:

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant Operations:

 

 

 

 

 

 

 

 

 

 

 

 

Steak n Shake

 

$78,211

 

 

$156,006

 

 

$189,324

 

 

$326,117

 

Western Sizzlin

 

 

553

 

 

 

4,055

 

 

 

3,584

 

 

 

7,719

 

Total Restaurant Operations

 

 

78,764

 

 

 

160,061

 

 

 

192,908

 

 

 

333,836

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Guard

 

 

7,412

 

 

 

7,417

 

 

 

15,296

 

 

 

14,624

 

Southern Pioneer

 

 

7,193

 

 

 

-

 

 

 

8,983

 

 

 

-

 

Total Insurance Operations

 

 

14,605

 

 

 

7,417

 

 

 

24,279

 

 

 

14,624

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Southern Oil

 

 

2,151

 

 

 

-

 

 

 

13,525

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maxim

 

 

982

 

 

 

865

 

 

 

1,490

 

 

 

1,742

 

 

 

$96,502

 

 

$168,343

 

 

$232,202

 

 

$350,202

 

 

 

 

 Earnings (Losses) Before Income Taxes

 

 

 

Second Quarter

 

 

First Six Months

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating Businesses:

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant Operations:

 

 

 

 

 

 

 

 

 

 

 

 

Steak n Shake

 

$(1,075)

 

$(3,057)

 

$(12,012)

 

$(21,915)

Western Sizzlin

 

 

(578)

 

 

506

 

 

 

(541)

 

 

889

 

Total Restaurant Operations

 

 

(1,653)

 

 

(2,551)

 

 

(12,553)

 

 

(21,026)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Guard

 

 

2,600

 

 

 

1,850

 

 

 

5,041

 

 

 

3,394

 

Southern Pioneer

 

 

468

 

 

 

-

 

 

 

940

 

 

 

-

 

Total Insurance Operations

 

 

3,068

 

 

 

1,850

 

 

 

5,981

 

 

 

3,394

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Southern Oil

 

 

(1,707)

 

 

-

 

 

 

763

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maxim

 

 

487

 

 

 

176

 

 

 

455

 

 

 

64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Businesses

 

 

195

 

 

(525)

 

 

(5,354)

 

 

(17,568)

Corporate and Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

(2,740)

 

 

(2,653)

 

 

(5,036)

 

 

(5,144)

Investment gains

 

 

1,509

 

 

 

-

 

 

 

1,509

 

 

 

-

 

Investment partnership gains (losses)

 

 

59,248

 

 

 

34,198

 

 

 

(116,494)

 

 

68,352

 

Total Corporate and Investments

 

 

58,017

 

 

 

31,545

 

 

 

(120,021)

 

 

63,208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense and debt extinguishment gains not allocated to segments

 

 

(982)

 

 

(3,150)

 

 

890

 

 

 

(6,208)

 

 

$57,230

 

 

$27,870

 

 

$(124,485)

 

$39,432

 

    

 
16

Table of Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

(dollars in thousands except per share data)

 

Overview

 

Biglari Holdings is a holding company owning subsidiaries engaged in a number of diverse business activities, including property and casualty insurance, media and licensing, restaurants, and oil and gas. The Company’s largest operating subsidiaries are involved in the franchising and operating of restaurants. Biglari Holdings is founded and led by Sardar Biglari, Chairman and Chief Executive Officer of the Company. The Company’s long-term objective is to maximize per-share intrinsic value. All major investment and capital allocation decisions are made for the Company and its subsidiaries by Mr. Biglari.

 

As of June 30, 2020, Mr. Biglari’s beneficial ownership was approximately 64.4% of the Company’s outstanding Class A common stock and 55.4% of the Company’s outstanding Class B common stock.

 

On March 9, 2020, Biglari Holdings acquired the stock of Southern Pioneer Property & Casualty Insurance Company and its agency, Southern Pioneer Insurance Agency, Inc. (collectively “Southern Pioneer”). The financial results for Southern Pioneer from the acquisition date to the end of the second quarter are included in the Company’s consolidated financial statements.

 

On September 9, 2019, a wholly-owned subsidiary of the Company, Southern Oil Company, acquired the stock of Southern Oil of Louisiana Inc. (collectively “Southern Oil”). Southern Oil primarily operates oil and natural gas properties offshore in the shallow waters of the Gulf of Mexico.

 

Net earnings (loss) attributable to Biglari Holdings shareholders are disaggregated in the table that follows. Amounts are recorded after deducting income taxes.

 

 

 

Second Quarter

 

 

First Six Months

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating businesses:

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant

 

$(2,527)

 

$(1,424)

 

$(10,469)

 

$(14,767)

Insurance

 

 

2,299

 

 

 

1,459

 

 

 

4,615

 

 

 

2,675

 

Oil and gas

 

 

(1,312)

 

 

-

 

 

 

889

 

 

 

-

 

Media and licensing

 

 

376

 

 

 

132

 

 

 

351

 

 

 

48

 

Total operating businesses

 

 

(1,164)

 

 

167

 

 

 

(4,614)

 

 

(12,044)

Corporate

 

 

(2,191)

 

 

(2,085)

 

 

(3,681)

 

 

(3,999)

Investment gains

 

 

1,192

 

 

 

-

 

 

 

1,192

 

 

 

-

 

Investment partnership gains (losses)

 

 

45,365

 

 

 

26,254

 

 

 

(88,994)

 

 

52,491

 

Interest expense on notes payable and debt extinguishment

 

 

(736)

 

 

(2,362)

 

 

678

 

 

 

(4,656)

 

 

$42,466

 

 

$21,974

 

 

$(95,419)

 

$31,792

 

 

Restaurant businesses include Steak n Shake Inc. (“Steak n Shake”) and Western Sizzlin Corporation (“Western Sizzlin”).Steak n Shake and Western Sizzlin are engaged in the ownership, operation, and franchising of restaurants.

 

Insurance businesses are composed of First Guard Insurance Company (“First Guard”) and Southern Pioneer. First Guard is a direct underwriter of commercial trucking insurance, selling physical damage and nontrucking liability insurance to truckers.Southern Pioneer underwrites specialty insurance products including garage liability insurance, commercial property coverage for auto dealers as well as homeowners, dwelling fire insurance and credit-related insurance coverages.

 

Media and licensing business is composed of Maxim Inc. (“Maxim”).

 

Oil and gas business is composed of Southern Oil. Southern Oil primarily operates oil and natural gas properties offshore in the shallow waters of the Gulf of Mexico.

 

 
17

Table of Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Restaurants

 

Steak n Shake and Western Sizzlin comprise 585 company-operated and franchise restaurants as of June 30, 2020.

 

 

 

Steak n Shake

 

 

Western Sizzlin

 

 

 

 

 

 

Company- operated

 

 

Franchise
Partner

 

 

Traditional
Franchise

 

 

Company-operated

 

 

Franchise

 

 

Total

 

Total stores as of December 31, 2019

 

 

368

 

 

 

29

 

 

 

213

 

 

 

4

 

 

 

48

 

 

 

662

 

Corporate stores transitioned

 

 

(23)

 

 

22

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

Net restaurants opened (closed)

 

 

(56)

 

 

-

 

 

 

(13)

 

 

-

 

 

 

(8)

 

 

(77)

Total stores as of June 30, 2020

 

 

289

 

 

 

51

 

 

 

201

 

 

 

4

 

 

 

40

 

 

 

585

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stores as of December 31, 2018

 

 

411

 

 

 

2

 

 

 

213

 

 

 

4

 

 

 

55

 

 

 

685

 

Corporate stores transitioned

 

 

(6)

 

 

6

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net restaurants opened (closed)

 

 

(106)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3)

 

 

(109)

Total stores as of June 30, 2019

 

 

299

 

 

 

8

 

 

 

213

 

 

 

4

 

 

 

52

 

 

 

576

 

 

Most of our restaurant dining rooms were closed by March 17, 2020 with the remainder closing before the end of the first quarter because of the COVID-19 pandemic. In addition, as of June 30, 2020, 59 of the 289 company-operated Steak n Shake stores were temporarily closed. As of June 30, 2019, 103 of the 299 company-operated Steak n Shake stores were temporarily closed.

 

Earnings of our restaurant operations are summarized below.

 

 

 

 Second Quarter

 

 

 

 

 

 First Six Months

 

 

 

 

 

 

2020

 

 

 

 

 

2019

 

 

 

 

 

2020

 

 

 

 

 

2019

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$69,487

 

 

 

 

 

$152,062

 

 

 

 

 

$174,215

 

 

 

 

 

$317,693

 

 

 

 

Franchise royalties and fees

 

 

4,072

 

 

 

 

 

 

6,725

 

 

 

 

 

 

9,283

 

 

 

 

 

 

13,379

 

 

 

 

Franchise partner fees

 

 

4,537

 

 

 

 

 

 

421

 

 

 

 

 

 

7,881

 

 

 

 

 

 

679

 

 

 

 

Other revenue

 

 

668

 

 

 

 

 

 

853

 

 

 

 

 

 

1,529

 

 

 

 

 

 

2,085

 

 

 

 

Total revenue

 

 

78,764

 

 

 

 

 

 

160,061

 

 

 

 

 

 

192,908

 

 

 

 

 

 

333,836

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant cost of sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of food

 

 

19,929

 

 

 

28.7%

 

 

47,316

 

 

 

31.1%

 

 

51,372

 

 

 

29.5%

 

 

102,293

 

 

 

32.2%

Restaurant operating costs

 

 

26,955

 

 

 

38.8%

 

 

78,595

 

 

 

51.7%

 

 

80,452

 

 

 

46.2%

 

 

169,390

 

 

 

53.3%

Occupancy costs

 

 

3,875

 

 

 

5.6%

 

 

5,839

 

 

 

3.8%

 

 

8,851

 

 

 

5.1%

 

 

12,516

 

 

 

3.9%

Total cost of sales

 

 

50,759

 

 

 

 

 

 

 

131,750

 

 

 

 

 

 

 

140,675

 

 

 

 

 

 

 

284,199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

9,189

 

 

 

11.7%

 

 

12,021

 

 

 

7.5%

 

 

18,087

 

 

 

9.4%

 

 

29,122

 

 

 

8.7%

Marketing .

 

 

5,695

 

 

 

7.2%

 

 

10,117

 

 

 

6.3%

 

 

14,515

 

 

 

7.5%

 

 

23,246

 

 

 

7.0%

Other expenses

 

 

983

 

 

 

1.2%

 

 

1,179

 

 

 

0.7%

 

 

1,267

 

 

 

0.7%

 

 

1,472

 

 

 

0.4%

Total selling, general and administrative

 

 

15,867

 

 

 

20.1%

 

 

23,317

 

 

 

14.6%

 

 

33,869

 

 

 

17.6%

 

 

53,840

 

 

 

16.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairments

 

 

7,819

 

 

 

9.9%

 

 

438

 

 

 

0.3%

 

 

18,119

 

 

 

9.4%

 

 

2,338

 

 

 

0.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,686

 

 

 

5.9%

 

 

5,104

 

 

 

3.2%

 

 

9,712

 

 

 

5.0%

 

 

10,473

 

 

 

3.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on finance leases and obligations

 

 

1,286

 

 

 

 

 

 

 

2,003

 

 

 

 

 

 

 

3,086

 

 

 

 

 

 

 

4,012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income taxes

 

 

(1,653)

 

 

 

 

 

 

(2,551)

 

 

 

 

 

 

(12,553)

 

 

 

 

 

 

(21,026)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

874

 

 

 

 

 

 

 

(1,127)

 

 

 

 

 

 

(2,084)

 

 

 

 

 

 

(6,259)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contribution to net earnings

 

$(2,527)

 

 

 

 

 

$(1,424)

 

 

 

 

 

$(10,469)

 

 

 

 

 

$(14,767)

 

 

 

 

 

Cost of food, restaurant operating costs and rent expense 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.

 

 
18

Table of Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

The COVID-19 pandemic has adversely affected our operations and financial results. During the first quarter, we closed the dining rooms in all our restaurants. However, most of our restaurants remained open with limited operations such as takeout, drive-through, drive in, and delivery. Steak n Shake is seeking to reopen dining rooms with counter service. The transition to a counter-service model will require significant investments in equipment. Steak n Shake intends to fund these investments mainly by selling owned real estate via an auction process.

 

Net sales for the second quarter and first six months of 2020 were $69,487 and $174,215, respectively, representing a decrease of $82,575 or 54.3% and $143,478 or 45.2% over the second quarter and first six months of 2019, respectively.Franchise royalties and fees decreased by $2,653 or 39.4% during the second quarter of 2020 compared to 2019.Franchise royalties and fees decreased by $4,096 or 30.6% during the first six months of 2020 compared to 2019.Reserves were realized for franchisees who closed their stores during the pandemic.

 

Franchise partner fees were $4,537 during second quarter 2020 compared to $421 during 2019.Franchise partner fees were $7,881 during the first six months of 2020 compared to $679 during 2019.As of June 30, 2020, there were 51 franchise partner units compared to eight franchise partner units as of June 30, 2019.

 

Cost of food during the second quarter and first six months of 2020 was $19,929 or 28.7% of net sales and $51,372 or 29.5% of net sales, respectively, compared to the second quarter and first six months in 2019 of $47,316 or 31.1% and $102,293 or 32.2%, respectively. The decrease is primarily attributable to a reduced menu offering along with fewer promotions.

 

Restaurant operating costs during the second quarter of 2020 were $26,955 compared to $78,595 in 2019. The closure of restaurants, transition to franchise partners, and the closure of dining rooms account for the decline in restaurant operating costs. Restaurant operating costs during the first six months of 2020 were $80,452 compared to $169,390 in 2019.The decrease is primarily because of reduced labor costs.

 

General and administrative costs during the second quarter and first six months of 2020 were $9,189 or 11.7% of total revenues and $18,087 or 9.4% of total revenues, respectively, compared to expenses in the second quarter and first six months of 2019, which were $12,021 or 7.5% of total revenues and $29,122 or 8.7% of total revenues, respectively. The lower expenses were primarily because of non-recurring settlement expenses during 2019.

 

Marketing expense during the second quarter and first six months of 2020 were $5,695 or 7.2% of total revenues and $14,515 or 7.5% of total revenues, respectively, compared to expenses during the second quarter and first six months of 2019 of $10,117 or 6.3% of total revenues and $23,246 or 7.0% of total revenues, respectively. Management determined to minimize its level of marketing expenditures in the second quarter of 2020.

 

Our restaurants obtained one-time savings in the second quarter by negotiating with various vendors, reducing overall expenses.These reductions were derived because of the COVID-19 pandemic.

 

Steak n Shake recorded an impairment to long-lived assets of $7,819 and $438 in the second quarters of 2020 and 2019, respectively, and $18,119 and $2,338 during the first six months of 2020 and 2019, respectively. The impairments are primarily attributable to the closure of Steak n Shake stores.

 

Insurance

 

We view our insurance businesses as possessing two activities: underwriting and investing. Underwriting decisions are the responsibility of the unit managers, whereas investing decisions are the responsibility of our Chairman and CEO, Sardar Biglari. Business units are operated under separate local management.

 

Biglari Holdings’ insurance operations consist of First Guard and Southern Pioneer. First Guard is a direct underwriter of commercial trucking 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 trucking insurer. Southern Pioneer underwrites specialty insurance products including garage liability insurance, commercial property coverage for auto dealers as well as homeowners, dwelling fire insurance and credit-related insurance coverages. The financial results for Southern Pioneer are from the acquisition date (March 9, 2020) to the end of the quarter.

 

Premiums earned by the insurance group during the second quarter and first six months of 2020 were $13,321 and $22,163, respectively, and pre-tax underwriting gain during the second quarter and first six months of 2020 were $2,057 and $4,587, respectively. 

 

 

19

Table of Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

  

Earnings of our insurance operations are summarized below.

 

 

 

 Second Quarter

 

 

 First Six Months

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Premiums written

 

$13,321

 

 

$7,065

 

 

$22,163

 

 

$13,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance losses

 

 

6,901

 

 

 

4,060

 

 

 

11,075

 

 

 

8,235

 

Underwriting expenses

 

 

4,363

 

 

 

1,438

 

 

 

6,501

 

 

 

2,923

 

Pre-tax underwriting gain

 

 

2,057

 

 

 

1,567

 

 

 

4,587

 

 

 

2,768

 

Other income and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment income and commissions

 

 

1,100

 

 

 

352

 

 

 

1,932

 

 

 

698

 

Other income (expenses)

 

 

(89)

 

 

(69)

 

 

(538)

 

 

(72)

Total other income

 

 

1,011

 

 

 

283

 

 

 

1,394

 

 

 

626

 

Earnings before income taxes

 

 

3,068

 

 

 

1,850

 

 

 

5,981

 

 

 

3,394

 

Income tax expense

 

 

769

 

 

 

391

 

 

 

1,366

 

 

 

719

 

Contribution to net earnings

 

$2,299

 

 

$1,459

 

 

$4,615

 

 

$2,675

 

  

First Guard’s underwriting results are summarized below.

 

 

 

 Second Quarter

 

 

 First Six Months

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Premiums written

 

$7,275

 

 

$7,065

 

 

$14,690

 

 

$13,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance losses

 

 

2,974

 

 

 

4,060

 

 

 

6,532

 

 

 

8,235

 

Underwriting expenses

 

 

1,748

 

 

 

1,438

 

 

 

3,282

 

 

 

2,923

 

Pre-tax underwriting gain

 

$2,553

 

 

$1,567

 

 

$4,876

 

 

$2,768

 

 

Southern Pioneer’s underwriting results are summarized below.

 

 

 

 2020

 

 

 

Second

Quarter

 

 

First Six
Months

 

Premiums written

 

$6,046

 

 

$7,473

 

 

 

 

 

 

 

 

 

 

Insurance losses

 

 

3,927

 

 

 

4,543

 

Underwriting expenses

 

 

2,615

 

 

 

3,219

 

Pre-tax underwriting gain (loss)

 

$(496)

 

$(289)

 

Insurance premiums and other on the consolidated statement of earnings includes premiums earned, investment income and commissions. In the table above, investment income and commissions are included in other income.

 

 
20

Table of Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Oil and Gas

 

Southern Oil primarily operates oil and natural gas properties offshore in the shallow waters of the Gulf of Mexico. Southern Oil was acquired on September 9, 2019.Earnings for Southern Oil are summarized below.

 

 

 

Second Quarter
2020

 

 

First Six Months
2020

 

Oil and gas revenue

 

$2,151

 

 

$13,525

 

 

 

 

 

 

 

 

 

 

Oil and gas production costs

 

 

1,323

 

 

 

4,399

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion and accretion

 

 

1,979

 

 

 

6,847

 

General and administrative expenses