What changed in this filing

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Item 1. Financial Statements

2021-11-05 compared with 2021-08-06 · 296 added, 93 removed, 547 unchanged (42% of the section changed)

3 unchanged sentences

(dollars in thousands)

September 30,

2021 December 31,

38 unchanged sentences

(dollars in thousands except per share amounts)

Second Quarter First Six Months

Third Quarter First Nine Months

2021 2020 2021 2020

24 unchanged sentences

Net earnings (loss) per equivalent Class A share * $ ( 33.74 ) $ 60.07 $ 125.79 $ ( 213.31 )

*Net earnings (loss) per equivalent Class B share outstanding are one-fifth of the equivalent Class A share or $( 12.81 ) and $ 31.61 for the second quarter and first six months of 2021, respectively, and $ 24.30 and $( 55.01 ) for the second quarter and first six months of 2020, respectively.

*Net earnings (loss) per equivalent Class B share outstanding are one-fifth of the equivalent Class A share or $( 6.75 ) and $ 25.16 for the third quarter and first nine months of 2021, respectively, and $ 12.01 and $( 42.66 ) for the third quarter and first nine months of 2020, respectively.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands)

Second Quarter First Six Months

Third Quarter First Nine Months

2021 2020 2021 2020

7 unchanged sentences

(dollars in thousands)

First Six Months

First Nine Months

Operating activities

26 unchanged sentences

Cash, cash equivalents and restricted cash at beginning of year 29,666 70,696

Cash, cash equivalents and restricted cash at end of second quarter $ 30,875 $ 41,862

First Six Months

Cash, cash equivalents and restricted cash at end of third quarter $ 30,458 $ 38,588

First Nine Months

Cash and cash equivalents $ 27,795 $ 33,164

Restricted cash in other long-term assets 2,663 5,424

Cash, cash equivalents and restricted cash at end of second quarter $ 30,875 $ 41,862

Cash, cash equivalents and restricted cash at end of third quarter $ 30,458 $ 38,588

See accompanying Notes to Consolidated Financial Statements.

16 unchanged sentences

Balance at June 30, 2021 $ 1,138 $ 381,788 $ 624,020 $ ( 1,860 ) $ ( 391,594 ) $ 613,492

Net earnings (loss) ( 10,669 ) ( 10,669 )

Other comprehensive loss ( 49 ) ( 49 )

Adjustment to treasury stock for holdings in investment partnerships ( 4,208 ) ( 4,208 )

Balance at September 30, 2021 $ 1,138 $ 381,788 $ 613,351 $ ( 1,909 ) $ ( 395,802 ) $ 598,566

Stock Additional

12 unchanged sentences

Balance at June 30, 2020 $ 1,138 $ 381,788 $ 515,620 $ ( 2,320 ) $ ( 373,676 ) $ 522,550

Net earnings (loss) 21,101 21,101

Other comprehensive income 344 344

Adjustment to treasury stock for holdings in investment partnerships ( 5,777 ) ( 5,777 )

Balance at September 30, 2020 $ 1,138 $ 381,788 $ 536,721 $ ( 1,976 ) $ ( 379,453 ) $ 538,218

See accompanying Notes to Consolidated Financial Statements.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

September 30, 2021

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

12 unchanged sentences

All major investment and capital allocation decisions are made for the Company and its subsidiaries by Mr.

As of June 30, 2021, Mr.

As of September 30, 2021, Mr.

Biglari beneficially owns shares of the Company that represent approximately 65.0 % of the economic interest and 70.3 % of the voting interest.

14 unchanged sentences

Change in Presentation

Gain on debt extinguishment of $ 1,367 and $ 5,713 during the second quarter and first six months of 2020, respectively, have been reclassified from other income to selling, general and administrative expenses.

Gain on debt extinguishment of $ 0 and $ 5,713 during the third quarter and first nine months of 2020, respectively, have been reclassified from other income to selling, general and administrative expenses.

Loss and loss adjustment expenses and unearned premiums are reflected separately from accrued expenses on the consolidated balance sheet.

6 unchanged sentences

Earnings Per Share (continued)

The following table presents shares authorized, issued and outstanding on June 30, 2021 and December 31, 2020.

June 30, 2021 December 31, 2020

The following table presents shares authorized, issued and outstanding on September 30, 2021 and December 31, 2020.

September 30, 2021 December 31, 2020

Class A Class B Class A Class B

1 unchanged sentence

Common stock issued and outstanding 206,864 2,068,640 206,864 2,068,640

On an equivalent Class A common stock basis, there were 620,592 shares outstanding as of June 30, 2021 and December 31, 2020.

On an equivalent Class A common stock basis, there were 620,592 shares outstanding as of September 30, 2021 and December 31, 2020.

The Company has applied the "two-class method" of computing earnings per share as prescribed in Accounting Standards Codification ("ASC") 260, "Earnings Per Share".

The equivalent Class A common stock applied for computing earnings per share excludes the proportional shares of Biglari Holdings' stock held by the investment partnerships.

The equivalent Class A common stock for the earnings per share calculation during the second quarters of 2021 and 2020 was 323,811 and 349,478 , respectively.

The equivalent Class A common stock for the earnings per share calculation during the first six months of 2021 and 2020 was 322,482 and 346,934 , respectively.

Investments were $ 96,094 and $ 94,861 as of June 30, 2021 and December 31, 2020, respectively.

The equivalent Class A common stock for the earnings per share calculation during the third quarters of 2021 and 2020 was 316,236 and 351,288 , respectively.

The equivalent Class A common stock for the earnings per share calculation during the first nine months of 2021 and 2020 was 320,377 and 348,396 , respectively.

Investments were $ 99,006 and $ 94,861 as of September 30, 2021 and December 31, 2020, respectively.

We classify investments in fixed maturity securities at the acquisition date as either available-for-sale or held-to-maturity and re-evaluate the classification at each balance sheet date.

4 unchanged sentences

However, we consider investment gains and losses, whether realized or unrealized, as non-operating.

Investment gains for the third quarter and first nine months of 2021 were $ 4,534 and $ 6,465 , respectively, which include a $ 5,047 gain on the sale of real estate.

The Company purchased 26 acres of land in Murfreesboro, Tennessee in 2014 for $ 2,145 and sold it in the third quarter of 2021.

Investment gains for the third quarter and first nine months of 2020 were $ 354 and $ 1,863 , respectively.

Investment Partnerships

14 unchanged sentences

Increase in proportionate share of Company stock held 6,185 ( 6,185 )

Partnership interest at June 30, 2021 $ 551,942 $ 240,064 $ 311,878

Partnership interest at September 30, 2021 $ 533,996 $ 260,907 $ 273,089

Investment Partnerships (continued)

Fair Value Company

4 unchanged sentences

Decrease in proportionate share of Company stock held 4,596 ( 4,596 )

Partnership interest at June 30, 2020 $ 461,927 $ 92,798 $ 369,129

Investment Partnerships (continued)

Partnership interest at September 30, 2020 $ 514,599 $ 130,929 $ 383,670

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

September 30,

2021 December 31, 2020

2 unchanged sentences

Carrying value of investment partnerships net of deferred taxes $ 218,657 $ 374,745

The Company’s proportionate share of Company stock held by investment partnerships at cost is $ 391,594 and $ 389,617 at June 30, 2021 and December 31, 2020, respectively, and is recorded as treasury stock.

The Company’s proportionate share of Company stock held by investment partnerships at cost is $ 395,802 and $ 389,617 at September 30, 2021 and December 31, 2020, respectively, and is recorded as treasury stock.

The carrying value of the partnership interest approximates fair value adjusted by the value of held Company stock.

Fair value 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.

Fair value of our partnership interests is assessed according to our proportional ownership interest of the fair value of investments held by the investment partnerships.

Unrealized gains and losses on marketable securities held by the investment partnerships affect our net earnings.

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

Second Quarter First Six Months

Third Quarter First Nine Months

2021 2020 2021 2020

6 unchanged sentences

Gains and losses on the Company’s common stock and the related incentive reallocations are eliminated in our consolidated financial statements.

There were no incentive reallocations from Biglari Holdings to Biglari Capital during the first six months of 2021 and 2020.

There were no incentive reallocations from Biglari Holdings to Biglari Capital during the first nine months of 2021 and 2020.

Investment Partnerships (continued)

Summarized financial information for The Lion Fund, L.P.

3 unchanged sentences

Lion Fund Lion Fund II

Total assets as of June 30, 2021 $ 128,809 $ 574,077

Total liabilities as of June 30, 2021 $ 47 $ 68,450

Revenue for the first six months of 2021 $ 31,297 $ 100,466

Earnings for the first six months of 2021 $ 31,260 $ 100,192

Biglari Holdings' ownership interest as of June 30, 2021 61.3 % 94.0 %

Total assets as of September 30, 2021 $ 132,351 $ 583,989

Total liabilities as of September 30, 2021 $ 1,490 $ 101,956

Revenue for the first nine months of 2021 $ 35,639 $ 94,078

Earnings for the first nine months of 2021 $ 35,584 $ 93,548

Biglari Holdings' ownership interest as of September 30, 2021 62.4 % 93.9 %

Total assets as of December 31, 2020 $ 112,970 $ 566,663

Total liabilities as of December 31, 2020 $ 189 $ 25,453

Revenue for the first 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 %

Revenue for the first nine months of 2020 $ ( 18,941 ) $ ( 119,644 )

Earnings for the first nine months of 2020 $ ( 18,992 ) $ ( 120,849 )

Biglari Holdings' ownership interest as of September 30, 2020 66.2 % 95.3 %

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

1 unchanged sentence

Property and equipment is composed of the following.

September 30,

2021 December 31,

8 unchanged sentences

Property and equipment, net $ 352,822 $ 316,122

Depletion expense related to oil and gas properties was $ 4,551 and $ 6,578 during the first six months of 2021 and 2020, respectively, and is included in depreciation and amortization within the consolidated statement of earnings.

During the first six months of 2021, the Company recorded impairment charges of $ 559 related to closed stores.

The Company recorded impairment charges of $ 14,419 in the first six months of 2020.

Depletion expense related to oil and gas properties was $ 5,875 and $ 9,249 during the first nine months of 2021 and 2020, respectively, and is included in depreciation and amortization within the consolidated statement of earnings.

During the first nine months of 2021, the Company recorded impairment charges of $ 559 related to closed stores.

The Company recorded impairment charges of $ 18,117 in the first nine months of 2020.

The fair value of the long-lived assets was determined based on Level 3 inputs using a discounted cash flow model and quoted prices for the properties.

1 unchanged sentence

Goodwill consists of the excess of the purchase price over the fair value of the net assets acquired in connection with business acquisitions.

Goodwill and Other Intangible Assets (continued)

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

Goodwill at December 31, 2020

Change in foreign exchange rates during the first six months of 2021 ( 21 )

Goodwill at June 30, 2021

Change in foreign exchange rates during the first nine months of 2021 ( 36 )

Goodwill at September 30, 2021

We evaluate goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred.

6 unchanged sentences

We considered the available facts and made qualitative assessments and judgments for what we believed represented reasonably possible outcomes.

No impairment charges for goodwill were recorded in the first six months of 2021 or 2020.

No impairment charges for goodwill were recorded in the first nine months of 2021 or 2020.

Western Sizzlin has experienced a decline in its franchised units for several years.

If Western Sizzlin's franchised units continue to decline, an impairment of its goodwill may be necessary.

Goodwill and Other Intangible Assets (continued)

Other Intangible Assets

3 unchanged sentences

$ 15,876 $ 8,189 $ 24,065

Change in foreign exchange rates during the first six months of 2021 — ( 264 ) ( 264 )

Balance at June 30, 2021

Change in foreign exchange rates during the first nine months of 2021 — ( 446 ) ( 446 )

Balance at September 30, 2021

$ 15,876 $ 7,743 $ 23,619

During the first six months of 2020, the Company recorded impairment charges of $ 3,700 on lease rights related to our international restaurant operations.

During the first nine months of 2020, the Company recorded impairment charges of $ 3,700 on lease rights related to our international restaurant operations.

Fair values were determined using Level 3 inputs and available market data.

1 unchanged sentence

Restaurant operations revenues were as follows.

Second Quarter First Six Months

Third Quarter First Nine Months

2021 2020 2021 2020

7 unchanged sentences

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.

Restaurant Operations Revenues (continued)

Franchise Partner Fees

3 unchanged sentences

An initial franchise fee of ten thousand dollars is recognized when the operator becomes a franchise partner.

The Company recognizes franchise partner fees monthly as underlying restaurant sales occur.

The Company leases or subleases property and equipment to franchisees under lease arrangements.

Both real estate and equipment rental payments are charged to franchisees and are recognized in accordance with ASC 842, "Leases".

During the third quarter of 2021 and 2020, restaurant operations recognized $ 4,277 and $ 1,606 , respectively, in franchise partner fees related to rental fees.

During the nine months ended September 30, 2021, and September 30, 2020, restaurant operations recognized $ 10,910 and $ 3,617 , respectively, in franchise partner fees related to rental fees.

Franchise Royalties and Fees

2 unchanged sentences

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.

Gift card revenue

Other Revenue

Restaurant operations sells gift cards to customers which can be redeemed for retail food sales within our stores.

5 unchanged sentences

Accounts payable and accrued expenses include the following.

September 30,

2021 December 31,

14 unchanged sentences

The Company repaid Steak n Shake's outstanding balance in full on February 19, 2021.

Notes Payable and Lease Obligations (continued)

Lease obligations include the following.

Current portion of lease obligations June 30,

Current portion of lease obligations September 30,

2021 December 31,

9 unchanged sentences

Leased Assets and Lease Commitments

Nature of Leases

The Company operates restaurants that are located on sites owned by us and leased from third parties.

In addition, the Company owns sites and leases sites from third parties that are leased and/or subleased to franchisees.

Company as Lessee

A significant portion of our operating and finance lease portfolio includes restaurant locations.

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

Leased Assets and Lease Commitments (continued)

Total lease cost consists of the following.

Second Quarter First Six Months

Third Quarter First Nine Months

2021 2020 2021 2020

4 unchanged sentences

Total lease costs $ 770 $ 2,511 $ 3,007 $ 9,800

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

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

Leased Assets and Lease Commitments (continued)

Supplemental cash flow information related to leases is as follows.

First Six Months

First Nine Months

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

5 unchanged sentences

Supplemental balance sheet information related to leases is as follows.

September 30,

2021 December 31,

2 unchanged sentences

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

September 30,

Weighted-average remaining lease terms:

4 unchanged sentences

Operating leases 6.9 %

Leased Assets and Lease Commitments (continued)

Maturities of lease liabilities as of June 30, 2021 are as follows.

Maturities of lease liabilities as of September 30, 2021 are as follows.

Year Operating

9 unchanged sentences

Total lease liabilities $ 48,753 $ 7,163

Leased Assets and Lease Commitments (continued)

Company as Lessor

The components of lease income are as follows.

Third Quarter First Nine Months

2021 2020 2021 2020

Operating lease income $ 3,211 $ 1,428 $ 8,471 $ 3,259

Variable lease income 1,370 449 3,375 1,183

Total lease income $ 4,581 $ 1,877 $ 11,846 $ 4,442

The following table displays the Company's future minimum rental receipts for non-cancelable leases and subleases as of September 30, 2021.

Franchise partner leases and subleases are short-term leases and have been excluded from the table.

Operating Leases

Year Subleases Owned Properties

2021 $ 190 $ 62

After 2025 1,916 1,052

Total future minimum receipts $ 4,276 $ 2,105

Accumulated Other Comprehensive Income

Accumulated other comprehensive losses decreased $ 115 and $ 802 during the second quarters of 2021 and 2020, respectively.

During the first six months of 2021, accumulated other comprehensive losses increased by $ 329 and decreased by $ 490 during the first six months of 2020.

As of June 30, 2021 and 2020, the balances in accumulated other comprehensive loss were $ 1,860 and $ 2,320 , respectively.

There were no reclassifications from accumulated other comprehensive income to earnings during the first six months of 2021 and 2020.

All changes in accumulated other comprehensive income were due to foreign currency translation adjustments.

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 2021 and 2020.

Accumulated other comprehensive loss increased $ 49 and decreased $ 344 during the third quarters of 2021 and 2020, respectively.

During the first nine months of 2021, accumulated other comprehensive loss increased by $ 378 and decreased by $ 834 during the first nine months of 2020.

As of September 30, 2021 and 2020, the balances in accumulated other comprehensive loss were $ 1,909 and $ 1,976 , respectively.

There were no reclassifications from accumulated other comprehensive loss to earnings during the first nine months of 2021 and 2020.

All changes in accumulated other comprehensive loss were due to foreign currency translation adjustments.

In determining the quarterly provision for income taxes, the Company used a discrete effective tax rate method based on statutory tax rates for the first nine months of 2021 and 2020.

Our periodic effective income tax rate is affected by the relative mix of pre-tax earnings or losses and underlying income tax rates applicable to the various taxing jurisdictions.

Income tax benefit for the second quarter of 2021 was $ 6,198 compared to an income tax expense of $ 14,764 for the second quarter of 2020.

Income tax expense for the first six months of 2021 was $ 15,818 compared to a benefit of $ 29,066 for the first six months of 2020.

Income tax benefit for the third quarter of 2021 was $ 4,274 compared to an income tax expense of $ 5,617 for the third quarter of 2020.

Income tax expense for the first nine months of 2021 was $ 11,544 compared to a benefit of $ 23,449 for the first nine months of 2020.

The variance in income taxes between 2021 and 2020 is attributable to taxes on income generated by the investment partnerships.

Investment partnership pretax gains were $ 47,575 during the first six months of 2021 compared to pretax losses of $ 116,494 during the first six months of 2020.

Investment partnership pretax gains were $ 27,344 during the first nine months of 2021 compared to pretax losses of $ 89,276 during the first nine months of 2020.

Commitments and Contingencies

1 unchanged sentence

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.

Commitments and Contingencies (continued)

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 alleged 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 alleged claims of breach of fiduciary duty by the members of our Board of Directors.

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 alleged 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.

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.

Fair Value of Financial Assets

18 unchanged sentences

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

Fair Value of Financial Assets (continued)

The Company’s investments in bonds consist of both corporate and government debt.

5 unchanged sentences

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.

As of June 30, 2021 and December 31, 2020, the fair values of financial assets were as follows.

June 30, 2021 December 31, 2020

Fair Value of Financial Assets (continued)

As of September 30, 2021 and December 31, 2020, the fair values of financial assets were as follows.

September 30, 2021 December 31, 2020

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

14 unchanged sentences

The service agreement has a five -year term, effective on October 1, 2017.

The Company paid Biglari Enterprises $ 4,200 in service fees during the first six months of 2021 and 2020.

The Company paid Biglari Enterprises $ 6,300 in service fees during the first nine months of 2021 and 2020.

The service agreement does not alter the hurdle rate connected with the incentive reallocation paid to Biglari Capital Corp.

18 unchanged sentences

The tabular information that follows shows data of our reportable segments reconciled to amounts reflected in the consolidated financial statements.

A disaggregation of our consolidated data for the second quarters and first six months of 2021 and 2020 is presented in the tables that follow.

Second Quarter First Six Months

Business Segment Reporting (continued)

A disaggregation of our consolidated data for the third quarters and first nine months of 2021 and 2020 is presented in the tables that follow.

Third Quarter First Nine Months

2021 2020 2021 2020

12 unchanged sentences

Earnings (Losses) Before Income Taxes

Second Quarter First Six Months

Third Quarter First Nine Months

2021 2020 2021 2020

25 unchanged sentences

All major investment and capital allocation decisions are made for the Company and its subsidiaries by Mr.

As of June 30, 2021, Mr.

As of September 30, 2021, Mr.

Biglari beneficially owns shares of the Company that represent approximately 65.0% of the economic interest and 70.3% of the voting interest.

4 unchanged sentences

Amounts are recorded after deducting income taxes.

Second Quarter First Six Months

Third Quarter First Nine Months

2021 2020 2021 2020

19 unchanged sentences

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

Steak n Shake and Western Sizzlin comprise 588 company-operated and franchise restaurants as of June 30, 2021.

Steak n Shake and Western Sizzlin comprise 581 company-operated and franchise restaurants as of September 30, 2021.

Steak n Shake Western Sizzlin

4 unchanged sentences

Total stores as of December 31, 2020

276 86 194 3 39 598

Corporate stores transitioned (54) 54 — — — —

Net restaurants opened (closed) (1) — (15) — (1) (17)

Total stores as of June 30, 2021 230 131 186 3 38 588

Total stores as of September 30, 2021

221 140 179 3 38 581

Total stores as of December 31, 2019

368 29 213 4 48 662

Corporate stores transitioned (41) 40 1 — — —

Net restaurants opened (closed) (67) — (15) (1) (9) (92)

Total stores as of June 30, 2020 289 51 201 4 40 585

As of June 30, 2021, 49 of the 230 company-operated Steak n Shake stores were temporarily closed.

Total stores as of September 30, 2020

260 69 199 3 39 570

As of September 30, 2021, 42 of the 221 company-operated Steak n Shake stores were temporarily closed.

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

Earnings of our restaurant operations are summarized below.

Second Quarter First Six Months

Third Quarter First Nine Months

2021 2020 2021 2020

26 unchanged sentences

The COVID-19 pandemic has adversely affected our restaurant operations, as our restaurants were required to close their dining rooms during the first quarter of 2020.

The risks and uncertainties resulting from the pandemic may continue to affect our restaurant operations.

The extent of such effects over the long term cannot be reasonably estimated at this time.

The majority of Steak n Shake’s dining rooms remained closed through the end of 2020.

Steak n Shake has been reopening its dining rooms this year, and in doing so has implemented a self-service model.

Because of the economics of the new model, labor costs were 26.8% of net sales in the second quarter of 2021 for reopened units.

The transformation has resulted in higher capital expenditures in 2021 as compared to 2020.

In the first nine months of 2021, Steak n Shake spent $29,708 in capital expenditures related to the conversion of table-service restaurants to self-service restaurants.

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

Net sales for the third quarter and first nine months of 2021 were $41,916 and $146,269, respectively, representing a decrease of $25,701 or 38.0%, and $95,563 or 39.5%, compared to the third quarter and first nine months of 2020, respectively.

The year-over-year decrease in revenue of company-operated restaurants is primarily due to the shift of company units to franchise partner units.

For company-operated units, sales to the end customer are recorded as revenue generated by the Company, but for franchise partner units, only our share of the restaurants’ profits, along with certain fees, are recorded as revenue.

Because we derive most of our revenue from our share of the profits, revenue will continue to decline with each transition of a company-operated unit to a franchise partner unit.

Franchise partner fees were $11,508 during the third quarter of 2021, compared to $6,894 during the third quarter of 2020.

Franchise partner fees were $31,744 during the first nine months of 2021, compared to $14,775 during the first nine months of 2020.

As of September 30, 2021, there were 140 franchise partner units, compared to 69 franchise partner units as of September 30, 2020.

The cost of food during the third quarter and first nine months of 2021 was $13,123, and $43,404, respectively, compared to $19,508, and $70,880 in the third quarter and first nine months of 2020, respectively.

Restaurant operating costs during the third quarter of 2021 were $24,496, compared to $30,451 in the third quarter of 2020.

Restaurant operating costs during the first nine months of 2021 were $71,751, compared to $110,903 in the first nine months of 2020.

The decreases in cost of food and operating costs are mainly attributable to the transitioning of company-operated units to franchise partner units.

The increase in operating costs as a percentage of net sales is mainly attributable to increasing wages.

The Company expects to increase menu prices in the fourth quarter to improve margins.

General and administrative costs during the third quarter and first nine months of 2021 were $9,255 and $27,416, respectively, compared to $12,059 and $30,146 in the third quarter and first nine months of 2020, respectively.

The year-over-year general and administrative costs were lower in 2021 primarily because of legal and professional fees incurred during the third quarter of 2020.

Marketing expenses during the third quarter and first nine months of 2021 were $2,302 and $10,212, respectively, compared to $3,891 and $18,406 during the third quarter and first nine months of 2020, respectively.

Marketing expenses decreased primarily due to the decision to shift to a digital marketing strategy.

Our restaurants recorded an impairment to long-lived assets of $0 and $3,698 in the third quarters of 2021 and 2020, respectively, and $559 and $21,817 in the first nine months of 2021 and 2020, respectively.

The 2021 impairments are primarily attributable to Steak n Shake store closures.

The 2020 impairments were connected to dining room closures during the pandemic.

We view our insurance businesses as possessing two activities:

underwriting and investing.

Underwriting decisions are the responsibility of the unit managers, whereas investing decisions are the responsibility of our Chairman and CEO, Sardar Biglari.

Business units are operated under separate local management.

Biglari Holdings’ insurance operations consist of First Guard and Southern Pioneer.

Underwriting results of our insurance operations are summarized below.

Third Quarter First Nine Months

2021 2020 2021 2020

Underwriting gain attributable to:

First Guard $ 2,832 $ 2,077 $ 7,922 $ 6,953

Southern Pioneer 397 60 1,511 (229)

Pre-tax underwriting gain 3,229 2,137 9,433 6,724

Income tax expense 681 449 1,984 1,412

Net underwriting gain $ 2,548 $ 1,688 $ 7,449 $ 5,312

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

Earnings of our insurance operations are summarized below.

Third Quarter First Nine Months

2021 2020 2021 2020

Premiums written $ 13,901 $ 13,427 $ 41,166 $ 35,590

Insurance losses 6,657 7,419 20,040 18,494

Underwriting expenses 4,015 3,871 11,693 10,372

Pre-tax underwriting gain 3,229 2,137 9,433 6,724

Other income and expenses

Investment income and commissions 646 817 2,033 2,749

Other expenses (33) (284) (68) (822)

Total other income 613 533 1,965 1,927

Earnings before income taxes 3,842 2,670 11,398 8,651

Income tax expense 857 466 2,496 1,832

Contribution to net earnings $ 2,985 $ 2,204 $ 8,902 $ 6,819

Insurance premiums and other on the consolidated statement of earnings includes premiums earned, investment income, other income and commissions.

First Guard is a direct underwriter of commercial truck insurance, selling physical damage and nontrucking liability insurance to truckers.

First Guard’s insurance products are marketed primarily through direct response methods via the internet or by telephone.

First Guard’s cost-efficient direct response marketing methods enable it to be a low-cost insurer.

A summary of First Guard’s underwriting results follows.

Third Quarter First Nine Months

2021 2020 2021 2020

Amount % Amount % Amount % Amount %

Premiums written $ 8,458 100.0 % $ 7,505 100.0 % $ 24,760 100.0 % $ 22,195 100.0 %

Insurance losses 3,935 46.5 % 3,736 49.8 % 11,746 47.4 % 10,268 46.3 %

Underwriting expenses 1,691 20.0 % 1,692 22.5 % 5,092 20.6 % 4,974 22.4 %

Total losses and expenses 5,626 66.5 % 5,428 72.3 % 16,838 68.0 % 15,242 68.7 %

Pre-tax underwriting gain $ 2,832 $ 2,077 $ 7,922 $ 6,953

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

Southern Pioneer

Southern Pioneer underwrites garage liability insurance, commercial property, as well as homeowners and dwelling fire insurance.

The financial results for Southern Pioneer are from the date of acquisition March 9, 2020.

A summary of Southern Pioneer’s underwriting results follows.

Third Quarter First Nine Months

2021 2020 2021 2020

Amount % Amount % Amount % Amount %

Premiums written $ 5,443 100.0 % $ 5,922 100.0 % $ 16,406 100.0 % $ 13,395 100.0 %

Insurance losses 2,722 50.0 % 3,683 62.2 % 8,294 50.6 % 8,226 61.4 %

Underwriting expenses 2,324 42.7 % 2,179 36.8 % 6,601 40.2 % 5,398 40.3 %

Total losses and expenses 5,046 92.7 % 5,862 99.0 % 14,895 90.8 % 13,624 101.7 %

Pre-tax underwriting gain $ 397 $ 60 $ 1,511 $ (229)

Insurance - Investment Income

A summary of net investment income attributable to our insurance operations follows.

Third Quarter First Nine Months

2021 2020 2021 2020

Interest, dividends and other investment income:

First Guard $ 54 $ 75 $ 84 $ 246

Southern Pioneer 141 121 568 821

Pre-tax investment income 195 196 652 1,067

Income tax expense 41 41 137 224

Net investment income $ 154 $ 155 $ 515 $ 843

We consider investment income as a component of our aggregate insurance operating results.

However, we consider investment gains and losses, whether realized or unrealized, as non-operating.

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

Earnings for Southern Oil are summarized below.

Third Quarter First Nine Months

2021 2020 2021 2020

Oil and gas revenue $ 7,353 $ 6,029 $ 24,310 $ 19,554

Oil and gas production costs 2,050 2,171 6,957 6,570

Depreciation, depletion and accretion 1,717 2,804 6,286 9,651

General and administrative expenses 604 462 2,020 1,978

Earnings before income taxes 2,982 592 9,047 1,355

Income tax expense 657 203 2,031 77

Contribution to net earnings $ 2,325 $ 389 $ 7,016 $ 1,278

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

The COVID-19 pandemic caused oil demand to significantly decrease in early 2020, creating oversupplied markets that resulted in lower commodity prices and margins.

However, crude oil prices increased in mid-2020 in response to the lifting of COVID-19 restrictions.

Media and Licensing

Maxim's business lies principally in media and licensing.

Earnings of our media and licensing operations are summarized below.

Third Quarter First Nine Months

2021 2020 2021 2020

Media and licensing revenue $ 863 $ 1,719 $ 2,695 $ 3,209

Media and licensing costs 880 548 1,749 1,491

General and administrative expenses 39 21 79 113

Earnings before income taxes (56) 1,150 867 1,605

Income tax expense (benefit) (13) 265 205 369

Contribution to net earnings $ (43) $ 885 $ 662 $ 1,236

We acquired Maxim with the idea of transforming its business model.

The magazine developed the Maxim brand, a franchise we are utilizing to generate nonmagazine revenue, notably through licensing, a cash-generating business related to consumer products, services, and events.

Investment Gains and Investment Partnership Gains

Investment gains net of tax for the third quarter and first nine months of 2021 were $3,390 and $4,896, respectively.

Investment gains net of tax were $276 and $1,468 during the third quarter and first nine months of 2020, respectively.

Investment gains during the third quarter of 2021 included a gain from the sale of real estate of $3,785, net of tax.

Dividends earned on investments are reported as other income by our insurance companies.

We consider investment income as a component of our aggregate insurance operating results.

However, we consider investment gains and losses, whether realized or unrealized, as non-operating.

Earnings (loss) from our investments in partnerships are summarized below.

Third Quarter First Nine Months

2021 2020 2021 2020

Investment partnership gains (losses) $ (20,231) $ 27,218 $ 27,344 $ (89,276)

Tax expense (benefit) (4,946) 6,163 6,175 (21,337)

Contribution to net earnings $ (15,285) $ 21,055 $ 21,169 $ (67,939)

Investment partnership gains include gains/losses from changes in market values of underlying investments and dividends earned by the partnerships.

Dividend income has a lower effective tax rate than income from capital gains.

Changes in the market values of investments can be highly volatile.

The investment partnerships hold the Company’s common stock as investments.

The Company’s pro-rata share of its common stock held by the investment partnerships is recorded as treasury stock even though these shares are legally outstanding.

Gains and losses on Company common stock included in the earnings of the partnerships are eliminated.

Investments affect our reported quarterly earnings based on their carrying value.

We do not regard the quarterly or annual fluctuations in our investments to be meaningful in understanding the operating results of our businesses.

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

Interest Expense

The Company’s interest expense is summarized below.

Third Quarter First Nine Months

2021 2020 2021 2020

Interest expense on notes payable $ — $ 2,150 $ 1,121 $ 6,973

Tax benefit — 538 280 1,754

Interest expense net of tax $ — $ 1,612 $ 841 $ 5,219

Steak n Shake’s term loan was scheduled to mature on March 19, 2021.

As of December 31, 2020, $152,506 was outstanding.

The Company repaid Steak n Shake's outstanding balance in full on February 19, 2021.

Corporate and Other

Corporate expenses exclude the activities in the restaurant, media and licensing, insurance, and oil and gas businesses.

Corporate net losses during the third quarter and first nine months of 2021 were relatively flat compared to the same period during 2020.

Income tax benefit for the third quarter of 2021 was $4,274 compared to an income tax expense of $5,617 for the third quarter of 2020.

Income tax expense for the first nine months of 2021 was $11,544 compared to a benefit of $23,449 for the first nine months of 2020.

The variance in income taxes between 2021 and 2020 is attributable to taxes on income generated by the investment partnerships.

Investment partnership pretax gains were $27,344 during the first nine months of 2021 compared to pretax losses of $89,276 during the first nine months of 2020.

Financial Condition

Consolidated cash and investments are summarized below.

September 30,

2021 December 31,

Cash and cash equivalents $ 27,795 $ 24,503

Investments 99,006 94,861

Fair value of interest in investment partnerships 533,996 590,926

Total cash and investments 660,797 710,290

portion of Company stock held by investment partnerships (260,907) (171,376)

Carrying value of cash and investments on balance sheet $ 399,890 $ 538,914

Our balance sheet continues to maintain significant liquidity.

Consolidated cash flow activities are summarized below.

First Nine Months

Net cash provided by operating activities $ 211,245 $ 106,367

Net cash used in investing activities (55,782) (112,081)

Net cash used in financing activities (154,586) (26,381)

Effect of exchange rate changes on cash (85) (13)

Increase (decrease) in cash, cash equivalents and restricted cash $ 792 $ (32,108)

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements